Posts Tagged ‘Fee

20
Jul
10

Goldman Sachs’s Fabrice Tourre Disputes SEC’s Fraud Allegations in Filing

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Goldman Sachs’s Fabrice Tourre Disputes SEC’s Fraud Allegations in Filing

Tuesday, July 20, 2010

Fabrice Tourre, the Goldman Sachs Group Inc. executive and co-defendant in the U.S. Securities and Exchange Commission’s charges that the bank defrauded investors, on Monday asked the court to dismiss the case filed against him by the U.S. Regulators.

Tourre, whose emails about a collateralized debt obligation were at the heart of the Securities and Exchange Commission or SEC’s complaint, denied that he made any materially misleading statements or omissions, or behaved wrongly in connection to complex mortgage-linked securities called collateralized debt obligations or CDO.

In a filing with the U.S. District Court in the Southern District of New York Tourre “specifically denies he made any materially misleading statements or omissions or otherwise engaged in any actionable or wrongful conduct” stemming from the CDO known as Abacus.
Tourre also argued that neither he nor his employer had a “duty to disclose any allegedly omitted information” in the marketing and sale of the CDO.

In April, the Securities and Exchange Commission accused the investment bank that it did not reveal that one of its clients, Paulson & Co, played a significant role in the selection of securities contained in the Abacus mortgage portfolio and which was later sold to investors.

Following the collapse of the housing market, the securities in that mortgage portfolio – Abacus – lost more than $1 billion.
Goldman said it was a “mistake” to state that the loans contained in the CDO had been selected by a third party without mentioning the role of Paulson & Co, a hedge fund that bet against the security.

Last week, in a settlement, Goldman agreed to pay $550 million to settle civil fraud charges brought in by the SEC. This is reportedly the largest ever for a financial institution and is less than the $1 billion fraud that the Commission alleged.

Tourre, who is the only Goldman Sachs executive named as a defendant in the SEC’s fraud lawsuit, has yet to settle with the regulator. Goldman also agreed to co-operate with the SEC in its case against Tourre.

Goldman Sachs declined $0.49 or 0.34 percent and closed Monday’s regular trading at $145.68. After hours, Goldman Sachs declined further $1.68 or 1.15 percent and traded at $144.00
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12
Jun
10

Goldman Sachs Crime watch – SEC Launches 2nd Major Investigation

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Goldman Sachs Crime watch – SEC Launches 2nd Major Investigation

Saturday, June 12, 2010

US securities regulators are hunting for fresh dirt on Goldman Sachs Group, hoping to bolster their lawsuit against the bank and perhaps force it to settle on terms more to the regulators’ liking.

Two months ago the Securities and Exchange Commission charged Wall Street’s most powerful bank with civil fraud in connection with a subprime mortgage-linked security.

The case hinges on whether Goldman misled investors when it marketed Abacus 2007, a mortgage-linked security that turned toxic during the mortgage crisis.

Now, the SEC is also looking at other collateralized debt obligations that turned toxic, including Hudson Mezzanine Funding, a source familiar with the investigation said on Thursday.

“You put a number of things together and then it becomes harder to defend against all of them,” said Annemarie McAvoy, a Fordham University School of Law professor and a former federal prosecutor

“So you finally cry uncle and say, ‘Fine, I’ll settle.'”

The expanding investigation of Goldman’s CDOs comes as federal prosecutors probe some of the complex mortgage-linked transactions that Wall Street firms cobbled together and which helped spark the worst financial crisis in decades.

Even the Financial Industry Regulatory Authority is getting into the act.

Reuters has learned the securities industry’s self-regulatory agency recently began its own investigation into whether Wall Street banks violated customary sales practices in hawking CDOs to institutional investors.

A document reviewed by Reuters reveals FINRA is looking into potential improprieties in the structuring of the deals and the relationship between the CDO underwriters and mortgage lenders.

Former Goldman customers also are putting pressure on the bank and its chief executive, Lloyd Blankfein.

Reuters previously reported that SEC lawyers had looked at the $1 billion Timberwolf deal before filing the Abacus lawsuit in April.

The SEC’s interest in the $2 billion Hudson CDO was first reported by the Financial Times.

U.S. Senator Carl Levin, during a hearing in April of the Senate’s Permanent Subcommittee on Investigations, raised Abacus, Timberwolf and Hudson while questioning a cast of past and present Goldman employees, including Blankfein.

In a Senate floor speech in May introducing legislation to curb conflicts of interest in Wall Street deals, Levin zeroed in on Hudson Mezzanine 2006-1.

“When Goldman first sold the securities to its clients, more than 70 percent of Hudson Mezzanine had AAA ratings,” he said. “But … within 18 months Hudson was downgraded to junk status, and Goldman cashed in at the expense of its clients.”

