“Why,
sometimes I've believed as many as six impossible things before
breakfast.”
J-C
Juncker, with apologies to Lewis Carroll.
As
we near the end of 2017 and approach what I think is going to be a
non-stop, event filled, dramatic 2018, Bloomberg covers the mess
Barnier and Juncker are delivering on banksters’ Brexit, with their
confrontational, no trade negotiations, dysfunctional approach. In
the asylum run by the inmates, if EUSSR banking Armageddon arrives
after Brexit, wreaking
havoc or worse across the EU, the rump-EUSSR will know who to blame.
This
weekend edition, as US politics heats up, will all roads lead to
Trump, we focus on Brexit and why the EUSSR needs to take Brexit away
from the spoiled brats and hand the negotiations over to the adults.
Plus
why in Washington D.C., 2018 might become something of an epic year.
Epic years aren’t usually a plus for stocks.
Brexit May Leave Banks on the Hook for Impossible Contracts
By John Glover
December 1, 2017, 5:00 AM GMT Updated
on December 1, 2017, 1:30 PM GMT
As
far as Brexit headaches go, Barclays Plc’s John McFarlane says
that while his bank is on top of job relocations, he’s more
concerned about rewriting “hundreds of thousands” of contracts.He’s not alone. Andrew Bailey, head of the U.K. Financial Conduct Authority, said “contract continuity” is among the biggest potential disruptions in a no-deal, no-transition Brexit. Both Bailey and McFarlane, who also chairs London’s banking lobby, testified before lawmakers Wednesday. Bank of England Governor Mark Carney and European Central Bank President Mario Draghi have also expressed concern about the issue and the lack of time left for a fix.
A week ago, data from the European Banking Authority showed the scope of the issue, and that money is already on the move partly for this reason. European banks have slashed their U.K. assets by $425 billion, driven by a 35 percent drop in derivatives exposures. Insurance policies are affected too, with Carney saying that about 20 billion pounds ($26.9 billion) of insurance liabilities in Britain could be affected without swift action.
The issue arises because one side or the other of a contract can meet its obligations only thanks to an authorization that’s set to disappear once the U.K. leaves the European Union in 2019. That may result in a firm being obliged by contract to do something that regulation forbids. Impossibility generally doesn’t work as a defense against non-fulfillment of a contract, said Simon Gleeson, a regulatory partner at Clifford Chance LLP in London.
Click here to read how Europe’s banks slashed their U.K. derivative exposure.
“A bank which enters into a contract which becomes illegal to perform by reason of Brexit may well be liable in damages for its non-performance to the counterparty,” said Gleeson. “Dealing with this is so much in everyone’s interest that I’m amazed it hasn’t been addressed.”
McFarlane’s testimony on Barclays’s Brexit planning ranged from well-trodden ground on derivatives clearing to the details of shifting operations abroad. “The jobs lost are -- in a trade scenario -- they’re insignificant,” McFarlane said. “They’re not the most important thing. The most important thing is that we may have to repaper hundreds of thousands of contracts into the EU.”
An aggregate 1.28 trillion euros ($1.52 trillion) of bank assets, including loans, securities and derivatives, may need to be re-booked from the U.K. to the EU following a hard Brexit, unless alternative arrangements can be reached, according to a study carried out for the Association for Financial Markets in Europe, the lobby group for Europe’s wholesale financial markets.
Credit Line
Cross-border revolving credits -- credit lines that can be drawn down, repaid, then tapped again -- are among such contracts. Many are issued to EU companies by syndicates with members based in the U.K. For example, lenders to Volkswagen Financial Services AG’s 2.5 billion-euro line include London-based entities for Bank of America Corp. and Citigroup Inc., as well as the U.K. units of the major British banks, data compiled by Bloomberg show.A lender that lost its authorization but made an advance to the company under the revolver might find itself in breach of local law in jurisdictions including Germany and France, according to Clifford Chance. On the other hand, it might be in breach of contract if it fails to make the loan.
Andreas Hoffbauer, a spokesman for the Wolfsburg, Germany-based carmaker, declined to comment on the company’s preparations, calling the Brexit discussion “a hypothetical question.”
