rajesh purohit / blog

Barclays selling trouble making assets? Not really. Here it is Barclays is spinning off $12.3bn (£7.47bn) of troublesome assets to a fund based in the Cayman Islands and run by two senior former employees of its Barclays Capital investment management arm. The bank is lending Protium, the newly created fund, $12.6bn to finance the deal, which is also being financed with $450m from the fund's partners. Loss making assets are sold to ex-employees. This is great news. But lending to same people for these troubled assets isn’t this investing in troubled assets? What Barclays want to achieve here? Are they trying to save some bucks over tax or trying to offload their own bed assets but in turn gaining “new” business by lending money to its bed asset buyers? Such types of banking tactics made me thing that economy is far from recovery…

It’s not fare to blame all on US banks for the credit mess created all over world. Isn’t it? European banks too should share some responsibilities for the credit crunch problems. To start with US banks are blaming European counterpart for hoarding cash and not giving fresh loans to them. But do they have cash to give others in first place? Remember ‘not to be a donor if you are bleeding’ Here is what Bloomberg data says - RBS, Barclays, Lloyds TSB Group Plc and the U.K.'s three other biggest banks need to repay as much as 54 billion pounds of debt by the end of March 2009 as par the reports on Bloomberg. The total, which includes bonds, loans and commercial paper, is triple the debt repaid in the same period a year earlier. RBS has about 11.5 billion pounds of obligations coming due in the next six months, while Barclays has 15.9 billion pounds maturing, according to data compiled by Bloomberg. Before going to press, RBS and Barclays are at doorsteps of Chancellor of the Exchequer ...

So ex-bankers (from Lehman) are busy ringing their lawyers inquiring their options after knowing they will be getting nothing but 800£ salary (way lower than minimum wedges defined by government). The 750 Lehman Brothers Holdings Inc. U.K. staff that lost jobs yesterday are guaranteed 800 pounds ($1,426) under law and must line up with other creditors if they hope to get any of their discretionary bonus. Discretionary bonus is not guaranteed. I feel they should not waste their inclusive minutes (and precious savings) talking to lawyers. The report that Lehman, Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns Cos. paid about $50 billion in salaries, benefits and bonuses in 2007. The bonus portion, estimated at 60 percent of the total, rose to $29.8 billion from $26.1 billion. Wonder why this was not analyzed by free press earlier at start of the credit crunch. With that much amount of money, employees could have bought 2-3 Bear Stern themselves.

Wachovia, the fourth-largest US bank, is being bought by larger rival Citigroup in a rescue deal backed by US authorities. Under the deal, Citigroup will absorb up to $42bn (£23bn) of Wachovia losses. US authorities said the decision to back the sale had been made "under extraordinary circumstances". Citigroup is taking on $312bn of Wachovia loans. Any debts on these loans above the $42bn Citigroup will absorb will be taken on by the FDIC in return for $12bn in Citigroup stock and other share options.

In line with my earlier post ( Are we done yet? ) last weekend saw 3 big announcements in Europe . Bradford and Bignley , UK ’s biggest mortgage provider to buy-to-let and self-certified buyers, had to be rescued by UK government or Tax payers which ever way you want to look at it. Across English Channel , things were not quite good though. Germany (along with some private players) had to bail out Hypo Real Estate Holding . HREH is Germany ’s second biggest real-estate lender. It took three countries ( Netherlands , Belgium and Luxembourg ) to bail out Fortis (11.2 billion Euro). The deal will see Belgium contribute 4.7bn euros (£3.7bn), the Netherlands 4bn Euros (£3.2bn) and Luxembourg 2.5bn Euros (£2bn).

..I want to be a banker now. I studied Engineering and computer technology instead of commerce and economics... what a waste of time and money. Read it here and you know why I'm saying this. A para from bloomberg Wall Street firms have shared profits liberally with employees. The five biggest -- Goldman, Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns -- paid their 185,687 employees $66 billion in 2007, as problems with subprime mortgages mounted, including about $39 billion in bonuses. That amounts to average pay of $353,089 per employee, including an average bonus of $211,849. The five firms had combined net income of $93 billion during the five years through 2007.

Does it sound familiar? I smells something fishy when Bush insists that he is doing right thing for the world and congress and others do not have to worry/think about the solution he is proposing. Here are some of my observations.. Bush on Iraq Jan 2002 : Bush said "Time is not on our side," and identified Iraq as axis of evil. Sept 2002 : Bush insists that Iraq has WMD and is ‘Greater threat to world as we know’ Sept-Oct 2002: Despite finding from UN that no chemical or nuclear warheads exists on Iraqi soil Bush pushed congress to vote for military action March 2003 – Iraq invasion and US economy boom starts … Bush on credit crunch 2002 to 2004 American banks lend billions of dollars of mortgages to people on low incomes - many of whom are in no position to pay back the loans. August 2007 Higher borrowing costs start to impact on the US housing market and the property boom starts to unwind. Building rates drop sharply to decade lows and prices also start to come down. Defaul...

It doesn't look like so. First of all who is responsible for all these mess? I personally will blame on so called 'risk managers' at investment banks and hedge funds. Fall of overinflated property market was inevitable and was visible at the start of 2007 itself. These institutes than tried to make their losses from commodity market and the recent bull run on commodities prove the point. When food riots started all over world they had to stop inflating wheat, rice, corn and oil prices. Now they are looking at already devalued dollar and are trying to 'hedge' it against rising Euro!! There are hedge funds which are reeling under pressure from redemptions ( read it here ). Not sure how hedge fund will survive when market does not allow Short Selling and there are talks about curbing speculation in commodity market. The European bank futures look gloom when we talk about 'what if' situation like Lehman or AIG and who will be responsible to bail them out ( read ...

After a few weeks of trying to stand tough in the face of demands for a wholesale rescue, Hank Paulson apparently couldn't take it anymore. So now we'll have the biggest bailout in history, including: A huge RTC-like government garbage can that banks can throw all their toxic balance-sheet waste into. (This time, the transfer will be made before they go bankrupt, unlike the case with the first RTC) A temporary ban on shortselling. (With the unfortunate implication that shorts are the cause of all this) A federal guarantee on money-market accounts. (Including non-recourse loans to banks to buy high-quality commercial paper and meet money-market obligations.) Not surprisingly, the market's up huge on this news. The moves should head off a run on money-market funds, restore liquidity to the financial system, and, as bank analyst Tom Brown put it on TechTicker this morning, create a general "time out" for the panic to recede. So what are the costs? Almost certain...

Robert Peston Ken Lewis, the chief executive of Bank of America, said yesterday that "I don't know of a major bank that doesn't have some significant exposure to AIG". So AIG's need to raise billions in new capital to shore itself up has sent shockwaves through global markets and helped to undermined the share prices of many banks. But how exactly are banks "exposed" to AIG? Light is shed by an insightful bit of research by Sandy Chen of Panmure Gordon. He has found the following paragraph in AIG's US regulatory filing: "Approximately $307bn (consisting of corporate loans and prime residential mortgages) of the $441bn in notional exposure of AIGFP's super senior credit default swap portfolio as of June 30, 2008 represented derivatives written for financial institutions, principally in Europe, for the purpose of providing regulatory capital relief rather than risk mitigation. In exchange for a minimum guaranteed fee, the counterparties receiv...