Obama’s Health-Care Overhaul Upheld by U.S. Supreme Court

 By Greg Stohr - Jun 28, 2012 5:19 PM GMT+0300

The U.S. Supreme Court upheld the core of President Barack Obama’s health-care overhaul, giving him an election-year triumph and preserving most of a law that would expand insurance to millions of people and transform an industry that makes up 18 percent of the nation’s economy.
The justices, voting 5-4, said Congress has the power to make Americans carry insurance or pay a penalty. That requirement is at the core of the law, which also forces insurers to cover people with pre-existing health conditions. The court limited the law’s extension of the Medicaid program for the poor by saying the federal government can’t threaten to withhold money from states that don’t fully comply.

The ruling frames the health-care issue for this year’s elections and is a victory of symbolism as well as substance for Obama. Chief Justice John Roberts, a Republican appointee, joined four Democratic-selected justices to give the president a majority on a law that has divided the country along ideological and partisan lines throughout his presidency.
Roberts, writing for the court, said Congress had the authority to impose the insurance requirement under its power to levy taxes.
“It is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income but choose to go without health insurance,” Roberts wrote.

Longest Arguments

The decision on the Patient Protection and Affordable Care Act is the climax to an epic legal fight that featured the longest courtroom arguments in 44 years, a record number of briefs and extraordinary public interest in a Supreme Court case. The case tested both the constitutional powers of Congress and the willingness of the Roberts court to overrule the other two branches of the federal government.
The dispute marked the first time the Supreme Court had considered a president’s defining legislative accomplishment in the middle of his re-election campaign. The Supreme Court hadn’t considered a law of comparable scope since the justices overturned part of the National Industrial Recovery Act in 1935 during President Franklin Roosevelt’s New Deal.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net
To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

Moody's tilts playing field towards safe haven banks

By Matt Scuffham and Sarah White

LONDON | Fri Jun 22, 2012 8:29am EDT

Credit: Reuters/Mike Segar/Files

 (Reuters) - Downgrades by ratings agency Moody's will make funding more expensive for banks that rely the most on capital markets, while reinforcing the competitive advantage of "safe haven" banks that can fund themselves from stable customer deposits.

Stock markets took Moody's announcement that it had downgraded 15 of the world's biggest banks in their stride, as the rating agency's lowering by up to three notches had been widely anticipated.
European bank shares rose just under 1 percent. But longer-term, the downgrades could have a lasting impact.
But over the medium term, the downgrades will reinforce a trend that has seen weaker banks punished for their risk taking, while stronger banks are rewarded for conservative funding models, ensuring lower costs and higher margins.
 
Not only will funding costs rise for the worst-rated banks, but trading partners are bound to ask for more collateral - and steer business to those perceived to be financially stronger.
"The new ratings landscape could provide a competitive edge for higher-rated firms," said analysts at Citigroup.
Moody's gave the highest ratings to HSBC, Royal Bank of Canada and JP Morgan, which it said had stronger buffers than peers.
All three are regarded as safe haven banks, funded by deposits from millions of retail customers and relying less than riskier banks on capital markets for short term financing.
Moody's gave the lowest credit ratings to banks that have been affected by problems with their risk management or whose capital buffers are not as strong as rivals.
Those include banks like Morgan Stanley with few retail deposits, as well as banks like Bank of America, Citigroup and Royal Bank of Scotland, which despite having big deposit bases have gotten into trouble by combining their retail business with riskier investment banking.
Moody's placed Barclays, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Societe Generale and UBS in a middle group of banks, which it said include firms that rely on unpredictable capital markets revenues to meet shareholder expectations.
For banks which rely heavily on markets for funding, the lower ratings make difficult conditions even worse, at a time when they are suffering because of the euro zone crisis and a global slowdown in growth.
"Markets tend to discriminate more between issuers at lower ratings - in terms of funding costs - particularly during times of stress," said Citigroup analysts.
The downgrades reflected a view on capital markets that was "something more structural and fundamental rather than what is just cyclical noise", Johannes Wassenberg, Moody's managing director of European banks, told Reuters.

