European leaders were expected to focus on near-term measures aimed at bringing down Spanish and Italian borrowing costs as they began a two-day summit meeting this week. Meantime, the Bank of International Settlements (BIS) warned in its annual report published Sunday that central banks’ failure to appreciate the the limits of monetary policy can lead to the lenders being overburdened, with potentially serious adverse consequences.

Conversation Starter

Treasury Department Announces $204 Million In Proceeds From Pricing of Public Offerings of Preferred Stock in Seven Financial Institutions
6/28/2012
​ WASHINGTON – As part of the strategy it outlined last month for winding down its remaining Troubled Asset Relief Program (TARP) bank investments, the U.S. Department of the Treasury announced that it priced secondary public offerings of the preferred stock it holds in the following seven financial institutions at the following prices per share:

Fidelity Southern Corporation (Atlanta, GA), all of its 48,200 shares at $900.60 per share (approximately $43 million net proceeds);
Firstbank Corporation (Alma, MI), all of its 33,000 shares at $941.01 per share (approximately $31 million net proceeds);
First Citizens Banc Corp (Sandusky, OH), all of its 23,184 shares at $906.00 per share (approximately $21 million net proceeds);
MetroCorp Bancshares, Inc. (Houston, TX), all of its 45,000 shares at $981.17 per share (approximately $43 million net proceeds);
Peoples Bancorp of North Carolina, Inc. (Newton, NC), all of its 25,054 shares at $933.36 per share (approximately $23 million net proceeds);
Pulaski Financial Corp. (St. Louis, MO), all of its 32,538 shares at $888.00 per share (approximately $28 million net proceeds); and
Southern First Bancshares, Inc. (Greenville, SC), all of its 17,299 shares at $904.00 per share (approximately $15 million net proceeds).

The aggregate net proceeds to Treasury from the seven offerings are expected to be approximately $204 million, which was an overall total of 11 percent above the minimum prices set for the auctions. The prices above reflect a liquidation amount per share of $1,000 for the preferred stock of each institution.  At settlement, winning bidders will be required to pay the clearing price for the preferred stock plus accrued and unpaid dividends on the preferred stock from and including May 15, 2012.

TARP’s bank programs have already earned a significant profit for taxpayers. Including the expected proceeds from the transactions announced today, Treasury has recovered $264 billion from TARP’s bank programs to date through repayments, dividends, interest, and other income – a $19 billion positive return compared to the $245 billion initially invested. Each additional dollar recovered from TARP’s bank programs is an additional dollar of profit for taxpayers.

These auctions are part of the strategy that Treasury outlined last month for winding down its remaining TARP bank investments in a way that protects taxpayer interests, promotes financial stability, and preserves the strength of our nation’s community banks. Treasury indicated that it intends to use a combination of repayments, restructurings, and sales to manage and recover those remaining investments. As described in the announcement, sales would include auctions of individual investments, as well as potentially combining individual investments together into auction pools.

In the coming weeks, Treasury intends to announce additional individual auctions of its CPP preferred stock investments. The next set of individual auctions is expected to be conducted in late July and include CPP investments in privately held financial institutions. Beginning in the
fall of 2012, Treasury also expects to conduct the first in a series of pooled auctions of CPP preferred stock.

“We again saw strong demand in these auctions, which brought in new private capital to help community banks replace temporary government support,” said Timothy G. Massad, Assistant Secretary for Financial Stability. “Moving forward, we believe that the strategy we’ve outlined for winding down these investments will help support our nation’s community banks and provide an additional positive return for taxpayers on TARP’s bank programs.”

The closing is expected to occur on or about July 3, 2012, subject to customary closing conditions.  The offering was priced through a modified Dutch auction.  Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) and Sandler O’Neill + Partners, L.P. (“Sandler O’Neill”) were the auction agents and joint bookrunning managers for the offerings.  Houlihan Lokey Capital, Inc. is serving as financial advisor to Treasury with respect to the management and disposition of its Capital Purchase Program investments.

