Record fines for currency market fix

Five of the world’s largest banks are to pay fines totalling $5.7bn (£3.6bn) for charges including manipulating the foreign exchange market.

Four of the banks – JPMorgan, Barclays, Citigroup and RBS – have agreed to plead guilty to US criminal charges.

The fifth, UBS, will plead guilty to rigging benchmark interest rates.

Barclays was fined the most, $2.4bn, as it did not join other banks in November to settle investigations by UK, US and Swiss regulators.

Barclays is also sacking eight employees involved in the scheme.

US Attorney General Loretta Lynch said that “almost every day” for five years from 2007, currency traders used a private electronic chat room to manipulate exchange rates.

Their actions harmed “countless consumers, investors and institutions around the world”, she said.

Separately, the Federal Reserve fined a sixth bank, Bank of America, $205m over foreign exchange-rigging. All the other banks were fined by both the Department of Justice and the Federal Reserve.

Cartel threat

Regulators said that between 2008 and 2012, several traders formed a cartel and used chat rooms to manipulate prices in their favour.

One Barclays trader who was invited to join the cartel was told: “Mess up and sleep with one eye open at night.”

Several strategies were used to manipulate prices and a common scheme was to influence prices around the daily fixing of currency levels.

A daily exchange rate fix is held to help businesses and investors value their multi-currency assets and liabilities.

‘Building ammo’

Until February, this happened every day in the 30 seconds before and after 16:00 in London and the result is known as the 4pm fix, or just the fix.

In a scheme known as “building ammo”, a single trader would amass a large position in a currency and, just before or during the fix, would exit that position.

Other members of the cartel would be aware of the plan and would be able to profit.

“They engaged in a brazen ‘heads I win, tails you lose’ scheme to rip off their clients,” said New York State superintendent of financial services Benjamin Lawsky.

The fines break a number of records. The criminal fines of more than $2.5bn are the largest set of anti-trust fines obtained by the Department of Justice.

The £284m fine imposed on Barclays by Britain’s Financial Conduct Authority was a record by the regulator.

Meanwhile, the $925m fine imposed on Citigroup by the Department of Justice was the biggest penalty for breaking the Sherman Act, which covers competition law.

The guilty pleas from the banks are seen as highly significant as banks have settled previous investigations without an admission of guilt.

The Attorney General warned that further wrongdoing would taken extremely seriously: “The Department of Justice will not hesitate to file criminal charges for financial institutions that reoffend.

“Banks that cannot or will not clean up their act need to understand – it will be enforced.”

Analysis: Kamal Ahmed, BBC business editor

If anyone in the City thought that the latest multi-billion pound fines for the banks meant that they were now out of the regulatory woods, they should think again.

The New York State Department of Financial Services is still investigating Barclays, for example, over other aspects of the foreign exchange market including electronic trading.

Barclays is also being investigated in the UK over its Qatari fund raising during the financial crisis and in America over the operation of its “dark pool” electronic trading business.

Other allegations include manipulating the energy markets in California and the US precious metal market.

For the Royal Bank of Scotland it is not a much rosier picture. The bank is facing a class action from major investors over whether it gave the correct information to the market during the financial crisis and is also facing an investigation into its mortgage business in the US.

Civil legal actions on foreign exchange manipulation are also in the offing for both banks.

It looks like the major global banks are going to face many more “we deeply regret this behaviour” days ahead.

‘Regain trust’

Royal Bank of Scotland will pay fines totalling $669m (£430m) – $395m to the Department of Justice and $274m to the Federal Reserve – to resolve the investigations.

Ross McEwan, chief executive of RBS, said: “The serious misconduct that lies at the heart of today’s announcements has no place in the bank that I am building.

“Pleading guilty for such wrongdoing is another stark reminder of how badly this bank lost its way and how important it is for us to regain trust.”

Antony Jenkins, Barclays chief executive, said: “The misconduct at the core of these investigations is wholly incompatible with Barclays’ purpose and values and we deeply regret that it occurred.

“I share the frustration of shareholders and colleagues that some individuals have once more brought our company and industry into disrepute.”

