Monthly Archives: January 2012

Volcker Rule Stirs Up Opposition Overseas

As reported by Andrew Ross Sorkin from DealBook, usually, it is the banks that are fighting efforts to impose new regulations on the industry. Now, it is foreign governments fighting against bank regulations in the United States.

In the halls of last week’s annual meeting of the World Economic Forum here, Wall Street’s top bankers found a curious ally in their battle to end — or perhaps water down — the Volcker Rule, that part of last year’s Dodd-Frank financial regulation law that says that banks are not allowed to participate in “proprietary trading.” Translation: Banks can’t make risky bets with their own money. The idea, rooted in ending the too-big-to-fail phenomenon, is to separate the risky casino element of Wall Street from the utility role of helping finance the economy.

Yet finance ministers from around the world lined up to whisper in the ear of Timothy Geithner, the Treasury secretary, who made the rounds in Davos on Thursday and Friday, about a specific element of the Volcker Rule that has them apoplectic: The rule says that United States banks — and possibly certain foreign banks that do business in America — would be restricted in trading foreign government bonds. Yet the rule, conveniently, provides an exemption for United States government securities. Every other country is out of luck.

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French finance minister: Government to revise its budget amid slowdown in growth

As reported by the Washington Post, French Prime Minister Francois Fillon said on Monday that the country is slashing its forecast for economic growth this year from 1 percent to 0.5 percent.

The move enables the government to “take into account the deteriorating economic environment” before revising the budget with a last-minute package of measures that are to go before the Cabinet next week, Fillon said.

France had stuck with the 1 percent forecast since November.

Finance Minister Francois Baroin said earlier that a slowdown had been observed “for the last three or four months.”

Last week the International Monetary Fund said it forecasts the French economy to grow only 0.2 percent this year.

The lower growth figure will have an approximately €5 billion impact, Fillon told reporters, but he added that this “can be reabsorbed” because of past efforts and a prudent budget.

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IRS Reminds you: Don’t Miss out on Earned Income Tax Credit

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As reported by the salt lake tribune, The Internal Revenue Service on Monday launched its annual outreach campaign aimed at helping the millions of Americans who earned $49,078 or less take advantage of the Earned Income Tax Credit.

The agency also is spreading the word about free preparation assistance.

Although an estimated four out of five eligible workers and families are eligible for the EITC, one in five still miss out either because they don’t claim it or don’t file a tax return at all, according to the IRS.Workers who earned $49,078 or less from wages, self-employment or farm income last year could receive larger refunds if they quality for the credit. That could mean up to $464 in ETIC for those without children and a maximum credit of up to $5,751 for those with three or more qualifying children, the IRS said.

Unlike most deductions and credits, the EITC is refundable. In other words, those who are eligible may get a refund from the IRS even if they owe no tax.

People can find out if they qualify by visiting and answering a few questions using the EITC Assistant. In tax year 2010, almost 26.8 million eligible workers and families received more than $59.5 billion in EITC. The average EITC per individual last year was $2,200.

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Morgan Stanley, Citigroup Inc and Credit Suisse Lead Wall Street Curbing Pay and Changing Formulas to Limit Expenses

As reported by bloomberg, Morgan Stanley (MS), Citigroup Inc. (C) and Credit Suisse Group AG (CSGN) made some of the year’s biggest cuts in compensation for investment bankers, averaging as much as 30 percent, as Wall Street firms grappled with lower revenue. A table summarizing changes in compensation appears below.

Morgan Stanley, owner of the world’s largest brokerage, will also cap cash awards and defer more payouts, people with knowledge of the plans have said, while Zurich-based Credit Suisse (CS), Switzerland’s second-largest bank, plans to give a portion of senior employees’ bonuses in bonds backed by derivatives. New York-based Citigroup may cut some bonuses in the securities and banking unit as much as 70 percent.

Wall Street firms are curbing pay and changing formulas to limit expenses, with some giving more stock and less cash. Revenue shrank last year as mergers and trading slowed, turning financial stocks into 2011’s worst performers in the Standard & Poor’s 500 Index. Recipients may find they do better with shares instead of cash, according to Paul Sorbera, president of Wall Street executive search firm Alliance Consulting.

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Hedge funds increased wagers on rising commodity prices

Hedge funds increased wagers on rising commodity prices to the most in two months and the rally in raw materials accelerated as the Federal Reserve pledged to keep borrowing costs low for three more years.

Money managers raised combined bullish positions across 18 U.S. futures and options by 13 percent to 742,902 contracts in the week ended Jan. 24, Commodity Futures Trading Commission data show. The so-called net-long position in copper jumped 53 percent to the highest since August and in silver by 22 percent to the most since September. Speculators also expanded bullish bets in sugar, soybeans, cotton, gold, gasoline and crude oil.