Trade Compression
Derivatives present a different problem. Carney estimates 26 trillion pounds of uncleared, over-the-counter derivative contracts could be affected. Banks that lose authorizations may not be able to deal with “life-cycle events” affecting derivative contracts, such as rolling open positions, exercising options and compressing trades, according to the BOE.Adding to the difficulties, regulators may require lenders to carry out actions -- such as so-called trade compression, which nets out offsetting positions -- that they are forbidden to do. Moving the contracts to unaffected entities requires time, consent from different parties and involves the courts.
As for insurance, when presenting the BOE’s Financial Stability Report on Tuesday, Carney estimated 6 million U.K. policyholders could be affected -- as well as 30 million European policyholders, with a separate 40 billion pounds of liabilities. Absent some agreement, insurers may be unable to collect premiums or pay out on liabilities, with contracts such as life insurance and employers’ liability that extend far into the future “particularly vulnerable,” according to the BOE.
More
Meanwhile
back in Washington, District of Crooks, some crooks are likely
spending an uncomfortable pre- Christmas weekend.
“Begin
at the beginning," Mueller
said, very gravely, "and
go on till you come to the end: then stop.”
With
apologies to Lewis Carroll.
After Flynn, Where Does Mueller’s Probe Go Next?
By Andrew M Harris and Edvard Pettersson
December 2, 2017, 2:14 AM GMT
Retired
General Michael T. Flynn, who was President Donald Trump’s national
security adviser for 24
days, may now be the administration’s biggest existential
threat. He has pleaded guilty to lying to FBI agents about contacts
with Russian Ambassador Sergey Kislyak in December 2016, when Trump
was president-elect but Barack Obama was still the president. His
plea deal offers tantalizing clues about where Special Counsel Robert
Mueller might steer his investigation next.
1. Did Flynn implicate others?
That’s for Mueller and his team to know, and the rest of the political world to speculate on. In court, Flynn admitted contacting a senior Trump transition team official -- not identified by name -- for guidance before talking to the Russian ambassador about sanctions levied by the Obama administration in response to Russia’s meddling in the American election. Flynn also said he previously relayed to the ambassador a request from a “very senior” Trump transition team official that Russia oppose an Egypt-sponsored United Nations resolution concerning Israeli settlements. That official was Trump’s son-in-law, Jared Kushner, according to a report by Bloomberg View columnist Eli Lake.2. Are such back-channel talks illegal?
They could be a violation of the Logan Act, an obscure law that prohibits private U.S. citizens from attempting to negotiate America’s disputes with foreign governments. On the books since 1799, it’s seldom if ever enforced because of the difficulty in defining what is a negotiation as opposed to an informal and preliminary discussion, experts say. Washington white-collar defense lawyer Solomon Wisenberg dismissed the notion that anyone would face liability under that law, which he called a "dead letter." Randall Eliason, a former federal prosecutor who now teaches at George Washington University law school, said it’s unlikely that a threatened prosecution under the Logan Act was enough to get Flynn to plead guilty, which suggests his lies to investigators were an attempt to conceal a wider array of contacts and dealings with Russia.3. What suggests Flynn has useful information against others?
Even though Flynn admitted to lying on federal disclosure forms about his work for the Turkish government, he wasn’t charged with that. Plus, his plea agreement suggests his punishment could be six months or less in prison, even though the statutory maximum penalty for lying to federal agents is five years. That apparent lenience suggests Flynn had something, or someone, of value to offer Mueller, said Harold Krent, dean of the Chicago-Kent College of Law. "People are sweating in the administration right now," said Krent, author of a 2005 book on presidential power. He added, "The net is tightening around somebody" almost certainly superior to Flynn.
More
“But
I don’t want to go among mad people," Trump remarked.
"Oh, you can’t help that," said Mueller: "we’re all mad here. I’m mad. You’re mad."
"How do you know I’m mad?" said Trump.
"You must be," said Mueller, "or you wouldn’t have come here to Washington.”
"Oh, you can’t help that," said Mueller: "we’re all mad here. I’m mad. You’re mad."
"How do you know I’m mad?" said Trump.
"You must be," said Mueller, "or you wouldn’t have come here to Washington.”
With
apologies to Lewis Carroll.
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