Tag: Barclays

American financial markets bear no relationship to reality

By Paul Craig Roberts and Dave Kranzler

As we have demonstrated in previous articles, the bullion banks (primarily JP Morgan, HSBC, ScotiaMocatta, Barclays, UBS, and Deutsche Bank), most likely acting as agents for the Federal Reserve, have been systematically forcing down the price of gold since September 2011. Suppression of the gold price protects the US dollar against the extraordinary explosion in the growth of dollars and dollar-denominated debt.

It is possible to suppress the price of gold despite rising demand, because the price is not determined in the physical market in which gold is actually purchased and carried away. Instead, the price of gold is determined in a speculative futures market in which bets are placed on the direction of the gold price. Practically all of the bets made in the futures market are settled in cash, not in gold. Cash settlement of the contracts serves to remove price determination from the physical market.

Cash settlement makes it possible for enormous amounts of uncovered or “naked” futures contracts — paper gold — to be printed and dumped all at once for sale in the futures market at times when trading is thin. By increasing the supply of paper gold, the enormous sales drive down the futures price, and it is the futures price that determines the price at which physical quantities of bullion can be purchased.

The fact that the price of gold is determined in a paper market, in which there is no limit to the supply of paper contracts that can be created, produces the strange result that the demand for physical bullion is at an all time high, outstripping world production, but the price continues to fall! Asian demand is heavy, especially from China, and silver and gold eagles are flying off the shelves of the US Mint in record quantities. Bullion stocks are being depleted; yet the prices of gold and silver fall day after day.

The only way that this makes sense is that the price of bullion is not determined in a real market, but in a rigged paper market in which there is no limit to the ability to print paper gold.

The Chinese, Russians, and Indians are delighted that the corrupt American authorities make it possible for them to purchase ever larger quantities of gold at ever lower prices. The rigged market is perfectly acceptable to purchasers of bullion, just as it is to US authorities who are committed to protecting the dollar from a rising price of gold.

Nevertheless, an honest person would think that the incompatibility of high demand with constrained supply and falling price would arouse the interest of economists, the financial media, financial authorities, and congressional committees.

Where are the class action suits from gold mining companies against the Federal Reserve, its bullion bank agents, and all who are harming the interest of the mining companies by short-selling gold with uncovered contracts? Rigged markets–especially on the basis of inside information–are illegal and highly unethical. The naked short-selling is causing damage to mining interests. Once the price of gold is driven below $1200 per ounce, many mines become uneconomical. They shut down. Miners are unemployed. Shareholders lose money. How can such an obviously rigged and manipulated price be permitted to continue? The answer is that the US political and financial system is engulfed with corruption and criminality. The Federal Reserve’s policy of rigging bond and gold prices and providing liquidity for stock market speculation has damaged the US economy and tens of millions of US citizens in order to protect four mega-banks from their mistakes and crimes. This private use of public policy is unprecedented in history. Those responsible should be arrested and put on trial and they should simultaneously be sued for damages.

US authorities use the Plunge Protection Team, the Exchange Stabilization Fund, currency swaps, Federal Reserve policy, and purchases of S&P futures to support an artificial exchange value of the dollar and to provide the liquidity needed to support stock and bond prices, with the latter so artificially high that savers receive negative real interest rates on their saving.

The authorities have created a financial system totally out of sync with reality. When the authorities can no longer keep the house of cards standing, the collapse will be extreme.

It is a testament to the complicity of economists, the incompetence of financial media, and the corruption of public authorities and private institutions that this house of cards was constructed. The executives of the handful of mega-banks that caused the problem are the people who are running the US Treasury, the New York Fed, and the US financial regulatory agencies. They are using their control over public policy to protect themselves and their institutions from their own reckless behavior. The price for this protection is being paid by the economy and ordinary Americans – and that price is rising.

The latest orchestrated takedown of the gold price is related to two events (see the graphs below). One is that the Federal Reserve decided to boost the upward spike in the dollar’s exchange rate from the Fed’s announcement of the end of Quantitative Easing (QE). The Fed’s announcement of the end of dollar creation in order to support bond prices lessened the rising anxiety in the world about the US dollar’s value when the supply of new dollars continued to increase faster than the US output of goods and services. The Fed reinforced the boost that its announcement gave to the dollar by having its bullion bank agents drive down the gold price with naked short-selling.

