A U.S. House of Representatives panel approved a bill on Thursday to create a Consumer Financial Protection Agency to oversee mortgages and other financial products while strengthening the pro-consumer Federal Trade Commission.
The House Energy and Commerce Committee voted 33 to 19 to create the new consumer agency. The House Financial Services Committee passed a similar measure last week, with expectation of a full House vote next month.
Lawmakers on the House Energy and Commerce Committee voted to make two major changes to the agency. First, it changed its structure to a five-member commission, with a limit of three commissioners from any particular political party. This would give the new agency the same structure as the Federal Trade Commission or Federal Communications Commission.
Rep. Barney Frank reacted immediately to this move. “Going from a single executive able to act promptly and efficiently to a five-member commission with staggered terms will weaken the capacity of the agency to provide consumer protection,” he said in a statement.
In committee debate on Thursday, Rep. Joe Barton, who opposes the bill, said the creation of a new agency was nothing more than “shuffling the deck chairs” and would do little or nothing to stop criminals whose goal is to perpetrate fraud.
Rep. John Dingell praised the bill as “a powerful and necessary tool” to protect consumers.
Lawmakers have said an independent agency needed to be created because bank regulators have done a poor job protecting consumers from risky financial products, such as the subprime loans that were a major factor in the financial crisis.
The House bill does not go as far as the administration’s original proposal because it exempts many businesses, either in full or in part, including auto dealers, credit, mortgage and title insurers, banks with less than $10 billion in assets, and credit unions with less than $1 low fee payday advance.5 billion in assets.
Rep. Henry Waxman noted these exceptions in his opening remarks, saying, “I am concerned that too many exemptions and exclusions were put into the bill.”
Waxman said he would not seek to change those exceptions at the markup, but added: “I will want to examine them closely as we move toward consideration on the floor.”
Frank, chairman of the House Financial Services committee, has also said he will seek modifications to the exemptions during the floor debate, especially the one for auto dealers.
Business groups in particular oppose a portion of the amendment approved on Thursday that would allow the FTC to pursue a possible violation of the law at the same time that the new agency would do so.
The original bill had required the FTC to recommend that the new agency act, but the FTC was not allowed to move unless the CFPA failed to act within 120 days.
“While this (creation of the new agency) has been touted as a consolidation, it’s really about duplication,” said Ryan McKee, senior director for the Chamber of Commerce’s Center for Capital Markets, who noted that both agencies could potentially investigate the same issue.
The bill itself includes a measure to make it easier for the FTC to enact rules, overturning a law passed in the 1970s. Amendments to cut this from the bill were defeated.
Calpers, the nation’s largest public pension fund, does not face “moral hazard” despite state guarantees of pension solvency, the funds chief investment officer said on CNBC on Wednesday, in comments responding to a Reuters report.
“Does the ultimate taxpayer guarantee mean we take excessive risk? No,” California Public Employees’ Retirement System Chief Investment Officer Joseph Dear said, when asked if the prospect of a state bailout if the fund ran low on funds created incentives to take extra risk.
Public policy and financial industry experts and officials in a Reuters special report on Calpers risk management published last week argued that the California pension system’s risk management policies put taxpayers at risk and needed reforming.
“Well, all pension funds for the public sector have the nature of a public taxpayer backup for what we do,” Dear said on CNBC.
Calpers has told government agencies using the fund to manage their pensions that their contribution rates to the system are at risk of rising as a result of the fund’s losses.
Critics note the California state guarantee of Calpers is more clear than the implicit federal promise to save Wall Street banks “too big to fail” savings account payday advance. The Wall Street bank bailouts sparked widespread debates about “moral hazard”, the idea that bailouts only encourage risk taking.
Calpers recently raised its asset allocation to private equity, considered one of the riskiest areas of investment. A rise in the commitment to private equity in June to 14 percent of the fund from 10 percent looked “gigantic”, Dear said, but reflected the reality that the fund’s allocation had already passed its 10 percent target, hitting 13 percent.
“Again, if you have a long horizon and you have a reasonable return target, and you have a globally diversified portfolio, you’ll be able to make, in our case, 7.75 percent return we need,” he said.
Other financial professionals quoted in the report questioned that outlook. Laurence Fink, chief of gargantuan asset manager BlackRock told the Calpers board in July he didn’t think the fund would hit its target 7.75 percent return target. “I think it’s going to be subpar for many years,” he said, suggesting that cuts in benefits be considered.
UBSUNBS.N has appointed Merrill Lynch veteran Robert McCann to head its Americas wealth management unit in a bid to rebuild the franchise which has been battered by a damaging tax row.
