Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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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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Archive | November, 2016

Seymour Pierce’s future up in the air

Posted on 31 January 2013 by

The board of Seymour Pierce held talks on Thursday night over the future of one of the City’s oldest stockbrokers after struggling to raise new funds.

After regulators blocked a cash injection from unnamed Ukrainian backers in recent months, the small-cap broker has approached several rivals about investing in the company or taking it over.

    So far it has failed to secure a deal. People familiar with the discussions said rival brokers N+1 Singer and Panmure Gordon were among those who had turned down an approach from Seymour Pierce over an investment.

    “The reason this has come about is because the Financial Services Authority has blocked [funding from a Ukrainian party],” said one person close to the discussions.

    Last year, Seymour Pierce sought an investment of up to £5m, and an unnamed party from Ukraine was among the potential investors.

    Along with other small-cap brokers, Seymour Pierce’s profitability has been dwindling. According to its latest available accounts, the holding company made a pre-tax loss of £587,119 in 2011 against a profit of £617,275 in 2010.

    In 2011, Gerova Financial, a Bermuda-based company, was in talks to take over Seymour Pierce, but no deal materialised. Seymour Pierce also held talks with rival Finn Cap, but those discussions foundered before reaching formal negotiations.

    Seymour Pierce’s profitability has been hit by an increasingly competitive environment, in which trading volumes have fallen and dealmaking remains limited.

    There has been a wave of consolidation in the sector, which many industry executives acknowledge is oversupplied.

    Canadian bank Canaccord recently completed its acquisition of Collins Stewart Hawkpoint, and before that US broker Jefferies bought Hoare Govett.

    Seymour Pierce is one of the highest profile advisers to the Alternative Investment Market, acting as nominated adviser to about 60 companies.

    Keith Harris, the chairman of Seymour Pierce, took the broker private through a management buyout in 2003 with the backing of Jon Moulton’s private equity group Alchemy.

    Mr Harris, a former HSBC banker, is known in the City for his big football deals, including his involvement in “Red Knights” – the failed attempt led by Mr Harris and other City figures including Goldman Sachs’ Jim O’Neill to buy Manchester United from the Glazer family.

    Seymour Pierce declined to comment.

    Blackstone beats forecasts as income leaps

    Posted on 31 January 2013 by

    Blackstone said it had completed its most profitable year as a public company as the world’s largest alternative asset manager reported a 43 per cent rise to $670m in fourth-quarter economic net income.

    Full-year economic net income rose 30 per cent to nearly $2bn, the highest since Blackstone floated in 2007 and ahead of Wall Street expectations.

      The better than expected results pushed Blackstone shares up 6.7 per cent to $18.60 by lunchtime in New York, down from $31 at the time of its flotation.

      Blackstone focuses on economic net income rather than GAAP earnings because the measure excludes costs associated with the group’s initial public offering, including compensation costs. It also takes into account operating performance including the current market valuation of its portfolio.

      Steve Schwarzman, founder and chief executive, said the group was already positioning itself for an eventual rise in interest rates. “It will be one unhappy day when interest rates reverse for people who are very long,” he said, referring to those making bets that long-term interest rates would remain low.

      In anticipation, Blackstone’s GSO credit arm has been shortening the maturity of its holdings, shifting from fixed-rate to floating securities and holding more cash.

      Blackstone reported growth across most of its five main businesses, led by GSO where quarterly income rose 96 per cent to $107m compared to the year earlier period. But real estate, its biggest profits contributor, fell 2 per cent to $246m, with the result held back by a 17 per cent drop in performance fees.

      In private equity, gains in the valuation of assets plus exits led to an 86 per cent surge in quarterly income to $198m, while the hedge fund arm was up 163 per cent to $82.7m.

      Blackstone’s assets under management rose 26 per cent to a record $210bn at the end of December. The growth was spurred by a 53 per cent rise in GSO assets to more than $56bn and a 32 per cent rise in real estate assets to almost $57bn.

