Den Schluss schmeissen

Foreigner German for “banging the close.”

Banging the close was one of two unethical things several currency market traders said they could do to game exchange rates because a handful of large banks controlled half the market, according to a June 2013 article in FAZ.net. Traders at the big banks could input trades before and after a huge trade’s 60-second window and have an effect on the rate, despite the fact that “The benchmark exchange rates are based on actual transactions and not on banks’ estimates like the L.I.B.O.R. reference rate is.” The second thing was to arrange their day’s work around a pending large trade; they would get a poorer exchange rate for the client in order to buy back her sold currency more cheaply than would have been the case.

The June 2013 article also said authorities were investigating benchmark manipulation in crude oil and swap markets.

(Dane   SHLOOSS   shmigh sen.)

Gehaltszulage, Taschengeld, Spesen

“Extra salary,”

“pocket money,”

and the German word that, depending on how loosely your company defines it, may mean money for expenses, room and board, sundries, fees, entertainment. “Ausser Spesen nichts gewesen” (ow! sah   SHPAY zen   nix    geh VEY zen) means a sales trip occurred in which few positive results were achieved apart from enjoying the per diem for expenses.

After the E.U. capped bankers’ bonuses at 1x to 2x annual salary, London banks have started renaming their lagniappes in ways that don’t easily translate into German. Last fall some of the bonus lolly was being paid as “top up” money, and now they’re being called “allowances.”

NYTimes.com said new nomenclature may also include “role-based pay” and “reviewable salary.”

Gray areas are being found, NYTimes.com said, between fixed pay and variable pay. The new bonuses can include giving employees variable pay at fixed, regular time intervals, not having it count toward a pension, resetting it every year like a salary, changing it in response to environmental factors like a bonus.

Renaming bonuses may make it harder to “claw” them back after risk management mistakes, as well as impede efforts to encourage employees to take a longer-term view by e.g. requiring bonuses to be paid out in installments over several years.

(G’HALT soo log en,   TOSH en geld,   SHPAY zen.)

L.I.B.O.R.-Klagen

L.I.B.O.R. lawsuits.

The U.S. company Fannie Mae has filed complaints seeking about half a billion euros in damages from multiple banks around the world for L.I.B.O.R. benchmark interest rate manipulation. Deutsche Bank is one of the defendants.

Update on 01 Nov 2013: ZDF heute journal financial correspondent Frank Bethmann said the many banks found to have participated in L.I.B.O.R. manipulation have been fined about 2.7 billion euros total by the world’s bank oversight authorities alone so far. Now more and more company lawsuits keep “fluttering in,” making them possibly the costlier threat. He said Deutsche Bank had now set aside 4.1 billion euros for legal fees. “But that shirt could prove too short as well, particularly in the U.S.A.”

Update on 06 Nov 2013: FAZ.net reported that insiders told Reuters news agency that before 2014 the E.U. competition commissioner wants to fine six banks a total of 1.5 billion euros for L.I.B.O.R. benchmark manipulation, including Barclays, Royal Bank of Scotland (R.B.S.), the Dutch Rabobank (“genossenschaftlich” bank meaning it started life as a mutual?), and the “broker” I.C.A.P. The Swiss bank U.B.S. will be excused from this fine—said to be the largest bank fine in E.U. history—because they were the first to testify. These six banks admitted this particular wrongdoing and as a result the E.U. said it will reduce those fines by 10%.

This set of fines is for the yen L.I.B.O.R. manipulation subscandal of the L.I.B.O.R. manipulation scandal. Deutsche Bank may be facing additional U.K. and U.S. fines for U.S. dollar L.I.B.O.R. manipulation.

Financial regulators around the world are also investigating more than a dozen banks for Eur.I.B.O.R. benchmark manipulation. On 06 Nov 2013 FAZ.net reported that insiders said the E.U. Commission was negotiating fines to half a dozen banks for that as well, including Deutsche Bank and possibly Royal Bank of Scotland and Société Générale. FAZ.net reported the U.K.’s Financial Times reported each of these six will have to pay up to 800 million euros for that set of fines. And that Bloomberg.com reported the British bank H.B.S.C. had withdrawn from those fine negotiations, giving up the proffered 10% fine rebate for admitting wrongdoing.

