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May 3: Systemic Risk - Inadequate Risk Management Models Continue to Expose the Global Financial System to Great Risks
In their third article in the Economists’ Hubris series, which focuses on the inadequacies of risk measurement and management models used within financial institutions, Shahin Shojai and George Feiger turn their attention to not only the hubris of economists but also the hubris of practitioners, be they bankers or regulators. They find that while a number of models have been developed to help financial institutions manage their risk, none is really that reliable when placed under strict scientific examinations. Similar to other economic disciplines, they find that risk management is also prone to being effective solely within the confines of the so-called laboratories in which they are developed.
May 3: Market Risk - European Buy Side is Expanding Their Equity Derivatives Business
Shaking off the frustrating association of blame for the global financial crisis, equity derivatives in Europe are now attracting buy-side traders who have been struggling with laggard volumes, fragmentation in the cash markets and the need for new avenues of alpha.
May 3: DvD Insights - 10 Year Monthly Forecast of US Treasury Yields and US Dollar Interest Rate Swap Spreads
Today’s forecast shows 1 month Treasury bill rates peaking at 5.396% in August and September 2017 and the 10 year U.S. Treasury yield at 5.590% on March 31, 2020. The peak in 1 month rates is slightly higher than last week’s forecast, although the 1 month bill rate ends up 2 basis points lower on March 31, 2020.
May 3: Market Risk - Declining Bank Loans, Write-Downs or Pay-Downs?
We mentioned in our April 2010 U.S. Economic and Interest Rate Outlook that the ongoing contraction in commercial bank lending was an important factor curbing our enthusiasm about near-term growth in U.S. aggregate demand. But we did acknowledge that our lack of optimism might be misplaced if the cause of the continued contraction in bank lending was due more to write-downs of loans gone sour rather than of pay-downs of loans.
May 3: Industry Risk - Overall Trends Improving for US Credit Card Industry for Remainder of 2010
Recent stabilization in the unemployment rate combined with positive early stage delinquency trends are expected to translate into lower credit card portfolio losses in the second half of 2010. This improved credit outlook led many card companies to recognize reserve releases in 1Q'10 which bolstered better operating performance for most major issuers.
May 3: Energy Risk - Germany's Example
Germany has established itself as a beacon for green energy development. Other countries have been advised to try and emulate its strategies. While national policies can and should be idiosyncratic, Germany is directly financing its renewable sector as well as providing subsidies for operational costs, or feed-in tariffs.
April 30: Credit Risk - US Corporate Bond Market Begins 2010 with Balanced Rating Activity and Strong Issuance
The par value of U.S. corporate bonds affected by downgrades remained below 2% in the first three months of 2010, according to Fitch Ratings. The pace was in line with pre-crisis rating activity and the third consecutive quarter to show such results. Downgrades affected $47.7 billion in bonds, or 1.4% of market volume, while upgrades affected $36.6 billion, or 1.1% of market volume.
April 30: Commentary - The Cultural Divide
Having spent 15+ years living and working in North America and the last three and a bit here in Europe, the general cultural gap seems to be growing—especially when it comes to dress sense, apparently! It does sometimes appear harder to do business in Europe, but persistence produces rewards and relationships can last longer and be more profitable in Europe—despite the fact that the cost of sale may be higher.
April 30: Economic Risk - 2010 US Small Business Risk Outlook
The commercial real estate collapse has removed a major source of growth for banks. Maxed out consumers are not positioned to drive loan growth at the bank in the near future. As a result, bank CEOs are turning to business banking as the key growth driver. With deposits pouring into the bank, the next big challenge is where to profitably and safely find earning assets among commercial and industrial customers.
April 30: Market Risk – US Fixed-Rates Stable, Posting Little Change From Last Week's Figures
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.06 percent with an average 0.7 point for the week ending April 29, 2010, down slightly from last week when it averaged 5.07 percent. Last year at this time, the 30-year FRM averaged 4.78 percent.
April 30: Industry Risk - Shifts in Global Wealth and a New Regulatory Regime Are Transforming the Private Banking Sector
The future growth of the private banking industry lies in emerging economies. Although rising wealth in China, India and the Middle East offers new growth opportunities, the industry today faces a transformed marketplace in the wake of the global recession. Private banks need to follow this flow of wealth, while adapting their business models to increased client scrutiny and new global financial regulations.
April 30: Market Risk - Despite Increased Optimism in the Markets, 56 Per Cent of High-Net-Worth Investors Are Unsure of the Best Investment Opportunities and Nearly Two-Thirds Are Re-Evaluating Their Portfolio Mix
BlackRock released a study conducted by its iShares exchange traded fund business in Canada that showed the majority of high-net-worth (HNW)(1) investors agreed this is a time of great opportunity in the markets yet over half are still unsure of where to place their money and 64 per cent are re-evaluating their portfolio mix.
April 29: Commentary - Risk Management after the Great Crash
This study takes a closer look at the role of risk (mis)management by financial institutions in the emergence of the Great Crash. It is explained that prior to the crisis too much reliance was placed on the quantitative side of risk management, while not enough attention was paid to qualitative risk management. In this context it is argued that there is an urgent need for dealing more effectively with inherent weaknesses related to institutional- and organizational aspects, governance issues, and incentives. More sophistication and a further refinement of existing quantitative risk management models and techniques is not the most important or effective response to the uncertainties and risks associated with a fast-moving financial landscape. In fact, too much faith in a new generation of complex risk models might lead to even more spectacular risk management problems than the one we experienced during the Great Crash.
April 29: DvD Insights - Portfolio Optimization in Banking and Fund Management (Part 3)
This is part 3 in a series on “balance sheet optimization.” As we pointed out in the first two parts of the series, optimization in banking is a lot like building a software program to beat any human at chess. It’s very easy to talk about, and it’s very hard to do. In the final installment in this series, we pose the kind of practical and realistic problem like the one former Citigroup CEO might have faced pre-credit crisis on December 31, 2006. Like chess software, we talk about what’s practical and what’s not practical given the current state of knowledge in applied mathematics, computer hardware and enterprise risk management software. We get the astrophysicists and physicists involved to keep it real.
April 29: Country Risk - US Fed Keeps Extended Period Language and Keeps Funds Target Unchanged
The Fed announcement provided no surprises--the Fed funds rate will remain in its current target range of 0% to 0.25% “for an extended period,” and Fed President Hoenig disputed the inclusion of the extended period language for the third-consecutive meeting. Expressing that the "expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted," according to Mr. Hoenig, "because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability while limiting the Committee’s flexibility to begin raising rates modestly." The reference to this limiting factor was a new addition to Mr. Hoenig's statement.
April 29: Operational Risk - Firms Must Navigate Roadblocks Impeding Strategic Risk Management
Companies with strategic risk management can reap benefits in such areas as development of business strategy, regulatory compliance, and improved communication about risk across the organization. However, they often must first hurdle internal barriers. That is one of the conclusions of a new survey, Elevating the Practice of Strategic Risk Management.
April 29: Energy Risk - Price Spikes and Regulating Hedge Funds
Long opaque, hedge funds are now in the spotlight. The focus: curbing the number of natural gas and oil contracts they can hold so as to prevent market abuses. At the heart of the matter is the Commodity Futures Trading Commission (CFTC), which until recently has also been inconspicuous. Now, though, that's changed with all the attention given to unregulated financial instruments called derivatives and swaps as well as all the hoopla over limiting market speculation.
April 29: Operational Risk - FSA Takes Tough Action Against Poor Complaint Handling in Banks
The Financial Services Authority is taking tough action after finding weaknesses in five banks handling of customer complaints. As a result of the review, five banks are undertaking major changes to the way they deal with complaints and two of the five banks have been referred to enforcement for further investigation.
April 29: Weather Risk - 2010 Hurricane Outlook & Perspectives
It's late-April, and that means it's time for the parade of Hurricane Season Forecasts. With 12 active Seasons in the past 15 years, many forecast services perennially become contrarian or overly-bullish - often reflecting "markets over meteorology".
April 28: DvD Insights - Portfolio Optimization in Banking and Fund Management (Part 2)
As explained in part 1 of this post, last week I was asked to give a presentation to a group of senior bank risk managers on the state of the art in “balance sheet optimization.” Optimization in banking is a lot like building a software program to beat any human at chess. It’s very easy to talk about, and it’s very hard to do. In this installment of our optimization series, we start with a general framework for optimization of the balance sheet on a fully integrated risk basis—interest rate risk, market risk, and credit risk in a common framework. We then look at how optimization is done in the funds management business.
April 28: Commentary - Clients Matter...
EDHEC-Risk Institute believes that client servicing and the provision of investor solutions should respect a number of guiding principles: financial engineering should address client needs rather than showcase technical sophistication; the role of financial models should be to ensure that clients' genuine risk preferences are respected; and investors' objectives and liabilities should command equal respect whatever the clientele - institutional, private, or retail.
April 28: Operational Risk - Majority of Business Professionals Expect More Financial Statement Fraud to Be Uncovered in 2010, 2011 Compared to the Last Three Years
More than half of approximately 2,100 business professionals (56 percent) surveyed during a Deloitte webcast about reducing fraud risks think more financial statement fraud will be uncovered this year and in 2011, as compared to the last three years. Almost half of those surveyed, 46 percent, point to the recession as the reason more financial statement fraud will be uncovered.
April 28: Country Risk - US Concerns About the Job Outlook Ease as US Consumer Confidence Rises Sharply in April
Consumer confidence jumped to 57.9 in April from the prior month’s 52.3 (revised down from 52.5), the highest level since September 2008 and above market expectations for a 53.7 reading. The labour market differential (those saying jobs are “plentiful” minus respondents saying jobs are “hard to get”) improved to -40.2 from the prior month’s -42.3 reading (revised down from -41.4 previously), its best reading since August 2009.
April 28: Economic Risk - US Economic Growth to Continue Throughout 2010
Economic growth is expected to continue in the United States throughout the remainder of 2010, say the nation's purchasing and supply executives in their spring 2010 Semiannual Economic Forecast. Expectations for the remainder of 2010 have improved in both the manufacturing and non-manufacturing sectors.
April 27: Economic Risk - Americans Still Not Confident Economy Has Turned
The message from the White House and from economists over the past few months is that the economy has turned the corner. The economy is getting better, but jobs and employment may lag behind other good economic indicators. While they may hear all of this, the American public may not be quite ready to embrace this good news, nor the messenger.
April 27: Energy Risk - Energy Markets and Banking Reforms
Congress is now considering legislation to ban those financial institutions from participating in speculative activities that are not tied to the basic and federal-backed services that they offer. So, those investment banks that trade commodities for their own advantage so as to increase their revenues would be barred from doing so. But those that trade on behalf of their industrial clients would be allowed to continue.
April 27: Industry Risk - Structural Impediments Hamper Efforts to Increase Bank Lending
Despite the national consensus that jump-starting bank lending is critical to getting the economy back on track, commercial and industrial lending remains mired at levels far below the targets set by government and the banks themselves — and getting the situation turned around might be much harder than most people think. The reason: Although the primary causes of today’s depressed lending activity can undoubtedly be found in the real estate collapse, credit crisis and economic recession, there are also structural impediments within the banking industry that have to be overcome before lending can rise to desired levels.
April 27: Regulatory Risk - FSA Consults on Use of Certain New Powers Granted by the Financial Services Act 2010
The Financial Services Authority (FSA) has yesterday issued a consultation paper setting out proposals on using new powers granted by the Financial Services Act 2010. The consultation paper includes proposed Handbook changes.
April 27: Operational Risk - CEBS Publishes Its Principles for Disclosures in Times of Stress (Lessons Learnt from the Financial Crisis)
The Committee of European Banking Supervisors yesterday publishes its Principles for disclosures in times of stress intended to guide financial institutions in the preparation of public disclosures made to conform with existing disclosure requirements or recommendations or on an ad hoc basis, incorporating the lessons learnt form the financial crisis.
