Photo Credit: The Associated Press

NICOSIA, Cyprus — A plan to seize up to 10 percent of savings accounts in Cyprus to help pay for a €15.8 billion ($20.4 billion) financial bailout was met with fury Monday, and the government shut down banks until later this week while lawmakers wrangled over how to keep the island nation from bankruptcy.

Although the euro and stock prices of European banks fell, global financial markets largely remained calm, and there was little sense that bank account holders elsewhere across the continent faced similar risk.

Political leaders in Cyprus scrambled to devise a new plan that would not be so burdensome for people with less than €100,000 ($129,290) in the bank.

The authorities delayed a parliamentary vote on the seizure of €5.8 billion ($7.5 billion) and ordered banks to remain shut until Thursday while they try to modify the deal, which must be approved by other eurozone governments. Once a deal is in place, they will be ready to lend Cyprus €10 billion ($13 billion) in rescue loans.

A rejection of the package could see the country go bankrupt and possibly drop out of the euro currency — an outcome that would be even more damaging to financial markets’ confidence.

Even while playing down the chance of fresh market turmoil, experts warned that the surprise move broke an important taboo against making depositors pay for Europe’s bailouts.

“It’s a precedent for all European countries. Their money in every bank is not safe,” said lawyer Simos Angelides at an angry protest outside parliament in Cyprus’ capital, Nicosia, where people chanted, “Thieves, thieves!”

Eurozone finance ministers held a telephone conference Monday night, and concluded that small depositors should not be hit as hard as others. They said the Cypriot authorities will stagger the deposit seizures more, but they remained firm in demanding that the overall sum of money raised by the seizures remain the same.

In the short term, there was little sign of a new explosion in the European financial crisis. Stock markets dropped in early hours but stabilized by the close. The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to 14,452.06 Monday. The euro fell 0.6 percent — a bad day, but hardly a token of impending doom. 

Student loans affected by LIBOR scandal

The London Interbank Offered Rate scandal has rocked the financial world, sending bank stocks tumbling and damaging the already fragile reputation of big banks in the wake of the 2008 financial crisis.

The LIBOR benchmark, a financial metric set by the British Bankers Association every day based on the rate banks would charge each other for loans, has a wide reaching effect on loans and mortgages taken out at every level of the financial system, including student loans. In total, $800 trillion is affected by the LIBOR benchmark.

According to the New York Times, the LIBOR benchmark determines the rate for about 50 percent of the private variable-rate student loans, 45 percent of adjustable rate prime mortgages and 80 percent of subprime mortgages.

At the center of the scandal is Barclays Bank. The institution was fined $453 million for manipulating the rate in 2005 to 2009, and its CEO Bob Diamond and other top executives resigned last week under heavy fire.

The British government is investigating Barclays, as wells as Citigroup, UBS, HSBC and Royal Bank of Scotland.

The scandal was uncovered after a series of emails revealed that financial traders asked Barclays to set its LIBOR submission higher or lower depending on their interests for that day. Banks also submitted lower figures to appear healthier during the financial crisis, since the actual higher rates would have exposed a bank’s weakness.

The manipulation requests were very frank and made no attempt to hide the corruption. Here is an email sent by a trader to a Barclays employee in 2006, according to the New York Times.

"Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help. We do not want it to fix any higher than that. Tks a lot."

The Associated Press reported this exchange between an investor and a banker regarding LIBOR fixing that highlights how easy it was to ask for manipulated submissions.

"If it comes in unchanged I'm a dead man," lamented an investor. The Barclays employee granted the wish and then received this message of gratitude.

"Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."

What was supposed to be an optimal average of the rates banks would charge each other for loans became the plaything for investors to manipulate.


People walk past the McGarrah Jessee advertising company, a former bank, on West 6th street Monday afternoon.

Authors of a recent Forbes article generated considerable buzz when they promoted a plan for the aggressive privatization of university services. While elimination of state political control may appeal to those put off by the latest rumors of the UT Board of Regents’ dangerous partisanship, sweeping privatization of our campus invites trouble.

Successfully raising donations sufficient to compensate for the elimination of state funding is not the plan’s only hurdle. The predatory practices of the banks and financial firms that now hold contracts with almost 900 colleges and universities—including Arizona State University and Texas A&M University—demonstrate the dangers of excessive privatization.

