NakedShorts

Then two-thirds of my hair fell out

Unexpected peril amid the toiletries at a Courtyard by Marriott where NakedShorts was briefly interned during his recent vacation...

Poisoning the markets latest

Oh, different Dr Crippen. Never mind.

Dr Crippen Named Senior Advisor To Chairman

US Securities & Exchange Commission press release

Oct. 7 2008

 

And now, the real fun starts

Covering, or not, all those CDS chitties

Given the total absence of chaos in global financial markets, the next three weeks or so provides an excellent window to be getting some real datapoints on just what proportion of the notional $54 trillion in outstanding credit default swaps are worth as much as the Post-It notes that more than a few of them are written on.

The International Swaps and Derivatives Association (headed by the eponymous, if slightly misspelled, Robert Pickel, chief executive) will, starting today, begin the process of settling up the fallout from the implosions of Phoney and Fraudy, Lehman Bros and Washington Mutual. Meaning that by the end of this month, if not before, word should start leaking about just whose — in some cases, long since incinerated — premium income is going to come up somewhat short of their contractual obligations.

Today’s action involves as much as an estimated $500 billion of contracts covering Fannie Mae and Freddie Mac debt which could, assuming a recovery of 85 cents, trigger obligations of $75 billion. The key words being “estimated” and “assuming” because, as is standard operating procedure in the foggy morass of CDS swamp, everybody’s guessing: “the number of derivatives that reference Fannie and Freddie is not known,” according to The Financial Times, failing to mention the somewhat relevant facts that nobody is much more enlightened as to who’s on the hook, and whether or not the hookees have kept chips in hand for the croupier’s call.

Despite being the largest test of ISDA’s CDS settlement protocol so far, the potential fallout will be substantially attenuated by the fact that the GSEs’ debt is now explicitly guaranteed, and likely exceeds, by a considerable margin, the value of the contracts written against it. So consider this a practice run for the the Lehman Bros and WaMu punch-ups, currently scheduled for Oct. 18 10 and Oct. 23 respectively.

Noted with interest: 60 Minutes ran a piece last night that managed to conflate the CDO and CDS issues; it included a brief interview with Pickel notable for three things:

• His deer-in-the-headlights expression; 
• The silence between questions and his answer; and 
• A doubtless National Rifle Association-inspired statement that “There’s nothing wrong with credit derivatives,” or words to that effect.  

Credit derivatives market faces $500bn mortgage settling test

by Aline van Duyn

The Financial Times Oct. 6 2008

Background reading

International Swaps and Derivatives Association Inc

Plain English Summary: Fannie/Freddie CDS Auction Methodology

List of adhering parties

ISDA Protocol Timeline

Cough, cough, cough...hack...cough

...our exposure to AIG is offset by
collateral and hedges and is not material
to Goldman Sachs in any way...

So, two things, Lucas (Lucifer, surely? - Ed) van Praag, spokesman for Goldman Sachs. How about:

1. Disclosing net exposure to AIG, including details of the alleged collateral and hedges, and the alleged financial viability of the alleged counterparties to those alleged transactions, and
2. Applying to the New York Stock Exchange for removal from the protected species list. 

I thought so. 

Goldman Sachs faults NY Times story on AIG risk
Reuters Sep. 28 2008

Earlier on NakedShorts

Porkie du Credit Shambles
Sep. 29 2008

These, folks, are our leaders

If a country gets the government it deserves, the eponymous Duncan Hunter (R-Cal.), ranking member of the House Armed Services Committee, just broke from the large field of contenders seeking the role of Exhibit A.

Hunter’s staff contacted the embassy in N’Djamena, Chad, last week to see whether Hunter could distribute food at a [refugee camp housing some of the 230,000 to have fled the genocide in Darfur]. Hunter wanted to put together an outing to hunt wildebeest and distribute the meat to refugees.

So, the killjoy bureaucrats at State Department stepped in:

Regarding the Congressman’s desire to hunt wildebeest and distribute the cured meat to refugees, wildebeest are not present in Chad.

Hunter, however, has the entire situation entirely under control.

Hunter’s office called State on Thursday and said he had decided not to go and that he was looking instead at commercial hunting expeditions in Kenya, Tanzania and Southern Africa.

Rep. Moron is doubtless fantasizing about the tiger he’ll kill.

