Tag Archives: Credit Suisse

EU To Investigate CDS Manipulation by Major Banks

Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and 14 other investment banks face a European Union antitrust probe into credit-default swaps (CDS) for companies and sovereign debt, Bloomberg.com reports. Well, at the moment no one can say for sure who’s manipulating who.

“I hope our investigation will contribute to a better functioning of financial markets.”

 Joaquin Almunia

CEO Lloyd Blankfein of Goldman Sachs

It may just be my twisted, suspicious mind, but there’s some red lights flashing in the back of my head. Just a few week’s ago about 200 European economist’s and financial experts made a formal request to the EU parliament to conduct an investigation of the Greek national debt. This was followed by a suggestion by the Greek government to probe the financial markets instead.

“Blame the speculators,” have also become like a mantra to the EU leaders during the crisis that they have no idea on how to manage.

In that particular light, this new investigation comes as no surprise.

I have just asked Markit to comment on the allegations, and are still waiting for their reply.

In the meantime, this is what Bloomberg reports:

The European Commission said today it opened two antitrust probes. It will check whether 16 bank dealers colluded by giving market information to Markit, a financial information provider.

It will also examine whether nine of the firms struck deals with ICE Clear Europe, a clearinghouse for derivatives, that block other clearinghouses from entering the market and give rivals “no real choice where to clear their transactions.”

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” said Joaquin Almunia, the EU’s antitrust chief, in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”

Global regulators have sought to toughen regulation of credit-default swaps saying the trades helped fuel the financial crisis.

Lawmakers in the EU plan to encourage the use of clearinghouses and transparent trading systems. CDS are derivatives that pay the buyer face value if a borrower defaults.

Possible Collusion

JPMorgan, Bank of America Corp. (BAC), Barclays Plc (BARC), BNP Paribas (BNP) SA, Citigroup Inc. (C), Commerzbank AG (CBK), Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK), Goldman Sachs, HSBC Holdings Plc (HSBA), Morgan Stanley, Royal Bank of Scotland Group Plc (RBS), UBS AG (UBSN), Wells Fargo & Co. (WFC), Credit Agricole SA (ACA) and Societe Generale (GLE) SA will be investigated for possible collusion in giving “most of the pricing, indices and other essential daily data only to Markit.”

The commission said this “may have the effect of foreclosing the access to the valuable raw data by other information service providers.” It said some of the clauses in Markit’s licence and distribution agreements “could be abusive and impede the development of competition in the market for the provision of CDS information.”

The EU will also separately investigate credit default swap clearing and deals struck by ICE Clear Europe with Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley (MS) and UBS.

These agreements have clauses on preferential fees and profit sharing arrangements “which might create an incentive for the banks to use only ICE as a clearinghouse,” the EU said. That may block other clearinghouses from starting up and limit choice for CDS dealers, it said.

Giles Croot, a spokesman for Barclays, wasn’t immediately available for comment when contacted by Bloomberg.

Deutsche Bank spokesman Ronald Weichert declined to comment as did Commerzbank spokesman Reiner Rossmann.

The probe will also cover fee structures used by ICE to check if they give “an unfair advantage to the nine banks by discriminating against other CDS dealers.”

Stay tuned for updates!

Related by the Econotwist’s:


Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics

Fitch Place The Entire US Mortgage Industry Under Negative Outlook

Fitch Ratings has Thursday assigned a negative outlook for the entire US Residential Mortgage Servicer ratings sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure process. The industry-wide issue will cause all servicers to be under increased scrutiny from a wide range of state and federal regulators, state attorneys general, and GSE‘s. All servicers will be affected, even those fully in compliance with all foreclosure rules and regulations.

Risks to servicers include cost to research and remediate any errors, additional fees and resources, potential penalties and reputational risk.”

Diane Pendley

This is due to the increased amount of time and manpower it will take to properly address the much higher level of oversight and inquiries that are received, as well as the anticipated additional court delays. ‘Risks to servicers include cost to research and remediate any errors, additional fees and resources, potential penalties and reputational risk,’ said Diane Pendley, Managing Director and head of U.S. RMBS Operational Risk for Fitch.

This industry-wide issue will cause all servicers to be under increased scrutiny from a wide range of state and federal regulators, state attorneys general, and GSE’s. All servicers will be

Fitch’s Rating Outlooks indicate the likely direction of any rating change over a one- to two-year period and may be Positive, Negative, Stable or, occasionally, Evolving.

Fitch has received responses to its recent survey from all of its rated servicers regarding the servicers’ specific internal procedures used to verify and execute foreclosure affidavits.

All servicers have indicated that they are taking this matter seriously and have reviewed or are in the process of reviewing their internal procedures used to verify and execute foreclosure affidavits.

Approximately one-third of Fitch’s rated servicers have completed their reviews of foreclosure processes and the accuracy of their foreclosure affidavits. These servicers do not believe they will need to take any corrective action or make any changes to their current processes at this time.

Some servicers have estimated that they will be able to complete their review within the next several weeks, while others are still unable to give a specific estimate of how long it may take to complete their reviews.

However, ‘all servicers appear to be working towards quantifying and defining their position on foreclosures,’ said Pendley. Therefore, Fitch expects all servicers will have substantially completed their internal reviews by the end of the fourth quarter.

Based on the research that the servicers have completed to date on these issues, all servicers generally maintain the factual accuracy of their affidavits.

However, some have found their procedures for reviewing, signing and notarizing foreclosure documents may require changes and corrective actions. Some servicers have announced publicly that they have halted certain foreclosure and liquidation actions until their reviews are completed.

