Global Articles on what is going on...posted daily

[sandi66]

Q+A-Why is the yuan rising faster all of a sudden?

Published September 21, 2010

BEIJING, Sept 21 (Reuters) - China's yuan has risen 1.35percent in the past nine trading days, quickening its rate ofclimb against a backdrop of growing U.S. criticism of China'sexchange rate policy.

The People's Bank of China, which tightly manages thecurrency, let the yuan rise on Tuesday as high as 6.6987 perdollar -- above 6.70 for the first time since Beijingunshackled the currency from a decade-old peg to the dollar in2005.

Following are the answers to some questions raised by therecent rise in the yuan, also called the renminbi.

WHY IS CHINA LETTING THE YUAN RISE MORE QUICKLY?

-- The best guess -- and when it comes to policy moves inChina, it can be only a guess -- is that Beijing is respondingto both economic fundamentals and political considerations.

For a related analysis, click on

-- In a series of five articles in July setting out thePBOC's thinking about the yuan, deputy central bank governor HuXiaolian emphasised the importance of the trade surplus as adeterminant of the exchange rate. The surplus has averaged $22billion a month since May, strengthening the hand of the PBOCand other advocates of faster appreciation in their internaldebates with opponents led by the commerce ministry.

SURELY EXTERNAL POLITICS ARE A DECISIVE INFLUENCE?

-- Beijing insists that the yuan is a sovereign issue thatit alone will decide.

"But in reality it has been making some concessions. Ittakes very seriously the pressure from the United States overthe renminbi exchange rate," said Sun Zhe, a professor atTsinghua University in Beijing who specialises in China-U.S.relations.

Sun said Congress was unlikely to pass legislationpunishing China for holding down the yuan before a visit byPresident Hu Jintao, which diplomats say is pencilled in forJanuary.

But U.S. pressure could nonetheless force Chinesepolicymakers to think more seriously about whether a strongeryuan was in the country's self-interest, the professor said.

Xu Biao, an economist with China Merchants Bank inShenzhen, said the yuan might rise more strongly than expectedin light of criticism on Monday from President Barack Obama.

"The fresh comments from Obama are likely to putunprecedented pressure on the yuan to rise as Japan and Europemay follow Washington," Xu said.

-- Sun said it was important to bear in mind that China isalso feeling the heat from developing economies such as Braziland India. "This pressure is coming from many countries andChina has to respond before the G20 summit," he said.

The next G20 summit is in Seoul on Nov. 11-12. It was nocoincidence that China announced an end to the yuan's23-month-old de facto peg to the dollar on June 19, just a weekbefore the previous G20 summit in Toronto, where it earnedplaudits for its move.

IS THIS TIME DIFFERENT?

-- The yuan's appreciation versus the dollar has beenunquestionably fast over the past 9 days, prompting traders todescribe it as a mini-revaluation. It is the longest string ofgains since a landmark revaluation in July 2005, when theyuan's 11-year formal peg to the dollar was broken.

-- But it is not entirely without precedent. China let theyuan rise at about the same pace in early 2008, when it wastrying to tame soaring inflation.

-- China could push the yuan up to 6.6 against the dollarin coming weeks, traders say, which would mark a nearly 3percent rise since early September, reflecting the intensity ofU.S. pressure. See

-- The risk for China is that it will invite unwantedhot-money inflows if it makes a habit of allowing the yuan toappreciate ahead of important political dates.

A key question, then, is whether the PBOC makes good on itspromise to introduce more volatility into the exchange rate sothat speculators do not view the yuan as a one-way bet. Itwould not be surprising to see the currency fall back at leastsomewhat against the dollar after this burst of appreciation.

HOW MUCH HAS THE YUAN ACTUALLY GAINED?

-- When the PBOC said three months ago that it wouldincrease exchange rate flexibility, many observers believedthat it would finally fulfill its pledge to manage the yuanagainst a basket of currencies.

-- On that count, the yuan's gains over the past two weeksseem far less impressive. In July and August, while inching upagainst the dollar, the yuan actually fell 2.8 percent againsta trade-weighted basket of currencies, according tocalculations by the Bank for International Settlements.

-- The yuan's performance against the euro has been evenmore dismal. The Chinese currency is down 3.6 percent againstthe euro since its June de-pegging. Even during the yuan'smini-revaluation against the dollar, it has continued to fallversus the euro, because the euro itself has been even strongeragainst the U.S. currency. For related story, see

-- However Beijing manages the yuan, one thing is certain:it will not appreciate against the dollar for at least eight ofthe next 12 trading days. Chinese markets are closed forMid-Autumn Festival and National Day holidays, giving the yuan-- and policymakers -- a breather.

WHAT ELSE IS CHINA DOING?

-- Politically, the yuan's nominal exchange rate is an easytarget for critics to latch on to.

Economically, what determines competitiveness is the real,or inflation-adjusted, effective exchange rate against a basketof currencies of a country's trading partners.

The yuan's real effective exchange rate has risen 19percent since 2005; its nominal effective exchange rate is up14 percent over the same period.

China is gently engineering a degree of real appreciationby increasing the cost of manufacturing in China.

After a pause during the global financial crisis, wages areagain rising at an annual pace of about 15 percent to 20percent. Rebates on exports of dozens of commodities have beenscrapped.. And on-grid power tariffs are expected to rise next month.

www.foxbusiness.com/markets/2010/09/21/qa-yuan-rising-faster-sudden/

[sandi66]

North Korea Announces Leadership Summit Amid Succession Speculation



Tuesday, September 21, 2010



North Korea says it will hold its biggest political meeting in a generation, amid speculation that leader Kim Jong Il is about to name his younger son as successor – a move that would take the Kim dynasty into a third generation.

The country's ruling communist party is to meet in Pyongyang on September 28 to elect its supreme leadership board. North Korea's KCNA news agency carried a statement early today calling the Workers' Party meeting "historic."

At the conference, the party is widely expected to promote Kim's third and youngest son, Kim Jong Un, to an important position to pave the way for the succession of the self-styled Dear Leader.

"This is something extremely important. It's not a full party congress. They haven't had one of those for 30 years," says Aidan Foster-Carter, a Korea expert at the University of Leeds in northern England. "But it's a meeting of activists, which precedes a full party congress. The last one was in 1966. So it is rare. It is exciting, particularly because -- as last time -- when they hold one of these, it's usually about the succession."

Presumed Successor

Last year, rumors emerged from the secretive state that Kim Jong Un was his father's chosen successor.

Last month, the North Korean leader visited his country's close ally China for what was seen as a move to introduce his youngest son and presumed successor to the Chinese leadership.


Foster-Carter says little is known of Swiss-educated Kim Jong Un, and there are no confirmed photos of him as an adult.

"He's about 27. He likes basketball. He was quite quiet but also by rumor he is supposed to be quite -- I don't know what the right word is -- willful or strong-headed," Foster-Carter says. "And that is perhaps a worry for the world, but it's supposed to be why his father likes him.

"But really, even by the standards of North Korea, we know incredibly little. And of course this can be an issue also in North Korean domestic politics. You do wonder whether, you know, the North Korean elite or powerful generals are really happy to entrust their future to such a young man with so little experience."

Propaganda Campaign

South Korean intelligence officers have said Pyongyang had launched a propaganda campaign promoting the junior Kim, including songs and poems praising him. North Korean soldiers and workers reportedly pledged allegiance to the son on his birthday in January.

Kim, 68, is believed to have suffered a stroke in 2008 and his health is reportedly deteriorating. In recent years, he is believed to have sought medical treatment in China.

Today’s announcement ends weeks of speculation about the date of the meeting, which is believed to have been delayed several times.

Next week’s event will be the first major Workers' Party gathering since 1980, when Kim Jong Il, then 38, appeared at a party congress. This was seen as confirmation that he would eventually succeed his father.

He eventually took over after North Korea founder Kim Il Sung died of heart failure in 1994 in what was communism's first hereditary transfer of power.

Led Into Isolation

Kim Jong Il has since led the nuclear-armed country into isolation from the outside world.

Now, the leader seems to be prepping his son for a similar transition.

Attention is also focused on the husband of Kim Jong Il's only sister. Jang Song Thaek was promoted in June to a vice chairman of the powerful National Defense Commission.

"To be frank about it, suppose Kim Jong Il, whose health is still, or again is, uncertain, suppose he was to die tomorrow," Foster-Carter says. "I think Jang Song Thaek would be the regent until Kim Jong Un was able to take over."

The conference is being held amid preparations for the 65th anniversary of the founding of the North Korean Workers' Party on October 10. It also comes as efforts to revive six-nation disarmament talks on North Korea's nuclear weapons program have stalled.

The negotiations, which include North and South Korea, the United States, Russia, China, and Japan, have been in crisis since North Korea walked out of them in April 2009 in protest at UN condemnation of an apparent missile test disguised as a space rocket launch. A month later, Pyongyang carried out its second nuclear test, sparking tougher UN sanctions.

Over the past year, prospects the talks could resume have only seemed to diminish further. Relations between North Korea and South Korea, a U.S. ally, plunged to a new low in March when Seoul blamed Pyongyang for sinking one of its warships, killing 46 sailors.

Today, Pyongyang denounced South Korea and the United States for planning antisubmarine drills in the Yellow Sea, describing them as a "nuclear war rehearsal." Reports say the exercise, originally planned for earlier this month, would begin as early as next week.

www.rferl.org/content/North_Korea_Announces_Leadership_Summit_Amid_Succession_Speculation/2163872.html

[sandi66]

Investigating Pope's Bank For Money Laundering

Sep. 21, 2010, 11:32 AM


The Pope's bank in Rome, the Institute for Works of Religion, is now under investigation by the Italian state on money laundering charges.

Already the Italian authorities have frozen $30 million connected to the case.

That $30 million was sent to two different banks: JPMorgan Frankfurt and Banca del Fucino.

The investigation into the bank centers on missing data from order forms.

The bank's president, Ettore Gotti Tedeschi, is also under investigation for his involvement. The Vatican continues to support Tedeschi, who is a professor at Milan's Catholic University as well, where he teaches financial ethics.

Institute for Works of Religion is not so much a central bank, as it is a bank used for the Catholic Church's purposes.



Read more: www.businessinsider.com/italy-investigating-popes-bank-for-money-laundering-2010-9#ixzz10B9OSW3J

[sandi66]

September 21, 2010, 10:48 AM ET
Vatican Bank Chairman Under Investigation for Money Laundering


The chairman of the Vatican Bank is under investigation for possible money laundering violations, and Italian police have seized EUR23 million in deposits as a precautionary measure, Ansa news agency reported Tuesday.



The wire service, citing unnamed police, said authorities are looking at whether Ettore Gotti Tedeschi broke a 2007 law regarding the disclosure of account holder identities. Ansa reported that another executive of Istituto per le Opere di Religione, as the bank is formally known, is also under investigation, without naming them.

The Vatican said in a statement that it was “perplexed and astonished” after the EUR23 million was impounded, AFP reported.

The Holy see pledged its commitment to financial transparency and expressed “maximum confidence” in Tedeschi, a former official of Spanish banking giant Santander whose 2009 appointment was seen as a move towards greater transparency at the IOR.

The EUR23 million ($30 million) is held in the Vatican Bank’s account at the Credito Artigiano SpA, a private bank that is part of the Credito Valtellinese group.

On Sept. 15, The Bank of Italy’s financial intelligence unit flagged two transactions ordered by the IOR from its account with Credito Artigiano because they were deemed suspicious, according to Ansa.

The transactions concerned EUR20 million sent to the German bank J.P.Morgan Frankfurt, and EUR3 million sent to a central-Italian bank, Banca del Fucino, the news agency reported.

The IOR is considered a non-European Union bank and enjoys Vatican offshore status. The bank manages accounts for religious orders and Catholic associations.

It had been previously reported that investigators were probing one or more accounts the Vatican Bank opened with Unicredit, Italy’s biggest bank.



blogs.wsj.com/corruption-currents/2010/09/21/vatican-bank-chairman-under-investigation-for-money-laundering/

[sandi66]

Fort Knox is EMPTY - Gata on FOX

www.youtube.com/watch?v=opGwEp6U4U0



ty joye

[sandi66]

Gold Sets New Record



By Jeff Miller Posted: 09/21/10 16:40
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RAPAPORT... Update: Spot gold jumped past its previous record in late afternoon trading to $1,292 per ounce in New York. A weaker greenback seemed to drive gold prices higher in the past hour as the markets closed for the day. Gold briefly fell to $1,270.10 shortly after the noon hour before spiking to this record high.



9/20/2010 8:00 AM
Gold inched above its previous record in early morning trading today to set a new high at $1,284.70 per ounce in London. Gold has been trading close to the $1,200 mark all month, so despite a string of records in the past week it is up only 4.3 percent in the past 30 days. The metal has risen 27 percent from one year ago. In other news this morning, silver added 14-cents at $20.91 per ounce and platinum is up $13 to $1,626 per ounce. The dollar is stable againsts major diamond trading center currencies: $1 = INR 45.69, $1 = EUR 0.76, $1 = JPY 85.7, $1 = CAD 1.04, $1 = ZAR 7.13.


9/17/2010 7:00 AM
Gold hit a new record this morning for the third time this week in early trading. London spot gold reached $1,284 per ounce. The metal has inched up more than 4 percent this month and is trading 26.5 percent higher than it was one year ago today. In other news, silver was up 8-cents to $20.88 per ounce and platinum rose $20 to $1,672 per ounce at of 7:30 a.m. from New York. The dollar has had a tough week and remains under pressure this morning: $1 = INR 45.84, $1 = EUR 0.76, $1 = JPY 85.8, $1 = CAD 1.03, $1 = ZAR 7.13.


9/16/2010 9:30 AM
Gold hit a new record for the second time this week in early morning trading today. New York spot gold reached $1,278.90 per ounce. The metal has inched up nearly 4 percent this month and is trading 26 percent higher than it was one year ago today. In other news, silver was up 10-cents to $20.70 per ounce and platinum rose $2 to $1,608 per ounce.


9/14/2010 1:12 PM
Gold hit a new record high in early afternoon trading in New York. Spot gold rose almost 3 percent to $1,275.70 per ounce. The price beat the previous record of $1,265 an ounce in June.

Gold is up 4.6 percent this month and has climbed 27 percent from one year ago today.


www.diamonds.net/News/NewsItem.aspx?ArticleID=32531

[sandi66]

Mugabe's Darkest Secret - The Biggest Diamond Raid in History



By Daily Mail Posted: 09/19/10 06:43
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(RAPAPORT) Daily Mail: Across a remote tract of southern Africa, naturally fortified by mountains and patrolled by hundreds of soldiers with dogs trained to tear intruders apart, teams of mining experts are hard at work. Yet they are not speakers of Shona, the native language of this land on the border between Zimbabwe and Mozambique. No, thousands of miles from home, under a broiling African sun, these slim, pale-skinned figures are members of the Chinese military.
Working alongside henchmen from one of Africa's most murderous regimes — headed by Robert Mugabe — the Chinese are here to oversee Beijing's investment in the world's most controversial commodity: blood diamonds.

High-ranking officials of China's People's Liberation Army, they have been striving to escape detection for their role in this bloodthirsty — but hugely lucrative — trade. For here, carved out of the African bush, is a runway big enough for huge cargo planes. There is also sophisticated radar equipment, a fullyoperational control tower and comfortable barracks for the Chinese officials overseeing the entire operation.

