Category Archives: Finance News

Book Bits | 19 August 2017

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● Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing By Joel Tillinghast Summary via publisher (Columbia University Press) Investors are tempted daily by misleading or incomplete information. They may make a lucky bet, realize a sizable profit, and find themselves full of confidence. Their next high-stakes gamble might backfire, not only hitting them […]

Commission and Commission Staff Issue Updates to Interpretive Guidance on Revenue Recognition

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The Securities and Exchange Commission today issued two releases and the SEC staff released a Staff Accounting Bulletin to update interpretive guidance regarding revenue recognition.

Consistent with developments in private-sector accounting standard setting, the SEC issued a release to update its guidance for bill-and-hold arrangements by stating that registrants should no longer refer to the criteria in Accounting and Auditing Enforcement Release No. 108, In the Matter of Stewart Parness (AAER 108), to recognize revenue for such arrangements upon the registrants’ adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. The release states that until a registrant adopts ASC Topic 606, it should continue referring to the guidance included in AAER 108.

In addition, the SEC issued a release to update its 2005 Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile. The release states that consistent with ASC Topic 606, manufacturers should recognize revenue for vaccines that are placed into the Vaccines for Children Program and the Strategic National Stockpile.  The release states that until a registrant adopts ASC Topic 606, it should continue referring to the guidance included in the 2005 Release.

Separately, the SEC’s Office of the Chief Accountant and Division of Corporation Finance released Staff Accounting Bulletin (SAB) No. 116 that brings existing SEC staff guidance into conformity with the Financial Accounting Standard Board’s adoption of and amendments to ASC Topic 606. The SAB modifies SAB Topic 13, Revenue Recognition, SAB Topic 8, Retail Companies, and Section A, Operating-Differential Subsidies of SAB Topic 11, Miscellaneous Disclosure. The guidance in SAB 116 applies upon a registrant’s adoption of ASC Topic 606. Until such time, the SAB states that registrants should continue referring to prior staff guidance on revenue recognition.

The statements in Staff Accounting Bulletins are not Commission rules or interpretations nor are they published as bearing the Commission’s official approval.  They represent interpretations and practices followed by the SEC’s Office of the Chief Accountant and the Division of Corporation Finance in administering the federal securities laws.

Commission and Commission Staff Issue Updates to Interpretive Guidance on Revenue Recognition

Posted on in Finance News | 0 comments

The Securities and Exchange Commission today issued two releases and the SEC staff released a Staff Accounting Bulletin to update interpretive guidance regarding revenue recognition.

Consistent with developments in private-sector accounting standard setting, the SEC issued a release to update its guidance for bill-and-hold arrangements by stating that registrants should no longer refer to the criteria in Accounting and Auditing Enforcement Release No. 108, In the Matter of Stewart Parness (AAER 108), to recognize revenue for such arrangements upon the registrants’ adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. The release states that until a registrant adopts ASC Topic 606, it should continue referring to the guidance included in AAER 108.

In addition, the SEC issued a release to update its 2005 Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile. The release states that consistent with ASC Topic 606, manufacturers should recognize revenue for vaccines that are placed into the Vaccines for Children Program and the Strategic National Stockpile.  The release states that until a registrant adopts ASC Topic 606, it should continue referring to the guidance included in the 2005 Release.

Separately, the SEC’s Office of the Chief Accountant and Division of Corporation Finance released Staff Accounting Bulletin (SAB) No. 116 that brings existing SEC staff guidance into conformity with the Financial Accounting Standard Board’s adoption of and amendments to ASC Topic 606. The SAB modifies SAB Topic 13, Revenue Recognition, SAB Topic 8, Retail Companies, and Section A, Operating-Differential Subsidies of SAB Topic 11, Miscellaneous Disclosure. The guidance in SAB 116 applies upon a registrant’s adoption of ASC Topic 606. Until such time, the SAB states that registrants should continue referring to prior staff guidance on revenue recognition.

The statements in Staff Accounting Bulletins are not Commission rules or interpretations nor are they published as bearing the Commission’s official approval.  They represent interpretations and practices followed by the SEC’s Office of the Chief Accountant and the Division of Corporation Finance in administering the federal securities laws.

