Conversation Starter
Bailouts and Financial Fragility
Federal Reserve Bank of New York Staff Reports, no. 473
September 2010
Author: Todd Keister
How does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system? Federal Reserve Bank of New York researcher Keister studies this question in a model of financial intermediation with limited commitment. When a crisis occurs, the efficient policy response is to use public resources to augment the private consumption of those investors facing losses, he writes. The anticipation of such a “bailout” distorts ex ante incentives, leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility. Prohibiting bailouts is not necessarily desirable, however: it induces intermediaries to become too liquid from a social point of view and may, in addition, leave the economy more susceptible to a crisis. A policy of taxing short-term liabilities, in contrast, can correct the incentive problem while improving financial stability, he writes.
See the entire report here: (Large PDF)
***CN: A thoughtful report from Keister on the subject of bailouts. In the report, he contends that there is widespread agreement that the anticipation of receiving a public-sector bailout in the event of a crisis distorts the incentives of financial institutions and other investors. He writes that by partially insulating these agents from the effects of a negative outcome, bailouts diminish their incentive to provision for such outcomes and encourage excessively risky behavior. Such concerns have featured prominently in the recent debate on financial regulatory reform and have lead some commentators to argue that governments and central banks should aim to make credible commitments to not provide any future bailouts, he writes.
Todd Keister is an assistant vice president in the money and payments studies function of the research and statistics group at the Federal Reserve Bank of New York. His recent research has focused on banking crises, coordination failures in financial markets, and the effects of government intervention during times of financial crisis.
Commentary
Interview with Thomas Rooney, president and CEO of SPG Solar
In August, an EMN reader passed along a link to one of the more interesting interviews I’ve heard recently on C-Span, with Thomas Rooney, president and CEO of SPG Solar. When he reached out to me to do an interview, I jumped at the chance to hear one of the more innovative thinkers in the solar industry. Rooney spoke with me this week about SPG’s keys to success, the solar industry, subsidies in a real world context and the efficiency race we’re in today.
Q: SPG Solar was founded in 2001 and you’ve stated the business is profitable. What has been the key for SPG?
A: The brilliant founder of the company [Dan Thompson] had the classic attributes of a strong entrepreneur, a fascination with technology and knowledge of how to put the financials together for a project. But like any company, the skillset that enables one to found a company are a little different from the skillset to run a large corporation. So today we do things like run just-in-time inventory so we don’t sit on $6 million or $8 million in stock. When you do that, you have to own and operate a lot of warehouses so we don’t do that anymore. What I brought to the company when I started a year and a half ago was what is considered sophisticated management practices such as lean six sigma, just in time inventory, fairly sophisticated cash management, rapid reduction in field installation time.
Take a classic 1 MW project. Two to three years ago, it would cost $6 million to $7 million and today would cost $4 million to $5 million. And two to three years ago, it used to take six to eight months to build such a system and take about 14,000 man hours. Today, exactly the same system takes six to seven weeks to complete and less than 4,000 man hours. That means that crew can install five to six of those projects per year whereas previous years it would have only been two. So with our management practices, we get three to four times as much productivity.
So we’re just focused on implementing best practices across the board.
Q: I read about this sector daily and its common to see stories that say the solar sector is strong and another that says its weak on the same day. What is the state of the solar sector?
A: It waivers. A lot of the federal policy has been unsubstantial and the changes fluxuate. The tax incentive the government had in place actually expired two years ago. When it was in place, it caused tremendous growth. Then Congress brought it back. So depending on which point in that cycle you’re talking about, you’ll get responses that it’s great or it’s weak.
Currently the credit is an investment tax credit which the government pays to someone who builds a system worth 30 percent of the value of the project. So 30 percent on a 1 MW project gives them a tax credit of $1.5 million. Under the Obama Administration, a 30 percent cash grant was given. That was interesting and pretty smart. You didn’t have to offset the tax credit because the Treasury would write you a check for that 30 percent. That expires on December 31, 2010 and we go back to tax credits. Our industry is sitting here, scratching its head. It’s possible Congress will extend that tax grant because let’s face it, not every business is back to making profits. So that’s why you hear strong and weak.
The other reason is this. I was just in Germany two weeks ago at a solar conference. It’s solar sector is expanding 50 percent to 70 percent per year. If you look at the US, you’d say it’s a weak market because we’re not doing much. If the US solar market were 10 times the size it is today, it still wouldn’t be the largest market in the world.
So it’s the coming and going of legislation and the comparison to other countries.
Q: The cost of solar technology has fallen dramatically, which is similar to what we’ve seen in the computer industry. Why is that?
A: One is, economies of scale. Businesses which are in the process of installing the products. The more competition you get, of course, the more price competition you get and the more innovation you get. But then you also get economies of scale. If I’m going to build a solar project on a scale of 10, I’ll get certain economies. If I do it at a scale of 100, I’ll get much better economies of scale. And if I do it at a scale of 1 million, then I’m going to be running at world class efficiencies, great cost reductions and by the way, I’m going to put significant sums of money into R&D.
What has happened in the last five years is that economies of scale are starting to build around the world. That’s why governments are smart to create stimulus packages for solar, because its one of those industries that needs to get to a critical scale. And when it does, cost come down and the public wins big.
The second issue which does help is that the computer industry in and of itself. Many of the technologies in the semi-conductor space are eerily similar to how crystalline and PV solar panels are made. So the tremendous advances in storage have really pulled the PV sector forward.
Q: And that’s why we’re seeing so many chip makes moving into the PV space, right?
