Banks may accelerate efforts to move trading in the $62 trillion credit-default swaps market through a central clearinghouse

Banks may accelerate efforts to move trading in the $62 trillion credit-default swaps market through a central clearinghouse or to an exchange after the bankruptcy of Lehman Brothers Holdings Inc. and the credit downgrade of American International Group Inc. Lehman, the first major market-maker to go bankrupt in the decade-long history of the privately negotiated, unregulated business, may leave behind billions of dollars in potential losses for trading partners, according to Barclays Plc of London. No one knows exactly how much because there's no central exchange or system for recording trades. ``The fact that I can't tell you the notional value of derivatives contracts Lehman has written the day after a bankruptcy is a scary thing,'' Brian Yelvington, a strategist at New York-based bond research firm CreditSights Inc., said yesterday. A clearinghouse capitalized by owners could have reduced the risks because it becomes the so-called counterparty, for a fee, to each side of the trade. Now, banks are sifting through trading positions to ``net'' trades that offset each other and reduce potential losses. Untangling that web may last into 2009, said John Jay, a senior analyst at Boston-based Aite Group, a financial services consulting firm. ``Just figuring out what they have could take a week, but the thornier issue is to figure out valuations,'' said Jay. ``It's a Gordian knot because you have different ratings, different counterparties, different end-dates and you have to somehow attach a value to these contracts. It's an operational nightmare and a legal nightmare of interpreting what each contract says.'' The Markit CDX North America Investment Grade Index, which rises as confidence in companies deteriorates, climbed as high as 195 basis points yesterday, from 152 basis points at the close of trading on Sept. 12, according to broker Phoenix Partners Group. The index reached a record 200 during an emergency trading session on Sunday, Sept. 14 as investors tried to prepare for the collapse of New York-based Lehman. A basis point is 0.01 percentage point.
Prices continued to rise in Europe and Asia today after credit ratings on AIG, the biggest U.S. insurer by assets, were cut by Standard & Poor's and Moody's Investors Service. Contracts on the Markit iTraxx Crossover Index of 50 companies in Europe with mostly high-risk, high-yield credit ratings climbed 33.5 basis points to 627.5, according to JPMorgan Chase & Co. prices at 7:19 a.m. in London. The Markit iTraxx Australia Series 9 Index increased 35 basis points to 220 basis points, matching the all-time high of March 17 when Bear Stearns Cos. was bailed out by the Federal Reserve, according to ABN Amro Holding NV. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Each contract is a separate agreement between two so-called counterparties and trades in over-the-counter transactions, leaving parties exposed to the risk that their partner will default.
Barclays analysts estimated in February that if a financial institution that had $2 trillion in credit-default swap trades outstanding were to fail, it might trigger between $36 billion and $47 billion in losses for those that traded with the firm. That doesn't include the market-value losses investors face as the cost to protect companies against a default widens. ``There should be some central agency which prevents risk in the future of a large counterparty failing and causing losses,'' said Puneet Sharma, the head of investment-grade credit strategy at Barclays Capital, the U.K.'s third-biggest bank. ``This was not necessary.'' Wall Street created credit-default swaps more than a decade ago to help banks hedge against loan losses. Dealers later came up with contracts and indexes that allowed investors to speculate on a borrower's creditworthiness without owning any bonds.
The market grew 100-fold in the past seven years leaving dealers, who until a few years ago recorded trades on scraps of paper, struggling to keep up. New York Fed President Timothy Geithner assembled dealers in September 2005 to develop a plan to reduce the backlog of paperwork and unconfirmed trades. In July the 17 dealers agreed to form a clearinghouse, create a system to better manage the collateral that protects trading partners from losses and tear up offsetting contracts to reduce the number of positions that banks have to oversee.
The clearinghouse may fall behind schedule, delaying completion until next year, said a person familiar with the process who asked not to be identified last week because the discussions weren't made public. The development was postponed after the Fed pushed Chicago-based Clearing Corp. to obtain a banking license, which would place it under the central bank's watch, the person said. A spokesman for the Federal Reserve Bank of New York, Andrew Williams, declined to comment. Clearing Corp. spokesman Andy Merrill declined to comment, pointing to a statement last week that the company ``and its clearing participants have been moving aggressively to prepare the CDS platform for launch as soon as the appropriate regulatory approvals are achieved.''
``The industry's progress in building a strong foundation for our business will enable it to successfully address current issues,'' said Eraj Shirvani, chairman of the International Swaps and Derivatives Association and head of European credit at Credit Suisse Group in London, said yesterday in a statement.
Clearing Corp. said it will guarantee trades between dealers, at least at first, and only contracts on benchmark indexes rather than on individual companies.

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Posted in: $62 trillion credit-default swaps market

Counterfeit bank and credit cards used to steal funds from customer accounts.

banks in the UAE have slashed the daily cash withdrawal limit of ATM users by almost half after hackers, who police said were from Russia and Ukraine, used counterfeit bank and credit cards to steal funds from customer accounts.
Some banks even blocked international use of ATM cards as a preventive measure while HSBC Bank temporarily reduced the daily withdrawal limit to Dh6,000 for premier card members and Dh4,000 for others as part of measures to contain the damage.
As thousands of customers thronged ATM machines to change their card PINs (personal identification number) over the past three days, most banks in the UAE said they would continue the state of alert against the fraud, but refused to disclose the size of the money stolen or how many accounts were skimmed.An initial investigation by banks indicated that cash machines were rigged with devices that stole customers’ PINs as they made withdrawals. Jonathan Campbell James, regional head of security and fraud risk, HSBC Middle East, said his bank did not implement a general blocking of overseas transactions as its customers expected to have access to their accounts wherever they travel.“But when we detect a series of fraudulent transactions coming from a particular geography, we may temporarily restrict access,” he said Major-General Khamis Matar Al Mazeina, Deputy Commander-in-Chief of Dubai Police, said the hackers are from Russiaand Ukraine. Banking sources, however, said the hackers were part of an international network, with most of the fraudulent transactions originating from more than 20 countries outside the UAE.Al Mazeina said the police were trying to find out the methods used by the gang to steal from bank accounts. “We want to find out whether the breach occurred when customers used their cards to buy on-line or when they used their cards within the UAE and certain other countries.”He said police still did not have any clue about the number of people and banks hit by the fraud or the total amount stolen by the gang.“We are in touch with credit card companies, banks and fraud victims although we have not received any complaint so far.” He said the police would meet concerned authorities to probe into the matter and find measures to protect credit card users.Banks said only ATM debit cards have been counterfeited. “The attack is more sophisticated than that are routinely experienced, and has come from multiple countries,” Campbell James said.
Most banks continued to encourage customers to change their PIN numbers. “Because a large number of customers have already done so, a significant number of attempts by fraudsters to steal from customers’ accounts have been frustrated,” the bank official said. “HSBC and several banks in the UAE have identified fraud that appears to result from the compromise of ATM information from another bank.
This information has been used to produce counterfeit cards that have been used internationally.”The bank official said if a customer’s card had been copied and used to steal money, the bank would contact the customer, advise them what had been done, organise a refund and issue a new card free of charge.
“Our special accelerated procedure for refunding UAE customers affected by this particular fraudulent attack is working well. A substantial number of customers have already received their refunds and the process of issuing free replacements for cards which have been compromised is on track.”

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Posted in: HBOS

The Lehman collapse has changed the game of how regulators now deal with financial institutions, and potential bailouts are no longer an option.

