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57 the level of the State Street Investor Confidence Index, a record low

In a stark reflection of the reliance of Spanish securitizers on the European Central Bank’s largesse, the Spanish government has itself agreed to purchase Spanish RMBS and SME CLOs. It has established a Financial Asset Acquisition Fund that will purchase securities with a minimum double-A rating up to €50 billion in volume. Spain has also introduced a mortgage moratorium for the unemployed under its mortgage policy facility. This will enable jobless workers and pensioners with families to support to defer mortgage payments for up to two years. The moves reflect concern about the impact that Spain’s real estate slump will have on the wider economy.

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.