DT Fine Art

The Co-operative Group has bolstered its board with the appointment of a new finance director. It has also signalled its determination to remain in the financial services business by naming a new chairman for its loss-making banking arm.

As talks with regulators continue about finding a solution to plug a capital shortfall in its bank of as much as £1.8bn, the Co-op named Richard Pym as its chairman. Pym, who runs a bailed-out banking division for the government, said his new appointment would ensure the Co-op would continue to provide customers with an alternative choice to the traditional banks.

The finance director of the supermarket chain Morrisons, Richard Pennycook, is also joining as interim finance director of the Co-op group, which spans pharmacists, supermarkets and funeral homes.

Pennycook, is credited with creating a four-year turnaround plan for the supermarket chain after its troubled takeover of Safeway. His recruitment could signal a wave of cost-cutting measures across the Co-op group.

They are a latest in sweeping management changes at the 165-year-old mutual which only last month installed Euan Sutherland, from Bamp;Q, as chief executive, replacing life-long Co-op employee Peter Marks.

Sutherland said the bank was now in very good hands after the recruitment of Pym alongside the new boss of the bank, Niall Booker, the former HSBC banker appointed last week. Booker spent his career at HSBC before quitting in 2011 when he was running the US arm which was this week accused by New York of ignoring a law designed to help homeowners struggling with loans during a period when he was charge.

Co-op, plunged into uncertainty after a potentially devastating six notch downgrade to junk status, has stopped lending to small businesses to preserve capital. Pym has so far refused to disclose if the bank intended to resume this activity once the capital situation was rectified.

He told the Guardian he intended to take pay cut at UKAR, which runs the bailed-out parts of Bradford amp; Bingley and Northern Rock, where he will remain as chairman as he will be freeing up time to devote to the Co-op. Pym has also quit as a non-executive director of the commercial property investment firm British Land as he takes on a role at the Co-op. His new job might be regarded as a full-time position given the scale of the issues facing a bank that analysts at Barclays have estimated could have a capital shortfall of as much as £1.8bn.

Even before taking up the Co-op chairmanship, Pym had announced he would take a 5% cut to his £237,500 fee from UKAR, which exists to run down the loans granted by Bamp;B and Northern Rock.

Pym, whose appointment is subject to formal regulatory approval, said: We are clearly focused on actions to strengthen the banks balance sheet and resolving the current underlying issues.

This will allow us to continue to provide customers with an alternative choice to the traditional banks.

He added that the groups ethical stance towards banking would remain a key marketing element.

By juggling two chairmanships in the financial services industry, Pym acknowledged that potential conflicts of interest would need to be managed. I have may to excuse myself [from some discussions], said Pym. The two banks are completely different. UKAR is not looking for new customers.

People dressed in $100 bill costumes and face masks marched outside the Capitol on Wednesday in Albany. Protestors were calling on the legislature to pass a comprehensive reform bill with public financing of elections.

Equity Bank Ltd., Kenya’s biggest
lender, has restructured its operations and promoted John Staley
to chief officer in charge of finance, innovation and
technology, the Nairobi-based company said in a statement.

Staley, who is currently the director of mobile banking and
payment innovations, will replace chief finance officer Samson Oduor, who left the bank in March.

Equity’s board of directors also promoted Joseph Iha to
Managing Director of its unit in Tanzania.

Staley, who becomes the fifth head of finance at Equity
since 2010, will be supported by finance executives Fredrick
Omondi and Sammy Kamanthi Ndetiu.

“The appointment of John Staley to finance is good for the
bank as he knows its operations, having joined the bank in
2003,” said Francis Mwangi, head of research at Nairobi-based
Standard Investment Bank Ltd. in a telephone interview.

Shares in Equity Bank stock fell 1.4 percent to 34.75
shillings by the 3 pm close in Nairobi, the lowest level since
May 20, according to data compiled by Bloomberg.

Standard Investment Bank has kept its hold recommendation
on Equity as it predicts earnings per share to grow by 20
percent with the price target estimated at 39.29 shillings, it
said in an e-mailed valuation note yesterday.

Equity Bank posted a 22 percent jump in first-quarter
profit to 3.21 billion shillings ($37.7 million). The bank
operates in Kenya, Uganda, Tanzania, Rwanda and South Sudan.

