6 Oktober: Blutzeuge

Bankenputsch

Bloomberg
German Government Leads Hypo Real Estate Rescue Talks
By Hellmuth Tromm and Oliver Suess

Oct. 5 (Bloomberg) -- The German government led talks to salvage a 35 billion-euro ($49 billion) bailout plan for Hypo Real Estate Holding AG after the ailing property lender said commercial banks withdrew their support late yesterday.

``I'm pretty shocked that this bank's management has revealed another liquidity gap of an unforeseen size,'' German Finance Minister Peer Steinbrueck said in Berlin today in comments broadcast by ARD television. ``We will have to start over again from last weekend's meetings. Hypo Real Estate has to be stabilized otherwise the damage would be unpredictable.''

The government and the Bundesbank have repeatedly said that Hypo Real Estate, the nation's second-biggest property lender, is too big to fail. The negotiations to save it occur as the Belgian government is attempting to rescue Fortis, that nation's largest financial-services company, after a previous bailout also went awry amid the intensifying global credit crunch.

Steinbrueck's comments ``indicate that in the end it will boil down to a bailout,'' said Kerstin Vitvar, a Munich-based analyst at UniCredit SpA who has a ``sell'' rating on the shares. ``Shareholders will end up almost empty-handed.''

The government won't raise the size of its pledged guarantee, newswire Deutsche Presse-Agentur reported, citing Volker Kauder, parliamentary chairman of Chancellor Angela Merkel's Christian Democrats. Private banks promised to contribute their share to a rescue today, he added, without elaborating, DPA said.

Government Guarantee

The German government offered today to fully guarantee personal savings accounts in a bid to ease concerns about the stability of the nation's banking system amid the global credit crunch. Until now, private savings accounts, including the accounts of small, privately held companies, have been guaranteed by 180 banks in Germany. This covers 90 percent of an account's balance to a maximum of 20,000 euros.

Hypo Real Estate's shares have declined 79 percent this year, valuing the Munich-based company at 1.6 billion euros.

Hypo Real Estate's financing needs exceeded the bailout plan guarantee, German newspaper Die Welt reported yesterday, citing unidentified people in the finance industry. It will need 20 billion euros by the end of next week and 50 billion euros by the end of the year, according to the newspaper. As much as 100 billion euros may be needed to shore up the bank's finances by the end of 2009, Die Welt said.

`Absurd' Report?

``A financing need of 100 billion euros as reported by Die Welt is absurd from today's perspective,'' Hypo Real Estate spokesman Hans Obermeier said in a telephone interview today.

Heiner Herkenhoff, a spokesman for the German BDB banking association, declined to comment on the figures. Bundesbank spokesman Christian Burckhardt said Bundesbank President Axel Weber is participating as an adviser to the government in the discussions.

``The financing situation has further deteriorated over the past week because of the speculation about a possible wind-down of the company,'' Obermeier said.

In the failed rescue plan, the Bundesbank planned to help contribute 20 billion euros to a credit line for Hypo Real Estate, while a group of unidentified banks agreed to provide another 15 billion euros. The plan called for Hypo Real Estate to use 42 billion euros in assets, mostly debt owed by government borrowers, as collateral.

Funding Squeeze

The lender sought the lifeline after its Dublin-based Depfa Bank Plc unit, which specializes in government lending and depends on now-closed money markets for funding, failed to get short-term funding amid the credit crunch.

Failure to provide the rescue package ``may have triggered unpredictable consequences for the German financial and economic system similar to those of the collapse of U.S. financial group Lehman Brothers,'' the Bundesbank and BaFin said in a joint letter dated Sept. 29 and addressed to Finance Minister Steinbrueck.

``If we had not acted, the bank's crisis wouldn't have just hurt the financial sector, but its network of business would have hurt the real economy, in Germany and beyond,'' Steinbrueck said the same day.

Hypo Real Estate, run by Chief Executive Officer Georg Funke, 53, since it was spun off from HVB Group in 2003, reported a surprise 390 million-euro writedown on collateralized debt obligations on Jan. 15. The company said Aug. 13 that second- quarter pretax profit plunged 95 percent because of further markdowns on debt-related investments...

