BRUSSELS - The European Union on Wednesday blocked the Deutsche Boerse’s planned merger with NYSE Euronext, a $10 billion deal that would have created the world’s largest financial exchange operator.
The European Commission, the EU’s executive body, said it was ruling against the merger because the combined exchange would have controlled more than 90 percent of the trading in European derivatives — complex but highly profitable financial products that allow investors to bet on changes in interest rates or the price of oil.
It said that the combined company’s dominance of that market would have made it almost impossible for competitors to offer rival trading systems.
“The merger between Deutsche Boerse and NYSE Euronext would have led to a near-monopoly in European financial derivatives worldwide,” the EU’s Competition Commissioner Joaquin Almunia said in a statement. “These markets are at the heart of the financial system and it is crucial for the whole European economy that they remain competitive.”
The Commission’s decision deals a blow to Deutsche Boerse AG and NYSE Euronext, which hoped combining their businesses would have allowed them to compete better with other large exchanges in the U.S. and Asia.
But it also underlines the profound transformation their businesses — and financial markets as a whole — have undergone over the past decade. Today, the value of outstanding derivatives contracts has surpassed by many times the value of traditional financial products like stocks and bonds.
Deutsche Boerse and NYSE Euronext both managed to build highly profitable businesses out of this trend and today own Europe’s biggest derivatives exchanges. A push from regulators across the globe to push more derivative trades onto exchanges to make the market more transparent has opened even bigger opportunities for established players.
To make the merger acceptable, the Commission wanted the companies to sell either Deutsche Boerse’s Eurex or NYSE Euronext’s Liffe — something they refused.
“This is a black day for Europe and its global competitiveness on financial markets,” Deutsche Boerse Chief Executive Reto Francioni said in a news conference in Frankfurt, Germany.
Francioni added that the decision will prevent the creation of a “globally competitive” European exchange group that would have helped strengthen the Commission’s push for transparent and stable financial markets.
NYSE said in a statement that the two companies are now discussing terminating the merger agreement.
“While we are disappointed and strongly disagree with the EU decision, which is based on a fundamentally different understanding of the derivatives market, it is now time to move on,” NYSE Euronext Chairman Jan-Michiel Hessels said.
The Commission’s decision did not come as a surprise as last month a competition case team recommended the merger should be blocked, based on the combined company’s dominance in the trading of some of the most popular and liquid European derivatives.
But the two exchanges argued that the vast majority of derivatives are traded directly between banks and other investors, or over-the-counter (OTC), rather than on exchanges, providing healthy competition in the overall market.
They also pointed to Chicago-based CME Group, which has a similar dominance over trading in key American derivatives.
But Almunia argued that neither the over-the-counter derivatives market nor CME Group could have been true competitors to a company owning both Eurex and Liffe.
He said derivatives based on U.S. indexes or interest rates traded on the CME were useless for investors trying to hedge against changes in their European equivalents. Over-the-counter trades, he argued, were riskier than exchange-based trades, eliminating then as an alternative to many companies.
Deutsche Boerse announced nearly a year ago that it was looking to buy NYSE Euronext for $10 billion. NYSE Euronext owns bourses in Paris, Lisbon, Brussels and Amsterdam, in addition to New York.
by Gabriele Steinhauser - Feb. 1, 2012 04:57 PM Associated Press
EU blocks $10 billion Deutsche Boerse, NYSE merger
Showing posts with label europe. Show all posts
Showing posts with label europe. Show all posts
Thursday, February 2, 2012
Thursday, December 1, 2011
Asian stocks soar on joint central bank action | CanadianBusiness.com
BANGKOK (AP) — Asian stock markets soared Thursday after major central banks acted in concert to lower borrowing costs, hoping to prevent a global credit crisis similar to the one that followed the collapse of Lehman Brothers in 2008.
Benchmark oil rose above $100 per barrel and the dollar fell against the euro but rose against the yen.
Japan's Nikkei 225 index jumped 2.4 percent to 8,638.72. South Korea's Kospi surged 4.2 percent to 1,925.17 and Hong Kong's Hang Seng vaulted 5.9 percent to 19,041.36. Benchmarks in Australia, India, Singapore and Taiwan all rose more than 2.5 percent. Mainland Chinese shares on benchmark indexes in Shanghai and Shenzhen rose more than 3 percent.
On Wednesday, the central banks of Europe, the U.S., Britain, Canada, Japan and Switzerland reduced the rates that banks must pay to borrow dollars in order to make loans cheaper so that banks can continue to operate smoothly.
"The moves were cheered by markets as it shows central banks are willing to work together to ease Europe's sovereign debt crisis," Stan Shamu of IG Markets in Melbourne said in a report.
Separately, China's central bank also acted to release money for lending and help shore up slowing growth by lowering bank reserve levels for the first time in three years. The action late Wednesday signaled a key change in monetary policy, analysts said.
