BIG FINANCE

Trading Strategy

2012-08-02T11:46:00.005-07:00

Making trading decisions and developing a sound and effective trading strategy is an important foundation of trading. Before developing a trading strategy, a trader should have a working knowledge of technical analysis as well as knowledge of some of the more popular technical studies.

Sample Strategy 1 - Simple Moving Average

Successful trading is often described as optimizing your risk with respect to your reward, or upside. Any trading strategy should have a disciplined method of limiting risk while making the most out of favorable market moves. We will illustrate one decision making model which uses a Simple Moving Average ("SMA") technical study, based on a 12-period SMA, where each period is 15 minutes. This is one example of a trading decision making strategy, and we encourage any trader to research other strategies as thoroughly as possible.

We will use a simple algorithm: when the price of the currency crosses above the 12-period SMA, it will be taken as a signal to buy at the market. When the currency price crosses below the 12-period SMA, it will be a signal to "Stop and Reverse" ("SAR"). In other words, a long position will be liquidated and a short position will be established, both with market orders. Thus this system will keep the traders "always in" the market - he will always have either a long or short position after the first signal. In the chart below, the white line represents the price of EURUSD, the purple line represents the 12-period SMA of EURUSD, and the red line indicates where EURUSD crosses above the SMA, generating a buy signal at approximately 1.2780:

This is a simple example of technical analysis applied to trading. Many strategies used by professional traders make use of moving averages along with other indicators or "filters". Note that the moving average method has an element of risk control built in: a long position will be stopped out fairly quickly in a falling market because the price will drop below the SMA, generating a stop-and-reverse signal. The same holds true for a sell signal in a rising market. Note that the SMA is generated automatically by GCI's integrated charting application.

Sample Strategy 2 - Support and Resistance Levels

One use of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.

For example, in chart below EURUSD has established a resistance level at approximately 1.3970. In other words, EURUSD has risen up to 1.3970 repeatedly, but has been unable to move beyond that point:

The trading strategy would then be to sell EURUSD the next time it gets close to 1.3970, with a stop placed just above 1.3970, say at 1.3985. This would have indeed been a good trade as EURUSD proceeded to fall sharply, without breaking the 1.3970 resistance. Hence a substantial upside can be achieved while only risking 10 or 15 pips (.0010 or .0015 in EURUSD).

Forex Market Overview

2012-08-02T11:44:00.001-07:00

The global marketplace has changed dramatically over the past several years. New investment strategies are becoming more important in order to minimize risk, as well as to maintain high portfolio returns. Among the most rewarding of the markets opening up to traders is the Foreign Exchange market. Identifiable trading patterns, as well as comparatively low margin requirements, have rewarding trading opportunities for many.

In contrast to the world’s stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world. Average volume in foreign exchange exceeds $1.5 trillion per day versus only $25 billion per day traded on the New York Stock Exchange. This high volume is advantageous from a trading standpoint because transactions can be executed quickly and with low transaction costs (i.e., a small bid/ask spread).

As a result, foreign exchange trading has long been recognized as a superior investment opportunity by major banks, multinational corporations and other institutions. Today, this market is more widely available to the individual trader than ever before.

Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EURUSD. That is, sell Euros and buy US dollars.

Spot Forex versus Currency Futures

Many traders have made the switch from currency futures to spot foreign exchange ("forex") trading. Spot foreign exchange offers better liquidity and generally a lower cost of trading than currency futures. Banks and brokers in spot foreign exchange can quote markets 24 hours a day. Furthermore, the spot foreign exchange market is not burdened by exchange and NFA ("National Futures Association") fees, which are generally passed on to the customer in the form of higher commissions. For these reasons, virtually all professional traders and institutions conduct most of their foreign exchange dealing in the spot forex market, not in currency futures.

The mechanics of trading spot forex are similar to those of currency futures. The most important initial difference is the way in which currency pairs are quoted. Currency futures are always quoted as the currency versus the US dollar. In Spot forex, some currencies are quoted this way, while others are quoted as the US dollar versus the currency. For example, in spot forex, EURUSD is quoted the same way as Euro futures. In other words, if the Euro is strengthening, EURUSD will rise just as Euro futures will rise.

On the other hand, USDCHF is quoted as US dollars with respect to Swiss Francs, the opposite of Swiss Franc futures. So if the Swiss Franc strengthens with respect to the US dollar, USDCHF will fall, while Swiss Franc futures will rise. The rule in spot forex is that the first currency shown is the currency that is being quoted in terms of direction. For example, "EUR" in EURUSD and "USD" in USDCHF is the currency that is being quoted.

The table below illustrates which spot currencies move parallel to the futures contract and which move inversely

Business & Finance Awards

2012-08-02T11:32:00.002-07:00

December 2012 - The Convention Centre Dublin

The Business & Finance Awards have been recognising excellence in Irish business for over 36 years and is the longest running and most coveted business awards programme in Ireland. The awards now form part of the Business & Finance international annual awards programme covering three continents namely; Ireland (since 1974), the United States (New York since 2007) and Asia Pacific (2009 Bangkok & 2010 Hong Kong).

Speaking at the 2010 awards, Business & Finance Publisher, Ian Hyland said:

“Over the past 36 years, these awards have come to reflect the global reach of Irish business leaders and recognise the unique contribution that these individuals and corporations have made to the Irish and international business landscape. Recognition of these achievements is essential and we are again delighted to be celebrating the achievements of these great leaders in their respective fields.”

Each year the Awards are attended by over 600 CEOs and business leaders. They are supported by a select group of corporate patrons which allows for independent status to be maintained and presents the patrons with the opportunity to engage the CEOs of the top 1000 companies and the most influential leaders in our country.

Previous Business & Finance Award winners

Previous recipients of the Business & Finance Business Person of the Year Award for their outstanding achievements include Michael Smurfit, Tony Ryan, Peter Sutherland, Tony O' Reilly, Denis O' Brien, Niall FitzGerald, Neville Isdell Gary McCann and Danuta Gray.

Recognised for the exceptional performance of their management teams, previous winners of the Company of the Year Award include CRH, Intel Ireland, United Drug, Ryanair, Airtricty, Kerry Group, Microsoft and Glanbia.

World class events hosted by the Business & Finance Events Team

2012-08-02T11:29:00.003-07:00

The Business & Finance Events division hosts world-class Award ceremonies which celebrate success in Irish business and Summits which educate and engage in specific industry areas; leading the way in offering a unique experience to all involved and providing unrivalled networking and business generating opportunities.

Business & Finance awards:
Our Awards serve as a focal point in their industries, recognising excellence and best practice and rewarding achievements both in Ireland and abroad. These prestigious events have become an integral part of the annual business calendar, providing not only a high level networking opportunity but also a chance to participate in and celebrate success.
For entrants we offer the potential for recognition from their most senior peers - independent judging panels drawn from recognised industry leaders,
For guests we provide superb gala awards dinners and entertainment,
For sponsors and commercial partners the marketing opportunity of involvement is without equal in this sphere with a wide variety of packages available.

Business & Finance summits:
Our Summits create forums for unparalleled debate and engagement, in bringing together diverse and outstanding groups of experts in their fields, which include financial services, corporate restructuring and life sciences.
For attendees we offer the opportunity to engage with international experts and practitioners and thought leaders,
For speakers and panelists we create speaking slots and panel discussion amongst peers and leading corporations in the industry
For sponsors and commercial partners we create international, large scale summits which facilitate business development opportunities with a targeted, relevant audience.

Business & Finance Events provide unequalled prestigious sponsorship opportunities and a complete marketing solution allowing sponsors and commercial partners to create high quality brand associations and connect with top level decision makers across a range of media.

2012 Programme:
Life Sciences International Summit (February)
Ireland Day (March)
Corporate Restructuring Summit (September)
Business & Finance Asia Pacific Awards (October)
eircom Spider Awards (November)
Business & Finance Awards (December)
eircom Junior Spider Awards (December)

NIB to be rebranded Danske Bank

2012-08-02T11:26:00.002-07:00

National Irish Bank will see its loan portfolio wounded down and its commercial operations rebranded under plans of its parent company Danske Bank.

ccording to a statement accompanying Danske's first quarter interim report, NIB's commercial and investment property loan portfolios will be 'transferred to a new, separate unit of the Danske Bank group that will be responsible for the controlled winding-up of this part of the loan portfolio'.

The NIB group will also use the Danske Bank brand name for all its banking operations by the end of this year.

Overall the Danske Bank Group posted a profit before tax of €213 million for the quarter and a net profit of €0.8 billion. This represents an 11% rise from the first-quarter 2011 and was in line with expectations.

Bloxham ordered by Central Bank to cease activities

2012-08-02T11:25:00.001-07:00

Bloxham stockbrokers have been forced to cease all activities due to financial irregularities at the firm.

As a result Davy Stockbrokers have acquired Bloxham's €700 million asset management business after acquiring Bloxham's private client business in March.

The Central Bank said in a statement that following a definite line of enquiry by the bank, the management of Bloxham informed them of financial irregularities at the firm after the market close last Thursday.

The irregularities relate to the reporting and accounting of the firm’s income which was overstated over a number of years. As a result of this Bloxham no longer held sufficient capital to meeti licensing requirements and Bloxham were directed by the Central Bank to cease all regulated activities with immediate effect at 5pm last Friday.

