news blog from Lucie

Saft on Wealth: Sitting out Europe’s rodeo

By James SaftOct 13 (Reuters) - Here is something every wealth manager thinking about betting big on Europe should consider:Ask yourself, do you have special insight into euro zone politics, or do you just feel lucky?Because in the end, this thing is not going to be about economics, or even about the art of the possible, it will be about will, envy, aspiration and caprice.If you as a manager think you can add value by guessing at imponderables, by figuring out exactly what the euro project is worth to its countries, then by all means, advise your clients to take a big bet.For us mortals, the best course by far is a slight underweight, with care taken not to lose money in obvious risky bets like financials and the bonds of struggling euro zone nations.The irony is that this means you are taking a bit of a pass on the biggest question in financial markets today. If Europe is somehow able to reconcile itself to a mutually agreeable bail out of its weak nations and a credible recapitalization of its banks, well then shares will soar.We’ve seen hints of this every time authorities there announce a new resolution, no matter how vague, to “fix” the problems.Or Europe can end very badly in any number of ways: a fracture of the weak from the strong, an inability to come to political terms over who pays or simply a crisis brought on by a market panic that happens too quickly for policy-makers to cope.Since the stakes are so high it is very tempting to take a strong position. We can be tempted by very low valuations and the chance of big gains or we can panic in the face of very high uncertainty and decide to just get out. It’s also hard not to want to appear decisive to others, especially if they are paying you for advice.Europe’s difficulties, though, are tremendously complex and are essentially about political risk, which is many orders of magnitude more difficult to measure and play then the other sorts of calculations investors usually make.One of the secrets of investing is the importance of humility and a proper respect for uncertainty. It’s a good bet this is a lesson a lot of people are soon going to learn, yet again.DON’T JUST DO SOMETHING, STAND THEREThat’s not to say I don’t think I have a line on how things in the euro zone are going to work out, or at least the very real limitations to the spectrum of outcomes.The facts on the ground are not encouraging. For the euro to survive as is, Europe needs to give new powers to the ECB and its nations need to cede much individual control over fiscal policy to the whole. Doing that democratically in short order is going to be difficult.As well, Europe’s banks need massive amounts of new capital, the impact of which is going to keep a very low ceiling on economic growth for several years. Even if you believe all of that, acting as if it were 100 percent true is extremely risky.The other issue, to be frank, is pain attribution. European assets will, obviously, get hit hardest if Europe falls apart or if it sticks together in a way that is negative for investors. U.S. assets will get hit too.The reaction of investors to those two types of losses, however, we be entirely different. If you have a client long Europe and Europe falls apart, her reaction will likely be “Why on earth did you have me messing around over there?”But if the US market gets hit by euro fallout, as well they will, the reaction will be more sanguine. Investors will feel more the way they do when struck by a natural disaster. Bad luck, but what are you going to do?This is a correct, if instinctual, read by wealthy investors. While diversification is good, and getting out of Europe entirely would be foolish, taking on extra risk in a foreign currency must be approached cautiously. If you are going to live in the U.S., as domestic clients do and will, you are pretty much stuck with having most of your exposure concentrated at home, for better or worse.The idea that globalization means that investors can float free of their home markets is a fantasy, as most Greeks will tell you.It is an easy call for U.S. investors to sit out Europe’s rodeo because they can’t manage the political risks.Unfortunately, the same underlying causes of Europe’s political difficulties - too much debt and slow growth - are also causing political risk to become a big feature in U.S. investing. Think about the U.S. debt downgrade and near government shutdown.Investors are ultimately going to have to learn how to cope.

