UBS CEO Gruebel resigns over rogue trading loss

 

UBS chief executive Oswald Gruebel has resigned over a $2.3 billion loss caused by rogue trading at its investment division, which is to be restructured now to prevent similar incidents in future, the Swiss bank said Saturday. Gruebel, who had come under heavy pressure from shareholders over the scandal, said he hoped his resignation would allow the bank to restore its reputation in the eyes of clients and investors. Article Controls EMAIL REPRINT NEWSLETTER SHARE "As CEO, I bear full responsibility for what occurs at UBS ( UBS - news - people )," he said in a memo to staff. "From my first day on the job I placed the reputation of the bank above all else. That is why I want to and must act according to my convictions." UBS Europe chief Sergio P. Ermotti will take over immediately as interim chief executive until Gruebel's replacement is appointed. Gruebel's departure caps 10 days of speculation over his future following the bank's announcement that a single London-based trader had evaded internal control systems and gambled away $2.3 billion. The trader, 31-year-old Kweku Adoboli, was arrested Sept. 15 and charged with fraud and false accounting. A judge ordered him Thursday to be held in jail until a hearing next month.

Jeremy Johnson’s plane, cars, other assets set for Saturday auction

 

Utah auctioneer expects lively bidding Saturday, when property owned by St. George businessman Jeremy Johnson, who faces a federal criminal mail fraud charge, goes on the auction block. A preview of the auction Friday gave potential bidders a peek at the office and patio furniture, seven televisions, computers, classic automobiles, a dune buggy, and snow plane powered by a rear wooden propeller with a roof of black and white cowhide. All told, 248 items are scheduled be sold, all of which are from Johnson’s defunct I Works company except the cars. The Federal Trade Commission sued Johnson and I Works in December in federal court in Las Vegas, accusing him of running a large-scale fraud that took in about $350 million. I Works is accused of making millions of dollars of unauthorized charges on consumers’ credit and debit cards after they purchased products online for a minimal charge. At the request of the FTC, a federal judge appointed a receiver, Robb Evans & Associates, to examine the finances and business records of Johnson and I Works and preserve assets. The receiver asked the judge to allow it to sell off property because the company was no longer functioning and it wanted to preserve as much value as possible. In another case, Johnson faces a federal criminal mail fraud charge in Salt Lake City connected to his I Works operation. He was released from a jail last week after posting a $2.8 million bail. On Friday, a steady stream of people circulated among the auction items at the warehouse of Statewide Auction Co. By mid-afternoon 130 bidders had registered. The auction begins at 10 a.m. at the warehouse at 5099 Wheeler Way in Hurricane. There is no minimum bid on any of the items. Tom Erkelens, a co-owner of Statewide Auction who will conduct the sale, said he anticipates a good crowd Saturday, and expects strong bidding on the five mint-condition classic cars, among them a 1972 Chevelle Super Sport, a 1957 Belaire and a 1953 Ford Customline with "Ford-O-Matic."

European banks head towards another meltdown

 

Shares in some of Europe's largest banks fell by 10pc as the cost of insuring European lenders' senior bonds rose to record levels, according to credit default swap prices. The Markit iTraxx Financial Index of contracts on the senior debt of 25 banks and insurers climbed to an all-time high 315.5 basis points. The last banking crisis was regarded by most eurozone members as an Anglo-Saxon phenomenon caused by lax lending controls that resulted in major UK and US institutions either collapsing or having to take costly state-funded bail-outs. To offset the threat of another crisis spreading across the eurozone, European regulators ordered their banks to increase their liquidity buffers. Government bonds were generally viewed as the most liquid and least risky assets to hold. However, this policy has come back to haunt them, leaving many lenders across the region seriously exposed to the eurozone sovereign debt crisis. French banking giants BNP Paribas and Société Générale are among the hardest hit. Recent estimates suggest BNP has eurozone sovereign debt exposure of about €75bn (£65bn), amounting to roughly 6pc of total assets, including €14bn of Greek debt and €21bn of Italian government bonds. The other two major French banks, SocGen and Credit Agricole, each have exposures of a similar size. Between them, France's banks have about €56bn of Greek sovereign bonds alone, and have so far taken 20pc writedowns on this.

signs of an institutional run on French banks

 

Christine Lagarde, the managing director of the International Monetary Fund, urged Europe's leaders to bail out their fragile banks, as the boss of the eurozone's biggest bank, BNP Paribas, rejected fears that the financial sector was "in peril". Addressing journalists in Washington at the opening of the IMF's annual meeting, Lagarde said that Europe must tackle "this twin problem of sovereign debt and the need to strengthen capital buffers". She said: "It is critical that to fuel growth, banks be in a position to finance the economy, to finance enterprises, to finance households, to finance local governments. To do that they need to have the balance sheet that will actually support credit to the economy." Despite the recent stress tests carried out by the European Banking Authority, which suggested that most of the banks were well-placed to cope with the sovereign debt crisis, the IMF estimates that banks have taken a €300bn (£260bn) hit in the past year as a result of the growing risk of default by Greece and other vulnerable eurozone countries. Lagarde's call came as Baudouin Prot, BNP's chief executive, emphatically denied reports that it was in talks with Middle Eastern investors about securing a capital injection. "I formally deny this," he said. "We have no particular contact because we don't need a capital increase." But French bank shares – which have lost 50% of their value in three months – continued to fall as markets endured one of their worst trading days since 2009. BNP was off more than 5% and close rival Société Générale fell almost 10%. In the UK, bailed-out Lloyds Banking Group was down more than 10%, bearing the brunt of anxiety about a slowdown in economic growth. The FTSE 100 closed down 4.7% with large falls from mining companies, which make up a large part of the index and whose fortunes are closely tied to global economic prospects. Out of the 100 stocks, only technology company Autonomy – supported by a bid from Hewlett-Packard – fell by less than 1%. A survey from the crucial manufacturing sector, which chancellor George Osborne had hoped would lead an economic recovery, exacerbated the nervous mood by suggesting industry had been hit hard by the collapse of confidence around the world. The CBI's monthly industrial trades survey showed declining orders, both at home and abroad, and a rising backlog of finished goods, in the latest evidence that the recovery has stalled. Minutes from the latest meeting of the Bank of England's monetary policy committee revealed on Wednesday policymakers were preparing a new round of quantitative easing to respond to the worsening outlook. The gloom was echoed in the eurozone, where the early, "flash estimates" from the closely watched purchasing managers surveys signalled a sharp downturn in both manufacturing and services growth, adding to fears that Europe could be heading for a new recession. The Greek government announced new austerity measures this week to persuade investors that it is committed to tackling its debts. But investors are still fretting about the potentially devastating impact of a default on the region's banks. BNP insisted on Thursday that it could maintain a core tier one ratio – an important measure of financial strength – of 9% by January 2013 even if it sustained losses through the eurozone crisis. But Mohamed El-Erian, boss of the world's biggest bond investor Pimco, warned in a blog on the FT's website that there were "signs of an institutional run on French banks".

