Derivatives/Hedging Deals: By Citibank U.S.A Standard Charter Bank U.K Deutsche Bank Germany

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Two South Korean quasi-sovereigns managed to avoid paying new issue concessions on their US dollar bonds last week on the strength of their appeal to top-tier investors. Japanese banks are piling into rare Japan-targeted loans from commodity trading giants Bunge and Louis Dreyfus to diversify their international exposure, adding to a run of so-called Ninja loans. The launch of the long-awaited Shanghai tech board is fast approaching, with the first IPO aspirant set to open books this week, but the actual start of trading may be delayed well into August as the new bourse mulls its options.

Alibaba Group Holding is planning a one-to-eight share split ahead of a listing in Hong Kong later this year. China Satellite Communications has priced its Rmb1. Bank of Suzhou was set to conduct pricing consultations last Friday for a Rmb2.

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Access a digital edition of the latest print magazine here. If you have forgotten your password, or would like to find out more about IF subscriptions, please email rm. IFR SSA Special Report Best laid plans: Few would be so presumptuous as to lay claim to the ability to plot the progress of the global economy with unerring accuracy on a constant basis. But there are still many that make the prediction game their stock in trade — with varying degrees of success.

The one asset class that the great and good of the global economy seems to be worried about — leveraged loans — is just about the only one that has made money for investors in Skip to main content Skip to navigation Home Home. Structured Finance.

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This was in stark contrast to Aas's portfolio, which was undiversified and heavily concentrated in a smaller and less liquid market. These episodes underscore the importance of maintaining sufficient market liquidity for central clearing to support default management in stressed conditions, and of applying a reliable long-term perspective in order to set accurate margins Cunliffe So, although Lehman's portfolio was much larger, CCP default management teams could hedge and reduce risks, allowing orderly auctions to take place over a number of weeks following the default.

These two defaults happened 10 years apart, under very different circumstances. Yet the lesson is timeless: sound risk management and preparation make all the difference between a CCP that absorbs a shock, and one that propagates it.

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Together, these features underpin the CCP-bank nexus. On the back of post-crisis policy initiatives, both the share of centrally cleared OTC derivatives contracts and the exposures between banks and CCPs have increased substantially. Currently, these stand at 4. This is the case for credit derivatives blue line and even more so for IRDs red line. Clearing concentration is most obvious at the level of market segments centre panel. Netting efficiency is one of the drivers of CCP concentration.

Duffie and Zhu show that CCPs can reduce the aggregate amount of margin by enabling multilateral netting across different counterparties. Thus, the fewer the CCPs through which banks clear their derivatives transactions, the lower the associated collateral and capital requirements. A handful of systemically important banks typically comprise the main clearing members. The top five clearing member banks contribute around one half of prefunded resources for credit derivatives and more than one third for interest rate derivatives Graph 2 , right-hand panel.

A key driver of this concentration is large fixed costs: members need to meet not only CCPs' membership requirements, but also maintain technical infrastructure, contribute to the default fund and have the capacity to monitor CCPs carefully.

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Derivatives transactions may hedge but they also generate risks. Specifically, they expose users to market risk, liquidity risk, and counterparty credit risk. The key function of a CCP that clears a derivative transaction between two banks is to manage the counterparty credit risk. By clearing this transaction, the CCP severs the bilateral link between the two banks and becomes the counterparty to each of them. The DF is part of the CCP's "war chest" for managing counterparty risk see below : it appears as a liability on the CCP's balance sheet and as an asset on the banks' balance sheets.

Second, while initially the cleared transaction has zero market value, it has already left a footprint on the balance sheets of the banks and the CCP. In a hypothetical scenario without any market shocks, the CCP simply repays the IM at the maturity of the transaction. Graph 3 underscores a key difference between CCP and bank balance sheets. Illiquid assets eg loans are a hallmark of the banking model and take up a substantial part of banks' balance sheets. By contrast, CCPs hold exclusively liquid assets.

Market movements affect the price of the derivative, triggering balance sheet adjustments Graph 4. The bank that has incurred a mark-to-market loss - Bank A in our example - recognises this loss by posting variation margin VM with the CCP. In the process, this bank draws down its liquid assets, writing off the same amount of capital on the liability side.

The exchange of VM through the CCP typically takes place daily and prevents the build-up of exposures. In the current context, counterparty credit risk is the risk that a bank does not meet a margin call, ie defaults on its payment obligation to the CCP. To mitigate this risk, the CCP will aim to fulfil its part of the transaction with the minimum possible loss.

