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Mar 7, 2009

FT.COM - FINANCIAL TIMES "Merril Lynch probes $400m trader loss"

Merrill Lynch probes $400m trader loss


Merrill Lynch probes $400m trader loss
By Adrian Cox and Peter Garnham in London and Greg Farrell in New York
Published: March 6 2009 14:24 Last updated: March 7 2009 00:55
A
Merrill Lynch currency trader has been suspended after racking up more than $400m in undisclosed losses in recent months, raising further questions about the financial health of the investment bank bought by Bank of America last September.
Merrill is poring over the books of Alexis Stenfors, a London currency trader, who was suspended after Norwegian and Swedish currency trades went wrong, according to people familiar with the situation. Merrill is in talks with UK regulators after uncovering what it called a trading “irregularity” in London



A Merrill Lynch currency trader has been suspended after racking up more than $400m in undisclosed losses in recent months, raising further questions about the financial health of the investment bank bought by Bank of America last September.
Merrill is poring over the books of Alexis Stenfors, a London currency trader, who was suspended after Norwegian and Swedish currency trades went wrong, according to people familiar with the situation. Merrill is in talks with UK regulators after uncovering what it called a trading “irregularity” in London.
EDITOR’S CHOICE
BofA accused of interfering with bonus probe - Mar-07
Senior banker to leave Merrill Lynch - Mar-07
In depth: US banks - Jan-14
The trading losses are another blow to the once mighty Wall Street firm that made a $27.6bn overall loss last year and was forced to sell to Bank of America to avoid bankruptcy.
“During a recent evaluation of certain positions, we discovered an irregularity,” the bank said in a statement on Friday without giving details.
“We informed regulators immediately and are working closely with authorities to thoroughly investigate the matter.”
It added: “Senior managers of the business are focused on the issue and believe the risks surrounding possible losses are under control.”
The New York Times reported the investigation on Friday and said that Mr Stenfors had reported a personal trading profit of $120m for 2008.
Mr Stenfors could not be reached for comment and his lawyer’s office directed calls to Merrill. The New York Times said he had told the newspaper the matter was a “misunderstanding” and that his lawyer had said he was co-operating with the investigation.
The trading loss of $400m would cut into, but not erase, the profits of Merrill’s rates and currency operations, headed by David Gu, in London. Mr Gu’s operations are believed to have generated several billion dollars in profits last year.
Details of the loss emerged as Andrew Cuomo, New York attorney-general, accused BofA of interfering with his investigation into the payment of bonuses at Merrill Lynch in December, according to a court filing.
In the filing, Mr Cuomo said BofA was refusing to comply with a subpoena requiring the bank to provide him with a list of the Merrill employees who received multi-million dollar bonuses in December.
Copyright The Financial Times Limited 2009

Forbes.com Alerts

Analysis: Obama recovery plans raising questions

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GATA Dispatches "Financial Times only pretends to report on gold market"

