Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

Spotlight swings to interdealer brokers

Posted on 19 December 2012 by

The UBS Libor settlement swings the spotlight on to the role of interdealer brokers in the burgeoning scandal, alleging that employees at these institutions actively “colluded” with rate-fixing efforts – and were handsomely rewarded for it.

According to the final notice published by the UK Financial Services Authority, four UBS traders worked through the brokers to try to influence the Japanese yen Libor submissions at other banks. The watchdog says the traders made more than 1,000 requests to 11 employees at six interdealer broker firms.

    UBS then paid brokers through wash trades that had no purpose other than to generate fees, and at one point the bank was paying £15,000 a quarter to the brokers for a period of 18 months, the FSA said.

    Interdealer brokers act as conduits in the market for large and illiquid trades, talking to a range of bank traders, both by phone and electronically, every day. They do not participate in the daily Libor rate-setting process, in which a group of panel banks submit their estimates of the interest rate they would have to pay to borrow that day and the results are then averaged to set the official benchmark.

    The FSA alleges that UBS traders used the middlemen to pass on requests for specific rates to traders at other banks. They also asked the brokers to place false bids and offers – known as “spoofs” – and asked them to manipulate the rates shown on their trading screens to skew market perceptions of the rates and indirectly influence other banks’ submissions to the Libor rate-setting process.

    In one particularly dramatic example, the FSA notice quotes a UBS trader saying: “if you keep 6s [the six-month yen Libor rate] unchanged today … I will [expletive] do one humongous deal with you … Like a 50,000 buck deal, whatever … I need you to keep it as low as possible … if you do that …. I’ll pay you, you know, 50,000 dollars, 100,000 dollars… whatever you want … I’m a man of my word”.

    Up to now, only three interdealer brokers – Icap, RP Martin and Tullett Prebon – had acknowledged receiving information requests from authorities in connection with the global investigation into Libor. Icap and RP Martin have suspended employees or put them on leave in connection with the investigation, but Tullett Prebon said as recently as last week it had not. All three firms have said their institutions were not under investigation.

    Two employees of RP Martin and a UBS trader were arrested last week as part of the UK Serious Fraud Office’s Libor probe. They were bailed without charge pending further investigation.

    The Swiss regulator Finma said in its UBS settlement documents that a single trader, dubbed Trader A, made several hundred requests to different brokers asking them to help influence the rate. The watchdog said Trader A promised brokers additional business and conducted wash trades as a reward for their help.

    Its settlement document describes an email exchange between that trader and a broker in August 2008, in which the trader says, “obvious could do with low 6m tonight” and the broker replied, “:-) yep with you mate, low everything” and went on to ask if the trader thinks the broker “is your best broker in terms of value added :-)”?

    Trader A responded with a reassuring “yeah, I reckon I owe him a lot more”.

    UBS to pay SFr1.4bn in Libor settlement

    Posted on 19 December 2012 by

    UBS has agreed to pay SFr1.4bn ($1.5bn) to US, UK and Swiss regulators as part of a global settlement over allegations that it tried to manipulate Libor interest rates.

    The Swiss group will pay $1.2bn to the US Department of Justice and Commodities Futures Trading Commission, and £160m to the UK’s Financial Services Authority. The bank will also disgorge SFr59m in profits to Finma, the Swiss regulator.

      As part of the settlement, UBS’s Japanese unit agreed to enter a plea of one count of wire fraud related to the rigging of various rates, including yen Libor.

      In March 2011, UBS became the first bank to disclose it was under investigation for attempted manipulation of the London Interbank Offered Rate, which is used to price more than $350tn in contracts worldwide.

      The deal announced on Wednesday makes UBS the second bank to settle in the long-running scandal. In June, Barclays agreed to pay £290m to US and UK regulators over its role in the Libor scandal. The resulting furore cost Barclays its chief executive and chairman, and sparked wholesale reform of the way Libor is set.

      The UK penalty levied on UBS is the largest in the history of the FSA and more than double the £59m paid by Barclays.

      Sergio Ermotti, UBS chief executive, said the bank had taken action to strengthen controls.

      “We deeply regret this inappropriate and unethical behaviour. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity,” he said.

      UBS expects the fines to contribute to a net loss of between SFr2bn and SFr2.5bn in the fourth quarter.

      Like Barclays, UBS has admitted to two kinds of manipulation. It admitted that traders tried to move the Libor rate up and down to make money on derivatives, and that it understated its reported borrowing rates during the financial crisis to make the bank appear stronger.