And twice a week, its wings wobbling on waves of thermals rising from this scorching corner of the continent, an Antonov An-12 cargo plane can be heard droning towards the airstrip.

The Antonov — developed by the Soviets and, like so much else, copied by the Chinese and manufactured en masse — carries men and equipment from a secret military airbase outside Zimbabwe's capital Harare, whose job is to tear the gems from the earth. It deposits between eight and ten Chinese military officials, who work overseeing members of the Zimbabwean military, as well as local labour who work at gunpoint in slave conditions.

The departing flights leave with rough, uncut diamonds worth millions. No flight plans are filed and there are no records of these trips. Such secrecy — and sophisticated organisation — is understandable.

This is the centre of diamond fever, and the scene of the biggest diamond heist in history.

Here, at the Marange diamond fields in the far southeast of Zimbabwe, where four planes bound direct for China have thundered out of the secret bush runway already this year, astonishing natural wealth has been found in the soil. Indeed, so common are diamonds here that, for many years, local children used the 'hard stones' in catapults to hunt birds, not realising that they were firing unimaginable riches into the sky.

But stomach-gnawing poverty — life expectancy here has halved to just 35 since Mugabe came to power in 1980 — led to a local diamond rush as news spread that riches were to be found. Professionals such as doctors, nurses, teachers and plumbers as well as other workers all descended on the fields four years ago, hoping to find enough stones in the earth to survive as the country's currency collapsed, with worthless notes blowing through the streets.

Yet all their hopes were crushed when Robert Gabriel Mugabe, the 86-year-old Zimbabwean president, and his ruling military junta, also came to hear of the rumours of such wealth.

Mugabe's military — many of whom have been given training in torture techniques in China — reacted in characteristically brutal fashion, shooting hundreds of people, setting Alsatian dogs on others and raping women and children.

They wanted the diamonds for themselves. The carnage had the desired effect: the poor and wretched were driven from the fields, leaving the way clear for Zimbabwe's military chiefs to move in.

Today, the fields are a military zone — and anyone caught there faces being beaten to death. The reason for the secrecy became apparent during an undercover investigation at the fields, where I found conclusive evidence of collusion between China and Mugabe.

In an official — but highly-confidential — agreement between the two countries, the Chinese People's Liberation Army and Mugabe's military chiefs are plundering this diamond find, believed to be the biggest in the history of the world and worth an estimated £800 billion.

So vast are the riches that diamond experts believe the gems from Marange — in a country of less than ten million people — could account for more than a quarter of all The mine contains a quarter of the world's diamonddiamonds mined around the globe, and could even trigger a massive slump in diamond prices if the stones come on the market and cause a glut.

Not that the people of Zimbabwe will see any of these riches. Instead, in return for the gems, the Chinese are paying Mugabe's thugs in guns and ammunition, ensuring his regime can stay in power despite international condemnation of his atrocities.

The two countries — both with appalling human-rights records — are involved in a vile scramble for loot at Marange, and there is clear evidence that Mugabe and his generals are also personally stealing millions from the trade.

Secret documents obtained by the Mail reveal that the company given the rights to the diamond fields — called Mbada Diamond Company — is fronted by Mugabe's trusted former personal helicopter pilot, with Chinese military officials as silent partners.

The documents reveal that the pilot — Robert Mhlanga, who has no experience of mining — was personally appointed by Mugabe, with Chinese partners named as Deng Hongyan, Zhang Shibin, Zhang Hui, Jiang Zhaoyao and Cheng Qins. With military camps set up around the perimeter, and three separate fences erected to keep out smugglers and spies, local villagers told me appalling stories of how they have been driven from the land at gunpoint.

Soldiers set their dogs on one girl, who was mauled and killed in front of her parents. The military said this was a warning to others to keep away from the fields; at least seven people caught near the fields were killed by the military in the last month alone and their bodies dumped.

Lucky Sibanda, a local man, showed me the wounds on his back where he was attacked by dogs after the military caught him by the fields. 'These Chinese men have hard hearts,' he said.

'They are taking away diamonds that could save this country. I hate them.'

The disclosures make a mockery of the decision by the Kimberley Process — the diamond watchdog set up in the wake of the diamond war in Sierra Leone — to allow Mugabe to sell gems from Marange — which is in the remotest, most inaccessible part of his impoverished nation.

And it comes as the issue is once again in the spotlight following supermodel Naomi Campbell's controversial appearance at the warcrimes trial of Charles Taylor, the cannibal warlord who funded the bloodshed and slaughter of more than 200,000 people in Sierra Leone in a battle over diamonds.

For, while Mugabe insists these diamonds will be for benefit of his people, the truth is they are already being used to fund a war chest designed to keep him and his generals in power, while millions more are siphoned into their personal accounts.

That much was made clear to me during a chilling conversation I had as night fell this week near the diamond fields.

There, at a meeting in a car on deserted waste ground — set up after tortuous negotiations through a gobetween — one of Mugabe's most senior intelligence chiefs rubbed his hands with glee at the deal with the Chinese, and told me the weapons were being handed out to the military in preparation for a brutal new crackdown against opponents.

As well as paying a share of the diamond profits to Mugabe's regime, he confirmed that China has agreed to supply military hardware to Zimbabwe.

'It is a government-to-government deal,' the official said. 'It has been signed at the highest level.

'There is a memorandum of understanding between China and Zimbabwe — Beijing supplies weapons to us, and we allow them to mine diamonds.'

Mocking the 'monkeys in the West' who have been outraged by Mugabe's brutality, my source — a cold-hearted killer — predicted that the diamond deal with Beijing would mean they could stay in power indefinitely.

'You can write 1,000 stories, and print them 1,000 times, but it won't make any difference,' smirked the official. 'We have all the diamonds, so we have all the weapons — and we will kill anyone who tries to take anything from us.'

During an hour-long conversation, the intelligence source — whose identity I know, but who insisted I do not use his name or rank — also admitted that, without the Chinese pact, the ruling junta would have been driven from power. 'But now we have all the guns we need,' he said.

Of course, Zimbabwe is not Sierra Leone, where Taylor's forces drove civilians from diamond fields there, brutally cutting off the arms of thousand of people. Mugabe, who is reported to be in poor health, is far too clever for that.

Never killing so many, or so openly, that the West would be forced to intervene, he has become Africa's second-longest serving leader by quietly terrorising the population, killing opponents and using his dreaded secret police, rather than wholesale slaughtering — with the exception of 25,000 members of the Ndebele tribe he murdered in the Eighties. The country is run as a personal fiefdom for Mugabe and his military junta, all of whom live in palatial homes and expect a personal cut from every aspect of the country's wealth—from road 'tolls' raising millions and going to their personal accounts, to companies set up to capitalise on the diamond find.

'Just because they are crooks, doesn't mean they aren't clever crooks,' says one veteran underground Zimbabwe journalist. 'These guys were trained by the North Koreans and at Nanking Military Academy in China. They are thugs, but smart — that's why they are so scary.'

To protect their wealth and grip on power, the junta runs three different intelligence services, hundreds of thousands strong. Countless opposition politicians have been murdered, not to mention hundreds of white farmers.

A human rights activist was jailed and tortured last month for giving Kimberley Process officials details of abuses at the fields, including the torture and murder of gwejas — illegal miners caught in the area.

The arms-for-diamonds deal between Zimbabwe and China was set up by General Constantine Chiwenga, a brutal killer and one of the so-called 'dirty half-dozen' military chiefs who run the country for Mugabe.

Believing the Chinese would be 'more disciplined' in extracting diamonds, Chiwenga struck the deal with Beijing during a trip to China last year in order to control sales for his personal benefit and that of Mugabe, who has more than £1.5 billion hidden in secret Asian bank accounts.

Already, an operation is underway to hide the bloodshed and abuses at Marange ahead of a series of visits planned by Kimberley Monitors to decide whether diamond sales should continue. Mocking those 'fools', my source —who reports directly to Chiwenga — sblack personed that they would just show officials 'the good bits' and would make sure that any traces of brutality were hidden.

Asked if he believed these stones are 'blood diamonds', the thug laughed again. 'This is a military operation, not a civilian operation, and that means that of course they are. Are you a fool?'

Not that a worldwide ban on Zimbabwean stones would stop the flow of diamonds out of Marange. Gripped by diamond fever, even these Chinese communists are trying to make money on the side.

I watched as two Chinese officials approached illegal diamond smugglers at a notorious trading point just outside the Marange perimeter. They left after purchasing uncut gems for their own private sales.

As well as flying diamonds out directly from Marange, other shipments are taken out via a military base near Harare, while lorry loads of soil from the diamond fields are trucked overland to a port in Mozambique, and then shipped for processing on Chinese soil. Once the diamonds are cut, the best stones for rings and other jewellery are sold back into the diamond network through dealers in India and the Middle East. Commercial grade stones are used in industry, helping fuel China's rise as a superpower.

And, at a town called Manica, just over the border in Mozambique, Chinese and Lebanese dealers run an international smuggling hub, mopping up any diamonds being sold by the few gwejas still brave enough to risk their lives at the field.

During a visit to one infamous Lebanese dealer, who was surrounded by armed guards, I was told simply: 'I don't want to talk. If you have diamonds, show me them. If you don't have any, leave. Now.'

My gruesome military source was correct: it is impossible to police these diamonds, whatever the Kimberley Process decides.

Borders are porous; officials are corrupt. I was offered blood diamonds within ten minutes of arriving in Manica.

Perhaps now is the time for a new ethical debate: should diamonds now forever be associated with, quite literally, having blood on one's hands?

Only consumers can decide; Zimbabwe's dead can't.


www.diamonds.net/News/NewsItem.aspx?ArticleID=32597

[sandi66]

Head of Vatican Bank Under Investigation

Sep 21, 2010 Last Updated: Sep 21, 2010

Tuesday, prosecutors in Rome officially put the chairman of the Vatican bank, Ettore Gotti Tedeschi, under investigation in connection with money laundering.

As part of the investigation, the tax police froze a 23 million euro (US$30 million) account of the Vatican bank, officially know as the Institute for Works of Religion (IOR) at the Credito Artigiano Bank, reported ANSA news agency.

The investigation is triggered by two reported suspicious transactions, the BBC reports. Since 2007, banks have been required to notify authorities of transactions with non-EU financial institutions, like the IOR, to prevent money laundering.

The Vatican stated it has given full transparency in the IOR transactions and is perplexed and surprised. It stated the information about the suspicious transactions was already given to the Italian central bank, and expresses full confidence in Tedeschi.

In 1982, the IOR head was protected by diplomatic immunity when the Italian bank Banco Ambrosiano collapsed under suspicion of fraud. The IOR was a major shareholder and its head was under consideration for indictment as an accessory of the bankruptcy.

www.theepochtimes.com/n2/content/view/43016/

[sandi66]

GOD'S MAFIA - Mysterious Vatican Bank Probed For Mysterious Money Laundering

8:51 pm September 21, 2010


Prosecutors have frozen $30 million in sketchy Vatican Bank money that was transferred in a dubious fashion to secret accounts at J.P. Morgan in Germany and the Banca del Fucino in Italy. The pope’s bank — officially known as the “Institute for Religious Works,” because that’s a very ridiculous name for a bank — is led by chairman Ettore Gotti Tedeschi and director general Paolo Cipriani, who are both under investigation for money laundering. Is there any crime Vatican officials don’t regularly commit?
The Los Angeles Times reports:

The Vatican, already battered by a scandal over priestly sexual abuse, expressed “puzzlement and amazement” at the allegations and said it was committed to financial transparency.

Ha ha, sure, whatever. Gotti Tedeschi is, obviously, a member of the far-right wingnut Catholic cult “Opus Dei,” which manufactures cloned monk-monsters to kill people in crappy Dan Brown books, so there is nothing freaky or conspiratorial about him.

The Vatican Bank is probably best known for its evil scheming in Central America through make-believe front companies, back in the Reagan Years of constant trickery and intrigue in Latin America. Here’s how TIME teased the story in 1982:

Two suicides, both of which could conceivably be murder. As much as $1.2 billion in unsecured loans. The failure of Italy’s huge Banco Ambrosiano, which has left more than 200 international financial institutions holding the bag for millions in loans. A scandal that has threatened the stability of the entire international banking system and has begun to bring about subtle changes in the way the world’s major banks do business. A secret plot to undermine the government of Italy and to change the shape of politics in several Latin American countries.

Even if these were the only ingredients, the story would still be intriguing enough for a Robert Ludlum thriller. But an added element is making the scandal that has rocked the world of international finance one of the most compelling real-life mysteries of the century: the involvement of the Istituto per le Opere di Religione (I.O.R.), better known as the Vatican bank.

The star of the story was Roberto Calvi of the notorious P2 Lodge, who was “found hanging from London’s Blackfriars Bridge, his toes just touching the surface of the muddy Thames. The dead man’s pockets contained some $13,000 in various currencies, as well as 12 lbs. of bricks and stones.” Calvi had been director of the Banco Ambrosiano and known as “God’s Banker” for his close ties with the Vatican and that other famous crime organization from Italy, the Mafia.

wonkette.com/423000/mysterious-vatican-bank-probed-for-mysterious-money-laundering

[sandi66]

Wall Street eyes cloud computing -- cautiously
Cloud computing could be a financial services game changer if security and regulatory concerns are eased

22 September, 2010 03:40

While the potential benefits of cloud computing, such as resource flexibility, are appealing to many IT executives, security and regulatory concerns are either limiting or preventing its use by Wall Street financial firms.

That was the consensus of many attendees at the High Performance Computing in Financial Markets Conference held here Monday.

Mats Andersson, CTO of Nasdaq's OMX Exchange, said Nasdaq uses cloud computing systems, but only inside the company's firewall and only to access historical market data. Exchange IT officials aren't yet ready to trust "the cloud" with transactional data, he added.

Dan Hall, manager of systems design and engineering at IntercontinentalExchange (ICE), said his company is running Amazon's S3 cloud computing service only in a test environment mostly due to security concerns.

"We only use it once in a while for load testing," he said. "The biggest challenge is effectively controlling utilization. People would spin up a machine and not think to spin it down. We'd be like, why do we have all these hours of computing time. We only used it for two days."

Along with ICE, Deutsche Bank was one of the few organizations at the conference that are using cloud computing in some way. Over the past year and a half, the financial services firm has deployed a hybrid private/public cloud computing infrastructure that's used so far for testing and development, but not for mission critical data.

Tony Pizi, head of next generation infrastructure at Deutsche Bank, said top executives at the firm have been very forward thinking about cloud and its benefits, but they also recognize the challenges the technology can present to large companies. "It's difficult for any large institution where there are processes in place and individuals that have done a particular job well over the years to accept change," Pizi said.

Even though Deutsche Bank is limiting use of its cloud infrastructure to testing and development functions, all data is protected by the company's strongest security measures. For example, all data that passes through the cloud is encrypted and any data at rest is masked.

Pizi noted that the bank's audit and security teams recognized that the very technologies they had hoped to implement within Deutsche Bank came to pass as a byproduct of rolling out the cloud technology.

Like others deploying cloud computing, Deutsche Bank was interested in leveraging its various promised benefits, such as self service, convenience and lower computing costs.

