Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Washington Post – That is the technical economic term that best sums up a day in which the House of Representatives refuses to pass a $700 billion rescue plan pushed by the White House and congressional leaders from both parties, Wachovia is taken over in a deal that will have the government potentially owning 10 percent of Citigroup, a few European banks fail, the Federal Reserve and other central banks are forced to inject an additional $300 billion into the global banking system, the Dow Jones industrial average plunges 778 points, and investors everywhere rush to the safety of gold and short-term Treasury bills.
The basic problem here is that too many people don’t understand the seriousness of the situation.
Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.
New York (HedgeCo.Net) – JPMorgan Chase & Co. has purchased Washington Mutual’s branch network for $1.9 billion, making them the largest U.S. bank by deposits. The deal was encouraged by the U.S. government after consumers withdrew over $16 billion from the nation’s largest savings and loan in the latter half of September.
WaMu was having trouble finding a buyer after the Treasury’s proposed $700 billion bailout package created reluctance among would-be investors. Others companies said to have been considering an offer included Citigroup and Wells Fargo.
Many believed that WaMu was next in line to sink thanks to over $180 billion in outstanding mortgage-related loans and the paranoia of a pending liquidity crunch. On top of that, Standard & Poors once again cut WaMu’s ratings to CCC from BB-, though the company was quick to quell any fears associated with the downgrade.
"Washington Mutual Bank’s deposit rating from Standard & Poor’s continues to be investment grade and it is important to note that Standard & Poor’s rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed by the FDIC," said WaMu in a recent statement.
Washington Mutual continued to deny rumors of any problems. The bank recently stated they had over $50 billion in liquidity despite being hit hard by the subprime mortgage fallout.
It was just a few months ago that WaMu rejected a bid from JPMorgan for about $4 a share, even after JPMorgan urged the bank to consider a deal before the economy got worse.
JPMorgan, who also acquired Bear Stearns earlier this year, will not inherit WaMu’s liabilities, including claims by shareholders and subordinated and senior debt holders. By purchasing WaMu, Chase can now increase their presence on the West Coast and in Florida.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Minyanville.com – While they’re not deviously plotting the demise of the worlds’ most powerful financial institutions, hedge funds are loading up on another popular trade: Cash.
According to the Financial Times, Citigroup estimates hedge funds have recently squirreled away as much as $600 billion in cash, of which $100 billion is held in money market funds -those same money market funds Washington so graciously propped up last week.
With good risk-reward investment opportunities in short supply, hedge funds — paid handsomely to manage risk — are relying heavily on the safety of cash to ride out recent market turmoil. It’s telling that for those whose livelihoods depend on beating the market, the investment du jour is no investment at all.
Financial Times – Hedge funds charging hefty fees for sophisticated trading strategies aimed at outperforming the wider market have collectively parked $100bn in simple money market funds typically used by investors seeking safe rather than spectacular returns.
Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds, normally seen as some of the safest places to invest cash.
However, last week, those money funds became embroiled in the wider financial crisis to the point that the US Treasury was forced to offer a blanket guarantee on them as part of its attempts to prevent the spillover of the financial crisis into the $3,400bn sector.
The extreme measures taken by the Treasury followed mounting fears that retail investors in the sector could be starting to panic and might withdraw funds on a large scale.
New York (HedgeCo.Net) – Merrill Lynch is still hoping to strike a deal in which Korea Asset Management Corp. would purchase a significant amount of their bad debt. Talks have been stagnant because of recent disputes over prices, but some say those debts could sell for under $200 million.
"We have been seeking to buy a significant amount, but a deal may be difficult at this rate,” said Lee Chol Hwi, head of Korea Asset, in an interview with Bloomberg.
Merrill, like other large financial institutions that have been pummeled by subprime related losses, is trying to raise capital to overcome the $40 billion plus of losses they have had to write down. Merrill recently had to get rid of about $31 billion of collateralized debt obligations, another form of mortgage backed securities, for about 22 cents on the dollar.