Bankruptcy of Lehman Brothers has far more serious implications for the world’s financial system, with possible consequences to the Gulf, than did the demise of Bear Stearns. The Lehman collapse has changed the game of how regulators now deal with financial institutions, and potential bailouts are no longer an option.
The accelerated momentum of securitisation of mortgage loans in 2005 caused the subprime crisis, not the low interest rates when the Fed reduced Fed funds to 1 per cent. The sale of securities from credit pools had never reached such a level before. When US investment banks discovered the appetite of foreign institutions, commercial banks sped up their loans to uninformed borrowers to meet the soaring investor demand.
Banks transferred to their trading books what cost too much on their credit books (8 per cent of their assets in equity) even though the so-called “securities” were for the most part illiquid private placements. This trend to structure credit in the cheapest way possible by avoiding capital requirements was blatant regulatory arbitrage on a massive scale. But this was caused by the central banks themselves who insisted on a higher and costly capitalisation on banks, who in turn tried to minimise such costs by moving assets off-balance sheet.
Second, the investor demand for this structured paper was not triggered by the “excess liquidity” created in the low interest rates since 2001, but it instead represented the most massive transfer of wealth ever recorded in history. Two billion individuals moved in a matter of only a few years from a state-controlled economy to semi-capitalist private systems, and the productivity gains across both western economies and emerging market economies unleashed a virtual flood of financial wealth and savings, with the world capital stock nearly trebling from US$60 trillion (Dh220.4trn) to $160trn. One only has to observe these phenomena in the Gulf over the past few years to see the effect on new wealth creation for many classes of citizens.
These same citizens must now be wondering what happens next and the news is not looking good, given the inter-linkages of counter obligations among financial institutions. It will take months to unwind Lehman’s complex deals and obligations with other banks, and given the company’s high-profile presence in the Gulf, it would be a brave soul to state that Gulf institutions will not be affected this time around. Tighter credit and higher margins will be the order of the day as banks seek quality clients, and investors, in turn, seek quality financial institutions whose numbers seem to diminish by the day.
Until the collapse of Lehman, the assumption had been that any financial institution operating at the centre of the international financial system, be it a commercial or investment bank, is simply too big and too interconnected to be allowed to fail or to be wound down quickly for fear of a systemic breakdown. This assumption has now been shaken.This raises the issue of fiduciary risk. Two thirds of the capital flows today go through fiduciaries, those who act as managers, custodians, broker-dealers, administrators or trustees, while credit banks, the dominating power of finance until the 1980s, have become marginalised. The whole texture of finance shifted from a classic loan industry to one of securities trading, warehousing, arbitrage and valuation. Institutions don’t lend cash anymore: they lend securities and exchange credit swaps and interest rates.The shift was so sudden and reached so deeply in a structural sense that it heightened the fragility of the whole system. No wonder regulatory tools based on a credit model have proven to be so ineffective. As long as the industry was dominated by credit and an obligation to generate and protect the “results”, one could reinforce the walls and limits of a regulated system. But when the industry is overtaken by institutions acting as fiduciaries rather than creditors, the obligation is only of the “means” (ie “best practice”) not of the ends, or the result of their imprudence, so how do you effectively regulate that? What is worrying is that more and more Gulf institutions have been following the fiduciary route with traditional credit-related commercial banking taking a secondary role.A move to enlarge the supervisory role of a central bank is likely to create an unprecedented concentration of powers with no corresponding real and effective means to intervene and contain market excesses save for “bailing out” creditors who make the asset bubbles possible. What’s more, by guaranteeing impaired assets, central banks are exposed to capital losses, however over-collateralised the central bank is in its term lending through its new liquidity facilities. As the current crisis itself has shown, when all the financial institutions – rather than just one or two in trouble – face funding risks at the same time, there is not much value in the collateral you are holding unless you can hold it for a long, long time. This is what made Barclays decide to pull out of the Lehman rescue effort.
The Lehman collapse raises the question whether central banks could go under in the wake of their market intervention during a financial crisis. The Fed’s total equity stands at $40 billion versus the $29bn needed to guarantee Bear Stearns alone, and this is without Freddie Mac and Fannie Mae support. A central bank can never go “broke” per se, of course, since a government will always replenish its capital base if the losses due occur. But that would also entail, in effect, printing money at a time when inflation is an issue. Concerning Lehman, the Fed has declined to pump in money to bail it out and some, including Alan Greenspan, are now calling for a new model of financial supervision that does not automatically bail out failed banks. Some have put forward drastic solutions given the potential capital adequacy problems of central banks to support a total collapse in the financial system.
One suggestion is that we need to limit the size of financial institutions. We should limit their size instead of facing the unavoidable option of having to save them. In short, once an institution grows too big, it should be split as AT&T once was in the late 1970s, and IT companies in this century. The argument was one of the social and economic needs to break a cartel, whereas today it is the size itself that becomes so unmanageable relative to the means of containing a systemic risk.
In both cases, the goal is to improve market efficiency. Should we move back to restore the strict division between commercial and investment banking and put an end to such a massive regulatory leakage? The answer may lie in the transition of the industry itself. The “old” Fed had regulatory responsibilities over a traditional commercial banking industry that is mostly a relic from textbooks, while the “new” Fed must consider the financial industry in whole. It is possible that the new regulatory fabric that arises will produce clear lines of responsibilities, dividing the new credit and fiduciary roles within the finance industry, as both sides are not subjected to the same performance obligations.
Given the explosion of commercial and investment banking in the Gulf, this issue will also be an important one for GCC regulators. The trend in the region was for larger banks and mergers to face the big boys from outside. This will cause the same dilemma for Gulf regulators in case one major financial institution faces trouble, but given the state of fragility of banking confidence due to recent fraud and scandals the likely option in the Gulf is to discreetly bail out. In the final analysis, let us hope that in trying to fix this current mess, the regulators do not lay the seeds of a future financial meltdown.

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Posted in: future financial meltdown

HBOS has frozen the accounts of Andy Hornby

HBOS has frozen the accounts of Andy Hornby, its chief executive, after a thief stole his identification details and withdrew thousands of pounds in cash.
Mr Hornby, who earned £1.7m last year, is said to have been told the news while on holiday.Fraud investigators are now poring over Mr Hornby's accounts to work out how much money has been stolen.The thief is believed to have obtained one of Mr Hornby's bank statements and used it to pose as the 41-year-old chief, stealing up to £7,000 in one day.The fraudster is said to have been filmed on CCTV withdrawing cash from bank branches and from an ATM machine.The embarrassing episode adds to a gruelling year for Mr Hornby, who has had to face shareholder unrest since HBOS launched a £4bn rights issue in April. It is not known for how long the fraudster had access to the accounts before staff became aware of the theft.The good news for Mr Hornby is that he will probably be eligible for a refund from HBOS. The bank said that, like all lenders, it will generally reimburse customers who are victims of fraud if they have taken sufficient care to safeguard their details. Banks advise their customers to shred financial documents and to keep those that are not shredded in a safe place.HBOS declined to discuss Mr Hornby's case, saying that the bank never commented on an individual customer's affairs.

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Posted in: HBOS

London Police’s the Dedicated Cheque and Plastic Crime Unit when they raided a factory that made counterfeit credit cards

Two people had been apprehended by London Police’s the Dedicated Cheque and Plastic Crime Unit when they raided a factory that made counterfeit credit cards. The people that were caught are involved in credit card fraud, were charged with conspiracy and defraud cases.The machines and gadgets that the criminals used were also taken into custody. Among those that were discovered included robbed chips, fake credit cards and account numbers, PIN terminals, fake magnetic strip cards, card reader and computer softwares.John Folan, Detective Chief Inspector of the DCPU, said that the positive turn out of the raid is one of the largest busts made and that it proved to be a welcome outcome for the Police’s efforts to quell crime, especially credit card and check fraud. He said that the bugged chips and PIN terminals have been spread in retailer’s outlets all over UK, which was believed to be more than twenty.
For people who are just thinking of applying for a credit card, go ahead and compare different credit card offers because the Association for Payment Clearing Services noted that card holders are protected by a banking code against such crimes.

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Posted in: London

Mortgage Asset Research Institute just released a report on mortgage fraud for the first three months of the year, and California ranked No. 2,

Mortgage Asset Research Institute just released a report on mortgage fraud for the first three months of the year, and California ranked No. 2, behind the No. 1 state of…..Florida!Coming in No. 3 was a three-way tie: Illinois, Maryland and Michigan.The MARI maintains a database of reported incidents of fraud and misrepresentations, and the ranking is based on total number of properties involved in fraud (the totals were not given). Nationwide such reports were up 42 percent in the first quarter vs. a year ago. And here I thought fraud would decrease after the credit crunch began last summer.
Although the report didn’t break out Orange County, it said in California 52 percent of properties with “misrepresentations” are in the Los Angeles.
“Income and employment misrepresentation on the mortgage application rank high in Florida, California, Illinois and Maryland. Florida and Maryland report higher income than employment misrepresentation, and California and Illinois report slightly higher employment than income misrepresentation.”“The first quarter data reveals that loan application misrepresentation continues to plague the industry. According to the FBI’s 2007 Mortgage Fraud Report, ‘the downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes suitable to a down market. Simply stated, mortgage fraud will not disappear

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Posted in: California

Increasing rates of global cyber fraud, it has been discovered that Nigerian banks have lost over N7.3 billion to cybercrime related activities.

Increasing rates of global cyber fraud, it has been discovered that Nigerian banks have lost over N7.3 billion to cybercrime related activities.
The Chief Executive Officer of the Global Network for Cyber Solution, Mr. Segun Olugbile, disclosed at a Press Conference in Abuja, yesterday.He said that banking industry, as one of the most strategic sectors of the economy needed protection from cyber-criminality considering the huge amount of funds lost in that sector annually.
He pointed out that some of the rampant cyber corrupt practices in the banking sector include online financial fraud inside-out, identity theft, system penetration by outsiders, data and network sabotage and denial of service attacks.Mr. Olugbile whose organisation recently convened a national stakeholders’ conference on Cybercrime and Cyber security to address the challenging issues and their impact on Nigeria, said global loses $200 billion dollars annually in direct and related damages to Cybercrime which also said was a threat to world peace and security.“The quantum effect of the emerging monstrous challenge of Cybercrime to developing economies translates into a colossal digital nightmare to the African Continent and indeed, particularly to Nigeria”, he said.The CEO added that there were reliable case studies to prove that an attack on a national infrastructure could, by virtue of its catastrophic consequences, completely paralyze the machinery of Government.
He therefore urged the federal government to declare Cybercrime and Cybersecurity as a National emergency, which deserved conscious political will and special budgetary resources to effectively engage the challenges presented by its impact.
Mr. Olugbile also called on Nigerian legislators to enact into law National Information Infrastructure (NIIA) Act, provide legislative framework for cyber crime and security and establish Cyber Crime Reporting and Response Centre, as well as, a Cybercrime and Cybersecurity Training Centre.

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Posted in: Nigeria

Donald H. Allen and his companies H&M Petroleum Corp. and American Energy Resources Corp. raised about $9.9 million from more than 350 investors

Colorado Springs man and his two oil and gas companies have agreed to pay $510,000 to settle civil fraud allegations, the Securities and Exchange Commission said Thursday.The SEC alleged that between March 2002 and December 2006, Donald H. Allen and his companies H&M Petroleum Corp. and American Energy Resources Corp. raised about $9.9 million from more than 350 investors nationwide without disclosing that they had never generated profits for investors.Allen did not immediately respond to a telephone message.Allen was accused of spending $2.3 million of investor funds to pay for items including a custom speedboat, ski vacations, fitness equipment and jewelry.The SEC alleged Allen and his companies touted annual returns of up to 354 percent without disclosing the speculative nature of the projections; incorrectly told investors that AER and H&M invested in their own projects; that securities were improperly sold in unregistered transactions; and that Allen acted as an unregistered broker.Allen and his companies settled the case without admitting or denying the allegations

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Posted in: HM Petroleum Corp. and American Energy Resources Corp.

Charged with scheming and conspiring to defraud a bank are 31-year-old Michael Vorce of Grand Rapids and 29-year-old James Jett of Byron Center.

Two Michigan men face federal charges in an alleged fraud scheme using stolen personal information to obtain bank loans for purported purchases of yachts. Court documents filed Thursday say the two tried to steal financial information of a Milwaukee lawyer in the attempt to buy a yacht worth about $550,000. Charged with scheming and conspiring to defraud a bank are 31-year-old Michael Vorce of Grand Rapids and 29-year-old James Jett of Byron Center. Authorities say the alleged scheme involved use of the personal information to get expensive loans for the purchases, even though in some cases the yachts were fictitious. The FBI issued a news release saying the investigation is continuing into the multistate scheme said to involve at least $2.6 million and at least four financial institutions.

