BP admits criminal liability for Gulf spill | Japan is close to returning to recession | EU officials proceed with transaction tax
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16 November 2012
CFA Institute: Financial NewsBrief
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BP admits criminal liability for Gulf spill
BP reached a plea agreement admitting criminal liability for the explosion and oil spill at its Macondo well in the Gulf of Mexico in 2010, settling manslaughter, obstruction of justice and securities charges for $4.5 billion. BP pleaded guilty to 12 counts of felony and two misdemeanors. Three BP employees could be sentenced to decades in prison if convicted of charges made under a separate criminal complaint by the U.S. Justice Department. Houston Chronicle (tiered subscription model) (15 Nov.), The Telegraph (London) (tiered subscription model) (15 Nov.), The Times-Picayune (New Orleans) (15 Nov.)
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Japan is close to returning to recession
For the fourth month in a row, the Japanese government lowered its outlook for the economy. Economists said the third-largest economy is in danger of falling into a third recession since 2008. Bloomberg (15 Nov.), Reuters (15 Nov.), The Japan Times (15 Nov.)
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EU officials proceed with transaction tax
The European Parliament's Economic and Monetary Affairs Committee is moving forward a pan-European financial-transaction tax. A report discussed by the committee outlines procedural deadlines, including a plenary vote in December by members of Parliament. Sources say the final plan will be similar to the European Commission's September 2011 proposal and should mirror France's tax, which took effect in August. The Trade News (U.K.) (tiered subscription model) (15 Nov.)
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MF Global collapse was preventable, House report says
A report from the House Financial Services Subcommittee on Oversight and Investigations about the collapse of MF Global Holdings finds fault with former CEO Jon Corzine, regulators and credit rating agencies. The report says the eighth-largest bankruptcy in U.S. history was preventable. The report also suggests that Congress should consider merging the Securities and Exchange Commission with the Commodity Futures Trading Commission. The New York Times (tiered subscription model)/DealBook blog (15 Nov.), Bloomberg Businessweek/The Associated Press (15 Nov.), Reuters (15 Nov.), The Wall Street Journal (tiered subscription model) (15 Nov.)
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Reader Survey
Do you expect U.S. lawmakers to avert the "fiscal cliff" before the global economy suffers deleterious effects?
Yes  70.26%
No  29.74%
Poll analysis:
Since the U.S. elections Nov. 6, the "fiscal cliff" issue has moved to the front and center of American politics. Will the economy experience a big increase in taxes and a simultaneous drop in government spending? If these events occur, how will the economy be affected? Many pundits are focused on the impact that the fiscal cliff could have on gross domestic product. Is the U.S. headed for recession or not? The discussion typically ignores, however, the massive amounts of debt used to finance GDP growth through both the government and the private sector. Aggregate debt in the U.S. is about $56 trillion and is growing at more than 5% compared with a $15 trillion economy growing at 1.5%. The U.S. has reached a point where the incremental debt exceeds the incremental growth in GDP, suggesting that additional debt is counterproductive. The growth-at-all-costs policy means that much, if not all, of this new debt must be inflated away. This situation is what pundits mean by the "new normal." -- Ron Rimkus, CFA, Content Director, CFA Institute
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Market Activity
Asian-Pacific markets lag behind Japan's strong advance
Japan's Nikkei 225 outperformed other regional markets Friday, rising 2.2% amid speculation of imminent change in monetary policy. Hong Kong's Hang Seng Index closed up 0.2%. China's Shanghai Composite fell 0.8%. South Korea's Kospi slid 0.5%. Australia's S&P/ASX 200 declined 0.3%. Taiwan's Taiex slipped 0.2%. India's Sensex was down 1% at mid-afternoon. MarketWatch (16 Nov.), The Economic Times (India) (26 Feb.), Reuters (16 Nov.)
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Appetite for European bank debt returns
After avoiding European banks for months, fund managers are eagerly buying their bonds. Issuers are taking advantage of the demand. This year, European banks have sold nearly €250 billion in unsecured debt, Dealogic says. The New York Times (tiered subscription model)/DealBook blog (15 Nov.)
