Daily Archives: January 7, 2016

Goldman, JPMorgan, Glencore defeat U.S. lawsuit over zinc prices

A U.S. judge on Thursday dismissed a private antitrust lawsuit in which zinc purchasers accused affiliates of Goldman Sachs Group Inc (>> Goldman Sachs Group Inc), JPMorgan Chase & Co (>> JPMorgan Chase & Co.)and Glencore Plc (>> Glencore PLC) of conspiring to drive up the metal’s price.

In an 87-page decision, U.S. District Judge Katherine Forrest in Manhattan said purchasers failed to show that the defendants artificially inflated zinc prices by violating the Sherman Act, a federal antitrust law.

Read on.

American Banker op-ed: Bernie Sanders’ Bank Breakup Plan Is Simply Cuckoo

Sounds like Wall Street analyst are getting nervous of Bernie Sanders’ speech and stance on Wall Street reform…

American Banker:

WASHINGTON – During his speech this week on his plan to end “too big to fail,” Sen. Bernie Sanders worked his followers into a frenzy, leaving them chanting “break them up, break them up” by the end.

And no wonder. The Vermont lawmaker excoriated Wall Street, specifically blaming large commercial banks for the financial crisis, and making it sound relatively easy to dismantle them if he wins office.

“Within the first 100 days of my administration, I will require the secretary of the Treasury Department to establish a ‘too big to fail’ list of commercial banks, shadow banks and insurance companies whose failure would pose a catastrophic risk to the United States economy without a taxpayer bailout,” Sanders said. “Within one year, my administration will break these institutions up so that they no longer pose a grave threat to the economy as authorized under Section 121 of the Dodd-Frank Act.”

In theory, this sounds like a solid plan. It doesn’t require congressional approval, since Dodd-Frank is already law, and the statute gives the Fed broad authority to force risky institutions to divest themselves of assets or off-balance-sheet items.

But in practice, this is cuckoo. There is more likelihood that I will be eaten by a great white shark while eating lunch at my desk than of this plan ever being enacted. Here’s why:

Let’s take as a given that Sanders is elected president. This in itself is an improbable hurdle for Sanders to overcome, given that he is polling behind Democratic presidential front-runner Hillary Clinton and would likely lose to a GOP candidate even if he did prevail in a primary contest. But 2016 is a weird election season, and stranger things have probably happened (though none immediately spring to mind).

So Sanders takes office in January 2017 and has his Treasury secretary, as promised, draw up a list of “too big to fail” banks and nonbanks, which presumably include institutions like JPMorgan Chase, Citigroup and Bank of America. And then he sets about breaking them up.

Here’s the first problem. Section 121 of Dodd-Frank requires a vote from the Fed that such institutions pose a “grave threat to the financial stability of the United States,” and a further vote from two-thirds of the Financial Stability Oversight Council. That means Sanders needs four of the seven Fed governors to go along with this plan, and seven of the 10 voting FSOC members to approve it. And that is just not going to happen.

Wilmington Trust Indicted For Allegedly Concealing Bad Loans

Interesting that the corporation was indicted for concealing bad loans but not the big banks nor the big bank execs..

Law360, Wilmington (January 7, 2016, 1:33 PM ET) — Wilmington Trust Corp. was indicted on Thursday on federal charges that it hid hundreds of millions of dollars’ worth of overdue loans from investors and authorities, joining four of its former executives who are already facing criminal charges.

Wilmington Trust, indicted in Delaware federal court Jan. 7, joins four former executives who are also facing charges for misreporting loans. (Credit: AP) Prosecutors say the bank should have reported matured loans as overdue but used manual overrides called “waivers” to prevent them from being included in the…

Source: Law360

The Disappearing Derivatives … Mystery Solved?

With everything going on with Wall Street you may have missed a Reuters article by Charles Levinson that talked of hundreds of billions of dollars of trades by U.S. banks which went missing early last year.
Has the mystery of these disappearing derivatives been solved? Well, maybe.
It seems the trades had not really disappeared, they’d just been resettled, so to speak, thanks to a loophole that had been handed down in 2013 by the Commodity Futures Trading Commission( CFTC). Thanks to the changing of a few key words in swaps contracts, that loophole allowed for trades to be shifted to Europe where the regulations governing trades are by far more lenient than in the U.S., and largely outside of many of the restrictions mandated by Dodd-Frank.
This loophole impacted some of the most widely traded financial derivatives in the world – incidentally, some of the same instruments that helped bring down the economy in 2008 and which eventually led to government bailouts of the big banks  involved in this roulette game.
Regards,
Richard

Chris Hayes discusses with Barney Frank whether or not breaking up the big banks

And former Congressman Barney Frank disagree with some of Bernie Sanders’ stance of breaking up the banks and the Glass-Steagall and defended Hillary Clinton’ Wall Street reform plan. But, what I find interesting from Chris Hayes’ interview with Frank is that Congressman Frank stated that Lehman Brothers was an investment banks and Glass-Steagall would not have helped Lehman.

Yes, Lehman Brothers was an investment firm but what Congressman Frank left out from the interview is that Lehman Brothers had a subprime mortgage company called BNC Mortgage and Aurora Loan Services LLC:

Lehman Brothers took an ownership stake in BNC in 2000 and acquired the lender in 2003. Founded in 1995, BNC Mortgage had its initial public offering in 1998. Two years later, BNCM Acquisition, a group including the company’s top managers, took the company private. In 2004, one of its partial owners, Lehman Brothers, bought it. In addition to owning subprime lenders, Lehman was also a top underwriter of subprime mortgages for other businesses.

………………..

  • Parent/subsidiary companies: BNC Mortgage Inc. was the primary subprime lending subsidiary for Lehman. Others included Finance America LLC (which merged with BNC in 2005) and Aurora Loan Services LLC (acquired in 1997).

And this is why the Glass-Steagall act was repealed to allow banks and investment firms to intertwine products and services together rather become separated. Unfortunately, Lehman wasn’t allow to be a bank holding company:

Timothy Geithner, then New York Fed president, now Treasury secretary, didn’t like the idea of letting an investment bank become a bank holding company — so he said no.

Yet, in 2008, Federal Reserve allowed Morgan Stanley and Goldman Sachs to become bank holding company:

The Federal Reserve, in an attempt to prevent the crisis on Wall Street from infecting its two premier institutions, took the extraordinary measure on Sunday night of agreeing to convert investment banks Morgan Stanley and Goldman Sachs Group Inc.into traditional bank holding companies.

And keep in mind that Morgan Stanley had a subprime mortgage, Saxon Mortgage and Goldman Sachs had a subprime mortgage, Litton Loans.

So, yes, Congressman Barney Frank, Glass-Steagall law needs to be reinstated to end the merging of investment and commercial banking activities.

Here Chris Hayes’ interview with Barney Frank:

on.msnbc.com/1RbeGZB

 

China’s Stock Traders Go Home After 29 Minutes: Chart

china stock

 

Bloomberg:

China’s stock exchanges closed at 9:59 a.m. local time, just 29 minutes after markets opened, as the CSI 300 Index fell more than 7 percent. Trading was halted for half that time after a 5 percent drop triggered an earlier suspension. China’s markets are normally open from 9:30 a.m. to 3 p.m., with a 90 minute break in the middle.