Emerging countries must be able to control capital flows: study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 12:31pm EDT

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

View the original article here

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Fed says it does not object to new BB&T capital plan

By Emily Stephenson and Peter Rudegeair

WASHINGTON/NEW YORK | Fri Aug 23, 2013 3:49pm EDT

WASHINGTON/NEW YORK (Reuters) - The Federal Reserve approved a revised capital plan for BB&T Corp for 2013, and the bank said on Friday that it is maintaining its current quarterly dividend.

With the approval, the only major U.S. bank whose plan has not yet been approved is auto lender Ally Financial, which earlier this week announced plans to sell shares to bolster its capital base.

The Fed vetoed BB&T's plan in March, and the bank submitted a new proposal in June. It was unclear how the original and resubmitted plans differed because the bank is not permitted to provide details on the rejected plan.

BB&T was conservative in crafting its revised capital plan because of uncertainty over future capital requirements, BB&T Chief Executive Kelly King said at a conference in June. But the bank did raise its quarterly dividend 15 percent in January to its current level of 23 cents a share.

The biggest banks must submit any plans they have to buy back shares or pay dividends to the Fed, according to the 2010 Dodd-Frank financial reform law.

The rules came about because regulators noticed during the financial crisis that many banks were raising billions of dollars of capital just months after having bought back shares or paid dividends. Bank executives generally view cutting dividends as a signal of financial weakness, and are often reluctant to take the step even when it is prudent.

The Fed can prevent a bank from buying back shares or paying dividends to make the bank safer, or if it takes issue with the bank's capital planning process.

In addition to rejecting BB&T and Ally's plans in March, regulators warned Goldman Sachs Group Inc and JPMorgan Chase & Co to fix flaws in the way they determine capital payouts.

The Fed said in March it rejected the BB&T plan based on unspecified "qualitative" concerns. The bank said it believed the decision was not related to BB&T's "capital strength, earnings power or financial condition."

BB&T disclosed in its 2012 annual report that the bank had to revise its calculations for risk-weighted assets and risk-based capital ratios.

That miscalculation "may have prompted the regulators to examine BB&T's internal systems and processes more closely," CreditSights analysts said in an August 21 report.

A BB&T spokesman declined to elaborate on the Fed's "qualitative" concerns.

Shares of BB&T fell 16 cents to $35.75 in late trading. The bank's shares have risen nearly 21 percent since the start of the year.

BB&T announced its strongest quarterly earnings ever on July 18. Net income available to common shareholders increased 7.3 percent to $547 million in the second quarter from a year prior, reflecting "record performances from our insurance, investment banking and brokerage, and trust and investment advisory businesses," King said in a statement.

The next round of Fed-administered stress tests begins this fall. King said BB&T would re-evaluate its capital position before it submitted a new plan to regulators in January 2014.

(Reporting by Emily Stephenson; Editing by John Wallace, Andre Grenon and Dan Grebler)

View the original article here

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Emerging countries must be able to control capital flows: study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 12:31pm EDT

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Fed says it does not object to new BB&T capital plan

By Emily Stephenson and Peter Rudegeair

WASHINGTON/NEW YORK | Fri Aug 23, 2013 3:49pm EDT

WASHINGTON/NEW YORK (Reuters) - The Federal Reserve approved a revised capital plan for BB&T Corp for 2013, and the bank said on Friday that it is maintaining its current quarterly dividend.

With the approval, the only major U.S. bank whose plan has not yet been approved is auto lender Ally Financial, which earlier this week announced plans to sell shares to bolster its capital base.

The Fed vetoed BB&T's plan in March, and the bank submitted a new proposal in June. It was unclear how the original and resubmitted plans differed because the bank is not permitted to provide details on the rejected plan.

BB&T was conservative in crafting its revised capital plan because of uncertainty over future capital requirements, BB&T Chief Executive Kelly King said at a conference in June. But the bank did raise its quarterly dividend 15 percent in January to its current level of 23 cents a share.

The biggest banks must submit any plans they have to buy back shares or pay dividends to the Fed, according to the 2010 Dodd-Frank financial reform law.

The rules came about because regulators noticed during the financial crisis that many banks were raising billions of dollars of capital just months after having bought back shares or paid dividends. Bank executives generally view cutting dividends as a signal of financial weakness, and are often reluctant to take the step even when it is prudent.

The Fed can prevent a bank from buying back shares or paying dividends to make the bank safer, or if it takes issue with the bank's capital planning process.

In addition to rejecting BB&T and Ally's plans in March, regulators warned Goldman Sachs Group Inc and JPMorgan Chase & Co to fix flaws in the way they determine capital payouts.

The Fed said in March it rejected the BB&T plan based on unspecified "qualitative" concerns. The bank said it believed the decision was not related to BB&T's "capital strength, earnings power or financial condition."

BB&T disclosed in its 2012 annual report that the bank had to revise its calculations for risk-weighted assets and risk-based capital ratios.

That miscalculation "may have prompted the regulators to examine BB&T's internal systems and processes more closely," CreditSights analysts said in an August 21 report.

A BB&T spokesman declined to elaborate on the Fed's "qualitative" concerns.

Shares of BB&T fell 16 cents to $35.75 in late trading. The bank's shares have risen nearly 21 percent since the start of the year.

BB&T announced its strongest quarterly earnings ever on July 18. Net income available to common shareholders increased 7.3 percent to $547 million in the second quarter from a year prior, reflecting "record performances from our insurance, investment banking and brokerage, and trust and investment advisory businesses," King said in a statement.

The next round of Fed-administered stress tests begins this fall. King said BB&T would re-evaluate its capital position before it submitted a new plan to regulators in January 2014.

(Reporting by Emily Stephenson; Editing by John Wallace, Andre Grenon and Dan Grebler)

View the original article here

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Emerging countries must be able to control capital flows - study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 5:29pm BST

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Emerging countries must be able to control capital flows: study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 12:31pm EDT

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Fed says it does not object to new BB&T capital plan

By Emily Stephenson and Peter Rudegeair

WASHINGTON/NEW YORK | Fri Aug 23, 2013 3:49pm EDT

WASHINGTON/NEW YORK (Reuters) - The Federal Reserve approved a revised capital plan for BB&T Corp for 2013, and the bank said on Friday that it is maintaining its current quarterly dividend.

With the approval, the only major U.S. bank whose plan has not yet been approved is auto lender Ally Financial, which earlier this week announced plans to sell shares to bolster its capital base.

The Fed vetoed BB&T's plan in March, and the bank submitted a new proposal in June. It was unclear how the original and resubmitted plans differed because the bank is not permitted to provide details on the rejected plan.

BB&T was conservative in crafting its revised capital plan because of uncertainty over future capital requirements, BB&T Chief Executive Kelly King said at a conference in June. But the bank did raise its quarterly dividend 15 percent in January to its current level of 23 cents a share.

The biggest banks must submit any plans they have to buy back shares or pay dividends to the Fed, according to the 2010 Dodd-Frank financial reform law.

The rules came about because regulators noticed during the financial crisis that many banks were raising billions of dollars of capital just months after having bought back shares or paid dividends. Bank executives generally view cutting dividends as a signal of financial weakness, and are often reluctant to take the step even when it is prudent.

The Fed can prevent a bank from buying back shares or paying dividends to make the bank safer, or if it takes issue with the bank's capital planning process.

In addition to rejecting BB&T and Ally's plans in March, regulators warned Goldman Sachs Group Inc and JPMorgan Chase & Co to fix flaws in the way they determine capital payouts.