"What we were really after was promoting reference implementations which would allow us to leverage standard services, reduce time to market [for products], become much more agile and increase server utilization," he said.

By deploying it only for testing and development, it put even the internal critics of the technology at ease, though Pizi said he expects that one day cloud computing will become a "game changer. I don't think anyone thinks the Internet didn't fundamentally change the world. This is of the same magnitude," he said.

When Deutsche Bank first began implementing cloud computing technology, Pizi said he thought its deployment would be the most difficult task for IT workers. Instead, he said deployment was the easiest part of the project.

Far more difficult -- and time consuming -- were dealing with licensing issues. Each license must to be closely evaluated by managers, he said.

Policy governance, or ensuring that controls were in place to control access to various parts of the cloud through policies, was also a major issue for the bank when turning to the cloud. "Each developer across an organization may have very different access rights. You don't want the developers to be able to check things into testing or development groups without controls," Pizi said.

Richard Sharp, a partner in the law firm of Millbank, Tweed, Hadley & McCloy in New York, said that the application development benefits of cloud computing can be enormous in the broker-dealer business, a marketplace processes millions of transactions a day and that thrives when its quick to deploy new products for customers.

Even so, Sharp said, ensuring regulatory compliance must be the top concern of companies considering the use of public cloud computing services.

Sharp, who prior to joining the law firm was head of trading practices at the U.S. Securities and Exchange Commission, said regulators view cloud computing services at "outsourcing," and apply regulations based on that belief. "The first thing regulators are going to say is: 'You're going to give up control of your IT infrastructure? We need to talk,' " he said.

Financial services firms need to speak the language of regulators in terms of proposed cloud computing or outsourcing projects to ensure they understand that only "back office" functions are being moved into cloud computing infrastructures.

In recent months, the SEC and the Financial Industry Regulatory Agency (FINRA) have been moving toward taking a position that broker-dealers cannot move funds and securities through the cloud. "These are viewed as off limits," Sharp said. "So there's a very active debate going on and new rules are expected shortly from FINRA that will regulate cloud computing."

One thing that won't change no matter where regulators settle on cloud computing is that the firm generating the data will continue to be responsible for data that is exposed or lost.

Broker-dealers should construct a plan for due diligence to continue supervising data it manages via an external cloud service, which should include detailed service-level agreements that allow firms access to a vendor's records and the right to audit and inspect its data center facilities.

"The bottom line is that the regulated entity remains responsible for compliance," he said. "There's no finger pointing allowed."

www.arnnet.com.au/article/361676/wall_street_eyes_cloud_computing_--_cautiously/

[sandi66]

Speech By SEC Commissioner Elisse B. Walter: Statement At SEC Field Hearing On The State Of The Municipal Securities Market

21/09/10

Good morning. Welcome to the Securities and Exchange Commission's inaugural field hearing on the State of the Municipal Securities Market. We are grateful that state and local government officials, municipal securities investors, and experienced municipal market professionals have agreed to participate as panelists in today's meeting. Thank you so much for devoting your valuable time to this important effort. And, we are looking forward to an instructive day, listening to these participants' comments, insights, and recommendations on critical issues in the municipal securities market — particularly in the areas of disclosure, credit ratings, significant liabilities, internal controls and investor experiences. We also look forward to any written materials the participants here today and all other interested persons submit for the record.

As you know, the purpose of these hearings is to explore the issues relating to the municipal securities market that arise under the federal securities laws. At the conclusion of all of the hearings, the Commission staff will prepare a report concerning what we have learned, including their recommendations for further action that we should pursue, which may include legislation, rulemaking and changes in industry practice. These hearings will be instrumental in informing those recommendations. Thus, the Commission's standard disclaimer, which I make for myself and all other Commission participants, is particularly apt — that our remarks today represent our own views, and not necessarily those of the Commission, other Commissioners, or members of the staff.1 And, I would like to add that the views we express today may well change in light of the valuable input we will receive today and throughout the course of the field hearing process.

Before I go any further, I would like to introduce you to my colleagues and our fellow regulators, who are here with us today. Joining me on the stage will be two of the Commission's senior experts in this area — Meredith Cross, Director of our Division of Corporation Finance and Henry Hu, Director of our Division of Risk, Strategy, and Financial Innovation.

The moderators of today's panels are two staff members, well-known to most of you — Amy Starr, Senior Special Counsel for Capital Markets, Office of the Chief Counsel, Division of Corporation Finance and Martha Haines, Chief of the Office of Municipal Securities, Division of Trading and Markets. My appreciation goes as well to Kayla Gillan, Chairman Schapiro's Deputy Chief of Staff, who is leading this effort for the Commission, my counsels Alicia Goldin and Lesli Sheppard who have been indispensable to this effort, and Rachel Hurnyak from Chairman Schapiro's office who has handled the logistics for this hearing and has done a phenomenal job of keeping us all organized.

I am also very pleased that we are joined today by Mike Rufino of FINRA and Alan Polsky and Lynette Hotchkiss of the Municipal Securities Rulemaking Board (MSRB). The MSRB and FINRA, as you well know, play critical roles in regulating professionals who operate in the municipal market and their assistance has been invaluable. Among those participating as panelists are several knowledgeable state and local officials — the Honorable Bill Lockyer, California State Treasurer; the Honorable Jim McIntire, Washington State Treasurer; the Honorable Michael Belsky, Mayor of Highland Park, Ill.; David Crane with the Office of Governor Schwarzenegger; Mark Blake, Deputy City Attorney of San Francisco; Brian Mayhew, Chief Financial Officer for the Bay Area Toll Authority; and Ed Harrington, General Manager of the San Francisco Public Utilities Commission. Additionally, in the audience with us today is California Corporations Commissioner Preston DuFauchard. Welcome and our thanks to you all.

Next, I'd like to provide a brief overview of the current state of the municipal securities market, which will be followed by a description of today's field hearing. And finally, I will highlight for you the types of issues we are hoping to explore during today's panel discussion.

Overview of the Municipal Securities Market
Over the past 30 years, the municipal securities market has grown tremendously on many fronts, and serves as an increasingly significant part of the U.S. capital markets. The current amount of municipal bonds outstanding is estimated to be roughly 2.8 trillion2 and more than $470.5 billion of new bonds and notes were issued last year.3 The Build America Bonds ("BAB") program was launched in April 2009, and as of April 2010, it had enabled states and localities to issue more than $90 billion of BAB bonds to fund new building projects.4

Despite the reputation of the muni market as a "buy and hold" market, trading volume is substantial, with approximately $3.8 trillion of long and short-term municipal securities traded in 2009 in over 10 million transactions.5

With an estimated 51,000 or more state and local issuers6, it is an extremely diverse market. Depending on the type of financing, payments may come from general revenues of the municipal issuer, specific tax receipts, revenues generated from a public project or other specific revenue, payments from private entities or from a combination of sources. The interest paid on municipal debt securities is often, but not always, exempt from federal income taxation and, in some cases, also may be exempt from state income and other taxes.

Retail investors hold approximately 36 percent of outstanding municipal securities directly, up to another 34 percent indirectly through mutual funds and closed-end funds7, and retail-sized trades account for roughly 81 percent of trading volume.8

And, in spite of their well-deserved reputation for safety, municipal securities can and do default. From 1999 to 2009, issuers defaulted on over $24 billion in municipal bonds out of a total of $3.4 trillion issued. In 2009 alone, 194 municipal bond issues defaulted with an overall dollar amount of almost $7 billion in bonds.9

It is hard to overestimate the importance of the municipal securities market to building and maintaining the infrastructure of our nation. The billions of dollars that the muni market raises each year supports projects that are needed by all of us as taxpayers and residents in the towns, cities, counties, and states across our country. Many of us also play a dual role in the market. Not only are we recipients of the benefits that our states and localities provide with the funds they raise, we are also the source of those funds — as purchasers of municipal securities. A core mission of the SEC is to protect investors and we are here today in furtherance of that mission — specifically, to focus on protection of those purchasers of municipal securities.

Despite its size and obvious importance, the municipal securities market lacks many of the protections customary in many other sectors of the U.S. capital markets. Investors in municipal securities should have the same rights as investors in other types of securities to receive information that is not materially misleading and does not contain material omissions — that includes receiving financial and other material information that is not stale. These precepts are central to informed investment decision-making and investor protection. As I have previously bemoaned, investors in municipal securities are, in certain respects, afforded "second-class treatment" today.10 I, for one, believe that needs a hard look.

Some have suggested looking to the corporate disclosure scheme as a framework for municipal disclosure. I believe that we can learn from the corporate world, but it is also essential that we recognize the differences in the municipal and corporate finance worlds and that we work together to evaluate what an appropriate framework for municipal finance disclosure should be in the future.

Introduction and Format of Today's Field Hearing
Chairman Schapiro shares my interest in strengthening investor protection mechanisms applicable in this important sector of the capital markets, which is why she has asked me to lead a series of field hearings across the country to elicit the analyses and opinions of a broad array of municipal market participants.11 As the Chairman has noted, to grapple with the complex issues presented by the municipal securities market, we need to harness the ideas of a wide range of people who have experienced this market from many different perspectives.12

Over the course of the next several months, we anticipate holding additional field hearings in Chicago, Washington D.C., Birmingham, Ala., Tallahassee, Fla. and Austin, Texas. Each field hearing will include participants from the local region and will examine different sets of issues. The Western Region is an essential player in this market, and holding our first hearing here in San Francisco will provide us an important base of information going forward.

I view these field hearings as a fantastic opportunity to take a fresh look at the way the municipal securities market works and to effect real regulatory change. I am confident that by soliciting input from market participants around the country, our staff will be well equipped to develop meaningful and practical recommendations to improve the state of the market.

We have an impressive group of panelists lined up for the day, and on behalf of my colleagues and myself, I would like to thank all of them for so generously agreeing to participate in this field hearing. A heartfelt thank you also goes to our host for today's event — the Port of San Francisco — and Monique Moyer, its Executive Director, who has been incredibly helpful and welcoming to us.

The format of today's field hearing will entail five panels covering topics relating to disclosure, credit ratings, significant liabilities, internal controls and investor experiences. Once I conclude my opening remarks, we'll launch right into the first panel.

As moderators, Amy and Martha will introduce their topics and panelists. Each panelist will then make brief opening remarks. The moderator, Meredith, Henry, and I will then ask the panelists some questions. We look forward to a lively and fruitful discussion, and I encourage the panelists to engage in a dialogue with each other in addition to addressing our questions.

Discussion
Our agenda for today is certainly ambitious. We will be covering a number of complex and interesting topics and will look to each panel to help us to understand better the particular concerns of different market participants, highlight key areas for improvement, and provide some concrete ideas for moving forward. I want to emphasize that last point — this endeavor is about the desired future state of the market.

I am particularly excited about this first field hearing, as today's panels will be addressing two areas that I care deeply about: transparency and the investor experience. Let me tell you a bit about what we hope to address on each of the panels:

Our first panel of the day — entitled Selected Disclosure Practices: Transparency and Presentation — will touch on a number of important substantive topics, including: disclosure of "key" or material events and conflicts of interest, such as broker-dealer affiliate relationships and issues relating to the role of insurers and credit enhancers, including, for example, credit worthiness and consequences of default by an insurer or credit enhancer and disclosure of issuer information in the presence of insurance or credit enhancement.

The disclosure panel will also address important issues surrounding timing, availability, and format of disclosure, including: transparency of pre- and post-trade information; timeliness, accessibility and clarity of disclosure; and presentation or format of disclosure, including disclosure principles, use of an executive summary, comparability of disclosures by different issuers, possible tiering of disclosure requirements, and voluntary data-tagging.

Because it has long been my view that our principal goal in this area should be to improve the quality and timeliness of information available to municipal securities investors,13 I am especially interested in hearing from this first panel.

Our second panel: Ratings — Impact and Practices — will explore: rating agency practices and protocols, for example, comparing the way ratings firms handle municipal securities and corporate securities; the impact of bond insurance on ratings; comparability of ratings from different agencies; and conflicts of interest.

After lunch, we will jump into our third panel — Disclosure of Certain Significant Liabilities — which will focus on public pensions, retiree health, and derivatives. For instance, how reliable are asset and liability valuations and underlying assumptions with respect to pensions and retiree health? Do we have appropriate accounting standards for reporting the economic value of pension liabilities? How do issuers of variable rate debt use derivatives for purposes of hedging interest rate risk? What kinds of disclosure do issuers make regarding their use of derivatives? How can we address better the needs of investors and regulators?

Next, we will focus on disclosure controls and internal controls, including standards for issuer officials who approve offering documents and best practices for disclosure controls involving securities offerings and secondary market disclosure.

Last, but certainly not least, we will hear from investors. In order to think about ways in which we can combat the "second-class" treatment of municipal securities investors, we need to listen to investors and understand their needs: Tell us about yourselves. What prompted you to invest in municipal securities? How do you go about investing? Do you use an intermediary? What kinds of information does your advisor or salesperson provide you about your investing options? Do you conduct other research before investing? Have you found information about the municipal securities market to be accessible and clear? What kind of information would be most helpful to you in making investing decisions in the municipal market? In what form would that information be most useful? Do you have specific complaints about your experience as a municipal securities investor? How does your experience investing in the municipal securities market compare with your experience investing in other parts of the capital markets? Do you think the municipal securities market is fair?

At our future hearings, we will revisit some of these topics, and cover many others, such as: investor protection; investor education; financial reporting and accounting; the Municipal Securities Rulemaking Board; municipalities acting as conduit borrowers for private companies or non-profit entities; market stability and liquidity; offering participants, professionals and market intermediaries; Build America Bonds and other taxable municipal securities; and 529 Plans.

We encourage investors and all other interested parties to submit comments related to the field hearing topics and any other topics related to the municipal securities market to assist the Commission staff in determining whether to recommend changes to laws, regulations, or best practices to better protect municipal securities investors. Comments may be submitted by using the comment form on the SEC website or sending an e-mail to [e-mail].

Conclusion
The Commission is committed to a strong and vibrant municipal securities market, and I know that our talented and dedicated staff is already hard at work thinking about these issues and developing possible regulatory and market participant responses. I hope that today's presentations and our upcoming field hearings will help inform us in taking the right steps to ensure the integrity of this vital market. Our panelists today represent a range of constituencies, including: state and local government, regulators, national associations, retail and institutional investors, and various market participants. We are privileged to have them here, and grateful for the effort they have made to take part. We look forward to a spirited and substantive discussion.

A few housekeeping items. First, we'd like to ask the panelists, moderators, and other questioners to please stand your nameplate vertically when you would like a turn to speak. Second, there will be a lunch break from 12:15 to 1 p.m. and our last panel of the day will conclude at 4:30 p.m. Finally, a transcript of today's event will be made available on the Commission's website, in addition to any written statements provided by the panelists.

I'll now turn it over to Amy Starr, who will introduce our first panel to you.



Endnotes

--------------------------------------------------------------------------------

1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publications or statements by any of its employee. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission, other Commissioners, or the staff.

2 Federal Reserve Board, Flow of Funds Accounts, Flows and Outstandings (Second Quarter 2010) available at www.federalreserve.gov/releases/z1/current/z1.pdf.

3 Thomson Reuters' SDC Platinum, Global Public Finance Module. Statistics are based on 2009 public issuances of U.S. municipal debt.

