September 30, 2022

Bundesbank to Repatriate Some Overseas Gold Reserves

Now the German central bank wants to make a big withdrawal — 300 tons in all.

On Wednesday, the Bundesbank said that it would begin moving some of the reserves, the second-largest stock in the world after that of the United States. The goal is to house more than 50 percent of German gold in Bundesbank vaults in Frankfurt by 2020, up from a little less than a third today, the bank said.

Citing security reasons, Carl-Ludwig Thiele, a member of the Bundesbank, declined to say how the transfer would be accomplished or to estimate the cost. But he said the Bundesbank had plenty of experience moving large sums of money.

During the cold war, West Germany followed a policy of storing its gold as far west as possible in case of a Soviet invasion. While that worry is gone, there is still an argument for keeping some gold in financial centers like New York and London. It remains the one currency that is accepted everywhere. In the event of a currency crisis, the gold could be quickly deployed in financial markets to help restore confidence.

The New York Fed stores the German gold without cost on the theory that the presence of foreign gold supports the dollar’s status as the global reserve currency. A spokesman for the New York Fed declined to comment.

The Bundesbank announcement follows a public outcry last year after a clash in Parliament about whether all the bank’s gold was properly accounted for.

For the great many Germans who still rue the day they had to trade their marks for euros, there has been at least one consolation. If the common currency did not work out, Germany still had huge reserves of the hardest currency of all: gold.

Except, as many people learned for the first time last year, it did not — at least not in the country itself.

More than two-thirds of Germany’s gold reserves, valued at 137 billion euros, or $183 billion, is abroad, stored in vaults in New York, Paris and London.

The new policy will include the complete withdrawal of 374 tons of German gold stored at the Banque de France in Paris, about 11 percent of the total. Bundesbank officials were quick to note that the decision was not a reflection of French trustworthiness. Rather, because France and Germany now share the euro, there is no need for reserves as insurance against currency crises.

“The gold in Paris is in the best of hands,” Mr. Thiele said on Wednesday. “We are thankful to the Bank of France for storing it.”

Still, news of the planned transfer caused some clucking in financial circles after news leaked out on Tuesday. “Central banks don’t trust each other?” William H. Gross, a founder and managing director of the investment firm Pimco, asked on Twitter.

Mr. Thiele denied there was any mistrust. “We have no doubts about the integrity of other central banks,” he said. “We’re not aware of any irregularities.”

After World War II, vanquished Germany had no gold reserves. The Nazis had used most of it to finance the war, and much of what was left vanished mysteriously in the postwar chaos.

But as its economy recovered and Germany became the export powerhouse it is today, the country accepted gold as well as dollars from the central banks of its trading partners to cover the financial imbalance created by German trade surpluses.

German reserves peaked in 1968 at about 4,000 tons, several years before the collapse of the so-called Bretton Woods system of fixed international exchange rates, which was underpinned by gold reserves.

The end of Bretton Woods in 1973 eliminated some, though not all, of gold’s importance as a universal currency. The total has fallen to about 3,400 tons after Germany transferred some of its treasure to international institutions in which it participates, including the European Central Bank and the International Monetary Fund.

Mr. Thiele acknowledged that Germans could get emotional about their gold, but he insisted that the Bundesbank made its decision to repatriate the treasure independently and not because of a public outcry last year after reports suggested the gold was not properly accounted for.

The government auditing agency, the Bundesrechnungshof, called on Bundesbank officials in a report to Parliament to conduct an inventory of the thousands of bars of German gold that are stacked in foreign vaults.

Mr. Thiele said that he and other Bundesbank officials personally visited the German gold abroad and that he was satisfied that it was all there.

At a packed news conference, Bundesbank officials attended by armed security guards demonstrated on Wednesday how they tested the bars for quality and authenticity. No two bars have exactly the same weight and purity, so each must be assessed separately.

Even after Germany completes the transfer at the end of 2020, half of its gold will remain abroad — about 37 percent in New York. The Bundesbank does not plan to move any gold out of the Bank of England, which will continue to store 13 percent of the total.

The Bank of England charges about 550,000 euros a year for storage, Bundesbank officials said.

Despite the public criticism, the Bundesbank has not let go of its gold easily. It has continually rejected periodic attempts by political leaders to convert the reserves to cash and has not sold any gold on world markets.

The central bank has, however, sold some of its holding to the public — in the form of commemorative German marks.

Article source:

DealBook: New York Fed Receives Reprieve on Libor Request

Representative Randy Neugebauer, left, leads the oversight panel of the House Financial Services Committee.Luke Sharrett for The New York TimesRepresentative Randy Neugebauer, left, leads the oversight panel of the House Financial Services Committee.

Congress has eased demands that the Federal Reserve Bank of New York turn over thousands of documents that detail interest rate manipulation at big banks, whittling down the request and granting the regulator additional time.

