EuroControl Reports That Half Of Tuesday's Flights Still Will Be Grounded, 95,000 Flights Cancelled So Far, $1 Billion In LossesSubmitted by Tyler Durden on 04/20/2010 - 10:01
From EuroControl: "EUROCONTROL expects 14,000 flights to take place today in European airspace, representing half of scheduled air traffic. On a normal Tuesday, we would expect between 27,000 and 28,000. By the end of today, we expect that more than 95,000 flights in total will have been cancelled since Thursday 15 April"
The Beginning Of The End For Ernst & Young? Auditor Back In Spotlight As Lehman Creditors Seek ProbeSubmitted by Tyler Durden on 04/20/2010 - 09:22
With the spate of corruption news out of Wall Street and seismic updates out of Iceland dominating headlines in the past month, everybody forgot about the culprit in the Lehman Repo 105 fraud. Well, almost everybody - the Lehman unsecured creditor committee, or basically the post reorganized equity estate, has decided to seek a probe of Ernst & Young to see "if the estate may have causes of action against the auditor arising out of Lehman's use of a the controversial accounting technique, Repo 105" reports Reuters.
From the call. The firm also points out that its total losses on Abacus were in fact over $100 million, not $90 million as previously noted. And it still hammers home the idea that it had "skin in the game" - how about the whole AIG bailout that resulted as a function of Goldman hedging its general CDO exposure with the insurer via CDS?
The hedge fund which was in the Paulson long-equity, short-everything else position with Merrill on many other Abacus comparable CDO transactions speaks out, defends itself from what will likely be a flurry of SEC action in the immediate future: "Our Mortgage CDO investment strategy was based on a market neutral statistical framework which specifically did not incorporate a fundamental view regarding the direction of the housing or subprime mortgage markets." - Magnetar
- An economy of liars (WSJ)
- Goldman Sachs alum receive threatening phone calls from their Alma Mater (Huffington Post)
- Sack Goldmans! UK Ministers urged to bar bank from government contracts (Independent)
- Another case of quant espionage: ex-Soc Gen trader accused of stealing code (Bloomberg)
- Goldman taps ex-White House counsel for help (Reuters)
- Goldman's London unit face formal UK probe (Bloomberg)
- Roger Altman: Obama's disastrous debt is Obama's biggest test (FT)
- Fannie and Freddie amnesia (WSJ)
From the conference call, according to Lloyd Blankfein, Goldman is just a glorified Craig's List. Seeing how there is a slight valuation mismatch between the two, we believe a Long CL Short GS pair trade is in order.
GOLDMAN'S BLANKFEIN: ROLE JUST TO BRING TOGETHER MKT PARTCPNTS
GOLDMAN'S BLANKFEIN: WOULD NEVER CONDONE INAPPROP BEHAVIOR
GOLDMAN'S BLANKFEIN: WOULD NEVER INTENTIONALLY MISLEAD ANYONE
Also, the firm refuses to disclose if there are other Wells Notices outstanding. We are keeping a close eye on Mr. Jonathan Egol's Finra record: we were amused that the U-4 of Jonathan Tourre was finally updated.
Greece today managed to place €1.95 billion in 13 month Bills, slightly more than the €1.5 billion planned. The number is trivial as today Greece sees an outflow of €8.22 billion in bond redemptions to be promptly followed by €1.585 billion in Bill redemptions on the 23rd. What is non-trivial is the interest rate this 3 month Bill came at, which was at 3.65%, more than double the 1.67% yield when the country issued 3 month Bills last on January 19. Compare that with Germany's 3.11% rate on the 10 Year. The bid to cover on the latest auction was 4.61 due to the ridiculously high interest rate. The Greek PDMA debt chief Petros Christodoulou told Market News that he is "very pleased indeed" about the auction. We will see how pleased he is when he has to raise something more than a 6 month tenor.
- Asian stocks rebound on SEC's split vote on Goldman, Economy.
- Saudis tightening Chinese energy ties to move away from dependence on US.
- UK inflation rate rises to 3.4%
- Yen falls versus higher-yielding currencies on recovery signs.
- Amylin reported a narrowed Q1 loss of $38.2M as costs dropped. Revs fell 3.5% to $174.1M.
- Arch Coal sees metallurgical-coal sales tripling on demand from steelmakers.