Each series of preferred stock is being sold pursuant to an effective shelf registration statement previously filed by the applicable issuer with the Securities and Exchange Commission (the “SEC”). Preliminary prospectus supplements related to each offering were filed with the SEC on June 25, 2012, and a final prospectus supplement related to each offering will be filed by the applicable issuer with the SEC and will be available on the SEC’s website at http://www.sec.gov.

Lead Stories

EU Summit Focuses On Short-Term Fix
MarketWatch
FRANKFURT (MarketWatch) — European leaders were expected to focus on near-term measures aimed at bringing down Spanish and Italian borrowing costs as they began a two-day summit meeting Thursday.
http://jlne.ws/OA27X1

Failure To Recognize Monetary Policy Limits Can Overburden Central Banks: BIS
Central banks’ failure to appreciate the the limits of monetary policy can lead to the lenders being overburdened, with potentially serious adverse consequences, the Bank of International Settlements (BIS) warned in its annual report published Sunday.
http://jlne.ws/NRCZtG

Congressional panel clears way for Fed audit bill
Reuters via Yahoo! News
WASHINGTON – A U.S. House of Representatives panel on Wednesday approved a measure that would allow an audit of the Federal Reserve’s monetary policy decisions, a level of scrutiny the central bank says would compromise its independence.
http://jlne.ws/NRzCD8

Barclays Settles Interest-Rate Probe
Nasdaq
http://jlne.ws/L49mXA

Barclays Settles Claims For $453M In Interest Rate Scandal
International Business Times
Barclays Plc agreed Wednesday to pay $453 million in fines to settle claims made by U.S. and UK. bank regulators and law enforcement agencies for the bank’s alleged involvement in a scheme to manipulate two global benchmark interest rates.
http://jlne.ws/L49wOC

Record fine on Barclays renews bank debate
McClatchy Washington Bureau
The announcement Wednesday by U.S. and British regulators of $450 million in penalties against Britain?s giant bank Barclays PLC for attempted manipulation of interest rates affecting U.S. consumers reignited debate.
http://jlne.ws/MYcs9t

A Rate-Setting Mechanism of Far-Reaching Effects
By PETER EAVIS – NY Times
Libor is used to determine the rate on an array of financial products, including home loans.Daniel Acker/Bloomberg NewsLibor is used to determine the rate on an array of financial products, including home loans. A multiyear, global investigation into the setting of interest rates has focused on often complex trades in the financial centers of New York, London and Tokyo. But the accusations in the case have real-life consequences for consumers and businesses in the United States.
http://jlne.ws/LFc8Cm

Fed sees lower economic growth for 2012
Denver Post
WASHINGTON—The Federal Reserve has sharply lowered its outlook for U.S. economic growth and thinks the unemployment rate won’t fall much further this year.
http://jlne.ws/Msvxpv

Economix Blog: Simon Johnson: Three More Governance Questions for the Federal Reserve
New York Times
The Federal Reserve needs to make clear how it is applying rules meant to avoid any question of conflicts of interest among board members at its regional banks, particularly the New York Fed, an economist writes.
http://jlne.ws/LwhrOm

Barclays Shows Need for CFTC, SEC Funds, Wolin Says
Bloomberg
The Barclays Plc settlements on interbank rates shows the need for the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission to be “appropriately funded,” the Treasury Department’s No. 2 official said.
http://jlne.ws/LFc99E

‘Strings attached’ to Spain bank aid
AFP via Yahoo! News
A bailout of Spain’s banks comes with strings attached and Madrid’s efforts to cut its deficit must be monitored closely, a top European Central Bank official said on Thursday.
http://jlne.ws/MCZaDt

Spain’s central bank says economy weaker in Q2
Associated Press via Yahoo! News
The central bank says Spain’s recession-stricken economy has slumped further in the second quarter and will likely post a sharper contraction than the 0.3 percent of the first three months.
http://jlne.ws/OymGDp

IMF chief says it is ready to help Cyprus
KING5 Seattle
WASHINGTON — The head of the International Monetary Fund says Cyprus has asked the fund to participate in the financial aid package it plans to ask the European Union to organize to help the Mediterranean island’s ailing economy.
http://jlne.ws/ODikvO

