duminică, 5 octombrie 2008

bankrupcy 101 - how to kill the wounded prey...

ok, so big fish eat little fish, dog eat dog and big banks bankrupt the smaller ones.
what ? you didn't believe the stories about wealth transfer to the few chosen ones, the friends of Paul$on & Bernanke ?

apparently Lehman's creditors didn't take it lightly when they found out the role played by JP Morgan in the sudden liquidity squeeze that sent Lehman into a death dive over the weekend of 12-14 September. According to a story on Bloomberg:

"JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ``froze'' Lehman's account, the creditors claimed [...] When JPMorgan shut Lehman off from funds, Lehman ``suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'' according to the filing. "

and you know that bankrupcies and scaling down concentrates the remaining business in the hands of the few? for instance commodities' trading. have a look at an article about UBS's exit from the commodities trading:

"Other investment banks, such as Lehman Brothers, Citi
, Credit Suisse (, Merrill Lynch, J.P. Morgan and Deutsche Bank , have expanded their activities in commodities in the past few years.

In the credit crisis shake-out, Barclays agreed to buy Lehman Brothers's North American investment banking and capital markets businesses, which includes some commodities activities.

J.P. Morgan earlier in the year bought Bear Stearns, which had a sizeable energy business in North America.

Morgan Stanley and Goldman Sachs, which have been active in energy and commodities for two decades, could have less freedom in these businesses in the future following their conversion to commercial banks, regulated by the U.S. Federal Reserve."

Funny how JP Morgan's position has significantly improved in this area too...

So they consolidate more and more power helping to the demise of the competition, taking advantage of banks scaling back their activities and never make mistakes on derivatives...

And all of this with no help? hmmmm....


On the other side of the ocean, the woes of the European banks seem to intensify, with apparently a failed bail-out for Hypo AG, a bailout followed by a nationalization by the Dutch government of ABN AMRO's assets bought by Fortis and emergency spin-offs for recapitalization for Unicredit. Dexia barely shows a pulse hooked on IV's from the Belgian and French government...

Now that's what I call a contagion. and I can hardly see a solution (other than direct equity injection from EU states) to reduce the leverages from 35-50x (see Deutsche Bank) to a more palatable 20x without triggering a fire sale, send stocks crashing down and trigger a run on banks . apparently neither do the EU leaders that couldn't get their act together in a common approach to the European banking crisis.

not so good omens...

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