Bloxham's asset management team will also transfer to Davy as part of the business transition.

We have been highly impressed with Davy's depth of expertise and professionalism when working with them on the transition of our private client business," commenting Pramit Ghose, Managing Partner of Bloxham.

"That relationship has progressed well and when the requirement arose to address our capital requirements, Davy, as a well resourced and market leading regulated entity was the obvious party. We look forward to joining the Davy team and to enhancing the range and depth of services to all of our clients”.

Tony Garry Chief Executive of Davy has assured Bloxham's clients that their services will not be affected by the move to Davy.

“Davy is pleased to acquire two profitable and established businesses from Bloxham. The transition to Davy is a very positive development for Bloxham’s asset management clients who will continue to be serviced by the same award winning team, but as part of a much larger and well capitalised business.

Business coalition now eyes September vote on Russia trade

2012-08-02T11:09:00.000-07:00

A business coalition on Wednesday signaled it has given up hope that Congress would pass critical legislation to upgrade trade ties with Russia before that country enters the World Trade Organization on August 22.

"Congress must pass PNTR (permanent normal trade relations) as soon as possible after returning from recess in September, or else risk putting U.S. businesses, workers and farmers at a long-term disadvantage in this important market," the Coalition for U.S.-Russia Trade said in a statement.

The group includes major business organizations such as the U.S. Chamber of Commerce and the National Association of Manufacturers and dozens of U.S. companies such as Boeing, Ford, General Electric, International Paper, Microsoft and General Motors, which hope to capitalize on Russia's entry into the WTO.

Business leaders have been working for months to persuade Congress to approve the PNTR legislation to ensure U.S. companies share in all the market-opening concessions Russia made to join the world trade body.

It would do that by repealing a mostly symbolic Cold War-era restriction on trade between the two countries known as the Jackson-Vanik amendment, which was passed in 1974 to put pressure on the former Soviet Union to allow Jews to emigrate.

The effort has been burdened by the perception that approving PNTR would be doing a favor for Russia, at a time when many lawmakers are frustrated by Moscow's support for Syria and Iran and question its commitment to democracy, human rights and the rule of law.

But "by denying them PNTR, we're really denying American companies, American workers an opportunity to sell more products in Russia and have the benefit of all the rules that Russia will have to comply with as a member of the WTO," U.S. Under Secretary of State Robert Hormats told reporters on Tuesday.

"At a time when we need to be creating American jobs, denying PNTR costs American jobs," Hormats said.

BOEHNER FAULTS WHITE HOUSE

The White House has called PNTR for Russia its top legislative trade priority this year, but House Speaker John Boehner last week said President Barack Obama had not done enough to whip up Democratic support for the bill.

Representative Kevin Brady, a Texas Republican, told reporters on Wednesday that House Republicans would not schedule action on the measure until two conditions are met: a firm date for Senate action on the bill and a firm indication of how many House Democrats will vote for the bill.

"We're going to need those two things to move PNTR this week. We're going to need them to move it in September, and we're going to need them to move it in a lame duck session," Brady said, referring to different possible time frames for action on the bill.

"Lame duck" refers to the legislative session that takes place after the November election and before new members of Congress are seated in January.

"The sooner we get those two elements solidified, the better," Brady said.

Both the House Ways and Means Committee and the Senate Finance Committee have approved PNTR legislation by wide bipartisan margins.

But union groups, a key Democratic constituency, flooded lawmakers last week with letters opposing the bill.

Brady said it was unclear how many Democrats in the House supported the measure and that Republicans would not be able to pass the bill on their own.

Meanwhile, Democrats accused House Republicans of trying to shift responsibility for inaction on bill.

"Since when does House leadership take orders from Obama? They are putting up strawmen as an excuse for why they're not acting," a Democratic aide said.

NYC public advocate sues city over soaring small business fines

2012-08-02T11:05:00.002-07:00

New York City's public advocate, a Democratic mayoral candidate known for his liberal views, on Thursday sued the city to obtain data to determine if soaring fines are hurting small businesses.

Public Advocate Bill de Blasio said he has been stonewalled since May in his attempts to investigate whether city agencies - from the Departments of Health to Sanitation - have been guilty of "overzealous enforcement," in an apparent effort to boost how much money the city rakes in each year in fines, according to a complaint in Manhattan state court.

Mayor Michael Bloomberg ends his third and final term in 2013 and the race to replace him has already begun. De Blasio's law suit could broaden his appeal to the business community which has been wooed by another Democratic mayoral candidate, Council Speaker Christine Quinn.

"It is a smart political move by the public advocate, who is seen as far to the left, to try to move to the center by defending small businesses," said Hank Sheinkopf, a political consultant.

He said: "This is the Bill de Blasio moment - only he is in a position where he can take on the mayor this way," he said.

Political analysts said Quinn has held closely to Bloomberg's policies, though she has carved out a few specific issues, including her support for a so-called living wage bill, which boosts the wages paid by employers who get city subsidies.

New York City's public advocates probe the performance of city agencies and de Blasio said small businesses have flooded his office with complaints of being hounded for minor offenses and forced to pay "excessive" fines.

As an example of over-enforcement, de Blasio said a family-run grocery store in Brooklyn was fined $750 for violating rules about posting return policies on their cash registers.

CITY CLEANER, SAFER

Mayoral Spokesman Marc LaVorgna said the total amount of fines collected from individuals and businesses rose from $479 million in 2002 - Bloomberg's first year in office - to $817 million in 2012.

LaVorgna said 40 percent of the increase in fines came from construction violations, fire code violations, more restaurant inspections and a crackdown on illegal cigarette sales, along with other offenses.

"Restaurants are cleaner, construction sites are safer, fires have come down, and our streets are cleaner and safer than ever - that is a result of enforcing the regulations we have put in place and the laws the Council has passed," said LaVorgna.

Tickets for driving violations accounted for 60 percent or $204 million of the increase in fines in the last 10 years.

S. Elliott Henry, a 75-year old taxi driver who had just been through traffic court in lower Manhattan, said his $290 fine for turning left on Madison Avenue from 45th Street cost him three days pay.

For decades, New York City mayors, including Bloomberg, have denied setting quotas for fines to boost revenue. But de Blasio is seeking information on whether agency officials were told how many violations they should issue in a particular year.

"We need answers about what this ‘fine first, ask questions later' enforcement is doing to our small businesses and their ability to survive in this economy," De Blasio said.

The case is De Blasio v. Michael Bloomberg et al, Supreme Court of the State of New York

Analysis: A decade on, is Sarbanes-Oxley working?

2012-08-02T11:03:00.004-07:00

When Peregrine Financial collapsed earlier this month, a nagging question resurfaced. As in the implosion of Lehman Brothers, the fall of Bernard Madoff and other cases in recent years, many asked: Where were the accountants?

That this question still arises could be seen as an indictment of the 2002 Sarbanes-Oxley law, enacted 10 years ago on Monday. The law was a response to accountants' failures to sound the alarm about financial misconduct at Enron Corp, WorldCom and a host of other companies.

But, lawyers and analysts say that for the most part Sarbanes-Oxley is working. It has strengthened auditing, made the accounting industry a better steward of financial standards, and fended off Enron-sized book-cooking disasters.

Yes, it has fallen short in important ways, but these failures are on a more subtle level, the experts say.

The law, signed by President George Bush on July 30, 2002, created a new auditor watchdog, the Public Company Accounting Oversight Board (PCAOB). The law strengthened internal controls over companies' accounts and set stiff criminal penalties for executives who cook the books. One of its toughest provisions required corporate executives to certify the accuracy of financial statements and imposed jail terms of up to 20 years for willful violations.

While only a handful of people have faced criminal charges over false statement certification, the Securities and Exchange Commission has invoked that part of Sarbanes-Oxley to bring more than 200 civil cases.

One reason for the small number of criminal cases is that corporations have taken steps to insulate C-suite officers from culpability. Another reason is that prosecutors often choose to pursue tried-and-tested charges such as fraud when seeking to bring corporate wrongdoers to justice.

Sarbanes-Oxley also increased criminal penalties for various kinds of financial fraud. Maximum prison terms for mail fraud, for example, jumped to 20 years from five years.

These changes had a sharp deterrent effect and have helped create a mindset that "accounting shenanigans aren't going to be tolerated anymore," said Peter Henning, a law professor at Wayne State University. "You're getting much longer sentences now than you ever saw before."

Trends in companies restating their financial reports also show the law's impact. Initially, restatements rose as executives scrambled to correct past reports, peaking at 1,790 in 2006, according to research firm Audit Analytics. But after that house-cleaning period, restatements dropped sharply, leveling off at around 790 for the past two years.

PEREGRINE'S TROUBLES

In the case of Peregrine Financial, asking where the accountants were seems at first glance to be a glaringly obvious question. But a closer look reveals a more complicated situation.

In the years before the futures brokerage collapsed, Peregrine used a little-known accounting firm, Veraja-Snelling Co, which reviewed its books and vouched annually for their validity.

Veraja-Snelling, a tiny firm run out of a home in suburban Chicago, was not subject to audit inspections before 2010, when Wall Street reforms known as Dodd-Frank extended the PCAOB's authority to the auditors of broker-dealers -- too late for Peregrine.

