August Job Report Shows No Growth
On Friday, the Department of Labor released the August jobs report showing no net new jobs for the month. The Department revised the July report to decrease to 85,000 the number of net new jobs reported as opposed to the original 117,000 figure. The unemployment rate remained unchanged from July at 9.1 percent with the total number of unemployed workers remaining 14 million.
Obama Rejects New EPA Air Rule
On Friday, President Obama directed the EPA to abandon its proposed new rules that would lower the nation’s air quality standards from 75 parts per billion (ppb) to between 60 ppb and 70 ppb. The current standard will now remain in place until a scheduled reconsideration of pollution limits in 2013.
DOJ Sues to Block AT&T/T-Mobile Merger
On Wednesday, Deputy Attorney General James Cole announced that the Justice Department was filing an antitrust lawsuit in U.S. District Court to block AT&T’s acquisition of T-Mobile because the Department believes the merger would result in “higher prices, fewer choices and lower quality products for their mobile wireless services.” Following Cole’s announcement, FCC Chairman Julius Genachowski also declared his opposition to the proposed merger.
IMF Leader Resigns
On Wednesday, International Monetary Fund (IMF) President Dominique Strauss-Kahn resigned following his arrest in New York. European officials quickly moved to assert their claim over the leadership of the IMF, however emerging economic powers Brazil, China and India are seeking a process that prevents the top position from being granted to a European, as has been the convention since the fund was founded 65 years ago. European leaders appeared to unite behind Christine Lagarde, France’s finance minister, as their preferred candidate to succeed Mr. Strauss-Kahn. Other possible candidates include Kemal Dervis, a former finance minister of Turkey; Arminio Fraga Neto, former governor of the central bank of Brazil; Tharman Shanmugaratnam, finance minister of Singapore; Agustín Carstens, governor of the central bank of Mexico; and Montek Singh Ahluwalia, deputy chairman of India’s planning commission. The IMF’s 24-member executive board has begun discussions about the selection process for the new managing director. The board is scheduled to hold its regular weekly meeting on Friday when the timetable for succession, like deadlines for nominations, may be discussed. Countries will nominate their candidates, and then the board will vote, with large financial contributors like the United States and Japan getting a bigger share of voting rights. The entire process could take months, as it has in the past.
Fed to Propose New Stress Tests
On Monday, press reports indicated that a draft of the Federal Reserve’s new rules regarding stress tests is set to be approved by the Federal Reserve Board and put out for public comment within weeks. The Fed is seeking to subject banks to annual capital tests and to reserve the right to veto dividend pay-outs. In between the Fed’s annual reviews, banks would be able to resubmit capital plans should they wish to increase dividend payments or stock buybacks. However, industry executives say the restrictions on capital distribution are excessive and will inhibit their ability to compete globally.
DOJ Forces Nasdaq/ICE to Withdraw NYSE Proposal
On Wednesday, Nasdaq OMX Group and IntercontinentalExchange said they were withdrawing their April joint proposal of $11 billion to acquire NYSE Euronext, citing discussions with the Justice Department’s Antitrust Division that “surprised and disappointed” Nasdaq and ICE. Speculation has been that the Justice Department’s Antitrust Division blocked the merger for two reasons. First, because the combined company would have too much market power — 50% of the market for U.S. stock trading NYSE with 28%, Nasdaq 22%. Second, because the merger’s $740 million in proposed cost savings would cause massive layoffs. Experts now believe that Deutsche Boerse’s (DB1) $10 billion bid for NYSE Euronext will prevail. The Futures Industry Association estimates that the NYSE/DB1 merger would create the top-ranked global futures trader, controlling 11 derivatives markets in the U.S. and Europe with 4.8 billion in contracts.
HUD to Release Report Accusing Five Biggest Mortgage Firms of Fraud
On Tuesday, press reports indicated that the Department of Housing and Urban Development will soon release audits that accuse the nation’s five largest mortgage companies (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans. The reports indicate the audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March. According to the reports, HUD’s auditor has referred its findings to the Department of Justice, which must now decide whether to file charges.
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April Unemployment Rises to 9%
On Friday, the Department of Labor announced that the United States economy added 244,000 jobs in April, but the unemployment rate rose to 9 percent from 8.8 percent in March. The jobs numbers beat forecasts estimates of an expected gain of 185,000 jobs.