4 Treasury Analysis of Build America Bonds and Issuer Net Borrowing Costs, U.S. Treasury Department, April 2, 2010 available at treas.gov/offices/economic-policy/4%202%2010%20BABs%20Savings%20Report%20FINAL.pdf.

5 See the Municipal Securities Rulemaking Board 2009 Fact Book ("MSRB Fact Book"), available at www.msrb.org/msrb1/pdfs/MSRB2009FactBook.pdf.

6 See, e.g., Report on Transactions in Municipal Securities prepared by Office of Economic Analysis and Office of Municipal Securities, the Division of Market Regulation, Commission, (July 1, 2004) (available at www.sec.gov/news/studies/munireport2004.pdf).

7 See Securities Industry and Financial Markets Association, US Municipal Securities Holders (quarterly data to Q1 2010), available at www.sifma.org/research/research.aspx?ID=10806.

8 See MSRB Fact Book.

9 See Mysak, Joe, "Buy Stocks as Municipal Yields Reach 43-Year Lows: Joe Mysak," Bloomberg (August 30, 2010).

10 Commissioner Elisse B. Walter, Regulation of the Municipal Securities Market: Investors Are Not Second-Class Citizens, 10th Annual A. A. Sommer, Jr. Corporate, Securities and Financial Law Lecture, New York, NY (October 28, 2009) available at www.sec.gov/news/speech/2009/spch102809ebw.htm.

11 Chairman Mary L. Schapiro, Remarks at Investment Company Institute 2010 General Membership Meeting (as delivered by Andrew J. Donohue), Washington, D.C. (May 7, 2010) available at www.sec.gov/news/speech/2010/spch050710mls.htm.

12 Id.

13 See, e.g., Commissioner Elisse B. Walter, Remarks at 42nd Annual Rocky Mountain Securities Conference, Marriott City Center, Denver, Colorado (May 7, 2010) available at www.sec.gov/news/speech/2010/spch050710ebw.htm.

www.mondovisione.com/index.cfm?section=news&action=detail&id=92961

[sandi66]

SEPTEMBER 21, 2010, 3:43 P.M. ET

Canada Dollar Surges Vs US Dollar After Fed Statement

TORONTO (Dow Jones)--The Canadian dollar surged higher against its U.S. counterpart Tuesday afternoon, marking sharp gains after the Federal Reserve hinted concern at the slowing pace of the U.S. economy, but deferred taking action to kickstart growth.

The U.S. dollar was at C$1.0260 at 3:25 p.m. EDT (1925 GMT), from C$1.0319 at 8:00 a.m. EDT (1200 GMT) and C$1.0285 late Monday.

It wasn't what was new in the statement that moved markets, but what was the same, said analysts.

"The few changes in the language of the statement suggest that the risk of a double dip scenario has decreased, while the risk of deflation has increased," Michael Woolfolk, senior currency strategist at BNY Mellon in New York, wrote following the announcement.

Though the Federal Open Market Committee deferred steps to boost growth amid intense debate about what to do next, officials said they are uncomfortable with the recent low levels of inflation, indicating more bond purchases to stimulate growth could soon take place.

At the end of their one-day policy meeting, they said they expect the economy's recovery from a deep recession to be modest in the near term. They said they are "prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

Because economy-stimulating asset-purchase programs, known as quantitative easing, generally have a negative effect on their home currency, the statement triggered a selloff in the U.S. dollar.

The Canadian dollar's rally after the FOMC statement lagged some of the other growth-sensitive currencies.

"Ultimately, Canada should be a beneficiary of flows out of the U.S. dollar, but as it's trading as a North American currency, the flow has been somewhat limited compared to other commodity currencies and European currencies," said Jack Spitz, managing director of foreign exchange, financial markets and derivatives at National Bank in Toronto.

The Canadian dollar was weighed also, he added, Tuesday by lower oil futures.

Following the Fed's statement, the U.S. dollar hit a session low against the Canadian dollar of C$1.0217, breaking through the key C$1.0225 threshold.

"The Canadian dollar had been holding onto a tight range, and there had been a lot of talk about a breakout. Obviously the market got the message it was looking for to enable that breakout," said C.J. Gavsie, managing director, corporate and institutional foreign exchange sales at BMO Capital Markets in Toronto.

He said he now expects the Canadian dollar to head toward parity with the greenback, with C$1.0185 being the next key area.

Earlier, the Canadian currency fell sharply, as Canada's consumer price index data drove home the possibility of a pause in the Bank of Canada's monetary tightening.

Canada's annual core inflation rate held steady in August, in line with market expectations, as the headline rate slowed amid a deceleration in energy prices.

"Inflation remains well under wraps in Canada. If anything, the underlying trends in core inflation may be a bit too low for comfort for the Bank of Canada. If growth weakens further, inflation certainly poses no limitation for the Bank to stop raising rates," said Douglas Porter at BMO Capital Markets in Toronto.

Canada's core CPI advanced 0.1% on the month, after slowing 0.1% in July, holding the year-on-year rate at 1.6%.

In June, the Bank of Canada became the first central bank in the Group of Seven to raise interest rates since the global economic crisis began two years ago. It has raised rates three times since June.

These are the exchange rates at 3:25 p.m. EDT (1925 GMT), 8:00 a.m. EDT (1200 GMT), and late Monday.


USD/CAD 1.0261 1.0319 1.0285
EUR/CAD 1.3594 1.3541 1.3437
CAD/JPY 82.98 82.73 83.38

online.wsj.com/article/BT-CO-20100921-711205.html

[sandi66]

Hedge Funds Are Running Out of Reasons to Exist


By Matthew Lynn

Sep 20, 2010 7:00 PM ET


Bloomberg Opinion


Defending hedge funds isn’t the easiest way to make a living. It ranks somewhere between the tobacco lobbyist who tries to convince people that smoking isn’t so bad for you, and the automobile manufacturer who pretends that cars have nothing to do with melting polar ice caps. Jobs don’t come much more thankless.

Even so, the way the hedge-fund industry has been defending itself in the past few months has been truly lamentable.

As it comes under closer regulatory scrutiny, the trade associations that are meant to be fighting in their corner have been working from a script that sounds increasingly ridiculous.

An industry that doesn’t know how to defend itself, and has forgotten how to justify its existence, is in crisis. Hedge funds are now in that position.

They need to find a way of showing that they somehow help the global economy -- and they need to do it fast.

On both sides of the Atlantic, hedge funds have been busy trying to hold their own against the tide of fresh regulations sweeping through capital markets.

The Washington-based Managed Funds Association, the U.S. hedge-fund industry’s biggest trade group, has been campaigning against proposed curbs on high-frequency trading. That would, it says, reduce liquidity and increase costs for all investors.

‘Increases Liquidity’
Likewise, the London-based Alternative Investment Management Association is trying to hold the line against European Union regulations on short-selling.

It claims selling shares you don’t own increases liquidity and aids price discovery, which means there should only be more transparency, not a clampdown.

Please, guys. This script just won’t work anymore. If you want to defend the industry, you need some new lines.

These two representations, by themselves, don’t matter much. They are just a couple of examples. But there will be dozens of proposals for new rules from the U.S., the EU and U.K. regulators in the next few years. The problem is that the arguments put forward by the hedge funds haven’t moved forward at all. It is as if the credit crunch never happened.


First, stop going on about “liquidity” all the time. It just isn’t plausible that holding stocks for milliseconds -- which is all that high-frequency trading amounts to -- makes the market work better in any way. There is, of course, a disadvantage in highly illiquid markets. You may well be reluctant to buy shares in a small Ukrainian minerals company, no matter how great its prospects look, because you don’t know if you can sell them again. But Vodafone Group Plc? Nestle SA? Citigroup Inc.?



High-Frequency Trading

Can anyone seriously say investors are deterred from buying these stocks because the market in their shares isn’t liquid enough? Do we really need a lot of high-frequency hedge funds buying and selling their shares several times a minute to ensure there is a market in them? Of course not.



Likewise, short-selling. It’s perfectly legitimate in certain circumstances to short-sell a share. Occasionally, it will make the market a bit more efficient if there are more buyers than sellers. But again, none of the major markets is hard to trade. Nor are any of the big stocks really mispriced -- and, even if they were, it’s not much of a problem. If your sole contribution to humanity is that you help the share prices of large banks collapse over a morning rather than a whole day, it isn’t much of a justification for your existence.

Next, stop talking about how hedge funds help make markets, or aid price discovery, or smooth out differences in prices.


Bigger Isn’t Better
The key problem here is the basic assumption. The hedge funds are taking it as a given that a bigger and busier capital market is a better one, and one that creates a healthier economy. But surely the main lesson of the last two years is that this isn’t true. The capital markets got bigger and bigger, trading became more frenetic -- and we ended up with the worst financial crisis since the Great Depression.

So, what the hedge-fund industry needs to do is start making a case that it is channeling funds to productive investment. It has to demonstrate that it is providing the capital that ultimately allows roads to get built, products designed, and jobs created. And it must show it is doing so in a more efficient way than banks and stockbrokers did 30 years ago.

How? If they were collecting money from the wealthy and investing it in industries or countries where capital is short, that would be a good argument. Or if they were creating markets in commodities or asset classes where none existed before, that would work. If they were smoothing out returns so people’s pensions were protected, or swapping currencies so they got cheaper mortgages, that would also make sense.

True, it may be impossible. The industry might well be a giant parasite that does nothing more than siphon vast wealth from the economy, while doing little in return.

But it should at least try. Just bleating about liquidity isn’t going to work.

And if it can’t come up with a better way of justifying itself, it deserves to get hammered.



Matthew Lynn



Play Video
Sept. 21 (Bloomberg) -- Bloomberg's Matthew Lynn talks about his latest column on hedge funds' defense of their industry against increased regulation. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)



Play Video
Sept. 15 (Bloomberg) -- Ken Heinz, president of Hedge Fund Research Inc., talks about the hedge fund industry. Funds of hedge funds closures globally dropped to the lowest level since the first quarter of 2008 in the three months to June, according to HFR. Heinz talks in Hong Kong with Phillip Yin on Bloomberg Television. (Source: Bloomberg)


www.bloomberg.com/news/2010-09-20/hedge-funds-have-run-out-of-reasons-to-exist-commentary-by-matthew-lynn.html


ty joye

[sandi66]

Moynihan in thick of reforms early on

Wednesday, September 22, 2010 5:51 AM

(Source: The Charlotte Observer (Charlotte, N.C.))By Rick Rothacker, The Charlotte Observer, N.C.
Sept. 22--As Bank of America Corp. CEO, Brian Moynihan's networking with Washington officials on financial reform has earned him the reputation as President Barack Obama's favorite banker.

Newly released e-mails show he's had plenty of experience with the issue, serving as one of the bank's point persons on regulatory reform as far back as November 2008. When Federal Reserve Gov. Kevin Warsh came to Charlotte that month, Moynihan was one of the top executives set to meet with him.

In a Nov. 3 e-mail to Warsh, Bank of America's then-chief risk officer Amy Woods Brinkley wrote: "Brian and I are jointly on point for coordinating BAC's position/communications on regulatory reform, so I thought it would be good to see him."

At the time, Moynihan was Bank of America's head of corporate and investment banking and a leader of its planned purchase of investment bank Merrill Lynch & Co. Warsh, who spoke at a Charlotte Economics Club luncheon, also met with then-chief executive Ken Lewis and then-chief financial officer Joe Price.

Just weeks before, the financial system had been upended, with Bank of America agreeing to buy Merrill, Wells Fargo & Co. snapping up Wachovia Corp. and lawmakers creating the Troubled Asset Relief Program to prop up struggling banks. With a new administration coming to the White House, financial reform was expected to be on the agenda. "We were organizing internally to prepare for it," Bank of America spokesman Larry Di Rita said Tuesday.

The newly released e-mails were provided to the Observer by the Fed as part of a Freedom of Information Act request. Adding to materials released as part of a congressional probe of the Merrill deal, they provide new details about activities at Bank of America in late 2008, including the hectic negotiations that yielded a government bailout package for the Charlotte bank in January 2009.

During the exhausting discussions, CFO Price, now the bank's head of consumer and small business banking, scheduled a call with Warsh for Christmas Eve. "Can you do 6:00 -- I'll be back from services by then," Price wrote to Warsh on the morning of Dec. 24. "Perfect," Warsh responded.

Later, one Fed official, Arthur Angulo, joked that other staffers owed him for getting them an extra few days time to get their work done. "I expect beers from everyone..." he wrote.

Bank of America consummated the Merrill deal on Jan. 1, 2009, but the aid package -- $20 billion in extra TARP funds and a loss-protection program for some of Bank of America and Merrill's toxic assets -- wasn't disclosed until two weeks later on Jan. 16. To provide the loss protection, the Federal Reserve and the Federal Deposit Insurance Corp. had to make a formal recommendation to the Treasury Department that the aid was needed to prevent "systemic risk" to the financial system.

The actions should "strengthen the combined company and our financial system," Fed Chairman Ben Bernanke wrote Treasury Secretary Henry Paulson in a Jan. 16 letter obtained under FOIA.

Bank of America would soon be embroiled in controversy for its acceptance of government bailout dollars and for failing to disclose Merrill's losses earlier. By the spring of 2009, the bank had decided not to finalize the loss-protection package, meaning Paulson never had to make a systemic risk determination. By the end of 2009, the bank had paid back all of its government loans.

Chief risk officer Brinkley left the company last year, and Moynihan took over for Lewis at the beginning of this year. Among the leaders of big banks, he has been one of the most amenable to sweeping reforms passed this summer by Congress and signed by President Obama. Staff writer Christina Rexrode contributed.

www.istockanalyst.com/article/viewiStockNews/articleid/4522973

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Gold Climbs to Record as Dollar Weakens Following Fed Statement

September 22, 2010, 6:22 AM EDT

Sept. 22 (Bloomberg) -- Gold climbed to a record in London and New York after the Federal Reserve said it was willing to ease monetary policy further to boost the U.S. economy, triggering a slump in the dollar.

The dollar declined as much as 0.9 percent against the euro today, after the Federal Open Market Committee said yesterday in its statement that it’s “prepared to provide additional accommodation if needed to support the economic recovery” Silver reached the highest price since March 2008 and platinum hit a four-month high.

“If and when this ‘additional accommodation’ discussed by the FOMC occurs, the reasoning will be more about a stealth devaluation of currency than a boost for consumer spending,” Brad Yim, a New York-based analyst at Castlestone Management Ltd., said by e-mail. The Fed wants a lower dollar to stimulate exports, he said. “A move like this should provide further support for gold in the near-to-medium term.”

Bullion for immediate-delivery rose $4.75, or 0.4 percent, to $1,291.90 an ounce in London at 10:31 a.m., after earlier today rising to a record $1,295. Gold for December delivery was 1.5 percent higher at $1,293.20 an ounce on the Comex in New York, after touching an all-time high $1,296.50.

The dollar fell to the lowest against the euro in almost five months before Portugal sells bonds today after investors bought the maximum amounts offered at Spanish and Irish debt sales yesterday.

Gold, up 18 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and most industrial metals, prompting record investments in gold-backed exchange-traded products. The metal rallied as central banks and governments maintained low borrowing costs and spent trillions of dollars to stimulate their economies.

