LIBOR Rate Manipulation: What it Means for Investors

by Jason Jenkins, Investment U Research
Tuesday, July 17, 2012

The Barclays LIBOR case has brought to light LIBOR rate manipulation on a massive scale. What does this mean for your investments?

In case you’re not up on your major British multinational banking and financial services conglomerates, Barclays is headquartered in London and was founded in the late seventeenth century.

It has operations in over 50 countries and territories spanning across five continents. We’re talking upwards of 48 million customers. At the end of last year, it had a market capitalization of approximately $34 billion and was the twenty-second largest company listed on the London Stock Exchange.

So yeah, it’s a big deal…

LIBOR Rate Manipulation

Bear with me. The concept of the LIBOR rate is both simple and convoluted at the same time.

It’s almost amazing that it has a place in the world of high finance.

LIBOR stands for the London Interbank Offered Rate. This is the rate banks are charged to borrow money from each other.

Here’s how it works. Thomas Reuters, on behalf of the British Bankers Association (BBA), goes around daily to a bunch of BBA member banks asking how much it would cost to borrow money today from one another. The rate submitted isn’t based on anything concrete, but an estimate of what they believe they would have to pay. Take out the highs and lows, average the remainder, and you have your LIBOR for that day. Wow, that’s based on some heavy math and concrete data.

Now what does all this merry ole England stuff have to do with you?

Well, chances are you’ll never be in the market for an interbank loan in the U.K. – or at least I don’t think so. But, LIBOR isn’t just one rate with one purpose. Different LIBORs are calculated over different time horizons and in many currencies. The rate is used to price somewhere around $800 trillion of investment vehicles worldwide, including adjustable rate mortgages and student loans.

So what would be the reason to manipulate the LIBOR rate?

There’s been a lot of talk over media outlets that Barclays understated their LIBOR during the financial crisis. If they lowered rates, isn’t this good for consumers? It may have been. But that doesn’t look at the entire horizon of the story.

If you listen to the Regulators at the Commodity Futures Trading Commission (CFTC), the rate manipulation went in both directions. The rate submitted depended upon what type of contract the traders at Barclays were trying to make profitable. This has been documented as going back as far as 2005. That was at the height of market dealing and gambling.

It wasn’t till after the market hit bottom that there was pressure to keep LIBOR down. The lower your borrowing costs, the stronger the bank looked, and vice versa. Remember, the submissions are public record. This information would have easily been factored into pricing its equity.

And then consider that a low interest rate is good for mortgages and car loans because you pay less interest. However, if you’re trying to save in a LIBOR based investment that’s been manipulated lower, you may have been cheated out of return.

And it may have devastated your community. Many cities, pension funds and transportation systems had invested in vehicles based on LIBOR calculations in the mid 2000s. Those entities would have brought in less income if LIBOR was manipulated downwards.

It begs the question, “What cuts in your city or municipality may not have needed to be made?”

That’s why the city of Baltimore is leading a legal battle against banks, such as Barclays, that determine the LIBOR rate. It’s claiming the city’s budget cuts and layoffs were aggravated by the bankers’ LIBOR rate manipulation, which was linked to hundreds of millions of dollars the city had borrowed.

Will Justice Be Served This Time Around? (Probably Not)

Barclays got hit with about $450 million in fines from regulators both in the United States and the United Kingdom.

What may be even more devastating is another black eye for the banking industry. This story just doesn’t have legs across the pond. The initial findings are suggesting that some other global big time players such as Citibank (NYSE: C), J.P. Morgan (NYSE: JPM), HSBC(NYSE: HBC) and Lloyd’s Banking Group (NYSE: LYG) may have had their hands in the LIBOR cookie jar, too.

The bad press and fines may affect some bottom lines and the industry as a whole going forward – granted it hasn’t done much yet. But we may never fully realize the effect this had on unemployment rates and local economies around the United States and the world.

Good Investing,

Jason

http://www.investmentu.com/2012/July/libor-rate-manipulation.html

Are You Making These Investing Mistakes?

by MMARQUIT ·

One of the ways that you can build wealth, and live a little more abundantly is to invest. Investing can provide a way for you to put your money to work on your behalf. While there are risks involved in investing, and the possibility of loss, you can reduce some of that chance of loss by avoiding some of the more common investing mistakes.

