Contributed by Beth Collinge of CTG – a division of ILX Group plc.
Stocks were down at the end of last week. JPMorgan was fined for its failure to keep client money in separate accounts. The US Congress is set to impose conflict of interest rules on banks and push ahead with reform of the New York Federal Reserve.
- Stock markets closed down on Friday, hit by a combination of weaker than expected American jobs data, European debt default fears, rumours of large derivatives-related losses at a French bank and concerns that Hungary’s economy may be in a perilous condition.
- The euro was down 2.5 per cent on the week against the dollar to a fresh four-year low, and was also off versus the pound after a spokesman for the Hungarian prime minister said that Hungary’s economy was in a “very grave situation” due to the last government manipulating official data, and that talk of a default was “not an exaggeration”.
- On government bond markets, investors were buyers of high-quality assets such as US Treasuries, sending yields sharply lower. The yield on the 10-year note fell to 3.26 per cent, over the week.
- UK sovereign issues were also bought, and the yield on the 10-year gilt was also down 6bp on the week.
On commodity markets, Gold rebounded from its mid-week low, with August futures rising 0.6 percent to $1,217.70 an ounce, on demand for an alternative to the slumping euro, though the spot price was still down on the week.
Mergers and Acquisitions
- The Spanish banking giant BBVA is considering a takeover bid for the British arm of National Australia Bank that could value the business at £2 billion.
- Morgan Stanley and Goldman Sachs have been advising NAB on options for the sale of its British business. Santander, its larger rival, has become one of Britain’s biggest banks after buying Abbey, Alliance & Leicester and parts of Bradford & Bingley.
- Santander is now the only bidder left for the RBS branch network, which will enable it to expand its network further and make it a sizeable player in business banking.
- Barclays yesterday agreed to buy Swedish carbon credits trader Tricorona, cementing the bank’s position as the biggest player in the emissions market. Tricorona is listed in Stockholm and specialises in the sourcing, development and trading of offsets from greenhouse gas reduction projects in developing countries.
- JPMorgan‘s securities arm has been fined £33.32m, the largest penalty ever levied by the UK financial regulator, for failing to protect billions of dollars of client money by keeping it in segregated accounts. The problem dates back to the merger of JPMorgan and Chase Manhattan and lasted for seven years. Auditor PwC repeatedly certified that the bank was properly handling client money. The FSA has required companies to keep client money separate since 2002, but until the financial crisis, its supervisors relied on auditors to certify that money was handled properly, and did little hands-on investigation. The Financial Reporting Council, which oversees auditors, said it would consider the evidence gathered by the FSA to determine whether it needed to investigate further. JPMorgan and PwC declined to comment. The bank discovered the issue in July 2009, reported it to the FSA and received a discount for early settlement, the regulator said.
- Rothschild, the investment bank, is bolstering its senior management in the US as it moves to take advantage of the growing demand for independent advice from companies globally. Jim Lawrence, most recently chief financial officer of Unilever, will become chief executive of Rothschild North America. Rothschild has close to 1,000 investment bankers globally, in more than 35 countries. The 140 bankers in North America currently generate about a fifth of the bank’s revenues.
- Société Générale shares tumbled 7.6 per cent to €31.59 yesterday after rumours of losses from the French bank’s derivatives operations surfaced. Société Générale declined to comment on Reuters and CNBC reports today that cited speculation the bank may face derivatives losses.
- In further evidence of contagion in Europe, traders have begun to raise concerns about the health of other countries, including Belgium, after analysts, last week warned it could become the “Greece of the north” thanks to “persisting weaknesses in the banking sector and a renewed bout of political instability”.
- Fears for Ireland’s financial stability also re-emerged after the minister of finance said that the country’s banks had to refinance more than €74 billion of debt by October 1. The sum is equivalent to more than half Ireland’s annual economic output.
- The global accounting standards setters – the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB)– confirmed that the world’s top accountants will not meet the June 2011 deadline set by the group of 20 industrialised nations to create a single global accounting standard. The drive for convergence had taken on specific urgency since US prosecutor Anton Valukas revealed in March that Lehman Brothers had shifted $50bn off its accounts at quarter end thanks to the accounting “gimmick” Repo 105. While permissible under US rules, using Repo 105 was not allowed under international rules.
- The US Congress is set to impose conflict of interest rules on banks and push ahead with reform of the New York Federal Reserve, according to people working on the details of the financial overhaul. A proposal widely opposed by banks – to toughen a ban on proprietary trading and stop them betting against products they sell to customers – has re-emerged. The Merkley-Levin amendment also supports the “Volcker rule”, which bans banks from ownership of hedge funds and private equity firms. However, regulators still have a year to consider the issue.
- Next week, in a bid to prevent a repeat of May’s “flash crash”, new rules for US equities are being introduced in the most dramatic attempt to curb volatile trading since market-wide price limits were introduced after the 1987 stock market crash. The new circuit breakers on stocks have been designed to prevent such wild swings. They are based, in part, on the market’s current method whereby trading in a stock can be halted when there is news about a company pending.
However, there are crucial differences to how the new circuit breakers are calculated, which the listing exchanges must monitor. With the new circuit breakers, halts are triggered based on where the price of the stock was trading during the previous five-minute period.
- On 4 June G20 finance ministers called for governments to put their national finances in order to calm the international financial markets. Meeting in Busan, South Korea, the ministers stepped back from plans for a global bank tax following complaints from Canada, Australia, Brazil and India.
- The meeting also concluded that new bank capital rules should be introduced gradually in an effort to ensure that lending to businesses is not curbed.
- The Financial Services Authority is stress-testing Britain’s biggest banks over fears they could be hit by the growing financial problems of the eurozone. Banks have been asked to model a number of disaster scenarios, including Greece defaulting on its loans. Analysts estimate that British banks have a total exposure of more than £100 billion to Greece, Portugal and Spain alone.
- The European Commission stepped up its efforts to crack down on credit rating agencies (CRAs), by tabling legal amendments to the supervision and transparency of CRAs operating in the EU, to be presented to the Toronto G20 summit on 26 June. Under the proposed rules, a new European Securities and Markets Authority would be given powers to request information, launch investigations and perform on-site inspections of CRAs. These firms would also be obliged to share information with other agencies, to promote transparency and allow unsolicited ratings. The rules will not come into force until 2011, pending approval of the EU Parliament and Council of Ministers.
- BP Plc said it increased the amount of oil being captured from its leaking well in the Gulf of Mexico to 10,500 barrels yesterday and expects to increase that quantity further in the next few days. A “cap” over the well is capturing “probably the vast majority” of the leaking oil: the cap was put in place the night of 3 June.
- Following the collapse last week of Prudential’s attempted takeover of AIA, which cost the Pru about £450m in fees, there are rumours that Tidjane Thiam, the Pru’s chief executive, will try to resurrect his bid later this year.
- Dubai International Capital, the investment arm of the Dubai government, that owns Travelodge and Doncasters, is not expected to be able to repay its $1.2bn loan, coming due this month: this could lead to the winding up of the private equity group.