1) The document outlines the structure of credit-linked notes issued by Germany through a special purpose vehicle (SPV) called Aries Vermögensverwaltungs GmbH in 2004 to monetize part of Germany's debt from Russia.
2) The structure involves Germany making payments to Aries, who passes them to a trustee and then to KfW, a German development bank, who uses the funds to pay noteholders. If Russia defaults on its debt to Germany, noteholders receive a reduced payout.
3) Key parties involved are Germany, who benefits from obtaining funds and controlling default triggers; Aries, who is an SPV acting as the issuer; KfW, who
Lehman Brothers accumulated a large portfolio of risky mortgage-backed securities and high levels of debt through acquisitions in the mid-2000s. By 2007, Lehman underwrote more mortgage securities than any other firm and had a leverage ratio of 31 to 1. In September 2008, Lehman declared bankruptcy after reporting large losses, wiping out over $46 billion in market value. Lehman's collapse intensified the 2008 financial crisis and contributed to a loss of nearly $10 trillion in global equity markets. The bankruptcy froze the commercial paper market, and the federal government had to implement guarantees and programs to stabilize money market funds and restart lending.
Lehman Brothers filed for bankruptcy in 2008 during the global financial crisis. It was the largest bankruptcy in US history. The summary cites three key reasons for Lehman Brothers' collapse: 1) Extremely high leverage of 44 to 1 made them vulnerable to losses. 2) Lack of liquidity as confidence declined and credit was pulled. 3) Heavy losses from investments in commercial real estate and subprime mortgages amid the US housing market downturn. The bankruptcy filing significantly worsened the global financial crisis and impacted markets worldwide.
Founded in 1850, Lehman Brothers filed for bankruptcy in 2008 due to its overexposure to subprime mortgages through securitization and derivatives trading. Its collapse exacerbated the global financial crisis and had far-reaching consequences. Money market funds broke the buck due to Lehman losses. Lehman's $639 billion in assets and $613 billion in debt overwhelmed the bankruptcy system. Its failure devastated the financial industry and significantly deepened the worldwide economic recession.
The failure of Lehman Brothers in 2008 was the largest bankruptcy in US history. A number of factors contributed to its failure, including excessive risk taking on housing assets, high leverage, and unethical actions. When housing markets declined, Lehman's vulnerable financial position was exposed and it collapsed, with global economic effects. The replacement of the Glass-Steagall Act allowed greater risk taking and conflicts of interest, which also contributed to Lehman's downfall.
Lehman Brothers was considered "too big to fail" but failed on September 15, 2008, marking the largest bankruptcy filing in U.S. history. The document outlines Lehman Brothers' history from 1850 to 2008, including its expansion through acquisitions. It discusses the factors that led to Lehman Brothers' collapse, including losses from the subprime mortgage crisis, high leverage, and liquidity issues. The collapse had widespread impacts, including job losses, falling stock prices, and tightened credit. Lessons included debunking the myth that a company could be "too big to fail" and the need for prudent risk management and regulations.
Presentation the holdout creditor problem lessons from restructuring sovereig...Sebastian Grund
Presentation of my research on the holdout creditor problem (i.e. a situation where a minority of creditors blocks a sovereign debt restructuring deal) in the case of Argentina and Greece
Public Debt Sustainability in Italy: Problems and Proposals - Paolo Manasse. ...SYRTO Project
Public Debt Sustainability in Italy: Problems and Proposals - Paolo Manasse
SYRTO Code Workshop
Workshop on Systemic Risk Policy Issues for SYRTO (Bundesbank-ECB-ESRB)
Head Office of Deustche Bundesbank, Guest House
Frankfurt am Main - July, 2 2014
The document provides an overview of Lehman Brothers, including:
1) It discusses the history of Lehman Brothers, founded in 1850, and its role in the global financial services industry and U.S. Treasury securities market.
2) It examines why Lehman Brothers collapsed in September 2008, with other banks refusing to trade with it due to concerns about its long-term viability in the wake of the subprime crisis.
3) It provides context around the costs of various U.S. government bailouts in response to the financial crisis and asks whether the government would have intervened to save Lehman Brothers.
Lehman Brothers accumulated a large portfolio of risky mortgage-backed securities and high levels of debt through acquisitions in the mid-2000s. By 2007, Lehman underwrote more mortgage securities than any other firm and had a leverage ratio of 31 to 1. In September 2008, Lehman declared bankruptcy after reporting large losses, wiping out over $46 billion in market value. Lehman's collapse intensified the 2008 financial crisis and contributed to a loss of nearly $10 trillion in global equity markets. The bankruptcy froze the commercial paper market, and the federal government had to implement guarantees and programs to stabilize money market funds and restart lending.
Lehman Brothers filed for bankruptcy in 2008 during the global financial crisis. It was the largest bankruptcy in US history. The summary cites three key reasons for Lehman Brothers' collapse: 1) Extremely high leverage of 44 to 1 made them vulnerable to losses. 2) Lack of liquidity as confidence declined and credit was pulled. 3) Heavy losses from investments in commercial real estate and subprime mortgages amid the US housing market downturn. The bankruptcy filing significantly worsened the global financial crisis and impacted markets worldwide.
Founded in 1850, Lehman Brothers filed for bankruptcy in 2008 due to its overexposure to subprime mortgages through securitization and derivatives trading. Its collapse exacerbated the global financial crisis and had far-reaching consequences. Money market funds broke the buck due to Lehman losses. Lehman's $639 billion in assets and $613 billion in debt overwhelmed the bankruptcy system. Its failure devastated the financial industry and significantly deepened the worldwide economic recession.
The failure of Lehman Brothers in 2008 was the largest bankruptcy in US history. A number of factors contributed to its failure, including excessive risk taking on housing assets, high leverage, and unethical actions. When housing markets declined, Lehman's vulnerable financial position was exposed and it collapsed, with global economic effects. The replacement of the Glass-Steagall Act allowed greater risk taking and conflicts of interest, which also contributed to Lehman's downfall.
Lehman Brothers was considered "too big to fail" but failed on September 15, 2008, marking the largest bankruptcy filing in U.S. history. The document outlines Lehman Brothers' history from 1850 to 2008, including its expansion through acquisitions. It discusses the factors that led to Lehman Brothers' collapse, including losses from the subprime mortgage crisis, high leverage, and liquidity issues. The collapse had widespread impacts, including job losses, falling stock prices, and tightened credit. Lessons included debunking the myth that a company could be "too big to fail" and the need for prudent risk management and regulations.