And a Wildebeest in Every Pot
by Al Kamen
The Washington Post Jul. 23 2008

One too many at the Oakmont bar?

Or maybe The New York Times should just have the sports guys stay the hell away from the business beat, even when the story is about ownership machinations at the Pittsburgh Steelers. According to my mucky fingers edition yesterday:

In an effort to maintain control, Dan Rooney reached out to Stanley Drunkenmiller, a Steelers fans who is the chairman of Duquesne Capital Management and a former money manager for George Soros, the billionaire investor.

“Drunkenmiller is one of the wealthiest men in Pittsburgh, and Dan really trusts him,” the lawyer said.

Under one plan, Drunkenmiller would buy a large stake and allow Dan Rooney and his son, Art II, to run the franchise. Under another proposal, Drunkenmiller would buy the entire franchise.

Druckenmiller. They caught it for the pixellated version.

Split of Rooney Brothers Could Force Steelers’ Sale
by Michael S. Schmidt
The New York Times Jul. 9 2008

Mr Schulte goes to Washington

TIME SINK ALERT (5:37)

The siren call of the financial-regulatory complex has another...ummm...victim?

Schulte Roth & Zabel, best known for its investment funds [hedge fund] clients, Tuesday announced plans to open an office in Washington DC. The announcement coincides with the hiring of several securities litigation lawyers from Washington DC’s Dickstein Shapiro and national firm Morgan, Lewis & Bockius...

. . .“We are adverse to opening up other offices but after much deliberation felt this was a necessity for us to be able to maintain our position with our existing clients.”

Schulte Roth & Zabel to Open Office in DC
by Brian Baxter
The American Lawyer Jul. 2 2008

Damgard? Scamgard? Whatever

FIA boss pleads for Scammy

One sure sign of having way too much time one’s hands is digging through pre-sentencing court filings, and especially the letters from friends and family attesting to the defendant’s generally wholesome nature, wonderful family, health issues and other allegedly redeeming virtues and excuses. It’s all entirely predictable, and generally falls somewhere in the continuum between risible and pathetic.

Which does raise the question of what John Damgard, the long-time president of the Futures Industry Association, was thinking on Jan. 9 2006 when, in his official capacity no less, he went to bat for Bayou founder Samuel Israel III. Yup, the president of the futures industry trade association putting in a good word for someone who ranks high on any list of financial flim-flam artists.

Good work, John, sends just the right message. And coming to light on a day when the bizz is running into an egg-splattering for its core philosophy of We Keep The Winners, The Customers Take The Losers.

To Whom It May Concern
John Damgard, President,
Futures Industry Association
in re: US v. Samuel Israel III

At last, a Citadel IPO

Just not that one.

Citadel in Talks With Four Banks for $200 Million IPO
by Will McSheehy and Mahmoud Kassem
Bloomberg Feb. 26 2008

Citi Alternatives: Here we go again

Citi has announced the appointment of Ned Kelly as president of its perenially dysfunctional alternative investments division. Apart from, appropriately enough, being named for an Australian highwayman, bank robber and folk hero, his resume summary speaks to an impressive career:

Mr Kelly joins Citi from The Carlyle Group. Prior to joining Carlyle in 2007, Mr Kelly served as Chairman, Chief Executive, and President of Mercantile Bankshares from 2001 through March 2007. Before Mercantile, Mr Kelly was a Managing Director at JP Morgan Chase Co, where he was a Managing Director and head of Global Financial Institutions and co-head of Investment Banking Client Management. Mr Kelly was previously a partner at the law firm of Davis Polk & Wardwell.

Surprisingly, however, that snapshot omits Kelly’s most famous prior involvement with alternative investments. It was on his watch that Mercantile Bankshares ran up some stink-and-pixels in a nasty little spat in 2004 over who knew what and when about whose Mom was getting commissions on hedge fund investments made by the bank’s funds of funds. People were fired, attorneys were involved, checks were written and the bank eventually succumbed to the charms of PNC, where Kelly was briefly vice chairman.

In the midst of that controversy, Kelly was able to point out that the funds were profitable for their investors. Not a charge often leveled at Citi Alternative Investments.

