New arrest in SocGen trading scandal

(Reuters) - Police arrested another employee of Societe Generale on Wednesday as they probe the world's biggest rogue trading scandal, Paris prosecutors said.

In January, France's second-biggest listed bank SocGen unveiled 4.9 billion euros ($7.53 billion) of losses which it blamed on rogue deals carried out by Jerome Kerviel, a 31-year old junior trader at the bank.

The losses have made SocGen a possible bid target.

The Paris prosecutor's office identified the latest person being held as a trader from a subsidiary of SocGen.

A source close to the matter said the person being held works for SG Securities, the bank's share brokerage arm.

SocGen declined to identify the person or the division.

 

Read more at Reuters

House's Frank Says Muni-Bond Ratings Are `Ridiculous'

Bloomberg) -- U.S. Representative Barney Frank said it is ``ridiculous'' that bond-rating companies apply tougher standards to local government debt as he prepares to hold a hearing on the soaring interest costs of municipalities.

California Treasurer Bill Lockyer and other state officials are calling for Standard & Poor's, Moody's Investors Service, and Fitch Ratings to change a system they say costs taxpayers by exaggerating the risk that states and cities will default on their debts. Every state except Louisiana would be AAA if measured by the scale used for corporate borrowers, according to research by Moody's Investors Service.

``This notion of having a separate standard for the municipals because they would do too well on the other standard is ridiculous,'' Frank, the Democrat who chairs the House Financial Services Committee, told reporters in Washington yesterday.

Frank's committee today opens a hearing into how states, local governments and other tax-exempt borrowers, which have $2.6 trillion of debt outstanding, are being hurt by the crisis in confidence in U.S. financial markets. The interest costs on auction-rate securities, a type of debt used by municipalities, has almost doubled since January and investors have also demanded higher yields on tax-exempt bonds backed by insurers that are struggling to maintain their own credit ratings.

Insurers' Investments

``The bad investments they have made have dragged down the value of the municipal issuers and cost money for people who want to build schools and roads,'' Frank said in a Bloomberg Television interview today.

Lockyer at today's hearing plans to ask Congress to pressure the rating companies to change their system, spokesman Tom Dresslar said. Other witnesses set to testify include Ajit Jain, the chairman of Berkshire Hathaway Assurance Corp., Laura Levenstein, a senior managing director for Moody's, and New York's superintendent of insurance, Eric Dinallo.

``The current system makes no sense,'' said Dresslar. ``Taxpayers wind up paying billions of dollars in higher interest rates and insurance premiums.''

Because ratings are typically lower on the municipal scale, local governments have paid insurance companies to back their bonds with AAA ratings, seeking to reduce borrowers' costs. With insurers' ratings under pressure because of losses on mortgage debts, states, cities and hospitals have faced higher interest costs on floating-rate bonds backed by the guarantors as investors shun the debt.

 

Read more at Bloomberg

Dollar Falls to Record Low on Concern Fed Package Won't Succeed

(Bloomberg) -- The dollar fell to a record below $1.55 per euro on concern that the Federal Reserve's plan to provide funds to banks won't be enough to break the gridlock in money-market lending and stem credit losses.

The U.S. currency erased more than half of yesterday's 1.6 percent rally versus the yen, the biggest in six months, which came after the Fed said it would extend $200 billion of credit to financial institutions to spur lending. Traders bet the Fed will cut rates by as much as three quarters of a percentage point next week to avert a recession, while the European Central Bank keeps borrowing costs unchanged.

``It's difficult for the dollar to gain traction,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets at Putnam Investments in Boston. ``The Fed is probably running out of options; the market is fixated on interest-rate differentials, which are clearly negative for the dollar.''

The dollar fell to $1.5504 per euro, the weakest since the euro's 1999 debut, and traded at $1.5492 at 10:12 a.m. in New York, from $1.5338 yesterday. The previous historic low was set yesterday. It dropped to 102.32 yen from 103.42, within one yen of an eight-year low. The euro traded at 158.59 yen from 158.61.

Euro gains were limited after Luxembourg Finance Minister Jean-Claude Juncker said he is ``very vigilant'' on the euro in current circumstances and that exchange rates should reflect fundamentals. He spoke to reporters in Brussels.

Gulf Pegs

The yen climbed against major currencies, including a 1.3 percent rally versus South Africa's rand, as a government report showed Japan's economy grew an annualized 3.5 percent last quarter, faster than the 2.3 percent median forecast of economists surveyed by Bloomberg News.

Forward contracts to buy United Arab Emirates dirhams rose the most in two weeks after Economy Minister Sultan Bin Saeed Al Mansouri said the dirham's dollar peg is ``contributing'' to record inflation.

A Qatari official denied in a telephone interview that Gulf central bankers will consider dropping the dollar peg when they meet next week. Gulf countries are under pressure to revalue their currencies or drop dollar pegs after the U.S. currency fell 10 percent against the euro last year and the Fed cut rates. The weaker dollar boosts the cost of imports from Europe, while Gulf states have to follow rate cuts, stoking inflation.

The euro extended its gains against the dollar earlier after a European Union report showed industrial production in the region increased for the first time in three months in January. It rose 0.9 percent from the prior month, more than twice the rate forecast by economists surveyed by Bloomberg.

`Stay Short Dollars'

The euro also rose on speculation ECB President Jean-Claude Trichet will highlight inflation risks today at a press conference. ECB council member Axel Weber yesterday said that he sees ``no room'' to lower rates.

The ECB's main rate is 1 percentage point above the Fed's 3 percent target rate for overnight loans between banks.

Policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed yesterday on a second round of emergency- loans to curb rising money-market rates. The Fed said it will lend Treasuries through a new lending tool and widen the collateral it accepts to include mortgage-backed securities.

``Read the need for such new measures as being a symptom of what ails the world and not a panacea for its problems,'' said David Simmonds, the London-based global head of currency research at Royal Bank of Scotland Plc, the world's fourth- biggest foreign-exchange trader. ``Stay short dollars.''

 

Read more at Bloomberg