Even if the PCAOB had that authority earlier, it is not clear that it would have made a difference. Peregrine bilked $100 million from its customers over nearly 20 years partly by forging bank statements, and there are no signs that Veraja-Snelling did anything wrong.

Peregrine and Veraja-Snelling declined to comment.

PricewaterhouseCoopers, the auditing powerhouse, did take a peek at Peregrine's books in 2000, Commodity Futures Trading Commission Chairman Gary Gensler revealed last week. But PwC has said it was never Peregrine's auditor. Rather, it said it was hired on a limited basis to carry out procedures laid out in a settlement between Peregrine and its regulators.

'CLIENT PAYS' CONFLICT

In some ways, Sarbanes-Oxley has not done enough to change the accounting and audit industry, critics say. It did not resolve an inherent tension within the industry's "client pays" business model -- that is, an auditor's basic conflict between serving the paying client and serving the greater good.

Nor has it brought increased competition to an industry that still is an oligopoly, now dominated by the so-called Big Four firms: Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte. Former Enron auditor Arthur Andersen is history.

Auditors have become more independent of clients, but not entirely so. The law limited the types of consulting that accounting firms can do for their audit clients, but left them free to do lucrative tax work. It made lead audit partners rotate off accounts after five years, but let audit firms serve the same clients indefinitely.

Supporters of Sarbanes-Oxley note that it was not designed to ensure that corporate accountants should be everywhere and know everything. And they say it is unfair to expect accountants to be front-line corporate cops, standing with government regulators in the fight against fraud.

Michael Oxley, former chairman of the House of Representatives Financial Services Committee, said the law he co-authored has stood the test of time.

"We've not had anything even approaching an Enron or a WorldCom or any of the other accounting scandals that we witnessed 11 years or so ago," he said in an interview.

Blaming the law for some of the recent scandals is based on a misconception about what it was supposed to do, said Oxley, a Republican. "It really had nothing to do with Lehman Brothers, AIG and the other meltdowns in 2008. It didn't really have anything to do with Bernie Madoff," he said.

Former Democratic Senator Paul Sarbanes, who is scheduled to speak on Monday night with Oxley at an event marking the law's 10th anniversary, has also been upbeat in recent remarks about the law.

SARBOX UNDER ATTACK

Approved over the resistance of much of the business community, Sarbanes-Oxley was under attack even before it took effect. Its requirement that companies pay for audits of their internal controls came in for particularly sharp criticism because of soaring costs and the provision was eventually scaled back.

Another weakening of the law was included in the Jumpstart Our Business Startups, or JOBS, Act, signed into law by President Barack Obama in April. Meant to aid small companies in raising capital and going public, the act lets small, start-up businesses ignore Sarbanes-Oxley's checks on internal controls for a few years. Obama has told the Justice Department and the SEC to keep an eye out to protect investors, but some are concerned the act opens the way for misconduct.

Another challenge to Sarbanes-Oxley is still to come. Concerned about the performance of auditors in the credit crisis, the PCAOB is considering an array of tough reforms and encountering fierce opposition from business lobbyists.

Congressional opponents of Sarbanes-Oxley have additionally tried sometimes to limit its scope by holding back the budgets and staffing of regulatory agencies like the SEC.

Lynn Turner, a former chief accountant at the SEC, one of the agencies that enforces Sarbanes-Oxley, said: "It's like any legislation. It only works if you've got a regulator and a cop enforcing it."

Banks urge Congress to extend crisis-era deposit insurance

2012-08-02T11:03:00.000-07:00

The expiration of special U.S. deposit insurance at the end of the year has spurred banks to lobby Congress to extend the program out of fear that companies will withdraw billions of dollars.

At issue is the Transaction Account Guarantee (TAG) program, which insures all bank deposits in checking accounts above the $250,000 coverage already provided by the Federal Deposit Insurance Corp.

TAG primarily benefits businesses and local governments that need quick access to large amounts of cash for payroll and other needs.

About $1.3 trillion of TAG-insured deposits that do not pay interest sit at large and small U.S. banks.

The TAG program was created by bank regulators and the U.S. Treasury during the 2008 financial crisis to attract cash for banks and reassure depositors that their money was safe. In 2010, Congress extended the TAG program through the end of 2012.

Without another extension, businesses are likely to shift their deposits to prime money-market accounts and other short-term alternatives.

"This program is the best deal around," said Robert Haas, senior treasury associate in charge of cash management and investments at the National Railroad Passenger Corp., the parent of Amtrak.

It addresses treasurers' two primary concerns: safety and a return on cash that comes from discounts banks give on other services in lieu of interest, he said.

If the program disappears, he will look at other options, Haas added.

A LIFELINE FOR SMALL BANKS

While the 10 largest U.S. banks hold 70 percent of TAG deposits, small banks have benefited by attracting deposits from local borrowers to fund loans that previously went to bigger banks, which are seen as safer. Community banks with under $10 billion of assets hold about $200 billion of TAG deposits - or about $23 million per bank.

"Extending TAG is our No. 1 priority this year," said Camden Fine, president of the Independent Community Bankers of America, who insists that business lending in distressed communities depends on the program. "Ending it will have a crippling impact on any kind of full economic recovery."

The ICBA seeks a five-year extension of the program.

A bipartisan group of legislators have told constituents in the community banking world that they support the banks, but an extension is by no means certain.

The U.S. government is trying to exit many of the emergency financial programs set up during the crisis.

Time is not on the bankers' side on this issue. Only about three weeks of legislative days are left to craft an extension of the TAG insurance program before the presidential election.

Banking industry lobbyists said the best possibility is to attach a TAG extension to a bill that seems certain of passage. That bill has not yet been determined, they said.

Exacerbating the problem is that banks are feuding among themselves over the program.

Many large banks are concerned that small banks are winning deposits by assuring customers their funds are completely safe. If these banks end up failing, big banks could have to pay more money into the FDIC insurance fund. Banks are not currently charged an additional assessment on TAG deposits, but that could well change.

When directors of the American Bankers Association, a powerful trade group representing large and small banks, convened earlier this month, it was a tossup as to whether they would support a TAG extension, said people familiar with their thoughts.

By the end of the meeting, they voted almost unanimously to seek a two-year extension.

"The tipping point was new uncertainty about the economy," said James Chessen, the ABA's chief economist.

Bank executives have become spooked about a recent decline in customer loan demand due to burgeoning concerns about the euro-zone crisis, the potential year-end budget-and-tax battle known as "fiscal cliff" and new signs of a slowing U.S. economy. Extending TAG eliminates at least one element of year-end uncertainty for them, Chessen said.

WHO NEEDS IT?

Many analysts shrug their shoulders at the controversy.

Big banks don't need the cash. They have fixed the liquidity problems that plagued them during the financial crisis and cannot invest or lend their excess deposits at a rate that benefits shareholders.

"Banks don't want this money because there is nothing they can do with it," said Richard Bove, an analyst at Rochdale Securities.

Bank of New York was so awash in deposits last summer that it threatened to charge companies with more than $50 million in deposits to offset the fees the bank pays to the FDIC. The bank retreated from the plan but is now considering charging European clients who are flooding it with eurodeposits, Chief Financial Officer Todd Gibbons told Reuters this month.

Noninterest-bearing client deposits at Bank of New York totaled $63 billion at the end of the second quarter - 46 percent higher than year-ago levels.

The FDIC is "neutral" on an extension, according to a spokesman.

Last month, acting FDIC Chairman Martin Gruenberg told the U.S. House subcommittee on financial institutions and consumer credit that the TAG program has not had a big effect on depleting the deposit insurance fund. But he declined to speculate on how ending the program would affect banks or the economy.

FIGHTING WORDS

Bankers, meanwhile, are anxious about their lobbying efforts. They worry that credit unions, which have long been fighting to expand their ability to make business loans, will piggyback extended powers into TAG legislation.

"The senators we talk to think that marrying TAG, which the banks really want, with the Member Business Lending bill that we are lobbying for, would work," said John Magill, executive vice president of the Credit Union National Association, the chief trade group for credit unions. "TAG will not end up passing unless MBL is passed because we have been promised votes in the House and Senate. The banks don't have a bill or a vehicle to attach one to."

Representatives of the ABA and the ICBA said they adamantly oppose a deal that would give credit unions more lending latitude in exchange for a temporary extension of TAG.

"Credit unions have been wearing out their welcome in Congress by trying to attach their highly controversial legislation like a barnacle to any moving legislation," said Paul Merski, executive vice president for congressional relations at ICBA, the community banking trade group.

"They again would be the skunk at the garden party here on a needed TAG extension."

Small-business borrowing falls in June

2012-08-02T11:00:00.000-07:00

Lending to small businesses fell in June to the lowest level since October, a report showed on Wednesday, suggesting the economy's recent loss of momentum is likely to persist absent any new action by policymakers.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small U.S. companies, sagged to 98.5 from 103.8 in May, PayNet said. The index, which points to changes in overall economic growth several months in the future, has fallen in five of the past six months.

"Small businesses really took a dive," said PayNet founder Bill Phelan. "What this means is, the slowdown is going to continue."

Borrowing rose 2 percent in June from a year earlier, the slowest year over year pace since July 2010.

The weak borrowing by small businesses comes as Federal Reserve officials weigh their next move on interest rates, sifting through mixed economic data to determine if they need to unleash still more monetary stimulus to bring down unemployment and kick-start growth.

The Fed says it is still considering just such a move, and some analysts expect a new round of bond-buying aimed at pushing down long-term interest rates as early as September.

Fed policymakers, who have kept short-term interest rates near zero since December 2008, began a two-day policy-setting meeting on Tuesday, and are set to announce a decision later on Wednesday.

House prices rose in May for a fourth month and consumer confidence unexpectedly gained in July, reports showed Tuesday, even as consumer spending fell in June for the first time in more than a year and a gauge of Midwest employment fell to its lowest in nearly a year.

Separate PayNet data showed that fewer companies were falling behind on their existing loans, boding well for their capacity to borrow now and in the future.

Accounts that were behind in payments by 30 days or more fell to 1.11 percent of the total from 1.18 percent in May, far below the high of 4.41 percent reached in May 2009. This was also the lowest level since PayNet began tracking the data in 2005.

Accounts behind 90 days or more, or in severe delinquency, dropped to 0.28 percent from 0.31 percent.

Accounts behind 180 days or more, which are considered in default and unlikely ever to be paid, eased to 0.39 percent from 0.41 percent.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 250 leading U.S. lenders.

With crowdfunding, experts urge caution before businesses raise funds

2012-08-02T10:58:00.002-07:00

When President Obama signed the JOBS Act in April, it opened the door for entrepreneurs to fund their businesses via crowdfunding websites, a digital-age first.

It also cut out lots of red tape, as the act provides crowdfunded business and investors with exemptions to the Securities Act of 1933, which prohibited anyone with a net worth below $1 million from investing in private companies.

But that doesn't mean Congress and the President have given a free pass to startups that want to raise money online. Experts anticipate that once the Securities and Exchange Commission approves a new set of rules and requirements—sometime in January 2013—it's going to take lots of homework for entrepreneurs to wrap their heads around the legalities and intricacies of the crowdfunding process.

"Although this opens up investment to the general public for equity in small companies, it is still a complicated process," said Karl F. Buhl, a managing member of Navocate, a business sales and acquisitions firm based in Tampa, Florida.

Navocate recently hosted a "Get Funded Through Crowdfunding" webinar, where a panel of experts talked about the expected hurdles, and to put crowdfunding under the JOBS Act in perspective. "The SEC sees crowdfunding as somewhere between raising money from friends and family, and raising money from an angel investor or VC firm," said Paul Winkle, an emerging companies specialist with Navocate.

Prior to the JOBS Act, only donation-based crowdfunding projects had been allowed by federal regulation. And while businesses have used sites such as Kickstarter and Indiegogo to gather working capital, they have generally offered pre-sales or other swag, not equity, to raise funds.

So what changes will come in the start of 2013? To begin with, it's expected that all companies pursuing a crowdfunding path will need to have their financial statements in order, certified by an accountant if seeking more than $100,000, and audited and prepared by an accountant if raising in excess $500,000. "These statements are very critical," said Ruth Hedges, founder and CEO of CrowdfundingRoadmap.com.

The creation of a business plan to raise capital is crucial as well, which is why Hedges' website will use multiple-choice question prompts to walk entrepreneurs through details of a plan, and the due diligence reporting that applies for equity crowdfunding.

"We created a reporting system on the cloud where you can answer all of those questions and create a placeholder," Hedges said. That's a huge, huge part of this process because there's a lot of information you have to get together."

That message was echoed by Maurice Lopes, founder and CEO of EarlyShares.com, an equity-based crowdfunding platform. "The more organized you can get with your documentation, the better," Lopes said. "The biggest challenge people will have with crowdfunding will be transparency, and the more transparent you can be, the easier your process will be, from getting it started to getting it funded."

In advising transparency, Lopes and others anticipate that the SEC—now collecting feedback from businesses and case studies from non-equity arts crowdfunders such as Indiegogo—will try to weed out scammers from the get-go. Naysayers of the JOBS Act, for example, fear that its streamlined path to capital could open a new avenue for stock scams and highly speculative investing.

But supporters say equity crowdfunding will do something altogether different, giving everyday people a chance to back the next Google or Facebook. "It changes the face of venture capitalism," says Kristie Arslan, president and CEO of the National Association for the Self-Employed. "It will no longer have to be the very rich who invest in these new inventions or new businesses any longer. It's a new stream, a new American Dream."

It also comes at a time where small business loan approvals dipped to 10.2 percent for May, according to the Biz2Credit Small Business Lending Index. That's not as dismal as the 9.8 percent approval rating of a year ago, but it's bad enough to have many entrepreneurs swearing off banks and looking forward to future crowdfunding opportunities.

Entrepreneurs can pre-register on Lopes' site; about 500 have already done so. EarlyShares plans to use social media and search engine optimization as web-centric tactics to attract investors to business ventures.

Lopes is also boundlessly optimistic, citing "Localvesting" author Amy Cortese—who estimates that if Americans shift just 1 percent of their $30 trillion in long-term investments to small businesses, it would equal more than 10 times the venture capital invested in all of 2011.

To that end, Lopes says that crowdfunding is more like the kind of networking that occurs on Twitter, where users multiply their reach and muscle until they have thousands and thousands of followers.

"You'll be able communicate with your crowd or following as an entrepreneur," Lopes said. "That's important, because if you have 2000 to 5000 people in your ownership base, you'll also have 2000 to 5000 people with great contacts who want to see your business succeed. That's where you can get the same kind of value as working with a private investor of VC firm that provides mentoring or contacts."

GM profit helped by delayed spending

2012-08-02T10:51:00.004-07:00

General Motors Co (GM.N) posted a stronger-than-expected quarterly profit as its loss in Europe was not as bad as feared, and its results were boosted by delayed spending in North America.

Analysts said GM's North American outperformance added 14 cents to the second-quarter results, helping the company top Wall Street's expectations by 16 cents. GM's shares were down 2 percent in midday trading.

However, GM, which delayed the spending to the third quarter, said its average profit outlook for the second and third quarters combined in North America would still be the same as previously forecast, suggesting analysts may need to cut their estimates for the third quarter.

GM had previously said its second- and third-quarter operating profit in North America would be similar to the $1.7 billion it reported in the first quarter. It earned $1.97 billion in the second quarter, implying it would earn about $1.4 billion in the third quarter, analysts said.

GM said on a conference call that the delayed spending had to do with reallocating advertising money around the Olympics, engineering costs related to the redesigned full-size trucks being launched next year and additional production downtime.

Net income attributable to common shareholders in the second quarter fell 41 percent to $1.49 billion, or 90 cents a share, compared with $2.52 billion, or $1.54 a share, in the year-earlier quarter. Analysts polled by Thomson Reuters I/B/E/S had expected 74 cents a share.

Revenue fell to $37.6 billion from $39.4 billion a year before as the stronger U.S. dollar hurt results. Analysts had expected $38.58 billion.

Jefferies analyst Peter Nesvold said the shifting of earnings was overshadowed, however, by the better-than- anticipated performance in Europe, where GM lost $361 million. Analysts polled by StreetAccount had expected a loss of $426 million. GM rival Ford Motor Co (F.N) lost $404 million in the second quarter in Europe.

"Is Europe a function of execution or is it the calm before the storm?" said Nesvold, who has a "hold" rating on GM shares.

"I feel like Europe will continue to be a black hole until we're at least able to frame the magnitude of the downturn," he added. "They showed some nimbleness in this quarter that they have not shown so far since the new GM went public. People will remain skeptical though before they want to give them any credit."

GM officials acknowledged Europe -- where GM sells the Opel and Vauxhall brands -- remained challenging and they declined to say when it would return to profitability in that region, where it has racked up 12 years of losses.

"We clearly have more work to do to offset the headwinds we face, especially in regions like Europe and South America," GM Chief Executive Dan Akerson said.

GM has made progress on all the key components of Opel's restructuring, and management and German labor unions continue talks on improving productivity and reducing costs and manufacturing capacity with an agreement expected between the sides this autumn, he added.

GM's loss in Europe compared with a profit a year ago of $102 million. Chief Financial Officer Dan Ammann said the industry overall will face a challenging European environment in the second half of the year.

Opel board Chairman Stephen Girsky said GM did not react quickly enough to the deepening crisis in Europe and was working hard to cut costs and bureaucracy there.

Ammann, who expects global business trends in the second half similar to the first six months, said GM would address high Opel vehicle inventories in the third and fourth quarters. Morgan Stanley analyst Adam Jonas said Europe is likely to lose materially more money in the second half of the year compared with the first six months.

Part of GM's cost-cutting strategy in Europe included forming an alliance with and taking a small stake in PSA Peugeot Citroen (PEUP.PA). However, executives said GM will not inject additional capital into the struggling French automaker, which is cutting more than 10,000 domestic jobs.

"We have no intention of putting more money into PSA," Ammann said.

Opel has been a drag on GM's results, leading the automaker to push for changes at the money-losing European unit, including ousting the CEO last month. Ammann declined to say when a permanent replacement would be named.

Opel's supervisory board had previously approved a mid-term business plan, which runs through 2016. But real savings in a restructuring will not come until GM negotiates a deal with labor unions to close the Bochum, Germany, plant after 2016.

