Hedge fund issues could cause economy to slow
Hedge fund issues could cause economy to slowWhile hedge fund failures are typically seen as a Wall Street problem, economists are forecasting that recent hedge fund meltdowns could impact Main Street and may even slow the U.S. economy. Turmoil in credit markets could push up borrowing costs for businesses and consumers and cause a ripple effect.
Hedge fund woes could hit Main StreetUpheaval in credit markets could hit consumer, business borrowing - and slow the economy; risk premiums already rising.
By Chris Isidore, CNNMoney.com senior writer
June 21 2007: 3:21 PM EDT
NEW YORK (CNNMoney.com) --
When Bear Stearns's hedge funds melted down this week because of too big a bet on subprime mortgages, it may have seemed like a Wall Street problem.
But numerous economists said the latest turmoil in the nation's credit markets could spill over to Main Street as well, raising borrowing costs for consumers and businesses alike - and possibly putting the brakes on the surprisingly resilient U.S. economy.
Subprime mortgages, made to home buyers with less than top credit ratings, have been skidding since early this year as delinquencies and foreclosure rates soared. Now problems with those mortgage loans have sparked a big headache for Bear Stearns (Charts, Fortune 500) and the Wall Street firms that lent it money to invest in subprime mortgages, such as Merrill Lynch (Charts, Fortune 500), JPMorgan Chase (Charts, Fortune 500) and Citigroup (Charts, Fortune 500).
But the problems threatening the credit markets could mean far more than just billions in possible losses for those firms. It could push rates higher for corporate debt, which has been relatively cheap even for companies with poor credit ratings.
Even if those companies don't fall behind in their debt payments the way many subprime borrowers have on their mortgages, the investors making money available for those riskier loans are now demanding a much higher premium than they had until just recently.
Deadly ripples threaten subprime funds That could choke off the supply of relatively cheap money that has kept the U.S. economy humming in recent years, putting a dent in everything from business investment to consumer spending.
"That's clearly high on my list of things to worry about," said David Wyss, chief economist at credit-rating agency Standard & Poor's. "I think it's healthy that pricing for risk changes. I think it's too loose now. But the transition could be painful. It depends on how fast it happens."
Wyss doesn't believe that the rise in borrowing costs for most companies will plunge the U.S. economy into recession - and many economists agree with him. They said there's enough underlying strength in the economy to keep it growing. But it will mean slow growth in the second half of this year rather than more normal "trend" growth of 3 percent a year or greater, said John Silvia, chief economist at Wachovia.
"I would think that that as you reprice risk, it will have a negative impact on economic growth going forward," said Silvia. "It will extend the workout in the housing market. And at the margin, they [higher rates] will crimp consumers and their spending."
Others see an even more drastic correction. Peter Schiff, president of Euro Pacific Capital, a brokerage firm specializing in overseas investments, said he had already been expecting a recession in late 2007. Now he believes the recession will come sooner, and hit harder, because of the problems with the Bear Stearns hedge funds.
"This is just another graveyard they can whistle by," he said, referring to Wall Street firms. "Eventually they're going to be overwhelmed. Interest rates are going to rise across the spectrum, and spreads are going to widen considerably."
That widening of the spreads - the difference between what it costs top borrowers and those deemed more risky - has already started. The spread between corporate debt that is not investment grade, popularly known as junk bonds, and a basket of U.S. government bonds was 2.89 percentage points on Thursday, according to Wyss, up from a record low of 2.65 percentage points on May 25.
Wyss said the spread had gotten too narrow and that a correction was likely even without the Bear Stearns problems. A more typical spread is close to four percentage points, and it was as high as 3.85 percentage points as recently as last September.
But he said an event in the credit market such as this week's meltdown typically sends spreads soaring. He noted the rise of roughly one percentage point in just two months in 2005 from a then record low in March following General Motors (Charts, Fortune 500) and Ford Motor (Charts, Fortune 500) debt being cut to junk bond status for the first time.
