The funding gaps at Depfa that forced the bail-out of parent bank Hypo Real Estate (HRE) are threatening to derail the modernization of London’s underground train system. Tube Lines’ improvement of the Jubilee, Northern and Piccadilly lines is reliant on funding from the Dublin-based bank for its roughly £2 billion ($3.1 billion) refinancing deal. Now that Depfa’s business model has proved unworkable in this environment, with the short-term markets no longer an option for funding the bank’s long-term assets, the Tube Lines project could be in danger. "Depfa’s credit line has dried up," says an analyst. "The bank has a funding commitment to Tube Lines, but the question now is whether or not it’s good for that commitment." The structure of the Tube Lines refinancing deal is not a common one. Apart from the issuer facilities, it comprises £1.15 billion in class A-1 notes, £95.26 million in class A-2C notes, £300 million in loans from the European Investment Bank and nearly £250 million in class B, C and D notes. Depfa’s involvement is across that spectrum, with the exception of the EIB loans. The bank is the issuer facilities provider and the purchaser of all the class B, C and D notes. The A-1 notes were all bought by Goldman Sachs, which then sold a portion of the notes back to Tube Lines and committed itself to buy them back in the future under a forward note purchase agreement (FNP). Goldman buys back the notes in instalments in accordance with an agreed schedule. There is then a similar FNP agreement in place between Goldman and Depfa, with the US bank selling the notes on to Depfa under their own agreed schedule. "Financing with an FNP over two banks is unusual," says Nicolas Painvin, senior director in Fitch Ratings’ Global Infrastructure and Project Finance Group. "We’ve never seen this before in the Fitch project finance portfolio, at least not on the transport side."

Henning Rasche, president of the association of German Pfandbrief banks (VDP), has resigned as a member of the board of managing directors at Eurohypo, effective December 31. His replacement will be Ralf Woitschig, head of public finance at Eurohypo’s parent, Commerzbank. Rasche, who was re-elected to the VDP presidency in June, has been at Eurohypo or its predecessors since before the jumbo Pfandbrief market launched in 1995.

The losses in the long/short strategy favoured by the majority of hedge funds show no signs of abating.

A survey of 100 institutional investors conducted by business school EDHEC showed that only 15% have invested in replication products, with 30% reporting that they will never do so. The majority of respondents doubted that the behaviour of hedge funds could be replicated and criticized the products’ poor performance, lack of transparency and deficient technology.

John Paulson, George Soros, Citadel’s Ken Griffin, Harbinger Capital’s Philip Falcone and Renaissance Technologies’ James Simons were all grilled by Congress in November about hedge funds’ role in contributing to the financial markets’ meltdown.

Although 60% of UK hedge funds surveyed by consultants Kinetic Partners said they were strongly supportive of the industry best practices standards overseen by the Hedge Fund Standards Board, fewer than one in 10 said they would sign up to them. The HFSB standards, put together in January by a group backed by 10 hedge fund managers, lay out a recommended approach to issues including risk management, disclosure, governance and valuation. Respondents cited regulatory burden and compliance concerns as reasons why they would not comply.

In its latest report on OTC derivatives market activity, the Bank for International Settlements says that notional amounts of FX derivatives increased by 12% to $63 trillion in the first six months of 2008. Gross market values rose by 25% to $2.3 trillion. The expansion was fastest in options and currency swaps. BIS reported that outrights, which account for roughly half of total OTC FX derivatives when measured in terms of notional amounts, grew less quickly.

UK pension funds slash equity allocations.

Rating downgrades threaten CLO structures.

Multilateral trading facilities have been gaining market share in recent months but the market itself has been shrinking. MTFs’ conspicuous success is also attracting some unwanted attention.

"If you track our market performance since the election in early March... there is probably less volatility" -Dato’ Yusli Mohamed Yusoff, Bursa Malaysia

In response to the impact of the global economic crisis on central and eastern Europe, the European Bank for Reconstruction and Development is looking to increase its investments in 2009. EBRD president Thomas Mirow has outlined a proposal to invest up to €7 billion, a record amount for any single year since the bank was founded and 20% higher than previously planned. As EBRD investments have typically attracted additional funding from commercial partners of at least 2:1, EBRD-led financing could exceed €20 billion in 2009.

