After Standard & Poor’s cut Greece debt rating three steps to BB+, or junk status, the Greek bondholders may recover between 30 to 50 percent of their investments if the nation defaults, triggering a total loss of approximately EUR200 billion. The first ever European Union country downgrade to below-investment grade has pushed Greece’s two-year bond yields by 492 basis points to 23.9 percent from 4.6 percent a month ago. Credit-default swaps (CDS) on Greek government bonds climbed this morning to 901 basis points. After Standard & Poor’s cut Portugal debt rating two notches to A-, the yields on Portugal’s two-year notes jumped 103 basis points to 4.95 percent and the CDS on the nation’s debt went up 95 basis points to 4.06 percent. According to a budget spokesman from Germany’s Free Democratic Party, Greece might need to leave the Eurozone temporarily, whereas Marc Faber has advised ECB to kick-out Greece from the EU-16 zone altogether. Continue reading ‘Slaughtered PIIGS’
Monthly Archive for April, 2010
Tuesday, Goldman Sachs [GS] reported the first quarter results, with net revenues of $12.8 billion, net earnings of $3.5 billion and earnings per share (EPS) at $5.59. Investment banking produced net revenues of $1.2 billion, while the trading business recorded stellar results with net revenues of $10.3 billion. Commenting on the recent SEC lawsuit, Lloyd Blankfein – Goldman Sachs CEO, claimed that the most profitable investment bank in Wall Street history had no economic incentives for the Abacus 2007 CDO deal to fail, since GS lost more than $100 million on the transaction. Moreover, we have learned that SEC decision was a 3-2 split along the party line: 3 Democrats against 2 Republicans. Unfortunately, there is nothing new under the sun in Washington. Continue reading ‘Believe It Or Not’
Goldman Sachs [GS] is to Wall Street what Ferrari is to Formula One. Last Friday, the investment bank powerhouse was accused of securities fraud in a civil lawsuit filed by the Securities and Exchange Commission (SEC). According to the complaint, in February 2007, Goldman created a Collateralized Debt Obligation (CDO) labeled Abacus 2007-AC1, at the request of John Paulson, a hedge fund manager who earned an estimated $3.7 billion in 2007 by betting against the housing bubble. As per the official statement “Goldman wrongly permitted a client to heavily influence which mortgage securities to include in an investment portfolio”. The SEC also sued Fabrice Tourre, a Goldman Sachs VP who was principally responsible for structuring the CDO transaction and for marketing the deal across the investors. Continue reading ‘SEC vs. Goldman Sachs’
It is no secret – most Wall Street bankers love the world of sports. It is all about the greatness of a fierce competition, the adrenaline rush, the utmost display of unique array of skills and plenty of drama. Last week I witnessed one of the most exciting sporting events ever: 2010 Masters Golf Tournament. Hosted by Augusta – Georgia, the tournament – arguably the biggest golf event of the year, has the same premiere status held by Wimbledon amongst the tennis Grand Slam events. This year, the PGA tour has started with the top two golf players facing serious but opposite personal life problems. On one side, Tiger Woods – a four-time Masters champion – has not played a minute of golf since his November famous sex scandal that made him a regular in tabloids. On the other side, Phil Mickelson – a two-time Masters champion – left the tour 11 months ago to take care of his wife, after she was diagnosed with breast cancer (shortly afterward, his mother was diagnosed as well). Continue reading ‘(Phil)ing Tigeresque’
At a hearing last week in Washington before the Financial Crisis Inquiry Commission (FCIC), former Citigroup CEO Charles Prince claimed that he was not aware of the mortgage-related securities that pushed the financial giant on the brink of total collapse. In addition to that, he added that nobody could have predicted that the super-senior tranches of the Collateralized Debt Obligations (CDO) would lose so much money, and the Chief Risk Officer (CRO) and senior traders did not understand the risks the bank took on. Unbelievably, he strongly defended its employees, declaring that Citigroup’s risk management group was among the best on Wall Street. His ultimate explanation stated that the bankers relied excessively on statistical models that could not predict the potential losses and the depth of the crisis. Though Charles Prince was sacked in November 2007, in the same quarter when the world’s biggest bank reported a then-record $9.8 billion loss, he received a severance package worth $40 million. Continue reading ‘CEO Wall Of Shame (II)’
As we recall, the credit markets had an exceptionally difficult year in 2008, when risk appetite declined, prices collapsed and yields rose dramatically. High-yield, or junk, debt is rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s. These days, Goldman Sachs is recommending staying investing in high-yield corporate bonds, especially BB and B bonds, and taking profits in the CCC papers. Over the last 12 months, BB bonds have returned over 39 percent, underperforming the CCC tier by 66 percentage points. The Merrill Lynch US High Yield Master II index gained almost 5 percent this year, following a 57.5 percent return in 2009 while debt graded in the CCC tier and below has more than doubled in the past year. Leveraged loan prices climbed to 91.9 cents on the dollar, the highest since June 2008, while the CDX HY BB Index, a credit-default-swaps benchmark for 34 BB-rated US corporations, rose to $108.20. Continue reading ‘Back Into Junk Bonds’
The Asian crisis of 1997, the failure of Long Term Capital Management and Russia’s debt default in 1998 send the crude oil price under the $10 a barrel. Since the beginning of the century, the global demand grew by 3.9% per year, while oil supply struggled to keep pace with demand. There were few major changes in the global oil market (i.e., non-OPEC supply growth slowed, OPEC’s spare capacity shrank, and OECD inventories fell) that pushed the oil price at $100 a barrel, in January 2008. Amazingly, at the beginning of July 2008, oil reached a record high of $147 a barrel. During 2008, the price of energy rose nearly 50%, than it collapsed by 74% during the fourth quarter. Trying to elucidate the meteoric trajectory, traders, analysts, and media talking heads came up with an endless chain of esoteric explanations. Continue reading ‘The Black Gold Rush’
The Beginning Of The End
Last Monday, Arizona lawmakers approved a comprehensive immigration bill aimed at fighting the illegal border crossing from Mexico, despite massive accusations of potential practices that could lead to racial profiling. Senator Al Melvin told the press that “this bill goes a long way to bringing law and order” to a state with an estimated number of 460,000 illegal immigrants and the nation’s busiest border crossing point. Prior to this bill, Arizona enacted a law in 2005 making human smuggling a crime and in 2007 it prohibited employers from hiring undocumented workers. This new bill would make it a state crime for people to not have an alien registration document and it would give police the right to question people about their immigration status. Continue reading ‘The Beginning Of The End’