Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (67)	9/10/1998 8:34:00 AM
From: Worswick	Respond to of 2794

A post I received today from Since I am not sure the copyright uses of such a letter like the following.... I would like to post this in the interests of private use only. I think it is a good, considered and fair reply to my querry. As the man says things are changing so fast that it is difficult to keep up. "Clark, Thank you for your message addressed to Patrick. He's away travelling for the next few weeks - hence my reply. JPY 418 trillion is not actually more than USD 87 trillion. In fact, it's a fair bit less (being roughly equivalent to USD 3 trillion). But that's not actually the point. The 418 trillion figure is said to be the total _notional amount_ of derivatives transactions. And notional amounts are only one component in calculating the actual risk exposure. In simple terms, just consider a USD 100 million 1 year interest rate swap and a USD 100 million 30 year interest rate swap. Both have the same notional value, but the 30 year involves far greater risk exposure. I quite agree that the extent of Japanese bank problems just seem to get worse and worse. By strange co-incidence, Steve Black sent in a draft article only the other day which said amongst other things "Have [they] really admitted the true extent of the bad loan mountain? Do they even know an accurate figure?" I totally agree with him. The ratings agencies are surely fighting a losing battle. No matter how carefully they examine a bank / company, events only a few days later could easily change the whole picture. It's that sort of industry. But just because an institution has a "maximum risk exposure of X", it doesn't mean to say that they will lose X. They could make a profit, lose less than X - or even a multiple of X. It all depends on the assumptions they have used when calculating the so-called maximum exposure and subsequent movements in market rates and/or credit events. Regards, Tony Webb Publishing Director Applied Derivatives Trading - The unique magazine about all aspects of trading and using derivatives. Sign up for your free subscription and join over 12,000 other readers in 113 countries all around the world. adtrading.com ---------------------------------------------------------------------------- ---------------------------------- >I wonder if you could address the following little teething problems that the >Japanese banks seem to having, eg. the following... >Is everyone asleep? >Fuji Bank says derivatives loss maximum Y15 bln > >TOKYO, Sept 9 (Reuters) - Fuji Bank said on Wednesday it saw a maximum possible loss from its derivatives trading of about 15 billion yen. > >The Japanese bank reiterated in a hastily called news conference that there was no truth in market rumours of it suffering derivatives losses. > >It said the risk was not high from its derivatives transactions, which were mostly interest rate swaps. > >Yutaka Komatsu, derivatives products general manager at Fuji Bank, said the >maximum loss forecast was based on the bank's group-based outstanding >derivatives contracts as of end-March. > >''Our derivatives trading is controlled to have very small market risk,'' Komatsu told a news conference. > >Komatsu said the bank's notional amount of derivatives transactions totalled 418 >trillion yen as of the end of March. This included both capital calculated according >to the standard set by the Bank for International Settlements (BIS) and that not so >calculated. > >The derivatives contracts outside the BIS standard include those in the interest futures market and foreign exchange contracts whose terms are shorter than 14 days". > >I am wondering about my math but...THIS IS AN AMOUNT EQUAL THE WHOLE US GNP. > >THIS DERIVATIVE EXPOSURE IS FAR, FAR BEYOND THE NEW YORK FEDERAL RESERVE ESTIMATES OF OUTSTANDING DERIVATIVE EXPOURSE IN THE WORLD FINANCIAL SYSTEM OF $87 TRILLON. > >....like the cratered Japanese bank debt each time the figures have come out about bank problems we have a doubling of the number.( eg. first the cratered assets were $125 billlion, then $250 billion, etc.) > >I know that clever fellow that you are.... the only trend here is that it gets bad and then it keeps getting worse. "A trend once in motion...." > >Shame. Shame. Shame on the world's financial guardians. > >I'd like to see a list of the total exposure of these cratered Japanese banks to any derivative product traded in the financial markets. Instead we are in for Japanese water torture here. > >Where in hell is Moody's and the other rating agencies? > >That is something we will never see in this whole thing, however... the rating agencies being on top of this ongoing debacle. > >People should ask for a refund from the rating agencies. At the very least. In the financial services industry this may be the only money they make this year. > > Patrick do you have tube fare home? > >I enjoy your commentaries immensely. Keep up the great work. >