The Boston-based U.S. Public Interest Research Group (PIRG) released a report last month that shed light on the complicated financial and legal issues inherent to universities’ relationships with banks and financial firms. Essentially, financial institutions offer schools incentives, including signing bonuses and direct payments, to privatize financial and administrative functions. The most basic partnerships allow a bank or financial firm to manage “closed loop” monetary functions of student ID cards. These systems, similar to Dine In Dollars or Bevo Bucks, turn student IDs into prepaid cards used to pay for on-campus services.

But most partnerships don’t stop there. Banks and firms are increasingly adding “open loop” functions that tie a student’s ID to his or her bank account and transform it into a debit card. In addition, students with accounts at their university’s partner bank can access financial aid funds more quickly than they could through another bank or traditional checks.

In order to withdraw those funds, however, students often have to pay an ATM fee. These transactions raise a difficult ethical question: Is it acceptable for banks and financial firms to charge students to access taxpayer-provided money? Certainly, any process that funnels tax dollars into corporate coffers should be thoroughly and critically evaluated.

Even more disconcerting, this system acts counter-intuitively by charging unnecessary fees to financial aid recipients, the students by definition least able to afford those fees. In addition to ATM withdrawal fees, many banks and firms charge per-swipe and inactivity fees, forcing students to pay regardless of whether they use their card or not.

The PIRG report also raises concerns about banks’ and firms’ deceptive marketing practices. A partner institution will often “co-brand” on student IDs, placing its logo next to the university’s seal or mascot. Many students register this as their school’s implicit endorsement of a particular bank, and automatically trust that bank more than its competitors. Some bank partners also gain the exclusive rights to table in common areas and give out “freebies” like sweatshirts or mugs. These strategies have the potential to turn naive college students into captive consumers, their choices influenced by what they see on campus and on their own IDs.

Some schools even force students to activate a card by refusing to disburse overpayment refunds, such as excess financial aid, through accounts at any bank other than their partner institution. Finally, PIRG speculates that some universities’ distribution of student information to banks violates the Family Educational Rights and Privacy Act.

On the bright side, the report notes that UT-Austin is the largest public university without such a contract. Jamie Brown, Department of Student Financial Services spokesman says UT decided not to partner with a specific bank because, “It doesn’t make sense for us to participate in these kinds of programs, especially if we’re trying to educate students on smart spending.” UT follows a traditional financial aid disbursement protocol. The University will either deposit funds directly into a student’s account, at any bank, or simply write the student a check. Although more conventional and less streamlined than a bank partnership, this approach remains the most ethical and straightforward method to distribute financial aid and overpayment refunds.

For most students, college offers the first opportunity to manage their own finances. University-bank partnerships discourage smart shopping and responsible financial practices by limiting choices and normalizing excessive, unfair fees. More universities should follow UT’s example by resisting financial incentives that come at the expense of following through on their responsibility to students.

FRANKFURT, Germany — Europe got more downbeat economic news Monday as inflation remained higher than expected and European Central Bank data showed only anemic growth in credit to businesses — despite its massive infusion of cheap money into the financial system.

Inflation in the 17 countries that use the euro fell to an annual 2.6 percent in April, down from 2.7 percent in March but higher than the 2.5 percent expected by market analysts.

Rising prices have been a consistent headache for the ECB — the chief monetary authority for the 17-country eurozone. The annual rate has remained stuck well above the central bank’s goal of just under 2 percent, a target that it now says won’t be reached until early 2013.

The stubborn inflation rate — which the ECB blames on higher oil prices and taxes in some countries — is important to the eurozone debt crisis because it discourages the ECB from cutting its 1 percent benchmark interest rate further. Lower central bank interest rates can spur growth, but can also worsen inflation. ECB President Mario Draghi has stressed that fighting price rises is the bank’s top priority.

Printed on Tuesday, May 1st. 2012 as: Inflation remains great barrier to fixing Europe's debt situation

LONDON — A surprisingly strong U.S. housing survey helped shore up markets Thursday despite a mixed batch of corporate earnings and further evidence of a sharp slowdown in the economy of the 17 countries that use the euro.

Over the past couple of days, markets have been buoyed by solid U.S. earnings, notably from Apple Inc., and an indication from Federal Reserve chief Ben Bernanke that the central bank was prepared to do more, if needed, to shore up the U.S. economy.

A survey showing a 4.1 percent increase in the amount of signed but not yet completed house sales in the U.S. — also known as pending home sales — helped markets recover their poise after an earlier retreat.

The U.S. housing market has been in the doldrums for years and was largely responsible for the financial crisis that exploded in 2007. A recovery in the U.S. housing market is thought to be central to the recovery in the U.S., which in turn will have a big impact all round the world.