Presentation the holdout creditor problem lessons from restructuring sovereig...Sebastian Grund
Presentation of my research on the holdout creditor problem (i.e. a situation where a minority of creditors blocks a sovereign debt restructuring deal) in the case of Argentina and Greece
Public Debt Sustainability in Italy: Problems and Proposals - Paolo Manasse. ...SYRTO Project
Public Debt Sustainability in Italy: Problems and Proposals - Paolo Manasse
SYRTO Code Workshop
Workshop on Systemic Risk Policy Issues for SYRTO (Bundesbank-ECB-ESRB)
Head Office of Deustche Bundesbank, Guest House
Frankfurt am Main - July, 2 2014
The document provides an overview of Lehman Brothers, including:
1) It discusses the history of Lehman Brothers, founded in 1850, and its role in the global financial services industry and U.S. Treasury securities market.
2) It examines why Lehman Brothers collapsed in September 2008, with other banks refusing to trade with it due to concerns about its long-term viability in the wake of the subprime crisis.
3) It provides context around the costs of various U.S. government bailouts in response to the financial crisis and asks whether the government would have intervened to save Lehman Brothers.
Epsilon capital management’s first quarter european economic roundepsiloncapmgt
The document summarizes Epsilon Capital Management's quarterly report on the European economy in Q1 2012. Several positive developments occurred, including Greece securing its second bailout, the ECB providing banks with cheap loans of €529.5 billion, and increasing the Eurozone rescue fund to €700 billion. However, concerns grew toward the end of the quarter about heavily indebted countries like Spain as its harsh austerity measures raised worries about slowing growth.
1) Lehman Brothers aggressively invested in risky real estate assets during the subprime mortgage crisis, which led to its massive losses and illiquid balance sheet when the housing market collapsed. 2) To disguise its deteriorating financial condition, Lehman used an accounting maneuver called Repo 105 to temporarily remove assets from its balance sheet. 3) When the full extent of Lehman's losses were revealed, it filed for Chapter 11 bankruptcy protection on September 15, 2008, triggering a worsening of the global financial crisis.
The euro debt crisis continues over a year later, with more economies receiving support to meet debt obligations. Concerns over Greece's ability to repay its substantial debt have increased following recent political turmoil. Large household and corporate debt in Ireland and Portugal pose risks to financial stability. The necessary adjustments to reduce imbalances will weaken export prospects in vulnerable countries. Contagion risks remain concerning, particularly regarding financial stability and growth. Vigilance is recommended, especially regarding payment and exchange rate risks.
Short presentation on fall of the 4th biggest investment bank firm in United States during the period of financial crisis in 2008 which ultimately started recession in Unites States Of America and subsequent impact on whole world of economy.
The document discusses Eurocurrency and the Eurodollar market. It defines Eurocurrency as currency deposited by governments or corporations in banks outside their home market, such as US dollars deposited in a London bank. The Eurodollar market refers specifically to US dollar deposits held in banks outside the US. The market originated in the late 1950s when European banks began accepting dollar deposits. It grew due to less regulation than in the US market, allowing for higher interest rates and more banking competition internationally. However, the unregulated nature of offshore banking also carries greater risks of bank failures and foreign exchange volatility for borrowers.
The document discusses the ongoing Euro crisis. It provides background on the formation of the EU and Eurozone. The crisis began as countries took on too much debt and now face unsustainable deficits. This has endangered European banks that hold sovereign debt. The crisis bears similarities to the US subprime crisis but lacks a centralized fiscal authority to coordinate bailouts. Allowing countries to exit the Eurozone could further destabilize the region through financial contagion and competitive disadvantages, while remaining intact requires coordinated policies and austerity measures.
This chapter discusses the major international financial markets known as the Euromarkets. It covers the Eurocurrency markets, Eurobonds, Note Issuance Facilities, and Euro-commercial paper. The Eurocurrency market is composed of eurobanks that accept deposits in foreign currencies, dominated by US dollars. Eurobonds are bonds sold outside the country of the currency's denomination, often US dollars, and have grown substantially due to interest rate swaps. Note Issuance Facilities allow borrowers to issue their own notes placed by banks as a low-cost substitute for loans. Euro-commercial paper are unsecured short-term debt securities denominated in US dollars and issued by corporations and governments.
The document summarizes key events related to the collapse of Lehman Brothers in 2008:
1) Founded in 1858, Lehman Brothers became a member of the New York Stock Exchange in 1887 and was the fourth largest financial services firm prior to its collapse.
2) Lehman had significant exposure to mortgage-backed securities and was heavily impacted by the subprime mortgage crisis and decline in US home prices in the late 2000s.
3) Facing heavy losses, Lehman filed for bankruptcy in September 2008, marking one of the biggest points of the global financial crisis.
Lehman Brothers engaged in accounting manipulation by moving $50 billion to different accounts to improve its balance sheet. This included using short term loans to mask debt right before reporting periods. An investigation found serious issues with the company's accounting practices and oversight. The collapse of Lehman Brothers contributed to the 2008 financial crisis and recession as it was a major bankruptcy that shook global financial markets and decreased confidence.
Amarelli 313 Transplantation Ii Early Graft Failure After Heart Transplant Le...Cristiano Amarelli
The document discusses a study examining risk factors for early graft failure (EGF) within 24 hours of heart transplantation. The study analyzed 317 transplant recipients and identified factors significantly associated with EGF, including male sex, redo surgery, high donor inotrope use, weight mismatch over 20%, and longer ischemic time. EGF occurred in 32 patients (10.1%) and was associated with high mortality of 52.9%.
A 60-year-old female presented with an interventricular septum rupture following a myocardial infarction. Immediate surgical repair carried too high of a risk. She was stabilized with an extracorporeal membrane oxygenation (ECMO) device, which supported her cardiovascularly and allowed time for planning. After four days on ECMO, her condition worsened and she received a heart transplant. She recovered well and was discharged after one month with no complications at her six-month follow-up. The conclusion was that ECMO can effectively bridge high-risk patients with septal ruptures to surgery or transplantation.
The document summarizes the experience with extracorporeal membrane oxygenation (ECMO) and mechanical circulatory support (MCS) at the Department of Cardiothoracic Surgery and Transplants at Monaldi Hospital in Naples, Italy from 1988-2010. It provides statistics on heart transplants performed, details on 22 cases of ECMO support in 15 patients from 2007-2010, and discusses complications in 9 cases of ventricular assist devices implanted from 1995-2007. Surgical techniques for ECMO cannulation are also described.
This document discusses various topics related to heart transplantation including:
1. Older donor hearts exhibit a higher risk of developing coronary allograft vasculopathy (CAV) and worse long-term outcomes.
2. Hearts from older donors also show increased risk of renal dysfunction in recipients.
3. The use of everolimus in heart transplant recipients may provide benefits such as reduced risk of acute rejection and CMV infection while also being less nephrotoxic than calcineurin inhibitors. However, everolimus use can also increase risks like hyperlipidemia and impaired wound healing.