"I think the government has the faith now that inflation has peaked, and that now it's time to change the monetary policy from a tight one to a loose one," said Francis Lun, managing director of Lyncean Holdings in Hong Kong.
Chinese banks soared on the news. Hong Kong-listed Industrial & Commercial Bank of China, the world's largest bank by market value, surged 10.4 percent.
By easing reserve requirements, the central bank made available some 350 billion yuan ($55 billion) that otherwise would have been locked up in reserves. Given typical investment trends, much of that money could find its way back into the property sector.
Hong Kong-listed China Resources Land rose 11.6 percent and Poly Real Estate Group added 8.7 percent.
Steel and industrial shares also jumped. Japanese steel producer JFE Holdings shot up 9.6 percent and South Korean steel giant POSCO gained 7.5 percent.
Worries about Europe's financial system — and the reluctance of the European Central Bank to intervene — have caused borrowing rates for European nations to skyrocket. Central banks will now make it cheaper for commercial banks in their countries to borrow dollars, the dominant currency of trade.
But it does little to solve the underlying problem of mountains of government debt. Analysts said that unless there is dramatic action at an upcoming summit of European leaders on the debt crisis, markets are in for further shaky times.
"Until we see some definitely agreed on and, when necessary, legislated initiatives from Europe, optimism can be premature," said Ric Spooner, chief market analyst at CMC Markets in Sydney. "Until we see that sort of thing, there will be a ceiling on the rally."
The central banks' move sent the Dow Jones industrial average soaring 490 points, its biggest gain since March 2009 and the seventh-largest of all time.
The Dow rose 4.2 percent to close at 12,045. The Standard & Poor's 500 closed up 4.3 percent at 1,247. The Nasdaq composite index closed up 4.2 percent at 2,620.
In energy trading, benchmark crude for January delivery was up 39 cents to $100.75 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 57 cents to settle to $100.36 on Wednesday.
In currencies, the euro rose to $1.3463 from $1.3435 late Wednesday in New York. The dollar rose to 77.67 yen from 77.56 yen.
by Associated Press Dec 1, 2011
Asian stocks soar on joint central bank action | CanadianBusiness.com
Benchmark oil rose above $100 per barrel and the dollar fell against the euro but rose against the yen.
Japan's Nikkei 225 index jumped 2.4 percent to 8,638.72. South Korea's Kospi surged 4.2 percent to 1,925.17 and Hong Kong's Hang Seng vaulted 5.9 percent to 19,041.36. Benchmarks in Australia, India, Singapore and Taiwan all rose more than 2.5 percent. Mainland Chinese shares on benchmark indexes in Shanghai and Shenzhen rose more than 3 percent.
On Wednesday, the central banks of Europe, the U.S., Britain, Canada, Japan and Switzerland reduced the rates that banks must pay to borrow dollars in order to make loans cheaper so that banks can continue to operate smoothly.
"The moves were cheered by markets as it shows central banks are willing to work together to ease Europe's sovereign debt crisis," Stan Shamu of IG Markets in Melbourne said in a report.
Separately, China's central bank also acted to release money for lending and help shore up slowing growth by lowering bank reserve levels for the first time in three years. The action late Wednesday signaled a key change in monetary policy, analysts said.
"I think the government has the faith now that inflation has peaked, and that now it's time to change the monetary policy from a tight one to a loose one," said Francis Lun, managing director of Lyncean Holdings in Hong Kong.
Chinese banks soared on the news. Hong Kong-listed Industrial & Commercial Bank of China, the world's largest bank by market value, surged 10.4 percent.
By easing reserve requirements, the central bank made available some 350 billion yuan ($55 billion) that otherwise would have been locked up in reserves. Given typical investment trends, much of that money could find its way back into the property sector.
Hong Kong-listed China Resources Land rose 11.6 percent and Poly Real Estate Group added 8.7 percent.
Steel and industrial shares also jumped. Japanese steel producer JFE Holdings shot up 9.6 percent and South Korean steel giant POSCO gained 7.5 percent.
Worries about Europe's financial system — and the reluctance of the European Central Bank to intervene — have caused borrowing rates for European nations to skyrocket. Central banks will now make it cheaper for commercial banks in their countries to borrow dollars, the dominant currency of trade.
But it does little to solve the underlying problem of mountains of government debt. Analysts said that unless there is dramatic action at an upcoming summit of European leaders on the debt crisis, markets are in for further shaky times.
"Until we see some definitely agreed on and, when necessary, legislated initiatives from Europe, optimism can be premature," said Ric Spooner, chief market analyst at CMC Markets in Sydney. "Until we see that sort of thing, there will be a ceiling on the rally."
The central banks' move sent the Dow Jones industrial average soaring 490 points, its biggest gain since March 2009 and the seventh-largest of all time.
The Dow rose 4.2 percent to close at 12,045. The Standard & Poor's 500 closed up 4.3 percent at 1,247. The Nasdaq composite index closed up 4.2 percent at 2,620.
