Barclays Asked to Account for 3.3 Billion in Lehman Bonus Money

The difference between the monies transferred to Barclay's and the amounts actually disbursed may have accounted for almost a third of Barclay's reported pre-tax profits.

One would have to wonder if the Barclay's executives were paid bonuses on such impressive financial results.

Thus do fees and bonus money provide a cornucopia of personal enrichment to the financiers at the expense of the real economy.

Financial Times
Barclays questioned on funds
By Francesco Guerrera, Greg Farrell and Julie MacIntosh in New York
March 5 2009 11:03

Lehman Brothers’ US liquidators have asked Barclays to explain what happened to an estimated $3.3bn earmarked for bonuses and other liabilities that the UK bank received when it acquired part of the bankrupt Wall Street company last year.

The move by Bryan Marsal, who heads the firm managing Lehman’s US liquidation, underlines the tension between the company’s creditors and Barclays, which acquired the North American arms of the investment bank for $1.5bn after it filed for bankruptcy in September.

The decision by Alvarez & Marsal, charged with recovering funds for creditors, to query Barclays’ use of the money could fuel controversy over bonuses paid to Lehman executives who stayed with the UK bank.

In its yearly results last month, Barclays booked a gain of £2.3bn ($3.3bn) on the difference between the fair value of the assets and liabilities acquired from Lehman and the price paid for them. The gain accounted for about a third of Barclays’ pre-tax profits and helped Barclays Capital, its investment banking arm, to record a profit of £1.3bn.

People close to the situation said Mr Marsal wrote to Barclays on February 19 asking it to reconcile the $4.2bn transferred to the UK bank after the takeover – composed of $2bn for compensation and $2.25bn for other purposes – with his firm’s estimate that BarCap has so far spent about $900m.

Mr Marsal’s letter – sent to Rich Ricci, BarCap’s chief operating officer, and Jonathan Hughes, its general counsel – says that, under the takeover deal, Barclays received $2bn from Lehman to pay bonuses and severance to transferring employees, according to people who have seen the document. However, Alvarez & Marsal estimates Barclays had to pay only about $700m in bonuses and severance, these people say.

The liquidators’ analysis of Lehman’s internal documents concluded that the total amount of compensation set aside for the investment bank’s global workforce until the end of August was $1.3bn. But because Barclays bought only Lehman’s North American operations, whose 10,000-plus employees accounted for 55 per cent of the compensation pool, its expenses should have been about $700m.

The agreement between Barclays and Lehman also provided for the transfer of cash and collateral, including $2.25bn to pay for liabilities to be settled after the takeover, according to people who have seen the letter. However, in the document Alvarez & Marsal calculates that Barclays’ payments for these liabilities have been about $200m, and the estimate for the final amount is much lower than expected, these people said.

People close to the situation said Barclays had written to Mr Marsal on February 23 saying BarCap was open to discussing the issues but rejected the suggestion that the original takeover agreement should be amended.

Barclays said on Wednesday: “Alvarez & Marsal’s position is completely without merit, baseless and a serious misunderstanding of the facts. All of these matters were approved by the New York bankruptcy court in September 2008.”

Lehman Brothers Holdings, the bank’s remaining businesses, now managed by Alvarez & Marsal, said it was “not making any allegations but is simply requesting factual information from Barclays as to certain discrepancies”.

The Bank of England Begins Monetization in Earnest

The British Pound is headed to parity with the US dollar. This will add some sting to the economic downturn for the common people of Britian.

Gordon Brown was a key architect in the financial crisis and decline, and it is discouraging to see that he still holds power, in much the same way that it was disappointing to see Larry Summers as Obama's key economic advisor.

Both Britain and the US are experiencing a deficiency in political leadership with regard to the financial crisis. Gordon Brown was expected, but Obama so far has been a crushing disappointment, at least to the public.


Reuters
Bank of England cuts rates, to buy govt bonds to boost economy
By Sumeet Desai and Fiona Shaikh
Thu Mar 5, 2009 9:23am EST

LONDON (Reuters) - The Bank of England cut interest rates by 50 basis points on Thursday to a record low of 0.5 percent, and said it would buy 75 billion pounds of assets to expand the money supply and aid a recession-hit British economy.

