Azure Global : 09/26/13

Thursday 26 September 2013

GDP grows 0.7% as UK economy shows steady recovery

Manufacturing and construction estimates were upgraded while GDP figure for second quarter unrevised at 0.7%

Britain's economic recovery is on a steady course after stronger-than-expected growth in manufacturing and construction output offset falls in consumer and government spending during the second quarter of the year.

The Office for National Statistics said GDP was unrevised at 0.7% in the three months to the end of June and the trade deficit narrowed to £5.5bn from £6.3bn in the first quarter, leading several analysts to forecast even stronger growth in the second half of the year.

The improving picture will add to pressure on the Bank of England to explain its new policy of forward guidance, which has set a target for unemployment that it says is likely to be reached in 2016, but could arrive earlier should this year's rise in GDP be maintained.

Chris Williamson, chief economist at the financial data provider Markit, said: "The UK economic recovery gained momentum in the second quarter, and a further acceleration of growth looks likely in the third quarter in what's looking like an increasingly broad-based and sustainable-looking upturn."

The ONS said industrial production rose 0.8%, upgraded from 0.6%, while manufacturing output jumped by 0.9%, up from a previous estimate of 0.7%. Construction output surged 1.9%, up from a prior estimate of 1.4%.

However, Vicky Redwood, chief UK economist at Capital Economics, pointed out that much of the rise in these sectors was accounted for by stock building rather than sales.

The reliance on stock building for growth was emphasised by a more modest rise in household spending of 0.3%, while export growth slipped to 3.0% from the previous estimate of 3.6%.

Redwood said: "The breakdown now looks a bit less favourable than before. In particular, stock building is now thought to have accounted for about a third of the rise in GDP, whereas the contributions from consumer spending, investment and net trade have all been revised down.

"And there are some other slightly disappointing revisions. The annual rate of GDP growth in the second quarter has been revised down from 1.5% to 1.3% and GDP growth in 2012 has been nudged down from 0.2% to 0.1%.

"There are clearly still reasons to be cautious about assuming that the recovery can maintain its recent impressive pace," she said.

Williamson said he recognised that the underlying picture was not all rosy, especially following a steep downward revision to business investment. Instead of growing 0.9%, investment fell 2.7%.

"However, the extent of the revision and the volatility of these numbers should perhaps be seen more as a reminder of how unreliable the GDP statistics can be rather than a genuine cause for concern at this stage."

Annalisa Piazza, a UK economist at Newedge Strategy, said: "Looking ahead, we see chances that GDP might even be stronger, with a 1% quarter-on-quarter [rise] pencilled in for the third quarter.

"That said, the solid performance of UK GDP doesn't seem to convince Bank of England monetary policy committee members that the country needs a less accommodative policy stance.

"In a recent speech, the MPC's Paul Tucker suggested that the UK recovery will remain bumpy. Policymakers are clearly still concerned about the UK's slow productivity growth and the possible negative effects on the labour market. Such a scenario is consistent with the current policy stance."

Article Source : http://www.guardian.co.uk

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JP Morgan boss in talks over penalty fine for sub-prime bond sales

Bank's Jamie Dimon may have to settle on record $11bn penalty following recent $920m fine over 'London Whale' incident

The boss of America's biggest bank, JP Morgan, was on Thursdaypersonally negotiating a new financial settlement with US regulators over allegations stemming from the way the bank sold sub-prime mortgage bonds before the banking crisis. The settlement could reach a record $11bn (£7bn)

Jamie Dimon, one of the few bankers still at the helm of a big bank following the 2008 financial meltdown, turned up for face-to-face talks with the US attorney general, Eric Holder, at the department of justice in Washington. The negotiations prompted fresh speculation that Dimon will be forced to agree to a payout bigger than the $4.5bn paid by BP over the Gulf of Mexico oil spill.

There are suggestions JP Morgan could be forced to make $4bn of payments to consumers and $7bn of penalties to cover losses incurred from the way mortgages were packaged by JP Morgan as the financial crisis took hold.

The new payout negotiations come only a week after JP Morgan was fined $920m by regulators in the US and the Financial Conduct Authority in Britain over the $6.2bn trading losses that became known as the "London Whale" incident a year earlier.

