Opening Bell: 08.22.13

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SEC scrutinises Goldman’s trading failure (FT)
SEC officials were preparing for internal meetings as they try to determine what went wrong with Goldman’s systems and why the bank inadvertently flooded the US options market with a large number of unintended trades in companies such as JPMorgan Chase and Kellogg. Goldman declined to comment. The SEC said it was monitoring developments. The securities watchdog has been cracking down on exchanges and brokers for systems failures out of concern that the episodes are undermining US market confidence. Regulators are worried that market participants are in a competitive race to develop speedier systems at the expense of safeguarding controls around the automated trading programmes.

SEC's JPMorgan probe threatens cozy tradition of "client hires" (Reuters)
Enlisting the relative of a top customer for a summer internship or an entry-level job is common to businesses worldwide, but it's especially rife in banking. The industry has held strong to a well-worn mechanism where clients will "pass on" CVs or resumes of their relatives or friends to coverage bankers, whose role is to visit top executives of companies in a particular industry or sector and sell them the bank's services. The bankers, in turn, make sure those CVs reach the staff in charge of that year's intern list. "It happens all the time where a coverage guy will toss over some client kid's CV," said a Hong Kong based investment banker. "Finance is about doing favors for people. It's what makes the world go round."

Bond Funds Lose $30.3 Billion in August in Big ‘Shift’ (Bloomberg)
U.S.-registered bond mutual and exchange-traded funds lost $30.3 billion to investor redemptions this month, putting them on track for their slowest year since 2004. The withdrawals for the month through Aug. 19 are already the third-highest on record, following $69.1 billion of withdrawals in June and $42 billion in October 2008, according to a report dated yesterday by TrimTabs Investment Research in Sausalito, California. Bond funds have suffered $4 billion in redemptions this year, on pace for the biggest withdrawals since investors pulled $7 billion in 2004.

SEC Is Set to Propose New Rule on CEO Pay (WSJ)
The Securities and Exchange Commission will soon thrust CEO compensation back into the spotlight when it proposes a long-delayed rule requiring companies to disclose the pay gap between chief executives and rank-and-file employees. The requirement, a mandate of the 2010 Dodd-Frank financial law, could put added pressure on corporate boards to slow pay increases for chief executives at companies with significant or growing gaps, proponents say.

At Apple, Tim Cook leads a quiet cultural revolution (Reuters)
Lisa Cooper, who went to high school with Cook in Robertsville, Alabama, and remains a friend, still laughs at memories of Cook staging prank photos for the school yearbook and crooning "The Way We Were" to her in class. In the day to day at Apple, Cook has established a methodical, no-nonsense style, one that's as different as could be from that of his predecessor. Jobs' bi-monthly iPhone software meeting, in which he would go through every planned features of the company's flagship product, is gone. "That's not Tim's style at all," said one person familiar with those meetings. "He delegates." Still, he has a tough side. In meetings, Cook is so calm as to be nearly unreadable, sitting silently with hands clasped in front of himself. Any change in the constant rocking of his chair is one sign subordinates look for: when he simply listens, they're heartened if there is no change in the pace of his rocking.

N.J. farmer cuts corn maze of Gov. Christie and Dem challenger (CBS)
A New Jersey farmer has cut the faces of Republican Gov. Chris Christie and his Democratic challenger into a corn maze to highlight the state's gubernatorial election. The corn was planted in June at the Stony Hill Farm in Chester. Owner Dale Davis tells Newark's The Star-Ledger newspaper he chose the maze to get people interested. He says everybody recognizes Christie but he doesn't know whether a lot of people would recognize gubernatorial rival Sen. Barbara Buono.

China's banks to take next step in rate reform push (Reuters)
China's top banks are expected to win approval for the issuance of tens of billions of yuan in negotiable certificates of deposit (NCD) as early as next month, in another step towards developing market-determined interest rates. NCDs would enable banks to access large amounts of funds at relatively stable costs, providing some alternative to borrowing from the inter-bank market, where the cost of funds can be volatile, as seen in June when a liquidity squeeze briefly sent short-term money market rates to nearly 30 percent. ... "The instrument could be rolled out soon, which not only opens up a liquidity channel for banks but also pushes forward interest rate reforms by gradually loosening controls on deposit rates," said a source close to the banking regulator.

