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| | | | April 28th 2010
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The Goldman hearings
Apr 28th 2010 | NEW YORK | From The Economist online
“ONE of the worst days of my professional life” was Lloyd Blankfein’s characterisation of April 16th, when the Securities and Exchange Commission (SEC) filed civil fraud charges against Goldman Sachs. The bank and an employee were accused of failing to disclose that a hedge fund that had influenced the composition of a complex mortgage-debt transaction was also shorting it. April 27th was surely not much better, either for the Wall Street firm’s boss or any of the six other current and former Goldman investment bankers who testified before the Senate Permanent Subcommittee on Investigations. The roasting, which lasted more than ten hours, was as dramatic as any hearing focused largely on synthetic collateralised-debt obligations (CDOs) could be.
Goldman’s persecutor-in-chief was the panel’s chairman, Carl Levin. The gruff Democrat went beyond the SEC’s complaint, accusing the firm of having concocted several deals, not just one, to profit from the collapse of the housing market, and also of being riddled with “inherent conflicts of interest.” Not content merely to skewer America’s pre-eminent investment house, the senator harrumphed that its conduct “calls into question the whole function of Wall Street”—a market that, while supposedly free, “isn’t free of self-dealing.” His attack rested, in part, on internal Goldman e-mails. In one, a senior executive described a Goldman-underwritten CDO as “one shitty deal”. In another, a colleague applauded the structured-products team for making “lemonade from some big old lemons.”
The team’s representatives at the hearing squirmed in the spotlight. Fabrice Tourre, the employee charged by the SEC, firmly denied misleading investors. But he and his colleagues, coached by lawyers in light of the SEC case and clearly fearful of committing a legal faux pas, came across as evasive. At times the dialogue resembled a Pinter play: a question, then a long pause, followed by a spare, cryptic response.
The firm’s senior executives put up a stronger, clearer defence. In response to Mr Levin’s assertion that Goldman had profited from others’ misery with a “big short”, David Viniar, the bank's chief financial officer, pointed out that its net revenues in mortgages were a mere $500m in 2007, with a loss of $1.2 billion in 2007 and 2008 combined.
Mr Blankfein gurned incredulously at some of the senators’ questions, doubtless baffled that they would characterise as immoral profiteering what he viewed as nothing worse than prudent risk management. (He must have wondered if Goldman would have been better off from a public-relations point of view by incurring giant losses, like Citigroup.) But he also struck a conciliatory tone, expressing gratitude for support from taxpayers, who were “understandably angry” towards Wall Street, and declaring that everyone in the industry has to “ratchet up their standards”.
Nevertheless, he argued that criticism of Goldman’s motives rested on a misunderstanding of the market-making business. Unlike money managers, market-makers owe no fiduciary duty to clients, and offer no warranties; their only responsibility is to make sure those they serve are getting the risk exposures they seek. Ironically, Mr Blankfein was at his most uncomfortable when tackling questions about a disclosure the firm had made, rather than one it had not: its decision to release e-mails that happened to reveal details of Mr Tourre’s personal life, a move leading to speculation that the Frenchman was being, as one senator put it, “hung out to dry”.
The hearing produced no smoking gun, but there was much that looked bad for Goldman. The reputational damage is hard to gauge, but it was not a good sign that Goldman was the butt of jokes this week at the Milken Institute’s Global Conference, an annual gathering of businesspeople and policymakers in Los Angeles. One panellist even drew a parallel with Drexel Burnham Lambert, an investment bank that went from best to bust in a matter of months 20 years ago. Some of Goldman’s institutional clients, such as CalSTRS, a Californian pension fund, have publicly expressed concern. It won’t help that shareholders have began filing suits this week. (On April 28th, Goldman’s share price was 15% lower than on April 15th, the day before the SEC announced it was launching its case.)
Goldman’s grilling all but ensures the passage of the Volcker rule, clamping down on banks’ proprietary trading and investments in hedge funds and private equity, as part of a broader financial-reform law. It will also add to pressure for broker-dealers to act with the same fiduciary duties towards their clients as investment advisers, a move already being contemplated by lawmakers. No wonder the usually chirpy Mr Blankfein looked so drained by the time he was let go, after almost four hours in the hot seat.
