insto - Australian financial markets

As the nightmare on Wall Street drags on, experts remain divided over what needs to be done to improve disclosure of bank assets, reports our US correspondent, Caren Chesler.

When Lehman Brothers was going under last year, more than 150 analysts were dispatched to unravel the web of counterparties in their transactions to try to get a handle on who and how much was at risk. Some say the Federal government should have been able to push a button and make that determination.

Liquidity in the US credit market is increasing as evidenced by three-month LIBOR which dropped to a 22-year low, while the LIBOR/OIS spread fell drastically from an all-time peak hit in October 2008. That’s the conclusion drawn recently by Thomson Reuters, who note:

Market perception of risk surrounding bank credit has softened as the two-year swap spread is back at levels seen before the credit crisis originally caught the market’s attention.

Over the weekend the story has been building of the adventures of Barry Tannenbaum, a South African businessman who is alleged to have swindled $1.5 billion from investors in a Ponzi scheme. He is now living in St Ives, on Sydney’s leafy North Shore.

It is alleged that under the latest Ponzi scheme to be brought undone by the global financial crisis, Tannenbaum promised investors annual returns of 200 per cent for investing in his pharmaceutical imports business, and used fake purchase orders to reassure them.

US car maker and icon of that country’s industrial might, General Motors, finally succumbed to the inevitable, and sought protection under US bankruptcy laws. This will give GM breathing space as it closes plants and restructures to cut costs.

The US government is charging Angelo Mozilo, the former chief executive of the mortgage lender Countrywide Financial, and two other company executives with civil fraud. The Securities and Exchange Commission said last Thursday, 4 June (US time) that its case also accused Mozilo of illegal insider trading.

The vast majority of compliance and risk professionals surveyed believe that corruption is more likely to occur in the current economic environment than in the past. This is particularly so as organisations look to do business with emerging markets in an attempt to cut costs.

Securities Investor Protection Corporation (SIPC) will provide US$61.4 million, expected to go up to $100 million, to Bernard Madoff victims, The Wall Street Journal reported.

The German cabinet has agreed a "bad bank" scheme, to enable the country's lenders to remove remaining toxic assets from their balance sheets.

As last week drew to a close, the European Central Bank cut its main refi rate by 25bps to 1 per cent. The Commonwealth Bank’s London-based economist Nicola Chadwick noted this was in line with expectations. “The deposit rate was held steady at 0.25 per cent, also as expected, while the interest rate on the marginal lending facility was cut by 50bps to 1.75 per cent,” she reported.

The long awaited stress tests of the 19 largest US banks revealed that 10 of the 19, including Bank of America, Citigroup, Wells Fargo and GMAC, will be required to raise additional common equity capital to guard against a ‘more adverse’ deterioration in the economy than currently expected.