regulators

DealBook: A German Regulator Seeks to Change NYSE-Deutsche Deal

December 12, 2011 by NewsMaker Leave a Comment

LONDON — A German regulator has called for changes to the proposed $9 billion merger between Deutsche Börse and NYSE Euronext after raising concerns about how the deal would affect their operations in Frankfurt.

“We have communicated suggestions about how our concerns could be remedied,” said Wolfgang Harmz, a spokesman for the Hessian Ministry of Economy, the local German regulator for the Frankfurt exchange. He would not provide further detail on the proposed changes.

The local ministry has the power to revoke Deutsche Börse’s operating license and can forbid any changes to the ownership structure that result from the merger between Deutsche Börse and NYSE Euronext.

Mr. Harmz said any decision would come after the conclusion of the European Commission’s antitrust investigation, which is expected by the end of January 2012. Deutsche Börse was not immediately available for comment.

Local authorities are concerned about how the proposed deal would affect the companies’ continuing operations in Frankfurt, as well as whether management decisions would be made outside the German city, according to a person with knowledge of the matter.

In response to initial competition concerns by European regulators, the companies agreed in November to certain concessions. NYSE Euronext said it would sell its pan-European single-equity derivatives units, but not the options businesses in its home markets. Deutsche Börse said it would divest similar operations.

The companies added that they would give rivals access to Eurex Clearing, a clearinghouse for derivatives products, to offset regulatory concerns that the pending merger would lead to uncompetitive practices.

Both companies are adamant that any further concessions, particularly related to their fast-growing derivatives business, would put the merger in jeopardy.

“We want to pursue the transaction, but not at all costs,” Deutsche Börse’s chief financial officer, Gregor Pottmeyer, said in a statement last week. “Antitrust conditions should not be allowed to endanger the industry and economic logic of this transformational merger.”

Article source: http://feeds.nytimes.com/click.phdo?i=c164e9984b42caef64e07133e1981014

Filed Under: Business News Tagged With: derivatives, local authorities, regulators

Central Banks Take Joint Action to Ease Debt Crisis

November 30, 2011 by NewsMaker Leave a Comment

The central banks announced that they would slash by roughly half the cost of an existing program under which banks in foreign countries can borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans will be available until February 2013, extending a previous endpoint of August 2012.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement. The participants in addition to the Fed are the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

The move makes clear that regulators increasingly are concerned about the strain that the European debt crisis is placing on financial companies, which are facing increasing difficulty in borrowing through normal channels the money that they need to fund their operations and obligations.

The European Central Bank borrowed $552 million through the existing facility during the week ending Nov. 23 to meet the liquidity needs of European banks. Data for the past week is not yet available.

On Wall Street, stocks raced ahead at the 9:30 a.m. start of trading in New York, an hour and a half after the announcement by the central banks. The Standard Poor’s 500-stock index, a measure of the broad market, rose 3.2 percent; European markets were up more than 3 percent in late trading.

Under the new terms of the program, the existing interest rate premium of 0.1 percentage points on those loans will be reduced by half, to 0.05 percentage points, effective Dec. 5.

The other central banks said they had also agreed to make similar loans of their own currencies as necessary, but they noted that the only extraordinary demand at present was for dollars.

Stocks surged after the action was announced, with European markets up more than 4 percent in afternoon trading, while United States stock futures were up sharply.

“U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses,” the Fed said in its statement.

Article source: http://feeds.nytimes.com/click.phdo?i=aaebecba830bac80cf2e6d7c0ffd409d

Filed Under: Business News Tagged With: bank of england, regulators, stock index

High & Low Finance: New Dodd-Frank Rules Muddled by Congress That Wants It Both Ways

October 14, 2011 by NewsMaker Leave a Comment

Both.

As the rules get written for Dodd-Frank, the financial reform law that Congress enacted last year, the essential contradictions in the law are being left to regulatory agencies to sort out. Whatever they do, you can depend on legislators to say the regulators are ignoring Congressional intent — or at least the intent of one faction or the other.

Consider the Volcker Rule, named for its chief proponent, Paul A. Volcker, a former chairman of the Federal Reserve. It prohibits banks from engaging in proprietary trading.

If that sounds straightforward to you, you may not have read the rule, or the new 298-page effort by regulators to figure out how to apply it. That effort produced howls of anguish from those who liked the idea of the rule, and similar reactions from those who hated it.

