NEWS,21.12.2012

Obama nominates Kerry for Secretary of State

President Barack Obama has announced the nomination of US Senator John Kerry to replace Hillary Clinton as Secretary of State, calling him the "perfect choice" to guide American diplomacy in the years ahead.Obama settled on Kerry, chairman of the Senate Foreign Relations Committee and the 2004 Democratic presidential candidate, after UN Ambassador Susan Rice withdrew from consideration last week.He said he expected quick Senate confirmation of the Massachusetts lawmaker."As we turn the page on a decade of war, he understands that we have to harness all elements of American power," Obama said at the White House.Even as Obama put in place one important piece of his revamped national security team, he held off on naming a new defense secretary.The delay comes in the face of a growing backlash from critics of former Republican Senator Chuck Hagel, considered a leading candidate to replace Leon Panetta at the Pentagon.Kerry, 69, a stalwart Obama supporter known to have long coveted the job of America's top diplomat, will take over from Clinton, who has been consistently rated as the most popular member of the president's cabinet.But he will also have to pick up the pieces after a scathing official inquiry found serious security lapses by the State Department in the deadly September 11 attack on the US consulate in Benghazi, Libya a report that has tarnished the final days of Clinton's tenure.Kerry's nomination follows a political firestorm that engulfed Rice, seen as the early favorite for the State job, spearheaded by Republicans fiercely critical of her role in the administration's early explanations for the Benghazi assault.Rice, defended by Obama, said last Thursday she was withdrawing her name from consideration to avoid a potentially lengthy and disruptive confirmation process.Kerry, known nationally through his presidential run and for his role as a Democratic power broker in the Senate, offers no such challenges.The selection of Kerry sets a pragmatic tone as Obama begins reshaping his national security team, which will include a new CIA director.Kerry will be the leading Cabinet member charged with tackling a range of thorny global challenges, including Middle East upheaval, Iran's nuclear standoff with the West and winding down the war in Afghanistan all at a time of fiscal austerity at home. 

US economy showing 'surprising' signs of resilience

The US economy showed surprising signs of resilience in November despite the approach of the so-called fiscal cliff, as consumer spending rose by the most in three years and a gauge of business investment jumped. Consumer spending rose 0.6% when adjusted for inflation, while new factory orders for capital goods outside the defence and aerospace sectorsa proxy for business spending plans jumped 2.7%, the Commerce Department said today.Economists had pinned earlier weakness in investment plans on worries lawmakers and the White House might fail to strike a deal to avoid the brunt of tax hikes and government spending cuts scheduled to begin in January.They also worried consumers would hold back as the end-of-the-year deadline approached with both parties far apart on how to avoid the potential hit to the economy. But today's data suggests both consumers and businesses had mostly shrugged off the cliff, at least in November."It appears that the looming fiscal cliff hasn't been nearly as disruptive as we had feared," said Paul Ashworth, an economist at Capital Economics in Toronto. Still, another report provided ample reason for caution as US consumer sentiment slumped in December, with households apparently rattled by on-going negotiations to lessen the fiscal tightening that could easily trigger a recession next year. The Thomson Reuters/University of Michigan's final index of consumer sentiment in December tumbled more than expected to 72.9 from 82.7 a month before. US stocks fell sharply after a Republican proposal for averting the fiscal cliff was abandoned late yesterday, eroding optimism that a deal could be reached quickly. At the same time, US government debt prices rallied and the dollar gained ground as investors sought a safe haven. Economists still expect economic growth to cool in the fourth quarter as companies slow the pace at which they have been re-stocking their shelves, but the data suggests consumers are offsetting some of that drag. Consumer spending is on track to grow at a 2.2% annual rate in the fourth quarter, faster than during the prior three months, said Michael Feroli, an economist at JPMorgan in New York. Forecasting firm Macroeconomic Advisers raised its forecast for fourth-quarter economic growth by four tenths of a point to a 1.4% annual rate. In the third quarter, the economy expanded at a 3.1% rate. "The economy is holding in here at the end of the year despite the concerns about the fiscal cliff," said Gary Thayer, an economic strategist at Wells Fargo Advisors in St. Louis. Those concerns are not going away. In November, many analysts on Wall Street said they expected Washington would largely avert the fiscal cliff, and optimism had grown over the last week that a deal was within reach. Since Wednesday, however, negotiations have fallen into disarray. If Congress and the White House do not reach a deal in time, taxes will go up for all Americans beginning in January and the government will cut spending on a host of programs. Running off the fiscal cliff would slash the nation's trillion-dollar budget deficit nearly in half in just one year. The impact would only come gradually, but economists expect it would be enough to knock the country into recession in the first half of the year. So far, uncertainty over the talks appears to have had only a limited impact on the economy. New orders for durable goods, items meant to last three years or more, rose a greater-than-expected 0.7% in November due to gains in machinery, fabricated metal products, and computer and electronic products. Those increases were offset by a decline in volatile aircraft orders. The report also showed a rise in shipments, brightening the prospects for fourth-quarter economic growth. Shipments of non-defence capital goods orders excluding aircraft, used to calculate equipment and software spending in the government's measures of gross domestic product, gained 1.8%, after rising by a softer 0.6% in October.

