Hawke in Gulf trade push

MORE investors from the Middle East are expected to target the Australian mining and agricultural sectors.

This, following the first business trade mission to the region earlier this month.

The Australia Gulf Council’s inaugural business mission to the Gulf states included summits in Kuwait, Saudi Arabia and the United Arab Emirates.

The mission was led by former prime minister Bob Hawke and former treasurer Peter Costello and included 15 leading Australian business representatives from companies including ANZ, Telstra, GPT, Leighton and Competitive Foods. Servcorp, RM Williams, Smec Holdings and NewSat also were represented.

Future business missions to the region are expected to include Bahrain, Oman and Qatar.

The chairman of the Australia Gulf Council, Alastair J. M. Walton, said the delegation was pushing investment opportunities in the food and the agricultural industries, real estate, communications, engineering construction and consultancy services.

Australia Gulf Council chief executive Michael Yabsley said Australian business representatives on the trip were looking at trade and investment opportunities in the region.

“Our belief is that while there is a long-standing and strong relationship, it can be stronger,” he said. “There can be more Australian investment in the Gulf states, and there can be more from the Gulf states in Australia.”

During meetings with the Jeddah Chamber of Commerce and Industry, Mr Hawke urged Saudi Arabia to produce more food in Australia. He said there were “enormous”opportunities for food co-operation between the two countries.

He also talked up educational opportunities. “Australia is a highly competitive country economically with a quality education system, which means that Saudis wishing to study in Australia can depend on a safe and secure society, quality education of world standards and friendly people,” Mr Hawke said.

He did the same at the Kuwait Chamber of Commerce and Industry, where the council also pushed for a resumption of talks for a free-trade agreement between Australia and the Gulf Cooperation Council. The GCC has suspended talks on all pending free-trade agreements.

Kuwait is the biggest importer of live Australian sheep within the GCC. However, Mr Costello said he hoped Australia would expand its trade relations with Kuwait and other GCC states to go beyond the export of live sheep to include other commodities, mining services, construction and engineering expertise, telecommunications and education.

Mr Costello, who works for investment bank BKK Partners, urged Kuwait to invest more heavily in Australia through property deals, tourism and aviation.

E*Trade in first profit in three years

ONLINE broker E*Trade Financial is back in black, posting a surprising second-quarter profit and its first in three years.

E*Trade’s stock surged 8.4 per cent to $US14.49 in after-hours trading as the company broke a string of 11 consecutive quarterly losses. The stock closed up 4.5 per cent at $US13.35 and is down 1.8 per cent over the past 12 months.

E*Trade, which has been battered by bad loans made by its banking unit, reported its seventh straight drop in loan-loss provisions, or the amount of money it must set aside for current and future losses.

Net charge-offs, or loans that E*Trade doesn’t think it can collect, were $US225 million ($252m), falling 42 per cent from a year ago.

Like several regional banks that reported earnings today, E*Trade bolstered its earnings by releasing about $US60m from its loan-loss reserves rather than adding to them.

When a lender releases loan-loss reserves, it is a sign the company thinks it has set aside enough capital to cover its coming losses.

The improvement in E*Trade’s loan books in the second quarter was the difference for the company between a profit and a loss.

In an interview with Dow Jones Newswires, E*Trade chief executive Steven Freiberg said: “The most significant dollar change (for the company) has been continued improvement in delinquencies and therefore write-offs and provisions in the legacy loan book.”

E*Trade said special-mention delinquencies, or those of 30 to 89 days, fell 14 per cent from the first quarter and 23 per cent from a year ago. However, loans delinquent for 180 days or longer were flat from the first quarter. Total delinquent loans fell 12 per cent from a year earlier.

Given the current state of the US economy, Mr Freiberg, who took over as CEO on April 1, said E*Trade could continue to see declining loan delinquencies into 2011, though he warned that the macro-environment is essential for such a trend.

The New York company’s loan-loss provision dropped sharply to $US166m from $US405m a year ago and fell by 38 per cent sequentially. The second quarter included a $US15m benefit of a legal settlement related to purchase loans.

E*Trade swung to a profit of $US35m, or US12 cents a share, from a loss of $US2.16, or $US143m, a year earlier. Results from a year ago were adjusted for a 1-for-10 reverse stock split, which took effect last month.

Revenue fell 14 per cent to $US534m.

Analysts polled by Thomson Reuters most recently had projected a loss of 11 cents on revenue of $US299m.

E*Trade reported daily average revenue trades, or DARTs — a figure closely watched by analysts — of 170,000, up 10 per cent from the first quarter but down 16 per cent from a year ago. E*Trade, like many of its peers, saw a trading benefit from the US stockmarket’s “flash crash” on May 6.