The Hudson deal closed in November 2006 and went into liquidation in May 2008.

The myriad investigations, coupled with the Timberwolf litigation, could create a tipping point at which Blankfein and other Goldman executives decide they have no choice but to reach some sort of comprehensive settlement, according to legal experts.

“Will there be more stuff? At this point, it certainly wouldn’t surprise me,” said White.

At the least, the SEC could be looking to bolster its Abacus case, which some saw as weak. SEC commissioners voted to bring the lawsuit in a split decision.

Fordham’s McAvoy said the SEC’s strategy could be to strengthen the initial case by adding new material from other deals.

“A lot of folks don’t think the initial case is as strong as the SEC made it out to be,” McAvoy said.

Goldman shares are down more than 25 percent since the SEC filed its lawsuit on April 16. The shares were off 2.4 percent to $133.49 in Thursday morning trading.
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01
May
10

Goldman Sachs under criminal investigation

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Goldman Sachs under criminal investigation

Saturday, May 1, 2010

Federal prosecutors have opened a preliminary criminal investigation into alleged fraud at Goldman Sachs, sending shares in the Wall Street bank plunging.

Sources confirmed the U.S. attorney’s office had begun liaising with the Securities and Exchange Commission, which brought civil charges against Goldman two weeks ago, accusing it of misleading investors over a $1 billion derivatives deal.

Prosecutors have not yet determined whether there is evidence to bring criminal charges.

Goldman shares fell more than 9 percent on Friday to close at $145. Before the commission sued the company on April 16, its stock stood at $184.

The commission claims the bank cheated customers in a 2007 deal concerning a mortgage-backed security. Goldman allegedly failed to tell investors that U.S. hedge fund Paulson & Co was going “short” by betting that the security would decline in value. Paulson was allegedly allowed to stuff it with mortgages doomed to default. Royal Bank of Scotland backstopped the deal and was left with an $840 million liability.

The British Financial Services Authority is also investigating.

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28
Apr
10

Goldman’s defense? We’re misunderstood

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Goldman’s defense? We’re misunderstood

Wednesday, April 28, 2010

Goldman Sachs on Tuesday denied reaping vast profits from the collapse of the U.S. housing market as its top executive and a star trader faced hostile questions in Congress over the 2008 financial meltdown.

In angry exchanges before a Senate investigative committee, the storied Wall Street firm was accused of fuelling a crisis that forced thousands of Americans from their homes and continues to ravage the U.S. economy.

Top Goldman Sachs officials have defended their conduct in the financial crisis, flatly disputing the government’s fraud allegations against the giant financial house. I did not mislead investors, insisted a trading executive at the heart of the government’s case.

But they ran into a wall of bipartisan wrath before a Senate panel investigating Goldman’s role in the financial crisis and the Securities and Exchange Commission fraud suit against it and one of its traders. Sen. Carl Levin (D-Mich.) accused Goldman on Tuesday of making risky financial bets.

About a half dozen protesters were in the committee room, dressed in prison stripes with names on signs around their necks of Fabrice Tourre, the only company official directly accused in the SEC suit, and Goldman CEO Lloyd Blankfein, who was also scheduled to testify.

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27
Apr
10

Goldman Sachs: Lloyd Blankfein Says Firm Doesn’t Need to Disclose Position

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Goldman Sachs: Lloyd Blankfein Says Firm Doesn’t Need to Disclose Position

Tuesday, April 27, 2010

Goldman Sachs on Tuesday denied reaping vast profits from the collapse of the U.S. housing market as its top executive and a star trader faced hostile questions in Congress over the 2008 financial meltdown.

In angry exchanges before a Senate investigative committee, the storied Wall Street firm was accused of fuelling a crisis that forced thousands of Americans from their homes and continues to ravage the U.S. economy.

Democratic Senator Carl Levin, the panel’s chairman, assailed Goldman as representative of Wall Street’s ‘unbridled greed,’ drawing them into a raging political battle over financial reform.

The Senate was expected to vote later on Tuesday on whether to proceed with debate about the most sweeping financial reforms in a generation, a day after Republicans successfully blocked a similar move.

Against this caustic backdrop executives battled to salvage the firm’s reputation, rejecting charges – recently filed by a U.S. watchdog – that Goldman sold clients a complex financial product devised by some who bet against it.

Levin demanded to know why Goldman had been ‘trying to sell a shitty deal’ to investors, fuming that ‘as we speak, lobbyists fill the halls of Congress hoping to weaken or kill reforms that would end these abuses.’
French trader Fabrice Fabulous Fab Tourre, who is at the centre of the Securities and Exchange Commission’s case against the firm, was among the first to be dragged before the committee.

He denied any wrongdoing: ‘I deny – categorically – the SEC’s allegation. And I will defend myself in court against this false claim,’ said Tourre.