Citi Announces Three Key Hires
Press release
Jan. 29 2007

Dong dinged

One of the best things about any self-respecting securities snafu is the time it takes to disinter the bodies. More than four years after Eliot Spitzer publicly executed mutual fund market timing as an investment strategy, the US Securities and Exchange Commission announced Friday that it had settled its beef with Chronos Asset Management Inc and its principal, Mitchell L. Dong, who agreed to cough up more than $400,000 in fines and prejudgment interest, along with a civil penalty of $1.8 million.

Chronos and Dong were among the largest hedge fund players in the market-timing racket, and did much of their business through Prudential Securities’ Boston office; however, it also got into late-trading game through the not-so-good offices of those old stagers Clearing Broker A and Clearing Broker B.

Dong was also suspended from association “with any investment advisor” for 12 months, which might take some of the glow off his latest venture. Assuming, somewhat bravely given the complexities of these things, the ban covers unregistered advisors as well as those in submission to the SEC’s yoke.

Chronos Asset Management Inc and Mitchell L. Dong
US Securities and Exchange Commission
Jan. 25 2008

Earlier on NakedShorts:
Mitchell Dong goes radioactive
Apr. 12 2007

Butte kicked

MF Global CFO departs

Breaking with the habits of a lifetime, NakedShorts at least temporarily* declines irresponsible media speculation on reasons behind the departure last week of futures brokerage MF Global (MF) chief financial officer Amy Butte to pursue “other interests” (as opposed to spending more time with her family). But, trampling merrily into the vineyard normally occupied by Michelle Leder’s Footnoted, the ‘transition agreement’ filed with the US Securities and Exchange Commission late Friday did contain some light entertainment: 

The Company will continue to allow you access to the Core Club under the Company’s membership for 18 months following your Transition Date, provided that such access is provided at no cost or expense to the Company, including assessments or dues (not otherwise required of the Company as of your Transition Date) and including food, beverages, rooms or other purchases at the Core Club or through its auspices after the Transition Date. You agree to indemnify the Company against any costs, expenses or other liabilities arising by reason of such continued access (excluding, for the avoidance of doubt, assessments or dues required of the Company as of your Transition Date).

The Core Club? Well, I’d never heard of it either, but—assuming reports of its $55,000 initiation fee and $12,000 annual dues are accurate—that’s another den of pretentious arrivistes where this particular Grouchy won’t be seeking membership any time soon. Regardless of the “continuously unfolding collection of essential and irresistible experiences” and yards of similar allegedly inspirational twaddle.

* Subject to review in the event that any of NakedShorts’ reliable more-often-than-not sources proffer insight on the back story.

Transition Agreement: Amy Butte
US Securities and Exchange Commission Form 8K
Jan. 4 2008

The Core Club

The Core Club
Thrillist Sep. 2 2005

Image: Portfolio

UPDATE: Man Financial at the Core Club…
Footnoted Jan. 7 2008

New to the financial glossary

Last week’s news flow delivered several new entries to the financial glossary.

eddifarce: A largely empty retail emporium. Usage:

The local Sears is, by the standards of most stores at this time of the year, an eddifarce.

kenema: a rapid, dramatic and downward portfolio revaluation. Usage:

Griffin offered to help out, and we ended up with a kenema.

kengenious: showing inventiveness and skill. Usage:

Citadel came up with a kengenious way of solving our problem to their complete satisfaction and great profit.

kengenuity: the lost art of averaging down

Citadel showed great kengenuity in dropping its Beazer Homes (BHC) basis from $47 on Dec. 30, 2006, to just $8.25 on Sep. 30, 2007, according to its SEC filings.

kentropy: a measure of the disorder in everybody else’s systems. Usage:

Financial kentropy increases as the drekk in the universe degrades to an ultimate state of inert uniformity.

lampertize: the act of being horribly misunderstood by Wall Street’s Finest. Usage:

When other companies manage expenses carefully, it is often characterized as a sign of good management and prudence. In the case of Sears Holdings, meanwhile, expense controls are often lampertized as a root cause of poor performance.
To our associates

Additional entries welcomed. Post in the comments below, or email the grinning idiot above right.

That probably figures

The US Bankruptcy Court in Chicago yesterday delayed, until today, naming a trustee for Sentinel Management Group Inc. Among the leading candidates (and we can’t do much about our family names so, for the elimination of doubt, this is not a dig at the candidate):

Fred Grede.

