Tuesday May 24, 2022

I don’t have a problem with the bank

The panic in the financial market caused by the collapse of the hurricane market due to poor mortgages in the US has been affecting capital markets for several weeks. The end of the bag is in sight. Hroz problems and eskm bankm?

Large US banks such as Citigroup and Merrill Lynch have reported losses of several billion dollars in recent quarters, as well as billions in depreciation related to bad investments. If the crisis does not affect only the USA, this is proved by the example of the Swiss bank UBS, which reported losses of around $ 4.5 billion and announced depreciation in the total amount of $ 14.5 billion.

Bude h
As if it was not enough that practically the entire banking sector is under enormous pressure from the sellers of securities, last week saw a further saw. The French bank Socit Gnrale has reported an “embezzlement” of an incredible 4.8 billion euros by its only employee, who has managed to bypass internal control mechanisms and open risk positions worth several billion euros (!). The situation is great, although without the current market situation, it would probably have been discussed much later.

The pleading guilty and his innocent of fraud have also inflicted a great deal of money on the bank itself and the credibility and ability of its management, not to mention the decline of their actions (they have lost more than 20% since the fraud was reported). In addition, there is speculation that the bank is just trying to cover up its own losses, which it wants to throw on the head of a single difficult bernka.

The way in which it was initially announced, and the fact that several people led it before its announcement (some of SG’s problems were talked about even a week in advance), has raised various doubts and speculations. In any case, the situation around the bank certainly does not contribute to the better image of the financial sector in the eyes of investors. Some investors sell, others, on the other hand, insist that the final declines will stop and they will be able to buy at “super prices”.

The CDO did not request a curse
But it seems that the cursed collateralized dept obligations (much more known as the CDO, sometimes referred to as collateralised debt bonds) go far from the last word. I don’t want to be one of those who cause panic, and it’s true that I tried to be optimistic. But the problem is not over. At least the financial sector goes, it seems, far from the bottom.

Last week, there was talk of the problems of the so-called monoline, their problems may go deeper than the already well-known uprising of banking institutions involved in the trade in tools taken on subprime mortgages in the USA. These highly specialized insurance companies deal with insurance bond issues. The high rating of these companies (based on the level of AAA, which helps them to hit the first of their specialization) allows to obtain a high rating by a bond issuer company, which does not have such a high rating, which is a pin dispute or tax levy.

but the decision to take the CDO turned out to be the right step. The crisis in the subprime mortgage market, which led to the lower rating of CDOs, caused these binders no losses, which today warm their high ratings. One of the smaller monolines, ACA Capital Holdings, which insured “mountain” bonds, collapsed due to losses from the CDO and the A j rating was downgraded to CCC, with its shares falling by 93%.

And so on the other freckles. The rating agency Fitch u threatened to downgrade Ambac, MBIA and the FGIC group if it did not pay a billion dollars (Amac even lost one, MBIA reported a record loss of $ 2.3 billion in the last quarter of 2007 and the downgrade is in sight). The downgrade of monoline-linked bonds will also mean the downgrade of bonds linked by them and a major problem for investors, who can only hold the highest rated bonds in their portfolios. This will then lead to large sales associated with falling prices and the consequent loss of trillions of dollars worth of securities. The situation will not be helped or reported by S&P, which increased the estimate of losses from the CDO to 19% from the original 14%. This will mean further losses due to the downgrade rating of these derivative instruments.

you at www.investujeme.cz

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