German Wikipedia said the Eur.I.B.O.R. is set on the basis of data submitted by 32 European “credit institutions,” minus the top 15% and bottom 15% outliers, to the “information agency” Thomson Reuters. The Eur.I.B.O.R. is then published by Reuters.

English Wikipedia said the Eur.I.B.O.R. was created by combining “domestic” benchmark rates, such as from Paris, Frankfurt and Helsinki, in 1999. It said there is still a separate Euro L.I.B.O.R. set in London, based on data from 16 banks.

(LEE boar CLOG en.)

Goldpreis, Silberpreis

Price of gold, price of silver.

In March 2013 the U.S.A.’s Commodity Futures Trading Commission was looking into, but not formally investigating, possible gold and silver price manipulations in London, the world’s largest gold market. The F.A.Z. mentioned they were especially interested in the “too-intransparent” way the spot price for a troy ounce of gold is set in London twice a day by five banks: Barclays, Deutsche Bank, HSBC Holdings, PLC, Bank of Nova Scotia and Société Générale S.A. The silver price in London is set once per day, at noon, by Bank of Nova Scotia, Deutsche Bank and HSBC. A March 2013 article in Rupert Murdoch’s Wall Street Journal mentioned that the market prices for these metals were important also for the estimated ~$198 million in derivative contracts held by commercial banks in the U.S.A. in September 2012, according to the Office of the Comptroller of the Currency (O.C.C.).

The C.F.T.C. started investigating whether the price of silver had been gamed in 2008 after the silver price fell sharply. No results were ever announced from that investigation, nor was it ever officially closed.

Update on 25 Sep 2013: The C.F.T.C. officially closed its five-year investigation into gaming of silver market prices “without bringing any enforcement actions” reported Bloomberg.com.

Update on 27 Nov 2013: Germany’s BaFin financial regulator announced they would be investigating possible manipulation of gold and silver prices, which Handelsblatt.com said would be called das Goldfixing and das Silberfixing in German. BaFin said that they could not comment on the ongoing investigation but that they were interested in benchmark manipulation in Europe, including benchmarks for the so-called noble metals, currencies and interest rates. Gold and silver prices had been being set by benchmarks controlled by only a handfull of European banks, the Handelsblatt said Wall Street Journal Deutschland said, and alleged that British financial authorities were looking into gold and silver price gaming as well.

Update on 09 May 2014: A wave of U.S. lawsuits is said to be rolling toward the five banks that set the gold price twice each day in London.
The Frankfurter Allgemeine reported on the findings of one analyst, who will be testifying for the plaintiffs, from examining publicly available gold price data from 2010 to 2013. The banks’ twice-daily phone conferences to set the price could take two minutes or two hours, but averaged 15 minutes. During that time, there were bigger fluctuations in the gold price than during the rest of the day when the phone conferences weren’t taking place. The price moved up and down but mostly downward. After the teleconference, the price settled back to where it was before the meeting. During the phone conferences, the banks had access to information their customers did not: the volume of gold being traded, and the prices at which they were trading. That information wasn’t supposed to be shared, but. The U.S. plaintiffs say, look at L.I.B.O.R.

Deutsche Bank is now withdrawing from the five banks, leaving four banks: Barclays, HSBC, Bank of Nova Scotia and Société Générale.

Update on 16 Aug 2014: The price of silver will now be set electronically by auction, in a service offered by the Chicago Mercantile Exchange and Thomson Reuters.

(GOALED prize,   ZILLLL beh prize)

Spotmarkt

Spot market, where financial instruments or commodities are sold for immediate delivery, unlike the futures market where they are sold for delivery at a later date. Wikipedia said a spot market can be an organized market, an exchange or over-the-counter (O.T.C.).

Regarding the spot market price of aluminum: Goldman Sachs was accused of bottlenecking aluminum at Goldman’s Metro International aluminum warehouses outside Detroit, increasing customers’ delivery wait times since purchasing M.I. in 2010 from six weeks to sixteen months by first lowering prices to attract a stockpile (“50,000 tons in 2008” to “~1.5 million currently”) and then, actually, trucking a minimum daily regulatory-defined shipment amount of 3000 tons back and forth among the 27 warehouses. There were also accusations of understaffing, reduced shifts and prioritizing putting aluminum into storage over taking it out. The shuttle-shuffled delays raised a premium added to the price of all aluminum, driving up the spot market price “according to an arcane formula” even for metals bought directly from mines or refineries to bypass these warehouses. While delaying delivery the warehouses also continued charging rent on the stored metal. Perfectly legal according to current international regulations, apparently set by the London Metal Exchange.

