* * *
* * *
One wonders how the bankruptcy might have progressed differently in those early days had "the best knowledge of management" been truthfully represented. The legal phrase, "known, or should have known," comes to mind.
Friday, April 27, 2012
Tuesday, April 24, 2012
NY Fed's Brian Sack: Paint The Tape, Close Green, And Get Away Clean
Ahead of tomorrow's closely watched FOMC Announcement, we would like to pay tribute to a soon-to-be departing VP of the New York Fed--one who was not only an architect of Ben Bernanke's quantitative easing programs, but who ended up its chief implementer over the last three years. When he came back to the New York Fed on June 2, 2009, after taking a break in the private sector, the prior Fed analyst would be charged with the eventual winding down of the largest expansion of the Fed's balance sheet in history (QE1 already being partly underway at the time). Another QE(2) and one Operation Twist later, we know how that worked out (hint: an extra $trillion on the left hand ledger since arrival).
Just why is he throwing in the towel now, scheduled to leave on the last transaction date of Operation Twist at the end of June, 2012? Is he conceding that, in fact, the Fed will never be able to extract itself from balance sheet hyperplasia? We cannot know for sure, but we can offer the following tribute to perhaps the second most influential person in the maddest of monetary experiments in Western central bank history.
Just why is he throwing in the towel now, scheduled to leave on the last transaction date of Operation Twist at the end of June, 2012? Is he conceding that, in fact, the Fed will never be able to extract itself from balance sheet hyperplasia? We cannot know for sure, but we can offer the following tribute to perhaps the second most influential person in the maddest of monetary experiments in Western central bank history.
His name was Brian Sack.
Over the years, we've written much about Mr. Sack, one of the myriad M.I.T. graduates that run the global central banking cartel. For in 2004, he, along with future Fed Chairman Ben Bernanke and then-Fed economist Vincent Reinhart, wrote the watershed white paper that would become the guide for the Fed's massive monetary experiments--the putative "solution" to what would become the financial crisis of 2008: "Monetary Policy Alternatives at the Zero Bound."
Described by his undergrad alum paper at the University of Vermont (UV), "[Sack] was a math whiz who just happened to take enough economics classes by his senior year to earn a math/economics double major." These math skills would be critical to determining just exactly how many billions in Treasury and MBS securities the Fed would have to buy each day (vis a vis Permanent Open Market Operations "POMOs") to keep the too-big-to-fail banks afloat without causing rampant price inflation for those lucky few who don't eat food or drive.
The Fall 2009 UV profile continues:
Given that Sack started his current job after much of this buying by the Fed had already taken place, his biggest task over the coming few years will be to figure out how to best manage or even sell off big chunks of this $2 trillion portfolio of Fed assets without disrupting economic growth. As the Fed never really wanted all this stuff–buying it, essentially, to kick-start the economy–selling it all off may prove more complicated.
Complicated indeed, which speaks to the potential end game for the Fed (and which we will get to in a bit). But far from overseeing a reduction in size of the Fed's balance sheet, Mr. Sack has been an advocate of its expansion vis a vis serial QEn campaigns. As we predicted in October, 2010 (see "Preparing for QE Ad Infinitum"), just ahead of the Fed's QE2 announcement, Mr. Sack would be instrumental in guiding future Fed balance sheet policy.
The Fed would conduct an unscheduled meeting before its November 3, 2010 meeting, in which it would formerly announce QE2. At discussion were the very issues Mr. Sack had brought up in a recent speech, such as whether to bring a bazooka or a machine gun to fight the markets. QE2 would be a mix of both, for the initial announcement size of $600 million was intended to be the bazooka, and the now daily purchases (as opposed to twice weekly) were to be the machine gun. Supposedly, this would result in less market disruption and prevent front running by the Fed's primary dealer purchase partners, a select and highly insider group of the largest banks and brokers (and, at one time, Jon Corzine's MF Global).
Who does the Fed work for?
Yet, as Zero Hedge detailed time and time again, the Fed, under Mr. Sack's supervision, consistently purchased the richest spline in its QE2 operations--meaning it bought the most expensive bonds on a relative basis from its favorite dealers. This amounted to a de facto subsidy to them (see here, here, here, here, here, and here).
Another egregious example occurred on one morning in Spring, 2011, shortly after the Japanese Fukishima nuclear disaster had disrupted the global markets. After an errant comment by a European energy commissioner spiked bond markets just as one of the Fed's daily POMO auctions was closing (meaning the offers by the primary dealers were already in and they were about to face massive losses because of the comments that spooked the markets), Mr. Sack terminated the auction, cancelled the dealer offers and restarted the auction thirty minutes later.
We demonstrated this amounted to a $15.7 million gift to Wall Street that morning. Perhaps not a lot by comparison to the billions in outright purchases by the Fed, but maybe it demonstrates the mentality that pervades the New York Fed's trading room. Yes, the very trading room that has no Bloomberg terminals, but does have a black box algorithm supervised by an NYU intern that spits out the non-market prices at which the largest marginal buyer of Treasury securities in the world should use to pay [subsidize] its primary dealers.
A candid Mr. Sack.
Not that Mr. Sack is not forthcoming at times. For it was he, in a paper he co-authored entitled "Large-Scale Asset Purchases by the Federal Reserve / Did They Work?" that we learned that the Fed's $1.25 trillion in MBS purchases as part of QE1 were not conducted competitively (emphasis ours, as reported originally here, in December 2010):
Because the MBS purchases were arranged with primary dealer counterparties directly, there was no auction mechanism to provide a measure of market supply. Instead, the pace of purchases of each class of MBS was adjusted in response to measures of whether that class appeared relatively cheap or expensive. To avoid buying at excessively high prices and to support market functioning, purchases were increased when market liquidity was good and were reduced when liquidity was poor.
This corrects the apparent falsehood on the New York Fed's MBS purchase page FAQ that says, "Outright [MBS] purchases were conducted via competitive bidding to ensure that trades were executed at market rates." Presumably, "market rates" is rounded to the nearest million, which is about the precision that the Fed reported its MBS purchase prices after its arm was twisted by the US Supreme Court in response to Bloomberg's FOIA request.
Mr. Sack was again candid when he spoke at the 2010 CFA Institute Fixed Income Management Conference:
To be sure, I think it is fair to say that [Fed balance sheet manipulation] is an imperfect policy tool. Even under the estimates noted earlier, the Federal Reserve had to increase its securities holdings considerably to induce the estimated 50 basis point response of longer-term rates. In addition, there is a large degree of uncertainty surrounding the estimates of these effects, given our limited experience with this instrument. Lastly, it is reasonable to assume that the effects of balance sheet expansion would diminish at some point, especially if yields were to move to extremely low levels. Nevertheless, the tool appears to be working, and it is not clear that we have yet reached a point of diminishing effects.
This latter statement begs the question of whether the departing Mr. Sack now sees a point of diminishing effects, a year and a half later. Indeed, to our knowledge, Mr. Sack is the only Fed official to publicly acknowledge the trip wire for what we perceive as the potential end game for the Fed: namely, when (not if) it goes carry negative (though Mr. Sack sees this as a temporary state of affairs).
End game for the Fed?
Speaking at the Global Interdependence Center Central Banking Series Event in February, 2011, Mr. Sack explained (and bear with us through this extended quote, which gets to the crux of the matter):
The risks to the [Fed] portfolio arise because the characteristics of the assets that have been purchased differ from those of the liabilities that have been created by those purchases. The assets held in the SOMA portfolio have fixed coupon rates that reflect longer-term interest rates. However, the purchases of those assets create reserves in the banking system, and the Federal Reserve pays interest on those reserves at a short-term interest rate that it controls. The interest paid on reserves can be thought of as the "funding cost" of the portfolio.Today, because short-term interest rates are low relative to longer-term interest rates, this mismatch produces a very elevated stream of net income. In particular, the SOMA portfolio has a weighted average coupon yield of about 3.5 percent, which, if applied to a $2.6 trillion portfolio, produces about $90 billion of income at an annualized rate.14 In contrast, the annualized funding cost of the portfolio at this time is only around $4 billion. This cost is relatively low because of the near-zero level of the interest rate paid on reserves. In addition, the private sector holds nearly $1 trillion of currency, which are liabilities of the Federal Reserve that bear no interest.15 Thus, the SOMA portfolio should produce a considerable amount of net income over the near term.16Beyond the near term, though, the income that will be produced by the SOMA portfolio is uncertain. If short-term interest rates were to rise, the funding cost of the portfolio would increase relative to the fairly steady yield earned on the assets held, reducing the amount of net income from the portfolio. In addition, if longer-term yields were to shift higher, the Federal Reserve could realize capital losses if it were to begin selling assets.However, even if interest rates did move up abruptly and the SOMA portfolio experienced realized losses, it would have no meaningful operational consequences for the Federal Reserve's ability to implement monetary policy. These losses would not impair the FOMC's ability to control short-term interest rates by paying interest on reserves or by draining reserves as needed. Accordingly, the Federal Reserve would continue to operate in the same manner that it otherwise would have in pursuing its economic mandate.What would be affected by unexpectedly large realized losses on the SOMA portfolio would be our remittances to the Treasury. All Federal Reserve earnings in excess of those needed to cover operating costs, pay dividends and maintain necessary capital levels are remitted to the U.S. Treasury on a weekly basis. Accordingly, any change to the income on the SOMA portfolio directly affects the amount of funds that the Federal Reserve remits to the Treasury. The unusually large amount of portfolio income realized of late has boosted those remittances considerably. If portfolio income were to decline going forward, whether toward more normal levels or toward unusually low levels, the amount of those remittances would adjust lower.17
Footnote 17:
17 In the most extreme case, the Federal Reserve would have to cease remittances to the Treasury for a time. Of course, one might also want to take into consideration the additional tax revenue to the government that could be generated by the more robust economic recovery supported by the asset purchase programs.