Unveiling the asset purchase programme -- the start of "quantitative easing" measures employed when rates get near to their minimum -- the Bank said the likely majority of purchases over the next three months would be of gilts (UK government bonds) at medium and long maturities.

Gilts soared on the announcement, with the June future rallying more than 2.50 full points, while sterling fell against the dollar.

The latest rate reduction means the BoE has now cut interest rates for six months running by a total of 4.5 percentage points as Britain struggles with its first recession since the early 1990s.

The government has given the BoE permission to buy as much as 150 billion pounds' worth of assets with newly-created money. This figure also includes 50 billion pounds set aside in the government's asset purchase facility that hitherto would have been funded by the issue of Treasury bills.

The total of 150 billion pounds was at the top end of what analysts had been expecting.

The Bank said it would monitor the effectiveness of the asset buying programme at its future meetings. Such a policy was pursued by Japan at the start of the decade but is unprecedented in Britain and underlines the severity of the downturn caused by the global credit crisis.

The policy is intended to encourage the banks to lend more freely to households and businesses, and in turn stimulate economic growth.

The latest reduction in interest rates would itself leave a substantial risk of inflation undershooting the two percent target in two-years' time. (In what alternative universe does that follow on? If you lower rates you lower inflation eventually? Perhaps they meant 'overshooting' or perhaps they are just repeating Orwellian memes. - Jesse)

But the BoE added it was also concerned that a low level of interest rates could be counterproductive for some markets.

"It is in line with expectations. The decision to embark on an asset purchase of 75 billion is obviously the right move," said Amit Kara, UK economist at UBS. "We think it is a start and will probably end up double the size, probably over the course of the year."

MGM Mirage May Go Into Default

"MGM Mirage says it may break loan covenants this year unless more people gamble."

Is nothing sacred? LOL

There are a more tha a few brokerages behind them on this default curve as the punters start hitting the wall, and the loose money in the speculating economy continues to flow into the black hole of the money center banks.


AP
MGM Mirage casino company says it may default on debt
By Oskar Garcia, Associated Press Writer
Tuesday March 3, 5:23 pm ET

Casino company MGM Mirage says it may break loan covenants this year unless more people gamble

LAS VEGAS (AP) -- Casino operator MGM Mirage says it believes it will break loan convenants this year unless the economy turns around and more people gamble.

The Las Vegas-based casino operator said in a Securities and Exchange Commission filing on Tuesday that it will delay filing its annual report because it is still assessing its financial position and liquidity needs.

MGM Mirage says that if it breaks its covenants to lenders, it will default on its senior credit facility. The company says it has asked to modify the credit facility but doesn't know yet whether its terms will change.

MGM Mirage says its annual report will likely contain a report from its independent accountants about MGM Mirage's ability to continue as a company.

BAC Credit Rating Cut by S&P Overall and Subsidiaries to "Junk"

S&P has downgraded Bank of America's overall credit rating from A+ to A.

It has also cut the ratings of its subsidiaries to junk.

S&P reaffirms the AAA rating of their debt that is guaranteed by the FDIC.

S&P downgrades Bank of America ratings
Tuesday March 3, 4:44 pm ET

S&P cuts Bank of America ratings, outlook remains to negative, citing earnings pressures

NEW YORK (AP) -- Standard & Poor's on Tuesday downgraded Bank of America Corp. on concerns that earnings pressures for the bank may be greater than originally anticipated.

S&P cut the Charlotte, N.C.-based bank's long-term counterparty credit rating to "A" from "A+," and affirmed the "A-1" short-term rating. The outlook remains "negative," which suggests the possibility of more cuts to come.

"We downgraded BofA one notch because we believe that the economic weakness will persist and that in turn, earnings pressures will be more intense than we anticipated as recently as Dec. 19, 2008, the date of our last downgrade of BofA," Standard & Poor's credit analyst John Bartko said in a statement.

The ratings agency also lowered its ratings on the bank's subsidiaries to "A+/A-1" from "AA-/A-1+," the bank's hybrid rating to "BB-" from "BBB," and the hybrid ratings on the bank subsidiaries to "BB" from "BBB+."