To contact the reporter on this story:
Johnstone Ole Turana in Nairobi at
jturana@bloomberg.net

To contact the editor responsible for this story:
Antony Sguazzin at
asguazzin@bloomberg.net

AUSTIN – A judge who previously ruled Texas public school finance system unconstitutional may reopen the case to consider the impact of subsequent legislative action, including an infusion of money and a cutback in some requirements.

State District Judge John Dietz on Wednesday indicated hes willing to have a hearing if theres substantial agreement to do so among the parties, after a lawyer for higher-wealth school districts asked him to reopen it and a state lawyer said a hearing would be in order.

Property-poor school districts werent as quick to jump on the bandwagon for a new hearing, noting that while lawmakers have acted, Gov. Rick Perry will decide how much of their work actually becomes law.

Statewide property tax

Perry has until June 16 to sign or veto bills, or to allow them to become law without his signature. Dietz set a June 19 court date for the parties to submit a proposed motion, detail what the hearing would entail and prepare a spreadsheet of their disagreements.

There have been rumors that Perry may veto some of the extra money allocated for schools to help restore some of the funding cut two years ago in the face of an erroneous forecast of a massive revenue shortfall.

Dietz earlier this year said the state school finance system is unconstitutional. He called it inequitable and inadequate and said that it has led to what is in essence a statewide property tax, since so many districts must tax locally at or near the maximum rate. School funding relies on local school property tax revenue, state money and federal funds.

Dietzs final ruling is expected to be appealed to the Texas Supreme Court.

Mark Trachtenberg, a lawyer for property-wealth school districts, said Wednesday he would like the case reopened to ensure the Supreme Court has an up-to-date record.

Adequacy problem

Trachtenberg said while the Legislatures action was a step in the right direction, he still expects the districts to prevail, citing his groups adequacy and tax claims.

Districts in my coalition got very little new money. We dont think the adequacy problem has been solved. We dont think the state property tax problem has been solved, he said.

Assistant Attorney General Shelly Dahlberg, representing the state, maintained that the system was and remains constitutional. She said since the Legislature made significant changes, there should be a limited evidentiary hearing to gauge their effect.

David G. Hinojosa, southwest regional counsel for the Mexican American Legislative Caucus representing several property-poor districts, said he didnt yet know if hed oppose reopening the case. But he called it incredible that wealthy school districts should urge that action after winning.

He contended they dont like the findings on equity, which would benefit poor districts.

Withholding judgment

Lawyer David Thompson, representing a group of districts including Houston ISD, said he wants to withhold judgment on whether the record should be reopened until after Perrys veto deadline.?

We know the Legislature passed quite a bit, said Thompson, whose group includes property-rich and property-poor school districts. We dont know whats actually going to become law as we sit here today.

Most UK financial-services
employees say some within their companies are paid too much amid
negative public sentiment toward the industry, according to a
survey by the Chartered Institute of Personnel amp; Development.

Three-quarters of those surveyed said some colleagues are
paid “excessively,” the CIPD said in a report called “Focus
on Rebuilding Trust in the City,” published on its website. The
study found 79 percent of those below senior management are most
likely to say some workers are overpaid.

“Half of respondents working in banking and financial
services say that the negative public perception of the banking
sector is a fair reflection of what has gone on in recent
years,” said the London-based CIPD, which represents human-resources executives. Senior managers are “less likely” than
more junior colleagues to say the negative public perception
toward financial services is fair, it said.

The UK capital’s position as a financial center has been
under scrutiny following a series of market abuses such as the
interest-rate rigging scandal at banks including Barclays Plc (BARC),
where Chief Executive Officer Robert Diamond resigned last year.
Firms have also been under pressure from regulators and the
government to cut compensation amid public anger over the
bailouts of Britain’s Royal Bank of Scotland Group Plc and
Lloyds Banking Group Plc. (LLOY)

The average bonus per employee in the financial-services
industry fell 11 percent to 12,000 pounds ($18,500) in the year
through March 2012, the Office for National Statistics said in
September. That compares with the average 1,400-pound bonus paid
to employees across the entire economy.

“These findings suggest that while some senior leaders in
parts of the banking sector are having at least partial success
in changing culture to become more customer focused, some parts
of the industry are largely operating as before,” the CIPD
said.