Mr Freiberg said, however, that trading in June was “not anywhere near as robust,” adding that the “residual effects of the flash crash have caused more investors to become concerned”.

FSA loses latest insider-trade case

A JURY in London acquitted two men charged with insider trading, dealing a blow to the UK Financial Services Authority as it strives to showcase a new tough-on-crime persona.

The FSA had charged Peter Andrew King and Michael McFall with insider trading in advance of a June 2006 pharmaceuticals deal, but the London jury yesterday delivered a not-guilty verdict in less than two hours.

The acquittals overshadowed the FSA’s announcement earlier in the day that it had slapped a JP Morgan Chase unit with a 33.32 million ($57.8m) penalty, the regulator’s largest-ever fine, for failing to separate client money from the firm’s accounts.

The FSA said it expected to bring similar cases against other banks in coming weeks.

After years of rarely filing criminal charges, the agency once derided for being a toothless regulator of The City of London has revved up its law-enforcement efforts with a recent flurry of arrests, police raids, criminal charges and other headline-grabbing actions. But the FSA has successfully prosecuted only a handful of criminal cases, mostly against small-time offenders, and it is under pressure to show that it can win a major case.

The swift loss of its most recent insider-trading case stunned FSA officials, who believed that the complex case would take the jury days to decide.

FSA enforcement chief Margaret Cole said that insider-trading cases are notoriously tough to prove and that “we remain 100 per cent committed to the strategy of achieving credible deterrence”.

The acquittal comes at an inopportune time for the FSA. Doubts are swirling about the agency’s future as the UK’s new coalition government eyes an overhaul of the country’s regulatory apparatus.

In the JP Morgan case, the FSA said that over a nearly seven-year period the US bank’s JPMorgan Securities unit, based in the UK, failed to properly segregate billions of dollars in institutional clients’ money from the company’s own funds.

“Had the firm become insolvent at any time during this period, this client money would have been at risk of loss,” the agency said, calling the mistake “a serious breach of our client money rules”.

The agency said JP Morgan reported the problem when it was discovered and that the error wasn’t deliberate.

Clients didn’t lose any money and the mistake didn’t result in any incorrect financial reporting, the FSA said.

A JP Morgan spokesman declined to comment.

“This is a staggering fine for what is in effect an administrative oversight. If this doesn’t serve to wake up every senior manager to check that he or she has carefully identified all risks and is properly managing them, then nothing will,” said Simon Morris, a partner at London law firm CMS Cameron McKenna.

The FSA said the penalty was appropriate because as much as $US23 billion ($27.3bn) in client funds were improperly intermingled with JP Morgan’s own funds.

The fine would have been 47.6 million if JP Morgan hadn’t agreed to resolve the case at an early stage, which made it eligible for the FSA’s standard 30 per cent discount for speedy settlements.

The FSA’s previous largest fine was 17m against Royal Dutch Shell in 2004 for market abuse.

SocGen exec named in inside trade case

JEAN-PIERRE Mustier, the highflying banker who headed Societe Generale’s investment banking arm when the French bank was rocked by a trading scandal in 2008, is stepping down after being named in an insider-trading investigation.

The inquiry by France’s stockmarket regulator into alleged insider trading by Mr Mustier did not relate to the €4.9 billion ($8.4bn) trading scandal, according to the bank, which gave no further details of the investigation.

Mr Mustier rejected the insider trading allegations, SocGen added. A lawyer for Mr Mustier, Jean Veil, said the “probe has absolutely nothing to do with the (Jerome) Kerviel affair”, referring to the trading scandal.

As part of its insider-trading probe, the French stockmarket watchdog wants to determine whether Mr Mustier knew that the sub-prime mortgage crisis would hit the bank hard when he sold half of the SocGen shares he owned on August 21, 2007, a person familiar with the probe said.

By selling some SocGen shares before the bank disclosed sub-prime related losses, the market watchdog suspects that Mr Mustier may have locked in gains of between €50,000 and €200,000, the person said.

Mr Mustier already had been expected to leave the bank by year’s end. Still, the regulator’s probe marks an unfortunate close to the 22-year career of a man who once was expected to end up with the bank’s top job. The son of a surgeon, Mr Mustier joined SocGen in 1987 and took over the corporate and investment-bank division in 2003.

He led a largely successful push to make SocGen a top player in the cutting edge niche of equity derivatives and certain areas of fixed income.

Last year, however, Mr Mustier became the point man in answering questions about the bank’s shocking twin announcements that were made on January 2008: for €2.05 billion in writedowns on mortgage securities or credit exposure and, more significantly, a €4.9bn trading loss racked up at the hands of trader Jerome Kerviel.