What Mr. Sack is saying is that when interest rates inevitably rise, the Fed could experience operational losses that would cease the payment of billions in annual remittances to the US Treasury. What Mr. Sack alludes to when he says, "These losses would not impair the FOMC's ability to control short-term interest rates by paying interest on reserves or by draining reserves as needed"--but fails to outright disclose, is that the Fed has devised a fraudulent accounting scheme that will let the banks keep the money that should rightly be repatriated to the Treasury and, hence, taxpayers.
We outlined the dynamics of this in December, 2011 in "Dear Congress, Bernanke Just Lied to You" (emphasis original):
After the Fed massively expanded its balance sheet through the creation of reserves (printing digital money), it has attempted to mitigate price inflation by encouraging banks to keep such reserves parked at the Fed. This program, accelerated by you, Congress, in October, 2008, approved the payment of interest on reserves. As long as short term rates are exceptionally low (and Mr. Bernanke said they would be through mid-[2014]), this is a minor expense. Meanwhile, the Fed is earning higher interest rates on the $2 trillion+ in securities it bought as part of its so-called QE programs. It is the spread between what it earns and what it must pay that allows the Fed to remit funds to the Treasury, and by extension the taxpayers.When (and not if) short term interest rates rise (and the markets might force this in a violent fashion long before Mr. Bernanke would prefer), the Fed could easily go cash flow (or carry) negative. That is when the cost of paying banks interest on reserves (to reign in price inflation) exceeds the Fed's interest income it receives on the securities it holds. Consider that just under three decades ago, short term rates quickly reached nearly 20%.In response, the Fed could outright sell assets that it holds, but I urge you to consider what happens when the world's largest holder of Treasury securities switches from being a net buyer to a net seller of Treasurys and what it would do to the United States' long term borrowing rates. Mr. Bernanke [and (by extension) Mr. Sack believe] that [they] can blissfully guide the Fed to a graceful exit from its $2 trillion+ balance sheet expansion. You might not wish to give [them] the benefit of the doubt.This scenario is not lost on the Fed, which is why in March, 2009, its Board of Governors concocted a fraudulent accounting scheme (implemented retroactively to include the year 2008), which allows it to operate with negative income. It also prevents its member banks from having to pony up the difference, which was the case prior to the accounting change. Instead, in this scenario, the interest that the Treasury pays on securities held by the Fed will go to the banks, instead of back to the Treasury.It's beyond the scope of this response to discuss all the details. However, in brief, the Fed allows a line item on the liability side of its balance sheet (specifically, the one that covers remittances to the US Treasury) to go negative. It creates a deferred asset from a hypothetical amount it will be remitting to the Treasury at some non-specified time in the future.The heads of anyone with accounting knowledge ought to be spinning right now. For everyone else, it's as though you or I could log into our bank account and increase our balance in any given month in which expenses exceed income, with the promise that we will correspondingly lower our balance the next time we have a surplus.Only, there is no guarantee that you or I would ever again generate a surplus--meaning, we would have printed ourselves money not to be repaid. Similarly, there is not any reason to believe that once the Fed goes cash flow negative that it will ever again generate a surplus.This creates the absurd scenario that the Fed could end up printing money as a tightening measure to reign in price inflation. Welcome to the grave that Mr. Bernanke [and Mr. Sack continue] to dig deeper for us. [They assure] us there will be nothing but an orderly withdrawal from this unprecedented activity. However, markets have a way of punishing central banker hubris.
A curious resignation announcement by the New York Fed.
The actual press release regarding Mr. Sack's resignation reveals a curious exit structure:
Mr. Sack will step down as head of the Markets Group and SOMA Manager on June 29, 2012. He will then be placed on leave until September 14, 2012, during which he will have limited contact with the Bank and no access to Bank information, including FOMC and supervisory materials.
As mentioned at the top, June 29, 2012 is the last day of the Fed's latest balance sheet experiment, so-called Operation Twist. It would be only natural he would see it out to the end. A friend from the banking industry also pointed out to us:
If that is a year-anniversary, it may satisfy his third complete year, possibly completing the checkbox for comps to give him the summer off paid. I've never met a public employee who did not know, to two decimals, the exact countdown to some comp deadline. The FED's benefits list runs to three pages. He's a relatively young man. No one ever went broke over-estimating the self interest of publicly paid servants.
Indeed, but why then the two and a half month leave period wherein he is operationally and informationally shut out of the Fed, yet presumably still on the payroll (or at least on the official registrar)? Based on our research of the New York Fed's website, this leave period appears unusual for the end of someone's career at the Fed. On the other hand, the September 14 exit date (a Friday) is two days after a September 12 FOMC meeting.
A spokesman for the New York Fed said, "[Mr. Sack] will continue in his current role 'until June 29, 2012, to help ensure a smooth transition'. He is being placed on leave to establish a reasonable time period between his cessation of work and any potential future outside commitment."
It appears our friend, Mr. Brian Sack, likely has something else big lined up--perhaps, a job of import that might be influenced by future FOMC meetings, including the two during his leave period? Will it be the World Bank, the IMF, or something more lucrative with BlackRock or Citi? We'll have to wait to see, but in the meantime, here's to the [relatively] unsung soldier who helped design and deliver quantitative easing and all its yet-to-be-experienced [side] effects to the US [and, by extension, World].
Special thanks to Ellis Wyatt for carrying the torch.
A spokesman for the New York Fed said, "[Mr. Sack] will continue in his current role 'until June 29, 2012, to help ensure a smooth transition'. He is being placed on leave to establish a reasonable time period between his cessation of work and any potential future outside commitment."
It appears our friend, Mr. Brian Sack, likely has something else big lined up--perhaps, a job of import that might be influenced by future FOMC meetings, including the two during his leave period? Will it be the World Bank, the IMF, or something more lucrative with BlackRock or Citi? We'll have to wait to see, but in the meantime, here's to the [relatively] unsung soldier who helped design and deliver quantitative easing and all its yet-to-be-experienced [side] effects to the US [and, by extension, World].
* * *
Special thanks to Ellis Wyatt for carrying the torch.
Sunday, April 22, 2012
MF Global Roundup: the [so-far] Great Escape of "Teflon Don" Corzine; Bankruptcy Shenanigans Exposed; the "F" Word Revisited
Ahead of Tuesday's Senate Banking Committee hearing on MF Global, we present the April 20 installment of Capital Account with Lauren Lyster, featuring futures industry veteran guest, Mark Melin. Ms. Lyster pulls no punches in the opener:
Has the case really gone cold? Or, are those who are in charge of the investigation, the "regulators" and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions--and, ultimately--the recovery of stolen customer money?
We wish that MF Global were just a one-off affair--a bad apple, if you will. Unfortunately, it seems more likely to us that this is another milestone in the history of what we see as criminality, which has swept through the financial services industry, like some sort of Medieval Black Plague--the Black Death for capital formation. It seems the only time people are held accountable anymore, is when they commit crimes that affect the super-rich.
Bernie Madoff is a prime example...Madoff is securely behind bars, but Jon "Teflon Don" Corzine is busy ordering carmel-Frappuchinos at the local Starbucks as he goes to shop for office space in New York...bothered only by the low din of discontent emanating from the blogosphere (and shows like this, Capital Account). What a nuiscance we must be to the new God-fellas of Wall Street...
Nuiscance, indeed, to which we hope we are part. Below is the entire episode, in which Ms. Lyster and Mr. Melin cover the following salient points, all pointing to a criminal intent to commit fraud, as well as the role of regulators and investigators aiding and abetting the criminals:
- Why was the MF Global back office cleared out with three top personnel allowed to leave, just as the firm was exeriencing its most serious liquidity (ahem solvency) crisis in its soon-to-be-terminated existence?
- Why were C-level executives, far from being sequestered by investigators and being placed in an information silo, allowed to run the company for six weeks (prior to Mr. Freeh being installed as Trustee of the Holdings company)?
- Why did Freeh wait until early March to have MF Global Holdings USA declare bankruptcy, the very entity that retained the few remaining executives and employees and may have been cash-rich?
- Why did Federal cops and investigators fail to so much as question Mr. Corzine nearly six months after the crime?
- Why were large counterparties paid with wire transfers, when requests from lowly customers for wires were converted to checks (which ultimately bounced)? "Sloppy is when you don't do things consistently. Sending all checks to customers and all wires to counterparties--that's consistent." See here for details published by John Roe of the Commodity Customer Coalition.
- Why were the final days characterized as so "chaotic" when a properly programmed iPhone or Android smart phone (sorry, RIMM) should have been able to handle what amounts to maybe a few dozen megabytes of transfer instructions?
- Just what were the details surrounding the successful lobbying effort by top level MF Global execs that effectively postponed reforms on rules that would limit use of customer funds (coincidentally, or not perhaps, just ahead of a $325 million bond offering by MF Global)? [For more details, see our prior piece from this week, which includes exclusive CFTC emails on the issue.]
