VALIC Company II Moderate Growth Lifestyle Fund (VMGLX) seeks capital growth
The stock price of property and casualty insurer, American International Group, Inc. (AIG), has plunged 6% year to date.
How Solid are Canada’s Big Banks? - Peter Diekmeyer CONTRIBUTED BY SPROTT MONEY NEWS (for original click here) The World Economic Forum consistently ranks Canada’s banks among the world’s safest. Competent regulators have overseen stress tests, tightened lending standards and delinquency rates are low. Demographics are good and the country’s diversified economy is backed by a treasure of oil, wood, gold and other natural resources. So the experts say. Institutional investors, relying on the work of Jeremy Rudin, Canada’s chief bank regulator, agree. In fact Canadian financials accounted for 35.5% of the market capitalization of the benchmark exchange (NBF February). However this façade hides major uncertainties. Key concerns stand out, which if unaddressed, could spark solvency and liquidity issues in one or more of Canada’s Big Six banks. The fragilities can be seen in an IMF report, which calculated that Canada’s financial sector accounted for a stunning 500% of GDP in 2012. Today, the assets of the Big Six banks alone are more than double the size of the country’s economy. Each (RBC, CIBC, Scotiabank, BMO, TD and National Bank) have been designated “systemically important,” which in turn, due to sheer size and interconnectedness, suggests that they are almost certainly “too big to fail.” That means the collapse of any one Big Bank, would threaten to trigger systemic implosion. More ominously, if Canada’s financial system, arguably the world’s best, is riddled with pores, what does that say about the US, the UK, and Japan? Let alone Italy and Spain? Yet signs of fragility are everywhere. Consider: Complacency following “secret” $114 billion bailout A quick review of key metrics suggests Canada’s banking sector, which, on the surface, largely escaped the 2008 financial crisis, has thus learned little from it. As David Macdonald, demonstrated, in a paper for the Canadian Center for Policy Alternatives, Canada’s Big Banks benefitted from nearly $114 billion in cash, liquidity and other bailout help, from both local and US sources following the financial crisis. “Three of Canada’s banks – CIBC, BMO, and Scotiabank – were at some point under water,” Macdonald writes. “With government support exceeding the value of the company.” Sadly, details were largely kept secret Macdonald says, hidden in footnotes and legalese, where even the term “bailout” was shunned. Reforms that could have strengthened the system were thus avoided and the Canadian public remains largely unaware of the dangers. (A Canadian Bankers Association spokesperson denied that any Canadian bank was bailed out or was in danger of failing, but conceded that the Canada Mortgage Housing Corporation (“Canada’s Fannie Mae”) bought up $69 billion worth of assets and that the Bank of Canada advanced additional liquidity funding). “Canada’s Fannie Mae” piles on risk amidst residential real estate bubble In March, the Economist magazine calculated that Canadian residential housing is 112% overvalued relative to rents and 46% overvalued relative to incomes. Even Canadian bank economists, enablers of previous excesses, now describe average Toronto prices, which surged 23% last year to CAD $727,000, as a bubble. Canadian banks have lent into much of the excesses and “Canada’s Fannie Mae” (the CMHC) has guaranteed more than $500 billion in mortgages; almost as much as the US GSEs did relative to GDP, prior to the 2008 crisis. Canadian banks have never seen a major real estate implosion Because Canadian real estate prices never collapsed during the 2008 financial crisis to the degree they did in the US and the UK (let alone Japan), regulators, investors and analysts are totally unprepared for any such eventuality. As noted above, there are no indications that any Canadian regulatory body such as OSFI or any financial institution has had a Japan style scenario gamed out by independent risk experts. This even though some Canadian demographic trends, particularly with regards to workforce aging and retirements for the coming decade are roughly similar to what Japan’s were, at the peak of its bubble. Canadians are in record debt Worse, Canadians are in debt up to their eyeballs. According to Statistics Canada the ratio of household credit market debt (this excludes government, financial and business debts) reached a record 166.9% of disposable income in the third quarter of 2016. That was up from 166.4% in the second quarter. Inflated asset prices currently keep those debts under the rug. However asset price levels are temporary; debts linger. Wolves are in charge of the henhouse Another dangerous sign stems from the fact that all key stakeholders that facilitated the 2008 bubbles and ensuing crisis, escaped unnoticed. That means the wolves remain in charge of the henhouse. For example as Macdonald notes in his paper, Gordon Nixon, CEO of RBC, Canada’s largest bank during the crisis, took in CAD $9.6 million in compensation in 2008, and $12.1 million in 2009. Canadian bank CEOs and directors now figure that they’ll be bailed out and collect their bonuses, no matter what risks they take. Bank CEOs aren’t alone in escaping blame for running the system into the ground in 2008. Most Canadians wouldn’t recognize David Dodge either, though as governor of the Bank of Canada, he fostered the easy-money policies which facilitated the debt and asset bubbles that led to the ensuing troubles. OSFI: financial sector “group think” stress tests Another key threat to Canada’s financial system relates to the “group think” that pervades top officials, which leads them to err simultaneously. This is evident in the stress tests that various regulators (the IMF, OSFI, the BOC) have conducted or overseen on the big banks, which remain riddled with holes. Shorn of business cycle theorists, the stress tests only considered scenarios based on Canada’s history dating back to the 1980s. This despite the fact that eight years of unconventional monetary policy suggests that there are high risks that Western economics are in the midst of a 1930s-style liquidity trap. As if that were not enough, the stress tests only considered Canadian economic performance. But the first question a doctor will ask is what ailments there are in your family history. Canada’s family (the G-7) includes Japan. An obvious stress test scenario would have looked at Japanese metrics during the past two decades. Worse, regulators allowed the banks themselves, to conduct the key bottom-up stress testing, rather than outsourcing the job to independent consultants. That’s like asking a drunk to check the inventory list in the wine closet, to make sure everything is still there. Finally, the stress tests appear to have omitted any probability of freezing up of key counterparties, as occurred with AIG during the 2008 crisis. What would happen if there was a 1% default in the notional value of the $1 quadrillion global derivatives market?  (a $10 trillion loss) We don’t know. ***** The fact that bureaucrats who looked away during the buildup to the 2008 financial crisis, weren’t reprimanded, will have major implications going forward. That’s because Jeremy Rudin, head of OSFI, the organization most closely charged with overseeing Big Bank stability, was one of those bureaucrats. Rudin’s story is instructive, because it mirrors that of almost all key Canadian financial sector regulatory officials. Rudin (according to his official biography) spent the pre-2008 crisis years, in increasing positions of responsibility in Canada’s finance ministry, which culminated in an assistant deputy minister posting. As insiders know, ADM is a crucial position, which gave Rudin, if he did his job well, better access to information and contacts than even his bosses had. Yet during his years at the heart of the action, Rubin either saw no unusual risks building up, or he reported none. (This on its own is stunning as there were clear warnings, well in advance, to anyone who was paying attention, from a slew of prognosticators (ranging from Robert Prechter, to Ian Gordon, Peter Schiff, Douglas Noland, Henry Liu and many others) of severe impending risks). In either case, the chances that Mr. Rudin would identify systemic risks in Canada’s financial system if they existed today, or would forcefully report them to the public in a way they understood, are slim. Worse, OSFI junior officials likely would not either. In fact no Canadian regulatory official is allowed to speak to the press, without prior approval from the top. The career of any insider who forcefully publicly expressed doubts about sector solvency, liquidity or risk concerns, would essentially be over. (OSFI spokesperson declined to comment on Mr. Rudin’s record prior to joining the organization). Canadian bank accounting structures are lax, complex and opaque Almost unnoticed during the 2008 financial crisis, was that Big Four audit firms all happily signed the financial statements of global big banks, including those in Canada, which only months later proved to be insolvent. Nothing was said, because most Canadians, even seasoned investors and analysts, have little knowledge of the technical accounting standards, that govern the banks. That’s not surprising, because Chartered Professional Accountants of Canada, the body that regulates the profession, keeps key information about those standards and how their audits are conducted behind a paywall. This makes it particularly difficult for the public to monitor its performance. (A CPA Canada spokesperson declined to comment regarding the cost of a hard copy of one of its handbooks, referring questions to its online store, but said that to maintain regular, timely access to the changes would cost $145 a year ($1,450 for ten years + tax)). Auditors can’t be sued for incompetence. Furthermore, as Al Rosen of Accountability Research tirelessly points out, Canadian auditors essentially can’t be sued for incompetence. Their focus is thus naturally on maximizing audit fees and drumming up ancillary revenues from their clients; while presumably doing as little actual verification work as possible. As such, there is a strong temptation to overlook fraud, error or incompetence. New IFRS 9 standards may be worse than previous rules New IFRS 9 accounting standards, which are currently being implemented throughout the Canadian financial sector, to address deficiencies identified in the wake of the 2008 financial crisis, appear to be more of the same. In fact in some key areas, notably the flexibility the new rules give managers to value loan impairments, the regulations are dangerous. Because these days accountants often use flexibility to make things look better than they really are. Worse, because IFRS 9 rules give the appearance of addressing the issue of misstatements, while not actually doing so, they will almost certainly do more harm than good. The reasonable investor can draw only one conclusion: bank financial statements are highly unreliable at best. And if they were wrong, no one