Economic Calendar

Friday, September 9, 2011

Banks May Fight Banks as Mortgage Securities Investors Try for Class Suits

By Thom Weidlich - Sep 9, 2011 11:01 AM GMT+0700

Banks including JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) may pay more to resolve claims over their alleged roles in the collapse of a $2.3 trillion mortgage- backed securities market if sophisticated investors are allowed to sue as a group along with less savvy ones.

Class-action status allows investors to pool financial and legal resources, giving them greater leverage to win larger settlements or verdicts. The banks, however, have a court ruling on their side that may help fend off such blockbuster cases. It says class status is barred because some investors are too sophisticated -- in fact, because some of them are other banks, including JPMorgan.

“It is possible to be both an alleged perpetrator and victim at the same time,” said Jacob S. Frenkel, a former U.S. Securities and Exchange Commission lawyer now in private practice in Potomac, Maryland. “It’s unprecedented that you have the most sophisticated institutions as victims, to be in a position where their losses are so great that they have sued.”

The ruling by U.S. District Judge Harold Baer Jr. in Manhattan, favoring defendants Royal Bank of Scotland Group Plc (RBS) and Ally Financial Inc., held that investors may not sue as a class in part because some of them are being sued over the same claims. Last month, that ruling was countered by two judges in Baer’s courthouse, both of whom ruled that investors in home- loan backed securities may sue as a class.

Housing Bubble

Pools of home loans securitized into bonds were a central part of the housing bubble that, once burst, helped push the U.S. into the biggest recession since the 1930s. Investors have filed class-action, or group, lawsuits against at least 16 private issuers of securities backed by mortgages.

Mortgage-bond deals now involved in the class-action suits originally held $204.6 billion of loans, an amount that’s fallen to $89 billion amid defaults, borrower refinancing and home sales, according to data compiled by Bloomberg and a list of transactions provided by New York-based law firm Grais & Ellsworth LLP. Realized losses so far total $26.6 billion, with an additional $33.8 billion of remaining loans at least 30 days delinquent.

“Class certification raises the stakes tremendously,” said Alan White, a law professor at Valparaiso University in Indiana. “The damages are going be greater in a class action than a series of individual cases.”

The investors accuse the defendant financial companies of lying about the quality of the home loans underlying the securities they back, which have deteriorated in value. The defendant banks argued the housing collapse, rather than any misrepresentation on their part, caused investor losses.

Shrunk to $1.21 Trillion

From its $2.3 trillion peak in 2007, the market for mortgage-backed securities has shrunk to $1.21 trillion as of June 30, according to the Federal Reserve.

The class actions involve some of the same securities over which the Federal Housing Finance Agency sued Bank of America, New York-based Citigroup Inc. and 15 other financial institutions on Sept. 2. Those complaints were filed on behalf of Fannie Mae and Freddie Mac, the mortgage-finance companies under government conservatorship. The securities at issue in those cases total $196 billion.

Ruled for Investors

On Aug. 22, U.S. District Judge Jed Rakoff in Manhattan issued an opinion explaining why he had earlier ruled that investors, including Mississippi’s public pension system, may sue Charlotte, North Carolina-based Bank of America’s Merrill Lynch unit as a group in a unified lawsuit.

A week earlier, U.S. District Judge Paul A. Crotty in the same court similarly held that investors including the New Jersey Carpenters Health Fund may also collectively pursue their claims against Credit Suisse Group AG (CSGN)’s DLJ Mortgage Capital.

Rakoff and Crotty weren’t swayed by bank arguments that securities buyers couldn’t band together because they were sophisticated investors who knew about deteriorating home- lending practices before the meltdown. The plaintiffs knew that in part because some of them are also being sued over the same claims, the defendant banks argued.

The inability to sue as a group would mean many investors won’t pursue their claims, plaintiffs’ lawyers said.

“Getting a class certified in a case like this, in any case, is an important part of the litigation,” said Gerald Silk, a partner at Bernstein Litowitz Berger & Grossmann LLP in New York representing investors suing Merrill Lynch.