On another note, Pam Martens, writing for Alternet.org has a fantastic exercise in out-of-the-box thinking, as well as her own round-up. She begins:
Only on Wall Street can you bankrupt a company; misplace $1.6 billion of customers’ money; lose 75 percent of shareholders’ money in two weeks; speed dial a high priced criminal attorney and get a court to authorize the payment of your multi-million dollar legal tab from the failed company’s insurance policies; have regulators waive your requirements to take licensing exams required to work in the securities and commodities industry; have your Board of Directors waive your loyalty to the firm; run a bucket shop out of the UK; and still have the word “Honorable” affixed to your name in a Congressional investigations hearing.
One of the few to question the role of JC Flowers in the MF debacle, Martens continues:
But wearing the three incompatible hats was not the only fatal flaw in Corzine’s management model: he contractually did not owe his total loyalty to MF Global. The August 11, 2011 proxy issued to shareholders and filed with the SEC carried this caveat:
“During the term of Mr. Corzine’s employment agreement with the Company, Mr. Corzine will spend substantially all of his business time and attention on Company matters, except that he may serve as an operating partner of J.C. Flowers. Pursuant to his contract with J.C. Flowers, Mr. Corzine will not receive any salary from J.C. Flowers as long as he is serving as Chief Executive Officer of the Company, but he will have a financial interest as a limited partner in certain of J.C. Flowers’s investment management entities. Mr. Corzine’s employment agreement with the Company contains a provision regarding corporate opportunities. In general, this provision provides that, if Mr. Corzine acquires knowledge from J.C. Flowers (and not the Company) of a potential transaction or other business opportunity that may be a business opportunity for the Company he will have no duty to communicate or present such opportunity to the Company…”
We would point out to MF Global customers pursuing redress against Mr. Corzine, individually, that it is not always the case that simply by disclosing something, one waives his or her responsibility under the rule of law for it.
And, how the CATO institute founders, the Koch Brothers (see this EPJ exclusive), got out of Dodge early:
Compared to Corzine’s former employer, Goldman Sachs, MF Global was a flea on an elephant’s back. It had experienced a string of quarterly losses since 2007, was predominantly a Futures Commission Merchant (FCM) holding retail and institutional commodity and futures trading accounts, and had 80 regulatory actions against it since 1997. It had a securities brokerage unit with 300 to 400 U.S. accounts according to the trustee. How big those accounts were is unknown. If they were all institutional or hedge fund accounts, it could have been a sizeable operation. One known account, which presciently moved out before the bankruptcy, belonged to the $100 billion private energy firm, Koch Industries, majority owned by Charles and David Koch, financial backers to numerous corporate front groups.
More on the role of "the other JC," who, we note, was not only instrumental in securing Mr. Corzine's hire, but that of fellow ex-Goldmanite Laurie Ferber, who was MF Global's go-to reguatory fixer:
JC Flowers was the namesake of J. Christopher Flowers, a former colleague of Corzine’s at Goldman Sachs. Flowers had acquired a stake in MF Global to help shore it up in 2008 after a trader blew up $141 million of the firm’s money overnight in what the firm called an unauthorized trade. It was Flowers who invited Corzine to become CEO of MF Global. Corzine left MF Global on November 4, four days after its bankruptcy filing, at the request of the Board.
Why Corzine, a man of great wealth and political stature, would join an obscure brokerage firm is a mystery worthy of pursuit by the FBI, which is investigating the missing customer funds according to Congressional sources. One avenue worthy of pursuit according to Wall Street veterans, is whether Jon Corzine turned MF Global into a giant parking lot for other Wall Street firms’ bad bets on sovereign debt. Fueling that speculation is the fact that JPMorgan, Citigroup and Bank of America were part of a syndicate of 22 banks that provided MF Global with an unsecured $1.2 billion revolving credit line that required no posting of collateral, despite the company’sstring of losses and weak credit rating. The firm heavily tapped this line of credit in its last days.
And on the beleaguered trustee of the MF Global Holdings estate in Chapter 11 (who, incidentally is still under investigation by the Treasury department for allegedly accepting funds from a designated Iranian terrorist group):
The trustee of the Chapter 11 proceeding for the parent holding company is Louis J. Freeh, a former FBI director. On April 19, Freeh asked the court for an expedited hearing to grant him the ability to issue subpoenas to “the Debtors’ affiliates and subsidiaries, the Debtors’ former employees, current and former officers, directors and employees of the Debtors’ affiliates and subsidiaries, lenders, investors, creditors and counterparties to transactions with the Debtors…”
The court is allowing Freeh’s own firm, Freeh Group International Solutions, to perform the accounting work. Four docket entries show that Freeh has asked for and received four extensions by the court to file a list of assets of the holding company.
We would add that Mr. Freeh and his firm(s) have exactly ZERO experience in bankruptcy prior to MF Global, and even Judge Glenn has expressed concern about the work he has been forced to outsource to a plethora of other law firms.
Then, there is the other trustee of the broker unit, Mr. James W. Giddens, who is statutorily designated under SIPA as the customers' advocate. Ahead of the Senate hearings, we would like to remind that just over one year ago, the Office of Inspector General at the SEC released a scathing report of SIPC (the private corporation created by SIPA statutes), which is supposed to oversee failing securities broker dealers for the protection of customers and that now by-gone relic, "market integrity."
MFGFacts.com documented the OIG's highlights of excessive fees by Giddens and other trustees, as well as other conflicts, such as the lack of any consistent oversight by the SEC. From the report:
Liquidations are similar to ordinary bankruptcy cases, it does not provide any limit on the amount of trustee fees in SIPA liquidations, unlike bankruptcy cases. Second, under SIPA, where payments are made out of the SIPC fund, courts have no discretion whatsoever to limit fees that SIPC has recommended for trustees or their counsel. Thus, even if a court finds the amount of fees awarded to the trustee to be excessive, it is required to approve such excessive fees if SIPC determines that the fees are reasonable. We found that in one case, a Southern District of New York bankruptcy judge deemed fees to be awarded to the trustee in a liquidation to be excessive, but found that he had no choice but to approve the fees.
According to the latest published report, the fees paid to the trustee and his counsels processing the Lehman claims for the period from September 2008 to September 2010 (24 months) totaled approximately $108 million. According to the fourth interim fee application, as of September 30, 2010, the entire administrative fees, including fees for accountants, consultants, etc., totaled approximately $420 million.
MFGFacts.com comments, "We hadn’t see anything yet. October 24th Bloomberg reported that LBH had spent “642 million on its liquidation, with most of the money going for professional and consulting fees. Trustee James Giddens and his law firm, Hughes Hubbard & Reed LLP, have earned about $169 million.”
Not to fear, there has been commissioned a SIPC Modernization Taks Force to implement reforms, on which no lesser than MF Global Trustee (and former price-gouging Lehman Trustee), James W. Giddens is a member.
Speaking of Mr. Giddens' firm, Hughes Hubbard & Reed, Ms. Martens also had something to say about them in her aforementioned MF Global article:
Hughes Hubbard and Reed is the same law firm handling the bankruptcy of Lehman Brothers. After more than three years, customers have yet to be made whole. There are over 7600 law firms in New York City according to the legal web site, Martindale.com. Why SIPC has selected the same firm for two of the largest Wall Street collapses in history is noteworthy.
Hughes Hubbard and Reed hired the same public relations firm to handle both the Lehman and MF Global matters, APCO Worldwide. APCO was originally formed as a subsidiary of Arnold & Porter, the law firm aligned with spin for Big Tobacco in the 90s. [EB: Arnold & Porter was also heavily involved in lobbying the CFTC with respect to DF implementation, including CFTC Rule 1.25, investment of customer funds.]
According to Wendell Potter, an insurance company public relations insider and whistleblower, writing in his book Deadly Spin, "One of the deceptive practices of which APCO has a long history is setting up and running front groups for its clients. In 1993, Philip Morris hired APCO to organize a front group called the Advancement of Sound Science Coalition in response to the U.S. Environmental Protection Agency's ruling that secondhand tobacco smoke was a carcinogen. Philip Morris also hired APCO to manage what it called a 'massive national effort aimed at altering the American judicial system to be more hostile toward product liability suits' and to build a coalition to advocate for tort reform. According to the Center for Media and Democracy, the tobacco industry paid APCO almost a million dollars in 1995 to implement behind-the-scenes tort reform efforts and specifically to create chapters of 'grassroots' citizens' groups called Citizens Against Lawsuit Abuse."
In the same month that Corzine was hired by MF Global, March 2010, there were confirmed news reports that APCO Worldwide had been hired by the Financial Services Roundtable, a Wall Street trade group, to promote the image of Wall Street as trustworthy. An APCO spokeswoman says they no longer represent the account.
Lets not forget that, according to the New York Post, MF Global was also paying Bill Clinton and Tony Blair's consulting firm, Teneo Holdings, betwen $50,000 and $125,000 per month for "public relations and investment advice."
