Message-ID: <24685605.1075859836749.JavaMail.evans@thyme> Date: Tue, 8 May 2001 05:40:00 -0700 (PDT) From: smarra@isda.org To: jennifer@kennedycom.com, tmorita@isda.org, rainslie@isda.org, yoshitaka_akamatsu@btm.co.jp, shigeru_asai@sanwabank.co.jp, kbailey2@exchange.ml.com, douglas.bongartz-renaud@nl.abnamro.com, brickell_mark@jpmorgan.com, henning.bruttel@dresdner-bank.com, sebastien.cahen@socgen.com, scarey@isda.org, joshua.cohn@allenovery.com, mcresta@cravath.com, daniel.cunningham@allenovery.com, mcunningham@isda.org, jerry.delmissier@barclayscapital.com, shawn@blackbird.net, evangelisti_joe@jpmorgan.com, francois@us.cibc.com, tim.fredrickson@ubsw.com, gilbert_adam@jpmorgan.com, goldenj@allenovery.com, mark.e.haedicke@enron.com, fwhx9396@mb.infoweb.ne.jp, jhb1@bancosantander.es, quentin_hills@hk.ml.com, yhoribe@isda.org, milphil@gateway.net, skawano@isda.org, hiroyuki_keisho@sanwabank.co.jp, damian.kissane@db.com, kazuhiko_koshikawa@sanwabank.co.jp, robert.mackay@nera.com, markb@cibc.ca, marjorie.b.marker@us.arthurandersen.com, lmarshall@isda.org, donna.matthews@ubsw.com, mengle_david@jpmorgan.com, tom.montag@gs.com, dmoorehead@pattonboggs.com, jonm@crt.com, yasumasa.nishi@ibjbank.co.jp, dennis.oakley@chase.com, losullivan@isda.org, ernest.patrikis@aig.com, rpickel@isda.org, maria.rosario@db.com, arothrock@pattonboggs.com, rryan@isda.org, maurits.schouten@csfb.com, charlessmithson@mindspring.com, ksumme@isda.org, teruo.tanaka@ibjbank.co.jp, steve_targett@nag.national.com.au, h.ronald.weissman@us.arthurandersen.com, dpd@aurora.dti.ne.jp, chi-wing.yuen@aig.com, apapesch@isda.org, nlim@isda.org, kdhulster@isda-eur.org, esebton@isda-eur.org, cirens@isda-eur.org, rmetcalfe@isda-eur.org, mhitchcock@isda-eur.org, kengelen@isda.org, pmartinez@isda.org, steven@kennedycom.com, pwerner@isda-eur.org, azam.mistry@hsbc.com, frederic.janbon@bnpparibas.com, kamin@lehman.com Subject: ISDA PRESS REPORT - May 8, 2001 Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Scott Marra X-To: "'jennifer@kennedycom.com'" , Tomoko Morita , Ruth Ainslie , "'Yoshitaka Akamatsu'" , Shigeru Asai , Keith Bailey , Douglas Bongartz-Renaud , Mark Brickell , Henning Bruttel , Sebastien Cahen , Stacy Carey , Josh Cohn , "'Marjorie Cresta (Cravath)'" , Daniel Cunningham , Mary Cunningham , Jerry del Missier , "'Shawn Dorsch (Derivatives Net)'" , "'Joseph Evangelisti (JP Morgan)'" , "'George Francois (CIBC)'" , Tim Fredrickson , "'gilbert_adam@jpmorgan.com'" , Jeff Golden , Mark Haedicke , "'Tsuyoshi Hase'" , Jose Manuel Hernandez-Beneyto , "'Quentin Hills'" , Yasuko Horibe , "'Michael Iver'" , Shigeki Kawano , Hiroyuki Keisho , Damian Kissane , Kazuhiko Koshikawa , Robert Mackay , Robert Mark , Marjorie Marker , Louise Marshall , "'Donna.Matthews@ubsw.com'" , "'David Mengle (JP Morgan)'" , Thomas Montag , Don Moorehead , Jonathan Moulds , "'Yasumasa Nishi (IBJ)'" , Dennis Oakley , "Liz O'Sullivan" , Ernest Patrikis , Robert Pickel , "'Maria.Rosario@db.com'" , Aubrey Rothrock , Rosemary Ryan , Maurits Schouten , "'Charles Smithson'" , Kimberly Summe , Teruo Tanaka , Steve Targett , "H.Ronald Weissman" , "'Shunji Yagi (Sanwa)'" , "'chi-wing.yuen@aig.com'" , Angela Papesch , Nellie Lim , "Katia d'Hulster" , Emmanuelle Sebton , Camille Irens , Richard Metcalfe , Michelle Hitchcock , Karel Engelen , Pedro Martinez , Steve Kennedy , Peter Werner , Azam Mistry , Frederic Janbon , Kaushik Amin X-cc: X-bcc: X-Folder: \Mark_Haedicke_Jun2001\Notes Folders\Notes inbox X-Origin: Haedicke-M X-FileName: mhaedic.nsf ISDA PRESS REPORT - MAY 4, 2001 * Fed's McDonough sees global strains from slowdown - Reuters * McDonough Advocates Flexible Approach To Prevent, Cope With Financial Crises - BNA * Gramm Says Changed Markets Demand Dramatic Review, Reform of Securities Laws - BNA * Lack of banking safeguards in HK - Financial Times * Japan 'risks slide into downward spiral' - Financial Times * Accounting Shift Lifts Deutsche Profits - American Banker * Argentina's strife not over yet - Financial Times Fed's McDonough sees global strains from slowdown. Reuters English News Service - May 4, 2001 NEW YORK, May 3 (Reuters) - Federal Reserve Bank of New York President William McDonough said on Thursday the international financial system is showing some signs of strain from a slowdown in global growth. McDonough, in remarks prepared for delivery to a banking group in Frankfurt, Germany, said there is no broad agreement on how to handle international financial crises. "During