Three Funds

The three funds seeking to represent the class against Detroit-based Ally bought a total of $1.79 million of the $3.7 billion in securities issued, they wrote in court papers. The case has so far cost more than $3.5 million to litigate and may run to three times that if it goes to trial, showing the need for class-action treatment, they wrote.

The securities lost as much as 99 percent of their value soon after they were issued, the investors wrote.

Baer’s ruling in favor of defendant banks, if upheld, “could result in dozens of securities class actions erroneously being denied certification,” the investors wrote in their appeal in the Ally case. The litigation “would likely be terminated without class certification.”

Class certification has also been a point of contention in cases filed New York and Seattle over securities issued by IndyMac Bancorp Inc. (IDMCQ) and Washington Mutual Inc., now part of New York-based JPMorgan.

Pension System

Investors including Mississippi’s pension system who are suing Goldman Sachs Group Inc. are scheduled to file their motion for class certification in November.

“They’re the kinds of cases that have been brought for decades as class actions,” Silk said. “It’s our view that they’re ideally suited for class-action treatment.”

One bank, Wells Fargo & Co. (WFC), agreed to settle litigation against it for $125 million two weeks before a scheduled class- certification hearing in July. The case concerns $27.3 billion of certificates sold by the San Francisco-based bank.

“The proposed settlement agreement is a negotiated resolution as to all named defendants and is intended to avoid the distraction and expense of litigation,” Ancel Martinez, a spokesman for Wells Fargo, said at the time.

Baer, in his Jan . 18 decision, said investors couldn’t sue as a group because they had different knowledge levels of the alleged loosening of mortgage-underwriting standards that led to the home-loan defaults, and ultimately the decline in the value of the securities.

Different Times

The investors also bought the securities at different times, in some cases when more information was surfacing about underwriting standards being ignored, the judge wrote.

“Many putative class members are sophisticated investors with significant experience in asset-backed securities markets,” he wrote. New York-based BlackRock Inc. (BLK) and Fortress Investment Group LLC (FIG) and Old Greenwich, Connecticut-based Ellington Management Group LLC “each tout their expertise in mortgage-backed securities,” the judge wrote.

In its case, Merrill Lynch called Fannie Mae, the Washington mortgage-finance company, the biggest class member and a “quintessential housing-market insider,” according to Rakoff, citing redacted portions of Merrill Lynch’s court papers. Fannie Mae bought about $5 billion of the $16.5 billion of certificates in the case, according to Rakoff’s ruling. Fannie Mae may seek to opt out of the class now that FHFA sued Merrill Lynch individually on its behalf.

Amy Bonitatibus, a Fannie Mae spokeswoman, declined to comment on the litigation.

Financial Advisers

The investors said there’s no evidence they or their financial advisers knew about specific prospectus misstatements by the defendants, especially over the particular mortgage originators’ home-lending standards, before they bought the securities.

“The way we understand the law is that the investors had to know about the scheme or the misstatements in the prospectus, and not that they were just generally sophisticated about mortgage-backed securities,” said Joel P. Laitman, a New York- based lawyer at Cohen Milstein Sellers & Toll PLLC, which sued on behalf of investors in the RBS, Credit Suisse and Ally Financial cases.

Pholida Phengsomphone, a spokeswoman for Edinburgh-based RBS, and Lawrence Grayson, a spokesman for Bank of America, declined to comment.

Risk Awareness

“We are encouraged by Judge Baer’s analysis,” said James Olecki, a spokesman for Ally. “It recognizes the legal significance of the extent of knowledge that individual investors may have had as to the risks relating to the investment.”

In the case against Credit Suisse’s DLJ Mortgage unit, which involves $2.39 billion of securities, Crotty said the defendants produced no evidence that the more than 330 investors knew about specific misstatements in the offering documents.

Steven Vames, a spokesman for Zurich-based Credit Suisse, declined to comment on the case.