"We tried to assess risk from capital markets... and the shock absorbers banks have," Wassenberg said.
Regulators have told investment banks to keep far higher capital buffers, making their business less profitable, while also taking a knife to some of their most lucrative businesses, such as trading for their own account.
The sector has been left with significant overcapacity, reports from consultancy firms have said, meaning the battle for the favors of clients can only intensify.


RISK MANAGEMENT
The ratings agency looked at the banks where exposures to capital markets were the most pronounced, picking firms by the share of revenue generated by fees from debt and equity advisory, trading revenues and trading inventories.
Analysts say banks that will be most affected by funding costs rising as a result of the downgrades are those that were most likely to have to put more collateral on the table.
"Most directly, there are contractual provisions in agreements that would require a firm to post additional collateral, or to replace itself as the counterparty to transactions," said analysts at Execution Noble.
Moody's said some of the lowest rated banks had undertaken considerable changes to their risk management models and were implementing business strategy changes intended to increase earnings from more stable activities such as retail banking. However, it said these transformations are ongoing and their success has yet to be tested.
Moody's said it had taken into account management action at firms like UBS, where it listed the bank's reduced ambition in investment banking as a positive factor.
The downgrades had been widely anticipated having been flagged by Moody's in February and the initial market reaction across Europe was muted.
Daiwa Capital Markets analyst Michael Symonds said the cuts could have been worse and the conclusion of the review removed an uncertainty from the market. However, he warned there could be more downgrades to come.

"The next round of downgrades may be just around the corner given the myriad challenges still weighing on the sector, including the far-from-resolved euro area crisis and imminent legislation on bail ins and resolution regimes," he said.

(Editing by Peter Graff)

California Hedge Fund Is Latest Europe Crisis Casualty

By Saijel Kishan - Jun 14, 2012 7:10 PM GMT+0300

Hedge-fund manager Paul Sinclair is the latest casualty of Europe’s sovereign-debt turmoil, almost six thousand miles away from the epicenter of the crisis.

Sinclair, who is based in Los Angeles, is liquidating his $458 million health-care equities fund, Expo Capital Management LLC, after more than five years, as political decisions made on the other side of the globe have undermined his stock picks and spurred losses for a second year.

People wait in line for bread outside the charity organization "Pane Quotidiano" ("Everyday Bread"), in Milan on June 14, 2012. Photographer: Luca Bruno/AP Photo 

 “I don’t have an edge on Greek elections, the Spanish banking system, what the European Central Bank, the International Monetary Fund, the Chinese government, Angela Merkel, or the U.S. Federal Reserve will do,” he said in a telephone interview yesterday.
Sinclair, 41, said that over the past year he’s found it increasingly difficult to make money because of the macroeconomic environment, and that investing in health care since 2004 has left him “physically and mentally exhausted.” He said he chose to return money to investors, which he plans to do by the end of the month, rather than hold cash and charge them fees.
Billionaire energy trader John Arnold, former Morgan Stanley co-president Zoe Cruz, and Duke Buchan III are among managers who have shuttered hedge funds in the past year as Europe’s sovereign-debt crisis has roiled global markets. The industry last month posted its biggest loss since September as stocks slumped on concern Greece may exit the euro and the global economy is weakening.

Supporters of the Greek socialist party Pasok with the party's flag and fireworks during the a pre-election rally in Athens on June 13, 2012. Photographer: Andreas Solaro/AFP/Getty Images

‘Tricky Markets’

“It’s a confluence of tricky markets, super-cautious investors and a tough fundraising environment that’s making it a difficult time for hedge-fund managers,” said Steven Nadel, a partner at New York-based law firm Seward & Kissel LLP, which advises hedge funds.
Sinclair said he has most of his liquid net worth invested in his fund and was no longer comfortable putting it at risk when markets are subject to the actions of policy makers globally.
He said he plans to spend the rest of the summer sleeping and relaxing and may take up a new hobby, according to a June 9 e-mail he sent to clients. Sinclair said he would continue to follow the health-care industry and is keen to see how it is shaped by a U.S. Supreme Court decision on President Barack Obama’s health law overhauls and the November presidential elections.
Returning client money “is an unusual move but fair and would be welcomed by investors,” said Graziano Lusenti, founder of Nyon, Switzerland-based Lusenti Partners, which advises clients on investing. “Most hedge funds would try to hold onto the money for as long as they can.”