The Fed said in March it rejected the BB&T plan based on unspecified "qualitative" concerns. The bank said it believed the decision was not related to BB&T's "capital strength, earnings power or financial condition."

BB&T disclosed in its 2012 annual report that the bank had to revise its calculations for risk-weighted assets and risk-based capital ratios.

That miscalculation "may have prompted the regulators to examine BB&T's internal systems and processes more closely," CreditSights analysts said in an August 21 report.

A BB&T spokesman declined to elaborate on the Fed's "qualitative" concerns.

Shares of BB&T fell 16 cents to $35.75 in late trading. The bank's shares have risen nearly 21 percent since the start of the year.

BB&T announced its strongest quarterly earnings ever on July 18. Net income available to common shareholders increased 7.3 percent to $547 million in the second quarter from a year prior, reflecting "record performances from our insurance, investment banking and brokerage, and trust and investment advisory businesses," King said in a statement.

The next round of Fed-administered stress tests begins this fall. King said BB&T would re-evaluate its capital position before it submitted a new plan to regulators in January 2014.

(Reporting by Emily Stephenson; Editing by John Wallace, Andre Grenon and Dan Grebler)

View the original article here

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Emerging countries must be able to control capital flows - study

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 4:01pm BST

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment, and must therefore develop tools to control credit flows or risk relinquishing any independent monetary policy.

That was the finding of a paper presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries including India and Brazil have recently suffered steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion open flows of money between countries regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School.

"They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interests rates and credit creation from sources outside their control, the paper said.

"Independent monetary policies are possible if and only if the capital account is managed, directly or indirectly via macroprudential policies," Rey said.

(Reporting by Pedro Nicolaci da Costa; Editing by Vicki Allen)

View the original article here

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In Britain, economic recovery increases PM Cameron's political capital

Britain's Prime Minister David Cameron answers questions asked by workers at an upholstery factory in Long Eaton, central England April 22, 2013.

Credit: Reuters/Joe Giddens/Pool

By Guy Faulconbridge and Andrew Osborn

LONDON | Fri Aug 16, 2013 5:21am EDT

LONDON (Reuters) - British Prime Minister David Cameron may be close to pulling off one of the most significant feats of his premiership: delivering a solid economic recovery ahead of a 2015 election.

Two consecutive quarters of growth have shifted the sands of British politics: six months ago, lawmakers in his ruling Conservative party warned him that failure to lead Britain out of stagnation could cost him, and them, the election. Those fearful voices have fallen silent.

After cutting Britain's biggest budget deficit since World War Two by a third, Cameron leads what could be the fastest growing major economy in the European Union this year.

"Will the better economic data change the political landscape? Well, economics is the biggest issue," said Steven Bell, director of multi-asset investment at F&C Asset Management which has about 98 billion pounds ($151.52 billion) under management.

"Having pursued a policy of austerity, the government will get credibility both for prudent management and for the recovery," said Bell. "They will get the credit for this."

Britain's $2.5 trillion economy grew by 0.6 percent in the second quarter after a 0.3 percent rise in the first quarter, putting it on course to grow by at least 1.4 percent this year.

That would be the strongest annual growth since 2010, the year Cameron forced Labour's Gordon Brown from office by forming a coalition government with the Liberal Democrats after no party won an outright majority in a general election.

Some investors say Cameron's policies may in fact be partly to blame for the recovery's long wait. But they still expect the government to benefit.

"The recovery could have happened a lot sooner with a bit more government support for infrastructure spending in particular," said Trevor Greetham, asset allocation director for Fidelity's Investment Solution Group, who has responsibility for $14 billion of assets.

"But that is not the way things tend to work in the minds of the electorate - you cannot say 'well actually this would have happened earlier and we would all be a lot wealthier with a policy that didn't happen'. In reality it is the strength of the economy at the time of an election that tends to matter most."

For Cameron and his finance minister, George Osborne, the political gamble was always on economic growth. But even as signs emerge that their bet may be paying off, they remain cautious.

Party sources say they are acutely aware of the risk of premature triumphalism 21 months before the election.

When asked on almost a daily basis whether Britain is seeing "the green shoots of recovery", Cameron's spokesman says only that the economy "is healing" or "out of intensive care". He always stresses that tough times still lie ahead.

IT'S THE ECONOMY STUPID

Staking their reputation on reducing Britain's debt mountain and nursing the economy back to health, Cameron and Osborne knew they had just a few years to make inroads into what they said was the profligate legacy of the 1997-2010 Labour governments.

But as the economy stagnated, Britain's two most powerful men were branded "dipsticks" by Rupert Murdoch's Sun newspaper and their privileged backgrounds - both went to expensive schools and were members of the same exclusive high-society dining club at Oxford - were mocked.

One outspoken Conservative lawmaker even called them "arrogant posh boys" who "don't know the price of milk".

Cameron's party lost ground in opinion polls and was convulsed by internal rebellions over Britain's ties with the European Union and over gay marriage, while the opposition Labour party warned voters austerity was killing off the recovery.

But from services and consumer spending to house prices, Britons' best loved measure of economic virility, data now shows the world's sixth largest economy may be about to do better than at any time since the onset of the 2007-2008 financial crisis.

Under its new governor, Mark Carney, the Bank of England upgraded its mean growth projection this month by 0.8 percentage points to 2.5 percent in 2014. If achieved, that would be Britain's fastest annual growth rate since 2007.

"A renewed recovery is now underway in the United Kingdom, and it appears to be broadening," Carney said at his first news conference as Bank of England chief while unveiling a promise -- with caveats -- not to raise interest rates above 0.5 percent until unemployment falls below 7 percent.

While a recovery is underway, the economy is a long way from regaining its pre-crisis strength. Britain remains vulnerable to any more shocks from the euro zone debt crisis and voters' incomes are at some of their lowest levels in a decade.

Yet ultra-loose monetary policy, support for the housing market, the potential of North Sea oil production, and the ability to ease the pain of austerity with tax revenues give Cameron one of the best economic backdrops of his premiership.

If he can keep the recovery on track right up to the next election, Cameron's chances of winning - possibly even the Conservatives' first outright victory since 1992 - increase.

If he wins, Cameron has promised an in-out referendum on Britain's membership of the European Union by the end of 2017. Economic growth could ease voter unease at immigration - one of the drivers of anti-European Union feeling in Britain.

LABOUR

Growth leaves the opposition Labour Party and its leader, Ed Miliband, in a tough spot. Labour's drive to convince voters it can run the economy has fallen flat so far: support for Conservative economic management soared to 40 percent from 28 percent in June, according to a Guardian/ICM poll.

The poll put Labour's overall support at 35 percent, a mere three percentage points higher than the Conservatives. Labour's lead was 12 percentage points in the same poll in February.

Now it is Miliband and Labour finance chief Ed Balls, rather than Cameron and Osborne, who are mocked by the domestic press.

After a protester threw an egg at Miliband's head during a visit to an East London market in August, the Sun branded him "Scrambled Ed" and cast him in a cartoon as the broken-egg character from the English nursery rhyme Humpty Dumpty.

But Labour says improving economic data shows no signs of translating into higher living standards.

"It may be a recovery for those at the top, but it is not a recovery for most people," a senior Labour source told Reuters. "For most, living standards are being squeezed as inflation outstrips wages more and more. This is what we're going to be pointing out."

In a change of tack, Miliband has put the cost of living at the heart of his economic policy, noting rising costs for everything from utilities to train fares.

He plans to attack Cameron with the slogan: "They're out of touch. You're out of pocket."