The London Metal Exchange might need more disentanglement from the entities it is supposed to regulate. According to the NYTimes.com article, it still receives 1% of the rents collected by the ~700 warehouses it regulates around the world. Until 2012 it was owned by its member regulees, including Goldman Sachs, JP Morgan Chase, Barclays and Citigroup. Many of its metals warehousing regulations were written by a board populated by executives from banks, trading companies and storage companies. In July 2012 the L.M.E. was sold to Hong Kong Exchanges and Clearing, part-owned by the Hong Kong government, for ~$2 billion. A NYTimes.com description of the 2012 sale said it “will allow the Asian company to control the world’s largest futures trading exchange for metals like aluminum, copper and zinc, as emerging market demand for commodities remains strong.” In 2012 Hong Kong Exchanges and Clearing was supposedly hoping to get an exemption from Chinese laws preventing foreign companies from owning these sorts of metals warehouses in China.

The U.S.’s Federal Reserve Board could, said NYTimes.com, quit extending exemptions that allow banks like Goldman Sachs to invest in nonfinancial enterprises. Though the Fed’s stated conditions in allowing banks to diversify into commodities investment were “only if there was no risk to the banking system” and if the deals “could ‘reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices,'” yet many people would say its deregulation achieves the opposite effects, that big “diversified” banks’ risk management still appears to endanger U.S. and world economies and now banks’ having bought up important infrastructure might be presenting them with irresistable temptations such as artificial bottlenecking or even information advantages not all traders always refrain from using.

Update on 25 Jul 2013: The U.S. Senate’s banking committee has criticized that the Federal Reserve is not communicating well with them. However, wrote the F.A.Z., the U.S. Congress could pass its own banking reregulation rules without waiting for the Federal Reserve.

It’s unclear whether shadow trades are involved here, but it’s also unclear why everyone hasn’t gone broke if this is how they’re doing business:

“Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.”

If Goldman is indeed paying aluminum owners, fellow speculators, to rewarrant their metal and leave it in the warehouses piling up rent owed to Goldman, that might indicate some creative profits or at least useful losses are being made.

Aluminum is economically important enough that Chancellor Angela Merkel’s government has been giving aluminum refineries, notoriously high-volume electricity consumers, various electricity rebates that must be paid for by individual consumers or “ratepayers” in their home electricity bills because, Germany’s government said, the preservation of the aluminium supply was that significant for their economy as a whole.

(SHPOTT mocked.)

Außerbörslicher Schattenhandel

“Off-market shadow trading,” which der Spiegel says is also known as over-the-counter trading, done directly between speculators such as bank traders. May exceed trading in the (regulated) markets.

E.U. and U.S.A. regulators agree that they want to regulate O.T.C. trading. An F.A.Z. op-ed discussing recent U.S. Federal Energy Regulatory Commission (F.E.R.C.) fines mentioned that other U.S. financial authorities that could impose fines on international financial companies such as banks include the S.E.C. (Securities and Exchange Commission) and C.F.T.C. (Commodity Futures Trading Commission). It cited a quite-large Financial Times estimate of the size of global O.T.C. trading amounting to well over half a quadrillion dollars.

Regarding shadow-sector speculation in electricity: on 24 Jul 2013 the F.E.R.C.’s fine was upheld to London-based Barclays bank of nearly half a billion dollars to the bank (and $15 million to one manager and $1 million each to three traders) for benchmark manipulation affecting U.S. electricity markets between 2006 and 2008, including taking on-market losses in order to increase the value of off-market O.T.C. bets. Barclays intended to keep fighting the fine, however, and if the bank doesn’t pay it within the 30-day deadline the case could go to a U.S. federal court which could reset the fine. In January 2013 Deutsche Bank negotiated a settlement with the F.E.R.C. for the same electricity market gaming and received a fine of ~$1.5 million. On 24 Jul 2013 JP Morgan Chase was still negotiating with the F.E.R.C. about their fine for manipulating electricity prices in California and the Midwest; originally the settlement was said to be at nearly a billion but Chase succeeded in negotiating it down to less than one billion dollars though so far still more than Barclays’s ~$480 million.