3. Recipient age is an important factor, as older recipients have higher risks of developing
Dokumen tersebut membahas tentang definisi ideologi, proses perumusan Pancasila sebagai ideologi dan dasar negara Indonesia, serta perbandingan Pancasila dengan ideologi lain. Proses perumusan Pancasila melibatkan berbagai usul dari para anggota BPUPKI hingga akhirnya disepakati lima sila Pancasila.
Epsilon capital management’s first quarter european economic roundepsiloncapmgt
The document summarizes Epsilon Capital Management's quarterly report on the European economy in Q1 2012. Several positive developments occurred, including Greece securing its second bailout, the ECB providing banks with cheap loans of €529.5 billion, and increasing the Eurozone rescue fund to €700 billion. However, concerns grew toward the end of the quarter about heavily indebted countries like Spain as its harsh austerity measures raised worries about slowing growth.
1) Lehman Brothers aggressively invested in risky real estate assets during the subprime mortgage crisis, which led to its massive losses and illiquid balance sheet when the housing market collapsed. 2) To disguise its deteriorating financial condition, Lehman used an accounting maneuver called Repo 105 to temporarily remove assets from its balance sheet. 3) When the full extent of Lehman's losses were revealed, it filed for Chapter 11 bankruptcy protection on September 15, 2008, triggering a worsening of the global financial crisis.
The euro debt crisis continues over a year later, with more economies receiving support to meet debt obligations. Concerns over Greece's ability to repay its substantial debt have increased following recent political turmoil. Large household and corporate debt in Ireland and Portugal pose risks to financial stability. The necessary adjustments to reduce imbalances will weaken export prospects in vulnerable countries. Contagion risks remain concerning, particularly regarding financial stability and growth. Vigilance is recommended, especially regarding payment and exchange rate risks.
Short presentation on fall of the 4th biggest investment bank firm in United States during the period of financial crisis in 2008 which ultimately started recession in Unites States Of America and subsequent impact on whole world of economy.
The document discusses Eurocurrency and the Eurodollar market. It defines Eurocurrency as currency deposited by governments or corporations in banks outside their home market, such as US dollars deposited in a London bank. The Eurodollar market refers specifically to US dollar deposits held in banks outside the US. The market originated in the late 1950s when European banks began accepting dollar deposits. It grew due to less regulation than in the US market, allowing for higher interest rates and more banking competition internationally. However, the unregulated nature of offshore banking also carries greater risks of bank failures and foreign exchange volatility for borrowers.
The document discusses the ongoing Euro crisis. It provides background on the formation of the EU and Eurozone. The crisis began as countries took on too much debt and now face unsustainable deficits. This has endangered European banks that hold sovereign debt. The crisis bears similarities to the US subprime crisis but lacks a centralized fiscal authority to coordinate bailouts. Allowing countries to exit the Eurozone could further destabilize the region through financial contagion and competitive disadvantages, while remaining intact requires coordinated policies and austerity measures.
This chapter discusses the major international financial markets known as the Euromarkets. It covers the Eurocurrency markets, Eurobonds, Note Issuance Facilities, and Euro-commercial paper. The Eurocurrency market is composed of eurobanks that accept deposits in foreign currencies, dominated by US dollars. Eurobonds are bonds sold outside the country of the currency's denomination, often US dollars, and have grown substantially due to interest rate swaps. Note Issuance Facilities allow borrowers to issue their own notes placed by banks as a low-cost substitute for loans. Euro-commercial paper are unsecured short-term debt securities denominated in US dollars and issued by corporations and governments.
The document summarizes key events related to the collapse of Lehman Brothers in 2008:
1) Founded in 1858, Lehman Brothers became a member of the New York Stock Exchange in 1887 and was the fourth largest financial services firm prior to its collapse.
2) Lehman had significant exposure to mortgage-backed securities and was heavily impacted by the subprime mortgage crisis and decline in US home prices in the late 2000s.
3) Facing heavy losses, Lehman filed for bankruptcy in September 2008, marking one of the biggest points of the global financial crisis.
Lehman Brothers engaged in accounting manipulation by moving $50 billion to different accounts to improve its balance sheet. This included using short term loans to mask debt right before reporting periods. An investigation found serious issues with the company's accounting practices and oversight. The collapse of Lehman Brothers contributed to the 2008 financial crisis and recession as it was a major bankruptcy that shook global financial markets and decreased confidence.
Amarelli 313 Transplantation Ii Early Graft Failure After Heart Transplant Le...Cristiano Amarelli
The document discusses a study examining risk factors for early graft failure (EGF) within 24 hours of heart transplantation. The study analyzed 317 transplant recipients and identified factors significantly associated with EGF, including male sex, redo surgery, high donor inotrope use, weight mismatch over 20%, and longer ischemic time. EGF occurred in 32 patients (10.1%) and was associated with high mortality of 52.9%.
A 60-year-old female presented with an interventricular septum rupture following a myocardial infarction. Immediate surgical repair carried too high of a risk. She was stabilized with an extracorporeal membrane oxygenation (ECMO) device, which supported her cardiovascularly and allowed time for planning. After four days on ECMO, her condition worsened and she received a heart transplant. She recovered well and was discharged after one month with no complications at her six-month follow-up. The conclusion was that ECMO can effectively bridge high-risk patients with septal ruptures to surgery or transplantation.
The document summarizes the experience with extracorporeal membrane oxygenation (ECMO) and mechanical circulatory support (MCS) at the Department of Cardiothoracic Surgery and Transplants at Monaldi Hospital in Naples, Italy from 1988-2010. It provides statistics on heart transplants performed, details on 22 cases of ECMO support in 15 patients from 2007-2010, and discusses complications in 9 cases of ventricular assist devices implanted from 1995-2007. Surgical techniques for ECMO cannulation are also described.
This document discusses various topics related to heart transplantation including:
1. Older donor hearts exhibit a higher risk of developing coronary allograft vasculopathy (CAV) and worse long-term outcomes.
2. Hearts from older donors also show increased risk of renal dysfunction in recipients.
3. The use of everolimus in heart transplant recipients may provide benefits such as reduced risk of acute rejection and CMV infection while also being less nephrotoxic than calcineurin inhibitors. However, everolimus use can also increase risks like hyperlipidemia and impaired wound healing.
3. Recipient age is an important factor, as older recipients have higher risks of developing
Dokumen tersebut membahas tentang definisi ideologi, proses perumusan Pancasila sebagai ideologi dan dasar negara Indonesia, serta perbandingan Pancasila dengan ideologi lain. Proses perumusan Pancasila melibatkan berbagai usul dari para anggota BPUPKI hingga akhirnya disepakati lima sila Pancasila.
