Friday, January 16, 2009

Superfriends Forum

If you've been visiting my blog, you'll notice that there is this queer advertisement just above the cbox that reads SUPERFRIENDS.

Welcome to the SUPERFRIENDS FORUM! It's an extension of the cbox - a place where superheroes (and perhaps supervillians) gather. It is born out of a wish to have a private space of our own for those regular users to post things which are otherwise hard to put in the cbox. I know, the cbox flows faster than the ticks of the oil futures so it can be hard to follow. Hence, do join the forum for more information on where the next superfriends gathering is and so on.

I've no idea what sort of forum that will be, but let's take the back seats and let the forum grow organically on its own instead of planning for it. I'll like to take the chance to sincerely thank our superIT fren - Vault dweller - for his hardwork as the resident IT guy. All bow to him!

(I'm so glad that the blog is growing on its own accord without me. Like Vault dweller mentioned, it's a nice warm feeling to work on some little community project where all the like-minded folks gather. Hey guys and gals, you make my day!)


Anonymous said...

LP, fyi, latest news/updates on HSBC...

"We have highlighted HSBC as a short on the blog numerous times. Back in August, we noted that delinquencies were rising across the board and the best way to play it would be to short institutions with lots of leverage, derivative exposure, or residential and commercial mortgage exposure."

HSBC: Interesting Options Activity, Proceed with Caution

January 14, 2009 | about stocks: HBC

While we usually leave all the options coverage for some of our other favorite blogs, we simply had to point out this interesting activity in HSBC (HBC). Optionmonster has highlighted the fact that as of Monday (Jan. 12):

"HBC traded 173,000 puts versus average of 7,700 puts over the past 30 days. Crazy busy and 94 percent trading out in March."

Activity was mainly in the March contracts at the 50, 45, and 40 strikes. If it continues to escalate, they said the activity would remind them of that once seen in Lehman Brothers and Bear Stearns. They also noted that it was the largest put activity in that name, ever.

And, yesterday (Jan. 13) the put activity continued, as the March 25's were starting to see volume. As you can see from the chart below, HSBC is in a strong downtrend and at the time of writing was trading around $45, a level of recent support. If it breaks this level, then look out below.

We have highlighted HSBC as a short on the blog numerous times. Back in August, we noted that delinquencies were rising across the board and the best way to play it would be to short institutions with lots of leverage, derivative exposure, or residential and commercial mortgage exposure. Our post on August 31, 2008 suggested shorting C.B. Richard Ellis (CBG), General Growth Properties (GGP), Capital One (COF), Discover Financial (DFS), HSBC and Washington Mutual (WM). Obviously, shorting all of those names has paid us off handsomely.

GGP and WM both collapsed rather quickly. However, all along, HSBC has been meandering along, trading sideways. In our post on September 16, 2008, we looked at writedowns, losses, and capital raised for various institutions. At that time, we noted that:

"One institution in particular I want to point out is HSBC: $27.4 billion in writedowns and losses, but only $3.9 billion raised. It, by far, has one of the more lopsided ratios. Now, we obviously know that this simple chart does not tell the whole story, but I thought it was worth highlighting."

Then, in October, signs of weakness started to appear as the market turmoil continued. Our post on October 8, 2008 highlighted various Leverage Ratios of financial institutions. In that post, we saw that HSBC's leverage ratio (total assets/equity) was 20.1 as of June 30 2008, an increase from their ratio of 18.4 in 2007. At the time, we saw that HSBC loosely had this deadly mix: use of leverage, large writedowns, and low capital raised.

HSBC has been in a downward spiral ever since, and now we see news of interesting options activity in the name. While we by no means think HSBC is in as bad of shape as a Lehman or Bear, we do think rough waters are in store and that is why we've highlighted them as a short numerous times in the past.

Proceed with caution, as the $45 support level is more important now than ever.

Anonymous said...

HK stocks end flat on HSBC worries
(01-16 17:56)

Hong Kong share prices closed 0.1 percent higher, as HSBC continued to pull down stocks on worries over its future dividend payments.