Gold and Inflation

Global holdings of gold by ETPs gained 1.01 metric tons to a record 2,089.5 tons yesterday, according to Bloomberg data from 10 providers. Holdings are up 16 percent this year.

Prices have gained this year even as U.S. inflation slowed. Bullion is traditionally bought as a hedge against rising consumer prices. Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 1.82 percent from 2.19 percent six months ago.

The FOMC said in a statement after its meeting yesterday in Washington that “inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate.”

Silver Surges

“I don’t think many people are actively trading gold based on a view that inflation is likely to accelerate in the near- term,” said Tom Kendall, an analyst at Credit Suisse Group AG in London. “Certainly some people are concerned about the longer-term impact of current monetary policy on inflation.”

Silver for immediate delivery in London gained 0.6 percent to $21.0875 an ounce, after earlier today reaching $21.1263, the highest price since March 17, 2008. The metal is up 25 percent this year.

Platinum rose 0.5 percent to $1,631.97 an ounce, after reaching $1,634.05, the highest level since May 19.

“Both metals look also well supported and silver remains in its uptrend,” said Alexander Zumpfe, a precious-metals trader at Hanau, Germany-based Heraeus Metallhandels GmbH. “However, we think that despite its own technical bullish picture the latest move was currency-driven with the dollar losing ground after yesterday’s Fed comments.”

Palladium gained 1 percent to $540.50 an ounce.

www.businessweek.com/news/2010-09-22/gold-climbs-to-record-as-dollar-weakens-following-fed-statement.html

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Dollar Slides to Lowest in Five Months Versus Euro as Fed Hints at Easing
By Bo Nielsen and Candice Zachariahs - Sep 22, 2010 6:04 AM ET

The dollar slid to the lowest in almost five months versus the euro on speculation the Federal Reserve’s willingness to ease monetary policy further will damp demand for U.S. assets.

The greenback slid against all of the 16 most-traded currencies as the Dollar Index dropped to its lowest in six months. U.S. policy makers said yesterday they “will provide additional accommodation if needed” to spur growth. The euro rose for a third day after Portugal sold 750 million euros ($1 billion) of bonds and investors bought the maximum amounts offered at Spanish and Irish debt sales yesterday.

“The likelihood for more Fed easing has clearly increased and that’s hurting the dollar,” said Stephan Maier, a foreign- exchange strategist at UniCredit SpA in Milan. “The market may be getting ahead of itself, anticipating too much easing.”

The dollar dropped to $1.3356 per euro as of 10:40 a.m. in London from $1.3264 yesterday in New York, after reaching $1.3382, the weakest since April 27. The greenback fell to 84.6 yen from 85.09 yen. The euro climbed to 113.21 yen from 112.87.

The U.S. currency accelerated declines after the Dollar Index, used by InterContinentalExchange Inc. to measure the greenback against the currencies of six of its major trading partners, fell below 80 for the first time since March 18, sparking some traders to unwind bets on a gain, according to Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. It fell 0.8 percent to 79.784 after touching 79.736 earlier, the lowest since March 18.

The Federal Open Market Committee said in a statement after its meeting yesterday in Washington that “inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate.”

Fed Statement

Futures on the Chicago Mercantile Exchange show a 70 percent chance the U.S. central bank will keep its target rate for overnight bank lending between zero and 0.25 percent through its June 2011 meeting, up from 61 percent odds a day earlier.

“The trend is dollar negative, because growth is decent enough for risky assets to behave well, but with increased odds of quantitative easing,” said David Deddouche, a foreign- exchange strategist for Societe Generale SA in Paris. “The dollar weakness is due to concerns on the quality of the Fed’s balance sheet.”

The dollar may decline to $1.35 per euro within a week, Deddouche said.

The Federal Housing Finance Agency’s monthly index for house prices fell 0.2 percent in July, after a 0.3 percent drop in June, according to a Bloomberg survey before today’s report.

Portuguese Auction

The euro rose for a third day against the dollar as Portugal issued 2014 and 2020 bonds.

Ireland sold 1.5 billion euros of debt yesterday, the National Treasury Management Agency said. Spain sold 7 billion euros of 12-month and 18-month bills, the maximum target, the Bank of Spain said.

The auction results “suggest that concerns are abating,” Steven Englander, New York-based head of Group of 10 currency strategy at Citigroup Inc., wrote in a note yesterday. “The euro is increasingly attractive in an environment of likely further quantitative easing, abating risk aversion and with positioning at best neutral and probably still largely short euro.” A short position is a bet an asset will fall.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 9,644 on Sept. 14 compared with net shorts of 23,699 a week earlier, data from the Commodity Futures Trading Commission showed on Sept. 17.

Demand for the yen was tempered on speculation Japan will sell its currency again after intervening in the foreign- exchange market last week for the first time in more than six years. The yen has risen about 1 percent since the intervention on Sept. 15 pushed it down to a one-month low from the strongest level in 15 years.

BOJ Easing

Bank of Japan board member Ryuzo Miyao said today the central bank is monitoring the impact of the yen’s strength on the economy and the currency’s gain is a downside risk to the nation’s recovery. He also said the bank plans to take appropriate credit-easing steps if needed.

Prime Minister Naoto Kan said Japan should put in place economic and monetary policies to weaken the yen, the Financial Times reported today, citing an interview.

“This is the pivotal area for dollar-yen,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “This is the area where there was intervention last week and the market will maybe put a line through the sand around 84.80 yen.”

The New Zealand dollar rose before a report tomorrow that economists said will show the nation’s recovery quickened.

Gross domestic product increased 0.7 percent in the second quarter, faster than a 0.6 percent gain in the previous three months, according to a Bloomberg survey ahead of the data.

New Zealand’s dollar gained 0.46percent to 73.97 U.S. cents.



www.bloomberg.com/news/2010-09-22/yen-ends-two-day-gain-against-dollar-on-speculation-japan-will-intervene.html

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Summers' Stature Means Obama Faces Tough Task in Replacing Him

Sep 22, 2010 12:01 AM ET

For all of Lawrence Summers’ drawbacks, a strong-willed and intellectual economist who critics say is difficult to work with, President Barack Obama faces a tough task in finding a replacement with the stature of the departing director of the National Economic Council.

Summers will return to Harvard University, where he became the youngest tenured professor at 28 and later served as president, by the end of the year, the White House announced yesterday. He will leave the White House economic team at a time when the nation still is recovering from the worst recession since the 1930s, and following elections in which the president’s party faces possible loss of control of the House and perhaps the Senate.

Obama will be searching on three fronts, people familiar with administration discussions say. Administration officials are debating recruiting a corporate executive to allay the business community’s doubts about administration policies. They also are looking at female candidates to add balance on an economic team now dominated by men. But most of all, the White House could use another Larry Summers.

Summers was the “brain trust for Obama,” said Catherine Mann, a former Federal Reserve economist who is now an economics professor at Brandeis University in Waltham, Massachusetts.

“I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team,” Obama said in a statement yesterday.

Potential Candidates

Among those whose names have been discussed is Anne Mulcahy, the former chief executive officer of Xerox Corp., two people familiar with administration discussions said. Other potential candidates include David Cote, CEO of Honeywell International Inc., and Richard Parsons, chairman of Citigroup Inc., according to one of the people.

Cote is a member of Obama’s commission on cutting the federal deficit and, along with Parsons and Mulcahy, has been among the executives the president has called to the White House for consultations.

The co-chairman of the deficit commission, former Clinton administration official Erskine Bowles, also has been mentioned as a possibility, a third person said.

Martin Neil Baily, who was chairman of the Council of Economic Advisers in President Bill Clinton’s administration, said Obama needs someone who can smooth the tensions between the White House and the business community.

Business Interests

“I think they are looking for someone who businesses can feel they can talk to, and understands their interests,” Baily said in an interview. “That doesn’t mean Larry didn’t. But that’s going to be an important qualification for the job.”

Douglas Holtz-Eakin, who was the top economic adviser to Republican nominee John McCain during the 2008 presidential campaign, said the Obama White House has “a serious problem” in relations with U.S. businesses.

“They need an ambassador to that community, and a visible appointment that says they respect and care about business in the United States would be very important,” Holtz-Eakin said in an interview with Bloomberg Television.

White House advisers privately acknowledge that it will be difficult, if not impossible, to find anyone who matches Summers’ knowledge of economics and public policy, people familiar with the selection say.

The announcement was made as the administration and Democrats are preparing for November’s congressional elections. Republicans are campaigning to regain control of Congress by arguing that Obama’s policies haven’t done enough to help pull the U.S. out of the worst U.S. recession since the Great Depression.

Target for Republicans

Summers and Treasury Secretary Timothy Geithner have become targets of Republican leaders as the campaign season gets under way. House Republican Leader John Boehner of Ohio said in an Aug. 24 speech that Obama should fire the two officials along with the rest of the administration’s economic team.

Summers told Obama when he joined the administration that he would only commit to serve for one year, according to a White House official. Last year, Obama asked him to stay on to see through passage of financial overhaul legislation, the official said. He planned to return to Harvard in time for the spring semester.

The departure of Summers will leave Geithner as the only member of Obama’s original top-level economic team. Since the end of July, Peter Orszag, director of the Office of Management and Budget, and Christina Romer, head of the Council of Economic Advisers, have resigned.

Summers’s Career

Summers, 55, who earned his doctorate in economics at Harvard in Cambridge, Massachusetts, spent time on the staff of the White House Council of Economic Advisers in the 1980s before joining the World Bank as chief economist.

He was President Bill Clinton’s Treasury secretary from 1999 to 2001, after which he became president of Harvard. Summers quit that post in 2006 after a series of battles with the Faculty of Arts and Sciences, which teaches most of the undergraduate courses, and following a controversy over comments he made at a conference, in which he suggested women lacked an aptitude for science.

Within the Obama administration, Summers has been a forceful advocate of his positions and sometimes clashed with other Obama advisers, people familiar with those matters said.

Obama also may seek someone who will serve more as a broker for alternative policies rather than an advocate, Mann said. “Larry’s a very strong person who has very strong opinions,” she said.

www.bloomberg.com/news/2010-09-21/summers-to-leave-as-head-of-obama-s-economic-council-to-return-to-harvard.html

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Profumo Exit Throws UniCredit's European Expansion Into Doubt
By Sonia Sirletti and Elisa Martinuzzi - Sep 22, 2010 4:20 AM ET

The resignation of UniCredit SpA Chief Executive Officer Alessandro Profumo, who built Italy’s largest bank through $65 billion of purchases, may jeopardize the international expansion he led.

Profumo, 53, stepped down after relations soured with some of the bank’s largest Italian shareholders over Libyan investments in the company. Chairman Dieter Rampl, 63, will take over Profumo’s duties on an interim basis and seek a replacement, the Milan-based lender said in a statement.

The fall of Profumo, one of Italy’s most prominent bankers, had its roots in the expansion that made UniCredit the country’s most European bank. Takeovers left him short of funds when confidence in banks collapsed in 2008 and credit became scarce, forcing the CEO to turn to investors for cash twice in 18 months. Recent Libyan investments in the lender met opposition from the Italian foundations that own more than 11 percent of the bank.

Profumo’s resignation is “a lose, lose situation,” said Fabrizio Bernardi, an analyst at Evolution Securities Ltd. in London, who has a “sell” rating on UniCredit shares. “He won the respect of international investors for putting together a large banking group and being open and transparent. Profumo sought to limit foundations’ weight and the strategy backfired.”

Shares Slide

The Italian bank fell as much as 2.8 percent in Milan, extending yesterday’s 2.1 percent decline. UniCredit traded down 4.9 cents, or 2.6 percent, to 1.85 euros at 10:05 a.m. today.

Italy’s banking foundations are non-profit entities created two decades ago when the government started privatizing lenders. The foundations were formed to separate savings banks’ philanthropic work from the lenders, which became corporations. The foundations retain stakes in Italy’s biggest banks, including UniCredit and Milan-based Intesa Sanpaolo SpA, and they use the investments to fund philanthropic expenditures.

Profumo, a former McKinsey & Co. consultant, seized on the opening of European markets brought on by the introduction of the euro to expand at home and abroad. He turned regional bank Credito Italiano SpA, which he took over in 1997, into UniCredit, the sixth-biggest lender in the euro region, with 954.6 billion euros of assets at the end of June.

“We are based on the euro project,” the former CEO, who also heads the Brussels-based European Banking Federation, said in an interview in Milan in May.

Buying Spree

The company spent $65 billion on takeovers in the last decade, including the $29.4 billion purchase of Capitalia SpA in 2007 and the $18 billion acquisition of Munich-based HVB Group in 2005. UniCredit owns the largest lenders in Poland and Austria and operates in 22 countries.

Italian Finance Minister Giulio Tremonti lobbied UniCredit shareholders, including Fondazione Cariverona and Fondazione CRT, to support Profumo, and indicated his resignation was a mistake, Corriere della Sera reported today, without saying where it got the information.

Profumo “tried to free himself from the local power games with the internationalization of the bank,” said Fabrizio Spagna, CEO of Axia Financial Research in Padua, Italy.

UniCredit earns about 55 percent of its revenue outside Italy, compared with 22 percent at Intesa Sanpaolo, the country’s second-largest bank.

The expansion came at a cost. UniCredit’s net income, which peaked at 5.9 billion euros in 2007, fell to 1.7 billion euros in 2009 as bad loans accumulated, particularly in central and eastern Europe, and commissions fell.

Tapping Shareholders

In October 2008, Profumo was forced to go back on his word of not selling stock to investors, as he announced a 3 billion- euro rights offer after the bank’s shares shed 24 percent in three days on concerns over capital. He also replaced a cash dividend with shares. Profumo conceded at the time that the firm had “made some mistakes” by underestimating the financial crisis and making acquisitions at the top of the market.

Early this year, UniCredit tapped shareholders again for 4 billion euros to boost capital.

UniCredit shares, which more than quadrupled during Profumo’s first two years on the job, have dropped about 70 percent from their peak in April 2007. That compares with a 30 percent decline from the pre-crisis high at Banco Santander SA, Spain’s largest bank, which has also pursued international expansion.

Stock Performance

UniCredit trailed behind European rivals over the last year, the Bloomberg Europe Banks and Financial Services Index shows. The lender, the 11th largest among the 54 members of the index by market value, fell 22 percent in the past 12 months, compared with the 6.9 percent drop in the index.

“The shares have been lagging,” said Dirk Sebrechts, a Brussels-based fund manager at KBC Asset Management SA, which oversees about 4.1 billion euros. “New management might not be bad news in the long term.”

Some of UniCredit’s largest shareholders asked Profumo to resign after he failed to inform them of the intention of Libyan investors to raise their stakes, people with knowledge of the discussions said Sept. 20. The Libya Investment Authority, a sovereign wealth fund, recently increased its holding in UniCredit by 0.5 percent to 2.6 percent. The Central Bank of Libya holds almost 5 percent.

Libyan investors remain committed to UniCredit, Farhat Omer Bengdara, governor of the country’s central bank and deputy chairman of the lender, told Il Sole 24 Ore in an interview published today. “We bought shares of a bank, not of a manager,” Bengdara said.

Foundation Opposition

UniCredit should pay less attention to fostering international ties and more to its home market, especially northern Italy, said Flavio Tosi, mayor of the city of Verona, the biggest shareholder in Fondazione Cariverona, UniCredit’s fourth-largest investor. Tosi is a member of the Northern League party, part of Prime Minister Silvio Berlusconi’s governing coalition. The League has criticized the Libyan investments.