In an unusual move, JP Morgan admitted wrongdoing and was accused of "unsafe and unsound practices" in derivatives trading taking place in the so-called chief investment office. On the same day the bank was forced to hand over $390m in fines and refunds for overcharging credit card customers.

If the new payout reaches $11bn the bank will have had to pay $30bn in fines and settlements over the past four years. It has already incurred $17.3bn in regulatory fines in the three years to 2012 and in recent regulatory filings – which contain 10 pages of legal disclosures – the bank estimated it faced a possible $6bn of further costs. The sums being discussed in Washington would be well in excess of that figure.

The timescale for concluding the discussions is so far unclear owing to the complexity of the issues and the number of US authorities involved. They include not just Holder's justice department but also the New York attorney general, the securities and exchange commission and federal housing departments.

During the crisis, JP Morgan stepped in to take over Washington Mutual and Bear Stearns and Dimon was viewed as one of the only bankers to have escaped the crisis with his reputation intact. However, the string of punishing regulatory scandals has now put him under pressure.

When US prosecutors levelled criminal charges against former JP Morgan traders in relation to the Whale incident, Preet Bharara, New York attorney general, said: "This was not a 'tempest in a teapot' [a phrase used by Dimon to describe the incident when it emerged], but rather a perfect storm of individual misconduct and inadequate internal controls."

After the Whale fine, Dimon warned that "in the coming weeks and months we need to be braced for more to come" amid speculation that his relationship with regulators is deteriorating.

Even if a settlement can be reached over the way sub-prime mortgages were packaged and sold to investors ahead of the banking crisis, JP Morgan faces a string of other potential wrangles. It is not clear if some of these could be part of the current talks.

Some of the problems related to the takeover of Bear Stearns and Washington Mutual which were big players in the once lucrative business of packaging up mortgages into what looked like safe investments. When the credit crunch hit in 2007 the value of these products collapsed and left holders with large losses.

Dimon, who earlier this faced down calls for his roles as chairman and chief executive of the bank to split, has been softening the ground for hefty settlements in recent weeks. In a staff memo last week he wrote that since 2012 more than 4,000 extra staff had been assigned to risk, compliance, legal and finance departments with an extra $1bn being spent on controls. Staff have undergone 750,000 hours of training on compliance procedures.

JP Morgan fines and settlements: the last two years

2011 Hands over $228m to settle allegations that the bank manipulated the bidding process for municipal bonds

2012 Among five banks made to pay $25bn in penalties and compensation over the robo-signing scandal (illegal repossession procedures which evicted many people from their homes unecessarily or prematurely)

2013 Among 13 banks that have to pay $9bn in cash and other help to homeowners over the robo-signing scandal

2013 Hands over $920m in fines relating to its lack of internal controls in the wake of the $6bn trading loss run up by the "London Whale" trader

2013 Hands over $410m to settle allegations of manipulating the electricity market in California

2013 Hands over $390m in fines and rebates for overcharging credit card customers

Article Source : http://www.guardian.co.uk

Bank of England holds off action on house prices despite bubble fears

FPC will 'closely monitor' property market, while FCA will assess vulnerability of hedge funds to rate changes

The Bank of England has stepped back from taking immediate action to cool the housing market but is monitoring property values closely afterhouse prices returned to their pre-crisis levels.

The Bank's financial policy committee, which meets quarterly to assess risks to the financial system, said it is also reviewing work by the Treasury on preventing the risk of cyber-attacks to the banking industry and stepping up its assessment of the vulnerability of hedge funds to sudden changes in interest rates.

At a time when George Osborne's housing market schemes are raising concerns about sharp rises in house prices – particularly in London – the FPC said it would "closely monitor developments in the housing market and banks' underwriting standards".

"The committee would be vigilant to potential emerging vulnerabilities," it said in a statement released following its meeting on 18 September. The committee, which is chaired by Bank of England governor Mark Carney, said if it did decide to deploy any of its powers to cool the market – such as forcing banks to hold more capital – it would do so gradually.

But while it is not moving immediately to cool the housing market, the FPC has been assessing the impact that sharp upward moves in long-term interest rates could have on households and major financial institutions.

While it concluded that there was no immediate threat to banks and insurance companies it wants more information about the impact on hedge funds, which borrow money to take bets on stock markets, currencies and commodities.