Some of the defendant banks noted that potential members of the class are other financial firms that are themselves being sued over mortgage-backed securities.

Having individual banks on both sides of these cases is “slightly unusual” and shows “the multi-headed hydras these investment banks have become,” said James D. Cox, a securities- law professor at Duke Law School in Durham, North Carolina. “But they do have these Chinese walls, to make sure the underwriting people are not talking to the investment advisers.”

New York-based JPMorgan, a potential plaintiff and class member in the lawsuit against RBS over $3.45 billion in securities, is being sued in federal court in Brooklyn, New York, over mortgage-backed securities it sold. JPMorgan “is alleged to have had knowledge regarding” disintegrating underwriting standards, Baer wrote.

Investment Funds

The bank’s role in underwriting some securities doesn’t mean its affiliated investment funds knew about misrepresentations in the prospectus for completely different securities, the plaintiff investors wrote in their appeal in the RBS case. RBS is Britain’s biggest government-owned lender.

“These were not the firms that underwrote the offering,” Laitman said. “They bought like everybody else.”

In the Merrill Lynch case, Rakoff agreed with the investors.

“Although defendants note that some members of the class, including Morgan Stanley (MS) Co., have been sued in connection with their own MBS offerings, this is irrelevant to the offerings at issue in this case,” he wrote.

Motions to Dismiss

The parties in the cases against JPMorgan and New York- based Morgan Stanley await decisions on the banks’ motions to dismiss. The federal appeals court in Manhattan hasn’t said yet whether it would accept Merrill Lynch’s appeal of Rakoff’s decision certifying the class of investors.

The cases are New Jersey Carpenters Health Fund v. Residential Capital LLC, 08-08781, New Jersey Carpenters Vacation Fund v. The Royal Bank of Scotland Group Plc., 08- 05093, Public Employees’ Retirement System of Mississippi v. Merrill Lynch & Co., 08-010841, New Jersey Carpenters Health Fund v. DLJ Mortgage Capital Inc., 08-05653, Public Employees’ Retirement System of Mississippi v. Goldman Sachs Group Inc. (GS), 09-01110, In re Morgan Stanley Pass-Through Certificates Litigation, 09-02137, and In re IndyMac Mortgage-Backed Securities Litigation, 09-04583, U.S. District Court, Southern District of New York (Manhattan); Plumbers’ & Pipefitters’ Local #562 Supplemental Plan & Trust v. J.P. Morgan Acceptance Corp., 08-01713, U.S. District Court, Eastern District of New York (Brooklyn); In re Wells Fargo Mortgage-Backed Certificates Litigation, 09-01376, U.S. District Court, Northern District of California (San Jose); and In re Washington Mutual Mortgage- Backed Securities Litigation, 09-cv-00037, U.S. District Court, Western District of Washington (Seattle).

To contact the reporter on this story: Thom Weidlich in federal court in Brooklyn, New York, at


Oil Heads for Third Weekly Gain on Obama Job Plan, Storm in Gulf of Mexico

By Ben Sharples and Ann Koh - Sep 9, 2011 11:42 AM GMT+0700

Oil headed for a third weekly gain as investors bet President Barack Obama’s proposed job-creation plan will support demand for fuel and as producers in the Gulf of Mexico evacuated workers ahead of Tropical Storm Nate.

West Texas Intermediate futures climbed as much as 0.5 percent, erasing a decline of 0.8 percent, after Obama asked Congress to pass a proposal to inject $447 billion into the economy of the world’s biggest oil user. Prices slid yesterday after Federal Reserve chairman Ben S. Bernanke said the nation’s recovery is fragile. Energy companies including BP Plc began evacuating platforms in the Gulf of Mexico, home to 27 percent of U.S. oil output.

“In the next month or so, it’s going to be very uncertain,” said Jeremy Friesen, a Hong Kong-based commodity strategist at Societe Generale SA. “We could see prices continuing to sell-off if the market doesn’t like what the Fed says. But if the market likes that, the physical crude market is reasonably tight, so that should support prices.”

