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  • Eurozone Sovereign Debt Crisis

    Navigant's experts from Europe and the US examine and discuss the current situation, the impacts it is likely to have and how we can assist your business.

  • FATCA Compliance

    The Foreign Account Tax Compliance Act ("FATCA") is likely the most far-reaching statute to combat offshore tax evasion in recent history.

  • Healthcare Facilities: Meeting The Demands of Tomorrow

    The current healthcare market is saturated with dialogue on the importance of delivering quality care and improving patient outcomes. New healthcare facilities should be a catalyst for organizational change that drives high quality, low cost care.

  • Clean Energy

    Pin wheelClean energy issues from a multi-dimensional perspective, including policy and regulatory, technological, financial, operational and environmental.

  • Anti-Corruption

    The implications of FCPA on global businesses.

  • Natural Gas

    Gas FlameToday the natural gas industry is buffeted by unprecedented pressure from market prices, government policy shifts, technology improvements and globalization.

  • Government Contracting

    The U.S. Government annually awards over seven million government contracts valued at over $500 billion. Today, serving as a prime contractor can pose many business, legal and regulatory challenges.

  • Independent Commission on Banking

    In anticipation of the publishing of the final report by the Independent Commission on Banking September 12 Navigant is preparing our reaction and response to this banking industry reform.

  • 2011 IMPACT Exchange:
    Featuring David Axelrod and Ari Fleischer

    Navigant’s Impact Exchange was an energetic point/counterpoint discussion between David Axelrod and Ari Fleischer, who provided their insights on business, regulatory, political and economic issues creating impact.

  • General Counsel Corner

    Navigant’s experts present insightful perspectives on a wide variety of issues to help GCs better understand the issues impacting their business.

  • Smart Grid

    The convergence of forces in clean energy policy, utility regulations, energy markets, and technology is transforming the electricity landscape and driving advancement of the Smart Grid.

  • Protecting Client Assets

    The protection of client money and assets continues to be a high priority for both investors and regulators.

Eurozone Sovereign Debt Crisis

Everyone is watching the Eurozone closely, eager for some kind of resolution to the current sovereign debt crisis. The implications of a sovereign credit default are of paramount concern – with all eyes currently on Greece, but the issues being far reaching across Europe. Our professionals across multiple practices work with clients to understand the practical steps they can take to protect their business value and adjust their business models no matter what changes occur.

Click here to watch Pawan Malik’s interview about a proposed Collective Action Clause for Greek debt and credit default swaps with Owen Thomas and Linzie Janie on Bloomberg Television’s “Countdown” (3/9). 

Buckle Up: Greece Update

So there we have it! A new election will take place in Greece next month. The winner gets the prize of telling the EU leadership they will not stick to the terms of the €130bn bailout.

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So there we have it! A new election will take place in Greece next month. The winner gets the prize of telling the EU leadership they will not stick to the terms of the €130bn bailout. The Greeks have yet to reveal whether they intend to pay up on the €436mm foreign law FRN due today. If they pay, there will no doubt be an outcry from bondholders who took the ritual 55% belly cut. But imagine the anger amongst the locals whose pensions and wages are being slashed. All so “evil” hedge funds get paid in full. Politically, this would be a no go. If they don’t pay today, the Greeks are likely to take advantage of the 30 day grace period which coincidently will end just before the new elections take place. So, no immediate default. No solvency! We remain in the twilight zone for a few more days! 

As the announcement was made, guess who took it on the chin? Why of course, it was Spain, where 10-year bond yields jumped to 6.30% and its CDS is now at 535bps, all of 20 bps tighter than ... Hungary! I suspect the big loser out of this is likely to be Germany as they remain the supreme benefactors of the single currency. Their economy after all grew five times the projected rate of 0.1% (!!!) in Q1.

Look for rumours of ECB intervention, FED easing, ESFS/ESM firewalls and all other acronyms that form part of the cavalry. This market needs some props to keep it up.    

GREEK FINANCE MINISTRY TO PAY EU435 MLN BOND [8:10 PM BST]

This just in...

If you are a foreign law bond holder that held out against the PSI, you have just made a killing. Presumably, the act of not paying, even with the benefit of the grace period typically afforded to the Issuer, would still have triggered a hard default. I wonder if bondholders who accepted the PSI may resort to legal action? Recall, Greece had warned the holdouts of a worse deal than those exchanging under the PSI.  