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Posted in: Michigan

Avusa Media Ltd payroll administrator Laurence van Tonder, who allegedly defrauded the company out of more than R5-million in three years,

Avusa Media Ltd payroll administrator Laurence van Tonder, who allegedly defrauded the company out of more than R5-million in three years, has appeared in the Port Elizabeth commercial crimes court.Van Tonder, 38, of Hampshire Road, Sherwood, Port Elizabeth, reportedly pocketed R1653254 of the money himself, but the state has charged him with taking the entire amount of R5075552.He is accused of 94 counts of fraud, committed between November 2005 and December last year.He was not asked to plead and no evidence was led. The case was postponed to September 15, possibly to plead to the charges. Van Tonder is out on warning.His duties at Newspaper House included capturing the monthly payroll on the electronic payroll package system and reconciling monthly payments to Discovery Health.Van Tonder allegedly opened four FNB accounts in his name. A fifth one was opened at Nedbank for his life partner.
He then allegedly entered inflated payments on the transfer request forms for payment to Discovery Health, and altered the banking details to reflect these amounts, misrepresenting to Avusa Media Ltd that the bank accounts belonged to Discovery Health.

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Posted in: Avusa Media Ltd

Bradford & Bingley, admitted yesterday that it had been forced to take an £18 million impairment charge in the half year to June 30 to cover borrowing

Bradford & Bingley, admitted yesterday that it had been forced to take an £18 million impairment charge in the half year to June 30 to cover borrowing by criminal gangs and other fraudsters. The sum represents an increase on a £15 million charge taken in June. B&B’s losses may be only the tip of the iceberg. The Association of Chief Police Officers has estimated the scale of mortgage fraud in the UK at £700 million a year, but many believe this to be conservative. Navigant, a consultancy that conducts forensic investigations, has estimated that British mortgage lenders could be sitting on at least £7 billion of fraudulent loans. B&B, which has 3 per cent of the mortgage market, is the first high street bank to disclose the size of its losses due to fraud. Rod Kent, its chairman, said that the bank had not been singled out and was no more vulnerable than other lenders. “We don’t think we are being selected, we are just being more transparent,” he said.

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Posted in: Bradford and Bingley

damage from the global mortgage meltdown has more than matched that of the savings-and-loan bailouts of the 1980s and early 1990s.

Long before the mortgage crisis began rocking Main Street and Wall Street, a top FBI official made a chilling, if little-noticed, prediction: The booming mortgage business, fueled by low interest rates and soaring home values, was starting to attract shady operators and billions in losses were possible. "It has the potential to be an epidemic," Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.Today, the damage from the global mortgage meltdown has more than matched that of the savings-and-loan bailouts of the 1980s and early 1990s. By some estimates, it has made that costly debacle look like chump change. But it's also clear that the FBI failed to avert a problem it had accurately forecast.Banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments in the last year or so as homeowner defaults leaped and weakness in the real estate market spread. . .Most observers have declared the mess a gross failure of regulation. To be sure, in the run-up to the crisis, market-oriented federal regulators bragged about their hands-off treatment of banks and other savings institutions and their executives. But it wasn't just regulators who were looking the other way. The FBI and its parent agency, the Justice Department, are supposed to act as the cops on the beat for potentially illegal activities by bankers and others. But they were focused on national security and other priorities, and paid scant attention to white-collar crimes that may have contributed to the lending and securities debacle. . .
Sources familiar with the FBI budget process, who were not authorized to speak publicly about the growing fraud problem, say that he and other FBI criminal investigators sought additional assistance to take on the mortgage scoundrels. They ended up with fewer resources, rather than more.In 2007, the number of agents pursuing mortgage fraud shrank to around 100. By comparison, the FBI had about 1,000 agents deployed on banking fraud during the S&L bust of the 1980s and '90s, said Anthony Adamski, who oversaw financial crime investigations for the FBI at the time.
The FBI says it now has about 200 agents working on mortgage fraud, but critics say the agency might have averted much of the problem had it heeded its own warning.

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Posted in: FBI

Widespread fraud. Hundreds of billions of dollars in losses. Thousands of displaced homeowners.

Widespread fraud. Hundreds of billions of dollars in losses. Thousands of displaced homeowners. You'd think somebody would have seen it coming… The Los Angeles Times reports that as early as 2004, the FBI accurately forecast the consequences of unscrupulous lending practices left unchecked. Unfortunately, despite the agency's assurances that it was combating the problem, its focus on "national security and other priorities" left white collar crimes a secondary priority. How secondary? During the S&L bust of the '80s and '90s, the agency had 1,000 agents devoted to banking fraud. In 2007, the number of agents pursuing mortgage fraud totaled 100. To critics, that's a sign that the FBI dropped the ball. The agency, meanwhile, says it did the best it could—mortgage companies simply didn't want to hear its warnings about the growing fraud problem. And your home—oh yeah, that's the bank's now.
Let's hope the next time around, somebody is paying a little more attention.

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Posted in: Los Angeles Times

Dubai property crash

Soaring housing prices in Dubai are likely to peak in 2009 before falling at least 15 percent as the Gulf emirate takes measures to weed out short-term speculators, a Reuters poll showed on Tuesday.Residential property prices in the desert city, home to palm tree-shaped islands and an indoor ski slope, are likely to jump 35 percent this year, according to the median of forecasts from 10 analysts at banks, investment firms and research institutions.Price growth will probably slow to 8.5 percent next year, when five of nine analysts expect prices to hit a peak after double-digit increases in each year since Dubai opened its property market to foreign investment in 2002.

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Posted in: Dubai

Emirati businessman Abid Al-Boom has heard evidence that he owes depositors 847 million dirhams ($231 million)

trial of Emirati businessman Abid Al-Boom has heard evidence that he owes depositors 847 million dirhams ($231 million) while assets seized covered only 15 percent of the amount, the UAE daily The National reported on Wednesday.Thousands of investors, including many on fixed low incomes, say they have lost their life savings in a bogus multi-million dirham investment portfolio run by the Al-Boom, prosecutors said.After receiving numerous complaints from depositors, Dubai Attorney General, Essam Eisa Humaidan, in July ordered al Boom’s arrest along with eight others, including an African business partner, an Emirati business partner and Al-Boom’s brother Khalid, the paper added. “We have registered to date complaints from 3,458 depositors and counting. My office has been busy answering calls from depositors and we have referred the case to the Dubai Rulers Court where auditors will examine al Boom’s accounts to determine where the money has gone,” the paper quoted Yousef Foulaz, the chief prosecutor for Deira First District as saying. "The final amount is likely to go up as we continue to receive and register more complaints."Mr Humaidan had earlier ordered the closure of the offices of Al Boom Holding LLC, and Abid Al Boom Management and Development Properties, the suspension of trading in shares owned by the accused and the freezing of all assets belonging to them, including any real estate and bank accounts held by the accused, in order to secure investors’ rights, the paper said.

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Posted in: Al Boom Holding LLC Dubai

Hernan Arbizu has been arrested in Argentina on charges that he stole $5 million from the accounts of customers at UBS AG and JPMorgan Chase

Hernan Arbizu was arrested Monday in Buenos Aires on charges filed in U.S. District Court in May.Arbizu was a vice president in the private banking division at JPMorgan when he embezzled the money between March 2007 and April 2008, prosecutors said. He caused $5.37 million to be transferred out of private banking accounts at the UBS (nyse: UBS - news - people ) and JPMorgan financial services companies during that time, they said.Arbizu was responsible for maintaining and developing private banking relationships in Latin America at the time, court papers said.It wasn't immediately clear who would represent Arbizu on charges of embezzlement, bank fraud and aggravated identity theft.U.S. authorities were seeking to extradite Arbizu to New York.If convicted, Arbizu, 41, could face up to 30 years in prison and more than $5 million in fines.A spokesman for JPMorgan, which fired Arbizu in May, said the company "appreciates the cooperation and the prompt joint action of the Argentine and American authorities."

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Posted in: JPMorgan

Lou Pai, the former chief executive of Enron Energy Services, charged with improperly selling hundreds of thousands of Enron shares in 2001.

Lou Pai, the former chief executive of Enron Energy Services, with improperly selling hundreds of thousands of Enron shares in 2001.The stock market regulator said Mr Pai sold the shares after being informed that the Enron subsidiary had sustained substantial losses, but before the losses had been reported publicly.
Mr Pai, who has neither admitted nor denied the SEC's charges, has reached a settlement with the SEC under which he has agreed to pay a $US1.5 million ($1.6 million) fine. The former Enron high-flyer has also agreed to pay $US30 million in disgorgement of his gains and other related fees relating to the allegedly improper stock trades.
“The commission has never relented in pursuing fraud committed by Enron's executives, and I am pleased that today's settlement will add another $US25.5 million to the Enron Fair Fund for the benefit of injured investors,” said Linda Chatman Thomsen, the SEC's enforcement chief. The charges and settlement with Mr Pai come seven years after the collapse of Enron, which once was one of America's biggest energy trading companies. Enron's 2001 collapse amid an accounting scandal and wide-ranging government and congressional probes into its accounting practices was one of the biggest scandals in US corporate history. Other former top Enron executives have faced prosecution and been jailed for their roles in trying to cover up the accounting fraud. Enron's former chief executive, Jeffrey Skilling, is serving a 24-year sentence in a federal prison. His co-defendant, former Enron chairman Kenneth Lay, was found guilty of fraud and banking violations, but died in 2006 of apparent heart failure before he was sentenced. Mr Pai is barred from working as an executive or director of a public company for five years.

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Posted in: Enron Fair Fund

FBI is investigating possible fraud at IndyMac

The FBI is investigating possible fraud at IndyMac, the California lender which was seized by regulators last Friday after America's biggest high street bank failure for two decades. Law enforcement sources told the Associated Press that the inquiry revolved around home loans made by IndyMac to risky borrowers and was focused on the bank itself, rather than on individuals who ran it.The FBI declined to comment on IndyMac specifically, although a spokesman said the scope of the bureau's examination of the sub-prime mortgage industry had broadened from 19 inquiries to 21 since April. A spokesman said: "We receive information from a variety of sources on a daily basis, and we have an obligation to review each allegation on its merits."
Banking regulators took over IndyMac after a run on deposits, as customers withdrew $1.3bn in 10 days. At its peak, IndyMac had assets of $32bn. Under a federal insurance scheme, the first $100,000 of savings for each depositor is guaranteed. But anxious customers continued queueing outside branches to withdraw savings this week. Pasadena-based IndyMac is the fifth US bank to close this year, and is the biggest failure since the Chicago bank Continental Illinois collapsed in 1984. An estimated 10,000 customers could lose unprotected deposits of some $1bn.
A New York senator, Charles Schumer, who wrote a public letter in June raising concerns about lax lending at IndyMac, has been blamed by the Office of Thrift Supervision for inciting panic among customers. Schumer argues that the OTS is responsible for allowing the bank to become vulnerable in the first place.
IndyMac's demise has prompted jitters about other regional banks. Seattle-based Washington Mutual and Ohio's National City Corporation were obliged to issue statements denying liquidity crises this week after their shares plunged.

