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Showing posts with label Financial Services Authority. Show all posts
Showing posts with label Financial Services Authority. Show all posts

Friday 10 August 2012

The Standard Chartered Debacle; How Not To Go After A Big Bank?


There’s a big bad bank in London doing all sorts of bad things with a member of the Axis of Evil.

That’s what the head of the New York State Department of Financial Services is alleging and he’s done so by releasing some pretty ugly details about the bank, Standard Chartered. Unfortunately for Benjamin Lawsky, head of the NYSDFS, he’s become a bigger story than the actual allegations.

Why? Lawsky went after Standard Chartered without the assistance of fellow regulators like the Department of Justice, U.S. Treasury and New York Federal Reserve Bank. All of which had their own ongoing investigations related to Standard Chartered’s alleged $250 billion money laundering transactions tied to Iran. But Lawsky moved forward with his allegations without giving the others much of a heads up.

The move has some calling Lawksy a rogue regulator.

Lawsky’s allegations against the London bank make his solo attempt that much more delicate. Typically regulators act together when they go after financial institutions–especially when they’re investigating such serious issues like money laundering.

Think Barclays and Libor. In that record $450 million settlement regulators from both the U.S. and the U.K. worked together and included the Financial Services Authority, the US Commodity Futures Trading Commission  and the United States Department of Justice.

Serious allegations like the ones Lawsky is throwing at Standard Chartered need to be handled with care. If Standard Chartered broke the rules the way Lawsky and his group say it did then there should have been greater fire power behind them. (You know, like the number one federal criminal investigation and enforcement agency, the DoJ.)

Instead, Lawksy went it alone and it’s starting to work against him. The New York State Department of Financial Services is a new regulator created just last year, and its first major action could be viewed as a way to make a name for itself.

What’s worse is that its fellow U.S. regulators are apparently angry with Lawsky for going rogue. Treasury and the Federal reserve were blindsided and angered by Lawsky’s move, Reuters reports. Signs of frustration are also being shown among British members of parliament who think the U.S. is unfairly targeting London’s banks.

Of course, if Standard Chartered engaged in illegal behavior (it denies the extent of the NYDFS’s claims) then none of that should matter. The problem is that the story is now becoming much more focused on all these political and regulatory riffs rather than the alleged massive wrong-doing by the British bank.

Halah Touryalai By Halah Touryalai, Forbes Staff
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Saturday 21 July 2012

Anarchy in the financial markets!

 If regulators don't fix the lawlessness in international financial markets, future losses might us all in

THE lawlessness that pervades the international banking industry and especially the large Western banks must raise serious questions as to what perpetuates such barbarous behaviour among the custodians of people's money.

A big part of it is that the banking industry operates on greed rewarding its key employees via commissions for businesses brought in, deals made, and products sold even if they were dubious in the first place.

This encourages among the industry a bunch of highly dishonest salesman who shield themselves behind a veil of professionalism to dupe and seduce customers into believing their products are good and their processes are strong, secure and fair.

And they are aided by ineffectual regulators who parrot the trite phrase that free markets should not be overly regulated but turn a blind eye when the biggest financial institutions amass massive positions to fix markets and deceive customers, making a mockery of market freedom.

The Angel of Independence monument stands in front of HSBC’s headquarters in Mexico City. Europe’s biggest bank has been found laundering billion of dollars for drug cartels, terrorists and socalled pariah states, in a scandal which almost overshadows the Barclays’ one. — Reuters

The integrity of free markets was compromised because big players could affect the direction of markets, making the markets way less than perfect. Free markets basically became unfettered freedom to make money even at the expense of the market and the potential collapse of the world's financial system.

They did it yet again or to be more accurate they did it earlier but their misdeeds surfaced once more recently. UK's Barclay's bank made a US$453mil settlement with regulatory authorities in the United Kingdom and the United States for fixing the London interbank offered rate (Libor).

Now, it turns out that Barclay's may not be the only one. According to a Reuter's report, other major banks are likely to be involved and may try and go for a group settlement with regulators, the US' Commodities Futures Trading Commission and the UK's Financial Services Authority.

The banks being investigated include top names such as Citigroup, HSBC, Deutsche Bank and JPMorgan Chase. They all declined to comment to Reuters.

And one of these banks, Europe's biggest HSBC, has been found laundering billion of dollars for drug cartels, terrorists and so-called pariah states, in a scandal which almost overshadows the Barclays' one. That leads to the question of whether other banks were involved as well.