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Thailand's crisis
Apr 26th 2010 | BANGKOK | From The Economist online
IT TOOK several anxious days, and a lethal grenade attack, for Thailand’s warring sides to reach a tentative peace deal. Its unravelling was swift and disheartening, and brings Thailand back to the brink of further unrest. On April 23rd red-shirt protesters, who are camped out in Bangkok’s shopping district, revised their demand for snap elections, saying a three-month timetable was acceptable. Peace seemed to have broken out, to the relief of residents braced for another violent showdown between security forces and the red shirts, whose rallies attract tens of thousands.
But the next day the prime minister, Abhisit Vejjajiva, shot down the peace plan. He said he would not be forced into dissolving Parliament, which is the rallying cry of the red shirts’ six-week-long protest in the capital. In a taped interview broadcast on April 25th, Mr Abhisit held out little hope of a compromise. He said his government was working to retake the streets from the demonstrators, without giving details, and said his solution “may not please everyone”. By his side, in a show of unity, was the head of the army, General Anupong Paochinda, who has been resisting pressure from government and military hawks to crack down hard. He wants a political compromise to end the crisis. He may not get one.
The seizure of Bangkok’s tourist and shopping hub is choking the city's economic recovery. Several luxury hotels and malls have been closed for weeks. Companies are pulling out expatriate staff. A grenade attack on April 22nd against a crowd of pro-government protesters that killed one person and injured dozens more has alarmed business people. Many foreign governments promptly warned their citizens against non-essential travel to Bangkok.
But a bloody attack on a sprawling fortified encampment could deal an even worse blow to Thailand’s reputation for stability. Few believe that a crackdown would silence the calls for political change. Indeed, it may inflame a movement that has the support of working-class and rural Thais who already feel cheated by Bangkok’s royalist elite and its political wing. Inside the red shirts’ squalid bamboo-fenced encampment, televisions screen bloody footage of the April 10th clashes with security forces that left 25 dead and over 800 injured.
Protests are starting to spread in the north east, a stronghold of Thaksin Shinawatra, ousted as prime minister in the 2006 coup and still a hero to many red shirts. Over the past week, protesters have blocked a train carrying troops and equipment, and obstructed police units on their way to the capital. Power lines and a fuel-storage tank have also been targeted by unknown bombers, whose sabotage thankfully failed. After four years of political upheaval, Thai newspapers fret over the risk of all-out civil strife.
The army could still be used to disperse protesters. By offering no clear alternatives to the scotched peace deal, Mr Abhisit may be leaning that way, urged on by royalist backers who see no need for a truce. He is right to argue that holding another election will not solve Thailand’s protracted crisis. There is also a risk that raising a mob to force an election becomes an accepted part of the political process. In 2008, Mr Abhisit was the beneficiary of a yellow-shirted revolt that closed Bangkok’s international airports. Now he finds himself isolated in his own party and increasingly out of his depth. “I don’t know what is keeping him there,” muses a Western diplomat.
The danger for Thailand is that there are people on both sides who want to escalate the crisis. Gunmen with military weapons showed up on April 10th to aid the red shirts, who profess nonviolence. One reason why the army is hesitating is that it knows resistance would greet any move into the red-shirt camp. In his joint appearance with Mr Abhisit, General Anupong admitted that some of his troops are conspiring with the red shirts. Some active officers, and other retired soldiers, may have fought alongside the protesters, he said. Still, he added, the army is unified and supporting the government. This was not very comforting. Meanwhile, the country waits to see who makes the first move.
The SEC alleges that:
The deal closed 2007 04 26. By 2007 10 24 83% of the RMBS had been downgraded and 17% were on negative watch. By 2008 01 29, 99% of the portfolio had been downgraded.
ABACUS 2007-AC1 was a synthetic CDO. Its assets consisted not of RMBS but of CDS referencing RMBS. In the construction of the collateral portfolio ABACUS 2007-AC1 would have to enter into these CDS with counterparties. Was Paulson a counterparty, the major or only counterparty?