      The FSA settlement portrays pervasive and persistent efforts to manipulate rates lasting from 2005 to 2010. It says at least 45 traders, managers and senior managers were involved in, or aware of, the attempts and that investigators found at least 2,000 requests for improper submissions.

      The misbehaviour spanned three continents and was widely discussed on group emails and in internal chat forums, the FSA said. Compliance failed to pick it up, despite making five audits of this part of the bank during the period.

      UBS traders also “colluded with interdealer brokers in co-ordinated attempts to influence” Japanese yen Libor submissions made by other banks, and the bank made “corrupt brokerage payments” to reward brokers who participated in the manipulation scheme, the FSA said.

      This marks the first time that brokers have been accused of taking payments to help with manipulation. Brokers Icap and RP Martin have previously acknowledged suspending employees in connection with the probe.

      The FSA decision notice said four UBS traders had made more than 1,000 requests to 11 employees at six interdealer brokers.

      Finma, meanwhile, found that UBS traders “made numerous requests asking bank employees responsible for submitting interest rates to submit higher or lower values” between 2006 and 2010, in an effort to “influence submissions in such a way as to benefit UBS proprietary trading positions”.

      The Swiss watchdog also found that some UBS managers had urged employees to submit rates that would “positively influence the perception of UBS’s creditworthiness” between 2007 and 2008. It said numerous employees and a limited number of managers were involved.

      The Libor probe has drawn in more than a dozen banks on three continents. Last week, three men, including a former UBS trader, were arrested in the UK and bailed without charge pending further investigation. Several former UBS employees have been notified by the FSA that they are personally under investigation.

      Wednesday’s settlement caps a tumultuous few months for Switzerland’s largest bank and its relatively new leadership team of Sergio Ermotti, chief executive, and Axel Weber, chairman.

      In November, UBS was fined £29.7m by the FSA for control failures that allowed rogue trader Kweku Adoboli to take positions that cost the bank $2.3bn in 2011 and Oswald Grübel, then chief executive, his job.

      The previous month, UBS announced a SFr2.2bn third-quarter loss as Mr Ermotti unveiled a plan to cut its investment banking operations in half. He said UBS would shed 10,000 jobs and refocus on its more lucrative wealth management operations.

      Global stocks near 17-month highs

      Posted on 19 December 2012 by

      Wednesday 10.40 GMT. Global stocks are trading near 17-month highs as optimism builds that Washington will reach a deal in US budget talks, while in Japan the Nikkei topped 10,000 for the first time since April on expectations of aggressive monetary easing.

      The FTSE All-World equity index is up 0.5 per cent to 226, its loftiest level since July 2011, after the Asia-Pacific region added 1.1 per cent and as the FTSE Eurofirst 300 continues its good run of form. The Europe-wide barometer is gaining 0.5 per cent as Germany’s Dax index flirts with five-year highs.

        Futures action suggests Wall Street’s S&P 500 will hold its overnight close of 1,447, leaving the US benchmark less than 20 points below its highest mark in more than four years.

        Support for New York stocks may come from some well-received results from Oracle, which arrived after Tuesday’s closing bell. The technology giant said it remained positive on IT spending and also addressed the topic that continues to be the market’s main focus: the US fiscal cliff.

        The California-based software group suggested it had not really sensed any shift in behaviour from its customers because of the impending fiscal cliff. However, this sanguine view runs counter to recent evidence of failing confidence among both households and corporations.

        Analysts and many investors have for several weeks been professing a fear that the fiscal cliff’s $600bn worth of automatic spending cuts and tax hikes slated to take effect next year, would likely push the US economy into recession.

        And yet it seems clear from the trundle higher in many so-called risk assets that many were still betting that the worst case scenario – no deal and economic dislocation – would be averted.

        The latest progress in Washington, though still pitted by partisan rhetorical salvos, led may traders to believe the chances of some sort of deal remain quite high.

        Bears will moan that such confidence leaves the market highly sensitive to disappointment. But for now the bulls appear to be in charge and enjoying a traditional seasonal burst of optimism.

        Helping the bullish cause is the continuing reduction of eurozone sovereign debt tensions. Italian and Spanish borrowing costs sit near multi-month lows and the euro is up 0.3 per cent to $1.3273, near an eight-month high. The currency is also benefiting from news that the Ifo index of German business sentiment rose again in December.

        The improvement in the mood even extends to Standard & Poor’s, with the rating agency raising its assessment of Greece’s sovereign debt by several notches, citing the eurozone’s “strong determination” to keep the country inside the common currency area.

        A currency going in the other direction of late is the yen – though this is not considered a negative sign to buyers of Japanese assets.