Full articlehedge funds, economics, capital markets, interest rates, bond yields, valuations, CDO, credit derivatives, derivatives, pooled securitiesLabels: bond yields, capital markets, CDO, credit derivatives, derivatives, economics, hedge funds, interest rates, pooled securities, valuations
PHLX Exchange Traded Options
PHLX Exchange Traded OptionsPHLX's new World Currency Options (SM) and PBOT's World Currency Futures (SM) are easy to understand, easy to trade, easy to manage and are specially designed to work for individual investors. With small-sized trading units and settlements in U.S. dollars, along with fully electronic order entry and execution, they might just meet your trading needs. For more information, contact the PHLX directly at
http://www.phlx.com/.
derivatives, FX, electronic derivatives exchange, PHLXLabels: derivatives, electronic derivatives exchange, FX
USFE - US Futures Exchange to Offer Credit Derivatives
U.S. FUTURES EXCHANGE TO OFFER CREDIT DERIVATIVE FUTURES ON AGENCY DEBT
CHICAGO (June 4, 2007) —
U.S. Futures Exchange (USFE) announced today that it will list the first credit derivative futures on Federal Agency debentures, beginning with a government tranche of the CDX™ index including credit default swaps on Fannie Mae and Freddie Mac.
The new product allows for the creation of synthetic Agency notes as well as spread trades against corporate and sovereign debt. USFE currently expects to list the new contracts in the fourth quarter of 2007.
"Default swaps from both Fannie Mae and Freddie Mac are included in the tens of trillions of dollars referenced to the CDX™ family of indexes," said Satish Nandapurkar, CEO of USFE. "Yet, there has never been a distinct 'government' tranche to represent the highest quality credit risk. USFE is pleased to provide fixed income investors with a new, on-exchange opportunity to hedge risk in this area."
USFE collaborated on the design of Agency credit default swap futures with David Boberski, Head of Interest Rate Strategy at Bear, Stearns & Co. Inc., a global leader in futures clearing and execution.
"Agencies are the largest issuers of corporate debt and they deserve a prominent place in credit derivative trading," said Mr. Boberski. "Agency credit default swap futures are a rare example of a product that is relevant to both credit and interest rate traders. While USFE continues the tradition of offering 'government' risk on an exchange, creating the mechanics to match the over-the-counter market is a first for the futures industry and highlights the continued convergence of these markets.
USFE offers a primer on the new product by Mr. Boberski at
www.usfe.com/index_news.html.
derivatives, online trading, electronic exchange, CDS, CDX, ABS, ABX, credit default swapsLabels: abs, ABX, CDS, CDX, credit default swaps, derivatives, electronic exchange, online trading
Banks look to asset-backed securities for revenue boost
Banks look to asset-backed securitiesThe business of turning mortgages and other debt into complex bondlike products has increasingly become a favored tool for investment banks to generate profits. Globally, investment banks reported $30 billion in revenue from asset-backed securities in 2006.
Investment banks are increasingly reliant on the business of turning mortgages and other kinds of debt into complex bond-like products for a significant share of their profits, according to JPMorgan research to be published Monday. Banks globally saw revenues of almost $30bn from asset-backed securities business in 2006, which analysts at JPMorgan estimate is as big as the revenues generated by equity derivatives or cash equities trading. In Europe, Deutsche Bank and Credit Suisse, two of the largest in the field, rely on ABS activity for about 10 per cent of group pre-tax profits, the research will say.
Investment banks are increasingly reliant on the business of turning mortgages and other kinds of debt into complex bond-like products to generate a significant share of their profits, according to research to be published Monday.
Banks globally saw revenues of almost $30bn from asset-backed securities business in 2006, which analysts at JPMorgan estimate is as big as the revenues generated by equity derivatives or cash equities trading.
In Europe, Deutsche Bank and Credit Suisse, two of the largest in the field, rely on ABS activity for about 10 per cent of group pre-tax profits, the analysts will say.
Securitisation is the process of turning financial assets into saleable securities and encompasses everything from the mortgage-backed securities that help fund ordinary home loans to the complex structured bonds known as collateralised debt obligations.
Industry growth has been spurred by investor demand for higher-yielding assets and the desire among banks to offload more of their lending risk into the capital markets.