The reprieve will afford the New York Fed an additional month to comply with the sprawling inquiry, according to people briefed on the matter. Before the delay, the agency was under pressure to meet a Sept. 1 deadline.

The original document request came in July, when the oversight panel of the House Financial Services Committee sought volumes of records about the London interbank offered rate, or Libor, a benchmark interest rate that affects the cost of trillions of dollars in mortgages and other loans.

In a letter at the time, the oversight panel asked the New York Fed to detail its correspondence with employees from the banks that help set the benchmark, which is at the center of a multiyear rate-rigging scheme. The oversight panel, led by Representative Randy Neugebauer, Republican of Texas, also ordered the New York Fed to turn over its internal Libor-related documents and any communication with other government authorities.

In addition to the one-month extension, the subcommittee is narrowing the scope of its request. Lawmakers are planning to seek communication among government authorities and documents circulated internally at the New York Fed, the people briefed on the matter said.

Libor Explained

By steering clear of e-mails from bankers, the inquiry could avoid complicating a wide-ranging criminal investigation. Still, once the initial documents are received, Congress may ramp up its request, one of the people briefed on the matter said.

The New York Fed already produced reams of transcripts this summer involving phone calls its officials had with Barclays. Barclays was the first bank to settle accusations that it tried to manipulate Libor for its own benefit. It reached a $450 million settlement with the Justice Department as well as regulators in the United States and Britain.

Regulators and criminal authorities around the world are investigating more than a dozen other big banks, including HSBC and Deutsche Bank, for their role in manipulating Libor, a measure of how much banks charge each other for loans. Banks are suspected of reporting false rates during the financial crisis to bolster profits and to shore up their image.

The scandal has consumed the banking industry and called into question the New York Fed’s oversight powers. In the case of Barclays, the New York Fed learned in 2008 that the British bank was submitting false rates.

“We know that we’re not posting um, an honest” rate, a Barclays employee told a New York Fed official in April 2008, according to transcripts the regulator released to Congress in July. During the crisis, when high borrowing costs were a sign of poor financial health, banks were artificially depressing the rates to project a stronger image.

But rather than pushing for a civil or criminal crackdown, the New York Fed advocated policy changes to the rate-setting process. The British organization that oversees the rate adopted some of the changes. With the crisis in full swing, the New York Fed moved on to more pressing concerns.

That approach has drawn sharp scrutiny from the oversight panel.

“As you know, the role of government is to ensure that our markets are run with the highest standards of honesty, integrity and transparency,” Mr. Neugebauer wrote in a letter to the New York Fed dated July 23. “Therefore, any admission of market manipulation — regardless of the degree — should be swiftly and vigorously investigated.”

This post has been revised to reflect the following correction:

Correction: August 29, 2012

An earlier version of a caption accompanying this article misstated the role of Representative Randy Neugebauer. He leads the oversight panel of the House Financial Services Committee, not the committee itself.

Article source:

DealBook: Fed Suspends Business with MF Global

7:51 a.m. | Updated Shares in MF Global Holdings were halted for trading early on Monday, as the brokerage prepared to file for bankruptcy protection and sell some of its assets to the Interactive Brokers Group, according to people briefed on the matter.

The Federal Reserve Bank of New York said in a statement that it had suspended doing any business with MF Global until the firm “is fully capable of discharging the responsibilities set out in the New York Fed’s policy.”

MF Global is a primary dealer, meaning that it is one of 22 firms allowed to trade directly with the Fed and make a market in securities like Treasury notes.

Original article: Jon S. Corzine, whose political ambitions came to a halt nearly two years ago when he was defeated for re-election as governor of New Jersey, is running out of time to prevent his revived Wall Street career from collapsing in failure.

His firm, MF Global — a powerhouse in the world of commodities and derivatives trading but little known outside Wall Street — was working frantically toward a potential sale late on Sunday.

Those discussions, which narrowed to one bidder, Interactive Brokers, came after investors — worried that MF Global was too vulnerable to the fallout from Europe’s debt crisis — deserted the firm, making it the first American financial institution to fall victim to those sovereign debt woes.

If the firm is unable to sell itself, other options, including bankruptcy, await. MF Global has hired restructuring and bankruptcy law firms including Skadden, Arps, Slate, Meagher Flom, said people briefed on the matter but unauthorized to speak publicly. One option is for MF Global to follow a precedent set by Lehman Brothers in 2008 by seeking bankruptcy protection for the parent company while selling some assets to Interactive Brokers.

Other Wall Street firms have not been spared damage from the European debt crisis. Shares at firms as large as Morgan Stanley fell this month over concerns that they were exposed to Europe’s troubles. And investment banks and brokerage firms are still licking their wounds from market volatility that has hurt trading operations.

MF Global began buying the debt of European countries like Italy, Portugal, Spain and Ireland last year, in a bet that the discounted prices of those bonds would soon recover. The gamble, though, went sour, and MF Global was hard hit as Greece’s troubled economy spread woes across the Continent. Although European leaders appeared to make progress last week toward resolving those problems, and other firms rebounded, MF Global continued to suffer.

