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Global Markets Rise on Fiscal Deal

January 2, 2013 by Leave a Comment

PARIS — Global stocks kicked off the 2013 trading year with a strong start Wednesday, as investors welcomed a deal between President Obama and congressional Republicans that ended, at least temporarily, an impasse over fiscal policy that had threatened chaos in the new year.

The drama over the so-called fiscal cliff ended late Tuesday when a sufficient number of Republicans in the House of Representatives joined Democrats to back a deal the Senate had reached earlier, modestly raising income taxes on the highest-earning Americans, ending payroll tax cuts, and creating permanent tax cuts for others.

“There’s clearly a big relief rally,” Christian Schulz, an economist in London with Berenberg Bank, said.

The Euro STOXX 50 index of euro zone blue chips rose 2.7 percent in afternoon trading, while the FTSE-100 index in London gained 2.3 percent. The euro gained 0.6 percent to $1.3270, and yields fell on Spanish and Italian government bonds.

Trading in Standard Poor’s 500 index futures indicated that Wall Street would start the day with a bounce. Asian indexes also gained, with the Hang Seng index in Hong Kong rising 2.9 percent. But markets in Japan and mainland China were closed for holidays.

Still, analysts warned that the gains might not last, as the last-minute deal had only bought time.

The deal “is likely to prove only a temporary fix to address fiscal uncertainty in the U.S.,” Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ in London, wrote in a research note, pointing out that “the planned sequester government spending cuts merely delayed for two months.”

Investors, he added, probably will begin to focus on “whether U.S. politicians will be able to raise the debt ceiling in the next two months to avert a technical default, and whether the delayed sequester spending cuts will now come into force on March 1.”

Mr. Schultz noted that the United States hit the debt ceiling of $16.4 trillion, or 104 percent of 2012 gross domestic product, on Dec. 31, and could it exceed it as soon as February without congressional action.

There are also questions about how America’s new commitment to cutting the deficit will affect the economy and its credit ratings.

“The austerity they’ve imposed is very modest,” Mr. Schultz said, “perhaps 1 percent of G.D.P. So maybe the most interesting thing will be to see how the ratings agencies react.”

Analysts at DBS in Singapore wrote in a research note: “Call it breathing room, call it kicking the can down the road, call it whatever you like — come mid-February, when the decision on the legal U.S. debt limit will be needed, the fight starts afresh.”

They added, “Two more months of shenanigans and waffling/seasick markets? It certainly looks that way.”

The stock-market gains in Europe came despite indications that the region’s manufacturing activity remains in the doldrums. Surveys of purchasing managers by Markit Economics, a data and analysis firm, showed euro zone factories ended 2012 in poor shape, with both production and new orders declining in December. German factories posted declines in both output and new orders, according to the Markit data, while the Spanish manufacturing shrank a 20th consecutive month, with both the decline and the pace of job cuts accelerating.

The news from Europe was not uniformly bad. In Athens, officials hailed data showing Greece posted a primary surplus of €2.3 billion, or about $3 billion, in January-November 2012 compared to a primary deficit of €3.6 billion in the same period of 2011. The primary deficit refers to the government’s budget gap before interest payments on the national debt. The Finance Ministry said the shift showed that Greece’s efforts at “fiscal cleansing, adjustment and discipline are bearing fruit.”

And as a sign that investors are more comfortable with risk, Germany sold about €4.2 billion of two-year notes Wednesday, priced to yield 0.01 percent. That marked the first time that such securities had drawn positive yields since October. Germany’s bonds are regarded as one of the world’s safest investments, and worried investors had been willing to accept negative yields in exchange for the certainty of safeguarding their capital.

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source: http://www.nytimes.com/2013/01/03/business/global/03iht-asiamarkets03.html?partner=rss&emc=rss

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UBS Chief Resigns Over Trading Scandal

September 24, 2011 by Leave a Comment

The board said in a statement that it regretted Mr. Grübel’s decision and that it had appointed a board member, Sergio P. Ermotti, to the chief executive position on an interim basis.

“Oswald Grübel feels that it is his duty to assume responsibility for the recent unauthorized trading incident,” the board chairman Kaspar Villiger said in the statement. “It is testimony to his uncompromising principles and integrity.”

A trader in the bank’s London office, Kweku M. Adoboli, 31, was arrested more than a week ago and charged with one count of fraud and two counts of false accounting dating to as early as October 2008. Mr. Adoboli, who worked at UBS Delta One desk, was accused of making billions of dollars in unauthorized investments in equity index futures and concealing them from internal risk controls.

Mr. Villiger also thanked Mr. Grübel “for everything he has done for UBS.” The bank added that the board was “deeply disappointed by the recent loss arising from unauthorized trading.”

The resignation comes about a week after Mr. Grübel told a Swiss newspaper that as chief executive he was responsible for the trading loss, but that he did not feel guilty. He also said he had not thought about resigning.