Many servicers have also stated that they will be resuming the foreclosure and liquidation actions in identified jurisdictions as they complete their reviews and determine that their processes are adequate and any needed corrective actions have been taken.

Fitch has requested its rated servicers to provide estimates on the volumes and timeframes for submitting corrected affidavits when it is found to be necessary and as this information becomes available. However, the servicer’s ability to resolve each corrective action at the local court level will create a wide variety of remedial steps and associated timeframes. ‘Final resolution of the foreclosure affidavit concerns and the multiple resulting investigations, along with assigned ownership rights prior to initiating foreclosure actions, may not occur until well into 2011 and possibly beyond,’ said Pendley.

Fitch has discussed with its rated servicers their ability to track and segregate the additional costs associated with taking any corrective actions.

If corrective actions are needed because of a servicer error, any increased costs should be borne by the servicers and not passed through to the trusts.

These increased costs may include legal costs to correct and file new or amended foreclosure documents and the increased carrying costs for the extended foreclosure and liquidation timelines.

Fitch may place an individual servicer’s ratings on Rating Watch Negative and/or downgrade the ratings if the servicer does not diligently and timely review its processes and take immediate corrective action to remediate any foreclosure action or documentation failures.

Fitch may take similar actions on a servicer’s ratings if the impact of the additional costs that must be borne by the servicer significantly affects its financial condition. Until those conclusions are reached, the Negative Outlook on the sector impacts all U.S. RMBS servicers.

An increase in loss severities on liquidated loans from expected trend lines or any downgrades to servicer ratings may result in negative rating actions on related RMBS classes.

As a direct by-product of the recent foreclosure issues, Fitch currently expects any negative rating actions on RMBS tranches to be limited largely to non-investment grade classes and tranches that currently have a Negative Rating Outlook. Additionally, Fitch does not envision RMBS downgrades to exceed a single rating category in most cases.

(Source: Credit Suisse)

Here’s a copy of the full report: Rating U.S. Residential Mortgage Servicers

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Analyst Predicts Acquisition of Norwegian Paper Giant

The Finnish Trade Bank analyst Karri Rinta at Handelsbanken writes in a new report called “Consolidation Catalysts” that Finnish paper giant Stora Enso make a bid on its Norwegian competitor, Norske Skog, and strike a deal with UPM-Kymmene Stora that would replace the current pool of  magazine paper with selected newspaper assets of UPM.

“It’s a golden opportunity”

Karri Rinta

The share price of the world’s second largest producer of news print paper surged 16,6% Thursday after Handelsbanken released it’s latest research report “Consolidation Catalysts.” The report predicts a big consolidation among the Nordic paper producers, and says it is a “golden opportunity” for investors.

The shares of Norske Skog (NGS) shot up like a racket in late Thursday trading at the Oslo Stock Exchange, ending up 16,6%, (NOK 8,22).

The rise came largely as a direct result of a report written by the Finnish Trade Bank analyst Karri Rinta, entitled “Consolidation Catalysts.”

Analyst Karri Rinta raise his recommendation for the Norwegian paper producer to “buy” from “reduce,” and predicts an acquisition of the Norske Skog ASA – one of Norway‘s industrial icons.

“We believe that Stora Enso will offer, and strike, an agreement with Norske Skog, and make a deal with UPM-Kymmene to swap a pool of Norske Skog/Stora Enzo magazine paper with a selected UPM newspaper properties,” Rinta writes.

He describe a potential acquisition of Norske Skog as a “golden opportunity” for investors.

Not to forget Handelsbanken itself who has controlling ownership in several Nordic wood- and paper companies, like SCA – Europe’s largest forrest industry company.

Norske Skog, founded in 1962, has been a cornerstone of Norwegian industry for decades. In the last couple of years, however, the company have been hunted by rising borrowing costs, shrinking value of the dollar and destabilizing turbulence within the management.

Another Lousy Report

Norske Skog reported gross operating earnings (EBITDA) of NOK 275 million in the first quarter of 2010, Thursday, down from NOK 472 million in the previous quarter and NOK 504 million in the first quarter of 2009.

The weak results were mainly caused by low prices for newsprint and magazine paper in Europe, combined with increased input factor costs, according to the market statement.

Here’s a copy of the full Q1 report.

Share Price May Double

According to Handelsbanken’s reviews, the value of Norske Skog is 10.73 billion.

The company’s market value stands at the moment at only 1,55 billion. (Closing price at OSE, Thursday),

Analyst expect a premium of 110 percent – a potential bid of NOK 15.

The NSG’s shares jumped from NOK 7,40 to NOK 8,36 today.

“With margins back at 90 percent, and each paper grade controlled by an unconquered “Grade Master”, the paper prices should see significant increase in the long term”, according to another report from the Handelsbanken ASA.

Executives Buy

Norske Skog also informs the market that the company today sold 289.631 shares to employees in connection with the annual share savings scheme.

Company executives bought around 20.000 shares at the price of NOK 7,48.

Mandatory notification of trade.

At the same time the brokerage firm ABG Sundal Collier sold some big piles of NSG shares in last minute trading at a price of NOK 8,40.

The buyers were Credit Suisse and Morgan Stanley.

Related by the Econotwist:

Norway’s Paper Giant; Still Not Out Of The Woods

The Northern Lights (And Dark)

Norwegian Up- and Downgrades

Spekulanter i Skogen


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Filed under International Econnomic Politics, National Economic Politics