"We lowered the hybrid capital rating by four notches because of our view that the risk that BofA could defer dividend payments has increased," the rating agency said, noting the move reflects heightened concern that the bank's management could decide to exercise its option not to pay dividends.

Bank of America posted a $2.39 billion loss for the three months ended in December, hours after it convinced the federal government it needed a $20 billion lifeline to survive the absorption of Merrill Lynch's hefty losses.

Merrill Lynch posted a loss of $15.31 billion for the period -- underscoring Bank of America's assertion that it needed extra U.S. aid in order to absorb the investment bank's bad mortgage bets.

Bank of America is one of the companies at the center of a storm engulfing the U.S. financial system, and has received $45 billion in emergency funding from the government.

On Monday, Bank of America chief executive Ken Lewis told the Financial Times newspaper that the second part of that aid, a $20 billion chunk to support the bank's hastily arranged purchase of Merrill Lynch & Co. last fall, was a "tactical mistake."

The Problem with the Banking System and the Failure of Economics

This is a discussion of the financial crisis and economics between Nassim Taleb and Daniel Kahneman on January 27 in Munich.

It is an important discussion for anyone looking beyond the surface into our current financial crisis.

There is a use of jargon and technical terms at some points but not overmuch. It is useful if you just listen, and obtain what you can, and do not fret over that for which you are not grounded by education or experience.

If what they say is valid, there are enormous implications for our financial system and economics as a profession.

The economists are sure to hate it, in particular the Americans who are enamored of equations and studies to a fault. There is a new school of Economics that will rise out of this financial crisis, as Keynesianism rose out of the 1930 and monetarism the 1970's.

If I had been there, I would have made a stronger point that people tend to use these equations, these irrelevant maps as it were, as 'excuses' or rationales for doing things which they know are wrong, but wish to do anyway because it is to their short term benefit.

Taleb is directionally correct about his prescription for the banking system and financial instruments. Banks, especially large ones, must be simple, transparent, stable to a fault. Hedge funds and speculation is another matter completely.

There was a wisdom in the limitations imposed by Glass-Steagall. More profound than most realize. And the bankers hated it because it limited their ability to game the system.

And this confirms that Bernanke and Geithner and Summers are taking us in entirely the wrong direction, and are going to make this crisis much worse.

You may wish to start this video about five minutes into this recording since it does not start with the show itself, but people being seated.

Taleb and Kahneman Video Discussion in Munich on January 27

JP Morgan Made $5 Billion in Profit on $88 Trillion in Unregulated Derivatives Speculation

There is no justification for a commercial bank, with regulated depositors' funds insured by the government, should be speculating on a level this great.

One also has to wonder who actually 'lost' in those derivatives bets that JP Morgan made, who the counterparties were. How many losses were taken by AIG, Bear Stearns, and Lehman?

Who is really being bailed out here? Aren't we paying for JP Morgan's "winnings?"

If they speculate and lose, who pays for that? We do.

What is a bank doing gambling in unregulated over-the-counter derivatives involving commodities and financial instruments worth $89 Trillion?

Getting paid by the public whether they win or lose it appears.

When a single player with deep pockets and government guarantees is placing bets in markets on a scale that dwarfs the Gross Domestic Product of United States that is the very definition of moral hazard.

Until the Obama Administration takes strong steps to bring back Glass-Steagall, and put hard limits on the banks there will be no reform and no recovery.

We are 48 days into this Administration. We have see little or no systemic reform. Just a continuation of crony capitalism under Bernanke, Summers and Geithner.


Bloomberg
JPMorgan earns $5 billion derivatives profit
By Ratul Ray Chaudhuri in Bangalore
Tue Mar 3, 2009 2:56am EST

March 3 (Reuters) - JPMorgan Chase & Co generated $5 billion in profit during the worst year in Wall Street history by trading over-the-counter fixed-income derivatives, Bloomberg said, citing two people with knowledge of the results.

The bank, which reported $5.6 billion of total profit in 2008, has not disclosed earnings for its interest-rate swap, municipal bond and foreign exchange derivatives group, the agency said. The unit was among the most profitable at the New York-based company, it added.

