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by on June 4, 2011

JPMorgan CEO: U.S. Debt Default Would Be A ‘Moral Disaster’

by Ryan McCarthy on May 20, 2011

Huffington Post…

DENVER — It would be a “moral disaster” if the United States were to default on its debts and become unable to pay its obligations, JPMorgan Chase & Co. CEO Jamie Dimon said at an appearance in Colorado Thursday evening. The U.S. is the financial linchpin of the world, and the economic effects of the U.S. defaulting could be “potentially catastrophic,” he said at a dinner for the University of Colorado Denver Business School. “It will dwarf Lehman,” Dimon said, referring to the 2008 collapse of the investment bank Lehman Brothers, which contributed to the beginning of a global financial crisis. Dimon’s comments came in response to a question about the federal deficit from moderator Tom Petrie, a vice chairman of Bank of America Merrill Lynch. Congress is debating raising the country’s $14.3 trillion borrowing limit. White House officials say the government will run out of cash to pay expenses Aug. 2, but lawmakers have said they want spending cuts before they agree to raise the debt ceiling. Dimon got a standing ovation at the dinner, a marked contrast to JPMorgan’s annual meeting in Ohio on Tuesday, when more than 400 demonstrators shouted outside. The protests were organized by a coalition of clergy and unions, which is pushing for action and legislation around banking practices that hurt troubled homeowners. Along with all the major banks in the country, JPMorgan Chase has been criticized for its handling of mortgage foreclosures. After Petrie noted The New York Times recently called him America’s least hated banker, Dimon quipped he never expected to be in a business where he’d be on the receiving end of so much anger. “Our people work hard, they give a damn, they help their communities,” he said. During the crisis, JPMorgan Chase bought Bear Stearns Cos. and what was left of Washington Mutual Inc. after it failed. It also accepted aid from the federal government’s Troubled Asset Relief Program, even though it didn’t need to, Dimon said. Dimon has said government officials told him that taking the aid would boost the health of the financial system and reduce the stigma of only a few banks accepting aid. At the time, Dimon called TARP money a scarlet letter. Once JPMorgan repaid the aid, Dimon said he was tempted to include a note to Treasury Secretary Timothy Geithner that said, “P.S. During the whole time you were lending us $25 billion, we were loaning you $200 billion” in the form of Treasury instruments the company holds.

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JPMorgan CEO: U.S. Debt Default Would Be A ‘Moral Disaster’

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Oil Prices Collapse In Record Sell-Off

May 5, 2011

NEW YORK (By Matthew Robinson) – Oil collapsed into free-fall on Thursday, diving 10 percent and sending U.S. crude back under $100 a barrel as investors staged an unprecedented stampede for the exits. Weak economic data from Europe and the United States fed concerns that have battered commodities all week. German industrial orders fell unexpectedly in March while U.S. weekly jobless claims hit eight-month highs, sparking a fourth day of profit taking in early trade. But the onslaught of selling went far beyond any single cause. Brent crude plunged more than $12 at one point — exceeding the sell-off that followed Lehman Brothers’ collapse. U.S. crude broke below $100 for the first time since March as technical triggers set off a cascade of sell-stops. Shell-shocked traders said the decline that has more than halved this year’s oil price gains might not be over yet, but few were ready to call an end to the long bull run. “The longer-term bull cycle is still in place, but this correction may have a life span of several months, as weaker economic data is fueling this correction to a large part,” said Sterling Smith, senior analyst for Country Hedging Inc in Minnesota. World stocks fell and the 19-commodity Reuters-Jefferies CRB index dropped more than 4.9 percent, heading for its biggest weekly decline since December 2008. Additional pressure came from news OPEC was considering raising formal output limits when it meets in June to convince oil markets it wants to bring prices down and reverse the impact of fuel inflation on economic growth. Brent crude futures for June settled down $10.39 at $110.80 a barrel, before dropping as low as $109.02 in post settlement activity in the fourth straight day of losses that sent prices breaking below the 50-day moving average. U.S. crude settled down $9.44 at $99.80 a barrel, before hitting $98.25 a barrel in post-settlement trade, marking the second-biggest one day loss in dollar terms on record. Copyright 2010 Thomson Reuters. Click for Restrictions .

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EU: Greece Debt Restructuring ‘Not Part Of Our Strategy’

May 2, 2011

BRUSSELS (AP) — The EU’s top economic affairs official says a restructuring of Greece’s massive debt is not on the table. Monetary and Economic Affairs Commissioner Olli Rehn said Monday that a debt restructuring for the struggling country “is not part of our strategy and will not be.” Rehn said proponents of restructuring — cutting the total amount of money Greece owes or giving it more time to repay — appear to be unaware of the risks to overall financial stability such a move would entail. European officials have warned that a restructuring of Greece’s debt could lead to panic on financial markets similar to the turbulence following the collapse of Lehman Brothers in 2008 and drag down banks and other struggling eurozone countries.

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Robert Lenzner: Warren Buffett Is Human, After All

April 29, 2011

The media loves to fall in love with Masters of the Universe — such as the former CEOs of Tyco, Enron, Worldcom, GE, Citigroup, Lehman Brothers and Merrill Lynch. Only some of them are in prison. That is, until they fall from grace and then the media dons its armored lances and savages their fallen Gods of Mammon. Just like that. If you doubt me, try to conjure up in your head all those cover stories of bygone heroes. I’m guilty of the same superficial hosannas. Now comes the Oracle of Omaha, the darling of CNBC, the beneficiary of innumerable Fortune covers — some jointly with Bill Gates. Imagine the relish with which the media fastens on to the 80-year-old stock picker’s trust in a long time aide and heir-apparent, Mr. Sokol. Oh my God, a flaw in the Great Buffett. Let’s scrutinize his corporate governance bylaws. Let’s see if he’s morally or ethically fallible. Let’s go over it and over it and over it to tantalize the Bloomberg TV audience, because it is such a grave matter. The controversy is being treated as The Last Act of a formerly perfect human being. Hasn’t anyone read the biography that reveals many of his personal weaknesses and idiosyncrasies. Indeed, why didn’t he just fire the great betrayer Sokol, when he discovered the louse had bought $10 million in Lubrizol shares before putting a move on the boss to buy the whole company? That’s what I want to know. From Asia yet. Tell the bum to pack up and be gone. And then instruct Robert Denham of Munger Tolles to draw up a lawsuit demanding that Sokol return his undeserved gains to the innocent sellers of Lubrizol. I just hope tomorrow Warren and Charlie don’t have to answer questions about Sokol for 6 hours. I just hope we can learn what they think about the end of QE2, the way to balance the federal budget, and some of their concepts for the future of Berkshire. Should we be told who would take over for Warren and if the structure of the leadership should be overhauled? There will be demands for more future guidance from a hungry pack of Buffett followers. When it’s far more important that Buffett has warned that the glory days of Berkshire’s stock exploits are over. Does that mean the $100 peak for BRK B- that was hit in 2007 won’t be matched for quite a while? Better note that the stock is holding in the $83-84 range and hasn’t really fallen in the face of the Sokol controversy. Better yet, read Buffett, July 26, 2010 to his Managers(“The All-Stars”) and the Directors: “The priority is that all of us continue to zealously guard Berkshire’s reputation. We can’t be perfect but we can try to be.” Amen. “We can try to be.” That’s all.

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Treasury Blocks Regulation Of Market That Sparked $5.4 Trillion Fed Bailout

April 29, 2011

The Treasury Department plans to exempt foreign exchange derivatives from new Wall Street reform regulations, a Treasury official said Friday, dismissing concerns about a market that prompted $5.4 trillion of emergency support from the Federal Reserve in late 2008. Assistant Secretary for Financial Markets Mary Miller told reporters on Friday that the foreign exchange market already functions effectively and would not benefit from new rules. Subjecting the market to new rules, she claimed, would introduce a new and unnecessary “process” into “a very well-functioning market.” But a 2009 study by Naohiko Baba and Frank Packer of the Bank for International Settlements concluded that there were major “dislocations” in the foreign exchange market in the aftermath of the Lehman Brothers bankruptcy — problems that were only resolved after the Fed pumped money into foreign central banks in order to ensure that global banks had access to dollars. “After the bankruptcy of Lehman Brothers, the turmoil in many markets became much more pronounced,” wrote Baba and Packer. “In FX and money markets, what had principally been a dollar liquidity problem for European financial institutions deepened into a phenomenon of global dollar shortage.” Last year’s Wall Street reform bill required derivatives to be centrally cleared, a safety measure which helps ensure that the overall market does not falter if a bank or hedge fund cannot make good on its trade. But the law gave the Treasury Secretary Timothy Geithner the authority to exempt foreign exchange derivatives if they did not pose a threat to the financial system. The market Treasury hope to shield from regulation totals roughly $30 trillion, according to the Treasury, and is the dominant means for trading currency in global financial markets. Treasury is not exempting a broader class of more complex currency derivatives from the new rules– only the market for FX “swaps and forwards” would be effected. Foreign exchange derivatives, also known as the FX or ForEx market, are among the most profitable trading operations on Wall Street. “If the too-big-to-fail banks gave out academy awards, Geithner would be best supporting regulator year in and year out,” said Michael Greenberger, a former top official at the Commodity Futures Trading Commission, noting that Goldman Sachs scored $2.2 billion in trading revenue on FX in a single quarter last year. Financial reform advocates argue that the FX derivatives Treasury wants to shield from regulation would have cratered if the Fed had not established emergency lending facilities with central banks in other countries. As foreign banks clamored for dollars in the aftermath of the Lehman Brothers bankruptcy, the Fed pumped $5.4 trillion into those programs, based on calculations by the financial reform group Better Markets, using data from the December Fed audit. “Only massive, emergency and unlimited Fed intervention in the foreign exchange markets prevented a collapse,” wrote Dennis Kelleher, CEO of the financial reform group Better Markets, in a February letter to Miller. “[Treasury’s] principal justification is that this market never had problems,” Greenberger said. “And yet some very smart people have reviewed the data and concluded that it would have collapsed without a Fed rescue.” Miller insisted on Friday that the central bank’s actions in 2008 were not an emergency response to save a faltering FX market. “The Fed actually did not intervene in this market,” Assistant Secretary for Financial Markets Mary Miller told reporters on Friday. “I think some people confuse the extension of the Federal Reserve’s swap lines to central banks globally to provide dollar liquidity which was in high demand in the financial crisis, with the ForEx swaps and forwards market.” Kelleher previously addressed this argument in a March 23 letter to Miller. “While it is true that the Fed only lent via swap lines to foreign central banks and did not lend directly to the ForEx market, it nonetheless did so in part because the FX market was not providing sufficient dollars to foreign financial institutions,” Kelleher wrote. On Friday, Miller also argued that because foreign exchange derivatives are typically very short-term contracts, the risk of problems arising are very low. But problems in another short-term market, the “repo” market, sparked the Lehman Brothers bankruptcy. “Well, the repo market is an overnight market and it collapsed,” said Michael Greenberger. “The whole purpose of the clearing requirement is to have a guarantor there when your counterparty collapses.” During last year’s financial reform bill debate. CFTC Chairman Gary Gensler warned that exempting FX derivatives would allow firms to disguise other trades as FX, enabling large portions of the broader $600 trillion derivatives market to evade regulation. The Treasury will accept public comments on its plan to exempt FX derivatives from new regulations, and make a final determination afterwards.

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Wall Street Executive To Geithner: Raise Debt Limit Or Risk Crisis

April 26, 2011

WASHINGTON — A Wall Street executive is urging Congress to raise the government’s borrowing limit in the coming weeks, saying failure to do so could lead to a second financial crisis. Matthew E. Zames, a managing director at J.P. Morgan, says in a letter to Treasury Secretary Timothy Geithner that a delay by the government in making payments on its debt obligations would be catastrophic. Zames says borrowing costs could rise for the government, consumers and businesses, and a run on money market funds similar to what occurred after the collapse of Lehman Brothers in September 2008 is possible. Geithner has warned lawmakers that the government will hit its $14.3 trillion debt ceiling by May 16 and that he could only delay an unprecedented default on the debt until July 8.

