It was almost a throwaway remark from Sir Mervyn King. At the end of another uncomfortable press conference, he floated the idea that the 2 per cent inflation target has had its day. In the real world, the target had it quite a while ago, given how long it is since prices were rising that slowly, but to hear the Governor of the Bank of England suggest it is as surprising as to hear the German Chancellor urging Greece to get on and devalue (just you wait).
The series of letters from the Governor explaining why inflation control failed stretches so far as to have lost all capacity to shock. Besides, there is now a sporting chance that the Bank will actually hit the target at some point later this year, a moment which would provide a suitable excuse to abandon it. The A-word wouldn’t be used, of course. Instead, there would be much talk of “broadening the remit” of the MPC to take into account credit conditions, growth and unemployment, rather as the Treasury used to claim it was doing when it dictated Bank Rate to the Bank. Read more
For the commute home,
– The rise of beeronomics. Read more
Depending on how you look at it, you would probably be justified in reacting to this chart from SocGen with either optimism or pessimism:
Just a bit of Friday afternoon tomfoolery before we get back to our day job.
This has made the rounds already (HT Joe at Clusterstock and see also the WSJ’s Washington Wire, for instance), but we couldn’t resist mentioning it. Read more
First, do read Dan Davies’ bailout options post if you haven’t already. It’s like a Greek Kobayashi Maru. Except you have no hope of ending up like James T Kirk. We got to number 5.
But speaking of Greek debt situations where there are no good outcomes left… Read more
Live markets commentary from FT.com
For this, our final post covering FT Alphaville’s meeting with Yves Smith of Naked Capitalism, we asked her about the regulations that have arisen from the ashes of the financial crisis. Not wanting to leave the series on a depressing note, we (gently) prodded Ms Smith to also share with us something to be optimistic about.
AV: What do you think some of the biggest pitfalls/missteps have been since the crisis in terms of regulation? Read more
It’s understandable why the introduction of a two-year collateralised credit facility as well as the expansion of the range of eligible collateral accepted by Hungary’s central bank, the Magyar Nemzeti Bank (MNB), might have been confused for the Hungarian version of the ECB’s LTRO.
But, says Nomura’s Peter Attard Montalto, this would be a misnomer. Read more
On French inflation during the 1920s, that is.
Central bankers continue to be oh-so-blasé about their ever-expanding balance sheets, swiping aside all those worries of triggering a surge in inflation. Read more
Live markets commentary from FT.com
Courtesy of the European economics team at UBS…
The investigation into the possible manipulation of the Libor interbank rate goes on, with a bank telling regulators in Canada that its traders “were able to move” the rate, reports the WSJ. The probe has shone a light on the role of voice brokers in helping to set Libor rates and the financial products that use them, the FT adds. The inquiry is examining whether groups of traders conspired with brokers to influence banks’ rate submissions for the London rate for yen, known as yen Libor, and the Tokyo interbank offered rate, or Tibor, according to regulatory disclosures and people familiar with the case.
Companies will be able to sell up to twenty times more derivatives than originally planned before they are counted as swap dealers by regulators, the FT says. In the original regulations, firms had only been allowed $100m before hitting the rules’ threshold, but this amount is now likely to be $2bn. While the amount could change further ahead of a key CFTC vote on the rules, energy and commodities firms have fought against being swept into the definition, which carries tough requirements on dealers’ capital and disclosures.
Bank of America told regulators last year that it would sell its Texas retail unit and offload its US Trust wealth management arm if forced to raise capital in a stressed market, says the WSJ. The Fed required BofA to submit the capital-raising plans last year, and the list will form part of this year’s US bank stress tests. BofA said it could issue common stock before selling these businesses. An exit from Texas would mark a milestone for BofA: it acquired its footprint there in 1989 during the Savings & Loan crisis, as its first major national acquisition.
