Goldman Sachs Group Inc. is shutting its principal-strategies business, a group that makes bets with the firm’s own capital, to comply with new U.S. rules aimed at curbing risk, two people with knowledge of the decision said.
Wall Street’s most profitable investment bank plans to hold off on announcing the wind-down while the 65 to 70 members of the global unit seek new jobs, the people said, speaking anonymously because the internal discussions about the process are confidential. Some traders and support staff may get roles within the firm, while a team in Asia may raise money for a new hedge fund, the people said.
Ed Canaday, a spokesman for New York-based Goldman Sachs, declined to comment.
Earlier plans for most members of the Principal Strategies group, led by Hong Kong-based Morgan Sze, to leave together and form a hedge fund were shelved, people with knowledge of the matter said. Sze, 44, may set up a fund with a smaller team focused on Asia, they said. Employees in London and New York are considering different options, the people said. The team’s members in New York, led by Bob Howard, are in talks to join another asset-management firm, according to two people.
Goldman Sachs, which says about 10 percent of its revenue comes from proprietary trading, is grappling with a provision of the Dodd-Frank financial reform act that prohibits banks from risking capital by betting for their own accounts. JPMorgan Chase & Co. plans to close its prop-trading units in response to the law, signed by President Barack Obama in July. JPMorgan last month told in-house commodities traders in London that they may lose their jobs, a person briefed on the matter said this week.
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EU to Overhaul Financial Supervision After ‘Milestone’ Accord
European Union governments and lawmakers agreed to create new banking, securities and insurance supervisors that will start work on Jan. 1, 2011.
The Sept. 2 agreement at talks in Brussels also paves the way for a new systemic-risk watchdog, chaired by the European Central Bank President Jean-Claude Trichet or his successor for its first five years, tasked with issuing color-coded warnings to governments on risks to the economy such as swelling asset bubbles.
“We have reached a crucial milestone,” EU Financial Services Commissioner Michel Barnier said in an e-mailed statement. “We will have the control tower and the radar screens needed to identify risks.”
The new authorities will overhaul oversight in the 27- nation bloc to avoid a repeat of the 2008 crisis when EU states struggled to coordinate moves to shore up financial institutions. The regulators will be able to investigate financial activities or products and, in emergency situations, put in place temporary bans.
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Gene-Altered Salmon Won’t Harm Other Fish, FDA Says
Aqua Bounty Technologies Inc.’s genetically engineered salmon are safe to eat and unlikely to harm the environment, U.S. regulators said weighing whether to approve the first gene- altered animal for human consumption.
The genetically modified Atlantic salmon, known as AquAdvantage, are unlikely to escape into the ocean or reproduce with conventional fish, Food and Drug Administration staff said in a Sept. 3 report.
Aqua Bounty has been seeking FDA approval for more than a decade for its salmon, which are designed to grow to full size twice as fast as regular ones using genes from two other types of fish.
If approved, the Waltham, Massachusetts-based company’s fish would be the first genetically modified animal approved by the FDA as a food source. A coalition of 31 groups including Food & Water Watch and Friends of the Earth urged the FDA on Aug. 27 to reject the fish, saying it could cause extinction of the wild salmon population.
“No effects on stocks of wild Atlantic salmon are expected,” according to the report.
Roubini Says ECB Should Consider Rate Cuts to Weaken Euro
New York University Professor Nouriel Roubini said the European Central Bank should consider cutting its benchmark interest rate in an effort to weaken the euro against the dollar.
Speaking at a conference in Cernobbio, Italy, Roubini said that austerity measures being implemented to cut budget deficits in Europe are a “risk” to the region’s economic recovery.
The U.S. labor market remain ‘very weak’ even after Sept. 3 jobs data was better than economists’ forecasts.
U.S. Probes Fire in Gulf of Mexico That Sparked BP Deja Vu
U.S. officials are investigating the cause of a Sept. 2 fire on a Mariner Energy Inc. oil and natural-gas platform in the Gulf of Mexico that initially drew parallels with the BP Plc spill disaster.
The U.S. Department of the Interior and Coast Guard will look into what triggered the fire that burned for several hours and forced the evacuation of 13 workers, Coast Guard Chief Petty Officer John Edwards said.
The fire started on or near upper-deck living quarters and wasn’t caused by an explosion, Patrick Cassidy, a spokesman for Mariner Energy, said in an e-mail. The company said oil and gas production from the wells controlled by the platform, known as Vermilion 380, has been shut down.
Coast Guard vessels and aircraft are scanning the sea around the platform about 90 miles (145 kilometers) off the Louisiana coast for signs of oil, Coast Guard Captain Peter Troedsson said.
A mile-long (1.6-kilometer), 100-foot-wide sheen of oil was sighted near the platform, which stands in less than 400 feet of water, the Coast Guard said Sept. 2, citing a report from Houston-based Mariner.
The fire may foil oil-industry efforts to resume deep-water exploration less than five months after the BP rig explosion killed 11 workers, triggered the biggest offshore oil spill in U.S. history and prompted a moratorium on deep-water drilling, said Gianna Bern, president of Brookshire Advisory & Research Inc., a Flossmoor, Illinois, firm that provides risk-management advice to oil producers.
