Swiss Franc Showdown Looms as Jordan Defends SNB Ceiling

Swiss National Bank (SNBN) interim Chairman Thomas Jordan is facing a showdown with investors as his currency policy endures the biggest credibility test to date.
Within minutes of the franc breaching the 1.20 ceiling versus the euro yesterday for the first time since the measure was introduced on Sept. 6, the central bank declared its determination to fight any further attacks. Jordan, 49, is now in a face-off with investors probing just how far he will go to enforce that threat.


“It’s a wake-up call for the SNB,” said Peter Rosenstreich, chief foreign-exchange strategist at Swissquote Bank SA in Geneva. “They’ve been very successful with their verbal intervention and this is a classic street fight between central banks and markets. Their credibility is going to be questioned and they’ll have to respond in some way.”
The franc, which is considered a haven in times of turmoil, strengthened for a second day after Spanish Prime Minister Mariano Rajoy said that his nation is confronting “extreme difficulty.” The euro region’s fourth-largest economy sold 2.59 billion euros ($3.4 billion) of bonds this week, just covering the minimum amount targeted.
The Swiss currency traded at 1.20186 versus the euro at 6:01 p.m. yesterday in London after surging as high as 1.19995. It has stayed at an average of 1.2069 versus the single currency since Jordan took over as interim chairman on Jan. 9.

‘Risk Aversion’

“Risk aversion has increased, people want to avoid the euro,” said Claude Maurer, an economist at Credit Suisse Group AG in Zurich. “The SNB was probably hoping for a more relaxed Easter break. Jordan’s job won’t get any easier.”
The breach of the ceiling follows an interregnum at the helm of the central bank that is approaching the end of its third month. Jordan was appointed interim chairman after Philipp Hildebrand was forced to quit in January over a currency transaction by his wife, leaving the SNB board with only two members.
The SNB’s supervisory board will discuss the selection of a successor to Philipp Hildebrand on April 13, according to a person with knowledge of the meeting’s agenda. The Bank Council will consider candidates and then propose one to the Swiss government, which has the final say, said the person, who declined to be identified because the matter is private.

‘Very Strong’

Jordan, the frontrunner for the post, described the franc as still “very, very strong” in his latest public remarks on March 15, and reiterated that policy makers are ready to take further measures “if there’s a worsening of the situation.” The Zurich-based central bank on that day kept the ceiling at 1.20 and maintained its benchmark interest rate at zero, saying it still sees deflation threats.
SNB board member Jean-Pierre Danthine said this week that the franc remains “overvalued,” according to the Tribune de Geneve newspaper. While the franc cap helped exporters “avoid the worst,” annual rates in consumer prices will continue to decline this year, he said.
The SNB applies a “zero-tolerance principle” on its cap, Danthine said as recently as March 22. It “ensures day and night that the minimum exchange rate is maintained -- from Sunday night when the markets open in Sydney until Friday night when markets close in New York.”

Inflation Forecasts

The SNB last month lowered its inflation projections throughout the entire forecast horizon, partly as the franc’s ascent pushed down costs of imports. It forecast that consumer prices will fall 0.6 percent this year, before inflation returns in 2013 with a rate of 0.3 percent, accelerating to 0.6 percent in 2014. The economy may expand around 1 percent this year, it said.
Michael Derks, chief strategist at FXPro Financial Services Ltd., said data yesterday showing that Swiss consumer prices rose 0.6 percent in March from February may also have “emboldened traders” by throwing “into question the SNB’s projection that the economy would experience deflation this year.”
“The SNB is being put to the test, with euro-franc now very close to the 1.20 ceiling that it has vowed to defend,” Derks wrote in an e-mailed note from London. “Suddenly, the old safe-haven favorites are back on the big stage.”
The central bank introduced the franc ceiling after the euro area’s fiscal crisis prompted investors to pile into the currency, pushing it to near parity with the euro. It has weakened about 7.7 percent against the euro since the cap’s creation after surging as much as 37 percent in the previous 12 months.

‘Brief Breach’

While the SNB doesn’t disclose whether it’s intervening in markets to defend the ceiling, its foreign currency reserves were at 237.5 billion francs ($258 billion) at the end of March, up from 227.2 billion francs the previous month, according to a statement published yesterday. The central bank spent 17.8 billion francs in 2011 to stem what it called the currency’s “massive overvaluation.”
Melinda Burgess, a currency analyst at Royal Bank of Scotland Group Plc in London, said ongoing euro-region tensions may keep the franc close to the 1.20 ceiling.
“We’ve seen a brief breach and markets may very well want to test the SNB,” she said in a telephone interview. “The euro has its own issues at the moment in terms of periphery stress starting to come back to the fore. But the SNB stance will be to stand tightly behind the floor.”

