Rio Tinto’s chief Tom Albanese has stepped down || Virtually all Boeing 787 Dreamliners have been grounded || Gas workers in Algeria sized by militants || French troops begin Mali ground campaign || UK developers warn of FSA ‘slotting’ rules || Some yen clarification from Japan’s economy minister || HP rebuffs acquisition inquiries || Singapore acts to avert property bubble || Iraq, BP considering Kirkuk field deal || Research rewrites global trade data || Fisher voices doubts on Fed bond buying || Wall St banks put brake on bonuses || Deutsche derivative helped Monte Paschi mask losses || Markets summary
Japan’s airlines ground Dreamliner fleets || Hardliners shift stance on US debt ceiling || Morgan Stanley defers bonuses for top staff || Silver Lake at centre of Dell deal talks || Facebook ramps up Google search fight || Alibaba Group reported to have hired Credit Suisse and Goldman for IPO || Apple rolls out China credit facility || White House questions Syrian weapons claim || Markets: mostly in the red
Obama warns Republicans on debt limit || Amplats outlines radical SA overhaul || Slowing German economic growth || JPMorgan under fire for ‘whale’ errors || HMV calls in the administrators || Westminster hits at Goldman Sachs bonus plan || Junk bond prices point to return of bulls || Demand fears bruise Apple’s share price || Markets: mixed but erring on the soft side
Goldman may delay UK bonuses for tax cut || ESM bank bailouts might be more burdensome than expected || Asian shares rise, yen reaches two-year low || JP Morgan board may release Whale report critical of Dimon || Plan for pan-EU telco market || Goldman says ACA knew about Paulson short || UK financial sackings, suspensions reach five-year high
Japan unveils Y10.3tn stimulus package || RBS eyes bonus pot to recoup Libor losses || Cold weather fuels Chinese inflation || Eurozone leaders gather in Cyprus || Brussels takes tough stance on Google || ECB hails financial market ‘normalisation’ || Markets update || Alphaville
Section 348 of the Financial Services and Markets Act 2000 is what the FSA refers to when one calls to get information on most things that are of interest. Their hands are tied. Even if they are bursting to share information, they can’t. Should it be this way?
China’s conservative Politburo Standing Committee announced | BP could pay largest US criminal penalty in history | Sony shares reach 1980 levels | Panasonic cutting another 8,000 jobs | Texas Instruments cutting 1,700 jobs | ICAP shuts NYSE floor trading ops | Japan’s megabank losses pile up | DTCC finds 1.3m Sandy-soaked securities
Could it be that the stampede of Oxbridge graduates clamouring to work 100-hour weeks in Canary Wharf is slowing? Perhaps four years of banking crises, scandals and enthusiastic ‘banker bashing’ is having a real effect on the industry’s appeal? The rise in starting base salaries offered by investment banks in London seems to suggest so. First year salaries were in the region of £36,000 going into the crisis (2007 and 2008). They had been flat at that level for a good few years before then.
Merkel warns against Grexit talk: German Chancellor Angela Merkel warned against talk of a Greek exit from the eurozone, saying on German network ARD that “everybody should weigh their words very carefully”. She also said the Greek government was undertaking “serious efforts” to reduce its debt. The firefighting came after Bundesbank chief Jens Weidmann opined in Der Spiegel that the ECB buying bonds of ailing sovereigns would amount to state financing of governments, which the central bank is not permitted to do. (Bloomberg, Reuters) The Shanghai Composite fell 1% and is headed for its lowest close since February 2009 after China’s statistics bureau reported industrial profits fell for the fourth consecutive month. Markets had been bouyed earlier in the day from weekend comments by Chinese premier Wen Jiabao urging extra support for exporters. (Bloomberg)
In ‘The Formula That Killed Wall Street’? The Gaussian Copula and the Material Cultures of Modelling, Donald MacKenzie and Taylor Spears present a history of the development of the one-factor Gaussian copula model, which is used to price various structured products, including Collateralised Debt Obligations (CDOs). As the title of the paper suggests, the model has many critics and has had a lot of blame placed at its feet. What this paper reveals that really stands out is that the quant community also didn’t, and doesn’t, rate the Gaussian copula model highly at all. In fact, we’re putting that very mildly if the statements from quants interviewed by the researchers are anything to go by.