Shares in Barclays gained 3.4% and RBS rose 1.8%.

The fines are “much lower than expected,” said Chirantan Barua, an analyst at Bernstein Research in London. “No retroactive massive Libor fine for Barclays is a big positive, as is no reopening of the NPA (non-prosecution agreement).

“The fine came in £270m better than we expected for RBS, £850m better in the case of Barclays,” he said.

Source: BBC

Debate Over Currency Cheating Intensifies in Trade Talks

WASHINGTON — Thirty-six years ago, Japan lowered import tariffs on foreign automobiles to zero, ostensibly opening the world’s fourth-largest auto market to full international competition. Yet United States automakers say 93 percent of the cars on Japan’s well-tended roads are still made in Japan by Japanese companies.

Consumers there simply prefer their country’s cars, Japan has said.

Automakers in the United States, however, say something else has long been amiss: the systematic, intentional weakening of the yen by Japanese policy makers, which effectively raised the cost of all kinds of imports, autos included.

With bipartisan momentum building for a currency amendment to the trade bill, President Obama on Tuesday publicly backed a pledge by the leaders of the Senate Finance Committee and Representative Paul D. Ryan of Wisconsin, chairman of the House Ways and Means Committee, to complete a trade policy enforcement bill by next month.

That bill, which passed the Senate last week, contains its own tough currency measure, but Republicans are quietly working to water it down if not remove it altogether. Mr. Obama backed what he called “constructive tools to address unfair currency practices.”

Opponents say the moment for such harsh measures has passed. The last time Japan overtly interfered with its exchange rate was 2011. China’s currency, the renminbi, which was long held down to help the country’s export industries penetrate markets in the United States and elsewhere, has been gaining value against the dollar. And the Obama administration insists its own diplomacy has effectively dealt with the problem.

On Tuesday, citing those gains, Treasury Secretary Jacob J. Lew sent a letter to the bipartisan leadership of the Senate Finance Committee, saying he would recommend that the president veto a trade-promotion authority bill that included a mandated response to currency manipulation.

Yet American politicians, pressed hard by Detroit, say they are not going to give up this chance to finally legislate a solution.

“This is the first time in recent American history that cheating on currency is getting the kind of attention it’s getting now,” said Senator Bob Casey, Democrat of Pennsylvania. “And that’s a good thing.”

The auto market is the No. 1 example of the impact of currency manipulation on American industries. Outside niche auto brands like Lamborghini, no foreign automaker — not Ford, not Mercedes, not BMW, not Hyundai — has a market share in Japan that reflects what it has in the rest of the world, said Stephen E. Biegun, Ford Motor’s vice president for international government affairs.

The Ford Focus has in recent years been the world’s best-selling compact car, with nearly 1.1 million sold in 2013. That year, 800 were sold in Japan.

“Either the Japanese want to pay more and have less choice in the car market, or global manufacturers, when they get to Japan, forget how to make cars,” Mr. Biegun said in a telephone interview on Tuesday. “That strains credulity.”

Currency manipulation extends throughout the Pacific Rim: in Japan, where Tokyo’s central bank has printed more yen to help its slumbering economy grow; in China, where the renminbi has long been fixed to the dollar rather than allowed to fluctuate in response to market forces; and in Malaysia, where the government has intervened to protect the ringgit against currency traders.

The issue has rarely been more relevant to Congress. The Senate is considering extending trade-promotion authority to the president for as long as six years, allowing this administration and the next to negotiate trade deals that could be approved or disapproved by Congress but could not be amended or filibustered.

The most immediate target of that authority is the Trans-Pacific Partnership, a 12-nation accord encompassing 40 percent of the world’s economy, and stretching from Canada and Chile to Japan and Australia.

Critics of currency manipulation see a rare opportunity to elevate currency policy to the level of standard trade issues, like tariff barriers, intellectual property protection and market access.

The Economic Policy Institute, a liberal research group influential with Democrats in Congress, said the United States-Japan trade deficit reached $78.3 billion in 2013, with currency manipulation being “the most important cause.” That gap, it estimates, displaced 896,600 jobs in the United States.

