Royal Bank subpoenaed in LIBOR probe

Source: CBCNews

There are reports that Royal Bank of Canada has been served with a subpoena from U.S. state officials as part of their probe into the possible manipulation of a key benchmark used to set interest rates.

The Wall Street Journal and other business publication report the subpoenas were issued to nine banks, including RBC, in August and September, according to an unidentified person familiar with the investigation.

That brings to 16 the number of banks served with subpoenas, including seven that had become public earlier.

Global investigation

The U.S. investigation by the New York and Connecticut attorneys general is part of a wider probe in several countries that stems from a major U.K. bank’s admission that it had provided false information used to set the LIBOR rate.

RBC is Canada’s largest bank, with operations in major financial centres around the world including London.

The bank said last summer that it followed the rules in submitting information for compiling the London Interbank Offered Rate, which is used widely as a benchmark to set interest rates on business and consumer debts.

That assurance was repeated Friday in RBC’s response to the news reports.

“We have determined that our Libor submissions reflected our cost of funds,” said Gillian McArdle, head of communications for Canada at RBC Capital Markets.

Rate-fixing alleged

The rate is set by gathering information from a small number of large banks, using a system that’s intended to prevent any one member of the group from manipulating the rate.

Questions about how LIBOR is operated arose after Barclays Bank agreed to pay a record $450 million fine to settle allegations its traders had manipulated submissions to LIBOR.

While Barclays actions by themselves were probably insufficient to affect LIBOR, there authorities in Britain and elsewhere have launched probes to see if it was a more widespread problem.

Canada’s competition bureau and other Canadian regulatory bodies launched their own probes in light of the Barclay’s revelations but there have been no allegations levelled against RBC.

March towards cashless society: JC Penny wants to eliminate cashiers

Source: Business Insider

JCPenney CEO and former Apple retail guru Ron Johnson is speaking at Fortune’s Brainstorm Tech conferencein Aspen, and he revealed a bit of what his strategy is for store checkout.

He wants to eliminate the employees who stand at cash registers and get rid of traditional checkout by the end of 2013.

Instead, he’s pushing mobile checkout and self checkout. The stores will be 100 percent RFID (radio frequency identification) and wi-fi enabled.

JCPenney would reinvest those savings in customer service, he says.

If JCPenney can pull this off, customers won’t have to wait in lines anymore, making things more convenient and reducing their time in stores.

This also suggests that there will be more job cuts, since those workers won’t be needed anymore.

Germany, Netherlands & Luxemborg – Outlook Negative says Moody’s

Source: ZeroHedge

Moody’s changes  the outlook to negative on Germany, Netherlands, Luxembourg and affirms Finland’s Aaa stable rating

London, 23 July 2012 — Moody’s Investors Service has today revised to negative from stable the outlooks on the Aaa sovereign ratings of Germany, the Netherlands and Luxembourg. In addition, Moody’s has also affirmed Finland’s Aaa rating and stable outlook.

All four sovereigns are adversely affected by the following two euro-area-wide developments:

1.) The rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework, and the increased susceptibility to event risk stemming from the increased likelihood of Greece’s exit from the euro area, including the broader impact that such an event would have on euro area members, particularly Spain and Italy.

2.) Even if such an event is avoided, there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required. Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form.

These increased risks, in combination with the country-specific considerations discussed below, have prompted the changes in the rating outlooks of Germany, the Netherlands and Luxembourg. In contrast, Finland’s unique credit profile, as discussed below, remains consistent with a stable rating outlook.

RATIONALE FOR OUTLOOK CHANGE

Today’s decision to change to negative the outlooks on the Aaa ratings of Germany, the Netherlands and Luxembourg is driven by Moody’s view that the level of uncertainty about the outlook for the euro area, and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.

Firstly, while it is not Moody’s base case, the risk of an exit by Greece from the euro area has increased relative to the rating agency’s expectations earlier this year. In Moody’s view, a Greek exit from the monetary union would pose a material threat to the euro. Although Moody’s would expect a strong policy response from the euro area in such an event, it would still set off a chain of financial-sector shocks and associated liquidity pressures for sovereigns and banks that policymakers could only contain at a very high cost. Should they fail to do so, the result would be a gradual unwinding of the currency union, which Moody’s continues to believe would be profoundly negative for all euro area members. The rating agency has reflected this risk by raising the score for the “Susceptibility to Event Risk” factor in its sovereign rating methodology from “very low” to “low” for these three countries.

Secondly, even in the absence of any exit, the contingent liabilities taken on by the strongest euro area sovereigns are rising as a result of European policymakers’ continued reactive and gradualist policy response, as is the probability of those liabilities crystallising (as Moody’s already observed in a recent Special Comment, entitled “Moody’s: EU Summit’s Measures Reduce Likelihood of Shocks but at a Cost”, published on 5 July 2012). Moody’s view remains that this approach will not produce a stable outcome, and will very likely be associated with a series of shocks, which are likely to rise in magnitude the longer the crisis persists. The continued deterioration in Spain and Italy’s macroeconomic and funding environment has increased the risk that they will require some kind of external support. The scale of these contingent liabilities is of a materially larger order of magnitude for these countries due to their size and their debt burdens; for example, the size of Spain’s economy and government bond market is around double the combined size of those of Greece, Portugal and Ireland. Although the rising likelihood of stronger euro area members needing to support other sovereigns has not yet affected Moody’s assessment of these sovereigns’ “Government Financial Strength” in its rating methodology, the rating agency nevertheless believes that it needs to take some account of the impact that additional financial commitments would have on the assessment of their financial strength, given the material deterioration in these countries’ fiscal metrics since 2007. Over the long term, Moody’s believes that institutional reforms within the euro area have the potential to strengthen the credit standing of most or all euro area governments; however, over the transitional period (which could last many years), the additional pressure on the strongest nations’ balance sheets will increase the pressure on their credit standing.

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