The survey of 1,026 UK employees included those in
investment banking, insurance, broking and banking in April.

To contact the reporter on this story:
Ambereen Choudhury in London at
achoudhury@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at
eevans3@bloomberg.net

The State Bar of Arizona has dismissed a charge against Arizona Attorney General Tom Horne stemming from a 14-month investigation by the FBI and county authorities into alleged campaign-finance violations.

The Bar, which licenses and regulates attorneys, attempted to determine whether Horne violated ethical rules.

Horne has been notified of the dismissal. Hornes spokeswoman, Stephanie Grisham, said the attorney general wont have any comment on the dismissal.

A separate Bar investigation into Hornes involvement in a March 2012 hit-and-run accident is ongoing, said Rick DeBruhl, chief communications officer for the Bar.

Citing court rules, DeBruhl said he could not provide details about why the campaign finance-related charge was dismissed.

As the underlying campaign finance violation proceeding has now been dismissed, it appears uncertain whether or when that matter may be pursued, according to a May 22 letter to Hornes attorney obtained by The Arizona Republic.

Accordingly, we will dismiss our concurrent proceeding to await a final outcome of any future case relating to the alleged campaign finance violations and revisit our investigation at that time. This matter may be reopened at any time prior to that should the State Bar discover that there is evidence of a violation that would require immediate pursuit.

After a 14-month investigation, Maricopa County Attorney Bill Montgomery accused Horne and a political-ally-turned-staffer of collaborating to quickly raise more than $500,000 to fund negative ads targeting his Democratic opponent during the 2010 election. By law, candidates are not allowed to coordinate certain activities with independent-expenditure committees.

Horne and his staffer, Kathleen Winn, have said they did nothing wrong, that authorities have misinterpreted evidence and have criticized their investigative techniques.

Montgomery pursued a civil-enforcement action, but a judge last month ruled the case could not move forward because of legal technicalities and procedural failings by the Secretary of States Office, which found reasonable cause exists to believe a campaign-finance violation occurred.

The Secretary of States Office can still pursue the case through another prosecutor.

The pending Bar investigation into Horne is tied to an accident he was involved in while driving a car borrowed from an attorney generals staffer. That fender-bender was witnessed by two FBI agents who were tailing Horne as part of the campaign-finance investigation.

Horne last month pleaded no contest to a misdemeanor hit-and-run charge and paid a $300 fine.

Chekhov said a gun seen in a play’s first act will surely be used by the end. On Wall Street, a financial instrument once engineered won’t go unused for long — no matter how much damage it helped inflict before.

Or so it seems, given the reappearance of “synthetic collateralized debt obligations,” a vehicle created by banks that gives investors exposure to the creditworthiness of companies through derivative agreements. The pool of securities are sliced up by risk grades and sold to institutional investors.

Synthetic CDOs based on dicey mortgages were a key transmission mechanism for the financial contagion that drove the 2008 financial crisis — and the resulting bank failures, bailouts and extreme monetary stimulus in response.

And, coming full circle, we have central banks’ ultra-low interest-rate policies to thank (or blame) for the reawakening of the synthetic CDO market. As the Wall Street Journal reports, the hunt for returns by a handful of JPMorgan Chase #38; Co. (JPM) and Morgan Stanley (MS) clients has led the banks to begin constructing the instruments.

Of course, this represents only the modest stirrings of a once-huge market that has been essentially dormant since 2009. A total of $1 trillion in synthetic CDOs were concocted and sold from 2006 to 2007, many of them winning misleadingly stellar ratings from the big credit agencies as investment funds and insurance companies sought income in a low-rate environment.

Related: Sallie Krawcheck: Your Safe Investments Arent So Safe

And, importantly, the root cause of the meltdown was the underlying collateral — piles of subprime mortgages fueling a raging housing bubble — going very bad. Some of those rotten mortgages are still causing indigestion, as $1 billion in previously undisclosed losses were recently passed on to some investors in pools of bubble-era loans.

Today, credit-rating standards are stricter, corporate creditworthiness is at least stable and – hopefully – regulators are more attentive about the hidden risks embedded in opaque financial instruments.

