In the news article featured here in September 2011, the Dutch glassworkers pension fund (SPVG) was ordered by De Nederlandsche Bank (DNB, or the equivalent of the Dutch central bank) to sell the bulk of its gold assets. News is out that the “Order” has been overturned by the court, and the pension fund is now claiming damages amounting to €10m - the difference between the current gold price and the price when the gold was sold a year ago.
Court overturns Dutch regulator’s order to slash gold allocation
NETHERLANDS – A Rotterdam court has overturned the Dutch pensions regulator’s recent demand that SPVG – the pension fund for glass manufacturers – divest more than three-quarters of its 13% gold allocation.
The regulator is now facing a claim for damages, estimated at €10m-11m – the difference between the current gold price and the price when the gold was sold a year ago, according to Rob Daamen, the scheme’s deputy secretary.
The court said it was not convinced the regulator had fully taken into account the scheme’s specific conditions, or the entirety of its investment portfolio.
It also concluded that interpretation of the so-called ‘prudent person’ rule should be the sole prerogative of the pension fund, and that the regulator’s task was simply to ascertain whether this standard had been applied correctly.
“[The regulator] has not made clear in any way why a gold allocation of 13% is not in conformity with the prudent person rule, and that an allocation of 3% is,” the court said.
It also dismissed the watchdog’s reference to the drop in the gold price in 1980, or its standard deviation estimate of 33.7%.
Instead, it pointed to the scheme’s statement that the gold price had increased steadily over the last 10 years, and that the standard deviation between 2000 and 2010 had been no more than 13.1%.
In its verdict, the court said it would re-open the investigation before it delivered a verdict on the damages.
Spokesman Cees Verhagen said the regulator would look over the verdict closely before deciding whether to appeal the ruling.
[Updated] Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa. Here are the main points of his resignation letter.
‘It makes me ill how callously people talk about ripping their clients off’
Firm ‘more interested in making money than the clients’ interests’
Claims colleagues called clients ‘muppets’ and talked of ‘ripping eyeballs out’
Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people, and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.
I knew it was time to leave when I realized that I could no longer look students in the eye and tell them what a great place this was to work.
When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
How did we get here?
The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example, and doing the right thing. Today if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? A) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. B) “Hunt elephants.” In English: Get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. C) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today many of these leaders display a Goldman Sachs culture quotient of exactly 0 percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the SEC, Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you, they will eventually stop doing business with you. It doesn’t matter how smart you are.
These days the most common question I get from junior analysts about derivatives is: “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out,” and “getting paid” doesn’t exactly turn into a model citizen.
When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, and learning how they defined success and what we could do to help them get there.
My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Eric Sprott, one of the most vocal critics of the global financial system, wants to start a bank. But it won’t be like any bank most people are used to seeing.
Mr. Sprott and the asset management firm he founded, Sprott Inc. (SII-T), are investing in an Ontario-based currency trading company known as Continental Currency Exchange Corp. They, along with the current management of Continental, are applying to federal regulators for permission to turn the 17-branch operation into the Continental Bank of Canada. They expect to get a decision early next year.
The bank Mr. Sprott and his partners envisage would seek to address all the things that Mr. Sprott has warned against in the global financial system, such as too much leverage and a lack of confidence in paper currency.
Continental Bank would take deposits, but it would make no loans, unlike most current banks that are built on a model of lending out far more money than they actually have on hand.
Taking it a step further, customers who don’t trust government-issued currency may some day be able to keep their deposits in the form of gold and other precious metals that they could tap for everyday purchases. That idea is in keeping with Mr. Sprott’s musings about chequing accounts backed by precious metals – customers could deposit gold, then make purchases by cheque and have their accounts debited accordingly.
“Our firm, Sprott Inc., and Eric have taken a very committed view that the financial system requires a substantial reset,” Sprott Inc. chief executive officer Peter Grosskopf said in an interview. Given that, “Eric has always thought that offering consumers access to an unlevered bank is a good idea,” he said.
In a levered financial system, relatively small losses by banks on their loans and investments can push a bank close to collapse. This bank would have no leverage and instead would make money thanks to profit margins on services such as selling foreign exchange and precious metals.
“It’s the old commerce model of providing service instead of credit,” said Scott Penfound, vice-president of operations at Continental Currency.
Mr. Penfound will stay on to manage the business and he and his family will continue to own 49 per cent of the company. Mr. Sprott and Sprott Inc. would together control 51 per cent of the bank, with Mr. Sprott having the larger share. Sprott Inc.’s stake would be a passive one, Mr. Grosskopf said.