Brazil to privatise airports

Brazilian President Dilma Rousseff on Thursday announced that airports in Rio and Belo Horizonte, two host cities for the 2014 World Cup, will be privatized during a September 2013 auction."International experience shows that airports are good business," Rousseff said, recalling that last February, 20-year concessions were granted to manage three airports, two in Sao Paulo and one in Brasilia.Brazil, a continent-sized country of 194 million people, is seeking to upgrade its creaking infrastructure ahead of the 2014 World Cup.The previously granted concessions, valued at a total of $14bn, will upgrade congested terminals in preparation for handling the tens of thousands of tourists expected for the World Cup. Rousseff said Thursday that any private entities participating in the September auctions will have to include at least one international partner "with experience in running an airport handling at least 35 million passengers a year."This operator must have "at least a 25% stake" in the consortium.Companies with majority stakes in operations of other airports will not be allowed to take part in next year's auction. Rousseff said Brazil was now a "middle class country" in which more and more people will fly, including many of the "40 million Brazilians lifted out of poverty over the past decade".Civil Aviation Minister Wagner Bittencourt said the government hopes to raise $5.7bn through the concessions: $3.3bn for Rio's Tom Jobim airport and $2.4bn for Belo Horizonte's Confins airport.Brazil has announced huge investments in airport, highway and rail projects in partnership with the private sector to modernize its creaking infrastructure and jumpstart a sluggish economy expected to grow a mere one percent this year.Bittencourt said that in an initial phase, the government plans to invest $3.6bn to modernize 270 small airports. The longer term objective is to upgrade 689 public airports, he added.Experts meanwhile warn that the aviation sector has to contend with higher taxes and fuel costs, inadequate infrastructure and a leveling-off of demand."2012 can be seen as the worst year for commercial civil aviation," Paulo Kakinoff, president of Gol, the country's second biggest airline, said last week."This is due to a series of factors: a nearly 60 percent hike in fuel costs, the 10% depreciation of the real in relation to the dollar, higher taxes and new taxes."

NEWS,16.09.2012

JPMorgan, Bank Of America Probed Over Money-Laundering Allegations: New York Times

Regulators are investigating whether several major U.S. banks failed to monitor transactions properly, allowing criminals to launder money, according to a New York Times story. The newspaper cited officials who it said spoke on the condition of anonymity.The Office of the Comptroller of the Currency, the federal agency that oversees the biggest banks, is leading the money-laundering investigation, according to the Times. The report said the OCC could soon take action against JPMorgan Chase & Co., and that it is also investigating Bank of America Corp. Money laundering allows people to make money often obtained illegally appear like it came from another source.The OCC, JPMorgan and Bank of America declined to comment.The financial industry is struggling to mend its public image. Four years after the financial crisis, banks are getting closer scrutiny. And regulators are under pressure to show that they're not missing any questionable activity.This summer, British bank Barclays PLC settled charges that it had manipulated a key global interest rate. Standard Chartered PLC, also based in the U.K., agreed to settle charges that it had improperly processed money for Iran, brought by the New York Department of Financial Services after the bank voluntarily informed regulators that it was reviewing relevant practices. In the spring, JPMorgan surprised shareholders with an unexpected trading loss.If the OCC takes action, it could be similar to a cease-and-desist order that it filed against Citigroup in April. At the time, the OCC said that Citi had deficient internal controls and anti-money laundering procedures. In bank regulation, a cease-and-desist order doesn't mean that a bank has to shut down, but it is a serious sanction that requires a bank to change its practices. Citi had already told the regulator that from 2006 to 2010, it had "failed to adequately monitor" some of its transactions connected to "foreign correspondent banking."The order in April didn't make any new, specific accusations. But it did instruct Citigroup to tighten its rules so it could improve compliance with the Bank Secrecy Act and related regulations. The act requires financial institutions to report suspicious activity and to put rules in place to try to make money laundering impossible for customers.Last year, JPMorgan paid $88 million to settle charges from the Treasury that it had unlawfully processed money for Cuba, Iran, Sudan and Liberia.At the time, JPMorgan said it had had no intent to violate regulations. It pointed out that it oversaw "hundreds of millions of transactions and customer records per day, and annual error rates are a tiny fraction of a percent."It's not expected that banks would be accused of trying to show support for countries like Cuba and Iran. It's more likely that they would be accused of faulty oversight that made any unlawful transactions possible. The industry has maintained that such violations are almost always unintentional.According to the Times, the Justice Department and the Manhattan district attorney's office are also involved. The Manhattan U.S. attorney's office and the Manhattan district attorney's office declined to comment.