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Goldman Sachs, Other Banks Propose Plan To Restructure Lehman Brothers

April 25, 2011

A group of banks including Goldman Sachs (GS.N) and Morgan Stanley (MS.N) has filed a plan to restructure Lehman Brothers Holdings Inc that would let the failed bank’s different parts remain separate. The plan, filed on Monday in U.S. Bankruptcy Court in Manhattan, is one of three competing plans to restructure Lehman. Another was filed by Lehman. A third was filed by a group of creditors including hedge fund Paulson & Co. The plans come as different groups jostle to see who will be able to recoup money that they lost when Lehman filed for Chapter 11 protection in September 2008. At the time, it reported $639 billion of assets, six times more than any other U.S. company to go bankrupt. The latest plan would allow creditors to file claims against the scores of individual Lehman entities involved in the bankruptcy. This contrasts with the creditor group’s plan, which supports consolidating all the units. Lehman’s plan seeks a compromise in which recovered assets would be redistributed among different classes of creditors. It would appoint a representative for the banks and the hedge funds that filed it. It also would ensure that all claims that different Lehman units have against each other are treated the same way. A spokeswoman for Lehman said the company is reviewing the new plan. She had no other comment. Representatives for the Paulson Group declined to comment. Attorneys for the banks did not return telephone calls on Monday. Creditors have an April 29 deadline to file their plans. Bankruptcy Judge James Peck has scheduled a hearing for them on June 28. The group led by Paulson & Co proposed a reorganization plan in December that would boost bondholder recoveries to nearly 25 percent. That plan is kinder to that group than Lehman’s proposal, which would provide 21.4 percent recovery for the Paulson group and other bondholders. Lehman’s plan also would provide more than 34 cents on the dollar for derivatives creditors. (Reporting by Nick Brown. Editing by Robert MacMillan) Copyright 2011 Thomson Reuters. Click for Restrictions .

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JPMorgan Will Distribute $861M Among Ex-Lehman Customers

April 21, 2011

JPMorgan Chase & Co (JPM.N) agreed to return more than $800 million of assets that will be distributed to former customers of Lehman Brothers Holdings Inc’s (LEHMQ.PK) brokerage. James Giddens, the court-appointed trustee for the bankrupt brokerage, called the settlement “a milestone” in his efforts to recover money for the customers. A settlement would secure the return of $755 million of cash and about $106 million of securities, according to a motion filed Thursday the U.S. bankruptcy court in Manhattan. “The proposed settlement would substantially increase the fund of customer property for distribution,” the motion said, “without the uncertainty and delay of litigating disputed claims.” JPMorgan, the second-largest U.S. bank, in a statement said the main source of the returned assets will be from funds that the bank had set aside pending a resolution with the trustee. The settlement will have no material financial impact on JPMorgan, the New York-based bank said. A settlement requires approval of U.S. Bankruptcy Judge Burton Lifland, who oversees Lehman bankruptcy proceedings. Once the fourth-largest U.S. investment bank, Lehman filed for Chapter 11 protection on September 15, 2008, in what remains by far the largest bankruptcy in U.S. history. The case is In re: Lehman Brothers Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-01420. (Reporting by Jonathan Stempel in New York, editing by Matthew Lewis) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Financial System Riskier, Next Bailout Will Be Costlier

April 19, 2011

The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard & Poor’s. The next rescue could be about a trillion dollars costlier, the credit rating agency warned. S&P put policymakers on notice, saying there’s “at least a one-in-three” chance that the U.S. government may lose its coveted AAA credit rating. Various risks could lead the agency to downgrade the Treasury’s credit worthiness, including policymakers’ penchant for rescuing bankers and traders from their failures. “The potential for further extraordinary official assistance to large players in the U.S. financial sector poses a negative risk to the government’s credit rating,” S&P said in its Monday report. But, the agency’s analysts warned, “we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.” Because of the increased risk, S&P forecasts the potential initial cost to taxpayers of the next crisis cleanup to approach 34 percent of the nation’s annual economic output, or gross domestic product. In 2007, the agency’s analysts estimated it could cost 26 percent of GDP. Last year, U.S. output neared $14.7 trillion, according to the Commerce Department. By S&P’s estimate, that means taxpayers could be hit with $5 trillion in costs in the event of another financial collapse. Experts said that while the cost estimate seems unusually high, there’s little dispute that when the next crisis hits, it will not be anticipated — and it will likely hurt the economy more than the last financial crisis. “The impact of the next crisis will be greater because the economy is in a much more fragile state,” said Andrew Lo, professor of finance at the MIT Sloan School of Management. “My worry about the next financial crisis is it will come from some corner we haven’t really thought about, and we’ll be locked into more constraints on the Fed’s ability and on the Treasury’s ability to really do anything,” said Jeremy Stein, an economics professor at Harvard University who worked as an adviser to both the Treasury Department and the White House in 2009. The constraints are a result of the last round of multiple bailouts. “I think it’s literally going to be politically harder to put in resources, for better or for worse,” Stein said. That could either induce those in the financial system to take less risk, forestalling the next breakdown, or, “the mop up will be more difficult,” Stein said. The U.S. banking industry poses as much of a credit risk as Spain’s, S&P wrote in an April 8 report in which it judged 92 nations’ banking sectors. Spain is frequently mentioned as a candidate for an international bailout because many of its banks are under-capitalized, its banking system remains dogged by delinquent bubble-era loans and it faces losing investor confidence. The ranking is partly based on the quality of a nation’s financial regulation and lending patterns. U.S. bank regulators failed to prevent the crisis or the poor lending that led to it, S&P analysts wrote in a Jan. 6 report. “Systemic risk is greater now,” said Mark T. Williams, a finance professor at Boston University and a former bank examiner for the Federal Reserve. “It was uncorked because of the fall of Lehman Brothers, and the genie has been let out of the bottle,” he said, referring to the September 2008 failure of the former investment bank. The continued rise of globalization and the separate growth of derivatives — financial instruments that aim to spread risk — have led to greater connections between countries, industries and companies, Williams said. The level of so-called interconnection has tied firms to one another in ways experts do not completely understand. Regulators and policymakers didn’t know how interconnected various banks and insurance companies were prior to the near-financial meltdown of 2008. Because the giant insurer American International Group, better known as AIG, was connected to so many firms through derivatives, policymakers felt forced to bail the company out when it ran into trouble. “Systemic risk knows no national boundaries,” said Williams, who published ” Uncontrolled Risk ,” a book on the topic, last year. “It is not random or a force of nature, it is man made. [And] the global financial market remains fragile due to weak policies, lax regulation, poor accountability and systems not designed to capture global risk management.” The risk of another financial collapse also has increased, Lo of MIT argues, because banks have not accounted for losses on poorly-performing assets they’re still hiding on their books; lawmakers’ likely aversion to another bailout should the system run into trouble again; and the perception that many national economies aren’t as durable as they were just a few years ago. China, for example, was able to help the U.S. through the depths of the last crisis thanks to the steps it took to increase domestic spending. But today, China is trying to cool down an over-heating economy. “Next time around, if we see another systemic shock, it will be very difficult for us to depend on our foreign trading partners to cushion that kind of a blow,” Lo said. “The world economy is not as resilient as it was just a few years ago.”

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Vicky Ward: The Whirligig of Time Fails to Bring Its Revenges

April 5, 2011

A year ago, while Washington was grandstanding about the about lazy, unethical, risky banking practices that put the entire country at risk — I published a book. It was called The Devil’s Casino: Friendship, Betrayal and the High Stakes Played Inside Lehman Brothers , and it chronicled, among other things, the lazy, unethical, risky banking practices that had put the entire country at risk in 2008. At the time, the D.C. hearings and S.E.C. investigations were underway, and Washingtonians swore that they’d clean up the mess and regulate the hell out of Wall Street — and that greed would be a thing of the past. I expressed my skepticism at the time. “The crisis will happen again,” I said. “Not tomorrow, and not in the same way — but you cannot regulate greed.” That, really, was the central theme of the book, which looked at the evolution of Wall Street through the narrow lens of Lehman Brothers, spanning fifty years. Fast forward to today, when my book comes out in paperback. Let’s take a look at the headlines: Alan Greenspan has just declared that Dodd-Frank reform legislation is a waste of time for the reasons listed above. The financial system is so ” irredeemably opaque ,” he wrote in the Financial Times , that policymakers cannot hope to sort it out. Barney Frank (D. Mass), the former chairman of the House Financial Services Committee naturally disagrees. In the Financial Times , he mumbles on about the effectiveness of stress tests. But didn’t it take most U.S. banks about thirty seconds to pass those in the wake of TALF ? Mr. Greenspan has a point. But, forget opacity — let’s just look at the simple stuff. Bernie Madoff — in jail for perpetrating the biggest Ponzi scheme ever — has declared that it was no surprise that J.P. Morgan stands accused of reaping $6.4 billion in funds from the scheme. The bank denied this, but Madoff said the bank “must have known.” In other words, when given the opportunity to make money in dubious circumstances — people take the money. President Obama has ended his open war with Wall Street, making nice with the Chamber Of Commerce and promising that he will find ways to work with them, not against them. Why has he taken this unprecedented action? Could it be because he has realized that if employment does not rise and the economy is still faltering, he might not be re-elected in 2012? Lloyd Blankfein, the CEO of Wall Street’s favorite punching bag, Goldman Sachs, has just received a bonus of $18 million at the same time that one of his outside directors, Raj Gupta, the former CEO of McKinsey, is testifying that he gave inside information from Goldman board meetings to Raj Ratnaram , the CEO of hedge fund Galleon. And what about Warren Buffett, considered for most of his 80 years the only straightshooter in the world of finance, and a crucial player in saving the world economy (well, Goldman Sachs) in 2008? Turns out he might not be quite so straightforward. His image is tarnished amid accusations that he acquired the chemicals company Lubrizol when he knew that his second-in-command and heir-apparent, Jeffrey Sokol, since let go, had just bought $10 million shares of the firm. On Friday, Wall Street Journal readers were treated to this great headline: ” Subprime Bonds Are Back “. Whoopee! The very things that led Americans to treat their houses as ATMs are having a resurgence. And on Monday, we learned that the Fed and US Treasury are engaged in a war with the FDIC over how many companies should be branded too big to fail. The Fed and US Treasury want less than ten; the FDIC wants three to four times that number. The moral of this is: Greenspan is right. It’s all too complex for anyone to sort it out. Meanwhile has anything happened to the housing Government Sponsored Entities, Fannie Mae and Freddie Mac, which blew up the weekend before Lehman did? Yes: according to a front page article in Friday’s New York Times . Although neither Fannie or Freddie has yet been reformed (that’s on next year’s agenda, apparently), their top six executives received over $35.4 million since their collapse in 2008. That’s an awful lot of money for doing-well, nothing. And all those dreadful losses reported to be happening in the hedge fund industry, swirling with rumors about insider trading after the closure of David Ganek’s Level Global and three other hedge funds in the wake of FBI raids ? Well, it turns out that hedge funds, while not outperforming the market, are still profitable — thanks to those lovely fees. Greed never dies; rules are made to be bent; the rich are indeed different from the rest of us — and Shakespeare’s fool was wrong. It would seem the whirligig of time does not, alas, bring its revenges. Vicky Ward is a contributing editor to Vanity Fair and the author the New York Times Bestseller: The Devil’s Casino, Friendship, Betrayal and the High-Stakes Games Played Inside Lehman Brothers (John F. Wiley & Sons).

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U.S.’s Ten Most Endangered Industries

April 2, 2011

The recession has caused the failure of some formidable companies, Lehman Brothers and Circuit City among them. Not only individual businesses have suffered, however. The economic woes of the last decade have preyed upon entire industries. In a new report entitled “Dying Industries,” by Toon Von Beeck, research firm IBISWorld identifies 10 U.S. industries that have experienced severe, possibly irreversible drop-offs over the past decade, today remaining stuck in the decline phase of their business cycle. All mentioned industries — having already experienced significant decreases in revenue over the last decade — can be expected to experience further declines through 2016. The reasons for the suffering vary by industry, but IBISWorld attributes a significant amount of industry strife to three primary factors: new technology, foreign competition and industry stagnation. With the country still reeling from a housing crisis , manufactured home dealers may be in the most trouble, the report finds. Over 50 percent of manufactured home dealers closed their doors over the past decade, and revenue numbers for those still open are terrible: down 73.7 percent with a further 62 percent decline expected by 2016. And while the decline of some high-profile industries, like the newspaper and record businesses, have been well-documented for years, who knew that rental formal wear could soon be passé ? The apparel industry has suffered tremendously from foreign competition, with revenues down 77.1 percent since 2000. Photofinishers have largely been supplanted by digital camera as well. But maybe some can take solace in the fact that there likely won’t be a sequel forthcoming to 2002′s One Hour Photo . The slidshow below uses data compiled in the report “10 Dying Industries” by IBISWorld . Ranking is based on percentage decrease in revenue from 2000 to 2010:

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Lehman Trustee Sues Citibank For $1.3 Billion

