Deutsche Bank and the Big Short

15 February 2016Banksbanking, CDOs, derivatives, Deutsche Bank, financial innovation, Greg Lippmann, Michael LewisNick Dunbar

The movie ‘The Big Short’ reminds us how the toxicity of Deutsche Bank’s historic activity and culture continue to infect the bank and broader financial system today. Deutsche is the most leveraged big bank in the world, with assets 37 times core equity tier one capital. Half of these assets – $762 billion – are over-the-counter derivatives, the legacy of its growth before the crisis.

Burning down the house

7 February 2015Structured productsCDOs, credit ratings, litigationNick Dunbar

Ten years after Lehman, nothing evokes the crisis better than the plunge in collateralised debt obligations that was a key indicator of systemic risk at the time. This article includes a visualisation of a unique ratings agency database that will be kept on this site as a matter of public record. They rated every deal,…

Back to the future

15 October 2009ArticlesCDOs, compensation, fair valuation, Higgs, Holger Nielsen, Large Hadron Collider, Masao Ninomiya, quants, theoretical physics, VARNick Dunbar

As a former graduate student in physics, I couldn't fail to be amused by the idea that the laws of nature could act to prevent their own discovery. The inspiration for this idea comes from the history of two attempts to engineer nuclear collisions at sufficiently high energies to create the Higgs boson "“ the…

CDO: solution or scam?

5 October 2009ArticlesCDOs, Fitch, HSH Nordbank, litigation, structured products, subprime, UBSNick Dunbar

On 28 September 2009, a significant development occurred in the post-credit crunch legal reckoning. After eighteen months of transatlantic legal wrangling, Germany's HSH Nordbank was given the green light by a New York judge to proceed to trial in its case against Swiss giant UBS over what it alleges was a mis-sold collateralised debt obligation…

Barclays CDOs in Ruritania

31 July 2009Articles, Comment, Risky FinanceBarclays, CDOs, CRSM, Italy, Risky FinanceNick Dunbar

With its plume-helmeted soldiers and a ban on outsiders marrying elderly citizens for money, there is something of a comic opera quality about San Marino, the micro-state located on a hilltop near the Italian town of Rimini. Yet for Italian authorities, there is nothing comic about San Marino, whose website proudly talks up the principality’s banks as being beyond the reach of jealous Italian taxmen.

Last week, the Italian authorities struck back. Prosecutors in Bologna arrested the chairman, chief executive and other senior management of San Marino’s biggest bank, CRSM. Meanwhile, the Bank of Italy seized control of CRSM’s Bologna-based subsidiary Delta, which is one of Italy’s top dozen consumer finance companies.

While the Bank of Italy press release accompanying the seizure talks about flaws in San Marino’s money laundering controls, the ostensible reason for taking control of Delta was that CRSM had used hidden stakes to enjoy 100 percent ownership of Delta – which the Bank of Italy had expressly forbidden in the light of its money laundering concerns.

However, what the Bank of Italy release did not mention was how CRSM obtained financing for Delta’s â‚¬4.5 billion balance sheet, which grew sixfold between 2003 and 2007. An ongoing dispute in London’s High Court has shed light on how credit derivatives were used to achieve this, out of sight of the Italian and San Marino regulators, with about â‚¬700 million of the financing provided by Barclays Capital.

Corporate Nannies

12 February 2009Articles, Comment, Risky FinanceBarclays Capital, CDOs, complex derivatives, HSH Nordbank, Massimo Catasta, Poste Italiane, Risky FinanceNick Dunbar

Risky Finance Do investment banks owe a duty of care to their corporate customers---in a similar way that they do to widows and orphans? Or should the principle of "caveat emptor" remain sacrosanct? The issue is central to two lawsuits recently filed in London. In one, an Italian company lost its shirt after buying an…

Dr Frankenstein of Dusseldorf

12 February 2009ArticlesCDOs, Germany, IKB, Risk magazineNick Dunbar

Risky Finance 8 August 2007 While the mainstream financial press may have been shocked by the news from IKB last week, the credit derivatives cognoscenti at London-based investment banks were somewhat less surprised. But do not expect them to shout about the monster whose rampant growth lined their pockets so handsomely. It all began in…

Flogging a dead black swan

12 February 2009Articlesblack swan events, CDOs, Credit Crunch, Nassim TalebNick Dunbar

Risky Finance 21 May 2008 Nassim Taleb's avian metaphor may have helped sell a lot of books. But when it comes to the credit crunch, it lets people off the hook. The time has come to shoot the black swan. If there is one image that for many characterises the modern financier brought low, it…

Gordon’s synthetic bad bank

12 February 2009ArticlesAsset Protection Scheme, CDOs, CDSs, Gordon Brown, UK TreasuryNick Dunbar

Risky Finance 20 January 2009 The UK Treasury says it has avoided setting up a 'bad bank' to buy up toxic or hard-to-value assets from banks. Instead it has come up with the asset protection scheme (APS), an insurance mechanism intended to jump start the UK's moribund loan markets without the need to bulk up…