S&P downgrades Italy as Greek austerity row forces global stock markets lower

 

The news came after panic gripped global markets as a fresh showdown over Greece renewed fears that the eurozone will be plunged into crisis. The rating for Italy, which has Europe’s second-largest debt load, was lowered from A+ to A, S&P said in a statement. The agency said the country's net general government debt is the highest among A-rated sovereigns, and now expects it to peak later and at a higher level than it previously anticipated. “In our view, Italy’s economic growth prospects are weakening and we expect that Italy’s fragile governing coalition and policy differences within parliament will continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges,” S&P said in a statement. "The measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program." Earlier, as Greece and the bail-out "troika" of the International Monetary Fund (IMF), the European Union (EU) and the European Central Bank (ECB) thrashed out their differences, investors hit the sell button – hammering confidence and threatening the recovery. Greece warned that it is just weeks away from default unless the troika releases an €8bn (£7bn) instalment of its original €110bn rescue. Creditors, though, stressed that they need evidence the country is delivering on its promised spending cuts.

UBS raises rogue equity trade losses to $2.3 billion

 

Swiss bank UBS on Sunday increased the amount it said it had lost on rogue equity trades to $2.3 billion and alleged a trader concealed his risky deals by creating fictitious hedging positions in internal systems. UBS stunned markets on Thursday when it announced unauthorised trades had lost it some $2 billion. London trader Kweku Adoboli was charged on Friday with fraud and false accounting dating back to 2008. "The loss resulted from unauthorised speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months," UBS said in a brief statement. "The loss arising from this matter is $2.3 billion. As previously stated, no client positions were affected." Global stock markets have been extremely volatile in recent months, plunging on concerns over euro zone and U.S. debt crises and then rebounding on hopes for their resolution. The loss is a disaster for the reputation of Switzerland's biggest bank, which had just started to recover after it almost collapsed during the financial crisis and faced a damaging U.S. investigation into aiding wealthy Americans to dodge taxes. "Loss even more. Reads like they're making excuses," said Helvea analyst Peter Thorne of the UBS statement. The new scandal has prompted calls for its top managers to step down and for its investment bank to be split into a separate unit from its core wealth management business. Chief Executive Oswald Gruebel, who was brought out of retirement in 2009 to turn the bank around, was quoted in a newspaper on Sunday as saying he is not considering quitting over the crisis, but said it was up to the board to decide. In a memo to staff on Sunday, he said: "Ultimately, the buck stops with me. I and the rest of senior management are responsible for dealing with wrongdoing." Swiss newspapers quoted unnamed insiders as saying the UBS board and important shareholders such as the Singapore sovereign wealth fund were still backing Gruebel, with immediate changes at the top the last thing the bank needed. Gruebel is widely expected to present plans to drastically cut back the investment bank at an investor day in November. INDEPENDENT INVESTIGATION The bank, whose three keys logo symbolise "confidence, security, discretion," has pulled its "We will not rest" global advertising campaign for now, that was designed by advertising agency Publicis to try to rebuild its image. Meanwhile, UBS client advisers have been writing to customers to reassure them of the underlying financial strength of the bank despite the trading loss, a spokesman said. "That we now suffer this setback at this point in our efforts to improve our reputation is very disappointing. This incident also sets us back somewhat in our capital-building efforts," Gruebel said in his memo. "However, I wish to remind you that our fundamental strengths as a firm remain intact... we remain one of the best capitalized banks in the industry. UBS said its board of directors had set up a committee chaired by independent director David Sidwell, former chief financial officer at Morgan Stanley, to conduct an independent investigation into the trades and the bank's control systems. The bank said it had covered the risk resulting from the unauthorised trades, and its equities business was again operating normally within previously defined risk limits. It said the trader had allegedly concealed the fact his trades violated UBS risk limits by executing fake exchange-traded fund (ETFs) positions. "Following inquiries directed to him by UBS control functions that were reviewing his positions, the trader revealed his unauthorised activity," the bank said. "The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio," UBS said. "However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions." The Sunday Times cited unnamed insiders saying the trader placed bets worth $10 billion before his losses were detected. ETFs are index funds listed on an exchange and can be traded just like regular stocks. They try to replicate index performances and offer lower costs than actively managed funds, but regulators have warned about risks from some complex ETFs. In the past three months, DAX futures have fallen 22 percent, Eurostoxx 50 futures have dropped 20 percent and S&P 500 futures have dipped 4 percent. The instruments involved in the UBS case are similar to those that Jerome Kerviel, the rogue trader at Societe Generale, traded when he racked up a $6.7 billion loss in unauthorised deals in 2008. Christoph Blocher, vice-president of the right-wing Swiss People's Party (SVP) -- the country's biggest -- renewed his calls for a splitting off of the investment bank. "One has to seriously examine a ban on investment banking for commercial banks," he told the SonntagsZeitung, adding his party might team up with the center-left Social Democrats to push for such a move.