Oil for October delivery gained as much as 45 cents to $89.50 a barrel in electronic trading on the New York Mercantile Exchange and was at $89.21 at 12:11 p.m. Singapore time. Prices are 3.2 percent higher this week and up 20 percent the past year.

Brent oil for October settlement increased as much as 45 cents, or 0.4 percent, to $115 a barrel on the London-based ICE Futures Europe Exchange. The European benchmark contract was at a premium of $25.59 to U.S. futures, compared with the record settlement of $26.87 on Sept. 6.

Nate, Stockpiles

Tropical Storm Nate’s top winds are 70 miles (113 kilometers) per hour, just under the threshold of 74 mph needed to be a hurricane, according to an advisory from the U.S. National Hurricane Center before 11 p.m. East Coast time yesterday. The storm has been lashing Petroleos Mexicanos rigs in the Bay of Campeche and its final track is still in question.

BP and Apache Corp. said they were beginning evacuations of some workers in the Gulf because of Nate. The BP decision affects non-essential workers at the Atlantis, Holstein and Mad Dog platforms, according to a message on a telephone hotline. Apache’s removal of non-essential workers from facilities in the far western Gulf hasn’t affected production, Bill Mintz, a company spokesman, said in an e-mail.

U.S. crude supplies fell 3.96 million barrels to 353.1 million last week as Tropical Storm Lee shut platforms, a report from the Energy Department showed yesterday. They were forecast to drop 2 million barrels, according to the median estimate of 14 analysts surveyed by Bloomberg News. Gasoline stockpiles climbed 199,000 barrels, compared with a median forecast for a drop of 1.4 million barrels.

Global Growth

Oil in New York slid yesterday after Bernanke said Fed policy makers will discuss tools to boost the economic recovery at their next meeting this month. Obama, speaking before a joint session of Congress, demanded that lawmakers act on a plan that would boost spending, stem layoffs and cut taxes.

“The price rise you’ve seen in WTI relates more to Obama’s speech than the weather,” said Friesen. The energy department report “was fairly supportive for crude,” he said.

The Organization for Economic Cooperation and Development cut growth forecasts yesterday for the U.S. and Japan, the largest and third-largest oil-consuming countries. China is the second-biggest user of crude.

To contact the reporter on this story: Ben Sharples in Melbourne at; Ann Koh in Singapore at

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at


Dollar, Yen Drop as Obama’s Job Creation Proposals Curbs Demand for Safety

By Kristine Aquino and Masaki Kondo - Sep 9, 2011 11:15 AM GMT+0700

The dollar and yen declined against most of their major peers after President Barack Obama unveiled proposals to create jobs and boost the U.S. economy, damping demand for safer assets.

The dollar snapped yesterday’s advance versus the euro after Obama urged Congress to pass his $447 billion plan. The yen slid after Finance Minister Jun Azumi said he will tell his counterparts in the Group of Seven nations that Japan remains prepared to take “bold” action in currency markets. The Australian and New Zealand dollars advanced after a report showed China’s inflation cooled from a three-year high.

“We can say that Obama’s plan is seen favorably in the market, boosting risk appetite and spurring selling of the dollar and yen,” said Daisaku Ueno, president of Research Institute Ltd. in Tokyo, a unit of Japan’s largest online currency broker. “Expectations for stimulus measures are strong.”

The dollar fell to $1.3925 per euro as of 12:54 p.m. in Tokyo from $1.3882 in New York yesterday when it rose to $1.3873, the strongest since July 12. It traded at 77.47 yen from 77.51. Japan’s currency dropped to 107.87 per euro from 107.59. The dollar advanced 2 percent against the 17-nation euro this week, while the yen gained 1.1 percent.

Obama proposed a jobs plan that includes infrastructure spending, subsidies to local governments and tax reductions. The centerpiece of the plan is cuts in payroll taxes, which cover the first $106,800 in earnings and are evenly split between employers and employees.