‘I have been the target of unfounded attacks on my character and motives.’

If Goldman executives hoped to get an easier ride from Republicans, they may have been disappointed. Former Republican presidential candidate John McCain was scathing.

‘I don’t know if Goldman Sachs has done anything illegal,’ he said, adding that ‘from the reading of these emails and the information that this committee has uncovered there is no doubt their behaviour was unethical and the American people will render a judgment as well as the courts.’

Goldman chief executive Lloyd Blankfein was due to appear later in the day, but in prepared testimony said there was nothing wrong with Goldman hedging its bets by holding ”short” positions that would benefit the firm if housing prices collapsed.

‘(We) didn’t have a massive short (position) against the housing market and we certainly did not bet against our clients,’ he said.

‘If our clients believe that we don’t deserve their trust, we cannot survive,’ he said. ‘We believe that we managed our risk as our shareholders and our regulators would expect.’

Blankfein also said that, ‘while profitable overall,’ Goldman lost about $1.2 billion from investments tied to the residential housing market.
In the hearing, Levin pointed to Goldman email messages he said refuted the firm’s claims.

In one November 2007 message from Blankfein, he says: ‘Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts,’ which are essentially bets that the market will drop.

Goldman Sachs on Tuesday denied reaping vast profits from the collapse of the U.S. housing market as its top executive and a star trader faced hostile questions in Congress over the 2008 financial meltdown.

In angry exchanges before a Senate investigative committee, the storied Wall Street firm was accused of fuelling a crisis that forced thousands of Americans from their homes and continues to ravage the U.S. economy.

Democratic Senator Carl Levin, the panel’s chairman, assailed Goldman as representative of Wall Street’s ‘unbridled greed,’ drawing them into a raging political battle over financial reform.

The Senate was expected to vote later on Tuesday on whether to proceed with debate about the most sweeping financial reforms in a generation, a day after Republicans successfully blocked a similar move.

Against this caustic backdrop executives battled to salvage the firm’s reputation, rejecting charges – recently filed by a U.S. watchdog – that Goldman sold clients a complex financial product devised by some who bet against it.

Levin demanded to know why Goldman had been ‘trying to sell a shitty deal’ to investors, fuming that ‘as we speak, lobbyists fill the halls of Congress hoping to weaken or kill reforms that would end these abuses.’

French trader Fabrice Fabulous Fab Tourre, who is at the centre of the Securities and Exchange Commission’s case against the firm, was among the first to be dragged before the committee.
He denied any wrongdoing: ‘I deny – categorically – the SEC’s allegation. And I will defend myself in court against this false claim,’ said Tourre.

‘I have been the target of unfounded attacks on my character and motives.’

If Goldman executives hoped to get an easier ride from Republicans, they may have been disappointed. Former Republican presidential candidate John McCain was scathing.

‘I don’t know if Goldman Sachs has done anything illegal,’ he said, adding that ‘from the reading of these emails and the information that this committee has uncovered there is no doubt their behaviour was unethical and the American people will render a judgment as well as the courts.’

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26
Apr
10

Republicans block debate of finance rules reform

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Republicans block debate of finance rules reform

Monday, April 26, 2010

U.S. lawmakers on Monday failed to pass a test vote of the widely watched financial regulatory reform bill in a sharply divided Senate.

The lawmakers voted 57 – 41, falling short of the 60 votes that Democrats needed to proceed on the regulatory overhaul in the Senate. All 41 Republican senators said that they oppose the bill.

Two Democrats voted against the bill and two Republicans did not vote.

The legislation, which has become President Barack Obama’s top domestic priority after the completion of the healthcare reform, aims to reset the rules of the U.S. financial sector.

The bill, proposed by Senate Banking Committee Chair Chris Dodd (D-Conn.), would map a way to dissolve the so-called “too big to fail” firms in a bid to avoid massive taxpayer-funded “bailouts” introduced in late 2008 amid the financial crisis.

It will also tighten regulations on the giant market in derivatives – complex, privately traded instruments tied to the underlying value of a commodity and seen as vehicles for dangerous speculation.

There has been a consensus that the country must tighten regulations on Wall Street after the collapse of Lehman Brothers in September 2008, which triggered the fresh round of global financial crisis and a deep recession.

But wide disagreements exist between the two parties.

Republicans say the Dodd bill will add new burden to the U.S. taxpayers and may not prevent future crisis.

President Obama said earlier this month that he urged the bill to pass the Senate in weeks. But analysts say that given the escalating political pressure, it will take longer time for the sweeping financial overhaul to complete.

Obama said on Monday he was “deeply disappointed” that Senate Republicans had blocked the test vote.

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26
Apr
10

Goldman Sachs and “War Profiteering”

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Goldman Sachs and “War Profiteering”

Monday, April 26, 2010

Embattled Wall Street investment giant Goldman Sachs has hit back at claims it used the U.S. sub-prime mortgage crisis to make tens of millions of dollars in profit.

