Who made big on Quinns CFD'S

Decartes7

Does anyone know who actually won the bet Quinn lost so much money on regrading the CFD's?

And why are such financial instruments allowed to exist in Ireland when they are not allowed in the US?

GSF

Decartes7 wrote: »

And why are such financial instruments allowed to exist in Ireland when they are not allowed in the US?

They are allowed in that home of financial gambling - FRANCE - so why not Ireland?

Decartes7

Because I guess as Warren Buffet put it there "Financial weapons of mass destruction"

i.e Bringing one of Ireland's richest men to Bankruptcy and leaving the state to step in and take on the debt.

foxyboxer

My guess would be the hedge funds who were shorting Irish bank shares.

CFD's are basically futures contracts (Quinn being Long on Anglo shares, entering a contract to buy x amount of shares on x date) and when they came to mature the shares were worthless yet Quinn had to 'honour' the contract essentially.

Decartes7

So is it safe to say neither Quinn nor the "hedge fund" held anglo stock?

i.e. The movement of the underlying asset Anglo stock was used to gauge the winner but noting else.

HerrKuehn

Quinn would have bought a CFD contract from a bank (anglo or someone else?). These are not exchanged traded, they are OTC contracts between 2 parties. The way they work is as follows:
Say I have 1m euro and I want to buy shares in XYZ corp. These are trading at 10 euro per share. So with my cash I can buy 100k shares. Now, if the price of the share moves up to 11 at the next CFD reset, I will have made 100k * (11-10) = 100k euro. Not bad.

But say I want to be greedy and I "know" the share is going up. Then I could enter a CFD contract with a bank. Normally I would need to give about 10% collateral (depends on the volatility of the underlying). My 1m euro becomes collateral now, I dont hold own any asset (unlike buying the share itself), I will be buying 10m worth of stock. The way it normally works is that the bank will pay me interest on my collateral at a rate x. They will then lend me the money to buy the 10m worth of stock, using my 1m as collateral. They will buy the shares (normally) and hold them for me. The bank makes their money from the interest that I pay for the 10m loan and also on the low rate of interest that they pay me for the collateral. This is where they make money, they are not interested in the moving price of the share, they lent the money to me to buy it at price 10. So the person who enters into the CFD contract is taking all the risk and the bank just makes some money from the spreads on the lending.

Now lets say the price goes down to 9. The bank is now holding 9m worth of this share, but they also have 1m collateral from the guy. So they will not lose out, they will ask him for more collateral or they will close the position. In this case they will sell for 9m, plus keep his 1m collateral, result = bank has the money the lent.

Now lets say instead of going down it went up to 11. In this case the bank will pay 1m to the other party. They hold 11m worth of stock, they sell this, give him his 11m + 1m collateral back and they have still made money on the interest rate that they were charging. No matter what way the stock moves the bank will make money.

The point of CFDs (apart from the tax issues) is that a bank would never lend someone money to go and buy stocks themselves, they get to keep money and the stocks as collateral. It allows the other party to take a highly leveraged bet.

Decartes7

Thanks for that, Great explanation.

A Primal Nut

Good explanation. But a few things I'm not sure of.

So take your example, 10m loan to buy shares with 1m collateral. If the value of the shares goes down by 1m, i.e. the value of the collateral; to 9m, do the shares automatically get sold at that point to make sure the bank don't have to go chasing for the money if the shares drop lower?

Also, in this case, Sean borrowed money from the same company that he bought the shares in. Is this commonly how CFDs work or would this be a more unique situation?

hmmm

A Primal Nut wrote: »

So take your example, 10m loan to buy shares with 1m collateral. If the value of the shares goes down by 1m, i.e. the value of the collateral; to 9m, do the shares automatically get sold at that point to make sure the bank don't have to go chasing for the money if the shares drop lower?

There is then what is known as a margin call. Either the buyer then puts up more collateral (cash usually), or his position is closed out (the shares are sold).

