Currency Newswire » Derivatives

JPMorgan’s Dimon slams CFTC on Swaps Crackdown

admin — Sat, 02 Apr 2011 20:00:12 +0000

Jamie Dimon, chief executive of Wall Street giant JPMorgan Chase, lashed out at efforts by U.S. regulators to police the $600 trillion swaps market, in which his bank is a big player.

New regulations being implemented by the U.S. Commodity Futures Trading Commission, mandated under 2010′s Dodd-Frank Wall Street reforms, “would damage America,” Dimon said Wednesday at a U.S. Chamber of Commerce event on capital markets.

He was upbeat about the economy, but criticized aspects of the sweeping Dodd-Frank law.

CFTC Proposes Open Swaps Clearing for Small Banks

admin — Fri, 12 Nov 2010 05:01:29 +0000

The Commodity Futures Trading Commission approved a proposed rule to force the world’s largest banks to offer swaps clearing services to smaller firms, a change that would promote competition in the $615 trillion market.

The proposed rule comes after an industry group of more than 20 mid-size brokers such as Jefferies & Co., Imperial Capital LLC and Newedge USA LLC told regulators they’ve been denied access to swaps clearing because dealers want to keep the market to themselves. Current rules favor larger banks such as JPMorgan Chase & Co. and Deutsche Bank AG that have more capital and expertise to be clearinghouse members.

“Swaps dealers or major swaps participants are prohibited from interfering with or attempting to influence decisions related to the provision of clearing or the acceptance of clearing customers,” according to the proposed rule. The potential regulation now enters a 60-day public comment period before any final CFTC vote.

Read more about swaps clearing…

MBIA Reports $213 Million Third-Quarter Net Loss on Derivatives Contracts

admin — Fri, 12 Nov 2010 04:57:39 +0000

MBIA Inc., the bond insurer seeking to jumpstart its business of guaranteeing municipal debt, reported a $213 million net loss in the third quarter on a change in the value of derivatives contracts that reduced an accounting benefit.

The loss of $1.06 a share in the three months ended in September narrowed from $728 million, or $3.50 a share a year earlier, according to a statement today. Excluding the change in the value of derivatives, the company had an adjusted pretax loss of $68 million as the company increased its expectations for losses on guarantees of collateralized debt obligations and commercial-mortgage securities.

Armonk, New York-based MBIA was shut out of the bond guarantee business after being stripped of its top insurance ratings in June 2008 because of losses on mortgage-linked debt it insured. Chief Executive Officer Jay Brown is seeking to start insuring city and state debt again by separating the company’s municipal and structured-finance businesses.

Read more about MBIA…

JP Morgan to Face SEC Probe Over CDO Transaction

admin — Tue, 09 Nov 2010 05:25:26 +0000

The massive explosion that was the bursting of the housing bubble has left a toxic cloud that still hasn’t blown away. On Monday, a report of an SEC investigation targeting J.P. Morgan over the creation of a complex mortgage instrument echoed the Abacus investigation where Goldman Sachs paid a record $550 million settlement fine. J.P. Morgan stock, which had been performing well, fell substantially in a matter of minutes.

The investigation concerns a collaterized debt obligation (CDO) named “Squared.” The accusation, published by ProPublica and citing sources close to the investigation, is that a hedge fund called Magnetar Capital was involved in the selection of some of the underlying assets for the $1.1 billion CDO, and that these were purposefully selected to bet against the housing market.

Read more about this CDO transaction…

Europe Sovereign CDS Index at New High

admin — Tue, 09 Nov 2010 04:52:20 +0000

The cost of insuring the bonds of developed European sovereign borrowers using a benchmark credit default swap index hit a fresh all-time high Monday, driven by continued weakness in peripheral euro-zone sovereigns.

The iTraxx SovX Western Europe index, which allows investors to buy or sell default protection on a basket of 15 sovereign borrowers, rose 177 basis points, up 5.5 basis points from Friday’s close, according to index owner Markit.

CDS are derivatives that function like a default insurance contract for debt. If a borrower defaults, the protection seller compensates the buyer.

Buyers may be protecting investments, or making bearish bets against borrowers.

Read more…

Goldman, Natixis Fight Over Default Swaps Deal Heads to Trial in London

admin — Tue, 09 Nov 2010 04:49:42 +0000

Goldman Sachs Group Inc. will ask a London court to prevent Natixis SA from terminating bond protection it sold to Goldman at a trial beginning today.

The U.S. bank’s London unit, Goldman Sachs International, sued Natixis in July to stop the termination of three credit- default swaps with a potential value of around $530 million. Natixis, a unit of BPCE SA, France’s second-largest lender by branches, said in July it would terminate the swaps because Goldman didn’t comply with the contract.