      “This [result] demonstrates the importance and benefits of strong organic growth and diversified AUM [assets under management] mix at Blackstone,” said Roger Freeman, an analysts at Barclays.

      Across its businesses, Blackstone invested $15.6bn and returned $18bn to investors, as it took advantage of more favourable conditions in the equity market.

      However, Tony James, Blackstone’s president, cautioned that the deal environment “was slower than we’d like”. He said: “Sellers are waiting for better economic times,” adding, “financing markets are sufficiently hot so even troubled companies can get financing at low cost.”

      On a GAAP basis, Blackstone reported net income of $106m for the quarter, compared with a year earlier loss of $22.7m.

      Santander results hit Spanish stocks

      Posted on 31 January 2013 by

      Disappointing results from Santander
      sent Spanish stocks into negative territory as the bank missed analyst forecasts for fourth- quarter earnings.

      Spain’s largest bank by assets said net profits after provisions declined by 59 per cent to €2.2bn in 2012. Fourth-quarter earnings came in at €401m, below expectations of about €800m.

        The shares fell 3.5 per cent to €6.18. Madrid’s Ibex 35 index dropped 2.5 per cent to 8,362.3.

        After the market close, Spain’s market regulator lifted a temporary ban on short selling in a move that was largely expected.

        However, some analysts thought a ban would remain on financial stocks.

        In a note to clients, Exane BNP Paribas highlighted a handful of banks that would be negatively affected. Another analyst, who wished to remain anonymous, said: “We could see the stock market go down materially based on the assumption that there might be some investors that have been unable to hedge their position in Spain until now.”

        Elsewhere, signs of recovery from Ericsson
        prompted investors to buy its stock. The Swedish telecommunications equipment maker said a SKr8bn writedown on its ST-Ericsson joint venture put it at a net loss of SKr6.3bn for the quarter.

        STMicroelectronics
        , the chipmaker that owns the other part of ST-Ericsson, separately said it needed as much as $500m to restructure and exit its stake in ST-Ericsson. Ericsson’s shares jumped 7.6 per cent to SKr74, while STMicro rallied 3.5 per cent to €6.34.

        Clarity on the amount that
        Deutsche Bank
        would have to write down for legal and restructuring charges appeared to come as a relief to investors.

        The lender said it made a €2.2bn loss in the three months to December after billions of euros of writedowns. Its shares soared 2.9 per cent to €38.21, the highest level in 10 months.

        News that the US Department of Justice had filed a lawsuit to stop Anheuser-Busch InBev
        from acquiring Grupo Modelo
        , the Mexican brewer, sent InBev’s shares down 7.8 per cent to €63.90.

        US banks squeezed as mortgage profits hit

        Posted on 31 January 2013 by

        US banks are suffering a squeeze on mortgage profits after a bumper two years, adding to pressure on the earnings of Wells Fargo, Bank of America and the other large lenders.

        Mortgage rates rose from an average 3.42 per cent to 3.53 per cent on Thursday, the sharpest increase in 10 months, according to the weekly survey of 30-year mortgages by Freddie Mac, the government-backed mortgage company.

          But the rate rise is not swelling the profits of lenders. In fact, the spread between what it costs them to fund mortgages and what they charge borrowers has halved since a record set in September.

          At the same time, bankers say, demand has fallen as the surge in refinancings has tailed off. “What we’ve seen is a significant reduction in the market size, particularly recently,” said an executive at a large lender. “I know our applications are down.”

          The downturn comes after the biggest banks sharply increased their capacity, hiring new loan officers to deal with a flood of homeowners wanting to refinance.

          The mortgage rate is also influenced by the secondary market of mortgage-backed securities, where yields have increased significantly recently in line with US Treasuries.

          Although rates that lenders charge borrowers have risen as a result, they have not increased in line with bond yields, leading to a tightening of the spread between what lenders receive from bond investors and what they charge borrowers.

          The tightening may ease concerns about potential profiteering. Federal Reserve officials have been worried about banks making profits on the back of the central bank’s own quantitative easing programme, known as QE3, in which it is buying $40bn a month of MBS, pushing prices up and yields down.