Coming full circle, we will finally get back to the arcane bankruptcy structure of the MF Global entities that ought to be questioned in detail at Tuesday's Senate hearings. In particular, the SEC Director of Trading and Markets, Robert Cook, should be held accountable for what was ultimately his decision (though with no protest by the toothless CFTC) to subject 38,000 futures customers to a SIPA liquidation, which offers no insurance protection and that places futures customer claims to MF Global estate assets in legal limbo. For, as we have pointed out previously, it was his predecessor, at the then-styled position of Director of Market Regulation, who exercised authority to put Lehman in a SIPA liquidation (at least Lehman was primarily a securities firm, not a futures firm).
Even Chuck Grassley, the sponsor of the now-widely criticized 2005 bankruptcy reform act, has stated, "The bankruptcy laws are written to ensure that company executives who were involved in the demise of a company because of fraud or mismanagement shouldn't be eligible for bonuses," Mr. Grassley said.
More broadly, MF Global customers have an absolute right to clawback of questionable margin payments and asset transfers from the broker unit that occurred in the weeks leading up to the firm's demise because there was a clear pattern of intent to deceive investors and customers alike--from manipulating regulators and the regulatory process to changing business practices in the final wee--all of which ensured that customers would be last in line for the remaining morsels of the MF Global carcass. (And, as we have pointed out since early November, 2011, the very nature of the Corzine Trade from Day One was such that all the risk was put in the customer brokerage house, while profits were diverted to an offshore business unit).
"Fraud" is the operative word here. There is no dispute that the Commodity Exchange Act (sic, the law) has been broken, but until fraud is investigated, customers are at the mercy of a very fuzzy and opaque legal process.
It's time for Congress to put pressure on those in charge of this investigation and oversight to break their own glass of silence and dare them to utter the magic "F" word.
It's time for Congress to put pressure on those in charge of this investigation and oversight to break their own glass of silence and dare them to utter the magic "F" word.
Wednesday, April 18, 2012
MF Global Circus: A New Senate Hearing & CFTC Divulges Exclusive Emails Re Corzine/Gensler Meetings
A new Senate hearing during "Money Smart Week"
The MF Global circus continues, as only yesterday, the Senate Banking Committee announced it will hold a hearing next Tuesday, April 24, 2012, in which a few old and a few new faces will grace Congressional Chambers. We can only hope that some of the Committee members will pursue the panelists with the same zeal that certain members of the House Financial Services Oversight & Investigations Subcommittee did in their three hearings.
According to a press release that arrived in our email box this morning, next week is Money Smart Week at the Chicago Fed. The awkward phrasing sure sounds smart. The National Futures Association, the CFTC and AARP will hold a seminar entitled "Avoiding Fraud is Your Best Money Strategy." No kidding. Tell that to Mr. Corzine and the MF Global customers. The always pithy CFTC Chairman Gensler had a few choice words as well: "When making important financial decisions, even simple actions like asking a few smart questions can help set people on the right course." Right...and where were your smart questions, Mr. Gensler, when you let the SEC steamroll the CFTC into accepting a bankruptcy and liquidation structure of MF Global and its broker unit such that the customers ended up on equal footing with creditors?
Maybe the SEC's Director of the Division of Trading and Markets, Mr. Robert Cook, can shed some light at next week's Senate Banking Committee hearing on why he ordered a firm with 388 securities accounts and 38,000 futures accounts to be put into a SIPC liquidation, where there is no insurance fund for futures customers and where the liquidation Trustee has no clear right to assets in the parent company's Chapter 11 estate.
And, if Mr. Gensler truly believes that the "CFTC exists to protect Americans in financial markets and to ensure the integrity of the marketplace for investors," perhaps CFTC Commissioner Jill Sommers can enlighten the Senate and public as to why the CFTC delayed implementing reforms to Rule 1.25 governing investment of customer funds, conveniently around the time when Mr. Corzine and his fellow ex-Goldmanite general counsel, Laurie Ferber, were meeting with Chairman Gensler, CFTC Commissioners and other high level CFTC officials in July. Only after MF Global's demise did it become imperative to finally implement the changes, now dubbed appropriately, the "MF Global Rule."
CFTC discloses new emails regarding top level meetings with Gensler, Corzine and Ferber
This gets to another event that transpired yesterday, wherein the CFTC finally responded to a five month old FOIA request regarding those very meetings on July 20, 2011. EconomicPolicyJournal.com has exclusively obtained a smattering of emails from such figures as Ms. Ferber, Chairman Gensler and Amanda Radhakrishnan, Director of Clearing and Risk for the CFTC.
In one email from Ms. Ferber to Ms. Radhakrishnan on the morning of the 20th, she pleads "I know you must be truly swamped, but I also know that we are having calls with some commissioners today...I continue to believe that you and your team are the most important to be speaking with on 1.25 and I know Jon [Corzine] would appreciate the opportunity to speak with you."
In another series of emails, we learn that Chairman Gensler initially turned down a request on July 11, 2011 from Mr. Ferber to meet with Corzine, [ex-Refco exec] Dennis Klejna and others on either the 20th or 21st, citing scheduling conflicts. (See Francine McKenna's article for background on Klejna and JP Morgan's inside track to MF Global here). Yet, Mr. Gensler would eventually make a point to chat by telephone with Corzine and others on a 1:00 pm call on July 20. Such was the former Senator and Governor's clout, or the zeal and persistence of Ms. Ferber.
Certain details of these meetings were already public, having been posted on the CFTC's website. (We first wrote about them in detail on November 9, 2011.) But we now know exactly who pushed for them (Ferber) and just how badly Corzine needed to wield his starpower in front of the regulators. After all, MF Global was about to float a $325 million bond offering (now practically worthless) that would close just days later on August 2, 2011, and any threat to MF's revenue model would have likely derailed it.
Regulatory Capture Kept the Corzine Trade Alive
According to a Bloomberg piece by William Cohen, Corzine himself said that the repo transactions pursuant to 1.25 made with customer funds with other broker-dealers as counterparties should be permitted “because such transactions could be beneficial to” firms like MF Global. Without the extra income from investing customer funds (and they need not have been necessarily invested directly in the sovereign bonds), the Corzine Trade would be toast.
This was also a time when FINRA was about to push for a regulatory capital hike (eventually stalled by Corzine at the SEC, but not ultimately defeated), and a time when the SEC decided to sit on the annual audit of the broker unit for over three months instead of making it public right away as it customarily does. This was the only document that would have been public at the time that disclosed the true risk of the Corzine trade to MF Global customers, wherein all of the risk was saddled in the broker unit and the bulk of the profits were sent overseas.
But we digress. Back to those July 20 CFTC/MF Global meetings, what was the outcome? According to the Federal Register, the CFTC filed on July 22, 2011 a notice effective July 20, 2011 regarding other rulemaking, and provided a footnote disclosing that "The amendments [to Rule 1.25 and 30.7] proposed in those Notices are not addressed herein and may be subject to future Commission rulemaking." Apparently, Corzine and Ferber won...at least for the time being.
MF Global's long standing push against Rule 1.25 reform
But July, 2011 was not the first time that MF Global had pushed against Rule 1.25 reform. Only months after it put on the Corzine Trade in September, 2010 (and lying about its existence to FINRA that same month), Ms. Ferber and a representative from Newedge penned a letter on December 2, 2010 to the CFTC. As we quoted on November 9, 2011:
The ironic, if not prophetic, introduction:
As a general matter, we applaud the CFTC for seeking new ways to ensure the safety and liquidity of investments made by futures commission merchants under CFTC Rules 1.25 and 30.7. However, as we set forth below, we believe the specific amendments being proposed: (a) are unnecessary, considering that the current permissible investments under Rule 1.25 have not, to our knowledge, resulted in any FCM's inability to provide customers their segregated funds upon request or to continue as a solvent entity, (b) will, in many cases, create new investment risks and logistical difficulties for FCMs, and (c) may well change the pricing dynamics for customers and the industry at large. Recognizing the CFTC's concerns, however, we have set forth our own proposed amendments which we believe satisfy the CFTC's desire for the enhanced security of customer segregated funds without the risk of significantly increasing costs to customers.
On fixing something that is not broken (until it is):
B. The Investments Currently Permitted Under Rule 1.25 Have Not Put CustomerFunds at Risk.We believe strongly that the CFTC's proposed amendments endeavor to "fix something that is not broken." Indeed, the evidence is clear that the investments permitted and safeguards required under Rule 1.25 have met the CFTC's stated "objectives of preserving principal and maintaining liquidity" of customer segregated funds. Sec Rule 1.25(b). Among other things, since the CFTC's 2004 expansion of permissible investments under RuIe 1.25, we are not aware of any FCM that has been unable to liquidate and provide to their customers upon request any segregated funds invested under Rule 1.25 (or under Regulation 30.7 either, for that matter).4Further, since this expansion, no FCM to our knowledge has failed or otherwise been unable to meet any other of its financial obligations as a result of investments made under Rule 1.25.5 In short, we believe the current investment criteria set forth under Rule 1.25 have worked, including over the past two years of market instability and uncertainty - the ultimate stress test. Nevertheless, the Commission has proposed changes so sweeping that they may in fact increase systemic risk by imposing new burdens on otherwise effective, efficient and liquid settlement processes. Such a radical overhaul, in our view, is unnecessary considering the Rule's stellar track record. At most, the CFTC should be adjusting only slightly the products, counterparties and concentration percentages currently permitted. 6
Need for a fraud investigation and lawsuits against the execs
Mr. Corzine and Ms. Ferber, apparently operating under an end-justifies-the-means ethics, did not get their desired end, and now face a greatly undesired one. They need to be held personally accountable, both criminally and civily, for their actions, should the facts warrant (which we believe they do). The case, far from being cold, is just getting warmed up. We hope the SIPC Trustee, James W. Giddens, keeps his word when he said last week he would go after MF Global personnel who broke the law by dipping into segregated funds. We have also hopefully established enough intent to justify a fraud investigation by the DOJ, not that intent is a prerequisite to clawing back missing customer funds, which are statutorily required to be sacrosanct at all times.
