Liquidity Risk Traps Aussie Bank

"Leaders aren't born, they are made. And they are made just like anything else, through hard work. And that's the price we'll have to pay to achieve that goal, or any goal."

Vince Lombardi, American football coach (1913-1970)

Earlier today wires reported that Australia's Macquarie bank, has warned that 2 of its funds invested in the extremely toxic securitized loans have suffered in July's credit derivative re-pricings. The bank's write-downs are likely to exceed the US$250 million barrier. In short shrift, the share price fell a precipitous 11%. Yikes!

There are no real surprises here. Curiously, this is not the first Australian financial institution that has been dabbling in the high levered, sub-prime arena. It almost certainly will not be the last. Look for astute long/short equity managers to be doing some intensive due diligence in coming days and placing bets as to when the next domino will fall. There will be some very interesting shorting opportnuities developing over the short run. And, I would not be surprised if lesser Japanese financial institutions eventually come clean...

While global hedge fund performance has been phenomenal over the last 12 months (up over 16% through June 2007 according to the Credit Suisse Tremont Hedge Fund Index), look for some choppier performance waters over the next half of the year.
Mahalo.