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UBS and the US government have agreed to an out of court settlement ending one of the most bitter assaults on Switzerland’s hallowed bank secrecy laws. The case has significant implications for the future of client confidentiality, amid fears among many Swiss bankers that a dilution of traditional secrecy rules could prompt a defection by worried foreign customers. No details of the deal were revealed yesterday, pending formal signing, probably early next week. However, lawyers said the settlement would involve UBS supplying the names of least 5,000 US offshore clients and possibly paying a big fine. Shares in the bank closed up 3% at SFr16.34 on relief that the issue had finally been resolved. Read more

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Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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Bank of America joined the crowd of financial institutions reporting good earnings last week. The Charlotte, N.C., bank beat the expectations of analysts by saying today that it had a US$2.42B Q-2 profit after the payment of preferred dividends. Bank of America has struggled through the acquisitions of lender Countrywide Financial Corp. and investment bank Merrill Lynch & Co., and looks like it is getting its financial house in order. After rising in early trading, Bank of America shares fell 35 cents to $12.82 in mid-day trading. The second-quarter profit amounted to 33c per share and compared with a profit US$3.22B, or 72c, a year earlier. Although the numbers were below last year’s, the earnings still beat the forecasts of analysts surveyed by Thomson Reuters, who predicted the bank would come in at 28c per share.

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The US Federal Reserve bought US$7.541B of Treasuries in its second outright purchase of U.S. government debt in three days as part of the central bank’s efforts to lower consumer borrowing rates. The majority of the purchase was US$5.625B of the 1.375B note due March 15, 2012, that was issued this month. Seven of the 18 securities maturing from April 2011 through April 2012 listed for possible acquisition were bought, according to the Federal Reserve Bank of New York Web site. Central banks in the US, UK and Japan are buying government debt in the latest step to broaden efforts to unfreeze credit and end the recession after cutting benchmark interest rates close to zero.

The Fed bought US$7.5B in debt on March 25, the first purchase since the early 1960s by the central bank under a US$300B plan announced March 18. “The Fed’s monetization of government borrowing is in economic terms a hugely powerful liquidity tool,” said Lena Komileva, head of Group of Seven market economics in London at Tullett Prebon Plc, the world’s second-largest interdealer broker. “It also helps to address investor fears, by depressing government yields and private sector borrowing costs and signaling a firm commitment by the Fed to keep monetary liquidity flowing for a long time.”

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Former US Federal Reserve Chairman Alan Greenspan recommends graduated capital requirements for banks to cut back their size.

“New regulatory challenges arise because of the recently proven fact that some financial institutions have become too big to fail as their failure would raise systemic concerns,” he writes in Friday’s Financial Times.”The solution is to have graduated regulatory capital requirements to discourage them from becoming too big and to offset their competitive advantage.”

Greenspan is widely blamed for allowing financial firms to outgrow government oversight and in October last year he acknowledged that he was partly wrong to resist the regulation of some securities. He said in Friday’s FT that while regulators could enforce collateral requirements, they could not fully forecast if, for example, sub-prime mortgages would turn toxic.

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Since the World’s credit markets seized up on September 8, 2009 many corporations are either cutting costs, waiting for government bailout money, or preparing for bankruptcy, as banks are reluctant to lend to all but the most credit worthy and then at unconventionally high interest rates.

In the center of the storm lies the US, UK and EU financial industry where it all started.
The US Federal Deposit Insurance Corporation said last week that the nation’s banks and thrifts lost US$32.1B in the Q-4 Y 2008, the first quarterly deficit in 18 yrs, compared with the US$575MM profit in Q-4 Y 2007. The industry’s net income for Y 2008 plunged from US$16.1B to US$10.2 B for the period.

In the US eighteen federally insured banks have failed so far this year. Last year the number was 25, more than the total number of the previous five years, and up from only three in 2007.
Shares of Citigroup Inc., once the most powerful U.S. bank, have fallen below 1 dollar this month. Pummeled by the financial crisis, the group has lost more than 98 % of its value from its peak in October 2007, and is down more than 95 % from a year ago.

The American International Group (AIG), covered almost daily in www.stockpreacher.com’s Stock Talk, reported this month that it lost US$ 61.7B in Q-4 Y 2009, the largest corporate loss in history. AIG has benefited since from more than US$170B in federal rescue funds with more likely needed and to come.

HSBC Holdings PLC, the largest bank in Europe, early this month reported a 70% drop in its Y 2008 profit and said it would cut 6,100 jobs as it closes its consumer loan business in the United States. It also announced that it would cut its dividend and not pay bonuses to top executives.

In the US, the DJIA sank below 6,800 on March 3, its lowest close since May 1997, losing more than 50% from its highest level in October 2007. Since then the S&P 500 has staged a 19.8% rally off of its lows in the same frame.

On March 23 when the markets were surprised by the US government’s latest plan on clearing bad bank assets and a larger-than-expected rise in existing home sales, the three main indexes all surged more than 6.5% on the day.

Some Economists suggest that financial crisis has yet to bottom out, and the real economy continues to slip as the global economic situation deteriorates.

Therefore, stimulus spending, market confidence, financial regulation and free trade will be key issues at the G20 summit of the World’s leading developing and developed economies next week in London.

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