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Posted in: IndyMac

Jagmeet Channa pleaded guilty to one count of conspiracy to defraud and another of money laundering after he admitted using colleagues' passwords

Jagmeet Channa, 25, showed no remorse as Judge Geoffrey Rivlin, sitting at the Southwark Crown Court, bemoaned his limited sentencing powers in dealing with the "audacious and outrageous" crime.
Channa had previously pleaded guilty to one count of conspiracy to defraud and another of money laundering after he admitted using colleagues' passwords to steal money from a trading account which he then wired to associates in Manchester and Morocco. Today, Judge Rivlin told him: “This was no silly prank. This was a carefully planned and very serious attempt to transfer a fortune in money away and it almost succeeded." Channa worked at the Canary Wharf headquarters of Britain's largest bank for less than a year. In April, the court heard, he sent €60 million from an HSBC trading account to a Societe Generale branch in Casablanca; minutes later, he wired another €30 million to a Barclays branch in Manchester.
However, Channa forgot that the account he had raided had to show a zero balance at the end of each day. The massive debit was discovered over the weekend by HSBC employees in Malaysia, who alerted colleagues in London. Both Barclays and Societe Generale were quickly contacted and the money was returned. HSBC estimated it lost about £54,000 in interest while the money was in other accounts. Initially, the employees whose passwords had been used by Channa were arrested and blamed for the crime. But further inquiries exonerated them and led to Channa, who was sacked by the bank. The court heard that Channa had taken the money at the direction of one or more co-conspirators, in exchange for the promise of a handsome cut. His defence lawyer, Peter Corrigan, said: “Because he had the sort of job he did, offers were made to him and he succumbed to temptation."
However, Channa's refusal to cooperate with police meant that no other party involved in the crime has yet been identified.
Judge Rivlin said: "Others were inolved, perhaps several others, and in the absence of any explanation from you I must assume this was a planned and sophisticated criminal enterprise.
"You say you had no idea who these people were or what was going to happen to the money. I regret I cannot accept this statement."
The judge told Channa that while his guilty pleas would attract some credit, “the evidence against you is quite overwhelming”. His confession, age, remorse and the fact he had not made a penny from his dishonesty were among the few other things in his favour. Judge Rivlin compared the maximum 10-year sentence available to the 14 years that could be passed for handling and burglary. But he said he must nevertheless "do all that I can to deter those employed by financial institutions from committing such offences". He added: “Where anyone acting in flagrant breach of trust and attempts to steal many millions of pounds, the sentence will inevitably be a very long one."
Detective Sergeant Martin Peters said: “This crime is believed to be one of the largest frauds of its kind and it is thanks to the prompt response of the police and the banks that the money was recovered. “The City of London Police takes a robust stance against members of staff that abuse their position and steal from their employer.”
The attempted fraud occurred at a sensitive time for the banking sector. It took place just months after Societe Generale, the French bank, alleged that trader Jerome Kerviel lost €4.9 billion (£3.8 billion), while Credit Suisse later revealed that some of its traders had caused pricing errors leading to a $2.85 billion (£1.4 billion) writedown.

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Posted in: HSBC

number of corporate bankruptcies in Japan rose 11.6 percent in the first half of 2008 with the number of cases related to higher material prices

Bankruptcies for the first six months totalled 6,022, while combined liabilities climbed 17.4 percent to 3.019 trillion yen (28 billion dollars) compared with the same period last year, Teikoku Data Bank said.number of corporate bankruptcies in Japan rose 11.6 percent in the first half of 2008 with the number of cases related to higher material prices hitting a record high, researchers said on Tuesday.June saw 1,065 bankruptcies leaving liabilities of at least 10 million yen each, up 7.1 percent from 994 cases in May, the research firm said in its monthly report.However, combined liabilities in June was down 1.9 percent from the previous month to 471.92 billion yen, but was still 40.3 percent up on the same period last year, it said.
Bankruptcies in construction stayed at a high level due to declining orders for public works and rising material prices, the report said.The number of business failures related to the recent surge in raw materials costs reached a record high of 54 cases in June, when oil prices hit a record high of 140 dollars, up 40 percent since early 2008, it added.Corporate failures are expected to continue to increase and the pace accelerate, which will severely impact small and mid-sized firms, the research firm said.Japan has since 2002 been in its longest post-war economic expansion, but that "is about to end," Teikoku Data Bank said."In addition to the construction industry, small retailers are expected to face a period of tough conditions... as recent consumer surveys show household spending expected to decline," it added."Demand from overseas is falling, meaning more manufacturers are expected to go out of business."Top Japanese executives are at their most pessimistic in almost five years as soaring costs, a slowing global economy and a stronger yen pile pressure on profits that are expected to drop this year, the central bank said last week

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Posted in: Japan

If you're sitting there doing a crossword and you put the paper on the key, boof-boof-boof-boof, it can go right off ... You can just keep trading

Making money makes reputations at investment banks, but the numberless ways in which high-profile traders can lose eye-popping sums is making the case for much sharper focus on the unglamorous role of the risk control units.
Despite a regular crop of scandals and errors, from unauthorised positions to "fat-fingered" trades, there is insufficient investment in systems to monitor traders and prevent unacceptable losses, said Giles Nelson, co-founder of trading technology provider Progress Apama.
"If you look at surveillance of trading behaviour, it's somewhat seen as a Cinderella," said Nelson.
"The real focus is on the exciting stuff, on making money, making deals ... That's where the investment in technology is."
Yet the same traders can also lose a bank billions of dollars by circumventing the rules.
Trading limits can be broken or errors hidden as unloved risk managers, often equipped with inadequate technology, struggle to impose controls on risk-loving traders.
Unauthorised and undetected trading by a junior trader at Societe Generale earlier this year cost the French bank as much as 4.9 billion euros ($7.69 billion).
A common mistake is to misprice products or deals, either deliberately, or due to a lack of liquidity or market data, or by the inadvertent typing of an extra zero.
Just last week Canada's Toronto-Dominion Bank took a $90 million hit when a trader mispriced financial derivatives, while in June, Wall Street bank Morgan Stanley suspended a London-based credit trader who had overvalued positions by $120 million.
In May, Lehman Brothers suspended two London equities traders after identifying a similar problem.
THE ALPHA TRADER
The problem, said Nelson, is partly because banks are wary of imposing too many controls on traders and so stifling innovation or prompting them to walk to more lax competitors.
It is also very difficult to challenge the processes of a division that is a major revenue earner, said Brian Sentance, chief executive of Xenomorph, supplier of data management technologies.
Existing safeguards struggle to keep up with the evolution of financial products and transactions and the proliferation of trading venues, and are often run on a series of independent spreadsheets or databases, which inevitably makes a bank vulnerable to errors or malfeasance.
Sentance said some of his clients were already updating their risk systems. But banks still need to give risk managers greater power and invest more heavily in data and risk management technologies and procedures, Nelson said.
"(Banks realise that) if we don't, then not only are we going to suffer reputationally and the regulators will come down harder on us, but we will lose significant amounts of money eventually," Nelson said.
But some circumstances might always prove difficult to guard against.
"If you're sitting there doing a crossword and you put the paper on the key, boof-boof-boof-boof, it can go right off ... You can just keep trading and trading and trading," said one London-based trader

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Posted in: Progress Apama

Another Bank failure as Mortgage lender IndyMac Bancorp Inc said on Tuesday depositors had been withdrawing cash at an "elevated" pace

