OCC regulators take over two national banks (First National Bank Holding Company) news (July 25, 26, 2008)

OCC regulators take over (close) two national banks (First National Bank Holding Company). This is typically done during the weekend (a summer weekend) which should help in market volatility, readying of business banking operations, and less panic. The credit problems seem to continue. The story was read at Wall Street Journal.

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Excerpts from the Wall Street Journal:

Federal regulators shut down two national banks late Friday in the latest chapter of the credit crisis, and the Federal Deposit Insurance Corp. successfully protected all depositors by selling the accounts to Mutual of Omaha Bank.

The Office of the Comptroller of the Currency, a division of the Treasury Department, revoked the charters of First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, Calif. The FDIC was appointed receiver of both banks.....


During the housing boom, First National Bank of Arizona made mortgage loans throughout much of the U.S. Even as the housing market was weakening, the bank revved up its riskier mortgage lending, an analysis of lending data by The Wall Street Journal showed last year....

The second failed bank, First Heritage, was much smaller, with three branches, $254 million, of assets and $233 million of deposits. The OCC said it closed First Heritage Bank because it was undercapitalized.......

The FDIC said Friday night's failures would likely cost the FDIC's deposit insurance fund roughly $862 million.

Mutual of Omaha Bank has more than $750 million in assets and operates 14 retail branches in Nebraska and Colorado, as well as commercial lending offices in Dallas and Des Moines, Iowa. The bank, a unit of insurer Mutual of Omaha, has said it plans to build a network of community banks in fast-growing U.S. markets where its parent has an existing base of insurance customers.

"We would first like to reassure all customers of First National Bank of Nevada and First Heritage Bank that all their deposits are safe and accessible," Jeffrey R. Schmid, Mutual of Omaha Bank's chairman and chief executive, said in a statement. "Their deposits will automatically transition to Mutual of Omaha Bank and we will be open for business on Monday morning."

Nailing of Daily Bottom of EUR JPY forex trading (currency trading) July 24 2008

Forex trading, Currency trading, stock marketing trading and investing: Trading of EUR/JPY July 24, 2008.

As those of you who are enrolled on the currency (forex) trading list know (READ PS below if you did not receive emails about forex trading), the email you have received to take profits this afternoon at 2:ishPM, was actually the bottom of today for EUR/JPY. See chart.

Also if you think that we should have gone long, that is a valid thinking expect that would be against a higher time trend and it would require

PS: The usual readers of this blog who already sent us emails to add them to the list of emails: we am assuming that you want to be added to the list of email for STOCK MARKET and OPTIONS trading, but if you happen to be interested in forex trading as well, please let me know (put in the subject line "Add Me to the FOREX Trading List"). IN ADDITION, we have not been sending out emails or posting in other places regarding stock market trading for the past two weeks or so. Therefore do not be surprised or anxious that you did not receive emails from us.

citigroup and level 3 assets

http://www.nakedcapitalism.com/2008/07/wither-citigroups-11-trillion-of-off.html

It seems so long ago that the Treasury's failed effort to organize an SIV bail-out entity, the MLEC, was regular front page news in the financial press. Citigroup was to be the biggest beneficiary of this operation.

Well, the MLEC never came to be, and Citi still has those pesky off balance sheet assets to contend with. Bloomberg provides an update, and it isn't pretty:


At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank's $2.2 trillion balance sheet....was a cornerstone of his turnaround plan.

Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books...

Now, as Citigroup prepares to announce second-quarter results July 18, those off-balance-sheet assets, used by U.S. banks to expand lending without tying up capital, are casting a shadow over earnings. Since last September, at least $100 billion of assets have flooded back onto Citigroup's balance sheet, accompanied by more than $7 billion of losses.'''....

Seven of the biggest U.S. banks, including Citigroup, are on the hook for at least $300 billion of credit and liquidity guarantees for off-balance-sheet loans and bonds, according to a June 30 report from consulting firm RiskMetrics Group Inc. in Rockville, Maryland. Such guarantees seemed remote when pledged as an inducement to bond buyers. Now, the first year-over-year decline in housing prices since the Great Depression and rising home-loan, commercial-mortgage and credit-card delinquencies have begun to trigger them.

``You will rapidly realize what a farce these off-balance- sheet things are,'' said Ladenburg Thalmann & Co. analyst Richard X. Bove. ``You could pick up a lot of loan losses with the stuff you're putting back on.''