The document discusses consumer segmentation and market segmentation strategies. It explains that segmenting consumers allows companies to develop tailored products and messages for specific groups rather than using a one-size-fits-all approach. The document outlines enduring variables like demographics and psychographics that describe long-term consumer behaviors, as well as dynamic variables specific to relationships with products. It also discusses differentiated segmentation strategies ranging from undifferentiated to wholly differentiated based on the number of segments and customization of products, messages and media.
This document discusses rehabilitation in heart transplant patients. It provides statistics on heart transplants performed from 1988-2006, including the most common causes of heart disease. It also discusses treatment at the time of transplant, trends in recipient characteristics, and survival rates post-transplant. Complications after transplant like hypertension, renal dysfunction, hyperlipidemia, diabetes and coronary altery disease are common. Exercise intolerance is also discussed. Rehabilitation including exercise training can help increase VO2 max and reduce complications like osteoporosis and obesity. Safety precautions during rehabilitation are also recommended.
The document discusses the key elements of marketing - the 4 P's: Product, Price, Place, and Promotion. It defines each P, with Product as the bundle of attributes a consumer receives, Price as what the consumer must give up to get the product, Place as where the product is available, and Promotion as the methods used to inform people about the product. It also notes that Product, Price, and Place must be established before Promotion, and that there needs to be a balance between product development and promotion.
The document discusses different types of executive styles for advertisements including product executions, slice of life stories, problem solving demonstrations, news, reasons why, talking heads, and testimonials. It also discusses using different types of spokespersons such as experts, ordinary consumers, and celebrities. Celebrities can increase awareness and brand identity but there is a risk of overuse or celebrities' private lives affecting the brand. Other consumer executions discussed include using humor, animation, sex, and music which can help get attention and create emotional connections.
The document discusses short-term mechanical circulatory support devices like extracorporeal membrane oxygenation (ECMO) and the Impella pump. ECMO can be used to provide both cardiac and respiratory support through peripheral or central cannulation. It discusses indications, configurations, complications and management of ECMO. The Impella is an axial flow pump that is placed via catheter into the heart to unload the left ventricle and increase cardiac output, protecting the myocardium with less invasive placement compared to other devices.
The document discusses how hedge funds have come to hold 30% of Puerto Rico's public debt. It traces the history of sovereign debt markets, from obligations between nations to the involvement of private creditors and hedge funds. Puerto Rico's debt is attractive to hedge funds because, unlike US municipal debt, it lacks a clear framework for restructuring, leaving hedge funds in a strong position to collect full payment. The document examines why Puerto Rico is in a unique position that exposes it to hedge fund influence.
For all those interested in "Bond Markets" - my new infoposter "ECONOMICS" is now available:
- the poster gives an overview of the development of economic theory from its beginnings.
- the poster shows the historical roots of economic ideas and their application to contemporary economic policy debates.
View and order at http://www.cee-portal.at/PrestaShop
Best regards
Martin Kolmhofer
This document discusses credit default swaps (CDS) and their role in the 2008 financial crisis. It begins by introducing CDS and their stated purpose of insuring against bond defaults. However, it notes that CDS were also used speculatively. The document then describes how CDS work and defines an "open position." It lists pros and cons of CDS, including that they allowed off-balance sheet leverage but lack of transparency exacerbated risk. The role of CDS in the crisis is explored, how they amplified systemic risk. The conclusion advocates banning speculative CDS on sovereign debt while standardizing and regulating CDS could increase transparency and limit panic.
A disturbing fact becomes more and more obvious: The governments of the both the U.S. and most of the Eurozone member countries are about to overstrain their debt servicing capacity.
For individuals, organizations, and countries that have so far regarded the currencies of these countries as reliable storages of value, news could hardly be more alarming: Evidence is rapidly piling up that the debtor governments involved intend to rid themselves of their unsustainable debt largely at the expense of their creditors. This could be effectuated either through a sudden expropriation of lenders (nowadays euphemistically referred to as a “haircut”), or by means of a gradual dispossession through a deliberately induced devaluation.
However, investors currently holding large amounts of Dollar-, or Euro-denominated reserves, do not yet have to resign to the fate of seeing their wealth evaporate through arbitrary acts of governments they had trusted for long. In the document to this message, I have sought to specify some of the basic principles prudent investors should heed in order to protect their wealth from the impending world economic crisis. You may copy and circulate it freely, but would do me a huge favour if you could do so with a reference to my authorship. And, of course, any opportunity you could grant to me to carry its message further afield in person would be most welcome.
A disturbing fact becomes more and more obvious: The governments of the both the U.S. and most of the Eurozone member countries are about to overstrain their debt servicing capacity.
For individuals, organizations, and countries that have so far regarded the currencies of these countries as reliable storages of value, news could hardly be more alarming: Evidence is rapidly piling up that the debtor governments involved intend to rid themselves of their unsustainable debt largely at the expense of their creditors. This could be effectuated either through a sudden expropriation of lenders (nowadays euphemistically referred to as a “haircut”), or by means of a gradual dispossession through a deliberately induced devaluation.
However, investors currently holding large amounts of Dollar-, or Euro-denominated reserves, do not yet have to resign to the fate of seeing their wealth evaporate through arbitrary acts of governments they had trusted for long. In the document to this message, I have sought to specify some of the basic principles prudent investors should heed in order to protect their wealth from the impending world economic crisis. You may copy and circulate it freely, but would do me a huge favour if you could do so with a reference to my authorship. And, of course, any opportunity you could grant to me to carry its message further afield in person would be most welcome.
Jon terracciano: Hedging the Global Market - IntroductionJon Terracciano
The introduction to a series of presentations on "Hegding the Global Market: Avoiding Excessive Hedge Fund Regulation in a Post-Recession Era". Additional presentations to follow. By Jon Terracciano, 2008
This document provides a history of financial instruments used by banks for credit markets. It discusses:
1) How the Bretton Woods system after WWII established the IMF, World Bank and use of US dollars as the global reserve currency to rebuild war-torn nations.
2) In the 1960s, as US gold reserves dwindled, banks began issuing credit instruments like letters of credit to recycle dollars and maintain currency values.
3) These instruments allowed banks to profit by issuing guarantees, accessing funds at low rates from central banks, and lending at higher rates, while also helping governments control money supply and inflation. They remain an important tool for international finance.
Chapter11 International Finance ManagementPiyush Gaur
International banks provide various services to facilitate international trade and foreign exchange transactions for their clients. These services include trade financing, foreign exchange, hedging currency risk, and consulting. International banks have different types of offices depending on the country's regulations, including correspondent banks, representative offices, branches, subsidiaries, affiliates, and offshore centers. The international debt crisis of the 1980s was caused by developing countries taking on large debts from international banks that they struggled to repay when oil prices collapsed. The crisis was eventually resolved through debt restructuring and new types of bonds.
