AIG plans $20 billion asset sell-off to shore up capital

September 14, 2008 by · Leave a Comment
Filed under: Industry News 

The most interesting piece of this article was the mention at the bottom that stated AIG has lost $18 billion in the last 3 quarters from the next boot to drop, credit-default swaps or CDS.

This is just another sign that the unregulated credit-default swap market is the real lurking dragon on the market and all of these aggressive actions to keep companies from going bust with a lot of these CDS on their balance sheet making them go default and then you would have a situation where many of these CDS dealers could not have the capital to pay the counter-party.

Article:

American International Group (AIG), the world’s biggest insurer, is planning a $20 billion asset sell-off as it fights to correct a slump in its shares and braces for the impact of Hurricane Ike, the Sunday Times said.  The newspaper, without citing sources, said details of the plan could come as early as Monday.

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Fannie, Freddie Seizure May Trigger Default Swaps on $1.4 Trillion of Debt

September 8, 2008 by · 1 Comment
Filed under: Industry News 

Is this the event that put us over the edge? $1.4 trillion is no small number. It looks like Freddie and Fannie debt were one of the most actively traded CDS contract and the market makers and major dealers are in conference on how to settle these contracts. In the article they discuss that is the bond were to rally and trade near par value then the losses could be minimal but I wouldn’t bet on it. This will be interesting to follow.

Article:

Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.

Thirteen “major” dealers of credit-default swaps agreed “unanimously” that the rescue constitutes a credit event triggering payment or delivery of the companies’ bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.

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GSE’s subordinated debt unlikely to trigger credit default swaps (CDS)

August 26, 2008 by · Leave a Comment
Filed under: Economic News 

Could this be the hidden grenade that will start the CDS market to implode?   Most likely not, but if you read the details, the government would have to step in at a point for it not to be considered a default under the credit default swap contracts.

What does this mean?

Most importantly it would mean more treasury printing to cover these payments which would in-turn mean more price inflation as we inject money into the system to cover these liabilities.  Keep an eye out for any press about the CDS market, please goto out “About” page and email us if you think your find is news worthy and we will cite you in the post.

Release:

Sellers of protection on Fannie Mae subordinated debt are unlikely to be required to pay out on the contracts even if the mortgage finance companies defer interest payments.

Losses from residential mortgages the companies guarantee have created concerns Fannie and Freddie may defer coupons if capital levels fall below minimums required by regulators.

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Banks to clear credit default swaps through clearinghouse by end of year

July 31, 2008 by · Leave a Comment
Filed under: Industry News 

While reading the morning business news this morning, I came across this snippet. This is the third time we have heard about this central clearinghouse for the corporate debt insurance known as “credit-default swaps”. According to the Bank of International Settlements (BIS), we had $596 trillion dollars of derivatives running around in the OTC market. It is not certain how much of this are credit-default swaps. I am waiting for them to release more concrete information on how this is going to work and if the clearinghouse will actually take on any of the liability of these derivatives?

Here is the snippet from Bloomberg:

Banks that handle about 90 percent of the trading in credit-default swaps told regulators today they will start processing trades through a central clearinghouse by the end of the year.

Dealers including JPMorgan Chase & Co., Deutsche Bank AG and Morgan Stanley said in a letter to Federal Reserve Bank of New York President Timothy Geithner that they will start putting U.S. credit-default swap index contracts through the clearinghouse by Dec. 31. The clearinghouse would be designed to absorb losses in the event a major market-maker fails.

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