If they jointly fixed the Libor, the world's most used reference rate for borrowings and derivatives with an estimated US$550 trillion, yes trillion, of assets and derivatives tied to the rate, it will be a scandal of epic proportions and may result in settlements of an estimated US$20bil-US$40bil.

That settlement will only scratch the surface. Just 0.1% of US$550 trillion is US$550bil. That implies that if banks had been able to fraudulently fix Libor so that it was just 0.1 percentage points higher, customers throughout the world would have had to pay US$550bil more in interest charges in a year.

In March this year, five US banks, including Bank of America, Citigroup and JP Morgan Chase, made a landmark US$25bil settlement with the US government for foreclosure abuses.

Even so, only a small fraction of affected house buyers are expected to benefit from this. Many other banks, however, are relatively unaffected and have not been fully called to account for their role in the US subprime crisis, which could have caused a collapse of the world's financial system.

Banks which bundled together risky housing loans into credit derivative products and passed them off as those with higher credit rating than their individual ratings, aided by ratings agencies, got off scot free. No one was called to account.

That the financial system is still vulnerable and that all gaps have still not been closed is JP Morgan's recent loss of up to US$4bil from rogue trading by a London trader going by the name of The Whale.

There needs to be a new set of rules, regulations and behaviour one based on ethics, honesty, competency and checks and balances. Custodians of public money should be required to be above all else honest first and foremost.

They should be consummate professionals whose first duty should be to protect the deposits of customers and the bank's capital. They should not do anything which puts the bank at undue risk.

The insidious habit of rewarding those who bring in revenue with hefty commissions have to be stopped so that bankers do not take risks which put their banks at undue risk which will eventually require trillion of dollars in rescue from governments.

Regulators should again make clear demarcations between those financial institutions who are custodians of public money and those who are not and hold the former to much higher standards of accountability and integrity.

Shareholders of financial institutions who are custodians of public money should be led to expect a lower rate of return on their investments but they should also be led to expect a lower corresponding rate of risk befitting that of major institutions which are so vital for the proper functioning of the economy.

Enforcers should focus on bringing individuals responsible for these losses to book and throwing criminal charges at them which will put them behind bars for long periods of time, befitting their severity. Society at large tends to treat white-collar criminals with kid gloves.

When derivatives trading and deception brought major Wall Street firms such as Enron and WorldCom to their knees and eventual collapse in the early 2000s, enforcers brought to book key executives who are spending time behind bars.

But despite the near collapse of the world's financial system, despite fraudulent behaviour, despite misrepresentation and deception, despite selling structured products of dubious value and then promptly taking positions against them, despite fixing of reference interest rates, despite money laundering and despite many other crimes still to be unearthed, no one has been brought to account.

Fining institutions leaves those individuals responsible free. In fact, settlements made come with the agreement that there will be no prosecution of individual bank staff and gives major incentive for others to do the same.

They are safe in the belief that the institution will pay the price and they will go free in the event things turn wrong. Otherwise, they will end up millionaires and even billionaires. How convenient an arrangement!

There is anarchy in the financial markets and a state of lawlessness which encourages heists of unimaginable proportions without risk of punishment. If we don't watch it, the losses will do the world economy, and all of us, in.

A Question of Business
By P. GUNASEGARAM

> Independent consultant and writer P. Gunasegaram (t.p.guna@gmail.com) is amazed that people can get away with so much by just repeating two words: free markets.

Related posts:
Libor scandal blows to British banking system
HSBC exposed: Drug money banking, terror dealings, money laundering!
Four British banks to pay for scandal!
Moody's downgrades 15 major banks: Citigroup, HSBC ...
British rivate banks have failed - need a public solution
Stop the banks from gambling!
Malaysian banks to curb the online scams - Rightways - Yes
Malaysian banks tighten the screening of loans
Banks tighten lending rules amid uncertainty

Saturday 30 June 2012

Four British banks to pay for scandal!

LONDON: Britain's four biggest banks have agreed to pay compensation to customers they misled about interest rate hedging products, following an investigation by Britain's financial regulator.


The Financial Services Authority (FSA) said yesterday it had reached an agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate compensation following an investigation into the misselling of the products.

The FSA said it found evidence of “serious failings” by the banks and added: “We believe that this has resulted in a severe impact on a large number of these businesses.”

The finding by the FSA of misselling could lead to compensation claims ranging from many millions to several billion pounds from small companies which bought them.