'Rogue trader' Kweku Adoboli faces fraud charges dating back to 2008

 

tearful Kweku Adoboli, the alleged rogue trader at the centre of a $2bn (£1.3bn) loss at Swiss bank UBS, appeared before magistrates on Friday to be charged with fraud and false accounting dating back to 2008. A clerk at City of London magistrates court handed the 31-year-old Ghanaian a tissue as the 15-minute proceedings began, after which the one-time star trader was led away to remain in custody until a bail hearing on 22 September. Adoboli's charge sheet appeared to allege that he had taken steps to cover loss-making trades as long ago as 2008. A committal hearing was set for 28 October. The timescale of the allegations will raise questions about risk management procedures at the bank, put intense pressure on the chief executive, Oswald Grübel, and fuel calls from some Swiss politicians for the bank to exit its investment banking business, putting thousands of jobs at risk in the City. Many UBS bankers already fear for their year-end bonuses. Smiling at times, Adoboli spoke only to confirm his name, address and date of birth, while the Swiss bank refused to add anything to the statement it issued on Thursday when it revealed it had called in City of London police at 1am to investigate Adoboli after uncovering "unauthorised trading". British-educated Adoboli – whose passport spells his name as Kwaku – joined UBS in 2006 and was a member of the so-called delta one trading desk, where, among other things, he traded exchange traded funds (ETFs). These complex financial instruments, on which the regulators issued warnings earlier this year, are structured to mimic market movements. His registration with the Financial Services Authority was switched to "inactive" on Friday at the request of the firm – indicating that he is no longer performing that role. Two charges claim that Adoboli falsified records of ETFs between October 2008 and December 2009 and then January 2010 and September 2011. A third charge alleges that he committed fraud between January 2011 and September 2011 while senior trader in global synthetic equities. His lawyers at Kingsley Napley – the law firm that advised Nick Leeson, the rogue trader who broke Barings – did not issue a statement or enter pleas to the charges. His father, John, told Reuters from Tema, Ghana: "I want the world to have an open mind. He should not be sentenced before the trial begins." The former United Nations worker is hoping to fly to the UK this week and is applying for a visa. The City of London police, who arrested Adoboli at his luxury home on the edge of the City at 3.30am on Thursday, said their investigation was continuing, in "close collaboration" with the Financial Services Authority, the Serious Fraud Office and the Crown Prosecution Service. Adoboli's trading activity, by its nature, required him to perform frequent numbers of small trades. One of the last postings on his Facebook page – "need a miracle" – came at around the time the Swiss National Bank intervened to reduce the value of the Swiss franc, which has prompted speculation that this helped expose his losses. The bank, which employs 6,000 staff in London, will now have to pay for a detailed investigation being launched by the FSA and the Swiss regulator, Finma, into the control systems at UBS, the failures that permitted the losses to occur, and details of the unauthorised trading activity. The "comprehensive, independent investigation" will be carried out by one of the big four accountancy firms, although no timescale has been given for when it might be completed. The discovery of the "unauthorised trading" has come at a sensitive time for the City, coinciding as it does with the third anniversary of the collapse of Lehman Brothers and coming after calls from politicians in the UK and Switzerland for the break-up of high street banks to separate "casino" investment banking arms. "It shows that investment banking is a high-risk field and it's important that we clearly separate systemically important functions from the rest of the banking business," said Caspar Baader, of the Swiss People's party. Switzerland's Social Democratic party called for "consequences" such as a ban on "proprietary trading" and replacing "egomaniacal, arrogant and irresponsible managers". Even a year after the banking crisis of 2008, during which Swiss taxpayers contributed to a $60bn bailout of UBS, the nation's banking assets totalled SFr3.47tr – nearly seven times the country's gross domestic product. New laws requiring UBS and Credit Suisse to rein in risk and hoard capital to a higher level than required elsewhere in Europe have already been passed in the first chamber of the Swiss parliament and were debated this week in the upper house, known as the national council. Moves to hive off riskier investment banking and private client operations from those banking functions vital to the smooth operation of the Swiss economy also form part of the legislation, but would not be implemented immediately. Banking analysts believe UBS may now have to scale back its investment banking business and axe even more jobs on top of the 3,500 group-wide cuts announced last month in a bid to save £1.5bn – a similar amount to the losses the bank now fears it faces from the alleged "unauthorised trading". "We are making further cuts in our 2012 profit estimates, as we believe that UBS is set to announce a more streamlined investment banking business strategy in November, with certain business units being closed and additional jobs being lost. This is part of the bank's efforts to address the long-term structural issues within the financial services industry," said Christopher Wheeler, an analyst at Mediobanca. Ratings agencies warned of a downgrade of the bank's credit rating. Standard & Poor's placed the bank on its Creditwatch list, citing factors including the "setback to UBS's efforts to rebuild its reputation and demonstrate strengthened risk-management following its weak performance in 2007-2009", when it almost collapsed during the credit crunch.

UBS hit by $2bn rogue trade

 