Mortgage lender IndyMac Bancorp Inc said on Tuesday depositors had been withdrawing cash at an "elevated" pace since a key U.S. senator questioned its ability to survive the housing crisis.
IndyMac shares sank 38 percent to 44 cents. A collapse of the largest independent, publicly traded U.S. mortgage lender could prove a headache for U.S. regulators since more than $17 billion of its deposits carry federal insurance.
Paul Miller, a Friedman, Billings, Ramsey & Co analyst, said shareholders may be wiped out, citing IndyMac's decision to stop most mortgage lending and inability to raise capital. Miller cut his price target for the stock to zero from $1.00.
"It's hard to gauge how this situation will resolve itself," said Christopher Wolfe, managing director at Fitch Ratings. "We see a high likelihood of some kind of regulatory intervention occurring, which could result in asset dispositions, or the thrift going into receivership."
When asked if the White House was involved in interagency discussions or considering any action, a spokesman responded: "This is an issue for the Fed."
Prospect Mortgage, a Northbrook, Illinois-based affiliate of private equity fund Sterling Partners, said late on Tuesday it agreed to buy more than 60 IndyMac retail mortgage branches, which employ 750 people, for an undisclosed price.
In a regulatory filing, IndyMac said it still faces "elevated levels of deposit withdrawals." It pointed to comments in late June from Sen. Charles Schumer, who chairs Congress's Joint Economic Committee, raising questions about a possible collapse. Schumer reiterated his concerns on Tuesday.
IndyMac said it was working with regulators on a new business plan after losing $896 million in the nine months to March 31. "We are aware of the situation and are working closely with the institution," said a spokesman for the Office of Thrift Supervision, IndyMac's main federal regulator.
Big mortgage rivals New Century Financial Corp and American Home Mortgage Investment Corp filed for bankruptcy protection last year. Countrywide Financial Corp, the top U.S. mortgage lender, avoided possible collapse when it was acquired last week by Bank of America Corp.
"In short, IndyMac was a junior version of Countrywide," Schumer said in a statement on Tuesday.
"IndyMac fueled its growth through unsound lending practices," the New York Democrat continued. "Regulators should consider ways to implement stricter oversight over the lending system so that there isn't another IndyMac."
IndyMac reported $17.3 billion of its deposits were insured by the Federal Deposit Insurance Corp. The FDIC has $52.8 billion in its insurance fund to cover bank failures.
FDIC Chairman Sheila Bair told the Senate Banking Committee last month that the housing downturn could cause "institutions of greater size than we have seen in the recent past to fail."
SEEKING SECURITY
IndyMac set plans on Monday to eliminate 3,800 jobs, or 53 percent of its work force, and stop offering most home loans.
It also projected a larger loss in the second quarter than the $184.2 million loss it posted for January to March.
Regulators concluded the company is not "well-capitalized," and IndyMac has about $1.7 billion of operating liquidity, a regulatory filing showed. A bank is considered well capitalized when it has an equity capital ratio over 6 percent.
IndyMac had a ratio of 5.76 percent on March 31. It needs to keep its capital ratio between 4 percent and 6 percent, according to Douglas Landy, a banking partner with law firm Allen & Overy, "in order to remain adequately capitalized and avoid being subject to greater regulatory sanction."
U.S. banking law gives regulators increasing power over institutions as their capital levels dwindle over time.
IndyMac once specialized in "Alt-A" loans that often don't require borrowers to document income or assets.
IndyMac's $77 billion of mortgage loans in 2007 gave it a 3.2 percent market share, ranking ninth nationally, according to newsletter Inside Mortgage Finance. But as rates rose and home prices fell, many borrowers found themselves unable to refinance, and defaults surged.
IndyMac shares have skidded 99 percent in the past year, cutting its market value to $44 million from $3.3 billion.
HANGING IN
Fitch on Tuesday cut its issuer default ratings for IndyMac Bancorp to "CC," a low junk grade, from "B-minus," and for IndyMac Bank to "CCC" from "B."
The rating agency also assigned IndyMac's roughly $720 million of uninsured deposits an "average" recovery rating, suggesting uninsured depositors might get 31 percent to 50 percent of their money back.
Patricia Lannom, a retiree, said she decided to keep her $100,000 IndyMac certificate of deposit after employees at a branch in Torrance, California, said the funds were FDIC-insured.
"I think somebody will buy them if they go under," she said. "What else can I do but hang in there?"
FBR's Miller said the stock price might succumb to falling home prices, rising credit losses, rating agency downgrades, and IndyMac's decision to curb lending. "We do not believe that there is any value left for common shareholders," he wrote.
IndyMac faces several shareholder lawsuits that accuse it of misleading investors about its financial condition.
The company said it plans to keep offering reverse mortgages to older borrowers through its Financial Freedom unit, and operate 33 branches in Southern California. (Additional reporting by Dena Aubin and Martha Graybow in New York, and Rachelle Younglai in Washington, D.C.; Editing by Braden Reddall abd Andre Grenon)

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Posted in: IndyMac Bancorp Inc

Fitch indicated it may move to cut its credit rating on Merrill’s long-term debt

Merrill Lynch (MER) has garnered the nod as an outlier among investment banks in terms of credit worthiness. But it’s a dubious distinction, at best. Ratings agency Fitch indicated it may move to cut its credit rating on Merrill’s long-term debt - a prospect it basically erased for the other three major investment banks. Citing the scope of the long-term credit that comes due next year, Fitch placed Merrill’s long-term issuer default ratings on rating watch with a negative bias, a move that often presages an upcoming cut in the credit rating itself. Fitch expressed pessimism about the prospects for Merrill’s fixed-income, currency and commodity operations, which it said could off-set strength in areas like Merrill’s retail brokerage operations. The rating agency also said that it anticipated further write-downs from Merrill’s exposure to its residential mortgage and monoline insurance exposure, which diminish expectations for a sustainable return to core profitability. Merrill shares traded down nearly 3%, though - to be fair - even the investment banks that weren’t put on rating watch suffered declines in Wednesday’s trading.

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Posted in: Merrill Lynch

Bank failures are extremely rare, savers might want to bear in mind that the Government will only underwrite the first £35,000 of your savings in any

Halifax said house prices had fallen by more than 6 per cent during the last year, having fallen 2 per cent in the last month. The average property now costs around £180,000. Mortgage rates have already hit their highest level for eight years, according to the Bank of England. The average rate on a two-year fixed rate mortgage has risen from 6.26 per cent to 6.63 per cent.
The pain is set to continue as lenders tighten their lending criteria. For example, Alliance & Leicester still allows homeowners to opt for a term of 40 years on their mortgages but affordability will be calculated as if you were paying it back over 25 years. Ray Boulger of mortgage brokers John Charcol, said: "Today's Monetary Policy Committee (M per cent ) decision to keep the bank rate unchanged at 5 per cent was widely expected. With increasingly bad economic news almost daily from most sectors of the UK economy a rate cut is badly needed to help restore some confidence but the expectation of further increases the inflation is a major constraint on the MPC.
"However, the dire economic news probably means that the MPC is no longer seriously considering increasing bank rate and so the main question is how long will we have to wait for the next cut. The MPC will be watching the price of oil and other commodities very closely." Jonathan Cornell, of mortgage brokers Hamptons Mortgages, said the Bank of England had been under tremendous pressure from two sides. "On one side inflation at 3.3 per cent is significantly above the bank's 2 per cent target and the Governor had to write an explanation letter to the Chancellor on June 16," he said."On the other side, a chronic lack of mortgage funding has led to house prices falling month on month. The majority of the inflationary pressure is linked to the rising price of oil, the price of other energy and food." Richard Cotton, senior partner at estate agents Cluttons, said: "The bank's decision to maintain rates suggests that it is continuing its laissez-faire attitude of the last two months, and failing to take positive action to deal with the current downturn in the property market and the wider economy. "The property industry needs to hear a positive message from the bank, that it understands the difficulties in the industry and is doing something about it. "Maintaining rates at 5 per cent will not give consumers any confidence in the bank's ability to manage this crisis, which will result in a worsening of current conditions in the property market and wider economy." But savers should be able to benefit with rates at a seven-year high as high street banks which are struggling to raise funds on the money markets try to attract large inflows of cash. As a rule, the highest paying accounts are run online as banks without high street branches have fewer overheads. Those customers who can afford to lock up their money for the minimum of a year will also receive preferential rates. Savers should be aware however that while bank failures are extremely rare, savers might want to bear in mind that the Government will only underwrite the first £35,000 of your savings in any one bank. This limit often applies to all the different brands operated by one bank.

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Posted in: Halifax

Baninter US$2.5 billion fraud, which led to the world’s biggest bank collapse per capita

after five years the Supreme Court put an end to the proceedings that led to bank fraud convictions in the Baninter case, when it upheld the verdict against the main defendants. Dominican society kept close tabs during this long process to prosecute the Baninter US$2.5 billion fraud, which led to the world’s biggest bank collapse per capita, and put the country’s judicial system to the test.Central Bank legal consultant for banking fraud, Fidel Pichardo Baba, said the case’s result sets an historical precedent which fortifies the Judicial Branch and is also an example that justice must be equal for all. "This decision just now shows that it’s possible to condemn whoever commits a crime regardless of standing and that the very next day the sun rises at the same hour and the Earth doesn’t shake," Pichardo said of former Baninter president Ramon Baez Figueroa, and the executives Luis Alvarez Renta, Marcos Baez Cocco, and Vivian Lubrano del Castillo.

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Posted in: Baninter case

IndyMac is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history

New chief executive of IndyMac Bancorp, brought in by the government to manage the failed bank, said new lending standards should prevent the kind of problems that have brought down credit markets.John Bovenzi, the chief operating officer of the Federal Deposit Insurance Corp., reassured consumers that bank failures have been rare in the past, and that if more banks do fail, the government has enough in reserve
"I think the important point to make is that, historically, only a very small percentage of the banks on our problem banks list ever failed," he said on CNN late Sunday. "While there are 90 banks on the list, there would be no expectation that 90 of those banks would fail."Bovenzi took the helm of what will be IndyMac Federal Bank when the government stepped in late Friday afternoon to save the struggling institution.The Office of Thrift Supervision transferred control of IndyMac to the FDIC because it did not think the lender could meet its depositors' demands.
IndyMac is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, regulators said after taking control of the bank.As of March 31, IndyMac had $19.06 billion in total deposits.Bovenzi reminded consumers that all accounts worth $100,000 and less are automatically insured by the FDIC, which has $53 billion in insurance funds. And he noted that there are ways to structure accounts so that more than $100,000 is covered."If there are other bank failures in the coming weeks, I think the same message, if your accounts are under $100,000, you have absolutely nothing to worry about," he said. "You can still find ways to protect more if you like."Beyond $53 billion, he said the FDIC would have go to other banks to raise more money, adding that in that case, consumers could expect some of that to be passed on in fees."Well, obviously it's a difficult time and there were certainly institutions that made loans that shouldn't have been made," he said. "There are standards being put out, hopefully, at institutions with better underwriting going forward so that this problem doesn't repeat itself."

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Posted in: IndyMac

U.S. regulators seized California savings and loan company IndyMac Bank and its $32 billion in assets.

Investors are scanning the banking industry for signs of more trouble after the biggest U.S. bank failure in more than two decades. Last week, U.S. regulators seized California savings and loan company IndyMac Bank and its $32 billion in assets. Troubles are mounting so quickly at some of the country's 7,500 banks that as many as 150 could fail over the next year or so, analysts said. Healthier banks are expected to shut branches or merge.

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Posted in: IndyMac Bank

Brett Travis Wynne used internet banking facilities to transfer the money in 72 transactions from December last year.

A finance broker has been charged with stealing more than $23,000 from his employee in the Perth suburb of Northbridge.Police allege 23-year-old Brett Travis Wynne used internet banking facilities to transfer the money in 72 transactions from December last year.They say Mr Wynne had access to the finance company's bank account number and password.The transfers were discovered following an audit of the company's accounts.Mr Wynne has been charged with 72 counts of fraud.He is due to appear in the Perth Magistrate's Court today.