But Obama administration officials and many economists see a more insidious threat to an open global economy.

If the Trans-Pacific Partnership were to forbid government interventions that influence currency prices, they argue, other countries could challenge government actions in Washington, like stimulus laws that use deficit spending to bolster demand, or monetary policies like the Federal Reserve’s printing of money to support faster economic growth. These actions, while not specifically intended to influence currency levels, nonetheless affect the value of the dollar in exchange markets.

“In 2008, Congress, the president and the Federal Reserve took decisive steps to avert a second Great Depression. Many countries, inaccurately, claimed that these polices amounted to so-called currency manipulation,” Mr. Lew wrote on Tuesday. Adopting the proposed currency rule “could put at risk our ability to take steps needed to protect the U.S. economy in the future, and would be counterproductive to our broader efforts to address unfair currency practices,” he said. “These are risks we cannot afford to take.”

Perhaps more seriously, attaching a currency provision to the trade-promotion bill could cause other countries to leave the negotiating table, sacrificing what officials see as far more important moves to open Pacific markets to American goods and services for the singular demand to end currency intervention.

Phillip L. Swagel, a former economist in the George W. Bush White House who now teaches at the University of Maryland, says that countries like China and Malaysia do intervene to distort the value of their currencies. That, in turn, has hurt American workers. But a deal to promote trade, he argues, is simply not the place to push such a delicate economic issue.

“Each country needs to have the ability to run its monetary policy in the way it sees fit,” he said. “It just seems like a strange thing to use a trade agreement to tell other countries how to run their monetary policies.”

To blunt the political push, Mr. Lew is insisting that diplomacy is rendering legislation unnecessary. He told Congress the Chinese renminbi has appreciated nearly 30 percent against the dollar since Beijing began loosening controls in 2010. China’s trade surplus has declined from 10 percent of its economy before Mr. Obama took office to 2 percent last year.

Japan, which has intervened in currency markets 376 times since 1991, has refrained from obvious manipulation since 2011, Treasury officials say.

“In my conversations with our 11 negotiating partners, I point to the strong feeling in our country, the strong feeling in our Congress” over currency issues, Mr. Lew told an economic conference on Tuesday morning, referring to the Pacific trade negotiations. “And it’s the reason we can have a conversation with them about what can we do in the context of T.P.P. on currency,” he said. “So we will continue the conversation on a very hard issue like currency, and I think we will achieve something.”

But such claims have not assuaged concerns in Congress, within export industries, nor among a group of economists particularly worried about the effects of a chronic trade deficit on the American economy.

Automakers point to the Japanese central bank’s efforts to stoke the economy through the printing of yen, which has helped lower the value of the currency against the dollar. And while China is not a party to the trade negotiations, supporters of the measure say it will send a message to Beijing not to use the excuse of a slowing Chinese economy to resume heavy-handed currency intervention in the future.

“I agree with those assessments,” Jared Bernstein, who served from 2009 to 2011 as chief economic adviser to Vice President Joseph R. Biden Jr., said of the Obama administration’s assurances that Asian nations have scaled back their currency interventions in recent years. “But I take no comfort from them for the same reason that I don’t destroy my umbrella on a sunny day.”

Source: The New York Times

Getting big in a fragmented industry

When Echo Global Logistics announced recently that it was purchasing a rival for $420 million, it signaled that the 10-year-old company’s ambition to become a dominant player in the highly fragmented industry was far from satiated. But the company’s larger size also makes it a bigger target.

Chicago-based Echo’s deal for Command Transportation in Skokie, which is expected to be completed soon, has the potential to push the firm’s revenue up by close to 50 percent and will result in a nationwide sales force approaching 1,700 people. Next year, Echo is likely to cross $2 billion in sales, up from $35 million during its initial full year of operations in 2006.

Becoming one of the biggest logistics firms in the U.S.—Echo was the sixth-largest freight brokerage this year, according to trade publication Transport Topics, even before buying Command, which ranked eighth—doesn’t diminish the fight for market share with both sophisticated rivals and smaller players.

