Receiving Wide Coverage ...
Central Bank Tea Leaves: A few stray comments by Bank of England policymakers have shifted rate expectations for the U.K. and caused a swing in currency markets. The minutes of the central bank's latest policy meeting, released Wednesday, showed members of the policy committee voicing "surprise" that investors don't think a rise in interest rates is likely before next year. Investors, apparently surprised at the central bank's surprise at their expectations, proceeded to adjust those expectations, sending the pound sterling to near five-year highs against the dollar and euro. But the rally proved short-lived, and the pound slipped back as investors began to question whether the central bankers' comments were perhaps not so significant after all. All clear? The bottom line is that the BofE is now expected to raise rates late this year rather than in early 2015. In the U.S., meanwhile, the Federal Reserve is set to close its two-day meeting on the economy and interest rates, and is expected to publish its updated growth forecasts Wednesday. The New York Times' Binyamin Appelbaum examines how the central bank's predictions since the crisis have consistently overestimated the economic recovery. The Wall Street Journal wonders if the Fed's low-rate policies have done anything for the long-term unemployed.
Citi Exodus and Fine Fight: Citigroup currency-trading head Jeff Feig is leaving to join hedge fund Fortress Investments, following recently departed foreign-exchange chief Anil Prasad. Now Citi, the biggest dealer of currencies in the world, is short of senior trading staff, and the Journal sees this as the latest signal that regulators are planning to shake up currency trading. The move shows banks "struggling to respond" to forex-manipulation probes, the FT says. Citi faces a possible $10 billion settlement with the Department of Justice over faulty mortgage-backed securities, and some of the bank's biggest shareholders want their day in court, the FT says. JPMorgan, of course, paid $13 billion rather than battle with the feds, but Citi may not go as quietly.
Argentine 'Defiance': Speaking of fighting spirit: the dailies, perhaps influenced by the World Cup's spirit of national rivalry, framed Argentina's plan for a debt swap in highly pugilistic terms. "Argentina vows to continue fight against 'vulture funds'," says the FT; "Argentina Defiant," says the Times. What's actually happening? Argentina plans to swap out debt issued under U.S. jurisdiction for debt issued under its own laws as a way of avoiding possible default at the hands of a few U.S. hedge funds. "We are taking the first steps to pay the debt in Argentina," economic minister Axel Kicillof said Tuesday, presumably in a tone of fiery defiance. The announcement follows a Monday ruling by the U.S. Supreme Court that would force Argentina to pay around $1.3 billion to a group of hedge funds that hold its debt. The Journal toned down the bluster and played it straight: "Argentina Plans Debt Swap."
Wall Street Journal
The Journal examines the mixed second-quarter results at midsize investment bank Jefferies and asks what it means for the industry.
Financial Times
The paper has a pair of longer pieces on how banks are unloading risky assets on more lightly regulated shadow banking firms. The first one looks into how shadow banks are filling the void left by banks' reluctance to lend. The trend is forcing traditional lenders to make tough choices to stay competitive, but also offers them the chance to cooperate by selling off some of their iffier assets. In a related article, the FT examines how banks are transferring assets into "blind pools," managed by hedge funds and others, as a way of keeping risk off their balance sheets. And, in a different sort of cooperation between old- and new-school lenders, Santander is partnering with peer-to-peer lender Funding Circle. The deal is "a sign that alternative finance providers are achieving mainstream acceptance," says the FT.
Regulators in England may force banks to allow their customers to instantly change over their current accounts when they switch banks. Banks oppose the idea, claiming it will cost up to £10 billion to update technology to allow this. Andrea Leadsom, a London minister who is pushing the rule, thinks it could bring more competition to banking. "You're more likely to divorce than to switch bank accounts," she tells the paper. The FT also has a profile of Leadsom, whom it portrays as a bank-wary maverick.
The Archbishop of Canterbury, Justin Welby, claims that banks are still too big to fail. "If JPMorgan had to go into insolvency, are we seriously saying it would not cause a systemic crisis?" he asked on Tuesday. JPMorgan did not, in response, issue a statement criticizing the Church of England on fine points of ecclesiastical doctrine.
New York Times
The Securities and Exchange Commission is investigating mortgage servicer Carrington Holding Company. The SEC is scrutinizing how hedge fund manager Bruce Rose financed his purchase of a subprime servicing business from New Century Financial seven years ago, the paper says.