China a ‘stallion’ amid emerging market turmoil (CNBC)
China stands out like a "stallion" amid the turmoil in emerging markets, according to one strategist, as a slowdown in the world's second largest economy shows increasing signs of stabilization. "China has been a stallion – in the 1997-1998 Asian financial crisis it played a very stabilizing role, 2008-2009 [global financial crisis], same thing. It is playing a similar role now," Stephen Schwartz, Asia chief economist at Spanish banking group BBVA, told CNBC on Thursday. "The situation would be much more severe if we had China continuing to slow on top of the QE [quantitative easing] tapering," he added.

Is the rupee ‘out of control’? (CNBC)
As the battered rupee slumped to yet another lifetime low of 64.54 to the dollar on Wednesday, analysts say the selling is getting out of hand and the currency could fall to 70 in the coming months. Foreign investors have yanked money out of India in recent months amid fears over the winding down of U.S. monetary stimulus and deteriorating economic conditions in the country. The rupee has been one of the world's worst performing currencies this year as a result, slumping 18.6 percent since the start of the year. Keagan York, head of currency strategy at Sydney's Compass Global Markets, said the rupee was going into free fall. "I wouldn't touch it right now," said York. "If you are an importer looking to buy Indian goods, I'd wait, as they are just going to get cheaper and cheaper."

HP’s Whitman abandons revenue growth target (FT)
Meg Whitman, chief executive of Hewlett-Packard, abandoned her forecast of a return to revenue growth next year as the US technology conglomerate stumbled in some of its core markets in the latest quarter. The HP boss also signalled a return to acquisitions for the first time since the disastrous 2011 acquisition of UK software group Autonomy, with the signs of business deterioration adding to the urgency to find new pockets of growth. ... Ms Whitman blamed “inconsistent execution” for the latest poor performance and forced through another shake-up in the company’s top ranks to try to stop the rot. Management mistakes in the enterprise group had led to the loss of 5 percentage points of market share in industry-standard servers in the quarter, Ms Whitman said.

Fed Appeals Rejection of Rule on Debit Card Fees (DealBook)
Judge Richard J. Leon of Federal District Court for the District of Columbia shocked banks and companies like Visa and MasterCard last month when he struck down a Fed regulation that governs how much retailers must pay to lenders and other companies when customers swipe their debit cards. The retailers applauded the decision because it could force the Fed, a major banking regulator, to rewrite the rule in such a way that they would pay far less to the banks in debit card fees. Lower fees, in theory, could indirectly benefit consumers, although retailers have no obligation to pass along the savings on debit card fees to customers. But at a hearing in the court on Wednesday, the Fed’s top lawyer, Scott G. Alvarez, told the judge the central bank would appeal his decision.

In the U.K., One Banker Appears Out of Thin Air (WSJ)
Every week, Royal Bank of Scotland Group RBS.LN +2.39% PLC's "flying banker," Anne Rendall, tours a handful of sparsely populated Scottish islands on an eight-seat aircraft emblazoned with the logo of a local whisky brand. At each stop, she sets up in a hut or community center and doles out cash, collects checks and opens accounts for the islanders. "She comes on a Tuesday to facilitate our banking requirements," said Mark Lawlor, who runs the main hotel on Sanday, an island with a population of about 500 sandwiched between the North Sea and the Atlantic. "There is a lot of bad publicity with Internet banking over how safe it actually is.…Some people, like myself, like to walk into a bank and speak with someone."

