Citigroup must pay investor $1.4 million for fund loss: panel

NEW YORK, Wed Sep 12, 2012 – A Citigroup Inc. unit must pay more than $1.4 million to an investor for losses tied to a municipal bond that was marketed as “safe,” but was steeped in risky derivative securities, according to an arbitration ruling.

Margaret Hill of New York City had requested more than $3.5 million in damages for losses stemming from Citi’s Rochester Municipal Fund, according to a Financial Industry Regulatory Authority arbitration award. She filed the case in 2011, alleging that Citigroup Global Markets Inc sold her unsuitable investments and misrepresented facts, among other things, according to the ruling, dated Sept. 5.

Hill initially owned individual municipal bond funds, but bought the Rochester Fund in 2007 after Citigroup recommended it as a “safe” alternative to her funds that would pay slightly more interest, according to Hill’s lawyer, Steven Caruso of Maddox, Hargett & Caruso, P.C. in New York. Instead, the fund consisted mainly of risky derivative securities and tobacco bonds, Caruso said.

The value of derivative securities depends on the performance of underlying assets which can wildly fluctuate. Hill lost $2.9 million when she sold the funds in 2009.

The case highlights questionable sales practices that can affect a range of investors. Wealthy investors, in particular, are often asked to defend their investment choices by brokerage lawyers in arbitration cases, said Caruso, because of a false assumption that they must have a deeper understanding of what they are buying than an average investor. Wall Street often mistakenly equates wealth with financial know-how, Caruso said.

A Citigroup spokeswoman was not immediately available for com

John Paulson’s returns falter again; investors fret

BOSTON, Thu Jun 28, 2012 – Billionaire trader John Paulson has told his wealthy investors that he has learned from his mistakes of 2011, which produced enormous losses for his closely watched hedge fund.

The founder and manager of Paulson & Co, who made his fortune and fame by betting against the subprime mortgage market, went so far as to tell investors in January that last year’s big losses, including a 50 percent decline in his popular Advantage Plus fund, were an “aberration.”

But as the months tick on, many investors are still waiting to see the dramatic turnaround Paulson has vowed to deliver.

Halfway through 2012, Advantage Plus is down again, losing 10 percent through May. Another big portfolio that bets on gold – once a bright spot for Paulson – was also in the red. In both cases, he blamed losses in gold stocks for the declines.

This has taken a huge bite out of the firm’s assets, which have fallen to $22 billion from $38 billion early last year, according to investors. Redemptions were substantial, but poor performance accounted for the bulk of the drop, they said.

While Paulson still has loyal clients, some U.S. public pension funds and Wall Street firms that are invested with him have expressed their growing unease.

There are few signs of a quick comeback for the 56-year-old trader, who fumbled in 2012 by missing out on a big first-quarter rally in U.S. financial stocks. Last year, a Paulson fund got pounded by being too bullish on banks. He cut some of those losing positions – most notably by exiting Bank of America Corp in late 2011, just before the rebound.

Adding more pressure are some rare defections as two of his top lieutenants – Robert Lacoursiere, a former partner, and banking analyst James Fotheringham – left in March to start their own fund, Petrarca Capital.

“It is fair to say that he is having a difficult year,” said Steve Yoakum, executive director of the $30 billion Missouri Public Employee Retirement System, which is invested with him.

New Mexico, which stuck by Paulson through last year’s growing losses, pulled its $40 million investment in the first quarter.

JPMorgan Chase CEO to appear before Senate panel

WASHINGTON, Thu May 31, 2012 – JPMorgan Chase and Co. CEO Jamie Dimon will testify before the U.S. Senate Banking Committee on June 13 to discuss the bank’s recent trading losses, the committee said on Thursday.

The committee had previously asked Dimon to appear on June 7.

“June 13 is the only date in June that works for both the Senate Banking Committee and Mr. Dimon,” the committee said in a statement.

Earlier this month, JPMorgan said it had suffered at least $2 billion in losses from a set of trades that the bank said were meant to hedge risk, but that some analysts and critics say look more like speculation.