Liquidations Rise

Liquidations in the hedge-fund industry rose to 775 last year, the most since 2009, according to Hedge Fund Research Inc., a Chicago-based research firm.
Fortress Investment Group LLC, based in New York, last month said it will liquidate its $500 million commodities fund run by William Callanan after losing almost 13 percent in the first four months of the year.
Arnold also said the same month that he plans to close Centaurus Energy Master Fund in Houston. Cruz, the former Morgan Stanley executive, is liquidating her $200 million hedge fund after losing 8 percent last year.
Buchan, a New York-based hedge-fund manager, cited the European debt crisis as one of the reasons behind the closing of his equity hedge fund Hunter Global Investors LP.
“Markets seem to be driven more by the latest news out of Europe than by a company’s earnings prospects,” he said in a Dec. 8 investor letter. “We have not weathered the ensuing volatility well.”

Moore Traders

At least three hedge funds run by former Moore Capital Management LLC traders have shuttered in the past seven months after losing client money. They are Salute Capital Management, run by Lev Mikheev, Avesta Capital Advisors LLC, founded by William Tung and Tim Leslie’s JCAM Global fund.
Sinclair’s Expo Health Sciences Fund lost about 6 percent this year through May, after falling 8.7 percent in 2011, the hedge fund’s first year of negative returns, he said in an e- mail. The fund has returned about 50 percent since its 2007 inception, net of fees.
Hedge funds slumped 2.9 percent in May and 1.3 percent this year, according to data compiled by Bloomberg. They lost 5.8 percent last year and a record 19 percent in 2008, the data show.

Market Correlation

The turmoil in the global markets has spurred stocks across industries to rise and fall in tandem. The relationship between price fluctuations for health-care stocks and the rest of the market has tightened. The 30-day correlation coefficient between the MSCI World Index and its members in that industry is 0.92, compared with the average since 1995 of 0.73, according to data compiled by Bloomberg. Readings of 1 mean prices are moving in lockstep.
Sinclair employed a seven-person team with offices in San Francisco. Before he started his hedge fund, Sinclair worked at Vantis Capital Management LLC, a hedge fund in Pasadena, California, where he managed a health sciences fund from about two years until the end of 2006, when the firm shut down. He was previously at Merrill Lynch & Co., within the bank’s health-care investment banking group, and before that at investment bank Donaldson Lufkin & Jenrette.
Sinclair received a masters of business administration from Stanford Graduate School of Business in 1999 and graduated with a bachelors degree in business economics from the University of California in 1994.


To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

BP, Progress Energy up as energy stocks retreat

By Steve Gelsi, MarketWatch

Reuters: Fire boat response crews battle the blazing remnants of the offshore oil rig Deepwater Horizon off Louisiana in this April 21, 2010 handout file photo. The federal government may seek $25 billion from BP.

NEW YORK (MarketWatch) — Sliding oil prices and a late-day sell-off in the broad equities market pushed down energy stocks on Monday, while Progress Energy and BP PLC held on to gains from earlier in the session.

Exxon Mobil Corp. gave up 0.7% while Chevron Corp. declined by 0.9%. The two oil majors are components of the Dow Jones Industrial Average, which fell 143 points.

Also setting a somber tone for energy stocks, crude oil futures dropped below $83 a barrel.   