Yet the re-emergence of these derivatives underscore a central element and potential risk of the Federal Reserve’s determined campaign to keep short-term interest rates at zero indefinitely. Central banks are starving the world of safe assets and reliable income — something a whole class of investors need to fund long-term liabilities or finance retirement.

Articulating the hazards of such a policy, Yahoo! Finance Editor-in-Chief Aaron Task says in the attached video, “I’m concerned the Fed is basically going to re-inflate a credit bubble as long as they keep rates at zero.”

This certainly is a relevant worry — the Fed’s powerful medication could start being used for reckless “recreational” purposes and lead to an addiction with bad long-term health effects.

Indeed, this very fear might be driving Fed officials to inject some ambiguity about their intentions into investors’ minds, allowing markets themselves to readjust and skim off some of the froth. The recent selloff in Treasuries, corporate bonds and other overheated “yield plays,” and the related volatile setback in stocks, could involve the Fed attempting to jawbone away some of the excesses without having to actually change policy.

The true nightmare, worst-of-both-worlds scenario, after all, might be if heedlessly speculative financial markets forced the Fed to reduce its monetary stimulus even as the real economy remains sluggish.

At minimum, risk appears to have become mispriced, with “junk” bond issuers able to lock in rates near 5%, half the level of many outstanding issues, and investment-grade companies able to borrow at levels the most fiscally secure governments could only dream of several years ago.

The takeaway for investors is that the investments that appear safe and prudent — such as high-yield corporate debt and other bond funds, and real-estate investment trusts — are very likely offering insufficient compensation for the unappreciated level of risk they might impose down the road.

Edmond Campbell, Senior Staff Reporter

IN A qualified opinion set out in an Examination of the Components of the Governments Fiscal Policy Paper (FPP), Auditor General Pamela Monroe Ellis has stated that the FPP is not in compliance with the fiscal management principle stated in the Financial Administration and Audit Act (FAA).

The document was tabled in Parliament yesterday.

Section 48C (b) of the FAA Act requires that the minister of finance should take action to reduce the total debt to 100 per cent or less of the gross domestic product (GDP) by the end of the financial year ending March 31, 2016.

However, the auditor general pointed out that the Governments Fiscal Responsibility Statement contained in the 2013-2014 FPP indicates that the debt-to-GDP ratio is projected to trend towards 112.1 per cent by financial year 2015-2016, which is outside the legislated target of 100 per cent.

According to Monroe Ellis the FPP does not comply with the fiscal management principle stated in section 48D(a) of the FAA Act. This section of the statute requires that total debt is to be reduced to, and thereafter maintained at a prudent and sustainable level.

The Act defines sustainable level as that level of a fiscal indicator which does not compromise the required fiscal space necessary to meet socio-economic objectives.

Monroe Ellis added that Finance Minister Dr Peter Phillips indicated that a prudent debt level was 60 per cent of GDP.

target unlikely to be met

It was noted that the 2013-2014 FPP conceded that the legislated target was unlikely to be met, and as such, it stated that the Government would consider an amendment to the FAA Act to adjust the fiscal year for attainment of 100 per cent debt-GDP ratio. To date the legislation has not been amended.

Another issue raised by the auditor general which was set out in her qualified opinion was the inadequacy of information supplied by the minister of finance.

The minister of finance did not disclose sufficient information in the FPP to allow me to determine whether the conventions and assumptions underlying the preparation of the Fiscal Policy Paper comply with fiscal management principle B, specified in the Act.

The auditor general said the finance ministry, though disclosing the sources of fiscal risk, did not quantify the impact the realisation of the risks might have on its targets.

In its response, the ministry argued that the timing and uncertainty associated with these risks impede its ability to quantify same, the auditor general said.

However, the absence of this critical information provides me with no basis on which to provide reasonable opinion that this principle has been complied with in the FPP.

Monroe Ellis insisted that the lack of pertinent information from the ministry prevented my assessment of the reasonableness of the variances between established targets and the outcome of the fiscal indicators.

She said the ministry did not keep its promise to provide an addendum with the necessary information.

edmond.campbell@gleanerjm.com

The financial crisis reminded everyone just how fragile the financial system can be during times of stress. Yet while most of the attention during the crisis focused on well-known banking institutions with a substantial retail-banking presence, Bank of New York Mellon (NYSE: BK) actually plays a key role in maintaining the health of the entire global financial system. That makes BNY Mellon stock arguably the purest play on the state of global finance. Lets take a closer look at this little-known financial institution to see whats behind its recent success.

