On an early day in September I wrote "....let's go to a real world situation here for a moment. In the next 430 to 60 days Latin America will attempt to roll over huge amounts of short term paper. Presumably, the market will take to this like fire ants in inside of say... your old Boy Scout uniform.
Now, assuming we have a debacle here (amongst others circling round us like particularly aggressive misquitos) then bond pirces will drop creating.... the dreaded GAP downwards. Presumably, the bank's workman like well managed and of course well studied little hedges on these bonds will work. Each side of the trade will do the right things and we will all be fine. Right?
However....however...what if already weakened American banks, German banks, Japanese banks can't pick up their legs of the trades?
It seems to me we have country risk, event risk, and interest rate risk here.
... is this a recipe for the future?
From Yahoo Today: (September 4, 1998) " ...
U.S. banks, brokers crumble as emerging mkts roil
By Mary Kelleher
NEW YORK, Sept 4 (Reuters) - Shares of U.S. banks and brokerage houses were clobbered this week, receiving sharp blows from Wall Street for being too close to the eye of the storm brewing in volatile emerging markets.
Many financial firms have already warned of lower results in the third quarter due to Russia's economic crisis and tough market conditions, but Wall Street is demanding more figures about potential liabilities abroad as the U.S. banks' old nemesis -- Latin America -- once again rears its head.
Investors are also bailing out of bank stocks on the belief that the good times could be over for the sector, if once-lucrative businesses like corporate finance, trading and asset management dry up in the face of an economic downturn.
''Clearly it has been a punishing half a dozen weeks for the commercial banks and now the brokerage stocks,'' James McDermott Jr., an analyst at Keefe, Bruyette & Woods Inc. said. ''The fear has spread from one region to another. I don't hear too many discriminating questions -- I just hear an awful lot of fear being expressed.''
The pain that big banks have felt in Russia and Asia could significantly pale in comparison if leading Latin American economies like Brazil, Argentina and Mexico falter, as many did during the less developed country (LDC) crisis in the 1980s.
In 1982 Mexico shocked its bankers, including most of the biggest U.S. bank holding companies, by announcing the need to restructure its bank debt. The move touched off a crisis in less developed countries that didn't completely fade from most U.S. money center balance sheets until the mid-1990s.
And...
"Brazil Bovespafalls 10 pct, trading halted
SAO PAULO, Sept 4 (Reuters) - Brazil's Bovespa exchange plunged 10 percent at 1528 local/1828 GMT, setting off the circuit-breaker and halting trading for 30 minutes, a spokeswoman at the exchange said.
Shares fell on concern that Latin America's biggest economy could see another surge in capital flight drive more investors out of the market, traders said.
Sao Paulo's key Bovespa index bounced back slightly before the exchange was able to halt trading. Operations were suspended at 5,618 points, down 9.65 percent. Trading will resume at 1558 local/1858 gmt.
Some $3.81 billion fled Brazil's foreign exchange market in the first three days of September, unnerving investors already worried about flight from emerging markets.
A decline in U.S. equities coming after Moody's Investor Service downgraded Brazil's debt on Thursday fueled declines, traders said.
Hmmmm.
What do you think? Henry will both sides of the trade hold up?
My best to you,
CityBank down almost 50% from it's high three mopnths ago. |