Bank Regulators to Testify on Dodd-Frank in Senate
The Senate Banking Committee announced that next Thursday, May 12, Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp Chairman Sheila Bair, Commodity Futures Trading Commission Chairman Gary Gensler, Securities and Exchange Commission Chairman Mary Schapiro, Acting Comptroller of the Currency John Walsh and Deputy Treasury Secretary Neal Wolin will testify on the implementation of the Dodd-Frank financial oversight law. The hearing is slated to focus on monitoring systemic risk and promoting financial stability and will likely include questions over a recent settlement bank regulators entered into last month with large banks over mortgage servicing abuses.
Roemer Is Newest Rumor to be Next Commerce Secretary
As current Commerce Secretary Gary Locke prepares to depart for his new assignment as Ambassador to China, former Representative and current Ambassador to India Timothy Roemer’s name has surfaced as Locke’s possible successor. Roemer was an early backer of President Obama’s 2008 presidential campaign. Obama is also rumored to be considering current U.S. Trade Representative Ron Kirk and General Electric CEO Jeffrey Immelt for the position.
Japan Announces Disaster Relief Fund
On Friday, Japanese Finance Minister Yoshihiko Noda announced a 4 trillion yen ($48.5 billion) emergency budget for disaster relief in the wake of the nuclear crisis triggered by the March tsunami. Noda said the government would not issue new bonds to pay for the fund, and the cabinet plans to submit the emergency budget to parliament on April 28. Given that the material damage alone from the disaster could top $300 billion, the government is expected to seek additional future disaster funding that will likely require tax increases and debt financing.
Justice Department Examines NYSE/Nasdaq/ICE Merger
On Wednesday, Nasdaq-OMX CEO Robert Greifeld and ICE CEO Jeffrey Sprecher disclosed in a letter to NYSE Euronext’s board that they are in discussions with the antitrust division of the Justice Department (DOJ) after buying NYSE Euronext stock which triggered the DOJ’s antitrust review. The letter also disclosed that Nasdaq-OMX and ICE are willing to pay NYSE Euronext $350 million if DOJ blocks their proposed takeover, an offer they say is now based on “fully committed financing” of $3.8 billion.
On April 10, NYSE Euronext ’s board rejected the Nasdaq/ICE unsolicited $11.3 billion proposal and affirmed its February agreement to merge with Deutsche Boerse AG for $9.5 billion in stock. The agreement with Deutsche Boerse includes a payout of 250 million euros ($358 million) should that deal fall apart. NYSE Euronext acknowledged that it had received the Nasdaq/ICE reverse break up free proposal and that its board is reviewing the matter.
S&P Changes U.S. Long Term Rating from Stable to Negative
On Monday, Standard & Poor’s Ratings Services (S&P) changed its outlook on the U.S. long-term credit rating from stable to negative because ” the U.S. has relative to its ‘AAA’ peers very large budget deficits, rising government indebtedness, and the path to addressing these is not clear.” While the S&P affirmed the U.S. ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings, it also predicted at least a one-in-three chance that it could lower its long-term rating on the U.S. within two years because of the increased risk that the political negotiations over when and how to address both the medium and long-term fiscal challenges will persist until at least after the elections in 2012.
Shutdown Averted, House Passes Budget, Debt Ceiling Vote Next
Last Friday night, Senator Harry Reid (D-NV), Speaker John Boehner (R-OH), and President Obama came to an agreement to fund the federal government for the remainder of the fiscal year, averting a possible shutdown. On Thursday, the House passed the legislation by a bipartisan vote of 260-167. 59 Republicans voted against the bill, and 81 Democrats voted for it. Hours later, the Senate acted with far less suspense but again on a bipartisan 81-19 roll call. With over six months of the current fiscal year already completed, the funding bill reduces the spending level by nearly $38 billion below what it was when the new Congress began in January, making it the largest one-year cut from the President’s budget request in the nation’s history.
This Friday, the House approved a fiscal year 2012 budget resolution drafted by Budget Committee Chairman Paul Ryan (R-WI), which imposes $5.8 trillion in spending cuts over the next decade. The final tally was 235-193, with four Republicans and every Democrat opposing it. The GOP resolution will not be approved by the Senate, and budget resolutions do not go to the president or hold the force of law. However, Ryan has said that the GOP will deem his budget as the ceiling for spending for 2012. For this reason, the most important aspect of the resolution is the allocation it gives to the Appropriations Committee for next year: $1.019 trillion in non-emergency spending. This number will play a big role in a looming spending fight in the fall. If Republicans and Democrats cannot agree on appropriations spending by September 30, the end of the current fiscal year, the government will shutdown.
