ISSUE045 - Securities Lending Times

NewsInBriefgraded, this has knock-on effects for domesticbanks and ultimately for domestic organisationsaccessing finance or having to refinance. M&Aactivity is being affected as confidence decreasesand the spectre of a double-dip recession inmany developed nations increases,” noted CliffordChance.“The risk of a euro exit by one of more eurozonecountries continues to be very low, but buyersand sellers need to be mindful of that possibility,as well as other emergency scenarios, inrespect of current and future M&A transactions.Due diligence to assess and analyse key areasof risk where the target operates in a potentiallyaffected eurozone country is advisable,” the lawfirm adds.Northern Trust says LA lawsuithas “no merit”Northern Trust has denied wrongdoing in responseto a lawsuit filed by the Los Angeles cityattorney against the firm and Pension ConsultingAlliance over securities lending cash collateralreinvestment losses. LA’s city attorney,Carmen Trutanich, filed the suit on behalf ofLACERS, the Los Angeles City Employees’ RetirementSystem.In a released statement, the firm said, “Thelawsuit was not filed by LACERS, with whomNorthern Trust has an excellent, long-standingand ongoing relationship. Northern Trust hasacted as the primary custodian and as a securitieslending agent for LACERS since 1991...Thefacts show that this civil lawsuit...has no merit...As LACERS’ lending agent, Northern Trust appropriatelyinvested cash collateral according toLACERS’ own guidelines.”The Office of the City Attorney alleges thatNorthern Trust claimed that investments madeby the company on behalf of LACERS were “lowrisk” or “minimised risk,” including conservative,short-term, highly-liquid investments. However,from June 2006 until June 2008, Northern Trustfailed to inform LACERS that it had changed itsSLT 184x60_quarter strip_Layout 1 04/11/2011 13:00 Page 1investment strategy in violation of common lawfiduciary standards. The company allegedly providedno details of each specific investment inthe City’s portfolio, including the current marketvalue of each investment.Other allegations made by the City involveclaims that Northern Trust behaved inappropriatelyto stop a collapse in certain managedinvestment pools by convincing investors not topull money, putting the firm’s interest above theinterest of individual pension funds.Northern Trust points to the fact that LACERSdid not lose money on its securities lending programmeand, in fact, has earned tens of millionsof dollars over the past 20 years. Moreover,even with losses incurred in 2008, the pensionfund is ahead.In 2008 LACERS experienced unexpected lossesin its securities lending custom fund - whichit created, established guidelines for and monitored.The losses were mostly due to investmentsin several fixed income securities. Thosesecurities were highly rated, within investmentguidelines set by LACERS, and held by pensionfunds throughout the country, said Northern Trust.“The city attorney’s suit, brought years after thelosses were incurred, is based on hindsight. Itis premised on the legally deficient claim thatNorthern Trust should have predicted unprecedentedevents even though the markets as awhole had not,” the firm said. “We regret thatthis meritless lawsuit will likely cost the LAC-ERS pension plan, and the city of Los Angeles,millions of dollars in unnecessary legal fees andout of pocket expenses.”The lawsuit seeks full restitution for losses, as wellas damages that LACERS sustained as a result ofNorthern Trust’s false claims, civil penalties up to$10,000 for each false claim, and $2,500 for eachviolation of the Business and Professions Code,and all fees and costs associated with the lawsuit.Real-time Exposure ManagementAccurate collateralisation just became a little clearerwww.pirum.com/exposure8www.securitieslendingtimes.com