A: When I’m talking to manufacturers around the world, I can’t tell you how many people tell me they came from the semi-conductor industry. Companies are moving into solar and individuals, and bringing with them tremendous knowledge and expertise. So solar is piggy-backing the enormous strength of the semi-conductor industry.
The third reason is probably the most remarkable change in the last two to three years. That is, the Chinese government has made a decision to dominate the global PV world. We’ve gone from almost no Chinese manufacturers to an absolutely dominant force in the industry. It used to be Germany. But now you have dozens of PV manufacturers – Sun Tech, Ying Lee, Astronergy, Canadian Solar – and they have gotten tremendous economic incentives from their government to get out and become the leading PV providers. The reason is simple. It’s thousands, and likely millions of jobs in China. I just got back last week from China and that’s where I see people moving from the semi-conductor space. I’ve met PHDs from Princeton who’ve spent 20 years learning lean six sigma at Motorola. And they are doing so because they have immense backing from the government in China. They’ve captured economies of scale in China and created sophisticated jobs. I’m not rooting for China’s manufacturing base but they’ve driven the cost of PV down 50 percent over the past two years.
A solar panel two years ago would have been more than $3 per watt for a classic crystalline silicone panel. Today, it’s more like $1.60 to $1.70 per watt. That goes into a total cost of $4.50 to $5. So a $1.30 price drop is about 20 percent to 30 percent of the price drop.
Q: You recently cited a International Energy Agency report which stated that global energies, from fossil fuels to renewable, receives $550 billion in subsidies. Of that 11 times more goes toward fossil fuels. Why is that and do you see that changing?
A: It’s historic and no, it’s not changing. One hundred years ago when oil and gasoline were interesting, there were a lot of incentives for wildcatting and inventory. Then when we moved through natural gas and coal, there were all other kinds of subsidies. So to create a robust energy sector, the government has enacted dozens and dozens of, what might otherwise look like small incentives and support mechanisms. And they get so deeply ingrained that people forget that they’re there. You don’t have to even get to how much the federal government spends to clean up after oil lines, and oil spills in the Middle East. Those aren’t even that report. That IEA report added it all up and said, we actually have massive subsidies for fossil fuels. By the way, I don’t have a complaint about those fossil fuels because that was what was necessary to build a powerful energy infrastructure.
What is not appropriate is that wind and solar and other renewable have to go on not supported versus fossil fuels, which is massively supported. So one of two things happens, any technology needs to have the same support. Personally, I’d love to see everything rolled back, but that’s not going to happen. But I tell people not to complain about the 10 cents support for wind and solar. Even at those modest rates today, it’s nothing compared to what fossil fuels are receiving.
Q: You’ve also quoted from a report, which was requested by Congress in 2005 and released last October, called “The Hidden Costs of Energy” which states that solar will be cheaper than fossil fuels by 2015, even with the 12 to 1 ratio of subsidies for fossil fuels versus renewables. How is that possible?
A: There is not a single date by which solar will be less expensive than the local power. There are places now where solar is less expensive than the current power source, but they are odd extreme cases such as Hawaii and certain times of the day when peaker plants have to come online. But those odd extremes will become more common by 2014, 2015, 2016. By then, the initial cost of solar will be more like $2 per watt. The way that happens, is that the panels I referred to earlier which are $1.60 to $1.70, will be less than $1 a watt in less than two years. The balance of the system, which is everything else, will come down to the $1 to $1.50 range. So when you model that out and solar is less than half of what it is today, you can see why.
The other thing that will happen in the next three years is storage capacity. Electric cars are really driving battery technology. Because of that technology, you’re going to see solar and wind produce power 24/7.
And finally, you’ll see in the next three to five years, a strong implementation of smart grid technology to help distribute the power in the place and time its needed most. And solar and wind become huge beneficiaries of smart grid technologies. I say it is analogous to mainframe computers and the iPhone. The difference is about the same with a massive coal-fired facility and solar panels on my roof. What is lacking in that analogy is the smart grid which is analogous to the internet. So when you bring about the smart grid, storage capacity and solar and wind costs falling by 50 percent, that is a pretty potent combination. That is why you’ll see in three to four years, everyone around the country diving into solar. It’s not because there is some great incentive out there, but because it would be foolish not to.
Q: Given that backdrop, are you seeing utilities getting more into solar?
A: Yes. The utility sector has gone from, five to 10 years ago, digging their heels in and not wanting to do much because it was outside of their sweet spot. We’ve gone from that to being compliant in the last two or three years– which is to say, “If we have to, we’ll put the subsidies out there.” Now we’re seeing them say, “This is big and we need to be a part of this.” So yes, we see the smartest utilities in the nation saying, “I want a piece of this action. I want to own it and do it.” That’s a huge and positive step.
Q: What are your thoughts on the latest push for a federal renewable energy standard?
A: I’ll take it at a higher level. It’s critical that the US have an energy policy that makes sense. A national renewable energy standard would be a great component of that. But you hear all kinds of things coming from Washington DC that might indicate a national energy policy. Renewable energy standards are interesting but they need meaningful, teeth. If a national RES came out tomorrow that said 20 percent by 2020, and it was more of an aspirational goal, it wouldn’t be worth the paper it was written on. If it were like the legislation in California and New Jersey and utilities had to do that or pay a fine, then they’ll do it.
The other thing we need is a clear definition of what renewable energy is. Absent those elements, its just a bunch of political gaming.
Q: Do we need a price on carbon, and is cap-and-trade the best way to do that?