Congress will now turn to the issue of raising the so-called “debt ceiling,” or the statutory limit on federal debt. The U.S. government had $14.216 trillion in total debt outstanding as of Monday, and the cap is $14.294 trillion. The U.S. Treasury Department released a statement saying the ceiling is projected to be breached in the next 30 days, although it could make adjustments to postpone default until early July. On Thursday, Majority Leader Harry Reid (D-NV) said he wants a clean vote to raise the debt ceiling, but Republicans have insisted they want the vote paired with other budget reform measures.
Government Shutdown Looms
With the current temporary funding resolution set to expire April 8, House and Senate Appropriations committees worked toward crafting a six-month compromise bill, setting annual spending at $1.055 trillion, $28 billion more than the House-passed level but still a $33 billion cut from the original spending measure. However, House Republicans remain splintered over whether a shutdown would be good politically, or whether they should compromise with Democrats in order to move on to larger future battles such as next year’s budget and the debt ceiling increase. Meanwhile, Democrats also remain divided over whether to allow a shutdown to happen or acquiesce to Republican cuts. Whether a compromise can be reached to avoid a shutdown will be known next week.
Unemployment Rate Drops to 8.8%
On Friday, the Department of Labor announced that the unemployment rate dipped to 8.8% in March from 8.9% in February. Nonfarm payrolls gained 216,000, with private-sector employment rising by 230,000. Payroll employment stood at 130.7 million in March. There were gains of 199,000 jobs in services and 17,000 jobs in manufacturing in March. Government employment fell by 14,000 and 9,000 jobs were lost in education. Nearly half of the unemployed have been out of work for 27 weeks or more. Private-sector wages fell 2 cents an hour to $19.30.
Ally Financial Files for IPO
On Thursday, Ally Financial, the former finance arm of General Motors, filed for an initial public offering that would allow the federal government to begin selling off its 73.8 percent stake. Ally said in its registration statement with the Securities and Exchange Commission (SEC) that it was seeking to raise $100 million. Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley are the lead underwriters. The company did not give an estimated date or share price for the offering. The Treasury Department, which invested more than $17 billion in Ally, did not say how much of its stake it intended to sell. In addition to common shares, the Treasury Department owns $5.9 billion in convertible preferred stock. Earlier this month, the Treasury Department began unwinding its holdings in Ally, selling $2.7 billion in trust preferred securities.
House to Pass Funding Cuts
This week the House debated an extension of the current fiscal year’s funding resolution that expires on March 4th. While the measure is not expected to pass until tonight, among the largest funding cuts passed so far are a $336 million cut to the School Turnaround Grant program, a $22.5 million cut to the National Endowment for the Arts, a $131 million cut to the Securities and Exchange Commission, as well as defunding of the Federal Communications Commission’s implementation of the so-called “Net Neutrality” rules and defunding portions of the Equal Access to Justice Act. The House plans to vote on over 100 more amendments today ranging from funding cuts to the healthcare law, the IRS, and the CFPB among others. While the Senate has already recessed for the President’s Day District Work Period, after the House passes the pending funding resolution, it will also recess until the week of February 28. When both bodies return, the will attempt to resolve differences between their respective funding bills before the March 4th deadline.
Issa Issues Subpoenas to Bank of America for Countrywide Documents
On Tuesday, House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) issued subpoenas regarding Countrywide Financial’s VIP program. The subpoenas ask for Bank of American to turnover all communications and documents relating to government officials in the VIP loan program by March 7th.
OCC Pushes for Mortgage Probe Settlement
On Wednesday, Federal Housing Administration Commissioner David Stevens announced that the Office of the Comptroller of the Currency (OCC), the federal bank regulator which oversees the nation’s banks, is pushing for a settlement to the months-long federal and state probes into abusive mortgage practices to take place in the next month. The federal review involves the OCC and other bank regulators, as well as the Departments of Justice, Housing and Urban Development and the newly formed Bureau of Consumer Financial Protection. The 50-state probe involves state attorneys general and state bank regulators. According to sources, the OCC is negotiating an agreement that would cost the industry less than $5 billion in fines and mortgage modifications for troubled homeowners.