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Naked short selling was also used to offset the effect on the gold price by the Bank of Japan’s surprise announcement on October 31 of a massive new program of QE. Apparently, the Bank of Japan either has been pressured by Washington to inflate Japan’s currency in order to support the dollar’s value or is applying a policy based on the Keynesian Phillips Curve that 2-3% inflation stimulates economic growth. Japan has been in the economic doldrums for a long time and is now reduced to pre-Reagan “snake oil” prescriptions in a desperate attempt to revive its economy.

Japan’s announcement of infinite money creation should have caused the price of gold to rise. To prevent a rise, at 3:00 AM US Eastern Time, during one of the least active trading periods for gold futures, the electronic futures market (Globex) was hit with a sale of 25 tonnes of uncovered Comex paper gold contracts, which dropped the gold price $20 dollars. No legitimate seller would destroy his own capital by selling a position in this way.

The gold price stabilized and moved higher, but at 8 AM US Eastern Time, and 20 minutes prior to the opening of the New York futures market (Comex), another 38 tonnes of uncovered paper gold futures were sold. The only possible purpose of such a sale is to drive down the price of gold. Again, no legitimate investor would unload a huge amount of his holdings in this way, thereby wiping out his own wealth.

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Allegedly, the United States is the home of scientific economics with the predominance of winners of the Nobel Prize in economics. Despite these high qualifications, the price of gold, silver, equities, and bonds that are set in the US bear no relationship to economic reality, and American economists do not notice.

The divergence of markets from economic reality disturbs neither public policymakers nor economists, who promote the interests of the government and its allied interest groups. The result is an economy that is a house of cards.

For additional reading see: http://investmentresearchdynamics.com/the-system-is-terminally-broken/

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts’ latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West and How America Was Lost.

Barclays Africa shows profits rising

BARCLAYS on Thursday reported its African banking operations showed good profit growth during the third quarter. If sustained, the bank could show earnings slightly above full-year consensus when it reports results for the 2014 financial year.

The UK parent group said Barclays Africa Group showed improvement in bad debts in the South African home loan book and good loan growth in corporate and investment banking.

Barclays said the Africa banking operations grew profits 11% — which was marginally better than the I-Net Bridge consensus of 10.6% — on constant currency basis in the nine months ended last month. The firm reported a profit before tax of £756m for the Africa banking operations.

“Consensus for the full year is 11%. It’s a little bit ahead … There is obviously some corporate lending. I think that’s for infrastructure in the rest of Africa,” PSG Wealth portfolio manager Adrian Cloete said on Thursday.

Out of all the business divisions at Barclays Africa Group, which include retail and business banking, wealth, investment, management and insurance, the corporate banking division had the fastest growth in earnings in the first half of this year and seems it continues to steam ahead.

Barclays Africa Group has indicated it is investing in the corporate and investment banking division and deploying its capability in the rest of Africa.

In the third-quarter update on Thursday Barclays said there were more improvements in the South African mortgage portfolio. The South African operations of Barclays Africa Group have been working on improving the state of its mortgage book.

In the 2012 financial year the operations of Barclays Africa Group in SA reported a decline in earnings hit by bad debts on its mortgage portfolio. In 2011 the bank had underestimated the bad debts on home loans as it lowered its cover for bad debts to 17.1% from 19.1% in 2010. After this misjudgment it upped the nonperforming loans coverage ratio to 28.5% in the 2012 financial year.

With the improvements on the mortgage book, this has been lowered to 26.9% in the first half of the 2014 financial year.

“I think they really cleaned up the book (home loan) and they are taking a lot of action. It seems it’s much better provided for and being managed much better,” Mr Cloete said.

In the third-quarter update Barclays Africa Group said its return on equity had improved in the third quarter compared to 16.1% in the first half, a sign that earnings were growing. Barclays Africa group hopes to grow its return on equity to 18%-20% next year.

Barclays Africa Group shares finished flat at R171 at the end of trade on the JSE on Thursday. The JSE all share index ended down 1% Thursday.

For the year to date, Barclays Africa Group’s shares have so far been the best performer among major banks in SA with the stock rising about 29.3%.

Source: Business Day

Russell Brand calls for Israel boycott

Russel Brand has gone one step further in his condemnation of the Israel-Gaza conflict than simply critiquing the way various media outlets have approached coverage.

Now, the comedian is urging banks, pension funds and other big businesses to sever investment ties with Israel, or any deals that he feels “facilitate the oppression of people in Gaza”.

Using Barclays as an example, he said the bank manages “the portfolios of an Israeli defence company called Elbit, which makes the drones that bomb Gaza.”

“The message they give us is the exact opposite of the reality, they’re acting like they’re part of our community,” he said during his new episode of The Trews, which you can watch below.

“But if we’re aware of the reality of what they do, then we have the power to influence them.”

