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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

US housing improving, Europe worsening as a whole

Over the long weekend…Starting positive, the US saw the release of some positive housing data, the “highest level of home building in more than four years”, while factory activity declined. read article

In Europe on the other hand, manufacturing went down down down across the board, yes, even Germany. According to Reuters, Cyprus is not the culprit. Maybe March was an outlier and the global recovery is still going strong *cough*. Other European data showed a steady 12% seasonally adjusted unemployment rate for the eurozone in Feburary. For the entire union, this number increased by 0.1% to 10.9%.

It’s only been a week and Cyprus, clearly coached by Greece, has already managed to have its bailout terms eased. The Wall Street Journal got hold of a document showing that the country will have until 2017 ( as opposed to 2016) to reach a 4% budget surplus. As for the capital controls put in place to prevent a bank run after tellers were open for business again on Thursday, may last for more than a week, according to Cyprus central bank governor Panicos Demetriades (see below).

Another country shifting around on the brink of collapse, Argentina, is trying to impress (read distract) its loyal (read angry) bondholders with a new deal: instead of discussing the repayment of old bonds per se, new bonds (different for retail and institutional investors) could be issued and paid off in about 25 years. Where do I sign, that sounds like a great idea. read article

This morning…
The week ahead looks quiet yet depressing, at least if you’re in Europe, but I will spend as much time as possible laughing about Demetriades first name PANICos.

On Thursday will be central banking day, with the Bank of Japan, Bank of England and European Central Bank holding their policy meetings.

Finally, today marks the death of the FSA as we know it and the advent of the Financial Conduct Authority and the Prudential Regulation Authority. The former is an independent shop supervising more or less everybody in financial services (brokers, traders, secretaries, markets…), while the latter is part of the bank of England and will focus on 1,700 banks, insurers and investment firms. read article

Have a good week.

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Go team Draghi

So we got ourselves a banking union. That is surprising for a number of reasons. First of all, the Eurogroup struck a deal. Secondly, the Eurogroup struck said deal before the deadline. Finally, Germany managed to add a clause that protects its Mittelstand. Oh no wait, the last one isn’t the least bit surprising.

A summary a la WSJ:

Ministers said the European Central Bank would start policing the most important and vulnerable banks in the euro zone and other countries that choose to join the new supervisory regime next year. Once it takes over, the ECB will be able to force banks to raise their capital buffers and even shut down unsafe lenders.

Once approved by the European Parliament, the show could kick off as early as March [let’s be realistic and say July]. The threshold for banks under supervision is €30bn of assets held, leaving Germany’s retail banking sector more or less untouched.

Unfortunately, the EU delegates involved were just as impressed with their own efficiency, so they decided to leave all other decisions be for now… until June. According to the FT, both budget negotiations and economic reform contracts, were completely taken off the agenda. The remaining time spent together will be used to play Secret Santa (guess who got Greece).

Moreover, Mario Draghi, soon to be puppeteer of Europe’s financial institutions was named the FT’s person of the year. Good for you, Mario. We know it hasn’t been easy. read article

In legal/regulatory/scandal news, the FSA, CFTC (US Commodities Futures Trading Commission) and the US Department of Justice are about to fine UBS more than $1bn for fixing libor ratesDealbreaker explains how such a humongous number (double of what Barlcays had to pay) comes together:

The fine-setters seem to have about four things to think about: 1) how much bad stuff did the bank do, 2) how much money did they make doing it, 3) how caught are they, and 4) how sorry are they now.

It calls for an investigation.

Co-head of Deutsche BankJuergen Fitschen, is under investigation for tax fraud committed in 2009. In his opinion, the reaction of German authorities, sending officers with machine guns to the Deutsche Bank headquarters in Frankfurt on Wednesday, was a bit much and he doesn’t intend to resign any time soon.

For the weekend, Japanese elections are on, with the opposition (the Liberal Democratic Party) led by Shinzo Abe expected to winread article

Weekend reading

– North Korea: playing with rockets, read article

– Felix Salmon on NYT Dealbook’s first conference this week and whether it was a success, read article

– Joris Luyendijk’s banking blog returns to blame fund managers, read article

– Alphaville is selling shirts (or ECB collateral) for charityread article

Have a good one.