The City regulator, the Financial Conduct Authority, will now assess the "potential amplification" through the financial system of interest rate changes – or perceptions of interest rate changes that may be caused by central bank policies on reducing the stimulus currently being pumped into markets to keep interest rates low.

"The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely," the FPC said.

The FPC's comments on the housing market will be closely watched by the market as the chancellor has insisted he is not creating a housing bubble – even though property prices have broken through their pre-crisis peak. The average price of a UK house has passed the peak five years ago of £245,000 but Osborne has said the FPC will have powers to stop any over-inflation in house prices.

The FPC noted that while mortgage approvals in July were 30% higher than a year earlier and average house prices in August were 5% higher, activity in the housing market was nevertheless below historic averages. "Households' debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago," the FPC said.

The committee said it could force banks to change their lending criteria, impose additional capital requirements and make recommendations to the regulators on tightening affordability tests for borrowers.

Martin Beck, UK economist at Capital Economics, said it was reasonable for the FPC to hold back on intervention even though house prices compared with earnings are still above the level of the 1980s housing boom. "This growing unaffordability should act as a natural check on house price growth. There is no suggestion that banks are about to return to the very loose lending conditions of the mid-2000s, with 110% mortgages and self-certified loans. So the workings of the market may stay the hand of the FPC in having to intervene."

Article Source : http://www.guardian.co.uk

Strong carpet and furniture sales boost UK retailers, CBI says

Shops and stores had a better September than expected as the recovering property market affected rest of economy

Sales of furniture and carpets are rising strongly as the impact of Britain's recovering housing market affects the rest of the economy, the CBI has said.

The latest snapshot of retailing from the employers' organisation showed that shops and stores had a better September than anticipated and expect the improved trading environment to continue into October.

The pickup in activity was led by the furniture and carpets sector, where for the first time since 1996 every one of the retailers questioned by the CBI said sales were higher in September than a year earlier.

But the monthly distributive trades survey found that the pickup was broad based, with grocers and retailers selling recreational goods also reporting strong growth in sales volumes.

Overall, 46% of the 111 firms questioned said business was better than in September 2012 while 12% said it was worse. The balance of +34% was the highest since June 2012 and was accompanied by retailers placing more orders with suppliers.

Barry Williams, Asda's chief merchandising officer for food and chairman of the CBI distributive trades survey panel, said: "It's encouraging to see the high street on the road to recovery, with particularly strong growth from furniture and carpet retailers, department stores and recreational goods retailers.

"But the retail sector is not out of the woods yet with consumer confidence still fragile despite the rise in spending."

The CBI reported that 22% of retailers said sales volumes were above average for the time of year, while 10% said they were below average. The balance of +12 points was the highest since December 2010.

David Tinsley, economist at BNP Paribas, said: "The most obvious caveat to reading too much into this survey is that the relatively good result in August was not reflected in the official retail sales data for that month, which fell 1%. Still, the broad momentum of sales appears firm and upwards. And the CBI survey suggests this remains the case."

Richard Lowe, the head of retail and wholesale at Barclays, said: "Retail sales have grown for the third month running, and these strong figures will no doubt provide a fillip for the high street.

"Retailers will now be hoping for more seasonal weather to help sales of new autumn/winter collections and for consumer confidence to tick up as we head towards the crucial Christmas trading period".

Article Source : http://www.guardian.co.uk

Icap fined £55m as ex-staff charged over Libor rigging

Former Tory treasurer Michael Spencer runs into political row as firm he founded given stiff penalty and ex-employees charged

The City dealer run by former Conservative party treasurer Michael Spencer has been fined £55m by regulators and three of its former employees charged with criminal offences in the United States as part of the global investigation into Libor rigging.

Spencer said he regretted the actions of the three – one of whom was known to colleagues as "Lord Libor". Regulators hit the Icap money broking firm he runs with huge fines and released pages of embarrassing email exchanges showing offers of a curry night out, a Ferrari and "bubbly on its way" in return for moving the yen Libor rate.

One of the City's highest profile figures, Spencer was drawn into a political row as the Labour MP John Mann called for his donations to the Conservative party to be handed to the armed forces charities where Libor fines are sent.