Kian Abouhossein, analyst at JPMorgan, says issuance volumes in these markets has grown more than six-fold from about $500bn in 2000 to more than $3,000bn last year, about 77 per cent of which was from the US. Mr Abouhossein estimates US banks earned revenues of about $19.9bn from this business while their European peers gained about $7.5bn.
"This has become a big market and is significant for the banks. We would argue that it is at least as big as the equity derivatives or cash equities businesses, which have attracted a lot of attention as stand-alone businesses," he says.
The research is mainly focused on European banks and estimates that four of the top 10 institutions saw revenues of more than $1bn from their ABS businesses. Deutsche Bank is the clear leader, generating more than $2bn and earning pre-tax profits from that of more than $1bn, which is almost 11 per cent of group profits.
"The biggest banks have a cost-income ratio from their ABS business of 50-55 per cent, which is much better than the average for investment banking of about 70 per cent," Mr Abouhossein says.
The second biggest player in Europe is Royal Bank of Scotland, with ABS revenues of $1.7bn and made more than 4 per cent of group profits from the business.
abs, cds, asset backed securities, credit default swaps, derivatives, revenue, risk managmentLabels: abs, asset backed securities, CDS, credit default swaps, derivatives, revenue, risk managment
Jobs: Senior SQL Server Developer
Jobs: Senior SQL Server DeveloperCareers On The Move is working on a position for a Senior SQL Server Developer. The job description is listed below for your review.
Interested and Qualified candidates should submit their resume to
Postings@CareersOnTheMove.com with the position they are applying for in the subject line.
Also, please feel free to refer any friends who may be qualified.
Thank you for all your wonderful responses and referrals, keep them coming! And as always, if you wish to be removed from our e-mail list send me a request and I will expedite that as quickly as possible. We are still very busy with lots of new positions every week, so please keep reviewing
www.CareersOnTheMove.com.
Best Regards,
Kendal Ridgeway
Recruiter:
Postings@CareersOnTheMove.comPosition: Senior SQL Server Developer
Location: New York NY
Salary: Market Rate Consultancy
Responsibilities:
Our client, a top tier bank, is seeking a Senior SQL Developer. Java and Fixed Income Derivatives are a plus.
This position is Temp to Permanent
Requirements:
- Excellent SQL Server Developer skills.
- Bachelors Degree.
- Brokerage experience required.
- Travel required.
- Good communication required.
- Problem solving skills required.
jobs, sql, IT, technology, developer, SDLC, derivatives, brokerage, financial services
Labels: brokerage, derivatives, developer, financial services, IT, jobs, SDLC, SQL, technology
ISDA Property Index Derivative Transactions and ISDA Documentation
ISDA Symposium: Property Index Derivative Transactions and ISDA Documentation
Thursday, July 12, 2007
Global Financial Markets Conference Center, New York
The application of derivative products to the residential and property market has begun to develop in markets around the globe. The housing and residential real estate market is estimated to be a multi-trillion pound asset class.
Until recently, investors could not effectively participate in this asset class. With the publication of the 2007 ISDA Property Index Derivatives Definitions, investors can achieve portfolio diversification and diversify their exposure to local property markets through industry-developed standardized documentation. The development of various property indices globally has contributed to the development of standardized ISDA documentation to facilitate property index transactions.
At this symposium, traders and attorneys will share their views on end user demand, geographical diversification and continued product innovation in the property derivatives space. A discussion of the different methodologies of leading indices will be offered as well. With regard to the documentation, a comprehensive examination of the ISDA definitions booklet, focusing on key issues such as delays between measuring an index, revisions to that measurement and consequent publications of index values, adjustments such as rebasing and errors in publications, and disruption events affecting indices will be discussed.
The forward and total return swap forms of confirmation will also be discussed. As with other Symposia hosted by ISDA, audience members will be able to engage in a Q&A with panelists and receive the set of ISDA documentation. Property Index Derivative Transactions and ISDA Documentation.
