[Home]  [Headlines]  [Latest Articles]  [Latest Comments]  [Post]  [Mail]  [Sign-in]  [Setup]  [Help]  [Register] 

"The 2nd Impeachment: Trump’s Popularity Still Scares Them to Death"

"President Badass"

"Jasmine Crockett's Train Wreck Interview Was a Disaster"

"How Israel Used Spies, Smuggled Drones and AI to Stun and Hobble Iran"

There hasn’T been ... a single updaTe To This siTe --- since I joined.

"This Is Not What Authoritarianism Looks Like"

America Erupts… ICE Raids Takeover The Streets

AC/DC- Riff Raff + Go Down [VH1 Uncut, July 5, 1996]

Why is Peter Schiff calling Bitcoin a ‘giant cult’ and how does this impact market sentiment?

Esso Your Butt Buddy Horseshit jacks off to that shit

"The Addled Activist Mind"

"Don’t Stop with Harvard"

"Does the Biden Cover-Up Have Two Layers?"

"Pete Rose, 'Shoeless' Joe Reinstated by MLB, Eligible for HOF"

"'Major Breakthrough': Here Are the Details on the China Trade Deal"

Freepers Still Love war

Parody ... Jump / Trump --- van Halen jump

"The Democrat Meltdown Continues"

"Yes, We Need Deportations Without Due Process"

"Trump's Tariff Play Smart, Strategic, Working"

"Leftists Make Desperate Attempt to Discredit Photo of Abrego Garcia's MS-13 Tattoos. Here Are Receipts"

"Trump Administration Freezes $2 Billion After Harvard Refuses to Meet Demands"on After Harvard Refuses to Meet Demands

"Doctors Committing Insurance Fraud to Conceal Trans Procedures, Texas Children’s Whistleblower Testifies"

"Left Using '8647' Symbol for Violence Against Trump, Musk"

KawasakiÂ’s new rideable robohorse is straight out of a sci-fi novel

"Trade should work for America, not rule it"

"The Stakes Couldn’t Be Higher in Wisconsin’s Supreme Court Race – What’s at Risk for the GOP"

"How Trump caught big-government fans in their own trap"

‘Are You Prepared for Violence?’

Greek Orthodox Archbishop gives President Trump a Cross, tells him "Make America Invincible"

"Trump signs executive order eliminating the Department of Education!!!"

"If AOC Is the Democratic Future, the Party Is Even Worse Off Than We Think"

"Ending EPA Overreach"

Closest Look Ever at How Pyramids Were Built

Moment the SpaceX crew Meets Stranded ISS Crew

The Exodus Pharaoh EXPLAINED!

Did the Israelites Really Cross the Red Sea? Stunning Evidence of the Location of Red Sea Crossing!

Are we experiencing a Triumph of Orthodoxy?

Judge Napolitano with Konstantin Malofeev (Moscow, Russia)

"Trump Administration Cancels Most USAID Programs, Folds Others into State Department"

Introducing Manus: The General AI Agent

"Chinese Spies in Our Military? Straight to Jail"

Any suggestion that the USA and NATO are "Helping" or have ever helped Ukraine needs to be shot down instantly

"Real problem with the Palestinians: Nobody wants them"

ACDC & The Rolling Stones - Rock Me Baby

Magnus Carlsen gives a London System lesson!

"The Democrats Are Suffering Through a Drought of Generational Talent"

7 Tactics Of The Enemy To Weaken Your Faith

Strange And Biblical Events Are Happening

Every year ... BusiesT casino gambling day -- in Las Vegas


Status: Not Logged In; Sign In

International News
See other International News Articles

Title: Deflation Here.
Source: zerohedge
URL Source: http://www.zerohedge.com/news/bank- ... -risk-bear-and-lehman#comments
Published: Sep 22, 2011
Author: Submitted by Tyler Durden
Post Date: 2011-09-22 09:47:31 by mcgowanjm
Keywords: None
Views: 15342
Comments: 40

From Peter Tchir of TF Market Advisors

CDS - Hoarding and Downgrades and Collateral

"Hedge funds will unwind or assign profitable trades, which will force the bank to return collateral to the hedge fund. It is a subtle, but painful, way for a bank to experience a run. It happened with Bear and with Lehman.".....;}

Post Comment   Private Reply   Ignore Thread  


TopPage UpFull ThreadPage DownBottom/Latest

Begin Trace Mode for Comment # 10.