According to various droppings around the Internet, Grede is a former executive vice president of the Chicago Board of Trade (RIP), former chief operating officer of Hong Kong Exchanges and Clearing Ltd and chief executive of the Hong Kong Futures Exchange, and, most recently, chairman of Vega (no known relation) Financial Engineering Ltd, a consultancy specializing in international derivative markets.

What commodities?

In Barron’s Jul. 30 edition, NakedShorts’ alter-ego suggested that one possible reason for the surge in managed futures’ assets—which have more than tripled to pass $170 billion since 2002, the last year they beat the S&P 500—may be some element of investor discombobulation:

...And perhaps some of it is a perception disconnect. Managed futures are widely viewed as a proxy for commodities. Its managers are regulated as “commodity-trading advisers” and “commodity-pool operators” ultimately by the Commodity Futures Trading Commission. Yet it's been a long time since commodities dominated the holdings of advisers specializing in managed futures...

It’s an old obsession. A really old obsession. And who for a moment thinks that anybody’s going to take any more notice today than they did more than three years ago?

What commodities?
by Greg Newton
MAR Apr. 2004

Becalmed No More [$$}
by Greg Newton
Barron’s Jul. 30 2007

No good work goes unpunished

I said, write him a check. Did you listen? Noooo...

Senator Chuck Grassley, already a past winner of NakedShorts’ eagerly sought Moron du Jour Award, grabbed tunnzapixels yesterday with his savagely cynical assault on The Robin Hood Foundation, the hedge fund industry’s leading charity:

“I don't remember Robin Hood keeping two and 20 as his cut,” says Senator Charles Grassley of Iowa, the top Republican on the tax-writing finance committee...

The comment showed up in a Bloomberg story reporting that about half the foundation’s $144.5 million rainy-day fund is invested with hedge funds run by Robin Hood donors or board members, who collect “industry standard” 2/20 fees. Grassley, currently a fully-paid member of the jihad against the tax-advantaged—always excepting his ruddy-faced corn-growing ethanol-scam-beneficiary constituents—is concerned that managers are taking charitable donations as a chance “to do well for themselves and forget it is about doing good for others.”

So at the risk of spoiling Grassley’s story by allowing a fact or two to creep into debate, let’s look at fact or two that mostly didn’t make the Bloomberg cut:

The world's most used headline

Criminal Probe Snares Morgan Stanley VP

A stock-loan investigation has prompted one executive to resign. Individuals at Bear Stearns and Janney Montgomery Scott are also under scrutiny.

The resignator? Peter Sherlock. No relation, obviously, but good for a Games with Names entry.

Criminal Probe Snares Morgan Stanley VP
by Matthew Goldstein
BusinessWeek Jun. 21 2007

Shondell gets all Mo(a)ny, Mo(a)ny

1. Shondell Sabad is chief operating officer of Solenga Capital, the new shame-free investment advisor headed by Amaranth-killer Brian Hunter.

2. He was friendly, but somewhat less than entirely amused, that this blog posted a copy of the entirely shame-free Solenga Capital promotional brochure. Which has now, however regrettably, departed these pixels after a brief, but revealing, cameo.

3. Those of you over the age of, say, 50 will remember that it was Tommy James and the Shondells who brought us all that great pop anthem, Mony Mony:
Wake me, shake me, Mony, Mony
Shot gun dead and come on, Mony,
Don't stop cookin', it feels so good Yeah
Hey don't stop now. Hey, come on! Mony,
Come on Mony Yeah!
(Yeah) Yeah (Yeah) Yeah....

OK, you probably had to be there. But, hey, nobody round here - or anywhere else for that matter - incinerated $6 billion of other people’s money without so much as an ooops, never mind, sorry about that.

Games with names (Subprime edition)

Phone calls and e-mailed requests for comment to a New Century spokeswoman were not immediately returned.

Of course not. New Century’s executive vice president for investor relations is the eponymous Patti Dodge. Given her currently somewhat attenuated career prospects, she might like to keep an eye out for opportunities at whichever, if any, private equity shop ends up owning Chrysler’s headaches migraine brain tumor.

New Century Subpoenaed, Faces Delisting
by The Associated Press (via The New York Times)
Mar. 13 2007

The b-school did that years ago

All over the place.