Asian Shares Fall Before FOMC, German Court Ruling

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Asian markets fell in cautious trading Tuesday ahead of the U.S. Federal Reserve's two-day policy meeting and a critical German Constitutional Court ruling, both due later this week.

"Most investors may prefer to take a wait-and-see approach ahead of the German Constitutional Court's decision on the eurozone's bailout fund, the launch of the new iPhone, and the (Federal Open Market Committee) meeting later this week," said Benson Huang, analyst at Horizon Securities in Taiwan.

Now that the European Central Bank has unveiled its bond-buying plan to address Europe's ongoing debt crisis, focus has shifted to the Fed. There are growing expectations in the market that Fed Chairman Ben Bernanke will introduce new stimulus measures when the central bank meets on Wednesday and Thursday.

Last week's softer-than-expected U.S. nonfarm payrolls data increased hopes that some easing measures will be launched this week, though there are also fears that if the Fed disappoints, there could be a larger pullback in the market.

The other major risk event that investors are preparing for is Wednesday's ruling by the German Constitutional Court over the legality of participating in Europe's permanent bailout fund, the European Stability Mechanism.

The yen remained stubbornly strong against the U.S. dollar, firming further to Y78.19 early Tuesday, adding pressure to Japan's Nikkei, which was down 0.9%. Technology stocks led the market lower, influenced by Monday's selloff in Intel after the U.S. chipmaker Friday made a downward revision to its third quarter revenue outlook. Local manufacturers of semiconductors were among Tuesday's losers: Tokyo Electron lost 1.1% and Toshiba dropped 0.8%.

Panasonic fell 2.0% in Tokyo after ratings agency Moody's Investors Services downgraded the electronics company's credit rating by two notches to Baa1.

South Korea's Kospi was down 0.4%, as investors awaited the Bank of Korea's rate decision due later this week. Chipmaker SK Hynix lost 1.6%.

In Australia, the S&P ASX 200 was down 0.2%, shrugging off a 6.7% rise in spot iron ore prices overnight. Fortescue Metals Group dropped 1.6% and Rio Tinto shed 0.4%.
http://online.wsj.com/article/BT-CO-20120910-714538.html

BTG’s Esteves Drives ‘Better Than Goldman’ Rise in Bank’s Clout
As UBS AG’s losses from subprime- mortgage bets swelled in early 2008, Andre Esteves, already a billionaire as he neared 40, approached his 150-year-old employer with a deal.The Rio de Janeiro native would supply UBS with much-needed capital two years after the Swiss giant had paid him and his partners $3.1 billion for their Brazilian investment bank. In return, Esteves sought a controlling stake, people familiar with the plans say. UBS’s board rejected the proposal, and Esteves soon quit as global head of fixed income.Enlarge imageAndre Esteves, chief executive officer of Grupo BTG Pactual, jokes that his bank's initials stand for `Better Than Goldman.' Photographer: Gabriel Rinaldi/ Bloomberg Markets via BloombergWith UBS’s cash crunch deepening in 2009, Esteves and some former partners offered $2.5 billion to repurchase their firm. This time, UBS accepted. Since then, Esteves, 44, has fashioned what’s now Grupo BTG Pactual into a regional power to challenge weakened global rivals and still-sturdy local institutions, Bloomberg Markets magazine reports in its October special issue on the 50 Most Influential people in global finance.With his bank No. 1 in Brazilian equity underwriting, Esteves jokes that BTG -- officially Banking and Trading Group - - stands for Better Than Goldman.Esteves is leading a shift from a Wall Street-dominated universe as he amasses clout in the largest emerging economy after China. Aiding him is what he calls global finance’s worst moment: misbehavior ranging from JPMorgan Chase & Co. (JPM)’s multibillion-dollar derivatives loss to the rigging by Barclays Plc and other firms of the London interbank offered rate.

‘Courage and Guts’

http://www.bloomberg.com/news/2012-09-11/btg-s-esteves-drives-better-than-goldman-rise-in-bank-s-clout.html

Big Banks Hide Risk Transforming Collateral for Traders

JPMorgan Chase & Co. (JPM) and Bank of America Corp. are helping clients find an extra $2.6 trillion to back derivatives trades amid signs that a shortage of quality collateral will erode efforts to safeguard the financial system.Starting next year, new rules designed to prevent another meltdown will force traders to post U.S. Treasury bonds or other top-rated holdings to guarantee more of their bets. The change takes effect as the $10.8 trillion market for Treasuries is already stretched thin by banks rebuilding balance sheets and investors seeking safety, leaving fewer bonds available to backstop the $648 trillion derivatives market.Enlarge imageA man sweeps the sidewalk outside the JP Morgan Chase Inc. headquarters in New York. Photographer: Peter Foley/BloombergThe solution: At least seven banks plan to let customers swap lower-rated securities that don’t meet standards in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” That’s raising concerns among investors, bank executives and academics that measures intended to avert risk are hiding it instead.“The dealers look after their own interests, and they won’t necessarily look after the systemic risks that are associated with this,” said Darrell Duffie, a finance professor at Stanford University who has studied the derivatives and securities-lending markets. “Regulators are probably going to become aware of it once the practice gets big enough.”Adding to the concern is the reaction of central clearinghouses, which collect from losers on derivatives trades and pay off winners. Some have responded to the collateral shortage by lowering standards, with the Chicago Mercantile Exchange accepting bonds rated four levels above junk.

Transformation Fees

The potential reward for revenue-starved banks is an expanded securities-lending market that could generate billions of dollars in fees. JPMorgan and Bank of America, which have thebiggest derivatives businesses among U.S. bank holding companies with a combined $140 trillion of the instruments, are already marketing their new collateral-transformation desks, people with knowledge of the operations said.The list also includes Bank of New York Mellon Corp., Barclays Plc (BARC), Deutsche Bank AG (DBK), Goldman Sachs Group Inc. (GS) and State Street Corp. (STT), said the people, who asked not to be identified because they weren’t authorized to speak publicly.Derivatives allow buyers to bet on the direction of currencies, interest rates and markets to protect their holdings, insure against defaults on bonds or lock in a price on commodities. More than 90 percent of the trades are privately negotiated, according to the Bank for International Settlements. That exempts them from the rules of futures exchanges, which require an initial collateral posting as a good-faith deposit to ensure bets are covered. Traders have to post more collateral, usually in cash, when positions move against them.

Central Clearinghouses

http://www.bloomberg.com/news/2012-09-10/big-banks-hide-risk-transforming-collateral-for-traders.html