The financial giant, already facing fraud charges, found itself in the middle of a new firestorm on Saturday after emails released by a U.S. Senate panel suggested Goldman executives made huge profits out of the 2007 crisis.

Goldman fired back on Sunday, accusing the Senate Permanent Subcommittee on Investigations of having ‘cherry-picked just four emails from the 20 million pages of documents and emails provided to it’.

‘It is concerning that the subcommittee seems to have reached its conclusion even before holding a hearing,’ added Goldman Sachs spokesman Lucas van Praag.

The emails come at a bad time for Goldmans Sachs.

Earlier this month, the U.S. Securities and Exchange Commission announced it was charging the company with fraud, accusing it of ‘defrauding investors by misstating and omitting key facts’ about a product based on subprime, or higher-risk mortgage-backed securities.

On Saturday, subcommittee chairman Democratic Senator Carl Levin said Goldman Sachs and other investment banks had acted as ‘self-interested promoters of risky and complicated financial schemes that helped trigger the crisis’.

He said the bank had bundled toxic mortgages into complex financial instruments, got credit rating agencies to label them as AAA securities, and then sold them to investors, magnifying and spreading risk throughout the financial system.

In addition, Levin said, the bank often bet against the instruments it sold and rolled in profits as a result.

Van Praag said on Sunday the company had net losses of over $1.2 billion in residential mortgage-related products in 2007 and 2008.

‘This demonstrates conclusively that we did not make a significant amount of money in the mortgage market,’ he said.

But the four emails released by the subcommittee suggest that the company was able to make massive profits by shorting products including residential mortgage-backed securities and collateralised debt obligations (CDOs).

In one email, Goldman Sachs chairman and chief executive officer Lloyd Blankfein appeared to gloat about the strategy in an exchange with other top Goldman executives.

‘Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts,’ the message said.

In another, a Goldman Sachs manager noted that the firm had bet against 32 billion dollars in mortgage-related securities that had been downgraded by credit rating agencies, causing losses for many investors.

‘Sounds like we will make some serious money,’ the manager wrote.

‘Yes, we are well positioned,’ his colleague responded.

In a third email, Goldman employees discussed securities that were underwritten and sold by the company and tied to mortgages issued by Washington Mutual Bank’s subprime lender, Long Beach Mortgage.

One employee reported the ‘wipeout’ of one Long Beach security and the ‘imminent’ collapse of another as ‘bad news’ that would cost the firm $2.5 million.

The ‘good news,’ the employee wrote, was that Goldman had bet against the very securities it had assembled and sold, meaning the failure would net the company five million dollars.

Blankfein and other current and former company personnel are scheduled to testify before the subcommittee on Tuesday.

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24
Apr
10

Goldman Sachs e-mails show bank sought to profit from housing downturn

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Goldman Sachs e-mails show bank sought to profit from housing downturn

Saturday, April 24, 2010

In late 2007 as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they would make “some serious money” betting against the housing markets.

The e-mails, released Saturday morning by the Senate Permanent Subcommittee on Investigations, appear to contradict some of Goldman’s previous statements that left the impression that the firm lost money on mortgage-related investments.

In the e-mails, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November of 2007 that the firm indeed had lost money initially. But it later recovered from those losses by making negative bets, known as short positions, enabling it to profit as housing prices fell and homeowners defaulted on their mortgages. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”

In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, remarked on figures that showed the company had made a $51 million profit in a single day from bets that the value of mortgage-related securities would drop. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.

The messages were released Saturday ahead of a Congressional hearing on Tuesday in which seven current and former Goldman employees, including Mr. Blankfein, are expected to testify. The hearing follows a recent securities fraud complaint that the Securities and Exchange Commission filed against Goldman and one of its employees, Fabrice Tourre, who will also testify on Tuesday.

Actions taken by Wall Street firms during the housing meltdown have become a major factor in the contentious debate over financial reform. The first test of the administration’s overhaul effort will come Monday when the Senate majority leader, Harry Reid, is to call a procedural vote to try to stop a Republican filibuster.

Republicans have contended that the renewed focus on Goldman stems from Democrats’ desire to use anger at Wall Street to push through a financial reform bill.

Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrast with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’?” Mr. Levin said in a statement Saturday when his office released the documents. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

A Goldman spokesman did not immediately respond to a request for comment.

The Goldman messages connect some of the dots at a crucial moment of Goldman history. They show that in 2007, as most other banks hemorrhaged losses from plummeting mortgage holdings, Goldman prospered.

At first, Goldman openly discussed its prescience in calling the housing downfall. In the third quarter of 2007, the investment bank reported publicly that it had made big profits on its negative bet on mortgages.

