Fed will act as needed to combat risks: Bernanke

(Reuters) - Federal Reserve Chairman Ben Bernanke said on Thursday the central bank will act as needed to help the struggling economy, but said the Fed has to be mindful that growth should pick up later in the year.

"The (Federal Open Market Committee) will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said in remarks prepared for delivery to the Senate Banking Committee.

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Kerviel's Fimat Broker Denies Knowledge of Unauthorized Bets

(Bloomberg) -- Fimat broker Moussa Bakir said he had no knowledge of any wrongdoing by Jerome Kerviel, distancing himself from the trader blamed by Societe Generale SA for a loss of 4.9 billion euros ($7.2 billion).

``I gave two or three pieces of advice to Jerome,'' he told police during a 48-hour interrogation between Feb. 7 and Feb. 9, according to Isabelle Montagne, the spokeswoman for the Paris prosecutors' office.

Bakir, 32, named a material witness in the Kerviel probe, was questioned after Societe Generale provided financial police with e-mail exchanges between the two men. Kerviel passed his trades through Fimat, which merged last month with Credit Agricole SA's futures brokerage to form a new entity, Newedge.

Societe Generale, France's second-largest bank, said Kerviel amassed 50 billion euros in authorized bets backed by fake hedges. It liquidated the positions in a three-day sell-off that resulted in the biggest trading loss in banking history. Kerviel, 31, has been charged with hacking into the bank's computers, falsifying documents and breach of trust. He is in police custody.

Bakir and Kerviel exchanged 164 text messages between Nov. 13 and Dec. 13, following queries from Eurex, Europe's biggest futures exchange, about the size of Kerviel's transactions, Montagne said. Kerviel had earlier told prosecutors he had been able to explain away Eurex's concerns.

More Questioning

Bakir's remarks to the financial police were reported today by Le Parisien. Bakir's lawyer, Jean-David Scemama, didn't return calls for comment.

``Between us, there was a kind of complicity you normally find in a professional context,'' Bakir told police, according to the prosecutors' spokeswoman. ``I knew he had a problem with his bosses without knowing why.''

Over the weekend, Le Nouvel Observateur reported on its Web site a series of e-mail exchanges between the two men, confirmed by a lawyer on the case, where Kerviel refers to ``our trades.''

In an Oct. 11 message, Kerviel asks Bakir, ``Did you speak to him about what we're doing?'' After Bakir says that the unidentified person ``returns tonight,'' Kerviel says: ``You didn't tell him about our trades, did you? Or else I'll knock your head off.''

Bakir, who was released on Feb. 9, may be called in for another round of interrogation, although a date has yet to be set, Montagne said.

Second Friend

Bakir's classification as a material witness shows that ``although the judge feels that there might be something there, there might be something against him, he has not made up his mind,'' said Stephane Bonifassi, a Paris-based lawyer and member of FraudNet, the International Chamber of Commerce's commercial crime unit.

The prosecutors' office also confirmed the Parisien report that a second friend of Kerviel's had received 1,218 calls from him in recent months and would be questioned soon.

Societe Generale said on Jan. 24 that it discovered Kerviel's bets on Jan. 18 and liquidated the positions between Jan. 21 and Jan. 23. The trading loss forced the bank to raise 5.5 billion euros by selling stock to replenish its capital.

Separately, a computer expert aiding Kerviel's lawyers said in an interview in Paris Match magazine today that the bank must have known about Kerviel's transactions.

``The bank could not have not known,'' Jean-Raymond Lemaire told the magazine, after spending a day with Kerviel to review his trades. Christophe Reille, a spokesman for Kerviel's legal team, confirmed his comments.

 

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UBS Won't Support Failing Auction-Rate Securities

(Bloomberg) -- UBS AG won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation.

The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn't publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail as mounting losses from the collapse of subprime mortgages causes capital markets to seize up.

Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds scheduled for bidding daily, according to Alex Roever, a JPMorgan Chase & Co. fixed income analyst.

``We are kind of in uncharted territory right now,'' said Anne Kritzmire, a managing director for closed-end funds at Nuveen Investments in Chicago.

Auctions are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks seek to avoid tying up their capital. More than 129 auctions failed yesterday, Kritzmire said.

Four-Fifths Fail

Rohini Pragasam, a spokeswoman for UBS, the second-biggest underwriter of municipal auction-rate debt after Citigroup in 2006 according to Thomson Financial, declined to comment. UBS, the dealer on the hospital corporation's auction, today posted the biggest-ever loss by a bank for the fourth quarter. The stock declined 2.34 francs ($2.12), or 5.7 percent, to 38.54 francs at 3:18 p.m. in Zurich.

Auction bonds have interest rates determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in official statements issued at the initial bond sale.

Investors have little opportunity to judge the risk that auctions will fail because of little public disclosure about interest rates set at the periodic bidding or other details such as how many bids were submitted or how many bonds were offered for sale.

Reporting System Changes

The Municipal Securities Rulemaking board is working on changes to its trade reporting system that would reveal at least the interest rate on auction bonds when they are traded. Currently, only the price is disclosed.

``I think you need to have more transparency in terms of the market so that investors can judge liquidity risks and so that people, both retail investors and corporate investors, can decide where they want to put their money,'' Joseph Fichera, chief executive officer of Saber Partners, a New York based financial adviser to local governments, said in an interview on Bloomberg Television.

Until recently, UBS and other banks that collect fees for running auctions have stepped in with their capital to prevent failures when bidding faltered. These firms have grown unwilling to commit their money to auction-rate securities after suffering at least $133 billion in credit losses and mortgage writedowns stemming from the subprime mortgage collapse.

 

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