Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said the Fed will probably need to raise interest rates before mid-2013 and that policy makers should have waited to see how the economy performed before pledging to hold rates at record lows for two years.
“It was inappropriate policy at an inappropriate time,” Plosser, 62, said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. Plosser spoke in his first interview since he dissented from a Fed decision on Aug. 9 to step up stimulus for an economic recovery that’s “considerably slower” than anticipated.
Plosser said that it wasn’t clear that the economy needed additional stimulus, especially given rising inflation and a decline in the unemployment rate since November to 9.1 percent.
Plosser, Richard Fisher of Dallas and Narayana Kocherlakota of Minneapolis opposed the commitment to hold the Fed’s benchmark interest rate at a record low near zero until at least mid-2013, saying they preferred to maintain a low-rate pledge for an unspecified “extended period.” The last time three policy makers dissented was in November 1992.
“We’re reacting too quickly here,” he said. “A little patience might be a good idea.” He said he wanted to wait until September to see whether the economic rebound anticipated in the second half of the year materialized.
He said he is concerned that investors may interpret the decision to hold rates low until mid-2013 as a reaction to equities.
The central bank shouldn’t be viewed as a lifeline for the economy when Congress and the White House can’t agree on providing more fiscal stimulus, Plosser said.
It’s “a big mistake for policy makers inside the Fed to believe if fiscal policy is hamstrung that the Fed has to act,” he said. “That is not a good reason to act.”
In a March speech, Plosser laid out a strategy for withdrawing record monetary stimulus, saying the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates.
For more from Plosser, click here and here.
Federal Reserve Bank of Dallas President Richard Fisher echoed Plosser’s sentiment saying in a speech yesterday that the central bank shouldn’t ease monetary policy whenever there is a big drop in U.S. stock prices, an action he said some traders might view as a “Bernanke put.”
“My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors,” Fisher said in Midland, Texas yesterday. “I believe my FOMC colleagues share this view.”
For more from Fisher, click here.
Bankers Criticize Franco-German Plans for EU Transaction Tax
Banks criticized Franco-German plans for a tax on financial transactions, saying they will jeopardize economic growth and distort markets, as the British, Dutch and Swedish governments distanced themselves from the proposals.
“The financial-services industry should not be seen as an additional source of tax revenue but as an essential part of a stable and sustainable economy,” said the Association for Financial Markets in Europe, which represents firms including Deutsche Bank AG and BNP Paribas SA. A “tax would be a brake on economic growth,” it said in a statement.
Lenders would pass on the cost of the levy to customers, Brian Mairs, a spokesman for the British Bankers’ Association, a London-based lobby, said yesterday. A tax would only work if implemented globally or it would trigger “distortions” in financial markets, Mairs said.
The British government, which oversees Europe’s biggest financial center, is preparing to clash with its French and German counterparts over the levy, which would be applied in all 27 European Union countries. Finance chiefs failed to agree on a transactions tax in September 2010, amid opposition from nations including the U.K. The Swedish and Dutch governments also said they oppose the plans. EU taxation proposals require unanimous support from the bloc’s 27 governments to become law.
“Without the practical detail on scope and implementation, this should be treated as political rhetoric for now,” Oriel Securities Ltd. analysts including Mike Trippitt wrote in a note yesterday to clients. “Implementation is knotty.”
The European Commission said it will draw up proposals for the tax and an assessment of its potential economic impact, before G-20 leaders meet in Cannes, France in November, backing calls for the levy by French President Nicolas Sarkozy and German Chancellor Angela Merkel on Aug. 16.
For more, click here.
Northrop Says U.S. Drone Export Policies Hurt Global Sales
Wes Bush, chief executive officer of Northrop Grumman Corp., maker of the Global Hawk surveillance drone, said U.S. rules that restrict exports of such systems hurt global sales.
“Today’s export restrictions are hurting the industry and the U.S. without making us any safer,” Bush said at a conference in Washington. The rules “could cause us to relinquish our lead” in unmanned systems because allies may develop their own equipment if they can’t buy U.S. drones, he said.
Bush said the Missile Technology Control Regime, a voluntary set of rules accepted by 34 countries including the U.S., is becoming an impediment to exports of unmanned systems. The MTCR was originally established in 1987 to curb the proliferation of unmanned systems such as guided missiles.
“The MTCR needs an overhaul,” Bush told reporters at the Association of Unmanned Vehicles Systems International conference. The Obama administration is taking a “hard look at the policies that were developed when technologies and concerns were quite different” with a view to reform.