It's impossible to predict what the losses might be from off-the-books assets or liabilities because disclosures are thin relative to what is required for balance-sheet assets, said Neri Bukspan, chief accountant for Standard & Poor's in New York.

``A lot of information tends to disappear or becomes second or third class,'' Bukspan said.

Citigroup has had to bail out at least nine investment funds in the past year, including seven structured investment vehicles, or SIVs, whose funding withered. The bank had to assume $45 billion of securities from those SIVs, which are now included in the $400 billion of on-balance-sheet assets Pandit says he's trying to unload in the next three years...

The Financial Accounting Standards Board, the five-member panel in Norwalk, Connecticut, that sets U.S. accounting rules, voted earlier this year to eliminate ``qualifying special- purpose entities,'' or QSPEs, a category of off-balance sheet financing exempted from tighter standards enacted following the collapse of U.S. energy trader Enron Corp. FASB also plans to clamp down on ``variable interest entities,'' or VIEs, that banks used when their vehicles couldn't qualify as QSPEs. And it voted June 11 to force banks to consolidate off-balance-sheet assets whenever an ``obligation to absorb losses can potentially be significant.''

Banks are required to disclose their off-balance-sheet assets in annual reports. According to Citigroup's most recent financial statement, filed in May, the bank's $1.1 trillion of off-the-books assets as of March 31 included $760 billion of QSPEs and $363 billion of unconsolidated VIEs.

``Our quarterly financial report provides full disclosure of our off-balance-sheet assets, including our maximum exposure to assets in unconsolidated VIEs,'' Citigroup spokeswoman Shannon Bell said. That figure was $141 billion as of March 31 and included funding commitments and guarantees, company reports show.

To lose the full amount, all the assumed assets would have to be written down to zero. The figure exceeds Citigroup's market value of about $90 billion, which dropped more than $180 billion since the end of 2006.

Citigroup's financial statement also says that about $517 billion of the QSPEs are related to mortgage securities, and that they are ``primarily non-recourse,'' which means the risk of future credit losses is transferred to purchasers'...

Regulators may part ways with accounting overseers and grant banks a waiver from having to raise capital against assets that have to be consolidated on the balance sheet, said Tanya Azarchs, a managing director at Standard & Poor's in New York.

``They really don't want to introduce any more instability into the banking system,'' Azarchs said.....

``The bank examiners are probably more thorough now and even skeptical in looking at these things,'' Isaac said. ``They're probably doing more what-if scenarios and stress tests. People thought there was a 1-in-100 chance of something happening, and as we see now, it has happened.''

Citigroup had $25 billion of ``liquidity puts'' -- a kind of guarantee -- last year on off-balance-sheet ``commercial paper CDOs'' set up to sell short-term debt known as commercial paper, according to the May financial statement. In the second half of the year, after a surge in market rates for the commercial paper, the bank had to preempt the formal exercise of the guarantees by buying the debt, according to the statement.

By the end of 2007, the full amount had been brought back on the books. The assets had to be written down by $4.3 billion in the fourth quarter and $3.1 billion in the first quarter. The remaining balance stood at $16.8 billion as of March 31.

The commercial-paper CDO assets are in addition to the assets Citigroup took over last December from its failing SIVs. In that case, the bank didn't have a contractual guarantee; it intervened to cushion the losses for its clients. Citigroup had $212 million of losses related to the SIVs in the first quarter, according to the financial statement.

``People say they don't have any liquidity backstop, they don't have any guarantee,'' said Russell Golden, the FASB's technical director. ``But then they act like they always had a guarantee.''

Murkier still are the $15 billion of assets Citigroup has had to import this year from four off-balance-sheet hedge funds that unraveled. They include the Old Lane hedge fund that Pandit helped open in 2006. Citigroup bought Old Lane Partners LP last July for about $800 million. Earlier this year the bank said it would close the fund because Pandit and other Old Lane founders had moved on to management jobs at the bank.

Citigroup incorporated about $9 billion of Old Lane assets into its trading desk.

``You had risks off the balance sheet that came back to roost,'' said Marc Siegel, head of accounting research and analysis at RiskMetrics.

``As soon as the cycle turned, all of these risks started to come back, and companies weren't prepared,'' Siegel said. ``It wasn't transparent to the investors what was going on.''