Matthew Czepliewicz, an analyst at Collins Stewart, said the unauthorised loss cuts his 2011 earnings-per-share estimate for UBS by about 30pc - "a huge hit". He continued: "A loss of this magnitude will very likely have occurred in the FICC (Fixed Incomes, Currencies and Commodities) division, the very division UBS has been systematically rebuilding after shrinking it by 40pc during the credit crisis. That an unauthorised position of this size could have escaped oversight will renew pressure on management to radically scale back the FICC business, a volatile and capital-intensive business overall." He said that his upgrade of UBS to "buy" from "hold" on September 6 "now looks memorable, to say the least", but added: "As large and embarrassing as the loss is, it may in fact drive a positive strategic overhaul of the company. In the meantime, we await further detail on what went wrong and how management will respond." Andrew Lim, analyst at Espirito Santo, said the loss was manageable at group level at UBS. He added: "The $2 billion loss compares to our current estimate for the (third-quarter) group net earnings of 1.1 billion Swiss francs and (full-year estimated) net earnings of 5.1 billion Swiss francs. "The loss is therefore manageable at the group level, but is obviously not helpful for sentiment and confidence in the bank's risk management following the near-death experience of 2008/9." Fiona Swaffield, analyst at RBC, put the loss in context: "Assuming the loss is not revised at CHF1.7bn this is 3.4% of tangible book value end Q2 2011 and CHF0.35ps. Relative to target Basel III risk weighted assets of CHF300bn this is some 44bp. UBS on the most conservative measure has core T1 of 10% forecast end 2012 Basel III pre this and 13% with phased=in deductions. This would fall to 9.8% and 12.4%, respectively, so still respectable and above CS (8.8% on look through Basel III end 2012) but obviously hardly a positive as its strong capital base relative was an attraction." But she added the real issue over and above the financial impact is the reflection on risk management at UBS: "UBS was seen to have recovered significantly from the credit crisis and to have improved its risk management in the investment bank in spite of its struggle to improve returns. This obviously brings this very much into question." Goldman Sachs analysts Jernei Omahen and Peter Skoog wrote in a note: "This loss has the scope to have a material impact on the perception of UBS' private bank, impacting its future operating trends. "Today's announcement therefore adds to the long list of arguments (and pressure) for a substantially smaller investment bank." Louise Cooper, markets analyst at BGC Partners, said: "According to Bloomberg analysts were forecasting about a SFR 7bn or approx £5bn pre tax profit for UBS for the 2011, therefore a £1.3bn trading loss hits full year earnings by about a third." She added: "The jewel in the crown of UBS is its private banking business, producing consistent, quality earnings. An unexpected trading loss could do significant reputational damage to the bank especially given its track record during the crisis (massive recapitalisation and regulatory fines). Rich people tend not to want to do business with a bank where there are questions over risk control. UBS needs to do a good job in explaining what went wrong and assuring its clients that it will not affect them." Joshua Raymond, chief market strategist at City Index, commented: "Whilst the incredible volatility seen recently in the markets would have likely seen some traders lose and win big, the news that a rogue trader was allowed to stack up losses of $2bn will inevitably send nervous shockwaves through to those investors who have only just returned to the bank after a severe loss of confidence. "The Swiss firm has fought hard in the last few years to restore its credibility from having to be bailed out by the Swiss authorities, suffering a large fine for tax evasion and after it agreed to disclose the accounts of thousands of its clients to US tax authorities."

Down on the Borders

 

The bookshelves are wooden skeletons now, and even those were carried out the door. Books too, of course, with hard and soft covers, remember those? DVDs, calendars, and the twilight end to everything else that used to fill the Borders off U.S. 95 was picked through and sold at a fraction of their outdated prices Friday as the bankrupt big box retailer prepares to close the Coeur d'Alene store for good this weekend. "Everything selling," General Manager Sean Thornton said watching customers sift through the remaining inventory. "Almost down to the carpet." Deals? You bet. What's left is marked up to 80 or 90 percent off. But there was little glee for those treasure hunting. Borders, which operated 1,249 Borders and Waldenbooks stores at its peak in 2003, is a casualty of the Internet industry - a fast-paced, versatile vehicle that gives consumers so many options, so quickly, book stores and printed media are all but obsolete. Customers didn't know what's in store for the future, they said, but they were sure Borders' closing is likely only one domino to fall in the digital future. "You may have to go to Oxford or the Smithsonian if you want to find books in the future," said Tim Tucker, a 15-year Borders customer, filling his arms full of old-fashioned reading material Friday. "They didn't change fast enough," he said. "And it's change or die." Death to a bookstore looks like walls full of empty bookshelves roped off in Coeur d'Alene's store, with the remaining inventory centered in the middle, where dozens of people stand close together to see what's left. At the front of the store, shelves were disassembled, and people, some with other businesses, carried those out for their own use. Janette Moote, retired and mother of at least one daughter who uses an iPad to read, remembers when her town in California got its first Borders years ago. "It was fantastic," she said. "We use to have a room in our house called a library." Now, seeing the remains of her once favorite store, "is like losing a member of the family," she said. Kindle, iPad, e-books, blogs; those are the terms of the reading future. It's true. The city of Coeur d'Alene, for example, allocated money for its library for e-books in 2012 budget. You didn't see that five years ago. Still, there are people who prefer the feel of turning the paper page in their hand. Count Erika Bliss, 22, and Shay Ward, 33, as two of those. They said the old-fashioned feeling, whether at home or in a book store, is comfortable, akin to relaxing in a nice coffee shop. "It's sad," Bliss, a science fiction fan, said in the nearly empty aisles. "I'd never thought they'd go out." But take one look at Nick Wages, comic book collector and all-around reader a few aisles away from Bliss and Ward, and you can see how it happened. On Wages' cell phone is an app that allows him to scan a book's bar-code right in the store, and instantly the cheapest price for that product is found online and around town. He demonstrates with a book originally priced at $17. The Internet shows him that copy for $2.69 after a two-second search. "That's kind of what killed it right there," he said. For Thornton, manager at the local Borders store which opened in 2003, watching the end, and knowing that his 24 employees have to move on, is crushing. "It's been emotionally crippling," he said. But he said he loved the run. If every Borders had been half as successful as his local branch, the company wouldn't have had to file for bankruptcy in February, he said. And the landlord has had possible tenants interested in moving into the new location, so the big footprint of what used to be a book store shouldn't stand empty forever. But he's sad. And his customer are too. "They've been crushed by it," he said of his repeat buyers. "I find we're consoling them more than they're consoling us." Borders will be open from 8 a.m. to 8 p.m. Saturday and from 8 a.m. to 3 p.m. Sunday before it closes for good. Everything, just about down to the carpet, must go.