Tags: Saft on Wealth Sitting out Europes rodeo
60 notes

UPDATE 1-Canada: Move to avoid “full-blown global recession”

* Makes remarks on eve of G20 finance ministers talks* Finance minister says Europe will take necessary actionBy Randall PalmerPARIS, Oct 13 (Reuters) - Europe and the G20 leading economies must act decisively and quickly to avoid another full-scale world recession, Canadian Prime Minister Stephen Harper warned on Thursday.Writing on the eve of a meeting in Paris of G20 finance ministers and central bank governors, Harper said each missed opportunity to contain and confront the European debt crisis was growing more and more costly.”We cannot afford any more missed opportunities,” Harper said in an op-ed piece in Toronto’s Globe and Mail.”The good news is that this crisis can still be contained and reversed. The bad news is that, unless decisive action is urgently taken, our nations will once again be forced to respond to a full-blown global recession, albeit this time without the full arsenal of policy weapons at our disposal.”Finance Minister Jim Flaherty, speaking just before departing for the Paris meeting, said he expected the G20 to discuss a Franco-German crisis plan, how big the euro zone bailout fund should be, and how to deal with Greece specifically.He said he was confident his European counterparts would finalize an action plan in coming weeks, but said action should be swift.”It is critical that Europe deliver on a comprehensive package of measures that will address their sovereign debt and banking issue,” he told reporters in Ottawa.Harper hosted last year’s Toronto G20 summit, which committed members to deficit reduction, and he has grown increasingly impatient with the slowness in confronting the current financial and economic crisis.His prescription for Europe is:- Immediately and decisively “overwhelm” the sovereign debt and banking system issues- Carry out commitments to increase the flexibility of the European Financial Stability Fund as quickly as possible- Implement clear and credible deficit reduction plansHe called on the G20 to develop a planned global framework for sustainable growth, which would seek more consumption in surplus countries and deficit reduction in others.In addition, the G20 should:- Develop clear and concrete medium-term debt and deficit reduction plans as agreed in Toronto in 2010- Take meaningful action to increase exchange-rate flexibility, a reference to China and other emerging Asian countries- Unequivocally commit to implement quickly and fully the financial sector reforms agreed in previous summits- Resist protectionism and advance multilateral tradeThe Paris talks are a prelude for a G20 summit that Harper will join next month in Cannes, France.

Tags: UPDATE 1Canada Move to avoid fullblown global recession
177 notes

Phone makers outlook in focus in grimmer economy

While the outlook for consumer spending has worsened in recent weeks, analysts have changed their fourth-quarter cellphone sales forecasts only slightly, with a Reuters poll showing they expect a historically normal 12 percent quarter-on-quarter rise.Surging demand for new smartphone models has driven sales growth for the cellphone industry in the past few years, recovering from a sharp downturn in 2008-2009 when the financial crisis hurt consumer spending on gadgets.Analysts are betting on strong sales of latest models from the likes of Apple Inc, HTC Corp and Samsung Electronics Co Ltd will balance out a weaker outlook for smartphone laggards Nokia Oyj and LG Electronics Inc.”As consumers are pushed to justify their purchases they demand more from vendors, either from a hardware perspective or experience perspective,” said Gartner analyst Carolina Milanesi.Despite fears of recession and lukewarm reviews, orders for the latest iPhone model surpassed 1 million in the first 24 hours, beating Apple’s previous one-day record.Samsung Electronics and HTC, both of which have benefited from their focus on Google Inc’s Android software, have said they had a strong quarter.Samsung said on October 7 its quarterly profit should top the most bullish market forecasts, with smartphones becoming its main profit engine and establishing it as No. 1 in the segment ahead of Apple.HTC said on October 6 its net profit rose 68 percent in the quarter as demand for its gadgets stayed strong.MURKY CHRISTMASDespite expectations that new models from key vendors will drive sales in October through December, there is some concern that achieving the market’s consensus forecast of 12 percent growth will be difficult given the global trend of slower gadget sales.”Looking at Europe and North America overall, the outlook is murky,” Masaru Kato, chief financial officer of Sony Corp, which makes electronics products ranging from tablet PCs to TVs, told Reuters on Tuesday.”We don’t see any reasons for optimism,” he said.Kato declined to comment on negotiations between Sony and Sweden’s Ericsson in which the Japanese firm is seeking to buy out its 50:50 partner from the phonemaking venture which has struggled to make profits and has dropped to No. 9 in the global cellphone rankings.Sony Ericsson is the first of the phone makers to report full results when it unveils numbers on October 14.The ownership pact is up for renewal for the next five years this month, and with Sony seeking full ownership the deal could be unveiled the same day.Analysts said the joint venture is likely to be among the worst performers in this downturn, alongside already-struggling Nokia, LG and Research In Motion Ltd.”The other smartphone manufacturers, such as Motorola, RIM and LG, could be at the highest risk, as their decline could be further accelerated by a downturn in the market,” said analyst Nick Dillon at consultancy Ovum.Neil Mawston from Strategy Analytics said it was all about having, or not having, the right products. “Device vendors with sub-optimal product portfolios, such as RIM or Nokia, could face challenges if a mobile recession temporarily returns,” he said.”Western Europe, which is a saturated mobile market with tough economic challenges, looks the region most vulnerable to a slowdown at the moment.”Western Europe has been the last stronghold of Nokia, still the world’s largest cellphone vendor by volume, but whose sales and profits have shrunk fast.Nokia is expected to report a rare loss for the third quarter when it unveils results on October 20, but investors are also looking forward to the following week, when the firm is set to unveil its first smartphones using Microsoft Corp software.LG, which has also been slow to refocus on smartphones, suffered five consecutive quarterly losses from handset sales and is set to report a wider loss for the September quarter later this month due to a lack of attractive high-end models.