It is the latest in a string of misselling cases that have plagued the financial services industry for over two decades. Banks are already set to pay upwards of £9bil (US$13.96bil) in compensation to customers for misselling loan insurance.

The news will compound problems for a sector that was hit hard on Thursday by news of a record US$450mil fine levied on Barclays for rigging interest rates.

The FSA said the banks had agreed to compensate directly those customers that brought the most complex products.

The products range in complexity from caps that fix an upper limit to the interest rate on a loan, through to complex derivatives known as “structured collars” which fixed interest rates with a bank but introduced a degree of interest rate speculation.

The banks have agreed to stop marketing “structured collars” to retail customers.

The size of the likely compensation was not disclosed but Lloyds issued a separate statement saying it did not expect the financial impact from the settlement to be material. - Reuters

Thursday 30 June 2011

Tsunami of repossessions, home prices declined in UK & US !





Bank chief warns of wave of home repossessions if rates rise

UKAR chief presiding over £80bn of bailed-out mortgages says 'tough love' would be fairer on those struggling with payments
  • Jill Treanor  guardian.co.ukHouses
UKAR chief Richard Banks has warned that mass home repossessions could follow any interest rate rise Photograph: Owen Humphreys/PA

Britain is facing a 'tsunami' of house repossessions as soon as interest rates start to rise, one of the country's leading bankers has warned.

Richard Banks, the chief executive of UK Asset Resolution (UKAR), the body that runs the £80bn of mortgages bailed out by the taxpayer during the banking crisis, also said in an interview with the Guardian that the Labour government's pleas at the start of the crisis for lenders to keep families in their homes was forcing some homeowners further into debt.

In a warning that the industry may have been too lenient with some of its customers, he said he believed a policy of "tough love" would be fairer to people facing long-term difficulty in keeping up payments on loans taken out when house prices were at their peak and personal incomes on the rise.

His warning came the day after the international bank regulator said the Bank of England, which has kept rates at 0.5% for more than two years, would have to raise rates shortly to curb inflation.

The Bank of International Settlements said the policy of the Bank of England, whose rate-setting committee is split over whether or not to increase borrowing costs, was "unsustainable".

With 750,000 customers, UK Asset Resolution, set up to run the nationalised mortgages of Bradford & Bingley and parts of Northern Rock, is the country's fifth largest mortgage lender. But 23,000 of those mortgage holders are more than six months behind with payments and Banks admitted the projections for the number of people falling behind on payments could get "scary" if lenders did nothing to prepare for higher rates.

"You can see if you don't do something about it, you can see a tsunami," he said. "If you don't get into the hills you could get drowned by this. If you don't manage this properly it could get very messy."

He regards it is an industry-wide problem, albeit one that might be concentrated at UKAR as its customers include buy-to-let landlords and so-called self-certified borrowers – those without salaried income. UKAR, through three calls centres in Crossflatts, West Yorkshire, Gosforth, Newcastle, and Doxford, Sunderland, has begun cold-calling customers it believes are at risk of falling behind on payments in an attempt to keep their mortgage payments on schedule.

The bank is also trying to tackle customers behind with payments for six months or more and at risk of repossession.

His concern about a surge in repossessions is partly the result of moves by the industry early in the 2008 crisis to grant so-called forbearance to help customers stay in homes by, for example, reducing monthly interest payments. "We as an industry, as a kneejerk reaction in the emergence of the crisis, and because the government asked us to be forbearing to customers in the hope it would all go away, we have been too lenient with some customers.

"It's a tough love approach," he said. "It's treating customers fairly, not nicely, because if you can't afford your mortgage you are only increasing your indebtedness. If we allow you to increase your indebtedness, that's not really fair to you."

This month the Council of Mortgage Lenders forecast a rise in repossessions from 40,000 this year to 45,000 next. This figure would still remain well below the 75,500 peak of 1991. The remarks by Banks follow a warning last week from the new regulator set up to spot financial risks in the system – the Financial Policy Committee (FPC) inside the Bank of Englandthat warned banks may be providing a "misleading picture of their financial health" if they were not making big enough provisions for borrowers in difficulty.

Forbearance has been brought into play in up to 12% of mortgages, the FPC said.

It also noted that the most "vulnerable" households were concentrated in a few banks. It did not scrutinise UKAR but noted that the two other bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland, had the largest exposure to customers whose mortgages were bigger than their value of their homes.