SEC Says Short Selling Ban Ends Wednesday Evening 8 October

Reuters
SEC short-selling ban to expire Wednesday night
Fri Oct 3, 2008 5:34pm EDT

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission announced on Friday its ban on financial stock short-selling will expire at 11:59 p.m. ET on Wednesday, October 8.

Earlier in the week, the SEC said the ban would expire three business days after a $700 billion federal bailout bill was enacted by Congress. The emergency ban was part of a series of government measures designed to restore confidence in battered markets and the ailing financial system.

Charts in the Babson Style for the Week Ending 3 October 2008

Gangs of New York

Edmund Burke "Among a people generally corrupt liberty cannot long exist."

Hedge funds acting in a predatory manner towards other funds is like a dog bites man story.

However there are a few new things in this story worth pointing out.

According to this report Goldman Sachs is disclosing the most largely held positions of some hedge funds and distributing the list to others with the objective of fomenting a group effort in shorting them, artificially driving down the price, creating more forced redemptions and losses for the fund investors.

Can you imagine if some other company was doing that? With the financial stocks?

Think the elimination of the uptick rule and the widespread toleration of naked shorting is an accident?

The second point of interest is the targeting of specific sectors such as emerging markets, mining, and energy stocks.

What this will accomplish, beside the obvious short term racketeering, is to exaggerate the downward move in some prior favorites, setting up some potentially lucrative short covering rallies when the stocks reach ridiculous valuations on the forced selling and targeted shorting, after the trading banks cover their shorts and buy in for pennies on the dollar.

And don't think for a minute that Goldman and their ilk does not have a 'most shorted' list that it is circulating around to its own select group of traders to target those buys.

We still wonder if some of the Wall Street banks are using their privileged information to short squeeze the European banks who they loaded up with fraudulent debt and are now in dire need of short term dollar liquidity. This is a classic rip-their-face-off after you kick them maneuver.

Its like setting a fire in a crowded theatre after having charged high admission prices for a musical production that did not exist, and then having thugs at all the exits to charge even stiffer fees to leave the building.

And watch to see who benefits the most from this bailout plan and what they do with your money.

The Financial Times
Hedge funds prey on rivals
By Henny Sender in New York
October 2 2008 23:34

Hedge funds are embracing trading strategies designed to profit from the unwinding of large positions by their competitors, market participants say.

The increasingly cannibalistic activity stems from the wave of redemptions hitting hedge funds.

Because so many firms hold similar positions, forced selling by one in response to redemptions can have ripple effects, forcing other funds to sell.

More nimble hedge funds have sought to profit from the dynamic by taking short positions in securities known to be widely held by rivals. Goldman Sachs publishes a list of 50 “very important” hedge fund positions.

In its Wednesday update Goldman said: “Forced selling to cover redemptions and deleveraging . . . has put downward pressure on selected stocks.”

A favourite strategy of hedge fund managers during the bull market – mimicking the positions of others – has been turned on its head, Goldman said. “Buying the most concentrated stocks . . . has been a poor strategy during the current bear market.”

The announcement last month that Ospraie Management was winding down its flagship fund encouraged predatory activity.

One Hong Kong-based manager sent a note urging friends to short emerging and mining shares favoured by Ospraie.

Some hedge fund managers say they have been monitoring the positions held by Ospraie, if only to be ready if other funds with the same positions are forced to liquidate their holdings.

“I certainly wouldn’t want to be long any of these companies,” said one. “I want to lock up six-month borrowing on these shares and short them.”

Ospraie’s founder, Dwight Anderson, told investors on September 4 that 60 per cent of its losses in July and August stemmed from equities, mainly in energy and mining.

Its largest position was in Xto Energy, which had dropped from $73.74 in June to just under $43 and was among the 20 most widely held stocks by hedge funds, according to Goldman, Mr Anderson said.

Firms are also monitoring Deutsche Bourse because of a big position in its shares held by Atticus, which has told investors in its main hedge fund it is down 25 per cent so far this year.

Greenlight Capital, the hedge fund run by David Einhorn, told investors in a letter on Wednesday it was down 17 per cent so far this year, in part because “investors have been unwinding trades that they otherwise believe make sense”.

Greenlight said it would “try to be opportunistic” in response.