‘Sincere’ Effort

“I think in this case the president is sincere about trying to figure out ways to create jobs,” Robert Sinche, the global head of currency strategy at Royal Bank of Scotland Plc, said in an interview in Singapore. “I think in terms of the U.S., we don’t believe in a double dip.”

Demand for the yen was limited before G-7 finance ministers meet today in Marseille, France, to discuss ways to bolster their economies. Japan’s Azumi said before departing Tokyo that he would appeal to the group to appreciate his concern about excessive yen gains. The Cabinet Office today said Japan’s gross domestic product shrank at an annualized 2.1 percent rate in the three months ended June 30, more than the 1.3 percent contraction reported last month.

G-7 Meeting

Members have indicated intervention “should be done in agreement with the G-7 as opposed to unilaterally,” Rintaro Tamaki, who was a vice finance minister until July and directed two of Japan’s three rounds of yen sales in the past year, said in an interview in Paris yesterday. He was referring to language in an Aug. 8 statement by the G-7 that said officials will “closely consult” each other on currencies.

Japan has intervened three times in the past 12 months to weaken its currency, with the last operation being a 4.51 trillion yen sale in August, the largest monthly amount since March 2004. The yen went on to reach 75.95 per dollar on Aug. 19, a postwar record.

The euro is set for a second week of losses against the dollar on speculation the European Central Bank will lead its counterparts in coordinated monetary easing after it cut its growth forecast for the region this year.

“There are too many problems in Europe: it will be just a drag on growth,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and interest-rate risk- management firm. “Europe’s diverse governments, different fiscal policies and all the troubles that come with it will take a toll on the euro in the near term.”

ECB Rate

The ECB left its benchmark rate at 1.5 percent and slashed its 2011 growth forecast to 1.6 percent from 1.9 and to 1.3 percent from 1.7 for 2012 at yesterday’s meeting in Frankfurt.

The ECB, the Bank of Japan and the Federal Reserve may implement coordinated monetary-policy easing to tackle weak growth, Morgan Stanley economists wrote in a note to investors on Sept. 7.

The Australian and New Zealand dollars trimmed weekly losses against the greenback after data showed that Chinese consumer prices eased last month, curbing speculation policy makers will take further steps to bring down costs.

China’s inflation “will be less of an issue going forward,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “We should see more support for the Australian and New Zealand dollars.”

China’s consumer prices climbed 6.2 percent from a year earlier in August, the National Bureau of Statistics said in Beijing today. That was in line with the median forecast in a Bloomberg News survey of economists and compares with a 6.5 percent increase in July. China is Australia’s largest trading partner and New Zealand’s second-biggest export market.

Australia’s currency advanced to $1.0626 from $1.0576 yesterday, paring its weekly loss to 0.2 percent. The New Zealand dollar rose 0.6 percent to 83.54 U.S. cents, set for a 1.5 percent decline since Sept. 2.

To contact the reporters on this story: Kristine Aquino in Singapore at; Masaki Kondo in Singapore at

To contact the editor responsible for this story: Rocky Swift at


Gold Poised for Weekly Decline on Obama Plan

By Glenys Sim - Sep 9, 2011 10:23 AM GMT+0700

Gold headed for a weekly decline on optimism a plan by U.S. President Barack Obama will create jobs and spur growth in the world’s largest economy, trimming demand for safer assets.

Bullion for immediate delivery shed as much as 0.9 percent to $1,853.93 an ounce and was at $1,862.15 at 10:37 a.m. Singapore time. December delivery futures in New York gained 0.4 percent to $1,864.50 an ounce, paring a 0.8 percent advance.

Obama called on Congress to pass a jobs plan that would inject $447 billion into the economy through spending on infrastructure, subsidies to local governments to stem teacher layoffs, and cutting in half the payroll taxes paid by workers and small-business owners.