$350 monkey fraud reported (Battle Creek Enquirer)
A Battle Creek woman, 25, lost about $350 trying to buy a monkey from the central African country of Cameroon. The woman contacted police about 3:59 p.m. Tuesday and said she and her roommate were looking for a pet and decided on a monkey. They began looking and found a website and was sent pictures and information about monkeys. She was told the monkey would cost $350 but she could have it for $50. She sent the money but no monkey arrived. She had more contact and sent first $200 and then $100 but still had no monkey and the contact wanted more money for a cage, license and shots. Police are still trying to gather contact information but told the woman the incident is likely a scam and she probably won’t get her money or her monkey.

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Former UBS Trader Found Guilty (WSJ) Former trader Kweku Adoboli was found guilty on one count of fraud in connection with a $2.3 billion loss the Swiss bank suffered last year, as the juryin the alleged rogue-trading case continued to deliberate on five other counts he was charged with. The partial verdict comes nearly a week after the jury began deliberating following a roughly eight-week trial. It is unclear when the jury might reach verdicts on the other five counts or when sentencing might take place. Mr. Adoboli pleaded not guilty to all six counts. Shakeup At Credit Suisse (WSJ) Credit Suisse said Tuesday that it will combine the Swiss bank's asset management unit with its private bank, but stopped short of announcing the more drastic revamp analysts expected after crosstown rival UBS decided to fire 10,000 bankers. Robert Shafir, who currently heads the U.S. business of Credit Suisse, will take the helm of a new private banking and wealth management division jointly with Hans-Ulrich Meister, who has run the private banking business, the bank said. At the investment bank, Gael deBoissard is being promoted to co-head of the division, jointly with incumbent Eric Varvel. Following the revamp, Credit Suisse will have only two units—wealth management and investment banking--which are distinctly separate from each other, a move that is "in alignment with the new regulatory reality," Chairman Urs Rohner said. Greece Waits Nervously For Vital Bailout Funds (Reuters) Officials familiar with preparations for the finance ministers' meeting expect a "political endorsement in principle" on unfreezing loans to Athens, after Greece completed almost all the reforms that were required of it in exchange for funding. The final go-ahead from the ministers is likely to come only once the remaining few Greek reforms are in place and once there is agreement in the euro zone on how to reduce the country's huge debt and secure extra financing while it is being done. French Downgrade Widens Gulf With Germany as Talks Loom (Bloomberg) France’s loss of the top credit rating at Moody’s Investors Service may weaken President Francois Hollande’s leverage in European budget talks and deepen concern in Germany over its neighbor’s lagging competitiveness. The downgrade late yesterday of Europe’s second-biggest economy underscores the concern expressed by allies of German Chancellor Angela Merkel that the Socialist Hollande’s failure to recognize the urgency of France’s woes risks a deepening of Europe’s slump. “This downgrade will certainly increase pressure on France big-time,” Jan Techau, director of the Carnegie Endowment for International Peace office in Brussels, said today in a phone interview. “It gives Germany more of an edge over France.” ‘Tide Turning’ Against France, Say Economists (CNBC) “The tide is turning for France. Although the country's bond market is likely to remain resilient — the yield on 10-year paper is little changed [Tuesday] morning and still stands a whisker above its record low of 2.06 percent on July 19 — French debt looks more and more overvalued relative to fundamentals,” Nicholas Spiro, Managing Director of Spiro Sovereign Strategy, said in a note on Tuesday. France has enjoyed low borrowing costs as investors have viewed the country as a safe haven in comparison with its southern European cousins. The downgrade of France to AA1 with a negative outlook by Moody’s has thrown its “deteriorating fundamentals….into sharp relief” Spiro said. China’s Richest Woman Divorces Husband, Fortune Declines (Bloomberg) Longfor Properties Co. Chairwoman Wu Yajun is no longer China’s richest woman after divorcing Cai Kui and transferring about 40 percent of the developer’s shares the couple used to own to her ex-husband. Her stake in Longfor, which Wu co-founded with Cai, dropped from a