Korea Asset, which was created in 1962 and aims to purchase delinquent loans, set up a $870 million fund that buys bad debts in the United States. Lee says the company can afford to be patient, since he feels the turmoil in the marketplace is only going to push prices lower.
"The U.S. market desperately needs capital,” Lee said. "It’s practically a buyer’s market there.”
Shares of Merrill are trading for almost 66% less of what they were a year ago. Financial institutions have written down over $500 billion in losses stemming from the credit crunch. Merrill leads the pack along with Citigroup of those that have been hit the hardest, with the banks writing down $51 billion and $55 billion respectively.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
CNBC – Japanese government bond futures tumbled nearly a full point on Thursday, with traders citing selling by foreign funds in a move that was exaggerated by thin conditions.
September futures plunged as much as 1.14 points to 137.11 as market players suspect that hedge funds sold a large amount of futures abruptly, with other market players spooked by the move and dumping positions as well.
Traders and analysts cited a variety of reasons — including selling tied to the lead contract’s roll-over next week and flows in the interest rate swaps market — but said there was not a single trigger. "A sudden selling of futures without any big cash bond market action showed the move was highly related to hedge funds who trade purely on technical reasons," said Satoshi Yamada, a senior strategist at Nikko Citigroup.
Other market players said the sharp drop showed just how fragile financial markets are right now as damaged banks have pulled back. "Why today? Why now? Why JGBs? Who knows," said Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort. "Banks are scaling back and volumes are very thin. When you see sizable selling, everyone gets out of the way." The lead futures contract fell 0.85 point to 137.50, pulling further away from a four-month high of 138.80 hit last week.
Among other reasons noted for the selling, traders said that some bond dealers may have sold futures to hedge their books before the pricing of five-year bonds issued by two utilities. Others said that commodity trading advisers, or CTAs, may have finally sold futures because of their relative steepness compared with the cash market — a trend that had stirred worries in the market that it could lead to a sell-off.
The Ledger – Lehman Brothers, the troubled investment bank, is considering the sale of all or part of its prized money management division to private equity firms to raise billions of dollars of capital and ease the pressure caused by losses related to real estate.
The move would be the latest by a Wall Street firm forced to sell off high-end assets, following the recent sale by Merrill Lynch of its stake in Bloomberg L.P. and the sale by Citigroup last month of its large German consumer banking franchise.
Lehman sent letters last week to a number of financial companies, including private equity firms like Kohlberg, Kravis & Roberts, J. C. Flowers, the Blackstone Group, the Carlyle Group and Apollo Management, to test interest in its money management division, according to several people briefed on its contents.
The letter, a so-called memorandum of understanding, did not put a value on the division. It said that interested parties could bid for all or some of the pieces but encouraged bidders to make an offer for the whole business.
New York (HedgeCo.Net) – Less than one week after UBS and Citigroup were called upon to buy back over $30 billion in bad auction-rate securities, New York Attorney General Andrew Cuomo is forcing JPMorgan, Morgan Stanley and Wachovia to follow suit.
In a letter to the three banks, Chief of the Attorney General’s Investor Protection Bureau David Markowitz wrote, “Our investigation’s focus is shifting to the next group of market participants. Any resolution would need to address the same concerns addressed in the previous settlements.”
UBS was slapped with $150 million in fines and is being forced to buy back some $18.6 billion worth of the auction-rate securities. These securities, backed by municipal bonds and other debts, were sold under the assumption they were a safe investment. Instead, the $330 market collapsed in February, leaving investors and now the government, wondering if the banks were up front about the potentially high risks associated with such investments.
The probe launched by Cuomo will investigate 18 different banks. He is insisting that banks create auction-rate securities buyback programs for the customers who got stuck selling their securities far below par.
Citigroup also got slapped with a $100 million fine and had to deal with both state regulators and the Securities and Exchange Commission. They eventually agreed to buyback $7.3 billion worth of the securities from individual customers and small businesses. In addition, they must help over 2,500 clients sell about $12 billion of the securities.