The resources on which the CCP can draw will depend on the size of the default loss, as illustrated in the so-called default waterfall see Domanski et al Graph 5. Some layers of the default waterfall are not specific to central clearing while others are. In the event of a clearing member's default, a CCP first absorbs losses by drawing on the IM that the defaulter has posted.

This is similar to how a counterparty's margin would be used to cover losses in a non-cleared transaction. If the defaulter's IM is insufficient, the CCP has access to resources that would not have been available in a bilateral trade, starting with the defaulting member's contribution to the DF. But CCPs differ from banks, in that they can continue as going concerns even after exhausting their SITG: they have other resources, sometimes even more junior, to absorb credit losses.

For one, the CCP can draw on the DF contributions of all non-defaulting clearing members, not only the one s that had initially transacted with the defaulting member s. It is in this sense that clearing members cross-insure through a mutualised DF. If this does not suffice, the CCP can resort to members' unfunded commitments. It can ask for supplemental funds from surviving members cash calls or retain part of their variation margin gains variation margin gains haircutting VMGH. In other words, the CCP has loss-absorbing capacity that goes beyond its balance sheet: the CCP itself would not fail as long as the loss mutualisation process continues to work.

CCPs manage counterparty credit risk through the different layers of the default waterfall. Banks take into account CCPs' rules in their risk-taking behaviour. Both activities influence each other. A CCP seeks to ensure that the prefunded resources posted by clearing members ie IM and DF are sufficient to cover even extreme losses with high certainty.

The IM is set to cover the potential changes in the value of a trade. To this end, the CCP sets IM based on three key parameters: i the likelihood of large fluctuations in the price of the underlying asset; ii the expected time needed to close the position at fair price; and iii the desired confidence level for the loss at default. The behaviour of banks influences that of CCPs and vice versa. On the one hand, banks' risk-taking affects how IM and DF are determined. For instance, a CCP will require a high IM for a bank with a very concentrated position because it would expect to close the position over a long time period and with a large price impact.

On the other hand, contributing to the CCP's default waterfall imposes costs on banks. For instance, the size of IM affects the cost of derivative trading see eg Pirrong , Murphy et al These costs can affect banks' risk-taking. The default waterfall structure further complicates these interactions, as the size of the losses determines which layers come into play. Hence, the level of market stress affects the interactions between CCPs and banks. Drawing on historical examples of CCPs for exchange-traded derivatives, this section illustrates the CCP-bank nexus using three stress scenarios that differ in terms of the affected layers of CCP loss-absorbing capacity.

Higher stress in the second scenario puts at risk further layers of the default waterfall, including the SITG and the DF. The third scenario refers to an extreme level of stress, at which the CCP would turn to unfunded commitments, by calling on member banks. The increase in market volatility leads to liquidity strains.

As volatility increases, a CCP issues IM calls, because the likelihood of further large fluctuations in the price of the underlying asset also rises Graph 6 , right-hand panel. In meeting IM calls at short notice, en masse, banks may face larger-than-normal haircuts on liquid assets a "fire sale" , or may even need to tap into their illiquid assets Graph 6 , left-hand panel.

A feedback loop could then arise, as the banks' fire sales might spill over into the derivatives markets, especially if banks sell precisely those assets that were stressed in the first place. The spillback could then exacerbate the very volatility that prompted the IM calls. A key characteristic of this scenario is that the CCP, fearing the depletion of its default fund, postpones margin collections from a stressed bank ie forbears.

The Brexit referendum led to large margin fluctuations on 24 June The outcome surprised markets, causing sharp swings in exchange and interest rates and thereby triggering large intraday margin calls for banks in the interest rate swap markets.

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Lewis, for his part, states he didn't recall requesting such a letter. The acquisition made Bank of America the number one underwriter of global high-yield debt , the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisitions. Many major financial institutions had a stake in this lawsuit, including Chicago Clearing Corporation , hedge funds , and bank trusts, due to the belief that Bank of America stock was a sure investment. The additional payment was part of a deal with the U. Congress have expressed considerable concern about how this money has been spent, especially since some of the recipients have been accused of misusing the bailout money.

House of Representatives, however, were skeptical and quoted many anecdotes about loan applicants particularly small business owners being denied loans and credit card holders facing stiffer terms on the debt in their card accounts.

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As a result of its federal bailout and management problems, The Wall Street Journal reported that the Bank of America was operating under a secret "memorandum of understanding" MOU from the U. With the federal action, the institution has taken several steps, including arranging for six of its directors to resign and forming a Regulatory Impact Office.