Financial Times only pretends to report on gold market


Submitted by cpowell on 11:39AM ET Saturday, March 7, 2009. Section: Daily Dispatches 2:36p ET Saturday, March 7, 2009Dear Friend of GATA and Gold:Friday's Financial Times story by Javier Blas about the prospects for renewal of the central bank gold sales agreement, appended here, seems to go out of its way to avoid reporting anything worthwhile, even after advertising the reporter's connections to insiders. Indeed, maybe those connections are why the story avoids doing any real journalism.While the story purports to be about central bank gold sales, it undertakes no examination of why central banks would want to sell gold and whether such sales might be meant as intervention in various markets.The story quotes unidentified "traders and officials familiar with central bank thinking" but doesn't wonder why central banks should express their views only to certain traders and not others, as if this isn't grotesque favoritism bordering on insider trading.The story quotes without challenge another unidentified official as saying "no one wants to disrupt another market," as if market intervention by central banks isn't happening hourly now and is not, by definition, disruption.The story says central banks are "likely to provide themselves with plenty of room for manoeuvre, with a relatively high ceiling for sales," but declines to explain the purpose of such "manoeuvres."This negligent and even dishonest approach characterizes so much of Financial Times reporting generally that the paper has to be considered more an agent of central bank propaganda and disinformation than a newspaper -- which is not to say that it shouldn't be read, just to note how it should be read.CHRIS POWELL, Secretary/TreasurerGold Anti-Trust Action Committee Inc.* * *Central Banks Take a Fresh Look at Bullion Sales PactBy Javier BlasFinancial Times, LondonFriday, March 6, 2009http://www.ft.com/cms/s/0/29f73494-09f0-11de-add8-0000779fd2ac.htmlWhen Europe's central banks told the gold market five years ago that they would renew their pact to cap their bullion sales, the sector breathed a sigh of relief. Today gold prices are double their 2004 level and central bank sales far smaller, but the market is still hoping that the Central Bank Gold Agreement will be renewed again.The current CBGA, which caps sales at 500 tonnes a year, expires in late September, but the banks have in the past announced the terms of a new agreement in March and there is an expectation in the market that a statement could come soon.Traders and officials familiar with central bank thinking say that a new CBGA is likely, even if some central bankers consider that the market no longer needs the guidance of the pact. Gold prices have recently been above $1,000 an ounce and none of the banks is thought to have plans for major sales.The central banks are, in any case, aware that in the current climate of financial uncertainty, reassuring markets -- even the gold one -- is positive. "No one wants to disrupt another market," says an official familiar with the conversations.Another reason for a third CBGA is the likelihood that the International Monetary Fund will sell about 400 tonnes of gold in the next five years, as the body seeks to raise funds. The IMF is unlikely to be a signatory of the pact, but more likely to maintain a "loose association" with it, the official says.What the central banks do not want, however, is to tie their hands: Even if they renew the pact, something that is still unclear, they are also likely to provide themselves with plenty of room for manoeuvre, with a relatively high ceiling for sales. The current limit is 500 tonnes -- above the 400 tonnes cap of the first CBGA of 1999-2004 -- but banks are likely to sell far less this year. Because of those lower sales, many in the industry consider the ceiling less relevant.European central banks, including the ECB, the members of the eurozone, and the central banks of Switzerland and Sweden, have sold just 55 tonnes of gold since last September, according to the industry-backed World Gold Council. In the year to September 2008 they sold 358 tonnes, the lowest level since 1999.The origins of the CBGA go back a decade, when central banks decided to dispose of some of their non-yielding bullion reserves, but wanted to avoid a further drop in prices.The Bank of England's unilateral announcement in early 1999 that it was selling part of its reserves helped gold prices sink to a 20-year low. They were trading at just above $250 an ounce by the summer of that year. After the pact to cap sales in September 1999, prices surged 30 per cent in two weeks, to more than $320 an ounce. Yesterday spot gold in London was trading at $910 an ounce.
* * * Join GATA here:Bahamas Investment ConferenceThursday-Friday, March 26-27, 2009Atlantis Resort and Casinohttp://www.bahamasinvestmentconference.com/signup.html* * *Help keep GATA goingGATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.gata.org/.Contact GATAinfo@gata.orgGold Anti-Trust Action Committee7 Villa Louisa RoadManchester, Connecticut06043-7541 USA
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GATA Dispatches "James Saft: Only way out is to inflate and default"