In 2009, GM decided Opel was too strategic a part of its global business to sell.

GM's international business unit, which includes the crucial Chinese market, saw earnings slip 2.8 percent to $557 million. Akerson emphasized, however, that he expects annual Chinese auto sales to hit 30 million vehicles by the end of the decade. GM also said it increased sales volume and market share in China in the second quarter.

GM officials said they are one year into a two-year transition to the redesigned Chevrolet Silverado and GMC Sierra. The company previously had not said when the new full-size trucks would launch next year.

Shares of GM initially fell and then rallied into positive territory before slipping lower again. In midday trading, they were off 42 cents, or 2 percent, at $19.24 on the New York Stock Exchange.

Economic data underscores weakening activity

2012-08-02T10:49:00.000-07:00

The number of Americans filing new claims for jobless benefits rose last week and manufacturers suffered an unexpected drop in orders in June, suggesting the economy is struggling to break out of a soft patch.

The economy has lost momentum in recent months, hurt by fears of higher taxes and sharp government spending cuts next year and ongoing debt problems in Europe. Factory activity has cooled and job growth has braked sharply.

"The data evidence has been disappointing on a lot of fronts. There aren't too many bright spots," said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.

The Federal Reserve on Wednesday signaled it was willing to ease monetary policy further, noting that economic activity had slowed in the first half of the year and unemployment remains elevated. Many economists expect the Fed to launch a third round of bond buying, also known as quantitative easing, in September.

A government report on Friday is expected to show that employers added 100,000 new workers to their payrolls last month, according to a Reuters survey, up from 80,000 in June.

That would be more than the average 75,000 per month job growth in the second quarter, but far less than the average monthly rise of 226,000 in the first three months of the year.

The claims data has no bearing on the July employment report as it falls outside the survey period.

Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 365,000, the Labor Department said on Thursday, less than economists' expectations for an increase to 370,000.

The smaller gain likely reflected seasonal distortions from the temporary plant shutdowns by automakers for annual retooling, which cause wide swings in claims data in July.

The model used by the government to smooth the numbers for typical seasonal patterns has trouble anticipating the timing of the temporary closures and in addition, some automakers kept production lines running in July.

"We would prefer to take the July data with a grain of salt and wait for a few more weeks to get a better sense of the underlying trend in the number of new filers," said Guy Berger, an economist at RBS in Stamford, Connecticut.

A Labor Department official said last week was the last where the seasonal expectation was shaped by seasonal layoffs in the auto manufacturing sector.

The four-week moving average for new claims, a better measure of labor market trends, fell 2,750 to 365,500, the lowest in four months.

FACTORIES LOSE STEAM

Underscoring the weakness in the economy, factory orders fell 0.5 percent in June after rising by the same margin the prior month as demand for a range of items such as motor vehicles, machinery and computers sagged.

The rise was in line with economist forecasts. The Commerce Department report was the latest sign of weakening activity in the factory sector.

On Wednesday, the private Institute for Supply Management said manufacturing activity contracted in July for the second straight month.

U.S. financial markets were little moved by the data. Stocks on Wall Street fell as European Central Bank President Mario Draghi disappointed investors hoping for quick action to contain the euro zone debt crisis.

U.S. Treasury debt prices rose and the dollar advanced against a basket of currencies.

While a third report showed planned layoffs at U.S. companies dropped for a second straight month in July, even as job cuts in the financial sector persisted, analysts warned this could be temporary given that layoffs typically slow during the summer.

Employers announced 36,855 planned job cuts last month, down 1.9 percent from June, consultants Challenger, Gray & Christmas said. So far this year, announced layoffs are up 2.5 percent from the same period in 2011.

The financial sector cut 6,156 jobs in July, the largest number since January.

"This may simply be the lull before the storm," said John Challenger, chief executive of the company. "The situation in Europe is far from being resolved and ongoing weakness here could continue to take a toll on the financial sector."

Knight's future in balance after trading disaster

2012-08-02T10:47:00.004-07:00

Knight Capital Group Inc was fighting for its survival on Thursday after a trading glitch that had roiled markets wiped out $440 million of the firm's capital, forcing it to seek new funding as its shares plunged 70 percent in two days.

Some of the company's biggest customers, including TD Ameritrade, the No. 1 U.S. retail brokerage by trading volume, and Fidelity Investments are not routing orders through Knight. Smaller customers also were taking business elsewhere.

The company, one of the largest U.S. market makers, said it is "actively pursuing its strategic and financing alternatives," raising the possibility Knight could be sold or even face bankruptcy.

The troubles at Knight have driven uncertainty among investors worried that a potential failure of the firm could cause problems for the many brokers who execute trades through Knight.

"They have about 48 hours to shore up confidence," said James Koutoulas, chief executive of Typhon Capital Management, a Knight customer whose firm lost money in the collapses of brokerages MF Global and PFGBest.

The incident is the latest in a series of market snafus that are driving up volatility and undermining public confidence. They include the troubled Facebook IPO in May, the failed IPO of exchange venue BATS Global Markets in March and the Flash Crash in May 2010.

"Will they be able to get out of this death spiral considering where the stock is and the amount of capital they have to raise?" asked James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

Knight has approached JPMorgan Chase & Co for financing, according to a report on Fox Business Network. A spokesman for JPMorgan declined to comment. Efforts to reach Knight Capital for a comment were unsuccessful.

"What is more important is the question of market structure," Dailey said. "There could be an issue with the amount of the order flows that get redirected to other places, and the potential of that stressing other systems."

TD Ameritrade, which averaged just over 355,000 trades a day last quarter, is currently not sending orders through Knight as it tests its systems to make sure everything runs smoothly, said Joe Kinahan, chief derivatives strategist at TD Ameritrade.

The company routs about 4.5 percent of its orders through Knight.

"We are monitoring the situation," Kinahan said, adding that as long as Knight remains in good standing with the exchanges, TD Ameritrade will resume sending orders through it.

He said that every client trade that TD Ameritrade sent out on Wednesday was filled, because Knight was quick to tell the brokerages to reroute their orders.

Knight's shares were down 54 percent at $3.09 in midday trading after hitting a 13-year-low of $2.97 a share.

A SYSTEMIC RISK FOR MARKETS?

Although Knight opened for trading on Thursday there were questions about how the firm's possible failure might impact the vast network of brokers that rely on it to process orders and whether a failure could cause serious market stress.

"Knight is the one franchise that has built a network of over well over 800 broker-dealers throughout the country," said Chris Nagy, a market structure consultant.

"Many of those 800 broker-dealers, although they have very small amounts of order flow, in aggregate, represent a significant amount of volume. That's the concern, because quite frankly, those firms have no other options."

Knight's daily market-making volume was $19.5 billion in June.

Street One Financial, a Huntington Valley, Pennsylvania-based firm that executes trades for institutional investors, on Thursday got calls from seven new asset management firms wanting to place trades because they did not want to trade with Knight due to concerns over the firm's viability.

"They have heard the reports that Knight is asking JPMorgan for an emergency loan and they don't want to risk it," said Scott Freeze, chief executive of Street One Financial.

TRADING GLITCH

Wednesday's technology breakdown roiled the prices of some 140 stocks listed on the New York Stock Exchange, undermining fragile investor confidence in the stability of U.S. stock markets.

The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority are looking into Knight's trading error, according to William Brodsky, CEO of top U.S. options market CBOE Holdings Inc.

"It's obvious that it appears that there was a technology glitch in the trading algorithm," Brodsky told analysts on Thursday. "All markets have rules to address these types of situations."

Speaking on Bloomberg Television, Knight Capital Chief Executive Officer Tom Joyce said the firm had "excess capital right now." On Tuesday night, it had put in new software that had a bug, he said.

The firm said it was in compliance with capital requirements and that it had traded out of the entire position. The Financial Industry Regulatory Authority, which oversees broker-dealers, confirmed Knight was in compliance.

"This issue was related to Knight's installation of trading software and resulted in Knight sending numerous erroneous orders in NYSE-listed securities into the market," Knight said. "This software has been removed from the company's systems."

Specialists in securities industry operations issues said the wave of recent problems pointed to an unsettling reliance on automated trading facilities that is robbing investors of confidence in the markets.

"We're losing the human control in our business," said Joe Anastasio, a founding partner of financial services consulting firm Capco who specializes in stock trading issues. "We've been so focused on automated throughput of orders and high-volume execution with no human intervention that we have lost the human logic factor when things go wrong."

One of the problems, he said, is that millions of orders stack up overnight for automatic execution at the opening of trading, with a single error potentially creating a deluge of bad trades.

On July 18, Knight reported second-quarter earnings of $3.3 million, down 81 percent from a year earlier after recording a $35.4 million pretax trading loss from the Facebook initial public offering. The company has not yet filed its second-quarter report with regulators.

Knight's average daily U.S. equities market-making volume has fallen from a year ago as trading volumes have declined across the stock market. Daily market-making volume was $19.5 billion in June, a 12 percent decline from a year earlier.

ECB gearing up to buy euro zone bonds

2012-08-02T10:46:00.002-07:00

With its key German member dissenting, the European Central Bank took a heavily conditioned step on Thursday towards a new round of bond buying to drag down Spanish and Italian borrowing costs, but said euro zone governments must act first.

ECB President Mario Draghi indicated any intervention would come at the earliest in September once governments had activated their rescue funds to buy bonds, and the countries at risk had requested assistance and accepted tough conditions.

The absence of immediate action, the conditional nature of Thursday's decision and the reservations of Jens Weidmann, head of Germany's influential Bundesbank, the ECB's biggest shareholder, spooked investors.

Shares and the euro fell and Spanish and Italian yields rose, with Spain's 10-year bond surpassing the 7 percent danger level.

"The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective," Draghi told a news conference after the central bank's monthly meeting.

The ECB would also consider other "non-standard" measures to rein in the euro zone crisis, he said, hinting it might move to quantitative easing - or printing money - by not withdrawing all the money it creates to buy bonds.

Unlike the U.S. Federal Reserve and the Bank of England, which have engaged in QE since 2008 by creating money to buy securities, the ECB has so far "sterilized" all its purchases by taking in an equivalent amount in interest-bearing deposits.

The ECB kept euro zone interest rates at a record low 0.75 percent, but Draghi said the council did consider a further rate cut on Thursday amid heightened economic uncertainty.

The bank has already spent 210 billion euros buying bonds under its now dormant Securities Markets Programme (SMP) since May 2010, with limited effect, but Draghi said the new effort would be different in scope and conditionality.

Any new ECB action would be focused on shorter-term debt and was conditional on euro zone governments using their bailout funds first, and on beneficiaries accepting "conditionality".

"Governments must stand ready to activate the ESM/EFSF in the bond market when exceptional financial market circumstances and risks to financial stability exist," he said.

Italian Prime Minister Mario Monti said after meeting his Spanish counterpart Mariano Rajoy in Madrid that Draghi's statement showed "several steps forward", but any consideration of Italy applying for EU help to lower yields was premature. He said Rome had no such intention at this moment.

Rajoy called the ECB decisions positive but gave no indication of whether Spain was willing to request an assistance programme, which he has so far resisted.

INTENSE PRESSURE

Draghi was under intense pressure from investors, European leaders and even the United States to deliver on last week's pledge to do whatever it takes to preserve the euro by bringing high borrowing costs down.

The Washington-based International Monetary Fund said it welcomed the ECB's willingness to act.

"As we have also emphasized, monetary policy alone cannot solve the problems facing the euro area. But further monetary easing and unconventional support would ease tensions as other policies are implemented and take effect," an IMF official said.

The ECB chief repeated that the euro was "irrevocable" and warned markets it was pointless to bet against or short the 17-nation single European currency. He also said the central bank was determined to counter any risk of "convertibility" - code for a possible break-up of the euro.

But analysts were underwhelmed by his announcement of possible future, conditional action.

"It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians," said Ioan Smith, strategist at Knight Capital.

Marc Ostwald, strategist at Monument Securities, said: "Unsurprisingly Draghi has attempted to deploy semantics to cover up for another case of 'all talk and no trousers or action", above all in promising 'action' going forward.

"The perversion of language that is implicit in 'voting was unanimous with one reservation' should be obvious, akin to an Olympic athlete saying I won gold except that one person beat me!"

The outcome of Thursday's ECB meeting mirrored Wednesday's U.S. Federal Reserve policy-setting meeting, which also dashed expectations of immediate new measures to revive the economy.

The Fed stopped short of offering new monetary stimulus, though it signaled more strongly that further bond buying could be in store to help a U.S. economic recovery that it said had lost momentum this year.

ECB action is hamstrung by European treaty rules forbidding it from financing governments. Draghi said an ECB legal opinion had ruled out another possible "big bazooka" - giving the ESM bailout fund the right to tap ECB funds to boost its firepower.

The ECB also has to find a way to get any measures past Germany, the euro zone's largest economy and its principal paymaster. The Bundesbank issues regular reminders of inflationary dangers stemming from non-standard measures such as bond purchases and the limits central banks face.

Draghi said all members of the Governing Council endorsed Thursday's statement with one exception and he took the unusual step of mentioning Weidmann by name as the dissenter, suggesting he was prepared to outvote the German if necessary.

"It's clear and it's known that (Germany's) Bundesbank have their reservations about the programme of buying bonds. The idea is we now have the guidance, the monetary policy committee, the risk committee and the markets committee will work on this guidance and then (we) will take a final decision and the votes will be counted."

Council members who have voted with Weidmann in the past, such as the Dutch and Luxembourg central bank chief and the German member of the ECB's executive board, did not side with him this time, suggesting the Bundesbank chief was isolated.

But his acquiescence in ECB policy is widely seen as vital to preserve public support for the euro zone in Germany.

Significantly, the German government endorsed Draghi's statement

Six-week stimulus watch for Bernanke and Fed

2012-08-02T10:42:00.003-07:00

Federal Reserve Chairman Ben Bernanke looks set to spend the rest of the summer waiting for signs that could tip the scales toward providing another round of stimulus for economy.

On Wednesday, the U.S. central bank stopped short of resorting to new measures but signaled it was prepared to act unless the economy stages an unlikely comeback in the next six weeks.

With the Fed's next policy-setting meeting scheduled for Sept 12-13, guideposts toward yet more monetary easing look clear.

On Thursday, the European Central Bank meets to consider how to stem the euro zone debt crisis that the Fed again on Wednesday suggested posed a threat to the sputtering U.S. economic recovery.

But the chances of aggressive action by the ECB appear slim, with Europe divided on using the central bank to help countries struggling under heavy debts.

On Friday, the U.S. employment report for July is unlikely to provide much relief from the recent slump in job creation and if repeated when the August job numbers are released in early September, it could strengthen the case for more Fed intervention, probably another round of heavy bond-buying.

"Such action is far from a done deal, but we are skeptical that the labor market will convincingly turn around, and so continue to see more asset purchases coming next month," JP Morgan chief economist Michael Feroli said in a note to clients.

While the Fed waits for confirmation that the European crisis and the dip in the U.S. recovery are not going away any time soon, policymakers will also try to work out the most effective way of helping the economy.

"We have an extremely dovish Fed that certainly wants to do something," said Axel Merk, president of Merk Investments. "But they don't want to appear to panic, and if they do something they want it to work. Those are the two things holding it back."

So far this year, the Fed has taken steps to try to help the economy at two of its five policy meetings. It told markets in January that it does not expect to raise short-term interest rates until at least late 2014. And in June it added another six months to its so-called Operation Twist program aimed at lowering long-term interest rates.

But it has not yet resorted again to the kind of measures comparable with its emergency rescue of the economy that began with slashing its benchmark rate to near zero since December 2008, followed by the purchase of $2.3 trillion in Treasuries and housing-backed bonds to re-energize the economy.

NOT WEAK ENOUGH, YET

Many economists expect the Fed's next move to be a third round of bond-buying known as quantitative easing, or QE3.

While recent economic data has been weak -- particularly in job creation, manufacturing and retail sales -- it has not caused alarm on a level needed to trigger QE3, at least not this week. Many economists had predicted the Fed would hold fire.

"Clearly, with the skepticism that you're getting from the hawkish side of the table, the ammunition this time around just was not substantial enough," said Carl Tannenbaum, chief economist at Northern Trust, and former official in the Federal Reserve System.

There are two payroll reports and a retail sales report before the next Fed meeting. July's retail sales report, due on August 14, will show whether consumers, the main drivers of the U.S. economy, remain wary of spending at the start of the third quarter. Retail sales have fallen for three straight months, the longest such streak since the financial crisis erupted in 2008.

Depending on what the data shows, Bernanke may have enough to make a case for more easing by late August, when he is due to give a speech at the central bank's high-profile gathering in Jackson Hole, Wyoming.

He used that forum in 2010 to give a clear indication of the Fed's plan to pursue a second round of quantitative easing.

FED MULLS OPTIONS

Just as important as deciding whether to move, economists say, is the decision on how to do it.

A decision to launch QE3 would probably involve some component of mortgage debt as the Fed attempts to breathe more life into a housing sector that has finally shown some signs of healing. San Francisco Fed President John Williams has long backed this approach, citing studies he says show that buying housing bonds could effectively push down a broad swath of rates more readily than further purchases of Treasuries.

Others such as Jeffrey Lacker of Richmond, Virginia -- who dissented against Wednesday's Fed statement -- oppose it, saying further bond-buying is likely to do little to create jobs and could sow the seeds of inflation.

Other tools under consideration include lowering the interest the Fed pays banks to park reserves at the central bank, currently at 0.25 percent, to induce more bank lending.

Another approach is a "funding for lending" program like the one recently announced by the Bank of England, whereby the Fed might provide cheap short-term loans to banks in exchange for guarantees they will resume lending to individuals and firms.

Increasingly overhanging the Fed debate is the approach of November's elections.

Most economists, and Fed officials themselves, say U.S. central bankers will do what it takes to put the economy back on track. Politicians, especially Republicans, have criticized the Fed's recent policies for risking inflation. Further efforts to shore up the economy could leave the Fed exposed to criticism that it is helping to influence the election.

A few commentators say politics may have played some role in keeping the Fed on hold this week.

"This is a bad time to become a ping-pong for the political bantering that will go on through the end of the year," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.