 

Iran's Nuclear Timeline

 

Iran is nuclear capable. If Iran's leaders decided they wanted a nuclear bomb, they could build one. They have the material, the technical ability, and likely have a design. They have had these capabilities for at least five years, when they accumulated enough raw material that could be converted into the core of a bomb.But Iran does not have a bomb now. U.S. intelligence officials have high confidence that Iranian leaders have not made the decision to build a bomb. There is much confusion  some of it intentionally spread about how long it would take Iran to build a weapon.An outstanding team of seasoned national security experts has just published a clear, detailed explanation of Iran's nuclear timeline. The report of the Iran Project was endorsed by 34 security leaders, including Brent Scowcroft, Sam Nunn, Gen. Tony Zinni, Adm. James Fallon, Gen. Frank Kearney, Carla Hills, Anne Marie Slaughter, Chuck Hagel, Adm. Joe Sestak, Jessica Mathews, Zbigniew Brezinski, Nicholas Burns and this author.Here is an excerpt from the report (on p. 22) that provides a sound basis for debating what actions should be taken to convince Iran not to build nuclear weapons. This report is intentionally conservative. There may be serious technical problems that make the timeline much longer. I have highlighted in bold key phrases.While there are differences of opinion on this issue, we believe it would be extremely difficult for Iran to hide a nuclear program devoted to weapons development. No monitoring and detection system is failure-proof, but Iran has little reason to be confident that it could get away with creating a secret program to produce fissile material for a weapon.Were Iran to attempt to produce a single bomb's worth of highly enriched uranium (HEU), it would take at least one month (although some experts believe the timeline could be as long as four months or more). It is important to note that while the ability to build a single bomb is a somewhat useful theoretical construct, it has little or no correspondence to how nuclear weapons programs function in the real world.Historically, no country in the nuclear age has sought as its goal to build one nuclear weapon; nor has any country adopted a strategy of building one weapon knowing that as a consequence, its program would be exposed. The timeline for producing a single bomb's worth of HEU is subject to change, depending on the number and type of operational centrifuges available as well as the size of Iran's stockpile of already enriched uranium, particularly 20% enriched uranium. Conservatively, it would take Iran a year or more to build a military-grade weapon, with at least two years or more required to create a nuclear warhead that would be reliably deliverable by a missile.In short, it is likely that the United States would receive some warning and have at least a month to make a decision on action -- military or other. Understanding the difference between the one-month timeline of producing sufficient fissile material in order to produce a weapon, and the two-year timeline of creating a nuclear warhead, is critical when considering the likely success of military action.After a month, the weapons-grade uranium (WGU) could be reduced significantly in size (25 kilograms); if properly encased, it could be easily hidden and would be highly mobile. This would be a very hard target to detect and destroy. While it would take some additional time for Iran to translate the WGU into a meaningful military capability, the ability for the United States or others to launch preventive military strikes would be reduced. In contrast, the facility used to enrich the WGU is immobile and large and therefore an easier and somewhat vulnerable target (unless deeply buried)....The more apparent the decision to make a weapon, the more persuasive the justification for military action would be to the international community, including the United Nations Security Council. While Israel's more limited military capabilities and earlier "red line" create a closing window of opportunity to take military action, the U.S. could afford to wait for its red line to be crossed Iran undertaking a dedicated weapons program before deciding whether to take preventive military action....Given the deepening mutual distrust between the U.S. and Iran; congressional sympathy for Israel's perspective on a nuclear-capable Iran; and the conviction among some parties that Iran has already secretly decided to build a nuclear weapon, we believe the most likely military scenario is one in which preemptive, unilateral action against Iran is initiated by the U.S. and/or Israel, under conditions of some uncertainty about Iran's real intentions.