(Editing by Peter Graff)

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In Britain, economic recovery increases PM Cameron's political capital

Britain's Prime Minister David Cameron answers questions asked by workers at an upholstery factory in Long Eaton, central England April 22, 2013.

Credit: Reuters/Joe Giddens/Pool

By Guy Faulconbridge and Andrew Osborn

LONDON | Fri Aug 16, 2013 5:21am EDT

LONDON (Reuters) - British Prime Minister David Cameron may be close to pulling off one of the most significant feats of his premiership: delivering a solid economic recovery ahead of a 2015 election.

Two consecutive quarters of growth have shifted the sands of British politics: six months ago, lawmakers in his ruling Conservative party warned him that failure to lead Britain out of stagnation could cost him, and them, the election. Those fearful voices have fallen silent.

After cutting Britain's biggest budget deficit since World War Two by a third, Cameron leads what could be the fastest growing major economy in the European Union this year.

"Will the better economic data change the political landscape? Well, economics is the biggest issue," said Steven Bell, director of multi-asset investment at F&C Asset Management which has about 98 billion pounds ($151.52 billion) under management.

"Having pursued a policy of austerity, the government will get credibility both for prudent management and for the recovery," said Bell. "They will get the credit for this."

Britain's $2.5 trillion economy grew by 0.6 percent in the second quarter after a 0.3 percent rise in the first quarter, putting it on course to grow by at least 1.4 percent this year.

That would be the strongest annual growth since 2010, the year Cameron forced Labour's Gordon Brown from office by forming a coalition government with the Liberal Democrats after no party won an outright majority in a general election.

Some investors say Cameron's policies may in fact be partly to blame for the recovery's long wait. But they still expect the government to benefit.

"The recovery could have happened a lot sooner with a bit more government support for infrastructure spending in particular," said Trevor Greetham, asset allocation director for Fidelity's Investment Solution Group, who has responsibility for $14 billion of assets.

"But that is not the way things tend to work in the minds of the electorate - you cannot say 'well actually this would have happened earlier and we would all be a lot wealthier with a policy that didn't happen'. In reality it is the strength of the economy at the time of an election that tends to matter most."

For Cameron and his finance minister, George Osborne, the political gamble was always on economic growth. But even as signs emerge that their bet may be paying off, they remain cautious.

Party sources say they are acutely aware of the risk of premature triumphalism 21 months before the election.

When asked on almost a daily basis whether Britain is seeing "the green shoots of recovery", Cameron's spokesman says only that the economy "is healing" or "out of intensive care". He always stresses that tough times still lie ahead.

IT'S THE ECONOMY STUPID

Staking their reputation on reducing Britain's debt mountain and nursing the economy back to health, Cameron and Osborne knew they had just a few years to make inroads into what they said was the profligate legacy of the 1997-2010 Labour governments.

But as the economy stagnated, Britain's two most powerful men were branded "dipsticks" by Rupert Murdoch's Sun newspaper and their privileged backgrounds - both went to expensive schools and were members of the same exclusive high-society dining club at Oxford - were mocked.

One outspoken Conservative lawmaker even called them "arrogant posh boys" who "don't know the price of milk".

Cameron's party lost ground in opinion polls and was convulsed by internal rebellions over Britain's ties with the European Union and over gay marriage, while the opposition Labour party warned voters austerity was killing off the recovery.

But from services and consumer spending to house prices, Britons' best loved measure of economic virility, data now shows the world's sixth largest economy may be about to do better than at any time since the onset of the 2007-2008 financial crisis.

Under its new governor, Mark Carney, the Bank of England upgraded its mean growth projection this month by 0.8 percentage points to 2.5 percent in 2014. If achieved, that would be Britain's fastest annual growth rate since 2007.

"A renewed recovery is now underway in the United Kingdom, and it appears to be broadening," Carney said at his first news conference as Bank of England chief while unveiling a promise -- with caveats -- not to raise interest rates above 0.5 percent until unemployment falls below 7 percent.

While a recovery is underway, the economy is a long way from regaining its pre-crisis strength. Britain remains vulnerable to any more shocks from the euro zone debt crisis and voters' incomes are at some of their lowest levels in a decade.

Yet ultra-loose monetary policy, support for the housing market, the potential of North Sea oil production, and the ability to ease the pain of austerity with tax revenues give Cameron one of the best economic backdrops of his premiership.

If he can keep the recovery on track right up to the next election, Cameron's chances of winning - possibly even the Conservatives' first outright victory since 1992 - increase.

If he wins, Cameron has promised an in-out referendum on Britain's membership of the European Union by the end of 2017. Economic growth could ease voter unease at immigration - one of the drivers of anti-European Union feeling in Britain.

LABOUR

Growth leaves the opposition Labour Party and its leader, Ed Miliband, in a tough spot. Labour's drive to convince voters it can run the economy has fallen flat so far: support for Conservative economic management soared to 40 percent from 28 percent in June, according to a Guardian/ICM poll.

The poll put Labour's overall support at 35 percent, a mere three percentage points higher than the Conservatives. Labour's lead was 12 percentage points in the same poll in February.

Now it is Miliband and Labour finance chief Ed Balls, rather than Cameron and Osborne, who are mocked by the domestic press.

After a protester threw an egg at Miliband's head during a visit to an East London market in August, the Sun branded him "Scrambled Ed" and cast him in a cartoon as the broken-egg character from the English nursery rhyme Humpty Dumpty.

But Labour says improving economic data shows no signs of translating into higher living standards.

"It may be a recovery for those at the top, but it is not a recovery for most people," a senior Labour source told Reuters. "For most, living standards are being squeezed as inflation outstrips wages more and more. This is what we're going to be pointing out."

In a change of tack, Miliband has put the cost of living at the heart of his economic policy, noting rising costs for everything from utilities to train fares.

He plans to attack Cameron with the slogan: "They're out of touch. You're out of pocket."

(Editing by Peter Graff)

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SAC Capital pleads not guilty; reinsurance unit eyed

By Bernard Vaughan and Svea Herbst-Bayliss

Fri Jul 26, 2013 6:55pm EDT

n">(Reuters) - Billionaire investor Steven A. Cohen's hedge fund pleaded not guilty on Friday to insider trading charges in federal court, as questions also surfaced about the future of SAC Capital's Bermuda-based reinsurance unit, SAC Re.

Ratings company, A.M. Best Co., and the Bermuda Monetary Authority, which regulates insurers on the island, said they were monitoring developments one day after prosecutors charged the hedge fund and various affiliates with four criminal counts of securities fraud and one count of wire fraud.

A year ago A.M. Best gave SAC Re a top rating. But if the company were to cut its rating of the unit, which had $567.8 million in assets at the end of 2012, in the wake of criminal charges, people may shy away from doing business with the insurer, industry experts said.

"Buyers of reinsurance from SAC Re will be on the phone with their brokers telling them to move out," said Andrew Barile, an independent industry consultant. Buyers have plenty of choice in the reinsurance industry, experts said, adding it would be relatively easy to change companies.

Separately, outside investors with the $14 billion hedge fund also expressed some uncertainty about what to do with their money only weeks before an August 16 redemption deadline.

SAC had presided over a culture from 1999 to 2010 where employees flouted the law and were encouraged to tap their personal networks for inside information about publicly traded companies, prosecutors said on Thursday.

The criminal case imperils the future of one of Wall Street's largest hedge funds and could end Cohen's career of managing outside money. His average annualized returns of 25 percent beat most of his rivals.

Prosecutors did not file criminal charges against Cohen personally, but the U.S. Securities and Exchange Commission has filed a separate civil case against him for failing to supervise two employees.