The widely expected appointment of the 51-year-old, who held several executive positions in a 26-year career with Merrill Lynch, should help the unit to gain market share and increase profitability in a market worth more than $20 trillion, UBS said in a statement.
“Under Bob’s leadership, I believe that the business will now consolidate its position as the firm of choice for those clients seeking a fully integrated offering of diverse products and tailored advisory services,” said Oswald Gruebel, Chief Executive of UBS Group.
UBS Wealth Management Americas saw net new money outflows of 5.8 billion Swiss francs ($5.77 billion) in the second quarter, compared with the first-quarter’s net new money inflows of 16.2 billion francs.
The bank has been hurt by a tax row with the U.S. government, which was settled in August. It has also been hit by executive departures, bad bets on auction rate securities and write-downs, and other regulatory setbacks.
“The appointment of a new man at the top won’t change the fact that the U.S. wealth management unit remains strategically challenged,” Helvea analyst Peter Thorne said.
UBS increased its presence in the United States in 2000 with the $10 billion acquisition of PaineWebber Group. The bank reviewed all its business units in 2008 and considered a sale of the former PaineWebber among various possible business options, but dropped the idea.
McCann will lead nearly 8,000 financial advisors across the U.S., Puerto Rico and Canada, managing 695 billion Swiss francs ($691.5 billion) in invested assets.
($1=1.005 Swiss Franc)
(Reporting by Martin de Sa’Pinto and Katie Reid; Editing by Jon Loades-Carter)
The real estate investment manager who led the California Public Employees’ Retirement System, the nation’s largest pension fund, into a money-losing land venture has resigned as an adviser to the fund, according to news reports.
Victor MacFarlane, chairman and chief executive of MacFarlane Partners, “has terminated” his relationship with the $200 billion pension fund, the Wall Street Journal reported on Saturday.
A spokeswoman for MacFarlane said his resignation was voluntary and that he would continue advising Calpers through the end of the year, the Journal reported.
MacFarlane’s resignation was first reported by Reit Zone Publications.
Representatives for MacFarlane Partners and Calpers could not be reached to confirm the reports on Saturday afternoon.
MacFarlane Partners Inc is a real estate investment management firm in San Francisco that manages $10 billion in assets for some of the world’s largest pension plans and institutions, according to its website.
The firm came under fire for a $970 million investment it managed for Calpers into LandSource Communities Development, the Journal said.
LandSource filed for bankruptcy in 2008, about 18 months after Calpers had bought into the 15,000-acre (6100-hectare) tract outside Los Angeles, Calpers said in a 2008 press release.
Calpers had invested in the development through its investment partner, MW Housing Partners, which was jointly managed by MacFarlane Housing and Weyerhaeuser Realty Investors, the release said.
MW Housing held a 68 percent interest in LandSource, whose holdings were hit hard by the California real estate bust, it said.
The separation comes as Calpers examines its relationships with private equity firm Apollo Global Management and other outside money managers.
Calpers said earlier this month that its probe centers on around $50 million in payments that outside managers made over a five-year period to ARVCO Financial Ventures LLC, a firm headed by former Calpers board member Al Villalobos, to win the pension fund’s business.
German business confidence rose to a 13-month high in October, improving the outlook for growth in Europe’s largest economy.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, rose to 91.9 from 91.3 in September. That’s the highest reading since September last year. Economists expected a gain to 92, according to the median of 40 forecasts in a Bloomberg News survey. The index reached a 26-year low of 82.2 in March.
The government, which is spending 85 billion euros ($127 billion) to haul Germany out of its worst recession since World War II, last week raised its economic forecasts, predicting growth of 1.2 percent in 2010 after a contraction of 5 percent this year. A separate report today showed the country’s manufacturing industries expanded in October for the first time in 15 months. Rising unemployment, the euro’s increase against the dollar and the expiry of stimulus measures may temper the recovery next year.
“We’re still bathing in the sunshine of the fiscal support, so the second half of this year looks good,” said Jens Oliver Niklasch, an economist at Landesbank Baden-Wuerttemberg in Stuttgart. “However, the recovery will likely lack vitality.”
Volkswagen AG, Europe’s biggest carmaker, predicts the worldwide automotive market won’t match pre-recession levels until 2013 at the earliest. “There are growing signs that the worst of the crisis may now be behind us, but it will take time for the markets to recover,” Chief Executive Officer Martin Winterkorn said on Oct. 8.
Fiscal Stimulus
In addition to the emergency stimulus measures, Chancellor Angela Merkel’s Christian Democrats are prepared to cut taxes by 20 billion euros after they form a coalition government with the Liberal Democrats, negotiator Steffen Kampeter said on Oct. 16.