Corporations Campaign For Foreign Revenue Repatriation Deal
A group of multinational corporations is planning a campaign for a tax holiday that would allow them to repatriate their estimated $1 trillion in current foreign revenue. Specifically, the companies’ aim is to win a one-year tax amnesty on their foreign earnings, allowing them to repatriate that money at a tax rate of 5%, instead of the current 35% rate. In 2004, multinationals were successful in convincing Congress to approve a similar one-year foreign revenue tax holiday.
Corporations Weigh in On New SEC Whistleblower Program
In 2010, the Dodd-Frank Wall Street Reform Act created a new corporate whistleblower program within the Securities and Exchange Commission (SEC). With the SEC set to release the final rules in April, more than two dozen companies Fortune 500 companies have written letters asking the agency to revise its proposed rules for awarding workers who report information about corporate fraud or wrongdoing. The letters express concern that employees will bypass hot lines and other internal reporting mechanisms and thus hurt the companies’ internal efforts to encourage employees’ compliance with the law. Under the current law, the SEC offers awards of at least $100,000 and as much as 30% of the penalties and recovered funds to people who report knowledge of a fraud. To qualify for an award, the information must lead to a successful enforcement action with sanctions of at least $1 million. Under the SEC’s draft rules proposed in November, whistleblowers would not be required to report suspected wrongdoing to their employers in order to win a reward. In an effort to address the companies’ concerns, the SEC proposed to encourage internal reporting by giving credit to informants for first reporting the wrongdoing through company channels in setting the size of the award.
Obama Budget Includes New CFTC User Fees
On Monday, President Obama released his FY 2012 Budget which included proposed user fees as an option to help the Commodity Futures Trading Commission (CFTC) carry out its derivatives oversight. The user fees, which require congressional approval, would raise $117 million in the 2012 fiscal year and $588 million through 2016. The CFTC would assess the fees on “the regulated community” to pay for the CFTC’s non-enforcement activities. The user fees represent an alternative source of funds for the CFTC, which is now funded through annual funding legislation.
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September Jobs Numbers Released
On Friday, the Department of Labor reported that the economy added 64,000 jobs but lost a net of 95,000 nonfarm jobs in September, the result of a 159,000 decline in government jobs. Of the loss in government jobs, 77,000 were temporary Census Bureau employees, 76,000 were in local governments, and 7,000 in state governments. The Bureau of Labor Statistics also released preliminary revisions to the model used to estimate job changes from month to month, indicating that the recovery has been even weaker than initially reported. The Bureau says it expects to revise down the level of employment in March 2010 by 366,000 jobs, which means jobs gains had been about 30,000 weaker each month over the 12-month period that began in March 2009.
New EU Regulations on Bankers’ Bonuses
On Thursday, the Committee of European Banking Supervisors (CEBS), which is made up of the twenty-seven member states of the European Union’s banking regulators, met in London to vote on proposed regulations on bank employees’ compensation. The preliminary rules released on Friday indicate that up to 60 percent of top bankers’ bonuses would be required to be deferred for a minimum of three years and as long as five years. However, the rules remain unclear on the precise duration of retention requirements. The preliminary rules will now be the subject of a month-long consultation process, with the final rules due to come into effect in January 2011. Other key new rules will be a requirement that banks and national regulators jointly impose a maximum multiple of salary that can be paid as a bonus to bankers. On the issue of deferral, the insistence that half of upfront pay be paid in shares, rather than cash, overrides an existing rule in the UK, where the Financial Services Authority regulations currently insist that total bonuses be share-based. The preliminary rules also clarify that deferral periods should typically extend over three years but must in any case be no shorter than one year. The rules also clarify that bankers will be barred from hedging the “claw-back” provision on deferred bonuses. The new rules will apply to EU banks’ operations globally, but only to the European arms of non-EU banks.
DOJ Settles with Visa and Mastercard
On Wednesday, the U.S. Department of Justice announced that Visa and MasterCard have agreed to a settlement concerning the Department’s antitrust civil suit. According to the terms of the settlement, Visa and MasterCard have deleted rules in their contracts that prevented merchants using their cards from encouraging customers to use other card brands carrying lower merchant inter-change fees. The settlement would allow retailers to offer rebates or discounts to consumers who agree to use their preferred method of payment. American Express, who was the third party to the Department’s civil suit, declined to settle and is still fighting the lawsuit.