Junk bonds in place of an IPO

The 30 second intro to Junk Bonds Junk Bonds, also known as High Yield Bonds, are debt instruments issued by companies with poor credit ratings, or are the debt instruments of companies that were issued as high quality bonds from strong companies that have since fallen on hard times (“Fallen Angels”). Typically these are any …

Too Small To Succeed

According to a Fin24 story this morning, the FSB is probing smaller unit trusts. The economics of a fund manager depends entirely on growing funds under management so that revenues (based on assets under management) grow to be larger than costs (significantly fixed and at most semi-variable). Details of performance fees and the second order …

Regulations creating operational risk (and how it relates to POPI)

Ok, so that is an unfair title. But you’ll understand what I mean: Zurich Financial Services has just been fined £2.3m for a data loss event incurred in 2008 in South Africa. Zurich joins HSBC, Nationwide and Norwich Union in the club of companies fined by the FSA now. In fairness, the fine wasn’t so …

Basel III likely to be tempered

The FT has an article (Banks win battle to tone down Basel III) describing how the proposed new rules for banking capital requirements might have some of the new requirements around liquidity removed or weakened. Key amongst these new considerations is the limitation of mismatches between the term of assets and liabilities, which would limit the danger …

Back-test that

May 6 2010.  Dow falls more than 1,000 points intraday, including a drop of P&G from around $60 to (according to some accounts) below $40. The Dow recovered most of the falls quickly, but these trades are now part of the historical time series. Banks and others using risk management tools often back-test their models …

New operational risk guidance from Solvency II

CEIOPS issued additional guidance around the standard formula for calculating capital requirements in respect of operational risk late last year. Why was a new OpRisk formula needed? The original formula for OpRisk proposed in QIS4 was widely condemned. Complaints included being too simplistic, being insensitive to risk (and basely primarily on business size) and the …

Allocating capital to insurance products

A friend “volunteered” me to answer an insurance question from Aardvark on allocating economic capital across different insurance products. After writing a short response, I received the frighteningly useful message: “Error”. Having written a brief summary of the different techniques used in this really important area, I thought I should use it as a blog …

Mumbling in the dark

Are you outraged at the proposed increase in electricity prices from Eskom? If you are, you’re not alone. 88% of readers polled in a News24 poll were “outraged” at the increase. The problem is that all this outrage is irrelevant at best, and dangerously distracting at worst. Why price is the wrong thing to worry …