Some might say the equal disdain shows that the regulators are trying to steer a middle course. It might be more accurate to say they were given an impossible task.

A similar fight is going on over “skin in the game” rules for mortgage risk retention. The law says that lenders who sell mortgages to investors should retain some of the risk.

That seemed wise after the bad loans fiasco that helped bring down both the banking system and the economy.

But the law also says that those rules should not apply to especially safe mortgage loans, called qualified residential mortgages in the law. It is up to the regulators to figure out which is which.

In each case, those who want tougher rules point to the risks that came home all too clearly in 2008 and 2009. Banks and some of their customers say the economy, and bank profits, will be hurt if rules bite too deeply.

The Volcker Rule, as enacted, “generally prohibits banking entities from engaging in proprietary trading,” as the regulators stated in their opus this week. But the law goes on to provide exemptions for such things as “trading on behalf of customers,” “risk-mitigating hedging activity” and “underwriting and market-making activities.”

And there are exceptions to the exceptions. As Mary Schapiro, the chairwoman of the Securities and Exchange Commission, explained, “These otherwise permitted activities are not permitted, however, if they involve material conflicts of interest, high-risk assets or trading strategies, or if they threaten the safety and soundness of banking institutions or U.S. financial stability.”

In other words, you can’t tell the difference between a prohibited activity and an allowed one just by looking at what a bank did; you have to instead divine its purpose. Then, even if the purpose is worthy, you have to decide if the risk is too high.

The logic behind the Volcker Rule is that banks are special, and should not be able to do some of the things other market players are free to do. Banks are special because they benefit from government-insured deposits. Big banks are even more special because if they gamble and lose, it may be the government that ends up with the loss, via a bailout.

But banks also provide a lot of services beyond just taking deposits and making loans. Customers want those services to continue to be available.

The rules proposal this week does not claim to be complete. The document lists 383 questions for those commenting on the proposal to consider in recommending changes. Some of those questions have multiple queries. Here’s one example:

“Question 19. Is the exchange of variation margin as a potential indicator of short-term trading in derivative or commodity futures transactions appropriate for the definition of trading account? How would this impact such transactions or the manner by which banking entities conduct such transactions? For instance, would banking entities seek to avoid the use of variation margin to avoid this rule? What are the costs and benefits of referring to the exchange of variation margin to determine if positions should be included in a banking entity’s trading account? Please explain.”

Article source: http://feeds.nytimes.com/click.phdo?i=1c08f8cd8921d04bdbd55a2cb9400449

Filed Under: Business News Tagged With: proprietary trading, regulators, regulatory agencies

Bucks Blog: Monday Reading: Post-Storm Foliage Deals in New England

October 10, 2011 by NewsMaker Leave a Comment

October 10

Monday Reading: Post-Storm Foliage Deals in New England

Post-storm foliage deals in New England, triggers for a mortgage rejection, regulators crack down on high-speed stock trading and other consumer-focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=1270d81013cec32ed2e2149252a0d6e0

Filed Under: Your Money Tagged With: high speed, new england, regulators

Business Briefing | Economy: Barclays Faces Sanctions in Japan

October 1, 2011 by NewsMaker Leave a Comment

Barclays said it would comply with the ban but that the violation was the result of a technical error, not deliberate short-selling.

In short-selling, traders bet against a stock’s rise and make money if the stock goes down in price. Regulators around the world have tried to regulate short-selling, saying it destabilizes financial markets.

Saddled with a stock market that has underperformed for years, Japanese regulators have been particularly wary of any destabilizing trades in equities.

On Friday, the Nikkei stock average closed flat at 8,700.29, ending three months in which stocks tumbled 11.4 percent.

In a statement, Japan’s Financial Services Agency said that Barclays Capital Japan had failed to properly code short-selling maneuvers on the Osaka Securities Exchange during an 18-month period that started in February 2010.

The agency will suspend equity trades between Barclays Capital Japan and Barclays’ other affiliated companies. The ban runs for 10 business days, ending Oct. 24.

Barclays Capital said the trades had not been coded properly because of a technical malfunction. The firm had suspended transactions on the system that had caused the error, it said in a statement.

“An internal review concluded that there was no deliberate intention to manipulate the market and derive a benefit,” Barclays said.

The agency ordered Barclays Capital to submit a report by Oct. 12 offering more details of the breach, including those responsible for the transactions, and outlining measures to prevent similar errors.