“The economy still is on a drip but will return to sustainable growth next year,” said Carsten Brzeski, an economist at ING Groep NV in Brussels, who expects overall output to expand by 2 percent in 2010. “We haven’t seen the election effect so far and the support measures taken are also designed to spur private investment.”
Germany’s manufacturing sector returned to growth in October after 14 months of contraction, a survey of purchasing managers by Markit Economics showed today. Service industries expanded for a third month, the PMI report showed.
Mixed Picture
The picture remains mixed. While German factory orders rose for a sixth month in August and industrial output gained, exports unexpectedly fell. Investor confidence declined for the first time in three months in October amid concerns the recovery could falter.
The euro has appreciated 20 percent against the dollar since mid-February and reached a 14-month high of $1.50 this week, eroding export returns. Rising joblessness may also discourage household spending.
The European Central Bank has cut its benchmark interest rate to a record low of 1 percent and is lending banks as much money as they want for up to a year in an effort to get credit flowing through the economy of the 16 nations sharing the euro. President Jean-Claude Trichet has repeatedly said that it’s too early to withdraw monetary policy stimulus.
Tough talk from the Bank of Canada briefly pulled the rug from under Canada’s rebounding currency this week, but strong commodity prices and a weak U.S. dollar mean the rant likely won’t have a lasting impact.
Last week, the Canadian dollar nearly climbed above the U.S. dollar for the first time since July 2008, something the central bank fears would endanger the economic recovery, given Canada’s reliance on exports to the United States.
Clearly anxious to contain the currency’s surge off a four-year low hit in March, the Bank of Canada on Tuesday renewed its commitment to keeping interest rates low and forecast delays in the economic turnaround.
The statement extinguished any talk that the Bank of Canada would follow Australia’s central bank in hiking interest rates quickly, and Canada’s currency fell 3.6 percent from the 14-month high it hit last week.
But the currency nudged its way higher on Wednesday, and seems set to resume its march toward parity with the greenback once the sting of the central bank statement wears off.
“This is a short-term trend reversal but it’s really not a game changer,” said Jack Spitz, managing director of foreign exchange at National Bank Financial in Toronto.
“The reaction to the statement, not surprisingly, was to bid dollar/Canada higher, but the sustainability is going to be based on ongoing fundamentals which continue to advocate for a stronger Canadian dollar over time.”
Spitz said this week’s pullback in the Canadian dollar was driven mainly by speculative accounts, which he described as sensitive to short-term volatility driven by news like the Bank of Canada statement payday loans with low fees.
The Canadian dollar has risen 17.5 percent this year, helped by lofty prices for oil and gold, economic data that hinted at a rebound, and surging equity markets.
When those factors reclaim the spotlight, many experts say the currency could climb again as investors sell the greenback and buy assets that are more closely correlated with economic recovery.
“Can we trade down to parity? Yes, we absolutely can. Are we going to stay there? I don’t think so,” said Steve Butler, director of foreign exchange trading at Scotia Capital.
“We had an upside day last Thursday which technically says we are overdue for a correction, but I just don’t think (the C$ upside) is over yet because I don’t think the pressure is off the U.S. dollar right now.”
Some experts even suggest the Canadian dollar could keep rallying until the U.S. Federal Reserve starts raising interest rates again, which it is not expected to do until the second half of 2010.
C$ NEAR UPSIDE LIMITS
But foreign investors may also opt to sell Canadian dollars and buy higher yielding growth sensitive currencies, a move that could boost to the Australian dollar and Norwegian crown and limit the upside for the Canadian currency.
Switzerland’s Adecco, the world’s largest staffing company, said on Tuesday it would acquire U.S. rival MPS Group Inc for $1.3 billion in a cash transaction.
Adecco will pay $13.80 per MPS share, a premium of 24 percent to the Florida-based company’s closing price on Monday.
The Swiss company said the deal would enhance its position in the professional staffing business in North America and Britain and add to adjusted earnings in the first year.
MPS said in a separate statement its board unanimously approved the deal.
Shares of MPS closed at $11.14 Monday on the New York Stock Exchange, while Adecco’s shares closed at 54.60 sfr on Monday.
(Reporting by Ajay Kamalakaran in Bangalore; Editing by Jon Loades-Carter)
General Motors Co’s bid to find an outsider to replace its chief financial officer is being complicated by pay restrictions imposed on companies that got big U.S. government bailouts, The Wall Street Journal said on Saturday.
GM executives met recently with U.S. Treasury pay czar Kenneth Feinberg and left with the understanding the automaker would be able to offer a significant amount of stock but no more than a $1 million annual salary, the newspaper said, citing people familiar with the matter.