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Posted in: Perth

European stocks fell the most in a week after record oil prices dimmed the earnings

European stocks fell the most in a week after record oil prices dimmed the earnings outlook for airlines and carmakers and a slowing housing market weighed on Schneider Electric's sales.
Air France-KLM and Daimler slipped the most in a week after crude climbed above $US117 a barrel. Schneider Electric, the world's biggest maker of circuit breakers, posted its biggest drop since January as sales missed analysts' estimates. Royal Bank of Scotland led banks lower after saying it may sell shares to shore up capital, while Barclays declined on a Merrill Lynch downgrade.
Europe's Dow Jones Stoxx 600 Index lost 1.2% to 316.96, extending this year's decline to 13% on concern that rising energy costs and $US290 billion in writedowns and credit losses at financial companies will cut profit growth.
''Oil prices account for a large proportion of costs for many companies,'' said Chirin Gill, a fund manager at Daiwa SB Investments in London, which has about $US60 billion. ''Prices are likely to be stronger for longer, which is hurting the stocks.''

European companies will see their earnings shrink in 2008 for the first time in six years, according to analysts' estimates compiled by Bloomberg. Profit for companies in the Stoxx 600 may drop 0.5%, the data show. That's down from 11% growth forecast at the end of last year.

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Posted in: European stocks

European banks may have exacerbated financial market turmoil resulting from a global credit crunch by failing to come clean

Some European banks may have exacerbated financial market turmoil resulting from a global credit crunch by failing to come clean about their exposure to risky assets, a top European Union banking supervisor said Tuesday.
The Committee of European Banking Supervisors has analyzed 20 big cross-border banks in Europe and is concerned by some of its findings, particularly how the banks value and disclose investments whose markets have dried up because of the credit squeeze.
"Our preliminary findings show there are differences in terms of content of disclosure and presentations banks make in statements," Kerstin af Jochnick, head of the committee, told the European Parliament's economic affairs committee.
"Lack of consistency in banks' valuations, uncertainty about their accuracy and inadequate transparency may have contributed to the lack of confidence of market participants and exacerbated the market turbulence," said Jochnick, who is also an official with the Swedish banking supervisory body.
"We have seen there is still significant stress in the market," she said.

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Posted in: European Union banking supervisor

HSBC banking group has admitted losing a computer disc with the details of 370,000 customers

The HSBC banking group has admitted losing a computer disc with the details of 370,000 customers. The disc was lost four weeks ago after being sent by courier from the bank's life insurance offices in Southampton. The customers' details included their names, dates of birth, and their levels of insurance cover. However, there were no addresses or bank account details and HSBC said the customers' exposure to potential fraud was limited."We are looking into it and basically it has got lost from A to B," said an HSBC spokesman. "The reinsurer we sent it to is doing a thorough search for the disc. We will do anything we can to find it." "There are no financial details there in terms of banking details. There are no address details or anything like that," he added. As well as name, date of birth and value of the cover, the documents revealed only the customer's policy number and whether or nor the customer was a smoker.”
HSBC is claiming that customers’ exposure to potential fraud will be limited. I think that that ‘limit’ will be determined once the investigation has been completed. However, if the disc fell into the hands of professional identify thieves, the potential for fraud will not be limited.

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Posted in: HSBC

Banks new code shifts responsibility to customers

The latest edition of the Banking Code, the voluntary consumer-protection standard for UK banks, was released last week. The new code claims to “give customers the most up to date information on how to protect their accounts from fraud.” This sounds like a worthy cause, but closer inspection shows customers could be worse off than they were before.Clause 12.11 of the code deals with liability for losses:
If you act fraudulently, you will be responsible for all losses on your account. If you act without reasonable care, and this causes losses, you may be responsible for them. (This may apply, for example, if you do not follow section 12.5 or 12.9 or you do not keep to your account’s terms and conditions.)Clauses 12.5 and 12.9 include some debatable advice about anti-virus software and clicking on links in email (more on this in a later post). While malware and phishing emails are a serious fraud threat, it is unrealistic to suggest that home users’ computers can be adequately secured to defeat attacks.Fraud-detection algorithms are more likely to be effective, since they can examine patterns of transactions over all customers. However, these can only be deployed by the banks themselves.
Existing phishing schemes would be defeated by two-factor authentication, but UK banks have been notoriously slow at rolling out these, despite being widespread in many other European countries. Although not perfect, these defences might cause fraudsters to move to easier targets. Two-channel and transaction authentication techniques additionally give protection against man in the middle attacks.
Until the banks are made liable for fraud, they have no incentive to make a proper assessment as to the effectiveness of these protection measures. The new banking code allows the banks to further dump the cost of their omission onto customers.
When the person responsible for securing a system is not liable for breaches, the system is likely to fail. This situation of misaligned incentives is common, and here we see a further example. There might be a short-term benefit to banks of shifting liability, as they can resist introducing further security mechanisms for a while. However, in the longer term, it could be that moves like this will degrade trust in the banking system, causing everyone to suffer.
The House of Lords Science and Technology committee recognized this problem of the banking industry and recommended a statutory change (8.17) whereby banks would be held liable for electronic fraud. The new Banking Code, by allowing banks to dump yet more costs on the customers, is a step in the wrong direction.

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Posted in: by allowing banks to dump yet more costs on the customers,is a step in the wrong direction.,new Banking Code

Veronica Fong,accused of taking the money from the Montgomery Street bank over an eight-year period between 2000 and 2008.

Veronica Fong, 44, appeared in Sydney's Central Local Court yesterday facing 22 charges of obtaining money by deception.Fong, of Baptist Street, Redfern, is accused of taking the money from the Montgomery Street bank over an eight-year period between 2000 and 2008.The mother of one, who started working at the bank in March 1987, was arrested on Tuesday April 8 after the police phoned her and asked her to go to the City Central police station. Fong, who was sacked by the bank this week when the allegations came to light, worked as a client co-ordinator in the private division for most of her career, apart from in 2006 when she was the senior lending officer for specialised mortgage solutions.Her duties included updating and granting temporary overdrafts. She is accused of granting $1,432,071.58 to accounts in her husband's and father's names.As part of her job Fong trained staff and she is said to have accessed the St George banking computer system when her colleagues were logged on in their names. No other staff were aware of the alleged fraud, police said.The alleged offence was detected via a random audit conducted by the bank.
Fong did not enter a plea yesterday and she was released on bail after a surety was put up in her name. She is due to appear at Downing Centre Local Court on April 22.

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Posted in: Montgomery Street bank

Weserbank AG to stop doing business, making it the first German bank to close since the subprime crisis started.

German financial-market regulator BaFin ordered Weserbank AG to stop doing business, making it the first German bank to close since the subprime crisis started.BaFin said it closed the Bremerhaven, Germany-based bank to preserve remaining assets and started insolvency proceedings. The lender is over-indebted and would struggle to cover operating costs, BaFin said.Weserbank, founded in 1912 as a cooperative lender for butchers and cattle dealers, is the first German lender since 2006 to file for insolvency.

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Posted in: Weserbank AG

Another airline Bankrupt

Oasis Hong Kong Airlines, a long-haul budget carrier that tried to offer premium service and spacious seats at low prices, suddenly went into liquidation on Wednesday and canceled all flights.
It was the fourth budget carrier worldwide to halt operations in the last week and a half. The bankruptcy filing by Oasis stranded thousands of passengers in Hong Kong, London and Vancouver.High jet fuel prices have taken a heavy toll on the airline industry and particularly on low-margin budget carriers trying to compete on price. The three others to shut down since March 31, all in the United States, were Aloha Airgroup, ATA Airlines and Skybus Airlines.

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Posted in: Oasis Hong Kong Airlines

financial industry in the United Kingdom recently reaffirmed a policy that holds online banking customers liable for losses if they fail to secure

The financial industry in the United Kingdom recently reaffirmed a policy that holds online banking customers liable for losses if they fail to secure their personal computers against data-stealing computer viruses. While this policy may seem surprising or even draconian to some Americans, the reality is that most U.S. consumers remain woefully uninformed as to their own security liabilities when banking online. News of the new U.K. banking codes comes via The Register, which reported that under the new regulations "banks will not be responsible for losses on online bank accounts if consumers do not have up-to-date anti-virus, anti-spyware and firewall software installed on their machines." The full text of the updated banking code is here (PDF). The relevant sections are 12.5 through 12.13.
This touches on a question Security Fix receives quite often from readers: "If my computer gets hacked and someone uses it to steal money from my online bank account, will I get that money back?" The answer is that beyond the protections afforded to consumers under the law, whether or not consumers are reimbursed for online banking losses due to computer intrusions is entirely at the discretion of the banks.
By law, U.S. consumers can get reimbursed for any funds fraudulently transferred out of their accounts if they notify their financial institution of the bogus debits within 60 days of the transaction first appearing on their bank statement. Provided victims alert their banks within that time frame, their liability is generally limited to $50 (this applies only to consumers; businesses typically aren't afforded anywhere near that amount of flexibility).Check the service agreement tied to nearly any U.S.-based online banking service and you will see roughly the same thing. Take this disclosure, from Bank of America's online banking agreement:
"If you do not notify us within these 60 days, you may not be reimbursed for subsequent transactions. Additionally, we will reverse or reimburse you for any bank or payee fees resulting from your loss. You should always guard your Online ID and Passcode from unauthorized use. If you share this information with someone, all transactions they initiate with the information are considered as authorized by you, even for transactions you did not intend for them to make."
It remains to be seen whether U.K. banks will enforce the tough new policy on consumer liability. But to be fair, most banks in the U.K. have taken concrete -- albeit hardly foolproof -- steps to employ true two-factor authentication methods for verifying that the person logging into a bank account online is in fact the owner of said account. The same is largely not true for financial institutions in the United States today, and this is principally due to the fact that U.S. banking regulators here haven't required such measures. Rather, they have left it up to the banks to determine their appropriate risk levels and which back-end and customer-facing anti-fraud technologies should be deployed.
According to APACS, the U.K. payments association that reports banking fraud and loss statistics for financial institutions there, stricter measures are helping to bring down the cost of online banking fraud. In March, APACS reported that online banking fraud losses totaled £22.6m in 2007 -- a 33 percent decrease from 2006 losses. Unfortunately, it's not possible to correlate that figure with fraud numbers from U.S. banks, because they're not required to report those numbers, and our government sadly does not publish much of the information it does have on the subject (save for the odd internal report that leaks out to the media once in a blue moon).If you think the U.K. rules are too strict, consider the recent actions by some banks in Brazil, a country that has a phenomenally active and organized cyber criminal element that produces some of the world's most advanced malware targeting online banking customers (mercifully, the Brazilian cyber crooks generally stick to picking on their own citizens). I spoke recently with Tony Reyes, founder of the New York-based ARC Group, a company that has set up a shop in Brazil to help at least one financial institution there investigate customers who have had their online accounts cleaned out as a result of cyber cime. Reyes, a former cyber cop for the NYPD, said some of Brazilian banks have taken to investigating the victims of online financial crime."Some of these Brazilian banks are hiring investigators to visit the customer's house and look at the security of their setup, and if [the customer] doesn't have software patches, a firewall and up-to-date anti-virus on his system, in a lot of cases the banks will turn around and say it was the consumer's fault, and [the banks] don't return the money," Reyes said.