Because of the extreme volatility of recent years, sometimes the loss in the CFD exceeds the buyers original collateral. This has led to some court cases as the potential loss on a CFD is not limited to the collateral amount only.

V_Moth

Decartes7 wrote: »

Does anyone know who actually won the bet Quinn lost so much money on regrading the CFD's?

And why are such financial instruments allowed to exist in Ireland when they are not allowed in the US?

I guess the reason they are allowed in Ireland is that various financial companies identified a weak/captured government (typically Jersey or Guernsey) and ramroded a bill which allowed the use of such instruments. Once this was passed, the companies then went to Ireland and said they would their operations out of the country unless they could use CFD's in Ireland. I guess the "financial regulator" acceded to their request.

Basically, the usual way of doing things for offshore interests.

Marcusm

Decartes7 wrote: »

Does anyone know who actually won the bet Quinn lost so much money on regrading the CFD's?

And why are such financial instruments allowed to exist in Ireland when they are not allowed in the US?

The answer is the shareholders who sold out of Anglo as he bought in. He apparently executed the CFDs with a number of counterparties (names mentioned elsewhere included CMC Markets, IG Index, Credit Suisse and Morgan Stanley but I don't know). They will certainly have made money on inbuilt financing costs and margins. Quinn will Have had to put up cash reflecting their view on his credit worthiness and the volatility of the Anglo stock. Wouldn't be surprised for it to be 20% given size and share price movement.

The fact is that his action ramped up the share price as he was buying up all around him (via the brokers as his ciphers). It's the backward nature of Irish disclosure rules that allowed him to build up a 28% stake without anyone knowing about it definitively. I doubt even the cfd counterparties knew the precise size of his positions.

As a merchant he shoud have known the effect of his buying on the price of a scarce commodity.

As for no CFDs in the US, it's not that surprising as they dislike non exchange traded derivatives for equities, the same effect could be achieved using futures or ETFs in the US so it's not that they have soe monopoly on wisdom.

Marcusm

V_Moth wrote: »

I guess the reason they are allowed in Ireland is that various financial companies identified a weak/captured government (typically Jersey or Guernsey) and ramroded a bill which allowed the use of such instruments. Once this was passed, the companies then went to Ireland and said they would their operations out of the country unless they could use CFD's in Ireland. I guess the "financial regulator" acceded to their request.

Basically, the usual way of doing things for offshore interests.

Not really, like most things they are permitted unless outlawed!! US vested interests (exchanges) like to limit the over the counter derivatives market. It doesn't make it safer - Madoff claimed that an exchange traded derivatives strategy was at the heart of his money making machine, the fact that total trading on the exchange was a fraction of his claimed trading did not disturb or alert US regulators. So much for publication being a great disinfectant.

funnyname

So the 2.8bn Anglo lent to Quinn would have been backed by 280m of collateral however based on the explanation below was it not Anglo's fault for not closing out the position on the CFD when the share price fell by 10% and therefore the loss is theirs not Quinn's?

HerrKuehn wrote: »

Quinn would have bought a CFD contract from a bank (anglo or someone else?). These are not exchanged traded, they are OTC contracts between 2 parties. The way they work is as follows:
Say I have 1m euro and I want to buy shares in XYZ corp. These are trading at 10 euro per share. So with my cash I can buy 100k shares. Now, if the price of the share moves up to 11 at the next CFD reset, I will have made 100k * (11-10) = 100k euro. Not bad.

But say I want to be greedy and I "know" the share is going up. Then I could enter a CFD contract with a bank. Normally I would need to give about 10% collateral (depends on the volatility of the underlying). My 1m euro becomes collateral now, I dont hold own any asset (unlike buying the share itself), I will be buying 10m worth of stock. The way it normally works is that the bank will pay me interest on my collateral at a rate x. They will then lend me the money to buy the 10m worth of stock, using my 1m as collateral. They will buy the shares (normally) and hold them for me. The bank makes their money from the interest that I pay for the 10m loan and also on the low rate of interest that they pay me for the collateral. This is where they make money, they are not interested in the moving price of the share, they lent the money to me to buy it at price 10. So the person who enters into the CFD contract is taking all the risk and the bank just makes some money from the spreads on the lending.