Central banks have engaged in unprecedented monetary stimulus to support financial markets in the short term. However, this risks fueling opposition in both Germany and peripheral European countries in the medium term that could undermine monetary expansion. The greatest investment opportunities currently are contingency arrangements that benefit from very low prices due to central bank actions.
The document discusses the causes of the Great Depression and the 2008 Financial Crisis. Both crises were caused by under-regulated financial sectors that engaged in risky practices and excessive debt. Conditions like high private and public debt, a bubble economy based on new technologies, and cheap credit contributed to the Depression. The response to the crises differed but the regulations established after the Depression like Glass-Steagall informed later laws such as Dodd-Frank. The document also examines the causes of the European sovereign debt crisis, including weaknesses in the Maastricht Treaty and Growth and Stability Pact, tax evasion, and unequal economic conditions within the Eurozone.
The CLS system was created to eliminate settlement risk in foreign exchange transactions. It uses a payment-versus-payment mechanism to ensure simultaneous settlement of both sides of a foreign exchange trade. CLS settles transactions on a gross basis but nets out payment flows to reduce liquidity costs for participants. It has over 60 direct members and 6000 indirect members settling an average of $4 trillion per day across 17 currencies. CLS significantly reduces systemic risk in the global foreign exchange market.
Greece's race to default and european banks' recapitalizationMarkets Beyond
Greece will default by end of October and the ECB will dramatically expand its balance sheet to provide liquidity to banks and buy Spanish and Italian sovereign debt in the secondary market to maintain financing costs at acceptable levels.
The document provides an investment outlook from Fasanara Capital. It expects the ECB and Germany to find a short-term solution to avoid a disorderly Greek default, despite remaining bearish long-term. It anticipates using massive ECB liquidity to hedge against negative scenarios through selective shorts and hedging programs. Opportunities also exist in industries vulnerable to banking retrenchment and slowing Chinese imports.
The document provides answers and solutions to questions about international banking and money markets. It discusses services provided by international banks, types of international banking offices, differences between the Eurodollar and domestic US banking systems, structured investment vehicles and collateralized debt obligations. It also solves problems related to foreign exchange rates, forward rate agreements, and calculating minimum capital requirements under Basel II.
The Global Financial Crisis was caused by expanded lending to subprime borrowers in the US housing market who struggled to repay their loans, spreading losses to financial institutions globally through interconnected credit markets. The crisis impacted developing countries through lower exports due to reduced demand from industrial nations and less foreign investment as risk appetite declined. Central banks addressed the crisis through liquidity injections and government rescue plans, while major banks consolidated to avoid bankruptcy.
MLAs and ECAs have proven resilient during the financial crisis and have helped stabilize the global economy. Their long-term mission of promoting international cooperation and development, rather than profit-maximization, makes them less prone to risky behavior. Additionally, MLAs like the World Bank take a conservative approach to lending with one dollar in reserves for each dollar lent. This, along with being lenders of last resort, has allowed them to avoid needing additional capital from shareholders. MLAs and ECAs also provide short-term liquidity and support trade, with ECAs insuring over $1.3 trillion in trade in 2007. They have disbursed over $100 billion in emergency loans to developing countries and will play
Chapter 8 The global financial system (1).pdfimamaliazizov1
The document discusses the origins and structure of the post-World War II international monetary system established at Bretton Woods in 1944. The system centered around the US dollar being fixed to gold at $35 per ounce, and other currencies being fixed to the US dollar. It created the International Monetary Fund and World Bank to help manage the system and provide loans to countries. However, the system was undermined over time as more US dollars flooded out internationally than the US had in gold reserves, threatening the dollar-gold peg.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
Fasanara Capital | Weekly Investment Outlook | December 17th 2011Fasanara Capital ltd
The document provides an investment outlook and analysis of the European sovereign debt crisis and financial markets. It discusses the failure of recent ECB actions to restore confidence, predicts a confidence collapse scenario. It examines debt flows and stock levels facing European countries in 2012, risks to bank deposits and consumer spending. It argues that Germany will be left alone to handle the crisis but faces opposition from struggling countries and its own economic problems, making large-scale solutions difficult to achieve.
Fasanara Capital | Weekly Investment Outlook | December 17th 2011
Ares Notes Essay
1. ALBA LEGAL ASPECTS OF INTERNATIONAL FINANCE
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Aries, so much more than god of war | stefanos likkas | 1/10/2010
2. ALBA, Law 10 Stefanos Likkas
Rodrigo Olivares Caminal
In the few pages that follow we will attempt to present a concise and succinct
outline of the Credit-linked Notes issued by the Federal Republic of Germany
through SPV Aries Vermögensverwaltungs GmbH in 2004. Emphasis will be put on
the political environment which underscored the particular and exceptional risk
structure of these bonds.
1. Introduction
The history of Russian sovereign debt is very distinct for its political origins and
implications. As the Russian Federation emerged after the break-up of the Soviet
Union, it unwillingly reached an agreement with the rest of the successor republics
(“Treaty on the legal succession in respect of the external public debt and assets of
the USSR” UN Registration Number I-42935), whereby it effectively assumed the
outstanding Soviet external debt in its entirety. Most of the Soviet debt itself was
accumulated in the few years of Soviet life left in 1985 during the financial instability
which accompanied perestroika and the glasnost. In the first years of existence of
the Russian Federation, the reluctance of private creditors to extend further credit
to the young Russian State led to an increased dependency on formal creditors such
as the U.S. and Germany. Owed to a considerable 12 billion DM debt of the Soviet
Union to its satellite DDR (the communist German Democratic Republic), Russia’s
single greatest Creditor became the by then unified Germany.
Throughout the 90’s the Russian Federation tried to juggle the impossible task of
both servicing its debt and keeping its economy afloat and found itself frustrated
several times trying to rid itself of the burden of the Soviet debt, which it
unsuccessfully tried to contest as odious 1. A few times it defaulted on the part of its
1
‘Odious debts are those contracted against the interests of the population of a state, without its consent
and with the full awareness of the creditor.’ CISDL WORKING PAPER: ADVANCING THE ODIOUS DEBT
DOCTRINE 2003, p.1 retrieved on 1/05/2010 from http://www.cisdl.org/pdf/debtentire.pdf.
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debt that it had inherited from its Soviet past in an attempt to impose on
recalcitrant debtors favorable further restructuring of such debt. It then resumed
however servicing after limited alleviation by its creditors as they and particularly
Germany vehemently opposed the possibility of either scrapping part of such debt
or even further restructuring, on the grounds of strong Russian growth and
accumulation of foreign currency reserves on the back of high oil and other raw
commodity prices. As it turned out Germany was right and by 2000 the Russian
economy was growing by 6.5% running a whopping 19.2% annual surplus and held
already a strong US$25,960 million in international reserves (according to the World
Bank World Development Indicators 2001). And despite it being seen as too oil-
dependent, the Russian economy was already considered a strong one (the Russian
Federation officially joined the G7 block in 1997 which has been dubbed G8 since)
and the country wasn’t realistically expected to default again, at least on economic
terms.