Using his former Congressional chambers as a stage, Mr. Corzine has theatrically attempted to set up a MF Global back office worker, one Edith O'Brien, to take the fall for it all. While she may or may not have some culpability as firm Treasurer, she appears to hold the key to unraveling the mystery that has always been exposed in plain day. If anyone deserves immunity, it is she.
A video explains it all
Explaining the situation in simple terms with some great background is Mark Melin of Opalesque TV. Feel free to forward to anyone who might not be up to speed on MF Global, as this first part in a series of three is an excellent primer. Mark will also appear on RT's Capital Account with Lauren Lyster [Friday] to discuss these latest developments.
http://www.youtube.com/watch?v=DivZs29GxL4
Friday, April 6, 2012
Is Bernanke Prepping the Banksters for QE3?
As we have previously written (see Breakfast with Jamie), when top Fed officials break bread with top banksters, massive monetary intervention is in the cards. WSJ reports that last Friday, March 30, Ben Bernanke flew to the New York Fed to meet with the panoply of TBTF bank and financial company execs.
According to WSJ, guests at the Bernanke lunch in New York included:
- [JP Morgan Chase President Jamie] Dimon,
- New York Fed President William Dudley
- Michael Cavanagh, chief executive officer of Treasury and Securities Services for J.P. Morgan Chase
- Bob Diamond, chief executive of Barclays PLC
- Douglas Donahue, Jr., managing partner of Brown Brothers Harriman & Co.
- Brady Dougan, chief executive of Credit Suisse
- Larry Fink, chief executive of BlackRock, Inc.
- Gerald Hassell, chief executive of Bank of New York Mellon Corp.
- Glenn Hutchins, managing director of Silver Lake
- Colm Kelleher, co-president of institutional securities, of Morgan Stanley
- Brian Leach, chief risk officer of Citigroup, Inc.
- Brian Moynihan, chief executive of Bank of America Corp.
- Stephen Schwarzman, chief executive of the Blackstone Group LP
- James Tisch, president and chief executive of Loews Corp. and
- David Viniar, chief financial officer of Goldman Sachs Group Inc.
Though touted as a "private listening session" for Mr. Bernanke, wherein he offered "few of his own opinions," none other than JP Morgan Chase President, Jamie Dimon, "brought up the question of whether the U.S. financial system has done enough to prepare for any future shocks."
In the context of the global money printing Ponzi, wherein "preparation" can only mean more of the same money printing to prop up said Ponzi debt structure, we are left to wonder if this was nothing more than a thinly veiled threat--that, absent another LSAP or OT announcement at the next FOMC meeting, the supplemental liquidity providers of last resort will not be so keen on ramping the Apple&P 500 into the election.
Regardless, as EPJ has been harping on (since last year), the global central bank coordinated money printing bonanza has been laying the groundwork for serious price inflation, the signs of which the Fed must be seeing. Accordingly, the window for a new round of bond market intervention is approaching quickly, notwithstanding last meeting's FOMC minutes. The Fed, after all, would look rather foolish if it decided to attack the long end of the curve but was forced, shortly thereafter, to raise the Fed Funds target.
Later this month on April 25, EPJ's own Robert Wenzel will visit the Hallowed Halls of Econometrics at the New York Fed to give a seminar on Austrian Business Cycle Theory--the very day the FOMC announces its next policy decision and releases the voting members' interest rate forecasts. While one can never predict the outcome of such crossing of the streams, we are confident Mr. Wenzel's track record will remain intact, while the Keynesian forecasters and their linear regression models will once again fail to detect the turn until it is all too obvious.
In that regard, erring on the side of policy accommodation would appear to be the prudent course in anticipating the voting Members' herd mentality.
Wednesday, March 28, 2012
Was FINRA Really First to Sniff Out the Corzine Trade?
Today at 2:00 pm in the Rayburn Building in Washington DC, the third MF Global hearing before the House Financial Services Committee will take place, which will include testimony and a Q&A session with four crucial MF Global employees, along with a representative from JP Morgan, the president of the National Futures Association, and a representative from the Financial Accounting Standards Board--the very organization that blessed the off balance sheet treatment of the now-famous Corzine repo-to-maturity trades. In that regard, Reuters featured an article yesterday, which disclosed that the accounting treatment that facilitated the failure of both Lehman and MF Global is finally up for review. No time like the present.
Reuters also echoes the meme that FINRA was the first to identify the Corzine Trade in June, 2011. Yet, this might not be the case, for months before FINRA sounded the alarm after reviewing the May 31, 2011 broker unit audit, the SEC sent MF Global a warning about its off balance sheet accounting treatment.
For, on March 16, 2011, the SEC issued a comment letter to MF Global regarding its prior year 10-K filed in May, 2010. Though MF Global did not have any sovereign debt exposure during that reporting period, it did have sizable repo-to-maturity exposure in US government debt. Fully one third of the SEC's comments address these trades, requesting more disclosure and clarification.
Inasmuch as the letter was sent two weeks ahead of MF Global's current year fiscal year-end, in which Corzine had already loaded up on GIIPS debt, we are forced to wonder if the SEC was apprised of these risky bets and was giving the MF execs a heads up that they would need to beef up its disclosures to cover themselves. We might be willing to give the SEC more credit had it not sat on the broker unit audit for three months during the summer of 2011 and later altered the filing date.
Regardless, we present below the full response letter dated March 30, 2011, which quotes the original and is signed by none other than former PwC alum, MF Global CFO and House panelist today, Henri J. Steenkamp. We also note that fellow panelist and MF Global general counsel, Laurie Ferber is cc'd and would have been instrumental in the response.
March 30, 2011
Via Facsimile and EDGAR
Howard Efron
Staff Accountant
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington D.C. 20549-3628
Re: MF Global Holdings Ltd. Form 10-K for the Fiscal Year Ended March 31, 2010 File No. 1-33590 Dear Mr. Efron:
We write in response to the comment letter, dated March 16, 2011 (the “Comment Letter”), from the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) to J. Randy MacDonald, Chief Financial Officer of MF Global Holdings Ltd. (“we” or the “Company”) concerning the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010 (the “Form 10-K”).
We have set forth below the text of each of the Staff’s comments as included in the Comment letter, followed by the Company’s response. The Company’s responses in this letter refer to transactions accounted for in the fiscal year ended March 31, 2010.
Form 10-K for the fiscal year ended March 31, 2010
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources, page 71
Howard Efron - 2 - U.S. Securities and Exchange Commission March 30, 2011
Comment 1
Tell us your consideration of providing liquidity disclosures to discuss the potential tax impact associated with the repatriation of undistributed earnings of foreign subsidiaries. In this regard, consider disclosing the amount of cash that is currently held by your foreign subsidiaries and disclose the impact of repatriating the undistributed earnings of foreign subsidiaries. Please refer to Item 303(A)(I) of Regulation S-K and Section IV of our Release 33-8350.
Response 1
Item 303(a)(1) of Regulation S-K requires that registrants identify “any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” Under Section IV of SEC Release No. 33-8350 (the “Release”), the Staff also furnished guidance with respect to the proper scope of discussions relating to liquidity and capital resources. In particular, the Release suggested that registrants’ MD&A should consider including, to the extent material, a discussion and analysis of “the existence and timing of commitments for capital expenditures and other known and reasonably likely cash requirements.” With regards to cash requirements, the Release suggests that companies should consider whether “the reasonably likely exposure to future cash requirements associated with known trends or uncertainties” would have “a material impact on liquidity (discussion of immaterial matters … should be avoided)”.
In accordance with the foregoing provisions, we have noted on page 71 of the Form 10-K under “Liquidity and Capital Resources” that our multiple sources of liquidity and existing cash flow are sufficient to satisfy our primary liquidity needs: working capital; debt service obligations; and preferred dividend obligations. Because we have sufficient liquidity, in the United States and at our parent company, to satisfy our expected liquidity needs, we do not need to, nor do we expect to, repatriate undistributed earnings of our foreign subsidiaries to help satisfy our liquidity needs. Instead, we have reinvested and expect to continue reinvesting the undistributed earnings of our foreign subsidiaries indefinitely (i.e. we expect our earnings in our foreign subsidiaries will be permanently reinvested and that the investments are essentially permanent in duration). Based on our intention to permanently reinvest undistributed earnings of our foreign subsidiaries outside the United States, there was no potential tax impact, and as such we did not disclose the matter, nor did we give any additional guidance with respect to any potential tax impact because it was not material.
Howard Efron - 3 - U.S. Securities and Exchange Commission March 30, 2011
Financial Statements
Consolidated Balance Sheets. page 92
Comment 2
Please tell us what provisions require you to classify your series A and series B preferred stock outside of the equity section.
Response 2
We considered the guidance in ASC 480-10-S99-3A which requires that preferred securities that are redeemable for cash or other assets be classified outside of the equity section if they are redeemable upon the occurrence of an event that is not solely within the control of the issuer. The preferred stock include conditions for redemption which are not solely within the Company’s control.
