The Unbearable Lightness of Being an Investment Bank

The substance of even the largest financial constructs and empires remains exceptionally ephemeral.

"Ubi sunt qui ante nos fuerunt?"

Merrill losses wipe away longtime profits
By Francesco Guerrera in New York
August 28 2008 23:32
The Financial Times

Merrill Lynch’s losses in the past 18 months amount to about a quarter of the profits it has made in its 36 years as a listed company, according to Financial Times research that highlights the extent of the global banking crisis.

Since the onset of the credit crunch last year, Merrill has suffered after-tax losses of more than $14bn as its balance sheet has been savaged by almost $52bn in writedowns and credit-related losses.

The $14bn in losses for 2007 and the first two quarters of 2008 equal half of Merrill’s profits since the beginning of the ­decade.

Merrill had the highest ratio of credit crunch losses to historical profits among 10 US and European financial groups analysed by the FT, which included Citigroup, JPMorgan Chase, Bank of America, Morgan Stanley, Goldman Sachs, Lehman Brothers, Bank of America, Credit Suisse and UBS.

UBS, which has lost more than $15bn during the crisis, had the second-highest ratio.

UBS and Merrill – a Wall Street pioneer that revolutionised finance with its “thundering herd” of retail brokers – declined to comment.

Since taking over from Stan O’Neal in November, John Thain, Merrill’s chief executive, has sought to shed toxic assets and replenish its balance sheet by raising almost $30bn of capital.

The size of the losses at Merrill and other Wall Street firms underlines the risks of an investment banking model that relied on complex securities and cheap leverage to drive profit growth. (This sounds like a general description of the US industrial policy since Reagan - Jesse)

Analysts have questioned whether standalone investment banks such as Merrill, Lehman, Morgan Stanley and Goldman will ever top the profit levels reached during the boom in securitisation, leveraged loans and mortgage-backed products.

“The mammoth writedowns suffered by investment banks across the globe show that their business model needs to change,” said Robert Gach, head of the global capital markets practice at Accenture, the consultancy.

Merrill’s historical profits were adjusted for inflation by using a methodology from www.measuringworth.com, an academic website.

The Oil Complex Buttons Down while the NYMEX Opens Early

Most U.S. Gulf oil output shut as Gustav threatens
Sun Aug 31, 2008 9:55am EDT
Reuters

U.S. crude oil fell from a record high $147.27 a barrel in July to close at $115.46 on Friday.

The New York Mercantile Exchange on Saturday moved up Sunday's start time for electronic trading of energy contracts to 2:30 p.m. EDT from 6 p.m. EDT. (To facilitate the evacuation of the oil shorts? Or to enable the spin that its no big deal and the Strategic Petroleum Reserve will provide emergency aid? Stay tuned. - Jesse)

Katrina and Hurricane Rita that followed on its heels destroyed 124 offshore platforms, temporarily shuttered about 30 percent of U.S. refining capacity and left nearly a quarter of offshore Gulf oil production shut up to nine months later.

The Gulf provides a quarter of U.S. oil output and 15 percent of natural gas production.

Shell, the region's largest producer at 370,000 barrels of oil equivalent per day, was shutting all offshore oil and natural gas production on Saturday.

BP said it was also shutting its Gulf production on Saturday, while Exxon Mobil Corp said 5,000 barrels of oil output and 50 million cubic feet per day in natural gas production was shut by Saturday morning.

PRODUCTION CUTS

Six Louisiana refineries that process 1,305,000 barrels per day of crude oil -- 7.4 percent of U.S. refining capacity -- were closing down for the storm, while a total of 12.4 percent of U.S. refining capacity had been affected in someway.

Mississippi River traffic south of New Orleans closed at 6 p.m. CDT. Ship channels into Lake Charles in west Louisiana and Beaumont and Port Arthur in east Texas planned to shut by Sunday night, cutting off crude oil shipments to refineries.

The Louisiana Offshore Oil Port, the only U.S. deepwater port capable of offloading giant oil tankers, stopped taking crude from ships on Saturday, a spokeswoman said, but continued to supply refiners from onshore crude oil tanks.

Gustav Intensifies to Category 4 Hurricane, May Turn More Deadly

FEMA says Gustav soon to be rated Category 5 storm
Aug 30 03:34 PM US/Eastern
By JENNIFER LOVEN
Associated Press Writer

WASHINGTON (AP) - The government's disaster relief chief says Hurricane Gustav is growing into a monster Category 5 storm. The storm that hit Cuba Saturday could reach landfall along the Gulf Coast by early Tuesday.

Federal Emergency Management Agency chief David Paulison told reporters several times at a briefing Saturday that the storm was strengthening into a Category 5 hurricane.

FEMA officials said Bill Read, the director of the National Hurricane Center, interrupted an afternoon teleconference involving the agency, Gulf Coast states and the National Weather Service to say he is going to issue a special advisory statement raising Gustav to Category 5. That means winds greater than 155 mph and a storm surge greater than 18 feet above normal.

Word about the Category 5 development reached FEMA shortly before Paulison briefed reporters.

THIS IS A BREAKING NEWS UPDATE.

Courtesy of Joe Bastardi, chief hurricane forecaster for AccuWeather – www.AccuWeather.com – here is the map every investor needs to keep at his or her fingertips. It shows the hurricane path that Bastardi says would cause the greatest damage to offshore and onshore energy facilities in the U.S. Gulf of Mexico. In an interview with EnergyTechStocks.com, Bastardi called it the path of the “Ultimate Storm.”

Energy experts say the ultimate storm would send spot oil and gas prices up sharply and keep them there for an extended period unless, by some miracle, the damage inflicted was only minor. (It would probably be several days before oil company personnel could conduct a full assessment.)