The September 2008
September 2008 was a truly an eye popping month with so much events happened which one could not have imagined in his/ her generation!!!
• The Federal Housing Finance Agency (“FHFA”) placed the Government Sponsored Enterprises (“GSEs”) Fannie Mae and Freddie Mac, into conservatorship run by FHFA.
• Lehman Brothers filed for bankruptcy
• The U.S. Government provided AIG with an $85 billion loan (@around 11-12% pa) for 80% stake.
• Merrill Lynch was taken over by Bank of America
• Morgan Stanley and Goldman Sachs “transformed” over a weekend into bank holding companies.
• The Federal Deposit Insurance Corporation (“FDIC”) seized the assets of Washington Mutual, and sold off to JPMorgan Chase.
• The collapse of Washington Mutual is the largest bank failure in U.S. History.
• The FDIC also facilitated the acquisition of the banking operations of Wachovia Bank by Citigroup, however later on Wells Fargo announced its takeover
• HBOS was taken over by Lloyds, B&B in the UK was nationalized, Fortis has three sovereign governments now owning 49% each of the companies’ banks in those countries
• The US and UK regulators banned short selling on financial stocks.
• Other countries which instituted a ban on short selling (either a list of select names or all stocks) include Australia, Canada, France, Ireland, Italy, South Korea, Pakistan, Switzerland, Taiwan and the United Kingdom.
• Over a trillion dollars of liquidity was pumped into the global financial system
• On September 29th, Troubled Assets Relief Program (“TARP”) was voted down, and the US equity markets ended the day with a “mini-crash” like return of -8.79% (the largest one-day percentage drop in the S&P500 since 1987 crash).
• Both Implied and Realized Volatility across all asset classes spiked to 200-400% of historical averages. The realized 20-day volatility for the S&P500 was 59%, over 3.5x its long term average. This is the case for virtually all asset classes.
• Short term Treasury instruments served as the flight to quality, with yields on the US 3-month treasury bills at 0.91% from 1.72% at the beginning of the month.
• On the 17th of September, 3-month US treasury yields were zero and some trades took place at a negative yield – the last time that happened was in January 1940!
• Credit among counterparties froze, as LIBOR spreads went to unprecedented levels – all this despite a global coordinated effort among central banks to pump liquidity into the system.
• The US dollar strengthening by almost 4% against the EURO, but this monthly move masked very high intra-month volatility.
• Emerging Market currencies were for sale all month, with the Brazilian Real down over -14%. In particular, USD / Indian Rupee (- 7% for the month, -16% YTD) and USD / Korean Won (-10% for the month, -22% YTD)
• The Federal Housing Finance Agency (“FHFA”) placed the Government Sponsored Enterprises (“GSEs”) Fannie Mae and Freddie Mac, into conservatorship run by FHFA.
• Lehman Brothers filed for bankruptcy
• The U.S. Government provided AIG with an $85 billion loan (@around 11-12% pa) for 80% stake.
• Merrill Lynch was taken over by Bank of America
• Morgan Stanley and Goldman Sachs “transformed” over a weekend into bank holding companies.
• The Federal Deposit Insurance Corporation (“FDIC”) seized the assets of Washington Mutual, and sold off to JPMorgan Chase.
• The collapse of Washington Mutual is the largest bank failure in U.S. History.
• The FDIC also facilitated the acquisition of the banking operations of Wachovia Bank by Citigroup, however later on Wells Fargo announced its takeover
• HBOS was taken over by Lloyds, B&B in the UK was nationalized, Fortis has three sovereign governments now owning 49% each of the companies’ banks in those countries
• The US and UK regulators banned short selling on financial stocks.
• Other countries which instituted a ban on short selling (either a list of select names or all stocks) include Australia, Canada, France, Ireland, Italy, South Korea, Pakistan, Switzerland, Taiwan and the United Kingdom.
• Over a trillion dollars of liquidity was pumped into the global financial system
• On September 29th, Troubled Assets Relief Program (“TARP”) was voted down, and the US equity markets ended the day with a “mini-crash” like return of -8.79% (the largest one-day percentage drop in the S&P500 since 1987 crash).
• Both Implied and Realized Volatility across all asset classes spiked to 200-400% of historical averages. The realized 20-day volatility for the S&P500 was 59%, over 3.5x its long term average. This is the case for virtually all asset classes.
• Short term Treasury instruments served as the flight to quality, with yields on the US 3-month treasury bills at 0.91% from 1.72% at the beginning of the month.
• On the 17th of September, 3-month US treasury yields were zero and some trades took place at a negative yield – the last time that happened was in January 1940!
• Credit among counterparties froze, as LIBOR spreads went to unprecedented levels – all this despite a global coordinated effort among central banks to pump liquidity into the system.
• The US dollar strengthening by almost 4% against the EURO, but this monthly move masked very high intra-month volatility.
• Emerging Market currencies were for sale all month, with the Brazilian Real down over -14%. In particular, USD / Indian Rupee (- 7% for the month, -16% YTD) and USD / Korean Won (-10% for the month, -22% YTD)
posted by Vikas Maheshwari, CFA at 4:29 PM
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