As you consider investing, and how to build a portfolio that works for your situation, here are some common mistakes to avoid:

1.  Panicking with the Crowd

It’s easy to get scared and panic — especially when everyone else is doing it. However, you need to be careful about when you sell investments. While there are some very good reasons to sell a stock, it’s rarely a good idea to sell a stock just because everyone is in panic mode.

Instead, take a step back and look at the big picture. Are assets losing ground because the whole market is tanking? If so, you might not want to pull the trigger too quickly. Instead, consider the fundamentals. If the fundamentals are still solid, there is a good chance that your assets will recover in time.

2.  Trading Too Often

This can be tied with panicking, but it can also be its own problem. Too many of us get caught up in to day to day movements, and think that we need to trade a lot. While there are day traders who manage to make good money on regular market movements, it’s important to realize that these traders are dedicated to what they do.

Most of us regular folks are better off trading at wider intervals, or employing a dollar cost averaging strategy. Trading too often can cost you in terms of transaction fees, and there is a bigger chance that you will lose out.

3.  Lack of Diversity

If you want to reduce the overall risk of your portfolio, you need to remember to diversify to some degree. You need to make sure that your investments are diversified in terms of asset class, as well as across different sectors and industries. It also doesn’t hurt to diversify geographically and include investments from other countries. Avoid investing heavily in your company’s stock.

It’s fairly easy to start investing, and to diversify. There are index funds and ETFs that allow you to diversify easily, while at the same time helping you avoid some of the bigger risks that can come with  investing.

4.  Failure to Understand What You're Investing In

One of the reasons it’s good to start with stocks and bonds, and investments that are based on them (like index funds and ETFs), is because they are fairly easy to understand. You shouldn’t invest in things that you don’t understand. Take a few minutes to learn how different asset classes are traded, and how different investments work. It is also worth to learn what factors influence different investments. Get a handle on how different investments work, and you will be far more likely to find success and avoid some of the pitfalls that bring down investors.

http://couponshoebox.com/tips/are-you-making-these-investing-mistakes/?utm_campaign=Feed%3A%20CouponShoeboxTips%20%28Coupon%20Shoebox%20Tips%29&utm_medium=feed&utm_source=feedburner

Q&A: Spain's debt crisis and what it means for the eurozone and Britain

Stock markets are tumbling as Spain's borrowing rose to new record highs. Here is a look at why this is happening and what the implications might be.

Investors are concerned that Spain, one of the eurozone's biggest economies, might need a full-blown bailout. Photo: AP

By Angela Monaghan, Economics Correspondent

1:09PM BST 23 Jul 2012

2 Comments

Q: What has happened to Spain's borrowing costs?

A: Spain's borrowing costs rose to the highest level since the euro was created on Monday. The yield on benchmark 10-year yields rose to 7.5pc, where the higher the yield the lower the demand for Spanish debt.

Anything above 7pc is considered unsustainable. The Spanish government will not be able to afford to borrow indefinitely at such high levels, which means it will need a bailout if costs do not come down.

Q: Why now?

A: The crisis in Spain has escalated. It has been clear for weeks that Spain's banks needed emergency bailout funding, but now fears are mounting that the country will also require a full-blown sovereign bailout. European leaders on Friday agreed to grant up to €100bn (£78bn) of funds to Spain's banks.

RELATED ARTICLES

• Spanish borrowing costs hit fresh highs of 7.5pc 
  23 Jul 2012
• Greek PM: economy is in a 'Great Depression' 
  22 Jul 2012
• Murcia next Spain region in spotlight for aid 
  22 Jul 2012
• German minister: 'horror' of Greek euro exit has faded 
  22 Jul 2012
• Euro exit would bring economic gains 
  21 Jul 2012
• Debt crisis: as it happened - July 20, 2012 
  20 Jul 2012

Markets have been spooked by news that two of Spain's regions - first Valencia and now Murcia - have been forced to seek emergency funding from the Spanish government, and others might follow.

There have also been further warnings on prospects for growth, as officials in Madrid warned the economy was likely to shrink throughout 2013. Spain is battling with a tough austerity programme as the government tries to bring down its debt mountain. The unemployment rate is 24pc, and roughly half of young people are out of work.

Q: What does it mean for the rest of the eurozone?