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Buckle Up

As markets brace for an imminent Greek default and exit from the Eurozone, the Greeks quietly made good on a ¥900m (US $11.3m) coupon payment due on the ¥40bn 4.5% bonds due in 2016. Investors in this foreign law bond had held out against the PSI restructuring. On May 15, another €450m FRN documented under foreign law bond is due to mature.

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As markets brace for an imminent Greek default and exit from the Eurozone, the Greeks quietly made good on a ¥900m (US $11.3m) coupon payment due on the ¥40bn 4.5% bonds due in 2016. Investors in this foreign law bond had held out against the PSI restructuring. On May 15, another €450m FRN documented under foreign law bond is due to mature. If paid in full, those who did participate in the restructuring will come out with their machetes. If they don’t pay, Greece will officially default for the first time in this crisis. JP Morgan has raised the odds of a Greek exit to 30-50%. The fallout of a hard exit will be painful with estimates of €400bn+ being discussed in the press.

Meanwhile, the weekend’s antics have shown that the Greeks want the Euro but don’t want austerity. The Germans, it appears after Sundays State elections, need the Euro and want austerity - but only for others. The Spanish don’t want austerity and based on the most recent bank bailout plan last Friday, remain in denial on the size of exposure to the still overpriced real estate market. The French are rooting for President-elect Hollande in his negotiations with Merkel on the austerity measures agreed in the fiscal compact. They are about to find out he is as influential as President Sarkozy was. The Italians watch and wait for their time in the spotlight!     

You could not make this stuff up! 

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As the Gods Will It

France has a new President. Or, more importantly, Europe has a new first couple, “HoMer”. Is this a reminder from the Gods that Europe is spiraling through its own Greek tragedy? A central theme in tragedy is moral conflict. Well, we certainly have conflict in Europe—austerity versus growth.

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France has a new President. Or, more importantly, Europe has a new first couple, “HoMer”. Is this a reminder from the Gods that Europe is spiraling through its own Greek tragedy? A central theme in tragedy is moral conflict. Well, we certainly have conflict in Europe—austerity versus growth. The people of Europe have overwhelmingly rid themselves of leaders who asked them to die a little now in return for a happy after life. Growth is in. Austerity is (on its way) out. With the political structure in Europe breaking down and the masses rebelling, brash new leadership will likely attempt to renegotiate the fiscal agreements regarding budget and debt that the EU nations signed barely five months ago. No one has asked how over-leveraged economies will fund this growth. But that is a question for tomorrow.

Although the headlines this week have been about Greece and France, the action continues to play out in Spain. In spite of claiming that no more banks would be bailed out, Spain bailed out its 4th largest bank yesterday. Looks like the sovereign carry trade is not working out. Spanish banks have increased their holding of sovereign debt between December and February 12 by €70bn. Given the spike in Spanish sovereign yields since, it is likely that on a mark to market basis, these trades are now under water. It is equally likely that whatever asset was pledged to get the cash under the LTRO is also under water, requiring further margin calls.    

Overall market technical sentiment is poor. Moody's threat of a mass downgrade of European financial institutions does not help. In spite of all the liquidity measures, Counterparty risk in the interbank market is rising. The spread between three-month Euribor rates and overnight indexed swap rates is over 40 basis points.

Another theme of tragedy is a certain inevitability of what is likely to follow. With no tangible support forthcoming from the ECB, are the markets staring into the abyss?

QEu2 anyone?

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Seeking Divine Intervention

Ever since the ECB hinted that LTRO3 was off the table, the principal European markets have fallen between 10-20% in the following four weeks. Spain in particular is in a tough situation. Apart from two of its premier teams likely to make it to the Champions Cup Final, little else appears to be going its way.

