It's bad luck for a bank to find itself exposed to one or even two parts of the credit crisis cum subprime mess, but when its got cannon-ball sized holes all over its hull from every single shot fired - well, then we have to wonder whether these geniuses have a clue. According to the WSJ, Barclays announced on Friday it will inject $1.6 billion into a mutant creature called Cairn High Funding I. Barclays team of mad scientists created Cairn and evidently feel some obligation to keep their creation afloat (and yes, they do seem to also have a legal obligation to provide funding - which begs the question, why is these 'remote-controlled hedge funds' were not somehow reflected on the balance sheet). So, for those of you keeping score, the following items all have "Barclays" and "subprime black hole" in common:
- potential losses of $400 million related to investments made into the two failed Bear Stearns hedge funds
- borrowed 1.6 billion sterling from the Bank of England's standing lending facility - typically used only by banks that are having difficulty with funding. Barclay's said it was just a 'technical' issue
- Barclays' asset management group runs among the largest quant market neutral funds in the world. These funds were whipsawed by forced deleveraging among hedge funds invested in mortgage related toxic waste, and had to sell whatever they had. Many of these funds have recovered much of what they lost in August by the end of the month - but they may still lose assets from clients who saw volatility they never dreamed of.
- Last but not least, Barclays was evidently "the leader" in creating "SIV-lites" which are these bank affiliated off-balance sheet "conduits" which borrowed 10 or 20x their capital in the commercial paper market to buy longer duration, less liquid, zero transparency CDOs backed by mortgages (good, bad and damn ugly). SIV-lites are conduits on steroids. Sort of like if Dr. Frankenstein gave his monster a machine gun and a bag of hand grenades - just see what he could really get up to. The mad scientist who ran Barclays laboratory has left the building. Thirty-three year old (yes you heard right) Edward Cahill "resigned". "Going to spend more time with the fam eh Teddy? Will miss you old boy. By the by, don't forget to leave us your notes on those devilish Siv-thingys, will you?"
Let's see, have I missed anything - or rather, have they missed anything? What about hung LBO loans? Well, they have their very own hung deal. Barclays deal to buy ABN Amro for stock is looking quite doubtful to say the least. Well, maybe it's for the best. Might not be the ideal time to do an $80 billion universal bank acquisition.