He went on to encourage his viewers to sign a petition on the Avaaz campaign website, to put pressure on companies such as Barclays, computer company HP, security giants G4S, pension fund ABP and heavy machinery Caterpillar brand to rethink their investments.

So far, it has amassed almost 1.7million signatures of support.

“In the wake of the terrible violence unfolding in Israel-Palestine, we, citizens from around the world, are deeply concerned about your companies’ continued investment in companies and projects that finance illegal settlements and the oppressive occupation of the Palestinian people,” the mission statement on the petition reads.

“17 EU countries recently issued warnings to their citizens against doing business or investing in illegal Israeli settlements. Given those legal considerations, you now have the opportunity to withdraw investments and respect international law. This is a chance to be on the right side of history.”

Some of the firms listed in the petition had previously spoken of their decision to maintain financial ties in Israel.

HP claimed that “respecting human rights is a core value” of their business and said that they used Israeli checkpoints to allow people to “get to their place of work or to carry out their business in a faster and safer way”.

Meanwhile, Caterpillar said that while it “shares the world’s concern over unrest in the Middle East”, it doesn’t believe it has “neither the legal right nor the means to police individual use of its equipment”.

Brand’s comments come after the business secretary Vince Cable threatened to halt 12 export licences to Israel if the violence in Gaza resumes, including components for combat aircraft, tanks and radar systems.

The British government have, however, exported £42million of military equipment to Israel since 2010.

Source: The Independent

Bank Of England leads drive for deposit confiscation

Talks under the auspices of the global Financial Stability Board (FSB) over the summer are approaching a key stage as officials aim to clinch an agreement on bail-ins and the bailing in of creditors including depositors of banks.

Finance officials are hoping to pave the way for proposals to be tabled at the G20 leaders meeting at the Brisbane summit in November.

The issue is of major consequence to globally systemic lenders such as Citigroup, Barclays and BNP Paribas, as some will have to issue billions of dollars of fresh bonds earmarked to carry losses.

The issue is of major consequence also to depositors who could see their savings confiscated as happened in Cyprus.

The complexity of the topic and differences between countries’ legal regimes and corporate structures are raising questions over how detailed any framework will be.

Bank of England officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed at tackling the problem of “too big to fail” banks according to the Financial Times today.

Japan is one of the countries with problems with bail-in plans amid concerns that they are not easily compatible with the structure of its banking system. Its banks are heavily deposit-funded, and officials are uncomfortable about the idea of bail-ins.

Japanese banks are already vulnerable and bail-ins could hurt consumer sentiment in the already struggling Japanese economy. Concerns in Tokyo are said to be sufficiently profound for it to push its case right up to the summit itself.

China is also sceptical about the notion of private sector bail-ins given its banks are state-owned. “There are some very entrenched positions,” one official told the FT.

Russia is likely to oppose the coming bail-in regime as well as many other large creditor nations.

Mr Carney, who also chairs the FSB, said in March he wanted to “break the back” of the too big to fail issue this year. He said regulators sought by Brisbane to have cracked two major issues – on the loss absorbing capacity that big banks have to hold and on contractual provisions in derivatives contracts.

Bail-ins are coming to banks in the western world with consequences for depositors.

Source: CoreGold

EU fines 8 big banks for rigging rates

jpmorganThe European Commission has slapped record fines of 1.7 billion euro on eight major banks for manipulating lending rates that play a key role in the global economy. The penalties will add to already escalating costs for leading global lenders.

The EU fines marks the latest to be levied on banks and financial institutions for making profits or masking their problems by fraudulently rigging the rates that reflect the cost of lending money to each other.

The banks fined are Citigroup, Deutsche Bank, Royal Bank of Scotland, JPMorgan, Barclays, Societe Generale, UBS and RP Martin, the EC said in a statement.

The borrowing rates involved – the London interbank offered rate (Libor), the Tokyo and the euro area equivalents – are used to set price of trillions of dollars of financial products, ranging from mortgages to derivatives.

“What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other,” said Joaquín Almunia, European Commission Vice-President in charge of competition policy.

“Today’s decision sends a clear message that the Commission is determined to fight and sanction these cartels in the financial sector,” Almunia said in the EC statement. “Healthy competition and transparency are crucial for financial markets to work properly, at the service of the real economy rather than the interests of a few.”

The EC ruling said that the fine for each lender was calculated on the basis of the level of its involvement in the manipulations and how well it was cooperating with the investigation.

The fines from the EU are the first time a US bank has been involved in the rate-rigging scandal, as Citigroup has been fined 70 million pounds.