The SEC is expected to delay its civil case while the criminal trial proceeds. The U.S. attorney also brought a civil case seeking forfeitures and money laundering penalties from Cohen.

The government's evidence in the criminal case includes a lot of "court-authorized wiretaps" and "a large number of electronic recordings," such as emails and instant messages, Antonia Apps, an assistant U.S. attorney who has prosecuted other insider-trading cases, told U.S. District Judge Laura Taylor Swain.

Jonathan Gasthalter, a spokesman for SAC, declined to comment. A representative for SAC Re did not return a call seeking comment.

U.S. Attorney Preet Bharara, who brought the charges, declined to give a specific dollar figure for the amount his office is seeking from SAC. But in court papers, prosecutors contend SAC made "hundreds of millions of dollars" in illegal profits from insider trading, and the penalties they seek could be up to three times the amount of the illegal gains.

SAC sought to assure investors its assets were not frozen and redemptions would continue unhindered. Skittish investors have already withdrawn roughly $4 billion from the firm in the first half of the year.

Blackstone Group, Ironwood Capital and Magnitude Capital all withdrew funds earlier this year. Morgan Stanley, which had client money invested with Cohen also took steps to reduce exposure to SAC in the months leading up to the indictment, according to a person familiar with situation.

Morgan Stanley's exposure is now minimal. A spokeswoman for the bank declined to comment on whether the bank would seek to redeem its remaining funds in the wake of the criminal charges.

While some investors have been loyal to Cohen, one person, who declined to be named, said the new charges worried him. "The real worry is that the regulators are relentless and their sights are set on Steve and they will not stop at nothing to bring him down."

Others said they would wait a little longer to make a decision and await for any communication from the fund. If investors submit a redemption request by August 16, they will get half their cash back by the end of September and the remainder by the end of December.

WAITING FOR EVIDENCE The strength of U.S. prosecutors' case will become clearer once the evidence they are planning to use is laid out, legal experts said.

"Over the next six months you'll get a sense for why the DOJ charged the entity and failed to charge any of the high-ranking executives," said defense lawyer Andrew Wise, a partner at Miller Chevalier.

Several former SAC employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, have pleaded guilty to charges of criminal insider trading.

Judge Swain set a September 24 court date to discuss evidence.

SAC's lawyers on Friday included: Ted Wells, Daniel Kramer and Michael Gertzman of Paul, Weiss, Rifkind, Wharton & Garrison; and Martin Klotz and Michael Schachter of Willkie Farr & Gallagher.

The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.

(Reporting by Bernard Vaughan in New York and Svea Herbst-Bayliss in Boston; Additional reporting by Sarah N. Lynch in Washington, Emily Flitter and Katya Wachtel in New York; Editing by Matthew Goldstein, Paritosh Bansal, Gerald E. McCormick, Jeffrey Benkoe and Leslie Gevirtz)

View the original article here

SAC Capital pleads not guilty; reinsurance unit eyed

By Bernard Vaughan and Svea Herbst-Bayliss

Fri Jul 26, 2013 6:55pm EDT

n">(Reuters) - Billionaire investor Steven A. Cohen's hedge fund pleaded not guilty on Friday to insider trading charges in federal court, as questions also surfaced about the future of SAC Capital's Bermuda-based reinsurance unit, SAC Re.

Ratings company, A.M. Best Co., and the Bermuda Monetary Authority, which regulates insurers on the island, said they were monitoring developments one day after prosecutors charged the hedge fund and various affiliates with four criminal counts of securities fraud and one count of wire fraud.

A year ago A.M. Best gave SAC Re a top rating. But if the company were to cut its rating of the unit, which had $567.8 million in assets at the end of 2012, in the wake of criminal charges, people may shy away from doing business with the insurer, industry experts said.

"Buyers of reinsurance from SAC Re will be on the phone with their brokers telling them to move out," said Andrew Barile, an independent industry consultant. Buyers have plenty of choice in the reinsurance industry, experts said, adding it would be relatively easy to change companies.

Separately, outside investors with the $14 billion hedge fund also expressed some uncertainty about what to do with their money only weeks before an August 16 redemption deadline.

SAC had presided over a culture from 1999 to 2010 where employees flouted the law and were encouraged to tap their personal networks for inside information about publicly traded companies, prosecutors said on Thursday.

The criminal case imperils the future of one of Wall Street's largest hedge funds and could end Cohen's career of managing outside money. His average annualized returns of 25 percent beat most of his rivals.

Prosecutors did not file criminal charges against Cohen personally, but the U.S. Securities and Exchange Commission has filed a separate civil case against him for failing to supervise two employees.

The SEC is expected to delay its civil case while the criminal trial proceeds. The U.S. attorney also brought a civil case seeking forfeitures and money laundering penalties from Cohen.

The government's evidence in the criminal case includes a lot of "court-authorized wiretaps" and "a large number of electronic recordings," such as emails and instant messages, Antonia Apps, an assistant U.S. attorney who has prosecuted other insider-trading cases, told U.S. District Judge Laura Taylor Swain.

Jonathan Gasthalter, a spokesman for SAC, declined to comment. A representative for SAC Re did not return a call seeking comment.

U.S. Attorney Preet Bharara, who brought the charges, declined to give a specific dollar figure for the amount his office is seeking from SAC. But in court papers, prosecutors contend SAC made "hundreds of millions of dollars" in illegal profits from insider trading, and the penalties they seek could be up to three times the amount of the illegal gains.

SAC sought to assure investors its assets were not frozen and redemptions would continue unhindered. Skittish investors have already withdrawn roughly $4 billion from the firm in the first half of the year.

Blackstone Group, Ironwood Capital and Magnitude Capital all withdrew funds earlier this year. Morgan Stanley, which had client money invested with Cohen also took steps to reduce exposure to SAC in the months leading up to the indictment, according to a person familiar with situation.

Morgan Stanley's exposure is now minimal. A spokeswoman for the bank declined to comment on whether the bank would seek to redeem its remaining funds in the wake of the criminal charges.

While some investors have been loyal to Cohen, one person, who declined to be named, said the new charges worried him. "The real worry is that the regulators are relentless and their sights are set on Steve and they will not stop at nothing to bring him down."

Others said they would wait a little longer to make a decision and await for any communication from the fund. If investors submit a redemption request by August 16, they will get half their cash back by the end of September and the remainder by the end of December.

WAITING FOR EVIDENCE The strength of U.S. prosecutors' case will become clearer once the evidence they are planning to use is laid out, legal experts said.

"Over the next six months you'll get a sense for why the DOJ charged the entity and failed to charge any of the high-ranking executives," said defense lawyer Andrew Wise, a partner at Miller Chevalier.

Several former SAC employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, have pleaded guilty to charges of criminal insider trading.

Judge Swain set a September 24 court date to discuss evidence.

SAC's lawyers on Friday included: Ted Wells, Daniel Kramer and Michael Gertzman of Paul, Weiss, Rifkind, Wharton & Garrison; and Martin Klotz and Michael Schachter of Willkie Farr & Gallagher.

The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.

(Reporting by Bernard Vaughan in New York and Svea Herbst-Bayliss in Boston; Additional reporting by Sarah N. Lynch in Washington, Emily Flitter and Katya Wachtel in New York; Editing by Matthew Goldstein, Paritosh Bansal, Gerald E. McCormick, Jeffrey Benkoe and Leslie Gevirtz)

View the original article here

SAC Capital seeks protective order on operations after charges

NEW YORK (Reuters) - Steven A. Cohen's $15 billion hedge fund SAC Capital Advisors is working on an agreement with U.S. prosecutors for an order to "reasonably protect all parties legitimate interests" as the firm faces criminal insider trading charges.