“The plan reflects the government’s deep concern about the economy, raising the real possibility of another round of quantitative easing, which is supportive of gold,” said Duan Shihua, head of corporate services at Haitong Futures Co. and the top-rated gold analyst this year in an annual poll by the Futures Daily and Securities Times. “We’re just getting some book squaring today as investors digest the news, but that just represents to us a good buying opportunity.”

Spot gold, which reached a record $1,921.15 an ounce on Sept. 6, is down 1.1 percent this week. It rebounded from a two- day, 4.4 percent-slump yesterday after Federal Reserve Chairman Ben S. Bernanke held off from offering new measures to spur growth, boosting demand for gold as a store of value.

Jobless Claims

First-time applications for unemployment benefits rose last week, a sign the labor market is struggling to gain traction. Claims for unemployment benefits rose 2,000 to 414,000 in the week ended Sept. 3, data yesterday showed, adding to signs the U.S. economy is faltering. The median target of economists surveyed by Bloomberg News projected a drop to 405,000.

Gold is still in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies, and hedge against inflation.

Consumer prices in China climbed 6.2 percent from a year earlier, the National Bureau of Statistics said in Beijing today. That compared with the 6.2 percent median forecast in a Bloomberg News survey of 31 economists and July’s 6.5 percent gain, which was the highest level in three years.

China’s gold investment demand surged 44 percent in the second quarter from a year ago to 53 metric tons of coins and bars, according to the World Gold Council. That was second- largest after India. Jewelry demand in the country gained 16 percent to 102.9 tons, council data showed.

Platinum for immediate delivery fell 1.1 percent to $1,841 an ounce, trading below gold for a fifth time this week. Cash silver shed 0.2 percent to $42.24 an ounce, while palladium rose 0.2 percent to $760 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at

To contact the editor responsible for this story: Richard Dobson at


Deutsche Bank Risk Seen Rising as Puts Appreciate Most in Europe: Options

By Cecile Vannucci and Jeff Kearns - Sep 9, 2011 11:32 AM GMT+0700

The price of options to protect against losses in Deutsche Bank AG (DBK) shares is rising more than any other European lender as Germany leads the rescue of nations in the region’s shared currency.

Three-month options that pay owners should Frankfurt-based Deutsche Bank drop 10 percent cost 1.3 times the price of contracts betting on 10 percent gains, according to data compiled by Bloomberg. That’s up from 1.14 at the end of July, the biggest increase among financial firms in the Stoxx Europe 600 Index, data using five-day averages show. Stocks subject to bans on short selling were excluded.

While budget deficits in Greece sparked the crisis, attention is turning to Germany, the largest provider of bailout funds in the region, as concern increases that its efforts will fail. The DAX Index plunged 27 percent this quarter, the third- largest decline behind Italy and Greece, while Deutsche Bank has dropped 38 percent. Josef Ackermann, its chief executive officer, said last week that conditions in stock and bond markets are reminiscent of late 2008.

“Deutsche Bank in Europe is kind of an anchor,” Matthias Fankhauser, a fund manager at Clariden Leu AG, which oversees 90 billion Swiss francs ($104 billion), said in a telephone interview from Zurich yesterday. “The pressure recently on Germany, on the DAX, probably had a big impact on Deutsche as well. We saw weakening and quite weak economic data recently, which really shows that the economy was losing momentum at a high speed.”

Falling Euro

The European Central Bank said risks to the economic recovery have intensified, sending the euro down 1.5 percent against the U.S. dollar yesterday. Credit-default swaps on Greek government debt reached a record, signaling a 91 percent chance the nation will fail to meet debt commitments. Germany is the chief underwriter of emergency loans offered to Greece, Ireland and Portugal, contributing about 27 percent of the total because it’s Europe’s biggest economy.

The benchmark gauge of European options prices, the VStoxx Index (V2X), slipped 4.2 percent to 41.63 yesterday. The index tracks prices for options on the Euro Stoxx 50, which rose 0.6 percent. Its U.S. counterpart, the Chicago Board Options Exchange Volatility Index, or VIX, rose 2.8 percent to 34.32.