“It’s becoming more and more competitive,” says Evan Armstrong, president of Madison, Wis.-based Armstrong & Associates, a logistics consultancy that has conducted research for Echo. He estimates the domestic transportation management market could be worth $63 billion this year, with around 2,000 companies trying for a piece of it.

At the top end, Echo’s rivals include Eden Prairie, Minn.-based C.H. Robinson, which had $13.5 billion in revenue in 2014, and Coyote Logistics, a Chicago-based company that’s the fourth-biggest brokerage in the U.S. and earned nearly $2 billion in revenue last year.

Still, Echo CEO Doug Waggoner doesn’t discount “Billy Bob Brokerage,” shorthand for the little guys swarming the sector. “On any given day, on any given customer asking us to quote on a load, we could beat anybody in the industry or we could lose to anybody in the industry,” Waggoner says. “It’s that fragmented.”

The combination with Command should pay off as a trucker shortage makes freight- brokerage services more valuable. Investors have liked what they’ve seen: Echo’s stock closed at $33.82 on April 23, two days after the acquisition was announced, its highest ever. It closed May 8 at $30.56.

 

“I don’t really feel like there’s any major risk items, but you just worry that momentum’s going to slow or stop or somehow hit a pothole,” Waggoner says. At 56, the California native has been in trucking since 1980, when the industry deregulated but still was an “old school” business dominated by middle-aged men, he recalls.

Like its larger adversaries, Echo, which was founded in part by Chicago tech entrepreneurs Brad Keywell and Eric Lefkofsky, tries to stand out by investing in proprietary technology systems that ease how brokers connect shippers with truckers. In the logistics industry, technology “at the end of the day is going to rule the day,” says Jason Seidl, an analyst at Cowen in New York who follows Echo.

“Our system is highly automated with our clients, which means we’re integrated on the front end for order entry,” says the company’s chief operating officer, David Menzel.

BOOK OF BUSINESS

Echo also fights to hire young, ambitious brokers and keep them around so they build books of business and hone their skills. It’s this workforce that holds the key to improving Echo’s profit margins, which on an operating basis stood at 2.4 percent last year, compared with a 7 percent average among its peers, according to a recent report from Chicago-based research firm Morningstar.

At the company’s headquarters at 600 W. Chicago Ave., brokers chase business in a trading room-like atmosphere. Like other outfits seeking to find young workers and inspire them to stay, the office has the requisite pingpong table, beer on Friday afternoons and a dress style that means the only folks in suits are usually bankers or outside consultants.

Echo is a “relatively young company, and the key to operating margins improving in the future is the degree to which they can grab sales force productivity improvements,” says Matthew Young, an analyst at Morningstar.

Right now, the average tenure at Echo is about 21 months, a number dragged lower by the 20 to 30 people it hires each month, according to Waggoner. But many of those employees are going to stick around because they see opportunities to earn money, develop their careers and win deals, he says.

“In our world it’s about winning more than you lose. It’s about getting smarter and it’s about putting the data to work,” he adds. “It’s getting your people trained up and experienced and more competent. And that’s what we try to do.”

Source: Chicago Business

Elgin Marbles legal action ruled out by Greece

Greece has ruled out taking legal action against the UK to reclaim the Elgin Marbles from the British Museum.

In an unexpected move, Greece’s culture minister said the country would pursue a “diplomatic and political” approach to retrieving the sculptures instead.

In doing so, the country has rejected the advice of barrister Amal Clooney, who had urged Greece to take Britain to the International Criminal Court.

The Marbles were taken from Greece’s Parthenon by Lord Elgin 200 years ago.

Greece insists the Parthenon Sculptures – as they are properly known – were taken illegally and has pursued a high-profile campaign in recent years for their return, latterly with the help of Mrs Clooney.

Mrs Clooney reportedly submitted a 150-page report to the Greek government this week urging it to formally request the repatriation of the marbles and take Britain to the International Criminal Court if it refused.

