Banking Blood Bath

Very interesting albeit scary article about what is on the balance sheets of the big investment banks.

Nouriel Roubini's Blog: The bloodbath in credit and financial markets will continue and sharply worsen (2007-11-05)

It also points to this FT article (from 2007-11-04) predicting more write downs at Merrill Lynch, Citigroup, and UBS: What’s the subprime damage to banks?

The first article also looks into how many structured product assets are valued on an internal model valuation method, also named 'Level 3' (level 1 means you just take market prices, level 2 means you base your valuation on other prices of similar asset classes - level 3 basically means you make up your own prices).

Look at the info Citigroup just filed with the SEC today: they have $135 BILLION in LEVEL 3 ASSETS.

I have a neat idea.

Why don't we take every single major financial institution out there and then divide their total Level 3 assets by their equity capital base and make comparisons?

This will give us a better idea as to which of them may really remain solvent at the end of the day. Shall we?

Let's have a look at Citigroup. Their equity base is $128 billion. Therefore, their Level 3 assets to equity ratio: 105%

How about Goldman Sachs? Level 3 assets are $72 billion, equity base is $39 billion. Their Level 3 assets to equity ratio is 185%.

Morgan Stanley: $88 billion in Level 3, equity base is $35 billion. Ratio: 251% (WOW!)


Bear Stearns: $20 billion in Level 3, equity base is $13 billion. Ratio: 154%

Lehman Brothers: $35 billion in Level 3, $22 billion in equity. Ratio: 159%

Merrill Lynch: $16 billion in Level 3, $42 billion in equity. Ratio: 38%

Here is the Level 3 assets to equity ratio summary:

Citigroup 105%

Goldman Sachs 185%

Morgan Stanley 251%

Bear Stearns 154%

Lehman Brothers 159%

Merrill Lynch 38%

This becomes very interesting now, doesn't it?

Looks to me like Goldman Sachs and Morgan Stanley are by far in the WORST situation among the investment banks.

And yet the media is focusing all of their attention on Merrill Lynch---which actually has by far THE LEAST EXPOSURE of all of them.

BTW, UBS reported in third quarter 2007 CHF 23.4 billion in 'level 3' assets. This in addition to another CHF 21.6 billion in MBS and CDO assets. UBS has equity (without Goodwill) of CHF 33 billion.

IFRS

Here is an online version of IFRS as far as it has been adopted by the EU.

The individual standards are ordered historically by their adoption, so you might have to scroll down a bit...


Amazon (Germany) has a book version with both English and German text next to each other.


In case you wonder what IFRS is, here is the Wikipedia article.

Victor Niederhoffer

Blowing Up by Malcom Gladwell.

The Blow-Up Artist by John Cassidy.

Buffett Interview

Charlie Rose - Warren Buffett

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

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.

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.

STOCKscreener. i n f o

STOCKscreener.  i  n  f  o   is a new web site which provides a quick and easy way to search for interesting stocks to invest in and to access further information on the web about these financial instruments and their underlying companies.

At the moment you can see which stock moved the most, upwards or downwards, yesterday or for whatever timeframe you are interested in.

The stock performance list can be restricted to individual currencies or exchanges.

Hope it will be useful to somebody.

Marty Whitman

Interesting book by Martin J. Whitman and Martin Shubik: The Aggressive Conservative Investor


You can get a taste of Whitman's writings from his
shareholder letters.

See Marty Whitman talking about his investment philosophy.

ETF Providers

Europe's Top ETF Providers

Manager	AUM (Bia $)	Change p.a. %	Market share %	Change p.a. %
Lyxor Asset Management	22.31	73.7	24.9	1.5
Barclays Global Investors	21.97	76.2	24.5	1.5
IndEXchange AG	21.26	70.9	23.9	1.1
AXA/BNP	5.57	128.1	6.2	1.8
Credit Suisse Asset Management	4.67	36.4	5.2	-1.0
Credit Agricole Asset Management	3.33	30.1	3.7	-0.9
State Street Global Investors	2.49	60.7	2.8	0.0
XACT Fonder	2.48	33.6	2.8	-0.6
UBS Global Asset Management	1.65	24.1	1.8	-0.6
DVG-Deutsche Vermögensbildung GmbH	1.07	-54.4	1.2	-3.1

Source: Schweizer Bank magazine, June 2007

Buffett's Income

From: Times Online

Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.