Parex banka, Latvia’s second-largest bank, has been effectively nationalized by the authorities in Riga after a run on the bank. Under the agreement with the Latvian government, some 51% of Parex banka shares were transferred to the state-owned Mortgage and Land Bank of Latvia with a buy-back option after one year. Majority shareholders Valery Kargin and Viktor Krasovitsky will retain a 34% holding, with the 15% balance retained by minority shareholders. The state will also provide a €285 million loan to Parex. Commenting on the government’s move, Latvian prime minister Ivars Godmanis says: "It is necessary to do everything to avert disruptions of the banking and financial system." As part of that, his government is seeking between €1 billion and €3 billion from the IMF and the EC to rescue Latvia’s economy.

In the next few weeks, Ecuador’s president, Rafael Correa, will decide whether to voluntarily take his country into default on up to $10.2 billion of external sovereign debt, equivalent to 25% of GDP. As the international community holds it breath, those close to the government are more philosophical. "Correa runs as a 21st-century socialist government. He wants to continue sending the message to the people that the poor come before debt," says Antonio Acosta Espinosa, president at Banco Pichincha, the leading bank in Ecuador. "This default threat does exactly that – sends a clear political message to his supporters. I personally think it is a political strategy and that payments will resume in the coming weeks, but I’m expecting that some international court will analyse the legality of some tranches of the external debt." A Moody’s report that downgraded Ecuador’s foreign currency bond rating to Caa1 agrees that the government’s motivation is political and ideological. On November 14, Correa announced that Ecuador would no longer pay the 12% coupon totalling $31 million on its 2012 global bond. Now the government says it is going to make use of the 30-day grace period to decide its strategy. By December 15, Correa will have decided "if we will keep paying or go the courts".

The past few months have been significant for Austrian exchange Wiener Börse’s attempts to position itself as the prime conduit for portfolio investment in central and eastern Europe. In a notable run it has managed to secure majority control of three exchanges in the region. Most recently, it signed an agreement in November to acquire a 92.4% stake in the Prague Stock Exchange, one of the largest in central and eastern Europe, with a market capitalization of about €40 billion.

As was widely expected, the government in Kazakhstan has stepped in to support the central Asian republic’s embattled banking sector. Since the onset of the global credit crunch last August, Kazakh banks have found themselves under severe pressure given the choking off of cheap funding from abroad, which helped to finance the rapid expansion of branch networks and lending portfolios at home. At the same time the domestic economic environment has deteriorated rapidly, with GDP this year expected to come in at 4.5% – less than half the 10% average annual growth levels seen since the start of the decade. The straitened economic circumstances have also led to a sharp increase in bad debt levels. While pre-credit crunch non-performing loans were in the range of 1.5% to 3% they have now jumped to 7% to 8% although some observers believe the true figure is as high as 15%.

Eastern Europeans think it could be a haven in troubled times.

Hugo Chávez, the Venezuelan president, has taken measures to counter the effects of decreasing petro-dollars. The president has reduced his support to foreign allies and is poised to make deeper cuts at home and abroad as oil prices plunge.

Fertilizer maker CF Industries is looking to invest $1 billion to develop petrochemicals plants in Peru. The company plans to build two plants – one producing ammonia and one urea – the company’s president announced at the Asia Pacific Economic Cooperation (Apec) forum, attended last month by leaders from 21 Pacific Rim economies. Peru is working to persuade foreign companies to invest billions of dollars to develop petrochemicals plants that can utilize products coming from Peru’s Camisea gas field.

Uncertainty over bridge loans for infrastructure projects.

Japan’s Marubeni and Chile’s Antofagasta have started to structure the financing for a $2 billion mining project in Chile. The project, called La Esperanza, could receive up to half of its financing from equity investments, with the remainder raised through credit agencies, multilaterals and commercial banks. Given the hostile banking environment, the commercial tranche, which would be syndicated among international banks, would likely not exceed $500 million.

Bumper results produced by many FX units are likely to prove a sideshow in what will be a year of write-downs and general value destruction.

Kenan Altunis, global head of sales at UniCredit, has struck lucky and won a big lottery held on Long Island, New York. Altunis, who will receive $1 million a year for life, says he is slightly embarrassed by his slice of good fortune. He tells Euromoney that he will donate a portion of his annual windfall to charity and that he is looking into the possibility of supporting an orphanage in Iraq.

A falling oil price is limiting Hugo Chávez’s economic and political options.

Sifma’s new covered bond group seeks to find a consensus among traders. But with no public covered bond market in evidence, why now?

Can a spending spree mask problems in banking and the broader economy?

Jobs are far from the only concern as the car icons plead to Congress.

This crisis is only going to end when the root cause of the problem – the housing market – is fixed.

Investors stay on the sidelines and look at directionless strategies.

Big losses, growing provisions, slowing profit growth: money is no longer easy in the Gulf, as banks’ third-quarter results brutally showed.