Category: zerohedge

Either the Fed and the OCC are unaware of this thing called “computers” which allows them to find out what a bank’s trading desk somewhere, anywhere in the world has done at any point in the past 30 or so years, or they really felt the need to stretch their legs around London’s Canary Wharf, or they heard very good news about Citi’s seafood buffet at its London HQ, but whatever the reason Reuters reports that “the U.S. Federal Reserve and Office of the Comptroller of the Currency have sent investigators to Citigroup’s London headquarters as part of an international investigation into alleged manipulation of the global currency market, a source familiar with the matter told Reuters on Wednesday.”

More from the source:

[The visit] comes after Citi last week fired its head of European spot foreign exchange trading Rohan Ramchandani, following a prolonged period on leave.

 

The Fed and OCC officials, who have been at Citi’s Canary Wharf office in London this week, are at the preliminary stage of information-gathering and their presence is “independent” of Ramchandani’s sacking, the source said. The Federal Reserve and OCC, which is an independent bureau of the U.S. Treasury, both declined to comment. A spokesman for Citigroup also declined to comment.

 

Last year, Britain’s Financial Conduct Authority began a formal investigation into possible manipulation in the $5.3 trillion-a-day global FX market. The U.S. Justice Department is also engaged in an active investigation of possible manipulation of the market, the world’s largest.

We eagerly look forward to the Fed’s Yelp review of the various food options at Citi’s Canary Wharf office.

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For now unsupported by the usual VIX slam or JPY smash, US equities are spiking higher. The Dow and The S&P 500 remain in the red for the year still but Russell has now surged to new highs and joined Trannies and NASDAQ in the green for 2014.

 

 

But AUDJPY not supporting it for now…

 

Or VIX…

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Yesterday, Deutsche’s Jim Reid was kind enough to put modern capital markets in their most proper context: “in these artificial markets the percentages are skewed towards the bulls for now.” Today, for everyone confused how to navigate the “artificial market”, Reid has the much needed explanation. To wit: “So far this year markets have gone down on good data, gone up on good data, gone down on concerns over weaker data and also gone up on weaker data.“

And now you know everything there is to “know.”

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Yesterday, Deutsche’s Jim Reid was kind enough to put modern capital markets in their most proper context: “in these artificial markets the percentages are skewed towards the bulls for now.” Today, for everyone confused how to navigate the “artificial market”, Reid has the much needed explanation. To wit: “So far this year markets have gone down on good data, gone up on good data, gone down on concerns over weaker data and also gone up on weaker data.“

And now you know everything there is to “know.”

via Zero Hedge http://ift.tt/1aohqJK Tyler Durden

So much for the strict, evil Volcker Rule which was a “victory for regulators” and its requirement that banks dispose of TruPS CDOs. Recall a month, when it was revealed that various regional banks would need to dispose of their TruPS CDO portfolios, we posted “As First Volcker Rule Victim Emerges, Implications Could “Roil The Market“.” Well, the market shall remain unroiled because last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule.

This is what came out of the FDIC last night: “Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule.”

In other words, the first unintended consequences of the Volcker Rule was just neutralized after the ABA and assorted banks screamed against it.

But that’s not all.

As SIFMA announced today, the banks have more demands. To wit from Bloomberg:

“While we welcome the relief provided to certain holders of TruPS CDOs, we believe that regulators must address the larger problem of the inclusion of senior debt securities issued by collateralized loan obligations in the Volcker Rule’s prohibitions,” Securities Industry and Financial Markets Assoc. CEO Kenneth Bentsen says in statement. If not addressed, corporate borrowers may face higher credit costs, banks may endure “unnecessary losses wholly unrelated to the risk of the CLOs themselves, but rather due to the technical language of the final Volcker Rule.” Sifma encourages regulators to issue guidance clarifying that banks may hold CLO debt securities.

