PlanMaestro

http://dealbreaker.com/2012/07/same-old-boring-story/ The FED documents There is just not a lot of secrecy here: Barclays talked about Libor as a manipulated fiction in mass-distribution emails to money market product clients and regulators, in a way that makes it clear that they thought they were just stating the obvious. This is not a “we have some evidence that Libor is wrong” research report. This is a throwaway line, “of course Libor is manipulated but let’s look at it anyway,” in a daily update going to basically everyone in the money market. Of course it wasn’t going to everyone who used Libor: nobody told Nassau County “hahahaha you’re getting screwed on your swaps because Barclays doesn’t want to look bad.” But I think these Fed documents make it hard to share the collective amnesia of thinking that Libor was the most important and trusted thing in the world until it was broken by a secretive coterie of bankers and nobody knew about it. Everybody knew about it. One thing that they knew specifically was that Libor, in Mervyn King’s great phrase, was “the rate of interest at which big banks don’t lend to each other”: it had to be fudged, because there often weren’t any actual trades from which to determine the rate at which banks borrow from each other.** So banks had to submit Libors that were, like the man said, “within pre-established price testing thresholds around external ‘mid-market’ benchmarks,” except without the thresholds. This seems to have been clear to everyone – banks, money-market investors, regulators, the BBA, academics, everyone – during the financial crisis, and they understood that that would mean the potential for fudging, and they further understood that the direction of fudging would be down. And they were okay with that, it seems to me, for reasons not unrelated to why they were okay with things like lower Fed target rates, or bans on short sales of banks, or very slow and incremental credit-ratings downgrades of banks. They thought the fudging would make the crisis better. Now of course things look worse in part because memories are short, in part because so are statutes of limitations, and in part because the people affected negatively by lower Libor rates are starting to figure out what everyone else knew in 2007. But I suspect that, just as it was in the JPMorgan restatement, the real question is about intent. These NY Fed documents actually don’t sound that bad: they sound like thoughtful people trying to report reasonable borrowing rates while being mindful of market stability, and discussing that balancing act openly with their regulators. The earlier Barclays emails, in which derivatives traders asked Libor submitters to change their rates to help the swap book, sound terrible: market manipulation for high-fives and profit. Mis-marking within a reasonable range is not necessarily a scandal; in some sense it’s most of what most traders do most of the time. It only becomes a scandal when you do your mis-marking for nefarious purposes, with “hiding trading losses” and “screwing derivatives counterparties” being reasonably obvious nefarious purposes. “Keeping our name out of the FT and our stock price out of the crapper” is a gray area: it doesn’t seem to have looked that nefarious in 2007-2008, but now maybe it does.

http://www.ft.com/cms/s/0/0231ace4-cc1d-11e1-839a-00144feabdc0.html#ixzz20SvVxxqw The analysis also puts a value on the potential risk from class action lawsuits. Each of the banks named would pay an average $400m, with individual charges ranging from $60m to $1.1bn, depending on the size of their derivatives books. The analysis assumes most of the other 11 banks will admit to roughly similar behaviour and will not receive the same discount as Barclays for early co-operation. Some banks say privately that they do not have to cope with emails as stark as those sent by the Barclays’ traders promising bottles of Bollinger in return for specific rate quotes. But Peter Wright, a former enforcement lawyer, said: “Barclays was not accused of conducting its business with a lack of integrity. If this is an allegation that is being pursued against other institutions . . . the financial penalty would be substantially higher.”

McGee, CEO http://video.cnbc.com/gallery/?video=3000094327&play=1

"Southern Yankee did have one post on investing. He asked what is a short sale." Going for a record?