By 2004 the total external Russian dept stood at US$197,335 million of which its
total debt to Germany stood at around US$11.3 billion (or €14 billion at July 2004
rates). Germany conversely has gained world prominence in the post WWII years for
its renowned strict budgetary policies enshrined in its Constitution (art. 115 as it
stood before the 29.07.2009 amendment) during boom and bust periods alike. In
2004 as the Economist put it “Hans Eichel, Germany's finance minister, has a hole in
his budget. His plans to raise euro10 billion ($12 billion) through privatisation this
year have come to naught. Yet budget law forbids him to borrow more than he
invests. So wizards at Deutsche Bank and Goldman Sachs have offered him a
solution: monetise some of the official debt owed to Germany by Russia.” 2 The way
Germany did that was through Aries Vermögensverwaltungs GmbH, a special
purpose vehicle through which it issued credit-linked bonds.
2
"Soviet solution; Germany and Russian debt. (A novel way of raising money)." The Economist (US).
Economist Newspaper Ltd. 2004. HighBeam Research. Accessed on 1/05/2010 at
http://www.highbeam.com.
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2. The Structure of the Aries Bond
In a nutshell Germany sells to a bank the credit risk of sovereign loans to Russia. The
bank passes that on to Aries, which issues bonds. Aries in addition to issuing bonds
agrees to pass predefined payments made by Germany to a third party in order to
reinvest that sum and use the proceeds to pay for interest and principal on the
bonds. Finally, Aries deposits its rights and obligations with a trustee, in order to
offer additional safety to investors. Through this structure Germany pockets the full
sum of the nominal value of the three bond issues, Note-holders hope to get the
yield that they are promised on their investment and all the other parties get their
hefty fees and commissions.
Of course, the actual structure of the bonds is far more complex than what is alluded
above. In order to keep track of that complex structure we have no better way at
hand other than simply follow the money. The cash-flows which can help us unveil
the underlying structure of the bonds are those of the amortization payments.
On the predefined amortization payment dates, the Federal Republic of Germany
will authorize specific amortization payments made out to Aries. However, Aries is
never to get hold of that money. Instead the money is deposited with a Trustee,
Deutsche Bank AG, which holds it in its name on behalf of Aries (and arguably to the
benefit of the Note-holders) for a certain fee. That money is then paid out to KfW. In
return for this money, the amount of which is agreed on in a schedule to the PCD
Participation Agreement, KfW is under the obligation to procure amounts to cover
interest payments to Note-holders, one business day prior to the interest payment
date (or principal payments one business day prior to principal payment dates). This
is the scope of the Reinvestment Agreement which presents notable affinity to an
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asset swap, with the reservation that it remains undisclosed whether the
amortization payments will be flat predefined amounts or otherwise construed.
The interests and principal procured by KfW pursuant to Clause 4 of the Trust
Agreement are channeled through Deutsche Bank AG (as fiscal agent) to Deutsche
Bank Trust Company Americas and possible further paying agents to CBF
(Clearstream Banking Frankfurt) and to the registered holder of the DTC (Depository
Trust Company 3) Global Note (no individual bond tenders or actual coupons are to
be printed). It is through these channels that Note-holders can get hold of their
interest and principal on interest and principal payment dates.
The default mechanism on the Notes is of paramount importance as it underscores
their risk structure. The event of default in the Aries Bond is called a sovereign
event which is satisfied when Russia misses a single debt payment to Germany of
€50 million (after the expiry of a grace period) or the aggregate amount of missed
payments is equal or in excess of €250 million. In that case Germany has the
prerogative to notify to Aries a sovereign event certificate and a copy of the public
information. This will bring about Sovereign Event Redemption under which Note-
holders are entitled to the sovereign event redemption amount, equal to 20% of the
nominal value of the Notes. What is central in this default mechanism is the sway of
Germany over the Sovereign Event, since there is no way for Note-holders to be
informed of its occurrence, unless Germany decides to notify.
In addition to the event of default two instances of termination events are provided
for, which can bring about an Early Redemption; issuer events and discretionary
3
DTC is the world's largest central securities depository. It accepts deposits of over 2 million equity and
debt securities issues (valued at $23 trillion) from over 65 countries for custody, executesbook-
entrydeliveries (valued at over $116 trillion in 2000) records book-entry pledges of those securities, and
processes related income distributions.. DTC is a member of the Federal Reserve System and is owned by
The Depository Trust and Clearing Corporation (DTCC), which is in turn owned primarily by most of the
major banks, broker-dealers, and exchanges on Wall Street (Definition by Campbell R. Harvey accessed on
04/01/2010 at http://www.bloomberg.com/invest/glossary/bfglosd.htm).
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enforcement events. In both cases it is the Trustee that triggers the Early
Redemption on the occurrence of a number of breaches under the underlying
instruments (most notably perhaps a breach by Germany of its obligation to make
amortization payments). In the Early Redemption the Note-holders will receive an
amount that Deutsche Bank and possibly other KFW hedging providers can more or
less freely calculate according to their estimates on the profits earned on previous
payments made by Germany.
We must finally note that there is no connection whatsoever between the Russian
Federation and these Notes. The Russian Federation is not a party in any of the
executed instruments, and its behavior alone cannot determine the life of the Notes.
3. Parties Involved and Risks-Benefits
The Federal Republic of Germany. Germany is first of all the party which
takes the formal initiative for the entire transaction to begin. It is Germany
that decides to securitize the Russian debt that it held, to set up Aries
Vermögensverwaltungs GmbH and in addition to manage the reinvestment
and the hedging of risk through KfW, an entirely state-owned company (and
for the debts of which it is a full guarantor by law!). Germany is the party that
pockets in the proceeds from the three Note issues. It is Germany that will
procure the amortization funds which will finance the interest and principal
payments to Note-holders (and which as we will examine further later are
not linked to payments made directly from the Russian federation to the
Federal Republic of Germany).
Most importantly, Germany is king of when, if and under what conditions the
Sovereign Event Redemption Conditions are met. There is of course the
objective condition of Sovereign Event, set out in advance, which can kick off
the Sovereign Event Redemption, but the fact of the matter is that no one
will even know unless Germany herself lets everyone know. As a result
Germany could go as far as clause picking to terminate the bonds
prematurely on the most favorable terms if Russia failed to meet its Paris
Debt obligations, and choose between Sovereign Event Redemption and
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Early Redemption. This could make sense financially to Germany, since by
law it is fully liable for any debt of KfW, which is the party that will be called
to reimburse Note-holders with 20% of the Notes’ nominal value in case of
Sovereign Event Redemption.