But Greece’s culture minister Nikos Xydakis told the country’s Mega TV: “One cannot go to court over whatever issue. Besides, in international courts the outcome is uncertain”.

He said he believed attitudes to the future of the Marbles were slowly changing and would favour Greece in a diplomatic approach.

The Marbles

Friezes and pediment figures which decorated the Parthenon temple in Athens, built 447-432 BC

• Many were removed in 1801 by agents of the British diplomat Lord Elgin and in 1816 they were sold to the British Museum
• Most of the surviving sculptures are roughly equally divided between London and Athens
• The new Acropolis Museum opened in Athens in 2009. It is designed to display all of the surviving sculptures, in their original layout

For 30 years, Athens has been locked in a bitter dispute over its demand for the marbles to be returned.

The British Museum recently turned down a proposal by UNESCO, the UN cultural agency, to mediate in the dispute. Mr Xydakis condemned the refusal, accusing Britain of “negativism” and a “lack of respect”.

In December, the museum loaned one of the marbles for the first time to Russia for a display in St Petersburg’s State Hermitage Museum.

The Greek Prime Minister at the time, Antonis Samaras, said the museum’s decision was “an affront” to the Greek people.

Source: BBC

Euro falls on way to worst quarter; dollar best since 2008

(Reuters) – The euro fell to a 10-day low against the dollar on Tuesday, putting it on track for the worst quarter in its 15-year history, as investors renewed bets the U.S. Federal Reserve would raise rates later this year while the European Central Bank moves to boost the euro zone economy.

The euro has fallen 11 percent against the dollar in the first quarter of 2015, driven by the ECB starting a 1.1-trillion-euro bond purchase program in a bid to avert deflation spreading across the euro zone.

The euro has faced added selling pressure as Greece and its lenders have failed to strike a deal on reforms.

“There’s not a lot of resolution with Greece’s situation. That’s keeping the euro from any kind of a short-term rebound,” said Mark McCormick, currency strategist at Credit Agricole in New York.

Meanwhile, the dollar index .DXY, which gauges the greenback against a basket ofcurrencies, has risen 9 percent since January and is poised for the strongest quarter since the third quarter of 2008.

“It’s hard to bet against the U.S. currency right now as the fundamental backdrop augurs for higher U.S. interest rates,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The greenback got a further boost on Tuesday from month-end rebalancing flows and upbeat readings on U.S. consumer confidence and home prices, traders said.

The dollar index was up 0.4 percent at 98.33, just below a 12-year high of 100.39 set earlier in March.

The greenback dipped 0.1 percent against the yen .JPY at 119.93 yen, leaving its gain for the quarter at 0.4 percent.

The euro EUR= was last down 0.8 percent against the dollar at $1.0746 – above the 12-year trough of $1.0456 set on March 16, according to Reuters data.

The single currency was down 0.9 percent at 128.86 yen EURJPY=, bringing its quarter-to-date loss to 11.3 percent.

Analysts said the dollar’s near-term strength would hinge largely on the March payrolls numbers due on Friday ECONUS.

Signs of further improvement in the U.S. jobs market will likely reinforce the view the Fed would end its near zero interest rate policy later this year, propelling the dollar and U.S. yields higher, analysts said.

Source: Reuters

U.S. top court says medical providers can’t sue states over Medicaid funding

(Reuters) – The U.S. Supreme Court on Tuesday ruled in a case from Idaho that private medical providers that deliver residential care services cannot sue a state in try to raise Medicaid reimbursement rates to deal with rising medical costs.

The justices, on a 5-4 vote, ruled in favor of the state of Idaho, which asserted that medical providers have no legal recourse to sue. The ruling is a loss for the healthcare industry, with trade groups and the U.S. Chamber of Commerce backing the providers in the case.

Medicaid is a federal health insurance program for lower-income people that is administered by the states. Idaho’s lawyers said that in order to receive Medicaid funding, they are required only to comply with the Medicaid Act and related regulations.

The case focused on rates for certain residential services.

State officials recommended increases in reimbursement rates in the late 2000s but they were never implemented because the Idaho legislature declined to appropriate funds, according to court papers.