Mr. Grübel was brought out of retirement by Mr. Villiger to take over at UBS in 2009 after the bank suffered significant losses because of its exposure to the subprime mortgage market. During his tenure, Mr. Grübel managed to return UBS to profit by reversing client money outflows at its private banking business and by reducing costs.

The announcement Saturday came after a three-day board meeting in Singapore that was already scheduled before the unauthorized trades were revealed. The board was scheduled to discuss UBS’s future strategy especially with a focus on scaling back the investment banking business to make the entire bank more profitable.

The board said Saturday that it would stick to its integrated strategy, which means it would keep some investment banking operations. But the board asked the bank’s management to accelerate the planned changes to the investment banking unit, which are aimed at reducing costs, while ensuring the bank’s wealth management clients have access to enough products and services.

“We are committed to further expanding our already leading global wealth management franchise,” Mr. Villiger said in the statement. “The investment bank will continue to strengthen its alignment with UBS’s wealth management businesses, in addition to serving its corporate, sovereign and other institutional clients.”

Mr. Grübel’s resignation is the latest blow for UBS, which had struggled to recover from the giant losses it incurred during the credit crisis. He had enjoyed support both from the board and UBS staff and was seen as one of the few executives who could help the Swiss bank return to strength.

The bank had just started to recover from a damaging legal case in the United States involving its wealth management operation and clients’ tax payments, which had hurt its reputation and prompted customers to take their money elsewhere. Mr. Grübel went on a client charm offensive, hired client advisers and started a new advertising campaign to repair the banks reputation.

But UBS also struggled to retain talent especially in the investment banking operation as bankers felt management’s focus shifted toward the more successful wealth management unit, widely considered to be the crown jewels of the company. UBS also felt under pressure from Swiss regulators to shore up its capital thereby weighing on the bank’s profitability.

The revelation last week that unauthorized trades had resulted in a $2.3 billion loss might have pushed Mr. Grübel over the edge.

UBS had planned to scale back its fixed-income operation and other capital-intensive divisions to help make UBS more profitable before the trading loss was uncovered. But the scandal forced UBS to consider even greater changes and to reveal the plans before the investor meeting scheduled for Nov. 17.

Article source: http://feeds.nytimes.com/click.phdo?i=ca5f303b8fd5bf84de28f0e3179598df

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UBS Says Rogue Trading Losses Are Closer to $2.3 Billion

September 19, 2011 by Leave a Comment

In a statement on Sunday, UBS said it had failed to notice the trading of index futures on the Standard Poor’s 500-stock index, the DAX in Frankfurt and the Euro Stoxx 50 because they had been offset by fictitious positions that kept the transactions within the bank’s risk-exposure limits.

A London court on Friday charged Kweku M. Adoboli, 31, with one count of fraud and two counts of false accounting dating to as early as October 2008.

“The true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash E.T.F. positions, allegedly executed by the trader,” the UBS statement said. “These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits.”

In the statement, the bank’s first since it announced the trading loss on Thursday, UBS said that the total loss was higher than the $2 billion it first estimated. It reiterated that no client positions had been affected and said it had appointed an independent committee to investigate the trades and the bank’s risk systems.

“The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio,” UBS said.

The bank has covered the positions, and the equities business was again operating within its previously defined risk limits.

However, questions remain about how it was possible for the trader to hide the fake hedges in exchange-traded funds from the bank’s internal controls. A spokeswoman for UBS declined to comment Sunday on Mr. Adoboli’s other charges related to the period before the three months during which the trading loss was accumulated.

UBS confirmed that Mr. Adoboli’s trades started to come apart on Wednesday when compliance officers reviewing his positions led the trader to reveal his unauthorized activity. UBS then called the police at 1 a.m. on Thursday and Mr. Adoboli was arrested at 3:30 a.m.

He remains in police custody until the next hearing, set for Thursday.

The chief executive of UBS, Oswald J. Grübel, tried to raise morale among the bank’s staff on Sunday by telling employees in an internal memo that he knew many were “shocked and disappointed” but that they should be proud of their strong customer relationships.

He also wrote that “the incident was perpetrated by one rogue trader” and that management would “do all it takes to determine how this happened and what we need to do to ensure that it does not recur.”

“Ultimately, the buck stops with me,” Mr. Grübel added, but he also urged employees to report any “wrongful behavior and conduct in the workplace.”

Mr. Grübel and Carsten Kengeter, the head of the investment banking business, faced mounting pressure to resign over the weekend after some Swiss lawmakers said it was unacceptable that a bank that had once benefited from a government bailout would allow such lapses in risk management.

In an interview with Der Sonntag, a Swiss newspaper, Mr. Grübel said that he had not considered resigning. “If someone acts in a criminal way, there’s nothing you can do,” Mr. Grübel told the paper.