But by the end of that year, the firm curtailed disclosures about its mortgage trading results. Its chief financial officer told analysts at the end of 2007 that they should not expect Goldman to reveal whether it was long or short on the housing market. By late 2008, Goldman was emphasizing its losses, rather than its profits, pointing regularly to write-downs of $1.7 billion on mortgage assets and leaving out the amount it made on its negative bets.

Goldman and other firms often take positions on both sides of an investment. Some are long, which are bets that the investment will do well, and some are shorts, which are bets the investment will do poorly. If an investor’s positions are balanced – or hedged, in industry parlance – then the combination of the longs and shorts comes out to zero.

Goldman has said that it added shorts to balance its mortgage book, not to make a directional bet that the market would collapse. But the messages released Saturday appear to show that in 2007, at least, Goldman’s short bets were eclipsing the losses on its long positions. In May 2007, for instance, Goldman workers e-mailed one another about losses on a bundle of mortgages issued by Long Beach Mortgage Securities. Though the firm lost money on those, a worker wrote, there was “good news”: “we own 10 mm in protection.” That meant Goldman had enough of a bet against the bond that, over all, it profited by $5 million.

Documents released by the Senate committee appear to indicate that in July 2007, Goldman’s daily accounting showed losses of $322 million on positive mortgage positions, but its negative bet – what Mr. Viniar called “the big short” – came in $51 million higher.

As recently as a week ago, a Goldman spokesman emphasized that the firm had tried only to hedge its mortgage holdings in 2007 and said the firm had not been net short in that market.

The firm said in its annual report this month that it did not know back then where housing was headed, a sentiment expressed by Mr. Blankfein the last time he appeared before.

“We did not know at any minute what would happen next, even though there was a lot of writing,” he told the Financial Crisis Inquiry Commission in January.

It is not known how much money in total Goldman made on its negative housing bets. Only a handful of e-mail messages were released Saturday, and they do not reflect the complete record.

The Senate subcommittee began its investigation in November 2008, but its work attracted little attention until a series of hearings in the last month. The first focused on lending practices at Washington Mutual, which collapsed in 2008, the largest bank failure in American history; another scrutinized deficiencies at several regulatory agencies, including the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.

A third hearing, on Friday, centered on the role that the credit rating agencies – Moody’s, Standard & Poor’s and Fitch – played in the financial crisis. At the end of the hearing, Mr. Levin offered a preview of the Goldman hearing scheduled for Tuesday.

“Our investigation has found that investment banks such as Goldman Sachs were not market makers helping clients,” Mr. Levin said, referring to testimony given by Mr. Blankfein in January. “They were self-interested promoters of risky and complicated financial schemes that were a major part of the 2008 crisis. They bundled toxic and dubious mortgages into complex financial instruments, got the credit-rating agencies to label them as AAA safe securities, sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the financial instruments that they sold, and profiting at the expense of their clients.”

The transaction at the center of the S.E.C.’s case against Goldman also came up at the hearings on Friday, when Mr. Levin discussed it with Eric Kolchinsky, a former managing director at Moody’s. The mortgage-related security was known as Abacus 2007-AC1, and while it was created by Goldman, the S.E.C. contends that the firm misled investors by not disclosing that it had allowed a hedge fund manager, John A. Paulson, to select mortgage bonds for the portfolio that would be most likely to fail. That charge is at the core of the civil suit it filed against Goldman.

Moody’s was hired by Goldman to rate the Abacus security. Mr. Levin asked Mr. Kolchinsky, who for most of 2007 oversaw the ratings of collateralized debt obligations backed by subprime mortgages, if he had known of Mr. Paulson’s involvement in the Abacus deal.

“I did not know, and I suspect – I’m fairly sure that my staff did not know either,” Mr. Kolchinsky said.

Mr. Levin asked whether details of Mr. Paulson’s involvement were “facts that you or your staff would have wanted to know before rating Abacus.” Mr. Kolchinsky replied: “Yes, that’s something that I would have personally wanted to know.”

Mr. Kolchinsky added: “It just changes the whole dynamic of the structure, where the person who’s putting it together, choosing it, wants it to blow up.”

The Senate announced that it would convene a hearing on Goldman Sachs within a week of the S.E.C.’s fraud suit. Some members of Congress questioned whether the two investigations had been coordinated or linked.

Mr. Levin’s staff said there was no connection between the two investigations. They pointed out that the subcommittee requested the appearance of the Goldman executives and employees well before the S.E.C. filed its case.

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23
Apr
10

Harry Reid moves forward with first financial reform vote

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Harry Reid moves forward with first financial reform vote

Friday, April 23, 2010

Senate Majority Leader Harry Reid says he’ll try to move a financial reform bill to the floor today–and if the Republicans object, as they’ve threatened to do, he’ll force them to take a tough vote on whether to allow debate on legislation to regulate Wall Street.