Now lets say the price goes down to 9. The bank is now holding 9m worth of this share, but they also have 1m collateral from the guy. So they will not lose out, they will ask him for more collateral or they will close the position. In this case they will sell for 9m, plus keep his 1m collateral, result = bank has the money the lent.

Now lets say instead of going down it went up to 11. In this case the bank will pay 1m to the other party. They hold 11m worth of stock, they sell this, give him his 11m + 1m collateral back and they have still made money on the interest rate that they were charging. No matter what way the stock moves the bank will make money.

The point of CFDs (apart from the tax issues) is that a bank would never lend someone money to go and buy stocks themselves, they get to keep money and the stocks as collateral. It allows the other party to take a highly leveraged bet.

Laminations

funnyname wrote: »

So the 2.8bn Anglo lent to Quinn would have been backed by 280m of collateral however based on the explanation below was it not Anglo's fault for not closing out the position on the CFD when the share price fell by 10% and therefore the loss is theirs not Quinn's?

As far as my understanding goes, Anglo didn't lend for Sean to bet on the CFD market, they lent to cover his margin calls when it was disclosed to the in Ardboyne Hotel in 2008 that he held such a big position. Anglos share price was falling and Quinn was losing out so they lent to bouy his collateral so the shares would not flood the market. And Quinn borrowed because he believed things would get better and because he was previously siphoning monies from his companies to cover these margin calls which is either illegal or a serious breach of regulations.

Anglo didn't hold his CFDs, so it wasn't in their power to close them out. They were held by brokers, in London and elsewhere. Even if Anglo did hold them it wasn't in their interest to close them out as the flood of shares would have collapsed the bank (sooner than it did collapse)

[Jackass]

HerrKuehn wrote: »

Quinn would have bought a CFD contract from a bank (anglo or someone else?). These are not exchanged traded, they are OTC contracts between 2 parties. The way they work is as follows:
Say I have 1m euro and I want to buy shares in XYZ corp. These are trading at 10 euro per share. So with my cash I can buy 100k shares. Now, if the price of the share moves up to 11 at the next CFD reset, I will have made 100k * (11-10) = 100k euro. Not bad.

But say I want to be greedy and I "know" the share is going up. Then I could enter a CFD contract with a bank. Normally I would need to give about 10% collateral (depends on the volatility of the underlying). My 1m euro becomes collateral now, I dont hold own any asset (unlike buying the share itself), I will be buying 10m worth of stock. The way it normally works is that the bank will pay me interest on my collateral at a rate x. They will then lend me the money to buy the 10m worth of stock, using my 1m as collateral. They will buy the shares (normally) and hold them for me. The bank makes their money from the interest that I pay for the 10m loan and also on the low rate of interest that they pay me for the collateral. This is where they make money, they are not interested in the moving price of the share, they lent the money to me to buy it at price 10. So the person who enters into the CFD contract is taking all the risk and the bank just makes some money from the spreads on the lending.

Now lets say the price goes down to 9. The bank is now holding 9m worth of this share, but they also have 1m collateral from the guy. So they will not lose out, they will ask him for more collateral or they will close the position. In this case they will sell for 9m, plus keep his 1m collateral, result = bank has the money the lent.

Now lets say instead of going down it went up to 11. In this case the bank will pay 1m to the other party. They hold 11m worth of stock, they sell this, give him his 11m + 1m collateral back and they have still made money on the interest rate that they were charging. No matter what way the stock moves the bank will make money.

The point of CFDs (apart from the tax issues) is that a bank would never lend someone money to go and buy stocks themselves, they get to keep money and the stocks as collateral. It allows the other party to take a highly leveraged bet.