          “Mortgage originators have been big beneficiaries of QE3,” said Richard Staite, analyst at Atlantic Equities. “They didn’t pass on all of the decline in MBS yields to the end customers, allowing them to generate abnormal profits. That’s now coming to an end.”

          The primary-secondary spread, typically around 50 basis points, spiked to more than 150 basis points in September. However, it has recently fallen to below 100 basis points, mainly because the yield on new mortgage bonds has risen quickly, in part due to the improving outlook on the US economy.

          David Stevens, head of the Mortgage Bankers Association, said the spread was likely to be permanently higher because of increased costs, such as guarantee fees paid by banks for government-backed insurance on their loans. But he said the emergence of final regulations this month was reducing uncertainty and the tailing off of the wave of refinancing was reducing demand: both should reduce the spread.

          “When the market contracts . . . we’re going to have increased competition,” he said. “Competition on its own is going to drive spreads tighter. That’s not always a healthy outcome because some institutions may reduce margins below healthy levels.”

          Tax blow for holiday homeowners

          Posted on 31 January 2013 by

          Thousands of UK holiday homeowners who let their properties received a blow on Thursday when a tribunal quashed a landmark ruling that allowed relief from inheritance tax.

          An estimated 65,000 owners of furnished holiday lets could be hit with big inheritance tax bills after the Upper Tribunal overturned a decision last year in favour of the taxpayer, following an appeal by HM Revenue and Customs.

            HMRC changed its guidance a few years ago to apply a stricter interpretation of when business property relief was available for inheritance tax purposes in relation to furnished holiday lets.

            It treats holiday lets in the same way as other investment or rental property for tax purposes, making them ineligible for the tax relief granted to business, and liable to 40 per cent IHT on the owner’s death. Only those providing a substantial amount of services to holiday makers could get the relief.

            However, last year a tribunal ruled that they should not be considered investments, bringing them under the rules for business property relief. Experts said the case, HMRC v Pawson, was significant as there was no clear evidence that the owner in question had “substantial involvement” managing the property for holidaymakers.

            The ruling had been expected to open the door to a flood of claimants, but Thursday’s decision reversed this. “This is a very bad decision as far as many property owners are concerned,” said John Endacott, a partner at chartered accountants Francis Clark.

            Domestic banks stuck with pain in Spain

            Posted on 31 January 2013 by

            Santander©Reuters

            As they scrutinise the full-year results of Spain’s leading banks over the next two days, investors will be looking to answer a crucial question – is the worst finally over for the crisis-ridden Spanish banking sector?

            Market sentiment has certainly turned more positive since the start of the year. The shares of Spain’s three biggest lenders – Santander, BBVA and Caixabank – have all edged higher over the past month, as have the shares of weaker financial groups. January bond auctions by Santander and BBVA were unusually well-received. Another sign of confidence is the readiness of Spanish lenders to repay some of the cheap emergency loans provided by the European Central Bank last year.

              Click to enlarge

              However, Santander’s results on Thursday were not welcomed,

              with Spain’s largest bank by assets reporting that net profits – after it booked €18.8bn in provisions for last year – tumbled 59 per cent to €2.2bn, sending its shares down by 3.4 per cent.

              Spanish politicians and regulators claim that the banking crisis that engulfed the country last year – and that forced the government to seek a €100bn EU bailout – is now well on the way to being solved. Mariano Rajoy, the prime minister, has declared himself “absolutely convinced” that Spanish banks will not need additional capital beyond the €40bn injected by the government and the EU so far.

              Senior officials at the Bank of Spain also sound a confident note: “I am not claiming that we are totally out of the woods,” says one. “But the basic work of restructuring has already been done.”

              The upbeat tone is being reflected by Spain’s bank chiefs as most follow their peers by announcing they have paid back part of the three-year loans taken from the ECB last year. Santander said it had paid back €24bn to the ECB, with BBVA expected to follow suit.

              “I believe we are now entering a new phase,” said Emilio Botín, Santander’s 78-year-old chairman, at the bank’s year-end results conference.