Article source: http://feeds.nytimes.com/click.phdo?i=784e80d043ba030530a5dfaf72781947

Filed Under: Business News Tagged With: breach, regulators, technical malfunction

Prescriptions Blog: Walgreen Projects Loss Without Express Scripts

September 27, 2011 by NewsMaker Leave a Comment

The Walgreen Company on Tuesday braced Wall Street for a projected loss in 2012 of more than $3 billion in revenue because of the planned loss of business from customers who have their prescription drug coverage managed by Express Scripts, a large pharmacy benefit manager the drug store giant is battling over payment issues.

The proposed merger between Express Scripts and Medco Health complicates matters, given that federal regulators are scrutinizing the deal.

Going without Express Scripts is a high-stakes gamble for Walgreen, the nation’s largest pharmacy chain. Deerfield, Ill.-based Walgreen generated $5.3 billion, or 7 percent, of its $72 billion fiscal 2011 revenue from customers with drug coverage managed by Express Scripts, but the company is hoping to retain some of those dollars.

Much of the rift, which began three months ago, centers on how much Walgreen is getting paid by Express Scripts to dispense prescriptions and how much the benefit manager pays the drugstore giant for the costs of the drugs. Express Scripts is a pharmacy benefit manager, which works as a middleman of sorts between employers and drugmakers when it comes to buying prescription drugs.

“We are planning not to be part of the Express Script network as of the first of the year,” Greg Wasson, the chief executive of Walgreen, told analysts and investors.

In a conference call following the company’s fourth-quarter and full-year fiscal 2011 earnings release, Walgreen executives outlined three “potential” scenarios where they could retain from 25 percent to 75 percent of the customers who have Express Scripts benefit plans.

Depending on retention, Walgreen said the company could experience a negative impact of 7 cents to 21 cents a share for its fiscal 2012, which began Sept. 1 and runs through Aug. 31, 2012. Its contract with Express Scripts expires at the end of this year, leaving open the possibility that some resolution could be reached in the coming months.

To mitigate the threatened loss of business from Express Scripts customers, Walgreen said it had been in talks with large health plans and employers about ending relationships with Express Scripts and contracting directly with Walgreen, but the pharmacy chain would not provide specifics or name companies that were considering leaving.

“We’re not going to speculate on retention,” Mr. Wasson said. “We’re encouraged by the response we are receiving.”

The imbroglio comes at the peak of fall open enrollment season when companies disclose to workers their benefit options for the following year. It’s during this time that workers will be deciding which health plans to choose. In addition, seniors covered by Medicare health insurance for the elderly will also soon be choosing their drug coverage options for 2012.

Both sides say they are trying to provide the best deal to employers while saving the health care system money.

Express Scripts says Walgreen’s fees and costs to provide prescriptions are too high. “We would still welcome back Walgreens in our network at rates that are more aligned with rates that are right for our clients,” said Brian Henry, a spokesman for Express Scripts.

But Walgreen says its rates are in line with the market and it gives customers the best buy at the pharmacy counter with its services that include educating customers and moving them to cheaper generic drugs. Walgreen also markets a program where consumers can get a 90-day prescriptions at the pharmacy counter.

Article source: http://feeds.nytimes.com/click.phdo?i=a44842db8518c1b32bc3730d25658f72

Filed Under: Business News Tagged With: drugstore, express scripts, regulators

Doubts Still Harbored About Europe’s Banks

August 26, 2011 by NewsMaker Leave a Comment

European institutions are better armored for a crisis than they were in 2008, analysts say. But some still have doubts whether that armor is thick enough to withstand another big shock.

Despite progress in rehabilitating the financial system since then, analysts say, some gaps remain, among them the continued lack of any mechanism to deal with the failure of a large bank.

And while regulators have pushed banks to reduce risk, bolster their reserves and become less dependent on fickle short-term financing, the measures were designed to be phased in over a decade. As a result, they still fall short of what some experts, particularly in the academic world, consider adequate.

“We should have solved these problems of the banking sector well before the last few months,” said Harald A. Benink, a professor of banking and finance at Tilburg University in the Netherlands.

Numerous anxiety indicators, like emergency borrowing from the European Central Bank and the interest rates on short-term lending, have pointed to tension in the interbank lending market. In particular, there have been signs that some European institutions have had to pay more to borrow dollars.

“Without a doubt unsecured U.S. dollar funding markets have tightened somewhat recently,” Andreas Dombret, a member of the executive board of the Bundesbank, Germany’s central bank, acknowledged Wednesday. Money market funds in the United States “have become more selective when providing funding to nondomestic banks,” Mr. Dombret said.