“Optimism fought back with data showing pending home sales from the U.S. increased to a near two-year high, injecting some life back into the global markets,” said Shavaz Dhalla, a financial trader at Spreadex.

In Europe, Germany’s DAX was up 0.5 percent at 6,739 while the FTSE 100 index of leading British shares rose 0.5 percent to 5,748. The CAC-40 in France though remained lower, trading 0.13 percent down at 3,229.

In the U.S., the Dow Jones industrial average was up 0.4 percent at 13,149 while the broader S&P 500 index rose 0.1 percent to 1,392.

The euro had benefited from the improving tone in the markets, trading 0.2 percent higher in early afternoon trading, before dropping slightly to $1.3222.

Earlier, markets had been under pressure after fairly downbeat updates from the likes of Banco Santander, Europe’s biggest bank by market capitalization, Deutsche Bank AG and AstraZeneca PLC deflated the mood in Europe. A mixed bag of earnings out of the U.S. from PepsiCo., ExxonMobil and United Continental and a smaller-than-anticipated fall in weekly U.S. jobless claims failed to change the general tone at the open on Wall Street before the release of the pending home sales figures.

A survey from the European Commission showing economic sentiment in the eurozone down more than expected in April added to the gloom over Europe’s growth prospects, reinforcing expectations that the eurozone will soon be confirmed to be in recession.

The Commission’s main indicator fell from 94.5 to 92.8— the consensus in the markets was for a far more modest decline to 94.

“April’s survey confirmed the downbeat picture painted by other recent indicators and dashed any lingering hopes that the eurozone economy may escape a double-dip recession,” said Ben May, European economist at Capital Economics.

In recent weeks, there has been an increasing backlash against the austerity drive in many European countries amid worries that governments will be unable to deliver their debt-reduction plans as their economies tank.

“With political divisions opening up across Europe, pressure is building on Germany and the European Central Bank to do more and rein back on the current austerity based approach,” said Michael Hewson, markets analyst at CMC Markets.

Earlier in Asia, Japan’s Nikkei 225 index closed slightly ahead at 9,561.83 as traders proceeded with caution ahead of the Bank of Japan’s policy-setting meeting Friday.

South Korea’s Kospi also zigzagged until finally setting 0.1 percent higher at 1,964.04. Hong Kong’s Hang Seng posted a 0.8 percent gain to 20,809.71. In mainland China, the benchmark Shanghai Composite Index edged 0.1 percent lower to 2,404.70.

Oil markets were fairly tepid, with benchmark oil for June delivery up 51 cents at $104.64 per barrel in electronic trading on the New York Mercantile Exchange.

Printed on Friday, April 27, 2012 as: US housing market rebounds, helps out consumer confidence

CEO of BBVA Compass Bank Manolo Sanchez, right, discusses issues of ethics and public image with business school dean Thomas Gilligan, left, Wednesday evening in the UTC. Sanchez hopes to improve society’s negative view and mistrust of banks.

Photo Credit: Marisa Vasquez | Daily Texan Staff

The McCombs School of Business brought a major figure in global banking to campus Wednesday to address recent financial crises and their affects on his bank.

BBVA Compass CEO Manuel Sanchez spoke to students of all majors as part of the business school’s VIP Speakers Series. Business school dean Thomas Gilligan said BBVA Compass is a strong partner with UT and that the bank has made over half a million dollars in gifts to the University. The company also hires many UT alumni, he said.

The purpose of the series is to allow students to learn from role models of business success, said Olivia Luko, a management information systems senior who helped organize the event.

“This is a really crucial event because all UT students can see an image of what they have the potential to become,” Luko said. “Mr. Sanchez is a role model for any student that’s hoping to achieve success in the corporate world.”

Sanchez spent the first half of the hour-long event answering questions asked by Gilligan. Sanchez spent the remaining time responding to students’ questions.

Sanchez spoke about the effects of the financial crisis that gripped the United States in 2008 and 2009. He said the crisis damaged the reputation of all banks, even if they were not involved.

“Society lost its faith in the banking industry, and all banks have been thrown in the same bag,” he said. “People can’t tell which banks are good banks or bad banks.”

Sanchez said banks are a force for good in the economy, providing liquidity and funneling financial capital to great ideas.

“The question is how did we get to this, the pits we are at now,” he said. “There were some banks that were not straight, not following principles that they should have been following. What they did was legal, but it was not moral.”

