Philv - but, on the other hand? E
Talk : International : Currencies and the Global Capital Markets
To: Paul Berliner (868 )
From: Chip Carpenter Friday, Oct 9 1998 9:08PM ET
Reply # of 873
Paul,
You may have missed this and it might be of interest to you.
If the article is correct...and is indicitive of other hedge funds,
there maybe a continued cascading of margin calls effecting other
funds and adding to the continued instability of all currencies against
the dollar throughout next few weeks....Increasing the liquidation pressures
and abilities of the Fed to control further significant losses amongest
funds and lenders.
Hedge Fund Denies Picture Worsens
By ANDREW FRASER
NEW YORK (AP) -- The consortium of banks overseeing Long-Term Capital Management took the unusual step Friday of denying reports that the financial condition of the hedge fund it rescued from near-bankruptcy has severely deteriorated.
While the consortium rebuffed reports that Long-Term Capital had depleted almost two-thirds of the $3.6 billion bailout it received from the 14 banks to stay afloat, some financial analysts said it was quite possible that the fund could be facing more problems because of the recent market turmoil.
But the consortium denied the fund was running into difficulty or out of money. A statement late Friday said the fund's asset value hasn't changed materially since the bailout late September. Counting the bailout funds that value was about $4.2 billion.
''Speculation about current LTC capital and liquidity levels is inaccurate, as both are significantly higher than the numbers appearing in recent media reports,'' Richard Torrenzano, a spokesman for the consortium, said in the statement. He refused to provide specific numbers.
It's unusual for any financial firm -- and even more so a hedge fund, which operates in great secrecy -- to respond to rumors or false reports. But the consortium many have felt pressured because of all the upheaval surrounding Long-Term Capital and the potential impact.
Although it tried to dispel any notion that Long-Term Capital was again headed for trouble, some financial analysts said the consortium's response suggest that while reports about the hedge fund's financial condition may be exaggerated, that doesn't mean it hasn't eroded.
''I think it's very possible the way the markets are acting,'' said George Van, chairman of Van Hedge Funds International in Nashville. ''With people dumping some of their positions, it's quite feasible that the erosion has gotten worse.''
The Wall Street Journal reported Friday that Long-Term Capital used up $1.9 billion of the emergency bailout money to pay off a $500 million loan from a group led by Chase Manhattan Corp., cancel other collateralized loans and to pay finance charges on its trades.
A depletion of that capital would leave Long-Term Capital in a precarious position if losses mount and the fund runs out of money before its trading strategies succeed. It also could mean the consortium could lose much or all of the money it put up for the bailout hoping for an eventual payoff.
''If it's true, that would mean that the scenario where banks put up capital to keep the hedge fund afloat, orderly liquidate its positions to make some money and save world might be overly optimistic,'' said Tanya Azarchs, a banking analysts at Standard & Poor's.
Torrenzano also said the six-person committee running the hedge fund for the consortium is focusing in the near-term on reducing its risks. Once that is done, they will then try to capitalize on ''the historic core competencies'' of Long-Term Capital Management.
Torrenzano refused to be more specific. But the Journal had reported Long-Term Capital was looking at reducing its emerging markets and stock trading businesses -- two areas that apparently caused some of its biggest headaches.
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