Wall Street News to Know: April 3, 2012

by Kyle Colona on April 3, 2012

RBC in Massive Trading Scheme, says CFTC

The CFTC filed a lawsuit on April 2 against the Royal Bank of Canada claiming the bank was at the center of an “elaborate trading scheme.”

In its complaint, the commodities watchdog alleged that the bank used “bogus trades” in a play to reap lucrative tax benefits, says Dealbook.

The legal action cites “hundreds of millions of dollars and trades” over a three year span and is said to be the most significant enforcement case in recent memory. The commission’s complaint argues that the bank created bogus trades of unnamed stocks between different units. By churning these plays internally, moreover, “the bank was ensured all profits and losses cancelled each other out.”

“Today’s action should make clear that the CFTC will not hesitate to bring charges against even the most sophisticated market participants who unlawfully exploit the futures markets for their own gain,” David Meister, the agency’s enforcement chief, said in a statement.

Goldman Board in a Game of Musical Chairs

Goldman Sachs announced changes to its board after trading hours on Monday. The bank named James J. Schiro as the new lead director and head of its corporate governance and nominating committee.

The move was in response to pressure from shareholders, according to the DealBook story.

Shareholders have become increasingly discomfited with Lloyd Blankfein servings as both the chairman and the CEO. But the question remains as to whether this is the beginning of the end of Blankfein’s reign. Mr. Schiro has served on Goldman’s 12-person board since 2009.

“Since joining our board, Jim has been an influential voice, and I know our people and our shareholders will benefit greatly from his deep experience in his new role on our board,” Mr. Blankfein said in a statement.

3 Money Center Banks Face Credit Downgrades

Moody’s Investor Service may be gearing up to downgrade the debt of 3 “too big to fail” banks. A decision is coming by mid-May for Bank of America, Citigroup, and Morgan Stanley, according to DealBook. The downgrade also includes an additional 14 banks that are systemically important.

The downgrade could affect “billions of dollars in trading contracts that are an important business for Wall Street,” since the other side of these deals require maintenance of a sufficient credit rating, and a downgrade could trigger material adverse change (MAC) provisions that are normally included in these deals.

In short, a MAC could lead investors to pull out of these banks’ stocks and that will certainly have a ripple effect on the broader capital markets, especially in the multi-trillion$ derivatives market.

Warren Buffet Going Green

Bloomberg News reports that Warren Buffett believes companies that do not consider the impact of their business on the environment will not last.

Mr. Buffet reportedly said that “Taking shortcuts is not the pathway to achieving sustainable competitive advantage, nor is it an avenue toward satisfying customers.”

The CEO of Berkshire Hathaway has heavy investments in railroads and renewable energy as the investing big wheel believes “demand will climb for products or services that are less harmful to the planet.” In fact, after the acquisition of railroad Burlington Northern Santa Fe in 2009, Mr. Buffet told Bloomberg that the train line was the “most environmentally friendly way of moving goods” around the U.S.

Romney Looks Wisconsin and Maryland to Solidify Nomination

Today’s primary contests in Wisconsin, Maryland and the District of Columbia could make Mitt Romney’s nomination inevitable.

Several news sources including the Compliance Exchange have been following the GOP Primary, and Bloomberg News reports that Mr. Romney is beginning to focus his attention on President Obama and the November general election.

“His vision of a perfect world is a big-spending big government,” Romney said. “My vision of a more perfect world is a smaller government spending less and letting the people keep more.”

Romney has also painted the president as being “out of touch with the woes of average Americans.”

From the Eurozone

Spanish Debt Restructuring Highly Likely

The chances of a Spanish debt restructuring are more likely now according to some analysts as the country is looking to form a political “troika” to garner support from the European Central Bank (ECB).

The Chief Economist at Citigroup, William Buiter, said in a research comment that “he was increasingly worried about a default for Spain.” Buiter also contends that avoiding a restructuring requires “radical fiscal and structural measures,” according to MarketWatch.

In short, this means that “losses are likely to mount for the Spanish banking system on falling property prices.”

Ireland Will Not Default

The Guardian is reporting that Ireland will not default on its international debts. The republic’s Prime Minister, Enda Kenny, is said to have “pledged” that the struggling sovereign will not “throw the EU’s latest reforms into crisis by voting no in the upcoming referendum.

Meanwhile there were “scuffles” outside Dublin’s national convention center on Saturday afternoon during a protest by 5,000 people against the 100 euro charge per household that will be levied to finance the funding of its restructured debt. The charge is included in a package of austerity measures aimed at balancing the country’s books and pay down the national debt.

Kyle Colona is a New York based freelance writer and a Feature Writer for the Compliance Exchange. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications.

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