“The foundations have close ties to their territory, they cater to their constituencies and that needs to be kept in consideration,” said Axia’s Spagna.

Pressure from the foundations increased as UniCredit’s difficulties mounted. In February 2009, Cariverona didn’t participate in a sale of 3 billion euros of convertible bonds aimed at shoring up the bank’s capital. This year, foundations, including Cariverona, tied their support of the second rights offer to a return to a cash dividend.

Rising Tide

“Profumo’s like a man halfway through a wade and the tide has risen,” said Giorgio Questa, a finance professor at Cass Business School in London and a former banker at Italy’s Banca IMI SpA. “He might have got to the other side had there not been a financial crisis. The bank’s international strategy needs to be reviewed, refocused, and Profumo might have done so himself if he’d been given the time.”

Profumo and the bank “agreed the time had come for a change in the top management,” UniCredit said in the statement, which followed a board meeting that lasted about five hours.

The executive agreed to a 38 million-euro severance payment and a 2 million-euro charitable donation from the bank, Corriere della Sera reported today, without saying where it got the information. Profumo had total compensation last year of 4.3 million euros, according to the bank’s annual report.



www.bloomberg.com/news/2010-09-22/profumo-exit-throws-future-of-unicredit-s-european-expansion-into-question.html

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Basel Rules Could Have Been More Stringent, FSA's Turner Says
By Nandini Sukumar - Sep 22, 2010 4:49 AM ET

The chairman of the U.K.’s financial regulator would have set even higher capital ratios if he’d drafted the new Basel III banking rules.

“If we were philosopher kings designing a banking system entirely anew for a greenfield economy, should we have set still higher capital ratios than in the Basel III regime? Yes I believe we should,” the Financial Services Authority’s Adair Turner said at the Mansion House dinner in London. “But starting from where we actually are, the Basel III reforms will significantly improve the resilience of our banking systems.”

Regulators of the Basel Committee on Banking Supervision reached an agreement Sept. 12 for rules that more than double capital requirements for banks, while giving them as long as eight years to comply. Germany had sought to give firms a decade to make the transition, while the U.S., U.K. and Switzerland pushed for a maximum of five years.

“While Basel III and new approaches to systemically important firms are important steps to a more resilient system, they are not in themselves sufficient,” Turner said yesterday. “Alongside permanent rules, we need processes for evaluating emerging risks, for changing the rules if needed, and for pulling policy levers which are discretionary and varied.”

Basel III requires lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk.

More Than Basel

Big British banks are likely to be forced to hold more capital than required under the Basel rules, Turner said in an interview with the Financial Times. In the speech, Turner said that the Basel Committee recognized that the largest banks might need additional capacity to absorb losses.

“This could be achieved through some combination of higher equity capital requirements or a bigger layer of subordinated debt,” he said in the Mansion House speech.

Simon Gleeson, a financial regulation partner at Clifford Chance LLP, said that the Basel III capital requirements would be adopted under European Union legislation that would “give discretion” to a new pan-European regulator.

“It would surprise me very much if the directive would give the FSA any room to go beyond it,” Gleeson said in a phone interview today in London.

The European Banking Authority is scheduled to be formally approved by members of the European Parliament today and will have powers to mediate between national supervisors and write a common rulebook for regulators. It will be based in London and start operating in January.

Inadequate Regulation

The FSA, which was criticized for its regulation in the wake of the global financial crisis, is being abolished by Prime Minister David Cameron’s coalition government and its powers distributed. Turner said inadequate regulation was more to blame for the near collapse of the banking system than excessive leverage and bonuses.

As part of its abolition, an independent Consumer Protection and Markets Authority will get the agency’s powers to regulate exchanges and credit products as well as police market abuse and fine banks. The Bank of England will oversee the financial soundness of lenders and insurers.

The U.K.’s creation of a new Financial Policy Committee “will fill the crucial gap” in the regulatory structure by limiting credit booms, Turner said.

‘The Full Toolkit’

“The full toolkit to achieve that constraint is still to be defined,” he said. “It will certainly include countercyclical capital buffers, increased to slow down excessive credit growth, reduced to support lending in recessions.”

The agency may also limit commercial real-estate lending and set maximum loan-to-value ratios, Turner said.

Excessive risk-taking tied to bonuses has been blamed for contributing to a record number of bailouts and drawn the scrutiny of regulators including the FSA.

“There were some absurd bonuses for excessive risk-taking: there was an explosion of exotic product development which last year I labeled as ‘socially useless,’ a phrase from which I in no way draw back,” Turner said. “There were failures in risk- management practices and systems which top management and boards should have put right, and which the FSA, as we have openly admitted, should more aggressively have challenged.”

Turner, who last week defended new bonus rules that have drawn concern from money managers, said “ill-designed policy is a more powerful force for harm than individual greed or error.”

The FSA in July proposed expanding to 2,500 from 27 the number of firms covered by European Union compensation rules. EU governments agreed in June that directors of banks that received public money must justify their bonuses and lenders must report how many workers earn more than 1 million euros ($1.3 million).

“We do need appropriate regulation of bonuses to reduce incentives for excessive risk taking,” Turner said. “We also need to move beyond the demonization of overpaid traders and their unnecessary CDO-squareds.”



www.bloomberg.com/news/2010-09-21/fsa-s-turner-says-basel-rules-should-have-required-higher-capital-ratios.html

[sandi66]

Healthcare Wednesday

By Mike Lillis - 09/22/10 06:00 AM ET


Dems, consumer groups welcome Patient's Bill of Rights: Six months ago tomorrow the Democrats passed their healthcare reform bill into law — an anniversary most significant for the arrival of many of the insurance reforms that were central to the mammoth bill.

On Wednesday, President Obama will mark the imminent anniversary by meeting with a handful of patients benefiting from the changes, including a previously uninsured New Hampshire woman with non-Hodgkin's lymphoma who's now enrolled in a high-risk insurance pool.

The White House this week also plans to release reports indicating how the reforms will affect each state, and to launch an overhauled website (www.WhiteHouse.gov/HealthReform) detailing the changes.

The reforms taking effect Thursday will:

• Ban insurance companies from denying coverage for kids based on preexisting conditions. (In 2014, this rule will be expanded to apply to patients of all ages.)

• Prohibit insurers from using unintentional application errors to drop coverage when patients get sick.

• Allow young adults to remain on their parents' health plans until age 26.

• Prohibit plans from setting lifetime dollar limits on coverage. (In 2014, annual limits will be banned as well.)

• And require all new health plans to cover a minimum set of preventive care services.

All but the last provision apply to all insurance plans, even those in existence when the law was enacted in March.

Good news for MA patients, taxpayers: Tuesday's news that Medicare Advantage (MA) plans will offer more benefits next year at a lower cost to patients brought cheers from a group that's been critical of the program since its inception seven years ago: liberal Democrats.

"Medicare Advantage beneficiaries will actually get more benefits from their plans, not less," Rep. John D. Dingell (D-Mich.) said in a statement. "And the insurers are not suffering because of the changes – they are gaining new enrollees."

The figures fly in the face of reform critics who'd warned that requiring MA plans to cover additional benefits would inevitably cause premiums to jump. Instead, Medicare officials were able to leverage the bulk-purchasing power of more than 11 million MA beneficiaries to negotiate lower costs for the same folks.

"Medicare officials were very specific and very forceful," John Gorman, former Medicare official and now private healthcare consultant, told The New York Times. "Insurers succumbed to the government’s demands and stayed in the Medicare market because they have become much more dependent on Medicare business.” nyti.ms/9PWf0L

Still, the insurance lobby waves a warning: Karen Ignagni, president and CEO of America's Health Insurance Plans, praised the industry for keeping MA costs low, but warned that the good news is temporary. Steeper MA cuts scheduled for after 2011 — included as part of the reform law — will erode benefits and lead to higher costs down the line, she said.

"Medicare health plans are doing everything they can to keep coverage as affordable as possible for the more than eleven million seniors in Medicare Advantage," Ignagni said in a statement. "Nevertheless, as deep cuts go into effect in the coming years, government experts have forecasted that millions of seniors will experience higher costs, reduced benefits and fewer choices."


Dems fail to lure Coburn's support for a food safety bill: Sen. Tom Coburn on Tuesday rebuffed a Democratic attempt to have the Oklahoma Republican drop his hold on a food safety bill in exchange for a vote on an offset amendment.

"If the Majority Leader wants the bill to advance he should pay for it," Coburn spokesman John Hart said, referring to Sen. Harry Reid (D-Nev.). "Dr. Coburn isn't responsible for the Majority Leader's failure to write offsets into the base bill." bit.ly/bRjy9u


A look at Medicare fraud: The Energy and Commerce health subcommittee will gather Wednesday morning to examine strategies for reining in fraud and abuse in Medicare and Medicaid — an effort Democrats have said can save taxpayers billions of dollars without compromising the quality of care.

Featured testimony will come from Daniel Levinson, the HHS Inspector General, and Peter Budetti, Medicare's deputy administrator for program integrity. bit.ly/bOmr1h

And a look at eggs: Member of the Energy and Commerce oversight subpanel meet later in the day to take a closer look at the salmonella outbreak that led to the recall of millions of eggs produced by Iowa's Wright County Egg and Hillandale Farms.

Among the witnesses will be Michael R. Taylor, the FDA's deputy commissioner for foods. bit.ly/azaz95

Reproductive rights advocates take on Hyde: On Capitol Hill Wednesday, a number of liberal Democrats will join abortion rights advocates in releasing a new report — compiled by the Center for Reproductive Rights — outlining "how the Hyde Amendment harms poor women."

Reps. Diana DeGette (D-Col.) and Mike Quigley (D-Ill.) are scheduled to attend.

The gusher in the Gulf might be capped, but the health concerns remain: The Institute of Medicine is holding a workshop in Tampa Wednesday to discuss the health implications of the spill for local communities and cleanup workers.

thehill.com/blogs/healthwatch/health-reform-implementation/120179-healthcare-wednesday

[sandi66]

[“Fiat money has no place to go but gold,” the former Fed chairman said at the Council, according to economist David Malpass, who quotes Mr. Greenspan in one of Mr. Malpass’ emails on the political economy.]


Greenspan’s Warning on Gold

September 15, 2010


‘It signals problems with respect to currency markets,’ he says. ‘Central banks should pay attention to it.’


Editorial of The New York Sun | September 15, 2010





Alan Greenspan spoke at the Council on Foreign Relations earlier today, and what was his advice? That central bankers should be doing what these columns, among others, have been rattling on about, namely that they should be paying attention to gold. “Fiat money has no place to go but gold,” the former Fed chairman said at the Council, according to economist David Malpass, who quotes Mr. Greenspan in one of Mr. Malpass’ emails on the political economy. Mr. Malpass writes that the former chairman of the Federal Reserve’s board of governors was responding to a question in respect of why gold was hitting new highs.



Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,” as Mr. Malpass characterized Mr. Greenspan. “He’d concluded that gold is simply different,” Mr. Malpass wrote.

At one point Mr. Greenspan spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes.* Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

To which, forgive us, one can only say, “Now he tells us.” The fact is that if Mr. Greenspan governed the Fed with an eye on gold, it wasn’t a particularly steady eye. He might argue that when he left the chairmanship of the Fed, in January 2006, he left a dollar worth a 400th of an ounce of gold, slightly more valuable than the 461st of an ounce of gold that it was worth when he came in nearly 20 years before. But in the first five years of the 21st century, when he was in the last quarter of his years as chairman, the value of the dollar started its long collapse, plunging from the 282nd of an ounce of gold that it was worth on January 4, 2000. In the years since, it has cratered to record lows once imagined only by such sages as Ron Paul.

Mr. Greenspan’s remarks at the council were not the first time he gave us a glimpse of his views on gold. He discusses gold on several pages of his memoir, “The Age of Turulence,” reminding that he once told a Congressional committee that “monetary policy should make even a fiat money economy behave ‘as though anchored by gold.’” He wrote that he had “always harbored a nostalgia for the gold standard’s inherent price stability.”

But he confesses that he’s “long since acquiesced in the fact that the gold standard does not readily accommodate the widely accepted current view of the appropriate functions of government — in particular the need for government to provide a social safety net.”

The American people, he asserted in his book, have for the most part “tolerated the inflation bias as an acceptable cost of the modern welfare state.” And he claimed, “There is no support for the gold standard today, and I see no likelihood of its return.” We’ll hazard a guess that the statement makes him a man more of the past than of the future. But at least some politicians are hearkening to his advice about the price of gold. They’re people like Congressman Ron Paul and his son, Rand, who may yet be a senator, and Governor Palin, who was one of the first to warn about the gold price, and Congressman Paul Ryan, who asked Mr. Greenspan’s successor, Ben Bernanke about gold.

And, by the way, a few journalists, like Glenn Beck, who are students of history and just can’t believe their eyes that the dollar has plunged to the level it has with so few people raising an alarm. We are in a period when gold is more than a canary — to cite Mr. Greenspan’s bird of choice — it’s a full-throated rooster, cock-a-doodling at the top of its lungs. It was nice to see Mr. Greenspan mark the point at the Council. Would that he’d taken more of his own advice. And nice to see Mr. Malpass mark the Greenspan comments so prominently in his letter to his economic clients. He is more for a gold price rule in monetary policy than a gold standard, but we hope he makes another run for high office at the first chance, and presses the principle for all its worth. It’s what we need in the national debate, and none too soon.
________

* Not just in World War II did the special role of gold come into focus. Covering the fall of free Saigon for the Wall Street Journal in April 1975, your editor witnessed a bank run in which panicked Vietnamese citizens, in the streets outside the financial institutions, bought, when they could, gold that had been pressed into sheets the size and approximate thickness of cigarette paper.