March 18, 2011

NEW YORK (Reuters) – The trustee overseeing the liquidation of Lehman Brothers Holdings’(LEHMQ.PK: Quote, Profile, Research, Stock Buzz) broker dealer has sued Citibank to recover more than $1.3 billion in cash and other assets, according to court papers filed on Friday. The assets include a $1 billion deposit that Citibank demanded to continue providing foreign exchange settlement services to broker-dealer Lehman Brothers Inc after its parent filed for Chapter 11 bankruptcy protection, according to a complaint filed in U.S. bankruptcy court in Manhattan. Citibank, part of Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), also froze over $300 million in additional deposits, according to the complaint, filed by Lehman Brothers trustee James Giddens. When Lehman requested the return of the $1 billion deposit, Citibank said it had set the deposit off against other obligations Lehman owed to Citibank, according to the lawsuit. In a statement, Citigroup said it demanded the deposit to cover any losses it suffered in settling Lehman Brothers Inc’s trades during the panic caused by its parent’s bankruptcy filing in September 2008. It called the trustee’s claims “unjustified and without merit” and said it will vigorously defend its right to recover its losses, which amounted to more than $1 billion for helping settle the Lehman trades. (Reporting by Dena Aubin, editing by Dave Zimmerman) Copyright 2011 Thomson Reuters. Click for Restrictions

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Klaus Schwab: The Titanic Syndrome and Frontier Risks

March 18, 2011

The potentially critical situation at the Fukushima Daiichi power station in Japan underlines the limits of even the best engineering minds working at the frontiers of their field. Almost 100 years ago, the world was confronted with the same limitations to human ingenuity when the most sophisticated engineering marvel of its time, the Titanic , went down on its maiden voyage. The Titanic did not sink because White Star Line, its owner, disregarded safety issues. On the contrary, the Titanic had the most advanced safety features of its time: a multi-compartmented hull, sophisticated wireless communications and full compliance with maritime safety regulations. Both its owner, J. Bruce Ismay, and the ship’s builder, Thomas Andrews, were aboard. It was the existence of these safety features that made the captain comfortable in trying to cross the frontier of high-speed transatlantic travel, with tragic consequences. The Titanic Syndrome occurs when companies engaged on the frontiers of new technologies believe in good faith that they have covered the key risks, but have not. Fukushima Daiichi power station, the subprime mortgage crisis and the Deepwater Horizon oil spill are all recent examples of the great challenges in trying to manage risk effectively at the frontier — and the enormous costs of getting it wrong. Each of these examples involved highly competent engineering organizations with dedicated teams committed to safety or — as in the case of Lehman Brothers for subprime mortgages — effective risk management. All believed that their product had been tested to the farthest necessary edges of the event distribution. These organizations were pushing the frontier in ways that, at the time, were seen as advantageous for society. However, they were working with regulations that were insufficient because human ingenuity had outstripped them — the Titanic’s 16 lifeboats met 15-year-old regulations enacted when ships were smaller. As a result, less than one-third of its passengers survived. All were brought down by a combination of multiple risks or failures occurring at the same time, combined with human error. Most importantly, in all cases, their failures had systemic costs that went far beyond their own companies. However talented and committed, a company’s engineers, scientists and managers are unable to understand, assess and address key frontier risks by themselves. Their desire to succeed and their commitment to their work — so critical to entrepreneurial success — may unconsciously limit their ability to assess all risks. The complex nature of frontier risk is likely beyond the understanding of any one organization, however sophisticated. The broad regional, or even global, implications of failure mean that the responsibility for addressing these risks cannot rest with the company alone. Shifting the responsibility to regulators alone is not the answer, as governments often have less experience with the relevant issues than the companies. Nor can we halt our exploration into frontier technologies. The present deadlock over GMOs is an example: foods that could help millions are rejected because the companies proffering them are not trusted. Simply turning our back on nuclear power without the right debate would take away an important instrument to fighting global climate change. Dealing with frontier risks requires a neutral platform where best practices and insights from around the world can be brought to bear and where all voices, positive and negative, find a hearing. The only way to approach multifaceted risk in a complex and interconnected world is to develop spaces where all stakeholders are able to come together in a neutral environment where the interests of the world as a whole are put first, not the self-interest of any individual member. Helping companies, governments and society address these frontier issues together in an effective and credible way will reduce the incidence and consequence of the Titanic Syndrome. More importantly, it will unlock the door to a new wave of job-creating and life-improving innovation.

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Criminal Case Against Lehman Brothers Stalls

March 12, 2011

(Reuters) – A government probe into the fall of Lehman Brothers Holdings Inc has hit so many snags that enforcement officials fear they may never be able to bring civil or criminal charges against company executives, the Wall Street Journal reported on Saturday. According to the paper, Securities and Exchange Commission officials have begun to doubt they can prove that Lehman broke U.S. laws by moving nearly $50 billion in assets off its balance sheet to make it appear that the securities firm had lowered its debt burden. Quoting people familiar with the situation, the Journal said SEC officials are also worried they might not win any lawsuit against former Lehman Chief Executive Richard Fuld Jr accusing him of improperly accounting for the value of a large real estate portfolio acquired with the takeover of Archstone-Smith Trust, or to hide losses to investors related to that deal. If the SEC decides not to file charges against Lehman, the securities firm could escape criminal prosecution because the Justice Department often takes its lead from the SEC, the newspaper said. (Reporting by Julie Steenhuysen; Editing by Vicki Allen) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wall Street Compensation Lawyer: ‘I Have Friends Who Blame Me For The Crisis’

February 6, 2011

Don’t blame record levels of Wall Street pay for the financial crisis, one high-powered lawyer tells the Wall Street Journal . In an interview with the WSJ Steve Eckhaus, a New York City lawyer who has brokered pay packages for some of the Street’s most well-known execs, says pay just wasn’t the cause of the financial crisis. Most of his clients are as “pure as driven snow,” he tells the WSJ , and the crisis was caused by a “confluence of economic, political and historical factors.” Here’s more from the WSJ : “I hate to say it, but I have friends who blame me for the financial crisis,” says Mr. Eckhaus, who estimates he has negotiated well over in $5 billion in banker pay over the years, including several $100 million pay deals. Eckhaus, who has worked on deals for execs like former Lehman Brothers CFO Erin Callan and former Goldman exec Tom Montag (now of Bank of America), leaves out ample evidence that compensation did play a significant role in the financial crisis — and may, in fact, hurt long-term corporate performance. In a highly-anticipated report released last month the FInancial Crisis Inquiry Commission, a government panel charged with investigating the causes of the meltdown, pointed to compensation as a key factor. “Compensation systems–designed in an environment of cheap money, intense competition, and light regulation–too often rewarded the quick deal, the short-term gain–without proper consideration of long-term consequences,” the report reads. The FDIC is reportedly weighing a proposal to force the nation’s largest banks — including Bank of America, Goldman Sachs and Wells Fargo — to defer at least half of all bonuses compensation to top execs for at least three years. Under the Dodd-Frank financial reform bill passed last year, regulators may prohibit compensation practices that compel execs to take “inappropriate risks .” Since the crisis, the EU, for its part, has pushed to establish limits on financial industry compensation. Aligning pay with long-term shareholder interests is also one of the top concerns surrounding the international bank accords known as Basel III . A report released last year by the Council of Institutional Investors, a group of public and privete pension funds, found that Wall Street pay practices had not sufficiently changed after the financial crisis.

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Robert Lenzner: Pete Peterson’s Crusade to Cure the Global Debt Bubble

January 8, 2011

Peter G. Peterson, founder of Blackstone, the private equity giant, and former chairman, Lehman Brothers, backed by the support of 55 former US officials, is calling on president Obama to instantly organize a bipartisan effort to deal with the nation’s debt and bloated federal budget. In a personal interview with me in late December, Peterson, chairman of his own foundation, admitted, “What I fear is that we need a crisis to educate the public on the seriousness of the problem. What I hope is that the president will decide this is a major national issue, spell out what needs to be done, and what kind of a future we want.” Peterson is adamant; “We need a positive view of the kind of America will emerge,” he told me. “We need an elevated national dialogue leading to a bipartisan agreement.” If not, the former secretary of commerce in the Nixon administration warns, “The implication if we dont do something is clear. The interest costs will begin to consume the budget.” Indeed, a study commissioned by the Peterson Foundation shows that by 2027 interest on the federal government’s debt will be the largest item in the budget — far more than the amounts spent on education, infrastructure and research and development. By 2055, if there is no reform, the interest expense for servicing U.S. Treasury debt will require 100% of the US government’s tax revenues, according to figures supplied by the Peterson Foundation. Peterson is plainly worried about the nation’s debt weakening its influence in global politics. “If the current trends continue, the exploding amount of U.S. debt owned by foreign lenders leaves us vulnerable to their economic and political demands,” his latest report suggests. Peterson recently polled 55 former treasury secretaries, former members of the Council of Economic Advisers, former Federal Reserve Board governors and previous directors of the Office of Management and Budget — and was heartened that to a man they agreed wholeheartedly with him that the long term structural financial outlook of the United States is not sustainable unless there are major cuts in the federal budget as well as tax increases. Now, he is trying to organize a global pressure group made up of other nations with too much debt and too large an elderly retired population to tackle solutions for this widespread quandry in a unified fashion. The Peterson Foundation is preparing projections for debt servicing across the globe and trying to estimate the total costs for funding the aged everywhere — to show that the rising cost of medical care and social security plagues more than just the U.S. The painful lesson; to underscore there are going to be far fewer taxpaying citizens and that as a result — social insurance programs all over the world are not being funded sufficiently.

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Video: U.S. Stocks Rise, Erasing Decline Since Lehman Failure

December 21, 2010

Dec. 21 (Bloomberg) — Bloomberg’s Courtney Donohoe reports on the performance of the U.S. equity market today. Stocks rose, completing the Standard & Poor’s 500 Index’s recovery from the plunge that followed Lehman Brothers Holdings Inc.’s collapse in 2008, after Adobe Systems Inc.’s forecast added to speculation that the fastest profit growth in 22 years makes equities a bargain. Bloomberg’s Pimm Fox also speaks. (Source: Bloomberg)

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Gold-Dispensing ATM Machine Makes Its Debut In America

December 17, 2010

BOCA RATON, Fla. — Shoppers who are looking for something sparkly to put under the Christmas tree can skip the jewelry and go straight to the source: an ATM that dispenses shiny 24-carat gold bars and coins. A German company installed the machine Friday at an upscale mall in Boca Raton, a South Florida paradise of palm trees, pink buildings and wealthy retirees. Thomas Geissler, CEO of Ex Oriente Lux and inventor of the Gold To Go machines, says the majority of buyers will be walk-ups enamored by the novelty. But he says they’re also convenient for more serious investors looking to bypass the hassle of buying gold at pawn shops and over the Internet. “Instead of buying flowers or chocolates, which is gone after two or three minutes, this will stay for the next few hundreds years,” Geissler told The Associated Press in a telephone interview. The company installed its first machine at Abu Dhabi’s Emirates Palace hotel in May and followed up with gold ATMs in Germany, Spain and Italy. Geissler said they plan to unroll a few hundred machines worldwide in 2011. He said the Abu Dhabi machine has been so popular it has to be restocked every two days. A bank in Vietnam installed its own brand of the machines in a country with a much poorer population but one that values gold more than paper money. The gold-leaf-covered machine at Boca Raton’s Town Center Mall sits outside a gourmet chocolate store and works much like the cash ATM beside it. Shoppers insert cash or credit cards and use a computer touch-screen to choose the weight and style they want. The machine spits out the gold in a classy black box with a tamperproof seal. Each machine, manufactured in Germany, carries about 320 pieces of different-sized bars and coins. Prices are refigured automatically every 10 minutes to reflect market fluctuations. On Friday, a two-gram piece cost about $122, including packaging, certification and a 5 percent markup. An ounce cost about $1,442. Buyer beware: A gram of the heavy metal is much smaller than you think, about the size of a fingernail. An ounce is a little larger than a quarter. Florence Schneider, who checked out the machine Friday, said she might use it, but only if she needed a unique gift. “I can’t see it being successful. Maybe for Christmas as a gimmick,” said the 78-year-old Boca Raton resident. “If I knew someone was having a big birthday coming up I’d buy it for something different.” Owners said the machine, which will hold around $150,000 in cash and gold, will be flanked by an armed bodyguard for now. Several live security cameras are fixed inside and outside the machine. The popularity of gold is cyclical, but it’s riding high these days in part because of fears stoked by financial troubles. Geissler, who plans to open a machine in Las Vegas by the year’s end, said the collapse of the Lehman Brothers investment firm was the impetus for the flashy ATMs. His customers refused to buy bonds, stocks and other funds from the financial industry, so they focused on precious metals. As some investors continued to lose faith in global finance markets, the company worked on the gold-leaf finished ATM, banking that the protection of purchasing power found in gold would lure market leery customers. “Gold always comes back to its real value,” Geissler said. “It’s not diamonds, it’s not silver, it’s not real estate. It’s just gold.” Dave Jones, who brokered the deal to bring the machines to the U.S., predicts gold will become a parallel currency in the next five years. He said they plan to install about 40 more machines at upscale malls and hotels around the U.S. “Gold has a place in everyone’s portfolio,” said Jones, of Boca Raton-based PMX Gold. “It’s a good hedge against inflation and it’s a good comfort level.” ___ Associated Press writer Suzette Laboy contributed to this report. ___ Online: Gold To Go: http://www.gold-to-go.com/en/