              However, worryingly for Mr Botín, the international units that his bank boasts will protect it against problems in Spain did not perform well, with pre-provision profits in the fourth quarter in the UK down by 20 per cent, by 25 per cent in the US and by 3 per cent in Brazil.

              Investors, meanwhile, have been watching closer to home for signs of a slowing in non-performing loans in the Spanish market.

              BBVA, which follows Santander, its main domestic rival, when reporting Friday is expected by analysts to have completed the last parts of the provisions lenders were required to make by the Spanish government.

              Caixabank, Spain’s third-largest bank by assets, which does not enjoy the international diversification of its bigger rivals, is expected to report an increase in bad loans, which rose to €1.14bn in the third quarter.

              Meanwhile, last week Banco Sabadell, a medium-sized lender, frustrated analysts by not including a detailed breakdown of its non-performing loans in its year-end results.

              Analysts agree that Spain has made progress towards cleaning up its banking sector. However many warn there are further pitfalls ahead and few foresee a rapid return to the kind of profits that were common before the crisis. “I don’t think that bank profits are going to be high, at least for those banks that operate mainly in the Spanish market,” says Juan José Toribio, a professor of economics at the IESE business school in Madrid.

              Prof Toribio argues that profits will be depressed not least by the continuing need to retrench, both in terms of the branch network and the balance sheet. “The Spanish banking system has a loan-to-deposit ratio that is too high, at more than 200 per cent,” he says. “They have to reduce it. Reducing it means less credit to the economy but it also means less profit and less business for the banks.”

              It is a challenge that will be made even harder by the continuing economic deterioration in Spain. The Spanish economy is expected to contract by about 1.5 per cent in 2013, the second consecutive year of recession. Unemployment has just breached 26 per cent, and is set to rise further.

              The drumbeat of dire economic news has kept alive broader fears – at least in some quarters – over the health of Spain’s banks. Two areas of concern are retail mortgages and loans to small- and medium-sized companies. In both cases, the ratio of non-performing loans has crept up steadily, a trend that is certain to continue unless there is a rapid turnround in the broader Spanish economy.

              Despite the recent rush of writedowns, doubts also remain over the banks’ exposure to Spain’s stricken real estate developers. In a study, Santiago Lopez, a bank analyst with Exane BNP Paribas, points out that lending to developers increased an “incredible” 27-fold in the years between 1995 and 2009.

              Since then, despite the near-total collapse of the property market in Spain, the absolute level of loans has declined by only 14 per cent – and still stands at the same level as in 2007. Mr Lopez’s conclusion: “Additional deleveraging lies ahead.”

              Investor sentiment may be improving and the immediate risk of another banking collapse may have receded. However Spain and its lenders still face a deepening recession, rising unemployment, falling house prices and a collapse in domestic demand. It is a reality that looks certain to mark the results of Spanish banks for some time to come.

              Golden State has credit upgrade

              Posted on 31 January 2013 by

              Standard & Poor’s has upgraded the credit rating of California, reflecting an improvement in the Golden State’s financial health after a tax hike on the wealthy.

              The rating agency raised its rating from A-minus to A on Thursday, leaving Illinois as the only US state with an A-minus credit rating. The new rating, which covers $75bn of Californian bonds, includes a stable outlook.

                Gabriel Petek, an S&P credit analyst, said the upgrade reflected California’s success in balancing its budget.

                “We view the alignment between revenues and expenditures as much improved and largely a result of policy makers’ heightened emphasis on fixing the state’s fiscal structure in the past two budgets,” Mr Petek said.

                California’s fiscal outlook has improved since its electorate voted in November for the higher taxes. California’s Legislative Analyst’s Office is projecting a $1bn budget surplus by the 2014/2015 fiscal year, as $6bn of new funds are due to enter state coffers.

                The decline of the state’s housing market has slowed and unemployment is falling, but it is 9.8 per cent, still well above the national average.

                The turnround comes as Democrats have tightened their grip on California’s government. Democrats won a supermajority in both houses of the state legislature in November – the first time in 80 years – so the party will not need Republican votes to pass budgets.