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Ever since the ECB hinted that LTRO3 was off the table, the principal European markets have fallen between 10-20% in the following four weeks. Spain in particular is in a tough situation. Apart from two of its premier teams likely to make it to the Champions Cup Final, little else appears to be going its way. With youth unemployment at 50%, 10-year bond yields having spiked to 6% and the IBEX trading barely 100 points above the March 2009 low, the immediate future looks bleak. Although sovereign debt / GDP ratios for Spain are better than Italy, total private sector debt is nearly 300% of GDP. Spanish banking loans alone equal 170% of Spanish GDP. With no sign of the property market recovering, troubled loans at Spanish banks just hit an 18-year high of over 8%. Spain appears to be following the Japanese model in the 90’s of solving the banking crisis. They will soon realise that merging two bad banks simply gives you an even larger bad bank. What is astounding is the level of general complacency in overall market sentiment. If Spain were to require a bailout, and early signs point to this, watch out as risk investors head for the exit. With French and Dutch voters fighting against strict austerity measures, it is only a matter of time the so called “fiscal compact” agreement now falls through. Without the fiscal compact, it is unlikely Germany will back a common Euro Bond. IMF requests for more funds from Europe have already been rejected. German stocks fell over 3% yesterday as the prospects of Germany leaving the Eurozone just became more likely. 

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Spanish Fly

After three months of non-stop partying, the risk markets appear to be taking a breather. Europe in general—and Spain in particular—looks to be losing its mojo. The Ibex is trading slightly above the November lows.

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After three months of non-stop partying, the risk markets appear to be taking a breather. Europe in general—and Spain in particular—looks to be losing its mojo. The Ibex is trading slightly above the November lows. In spite of all the liquidity the ECB and Fed could throw into the pot, bond yields are at 5.50% (lower than the peak of 7%, but high nonetheless). The discontent on Spain can be tracked to the comments made by Rajoy, who minutes after signing the fiscal compact treaty, revealed that Spain will not be able to meet its 2012 debt/GDP target. With soaring unemployment already causing deep stress to the social fabric of the nation, the austerity cuts will only add fuel to the growing fire of anger amongst the masses. In this backdrop, it is only a matter of time before the politics skews towards less austerity and puts the nation in direct confrontation with those that are administering the bitter pills (i.e. Germany, Netherlands). 

It appears from the various signals given by the ECB that we are unlikely to see more QE type liquidity injections. Notwithstanding the positives of having averted a funding crisis, they have drawn a fair amount of criticism on the weak collateral they have allowed to be deposited. Furthermore, they have allowed banks to “create” assets that can be repo’ed into the scheme – such as Government guaranteed bonds (where a bank issues bonds to itself, gets a guarantee from its Sovereign, borrows under the LTRO and uses the funds to buy Sovereign debt) which undoubtedly creates a moral hazard around “gaming the system”. Unlike the Fed, which is going to QE into perpetuity, the ECB appears to be more sensitive to the fallout of too much liquidity being injected into the system. 

This leaves Europe with a major problem. With no further liquidity injections, the solvency concerns around Spain and Italy are likely to grow. The increase in EFSF / ESM to around a €1 trillion (for 2012) will help, but is no “firewall” against a panic in the markets around these two nations’ ability to fund.  Italy has been issuing bonds at a clip, but mostly with a three months – three years maturity and in some cases, in the form of zero coupon bonds. The can is being kicked but not too far down the road.

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Blue Skies

The Greece restructuring was completed last week. As expected, CAC’s were forced on all non-consenting holders of Greek law bonds triggering a long anticipated CDS “Credit Event”. The ISDA Auction that sets recovery price is due on March 19. The deliverable obligations submitted by investors include €100bn+ of structured bonds and guaranteed obligations (mostly non-Greek law obligations) that were not known until now. That means that there are a further €80bn+ of losses (assuming Greece recovery is set at 20%) to be absorbed by the market.

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The question at my last posting has been answered – we continue to party!

The Greece restructuring was completed last week. As expected, CAC’s were forced on all non-consenting holders of Greek law bonds triggering a long anticipated CDS “Credit Event”. The ISDA Auction that sets recovery price is due on March 19. The deliverable obligations submitted by investors include €100bn+ of structured bonds and guaranteed obligations (mostly non-Greek law obligations) that were not known until now. That means that there are a further €80bn+ of losses (assuming Greece recovery is set at 20%) to be absorbed by the market. Provided the obligations have been marked to market and collateral has been posted regularly, these ought not to be a concern. However, this is a big “if”. One European Bank announced last Friday they would need another € 1bn of funding to cover their losses on Greece. Is it possible that there are more skeletons in the Eurozone cupboard?