A: Eurozone leaders were already struggling to convince the rest of the world that the single currency has a sustainable future. They now face an even tougher job. Financially and politically, a bail-out for Spain would prove a huge challenge. And as we have seen with Greece, it is unlikely that it would be enough to permanently put to rest fears over Spain, and indeed other financially vulnerable countries including Italy and Portugal. Noise about a potential break up of the euro is once again building.

Q: What does it mean for Britain?

A: Europe is Britain's largest trading partner so continued problems in the region will weigh on demand for UK goods. The eurozone crisis is also damaging confidence among British businesses and consumers, who are unwilling to spend and invest at a time of heightened uncertainty. If one or more countries did ultimately exit the euro, the knock-on effect for the global economy would be huge, and Britain's recession prolonged.

Q: Is Spain the biggest problem in the eurozone?

A: Spain is an immediate concern, but so too is Greece. Greece's international creditors - the so-called "troika" comprising the European Commission, the International Monetary Fund, and the European Central Bank - will arrive in Athens on Tuesday to assess whether the government is making sufficient progress to earn another cash injection.

The visit is crucial: without further bailout funding Greece will be unable to meet its debt obligations or keep up with salary and pension payments. "If the current government fails, the next one will be a government of the drachma," said Costis Hatzidakis, the Greek development minister. Beyond Spain and Greece, there are also mounting concerns over Italy, as the government's borrowing costs rise.

http://www.telegraph.co.uk/finance/financialcrisis/9420469/QandA-Spains-debt-crisis-and-what-it-means-for-the-eurozone-and-Britain.html

The rise and rise of Asian financial centers. As the West bogs down, opportunities go East

July 23, 2012, 12:01 a.m. EDT
The rise and rise of Asian financial centers 
As the West bogs down, opportunities go East

By David Marsh, MarketWatch

SINGAPORE (MarketWatch) — A lot has been said and written about the power shift between East and West engendered by worldwide economic changes of the past 10 years, especially the 2007-08 trans-Atlantic financial crisis. But as British newspaper headline writers like to say when a transition of gigantic proportions is upon us: “You ain’t seen nothin’ yet.”

Already since the end of the 1990s, we have seen two phases in Asia’s economic renaissance. First came a period of rapid reserve asset accumulation by non-Western economies, an expression of current account surpluses, high savings ratios and a refusal to let currency appreciation damp rising exports.

Click to Play

Europe's Week Ahead: U.K. GDP

The U.K. and U.S. will release second-quarter GDP figures while on the corporate side investor will be looking out for earnings results from banks Barclays and Lloyds and carmaker Peugeot. Dow Jones's Andrea Tryphonides and Nina Bains report. Photo: Reuters

Then, in the aftermath of the sub-prime imbroglio and then the collapse of Lehman Brothers, we saw stronger-than-ever signs of the Eastern economies’ resilience as the US and Europe remained bogged down in post-crisis doldrums.

We are about to witness a third phase: the powering ahead of Asian financial markets as a part of sweeping changes in the make-up of assets and liabilities around the world. The stage is set for Asian practices and principles gradually to come to the fore in global financial services.

There are several straws in the wind. Two of the top three stock market flotations this year — the $3 billion listing of palm-oil firm Felda Global Ventures and the $2 billion initial public offering of state-backed IHH Healthcare Bhd, Asia’s largest private hospital operator — have been carried out in Malaysia, a country that was hardly on the financial radar screen until a few years ago.

Malaysia’s cash-rich pension funds and fund management groups have allowed the country to buck the trend of scrapped IPOs that have brought setbacks this year not only in the West but also in Asian centers like Hong Kong.

Malaysia, too, has supplied the investors for a landmark property deal in London — the £400 million Battersea Power Station transaction for property group SP Setia, palm-oil group Sime Darby, and Employees Provident Fund, the country’s largest pension fund, which U.K. Prime Minister David Cameron intends to extol as a sign of a new investment partnership between Europe and Asia.

At a wider level, Asian fixed-income markets have been recipients of large inflows this year as investors around the globe pile into new asset classes free of the uncertainties overhanging the dollar and the euro. In M&A and private equity, investors and deal makers from Asia are assuming ever-more self-confident positions that make them less dependent on financial intermediaries and bankers from the West. In new product areas, watch out for a spate of offerings in Islamic finance that will mount a rising challenge to Western institutions, which are hardly in the best position to withstand competition.