But, like others who argue that fears of another crisis are overblown, Mr. Dombret says that banks are much better off than they were three years ago.

German banks, he said, have increased the capital they hold in reserve by about three percentage points since 2008, to an average of 12.6 percent of assets. That means they are better able to absorb losses if there is a surge in bad loans or the value of their government bonds declines.

“We are very far away from the situation we witnessed in 2008,” Mr. Dombret said during an appearance at a Bundesbank office in New York, according to a text of his remarks. “European banks, in general, have considerably improved their capital base, making them less vulnerable to financial strains.”

But some critics say that level of capital is still inadequate if there is another major crisis, especially for very large or interconnected banks that would spread destruction throughout the system if they failed.

Central bankers and regulators have made assiduous efforts to make the system less vulnerable to problems at these banks, known in regulatory jargon as systemically important financial institutions, or SIFIs. For example, the too-big-to-fail banks will be required to hold more capital in reserve than other banks. But in Europe few if any measures are in place.

“What we are doing is right, but it is taking too long,” said Renato Maino, a former executive in the risk management department of the Italian bank Intesa Sanpaolo, who is now a lecturer at the University of Torino. “We didn’t remove the main sources of our financial instability.”

Fear that another big bank failure is imminent may help explain why markets reacted so nervously when a single bank last week took advantage of a European Central Bank program aimed at preventing institutions from running short of dollars, as many did during the 2008 crisis. The unidentified bank borrowed $500 million for one week, the first time a bank tapped the central bank’s credit line since February.

The sum was big enough to suggest the borrower was a large bank with a substantial business in the United States — a SIFI, in other words.

Article source: http://www.nytimes.com/2011/08/26/business/global/gaps-remain-in-girding-europes-banks.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: academic world, banking and finance, regulators

DealBook: Regulators Are Said to Weigh Softer Derivatives Rules

July 15, 2011 by NewsMaker Leave a Comment

Andrew Harrer/Bloomberg NewsScott O’Malia, left, and Jill Sommer, with the Commodity Futures Trading Commission, and the chairman, Gary Gensler, at a meeting in Washington last year.

Federal regulators are considering backing off a plan to curb Wall Street’s control over the derivatives market, another potential win for the big banks.

Last fall, the Commodity Futures Trading Commission proposed rules that would prevent a bank or financial firm from controlling more than 20 percent of any one derivatives exchange or trading facility. Now, regulators are discussing lowering the cap, according to people with knowledge of the matter.

Banks Shut in Illinois and Colorado

July 9, 2011 by NewsMaker Leave a Comment

The Federal Deposit Insurance Corporation seized First Chicago Bank and Trust in Chicago, Colorado Capital Bank in Castle Rock, Colo., and Signature Bank in Windsor, Colo.

Northbrook Bank and Trust, based in Northbrook, Ill., agreed to assume the deposits and most of the assets of First Chicago, which had about $959.3 million in assets and $887.5 million in deposits.

First Citizens Bank and Trust, based in Raleigh, N.C., assumed all the deposits and essentially all the assets of Colorado Capital, which had $717.5 million in assets and $672.8 million in deposits.

Points West Community Bank, based in Julesburg, Colo., agreed to assume Signature Bank’s $64.5 million in deposits and essentially all of its $66.7 million in assets.

Four banks have failed in Colorado this year. First Chicago is the fifth lender to collapse this year in Illinois.

In 2010, regulators seized 157 banks.

Article source: http://feeds.nytimes.com/click.phdo?i=9d47c70dec17163f2728e9c67c728112

Filed Under: Economy News Tagged With: 5 million, deposit insurance corporation, regulators

Despite Fears, Owning Home Retains Allure, Poll Shows

June 30, 2011 by NewsMaker Leave a Comment

Nearly nine in 10 Americans say homeownership is an important part of the American dream, according to the latest New York Times/CBS News poll. And they are keen on making sure it stays that way, for themselves and everyone else.

Support for helping people in financial distress over housing is higher than support for helping those without a job for many months.

Forty-five percent of the respondents say the government should be doing more to improve the housing market, while 16 percent say it should be doing less. On the politically contentious issue of direct financial assistance to those having trouble paying their mortgages, slightly more than half of those polled, 53 percent, say the government should help. And almost no one favors discontinuing the mortgage tax deduction, a prized middle-class benefit that has been featured on some budget-cutting proposals.