If Option Volume is up what does that mean for trading the stock market, commodity market, forex market (July 24, 2008)

If option trading volume is up what does that mean for the stock market, the forex market, and commodity markets, as well as the options "market". This question was asked and the article below was referred to us.

One has first to distinquish between option volume on a given stock, and volume on the stock market as a whole. For a given stock, it could mean something (and even nothing) but one cannot tell whether it is for upside or downside speculation (or even no specualtion at all). For the general case, the complete answer is it depends, but the common reasons are below.

Take the case of the stock market as a whole, this typically happens when the market is rolling down. Some may say that the answer to the above question is that market participants are nervous, but in reality the answer is rather something else. Nervous people who are long the stock market typically go to cash or ride the storm. The others can be divided in various groups. One should note that the typical average retail trader does not have accounts where s/he can short stocks, so they typicall buy puts. These traders place bets on the short side by buying put. There are also those people who simply try to use option leverage with the thinking to break even, when they have losses, bu buying calls (which may translate to buying puts for the professionals who sell these calls).

Those who produce options for these buyers are experienced traders, and are in a finite numbers, and risk size. When this happens, option premium rises. Because of put hedging by the professionals, an increase in short selling of stocks or shorting of futures takes place. This causes the market to move increasingly faster on the way down, and at the same time it can lead to the average speculator to buy even more premimum. This process continues until it reaches a climax when there has been a maximum number of option buyers, the market bottoms, a sudden sharp rally makes the buyers of put premimum lose. The whole market goes back to normal after the typical sharp rally that cleans those who should not be there in the first place.

NOT NOT FORGET TO CONSIDER ENROLLING (please state if you have particula interest in a given market (options, forex, stocks, futures, retirement investing/income, etc)

Here the article from bloomberg:


While few, if any, investors are making money buying U.S. stocks this year, the market for puts and calls is providing a bonanza on Wall Street where options trading has never been so brisk....

....last week was the busiest ever for options trading, with 93.8 million contracts changing hands, according to Chicago-based Options Clearing Corp. The almost $100 billion in bank subprime mortgage losses that sparked the worst yearly start to stock trading since 1982 is also boosting volatility. Wider price swings increase the likelihood a contract can be exercised; when volatility rises, so does the price of an option.

``The options market thrives on fear,'' said Chip Hendon, who helps manage $12 billion at Huntington Asset Management in Cincinnati, including $150 million in listed options. ``When there's more fear, there's more opportunity.''

The Standard & Poor's 500 Index last week posted its third straight weekly loss, declining 0.8 percent. Europe's Dow Jones Stoxx 600 Index retreated a fifth week, slipping 2.4 percent, while the MSCI Asia Pacific Index fell 2.8 percent.

Betting on stock declines isn't making investors as much as buying contracts in the $1.3 trillion U.S. options market.

Investors who bought a contract to sell the S&P 500 for 1,460 by the end of this week have doubled their investment since purchasing it at the start of the year. Shorting the index, or selling a borrowed security in the hopes of replacing it at a lower cost, would have returned 77 percent in the same period.

Options on the S&P 500 are 24 percent cheaper than in November, according to the Chicago Board Options Exchange Volatility Index, even though stocks are lower. Goldman Sachs Group Inc., the most profitable securities firm, and New York- based BlackRock Inc., the second-biggest publicly traded U.S. asset manager, say volatility will rise this year.

Last year's increase in swings set a record, when the volume for contracts on shares, exchange-traded funds and equity indexes grew 41 percent to 2.86 billion, according to the OCC....

``You'll see more and more mainstream funds asking their boards for permission to use options,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at Hartford Financial Services Group Inc. in Hartford, Connecticut. ``It's becoming easier to do, less expensive and in markets that are more volatile and can change radically in one day, it may also be the prudent thing to do.''....

``It's a recipe for volatility,'' said Dean Junkans, who oversees $260 billion as chief investment officer at Wells Fargo & Co.'s wealth-management division in Minneapolis. The firm almost doubled the use of options for its clients last year, he said....

Maneesh Deshpande at New York-based Lehman Brothers Holdings Inc. and Goldman's Maria Grant say volatility will stay high. The strategists -- heads of the top-ranked derivatives teams in Institutional Investor magazine's 2007 survey -- recommend buying puts on the S&P 500. Grant favors those that can be exercised if the benchmark falls 3 percent to 5 percent by Feb. 15.