The application of derivative products to the commercial and residential property market has begun to develop in markets around the globe. In the United States alone, the housing and residential real estate market is estimated to be a $21 trillion asset class. Until recently, investors could not effectively participate in this asset class. With the publication of the 2007 ISDA Property Index Derivatives Definitions, investors can achieve portfolio diversification and diversify their exposure to local property markets through industry-developed standardized documentation.
The development of various property indices globally has contributed to the development of standardized ISDA documentation to facilitate property index transactions.
At this symposium, traders and attorneys will share their views on end user demand, geographical diversification and continued product innovation in the property derivatives space. A discussion of the different methodologies of leading indices will be offered as well. With regard to the documentation, a comprehensive examination of the ISDA definitions booklet, focusing on key issues such as delays between measuring an index, revisions to that measurement and consequent publications of index values, adjustments such as rebasing and errors in publications, and disruption events affecting indices will be discussed. The forward and total return swap forms of confirmation will also be discussed. As with other Symposia hosted by ISDA, audience members will be able to engage in a Q&A with panelists and receive the set of ISDA documentation.
Welcoming Remarks: Kimberly A. Summe, General Counsel, ISDA
Panelists: David M. Blitzer, Managing Director and Chairman of the Index Committee, Standard & Poor'sDavid Felsenthal, Partner, Clifford Chance US LLP Rajiv Kamilla, Head of New Products Trading, Structured Products, Goldman SachsTodd Kushman, Managing Director, Bear Stearns
Register for this event.ISDA, real estate, property, real estate securities, mortgaged backed sderivatives, derivatives, real estate derivativesLabels: derivatives, ISDA, mortgaged backed sderivatives, property, real estate, real estate derivatives, real estate securities
Recruitment heats up on Wall Street
Recruitment heats up on Wall StreetInvestment bankers and traders are in high demand, as the market weathers recent shake-ups in the mortgage world and an abundance of cash in hand. Top banks continue to recruit heavily from top M.B.A. schools, although a strong influx of foreign candidates has begun to make its presence known.
full storyjobs, careers, investment banking, sales, trading, finance, derivatives, MBALabels: careers, derivatives, finance, investment banking, jobs, MBA, sales, trading
Bernanke calls on Congress to limit role of Fannie Mae, Freddie Mac
Bernanke calls on Congress to limit role of Fannie Mae, Freddie MacFederal Reserve Chairman Ben S. Bernanke called for tougher regulation of mortgage agencies Fannie Mae and Freddie Mac, saying the government-chartered mortgage-funding companies should be forced to concentrate almost entirely on loans for affordable housing. Bernanke also said that poor decisions by the government-backed programs, which have been riddled with problems in recent years, posed a threat to the U.S. economy.
Full StoryFannie Mae, Freddie Mac, FNMA, FDMC, mortgages, mortgaged backed securities, derivativesLabels: derivatives, Fannie Mae, FDMC, FNMA, Freddie Mac, mortgaged backed securities, mortgages
Toronto Stock Exchange to team with ISE and launch derivatives exchangeTSX Group Inc., parent company of the Toronto Stock Exchange, and International Securities Exchange Holdings Inc. plan to spend about 26 million Canadian dollars (US$22.2 million) to create the DEX, a new derivatives exchange expected to begin operations in 2009.
The exchange will be 52% owned by TSX and TSX Venture Exchange and 48% owned by ISE.
full story Labels: derivatives, electronic trading, exchange, ISE, TSE, TSX
Subprime fiasco troubling because of scale
Subprime fiasco troubling because of scaleThe trouble brewing in the subprime-mortgage market has a familiar feel to it, writes Gretchen Morgenson for The New York Times. The real concern, however, is the scale of the trouble as the mortgage-securities market in the U.S. is a $6.5 trillion business.