A: You can get into a raging debate over that one. I’d go back to my statement that we need a national energy policy that makes sense. I won’t advocate one over the other. If it’s cap-and-trade, carbon tax, feed-in tariff or any of the above, I’d be okay with it if it were rational and had teeth.
Q: When you look at the big picture, is this really an efficiency race, as Thomas Friedman says in his books?
A: Sure, I agree with Thomas Friedman. It’s about efficiency in your energy supply. There’s a much larger issue here. At one level, is it about global warming, yes. But at a much more substantial level, its about American manufacturing efficiency, economic efficiency. We’re talking about things such as stable, reliable energy for the next 100 years. We’re talking about job creation for the next decade. We’re talking about our manufacturing base having the best energy source for our manufacturing base to compete on for the next 30 years. The German market has an incredible amount of renewable energy. They are going to get a big boost from that. The Chinese are getting a boost from the manufacturing base. In terms of competitiveness, I think the US has missed the boat in a huge way. We are neither the end market so we have energy efficiency gains, nor are we the manufacturing base. So we’re stuck in neutral with a waffling non-existent national policy. That disturbs me because it does get to the point Friedman makes about global competition and a level playing field.
Q: Yet, it seems that many people don’t get the bigger picture here. As long as they flip the light switch and the light goes on, they don’t care if its coal or natural gas at the other end. That message of competitiveness just doesn’t seem to resonate in Washington, or ripple outside of DC.
A: Unfortunately, solar and wind has been wrapped up in a social issue and an environmental issue. I talk about solar as: a job creation market, energy efficiency and global competitiveness and energy independence issues. The renewable energy market gets cast as a liberal, left wing, tree hugging, off-the-deep end group. I have a problem with renewable energy being cast that way, because it is not. It’s easy for the oil companies to cast it as Al Gore’s dream machine. Unless it gets out from that type of branding and seen the context of global competitiveness, that’s a problem.
Lead Stories
Fed Working on New Model to Identify Emerging Risks
By Damian Paletta, WSJ.com
As if bank regulation didn’t have enough acronyms, get ready for the QSM.
Federal Reserve Bank of Chicago President Charles Evans said Thursday the central bank is “developing processes to better enable it to identify and address emerging risks, particularly risks with systemic implications.”
http://jlne.ws/b1hndy
Basel May Be Threat to Money Funds
By Dan Seymour, Bond Buyer
The Basel III bank capital requirements proposed earlier this month threaten to eviscerate the supply of eligible investments for tax-free money market funds — an industry already struggling with a severe supply shortage.
http://jlne.ws/9hMPA8
NY Fed posts reverse repo criteria for money funds
Reuters
The Federal Reserve Bank of New York said on Thursday it has halved the amount of net assets required for money funds to be eligible to take part in reverse repurchase operations with the U.S. central bank.
http://jlne.ws/bEOhRh
Should Government Tax Debt?
By Mark Whitehouse, WSJ.com
Certain economists, most notably Harvard professor Gregory Mankiw, have long advocated so-called Pigovian taxes aimed at discouraging pollution and other socially costly activities. Now two academics are suggesting such a tax might be applied to a dangerous behavior that has become popular in the U.S.: Taking on too much debt.
http://jlne.ws/dAshUG
**CN - "If you move, I'll tax your feet, and with your debt I'll tax The Street, cause I'm the taxman, yeaahhhh...."
Kuhn Urges Research for Buyers, Better Info From Issuers
The Bond Buyer
Mega muni investor Peter Kuhn is bullish on muni bonds, but says investors should be very careful about what they buy and issuers should provide more timely and informative secondary market information.
http://jlne.ws/cBAwxW
CFTC to Hold Open Meeting on First Series of Proposed Rules Under the Dodd-Frank Act
Washington, DC – The Commodity Futures Trading Commission (CFTC) will hold a public meeting on Friday, October 1, 2010, to consider the issuance of the following rulemakings under the Dodd-Frank Wall Street Reform and Consumer Protection Act:
*an interim final rule relating to the time frame for reporting pre-enactment unexpired swaps to a swap data repository or to the CFTC;
* proposed rules that would prescribe (i) certain risk management standards for those derivatives clearing organizations designated as systemically important (“SIDCOs”) by the Financial Stability Oversight Council under Title VIII of the Dodd-Frank Act and (ii) standards requiring sixty (60) days advance notice of changes in SIDCO rules, procedures, or operations that materially affect the nature or level of risks presented by the SIDCO; and
* proposed rules specifying requirements for derivatives clearing organizations, designated contract markets, and swap execution facilities on governance arrangements and mitigation of conflicts of interest.
http://jlne.ws/9DbEKr
Fed Says Prepared to Ease Further, Refrains From New Purchases
By Craig Torres, Bloomberg
The Federal Reserve said it’s willing to ease monetary policy further to spur growth and support prices while refraining today from expanding its holdings of securities.
http://jlne.ws/bpld2G
FOMC Statement: September 21, 2010
http://jlne.ws/aRSzmn
Lawrence Summers to Step Down After Midterm Elections
By JONATHAN WEISMAN And ELIZABETH WILLIAMSON, WSJ.com
WASHINGTON—Lawrence Summers, the economist who helped design and secure President Barack Obama's top economic policy priorities, will return to Harvard University at the end of the year.
http://jlne.ws/c7D6Gr
Factbox: Potential candidates to replace Summers
LAURA TYSON, Reuters
White House economic adviser Larry Summers is stepping down from his job at the end of the year to return to his position as a professor at Harvard University, the administration said on Tuesday.
