You are currently browsing the monthly archive for May 2007.

Hope you like the new header image. I decided the old one was a bit stale so a friend with a good eye put this one together for me. The last one was in Sydney – this one is Perth.

It looks like AUSTRAC are going to be as helpful as possible in the process of you assessing your AML / CTF risk if the release today of their Self Assessment Questionnaire (warning – 2MB MS Word document) is any guide to the future. It is big, at 46 pages and, in parts, fairly intimidating, but it does break the Act and Rules down in a handy, systematic way. Read the rest of this entry »

I am in Bahrain for the (rather long named) World Islamic Funds Management and Capital Markets Conference. This morning we had the opening “Executive Summary” to set the scene. They touched on a few points I hope will be expanded over the next couple of days, but one point in particular I thought important. Read the rest of this entry »

Just reading an interesting article on the Economist’s website on the past and present of investment banking. Selected quotes:

AT LEAST since 1823, when Byron’s Don Juan described “Jew Rothschild, and his fellow Christian Baring” as the “true Lords of Europe”, investment bankers have inspired awe, envy and, rightly or wrongly, a measure of disdain. Read the rest of this entry »

Thanks to Colin over at Bankwatch for this one on losses suffered by the Bank of Montreal (BMO). At first sight it looks like just another bad day at the office for some traders – until you see the amount (currently estimated) as having been lost (CAD 680m – just over a quarter’s profit) and the bank’s reaction. This looks like a textbook case of how not to announce this to the market. Read the rest of this entry »

I am not in the habit of promoting non-banking specific things here, but this one from google just shows how good the web can be. I am not sure if I just missed this before or it is brand new, but for a stats junkie like me it could be used for almost any piece of comparative analysis.

The ability to chart most variables of human development against almost any other (on a log or linear scale) by country is a powerful tool. All we really need is some other indicators thrown in – assets in the banking system, number of branches or number of credit cards issued for example.

Just be careful to use the log scale when doing income per capita – Luxembourg throws everything out of proportion.

Enjoy.

With the fuss about the (allegedly) over the top salaries being paid to the senior executives of Macquarie bank hitting the headlines yesterday, I thought the Alex cartoon published in the AFR yesterday was excellent timing.

If you want to see the cartoon, it was this one (yes, we are a few days behind in Oz) and a good example of the less extreme reporting of the news on salaries is here.

The Alex cartoon makes a good point – as those of us who have worked (or currently work) in the investment banks know – you work extraordinary hours, sacrifice the bulk of your life and have to have a very understanding family if you are going to do this successfully. Very few also ever get close to these sorts of salaries / bonuses / packages and many burn out before they get to 40.

It is the hope of being one of the successful ones that all this effort is put in. We should not begrudge the few (I will not say lucky few – luck plays little part) who make it to that level. They have made a life choice in trying to get there. Let them enjoy their gains – and hope, for ourselves, that we can also gain from the success.

One for the real pedants amongst us – but one that is important for hedge accounting with options under IAS 39 (AASB 139). FAS 133 has answered this one through DIG E19, but IAS 39 has an important difference.

Theory 

How is the value of an option correctly split between the time component and the intrinsic component? Essentially, from my point of view there are actually three components of the value of an option:

  1. What I will call the current intrinsic value – i.e. the difference between the current spot price of the underlying and the strike price of the option;
  2. The value that stems from the volatility over time of the underlying; and
  3. The difference between the value in (1) and the forward value of the underlying.

In the context of IAS 39 para 74, the question of whether element (3) is considered to be intrinsic or time value may become important – the precise reason is not important, but, if you really want to know it, feel free to ask in comments.

Question 

I am aware of at least three definitions of intrinsic value sometimes used in the market – they are:

  1. The difference between the current spot price of the underlying and the strike price of the option;
  2. The present value of the difference between the strike price and the forward price of the underlying;
  3. The difference between the strike price and the undiscounted forward price of the underlying.

Which of these do you consider the most common and / or correct and why?

An excellent post over at Ops Risk and Compliance regarding the US implementation. It makes many of the points I have previously made – and goes a bit further.

After quantative [sic] impact studies, advanced notices of proposed rulemaking, numerous consultation documents, incalculable titbits of contradictory information from a menagerie of regulators (some of whom apparently think Basel II: The New Accord is a movie – sequel to the 1988 worldwide smash hit original) we finally have an NPR out there that everyone has agreed on.

And in the same spirit of cooperation, compromise and conciliation with which the regulators thrashed out this NPR, the responders have answered in a similar spirit of agreement. That is, they all agree its pretty crap.

Little more to be said, really. Like the bit about the movie title.

A newsletter out from the Basel Committee gives some information on the progress towards implementation globally, but, to be honest, it pulls all its punches. It just gives broad information on where most of the countries implementing the Accord are – and does not give any specific information on those that are failing or even giving any concern. On the progress front it is a bit of wasted space.

The interest is in the bits on the new workstreams. Read the rest of this entry »

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