April 27: DvD Insights - Portfolio Optimization in Banking and Fund Management (Part 1)
Last week I was asked to give a presentation to a group of senior bank risk managers on the state of the art in “balance sheet optimization.” Today’s post is part one of a summary of that talk. For bankers, balance sheet optimization has a lot in common with building a software system that can beat any human being in chess. It’s very easy to talk about, and it’s very hard to do. This post explains why.
April 27: Commentary - Reputational Risk, In Goldman Sachs We Trust
Last week, as the media feeding frenzy surrounding the disclosures about Goldman Sachs (GS) and Paulson & Co reached a fever pitch, we started to reflect on how the confluence of politics and finance often produces some very strange results. In particular, we saw once again how the efforts in the 1980s and 1990s to deregulate Wall Street created extraordinary risks for all concerned, bankers, traders and investors.
April 26: Regulatory Risk - EU Should Not Diverge from G20 Path on Hedge Fund Regulation
The European Union should not diverge from the path already set by the G20 on hedge fund regulation. Doing so could fragment global markets, create inconsistent regulatory requirements and result in international trade disputes.
April 26: Regulatory Risk - ISDA Submits Open Letter to Congress
ISDA released the following letter that it has sent to the leadership of the United States Congress. "Throughout much of the debate on financial reform, there have been suggestions that derivatives dealers oppose changes to derivatives regulations and market practices. Such statements ignore the actions over the past five years of the major dealers, buy-side institutions and industry associations who continue to work collaboratively to deliver structural improvements to the global over-the-counter (OTC) derivatives markets, including improving the clearing and operational infrastructure and bringing transparency to the markets."
April 26: Energy Risk - Coal's Tarnished Image
Coal producers are trying to refurbish their image. But the current hardship in which 29 miners died in underground explosion in West Virginia is making it difficult. A critical question to arise from that accident is the long-term affect it will have on coal production and specifically whether it will force regulators to enact stricter laws.
April 26: ISDA 2010 Preliminary Margin Survey Results - Collateralization of CDS Exposures at 97 Percent
Among large dealers, 78 percent of all transactions are now executed with the support of a collateral agreement. In respect of credit derivatives, 97 percent of trades are subject to collateral agreements.
April 26: Market Risk - ISDA 2010 Operations Benchmarking Survey Highlights Improvements in Post-Trade Processing
The Survey shows the results of industry investment in infrastructure over the past several years. The confirmation process, for example, has been automated to the point where 99 percent of eligible credit default swaps are confirmed electronically, compared with 95 percent last year. Similarly, 77 percent of eligible interest rate derivatives are confirmed electronically compared with 61 percent last year.
April 26: DvD Insights - 10 Year Monthly Forecast of US Treasury Yields and US Dollar Interest Rate Swap Spreads
Today’s forecast for U.S. Treasury yields is based on the April 21, 2010 constant maturity Treasury yields reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release reported at 4:15 pm April 22, 2010. The “forecast” for future U.S. dollar interest rate swap rates is derived from the maximum smoothness forward rate approach, but applied to the forward credit spread between the libor-swap curve and U.S. Treasury curve instead of to the absolute level of forward rates for the libor-swap curve.
April 26: Market Risk - ISDA Publishes Year-End 2009 Market Survey Results
The notional amount outstanding of credit default swaps (CDS) was $30.4 trillion at year-end 2009, down 3 percent from $31.2 trillion at mid-year 2009. CDS notional outstanding for the whole of 2009 was down 21 percent from $38.6 trillion at year-end 2008. The decreases compared to prior-year periods underscore the success of the industry’s portfolio compression efforts, in which firms reduce the number of trades outstanding without affecting their risk profiles.
April 23: Market Risk – US Long-Term Mortgage Rates Mostly Unchanged from Last Week
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.07 percent with an average 0.7 point for the week ending April 22, 2010, unchanged from last week when it averaged 5.07 percent. Last year at this time, the 30-year FRM averaged 4.80 percent.
April 23: Speech – Wolin on “To Big to Fail”
The following are remarks by Deputy Secretary Neal S. Wolin at the International Swaps and Derivatives Association 25th Annual Meeting.
April 23: Operational Risk - More than 45% Say Risks of Cloud Computing Outweigh Benefits
Close to half of US IT professionals say that the risks of cloud computing outweigh the benefits. CXOs are increasingly interested in cloud computing because of its potential to deliver lower total cost of ownership (TCO), higher return on investment (ROI), increased efficiency and pay-as-you-go services. Analyst firm IDC says that cloud services will outpace traditional IT spending over the next five years and will represent $44.2 billion by 2013.
April 23: Country Risk - Canada Monetary Policy Report Shows Bank Upbeat on Near-term Outlook
Based on these updates, the economy is forecasted to reach its productive capacity in the second quarter of 2011 rather than the third quarter as was expected in January. Based on the strong gains in the fourth quarter of 2009 and the first quarter of 2010, the Bank said that the output gap stood at 2% at end of the first quarter, a marked narrowing from the 3.25% estimate at the end of the fourth quarter.
April 23: Country Risk - US Signs of Life in Existing Homes Sales in March
Existing home sales in the US jumped 6.8% in March to 5.35 million annualized units from the previous month's 5.01 million (revised from 5.02 million). Market expectations had been for a more modest increase to 5.28 million annualized units. Home prices also increased, with the median price climbing 0.4% relative to March 2009, its biggest annual increase in almost four years.
April 23: Industry Risk - ISDA’s 25th Annual Meeting Highlights Industry’s Efforts to Make Derivatives Safer
From central clearing to complete regulatory transparency, the OTC derivatives industry is implementing sweeping reforms that will transform and increase the safety of this important area of finance.
April 22: Job at Risk - Earning Executive Pay
The weak economy has forced boardrooms to cut executive pay for a second year running. By any standard, however, utility chiefs are still getting paid well. It's easy to take pot shots at corporate executives when they get rewarded on a scale that is incomprehensible to most working Americans. So, the aim of most corporate boards now is to pay them in relation to how well their companies' stocks perform over time.
April 22: Industry Risk - US Banking 2010–2015, Two Steps Forward, One Step Back
Between 5% and 10% of U.S. banks will be acquired or otherwise disappear by the end of 2011, according to new projections by Greenwich Associates. By 2015 the number of banks in the United States is projected to fall to 20% below 2007 levels. During the same period, the number of bank branches in the United States will decline by 25% and the resulting disappearance of some 20,000 branch locations will undue much of the past decade’s expansion.
April 22: Inflation Risk - 'Financial Death by a Thousand Cuts'
According to Wharton insurance and risk management professor Kent Smetters, inflation "destroys the value [of investments] gradually by eroding real returns over time." Smetters discusses how investors can guard their portfolios against surges in inflation.
April 22: Systemic Risk - NYU Stern Launches Systemic Risk Rankings
New York University Stern School of Business is launching the NYU Stern Systemic Risk Rankings, a weekly rating and ordering by level of risk that the largest U.S. financial institutions bring to the financial system. The new rankings use stock quotations and other market data, from 1990 to the present, and provide an early warning that will help regulators identify threats to the overall health of the financial system.
April 21: Testimony – Schapiro on Lehman Brothers Examiner’s Report
The following is testimony concerning the Lehman Brothers Examiner’s Report by Chairman Mary L. Schapiro to the U.S. Securities and Exchange Commission before the House Financial Services Committee.
April 21: Testimony – Geithner on Lehman Brothers, a Case Study in Our System's Failures
The following is written testimony by Treasury Secretary Tim Geithner before the House Financial Services Committee.
April 21: Country Risk - BoC Upgrades Forecasts, Opens Door to June Rate Hike by Removing Conditional Commitment
The Bank of Canada left the overnight rate at 0.25% this morning and opened the door to rate increase at the June meeting by removing its conditional commitment to keep the policy rate at its current level, "until the end of the second quarter of 2010." The Bank stated that with, "recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus. The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2% inflation target."
April 21: Industry Risk - Consumers Unwilling to Allow Electricity Suppliers to Remotely Limit Energy Use without Significant Price Discount
Consumers are not willing to allow electricity providers to remotely limit the use of their home appliances as part of electricity management plans without significant rate discounts, according to a report issued by Accenture. The report also found that almost half of consumers would be deterred from joining electricity management programs if their electricity bills were to increase as a result.
April 21: Regulatory Risk - TI Calls for the G20 to Swiftly Implement Financial Reforms
In the face of mounting evidence of financial fraud and its continued negative impact on recovery efforts, the Group of 20 should swiftly implement financial reforms that ensure ethical corporate governance of financial institutions, said Transparency International (TI), the anti-corruption organisation, ahead of the G20 finance ministers and central bank governors meeting in Washington, D.C. this week. Good corporate governance is critical to sustainable financial institutions.
April 21: Country Risk - Latin America, Region Positioned for Economic Recovery
Latin America is poised for an economic recovery in 2010 with Fitch Ratings forecasting the region's real GDP growing by 4% in 2010. Regional challenges include navigating a modest global economic recovery, managing rising capital inflows, timing, pacing and sequencing the exit of fiscal and monetary stimulus, and containing electoral uncertainty.
April 20: Energy Risk - The Natural Gas Card
Natural gas has been riding high ever since the most recent estimates say that it can feed the country's electric generators for another 100 years. But it got an even bigger boost when President Obama vowed to end a two-decade long ban on drilling throughout much of the Outer Continental Shelf.
April 20: Weather Risk - Comments on Current Volcanic Eruption
For a few weeks now we have been monitoring the sub-glacier volcanoes in Iceland, especially the one under the Eyjafjallajökull glacier. This volcano is in the process of erupting; melting the glacier and sending ash into the atmosphere. While things have quieted down recently, vigilance must be maintained for any sudden resurgence of volcanic activity.
April 20: Credit Risk - Could Ratings Help Boost Transparency in the Trillion-Dollar Islamic Finance Market?
When Dubai's biggest investment conglomerate, Dubai World, stunned markets last November with a request to freeze repayments on $26 billion in debt, the upstart Gulf emirate was met with harsh criticism about its financial transparency. Yet investor ire didn't halt there. The announcement led to fears that Dubai World's real estate subsidiary Nakheel would default on repayment of $4.1 billion in Islamic bonds, known as sukuk. As the news came after a series of high-profile sukuk defaults in the region, some bankers and analysts questioned the sustainability of the trillion-dollar Islamic finance market as well.
April 20: Commentary - Goldman SEC Litigation, the End of OTC? - Alan Boyce on the Duration of Fed Open Market Operations
Last Friday's announcement by the SEC of a civil lawsuit against Goldman Sachs (GS) for securities fraud did not surprise us. Nor were we surprised to see the markets trade off large on the news, evidence to us that there is a certain lack of conviction in the financials. Q: How can you have "normalized earnings" in an abnormal industry?
April 20: Commentary - Greece, the Euro’s Trojan Horse
Of all the worries brought on by Greece’s debt problem, the most fundamental is the question it raises about the viability of the euro. Matters have been so badly handled that some wonder whether the European Union (EU) ever really thought through this euro currency thing. Nobel laureate Milton Friedman certainly had his doubts. Way back in 1999, he forecast that the then-new currency would not survive the first major European recession. He may yet be right, though with the amount of political capital at stake, the euro will probably hang together. But while the world waits for the ultimate outcome, investors now, as a result of the Greek debacle, must rethink their whole concept of sovereign debt.
April 19: Energy Risk - Conciliatory Approach to Change
Before his inaugural, Barack Obama spoke of healing the country's divisions and of lifting its spirits. But more than a year later, those lines have become entrenched, best illustrated by the bitter healthcare vote. That has left an irreconcilable gash between the two parties that might make future agreements impossible.