What BNY Mellon does
The reason so few people know about BNY Mellon is that it doesnt act like an ordinary bank. The financial institution doesnt offer retail customers traditional banking services like deposit accounts or mortgage loans. Rather, it serves the banks and other financial institutions that do work directly with individual and corporate banking and investment customers, acting as the worlds top custodian of financial assets.

That business model worked quite well for BNY Mellon during the financial crisis, as the bank didnt have to worry about direct exposure to bad assets on its balance sheet or liabilities from mishandling foreclosures and other collection activity. Because the company relies on its big-bank customers for its own revenue, BNY Mellon stock wasnt immune to the big drop in the stock market during 2008 and early 2009, but it didnt suffer nearly the damage that many of the hardest-hit banks did.

How BNY Mellon has fared recently
BNY Mellon has navigated changing conditions in the financial industry fairly well lately. In its most recent quarter, the company suffered a net loss, due entirely to a charge of more than $850 million related to disallowed foreign-tax credits in a Tax Court decision that it hopes to have reversed on appeal. Yet BNY Mellon benefitted from the rise in global stock markets, with management and performance fees up 10%, and servicing fees rising 3%.

The best news BNY Mellon got recently came from the Fed, when it gave the bank a passing grade on its stress tests in March. Again, given the banks distinct business model, BNY Mellon saw almost no deterioration in its capital ratios even under the stress-scenario the Fed ran, and those ratios already ranked among the highest of the 18 banks that had to take the tests.

Its important to understand that BNY Mellon hasnt been able to stay completely insulated from the aftermath of the financial crisis. Perhaps the highest profile case recently involves a proposed $8.5 billion settlement from Bank of America (NYSE: BAC) to settle investors claims over mortgage-backed securities issued by mortgage-unit Countrywide Financial. Insurance giant AIG (NYSE: AIG) has objected to the settlement, and with BNY Mellon acting as trustee of the hundreds of trusts that hold Countrywide mortgage-backed securities, AIG argues that Mellons relationship with B of A played a role in its willingness to accede to the settlement. Nevertheless, the liability belongs to B of A, and its hard to come up with a situation in which Mellon would be on the hook for damages.

Why BNY Mellons worth watching
In the end, what BNY Mellon stock offers is a chance to participate in the health of the financial industry. With a whopping $28 trillion in assets under its control across its various business lines, BNY Mellon needs stability and reliability in the global financial system in order to thrive and succeed in the long run.

WASHINGTON — Fake hundred dollar bills rained down on the New York State Senate in Albany on Wednesday as protesters called for the passage of campaign finance overhaul measures. Just one week earlier, hundreds of protesters from around New York state came to Albany to rally in the Capitols Million Dollar Staircase in support of campaign finance reform.

With two weeks remaining in the 2013 legislative session, the largest and most active coalition in the states history is increasingly staging actions such as these in an effort to overhaul New Yorks notorious campaign finance system.

Its definitely a much bigger effort than its ever been before, said Karen Scharff, executive director of Citizen Action of New York, one of the co-leaders of the pro-reform coalition under the Fair Elections For New York banner.

Reformers are seeking to lower contribution limits and introduce a public financing system based on the one used by New York City, which matches every dollar in small donor contributions with six dollars in public funds. They are also looking to send a signal nationally that campaign finance reform is possible in the wake of the Supreme Courts 2010 Citizens United decision.

Environmental, labor, housing and business groups have all joined in the effort, some lending their voice for the very first time. Democratic campaign donors sent a letter to Gov. Andrew Cuomo to express their support for reform. And national organizations have empowered their state chapters to get involved, as they see New York as the best hope to fight back against the big money they see blocking their issues in state capitals across the country and in Washington, DC

State organizations with a history of supporting reform decided that with a supportive governor, a Democratic Assembly, a numerical majority of supportive Democrats in the Senate and a bevy of corruption scandals, the time was right for a full-out, throw everything weve got at it kind of campaign, according to Dan Cantor, executive director of the Working Families Party, a main coalition partner.

And to achieve its goal, the coalition is pulling out all the stops in the final weeks of the legislative session.