Reader comments on this article
Comment By Date
i really am an average joe ..BUT I SAW THIS COMING ONE THREE YEARS AGO!!!.. i invested in silver instead.... [MORE]

joe tierney
Sep 15, 2010 23:56

i really am an average joe ..BUT I SAW THIS COMING ONE THREE YEARS AGO!!!.. i invested in silver instead.... [MORE]
joe tierney
Sep 16, 2010 00:51

To the average american having some hard currency on hand, (gold and silver) is a simple safety net. If not... [MORE]
Russell Shackleford
Sep 16, 2010 06:26

Simply, Greenspan understands gold and Bernanke does not. Bernanke does not understand the price movement however is fearful of it.... [MORE]
Don
Sep 16, 2010 07:51

If you haven't been buying gold and silver, you may want to start stocking up on food: www.FreeFoodFreeFood.com things... [MORE]
Steve Durfee
Sep 16, 2010 08:18

When there is high deficit in any nation, economic participants tend to worry about currency devaluation hence they settle for... [MORE]
B. King
Sep 16, 2010 11:40

Singing a few new tunes after years of pompously 'knowing it all' and hoping to be well eulogized. May he... [MORE]
LLH
Sep 16, 2010 12:37

Now laddie, how would ye be knowing the size of cigarette papar? [MORE]
Michael Greenberg
Sep 16, 2010 13:20

"To which, forgive us, one can only say, “Now he tells us.” The fact is that if Mr. Greenspan governed... [MORE]
Steven Rowlandson
Sep 16, 2010 17:31

Great Article, but avoids the real conclusion--Greenspan, Rubin, Summers, Clintons, Bushes--all CFR caused this mess - most probably by design--the... [MORE]
Pat
Sep 16, 2010 18:50

he said the same thing in the 1960s [MORE]
edin KC
Sep 16, 2010 19:09

if glen beck and sarah palin are your idea of a sage..we are doomed [MORE]
bill reed
Sep 16, 2010 22:54

Read Greenspan's article, "Gold and Economic Freedom," written in 1966 when he was an Ayn Rand follower. From that it... [MORE]
Jay Taylor
Sep 17, 2010 05:27

I own some of those Vietnamese gold "tiles" or "tais" or something like that -- can't recall exactly what they... [MORE]
Diane DeSanders
Sep 17, 2010 09:53

I have always wondered since it is 'alleged' that Mr. Greenspan was a follower if not a 'groupie' of Ayn... [MORE]
orion
Sep 17, 2010 10:22

It seems Mr. Greenspan seeks to be a honorable man but still falls a little short. [MORE]
Tom Rankin
Sep 17, 2010 14:40

Did Sarah Palin say something nice about gold? Maybe she thought you meant getting new jewelry. My dear sir, gold... [MORE]
Matthew Clark
Sep 17, 2010 20:17

I also agreed with the view of formar chairman. As he explained that the central bank should focuse on the... [MORE]
Hom Nath
Sep 18, 2010 09:52

If Glen Beck is a journalist and a student of history, Rupert Murdoch is a Progressive Liberal. [MORE]
Susan Carroll
Sep 18, 2010 12:59

Wow--this article really had me going until is referenced Glen Beck as a journalist. If Mr. Beck is considered a... [MORE]

[sandi66]

UK Proposes All Paychecks Go to the State First

Published: Monday, 20 Sep 2010 | 7:57 AM ET

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.


Sharon Lorimer
--------------------------------------------------------------------------------

The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

If the real-time information plan works, it further proposes that employers hand over employee salaries to the government first.

"The next step could be to use (real-time) information as the basis for centralizing the calculation and deduction of tax," HMRC said in a July discussion paper.

HMRC described the plan as "radical" as it would be a huge change from the current system that has been largely unchanged for 66 years.

Even though the centralized deductions proposal would provide much-needed oversight, there are some major concerns, George Bull, head of Tax at Baker Tilly, told CNBC.com.

"If HMRC has direct access to employees' bank accounts and makes a mistake, people are going to feel very exposed and vulnerable," Bull said.

And the chance of widespread mistakes could be high, according to Bull. HMRC does not have a good track record of handling large computer systems and has suffered high-profile errors with data, he said.

The system would be massive in terms of data management, larger than a recent attempt to centralize the National Health Service's data, which was later scrapped, Bull said.

If there's a mistake and the HMRC collects too much money, the difficulty of getting it back could be high with repayments of tax taking weeks or months, he said.

"There has to be some very clear understanding of how quickly repayments were made if there was a mistake," Bull said.

HMRC estimated the potential savings to employers from the introduction of the concept would be about £500 million ($780 million).

But the cost of implementing the new system would be "phenomenal," Bull pointed out.

"It's very clear that the system does need to be modernized… It's outdated, it's outmoded," Emma Boon, campaigner manager at the Tax Payers' Alliance, told CNBC.com.

Boon said that the Tax Payers' Alliance was in favor of simplifying tax collection, but stressed that a new complex computer system would add infrastructure and administration costs at a time when the government is trying to reduce spending.

There is a further concern, according to Bull. The centralized storage of so much data poises a security risk as the system may be open to cyber crime.

As well as security issues, there's a huge issue of transparency, according to Boon.

Boon also questioned HMCR's ability to handle to the role effectively.

The Institute of Directors (IoD), a UK organization created to promote the business agenda of directors and entreprenuers, said in a press release it had major concerns about the proposal to allow employees' pay to be paid directly to HMRC.

The IoD said the shift to a real-time, centralized system could be positive as long as the burden on employers was not increased. But it added that the idea of wages being processed by HMRC was "completely unacceptable."

“This document contains a lot of good ideas. But the idea that HMRC should be trusted with the gross pay of employees is not one of them," Richard Baron, Head of Taxation at the IoD, said in the release.

A spokesperson for Chancellor of the Exchequer George Osborne was not immediately available for comment.

www.cnbc.com/id/39265847

[sandi66]

Dodd-Frank Ban on Credit Ratings Delays U.S. Adopting Basel Trading Rules
By Yalman Onaran - Sep 23, 2010 7:01 PM ET

A 24-line section of the 848-page Dodd-Frank Act is delaying U.S. implementation of international rules for how much capital banks need to hold against securitized assets.

The financial-overhaul legislation, signed by President Barack Obama in July, requires regulators to remove all references to credit ratings of securities from their rules. Revised standards on how much capital banks need to hold against such assets in their trading books, approved by the Basel Committee on Banking Supervision in 2009, rely on such ratings.

That means the U.S. will have to develop another mechanism that doesn’t depend on firms such as Moody’s Investors Service and Standard & Poor’s, a process that threatens to slow adoption of the Basel rules on market risk as well as a separate package of regulations on bank capital and liquidity agreed to this month, known as Basel III, bankers and lawyers say. The delay also gives ammunition to European regulators and politicians who have criticized the U.S. for dragging its feet on compliance with previous standards while pushing for their approval.

“Implementation in the U.S. is going to be more complicated than other places,” said Scott Anenberg, a former attorney for the Federal Deposit Insurance Corp. and now co-head of the financial-services practice at law firm Mayer Brown LLP in Washington. “One reason will be complications raised by capital provisions in the Dodd-Frank bill. It can make things difficult when politicians attempt to legislate on matters that for good reasons have traditionally been left to regulators.”

Market-Risk Rules

The Federal Reserve, the FDIC, the Office of the Comptroller of the Currency and the Office of Thrift Supervision were on the verge of completing a draft rule on market risk when the Dodd-Frank bill was passed in July, said three people with knowledge of the work. The ban on ratings forced them to go back to the drawing board, the people said. The search for an alternative will be a significant undertaking for the regulators, two of the people said.

Section 939A of the Dodd-Frank Act reflects criticism of Moody’s and S&P for giving mortgage-related securities investment-grade ratings they didn’t deserve. The ratings helped inflate a U.S. housing bubble, as trillions of dollars of risky home loans were packaged into bonds and sold to investors as safe, lawmakers and economists have said.

Current Basel trading-book rules treat all top-rated bonds the same, allowing banks to hold as little capital against AAA rated mortgage-backed securities as they do against Treasuries. The trading book is a subset of the balance sheet where banks park assets they intend to trade in markets, as opposed to the banking book where assets are meant to be held until maturity or at least for a longer period.

Higher Capital Charges

The new rules require higher capital charges for securitized bonds than for corporate or sovereign debt, bringing the trading-book standards in line with the banking book. Ratings scales of outside firms are used to calculate how much capital is required for different securities. The change will increase banks’ capital charges by as much as 4 percentage points, according to a Basel study.

The Basel committee decided in June, a month before passage of the Dodd-Frank bill, to push back implementation of the new trading-book rules by a year, to the end of 2011, after U.S. regulators pleaded for more time to complete their domestic proposals, according to people familiar with the discussions. The European Parliament, the lawmaking body of the European Union, approved the changes in July. They will go into effect at the end of next year.

Alternatives to Ratings

The Basel committee, made up of regulators and central bankers from 27 countries, sets capital and liquidity requirements for banks worldwide. Each country then translates those standards into domestic rules. While the EU writes them into law, the U.S. typically does it through rulemaking by the Fed and other regulators. The Dodd-Frank Act gives the agencies authority to strengthen capital and liquidity requirements.

One solution under consideration by U.S. regulators is to let banks devise their own ratings for securities they own, loosely based on external ratings, one of the people involved in the discussions said. Another is to ask Congress to revise the law to remove or soften the ban, according to another person briefed on the talks.

Last month, the Fed and the other U.S. agencies issued a rulemaking proposal to comply with the Dodd-Frank requirement on the elimination of external ratings from their regulations. The document lists possible ways of replacing ratings in banking rules, including capital charges on holdings of securitized products, and asks the industry for alternatives.

European Suspicion

The open solicitation of ideas means regulators are far from agreeing on a solution, said an official from one of the agencies, who asked not to be identified because the discussions are private. Many of the options being considered give banks more leeway in how they calculate the riskiness of their securitized assets, which conflicts with the Basel committee’s recent attempts to decrease banks’ autonomy in assessing risk, the official said.

European suspicion that the U.S. would delay or fail to adopt new capital rules colored debate in Basel, Switzerland, this year. The wariness surfaced again this month, when the committee was divided between those seeking higher capital ratios and those arguing for lower figures. Germany, which wanted lower ratios and more time to implement them, accused the U.S. of pushing for tougher rules that it probably wouldn’t adopt, according to people with knowledge of the discussions.

Basel II

European Central Bank Governing Council member Axel Weber, who’s also president of Germany’s Bundesbank, said on Sept. 8 that the U.S. needs to follow through.

“It can’t be that we’ll implement Basel in Europe and not in the U.S.,” Weber said before a weekend meeting where the committee reached agreement on higher ratios while giving the banks more than eight years to comply.

Peter Sands, chief executive officer of London-based Standard Chartered Plc, also expressed concern whether new Basel rules “will be implemented in a consistent manner globally.”

“We shouldn’t expect everybody to move in sync, but the degree of difference and contradictions should be kept to a minimum as much as possible,” Sands said in an interview yesterday at Bloomberg headquarters in New York.

The U.S. has still not fully implemented the current capital regime, known as Basel II, which was promulgated in 2004 and implemented by most European countries three years later.

Unfair Advantage

After U.S. regulators agreed to the rules, community banks lobbied lawmakers, saying the new standards would give large banks an unfair advantage because they were the only ones able to invest in the complicated risk-management systems on which Basel II was based. Those rules allowed banks to use their own mathematical models to measure the riskiness of their assets, resulting in some firms reducing the amount of capital they had to hold by as much as 29 percent, according to data compiled by the Basel committee.

Under pressure from Congress, which held hearings in 2005 and 2006, regulators set up hurdles that needed to be cleared before banks would be allowed to reduce their capital. While the largest U.S. banks are on schedule to complete the process by the first quarter of 2011, regulators have told them not to lower their capital now that new rules, known as Basel III, are on the way. There isn’t a schedule for smaller banks to comply with the older regime.

‘Battle by Banks’

After the Basel committee completes its work on the new rules at the end of the year, their implementation in the U.S. will face obstacles too, said Mayer Brown’s Anenberg. The procedure the Fed and other U.S. regulators follow with Basel compliance is to propose rules along the lines of the framework and ask for comments from the industry. U.S. banks will oppose parts of Basel III they’re not happy with, such as the restrictions on the use of mortgage-servicing rights in capital calculations, Anenberg said.

“There will be a battle by banks to change some of it,” he said. “And U.S. regulators already face a huge task in implementing Dodd-Frank in the next couple of years. So implementation of Basel changes may not be an immediate priority.”

The Dodd-Frank Act requires 67 studies and 243 new rules to be created by regulators, according to a paper by New York-based law firm Davis Polk & Wardwell LLP. Basel member countries will have until the end of 2012 to draw up national regulations to comply with Basel III, which is scheduled to go into effect between 2013 and 2023.

Post-Crisis Environment

Other elements of Dodd-Frank contradict Basel III rules. A clause in the act that bans counting hybrid bonds as capital has different time frames than Basel III. It gives larger banks less time to phase out the bonds and smaller banks more time. The Dodd-Frank rule against external ratings also runs counter to sections of Basel III, which rely on such ratings to determine capital charges for certain assets. U.S. regulators will have to reconcile the two, bankers and lobbyists say.

Unlike Basel II, which was pushed by banks when politicians weren’t paying attention to capital rules, the post-crisis environment will help regulators overcome hurdles and implement Basel III, says Brett Barragate, a partner at law firm Jones Day in New York.

“They might struggle with finding solutions to such conflicts, but regulators can’t drag their feet too much on implementing Basel,” said Barragate, who represents JPMorgan Chase & Co. and Bank of America Corp. among other lenders. “If the political environment changes in the next few years, this resolve could dissipate, but at this stage the pressure seems to be on for implementation.”



www.bloomberg.com/news/2010-09-23/dodd-frank-ban-on-credit-ratings-delays-u-s-adopting-basel-trading-rules.html

[sandi66]

DEALS-Bank of America Merrill flexes its muscles in M&A





Thu Sep 23, 2010 7:08pm EDT

* BofA Merrill moving up in European, Asian M&A rankings

* Aims to be in top three and then leading player

* Using balance sheet more aggressively for clients

By Victoria Howley

LONDON, Sept 24 (Reuters) - The thundering herd is bucking and snorting again, if not quite stampeding in mergers and acquisitions.

Bank of America Merrill Lynch (BAC.N) has gained a bigger slice of dealmaking, and a series of high profile hires means it is well placed for further growth in Europe and Asia-Pacific.

The acquisition of sub-prime mortgage casualty Merrill Lynch gave Bank of America a meaningful and long-coveted overseas investment bank shortly after Lehman's demise in late 2008.

The early marriage was tumultuous, however, as the Charlotte, North Carolina-based lender was forced to seek $20 billion of emergency capital from the Federal Reserve to cover escalating losses at its new subsidiary.

But the combination of Bank of America's balance sheet and senior hires from rival companies has started to deliver results. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Take a Look [ID:nN23159989]

Reuters Insider link.reuters.com/nam74p and link.reuters.com/wam74p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

"We are not throwing our balance sheet around, but we are using it more aggressively for clients than we did six months ago. This is part of our strategy to increase overall investment banking market share," said Christian Meissner, head of investment banking for Europe, Middle East and Africa, who joined in August from Nomura (8604.T).

In private, competitors are already sitting up and taking note.

"The sense was that it was going to get run out of North Carolina, that BofA would not let these (M&A) guys run their businesses entrepreneurially," said a senior London mergers banker, who declined to be named when discussing a rival.

"The reality is they seem to be focusing again and paying attention to the business."

BofA Merrill has worked on 170 transactions worth $257 billion, making it the fifth most active adviser globally, according to Thomson Reuters preliminary data. That compares with a number-eight placing a year ago.



www.reuters.com/article/idUSLDE68L0YJ20100923

[sandi66]

BofA Merrill lays off 13 global commodities staff -sources
Fri Sep 24, 2010 10:03am GMT


Print | Single Page
[-] Text [+] SINGAPORE, Sept 24 (Reuters) - Bank of America Merrill Lynch (BofA) (BAC.N: Quote) this week laid off 13 staff from its global commodities business, including two from Asia, industry sources said on Friday.

Two more have resigned, taking the total number of departures to 15, the sources said.

When contacted, a BofA spokesman declined comment, saying it was not company policy to comment on staff movements.

The layoffs include a coal trader based in China and one operations staff based in Singapore, while the others are trading-related personnel based in Europe and the United States, the sources said.

"BofA goes through this review process every year, and the lay-offs are a result of its annual review of staff performance. I don't think it reflects their position or ambitions in the commodities market," a source familiar with the matter said.