Investors are betting against Deutsche Bank because of risks from the debt crisis even as the company projects the lender will increase earnings this year, said Dirk Becker, a financial industry analyst at Kepler Capital Markets in Frankfurt who has a “buy” rating on the stock.

Slowing Growth

Deutsche Bank had net sovereign risks related to Portugal, Italy, Ireland, Greece and Spain of 3.67 billion euros ($5.1 billion) on June 30, the company said July 26. Net income will surge 139 percent to 5.53 billion euros in 2011, according to the average analyst estimate in a Bloomberg survey. Growth will slow to 9.2 percent in 2012, the data show.

“It’s one of the most hated stocks in the universe,” Becker said in a telephone interview yesterday. “People believe the European debt crisis may end in some kind of worst-case scenario such as a euro breakup or sovereign default, and if those things happen Deutsche Bank is one of the most interconnected banks and would obviously be one of the big losers. That’s what is being priced in.”

Christian Streckert, a Frankfurt-based spokesman for Deutsche Bank, declined to comment.

The lender has tumbled 49 percent from its Feb. 16 high, including a 35 percent loss since the end of July. The shares sank to the lowest price since March 2009 on Sept. 6. Deutsche Bank had the fifth-biggest drop in the Stoxx 600 Banks Index during the past month, behind three Greek lenders -- EFG Eurobank Ergasias, Alpha Bank AE and National Bank of Greece SA -- and Paris-based Societe Generale (GLE) SA.

Profit Forecast

Deutsche Bank said yesterday that if capital markets and the sovereign debt crisis improve, it will reach its forecast for 10 billion euros in pretax operating profit this year. Ackermann said Sept. 5 that volatility and uncertainty were the “new normal” in markets and banking.

Investors are snapping up Deutsche Bank’s December 22 euro puts, which are priced 12 percent below yesterday’s stock price of 24.89 euros. The number of existing contracts surged eightfold to 9,681 in the past two weeks, the most among the company’s equity derivatives, data compiled by Bloomberg show.

While options traders are becoming more pessimistic about Deutsche Bank, they’re paying less for insurance against U.K. lenders. Put costs have fallen since July 29 in relation to calls for Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Plc, according to data compiled by Bloomberg. The Bank of England said in June that the euro-area debt crisis poses the biggest risk to the stability of the nation’s financial system.

Short-Sale Bans

Deutsche Bank’s options prices may show more pessimism than other lenders because some European countries have curbed short selling, according to Justin Wiggs, who trades financial stocks at Stifel Nicolaus & Co. in Baltimore.

Stocks dropped worldwide on Aug. 25, including a slump of as much as 4 percent by the DAX, as France, Italy and Spain extended restrictions on short selling, which involves the sale of securities borrowed from the owner in a bet they fall. Spain and Italy extended their bans through Sept. 30. France’s Autorite des Marches Financiers said its ban could last as long as Nov. 11. The regulators all said they might lift the bans on short selling of financial stocks when the market stabilizes.

‘Ongoing Pressure’

“The fundamental thing is you can’t do it in other markets,” Wiggs said about the short-sale bans in a telephone interview yesterday. “There could be ongoing pressure on German markets because people want to be short and there could be some pricing skew because of that.”

Deutsche Bank’s core tier 1 capital ratio, a measure of financial strength, would be 7 percent in 2012 if all so-called Basel III rules from the Basel Committee on Banking Supervision were applied, Mediobanca SpA’s Christopher Wheeler said in a report yesterday. That would trail rivals such as UBS AG, HSBC Holdings Plc and Goldman Sachs Group Inc., the analyst said.

The Frankfurt-based bank is “confident” it will meet Basel III capital and liquidity requirements early, Chief Risk Officer Hugo Banziger said in a presentation on June 10.

