IMF's Lagarde warns world not to lose momentum | $14B write-down prompts departure of Rio Tinto CEO | Hefty legal costs affect Citi and BofA's Q4 profit
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18 January 2013
CFA Institute: Financial NewsBrief
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House Republicans consider temporary debt-limit increase
Senior Republicans in the House of Representatives said they may back a small, interim increase of the U.S. debt limit, a move that would let them deflect the political consequences of the government defaulting on its debt in February or March. "We're discussing the possible virtue of a short-term debt limit extension, so that we have a better chance of getting the Senate and White House involved in discussions in March," said Rep. Paul Ryan, chairman of the House budget committee. Reuters (17 Jan.), MarketWatch/Political Watch blog (17 Jan.), MSNBC (17 Jan.)
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IMF's Lagarde warns world not to lose momentum
International Monetary Fund Managing Director Christine Lagarde warns that just because Europe avoided a collapse doesn't mean the work is done. "We should make sure that none of the decision-makers and none of the authorities relax, assuming that because there is a bit of recovery in sight ... it is time to slow the pace and go back to business as usual," she said. Further steps need to include continued monetary easing to stoke demand, Lagarde says. Bloomberg (17 Jan.), The New York Times (tiered subscription model)/Reuters (17 Jan.), The Washington Post (tiered subscription model) (17 Jan.), Reuters (17 Jan.), MarketWatch (17 Jan.)
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$14B write-down prompts departure of Rio Tinto CEO
Tom Albanese, CEO of global mining giant Rio Tinto, abruptly resigned after $14 billion in write-downs on acquisitions that went sour. Chairman Jan du Plessis said the board turned against Albanese after learning of a $3 billion write-down on coal assets in Mozambique for which the company paid $3.7 billion nearly two years ago. He said the board concluded that "a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable." The Telegraph (London) (tiered subscription model) (17 Jan.), Reuters (18 Jan.), The Sydney Morning Herald (Australia) (18 Jan.)
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Hefty legal costs affect Citi and BofA's Q4 profit
Wall Street is questioning how long it will take Citigroup and Bank of America to free themselves from the shadow of the global financial crisis after the banks reported fourth-quarter earnings below expectations. Citigroup's profit rose 25% and Bank of America reported a 63% drop, but both results were undercut by mortgage settlements and other legal costs. Los Angeles Times (tiered subscription model) (17 Jan.), The New York Times (tiered subscription model)/DealBook blog (17 Jan.), Reuters (17 Jan.)
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Schwab agrees to let money funds' NAV float
Charles Schwab is taking the first step to let money funds' net-asset value deviate from $1 per share. According to a letter sent to the Financial Stability Oversight Council, the change would start "reform at the sector of the money market fund industry most likely to initiate a potentially destabilizing run, but do so without wreaking havoc." Reuters (17 Jan.)
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2013 — The year of the leverage ratio
The leverage ratio is set to become a key metric for banks. From Q1'13, banks in the U.S. and Europe will disclose more consistent and comparable figures for assets and leverage. SNL Financial monitors developments affecting hundreds of European financial institutions; providing standardised data, in-depth analysis and exclusive news. Find out more.
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Market Activity
Weak yen and strong Chinese GDP boost Asian-Pacific markets
Asian-Pacific stock markets climbed Friday as Japan's yen continued to weaken and China released positive economic data. Japan's Nikkei 225 closed up 2.9%. Hong Kong's Hang Seng Index gained 1.1%. China's Shanghai Composite advanced 1.4%. Australia's S&P/ASX 200 edged up 0.3%. Taiwan's Taiex added 1.5%. South Korea's Kospi rose 0.7%. India's Sensex was up 0.4% near midafternoon. MarketWatch (18 Jan.), The Economic Times (India) (26 Feb.)
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Markets signal little worry about eurozone debt
Concerns about the eurozone debt crisis are fading, despite weakness in underlying economies. Italian and Spanish bonds have been strengthening for six months, and the euro is at its highest value in 10 months. Meanwhile, Spain has successfully concluded a large debt offering. Reuters (17 Jan.), The Wall Street Journal (tiered subscription model) (18 Jan.)
