Bond Rating Agency Decided To Try To Rate Some Bonds

"What does a AA credit rating mean? The intuitive answer is something like “it means that the rating agency rating the thing thinks it has a probability of default no higher than X% and no lower than Y%,” where X and Y are the boundaries of AA- and AA+ respectively, and sure, that’s about right. But there’s an important loophole there which is that each rating agency can set X and Y to be whatever they want."

"Not really however they want, though, since issuers hire ratings agencies to rate bonds, and if you rate everything CCC you won’t get asked to rate anything, and if you rate everything AAA you also won’t get asked to rate anything, because it turns out that a AAA rating from Joe’s Optimistic Ratings Shack doesn’t actually help sell bonds. The trick is to be roughly in line with peers, but with enough apparatus and fiddling and occasional divergence to make it look like you’re engaged in an exercise with some intellectual integrity rather than just copying off someone else’s test."

http://dealbreaker.com/2013/08/bond-rating-agency-decided-to-try-to-rate-some-bonds/

Deutsche Bank Did Some Accounting Stuff

"I used to work in a business that, among other things, helped clients get financing against securities. One thing that you learn quickly in that business, and then spend the rest of your career trying to forget, is that the simplest way to get financing against securities is to sell them. You’ve got $100 of stock and want to borrow $80 of cash against it? Just sell the stock, now you have $100, you’re welcome. "

"In the no-balance-sheet transactions, Deutsche Bank received the collateral, sold it and used the cash to make the loan. By selling the collateral — government bonds, in the deals reviewed by Bloomberg News — Deutsche Bank created an obligation to return the securities, allowing it to net to essentially zero its assets and liabilities, the documents show. … Deutsche Bank was able to sell the collateral because it didn’t have to return the bonds under the terms of the agreement. Instead, the borrower agreed that Deutsche Bank could return the “cheapest-to-deliver” equivalent in the event of default, the documents show."

http://dealbreaker.com/2013/07/deutsche-bank-did-some-accounting-stuff/

Borrowing More Money Now Almost Cheaper Than Borrowing Less Money

"It’s fairly intuitive that lending money to rich people would be a better business than lending money to poor people.1 They have more money, for one thing, which makes it more likely that they’ll be able to pay you back. Their collateral tends to be better too. Administrative costs are lower – your loans are in round lots and so forth. Also they’re more likely to want to hire someone to, like, manage their kids’ trust funds, and if they like the borrowing experience you provide maybe they’ll look into your trust-fund management services. Cross-selling, it’s a thing."

http://dealbreaker.com/2013/07/borrowing-more-money-now-almost-cheaper-than-borrowing-less-money/

Infinite Loop Of Facebook IPO Stories Caused By Actual Infinite Loop During Facebook IPO

"Remember when Facebook IPOed last May and it was a mess? Today the SEC released its amusing order fining Nasdaq $10 million for the mess and explaining what happened. Some computers were having a stressful day at work and so they decided to give up and hide out in the nap room, is the gist of it. I feel like I’d get along with those computers.

What started the mess is that Nasdaq opens the trading of a newly IPO’ed stock with an opening cross where it compiles quotes for a while and then crosses them in one big opening cross before continuous trading starts. And it uses the following process to do the opening cross:

1 Get a bunch of orders over a ~20 minute period before trading starts
2 Use a program called the IPO Cross Application to calculate the clearing price and shares crossed based on those orders, which takes a few milliseconds
3 Check if any of the orders were cancelled during those milliseconds
4 If they were, delete those orders and Goto 2

Did you spot the problem? Nasdaq’s systems engineers did not, even after the IPO Cross Application had been running on an infinite loop for twenty minutes."

"So some people who’d submitted marketable orders didn’t get their orders executed, other people whose orders were executed didn’t get confirmations, and general unpleasantness ensued. Also Nasdaq accidentally and illegally shorted 3 million shares of an IPO that it was in the process of (...), which is a great idea except for the “illegally” part: the stock went down and Nasdaq made $10.8 million dollars covering its short."

http://dealbreaker.com/2013/05/infinite-loop-of-facebook-ipo-stories-caused-by-actual-infinite-loop-during-facebook-ipo/

Dealbreaker: LIBOR Gate

Lawsuit Claiming Banks Worked Together To Fix Libor Dismissed Because Banks Were Supposed To Work Together To Fix Libor

http://dealbreaker.com/2013/04/lawsuit-claiming-banks-worked-together-to-fix-libor-dismissed-because-banks-were-supposed-to-work-together-to-fix-libor/

The Tale Of A Whale Of A Fail

Część z Was pamięta pewnie głośną historię prawie z przed roku - gigantyczną stratę londyńskiego pracownika JP Morgan w wysokości ostatecznie około 6,2 miliarda USD. Ten tekst wprawdzie jest z początku wyjaśniania całej historii, ale całkiem ciekawym językiem opisuje prawdopodobny mechanizm tamtej transakcji. Jeśli cała historia Was zaciekawi, polecam przeczytać inne tekst oznaczone nazwiskiem Iksil - można tam znaleźć całą masę linków do innych opisów tego przypadku.

"What seems, loosely, to have happened to the Whale is a combination of things. One is, he got more optimistic and so sold more protection – making the bet relatively more bullish, though not absolutely bullish. It is almost certainly – though who knows? – not correct to say, as everyone does, that Iksil was long $100 billion of corporate credit in his CDX book. It is certainly correct to say that the CIO was overall long credit – that’s what it does! invest JPMorgan’s money in credit instruments! – or that JPMorgan as a whole was long credit – it’s a bank! – but the credit derivatives book probably was a hedge designed to hedge tail risk."

http://dealbreaker.com/2012/05/the-tale-of-a-whale-of-a-fail/

http://dealbreaker.com/tag/bruno-iksil/