In energy trading, benchmark crude for January delivery was up 39 cents to $100.75 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 57 cents to settle to $100.36 on Wednesday.
In currencies, the euro rose to $1.3463 from $1.3435 late Wednesday in New York. The dollar rose to 77.67 yen from 77.56 yen.
by Associated Press Dec 1, 2011
Asian stocks soar on joint central bank action | CanadianBusiness.com
Sunday, November 13, 2011
France outraged over 'shocking' debt downgrade mistake
PARIS - France reacted with outrage after the Standard & Poor's ratings agency accidentally sent out a message saying it was downgrading the country's prized "AAA" credit rating.
During a tumultuous week in Europe's protracted debt crisis, the error stood for an hour and a half Thursday before it was retracted by the agency -- spooking markets by foreshadowing an event that could sound the death knell for the 17-nation eurozone.
The accident came just as Greece and Italy both were selecting interim governments led by financial experts to guide them out of the continent's debt crisis. Most European markets were still open at the time, and U.S. financial markets were in full swing.
Some of the fallout from S&P's error could not be undone despite the rating agency's statement saying the original message had gone out to some subscribers because of a technical error and its reaffirmation that France's credit rating remained "AAA" -- the highest level -- and stable.
The yield, or interest rate that France pays to borrow money for 10 years, has risen 0.32 percentage points since Thursday morning, hitting 3.48% Friday, the highest rate since May.
In the midst of a crisis in which fear-driven rumors drive the markets as much as confirmed fact, the error also reminded investors that France does have some financial difficulties. And in volatile markets, the suggestion of something amiss is nearly as bad as having something amiss.
French Finance Minister Francois Baroin did his best to quell fears, calling the error a "rather shocking rumor of information that has no foundation."
"We won't let any negative message go," he said in Lyon in comments published Friday on the La Tribune newspaper website.
The French market regulator immediately opened an investigation into the mistake at Baroin's behest, and the minister also called for a European probe.
The error may have increased the pressure on French bond yields, but they were already rising -- because, like many countries, France is struggling with slow growth and high debt piled up during its boom years.
The rise of government-issued bond yields is at the heart of Europe's debt crisis: The increase of those interest rates in Ireland, Portugal and Greece -- because investors considered them increasingly bad risks -- eventually forced each of those countries to seek massive international bailouts.
Now Italy is coming under the same pressure. That poses a bigger problem because its economy and debts dwarf the others -- Italy's economic output is 17% of the eurozone compared to a combined 6% for the other three nations. Europe actually doesn't have enough money to fully bail Italy out.
But a French debt downgrade would be a problem in an even more important way. France and Germany's "AAA" credit ratings are the bedrock of Europe's bailout fund. Because the debt of those two countries is considered so safe, the fund pays very favorable interest rates on its bonds.
Some analysts said the accident may have tipped the actual thinking at the ratings agency.
"I can't remember a situation where an agency released a rating movement in error and no doubt there will be many people who believe that there is no smoke without fire and that this cannot have happened unless S&P were preparing the ground for a downgrade," Gary Jenkins, an analyst with Evolution Securities, said Friday.
He hastened to add: "I have no idea if this is the case or if it was just a genuine error."
S&P, however, does not even have France on surveillance -- the step that typically comes before a rating is downgraded. Moody's, on the other hand, says it is studying whether to put France's rating on notice.
A downgrade of French debt would also pose a domestic problem for that nation. President Nicolas Sarkozy, who is expected to face a reelection battle next spring, has staked his credibility on balancing France's budget by 2016.
Along the way, Sarkozy has laid out yearly targets for reducing France's deficit -- each one tied to a growth projection. But those forecasts have repeatedly proven too rosy and his conservative government has already twice this year been forced to introduce extra cuts to stay on target.
It's clear the last thing Sarkozy wants to see is for French borrowing costs to rise as his government fights to reduce its deficits and keep the eurozone united.
On Thursday, the European Commission said it considered France's growth forecast for 2013 too high -- and Baroin quickly responded that Paris has already set aside a reserve fund for that eventuality.
by Sarah Dilorenzo Associated Press Nov. 11, 2011 09:25 AM
France outraged over 'shocking' debt downgrade mistake
During a tumultuous week in Europe's protracted debt crisis, the error stood for an hour and a half Thursday before it was retracted by the agency -- spooking markets by foreshadowing an event that could sound the death knell for the 17-nation eurozone.
The accident came just as Greece and Italy both were selecting interim governments led by financial experts to guide them out of the continent's debt crisis. Most European markets were still open at the time, and U.S. financial markets were in full swing.
Some of the fallout from S&P's error could not be undone despite the rating agency's statement saying the original message had gone out to some subscribers because of a technical error and its reaffirmation that France's credit rating remained "AAA" -- the highest level -- and stable.