Natixis countersued in September, seeking a declaration it ended the deal lawfully, as well as breach of contract damages.

Ambac Files for Chapter 11

admin — Mon, 08 Nov 2010 23:50:53 +0000

Ambac Financial Group has just filed for Chapter 11, using a filing which is so fresh it even forgot to lock the input forms (see attached). The case is 10-15973 in Southern District of New York. The actual filing is not surprising, as we noted earlier that Ambac was likely going to file imminently.

What is also not surprising is that the form 1, erroneously, lists assets of between 0 and $50,000 and liabilities of over $1 billion, even as Exhibit A clarifies assets as $394.5 million and liabilities of $1.6824 billion. Obviously someone was in a rush. Keep in mind this is a stock that Cramer was previously pitching to his very few viewers. Ambac’s bankruptcy lawyers are Dewey and LeBoeuf, and Blackstone gets the coveted role of financial advisor.

Read more about Ambac…

China Rejects ‘Naked Swimming’ with Default Swaps

admin — Mon, 08 Nov 2010 17:37:22 +0000

The first yuan-denominated credit- default swaps insuring bonds and loans were signed today as China experiments with derivatives blamed by some European and U.S. officials for exacerbating the global financial crisis.

Nine financial institutions, including Industrial & Commercial Bank of China Ltd. and Deutsche Bank AG as well as state-backed China Bond Insurance Co., traded 20 contracts covering 1.84 billion yuan of debt, China’s National Association of Financial Market Institutional Investors, or NAFMII, said.

China’s central bank will regulate the contracts, called “credit risk mitigation” tools, to limit leverage and speculation, and help shift risk in the nation’s 3.3 trillion yuan ($495 billion) interbank bond market, officials said. European and U.S. officials met this week to discuss limits on the $615 trillion over-the-counter derivatives market.

Read more…

Malaysia’s Bursa Derivatives to Start Accepting Yuan as Margin Collateral

admin — Mon, 08 Nov 2010 17:30:39 +0000

Bursa Malaysia Derivatives Berhad, which sets the global benchmark for crude palm oil, will start accepting Chinese yuan as margin collateral for trading in the Malaysian derivatives market, Yusli Mohamed Yusoff, chief executive officer of the bourse, said today.

Read more about derivatives…

Fitch Puts Entire US Residential Mortgage Servicer Space on Negative Outlook

admin — Thu, 04 Nov 2010 20:56:26 +0000

What’s that you say Bank of America and JPM, “it’s all contained?” Hey Fed, it’s not too late to add $8 trillion in MBS to QE2. On the other hand, now we know what QE3 will be buying.

Fitch Ratings-New York-04 November 2010: Fitch Ratings has assigned a Negative Outlook for the entire U.S. Residential Mortgage Servicer ratings sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure process.

‘Risks to servicers include cost to research and remediate any errors, additional fees and resources, potential penalties and reputational risk,’ said Diane Pendley, Managing Director and head of U.S. RMBS Operational Risk for Fitch.

This industry-wide issue will cause all servicers to be under increased scrutiny from a wide range of state and federal regulators, state attorneys general, and GSE’s. All servicers will be affected, even those fully in compliance with all foreclosure rules and regulations. This is due to the increased amount of time and manpower it will take to properly address the much higher level of oversight and inquiries that are received, as well as the anticipated additional court delays.

Read more about the mortgage service space…

How the Banks Put the Economy Underwater

admin — Tue, 02 Nov 2010 07:05:15 +0000

This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.

Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.

Read more…

Ambac Says May Go Bankrupt This Year

admin — Tue, 02 Nov 2010 05:18:05 +0000

In March, Wisconsin Insurance Commissioner Sean Dilweg, who regulates the company’s Ambac Assurance Corp unit, seized $64 billion of Ambac’s worst assets.

On October 8, he filed a rehabilitation plan for a segregated account containing those assets, which would pay policyholders a combination of cash and notes for their claims.

Read more about Ambac…

Court Voids Swaps in UniCredit Derivatives Case

admin — Fri, 29 Oct 2010 04:07:43 +0000

An Italian court has cancelled interest rate swaps between UniCredit SpA (CRDI.MI) and the city of Rimini in the first ruling backing a local government in a derivatives case, Rimini municipal government said on Friday.

UniCredit, Italy’s biggest bank, has been ordered to pay back Rimini 651,632.43 euros ($906,600), the amount the city had lost on three rate swap contracts, plus interest, the city said in a statement on its website.

Investors in MBS Deals Prepare to Fight Back

admin — Wed, 27 Oct 2010 22:24:21 +0000

It just went from bad to worse for mortgage servicers: Bloomberg reports that investors who collectively hold over $500 billion in MBS, are huddling and preparing to fire back at the servicers.