SAC spokesman Jonathan Gasthalter said in statement on Thursday that a prosecution by the U.S. Attorney in Manhattan "is not intended to affect the ongoing operations of SAC's business, prevent investor redemptions, or impact the interests of any of SAC's counterparties."

He said it was not an attempt to freeze any of the hedge fund's assets.

"We anticipate that we and the U.S. Attorney's Office will agree to a protective order intended to reasonably protect all parties' legitimate interests, but will expressly permit SAC to continue its operations in the ordinary course."

(Reporting By Emily Flitter; Editing by Grant McCool)

View the original article here

U.S. charges SAC Capital with insider trading crimes

1 of 5. United States Attorney Preet Bharara speaks during a news conference in New York, July 25, 2013.

Credit: Reuters/Mike Segar

By Emily Flitter, Svea Herbst-Bayliss and Jonathan Stempel

NEW YORK | Thu Jul 25, 2013 7:49pm EDT

NEW YORK (Reuters) - U.S. prosecutors indicted billionaire Steven A. Cohen's hedge fund for insider trading, a rare move that could end the career of one of Wall Street's most successful investors and trigger a fundamental change in how traders try to gain an edge over rivals.

The government accused SAC Capital Advisors LP of presiding over a culture where employees flouted the law and were encouraged to tap their personal networks of contacts for inside information about publicly traded companies.

The result was "insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry," the indictment said.

While not personally charged criminally, Cohen joins junk bond financier Michael Milken and Galleon Group hedge fund founder Raj Rajaratnam among prominent Wall Street executives who have been linked to insider trading.

The indictment filed by the U.S. Department of Justice against SAC, together with a related civil case seeking forfeitures and money laundering penalties, imperils the future of the roughly $15 billion hedge fund.

It also may end Cohen's career of managing outside money, where he generated some of the hedge fund industry's best returns and became one of the foremost traders of his generation.

Last week, the U.S. Securities and Exchange Commission charged Cohen in a civil case with failing to supervise two employees, Mathew Martoma and Michael Steinberg. Both men have pleaded not guilty to criminal insider trading charges and face trials in November.

Many Wall Street firms that lend money to and trade with Stamford, Connecticut-based SAC may stop or pull back because of Thursday's criminal charges, though some said on they would take a wait-and-see approach.

Cohen may yet be able to stay in business because more than $8 billion of the fund's assets belong to him and his employees.

SAC said in a statement it has no plans to shut down.

"SAC has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously," it said. "The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years. SAC will continue to operate as we work through these matters."

VIRTUAL SLAM DUNK?

The government's indictment of SAC Capital also will stand as the signature action of its multi-year crackdown on insider trading in the $2.25 trillion hedge fund industry.

The investigation burst into the open in October 2009 with the arrest of Rajaratnam, founder of Galleon Group, and led to the conviction of more than 60 people including Rajaratnam. But for authorities Cohen always was the big fish to be caught because he loomed large over the hedge fund industry.

In fact, when Cohen first opened shop, hedge funds were not well understood and the industry was a fraction of its current size, with funds managing well under $1 trillion. But in large part because of the success of firms like SAC Capital, hedge fund managers surpassed investment bankers and even some bank chief executive officers in terms of fame and fortune.

Over the years, Cohen has been the subject of two Vanity Fair magazine stories, countless front-page stories in The New York Times, and is maybe just as famous in the art world for his prized collection of works by Damien Hirst, Jeff Koons and Pablo Picasso.

More recently, he tried to become the owner of the Los Angeles Dodgers baseball team, but instead settled for a minority stake in the New York Mets. As the scrutiny of Cohen and his firm has risen in recent year, he's became more visible at hedge fund events, donating money to charities and buying even more artwork.

Several lawyers, including former federal prosecutors, said a decision not to criminally charge Cohen might signal an admission that there is a shortage of evidence against him.

But the indictment does not preclude the government from gathering more evidence and filing new charges later. Some lawyers believe the case against SAC is strong now.

"It's going to be a virtual slam dunk for the prosecution," said Solomon Wisenberg, a partner at Barnes & Thornburg in Washington, D.C., and author of "White Collar Crime: Securities Fraud."

"The story is basically that there's a whole culture here where red flags were ignored, (and) compliance efforts were more or less window dressing."

The Justice Department's decision to indict SAC, and not just individuals, is an unusual move that underscores prosecutors' belief about the pervasiveness of the alleged insider trading.

Prosecutors have shied away from indicting large financial firms after their 2002 case against Enron Corp's auditor, Arthur Andersen, helped put that firm out of business.

The indictment comes after a seven-year investigation of SAC and amid a broader crackdown on insider trading that has resulted in more than 70 convictions and guilty pleas.

It is as much a forceful reproof of an era of free-wheeling trading by hedge funds as it is a condemnation of SAC's culture as an alleged breeding ground for traders and analysts who traffic in illegal tips about corporate earnings and buy-outs.

The indictment said SAC's illegal practices ran roughly from 1999 to 2010. SAC and various affiliates were charged with four criminal counts of securities fraud and one count of wire fraud.

"When so many people from a single hedge fund engage in insider trading, it is not a coincidence," U.S. Attorney Preet Bharara said at a press conference. He declined to address how much money the government will seek to have SAC forfeit.

U.S. District Judge Laura Taylor Swain will oversee the criminal case, and an initial hearing is scheduled for Friday morning. A colleague, U.S. District Judge Richard Sullivan, will oversee the civil forfeiture case, according to court records.

In Washington, lawmakers critical of prosecutors' past efforts to go after Wall Street heavyweights applauded the indictment.

"They deserve credit for taking on a big, challenging case," said Senator Chuck Grassley, a Republican of Iowa whose office has conducted its own probe of Cohen and SAC Capital.

"LIKE A MOVIE"

Launched in 1992 with just $25 million, SAC became the most successful hedge fund to rely on the so-called mosaic theory of investing, which builds investment theses on stocks by gathering information from multiple sources.

Cohen has been able to generate average annualized returns of 25 percent, far outpacing most rivals.

That has helped him to charge a 3 percent management fee and keep 50 percent of investment profits. A typical hedge fund manager gets a 2 percent fee and 20 percent of the profits.

SAC's success has also enabled Cohen to spend well, and he has become known for his collection of expensive art and real estate holdings. Cohen recently paid casino mogul Steve Wynn a reported $155 million for Pablo Picasso's "Le Rêve," and owns properties valued well into eight figures.

Many investors stuck with Cohen despite years of speculation about improper trading. But over recent months they requested about $4 billion in withdrawals as investigators closed in.

SAC generates more than $300 million annually in trading fees for Wall Street brokerages large and small, such as JPMorgan Chase & Co and Jefferies & Co.

Although SAC has $6 billion to $8 billion of cash, according to people familiar with its finances, some question how effectively it can operate. "It's an ugly situation," said an executive at one counterparty.

On Thursday, extra security was posted outside SAC's Stamford office, and reporters were kept far away. One employee at the firm's New York office said there were no recent internal signs of panic or anxiety. "It's like a movie," he said.

COOPERATING WITNESSES

Prosecutors built their case against SAC with help from several former employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, who pleaded guilty to charges of criminal insider trading.

Among suspect trades was Cohen's August 2008 sale of a $12.5 million stake in Dell Inc, launched within 10 minutes after he was forwarded an email in which Horvath told Steinberg, based on a "2nd hand read from someone at the company," that the computer maker's earnings would disappoint.