Aries Vermögensverwaltungs GmbH. Aries is an SPV 4. It is the Bond issuer
and the only party liable for interest and principal payments to Note-holders.
In order to remain solvent on its obligations it depends entirely on the
payments made by Germany and subsequently by KfW and as a special
purpose vehicle it is void of any assets, other than the rights stemming from
the Notes’ underlying instruments. As an SPV it is lacks interests and does
not seek any benefits.
KfW. KfW is a German state-owned development bank. It will receive
amortization payments by the Federal Republic of Germany to Aries in full
and in return it will pay Aries the Notes’ interest and principal on specified
dates. Its relation with Aries is prescribed by the scope of the reinvestment
agreement to which they are both parties as well as by the PCD pledge
agreement (under which Aries pledges to KfW a first rank claim status with
respect to rights and claims of Aries from the Federal Republic of Germany)
and which is reinforced by a separate pledge of Aries to KfW under the PCD
fiduciary transfer agreement.
An important part of KfW’s obligations under the reinvestment agreement is
its role in case of “Sovereign Event Redemption”. When the specific Sovereign
Event Redemption Conditions are satisfied, KfW will be liable to pay Aries the
Sovereign Event Redemption Amounts instead of the ordinary interest and
principal payments. These amounts are as high as 20% of the nominal value
4
An SPV, or a special purpose entity (SPE), is a legal entity created by a firm (known as the sponsor or
originator) by transferring assets to the SPV, to carry out some specific purpose or circumscribed activity,
or a series of such transactions. SPVs have no purpose other than the transaction(s) for which they were
created, and they can make no substantive decisions; the rules governing them are set down in advance
and carefully circumscribe their activities. Indeed, no one works at an SPV and it has no physical location.
*…+In short, SPVs are essentially robot firms that have no employees, make no substantive economic
decisions, have no physical location, and cannot go bankrupt. Gorton, Gary B. and Souleles, Nicholas S.,
Special Purpose Vehicles and Securitization (September 2005). FRB Philadelphia Working Paper No. 05-21,
pp. 1-2, accessed on 1/05/2010 at SSRN: http://ssrn.com/abstract=713782.
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of the Notes and constitute the greatest risk assumed by KfW with respect to
the transaction. Of course KfW is to hedge against such risk with (as
expected) the Lead Managers.
In practice KfW is the party in the transaction which through a series of
financial investments and swaps should guarantee the three issues’ interest
and principal payments as well as the Sovereign Event Redemption Amount
in case the Sovereign Event Redemption Conditions are met, all with the
money that the Federal republic will procure in amounts and dates provided
for in the Schedule of the PCD participation agreement. KfW will receive fees
for these transactions and does not invest own funds in the bond and
therefore assumes only very limited risk, hedging its obligations under the
reinvestment agreement.
The Trustee. Deutsche Bank Aktiengesellschaft (AG) is the Trustee.
Incidentally and thanks to its institutional nature, it is also the Initial
Purchaser, the party that is with which the official German State agrees to
execute the Paris Club Debt Participation Agreement, before that is passed
on to Aries, as well as one of the two Lead Managers for the Notes and a
hedge provider for KfW.
The Trustee has a very mundane but at the same time crucial function in the
transaction. The Trust Agreement, under which Deutsche Bank AG is vested
with the role of trustee, is according to applicable German law (Section 328
of the German Civil Code) a contract for the benefit of third parties (Clause
2.3 of the Trust Agreement), whereby third parties are intended to be the
Note-holders. The role of the trustee is to keep track of cash-flows, hold on
to funds, as these are transferred from one party to the other and ultimately
made payable to Note-holders in the form of interest and principal
payments. Its most important role however is manifest in the case of Early
Redemption. This is because it is the role of the trustee to monitor the
transaction and the implementation of all underlying instruments to the
effect that the trustee holds the initiative to force Early Redemption in case
of an Issuer Event or a Discretionary Enforcement Event.
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The Note-holders. The Aries Notes Prospectus goes in great depth in
analyzing the various risk factors related with these securities. In trying to
avoid a sterile repetition of said factors, we will briefly touch upon a couple
of points that warrant in our opinion special consideration. The first one is
also something which sets these Notes apart from government bonds.
Governments routinely issue bonds to fund big and important investments
and in the case of many governments simply to meet current obligations and
cover their gaping deficits. In issuing bonds, they assume debt. The
relationship between these sovereigns and their respective creditors is an
issue of private law, governed by the specified applicable law. Conversely
when two (or more) sovereign states enter under their sovereign capacity to
a loan agreement, such agreement and any relevant disputes are a matter of
Public International Law. There is no rule of thumb on which of the two
kinds of obligations carries greater leverage on a sovereign, but the
underlying fact is that the two are distinct and deserve different evaluation.
In this case, as we already explained in the introduction, Russia has some
incentive to treat its sovereign debt differently from its privately held debt.
This qualifies to a great extent the risk evaluation of a security built on top of
Russian sovereign debt.
The second point is that the Aries bond as any credit-linked Note bears the
cumulative risk factor of both the issuer’s and the reference entity’s default
risk.
The Russian Federation. The Russian Federation is the most interesting non-
party in these transactions. As we have already noted the Russian Federation
is not a party in any of the underlying instruments of the Aries Notes.
However there are opportunities and risks for Russia which spring out of
Germany’s initiative and which Russia must grudgingly or happily live with.
On one hand and given that Russia was at that time in a healthy financial
state, it is presented with an opportunity to buy back part of its debt to
Germany at a discounted price thanks to the advantageous return rates of
the Aries Notes. On the other hand Russia, as every sovereign, issues bonds
of its own. Germany’s initiative to issue bonds which are linked to Russia’s,
i.e. another sovereign’s debt, creates perhaps unwarranted market
saturation for Russian debt. This means that any further Russian attempt to
raise money in the international markets through Notes of its own becomes
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more expensive. This is because the Aries bonds with a risk factor not
particularly different than that of the rest of Russian debt, offers markets a
significantly higher return (and this holds true in spite of what we have
already discussed on the risk factors of the Aries Notes for Note-holders).
4. Purpose of the Transaction
The party which had the initiative for the bond issues is the German Federal State. It
is only natural that these bonds were issued to serve Germany’s purposes. In short
Germany needed to level out its budget under the double constrains of its
constitution (which forbade financing the budget through credit for reasons other
than investments) and the Maastricht Treaty (which sets a 3% cap on budget
deficits). So the main purpose of the bond issues is to get Germany revenues
without reverting to a straight forward issue of debt, and thus keep debt and deficit
in check. This is possible only because Germany held a considerable portfolio of
official Paris Club Russian debt. These loans would arguably bring Germany some
positive cash-flows, which would constitute a cash transfusion to its budgets for a
foreseeable number of years. But that, simply put, would be too little too late. These
bonds were Germany’s way of cashing in on that Russian debt.