FBI raids bankrupt solar venture Solyndra

 

FBI agents, acting with inspectors from the Department of Energy, raided the offices of solar panel maker Solyndra on Thursday, just days after the DOE-backed company filed for bankruptcy. A spokeswoman for the FBI in San Francisco confirmed the raid, but declined to offer further details. The DOE inspector general's office typically investigates allegations of fraud or wrongdoing at the agency and within entities the agency does business with. Solyndra filed for bankruptcy last week, closing its Fremont, Calif., factory and laying off 1,100 workers. The falling price of traditional silicon-based solar panels was cited as the main reason for the closure. Solyndra made a more advanced panel that relied on less silicon. When its rivals' technology got cheaper, Solyndra's became less appealing. The company's factory was built with a $535 million loan backed by the Department of Energy. It was touted by President Obama as one of the ways his administration is nurturing a new, jobs-creating clean energy economy. The bankruptcy has drawn an outcry from lawmakers and others skeptical of Obama's green jobs push. "The FBI raid further underscores that Solyndra was a bad bet from the beginning and put taxpayers at unnecessary risk," House Energy Chairman Fred Upton told the National Journal on Thursday. "President Obama's signature green jobs program went from a darling of the administration to bankruptcy to now the subject of an FBI raid in a matter of days." What went wrong at Solyndra Congressional hearings have been scheduled on the matter. Solyndra did not immediately respond to a request for comment. A DOE spokesman said that, while regrettable, the Solyndra bankruptcy will not affect the agency's overall loan guarantee program, which has backed nearly $40 billion in projects to date. They include everything from solar and wind to advanced biofuels and nuclear power. "That is the nature of supporting emerging, innovative companies," said the agency spokesman, Damien LaVera. "In the long run we will have more successes than failures, and those companies will help lead America to a new era of productivity and global competitiveness." It's unclear just how much taxpayers will ultimately lose in Solyndra's bankruptcy process, if anything. It's possible the company could emerge restructured and ready to compete. But it's also possible it could be broken up and sold off. LaVera said that in a worse-case, liquidation scenario, the DOE is high on the list to get back at least some of the $527 million Solyndra drew from the loan. There has been talk from critics that Solyndra received the money in part because one of the company's main financial backers, billionaire George Kaiser, is also a big Democratic campaign donor. "That is absolutely untrue," LaVera said, noting that the loan application was submitted under the Bush administration and mostly complete by the time Obama took office. "Sophisticated, professional private investors, who put more than $1 billion of their own money behind Solyndra, came to the same conclusion as the Department: that Solyndra was an extremely promising company with innovative technology and a very good investment," he said.

Harry Winston Diamond Corp. saw its luxury retail sales nearly double along with a modest increase in rough diamond sales

Harry Winston Diamond Corp. saw its luxury retail sales nearly double along with a modest increase in rough diamond sales, but it wasn’t enough to lift profits for the Toronto-based company.

The company said Wednesday that second quarter consolidated sales increased 44.7 percent percent to 222.4 million year-over year, resulting in a 6 percent increase in gross margin to $72.2 million and an operating profit of $23.1 million, compared to an operating profit of $29.9 million in the comparable quarter of the prior year. Consolidated EBITDA was $43.8 million compared to $49.4 million in the comparable quarter of the prior year.

Despite the sales increase, net profits in second quarter fell 23 percent to $10 million.

Harry Winston consists of two businesses. The first supplies rough diamonds to the global market from its 40 percent ownership interest in the Diavik Diamond Mine. The company, however, is internationally known for its second business as a premier diamond jeweler and luxury timepiece retailer with salons in key locations throughout the world, including New York, Paris, London, Beijing, Tokyo, Hong Kong and Beverly Hills.

The luxury brand segment reported a 98 percent increase in sales to $132.8 million for the period, year-over-year. At constant exchange rates, the increase was 81 percent. Included in the second quarter was $55.6 million of high-value transactions, which generally carry lower-than-average gross margins. Operating profit was $6.8 million for the quarter compared to $2.3 million in the same quarter of the prior year. EBITDA for the luxury brand segment was $10.1 million compared to $5.5 million in the comparable quarter of the prior year.

“Global retail demand, especially in the emerging economies such as China and India, has delivered both strong retail sales growth and strong rough diamond prices. Seeing through the effect of a small number of high-value, lower margin sales, our own jewelry and timepiece business shows solid growth in both sales and margin in the core bridal, timepiece and designed jewelry segments,” said Robert Gannicott, Harry Winston chairman and CEO.

Meanwhile, sales from its mining segment increased 3 percent to $89.6 million for the second quarter, year-over-year, resulting primarily from a 41 percent increase achieved in rough diamond prices, offset by a 27 percent decrease in volume of carats sold. The mining segment recorded operating profit of $16.3 million compared to $27.6 million in the comparable quarter of the prior year. EBITDA for the mining segment was $33.7 million compared to $44 million in the comparable quarter of the prior year.

“The market price increase in rough diamonds has more than compensated for two complete sales versus three in the comparable prior year quarter as well as the lower quality diamonds mined from the upper part of the current open pit,” Gannicott said

“Looking forward we continue to see strong global jewelry and timepiece demand from China while Japan and the Middle East improve and the U.S. remains subdued. On this basis we expect to continue to grow our own jewelry and timepiece business despite challenging economic conditions in the U.S. and Europe. Although we do not predict further near-term rough diamond market price increases we do see our own rough diamond sales price already improving.”

