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Old 8th July 2019, 01:11 PM   #1
Vixen
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Deutsche Bank staff in mass sackings

With recent news Deutsche Bank wanted to scrap 18,000 jobs worldwide 'by 2022', today saw DB staff clutching their cardboard boxes of belongings specifically in London - where some speculate up to 4,000 could go - and Wall Street, New York, as DB run down its equities trading.

It was seen to be coming but I wonder whether this signals to the markets that a recession is on the way.

Developing news is that tomorrow will be the turn of the Frankfurt offices.

When redundancies happen it does tend to happen quickly.

Who remembers 'Black Friday' or 'Black Monday'?

Quote:
Deutsche Bank employees begin leaving London office amid global job cull
BANKS
Deutsche Bank employees begin leaving London office amid global job cull
PUBLISHED MON, JUL 8 2019 9:57 AM EDT
Elliot Smith
@ELLIOTSMITHCNBC
KEY POINTS
A number of visibly disgruntled employees were seen leaving, some with A4 envelopes, while a source with knowledge of the matter confirmed to CNBC that people were being asked on Monday morning to gather their belongings and leave the premises.
The cuts are focused in the closure of the bank’s global equities sales and trading business in a bid to improve profitability, and are part of an effort to reduce global headcount to around 74,000 and cut adjusted costs by a quarter to 17 billion euros ($19.08 billion).
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Old 8th July 2019, 04:33 PM   #2
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"All of you in this particular office, go home. You're fired!"

"Oh, and don't forget to acid-wash all the files you have on your computers before you leave."
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Old 8th July 2019, 05:02 PM   #3
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Seems to me to be more of an issue with Deutsche Bank specifically than the general economy.
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Old 8th July 2019, 05:59 PM   #4
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Yeah, they are getting out of a business they were never any good at, investment banking. They've been taking it in the shorts from their German and US regulators for years. They've made risky loans to people they shouldn't have (like Trump) and have generally screwed the pooch since they tried to be Europe's Goldman Sachs. Hopefully, some of the people fired were those who were buying credit default swaps while at the same time selling consolidated debt obligations they knew were worthless.
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Old 9th July 2019, 04:52 AM   #5
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I blame the name, to close to douche bag.
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Old 9th July 2019, 04:55 AM   #6
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Sounds like a pretty drastic (and perhaps panicky?) move on their part, that's a lot of cuts over a short period of time. Are they trying to plug the holes in the dyke before it bursts wide open to save themselves from becoming the next Lehman Brothers?


But it also kind of makes me wonder if there's something coming down the pipeline in the world of investment banking....


I guess time will tell whether this is just about the Deutsche Bank, or if something else is brewing behind the scenes.
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Old 9th July 2019, 04:57 AM   #7
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The son of a friend of ours works (worked?) in their London offices. He's a keen Brexiteer, so maybe karma is involved?
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Old 9th July 2019, 05:51 AM   #8
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Originally Posted by AnonyMoose View Post
Sounds like a pretty drastic (and perhaps panicky?) move on their part, that's a lot of cuts over a short period of time. Are they trying to plug the holes in the dyke before it bursts wide open to save themselves from becoming the next Lehman Brothers?


But it also kind of makes me wonder if there's something coming down the pipeline in the world of investment banking....


I guess time will tell whether this is just about the Deutsche Bank, or if something else is brewing behind the scenes.
Deutsche Bank has been hurting for a decade now and their investment banking division has been an open wound. Not only didn't it make money, it generated all kinds of liabilities (financial, legal and so on) and was spectacularly unsuccessful.

The DB share price is about 6% of what it was before the 2008 crash and hasn't shown much inclination to increase for the last several years despite having a lot of senior management turnover.