The yield, or interest rate that France pays to borrow money for 10 years, has risen 0.32 percentage points since Thursday morning, hitting 3.48% Friday, the highest rate since May.
In the midst of a crisis in which fear-driven rumors drive the markets as much as confirmed fact, the error also reminded investors that France does have some financial difficulties. And in volatile markets, the suggestion of something amiss is nearly as bad as having something amiss.
French Finance Minister Francois Baroin did his best to quell fears, calling the error a "rather shocking rumor of information that has no foundation."
"We won't let any negative message go," he said in Lyon in comments published Friday on the La Tribune newspaper website.
The French market regulator immediately opened an investigation into the mistake at Baroin's behest, and the minister also called for a European probe.
The error may have increased the pressure on French bond yields, but they were already rising -- because, like many countries, France is struggling with slow growth and high debt piled up during its boom years.
The rise of government-issued bond yields is at the heart of Europe's debt crisis: The increase of those interest rates in Ireland, Portugal and Greece -- because investors considered them increasingly bad risks -- eventually forced each of those countries to seek massive international bailouts.
Now Italy is coming under the same pressure. That poses a bigger problem because its economy and debts dwarf the others -- Italy's economic output is 17% of the eurozone compared to a combined 6% for the other three nations. Europe actually doesn't have enough money to fully bail Italy out.
But a French debt downgrade would be a problem in an even more important way. France and Germany's "AAA" credit ratings are the bedrock of Europe's bailout fund. Because the debt of those two countries is considered so safe, the fund pays very favorable interest rates on its bonds.
Some analysts said the accident may have tipped the actual thinking at the ratings agency.
"I can't remember a situation where an agency released a rating movement in error and no doubt there will be many people who believe that there is no smoke without fire and that this cannot have happened unless S&P were preparing the ground for a downgrade," Gary Jenkins, an analyst with Evolution Securities, said Friday.
He hastened to add: "I have no idea if this is the case or if it was just a genuine error."
S&P, however, does not even have France on surveillance -- the step that typically comes before a rating is downgraded. Moody's, on the other hand, says it is studying whether to put France's rating on notice.
A downgrade of French debt would also pose a domestic problem for that nation. President Nicolas Sarkozy, who is expected to face a reelection battle next spring, has staked his credibility on balancing France's budget by 2016.
Along the way, Sarkozy has laid out yearly targets for reducing France's deficit -- each one tied to a growth projection. But those forecasts have repeatedly proven too rosy and his conservative government has already twice this year been forced to introduce extra cuts to stay on target.
It's clear the last thing Sarkozy wants to see is for French borrowing costs to rise as his government fights to reduce its deficits and keep the eurozone united.
On Thursday, the European Commission said it considered France's growth forecast for 2013 too high -- and Baroin quickly responded that Paris has already set aside a reserve fund for that eventuality.
by Sarah Dilorenzo Associated Press Nov. 11, 2011 09:25 AM
France outraged over 'shocking' debt downgrade mistake
Wall Street safety net still is full of holes
WASHINGTON - After countless new rules designed to make Wall Street safer, it's come to this: Another securities firm has collapsed over risky, poorly disclosed bets.
Not enough, in other words, has changed since the U.S. financial system nearly toppled three years ago.
The bankruptcy filing last week by MF Global Holdings Ltd. didn't freeze lending and panic investors around the world, as Lehman Brothers' did in 2008. But the rapid fall of the firm run by former New Jersey Gov. Jon Corzine shows risky behavior persists, despite a vast regulatory overhaul.
As lenders abandon Italy this week and stocks plummet on fear that defaults in Europe are all but inevitable, those new rules are about to be put to the test.
One question no one can answer: Is the financial system, with its expanding web of connections that even experts can't trace, any safer?
"People are making the same dumb bets," said investor Michael Lewitt of Harch Capital, who calls Washington's new rules inadequate.
MF Global's collapse suggests that:
Financial companies are making risky bets with borrowed money and hiding them off their balance sheets. In MF Global's case, scant disclosure made it harder for people to see the danger until it was too late.
Those bets are being made with their own money but are threatening customers and trading partners. Dodd-Frank, the Wall Street overhaul passed last year, focused on big, complex financial companies whose failure could topple other firms. The law bans these "systemically important" companies from making such bets with their own money, called proprietary trading. But it does little about smaller financial firms like MF Global.
Many financial companies operate without coordinated oversight by regulators. MF Global was watched over by several regulators. But no one was in charge of coordinating them. Financial companies, aside from the biggest, face the same patchwork oversight that failed to stop risky bets before the financial crisis.
The bust of MF Global itself is not an indictment of the new rules. Dodd-Frank wasn't designed to prevent all financial failures. In fact, some failures can be healthy if they discourage investors from taking on excessive risk.
But MF Global's collapse brought heavy costs. It caused millions in losses for investors. It threw commodity markets into disarray. And it left customers confused and angry because $593 million of their money is missing.