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Gold-Dispensing ATM Machine Makes Its Debut In America

December 17, 2010

BOCA RATON, Fla. — Shoppers who are looking for something sparkly to put under the Christmas tree can skip the jewelry and go straight to the source: an ATM that dispenses shiny 24-carat gold bars and coins. A German company installed the machine Friday at an upscale mall in Boca Raton, a South Florida paradise of palm trees, pink buildings and wealthy retirees. Thomas Geissler, CEO of Ex Oriente Lux and inventor of the Gold To Go machines, says the majority of buyers will be walk-ups enamored by the novelty. But he says they’re also convenient for more serious investors looking to bypass the hassle of buying gold at pawn shops and over the Internet. “Instead of buying flowers or chocolates, which is gone after two or three minutes, this will stay for the next few hundreds years,” Geissler told The Associated Press in a telephone interview. The company installed its first machine at Abu Dhabi’s Emirates Palace hotel in May and followed up with gold ATMs in Germany, Spain and Italy. Geissler said they plan to unroll a few hundred machines worldwide in 2011. He said the Abu Dhabi machine has been so popular it has to be restocked every two days. A bank in Vietnam installed its own brand of the machines in a country with a much poorer population but one that values gold more than paper money. The gold-leaf-covered machine at Boca Raton’s Town Center Mall sits outside a gourmet chocolate store and works much like the cash ATM beside it. Shoppers insert cash or credit cards and use a computer touch-screen to choose the weight and style they want. The machine spits out the gold in a classy black box with a tamperproof seal. Each machine, manufactured in Germany, carries about 320 pieces of different-sized bars and coins. Prices are refigured automatically every 10 minutes to reflect market fluctuations. On Friday, a two-gram piece cost about $122, including packaging, certification and a 5 percent markup. An ounce cost about $1,442. Buyer beware: A gram of the heavy metal is much smaller than you think, about the size of a fingernail. An ounce is a little larger than a quarter. Florence Schneider, who checked out the machine Friday, said she might use it, but only if she needed a unique gift. “I can’t see it being successful. Maybe for Christmas as a gimmick,” said the 78-year-old Boca Raton resident. “If I knew someone was having a big birthday coming up I’d buy it for something different.” Owners said the machine, which will hold around $150,000 in cash and gold, will be flanked by an armed bodyguard for now. Several live security cameras are fixed inside and outside the machine. The popularity of gold is cyclical, but it’s riding high these days in part because of fears stoked by financial troubles. Geissler, who plans to open a machine in Las Vegas by the year’s end, said the collapse of the Lehman Brothers investment firm was the impetus for the flashy ATMs. His customers refused to buy bonds, stocks and other funds from the financial industry, so they focused on precious metals. As some investors continued to lose faith in global finance markets, the company worked on the gold-leaf finished ATM, banking that the protection of purchasing power found in gold would lure market leery customers. “Gold always comes back to its real value,” Geissler said. “It’s not diamonds, it’s not silver, it’s not real estate. It’s just gold.” Dave Jones, who brokered the deal to bring the machines to the U.S., predicts gold will become a parallel currency in the next five years. He said they plan to install about 40 more machines at upscale malls and hotels around the U.S. “Gold has a place in everyone’s portfolio,” said Jones, of Boca Raton-based PMX Gold. “It’s a good hedge against inflation and it’s a good comfort level.” ___ Associated Press writer Suzette Laboy contributed to this report. ___ Online: Gold To Go: http://www.gold-to-go.com/en/

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We Dare You To Find A Lower Rate: Wall Street Borrowed From Fed At 0.0078 Percent

December 1, 2010

NEW YORK — For the lucky few on Wall Street, the Federal Reserve sure was sweet. Nine firms — five of them foreign — were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities, which effectively act like cash on Wall Street, for four-week intervals while paying one-time fees that amounted to the minuscule rate of 0.0078 percent. That is not a typo. On 33 separate transactions, the lucky nine were able to borrow billions as part of a crisis-era Fed program that lent the securities, known as Treasuries, for 28-day chunks to the now-18 firms known as primary dealers that are empowered to trade with the Federal Reserve Bank of New York. The program, called the Term Securities Lending Facility, ensured that the firms had cash on hand to lend, invest and trade. The market was freezing up. Effectively free money, courtesy of Uncle Sam, helped it thaw. The European firms — Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (U.K.), Barclays (U.K.), and BNP Paribas (France) — borrowed $5.2-6.2 billion in Treasuries 20 different times. The one-time fees they paid on each transaction ranged from $403,277.78 to $481,110. Deutsche led the way with seven such deals. On each transaction, the fee paid for the 28-day loan is equal to a rate of just 0.0078 percent. The first of these sweetheart deals began April 17, 2008. They ended nearly a year later on March 5. On that day, Goldman Sachs borrowed about $5.8 billion and paid just $450,000 for the privilege. Goldman was one of four American firms that also paid that rock-bottom rate. Citigroup, defunct investment bank Lehman Brothers, and Merrill Lynch, which was gobbled up by Bank of America in a government-pushed transaction, benefited from the save-Wall-Street-at-all-costs approach. Goldman and Citi got the 0.0078 percent rate on five separate occasions, tops among U.S. banks. The transactions highlight the extraordinary steps taken by the Fed — and encouraged by both the Bush and Obama administrations — to save Wall Street from its own mistakes. Households and small businesses have not been as lucky. The Fed’s crisis-era programs “provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system,” the Fed said in a statement Wednesday posted on its website. A spokesman did not respond to an e-mailed request for comment. This year, Wall Street is poised to break yet another record for employee compensation and bonuses. Thanks to near-zero percent interest rates — also set by the Fed — firms are able to continue making easy money with minimal risk. *This story was updated at 8:30 p.m. ET. An earlier version of this article misstated the rate paid by the firms, the number of transactions, the amount of the fee, which varied by transaction, and incorrectly defined the rate itself. The rate, which was a fixed fee and not a traditional interest rate, was 0.0078 percent, not 0.0077 percent. There were at least 33 such transactions, not 31. And the actual fee paid ranged from $403,000 to $481,000, rather than a fee of about $384,000 for all of the transactions. ************************* Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Lawrence G. McDonald: It’s Securitization Stupid: One Big Fix Needed in our Banking System

November 18, 2010

I remember it like yesterday, it was the Autumn of 2006. I was on the Lehman Brothers trading floor where I traded distressed debt, bonds of companies in trouble. One of the brightest analysts in the firm came up to me with an interesting piece of data. He showed me a chart of “shadow banks” going out of business. I remember doing a double take and then looking at the data long and hard. To explain, here’s an excerpt from my 2009 New York Times Best Selling book, A Colossal Failure of Common Sense — The Inside Story of the Collapse of Lehman Brothers : The process began in the offices of large US mortgage brokers, particularly in California, Florida, and Nevada, where the prospect of a fast buck has never antagonized the natives. This was the start of a lending twilight zone, the advance of the Shadow Banks, places with no depositors, no customers filing in and handing over their paychecks to carefully run commercial banking organizations. The Shadow Banks would lend, finance, and provide capital for house purchases, but they had to borrow the money in the first place, from proper banks, mainly because they didn’t have the money themselves. Presto! We have a lender who’s not really the lender, a lender who had to borrow the money in order to make the loan. Huh? All over the United States companies like Own It Mortgage, New Century (NCBC), and NovaStar were dropping like flies. What does this mean to you, financial reform in the Dodd Frank Bill, our economy, and the Federal Reserve today? The math is simple, since the Fall of 2006 more than 380 of these shadow banks have gone out of business. The big ones like New Century and BNC/Aurora Mortgage (owned by my former employer Lehman Brothers) were lending close to $5 billion a month of Subprime and Alt-A mortgages. $5 billion times 380 now-defunct shadow banks would be $1.9 trillion a month of lending power, which doesn’t exist today. But not all shadow banks were lending at this insane pace. The average was more like $600 million times 380 now-defunct shadow banks, which equals $228 billion a month, or $2.7 trillion of annual US lending power, which does not exist today. There were more than 500,000 mortgage brokers in California alone; now that’s a distribution system! You must thoroughly understand this 21st century lending power. This isn’t some government-sponsored Highway Works Project or some stimulus money the Obama administration and Congress are throwing at the economy to try to get things cooking again. This money doesn’t go through the hands of a million bureaucrats and eventually end up in the US economy. This lending power was like taking a syringe filled with liquid cocaine and placing it right into the jugular vein of the US economy. I stress the word was. Most economists didn’t understand the multiplier effect of the securitization process described above in 2006; they called it “Goldilocks” out of ignorance and they still don’t understand it today. The multiplier effect of this amount of capital oozing through our economy is and was nothing short of jaw-dropping. Every time someone buys a home in America hundreds of jobs are created. Carpets, appliances, electronics, cement, and wood. It goes on and on, money is spent and the money gets spent over and over again in the economy. Which brings me to quantitative easing, the now infamous QE1 and QE2. Our Federal Reserve is taking almost $2 trillion and buying US Treasury securities to suppress interest rates, create cheap money in the hope US consumers get out and spend. The problem is this is like giving an ill patient a colossal blood transfusion with veins running through the body that are completely clogged. They’re flooding the engine with gas with no spark plugs. I’ve delivered more than 35 keynote speeches this year in more than 15 countries on the failure of Lehman Brothers and financial reform. I’ve had one-on-one meetings with people like Charlie Munger and I’ve been advising the financial crisis inquiry commission. I’ve been working with the team at DC Tripwire to stay up-to-date on all the latest moves coming out of Washington on financial reform and the long implementation process of the Dodd Frank Bill. I consider myself an expert on this subject. I’m here to tell you I’m disgusted with the fact that very little has been done to fix our critical securitization process. I say critical because it needs to be fixed as soon as possible. In commercial real estate there was more than $260 billion of securitized lending in 2007 versus less than $10 billion this year. Imagine the jobs and lives this is impacting. The most appalling focus point I see is the Dodd Frank Financial Reform implementation process has securitization on the back burner, I mean the left field or Siberian-type of back burner. It’s the last priority. To understand Dodd Frank, picture in your mind an eight-lane highway with some cars moving at 90 mph, some 50 mph. Securitization reform is more like 15 mph. Take residential mortgage-backed securities, for example RMBS. Where’s the system of registering mortgage brokers? Stock brokers and financial advisers have a rigorous registration and regulation infrastructure known as the Financial Industry Regulatory Authority FINRA but we still have nothing in mortgage origination. There’s a buyer’s strike right now in securitization of mortgage-backed securities. Investors around the world who once flocked to mortgage-backed securities like drug addicts chasing their dealer aren’t buying because they don’t trust the origination process at the street level. This must be fixed before another round of quantitative easing or we get another stimulus package out of Washington. We’re in a row boat and Congress has the oars going one way and the Fed the other, let’s right this ship!