James Saft: Only way out is to inflate and default

Submitted by cpowell on 10:51AM ET Saturday, March 7, 2009. Section: Daily Dispatches Let Sleeping Shadow Banking Systems LieBy James SaftReutersFriday, March 6, 2009http://blogs.reuters.com/great-debate/2009/03/06/let-sleeping-shadow-ban...Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution -- debt destruction and inflation.The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.Even more, they use the same structures that worked out so poorly -- highly levered hedge fund like vehicles and securitisation -- but this time substitute government funding and leaves the taxpayer as main bag-holder if the deals go bad.With up to $1 trillion, the TALF is designed to restart parts of the securitization market such as auto, business and student loans. This followed the plan to avoid foreclosures and further house price falls by cutting borrowers, many of whom made silly borrowing decisions, a break on their interest rates.Next up: a public-private plan to buy up toxic legacy assets from banks, which should be detailed in the next two weeks. Again, that program will provide government money at sub-market rates to investors to entice them to pay more than the market price for assets that would otherwise sink many banks.The higher the leverage supplied the higher the price hedge funds and other investors will pay for doubtful assets. After all, like a Florida condo flipper, if the asset declines in value they can just walk away and throw the metaphorical keys at the Federal Reserve and U.S. Treasury."We want to make sure that the prices of the assets that are purchased reflect true market values that are not overpaid. So the idea between the public-private partnership would be that there would be both public and private money involved and that the pricing decisions would be made by private-sector specialists, not by public bureaucrats," Fed Chairman Ben Bernanke told Congress on Tuesday."If the government is willing to provide longer-term lending, or leverage, there are many investors who presumably would be willing to buy under those circumstances who are unwilling to buy without the credit, without the lending they need to finance those purchases."I simply cannot reconcile the first part of that statement with the second. What do we mean by "market values" in a situation where the government provides financing not otherwise available? Vary the leverage and achieve any price you like.... Living in a cash-flow worldThe TALF is slightly more defensible. There is a market failure when reasonably good credits can't raise money under any circumstances. But before we try to restart securitization and the shadow banking system, let's recall what the problems were in the first place. For one thing the TALF relies upon imprimaturs from the credit ratings agencies which have been found wanting. That's not yet changed, but government participation simply papers it over.Even the obsession with banks almost seems beside the point."You won't revive the economy through debt," said Albert Edwards, global strategist in London at Societe Generale."Banks aren't the problem. They are a symptom of the problem."The problem is that asset prices are out of line with their ability to generate cash flow. Falling prices do impose a risk premium but the real issue, for stocks or for houses, is that their prices are not in the proper proportion to the debts they carry and to their ability to generate cash. That happened in part because of the shadow banking system and was a mistake.So what's the implication? Some debt will be repaid but a lot will just be destroyed via default. An organized writedown seems impossible. That will be a huge problem for the banking system and the country, and you can understand why the government does not wish to meet it head-on.University of Oregon economics professor Tim Duy thinks the U.S. will ultimately end its romance with financial engineering and get down to working through unsupportable debt the old-fashioned way -- inflation."And therein lies the key to predicting when the Fed shifts gears: when Bernanke abandons the notion that proper credit market functioning is alone sufficient to restore housing values (asset values more generally) to their former glory and support acceptable growth," Duy writes."At that point, the Fed will again consider the wisdom of what it has defined as quantitative easing, an expansion of the balance sheet via a deliberate expansion of liabilities."That is a dangerous and difficult-to-govern process, and the U.S. shows every sign of being willing to pay a very high price to avoid it.But ultimately the price will be too great and we will have to inflate and default in some mixture.----James Saft is a columnist for Reuters.
* * * Join GATA here:Bahamas Investment ConferenceAtlantis Resort and CasinoThursday-Friday, March 26-27, 2009
http://www.bahamasinvestmentconference.com/signup.html* * *Help keep GATA goingGATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.gata.org/.Contact GATAinfo@gata.orgGold Anti-Trust Action Committee7 Villa Louisa RoadManchester, Connecticut06043-7541 USA
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GATA Dispatches "Local banks angry they're paying for Wall Street's greed