Luxury Home Foreclosures a Deal for Well-Heeled

 

Luxurious real estate doesn’t look — or cost — what it used to. “There are $4 million estates in Lutz and the Riverview area that are now less than $1 million,” said Keller Williams real estate agent Rande Friedman. “There’s a condo in Channelside that was $1.5 million, and now it’s $700,000.” Most homeowners have seen values drop, but these prices are so low because the homes are owned by a bank. And the bank wants to get rid of them. There are so many foreclosed luxury homes that Friedman created a website to list them. In three weeks, PoshForeclosures.com already has about 400 local listings. The Tampa Bay area and Florida are among the hardest-hit by foreclosures in the country. Friedman has a theory on why the foreclosure crisis finally caught up to the rich. “A lot of the people who got into the luxury market in 2005, 2006 were making their money from real estate,” he said. When the market crashed, so did their incomes. Plus, just like the rest of the population, many luxury buyers took out adjustable-rate mortgages. Many of them have come due recently. That, combined with job loss and sinking home prices, led to an uptick in foreclosures of luxury homes. That means hundreds of high-end homes sit abandoned. But that could be good news for those ready to buy. Homes and condos along the beaches and downtown condos are among the most-popular luxury foreclosures, Friedman said. Potential buyers of luxury foreclosures also don’t have to worry about trashed homes as much as buyers of lower-end houses. That’s because banks usually take better care of them, Friedman said. “People are still living in them, maintaining them, so they’re not the deserted, desolate foreclosure feeling,” Friedman said. “They really are truly nice properties.” That’s true, said Daren Blomquist, spokesman for RealtyTrac, which tracks foreclosure activity nationwide. “It’s in the bank’s best interest to fix up the home and get in the best shape possible before trying to sell it,” Blomquist said. “That way, they may get a better price.”

Swedish carmaker Saab denied bankruptcy protection

 

A court on Thursday rejected Swedish carmaker Saab's request for protection from its creditors, it said, pushing the company one step closer to bankruptcy. "The Vaenersborgs district court has today decided to reject Saab's ... request for a voluntary reorganisation process," the court said in a statement. "The court has concluded that there is not enough reason to believe that a company reorganisation would be successful. The company's request is therefore rejected," it said. Saab has until September 29 to appeal against the ruling. Saab's biggest union, IF Metall, said it "lamented" the decision, after having said on Wednesday that bankruptcy protection "could be a good solution." The company is now at the mercy of its creditors. "If the company doesn't find another solution, or if it doesn't declare bankruptcy itself, we may have to do it ourselves in the coming days," IF Metall chairman Stefan Loefven said in a statement. In early 2010, Saab was saved from bankruptcy by Dutch group Swedish Automobile, then called Spyker which bought the brand from US car giant General Motors. With no cash and stagnant sales, Saab, which 3,700 people, has stopped paying its suppliers and they have in turn halted deliveries since April. The company owes about 150 million euros ($210 million) to its suppliers, according to Swedish Automobile chief executive Victor Muller.

Bosses of banks saved by taxpayer earn more now than before crisis

 

The bosses of Britain’s bailed-out banks are paid more than they were before the credit crunch struck, a damning report reveals today. The chief executives of the country’s basket-case lenders earned an average basic salary of more than £1.1million last year before bonuses or other benefits. Shockingly, this figure is an increase on the £1million average from 2007 – the year that the financial crisis struck, crippling Britain and plunging the country into recession. Despite the fact that they have the job of salvaging the banks propped up with more than £65billion of taxpayers’ money, they are among the best-paid executives in this country. Their average wage is almost more than 40 times that of the country’s average of £26,000 and it dwarfs the £142,500-a-year salary earned by our Prime Minister. When bonuses and other perks are included bank chiefs enjoyed average total earnings of £3.7million last year – The damning findings by the country’s leading pay experts are likely to anger British taxpayers, who are sitting on losses of £34billion in RBS and Lloyds – or £1,300 per household.

Share slump hammers Euro banks

 

Stocks in Europe and Italian fixed-income securities were pummelled on concern about the euro zone's debt crisis. The benchmark Stoxx Europe 600 Index ended the day with a 4.1 per cent drop. US and Canadian financial markets were closed for the Labor Day holiday. Financial stocks led the decline in Europe as Deutsche Bank chief Josef Ackermann said profit in the banking sector would be curtailed for years because of the sovereign debt crisis and some banks would likely fail. "Prospects for the financial sector overall ... are rather limited," the CEO of Germany's top bank said on Monday. "The outlook for the future growth of revenues is limited by both the current situation and structurally." Deutsche Bank, Credit Suisse Group, Barclays, Societe Generale and Royal Bank of Scotland all shed more than 6.5 per cent, according to Bloomberg News. "Not a great start to the week. There is a lot going on for banks, especially in the light of a low-growth environment and the backdrop in the euro zone not improving," Mike Lenhoff, chief strategist at Brewin Dolphin, told Reuters. Investors also sold euros, buying gold and US dollars instead. The euro dropped 0.7 per cent against the greenback after German Chancellor Angela Merkel's Christian Democratic Union was defeated in an election in her home state, yet another indication voters are unhappy about her efforts to deal with the European debt crisis and reject plans to use more taxpayer money to help solve the problems of countries including Greece and Ireland. "Merkel's problem is that she fails to generate confidence in her policies and those of her coalition partner," Gero Neugebauer, a political science professor at the Free University in Berlin, told Bloomberg. "It's about the consistency of her statements" on bailouts for indebted euro countries. The US currency strengthened 0.66 per cent against a basket of its major counterparts. Investors are eyeing a German constitutional court ruling on Wednesday on claims that Berlin is breaking German law and European treaties by contributing to bailouts for Greece, Ireland and Portugal, according to Reuters. The court is not expected to rule against the contributions, but may add stipulations for dealing with future requests that will complicate the region's bailout plans. "People are pricing in the risk of European meltdown, rather than the likely outcome," Ian King, head of international equities at Legal & General, told Reuters. Against this backdrop, Group of Seven financial leaders are likely to agree later this week to keep monetary policy loose. The G7's finance ministers and central bankers meet on Friday in Marseilles, France to discuss potential to bolster the slowing global economy. Before then however, central bankers are meeting in Australia, Canada, the UK and Europe and may offer investors more perspective on the global outlook.

