US Economy continues at a snails pace

The U.S. economy grew at the slowest pace in almost a year between April and June as consumers and businesses succumbed to a raft of worries about jobs, wages, Washington and Europe.

The Commerce Department reported that Gross Domestic Product expanded at a 1.5 percent annual rate in the second quarter, after rising at an upwardly revised 2.0 percent pace from January to March. Output for the fourth quarter was raised to a 4.1 percent rate from 3.0 percent.

Corporate bonds - go figure

Evoking the sympathy of absolutely no one, the world's financial companies are grappling with balance sheet strains, regulatory scrutiny, uncertainty over exposures to the eurozone crisis, rating downgrades and now, a Libor scandal. For industrial companies, on the other hand, the recent story has largely been one of strong balance sheets, high stockpiles of cash and revenue and earnings growth. Based on those widely different risk assessments, there has been a marked shift in the capital markets of late. Historically, industrial companies yielded about 100 basis points more than financials, a US Barclays index shows. Since 2008, however, it has been the reverse.

A rapid fall in the euro can save Spain

The possible breakup of the eurozone is now openly discussed by policy officials and financial executives. The interest rate on Spanish government debt has soared above 7 per cent, reflecting its lack of progress in reducing its fiscal deficit and those of Valencia and other regional governments. Greece is likely to fail its inspection by the "troika", bringing it closer to a eurozone exit by the autumn. Even Germany is under financial pressure because the Bundesbank has so much explicit and potential exposure to peripheral European countries.

Hubris is a Greek word. It should resonate in Spain, which is learning what it feels like to be Greece. When the eurozone sovereign debt crisis began, ministers in Madrid proudly affirmed that Spain was not Greece. Yet, in its first six months, Mariano Rajoy's government has had to pull out all the stops to avoid asking for a Greek-style sovereign bailout. It is not winning. Austerity measures imposed on a frail economy are too pro-cyclical, and the EU's relaxation of Spain's deficit target to 6.3 per cent of output this year brings little relief. Yet, seemingly the stronger Madrid's policy responses to Brussels' commands, the greater the disconnect with investors. The yield on Spain's 10-year bond remains around 7 per cent, and the spread over Bunds is at an all-time high.

Capital One $210mm fine

Capital One Financial agreed to pay $210 million to resolve charges by U.S. banking regulators that its call-center representatives misled consumers into paying for extra credit card products.

The enforcement action, announced on Wednesday, is the first by the Consumer Financial Protection Bureau, which said it unearthed the activities through an examination of the bank.

The CFPB was created by the 2010 Dodd-Frank financial reform law and is nearing its one-year anniversary.

The government said $150 million of the sanctions will go to reimburse affected customers, while the remaining penalty will be split between the Office of the Comptroller of the Currency, which fined the bank $35 million, and the CFPB, which will collect $25 million.

"We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," said CFPB Director Richard Cordray.

The regulators alleged that employees at call centers used by Capital One pressured and misled consumers into paying for "add-on products" such as payment protection and credit monitoring when they activated their credit cards.

In a briefing with reporters, Cordray said he anticipated actions against other banks over similar tactics but declined to name any targets.

"We know these deceptive tactics are not unique to a single institution ... weexpect announcements about other institutions as our ongoing work continues to unfold," Cordray said.

In a statement, the president of Capital One's credit card business, Ryan Schneider, apologized to customers who were affected and said the bank is committed to "making it right."

The charges come just months after Capital One battled concerns about its record on consumer issues to win approval from the Federal Reserve to buy ING Group NV's U.S. online banking unit.

That approval came in February after a series of hearings, in which civic groups accused the bank of improper lending practices.

On Wednesday the group that led the charge against the merger, the National Community Reinvestment Coalition, said it felt vindicated by the enforcement action.

"Though the merger was approved, it is clear that the scrutiny brought to bear from NCRC's objections has born results for consumers," said the group's president, John Taylor.

The CFPB said employees at call centers used by Capital One misled customers by saying these add-on products would improve their credit scores or falsely telling them that the products were free.

Capital One blamed the problem on vendors who did not adhere to the company's sales scripts and said the bank did not adequately monitor their activities.

"We are accountable for the actions that vendors take on our behalf," Capital One's Schneider said. "These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold."

McLean, Virginia-based Capital One gets over half of its revenue from credit cards and acquired access to about $80 billion in deposits and 7 million new customers from ING.

Eurozone Debate

There are eerie parallels between the euro debates in the UK in the late 1990s and in the northern eurozone today. Back then, the anti-euro campaigners in the UK highlighted the shortcomings in the construction of the eurozone - an analysis that turned out to be correct - and also correctly predicted the euro would require a political union to succeed in the long run. There was also emotional stuff about the Queen on banknotes. But it was an internally consistent position. I did not share that view but I recall admitting back then that if you do not accept political union, logically you should not accept the euro either. There was never a purely economic case for the currency.

Peregrine Financial Group Update

Peregrine Financial Group has filed for liquidation in a US bankruptcy court in Chicago, just one day after the chief executive of the futures trading house apparently attempted suicide.
The bankruptcy petition was signed by Russell Wasendorf Jr, chief operating officer and the son of Peregrine’s chief executive and founder. An accompanying statement said that Russell Wasendorf Sr gave his son power of attorney to act for him and on his behalf in the event of his incapacitation on July 3, just six days before police reported that he tried to take his own life.