the latter part of the 1990s, the international financial system has endured perhaps its greatest stress in the post-war period, and currently we again are seeing signs of strain associated with the global slowdown in growth," McDonough said in a text of his speech released in advance. The New York Fed chief did not comment further on the global economy or discuss the U.S. economy in the speech, which focused on global financial stability. McDonough is also chairman of the Basel Committee on Banking Supervision which recently completed a new accord on bank capital standards. There is a broad consensus on the need to strengthen financial institutions at the national and international level in order to create more crisis resistant economies, McDonough said. But there is no comparable degree of consensus on how to best handle international financial crises once they do erupt. "In particular, there is unease that the current approach to crisis management that has evolved out of the experiences in Mexico and Asia, notwithstanding its successes in some cases, entails solutions that are potentially too costly," he said. Critics feel the solutions entailed repeated reliance on large-scale support packages, introduced adverse incentives, or moral hazard, and were in themselves a source of uncertainty and potential instability, McDonough added. He advocated a flexible case-by-case approach to crisis management, adding that regulators should strive for minimalist intervention. The role of regulators is not to limit banks opportunities for growth and profit. "At the same time, if we encourage responsible behavior, we must not create the illusion that we will rescue every institution that does not succeed," he said. McDonough Advocates Flexible Approach To Prevent, Cope With Financial Crises BNA - May 4, 2001 By Jeffrey Goldfarb A flexible, case-by-case approach, with minimal intervention by regulators, is the best way to prevent and cope with financial crises, said William McDonough, the president of the Federal Reserve Bank of New York and chairman of the Basel Committee on Banking Supervision. Speaking May 3 in Frankfurt, Germany, McDonough said bank supervisors around the world should be working to enable banks to better manage their businesses and their risks. "At the same time, if we are to encourage responsible behavior, we must not create the illusion that we will rescue every institution that does not succeed," he said. McDonough said that disclosure practices by banks, although improved over the past decade, have not kept up with the many changes in the way they manage their risk. He recommended that banks rethink what they consider proprietary information. "It is critical to approach the question of disclosure as users of financial statements," he said. "Shareholders, creditors and counterparties cannot understand the risks of their own exposures to a bank until they first understand that bank's appetite for risk and its approach to, and methodologies for, managing risk. What should drive this debate is market participants' need for information to make sound and secure credit and investment decisions, rather than the concerns some have about what was once considered secret." Amidst his remarks, an advance text of which was released in New York, McDonough briefly commented on the state of the global economy, saying there are some unfavorable signals. "During the latter part of the 1990s, the international financial system has endured perhaps its greatest stress in the post-war period, and currently we again are seeing signs of strain associated with the global slowdown in growth," he said. McDonough explained that the solutions to recent crises in Mexico and Asia, even though successful, may have led to certain currently held tenets that are too costly, introduce adverse incentives or moral hazards, and are in themselves a source of uncertainty and potential instability. "But the alternatives," he said, "look even more unpalatable in their implications. Notwithstanding considerable efforts at the public and private level to search for a better way, no magic bullet formula has been found. Nor is one likely to be available." In essence, McDonough said, the quest for some broad, universal solution to financial crises is a Pollyannalike pursuit. "If history is any guide," he said, "new developments in markets and practices quickly will render obsolete those measures that might seem well attuned to today's