Thanks for that. If you're a casual reader, please contribute more often. I didn't understand the position previously as it seems so confusing, but that's a good explanation. It seems like a strange investment strategy but I suppose useful for raising much more revenue than you have to get greater returns, but it would want to be an absolute sure thing!

As usual, the banks are covered. Really it seems like they dug their own grave with this one though.

Are there other examples of an implosion of this magnitude from CFDs anywhere else in the world? Seems to be there's very little winners in this other than casual traders who got lucky getting out at a good price, but at the same time, it seems like a venus fly trap for collapsing a market when it artificially inflates a price so much, sucking in more and more investors and then when the floor falls out, everyone loses.

I like the Warran Buffet quote. Makes sense now.

Farmer Pudsey

[Jackass] wrote: »

Thanks for that. If you're a casual reader, please contribute more often. I didn't understand the position previously as it seems so confusing, but that's a good explanation. It seems like a strange investment strategy but I suppose useful for raising much more revenue than you have to get greater returns, but it would want to be an absolute sure thing!

As usual, the banks are covered. Really it seems like they dug their own grave with this one though.

Are there other examples of an implosion of this magnitude from CFDs anywhere else in the world? Seems to be there's very little winners in this other than casual traders who got lucky getting out at a good price, but at the same time, it seems like a venus fly trap for collapsing a market when it artificially inflates a price so much, sucking in more and more investors and then when the floor falls out, everyone loses.

I like the Warran Buffet quote. Makes sense now.

It is not just CFD's that are an issue there are a lot of finiancial Instruments which are the same as gambling alot of banks got caught up in these. They bought into stock trading firms and often not under standing the finiancial instruments involved allowed traders free rein.

Look at it this way if you are a trader on a big bonus (often the bonus make up over 80% of pay) scheme if you get lucky once you are made for life as well as being targeted by head hunters. The beauty of it fot most traders they are not betting there own money. They then take position on currency's commodoties etc and are supposed to cover their bets however now and again they take a chance. John Rusnec, Nick Leeson and there was a japanese trade that nearly cornered the copper market about 10 years ago his bank found out and panicked and lost billions. The bank dumped all the copper back onto the market however at present copper has climed by about 2000% since then.

KyussBishop

Slightly OT; brilliant Adam Curtis documentary on Nick Leeson (well worth watching):
https://www.youtube.com/watch?v=yVa95dSREmE

the culture of deference

Is Quinn correct, was he stitched up by seanie and david, the dopey Cavan man sold a pig in a poke. Are Anglo guilty of fraud.

12 directors with personal loans of over 120 million euro.

Year end accounts manipulated by 8 billion euro transfer.

srsly78

Nobody put a gun to Quinn's head and made him enter into the CFD contract. He did it because he got greedy and wanted to make more money.

Curly Judge

Call me naive and out of touch if you like but I can hardly be the only person who looks askance at this example of laissez-faire dick measuring.
As I understand it the original purpose of the stock market was to provide a safe haven for savings on one hand, together with a fund from which entrepreneurs and industrialists could borrow, on the other.
The Wall Street type Clever Dicks, daily thinking up clever ruses to make fortunes on the sidelines of the real game, have now become so smart they are disappearing up their own holes.
I am far from being a socialist but Joe Higgins' constant use of the "gambling debt" simile does have a certain credence in this case.
Has anyone any thoughts on how this system could be given a severe dose of Imodium Plus without constipating the whole process.
There must be a happy medium between a hard dung and a full scutter?

srsly78

The problem is the "too big to fail" one, this makes a mockery of capitalism. Note that these otc derivatives are arbitrary arrangements entered into by two parties. Why should the government stop people from making deals with each other? Would Sean Quinn hand back his profits from the deal if Anglo hadn't collapsed? Similarly with people taking out mortgages etc.

EchoO

On what grounds is Quinn claiming the loans were illegal?

Damien360

EchoO wrote: »

On what grounds is Quinn claiming the loans were illegal?