#9. To: mcgowanjm (#0)

Actual title: Bank Of America Is Becoming A "Counterparty Risk" Like Bear And Lehman

Actual article:

CDS - Hoarding and Downgrades and Collateral

I mentioned earlier this month that I expected banks to keep their hedges on for the rest of this month so that they could show the minimum amount of exposure possible on their quarter end statements. With the crisis increasing and spreading, this hasn't changed. So there will continue to be no profit taking from banks on their hedges until at least October. If anything, as the crisis is expanding to more financial institutions both in Europe and here, we will likely see banks adding to their hedges.

Yesterday's downgrade of BAC was potentially problematic for credit markets. I am less concerned about the holding company downgrade. Downgrading the bank to A2 from Aa3 could become problematic. That is the entity most derivative counterparties will face. A2 is still fine, but I suspect many counterparties will be having meetings over the next few days to discuss how comfortable they are facing BAC as a derivative counterparty. It might be wrong, and unnecessary, but it is something that will be occurring. BAC should be doing everything in their power to address this potential risk immediately.

The risk of ratings downgrades to a bank is twofold. On a basic level, it may reduce the flows they see as counterparties prefer to trade with higher rated entities for their derivative trades. That is manageable. The bigger, and far more problematic issue, will be if firms cut their lines to that bank. This would cause banks to unwind or assign existing trades, or to buy protection on the downgraded banks to "hedge their hedge". Protection buying would drive their spread higher (if this was all exchange traded, it wouldn't be an issue). Unwinds could force the bank to raise some cash. Most hedge funds will have one way collateral agreements with banks, so that on any positive mark to market, they are posting collateral to the bank, which the bank can typically use "rehypothecate". Hedge funds will unwind or assign profitable trades, which will force the bank to return collateral to the hedge fund. It is a subtle, but painful, way for a bank to experience a run. It happened with Bear and with Lehman.

The downgrades yesterday were not too bad, but, this is worth watching. If it occurs, it will take some time as bank hedging desks in particular tend to be slow to move or change a counterparty risk limits. Hedge funds have more exciting things to do today than worry too much about how much collateral they have posted at any individual bank, but eventually they will discuss it. Banks should prepare for this. Maybe they can convince counterparties to maintain the status quo, but they shouldn't be fooled into believing the problem isn't there, just because it didn't occur instantly.

With emerging markets also joining the sell-off it is hard to find an asset class that looks particularly cheap, but LCDX in particular is looking interesting. HY16 and LCDX16 have both underperformed the market and even the HYG/JNK etf's. HY16 is down over 10% from its peak. Basically inline with the move in stocks. I don't think we have seen another round of capitulation in the cash bond market and are still riding a wave of outflows, but HY16 seems to offer value. HYG needs to sell off 2 to 3% more to be as interesting. LCDX has been beaten down due to concern about LIBOR remaining low for an extended period. Since many of the loans have LIBOR floors, that isn't as horrible as it seems, and if we are about to take another big leg down in risk assets, the senior secured nature is worth something, and trading at a steep discount to "par", there is actually upside. I just don't see any need to rush into credit. Hedges will remain in place until at least October, the impact of bank downgrades hasn't fully made its way through the system, and there is supply, but I would rather own these assets here than stocks for risk/reward.

How you get "deflation" out of this, when the word doesn't appear on the entire page, is wishful thinking on your part.

Oh, BTW, it doesn't seem like we're in a deflationary period, when I have to pay $4.10 per gallon of regular gas, or go grocery shopping, or pay my utility bill... INFLATION is here, and it's running at ~12%, as the graph shows below (reality is in BLUE, Brian S (bullobama) propaganda in red:

Capitalist Eric  posted on  2011-09-22   11:57:57 ET  (1 image) Reply   Untrace   Trace   Private Reply  


#10. To: Capitalist Eric (#9)

Actual Chart:

www.finviz.com/fut_chart....t=YM&cot=124601;t=YM&p=d1 8500 Dow in a week. Minus whatever the US Treasury thinks it can do. How about another FMOC 'Outlook'...LMFAO...8D

mcgowanjm  posted on  2011-09-22   12:19:11 ET  Reply   Untrace   Trace   Private Reply  


Replies to Comment # 10.

#11. To: mcgowanjm (#10)

A friend's whiz son predicts $65 oil soon.

Fred Mertz  posted on  2011-09-22 12:21:46 ET  Reply   Untrace   Trace   Private Reply  


End Trace Mode for Comment # 10.

TopPage UpFull ThreadPage DownBottom/Latest

[Home]  [Headlines]  [Latest Articles]  [Latest Comments]  [Post]  [Mail]  [Sign-in]  [Setup]  [Help]  [Register] 

Please report web page problems, questions and comments to webmaster@libertysflame.com