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Yvette Kantrow: George Bailey, the dark side

November 12, 2010

More than two years have passed since the financial system almost went up in flames, but a big question remains: What should we do about the banks? Nationalize them? Break ‘em up? Turn them into utilities? Bring back Glass-Steagall? These are tough issues, filled with endless complexities. But for a certain segment of the punditocracy, the answer is simple: When it comes to banks, small is beautiful. Arianna Huffington, for one, wants us all to withdraw our money from big, corrupt, bailed-out banks and put it instead into “America’s Main Street community banks.” Not only are we likely to get a better deal, she argues, but we’ll be sticking it to bankers who acted recklessly while rewarding those who didn’t. Elizabeth Warren, meanwhile, sees community banks as victims of big banks and their “phantom prices” that ripped off consumers. In an op-ed on Politico, she vows to help these banks “by streamlining regulations and eliminating outdated or ineffective rules.” Then there’s Simon Johnson, who continues to argue that big banks must be broken up. Writing in The New Republic, Johnson calls J.P. Morgan’s global expansion plans “the ultimate poison pill under the new regulatory regime.” In his view, going abroad is a “brilliant” and “terrifying” loophole being exploited by big banks looking to get around U.S. resolution authority. Johnson’s sidekick, James Kwak, meanwhile, recently told the website The Straddler that Bank of America “would be trivially easy to break up” and that “there’s no particular reason why a bank has to have branches in every state of the country.” Well, if that’s your view, there’s “no particular reason” why any business should operate in every state; maybe we should limit bailed-out General Motors to selling cars only in Michigan. To be sure, breaking up the banks would certainly solve our mammoth too-big-to-fail problem. But it could also touch off a liquidity crisis and wreak economic havoc. And a breakup is hardly trivial. But no matter. That small banks are better, more virtuous and capable of providing us with all the services we’ll ever need is now taken on faith. Small banks have become the proverbial little guy — a George Bailey-esque figure worthy of reverence and protection. Is that reverence warranted? Are all small banks forces for good, and are those that fail simply victims (like the rest of us) of greedy big banks? Time magazine decided to investigate. It went down to Cornelia, Ga., to chronicle the failure of its hometown bank, Community Bank & Trust, which for years was the picture of Bailey-esque benevolence. Not only did it support local schools and sports arenas, but “its hardheaded bankers personally inspected the local businesses they underwrote.” That all changed when the land boom hit and CBT’s longtime president died. “Headquarters stopped checking the loans its officers were peddling,” Time reported. The bank “renewed interest-only commercial loans every year, leading borrowers to believe the underlying debts would never come due.” CBT “kept terrible records, classifying home loans as business loans and vice versa.” Worse, some of the bank’s officers began lending money to “favored friends,” with at least one receiving kickbacks for fraudulent loans. Amazingly, this all went undetected by regulators until the Lehman Brothers failure forced them to become more diligent. By late 2009, CBT was on the brink of failure. In the end, the Federal Deposit Insurance Corp. stepped in and sold CBT to South Carolina Bank and Trust, a recipient of TARP funds. SCBT fired 120 CBT employees, foreclosed on 224 of its loans and classified 1,500 more as particularly troubled. It’s now being blamed for sending Cornelia down the tubes. “[SCBT's] really killing the town, and I blame the FDIC,” Donald Anderson, the city manager, told Time. “They’re giving them incentives to foreclose on properties.” Time notes, however, that SCBT has foreclosed on just 2.14% of CBT’s business loans and 1.75% of its residential mortgages, and that it’s not incentivized by the FDIC to do so. But Cornelians remain reluctant to badmouth their beloved CBT. “It’s like finding out an old friend has done something you don’t want to believe until the facts just smack you in the face,” Sally Yates, the U.S. attorney for the Northern District of Georgia, told Time. Yes, facts. That’s what Time supplied by going down to Georgia, rather than to simply opine on the virtues of small banks. CBT’s woes are by no means representative of all small banks. But they are worth remembering the next time a pundit starts muttering the “small banks are beautiful” meme. Yvette Kantrow is executive editor of The Deal magazine.

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Lehman Weighs Archstone Sale

September 27, 2010

Lehman Brothers Holdings is mulling the sale of its apartmentcomplex owner Archstone

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Video: Lehman Strategist Finds Risk Pays as Ice Cream Maker

September 24, 2010

Sept. 24 (Bloomberg) — Carlo del Mistro, owner and founder of ice cream company Gelato Mio Ltd., talks with Bloomberg’s Chief Food Critic Richard Vines about his career. Del Mistro left his job at Lehman Brothers Holdings Inc. in 2007 and opened his Italian gelato business a year later. Andrea Catherwood also speaks on Bloomberg Television’s “The Pulse”.

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Preeti Vissa: The New War on Homeownership: Could It Lead to a Permanent American Underclass?

September 21, 2010

As long as most of us have been alive, owning your own home has been a big part of the American Dream, but suddenly some prominent media voices are saying, “Not so fast!” Some of these newfound doubts about homeownership have a distinct aroma of racism about them. Most Americans still look at homeownership the way they always have. If you ask renters or young people if they hope to own a home one day, the resounding answer will be, “Yes!” But there is a growing movement – epitomized by Time ‘s Sept. 6 cover story, “Rethinking Homeownership” — to make America a nation of renters. By amazing coincidence, those claiming that too many people own homes seem to have had that brainstorm just as Latinos, African Americans and Asians were beginning to get a piece of the action. The Time piece bemoaned what it calls “the dark side of homeownership … foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values.” The story declared flatly, “Homeownership has let us down.” It even blamed homeownership for “the hollowing out of cities” and pretty much every wasteful, energy-inefficient aspect of the suburban lifestyle. Time wasn’t the first to call for a retreat from homeownership. In a June 7 Wall Street Journal column , Richard Florida called owning one’s own home “overrated.” At present, about 67 percent of Americans own their homes, and Florida thinks we’d be better off at between 55 and 60 percent. That, he claims, is the rate of homeownership in America’s “most economically vibrant regions.” Such reasoning is nonsensical, as we’ll see in a moment. Implicit in all this – not stated plainly in polite company, but lurking just under the surface – is the idea that things were fine until the wrong people started buying houses. On right-wing blogs the accusation is often more explicit, blaming government programs for putting people of color into homes. Of course homeownership is not for everyone. But it was not homeownership that “let us down.” What let us down were predatory and dishonest lending practices that made homeownership a casino game. That’s why entire financial institutions such as Lehman Brothers, Bear Stearns and others collapsed. Meanwhile, firms such as Goldman Sachs encouraged investors to purchase mortgage-backed securities even as they were betting that the housing market would collapse. While some pick and choose statistics to make a bogus claim that homeownership is somehow a drain on economic vibrancy, multiple studies point in the opposite direction. Homeownership leads to stability, both for individual families and the neighborhoods in which they live. And that, in turn, correlates with all sorts of social benefits. Numerous studies, for example, have shown that children of homeowners are more likely to graduate from high school than children of renters, and are at least twice as likely to go to college. Other research has found homeowners to have higher rates of life satisfaction, self-esteem and sense of control over their lives. Federal Reserve statistics show that communities of color were victims, not perpetrators, of the mortgage disaster. Among buyers with the best credit ratings – FICO scores of 720 or higher – 13.5 percent of Latino borrowers and 12.8 percent of African-American borrowers received high-cost loans, compared to only 2.6 percent of white borrowers. That led to higher foreclosure rates and a massive loss of wealth. The problem wasn’t that “irresponsible” (read: nonwhite) people recklessly bought homes they couldn’t afford. The problem was that they didn’t get equal treatment simply because they had the same income or FICO score. The question is not whether we should be renters or homeowners. The question is how to go back to the original idea of homeownership: seeing a home as the place that protects your family, not something you invest in for a quick flip. People of color simply have not had as much access to this bedrock source of financial stability as whites. In 2009, while 74.9 percent of whites were homeowners, only 59.1 percent of Asians, 48.9 percent of Latinos, and 47.5 percent of blacks owned their own homes. Not surprisingly, for every dollar of wealth the average white family owns, families of color have 15 cents. Some, it appears, want to keep it that way. Rather than blaming communities that were victimized by predatory lending practices, we should search for responsible ways to make sure that Americans of all races have equal access to the benefits that well-planned homeownership can provide for individuals, families and neighborhoods. Preeti Vissa is community reinvestment director of The Greenlining Institute, www.greenlining.org.

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Video: Poll Shows Investors Think Global Economy Has Stabilized: Video

September 21, 2010

Sept. 21 (Bloomberg) — Three out of five global investors say the world economy has weathered the financial crisis and has stabilized two years after the collapse of Lehman Brothers Holdings Inc., according to a global quarterly poll of 1,408 investors, analysts and traders who are Bloomberg subscribers. Separately, the U.S. fell behind emerging markets in Brazil, China and India as the preferred place to invest, though the world’s largest economy still ranks highest of all major developed countries, according to the poll. Bloomberg’s Jon Erlichman and Deidre Bolton report. (Source: Bloomberg)

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Video: Atkins Says Defining `Window Dressing’ Key to SEC Rules: Video

September 17, 2010

Sept. 17 (Bloomberg) — Paul Atkins, a former member of the Securities and Exchange Commission, talks about the possible creation of rules to prevent the practice of so-called window dressing reporting by financial institutions. U.S. regulators voted to propose rules that may make it harder for companies to mask debt after Lehman Brothers Holdings Inc. was accused of misleading investors by temporarily moving assets off its books. Atkins speaks with Margaret Brennan and Peter Cook on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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SEC Eyes New Rules That Could Make It Harder For Banks To Hide Debt

September 17, 2010

WASHINGTON — Federal regulators are set to propose new rules that could make it harder for financial firms to disguise their level of debt. The expanded disclosure requirements would apply to banks’ practice of temporarily trimming their debt at the end of quarters to make their financial statements appear stronger. The practice is legal but regulators say it can give investors a distorted picture of a bank’s debt and level of risk. Lehman Brothers used so-called repurchase agreements as an accounting trick in the months before its collapse into the biggest bankruptcy in U.S. history two years ago. The demise of the Wall Street titan triggered a panic in financial markets. Lehman had put together complex transactions that allowed the firm to sell billions in mortgage securities at the end of a quarter – wiping them off its balance sheet when regulators and shareholders were examining it – and then to quickly buy them back. The repurchase agreements, detailed in a report issued in March by a court-appointed examiner, were known as Repo 105. The Securities and Exchange Commission is expected to propose the new rules and open them to public comment at a meeting on Friday. They could be formally adopted sometime later, possibly with changes. The term “window dressing” to sometimes used to describe the practice of big banks and financial firms sweeping away debt at quarter’s end, then buying back the assets and building up debt again in a new quarter. Banks are required to disclose their short-term borrowing only once a year. The SEC could, for example, propose increasing the required frequency of reporting. The SEC last spring sent letters to 19 big financial firms asking about their use of repurchase agreements. The agency found from its canvass that “people were using repos quite extensively,” with a marked spike in volume just before quarters’ end, Wayne Carnall, chief accountant of the SEC’s corporation finance division said Wednesday. However, the agency “did not find any significant noncompliance with the accounting standards” with banks’ use of repos, Carnall told a gathering of the American Institute of Certified Public Accountants. In a few instances, he said, banks acknowledged they had made errors but said they weren’t significant.

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Video: Chapman Discusses New Book on Lehman Brothers: Video

September 15, 2010

Sept. 15 (Bloomberg) — Author Peter Chapman talks with Bloomberg’s Mark Crumpton about his book, “The Last of the Imperious Rich,” which chronicles the history of Lehman Brothers Holdings Inc. (Source: Bloomberg)

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Video: Solomon Discusses Collapse of Lehman, Financial Crisis: Video

September 15, 2010

Sept. 15 (Bloomberg) — Peter Solomon, founder of investment bank Peter J. Solomon Co. and a former vice chairman of Lehman Brothers Holdings Inc., talks about the collapse of Lehman and causes of the financial crisis. Solomon speaks with Margaret Brennan on Bloomberg Television’s “In Business.” (This is an excerpt of the full interview. Source: Bloomberg)

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Walden Bello: The Political Consequences of Stagnation

September 14, 2010

My apologies to T. S. Eliot, but September, not April, is the cruelest month. Before 9/11/2001, there was 9/11/1973, when Gen. Pinochet toppled the Allende government in Chile and ushered in a 17-year reign of terror. More recently, on 9/15/2008, Lehman Brothers went bust and torpedoed the global economy, turning what had been a Wall Street crisis into a near-death experience for the global financial system. Two years after the collapse of the global economy, prospects for economic recovery remain distant. Despite modest upturns at the end of 2009, the end of public stimulus spending in the United States, China, and other states has renewed fears of a double-dip recession. All major sectors in the economy remain cautious; firms are not investing, banks are not lending, and consumers are not spending. Partly to blame for the continued mess is a lack of coherent, focused, and directed government action. The debate continues to rage over the merits of government intervention. While many assert that stagnation presents a significant threat to future economic stability, and can only be countenanced by direct public stimulus, others argue that widening deficits and the risk of default present a bigger problem. Anti-spending groups in the United States, relying on thoroughly discredited neoclassical economic principles, have built a wide base of support from Wall Street bankers, doctrinaire neo-liberals, Tea Party enthusiasts, and small-government supporters in the American middle class. Meanwhile, Obama’s nascent steps toward Keynesian interventionism have been compromised by the absence of an inspiring alternative to the predominant neoliberal paradigm. The Obama administration made the mistake of accepting responsibility for the crisis. Accusations leveled at greedy bankers directly clashed with the assertions that those same banks were “too big to fail” and focused too much attention on personality flaws rather than structural problems. Meanwhile, the administration watered down reform legislation, eliminating the very provisions that would have addressed the problem. Therefore, while the Obama administration did attempt to use public resources to jumpstart the economy, it relied on a pallid Keynesianism, failing to present its policies as part of a convincing narrative. A more coherent approach should supplement purely technocratic management with democratic decision-making at all levels of the economy, greater income and distribution equality, and a more cooperative business ethnic. If progressives fail to reclaim the narrative for government management and populism, these ideas may well be co-opted by other movements that also welcome state intervention, but coupled with a reactionary social and cultural program. The result is a well-known political outcome: fascism. For the full article, click here .