It is going to be hard for the SEC to establish that GS defrauded investors by its failure to disclose Paulson's role and intentions in ABACUS. Why? Paulson wanted to make a bet. A bet is not a sure thing. If Paulson or GS could affect the outcome of the bet then that is another matter. GS was effectively Paulson's agent. GS got paid 15m to do the deal. GS job for which they were paid was to go find someone who would take the other side of the bet. GS is not bound to tell the other parties who their opposite number was. GS is indeed bound to provide full disclosure of the nature of the bet which they appear to have done. In fact, GS had a fiduciary duty to Paulson who was the paying client, a duty which includes confidentiality. One could argue that GS had a tortuous duty of care to the investors in ABACUS. Certainly there were conflicts. However, these are most certainly circumvented by the fact that IKB and ACA were market counterparties or expert and professional investors. If each party acted with due care as fiduciaries it is hard to obtain a fraud. Paulson acted for his investors. Goldman acted for Paulson and for its own shareholders. ACA and IKB all acted for their shareholders. But a bet was made and there would always be winners and losers. If anything, the quality of due diligence of ACA and IKB and the ratings agencies should be questioned.
ACA was engaged to provide an extra set of eyes on the deal. They were engaged by GS as portfolio selection agent, as well as to provide the credibility necessary to distribute the deal. It appears that ACA Capital, ACA's parent turned up to effectively underwrite the deal as well. The SEC alleges that Paulson was involved in influencing the portfolio. This is trivially true by construction, however, things are not as clear cut as that. Paulson was specifying the bets he was willing to make. Out of the 123 underlying RMBS, ACA admitted 55. The final pool had circa 80 - 90 reference credits. ACA was not compelled to take the bets, and indeed only selected a subset of the Paulson portfolio. If we accept the SEC's point of view we are accepting as logical behaviour the turning down or accepting of a bet based on the counterparty and not the information about the prospects, outcomes and probabilities of the bet itself.
The fact that the deal would not have placed without ACA as an independent portfolio selection agent, that Paulson had a hand in the portfolio selection, that Paulson made lots of money, are immaterial to the allegation. They are, however, the realities of the industry.
Did GS’s failure to disclose Paulson's position long or short, constitute fraud, is the question before the courts.
There is the second allegation that is as important if not more. In my mind, this is the SEC's stronger allegation since the misrepresentation leads to fraud. This is the allegation that GS represented to ACA that Paulson would invest 200m in the equity of ABACUS 2007-AC1. The SEC complaint does not present supporting evidence. It is possible that the evidence exists, however, they have not referred to in the formal complaint at this time. For the time being what they have in the complaint seems to indicate that ACA assumed that Paulson would be long the equity, and GS simply failed to correct them. If so, it was a costly assumption for ACA and their parent.
Why might ACA assume that Paulson was long equity? The Paulson trade resembles a more common and widely executed trade which attempted to profit regardless of the direction of credit spreads in the reference portfolio. The Magnetar trades were of this nature. The trade involves being long the equity or junior tranche of the cap structure while being short the mezz or senior tranche of the cap structure on a delta neutral basis. This trade generates profits if spreads widen or tighten. How? The equity tranche is convex to spread widening. The more senior tranches are relative concave to spread widening. By delta hedging a long equity (convex) position with a short mezz (concave or negatively convex) position, the convexity of the bundle can be very pronounced leading to a long spread volatility position. As this was a common trade at the time, ACA might reasonably assume that the Paulson was attempting the same trade. It appears not, and that Paulson did not have a long equity position against the short mezz. It was in fact an unhedged and highly speculative trade for Paulson and one which could have gone wrong with serious results. ACA had probably assumed more sophistication on the part of Paulson than was the case. Paulson was no expert in structured credit. His background was in risk arb, a very specific hedge fund strategy. Betting on mortgages was a macro call. Using structured credit instruments to leverage this bet was arguably reckless. Fortune shone on Paulson and his bet paid off.
Guilty or innocent, GS has already been condemned by the public. Investor forums are replete with condemnations of Goldman the Vampire Squid. That much is clear. Whether this is justified or not is another matter which is not so clear.
The constructive fraud issue I think is unfounded and in any case will be very hard to prove. The related misrepresentation issue will imply fraud and boils down to the evidence, which has yet to be presented definitively by the SEC.
