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.
If you have any questions regarding any of these issues, please contact:
Matt Jessee, Policy Advisor
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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.