Upon the occurrence of various reorganization events, which are outside the control of the Company, the holders of our Series A and Series B Preferred Stock have election rights to settle their shares in cash, shares, or other assets. Additionally, there is also the possibility that, in a transaction providing such election rights, the Series A and Series B holders could receive a different form of consideration (i.e. cash or shares) than the holders of our common stock could receive, which is outside the control of the Company. As such, and in accordance with ASC 480, the Company determined to record the Series A and Series B Preferred Stock outside of the equity section.
For your reference, the following are the “Reorganization Events” provisions of the Series A and Series B Preferred Stock, which is included in the Certificate of Designations for each series and which were filed with the Commission as Exhibit 3.1 to a Current Report on Form 8-K on January 5, 2010 of the Company.
For Series A
Section 11. Adjustment for Reorganization Events.
(a) Reorganization Events. In the event of:
(i) any consolidation, merger, binding share exchange or reclassification involving the Company in which all or substantially all outstanding shares of Common Stock are converted into or exchanged for cash, securities or other property of the
Howard Efron - 4 - U.S. Securities and Exchange Commission March 30, 2011
Company or another Person; or
(ii) the completion of any sale or other disposition in one transaction or a series of transactions of all or substantially all the assets of the Company to another Person; each of which is referred to as a “Reorganization Event,” each share of Convertible Preferred Stock issued and outstanding immediately prior to such Reorganization Event will, without the consent of the holders of the Convertible Preferred Stock, become convertible into the kind and amount of securities, cash and other property, if any (the “Exchange Property”), receivable in such Reorganization Event (without any interest thereon, and, subject to any right of the Holder to receive Participating Dividends, without any right to dividends or distributions thereon that have a record date that is prior to the applicable Conversion Date) per share of Common Stock by a holder of Common Stock that is not a Person with which the Company effected such consolidation, merger, binding share exchange or reclassification, or to which such sale or other disposition was made, as the case may be (each of the Company and any such other Person, a “Constituent Person”), or an Affiliate of a Constituent Person to the extent such Reorganization Event provides for different treatment of Common Stock held by Affiliates and non-Affiliates of the Company; provided that if the kind or amount of securities, cash and other property receivable upon such Reorganization Event is not the same for each share of Common Stock held immediately prior to such Reorganization Event by a Person other than a Constituent Person or an Affiliate thereof (due to elections or otherwise), then for the purpose of this Section 11(a), the kind and amount of securities, cash and other property receivable upon such Reorganization Event will be deemed to be the weighted average of the types and amounts of consideration received by the holders of Common Stock (other than Constituent Persons and Affiliates thereof) that affirmatively make an election (or of all such holders if none make an election) (and if holders of Common Stock (other than Constituent Persons and their Affiliates) may elect the kind and amount of securities, cash and other property so receivable, each Holder shall have the same election right with respect to the Exchange Property receivable upon conversion after the Reorganization Event, provided such Holder notifies the Company of its election in writing prior to the Reorganization Event). On each Conversion Date following a Reorganization Event, the Conversion Rate then in effect will be applied to the Exchange Property received per share of Common Stock, as determined in accordance with this Section 11.
Howard Efron - 5 - U.S. Securities and Exchange Commission March 30, 2011
For Series B
Section 12. Adjustment for Reorganization Events.
(a) Reorganization Events. In the event of:
(i) any consolidation, merger, binding share exchange or reclassification involving the Company in which all or substantially all outstanding shares of Common Stock are converted into or exchanged for cash, securities or other property of the Company or another Person; or
(ii) the completion of any sale or other disposition in one transaction or a series of transactions of all or substantially all the assets of the Company to another Person; each of which is referred to as a “Reorganization Event,” each share of Convertible Preferred Stock issued and outstanding immediately prior to such Reorganization Event will, without the consent of the holders of the Convertible Preferred Stock, become convertible into the kind and amount of securities, cash and other property, if any (the “Exchange Property”), receivable in such Reorganization Event (without any interest thereon, and without any right to dividends or distributions thereon that have a record date that is prior to the applicable Conversion Date) per share of Common Stock by a holder of Common Stock that is not a Person with which the Company effected such consolidation, merger, binding share exchange or reclassification, or to which such sale or other disposition was made, as the case may be (each of the Company and any such other Person, a “Constituent Person”), or an Affiliate of a Constituent Person to the extent such Reorganization Event provides for different treatment of Common Stock held by Affiliates and non-Affiliates of the Company; provided that if the kind or amount of securities, cash and other property receivable upon such Reorganization Event is not the same for each share of Common Stock held immediately prior to such Reorganization Event by a Person other than a Constituent Person or an Affiliate thereof (due to elections or otherwise), then for the purpose of this Section 12(a), the kind and amount of securities, cash and other property receivable upon such Reorganization Event will be deemed to be the weighted average of the types and amounts of consideration received by the holders of Common Stock (other than Constituent Persons and Affiliates thereof) that affirmatively make an election (or of all such holders if none make an election) (and if holders of Common Stock (other than Constituent Persons and their
Howard Efron - 6 - U.S. Securities and Exchange Commission March 30, 2011
Affiliates) may elect the kind and amount of securities, cash and other property so receivable, each Holder shall have the same election right with respect to the Exchange Property receivable upon conversion after the Reorganization Event, provided such Holder notifies the Company of its election in writing prior to the Reorganization Event). On each Conversion Date following a Reorganization Event, the Conversion Rate then in effect will be applied to the Exchange Property received per share of Common Stock, as determined in accordance with this Section 12.
Note 1. Organization and Basis of Presentation
Comment 3
Please tell us how you account for your 19.5% equity investment in Polaris and tell us your basis in accounting for such treatment.
Response 3
As indicated in Note 1 to the financial statements included in the Form 10-K, the Company’s policy for investments in entities in which we generally own greater than 20% but less than 50%, or exercise significant influence, but not control, is to account for them using the equity method of accounting. Pursuant to ASC 323 Investments – Equity method and Joint Ventures, significant influence should also be considered. Significant influence can be determined by factors such as representation on the board of directors, participation in policy-making processes, material intercompany transactions, interchange of managerial personnel, and technological dependency.
As of March 31, 2010, although we only held a 19.5% equity investment in Polaris, we exercised significant influence over its operating and financial policies, as well as decisions of Polaris primarily through the two out of ten seats we hold on Polaris’ board of directors.
In line with the equity method of accounting, our initial investment in Polaris was recorded at cost in the Consolidated Balance Sheet and subsequently adjusted to reflect our share of the income or losses of Polaris based on the proportionate size of our investment. Our share of the income or losses of Polaris, based on the proportionate size of our investment, is reported net of tax in our Consolidated Statement of Operations.
Howard Efron - 7 - U.S. Securities and Exchange Commission March 30, 2011
Note 2. Summary of Significant Accounting Policies
Securities purchased under agreements to resell and securities sold under agreements to repurchase, page 99
Comment 4
With regard to your repurchase agreements, please tell us the following:
• Quantify the amount of repurchase agreements qualifying for sales accounting at each quarterly balance sheet date for each of the past three years.
Response: Attached in Annex A is a table providing the amount of repurchase agreements qualifying for sales accounting at each quarterly balance sheet date for each of the past three years.
• Quantify the average quarterly balance of repurchase agreements qualifying for sales accounting for each of the past three years.
Response: Attached in Annex A is a table providing the average quarterly balance of repurchase agreements qualifying for sales accounting for each of the past three years.
• Describe all the differences in transaction terms that result in certain of your repurchase agreements qualifying as sales versus collateralized financings.
Response: All repurchase transactions, where the repurchase date is not the same as the date when the transferred assets mature, are accounted for as collateralized financings. These consist of transactions where the repurchase date may be overnight (i.e. the next business day), open (i.e. no specified repurchase date), or on a term basis (i.e. a specific date beyond the next business day), but not the same date as the maturity date of the transferred assets.
Repo-to-maturity agreements are different from other repurchase agreements in that the repurchase date is the same as the date when the transferred assets mature. We account for repo-to-maturity transactions as sales. In addition, repo-to-maturity sales treatment is only achieved if the three conditions detailed in the next response are met.
• Provide a detailed analysis supporting your use of sales accounting for your repurchase agreements.
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Response: Under U.S. GAAP, a transfer of financial assets in exchange for consideration other than beneficial interests in the transferred assets shall be accounted for as a sale if the transferor surrenders control over those financial assets.
To qualify for sales accounting treatment, a repo-to-maturity agreement must meet the following three conditions, as prescribed in paragraph 5 of ASC 860-10-40, in order for us to demonstrate that we, as the transferor in a repo-to-maturity agreement, have relinquished control of the transferred collateral:
A. Isolation of transferred assets. The transferred assets have been isolated from the transferor—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership.
B. Transferee’s rights to pledge or exchange. Each transferee or each holder of beneficial interests has the right to pledge or exchange the assets (or beneficial interests) it received, and, no condition both constrains the transferee (or holder) from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the transferor.
C. Effective control. The transferor does not maintain effective control over the transferred assets through either an agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity or the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.
