Securities Lending Today

Stock Lending World Tour

In my Friday night wrap up for members of the Securities Lending Traders Network I recommended that people have low expectations for the G20 meeting this past weekend.  I didn't want anyone to be disappointed, but it looks like it was even more of a non-event than I thought.  Long talk, short action - a tried and true political strategy.  The good news is that eventually we will get to join in.  The global strategy seems to be Borrow. Spend.  Tax (this is where we come in!).

India is a great source for stories about securities lending, short selling and the like.  A constant stream of news comes from the market.  On Friday, the Finance Ministry said the sharp decline in their stock market during October was a fallout from the global financial turmoil rather than stock-lending by foreigners.  Hey, maybe we can get this person to go on a regulatory world tour? 

It's not just shorting stocks that are a problem.  The Loan Syndications and Trading association has accused Goldman Sachs of engaging in naked short selling of high yield, risky loans. 

When I was first involved in the securities lending business all those centuries ago, I dreamed about the day where it was important enough to be mentioned in my company's Annual Report.  It now regularly does appear in company reports but not the way I had hoped.  The latest is the ANZ Annual Report where the CEO mentions the review of their business and the actions against 13 staff.  Ummm, maybe "below the radar screen" is not such a bad place to be.

Speaking of CEOs, Vikram Pandit has announced another potential 50,000 job cuts from Citi through disposals and redundancies.

From Wednesday the restrictions on short selling non-financials in Australia will be lifted.  Expectations are also high for a removal of the restrictions in Taiwan as well.  Maybe this is a turning point?

More signs of a real market?  The Observer reported this weekend of a potential bid for property developer Taylor Wimpey.  The shares are up 7% as of writing this post.  A "deal stock" on the horizon?  Hurray!

Regulators, Hedge Funds and Lunch

Image via WikipediaThe Trickle Down Effect is in full evidence today.  It starts with with unwanted intervention, then it plays into the impact on jobs and finally impacts the restaurants in Mayfair.  It's a truly interconnected world we live in.

I try to start every day with a dose of FinTag, and I think this sums up how I feel:

" FINTAG COMMENT

Distortion.

A level playing field is a myth. Take shopping. A beautiful hand made Turnbull & Asser shirt will cost you 200 times more than an equivalent shirt bought at Primark. The first shirt is made in England (high labor costs, health and safety, pensions and low productivity) and the other in a Vietnamese sweat shop (low labor costs, no health and safety, no pensions and starvation driven productivity). This is global capitalism. And it is a distortion most of us will tolerate. But what about the rest?

Well OPEC, Bernanke and the FSA are distortionists. OPEC is being forced to bail out Dubai, Russia and Venezuela and is finding excuses to turn oil supply down; Bernanke is following everything the text book says in saving the world (except it is isn't working and millions of people are suffering as a result); and the UK's Financial Services Authority, that huge super regulator, has continued its short selling ban on financials. Such intervention is not welcomed.

No wonder the markets are so volatile.

Distortionists 1 Markets 0. "

On the other hand, the petition to the British Prime Minister to rescind the ban on short selling financial stocks that is listed on Number10.go.uk the official site of the Prime Minister’s Office has garnered a grand total of 22 signatures to date.  As I wrote when I first announced the petition, if people in the industry (hedge funds, institutional investors that have both long and short funds and earn money from securities lending, and the securities lending industry itself) can't be motivated to sign up – even anonymously – then why would anyone else care?

Ken Griffin, the head of Citadel Investment Group is quoted by Reuters as warning policymakers against adding inappropriate new rules.  He makes the excellent point that it has been the regulated side of the economy – i.e. banks – that failed the economy first.

I spend some part of every day speak with or staying in touch with people that are casualties of the job cuts in the securities lending business.  Seems the job cuts apply to the hedge fund side as well. Richard Wilson in the Hedge Fund Blogger.com features a Bloomberg video that covers Job Losses for Hedge Fund Employees.

Finally, at the sharp end - LUNCH - Greg Newton who runs Naked Shorts describes how lunch with London-based hedge fund managers ain’t what it used to be.  I put the decision to have lunch in the park down to the fact that the weather has been great in recent days.  Finally.

P.S.  Following on from yesterday’s story, Hedge World tells us that Morgan Stanley executives give confirmation of the increasing market share of other firms.  Also, as I noted, there are reasons that MS and Goldman were at the top of the tree, and that I expected clients to return now that the financial position has stabilised.  A cautionary note about the continuing deleveraging and the impact on the industry.  Estimates are that banks and investment banks that had leverage in the mid-20-times just over a year ago will go to the 12 – 15 range.  That is as a result of changes across the full spectrum of banking activity across all market sectors, but don’t underestimate how much of the reduction is from changes to the hedge fund market.