Moody's said that it will not downgrade Kentucky's credit rating despite a recent federal bankruptcy decision that could cost the state nearly $1 billion over 20 years, The Associated Press reported today. The credit-rating agency said that Kentucky has enough resources to manage the added expenses caused by a judge's decision to let a private Louisville community mental health center leave the Kentucky Employees Retirement System without paying its share of the $17.1 billion unfunded liability. Kentucky Retirement Systems is appealing the judge's ruling.
Federal Reserve officials are signaling that they are on track to start slowly raising interest rates next year, a shift that means a delicate balancing act for investors, The Wall Street Journal reported yesterday. Many portfolio managers expect stocks to continue to perform well for the next few months, due to an improving economy and low rates. The Dow Jones Industrial Average is up 2.6 percent for the year, following last year's 26.5 percent advance. Stocks have largely shaken off concerns about how the market will do without the Fed's monthly stimulus, which is due to end in October and has been seen as supporting asset prices. However, money managers are increasingly on guard should the Fed suddenly decide to accelerate its timetable for boosting short-term interest rates, which have been near zero since December 2008. Most investors expect the Fed to take a deliberate approach to raising rates.
Argentina plans to pay its foreign-currency bonds locally to sidestep a U.S. court ruling that blocked payments last month and caused the nation to default for a second time in 13 years, Bloomberg News reported today. The government will submit a bill to Congress that lets overseas debt holders swap into new bonds governed by domestic law with the same terms, President Cristina Fernandez de Kirchner said in a nationwide address yesterday. Payments will be made into accounts at the central bank instead of through Bank of New York Mellon Corp., the current trustee. Holders of Argentina’s $30 billion of overseas bonds have been in limbo since U.S. District Court Judge Thomas Griesa blocked the nation’s attempt to pay $539 million in interest due by July 30. His ruling was meant to compel Argentina to resolve unpaid debts from its 2001 default. While most creditors agreed to provide debt relief, hedge funds led by billionaire Paul Singer’s Elliott Management Corp. refused and successfully sued for full repayment in U.S. court. http://www.bloomberg.com/news/print/2014-08-19/argentina-to-pay-bondhol…
In related news, the International Swaps and Derivatives Association (ISDA) has delayed the auction to settle Argentina's credit default swaps until at least September, Reuters reported yesterday. ISDA's 15-member determinations committee voted unanimously yesterday to postpone the auction until at least after September 2. The committee today began discussing a challenge it received regarding the inclusion of two Japanese-law restructured notes into the list of securities deliverable into the auction. As the challenge needs to be resolved before the auction can take place, the committee opted to postpone the date of the auction, which was originally scheduled for August 21. http://www.reuters.com/article/2014/08/19/argentina-debt-cds-idUSL2N0QP…
Banks are pressing U.S. policymakers for a multiyear delay of a rule requiring them to sell investments in private-equity and venture-capital funds, the latest industry push to scale back a central provision of the 2010 Dodd-Frank law, the Wall Street Journal reported today. Bank officials, trade groups and lawmakers are quietly lobbying the Federal Reserve to grant a reprieve of up to seven years from a provision that limits banks' investments in private-equity and venture-capital funds. Absent action by the Fed, the critics warn, banks will be forced to sell their stakes in these funds at fire-sale prices by next summer, when firms are expected to begin complying with the rule. A delay would affect large banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley that manage and invest in such funds, industry officials said. It would also affect smaller regional banks that own stakes in the funds.