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Posted in: EDont Bank online

British banks will have to take an extra £11 billion from sub-prime losses - in addition to the £9.6 billion write-downs already announced.

A report from the International Monetary Fund (IMF) shows that British banks will have to take an extra £11 billion from sub-prime losses - in addition to the £9.6 billion write-downs already announced.
UK lenders are sitting on far larger undisclosed mortgage-related losses than its European counterparts, according to figures in the Global Financial Stability report. In comparison, lenders in the US and the rest of Europe have already revealed their losses. In Europe, top lenders will probably total around £6 billion of additional losses while lenders in the US could report a further £25 billion of write-downs, but that is only half the figure they have already confessed to.
Earlier this week, the IMF warned that losses from the worldwide credit crunch could reach $1 trillion (£500 billion).
Experts have tried to estimate the cost of one of the worst financial disasters in history but have not exceeded $600 billion. The trillion figure (a million billion) will result in requests for further state intervention to balance credit markets.
Commenting on the report, IMF official Jaime Caruana said the credit shock emanating from the US sub-prime crisis is set to broaden amid a significant economic slowdown.
With a weakening economy, write-downs and prospects for further losses are placing additional pressure on banks’ balance sheets, which may limit their capacity to lend. Britain is particularly vulnerable to the cash crunch because of its over extended property market, concluded Mr Caruana.

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Posted in: banks’ balance sheets

More shoes to drop in the credit crisis

Financial Times of London Friday that there are more shoes to drop in the credit crisis if authorities don’t prepare to head them off. One area is credit default swaps:

“Instead of reshuffling regulatory agencies, the authorities ought to prepare for the next shoes to drop …. There is an esoteric financial instrument called credit default swaps. The notional amount of CDS contracts outstanding is roughly $45,000 billion … The market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfill their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall, but only after some defaults have occurred … One possible solution is to establish a clearing house or exchange with a sound capital structure and strict margin requirements to which all existing and future contracts would have to be submitted.”

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Posted in: London

Bankrupt Banker News Adam Applegarth joined the ranks of chiefs rewarded for spectacular failures when it emerged that he will pocket £760,000

Adam Applegarth joined the ranks of chiefs rewarded for spectacular failures when it emerged that he will pocket £760,000 after being sacked in December as Northern Rock's chief executive.Mr Applegarth's package includes a £2.6 million pension – despite overseeing a £167.6 million loss. A third of the bank's 6,000-plus jobs will disappear as it attempts to rebalance its books and repay £24 billion in government loans by 2010.The pay-off – which gives him £63,333 a month until November– is on top of the £785,000 he earned in 2007 and the £1.36 million in 2006.
Vince Cable, the Liberal Democrat treasury spokesman, branded the compensation an "utter disgrace".He said: "This is a straightforward case of reward for failure. The chief executive who led the disastrous business strategy is being generously rewarded for failures of leadership whereas shareholders get nothing and large numbers of workers are being made redundant."Labour MP Kevan Jones, whose North Durham constituency includes many of the workers facing the sack, called on Mr Applegarth to surrender the cash.He said: "I find it incredulous that a man who has already made millions will be paid this amount of money. It will appear to the average person that he is being rewarded for failure."Northern Rock said Mr Applegarth's termination payment, which emerged with the publication of its annual accounts for 2007, was "substantially less" than he was due.
But Mr Applegarth will continue to enjoy a staff discount on his mortgage and can reclaim almost £6,000 in legal fees. The accounts also reveal that his home has been fitted with £5,000-worth of security measures since the bank's collapse. He joins the growing number of executives receiving huge pay cheques despite their record in office being held in contempt.Sir John Gieve, the deputy governor of the Bank of England, tops a list of shame compiled by the Taxpayers' Alliance by taking home £234,467 last year – when he was accused of failing to prevent Northern Rock's descent into crisis. Labour MP John McFall said Sir John had been "asleep in the back shop while there was a mugging out front".Health Secretary Alan Johnson suspended a £150,000 pay-out to Rose Gibb, who resigned as chief executive of Maidstone and Tunbridge Wells NHS Trust after an outbreak of Clostridium difficile killed 90 people. Roger Lawson, the chairman of the Northern Rock Shareholders Association Group, said: "A lot of shareholders will be very unhappy with the size of Mr Applegarth's pay-off but it looks like, legally, the company could not have avoided paying that amount.
"Had Mr Applegarth taken the company to court then it could have ended up having to pay him even more, so perhaps it has got away with having to pay slightly less than its legal obligation, so I have to be philosophical about it."

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Posted in: Northern Rock

Opes Prime, was put into receivership last week owing $1 billion to lenders.

The corporate watchdog is investigating allegations of fraud and manipulation against the head of Opes Prime, which was put into receivership last week owing $1 billion to lenders. The Australian Securities and Investments Commission (ASIC) is looking into allegations that Opes Prime Chief Executive Laurie Emini instructed staff to falsify the accounts of six wealthy clients to help prevent them from personal losses of up to $200 million, according to a transcript of court documents from a Federal Court hearing last Friday. The collapse of Opes Prime is the biggest of its kind in Australia since the global credit crunch took hold in August last year. Opes Prime's problems stemmed from severe and sustained financial market volatility, which continues to adversely affect some market participants.
ASIC sent a special team into Melbourne-based Opes Prime late last week after the group was placed into receivership by creditor Australia & New Zealand Banking Group after "irregularities" in trading accounts were uncovered.
A senior ASIC investigator, Richard Vandeloo, told the Federal Court that Opes staff were instructed to falsify trading accounts so that the group's high net worth clients would avoid margin calls, according to the transcript.
"Based on conversations of the receiver's staff with employees of the stockbroking company (Thursday), I'm advised that Mr. Emini, over a three month period between December last year and February this year, instructed various staff to make entries in clients of high net worth to avoid margin calls being made...," Vandeloo said.
He said that staff were instructed to change the loan-to-value ratio within the group's client portfolio. Traders said this would make the portfolio appear healthier than it was. Vandeloo also said there are allegations that there may have been a "round robin" of stocks to cover the positions of the clients in question.
When asked by judge Ray Finkelstein if there was any suspicion that the clients were involved in the alleged falsification of accounts, Vandeloo said: "In relation to ... one client worth A$145 million, there is business connections between Mr. Emini and that particular client." After being pressed by the judge about whether there was any suggestion by staff or the receivers that the clients were involved, Vandeloo said: "Of the six they have only made that suggestion in relation to one."
Vandeloo also said there were allegations of the falsification of company records, which could include accounting records. A spokeswoman for ASIC said the investigation is continuing. The comments were made at a hearing where ASIC sought an order preventing Emini from leaving Australia.
When Opes Prime was put into receivership it owed ANZ $650 million and Merrill Lynch & Co. a further $350 million, receiver Deloitte said last week.
Merrill Lynch and ANZ took control of Opes Prime's shares last week and started selling them off to recoup the loan amounts. Merrill Lynch has largely finished selling shares to cover its loan to the group, a person familiar with the situation said Tuesday. ANZ, which hired Goldman Sachs JBwere to handle the sales, has sold around 25% of the portfolio it received, according to the Australian newspaper. ANZ said last week it doesn't anticipate a material loss from its exposure to Opes.
Brokers who did not want to be named, but who have knowledge of the affected stocks, said ANZ took on shares in around 675 companies, including major stocks such as Westfield Group, QBE Insurance Group, Orica and Aristocrate Leisure. An ANZ spokeswoman declined to comment on this matter, as did a spokeswoman for Goldman Sachs JBWere. The ANZ spokeswoman said that the bank continues to realise "solid" value for the shares sold, consistent with the bank's objective to undertake an "orderly unwind" of the portfolio. A number of small and mid-cap companies, including Gindalbie Metals, have requested trading halts in recent days while they clarify the impact of the Opes collapse on shareholders who held shares through the brokerage.

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Posted in: Opes Prime

Deutsche Bank AG, Germany's biggest bank, will write down 2.5 billion euros ($3.9 billion) of loans and asset-backed securities and said markets are d

``Conditions have become significantly more challenging during the last few weeks,'' Deutsche Bank said today in a statement. The Frankfurt-based company's shares, which have declined 17 percent this year, rose on speculation the worst of the losses in the banking industry may almost be over. Deutsche Bank AG, Germany's biggest bank, will write down 2.5 billion euros ($3.9 billion) of loans and asset-backed securities and said markets are deteriorating.
Deutsche Bank, which increased earnings in 2007, said a week ago its 2008 pretax profit target is under threat. Chief Executive Officer Josef Ackerman cited ``difficult'' market and economic conditions. UBS AG said today Chairman Marcel Ospel will depart after reporting an extra $19 billion of writedowns.
``The subprime crisis is catching up to Deutsche Bank,'' said Konrad Becker, a Munich-based analyst at Merck Finck & Co. who recommends holding the shares. ``This means that Deutsche Bank is at risk of reporting a first-quarter pretax loss.''
Deutsche Bank rose 2.9 percent to 73.81 euros at 1:05 p.m. in Frankfurt trading. The 60-member Bloomberg Europe Banks and Financial Services Index gained 2.2 percent, cutting this year's decline to 16 percent.
``The immediate stock reaction is hope among investors that we've touched bottom,'' said Derek Chambers, an analyst at Standard & Poor's Equity Research in London who has a ``hold'' rating on Deutsche Bank. ``Deutsche Bank shares are reacting more to the general financial sector trend than anything else.'' Deutsche Bank said today it will cut the value of leveraged-buyout and commercial real-estate loans and residential mortgage-backed securities in the first quarter. Markdowns on assets backed by residential mortgages ``principally'' involve 7.91 billion euros of so-called ALT-A mortgages, which fall between subprime and prime, the bank said.
``The market was prepared,'' said Thomas Nagel, a Frankfurt-based trader at Equinet AG. ``Bank stocks could even being nearing a turnaround because the drops have been exaggerated.'' Ackerman, attending a banking conference in London today, wouldn't answer questions. Deutsche Bank spokesman Christian Streckert cited last week's annual report when asked today about the 2008 pretax profit forecast of 8.4 billion euros, which excludes one-time effects. The bank on March 26 said writedowns and a worsening economy would ``adversely affect our ability to achieve our pretax profitability objective.''