would tell you. Regulatory silos, amidst complexity and opacity The biggest and most worrying challenge is that Canadian financial sector stakeholders have erected a variety of complex regulatory and information bodies; but none has clear overall authority and power to maintain system stability. All have evolved into solid silos, which have little clue what the other organizations are doing. For example it is unclear whether economists at the Bank of Canada have internal access to the skills needed to comprehend a 200-page bank financial statement or to analyze a derivatives book. The upshot is that likely not one Canadian financial regulator in a 100 can provide a decent global-macro assessment of system stability. Obvious steps, proposed by outsiders have been ignored, or deemed superfluous. (Eg. A Glass-Steagall style break-up of the big banks, cleaning up Canada’s auditing industry, running regular stress tests conducted by independent consultants, using Japan-style scenarios, banning derivatives trading or tightening system credit). Regulatory rentiers One way to understand why regulatory safeguards are so faulty, is to assess bank auditors and regulators the same way they look at banks: as interest groups, whose main goal is to extract rents, fees, jobs and promotions from the system. The key interest of the regulators in such a scenario, would be to foster maximum growth among the financial institutions they feed on. Surprisingly, judging from the aftermath of the previous financial crisis, regulators might well benefit from a recurrence, particularly if the institutions were once again bailed out with taxpayer funds. OSFI, CMHC, the BOC, ratings agencies and the CPA Canada, are perennially engaged in power grabs, for more staff, budgets and bigger salaries. A new financial crisis, would enable them to point the finger at each other, and to demand more laws, regulations and bigger budgets, to set things right. They’d likely get much of what they ask for. In short, none have any interest in rocking the boat. To a man, their risk experts missed the boat during the 2008 financial crisis. None, based on research done for this article, will sound the whistle, before the next one occurs. ***** That said, the seasoned investor faces challenges. Just because a crisis is inevitable by no means implies that it is imminent. The overwhelming support that Canada’s big banks get from regulators, auditors, rating agencies and analysts (including those outside the country), suggests that an investor’s base case scenario would give them the benefit of the doubt, and to set aside a blogger’s meanderings. Maybe Canadian banks are among the world’s best. Maybe the financial system would remain stable if one went under. Nevertheless, there is plenty of room for doubt. Furthermore, the evident risks in the Canadian financial system, suggest that a decent review of those in other G-7 nations is clearly in order. It also suggests that there a good case for hedging one’s investment bets … and preparing for the worst. Peter (at) peterdiekmeyer (dot) com -30-  http://reports.weforum.org/global-competitiveness-index/competitiveness-rankings/#series=EOSQ087  https://www.imf.org/external/pubs/ft/scr/2014/cr1429.pdf https://www.policyalternatives.ca/sites/default/files/uploads/publicatio...  http://www.economist.com/news/finance-and-economics/21718511-bolthole-money-welcome-comes-unintended-consequences-foreign-buyers  All data is in Canadian dollars.  The $1 quadrillion estimate, is a guess of the roughest sort. The true size of the global derivatives market is hard to estimate. This in turn dramatically highlights the risks it encompasses. The BIS put the notional derivative OTC value at $544 billion at the end of 2016. http://www.bis.org/statistics/d5_1.pdf. However much of the trading is done outside the exchanges.
The Zacks Analyst Blog Highlights: Leucadia National, Lundin Mining, Lear and First Data
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Настало время поговорить о виновниках торжества. О банках, которые всю кашу заварили, и которые прямо-таки спят и видят, как бы остаться не при делах. Натурально, банкиры сняли прибыль – сумасшедшие деньги – а теперь эти ребята и вовсе ни при чем. И не их ли спасают всем миром? Вбивая в головы всем, что иначе никак […]
Authored by Jim Quinn via The Burning Platform blog, I loved Michael Lewis’ book – The Big Short – about the 2008 Wall Street created global financial catastrophe, that is still impacting the little guys on Main Street eight years after it was supposedly resolved by Paulson, Bernanke and Obama. I even wrote an article about it called The Big Short: How Wall Street Destroyed Main Street. I also loved one of the main characters in the book – Frontpoint Partners hedge fund manager Steve Eisman – a foul mouthed, highly skeptical, open minded guy who figured out the fraudulent subprime mortgage scheme and shorted the crap out of the derivatives backing the fraud, making hundreds of millions in the process. I had the opportunity to attend a 90 minute talk by Steve Eisman last night where he discussed the financial crisis, the response by the Fed and government, and the future for the financial industry. My perception of him, based on the book and movie, was he was a cantankerous asshole who didn’t care what anyone thought about him. My perception matched what I experienced. He was dropping f-bombs, insulting the institution hosting his talk, making fun of business school students (he graduated with a liberal arts degree) and dismissing any question he found to be stupid. He was very