Danish Central Bank Offers Liquidity Line With Asset Rules
Denmark’s central bank will accept bank loans as collateral in an effort to boost liquidity as the country’s lenders wait for the government to hammer out details of a proposal designed to ease a regional banking crisis.
The new collateral rules will be effective from Oct. 1 and run until further notice, the Copenhagen-based bank said Aug. 16. The new terms are made possible because of a change in the country’s securities trading act and mirror measures in other European countries, the bank said.
The government, which plans to withdraw its guarantees in 2013, this month proposed measures to spur consolidation and help the industry sidestep Europe’s toughest insolvency laws.
“The central bank is moving independently of the government to ensure the banking industry has sufficient liquidity ahead of the 2013 expiration of state-guaranteed bonds,” said Thomas Hovard, chief analyst in corporate bonds for Danske Markets, a unit of the country’s biggest lender, Danske Bank A/S. “They’re not going to wait for the politicians. They’re looking at the sector and at the signals. They’re acting independently.”
For more, click here.
Swedish Regulator Starts Saab Automobile Debt Collection
Sweden’s Debt Enforcement Agency started collection proceedings against Saab Automobile after the cash-starved carmaker failed to meet an Aug. 16 deadline to pay two suppliers, an official at the regulator said.
“We’ve just begun by looking at what kind of bank accounts they have and what kind of collateral there might be” in the process that started yesterday, Tommy Barkman, a case worker at the state agency, said in a telephone interview.
Saab was supposed to pay Kongsberg Automotive AB, a Norwegian manufacturer of car-seat parts, and Infotiv AB, a Gothenburg, Sweden-based consulting firm, a combined 4 million kronor ($633,000).
“We’re in contact with the collection agency, but we can’t comment any more than that,” Eric Geers, a spokesman at Saab, said by telephone yesterday.
The collection process usually takes from one to three months, and can be halted in the event Saab pays the debts involved, Barkman said. At the end of the procedure, the Swedish Tax Authority can request that Saab be put into bankruptcy in the absence of payments.
U.K. Senior Police Cleared in Botched Phone-Hacking Probe
Britain’s police watchdog cleared former Metropolitan Police Commissioner Paul Stephenson and his deputy John Yates in relation to a botched phone-hacking investigation of News Corp.’s News of the World tabloid.
While police made mistakes such as ending the probe too soon in 2009 and failing to notify victims, the senior officers acknowledged the errors by resigning last month, the Independent Police Complaints Commission said in a statement yesterday on its website. Yates will remain under investigation for his alleged role in securing a job for the daughter of Neil Wallis, a former editor at the now-defunct newspaper.
“It is difficult to see what further investigation would achieve,” the IPCC said of Yates, who closed the earlier probe. “We would agree that he made a poor decision in 2009. He himself has acknowledged that, given what is now known, he made a poor decision for which he has now taken responsibility.”
The police are under pressure to explain their links with News Corp. journalists and their failure to further probe phone-hacking by the News of the World following the 2007 jailing of reporter, Clive Goodman, and a private investigator, Glenn Mulcaire, for intercepting phone messages.
“I am pleased that the IPCC have accepted that no investigation into me is required in relation to my involvement in the phone hacking matters,” Yates said in an e-mailed statement. “However, I am disappointed with the IPCC’s decision to investigate my peripheral involvement in recruitment process of Neil Wallis’s daughter.”
Stephenson said in an e-mailed statement that he had expected to be cleared of any wrongdoing.
Roche, Daiichi Sankyo Win U.S. Approval for Melanoma Drug
Roche Holding AG and Daiichi Sankyo Co. won U.S. clearance to sell a melanoma drug that is among a new wave of medicines developed to fight the deadliest form of skin cancer.
The Food and Drug Administration approved Zelboraf as a therapy for patients whose tumors have spread, the agency said in a statement yesterday. The drug, also known as vemurafenib, is the second cleared for the disease this year.
Zelboraf may help patients with advanced melanoma, an aggressive skin cancer blamed for 8,700 U.S. deaths last year. The drug from Roche, of Basel, Switzerland, and Tokyo-based Daiichi will compete with Bristol-Myers Squibb Co.’s Yervoy, cleared in March as the first treatment proven to extend lives of advanced melanoma patients.
Sales of the drug may reach 700 million Swiss francs ($891 million) by 2015, Jack Scannell, an analyst with Sanford C. Bernstein & Co. in London, said in May. Bristol-Myers, based in New York, may earn $1.5 billion from Yervoy in 2015, according to the average estimate of three analysts surveyed by Bloomberg.