Still, Bernanke is unlikely to steer clear of further action if the signs guide him there. Last year, he pushed forward with easing twice over the dissents of three out of 10 of his closest colleagues - the policymakers with whom he debates the future of U.S. interest rate policy every six weeks.

The New Talent Crisis in Finance

2012-06-02T07:40:00.001-07:00

A new talent crisis is about to hit corporate finance. The word “new” is deliberate. This time, the challenge is not about the rising cost of good people. It’s about what good people do.

About 5 years ago, CFOs and controllers were complaining about the rising cost of accounting talent. In the wake of Sarbanes-Oxley, the proverbial work/life balance became unbearable, and the work itself grew highly technical, in the classic sense of applying accounting rules and controls testing. People who yearned for the excitement of swashbuckling M&A deals exited quickly. In just about every major American metropolitan center, the market for experienced corporate accountants tightened. Turnover soared, as did the salary requirements of finance folks on the move.

That was then. What I have been hearing lately as part of my research at APQC is that senior finance executives are deeply concerned about a dearth of people in the market who possess the so-called “soft skills.” Those include critical thinking, problem-solving, negotiation, communication, and collaboration. Apparently, finance professionals with soft skills in abundance can name their price.

There are four primary reasons why we see this trend. First, the financial crisis has sparked an era of re-regulation, and to finance executives, this implies more nuanced risk management. That in turn means you’ll need more critical thinkers, as opposed to people who can apply GAAP in their sleep. Just one example: Treasury management experts now say that the Dodd-Frank Wall Street Reform and Consumer Protection Act restricts the availability of Federal Deposit Insurance for certain types of corporate demand-deposit accounts. This, apparently, will force corporate cash managers to perform more intricate assessments of counterparty risk and portfolio risk when they invest spare cash. While stronger risk management is a good thing — from a shareholder’s perspective — it’s going to drive up the demand for people who can spot a dodgy derivative on sight.

Second, the slow-moving recovery means that companies are risk-averse when it comes to investing in growth opportunities. For comfort, they are building their ranks of strategic financial analysts who can deploy a range of sophisticated analytical techniques. The idea is to surround senior executives with “fact-based analyses” so that they can make important decisions with greater confidence.

Third, there’s a growing demand for finance people who possess relatively high levels of technological competency. In particular, the largest companies have been applying automation to large swaths of financial operations, with many of them linking global finance, accounting systems, and processes to speed the flow of regional performance data to the senior executives at headquarters. Finance managers who hope to advance in their careers will need a functional knowledge of ERP systems, data warehousing, systems integration strategies, and so on.

Finally, core accounting and auditing is becoming more complex than ever — and it will no longer suffice to be simply a good accountant. The trend is toward specialization — whether it means a person who has mastered hedge accounting or one who grasps fair value accounting.

And, as always, to be successful, finance people must have the ability to understand and support the organization’s core business strategies and partner effectively with operating managers.

Tie all this up in a package, and you’ve got a growing need for advanced skill sets in finance. So, how can you to address this need when you can’t count on the external labor pool for a steady talent supply? According to my latest research at APQC, companies now want to double-down on efforts to retain, train, motivate, and groom tomorrow’s senior finance people from within. This is a new area of research for me, and I will be reporting findings in this space as I go. Meantime, I’m keen to hear of novel ideas for confronting these challenges.

Reregulation Gone Wild?

2012-06-02T07:38:00.000-07:00

CFOs and treasurers are unhappy with an SEC proposed rule change that would require “quantitative and qualitative” disclosures about short-term borrowings in the Management’s Discussion and Analysis (MD&A) section of periodic financial statements. And that’s just for starters.

Everyone knows that the SEC is trying to close the door on the types of big bank shenanigans that sparked the financial crisis of 2008-09. Who can forget Lehman’s Repo 105 parlor games? But the effort is spilling over onto nonfinancial corporations in, perhaps, unintended ways. According to Michael Gallanis, who runs the corporate consulting practice at Treasury Strategies, Inc., “This is part of the financial fallout of the past 24 months. The SEC wants added transparency over how corporations manage their liquidity and their short-term borrowing practices.” On its face, that’s a noble intent: Give investors the information they need to evaluate how well a company is being managed. “But some treasurers think this SEC proposal is overkill. They worry that the SEC will impose a ‘one-size-fits-all’ disclosure requirement. And that could have the opposite effect of what is intended and needed.”

The proposal touches a number of areas. Let’s look at few of the most troublesome ones (condensed below in the form of questions that the SEC developed for feedback). The response shown under each question comes from the comment letter sent to the SEC by the Financial Reporting Committee of the Institute of Management Accountants (IMA):

Question from the SEC:

Should registrants that are not financial companies be required to provide the maximum daily amount of short-term borrowings, rather than permitting them to provide the maximum month-end amount? Do registrants that are not financial companies have systems to track and calculate this information on a daily basis? What are the burdens and costs of requiring companies engaged in nonfinancial businesses to meet that requirement? Should registrants that are not financial companies be required to disclose each month-end amount rather than the maximum? Should registrants also be required to provide the minimum month-end (or, daily, for financial companies) amount outstanding? What are the burdens and costs of requiring companies to meet those requirements?

IMA Response: We do not believe a discussion of the maximum amount during the period is necessary unless it materially differs from average and/or period-end balances. We also do not believe that disclosing minimum month-end or daily balances will add value to an investor’s analysis.

Question from the SEC:

Should we require year-to-date information in addition to quarterly information for interim periods? Would year-to-date information be useful to investors? Describe in detail the costs and benefits of providing year-to-date information in this context.

IMA Response: No, we believe year-to-date information is not relevant. Liquidity is not managed with year-to-date information.

There are many more issues you can find swirling through the official comments letters on the SEC Web site. But two that are really bothering CFOs are summed up below.

First, the SEC might force companies to follow a prescribed narrative when explaining their short-term borrowings and working capital management. “That would be unfortunate,” says Gallanis. “Some companies are heavily dependent on short-term funding. But most are not in the situation of being exposed to failure [risk] due to an inability to access short-term working capital.” More often than not, he adds, short-term debt is not material, in the legal sense of the word. “Companies are saying to the SEC: ‘Don’t make this so rigid. Some of us assess our borrowing strategies monthly. Others do so quarterly. It depends what kind of business you’re in.’”

Finally, we come to the SEC’s notion of a uniform leverage ratio. According to Gallanis, “The concept would force everyone [nonfinancial corporations] to calculate that ratio in exactly the same way. That’s problematic.” At present, we all know it would be silly to try to compare companies’ working capital management metrics without adjusting for industry-specific dynamics. Why this move? Gallanis is as stymied as I am. “Institutional investors already capture industry-specific leverage ratios that make sense.” Forcing a uniform ratio would lead companies to provide bare-bones disclosures — just enough to squeak by. And that would be less useful than what they now share with shareholders.

The IMA, for its part, has this to say: “We do not believe the Commission should extend the requirement to disclose leverage ratios to companies that are not bank holding companies. We do not believe those disclosures will be meaningful to investors. As indicated in the Proposed Rule, analysts and other users have developed their own models and ratios to use in assessing a company’s financial health. Because there is not a consensus between analysts and users on how all companies should calculate a leverage ratio, we do not believe the Commission mandating a particular approach will change the process that analysts and users engage in to assess a company’s financial health.

2012 New Year Resolutions for CEOs and Executives

2012-06-02T07:36:00.000-07:00

January 1st, New Year Day, is a chance for proposing changes. The tradition is to make resolutions such as to lose weight or exercise more. Typically they are personal ones made by the individuals, but I have a new twist by making a resolution for CEOs, heads of government agencies and executive teams of all organizations.

I propose these types of managers enlist in a yoga class. My reasoning is that they need to periodically detach themselves from the hustle and bustle of the flurry of daily distractions and have some solitude and be introspective. I was inspired by this idea by reading a lecture by William Deresiewicz that was delivered to the plebe class at the United States Military Academy at West Point in October, 2009.

Deresiewicz began his lecture by asking, “What does solitude have to do with leadership? Solitude means being alone, and leadership necessitates the presence of others – the people you’re leading. When we think about leadership in American history we are likely to think of Washington, at the head of an army, or Lincoln, at the head of a nation, or King, at the head of a movement – people with multitudes behind them, looking to them for direction. And when we think of solitude, we are apt to think of Thoreau, a man alone in the woods, keeping a journal and communing with nature in silence.”

Solitude allows one to be alone with your thoughts. Arguably solitude is crucial to carry out the task of leadership. Executives need this, and a yoga class may provide them the chance to deeply consider the lasting improvements and skills their organization will need to for sustained organizational performance improvement. These include exploiting the emerging practices of business analytics and deploying and integrating enterprise performance management methodologies. These include strategy maps, scorecards, dashboards, risk management, activity-based costing, predictive analytics, rolling financial forecasts, and many others.

Sadly, just as New Year resolutions are usually broken, my fear is that executives will not actively adopt these methods, despite their being proven as ways to advance their organizations. So similar to how individuals make a resolution to diet but then indulge in eating sweets and desserts, it will be unfortunate that executives will likely postpone initiating the methods and techniques that can sustain improvement. If they took a yoga class, that forced solitude may provide them the solitude to have the vision of what can be and inspire their workforce.