“For Deutsche, the question always has been do they have enough capital, and that discussion is still going on,” Florian Esterer, who helps oversee about $55 billion at Swisscanto Asset Management AG in Zurich, said in a telephone interview yesterday. “The company always said ‘we don’t need any more capital so quit bothering us,’ but the underlying risk is that they’re not sufficiently capitalized and they will need to raise equity.”

To contact the reporters on this story: Cecile Vannucci in Amsterdam at; Jeff Kearns in New York at

To contact the editors responsible for this story: Nick Baker at; Andrew Rummer at


Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Sep 09 11 04:26 GMT

As was widely expected no policy changes were announced after either the MPC or ECB meetings yesterday. Despite the decisions votes seemingly being in line with expectations, the markets at least initially reacted with a degree of disappointment to this news. However, ECB Chairman Trichet's subsequent press conference which emphasised that the risks on both inflation and economic growth had shifted caused German bonds to rally and the euro to sell off. As usual there was no statement from the BoE following the MPC meeting and so no evidence as yet as to whether the Committee's thinking has also shifted, although this must be highly likely. The minutes of the meeting, which will be released on the 21st will provide the first information on this. In the meantime, in a further indication of how consensus thinking is shifting the OECD announced a downward revision to its global growth forecasts yesterday.

The August UK PPI figures released today are likely to signal a nearterm easing of inflationary pressures. Last month, sterling's tradeweighted index moved higher, while commodity prices have weakened. Together, these developments point to a fall in input prices. Meanwhile, producer output prices are expected to be unchanged. We still have longer-term concerns about the UK inflation outlook, but given mounting concerns about growth this is unlikely to be at the forefront of policy makers' thoughts for now.

In the euro area today's data on Italian GDP and French industrial production will provide further information on the real economy. Both are likely to be reassuring as they should show slow growth, rather than rapidly falling output. But as they both refer to the period before the current market turbulence gathered pace, they are likely to be seen by markets as old news.

UK remains vulnerable to global price pressures

About the Author

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FX Technical Commentary

Daily Forex Technicals | Written by Easy Forex | Sep 09 11 04:16 GMT

FX Technical Commentary

Euro 1.3925

Initial support at 1.3837 (Jul 12 low) followed by 1.3837 (July 12 low). Initial resistance is now located at 1.4220 (Sept 5 high) followed by 1.4288 (Sept 2 high)

Yen 77.45

Initial support is located at 76.55 (Sep 2 low) followed by 75.95 (Psych level). Initial resistance is now at 77.70 (Aug 25 high) followed by 78.86 (Aug 8 high).

Pound 1.5985

Initial support at 1.5921 (Sep 6 low) followed by 1.5781 (Jul 12 low). Initial resistance is now at 1.6061 (Sept 5 high) followed by 1.6334 (Aug 31 high).

Australian Dollar 1.0625

Initial support at 1.0419 (Aug 26 low) followed by the 1.0363 (Aug 22 low). Initial resistance is now at 1.0666 (Sept 5 high) followed by 1.0734 (Sep 2 high).

Gold 1863

Initial support at 1805 (Sept 8 low) followed by 1757 (Aug 29 low). Initial resistance is now at 1880 (Sept 7 high) followed by 1921 (Sept 6 high).

Oil 89.40

Initial support at 88.00 (Intraday Support) followed by 85.00 (Intraday Support). Initial resistance is now at 90.00 (Intraday resistance) followed by 92.50 (Intraday Resistance).

Currency Sup 2 Sup 1 Spot Res 1 Res 2
EUR/USD 1.3752 1.3837 1.3925 1.4149 1.4288
USD/JPY 75.95 76.55 77.45 77.70 78.86
GBP/USD 1.5781 1.5921 1.5985 1.6061 1.6334
AUD/USD 1.0363 1.0419 1.0625 1.0666 1.0734
XAU/USD 1757.00 1805 1863 1880 1921
OIL/USD 85.00 88.0 89.40 90.00 92.50

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