Regulators are examining what led to the losses before making any decisions about whether JPMorgan and other large banks will have to take steps to scale back the risk taking that led to the losses.

The losses have also added renewed vigor to the debate in Washington over how tough regulators should be when implementing the 2010 Dodd-Frank financial oversight law, passed in response to the 2007-2009 financial crisis.

A particular focus has been the so-called Volcker rule, which puts restrictions on bank trading activities.

A proposed rule was released in October, and a final version is due in July, although it may be delayed by a few months.

Supporters of the Volcker rule want regulators to tighten a provision in the October proposal that allows some trades to escape a ban on proprietary trading if they are done to hedge risk. They say the current proposal is too lax and would not have prevented the type of risk-taking that led to the JPMorgan losses.

GM CEO sees European losses continuing for 1-2 years

SAN FRANCISCO – Thu Mar 8: General Motors Co. chief executive Dan Akerson said it may be two years before its European division is back in profit as the continent sheds over-capacity the same way the U.S. industry had to over the past half decade.

The world’s largest automaker has lost money in Europe for the last 12 years.

“I think it’ll be a good year or two before we can achieve profitability in Europe again,” Akerson said at an on-stage interview conducted in San Francisco on Wednesday night.

European sales had been recovering before the continent became gripped by fears of debt defaults in the middle of last year, Akerson said at the Commonwealth Club of California, a non-profit public affairs forum.

“People stopped buying. I can see it every day in the sales reports,” said Akerson, who was born in California and studied at the London School of Economics.

Industry-wide, Akerson believed there were between seven and 10 excess car plants in Europe and other executives estimate there is 20 percent over-capacity there.

He emphasized that a deal with France’s PSA Peugeot Citroen announced last week was merely an alliance and that each carmaker had its own problems to solve.

GM announced last week that it would halt production of the Chevy Volt plug-in electric car for five weeks and temporarily lay off 1,300 U.S. workers.

But Akerson, arguing that a two-week production shutdown last year for its popular Cruze compact car did not generate as much concern, dismissed the worries surrounding the Volt as political.

“Sometimes I feel bad for President Obama,” Akerson told reporters, saying the Volt was in the works long before Obama’s election, yet it was seen as his car due to the government’s 27 percent stake in GM after its bailout. “It’s not the Obama car.”

Akerson had said earlier that, while it was not up to him, his ideal outcome would be for the government to, for example, sell off the stake steadily over 10 quarters because he believed uncertainty about it was weighing on GM’s share price.

Obama’s re-election campaign often touts the auto sector bailout as one of the Democrat’s major accomplishments as president, seeking to draw a contrast with Republican White House contender Mitt Romney, who opposed it.

AIG CEO defends company amid huge losses of more than $4 billion

NEW YORK ­ ―AIG suffered a perfect storm of natural disasters and adverse market conditions in the third quarter, its chief executive officer said on Friday, the day after the company posted a net loss of more than $4 billion.

On a conference call with analysts, CEO Bob Benmosche defended the bailed-out insurer, saying its liquidity was strong and that it had ample resources available to continue repaying the U.S. government for its 2008 rescue.

“I can assure you we’re in very good shape,” said Benmosche, whom many people credit with rescuing American International Group from a breakup after taking over as CEO in 2009.

AIG’s loss, its worst in nearly two years, stemmed from the declining fair value of its one-third stake in Asian insurer AIA, writedowns on older airplanes at leasing business ILFC and catastrophe losses from hurricanes and typhoons.

“Its earnings were impacted by large mark-to-market investment losses, although results in AIG’s core businesses were lower than we expected as well,” Barclays Capital analyst Jay Gelb said in a research note.

AIG shares fell 3.7 percent to $23.71 in afternoon trading. At that price, the stock is more than $5 below the U.S. Treasury’s break-even point, representing a loss of more than $7.6 billion in total.

Benmosche said AIG would be happy to buy back shares from the Treasury’s 77 percent stake in the company, if it were interested in selling at what are currently loss-making prices, but he indicated that might be unlikely.