Earnings Round-Up For The Second Quarter

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Shutterstock photoMost of the big players have already reported earnings this season, but the Retail group is still be heard from, both this morning and through most of next week. Here are a few companies making headlines in today’s pre-market, all of …

Banca IMI Securities to Pay $35 Million for Improper Handling of ADRs in Continuing SEC Crackdown

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The Securities and Exchange Commission today announced that broker Banca IMI Securities Corp. (BISC), an indirect, wholly-owned U.S. subsidiary of Italian bank Intesa Sanpaolo SpA, has agreed to pay more than $35 million to settle charges that it violated federal securities laws when it requested the issuance of and received American Depositary Receipts (ADRs) without possessing the underlying foreign shares.

ADRs are U.S. securities that represent shares of a foreign company, and for all issued ADRs there must be a corresponding number of foreign shares held in custody at a depositary bank.  Under “pre-release agreements,” brokers such as BISC may obtain ADRs without depositing corresponding foreign shares provided the broker owns or takes reasonable steps to determine that the customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.

The SEC’s order finds that BISC obtained pre-released ADRs and lent them to counterparties without satisfying the proper requirements.  BISC’s improper handling of ADRs, which lasted from at least January 2011 to August 2015, made it possible for such ADRs to be used for inappropriate short selling or inappropriate profiting around dividend record dates.  In certain countries, demand for ADR borrowing increased around dividend record dates so that certain tax-advantaged borrowers could, through a series of transactions, collect dividends without any tax withholding.  Pre-released ADRs that were improperly issued were used to satisfy that demand. 

Earlier this year, broker ITG settled charges for similar misconduct.

“U.S. investors who invest in foreign companies through ADRs have a right to expect market professionals to create new ADRs only when they are backed by foreign shares so that the new ADRs are not used to game the system,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “As our order finds, BISC’s actions left the ADR markets ripe for potential abuse.”

The SEC’s order finds that BISC violated Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its securities lending desk personnel.  Without admitting or denying the SEC’s findings, BISC agreed to be censured and pay more than $18 million in disgorgement plus more than $2.3 million in interest and a $15 million penalty.  The SEC’s order acknowledges BISC’s cooperation in the investigation and its remedial actions.

The SEC’s continuing investigation is being conducted by William Martin, Andrew Dean, Elzbieta Wraga, and Adam Grace of the New York office and supervised by Mr. Wadhwa.  

Banca IMI Securities to Pay $35 Million for Improper Handling of ADRs in Continuing SEC Crackdown

Posted on in Finance News | 0 comments

The Securities and Exchange Commission today announced that broker Banca IMI Securities Corp. (BISC), an indirect, wholly-owned U.S. subsidiary of Italian bank Intesa Sanpaolo SpA, has agreed to pay more than $35 million to settle charges that it violated federal securities laws when it requested the issuance of and received American Depositary Receipts (ADRs) without possessing the underlying foreign shares.

ADRs are U.S. securities that represent shares of a foreign company, and for all issued ADRs there must be a corresponding number of foreign shares held in custody at a depositary bank.  Under “pre-release agreements,” brokers such as BISC may obtain ADRs without depositing corresponding foreign shares provided the broker owns or takes reasonable steps to determine that the customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.

The SEC’s order finds that BISC obtained pre-released ADRs and lent them to counterparties without satisfying the proper requirements.  BISC’s improper handling of ADRs, which lasted from at least January 2011 to August 2015, made it possible for such ADRs to be used for inappropriate short selling or inappropriate profiting around dividend record dates.  In certain countries, demand for ADR borrowing increased around dividend record dates so that certain tax-advantaged borrowers could, through a series of transactions, collect dividends without any tax withholding.  Pre-released ADRs that were improperly issued were used to satisfy that demand. 

Earlier this year, broker ITG settled charges for similar misconduct.

“U.S. investors who invest in foreign companies through ADRs have a right to expect market professionals to create new ADRs only when they are backed by foreign shares so that the new ADRs are not used to game the system,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “As our order finds, BISC’s actions left the ADR markets ripe for potential abuse.”

The SEC’s order finds that BISC violated Section 17(a)(3) of the Securities Act of 1933 and failed reasonably to supervise its securities lending desk personnel.  Without admitting or denying the SEC’s findings, BISC agreed to be censured and pay more than $18 million in disgorgement plus more than $2.3 million in interest and a $15 million penalty.  The SEC’s order acknowledges BISC’s cooperation in the investigation and its remedial actions.