Bank of America faces several deadlines in July and August and if not met, could face harsher penalties by federal regulators. The bank announced it had completed the repayment on December 9. Bank of America's Ken Lewis said during the announcement, "We appreciate the critical role that the U. As America's largest bank, we have a responsibility to make good on the taxpayers' investment, and our record shows that we have been able to fulfill that commitment while continuing to lend.

The bank approved the bonuses before the merger but did not disclose them to its shareholders when the shareholders were considering approving the Merrill acquisition, in December The issue was originally investigated by New York State Attorney General Andrew Cuomo , who commented after the suit and announced settlement that "the timing of the bonuses, as well as the disclosures relating to them, constituted a 'surprising fit of corporate irresponsibility ' " and "our investigation of these and other matters pursuant to New York's Martin Act will continue.

Liman, son of Arthur L. Liman , represented the bank. On September 14, the judge rejected the settlement and told the parties to prepare for trial to begin no later than February 1, The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank's shareholders, who were the ones that were supposed to have been injured by the lack of disclosure. He wrote, "It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims' money should be used to make the case against the management go away," And all this is done at the expense, not only of the shareholders, but also of the truth.

Case: SEC v. Bank of America Corp. In , the U. Former bank official Douglas Campbell pleaded guilty to antitrust, conspiracy and wire fraud charges. Circuit Court of Appeals ruled that the finding of fact by the jury that low quality mortgages were supplied by Countrywide to Fannie Mae and Freddie Mac in the "Hustle" case supported only "intentional breach of contract," not fraud.

The decision turned on lack of intent to defraud at the time the contract to supply mortgages was made. In December , Forbes ranked Bank of America's financial health 91st out of the nation's largest banks and thrift institutions. Bank of America cut around 16, jobs in a quicker fashion by the end of as revenue continued to decline because of new regulations and a slow economy. This put a plan one year ahead of time to eliminate 30, jobs under a cost-cutting program, called Project New BAC.

The locations were converted to Huntington National Bank branches in September. As part of its new strategy Bank of America is focused on growing its mobile banking platform. As of [update] , Bank of America has 31 million active online users and 16 million mobile users. Its retail banking branches have decreased to 4, as a result of increased mobile banking use and a decline in customer branch visits.

By , the number of mobile users has increased to Bank of America has offices in Hong Kong, Shanghai, and Guangzhou and was looking to greatly expand its Chinese business as a result of this deal. The bank agreed with the U. Since the settlement covered such a substantial portion of the market, he said for most consumers "you're out of luck. Much of the government's prosecution was based on information provided by three whistleblowers — Shareef Abdou a senior vice president at the bank , Robert Madsen a professional appraiser employed by a bank subsidiary and Edward O'Donnell a Fannie Mae official.

Even though Bank of America operates Community Bank customer services are not interchangeable between the two financial institutions, [94] meaning a Community Bank customer cannot go to a Bank of America branch and withdraw from their account and vice versa. In April , Bank of America announced that it would stop providing financing to makers of military-style weapons such as the AR rifle.

In , Bank of America began expanding organically, opening branches in cities where it previously did not have a retail presence. Bancorp , the largest non-Big Four rival. In January , Bank of America announced an organic expansion of its retail footprint into Pittsburgh and surrounding areas, to supplement its existing commercial lending and investment businesses in the area.

Starting in , customers will be able to use voice or text to communicate with Erica and get advice, check balances and pay bills. Digital banking head Michelle Moore said the technology was designed to help customers do a better job of managing money. Forrester analyst Peter Wannemacher says bank customer experiences with the technology have been "uneven or poor," but Bank of America intends to adapt Erica as needed. The core of Bank of America's strategy is to be the number one bank in its domestic market.

It has achieved this through key acquisitions. Consumer Banking, the largest division in the company, provides financial services to consumers and small businesses including, banking, investments and lending products including business loans, mortgages, and credit cards. It provides stockbroker services via Merrill Edge , an electronic trading platform. The company is also a mortgage servicer. The Consumer Banking organization includes over 4, retail financial centers and approximately 15, automated teller machines.

Bank of America is a member of the Global ATM Alliance , a joint venture of several major international banks that provides for reduced fees for consumers using their ATM card or check card at another bank within the Global ATM Alliance when traveling internationally. This feature is restricted to withdrawals using a debit card and users are still subject to foreign currency conversion fees, credit card withdrawals are still subject to cash advance fees and foreign currency conversion fees.

The Global Banking division provides banking services, including investment banking and lending products to businesses. Its strongest groups include Leveraged Finance , Syndicated Loans , and mortgage-backed securities. It also has one of the largest research teams on Wall Street.

