HedgeWorld’s Alternative Reality

News headline: “Fannie’s capital better than market perceptions: Lehman”

“Fannie Mae’s capital and reserves positions are better than market expectations, and the biggest U.S. mortgage finance company may not need any more externally raised capital, according to an analyst at Lehman Brothers.”

I believe it. If anyone would know about making that argument it would be Lehman, right?

Read the full Reuters story here.

The hits just keep on coming for the Federal Deposit Insurance Corp. On Tuesday we learned that the list of troubled banks the FDIC is keeping an eye on grew from 90 in the first quarter to 117 as of June 30. The FDIC also disclosed yesterday that the failure of IndyMac Bank, once predicted to cost between $4 billion and $8 billion, will now more than likely cost nearly $9 billion.

Perhaps in response to the gloom emanating out of the regulator’s Washington offices, it made Chairman Sheila Bair available to the Wall Street Journal and the New York Times for interviews. Whatever else was said during her time with the Journal, the news that made page A11 of the paper this morning was less than confidence-inspiring. Because of the wave of bank failures, the FDIC’s deposit insurance fund balance has fallen to $45.2 billion, just more than 1% of all insured deposits. According to the Journal, this is low by historical standards.

In response, Ms. Bair said the FDIC may borrow money from the U.S. Treasury to cover “short-term cash pressures caused by reimbursing depositors immediately after the failure of a bank.” The FDIC insures bank deposits up to $100,000. Both the Journal and the Times also reported that the FDIC is considering raising the fee it charges banks for insurance by 14%, or 14 cents for every $100 of deposits.

Journal reporters Damian Paletta and Jessica Holzer pointed out in their story that the last time the FDIC tapped the Treasury was at the end of the savings and loan crisis in the early 1990s. What might be termed the “nuclear option,” accessing a $30 billion line of credit the FDIC has with the Treasury, isn’t necessary now, and Ms. Bair told the Journal she didn’t expect it would be going forward.

If only I had a dollar for every time a government official said he or she “didn’t expect that” some drastic thing would happen or some last resort option would be necessary.

As if to reinforce the precarious state of the banking system, a page one story in today’s Journal details a new potential woe for banks: the reality that some $787 billion in floating-rate notes that banks have used over the past two years to stay afloat, will come due before the end of 2009. About $95 billion worth of those notes will mature in September, according to the Journal. The banks say they have enough money to redeem the notes, but again, if I had a dollar for every time over the past year a bank official has downplayed potential problems, I could pay off my house.

Every day’s a party. . . .

Poor Citigroup. The bank can’t even finish the $45 million Japanese garden it was planning to build near its executive suites. Reuters reports that the garden was among the cost cutting measures instituted by the bank following $58 billion in write-downs and credit losses for the year ended June 30.

Also on the chopping block are “unnecessary” color copies.

“Separately, John Havens, head of Citi’s institutional clients group, recently encouraged employees to pare spending through such measures as making color copies only for client presentations. Employees were also encouraged to make two-sided copies when printing presentations, according to an internal memo obtained by Reuters.”

A hint to Citi employees: After years of covering public officials and now the financial industry, I can tell you you don’t need to really start worrying until they start questioning the strip-club lunches and corporate jet ski trips to Zermatt.

You’re going to read, hear and see a lot in the next few days about how this is the one-year anniversary of the credit crisis. NPR’s Morning Edition had a special report this morning, for instance.

With Michael Phelps having been elected president of the world by a vote of the obsequious mainstream media, oil falling and the dollar rallying, it’s hard to remember there are any economic problems at all. We can thank Fannie Mae and Freddie Mac and Lehman Brothers for reminding us that the credit markets are still sick.
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Here for your viewing pleasure is StreetInsider.com’s look at JANA Partners’ latest 13F filing with the Securities and Exchange Commission. It covers the quarter ended June 30. You really have to love regulatory filings to compile this kind of information, and it’s nice that someone does.

StreetInsider also has the skinny on the latest 13Fs from the likes of Steven A. Cohen, John Paulson and others.

Given the time lag between the end of the reporting period and the filings, this information is mostly voyeuristic. But it just goes to show how valuable it can be to take raw data and provide even a surface-level analysis.

There are a lot of dark monitors and empty chairs at HedgeWorld this morning. Many people whom I like very much and who have made my life brighter these last years are gone, sacrificed on the cold altar of profit and loss.

Jacob Bunge
Martin de Sa’Pinto
Christopher Faille
Bill McIntosh
Chidem Kurdas
Maggie Shea
Emma Trincal
Michael Fischer
Andrew Morken
Judy Miszner
Steve Moy
Marc Yellin
Danielle Milazzo
Tracy Becker
Johann Wong

And of course the ringleader, Kristin Fox.
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It’s a case of doing well while doing the right thing. Judging by data presented to the Plan Sponsor & Minority Manager Annual Consortium in June, pensions that hire women and minority investment managers are making shrewd business decisions. 

 Of some dozen pensions surveyed for the Consortium, 50% said they have emerging manager programs. They define “emerging manager” by assets under management, ownership by minority people or women, or other criteria.

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OK, hands up all those who believe the inflation numbers churned out regularly by the eggheads at the relevant body in your home country. Were we all together in one room right now, my guess is that there would not be many hands, and that those whose hands were indeed up would feel somewhat embarrassed by them.

Maybe there is a perfectly reasonable explanation for those hands that are up, such as feeble mindedness of the owner, or an involuntary twitch. If there is anyone who really does believe government inflation numbers and is not locked in an institution of some kind, I would expect to find them in the rainy, midge-infested lands of Inverness, hunting the Loch Ness Monster, collecting car number plates or swimming in the freezing Danube on Christmas morning.
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Close to half of the money flowing to hedge funds goes through funds of funds, though their share may be shrinking nearer to 40%. Smaller funds of funds face increasing pressure; a number of them closed down this year.

Others are merging or joining larger firms. The integration of George Chacko’s firm, Kite Partners, into Auda is consistent with this trend. Mr. Chacko was named Chief Investment Officer of $5 billion Auda International LP’s hedge fund investment arm. His associate Karl Neumar joined Auda Hedge as a Vice President. Kite Partners’ funds will become part of the company.

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There is no very good intellectual case to be made for the present state of the law on “insider trading” in the United States.

I say this because I’ve been attending (too closely) to the predicament of former hedge fund manager Ralph Cioffi. Allow me to summarize that predicament briefly: Working within the Bear Stearns fold, Mr. Cioffi founded two hedge funds with absurdly long names, both of which sought to make money in the structured credit markets. In late March 2007, according to prosecutors, Mr. Cioffi transferred approximately $2 million of the money he had personally invested in one of those funds to another hedge fund. That transfer is the basis of the insider trading charge.
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