funny. You could tell immediately he was smart and very opinionated. He was confident in his area of expertise. His diagnosis of what happened leading up to the financial implosion was dead on. He correctly tied the entire debacle to ridiculous levels of leverage taken on by Wall Street banks, warped incentives for financial industry employees and rating agencies, and Federal Reserve regulators asleep at the wheel, convinced Wall Street could regulate itself. I think he was too easy on the people who knowingly committed fraud to buy houses they knew they couldn’t afford. He said they were lured into the fraud by the unscrupulous mortgage industry. It takes two to tango. He described how the credit standards continued to descend as the Wall Street doomsday machine needed more product to convert into toxic derivative products, rated AAA by the greedy worthless rating agencies, so they could sell the weapons of mass destruction to unsuspecting pension funds, mutual funds, and little old ladies. He openly despised Alan Greenspan as the worst Fed Chairman in history and blames him for the lack of regulation leading up to the crisis. The slimy mortgage originators offered teaser rates of 3% to migrant workers so they could purchase a $700,000 home with nothing down and no proof of income. After three years the rate would adjust to 9%. The underwriters rated the loans based on the 3%, not the 9%. The home occupier had to pay 4 or 5 basis up front to get the loan. Since they could never afford the 9%, they had to refinance and pay another 4 or 5 basis points. The same loan would get repackaged twice into derivatives, while the shysters made out like bandits. “In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $724,000.” ? Michael Lewis, The Big Short This subprime slime was the fuse destined to blow up the system, but it was the Wall Street leverage which created the nuclear bomb attached to the fuse. He described how the Wall Street banks were leveraged 10 to 1 in 2000. By 2007 they were leveraged 33 to 1. And most of the assets on their balance sheet were toxic debt slime. Eisman was a Wall Street guy and understood their mindset. When he would point out how stupid these decisions were, the Wall Street big swinging dicks would respond they made $50 million last year and he didn’t. They were smart because they were rich. The arrogant pricks who ran Wall Street firms mistook their self pronounced brilliant results for leverage propelled fake profits. Levering up your firm with toxic un-payable debt made you look brilliant in the short term, but created a debt bomb destined to blow up the world. Greed, hubris, ignorance of the products they were creating, complete lack of risk management, and the immoral culture of Wall Street led to the worst financial crisis in world history. Eisman’s diagnosis of the causes was perfect. In my opinion, his positive response to how Paulson, Bernanke and the Obama administration “solved” the crisis was disingenuous, proof he’s a Wall Street guy at heart, and not the defender of the little guy as described by Steve Carrell, who portrayed him in the movie: “I think he [Eisman] seems himself as a defender of justice and righteousness, while at the same time being conflicted.” In the movie he was portrayed as the moral compass. After hearing his praise for the awesome job Paulson did by saving the criminal Wall Street banks with taxpayer money, I think the justice and righteousness stuff is overdone. Earlier in his talk he said banks existed to “fuck you” – his exact words. Then later he says we had to save them or the world would have ended. He spun the same old narrative that if you didn’t save AIG, Goldman, GE, and the rest of the corrupt Wall Street cabal, unemployment would have been 30% instead of the 10% it eventually reached. I guess he believes the BLS bullshit that unemployment is currently 4.7%. Other smart people, not beholden to Wall Street (he works for Neuberger Berman), argue that we could have had an orderly liquidation of the Wall Street banks that took too much risk and levered themselves 33 to 1. The people on Main Street didn’t lever themselves 33 to 1, but we got to bail them out. Rewarding failure encourages more failure. There were over 8,000 banks in the US and it was only 10 or 20 who almost destroyed the world. They should have paid the price for their criminality and recklessness. Their executives should have gone to jail. Not one did. I began to realize Eisman is a liberal Democrat when he enthusiastically praised Elizabeth Warren as a champion of the people and how Dodd Frank has completely reined in the Wall Street banks. He positively gushed about his friend Daniel Tarullo, the Fed’s chairman of the Federal Financial Institutions Examination Council. He expounded on how tough he has been on the Wall Street banks and his gotten them under control. Meanwhile, they continue to pay billions in fines for their criminal acts and Michael Lewis’ other bestseller – Flashboys – documents the continued rigging of markets and criminality on Wall Street. His defense of Wall Street as it’s constituted today reminded me of the Upton Sinclair quote: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” He is a creature of Wall Street who depends on their good graces for his continued income. He wouldn’t even name Bill Miller as the idiot mutual fund manger who bought Bear Stearns as it was about to go under, because his compliance manager said he shouldn’t do so. It was at this point I realized he wasn’t some prescient sage who understands the markets better than the average schmuck. He