The SEC’s continuing investigation is being conducted by William Martin, Andrew Dean, Elzbieta Wraga, and Adam Grace of the New York office and supervised by Mr. Wadhwa.  

One Chart That Explains America’s Consumer Conundrum

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Over seventy percent of economic activity in America is consumer driven, so an analysis of consumer trends is a worthwhile exercise. If nothing else, understanding what is happening right now can set a baseline, while deviations from that point can act as early warning signals of what is to come. There are measures of how consumers say they feel, such as the University of Michigan Consumer Sentiment Index that will be released later today, but what really counts is how they act. Data in that regard can often be confusing, but there is a clear trend right now, and it represents a fundamental shift in behavior that could have lasting consequences.

Consumer confidence lagged some economic indicators during the recovery from the recession, but now, according to most measures, seems to be picking up. Even as that happens, though, some sectors that you might expect to benefit from improved consumer sentiment, such as retail, have been struggling. The most frequent explanation for that can be expressed in one word, Amazon (AMZN), but that is an oversimplification.

The growth of e-commerce is certainly part of the explanation, but e-commerce in general still only accounts for about ten percent of U.S. purchases and conventional stores all have online divisions, so it cannot explain everything. Even though consumer confidence has improved and we have recovered to what most regard as full employment, the recovery has been, in an historical context, painfully slow. That paradox is explained by this chart.

It shows total U.S. household debt as a percentage of GDP, and as you can see that climbed consistently for around fifty years before the events of 2007-8 caused a significant dip. Recessions in the past have often caused a temporary slowing of the rate of increase, but 2008 was different. The credit=based nature of the crisis caused households to rethink the amount of debt they carried. Deleveraging went from being a wonkish economic term to a part of everyday life, and Dave Ramsey’s “credit is evil” message resonated with many.

The resulting reluctance to resuming borrowing at the same rate explains a lot of things that otherwise are puzzling about the modern economy. The job market has bounced back well since 2009, but GDP growth has remained low. Coming out of recessions in the recent past, as jobs came back people started to borrow again, and growth in the 5-8 percent range came with that. This time, despite more than eight years of adding jobs, growth has languished at around 2 percent.

Both consumer sentiment and confidence have returned to more normal levels, yet, as noted above, the retail sector is still languishing. Dig deeper into those problems, though, and the pain is not being felt equally. Stocks in low-price retailers such as Wal-Mart (WMT), Costco (COST), and TJ Maxx (TJX) have had their ups and downs during the recovery, but have fared much better than conventional retailers like Macy’s (M) and JC Penney (JCP).

We as consumers are much more value focused, and much less inclined to stretch to make purchases. That is normal for a short time after a recession but in this case, it has been going on for eight years. We seem to have, for now at least, reversed the long-term trend towards ever higher levels of debt, and that has consequences.

First and foremost, it makes the recovery to this point sustainable. The “boom and bust” pattern of past cycles could be said to have been fueled by a rapid return to debt following hard times, but that is not the case now. That means that debt/GDP ratios should be monitored closely going forward. While they stay down we can expect more of the same, a grinding, but sustained, recovery. Should they start to spike again it is likely that a short boom will be followed by another bust.

It also means that conventional retailers must change tactics. They can tweak marketing all they want, but when consumers can pull out their phones and check the real price of something, strategies such artificial discounts of elevated prices just leave customers feeling cheated. Real, everyday value made possible by efficient operation and maybe even a margin squeeze is now the only thing that counts. Amazon has been operating that way for some time but it took the recession and the resulting change in consumer behavior for it to really start paying off.

What we are seeing is a U.S. consumer who, whether because of logic or fear, has become tighter. The chart above and the shift towards value in retail both support that contention. The importance of the consumer to the U.S. economy makes it essential that traders and investors understand that fundamental change, and factor it into decisions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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IMF’s Adrian sketches macro-financial model of term premium

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Tobias Adrian outlines a new way of modelling financial cycles within a New Keynesian framework, which produces a good fit with empirical observations on the term structure

Oil prices feed through to core inflation – Fed paper

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Research finds changes in the oil price have a small but statistically significant impact on core inflation

Omega Healthcare's Risks Are Overblown – Blue Harbinger's Mark Hines' Idea Of The Month

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By Blue Harbinger :

See also Johnson & Johnson: Sell on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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