                S&P’s credit rating bottomed at triple-B in 2003, but had recovered to A-plus before the credit crisis struck. The new level of A is one notch below A-plus.

                Last week, the rating agency cut Illinois’s credit rating by one notch to A-minus on concerns the state is failing to bolster its finances as it seeks to close a $96bn unfunded pension liability.

                California’s state Treasurer, Bill Lockyer, said he was “in a better mood these days” after being a “grouch” about the budget. “It’s been a tough climb out of the hole, but the Governor and Legislature have provided strong leadership. They’ve made decisions that have been tough and painful, but correct. And the people, in approving the majority-vote budget and temporary tax increases, have shown wisdom and sacrificed.”

                Lawson urges full nationalisation of RBS

                Posted on 31 January 2013 by

                Lord Lawson©Charlie Bibby

                Nigel Lawson, former Tory chancellor, has urged George Osborne to fully nationalise the Royal Bank of Scotland, attacking the banking industry’s bonus culture and what he says are its overrated “star” traders.

                Lord Lawson said there was a case for paying no bonuses at RBS this year following the Libor scandal, which is expected to cost the bank a fine of at least £500m.

                  The 80-year-old peer, who sits on the parliamentary commission on banking standards, told the Financial Times that lenders should stop worrying about “losing star performers” if bonuses were cut.

                  “These are not particularly impressive individuals,” he said in an interview. Lord Lawson said the youthful energy needed to be a trader was not in short supply: “They’re all of them easily replaced, particularly in today’s labour market.”

                  The former energy secretary and chancellor in Margaret Thatcher’s governments in the 1980s, has been a confidant of Mr Osborne on economic policy and has become an influential figure in the debate on energy.

                  He argued that RBS, which is 82 per cent state-owned, should be fully nationalised and turned into a vehicle for increasing lending to business.

                  A “bad bank” would inherit the lender’s bad loans, leaving a healthy institution to offer affordable loans to business, putting pressure on commercial rivals to follow suit.

                  The former chancellor also criticised a decision by the last Labour government to appoint Stephen Hester as RBS chief executive. “It is absurd to put a lifetime investment banker in charge of an entity which is overwhelmingly a retail and SME [small and medium enterprise] type bank.”

                  Lord Lawson urged Mr Osborne to heed the advice of the cross-party banking commission, chaired by Tory MP Andrew Tyrie, to “electrify” a proposed ringfence around retail banks intended to make lenders safer.

                  He said there was a “huge amount of bank lobbying” over the implementation of Vickers commission proposals, which advocated a ring fence to protect high street lenders from riskier investment banking operations.

                  “They are anxious to appear reasonable and good citizens in the eye of public opinion but that is not uppermost in their mind when they are speaking to ministers,” Lord Lawson said.

                  In depth

                  Bank bonuses

                  Bank bonuses

                  The issue of bankers bonuses continues to be a political hot potato as bank chiefs defy political and public pressure to curb payouts

                  The banking commission urged Mr Osborne to toughen up liquidity ratios for banks and leave a threat hanging over the big banks that they would be broken up if they tried to undermine the ring fence.

                  Mr Osborne has reservations but Lord Lawson said he “obviously” hoped that the chancellor would adopt the commission’s proposals in full: “We wouldn’t have made these proposals if we didn’t think they were in the national interest.”

                  The peer added: “I don’t think the government needs to be frightened of the banks in the slightest. One does hear from time to time threats that they will up sticks but that’s a load of nonsense.”

                  The former chancellor urged Mark Carney, the incoming Bank of England governor, to concentrate on sorting out the banking system. Lord Lawson urged Mr Osborne not to move away from inflation targeting to any form of growth targeting.

                  “I’m sure Mark Carney is a very clever young man but I think that the government would be mad to move from inflation targeting to money GDP targeting,” he said. Money GDP data were “not worth the paper it’s written on”.

                  Meanwhile the father of the “Lawson boom” said he saw “signs of strengthening” in the economy but recovery would be a “slow and painful process”.