The last-ditch rescue effort is a major blow to the reputation of Mr. Corzine, 64, who formerly co-led Goldman Sachs and was also a United States senator. With a sale of MF Global, Mr. Corzine’s role at the firm will almost certainly end, though he is expected to receive a severance payment of nearly $12.1 million.

Still, the departure will be bitter for Mr. Corzine, whose first stint on Wall Street ended with his ouster from Goldman Sachs. Along with Henry M. Paulson, another Goldman co-chief executive, who would later become Treasury secretary, Mr. Corzine, a former trader, led the firm through the Asian financial crisis of 1998. But trading losses in the last quarter of that year, on top of ill will within the firm over the decision to go public, led to Mr. Corzine’s exit in January 1999.

He revived his career with a successful run for the Senate from New Jersey in 2000, and left the Senate in 2005 to run for governor of New Jersey. A weak economy and a corruption scandal helped Christopher J. Christie defeat him for re-election in 2009.

Mr. Corzine’s arrival at MF Global in March 2010 was meant to be a triumphant return to Wall Street and to bond trading after a long absence. Though it is has operations worldwide, MF Global has just 2,800 employees, making it a fraction of the size of Goldman or Lehman.

Throughout the weekend, regulators focused on completing a deal that would sell at least a portion of the firm, a move that would avert a messy bankruptcy. But given its relatively small size, the firm is unlikely to send shock waves through the financial system.

Most of MF Global’s business involves executing and clearing trades in commodities and derivatives for clients like hedge funds. When Mr. Corzine joined, he sought to transform it into a full-fledged investment bank, in part by making riskier trades using the firm’s own capital.

A large part of that strategy backfired, as analysts and regulators worried about $6.3 billion in bonds issued by Italy, Spain, Belgium, Ireland and Portugal. By contrast, the much larger Morgan Stanley disclosed this month that it had just a $2.1 billion exposure to Europe.

Regulators were less confident in MF Global’s wager, asking it in August to raise the amount of money backing its bonds. The firm complied, though it argued that the bonds were trading at a few cents below par value.

Analysts appeared unimpressed. Late last Monday, Moody’s Investors Service downgraded the firm’s credit rating, citing both weak financial performance and its European bond holdings. The next day, the firm reported a $186 million loss, its fourth loss in six quarters.

Two days later, both Moody’s and another major agency, Fitch Ratings, downgraded MF Global to junk status. Such a move is disastrous for a financial firm, since it limits the number of trading parties willing to do business and raises borrowing costs.

Just as important, it can also scare customers, especially after the toppling of bigger firms during the financial crisis, like Bear Stearns and Lehman.

As of Friday, only a small percentage of customer money had flowed out MF Global’s door, according to a person briefed on the matter.

By the end of last week and through the weekend, Mr. Corzine and his advisers at Evercore Partners had called seemingly every major Wall Street firm, offering to sell MF Global, or at least some of its businesses or trading positions. While the firm had held talks with another potential buyer, Jefferies Company, by Sunday evening Interactive Brokers appeared to be in pole position.

Founded in 1977 by its chief executive, Thomas Peterffy, Interactive Brokers is a discount brokerage firm that places trades for customers on 90 exchanges.

The two firms share a deal history of sorts. In 2005, both competed for assets of Refco, which had filed for bankruptcy. MF Global emerged the victor with a $323 million bid.

Article source:

DealBook: New York Fed Investigates Goldman Loan Division

The Federal Reserve Bank of New York has begun an investigation into the mortgage-servicing arm of Goldman Sachs, looking at whether it systematically rejected borrowers’ efforts to lower their loan payments through government programs.

The inquiry by the New York Fed arose from a letter sent by an anonymous employee, who accused the Goldman unit, Litton Loan, of denying loans without properly reviewing applications.

The letter was brought to the Fed’s attention by The Financial Times after it received the tip.

“We are in possession of the letter and are conducting an inquiry,” a spokesman for the New York Fed said in a statement.

A Goldman spokesman declined to comment.

According to The Financial Times, the anonymous whistle-blower said he had examined loans that qualified for government modifications but were consistently denied.

The accusation against Litton is the latest headache for the unit, which Goldman is seeking to sell.

Goldman disclosed in March that it was exploring a potential divestiture amid concerns that borrowers were being improperly evicted from their homes in foreclosures.

The controversy has led several firms, including Goldman, to disclose in regulatory filings that investigations into these allegations could lead to fines.

Goldman’s 2007 acquisition of Litton, meant to seize opportunities to buy up mortgage portfolios that could then be serviced, has not worked out as intended.

The investment bank remains a small player in the mortgage-servicing industry.

Last year, Litton was one of several firms that halted foreclosures because of criticism about how the industry processed the relevant paperwork.

Litton has since resumed foreclosure operations.

Article source: