UBS, RBS Traders Suspended -LIBOR issue..

UBS, RBS Traders Suspended as Rates Probe Goes Beyond Libor

By Liam Vaughan and Sanat Vallikappen - Oct 29, 2012 6:37 AM GMT+0530 UBS AG and Royal Bank of Scotland Group Plc suspended more than three traders in Singapore as regulators investigating Libor-rigging turn their attention to the rates used to set prices on foreign exchange derivatives.

At least two foreign-exchange traders at UBS, Switzerland’s largest bank, have been put on leave as part of an internal probe into the manipulation of non-deliverable forwards, a derivative traders use to speculate on the movement of currencies that are subject to domestic foreign exchange restrictions, according to a person with direct knowledge of the operation. Edinburgh-based RBS also put Ken Choy, a director in its emerging markets foreign exchange trading unit, on leave, a person briefed on the matter said on Oct. 26.Regulators around the world are broadening the scope of their investigations beyond interbank offered rates such as the London interbank offered rate to encompass more benchmarks. The Monetary Authority of Singapore last month announced it was extending its probe into rate-rigging to include NDFs. About $1.02 trillion of the contracts are traded in a year, according to 2003 figures, the most recent available, compiled by the Emerging Markets Traders Association.Spokesmen for UBS and RBS declined to comment. Choy didn’t answer a call to his work phone in Singapore today.Unlike foreign exchange forward contracts, where two parties agree to physically exchange currencies at a set rate at a specific date in the future, NDF traders settle the net position in U.S. dollars. Who pays and how much at the end of the contract is determined by reference to a fixing rate which in some jurisdictions is set, like Libor, by a survey of banks.

Ringgit, Rupiah

Contracts that reference the Malaysian ringgit and the Indonesian rupiah against the dollar are among NDFs that are traded in Singapore. The spot rates for both currencies are fixed by the Association of Banks in Singapore based on data submitted by banks. If traders can move the spot rates, they could boost their profit, said a person familiar with the process who asked not to be identified.The Russian ruble spot rate is set by CME Group Inc., which operates the Chicago Mercantile Exchange. Each day, the company surveys at least 15 lenders at a randomly selected time between noon and 12.30 p.m. in Moscow and asks them for both a bid and offer price on a hypothetical $100,000 ruble-to-dollar transaction.

Changed Methodology

In other jurisdictions, the rate is set by central bankers. The Reserve Bank of India sets the spot rates for dollar-rupee and euro-rupee by polling “a select list of contributing banks” at a “randomly chosen five minute window” between 11.45 a.m. and 12.15 p.m. each day, according to its website. Before it changed the methodology in June 2011, all banks were called at noon each day.Barclays Plc, Britain’s second-biggest lender by assets, was fined a record 290 million pounds ($467 million) in June when it became the first bank to settle with regulators over the rigging of interest rates. Derivatives traders at the bank systematically sought to influence where Libor was set each day to suit their trading positions and boost profits, according to the U.K.’s Financial Services Authority.

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

MOUNTING EURO PROBLEMS...

Spanish unemployment hits new peak

By Mark Thompson @CNNMoney October 26, 2012: 5:48 AM ETLONDON (CNNMoney) -- Spain's unemployment rate hit a record high of 25% in the third quarter, as the jobless total grew to nearly 5.8 million people.