A Poorly Managed Company’s Tour Guide

2012-06-02T07:34:00.000-07:00

Publicly traded companies issue annual reports that increasingly look like magazines. Almost all organizations publish a brochure with glossy pictures that describe what their organizations do. In either case they are very traditional, and many look the same. What is needed is a new idea – a better way to communicate their branding and positioning message in a similar way that international countries’ government tourist agencies promote their nations to attract tourists.

In the article below I have written my first draft article of a “tour guide” for a poorly performing company that I will name as the Mesdup Corporation. (Get it? Like as messed up.) It may be a company you know. Mesdup is clueless as to what key performance indicators (KPI) to monitor as feedback for how it is performing. Their accountants are in the Dark Ages when it comes to accurately reporting and analyzing product, service-line, channel, and customer costs and profit margins. Their broadly-averaged cost allocations calculate flawed and misleading information. Mesdup has no idea how to transform their mountains of raw, transactional data into meaningful information for interpretation and analysis. And much of this input data is full of errors and located in many disparate data sources. Mesdup’s demand forecasts are totally unreliable and projected as if they are random. But, the good news for Mesdup is they have a good public relations and advertising firm that can make any bad organization look good. It is impressive what cosmetics can accomplish.

Here are some discussion notes to refer to develop the first draft of the “Tour Guide for Mesdup Corporation”:

B2B Electronic Invoicing Continues Growth Across the Globe

2012-06-02T07:30:00.000-07:00

The days of paper invoices continue to decline, as electronic invoicing proliferates. In 2011, the use of e-invoicing jumped by 20 percent, according to an estimate from Basware and Billentis. One reason for the growth is legislation mandating or encouraging its use in several countries, including Finland and Mexico. In the U.S., the Department of the Treasury last year announced that it was “mandating that all Treasury Bureaus implement the Internet Payment Platform (IPP), an electronic invoice processing solution, by the end of fiscal year 2012. Additionally, in fiscal year 2013, Treasury will require that its commercial vendors submit their invoices using IPP.”

The Treasury says that adopting IPP across just that department will save $7 million annually. If IPP were adopted across the Federal government, the savings would hit $450 million annually, the U.S. Treasury estimated.

Treasurers Bullish on Money Market Funds

2012-06-02T07:28:00.000-07:00

With most corporate investment policies centered on security and liquidity, it’s probably not surprising that bank deposits and money market funds form the backbone of many corporate cash management investments, as a new survey of 215 treasurers by SunGard indicates. In fact, bank deposits account for more than two-thirds of companies’ investments, while money market funds account for nearly half. Third in popularity, after bank deposits and money market funds, is another group of generally safe investments – government and treasury securities. About 29 percent of respondents include these in their portfolios.

The survey respondents come a mix of industries and from around the globe, although the biggest group – about 50 percent – are from the U.S. About 70 percent work at companies of $1 billion or more in revenue.

Variable NAV funds, as their name implies, have net asset values that fluctuate based on the underlying value of the securities, providing investors with greater price transparency. “Having more timely information lets investors make informed redemption decisions, which promotes gradual asset flows rather than sudden withdrawals,” according to this paper from Deutsche Bank.

Data Transparency Coalition Calls for Federal Data Reform

2012-06-02T07:27:00.000-07:00

If you were one of the many taxpayers scrambling to meet the recent tax deadlines, the question of just how the government spends the money it takes in probably crossed your mind at some point. The goal of the recently launched Data Transparency Coalition is to get data on federal spending, as well as regulatory filings and legislative actions available online, in a standard format.

Even when the government does publish such data, it often lacks consistency and can’t be electronically read, says Hudson Hollister, the Coalition’s founder and executive director. As a result, efforts to search the data to identify spending patterns or instances of waste, fraud or abuse are more difficult than they need to be — if not pointless.

So far, the Coalition has picked up about a dozen corporate backers, including Microsoft, RR Donnelly and Teradata. Hollister previously served as counsel to the U.S. House Committee on Oversight and Government Reform. The Coalition’s board chair is Earl Devaney, who previously chaired the Recovery Board.

Among the initiatives the Coalition is backing is H.R. 2146, or the DATA Act of 2011; the title stands for the Digital Accountability and Transparency Act. Introduced last summer by Rep. Darrell Issa (R-CA), the DATA Act would require every person, governmental entity or government corporation to report at least quarterly, and in a common format, to a Federal Accountability and Spending Transparency Board established by the Act on its use of the funds. (The Act exempts individuals who receive less than $100,000 in a year, assuming no individual transaction exceeds $24,999.) The bill now is with the Committee on Oversight and Government Reform, the Library of Congress reports.

Senator Mark Warner (D-VA) introduced a companion bill in the Senate, S. 1222, last summer. It has yet to go to committee.

The Coalition, along with the U.S. Treasury’s Office of Financial Research, also has thrown its weight behind an ongoing global initiative to establish Legal Entity Identifiers for businesses. “An LEI is a unique number that would identify a legally distinct entity that engages in financial market activities,” according to this Treasury release. Currently, no universal identification scheme for legal entities across markets and jurisdictions exists. That’s made it difficult for both companies themselves and regulators to determine exposure to failing institutions.

In addition, the Coalition has given its support to the Financial Industry Transparency Act, which was introduced in 2010, also by Rep. Issa. As its title suggests, the legislation would establish data standards for the financial information regularly submitted by financial institutions to government agencies. The Act is with the House Financial Services committee.

In a blog post announcing the launch of the Coalition, executive director Hollister writer, “Our government’s failure to deploy data standards has real costs. Because federal spending information isn’t standardized, waste and fraud go undetected. Taxpayers cannot watch their money being spent and inspectors general can’t use analytics to find corruption. And there is no way to tie performance information to spending levels.”

CFO Leadership with Business Analytics – Nature or Nurture?

2012-06-02T07:24:00.001-07:00

At the 2011 conference of The Association for Operations Management (APICS) where I was a presenter I attended a provocative talk by Alan G. Dunn, President and founder of GDI Consulting and Training Company. He questioned if leaders are born or can be grown. It is the classic “nature versus nurture” debate. It got me to thinking about whether business analysts within an organization can be more than a support to others. Can they be leaders? I share some of Alan’s thoughts.

What distinguishes strong from weak leaders?

Having all the knowledge means nothing without the right types of people. One person can make a big difference. They can be someone who somehow gets it altogether and changes the fabric of an organization’s culture not through mandating change but by engaging and motivating others.

For some leaders irritating people is not only a sport but it is their personal entertainment. They are rarely successful. Dunn referenced studies that conclude that the three primary success factor for effective leaders is technical competence, critical thinking skills, and communication skills.
You know there is a problem when a leader says, “I don’t do that; I have people who do that.” Good leaders do not necessarily have high intelligence, good memories, deep experience, or innate abilities they are born with. They have problem solving skills.

The Ford Motor Company’s CEO Alan Mulally came to the automotive business from Boeing in the aerospace industry without deep automotive experience. He has been successful. Why? Because he is an analytical type of leader.

Analytical leaders are adaptable and possess systematic and methodological ways to achieve results. It may sound corny but they apply the scientific method that involves formulating hypothesis and testing to prove or disprove them. They rely on searching for root causes and understanding cause-and-effect logic chains. Ultimately a well-formulated strategy, talented people, and the ability to execute the executive team’s strategy through robust communications are the key to performance improvement.

Key characteristics of the analyst as leader

The popular Moneyball book and subsequent movie demonstrated that traditional baseball scouts methods (“He’s got a good swing.”) gave way to fact-based evidence and statistical analysis. Commonly accepted traits of a leader, such as being charismatic or strong, may also be misleading.

The most scarce resource in an organization is human ability and competence. That is why organizations should desire that every employee be developed for growth in their skills. But having sound competencies is not enough. Key personal qualities complete the package of an effective leader. For the analyst as a leader three personal quality characteristics are needed: curiosity, imagination, and creativity. The three are sequentially linked. Curious people constantly ask “Why are things the way they are?” and “Is there a better way of doing things?” Without these personal qualities then innovation will be stifled. The emergence of analytics is creating opportunities for analysts as leaders.

Weak leaders are prone to a diagnostic bias. They can be blind to evidence and somehow believe their intuition, instincts, and gut-feel are acceptable masquerades for having fact-based information. In contrast, a curious person always asks questions. They typically love what they do. If they are also a good leader they infect others with enthusiasm. Their curiosity leads to imagination. Imagination considers alternative possibilities and solutions. Imagination in turn sparks creativity.

Creativity is the implementation of imagination

Good analysts have a primary mission: to gain insights relying on quantitative techniques to result in better decisions and actions. Their imagination that leads to creativity can also result in vision. Vision is a mark of a good leader. In my mind, an executive leader has one job (aside from hiring good employees and growing them). That job is to answer the question, “Where do we want to go?” With that answer managers and analysts can answer the follow-up question, “How are we going to get there?” That is where analytics are applied with the various enterprise performance management methodologies, such as strategy maps, scorecards, customer profitability analysis, risk management, and driver-based rolling financial forecasts and plans. It is too fully execute the strategy.

In Dunn’s studies other perceived characteristics of a good leader are over-rated. These include ambition, team spirit, collegiality, integrity, courage, tenacity, discipline, and confidence. They are nice-to-haves but pale compared to technical competency and critical thinking and communications skills.

Be analytical and you can be a leader.