Update on 30 Jul 2013: JP Morgan Chase’s F.E.R.C. fine for allegedly manipulating U.S. electricity markets was negotiated down to $410 million.

Regarding shadow-sector speculation in food commodities: The day before announcing its largest capital collection in its history as a mutual savings bank, on ~28 May 2013 Germany’s fourth-largest bank at the time published an open letter to the consumer advocacy organization Foodwatch.org saying their bank was joining their country’s second-largest bank and several smaller banks in pledging that they will no longer trade in or sell financial products based on agricultural commodities (such as grains). They recommended other banks also cease doing so in order to keep from driving up world food prices, remarking that investors’ demand to participate in food-based funds is low anyway. D.Z. bank said they have been and will continue to work closely with university academics to study and monitor world agricultural economics and the effects of food speculation. They requested government reregulation of both markets and of off-market trading to re-introduce “position limits” on the amount one entity, such as a hedge fund in the shadow financial sector, could wager on food-based financial products. After deregulation in the early 2000’s, “the speculators’ share in international commodity markets increased from 30% to 80%.”

At the time this D.Z. Bank letter was published, E.U. leaders intended to meet in late June 2013 to agree on regulations imposing these food-trading position limits but, said the head of the bank in question, “the financial sector” had already managed to introduce many loopholes into the drafts— “practically neutralizing the limitations on speculators,” said Foodwatch head Thilo Bode.

(Ow! ss ah BƏZZ lichh ah   SHOTTEN hond ell.)

 

Neue Auflagen für inländische und ausländische Banken

“New requirements for domestic and for foreign banks.” A week after the EU passed a new package of bank reforms on 16 Apr 2013 intended to force European banks to operate on a more stable basis, an EU commissioner sent a letter to the USA’s Federal Reserve criticizing the Fed’s intention to impose similar terms not just on US banks within the US but on foreign banks in the US as well.

The key points in the Fed’s proposal would be to require large foreign banks to create North American holding companies for their activities there and to meet the standards US banks must fulfill for capital reserves and liquidity buffers in order to make the banks less vulnerable to failure. The Fed said in addition that the new rules were intended to mitigate risk from foreign banks’ recent tendencies in the USA to bet more strongly in capital markets, on short-term capital. The proposed provisos would apply for “large” foreign banks in the US, defined as having >$50 billion internationally and >$10 billion in the USA. Such as Barclays and the embroiled-in-scandal Deutsche Bank, “both of which have attempted to use modifications under corporate law to avoid stricter constraints in America” and both of which have received large bailouts from US taxpayers despite being foreign, the F.A.Z. pointed out.

This seems like a smart initiative taken by the US government and apparently before other governments such as the EU’s. There are dystopian science fiction novels about future earths in which only domestic banks are regulated and foreign banks go a-raiding abroad until they don’t much resemble banks any more.

(NOY ah   OW! f log en   foor   in LEND ish en   oond   ow! SLEND ish en   BONK en.)

Unternehmensstrafrecht

“Corporate penal code.” Green party member Jürgen Trittin has called for Germany to create laws punishing companies rather than their individual employees who can be shown to have broken the law. Trittin said the USA has such a code and therefore the Deutsche Bank, Germany’s largest bank, will be punished more in the USA than it will in Germany. His is not the first voice or political party to call for a German penal code for companies. Meanwhile, in the USA, people are furious about the slap on the wrist HSBC received in a settlement, not a prosecution, for alleged terror financing and drug money laundering so severe the boxes of cash were too large to fit through tellers’ windows, with ~50,000 accounts alone at one Cayman Islands branch that executed “virtually no oversight.”

An 11 Dec 2012 Spiegel op-ed noted that three major British banks have been required to pay large fines in the USA this year: Barclays, Standard Chartered and now HSBC. “All three of these large banks are based in London. That is no coincidence. Although in the past few years the American justiciary has taken aim at institutions from other countries, such as Credit Suisse, ING and JP Morgan, the British banks play a special role. They are traditionally set up more globally than their competition and have had business ties, sometimes for decades, in countries that are classified as ‘rogue states’ today.” Spiegel’s Carsten Volkery added that HSBC’s stock price has gone up by 14% since the summer, and Standard Chartered’s by 20%.

(OON ter NAY men’s SHTROFF rect.)

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