Gallows humour: They said it
When market turn sour the investment banking industry has a nice line in gallows humour. Here’s a selection of what senior bankers told Euromoney in August.
"Of all the big banks, we will have one of the lowest exposures to sub-prime. I can assure you of that. I mean, we were arguing with our risk officers for years to let us do that stuff and they wouldn’t. Now, of course, I think they’re geniuses"
A European debt markets head explains to Euromoney why his bank smells of roses
"Banks got very lenient capital treatment from the regulators on a lot of this stuff that’s rated AAA, but the market is now pricing a lot of it as distressed. Someone is wrong"
A banker trys to shift a little blame towards the regulators
"The Bank of England is taking a peculiar position. It’s doing absolutely nothing"
A London-based senior banker is less than impressed
"The problem with these structures is huge negative cashflow. They’re going to be paying much more in debt service than they’re earning from assets. In those circumstances, even if your underlying collateral doesn’t default, you will"
One banker can’t see a bright side
"We looked at one of the financial insurers and realized that if the underlyings it has guaranteed get downgraded from AAA to BBB, its capital requirement rises from 10 basis points to 30"
This analyst might have saved himself the bother of looking below AA+
"The problem is not what we can see; it’s the things we don’t know about before they suddenly appear"
Forget Minsky moments: this banker is having a Rumsfeld moment
"Remember what mortgage lenders do when they see the end approaching. They whack up rates as high as they can, because they don’t want any new business. They want existing loans to pre-pay because they’re raising cash to unwind"
A banker decides people haven’t got gloomy enough
"It makes me laugh to hear people taking about new money buyers of leveraged loans at 65 to 75 cents on the dollar. Assets are never worth anything between 40 and 80. They’re either distressed but with a chance to pay down and go back from 80 to par, or they’re trading on recovery value from 40 down"
This banker has a very special sense of humour
"It’s a bit like Heathrow on a Friday night. Everyone is up there circling in a holding pattern. The first one to come in to land will be the guy who is about to run out of fuel"
Presumably this European capital markets banker isn’t making quite this argument to his issuing clients
|Monday August 13 – No precedent, no rescue, no clue?
For reporters on the call, Goldman CFO Viniar unwittingly supplies the headline: 'This is not a rescue'. Grateful sub-editors simply take out the word 'not'. The market has the same fear after the call that it had before: that somewhere out there lies a very large fund that the market disruption will bring down.
Tuesday August 14 – Out of control
This is a week in which some of the brightest, best educated, most eloquent – who can normally argue three different and contradictory positions at once on the economy, the markets and their own industry – discover that they've somehow lost track of how the new financial markets work. They know it's somewhere, but they have no idea where and in what measure they have distributed the risks. Some of the usually vociferous don't want to talk at all, fearful that if they say something today and the markets move the opposite way tomorrow, they'll look stupid. But no one looks terribly clever.
Wednesday August 15 – Skin in the game
"It was PIKs and toggles," he rolls his eyes, as if someone else had forced him to do this deal or cheekily agreed it in his name. "It was covenant lite and even what covenants there were were rubbish ones." After weeks of wrangling over how to bring the senior secured portion of the financing to market, his own banks' team and that of the LBO sponsor were barely on speaking terms.
Thursday August 16 – Crescendo of panic
We've got hedge funds who are saying, 'Look, we have been in business for ten years and we've paid $500 million in fees and commissions to Wall Street and you can't give us a couple of days?' We are getting a lot of blunt decisions made by people far away from these markets and some of them are bad decisions. If someone comes down from the 40th floor and tells us not to accept a certain class of collateral or counterparty, we're not going to disagree"
Friday August 17 – No one leaves unscathed
"It's really troubled. Everything is being tarred with the same brush and investors in funds that buy commercial paper are ringing and asking: 'You're not in that asset backed CP are you?' And if funds have bought ABCP, investors don't want to hear about whether it's good ABCP or not, they're out of there"
Lessons of the market seizure