Europe and the U.S. are reeling under the impact of a spate of financial industry setbacks — ranging from the sub-prime debacle and blatant disregards for investment-banking conflicts of interest through to the latest scandals over financial product mis-selling, Libor fixing and money laundering. Overshadowing everything has been the weakening of the banks, especially in Europe, as a result of the demise of the Western growth model and the buildup of debt owed by private and public-sector borrowers, part of which will plainly never be repaid.

Disparities have been exacerbated by Europe’s abject failure first to diagnose and then to repair the innate shortcomings of economic and monetary union (EMU), the single currency project that was supposed to promote growth, investment and employment but instead has turned into Europe’s melancholy union. The disappointments surrounding EMU have taken their toll on European investment banking as the hotly anticipated spate of M&A and capital-market opportunities induced by a single euro financial market has failed to materialize.

Differences between East and West have been enhanced, too, by America’s inability to put its public finances on to a sounder footing, which leaves the U.S. financial system at the mercy of adversarial political forces before and after the end-year presidential elections.

For bankers and product specialists, the message is clear. Growth, innovation and dynamism in financial services are likely to migrate beyond the West. Just as Asia in past centuries used to measure itself by reference to Europe (seen in the appellations “near East”,” far East” etc), in the future Europe and the U.S. are likely to register their own prowess by reference to Asia.

For financial practitioners who have grown up in the financial sector penumbra of the City or Manhattan (let alone Paris or Frankfurt), there can be only one conclusion. “Go East, young man! (or woman!).” Potential, responsibility and reward are on offer with ever-greater urgency in the centers of Shanghai, Hong Kong, Singapore and Kuala Lumpur.

If you work in financial services, ignore at your peril the implications of this sea change. The world is rapidly changing and if you want to capitalize on that, move to the places where things are happening. 

David Marsh is co-chairman of the Official Monetary and Financial Institutions Forum.
http://www.marketwatch.com/story/the-rise-and-rise-of-asian-financial-centers-2012-07-23?link=MW_story_investinginsight

Asia stocks slump on raging euro-zone fears

July 23, 2012

Asia stocks slump on raging euro-zone fears 
Hang Seng Index sinks 3%, led by sell-off in heavyweight HSBC

By Sarah Turner and V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) — Asian stocks received a thrashing Monday as fears that Greece may not receive further aid and rising worries over Spain prompted a deep, region-wide sell-off, with Hong Kong equities suffering the most.

The dollar jumped against most other major currencies, barring the yen, whose gains against the greenback as well as the euro applied additional selling pressure in Tokyo. Crude-oil and other commodities tumbled.

Japan’s Nikkei Stock Average JP:100000018 -1.86%  finished 1.9% lower, South Korea’s Kospi KR:SEU -1.84% dropped 1.8%, Australia’s S&P/ASX 200 Index AU:XJO -1.67%  lost 1.7% and Taiwan’s Taiex XX:Y9999 -1.90%  slid 1.9%.

Click to Play

Asia, the next battleground for beer

Heineken’s bid for Asia-Pacific Breweries may prompt Asia brewers to rethink their strategies.

China’s Shanghai CompositeCN:000001 -1.26% dropped 1.2%, while the Hang Seng Index HK:HSI -2.99% was the region’s worst performer, slumping 3%, or 587.33 points, to 19,053.47 in Hong Kong.

“[Reports of] the halting of a bailout tranche due to failure to meet targets, the European Central Bank decision not to accept Greek debt as collateral, and the visit of the Troika will keep markets nervous as default fears intensify,” said Mitul Kotecha, a strategist at Credit Agricole.

The Troika refers to the European Commission, the European Central Bank and the International Monetary Fund.

A German report over the weekend said that the International Monetary Fund may cut off aid to Greece. Read more on reported IMF Greek aid suspension.

Worries about Spain were also in focus, after the country lowered its gross domestic product estimates from this year through 2014. Reports also said Spain’s Valencia and Murcia regions may ask for Madrid’s financial assistance. See reports of aid for Valenciaand Murcia .

“Against this backdrop, we expect market tensions to persist. With the European Central Bank still reluctant to step in, the probability is increasing that Spain will have to ask for additional support, likely in the form of bond purchases by the European Financial Stability Facility,” strategists at Barclays Capital wrote in a report.

