A model for fighting fraud; SEC developing software “to sift language in financial reports for clues that executives might be misstating results”

Saturday June 8, 2013

A model for fighting fraud

Optimistically Cautious by ERROL OH

WHAT if the regulators can extract information from a listed company’s annual report and feed it into a computer program to find out if there’s probably some financial sleight of hand going on? That sounds like a tremendous step forward for capital market supervision and enforcement. It also seems a bit far-fetched. But maybe it’s not. The Wall Street Journal reported on May 29 that the US Securities and Exchange Commission (SEC) was renewing its focus on accounting fraud and other problems relating to financial disclosures. The newspaper quoted agency officials as saying the SEC was already developing software “to sift language in financial reports for clues that executives might be misstating results”. The program, according to the article, would analyse the annual report section (usually called the management’s discussion and analysis) in which the companies talk in detail about their performance and prospects. Certain word choices, readers are told, may be red flags that warn of earnings manipulation. One SEC official said tests to determine if the analysis would have sniffed out previous accounting frauds “look very promising”. Here’s a couple of paragraphs from the story: “Firms that bend or break accounting rules tend to play a word shell game,’ said Craig Lewis, the SEC’s chief economist and head of the division developing the model. “Such companies try to deflect attention from a core problem by talking a lot more about a benign’ issue than their competitors, while underreporting important risks’.”

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Too much of a good thing: Leaders need to learn to beware of their strengths

Too much of a good thing: Leaders need to learn to beware of their strengths

Jun 8th 2013 |From the print edition

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IT IS only natural for leaders to try to make the most of their strengths. The theory of comparative advantage directs people, as well as countries and firms, to focus on what they are good at. Management experts have tended to concur: one of the bestselling business books of recent years is called “Now Discover Your Strengths”, by Marcus Buckingham and Donald Clifton. When business schools (and indeed business columnists) profile bosses, they often assume that more is better. But is this right? Three more recent books express some doubts. In “Fear Your Strengths”, Robert Kaplan and Robert Kaiser argue that “what you are best at could be your biggest problem.” Forcefulness can become bullying; decisiveness can turn into pigheadedness; niceness can develop into indecision. Read more of this post

Deluded bosses: Who’s behind me? The powerful overestimate the support of underlings

Deluded bosses: Who’s behind me? The powerful overestimate the support of underlings

Jun 8th 2013 |From the print edition

HISTORY is littered with powerful people undone by hubris. Julius Caesar should have ignored the cheers of the Roman crowd and paid heed to the soothsayer. The late Steve Jobs overplayed his hand at Apple as a young man and was kicked out of the company he founded. And then there was Jimmy Cayne.

When Mr Cayne walked out of Bear Stearns for the last time, having been eased out as boss of the ailing bank, he claimed there wasn’t a dry eye in the house. Through the tears, he wistfully recalls, heart-broken bankers sent him on his way with a standing ovation. This is not how his staff remember it. So disliked was he that according to “House of Cards”, a book by William Cohan, underlings would ask in meetings: “Is Jimmy staying on? [Because] we’re not coming back for another year of this shit.” Read more of this post

Huge Chinese Interest Rate Spike Has People Freaked Out About A Looming Credit Crisis; China Overnight Rate Rises Most in Two Years as Inflows Slow

Yesterday’s Huge Chinese Interest Rate Spike Has People Freaked Out About A Looming Credit Crisis

Mamta Badkar | Jun. 7, 2013, 11:32 AM | 1,953 | 1

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Chinese interbank rates surged ahead of the three-day Dragon Boat festival next week.

The overnight Shibor, or the Shanghai interbank offered rate, surged to 8.29% on June 7, from 5.98% on June 6. The seven-day Shibor rose to 6.66%, from 5.14%.

This is an interest rate used among banks, and it’s considered a useful proxy for liquidity in the Chinese credit markets. Read more of this post

China’s crackdown on hot inflows lead to cold exports. Get used to it

Saturday, June 8, 2013

China’s crackdown on hot inflows lead to cold exports. Get used to it

Economists and I-bankers have been complaining for months that the China’s export figures have been inflated. But, pulling back the curtain to get a truer picture of exports, they might not like what they see. That’s if today’s trade data release is any indication. Export grew at the slowest pace in a nearly a year in May, rising at shockingly low 1% year-on-year. That’s down from 14.7% growth in April. Slowing growth itself isn’t that surprising. A slowdown had been widely expected, with a consensus economist prediction of only 7.3%, according to Reuters data. Markets were also expecting lackluster trade data as well, contributing to a decline of 3.9% in the Shanghai Composite Index this week leading up to the announcement. Read more of this post

Specter of Another Bond Crash Spooks Asia

Specter of Another Bond Crash Spooks Asia

Kim Choong Soo is seeing ghosts, and that should scare you.

No, the Bank of Korea governor isn’t seeing ghouls or hearing things that go bump in the night. The nightmare preoccupying him involves Alan Greenspan and what traders call the Great Bond Market Massacre of 1994. Kim worries that history is about to repeat itself, potentially devastating Asian growth rates.

Back in the 1990s, when he was Federal Reserve chairman, Greenspan doubled benchmark lending rates over 12 months, causing, according to Fortune magazine, more than $600 billion in losses on U.S. Treasuries. The chaos drove Orange County, California, into bankruptcy; sank Kidder Peabody & Co.; pushed Mexico into crisis; and precipitated Asia’s 1997 meltdown as a surging dollar strained currency pegs. Read more of this post

Asian Debt Hit on Two Sides; Money Managers Pull Back in Face of Weakening Currencies, Rising Bond Yields

June 7, 2013, 6:32 p.m. ET

Asian Debt Hit on Two Sides

Money Managers Pull Back in Face of Weakening Currencies, Rising Bond Yields

By FIONA LAW

HONG KONG—The $2.76 trillion market for Asian local-currency debt is reeling from weakening currencies in the region and rising bond yields around the world.

The HSBC HSBA.LN +1.14% Asian Local Bond Index, which measures the performance of local-currency bonds in some Asian countries but excludes Japan, has fallen 3% from May 9 through Thursday, a selloff that has pushed it into negative territory for the year. Read more of this post

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