Cohen's lawyers this week said he never read that email.

The indictment also alludes to Cohen hiring a new employee, Richard Lee, despite a warning that he had been in another fund's "insider trading group." Lee pleaded guilty on July 23 to securities fraud and conspiracy involving trades in Yahoo Inc and 3Com Corp.

The indictment does not identify the fund, but a person familiar with the matter said it was Kenneth Griffin's Citadel Investment Group. Citadel managed roughly $13.3 billion at year end.

A Citadel spokeswoman, Katie Spring, said Lee was fired in 2008 for breaching company rules, not insider trading. "There is no insider trading group at Citadel," she added.

The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.

(Reporting by Michael Erman, Emily Flitter, David Henry, Lauren Tara LaCapra, Jonathan Stempel, Bernard Vaughan and Katya Wachtel in New York; Svea Herbst-Bayliss in Boston; Peter Rudegeair in Stamford, Connecticut; and Sarah N. Lynch in Washington, D.C.; Editing by Matthew Goldstein, Grant McCool, Paritosh Bansal, Dan Grebler, Leslie Adler)

View the original article here

U.S. charges SAC Capital with insider trading crimes

1 of 5. United States Attorney Preet Bharara speaks during a news conference in New York, July 25, 2013.

Credit: Reuters/Mike Segar

By Emily Flitter, Svea Herbst-Bayliss and Jonathan Stempel

NEW YORK | Thu Jul 25, 2013 7:49pm EDT

NEW YORK (Reuters) - U.S. prosecutors indicted billionaire Steven A. Cohen's hedge fund for insider trading, a rare move that could end the career of one of Wall Street's most successful investors and trigger a fundamental change in how traders try to gain an edge over rivals.

The government accused SAC Capital Advisors LP of presiding over a culture where employees flouted the law and were encouraged to tap their personal networks of contacts for inside information about publicly traded companies.

The result was "insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry," the indictment said.

While not personally charged criminally, Cohen joins junk bond financier Michael Milken and Galleon Group hedge fund founder Raj Rajaratnam among prominent Wall Street executives who have been linked to insider trading.

The indictment filed by the U.S. Department of Justice against SAC, together with a related civil case seeking forfeitures and money laundering penalties, imperils the future of the roughly $15 billion hedge fund.

It also may end Cohen's career of managing outside money, where he generated some of the hedge fund industry's best returns and became one of the foremost traders of his generation.

Last week, the U.S. Securities and Exchange Commission charged Cohen in a civil case with failing to supervise two employees, Mathew Martoma and Michael Steinberg. Both men have pleaded not guilty to criminal insider trading charges and face trials in November.

Many Wall Street firms that lend money to and trade with Stamford, Connecticut-based SAC may stop or pull back because of Thursday's criminal charges, though some said on they would take a wait-and-see approach.

Cohen may yet be able to stay in business because more than $8 billion of the fund's assets belong to him and his employees.

SAC said in a statement it has no plans to shut down.

"SAC has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously," it said. "The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years. SAC will continue to operate as we work through these matters."

VIRTUAL SLAM DUNK?

The government's indictment of SAC Capital also will stand as the signature action of its multi-year crackdown on insider trading in the $2.25 trillion hedge fund industry.

The investigation burst into the open in October 2009 with the arrest of Rajaratnam, founder of Galleon Group, and led to the conviction of more than 60 people including Rajaratnam. But for authorities Cohen always was the big fish to be caught because he loomed large over the hedge fund industry.

In fact, when Cohen first opened shop, hedge funds were not well understood and the industry was a fraction of its current size, with funds managing well under $1 trillion. But in large part because of the success of firms like SAC Capital, hedge fund managers surpassed investment bankers and even some bank chief executive officers in terms of fame and fortune.

Over the years, Cohen has been the subject of two Vanity Fair magazine stories, countless front-page stories in The New York Times, and is maybe just as famous in the art world for his prized collection of works by Damien Hirst, Jeff Koons and Pablo Picasso.

More recently, he tried to become the owner of the Los Angeles Dodgers baseball team, but instead settled for a minority stake in the New York Mets. As the scrutiny of Cohen and his firm has risen in recent year, he's became more visible at hedge fund events, donating money to charities and buying even more artwork.

Several lawyers, including former federal prosecutors, said a decision not to criminally charge Cohen might signal an admission that there is a shortage of evidence against him.

But the indictment does not preclude the government from gathering more evidence and filing new charges later. Some lawyers believe the case against SAC is strong now.

"It's going to be a virtual slam dunk for the prosecution," said Solomon Wisenberg, a partner at Barnes & Thornburg in Washington, D.C., and author of "White Collar Crime: Securities Fraud."

"The story is basically that there's a whole culture here where red flags were ignored, (and) compliance efforts were more or less window dressing."

The Justice Department's decision to indict SAC, and not just individuals, is an unusual move that underscores prosecutors' belief about the pervasiveness of the alleged insider trading.

Prosecutors have shied away from indicting large financial firms after their 2002 case against Enron Corp's auditor, Arthur Andersen, helped put that firm out of business.

The indictment comes after a seven-year investigation of SAC and amid a broader crackdown on insider trading that has resulted in more than 70 convictions and guilty pleas.

It is as much a forceful reproof of an era of free-wheeling trading by hedge funds as it is a condemnation of SAC's culture as an alleged breeding ground for traders and analysts who traffic in illegal tips about corporate earnings and buy-outs.

The indictment said SAC's illegal practices ran roughly from 1999 to 2010. SAC and various affiliates were charged with four criminal counts of securities fraud and one count of wire fraud.

"When so many people from a single hedge fund engage in insider trading, it is not a coincidence," U.S. Attorney Preet Bharara said at a press conference. He declined to address how much money the government will seek to have SAC forfeit.

U.S. District Judge Laura Taylor Swain will oversee the criminal case, and an initial hearing is scheduled for Friday morning. A colleague, U.S. District Judge Richard Sullivan, will oversee the civil forfeiture case, according to court records.

In Washington, lawmakers critical of prosecutors' past efforts to go after Wall Street heavyweights applauded the indictment.

"They deserve credit for taking on a big, challenging case," said Senator Chuck Grassley, a Republican of Iowa whose office has conducted its own probe of Cohen and SAC Capital.

"LIKE A MOVIE"

Launched in 1992 with just $25 million, SAC became the most successful hedge fund to rely on the so-called mosaic theory of investing, which builds investment theses on stocks by gathering information from multiple sources.

Cohen has been able to generate average annualized returns of 25 percent, far outpacing most rivals.

That has helped him to charge a 3 percent management fee and keep 50 percent of investment profits. A typical hedge fund manager gets a 2 percent fee and 20 percent of the profits.

SAC's success has also enabled Cohen to spend well, and he has become known for his collection of expensive art and real estate holdings. Cohen recently paid casino mogul Steve Wynn a reported $155 million for Pablo Picasso's "Le Rêve," and owns properties valued well into eight figures.

Many investors stuck with Cohen despite years of speculation about improper trading. But over recent months they requested about $4 billion in withdrawals as investigators closed in.

SAC generates more than $300 million annually in trading fees for Wall Street brokerages large and small, such as JPMorgan Chase & Co and Jefferies & Co.

Although SAC has $6 billion to $8 billion of cash, according to people familiar with its finances, some question how effectively it can operate. "It's an ugly situation," said an executive at one counterparty.

On Thursday, extra security was posted outside SAC's Stamford office, and reporters were kept far away. One employee at the firm's New York office said there were no recent internal signs of panic or anxiety. "It's like a movie," he said.