http://ow.ly/2HTA8
Geithner Says TARP Costs Shrinking as Allison Leaves
By Rebecca Christie and Ian Katz, Bloomberg
U.S. Treasury Secretary Timothy F. Geithner said taxpayer losses from the Troubled Asset Relief Program are shrinking, and he credited departing TARP chief Herbert Allison with helping the government stabilize financial markets.
http://jlne.ws/bUaqY1
Hedge Fund Closure Rate May Rise to 20% on Lack of Capital, Merrill Says
By Bei Hu, Bloomberg
As much as 20 percent of hedge funds globally may be liquidated by the first quarter because smaller managers are starved for fees and new capital, according to Bank of America Corp. 's Merrill Lynch & Co. unit.
http://jlne.ws/cnQHNF
FIA Offers Views on Dodd-Frank Definitions (Sept. 20, 2010)
The Futures Industry Association on Sept. 20, 2010 filed a comment letter with the Commodity Futures Trading Commission and the Securities and Exchange Commission outlining its views on certain definitions in the derivatives section of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The FIA letter argued against requiring futures commission merchants to register as swap dealers if they are acting as clearing brokers and not holding themselves out as swap dealers. The FIA letter also argued that swap dealers should not be required to register as FCMs if they are acting only in a dealer capacity and are not providing clearing services or other services characteristic of an FCM. The FIA letter also asked the regulators to clarify the associated person requirement for swap dealers and major swap participants and the legal distinctions between forwards, futures and swaps.
http://jlne.ws/adFMzH
Most Hedge Funds Should Escape New U.S. Derivatives Regulation, ISDA Says
By Matthew Leising, Bloomberg
Most hedge funds and money managers shouldn't fall under new derivatives rules being written by U.S. regulators, according to the International Swaps and Derivatives Association , a trade and lobbying group.
http://jlne.ws/bxm8hO
Germany's Banks May Forfeit 70% of Earnings to Pay for Levies, Group Says
By Aaron Kirchfeld, Bloomberg
German lenders may be forced to forfeit as much as 70 percent of their profits for the financial transaction tax, a bank levy and deposit guarantee funds as well as normal taxes, the Association of German Banks said.
http://jlne.ws/cG5Di0
Impact of bank rules likely to be 30% tougher
By Brooke Masters, Financial Times
The full impact of the new global bank capital rules announced at the weekend is likely to be 30 per cent tougher than the headline ratio suggests, according to regulators and industry participants who have studied private banking data.
http://jlne.ws/cdPIyN
Events
Congressman Scott Garrett to Speak at WMBAA Swap Execution Facility Conference
BUSINESS WIRE
The Wholesale Markets Brokers' Association, Americas (WMBAA) is pleased to announce today that Congressman Scott Garrett is the latest leader that will speak at the First Annual Swap Execution Facility Conference, referred to as "SEFCON I." The conference will focus on the role and operation of Swap Execution Facilities (SEFs) under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and will provide global financial institutions with a comprehensive overview of this new regulatory category for US swap market intermediaries. SEFCON I will be held in Washington, D.C. on October 4, 2010 at the Grand Hyatt Hotel, One Thousand H Street, Northwest, Washington, D.C. 20001.
For more information on this event, visit:
http://jlne.ws/cMnheH
SEFCON I - FIRST ANNUAL SWAP EXECUTION FACILITY CONFERENCE
Monday, October 4, 2010
Grand Hyatt, Washington DC
1000 H Street Northwest
Washington, DC 20001
Keynote Speaker: CFTC Chairman Gary Gensler
Panel Discussions Planned For:
- OTC Trade Execution
- What is a SEF?
- SEF Regulation
- SEFs: Clearing, Nondiscrimanatory Access, Trade Reporting
Registration and details can be found at http://jlne.ws/cMnheH
WMBAA to Hold First Annual Swap Execution Facility Conference
When: Oct. 4, 2010
Where: Washington, D.C.
Full info: http://jlne.ws/bK3TUg
Details: SEFCON I will examine the role and operation of Swap Execution Facilities (SEFs) under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Wholesale Markets Brokers' Association, Americas (WMBAA) will host the First Annual Swap Execution Facility Conference, referred to as "SEFCON I", focusing on the role and operation of Swap Execution Facilities (SEFs) under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The conference will provide global financial institutions with a comprehensive overview of this new regulatory category for US swap market intermediaries. SEFCON I will be held in Washington, D.C. on October 4, 2010 at the Grand Hyatt Hotel, One Thousand H Street, Northwest, Washington, D.C. 20001. The keynote speaker will be Gary Gensler, Chairman of the Commodity Futures Trading Commission. Other speakers and panel members will be announced in coming weeks.
FIA Treasury Market Forum
When: Oct. 5, 2010
Where: New York, NY
Full info:http://www.futuresindustry.org/fia-treasury-market-forum
Details: After nearly two decades of stability, fixed income risk is back in both size and degree. The economy is in recession, government spending is up massively, Treasury auctions are larger and more frequent, inflation fears are back, the Fed has added quantitative easing to its monetary policy arsenal, and price volatility in the fixed income markets has returned to levels not seen in well over 10 years. This program will cover the growing role of Treasury futures as a risk-shifting mechanism for all participants in the fixed income market, including primary dealers, corporate borrowers, bond investors and the Treasury Department.