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Posted in: Deutsche Bank

Interpol cracks down on football betting

Another crackdown on Asian football betting syndicates which are said to be “controlling” European major league results is on the cards. With the coming Euro 2008 competition to be held this summer, Interpol is seeking the cooperation of police forces from several Asian countries to carry out raids. Interpol secretary-general Ronald Noble said in Singapore yesterday that Interpol was planning to launch a second operation to curb illegal football gambling in Asia following last year’s success which netted US$680,000 (RM2.24mil) of suspected criminal proceeds. He was quoted by AFP as saying that more countries would be involved in the second operation against football gambling, which was one of the most rampant organised crimes in the region. The first operation, codenamed ”Soga”, was launched last October and involved 266 raids in Australia, China, Hong Kong, Macau, Malaysia, Singapore, Thailand and Vietnam and resulted in more than 430 individuals arrested and 272 underground gambling dens shut down. Speaking at the Global Conference on Asian Organised Crime hosted by the Singapore police force, Noble said the gambling dens that were closed handled an estimated US$680mil in illegal bets worldwide.As an indication of how widespread football gambling is, European football’s governing body UEFA had asked European police to investigate the results of at least 26 matches last year which were suspected to have been manipulated by Asian betting syndicates. Noble said that while the amount of money involved in match-fixing was unknown, UEFA claimed that an overseas syndicate made US$5mil (RM16.5mil) on one championship match alone last July. Malaysian police and the Malaysia Communications and Multimedia Commission (MCMC) are working together to identify syndicates using the Internet to accept football bets. Inspector-General of Police Tan Sri Musa Hassan said a task force has been set up and CID officers were currently monitoring suspected illegal bookmaking syndicates involved in accepting football bets via the Internet. “Syndicates here operate using servers from other countries and that is why it is difficult for us to trace and nab the main culprits. “That is why we have now asked our Asean counterparts as well as other police forces in the Asian region to provide us with information on syndicates linked with our country,” he told The Star. Musa said police here would exchange information with their counterparts worldwide. About 200 participants from various law enforcement agencies of 32 countries, including Malaysia, attended the two-day conference.

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Posted in: KUALA LUMPUR

Switzerland's role as secret banker to the world’s wealthy is under threat as never before

Last week The New York Times quoted Konrad Hummler, the managing partner of Wegelin & Company, a small private bank in the canton of St. Gallen.The nervous Herr Hummler warned that Switzerland's role as secret banker to the world’s wealthy is under threat as never before, as he sees it. Hummler said what we all know -- that the German tax evasion scandal involving Liechtenstein has been manipulated by the media into a debate about Swiss banking secrecy, just as Europe's Leftists wanted. Worried at the degree to which the traditional discretion of Swiss banks is under assault, Hummler said his foreign clients have been inquiring about their money. The nervous Herr Hummler says that this time, Switzerland may not be able to stop the rest of the world from prying open Swiss banking.

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Posted in: Switzerland

plan to rescue thousands of homeowners at risk of foreclosure

The Bush administration is finalizing details of a plan to rescue thousands of homeowners at risk of foreclosure by helping them refinance into more affordable mortgages backed by public funds, government officials said.
The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth because of plummeting prices, an issue at the heart of the nation’s housing crisis. Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.
The plan is similar to elements in legislation proposed two weeks ago by Barney Frank (D-Mass.), who chairs the House Financial Services Committee, officials said. Administration officials said they believe they can accomplish some of the same goals through regulatory changes, though important details have yet to be nailed down. If enacted, the plan would mark the first time the White House has committed federal dollars to help the most hard-pressed borrowers, people struggling to repay loans that are huge relative to their incomes and the diminished value of their homes. That may offer encouragement to the banking industry and help silence Democrats, who have accused the White House of rescuing Wall Street investment banks while ignoring distressed homeowners. But it could agitate conservatives, who are likely to view the FHA plan as yet another government bailout. Senior officials in several parts of the administration described the plan on condition of anonymity because the specifics are still being worked out. It is unclear when the plan will be formally unveiled, though one official said it was unlikely to happen before the president returns from a trip to Europe next week. “The administration for a long time had the idealists and the pragmatists. And because the market conditions are what they are right now, the pragmatists are looking at this and saying, ‘How can we achieve something?’ And they seem to be having more sway,” said Francis Creighton, vice president for government affairs at the Mortgage Bankers Association, which has been working with Frank on his proposal. The initiative now being crafted could provide relief to a select group of homeowners who are “under water” on their mortgages, a term that describes the situation when falling home prices leave borrowers with negative equity. These homeowners would have to agree to stay in their homes after refinancing, be able to afford the new monthly payments and have lenders who are willing to go along with the plan, officials said.
Administration officials have yet to iron out other details, such as how big the new mortgage should be relative to the home’s value. An estimated 8.8 million households currently have negative equity, due in part to the rise of loans that often required no money down. Negative equity becomes a problem when the homeowner can no longer make mortgage payments. If the homeowner had some equity, the loan could be refinanced or the house could be sold. But a homeowner who is under water cannot afford to do those things because the new loan or sale proceeds would not cover the cost of the existing mortgage. Treasury Secretary Henry M. Paulson Jr. signaled in a speech Wednesday that the administration was developing an initiative tailored to this specific problem, saying “the people we seek to help” are those who want to keep their homes but are falling behind on their payments. “If they also have negative equity in their homes, refinancing becomes almost impossible and so workouts become even more important,” he said. He credited Alphonso Jackson, secretary of the Department of Housing and Urban Development, with helping to craft the plan. In a recent report, Merrill Lynch identified negative equity as a prime cause of rising default rates, saying borrowers who already have poor credit records are often deciding it makes sense to walk away from their homes when the values fall. Federal Reserve Chairman Ben S. Bernanke has called on lenders to restructure some loans, arguing that it would be less costly to forgive some debt than to foreclose on the properties.

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Posted in: Federal Reserve

Fire sale at Lehman Brothers Holdings Inc first of many

``We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Callan said.
``It's a step in the right direction,'' said CreditSights Inc. analyst David Hendler. ``If you're a smaller player, you need more capital to do business in tough times. They now need to show that they can keep churning profits in this environment.''
Lehman Brothers Holdings Inc. is seeking to raise at least $3 billion from a share sale it says should help quell concern about a shortage of capital that drove the stock down 42 percent this year.
Lehman is offering 3 million convertible preferred shares in a sale that will be ``an endorsement of our balance sheet by investors,'' Chief Financial Officer Erin Callan said in an interview yesterday. Demand for the stock was three times greater than the amount on sale as of 6:30 p.m. in New York, according to a person familiar with the offering who declined to identified before the sale ends today.
Lehman, led by Chief Executive Officer Richard Fuld, fell as much as 48 percent on March 17 on speculation the New York- based firm would face the same cash shortage that broke Bear Stearns Cos. following a run on the company. Merrill Lynch & Co., Citigroup Inc. and Morgan Stanley have also raised cash from investors after more than $200 billion of writedowns and losses tied to the collapse of mortgage markets at the world's biggest financial companies.
The 3 million of convertible preferred shares have a coupon of 7 percent to 7.5 percent, according to the person familiar with the offering. The stock fell 2.8 percent $36.66 in New York trading yesterday after the market's official close, while credit- default swaps declined, showing investors believe Lehman's ability to pay debts has improved. Lehman closed at $37.64 during the regular session yesterday. Credit-default swaps tied to Lehman's senior unsecured bonds narrowed 15 basis points after the announcement to 285 basis points, according to broker Phoenix Partners Group in New York. A decline signals improvement in investor confidence.


Terms of the deal include a conversion premium of 30 percent to 35 percent above the current stock price, according to people familiar with the offering. Final terms will be set when the sale is completed.

The capital increase will provide ``financial flexibility,'' the firm said in the statement. Lehman said on March 18 that it had $30 billion of cash and $64 billion in assets that could easily be turned into cash. The securities firm has access to an additional $200 billion from a Federal Reserve credit facility, according to Prashant Bhatia, an analyst at New York-based Citigroup. Bhatia upgraded his recommendation for Lehman to ``buy'' from ``neutral'' last week, saying the stock price drop was overdone.
``Reality will trump fear,'' Bhatia wrote on March 28. ``Lehman has ample liquidity to run its business.''
The firm's net income declined 57 percent in the quarter, less than analysts estimated, because of a $1.8 billion writedown on mortgage assets. Merger advisory fees jumped 34 percent, investment-management revenue surged 39 percent and equities rose 6 percent. Fuld, 61, has announced plans to cut 5,300 jobs, or 19 percent of the workforce, and closed mortgage units during the past seven months. He also has expanded in Europe and Asia to gain market share in stock trading as part of his initiatives designed to help Lehman grow faster than its peers once markets recover.
The firm now ranks as the largest trader on the London Stock Exchange and Euronext. Lehman has risen to fourth from sixth on the New York Stock Exchange and Nasdaq. Its share of U.S. bond trading has increased by 1 percentage point to 12 percent.
Bear Stearns, formerly the fifth-largest U.S. securities firm, was forced to sell itself to JPMorgan Chase & Co. this month at a fraction of its market value with financial support from the Fed. Merrill Lynch raised $6.6 billion in January by selling preferred shares to a group including the Kuwaiti Investment Authority and Japan's Mizuho Financial Group Inc.
Lehman announced the financing after the close of regular trading on the New York Stock Exchange, where shares finished 23 cents lower at $37.64.

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Posted in: Lehman Brothers Holdings Inc