Novartis’s Tasigna Drug Backed by U.K.; Bristol-Myers Rejected
Novartis AG’s Tasigna drug won the backing of the U.K.’s health-cost agency for use against a rare blood cancer after the company agreed to discount the price.
The National Institute for Health and Clinical Excellence rejected a competing treatment, Bristol-Myers Squibb Co.’s Sprycel, the agency said in a statement yesterday. Tasigna is approved for patients whose chronic myeloid leukemia doesn’t respond to a standard dose of Novartis’s Glivec treatment, or those who can’t tolerate Glivec, according to draft guidelines.
Both Tasigna and Sprycel cost more than 30,000 pounds ($49,700) a year, and doctors said the two drugs are equally effective, said the agency, known as NICE. Novartis offered a reduction that allowed a recommendation for Tasigna, and the Basel, Switzerland-based company asked that the discount be kept confidential, the agency said.
NICE will issue final guidelines after hearing any appeals. Chronic myeloid leukemia affects about 560 people a year in the U.K., the agency said.
Whiskey, Wine Fraud on Americans Brings 5-Year Term for Briton
A British man who defrauded American and Canadian investors of about 30 million pounds ($49 million) through investment schemes tied to wine, whiskey, cognac and champagne was sentenced to 5 years in prison.
Richard Gunter, 50, spent more than 1 million pounds from the proceeds to buy luxury cars with personalized license plates, the Serious Fraud Office, which prosecuted the case, said in a statement yesterday. Gunter’s U.K.-based company called the Hallmark Partnership, and later Vintage Hallmark Plc, operated like a Ponzi scheme, prosecutors said.
Gunter promised investors high rates of return over short periods of time, including a 50 percent return over 10 months for a champagne investment, and a 110 percent return over three months from whiskey investments.
Gunter’s 5-year sentence was handed down in June and couldn’t be made public until yesterday because of reporting restrictions related to Gunter’s co-defendant Robin Grove’s trial.
Gunter had previously been found guilty for his involvement in a similar wine investment scheme in 2008. He was sentenced to 4 1/2 years in prison for that fraud. He is to serve the terms concurrently.
DLF Fined 6.3 Billion Rupees by India’s Antitrust Agency
India’s antitrust regulator fined developer DLF Ltd. 6.3 billion rupees ($139 million) for “abuse of dominance” related to the sale of apartments.
DLF, India’s largest developer, has received the regulator’s order and will examine all options including an appeal to the Competition Appellate Tribunal, the New Delhi-based company said in a statement yesterday.
The Belaire Owners’ Association, representing buyers at the Belaire housing complex in DLF City in Gurgaon, had complained that DLF had delayed the project and inserted one-sided contract clauses. The order said that DLF collected money from the buyers before they were provided the sale agreements.
The Competition Commission of India, the nation’s antitrust agency, concluded that DLF had imposed unfair conditions on the sale of its services to consumers. It imposed a penalty that amounts to 7 percent of DLF’s average annual turnover over the past three years. The commission also directed the developer to modify “unfair conditions” within three months, according to the order posted on the agency’s website.
Wells Fargo Reaches Accord With Connecticut Over Home Loans
Wells Fargo & Co. will consider about 1,535 Connecticut mortgages for modification as part of an agreement with the state on adjustable-rate loans, the state’s attorney general said.
The accord resolves claims that Wachovia Corp. and Golden West Financial Corp. violated state consumer protection laws, Attorney General George Jepsen said in a statement yesterday. The banks failed to adequately inform borrowers that minimum payments on “pick-a-payment“-type mortgages wouldn’t cover interest due, causing the balance to grow, Jepsen said.
“I want to stress that Wells Fargo inherited this problem when it acquired Wachovia and Golden West,” Jepsen said. San Francisco-based Wells Fargo bought Wachovia and its Golden West unit in 2008.
To resolve the investigation, the bank also agreed to pay Connecticut $741,465 to support the state’s foreclosure-prevention efforts, Jepsen said.
The Connecticut accord is the 11th such agreement by the lender, which has also settled with California, Texas, Florida, Illinois, New Jersey and five other states.
‘FarmVille’ Maker Zynga Sued Over Patents for Facebook Games
Zynga Inc., the largest developer of games for Facebook Inc.’s social network, was sued by Agincourt Gaming LLC for infringing two patents covering features of online games including “FarmVille” and “Mafia Wars.”
Zynga, which is preparing for an initial public offering, has a history of copying rather than devising its own games, Susman Godfrey LLP, the law firm representing Agincourt, said in a statement yesterday. Agincourt seeks unspecified damages and a court order barring the conduct, according to its lawsuit, filed in federal court in Wilmington, Delaware.