This is interesting, as his salary as CEO of Berkshire used to be no more than $ 100'000 (might be doubled by now) and his billions worth of Berkshire stock yield zero dividend income.

Best Prices for Books in CH

http://www.billigbuch.ch/

The so called "Preisbindung" for books has been dropped in Switzerland (or so I heard). billigbuch.ch lets your compare book prices across all Swiss online sites.

You might still go and compare with amazon.de too, thought.

Indices Performances

Below is a selection of world indices and their performances for the last few years. Performance for 2007 (not annualized) is for the closing price as of 2007-04-03/4 (depending on the timezone).

No		Index	Ccy		2007	2006	2005	2004	2003
1.		BOVESPA	BRL	%	4.08	32.93	27.71	17.81	97.33
2.		SMI	CHF	%	3.05	15.85	33.21	3.74	18.51
3.		SPI	CHF	%	4.60	20.67	35.61	6.89	22.06
4.		Shanghai Composit	CNY	%	23.03	130.43	-8.33	-15.40	10.27
5.		Shenzhen Composit	CNY	%	57.04	97.53	-11.74	-16.59	-2.60
6.		DAX	EUR	%	6.80	21.98	27.07	7.34	37.08
7.		DJ EURO STOXX 50	EUR	%	3.07	15.12	21.28	6.90	15.68
8.		FTSE 100	GBP	%	2.34	10.71	16.71	7.54	13.62
9.		Hang Seng	HKD	%	1.23	34.20	4.54	13.15	34.92
10.		Mumbai Sensex	INR	%	-7.25	46.70	42.33	13.08	72.89
11.		Nikkei 225	JPY	%	1.85	6.92	40.24	7.61	24.45
12.		KOSPI 100 Index	KRW	%	3.56	4.52	52.51	9.25	31.57
13.		Bangkok SE Set Ind	THB	%	2.02	-4.75	6.83	-13.48	116.60
14.		DJ Industr Average	USD	%	0.38	16.29	-0.61	3.15	25.32
15.		EM	USD	%	2.68	29.18	30.31	22.45	51.59
16.		NASDAQ Comb Comp	USD	%	1.45	9.52	1.37	8.59	50.01
17.		S&P 500	USD	%	1.37	13.62	3.00	8.99	26.38
18.		The World Index	USD	%	3.29	17.95	7.56	12.84	30.81

A table with the absolute index numbers is located here.

Security Analysis

Security Analysis is a famous book by Benjamin Graham first published in 1934. Benjamin Graham is the so called father of "Value Investment" and teacher and mentor of Warren Buffett.

Another book by Graham, The Intelligent Investor, is even more famous. According to Kilpatrick in "Of Permanent Value":

Buffett has said, "I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.

Graham's Intelligent Investor is a popular version of Security Analysis, the classic study written by Graham and Columbia Professor David L. Dodd.

Nevertheless, it has been said, Buffett has red Security Analysis (and especially the 2nd edition from 1940) many times over.

I have heard him say, that he has read it from cover to cover more than a dozen times. He has read the other editions as well.

Security Analysis: The Classic 1940 Edition


The book plays also a major role (next to the bone scanner) in the movie The Pursuit of Happyness.











However, according to Wikipedia:

The film prominently showed the 5th edition of Security Analysis — black jacket, white, gold, red fonts — as the one that Dean Witter Reynolds required 60 unpaid interns to study for six months. The intern portion of the story is circa 1981; the 5th edition of Security Analysis was published in 1988; ergo, the film production prop department used the wrong edition.

The Pursuit Of Happyness


Oh yeah, and just for the record, the movie IS cheesy:)


Here is the real Chris Gardner (not so cheesy):
Chris Gardner - Excerpt from "The Pursuit of Happyness"

The Pursuit of Happyness Part 1

The Pursuit of Happyness Part 2