Perspectives on Risk - Apr. 15
Collateral; Goldman’s “catastrophic compliance failure”; Whatever It Takes; Inflation Thoughts; Other Follow-ups; What I Probably Should Be Writing About
Hey, they all can’t be 12-part mini-series.
Collateral
A billion here, a billion there, pretty soon you’re talking real money.1
JPMorgan Is Reviewing Commodity Exposure After Nickel Chaos
About 50,000 tons of Tsingshan’s total nickel short position of over 150,000 tons was held through an over-the-counter position with JPMorgan, Bloomberg reported last month. …
Based on the 50,000 ton figure, Tsingshan would have owed JPMorgan about $1 billion in margin on the day before the nickel market was halted. If the nickel price had been allowed to continue rising, the bank’s exposure to Tsingshan could have risen by billions of dollars more.
Shell blames oil, gas margin calls for billions in cash outflows
Shell said on Thursday it diverted $7 billion of its cash flows partly to cover hefty oil and gas margin calls, becoming the first company to publicly acknowledge the pressure commodities traders have faced in 2022 from extreme price rises and volatility.
Goldman’s “catastrophic compliance failure”
Goldman’s Failure to Heed 1MDB Red Flags Offers Lessons to Banks
A central theme at the trial in federal court in Brooklyn, New York, was the tension between Goldman bankers in Southeast Asia seeking big deals after the financial crisis and the compliance and legal employees vetting their transactions.
Patrick Kidney, a member of Goldman’s anti-money laundering team, … wrote in an email to colleagues: “To be clear, we have pretty much zero appetite for a relationship with this individual.” Another compliance employee said Low is “a name to be avoided.”
In its statement of facts with its deferred-prosecution agreement, Goldman said it “failed to investigate these red flags or to perform an internal review of its role in the bond deals despite the clear implications that the deals had involved criminal wrongdoing.”
Whatever It Takes
Tracy Alloway notes that the Bank of Japan “holds a whopping 80% of Japan's ETFs—equivalent to about 7% of its $6 trillion stock market.”
Inflation Thoughts
In the March 30 PoR I wrote that:
I think it helps if we decompose the current bout of inflation into three different pieces.
Stimulus-induced goods demand interacting with covid-related production and supply chain delays
Russia/Ukraine-related commodity price inflation (energy, fertilizer, foodstuffs)
Tight US labor market conditions and supply/demand imbalance
I think we are about to add a 4th source:
Chinese shutdown induced supply shock (a larger supply shock than #1 without the the commensurate stimulus on demand.
And to point #3, we need more immigration.
Other Follow-ups
ECB Turns Down Energy Traders’ Request for Financial Support
Default rates for CLOs are a fraction of those for corporate debt issuers (someone tell Nick)
Climate Change 2022 - Mitigation of Climate Change (Intergovernmental Panel on Climate Change)
Global GHG emissions in 2030 associated with the implementation of nationally determined contributions (NDCs) announced prior to COP26 would make it likely that warming will exceed 1.5°C during the 21st century. Likely limiting warming to below 2°C would then rely on a rapid acceleration of mitigation efforts after 2030. Policies implemented by the end of 2020 are projected to result in higher global GHG emissions than those implied by NDCs. (high confidence)
What I Probably Should Be Writing About
Global Bonds Slump to a Discount for First Time Since 2008
Anyone else remember when a billion dollars was a lot of money?