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Splitting up – Barclays reconsiders investment bank, Catalonia favors seperatism

Barclays may have to follow the seemingly unavoidable path of European banks and split. The bank’s shareholders have demanded that new CEO Antony Jenkins should let go of investment banking operations, along the lines of UBS‘ shut down of its fixed income business last month that eliminated 10,000 jobs. The Swiss bank was fined £30m by the British FSA in connection to the $2.3bn insider trading loss that Kweku Adoboli got seven years for. Of course, axing the division would help Barlcays get around ringfencing investment banking and retail operations and may therefore be desirable from a regulatory point of view. read article

All of this coincided with Qatar Holdings selling a pile of Barclays shares this morning. read article

Yesterday, Spainish region Catalonia held elections, which saw a slight reduction of seats of CiU (Convergencia i Union), the party that demands a referendum. But those seats lost, were picked up by ERC (Esquerra Republicana di Catalunya), which demands independence from Spain without a referendum and as soon as possible. Four parties in favor of separating from Spain, holding 87 of 135 seats, are now present in the Catalan parliament. Gaining independence from the Spanish mothership would neither be simple nor quick. Catalonia is contributing 7-8% of its output to the central government in Madrid, and could cause an overhaul of Spain’s fiscal politicsread article

In terms of reforms, there is a new idea from Germany’s Finance Minister, who wants to force banks to write a restructuring manual for a bankruptcy scenario. Lawyers and advisory firms just collectively ordered new cars.

Otherwise, it is Cyber Monday, which is estimated to be the biggest online shopping day of the year for the third time in a row, says the Associated Press.

In Brussels, the “Eurogroup meets for third go at kicking can down the road” and to assess Angela Merkel’s campaign strategy in conjunction with Christine Lagarde’s hopes and dreams of a Greek debt haircut.

In the week to come, we’ll get the new governor of the Bank of England (330 pm today), updated US GDP, the Spanish budget, Chinese manufacturing and all unemployment number of the rainbow, with France on Tuesday, Germany on Thursday and eurozone on Friday.

So long.

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War of the roses: IMF vs EU

There won’t be a news brief tomorrow, Wednesday, 14 November 2012.

Everything seems a bit unsettled today: the EU and the IMF had there biggest falling out yet, Swiss banks face more fraud investigations now that Switzerland is opening up more and more to bi-lateral data sharing agreements, the investigation of ex-CIA head David Patraeus‘ private affairs are getting increasingly confusing, adding more people to what started as a simple affair (as simple as an affair with the head of the CIA can be…), and the FSA is investigating the potential manipulation of prices in the British gas market. It’s messy, that’s what it is.

“Just this time, we’ll let you get away with it, you hear me?”

That is what EU finance ministers decided to tell Greece yesterday. What’s one concession when everything else is working according to plan? So Greece got a two-year extension to balance its budget. Except, that’s not what the IMF wanted to hear them say. Lagarde insists to stick with the 2020 target for Greece to decrease the deficit to 120%. The decision about further rescue funding is postponed to November 20, when all parties step back into the ring. While Eurogroup chairman Jean-Claude Juncker, who has admitted to lie to the press at times, indeed wants an extension of the deadline for Greece, Lagarde is in favor of another haircut, to help the country meet its targets. In Germany, Angela Merkel is worried about these developments; she has an election coming up in September 2013 and big losses for the German taxpayers would be ill-timed. read article

Also in Germany, 50 clients of struggling Swiss bank UBS are being investigated for tax fraud. The personal details of clients were obtained on CDs with information of Swiss bank accounts held by German citizens, which were purchased by German tax authorities in 2010. Last week, the same authorities started an investigation of UBS employees for aiding said tax fraud. Switzerland is just not what it used to be anymore.

Meanwhile, the New York stock exchange has to suspend trading of 216 companies due to a technical fuckup, and the UK inflation exceeded expectations by 0.2% for October, hitting 2.7% due to an increase in tuition fees and food prices.

In post-election AmericaGlenn Hubbardeconomist and dean of the Columbia University Graduate School of Business, said the US could make significant steps away from the January fiscal cliff by increasing taxes on high income earners. The crux: Hubbard was one of Mitt Romney‘s led economic advisors throughout his presidential campaign. Awkward.