“If they let us move to it, I’d be happy to do that,” Reid said at a press conference with Democratic leadership this afternoon. “If they don’t … I’m filing cloture [and we’ll] have a cloture vote on Monday, 5:15.”

That won’t please the GOP. Just before the Democrats’ press conference, Sen. Susan Collins (R-ME), whose vote is still in play on financial reform, implored Reid not to move ahead until a final bipartisan agreement is reached.

“I hope that Senator Reid abandons his plan to force a premature cloture vote on Monday,” Collins told reporters. “I think that would be unfortunate in view of the fact that both sides of the negotiations say that progress is being made.”

Reid is undeterred. “I have been around for quiet a while,” he said. “What we have done on financial reform was just as energetic as what we did on health care. We worked for more than two months with [Sen. Richard] Shelby trying to come up with something … I’m not going to waste any more time of the American people while they come up with some agreement.”

“The games of stalling are over,” Reid said.

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22
Apr
10

President Obama seeks reform buy-in from Wall Street

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President Obama seeks reform buy-in from Wall Street
The President Speaks to Wall Street, Republicans, and All of America

Thursday, April 22, 2010

Barack Obama has railed at unfettered corporate greed as he laced a defining pitch for U.S. financial reform with stark warnings of future economic meltdowns if the bid fails.

Just blocks from Wall Street, the epicentre of high finance in the United States, the president sent a tough message to financial barons, American voters and Republican opponents critical of his plans.

Obama recalled how he had visited the historic college at Cooper Union during his election campaign to warn of the dangers of corporate excess.

‘And I take no satisfaction in noting that my comments then have largely been borne out by the events that followed,’ he told an audience of banking notables, including Lloyd Blankfein, chief executive of fraud-tainted titan Goldman Sachs, on Thursday.

‘But I repeat what I said then, because it is essential that we learn the lessons of this crisis, so we don’t doom ourselves to repeat them. Make no mistake, that is exactly what will happen if we allow this moment to pass.’

Obama assured investors he believed in the ‘power of the free market’ and a ‘strong financial sector that helps people to raise capital and get loans and invest their savings’.

‘But a free market was never meant to be a free licence to take whatever you can get, however you can get it.

‘Some on Wall Street forgot that behind every dollar traded or leveraged, there is a family looking to buy a house, to pay for an education, open a business, save for retirement.

‘What happens on Wall Street has real consequences across the country, across our economy.’

Obama urged Wall Street bosses to call off armies of lobbyists trying to thwart what he has promised will be the most sweeping regulatory reform drive since the 1930s Great Depression.

As Democrats and Republicans spar over the final shape of the financial regulatory legislation, Obama argued that middle-ground could be found on the draft law.

Plans include protections for taxpayers should one financial institution pose a systemic risk to the whole economy if it failed, and limits on the size of corporate entities.

‘A vote for reform is a vote to put a stop to taxpayer-funded bailouts,’ Obama said. ‘The goal is to make certain that taxpayers are never again on the hook because a firm is deemed too big to fail.’

Obama also called for stronger protections for consumers and greater transparency by bringing risky financial instruments such as derivatives out into the open.

His efforts got a boost on Wednesday, when a Senate panel approved new restrictions on derivatives, a complex financial instrument blamed for partly igniting the meltdown from which America is just emerging.

Obama’s Democrats needs to peel away at least one vote from Republicans in a final vote in the full Senate, which could come within weeks.

Polls show Americans, though highly suspicious of government, support efforts to rein in Wall Street.

Obama’s financial reform effort is reaching a climax after regulators slapped civil fraud charges on finance titan Goldman.

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19
Apr
10

Chuck Schumer: 5 Airlines Won’t Charge for Carryons

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Sen. Charles Ellis Schumer: 5 Airlines Won’t Charge for Carryons

Monday, April 19, 2010

••• U.S. airlines never met a fee they didn’t like. Until now, it seems.

Five major carriers on Sunday agreed not to follow the lead of a small Florida airline that plans to charge for carryon bags. Their commitment comes just in time to keep travellers from running for the exits during the peak summer flying season, but it is doubtful that it marks a change in strategy.

Airlines are going to tack on every fee they feel they can get away with because it bolsters their revenue stream while allowing them to keep base fares lower. They just don’t feel like passengers will tolerate losing their sacred free carryons – at least not right now.
The promise to New York Sen. Charles Schumer from American Airlines, Delta Air Lines, United Airlines, US Airways and JetBlue Airways comes despite the fact that some of those same airlines are expected to report first-quarter losses next week. They were stung by higher fuel prices and the heavy February snowstorms.

Ancillary fees for air travel – including baggage fees, reservation change fees and other miscellaneous operating revenue – have been piling up.