Regulators can leak too http://dealbook.nytimes.com/2012/07/11/shake-up-at-new-york-fed-is-said-to-cloud-view-of-jpmorgans-risk/ In 2008, the agency’s examiners inside JPMorgan raised broad concerns about the bank’s internal stress test models, according to the current and former officials. The examiners said that they were worried that the bank’s analysis incorrectly calculated the potential effect on various businesses from a variety of conditions, including large market swings and sudden fluctuations in interest rates. One report, for example, estimated that the bank’s chief investment office would lose no more than $400 million in a two-week period even under the most stressful market conditions, one of the government officials said. Some of the agency’s examiners said they had battled to get senior executives at JPMorgan to share how the bank’s internal stress tests were structured. One of the former officials described the analysis as a virtual black box, in which the bank provided few details about the variables. JPMorgan executives resisted providing any additional information about the stress tests, including how they chose the variables used to forecast potential losses. The bank routinely pushed back scheduled meetings to review the matter, the current and former officials said. “We were most concerned with the fact that the stress test is one of the most important risk management reports,” said one of the former bank examiners, and the test’s methodology “had not been reviewed by regulators.” Compounding their frustrations, Joseph Bonocore, the bank’s treasurer, left in October 2011. In the ensuing months, some of the examiners said they had less access to information about the bank. That same year, the New York Fed was retooling its team at JPMorgan. The Fed saw an opportunity to rethink the way it policed the industry. It hired a new head of bank supervision, added staff with greater financial expertise and revamped the roster of examiners stationed at the banks. But the transition came at a critical time for JPMorgan. In 2011, the once little-known chief investment office was swelling in size and taking on increasingly risky bets. By early 2012, the Office of the Comptroller of the Currency conducted a review of JPMorgan’s stress test models, months before reports emerged about potential losses in the chief investment office, according to the current and former officials. The examination revealed that the models needed upgrades. At one point in the first quarter of this year, some of the examiners said that JPMorgan had simply stopped providing them with some metrics from the chief investment office. When they asked why the crucial value-at-risk measure had disappeared, executives did not give them a satisfying answer. Around that time, the bank changed the value-at-risk measure for the chief investment office, which they did not disclose publicly for months. The switch would prove important. By changing the metric, the bank could seemingly take on more risk. It all came to a head in May when the bank announced a $2 billion trading loss on a soured credit bet. Since then, losses have multiplied to an expected $5 billion in the second quarter, a tally that could grow.

New LIBOR antitrust complaints: Lots of charts, few juicy specifics http://newsandinsight.thomsonreuters.com/Legal/News/2012/05_-_May/New_LIBOR_antitrust_complaints__Lots_of_charts,_few_juicy_specifics/ No fewer than nine enforcement and criminal agencies are investigating alleged LIBOR manipulation, including the U.S. Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. All of the new filings cite juicy disclosures in the Singapore and Canada proceedings. In Canada, affidavits from an official in the criminal antitrust department revealed that one bank -- later reported to be UBS -- is actively cooperating with investigators and has provided records and testimony in the conspiracy probe. The Canadian affidavits include some of the detailed allegations of collusion between traders at different banks that can make or break an antitrust case. Similarly, in the Singapore wrongful termination case, a former Royal Bank of Scotland trader claims that he was scapegoated for manipulating LIBOR rates, when the bank itself condoned and encouraged the practice. The complaints also point to news stories about investigations of LIBOR collusion by officials in Japan, the European Union, among other places. But those are the only detailed and specific allegations of an actual conspiracy in the complaints -- thanks to the banks' successful effort to block the private antitrust plaintiffs from getting their hands on evidence the banks have turned over to U.S. investigators. That evidence was the subject of a quick but furious exchange of letter briefs to U.S. District Judge Naomi Reice Buchwald in February. All of the plaintiffs' lawyers made a joint pitch to Buchwald to order the banks to provide them "the documents they have already produced to U.S. regulators investigating the alleged manipulation of LIBOR." If the judge ordered the production before the plaintiffs filed their amended complaints, the lawyers argued, there would be no need to waste time with subsequent pleadings when the government's evidence eventually came to light. The banks' lawyers countered that the plaintiffs' "extraordinary and unduly burdensome" demand was improper unless and until the plaintiffs filed amended complaints and got past defense motions to dismiss. .... We'll never know how much stronger the LIBOR plaintiffs' amended complaints might have been with the government's evidence because Buchwald sided with the banks and denied the production request. It's not easy to survive a motion to dismiss in antitrust litigation after Bell Atlantic v. Twombly. There are billows and billows of thick black smoke in the new LIBOR complaints. We'll have to wait and see if the judge believes there's enough fire as well.