circumstances." For that reason, McDonough encouraged a "supremely tactical" and creative case-by-case approach to handling crises. He specifically argued against standstill solutions, which suspend debt service, usually in conjunction with the imposition of capital controls. McDonough said that approach, in his opinion, could make investors skittish and make it harder to generate support for honoring contractual commitments. Standstills also undermine market discipline of and ownership by the local authorities, he said. "To sum up, I believe the one size fits all disposition inherent in the standstills approach risks making situations much worse than they need to be," he said. "The only thing that strikes me as predictable under such an approach would be that market access would be harmed across the board. Just as bailouts may encourage too much risk taking, efforts to orchestrate preemptive bail-ins may encourage too little." Gramm Says Changed Markets Demand Dramatic Review, Reform of Securities Laws BNA - May 4, 2001 By Rachel Witmer Senate Banking Committee Chairman Phil Gramm (R-Texas) said May 3 that the changes in the U.S. securities markets since the 1930s, and especially in the last 10 years, demand a "dramatic review and reform" of securities regulation. Gramm had previously announced his intention to conduct a top-to-bottom review all of the securities laws with the intention of modernizing them. Speaking at a meeting of the Security Traders Association, Gramm said that the review will be open-ended, and that he will not prejudge the conclusions from the effort. The senator said that the question he asks in looking at laws and regulations is "Are the benefits of this regulation in the market as it exists today worth what we're paying for them?" In addition, he emphasized that there will continue to be "dramatic" change in the markets and said, "I want the change to be dictated by the markets and not the government." One change that he suggested might come "in the long run" is that securities markets, per se, could become a thing of the past. "I'm not certain that markets are not obsolete," he said. Later in his remarks, Gramm clarified his statement, saying "I don't know if markets make sense any more." He made an analogy between markets and traditional book stores, which have serious competition from online book stores. "The Internet has revolutionized the book market," Gramm said. He then asked, "Is a centralized market necessary?" NYSE's Survival At another point in his remarks, Gramm suggested that as all-electronic markets are proliferating and changing competition in the securities markets, the New York Stock Exchange's "survival is not guaranteed." In other comments, Gramm emphasized that while he may refer an individual to the White House for consideration as a potential nominee for the chairmanship of the Securities and Exchange Commission, "the president is going to name the chairman and not me." Asked about the length of time it is taking for the White House to nominate someone for that position, Gramm said, "I don't see that any great harm is coming from it." Gramm told reporters after his remarks that he hoped the administration will nominate someone who was "knowledgeable, open-minded and free market." Finding all those qualities on one person is "hard," he said. On the topic of decimals, Gramm said that he did not see the recent decimalization of the securities markets as a "fundamental reform." As of April 9, all securities are priced and traded in decimals instead of fractions. While on the House side there is some interest in exploring the effects of decimalization, Gramm said "I don't see anything in it now that would induce me to want to go back and hold hearings about it." Lack of banking safeguards in HK Financial Times - May 4, 2001 By Joe Leahy Hong Kong lacks many of the formal safeguards in place in the UK and Australia to protect banking consumers, said a study yesterday by the territory's de facto central bank, Joe Leahy reports from Hong Kong. Hong Kong has no general competition law, no regulator with an explicit mandate for protecting banking consumers and no ombudsman scheme to process complaints, the consultative study by the Hong Kong Monetary Authority (HKMA) found. "As the Hong Kong market is becoming more sophisticated and more competitive, and as consumer issues are coming more to the fore, it is timely to consider whether the current arrangements in Hong Kong remain