For U.S. carriers they totalled $1.95 billion in the third quarter of 2009, roughly 36 per cent higher than for the same period a year earlier. For 26 large U.S. airlines, those fees made up 6.9 per cent of their total operating revenue in the third quarter of last year, according to the most recent government data available.

But major carriers risk alienating customers if they follow Spirit Airlines’ lead and impose a fee on carryon bags. In August, Spirit will begin charging customers up to $45 to place a bag in an overhead bin.

Other fees haven’t stopped people from flying, but many can be avoided. Carryon bag fees would be hard to avoid.

“We believe it is something that’s important to our customers and they value, and we will continue making that available to them at no charge,” American Airlines spokesman Roger Frizzell said.

It wasn’t clear how long the five airlines had pledged not to charge for carryons. Frizzell couldn’t say, and a spokesman for Delta declined to comment.

Schumer and five other Democratic senators – New Hampshire’s Jeanne Shaheen, Maryland’s Ben Cardin, Minnesota’s Amy Klobuchar, and New Jersey’s Robert Menendez and Frank Lautenberg – support legislation that would tax airlines if they charge carryon bag fees.

Schumer said the legislation will move forward until it becomes clear that no airline will institute the charges. He will have an uphill battle changing the minds of Spirit executives when he meets with them soon.

Spirit CEO Ben Baldanza told The Associated Press on Sunday that his airline is moving ahead with its carryon bag fee.

“Our plan was never predicated on anyone matching us,” Baldanza said. “The fact that other people are saying they won’t has never changed our view that this is right.”

He said his competitors’ decision actually puts pressure on those airlines because Spirit has lowered its fares more than the price of the new fee.

“We knew we took a risk with this strategy, but we believe on balance it’s one that our customers will buy into,” Baldanza said.

Analysts expect several major carriers to get back in the black in the current quarter – the second quarter – and in the second half of the year, thanks to the summer and holiday travel rushes. They wouldn’t want anything like an uproar over carryon bag fees to keep passengers from flying.

Even so, for the financial improvement airlines have seen to be sustainable, revenue needs to keep rising – either through higher fares, more fees or both – and airlines need to better position themselves in case fuel prices spike even higher.

On the last day of the first quarter – March 31 – the price of a barrel of oil closed at $83.76, more than 68 per cent higher than on the same day a year earlier.

That means if major carriers don’t charge for carryons, they could increase existing fees or institute new fees altogether.

Any way you cut it, that adds up to less money in the pockets of U.S. air travellers.

“As a practical matter, as industry conditions change and if profitability is further challenged, we’re likely to see some sort of price increase,” aviation consultant Mark Kiefer said.

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17
Apr
10

SEC tries to ride Goldman Sachs Group back to credibility

NEWS
SEC tries to ride Goldman Sachs Group back to credibility

Saturday, April 17, 2010

Financial shares led the stock market sharply lower after federal regulators filed civil fraud charges against Goldman Sachs over its dealings in subprime mortgages.

The Dow Jones industrial average lost about 125 points, having been down as much as 170 points. At times, it fell below 11,000 after closing above that level on Monday for the first time in more than a year and a half.

Analysts say the market was poised to fall after a steady run of gains the past two months, and the Goldman Sachs news gave investors a reason to sell and take some profits.

“Basically it’s sell, and ask questions later,” said Quincy Krosby, market strategist at Prudential Financial. “A market that wants to sell off will find an excuse.”

Stocks were already lower before news of the Securities and Exchange Commission’s charges against the leading investment bank. Investors were disappointed after Google reported earnings that didn’t live up to forecasts.

General Electric Co. and Bank of America Corp. also reported profits that topped forecasts, but their stocks still fell. GE’s revenue came up short of expectations, while Bank of America said loan losses remain high.

The SEC charged Goldman and one of its vice presidents with failing to disclose key information to investors regarding complex mortgage-backed securities.

“It’s all a knee-jerk reaction to Goldman,” said Steven Goldman, chief market strategist at Weeden & Co., referring to the market’s drop. He said the fundamentals of the market have not changed.

The charges come as the Obama administration seeks greater regulation of America’s banks and their trading of exotic securities like those involved in the Goldman case. These kinds of investments are widely seen as one of the triggers of the financial crisis that crippled the nation’s financial system in the (northern) autumn of 2008.

“Road blocks for financial regulation have taken a hit today,” said Thomas Villalta, co-portfolio manager of the Jones Villalta Opportunity Fund.

Analysts say other banks that also traded these types of securities will be closely scrutinised. That means the financial industry could continue to struggle because of uncertainty about reform and other potential investigations.

Investors looked past economic news. The Commerce Department said housing construction rose to a 16-month high in March. However, construction of single-family homes, the most important segment of the market, fell.

Economists are also concerned about continued hurdles in the housing market, like rising mortgage rates and the end this month of a homebuyer tax credit. A separate report showed consumer sentiment fell this month.