Bucking the trend, U.S.-listed shares of BP PLC rose 0.5%.  Federal regulators are seeking a settlement of $15 billion to $25 billion from the oil major for the 2010 oil spill in the Gulf of Mexico from the ruptured Macondo well, according to report by the Financial Times over the weekend.

Analysts at Tudor Pickering Holt said the $25 billion figure is above what they have assumed BP’s liability would be under the Clean Water Act.

“It is encouraging that a dialogue with the U.S. government appears to be open/ongoing and removal of the threat of criminal prosecution would be helpful to BP shares,” analysts said.

Progress Energy rose 2.5%. The company said its purchase by Duke Energy is expected to close on time by July 1 after a favorable ruling from the Federal Energy Regulatory Commission. The federal regulatory body approved the deal with some conditions. Progress Energy said the ruling marked a “major milestone” for the merger.

Among the major benchmarks in the energy sector, the NYSE Arca Oil Index  dipped 1.1%, the NYSE Arca Natural Gas Index dropped 1.9% and the Philadelphia Oil Service Index dipped 1.9%.

Energy stocks in the S&P 500 fell 2%, on average, at the closing bell.

Weighing on the sector, Alpha Natural Resources moved down 9%; Newfield Exploration Co. lost 5.6% and Peabody Energy lost about 4.7%.

On the plus side, Scana Corp. rose 0.8%, Phillips 66 moved up by 1.5% and Valero Energy Corp. advanced by 2.7%. 

Steve Gelsi is a reporter for MarketWatch in New York.

Surging Spanish bond yields push Europe lower

Spain bond yields take out last autumn’s highs

 By Barbara Kollmeyer and Sara Sjolin, MarketWatch

LONDON (MarketWatch) — A sudden late-day surge in Spanish bond yields to all-time highs put sovereign fear and contagion risks back on center stage for the euro zone Tuesday, as Italian yields also climbed and stocks erased earlier gains.

The Stoxx Europe 600 index slipped 0.2% to 241.33, after trading as high as 243.29. 

Stocks changed direction in late action as the yield on 10-year Spanish government bonds surged to an all-time high, up 27 basis points to 6.80%, according to electronic trading platform Tradeweb.

The IBEX 35 index erased earlier gains and lost 1% to 6,451.40.

Spanish stocks on Monday led a volatile session with the main index shedding all of what at one point was a nearly 6% gain as investors expressed disappointment over a plan for the European Union to loan as much as €100 billion ($125 billion) to the troubled banking sector.

“This solution is still some way off,” analysts at Credit Suisse said in a note. “Spanish GDP could end up falling another 5% on account of fiscal tightening, private sector leveraging, bank deleveraging and falling wages. This will have a negative impact on the fiscal arithmetic and credit quality.” 

“We think Europe is only half way through resolving the crisis,” the analysts added. “In particular, we believe that we will need an ECB [European Central Bank] deposit guarantee or a €2 trillion 5-year LTRO [long-term refinancing operation]. 

Banks in Spain were also lower. Bankinter SA dropped 4.8%, Banco Popular Español SA lost 4.7% and Bankia SA fell 2.2%.

Italian banks were also lower: Banca Monte dei Paschi di Siena SpA lost 5.8%, Intesa Sanpaolo SpA gave up 4.7%, while UniCredit SpA dropped 5.2%. 

The FTSE MIB index slipped 2.1% to 12,803.45, as yields on 10-year Italian government bonds surged 16 basis points to 6.19%.

“Markets are concerned that it’s not clear how the intervention for Spain will be financed, so they are afraid there will not be anything left for Italy if it needs help,” McLean from SVM Asset Management said. “The pool of potential contributors to the rescue funds narrows each time a new country runs into problems and now Spain is asking for money. We’re left with Germany and to some extend France to contribute.”

“There’s belief that at some stage we’ll get a big intervention and the ECB will start printing money. There will be a recognition of the seriousness of the problems and that there’s a need for quantitative easing,” he added.

Movers

Defensives, such as food and beverage stocks, provided support for the main Stoxx 600. Nestle SA was up 0.9%.

