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Money Morning Mailbag: Wall Street Expects Money to Arbitrate Financial Reform
Financial regulation overhaul cleared another hurdle last week when the Senate approved its financial reform bill. However, the inclusion of a derivatives trading restriction left Wall Street wondering why its political contributions weren't doing the talking.
The financial industry was surprised when a provision created by Sen. Blanche Lincoln, D-AR, requiring banks to spin off their derivatives trading arms remained in the Senate's proposal. Wall Street lobbyists are now reaching out to the members of the Senate and House conference committee who will reconcile the two bills. The Senate named its committee appointees Tuesday, which included Lincoln.
The Financial Services Roundtable, a lobbying group representing financial companies, has already started meeting with House members who it believes will be involved in the final process and could help cut the provision.
Goldman Director Linked to Insider Trading on Buffett Investment
Galleon Group founder Raj Rajaratnam Rajat may have engaged in insider trading on Goldman Sachs Group Inc. (NYSE: GS) stock by profiting from a tip from Rajat Gupta, a director at Goldman, The Wall Street Journal reported, citing a person it didn't identify.
The new disclosure stems from a government examination into whether Gupta gave inside information to Mr. Rajaratnam about a $5 billion investment Warren Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B) made in the Wall Street bank before it became public knowledge.
In a March 22 court filing, the government revealed more details about the information it alleges Rajaratnam received, alleging that he or "co-conspirators" traded on non-public information, including advance notice about the Buffett investment in Goldman.
Goldman's First-Quarter Profit Doubles to $3.46 Billion, Even as its Fraud Probe Takes on an International Twist
Investment-banking giant Goldman Sachs Group Inc. (NYSE: GS) – the target of a civil fraud case filed by U.S. securities regulators – yesterday reported that its first-quarter earnings nearly doubled, even as the probe against it took on an international twist.
The New York-based Goldman said it earned reported first quarter earnings of $3.46 billion today (Tuesday), or $5.59 a share, an increase of 91% from earnings of $1.66 billion, or $3.39 a share, for the same period a year ago. The earnings report came just days after the U.S. Securities and Exchange Commission filed a civil fraud case against the Wall Street financial heavyweight.
Goldman's earnings beat analysts' average estimates of $4.16 a share. Its investment bank income revenue rose to $12.78 billion, and its fixed-income, currency and commodities trading generated net revenue of $7.39 billion.
How the Goldman Sachs Fraud Case Could Accelerate Wall Street Reform
When the U.S. Securities and Exchange Commission announced Friday that it had filed a fraud action against Goldman Sachs Group Inc. (NYSE: GS), the news hit the financial markets like a carefully targeted bomb.
The Goldman Sachs fraud case, which relates to the investment bank's subprime-mortgage business, caused the financial giant's shares to nosedive 12.8%. The fallout spread to the broader markets, too, causing the Dow Jones Industrial Average to drop 1.1% and the Standard & Poor's 500 Index to skid 1.6%.
That reaction wasn't overblown.
Depending on how rough the SEC wants to play it, the case has the potential to shut down the cartel known as Wall Street. It could even jump-start the kind of sweeping overhaul that legal or regulatory reformists have so far failed to launch.
Guilty Plea by Rio Tinto Execs Shines Light on Complexity of China's Iron Ore Market
When four Rio Tinto PLC (NYSE ADR: RTP) executives stunned observers by pleading guilty to bribery charges in a Shanghai courtroom, it brought to light the unorthodox and complicated nature of doing business in China's iron ore industry.
Unlike corrupt transactions in other resource-rich countries where customers often receive bribes or kickbacks in exchange for arranging lucrative contracts, in China just the opposite is often the case.
The Rio Tinto executives, for instance, were accused of receiving bribes in return for delivering supplies of highly-desirable iron ore – the key commodity in China's burgeoning steel-making industry.
The four executives admitted receiving $13.5 million (92.18 million yuan) between them in bribes, China's state news agency Xinhua reported, citing court documents. They could face up to 20 years in prison.
But the gist of the story revolves around China's chaotic iron-ore trading system.
Lehman Execs Have No One to Blame but Themselves
The U.S. bankruptcy-court examiner investigating the collapse of Lehman Brothers Holdings Inc. issued a stinging report Friday that accused senior executives of freewheeling accounting practices that led to the largest bankruptcy in U.S. history and sparked the worst financial crisis since the Great Depression.
The 2200-page report, authored by Anton Valukas, chairman of the Chicago-based law firm Jenner & Block LLP, also excoriated Wall Street investment banks, including JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc. (NYSE: C) for finally pushing Lehman over the edge by demanding more collateral and changing guarantee agreements, Bloomberg News reported.
But the report says ultimate responsibility for its collapse can be attributed to a wrong-headed business model that rewarded excessive risk and encouraged leverage – problems that were brought to a head by the investment banks and government agencies.
FTC Sues Intel in Antitrust Action as EU Settles With Microsoft
The U.S. Federal Trade Commission sued Intel Corp. (Nasdaq: INTC) yesterday (Wednesday) accusing the world's leading computer chipmaker of illegally using pricing deals and other tactics "to stifle competition and strengthen its monopoly."
The complaint says Intel tried to block "superior" products by rivals and deprived consumers of choice and innovation for 10 years.
"Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly," said Richard A. Feinstein, the FTC's director of competition.
France and Britain Take the Lead on Executive Pay Restrictions
Executive pay has been a delicate issue in the United States where the Obama administration's "Pay Czar," Kenneth Feinberg, has been asked to keep bonuses for top financial managers disciplined without driving off top talent.
However, French President Nicolas Sarkozy and British Prime Minister Gordon Brown have been more blunt about exacting a toll on the financial firms that required taxpayer bailouts.
The United Kingdom on Wednesday announced plans to levy an immediate 50% tax on discretionary bonuses greater than 25,000 pounds, or about $40,000. The U.K. Treasury estimates the tax will affect 20,000 bankers and bring in about 550 million pounds, or about $894,000,000. However, some bankers have suggested the tax would reap about 4 billion pounds, or $6.5 billion, if firms press ahead with large bonus payouts regardless of the tax, the Financial Times reported.
Continued Corruption on Wall Street is Sapping Investor Confidence on Main Street
A couple of days ago, I caught an episode of the American Experience on my local PBS station that covered 1929 stock market crash. The episode in question had premiered in 1990, and featured first-hand accounts – as well as interviews – with historian Robert Sobel and economist John Kenneth Galbraith. It has an interview with Patricia Livermore, daughter-in-law of trading great Jesse L. Livermore and the subject of the annotated version of "Reminiscences of a Stock Operator" that I just completed. (Publication date is Jan. 10).
Be sure to see the PBS show if it plays on your local station.