Commentaries
Now raising intellectual capital
Is UBS’s 8 million pound fine enough?
Not long ago, UBS was the pride and joy of its Swiss home. There it was, slugging it out with the big boys, and making a fair fist of joining the bulge bracket banks from New York.
That was before it all started to go wrong. The banking crisis produced a loss of $52 billion, but much worse has been the reputational damage done in that most Swiss of financial services, the discreet management of private fortunes.
The US authorities forced UBS to disgorge names of their citizens suspected of failing to pay enough tax on their hordes, squeezing a $780 million fine out of the bank in settlement.
Set next to that, the 8 million pounds that Britain’s Financial Services Authority has just extracted looks derisory. On Thursday the FSA revealed that UBS clients in London had lost 42 million dollars through the misuse of their accounts. The method was simple and old-fashioned; the employees would make a forex trade, and wait to see whether it was profitable before allocating it to an account. Heads they won, tails the client lost.
A dark horse for financial innovation
Financial crises tend to spark innovation, and this one will be no different. Today’s Times of London carries a story on a new security Lloyds Banking Group is devising to raise capital and reduce its participation in the British government’s asset protection scheme (GAPS).
The advantages for Lloyds of raising new capital are obvious: it would reduce the government’s stake in the bank taken as payment for GAPS, give it greater free rein and a more powerful negotiating stance with the European Commission over its restructuring plans.
Back to the future for debt panel proposal
Anything that saves time and money in the restructuring of debt sounds like a good idea — particularly given there are likely to be a lot more bad loans that will need sorting out in the coming months and years.Â
London bankers working in this area have begun pushing an idea to by-pass the courts in the restructuring of billions of pounds worth of debts.
CFTC review process – thinking about the eventual outcome
Several people have asked what I think will be the eventual outcome of the US Commodity Futures Trading Commission (CFTC)’s review of position limits and hedging exemptions in energy futures markets. My guess is that the review will result in only fairly minor changes.
The most likely changes to emerge from it are probably:Â
(a)Â CFTC rather than exchanges will set position limits and be responsible for granting exemptions.Â
(b) Position limits will apply on an aggregate basis that will cover an entity’s positions across all exchanges and OTC. To enforce this system, CFTC will demand data on OTC positions and on positions that are “near to” those on markets it regulates (ie Significant Price Discovery Contracts).Â
(c)Â Position limits on contracts close to expiry may be “hardened” to become fully binding (with few or no exemptions other than for physical hedgers intending to make or take delivery).Â
(d) Position accountability levels on contracts further away from delivery may be hardened somewhat but unlikely to become absolutely binding. CFTC will almost certainly demand more documentation and proof to back up claims that they being held for “bona fide hedging” purposes.Â
(e) CFTC may revisit the classification of traders as commercial/non-commercial. For firms with both hedging and trading operations, it may require the two to be separated out for reporting and regulating purposes. The system would then regulate positions rather than entities.Â
CFTC prepares to recant speculators’ influence
– John Kemp is a Reuters columnist. The views expressed are his own –
Like Archbishop Thomas Cranmer before he was burned at the stake for heresy, the U.S. Commodity Futures Trading Commission (CFTC) seems about to make a dramatic recantation.
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The Wall