Barclays' Euribor admissions: 'tipping point' for new class action http://newsandinsight.thomsonreuters.com/Legal/News/2012/07_-_July/Barclays__Euribor_admissions___tipping_point__for_new_class_action/ In its settlements last month with the U.S. Justice Department, the Commodity Futures Trading Commission and the British Financial Services Authority, Barclays admitted that traders and bank executives underreported the bank's daily borrowing rate to the authorities that calculate Libor, either to improve Barclays' position on derivative swaps or to make the bank look healthier than it was. But Barclays did not admit that it conspired with other banks to manipulate Libor, and last week its co-defendants in the consolidated Libor antitrust class actions argued that the cases can't proceed without evidence of a conspiracy to fix the rate. "Nothing in the Barclays settlement alleges any agreement among (U.S. dollar) Libor panel banks to maintain USD Libor at a suppressed level," the banks said in a motion to dismiss the suits. That defense won't fly in the Euribor case because Barclays has already provided regulators with evidence that it worked with other banks to manipulate the rate. The Euribor complaint cited a filing in the CFTC's case against Barclays, which disclosed a 2007 scheme, coordinated by Barclays senior euro swaps traders and extending to "traders at multiple banks," to fix Euribor rates to improve the traders' futures positions.

Congress starts inquiry into US Libor links http://www.ft.com/intl/cms/s/0/3d35e646-ca99-11e1-89f8-00144feabdc0.html#axzz204pe7bo3 The Federal Reserve Bank of New York on Tuesday said it became aware of “problems” with Libor following the onset of the financial crisis in late 2007 and subsequently recommended reforms. Tim Geithner, US Treasury secretary, led the New York Fed at that time. His office did not immediately respond to a request for comment. .... In his letter to the New York Fed, Mr Neugebauer noted that Bob Diamond, former Barclays chief executive, told UK lawmakers last week that his bank “repeatedly” raised concerns about Libor with US regulators. Mr Diamond pointed to 12 contacts between his bank and officials at the New York Fed related to the lender’s Libor submissions. Mr Neugebauer wants the documents by Friday. The New York Fed said that it received “occasional anecdotal reports from Barclays of problems with Libor” in 2007. Following the failure of investment bank Bear Stearns in March 2008, the Fed asked Barclays for additional information on Libor submissions. “We subsequently shared analysis and suggestions for reform of Libor with the relevant authorities in the UK,” said the New York Fed.

http://online.wsj.com/article/SB10001424052970204059804577227452963906044.html The Canadian regulator also sets out clearly for the first time how its investigators believe bank employees may have managed to game a system used to set costs for financial products around the world, with the alleged aim of increasing their trading profits. The yen London Interbank Offered Rate, or Libor, is calculated by Thomson Reuters under the auspices of the British Bankers' Association and is based on data submitted daily by a 16-bank panel. Around 11 a.m. London time every day, each bank submits estimates of what rates it would pay to borrow from other banks for different time periods. The top four and bottom four quotes are then discarded, and Libor is calculated using an average of the middle eight quotes. The Canadian watchdog said lawyers acting for the cooperating bank had told it that traders at six banks on the yen Libor panel—Citigroup Inc., Deutsche Bank AG, HSBC Holdings, J.P. Morgan Chase & Co ., Royal Bank of Scotland Group and UBS entered into agreements to submit artificially high or artificially low" quotes, according to the court documents. The traders used emails and instant messages to tell each other whether they wanted "to see a higher or lower yen Libor [rate] to aid their trading position(s)," according to a court filing. Each of the traders would then "communicate internally" with the person at their bank who was responsible for submitting the Libor quote, before letting each other know if this attempt to influence the quote had worked. "Not all attempts to affect Libor submissions were successful," the regulator said in the court filing.