                  ‘I’VE NEVER BEEN SOMEONE WHO LIVES IN THE PAST’

                  Nigel Lawson began his career as a financial journalist and was a former editor of The Spectator magazine before entering parliament as MP for Blaby, Leicestershire, in 1974, writes George Parker.

                  Margaret Thatcher made him energy secretary in 1981 – where he prepared the country for a coal strike – and then propelled him into the Treasury as her chancellor in 1983.

                  Pugnacious and self-confident, Margaret Thatcher admired the tax-cutting zeal with which her chancellor helped to fuel the “Lawson boom”, which ultimately came to an end with sharply rising inflation.

                  In the end he was too independent for the prime minister’s liking. They clashed over exchange rate policy and Mrs Thatcher’s devotion to Sir Alan Walters, her personal economic adviser, and the chancellor quit in 1989.

                  After a period when he was perhaps best known as father to television chef Nigella and for his Nigel Lawson Diet Book – he shed five stone in a few months – he re-emerged as an elder statesman and adviser to George Osborne.

                  “I’ve never been someone who lives in the past,” he said. “I’m interested in the present and the future.”

                  Deutsche Bank gets back in the race

                  Posted on 31 January 2013 by

                  Deutsche Bank©Bloomberg

                  Deutsche Bank will no longer trail behind its global rivals in terms of balance sheet strength and will soon be “back in the pack” after ramping up its capital ratios more quickly than expected, according to its co-chief executive.

                  Anshu Jain was rewarded by equity markets Thursday for making a priority of Deutsche’s efforts to strengthen its capital.

                    In targeting Deutsche’s capital shortfall, Mr Jain addressed one of the biggest investor concerns about the bank relative to its peers. “We were out of the pack by a big distance,” he admitted. Within months that should change, Mr Jain said.

                    Deutsche said the improvement to its capital ratios amounted to the equivalent of having raised at least €8bn of equity during 2012. It did so by “de-risking”: partly through asset sales but also by changing internal models used to calculate risk-weighted assets, lowering the denominator in the capital equation.

                    Some analysts think this is a less satisfactory approach to Deutsche’s capital needs. The approach “might come back to haunt” Deutsche if global regulators, as is being considered, limit the use of bank models and demand more harmonisation, said Andrew Lim, analyst at Espírito Santo.

                    The Basel Committee on Banking Supervision on Thursday published a damning analysis of the aggressive risk weightings used by some banks in some countries, although it did not name names.

                    However, Deutsche said only about a quarter of the improvement it had made came from such methods. Stuart Lewis, Deutsche’s chief risk officer, said there had been three years of “hard work” to show BaFin, the German regulator, that the bank’s risk models were robust. Stefan Krause, chief financial officer, said: “We feel very comfortable.”

                    Analysts at JPMorgan said: “The positive surprise came mainly from “low quality” internal model adjustments and portfolio optimisations rather than real legacy asset sales – however, the market will still give Deutsche credit for these improvements.

                    “The new management . . . is starting to deal with Deutsche Bank’s legacy issues.”

                    Deutsche wrote off €1.9bn from goodwill and other impairments on assets acquired more than a decade ago, the consequence of having decided to shift some into a non-core operations unit for disposal.

                    While the bank characterised its restructuring as “its most comprehensive reconfiguration in recent times”, it has gone nowhere near as far as the likes of UBS, which took an axe to a swath of its investment bank last year. Deutsche’s argument is that its problems have been not with sub-scale or underperforming businesses – it has scale and decent market share in most lines – but more with costly and inefficient back office operations.

                    The bank also took charges of €1bn for litigation. Its most demanding problem is the scrutiny of its alleged role in the manipulation of Libor, for which Deutsche has dismissed two traders. Deutsche is expected to try to reach a settlement with regulators this year.

                    Mr Jain played down the likelihood of all banks involved in Libor probes joining a global settlement soon – something discussed last week in Davos.