It is possible that this is symptomatic of a wider financial crisis (it's been 10 years since the last one), but DB has enough problems of its own for it to happen all by itself.
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Old 9th July 2019, 04:34 PM   #9
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Originally Posted by Craig4 View Post
Yeah, they are getting out of a business they were never any good at, investment banking. They've been taking it in the shorts from their German and US regulators for years. They've made risky loans to people they shouldn't have (like Trump) and have generally screwed the pooch since they tried to be Europe's Goldman Sachs. Hopefully, some of the people fired were those who were buying credit default swaps while at the same time selling consolidated debt obligations they knew were worthless.
Nobody touches swaps these days.
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Last edited by Vixen; 9th July 2019 at 04:44 PM.
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Old 9th July 2019, 04:38 PM   #10
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Originally Posted by The Don View Post
Deutsche Bank has been hurting for a decade now and their investment banking division has been an open wound. Not only didn't it make money, it generated all kinds of liabilities (financial, legal and so on) and was spectacularly unsuccessful.

The DB share price is about 6% of what it was before the 2008 crash and hasn't shown much inclination to increase for the last several years despite having a lot of senior management turnover.

It is possible that this is symptomatic of a wider financial crisis (it's been 10 years since the last one), but DB has enough problems of its own for it to happen all by itself.
Problem is the people being fired are not the people who should be fired.
A Bank gets in over it's head in areas it really knows nothing about. Not the first time that has happened.....
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Old 9th July 2019, 04:42 PM   #11
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Originally Posted by AnonyMoose View Post
Sounds like a pretty drastic (and perhaps panicky?) move on their part, that's a lot of cuts over a short period of time. Are they trying to plug the holes in the dyke before it bursts wide open to save themselves from becoming the next Lehman Brothers?


But it also kind of makes me wonder if there's something coming down the pipeline in the world of investment banking....


I guess time will tell whether this is just about the Deutsche Bank, or if something else is brewing behind the scenes.
They've had lots of scandals to do with money laundering and what have you. Maybe the rug was about to be pulled completely. Remember what happened with Maxwell and Northern Rock or even Barings: lots of 9999 accounts covering massive black holes that will fall like a pack of cards as soon as one card falls.

I wouldn't be surprised if it is being downplayed to avoid a run on the bank but DB's shares have already dropped down to 95% according to the FT, the paper the capitalist class reads avidly.

Market signals are often the main cause of a downturn in share prices.

When I was in insolvency practice we always kept things as secret as possible before putting a company into administration or liquidation so that debtors wouldn't suddenly default knowing they no longer need to pay up the full amount or at all. It's astonishing how sensitive market signals are.
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Old 9th July 2019, 04:42 PM   #12
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Originally Posted by Vixen View Post
Nobody touches swaps thee days.


Where do you pull this kind of crap out from? Pretty much EVERY investment bank has a vibrant swaps desk, dealing in everything from "vanilla" swaps such as currency or interest rate swaps, through to complex synthetic swaps. Corporate clients use swaps extensively to hedge, but financial investors also speculate with swaps.

"Nobody touches swaps these days". Oh my, my, my..............
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Old 9th July 2019, 04:50 PM   #13
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Originally Posted by LondonJohn View Post
Where do you pull this kind of crap out from? Pretty much EVERY investment bank has a vibrant swaps desk, dealing in everything from "vanilla" swaps such as currency or interest rate swaps, through to complex synthetic swaps. Corporate clients use swaps extensively to hedge, but financial investors also speculate with swaps.

"Nobody touches swaps these days". Oh my, my, my..............
I was referring to swaps in which variable rates were swapped for fixed rates. As fixed rates pre-2008 were around the 8% - 9% and variable rates as low as 1.5% - 3% many large companies were stuck with fixed rate loans as noone was going to hedge it with variable rates. They were pretty much dropped completely as a financial instrument post-2008. As interest rates are still low why would anyone in their right mind go for a higher fixed rate?
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Old 9th July 2019, 04:55 PM   #14
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Originally Posted by Vixen View Post
I was referring to swaps in which variable rates were swapped for fixed rates. As fixed rates pre-2008 were around the 8% - 9% and variable rates as low as 1.5% - 3% many large companies were stuck with fixed rate loans as noone was going to hedge it with variable rates. They were pretty much dropped completely as a financial instrument post-2008. As interest rates are still low why would anyone in their right mind go for a higher fixed rate?
I was referring to credit default swaps where the buyer takes out insurance on a debt obligation he our she doesn't own. Most of the major banks when they figured out they owed a lot of toxic debt started buying these CDS while unloading their supply of consolidated debt obligations made up of toxic mortgages.
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Old 9th July 2019, 04:59 PM   #15
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Originally Posted by Vixen View Post
I was referring to swaps in which variable rates were swapped for fixed rates. As fixed rates pre-2008 were around the 8% - 9% and variable rates as low as 1.5% - 3% many large companies were stuck with fixed rate loans as noone was going to hedge it with variable rates. They were pretty much dropped completely as a financial instrument post-2008. As interest rates are still low why would anyone in their right mind go for a higher fixed rate?