Julius Baer Gruppe AG  rose 1.8%, after UBS lifted shares of the private bank to buy from neutral.

Amlin PLC rose 1.1% after the insurance and reinsurance group was upgraded to buy from hold at Deutsche Bank.

Among other indexes, the FTSE 100 index added 0.1% to 5,440.53, also helped by defensive stocks such as British American Tobacco PLC, 0.9% higher.

Miners such as BHP Billiton PLC  supported London, up 0.8%, while Anglo American PLC gained 1%.

Data for the U.K. showed the seasonally adjusted index of production stayed unchanged for April on a monthly basis, although the index dropped for a 14th consecutive month year on year.

The French CAC 40 index fell 0.4% to 3,029.96, with banks Credit Agricole SA  off 3.2% and Société Générale SA down 1%.

Cement maker Lafarge SA added 1.1% as it announced a plan to reduce costs by €1.3 billion over the 2012-2015 period.

The German DAX 30 index lost 0.3% to 6,121.5. It was led by 2.3% loss for Infineon Technologies and Commerzbank AG  down 1.8%.

E.ON AG rose 1.4% after the utility was upgraded to buy from neutral at UBS.

TomTom NV shares leapt 14% as the Dutch provider of navigation technology announced a mapping-data deal with Apple Inc. 

Barbara Kollmeyer is an editor for MarketWatch in Madrid. Sara Sjolin is a MarketWatch reporter, based in London.

Kenya's CFC Stanbic starts South Sudan operations

NAIROBI, June 12 (Reuters) - Kenya's CFC Stanbic Bank, the main business of Kenya-listed CFC Holdings, said on Tuesday it had started operations in South Sudan to tap into an increasingly attractive new market.
Ranked among the largest banks in the east African nation, CFC Stanbic is controlled by South Africa's Standard Bank through CFC Holdings, which also runs a financial services firm.
"Our entry into South Sudan is in line with our strategic plan to diversify into other markets in the region," Chris Newson, the chief executive officer for Standard Bank Africa, said in a statement.
South Sudan has become more attractive to banks seeking to expand regionally after it officially gained independence from Sudan in July 2011, and moved to rebuild a country ravaged by a two-decade war.
The country accounted for 42 percent of the 2.3 billion shillings ($27 million) profit that Kenyan banks made from their regional subsidiaries last year, the central bank said in an annual report.
CFC Stanbic becomes the third Kenyan bank to venture into the new African nation, after Kenya Commercial Bank, the biggest bank by assets, and Equity Bank, the Kenyan bank with the most customers.
CFC Stanbic has 20 outlets, all in Kenya. It also said it plans to raise funds for its expansion programme through a rights issue. ($1 = 84.7000 Kenyan shillings)

(Reporting by Kevin Mwanza; Editing by David Clarke and Hans-Juergen Peters)

Kenya leaves benchmark interest rate at 18 percent

Tue Jun 5, 2012 2:35pm GMT

                                     
NAIROBI (Reuters) - Kenya's central bank left its benchmark interest rate unchanged at 18 percent for a sixth month in a row on Tuesday, saying potential risks to inflation and the stability of the shilling remained.
Eight out of 10 analysts polled by Reuters had expected the bank's Monetary Policy Committee (MPC) to leave its Central Bank Rate on hold, while two called for a cut.
The central bank said there was still excess liquidity in the market, which also posed a risk to demand driven inflation pressure and exchange rate stability.
"Given the above considerations, the Committee observed that there is need to expand the monetary policy instruments in use to address both the inflationary pressures and exchange rate dynamics," the MPC said in statement.
"These instruments should help bring inflation towards the government short-term target of 9 percent, restore exchange rate stability, and address the threat posed by the excess liquidity in the market," it said.
"The Committee therefore decided to retain the Central Bank Rate at 18.0 percent while introducing longer tenor Term Auction Deposits as an additional instrument for liquidity management."