April 19: Job at Risk - National Survey Finds Employee Wages and Bonuses to Remain Stagnant Over Next Six Months
In a national survey of U.S. CFOs and senior comptrollers conducted by Grant Thornton LLP 53 percent said they plan no salary changes in the next six months, while 32 percent plan to decrease and 15 percent plan to increase. There is little chance for an increase in bonuses, as 47 percent plan no change, 44 percent plan to reduce, and only 8 percent plan to increase.
April 19: Operational Risk - SEC Charges Goldman Sachs with Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages
SEC last Friday charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
April 19: Commentary - Can the iPad find a Home in Trading?
The release of Apple's latest bit of gee wizardry, the iPad, created a storm of interest in the consumer markets. Like the rollout of the iPhone, the introduction of this new device had gadget lovers across the country standing in overnight lines, hoping to be the first, or at least one of the lucky few, to get their hands on the coolest new thing to hit the market since … well, the iPhone. In fact, the iPad is, functionally, very much like an iPhone, or better yet, an iTouch.
April 19: Friday Forecast - 10 Year Monthly Forecast of US Treasury Yields
Today’s forecast shows 1 month Treasury bill rates peaking at 5.465% in the fourth quarter of 2017 and the 10 year U.S. Treasury yield at 5.745% on March 31, 2020. The negative 21 basis point spread between 30 year U.S. dollar interest rate swaps and U.S. Treasury yields reflects the blurring of credit quality between these two yield curves. The U.S. government is no longer seen as risk free, and 4 of the 8 panel banks that determine U.S. dollar libor are receiving massive government assistance and are, if effect, sovereign credits.
April 19: Commentary - Would Germany Really Leave the Eurozone?
In a recent research report, Joachim Fels, co-head of Morgan Stanley’s Global Economics Team and its Chief Global Fixed Income Economist, has suggested that the current Greek debt crisis might result in a scenario in which Germany might consider leaving the eurozone. This is a novel way of looking at the situation, since most commentators have focussed on the likelihood, and implications, of the weaker states leaving the union, and not its strongest member.
April 16: Market Risk - Mortgage Rates Ease a Bit This Week
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.07 percent with an average 0.6 point for the week ending April 15, 2010, down from last week when it averaged 5.21 percent. Last year at this time, the 30-year FRM averaged 4.82 percent.
April 16: ISDA - David Murphy Hired as Head of Risk & Reporting
ISDA yesterday announced that David Murphy has joined as Head of Risk and Reporting. He will be based in London and will report to Conrad Voldstad, ISDA’s Chief Executive Officer.
April 16: Energy Risk - FERC Looks to Ease Development of Small Hydropower Projects
FERC took a step toward making its small hydropower licensing program more user-friendly today by announcing a series of Web-based tools that will help developers understand the FERC licensing process, help improve coordination with other agencies, and help license applicants complete the process more quickly and efficiently.
April 16: Regulatory Risk - IASB and FASB Quarterly Report Shows Continued Progress towards Convergence Goal
The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) published a report on their work to improve and achieve convergence of International Financial Reporting Standards and US generally accepted accounting principles.
April 16: Economic Risk - US March Industrial Production Shows Disappointing Rise But Gains in the Previous Two Months Revised Upward
Industrial production (IP) in March rose a minimal 0.1% in the month, which was significantly lower than the 0.7% expected going into the report. The downward surprise, however, was tempered by the fact that growth in February and January was revised up to 0.3% and 1.0% from 0.1% and 0.9%, respectively. As a result, and despite the disappointing March gain, the capacity utilization rate for the month of 73.2% was only slightly below an expected 73.3% and up from 73.0% in February.
April 15: Speech - Barr on Regulatory Failures and the Race to the Bottom
The following are remarks by Assistant Secretary for Financial Institutions Michael S. Barr to the Mortgage Bankers Association.
April 15: Job at Risk - Overwhelmed by IT, Internal Audit Execs Agree Improving Tech Skills is Top Concern
Internal auditors are in high demand today as employers affected by the global economic crisis recognize the critical role internal audit plays in ensuring a healthy business. But as technology seeps into more of their daily duties, internal auditors are worried about how lagging information technology skills could hurt their ability to perform their jobs.
April 15: Energy Risk - Clouds Lifting for Solar Energy
Some clouds have lifted but the solar energy still has to contend with rough weather ahead. Industry advocates say that less restrictive financing and more access to public lands would brighten their day.
April 15: Country Risk - US Beige Book, Overall Economic Activity “Increased Somewhat”
The Fed’s Beige Book, prepared with data collected before April 5, indicated that U.S. economic activity “increased somewhat” since the last report across all Districts except one (St. Louis), which reported that conditions “softened”.
April 15: Legal Risk - Securities Lawsuit Filings Drop and Dismissals Surge as Credit Crisis Eases
After dominating securities litigation for three years, new securities lawsuit filings related to the global credit crisis all but disappeared in the first quarter of 2010. Overall, new securities lawsuit filings were down sharply. Additionally, several high profile credit crisis lawsuits were dismissed during the quarter by judges unwilling to hold corporate directors and officers responsible for the effects of a worldwide financial crisis.
April 15: Industry Risk - Obama Administration Seeks Public Input on Reform of the Housing Finance System
The Obama Administration yesterday released questions for public comment on the future of the housing finance system, including Fannie Mae and Freddie Mac, and the overall role of the federal government in housing policy. The questions have been designed to generate input from a wide variety of constituents, including market participants, industry groups, academic experts, and consumer and community organizations.
April 15: Regulatory Risk - SEC Proposes Large Trader Reporting System
The Securities and Exchange Commission yesterday voted to propose the creation of a large trader reporting system that would enhance its ability to identify large market participants, collect information on their trades, and analyze their trading activity.
April 15: Regulatory Risk - SEC Proposes New Measures to Protect Investors in Options Markets
The Securities and Exchange Commission yesterday proposed to put in place two investor protection measures in options markets that currently exist in stock markets. The SEC’s proposal would prohibit an options exchange from unfairly impeding access to displayed quotations, and would limit the fees that an options exchange can charge investors and others wishing to access a quote on an exchange.
April 14: Speech – Gensler on OTC Derivatives Reform
The following are remarks of Chairman Gary Gensler, Over-the-Counter Derivatives Reform, Council of Institutional Investors, in Washington, D.C.
April 14: Operational Risk - FSA Fines and Bans Former Northern Rock Deputy Chief Executive and Credit Director for Misreporting Mortgage Arrears Figures
FSA has yesterday fined David Baker, former deputy chief executive of Northern Rock Plc (NR), £504,000 and Richard Barclay, former managing credit director at NR, £140,000.
April 14: Industry Risk - Positive Conditions Persist in Catastrophe Bond Market During First Quarter of 2010
Catastrophe bond issuance conditions saw sustained improvement in the first quarter of 2010, reflecting the increase in prominence of the insurance linked securities (ILS) asset class. Despite the continued improvement in market conditions, however, catastrophe bond issuance relative to the first quarter of 2009 was lighter than might have been expected.
April 14: Industry Risk - Geothermal Grows 26% in 2009
The US geothermal power industry continued strong growth in 2009, according to a new report by the Geothermal Energy Association (GEA). The April 2010 US Geothermal Power Production and Development Update showed 26% growth in new projects under development in the United States in the past year, with 188 projects underway in 15 states which could produce as much as 7,875 MW of new electric power.
April 14: Market Risk - New Research Identifies Areas for Improved Transparency and Efficiency in OTC Derivatives
The global OTC derivatives market is in a critical state of transition, largely because of pending regulations. Every participant in the listed and OTC market will have a different roadmap in response to anticipated regulatory changes. The focus on transparency, efficiency and market structure changes have highlighted numerous operational challenges that exist in processing OTC derivatives. Firms need to identify which improvements in applications and architecture will help them create new efficiencies in OTC derivatives processing, and improve their “regulatory IQ” to meet new requirements for transparency and central clearing.
April 14: Geithner OP-ED - Financial Reform with Teeth
In an op-ed piece published in The Washington Post, U.S. Treasury Secretary Tim Geithner outlines the urgent need for strong financial reforms, noting that "the American people have suffered through too much to enact reform that does too little."
April 14: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 13), Smoothing Credit Spreads
In part 10 of this series on yield curve smoothing, we showed why the maximum smoothness forward rate approach is superior to the wide range of alternative smoothing methods we have introduced in this series, including the deeply flawed Nelson-Siegel approach. In part 12 of this series, we showed that using bond prices as inputs to the smoothing process is a modest extension to the smoothing we did in part 10. In this post, we show that it is incorrect, sometimes disastrously so, to apply smoothing to a yield curve for an issuer with credit risk, ignoring the risk free yield curve. We show alternative methods for smoothing the zero coupon credit spread curve, relative to the risk free rate, to achieve far superior results. Smoothing a curve for an issuer with credit risk without reference to the risk free curve is probably the biggest mistake one can make in yield curve smoothing and we show why below.
April 13: Speech – Wolin on Derivatives and Other Key Financial Markets
The following are remarks by Deputy Secretary of the Treasury, Neal Wolin, to the Council of Institutional Investors.
April 13: Energy Risk - Clean Energy Legislation a Must for Economic Growth
Texas, New Jersey and even Georgia have prioritized their clean energy industries and created billions in investments and tens of thousands of jobs. The Sunshine State ought to be one of the country’s clean energy powerhouses, especially in solar.
April 13: Energy Risk - Study Reveals Opportunity for Global Utilities as Grids Get Smarter
A study found that business and IT executives at the top 20 utilities and retail energy providers worldwide are finding opportunities for growth as new smart utility and meter-to-cash advancements are unveiled.
April 13: Energy Risk - Measured Response to Greenhouse Gases
Legislation to curb greenhouse gases may be stalled on Capitol Hill where the administration has lost its filibuster-proof majority in the Senate. But regulations released by the U.S. Environmental Protection Agency to reduce such heat-trapping emissions are moving forward. That should force Congress' hand, which can either step up and write its own rules or live by what the federal agency is imposing.
April 13: Country Risk - BoC’s Business Outlook Survey Indicates Improving Economic Conditions But Credit Conditions Remaining Unchanged
The BOS survey was generally upbeat suggesting a further strengthening in economic conditions; however, it provided a mixed picture for credit conditions with businesses indicating little change in the availability of credit. From a lender’s perspective, as reflected in the SLOS survey, the picture of credit availability was more encouraging indicating an easing in business lending conditions.
April 13: Regulatory Risk - IAIS Responds to Regulatory Gaps with Guidance on Treatment of Non-Regulated Entities
The International Association of Insurance Supervisors yesterday published the Guidance paper on treatment of non-regulated entities in group-wide supervision to support insurance supervisors worldwide to address some of the key regulatory gaps as observed from the global financial crisis and to minimise regulatory arbitrage opportunities.
April 12: Energy Risk - Great Transformations, Our Industry's Next Big Challenges
Asked how the Smart Grid will affect the challenges facing our industry of an aging workforce and aging infrastructure, Robert P. Powers, President, AEP Utilities, (American Electric Power), replied with some thoughts. He believes that automation of customer connects/disconnects and improved SCADA will increase distribution operations knowledge thus making grid operations more efficient and reducing these challenges.
April 12: Economic Risk - CFO Survey Finds Weak Job Market to Continue over Next Six Months, Respondents Say Best Way to Create Jobs is to Cut Tax Rates
In a national survey of U.S. CFOs and senior comptrollers conducted by Grant Thornton only 29% plan to increase hiring in the next six months, while 22% plan to decrease. Hiring is weaker amongst Fortune 500 firms (firms with revenues of $5 billion and higher), as 31% plan a decrease in hiring over the next six months, while only 23% plan an increase.