The lesson in all this is clear. Caveat emptor. What kind of investor are you? In the context of Poker, if you play the hand, then all you are concerned with are the details of the deal. If you play the player then it is your job to find out all about who you are playing against. And do your own homework. Quite how some of the CDO liabilities got rated AAA is a mystery to me. The speed at which the underlying collateral and the tranches were downgraded certainly calls into question the quality and value of credit ratings agencies judgment.
If the SEC is successful in its complaint, it will certainly open a can of worms. Lets just look in one narrow area, retail structured products. See all those retail structured products which are offered by private banks? Some of them are constructed with the needs of the investor in mind, but some of them are constructed because someone wanted to make a bet, and the other side of the deal needed to be found. Look at the disclosure in a structured product. Are you told who designed it? Who had a hand in designing it? Who is on the other side of the trade? Was it initiated by the structurer or their client? How many private investors would even dream of asking these questions?
There is a more interesting although less likely scenario.
Say that the SEC wanted to prosecute Paulson. Why is not important. Say the SEC has no proof. A formal complaint would go nowhere and there would be a risk of a libel countersuit, or a frivolous litigation countersuit.
The SEC might decide that it has a case against GS in a related capacity, that of a conflicted agent. The case is thin but it would allow the SEC to bring allegations against Paulson, that it cannot substantiate, with immunity from libel prosection in the course of prosecuting its case against Goldman.
This is of course mere speculation.
India's criminal tribes
Apr 22nd 2010 | ASHTI, MAHARASHTRA | From The Economist print edition
Badshah, not bad manINSIDE his hovel of branches and rags, a grizzled pauper called Badshah Kale keeps a precious object. It is a note, scrawled by a policeman and framed by Mr Kale, proclaiming that he “is not a thief”. For members of his Pardhi tribe, who are among some 60m Indians considered criminal by tradition, this is treasure.
Squatting beside Mr Kale, on a turd-strewn wasteland outside Ashti, a village in India’s western state of Maharashtra, Pardhi men and women describe what it is like to be branded criminal at birth. A woman says her husband is hauled in every week or two by the police, against whom the Pardhis have ring-fenced their wretched colony with thorny branches. He has thrice been tried for robbery but was never convicted. Sporting a bright pink turban, another Pardhi says six of his seven sons have been imprisoned numerous times. All, predictably enough, claim to be law-abiding—though, giggling, Mr Kale’s wife admits to hawking copper trinkets as gold. “Even if we try to live like normal people,” she says, “the [Hindu] upper-castes will never accept us.”
This stigma goes back over a century. Mostly itinerant—some blue-eyed Pardhis look like they might come from the far north-west—India’s “criminal tribes” have always lived on society’s edge. Yet their plight was made worse by a series of 19th-century changes, including rapid deforestation, which stopped them from hunting, and the imposition of a tax on salt, which many had traded. No doubt this drove many to crime—which encouraged India’s British rulers to a harsh conclusion. Imbued with a bureaucratic aversion to nomadism and a Victorian relish for the Hindu caste system, they adjudged many Indian tribesmen, Pardhis included, to be preordained crooks. According to an 1880 report of the Bombay Presidency, an area dominated by the modern states of Maharashtra and Gujarat, members of a Pardhi sub-tribe are “always ragged and dirty, walking with a sneaking gait”.
To fix these vagabonds, the Raj introduced the 1871 Criminal Tribes Act, under which members of around 150 tribes were forced to register with the police, forbidden to move around freely and, in many cases, herded into barbed-wire camps. The law was scrapped soon after India won independence, and the criminal tribes were formally “de-notified” in 1952. Some have prospered: in Rajasthan, the Meenas dominate a preferential-treatment scheme to allocate government jobs to tribal people, which has let them become part of India’s elite civil services. Yet the fortunes of many de-notified tribes (DNTs) have scarcely improved.