Swiss bankers demand respect for law from US tax evasion investigators

 

Swiss bankers have rejected another UBS-style tax evasion deal following an ultimatum from the United States last week to turn over the names of more tax cheats. The US has turned up the heat on Switzerland after finding evidence that Credit Suisse and other banks allegedly helped its citizens to break the law by hiding their wealth from the tax authorities. The successful prosecution of UBS two years ago led to a Swiss-US treaty that severely dented Swiss banking secrecy laws by providing the names of nearly 5,000 bank clients.   But rather than burying the problem, the success of the deal has encouraged the US to pursue yet more banks – some of whom are rumoured to have illegally given UBS clients safe haven after Switzerland’s largest bank was caught out.   The Swiss Bankers Association (SBA) is desperate to avoid other banks facing a UBS situation and called on negotiators to find a solution this time that keeps secrecy intact. Law abiding SBA chairman Patrick Odier demanded a universal treaty binding on all countries rather than a raft of ad-hoc agreements between Switzerland and other states.   “The solution must be globally applicable, definitive and in line with current Swiss laws,” Odier said at the SBA’s annual conference in Zurich on Monday.   While accepting that Swiss banks must pay a penalty if they had broken foreign laws, Odier nevertheless denounced the latest demands from US deputy attorney-general James Cole as “too tough”.   “The US must recognise that legal certainty [of banking secrecy] is something that Switzerland must guarantee,” he said. “We cannot have one country refusing to respect the laws of another.”   The SBA pointed to the recent deals with Britain and Germany as a possible template. Under the terms of these treaties – yet to be rubber stamped – Swiss banks would pay withholding taxes on past and future earnings of foreign account holders.   Switzerland has also negotiated a new double taxation agreement with the US that is awaiting approval by the US authorities. UBS deal stands alone “I am very confident that we can find a common solution that would be in the interests of Swiss banks and the US,” SBA chief executive Claude-Alain Margelisch told swissinfo.ch.   “We solved the UBS case and I hope we find a definitive global solution for all Swiss banks. We must make sure that we do not have the same problem for a third time.”   Margelisch also dismissed the option of another UBS-style treaty despite that deal containing a paragraph that could force other Swiss banks to hand over client data if they were found to have broken US laws in the same way.   “The UBS case was special because it involved only one bank in a context that is not comparable with other Swiss banks,” Margelisch told swissinfo.ch. “I could not imagine that the Swiss parliament would be ready to pass another such treaty for the rest of the banking community during election year.”   But the latest signs coming from the US do not indicate that the Department of Justice (DoJ) is willing to compromise. Investigations have widened to around ten Swiss banks and Credit Suisse was recently served with official notice that it was being probed. Not bluffing Stories are also appearing in the media that the US negotiators are losing patience with their Swiss counterparts.   The fact that the second-highest ranking DoJ official, James Cole, has become publicly involved suggests to US tax lawyer Scott Michel that the US is not likely to withdraw its demands for new bank client data.   “It is a mistake to assume that when the DoJ makes a demand that they are bluffing,” Michel told swissinfo.ch. “There appears to be pent-up frustration that two years after the UBS case there is still evidence that other Swiss banks are helping US citizens hide their money away.”   He added: “The DoJ is not even asking for an exchange of information – a lengthy process involving case-by-case examination. They want a large batch of Swiss banking client information and they want it now.”   According to Michel, the US authorities appear to be building a legal basis to impose “draconian financial penalties” on Swiss banks that could dwarf UBS’s $780 million ($990 million) fine.   Swiss media are also reporting that the US would be prepared to start criminal legal proceedings against banks if they do not comply with their demands.

Bogus pensions adviser jailed over £1.9m transfer fraud

 

bogus financial adviser who fraudulently manipulated his “clients’” pension funds to avoid paying tax of over £1.9m has been jailed at Hull Crown Court for three years. Colin Pearson (pictured), who previously worked for the Food Standards Agency and held a McDonalds franchise, claimed to be a financial adviser and persuaded his "clients" to release over ₤3.4m from their pension funds. Pearson completed UK pension transfer forms on behalf of his clients to falsely claim funds were going abroad to avoid paying tax due on the pension withdrawals, said HMRC. His fraudulent actions netted him commission payments of over £377,000. He provided fake documentation to register two overseas pension schemes before submitting the fake documents to ensure the funds were released without suspicion or delay to bank accounts he controlled. On occasions he even made telephone calls to the UK pension companies posing as the policy holder. On one call he disguised his voice with a Cypriot accent giving the impression he was calling from overseas. To add further legitimacy to the scam, he used articles from the internet to create a PowerPoint presentation to sell the scheme to unsuspecting UK clients, HMRC added. He then took a cut of the funds before passing the balance onto the pensioners. In total, Pearson persuaded over thirty UK pension holders to make unauthorised transfers of £3.4m to avoid paying tax of £1.9m. The value of the funds released was estimated as £3,440,143, of which £2,997,018 was returned to "clients". He also released his own pensions, valued at £74,619.08. In total approximately £377,608 was taken as commission. He used the proceeds of his scam to maintain a lavish lifestyle, driving expensive cars and owning luxury homes both in the UK and Cyprus. Bob Gaiger from HM Revenue & Customs said: "Whilst Pearson was living a life most people could only dream of, he left the individuals he conned out of pocket and without the pension funds they expected. "HMRC will not tolerate this type of blatant fraud and will investigate and prosecute those found to be involved in stealing from the public purse. If you have any information about tax fraud please contact our 24 hour hotline on 0800 50 5000". On sentencing Pearson, His Honour Judge Richardson QC, said: "You are branded a criminal, your life is utterly destroyed, and you are totally dishonest in your deceitful actions."

