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JohannesBorgen Profile picture
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7 May, 4 tweets, 1 min read
There's something really weird going on with Monte Paschi's Q1 results.
i) they booked a massive gain on BTP
ii) they changed real estate valuation to fair value to increase equity
iii) they delayed the impact of TRIM
As a consequence they don't have a capital shortfall 1/2
But the capital shortfall is going to appear soon, in 2022. Why is this weird? Because we have the EBA stress test results in Q4. It almost looks like they're engineering a 'no shortfall' situation ahead of the stress test in order to have one in the stress test. 2/3
Why would they do that? Well, state aid/BRRD rules are not the same if the shortfall comes from the stress test...

Call me a cynic but this is odd.

3/3
(yes the numbering was off, as always)
@gianlucac1

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More from @jeuasommenulle

JohannesBorgen Profile picture
29 Apr
Who wants another thread about the absurdity of risk management in the financial sector?

(The crowd goes wild, it’s #RiskManagementMonth #Archegos)
There is a crucial concept in risk management: a group of companies.

Because they are strongly connected, the risk of those companies is similar and highly correlated.

So you want to know if companies belong to the same group.
This is precisely the crucial topic that explains (in part) the bankruptcy of Greensill and the criminal proceedings against its German bank @BondHack & @cynthiao have been talking about:

Was the “Friends of Gupta” a group or not?
Read 13 tweets
JohannesBorgen Profile picture
29 Apr
A smart analyst at Autonomous has spotted something weird in the Archegos disclosure by Credit Suisse.

Bear with me for the hunt for the missing billion.
Pre tax the bank lost -757m ow -4430m on Archegos so 3673m ex Archegos.

Pre Archegos the tax rate guidance was 26%, so a tax of -955m on the pre Archegos profit before tax.
The CFO said they took only 650m of tax shield on Archegos because the loss was so big that the relevant legal tax entities (in US & UK) could not absorb the loss with future profitability
Read 5 tweets
JohannesBorgen Profile picture
26 Apr
How bad would it be that banking regulations asked you to measure risk based on the exact opposite of your actual risk?

Yeah, I knew you would think It’s bad. A thread.
This is exactly what’s happening when you’re buying a synthetic CDO (if you’ve seen The Big Short, you know what they are, nothing to be worried about) and want to measure your counterparty credit risk.
For my new followers, counterparty credit risk (or CCR), is the risk you’re taking if you trade a derivative or a repo with someone who goes bust.

As in Credit Suisse and Archegos, for example.

Let’s go back in time a bit.
Read 22 tweets
JohannesBorgen Profile picture
21 Apr
As Credit Suisse is aware, Counterparty credit risk is so complicated, that almost all the formulas in the CRR had to be corrected two years later !

A thread!
Ooops we forgot a floor in the duration calculation (btw this formula is still horribly wrong)
Who’s the bloody intern who forgot the long-term bonds in the notional calculations!?
Read 14 tweets
JohannesBorgen Profile picture
8 Apr
It feels like a big mystery about Credit Suisse remained largely unnoticed.

OK, they took a 4.4bn hit from Archegos… but how did they manage to lose *only* 900m in Q1 and wrongfoot analysts who had all estimated much lower capital ratios?
To understand the magnitude of the mystery: the Q1 consensus *before* the Greensill mess was around 1.4bn.

1.4bn-4.4bn=-3bn. Where the hell did the extra 2.1bn come from?! Not to mention a potential Greensill provision.
Let’s be super generous and assume no Greensill provision (hmmm) and a fabulous Q1 with PBT at 2bn.

We’re still missing 1.5bn. Not exactly small change. Where could this come from?
Read 10 tweets
JohannesBorgen Profile picture
6 Apr
We finally have the total cost of the Archegos disaster for Credit Suisse: 4.4bn CHF.

There is one question I get A LOT: how is it possible that Credit Suisse took a multi-billion exposure on a “family office”?

I will try to explain - A thread.
First it should be stressed how extraordinary that exposure is.

One of the most important rules in banking (the one which puts Greensill in a *lot* of trouble) is called the large risk limit.

It says max exposure should be 25% of own funds.
In practice, most banks set internal limits around 10% - that would be approx. 5bn CHF.

How on earth did Credit Suisse get to a 4bn+ exposure?

The reason is probably that they didn't even know & I will try to explain why as simply as possible.
Read 37 tweets

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