We believe the repo-to-maturity agreements that we account for as sales of the underlying collateral assets meet the above three conditions. Our analysis is as follows:
A1. Isolation of transferred assets:
We believe the repo-to-maturity transactions we accounted for as sales meet this condition as the transferred assets in our repo-to-maturity transactions are isolated from the Company. Repurchase agreements can be difficult to characterize because they have attributes of both sales and collateralized financings. They are typically documented as sales with forward repurchase obligations and may be treated as sales in bankruptcy law. However, they are treated as financings in tax law. Repurchase agreements have long been accounted for as collateralized financings, although repo-to-maturity agreements have been traditionally treated as sales.
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The Financial Accounting Standards Board (“FASB”) acknowledged the legal and economic ambiguity of the repurchase agreements when it provided its basis for conclusions in FAS 140, now codified as ASC 860. It also made reference to the legal description of a securities lending transaction by the American Law Institute and implied that this legal description may be applied to repurchase agreements. Following the reasoning in that legal description, the FASB concluded that financial assets transferred under repurchase agreements would qualify for de-recognition as having been sold for proceeds consisting of cash and a forward purchase contract. During the term of the agreement, the transferred assets are isolated from the Company, even in bankruptcy or other receivership.
B1. Transferee’s rights to pledge or exchange:
We believe the repo-to-maturity transactions we accounted for as sales meet this condition as our repo-to-maturity transactions provide the transferee with the legal right and operational ability to pledge or exchange the transferred assets free of any contractual conditions or operational constraints imposed by us.
Our repo-to-maturity agreements are documented and governed under the standard Master Repurchase Agreement, by the Bond Market Association, September 1996 Version. Section 8, Segregation of Purchased Securities, clearly provides the Buyer (the transferee) the right to transfer, resell, repledge or rehypothecate the transferred assets without constraints by the transferor by stating that “…all of Seller’s interest in the Purchased Securities shall pass to Buyer on the Purchase Date and, unless otherwise agreed by Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Securities or otherwise selling, transferring, pledging or hypothecating the Purchased Securities, but no such transaction shall relieve Buyer of its obligations to transfer Purchased Securities to Seller pursuant to Paragraph 3, 4 or 11 hereof, or of Buyer’s obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Paragraph 5 hereof.”
In addition, the underlying collateral securities in our repo-to-maturity agreements are securities that are readily obtained, pledged or transferred in the market place. As such, we believe the transferees in these agreements have the legal rights and operational ability to pledge or exchange the transferred assets free of constraints imposed by us.
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C1. Effective control
We believe we have met the requirement to relinquish control of the transferred asset in our repo-to-maturity transactions. In accordance with ASC 860-10-40.5(c), we do not maintain effective control over the transferred asset through an agreement that either entitles or obligates us to repurchase or redeem the asset before its maturity. In a repo-to-maturity agreement, control is surrendered for the entire remaining life of the transferred asset. The obligation to repurchase the asset at maturity is not considered to provide us with effective control, because, upon receipt of the asset (or a net cash settlement) at maturity, the asset has matured or expired.
• Describe the business reasons for structuring the repurchase agreements as sales transactions versus collateralized financings. To the extent the amounts accounted for as sales transactions have varied over the past three years, discuss the reasons for quarterly changes in the amounts qualifying for sales accounting.
Response: The business rationale for structuring repurchase agreements as sales is to take advantage of opportunities in the market and lock in the return on a transaction for the duration of the security. The cash market and the repurchase markets do not necessarily move in sync and as such there are arbitrage opportunities. As an active market maker and broker-dealer, the Company is very experienced in trading the short end of the fixed income market which allows our traders to take advantage of these arbitrage opportunities. Additionally, the Company’s short duration trading unit is somewhat unique relative to other broker-dealers in that our traders have deep experience in both the cash and repurchase markets, allowing them to quickly identify and capture price movements in, and anomalies between, both markets.
The decrease in the notional size of repo-to-maturity portfolio over the three years ended March 31, 2010 was the result of the tightening of the cash and repurchase markets. With less room for spreads between the two markets, there has been less opportunity for our trading desk to take advantage of the anomalies in the market. As such, the repo-to-maturity portfolio for the Company has been traditionally long since September 2007, as can be seen in Annex A.
• Describe how your use of sales accounting for certain of your repurchase agreements impacts any ratios or metrics you use publicly, provide to analysts and credit rating agencies, disclose in your filings with the SEC, or provide to other regulatory agencies.
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Response: We present ratios and metrics publicly to investors, analysts and credit rating agencies that cover many aspects of our financial and operating performance.
In presenting our consolidated financial results to investors, analysts and rating agencies, we present information such as Revenues, net of interest and transaction based expenses and Earnings per share, as well as average balances from fixed income and stock borrow loan products. These metrics would be affected if our repurchase transactions, which we accounted for as sales, qualified to be, and were accounted for as, collateralized financings.
Specifically, for example, for the year ended March 31, 2010, our (i) Revenues, net of interest and transaction based expenses would have decreased by approximately $2 million if our repo-to-maturity transactions would have been characterized as collateralized financing arrangements, (ii) loss per share would have increased by 1 cent and (iii) average balances related to fixed income and stock borrow loan products would have increased by $6.9 billion.
In our filings with the SEC, we have disclosed our policy for accounting for repo-to-maturity transactions as sales in Note 2 to the Financial Statements in Form 10-K. Additionally, in Note 5 to the Financial Statements of the Form 10-K we disclose the dollar amount of repurchase agreements purchased and sold to maturity at contract value, on a two year comparative basis.
• Tell us whether the repurchase agreements qualifying for sales accounting are concentrated with certain counterparties and/or concentrated within certain countries. If you have any such concentrations, please discuss the reasons for them.
Response: We entered into repo-to-maturity agreements, which, as described above qualify for sales accounting treatment, mainly with inter-dealer brokers including Tradition, ICAP, Tullet and Garban and banks such as UBS. While the trades were executed with these parties bi-laterally, these were primarily novated, settled and margined via the Fixed Income Clearing Corporation (100% was held with the Fixed Income Clearing Corporation at March 31, 2010). The underlying collateral for these repo-to-maturity agreements was U.S. Treasury securities, and as such we had concentration risk with the U.S. as an issuer, which we did not consider a significant exposure.
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• Tell us whether you have changed your original accounting on any repurchase agreements during the last three years. If you have, explain specifically how you determined the original accounting as either a sales transaction or as a collateralized financing transaction noting the specific facts and circumstances leading to this determination. Describe the factors, events or changes which resulted in your changing your accounting and describe how the change impacted your financial statements.
Response: As discussed above, our accounting for repurchase agreements is dependent on whether such an agreement qualifies as a collateralized financing or sale under U.S. GAAP. For repo-to-maturity agreements that meet the criteria for sales accounting under ASC 860, we have consistently accounted for those transactions as sales of the underlying collateral assets. For repurchase agreements that are collateralized financing transactions, we had historically carried these transactions at contract values on our balance sheet, in accordance with historical U.S. GAAP standards, regardless of whether they were overnight, open or term transactions.
However, starting April 1, 2009, in accordance with ASC 825 Financial Instruments, we elected to carry our new term repurchase agreements that are collateralized financing transactions at fair value on our balance sheet, with changes in fair value reported in current earnings. We elected the fair value option for these instruments to more accurately reflect market and economic events in our earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value for the collateral versus carrying value for the repurchase agreement). We continued accounting for our overnight and open repurchase agreements at contract values.
For those repurchase agreements you account for as collateralized financings, please quantify the average quarterly balance for each of the past three years. In addition, quantify the period end balance for each of those quarters and the maximum balance at any month-end. Explain the causes and business reasons for significant variances among these amounts.
Response: Attached in Annex B is a chart providing the average quarterly balance for each of the three years, the period end balance for each of those quarters and the maximum balance at any month-end for those transactions we account for as collateralized financings. We enter into repurchase transactions primarily to facilitate client transactions and may structure them as repos-to-maturity as we identify arbitrage opportunities in the market. The balances reported at each period are reflective of
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transactions conducted in the normal course of business and the related market opportunities available at each point in time.
• Whether you have any securities lending transactions that you account for as sales pursuant to the guidance in ASC 860-10. If you do, quantify the amount of these transactions at each quarterly balance sheet date for each of the past three years. Provide a detailed analysis supporting your decision to account for these securities lending transactions as sales.
Response: We do not have any securities lending transactions accounted for as sales pursuant to the guidance in ASC 860-10.
• Whether you have any other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets, similar to repurchase or securities lending transactions that you account for as sales pursuant to the guidance in ASC 860. If you do, describe the key terms and nature of these transactions and quantify the amount of the transactions at each quarterly balance sheet date for the past three years.
Response: We do not have any other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets, similar to repurchase or securities lending transactions that we account for as sales pursuant to the guidance in ASC 860.
• Whether you have offset financial assets and financial liabilities in the balance sheet where a right of setoff – the general principle for offsetting – does not exist. If you have offset financial assets and financial liabilities in the balance sheet where a right of setoff does not exist, please identify those circumstances, explain the basis for your presentation policy, and quantify the gross amount of the financial assets and financial liabilities that are offset in the balance sheet. For example, please tell us whether you have offset securities owned (long positions) with securities sold, but not yet purchased (short positions), along with any basis for your presentation policy and the related gross amounts that are offset.
Response: We do not offset financial assets and financial liabilities in the balance sheet where a right of setoff – the general principle for offsetting – does not exist.