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CAREERS at CFA Institute
Director, Curriculum Projects - All locations
Director, Society Relations, EMEA
Director, Society Relations, Americas
Director, Society Advocacy Engagement - EMEA
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Economics
Economists don't expect eurozone growth
An economic survey concurs with European Central Bank President Mario Draghi's assessment that "we are not at all seeing an early and strong recovery." Analysts expect eurozone growth to be stymied not only by austerity but also by the euro's strength. "Without a decisive resolution it will be hard to fully restore private-sector confidence and credit availability, and stimulate growth," according to a Goldman Sachs report. "As a result, 2013 promises to be another year of weakness for Europe's economy." Bloomberg (17 Jan.)
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Initial unemployment claims hit 5-year low
First-time jobless claims in the U.S. decreased to 335,000 last week, the fewest in five years, the Labor Department says. Economists surveyed by Bloomberg had expected 369,000. Bloomberg (17 Jan.)
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U.S. housing starts reach highest level since 2008
Housing starts in the U.S. increased 12.1% last month compared with November, reaching a seasonally adjusted annual rate of 954,000, the Commerce Department says. In 2012, construction began on about 780,000 units, a 28.1% increase from 2011. RTT News (17 Jan.)
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Analysis: End of offshoring jobs begins
America's practice of sending jobs to foreign land is waning, but the demise of offshoring is no cause for complacency about the labor market, according to The Economist. "The shift of jobs back to developed countries is an encouraging sign that the flow of jobs need not be one-way," the magazine notes. "But only if governments and people in prosperous places invest heavily in building up skills will the workforces there properly benefit." The Economist (tiered subscription model) (19 Jan.)
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Chinese economy rebounded in Q4
Adding to evidence that China's economy is picking up momentum, gross domestic product increased 7.9% in the fourth quarter, up from 7.4% expansion in Q3. Retail sales jumped 15.2% last month compared with December 2011. For 2012, GDP increased 7.8% compared with 2011, the lowest rate since 1999. Forbes (17 Jan.), Xinhuanet.com (China) (18 Jan.)
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Fee-based advisers purchase more structured notes
Financial advisers who don't accept commission when selling products, compensated solely through fees, accounted last year for the biggest proportion of U.S. structured-note sales since 2010, according to data compiled by Bloomberg News. Advisers are becoming bigger buyers of structured notes because they are searching for higher yields and developing confidence in the securities, said Justin Capetola, managing partner at Blue Bell Private Wealth Management. Financial Advisor online/Bloomberg (17 Jan.)
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Geopolitical/Regulatory
FCA's approach must be different from FSA's, panel says
A U.K. parliamentary committee has challenged the Financial Conduct Authority to be "radically different" from the Financial Services Authority. The FCA, which will take over as early as April, will be led by John Griffith-Jones, formerly KPMG's U.K. head. While some lawmakers are nervous about his lack of experience, they also praise his appointment as "part of a welcome and much-needed fundamental shake-up of regulation." Bloomberg (17 Jan.), Reuters (18 Jan.)
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BoE official says Basel III isn't strong enough
Robert Jenkins, a member of the Bank of England's Financial Policy Committee, warns that Basel III will not protect the global financial system. He says his opinion is shared by, among others, Andrew Haldane, the central bank's director of financial stability. Haldane has said in the past that Basel III is too complex to be effective. Reuters (17 Jan.)
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SEC reportedly considering ex-prosecutor for chairmanship
Former U.S. Attorney Mary Jo White reportedly is in consideration for chairman of the Securities and Exchange Commission. White presents a different profile compared with former chairmen, who often were lawyers with experience in the financial sphere. Bloomberg (17 Jan.)
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U.S. agency issues requirements for mortgage servicing
The U.S. Consumer Financial Protection Bureau has released mortgage-servicing rules that are set to go into effect early next year. Director Richard Cordray says the goal is to repair a "broken system." For example, the rules govern when a mortgage servicer can foreclose. They also require servicers to notify borrowers when interest rates change. AmericanBanker.com (free registration) (17 Jan.), Bloomberg Businessweek (17 Jan.), MarketWatch (17 Jan.)
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Financial Products
Credit Suisse gold ETN would use covered-call strategy
Credit Suisse has filed with the Securities and Exchange Commission to launch an exchange-traded note that would buy physical gold. The ETN would seek to enhance returns by selling "out of the money" call options, a technique known as the covered-call strategy. IndexUniverse.com (17 Jan.)
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