As if Swiss bank UBS wasn’t having a bad enough month, along comes the Financial Times with an exclusive report alleging senior execs “knew some of their bankers had acted in a way that meant they risked breaching American securities laws at least a year before the U.S. inquiries began.” At issue are claims that UBS bankers advised U.S. clients on investing in securities without obtaining the necessary legal registration, part of a larger probe into whether UBS promoted tax evasion for wealthy American clients. In a 2006 letter written by UBS general counsel (and now chairman) Peter Kurer to the banker at the heart of the U.S. investigation, Kurer admitted “he had received information from a whistleblower, who had drawn attention to the problems the bank faced because of the inadequate securities registration,” writes the FT.
Life isn’t much sweeter for compatriot bank Credit Suisse. It is close to agreeing to a $9.6 million settlement with the United Kingdom’s financial watchdog after a trading scandal that prompted the bank to take a $2.7 billion write-down earlier this year. Makes you nostalgic for the days when Swiss banks were the models of discretion, no?
Still, on the other side of the pond, macroeconomic seers are digesting the latest inflation figures from the United Kingdom that show consumer prices rose 4.4 percent from a year earlier, up from 3.8 percent in June. The spike marks a 16-year high, twice the inflation target set by the British government. Things are likely to get worse as the Bank of England is set to predict inflation could touch 5 percent soon. Oil, of course, has been driving consumer prices higher and finally those high prices have begun to hit home. U.S. demand for oil fell 800,000 barrels per day for the first six months of this year, according to the Energy Information Administration. That’s the “sharpest drop in 26 years, compared to a year before,” the BBC reports.
Crude prices at $113 a barrel would have buoyed investors were it not for more misery in the financial sector. JPMorgan shares fell 9.5 percent Tuesday, while Lehman Brothers Holdings Inc. and Wachovia Corp. fell about 12 percent on concerns expressed by JPMorgan that the U.S. housing crisis is going to get worse. The growing numbers of foreclosed homes are forcing banks to take drastic action, “shedding them at increasingly steep losses [and] potentially adding to the banking industry’s red ink this year,” notes the Wall Street Journal. Exacerbating the banking/mortgage/credit crisis is a breakdown in confidence in the market for securitization, “a crucial artery of modern money management,” as the New York Times puts it. Demonized for seducing the banks by reducing the risk in the subprime market, securitization nevertheless remains a crucial tool of funding debt. Now, however, bond investors who have been spooked out of the mortgage market also “are becoming wary of credit card debts and auto loans,” writes the NYT.
News from commodity country next. The Department of Agriculture is forecasting the second-highest corn yield on record, says the NYT. U.S. farmers will produce 12.3 billion bushels this year, about 600 million bushels more than were expected earlier in the summer. The prospect of a corn blight and potential prices of $9 a bushel had pitted ethanol fuel interests against big livestock producers and “would probably have been ruinous to livestock producers and ethanol plants alike,” writes the NYT. Yesterday’s figures offer stability to the corn market. “We dodged a bullet,” says one grain analyst.
Cotton traders think they’ve been shot in the back, however. A March price spike has many old-school traders blaming “billions of dollars in new bets by big institutional investors for distorting prices [with] some cry[ing] market manipulation,” writes the WSJ. Now the Commodity Futures Trading Commission is conducting an investigation into whether cotton prices were “artificially inflated” by neophyte speculators and whether that injection of investment caused the traditional cotton merchants to make irrational risky bets themselves.
Finally, we know it’s August, but is it really necessary for the NYT to write yet another “SUVs aren’t selling” story? Wasn’t it just five days ago that a Times editorial opined on the “thousands of secondhand S.U.V.s [that] sit unwanted and ignored in car dealerships across the land”? And wasn’t it just two weeks ago that the same paper warned readers that the “fact is that not many people want your big vehicle right now”? Is it any wonder the Big Three are pulling their advertising?