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Walden Bello: The Political Consequences of Stagnation

September 14, 2010

My apologies to T. S. Eliot, but September, not April, is the cruelest month. Before 9/11/2001, there was 9/11/1973, when Gen. Pinochet toppled the Allende government in Chile and ushered in a 17-year reign of terror. More recently, on 9/15/2008, Lehman Brothers went bust and torpedoed the global economy, turning what had been a Wall Street crisis into a near-death experience for the global financial system. Two years after the collapse of the global economy, prospects for economic recovery remain distant. Despite modest upturns at the end of 2009, the end of public stimulus spending in the United States, China, and other states has renewed fears of a double-dip recession. All major sectors in the economy remain cautious; firms are not investing, banks are not lending, and consumers are not spending. Partly to blame for the continued mess is a lack of coherent, focused, and directed government action. The debate continues to rage over the merits of government intervention. While many assert that stagnation presents a significant threat to future economic stability, and can only be countenanced by direct public stimulus, others argue that widening deficits and the risk of default present a bigger problem. Anti-spending groups in the United States, relying on thoroughly discredited neoclassical economic principles, have built a wide base of support from Wall Street bankers, doctrinaire neo-liberals, Tea Party enthusiasts, and small-government supporters in the American middle class. Meanwhile, Obama’s nascent steps toward Keynesian interventionism have been compromised by the absence of an inspiring alternative to the predominant neoliberal paradigm. The Obama administration made the mistake of accepting responsibility for the crisis. Accusations leveled at greedy bankers directly clashed with the assertions that those same banks were “too big to fail” and focused too much attention on personality flaws rather than structural problems. Meanwhile, the administration watered down reform legislation, eliminating the very provisions that would have addressed the problem. Therefore, while the Obama administration did attempt to use public resources to jumpstart the economy, it relied on a pallid Keynesianism, failing to present its policies as part of a convincing narrative. A more coherent approach should supplement purely technocratic management with democratic decision-making at all levels of the economy, greater income and distribution equality, and a more cooperative business ethnic. If progressives fail to reclaim the narrative for government management and populism, these ideas may well be co-opted by other movements that also welcome state intervention, but coupled with a reactionary social and cultural program. The result is a well-known political outcome: fascism. For the full article, click here .

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Lehman Lawyers Could Collect $2 Billion From Bankruptcy

September 14, 2010

It seems there are always those who gain from others’ misery. In this case, the lawyers and accountants circling Lehman Brothers stand to make more than $2 billion in fees for unwinding what was once one of Wall Street’s largest investment banks, the Financial Times reports. And that’s despite the fact that the services are being provided at discount rates.

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Robert Diamond Named New Barclays CEO

September 7, 2010

LONDON — Robert E. Diamond Jr., who built Barclays PLC into a global powerhouse in investment banking and has been criticized for his lavish pay, will become chief executive next year, the company announced Tuesday. Diamond, branded “the unacceptable face of banking” by a former government minister, will succeed John Varley, who guided Barclays through the credit crisis without resorting to a government bailout. Diamond will take over as CEO on March 31 after 14 years with the company. The 59-year-old American’s rise comes as governments review regulation, including a possibly momentous move in Britain to force lenders to divorce investment banking from retail operations. At home, Barclays may also feel pressure from the government’s austerity drive which will shrink public spending. Following its acquisition of Lehman Brothers’ U.S. operations, Barclays has become heavily dependent on the investment banking activity which is now Diamond’s domain. Barclays Capital now commands 60 percent of the company’s capital needs, a share that may increase due to regulatory changes, yet is likely to be less profitable than the Barclays retail side, Evolution Securities said in a research note. Diamond’s salary will be 1.35 million pounds ($2.08 million) with bonuses of up to 250 percent of that figure. The bank said it also intended to award a long term, performance-based share incentive of 500 percent of base salary in 2011. Diamond was paid 250,000 pounds last year and waived his bonus, but he reportedly also gained 26.8 million pounds from his shares in Barclays Global Investors when it was sold to Blackrock fund manages. Peter Mandelson, the business secretary in Britain’s previous government, said in an interview with The Times in April that Diamond hadn’t earned the money, “he has done so by deal-making and shuffling paper around.” “That to me is the unacceptable face of banking,” Mandelson said. Barclays’ chairman Marcus Agius told reporters in a conference call that Diamond’s compensation was “well benchmarked” against the pay of other chief executives of major banks, but the pay package may be politically sensitive. “In times of austerity, industry compensation continues to sit uncomfortably with politicians and the electorate, while questions over broader European banking strength have resurfaced,” said Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers. Still, experts say Diamond is highly respected in the industry for his development of the investment banking operations over 14 years. “We believe his appointment as group CEO reflects progress delivered at BarCap and the importance of the investment banking operations in the group’s future strategy,” said Danny Clarke, analyst at Shore Capital. Under Varley’s leadership, Barclays secured private investment in the Middle East to shore up its capital position during the credit crisis, and he led Barclays’ move to expand its investment banking business by acquiring the U.S. operations of Lehman Brothers following its collapse. Varley said it was his intention when he took the top job seven years ago that he would move on at age 55, a milestone he reaches in April. He will continue as a special adviser on regulatory matters for another six months beyond his retirement date. Jerry del Missier and Rich Ricci will become co-chief executives of Barclays Capital, effective October 1. Barclays shares were down 3.14 percent at 312.8 pence in midmorning trading on the London Stock Exchange. “Barclays is one of the very few stocks in our universe of banks that shows downside,” said Arturo De Frias, analyst at Evolution Securities, who rates the bank’s shares as “sell.” He said that in the last three months, Barclays stock has rise less than half as much as the wider banking sector. “Given the considerable pressures on investment banking returns, we expect this underperformance to continue.”

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Video: Grano Discusses Fuld Testimony at FCIC Hearings: Video

September 2, 2010

Sept. 2 (Bloomberg) — Joseph Grano, chief executive officer of Centurion Holdings LLC, discusses yesterday’s testimony by Richard Fuld, former chief executive officer of Lehman Brothers Holdings Inc., at the Financial Crisis Inquiry Commission hearings. Grano talks with Betty Liu on Bloomberg Television’s “In the Loop.” (This is an excerpt of the full interview. Source: Bloomberg)

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Is Your CEO Lying? Watch Out For Use Of The Third Person

August 13, 2010

The next time you hear a CEO refer to him or herself in the third person, you may want to make sure you don’t own any of their company’s stock. Using phrases like “the team” and “the company” over “I” and “we” is one of a number of linguistic cues that an executive could be lying, according to a new study by David F. Larcher, professor of accounting at Stanford University, and his team at the university’s Rock Center for Corporate Governance . ( hat tip Wall Street Journal ) The study, titled ” Detecting Deceptive Discussions in Conference Calls ,” found that executives who later revised their firm’s financial statements displayed distinct styles of speech in analyst calls, including language that “disassociates themselves from their subject matter.” Less than truthful execs also tended to speak in generalities rather than specifics, and replaced common adjectives like “good” and “respectable” with effusive adjectives like “incredible.” Larcher told the HuffPost that he hadn’t yet investigated which companies were found to display the most frequent signs of deceitful language — though he added that deceit tended to occur most often in “high-litigation industries like tobacco and oil.” As a part of the study, Larcher’s team loaded 30,000 transcripts of public conference calls from 2003 to 2007 onto an electronic document, which they then culled for verbal patterns psychologists and linguists usually associate with deception. Fourteen percent of executives, they found, said something that raised a red flag. One such transcript Larcher’s team looked at was a conference call with Erin Callan, the former Lehman Brothers CFO, just months before the firm’s collapse. In it, she used the word “great” 14 times, “strong” 24 times and “incredibly” eight times to describe the bank’s recent performance. She used the word “challenging” six times and “tough” only once. To most linguists and psychologists, such an overtly positive tone as Callan’s is a dead giveaway that a person is being less than candid. “These ideas have been around for a long time,” says Larcher. “What we’re trying to do is put the linguistic model and the accounting model together.” READ the study, “Detecting Deceptive Discussions in Conference Calls,” below: Deceit

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Video: Bloomberg’s Harper Discusses Goldman’s AIG Protection: Video

July 26, 2010

July 26 (Bloomberg) — Bloomberg’s Christine Harper discusses Goldman Sachs Group Inc. documents that show the bank depended on Citigroup Inc. and Lehman Brothers Holdings Inc. for protection against a failure of American International Group Inc. Harper talks with Jon Erlichman on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Video: Goldman Sachs Relied on Citi, Lehman for AIG Protection: Video

July 26, 2010

July 26 (Bloomberg) — Goldman Sachs Group Inc. documents show that the company stood to receive $1.7 billion in payments from credit-default agreements with Citigroup Inc., Lehman Brothers Holdings Inc. and a number of other counterparties had American International Group Inc. defaulted. Bloomberg’s Deirdre Bolton reports. (Source: Bloomberg)

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AIG Failure Would Have Meant Big Losses For Goldman Sachs, Documents Show

July 24, 2010

Since the United States government stepped in to rescue the American International Group in the fall of 2008, Goldman Sachs has maintained that it would have faced few if any losses had the insurer failed. Though it was the insurer’s biggest trading partner, Goldman contended that it had bought credit insurance from financial institutions that would have protected it, but it declined to identify the institutions. A Congressional document released late Friday lists those institutions and shows that Goldman was exposed to losses in an A.I.G. default because some of the investment bank’s trading partners, such as Citibank and Lehman Brothers, were financially unstable and might have been unable to make good on large claims from Goldman.

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Sheldon Filger: Are European Banks on the Verge of Destruction?

June 30, 2010

In February 2009, my blog referred to a story that appeared in The Daily Telegraph, a leading UK newspaper, headlined, “European bank bail-out could push EU into crisis.” The essence of the story was that The Daily Telegraph was shown a top-secret document, leaked from the European Commission, the executive body that oversees the 27-nation European Union, which warned that the EU’s banking system was contaminated by an ocean of toxic assets. Though the story was ignored by the rest of mainstream media, for the most part, I think it is timely to look again at this secret EU document in the light of the current European debt crisis and growing rumors regarding the insolvency of many leading banks across the continent. The confidential 17-page European Commission document warned that the European banking system could be holding as much as 18.6 trillion euros in toxic assets. Furthermore, in the wake of the European bank bailout that followed the collapse of Lehman Brothers, the document warned that the cost of a second Eurozone and U.K. bank bailout would exceed the financial capacity of the European Union. In other words, if Europe’s banking system enters a meltdown in the face of the sovereign debt crisis now plaguing European economies, the EU will be powerless to stop the implosion of the European banking and financial system. Reviewing what the European Commission warned about more than a year ago, it appears that the document’s authors had an impressively prescient ability to forecast the current European sovereign debt and fiscal crisis. In stark terms, the EU document warned that, “It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems … Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance.” With Greece essentially insolvent, Spain in the grips of its own sovereign debt crisis and the U.K. and Italy teetering on the edge, not to mention Ireland, Portugal and Eastern Europe, it seems to me that the worst case scenario hinted at in the leaked document more than a year ago is no longer a speculative possibility, but unfortunately a chillingly realistic forecast of what may very soon be the next great global banking crisis.

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Nomura’s Schiffman Plans Hiring Push for `Full Scale’ U.S. Investment Bank

June 17, 2010

By Serena Saitto June 17 (Bloomberg) — Nomura Holdings Inc. , Japan’s largest brokerage, may hire as many as 35 bankers in the U.S. this year, part of a push to become a global securities firm rivaling Goldman Sachs Group Inc. and Credit Suisse Group AG. The firm plans to have about 100 bankers in the U.S. by the end of 2010, from about 65 currently, Glenn Schiffman , Nomura’s head of Americas investment banking, said in an interview this week at the firm’s New York headquarters at the World Financial Center. It has already recruited 50 bankers, he said. Nomura is investing 250 billion yen ($2.74 billion) to expand in the U.S. after it bought Lehman Brothers Holdings Inc.’s Asian and European units in 2008. Chief Executive Officer Kenichi Watanabe said in April that he aims to transform Nomura, which generates most of its revenue in Japan, into a global financial firm. “We are in the early stages of creating a full scale investment bank in the U.S.,” said Schiffman, 40, a former Lehman banker who helped manage the sale of Lehman’s assets to Nomura and led the integration of the businesses in Asia. Nomura said this week it hired Deutsche Bank AG’s Mark Epley as co-head of a unit that advises on mergers and acquisitions for buyout firms. Earlier this month, it recruited Michael Hill and James DeNaut from Deutsche Bank as co-heads of global natural resources, based in New York, according to two people close to the situation. The firm in May appointed Bank of America Corp.’s Simon Western as a managing director in the financial services institutions group. Competing for Talent “Nomura faces market competition for similar talent, but their advantage is that they are willing to pay attractively,” said Robert Sloan , head of U.S. financial-services recruiting at Egon Zehnder International, an executive search firm. Schiffman started his career in 1991 at Lehman, where he oversaw financings and mergers and acquisitions worth more than $100 billion. He was responsible for Lehman’s cable business from 1996 to 1999 and later ran the global media group. He relocated to Hong Kong in 2007. That experience may help Schiffman win business in the U.S. “Natural resources, financial institutions and industrials are our priority sectors because they represent 65 percent of fees,” said Schiffman. “Consumer, media and technology are the other sectors in which we want to expand.” Cross-Border M&A Nomura ranks 15th among global takeover advisers this year, with $37 billion of deals, up from 19th in the same period a year ago, according to data compiled by Bloomberg. New York- based Goldman Sachs is first, with $156 billion of deals, followed by JPMorgan Chase & Co. and Zurich-based Credit Suisse. Nomura helped advise Spain’s Grifols SA on its $3 billion agreement last week to buy Talecris Biotherapeutics Holdings Corp., together with Deutsche Bank and Banco Bilbao Vizcaya Argentaria SA. It also advised Jupiter Telecommunications Co. on the company’s $1.3 billion joint venture with Sumitomo Corp. As head of investment banking, Schiffman is overseeing Nomura’s U.S. mergers and acquisitions business and predicts that cross-border deals will increase in volume. “Tapping this trend is part of Nomura’s growth strategy,” he said. To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net .