As mad as it may seem, they feel that the bank knew what they were doing was wrong and therefore the loans are invalid and illegal. No mention of what their legal team was telling them.

They want the taxpayer to pick up their losses.......I wonder would they have shared the windfall with the taxpayer if they got away with it. Me thinks not !

pedroeibar1

the culture of deference wrote: »

Is Quinn correct, was he stitched up by seanie and david, the dopey Cavan man sold a pig in a poke. Are Anglo guilty of fraud.

12 directors with personal loans of over 120 million euro.

Year end accounts manipulated by 8 billion euro transfer.

What went on at Anglo is now before the courts so I will not comment on its directors or accounts.

The Quinn case is quite different.

You cannot compare what Leeson did at Barings to Quinn / Anglo.
Leeson actually had made so much money (initially) that he thought he should lose some of it to avoid being caught, which is when the wheels fell off and he lost too much. Had Barings held Leeson's position they would have recovered, because time showed that Leeson’s underlying trades were profitable, eventually. Leeson admitted his wrongs, cooperated and did his time.Does not make him a good guy, just a contrite one.

OTOH Quinn & Co are delusional, their moral compass is so screwed that they are unable to accept what they did (and apparently try to continue doing) was wrong; they ignore one of the highest courts in the land and for that reason the Irish legal system has judged Quinn and several family members to be crooks. Why? because they have taken your money and hidden it away for themselves; you, the taxpayer, are trying to get it back via your bank IBRC through the Courts, and Quinn & Co are giving us the 2 fingers. Idiots in border counties back the crook.

The ‘illegal’ claim by Quinn is a ruse to try to get out of the debt – saying that Anglo acted illegally in lending the money, therefore there was not a valid loan contract, therefore it does not have to be repaid. This is like you borrowing a €1000 from your cousin and then refusing to repay him, saying that because he did not have a banking licence it was illegal and therefore not repayable.

There was another deluded individual:
He felt hard done by after one conflict..........he was loved, admired and supported by the people around him, he looked after his coterie of friends and was loyal to them, he provided them with factory jobs, homes, he did wonders for his party association, his region, economically and in status. He was blindly followed by a huge number of people until things started to go wrong. His name? Adolf Hitler.

srsly78

Godwin out of nowhere :pac:

Curly Judge

pedroeibar1 wrote: »

What went on at Anglo is now before the courts so I will not comment on its directors or accounts.

The Quinn case is quite different.

You cannot compare what Leeson did at Barings to Quinn / Anglo.
Leeson actually had made so much money (initially) that he thought he should lose some of it to avoid being caught, which is when the wheels fell off and he lost too much. Had Barings held Leeson's position they would have recovered, because time showed that Leeson’s underlying trades were profitable, eventually. Leeson admitted his wrongs, cooperated and did his time.Does not make him a good guy, just a contrite one.

OTOH Quinn & Co are delusional, their moral compass is so screwed that they are unable to accept what they did (and apparently try to continue doing) was wrong; they ignore one of the highest courts in the land and for that reason the Irish legal system has judged Quinn and several family members to be crooks. Why? because they have taken your money and hidden it away for themselves; you, the taxpayer, are trying to get it back via your bank IBRC through the Courts, and Quinn & Co are giving us the 2 fingers. Idiots in border counties back the crook.

The ‘illegal’ claim by Quinn is a ruse to try to get out of the debt – saying that Anglo acted illegally in lending the money, therefore there was not a valid loan contract, therefore it does not have to be repaid. This is like you borrowing a €1000 from your cousin and then refusing to repay him, saying that because he did not have a banking licence it was illegal and therefore not repayable.

There was another deluded individual:
He felt hard done by after one conflict..........he was loved, admired and supported by the people around him, he looked after his coterie of friends and was loyal to them, he provided them with factory jobs, homes, he did wonders for his party association, his region, economically and in status. He was blindly followed by a huge number of people until things started to go wrong. His name? Adolf Hitler.

