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"On the heels of steep drops in oil prices and the biggest two-day decline on the Dow since Oct. 20 – and let’s be honest, considering the kind of trading we’ve seen lately, that’s really saying something – hedge funds are increasingly being fingered as the culprits, as well as purveyors of reckless behaviour. (Or rather, their tendency to offload billions worth of securities to meet cash and collateral demands is being viewed as rather disruptive.) Much of the blame is being pinned on one fund in particular (as detailed in this story). But, for the record, we’d just like to point out that if investors weren’t such yellow-belly ‘fraidy cats, no one would’ve ended up in this position. As one black cabbie wisely pronounced to us: “I think people just need to relax and get on with it.” Our sentiments exactly.
Hedge funds are selling billions of dollars of securities to meet demands for cash from their investors and their lenders, contributing to the stock market's nearly 10% drop over the past two days.
The Dow Jones Industrial Average fell 443.48 points on Thursday, bringing its two-day drop to 929.49 points, its biggest two-day decline since Oct. 20, 1987. Coming amid steep drops in the retail and auto sectors, the decline wiped out a strong rally that ended on Election Day, and now the market is only 6% away from its lowest close of the year.
One of the biggest hedge funds, $16 billion Citadel Investment Group, is being asked by several major banks to post additional collateral to cover big losses on its investments, according to people familiar with the situation.
Citadel, which is run by Kenneth Griffin, was until recently considered a possible savior for troubled Wall Street firms. But his biggest hedge fund has fallen nearly 40% this year, prompting the firm to hold conversations with lenders including Goldman Sachs Group Inc., Deutsche Bank AG and Merrill Lynch & Co. that finance Citadel's trades.
Citadel executives say the calls for more cash are a normal part of business when securities they hold fall in value, and they emphasize they have significant amounts of cash to satisfy their lenders. They say they have met all the demands for collateral. Rumors that the firm was having problems led it to hold a conference call two weeks ago in which it said it was holding 30% of its capital in cash and Treasurys and had $8 billion in credit lines it has yet to tap. The firm also said some of its businesses are doing well this year, that it has reduced risk and its use of borrowed money, and that performance has improved recently.
Lenders are hoping regulators would orchestrate a settlement among the companies involved in Citadel's loans if necessary, according to a person familiar with the situation. "Citadel is a valued client, and we continue to do business with them as usual," said Ed Canaday, a Goldman spokesman.
Deutsche Bank spokesman Ted Meyer said, "Citadel is a valued customer and our relationship is business as usual."
Hedge funds have emerged as the latest serious problem in the global financial system. As their losses mount, they're selling off securities to meet demands for cash from lenders and investors. Compounding the problem is a surge in notices from investors indicating they want out. Some hedge funds have been hoarding cash in preparation for these withdrawal requests. Hedge funds are sitting on a record amount of cash, estimated at about $400 billion, money that eventually could make its way into the market."
LINK:
Trader Daily § Hedge Fund Havoc As Investors Freak Out
Hedge funds are selling billions of dollars of securities to meet demands for cash from their investors and their lenders, contributing to the stock market's nearly 10% drop over the past two days.
The Dow Jones Industrial Average fell 443.48 points on Thursday, bringing its two-day drop to 929.49 points, its biggest two-day decline since Oct. 20, 1987. Coming amid steep drops in the retail and auto sectors, the decline wiped out a strong rally that ended on Election Day, and now the market is only 6% away from its lowest close of the year.
One of the biggest hedge funds, $16 billion Citadel Investment Group, is being asked by several major banks to post additional collateral to cover big losses on its investments, according to people familiar with the situation.
Citadel, which is run by Kenneth Griffin, was until recently considered a possible savior for troubled Wall Street firms. But his biggest hedge fund has fallen nearly 40% this year, prompting the firm to hold conversations with lenders including Goldman Sachs Group Inc., Deutsche Bank AG and Merrill Lynch & Co. that finance Citadel's trades.
Citadel executives say the calls for more cash are a normal part of business when securities they hold fall in value, and they emphasize they have significant amounts of cash to satisfy their lenders. They say they have met all the demands for collateral. Rumors that the firm was having problems led it to hold a conference call two weeks ago in which it said it was holding 30% of its capital in cash and Treasurys and had $8 billion in credit lines it has yet to tap. The firm also said some of its businesses are doing well this year, that it has reduced risk and its use of borrowed money, and that performance has improved recently.
Lenders are hoping regulators would orchestrate a settlement among the companies involved in Citadel's loans if necessary, according to a person familiar with the situation. "Citadel is a valued client, and we continue to do business with them as usual," said Ed Canaday, a Goldman spokesman.
Deutsche Bank spokesman Ted Meyer said, "Citadel is a valued customer and our relationship is business as usual."
Hedge funds have emerged as the latest serious problem in the global financial system. As their losses mount, they're selling off securities to meet demands for cash from lenders and investors. Compounding the problem is a surge in notices from investors indicating they want out. Some hedge funds have been hoarding cash in preparation for these withdrawal requests. Hedge funds are sitting on a record amount of cash, estimated at about $400 billion, money that eventually could make its way into the market."
LINK:
Trader Daily § Hedge Fund Havoc As Investors Freak Out