So TruPS “fixed”, and now comes the turn of the CLO exclusion. We give “regulators” 2-4 weeks before they fold on this demand as well, and soon on all other unintended Volcker consequences that the banks find cause “unnecessary losses.”

One wonders: just what in the view of ABA or SIFMA are necessary losses?

From the FDIC press release

Agencies Approve Interim Final Rule Authorizing Retention of Interests in and Sponsorship of Collateralized Debt Obligations Backed Primarily by Bank-Issued Trust Preferred Securities

Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule.

Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if the following qualifications are met:

• the TruPS CDO was established, and the interest was issued, before May 19, 2010;
• the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in Qualifying TruPS Collateral; and
• the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date the agencies issued final rules implementing section 619 of the Dodd-Frank Act.

The federal banking agencies on Tuesday also released a non-exclusive list of issuers that meet the requirements of the interim final rule.

The interim final rule defines Qualifying TruPS Collateral as any trust preferred security or subordinated debt instrument that was:

• issued prior to May 19, 2010, by a depository institution holding company that as of the end of any reporting period within 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument had total consolidated assets of less than $15 billion; or
• issued prior to May 19, 2010, by a mutual holding company.

Section 171 of the Dodd-Frank Act provides for the grandfathering of trust preferred securities issued before May 19, 2010, by certain depository institution holding companies with total assets of less than $15 billion as of December 31, 2009, and by mutual holding companies established as of May 19, 2010. The TruPS CDO structure was the vehicle that gave effect to the use of trust preferred securities as a regulatory capital instrument prior to May 19, 2010, and was part of the status quo that Congress preserved with the grandfathering provision of section 171.

The interim final rule also provides clarification that the relief relating to these TruPS CDOs extends to activities of the banking entity as a sponsor or trustee for these securitizations and that banking entities may continue to act as market makers in TruPS CDOs.

The interim final rule was approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, the same agencies that issued final rules to implement section 619. The agencies will accept comment on the interim final rule for 30 days following publication of the interim final rule in the Federal Register.

Attachments:

Interim Final Rule – PDF

via Zero Hedge http://ift.tt/1aohqcG Tyler Durden

So much for the strict, evil Volcker Rule which was a “victory for regulators” and its requirement that banks dispose of TruPS CDOs. Recall a month, when it was revealed that various regional banks would need to dispose of their TruPS CDO portfolios, we posted “As First Volcker Rule Victim Emerges, Implications Could “Roil The Market“.” Well, the market shall remain unroiled because last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule.

This is what came out of the FDIC last night: “Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule.”

In other words, the first unintended consequences of the Volcker Rule was just neutralized after the ABA and assorted banks screamed against it.

But that’s not all.

As SIFMA announced today, the banks have more demands. To wit from Bloomberg:

“While we welcome the relief provided to certain holders of TruPS CDOs, we believe that regulators must address the larger problem of the inclusion of senior debt securities issued by collateralized loan obligations in the Volcker Rule’s prohibitions,” Securities Industry and Financial Markets Assoc. CEO Kenneth Bentsen says in statement. If not addressed, corporate borrowers may face higher credit costs, banks may endure “unnecessary losses wholly unrelated to the risk of the CLOs themselves, but rather due to the technical language of the final Volcker Rule.” Sifma encourages regulators to issue guidance clarifying that banks may hold CLO debt securities.

So TruPS “fixed”, and now comes the turn of the CLO exclusion. We give “regulators” 2-4 weeks before they fold on this demand as well, and soon on all other unintended Volcker consequences that the banks find cause “unnecessary losses.”

One wonders: just what in the view of ABA or SIFMA are necessary losses?

From the FDIC press release

Agencies Approve Interim Final Rule Authorizing Retention of Interests in and Sponsorship of Collateralized Debt Obligations Backed Primarily by Bank-Issued Trust Preferred Securities

Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule.

Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if the following qualifications are met:

• the TruPS CDO was established, and the interest was issued, before May 19, 2010;
• the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in Qualifying TruPS Collateral; and
• the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date the agencies issued final rules implementing section 619 of the Dodd-Frank Act.

The federal banking agencies on Tuesday also released a non-exclusive list of issuers that meet the requirements of the interim final rule.

The interim final rule defines Qualifying TruPS Collateral as any trust preferred security or subordinated debt instrument that was:

• issued prior to May 19, 2010, by a depository institution holding company that as of the end of any reporting period within 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument had total consolidated assets of less than $15 billion; or
• issued prior to May 19, 2010, by a mutual holding company.

Section 171 of the Dodd-Frank Act provides for the grandfathering of trust preferred securities issued before May 19, 2010, by certain depository institution holding companies with total assets of less than $15 billion as of December 31, 2009, and by mutual holding companies established as of May 19, 2010. The TruPS CDO structure was the vehicle that gave effect to the use of trust preferred securities as a regulatory capital instrument prior to May 19, 2010, and was part of the status quo that Congress preserved with the grandfathering provision of section 171.

The interim final rule also provides clarification that the relief relating to these TruPS CDOs extends to activities of the banking entity as a sponsor or trustee for these securitizations and that banking entities may continue to act as market makers in TruPS CDOs.

The interim final rule was approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, the same agencies that issued final rules to implement section 619. The agencies will accept comment on the interim final rule for 30 days following publication of the interim final rule in the Federal Register.

Attachments:

Interim Final Rule – PDF

via Zero Hedge http://ift.tt/1aohqcG Tyler Durden

Following October and November’s disturbing declines in Producer Prices, which many misread as an indication that the Fed will delay tapering for a few months, today’s PPI reversed the recent drop, and posted a 0.4% jump for the headline number in line with expectations, following two months of declines and the highest print since June’s 0.6% sequential increase. And while the Foods PPI dropped by 0.6% in December, Energy prices jumped by 1.6% once again the highest monthly increase since June. But it was the core increase of 0.3%, the highest jump since July 2012 that caught everyone’s attention. So is inflation finally seeping back in the production channel? Not really: as the BLS reported, “Nearly half of the December increase is attributable to prices for tobacco products, which climbed 3.6 percent.” So bad inflationary news for smokers. For everyone else (who eats and drives hedonically) the status quo still remains.

Still at a 1.2% increase in headline PPI, compared to expectations of 1.1%, and November’s 0.7%, this was the first beat in annual producer price inflation expectations since June, and means that this data point will not deter the Fed from tapering more as it has warned it will likely continue to do.

Broken down by components:

The breakdown in finished goods PPI:

Leading the December rise in the finished goods index, prices for finished energy goods increased 1.6 percent. Also contributing to the advance, the index for finished goods less foods and energy moved up 0.3 percent. By contrast, prices for finished consumer foods decreased 0.6 percent.

 

Finished energy: Prices for finished energy goods climbed 1.6 percent in December, the largest advance since a 2.5-percent jump in June 2013. Over half of the rise in December can be traced to a 2.2-percent increase in the gasoline index. Higher prices for diesel fuel and home heating oil also were factors in the advance in the finished energy goods index. (See table 2.)

 

Finished core: The index for finished goods less foods and energy moved up 0.3 percent in December, the largest advance since a 0.5-percent rise in July 2012. Nearly half of the December increase is attributable to prices for tobacco products, which climbed 3.6 percent. Higher motor vehicle prices also contributed to the advance in the finished core index.

 

Finished foods: The index for finished consumer foods fell 0.6 percent in December following no change in November. Leading the decrease, prices for fresh and dry vegetables dropped 13.4 percent.

The real question remains: will Japan continue to export its deflation to the world, and the US, and if so is the recent jump just a one-time fluke?