        The yen is down 0.3 per cent versus the dollar to Y84.42 after Japan reported its fifth straight trade deficit in November. But the data are only seen heightening pressure on the Bank of Japan to introduce more stimulus to boost the slowing economy.

        And this reasoning is continuing to light a fire under the Japanese stock market. The Nikkei 225 Stock Average rose another 2.4 per cent as exporters continued to benefit from the yen’s weakness.

        The Nikkei has now surged 17.3 per cent in just five weeks and this corresponds with a move out of Japanese government bonds. Yields on the 10-year JGB are 0.79 per cent, a two-month high.

        Similar trends can be seen in other perceived bond havens. The yield on the US 10-year note is down 1 basis point on Wednesday, but at 1.81 per cent it sits near the top of a 30 basis point range of 1.55-1.85 per cent that has held since the start of August.

        A $35bn auction of new five-year paper by the US Treasury on Tuesday saw relatively lacklustre demand and investors will be interested to see how Wednesday’s $29bn seven-year sale proceeds.

        In commodities markets, higher risk appetite has been underpinning prices but Wednesday’s gains are patchy. Brent crude is up 79 cents to $109.63 a barrel and copper is adding just 0.1 per cent to $3.64 a pound.

        Gold is recovering slightly, up $4 to $1,670 an ounce, after falling sharply to three-month lows in the previous session. Bullion is being helped by a 0.3 per cent dip for the dollar index.

        Additional reporting by Song Jung-a in Seoul and Stephen Foley in New York

        Financial services tax take drops

        Posted on 19 December 2012 by

        Corporation tax payments from the financial services sector fell by a quarter in 2011-12 to £5.4bn, as the tax rate fell and profitability was hit by the European debt crisis and provisions for mis-selling payment protection insurance.

        The decline, which saw the sector paying less than half the £12.4bn it paid at the peak in 2008, made it the second largest payer of corporate tax behind the oil industry, according to an annual study published by the City of London Corporation.

          In a sign of the effects of recent changes to the tax system, the declining corporation tax payments were offset by increased payments of irrecoverable value added tax, national insurance and other indirect taxes, according to PwC, the consultancy that prepared the study.

          A total of £63bn of tax was borne and collected by the sector in 2011-12, unchanged from 2010-11. The sector’s share of the UK’s total tax take fell slightly from 12.1 per cent to 11.6 per cent.

          Mark Boleat, policy chairman at the City of London Corporation, said: “These figures demonstrate the significant contribution that the UK financial services industry continues to make in terms of taxes and jobs even in this difficult economic environment.”

          Payments by banks, which are the largest component of the financial services sector, fell particularly sharply from £3.5bn to £1.3bn in the year to 2012. A levy on bank balance sheets contributed £1.6bn but its full impact will only be apparent in next year’s figures.

          Employment in the sector remained constant from the previous financial year at 1.1m (3.8 per cent of the workforce), and accounted for £27.7bn, 11.8 per cent of total employment taxes.

          Wells Fargo buys into Rock Creek

          Posted on 18 December 2012 by

          Wells Fargo has taken a minority stake in Rock Creek, a fund of fund business, in a further sign of consolidation of the embattled sector.

          It comes as investors continue to shun actively managed stock funds in favour of cheap index and exchange traded funds, pushing the established asset managers to look for alternatives such as hedge funds to attract assets.

            “We see a natural opportunity with this deal to fill in one of the few areas in our current business where we don’t have a capability,” said Mike Niedermeyer, chief executive of Wells Fargo Asset Management. He said customers are “seeking out this type of investment”.

            The bank has taken a 35 per cent stake in the asset manager, which has $7bn in assets under management, and has the option to increase that over time. Terms were not disclosed.

            The move is the latest of several deals in the fund of funds industry, which is under pressure as assets shrink and hedge fund returns diminish.

            In May, FRM, another long-established fund of funds with $8bn under management, sold itself to Man Group for a token consideration.

            Franklin Templeton earlier this year acquired a majority stake in the fund of funds business K2, and this week Legg Mason said that it would acquire Fauchier Partners and add it to its existing fund of funds arm Permal.

            At the peak of the financial boom, funds of funds – which pool client investments and then invest them in a selected portfolio of separate hedge fund managers – were once responsible for the bulk of the hedge fund industry’s assets under management.

            But with fewer private individuals now investing in hedge funds and more pressure on fees, funds of funds have struggled to retain assets.

            Rock Creek is one of the few to buck that trend. “The new model of fund of funds – who are transparent and provide tailored portfolios for their clients – that has good growth prospects . . . in the case of Rock Creek, their assets have grown from $3.7bn in 2008 to $7bn currently,” said Mr Niedermeyer.