Local banks angry they're paying for Wall Street's greed

Submitted by cpowell on 10:28AM ET Saturday, March 7, 2009. Section: Daily Dispatches By Linda ShenBloomberg NewsFriday, March 6, 2009http://www.bloomberg.com/apps/news?pid=20601109&sid=anmrn4H8hXfw&refer=e...TCF Financial Corp., the Wayzata, Minnesota-based bank that never made a subprime loan and hasn't lost money since 1995, is asking why it should help clean up the mess made by Wall Street. "I'm kind of bitter," said William Cooper, chief executive officer of the 448-branch bank, adding that over the years TCF has invested about $1 billion in the Federal Deposit Insurance Corp.'s fund that guarantees bank deposits. "We pay for the excesses of our competitor over and over again." TCF is among more than 8,300 banks and lenders insured by the FDIC facing increased fees and a one-time "emergency" charge designed to raise $27 billion this year for the agency's depleted coffers. Community banks may take a 10 percent to 20 percent hit to 2009 earnings even if the FDIC halves that charge, said Camden Fine, president of the Independent Community Bankers of America. The ICBA and its 5,000 mostly locally owned member banks are rebelling against the costs, as well as curbs on pay and business practices imposed on recipients of U.S. capital after public outrage over bonuses and perks. Community banks rely more on deposit funding, so they suffer a "much heavier burden" as a result of deposit insurance proportionate to size than peers such as New York-based Citigroup Inc. and Wells Fargo & Co., with its headquarters in San Francisco, Fine said. ... 'Incompetence and Greed'Community lenders "are feeling like they are paying for the incompetence and greed of Wall Street," Fine said this week in an interview. The ICBA encouraged its members to flood the FDIC with letters protesting the emergency fee. Fine said he's received more than 1,000 e-mails and telephone messages from angry bankers since the FDIC approved the fee on Feb. 27. U.S. Senate Banking Committee Chairman Christopher Dodd said he plans to introduce legislation that would temporarily raise the FDIC's $30 billion borrowing authority with the Treasury to $500 billion, with a permanent increase to $100 billion. The change may give regulators room to reduce the emergency fee, FDIC Chairman Sheila Bair said. U.S. Representative Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said on March 5 that there is legitimate concern about FDIC fees among community banks, which the ICBA defines as "locally owned" with assets ranging from less than $10 million to "multibillion dollar institutions." ... Lower Assessment "A number of members have been concerned about the increased assessment that's hit community banks from the FDIC in part because of failures to which they did not contribute," Frank said yesterday on the House floor. "So voting for this bill will be an important step to lowering the assessment on community banks." The House approved a measure yesterday increasing the borrowing authority to $100 billion and making permanent the $250,000 deposit-insurance limit in the financial bailout measure enacted in October. Without the fees, the FDIC fund might become insolvent because of a surge in bank failures, Bair said in a March 2 letter to bankers Sixteen banks have failed so far in 2009 after 25 were seized last year, most of them with less than $1 billion in assets. FDIC-insured banks lost $26.2 billion in the fourth quarter, the first loss for a three-month period since 1990. U.S. banks and other financial companies have reported about $800 billion in writedowns and credit losses since 2007 in the worst financial crisis since the Great Depression. ... 'Quite Angry' The FDIC fee increases are "not going to make or break a community bank, but they are having to suffer as a result, and they are quite angry," said Josh Siegel, co-founder of StoneCastle Partners LLC, which manages about $2.3 billion in assets and invests in more than 220 community banks. "It takes a bite out of earnings," said Joseph Conners, chief financial officer of Beneficial Mutual Bancorp, the largest lender based in Philadelphia, with $2.7 billion in deposits. Conners said halving the fee would help. "It's better than paying a triple assessment, but it's still a double assessment." FDIC assessments are set per $100 in deposits and not weighted by bank size. That's a formula that could be modified to shift the cost burden to the largest banks "that caused this train wreck," Fine said. TCF never "securitized anything, we never engaged in any of those unscrupulous activities," said Cooper, 65. The bank pays a 25-cent quarterly dividend and applied to return $361.2 million in U.S. funds. ... TARP Stigma More than 500 banks, insurers, and credit-card companies applied for money from the government's Troubled Asset Relief Program, which has distributed more than $290 billion to companies including Citigroup and American Express Co. While regulators encouraged both ailing and healthy banks to take TARP money, losses by big banks and pressure to cut dividends, pay and perks have stigmatized the program for others, Cooper said. "The regulators wrongly suggested we take it," Cooper said. "Everybody who took the TARP money now is a crook and an evil character." Lafayette, Louisiana-based Iberiabank Corp. last month became the first lender to apply to return the money, saying that TARP placed it at "an unacceptable competitive disadvantage." "Unfortunately, healthy banks, such as ours, have been categorized with troubled banks," Iberiabank CEO Daryl Byrd said in an e-mailed statement.
* * * Join GATA here:Bahamas Investment ConferenceAtlantis Resort and CasinoThursday-Friday, March 26-27, 2009
http://www.bahamasinvestmentconference.com/signup.html* * *Help keep GATA goingGATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.gata.org/.Contact GATAinfo@gata.orgGold Anti-Trust Action Committee7 Villa Louisa RoadManchester, Connecticut06043-7541 USA
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GATA Dispatches "AIG bailout is really for other big Banks, like Goldman"