Asian markets on Tuesday continued to suffer from fears about the eurozone, reports Bloomberg. Spanish and Italian 10-year borrowing costs shot up to their highest levels this year and European stock markets suffered their biggest one-day drop in three weeks. German 10-year bond yields fell to a record low, widening the premium Madrid pays to borrow compared to Berlin to a new euro-era high, says the FT. Greece’s president Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government or face having to call another election, reports the FT. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, agreed to meet again, along with other party heads although Alexis Tsipras, the leader of Syriza, is not participating. Meanwhile Jean-Claude Juncker sharply criticised other EU leaders for “threatening” Greece with expulsion.
The FT reports that cash bonuses on Wall Street fell 14 per cent last year, according to an estimate by New York state, reflecting the weak performance of investment banking and the shift towards “deferrals” as a bigger element of pay. But the fall, from $22.8bn in 2010 to a forecast $19.7bn, is much smaller than the decline in industry earnings and smaller than many bankers experienced – a discrepancy that the state comptroller attributed to the increasingly popular practice of spreading bonus payments over several years. “Part of what’s happening here is the increase in deferred compensation,” said Thomas DiNapoli, state comptroller. Although cash bonuses were cut sharply this year, he said the impact was mitigated by payments from previous years. The structural change was applauded by the state, which hopes it will lead to smoother tax revenues.
Stephen Hester, chief executive of Royal Bank of Scotland, defended the pay of its investment bankers on Thursday as the state-controlled group posted a deeper annual pre-tax loss of £766m, the FT reports. Mr Hester, who gave up his own bonus of almost £1m last month under intense political pressure, said investment bankers’ remuneration had been falling faster than the profits of their division, which has been hit by tough trading conditions. RBS confirmed that its investment banking bonus pool for 2011 was £390m, down 58 per cent on 2010’s £937m and an average of £22,941 per employee. The operating profit of its investment banking arm fell 54 per cent to £1.6bn. Mr Hester said the task of salvaging the bank after its disastrous over expansion and poor lending required it to offer competitive pay.
Executives responsible for mis-selling loan insurance at Royal Bank of Scotland and Barclays look set to keep their past bonuses, ignoring the precedent set on Monday by Lloyds Banking Group, reports the FT. Lloyds stripped Eric Daniels, former chief executive, and 12 other directorsof part of the bonuses they were granted for 2010 as it moved to hold staff accountable for the wide mis-selling of payment protection insurance. It is the first UK bank to alter past decisions on pay since regulators put clawbacks and deferrals at the centre of reforms of bankers’ remuneration.
Lloyds Banking Group is to strip five directors of more than £1m in bonuses as a penalty for the payment protection insurance scandal; the first time a British bank has exercised a “clawback” option on executive pay packages since the financial crisis, says The Telegraph. Eric Daniels, Lloyds’ former chief executive, will lose at least £360,000 of his 2010 bonus. Four other current and former directors will each have to forgo about £250,000. The move comes after weeks of pressure from politicians and consumer groups for the banking sector to answer concerns that some bonus awards do not match individual performances. In April last year, the industry lost a case in the High Court to stop customers demanding compensation over mis-sold PPI and the bank subsequently announced £3.2bn in provisions for likely payouts.
In the first post about our meeting with Yves Smith, purveyor of the blog Naked Capitalism, we discussed the blogosphere and what prompted her to join it. Here we ask Ms Smith about her involvement with the Occupy movement and her opinions about banking and the contentious topic of bonuses. AV: Naked Capitalism has a badge on it: “We support Occupy”. What drew you to the Occupy movement?
