Saturday 2nd August 2014
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FRIDAY TICKER: AUGUST 1ST: Collaborative Data Network CMDportal statistics show that the international money market increased outstandings by approximately $31bn during the month of July, both in USD and in EUR, with three of the four major asset classes posting growth. Financial Institutions Groups (FIGs) outstandings increased by 3.44%, seeing the greatest absolute growth. Sovereigns, Supranationals and Agencies (SSAs) posted a 2.9% increase. Oustandings by Corporate borrowers grew by 7%. The only major sector that posted a contraction was Asset-Backed securities, which finished down by approximately $1.4bn (3.2%). USD denominated markets grew by USD13.2bn and Euro denominated markets grew by $12.5bn equivalent. Total International Money Market settlements in July reached $307.8bn - Moody's Interfax Rating Agency has today affirmed the Baa3.ru national scale rating (NSR) of Maritime Bank. The affirmation of the NSR reflects Maritime Bank's currently acceptable capital adequacy and asset quality balanced with weak profitability; and modest liquidity cushion against the bank's high depositor concentration and the challenging operating environment in Russia. NSRs carry no specific outlooks. The rating action is primarily based on the bank's unaudited financial statements for January 2013-July 2014 - The Macau government published the casino industry’s gross gaming revenue today. In July, Macau collected 28.4 gross gaming revenue, or an equivalent of 917 million daily table wins, down 3.6% from a year ago. Macau’s July numbers were clouded by the World Cup, say the government. Chinese are avid soccer fans. Macau names fell off in trading after the announcement, with Galaxy Entertainment losing 2.4%, while Wynn Resorts fell 1.8%. All eyes are now on August’s figures - A new point-of-sale malware known as Backoff has been linked to numerous remote-access attacks, putting small merchants at greatest risk, according to an alert from federal authorities. The alert from the Department of Homeland Security, the Secret Service and the Financial Services Information Sharing and Analysis Center notes that Backoff is a recently discovered family of POS malware that has now been identified in at least three separate forensic investigations – Italy’s biggest retail bank Intesa Sanpaolo has beaten forecasts reporting a Q2 net profit of €217m, as the bank moves along a new business path which highlights asset management. The bank said its operating result and pre-tax profit for the period was the best in the last nine quarters, with higher revenues from asset management offsetting the impact of one-off charges such as write-downs.

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Regulatory Update

Lessons from an Industry Titan: Jamie Dimon’s Testimony

Friday, 15 June 2012 Written by 
Lessons from an Industry Titan: Jamie Dimon’s Testimony This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are: http://www.ftseglobalmarkets.com/

This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are:

"[W]e are still reviewing the facts...”

Lesson: Never speak out publicly in a definitive way until you fully know the facts.  You will not fully know the facts for months.

"...I will explain everything I can to the extent possible."

Lesson: Even for Dimon, transparency matters.

"CIO's strategy...was poorly conceived and vetted.  The strategy was not carefully analyzed or subjected to rigorous stress testing.... CIO's traders did not have the requisite understanding of the risks they took.”

Lesson: Didn’t we learn this lesson in 2008? Back then we learned that some strategies had assumptions that seemed poorly founded in retrospect. This was particularly true about the behavior of the mortgage markets and their derivatives.  Guess the lesson is that most people never learn this lesson. Before a system or strategy is implemented, and periodically thereafter, management (including the board) should ask the probing questions. Make no assumptions on this score.

"Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO's trading personnel.”

Lesson: The press reported that the CIO’s then-current chief risk officer began to internally express his concerns about London office trading strategies last year. This past January, he was replaced as the head of risk by a former trader who, at least according to the press reports, had no prior risk management experience. This lesson relates to human nature: it's very hard to appreciate someone who has a different point of view. Watch out – he may be right.

"Risk Committee structures and processes in CIO were not as formal or robust as they should have been.”

Lesson: Assessments have to be substantive, robust, and “real”, and be tested and documented regularly as assumptions and/or reality changes. Structure, process and formality may not protect you from all losses, but they can provide a protective shield that will hopefully mitigate them. Be sure to build your protective shield. 

 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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