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Goldman is on lookout for Asian bond bubble
A flood of capital into Asian bond markets during the past year might be creating a bubble, according to Goldman Sachs Asset Management. "If bond demand continues at these levels and distorts prices for a long period of time, the likelihood of asset bubbles increases," said Owi Ruivivar, a senior fixed-income portfolio manager. "The main issue with this increased flow of funds chasing emerging-market bonds is that prices do not fully reflect economic fundamentals." Bloomberg (15 Nov.)
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Economics
Bernanke: Tight lending standards threaten housing market
Recovery of the U.S. housing market is being held back by lending standards that are too tight to make sense in this economy, Federal Reserve Chairman Ben Bernanke said. He said tighter standards were previously justified. "However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery," Bernanke said. Reuters (15 Nov.), The Hill/On The Money blog (15 Nov.)
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Sandy sends U.S. jobless claims soaring
Disruption brought by superstorm Sandy drove first-time unemployment claims to a seasonally adjusted 439,000, the most since April 2011, the U.S. Labor Department said. The 78,000 increase was the biggest one-week jump since Hurricane Katrina in 2005. Sandy's effects could reduce economic growth this quarter as much as a half percentage point, economists said. Reuters (15 Nov.), MarketWatch (15 Nov.)
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Chrysler expands U.S. production to keep up with demand
Chrysler said it was increasing capacity of some U.S. plants because it couldn't keep up with sales of some of its more popular products. "Our biggest headache this year has been the shortage of 3.6-liter engines. We just can't make enough," said CEO Sergio Marchionne. Chrysler has announced more than $4.75 billion of investment in its U.S. facilities since June, he said. Detroit Free Press (16 Nov.)
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Eurozone falls back into recession
Germany and France posted modest growth for the third quarter, but it wasn't enough to offset slowing economic activity in the eurozone. Gross domestic product in the bloc declined 0.1% compared with Q2, which also had produced a drop, meaning a second recession in four years, according to Eurostat. Deutsche Welle (Germany)/Reuters/Deutsche Presse-Agentur/Agence France-Presse (15 Nov.), The New York Times (tiered subscription model) (15 Nov.), Market News International (15 Nov.)
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Other News
Advisers must tailor communication methods
Financial advisers need to consider clients' age and prospects to successfully communicate with them, said Cam Marston, a generational-characteristics expert at Generational Insight. Baby boomers, Generation X and millennials have distinct preferences on how they want to be approached and given information, he said. Financial-Planning.com (15 Nov.)
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Geopolitical/Regulatory
FDIC chairman and vice chairman gain confirmation
The U.S. Federal Deposit Insurance Corp. officially has a chairman and a vice chairman, after the Senate confirmed Martin Gruenberg and Thomas Hoenig, respectively. Republicans had held up final action so Mitt Romney could fill the positions if he became president. The Washington Post (tiered subscription model) (15 Nov.)
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France seeks separate units for banks' trading
French banks would have to place trading businesses in separate units under a planned overhaul of banking laws, Finance Minister Pierre Moscovici said. Societe Generale CEO Frederic Oudea called the requirement "demanding" and said banks, which are already adapting to Basel III rules, would "have to run this on top of the rest." Bloomberg (15 Nov.)
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Canadian agency duels with RBS in Libor inquiry
Royal Bank of Scotland says it is willing to cooperate with an investigation into possible manipulation of the London Interbank Offered Rate. However, the Canadian Competition Bureau says RBS has refused to turn over documents. RBS denies the allegation. The Telegraph (London) (tiered subscription model) (15 Nov.)
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Financial Products
First Trust readies commodity-futures ETF
First Trust filed with the Securities and Exchange Commission to launch an actively managed exchange-traded fund that would offer indirect exposure to commodity futures. The First Trust Global Tactical Commodity Strategy Fund would invest in a Cayman Islands-domiciled entity holding commodity futures, avoiding direct ownership by the ETF's shareholders. IndexUniverse.com (14 Nov.)
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Ethics
Wal-Mart widens bribery investigation
Wal-Mart Stores has expanded a review of possible bribery by executives beyond Mexico, examining potential violations of the Foreign Corrupt Practices Act in Brazil, China and India. The company says improper action might have occurred elsewhere as well. Forbes (15 Nov.)
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