The Pardhis, of whom there are more than 200,000 in Maharashtra, are especially wretched. They are mostly jobless and landless, and they are often informally barred from villages. Thousands live destitute in Mumbai, Maharashtra’s capital. In response, the state government has made two of the three local Pardhi sub-tribes eligible for positive-discrimination measures. Yet few Pardhis have the documentation or education needed to take advantage of this. Around 80% are illiterate, even if more than half of Pardhi children may now be in school. Among 60-odd Pardhis squatting outside Ashti, only one has a formal job, as a school janitor. He credits his success to passing himself off as a dalit, one of Hinduism’s former “untouchables”.
To examine the plight of India’s estimated 100m-odd DNTs and other nomadic people, the central government appointed a commission which reported back in 2008. Its recommendations, to which the government has not responded, included taking steps to extend positive-discrimination measures to those tribals—perhaps a fifth of the total—who lack them. It also urged state governments, which control policing in India, to scrap draconian laws used by the police to lock up repeat offenders. These are often used against DNT members, enforcing a cycle of poverty and discrimination that keeps many in crime. Pardhi poachers, for example, are one of the biggest threats to India’s dwindling population of tigers, which they have eradicated from several national parks.
According to Ashti’s police chief, S.S. Gaikawad, a quarter of local thefts are carried out by Pardhis. His deputy reckons half of Pardhi men are criminal. Mr Gaikawad attributes high rates of criminality to poverty, but believes culture also plays a part: “The more criminal cases against a Pardhi man, the higher his status, and therefore the better his marriage prospects are.” In a country where over a quarter of parliamentarians face criminal charges, this is not as surprising as it might seem. Yet Rajendra Kale, a Pardhi activist in the nearby town of Ahmednagar, says it is exaggerated. He reckons no more than 10% of Pardhi men break the law. To help his poor community, Mr Kale, who says he was twice wrongly imprisoned for theft as an eight-year-old, demands a reform that the government cannot easily provide: “Pardhis must be accepted into the village.”
This is happening, he says, but slowly. He points to some bloodied figures, a Pardhi man and two women, waiting on the pavement nearby. The man, Faillu Bhosle, said they had been attacked by high-caste Marathas while they were cultivating common grazing-land. They had come to town seeking treatment for Mr Bhosle’s father, who lost an eye in the attack, and to report the incident to the police. The policemen of their own village, who have arrested Mr Bhosle four times, refused to record their complaint.
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| | | | April 23rd 2010
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Cyber-crime
Apr 22nd 2010 | From The Economist print edition
WHEN people talk about the digital divide, they usually mean the gap between people who are benefiting from the information revolution, and those who through lack of education or money are missing out. But at a United Nations conference in Brazil that concluded on April 19th, a different (though related) sort of divide was on show, and ten days’ chatter by over 100 countries failed to bridge it.
If there was one thing on which almost everybody agreed, it was that criminals are mastering computer technology much faster than most governments are learning to foil them. Rich countries say they are beset by fraudsters, pornographers and hackers operating from poor places where they will never be caught—because their “host” governments can’t or won’t stop them.
One response is the Budapest Convention, an accord launched at the Council of Europe in 2001, and ratified by the United States in 2006. One of its aims is to let authorities in one country give chase, at least electronically, to criminals in another.
But Russia has opposed the principle of “transborder access”, especially since 2000, when American agents hacked into the computers of two Russians who were defrauding American banks. Instead, Russia is backing a UN treaty which would be respectful of borders while also giving police more powers to shut down websites dealing in “propaganda.” Many countries like that idea—but not enough to push it through. For now, the only winners are the criminals.