Errr yeah I know what swaps are. And a) interest rate swaps are only one of dozens of flavours of swap, and b) you're entirely wrong to claim that interest rate swaps have been "pretty much dropped completely as a financial instrument post-2008".

You do know, don't you, that fixed and variable interest rates, as a rule, shadow each other? If that were not so, then it would be simple to carry out a form of arbitrage using interest rate swaps. The differential gets larger when there is uncertainty over the future direction of benchmark variable rates, yes - but that's just pricing for risk, and it's carefully calculated. I know with absolute certainty that in 2019 many, many companies engage in high-value interest rate swaps as a hedge against variable rate fluctuation, and many financial investors are constantly taking a position on the rate differential measured against their own view on future movement in base rates, and buying swaps in one direction or the other to back their own judgement.

(And that's not even to mention all the other flavours of swaps - including many exotic synthetic swaps - in which there is a constant and vibrant market....)
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Old 9th July 2019, 05:07 PM   #16
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Originally Posted by Craig4 View Post
I was referring to credit default swaps where the buyer takes out insurance on a debt obligation he our she doesn't own. Most of the major banks when they figured out they owed a lot of toxic debt started buying these CDS while unloading their supply of consolidated debt obligations made up of toxic mortgages.
Same principle, isn't it? Toxic mortgages helped lead to the collapse of Northern Rock although the subprime shortfalls - where people couldn't afford to pay back their mortgages (loans) and had negative equity so something had to give. Any type as it became quite complex, even small businesses were burnt:

Quote:
The swaps were presented as a "no-cost" form of insurance to protect small businesses against a rise in interest rates, but the unregulated instruments turned into significant liabilities.

Falling base rates were meant to help small businesses but with these products they generated charges that devoured savings and destroyed some once-sound family firms. They typically locked firms into rates of between 5pc and 6pc over base rates and as base rates fell, the charges kicked in.
https://www.telegraph.co.uk/finance/...-says-FSA.html

This plain English paragraph sums it up well:

Quote:
Shocked at the amounts of cash being taken out of their accounts, many firms looked to cancel the swap only to find the cost of doing so prohibitive. One bed and breakfast with a £73,000 turnover faced a six-figure bill to escape. A property developer with £15m in borrowings across three loans and swaps to his name faces a £9m charge.
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Old 9th July 2019, 05:09 PM   #17
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Originally Posted by Craig4 View Post
I was referring to credit default swaps where the buyer takes out insurance on a debt obligation he our she doesn't own. Most of the major banks when they figured out they owed a lot of toxic debt started buying these CDS while unloading their supply of consolidated debt obligations made up of toxic mortgages.

Indeed. And CDSs still get extensively traded today, but to nowhere near the same level of financial speculation (they are still widely used as a hedging or insurance instrument). The 2005-2008 problem essentially stemmed from combination of a) the repackaging of high-risk-of-default mortgages into an instrument which garnered a ridiculously high credit rating (on the black-swan-esque basis that there was strength in numbers and that the housing market as a whole could/would never collapse), and b) the creation of derivatives and swaps linked to these instruments which again garnered stupidly high credit ratings and which (to the gullible or greedy) looked like risk-free bets (again, on the premise that the underlying instruments could/would never default).

