Unstructured Finance

The end of European banking

The €1 trillion in ultracheap three-year loans the ECB doled out in December and February was supposed to have stabilized the entire European banking system. It appears to be having the opposite effect.

European banks — especially those that rely on ECB LTRO financing — are bracing themselves for an imminent downgrade, according to an article in yesterday’s Wall Street Journal:

While Moody’s hasn’t said whether and to what degree it will cut various banks’ ratings, officials at multiple top European banks said they expect their grades to be knocked down at least one notch…

As part of its downgrade reviews, Moody’s is examining the degree to which banks are reliant on the ECB loans and “what are the banks’ abilities to wean themselves off that funding,” said a person familiar with the matter. Heavy borrowing from the ECB “prompts more intense scrutiny” from Moody’s about the banks’ financial health, this person said.

When Moody’s finally cuts these banks’ ratings, it will be costly: Royal Bank of Scotland estimated in a recent filing that a one-notch downgrade would force the bank to post an additional £12.5 billion of collateral.

UF Weekend Reads

A beautiful spring day in the NYC metro area. Let’s Go Mets! Here’s this weekend’s stories courtesy of Sam Forgione.


From The New York Times

Jennifer Medina reports that California’s economy is either booming and busting, depending on which city you’re in.

From The Nation

William Greider has some suggestions on how the Federal Reserve can work with politicians to improve the housing crisis.

Psst, Bank of America has got a deal for you

By Matthew Goldstein

Wanna buy a foreclosed home on a the cheap?  Well, Bank of America has got one for you. Or to be precise, the big U.S. lender has got 556 formerly owner-occupied homes it is trying to unload right now in a bulk deal.

As my colleague Jennifer Ablan and I reported yesterday, BofA, for the second-time in five months, is seeking bids for a bulk sale of foreclosed homes. This second round is much bigger than the first and could be a sign the bank is moving aggressively to sell foreclosed homes with institutional investors eyeing the market.

After our story ran, a source provided a nice overview of the bulk deal that  BofA has  sought bids on–apparently the deadline for putting in a bid was April 4. According to the bulk sale fact sheet, BofA is trying to find buyers for pools of foreclosed homes in 7 states: Arizona, California, Florida, Georgia, Illinois, Nevada and Texas.

Whither the Yale model?

David Swensen has been called “Yale’s $8 billion man” for outperforming the average university endowment by that amount during the first 20 years of his tenure as Yale’s Chief Investment Officer. Chalk that outperformance up to the success of what’s become known as the “Yale model,” or the insight that institutional investors like endowments or pension funds can achieve outsize returns by allocating a large chunk of their assets to hedge funds, private equity, real estate, and other alternative investments.

As Swensen explained in a lecture he gave to Yale MBAs in 2008 , the Yale model rests on two core tenets: 1) “an equity bias for portfolios with a long time horizon,” because equities and equity-like alternative investments tend to rise in value in the long run; and 2) diversification, because by spreading investments among several asset classes with varying degrees of liquidity, ”for any given level of risk, you can increase the return.”

These days, though, it seems both of Swensen’s credos have become passé in the community of corporate pension fund managers, as Reuters’ Sam Forgione reported late last week:

UF Weekend Reads

Don’t get pranked tomorrow. Remember, it’s April Fool’s Day. Here are the latest Weekend Reads as selected by Sam Forgione.


From Fortune:

Hedge fund manager Paul Singer’s hardball approach has benefited Republican candidates as his fund battles in court with nation’s that have defaulted on their debt.

From The Guardian:

Zoe Williams writes about how Stephanie Flanders, the BBC economics editor and a former speechwriter for Tim Geithner, relishes bad news.

Diversity on Wall Street, or a lack thereof

By Matthew Goldstein

The shooting death of Trayvon Martin, an unarmed black teen in Florida, has evoked a lot of debate about race in America and the nation’s attitudes to what it means to be a minority.

There’s been a good deal written that major media organizations were slow to react to this tragic story, in part because there simply aren’t enough minority voices on staff. This point was highlighted recently in a  story in The New York Times

That said, minorities also are underrepresented in the industry I spend most of my time writing about—Wall Street. And while it’s no secret that there are few minorities in the executives suites on Wall Street—there are not that many women, either—it’s worth taking look at some disturbing statistics.

UF’s Weekend Reads

Here is the latest edition of Weekend Reads courtesy of Sam Forgione. Enjoy.


From Barron’s:

The managers of hedge fund Cassiopeia are teaching a lesson or two on trading volatility.

From Bloomberg Businessweek:

Matthew Philips addresses regulatory efforts to catch up with the glitch mob known as high-frequency traders.

From CFO:

The committee that regulates auditing practices may lend an ear to to alternative suggestions to plan for companies to rotate auditors.

It’s Like Deja Vu All Over Again in the Las Vegas real estate market

Nordstrom Fail: One sign of Las Vegas' hard times is this failed Nordstrom store and accompanying shopping center that never advanced beyond the skeletal stage.

By Jennifer Ablan

Las Vegas had become the poster child of what many had pegged as the biggest casino during the real-estate boom, all which was engineered by cheap credit and a yearning for owning a piece of the American dream.

The economic toll of the financial crisis swept through towns and communities in terms of home foreclosures, devastated neighborhoods and half-built shopping centers and office complexes.

UF’s Weekend Reads

Here is Sam Forgione’s suggested weekend reads. Happy St. Patrick’s Day everyone. The calendar says March but it feels like mid-May in NYC.


From Dealbook:

Recent graduates are becoming disenchanted with Wall Street careers. Kevin Roose interviews a college grad, a recruiter, professor, and former Goldman employee support to make his point.

From Fortune:

Mina Kimes takes a look at James J. Wang, the head of the small and wildly successful OceanStone Fund, who she describes as being spectrally mysterious.

When it comes to its hedge funds, Goldman is on the CAIS

By Katya Wachtel

Goldman Sachs’s own hedge fund product  — like the now defunct Global Alpha — is generally reserved for the checkbooks of the investment bank’s wealth management clients. But not always.

For investors looking to get a piece of a Goldman hedge fund for a discount (and without having to actually be a Goldman private wealth customer) the investment bank is offering one of its commodity-focused hedge funds on a third party platform: CAIS.

CAIS Group, which opened its doors in 2009, already offers its customers an entree to brand name managers including John Paulson’s eponymous hedge fund, and Daniel Loeb’s Third Point.  The platform also includes John Thaler’s JAT Capital — one of 2011′s standout performers — on its shelf.