SFO probes banks over asset-backed security sales

 

The Serious Fraud Office is conducting an examination into banks and their offering of asset backed securities, as part of a ‘scoping exercise’ to see if products have been misrepresented to UK clients. The watchdog said it is consulting with relevant ‘people in the city’ as part of its broad-sweeping investigation into any potentially fraudulent sales of asset backed securities. A spokesperson for the SFO said: ‘We are conducting a scoping exercise into UK banks about all asset backed securities.’ Although the watchdog said this examination has been going on for ‘some time’, it would not clarify whether it was targeting any particular types of asset backed securities. After 2008, asset backed products such as collateralised debt obligations and mortgage backed securities came under fire for arguably sparking the financial crisis. As part of the exercise, the SFO is making inquiries into Goldman Sachs, including the ‘Timberwolf’ deal, a mortgage security underwritten by the bank in 2007, which has been scrutinised by lawyers in the US, according to the Financial Times. Earlier in the year, the SFO said it was looking into exchange-traded funds, as a 'potential threat' to market stability and as a form of asset-backed security which could follow the path of CDOs.

Solyndra, a manufacturer of solar panels, is bankrupt,

Solyndra, a manufacturer of solar panels, is bankrupt, which is inconvenient for the Obama administration, which extended half a billion dollars’ worth of loan guarantees to the firm as part of the president’s stimulus effort. The inconvenience extends to the 1,100 Solyndra employees who have just lost their jobs and to the U.S. taxpayers who may be on the hook for the bankrupt firm’s loans. The project was indeed “shovel ready,” as the president likes to put it; unhappily, in this case, the shovel belongs to the gravedigger. Perhaps the gravestone could read: “Another project funded by the American Recovery and Reinvestment Act.”

Anglo in bankruptcy action on Drumm

Rogue lender Anglo Irish Bank has asked a court in the US to deny its former chief executive discharge under bankruptcy laws.
David Drumm could walk away owing more than 10m euro in debts to his former employer if declared bankrupt, which he filed for last year.

Anglo has confirmed it filed papers in the US objecting to his bankruptcy and urging the courts not to protect him.

If granted, it means Mr Drumm, who lives in the Boston suburb of Wellesley, Massachusetts, will still be liable for his debts.

It is understood Anglo claims its former chief committed fraud in connection with a loans for shares scandal involving 10 of its biggest clients.

A judge hearing the high-profile trial will have to decide if Mr Drumm will have to account for the alleged fraud. Mr Drumm moved to the US in December 2008, shortly before Anglo was nationalised.

In a statement, Anglo said it had filed a Complaint for Denial of Discharge under section 727 of the US Bankruptcy Code, which is an application to bar Mr Drumm's discharge from US bankruptcy generally.

"The bank has further filed a Complaint to Determine Dischargeability pursuant to section 523 of the US Bankruptcy Code, which is a separate application to bar Mr Drumm's discharge from debts owed to the Bank specifically," it added.

"We understand that the US Bankruptcy Trustee is also filing a section 727 Complaint for Denial of Discharge."

 

Formerly bankrupt companies become M&A targets

Hundreds of businesses crawling out of bankruptcy in the hands of hedge funds and other financial owners are hanging the "for sale" sign on their doors.

Distressed debt investors such as Paulson & Co, Avenue Capital and Silver Point Capital that took control of bankrupt companies during the financial crisis are looking to cash in on their investments as the economy recovers.

As a result, once-bankrupt companies in sectors such as auto parts, media, chemicals and technology that ended up in the hands of hedge funds and buyout shops are expected to come to the market soon, bankers said.

"There are some great brand names that are being rehabilitated and re-purposed into healthier companies," said one investment banker, who declined to be named because he was not authorized to speak to the media. "There will be demand for them when they come off the shelf."

Some already are. Auto parts supplier Cooper Standard (COSH.OB), which came out of bankruptcy in May 2010 under the control of hedge funds including Silver Point and Oak Hill Advisors, is shopping itself.

Delphi Corp, with Silver Point and Elliot Management among its owners, is planning an initial public offering.

Others such as Dura Automotive, in which Patriarch Partners has a majority stake, and Lear Corp (LEA.N), owned partly by Goldman Sachs (GS.N), could hit the market in the next year or two, bankers said.

Paulson and Avenue declined to comment. Silver Point and the auto suppliers could not be reached for comment.

MEDIA, TECH COMPANIES

Media companies in a similar situation are likely to consolidate, and direct marketing companies in particular could be next, restructuring bankers said.

That includes Vertis Holdings, brought out of bankruptcy by GE Capital (GE.N) and Avenue, and Source Interlink, which emerged with JPMorgan Chase's (JPM.N) help.

Other media companies that came into financial ownership through bankruptcy include Charter Communications (CHTR.O), partly owned by Apollo Management (APO.N); RHI Entertainment, the Journal Register, Young Broadcasting, and ION Media Networks.

"Some of the now-bankrupt media companies still have broad customer bases and strong franchises," one of the bankers said. "Once that gets fixed and repackaged, these can be viable companies again."

Technology companies such as Satelites Mexicanos and MagnaChip Semiconductor Corp (MX.N) have also emerged from bankruptcy in hedge fund and investor hands in the past two years.

In the chemicals sector, companies such as Tronox Inc (TROX.PK) find themselves in a similar situation.

The companies could not be reached for comment.

WAITING FOR EXIT

Bankruptcy tends to be more of a playground for hedge funds than strategic buyers scouring for targets.

Most corporations interested in acquiring troubled companies prefer to wait until a bankruptcy is complete, said Barry Ridings, vice chairman of U.S. investment banking and co-head of restructuring at Lazard Ltd (LAZ.N).

Bankruptcy reorganizations might include closing unprofitable or nonstrategic divisions, shutting down plants and solving issues with unions or other workers, Ridings said.

Hedge fund owners can keep bankruptcy costs down as they push for quick changes and an exit, said David Resnick, chairman of the Global Financing Advisory group at Rothschild.

"They're measured by their return on their investment, so they are very sensitive to getting something done sooner rather than later," Resnick said.

It is not that strategics never buy these ugly ducklings. Investor Charles Ergen purchased three bankrupt companies for his Dish and Echostar Corp (SATS.O) businesses in 2011.

"There's value received if you are willing to enter a complex, contentious situation," Resnick said. "Some people say that the value they'd be getting just isn't worth it."