“Time is not of the essence for the U.S. Treasury,” he said.

Benmosche also addressed the company’s plans for the stake in AIA, which it was restricted from selling until late last month. The shares are held in a special entity, and the Treasury holds a preferred interest in that entity.

Backing out the cash in the special purpose vehicle, Benmosche said AIG owed about $6.8 billion on that preferred interest.

“Right now we’re going to stand pat” on AIA, Benmosche said, adding that the company had a variety of options to pay down that balance.

Catastrophe losses weigh on Loews; earnings below estimates for third time in row

NEW YORK ­― Loews Corp., run by the billionaire Tisch family, posted quarterly earnings below analysts’ estimates for the third time in a row, hurt by a fall in its investment income and higher catastrophe losses at its biggest holding CNA Financial.

The company, which has interests ranging from insurance and luxury hotels to energy exploration and natural gas pipelines, said net investment income for the third quarter almost halved to $333 million from the year ago.

Catastrophe losses at CNA, in which Loews has a 90 percent stake, were $32 million after-tax, compared with $8 million a year ago.

Most insurers, including rivals Chubb Corp. and Travelers, have seen their profits dented by high catastrophe losses due to Hurricane Irene.

Net income attributable to Loews rose to $162 million, or 40 cents per share, from $36 million, or 9 cents per share, a year ago.

Revenue fell 7 percent to $3.43 billion.

Analysts, on average, had expected earnings of 66 cents per share, according to Thomson Reuters I/B/E/S.

CNA posted a profit of $75 million, or 28 cents a share, compared with a loss of $140 million, or 59 cents per share, a year ago. Net operating income was 34 cents a share.Analysts had expected CNA to earn 24 cents a share.

Earlier in the month, Diamond Offshore, in which Loews has a 50.4 percent stake, reported a better-than-expected quarterly profit, helped by higher dayrates and utilization for its deepwater rigs.

Loews said it had repurchased shares worth $690 million for the nine months ended September.

Shares of Loews, which has a market value of $16.74 billion, closed at $41.28 on Friday on the New York Stock Exchange. They have gained almost 25 percent from a year-low of $32.91 earlier this month. Shares of CNA last closed at $26.13.

Guessing game begins on Hurricane Irene insured losses

NEW YORK ― Hurricane Irene is expected to have caused substantial property losses, though figures are still hard to come by because of uncertainty about wind damage, catastrophe modeling company Eqecat said Monday.

Shares in some of the world’s largest reinsurers rose in early trading, though, as traders assumed insurers would make it through the storm more cheaply than had been feared.

Millions of people throughout the northeastern United States were in the dark and flooded, particularly in rural Vermont and suburban New Jersey. Totaling those losses is expected to take time, as the process of figuring out how many of the affected actually had government-backed flood insurance.

By some accounts the insured losses in the Carolinas were as little as $200 million after the storm made landfall there Saturday, but impacts appear to have been far worse as the storm made its way up the coast.

“Irene is a major event and will be responsible for significant levels of insured losses to property and people,” Eqecat said in a loss report early Monday morning. It expects to have more figures later in the day.

Prior to the hurricane, some had feared Irene could be a $10 billion event or more. Analysts and insurance executives suggested something north of $15 billion could bring a structural change to the insurance market, pushing prices higher around the world after three years of weakness.

It is unclear if Irene can hit that market. Between the Caribbean and the Carolinas, Eqecat has estimated losses of no more than $1 billion. Its competitor AIR Worldwide has forecast losses of $1.1 billion just for the Caribbean, though. The third key player in catastrophe modeling for the insurance industry, RMS, has not weighed in with a figure yet.

Shares in the world’s top three reinsurers ― Munich Re, Swiss Re and Hannover Re ― rose 3 percent as analysts said they did not expect any losses to force a change to 2011 estimates.

This year has already been the most expensive for natural disasters in the history of the world, mostly because of the costs of the March earthquake in Japan.