(Obviously it's a lot more complex than that, and there were various other factors at play)
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Old 9th July 2019, 05:12 PM   #18
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Originally Posted by LondonJohn View Post
Indeed. And CDSs still get extensively traded today, but to nowhere near the same level of financial speculation (they are still widely used as a hedging or insurance instrument). The 2005-2008 problem essentially stemmed from combination of a) the repackaging of high-risk-of-default mortgages into an instrument which garnered a ridiculously high credit rating (on the black-swan-esque basis that there was strength in numbers and that the housing market as a whole could/would never collapse), and b) the creation of derivatives and swaps linked to these instruments which again garnered stupidly high credit ratings and which (to the gullible or greedy) looked like risk-free bets (again, on the premise that the underlying instruments could/would never default).

(Obviously it's a lot more complex than that, and there were various other factors at play)
Not just the gullible and greedy: many big name plc's were stuck with enormous high-interest 'loan' derivatives they could not get rid of.
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Old 9th July 2019, 05:21 PM   #19
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The GUARDIAN has an analysis of 'what went wrong with Deutsche Bank?'

Quote:
Deutsche Bank’s drastic retrenchment marks the latest chapter in a dramatic fall from grace for a bank that was riding high until the banking crisis struck in 2008. Here’s how the 149-year-old bank ran into trouble.

1989-99: The plan to build a global bank
The Frankfurt-based lender embarks on a period of global expansion, beginning with the acquisition of blue-blooded merchant bank Morgan Grenfell in the UK.
<snip>

Quote:
2001: Joins the New York Stock Exchange
Deutsche Bank floats on the New York Stock Exchange, cementing its position as one of the major players, not just on Wall Street but in global banking.
<snip>

Quote:
2004-08: Deutsche’s role in the subprime mortgage crisis
Advertisement

In the years leading up to the banking crash, Deutsche Bank is a leader in mortgage-backed securities, bundling up homeowners’ debt into huge packages and selling them on to investors. The bank continues to sell toxic mortgage-based investments even as the market turns south and it begins betting against such products itself.
Anybody remember Ryan Gosling in the film 'Big Short' based on Deutsche Bank bond salesman Greg Lippmann .?

Quote:
A key character in The Big Short movie about the sub-prime scandal – played by Ryan Gosling – was based on a Deutsche Bank trader who was enabling investors to bet against the very market in which Deutsche was involved.

In 2008 the bank reports its first annual loss for five decades , losing €3.9bn.

Anybody remember the LIBOR rigging scandal?

Quote:
in the wake of the Libor scandal. A British banker, John Cryan, took over, but he left in 2018 having failed to get to grips with the bank’s problems. Deutsche’s shares lost more than half their value under Cryan as it struggled to return to profitability. He was succeeded by Christian Sewing, who said yesterday the bank had “no choice” in axing 18,000 staff.

2015-18: The bank paid huge fines for multiple misdemeanors
Deutsche is fined $2.5bn (£1.7bn) by US and UK regulators for rigging the key Libor interest rate.
This fine was a record.
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Old 10th July 2019, 04:01 AM   #20
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Originally Posted by Vixen View Post
Nobody touches swaps these days.
Erm: https://www.bis.org/publ/otc_hy1810.htm
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Old 10th July 2019, 04:05 AM   #21
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Originally Posted by Francesca R View Post
OTC derivatives are 'over the counter'.

Don't confuse normal hedging with swaps. OTCs such as forward contracts and futures (options) are perfectly safe.
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Old 10th July 2019, 04:12 AM   #22
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Originally Posted by LondonJohn View Post
You do know, don't you, that fixed and variable interest rates, as a rule, shadow each other?
For the lifetime of any particular swap contract that's exactly what they don't do, the fixed leg is, well, fixed and the floating leg floats, and every settlement date the fixed payer and receiver settle the difference with each other that is due to the rates not "shadowing each other". The only way the two sides can "shadow each other" is if floating rates don't move between settlement dates, in which case there is no profit/loss on the swap, and ex-post no reason to have traded it in the first place.

Quote:
If that were not so, then it would be simple to carry out a form of arbitrage using interest rate swaps.
There isn't an arbitrage unless a rate swap has been incorrectly priced, but that would be a mathematical error made using known quantities. A bet on the future direction of rates isn't arbitrage.
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Old 10th July 2019, 04:17 AM   #23
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Originally Posted by Vixen View Post
OTC derivatives are 'over the counter'.