combined 72 percent to 43 percent, while Cai retains 29 percent, according to filings from Hong Kong’s stock exchange. Wu’s net worth is estimated at $4.2 billion, down from $7.3 billion as of 5:30 p.m. New York time yesterday, according to the Bloomberg Billionaires Index. New York Prepares Lawsuit Against Credit Suisse (Reuters) The New York attorney-general is preparing to file a civil lawsuit against Credit Suisse for misleading investors who lost billions of dollars on mortgage-backed securities, according to a source familiar with the matter. The lawsuit, which is expected to be filed on Wednesday, will allege that Credit Suisse misrepresented the quality of loans packaged in securities, according to the source. Petraeus Mistress Paula Broadwell To Jill Kelley: 'I can make you go away' (NYDN) The notes Paula Broadwell sent to Jill Kelley were far more sinister than previously reported and seemed like the rantings of someone “clearly unhinged,” a close friend of Kelley said Monday. “This wasn’t just a catfight. Any normal person who got emails like that would have immediately called the police,” said the friend. She said Kelley read her the emails when she called, panic-stricken and seeking advice in the days before the scandal became a stunning public spectacle and led to Petraeus’ resignation as CIA director. The friend, who did not want to be identified, said Kelley saw the emails as death threats, specifically one in which Broadwell vowed to “make you go away.” [Meanwhile,] Broadwell...bloodied a female news photographer’s forehead Monday in a confrontation outside the biographer’s Charlotte, N.C., home. Broadwell smacked the photographer with the driver’s-side door of her Nissan Pathfinder SUV. “I had my camera and in all the chaos the door slammed and I got hit in the head with the flash,” said Nell Redmond, a freelancer for The Associated Press. Redmond suffered a small cut and is not pressing charges. Morgan Stanley’s Doom Scenario: Major Recession in 2013 (CNBC) The bank’s economics team forecasts a full-blown recession next year, under a pessimistic scenario, with global gross domestic product (GDP) likely to plunge 2 percent. “More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks,” Morgan Stanley said in a report. Under the bank’s more gloomy scenario, the U.S. would go over the “fiscal cliff” leading to a contraction in U.S. GDP for the first three quarters of 2013. In Europe, the bank’s pessimistic scenario assumes a failure of the European Central Bank (ECB) in cutting rates and a delay of its bond-buying program. Judge Tosses Suit Over AIG (WSJ) A federal judge in Manhattan dismissed a $25 billion lawsuit by Starr International Co., which Mr. Greenberg runs, against the New York Federal Reserve Bank over claims the Fed breached its fiduciary duty to AIG's shareholders in the rescue during the U.S. financial crisis. It is one of two lawsuits Starr, AIG's largest shareholder at the time of the government takeover, is pursuing over the bailout. Mark Cuban Throws A Tantrum On Facebook Fee (NYP) Facebook used to be a “time suck” — now it just sucks. That’s the view of Dallas Mavericks owner Mark Cuban, who is urging marketers to take their business elsewhere after the social network started charging the tech billionaire to send messages to all the team’s fans. “In the past we put FB first, Twitter second,” Cuban wrote in a roughly 1,700-word blog post calling out the social network. “FB has been moved to the bottom of a longer list.” He added: “FB doesn’t seem to want to accept that its best purpose in life is as a huge time suck.” At issue is Facebook’s filtering of posts that appear in users’ news feeds. The site says it is trying to present users with content that they have shown an interest in while cutting down on spam. But Cuban says it is a pay-to-play move. He argues that Facebook is making it harder for marketers to reach their fans without paying for so-called “promoted posts.” And making the site more targeted and efficient is actually a mistake, according to Cuban. He claims most people go to the site because it’s a “time suck” that they enjoy. Cannibal Cop Pleads Not Guilty (NYDN) “cannibal cop,” accused of conspiring with an online buddy to kidnap, rape and slow-cook women, pleaded “not guilty” Monday to two federal charges. Gilberto Valle, 28, was arraigned in Manhattan Federal Court on charges of conspiracy to commit kidnapping and accessing the federal National Crime Information Center database without authorization. Valle’s public defender, Julia Gatto, made a third attempt at getting bail for her now-infamous client. 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