Former World Bank exec to head NZ’s central bank
Associated Press via Yahoo! News
Former World Bank executive Graeme Wheeler has been named as the next head of New Zealand’s central bank.
http://jlne.ws/MDKIIJ

Federal student loans could double Sunday without deal
KING5 Seattle
Congressional bargainers appeared to be closing in on a compromise that would head off a July 1 doubling of interest rates on federal loans to 7.4 million college students and end an election-year battle between President Barack Obama and Congress.
http://jlne.ws/MYeAxV

Moody’s downgrades 11 Brazilian banks
Reuters
Moody’s Investors Service said it had downgraded the ratings of 11 Brazilian financial institutions in line with its review of global banks.
http://jlne.ws/LFcg4W

FASB Publishes Proposal for Disclosing Liquidity and Interest Rate Risk
Business Wire via Yahoo! Finance
The Financial Accounting Standards Board today issued for public comment a proposed Accounting Standards Update intended to improve financial reporting about certain risks inherent in financial instruments and how they contribute to the reporting organization’s broader risks.
http://jlne.ws/LFcc54

Vatican bank starts headhunting for new chief
Reuters via Yahoo! News
The board of the Vatican bank met on Wednesday to start the hunt for a new president to replace Ettore Gotti Tedeschi, who was unceremoniously ousted last month.
http://jlne.ws/LFcetT

European Chiefs Put Bond Buying on Table as Crisis Summit Opens
Bloomberg
European Union leaders focused on immediate help for Spain and Italy at the start of a two-day summit intended to chart a path out of their financial crisis. The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.
http://jlne.ws/MVDDFg

Breaking Up Big Banks Hard to Do as Market Forces Fail
Bloomberg
Seventeen years ago fund manager Michael F. Price spurred the merger of Chase Manhattan Corp. and Chemical Banking Corp., creating what was then the biggest U.S. bank and laying the foundation for JPMorgan Chase & Co.
http://jlne.ws/NMiGh5

New QE would likely hit CD rates
Bankrate.com
CD rates could suffer if the Fed takes further action to boost the economy. In addition to an extension of its “Operation Twist” program, Federal Reserve Chairman Ben Bernanke hinted that the central bank could launch another round of quantitative easing if economic indicators don’t improve.
http://jlne.ws/NGa7RH

Events

Bond China Congress
September 4-5, 2012, Shanghai, China
http://jlne.ws/KXsmS0

CTA Expo Chicago
September 13, 2012
http://jlne.ws/LmhfFu

Economic News

U.S. consumer spending, exports cloud growth outlook
Reuters
U.S. consumer spending and export growth were not as robust as previously believed in the first quarter, suggesting less momentum in the economy.
http://jlne.ws/LTcnGh

Exchanges, Clearing Houses & MTFs

Nasdaq OMX Unveils European Derivatives Ambition
Nasdaq OMX Group Inc. (NDAQ) on Thursday announced plans to break into the European interest-rate futures market, the latest effort to challenge a near-duopoly that attracted the attention of competition regulators and sank a high-profile merger plan.
http://jlne.ws/MYbYAb

Firms & Banks

TriOptima captures 90% of collateralized OTC derivatives on triResolve as ISDA reports daily reconciliation of OTC portfolios grows for both large and small firms
Press Release
June 28, 2012 – TriOptima announced that its counterparty exposure management service, triResolve, regularly reconciles 6.3 million OTC derivative trades representing 90% of the collateralized OTC derivatives market. In its recently-published ISDA Margin Survey 2012, respondents indicated that daily reconciliations increased from 31% to 47% for all firms, and from 61% to 71% for large firms primarily due to adoption of the triResolve service.

