DHUnplugged #646: COCO Bond Rug-Pull

No rest for bankers - weekend overload to quiet markets.

COCO bond rug pull - billions lost

The Fed in a no-win position this week. Rate decision meeting Wednesday.

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Warm Up

- Full blown banking crisis - S&P P/E  still above 17+

- Fed has big decision tomorrow

- Fed/Treasury dusting off financial crisis playbook

- Bond yields move - largest since '87

--- Banks joining in the charade - $30 billion

- Whatever you do - don't say bailout!

Market Update

- Banks failing - forced merger over weekend

- Fire sale for deposits - big win for some banks

- COCO / ATI Bond massacre - RUG PULL

- Tech favored over most other sectors

- Goldman says rates hikes over

FED GAME - What will the do tomorrow?

- ECB Playbook (raise like nothing happening)

- Powell Playbook - raise 0.25% and keep pushing that the data is what they look at - try to save face...

- Volker Playbook - ram it

- Bernanke Playbook - zero or cut

GAME ON

- We are playing the real life Monopoly

- Treasury Secretary Yellen says the govy could backstop more deposits if necessary to stop contagion

- - Trillions in deposits  - how would that work?

- - - Monopoly Rules: The Bank: The Bank newer "goes broke." If the Bank runs out of money, the Banker

may issue as much more as needed by writing on any ordinary paper.

----- Why would Yellen need to say that ???

Asked on Twitter this week: Why do so many investors enjoy throwing hard earned money into dumpster fires?

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Dust off the playbook

- Plenty of financial crisis moves being made

---- Have I mentioned that this group of Fed leaders could be the worst in my lifetime?

- $30 billion from consortium of banks into First Republic

---- NON insured accounts was the push

--- NO WAY is this not backstopped by Fed/Treasury as a attempt to boost confidence. TOTAL BS

----- Meanwhile - investors are not impressed. (Stock down from $29 to $17 since announcement)

---- WAIT - NEWS BREAKING MONDAY - JPMorgan Chase's (JPM) Dimon is leading talks with bank executives of others banks about new FRC plans; deal could involve converting previously announced $30 bln in deposits into a capital infusion, according to WSJ

----- NO Correction out - that may bot be the way they want to go .... Just spitting at the wall with ideas it seems

-- Meanwhile after 47% drop yesterday, FRC up 36% Tuesday (still down 90% from peak)

Remarkable

- Yields up from ZERO

- Earnings down and falling

- Global banking crisis

- S&P 500 forward P/E at 17.9

- PEG at 1.8!

Credit Suisse  COCO

- UBS buys for pennies on the dollar

- COCO bonds (Contingent Convertible bonds) - wiped out

- $17 billion lost as regulators write down bonds to ZERO

- COCOs - high-yield investments with a hand grenade attached (AKA ATI bonds)

--- They’re essentially a cross between a bond and a stock that helps banks bolster capital to meet regulations designed to prevent failure. They’re contingent in the sense that their status can change if a bank’s capital levels fall below a specified level; they’re convertible because in many cases they can be turned into equity

Forced Merger

- Credit Suisse bought by UBS

- In a package orchestrated by Swiss regulators on Sunday, UBS Group AG will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse Group AG  and assume up to $5.4 billion in losses. (80% discount)

- The Swiss central bank said Sunday's deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.

Fed Decision

- Holding 2-day decision on rates today and tomorrow