The Hang Seng Index closed up 12.55 points at 13,255.51 after trading between 13,113.45 and 13,423.24. Turnover was HK$47.07 billion.

HSBC fell for the fifth day, ending down 2.7 percent at HK$64.20 after a Goldman Sachs downgrade.

Mainland counters outperformed, with the H-share index rising 1.5 percent the sovereign wealth fund said it was raising its stakes in banks.

Bank of China jumped 4.6 percent to HK$2.04, ICBC rose 3.6 percent to HK$3.44, and China Construction Bank gained 3.7 percent to HK$3.91.

Hongkong Electric jumped 3.9 percent to HK$44.15, while Hong Kong & China Gas rose 0.8 percent to HK$12.24.


* * * * *

Goldman Sachs downgrades HSBC
(01-16 14:21)

Goldman Sachs downgraded HSBC (0005) to ''sell'' from ''neutral'' on predictions of losses for this year.

It also slashed its target price on the lender by 36 percent to HK$49.

Goldman Sachs said it forecasts about US$1.5 billion (HK$11.7 billion) in losses for the banking giant this year.

Morgan Stanley on Wednesday had lowered its target price for HSBC by 30 percent to HK$52.

Shares in HSBC fell 3.3 percent to HK$63.80 in the morning.

* * * * *

HSBC upgraded to buy at Dresdner Kleinwort

By Simon Kennedy
Jan. 16, 2009

LONDON -- Dresdner Kleinwort upgraded HSBC to buy from hold Friday, saying a likely dividend cut is now fully discounted in the share price after the stock fell around 23% in a month. The broker said it hasn't changed its core view that HSBC will cut its dividend and that it might need to top up its core capital by $10 billion if losses in its available-for-sale book become definitive.

Anonymous said...

lp, use protective puts if you want. There is nothing to worry about. :)


Anonymous said...

汇控股灾 中学基金也损手 商会医学会无一幸免
1月17日 05:05 更新


厂商会教育基金 80元买入






港大:听取基金意见 调整组合





Anonymous said...

"Just look at was one of two safest banks in the World - the other being Standard Chartered into Q4-2008. Now its being hit by exposure to Madoff."

Looks like another financial tsunami is coming !!! ..just look at.........

14 January 2009
by Kevin Scully

The deterioration in economic and corporate data continues. I believe that the market has not fully discounted the extent of this deterioration and when it does this will lead to another big wave of selling - another financial tsunami !!!

Over the last few days, I was looking at trade data for December 2008 for China and November 2008 for the US. China reported a 2.8% decline in exports in December up slightly from a 2.2% decline in November. Imports fell sharply by 21.3% up from a 17.9% fall in November 2008. This is worrying as the Chinese economy was supposed to be more resilient and was driven by its own domestic demand. These figures could suggest a slowdown even in China's own domestic consumption because of the sharp decline in external demand for its products. The US November 2008 exports fell 5.7% to US$142.8bn while imports fell an even sharper 12.1% to US$183.2bn. Although this helped narrow the US trade deficit to US$40bn compared to US$57bn in the previous month, the large decline in imports shows the impact of the consumption contraction from the economic downturn in the US.

Let me translate this economic data into what is happening in a normal electronics company operating out of Singapore and with manufacturing operations outside of Singapore. Demand is bad and orders and indicative orders are being cut or cancelled every week/month. Suppliers are now stuck with 2-3 months worth of inventory (which is declining in value) as customers cancel orders. Bank and other supplier credit lines are being result plant shutdown for a few weeks with staff going on no pay leave or for those in more serious cashflow distress - 70% staff layoffs. These are expected to accelerate after Chinese New Year. These means the worse is yet to come for manufacturing companies and their bankers.

