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Today's Top News1. HSBC spared a criminal indictment
The idea of that some banks are "too big to indict" is not necessarily new. Some felt that Goldman Sachs was such a powerful government bond dealer that a criminal indictment would pose grave risks to the entire system. "The entire fabric of the global financial system would be threatened," according to one columnist. The theory has cropped back up in the case of HSBC, which has agreed to pay $1.9 billion to settle accusations that it illicitly transacted on behalf of drug cartels, terrorist groups and nations that were sanctioned. But as DealBook notes, the bank was able to escape a criminal indictment for money laundering in part because of the grave consequences that such an indictment would pose. "A money-laundering indictment, or a guilty plea over such charges, would essentially be a death sentence for the bank. Such actions could cut off the bank from certain investors like pension funds and ultimately cost it its charter to operate in the United States." Basically, prosecutors were in position to impose a death penalty, as it did to Arthur Andersen in the wake of the Enron scandal. That penalty was debated hotly in the aftermath, and it may be that the government has lost its appetite for a jobs-killing move. Prosecutors were still able to impose a deferred prosecution, a massive fine and a lot of agreements that will hopefully impose a new compliance discipline on the bank. The government can still file a criminal complaint if it deems that the bank has relapsed. At this point, it's still reasonable to assume that other banks will also be spared criminal indictments. For more: Related articles: Read more about: Criminal Charges, Enforcement Action
2. More arrests in Libor probe
It was certainly big news when British police arrested three former employees of Barclays in connection with the massive investigation into Libor manipulation allegations, over which Barclays has already been fined $450 million. The arrested men, all between 33 and 47, are British citizens. One is Thomas Hayes, a former yen rates trader at Citigroup. The three can only be held for 24 hours without special permission, but there's no point in diminishing the significance of the move. The arrests were in conjunction with an effort to bring criminal charges in the matter. The British Serious Fraud Office coordinated the arrests and will question the men, though the move doesn't necessarily signal that charges are imminent. Still, the arrests mark a sign that the Libor probe is anything but moribund and that British prosecutors are bent on criminal charges of some sort. There will likely be more arrests soon, possibly of former employees of RBS and UBS. Apart from criminal investigations underway, there will no doubt be a slew of settlement between prosecutors and banks on both sides of the Atlantic. According to media report, UBS and RBS would like to reach settlement agreements in 2012. For more: Related articles:
Read more about: LIBOR, Criminal Charges 3. Goldman Sachs: Time to buy large cap banks
Have big banks really turned the corner? That's been the conventional wisdom for much of the year, as more people concluded that the industry, while facing lots of challenges, has moved past its nadir. Goldman Sachs has apparently jumped on that bandwagon. Business Insider notes that the bank's top investment idea for 2013 is to buy large cap banks. Goldman Sachs' research was quoted saying, "This recommendation is based on several features of our 2013 outlook: (1) a fairly supportive view of the economic and equity market landscape for 2013, particularly in the US; (2) US monetary policy that remains extremely accommodative, focused on MBS purchases and the transmission of its policy through the housing channel; (3) continued improvement in the housing sector in terms of activity and prices, building on advances already seen in 2012; (4) transmission of the housing sector strength into large cap US banks; and (5) the fact that financials have, thus far, lagged improvements seen in other housing-related equities over the last several months." In a sense, this could be called a value-oriented bet on the fact that beaten-down banks have a lot to gain if the housing industry improves. That's no doubt true. The one flaw in this thinking may be that it doesn't give enough weight to the on-going legal woes of the industry. It may be premature to say the worst is over, when the FHFA's lawsuit still has not been resolved. Lots of other litigation against which banks have not adequately reserved remain troublesome. For more: Read more about: Goldman Sachs, banks 4. Treasury exits AIG, ending bailouts
The Treasury Department announced late Monday that it will sell its 234.2 million remaining shares of AIG common stock in a public offering. The government's shares, which represent a 16 percent stake in the insurance giant, is valued at roughly just under $8 billion at the current stock price. The stock will be led by Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and JPMorgan--all of whom received TARP funds at some point. The proceeds from the AIG sales would allow the Treasury Department to pad its profits on the bailout, which has been controversial from the start. AIG was pushed to brink of bankruptcy by its insurance policies on various residential MBSs and derivatives built on MBSs, many of which cratered in the wake of the financial crisis. Just before the company entered bankruptcy court, the government agreed to a massive bailout that ultimately cost $182 billion, though the government has made money on its investment. The exit would mark a symbolically potent milestone. It allows the government to justify its bailout of the financial system as one that didn't cost taxpayers a cent. There are lots of smaller banks that are still owned in part by the government, but all the big banks have been able to pay off their bailout loans, and Treasury has made money on most of these deals. For more: Related articles: Read more about: AIG, TARP 5. Costs of money laundering explode with HSBC settlement
The view that financial settlements for fraudulent behavior have become a mere cost of doing business has been rife as of late. If you believe that, then you would have to believe that costs have just exploded in light of the HSBC deal to settle charges of money laundering. HSBC will pay a gargantuan $1.9 billion to settle with federal and state prosecutors. That compares with a $619 million fine that ING had agreed to pay and a $327 deal that Standard Chartered just got hit with. Barclays and Credit Suisse are also under investigation. "HSBC stood out, even among the scores of other foreign banks accused of flouting United States sanctions to transfer billions of dollars on behalf of rogue nations, according to several law enforcement officials with knowledge of the investigation. Prosecutors found that the bank had facilitated money laundering by Mexican drug cartels and had moved tainted money for Saudi Arabian banks tied to terrorist organizations," notes DealBook. Have U.S. banks been spared yet another massive regulatory and compliance hit? It's hard to say right now that they are in the clear. The OCC has been investigating Bank of America and JPMorgan for various AML issues. JPMorgan, for example, is being proved for possibly transferring funds in violation of sanctions against Iran and Cuba. Bank of America has generated controversy over reports that it possibly enabled banking by drug cartels in Mexico. Citigroup has also been under investigation. Read more about: Anti Money Laundering, Enforcement Action Also Noted
SPOTLIGHT ON... Index fund price war escalates Fidelity Investments will join the ranks of big asset managers that are cutting fees on index funds. The Boston fund company has announced it will cut fees on 22 of its funds, including the Spartan series, and lower the investment minimums. Charles Schwab, Vanguard, and BlackRock have all moved in similar fashion this year. This is yet another indication of how ETFs continue to shake up the fund universe. Article Company News:
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Wednesday, December 12, 2012
| 12.12.12 | More arrests in Libor probe
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