"They have hired close to four times the amount of people that they have let go, especially in Asia, so I don't quite see it as the bank reducing their presence in the commodities market."

Another source familiar with the matter had said on Monday that Bank of America Corp was laying off less than 5 percent of its investment banking staff and would tell employees about the cuts this week. [ID:nN2077079]

The cuts are the first significant organized reduction in the division's workforce since Bank of America bought investment bank Merrill Lynch in January 2009 during the financial crisis, and come as markets have slowed after a torrid start to 2010. BofA's global commodities business fall under its global banking and markets division, overseen by Tom Montag, who initiated the cuts after a review this year.

Montag has expanded Bank of America's investment banking operation overseas over the last 18 months, though expansion within the division has slowed this summer.

Last week, Chief Executive Brian Moynihan said Montag's division had hired 800 new employees overseas, focusing on Asian and European markets the bank is counting on for future revenue growth.

Even with the layoffs, the division is expected to have more employees at year's end than it did at the end of 2009, the source said



af.reuters.com/article/energyOilNews/idAFSGE68N0B320100924

[sandi66]

Iraqi faction Okays Maliki as premier

Politics 9/24/2010 1:30:00 PM



BAGHDAD, Sept 24 (KUNA) -- Iraq's State of Law Collation leader Haidar Al-Jawrani said on Friday that the National Iraqi Alliance had reached a preliminary agreement to nominate Al-Maliki as prime minister for a second term.
A relevant official announcement is to be made public by the alliance within two days, Al-Jawrani told KUNA.
No member of National Alliance has commented on the news. (end) mhg.lb KUNA 241330 Sep 10NNNN




www.kuna.net.kw/NewsAgenciesPublicSite/ArticleDetails.aspx?id=2113121&Language=en


ty David

[sandi66]

Citigroup's $75 Million SEC Subprime Settlement Is Approved by U.S. Judge

By William McQuillen - Sep 24, 2010 4:27 PM ET

Citigroup Inc.’s $75 million settlement with the U.S. Securities and Exchange Commission won approval from a federal judge, resolving claims the bank failed to disclose $40 billion in subprime-related holdings.

U.S. District Judge Ellen Huvelle in Washington said today she would sign the settlement after both sides agreed Citigroup must continue the disclosure plan it began during the financial crisis to ensure future SEC oversight. She told the attorneys in court to submit new language for the settlement within two weeks.

The judge said that she wanted to make sure there are “procedures in place that both satisfy me and the SEC.”

Huvelle last month held off approving the settlement, saying she was dissatisfied with the proposal and wanted more information before making a decision. Both the bank and the SEC filed additional papers with the court urging acceptance of their accord.

The penalty “takes into account the seriousness of the misconduct,” the SEC wrote in a Sept. 8 filing. “It is sufficiently substantial to send a clear message that misleading statements by a corporation on issues of importance to investors cannot go unaddressed.”

The company made misstatements on earnings calls and in filings regarding assets tied to subprime loans as the housing crisis unfolded in 2007, the SEC said in its July 29 complaint. Some disclosures omitted more than $40 billion in investments, regulators said.

Aware of Losses

Responding to Huvelle’s request, the SEC identified Citigroup officials -- including former Chief Executive Officer Charles O. “Chuck” Prince and former Chairman Robert Rubin -- who were aware that losses were mounting in October 2007 on the highest-rated segments of mortgage-based assets, which the agency claims hadn’t been fully disclosed. The SEC didn’t accuse those officials of wrongdoing.

The fact that so many executives were aware of the disclosure and valuation process and “nonetheless did not note the central issue identified by the commission in its complaint, only underscores the weakness of any possible case against additional parties,” Citigroup wrote in a Sept. 13 filing.

Citigroup was under “no obligation to say anything about its ‘subprime exposure’” in the second and third quarters of 2007, the bank wrote. It voluntarily decided shareholders would benefit from “a more concrete understanding” and made some statements, it said.

Reduced Exposure

“In making these July and October disclosures, Citigroup was among the first of its financial institution peers to provide information of this type to the investing public,” the bank said.

While noting changes in Citigroup’s practices, Huvelle was concerned the agreement hadn’t required more transparency. The initial accord only barred the bank from violating SEC rules.

“You may have the best practices there are, but I wouldn’t know that sitting here,” she said today.

Citigroup executives repeatedly stated in 2007 that the New York-based bank had reduced its liabilities connected to subprime mortgage securities by 45 percent to $13 billion, as investors and analysts clamored for information about the deteriorating market, SEC attorneys said in court filings.

‘Subprime Exposure’

On an Oct. 15, 2007, conference call with analysts and investors, Gary Crittenden, then Citigroup’s chief financial officer, said the company’s “subprime exposure” was $13 billion at the end of the second quarter and had declined during the third quarter.

The figure he cited omitted “super-senior” tranches of collateralized debt obligations and financial guarantees known as liquidity puts that allowed customers to sell debt securities back to Citigroup if credit markets froze, the SEC said. Those products added more than $40 billion of subprime risk that the bank didn’t disclose to investors, the SEC said.

Crittenden, who left the bank last year, agreed to pay $100,000 to settle claims he didn’t disclose the risk after getting internal briefings. Arthur Tildesley, Citigroup’s former head of investor relations, will pay $80,000 to settle claims that he helped draft disclosures that misled investors, the SEC said.

‘Not a Deterrent’

Huvelle said Crittenden’s $100,000 fine is “not a deterrent to corporate crime,” though she left that to the SEC’s discretion.

Citigroup, Crittenden and Tildesley agreed to settle the case without admitting or denying the SEC’s allegations.

The bank, once the world’s biggest by assets, got a $45 billion taxpayer bailout in 2008 after losses on subprime mortgages and collateralized debt obligations withered confidence and almost triggered a run on deposits.

Citigroup executives, including Prince, were questioned at an April hearing by the Financial Crisis Inquiry Commission about whether the bank fully disclosed potential losses.

Estimates were in flux, because the subprime market was rapidly deteriorating, Prince told the financial crisis panel.

“At the time, the financial people were working very intensely with the fixed-income people to try to determine exposures,” Prince said during the April 8 hearing. “This was an unprecedented time in which markets were crashing.”

The case is Securities and Exchange Commission v. Citigroup Inc., 10-cv-01277, U.S. District Court, District of Columbia (Washington).

www.bloomberg.com/news/2010-09-24/citigroup-s-75-million-sec-subprime-settlement-is-approved-by-u-s-judge.html

[sandi66]

2nd UPDATE: Citi Chairman Intends To Revive CEO's Pay In 2011

SEPTEMBER 24, 2010, 4:13 P.M. ET

NEW YORK (Dow Jones)--Citigroup Inc.'s (C) Chairman Richard Parsons said Friday that the board intends to revive Chief Executive Vikram Pandit's compensation next year, boosting it from $1 this year to a level "commensurate with the job of CEO of Citi."

The bank disclosed in a filing Friday the stock compensation its top executives will receive for this year. Citi remains restricted in how much it can pay its executives because of the government's continuing investment in the company. It is allowed to add a stock salary to the cash salary. The sum of both will determine how much bonus it can pay those executives.

Pandit had pledged last year to accept only $1 in salary and bonus until Citi returns to profitability. Citi reported a profit for the first and second quarter this year, but Pandit still declined compensation above $1 for this year, the bank said.

"The board is very pleased with the progress that the management team is making in restoring Citi to profitability," Parsons said in a statement Friday. Pandit's "performance would merit" higher compensation, he said. The CEO's "decision is admirable but, beginning in 2011, the board intends to compensate Vikram commensurate with the job of CEO of Citi."

In a filing with the Securities and Exchange Commission, Citi disclosed stock salaries its board of directors decided last week to pay several executives: A stock salary to investment banking chief John Havens of $9 million; to Manuel Medina-Mora, consumer banking chief for the Americas, $7.5 million; to Chief Financial Officer John Gerspach $4.2 million; to vice chairman Edward "Ned" Kelly $6 million; and to Alberto J. Verme and William Mills, the CEOs for operations in Europe, Middle East and Africa, $6 million and $4.9 million, respectively. Each of these executives will receive a cash salary of about $500,000.

Last year, Havens received $475,000 in stock salary, Medina-Mora $450,000, Gerspach $2.9 million, Kelly $5.1 million, and Verme $4.7 million.

Two of Citi's top executives received $10 million or more in total compensation last year, most of it in stock. Havens received $11.3 million, and Medina-Mora received $10.4 million.

The executives will receive the stock salary for the first nine months next week, and the balance on a monthly basis.

The U.S. Treasury Department still owns 18% of Citi's stock, and the bank remains subject to the executive compensation provisions of the Emergency Economic Stabilization Act of 2008, Citi said in the filing. The act restricts the bonuses for a bank's 25 highest-paid executives to no more than one-third of the employee's overall compensation for a given year. Adding stock salary to the cash salary will help Citi's board to determine "the appropriate incentive compensation for 2010," the bank said in the release.

Stock salary was originally developed by former Special Master Kenneth R. Feinberg. Though the bank is no longer subject to the Feinberg's determinations, the board decided to grant stock salary again this year.

online.wsj.com/article/BT-CO-20100924-710557.html

[sandi66]

Trading Firms Raise Fears Of Gaming In Cheap Stocks

September 24, 2010

Market makers and brokers are pushing stock-market regulators to address anomalous trading patterns in securities that fall below $1 a share, targeting a strategy that is estimated to cost such firms thousands of dollars a day.

Some stock traders are exploiting a five-year-old wrinkle in U.S. securities law to drive trading in low-price shares like Sirius XM Radio Inc. (SIRI: 1.19 ,0.00 ,0.00%) and trucking company YRC Worldwide Inc. (YRCW: 0.27 ,0.00 ,0.00%) to dizzying levels when their prices fall below the $1 threshold, trading-firm executives said.

"This is a real, live problem in our current market structure today," said Christopher Nagy, head of order routing for TD Ameritrade Holding Corp. (AMTD: 16.35 ,0.00 ,0.00%).

The legal loophole, which can drive trading activity in shares of stocks like Sirius far above the level seen when the stock is above $1, arises from rules that let traders quote prices to one-hundredth of a cent when the stock falls below that level.

However, the rebates paid by exchanges to market participants who contribute liquidity do not scale in the same way, letting traders in cheap stocks reap relatively big profits on tiny movements in share prices, with little risk.

For traders using retail brokerage accounts that pass along these exchange rebates to customers and charge a flat monthly fee no matter how many shares are traded, it's essentially a risk-free way to make money, according to Jamil Nazarali, head of electronic trading for Knight Capital Group Inc. (KCG: 12.61 ,0.00 ,0.00%).

Brokerages and the firms that handle their trades end up bearing the cost of this activity, he said.

Nazarali, whose company has investigated the practice, said there is also evidence that some individuals using the strategy may be trading with themselves through multiple accounts maintained at separate online stock brokerages -- an illegal practice tracked by federal security agencies to prevent money laundering.

"This is bad for the market, because these are not legitimate trades," he said. "It's also bad because it diverts a lot of time and resources from [stock order] wholesalers to deal with this problem. And some legitimate traders get caught up in all the measures we put in place to deal with this."

Nazarali said that Knight met with the Securities and Exchange Commission Thursday on the matter, alongside officials from major market makers Citadel, UBS AG (UBS: 17.82 ,0.00 ,0.00%), Citigroup Inc. (C: 3.90 ,0.00 ,0.00%) and brokerage firm E*Trade Financial Corp. (ETFC: 15.27 ,0.00 ,0.00%).

The SEC "seemed empathetic," Nazarali said.

A spokesman for the SEC declined comment. Representatives of Sirius and YRC Worldwide were unavailable.

The issue first arose five years ago with the implementation of Regulation NMS, which allows market participants to quote stocks out to four decimal places in stocks that fall below $1 in price, allowing investors finer increments in which to trade very low-price issues. For example, a trader could put in an order to buy shares of Sirius at 99.01 cents, and sell at 99.02 cents.

But under Reg NMS, the maximum fee that exchanges can charge for trades in subdollar stocks only declined on a pro-rata basis, which lets market operators charge many times the price spread on stocks below $1. That also lets exchanges offer rebates that are nearly as big.

In the early days of the rule, brokers said they saw the issue arise in shares of Futuremedia PLC, a maker of interactive training programs. After outcry from brokers, stock platforms got rid of the pricing and the issue was resolved for the time being.

It resurfaced in January when New Jersey-based exchange operator Direct Edge rearranged its trading fees and began offering the outsize rebates for securities trading below $1.

"We discovered this accidentally," said William O'Brien, Direct Edge chief executive. After trading volume gravitated toward Direct Edge's markets, rival exchanges run by NYSE Euronext (NYX: 29.04 ,0.00 ,0.00%) and Nasdaq OMX Group Inc. (NDAQ: 20.16 ,0.00 ,0.00%) moved to offer similar rebate plans, but all three companies ended the practice by May after protests from brokers and firms that handle order routing.

"I think it's unfortunate that this cropped up again," said O'Brien. "But for this anomaly, this volume would not exist."

The rebate structure is in place at CBSX, the small stock exchange operated by CBOE Holdings Inc. (CBOE: 20.60 ,0.00 ,0.00%), parent of the Chicago Board Options Exchange. The market has seen its share of trading in Sirius stock jump in recent months.

"CBOE takes its regulatory responsiblility very seriously and does investigate unusual trading activity," said a spokeswoman for the exchange. "However, we do not comment on individual investigations."

High-frequency trading firms, under intense scrutiny following the May 6 "flash crash," are not likely pursuing this trade, according to observers. Most attribute it to sophisticated and active individual investors, like day traders.

Those using the strategy have to trade a great deal of shares to earn a significant amount of money on the rebate, and making transactions aimed at capturing rebates in such a way isn't illegal.

However, firms that handle brokerages' order routing have noted instances where matching buy and sell orders from two separate trading accounts appear nearly simultaneously, suggesting that the trades originated with the same person maintaining accounts at multiple brokerage firms.

Trading with yourself this way is against the law in the U.S., but there are signs that some of the volume in the cheap stocks is coming from other countries, some of which don't have the same rules, according to Knight's Nazarali.

That cross-border aspect of the trading is problematic, because shifting big blocks of shares with little change in the price is one potential way to move money in and out of the U.S. Firms providing execution services have reported some of the suspicious activity to authorities under the Patriot Act.

The SEC's proposal for a consolidated audit trail, which would collect and aggregate real-time market data, could help identify such activity, said TD Ameritrade's Nagy.

www.foxbusiness.com/markets/2010/09/24/trading-firms-raise-fears-gaming-cheap-stocks/

[sandi66]

The Komisar Scoop has posted a new item, '"Scoop" article prompts Swiss investigation'

My article about an attempt by the Hong Kong-based global conglomerate, the Noble Group, to cheat Switzerland of taxes has prompted an investigation by Zurich law enforcement authorities.

The story, published by The Komisar Scoop in January, documented how Noble set up a Bermuda shell and pretended it was managing investment products for the company's Zurich hedge fund consultancy. In fact, the work was done in Zurich and the fees paid to NIBU (Noble Investments, Bermuda) made a round-trip back to Switzerland. The piece documented the scam with confidential memos by Noble executive, legal and accounting advisors, including the global accountants, Ernst & Young.

You may view the latest post at
thekomisarscoop.com/2010/09/scoop-article-prompts-swiss-investigation/