Tags: Phone makers outlook in focus in grimmer economy
61 notes

TEXT-Fitch places 4 Public Sector Pfandbriefe & maintains Depfa ACS on RWN

The rating actions reflect Fitch’s opinion that the deterioration of the sovereign ratings has lead to a heightened credit risk for public sector pools showing high exposure to debtors where the sovereign is rated lower than the covered bonds rating.To assess the increased credit risk, Fitch has considered the amount of exposure to debtors in countries with ratings lower than the covered bond rating, the level of overcollateralisation (OC) protecting covered bonds holders and the agency’s loss expectation in a stress scenario. For programmes combining a high exposure to such debtors, increased loss expectations and the OC taken into account by the agency not providing enough cushion to mitigate the increased credit risk, the agency has decided to take the following rating actions:Aareal Bank AG - Public Sector Pfandbriefe:’AAA’ - placed on RWNDeutsche Pfandbriefbank AG - Public Sector Pfandbriefe:’AAA’ - placed on RWNDepfa ACS Bank - Public Sector Asset Covered Securities:’AAA’ - maintained on RWNDuesseldorfer Hypothekenbank AG - Public Sector Pfandbriefe:’AAA’ - placed on RWNEurohypo AG - Public Sector Pfandbriefe:’AAA’ - placed on RWNFitch will review the OC supporting the ratings of the affected programmes and communicate this to their issuers. The RWN will be resolved depending on the updated OC supporting the current rating compared to the level of OC supplied to privileged creditors. A general comment has been published to explain Fitch’s view on exposure to lower rated countries in public sector covered bonds and is available at www.fitchratings.com

Tags: TEXTFitch places 4 Public Sector Pfandbriefe & maintains Depfa ACS on RWN
34 notes