AIG bailout is really for other big banks, like Goldman

Submitted by cpowell on 09:56AM ET Saturday, March 7, 2009. Section: Daily Dispatches Top U.S., European Banks Got $50 Billion in AIG Aid By Serena Ng and Carrick MollenkampThe Wall Street JournalSaturday, March 7, 2009http://online.wsj.com/article/SB123638394500958141.htmlThe beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Societe Generale SA.More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC, and HSBC Holdings PLC, according to the confidential document.The names of all of AIG's derivative counterparties and the money they have received from taxpayers still isn't known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.... Lawmakers Want NamesThe AIG bailout has become a political hot potato as the risk of losses to U.S. taxpayers rises. This past week legislators demanded that the Federal Reserve disclose names of financial firms that have received money from AIG, which Fed officials have described as too systemically important in the financial system to be allowed to fail.In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG.But Mr. Kohn told lawmakers he would take their requests to his colleagues. The Fed, through a new committee led by Mr. Kohn to discuss transparency concerns, is now weighing whether to disclose more details about the AIG transactions.The Fed rescued AIG in September with an $85 billion credit line when investment losses and collateral demands from banks threatened to send the firm into bankruptcy court. A bankruptcy filing would have caused losses and problems for financial institutions and policyholders globally that were relying on AIG to insure them against losses.Since September, the government has had to extend more aid to AIG as its woes have deepened; the rescue package now has swelled to more than $173 billion.The government's rescue of AIG helped prevent its counterparties from incurring immediate losses on mortgage-backed securities and other assets they had insured through AIG. The bailout provided AIG with cash to pay the banks collateral on the money-losing trades; it also bought out underlying mortgage-linked securities, many of which are currently worth less than half their original value.Banks and other financial companies were trading partners of AIG's financial-products unit, which operated more like a Wall Street trading firm than a conservative insurer. This AIG unit sold credit-default swaps, which acted like insurance on complex securities backed by mortgages. When the securities plunged in value last year, AIG was forced to post billions of dollars in collateral to counterparties to back up its promises to insure them against losses.... More ProblemsNow, other problems are popping up for AIG. The insurer generated a sizable business helping European banks lower the amount of regulatory capital required to cushion against losses on pools of assets such as mortgages and corporate debt. It did this by writing swaps that effectively insured those assets.Values of some of those assets are declining too, forcing AIG to also post collateral against those positions. And if the portfolios incur losses, AIG will have to compensate the banks.AIG had seen this business as a relatively safe bet for the company and its investors. The structures were designed to allow European banks to shuck aside high capital costs. A change in capital rules has meant that the AIG protection no longer meets regulatory requirements.The concern has been that if AIG defaulted, banks that made use of the insurer's business to reduce their regulatory capital, most of which were headquartered in Europe, would have been forced to bring $300 billion of assets back onto their balance sheets, according to a Merrill report.------ Liam Pleven and Sudeep Reddy contributed to this article.
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GATA Dispatches "Russian TV interviews GATA director on gold supression

Russian TV interviews GATA director on gold suppression

Submitted by cpowell on 08:45PM ET Friday, March 6, 2009. Section: Daily Dispatches By Adrian DouglasFriday, March 6, 2009I am excited to report on a GATA bombshell. Two weeks ago I was contacted by Marina Portnaya of Russia Today TV. This is an international 24/7 English-language news channel. They are broadcast in more than a hundred countries and are broadcast in the New York area on Channel 135 on Time Warner Cable TV. Apparently Russia Today is also broadcast in Washington and San Francisco. You can check out their Internet site:http://www.russiatoday.ru Marina asked to interview me on camera about the surge in gold demand, my predictions of a bond market collapse, and my thoughts on the Obama administration's stimulus package. This seemed like a big opportunity for GATA so I re-organized my schedule so that I could go to Russia Today's New York studio for an interview.The interview was filmed on Thursday. We had planned 45 minutes together but the cameras were rolling for almost 90 minutes. Marina was enthralled and shocked by what I disclosed to her, the biggest Ponzi scheme in history. I had sent her several pages of background information before the interview and would not have been surprised if I had been classified as "too hot to handle" and the interview was canceled. It was not. When I met Marina Portnaya I quickly understood that despite being young she is a journalist of the old school. She is passionate about reporting facts and truthfully. She is a true patriot deeply concerned about the way the United States has been brought to its knees by a powerful elite. We got into how the manipulation of the gold market is at the center of the destruction of the financial system -- how switching off the fire alarm of gold allowed interest rates to be artificially low and the dollar M3 money supply to be promiscuously increased without most people noticing that there was anything wrong. This allowed the United States to live beyond its means for so long and to abuse its responsibility of managing the world's reserve currency. I don't know how much will be left on the cutting room floor but taking any 10 minutes out of the 90 minutes of videotape will be a coup for GATA and a huge exposure of the scam the gold cartel has perpetrated on the world.The interview will air next week. Marina was very pleased with the interview and said that her producer will love it. I hope so.I will notify you when I get confirmation of when the interview will be aired. I have also been promised a DVD of the interview.Isn't it ironic that the spirit of free press is not with U.S. television networks but with those of Russia? How the world has changed!-----Adrian Douglas is an international consultant on oil contracting, editor of the Market Force Analysis letter (http://marketforceanalysis.com/), and a member of GATA's Board of Directors.
* * * Help keep GATA goingGATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.gata.org/.Contact GATAinfo@gata.orgGold Anti-Trust Action Committee7 Villa Louisa RoadManchester, Connecticut06043-7541 USA
www.gata.org