The complexity of the Notes’ structure reveals additional purposes to their issuing.
Germany in this transaction didn’t only seek to receive whatever discounted value of
future payments by Russia under her Paris Club debt; she also hoped to rid herself of
the credit default risk. Russia was at the time booming and there was little fear that
she would default, under the burden of economic adversity. But the kind of Russian
debt that Germany held was more sensitive to the political context of international
relations, global power games, and the whimsical attitude of the Russian political
elite of the day. In other words there was some likelihood that Russia could cease or
hold back on its Paris Club debt payments, simply because she felt like it, as she had
threatened before. By means of the Aries bonds Germany practically eliminates to
her benefit the default risk on that Russian debt. In more practical terms the default
risk is now divided between the investors who assume no less than 80% of that and
KfW (which would further hedge against such risk) on 20% (which is the sovereign
event redemption amount).
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5. The Documents Executed
We have already mentioned most of the underlying instruments of the structure of
the Aries Bond. In reviewing the documentation we will simply provide some
information on those documents that haven’t adequately been covered thus far.
i. PCD Participation Agreement: The initial Agreement between the Federal
Republic of Germany and Deutsche Bank AG as the initial purchaser. It is the
only Agreement under which Germany assumes obligations.
ii. PCD Transfer Agreement: The Agreement under which Deutsche Bank AG as
the initial purchaser, Aries Vermögensverwaltungs GmbH and the Federal
Republic of Germany agree to transfer Deutsche Bank’s rights and obligations
under the PCD Participation Agreement to Aries.
iii. Bank Account Agreement: Aries and Deutsche Bank as the initial Issuer
Account Bank agree on issues relating to the Issuer Accounts.
iv. Reinvestment Agreement: The Agreement between Aries
Vermögensverwaltungs GmbH and KfW, pursuant which Aries will pass on to
KfW amortization payments made to it by Germany under the PCD
Participation Agreement and KfW will produce the amounts necessary for
interest and principal payments on the interest and principal payment dates
respectively.
v. PCD Pledge Agreement: Aries Vermögensverwaltungs GmbH assumes the
obligation to award KfW a first-ranking pledge as security for any claims that
KfW may have against Aries under the reinvestment Agreement.
vi. Trust Agreement: The Agreement between Aries Vermögensverwaltungs
GmbH and Deutsche Bank AG, under which the latter assumes a formal role
for the benefit of the Note-holders to monitor other parties’ compliance with
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their obligations and to serve as a unitary depository for all the funds which
would be transferred from one party to the other.
vii. PCD Fiduciary Transfer Agreement: Aries Vermögensverwaltungs GmbH,
Deutsche Bank AG as the trustee, and the Federal Republic of Germany agree
that the former passes on its rights and obligations under the PCD
Participation Agreement to Deutsche Bank, in order to secure its covenants
in the Trust Agreement. Additionally and in compliance with the PCD Pledge
Agreement, Deutsche Bank grants a pledge to KfW.
viii. Account Pledge Agreement: Aries grants a pledge to Deutsche Bank as
trustee on all its present and future rights deriving from the Issuer Accounts.
ix. Agency Agreement: The Agreement executed by Aries and Deutsche Bank
giving the latter various functional agency responsibilities necessary for the
smooth execution of all the operations in the transaction (and imaginably on
the grounds that Deutsche Bank is the Trustee and only has the Note-
holders’ interest at heart).
6. Novel Aspects
The Aries Bond is an innovative way that Germany employed to raise funds without
reverting to debt. At a first glance one could argue that these Notes create debt for
Germany, the trick however is that Germany has secured itself the funding of the
debt for the Aries Notes without any burden to its budget (or more precisely, the
debt burden of servicing the amortization payments is offset off-the-balance sheet
with payments made to Germany by Russia). The surprising thing is that Germany
created a security on the risk of the sovereign debt of another country.
The Aries Bond is further a structured bond inasmuch as the yield on these Notes is
designed to cover the default risk of a referenced asset, i.e. a specific tranche of
Russian sovereign debt. However, it is not a vanilla credit-linked note. This is
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because amortization payments paid by Germany are not conditional on payments
effected by Russia (other than the eventuality of an outright default or shortfall
which could trigger the Sovereign Event). Otherwise, Germany does not forward
such payments as amortization payments under the Aries Bond and therefore no
party other than Germany has any claim on the Russian payments. In addition,
rescheduling of the debt servicing or early pay-off of said debt does not affect the
bond in any way. If anything, an early pay-off or even rescheduling of the Russian
Paris Club debt would eliminate or considerably lower the risk of a Sovereign Event.
7. Conclusion
The Aries Bonds were designed to be a structured financial instrument which could
meet some very demanding goals. This structure was indeed very complex,
underlying different risk factors; we have only begun to scratch the surface of such
complexity in this paper and it was never our ambition to achieve anything more
than that. We are content if a mere clear picture of their structure, their risks and
the parties involved was drawn here.
There can be little doubt that these securities were a very smart way to achieve
these goals and one which at the time left little room for criticism. In a booming
financial market environment and at a time when the derivative market was near its
peak, there was so much optimism that investors all but saw the high yield of
derivatives as a free lunch. It was as if these high returns were gratuitous and no one
could really default since everyone has hedged all imaginable risk against everyone
else. We now know what happens when things go wrong and we could say as a final
note that markets, which expect that governments be and are the lowest risk
debtors, have a great muted invested interest that governments refrain from issuing
high-risk structured securities.
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These securities are not intended for small or medium investors; however the
repercussions in the confidence of such investors in government bonds could be at
stake, if government-issued structured securities were to default. This is why,
tempting as it may be, high-rating sovereigns should stick to their role of financial
and economic anchors and keep their distances from the realm of financial
speculation.
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References
Brauer, Jane, and Ralph Sueppel. Russia's New Aries Bond. London: Merrill Lynch, Pierce, Fenner
& Smith ltd., 2004.
Brigham, Eugene F, and Michael C Erhardt. Financial Management: Theory and Practice. Mason,
Ohio: Thomson South-Western, 2005.
Flammier, Herve-Pierre, and Kristel Richard. Repackaging of Sovereign Debt Presale Report. New
York: Standard & Poor's, 2004.
Ross, Carl W. Russia: Repackaging of Paris Club Debt to Germany. New York: Bear, Stearns & co.
inc., 2004.
Wood, Philip. Law and Practice of Intternational Finance. London: Thomson Reuters, 2008.
World Bank. World Bank World Development Indicators 2001. Washington, DC: World Bank,
2002.
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