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German Investor Confidence Drops More Than Forecast on Europe Debt Crisis

June 15, 2010

By Gabi Thesing June 15 (Bloomberg) — German investor confidence plunged in June on concern that the sovereign debt crisis will undermine export prospects and crimp growth in Europe’s largest economy. The Mannheim-based ZEW Center for European Economic Research said today its index of investor and analyst expectations , which aims to predict developments six months ahead, slumped to 28.7 from 45.8 in May. That’s the biggest decline since October 2008 following the collapse of Lehman Brothers Holdings Inc. Economists forecast a drop to 42, according to the median of 35 estimates in a Bloomberg News survey. Greece’s near default has prompted governments from Berlin to Madrid to implement budget cuts to convince investors they can tame deficits, threatening to damp demand and hurt the region’s economic recovery. While the euro’s 15 percent drop against the dollar this year may boost exports outside the currency region, the 16-nation bloc is Germany’s most important market. “The debt crisis continues to spook investors,” said Carsten Brzeski , an economist at ING Group in Brussels. “While the German economy is doing well at the moment, the austerity measures across Europe will hurt exports and growth later in the year.” The euro fell a third of a cent to $1.2185 after the report and European stocks declined. Current Conditions Improve For now, Germany’s economy is showing few signs of discomfort, with the unemployment rate unexpectedly falling to 7.7 percent last month as companies ramped up production and added workers to meet booming orders. ZEW’s gauge of current conditions rose to minus 7.9 from minus 21.6 in May. The benchmark DAX share index has gained 4 percent in the past week. The Bundesbank on June 11 raised its growth forecasts, predicting expansion of 1.9 percent this year and 1.4 percent in 2011, up from 1.6 percent and 1.2 percent respectively. Continental AG , Europe’s second-biggest car-parts maker, on June 10 increased its sales-growth estimate for this year to more than 10 percent after business through May was stronger than the company expected. Still, the debt crisis is making banks wary of lending to each other and driving up interbank lending costs, which may reduce the flow of credit to companies and households. Bank Writedowns Europe’s banks will have to write down 195 billion euros ($239 billion) of bad debt by 2011, on top of the 444 billion euros of writedowns they have already logged, the European Central Bank said on May 31. Praktiker AG , Germany’s second-biggest home-improvement retailer, said last month it expects sales to drop further at its stores in Greece as the government implements budget cuts worth 14 percent of the country’s gross domestic product. Greece’s credit rating was cut to non-investment grade by Moody’s Investors Service yesterday, threatening to further undermine demand for the nation’s assets as it struggles to rein in the euro region’s second-biggest deficit. “We better get used to the idea of considerably slower growth from the end of this year,” said Andreas Moeller , an economist at WGZ Bank in Duesseldorf. “Germany’s economy is overly reliant on exports, and the crisis is pulling the rug from under its feet.” To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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German Investor Confidence Slumps on Concern Debt Crisis Threatens Growth

June 15, 2010

By Gabi Thesing June 15 (Bloomberg) — German investor confidence plunged in June on concern that the sovereign debt crisis will undermine export prospects and crimp growth in Europe’s largest economy. The Mannheim-based ZEW Center for European Economic Research said today its index of investor and analyst expectations , which aims to predict developments six months ahead, slumped to 28.7 from 45.8 in May. That’s the biggest decline since October 2008 following the collapse of Lehman Brothers Holdings Inc. Economists forecast a drop to 42, according to the median of 35 estimates in a Bloomberg News survey. Greece’s near default has prompted governments from Berlin to Madrid to implement budget cuts to convince investors they can tame deficits, threatening to damp demand and hurt the region’s economic recovery. While the euro’s 15 percent drop against the dollar this year may boost exports outside the currency region, the 16-nation bloc is Germany’s most important market. “The debt crisis continues to spook investors,” said Carsten Brzeski , an economist at ING Group in Brussels. “While the German economy is doing well at the moment, the austerity measures across Europe will hurt exports and growth later in the year.” The euro fell a third of a cent to $1.2185 after the report and European stocks declined. Current Conditions Improve For now, Germany’s economy is showing few signs of discomfort, with the unemployment rate unexpectedly falling to 7.7 percent last month as companies ramped up production and added workers to meet booming orders. ZEW’s gauge of current conditions rose to minus 7.9 from minus 21.6 in May. The benchmark DAX share index has gained 4 percent in the past week. The Bundesbank on June 11 raised its growth forecasts, predicting expansion of 1.9 percent this year and 1.4 percent in 2011, up from 1.6 percent and 1.2 percent respectively. Continental AG , Europe’s second-biggest car-parts maker, on June 10 increased its sales-growth estimate for this year to more than 10 percent after business through May was stronger than the company expected. Still, the debt crisis is making banks wary of lending to each other and driving up interbank lending costs, which may reduce the flow of credit to companies and households. Bank Writedowns Europe’s banks will have to write down 195 billion euros ($239 billion) of bad debt by 2011, on top of the 444 billion euros of writedowns they have already logged, the European Central Bank said on May 31. Praktiker AG , Germany’s second-biggest home-improvement retailer, said last month it expects sales to drop further at its stores in Greece as the government implements budget cuts worth 14 percent of the country’s gross domestic product. Greece’s credit rating was cut to non-investment grade by Moody’s Investors Service yesterday, threatening to further undermine demand for the nation’s assets as it struggles to rein in the euro region’s second-biggest deficit. “We better get used to the idea of considerably slower growth from the end of this year,” said Andreas Moeller , an economist at WGZ Bank in Duesseldorf. “Germany’s economy is overly reliant on exports, and the crisis is pulling the rug from under its feet.” To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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Stocks in U.S. Drop on Renewed Concern Greek Debt Crisis Will Slow Growth

June 14, 2010

By Nikolaj Gammeltoft June 14 (Bloomberg) — U.S. stocks erased gains as the Standard & Poor’s 500 Index failed to remain above 1,100 and a downgrade of Greece’s credit rating reignited concern Europe’s debt crisis will derail the global economic recovery. JPMorgan Chase & Co. and Wells Fargo & Co. lost more than 1 percent as financial shares in the Standard & Poor’s 500 Index reversed an earlier 1.1 percent rally. Caterpillar Inc., United Technologies Corp. and Intel Corp. climbed more than 1.2 percent to lead gains in the Dow Jones Industrial Average The S&P 500 slipped less than 0.1 percent to 1,091.18 at 3:40 p.m. in New York. The Dow average decreased 2.04 points, or less than 0.1 percent, to 10,209.03, wiping out a 118-point advance. The S&P 500 climbed 1.3 percent to 1,105.91 earlier, the highest intraday since May 20, before turning lower. “We’ve identified the 1,105 level as the critical upside resistance level,” says Phil Orlando, the New York-based chief equity market strategist at Federated Investors, which manages about $400 billion. “The move this morning up to the 1,106 level was the run we were looking for. We’ve hit 1,105, bounced off and we’ve got to go back.” Benchmark indexes also trimmed their advance after Moody’s downgraded Greece’s credit rating by four steps to Ba1, or junk, from A3, citing economic risks. The S&P 500, the benchmark index for U.S. stocks, has fallen 10 percent from a 19-month high in April amid concern some European nations will struggle to fund budget deficits. ‘Minimal’ Impact “The actual impact should be minimal for a number of reasons,” Marc Chandler , global head of currency strategy at Brown Brothers Harriman & Co., said in an e-mailed note about Greece’s downgrade. “First, it is not the first rating agency to take away the country’s investment grade status. Second, Moody’s outlook is stable.” He added that “Greece is not expected to have to come back to the capital markets to raise funds any time soon,” and the European Central Bank “already has indicated it will accept Greek bonds as collateral no matter what rating is assigned.” The S&P 500 climbed 2.5 percent last week as China’s exports jumped the most in six years, Federal Reserve Chairman Ben S. Bernanke said the economic recovery is intact and commodity prices gained. European shares rallied after the region’s industrial production increased more than economists forecast in April, led by demand for intermediate goods such as steel and car engines. Output in the economy of the 16 nations using the euro rose 0.8 percent from March, the European Union’s statistics office said. Economists had projected a gain of 0.5 percent, according to the median of 33 estimates in a Bloomberg survey. Stocks Vs. Bonds The decline in global equities since April has left stocks at the cheapest level relative to bonds since the collapse of Lehman Brothers Holdings Inc., a sign that shares in the U.S. and Europe may rally. “We expect global markets to continue to rally this year, though at a slower pace than from March last year,” Nomura Holdings Inc.’s London-based strategist Ian Scott wrote in a report dated June 11. “Equities should continue to derive support from a number of factors, namely still-attractive valuations, positive earnings growth and asset allocations that remain skewed toward cash and continued policy support.” Analysts have lifted their average 2010 earnings growth forecasts for the S&P 500 to 32 percent from 26 percent at the end of March even as the benchmark measure of U.S. equities retreated 13 percent between April 23 and June 4, according to data compiled by Bloomberg. To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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Stocks Beating Bonds in Relative Value After S&ampP 500 Earnings Yields Surge