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 | | | | Politics this week | The Economist online Apr 22nd 2010 From The Economist print edition
Aircraft returned to the skies over Europe after the cancellation of almost 100,000 flights and the biggest-ever disruption to Europe’s commercial airspace, caused by a volcanic eruption in Iceland. Some carriers criticised the almost week-long shutdown, which had effects worldwide, arguing that safety concerns may have been overdone. The International Air Transport Association, an industry body, said that the flying ban cost airlines around $1.7 billion in revenue. See article A strong performance by Nick Clegg, leader of the Liberal Democrats, in Britain’s first ever televised prime ministerial election debate on April 15th led to an extraordinary surge in support for the party. Yet questions remained over the Lib Dems' ability to transform their bounce into votes. The prospect of a hung parliament loomed larger. See article After the plane crash that killed President Lech Kaczynski, who was buried this week, Poland fixed a presidential election for June 20th. Early polls found strong support for Bronislaw Komorowski, the acting president and parliamentary speaker. A presidential election in north Cyprus was won by Dervish Eroglu, a hardliner who favours independence, dimming hopes for the reunification of Cyprus, which has been split between a Greek-Cypriot south and a Turkish-Cypriot north since 1974. See article The French government moved ahead with plans to ban the burqa, which is worn by a small number of Muslim women, in all public places. It will submit a draft law to parliament in May. One of the most controversial issues in Ukrainian-Russian relations was apparently settled when the two countries signed a deal to extend the leasing rights of Russia’s Black Sea Fleet in Sebastopol, a Ukrainian port, for 25 years. In exchange Russia will provide Ukraine with cheaper gas. The Democrats pulled legislation that would have given Washington, DC, a seat in the House of Representatives. The bill, which would have also created an extra seat for Utah, had passed the Senate but with an amendment that would have repealed the city’s strict gun-control laws. See article America’s Supreme Court overturned, by 8-1, a law that had banned images of dogfighting and other depictions of cruelty to animals because the legislation restricted free speech. It is the second decision by the court this year that expands the notion of free speech under the constitution; the other ruling lifted restrictions on campaign spending.
Hugo Chávez, Venezuela’s president, said that China had promised to lend $20 billion to build power plants and highways in return for oil. The two countries also signed an agreement for a joint venture to produce up to 400,000 barrels of oil a day in the Orinoco belt. A consortium led by Chesf, a state-owned electricity generator, won a contract to build the world’s third-largest hydroelectric dam on the Xingu river in the Brazilian Amazon. Although the project has been scaled down, green and indigenous groups object to its environmental impact, but failed to persuade the courts to block the contract auction. See article The International Court of Justice ruled that although Uruguay should have consulted Argentina before allowing a cellulose factory on their border river, the plant did not pollute and could continue to operate. Uruguayans will hope that their neighbour will end a more than three-year blockade of a border bridge. Argentina unveiled the terms of its long-awaited offer to creditors who chose not to participate in its first debt restructuring in 2005. The proposal is almost identical to the prior exchange, and is seen as relatively favourable to investors. Analysts expect most bondholders to accept. Three leaders of extremist Sunni groups in Iraq that are affiliated to al-Qaeda were reportedly killed in joint Iraqi-American operations: Abu Ayyub al-Masri, who was said to head “al-Qaeda in Iraq”; Abu Omar al-Baghdadi, who ran a still more shadowy outfit; and Ahmed al-Obeidi, who organised attacks around Mosul. It is too soon to say if the recent spate of suicide-bombings against Iraqi government targets will now end. Israel’s president, Shimon Peres, accused Syria of supplying Scud missiles to Lebanon’s Shia party-cum-militia, Hizbullah, raising the possibility of a pre-emptive attack by Israel. The claim has yet to be independently verified and Syria denied the claim. The authorities in Rwanda arrested Victoire Ingabire, a leading opposition politician, and accused her of, among other things, helping a rebel group whose members perpetrated the genocide in 1994. Mrs Ingabire, a Hutu, returned from abroad earlier this year and says she will run for president against the incumbent, Paul Kagame, a Tutsi. Jacob Zuma, South Africa’s president, chastised Julius Malema, the leader of the Youth League of the ruling African National Congress, for using threatening language against white South African farmers and for praising President Robert Mugabe on a visit to Zimbabwe. But Mr Malema seemed loth to back down, suggesting a struggle for authority within the ANC.
