Friday, September 14, 2007

Buffett Interview

Charlie Rose - Warren Buffett

From 2007-05-7, watch it while they still haven't pulled it.

Thursday, September 13, 2007

The IKB Desaster

Background article by The Economist: Sold down the river Rhine

As an excercise here are some excerpts from the IKB 2006/7 annual report (when everything looked shiny and sunny).

Page 42 f.:
The capital released through our securisation activities over recent years has been used to expand our national and international lending business. Additionally, the capital has also been used to invest in international loan portfolios. Two thirds of our investments are focused on US investment-grade portfolios (including, for example, credit card claims, mortgage loan claims and corporate loans), with the remaining third being invested in similarly structured European portfolios.

However, we also utilise our wealth of expertise in this area to advise external companies - against a fee - on their own investments in international loan portfolios. This applies in particular to the Rhineland Funding Capital Corporation in the US. Based on our advise, this company is investing in portfolios comparable to those in which IKB is itself investing. In this way we ensure that the same quality standards that apply to the bank are also applied to third parties.
Page 50:
A gratifying increase in net commission income was also recorded, up by 19.2% to EUR 108 million. Half of this income resulted from structuring fees and commission earned in the Corporate Clients, Real Estate Clients and Structured Finance segments, with the other half being contributed by the Securitisation segment from advisory fees relating to the Rhineland Funding conduit.
Page 53:
As in previous years, the main focus of our activities were the placement of credit risks and investments in international loan portfolios. Overall, credit risks in the amount of EUR 4.7 billion were placed during the reporting period. Our investment in international loan portfolios totalled EUR 1.2 billion (EUR 2.1 billion), resulting in a slight increase in the portfolio to EUR 7.0 billion (EUR 6.8 billion).

The Rhineland Funding Capital Corporation, a conduit for which we have assumed an advisory function, increased its investment portfolio to EUR 12.7 billion (EUR 9.7 billion).
Page 77:
We expect an investment volume of EUR 20 billion (currently EUR 12.7 billion) for tge Rhineland Funding conduit, and a volume of EUR 10 billion for Rhinebridge.

In short, this means that the IKB Group will continue to grow over the coming years.
Page 182 f.:
Other commitments include credit commitments totalling EUR 11.9 billion (prio year: EUR 11.2 billion) in favor of special purpose companies, which can only be utilised by these companies in case of a short-term liquidity squeeze.

The figures presented reflect the amounts which would have to be paid out in case the customer fully draws on the relevant credit facility. The largest portion of these obligations by far will probably expire without ever being utilised. The figures are not representative for the actual future credit exposure or for liquidity requirements resulting from these obligations.
Now compare this to the EUR 32 billion which Deutsche Bank has invested in similar conduits, which is roughly the size of its equity. In comparison IKB had equity of EUR 1.4 billion at 2007-03-31.

The Rhine (right side) where it meets the Mosel river (left) by Koblenz at the so called Deutsche Eck.

Wednesday, September 05, 2007

Deutsche Bank And The Sub-Prime Crisis

Here are the slides of the presentation Joseph Ackermann gave on 2007-09-04 regarding Deutsche Bank's exposure to the Sub-Prime crisis in order to calm down the market.

It is in German.