Corrected: U.S. accuses 2 ex-Baer bankers of aiding tax evasion

While the indictment of the two bankers, Daniela Casadei and Fabio Frazzetto, did not name their employer and referred only to “Swiss Bank #1,” that bank is Julius Baer, according to a person briefed on the matter.The two bankers and an unspecified number of unnamed colleagues helped about 180 wealthy American clients of Julius Baer hide about $600 million in assets in secret Swiss bank accounts that went undeclared to the U.S. Internal Revenue Service, according to the indictment.Casadei and Frazzetto were accused of conspiracy to defraud the United States.Bank Julius Baer, one of Switzerland’s oldest private banks, is part of Bank Julius Baer Group, a large asset management firm that is traded on the Swiss stock exchange.The bank, headquartered in Zurich, could not immediately be reached for comment.The charges against the two bankers come as the U.S. Justice Department turns up the heat on Swiss banks that help wealthy American clients evade taxes.Credit Suisse AG received a target letter, a step toward possible indictment, in July, and about a dozen other banks are under criminal scrutiny. Scores of bankers and clients have been indicted over the past year or so.TRICKS OF THE TRADEThe latest indictment, by federal prosecutors in the Southern District of New York, sheds new light on the tricks of the trade in Swiss private banking.It accused Casadei and Frazzetto of helping American clients open Swiss accounts in code names, encouraging them to put assets in the names of foreign relatives, setting up sham corporate entities to hide their clients’ ownership of the assets, and reassuring clients that they would not be found out because the bank no longer had an office in New York.In 2005, Swiss bank giant UBS AG bought a 21.5 percent stake in Julius Baer in a transaction in which Baer simultaneously bought more than $3 billion in private banking assets from UBS. UBS later sold the stake.For one American client who traveled to Zurich to meet with Casadei, the banker provided what she called “traveling statements,” or bank statements that did not identify the client, who had inherited his assets, by name, the indictment said. The bankers also used a dual-coding system for accounts, with the number identifying the owners of accounts different from the number of the actual account, it said.The indictment also referred to two unnamed client advisers — a term for private bankers — at the bank and to a second Swiss bank, identified only as “Swiss Bank #2.”One unnamed client adviser told American clients to transfer her funds from Julius Baer to the second Swiss bank, and to use obscuring names, known as “fantasy” names, such as “the Hydrangea Account,” “the Red Rubin Account” and “The Green-White House Account,” to hide her ownership of both bank accounts, according to court papers. The unnamed client adviser joined UBS’s Zurich office in 2005.The identity of the second bank could not be immediately learned.ADVICE THAT CLIENTS IGNORE THE UBS INVESTIGATIONAccording to the prosecutors, Casadei told the American client that because the bank “no longer had a presence in the United States,” it was immune from the criminal investigation of UBS by the U.S. Justice Department.Similarly, Frazzetto told one client that his bank “was not exposed to investigation like UBS” because it “did not have a presence in the United States,” but he urged clients nonetheless not to carry any documents identifying Julius Baer as their bank, according to the indictment.In 2009, after years of being investigated by the U.S. Justice Department, UBS AG averted indictment for selling tax evasion services to wealthy American clients of its private bank. It agreed to pay $780 million, enter into a deferred-prosecution agreement and turn over around 4,450 client names as part of the deal.According to court papers, Casadei also told one client in South Carolina who was spooked by the UBS probe that he could continue to maintain his account at Julius Baer with secrecy by hiring a third-party independent financial adviser to administer his account at the bank. Casadei provided the client with a list of the third-party advisers, according to the court papers. The third-party advisers, Casadei said, were former employees of the bank who had left to set up their own firms.Casadei also advised one client to use an Israeli cousin as the nominee holder of an account held by two sisters, according to the prosecution case, and Frazzetto had a client use a trust named “Horsal” in the offshore tax haven of Liechtenstein.According to court papers, Casadei worked at Julius Baer’s Zurich office from at least the early 1990s through 2010 and Frazzetto worked at the Zurich office from around 2005 through around 2010. The two bankers were said to have managed U.S. client assets worth $13.2 million, and Frazzetto U.S. client assets worth $20.5 million.The nationalities and locations of the two bankers were not specified in the indictment.

Tags: Corrected US accuses 2 exBaer bankers of aiding tax evasion
26 notes

Delta/USAir slot swap plan hits US antitrust snag

But the government raised concerns about the proposal’s impact on consumers at Washington’s Reagan National airport where US Airways currently dominates and travelers pay some of the highest fares.”Under the antitrust laws, the division can and will take appropriate action, if warranted, at the conclusion of its investigation,” the agency said in a statement.

Tags: Delta/USAir slot swap plan hits US antitrust snag