Saturday, October 27, 2012

Royal Bank of Canada Supoenaed in LIBOR Probe

Royal Bank subpoenaed in LIBOR probe

The Canadian Press Posted: Oct 26, 2012 10:40 AM ET Last Updated: Oct 26, 2012 1:33 PM ET

There are reports that Royal Bank of Canada has been served with a subpoena from U.S. state officials as part of their probe into the possible manipulation of a key benchmark used to set interest rates.

The Wall Street Journal and other business publication report the subpoenas were issued to nine banks, including RBC, in August and September, according to an unidentified person familiar with the investigation.

That brings to 16 the number of banks served with subpoenas, including seven that had become public earlier.

Global investigation
The U.S. investigation by the New York and Connecticut attorneys general is part of a wider probe in several countries that stems from a major U.K. bank's admission that it had provided false information used to set the LIBOR rate.

RBC is Canada's largest bank, with operations in major financial centres around the world including London.

The bank said last summer that it followed the rules in submitting information for compiling the London Interbank Offered Rate, which is used widely as a benchmark to set interest rates on business and consumer debts.

That assurance was repeated Friday in RBC's response to the news reports.

"We have determined that our Libor submissions reflected our cost of funds," said Gillian McArdle, head of communications for Canada at RBC Capital Markets.

Rate-fixing alleged
The rate is set by gathering information from a small number of large banks, using a system that's intended to prevent any one member of the group from manipulating the rate.

Questions about how LIBOR is operated arose after Barclays Bank agreed to pay a record $450 million fine to settle allegations its traders had manipulated submissions to LIBOR.

While Barclays actions by themselves were probably insufficient to affect LIBOR, there authorities in Britain and elsewhere have launched probes to see if it was a more widespread problem.

Canada's competition bureau and other Canadian regulatory bodies launched their own probes in light of the Barclay's revelations but there have been no allegations levelled against RBC.

Spire Law Group $43 Trillion Law Suit Defendant List

    Individual Defendants:
  1. ROBERT  BAUER, an individual Chief Legal Counsel for the Obama Re-election Campaign
  2. JEREMY BEN-AMI, an individual
  3. DAVID BROCK, an individual,
  4. MICHAEL BROSNAN, an individual
  5. JON CORZINE, an individual - former New Jersey Governor and CEO of MF Global
  6. JOSEPH  CRUDO, SR., an individual
  7. JOSEPH CRUDO, JR, an individual
  8. HOWARD DICKSTEIN, an individual
  9. SCOTT DREXEL, an individual
  10. ANITA DUNN, an individual -  former White House Communications Director
  11. JOSEPH DUNN, an individual
  12. JENNINE ENGLISH, an individual
  13. JERRY FALK, an individual
  14. TIMOTHY GEITHNER, an individual - United States Treasury Secretary
  15. ERIC GEORGE, an individual
  16. THOMAS V. GIRARDI, an individual
  17. KAMALA HARRIS, an individual - California Attorney General
  18. MYA HARRIS-WEST, an individual
  19. ERIC HOLDER, an individual - United States Attorney General
  20. JOHN HOONEN, an individual
  21. JEFFREY HUVELLE, an individual
  22. VALERIE JARRETT, an individual - Senior White House Advisor
  23. PETER KRAUSE, an individual
  24. WALTER LACK, an individual
  25. THOMAS LAYTON, an individual
  26. DANIELLE LEE, an individual
  27. KENNETH LEWIS, an individual
  28. HOWARD MILLER, an  individual
  29. DAVID J. PASTERNAK,  an individual
  30. VIKRAM PANDIT, an individual - recently resigned Chairman of the Board of Citigroup
  31. MARY ROBERTS, an individual
  32. ALAN ROTHENBERG, an individual
  33. ALAN I. ROTHENBERG, an individual
  34. ROBERT RUBIN, an individual - former United States Secretary of the Treasury
  35. SANDOR SAMUELS, an individual
  36. TODD TORR, an individual
  37. WILLIAM WARDLAW, an individual
  38. ANTHONY WEST, an individual - United States Assistant Attorney General
  39. DOUGLAS WINTHROP, an individual

  40. Government Entities:
  41. UNITED STATES OF AMERICA, as an involuntary plaintiff
  42. THE STATE OF  NEW YORK, as an involuntary plaintiff

  43. Corporate Entities:
  44. 1ST CENTURY BANK aka FIRST CENTURY BANK, an entity form unknown
  46. ALLY BANK, N.A., in its own capacity and as an acquirer of certain assets and liabilities OF GMAC

Greed and Debt:
The True Story Of Mitt Romney and Bain Capital

 How the GOP Presidential Candidate and His Private Equity Firm Staged An Epic Wealth Grab, Destroyed Jobs – And Stuck Others With The Bill

In Romney's version of the tale, Bain Capital – which evolved into what is today known as a private equity firm – specialized in turning around moribund companies (Romney even wrote a book called Turnaround that complements his other nauseatingly self-complimentary book, No Apology) and helped create the Staples office-supply chain. On the campaign trail, Romney relentlessly trades on his own self-perpetuated reputation as a kind of altruistic rescuer of failing enterprises, never missing an opportunity to use the word "help" or "helped" in his description of what he and Bain did for companies. He might, for instance, describe himself as having been "deeply involved in helping other businesses" or say he "helped create tens of thousands of jobs."

The reality is that toward the middle of his career at Bain, Romney made a fateful strategic decision: He moved away from creating companies like Staples through venture capital schemes, and toward a business model that involved borrowing huge sums of money to take over existing firms, then extracting value from them by force. He decided, as he later put it, that "there's a lot greater risk in a startup than there is in acquiring an existing company." In the Eighties, when Romney made this move, this form of financial piracy became known as a leveraged buyout, and it achieved iconic status thanks to Gordon Gekko in Wall Street. Gekko's business strategy was essentially identical to the Romney–Bain model, only Gekko called himself a "liberator" of companies instead of a "helper."

Here's how Romney would go about "liberating" a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent. When an LBO is done without the consent of the target, it's called a hostile takeover; such thrilling acts of corporate piracy were made legend in the Eighties, most notably the 1988 attack by notorious corporate raiders Kohlberg Kravis Roberts against RJR Nabisco, a deal memorialized in the book Barbarians at the Gate.

Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.

But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt.

Now your troubled firm – let's say you make tricycles in Alabama – has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. With all that new debt service to pay, the company's bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.

"That interest," says Lynn Turner, former chief accountant of the Securities and Exchange Commission, "just sucks the profit out of the company."

Fortunately, the geniuses at Bain who now run the place are there to help tell you whom to fire. And for the service it performs cutting your company's costs to help you pay off the massive debt that it, Bain, saddled your company with in the first place, Bain naturally charges a management fee, typically millions of dollars a year. So Tricycle Inc. now has two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in "management fees." Since the initial acquisition of Tricycle Inc. was probably greased by promising the company's upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.

Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up.

This business model wasn't really "helping," of course – and it wasn't new. Fans of mob movies will recognize what's known as the "bust-out," in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company's credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. "It's the bust-out," one Wall Street trader says with a laugh. "That's all it is."

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