Economic News
Local home sales fall in August for second straight month
Crain's Chicago
Home sales in the Chicago area dropped sharply in August compared to a year ago, the second straight month of year-over-year declines. In the nine-county Chicago region, sales of single-family homes and condominiums decreased nearly 20% last month, to 5,633, compared to 7,008 sales in August 2009, according to a release Thursday from the Illinois Assn. of Realtors.
http://jlne.ws/c7rIlU
Leading Indicators Increase 0.3% in August
By Andrew Ackerman, The Bond Buyer
The composite index of leading economic indicators rose for the second straight month in August, increasing 0.3% to 110.2, the Conference Board reported Thursday morning.
http://jlne.ws/ctMFIy
Treasury to Sell $36B 2-Years, $35B 5-Years, $29B 7-Years
By Yong Lim, The Bond Buyer
NEW YORK - The Treasury Department said it will auction $36 billion two-year notes on Monday, September 27, $35 billion five-year notes on Tuesday, September 28 and $29 billion seven-year notes on Wednesday, September 29. The seven-years are due September 30, 2017. The five-years are due September 30, 2015.
http://jlne.ws/9v8BIg
Exchanges, Clearing Houses & MTFs
Eurex to Launch New Future on Short-term Italian Government Bonds
Press Release: September 20, 2010
Eurex: The international derivatives exchange Eurex announced today that it will be launching a new future that is based on notional short-term debt instruments issued by the Republic of Italy (Buoni del Tesoro Poliennali – BTP) on 18 October 2010. The contract will complement the Eurex benchmark interest rate derivatives family; along with the existing 10-year Euro BTP Future, the short-term BTP contract will serve as an appropriate hedging instrument for all non-triple-A-rated European government bonds as well as for other interest rate instruments (such as swaps). Following the launch of the new future, the short-term Italian government bond market will additionally benefit from the ensuing increase in basis and repo trading opportunities. Spread trading strategies will also be possible, thereby enhancing trading volumes in both futures.
http://jlne.ws/bMI1gE
CBOE Plans to Challenge CDS Market With Credit-Default Options
By Nina Mehta and Jeff Kearns, Bloomberg
CBOE Holdings Inc. is seeking to resurrect credit-default options, or contracts that pay off when companies fail to repay their debt, as regulators attempt to shift trading of over-the-counter derivatives onto exchanges. The owner of the largest U.S. options exchange first created the derivatives in 2007. Trading volume amounted to 56 contracts in 2007 and 2008, and none changed hands last year, CBOE said. To generate interest, the settlement price for contracts would be less than the $100,000 value on the original options, according to a proposal filed with the U.S. Securities and Exchange Commission.
http://jlne.ws/buQFbB
CME: Interest-Rate Swap Clearing Ready, Late 2010 Launch Seen
By Jacob Bunge Of DOW JONES NEWSWIRES
CME Group Inc. (CME) now has the systems in place enabling it to clear interest-rate swap trades, as executives continue to target a "soft launch" of the new service likely before the end of 2010. The company confirmed this week that its interest-rate swap clearing service is now operationally ready, though no firm launch date has been scheduled.
We're working with both the buy-side and the sell-side participants on this offering, said a spokesman for CME Group.
http://jlne.ws/cG0RHN
RTS Exchange: Closed Joint Stock Company "Depository Clearing Company" (DCC) Opens Direct Account In Euroclear Bank S.A./N.V.
Press Release
From September 20, 2010 depositors of the Closed Joint Stock Company "Depository Clearing Company" will gain the opportunity to conduct operations on settlements and keeping of international securities with DCC directly in an account in Euroclear Bank S.A./N.V. (hereinafter referred to as Euroclear Bank), which is the biggest international settlement and clearing center.
http://jlne.ws/cxgbC5
Eurex to Launch New Future on Short-term Italian Government Bonds
Press Release
Listing on 18 October 2010/ Existing Euro BTP Future to be complemented
The international derivatives exchange Eurex announced today that it will be launching a new future that is based on notional short-term debt instruments issued by the Republic of Italy (Buoni del Tesoro Poliennali - BTP) on 18 October 2010.
http://jlne.ws/c9vqhh
CME Asks CFTC to Reconsider Its Ruling on ELX Futures Contract
By Matthew Leising, Bloomberg
CME Group Inc. is asking the Commodity Futures Trading Commission to reconsider its decision to allow a competitor to offer a type of futures trade that the exchange considers illegal.
http://jlne.ws/9HWqUW
Firms & Banks
Vince Cable warns banks over 'outrageous' bonuses
BBC News
Business Secretary Vince Cable has warned banks they could face more taxes if they pay out "outrageously large" bonuses.
http://jlne.ws/9mJKF2
Deutsche Bank warns of quarterly net loss
By Alistair Barr, MarketWatch
Deutsche Bank AG warned Tuesday that it will likely report a third-quarter net loss because it may take a big charge related to its planned acquisition of Deutsche Postbank.
http://jlne.ws/dscKQi
HSBC Goes Live With Liquidity Risk Calculation And Reporting Solution From FinArch
Press Release
International provider of integrated risk and finance solutions, Financial Architects (FinArch), delivers Liquidity Risk Calculation and Reporting solution to HSBC Europe to meet the UK FSA Liquidity Risk Reporting requirements.
http://jlne.ws/cxgbC5
HSBC Chief May Quit If Not Given Chairman Role
New York Times
HSBC 's chief executive, Michael Geoghegan, is considering leaving his position at the bank after a meeting last week that implied he might be passed over for the role of chairman, The Financial Times reported, citing two people familiar with the matter.