April 12: Energy Risk - Nuclear's New Confidence
Nuclear energy development in this country is getting a big boost now that the nuclear loan guarantees are being processed. Southern Co., which snagged the first $8 billion of what will be $54 billion pie, still has to wait about a year for the Nuclear Regulatory Commission to okay its license application.
April 12: Industry Risk - Soft Market and Weak Economy Team up for a Challenging 2010 for Insurers and Brokers
The recession may be over, but recovery is not happening quickly enough for insurers and brokers. From unemployment rates hovering at about 10 percent to still rising business bankruptcies, the lingering effects of the recession continue to whittle away at commercial lines insurance revenue. According to a new Advisen Ltd. Special Report sponsored by FM Global, capacity for insurance is abundant in most lines, but demand for that capacity has been diminished by the ravages of the recession.
April 12: Market Risk - Monthly CDS Insight, March 2010
US corporate CDS markets were modestly tighter throughout the course of March, underperforming the 5.9% rally in the S&P 500. This continues to suggest creditors are positioned more defensively than in the equity market, but, given lower gearing into cyclical recoveries, this is perhaps understandable.
April 12: Commentary - Greenspan Also Highlights the Risks of Securitization
In a statement to the Congressional Hearing, Alan Greenspan, the former chairman of the Federal Reserve, defended his policy on interest rates and placed the blame for the recent crash on the fact that most new mortgages in the final years of the property boom were securitized. According to Mr. Greenspan: “By the first quarter of 2007, virtually all sub-prime originations were being securitized, and sub-prime mortgage securities outstanding totalled more than $900bn.”
April 9: Operational Risk - SEC Proposes Rules to Increase Investor Protections in Asset-Backed Securities
The Securities and Exchange Commission proposed rules that would revise the disclosure, reporting and offering process for asset-backed securities (ABS) to better protect investors in the securitization market. The proposed rules are intended to provide investors with more detailed and current information about ABS and more time to make their investment decisions.
April 9: Economic Risk - Despite Signs of Recovery, Americans Remain in “Economic Winter” with Four in Five Rating the Economy Fair or Poor
American consumers across the board continue to take a surprisingly sober view of the nation’s economy and their local economy. Furthermore, they see their own financial situation as little or no better than it was a year ago, despite the strong stock-market rebound, stabilizing real-estate prices and improving economic data.
April 9: Climate Exchange - Monthly Trading Update
Climate Exchange plc summarises the trading volumes for the month of March 2010 for the European Climate Exchange (ECX), the Chicago Climate Exchange (CCX) and the Chicago Climate Futures Exchange (CCFE).
April 9: Market Risk - Bond Yields Push 30-Year Mortgage Rates to Highest Level in Eight Months
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.21 percent with an average 0.6 point for the week ending April 8, 2010, up from last week when it averaged 5.08 percent. Last year at this time, the 30-year FRM averaged 4.87 percent. This is the highest the 30-year FRM has been since the week ending August 13, 2009 when it averaged 5.29 percent.
April 8: Commentary - Ben Bernanke, The REPO Man and Castles Made of Sand
Now that it's April and the Fed's QE purchase program is ending (albeit with settlement extending through June, please note), it seems fair to ask: What trick is Fed Chairman Ben Bernanke going to perform next to maintain the stability of market prices? Purchases of defaulted collateral by Frannie Mae will tend to bolster short-term demand in the bond market as QE ends. But given the tentative tenor of the fixed income community, most of the observers we know in and out of the regulatory community wonder whether QE can really go away. Thus the search for politically attractive alternatives continues.
April 8: Operational Risk - CSO Roundtable of ASIS International Releases Survey and White Paper on Enterprise Security Risk Management
To demonstrate the level of industry's understanding and adoption of enterprise security risk management (ESRM), the CSO Roundtable of ASIS International, a membership group of the senior-most executives from the world's largest organizations, has released the results of a comprehensive ESRM survey of its members and of the ASIS membership. ASIS International is the largest organization for security management professionals worldwide.
April 8: Market risk - US Treasury Market is Headed Toward Rapid Growth in Trading Volume, Attracting New Dealers, Arbitrageurs and Trading Venues
Competition in the US Treasury market has been sparse with the number of primary dealers on the decline since the mid-1980s, but according to TABB Group in a new research note written by Adam Sussman, their director of research, new entrants are beginning to emerge. Although BrokerTec and eSpeed own the on-the-run interdealer broker (IDB) business and Bloomberg and Tradeweb dominate institutional dealer-to-client trading, TABB says “the combination of record issuance, expected rate hikes and a weakened competitive landscape make US Treasuries a ripe opportunity for mid-tier dealers, independent trading firms and hedge funds, alternative trading venues and the supporting technologies.”
April 8: Operational Risk - Investment Firms Look to Technology to Help Manage Risk
Advent Software unveiled the results of a survey indicating that risk management is a critical challenge at investment firms, and that a majority of respondents believe the answer lies largely in new technology.
April 8: Operational Risk - CEBS Publishes Draft Guidelines on Joint Assessment and Joint Decision Regarding the Capital Adequacy of Cross Border Groups
According to Article 129 (3) of the revised Capital Requirements Directive (CRD)- which will come into force on 31 December 2010 - consolidating and host supervisors of an EEA cross border banking group shall do everything within their power to reach a joint decision on the application of the Pillar 2 provisions related to the Internal Capital Adequacy Assessment Process (ICAAP) and to the Supervisory Review and Evaluation Process (SREP).
April 8: Market Risk - ETFs Gain Foothold in Institutional Market
Although exchange traded funds (ETFs) are most commonly thought of as a retail product, institutional investors are finding that ETFs can be helpful tools in such critical portfolio management tasks as cash equitization, transition management, rebalancing, and obtaining hard-to-achieve exposures.
April 8: Energy Risk - Recognizing Coal's Constraints
Coal's long term future is up in the air. But if it is to continue to serve the American economy and to provide the preponderance of fuel that generates electricity, it is clear that the utilities using it will have to make it much cleaner.
April 7: Commentary - Are Prohibitions on the Credit Default Swap Markets Really a Good Idea?
The plan to prohibit so-called naked sales of sovereign credit default swaps (CDS) runs up against legal and practical obstacles that make it inapplicable or even counterproductive. First, it will be impossible for intermediaries and ultimately for regulators to verify investors’ holdings of the securities representative of the risk the credit default swaps are assumed to cover.
April 7: Economic Risk - US FOMC March 16 Minutes Provide Balanced View of Risks to the Economy and the Interest Rate Outlook
The minutes released from the March 16 FOMC meeting provided some background discussion that lay behind the statement that was released at the conclusion of that meeting. The statement contained very little in terms of surprises although it seemed to hint at a slightly more upbeat assessment of the economic recovery. The minutes reinforced this impression of commenting that “participants agreed that economic activity continued to strengthen and that the labour market appeared to be stabilizing.”
April 7: Energy Risk - UK Firms Unprepared for CRC Energy Efficiency Scheme
The scheme is the UK's mandatory climate change and energy saving initiative. It is central to the UK’s strategy for improving energy efficiency and reducing carbon dioxide (CO2) emissions, as set out in the Climate Change Act 2008. Around 5,000 organisations are expected to qualify for the scheme this year and all must comply legally with the scheme or face financial and other penalties. However, a recent survey of senior managers responsible for energy management at many of the UK’s biggest energy users highlights a staggering degree of ignorance, apathy and confusion about the scheme.
April 7: Market Risk - Twenty-Seven Million People with Mortgages Believe They Owe More than Their Homes Are Worth
A new Harris Poll provides some unpleasant numbers about the housing crisis and the collapse of the house price bubble. Fully 24% of people with mortgages believe they owe more on their mortgages than their homes are worth. One in nine homeowners (11%) with mortgages report having “a great deal of difficulty” in paying off their mortgage. Another 18% are having “some difficulty.” This comes at a time when two-thirds of all adults (65%) are concerned that their families’ incomes “will not be enough to cover all their costs and expenses this year.”
April 6: Commentary - Why Getting Tough on CDSs Does More Harm Than Good
Speculators are said to have been involved in the escalation of the Greek crisis. For this reason, politicians want to ban the purchase of naked credit default swaps (CDSs). This would not be of any help to sovereign borrowers, however.
April 6: Operational Risk - ISDA Announces Market Practice Changes and New Documentation for LCDS
ISDA announces market practice changes to the trading convention for North American LCDS transactions that took effect yesterday, and the publication of the new Bullet LCDS standard terms documentation.
April 6: Energy Risk - Greening the Grid
Utilities and environmental groups are coming together to help modernize the transmission system. It's arduous job, though, requiring conciliation and patience. Together, they seek to improve the grid's capabilities so as to allow it to carry more green electrons as well as provide customers with the information they need to make better energy choices. With Congress now considering national renewable mandates and at least half the states with similar laws on their books, electric companies must have a way to deliver the expected use of such power.
April 6: Operational Risk - Funding and Liquidity Risk Management Interagency Guidance
The federal banking agencies and the National Credit Union Administration (collectively, the agencies) recently issued guidance to provide sound practices for managing funding and liquidity risk and strengthening liquidity risk management practices. The policy statement emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk.
April 6: Industry Risk - Canadian Investment Management, After Crisis, Institutions Adjust Portfolio Strategies
Declines in asset values, coupled with low interest rates that serve to increase the value of pension funds’ long-term liabilities, had severe consequences on Canadian pensions’ reported funding ratios, which declined to an average of just 90% in 2009 from 99% in 2008.
April 6: Energy Risk - Institutional Investors New Embrace
When major institutional investors and venture capitalists start investing in alternative and low-carbon energy companies, it is noteworthy. Mindy S. Lubber, president of Ceres, a Boston-based coalition of 80 investors who support climate change legislation and manage over $8 trillion of assets, said 85 percent of funding for alternative energy companies will stem from large institutional investors, pension and hedge funds and private equity firms, not governmental support.
April 6: Economic Risk - Risk - US ISM Non-Manufacturing Beats Market Expectations in March
The ISM non-manufacturing index increased to 55.4 in March, remaining in expansionary territory for the third consecutive month following readings of 53.0 and 50.5 in February. Market expectations going into today’s report were for a more modest rise to 53.6.
April 5: Commentary - Seven Questions for Damian Handzy, CEO of Investor Analytics
In the words of a friend of mine, the business of risk “is brisk.” One of the reminders of 2008 was that in times of stress, correlations do indeed go to one, and many of the tools available fail miserably. Here to offer his insights into the evolving nature of risk management tools is Damian Handzy, Chairman and CEO of Investor Analytics. Damian has set himself apart in the industry by incorporating advancements from related disciplines to improve risk management – especially lessons from Natural Selection / Evolution, Cognitive Science, and Behavioral Economics.
April 5: DvD Insights - 20 Years of Risk Management Surprises
In this post we take a brief look at some of the biggest surprises in our first 20 years in the risk management business.
April 5: Credit Risk - Kamakura Reports 11th Improvement in Corporate Credit Quality in Last 12 Months
Kamakura Corporation announced Monday that the Kamakura index of troubled public companies improved in March for the eleventh time in the last 12 months. The index declined from 9.96% in February to 9.69% in March. Kamakura’s index had reached a peak of 24.3% in March, 2009.
April 5: Industry Risk - Soft Market and Weak Economy Team up for a Challenging 2010 for Insurers and Brokers
The recession may be over, but recovery is not happening quickly enough for insurers and brokers. From unemployment rates hovering at about 10 percent to still rising business bankruptcies, the lingering effects of the recession continue to whittle away at commercial lines insurance revenue. According to a Special Report, capacity for insurance is abundant in most lines, but demand for that capacity has been diminished by the ravages of the recession.