Last month, the Financial Services Authority issued a guide to handling forbearance in which it warned: "Arrears and forbearance support provided with due care by firms has a beneficial impact for both the firm and the customer … However, where such support is provided without due care or any knowledge or understanding of the impacts, it has potentially adverse implications for the customer, for the firm's understanding of the risks inherent within its lending book, and in turn for the regulators and the market."

House prices down in England and Wales

LONDON: House prices in England and Wales have edged lower this month to show their biggest annual fall since October 2009, a monthly survey from property data company Hometrack showed on Monday.
Average house prices dropped by 0.1% in June, continuing a pattern of modest falls so far this year and taking the year-on-year decline to 3.9%.

Other house price surveys have shown similar price falls over the past 12 months. Prices dropped by around 20% during the financial crisis, but partly recovered in early 2010.
Hometrack's director of research Richard Donnell said that the property market had been less weak so far this year than he had expected.

A general view of houses in Grange Villa, England. — AP
 
“Low transaction volumes, low mortgage rates and forbearance by lenders limiting the number of forced sales have all played their part. While average prices have slipped back by 1%, sales volumes have increased off the back of higher demand and greater realism over achievable prices,” he said.

House prices are under pressure from slow wage growth and lenders' preference for much higher mortgage deposits than before the financial crisis.

Hometrack's data is based on a monthly survey of estate agents and surveyors, asking for average achievable prices for different categories of property. - Reuters


Home Prices in 20 U.S. Cities Probably Declined in April From Year Earlier

Home Prices in U.S. Cities Fell 4% in April from Year Ago
Home prices probably decreased in April, showing the housing market remains an obstacle for the U.S. recovery, economists said before a report today.

The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from April 2010, the biggest year-over-year drop since November 2009, according to the median forecast of 30 economists surveyed by Bloomberg News. Other data may show consumer confidence held near a six-month low.

A backlog of foreclosures and falling sales indicate prices may decline further, discouraging builders from taking on new projects. The drop in property values and a jobless rate hovering around 9 percent are holding back consumer sentiment and spending, which accounts for 70 percent of the economy.


“Home prices remain incredibly bogged down by foreclosures and weak demand,” said Sean Incremona, a senior economist at 4Cast Inc. in New York. “The picture is unlikely to change much this year. Declining home prices and high unemployment are bad for confidence.”

The S&P/Case-Shiller index, based on a three-month average, is due at 9 a.m. New York time. Survey estimates ranged from declines of 4.9 percent to 3.5 percent. Values fell 3.6 percent in the 12 months to March.

The New York-based Conference Board’s consumer confidence gauge, due at 10 a.m., rose to 61 from 60.8 in May, according to the Bloomberg survey median. Estimates ranged from 55 to 66.7.

Fuel Costs

Some of the improvement probably reflects a drop in fuel costs. The average price of a gallon of regular gasoline fell to $3.57 on June 26, down from a May 4 price of $3.99 that was the highest in almost three years, according to AAA, the nation’s largest auto club.

The projected rise in confidence contrasts with other surveys in which Americans’ moods dimmed. The Bloomberg Consumer Comfort index dropped in the week ended June 19, the first decline in five weeks, and the Thomson Reuters/University of Michigan sentiment gauge fell more than forecast this month.

The Case-Shiller report may show home prices fell 0.2 percent in April from the prior month after adjusting for seasonal variations, the 10th straight decrease, according to the Bloomberg survey.

The year-over-year gauges provide better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Shiller told a conference in New York this month that a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”

Fewer Sales

Reports earlier this month showed the housing market is yet to gain momentum. Sales of previously owned homes, which comprise about 94 percent of the market, were down 3.8 percent last month from April, the National Association of Realtors said.

Purchases of new houses dropped 2.1 percent in May, the first decline in three months, according to Commerce Department data. Competition from foreclosed homes is hurting demand for newly built dwellings.

The 1.8 million-unit inventory of distressed homes nationwide that may reach the market would take about three years to sell at the current pace, Daren Blomquist, communications manager at RealtyTrac Inc., said this month.

As house prices decline, owners feel less wealthy and home equity shrinks, making borrowing more difficult.

The Standard & Poor’s Supercomposite Homebuilding index lost 4.4 percent as of June 27 from the end of April, less than a 6.1 percent drop in the broader S&P 500 gauge, which was weighed down largely by concern about the European debt crisis.