Spain & Banking

I'm sorry, I haven't a clue. Spain's weakest banks look to be a step closer to receiving their promised EU bailout. Early on Tuesday morning eurozone finance ministers agreed the basics of a €30bn payment on account by the end of the month, of the €100bn approved last month. That should give Madrid wiggle room in case the funds are needed before bank stress tests can be completed in September. Even so, neither EU nor Spanish government officials yet have details of the likely structure of the payout.

Libor Update

Banks are under attack from all quarters. The manipulation of interbank offered rates - on the basis of which gigantic sums are lent and borrowed - has prompted a rabid response from politicians. Regulators and central bankers have joined in the hue and cry with free-ranging judgments about what is socially acceptable banking. Calls for "culture change" have echoed around London and beyond. Once again, smashing the banks into tiny and ostensibly safer pieces is the idea of the moment. Before politicians get the hammer out, however, they should take pause.

Reality Check Time

In descending order of understanding on the subject, regulators, the man on the street and politicians all want banks to shrink. Reality in Europe, however, is that banks should be cutting themselves down to size. Investment banking revenues are expected to be about 30 per cent lower in the second quarter than in the first, and down 15 per cent from a year ago. Some European banks have scale in enough areas to compete with big American rivals. Others need to be brutally honest about their strengths - with themselves and investors. If they are not in the top three in, say, fixed income, currencies and commodities, they should quit and stick to what they do best.

Eurozone & US Outlook

If the eurozone did not exist, the world would be focused on the US recovery issues. The US is not on the brink of a potential downward spiral - at least not until Washington arrives at its self-imposed "fiscal cliff" later this year. But, by any measure, the US is in the middle of a partially self-inflicted growth crisis.  So all eyes will once again be turning to the Federal Reserve for answers.

Manufacturing Slow Down

US manufacturers are set to report their slowest growth in earnings since 2009, hit by the European crisis and a slowdown in emerging economies. Analysts are forecasting that industrial companies will fall well short of last year's growth rates reported in the first quarter of 2012 despite being the fastest-growing sector in the US for second-quarter earnings.

Train Bankers like Athletes

What happens on a trading floor when an important piece of news flashes across the wire? At that very instant, traders' senses are placed on high alert, allowing them to hear the faintest noise, see the slightest movement. Their world morphs from an impressionistic background into a scene of hyperrealism. Breathing accelerates, muscles tense, stomachs knot, and they feel the thump, thump of a heart gearing up for action. Their reaction, in fact, is just like that of an Olympic athlete preparing for a big race.

June Jobs Data

The US economy added 80,000 jobs in June, disappointing hopes of an acceleration in payroll formation. The lower-than-expected figure points to a continuation of the slowdown in the world's biggest economy seen in recent months amid eurozone turmoil. The unemployment rate was unchanged at 8.2 per cent.

The fight against crony capitalism

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary."

Asian Stocks

Asian stocks rose Wednesday on growing hopes for fresh stimulus measures from central banks to support the slowing global economy, amid expectations the European Central Bank will cut interest rates to a record low this week.

Bank update

Nine of the world's largest banks doing business in the US have told regulators how they should be broken up in the event that one of them nears failure.

JP Morgan in the middle of energy probe

The US electricity regulator has subpoenaed JPMorgan Chase twice in the past three months as it investigates whether the bank manipulated power markets in California and the Midwest region, court filings show.

The filings mark the first time the Federal Energy Regulatory Commission has revealed its formal probe into JPMorgan bidding practices, which it says may have inflated electricity costs by at least $73m. 

Healthcare Debate

I actually agree with the majority of the previsions within Obamacare.  It's how we are paying for it that is a concern.  Our debt is mounting at nightmare proportions.  As long as interest rates remain low the government can continue to borrow nearly 40% of every dollar used to run the government on a daily basis.  However, when those rates begin to increase (and they will) how does washington propose to make the minimum interest payments due?  One word TAX!

Chief justice John Roberts, who wrote the courts ruling said:  "The only effect of the individual mandate is to raise taxes on those who do not do so, and thus the law may be upheld as a tax"

This will also increase insurance cost for everyone regardless of qualification.  There must be a better way!

Everbank Purchase

General Electric, the US industrial group, has sold a commercial property lending business to Florida-based EverBank for $2.51bn, as it continues the reshaping of its GE Capital finance arm.

US corporate defaults nearly double

More missed payments by US corporations helped to nearly double the total amount of global corporate defaults this year amid signs of an economic slowdown and higher market volatility.

Global defaults have risen to 39 so far this year versus 21 in the same period a year ago with plastics maker Kloeckner Holdings and media company Central European Media Enterprises the latest to default, according to Standard & Poor’s.

Big Week Ahead

A week packed with important data releases and central bank meetings ends on Friday with US non-farm payrolls.

The May payrolls report published last month was the latest in a series of disappointments. It showed that a paltry 69,000 jobs were created in the US during the month, undershooting expectations by a wide margin. Furthermore, the unemployment rate rose to 8.2 per cent from 8.1 in the previous month.