http://jlne.ws/aBeDoD
HSBC Declines to Comment on Report Geoghegan Threatened to Quit
Bloomberg
HSBC Holdings Plc , Europe's largest bank, wouldn't confirm or deny a report that Chief Executive Officer Michael Geoghegan threatened to resign if he wasn't promoted to chairman.
http://jlne.ws/9RWKlA
HSBC Appoints New Australia Chief Economist
Dow Jones
SYDNEY -(Dow Jones)- HSBC said Monday it has appointed Paul Bloxham as chief economist for Australia and New Zealand, tapping the economist from the Reserve Bank of Australia where he spent 12 years.
http://jlne.ws/a7Asvg
Banks' Derivatives Clients Expect Cost Increase
TheStreet.com
A study finds companies expect increased costs from new derivatives rules.
http://jlne.ws/aXV5H5
Goldman Sachs, Morgan Stanley Earnings Estimates Reduced by Deutsche Bank
By Ambereen Choudhury, Bloomberg
Morgan Stanley and Goldman Sachs Group Inc. had their third-quarter earnings estimates cut by Deutsche Bank AG, which cited weak trading revenue.
http://jlne.ws/8X7WzI
Fidelity Clearing Canada strengthens management team
Investment Executive
Fidelity Clearing Canada has strengthened its senior management team with three appointments, the company said Tuesday. Tom White has been hired as chief operating officer, Ron White as chief financial officer, and Bryan Moffitt as chief compliance officer.
http://jlne.ws/9XYBWo
UBS Americas Backs U.S. Infrastructure Bank
New York Times
The chief executive of UBS 's Americas unit threw his support behind the Obama administration's proposal for a U.S. infrastructure bank on Tuesday, but warned against creating a quasi-government agency like housing finance enterprises Fannie Mae and Freddie Mac , Reuters reported.
http://jlne.ws/csgFOG
Citigroup prepares new European strategy
eFinancial News
Citigroup is preparing to unveil a new strategy for its European investment banking business as it seeks to draw a line under three years of decline in the league tables and the loss of some of its biggest rainmakers to rivals.
http://jlne.ws/cd4Acc
Is Citigroup finally off the ropes?
CNN Money
A deal late last week to sell its student loan portfolio brings the value of Citigroup's "bad bank" down by half. Will Vikram Pandit emerge as the victor?
http://jlne.ws/dnjUNY
Lehman's holds $10m art firesale
Australian Broadcasting Corporation
Bankrupt financial group Lehman Brothers is selling off part of its art collection, including works by Gerhard Richter and Maya Lin, in the hope of returning millions to creditors.
http://jlne.ws/aJDr6B
Lehman and SocGen strike $445m settlement
Dow Jones Daily Bankruptcy Review
Lehman Brothers and Société Générale have struck a settlement of pending litigation under which Lehman stands to recover at least $445m.
http://jlne.ws/bneZUb
Deutsche Bank's Plan to Acquire Postbank May Cost Jobs, Ver.di Union Says
Bloomberg
Deutsche Bank AG 's plan to buy retail lender Deutsche Postbank AG may result in job cuts and pose risks to the financial system and the economy, according to Germany's Ver.di labor union.
http://jlne.ws/dd22v8
Deutsche Bank Q3 loss sends jitters across sector
Business Standard India
Deutsche Bank AG said sales and trading activity during July and August was weaker than a year ago, providing a warning shot that third-quarter investment banking earnings could be weak across the board.
http://jlne.ws/9hsCmK
Lehman to File New Reorganization Plan in 4th Quarter, Seeks March Approve
By Linda Sandler and David McLaughlin, Bloomberg
Lehman Brothers Holdings Inc. plans to file a revised reorganization plan in bankruptcy court by the fourth quarter and aims to win creditor approval by March 2011, according to a regulatory filing.
http://jlne.ws/afoqYa
Lehman Suffers Setback in Derivatives Ruling
By KATY BURNE, WSJ.com
BNY Corporate Trustee Services Ltd. can appeal a Bankruptcy Court decision that originally went in favor of a Lehman Brothers Holdings Inc. unit.
http://jlne.ws/dwPmmu
Lehman Brothers, Société Générale Strike $445 Million Settlement
By JACQUELINE PALANK, WSJ.com
Lehman Brothers Holdings Inc. and Société Générale have struck a settlement of pending litigation under which Lehman stands to recover at least $445 million.
http://jlne.ws/cf5H1m
Judge allows "game-changing" Lehman case appeal
Reuters
BNY Corporate Trustee Services Ltd may appeal a bankruptcy court decision over credit derivatives contracts with Lehman Brothers Special Financing Inc before Lehman collapsed two years ago, a judge ruled.
http://jlne.ws/asks4z
Glimmer of hope for Cattles as talks continue
Yorkshire Post Today
THE threat of big losses at Royal Bank of Scotland and other banks could help subprime lender Cattles steer clear of administration as restructuring talks drag on this week. (21/09/2010 20:30:05)
http://jlne.ws/b44Vbg
SWIFT Links Trade Matching Service With EuroCCP To Provide CCP Guarantee For Prime And Executing Brokers
Press Release
EuroCCP announced today that it has partnered with SWIFT's central trade matching platform to provide prime and executing brokers central counterparty clearing (CCP) services for their over-the-counter (OTC) pan-European equity trades.