``Volatility is here to stay for the next few months,'' said Craig Effron, who oversees $3.5 billion, including options, as co-founder of Scoggin Capital Management in New York. ``A lot of people have recession fears, and they think the market may fall apart.''

Is SemGroup Bankrupt ? News of Oil Trading filing for bankrutpcy ( July 2008 )

Trading companies can go bankrupt in stock market and commodity market. Oil trading and SemGoup bankruptcy news. Even the big can run in bankruptcy problems. Are there other bankrupt companies we will know about soom, anddDoes this partially explain oil-price violent parabolic move, followed by the fast retreat?

I read these two news stories below. They seem to have been forced to cover their position, which may explain the fast up move of Oil price, and then the subsequent fall which seem to coincide with the end of short position covering.

Are there other entities that have fallen?

The Financial Times - Oil trading company files for bankruptcy Access

SemGroup, the US physical oil trader, on Tuesday filed for bankruptcy as it acknowledged trading losses of more than $3.2bn in different energy markets after betting this year that crude oil prices would fall. Its collapse came as oil prices plunged to their lowest levels since early June. West Texas Intermediate crude oil fell to an intraday low of $125.63 a barrel, down $5 on the day. Traders sold oil futures as news emerged that tropical storm Dolly was set to miss oil and natural gas installations in the US Gulf of Mexico. Oil traders said SemGroup could have exacerbated the spike in oil prices this month, when the market experienced unprecedented swings of more than $10 a barrel, as the company was buying back some previous bets on lower prices. The bankruptcy of SemGroup, which describes itself as the fourteenth largest US private held company, affects approximately $3.1bn of debt, according to court filings. Oil company BP is the largest creditor, with almost $160m.


Reuters - Huge oil trading loss sinks energy trader SemGroup

SemGroup took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss. Included in the NYMEX loss was $290 million owed to SemGroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17. Securities legislation limits publicly traded company executives from extensive dealings with their firms, but experts said privately held companies have more flexibility. . . . SemGroup, ranked the No. 12 private U.S. company by Forbes.com in a 2007 article, also took $850 million in losses on July 17 when its over-the-counter hedging program was marked to market. It listed liabilities of $7.53 billion in its bankruptcy filing, including $3.1 billion of total debt $2 billion of secured debt and $594 million in unsecured notes. SemGroup's financial difficulties were disclosed by its publicly traded affiliate SemGroup Energy Partners LP last week, when it warned that a liquidity crisis at its parent could lead to bankruptcy.

forex trading currency trading eur usd (July 22 - 23, 2008)

forex trading currency trading eur usd (July 22 - 23, 2008)

Stock market traders and investors, currency traders, forex traders:

First we would like to say to regular readers that we have been away, and due to additional circumstances, we could not post on this blog over the last 10 days or so. We would come back to this in another post.

This post is about trading the forex. We have been sharing with those on the forex email lists some of our trades (particularly with regard to the eur/jpy pair). We have also traded EUR/USD, and we are about to close the latest trade on the EUR/USD pair which is showing some 230 pips profits.


I would also add to those who received emails about EUR/JPY over the last two weeks, that last night and today we could not send you the trades. Since the stock market finished green today and since EUR/JPY is generally positively correlated with the equity market, we took profits in the afternoon. We plan to re-enter if it goes up and fails, but we still work under the assumption that this pair is most likely at the top, and we are trading it accordingly as per the various emails you have received. Chart is attached.

Enroll to the forex email list if you would want that we communicate with you regarding the forex trades.

Happy trading

Stock Market, Stock Trading, XLF Trading (Finance Stocks ETF) (July 23, 2008)

Stock Market, Stock Trading, XLF Trading (Finance Stocks ETF) (July 23 2008 morning)

At around 10:27AM with NDX in 1860 area and XLF in the 22.88 area: We sold XLF which we bought in the retirement account back when it was at 20.25, after multiple in and out trips in the brokerage account. The retirement account (which I originally thought trades on the hour (it used to be), has been changed to trading on the close price only). XLF has then been played on the short side by selling in the money calls to hedge the retirement account. We will decide when to take out both positions at the same time (at the close today or at the close another day).

Happy trading