got lucky. It wasn’t even his idea to short the subprime market derivatives. Greg Lippman from Deutsche Bank sold the idea to him in February 2006. He just acted on the advice. His dismissal of overturning the Glass Steagall Act as a cause, Fannie & Freddie’s role in the crisis, and the fact this was a calculated control fraud deserving of prison sentences for hundreds of Wall Street executives, changed my view of the man in a matter of minutes. I find liberal minded people like himself are sometimes excellent at diagnosing problems, but their solutions either exacerbate the problem or ignore the real problem. He said nothing about how Bernanke & Geithner’s threats to the FASB, resulting in the suspension of mark to market accounting, marked the exact bottom of the market. From that point onward, the Wall Street banks, along with Fannie and Freddie, could value their assets at whatever they wanted – mark to fantasy. Amazingly, the banks and the insolvent mortgage companies immediately started reporting billions of fake profits. Loan loss reserves were relieved, while Fannie & Freddie made billions in fake payments to the Treasury, artificially decreasing annual deficits. Eisman, the man of the people, said nothing about how real median household income is lower today than it was at the height of the crisis, while Wall Street bonus pools are at record highs. He said nothing about senior citizens who used to count on 5% money market returns to scrape by now getting .25% because the Fed used ZIRP to save the Wall Street banks. Eisman is an extremely rich Wall Streeter. He wouldn’t know how to find Main Street, even with a GPS. He was surely blindsided by the deplorables, outside his NYC bubble, electing Trump as a reaction to the screwjob they received from Wall Street, the Fed and the Obama administration. His laid back view of the Wall Street banks and how great their balance sheets are, with leverage of only 11 to 1, completely ignores the fact the Fed bought $3.6 trillion of their toxic debt at one hundred cents on the dollar, and the Obama administration took on $10 trillion of national debt to give the economy the appearance of recovery – while the majority are still experiencing a recession, except for Eisman’s Wall Street cronies. He had no problem with Wall Street hedge funds buying up all the foreclosed homes, driving prices higher to fix Wall Street balance sheets, and renting them back to the poor people he pretends to care about. No mention from Steve about why the economy requires emergency level interest rates, nine years after the crisis. He seems sanguine about a $20 trillion national debt, where normalization of interest rates would blow up the world again. He thinks the US banking industry is the safest it has ever been in history. Isn’t it funny that he did an interview a few weeks ago revealing he is long the banking industry? He is just talking his book, just like every other Wall Street chameleon. Even though stock valuations are at highs only seen in 1929, 2000, and 2007, Eisman sees no stock market bubble. He expects stocks to go higher due to Trump’s tax cuts and deregulation plans. Even though home prices are nearing 2005 levels again, he sees no real estate bubble. He sees no subprime auto loan bubble. He sees no student loan bubble – he said it’s the government’s problem, as if the government gets their money from someone other than the people. He doesn’t care about the debt bubble, because he’s an equity guy. This type of vision might explain why his hedge fund venture after Frontpoint – Emrys Partners – went under in two years. My experience of seeing Steve Eisman in person was a letdown. I expected some sort of visionary superhero and I got an abrasive, myopic, captured Wall Street guy, parroting the Wall Street line that all is well, the future is bright, debt doesn’t matter, and stocks always go higher. I left the venue wondering whether I have the bad case of cognitive dissonance and can’t see how great things are, or whether Steve has the bad case of cognitive dissonance. I guess time will tell. There are two things I learned. Its better to be lucky than smart. Wall Street will never change. “What are the odds that people will make smart decisions about money if they don’t need to make smart decisions–if they can get rich making dumb decisions? The incentives on Wall Street were all wrong; they’re still all wrong.” ? Michael Lewis, The Big Short
AIG reported earnings 30 days ago. What's next for the company? We take a look at earnings estimates for some clues.
(компания / тикер / цена / изменение ($/%) / проторгованый объем) ALTRIA GROUP INC. MO 75.79 0.12(0.16%) 1723 Amazon.com Inc., NASDAQ AMZN 854.6 1.63(0.19%) 6047 AMERICAN INTERNATIONAL GROUP AIG 63 -0.23(-0.36%) 711 Apple Inc. AAPL 140.7 0.24(0.17%) 93110 AT&T Inc T 42.65 0.06(0.14%) 4477 Barrick Gold Corporation, NYSE ABX 19.27 0.25(1.31%) 184669 Caterpillar Inc CAT 93.58 0.22(0.24%) 826 Chevron Corp CVX 109.35 0.47(0.43%) 2932 Cisco Systems Inc CSCO 34.35 0.11(0.32%) 1627 Citigroup Inc., NYSE C 61.1 0.26(0.43%) 9614 Deere & Company, NYSE DE 112.11 1.32(1.19%) 1005 Exxon Mobil Corp XOM 82.3 0.30(0.37%) 3885 Facebook, Inc. FB 140.27 0.55(0.39%) 48920 Freeport-McMoRan Copper & Gold Inc., NYSE FCX 13.05 0.16(1.24%) 145446 General Electric Co GE 29.82 0.06(0.20%) 10243 Goldman Sachs GS 248.44 1.66(0.67%) 2669 Google Inc. GOOG 852 4.80(0.57%) 1295 International Business Machines Co... IBM 177.4 1.59(0.90%) 19281 Johnson & Johnson JNJ 129 0.04(0.03%) 624 JPMorgan Chase and Co JPM 92.15 0.42(0.46%) 10048 Merck & Co Inc MRK 64.95 0.25(0.39%) 1433 Microsoft Corp MSFT 64.9 0.15(0.23%) 5078 Nike NKE 57.7 0.04(0.07%) 1826 Pfizer Inc PFE 34.69 0.06(0.17%) 1757 Procter & Gamble Co PG 91.48 0.08(0.09%) 443 Tesla Motors, Inc., NASDAQ TSLA 263.69 7.96(3.11%) 85992 The Coca-Cola Co KO 42.22 0.10(0.24%) 2998 Twitter, Inc., NYSE TWTR 15.12 0.09(0.60%) 52281 UnitedHealth Group Inc UNH 172 0.22(0.13%) 409 Verizon Communications Inc