April 5: Energy Risk - Minding the Store
In his days as a control room operator more than a decade ago, John Pespisa remembers working intermittent renewable energy resources like wind into the system. The footprint may have been small, but the resource had to be dispatched. "Sometimes at 3 a.m., you'd wonder where the wind went," he said. No longer. With more advanced forecasting tools and improved monitoring of generation sites and communication with grid operators, controllers are better able to anticipate the fluctuations of what were once a few MWs of generation.
April 5: Operational Risk - FSA Bans Independent Financial Adviser for Not Having Appropriate Systems and Controls in Place
FSA has banned Martyn Powsney, the former director of Powsney & Co Ltd, an IFA firm based near Manchester, from holding positions of significant influence in any FSA authorised firm. Pownsey, who failed to put in place systems and controls to ensure that customers received suitable advice and failed to take sufficient remedial action, was found to be not fit and proper to run an authorised firm.
April 5: Market Risk – US Long-Term Mortgage Rates at Second Highest Level This Year
Freddie Mac last week released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.08 percent with an average 0.7 point for the week ending April 1, 2010, up from last week when it averaged 4.99 percent. Last year at this time, the 30-year FRM averaged 4.78 percent.
April 1: Job at Risk - CEO Compensation Study Reveals Pay Levels Showed Little Change in 2009, Despite Turbulent Year
Top US companies made few changes to overall pay levels in 2009, despite a year of remarkable turbulence for executive pay, according to results from The Wall Street Journal/Hay Group 2009 CEO Compensation Study released today. The Wall Street Journal partnered with Hay Group for the third year on its annual study, which examines how large companies were compensated across all forms of pay in fiscal year 2009.
April 1: DvD Insights - The Kamakura Corporation Monthly Forecast of US Treasury Yields
Concerns about potential rises in interest rates from unprecedented low levels have risen dramatically in the last few months. On January 6, 2010, U.S. banking regulators went so far as to issue an “interagency guidance” on interest rates, warning of the dangers that lie ahead. Beginning in April, Kamakura Corporation will issue a monthly forecast of U.S. Treasury yield curve movements over a ten year horizon.
April 1: Market Risk - CFTC Approves Final Rules Creating a Separate Account Class for Customer Positions in Cleared OTC Derivatives
Commodity Futures Trading Commission (CFTC) approved final rules (Final Rules) that enhance certainty regarding protections under the Bankruptcy Code and CFTC regulation Part 190 with respect to Over-the-Counter (OTC) derivatives (and related collateral) that customers clear through a futures commission merchant (FCM) on or subject to the rules of a derivatives clearing organization registered with the CFTC (cleared OTC derivatives).
April 1: ISDA - Announces Annual Determinations Committees Outcome
ISDA yesterday announced the outcome of the annual process to determine members of ISDA's five regional Determinations Committees, which together comprise the global decision-making structure around events in the CDS industry.
April 1: FSA - Seven Charged in Insider Dealing Investigation
FSA yesterday charged seven people with 13 charges in respect of conspiracy to deal on inside information obtained by the defendants from two major investment banks. One defendant has additionally been charged with an offence in relation to money laundering. A warrant for the arrest of another person in connection with this investigation has been issued. The charges are based on allegations that cover a two-year-period and involve alleged unlawful profits of about £2.5 million.
April 1: Market Risk - DJIA First Quater Factoid
DJIA, 10856.63. Up 428.58 points, or 4.11% in the 1st quarter.
April 1: Industry Risk - Largest Hospital Mergers and Acquisitions for the 10-Year Period Ended December 31, 2009
Nearly $74.3 billion was committed to fund the 597 hospital mergers and acquisitions that were announced during the 10-year period ended December 31, 2009. The hospitals and hospital companies targeted in those mergers and acquisitions were producing annual revenues ranging from $1.5 million to $25 billion. Among the same hospital deals, the number of beds involved ranged from single facilities with as few as 9 beds, to the largest deal, which targeted a chain comprised of 176 hospitals, 92 outpatient surgery centers and affiliated services, with a total of 41,850 beds.
March 31: Operational Risk - FSA Consults on Enhanced Client Asset Protection
The Financial Services Authority (FSA) has yesterday published a consultation on changes to its client asset rules. The aim of the consultation is to ensure that clients have confidence their money and assets are safe and will be returned within a reasonable timeframe in the event that a firm becomes insolvent. The failure of Lehman Brothers International (Europe) (LBIE) highlighted a number of areas where the client assets sourcebook (CASS) could be strengthened.
March 31: Operational Risk - FSB Announces Future Peer Reviews
The Financial Stability Board (FSB) released yesterday the thematic review on compensation, which is the first peer review under the new FSB Framework for Strengthening Adherence to International Standards. The next thematic review will focus on risk disclosures by market participants.
March 31: Operational Risk - FSB Assesses Progress on Reforming Compensation Structures
The FSB Principles and Standards were endorsed by the G20 Leaders at their summits in London in April 2009 and Pittsburgh in September 2009. In their Pittsburgh statement, the G20 Leaders tasked the FSB “to monitor the implementation of FSB standards and propose additional measures as required by March 2010.”
March 31: Operational Risk - Basel Committee Issues Consultative Paper on Good Practice Principles on Supervisory Colleges
A key objective of the Basel Committee is to promote supervisory cooperation. Over time and particularly with the introduction of the Basel II capital framework, supervisory colleges have become an important means for strengthening supervisory cooperation and coordination. The recent financial crisis has further emphasised the importance of closer international cooperation among home and host supervisors in effectively supervising international banking groups.
March 31: Credit Risk - Fitch Updates Rating Criteria for Market Value Structures
Fitch Ratings has issued updated rating criteria for Market Value Structures (MVS) entitled 'Rating Market Value Structures.' The criteria is global in nature, and is applicable to corporate market value collateralized debt obligations (CDOs), market value asset backed-commercial paper programs and collateralized funding obligations, among others.
March 31: Energy Risk - Hype Obscures Smart Grid Reality
Utility customers are looking for proven and reliable demand management and smart grid technology as they face the uncertainty and confusion of the smart grid. Confusion persists around when the smart grid will start to produce measurable benefits while spending on enabling technologies has increased over the last 12 months. The results highlight the uncertainty created by the hype around areas such as customer empowerment products and the importance of proven, enterprise-class technologies and services to utilities that are seeking to invest in energy management programs.
March 31: Industry Risk - Key Companies and Top Deals Revealed in 10-Year Data on Medical Device Mergers and Acquisitions
During the 10-year period ended December 31, 2009, more than $301 billion in funding was committed to complete 1,496 medical device mergers and acquisitions. Data revealed that the largest medical device acquisition for the same 10-year period was announced in 2008: the $39 billion acquisition by Novartis of Nestle SA’s 77% interest in Alcon—a deal still in process, expected to close at the end of 2009. Boston Scientific was responsible for the second-largest medical device acquisition, according to the 10-year data— its $27.2 billion acquisition of Guidant Corporation in 2005.
March 30: Country Risk - US Personal Spending Rises in February, Personal Income Flat
Personal consumer expenditure (PCE) rose 0.3% in February following January’s downwardly revised 0.4% gain (initially reported as 0.5%). The rise in spending in the month equalled market expectations going into today’s report. February’s rise in spending was in spite of unchanged personal income, although this followed gains of 0.3% (revised from 0.1%) and 0.4% (revised from 0.3%) in January and December, respectively.
March 30: Energy Risk - Investing for the Future
With the economy on the mend, investors may be ready to step up and help finance the energy sector's growth. But to do so, they will need greater regulatory certainty both at the state and federal levels so as to encourage risk taking.
March 30: Industry Risk - Customer Service and Operational Efficiency Improvements as Top Drivers for Recovery in Insurance Industry
Challenges in data integration create obstacles for insurers in meeting their customer service and operational efficiency priorities. The survey indicated that approximately half of all insurers face data integration issues as they relate to multi-enterprise (external) connectivity as well as internal (EAI) integration, with some variance per market.
March 30: Industry Risk - Ten-Year Data on Pharmaceutical Mergers and Acquisitions Reveals Top Deals and Key Companies
During the 10 years ended December 31, 2009, a total of 1,345 mergers and acquisitions of pharmaceutical assets and pharmaceutical companies were announced, with disclosed prices totaling more than $694 billion. GlaxoSmithKline was responsible for the largest of the pharmaceutical mergers and acquisitions this past decade: GlaxoWellcome announced a $74 billion merger with SmithKline Beecham in 2000, resulting in the entity now known as GlaxoSmithKline.
March 30: Speech – Jenkins on Beyond Recovery, Sustaining Economic Growth
The following are remarks by Paul Jenkins, Senior Deputy Governor of the Bank of Canada, to the Economic Club of Canada.
March 29: Regulatory Risk - Financial Reform Legislation Will Reduce US Bank Risk Profiles with Mixed Credit Implications
Thereduce the risk profiles of U.S. banks with the ultimate effect on credit ratings dependent on the final scope and details of the reforms enacted legislative and regulatory reforms currently under consideration will likely. The proposed reforms are likely to influence the intrinsic financial profile of institutions as well as establish a new framework for how future systemic and institution-specific problems will be resolved.
March 29: Industry Risk - US Credit Card Defaults Remain High Despite Improvement
Performance of U.S. credit card ABS improved slightly in February as chargeoffs dipped and delinquencies continued to improve, according to the latest Credit Card Index results from Fitch Ratings. However, the sector will continue to feel substantial performance pressure.
March 29: Energy Risk - Great Transformation, What Will the Customer Want?
“What will the customers want?” Whether the discussion revolved around stimulus funding of the Smart Grid, renewables, a carbon-constrained world or utility data security, meeting and managing customer expectations in a capital-constrained business environment is essential for a positive return on investments that will also provide ways for a customer to save on energy costs.
March 29: Energy Risk - Energizing America
With Washington stalemated, utilities have an uncommon chance to lead by fostering the growth of clean-energy technologies. Electricity, of course, is the building block to economic prosperity. The goal then is to ensure access, abundance and cleanliness. Toward that end, the United States must diversify its resources and train the next wave of workers to meet near-term challenges.
March 29: Coutry Risk - Global Recession Weighed on Sovereign Ratings in 2009
Credit quality eroded for sovereign issuers in 2009, as the global recession's impact on advanced and emerging economies continued to deepen. The share of sovereign issuers downgraded remained steady year-over-year at roughly 14%, while upgrades tumbled to just 2% in 2009 from nearly 10% a year earlier.
March 29: Regulatory Risk - FSA Introduces Additional Guidance for Building Societies
The Financial Services Authority (FSA) has introduced additional handbook guidance to ensure that building societies diversifying from traditional business models have the risk management systems and skills necessary to operate safely.
March 29: Industry Risk - Lessons Learnt from International Credit Card Regulation
On 15 March 2010, the Department for Business, Innovation & Skills (BIS) released the response to the consultation on credit and store cards. As part of the consultation process, BIS commissioned Auriemma Consulting Group (ACG) to research features of international credit card markets and how they are regulated, and to identify what lessons could be learned.
March 29: Operational Risk - ISDA to Publish Auction Terms for Ambac
ISDA announced that its Americas Credit Derivatives Determinations Committee resolved that a bankruptcy credit event has occurred in respect of Ambac Assurance Corporation, which provides financial guarantee insurance for public and structured finance obligations.
March 26: Regulatory Risk - SEC Staff Evaluating the Use of Derivatives by Funds
The SEC staff is conducting a review to evaluate the use of derivatives by mutual funds, exchange-traded funds (ETFs) and other investment companies. The review will examine whether and what additional protections are necessary for those funds under the Investment Company Act of 1940. Pending the review’s completion, the staff has determined to defer consideration of exemptive requests under the Investment Company Act to permit ETFs that would make significant investments in derivatives.