The Securities and Exchange Commission told Standard & Poor's Ratings Services that it could face an enforcement action for alleged securities fraud regarding six commercial real-estate deals in 2011, according to a Wednesday filing by S&P parent McGraw Hill Financial Inc., The Wall Street Journal reported yesterday. The so-called Wells Notice sent to McGraw Hill on Tuesday states that the SEC has made a preliminary determination that an enforcement action should be taken. The notice is neither a formal allegation nor a finding of wrongdoing, McGraw Hill said. The notice is yet another legal headache for S&P, which also faces a $5 billion fraud lawsuit with the federal government over mortgage-bond grades that turned out to be inaccurate. While the two sides aren't in active talks, S&P is willing to reopen discussions with the Justice Department to settle the case. If found liable in the more-recent matter, S&P could face civil monetary penalties or a cease-and-desist order, among other potential actions.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and board members won the dismissal of an investor lawsuit over $2.6 billion in penalties and settlements paid by the bank because of its relationship with convicted Ponzi scheme operator Bernard Madoff, Bloomberg reported yesterday. U.S. District Judge Paul Crotty threw out the suit, which sought damages on behalf of the bank based on claims that JPMorgan executives and directors turned a blind eye to Madoff’s fraud. The investors claimed that the defendants harmed the bank through breaches of fiduciary duty, securities law violations and waste of corporate assets. Judge Crotty said that the investors were not excused from the requirement that they demand that JPMorgan’s board pursue the legal claims before filing the suit. The case is Central Laborers’ Pension Fund v. Dimon, 14-cv-01041, U.S. District Court, Southern District of New York (Manhattan).
Verizon, General Motors, Ford and Heinz have all moved part of their pension obligations off their books and into annuities run by insurance companies, The Washington Post’s Wonkblog reported on Monday. The move, called de-risking, requires companies to pay a lump sum to purchase a group annuity from an insurance company. The insurer then takes over the retirement payments, wiping troubling and erratic pension obligations off the books of the purchaser. For retirees, the move should make no difference: Their checks come as always, assuming that the insurance company that sells the annuity remains in fine financial shape. For the companies buying the annuities, the change offers an opportunity to shed volatile risk. That prospect has grown more appealing to companies in recent years as low interest rates and a volatile stock market have caused companies to pour billions into their pension funds to keep pace with accounting rules. Now that the stock market is roaring and interest rates are expected to increase, buying annuities to get rid of pension obligations is becoming less expensive, which means that interest in de-risking is rising. With many traditional company pension plans frozen, some advocacy groups worry that “de-risking” will end up being yet another blow to retirement security.
The federal judge who sentenced Bernard Madoff to 150 years in prison in 2009 ruled against an apparently phony request to disqualify prosecutors and dismiss criminal charges against the con man, Bloomberg News reported yesterday. U.S. Circuit Judge Denny Chin denied a rambling one-page motion brought in Madoff’s name by a federal convict who’s filed hundreds of frivolous lawsuits in U.S. courts, including many claiming that the government used mind control against him. The case is U.S. v. Madoff , 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).
Regulators yesterday imposed new restrictions on a vast market that played a significant role in the 2008 financial crisis, The New York Times Dealbook reported yesterday. The Securities and Exchange Commission voted 3-2 to adopt a new set of rules for money market funds, a $2.6 trillion industry where ordinary individuals and sophisticated institutions alike park their money. The rules come after years of debate among regulators and lobbying from Wall Street, and “will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system,” said SEC Chairwoman Mary Jo White. The split on the commission reflected the lingering frustrations still felt by many in the debate about money market funds. The approved rules aim to prevent any future runs through a combination of measures. In one important change, certain money market funds will have to report a floating net asset value instead of a fixed value of $1 a share. This change is meant to remind investors that the funds are not without risk and that their value can decline periodically, but not all funds will be covered by that rule. In addition, the SEC adopted rules that give funds the ability to stem investor redemptions during times of stress.
Elliott Management Corp. has taken a stake of more than $1 billion in EMC Corp. and plans to push the data-storage giant to break itself apart, The Wall Street Journal reported today. The investment, which hasn't been previously disclosed, amounts to about 2 percent of the Hopkinton, Mass., company's $55 billion equity value and would make the hedge fund its fifth-largest shareholder. It is one of the largest positions that the company has ever taken. Elliott will seek to convince EMC that the company's lagging stock would receive a substantial boost if it were to spin off VMware Inc. EMC owns a roughly 80 percent stake in VMware, and Elliott is expected to argue that the company's present structure has hampered the performance of EMC's stock. Should EMC move to split off VMware, potential buyers of part or all of the company could emerge. If Elliott is successful, a breakup or sale could cause ripples through the roughly $2 trillion annual market for hardware, software and technology services sold to companies. Elliott's investment in EMC also spotlights how size is increasingly not a barrier for activist investors, who have lately set their sights on some of the world's largest companies.