COOPERATING WITNESSES

Prosecutors built their case against SAC with help from several former employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, who pleaded guilty to charges of criminal insider trading.

Among suspect trades was Cohen's August 2008 sale of a $12.5 million stake in Dell Inc, launched within 10 minutes after he was forwarded an email in which Horvath told Steinberg, based on a "2nd hand read from someone at the company," that the computer maker's earnings would disappoint.

Cohen's lawyers this week said he never read that email.

The indictment also alludes to Cohen hiring a new employee, Richard Lee, despite a warning that he had been in another fund's "insider trading group." Lee pleaded guilty on July 23 to securities fraud and conspiracy involving trades in Yahoo Inc and 3Com Corp.

The indictment does not identify the fund, but a person familiar with the matter said it was Kenneth Griffin's Citadel Investment Group. Citadel managed roughly $13.3 billion at year end.

A Citadel spokeswoman, Katie Spring, said Lee was fired in 2008 for breaching company rules, not insider trading. "There is no insider trading group at Citadel," she added.

The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.

(Reporting by Michael Erman, Emily Flitter, David Henry, Lauren Tara LaCapra, Jonathan Stempel, Bernard Vaughan and Katya Wachtel in New York; Svea Herbst-Bayliss in Boston; Peter Rudegeair in Stamford, Connecticut; and Sarah N. Lynch in Washington, D.C.; Editing by Matthew Goldstein, Grant McCool, Paritosh Bansal, Dan Grebler, Leslie Adler)

View the original article here

U.S. charges SAC Capital with insider trading crimes

1 of 5. United States Attorney Preet Bharara speaks during a news conference in New York, July 25, 2013.

Credit: Reuters/Mike Segar

By Emily Flitter, Svea Herbst-Bayliss and Jonathan Stempel

NEW YORK | Thu Jul 25, 2013 7:49pm EDT

NEW YORK (Reuters) - U.S. prosecutors indicted billionaire Steven A. Cohen's hedge fund for insider trading, a rare move that could end the career of one of Wall Street's most successful investors and trigger a fundamental change in how traders try to gain an edge over rivals.

The government accused SAC Capital Advisors LP of presiding over a culture where employees flouted the law and were encouraged to tap their personal networks of contacts for inside information about publicly traded companies.

The result was "insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry," the indictment said.

While not personally charged criminally, Cohen joins junk bond financier Michael Milken and Galleon Group hedge fund founder Raj Rajaratnam among prominent Wall Street executives who have been linked to insider trading.

The indictment filed by the U.S. Department of Justice against SAC, together with a related civil case seeking forfeitures and money laundering penalties, imperils the future of the roughly $15 billion hedge fund.

It also may end Cohen's career of managing outside money, where he generated some of the hedge fund industry's best returns and became one of the foremost traders of his generation.

Last week, the U.S. Securities and Exchange Commission charged Cohen in a civil case with failing to supervise two employees, Mathew Martoma and Michael Steinberg. Both men have pleaded not guilty to criminal insider trading charges and face trials in November.

Many Wall Street firms that lend money to and trade with Stamford, Connecticut-based SAC may stop or pull back because of Thursday's criminal charges, though some said on they would take a wait-and-see approach.

Cohen may yet be able to stay in business because more than $8 billion of the fund's assets belong to him and his employees.

SAC said in a statement it has no plans to shut down.

"SAC has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously," it said. "The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years. SAC will continue to operate as we work through these matters."

VIRTUAL SLAM DUNK?

The government's indictment of SAC Capital also will stand as the signature action of its multi-year crackdown on insider trading in the $2.25 trillion hedge fund industry.

The investigation burst into the open in October 2009 with the arrest of Rajaratnam, founder of Galleon Group, and led to the conviction of more than 60 people including Rajaratnam. But for authorities Cohen always was the big fish to be caught because he loomed large over the hedge fund industry.

In fact, when Cohen first opened shop, hedge funds were not well understood and the industry was a fraction of its current size, with funds managing well under $1 trillion. But in large part because of the success of firms like SAC Capital, hedge fund managers surpassed investment bankers and even some bank chief executive officers in terms of fame and fortune.

Over the years, Cohen has been the subject of two Vanity Fair magazine stories, countless front-page stories in The New York Times, and is maybe just as famous in the art world for his prized collection of works by Damien Hirst, Jeff Koons and Pablo Picasso.

More recently, he tried to become the owner of the Los Angeles Dodgers baseball team, but instead settled for a minority stake in the New York Mets. As the scrutiny of Cohen and his firm has risen in recent year, he's became more visible at hedge fund events, donating money to charities and buying even more artwork.

Several lawyers, including former federal prosecutors, said a decision not to criminally charge Cohen might signal an admission that there is a shortage of evidence against him.

But the indictment does not preclude the government from gathering more evidence and filing new charges later. Some lawyers believe the case against SAC is strong now.

"It's going to be a virtual slam dunk for the prosecution," said Solomon Wisenberg, a partner at Barnes & Thornburg in Washington, D.C., and author of "White Collar Crime: Securities Fraud."

"The story is basically that there's a whole culture here where red flags were ignored, (and) compliance efforts were more or less window dressing."

The Justice Department's decision to indict SAC, and not just individuals, is an unusual move that underscores prosecutors' belief about the pervasiveness of the alleged insider trading.

Prosecutors have shied away from indicting large financial firms after their 2002 case against Enron Corp's auditor, Arthur Andersen, helped put that firm out of business.

The indictment comes after a seven-year investigation of SAC and amid a broader crackdown on insider trading that has resulted in more than 70 convictions and guilty pleas.

It is as much a forceful reproof of an era of free-wheeling trading by hedge funds as it is a condemnation of SAC's culture as an alleged breeding ground for traders and analysts who traffic in illegal tips about corporate earnings and buy-outs.

The indictment said SAC's illegal practices ran roughly from 1999 to 2010. SAC and various affiliates were charged with four criminal counts of securities fraud and one count of wire fraud.

"When so many people from a single hedge fund engage in insider trading, it is not a coincidence," U.S. Attorney Preet Bharara said at a press conference. He declined to address how much money the government will seek to have SAC forfeit.

U.S. District Judge Laura Taylor Swain will oversee the criminal case, and an initial hearing is scheduled for Friday morning. A colleague, U.S. District Judge Richard Sullivan, will oversee the civil forfeiture case, according to court records.

In Washington, lawmakers critical of prosecutors' past efforts to go after Wall Street heavyweights applauded the indictment.

"They deserve credit for taking on a big, challenging case," said Senator Chuck Grassley, a Republican of Iowa whose office has conducted its own probe of Cohen and SAC Capital.

"LIKE A MOVIE"

Launched in 1992 with just $25 million, SAC became the most successful hedge fund to rely on the so-called mosaic theory of investing, which builds investment theses on stocks by gathering information from multiple sources.

Cohen has been able to generate average annualized returns of 25 percent, far outpacing most rivals.

That has helped him to charge a 3 percent management fee and keep 50 percent of investment profits. A typical hedge fund manager gets a 2 percent fee and 20 percent of the profits.

SAC's success has also enabled Cohen to spend well, and he has become known for his collection of expensive art and real estate holdings. Cohen recently paid casino mogul Steve Wynn a reported $155 million for Pablo Picasso's "Le Rêve," and owns properties valued well into eight figures.

Many investors stuck with Cohen despite years of speculation about improper trading. But over recent months they requested about $4 billion in withdrawals as investigators closed in.

SAC generates more than $300 million annually in trading fees for Wall Street brokerages large and small, such as JPMorgan Chase & Co and Jefferies & Co.