Just look at was one of two safest banks in the World - the other being Standard Chartered into Q4-2008. Now its being hit by exposure to Madoff. I just read a research report from a large US investment bank (dont know if we can use the word large now) which is lowering FY2008 earnings by 17% and FY2009 earnings by 37%. They have lowered their price target to HK$52 from the current share price of more than HK$70 now and expect the bank to need refinancing of about US$20-30bn. This is their worse case scenario. I am surprised by this downgrade mainly because HSBC was the first to identify sub-prime as a problem and took the hit and exited the market in 2006. They also refused help from the various Central Banks until recently.

If such a highly regarded and conservative entity can see such a sharp turnaround in fortunes - what about less strong and diversifed companies. I am not saying that the US investment bank is correct but the almost 360 degree turnaround in fortunes is sobering and if HSBC does go down to just over HK$50 per share - what does mean for the Hang Seng Index?

Anonymous said...

HSBC, UBS May Be Liable on Madoff as Fund Custodians

By Alan Katz, Jon Menon and Vernon Silver

Jan. 15 (Bloomberg) -- HSBC Holdings Plc and UBS AG may be liable for as much as $3.2 billion of losses linked to Bernard Madoff in a dispute over the duties of financial custodians at funds in Luxembourg and Ireland.

At stake is the image of the European fund industry, French Finance Minister Christine Lagarde wrote in a Jan. 12 letter to the European Commission and Luxembourg Prime Minister Jean-Claude Juncker. European funds’ assets increased 59 percent to 6.8 trillion euros ($9 trillion) over the past six years, partly because rules protecting investors made them attractive.

“If they aren’t required to pay the money, then investor protection doesn’t mean anything and people might as well just invest in offshore funds,” said Isabelle Wekstein-Steg, a lawyer at Wan Avocats in Paris who is representing 10 French retail investors and two institutions that face Madoff-related losses at Luxembourg funds. “UBS didn’t do its job of knowing at all times where the assets were, and the same with HSBC.”

Custodians are charged with oversight of funds, and they manage cash inflows and payments to investors. Those looking to recoup money would have to prove the banks failed to fulfill their duties, according to nine lawyers surveyed by Bloomberg News. HSBC has said it isn’t liable and UBS declined to comment on the issue.

HSBC and UBS’s custodian roles for the Luxembourg funds are limited because they were set up by investors specifically looking to place money with Madoff, said Paul Mousel, co-head of the financial services practice at law firm Arendt & Medernach in Luxembourg. He’s representing both banks.

‘Very Small Role’

“The arrangements that were put in place from the beginning are arrangements that gave to the custodian a very, very, very small role to play, especially regarding the safekeeping of the securities, which allegedly would have been purchased by the investors’ moneys,” Mousel said.

Wekstein-Steg sent a letter on Jan. 9 to Luxembourg’s financial regulator on behalf of her clients requesting that custodians reimburse their investments.

It’s impossible to say whether the custodian has any exposure without seeing the contracts of each fund, according to Julian Randall, a lawyer at Barlow Lyde & Gilbert LLP in London.

“What is clear is that there is unlikely to be any point to suing Madoff himself, and those who have lost money will be looking very hard at anyone, like HSBC, who was close to the action and also has assets,” he said.

Thema International Fund Plc and AA (Alternative Advantage) Plc filed a lawsuit against HSBC on Dec. 19 in Dublin’s High Court, according to court records. The suit charges that HSBC wasn’t able to confirm that assets in the funds were safe.

‘Potential Exposure’

London-based HSBC has $1 billion of “potential exposure” after making loans to institutional clients who invested with Madoff, it has said. Madoff’s firm collapsed last month after he told his sons it was a $50 billion Ponzi scheme, according to a complaint filed by the U.S. Federal Bureau of Investigation.

HSBC spokesman Patrick McGuinness declined to comment beyond the company’s Dec. 15 statement that it “does not believe its custodial arrangement should be a source of exposure to the group.”

UBS, based in Zurich, has said it doesn’t have material exposure to Madoff’s firm and declined to comment on the liability issue.