Investment banks in the UK are set to push ahead with bonus cuts next year as a mixture of falling revenues and political and shareholder pressure prompt a fresh rethink on remuneration. The FT reports City bonuses are expected to drop by another £1bn, or more than a quarter next year, the Centre for Economics and Business Research estimates. The forecast adds to the expectation of an almost 40 per cent drop in City bonuses to £4.2bn this year. Meanwhile, the WSJ says Senator Charles Grassley, the Iowa Republican who introduced broad bankruptcy legislation that became law in 2005, asked Attorney General Eric Holder to examine the Justice Department’s efforts to enforce a law limiting executive pay in certain bankruptcy cases.
Weekend headlines from the FT and other UK media:* From The FT,- MF Global loss estimate revised upwards- S&P downgrades ratings of 34 Italian banks- Banks under fire over Project Merlin- The head of Whitman Capital, a Palo Alto hedge fund, has been indicted on charges he made almost $1m in profits by trading on inside information- Bankia to set aside €3.4bn for provisions- CVC looks to sell its magazines business
Comment, analysis and more from Tuesday’s FT, President Barack Obama infamously killed the multilateral Doha Round last December by instructing his representative at the World Trade Organisation to be a “rejectionist” negotiator, writes Bhagwati, a professor of law and economics at Columbia University. He compounded the folly by instead floating the trans-Pacific Trade Initiative that is conceived in a spirit of confronting China rather than promoting trade, and is also a cynical surrender to self-seeking Washington lobbies that would have made John Kenneth Galbraith blush. Mr Obama is wet behind the ears on outsourcing, and his surrender to the “manufactures fetish” is a disaster.
Weekend headlines from the FT and other UK media:* From The FT,- Iran ready to cut Europe’s oil at once- Facebook to file IPO listing details next week- RBS Chairman Sir Philip Hampton turned down £1.4m bonus before Stephen Hester was awarded £1m- Pfizer enters talks to sell Sandwich R&D site- ITV appeals Box Clever fund order- Osborne clears way for more financial security
Around exam time at university, the conversation always seemed to fluctuate between points of revision, questions that might be asked, and what the meaning of life actually is. “Exams aren’t a test of your real ability,” you’d tell a friend who was almost certainly doomed. For those who graduate and go to work in investment banks, the yearly cycle of reflection about the meaning of it all moves from beginning of the summer to the beginning of the year — about the time that bonuses are paid out.
RBS has sought to defuse mounting political and public pressure in awarding chief executive Stephen Hester a bonus of just under £1m, less than half the amount he received for 2010, reports the FT. The controversy over the size of Mr Hester’s payout had reached fever pitch in recent weeks, as the state-owned bank announced plans to slash more than 4,000 jobs and shut down large chunks of its investment banking business following dismal results. But the political furore may only just be beginning. Jeremy Browne, a Liberal Democrat foreign office minister, last night reflected public anger on BBC’s Question Time when he said Mr Hester had a “moral duty” to waive the bonus, in a sign of coalition splits on the issue. As with all share awards, the potential value of the award will fluctuate with the bank’s share price. RBS shares need rise only slightly to push the value of the award over Mr Cameron’s supposed line in the sand of £1m, pay experts noted. Mr Hester’s total remuneration for the year could be worth £7m, the Telegraph says.
Credit Suisse is to pay employee bonuses with a structured note backed by derivatives that bolsters the Swiss bank’s balance sheet and further cuts the amount of cash as a component of bankers’ pay, reports the FT. Brady Dougan, chief executive, told staff: “It is a very effective risk-reduction measure and the right thing to do in the current environment. It provides a healthy coupon, provides a long-term incentive, and it helps the firm achieve its strategic goals.” Credit Suisse used a similar structure at the height of the crisis in 2008, paying bonuses from a $5bn pool of collateralised debt obligations. Those payments have performed extremely well, with a 70 per cent increase in value up to today, Mr Dougan’s memo said. In addition to reducing the cash paid to bankers, the use of riskier assets in bonuses improves capital ratios.