Sources have told Reuters that GM directors in September backed a plan for CFO Ray Young to leave the company.
GM emerged from bankruptcy in July after receiving $50 billion in emergency U.S. financing.
A spokesman for GM would not comment on whether the CFO search specifically was being hindered by the pay restrictions.
“We’ve consistently said that one challenge to filling any position from outside might be the pay restrictions,” GM spokesman Tom Wilkinson said.
(Reporting by Brad Dorfman; Editing by Peter Cooney)
Small companies create more than half of America’s jobs, but the entrepreneurs who drive this part of the economy continue to complain that access to credit two years into the recession remains scarce.
Small business owners say banks remain extremely wary of risk and a world away from the carefree lending that inflated an epic boom in housing values that went bust and pushed America into its worst economic downturn in decades.
They say their home equity lines of credit have been cut, business credit lines withdrawn and credit card limits slashed. Still profitable firms complain of a major pullback by banks, which many warn will leave a U.S. economic recovery stillborn.
“It’s like we’ve gone back 15 years in time,” said Carmine Ryan, who founded Ryan Bros Coffee in San Diego with his brothers Tom and Harry in the early 1990s, using credit cards.
“We have a proven track record, we pay our bills early and we’re profitable,” he said. “But banks are so gun-shy now that no one would touch us. They’re just sitting on the money.”
The Ryans developed a wholesale coffee business and opened a second coffee shop earlier this year. After they opened it, they sought a loan of $120,000 to finance operations. Nonprofit lender CDC Small Business Finance was able to arrange a $90,000 loan. The rest they had to come up with themselves.
“This is not the way it should be right now,” Harry Ryan said banks issue payday loans. “Banks should be lending to people like us.”
A few miles away, Yi Ping Lai runs an online business, Heart to Heart Gifts, which sells toys and decorations ranging in price from $6 to $100 for girls up to six years of age.
Last year, her sales passed $1 million. With the downturn, her revenue will end up about 50 percent lower this year. But she will still turn a profit, she says.
In August, she got a letter from her bank canceling her $55,000 business line of credit. She said the bank cited routine credit checks that had reduced her credit score.
“All of those credit checks were for legitimate personal reasons,” Yi said. “For instance, I move apartment and my landlord ran a credit check on me. I tried to explain that to the bank. But they said I was now a risky option for them.”
The bank later restored $20,000 in credit. But Yi said she is being hampered in developing a new product line.
“I need that cash flow for my business,” she said.
Susan Lamping, a senior community loan officer at the nonprofit CDC in San Diego, helped Yi obtain $35,000 in credit.
“Financing is extremely hard to come by and many businesses can’t get help through the banks,” she said.
Financier Allen Stanford and other executives who face charges related to an alleged $7 billion fraud may file claims for defense funds under a directors’ and officers’ insurance policy, a federal judge said on Friday.
Stanford has had his assets frozen since civil charges were filed against him in February. He said he has no money to pay his lawyers, and is currently represented by court-appointed lawyers.
A number of former Stanford executives, including former Chief Investment Officer Laura Pendergest-Holt, have filed claims against a policy issued by Lloyd’s of London.
Lloyd’s initially agreed to reimburse some legal expenses for Pendergest-Holt, but Ralph Janvey, the receiver in the case, argued proceeds are assets of the Stanford estate and should be set aside for investors.
Janvey had threatened to hold Lloyd’s in contempt of court if they made payments to the executives, court records show.
“Today the court holds only that its prior orders do not bar Lloyd’s from disbursing policy proceeds to fund directors’ and officers’ defense costs in accordance with the D&O polices’ terms and conditions,” U.S. District Judge David Godbey said in a nine-page order.
Jeffrey Tillotson, a lawyer for Pendergest-Holt, said he was very pleased with Godbey’s decision overnight pay day loans.
“Our client is entitled to a defense and now she will have the resources to pay for one,” Tillotson said, adding that his client, who also had her assets frozen, has been living off “kindness, friends and family.”
Godbey also said he would have authorized payment of the defense fees even if the insurance proceeds were part of the Stanford estate.
A representative for Janvey declined to comment on the ruling.
Still, there is no guarantee of coverage. Lloyd’s said in a September court filing that claims resulting from “money laundering and from dishonest, fraudulent, or criminal acts” are excluded from coverage.
Stanford and Pendergest-Holt have both pleaded not guilty to the charges related to what prosecutors labeled a massive Ponzi scheme tied to the firm’s offshore bank in Antigua.
The case is SEC vs Stanford International Bank Ltd, U.S. District Court for the Southern District of Texas, No. 09-00298.
(Reporting by Anna Driver, editing by Leslie Gevirtz and Matthew Lewis)
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