June 14, 2010

By Lynn Thomasson and Alexis Xydias June 14 (Bloomberg) — The biggest decline for global equities in 15 months has left stocks at the cheapest level relative to bonds since the collapse of Lehman Brothers Holdings Inc., a sign that shares in the U.S. and Europe may rally. Standard & Poor’s 500 Index companies yielded 4.4 percentage points more in profit than the average interest rate on investment-grade bonds last week, according to data compiled by Bloomberg and Barclays Plc. The inflation-adjusted spread shows stocks are trading near the lowest prices compared with corporate earnings since November 2008 next to bonds. Cliff Remily at Thornburg Investment Management, which oversees $57 billion, and Barry Knapp of Barclays say the yield gap shows shares are too cheap to pass up with corporate profits forecast to rise the most in 16 years. While bears say the S&P 500 will tumble as Europe’s debt crisis curbs global growth, rising profit yields in stocks over bonds may provide a margin of safety for investors after $6.16 trillion was erased from equity markets worldwide since April 15. “From a valuation perspective, you’ve got a little bit of the best of both worlds,” said Leo Grohowski , who oversees $157 billion as chief investment officer at BNY Mellon Wealth Management in Boston. “Bond yields are still low,” he said. “But earnings estimates are still at levels that are baking in an economic recovery. Something may have to give.” Biggest Drop U.S. stocks are dropping at the fastest rate since the S&P 500 bottomed at a 12-year low in March 2009 as European nations from Spain to Greece struggle to convince investors they can close their budget deficits. Even so, with a market value of $13.3 trillion, American shares exceed the combined worth of Japan, China, the U.K., Canada, France and Switzerland. Analysts have lifted their average 2010 earnings growth forecasts for the S&P 500 to 32 percent from 26 percent at the end of March even as the benchmark measure of U.S. equities retreated 13 percent between April 23 and June 4, according to data compiled by Bloomberg. Futures on the index climbed 0.5 percent today. S&P 500 companies have reported per-share profit during the past year totaling 6.3 percent of the index’s current price, topping the average interest rate of 4.5 percent for investment grade corporate debt in the U.S., data from London-based Barclays show. Profit yields for S&P 500 companies averaged 6 percent since 1954, based on the median compiled by Bloomberg. The spread between the Stoxx Europe 600 Index’s income yield and the payout on 10-year German bunds widened to 4.5 percentage points last week, near the highest since 2008. Lehman Brothers American shares last had an advantage this big two months after New York-based Lehman Brothers collapsed in September 2008, intensifying the worst financial crisis since the Great Depression. Four months later, in March 2009, the S&P 500 began the biggest rally since the 1930s. Equities are also paying out more than government bonds. Ten-year Treasuries yield 5.3 percentage points less than the S&P 500 when adjusted for the annual increase in consumer prices, the most since March 2009. The S&P 500 rose 2.5 percent to 1,091.60 last week, the biggest increase since March, while the Stoxx Europe 600 climbed 2 percent to 249.46 for its third straight gain. Strategists at 13 securities firms say the S&P 500 will rally 16 percent from last week’s close to end the year at 1,268, according to the average estimate in a Bloomberg News survey. A chart pattern known as an inverted head and shoulders, centered around the March 2009 intraday low of 666.79, shows the index may reach about 1,240, data compiled by Bloomberg show. ‘Really Cheap’ “Against other asset classes, equities look really cheap,” said Knapp, head of U.S. equity strategy for Barclays in New York. “It could mean that we’re completely wrong on the inflation outlook, which means it’s going to get much worse, much faster. Or it could mean that stocks are decidedly cheap and people are overly cautious.” Interest rate increases from central banks and faster inflation may erode the yield advantage for equities, proving stock bulls wrong. Policy makers boosted benchmark borrowing costs in Brazil and New Zealand last week. The Federal Reserve’s target interest rate for overnight loans between banks is forecast to rise to 0.5 percent in the first quarter of 2011, from the zero to 0.25 percent range that’s been in place since December 2008, according to the median estimate in a Bloomberg News survey of 65 economists. Fed Chairman Ben S. Bernanke said June 8 that policy makers may have to raise the rate before the economy returns to “full employment.” Greece, Spain While debt investors in Europe punish nations from Greece to Spain for deficit spending by pushing up bond yields, Treasury rates of all maturities have fallen to an average of about 2 percent from 2.75 percent a year ago even as the amount of marketable debt outstanding increased 20 percent to $7.96 trillion. David Macia , a money manager for Credit Andorra’s asset management unit overseeing about $6 billion, says the valuation gap between bonds and stocks will narrow because earnings estimates are too optimistic and benchmark interest rates are at a record low. “If you think profits are going to run at those levels, then the economy will likely be doing much better too, so we should see higher interest rates that will act as a counterbalance,” Macia said in an interview from Andorra La Vella, Andorra. “This is an anomaly created by rates that are too low. It’s a paradox.” Nuclear Power Remily, who manages the $4.86 billion Thornburg Investment Income Builder Fund that’s beaten 98 percent of rivals in the past five years, is finding value in Entergy Corp. , the second- largest operator of U.S. nuclear power plants. Shares of the New Orleans-based company yield 9.4 percent in profit from the past year and 4.5 percent in dividends. That compares with Entergy’s most recently traded corporate bond, its 5 percent note due in 2018 that yielded 4.75 percent on June 10, according to Trace. “It shouldn’t trade at that level of a risk premium because it’s a utility,” Remily said in an interview from Santa Fe, New Mexico. “You’re getting a business that grows slowly, but you’re not paying much for it. In general, we’re finding a lot of good opportunities.” Total SA , Europe’s second-largest oil producer by market value, was the fund’s sixth-biggest holding as of April 30. The shares have fallen 14 percent this year, pushing its earnings yield to 10 percent and dividend payout to 5.9 percent. The 3.125 note from the Paris-based company due in 2015 yields 2.85 percent, Bloomberg data show. Better Odds Fujitsu Ltd. , Japan’s biggest computer-services provider, has an earnings yield of 8.1 percent and pays a dividend of 5 yen a share twice a year. Tokyo-based Fujitsu’s 3 percent notes due in 2018 yield 1.18 percent, according to Bloomberg prices. “If earnings are not going to fall apart, equities are priced very attractively to bonds,” said Tristan Hanson , manager of asset allocation and strategy in Jersey, Channel Islands, at Ashburton Ltd., which oversees $1.7 billion. “The world’s not without risk, but the odds have moved in your favor.” To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net ; Alexis Xydias in London at axydias@bloomberg.net .

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Lehman Probe Searches Emails For Terms Like ‘Stupid,’ ‘Breach,’ And ‘Big Trouble’

June 11, 2010

June 11 (Bloomberg) — “Just between us,” it may be “stupid” to use certain words in e-mail to “discuss” the “big trouble” you might face if you’re ever investigated for financial wrongdoing or a subsequent cover-up. Those are some of the terms that examiner Anton R. Valukas searched for in 34 million pages of Lehman Brothers Holdings Inc. e-mails and reports, to find out who knew what about the risks that drove the fourth-largest securities firm into bankruptcy, according to his 2,200-page study on the collapse

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Lehman Probe Lesson Avoid `Big Trouble’ by Shunning `Stupid’ E-Mail Terms

June 11, 2010

By Linda Sandler June 11 (Bloomberg) — “Just between us,” it may be “stupid” to use certain words in e-mail to “discuss” the “big trouble” you might face if you’re ever investigated for financial wrongdoing or a subsequent cover-up. Those are some of the terms that examiner Anton R. Valukas searched for in 34 million pages of Lehman Brothers Holdings Inc. e-mails and reports, to find out who knew what about the risks that drove the fourth-largest securities firm into bankruptcy, according to his 2,200-page study on the collapse. Valukas concluded that former Chief Executive Officer Richard “Dick” Fuld certified misleading financial statements. Valukas also said former Lehman Chief Financial Officers Christopher O’Meara , Erin Callan and Ian Lowitt didn’t disclose a financing method called Repo 105 that hid as much as $50 billion of Lehman’s debt as its credit dried up. “What investigators are looking for is any turn of phrase that can give them insight into what people were thinking at that time,” said Peter Henning , a former Securities and Exchange Commission lawyer who teaches at Wayne State University Law School in Detroit. “That can be valuable because e-mails are real-time and often unfiltered and can help to establish intent.” At least three lawsuits using Valukas’s findings have been filed against Fuld, 64, and other Lehman executives, who asked a federal judge in Manhattan on June 4 to dismiss a class-action suit over Repo 105, saying balance sheet variations were disclosed. Search Terms Fuld’s lawyer, Patricia Hynes , has said he didn’t know about Repo 105. Robert Cleary , Callan’s lawyer, has said she served Lehman diligently. They didn’t respond to e-mails seeking further comment about Valukas’s searches. Kelly Hnatt , a lawyer for Lowitt, and Michael Chepiga , a lawyer who represents O’Meara, declined to comment immediately. Lehman CEO Bryan Marsal didn’t immediately respond to an e-mail seeking comment on the searches. The search terms came out of a session where 20 lawyers at Valukas’s firm, Chicago-based Jenner & Block LLP, were “told to sit down and be as imaginative as you can,” said Robert Byman , a partner at the firm who helped with work on Lehman. The terms were changed if searches produced too many hits, he said. E-mails searched by the examiner, a former federal prosecutor, show what life was like at New York-based Lehman as employees struggled to manage $613 billion of debt that eventually doomed the company in September 2008. Lehman has said it may spend another five years selling assets to pay unsecured creditors as little as 14.7 cents on the dollar. Rising Risks Valukas, 67, whose key terms included “risk,” “concern,” “breach,” “big trouble” and “too late,” said Fuld was warned about rising business risks in early 2007, yet encouraged risk-taking until the next year. A March 2007 e-mail Fuld got from Michael Gelband , Lehman’s former head of capital markets, cites forecasts of a slowing economy by top money managers Stanley F. Druckenmiller of Duquesne Capital Management LLC and Paul Tudor Jones of Tudor Investment Corp. “This is not the B-team,” Gelband wrote. “I heard your view at the risk meeting that odds are in your favor but risk/reward is not good here so I’m trying to get out of as much illiquid risk as possible.” “Thanks for the update — let’s talk tonite — I am out now,” Fuld replied. The CEO kept pushing for growth as Lehman neared its risk limits, said Valukas, citing an April 18, 2007, e-mail to Lowitt and others from Kentaro Umezaki, a former head of fixed income strategy for Lehman. Dick’s Presentation Discussing Fuld’s talk to the fixed-income division the night before, Umezaki wrote, “Basically they heard we don’t have a balance sheet problem: in fact we have excess capacity,” he said. “I continue to be somewhat confused as to what the real objectives of the firm are around managing financial and risk constraints vs. revenue growth.” “Of course I totally understand the ‘motivational’ aspects of Dick’s presentation,” he told Lowitt, who was co-chief administrative officer at the time. When Fuld was told in the tight credit markets of January 2008 that Lehman might get money from the Kuwait Investment Authority he wrote, “Let’s discuss” — a Valukas search term that turned up several urgent e-mail exchanges. Lehman shouldn’t show it needed equity, David Goldfarb , Lehman’s former chief strategy officer, wrote Fuld in two e- mails. “We would join the bad company of the many who had to raise equity,” he said. “Perception issue.” Terrific Message Fuld said Lehman could get around that by charging more for its stock. “I was thinking they buy a special issue at a premium,” he wrote. “It would send a terrific message.” The deal never happened. The search word “stupid” turned up in an e-mail by Roger Nagioff , Lehman’s head of fixed income from May 2007, whose job was partly to limit the investment bank’s leverage, according to Valukas. “I am probably 3 months too late in the job,” Nagioff wrote to Goldfarb on June 26, 2007. “A big deal got pulled today and others are being restructured down . . . we are probably going to get punished for our stupidity.” “Target,” another Valukas search term, turned up in e- mails about Repo 105 as bankruptcy drew nearer. “Is there an official target to how much Repo 105 we want to do this quarter?” Paul Mitrokostas , chief operating officer of the fixed income division, wrote to Clement Bernard, the unit’s chief financial officer, and others in April 2008, about five months before Lehman failed. “I have not heard of an official target other than we cannot do more than what we have done at the end of Q1,” Bernard replied, referring to the end of the first quarter, when repos had doubled in 15 months to $49 billion, according to the e-mails. The lawsuit is In re Lehman Brothers Equity/Debt Securities Litigation, 08-cv-05523, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net .

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Nomura Hires Berber as Currency Strategist, Third Hire From RBS in a Month

June 9, 2010

By Matthew Brown and Ambereen Choudhury June 9 (Bloomberg) — Nomura Holdings Inc. appointed Benito Berber as an emerging markets foreign-exchange strategist, its third hire from Royal Bank of Scotland Plc in two weeks. Berber will start in the coming months, a Nomura spokeswoman said in a telephone interview today. She declined to give further details. He follows colleagues Steve Ashley and Chris Fleming , who joined Nomura last month as global head of rates and global head of rates sales. Nomura is adding to its fixed-income team following its acquisition of Lehman Brothers Holdings Inc.’s European and Asian units in 2008. The Tokyo-based brokerage has also allocated 250 billion yen ($2.74 billion) to expand its U.S. operations. Bank of America Corp. , JPMorgan Chase & Co. and Goldman Sachs Group Inc. all reported record revenue from trading debt in the first quarter. “As equity markets have been weak, one way to replenish this is to strengthen the fixed-income banker headcount,” said Jason Kennedy , chief executive officer of Kennedy Associates, a London-based executive search firm. The biggest difference in yields between two and 10-year U.S. Treasuries since at least 1990 helped fixed-income traders generate record revenue as they borrowed short-dated securities and bought longer-dated bonds. The spread widened to a record 291 basis points on Feb. 22, and was at 248 basis points today. The median since 1991 was 105 basis points. RBS Bailout RBS, now 83 percent owned by the British government, lost more than 1,000 employees from its investment bank last year, in part because of pay limits imposed after the lender received the biggest government bailout of any bank in the world, CEO Stephen Hester said May 7. The bank is counting on a rebound in revenue from its global banking and markets unit to repay its bailout. Berber joined RBS in 2007 and worked as an economist for the bank in the U.S. Nomura announced Ashley and Fleming’s appointment May 26. The bank also hired Peter Hurd from New Amsterdam Capital LLP in May for its London-based loan and high- yield capital markets team. Nomura appointed Jim McCormick as head of fixed-income research for Europe, the Middle East and Africa from Citigroup Global Markets in September. In January, it added Nick Firoozye from Citadel Investment Group as head of European interest-rate strategy. George Goncalves joined Nomura the following month from Cantor Fitzgerald as head of U.S. interest-rate strategy. Separately, Lloyds Banking Group Plc hired Nomura’s Charles Diebel as head of markets strategy, according to two people with knowledge of the appointment. Diebel, formerly head of sovereign strategy at Nomura in London, will start work at Lloyds in three months’ time, reporting to Trevor Williams , chief economist of Lloyds TSB Corporate Markets, the people said. A Nomura spokeswoman confirmed that Diebel has left the company, while declining to comment further. A Lloyds spokesman declined to comment. A spokesman for RBS wasn’t immediately available. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net ; Ambereen Choudhury in London at achoudhury@bloomberg.net

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