Friday’s drop comes after six straight days of gains that pushed the Dow to its highest close in more than 18 months. Stocks have been steadily rising in recent months on growing signs that the economy is recovering, albeit slowly.

The Dow Jones Industrial Average fell 127.34 points or 1.14 per cent, to 11,017.23 points.

The tech-rich Nasdaq composite slipped 33.98 points or 1.35 per cent, to 2,481.71 and the broad-market Standard Poor’s 500 index dipped 18.54 points or 1.53 per cent, to 1,193.13.

After mixed early trades, the SEC announcement, and its refusal to rule out further charges across the financial sector, sent shares in some of Wall Streets biggest firms deep into negative territory.

Goldman stocks were over 10 per cent down, slicing $20 off each share. They were followed by Bank of America, JP Morgan and Morgan Stanley, whose stocks were between three and five per cent off.

Trading had got off to a subdued start despite larger-than-forecasted increases in housing starts and building permits in March, as well as favourable earnings reports from Bank of America and General Electric.

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14
Apr
10

JP Morgan profits boost bank shares

NEWS
JP Morgan profits boost bank shares

Wednesday, April 14, 2010

The sprawling U.S. banking empire JP Morgan has delivered a stark illustration of the American economy’s two-tier recovery by chalking up vast profits from trading on Wall Street while suffering losses on the high street as millions of recession-hit customers struggle to repay mortgages and credit card loans.

Smashing analysts’ forecasts, JP Morgan enjoyed a 55 percent surge in first-quarter profits to $3.3 billion compared with a year earlier, setting a tough target for rivals such as Goldman Sachs, Morgan Stanley and Citigroup, which will report earnings over the next week. The firm’s shares climbed nearly 3 percent during early trading in New York.

But the bank’s figures clearly demonstrated the uneven nature of America’s gradual return to economic prosperity. While JP Morgan’s investment banking division produced a $2.4 billion profit, the firm’s retail financial services operation suffered a $131 million loss and its card services arm lost $303 million. Chief executive Jamie Dimon placed the credit for the bank’s overall profitability squarely with investment banking staff in New York, London and other financial capitals: “Our traders did a good job,” he said.

The upward march of stock markets on both sides of the Atlantic, together with a thaw in credit markets and a revival in corporate deal-making, has helped investment banks return swiftly to near-record levels of profitability, holding out the promise of more multimillion-dollar bonuses for star employees.
On the high street, Dimon said there were indications of a modest improvement in business, with credit trends “starting to look hopeful”, aided by a recent fall in U.S. unemployment: “When unemployment stops going up, you start to see an improvement in these things.”

He added that the chances of a “double dip” downturn opening up a fresh chapter in the recession appeared to be “rapidly going away”.

The patchy nature of recovery has led analysts to predict that a large chunk of the banking industry will remain in the red for some time to come. In a recent research note, Barclays Capital forecasts that 10 of America’s 25 leading banks will reveal a first-quarter loss as middle-ranking institutions without a Wall Street presence continue to struggle.

Wary of public outrage over a tiny elite accelerating to recovery ahead of the rest, the Obama administration has proposed a fee on banks to recoup bailout funds. Speaking on a conference call, Dimon, who was paid $17 million last year, took a swipe at this: “Let’s all not call it a bank fee and call it what it is: a punitive bank tax.”

A broader package of financial regulatory reform is mired in Congressional wrangling, with Republicans in the Senate objecting to plans for a ban on banks’ proprietary trading. Meeting congressional leaders today, President Obama urged enactment of plans for greater transparency in derivatives trading and told Republicans that the bill would help future bailouts of firms considered “too big to fail”.

In an industry that has seen its public reputation collapse, JP Morgan is among the few banks to emerge from the credit crunch in a position of enhanced strength. With relatively few toxic liabilities on its balance sheet, the firm was able to snap up the valuable assets of defunct rivals, picking up the remnants of Bear Stearns and Washington Mutual.

Problems have emerged, however, at some of these operations. JP Morgan has inherited a mortgage book of distinctly dubious quality from Seattle-based Washington Mutual, which collapsed in September 2008 in the largest commercial banking failure in U.S. history. The bank revealed it was setting aside $2.3 billion to cover litigation largely related to fraudulent or predatory mortgage lending.

JP Morgan’s earnings won praise from industry watchers. In a research note, Matt Albrecht, an equity analyst at Standard & Poor’s, highlighted a drop in the bank’s provision against bad debt: “Delinquency rates have stabilised or improved across most businesses, suggesting further reductions in loan loss provisions.”

Matt McCormick at Bahl & Gaynor in Cincinnati said JP Morgan was a bellwether for the financial sector: “Anyone who does not come in with similar results will suffer the consequences in the market.”

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