Builder Outlook

Some developers expect demand to stabilize following a poor selling season. Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, last week said second-quarter sales fell from a year earlier and home orders were little changed, while the average price climbed. The 2010 orders were boosted by a federal tax credit for homebuyers that required contracts be signed by April 30.

“While it’s now well documented that the expected spring selling season of 2011 simply did not materialize, it is beginning to feel like the worst days of the housing market are getting behind us,” Chief Executive Officer Stuart Miller said during a conference call with analysts on June 23.
Bloomberg Survey

================================================================
Case Shiller Cons. Conf
MOM% YOY% Index
================================================================

Date of Release 06/28 06/28 06/28
Observation Period April April June
----------------------------------------------------------------
Median -0.2% -4.0% 61.0
Average -0.2% -4.0% 61.0
High Forecast 0.4% -3.5% 66.7
Low Forecast -0.5% -4.9% 55.0
Number of Participants 17 30 70
Previous -0.2% -3.6% 60.8
----------------------------------------------------------------
4CAST Ltd. --- -4.1% 61.5
ABN Amro Inc. -0.1% --- 61.0
Action Economics --- --- 63.0
Aletti Gestielle SGR --- --- 60.0
Ameriprise Financial Inc --- --- 61.5
Banesto --- -4.1% 61.7
Bank of Tokyo- Mitsubishi --- --- 59.0
Bantleon Bank AG --- --- 60.0
Bayerische Landesbank --- -4.0% 62.0
BBVA --- -3.9% 60.8
BMO Capital Markets --- -4.4% 62.0
BNP Paribas --- --- 58.0
BofA Merrill Lynch Resear --- -3.9% 61.0
Briefing.com --- -3.8% 59.0
Capital Economics -0.4% -4.1% 65.0
CIBC World Markets --- -4.2% 62.5
Citi --- --- 61.0
Commerzbank AG --- -4.0% 60.0
Credit Agricole CIB --- --- 62.0
Credit Suisse --- -3.8% 55.0
Daiwa Securities America --- --- 62.0
DekaBank --- --- 61.5
Desjardins Group --- -3.9% 61.0
Deutsche Bank Securities --- --- 62.0
Exane --- --- 61.5
Fact & Opinion Economics --- -3.5% 59.0
First Trust Advisors --- --- 59.9
FTN Financial --- --- 60.0
Helaba --- --- 60.0
HSBC Markets -0.2% -3.9% 60.0
Hugh Johnson Advisors --- --- 60.5
IDEAglobal --- -4.0% 60.0
IHS Global Insight --- -3.9% 61.0
Informa Global Markets --- --- 61.0
ING Financial Markets -0.2% -3.9% 63.0
Insight Economics --- -3.9% 59.0
Intesa-SanPaulo --- --- 63.0
J.P. Morgan Chase -0.1% -3.8% 60.5
Janney Montgomery Scott L -0.3% -4.8% 62.0
Jefferies & Co. --- --- 62.0
Landesbank Berlin --- --- 58.0
Manulife Asset Management --- --- 61.0
Maria Fiorini Ramirez Inc --- --- 62.5
MF Global -0.5% -4.2% 60.5
Moody’s Analytics --- --- 59.0
Morgan Stanley & Co. --- --- 64.0
Natixis --- -4.0% 61.0
Nomura Securities Intl. --- -3.9% 59.8
Nord/LB --- --- 60.0
Parthenon Group -0.4% --- 59.7
Pierpont Securities LLC --- --- 64.0
PineBridge Investments 0.4% --- 61.5
Raiffeisenbank Internatio --- --- 62.0
RBC Capital Markets --- --- 62.0
RBS Securities Inc. --- --- 59.5
Scotia Capital --- --- 59.0
SMBC Nikko Securities -0.1% -3.8% 63.0
Societe Generale -0.2% --- 66.7
Standard Chartered -0.3% -4.8% 61.0
State Street Global Marke 0.1% -3.6% 60.1
Stone & McCarthy Research --- --- 62.5
TD Securities -0.5% --- 60.0
UBS -0.2% -3.9% 62.0
UniCredit Research --- -4.0% 61.0
Union Investment --- --- 61.8
University of Maryland -0.4% -4.1% 60.0
Wells Fargo & Co. --- --- 59.3
WestLB AG --- -4.9% 60.5
Westpac Banking Co. --- --- 60.5
Wrightson ICAP 0.0% --- 63.0
================================================================
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net