appropriate," it said. . Despite its pro-business bias, Hong Kong has been forced to re-examine the issue of depositor protection following moves to deregulate the banking sector. Japan 'risks slide into downward spiral' Financial Times - May 4, 2001 By Gillian Tett Falling exports to Asia and the US and the fragility of its banking system mean Japan risks sliding into a downward spiral with severe regional consequences for trade, the Organisation for Economic Co-operation and Development warned yesterday in its latest half-yearly report. The OECD report says Japan may need to bail out the banks, a move the government has ruled out. The report comes at a critical time for the new government of Prime Minister Junichiro Koizumi. The Paris-based think-tank attracts considerable respect in Japan, and Mr. Koizumi is due to make his inaugural speech to parliament on Monday, in which he will set out the government's economic policy. The OECD report asserts that the level of bad loans is probably larger than the government admits, meaning that some banks may not have sufficient capital to write off their bad debts. "In some cases, (realistic write-offs) might even wipe out the capital altogether, requiring banks to reduce the scale of their operations, raise capital in the market or seek public financial support," it says. The condition of the banking system is likely to be a key focus of Mr. Koizumi's speech. He has pledged to introduce measures to clear out the bad loans rapidly, under pressure from countries such as the US. The government insists the banks have sufficient capital to complete this task. "Public funds should be injected only when the financial system faces a crisis," Hakuo Yanagisawa, financial reform minister, said recently. Some Y7,450bn (Dollars 61bn) of public funds were injected into the largest banks in 1999. But many analysts and diplomats fear that without government help the banks will be too weak to write off their bad loans rapidly. The mountain of bad loans has damaged corporate confidence and left the financial sector reluctant to lend. However, forcing banks to cut their loans to unviable borrowers could lead to more bankruptcies and rising unemployment in the short term, the OECD admits. "Managing the loan clean-up will be a huge task for the authorities, in particular as flagging confidence may dictate that it will have to be carried out in a short period of time," it says. The timing of the clean-up is unfortunate, since Japan is suffering the knock-on effects of the slowdown in the rest of the global economy, through lower exports. The OECD suggests that if more funds are injected into the banks, that the bank managers should be sacked and the shareholders should not be rescued. However, any fresh injections of public funds could trigger strong public protest. It could also fuel Japan's spiraling debt burden which is projected to hit 158 per cent of GDP in 2006 - and 138 per cent next year. The OECD calculates the government will need to tighten fiscal policy by 10 percentage points of GDP by 2010 simply to stabilise the debt. This is currently equivalent to Y55,000bn, a sum exceeding total central government tax revenue. On current growth trends, tax revenue would therefore need to be doubled if the adjustment occurred on the tax side alone. The OECD added that monetary policy would need to be highly supportive. It expects to see 1 per cent growth in calendar 2001 and 1.1 per cent growth next year, higher than many analysts are projecting. Accounting Shift Lifts Deutsche Profits American Banker - May 4, 2001 FRANKFURT- Deutsche Bank AG, Europe's largest bank, said Thursday that first-quarter earnings rose 7%, fueled by lower taxes and a new accounting rule for derivatives, even as revenue from investment banking declined. Net income climbed to $920 million, or $1.68 a share. The results included a gain of $208 million from the accounting change. Chief executive Rolf Breuer is trying to reduce Deutsche Bank's reliance on investment banking and emphasize businesses such as fund management and consumer banking. Rivals in the securities business, including Goldman Sachs Group Inc., reported lower profit in the first quarter. Deutsche Bank said its investment banking revenue declined 1%. Another rival reported a similar expectation. "I expect to see growth from asset management and personal banking this year7 said Helmut Hipper, who helps manage about $53.4 billion at Union Invest GmbH in