What Investors Wanted

“Bernard L. Madoff Investment Securities LLC and Madoff’s collective investment vehicles were not on the UBS Wealth Management recommended list as direct investment options,” spokeswoman Tatiana Togni wrote in a Jan. 12 e-mail in response to questions. At the $1.4 billion LuxAlpha Sicav-American Selection fund in Luxembourg, for which UBS is a custodian, “UBS has supported wealthy individuals by establishing a fund structure at their request.”

In a separate custodial issue, a Luxembourg court today ruled that UBS’s local unit must give a French money manager the 30 million euros ($39 million) the bank is holding on its behalf. Oddo & Cie. sold shares of LuxAlpha in November. UBS didn’t send the funds after Madoff’s Dec. 11 arrest because, as custodian, it needed to ensure that any action it took was in the interest of all investors, Mousel said on Jan. 12.

If investors do pry money from the custodians, it would add to the combined $81.7 billion in writedowns and credit losses UBS and HSBC have reported since the start of the global financial crisis in 2007.

UBS rose 1.5 percent to 13.81 Swiss francs ($12.30) at 2:24 p.m. in Zurich. HSBC was down 4.8 percent at 560.5 pence ($8.19) in London.

EU Review

Funds sold in the European Union to retail customers must follow rules on how money can be invested, called the Undertaking for Collective Investment in Transferable Securities, or UCITS. The rules also set out the responsibilities of custodian banks. Liability is determined under national laws in each member state.

The EU said yesterday that it’s reviewing how rules that require EU-regulated mutual funds to safeguard clients’ assets are enforced around the 27-country bloc.

France’s Lagarde said in her letter that not all member states impose the strict obligation for custodians to reimburse investors for assets that were entrusted to them, as France does.

Luxembourg Budget Minister Luc Frieden said French criticism of investor protection rules in the country is unjustified. The laws for custodian banks in Luxembourg are “identical” to those in France, he said.

Ireland, Luxembourg

Luxembourg and Ireland have worked to become distribution centers for investment funds, said Bernard Delbecque, director of economics and research at the European Fund and Asset Management Association. Luxembourg accounted for 30 percent of the overall 5.2 trillion euros of assets in UCITS funds in Europe at the end of September, he said. Ireland ranked third with 11 percent, behind France.

This month, financial regulators in both countries said in separate statements that custodians retain responsibility for monitoring and supervising funds, even if assets are placed with a third party.

Luxembourg’s rules specify that the custodian’s role should be seen as supervisory, “which implies that the depositary must have knowledge at any time of how the assets of the UCI have been invested and where and how these assets are available,” according to a document by the country’s central bank.

UBS is the custodian for LuxAlpha and the $419 million Luxembourg Investment Fund-U.S. Equity Plus, both of which are covered by UCITS. HSBC is the custodian for the $226 million Herald LUX-US Absolute Return Fund and Dublin-based $1.1 billion Thema International Fund Plc. The net asset values are the most recent provided by each fund, according to Bloomberg data.

Redemptions Suspended

The Thema and Herald funds are managed by Bank Medici AG, the Austrian bank founded by Sonja Kohn, whose clients invested $3.2 billion in Madoff funds. The Luxembourg Investment Fund is managed by UBS, and LuxAlpha by Access International Advisors, whose chief executive offer, Thierry Magon de la Villehuchet, was found dead Dec. 23 at his office in New York.

All four funds have suspended redemptions.

Two investors in the Thema fund said they invested in European funds to benefit from the added protection that brought.

Bernd Greisinger, a money manager in Liechtenstein who runs the BG Umbrella Fund for LRI Invest SA, said he chose Thema because it was a European-regulated fund that had to be deposited through a bank. Greisinger put in an order at the end of November to sell Thema shares for $2 million to $3 million. He hasn’t received the funds, he said.

Glenn Gramolini, a Geneva-based manager of Themis MN Fund PLC, which invested in Thema six years ago, said he bought the fund because the money was in the custody of a respected bank.

“Nowhere in the prospectus was it written that the funds would be handed to Madoff,” he said. “He would have been managing the funds. I would never invest in the funds when a manager is a custodian.”