Full storyLabels: derivatives, mortgage backed securities, mortgages, subprime
CDOs put the squeeze on bond investors
CDOs put the squeeze on bond investorsCollateralized debt obligations are pushing down the costs to protect against bond defaults. CDOs can return three times the rate of the underlying securities, and are "changing the economics of investing in corporate bonds," said the head of structured credit research at Barclays Capital in London.
full storyCDO, derivatives, CDS, bonds, fixed income, tradingLabels: bonds, CDO, CDS, derivatives, fixed income, trading
Internet based Options trading grows more popular, less expensive
Internet based Options trading grows more popular, less expensiveIt's getting cheaper to trade options online, as new competitors push down the cost of trades. Options-House Inc., which launched last month, offers option and stock trades for $9.95 a piece. Options Clearing Corp. says total annual options contract volume increased 35% last year to 2.03 billion.
full storyderivatives trading, online trading, internet trading, options, stock, commodities, derivativesLabels: commodities, derivatives, derivatives trading, internet trading, online trading, options, stock
DRIVING STRATEGIC INNOVATION:
Achieving Breakthrough Performance Throughout the Value ChainA unique executive program from MIT Sloan and IMD that integrates technology and innovation strategy with the tools and frameworks needed to help business leaders and entrepreneurs manage the innovation process from concept to commercialization.
View course agenda and registrationLabels: derivatives, innovation, management, metrics, performance monitor, risk management, strategy, technology, trading, value chain
SOA Advances Despite Confusion
SOA Advances Despite Confusion A recent report from Saugatuck Technology asserts that SOA continues to be technology-led, rather than business-led, and this may prove to be a barrier to its broad deployment. It may take as much as a decade for SOA deployments to dominate the IT landscape, but steady progress is being made. According to Oracle, while SOA is well understood at a high level, there is considerable confusion about actual implementation. Oracle's approach: Focus on building the link between business modeling and application development and enabling bi-direction communication between the two. Respected consultant Judith Hurwitz says that Microsoft "has some good pieces" in the SOA space, and "a lot on the server side," but the company is lacking when it comes to metadata and an overall strategy.
Learn more about SOALabels: architecture, derivatives, risk management, SOA, technology, technology strategy, trading
Jobs: Financial Reporting, Controllers Analyst (NYC)
Role: Analyst - Financial Reporting Controllers/New YorkCompany: Goldman SachsIndustry: Investment BankingJob Description:The intermediate/senior analyst will be an integral part of the GS Execution and Clearing financial reporting team. This includes assisting in the preparation and submission of the balance sheet and supporting schedules on monthly basis. The analyst will interact with other divisions throughout the firm with regards to Consolidated reporting, FAS 140 disclosure, Inventory and other balance sheet and P&L transactions. Also experience with FAS 109 tax reporting would be a plus.
Principal Responsibilities:- Assist with Monthly Balance sheet preparation
- Subsidiaries financial statement preparation
- Estimate to actual reviewInventory broadening and review
- Tax accruals and associated analysis
- FAS 140 calculation
- Participate in the semi-annual and year end audits
- Special projects
Experience/Skills:
- Degree in Accounting
- 1-3 years relevant work experience (preferably with a public accounting or financial services firm)
- CPA a plus, but not requiredStrong PC skills (Excel, Word, Essbase, DBS Ledger)
- Strong analytical skills and detail orientation
- Excellent Interpersonal and communication skills
Contact via email for further information.
Careers@BizAnalyst.net and gloria.chen-li@gs.com
HR, jobs, derivatives, trading, risk management
Labels: accounting, careers, derivatives, electronic trading, finance analyst, goldman sachs, hr, investment banking, jobs, risk management, trading
Citigroup plans to cut costs by $1 billion
Citigroup plans to cut costs by $1 billionCitigroup, trailing its rivals in profit growth, plans to cut $1 billion in costs this year, Bloomberg reports, citing a source with direct knowledge of the plan. The cost-cutting measures will involve eliminating some jobs, moving others to less expensive locations and overhauling the risk-management unit.
Read this articleIs this the beginning of a cost cutting wave on Wall Street? Feast or Famine.
Take a look at the new hiring trends on Wall Street.HR, jobs, derivatives, trading, risk managementLabels: careers, citigroup, cost cutting, derivatives, electronic trading, hiring, hr, jobs, layoffs, reorg, risk management, trading
FIX, FpML Training Course
FpML® Training CourseWednesday, March 28, 2007
Program Topics Include:
- What is FpML?