http://jlne.ws/cxgbC5
SWIFT links securities matching solution to multiple CCPs
Automated Trader
SWIFT links trade matching service with EuroCCP to provide CCP guarantee for prime and executing brokers
http://jlne.ws/dwmRAr
DTCC Loan Reconciliation Service Links Agent Banks to More Than 2,300 Lenders in 37 Countries
Business Wire
The Depository Trust & Clearing Corporation (DTCC) today announced that its Loan/SERV Reconciliation Services now links eight leading global agent banks to more than 2,300 investment funds and bank lenders - representing more than half the global syndicated loan market " located in 37 countries across North America, Europe, Asia and Africa. DTCC's Loan/SERV is ...
http://jlne.ws/bMlGQ6
Bank of America Said to Fire as Many as 400 Employees
By David Mildenberg, Bloomberg
Bank of America Corp., the largest U.S. lender by assets, is firing as many as 400 employees in its global banking and markets division as revenue from trading and advising clients declines, a person briefed on the matter said.
http://jlne.ws/97bjw0
Lloyds bank boss Eric Daniels will retire with L6m pay-off
Daily Mirror
Lloyds chief Eric Daniels faced outrage yesterday after it emerged he will retire with an estimated L6million pay-off.
http://jlne.ws/9Yn3sX
Nomura Hires Equity-Linked Solutions Expert For Convertible Origination Role
Press Release
Nomura, the global investment bank, continues to strengthen its Investment Banking team in the US with the appointment of Douglas Decker as Managing Director and Head of Convertible Bond Origination to execute Nomura's client focused, solutions driven strategy.
http://jlne.ws/cxgbC5
Reports: Bank Of America To Lay Off Staff At Investment-banking Unit
RTT News
Financial services giant Bank of America Corp. (BAC) plans to lay off about 3% of its staff in its investment-banking unit following a management review, according to media reports on Monday.
http://jlne.ws/aj6Igk
Noto Returns to Goldman
New York Times
AnthonyJ. Noto, the Goldman Sachs Internet analyst who left to become chief financial officer of National Football League, is returning to Goldman.
http://jlne.ws/9eBmTY
Goldman Shareholder Lagged CDs as Blankfein Earned $125 Million
By Christine Harper, Bloomberg
Goldman Sachs Group Inc. is one of the best-performing financial shares in the past decade and it beat the S&P 500 Stock Index, helping to explain Lloyd C. Blankfein's $125 million in cash bonuses during the period.
http://jlne.ws/9ToZqe
UBS Pushes Ahead With Integrated Bank Model
By Goran Mijuk, Dow Jones
ZURICH -(Dow Jones)- Swiss bank UBS AG (UBS: 18.20 ,-0.14 ,-0.74%) pushed ahead with its integrated bank model by launching a new unit Monday that will move its investment bank closer to its business catering to extremely rich clients, according to an internal memo seen by Dow Jones Newswires.
http://jlne.ws/aqKEgZ
Bank bosses refused to say sorry during financial crisis, academics find
Daily Telegraph
Bank bosses found "sorry" really was the hardest word when questioned over their role in the economic downturn, according to language experts.
http://jlne.ws/9zyFYm
Advantage Capital faces collapse without funding
Daily Telegraph
Financial Services Authority is set to close Advantage Capital down for breaching minimum capital requirements.
http://jlne.ws/aRmlaQ
Discover profit falls due to year-ago settlement
San Francisco Chronicle
Increased use of its credit cards and improved customer payment habits helped lift Discover Financial Services Co.'s fiscal third-quarter results, the company said Monday. Sales volume for purchases made with its cards rose 5 percent over a year ago, to $24... Discover Financial - Credit card - Net income - Business - Financial services
http://jlne.ws/cYSWMO
Credit Suisse spends $590,000 lobbying government
Credit Suisse Securities spent half as much lobbying the U.S. government during the second quarter as it did in the first quarter, with the reported amount spent falling to $590,000 from $1.19 million, according to a Congressional lobbying filing.
http://jlne.ws/bGed4V
RBS Says Rishi Shah, Co-Head of Interest Rates Trading, Leaves the Firm
Bloomberg
Royal Bank of Scotland Group Plc, one of the 18 primary dealers that serve as counterparties to the Federal Reserve in its open market operations, said co-head of U.S. dollar interest rates Rishi Shah has left the firm.
http://jlne.ws/949m9l
I Left Goldman Because I Was Sick Of The Soulless Pursuit Of Pay And Promotion
Business Insider
The bank giant, hit with a gender-bias lawsuit yesterday, may not overtly discriminate against women, former Goldman exec Nomi Prins says, but the numbers tell a damning story.
http://jlne.ws/cVena3
Prudential Financial spends $2.89 million lobbying on financial reform in 2nd quarter
Minneapolis-St. Paul Star Tribune
NEW YORK - Prudential Financial Inc. spent $2.89 million in the second quarter to lobby the federal government on financial reform and other issues, according to a disclosure report.
http://jlne.ws/9LR0HE
Charles Schwab Triples Its Retail Space at One Grand Central Place
dBusinessNews.com
NEW YORK CITY - Financial services firm Charles Schwab & Co., Inc. is tripling its space at W&H Properties' One Grand Central Place by relocating to the building's two-level retail space directly across from Grand Central ...
http://jlne.ws/dD9XA0
Morgan Stanley Executives Ask Dismissal of Shareholder Lawsuit Over Pay
Bloomberg
Morgan Stanley Chairman John Mack and Chief Executive Officer James Gorman sought to defeat a shareholder lawsuit over allegedly "unconscionable" compensation paid to employees.