The Global Markets division offers services to institutional clients, including trading in financial securities. The division provides research and other services such as market maker and risk management using derivatives. The tower, and accompanying hotel, is a LEED-certified building. The resulting pay ratio is estimated to be This settlement amount makes the NMS the second largest civil settlement in U.

Oklahoma held out and agreed to settle with the banks separately. The government asserted that Countrywide , which was acquired by Bank of America, rubber-stamped mortgage loans to risky borrowers and forced taxpayers to guarantee billions of bad loans through Fannie Mae and Freddie Mac. According to the Bureau, roughly 1. The deceptive marketing misconduct involved telemarketing scripts containing misstatements and off-script sales pitches made by telemarketers that were misleading and omitted pertinent information.

The unfair billing practices involved billing customers for privacy related products without having the authorization necessary to perform the credit monitoring and credit report retrieval services. As a result, the company billed customers for services they did not receive, unfairly charged consumers for interest and fees, illegally charged approximately 1.

Price, over allegations that the bank's management withheld material information related to its merger with Merrill Lynch. A lawsuit has been filed against Bank of America by a former senior executive, Omeed Malik, who was accused of sexual harassment. Parmalat SpA is a multinational Italian dairy and food corporation. Prosecutors did not immediately say whether they would appeal the rulings.

In Parma , the banks were still charged with covering up the fraud. The bank was criticized for raising rates on customers in good standing, and for declining to explain why it had done so. After the video went viral , she was contacted by a Bank of America representative who lowered her rate.

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  • The story attracted national attention from television and internet commentators. In October , Julian Assange of WikiLeaks claimed that his organization possessed a 5 gigabyte hard drive formerly used by a Bank of America executive and that Wikileaks intended to publish its contents. In November , Forbes published an interview with Assange in which he stated his intent to publish information which would turn a major U.

    In December , Bank of America announced that it would no longer service requests to transfer funds to WikiLeaks, [] stating that "Bank of America joins in the actions previously announced by MasterCard , PayPal , Visa Europe and others and will not process transactions of any type that we have reason to believe are intended for WikiLeaks This decision is based upon our reasonable belief that WikiLeaks may be engaged in activities that are, among other things, inconsistent with our internal policies for processing payments. Later in December, it was announced that Bank of America purchased more than Internet domain names in an attempt to preempt bad publicity that might be forthcoming in the anticipated WikiLeaks release.

    The domain names included as BrianMoynihanBlows. On March 14, , members of hacker group Anonymous began releasing emails said to be from a former Bank of America employee. According to the group, the emails documented alleged "corruption and fraud". In the state of Arizona launched an investigation into Bank of America for misleading homeowners who sought to modify their mortgage loans. According to the attorney general of Arizona, the bank "repeatedly has deceived" such mortgagors. In response to the investigation, the bank has given some modifications on the condition that the homeowners remove some information criticizing the bank online.

    On May 6, , Bank of America announced it would reduce its financial exposure to coal companies. The announcement came following pressure from universities and environmental groups. The new policy was announced as part of the bank's decision to continue to reduce credit exposure over time to the coal mining sector. The Robert B. Atwood Building in Anchorage, Alaska was at one time named the Bank of America Center, renamed in conjunction with the bank's acquisition of building tenant Security Pacific Bank.

    This particular branch was later acquired by Alaska-based Northrim Bank and moved across the street to the Linny Pacillo Parking Garage.

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    Through a number of mergers it was later known as the Industrial National Bank building and the Fleet Bank building. The building was leased by Bank of America from to and has been vacant since March The building is commonly known as the Superman Building based on a popular belief that it was the model for the Daily Planet building in the Superman comic books. It is located in Downtown Miami. From Wikipedia, the free encyclopedia. This article is about a commercial bank unaffiliated with any government.

    For the French illustrator, see Gus Bofa. American multinational banking and financial services corporation. Investment banking financial services. Operating income. Net income. Main article: Bank of Italy United States. Securities and Exchange Commission. February Retrieved April 2, Retrieved September 9, Archived from the original on January 7, Retrieved December 17, Retrieved August 17, Business Insider.

    Retrieved August 11, Click "Browse locations by state. Retrieved June 30, Retrieved November 9, July 11, Retrieved August 10, Bank of American sets the standard for banking in the modern era. Retrieved March 23, Famous Entrepreneurs by Evan Carmichael. Archived from the original on August 27, Retrieved August 25, The Seattle Times.

    Retrieved on August 25, University of California Press. Retrieved on Retrieved March 25, Bucyrus OH Images of America. United States: Arcadia Publishing. Report for the U. Federal Reserve System. Visa Inc. Archived from the original on November 3, Retrieved October 29,