The JPMorgan trading desk may have benefited as the collapse of Lehman Brothers Holdings Inc and JPMorgan's takeover of Bear Stearns Cos left companies and hedge funds with fewer trading partners in the private derivatives markets, the agency said.

Among commercial lenders, JP Morgan dominates OTC derivatives trading, the agency said, citing data compiled by the Office of the Comptroller of the Currency.

The bank held $87.7 trillion worth of outstanding OTC contracts as of Sept. 30, more than the next two banks, Bank of America Corp and Citigroup Inc, combined, the agency reported.

JPMorgan could not be immediately reached by Reuters for comment.

SP Monthly Chart and Short Term Indicators

Big Support has been broken and the SP is dropping hard to the nearest support.

Market is becoming short term oversold again.

Non-farm payrolls coming out on Friday could provide a catalyst for a panic leg down. We may get a short covering squeeze before then.

Watch resistance and support on the daily and hourly charts.



Bullish Percent



McClellan Oscillator



Volatility Indicator (VIX)

Net Asset Values and Premiums of Select Gold and Silver Funds and ETFs

The Financial Crisis Was Well Under Way in December 2007

Here is one clear indicator of when the Financial Crisis actually started with a vengance, although its roots go back to the Clinton Administration at least and the repeal, in stages, of Glass-Steagall.


Source: Institutional Research Analyst and the FDIC

The Next Bailout: Pension Funds Imploding

It is in times like these that Pension Fund Managers, and the Other People's Money crowd in general, are showing how they earned their pay, or didn't.

Aren't you glad the Bush Administration did not achieve its objective of putting the Social Security Trust Fund into the stock market?

Although its not clear how much difference that is going to make in the long run.

We are still in the calculated and deliberate 'general looting of the country' phase and the tide has not yet turned. The financiers are still in control.


Chicago Business News
Pension bombs going off
By: Paul Merrion
March 02, 2009

Exploding pension fund shortfalls are blowing billion-dollar holes in the balance sheets of some of the Chicago area's biggest companies, forcing them to make huge contributions to retirement plans at a time when cash flow and credit are already under stress.

Boeing Co.'s shareholder equity is now $1.2 billion in the hole thanks to an $8.4-billion gap between its pension assets and the projected cost of its obligations for 2008. At the end of 2007, Boeing had a $4.7-billion pension surplus. If its investments don't turn around, the Chicago-based aerospace giant will have to quadruple annual contributions to its plan to about $2 billion by 2011.

Stock market losses also pounded pension funds at Abbott Laboratories Inc., Caterpillar Inc. and Exelon Corp., with others sure to emerge as companies file their annual financial reports with the Securities and Exchange Commission in coming weeks.

The pension gaps underscore a growing conundrum. Unfunded pension liabilities have to be subtracted from shareholder equity, weakening balance sheets at a time when it's already tough to borrow money. Barring a reprieve from Congress, companies may be forced to make more layoffs or curb capital investments to divert cash to shore up pensions....

The Chicago companies are symptomatic of nationwide woes. Last year, the 100 largest corporate pension funds in the U.S. saw their net assets decline by 21%, while liabilities increased 1.2%. Applying those averages to any of the region's top funds puts almost all of them into the red by at least $1 billion....

Thoughts for a Sunday Evening in Times of Uncertainty

"God has created me to do Him some definite service; He has committed some work
to me which He has not committed to another. I have my mission. I may never know
it in this life, but I shall be told it in the next.... I am a link in a chain,
a bond of connexion between persons. He has not created me for naught. I shall
do good, I shall do His work; I shall be an angel of peace, a preacher of truth
in my own place, while not intending it, if I do but keep His commandments and
serve Him in my calling.

Therefore I will trust Him. Whatever, wherever
I am, I can never be thrown away. If I am in sickness, my sickness may serve
Him; in perplexity, my perplexity may serve Him; if I am in sorrow, my sorrow
may serve Him. My sickness, or perplexity, or sorrow may be necessary causes of
some great end, which is quite beyond us. He does nothing in vain; He may
prolong my life, He may shorten it; He knows what He is about. He may take away
my friends, He may throw me among strangers, He may make me feel desolate, make
my spirits sink, hide the future from me --still He knows what He is about."

John Henry Newman, Meditations and Devotions