A tense stand-off gripped Thailand. The army occupied Bangkok’s financial district and threatened to use live ammunition against opposition demonstrators, who barricaded their makeshift camp but called off a march. Government supporters increased pressure on the regime to crack down by threatening a counter-demonstration. But Abhisit Vejjajiva, the prime minister, put the army commander-in-chief, an advocate of a political solution, in charge of national security. See article The death toll from the recent earthquake that struck China’s Qinghai province rose to more than 2,000. Relations between the Koreas deteriorated over the mysterious sinking last month of a South Korean warship. After an international investigation ruled out an on-board explosion as the cause, Lee Myung-bak, South Korea’s president, vowed, in an emotional television address, that the response would be “unwavering and resolute”. Military analysts reportedly think a North Korean torpedo sank its ship. See article | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | Business this week | The Economist online Business this week Apr 22nd 2010 From The Economist print edition Wall Street was stunned as civil-fraud charges were brought against Goldman Sachs. The Securities and Exchange Commission alleges that the bank deceived investors in a synthetic collateralised-debt obligation built on mortgage assets, by not disclosing that Paulson, a hedge fund that had some say in choosing which securities went into the product, would profit if the CDO performed poorly. Goldman vigorously denied the allegations. See article Goldman found comfort in announcing a $3.5 billion quarterly profit. Staff compensation costs rose to $5.5 billion, but as a share of net revenue this fell to 43%, from 50% in the same quarter last year. Citigroup reported $4.4 billion in net income for the first three months of 2010, its best profit in almost three years (it made a $4.3 billion profit in the second quarter of 2009 only after selling its Smith Barney unit). With net credit losses declining further, the bank declared that it had “turned the corner”, but remained cautious about its outlook. Citi lost some $30 billion during the credit crisis. Bank of America posted a net profit for the first quarter of $3.2 billion, a drop of 24% compared with a year earlier. And in its first earnings release since James Gorman became chief executive in January, Morgan Stanley’s quarterly net income was $1.8 billion. Credit Suisse had a good three months, in which it recorded the biggest gain in new assets from wealthy clients for five years, a sharp contrast to the Swiss bank’s bigger rival, UBS, which has been hurt by net outflows of customers’ cash. The IMF proposed a scheme for co-ordinated global taxes on banks’ balance-sheets and profits to help pay for the cost of bail-outs. A worldwide bank levy is being mooted by the G20. The fund said that taxpayer-funded rescues during bad times, leaving shareholders and employees to gain during good times, “misallocates resources”. Congressmen investigating the banking crisis heard testimony about the downfall of Lehman Brothers. The SEC was criticised by a court-appointed examiner for its supervision of the bank. Dick Fuld, Lehman’s boss at the time of its bankruptcy (who was also admonished by the examiner), insisted that the SEC and the Federal Reserve “were privy to everything as it was happening”. General Motors announced it had repaid in full the $8.4 billion in loans it received from the American, Canadian and Ontario governments, five years ahead of schedule. The American government still holds a majority stake in the carmaker, but could start selling the shares later this year. The Bank of Canada hinted that it might raise interest rates in June, which would make it the first central bank in the G7 to do so. Forecasting that Canada’s economy will grow by 3.7% this year (but by less in 2011 and 2012) the bank thinks it is now “appropriate to begin to lessen the degree of monetary stimulus”. The yield on ten-year Greek government bonds rose sharply again, to well above 8%, just as negotiators from the European Union and IMF began working on the details of a bail-out for Greece.
Google provided data for the first time on the number of requests it gets from governments to remove content from its sites. The requests mostly relate to criminal matters, and the figures do not cover filtering or blocking of content. Brazil tops the list, for example, but Google’s Orkut social-networking site is one of the most popular in the country. Google reckons that more transparency on the issue will lead to less censorship. Arriva, one of Britain’s biggest train and bus operators, agreed to a £1.6 billion ($2.5 billion) takeover from Deutsche Bahn, Germany’s state-owned rail company. More mergers are expected in Europe as transport markets are opened to competition. EADS, the European aerospace and defence company that owns Airbus, decided to submit a fresh bid to build flying tankers for the American air force. The company’s American partner in the project, Northrop Grumman, pulled out of the process in March claiming the terms favour Boeing. The competition for the $35 billion contract has rumbled on for years, though EADS will raise its profile in America with a new bid. Work on the next James Bond film, due for release by 2012, was “suspended indefinitely” by the producers because of the uncertainty surrounding the auction of MGM, the studio that owns the Bond franchise. MGM, which has had numerous owners over the years, is grappling with $3.7 billion of debt and its creditors are seeking a buyer. See article | |||||||||||||||||||||||||||||||||||||||||||||||