He added that as chief executive he had “the responsibility for everything that happens in the bank” but that “if you ask me whether I feel guilty, I would say no.”

The bank said Sunday that it was starting its own investigation, adding to inquiries by the British and Swiss financial regulators and the London police. David Sidwell, who serves on the UBS board, will lead the independent investigation, the bank said.

Mr. Sidwell joined the board in 2008 and is chairman of the bank’s risk committee. He was executive vice president and chief financial officer of Morgan Stanley from 2004 to 2007.

The investigation committee will include Ann F. Godbehere, most recently the chief financial officer of Northern Rock after the British bank’s nationalization in the midst of the credit crisis, and Joseph Yam, the executive vice president of the China Society for Finance and Banking and an adviser to the People’s Bank of China.

The rogue trading scandal is a blow to Mr. Grübel, who had pledged to improve the bank’s risk management when he took over in 2009. It was part of his plan to revamp the investment banking operation, which had plunged the entire bank into a giant loss in 2007 on the back of bad subprime mortgage investments.

Article source: http://www.nytimes.com/2011/09/19/business/global/ubs-says-trading-losses-closer-to-2-3-billion.html?partner=rss&emc=rss

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Italy Moves to Rein In Short-Selling Amid Market Jitters

July 11, 2011 by Leave a Comment

The step came as European Union officials met in Brussels to wrestle with threats to the currency union, even as wider discussions stalled over a second bailout for Greece.

Amid the continued uncertainty, the euro declined more than 1 percent against the dollar, to $1.4058, and the Euro Stoxx 50 index of euro zone blue chips was down around 2.4 percent in afternoon trading. Trading in Standard Poor’s 500 index futures suggested Wall Street stocks would decline at the opening bell.

Germany sought to soothe the latest jitters ahead of the talks in Brussels.

Angela Merkel, the German chancellor, said she spoke Sunday with Prime Minister Silvio Berlusconi about the Italian situation, The Associated Press reported from Berlin. Italy needs to send a “very important signal” by approving an austerity budget, Mrs. Merkel said, and she has “firm confidence” that the Italian government will do so. Mrs. Merkel also called on the European ministers to sort out the Greek aid “in very, very short order,” the AP reported.

Consob, the Italian market watchdog, took its step on short-selling after Milan banking shares fell heavily last week. Investors were unnerved in part by signs of a growing divide between Mr. Berlusconi and the finance minister, Giulio Tremonti, who has been praised for his handling of the economy during the financial crisis and for maintaining control of the budget deficit.

In a statement, Consob said the measures were similar to those already in force in Germany. Under the new rules, short sellers must show their hands when they have a net short position of 0.2 percent holding of a company’s capital. They also must notify the market each time they obtain 0.1 percent more.

In a short sale, an investor sells a borrowed security in the hope of repurchasing it later at a lower price, pocketing the difference as profit.

The FTSE Italia All-Share index has fallen about 7 percent this year. It was down more than 3 percent in afternoon trading.

The trading curbs were enacted as top European Union officials met in Brussels ahead of an afternoon meeting of finance ministers from the euro area, which is expected to focus on how to resolve Greece’s troubles.

A spokesman for Herman Van Rompuy, president of the European Council, denied that the morning meeting would cover the state of Italy’s finances, which many investors consider increasingly precarious. But another official, who requested anonymity because he was not authorized to speak publicly, said Italy would probably be on the agenda.

For Italy, the cost of debt financing rose last week, though it is still well below the levels faced by Greece. The spread between the yield on the Italian 10-year bond and the German equivalent widened on Friday to 2.36 percentage points, the most since the introduction of the euro.

Italy’s cost of borrowing for 10 years is now about 5.27 percent.

The euro zone has been shaken by the fiscal troubles of Greece, Portugal and Ireland, though their economies are relatively small. The Italian economy is more than twice the size of the combined economies of those three countries. If investors were to drive Italy’s borrowing costs to unsustainable levels, it could imperil the entire European monetary union.

Even without Italy, European officials have a big task in the coming days. They have reached an impasse of sorts on whether to include the private sector in a second Greek bailout, which is considered essential to controlling the crisis that has so far been limited to the smaller economies on the Continent.

Some officials now believe that any bailout plan involving a substantial but voluntary contribution from private investors in Greek debt would be declared a selective default by the bond rating agencies Moody’s, Standard Poor’s and Fitch. The officials’ objectives of achieving a private sector contribution that is voluntary and substantial — but which is not judged a selective default — may not be possible.

If voluntary steps would cause such an event, these officials say, then more radical options may as well be considered, including requiring banks and other private investors to take part.

Article source: http://feeds.nytimes.com/click.phdo?i=dd06b49b7471bf4b2e73638b8ee1eeee

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