March 26: Country Risk - Germans and Britons Opposed to Their Government Helping Greece Debts
A new Financial Times/Harris Poll finds mixed opinions on helping countries financially within the European Union, especially helping Greece cope with its budget deficit. Two-thirds of Spaniards (65%), three in five Italians (59%) and almost half of French adults (46%) agree that the EU and its members have a responsibility to help other member countries that get into financial or fiscal trouble. Almost half of Germans (46%), however, disagree with this and Britons are divided with 35% agreeing and 34% disagreeing.
March 26: Energy Risk - Is Software as a Service Catching On?
Traditionally, commodity trading and risk management (CTRM) software has been delivered via a licensing arrangement where the software is installed at the user's site. Implementations are long, expensive and quite risky. CommodityPoint data suggests that CTRM implementations costs range from one to three times the cost of the software licenses and a fair proportion of projects end with a suboptimal result or a failed implementation.
March 26: Market Risk – US Mortgage Rates Inch up Following Bond Yields
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.99 percent with an average 0.6 point for the week ending March 25, 2010, up slightly from last week when it averaged 4.96 percent. Last year at this time, the 30-year FRM averaged 4.85 percent.
March 25: Operational Risk - CGFS Publishes Report on Lessons Distilled from Funding Market Disruptions
The Committee on the Global Financial System (CGFS) yesterday released a report entitled The functioning and resilience of cross-border funding markets prepared by a joint Study Group of the CGFS and the Markets Committee. The report examines the funding market disruptions during the recent financial crisis, reviews the policy responses and distils some lessons.
March 25: Energy Risk - The Nature of Mercury
Some in the power sector have unclean hands. A nonpartisan environmental group has published a report detailing the industry's mercury emissions and noting that the biggest emitters of them have not yet installed some commercially-available technologies that would cut those pollutants.
March 25: Market Risk - Manager Optimism Tempered
More than three-quarters of surveyed investment managers expect unemployment to be 8% or higher at end of 2011; bullishness for non-U.S. (developed market) equities falls 21 percentage points.
March 25: Speech – Gensler on OTC Derivatives Reform
The following is a keynote address by Chairman Gary Gensler, Commodity Futures Trading Commission, on OTC Derivatives Reform to the U.S. Chamber of Commerce, Washington, D.C.
March 25: Energy Risk - What is a Megawatt?
The answer starts with understanding the basic definition of energy terms. Watts (W) are the yardstick for measuring power. A one hundred watt light bulb, for example, is rated to consume one hundred watts of power when turned on. If such a light bulb were on for four hours it would consume a total of 400 watt-hours (Wh) of energy. Watts, therefore, measure instantaneous power while watt-hours measure the total amount of energy consumed over a period of time.
March 25: Speech – Wolin on the Urgency of Financial Reform, Why We Should Not Wait for One More Finance Crisis before Fixing What’s Broken
The following is a keynote address by Deputy Secretary of the Treasury Neal S. Wolin before the U.S. Chamber of Commerce, Center for Capital Markets Competitiveness Fourth Annual Capital Markets Summit on “The Urgency of Financial Reform: Why We Should Not Wait for One More Finance Crisis before Fixing What’s Broken.”
March 24: Operational Risk - CGFS Publishes Report on Role of Margin Requirements and Haircuts in Procyclicality
The report reviews the system-wide impact of haircut-setting and margining practices in securities financing and over-the-counter derivatives transactions during the financial crisis.
March 24: Industry Risk - US Corporate Pension Funds Shed Risk, While Public Funds Embrace It
Although public pension plans and their corporate counterparts were hit equally hard by the global market crisis, a new study from Greenwich Associates shows they are responding to historic funding shortfalls in dramatically different fashions.
March 24: Energy Risk - 2010 Outlook for North American Refiners Remains Murky
Despite glimmers of improvement, the outlook for North American refiners remains murky in 2010. Refiners continue to struggle with poor fundamentals in the form of still-falling end-user demand in the U.S., global overcapacity, low industry utilization rates, and a high U.S. unemployment rate, all of which are expected to keep key credit metrics weak for a prolonged period.
March 24: Operational Risk - What Worries Fund Administration Leaders Most? It’s Errors and Data Integrity
What’s keeping fund company executives up at night? Their top concern is the data integrity in their fund reports, according to a new Confluence Global Fund Administration survey. Indeed, more than 130 executives from Europe and North America cite data integrity as their top back-office challenge.
March 24: Energy Risk - North American Grid Operators Assess Impact of Electric Vehicles
As automakers ramp up production of plug-in electric vehicles (PEVs), a group of U.S. and Canadian power grid operators who manage most of the North American bulk electric grid collectively studied the effect that PEVs would have on the electric power grid.
March 24: Operational Risk - Six Arrested in FSA and SOCA Insider Dealing Investigation
Six men including two senior city professionals at leading city institutions and one city professional at a hedge fund have been arrested on suspicion of being involved in a sophisticated and long-running insider dealing ring.
March 23: Speech – Geithner on Devastating Failures
The following are remarks by Treasury Secretary Timothy F. Geithner before the American Enterprise Institute on Financial.
March 23: Commentary - The AIG Rescue, What Did We Bail Out and Why?
In this issue, we feature a comment by Richard Alford. We first met Dick at the Federal Reserve Bank of New York, where he worked as an economist in the FRBNY's foreign department, contributing to the weekly report for the Federal Open Market Committee and helping to coordinate market intervention by the Fed's foreign exchange trading desk. Since then, Dick and most of our former colleagues from the FRBNY have migrated to the private sector, working either for the large banks or the hedge funds that trade the world of foreign exchange and macro trends. He has been following the saga surrounding American International Group very closely and has informed some of our past comments. In view of the latest announcement of asset sales by AIG, the fact that this zombie movie still is not even half done, and the latest revelations of accounting innovation -- that is, zaitech -- at Lehman Brothers, we thought it was time to summarize the AIG plot to date.
March 23: Industry Risk - What's Driving Mortgage Delinquencies?
A recent survey by the Mortgage Bankers Association (MBA) showed that nearly one in seven American households with a mortgage was delinquent at yearend, meaning they'd missed at least one payment or were in foreclosure proceedings. Moreover, the MBA's fourth quarter 2009 National Delinquency Survey reported that the percentage of seriously delinquent loans (at least 90 days past due or in foreclosure) and the number of loans in foreclosure are at the highest levels recorded in the 40-plus-year history of the survey.
March 23: Industry Risk - Mandatory Opt-In Forces Changes in Banking
More than 1800 banks and credit unions made changes in how they handle overdrafts since Regulation E, mandatory opt-in for debit card and ATM overdrafts, was made a requirement by the Federal Reserve on November 11, 2009. Of all the financial institutions surveyed, 11.4 percent either increased price, decreased price, began offering or stopped offering overdraft service.
March 23: Energy Risk - Battle for the Home Front
With consumer demand for home energy monitoring devices anticipated to grow -- and regulators expected to require utilities to provide consumers with access to the devices and the data needed to make them useful -- the race is on to see which providers place their products in consumers' homes. In that race, some providers are joining with utilities to obtain consumers' energy usage data.
March 22: Commentary - The Pain in Spain, and What It Means for Europe and Beyond
Spain's rapid decline from one of Western Europe's fastest-growing economies to one of its most troubled has left many looking for blame. How could the country, a poster child for the benefits of European economic and monetary integration, suddenly find itself lumped together with smaller, more sickly economies like Greece, Portugal and Ireland?
March 22: Operational Risk - Are You Getting What You Expected From Your Anti-Money Laundering Software?
According to a recent FT.com article, US lawmakers are seeking to expand the reach of anti-money laundering regulations after a Senate investigation found that hundreds of millions of dollars in suspect foreign funds have been able to land in the US. As we can see, money laundering and terroristic financing continues to rise despite the huge investments banks have made in packaged Anti-Money Laundering (AML) software, custom built solutions through global system integrators, re-engineered business process, people, and policies. How can this be?
March 22: Energy Risk - Made in Korea
First it was appliances, then cars. Now, it is nuclear reactors. South Korea, which built its first nuclear plant in 1978 using U.S. technology, successfully outbid American-Japanese and French consortia to land a $20 billion order for four nuclear reactors in the United Arab Emirates.
March 22: Operational Risk - MAS Invites Comments on Proposed Enhancements to the Corporate Governance Framework
The Monetary Authority of Singapore (MAS) has issued a consultation paper that sets out proposed enhancements to the MAS Corporate Governance (CG) Framework which comprises the Regulations and Guidelines for locally-incorporated banks, financial holding companies and direct insurers.
March 22: Country Risk - Paul Tucker Discusses Resolving Large and Complex Financial Institutions, the Big Issues
Speaking at a European Commission conference on crisis management in Brussels today, Paul Tucker – Deputy Governor for Financial Stability and chair of the Financial Stability Board’s Working Group on Cross Border Crisis Management – discusses issues around resolving large, complex financial institutions in an orderly way without injecting public money. He says: “Bluntly, the challenge is how to sustain the provision of financial services during a crisis without the state bailing out uninsured creditors”.
March 19: Regulatory Risk - Basel Committee Issues Recommendations for Strengthening Cross-border Bank Resolution Frameworks
The resolution of a cross-border bank is a complex and multidimensional process and the financial crisis exposed gaps in intervention techniques and tools needed for an orderly resolution. Based on the lessons of the crisis and our analysis of national resolution frameworks, I believe that implementation of the Committee’s recommendations will help make meaningful progress toward addressing systemic risk and the too-big-to-fail problem.
March 19: Energy Risk – OPEC Rolls Over Again
OPEC met under the new Presidency of HE Germánico Pinto, Minister of Non-Renewable Natural Resources of Ecuador and President of the Conference for the current year. As with all OPEC meetings the market was awash beforehand with statements from all ministers although this time, each had the same point to make – no change! With the price of the OPEC basket being maintained over $75 irrespective of whatever OPEC says, the members are happy, for now.
March 19: Remarks – Gensler on OTC Derivatives Reform
The following are remarks of Chairman Gary Gensler, Commodity Futures Trading Commission, on OTC Derivatives Reform at Chatham House, London.
March 19: Market Risk - FIA Opposes CFTC Position Limit Proposal
The Futures Industry Association yesterday filed a major comment letter in opposition to the adoption by the Commodity Futures Trading Commission of its proposed speculative position limits on energy commodities.
March 19: Market Risk - SEC Warns Firms on Muni Pay-to-Play Rules
The Securities and Exchange Commission yesterday issued a report warning firms that municipal securities rules prohibiting pay-to-play apply to affiliated financial professionals, not just a firm's employees.
March 19: Credit Risk - Credit Risk Index Plateaus, Suggesting Improved Consumer Risk Conditions for the US
TransUnion reported that during the fourth quarter of 2009 the Credit Risk Index (CRI) indicated that risk conditions in the U.S. are beginning to moderate. The Credit Risk Index is a statistic developed to measure the changes in average consumer credit risk within various geographies across the nation.
March 19: Market Risk - US Fixed-Rates Flat this Week
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.96 percent with an average 0.7 point for the week ending March 18, 2010, up slightly from last week when it averaged 4.95 percent. Last year at this time, the 30-year FRM averaged 4.98 percent.
March 18: Commentary - Brian Ranson on If You Do Not Know Where You are Going ...
As Lewis Carroll wrote, if you donft know where you are going, any road will get you there. As any risk manager should readily admit, there is no guarantee of where risk is going, but that does not mean that there is no way to plan for risk. Indeed most banks plan risk changes every year, however they do so with blissful ignorance and call it a business plan. There is a way to change this and it can be done without having expensive software or technical experts. That does not mean that expensive software is an unnecessary expense, rather it means that there is an easier way to get to the point where that software (if you have it) can be used to its fullest extent.