The patents cover processes for credit-based online gaming and a prize-redemption system based on the outcome of game play, according to Dallas-based Agincourt’s complaint.
“Agincourt’s patents cover the most lucrative aspects of online social gaming -- including those comprising the bulk of Zynga’s revenues -- as they contain the crucial ‘link’ that allows for global, interactive prize redemption over the Internet,” Bill Carmody, a senior partner at Susman Godfrey, said in the statement.
“We’re not commenting” on the lawsuit, Adam Isserlis, a spokesman for San Francisco-based Zynga, said in an e-mailed statement.
The case is Agincourt Gaming LLC v. Zynga Inc., 11-00720, U.S. District Court, District of Delaware (Wilmington).
Apple Sued by South Korean IPhone Users Over Location Data
A group of South Korean users of Apple Inc.’s iPhone sued the company in a local court, claiming it invaded their privacy by allowing the smartphone to collect location data without their consent.
About 27,000 people joined a class-action suit against Apple’s South Korean unit and headquarters, seeking 1 million won ($930) per person in damages, according to a notice posted online by Mirae Law, which represents the plaintiffs. The suit was filed in Changwon, south of Seoul, where the law firm is located.
Apple was fined by South Korea’s telecommunications regulator on Aug. 3 and ordered to encrypt location data of people using iPhones to address privacy concerns. The company also came under scrutiny of regulators around the world after an April report by publisher O’Reilly Radar said iPhones record information about users’ whereabouts, adding to legal disputes the company is involved in over patent infringements.
Apple was fined 3 million won for collecting such data even when some users turned off location-recognition features on their iPhones, the Korea Communications Commission said Aug. 3. Google Inc., which didn’t gather data in the same way, wasn’t fined and only ordered to make the information unreadable, it said.
Steve Park, a Seoul-based spokesman for Apple, declined to comment on the case.
CIFG Sues Goldman Sachs Over $275 Million in Securities
CIFG Assurance North America Inc. sued Goldman Sachs Group Inc. for fraud over $275 million in residential mortgage-backed securities.
Goldman Sachs made misrepresentations in connection with the securitization of a portfolio of 6,204 mortgage loans, according to the lawsuit filed Aug. 16 in New York state Supreme Court in Manhattan. CIFG insured about $275 million of securities from the portfolio.
The investment bank duped investors and insurers into assuming its market risk, even as Goldman Sachs profited from underwriting fees, trading opportunities and bets on a decline in the subprime market, New York-based CIFG said.
While Goldman Sachs aggressively sought to liquidate its position in residential mortgage-backed securities, “it also sought to exploit the crisis,” according to the complaint.
Michael Duvally, a spokesman for New York-based Goldman Sachs, declined to comment on the lawsuit.
The case is CIFG Assurance North America Inc. v. Goldman, Sachs & Co., 652286/2011, New York Supreme Court, New York County (Manhattan).
Madoff Trustee Amends UBS Case, Says Bank Misled Regulators
The trustee liquidating Bernard Madoff’s firm amended his lawsuit seeking $2 billion from UBS AG, claiming the Swiss bank misled regulators in the U.S. and Luxembourg to help hide Madoff’s Ponzi scheme.
UBS misled the U.S. Securities and Exchange Commission and the Commission de Surveillance du Secteur Financier in Luxembourg about Madoff, the trustee, Irving Picard, said yesterday, according to a copy of the complaint posted on his website.
“Madoff’s scheme could not have been accomplished unless the UBS defendants had agreed to look the other way and to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did,” according to the amended complaint.
Peter McKillop, a spokesman for UBS, said the bank denies the trustee’s allegations.
The case is Picard v. UBS AG, 11-cv-04212, U.S. District Court, Southern District of New York (Manhattan).
Reback Expects Antitrust Probe of Google’s Motorola Buy
Gary Reback, an antitrust lawyer at Carr & Ferrell LLP, talks about the possibility of an antitrust investigation into Google Inc.’s agreement to buy Motorola Mobility Holdings Inc.
He speaks with Emily Chang on Bloomberg Television’s “Bloomberg West.” To watch the video, click here.
Acket Says Pegging Swiss Franc to Euro a ‘Daunting Task’
Janwillem Acket, chief economist at Julius Baer Group Ltd., talks about the outlook for the Swiss franc and possible intervention from the Swiss National Bank.
He speaks from Zurich with Francine Lacqua on Bloomberg Television’s “The Pulse.” To watch the video, click here.