A Mixed End To A Rather Gloomy Week

Really Bad Santa

Bloomberg reports that former US Federal Reserve Chairman Alan Greenspan has said that the likelihood of a recession in the States is increasing, as economic growth is 'getting close to stall speed'.

In the meantime, Lehman Brothers came out and posted better-than-expected fourth-quarter profits Thursday. Earnings, however, fell some 11% to $886m, after $830m in asset write-downs. The firm's exposure to US subprime was $5.3bn as at the end of November.

Speculation continues about the number of global job cuts made at Dresdner Kleinwort, with rumours that several hundred staff were shown the exit in the latest round of redundancies, which took place this week. The official line is that the firm has cut 60 jobs in credit related areas, mainly in London and New York, as it adjusts to new market realities. Although the firm won't disclose the number of staff affected as a result of its usual year-end performance reviews, a 5% headcount reduction is the norm.

Firm staff are also said to be worried about how much bonus cash there's likely to be in the 2007 pot, but they won't have long to wait before they find out - it is thought that staff will be given their numbers Wednesday. Rumours also abound that the firm may, like UBS, decide to introduce a cash ceiling on bonuses this year for senior bankers and high performers, giving a larger stock component in the awards instead.

Financial News reports that the Carlyle Multi-Strategy Master Fund, launched in September, is thought to have lost 10% of its value in October. Bloomberg reports that Moore Capital has closed its Canadian hedge fund unit (which was run by former Amaranth traders), after losses of 15% sustained in November on equity and convertible-bond trades. 15 trades are said to have lost their jobs. And Kite Metals Hedge Fund is said to have lost 22% in November on copper positions.

It's not all doom and gloom, though, as FT Alphaville reports that figures from the Credit Suisse / Tremont index show that hedge funds are still showing an average return of 12.1% on the year through November.

The Wall Street Journal reports that Citigroup has confirmed that it is to take $58bn of debt onto its balance sheet to bail out 7 SIVs. The move comes at a time when the Citi balance sheet is already under pressure. And The Financial Times reports that BNP Paribas, Calyon, HSBC France, Natixis and Societe Generale have clubbed together to launch a $1.5bn 'super-conduit' fund which will support any French mutual fund affected by the global credit crunch.

Finally, Bloomberg reports that LBBW is now clear to proceed with its purchase of troubled Landesbank Sachsen Girozentrale, after securing a $4bn guarantee from the German state of Saxony over Sachsen's exposure to US subprime lending-related assets. And Blackstone has raised $1.3bn for a fund to invest in CDOs, leveraged buy-outs and other securities affected by the recent credit crisis.


'Ehhh... So what happened to M-LEC (aka "Super SIV")? Is it now dead in the water ? I thought Blackrock had been named as the manager. I hope they thought to put a nice juicy 'drop-dead' fee in the mandate letter ! Anyway, with a bit of hindsight (and a large dose of clear sight), M-LEC was never going to work. The whole proposal was designed to introduce liquidity back into the market. It sounded like a good idea - you can't have too much liquidity. However, M-LEC doesn't address the source of the problem - market sentiment towards sub-prime or subprime-related assets. Unfortunately, the SIV market have been tainted by a one or two SIVs and a few SIV-lites - and there's no way back from that. Taking something that people have no confidence in from one vehicle and putting it into another, with a different manager, will not build investor confidence'.

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