"The question for regulators is: 'How did this happen?'" said David Kotok, a money manager at Cumberland Advisors. "Could we have seen it coming?"
The answer: Yes -- but you had to look hard.
MF Global failed after buying billions of European government bonds on a hunch they were less risky than many investors assumed. The trouble wasn't so much the bet itself. It was how the firm disclosed it and financed it.
MF Global didn't recognize those bonds on its balance sheet for all to see. Instead, they were shunted "off-balance sheet," their presence noted deep in its financial statements. Some separate filings with regulators excluded them entirely.
This sleight-of-hand was possible because of an accounting maneuver used by Lehman to hide its debt before it failed: Instead of holding onto the bonds it had just bought, MF Global "sold" them to other companies in exchange for cash -- with the promise to buy them back later.
In effect, it was borrowing the cash but not calling it that because technically it came from a "sale." And because the bonds were off its books, MF Global didn't have to acknowledge the risk they posed.
Other firms have struck similar off-balance-sheet deals, but poor disclosure makes them difficult to track.
The lack of detail about financial companies' holdings can lead to panic selling. Fearing another MF Global, investors started dumping shares of broker Jefferies Group Inc. last month. The stock recovered after the company released details showing its bets were smaller and not funded by the same off-balance-sheet deals.
Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said the hidden debt at MF Global makes her wonder if regulators have learned anything from the financial crisis. She noted that American International Group Inc. used off-balance-sheet "swaps" to bet that U.S. homeowners would pay back their mortgages -- that is, until it collapsed and had to be bailed out by taxpayers.
"We've seen this movie before," Tavakoli said.
Under Dodd-Frank, large financial companies that played a big role in the financial crisis are subjected to new, stricter oversight. But that's not the case with smaller firms.
Christopher Whalen, managing director at Institutional Risk Analytics, noted that banks must file quarterly "call reports" listing a wide range of details about their risks -- but that no such disclosure is required of smaller financial firms like MF Global.
"The problem is, they are still very opaque," Whalen said.
In the case of MF Global, it not only made "proprietary" bets banned at larger firms, it did so with gobs of borrowed money.
One measure of that, its so-called leverage ratio, hit 31-1 in September, similar to Lehman's before it failed. Most big banks are closer to 10-1 now.
Of course, the risks taken by MF Global may prove more an exception than a rule. But Louise Purtle, an analyst at research firm CreditSights, is worried.
She wrote in a report last week that, as regulators crack down on the largest financial companies, risk could be building in the "shadow banking system" -- the thousands of hedge funds, small brokers, money managers and other non-bank financial firms out of the spotlight.
by Daniel Wagner Associated Press Nov. 11, 2011 12:00 AM
Wall Street safety net still is full of holes
Not enough, in other words, has changed since the U.S. financial system nearly toppled three years ago.
The bankruptcy filing last week by MF Global Holdings Ltd. didn't freeze lending and panic investors around the world, as Lehman Brothers' did in 2008. But the rapid fall of the firm run by former New Jersey Gov. Jon Corzine shows risky behavior persists, despite a vast regulatory overhaul.
As lenders abandon Italy this week and stocks plummet on fear that defaults in Europe are all but inevitable, those new rules are about to be put to the test.
One question no one can answer: Is the financial system, with its expanding web of connections that even experts can't trace, any safer?
"People are making the same dumb bets," said investor Michael Lewitt of Harch Capital, who calls Washington's new rules inadequate.
MF Global's collapse suggests that:
Financial companies are making risky bets with borrowed money and hiding them off their balance sheets. In MF Global's case, scant disclosure made it harder for people to see the danger until it was too late.
Those bets are being made with their own money but are threatening customers and trading partners. Dodd-Frank, the Wall Street overhaul passed last year, focused on big, complex financial companies whose failure could topple other firms. The law bans these "systemically important" companies from making such bets with their own money, called proprietary trading. But it does little about smaller financial firms like MF Global.
Many financial companies operate without coordinated oversight by regulators. MF Global was watched over by several regulators. But no one was in charge of coordinating them. Financial companies, aside from the biggest, face the same patchwork oversight that failed to stop risky bets before the financial crisis.
The bust of MF Global itself is not an indictment of the new rules. Dodd-Frank wasn't designed to prevent all financial failures. In fact, some failures can be healthy if they discourage investors from taking on excessive risk.
But MF Global's collapse brought heavy costs. It caused millions in losses for investors. It threw commodity markets into disarray. And it left customers confused and angry because $593 million of their money is missing.
"The question for regulators is: 'How did this happen?'" said David Kotok, a money manager at Cumberland Advisors. "Could we have seen it coming?"
The answer: Yes -- but you had to look hard.
MF Global failed after buying billions of European government bonds on a hunch they were less risky than many investors assumed. The trouble wasn't so much the bet itself. It was how the firm disclosed it and financed it.