Labour's vice-chairman Michael Dugher also called for the money to be returned. "David Cameron fought tooth and nail to avoid launching a proper inquiry into the scandal of rigging interest rates, the very scandal which has now engulfed one of his big donors – a man who has given him nearly £5m," Dugher said. "It just goes to show what we already knew. In the end it's a privileged few whose voices he hears, and whose interests he acts in."

Each of the one-time employees – Darrell Read, who lives in New Zealand, Daniel Wilkinson and "Lord Libor", Colin Goodman – face 30 years in jail for each of the three charges levelled against them by the US department of justice (DoJ). They have been charged with conspiracy to commit wire fraud and two counts of wire fraud. In the US a criminal complaint is not evidence and a defendant is presumed innocent until convicted.

Spencer's tenure as treasurer of the Conservative party overlapped with the period of the fines – between July 2006 and December 2010 – but he claimed that this was not relevant. Even if he had not been holding the senior political role Spencer said: "I can't believe I'd have been able to pick it up."

A Tory official said the demands to repay Spencer's donations were "nonsense".

Spencer has attended a series of dinners in Downing Street and close links with the party since leaving his post as co-treasurer. Last year he was described as a personal friend of the prime minister by cabinet minister Francis Maude.

Spencer described the 10 former and current employees as "rotten apples" but acknowledged the desk on which they worked had never been audited during the relevant four-year period.

Announcing the latest development in the Libor scandal, which erupted in June 2012 when Barclays was fined £290m, Scott Hammond, deputy assistant attorney general for the antitrust division's criminal enforcement programme, said: "In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks."

Icap, in which Spencer and his family own a 16% stake worth £400m, will pay £14m to the Financial Conduct Authority. It is the FCA's fourth fine for Libor rigging and first against a non-bank. The remainder of the £55m will go the US authorities.

According to the FCA one of the brokers received £5,000 every quarter in "corrupt bonus payments".

The regulators link the activities to those of UBS, the Swiss bank which has so far faced the largest Libor fine of £940m. The DoJ's complaint names former UBS trader Tom Hayes as a "co-conspirator" in its charges against former Icap employees along with "others known and unknown".

According to the FCA, which does not name individuals, there were 300 written requests to change Libor rates to brokers at Icap, and more orally which were harder to chart.

Libor – the London interbank offered – is a benchmark rate based on submissions by major banks about the price they think rivals would charge them to borrow money over different periods of time. It in turn is used a benchmark against which £300tn of financial contracts around the world are set.

According to the DoJ, Goodman distributed a daily email to individuals outside of Icap, including derivatives traders at several large banks as well as those responsible for providing Libor submissions to the British Bankers' Association. The BBA is now being stripped of its involvement in the rate.

Goodman's email contained what were termed his "SUGGESTED LIBORS", purported predictions of where yen Libor ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as "Lord Libor"," the DoJ said.

Spencer did not rule out taking a bonus for this year but said top executive payouts would be affected. "None of the three individuals at the centre of the activity remains with the firm. Others are either no longer with the company or are being disciplined," he added. "We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor. Their conduct contravenes all that Icap stands for."

'Will buy you a Ferrari if you move 3 month up'

Desk head: "Lord Baliff, I would suggest a lunch over golden week. Monday or Tuesday, if you are around ... As for kickbacks etc, we can discuss that at lunch and I will speak to [senior yen trader] about it next time he comes up for a chat."

Trader: "OK with an annual champagne shipment, a few p*** ups … and a small bonus every now and then."

Broker: "How about some form of performance bonus per quarter from your b bonus [sic] pool to me for the Libor service …"

Derivatives broker: "Morning Lad, on the scrounge again, if possible keep 3 [months] the same and get 6 [months] as high as you can. My guy … will want it has high possible. Waiting for my credit card to get returned to me from a drunken night out bowling but will be supplying you with copious amounts of curry on it's imminent return.

Derivatives broker: "Make 6m go lower! They r going up. [Trader] will buy you a Ferrari next year you move 3 [month] up and no change 6 [month]"

Derivatives broker: "brooliant!! they are making fortunes with these high fixings!!! :-)

Trader told broker that he "need[ed] high at the start of Oct". Broker replied: "Gotcha … just give me a 'wish list' at the start of each day."

Article Source : http://www.guardian.co.uk