Howard Efron - 14 - U.S. Securities and Exchange Commission March 30, 2011
Finally, if you accounted for repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets as sales and did not provide disclosure of those transactions in your Management’s Discussion and Analysis, please advise us of the basis for your conclusion that disclosure was not necessary and describe the process you undertook to reach that conclusion. We refer you to paragraph (a)(1) and (a)(4) of item 303 of Regulation S-K.
Response: The Company considered the guidance in paragraph (a)(1) and (a)(4) of Item 303 of Regulation S-K in determining its disclosures in Management’s Discussion and Analysis. For the year ended March 31, 2010, the Company’s repo-to-maturity transactions accounted for as sales are not significant drivers of the Company’s results of operations or changes in financial condition, given their nature and the materiality to the overall financial results. For the year ended March 31, 2010, the impact of repo-to-maturity transactions accounted for as sales to Revenues, net of interest and transactions based expenses was approximately $2 million. For the year ended March 31, 2010, repo-to-maturity transactions were not material to the Company in respect of liquidity, market risk support, or credit risk. As such disclosure in Management’s Discussion and Analysis was not deemed necessary.
Foreign currency translation, page 107
Comment 5
Please tell us how you complied with paragraph 12 of ASC 830-30-45, or tell us how you determined it was appropriate to record the impact of translating monetary assets and liabilities in the Consolidated and Combined Statements of Operations.
Response 5
The Company’s operating entities may have recorded transactions and balances that are denominated in currencies other than each entity’s functional currency. The Company also has several operating entities whose functional currencies are a non-U.S. Dollar currency. ASC 830 sets forth the requirements for remeasuring transactions denominated in currencies other than an entity’s functional currency, and for translating functional currencies into the Company’s reporting currency, U.S. Dollars.
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Paragraph 17 of ASC 830-10-45 addresses remeasurement of the books of record into an entity’s functional currency. It states “the remeasurement process is intended to produce the same result as if the entity’s books of record had been maintained in the functional currency… To accomplish that result, it is necessary to recognize currently in income all exchange gains and losses from remeasurement of monetary assets and liabilities that are not denominated in the functional currency.” Non-monetary assets and liabilities are required to be remeasured at historical exchange rates, while monetary assets and liabilities are remeasured at the current exchange rate at each balance sheet date. Remeasurement of monetary assets and liabilities, as described above, results in a foreign currency transaction gain or loss, which paragraph 1 of ASC 830-20-35 states is to be included in determining net income.
After all records have been remeasured into each entity’s functional currency, the financial statements of each entity with a non-U.S. Dollar functional currency must be translated into the U.S. Dollar reporting currency. According to paragraph 12 of ASC 830-30-45, translation adjustments resulting from the process of translating an entity’s financial statements into the reporting currency shall not be included in determining net income, but shall be reported in other comprehensive income.
Accordingly, the Company follows a two-step process to capture the impact of foreign currency movements from the transactions and financial statements of its operating entities. In the first step, each of the Company’s operating entities remeasures its recorded balances that are denominated in a currency other than its functional currency into that entity’s functional currency, with transaction gains and losses resulting from remeasurement reported in each entity’s income statement.
In the second step, each such entity whose functional currency is a non-U.S. Dollar currency translates its financial statements to U.S. Dollars, with the translation adjustments reported in other comprehensive income as a cumulative translation adjustment in the Company’s consolidated balance sheets.
In our next Annual Report on Form 10-K, we will expand the explanation of our accounting policy for translating monetary assets and liabilities.
Note 15. Commitments and Contingencies, page 131 to 137
Comment 6
We note your legal contingency disclosures and request that you tell us how you have met the requirement of Accounting Standards Codification 450-20-50-4 to
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disclose the amount or range of reasonably possible loss or to indicate that an amount cannot be estimated. The objective of this guidance is to provide valuable disclosure of the amount of reasonably possible loss that is not accrued.
Response 6
In Note 15 to the financial statements, which addresses material contingencies arising from litigation and regulatory proceedings, we have furnished some or all of the following information:
• case name, court in which the claim has been filed, specific claims alleged by claimant;
• a summary of the facts giving rise to the litigation or investigation;
• an amount, if any, that we have reserved in connection with that case or investigation; and
• a summary of the amount, if any, claimed in the complaint or the value of plaintiff’s alleged losses.
Our litigation reserves were established in accordance with ASC 450 based on an assessment of the facts and circumstances for a specific matter or pending regulatory investigation. In instances where we did not furnish any information with respect to a contingent amount or range of loss, it was because the complaint or notice of investigation neither furnished nor articulated a clear claim or demand for damages. In these instances, we believed any estimation of possible losses would not have been meaningful. Accordingly, we believed that our approach in the Form 10-K, described above, towards disclosing material litigation provided investors a more appropriate view of the litigation risks that we faced compared to presenting only a gross range of potential legal costs.
Although we believe that we were in compliance with ASC 450-20-50-4, in our next Annual Report on Form 10-K, to the extent that losses from litigation contingencies are reasonably possible, but not estimable (whether because we cannot glean sufficient information from the pleadings submitted to court or an arbitral body or from investigative authorities or otherwise), we will note that this is the case.
Furthermore, in our next Annual Report on Form 10-K, we will clarify our explanation of accounting for loss contingencies for litigation matters by providing additional disclosures, which may include, among others, (i) stating that we do not record accruals when loss contingencies are not both probable and reasonably estimable; (ii) stating that we may incur losses in excess of the amounts accrued, (iii) for matters where
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losses are reasonably possible, providing an estimate of possible loss or range of loss (individually or on an aggregate basis), or stating that an estimate of such losses cannot be made or is not material; and (iv) where appropriate, stating that such estimate may be based on the amount claimed in the complaint or the value of plaintiff’s alleged losses.
Note 16. Segment and Geographic Information, page 138
Comment 7
We note your disclosure that you have one reportable business segment. Please tell us how you determined it is not necessary to present a reportable segment for your trading on your own account.
Response 7
The Company has been operated and managed on an integrated basis, including those instances where we trade for our own account including during all of fiscal year ended March 31, 2010, the period covered by the Form 10-K. When we traded for our own account during fiscal year ended March 31, 2010, it was primarily to facilitate the execution of existing client orders or in anticipation that future orders would become available to fill the other side of a transaction. However, when facilitating client transactions as a principal, we sometimes chose to not fully offset trades or chose to execute offsetting trades whose terms differ from the clients’ trades. On a limited basis, we may have taken such positions in the market for our own account, to gain ongoing insight into market depth and liquidity, and we may not have always hedged such transactions in order to monetize our market views.
During fiscal year ended March 31, 2010, we also sometimes took positions for our own account in order to hedge our exposure to changes in foreign currency exchange rates and interest rate risks arising from the global character and financial focus of our operations, and also to invest our excess cash.
Trading for our own account was not an exclusive, separately managed activity from the rest of our operations, at March 31, 2010. We did not separately allocate resources for this activity. Therefore, it was not necessary to present this as a reportable segment. As the Company’s business strategy develops, and the Company transitions to an investment bank model in the long-term, this could change and the Company will continue to consider if requirements for presenting segments are met, when preparing future filings.
* * * *
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The Company acknowledges that it is responsible for the adequacy and accuracy of the disclosure in the reports and other filings it makes with the Commission and that Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking action with respect to the reports and other filings. The Company also acknowledges that it may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We appreciate and thank you for the Staff’s patience and cooperation in this matter. We are hopeful that we have adequately addressed each of the Staff’s comments. If you have any questions or comments regarding the foregoing, please do not hesitate to contact me at 212-589-6473 or Randy MacDonald at 212-589-6496.
Very truly yours, /s/ Henri J. Steenkamp Henri J. Steenkamp Senior Vice President, Chief Accounting Officer, and Global Controller
cc: David B. Harms, Sullivan & Cromwell LLP
cc: Laurie R. Ferber, General Counsel
Howard Efron - 19 - U.S. Securities and Exchange Commission March 30, 2011
Annex A – Repurchase Agreements Accounted for as Sales
Balances
De-recognizedQuarterly
AverageQuarterly
MaximumMonth
(in $ billions) 3/31/2010
5.7 6.6 7.4 12/31/2009
8.0 11.9 14.3 9/30/2009
14.2 13.3 14.2 6/30/2009
12.3 12.8 13.3 3/31/2009
11.4 11.5 12.4 12/31/2008
13.1 16.4 18.4 9/30/2008
10.3 9.8 10.3 6/30/2008
8.2 10.8 13.1 3/31/2008
13.8 17.0 20.4 12/31/2007
17.8 17.3 19.7 9/30/2007
12.4 7.8 12.4 6/30/2007
4.7 4.0 4.7 Annex B – Repurchase Agreements Accounted for as Collateralized Financings
Month
Balance Quarterly
AverageQuarterly Maximum (in $ billions) 3/31/2010
29.1 35.6 39.8 12/31/2009
31.3 36.8 39.8 9/30/2009
32.4 32.7 33.5 6/30/2009
28.5 18.1 28.5 3/31/2009
14.3 12.5 14.7 12/31/2008
11.6 14.9 20.4 9/30/2008
14.4 15.2 16.0 6/30/2008
14.3 15.9 18.2 3/31/2008
18.6 22.9 26.6 12/31/2007
22.5 27.9 33.9 9/30/2007
24.7 25.3 26.7 6/30/2007
24.6 24.6 24.6
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