MF Global didn't recognize those bonds on its balance sheet for all to see. Instead, they were shunted "off-balance sheet," their presence noted deep in its financial statements. Some separate filings with regulators excluded them entirely.
This sleight-of-hand was possible because of an accounting maneuver used by Lehman to hide its debt before it failed: Instead of holding onto the bonds it had just bought, MF Global "sold" them to other companies in exchange for cash -- with the promise to buy them back later.
In effect, it was borrowing the cash but not calling it that because technically it came from a "sale." And because the bonds were off its books, MF Global didn't have to acknowledge the risk they posed.
Other firms have struck similar off-balance-sheet deals, but poor disclosure makes them difficult to track.
The lack of detail about financial companies' holdings can lead to panic selling. Fearing another MF Global, investors started dumping shares of broker Jefferies Group Inc. last month. The stock recovered after the company released details showing its bets were smaller and not funded by the same off-balance-sheet deals.
Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said the hidden debt at MF Global makes her wonder if regulators have learned anything from the financial crisis. She noted that American International Group Inc. used off-balance-sheet "swaps" to bet that U.S. homeowners would pay back their mortgages -- that is, until it collapsed and had to be bailed out by taxpayers.
"We've seen this movie before," Tavakoli said.
Under Dodd-Frank, large financial companies that played a big role in the financial crisis are subjected to new, stricter oversight. But that's not the case with smaller firms.
Christopher Whalen, managing director at Institutional Risk Analytics, noted that banks must file quarterly "call reports" listing a wide range of details about their risks -- but that no such disclosure is required of smaller financial firms like MF Global.
"The problem is, they are still very opaque," Whalen said.
In the case of MF Global, it not only made "proprietary" bets banned at larger firms, it did so with gobs of borrowed money.
One measure of that, its so-called leverage ratio, hit 31-1 in September, similar to Lehman's before it failed. Most big banks are closer to 10-1 now.
Of course, the risks taken by MF Global may prove more an exception than a rule. But Louise Purtle, an analyst at research firm CreditSights, is worried.
She wrote in a report last week that, as regulators crack down on the largest financial companies, risk could be building in the "shadow banking system" -- the thousands of hedge funds, small brokers, money managers and other non-bank financial firms out of the spotlight.
by Daniel Wagner Associated Press Nov. 11, 2011 12:00 AM
Wall Street safety net still is full of holes
Thursday, October 27, 2011
Sarkozy Turns to Hu for China Aid as Europe Expands Rescue Fund
Oct. 27 (Bloomberg) -- French President Nicolas Sarkozy said he plans to call Chinese President Hu Jintao today to discuss China contributing to Europe's efforts to resolve the region's debt crisis.
The European Financial Stability Facility will be worth $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy estimated when speaking to reporters at a briefing in Brussels at 4 a.m. local time after the end of a summit of European leaders. Chinese support for the effort would be welcomed, Sarkozy said. The presidents will speak about noon Brussels time, he said.
Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China's biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.
"China will need time to evaluate this plan very carefully," said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. "What worries China is that there is so much disagreement among European policy makers. It doesn't want to be seen spending money on a plan that even Europeans don't want to support."
Sarkozy and Hu's conversation comes a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world's largest foreign currency reserves at more than $3.2 trillion.
Sovereign Bonds
The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling's visit to China this week is linked to the fund's original debt-issuance role.
"It is a normal round of discussion with important buyers of EFSF bonds," Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail yesterday. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.
China may be willing to respond to a European request to help them fund a package to solve the euro region's debt crisis, AFP said, citing unidentified government officials familiar with the situation.
Chinese Reserves
A press official at the People's Bank of China said he wasn't aware of the issue and asked for faxed questions, which weren't immediately answered. The Ministry of Foreign Affairs and the State Administration of Foreign Exchange, which manages China's foreign-exchange reserves, didn't immediately respond to faxed questions.
Calls to the press office of China Investment Corp., the nation's $300 billion sovereign wealth fund, weren't immediately answered.
Europe is facing international calls to end a debt crisis that President Barack Obama has said "is scaring the world" and U.S. Treasury Secretary Timothy F. Geithner has described as a "catastrophic risk." With a Group of 20 meeting looming on Nov. 3-4, euro-area government heads gathered in Brussels yesterday for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.
Premier Wen said last month that while China was willing to help, that developed nations also needed to put "their own houses in order."
European Responsibility
In Canberra today, Australian Treasurer Wayne Swan echoed that sentiment. "We think it's appropriate that the international community look at what resources the International Monetary Fund has available to it," Swan told reporters. "But in the first instance, any bailout fund in Europe is a responsibility of the Europeans."
Bank of Korea Governor Kim Choong Soo said today the nation hasn't been approached to and hasn't considered joining the effort. Indonesian Vice Finance Minister Mahendra Siregar said the nation hasn't been asked to aid in Europe's effort.