Fear of financial system meltdown and a loss of value in paper currency as central banks print more and more money drove gold to record highs approaching $2,000 (U.S.) an ounce before last week’s big selloff in financial and commodity markets.
Much of the buying has been driven by people who share Mr. Sprott’s concerns about the financial system and who believe that some day gold and silver may once again be the foundation of commerce. Mr. Sprott wrote in a July commentary that he believes that “gold and silver are the ultimate alternative for a chequing account in a vulnerable banking jurisdiction.”
One of the criticisms of gold as an alternative to paper currency has always been that it is not very practical. Secure storage is an issue, and it is not easy to take a few ounces to the store to buy groceries or to pay for the dry cleaning.
Being able to write a cheque against an account at an institution that actually holds physical gold or silver brings the idea of precious metals as an everyday currency closer to reality.
To be sure, the gold-based banking idea is a long-term goal. For Continental, having a stamp of approval from regulators will set it apart from other companies operating in the foreign exchange and metal sales businesses, Mr. Penfound said. The company will also have more capital, thanks to the new investors, to expand and to deal with regulatory requirements.
Another more immediate benefit of a banking licence is access to the interbank foreign exchange trading system, which would allow Continental to offer more services to customers, Mr. Grosskopf said.
For example, instead of simply offering to exchange Canadian dollars for foreign currency at its branches around Ontario, Continental could sell its clients pre-paid currency cards that they could take when travelling to foreign countries.
“We can sleep at night because risk is not something in the model,” Mr. Penfound said.
(Reuters) - The U.S. futures regulator may break with other agencies on a much-anticipated plan to ban most proprietary trading by banks, and could opt to put forth a slightly different version of the Volcker rule.
An independent approach from the Commodity Futures Trading Commission could raise questions about coordation and embolden banks to challenge the Volcker rule, although the agency — which polices futures and derivatives markets - is not believed to play a central role in implementing it.
Gary Gensler, the head of CFTC, is taking a “wait and see” approach to the rule, a key provision in last year’s Dodd-Frank oversight law that would prohibit banks from trading for their own profit in securities, derivatives and certain other financial instruments.
It also would prohibit banks from investing in or sponsoring hedge funds or private equity funds.
“He said we might, if it’s the will of the commission, put forward … a virtually identical proposal with the other regulators, or we could go it alone,” said Scott O’Malia, a Republican commissioner at the CFTC, who said he had spoken to Chairman Gensler on Friday. “He’s not committing either way.”
Both the Federal Deposit Insurance Corp and the SEC are scheduled to vote next week on the Volcker rule, which has already forced banks to scale back previously lucrative proprietary trading.
O’Malia said the decision was a bit of a surprise because in past rules, such as financial product definitions with the SEC and documentation with the FDIC, the CFTC worked with the regulators on the rules.
“It is odd when you look at in the past when there’s been a kind of a negotiated solution of otherregulatory agencies that we must do this,” he said.
A source familiar with the CFTC’s thinking said Gensler is waiting to see how Congressional lawmakers react to the Volcker rule proposal before deciding how to move forward.
A CFTC spokesman could not be reached for comment.
TANGENTIAL
A person familiar with the rulemaking process said the CFTC is only tangentially mentioned in the Volcker rule, and it is unclear what the implications would be if the CFTC takes an alternative approach.
The futures regulator could chose to define a hedge fund and private equity fund in a rulemaking with the Securities and Exchange Commission, or it could chose to embrace the rule drafted by the SEC, this person said.
A September 30 draft of the rule that was leaked earlier this week listed the staff of 4 different regulators that had worked on the plan, but the CFTC was not among them. It later said the staff had consulted the CFTC on the proposal.
Supporters such as Democratic Senators Carl Levin and Jeff Merkley say the Volcker rule, will prevent banks, which enjoy government support through deposit insurance and access to Fed funding, from engaging in risky trades and force them to focus more on their customers’ needs.
Wall Street banks such as Goldman Sachs and Morgan Stanley are watching whether the rule will still give them flexibility to hedge risk, and whether it will have a broad enough exemption for market makers.
Banks have said that if the regulations written to enforce the Volcker rule are too stringent, it could strip billions of dollars from Wall Street profits, hurt market liquidity and place U.S. financial companies at a disadvantage .