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Swap Reform to Increase Competition, Cut Profits for Banks
Regulatory reform of over-the-counter derivatives should open the market to more banks while lowering the swap-trading profits of major dealers, according to Citadel LLC.
The Dodd-Frank Act, which became law in July, requires most swap trades in the $615 trillion OTC derivatives market to be processed by clearinghouses in an effort to stem systemic risk. With a clearinghouse on the other side of every trade, banks with less capital on their balance sheets should have access to the market previously dominated by firms such as JPMorgan Chase & Co., Deutsche Bank AG and Goldman Sachs Group Inc.
“Introducing competition and transparency will change the business practices of all market participants,” Kenneth Griffin, founder of Citadel, said Sept. 3 at a symposium at the Federal Reserve Bank of Chicago. “Pension funds, asset managers and corporations who rely on this important financial tool will be better equipped to manage balance sheets.”
Congress sought to regulate OTC derivatives, including swaps, after the trades complicated efforts to solve the financial crisis.
The top five U.S. commercial banks, including Goldman Sachs and JPMorgan, generated an estimated $28 billion in revenue from privately negotiated swaps in 2009, according to company reports collected by the Federal Reserve and people familiar with banks’ income sources.
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Swedish Prosecutor Starts Preliminary Investigation of HQ Bank
A Swedish Economic Crime Authority prosecutor will start a preliminary investigation regarding alleged accounting fraud and swindling in HQ Bank AB, the authority said in a Sept. 3 statement on its website.
Prosecutor Berndt Berger started the investigation after a report by the Swedish Financial Supervisory Authority suggested HQ Bank has given incorrect information regarding its trading portfolio value, giving an incorrect description of the bank’s financial performance, the authority said.
National Grid Being Probed by U.S. States, Sunday Telegraph Says
National Grid Plc, operator of the U.K.’s power networks, is under investigation by regulators in two U.S. states for allegedly trying to pass $26 million of management expenses onto customers, the Sunday Telegraph said.
The electricity provider is proposing to raise rates by $369 million in New York and $107 million in Massachusetts, according to the London-based newspaper, which didn’t say where it got the information.
“This is not a special investigation,” said Alberto Bianchetti, a National Grid spokesman based in the U.S. “It’s part of a normal rate proposal process we go through routinely in various jurisdictions.”
KfW Probe Over EU320 Million Lehman Payment Dropped, Welt Says
German prosecutors dropped a probe into KfW Group managers over a 320 million-euro ($410 million) payment to Lehman Brothers Holdings Inc, German newspaper Die Welt reported.
Frankfurt prosecutors investigated former and current KfW managers over the automated payment to Lehman on Sept. 15, 2008 the same day the New York-based securities firm filed the biggest bankruptcy case in U.S. history. The probe was ended because there was no evidence of wrongdoing, Die Welt said, citing the prosecutor’s order on the case.
KfW hasn’t received the decision, spokesman Wolfram Schweickhardt said in an interview with Bloomberg News today.
French Appeals Court Reduces EBay Fine on LVMH Fakes
A French appeals court slashed the fines EBay Inc. must pay in a suit over sales of counterfeit LVMH Moet Hennessy Louis Vuitton SA goods from almost 40 million euros ($51.3 million) to 5.6 million euros.
The appeals court reduced the fines in a ruling in Paris Sept. 3, while upholding findings against San Jose, California- based EBay from the lower tribunal. The appeals court didn’t give its reasoning for the decision.
The case is part of an on-going dispute between EBay, the most visited U.S. e-commerce site, and French brand owners over online sales. The decision involves a trio of June 30, 2008, rulings by the Paris commercial court, awarding LVMH, the world’s largest luxury-goods maker, damages for trademark violations and harm to its brands’ images as well as halting the sale of some perfumes and cosmetics to French buyers.
LVMH said the ruling supported its claims because it didn’t overturn the lower court’s findings and allows the Paris-based company to “seek redress before foreign courts for damages suffered in their jurisdictions.”
Polly Peck Founder Nadir Has Trial Set for October, Gets Bail
Asil Nadir, the executive who returned to the U.K. last week to face fraud charges two decades after fleeing the country, is scheduled to face trial in October 2011, a London judge ruled Sept. 3.
Justice David Bean at the Old Bailey overruled a request by Nadir’s lawyer William Clegg to hold the trial earlier, saying that it was “unrealistic” for the prosecution to be expected to re-compile a 17-year-old case on short notice.
Nadir left the U.K. in 1993 after being charged with theft and false accounting by the Serious Fraud Office, which prosecutes major financial crime. The SFO said Nadir embezzled about 30 million pounds ($46 million) from Polly Peck, a food- packaging firm that collapsed in 1990 when it was unable to pay its debts.
Fired Bond Trader, TD Bank Settle Suit Over Incorrect Pricing
A bond trader fired by Toronto-Dominion Bank after an investigation into incorrectly priced credit derivatives settled a lawsuit in which the bank sought to recoup his bonuses and the cost of the probe.