The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund.
Aid Package
As part of its original role, the EFSF is providing 17.7 billion euros under Ireland's aid package of 67.5 billion euros and 26 billion euros under Portugal's rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10-year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.
On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four "benchmark" bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until "early 2012."
The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.
by Jonathan Stearns and Helene Fouquet Bloomberg News Oct 27, 2011
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/26/bloomberg_articlesLTPGNJ0YHQ0X.DTL#ixzz1bzpDPC4m
Sarkozy Turns to Hu for China Aid as Europe Expands Rescue Fund
The European Financial Stability Facility will be worth $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy estimated when speaking to reporters at a briefing in Brussels at 4 a.m. local time after the end of a summit of European leaders. Chinese support for the effort would be welcomed, Sarkozy said. The presidents will speak about noon Brussels time, he said.
Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China's biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.
"China will need time to evaluate this plan very carefully," said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. "What worries China is that there is so much disagreement among European policy makers. It doesn't want to be seen spending money on a plan that even Europeans don't want to support."
Sarkozy and Hu's conversation comes a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world's largest foreign currency reserves at more than $3.2 trillion.
Sovereign Bonds
The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling's visit to China this week is linked to the fund's original debt-issuance role.
"It is a normal round of discussion with important buyers of EFSF bonds," Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail yesterday. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.
China may be willing to respond to a European request to help them fund a package to solve the euro region's debt crisis, AFP said, citing unidentified government officials familiar with the situation.
Chinese Reserves
A press official at the People's Bank of China said he wasn't aware of the issue and asked for faxed questions, which weren't immediately answered. The Ministry of Foreign Affairs and the State Administration of Foreign Exchange, which manages China's foreign-exchange reserves, didn't immediately respond to faxed questions.
Calls to the press office of China Investment Corp., the nation's $300 billion sovereign wealth fund, weren't immediately answered.
Europe is facing international calls to end a debt crisis that President Barack Obama has said "is scaring the world" and U.S. Treasury Secretary Timothy F. Geithner has described as a "catastrophic risk." With a Group of 20 meeting looming on Nov. 3-4, euro-area government heads gathered in Brussels yesterday for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.
Premier Wen said last month that while China was willing to help, that developed nations also needed to put "their own houses in order."
European Responsibility
In Canberra today, Australian Treasurer Wayne Swan echoed that sentiment. "We think it's appropriate that the international community look at what resources the International Monetary Fund has available to it," Swan told reporters. "But in the first instance, any bailout fund in Europe is a responsibility of the Europeans."
Bank of Korea Governor Kim Choong Soo said today the nation hasn't been approached to and hasn't considered joining the effort. Indonesian Vice Finance Minister Mahendra Siregar said the nation hasn't been asked to aid in Europe's effort.
The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund.
Aid Package
As part of its original role, the EFSF is providing 17.7 billion euros under Ireland's aid package of 67.5 billion euros and 26 billion euros under Portugal's rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10-year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.
On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four "benchmark" bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until "early 2012."
The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.
by Jonathan Stearns and Helene Fouquet Bloomberg News Oct 27, 2011
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/26/bloomberg_articlesLTPGNJ0YHQ0X.DTL#ixzz1bzpDPC4m
Sarkozy Turns to Hu for China Aid as Europe Expands Rescue Fund
Greece to get 100 bil euros in more rescue loans
BRUSSELS, Belgium - European leaders agreed this morning on a crucial plan to reduce Greece's debt and provide it with more rescue loans so that the faltering country can eventually dig out from under its debt burden.
After a marathon summit, EU President Herman Van Rompuy said that the deal will reduce Greece's debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.
That will require banks to take on 50 percent losses on their Greek bond holdings - a hard-fought deal that negotiators will now have to sell to individual bondholders.
Van Rompuy also said the eurozone and International Monetary Fund - which have both been propping the country up with loans since May 2010 - will give the country an additional $140 billion. That's slightly less than the amount agreed upon in July, presumably because the banks will now pick up more of the slack.
"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said after the meetings.
The question of how to reduce Greece's debt load had proved the sticking point in European leaders' efforts to come up with a grand plan to solve its debt crisis.
But it was just one of three prongs necessary to restore confidence in Europe's ability to pay its debts and prevent the 2-year-old crisis from pushing the continent and much of the developed world back into recession.
The first details of such a plan emerged hours earlier, when European Union leaders announced they would force the continent's biggest banks to raise $148 billion by June - partially to ensure they could weather the expected losses on Greek debt.
Van Rompuy also announced that the eurozone would boost the firepower of their bailout fund to about $1.4 trillion to protect larger economies, such as Italy's and Spain's, from the market turmoil that has pushed three countries to need bailouts.
"We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters as the meeting broke this morning. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."