Taxpayer funds will be made available to banks to help them carry out $35bn of loan modifications in the $40bn foreclosures settlement, the FT reports. Banks will be able to draw on the $30bn Hamp initiative for loan mods under the clause, which was niot made public when the settlement was announced. BofA, for instance, will be able to use future modifications made under Hamp towards the $7.6bn in borrower assistance it is committed to provide under the settlement. Under Hamp, the bank will receive payments for averting borrower default and reimbursement from taxpayers for principal written down.
Ally Financial is considering selling its auto loan and online banking units, with the alternative of an initial public offering becoming less likely, Reuters reports. Ally is already selling its mortgage business. The former General Motors lending unit had planned to raise $6bn on public markets last year, but involvement in the mortgage foreclosures scandal and a volatile IPO market put the proposal on hold. Banks in the market for assets to match their growing deposits are likely to be suitors for Ally Bank, if a sale proceeds.
From Prof Dimitris Petmezas, Chair in Finance at Surrey Business School, University of Surrey…
Investment banks, and particularly top ones, have been in the firing line over their role in the recent financial crisis and the very high – some might say exorbitant – fees they receive. Are top investment bankers the bad guys they are often presented as by the media? Investment banks’ main job in today’s demanding financial world is to deliver expertise to their clients in capital market transactions, including M&A, in return for fees. The leading investment banks compete heavily for pole position in the league tables, as high rankings open the ground for new clients and, hence, new deals. How important are the league tables? Do they really distinguish the good banks from the bad and is it worth paying such high fees for employing top-tier investment bankers? Read more
Elsewhere on Friday,
– Choose your own Greece adventure, a wise lesson in bailouts. Read more
Comment, analysis and other offerings from Friday’s FT,
Philip Stephens: The Sun sinks Murdoch
Now you know what it’s like, writes the FT’s Philip Stephens. So a politician friend chuckled the other day after police roused several journalists from their beds for questioning about the alleged bribery of public officials. Not so long ago Britain’s parliamentarians were excoriated for fiddling their expenses. Now the nation’s press is in the dock. At Westminster you can cut the Schadenfreude with a knife. The expenses scandal shredded the reputation of Britain’s political class. Some went to jail and others were shamed into retirement. Politicians had never been held high in public esteem but billing taxpayers for the cost of cleaning out the moat at the family estate was a claim too far. Read more
Breaking pre-market news on Friday,
– Anglo American posts record $13.3bn EBITDA – statement Read more
Nikkei 225 up +160.23 (+1.73%) at 9,398
Topix up +12.03 (+1.50%) at 812.28
Hang Seng up +155.32 (+0.73%) at 21,433
S&P 500 up +14.81 (+1.10%) at 1,358
DJIA up +123.13 (+0.96%) at 12,904
Nasdaq up +44.02 (+1.51%) at 2,960 Read more
A report this week showing rampant foreclosure abuse in San Francisco reflects similar levels of lender fraud and faulty documentation across the United States, say experts and officials who have done studies in other parts of the country, says Reuters. The audit of almost 400 foreclosures in San Francisco found that 84 percent of them appeared to be illegal, according to the study released by the California city on Wednesday. “The audit in San Francisco is the most detailed and comprehensive that has been done – but it’s likely those numbers are comparable nationally,” Diane Thompson, an attorney at the National Consumer Law Center, told the news agency. Across the country from California, Jeff Thingpen, register of deeds in Guildford County, North Carolina, examined 6,100 mortgage documents last year, from loan notes to foreclosure paperwork. Of those documents, created between January 2008 and December 2010, 4,500 showed signature irregularities, a telltale sign of the illegal practice of “robosigning” documents.
Volkswagen and PSA Peugeot Citroën are looking at tapping the ECB’s loan programme designed to aid eurozone banks, reports the FT. VW on Thursday said that it was considering accessing the second phase of the ECB’s longer-term refinancing operations (LTRO), a three-year loan programme launched in December that has helped ease funding pressures on banks hit by the eurozone sovereign debt crisis. Peugeot-Citroen, Europe’s second-largest carmaker by sales, has also said that its Banque PSA lending arm is in talks with the ECB about borrowing money and would potentially offer about €1bn as collateral. While the LTRO is not open to companies, VW and Peugeot would be able tap the facility through their banking arms, which they use to offer consumer credit to car buyers.
