Monday, 5 November 2012

Learning to pay . . .

Quick quizz . . . . according to Bloomberg Businessweek:

How many banks are there in Denmark?
How many Danish banks have failed since 2008?
What was the last Danish banks to fail and when was it?

I you answered 105, more than a dozen and Toender Bank November 2nd then you're either a market tragic like me, or the Danish finance minister. Having said that, if you really are the Danish finance minister can you explain to me how a bank that as late as June had a claimed solvency ratio of 17.3% and at August 21 claimed a profit of Kroner 9.2m goes bust by November? What a joke . . . and this is Denmark folks . . . , not Greece, Spain or Portugal. Awful . . . stay clear of the Euro.

This blog has on many occasions pointed to the UXB (unexploded bomb) that is US student loans.

The Department of Education has finally released the revised status report of loans in the new 3 year cohort block and the picture is not pretty:

"This is the first time the Department has issued an official three-year rate, which was 13.4 percent nationally for the FY 2009 cohort, a slight decrease from the trial three-year rate of 13.8 percent for the FY 2008 cohort. For-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent."

Now do the math (as my American friends say) and apply it to a trillion dollar market in  student loans. Now remember this is the US and a lot of these loans were bundled up and sold to private investors. Yep, welcome to subpime version 2.0.

Back in Subprime 1.0 we in Australia are currently leading the crusade against the ratings agencies. An absolutely enormous decision was handed down today in a case at the Federal Court of Australia. Twelve local government authorities invested around 16 million Australian dollars in mortgage related notes and received back less than 10% of their principal invested when they cashed out in October 2008. The ramifications are huge as the court agreed with the plaintiffs that the ratings firm (S&P) engaged in "misleading and deceptive" conduct by placing triple-A ratings on constant proportion debt obligations, or CPDOs, created in 2006 by investment bank ABN Amro Bank NV. This will be interesting as the Federal Court is not some minor institution . . . amongst the Commonwealth countries this will get raised over and over again in courts from London to Auckland. Good luck to S&P and thanks for playing. All the tiny disclaimers at the bottom of prospectus documents are worthless for the moment at least in Australia.

Today my sister in law completed 30k's and a lesson on hill climbing that basically means she's graduating to itermediate road bike rider earlier than I would have suspected. Good for her, next up she needs a bike, so anyone selling an XS frame in good condition please contact me. As for my own riding tomorrow should be interested. It's going to be a bit of an ex-UBS day. We'll be trying to complete the run around the beaches and Eastern suburbs of Sydney before the peak hour kicks in. Wish us luck and if you happen to be in Sydney and catching a cab in the east tomorrow, please tell the driver to be careful.


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