Libor Probe Widens in U.K. http://online.wsj.com/article/SB10001424052702303962304577510534226515306.html Wall Street Bank Investors In Dark On Libor Liability (Arthur Levitt interview) http://www.bloomberg.com/news/2012-07-05/wall-street-bank-investors-in-dark-on-libor-liability.html More Levitt http://www.bloomberg.com/video/big-banks-fraught-with-conflicts-schlosstein-says-XzmdVCfUS2uoIjqArsc4iQ.html Wall Street Supporters In Congress Unmoved By Libor Probe http://www.bloomberg.com/news/2012-07-03/wall-street-supporters-in-congress-unmoved-by-libor-probe.html

An AEI article that does not share data and is all about "definitions"? On the line of their F&F-caused-the-subprime-crisis sleight of hand. Until proven otherwise, I'll keep them in the "political hacks" box. http://capitalgainsandgames.com/blog/bruce-bartlett/1606/did-aei-muzzle-its-scholars http://capitalgainsandgames.com/blog/bruce-bartlett/1605/donors-pushed-david-frum-out http://www.frumforum.com/waterloo/

Final 4 but when is he going to make a move?

Barclays splashed into the U.S. investment-banking business when it agreed to take on the core of the investment-banking franchise of Lehman Brothers in the midst of Lehman's 2008 bankruptcy. That move greatly expanded its investment-banking unit, Barclays Capital, now known simply as Barclays. The investment bank is Barclays's largest profit generator, earning $16 billion in total income in 2011. Barclays shot up the investment-banking rankings globally after the Lehman deal, especially in the underwriting of debt. Barclays ranks second globally in debt capital markets, behind J.P.Morgan, according to data firm Dealogic. It ranked 6th in 2006. Barclays this year cracked the top five in global mergers & acquisitions advisory, but its global equity capital markets and loan volumes are ranked ninth. Barclays was not part of the U.K. government's bailout of its banks in 2008. Barclays took injections of private capital from investors in Qatar and Abu Dhabi, as well as BlackRock related to the sale of the ETF business. Collectively these entities still controlled over a fifth of the total voting rights in Barclays PLC as of the end of 2011.

Live feed, lots of fun. http://www.wsop.com/2012/live-video/default.aspx?TID=12155 Guy Laliberté having the tournament of his life. in the tournament he created. http://en.wikipedia.org/wiki/Guy_Laliberté

Bravo.

Barclays: Bob Diamond resigns. 7x earnings and 0.38x BV. Jumping to a completely unrelated thing: there is no libor scandal in the USA http://www.bloomberg.com/news/2012-07-03/wall-street-supporters-in-congress-unmoved-by-libor-probe.html

Steven Pinker, The Blank Slate

Not to justify Sellers but all I've heard about that situation is that he had an awful time. Friendships and business relations were finished. As a fund manager put it to me, "he is done in this business". And at the time he was very close to making it to the big leagues, like $300 million AUM and a column in the Financial Times. From there to managing pubs and fighting lawsuits left and right? Not that I wouldn't like to be in his present situation but without the baggage and there is a baggage. And his big sin? Everyone made so much of his concentration but I think most in this board will recognize that it is a perfectly reasonable strategy if your picks are OK. His most important pick Contango MCF, the reason for his breakout but also his fallout, had such a margin of safety that survived pretty decently a failed sale, the collapse of Lehman, and one of the outstanding commodity bear markets on record (natural gas). Premier Exhibitions? That was a bigger mistake, go to variant perceptions if you want the whole story, but many had worse sins (Fannie, AIG, Washington Mutual) and he was not alone in having to recover from a bad 2008. The problem seems to me that he did not have a chance for a comeback: too many recent investors that did participate in his breakout years, too much hot money from funds of funds, and he did not short. And those investors left him before he could get to the "oversexed man in a brothel March 2009". On the other side when you have a big opportunity, a once in a lifetime opportunity like let's say TARP warrants, do you want to dilute returns over-diversifying, timing or shorting so you can: 1. handle investors pre-conceptions and ST time frames, like Burry had to face. 2. have space in a bear market, to survive a deepening of that bear market, like Munger had to face. 3. avoid short sellers moving against you betting your clients will desert you, like Berkowitz had to face. How to build a business so we can protect investors from themselves and you can get to the other side? One of the reasons I love following this board is learning from others in this area. There is more to this business than being a good investor.

