Friday, April 12, 2013

You can't teach an old tiger new tricks

New York Times article on "regulatory capital trades" i.e. bank transactions whose main purpose is to make their balance sheet look better to regulators --

Citigroup cut a deal at the end of last year with the private equity firm Blackstone Group, which insured the big bank against a portion of the losses on a roughly $1 billion pool of shipping loans. The bank used a special-purpose vehicle in Ireland called Cloverie to facilitate the trade, according to people briefed on the matter but not authorized to speak on the record. For its part, Blackstone put up about $100 million, or 12 percent of the value of the shipping portfolio, to cover any possible losses. If things go well, Blackstone will receive a return of about 15 percent, these people say. If the shipping loans go sour, Citigroup gets Blackstone’s money and the private equity firm loses its cash.