The latest unemployment data reflects the impact of the region's recession, and Spain's government cuts aimed at restoring stability to the country's finances.The national statistics office said unemployment in the July to September period rose 0.4%, compared to the previous quarter; and 3.5% compared to the year prior, as another 85,000 people were left without work.A sharp fall in the number of public sector workers accounted for a large portion of the unemployment rate increase. Almost 50,000 fewer workers were employed in the public sector in the third quarter, representing a fall of 7% year-over-year.Some 1.7 million Spanish households have no adult of working age in employment, a rise of more than 300,000 over the past year. That means around 10% of all Spanish homes are now without a breadwinner.The unemployment figures underscore the impact of Spain's second recession in the last three years. The eurozone's fourth biggest economy had fewer than 2 million people out of work at the end of 2007, when it was riding a boom before the financial crisis hit.Analysts believe Spain's unemployment rate could deteriorate further next year as the economy continues to contract, and more austerity measures begin to bite as Madrid struggles to contain its budget deficit.Prime Minister Mariano Rajoy's government and the International Monetary Fund predict that Spain will remain stuck in recession next year.Data published by the Spanish central bank earlier this week showed the country's economy shrank by 1.7% in the third quarter, compared to a year earlier..........http://money.cnn.com/2012/10/26/news/economy/spain-unemployment-rate/index.html

EURO BANKS --MASKED.. MAY FAIL TO TEST

Sat, Oct 27, 2012 at 11:30

The immeasurable risk European banks may be hiding

There is growing concern among policymakers and analysts that the true extent of European banks' debt problems is being masked. There is growing concern among policymakers and analysts that the true extent of European banks' debt problems is being masked.

Sir Mervyn King, Governor of the Bank of England, became the most high-profile policymaker to date to warn of the dangers of banks putting off foreclosures in a speech Tuesday night.

His stern warning to UK banks that they need to drop the "pretense" that some of their bad debts will be repaid was coupled with the statement that they have "insufficient capital" to deal with losses which have remained undeclared.

Essentially, what seems to have happened is that banks across the euro zone have put off foreclosures on weak businesses - a process known as forbearance. This has been enabled by low interest rates across the region and rescue packages which have injected unprecedented amounts of liquidity into the banking system and helped keep struggling economies afloat.

The scale of forbearance is hinted at in relatively low rates of company insolvencies.

In the UK, despite the recession, insolvency rates are similar to 2002, when the economy grew by 1.6 percent, according to government figures.

Greece's problems have been well flagged - yet just five Greek companies were declared insolvent in 2011, the year it was forced to seek a bailout from international lenders, fewer than in 2007, when its economy was still growing.

This persists across the euro zone, with the weakest economies sometimes experiencing its lowest insolvency rates.

In 2011, the number of insolvencies per 10,000 companies was lowest in Greece, Spain, Italy and Portugal, according to calculations from Creditreform.

However, as Nigel Myer, director of credit strategy at Lloyds, pointed out, the extent of this is "effectively invisible" and "almost impossible to quantify." Decisions are made by individual banks and they do not have to declare them under accountancy rules.

Putting off foreclosure could be dangerous not only because it masks the true state of businesses, but because it could mean a faster rate of insolvencies if banks decide to change their policies in response to a worsening economy, with potential damage to employment figures and the broader economy - and to the banks themselves.

"To the extent that forbearance has taken place, a worsening economic environment in these countries could lead to a faster rate of deterioration in asset quality than might be inferred from reported numbers," Myer warned.

Of course, delaying the repayment of non-performing loans can be positive for the economy, particularly in the short-term.

"It has allowed companies to survive and people to be employed," as Myer pointed out. "It also very likely supports tax receipts and reduces the need for social security support."

Sir Mervyn's warning does not chime with other influential figures in the UK.

Andrew Bailey, a member of the Bank's Financial Policy Committee and head of prudential regulation at UK regulator the Financial Services Authority, thanked the banks for their actions earlier in October.

The European countries least likely to be affected by forbearance following worse-than-expected economic data are Switzerland, Austria and Denmark, according to Myer, who suggested spreads in Swiss banks and the recent rally in Danish spreads should be supported by worries about forbearance.

Written by Catherine Boyle, CNBC. Twitter: @cboylecnbc.

http://www.moneycontrol.com/news/world-news/the-immeasurable-risk-european-banks-may-be-hiding_773101.html

Focus on RELCAPITAL 24, 2012 7:11 PM