- BofA-Merrill rank first on Credit Suisse's tally for CDO `Litigation Risk'
RANsquawk 20th April European Morning Briefing - Stocks, Bonds, FX
The Latest Reincarnation Of Repo 105 - With End Of Quarter "Deleveraging" Over, Primary Dealer Repoable Assets SurgeSubmitted by Tyler Durden on 04/20/2010 - 01:16
One of the take home lessons from the Lehman Repo 105 scam is that Primary Dealers will do everything in their power to dispose of assets in any way possible at end of quarter time in order to make their leverage ratios palatable to investors and rating agencies. A week ago, taking a hint from the WSJ, we observed how for the week ended March 31, total Primary Dealer assets plunged by $34 billion in just one week: from March 24 to March 31. For this EOQ asset window dressing hypothesis to be confirmed, we needed to see a corresponding spike in asset in the week immediately following March 31. Sure enough, using Treasury data of Primary Dealer holdings, we observe precisely that, and then some. In the week ended April 7, total Primary Dealer assets exploded by $53 billion to the highest level seen in 2010, or $300 billion, a stunning 21% increase in total assets in just one week! This is also the highest total level of PD asset holdings since June 10, 2009. What do primary dealers do with these assets? They either repo them out back to the Fed directly, or via the Tri-Party Repo System, or via some other off balance sheet conduit, using the cash proceeds to go elbow deep in risky assets and purchase every stock imaginable (having given the impression the week before that they are all prudent fiduciaries who don't "gamble" with other people's money). If you were wondering where the surge in buying interest came from in the first few days of April, wonder no more. Furthermore, as PDs would be careful about negative carry on the repo rates, it would be expected that the one security they would buy the most of, would be T-Bills with their next to nothing interest rates... Which is exactly what happened: PD T-Bill holdings surged from a mere $12.6 billion at March 31 to $44.4 billion on April 7. PDs no longer need Repo 105 - they do all their EOQ window dressing directly in the open market.
PIMCO has released the March statistics of its massive Total Return Fund, which as od March 31 has grown to a massive $220 billion, an increase of $5 billion from the $214.3 billion in February. The YTD performance on the TRF is now 2.97%, and just like everything else in America has a short effective duration of just 4.81. It is stunning that one fund now has more in AUM than most countries generate as GDP. And this excludes the other $800 billion or so that the Bill Gross firm is managing in other vehicles. In terms of composition, there was little change in actual holdings: Government Relates Securities declined slightly to 33% from 35%, mortgage securities was virtually unchanged at 16%, the same as IG Corporates; High Yield is also a tiny 3% of AUM. The firm's rapid expansion in Non US-denominated developed countries has plateaued and declined by 1% to 18% in March. And cash increased marginally from just 2% in February to 5% in March. What is more interesting is the portfolio composition by maturity: Gross is starting to reach into the longer-dated side of the curve. The firm's holding of debt 3 year and longer are now the biggest since June 2009. The firm was not short any particular tenor: the last time it was short was in 2008 when Gross was shorting the 20+ year bucket.
Now that the attention of the investment community once again turns to regulatory risk, analysts will instead focus on who may be most at risk for comparable CDO-related overtures by the SEC. The table below presents CDO league tables for top CDO underwriters in the 2006 and 2007 period. By and far Merrill Lynch and Citi appear to be most at risk (from Credit Suisse). In a separate report Credit Suisse confirmed that based on deals with "salient" characteristics to Abacus, the firm once again sees Merrill/BofA as the most likely to suffer the wrath of the SEC. The other two firms that fill out the top three list for the 2005-2008 period with "comparable deals" are UBS AG which ranked second with $15.8 billion, and JPMorgan Chase & Co. was third with $9.9 billion, primarily due to its purchase of Bear which despite being one of the biggest underwriters of CDO, passed on the Paulson proposed deal structure citing "ethical concerns", as we reported yesterday.
Judge Appointed In Goldman Case, Barbara Jones, Is A Racketeering/Organized Crime Expert And A Bill Clinton NomineeSubmitted by Tyler Durden on 04/19/2010 - 20:09
The recent legal case against Ken Lewis and Bank of America proved just how critical the Judge selection in these SEC-spearheaded cases can be. The case of the Securities and Exchange Commission v. Goldman Sachs & Co. et al (Southern New York District, 10-3229), has been assigned to Judge Barbara S. Jones. The Temple University JD grad's career revolves around Organized Crime & Racketeering (two specialties that will be particularly appropriate); she also served as Assistant US attorney for the NY Southern from 1977 to 1987. Most importantly, she was assigned to the Southern District Court in 1995 on the nomination of one William Jefferson Clinton, following the recommendation of Daniel Patrick Moynihan, both certainly not of Republican persuasion. Following today's disclosure that the SEC vote was executed along party lines with Democrats voting against the squid, it is not too surprising that Judge Jones seems to have Democratic roots. We are currently tracking down Judge Jones' donation record. We don't think we will be surprised.
Oil prices opened lower on Monday, and they ultimately ended well lower on Monday, as traders continued to sell oil. Equities started the day lower, as well, as selling from Friday held over. But, while oil could not raise itself, equities were able to advance from their early lows to finish the day with gains. The stock market proved, as it has before, that lawsuits and courts are no match for profits, and Monday’s gains in equities came as the result of very strong (better than expected) first quarter profits from Citigroup. After testing levels beneath 11,000 early on Monday, the DJIA finished the day at 11,092.05, up 73.39 points. That took away one source of selling in oil, but it could not negate the other one, which came from the ongoing Icelandic volcano?related grounding of trans?Atlantic air travel. While jet fuel is hardly one of the glamour products processed from crude oil, it does account for 7.37% of the refined barrel. That is enough to make a difference in this market.
Spreads ended the day modestly wider, underperforming stocks from Friday's close, as despite notable swings intraday, credit markets tracked equity markets almost perfectly, ending at the day's best levels. HY outperformed IG by the close (with its higher beta to stocks) but single-name breadth in credit was very negative.