Efforts to increase the clout of the bailout fund got a boost earlier in the day when German Chancellor Angela Merkel won a strong endorsement from German lawmakers for her plan to reinforce the fund.
Italian Prime Minister Silvio Berlusconi, meantime, came to Brussels with plans to change his country's pension system and take other steps to balance the budget. Other European leaders had pressed him to accelerate those steps to help build confidence that his nation can manage its large levels of public debt.
Because the plan to shore up the banks applies to European economies both inside and outside the euro area, the initiative was the subject of deliberations by the full EU.
Along with increasing bank capital, the plan calls for a new effort by governments to ensure that banks have the funds they need to operate.
European banks rely heavily on short-term loans, and the vulnerability of that funding played a role in the recent collapse of the French-Belgian Dexia bank.
Concerns about the European economy have caused many investors, including U.S.-based money-market funds, to pull out of European banks. This development has raised banks' operating costs and generated fear that Dexia would be just the first in a series of casualties.
The new plan asks the European Central Bank, the European Investment Bank and other agencies to "urgently explore" a guarantee system so that banks could wean themselves from short-term loans, which often must be renewed weekly or even daily.
Under the plan, banks would have to set aside capital equal to 9 percent of their assets. That represents a significant increase from the 5 percent level used as a standard by the European Banking Authority, when it recently analyzed whether the region's financial firms could weather a new economic downturn.
One concern about increasing relative capital levels is that banks could reach the 9 percent threshold by decreasing their total assets, in other words reducing how much money they loan to businesses, consumers and governments. This pullback could stymie economic growth at a time when it is already slowing in much of Europe.
To head off this prospect, the bank capital plan calls for heightened oversight by regulators to ensure that banks don't achieve the new targets by selling off assets or restricting new loans.
by Associated Press Oct. 27, 2011 12:00 AM
Greece to get 100 bil euros in more rescue loans
After a marathon summit, EU President Herman Van Rompuy said that the deal will reduce Greece's debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.
That will require banks to take on 50 percent losses on their Greek bond holdings - a hard-fought deal that negotiators will now have to sell to individual bondholders.
Van Rompuy also said the eurozone and International Monetary Fund - which have both been propping the country up with loans since May 2010 - will give the country an additional $140 billion. That's slightly less than the amount agreed upon in July, presumably because the banks will now pick up more of the slack.
"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said after the meetings.
The question of how to reduce Greece's debt load had proved the sticking point in European leaders' efforts to come up with a grand plan to solve its debt crisis.
But it was just one of three prongs necessary to restore confidence in Europe's ability to pay its debts and prevent the 2-year-old crisis from pushing the continent and much of the developed world back into recession.
The first details of such a plan emerged hours earlier, when European Union leaders announced they would force the continent's biggest banks to raise $148 billion by June - partially to ensure they could weather the expected losses on Greek debt.
Van Rompuy also announced that the eurozone would boost the firepower of their bailout fund to about $1.4 trillion to protect larger economies, such as Italy's and Spain's, from the market turmoil that has pushed three countries to need bailouts.
"We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters as the meeting broke this morning. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."
Efforts to increase the clout of the bailout fund got a boost earlier in the day when German Chancellor Angela Merkel won a strong endorsement from German lawmakers for her plan to reinforce the fund.
Italian Prime Minister Silvio Berlusconi, meantime, came to Brussels with plans to change his country's pension system and take other steps to balance the budget. Other European leaders had pressed him to accelerate those steps to help build confidence that his nation can manage its large levels of public debt.
Because the plan to shore up the banks applies to European economies both inside and outside the euro area, the initiative was the subject of deliberations by the full EU.
Along with increasing bank capital, the plan calls for a new effort by governments to ensure that banks have the funds they need to operate.
European banks rely heavily on short-term loans, and the vulnerability of that funding played a role in the recent collapse of the French-Belgian Dexia bank.
Concerns about the European economy have caused many investors, including U.S.-based money-market funds, to pull out of European banks. This development has raised banks' operating costs and generated fear that Dexia would be just the first in a series of casualties.
The new plan asks the European Central Bank, the European Investment Bank and other agencies to "urgently explore" a guarantee system so that banks could wean themselves from short-term loans, which often must be renewed weekly or even daily.
Under the plan, banks would have to set aside capital equal to 9 percent of their assets. That represents a significant increase from the 5 percent level used as a standard by the European Banking Authority, when it recently analyzed whether the region's financial firms could weather a new economic downturn.
One concern about increasing relative capital levels is that banks could reach the 9 percent threshold by decreasing their total assets, in other words reducing how much money they loan to businesses, consumers and governments. This pullback could stymie economic growth at a time when it is already slowing in much of Europe.
To head off this prospect, the bank capital plan calls for heightened oversight by regulators to ensure that banks don't achieve the new targets by selling off assets or restricting new loans.
by Associated Press Oct. 27, 2011 12:00 AM
Greece to get 100 bil euros in more rescue loans
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