Paulson & Co reaps £270m shorting RBS

[godoftrading]

Paulson & Co, one of the world’s biggest hedge funds, has made a profit of at least £270m betting on a fall in the share price of Royal Bank of Scotland over the past four months. The New York-based fund, run by billionaire John Paulson, covered its “short” position in RBS on Friday, according to a regulatory filing, dropping below the 0.25% disclosure limit. The scale of the profit is likely to renew the debate over short selling, which recently led the UK’s FSA to ban additional shorting of banks for months. The issue is likely to feature in UK parliament on Tuesday when hedge funds testify to the Treasury select committee about the ban.

http://ftalphaville.ft.com/blog/2009/01/27/51699/paulson-co-reaps-270m-shorting-rbs/

[Horace Kent]

I wish we could get charts of the CDS on RBS.........Thats the way to play these blow-ups.

Anyone got a bloomberg?!

[XOM]

Looks like Paulson & Co are doing their job.

[aiki14]

I wish we could get charts of the CDS on RBS.........Thats the way to play these blow-ups.

Anyone got a bloomberg?!


Wouldn't matter if you did the CDS's aren't listed on it. Assuming you're referring to Credit Default Swaps, you don't have the money to play in that arena. I am not being presumptuous but only the largest companies on the planet can be counterparties to that paper. And there are no "retail" tranches on it either.

[Horace Kent]

I know they aren't listed on exchanges.....but Bloomberg does quote them. And fat chance for a retail spec getting in on them....Closest thing are puts.

Some CDS on Berkshire during the whole put writing "scare"
http://www.maoxian.com/images/2008/berkshirecds.PNG

GM.........no explanation needed.
http://www.maoxian.com/images/2008/20081110gmcds.PNG

And LVS when everyone was scared they couldn't rollover some debt.
http://www.maoxian.com/images/2008/lvscds.PNG


These aren't current, but Maoxian posted them when the news was fresh on these stocks.

[aiki14]

Interesting, but where are the prices or the bid and ask from? I guess the numbers are low enough for the retail guy to be long, but who is the seller and how is the risk capped, or is it? Are they offered at par and then traded? And where? If you were short the BERK at 6700 (Low) you would be out 8000% or so. No wonder these things have killed companies.
Looks like I have some research to do.

[Horace Kent]

I'm almost positive the CDS market is an OTC market between banks. Bloomberg just quotes them as do thompson, reuters, and other professional quotes services....I assume.

The quote you see is actually the cost of insuring a standardized amount of bonds. I'm not sure what the amount is....so I imagine the CDS begins to price like a deep in the money option that is valued at only the difference between the underlying and the strike - theoretically that would be the upper limit of price. Because what is the point in buying insurance of 1mil of bonds if the insurance is itself 1mil. (I'm trying to remember where I read all this a few months ago......so, chances are high I'm talkin out my arse!)

So, for Berkshire, starting out at around 5 indicates just how "credit worthy" the market thought of ole Warren.

[XOM]

That's a good point about the upper price limit, especially since faith in the insurers themselves is often questionable. Is there a set time period for the insurance coverage or does it vary?

[Horace Kent]

XOM - if you look at the charts - The GM one and LVS both say SR 1 yr. and the Berkshire says SR 5yr. I think these are either 1 yr bonds issued by the company, or bonds coming due within one yr. Same for Berkshire. GM and LVS probably are in the commercial paper market much more than Warren would be. Similarly, I wouldn't be surprised if Warren had a couple outstanding bonds....I doubt he's heavy in the commercial paper market. But I really don't know.

[XOM]

Right enough, I didn't notice that on the charts until you pointed it out.