The record antitrust penalties comes as a reminder of the banks’ past “financial sins,” when global lenders artificially lowered the cost of interbank lending, partially to hide their financial troubles.

The Libor rate is seen as an indicator of a lender’s stability. Put simply, the stronger the bank, the lower the interbank lending rate it has.

Barclays, RBS, UBS, Rabobank and brokerage ICAP have already paid out a total of $3.5 billion in fines to settle the accusations related to Libor rate-rigging, the Financial Times reported. – RT

Zim Stock Exchange falls on Mugabe win

zimbeursThe Zimbabwe Stock Exchange’s top index fell 11 percent on Monday, the first day of trading after the results of disputed elections which enabled Robert Mugabe to extend his 33-year rule.

Several foreign-owned stocks registered steep losses, with South Africa-based clothing chain Edgars and hotel group African Sun losing more than 25 percent.
Amid fears foreign banks could become the next target for Mugabe’s indigenisation efforts, Barclays local listing had fallen by 15 percent on Friday, but the fall was arrested in Monday trading.
“This is indicative of the widespread concern that the election results are not going to inspire the anticipated economic recovery,” said Eric Bloch, an economist based in the second city of Bulawayo.
Zimbabwe’s electoral commission declared Mugabe winner with 61 percent of the vote while his long-time rival Morgan Tsvangirai garnered 34 percent.
Tsvangirai has dismissed the elections as a “farce”.
The elections were to end a shaky power-sharing government formed four years ago by Mugabe and Tsvangirai.

The compromise government was meant to stop a tip into conflict following a bloody presidential run-off election in 2008 and revive the country’s economy but its work was hampered by frequent haggling and charges of rights abuses. – AFP

 

Barclays, ABSA combine banks for ‘One Africa strategy’

Banking institutions Barclays and its subsidiary Absa are discussing combining to operate as one bank in Africa.

“This is expected to involve the combination of Barclays interests in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia and the Indian Ocean with Absa, with Barclays Bank PLC remaining as the majority shareholder of the combined African operation,” the two said in a joint statement on Tuesday.

“The listings of Barclays subsidiaries in Kenya, on the Nairobi Securities Exchange, and in Botswana, on the Botswana Stock Exchange, would be maintained.”

Only Barclays holdings in these listed subsidiaries would be included in the proposed combination.

The proposal would be subject to the approval of the boards of Barclays and Absa, and Absa shareholders and regulatory approvals.

“There can be no certainty that these discussions will lead to a combination,” the two banks said.

“The proposed combination would not be expected to be completed until 2013.”

The proposal, whether or not successful, could have an effect on the price of Absa’s shares.

Maria Ramos, CEO of Absa Group and Barclays Africa said: “This proposed combination… is the next logical step in delivering our ‘One Africa’ strategy, which Barclays PLC announced last year.”

“We have already consolidated the regional offices for Absa Africa and Barclays Africa, as well as introduced a global product strategy for banking across the continent.”

Ramos said she was excited by the opportunities for growth in Africa. – SAPA

Barclays CEO resigns over rate fixing

(Reuters) – Barclays chief executive Bob Diamond suddenly quit on Tuesday over an interest rate-rigging scandal that threatens to drag in a dozen more major lenders but suggested the Bank of England had encouraged his bank to manipulate the figures.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” said Diamond, 60. The terms of his severance were not announced, though Sky News said the bank would ask Diamond to forfeit almost 20 million pounds in bonuses.

Politicians and newspapers have zeroed in on the scandal – which revealed macho e-mails of bankers congratulating each other with offers of champagne for helping to fiddle figures – as an example of a rampant culture of wrongdoing in an industry that stayed afloat with huge taxpayer bailouts.

Barclays (BARC.L) released an internal 2008 memo from Diamond, then head of its investment bank, suggesting that the deputy governor of the Bank of England, Paul Tucker, had given Barclays implicit encouragement to massage the interest figures lower during the peak of the financial crisis in order to present a better picture of the bank’s financial position.

According to the memo, Tucker told Diamond he had received calls from senior government officials. “It did not always need to be the case that we appeared as high as we have recently,” Diamond said he had been told.

The Bank of England declined to comment, but analyst Ian Gordon at Investec said: “Based on first inspection it does seem to suggest that Barclays have received a message from the Bank of England which provided, to put it mildly, significant encouragement.

“So they’re maybe trying to share the blame but with justification. It raises a whole bunch of questions, and they’re very serious and they’re for the Bank of England to answer.”