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After 5 months of missed expectations, Empire Fed manufacturing beat expectations by the most since Feb 2013, spiking to the highest since May 2012. Most sub-indices were positive but it is perhaps worth noting that despite all this exuberance, over 70% of companies expected no improvement in employment and over 80% expected no improvement in the average workweek. While inflation is nowehere to be seen, it is interesting that the Empire Fed’s Prices Paid index spiked this month by the most since March 2012. Hope remains that Capex and Tech Spend will pick up as the outlook index rose by the most in 5 months (though remains historically low).

 

 

Charts: Bloomberg

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As equity markets revert to their new normal BTFATH, Japanese-Yen-pinned reality, we thought a gentle reminder of the longer-term state of the real (not financial) economy would prod more than a few into the realization of just how ‘encouraged’ they should be by the nominal high after nominal high that is gloated over day after day…

 

 

(h/t @Not_Jim_Cramer)

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If yesterday it was JPM’s turn to shock and awe everyone with its adoption of FVA and impress with its non-GAAP revenues, today it is the turn of Bank of America to confuse everyone with its traditionally indecipherable earnings release. So here is the punchline. BAC reported revenues of $21.7 billion which beat expectations of $21.14 billion, although more importantly EPS of $0.29 vs expectations of $0.27. So how did BAC generate the better than expected top and bottom line? Simple – the top line beat was driven by the bank’s return to an aggressive extraction of non-income income from loan-loss reserve releases, which in the current quarter rose to $1.246 billion, up from $900 million a year ago. Considering the Bank had non-GAAP pretax income of $3.8 billion, this amount to just about a third of its earnings.

 

This was driven by the bank charging offsome $1.6 billion offset by just $0.3 billion in provisions.

This is what the bank had to say about its loan loss releases:

The provision for credit losses declined $1.9 billion from the fourth quarter of 2012 to $336 million, driven by improved credit quality. Net charge-offs declined significantly to $1.6 billion in the fourth quarter of 2013 from $3.1 billion in the fourth quarter of 2012, with the net charge-off ratio falling to 0.68 percent in the fourth quarter of 2013 from 1.40 percent in the year-ago quarter. The provision for credit losses in the fourth quarter of 2013 included a $1.2 billion reduction in the allowance for credit losses, compared to a $900 million reduction in the allowance in the fourth quarter of 2012.

Additionally, the company paid only $406 million in reported taxes on pretax income of $3.845 billion, or a 10.6% effective tax rate. How does this compare to the historic average of 25%? Obviously, it’s much lower. But all is fair in sellside analyst love and making up non-GAAP numbers.

And finally, let’s not forget the elephant in the room: litigation reserves: at $2.3 billion this was the biggest one-time item in recent years.

Ok, so BAC would have missed wildly if it hadn’t dug into its bag of usual accounting tricks. But what about the organic business? Well, since banks traditionally make money not as hedge funds but as lenders, here is the bottom line: in Q4, just like with Wells, mortgage origination crumbled by a whopping 49%! This led to a $1.1 billion loss in the CRES group, a drop of $2.6 billion compared to a year ago.

As for how the bank’s trading operation fare this quarter, the answer : flat to down.

Here is what BAC had to say:

Net income of $0.2B

• Excluding DVA and U.K. tax charge, net income of $0.3B declined from both comparative periods as revenue improvement was offset by litigation expense

Excluding DVA, sales and trading revenue of $3.0B increased $483MM, or 19%, from 4Q12 and was consistent with 3Q13

• FICC revenue increased $292MM, or 16%, from 4Q12 and $47MM, or 2%, from 3Q13 as stronger results in credit and mortgage products offset weakness in rates and commodities
• Equities revenue increased $191MM, or 27%, from 4Q12 due to market share gains, higher market volumes and increased client financing balances, but declined 7% from strong 3Q13 results

Bottom line: virtually no change from a year ago.

Also of note. VaR declined from 100 a year ago to just 74.

Finally, as for how the bank sees its future, well: here are the bank’s employees at different points in time. The trend is clear.

Full presentation below:

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