President Obama, who has been criticized for both doing too much to help the housing market and for not doing enough, was given poor marks. Only 36 percent of those polled approve of what Mr. Obama has done, while 45 percent disapprove.

In assessing blame for the housing crash, people are increasingly seeing financial institutions as the central culprit. Amid the swirl of recent disclosures about banks following improper and illegal procedures in pursuing foreclosures, 42 percent blame lenders, while 29 percent blame regulators. When the question was asked in early 2008, as the crisis was still building, the numbers were reversed, with 40 percent blaming regulators and 28 percent blaming lenders. Only a handful of respondents at either moment blamed the borrowers themselves for taking loans they could not afford.

“I believe the financial institutions willingly and knowingly allowed people to apply and receive credit at a rate higher than they could afford and this has degraded our economy,” said Steven Goode, an environmental health manager in Las Vegas, in a follow-up interview.

Making an offer for a house, something often done in past generations with little apprehension, is now riddled with worry. Only 49 percent call it a safe investment, while 45 percent feel it is risky. In a market where prices are consistently dropping, there is no easy exit.

“For the average person, it might not be a good idea today to buy,” said another respondent, Beth Lovcy of Troutdale, Ore., who bought a year ago. The value has already shrunk, but Mrs. Lovcy is unfazed. “It works out better financially than renting now because we can claim the interest on the mortgage.”

As the housing market slumped over the last few years with a speed and magnitude not seen since the Great Depression, aspects of homeownership have been debated as never before. There are tough questions about the role the government should take. These include how much of a down payment lenders should demand, whether lenders should be restrictive or expansive in granting new loans, how much assistance to give those on the verge of foreclosure, and whether real estate will ever again be the retirement savings vehicle it once was.

While the debate has been loud, there was little evidence of people’s views that went beyond the anecdotal. This poll offers a window onto widespread opinions at a critical juncture.

Before the crash, housing was widely deemed one of the safest possible investments. Few experts thought there was the possibility of a nationwide downturn. But after it happened, the effects were widespread and painful.

Diane Sherrell, a substitute teacher in North Carolina who retired on disability, traded up to a bigger house four years ago to accommodate an adopted son. “It’s been very difficult since then and we’re barely making it,” she said.

Half of those surveyed say the market’s continuing downward spiral has affected their long-term plans. One in five people say the crisis has prevented them from moving to another city or taking a different job. Nearly one-quarter of homeowners say their home is now worth less than what they owe on their mortgage, a condition known as being underwater. Families in this predicament are much more prone to foreclosure if they suffer job losses or other setbacks.

Over all, people are bleaker about the economic outlook than those surveyed in October. While most still think the current downturn is temporary, those saying it is permanent rose to 39 percent, up from 28 percent.

In the last two years, the stock market has recovered strongly while house prices have gone sideways at best. Yet those polled dismissed stocks as a long-term savings vehicle in favor of a savings or money market account (22 percent), a house (26 percent) or a 401(k) or individual retirement account (41 percent).

Who should be helped to buy is another contentious issue. Whether buyers need to come up with a 20 percent down payment — the standard for decades, but beyond the reach of many families now — is hotly debated. Fifty-eight percent of respondents say lenders should require this, while 36 percent say they should not.

People who cannot pay their mortgage are foreclosed upon. If they can pay but feel that doing so is pointless on a property that has lost so much of its value, it is called strategic default. While two-thirds of Americans say strategic default is not justified, 28 percent think that it is.

When houses are abandoned for any reason, it causes trouble for the neighbors. Three-quarters of those surveyed say foreclosures are a problem in their communities.

“Our home is worth much less now because houses are foreclosing around us,” said William Mack, an assembly line worker in Taylor, Mich.

Beyond all these ills, however, a persistent belief endures that the market will eventually improve and housing will regain its traditional importance.

Donna Boyd, a transportation supervisor in Cuyahoga Falls, Ohio, acknowledged “it might take a long time” for property values to go back up.

“But I don’t think I’m throwing my money away,” she said in a follow-up interview. “I rented for years when I was younger, and I just don’t like the idea of putting money in someone else’s pocket for something I will never own.”

The nationwide telephone poll was conducted June 24-28 with 979 adults and has a margin of sampling error of plus or minus three percentage points for all adults.

Marina Stefan and Marjorie Connelly contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=e438b43a4fdde8041ba617c8943d8d87

Filed Under: Business News Tagged With: financial distress, regulators, respondents