Bloomberg.com

7 spring home repairs that save you money : Some proactive improvements will also shrink your insurance bill

CHICAGO (MarketWatch) — The recent unseasonably warm weather in many parts of the country has homeowners already contemplating post-winter home repairs and improvements as they begin their spring cleaning.

Some projects should take top priority: Those that will not only make your home safer, but will save you money down the road. In fact, some improvements even will help you shave some bucks off your home-insurance premiums. 

Ideally, homeowners should inspect their houses twice a year, once before heavy spring rains and then again in the fall, said Jim Hunt, owner of Hunt Home Remodeling in Omaha, Neb. That way, they can catch small problems before they become overwhelming. In the springtime, many homeowners also have the advantage of having a fresh tax-refund check in hand, and funding repairs is easier.

It’s not an exhaustive list, but here are seven spring inspections and repairs homeowners should consider in the weeks ahead.

1. Clean and repair gutters

Taking care of a home’s gutters is one of the most requested jobs Hunt’s company handles this time of year. At about $100 to $150 for an average home, it won’t cost that much, he said. But it will prevent plenty of headaches down the road, especially if they weren’t cleaned in the fall.

“It’s not [replacing] the gutter that’s expensive. It’s the water damage” that results from neglected gutters, Hunt said.

When gutters aren’t functioning properly, water may seep into the home’s foundation, for example, and make for costly repair bills. Also look for other areas where water is liable to pool near the foundation.

2. Check the roof

After the winter, it’s a good idea to have your roof checked before spring showers hit, Hunt said. During the inspection, it’s common to find broken shingles that need to be replaced.

Checking it out won’t break the bank: It may cost a couple hundred dollars for a check and minor repairs, he said. Just make sure you’re using a reputable company for the inspection.

An inspection might reveal it’s time to replace the roof. For areas prone to hail, impact-resistant roofing is an option — and may earn homeowners a discount on home insurance. For example, insurer State Farm offers a discount of up to 30% for the upgrade in areas that are prone to hailstorms, said Missy Dundov, a company spokeswoman.

3. Prepare for bad weather

It’s also the time to brace for storms in the months ahead. Making proactive improvements will have an impact on the amount of damage to a home, improving safety and lessening storm repair costs, said Jim Gustin, senior property specialist for Travelers, an insurance firm.

Those in areas prone to damaging winds might consider installing a reinforced garage door or retrofitting an existing one, Gustin said. The garage door is one of a house’s weakest points, and strong winds can blow it in, pressurizing the home and potentially lifting off the roof, he said. 

Other proactive measures homeowners may consider include installing storm shutters in hurricane-prone areas and a generator in places where homes tend to lose electricity for stretches of time.

Make sure to ask your insurance carrier about discounts that may come with these improvements. Discounts vary by state and by company, said Jeanne Salvatore, spokeswoman for the Insurance Information Institute.

4. Clean out vents

Soffit vents can get clogged with dust and other debris, and can be easily cleaned with a small compressed air can, Hunt said. This will ensure proper ventilation in the attic, and make heating and cooling more efficient.

It’s also a good idea to get your air conditioner serviced now, so it’s running efficiently when you need to run it in the hotter months, he said. Along those same lines, make sure your caulking is in good condition around doors and windows.

5. Repair the deck

Give your deck a good cleaning, and you may stumble across damage that needs to be addressed, Hunt said. Check for loose and rotten boards and get them taken care of before summer, since the deck is often a popular hangout spot during parties and barbecues.

While you’re at it, pay attention for cracked sidewalks that can be a trip hazard, he said. Repairing them often isn’t as expensive as you may think.

6. Improve home security

Many homeowners know to check the batteries in their smoke detector around the time they change the clocks for daylight saving time. But it could pay to take even more steps to improve your home’s security: According to the Insurance Information Institute, it’s not unusual to get discounts of 5% for a smoke detector, burglar alarm or deadbolt locks.

Customers of State Farm award this combination with up to a 2% discount: Deadbolts on your doors, fire extinguishers and updated smoke alarms, Dundov said. The addition of carbon monoxide detectors often don’t come with discounts, but are recommended nonetheless.

