Readings: Resolution Trust Corp, Arbitrage funds, Morgan Stanley
- Wall Street Journal: Resurrect the Resolution Trust Corp.
There are precedents — such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
It is certainly the case that the new institution we are proposing will in the short run require serious money. That will involve a risk to the taxpayer; but the institution, administered by professionals, means that ultimate gains to the taxpayer are also possible.
- Economic Times: Arbitrage funds switch to money market
Lack of adequate arbitrage opportunities between the equity futures and cash markets, amid melting share prices, has local arbitrage funds increasingly switch to money market instruments.
“In the current market conditions, arbitraging is fetching roughly 7-8%, which is similar to returns of money market instruments,”
. . . the arbitrage spread has fallen to 65-70 basis points as against 110-120 basis points in the bull phase.
On Wednesday, Morgan Stanley Mauritius Company Ltd, an arm of the world’s No. 2 investment bank, sold stocks worth Rs 871 crore in a rash of block deals, including one in United Spirits for Rs 339 crore. That’s about 8.5% of its total holdings in the country worth Rs 11,200 crore.
In a similar move in March, Bear Stearns liquidated almost 10% of its portfolio of small and mid-cap stocks in India just one day.
The recent weakness in certain stocks (eg. ICICI) and the rupee may very well be because of such one-time liquidation. Bound to create some trading opportunities for the nimble.
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