I hope that Sean Quinn and his family live to fight another day.
One way to do that is to hold on to some of their wealth to hire the lawyers they'll undoubtedly need in the coming months and years.
Why do I hope for this?
Because...its the only chance the people of Ireland will ever have of getting
to the bottom of this pile of poo.
There cannot be any doubt but that Anglo mislead the stock exchange and it's shareholders and Sean Quinn too. [Though he was, to a large extent the author of his own downfall.]
If they succeed in burying Sean Quinn - as they are trying their damnedest to do- the establishment will close ranks and that's the last we'll ever hear of what went on with that Whore of Babylon.

Head The Wall

Curly Judge wrote: »

I hope that Sean Quinn and his family live to fight another day.
One way to do that is to hold on to some of their wealth to hire the lawyers they'll undoubtedly need in the coming months and years.
Why do I hope for this?
Because...its the only chance the people of Ireland will ever have of getting
to the bottom of this pile of poo.
There cannot be any doubt but that Anglo mislead the stock exchange and it's shareholders and Sean Quinn too. [Though he was, to a large extent the author of his own downfall.]
If they succeed in burying Sean Quinn - as they are trying their damnedest to do- the establishment will close ranks and that's the last we'll ever hear of what went on with that Whore of Babylon.

Ah, poor sean. As long as you are happy paying taxes to sort out his debts then keep doing so. I have happily extricated myself from that situation

Laminations

EchoO wrote: »

On what grounds is Quinn claiming the loans were illegal?

Quinn bet on the CFD market with his own money and his company's money. Anglo were not involved at the start. He built up a large position but things started to go wrong. As Anglos share price dropped Quinn started to lose big time. He met his margin calls initially by using his own money and pulling money from his companies. To fill the holes in the companies and to continue to meet the margin calls he went to Anglo and revealed his position.

Then they loaned him money to bail him out and themselves out. The fact that the loans were bailing themselves out is the illegal part. You can not lend money to manipulate your share price. Quinn is now trying to renege on repaying these loans, ignoring the fact he benefitted heavily from them (to the tune of 2.3bn) focusing only on the fact that Anglo also beneffited (briefly before they imploded anyway)

Laminations

Curly Judge wrote: »

I hope that Sean Quinn and his family live to fight another day.
One way to do that is to hold on to some of their wealth to hire the lawyers they'll undoubtedly need in the coming months and years.
Why do I hope for this?
Because...its the only chance the people of Ireland will ever have of getting
to the bottom of this pile of poo.
There cannot be any doubt but that Anglo mislead the stock exchange and it's shareholders and Sean Quinn too. [Though he was, to a large extent the author of his own downfall.]
If they succeed in burying Sean Quinn - as they are trying their damnedest to do- the establishment will close ranks and that's the last we'll ever hear of what went on with that Whore of Babylon.

So if Sean Quinn has to pay his debts it will render him mute??

It is money they are looking for, not his tongue.

He can talk all he wants after the criminal proceedings go through the courts

Curly Judge

Laminations wrote: »

So if Sean Quinn has to pay his debts it will render him mute??

It is money they are looking for, not his tongue.

He can talk all he wants after the criminal proceedings go through the courts

A litigant without money is a bit like a eunuch at an orgy!

I look forward to the biggest bit of dirty washing in public since Twink fell out with her ex.

Laminations

Curly Judge wrote: »

A litigant without money is a bit like a eunuch at an orgy!

I look forward to the biggest bit of dirty washing in public since Twink fell out with her ex.

So Quinn has no money? Quinn hasn't been moving assets out of the reach of IRBC and the taxpayer? That's not what numerous courts have found. Why do you think he needs to retain global assets and squirrel away money to air dirty washing? He can say all he has to say (after the criminal investigations so as not to prejudice them...but he may be called as a witness here) and still cooperate with paying the debts he has agreed he owes.

Did Quinn benefit from the loans from Anglo?