|
PureBytes Links
Trading Reference Links
|
There is a strange thing about derivatives ... they work well until they
don't and they usually work quite well until there is major stress put on
the system. Not unlike LTCM, some of the 7 institutions are loaded with
derivatives to a point where there their balance sheets are not remotely
capable of handling an unhinging. We are already seeing stress cracks where
the cream level of some CDO's (Collateralized Debt Obligations) are becoming
near-junk because the underlying levels have deteriorated i.e. that is what
the American Express $600m+ write-off was all about. BA just took a big
write-off of their lease holdings because the residual resale values of the
vehicles underlying the holdings plummeted. There are stress cracks
occurring in the financial system, and while I am not predicting that one of
these institutions will be taken down by derivative risk, the reserving of a
paltry $2 million against $43 trillion of derivative in a less predictable
economy is absurd. If the COC did not have some concerns in this regard, the
report would not have appeared as written.
Earl
----- Original Message -----
From: "Jacobson, Alex" <AJacobson@xxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Friday, August 17, 2001 4:44 PM
Subject: RE: [RT] Derivatives
> Kind of curious that you would assume otherwise. If the lion's share is
> concentrated in the big seven and none of them had problems .. the
> chargeoffs should have been tiny. Most of the stuff is interest rate ..
> over 80% .. with the balance being FX. The mix used to be different ..
> almost the opposite if I remember correctly. They only deal a very small
> portion of the trading with the smaller players therefore the chargeoffs
are
> .. as you would expect tiny. Could they become unhedged. Sure to a
degree,
> but that is why they have balance sheets.
>
> If you didn't have all this activity ... you have very very little
interest
> rate trading and huge vol. swings and risk. Which would you prefer.
>
> -----Original Message-----
> From: Earl Adamy [mailto:eadamy@xxxxxxxxxx]
> Sent: Friday, August 17, 2001 4:14 PM
> To: Realtraders
> Subject: [RT] Derivatives
>
>
> Very interesting report from Office of Controller of Currency Bank
> Derivatives Report. The entire 23 page report complete with tables can be
> found at http://www.occ.treas.gov/ftp/deriv/dq101.pdf. The tables show
> tremendous concentration of derivative leverage, holdings, and risk among
7
> banks. Needless to say, with the entire global financial system under
> stress, there is significant risk that hedged derivative positions will
> become unhedged.
>
> One paragraph stands out: "During the first quarter of 2001 banks charged
> off $2 million due to credit losses from derivatives, or .0004 percent of
> the total credit exposure from derivative contracts. For comparison
> purposes, net loan charge-offs relative to total loans for the quarter
were
> .18 percent." $2 million out of $43.9 trillion!!!
>
> Earl
>
>
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
> Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
>
>
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
> Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
>
>
>
To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
|