            Wells Fargo Asset Management has more than $450bn in assets under management. Rock Creek will be added to the group’s Affiliated Managers Division, which operates several different asset managers trading under their own brands. The group said that it did not expect to make further fund of funds acquisitions.

            Park Group weathers downturn

            Posted on 18 December 2012 by

            Park Group, the gift card and Christmas hamper company, has reported an increase in revenues, as its customers have continued to spend despite the tough economic climate.

            Average customer spend is now £430 a year, up from £416 a year ago, the Birkenhead-based company said.

              Chris Houghton, chief executive, said the downturn had not affected its performance. “Low income families can put a bit away so that they have a good Christmas,” he explained.

              Mr Houghton added that 15 institutional investors – including Investec, Axa and Cazenove – had bought into the company, acquiring a 35 per cent stake sold by founder and chairman Peter Johnson, who has taken a non-executive role. Mr Johnson, who is also owner of Tranmere Rovers football club and a former chairman of Everton, has retained a 29.95 per cent holding.

              “They are quality investors and improve the free float and liquidity,” Mr Houghton said.

              Mr Johnson, 73, who has moved to Switzerland and made £31.5m from his share sale, said Park’s performance in its typically lossmaking first half, to September 30, had been “excellent”, as customer billings rose 12 per cent from £48.6m to £54.6m, while revenue was up 2 per cent from £46m to £46.9m and pre-tax losses fell from £4.4m to £4.1m.

              Billings are higher than revenue as a result of the accounting treatment of its Flexecash prepaid card, launched in June 2010. Revenue from the cards is recognised only after the value loaded on the card has been redeemed.

              Flexecash cards and vouchers can be used in high street retailers such as Argos and Boots. They are often given by companies to staff in lieu of cash to reward performance.

              Corporate billings increased 11 per cent to £46.2m while consumer billings rose 24 per cent to £8.5m.

              Park said its UK agents, who sell door to door, now number 122,000, up from 114,000 last year, and customer base had grown to 423,000 from 415,000.

              It announced a 4.8 per cent increase in interim dividend to 0.55p a share. The company’s loss per share narrowed from 1.94p to 1.83p.

              Arden Partners, the house broker, has forecast annual pre-tax profits of £9.5m, up from £8.5m a year ago.


              FT Comment

              A decade ago, Park employed hundreds of people to pack hampers every Christmas. But, since the Farepak scandal of 2006 – in which tens of thousands of people lost their savings in a rival hamper company – it has reinvented itself. Park now spends more than £1m annually on IT and – with the exception of its £9m or so of remaining hamper orders – it handles no products. It is basing its future on its Flexecash cards, which allow cash to be saved and then spent in dozens of shops. Higher inflation and interest rates, as hinted at by new Bank of England governor-elect Mark Carney, would potentially boost revenues from its savings products. Park’s shares, on forward price/earnings ratio of 13.4 against a sector average of 18.4, look an equally worthy investment.

              Three UK insurers face $380m bill on Sandy

              Posted on 18 December 2012 by

              Three listed Lloyd’s of London insurers have estimated they are facing combined losses of about $380m from superstorm Sandy but cautioned that the final hit they would take remained uncertain.

              Catlin estimated it would endure net Sandy-related losses of about $200m, Hiscox claims about £90m and Novae says it would have costs of between $25m and $30m.

                The hurricane ravaged the eastern seaboard of the US, causing widespread flooding and severe damage to the homes, businesses and infrastructure that lay in its path.

                But even though seven weeks have passed since the storm, all three UK insurers cautioned they were still struggling to pinpoint exactly the size of the losses.

                Catastrophe analysts estimate Sandy will cost the insurance industry between $20bn and $25bn, which would make it the second-costliest storm on record – in absolute terms – after Hurricane Katrina in 2005.

                Shares in Catlin fell 3 per cent to 482.1p.

                Joy Ferneyhough, analyst at Espírito Santo Investment Bank, said Catlin’s estimated losses equated to 7.6 per cent of its tangible book value, after tax.

                This compared with 4.7 per cent for Novae, whose shares rallied 1.8 per cent to 376.25p.

                Hiscox shares fell 1.5 per cent to 461.9p.

                The Lloyd’s estimates comes a day after Zurich Insurance Group said it expected to face net claims of $700m.

                AIG has estimated that the storm would cause it post-tax net losses of about $1.3bn, while Swiss Re is expecting a pre-tax claims burden of about $900m.