For a more sophisticated security system, such as one that alerts a control center of fire or burglary, or a sprinkler system, insurance companies often provide an even bigger discount on insurance premiums.

7. Check appliances

While doing your spring cleaning, take a good look at your appliances. It pays to inspect appliance hoses such as those connected to washing machines, since weaknesses could lead to water damage down the road.

Too often, people discover weak hoses after it’s too late. Homeowners “don’t realize it until something happens and a hose breaks or bursts and they wind up with a lot of water damage in the home,” Gustin said. 

Market Watch

Madoff FBI Files Reveal How He Fooled His Own Employees

Ruby Washington/The New York Times/Redux

Bernard Madoff, chairman of Bernard L. Madoff Investment Securities, on the trading floor in New York. 

 

 

After several drinks at a Greek restaurant on Manhattan’s Third Avenue in the summer of 2006, two computer programmers at Bernard Madoff’s investment firm asked their supervisor whether the boss’s business was a scam.
Chief Financial Officer Frank DiPascali laughed off the question, telling George Perez and Jerome O’Hara that Madoff was honest. DiPascali would later tell the FBI he wondered why they took so long to ask.


His chronicle of the dinner, and the lengths to which Madoff went to convince employees that his massive fraud was a legitimate business, were revealed for the first time in FBI reports made public last week. Attached to court filings by ex- Madoff employees facing fraud charges, they contain interviews with DiPascali -- Madoff’s chief aide -- who in 2009 pleaded guilty to his role in the biggest Ponzi scheme in U.S. history.
Once, when Perez and O’Hara confronted Madoff and asked why there was no sign of stock trades, Madoff exploded, DiPascali told the FBI.
“You are not going to tell me how to run my business,” Madoff insisted during a meeting in the office of the firm’s operations chief, Daniel Bonventre, according to DiPascali. “Trades occur overseas.”
Madoff, 73, pleaded guilty to fraud in 2009 and is serving a 150-year term for cheating investors out of $20 billion in principal. Five employees -- Perez, O’Hara, Bonventre, Annette Bongiorno and Joann Crupi -- are accused of aiding Madoff in his fraud. Defense attorneys said they’ll use DiPascali’s comments to establish their clients were unaware of Madoff’s scheme.

Starting in 1968

Bonventre and Bongiorno began working for Madoff in 1968, with Bongiorno rising to the level of supervisor and account manager. Crupi, an employee since 1983, tracked daily bank account activity, prosecutors said. Perez and O’Hara started at the firm in the early 1990s.
The five were arrested in 2009 and 2010. In addition to DiPascali, who began working for Madoff in 1975, former employees David Kugel, Enrica Cotellessa-Pitz and Eric Lipkin have pleaded guilty and are aiding prosecutors.
Most of the FBI reports are snippets of DiPascali’s debriefings from mid-2009 to mid-2010, with one coming as recently as February. Yet to be sentenced and free on bail, DiPascali has been cooperating with the government.
His description in the heavily redacted files of the 2006 dinner is the most detailed account yet of how Madoff deceived subordinates.
A Crook?
Asked if his boss was a crook, DiPascali said he gave Perez and O’Hara the same explanation Madoff had given him.
“The explanation involved the idea that, because Madoff was trading not as an agent but as principal, making these trades out of his own inventory that was kept at various places overseas, he was able to allocate these trades to customers after the fact, back-date their trades, and do other things with the accounts a broker acting as an agent would not be able to do,” the FBI report states. DiPascali “reassured them that Madoff had so many investments and assets.”
Identified in some FBI reports only as “Individual,” DiPascali dated Madoff’s deception to the early 1970s, when Bernard L. Madoff Investment Securities LLC was housed in a small office on Wall Street. In their guilty pleas, Madoff and DiPascali traced the Ponzi scheme to the 1980s or later.

‘Vocally Proclaim’

“Madoff would very vocally proclaim he had just had achieved great financial success with a deal he had been arranging in Europe or somewhere else,” DiPascali told the Federal Bureau of Investigation. The report stated that “while not understanding it at the time, Individual eventually realized those pronouncements were calculated by Madoff to perpetuate” the impression that “trading activity was somehow backed up by his deals and investments overseas.”
Early on, Madoff began planning for a fraud that might last for years, DiPascali told agents.
“Well before it actually happened,” Madoff expected that outside auditors would want to see his firm’s books, and he asked his lieutenant, DiPascali, to “start creating them,” they wrote in an FBI report.
“To accomplish this task, Individual needed the expertise of O’Hara and Perez,” the report stated. “Without revealing the true reason why Madoff wanted the records, Individual needed to come up with a plausible story as to why O’Hara and Perez needed to create records that they undoubtedly presumed already existed.”