Authored by Mike Krieger via Liberty Blitzkrieg blog, Recently dismissed U.S. Attorney for the Southern District of New York, Preet Bharara, is suddenly being celebrated as an aggressive warrior in the fight against Wall Street corruption. Really? You could’ve fooled me. Perhaps I was in a coma when a string of big bank executives were arrested and sent to prison. No, what actually happened is one of the most powerful attorneys in the nation came up with a mealy-mouthed, cowardly rationale for why he let these financial thieves off the hook. Crain’s reports: Bharara was nowhere to be found when it came to charging the top executives whose actions led to the collapse of Lehman Brothers, Merrill Lynch and AIG, and who made all manner of misleading statements to cover up how sick their firms were. Goldman Sachs executives sold institutional investors a mortgage-backed security that sales staffers described as “one shitty deal.” Where was Bharara when it mattered most? We don’t have to wonder for too long because the prosecutor explained his actions—or lack thereof—at a Crain’s forum three years ago. Bharara said at the time that he didn’t think he could win a case against Wall Street top dogs because they had hired advisers assuring them what they were doing was legal. “What you do have to prove is criminal intent,” he said. “And it’s very difficult if a bank president has in his hands a letter or opinion from a law firm or accountant saying, ‘If you do X, Y and Z when you sell these mortgage-backed securities, you’re good.’ “Now it may make you angry,” he told the audience. “But if you have the opinion, it is a very difficult thing [for a prosecutor] when they say, ‘I asked my lawyers to do the best they could to tell me what I’m supposed to do.'” Read those statements again. The leading white-collar prosecutor in the country said that advice from the right lawyer or accountant is tantamount to a get-out-of-jail-free card. Jesse Eisinger, a Pulitzer Prize–winning business reporter, will soon have a book out explaining how federal prosecutors lost their nerve to bring Wall Street leaders to justice. Its title is The Chickenshit Club. Now that sounds like a book worth reading.
The Blackstone Group L.P. (BX) is reportedly planning to establish a European Union subsidiary in Luxembourg following the Brexit mandate.
Ill-fated pharma bets and turmoil at AIG put pressure on hedge fund star
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The higher limit, mandated by federal officials, reflects heightened U.S. concerns about the potential extent of damage to nearby government property in the event of an accident before blastoff. http://on.wsj.com/2nhWZ20 FT British Prime Minister Theresa May is on track to start Brexit negotiations in the last week of March after parliament passed legislation on Monday that gives her the power to do so and the Lords balked at picking a fight over their own efforts to soften it. Scotland's First Minister Nicola Sturgeon on Monday demanded a new independence referendum in late 2018 or early 2019, handing Theresa May the challenge of keeping the UK united just as she grapples with the country's plans to leave the European Union. UK hiring is expected to slow down in the second quarter of this year according to Manpower's quarterly survey of about 2,000 employers that found corporate Britain in a slightly less bullish mood in the second quarter compared with the first. A parliamentary committee preparing a report about Charlotte Hogg's suitability for the post of the Bank of England's new deputy governor is waiting to see whether Hogg will tough it out or abandon her candidature, according to those involved in the discussions. British oilfield services company John Wood Group Plc agreed to buy its struggling rival Amec Foster Wheeler Plc in a 2.2 billion pounds ($2.68 billion) all-share deal that highlights the pressure on the UK North Sea oil industry from weak crude prices. British homebuilder Redrow Plc said on Monday it will continue its pursuit of rival Bovis Homes Plc, despite discussions having been "terminated" while its target is in separate talks with another suitor, Galliford Try Plc Canada THE GLOBE AND MAIL ** Tim Hortons franchisees are banding together to push back against the cost-cutting campaign run by its parent company, Restaurant Brands International Inc, saying that it is causing product shortages, declining quality and even safety concerns that are harming the brand. https://tgam.ca/2mmMEgp ** After issuing an apology earlier this month saying that it "did not live up to" its relationship with members, Air Miles is making changes to its loyalty program in an effort to hold on to customers. https://tgam.ca/2mmDXTy ** The British Columbia Liberal government has opened the door to limits on political donations for the first time, promising to establish an independent panel to shape reform of what has been described as the "wild west" of campaign finance in Canada. https://tgam.ca/2mmFRDz ** British Columbia's highest court has ruled drug dealers pushing fentanyl should receive sentences of up to 36 months - three times longer than other street-level dealers – to recognize the "scourge" of the deadly