Moody’s downgrades eight Brazilian banks http://www.ft.com/intl/cms/s/0/6b05b816-c0e0-11e1-853f-00144feabdc0.html#axzz1ylM8YU9T The reason? Hilarity ensues. More particularly, we note their significant direct exposure to the Brazilian government securities, equivalent to 167 per cent of tier one capital

A couple of good mental models about organizational change and political rhetoric: http://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty http://en.wikipedia.org/wiki/The_Rhetoric_of_Reaction http://en.wikipedia.org/wiki/Albert_O._Hirschman

An article o the BK from another thread (Greenville's I think) http://www.cnbc.com/id/47411694

Warren Buffett's Next Big Investment Idea Has Everyone Baffled http://www.thestreet.com/story/11586796/1/warren-buffetts-next-big-investment-idea-has-everyone-baffled.html For example, Keefe Bruyette & Woods analyst Bose George expressed surprise in a note published late Monday after Berkshire raised its bid for the ResCap platform, which includes mortgage servicing rights on 2.4 million homes. "The increased Berkshire bid suggests the company might be genuinely interested in purchasing this platform, which if successful could create a strong competitor. We originally assumed that Berkshire's only interest was in protecting its bond position," George wrote. But Buffett's sudden interest in mortgage servicing still went unmentioned at a panel discussion in New York on Tuesday about investment opportunities in the industry at a conference hosted by National Mortgage News. Rather, the panelists appeared to be in agreement that interest in mortgage servicing rights (MSRs) is quite limited.

Warren Buffett, whose prediction last year of a housing recovery was premature, is raising his bet on a rebound with his $3.85 billion bid for a mortgage business and loan portfolio from bankrupt Residential Capital LLC. http://www.bloomberg.com/news/2012-06-18/buffett-extends-real-estate-bet-with-rescap-pursuit-mortgages.html

As is being discussed in a couple of the bank threads, the historic lows in loans/deposits is an historic opportunity to redeem high cost liabilities. A all large banks are taking advantage of it, especially when the new capital regulations help. http://www.ft.com/intl/cms/s/0/d510a214-b72d-11e1-bd0e-00144feabdc0.html#axzz1y5cb7KOU US lenders have around $120bn of outstanding trust preferred securities, or Trups, which count as tier one capital under current rules, because banks can defer interest payments if they are struggling for cash. The securities contain a standard clause that allows banks to repay them early if their status under capital rules were to change. Many banks are arguing that the Federal Reserve’s capital proposals earlier this month represented such a change, and lenders including Citigroup and JPMorgan have since said they will recall almost $16bn of the securities. Many Trups pay generous coupons because they were issued in the run-up to the financial crisis, when interest rates were much higher. Citigroup has almost $10bn of outstanding Trups with coupons that pay more than 7 per cent, while JPMorgan has almost $15bn of Trups that pay more than 6 per cent, according to Barclays research. JPMorgan analysts estimate that $30bn of Trups have a coupon above 6.25 per cent and could be subject to early redemption. Retiring them could save banks around $2bn in annual interest payments, assuming an average interest rate of around 6.5 per cent.

Slim buys 8% stake in YPF. El padre de Juan Manuel Abal Medina, el actual jefe de Gabinete de Cristina Kirchner, que está radicado en México, es el principal asesor de Slim para América latina. http://www.ieco.clarin.com/empresas/millonario-mexicano-Carlos-Slim-YPF_0_718728362.html