Fooling Auditors

DiPascali succeeded, convincing the programmers that auditors would require only a subset of data to be included on trade blotters they could produce, according to the FBI report. Still, DiPascali said he faced “an even larger hurdle” in persuading them to fabricate the actual data, one report states.
So DiPascali reminded Perez and O’Hara that Madoff’s purported “split-strike” strategy entailed the purchase of large blocks of securities in piecemeal fashion, creating voluminous records that would confound outside auditors. To simplify matters, he told them he’d gather a list of Madoff counterparties.
“Then Individual, O’Hara and Perez could populate more detailed blotters, using the ‘actual’ counterparties with whom BLMIS traded, without it being necessary to replicate precisely the data associated with each trade,” an FBI report states.
Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in New York, and DiPascali’s lawyer, Marc Mukasey, declined to comment on the FBI documents.

Grew Suspicious

Eventually, O’Hara and Perez grew suspicious. After dinner with DiPascali at the Greek restaurant, they confronted Madoff and urged him to quit the financial advisory business, DiPascali told the FBI.
“Madoff began by politely reminding them he had been doing this for 40 years, that they were computer programmers -- for an obsolete system no less -- and they simply did not understand what they were talking about,” DiPascali told the FBI. Seated at a desk reviewing some figures, Madoff then regaled them with tales of his exploits in the industry, DiPascali said.
According to the FBI documents, it wasn’t just the programmers whom Madoff duped. Madoff told DiPascali to hide from Bonventre the refusal of O’Hara and Perez to participate in what the reports said were “special programming” projects. Crupi also appeared to have faith in Madoff, DiPascali told investigators.
“DiPascali surmised that Madoff may have fed Crupi the same tidbits of information as Madoff had fed to him over the years,” leaving the impression that Madoff had “things under control,” an FBI report states.

‘A Home Run’

One of those tidbits was Madoff’s occasional outburst that a stock upstairs at his offices in Midtown Manhattan -- where he ran a legitimate trading business -- had “hit a home run,” DiPascali told the FBI. At other times, when Crupi asked why she was finding the prices of the stocks she was purportedly buying in the prior day’s newspaper, Madoff told her “the trades were happening in the trading room even though she did not see them,” DiPascali reported.
“Crupi had convinced herself over the years that Madoff had a vast array of assets all over the world,” DiPascali told the FBI. “In Crupi’s mind, Madoff was illiquid in 2008 because the worldwide economic downturn had tied up all of Madoff’s assets.”
After Madoff’s arrest on Dec. 11, 2008, Crupi and Bonventre told authorities “exactly the same” story, one FBI report states. Asked why their comments matched, “DiPascali surmised that Madoff was probably telling Bonventre the same lies he told Crupi.”

Lied to Subordinates

DiPascali lied to subordinates until the moment of Madoff’s arrest, he told the FBI. The day before, after Madoff instructed him to issue checks to favored employees, DiPascali said he realized that he couldn’t do so until convincing Bongiorno “to cash out” certain accounts.
“DiPascali needed to fabricate a story to convince Bongiorno,” an FBI report states. “DiPascali did not know how Bongiorno would handle the truth” so he “concocted a story” about an upcoming audit that required her to cash out.
George Mehler, a lawyer for O’Hara, declined to comment, saying only that their court motion “speaks for itself.” Bonventre’s lawyer, Andrew Frisch; Bongiorno’s attorney, Maurice Sercarz; and Perez’s lawyer, Larry Krantz, declined to comment.
“There’s presumably more to come,” Crupi’s lawyer, Eric Breslin, said of the FBI reports, submitted as part of the ex- workers’ request in Manhattan federal court that prosecutors disclose additional details about the government’s allegations.
In papers filed with the FBI reports, the lawyers for Perez and O’Hara said the documents, which had been withheld for almost two years, “dramatically bolstered” their defense. They complained about multiple redactions in FBI reports and said they’re now “in the dark” as to when their clients are accused of having learned of Madoff’s fraud.
The disclosures “are nothing short of remarkable,” Mehler and Krantz wrote. “Given this disclosure, the current indictment is hard to understand at all.”

Bloomberg.com