synthetic opioid. https://tgam.ca/2mmUB5k NATIONAL POST ** Canadians don't trust U.S. President Donald Trump to treat Canada gently in upcoming North American Free Trade Agreement re-negotiations, according to a new poll from the Angus Reid Institute. http://bit.ly/2mn2He1 ** Western Canadian natural gas producers could get a $25 billion boost in revenue with a pipeline shipping deal struck with TransCanada Corp on Monday, analysts said. http://bit.ly/2mmYfvR ** Canadian financial technology provider DH Corp has entered into an agreement to be acquired by Texas-based Vista Equity Partners for roughly C$2.7 billion ($2.01 billion), the companies announced Monday. http://bit.ly/2mn0aAD Britain The Times * Nicola Sturgeon shocked her political opponents and Westminster in equal measure when the Scottish First Minister said on Monday that she intends to hold a second referendum on Scottish independence. Sturgeon added she would hold a fresh poll within the next two years to prevent Scotland from being taken out of the European Union "against its will". http://bit.ly/2mDcOz5 * Thousands of employees are facing an uncertain future as a result of oil services company Wood Group's all-share takeover of rival Amec Foster Wheeler. The deal values Amec Foster Wheeler at about 2.3 billion pounds ($2.7 billion). http://bit.ly/2n1BYs6 The Guardian * The Southern franchise has been hit by a series of strikes in recent months, but Monday's industrial action also involved the Merseyrail and Northern networks. The RMT union is protesting against plans to introduce new trains with doors that can be operated by the driver, and change the role of guard to on-board supervisors. http://bit.ly/2nhhNXE The Telegraph * British Prime Minister Theresa May has ruled out Nicola Sturgeon's plans for a new Scottish independence referendum before Brexit, but postponed triggering Article 50 after the First Minister's demands caught her by surprise. http://bit.ly/2nw1YIq * Hutchison China MediTech's chief executive said 2017 would be a "very important year" for the pharmaceuticals company, paving the way for it to launch the first China-made oncology drug onto the market. http://bit.ly/2mG4bUo Sky News * Two-thirds of Britons oppose a second Scottish independence referendum, a Sky Data poll reveals. The UK public would strongly oppose such a move, with 65 percent saying there should not be a second independence referendum, while 30 percent say there should. http://bit.ly/2mlgL8H * British energy supplier SSE has followed a majority of its rivals in announcing inflation-busting hikes to its standard tariffs. The company said it was raising its standard electricity tariff by 14.9 percent from April 28 but would not hike gas prices. http://bit.ly/2lUP3U4 The Independent * The British Chambers of Commerce has upgraded its GDP growth forecast for this year from 1.1 percent to 1.4 percent, though this rate of growth would still be considerably lower than what is expected by the Bank of England and the Office for Budget Responsibility. http://ind.pn/2nne3Ay * The EU has said an independent Scotland would have to join a queue of nations seeking membership of the bloc, after Nicola Sturgeon announced plans for a second independence referendum. http://ind.pn/2n0P9JH
Authored by Jesse Eisinger via ProPublica.org, The prominent U.S. attorney fired by Donald Trump this weekend has been justly acclaimed for his pursuit of political corruption. But his treatment of the Wall Street executives involved in the financial meltdown was far less confrontational. After his election in 1968, President Richard Nixon asked Robert Morgenthau, the US Attorney for the Southern District of New York, to resign. Morgenthau refused to leave voluntarily, saying it degraded the office to treat it as a patronage position. Nixon’s move precipitated a political crisis. The president named a replacement. Powerful politicians lined up to support Morgenthau. Morgenthau had taken on mobsters and power brokers. He had repeatedly prosecuted Roy Cohn, the sleazy New York lawyer who had been Senator Joe McCarthy’s right-hand man. (One of Cohn’s clients and protégés was a young New York City real estate developer named Donald Trump.) When Cohn complained that Morgenthau had a vendetta against him, Morgenthau replied, “A man is not immune from prosecution merely because a United States Attorney happens not to like him.” Morgenthau carried that confrontational attitude to the world of business. He pioneered the Southern District’s approach to corporate crime. When his prosecutors took on corporate fraud, they did not reach settlements that called for fines, the current fashion these days. They filed criminal charges against the executives responsible. Before Morgenthau, the Department of Justice focused on two-bit corporate misdeeds—Ponzi schemes and boiler room operations. Morgenthau changed that. His prosecutors went after CEOs and their enablers—the accountants and lawyers who abetted the frauds or looked the other way. “How do you justify prosecuting a nineteen-year old who sells drugs on a street corner when you say it’s too complicated to go after the people who move the money?” he once asked. Morgenthau’s years as United States Attorney were followed by political success. He was elected New York County District Attorney in 1974, the first of seven consecutive terms for that office. There are parallels between Morgenthau, and Preet Bharara, the U.S. attorney for the Southern District who was fired by President Trump this weekend. Like Morgenthau, the 48-year old Bharara leaves the office of US Attorney