The Asian trading day began with a sharply bearish tone after U.S. and European markets ended with steep losses Friday, reflecting concerns that the weak global environment will affect growth and financial flows into the region.

U.S. equity futures pointed to another possible sell-off on Wall Street Monday, with Dow Jones Industrial Average DJIA -0.92%  futures sliding 116 points, or 0.9%, to 12,657.00, while Standard & Poor’s 500 Index SPX -1.11%  futures shed 11.70 points, or 0.9%, to 1,346.50.

http://www.marketwatch.com/story/asia-stocks-drop-as-europe-worries-weigh-2012-07-22?pagenumber=1

Public Bank Q2 earnings at RM952.69m, 20 sen dividend

KUALA LUMPUR: Public Bank Bhd posted net profit of RM952.69mil in the second quarter ended June 30, 2012, a slight dip of 0.2% compared with RM954.88mil a year ago due to a change in accounting policy a year ago.

It said on Monday its revenue increased by 9.3% to RM3.465bil from RM3.170bil. Earnings per share were 27.20 sen compared with 27.27 sen. It declared a dividend of 20 sen a share, similar to a year aof.

The banking group as a result of the change in accounting policy, the results for Q2 a year ago were restated, with pre-tax profit restated from RM1.16bil to RM1.262bil. Net profit attributable to equity holders was restated from RM880.4mil to RM954.9mil.

In the first half, its earnings rose 2.96% to RM1.893bil from RM1.839bil in the previous corresponding period while its revenue increased by 10.9% to RM6.839bil from RM6.162bil.

Tan Sri Teh Hong Piow

The banking group's founder and chairman,Tan Sri Teh Hong Piow said the group achieved another strong set of results in the first half of 2012 with pre-tax profit of RM2.49bil in the January-June period.

"As a result of the retrospective application of MFRS 139, the Public Bank group's pre-tax profit and net profit for the corresponding first half of 2011 were restated upwards by RM175mil and RM131mil to RM2.43bil and RM1.84bil respectively," he said.

Teh said hence, the group's pre-tax profit and net profit for the first half of 2012 grew by 2.1% and 3.0% respectively as compared to the higher restated pre-tax profit and net profit for the corresponding first half of 2011.

"Excluding the effects of higher restated profits for the last corresponding period, the group's pre-tax profit and net profit for the same period recorded double-digit growth of 10.0% and 10.9% respectively.

"As compared to the first quarter of 2012, the group's net profit attributable to shareholders for the second quarter grew by RM11.9mil or 1.3% to RM953mil," he said.

The banking group's gross loans increased at an annualised rate of 10.8% in the first half of 2012 to reach RM187.3bil as at end-June. Domestic loans grew at a stronger annualised rate of 12.3%.

As for customer deposits, they grew at an annualised rate of 11.3% in the first half of 2012 while domestic customer deposit growth recorded an annualised growth rate of 12.0%.

Monday July 23, 2012

http://biz.thestar.com.my/news/story.asp?file=/2012/7/23/business/20120723130953&sec=business

The ONLY thing that matters by Jim Rohn

2012 Goal Setting Workshop - by Jim Rohn

Jim Rohn Best Life Ever

Earl Nightingale (Happiness)

Happiness is a by-product of learning who you are, living from that insight, and striving for a goal with which you resonate. And that's how you become wealthy. Go out to acquire wealth and you may do so. However, the price may be more than the money is worth. Conversely, know who you are and find something you love to do and the money, like happiness, will come as by-product of a fulfilling and successful life

Let's Talk about Money - Earl Nightingale

Alan Sugar's Business Advice (Videos)

  

Lord Sugar: Watch your cashflow

24 Feb 2010

  

Lord Sugar: Escape from the daily grind

24 Feb 2010

  

Lord Sugar: How do I start my own business

24 Feb 2010

  

Lord Sugar: Evaluating a business idea

24 Feb 2010

  

Lord Sugar: Evaluating franchises

24 Feb 2010

  

Lord Sugar: How to grow the business

24 Feb 2010

  

Lord Sugar: How to write a business plan

24 Feb 2010








http://www.telegraph.co.uk/finance/financevideo/7299384/Alan-Sugars-Business-Advice-Escape-from-the-daily-grind.html

www.businesslink.gov.uk