NEWS,14.07.2012

JPMorgan Traders May Have Hidden Losses, Could Face Criminal Charges

 

JPMorgan Chase & Co said its traders may have deliberately hidden losses that have since climbed to $5.8 billion for the year, in a development that may result in criminal charges against traders at the bank.The losses came from bets on corporate debt now known as the "London Whale" trades made at JPMorgan's Chief Investment Office. Chief Executive Jamie Dimon said that in the worst-case scenario the derivatives trades would lose another $1.7 billion, and that the bank has fixed the CIO problems.Investors cheered the bank for capping losses and taking steps to ensure it avoids similar bad bets in the future. JPMorgan's shares rose nearly 6 percent on Friday.Even with the trading losses, JPMorgan earned nearly $5 billion overall in the second quarter, thanks to its strong performance in areas such as mortgage lending.The trading losses may be mostly over, but with the disclosure that traders may have lied about their losses, regulatory and legal consequences will linger for some time. Blame for the problems at the CIO office may go further up the management chain to some of the most senior executives at the firm, lawyers said.A source said that federal criminal investigators are looking at people at JPMorgan in London, where the CIO's risky bets were placed. The criminal investigation began in earnest in the past few weeks after JP Morgan's internal investigation uncovered that CIO traders may have intentionally masked losses, the source said."I see little doubt that someone is going to get charged with fraud," said Bill Singer, a lawyer at Herskovits in New York who provides legal counsel to securities industry firms, and publishes the BrokeandBroker website.Authorities ranging from the FBI to the U.S. Securities and Exchange Commission are probing the bank. The SEC could charge JPMorgan with weaknesses in oversight and internal controls, said James Cox, a securities law expert at Duke University."I think the SEC will continue to look at 'What exactly did Jamie Dimon know and when did he know it?'" Cox said.An internal review found that some of the CIO traders appear to have deliberately ignored the massive size of their trades - and the difficulty in liquidating them - when valuing their positions. The result was not reporting the full declines in the value of positions, which is forcing JPMorgan to restate its first-quarter results. The bank is cooperating with authorities.The trading losses and possible deception from traders are a black eye for Dimon, who was respected for keeping his bank consistently profitable during the financial crisis. Dimon, who has criticized regulators for meddling too much with banks, has lost credibility because of difficulties in his own house."How do we know there are not more roaches in the kitchen?" said Paul Miller, an analyst at FBR Capital Markets, referring to the maxim that seeing a single roach typically means there are far more hiding in the woodwork.The Chief Investment Office became infamous in May when JPMorgan said bad derivatives bets had triggered about $2 billion of paper losses, a figure that turned into $4.4 billion of actual losses in the second quarter.One trader in the CIO, Bruno Iksil, took big enough positions in the credit derivatives markets to earn the nickname "The London Whale." He made at least some of the big bets that caused trouble for the bank, and has since left JPMorgan, a source said on Friday.Ina Drew, who headed the CIO, has also left, and offered to give back as much of her pay as the bank was contractually entitled take back, said Dimon, whose pay could be taken back as well. A spokesman for the bank said JPMorgan had accepted Drew's offer.The bank said it had moved the bad trades from the CIO, which invests some of the company's excess funds, to its investment bank. JPMorgan was one of the inventors of credit derivatives, and its investment bank is one of the biggest traders of the product on Wall Street.The CIO will now focus on conservative investments, JPMorgan said. The bank has taken a number of other steps to prevent these types of losses from repeating, including changing the way it limits risk taking in the CIO's office."People feel good that the loss is largely contained at this point," said Nancy Bush, a banking analyst at independent research firm NAB Research.JPMorgan said later on Friday that its former CIO risk officer, Irvin Goldman, had resigned. Goldman "behaved with integrity and we wish him well," JPMorgan said.JPMorgan's shares rose $2.03 to close at $36.07 on the New York Stock Exchange.THE TEMPEST LEAVES THE TEAPOT The bank posted second-quarter net income of $4.96 billion, or $1.21 a share, compared with $5.43 billion, or $1.27 a share, a year earlier.The derivative loss after taxes reduced earnings per share by 69 cents, the company said.JPMorgan said it expected to file new, restated first-quarter results in the coming weeks, reflecting a $459 million reduction of income because of bad valuations on some of its trading positions. The bank found material problems with its financial controls during the period.The bank said its internal investigation combed through over a million emails, tens of thousands of taped conversations, and other evidence. It learned that some traders may have intended not to value their trading positions at the proper levels.In particular, the traders recorded the value of their trades at current market prices, rather than prices they would get if they liquidated their large positions, in an effort to avoid reporting their full paper losses.The bank made trades that were intended to protect it against the credit markets tanking, but allowed those positions to morph into bets on credit markets getting better.Friday's financial report came three months to the day after Dimon, 56, told stock analysts that news reports about Iksil and looming losses in London were a "tempest in a teapot."That remark, which Dimon told Congress last month was "dead wrong," added to the damage the loss has done to his reputation and his argument that his bank is not too big to be managed safely.A host of international regulators and agencies are probing the trading mishap. Besides the FBI and the SEC, they the UK's Financial Services Authority, the U.S. Federal Deposit Insurance Corp, the U.S. Commodity Futures Trading Commission, the U.S. Treasury's Office for the Comptroller of the Currency, and the Federal Reserve Bank of New York.