Mortgage-bond investors represented by Dallas lawyer Talcott Franklin will send letters to securities trustees complaining that they shouldn’t bear the costs of loan servicers’ so-called robo-signing. The reason for the ire? It is the noteholders who ended up having to pay legal fees associated with discoveries of rampant fraud:

“The investors, who Franklin has said own more than $500 billion of the securities, are “pretty disturbed” that mortgage-bond trusts are being forced to pay penalties.

Tighter Derivatives Rules Gain Headway in U.S., EU

admin — Wed, 27 Oct 2010 18:07:01 +0000

The first global crackdown on the $615-trillion derivatives market gained momentum on Tuesday when U.S. regulators unveiled a new tool to police would-be fraudsters and European officials urged tighter controls.

Moving to rein in vast markets that were only loosely policed going into the 2007-2008 financial crisis, the U.S. Commodity Futures Trading Commission laid out plans for foiling traders seeking to manipulate prices or defraud investors.

From “quote stuffing” and “spoofing” to “banging the close,” certain trading practices were being eyed closely by the CFTC, though the agency stopped short, for now, of proposing specific rules to curb high-frequency trading.

Read more about derivatives rules…

OTC Derivatives Not Centrally Cleared May Face Curbs

admin — Tue, 26 Oct 2010 22:02:55 +0000

Regulators should consider limiting trades in some derivatives that aren’t centrally cleared in a bid to cut excessive risk, the Financial Stability Board said.

Authorities may “limit or restrict trading in OTC derivatives products that are suitable for clearing but not centrally cleared,” the FSB said in a report on the over-the- counter derivatives market yesterday.

Restrictions may be needed to enforce an accord by the Group of 20 countries that require central clearing of standardized OTC derivative contracts by end of 2012, the FSB said.

Read more about OTC derivatives…

Assured Guaranty Sues Deutsche Bank Over Mortgages

admin — Tue, 26 Oct 2010 03:40:35 +0000

A unit of Assured Guaranty Ltd. sued affiliates of Deutsche Bank AG over $312 million of mortgage- backed securities that the bond insurer guaranteed and says were “plagued by rampant fraud and misrepresentations.”

Assured Guaranty Corp. is asking a judge to force the bank to repurchase the loans, on which the insurer has already paid almost $60 million in loss claims and sees the potential for tens of millions of dollars more, according to a complaint filed today in New York state Supreme Court against DB Structured Products Inc. and ACE Securities Corp. The bond insurer, backed by billionaire Wilbur Ross, is also seeking reimbursement for the claims paid and for future losses.

Read more about Deutsche Bank…

Professors Black and Wray Confirm that Bear Pledged the Same Mortgage to Multiple Buyers

admin — Mon, 25 Oct 2010 18:26:23 +0000

I have repeatedly pointed out that mortgages were pledged to multiple buyers at the same time.

Today, in another must-read piece, economics professors William Black and L. Randall Wray confirm:

Several banks would go after the same homeowner, each claiming to hold the same mortgage (Bear sold the same mortgage over and over).

As USA Today pointed out in 2008, Bear was one of the big players in this area:

Bear Stearns was one of the biggest underwriters of complex investments linked to mortgages. Two of its hedge funds, heavily invested in subprime mortgages, folded in July.

Read more…

Credit Agricole Sued for Fraud in U.S. by Investors Over Debt Obligations

admin — Mon, 25 Oct 2010 17:14:56 +0000

Credit Agricole SA, France’s third- largest bank, was sued for fraud in New York by investors alleging the lender tricked them into buying $70.5 million worth of collateralized debt obligations that were designed to fail.

Loreley Financing claimed in the lawsuit filed Oct. 22 in New York State Supreme Court that Credit Agricole’s Calyon unit allowed a hedge fund to pick low-quality assets for three CDOs the fund could then bet against.

Read more about CDOs…

A European Lynch Mob is Coming for Bank of America

admin — Mon, 25 Oct 2010 16:58:57 +0000

The latest ugly news for Bank of America is actually coming from Europe, where big institutional money managers and other mortgage securities buyers are now beginning to organize for an assault. This information comes from John Mauldin’s, Thoughts from the Frontline Weekly Newsletter. His e-letter is a must-read for many money managers and serious investors.

This week he devotes a lot of his letter to testimony that seems to prove that big banks like Citigroup (C) and BAC were negligent and even willfully careless in underwriting subprime mortgages. He also reports on some new ominous developments brewing overseas and that law firm Quinn Emanuel Urquhart & Sullivan , which specializes in going after money center banks, has been hired by Fannie Mae and Freddie Mac parent, the FHFA.