Nabeel Naqui, the former head of the credit products group for Europe and Asia, and Toronto-Dominion reached a settlement in July, according to a court filing in London that became public this month. The terms of the settlement weren’t disclosed. The bank sued Naqui last year seeking 3.1 million pounds ($4.8 million).
The trader was suspended in June 2007 and fired six months later, he said in a court filing last year. Toronto-Dominion said he overvalued his trading positions by altering quotes from dealers and forwarding them on to the bank without notification that they had been changed.
Kathryn Garbett, Naqui’s lawyer, and Matthew Fortier, a Toronto-Dominion spokesman in London, didn’t immediately respond to requests for comment.
The case is Toronto-Dominion Bank v. Nabeel Naqui, 2009/3363, High Court of Justice, Chancery Division (London).
Luminant Sued by Sierra Club Over Texas Power Plant’s Pollution
Energy Future Holdings Corp. and its Luminant Generation unit were sued by the Sierra Club over pollution emitted by the Martin Lake coal-fired power plant in Texas.
The plant near Longview is among the dirtiest in the U.S., the environmental group said in its complaint filed Sept. 2 in federal court in Texarkana, Texas. The San Francisco-based group asked a judge to find the plant’s operators in violation of the U.S. Clean Air Act.
“It is the worst power plant for mercury pollution among all U.S. coal plants, emitting 1,764 pounds in 2008,” the Sierra Club said in a statement.
“We are disappointed that Sierra Club has decided to use litigation instead of continuing a dialogue with us that we initiated after receiving Sierra Club’s expression of alleged concerns,” Luminant said in a statement on its website. It called the complaint “without merit.”
The case is Sierra Club v. Energy Future Holdings Corp., 10-cv-00156, U.S. District Court, Eastern District of Texas (Texarkana).
Ex-Qwest Chief Nacchio Settles SEC Case Without Extra Penalty
Joseph Nacchio, the former chief of Qwest Communications International Inc. convicted of insider trading, settled a related civil lawsuit brought by the U.S. Securities and Exchange Commission.
The SEC filed a Sept. 2 request asking U.S. District Judge Marcia Krieger in Denver to approve the settlement. The agreement would bar Nacchio from acting as an officer or director of a public company.
Nacchio, 61, of Rumson, New Jersey, was convicted in 2007 of illegally selling $52 million of stock in Denver-based Qwest in 2001 based on inside information. In the criminal case, Krieger upheld a $19 million fine -- the maximum Nacchio faced - - and approved forfeiture of $44.6 million, a figure agreed to by Nacchio and the government.
The SEC cited the fine and penalty, saying a civil penalty isn’t being imposed “in light of the sanctions ordered in the related criminal case,” according to the court filing.
Nacchio has appealed a 70-month prison sentence that reduced his original term by two months. An appeals court has not ruled on that request.
The case is U.S. v. Nacchio, 1:05-cv-00480, U.S. District Court, District of Colorado (Denver).
Kroszner Doesn’t See ‘Major Move’ by Fed on Jobs Data
Former Federal Reserve Governor Randall Kroszner talks about the potential impact of August U.S. jobs data on Fed monetary policy and the outlook for the economy.
Private payrolls climbed 67,000 after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures in Washington showed Sept. 3. The unemployment rate rose to 9.6 percent as more people looked for work. Kroszner speaks with Scarlet Fu on Bloomberg Television’s “InBusiness.”
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Attali Says Bank Lending Is ‘Missing Link’ of Recovery
Jacques Attali, president of Planet Finance, talks about the outlook for the U.S. economy and the role of banks in boosting growth.
He spoke with Bloomberg’s Caroline Connan Sept. 2 at the Medef Summer University near Paris.
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Comings and Goings
BlackRock Chosen by Insurance Regulators to Weigh CMBS Risks
BlackRock Inc., the world’s biggest money manager, was hired by state insurance regulators to assess the industry’s potential losses from holding commercial mortgage-backed securities.
BlackRock will review more than 7,000 securities by year- end, the National Association of Insurance Commissioners said in a Sept. 2 statement released on its website. The New York-based firm will calculate loss expectations for the holdings, which will determine how much capital insurers must hold to cushion potential declines, NAIC said.
Insurance regulators are searching for an alternative to Moody’s Investors Service and Standard & Poor’s, whose ratings were cited by some as one cause of the financial crisis. Last year, the NAIC named Pacific Investment Management Co. to evaluate insurance firms’ home-loan securities.
Brian Beades, a spokesman for BlackRock, declined to comment.
U.K. Treasury Names Cole to FSA Board as Enforcement Director
Margaret Cole, the head of enforcement at the U.K. Financial Services Authority, was appointed to its board as a managing director.
Cole joins FSA Chairman Adair Turner, Chief Executive Hector Sants and 13 others on the agency’s board. She will serve as managing director for enforcement and financial crime, U.K. Treasury minister Mark Hoban said in a statement today.
“Margaret has driven the FSA’s strategy of credible deterrence over the last three years, building the in-house expertise, intelligence-gathering tactics and litigation specialism,” Sants said in a separate statement on the FSA’s website.