In the wake of the trading scandal, Mr Mustier had offered his resignation, but it had been rejected on the grounds that he needed to help SocGen get back on-track. In subsequent months, the bank had put Mr Mustier in charge of the asset-management and investor-services division.

In its statement yesterday, SocGen also said that Robert Day, a non-executive director, was also under investigation by the French regulator for alleged insider trading, and that he had also rejected the allegations.

The bank said the proceedings against Mustier and Day came in the wake of an investigation, started in 2008, into the bank’s financial information disclosure and the trading of its shares.

“In view of the ongoing (inquiry), Jean-Pierre Mustier has decided, in the interest of the group, to anticipate his departure and has tendered his resignation, which has been accepted,” the bank said in the statement.

As recently as last Wednesday, when SocGen announced second-quarter earnings that were better than expected, Mr Mustier had fielded questions from analysts about the group’s asset management and investor services activities.

The French regulator wasn’t available for comment.

Goldman secret trade code stolen: FBI

A FORMER Goldman Sachs employee has been charged with stealing computer codes related to the firm’s high-speed trading platform.

Sergey Aleynikov, a naturalised US citizen who emigrated from Russia, allegedly unlawfully copied, duplicated, downloaded and transferred computer codes from a New York-based financial institution and uploaded the codes to a computer server in Germany, according to a complaint filed by federal prosecutors.

The complaint from the government didn’t specifically reference Goldman Sachs. Goldman Sachs was referenced during Saturday’s bail hearing, and a person familiar with the matter confirmed that Mr Aleynikov worked as a computer programmer for the company.

The person familiar with the matter also said the theft has had no impact on Goldman Sach’s clients and no impact on its business. The person said the codes involved Goldman Sachs’ proprietary trading, which is its business of trading securities with its own money.

Goldman Sachs has historically relied on proprietary trading for a large share of its revenue. The company does not break out specific profit or revenue for this business. The allegedly stolen codes related to proprietary trading that is done using computers.

Brad Hintz, a former chief financial officer for Lehman Brothers, said any theft of the codes would likely not have any serious impact on how Goldman does business. Whoever got their hands on the code might simply be able to execute a trade a bit faster than the securities firm, he said.

“There’s a lot more to Goldman Sachs than one (proprietary) trading desk, or even all of prop trading,” said Mr Hintz, now an analyst with Sanford Bernstein. “Wall Street’s systems may be the best in the world…this wouldn’t be an end-of-the-world event.”

Shares of Goldman closed up $US2.97, or 2.1 per cent, at $US146.46.

The alleged actions took place between June 1 and Friday, when Mr Aleynikov was arrested as he got off a flight at Newark Liberty International Airport. Mr Aleynikov worked at Goldman as a computer programmer from about May 2007 until about June 5.

Many Wall Street firms have cut back on riskier forms of proprietary trading since the onset of the financial crisis. However, there has been some indication that Goldman and others are ramping up this business again.

Questioned by Federal Bureau of Investigation officials, Mr Aleynikov admitted only to “unwitting conduct,” that whatever he is accused of doing wasn’t done on purpose. Mr Aleynikov’s lawyer, federal defender Sabrina Shroff, said she believed her client was innocent.

According to the complaint, Mr Aleynikov said after his arrest that he “only intended to collect ‘open source’ files on which he had worked, but later realised that he had obtained more files than he intended”.

He also “claimed that he did not distribute any of the proprietary software that he obtained from the financial institution” and had agreed with the new employer not to use unlicensed software.

Mr Aleynikov was granted bail. Bail includes a $US750,000 ($941,000) personal recognisance bond secured by three financially responsible persons and $US75,000 in cash.

He must surrender all travel documents, and travel is restricted to New Jersey and the southern and eastern districts of New York — Manhattan and Long Island.

FBI special agent Michael G. McSwain said in the filing that the computer codes were related to a platform that allowed Goldman Sachs to engage in high-speed and high-volume trades on stock and commodities markets.

The bank considers the code to be proprietary, confidential information and trades made on the platform generate millions of dollars in profits each year for the company.

The filing said Mr Aleynikov was given access to the computer code as part of a team responsible for developing and improving the platform. The company said he was required to sign its confidentiality agreement when he first took a job there.

The filing said at some point before June, Mr Aleynikov told Goldman Sachs he would resign. His salary at the time of his resignation was about $US400,000 a year. The FBI agent said a Goldman representative who spoke to Mr Aleynikov about his resignation said he was leaving to work for a new company that also planned to engage in high-volume automated trading.

Mr Aleynikov previously worked for telecommunications company IDT Corporation, where he worked as a systems architect for routing and internet phone service, according to his page on business networking website Linked-In. He also achieved a masters of science degree in 1996 from Rutgers University.

Additional reporting: Amir Efrati

theaustralian.news.com.au