March 18: Energy Risk - Big Ideas in the Big Easy (Part 1 - Keynote Address)
Roderick K. West, President and CEO, Entergy New Orleans gave the keynote address this morning at UtiliPoint international's Transformation | 2010 annual conference. Mr. West spoke of the current state of Entergy New Orleans and of the New Orleans metropolitan area's growth over the past 4 ½ years. Additionally, Mr. West spoke of Entergy's approach to many of the new issues facing electric and natural gas utilities. These issues include green or renewable power, energy efficiency and smart grid initiatives.
March 18: Energy Risk - Biomass is Mixing it Up
Biomass energy generation seems poised to compete with solar, wind, and even hydro in some regions as a source of renewable energy. Currently, biomass energy accounts for only a small percent of the total electricity produced in the United States. But with Department of Energy prodding and funding, its use is expected to double each year for the foreseeable future.
March 18: FSA - Publishes Business Plan for 2010/11
FSA yesterday published its Business Plan setting out its priorities for 2010/11. The Plan is a demanding programme of work for the year requiring greater policy and supervisory resources, and focusing on a number of key areas.
March 18: Operational Risk - US Federal Banking Agencies Issue Policy Statement on Funding and Liquidity Risk Management
The federal banking agencies,1 in conjunction with the Conference of State Bank Supervisors (CSBS), released a policy statement yesterday on their expectations for sound funding and liquidity risk management practices. This policy statement, adopted by each of the agencies, summarizes the principles of sound liquidity risk management issued previously and, when appropriate, supplements them with the "Principles for Sound Liquidity Risk Management and Supervision" issued in September 2008 by the Basel Committee on Banking Supervision.
March 18: Operational Risk - FSA Chairman Discusses Potential for New Macroprudential Policy Tools to Manage Credit and Asset Price Instability
New macro prudential policy tools are almost certainly needed to manage potentially unstable cycles of credit and asset prices and these tools may need to distinguish between different types of credit, according to Financial Services Authority (FSA) chairman, Lord Turner.
March 17: Speech – Geithner, Orszag and Romer on the Rescuing the American Economy from the Great Recession
The following is a joint statement of Timothy F. Geithner, Peter R. Orszag, and Christina D. Romer before the Committee on the Appropriations, U.S. House of Representatives.
March 17: BIS - Basel Committee Issues Principles for Enhancing Corporate Governance
The Basel Committee on Banking Supervision yesterday issued for consultation a set of principles for enhancing sound corporate governance practices at banking organisations. Drawing on lessons learned during the financial crisis, the Basel Committee’s document, Principles for enhancing corporate governance, sets out best practices for banking organisations.
March 17: Energy Risk - What Will the Volker Rule Mean to Energy Trading?
The commodity trading industry is starting to see wave after wave of proposals from various government entities calling for new regulations and reporting requirements. Some of the proposals may be viewed as market tuning exercises, such as the one put forth within the last two days which could put limits on the physical location of traders' computers relative to the trading exchanges with which they transact (as the closer you are to the exchange computers, the faster you can commit trades, particularly handy if you are a programmatic or algorithmic trader). Others, if passed as proposed, could have significant and fundamental impacts on the energy commodity markets.
March 17: Economic Risk - US Fed Makes Only Minor Changes to Its Characterization of the Economy Implying No Imminent Shift in the Direction of Policy
The statement issued by the Fed at the conclusion of today’s policy-setting FOMC meeting was very much in line with expectations and flags no imminent shift in policy. It suggested a very modest upgrade to its characterization of economic growth; however, this did not alter the assessment that inflation “is likely to be subdued for some time.”
March 17: Industry Risk - FSA Mortgage Lending Data Published
FSA has yesterday published its latest mortgage lending data for the United Kingdom covering the period Q4 2009.
March 17: Industry Risk - Fitch Issues Updated Global Criteria Report for Utilities, Power & Gas Sector
Fitch Ratings has issued an updated rating methodology covering Issuer Default Ratings (IDRs), instrument debt ratings and Recovery Ratings (RRs) in the Global Utilities, Power and Gas sector. As there are no changes in the fundamental approach, no rating changes will result from this criteria update.
March 17: Country Risk – US FOMC Statement
Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls.
March 16: Market Risk - ISDA Comments on Sovereign CDS
There has been a significant amount of attention in the last several days regarding sovereign CDS and the extent to which naked sovereign CDS are dictating the prices of the underlying bond markets. This discussion has led some to propose that naked sovereign CDS be banned or suspended. ISDA wishes to address certain issues in this debate: market and instrument transparency, outstanding sovereign CDS volumes and the possible impact of sovereign CDS on the underlying Greek government bond market.
March 16: Commentary - Zombie Love, Barclays and Citigroup? On OTC Derivatives, Interview with Bill King
This week in The IRA we feature a conversation with Bill King, who along with his wife and business partner Mary works in the world of derivatives broadly defined via their Chicago-based firm, M. Ramsey King Securities. We first started taking with Bill in the 1980s, during the political wrangle - we won't call it a battle - over free trade with and democracy in Mexico. That was about the time of the first appearance of "Too Big to Fail" for the large banks following the Mexican peso meltdown. Un fuerte abrazo a nuestros amigos en Mexico!
March 16: Country Risk - US Industrial Production Rose in February
U.S. industrial production rose 0.1% in February, beating market expectations for a flat reading. The increase follows the growth of 0.9% seen in January and continues a string of eight-straight monthly increases. The capacity utilization rate increased to 72.7% from January’s 72.5% (revised from 72.6%), higher than the 72.6% expected by markets.
March 16: Energy Risk - Obama’s Agenda
A cornerstone of the president's agenda has been making investments in the latest energy technologies -- money that underscores the transformation to the green economy and the creation of jobs and cleaner air. Toward that end, the administration spearheaded a $787 billion stimulus plan that has allocated hundreds of billions of dollars into such things as the intelligent utility, green energy development -- and even subsidies for futuristic nuclear and coal facilities.
March 16: Country Risk - Canadian Fourth-quarter Household Net Worth Climbs for a Third-consecutive Quarter
Canadian household net worth increased by $93 billion in the fourth quarter of 2009 to $5.8 trillion. This marks the third-consecutive quarterly improvement in household net worth, following the third-quarter’s $151 billion gain (revised up from $126 million) and the second-quarter’s $163 billion gain (revised up from $145 million) and the first year-over-year increase since the second quarter of 2008.
March 15: Commentary - Virgin and Tesco Shouldn’t Bank on an Easy Ride
Clearly, the financial crisis is leading to major changes in the capital, liquidity, and accounting regimes for banks. But might the crisis also open up the sector to non-bank competitors on a scale not seen before? Is the distrust of mainstream banks now so deep that ambitious companies in other sectors have an unparalleled opportunity to become major providers of banking services?
March 15: Andrew Davidson Insights - Addressing the Agency Buyouts
On February 10, 2010 Freddie Mac announced that it will purchase pretty much all of the 120+ days delinquent loans from its fixed and adjustable-rate PC securities. The purchases will be reflected in the factor report that will be released in early March. The buyouts will lead to a one month increase in speeds for Freddie securities.
March 15: Operational Risk - FSA CEO Outlines New Conduct Regulation Strategy, Consumer Protection Through Early Intervention
Hector Sants, chief executive of the Financial Services Authority (FSA), last week outlined the FSA’s new consumer protection strategy. Speaking at the annual Lubbock Lecture at Oxford University’s Saïd Business School, Sants described how the regulator will deliver its new approach, involving early detection and intervention, through intensive supervision.
March 15: Energy Risk - The Greening of Brownfields
Getting power generation projects permitted is a headache. That includes wind and solar. But a clever idea is now making headway -- to place such green facilities on land that is now contaminated.
March 15: Economic Risk - Spencer Dale, QE One Year On
In a speech last Friday at an academic conference in Cambridge, Spencer Dale – member of the Monetary Policy Committee and Chief Economist – examines the policy of buying assets using the Asset Purchase Facility, known as quantitative easing (QE). He reviews the theoretical foundations for QE, the key channels of transmission, and its impact to date.
March 12: Regulatory Risk - CEBS Publishes Its Draft Revised Guidelines on the Recognition of ECAIs
CEBS yesterday publishes its consultation paper (CP37) on the review of its Guidelines on the recognition of External Credit Assessment Institutions (ECAIs) of 20 January 2006. The consultation is open to all interested parties, including supervised institutions and other market participants.
March 12: Operational Risk - FSA, New Joint Committee Proposed to Enhance Consumer Protection
The Financial Services Authority (FSA), Office of Fair Trading (OFT) and Financial Ombudsman Service (FOS) have proposed the creation of a new consumer protection committee to scan for emerging risks.
March 12: Industry Risk - 82% of Public Believe Wall Street Should Be Regulated More Toughly
American attitudes towards Wall Street are ambivalent. Most people believe that Wall Street benefits the country and that what it does is “absolutely essential.” However, attitudes towards the people who work on Wall Street are overwhelmingly negative and are far lower than they were before 2008 and the bail-out of large banks and other financial institutions, with little or no improvement over the last year. The net result? Fully 82% of all adults believe that Wall Street should be regulated more toughly.
March 12: Market Risk - US Mortgage Rates Drop Slightly
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.95 percent with an average 0.7 point for the week ending March 11, 2010, down from last week when it averaged 4.97 percent. Last year at this time, the 30-year FRM averaged 5.03 percent.
March 12: Regulatory Risk - CEBS Publishes Its Draft Implementation Guidelines on Article 106(2) (c) and (d) of Directive 2006/48/EC Recast
CEBS yesterday publishes its draft implementation guidelines (CP38) on Article 106(2) (c) and (d) of Directive 2006/48/EC as amended by Directive 2009/111/EC. The consultation is open to all interested parties, including supervised institutions and other market participants. The revised Capital Requirements Directive (CRD II) provides exemptions from large exposures rules for certain short-term exposures arising from the provision of money transmission, correspondent banking, clearing and settlement and custody activities.
March 12: Regulatory Risk - Basel II Capital Ratios, Fitch Publishes a Field Guide
Fitch Ratings has published a report, entitled "Basel II Capital Ratios: A Field Guide for Assessing Risk-Based Capital", which evaluates the key components and drivers of Basel II risk-based capital ratios. The report identifies notable drivers of risk-weighting calculations and provides insight on the comparison of capital ratios across financial institutions.
March 11: Speech – Geithner on Economic Recovery and Crisis Response
The following is written testimony by Treasury Secretary Timothy F. Geithner to the Treasury Budget House Committee on Appropriations, Subcommittee on General Government and Financial Services.
March 11: Regulatory Risk - CEBS Publishes Its Draft Guidelines on Liquidity Cost Benefit Allocation (CP36)
The Committee of European Banking Supervisors (CEBS) yesterday published its consultation paper on draft guidelines on liquidity cost benefit allocation. The consultation is open to all interested parties, including supervised institutions and other market participants.
March 11: Energy Risk - Have Fuel Cells Finally Turned the Corner?
Sunnyvale, California-based Bloom Energy, founded in 2001, was one of the feature stories on the February 21 edition of CBS Television's "60 Minutes." The subject of the story was the public unveiling of the Energy Server™, which is refrigerator-sized generating units containing solid oxide fuel cells. However, amid the hype and buzz generated from the "60 Minutes" story and subsequent public unveiling of the Energy Server™ on February 24th, many questions remain as to whether or not this new offering is the "game-changer" that, to date, in regard to fuel cells, has been more promise than delivery.
March 11: Operational Risk - FSB Launches Initiative to Promote Global Adherence to International Cooperation and Information Exchange Standards
The Financial Stability Board yesterday launched an initiative to encourage the adherence of all countries and jurisdictions to international financial standards, including by identifying non-cooperative jurisdictions and assisting them to improve their adherence.