Fed policy makers said Jan. 25 they will keep their target interest rate for overnight loans between banks near zero at least until late 2014 and didn’t rule out buying more bonds. The Fed first pushed rates to a record low in December 2008 and has since purchased $2.3 trillion of debt in two rounds of so-called quantitative easing that ended in June 2011. During that period, commodities rose more than 80 percent. The Standard & Poor’s GSCI Spot Index of 24 raw materials jumped 2.2 percent last week, after a 0.1 percent gain a week earlier, as the dollar depreciated to a seven-week low.

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Samsung’s smartphone sales boosted profit

Samsung Electronics Co. jumped to a record in Seoul trading after surging smartphone sales boosted profit and helped Asia’s largest consumer-electronics company keep pace with Apple Inc.

Fourth-quarter net income rose 17 percent to 4 trillion won ($3.6 billion), from 3.42 trillion won a year earlier, the Suwon, South Korea-based company said in a statement today. The average of 28 analyst estimates compiled by Bloomberg was 3.99 trillion won. Sales rose 13 percent to 47.3 trillion won, in line with a preliminary estimate announced Jan. 6.

Samsung shipped more smartphones last year than Apple did iPhones, with the popularity of its Galaxy models helping the Korean company sell a record 300 million handsets. Samsung, whose parent group plans a record investment this year, is introducing more phones and tablet computers to cushion slumping profits at its liquid-crystal display business amid a global economic slowdown.

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BP fails to shift oil spill costs onto Transocean

Oil giant BP has lost its attempt to shift over $15 billion of costs related to the Gulf of Mexico oil spill onto contractor Transocean, increasing the possibility BP may have to foot the entire $42 billion clean up bill.

A U.S. federal judge on Thursday said BP must uphold a clause in its contract with Transocean Ltd that would shield the Swiss-based driller from compensatory damage claims related to the 2010 disaster.

That means London-based BP may have to shoulder alone compensation claims brought by the likes of fishermen and hoteliers whose livelihoods were affected by largest offshore oil spill in U.S. history.

However, U.S. District Judge Carl Barbier left open the possibility that Transocean might still have to pay all or part of any punitive damages and civil penalties imposed by the U.S. government under the federal Clean Water Act.

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UK Stands Top in European Economy, Growing Twice as Fast as France or Germany

 As  Ian Campbell from Reuters said, UK GDP stalled in the fourth quarter, contracting by 0.2 percent. That’s bad. But which major west European economy will perform best in 2012? It’s the UK again, the IMF predicted this week.

Britain’s main problem is that it’s doing best in a troubled continent. If it achieves the meagre 0.6 percent growth the IMF predicts in 2012 it will have grown twice as fast as France or Germany and have evaded the 0.5 recession the IMF forecasts for the euro zone as a whole. The euro zone’s fiscal pain is the main obstacle to a firmer British recovery.

UK cuts, it’s true, aren’t helping growth in the short term. Since April austerity has kicked in hard, booting 193,000 unfortunate public sector employees out of work. Unemployment has risen to 2.7 million and will go higher.

But it is Europe, more than government cuts, which has dragged the UK back into negative territory. Half of British exports go to the euro zone. In December the CBI’s export order balance dropped to a 23-month low. Export weakness helps explain why industrial production plunged by 1.2 percent in the fourth quarter. Service industries, more domestically oriented, held up better.

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Euro Zone Ratings by Fitch: No Longer Optimistic on Belgium, Cyprus, Italy, Slovenia and Spain

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As reported by Reuters, Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain on Friday, indicating there was a 1-in-2 chance of further cuts in the next two years.

In a statement, the ratings agency said the affected countries were vulnerable in the near-term to monetary and financial shocks.

“Consequently, these sovereigns do not, in Fitch’s view, accrue the full benefits of the euro’s reserve currency status,” it said.

Fitch cut Italy’s rating to A-minus from A-plus; Spain to A from AA-minus; Belgium to AA from AA-plus; Slovenia to A from AA-minus and Cyprus to BBB-minus from BBB, leaving the small island nation just one notch above junk status.

Ireland’s rating of BBB-plus was affirmed.

All of the ratings were given negative outlooks.

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For Hedge Funds, After Punishing 2011, Time to Win and Recover Individual and Institutional Investors’ Confidence

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As the industry takes off again, managers and analysts have begun to enjoy the benefits

Hedge funds are an investment vehicle typically used by larger investors, such as banks, pension funds, and large foundations. Investment in a hedge fund is limited by law and by regulation, but in return, the hedge fund is allowed broader freedom in its choice of investment vehicles. Hedge funds also utilise advanced trading strategies, such as short sales, leverage, and forex or foreign exchange trades.

Managers of hedge funds are typically compensated via not only a management fee, similar to a salary, but also a performance fee based on the performance of the hedge fund. Of course, hedge funds have many more employees than just the manager. Analysts, accountants, portfolio managers and many other junior and clerical employees are paid well, but nowhere near the level of the fund manager. Of course, the fund manager is ultimately responsible for the end result, and his or her job is usually on the line if the fund does not perform well. The fund manager needs to have exceptional knowledge of several areas of the market and to be able to time investments and leverage money. The compensation of fund managers has come under increasing scrutiny in recent years.

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