US bank 'to fail within months' - BBC

WTF?_2

Cranston wrote: »

Data on their level 3 assets.

Would this the stuff that's allegedly held off the books? I remember reading an article about it about six months back. Pretty scary, if they had to book it they'd be insolvent overnight was the thrust of the argument.

Let's face it, many of the big banks in the US and Europe are flirting with insolvency. Either that, or they've done a great job in conning the central banks into giving out hundreds of billions of pounds/ dollars/ Euros in 'liquidity measures'.

EDIT: Ouch!

http://www.themoneyblogs.com/urbandigs/my.blog/level-3-assets-credits-next-concern.html

http://www.moneymorning.com/2008/04/21/rising-tide-of-level-3-assets-a-disaster-waiting-to-happen/

http://bigpicture.typepad.com/comments/2008/08/level-three-!!!.html
(hmm the filter has mangled this URL..Replace !!! with a three letter word for 'Donkey' if you want to read it!)

http://calculatedrisk.blogspot.com/2007/11/citigroup-1348-billion-in-level-3.html

Cranston_2

!!!!!!? wrote: »

Would this the stuff that's allegedly held off the books?

yes great links

To save others time
To quote Marketwatch.com - "Level 3 assets are those that trade so infrequently that there is virtually no reliable market price for them, and valuations for these assets are based on management assumptions".

The last figures I saw Citi's level 3 assets exceeded their equity.

Cranston_2

!!!!!!? wrote: »

Let's face it, many of the big banks in the US and Europe are flirting with insolvency.

Don't worry about that. Really. we have been here before and this too will pass.
Yes, shareholders may loose more money

I can tell you that at least one of the UK clearer's was flirting with insolvency during 1992 when the base rate hit 15% and they are still here today.

WTF?_2

Cranston wrote: »

To quote Marketwatch.com - "Level 3 assets are those that trade so infrequently that there is virtually no reliable market price for them, and valuations for these assets are based on management assumptions".

The last figures I saw Citi's level 3 assets exceeded their equity.

Heh heh - basically, "We're not broke because we've got all these assets. I know that no-one apart from ourselves has priced them but take our word for it."

Fantastic :rolleyes:

Cranston_2

!!!!!!? wrote: »

Heh heh - basically, "We're not broke because we've got all these assets. I know that no-one apart from ourselves has priced them but take our word for it."

Fantastic :rolleyes:

I know, you couldn't make that stuff up no one would believe you.

I think I am right in saying that Citi have been there before 1991 and recovered with a little help from some friends;).

And I prefer a world with Citi than without. Bank lending is a vital part of the economy and helps create millions of jobs.

Generali

!!!!!!? wrote: »

Heh heh - basically, "We're not broke because we've got all these assets. I know that no-one apart from ourselves has priced them but take our word for it."

Fantastic :rolleyes:

That's true to some extent but even illquid complex assets have value most of the time.

If I buy an annuity then despite the fact that I can't sell it, it clearly has a value in that it is a reliable and continuous income stream available to me until I die. I guess it's value would be something like the Net present value of the stream of income for the rest of my anticipated life less a bit to account for the risk of me dying early or the income drying up.

Similarly, a CDO that is paying an income has a value of some sort. It may be hard to value but that doesn't render it without value.

As regulators are unable to value every complex instrument a bank holds they have to rely on the models that the banks use to value them. A selection of these models will be stress tested by the regulator and regulators provide guidance on how valuation models should be constructed. My experience is that financial institutions take this stuff pretty seriously.

Cranston_2

Generali wrote: »

. My experience is that financial institutions take this stuff pretty seriously.

Time will tell.

WTF?_2

I reckon they'll throw the rulebook out of the window when it comes down to the financial system going to the wall.

They already have to quite an extent, trading government bonds for all sorts of hitherto dodgy assets from the banks.

neverdespairgirl

Cranston wrote: »

To quote Marketwatch.com - "Level 3 assets are those that trade so infrequently that there is virtually no reliable market price for them, and valuations for these assets are based on management assumptions".

The last figures I saw Citi's level 3 assets exceeded their equity.

What type of things are level 3 assets? Could you give an example?

Cranston_2

neverdespairgirl wrote: »

What type of things are level 3 assets? Could you give an example?

I guess a simple way of looking at it is these are groups of loans, whose true worth is very difficult to establish and cannot easily be sold to someone else. One example is a sub-prime mortgages.