http://jlne.ws/btjdrM
Regulators
SEC's Canellos Says U.S. Swaps Overhaul May Fuel Investigations
By David Scheer, Bloomberg
George Canellos, the head of the Securities and Exchange Commission's Manhattan office, said new U.S. rules for clearing derivatives trades are likely to expose frauds tied to instruments including credit-default swaps. "In history, there's been one insider-trading case brought in the context of credit-default swaps, and it's not because insider trading isn't perpetrated," Canellos said at a hedge- fund forum at Bloomberg's New York headquarters yesterday.
http://jlne.ws/9qz5Ib
Head of Basel Panel Defends Proposed Bank Rules
By JACK EWING, NYTimes.com
FRANKFURT - New rules on how much rainy-day capital banks must keep in reserve are more rigorous than they first seem and create "a road to a much safer banking system," the chairman of the panel that is writing the regulations said Wednesday, implicitly answering criticism that the proposals are too lax.
http://jlne.ws/bej1PS
Finra, UK's FSA Sign Pact To Work Together On Oversight
By Sarah N. Lynch and Nathan Becker, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Financial industry regulators in the U.S. and U.K. have signed a cooperation agreement in an effort to boost consumer protection and improve cross-border market surveillance.
http://jlne.ws/c1FgSr
***CN: As the world becomes smaller, more global regulation makes sense.
Zopa calls on Government and FSA to regulate social lending sector
Daily Telegraph
Zopa, Britain's first online business linking lenders and borrowers, has asked the Government and the Financial Services Authority (FSA) to regulate the growing social lending industry.
http://jlne.ws/bxLtCI
Deutsche Bank piles Basel pressure on rivals
Business Standard India
Deutsche Bank's race to comply with Basel capital requirements ahead of schedule is piling pressure on some straggling rivals to do the same and convince investors of their financial muscle.
http://jlne.ws/9MnMFk
Global News
Greek finance minister discusses Greece's good progress since the crisis
The Banker
Things look very different for Greece compared to a year ago. A new government intent on change, and the help of the IMF, has brought the country back from the brink of bankruptcy - and served as a wake-up call for the rest of Europe in the process.
http://jlne.ws/b6Gpws
***CN: A nice piece, written BY Papaconstantinou.
Greek Repayment Delay to EU, IMF Isn't Being Discussed, Germany, EU Say
By Tony Czuczka and Maria Petrakis, WSJ.com
Greece, Germany and the European Union said an extension of the loan package for the government in Athens isn’t being discussed, denying a newspaper report.
http://jlne.ws/9T6zvm
How Canada is among most indebted nations in the world
Michael Babad, the Globe And Mail
How Canada fares
Canada has been winning praise throughout the industrialized world for Ottawa's fiscal position, a relatively low level of government debt-to-GDP when compared to its peers. But, Scotia Capital notes today, add in private debt and it doesn't look so good.
http://jlne.ws/bLq6cH
Turkish bonds weaken as cbank lifts reserve rates
Reuters
Turkey's bonds weakened and banking shares fell on Thursday after the central bank raised banks' reserve requirement rates, draining around $3 billion of cash from the country's economy.
http://jlne.ws/aGlNAI
Strong Debt Sales Ease Sovereign Concerns
BY EMESE BARTHA, WSJ.com
Ireland's closely watched government bond auction led a series of strong debt sales by Europe's fiscally challenged countries Tuesday, bringing some relief to the sovereign landscape. The Irish National Treasury Management Agency sold the maximum intended €1.5 billion ($1.96 billion) in two series of government bonds but paid sharply higher yields than in previous auctions, reflecting political and economic uncertainty.
http://jlne.ws/d1jIkW
BOJ Official Suggests More Easing Ahead
BY TOMOYUKI TACHIKAWA, WSJ.com
TOKUSHIMA, Japan—A Bank of Japan policy board member said Wednesday that the central bank would take "timely and appropriate" action if downside risks to the Japanese economy materialize, suggesting the BOJ is inching toward a looser monetary policy stance amid growing concerns over the health of the global economy.
http://jlne.ws/c5vmlt
Euro-Zone Consumers More Upbeat
BY NICHOLAS WINNING AND PAUL HANNON, WSJ.com
LONDON—Consumers in the 16 countries that use the euro were slightly more upbeat in September, but other official data showed that new industrial orders in the currency area posted their sharpest monthly drop in 19 months in July.
http://jlne.ws/bHme3a
UBS vows Brazil growth with wealth business return
Reuters
UBS, the world'ssecond-largest money manager for the rich, relaunchedTuesday its wealth management unit in Brazil, as the fastesteconomic expansion in almost two decades is boosting the numberof millionaires and demand for specialized investment advice.
http://jlne.ws/bbfafc
Europe will not escape job cuts at BofA Merrill
eFinancial News
Staff in Europe will not escape job cuts in the investment banking business of Bank of America Merrill Lynch, with layoffs of about 3% of the 13,000 employed in the division globally shared across regions and business lines, the bank said today.
http://jlne.ws/aA8HLr
Buffalo-based bank said to be near Santander merger
Crain's New York Business/ Bloomberg
M&T Bank Corp. may give up a majority stake to Banco Santander SA through a merger with the Spanish lender's U.S. unit, while retaining some elements of control, according to people with knowledge of the matter. The banks are in informal talks with the U.S. Federal Reserve to gauge how such a deal would be received, and expect to hear back within two weeks, said the people, who spoke ...
http://jlne.ws/blgE7r
Troika May Boost Assets 10-Fold on Growing Russian Wealth, Foreign Money
Bloomberg
Troika Dialog, Russia's oldest brokerage, seeks to increase assets under management 10-fold within five years by courting the country's growing middle class and foreign investors.
http://jlne.ws/d16JgL
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