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Thursday, March 27, 2014

Don't Be Fooled!

It's April Fools' Day on Tuesday, so stay alert. And if at all possible, try to prank a kid.

haha nope, sorry kid

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Just because you’re an adult doesn’t mean you have to act like one. Have fun, and go prank a kid!

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Citi-wide failure

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Citigroup can now claim worst-in-class stress test performance. For the second time in three years, the Federal Reserve rejected the bank's capital plan. Citi proposed raising its dividend from a penny to 5 cents and repurchasing up to $6.4 billion in stock. However, the Fed rejected the plan, saying it doubted the "overall reliability of Citigroup's capital planning process".

Embarrassingly for Citi management, Bloomberg's Michael Moore and Elizabeth Dexheimer write that the Fed found issues in planning areas it had previously flagged. These include the bank's "ability to project losses in 'material parts of its global operations' and to reflect all business exposures in its internal stress test". In February, Citi announced it had uncovered $400 million in loan fraud in its Mexican subsidiary, forcing it to restate its 2013 earnings.

While Citi passed the Fed's quantitative hurdles, it failed on qualitative grounds. Matt Levine explains:

The stress test is not just a test of capital; it's a test of morality. And that's the test that Citi failed... Citi thinks that it would have enough capital in a crisis, even after raising its dividend and doing a $6.4 billion stock buyback. The Fed also thinks that. But the Fed worries that Citi's thought process to get to that result was wrong, even though the result was right, or at least right enough.

The FT says that Citi, and in particular CEO Mike Corbat, has put a lot of time and resources into not just improving that thought process, but explaining it. Corbat has focused on "cultivating close relationships with regulators in Washington", report Reuters' Emily Stephenson and David Henry. Nevertheless, the WSJ says Corbat was surprised by the decision and forced to hold an emergency board and management meeting.

CLSA analyst Mike Mayo thinks "heads should roll" at Citi. Or at least the head of CFO John Gerspach. Mayo says the result, after Citi's dismal performance during the financial crisis and the previous rejection of its capital plan in 2012, is "strike three" against Gerspach. "Citigroup needs to change the CFO, bottom line".

Despite taking over just a year and a half ago, Corbat shouldn't feel too comfortable either. His $14.5 million in 2013 compensation was in part tied to improving "risk outcomes and controls" and regulator relationships. Vikram Pandit was removed as CEO in part due to his failure to get a Citi's capital plan approved by the Fed in 2012. Pandit found out that part of a CEO's job is to avoid surprises. That doesn't bode well for Corbat. -- Ben Walsh

On to today's links:

Abenomics
Japan needs to learn to love inflation - Matthew O'Brien
And it shouldn't raise its sales tax - Matthew Klein

China
China's boom will end with a standard credit bust, not a Lehman moment - Peter Boone and Simon Johnson

Equals
Raising the minimum wage is a women's issue - the White House

Study Says
The Federal Reserve: a modern central bank since 1951, 1975, or maybe 1995 - Cleveland Fed

Charts
685 pages in six charts: condensing Piketty's inequality story - John Cassidy

Explained
How to turn 50% into 15%: what I learned negotiating with Steve Jobs - Heidi Roizen

Yikes
Law firms trust Chinese hackers to uphold attorney-client confidentiality - Matthew Goldstein

Crisis Retro
BofA settles mortgage case with Fannie/Freddie for $9.3 billion - Reuters

IPOs
Spotify wants to go public sometime this fall - Quartz

Niche Markets
Hong Kong's neon sign industry - Laughing Squid

Comparisons
Yoox, the Amazon of the fashion world - Telegraph

 
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Business Today: Wall Street slips as banks, techs drag; S&P flat for 2014

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03/27/2014
Reuters Election 2012 Daily round-up of the day's top news from the campaign trail, the White House and all the politics in between
Wall Street slips as banks, techs drag; S&P flat for 2014
NEW YORK (Reuters) - U.S. stocks fell on Thursday, erasing most of the S&P 500's year-to-date gain, as banking and technology stocks led the selloff.
Microsoft CEO signals new course with Office for iPad
SAN FRANCISCO (Reuters) - Microsoft Corp's new CEO Satya Nadella finally unveiled Office for Apple Inc's iPad in a polished debut that set him apart from his energetic predecessor while signaling his plans to make mobile apps the top priority at the world's largest software company.
U.S. senator urges GM to tell owners of recalled cars not to drive them
WASHINGTON (Reuters) - General Motors should promptly warn consumers not to drive GM cars recalled because of faulty ignition switches that can unexpectedly turn off engines and air bags as the vehicles are running, U.S. Senator Richard Blumenthal said on Thursday.
U.S. economy shows some muscle, housing still weak
WASHINGTON (Reuters) - The U.S. economy grew a bit faster than previously estimated in the fourth quarter and new claims for jobless aid dropped to a near four-month low last week, suggesting the economy has plenty of momentum to break out of its winter chill.
Comcast's Cohen to testify on Time Warner Cable merger
WASHINGTON (Reuters) - Comcast Corp's Executive Vice President David Cohen will testify at a hearing in the U.S. Senate on April 9 about his company's plans to buy Time Warner Cable Inc, a Comcast spokeswoman said on Thursday.
SEC's Gallagher seeks reforms to stop activist shareholder proposals
WASHINGTON (Reuters) - U.S. corporate governance rules make it too easy for activist investors to get politically driven shareholder proposals onto public company ballots and should be overhauled, a top U.S. Securities and Exchange Commission official said Thursday.
Alstom shares sink on risk of fine in U.S. bribery probe
PARIS/WASHINGTON (Reuters) - Alstom shares fell sharply on investors' fears that the French engineering firm could face a heavy fine from the U.S. Justice Department as a result of a bribery investigation that has spread across Asia.
Ex-Dewey finance director admits accounting was false
NEW YORK (Reuters) - Dewey & LeBoeuf's ex-finance director pleaded guilty to grand larceny last month and admitted he knew false financial statements were being provided to the firm's lenders, according to court documents unsealed on Thursday.
Vivendi to examine Bouygues SFR offer: sources
PARIS (Reuters) - Vivendi will examine the latest Bouygues offer for its SFR telecoms subsidiary while respecting a three-week exclusivity period for talks with a rival bidder, two sources familiar with the matter said.
Qatar buys helicopters, missiles in $23 billion arms deals
DOHA (Reuters) - Qatar announced contracts worth about $23 billion on Thursday to buy attack helicopters, guided missiles, tankers and other weapons from Boeing Co , Airbus and other arms makers as the Gulf state accelerates its military build-up.
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