So long.

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Fixing Libor, fixing the law

After the worst of the storm has gone, the Financial Services Authority has announced its reform of Libor. Unfortunately, the quest for an alternative benchmarking index failed, and so the new-old-Libor will just use transaction data instead of banks’ estimates to calculate the London Inter-Bank Offered Rate. However, there is no rule on the publishing of said transaction data so far.The BBA, the British Banker’s Association, will be stripped of its responsibility for monitoring the rate, passing the job on to the FSA, at least for the interim. The BBA’s administrator role will be publicly tendered (apparently, Bloomberg has its own proposal).

Alphaville summarizes: more banks will be involved (i.e. transactions from more banks will be taken into account), rate submissions will be kept confidential for three months, daily fixings will be reduced to 20 (from 150 and five less for currencies), the FSA will approve every individual in the banks involved in submitting rates, banks will need to add an explanation/reasoning to their rate estimates, the BAA will be replaced and manipulation will become a crime.

The Spanish budget was announced, featuring all those expected austerity measures that are likely to infuriate the Spanish people. According to the new plan, government spending will be cut by 8.9%, while tax revenues are forecasted to rise by €5bn to €175bn in 2013, partly through an increase in sales tax. Although Spain’s Finance Minister Luis de Guindos said the EU had still not specified the terms and conditions of a possible bailout, the new budget follows many of Brussel’s recommendations.

Also on the budget bandwagon: France. In an effort to reduce the budget deficit, the FT calls it the harshest budget in 30 years. Despite the sensationalist sound of that, they may not be far off. Tax revenues will increase by €20bn, mostly through increased taxes on corporations and the upper income tax brackets. And yes, that includes the 75% marginal income tax rate on earnings above €1m. Most people who are subject to this tax increase will have left by now, or are heading to the airports as I type. At least, it spares France the kind of austerity measures and cuts that cause riots in other parts of Europe. For 2013, France’ debt to GDP ratio is expected to be 91.3%, with net debt issuance falling by €8bn [to €170bn] from this years rate. read article

With quarter three ending today, the spotlight turns to the US presidential election. According to the German Handelsblatt, George Soros put $1m towards Obama’s re-election last night. Gillian Tett writes in the FT’s Market Insight column that according to a recent study by Absolute Strategy Research shows that in terms of economic data, voters care most about real estate prices. Following the housing bubble and subprime mortgage crisis that tore holes in the US economy, this is little surprising.

Weekend reading:

– Gender debate: Heidi Miller (formerly JP Morgan) an how women are weakread article

– The US’ states of play: an election infographicread article

– China’s first aircraft carrierread article

– Popculture explosion: “Gangnam style” actually made it into BusinessWeek, read article

Have a good one.

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Friday, #49: Hating on Hungary and hedge funds

Hungary (which already worried everyone before Christmas) is seeking financial support from the IMF. This morning, their chief negotiator Thomas Fellegi said the country is willing to implement the measures demanded by the IMF and the EU. Presumably, the reason for Hungary kissing the IMF’s ass is that the majority of government debt that is maturing in the first six months of 2012 is TO the IMF. The IMF’s and EU’s conditions include amendments to media law, central bank legislation, tax law and changes to the constitution – and those are only the really big/unusual requirements… read article

I think the average person [that knows a bit about finance] believes rating agencies and auditors serve the same purpose: surveillance, monitoring and ultimately protection. Rating agencies have lost their face in the past months, but it seems like auditors are following their lead. The FSA is charging PwC a record fine of £1.4m for misleading regulators about the separation of firm and client money of JPMorgan Securities. The Accounting and Actuarial Discipline Board (AADB) had proposed a fine of £6m, which also shouldn’t have hurt PwC too much, as its gross revenues of 2011 amounted to £29.02bnread article

The Economist’s Buttonwood blog gives us a very short history of hedge funds, or: how to make money over years to fund the loss of one dayread article

Finally someone other than an unpaid intern in a mediocre company is saying that it sucks that kids with [parents with] connections steal all the good internshipsread article

But maybe they got it all wrong, and the [upward mobile] interns at Deutsche Bank and the UN are just all economics majors… read article

So long. Have a good weekend.

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