China works toward yuan convertibility | FX swaps and forwards gain exemption from Dodd-Frank | Lehman trustee and Citi resolve battle over $1B
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19 November 2012
CFA Institute: Financial NewsBrief
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Brazil challenges U.S. as global food producer
Brazil is steadily becoming a major rival to the U.S. as a food supplier. The nation is expected to replace the U.S. as the top soybean producer in 2013. Brazil didn't export any corn to the U.S. in 2010 but is on track to sell more than $10 million worth this year. The Washington Post (tiered subscription model) (18 Nov.)
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China works toward yuan convertibility
People's Bank of China Governor Zhou Xiaochuan says the next step in reforming the exchange-rate system is making the yuan convertible. "We are going to realize it. We are moving in this direction. We need to go further. We will have some deregulation," he said. Bloomberg (18 Nov.)
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FX swaps and forwards gain exemption from Dodd-Frank
Despite opposition from some Democratic lawmakers and regulators, the U.S. Treasury Department elected to exempt foreign exchange swaps and forwards from the Dodd-Frank Act. "Unlike other derivatives, FX swaps and forwards already trade in a highly transparent, liquid and efficient market," the department said. Market participants welcomed the move. Bloomberg (16 Nov.), Reuters (16 Nov.), The Wall Street Journal (tiered subscription model) (16 Nov.)
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Lehman trustee and Citi resolve battle over $1B
The trustee for Lehman Brothers Holdings forged a deal with Citigroup to distribute $435 million to the failed brokerage's creditors and customers, according to a settlement filed in U.S. Bankruptcy Court in Manhattan. The week it filed for bankruptcy, Lehman deposited more than $1 billion at the bank. The settlement could be approved at a Dec. 12 hearing. The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (18 Nov.)
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Corporate giants get contracts meant for small businesses
About 45% of the $10.6 billion designated by U.S. acquisition rules to be awarded to small businesses instead went to some of the biggest corporations, according to government data. Major firms such as Medtronic and General Dynamics received $4.74 billion in government contracts that should have gone to small businesses in the year ended Sept. 30, 2011. The Washington Post (tiered subscription model) (18 Nov.)
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Market Activity
Japan leads Asian-Pacific rally
Asian-Pacific markets rose Monday with Japan's Nikkei 225 posting the biggest gain at 1.4%, as exporters benefited from a drop in the yen's value. South Korea's Kospi advanced 0.9%. Hong Kong's Hang Seng Index gained 0.5%. Australia's S&P/ASX 200 added 0.6%. China's Shanghai Composite edged up 0.1%. India's Sensex was up 0.2% at mid-afternoon. MarketWatch (19 Nov.), The Economic Times (India) (26 Feb.)
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People's Insurance could raise as much as $4B in IPO
People's Insurance Company of China, a major force in China's non-life insurance business, is expected to raise between $3 billion and $4 billion in its Hong Kong initial public offering, making it the biggest offering this year in the Asian-Pacific region. "As a dominant player in the non-life insurer market, PICC has successfully captured investors' attention but the valuations and the projected growth rate in premiums remain the biggest hurdles," a fund manager said after the firm's pre-marketing event. South China Morning Post (Hong Kong) (free registration) (17 Nov.), International Financing Review (free content) (17 Nov.)
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Economics
Pace of U.S. business investment drops
Faced with growing uncertainty over taxes and economic prospects, major U.S. companies are slashing investment plans at the quickest rate since the downturn. Among the 40 largest publicly traded companies, half said they plan to scale back capital investment this year or in 2013. The Wall Street Journal (tiered subscription model) (19 Nov.)
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Lagarde pushes for permanent answer on Greek debt
International Monetary Fund Managing Director Christine Lagarde urged eurozone countries owed money by Greece to cancel some of the debt, to avoid prolonged uncertainty about the country. She also encouraged leaders to come up with a permanent solution to Greek debt. Lagarde said a final agreement among Greece's creditors must be "rooted in reality and not in wishful thinking." Reuters (18 Nov.)