                    “There were unofficial discussions, where we felt that if you went back and looked at other industries that have gone through an industry-wide settlement process, whether there is something to be gained,” he said. “Whether that’s going to fructify in the next six to 12 months – I would be surprised if it did.”

                    Wasendorf jailed for 50 years for fraud

                    Posted on 31 January 2013 by

                    Russell Wasendorf Sr wears an anti-suicide tunic after his arrest©Reuters

                    Russell Wasendorf Sr wears an anti-suicide tunic after his arrest

                    A US federal court has sentenced Russell Wasendorf Sr, the former head of collapsed futures broker Peregrine Financial Group, to 50 years in prison.

                    The sentencing caps a dramatic fall for Wasendorf, 64, whose firm fell apart in July after a $215m gap was found in customer funds.

                      That discovery was triggered by Wasendorf’s attempted suicide in a car outside his company’s Iowa headquarters. A signed statement found next to a suicide note and his unconscious body contained his confession to a fraud that stretched nearly two decades.

                      Chief Judge Linda Reade sentenced Wasendorf to the maximum term in prison, without parole. The court ordered him to pay $215m to more than 13,000 customers and imposed a $100m fine.

                      In September Wasendorf pleaded guilty to one count of mail fraud, one count of embezzlement of customer funds and two counts of lying to regulators.

                      He admitted that he stole funds, at least in part, by secretly withdrawing money from customer bank accounts, and then forging bank statements that omitted the withdrawals and inflated customer funds by more than $200m.

                      He would then submit false reports and forged bank account statements to regulators.

                      “By lying to investors and regulators, Wasendorf defrauded thousands of innocent investors out of a staggering $215m,” Sean Berry, acting US attorney, said. “The lengthy prison sentence imposed today is just punishment for a conman who built a business on smoke and mirrors.”

                      Wasendorf admitted to sustaining the fraud by sending forged bank statements to auditors at the National Futures Association, an industry-funded regulator, and the Commodities Futures Trading Commission. The NFA has came under fire for not discovering the deception.

                      The shortfall at Peregrine raised fresh doubts about the security of customer deposits in a futures industry still reeling from the huge hole in customer accounts that followed MF Global’s 2011 collapse.

                      After the sentencing, the NFA said it would soon implement recommendations designed to improve its audits. The recommendations were a result of a Berkeley Research Group analysis of NFA’s audits of Peregrine from 1995 to 2012.

                      Peregrine customers have so far received about $123m, or about 30-40 per cent of their total claims, from the company’s bankruptcy trustee, Ira Bodenstein.

                      The lengthy prison sentence imposed today is just punishment for a conman who built a business on smoke and mirrors.

                      – Sean Berry, acting US attorney

                      This week Mr Bodenstein filed a lawsuit against Wasendorf’s ex-wife for the $2.9m she received in their divorce. The lawsuit alleges that most of the money had been directly transferred to her from customer accounts.

                      Tom Weber, senior commodity adviser at Portfolio Managers, an LA-based introducing broker, said his company operated as a branch office for Peregrine after it was acquired in 2009. Last March, his company split off, but continued to clear all of its customers’ business through Peregrine.

                      Mr Weber’s customers lost two-thirds of their investments, and he doubts they will recoup more than 55 per cent when the trustee finishes his business. He said he wished Wassendorf’s 50-year sentence could be longer.

                      “I don’t want the guy to see the light of day frankly. [He] put a lot of [brokers] out of business, it ruined a lot of customers financially.”

                      Wasendorf’s son, Russell Wasendorf Jr, said on Wednesday that his life, finances and reputation had been destroyed by the fraud. Mr Wasendorf Jr was president of Peregrine and denies any knowledge of his father’s crimes. He did not attend the sentencing hearing.

                      “It has shattered my family, ruined my reputation, fractured my marriage, separated me from my oldest son and close friends,” he said in a statement. “It has destroyed me financially and has left me on the edge of bankruptcy.”

                      Peregrine filed for Chapter 7 bankruptcy liquidation in July, indicating that it had assets of between $500m and $1bn and liabilities of $100m to $500m.