Friday, September 19, 2008

The Domino Effect

Before the turn of the decade, 2 events have already earned their place in the history books: the 9/11 terrorist attacks and the end of an era for investment banking. The current crisis has yet to be played out, and it remains to be seen how this tragedy from the world of high finance impacts the everyman world we live in. The volatility index, the so-called "fear factor", are at levels not seen since World war II. The signs have been there for a while. Dow Jones have been swinging up and down with the regularity of a roller-coaster ride since the start of 2008. As of now, it appears, government attempts to save the world have succeeded in placating the markets quite a bit. The cost of saving these financial institutions have effectively been transferred to the everyman taxpayer. If there ever were a game that goes "heads I win, tails you lose", this is it. The bankers who wrote the CDOs in the subprime boom may have lost their jobs, but they had already made their hay while the sun was still shining, hay that would take the rest of the populace a few lifetimes to make.

Such is the moral quandry facing the Fed. AIG have been described as having "tentacles all over the world". The collapse of AIG would leave gaping holes so large that the world would just implode on its own. With US$1 trillion in counterparty assets, this is no exaggeration. Even Freddie Mac and Fannie Mae have exposures to the tune of some US$8 billion in bonds bought by Bank of China and various other Asian banks. The Fed bailout of these firms, thus guaranteeing the securitised loans, have somewhat sheltered Asia from the financial storm. So far it seems, only Lehman Brothers have filed for the dreaded Chapter 11 bankruptcy. We can only observe with baited breath the fallout following the collapse of the 4th largest investment bank in the world. Not as spectacular as what an AIG collapse would induce --it's more fun reading about the Great Depression than living it--but still worth a look.

List of Counterparties and exposure to Lehman Brothers:


Aozora Bank $463 mln Loan
Mizuho Trust $382 mln "
Shinsei Bank $231 mln "
UFJ Bank $185 mln "
Sumitomo Mitsub Bk $177 mln "
Chuo Mitsui Trust $144 mln "
Shinkin Central $93 mln "
Nippon Life Ins $46 mln "



Shin Kong Fin (2888.TW: Quote, Profile, Research, Stock Buzz) $78 mln
Cathay Fin (2882.TW: Quote, Profile, Research, Stock Buzz) $33 mln
Central Reins (2851.TW: Quote, Profile, Research, Stock Buzz) $32 mln
Entie Bank (2849.TW: Quote, Profile, Research, Stock Buzz) $24 mln
Bk of Kaohsiung $18 mln
Polaris Securities $11 mln
SinoPac Fin $2 mln

Bank loans

Hua Nan Fin (2880.TW: Quote, Profile, Research, Stock Buzz) $59 mln
First Financial (2892.TW: Quote, Profile, Research, Stock Buzz) $25 mln
Bank of Taiwan (unlisted) $25 mln
Fubon Fin (2881.TW: Quote, Profile, Research, Stock Buzz) $10 mln


Commonwealth (CBA.AX: Quote, Profile, Research, Stock Buzz) Below $123 mln Range of products
ANZ (ANZ.AX: Quote, Profile, Research, Stock Buzz) $120 mln Mostly to subsidiaries
Westpac (WBC.AX: Quote, Profile, Research, Stock Buzz) Below $8 mln
NAB (NAB.AX: Quote, Profile, Research, Stock Buzz) Below $81 mln


Citibank (C.N: Quote, Profile, Research, Stock Buzz) HK branch $275 mln Loan


Bank of China New York $50 mln Loan

(3988.HK: Quote, Profile, Research, Stock Buzz) (601988.SS: Quote, Profile, Research, Stock Buzz)


The Bank of Korea said the country's financial institutions had exposure of a combined $1.34 billion to Lehman and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) as of Aug 31.


Central bank said Thailand's 14 commercial banks had only $124 mln of direct exposure to Lehman and more than that in foreign exchange contracts. Bangkok Bank BBL.BK said it holds $101 million in senior, unsecured bonds.


DBS (DBSM.SI: Quote, Profile, Research, Stock Buzz)^ Insignificant
UOB (UOBH.SI: Quote, Profile, Research, Stock Buzz) Very small
Bank of Nova Scotia(BNS.TO: Quote, Profile, Research, Stock Buzz) $93 mln loan
(Singapore branch)


The Philippines' two biggest banks -- Metropolitan Bank and Trust Co. (MBT.PS: Quote, Profile, Research, Stock Buzz) and Banco de Oro Unibank (BDO.PS: Quote, Profile, Research, Stock Buzz) -- on Tuesday set aside nearly $100 million to cover exposure to Lehman Brothers but the central bank said the total exposure of the local financial sector was small.

What exciting times we live in!

Tuesday, September 02, 2008

The Blitzkrieg

The Eiffel Tower is already in their sight. They have scented blood and are moving in for the kill. In a week's time, they would come with guns-ablazing, and we would know our fate. Resistance is almost futile now. A 5 week onslaught have totally caught us by surprise, and left us bereft of manpower, time, resources and food. Extremely low on morale, the soldiers are bordering on mutiny. Some divisions are even deserting their positions. What's worse, the trail of defeats has left confidence totally shattered. We are only fighting on adrenalin, fighting only because red blood still courses through our veins. The citizens are engulfed in a myriad of emotions, ranging from the defiant, to the fearful, to the desperate, to resentment, and now resignation. Fate is no longer in our hands. The Maginot Line--our sentinel, our saviour, our fortress, which we have painstakingly built up over the past year, has turned out to be a just another cruel illusion. It was never enough. We were totally out of our depth, totally outplayed, out maneuvered, out-thought, and out-fought and now we face the consequences of our CARELESS mis-steps. We only have ourselves to blame for the dire state we find ourselves in. But now is no longer the time to talk of recriminations. The hour has cometh. Make a last-ditch stand. Recall the spirit of Verdun. Fight till the last drop of blood is shed. Fight to reclaim our dignity. Ils ne passeront pas. Hollow words they shall remain to be unless we take ACTION!

June 2 1940