Frankfurt. "Investment banking won't be the main driver." Deutsche Bank shares fell Thursday by 0.75%, after having risen 2.8% in early trading. Without the accounting gain, profit was down 17% in the first quarter. Under a new International Accounting Standards Board rule called IAS 39, changes in the value of certain derivatives were included in trading income for the first time. "If we take away the accounting change, profit was down in the first quarter," said Manfred Bleijenberg, an analyst at Delta Lloyd Bank in Amsterdam, who is recommending that clients "accumulate" shares of Deutsche Bank. The company said its tax bill in the first three months declined 38%. Germany cut its corporate tax rate this year to 25% from 40%. However revenue from the bank's private client and asset management division declined slightly, to $1.79 billion from $1.87 billion, and revenue from corporate and investment banking declined to $4.47 billion from $4.52 billion. In a letter sent to shareholders Thursday, Mr. Breuer said, "We want to expand our market position in all important areas of business in the current financial year. He added, "We expect from this an improvement in our profit situation compared with our competition." Argentina's strife not over yet Financial Times - May 4, 2001 By Thomas Catan For the past six months, Argentina's markets have been dominated by a single question: can the country restart its economy in time to avoid a default on its Dollars 128bn in debt? The answer is not yet clear. In his first six weeks back in charge of the economy, Domingo Cavallo has done much to improve a bad situation after nearly three years of recession. He has transformed a fractious political scene and restored the backing of the International Monetary Fund. His task was complicated by the fact that Argentina missed its first quarter fiscal target. Mr. Cavallo has taken a range of measures to rein in the burgeoning fiscal deficit to meet the Dollars 6.5bn target agreed with the IMF for this year. Most recently, he moved to eliminate virtually all exemptions on value added tax, cut Dollars 900m in spending and increased a tax on financial transactions from 0.25 per cent to 0.4 per cent. But those steps have only increased concern that Argentina will not climb out of recession, in spite of his prediction this week that the economy will be growing at a 5 per cent clip in the last quarter of the year. Mr. Cavallo's strategy is unconventional. To restart growth, he has eliminated import tariffs on capital goods to encourage investment, as well as cut VAT on those items from 21 per cent to 10.5 per cent. He will also unveil a series of "competitiveness plans" for sectors of industry that have been hurt by the overvaluation of the peso over the past couple of years. The aim is to regain competitiveness without breaking the decade-old peg to the dollar, which would be disastrous in a country where the vast majority of public and private sector debt is denominated in dollars. But investors still question whether the strategy can work, and have pushed interest rates up to astronomical levels. Because of those rates, Argentina has long been unable to borrow on international markets. Last week it was forced for the first time to cancel a bi-weekly auction of treasury bills. Investors will be watching closely to see if Argentina can hold its next scheduled auction on May 8. If it cannot, then the fears that the country will have to restructure its debt will again grow stronger, stoking volatility throughout emerging markets. Following a brief rally at the start of the year, Argentina's stock market has again languished. But razor-thin trading volumes make the country's Merval a poor indicator of market sentiment. Over the past couple of months it has hovered in a range of 400 to 460. Yesterday by mid-session the Merval slipped 6.59 to 416.74. It is the country's bonds that investors will be looking at. They account for nearly a quarter of the benchmark emerging market debt index, and any restructuring could spell trouble for such markets around the world. Scott Marra Administrator for Policy & Media Relations ISDA 600 Fifth Avenue Rockefeller Center - 27th floor New York, NY 10020 Phone: (212) 332-2578 Fax: (212) 332-1212 Email: smarra@isda.org Scott Marra Administrator for Policy & Media Relations ISDA 600 Fifth Avenue Rockefeller Center - 27th floor New York, NY 10020 Phone: (212) 332-2578 Fax: (212) 332-1212 Email: smarra@isda.org