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Analysis: Cap deductions rather than raise tax rates
The U.S. needs more revenue to reduce its deficit, but any effort to reform tax deductions would probably collapse in the face of lobbyists defending every loophole, according to The Economist. "An easier first step would be to cap all deductions, an approach advanced by none other than Mitt Romney," the magazine notes. "Set at $50,000 such a cap would raise some $750 billion over ten years, estimates the Tax Policy Centre, a think-tank -- more than would be obtained by restoring the top two rates to pre-2001 levels." The Economist (free content) (17 Nov.)
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U.S. companies don't pay enough taxes, EU nations say
EU countries are increasingly demanding that U.S. companies doing business there pay more taxes. U.K. lawmakers ask how Google can report sales of more than $4 billion but pay less than $10 million in taxes. France demands that Amazon pay $252 million in back taxes. The New York Times (tiered subscription model) (18 Nov.)
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Advisers warn against tax-driven decisions
Attention given to the U.S. "fiscal cliff" might tempt wealthy investors to make rash decisions that could end up costing more than the tax increases they fear, financial advisers warn. Appreciated stock that is performing well could continue to produce returns greater than tax savings from a hasty sale to avoid higher capital gains tax, advisers say. The New York Times (tiered subscription model) (16 Nov.)
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Geopolitical/Regulatory
FSB seeks controls on shadow banking
The Financial Stability Board issued a proposal to regulate shadow banking, worth an estimated $67 trillion last year. "The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial stability emerging outside the regular banking system while not inhibiting sustainable non-bank financing models that do not pose such risks," according to the FSB. Google/Agence France-Presse (18 Nov.), Bloomberg (18 Nov.), Financial Times (tiered subscription model) (18 Nov.)
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IOSCO: Banks should offer more info on securitized debt
The International Organization of Securities Commissions says banks should hand over more data on securitized debt to investors so they can conduct stress assessments. "IOSCO considers that investors should be able to test whether future cash flows generated from underlying pools" of assets in securitized products would "pay investors in full and on time," the group said. Bloomberg (16 Nov.)
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Repsol anticipates compensation for YPF expropriation
Antonio Brufau, president of Spanish oil company Repsol, said he is confident that a fair agreement will be reached regarding Argentina's expropriation of a 51% stake in Argentine oil company YPF. Brufau expects adequate compensation for Repsol. "Every country has the right to nationalize what it thinks important," he said. Latin American Herald Tribune (Venezuela) (18 Nov.)
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Energy regulator prepares for clashes with financial firms
Deutsche Bank sent the Federal Energy Regulatory Commission an 89-page defense against an allegation that it manipulated the California electricity market. The bank said paying a $1.6 million penalty would probably be less expensive than battling it out in court, but it is afraid that the case would set a precedent and embolden the regulator to increase fines. The clash is one of several between FERC and financial firms. The Wall Street Journal (tiered subscription model) (18 Nov.)
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JPMorgan and Credit Suisse settle MBS case with SEC
The Securities and Exchange Commission has settled with JPMorgan Chase and Credit Suisse, after the banks allegedly misled investors about more than $1 billion in securities backed primarily by subprime mortgages. JPMorgan will pay $296.9 million, while Credit Suisse will pay $120 million. The money will be turned over to affected investors. The Wall Street Journal (tiered subscription model) (16 Nov.)
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Financial Products
RBS launches ETNs tracking Rogers commodity indexes
Royal Bank of Scotland introduced five exchange-traded notes linked to the Enhanced Rogers International Commodity Index series, by commodity-investment expert Jim Rogers. The ETNs -- agriculture, commodity, energy, industrial metals and precious metals -- each has an annual fee of 0.95%. ETFdb.com (15 Nov.), Zacks (15 Nov.), IndexUniverse.com (15 Nov.)
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