March 11: Energy Risk - Ensuring Nuclear Safety
Both the European Union and Russia are planning for more nuclear energy. It's part of their effort to reduce carbon emission levels. With the two powerhouses dependent on each other to accomplish their respective goals, they have agreed to enter into a "nuclear partnership agreement" to assist in nuclear trade and safety-oriented transactions.
March 11: Regulatory Risk - FSA Publishes Financial Risk Outlook
The Financial Services Authority (FSA) yesterday published its Financial Risk Outlook (FRO) outlining the main risks and issues present in its operating environment, affecting firms, markets and consumers.
March 11: Industry Risk - Three Drivers Reshaping Finance in 2010, Transparency, Efficiency and Networks
Increasing regulation and compliance, and investor demand for stronger risk management, calls for improved transparency across the organization and into business silos. The ubiquitous need to do more with less, better align costs and properly allocate resources is driving the adoption of process automation for greater operational efficiency. Finally, as emerging market firms look to expand in the West, and Western firms move further into emerging economies, both need to leverage business process networks that accelerate time-to-market and leverage market connectivity and access.
March 10: Commentary - FSA Must Not Give In to Pressure from Industry on PPI
The Consumer Panel blamed industry pressure in forcing the FSA to re-publish a consultation on payment protection insurance (PPI) complaints and redress yesterday, so further delaying fair treatment for consumers in this vital area.
March 10: Commentary - Solving FAS 166 And 167 Compliance with Data Integration and Data Quality
Back in June 2009, the Financial Accounting Standards Board (FASB) published Financial Accounting Statements No. 166, Accounting for Transfers of Financial Assets, and No. 167, Amendments to FASB Interpretation No. 46(R), which changes the way entities account for securitizations and special-purpose entities.
March 10: Operational Risk - Planning for the Recovery, Access to Capital and Executive Compensation Among Chief Issues at 2010 Shareholder Meetings
Given economists forecasts of a slow recovery from the “great recession,” investors are keenly interested in how management is planning to navigate the remaining economic turbulence. This uncertain climate should make for an especially challenging annual meeting season this Spring. BDO has compiled the following list of topics that corporate management and boards of directors should be prepared to address in connection with 2010 annual meetings.
March 10: Economic Risk - Barker on Monetary Policy, from Stability to Financial Crisis and Back?
In a speech to the National Institute of Economic and Social Research in London yesterday, Kate Barker draws lessons from her nine years as an external member of the Bank’s Monetary Policy Committee (MPC). She suggests these might inform the Committee over the “difficult” years immediately ahead. Ms Barker steps down from the Committee on 31 May this year.
March 10: Commentary - Empty Pockets, What Does the Greek Debt Dilemma Mean for the Global Economy?
Fear is growing that Greece -- one of 16 countries that use the euro as currency -- may default on a massive pile of debt, creating a ripple effect of problems throughout Europe and beyond. Following pressure from the European Union and the European Central Bank, the Greek government on March 3 announced a new round of austerity measures -- the third such package in the last six months. Meanwhile, Wall Street banks are again facing scrutiny -- this time, for the complex financial instruments they used to allegedly disguise the country's real debt. What caused Greece's debt problem to spin out of control? And what steps should it take to remedy the situation? Wharton finance professors Richard Herring and Itay Goldstein weigh in.
March 10: Commentary - The Renaissance of Non-Agency RMBS Securitization, Projected Collateral Credit Performance
There are a number of critical issues that must be addressed before the securitization of newly originated non-agency residential mortgage pools can begin. These issues will require significant legislative and regulatory decisions to be made, hopefully in the not too distant future. However, we can begin to look at what Prime collateral pools SHOULD looklike and perform in future securitizations. This can provide some guidance into likely subordination levels.
March 9: Industry Risk - Huge Green Construction Support Continues Despite Recession -- Energy Savings is Number One Reason for Building Green
We do not expect a significant change in carbon offsets unless mandatory carbon mitigation programs are adopted at the state or federal level.
March 9: FSA - Liquidity Calibration Statement
The FSA believes that it would be premature to increase liquidity requirements across the industry at the current time.
March 9: Energy Risk - Energy Efficiency Funding
Money is tight. But not necessarily for projects involved with increasing energy efficiency. Some innovative financing techniques are emerging to allow customers to make improvements without incurring initial out-of-pocket costs.
March 9: Market Risk - Hedge Funds Advance +0.96% in February
Global equity markets were mixed in February, with the U.S. experiencing gains and most international markets posting small losses. During the month, the focus of hedge fund managers was on Greece and its debt level, as well as potential problems in Spain, Portugal and Italy. Managers see this only as the tip of the iceberg.
March 9: Operational Risk - ISDA Publishes the Market Review of OTC Bilateral Collateralization Practices and Independent Amount Whitepaper
ISDA yesterday announced that it has published the ISDA Independent Amount Whitepaper and Market Review of OTC Bilateral Collateralization Practices. Collateralization has become a key method of mitigating counterparty credit risk in the derivative markets. The documents are designed to provide better understanding of current market practices. In these documents, a number of recommendations were made for market participants to enhance practice or understanding in the collateral management arena.
March 8: Credit Risk - US Credit Card Defaults Surge 11%, Delinquencies Fall Again
US credit card chargeoffs surged to near record levels set last fall. Late-stage delinquencies are still trending in the 4% range industrywide, which is keeping chargeoff levels in the double-digits.
March 8: Energy Risk - Unregulated Power Companies 'Stable'
The economic rebound should correlate with that of the electricity sector and particularly the unregulated component of it. But despite months of uncertainty, those "merchant" utilities played it smart by locking in longer-term contracts prior to the downturn.
March 8: Industry Risk - Association of German Banks Warns of Negative Consequences of a Leverage Ratio
The introduction of a leverage ratio won't help to stabilise the financial system - on the contrary. A leverage ratio would consequently handicap German universal banks in particular, although they had a much lower risk exposure than, for example, Anglo-Saxon investment banks.
March 8: Economic Risk - US February Payrolls Fell Less Than Expected and the Unemployment Rate Held Steady
The February labour market report provided somewhat better than expected news. Job losses continued during February, but the decline was 36,000, which was less than the median expectation of a 50,000 decline. January's job loss deepened to 26,000 from the previously estimated 20,000 decline; however, December's data was revised to show that fewer jobs were lost.
March 8: Commentary - Mark-to-Market Accounting, OneWest and WaMu; Commentary by Brian Wesbury and Robert Stein, Bernanke Finally Fingers Mark-To-Market
It would have been much better for the economy if Chairman Bernanke had been this clear about mark-to-market accounting back in 2008. If he had been, the US might have avoided the Panic of 2008. But it's never too late, and now that mark-to-market ideology is affecting the ability of the Federal Reserve to exit its quantitative easing, he's finally onboard.
March 5: Testimony – Allison on Treasury’s Strategy on Investments
The following is written testimony of Assistant Secretary of the Treasury, Allison, before the Congressional Oversight Panel.
March 5: Energy Risk - Despite Large Potential for Savings, Energy Management Systems Market is Still Only 14% Penetrated
Energy Management Systems (EMS) are being increasingly utilized by commercial building property managers to help optimize energy consumption. Automation and control capabilities enabled by EMS are most frequently focused on heating, cooling, ventilation, and lighting, which together account for approximately 57% of energy consumed in commercial buildings, according to the U.S. Department of Energy. However, a recent report finds that despite the strong return on investment for EMS deployments, just 14% of the market potential is being realized, providing a significant opportunity for new industry players.
March 5: Job at Risk - Monster Employment Index Rises Sharply in February
Index rises by ten points in February, as employers resume recruitment activity following January’s seasonal lull. Year-on-year growth rate now up a positive 2 percent, with online demand rising above year-earlier levels. Offerings in information; professional, scientific, and technical services rise, while utilities and retail decline. Online job demand rises in all of the 28 major metro markets monitored by the Index, with Detroit showing strongest monthly gain.
March 5: Operational Risk - One-Two Punch of Superior Due Diligence and Activist Ownership Key to Private Equity Outperformance
According to a comprehensive private equity (PE) market report (“Global Private Equity Market Report, 2010”) a superior due diligence process followed by a quick transition to active owner involvement will be key to generating exceptional returns—in a future devoid of free-flowing credit, multiple arbitrage and mega-deal opportunities. The outlook finds that new buyout funds formed and new investments made over the next three-to-five years will likely generate gross returns in the low to mid-teens on average, several percentage points below their historic levels.
March 5: Operational Risk - More Technology CFOs Migrate to the Cloud
This year, according to an annual study by BDO, a majority (56%) of chief financial officers (CFOs) at leading U.S. technology businesses are currently using cloud computing in some capacity. Further, the vast majority (90%) report their use of cloud computing will remain the same or increase this year.
March 5: Industry Risk - Large US Companies Emerge from Credit Crisis with Banking Relationships Intact, but Recovery Brings New Tests
Relationships between the largest U.S. companies and their banks remained relatively harmonious throughout the global credit crisis — at least when compared to the levels of acrimony that emerged between banks and cash-strapped small and mid-sized businesses. But the state of these relationships for the rest of 2010 will be determined in large part by the answer to a single question: As the economic recovery takes hold and big companies begin making long-delayed investments in their businesses, will their banks have the capacity and appetite to meet their increased demands for funding?
March 4: Market Risk - Association of German Banks Unveils Standard for Securitizations
The securitisation market in Germany has been at a virtual standstill for the last two years. "There's actually no justification for the loss of confidence in German securitisations, especially securitisations of SME loans, where losses were far lower than expected even during the crisis.
March 4: Energy Risk - Northeastern States Face Homegrown Issues
To move smart grid initiatives forward in the Northeast United States, keeping the public aware of what a more intelligent utility can mean to their lives is critical. The benefits of a smarter, more robust grid and the consequences of not having one must be clearly communicated to garner broad public support.
March 4: Interview - Mr. David Kučera, General Secretary of the Prague Power Exchange
Late last year, I spoke at and chaired a roundtable discussion at the Energy Risk Conference in Prague, Czech Republic. One of the roundtable participants was Mr. David Kuèera, General Secretary of the Prague Power Exchange (Power Exchange Central Europe, a.s.) and I was fascinated to learn something of the challenges and hurdles he and his colleagues had gone through (and may yet still face) in working to create an exchange here in Central and Eastern Europe.
March 4: Operational Risk - Spending on Post-MiFiD Market Surveillance by Brokers, Exchanges and MTFs Growing by 13% CAGR, Rising to €185 Million in 2012
Market surveillance might appear an unlikely candidate to be a driving force of change and a hotbed of competition, but capital markets research and advisory firm TABB Group says that MiFID’s implementation is turning surveillance, traditionally a cost centre, into a competitive edge.
March 4: Market Risk - Monthly CDS Insight February 2010
US corporate CDS markets, while trading in a broader range, were little changed over the course of February 2010. While rising concerns of potential default in certain European sovereign contracts initially weighed on credit sentiment across the globe, risk appetite returned as expectations of sovereign default – or certainly concerns over the impact of contagion from a sovereign credit event – receded.
March 4: Commentary - Can Currency Crises be Prevented?
In the past few days, both the Euro and Sterling have come under tremendous pressure from the investment community. Both have lost ground on the dollar, a currency that only 5 months ago was deemed unfit for purpose. Back then, in my commentary entitled “Why so much talk about the demise of the dollar when there are much more important issues to worry about?” I suggested that the talk about dollar’s demise was way over exaggerated and that it would be literally impossible to replace it as the currency of choice for pricing most commodities by a basket of currencies, due to the practical issues of conversions, and certainly the Chinese Yuan.
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