Don't confuse normal hedging with swaps. OTCs such as forward contracts and futures (options) are perfectly safe.
Swaps are OTC derivatives. Futures generally are not. Interest rate swaps are also widely used as hedging instruments either to lock in a fixed rate in stead of a floating one, or the reverse; there are many hedging reasons to do that. Other swaps trade floating interest rates for the return stream of another financial asset or index.

Probably the BIS data has more granularity concerning how much of the derivatives space is specifically swaps I have not looked but I suspect it is either the second largest chunk after FX or the largest.
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Old 10th July 2019, 04:56 AM   #24
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Originally Posted by Vixen View Post
I was referring to swaps in which variable rates were swapped for fixed rates. As fixed rates pre-2008 were around the 8% - 9% and variable rates as low as 1.5% - 3%
In Germany (well the euro zone) official ECB short term interest rates were around 4% and German sovereign ten year bond yields a bit above that.

Quote:
As interest rates are still low why would anyone in their right mind go for a higher fixed rate?
By trading a swap as either fixed rate payer or receiver you don't "go for a higher fixed rate" you take a view on whether floating rates are gonna move differently to what is priced in (today) to expectations. Nothing about what rates were in 2008 has any relevance to this. If you become a fixed rate payer (you buy a "payer swap") then you are essentially compelled to borrow at the fixed rate and if interest rates increase (=more than is expected, from today's level) you win and otherwise you lose. Reverse that for the other side of the trade.
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Old 10th July 2019, 05:11 AM   #25
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Originally Posted by Craig4 View Post
Hopefully, some of the people fired were those who were buying credit default swaps while at the same time selling consolidated debt obligations they knew were worthless.
. . . . Collateralised?
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Old 10th July 2019, 05:23 AM   #26
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Bottom line on Deutsche Bank: I tend to think that if a bank in trouble is not rescued by the relevant government ("socialised losses"), then it isn't a systemic risk.

(Of course it has been bailed out in the past to the extent that almost all banks were, and many would say they still are being, but a few thousand bankers losing work isn't likely to move the needle)

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Old 11th July 2019, 03:38 AM   #27
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Originally Posted by Francesca R View Post
Swaps are OTC derivatives. Futures generally are not. Interest rate swaps are also widely used as hedging instruments either to lock in a fixed rate in stead of a floating one, or the reverse; there are many hedging reasons to do that. Other swaps trade floating interest rates for the return stream of another financial asset or index.

Probably the BIS data has more granularity concerning how much of the derivatives space is specifically swaps I have not looked but I suspect it is either the second largest chunk after FX or the largest.
I didn't say they were not available, merely not used nearly as widely as they once were pre-2008.

For example, it used to be a compulsory long number-crunching question in accountancy exams, with a suggested calculation proforma consisting of two vertical lines down the page labelled the start and end date of the period in question; the top representing Company X with the first line showing, say, the fixed interest rate on its financial instrument, and the second line its variable interest rate instrument hedge. At the bottom of the two vertical lines is marked Company Y showing its variable rate financial instrument followed by its fixed rate hedge. This works well initially for company X & Y as the variable rate fluctuations cancel out the fixed rate, causing gains and losses (the whole point of a hedge is to iron out losses). As soon as there is an imbalance and a constant loss can be calculated on all sides throughout the period - losses outweighing the gains - both Company Y and Company X to put it simplistically find it profitable do a 'swap' which has the aim of gaining a more favourable rate, which works for both as they have hedges opposite the other. This worked when variable interest rates were often worse than fixed rates, and as is inherent in their name, they fluctuated according to the markets. You had to wok out the gains and losses over the period and design a way of a good swap. When the markets plunged in 2008 suddenly variable rates were almost alwayslower, thus came a frantic stampede to offload the fixed rate instruments but unfortunately many were stuck with them as could not find a swap and the hedges were losses. The long-number crunching questions were dropped from accountancy syllubuses and are now merely an 'explain' type question rather than any complex 30-pointer, if it appears at at all. This is because 'nobody touches them any more' in terms of running a business. Of course they still exist. But nowhere near as standard and prolifically as they were once relied on.
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Old 11th July 2019, 04:26 AM   #28
Francesca R
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You said "nobody touches swaps these days" which is not the case. In fact . . . well I will just quote:
Quote:
In fact, the swap market is one of the largest and most liquid global marketplaces, with many willing participants eager to take either side of a contract. According to the most recent statistics, the notional amount outstanding in over-the-counter interest rate swaps was more than $542 trillion.
https://www.investopedia.com/article...wap-market.asp
(although this seems to pull the BIS number for all OTC derivatives into it)