The providers sued the state in 2009, accusing it of maintaining reimbursement rates that were too low and did not keep up with their rising costs for delivering medical care.

Writing on behalf of the majority, Justice Antonin Scalia said that providers have no right to sue the state under what is known as the Supremacy Clause of the U.S. Constitution, which holds that federal law generally trumps state law.

The clause “instructs courts what to do when state and federal law clash, but is silent regarding who may enforce federal laws in court,” Scalia wrote.

Scalia noted that the providers have another option: they can ask the federal government to intervene on their behalf.

In a dissenting opinion, Justice Sonia Sotomayor said the ruling would have “real consequences” because previously when a state set rates too low, it could be held accountable by the providers directly affected.

The federal government’s only real recourse is “through the drastic and often counterproductive measure of withholding the funds that pay for such services,” Sotomayor added.

The medical providers had noted that similar litigation in other states, including Illinois and Oklahoma, has been allowed ever since Medicaid was introduced in 1965.

The 9th U.S. Circuit Court of Appeals ruled in 2013 that the providers could sue.

The high court split along non-ideological lines. Liberal Justice Stephen Breyer joined four conservatives in the majority. Conservative Anthony Kennedy joined the other liberals in dissent.

Source: Reuters

Stocks slide, oil prices jump after Yemen air strikes

(Reuters) – Oil prices jumped 5 percent and stock markets worldwide slumped on Thursday after Saudi Arabia and allies carried out air strikes in Yemen, which fueled worries in the Middle East that energy shipments may be put at risk.

Wall Street steadied in late trading, narrowing losses that had been as much as 1 percent to close just modestly lower with support from economic data and corporate earnings reports.

“The air strikes in Yemen have really created a risk-off mood,” said Rabobank strategist Philip Marey.

Brent oil LCOc1 closed up nearly 5 percent at $59.19 a barrel, but off a session high of $59.78. U.S. crude CLc1 closed up 4.5 percent at $51.43 a barrel after reaching $52.48.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 45 countries, was last off 0.80 percent.

In currency markets, the dollar fell against traditional safe havens the Swiss franc and the yen after warplanes from Saudi Arabia and other Arab countries struck Shi’ite Muslim rebels fighting to oust Yemen’s president.

The dollar later recovered against the franc CHF= and was last up 0.4 percent at 0.9633 francs. Against the yen, the dollar was last at 119.26 yen JPY=, off 0.18 percent.

The dollar was down earlier against the euro EUR=RR but recovered in New York trading on the view that central bank policy was more favorable for the U.S. currency. The euro was last off 0.80 percent at $1.0884.

Iran denounced the attacks as the Saudi military also targeted Iran-backed Houthi rebels besieging the southern Yemen city of Aden. Arab producers ship oil via the narrow Gulf of Aden and the prospect of bigger Middle East conflict sparked fears of a disruption of crude supplies.

A vertiginous slide in oil prices from more than $115 a barrel last June to a low of $45 in January has been a major driver of financial markets and a key factor driving global interest rates down and stock markets up.

The pan-European FTSEurofirst 300 index .FTEU3 closed down 0.8 percent. In Germany, a major industrial economy heavily dependent on oil imports, the DAX index .GDAXI ended off 0.2 percent.

Wall Street’s Dow Jones industrial average .DJI closed off 40.31 points, or 0.23 percent, to 17,678.23, the S&P 500 .SPX lost 4.9 points, or 0.24 percent, to 2,056.15 and the NasdaqComposite .IXIC dropped 13.16 points, or 0.27 percent, to 4,863.36.

Gold rose, climbing 0.75 percent to $1,203.20 an ounce XAU=, supported by the weak dollar and Middle East tensions.

Yields on U.S. Treasuries, often a safe haven for fretful investors, rose as the government held a sale of $29 billion of Treasury notes that met with soft demand. The benchmark 10-year note US10YT=RR was off 25/32 and yielded 2.0069 percent, compared to 1.92 percent on Wednesday.

Source: Reuters