PIMCO Hires Three Senior Alternatives Investment Professionals as Part of Continued Expansion of Firm’s Alternatives
Marketwire via Yahoo! Finance
NEWPORT BEACH, CA– – PIMCO, a leading global investment management firm, has hired three senior investment professionals as the firm continues to expand its alternatives platform.
http://jlne.ws/ODgXNK

Goldman Starts New Bond Trading Platform
Dow Jones
Goldman Sachs Group Inc. recently started trading corporate bonds on a new electronic platform designed to bring investors together to trade at specific times, as the New York securities firm looks to respond to a growing threat from rival trading venues that could woo customers away.
http://jlne.ws/LFcglq

Don’t Hold Your Breath, Big Banks Will Not Be Broken Up
Forbes
The latest defense of the universal bank model comes from Morgan Stanley CEO James Gorman who says “we need to just calm down” about bank breakups.
http://jlne.ws/LFceds

Regulators

Federal Reserve likely will have to do more for the economy: Fed’s Evans
Market Watch
WASHINGTON (MarketWatch) – The Federal Reserve is likely to have to take further easing steps to boost the economy, said Charles Evans, the president of the Chicago Federal Reserve, on Wednesday. “At some point, we are likely to need to do more,” Evans said in an interview with reporters. Evans, a leading dove on the central bank, wants the Fed to tell the market that it would keep interest rates near zero as long as unemployment remains above 7%, and as long as inflation does not threaten to rise above 3%.
http://jlne.ws/LFPudg

Fed’s Lockhart: not time for the bigger guns yet
Reuters via Yahoo! News
WASHINGTON – The Federal Reserve would only likely launch another full-on round of bond buying if the economy took a turn for the worse or if Europe’s problems flared out of control, a top policymaker said on Wednesday. “I don’t think the conditions have developed that require us to bring out bigger guns quite yet,” Atlanta Fed President Dennis Lockhart said in an interview
http://jlne.ws/MYhrc1

Fed’s “Operation Twist” has only minor effects: Fisher
Reuters via Yahoo! News
CHICAGO – The Federal Reserve’s recent move to push down borrowing costs by replacing its short-term securities holdings with longer-term ones is doing more harm than good, a top Fed official who opposed the action said on Tuesday.
http://jlne.ws/Lwj1Qj

Global News

Singapore c.bank to open China rep office
Reuters via Yahoo! Finance
The Monetary Authority of Singapore will set up a representative office in China, becoming the seventh foreign central bank to have a presence in the world’s No. 2 economy, the People’s Bank of China said on Wednesday.
http://jlne.ws/LFchpA

Sweden FSA Proposes Liquidity Rules for Banks
Dow Jones
Sweden’s Financial Supervisory Authority Thursday proposed new requirements for the amount of liquid assets banks should hold to make them more resilient to short periods of financial stress and any lack of market funding.
http://jlne.ws/LFc9pV

Kenya shilling expected to get central bank support
Reuters via Yahoo! News
NAIROBI – The Kenyan shilling held steady against the dollar on Thursday and traders said they expected the central bank to mop up liquidity during the session, supporting the currency.

Hungary central bank holds rates; aid deal awaited
Reuters via Yahoo! News
BUDAPEST – Hungary’s central bank held interest rates unchanged for the sixth month running on Tuesday, shoring up the forint with the EU’s highest borrowing costs as the country pursues efforts to secure an international funding backstop.
http://jlne.ws/NRE2JZ

Italy employers slash GDP outlook in “abyss”
Reuters via Yahoo! News
ROME – Italy has fallen into an economic “abyss”, employers’ lobby Confindustria said on Thursday, slashing its growth outlook for the euro zone’s third largest economy and projecting big overshoots of its deficit targets.
http://jlne.ws/LiUi3w

Czech Central Bank Cuts Rates to Record Low on Recession
Bloomberg
The Czech central bank cut its main interest rate to a record low, the first change in two years, after faltering domestic demand sparked an economic recession and the government’s borrowing costs sank to the lowest ever.
http://jlne.ws/ODiwvj

Brazil Rate Futures Yields Fall to Record on Europe Debt Turmoil
Bloomberg
Yields on Brazilian interest-rate futures contracts fell to a record low on concern growth in Latin America’s largest economy will stall as European leaders struggle to contain sovereign-debt turmoil.
http://jlne.ws/L49hDb

O’Donnell Says He’s Adding to Bank Knowledge as He Mulls BOE Job
Bloomberg
Gus O’Donnell, the former head of the U.K. civil service, said he’s using his new job to learn about banks and financial regulation as he considers whether to apply to replace Mervyn King as Bank of England governor.
http://jlne.ws/LFcedf