Though BBVA Compass did not receive a bailout from the American taxpayer, it is currently working to improve its public image and demonstrate its social value, Sanchez said.

“It’s the theme of the century — people want to know that an organization has a soul,” he said.

When a student asked Sanchez about how the unfolding financial crisis in Europe effects his bank, Sanchez said his bank is somewhat immune from the turmoil.

“BBVA Compass is a very strong institution,” he said. “What happens in Spain effects our profitability there. But we’re making up the difference elsewhere in the world. Those are the benefits of diversification.”

Sanchez said the European crisis would be resolved, but only at a very slow speed.

“This crisis will be resolved at a European speed,” he said. “The European Union started with the Treaty of Rome, and we’re here 50 years later. Some countries are entering into a fiscal union, and that’s the next step. But that treaty will have to be approved at European speed, and when you think about it, that will take a long time.”

HOUSTON — Jailed Texas financier R. Allen Stanford’s extreme measures to hide his Caribbean bank’s fraud included entering into a blood oath with a top regulator, the man who was in charge of the tycoon’s books told jurors Thursday.

James M. Davis, the former chief financial officer for Stanford’s companies, testified the financier came to an agreement with the official responsible for reviewing his bank on the island nation of Antigua where that person, Leroy King, would not dig too deeply into the institution’s operations. Prosecutors allege Stanford masterminded a fraud in which he bilked investors out of more than $7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit, or CDs, from the bank.

“Mr. Stanford said they (he and King) actually cut themselves and had a blood oath,” a frail-looking Davis, 63, said.

Davis said Stanford made regular cash payments of “hush money” to King and another regulator “for them to look the other way.” He also testified the financier loaned the Antiguan government about $40 million, which was never repaid.

Authorities allege Stanford used depositors’ money to fund his businesses and his lavish billionaire lifestyle and pay bribes to regulators and auditors. They also allege he lied to depositors by telling them their funds were being safely invested.

Stanford’s attorneys contend the financier was a savvy businessman whose financial empire, headquartered in Houston, was legitimate. They have suggested Davis, who worked 21 years for Stanford, is behind the fraud.

Stanford is on trial for 14 counts, including mail and wire fraud, and faces up to 20 years in prison if convicted.

King was also indicted and is awaiting extradition to the U.S. Three other ex-Stanford company executives were also charged and await trial in September.

Davis said Stanford ran his business empire through a mix of flattery and fear, describing his management style as charismatic but also dictatorial.

Davis, the prosecution’s star witness, told jurors Stanford laughed about the alleged fraud at the bank. Davis said he would often mimic in front of Stanford being handcuffed and having his legs shackled as a reference to being arrested.

“Occasionally he would laugh and say, ‘Well that’s OK. ... I didn’t know what was going on and I’ll just blame it all on you,’” said Davis, as Stanford looked on and shook his head.

Davis pleaded guilty in 2009 to three counts: conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct a Securities and Exchange Commission investigation. The plea is part of a deal Davis made with the Justice Department in exchange for a possible reduced sentence.

Davis, who was Stanford’s roommate at Baylor University for a semester in 1973, said he realized the bank was a fraud after he was asked to help lie to a potential investor that the bank had insurance. Davis told jurors CDs were insured by a company that had been set up by Stanford but that wouldn’t be able to pay for any losses. He said Stanford referred to the insurance company as a “marketing device.”

Davis testified that in August 1991, he was asked by Stanford to fly to the insurance company’s London office, which was actually a 10-foot square cubicle, and fax a letter to a potential investor confirming the bank had insurance.

Prosecutor William Stellmach asked Davis why, after realizing there was fraud, he continued working for the financier.

“I wanted to please Mr. Stanford. I was a coward. I was embarrassed and he signed my paycheck,” said Davis, who told jurors he made $14 million in salary and bonuses during his employment.

Davis said he and Stanford fabricated figures in annual reports and other documents shown to depositors. The papers made it appear as if the bank were doing well when it actually never had a profitable year, Davis said.

Davis said he was “one of those liars” who faked the bank’s numbers but that Stanford was “the chief faker.”

Davis, who ended up working in Stanford’s Memphis office, described an environment full of deceit in which the company’s chief investment officer, Laura Holt, lied to investors about monitoring all of the bank’s investments. Davis told jurors he had a two-year affair with Holt and that he had first met her at a Bible study class he and his wife taught. Holt is among the executives set to be tried in September.

Stanford was once considered one of the United States’ wealthiest people, with an estimated net worth of more than $2 billion. He’s been jailed without bond since being indicted in 2009.