No idea if swaps are in accounting syllabuses, as far as IFRS is concerned they are investments in financial assets and IIRC required to be reported at fair value on balance sheets which means than unrealised P/L is recorded in net income every period, learning how to value swaps doesn't seem to be a core part of accounting. I am pretty sure that rate swaps remain part of the derivatives section of the CFA curriculum as they have been for years, along with currency swaps (same thing but two different currencies and usually fixed-for-fixed), equity swaps, other total return swaps and most forward commitments.

Warren Buffet might not use them (although he did), but many others do.
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Old 11th July 2019, 04:56 AM   #29
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Originally Posted by Vixen View Post
As soon as there is an imbalance and a constant loss can be calculated on all sides throughout the period - losses outweighing the gains - both Company Y and Company X to put it simplistically find it profitable do a 'swap' which has the aim of gaining a more favourable rate, which works for both as they have hedges opposite the other.
I don't know what this means. A swap is priced so that it has zero value at initiation, that is how the fixed rate is computed, and after that point up to the first settlement date one party's gain is the other's loss, then it is reset to zero again.
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Old 11th July 2019, 06:59 AM   #30
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Originally Posted by Vixen View Post
Anybody remember Ryan Gosling in the film 'Big Short' based on Deutsche Bank bond salesman Greg Lippmann .?
I just want to tiptoe between all the banking jargon to say what a marvellous film The Big Short is. They manage to describe a genuine disaster unfolding from the point of view of people the audience can actually engage with because they're neither the hubristic idiot perpetrators nor the helpless victims. And they manage to explain stuff at an audience level, even though they hilariously accept they literally need Margot Robbie in a bubble bath to hold your attention while she tells you.
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Old 11th July 2019, 06:39 PM   #31
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Originally Posted by Francesca R View Post
For the lifetime of any particular swap contract that's exactly what they don't do, the fixed leg is, well, fixed and the floating leg floats, and every settlement date the fixed payer and receiver settle the difference with each other that is due to the rates not "shadowing each other". The only way the two sides can "shadow each other" is if floating rates don't move between settlement dates, in which case there is no profit/loss on the swap, and ex-post no reason to have traded it in the first place.

Oh yes, obv that's true - but I wasn't talking about charting the rates through the duration of any one particular swap. Rather, the (not specifically related to swaps) point I was making was that if one charts floating rates vs the available fixed rate at every given date, then over time those two lines will tend to follow the same shape, albeit at different levels on the y axis. It was in response to something Vixen had written about "why would anyone engage in the swaps market when variable rates are low but fixed rates are high....



Quote:
There isn't an arbitrage unless a rate swap has been incorrectly priced, but that would be a mathematical error made using known quantities. A bet on the future direction of rates isn't arbitrage.

Totally - but again, I was responding specifically to Vixen's (incorrect) contention that for some reason fixed rates would never respond to variations in the underlying variable rate.
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Old 13th July 2019, 04:48 AM   #32
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Translation: you didn't know what you were talking about but you just had to "correct" someone anyway

Yes I know
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Old 15th July 2019, 08:20 AM   #33
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Francesca, as you seem to know your stuff could you comment on the assertion in the end credits of "The Big Short" that a Bespoke Tranche Opportunity is "basically another name for a CDO"?

My understanding is that it wasn't supposed to be as risky but Trump has since rolled back the legislation that oversaw it - the Dodd-Frank Wall Street Reform and Consumer Protection Act.
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