The director at the centre of a recent bonus row at RBS says pay decisions should not be swayed by the public mood, even though the bank is 83 per cent owned by taxpayers. In her first interview since joining the RBS board two years ago, Penny Hughes repeatedly defended the decision to award Stephen Hester, chief executive, a bonus worth £963,000. Mr Hester later waived the award under intense political and media pressure. Ms Hughes, who earns £130,000 a year as a non-executive director and chair of RBS’s remuneration committee, insists pay at the bank must be aligned with the market and should not be influenced by broader social and economic factors. Ms Hughes seems unruffled over the uproar triggered by the decision – on her recommendation – to award Mr Hester a bonus for 2011, according to the FT, to whom she gave her first interview since joining the bank’s board.
US regulators are poised to increase 20-fold the amount of derivatives a company can sell before it is subject to strict new rules for the biggest traders, softening a significant plank of financial market reform, reports the FT, citing three people familiar with the matter. The potential shift comes ahead of a vote at the CFTC, the US regulator, set for February 23 on how to define dealers and other leading participants in swaps, the previously unregulated derivatives whose size and lack of transparency exacerbated the financial crisis. The rule has drawn criticism from energy and commodities companies seeking to avoid the burdens of compliance. The CFTC which has proposed the definition along with the Securities and Exchange Commission, is set to approve $2bn as the maximum gross notional value of swaps a company may sell in a year before it is designated a dealer, three people familiar with the matter said. This is 20 times higher than the $100m threshold included when the rule was proposed.
A 44-year-old man employed at Legal & General Investment Management, one of the UK’s largest investment firms, has been arrested by the FSA, says the FT. It is the regulator’s ninth arrest in two years in connection with its largest operation against alleged insider trading. The regulator, along with Serious Organised Crime Agency, launched a pre-breakfast raid on a City firm and two domestic premises, one in London and one in Kent, as part of its continuing investigation codenamed “Tabernula”, which is probing a group of individuals and alleged trades of up to £22m. The latest arrest, of a City individual, is part of the FSA’s probe into deals spanning three years to 2010 in shares in companies such as Paragon, Barclays, Scottish & Newcastle, National Express, Petrofac, Wolseley and Collins Stewart.
The FSA has handed down a £350,000 fine to one of London’s top corporate brokers following a multi-year probe into improper trading in the shares of pub company Punch Taverns by Greenlight Capital, reports the FT. To support its decision, the regulator took the unusual step of releasing a transcript of telephone call involving the broker Andrew Osborne and David Einhorn, the chief executive of Greenlight and one of the most prominent US hedge fund managers. Neil Collins writes on AV that the 55-page document is a model for how the City really works.
A €130bn bail-out of Greece will contain unprecedented controls on Athens’ ability to spend funds, the FT says, citing people briefed on the talks. The agreement, which officials hope to finalise on Monday, is likely to include an escrow account that must always contain enough cash to pay Greece’s debt for nine to 12 months. If the account falls below that level, money will be taken from funds earmarked to run the Greek government, according to the newspaper’s sources, and in addition, the bail-out will include a permanent and beefed-up presence of international monitors who will attempt to keep real-time tabs on the Greek government’s spending decisions. If the deal is finalised by Monday, it will still include a list of 24 “prior actions” that Greece must complete by the end of the month, before aid is released. Meanwhile Bloomberg, citing three German officials, says coalition lawmakers were told by German government officials in a briefing that Germany wants euro-area finance chiefs to avoid splitting consideration of the bail-out and the bond swap to cut the nation’s debt load at next week’s meeting. As long as Greece meets conditions for the aid, the finance chiefs will probably approve the package along with the debt exchange, the sources said. Finance Ministry spokesman declined to comment.