SUDDEN REVERSAL

Diamond’s resignation was a sudden reversal, hours after the American said it was down to him to clear up the mess at Britain’s third-largest bank, fined nearly half a billion dollars for its part in manipulating the benchmark interest rate used to price everything from derivative instruments to home loans.

There was speculation in banking circles over whether Diamond, one of Europe’s highest paid bankers and once labelled by a Labour minister as the “unacceptable face” of banking, jumped or was pushed.

Prime Minister David Cameron had announced a parliamentary inquiry after calling for Diamond to take responsibility for the scandal, and the Financial Services Authority regulator had also brought pressure to bear on the board.

The government is now considering the introduction of criminal sanctions for serious misconduct in the management of a bank, the finance ministry said on Tuesday.

FSA Chairman Adair Turner said on Tuesday he had had private conversations with Barclays since Friday morning about the need for “cultural change” at the bank.

“We communicated to the board those were the sort of issues they needed to think about, but it was for them to decide whether they could achieve that degree of change … under the current leadership,” he said.

Diamond sent a long letter to staff on Monday making clear his resolve to continue. But he and the board decided he should quit later that day after Cameron and finance minister George Osborne announced the parliamentary inquiry.

“A FIRST STEP”

Diamond’s resignation was “a first step towards that change of culture, that new age of responsibility we need to see”, Osborne told BBC radio.

“The chairman of Barclays phoned me last night to let me know that this was the decision of the board and of Mr Diamond, and I think Mr Diamond made the right decision,” Osborne said.

Diamond will appear before the parliamentary inquiry on Wednesday, where his memo on the attitude of the Bank of England towards the manipulation of the interest rate at the time is likely to take centre stage. His evidence will have legal immunity.

Outgoing chairman Marcus Agius will lead the search for a new CEO, despite having announced his own imminent departure a day earlier. Newly appointed Chief Operating Officer Jerry del Missier, long a Diamond lieutenant, also left.

The reversal was a shock within the 322-year-old bank, which in recent years has boasted an aggressive culture cultivated by Diamond, first as head of investment banking and then as CEO. One Barclays banker, asking not to be identified without permission to speak publicly, said staff were disappointed.

“Everyone here has been bandying around names, but it’s going to be hard to find someone of the same quality as Bob and John (Varley, his predecessor). I guess it would be hard to appoint someone from the investment banking side now.”

Barclays has admitted it submitted falsely low estimates of its borrowing costs to calculate interbank rates from late 2007 to May 2009, a time when Diamond ran investment banking. Large banks’ estimates of the interest rates they pay each other are used to calculate the London Interbank Offered Rate, or Libor, basis for trillions of dollars in contracts around the globe.

By manipulating the figures, banks could give flattering impressions of their financial strength. Barclays says it submitted low figures because it thought rivals were doing the same and higher rates would have made it seem to be in trouble.

The Libor figures submitted by banks are compiled by Thomson Reuters (TRI.TO), parent company of Reuters, on behalf of the British Bankers’ Association.

Opposition Labour Party leader Ed Miliband, who has said he wants to see criminal prosecutions of Barclays bankers, welcomed Diamond’s resignation but said a parliamentary inquiry was not enough and demanded an independent probe led by a judge.

“This is about the culture and practices of the entire banking system, which is why we need an independent, open, judge-led, public inquiry,” he said.

The government said a judge-led inquiry would take too long to be of use shaping new laws to tighten rules. Cameron, elected in 2010, has repeatedly made the point that Miliband’s Labour was in power at the time of the wrongdoing.

NAMES IN THE FRAME

Antony Jenkins, currently chief executive of Barclays retail and business banking, is the most likely internal candidate to replace Diamond, said Oriel Securities analyst Mike Trippitt. However, the firm may choose to look outside for a new leader to turn the page on the scandal.

“Promoting an existing manager might not look like it is doing enough to tackle problems with aspects of the bank’s culture which the LIBOR scandal has exposed,” one top 25 Barclays investor said, asking not to be identified.

Other names in the frame include former JPMorgan (JPM.N) investment banking co-head Bill Winters and Naguib Kheraj, the ex-Barclays finance director and former CEO of JPMorgan Cazenove.

“I struggle to see many worthy candidates to replace him,” said a top 40 investor.

Barclays shares, which rose on the news of the departure of Agius on Monday, were down 1.1 percent late on Tuesday at 166.5 pence, while the European banking stocks index .SX7P was flat. The shares were down more than 15 percent from Thursday’s open.

Barclays was fined $453 million by U.S. and British authorities, the first bank to settle in an investigation that is looking at more than a dozen others, including Citigroup (C.N), UBS and RBS.