Davis was to continue being questioned by prosecutors on Friday. 

Holding the American flag, Robert Stephenson takes part in Occupy Austin’s third “March Against Banks” on National Bank Transfer Day Saturday afternoon. Nearly 100 demonstrators marched from City Hall to Wells Fargo at Congress Avenue and East Riverside Drive to protest commercial banks and to support those who closed their bank accounts.

Photo Credit: Danielle Villasana | Daily Texan Staff

[Updated at 10:06 p.m., caption edits]

Approximately 100 Occupy Austin protesters gathered at City Hall on Saturday morning and marched to the Wells Fargo branch at Congress Avenue and East Riverside Drive to participate in National Bank Transfer Day.

Dave Cortez, the head of the Occupy Austin bank action committee, said Saturday’s protests resulted in 11 customers closing their accounts and approximately $15,000 withdrawn from the international bank.

As the protesters marched to the Wells Fargo branch across the Congress Avenue Bridge, many chose to walk in the street without an official permit to do so. Cortez said the police told him this was an illegal action and then screened him for outstanding arrest warrants. For the march back to City Hall, police agreed to escort protesters across the bridge in one lane.

Despite the disobedience by some protesters on the bridge, Sgt. Lee Syga of the Austin Police Department said Saturday’s march occurred without any incident.

“It went great,” Syga said. “It was peaceful, and there was nothing really going on.”

The staff of the Wells Fargo branch was unable to comment on the protests.

Former Wells Fargo customer Cameron Field said the process of closing his account went smoothly, and he is now going to open an account with a credit union.

“[Wells Fargo] was very polite, and they knew why we were out there,” Field said. “Now, it feels good to not have my money tied to a bank that made risky investments and got bailed out.”

In an interview with the Daily Texan last week, senior finance lecturer Regina Hughes said the primary difference between credit unions and commercial banks is the ownership.

Hughes said commercial banks, such as Bank of America and Wells Fargo, are for-profit entities owned by shareholders. Credit unions are controlled by their members, who directly make policies for other members and are not necessarily looking to make huge profits. They also do not provide the same variety of services, such as types of investments, offered by major commercial banks. Commercial banks, she said, are corporations that invite people to become customers, but their goals can be different and separate from those customers.

Cortez said he is involved with Occupy Austin’s committee to provide informational tool kits for people who are interested in closing their bank accounts and switching to a local credit union.

“In Austin, we have coordinated the withdrawal of over $430,000 from the major banks,” Cortez said. “It shows that people have some power against the big banks and is a tangible morale booster for the [Occupy movement].”

Current Wells Fargo customer Andrea Street said she is seriously considering closing her account because of the way the major banks treat their customers.

“Wells Fargo is making their customers pay extra fees to cover for the fines the federal government is making them pay for their violations,” Street said. “We are out here to hit them in the pocket where it counts.”

Protester Leslie Perry said she closed her Wells Fargo account in 1994 to join a credit union and is excited to see more people doing so now.

“I am very anxious yet optimistic to see what’s going to come out of all this,” Perry said. “People are finally realizing our whole monetary system is set up to serve the rich.”

PINOLE, Calif. — An armored truck robbery Wednesday morning outside a Northern California bank ended in gunplay, leaving a suspect dead and several others wounded.

Shortly after a Wells Fargo Bank branch opened at a Pinole shopping plaza, two men with guns approached a Loomis truck parked outside and were confronted by an armed guard, police said.

A shootout ensued after she attempted to stop the men, during which the guard and one of the suspects were injured, Pinole Police Chief John Hardester said.

Two police officers arrived shortly thereafter and encountered the second suspect, who then exchanged fire with the officers, Hardester said. The second suspect and one of the arriving officers were both hit during the shootout.

The suspect tried to run away with a bag of money, but was shot and killed in the middle of a busy street.

“I looked up and saw a guy running through the intersection with a bag in his hand,” said Darius Johnson, a witness who saw the events unfold as he drove into the shopping center’s parking lot. “I heard a couple of shots and saw him fall.”

The officer who fatally shot the fleeing suspect had been hit in the shoulder.

The first suspect got away in the chaos, but was later arrested after turning up at a hospital in nearby San Pablo, police said.

Police are investigating the incident as they try to determine whether the wounded officer, an Air Force veteran who has been with the Pinole Police Department for two years, was shot by the suspect or another officer.

All of the wounded are expected to survive, Hardester said. The names of those involved have not been released.