Stock markets rose yesterday and the gold price plunged as investors regained some optimism about the state of the global economy. The German DAX settled 0.84% higher yesterday, with Britain’s FTSE 100 also tacking on a 0.55% gain. In America, the Dow Jones Industrial Average posted a 1.29% increase to settle at 11320.71, while the Russell 2000 index of small-cap stocks recorded a 1.39% gain. Japan’s Nikkei has settled 2% higher today, while Hong Kong’s Hang Seng Index closed up 1.1%.
Price action in the commodity sector was mixed. Copper, Brent crude and Nymex gasoline futures all settled higher – indicative of “risk on” trades being implemented – though precious metals such as silver, platinum and palladium all sold-off. Silver fell by more than $3 an ounce, while the front-month platinum and palladium contracts were down $53 and $21 respectively.
All of this was small fry, however, in comparison with the losses in gold. The August Comex gold contract lost a whopping 5.6% ($104.20) to settle at $1,754.10 per troy ounce. In dollar-terms, this decline is second only to the $143.50 plunge that occurred after the gold price reached an inflation-adjusted peak in January 1980. However, in percentage terms there have been even sharper declines than yesterday’s 5.6% loss in recent years.
Given the incredible gains in the gold price witnessed in recent weeks, such a down move is unsurprising, and is indeed a healthy part of a sustainable bull market. Such moves force speculators and other weak hands out of the market – with more and more committed gold holders using the price dip as an opportunity to buy more physical metal.
Stronger-than-expected US durable goods data for the month of June was partly responsible for the bullish mood on Wall Street and the rout in the gold market. Economists had only expected a 2% increase, when in actual fact the data showed a 4% rise. As Robert Wenzel points out at his blog, the surge in the US money supply in recent months is starting to result in improved economic statistics, as well as rising prices at both the producer and consumer levels.
Margin hikes at the New York Comex and the Shanghai Gold Exchange have also contributed to the downward move in gold prices. The Comex has raised the amount of money needed to trade gold contracts by 27% to $9,450 per 100-ounce contract, following on from the Shanghai Gold Exchange’s decision to raise margin requirements by 26% on Monday. Higher margins mean futures traders must stump up more cash in order to buy and hold gold futures – which tends to encourage selling. Clearing houses will tend to raise margins in response to big price rises, as a means of reducing volatility.
In addition to the above pressures, this week is options expiration week at the Comex. The largest banks operating on this exchange write a lot of the call options on gold futures; thus, they have an incentive to aggressively short gold in the days leading up to and on the day of the expiration of certain calls, so that they expire worthless – meaning that the banks make the maximum profit from selling these options.
None of this should detract from the long-term fundamentals that are underpinning steady rises in precious metal prices. As the old saying goes, bull markets take the stairs up and the elevator down. Or, as the American investor James Dines notes: “the very function of declines in a major bull market is to keep investors out – until the top. The very function of rallies in a major bear market is to keep investors in – until the bottom.”
Two weeks after the CME hiked gold margins by 22%, and two days after the Shanghai Gold Exchangesent them higher by 26%, here comes the CME, as we expected, with another 26% gold margin hike (previously: “Should we expect 3 more SGE margin hikes in the next 2 weeks? Or will the CME rightfully accept the baton and do everything in its power to dent the parabolic rise in the alternative reserve currency? We are cautiously looking at what the CME will do today and will advise readers.”).
And now we know that this particular margin hike was leaked well in advance, and explains the entire $100 plunge in gold today. And as a reminder, the August 1 CME margin hike worked… for about 30 minutes.
While the college debt bubble has been extensively discussed on Zero Hedge (here, here and here) and elsewhere, the reality is that without college student loans, as cheap as they may be, the vast majority of students would not be able to afford going to college, untenable (and non-dischargeable) post-graduation leverage be damned. Please ignore for a second […]
When it comes to rescuing an insolvent country, continent, or entire financial system, at the end of the day it is a simple question of maths: is "doing it" cheaper than the alternative. Recall that the IIF was heaping fire and brimstone on bondholders and threatening the world with $1+ trillion in losses if bondholders did not comply. That nobody […]
NETHERLANDS – A Rotterdam court has overturned the Dutch pensions regulator’s recent demand that SPVG – the pension fund for glass manufacturers – divest more than three-quarters of its 13% gold allocation.
Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people, and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
More Charts: 1-Month, 1-Year, 5-Year, 10-Year
More Charts: 1-Month, 1-Year, 5-Year, 10-Year