Although SAC has $6 billion to $8 billion of cash, according to people familiar with its finances, some question how effectively it can operate. "It's an ugly situation," said an executive at one counterparty.

On Thursday, extra security was posted outside SAC's Stamford office, and reporters were kept far away. One employee at the firm's New York office said there were no recent internal signs of panic or anxiety. "It's like a movie," he said.

COOPERATING WITNESSES

Prosecutors built their case against SAC with help from several former employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, who pleaded guilty to charges of criminal insider trading.

Among suspect trades was Cohen's August 2008 sale of a $12.5 million stake in Dell Inc, launched within 10 minutes after he was forwarded an email in which Horvath told Steinberg, based on a "2nd hand read from someone at the company," that the computer maker's earnings would disappoint.

Cohen's lawyers this week said he never read that email.

The indictment also alludes to Cohen hiring a new employee, Richard Lee, despite a warning that he had been in another fund's "insider trading group." Lee pleaded guilty on July 23 to securities fraud and conspiracy involving trades in Yahoo Inc and 3Com Corp.

The indictment does not identify the fund, but a person familiar with the matter said it was Kenneth Griffin's Citadel Investment Group. Citadel managed roughly $13.3 billion at year end.

A Citadel spokeswoman, Katie Spring, said Lee was fired in 2008 for breaching company rules, not insider trading. "There is no insider trading group at Citadel," she added.

The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.

(Reporting by Michael Erman, Emily Flitter, David Henry, Lauren Tara LaCapra, Jonathan Stempel, Bernard Vaughan and Katya Wachtel in New York; Svea Herbst-Bayliss in Boston; Peter Rudegeair in Stamford, Connecticut; and Sarah N. Lynch in Washington, D.C.; Editing by Matthew Goldstein, Grant McCool, Paritosh Bansal, Dan Grebler, Leslie Adler)

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SAC Capital pleads not guilty; reinsurance unit eyed

By Bernard Vaughan and Svea Herbst-Bayliss

(Reuters) - Billionaire investor Steven A. Cohen's hedge fund pleaded not guilty on Friday to insider trading charges in federal court, as questions also surfaced about the future of SAC Capital's Bermuda-based reinsurance unit, SAC Re.

Ratings company, A.M. Best Co., and the Bermuda Monetary Authority, which regulates insurers on the island, said they were monitoring developments one day after prosecutors charged the hedge fund and various affiliates with four criminal counts of securities fraud and one count of wire fraud.

A year ago A.M. Best gave SAC Re a top rating. But if the company were to cut its rating of the unit, which had $567.8 million in assets at the end of 2012, in the wake of criminal charges, people may shy away from doing business with the insurer, industry experts said.

"Buyers of reinsurance from SAC Re will be on the phone with their brokers telling them to move out," said Andrew Barile, an independent industry consultant. Buyers have plenty of choice in the reinsurance industry, experts said, adding it would be relatively easy to change companies.

Separately, outside investors with the $14 billion hedge fund also expressed some uncertainty about what to do with their money only weeks before an August 16 redemption deadline.

SAC had presided over a culture from 1999 to 2010 where employees flouted the law and were encouraged to tap their personal networks for inside information about publicly traded companies, prosecutors said on Thursday.

The criminal case imperils the future of one of Wall Street's largest hedge funds and could end Cohen's career of managing outside money. His average annualized returns of 25 percent beat most of his rivals.

Prosecutors did not file criminal charges against Cohen personally, but the U.S. Securities and Exchange Commission has filed a separate civil case against him for failing to supervise two employees.

The SEC is expected to delay its civil case while the criminal trial proceeds. The U.S. attorney also brought a civil case seeking forfeitures and money laundering penalties from Cohen.

The government's evidence in the criminal case includes a lot of "court-authorized wiretaps" and "a large number of electronic recordings," such as emails and instant messages, Antonia Apps, an assistant U.S. attorney who has prosecuted other insider-trading cases, told U.S. District Judge Laura Taylor Swain.

Jonathan Gasthalter, a spokesman for SAC, declined to comment. A representative for SAC Re did not return a call seeking comment.

U.S. Attorney Preet Bharara, who brought the charges, declined to give a specific dollar figure for the amount his office is seeking from SAC. But in court papers, prosecutors contend SAC made "hundreds of millions of dollars" in illegal profits from insider trading, and the penalties they seek could be up to three times the amount of the illegal gains.

SAC sought to assure investors its assets were not frozen and redemptions would continue unhindered. Skittish investors have already withdrawn roughly $4 billion from the firm in the first half of the year.

Blackstone Group, Ironwood Capital and Magnitude Capital all withdrew funds earlier this year. Morgan Stanley, which had client money invested with Cohen also took steps to reduce exposure to SAC in the months leading up to the indictment, according to a person familiar with situation.

Morgan Stanley's exposure is now minimal. A spokeswoman for the bank declined to comment on whether the bank would seek to redeem its remaining funds in the wake of the criminal charges.

While some investors have been loyal to Cohen, one person, who declined to be named, said the new charges worried him. "The real worry is that the regulators are relentless and their sights are set on Steve and they will not stop at nothing to bring him down."

Others said they would wait a little longer to make a decision and await for any communication from the fund. If investors submit a redemption request by August 16, they will get half their cash back by the end of September and the remainder by the end of December.

WAITING FOR EVIDENCE The strength of U.S. prosecutors' case will become clearer once the evidence they are planning to use is laid out, legal experts said.

"Over the next six months you'll get a sense for why the DOJ charged the entity and failed to charge any of the high-ranking executives," said defense lawyer Andrew Wise, a partner at Miller Chevalier.

Several former SAC employees, including Noah Freeman, Jon Horvath, Donald Longueuil and Wesley Wang, have pleaded guilty to charges of criminal insider trading.

Judge Swain set a September 24 court date to discuss evidence.

SAC's lawyers on Friday included: Ted Wells, Daniel Kramer and Michael Gertzman of Paul, Weiss, Rifkind, Wharton & Garrison; and Martin Klotz and Michael Schachter of Willkie Farr & Gallagher.

The criminal case is U.S. v. SAC Capital Advisors LP et al, U.S. District Court, Southern District of New York, No. 13-cr-00541. The civil case is U.S. v. SAC Capital Advisors LP et al in the same court, No. 13-05182.

(Reporting by Bernard Vaughan in New York and Svea Herbst-Bayliss in Boston; Additional reporting by Sarah N. Lynch in Washington, Emily Flitter and Katya Wachtel in New York; Editing by Matthew Goldstein, Paritosh Bansal, Gerald E. McCormick, Jeffrey Benkoe and Leslie Gevirtz)

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SAC Capital pleads not guilty to insider trading charges

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SAC Capital seeks protective order on operations after charges

NEW YORK (Reuters) - Steven A. Cohen's $15 billion hedge fund SAC Capital Advisors is working on an agreement with U.S. prosecutors for an order to "reasonably protect all parties legitimate interests" as the firm faces criminal insider trading charges.

SAC spokesman Jonathan Gasthalter said in statement on Thursday that a prosecution by the U.S. Attorney in Manhattan "is not intended to affect the ongoing operations of SAC's business, prevent investor redemptions, or impact the interests of any of SAC's counterparties."

He said it was not an attempt to freeze any of the hedge fund's assets.

"We anticipate that we and the U.S. Attorney's Office will agree to a protective order intended to reasonably protect all parties' legitimate interests, but will expressly permit SAC to continue its operations in the ordinary course."

(Reporting By Emily Flitter; Editing by Grant McCool)

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