for the Southern District celebrated for taking on corrupt and powerful politicians. Bharara prosecuted two of the infamous “three men in a room” who ran New York state: Sheldon Silver, the Democratic speaker of the assembly and Dean Skelos, the Republican Senate majority leader. He won convictions of a startling array of local politicians, carrying on the work of the Moreland Commission, an ethics inquiry created and then dismissed by New York’s Gov. Andrew Cuomo. (This weekend, Bharara cryptically tweeted that “I know what the Moreland Commission must have felt like,” a suggestion that he was fired as he was pursuing cases pointed at Trump or his allies.) But the record shows that Bharara was much less aggressive when it came to confronting Wall Street’s misdeeds. President Obama appointed Bharara in 2009, amid the wreckage of the worst financial crisis since the Great Depression. He inherited ongoing investigations into the collapse, including a probe against Lehman Brothers. He also inherited something he and his young charges found more alluring: insider-trading cases against hedge fund managers. His office focused obsessively on those. At one point, the Southern District racked up a record of 85-0 in those cases. (Appeals courts would later throw out two prominent convictions, infuriating him and dealing blows to several other cases.) Hedge funds are safer targets. The firms aren’t enmeshed in the global financial markets in the way that giant banks are. Insider trading cases are relatively easy to win and don’t address systemic abuses that helped bring down the financial system. Even there his record was more mixed than is popularly understood. As Sheelah Kolhatkar demonstrates in her propulsive and riveting “Black Edge,” when it came to bringing his biggest whale to justice, Steve Cohen of SAC Capital, the Southern District blinked. They did not charge him, only securing a guilty plea from his firm. Present and former prosecutors say Bharara did not give much emphasis to investigations arising from the financial meltdown, an approach shared by his boss, Attorney General Eric Holder. Justice Department insiders say many of those inquiries withered not because they were unpromising, but because they had little support. Bharara missed an opportunity by not bringing any significant criminal charges against individuals in the wake of the collapses of Lehman, investment bank Merrill Lynch, the insurer AIG, the mortgage securities and collateralized debt obligation businesses, or the myriad public misrepresentations from bank CEOs about their finances. Bharara and senior officials in Washington argue that there were no criminal cases to file after the 2008 crisis. But the U.S. attorney’s office in Manhattan did pursue significant civil cases against the banks for their mortgage activities, cases that had to proove misconduct by the “preponderance of the evidence.” And DOJ did win guilty pleas from the banks themselves, an indication that prosecutors might have been able to charge individuals for their part in crimes their institutions had acknowledged. Academics who studied those years, including Columbia’s Tomasz Piskorski and James Witkin and Chicago’s Amit Seru found widespread patterns of fraud in the mortgage business. The exception makes this failure all the more puzzling. As I detailed in 2014, Bharara’s office brought one case for misconduct during the financial crisis — against a mid-level banker. Prosecutors charged Kareem Serageldin of Credit Suisse with overseeing traders who knowingly misrepresented the value of mortgage securities. Serageldin pleaded guilty and went to prison. Serageldin’s colleagues in the industry and others familiar with Credit Suisse found it hard to believe that he was the only person involved in that particular fraud. Bharara’s reluctance to pursue senior executives was seen in other investigations of big banks. His office wrested a $1.7 billion fine from JPMorgan Chase over its complicity in the Bernie Madoff Ponzi scheme, but it brought no charges against individual bankers. One odd aspect of his tenure was the Southern District’s willingness to defer to other jurisdictions when it came to Wall Street cases. Historically, the SDNY has been the leading enforcers of securities laws, nicknamed the “sovereign district” for its propensity to grab corporate fraud cases from elsewhere on the flimsiest of jurisdictional pretexts. Under Bharara, the southern district let other U.S. attorneys claim investigations into residential mortgage-backed securities, the instruments at the heart of the financial crisis. Those other offices were not nearly as versed in complex financial cases as their colleagues in Manhattan. In addition, Bharara’s office ceded post-financial crisis investigations into foreign exchange and global interest rate manipulation to prosecutors working from the Justice Department’s headquarters. Like Morgenthau, Bharara was a prominent figure in the New York landscape, given to well-orchestrated press conferences and memorable sound bites. Like Morgenthau, he did not leave office quietly, even thought the president has a longstanding right to name his own U.S. attorneys. And like Morgenthau, he may try to parlay his martyrdom into elective office. But if he runs on his record of convictions, as prosecutors often do, voters might want to consider as well the list of possible targets he never pursued. * * * Jesse Eisinger writes about the forces that have sapped federal prosecutors of the will and authority to pursue top bankers in his forthcoming book, “The Chickenshit Club.”