                Aviva files lawsuit over Dewey collapse

                Posted on 18 December 2012 by

                The fallout from the bankruptcy of Dewey & LeBoeuf has escalated after Aviva accused former senior executives at the law firm of misrepresenting its financial position before the insurer lent it money.

                In a lawsuit filed in Iowa, where the US arm of the UK insurer is based, Aviva alleged Dewey had provided it with “false and misleading statements” that the three top officers “knew or should have known were deceptive”.

                  Aviva, which bought $35m in senior secured notes in April 2010, said the defendants had assured them Dewey was financially sound when it was in fact “dire”.

                  In particular, Aviva complained they hid remuneration that Dewey owed to some of its partners.

                  The law firm had handed out multimillion-dollar guarantees to attract so-called rainmakers that would bring their books of business to Dewey. But it was unable to fulfil its obligations.

                  Dewey & LeBoeuf filed for Chapter 11 bankruptcy protection in May, the biggest collapse of a US law firm by any measure. Former partners have filed other lawsuits relating to its collapse.

                  Aviva’s law suit named Steven Davis, former chairman, Stephen DiCarmine, former executive director, and Joel Sanders, former chief financial officer, as defendants.

                  Ned Bassen, partner at Hughes Hubbard & Reed, who represents Mr Sanders and Mr DiCarmine, said: “The lawsuit is frivolous. The insurance company purchased the notes from the law firm of Dewey & LeBoeuf LLP but has bypassed bringing a claim against the law firm in New York bankruptcy court to, instead, sue three individuals in Iowa . . . The lawsuit’s allegations are false and rely on second- or third-hand purported information, even media statements. This equates to legal muckraking.”

                  Kevin T Van Wart of Kirkland & Ellis, who represents Mr Davis, said: “Aviva is a sophisticated entity that knew what it was doing. Rather than take responsibility for an investment decision that soured, it is looking for someone else to blame and resorting to revisionist history.”

                  He added: “To the extent that Aviva has a claim, it is really a claim against the Dewey & LeBoeuf estate and belongs in the bankruptcy court.”

                  Retail heiress in legal fight with bank

                  Posted on 18 December 2012 by

                  A retail heiress who lost billions of euros in an insolvency in the financial crisis on Tuesday began legal action against a Deutsche Bank unit for its role.

                  Madeleine Schickedanz, formerly one of the world’s wealthiest women, was the main shareholder in Arcandor, the retailer which filed for insolvency in 2009. She is suing Sal Oppenheim, the private bank that was bought by Deutsche in 2009, as well as Sal Oppenheim’s former partners and a German property financier with links to the bank.

                  Lawyers for Ms Schickedanz were asked by a judge in Cologne to do more to substantiate her €1.9bn claim for damages. The case will continue next year.

                  Sal Oppenheim – which also became a significant shareholder in Arcandor – and the others being sued should have given her better advice, Ms Schickedanz alleges. Sal Oppenheim and others being sued reject the claims made by Ms Schickedanz, who used loans from the bank to increase her stake in the retailer.

                  Prosecutors have also charged Sal Oppenheim’s former partners and the property financier with breach of trust in a separate case due to start next year.

                  Former bank chief to chair advisory board

                  Posted on 18 December 2012 by

                  Sir Peter Burt, former chief executive of Bank of Scotland, is to chair the advisory board that will shape the business bank being set up by the coalition to improve lending to small businesses.

                  The board will establish the framework for the bank being set up by George Osborne, chancellor, and Vince Cable, business secretary.

                    The recruitment of one of the few senior British bankers who remains untainted by the financial crisis is part of the coalition’s effort to show it can tackle the problem of small and medium-sized companies being starved of credit.

                    Mr Cable is expected to announce details of the bank in a written ministerial statement tomorrow. In his Autumn Statement, Mr Osborne said it would be seeded with £1bn of government funding, but there has been little detail about the venture, which will not be operational until 2014.

                    As chief executive of Bank of Scotland between 1996 and 2001, Sir Peter engineered its merger with Halifax to create HBOS. He stepped down as deputy chairman in 2003.

                    It is thought that Sir Nigel Rudd, chairman of the bank-supported Business Growth Fund, which takes stakes in UK-based SMEs, has also been asked to join the advisory board to ensure co-ordination between the two projects. If Sir Nigel accepts the invitation, Stephen Welton, BGF chief executive, could step up to replace him.

                    The business bank is seen as a long-term initiative to plug the gap in finance for SMEs rather than a short-term effort to boost credit, for which Mr Osborne’s “funding for lending” scheme is the latest government initiative.