- Translating a Trade into FpML
- Fundamental Concepts of FpML
- Top-Level and Shared Components
- FpML Validation Rules and Methods
- Product Coverage:
- Interest Rate Products
- Credit Derivatives- FpML Messaging
- Customizing FpML
- FpML Change Guidelines
Agenda and
RegistrationLabels: data message formats, derivatives, financial services, FIX, FPML, integration, technology, technology strategy, trading
Community Banking & Credit Union Technology Perspectives
Community Banking & Credit Union Technology Perspectives Business strategies for revenue growth and value creation are similar between credit unions and community banks; however, community banks have far tighter cost constraints. Understand rapidly changing trends in end-user opinion to determine your market strategy.
Full articleLabels: credit unions, derivatives, risk management, technology, technology strategy, trading
Credit Derivatives go electronic
Credit Derivatives go electronic.
Key index and single name CDS products migrate from OTC to exchange traded products.
Business Impact
- Transparent pricing, valuation and public market data on CDS products
- Potential STP for order routing, execution, margin, confirmation & settlement processes.
- Reduced processing costs via automation of key processes
- Reduced spreads per trade
- Increased trading volume & time (23hrs x 5days/week)
- Migration of OTC positions to exchange traded positions (especially on buy-side: hedge funds, asset managers)
Technology Impact
- Interconnectivity to major exchanges for CDS trading (EUREX,CME) via order routing gateways
- Real time market data (quotes, spreads, market depth, executions/fills)
- Increased trading volume
Eurex will start trading in credit futures in March 2007
European exchange Eurex will start futures trading in iTraxx index beginning March 27, 2007. Additionally, trading will start at some date in future on the segments of iTraxx index too.
The Eurex iTraxx® credit futures will closely mimic the risk structure of credit default swaps traded in the over the counter (OTC) market. Trading on Eurex will involve Eurex Clearing as central counterparty thereby reducing the counterparty and systemic risk and adding to the benefits the product will offer to users.
The contract will be based on the 5 year series, with a fixed coupon and semi annual maturity dates in March and September. The contract size is EUR 100,000; the tick size is set at 0.005 percent translating into 5 euros per tick. It will be quoted in percent with three decimal places. The product will be cash settled, with reference to the iTraxx® index values of IIC.
In the case of a credit event, cash settlement of the single name entity will be made with reference to the ISDA CDS protocol. The Eurex iTraxx® Europe futures contract will be supported by designated market makers, ensuring liquidity from launch.
This is claimed to be the world's first exchange traded credit derivative product.
In the meantime, Chicago Mercantile Exchange has also reported that it will start trading in credit event futures in the 1st quarter of 2007. Regulatory approvals, it seems, are still pending.
Questions or comments, contact our subject matter expert: Victor Smith [victor7@bizanalyst.net]
Labels: CBOT, CME, credit derivatives, credit futures, derivatives, electronic trading, EUREX, exchange, LIFFE, market gateway, OTC, risk management, technology, trading
Exploring Monte Carlo Simulation Applications for Project Management
Exploring Monte Carlo Simulation Applications for Project ManagementYoung Hoon Kwak & Lisa Ingall
Monte Carlo simulation is a useful technique for modeling and analyzing real-world systems and situations. This paper is a conceptual paper that explores the applications of Monte Carlo simulation for managing project risks and uncertainties. The benefits of Monte Carlo simulation are using quantified data, allowing project managers to better justify and communicate their arguments when senior management is pushing for unrealistic project expectations. Proper risk management education, training, and advancements in computing technology combined with Monte Carlo simulation software allow project managers to implement the method easily. In the field of project management, Monte Carlo simulation can quantify the effects of risk and uncertainty in project schedules and budgets, giving the project manager a statistical indicator of project performance such as target project completion date and budget.
Read the report.
Keywords:
Monte Carlo simulation, project management, risk analysis and management, exploratory studyLabels: derivatives, exploratory study, Monte Carlo simulation, project management, risk analysis and management, risk management, technology, trading