Libor Scandal May Hit U.S. Banks Harder Than Their British Counterparts

 

Barclays Plc and other UK banks may escape lighter than their U.S. rivals if shareholders seek damages in the wake of an interest rate-rigging scandal, because such cases are costlier and harder to win in Britain.Cases pursued in America by investors alleging they suffered a loss because of the wrongdoing of a financial institution, will often be deemed ineligible to be heard in U.S. courts when the bank in question is foreign, legal experts said.But if investors opt to take their cases to UK courts, they will find Britain's legal structures make such claims harder to win, costlier and riskier."Would we like to sue Barclays in the New York courts weknow well and we're very good at prosecuting in? Sure. But we're not going to because this is a UK situation," said Dominic Auld, a litigation expert at U.S. law firm Labaton Sucharow.Since Barclays admitted its role in manipulating the London interbank offered rate (Libor), lawyers on both sides of the Atlantic are taking calls from investors."I did take a call this morning from an institutional investor who is interested in looking at litigation both from a UK perspective and the U.S ... I expect there will be a good deal of similar interest," said Owen Watkins, a barrister in the corporate department of London law firm Lewis Silkin.More than a dozen banks are being investigated for their roles in setting Libor, including Citigroup, JPMorgan Chase & Co, Deutsche Bank, HSBC Holdings Plc , UBS and Royal Bank of Scotland..Morgan Stanley analysts have calculated the litigation risk to each of the 16 banks involved in setting Libor, an estimate of the rate at which banks could lend to each other and a benchmark for setting many other types of loans, at between $60 million to $1.1 billion. But lawyers say that while it was once commonplace for European investors to issue proceedings in the States, this transatlantic "legal tourism" was brought to an effective end in 2010 by a Supreme Court ruling in the United States.In a case brought against National Australia Bank, the court ruled U.S. securities laws do not have jurisdiction over so-called "F cubed" cases involving foreign investors and a foreign company traded on a non-U.S. market In the case of Barclays, only about 4 percent of its market capitalisation is traded in the U.S. in the form of American Depository Receipts. Any pursuit of meaningful damages from investment losses related to falls in Barclays' share price caused by the scandal will have to be carried out in Britain."Bringing proceedings here is not easy because there are various questions about causation. But most importantly Barclays would fight hard and you take a substantial risk in relation to costs that you would have to pay if you lost," said David Greene, senior partner at London-based law firm Edwin Coe.Furthermore, proceedings by institutional investors are rare and run against the traditions of the City of London financial district which had in part prompted disgruntled investors to make claims in the United States until it was halted by the F-cubed ruling."I don't think that sort of thing would be held in a UK court. I think they would just say the nature of the capital markets is shares go down as well as up. It's the guiding principle here," said one institutional investor who declined to be named because he is a major Barclays shareholder.