Morgan Stanley has agreed to buy back $4.5 billion worth of the securities at par. According to the Wall Street Journal, Morgan Stanley will repurchase the securities beginning no later than September 30, from all charities and small to mid-size companies with accounts of $10 million or less that were purchased before February 13th of this year.
Merrill Lynch, in an attempt to quell the probe before it starts, offered last week to buy back about $10 billion in the auction-rate securities. However, Cuomo’s office stated that their plan didn’t contain certain “investor protection safeguards.” The Merrill case is currently under review in Cuomo’s office.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) – Merrill Lynch and Citigroup, two banks that have already written down billions in losses, will buy back $30 billion in auction-rate securities as part of an agreement with regulators.
This comes after the threat made by New York Attorney General Andrew Cuomo, who said he would sue Citi for misleading trusting investors about the high risks associated with such securities.
Merrill then followed suit, and other big names firms like Morgan Stanley and Bank of America are expected to strike their own deals with state regulators and the SEC in the near future.
These securities, which accounted for nearly $350 billion, are backed by municipal bonds and other forms of debt, and were peddled as being “safe.” However, the credit crunch blindsided most banks, and those securities were quick to plummet in value.
Citi has to shell out the most cash, agreeing to purchase $7.5 billion in securities and promised to purchase another $12 billion from institutional investors. On top of it all, they were slapped with $100 million in fines. Merrill has agreed to buy back $10 billion in the auction-rate securities.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
The DIFC has clarified its position on news reports that have recently appeared regarding ‘Rashed Investment Bank’ an Islamic investment bank which has been proposed to be set up in Dubai. The DIFC said that while it welcomes initiatives within the Islamic finance industry, the “DIFC clarifies that it is not a member of the founding consortium of ‘Rashed Investment Bank’ and does not have a financial stake in the venture.”
Word had appeared in some media outlets that a new Islamic investment bank was going to be set up in Dubai, would have authorised capital of around $1 billion. The report which initially broke in the UAE’s Al Bayan newspaper claimed that the new bank would deal in hedge funds, structured products and equity capital markets.
It claimed that a number of investors from the UAE, Kuwait and Saudi Arabia were behind the new entity, although their identities were not made public, adding that it would be headquartered in the DIFC.
New York (HedgeCo.Net) – Citigroup Inc. will close its $400 million Tribeca Convertible hedge fund in what will help wind down the $2 billion Tribeca Global Investments Group, according to a report published on Bloomberg.com. The closing of the fund has not yet been made public, but investor redemptions are thought to be the reason for the fund’s demise.
The fund uses a convertible arbitrage strategy, which involves acquiring company bonds that can be converted to common stock which in turn may be shorted. Tribeca Convertible was down a mere 5 percent this year.
This is the latest failure in a string of attempts by Citigroup to offer their clients a broader array of alternative investments. Two months ago they closed the $800 million Old Lane Partners, founded by Citigroup CEO Vikram Pandit, after investors redeemed over $200 million.
Citigroup was hit hard by the subprime-related mortgage fallout last summer, forcing its hedge funds to suffer. The bank’s Falcon Strategies funds were closed this year, even after a $500 million influx of capital by Citigroup.
CSO Partners, another hedge fund run by Citigroup also closed its doors this year after suspending investor redemptions. The company wrote down over $15 billion in losses the first two quarters of 2008.
Tribeca Convertible Portfolio Managers Andrew Wang and Jeffry Chmielewski are rumored to be thinking about starting their own fund.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Bloomberg – Just when American International Group Inc. shareholders figured things couldn’t get worse at the world’s largest insurer, profit from the company’s private equity and hedge fund investments is evaporating.
Earnings from so-called alternative holdings were probably close to zero in the second quarter, after soaring 77 percent to $1.02 billion a year earlier, said Citigroup Inc. analyst Joshua Shanker.
The drop follows the worst first half for hedge funds in almost two decades and a 73 percent decline in the value of announced leveraged buyouts, according to data compiled by Chicago-based Hedge Fund Research Inc. and Bloomberg.