Non-Greek law bond holders still have a few more weeks to agree to the exchange. Many are resisting – some through legal routes. The newly exchanged Greek bonds are trading at prices that indicate a > 80% probability of another Greek default. A hard default would cause further losses to the new holders (mainly Central Banks) that will feed through to Joe Public’s pension.

Greece is teetering on a default, Portugal credit spreads against Germany remain at 1400bps, Italy and Spain still have their issues. But that’s for another day.

Tons of liquidity injected through QE and LTRO, low inflation and interest rates and a becalmed Eurozone. These headlines and the fear of losing out on what appears to be the most ideal risk investing scenario we have seen in years are pushing stock markets to multi month highs. The credit markets are sanguine but sovereign credit spreads, as represented by SOVX have rallied over 100bps to 225bps.  

In the US, most of the Banks passed stringent stress test results that included scenarios of US unemployment 15%, equity losses of 40% and negative GDP in the next few quarters. As a prize, many of these banks were allowed to announce share buybacks and increased dividends, goosing up the stock market just before its close.

The bulls are set to claim victory – the bears go into spring time hibernation. Politicians and Central Bankers have demonstrated that they can play God and set prices for everything.  With many retail investors frantically jumping into the market, could this be the optimal time for yanking the beer soaked rug underneath.  Be careful out there!

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FATCA Compliance

Preparing for the Challenges Ahead

The Foreign Account Tax Compliance Act ("FATCA") is likely the most far-reaching statute to combat offshore tax evasion in recent history. FATCA mandates a foreign financial institution ("FFI") to identify accounts owned by, or for the beneficial interest of, a United States taxpayer to the Internal Revenue Service, or suffer a 30% withholding tax on certain payments. The identification of affected accounts sounds simple, but it will likely require coordination by FFI personnel across business lines and around the globe.  Here we’ll explore what foreign financial institutions should do now to begin the process of building a FATCA compliance system.

Healthcare Facilities: Meeting The Demands of Tomorrow

The current healthcare market is saturated with dialogue on the importance of delivering quality care and improving patient outcomes – and the collaboration between payors and providers will be increasingly important for industry leaders to deliver on these expectations.

According to Navigant’s Healthcare Real Estate practice, new healthcare facilities should be a catalyst for organizational change that drives high quality, low cost care. As it stands, healthcare providers will not be able to deliver healthcare of the future in buildings of the past. Facilities are essential to supporting emerging technology, attracting and maintaining top talent and meeting the level of patient care that will be mandated by private insurers and/or the government moving forward.

At the same time, medical providers are scrambling to implement innovative processes and facility improvements to meet high quality care standards, all-the-while struggling with weak balance sheets, limited access to capital and an unclear regulatory landscape. Navigant’s Healthcare Real Estate experts have extensive experience helping clients develop creative financing strategies to meet capital needs, and can discuss several viable solutions healthcare executives should consider.

The following series provides Navigant’s perspective on the role of facilities in meeting payor and provider standards for patient care, as well as capital funding strategies to meet healthcare facility development needs. 

Clean Energy

Achieving a Low Carbon Future

The energy industry is being re-shaped by today’s movement to a low carbon future. More and more, policy and market drivers are increasingly pushing cleaner fuels and technologies to the forefront of the strategic choices related to electricity generation and energy efficient consumption. For compa­nies along the entire electric utility value chain, clean energy is no longer a matter of being “green” – it is a matter of under­standing and embracing the potential of clean energy, formulating an effective business strategy, and transforming the company’s operating model in order to capture the op­portunities and manage the risks brought about by the clean energy movement.

Anti-Corruption

Regulators across the globe have dramatically stepped up enforcement of anti-bribery and corruption regulations, and this trend is expected to continue. International organizations, particularly those operating in high-risk countries and industries, must protect themselves by ensuring their anti-bribery and corruption compliance programs are comprehensive and effective.

After The Fracking Debate

The True Key to the Future of U.S. Natural Gas

While the natural gas conversation continues to be dominated by hydraulic fracturing, media outlets and political leaders are missing out on a much more critical question about the future of the U.S. natural  gas supply: what are we going to do with all of it? Without a viable answer to this question, the debate over hydraulic fracturing could be all for naught. The gas market is currently in a state of unhealthy ‘imbalance,’ with an unsustainable supply surplus and prices that could slow investment and lead to resumption of the market volatility that has only recently calmed as a result of increased shale gas supplies. If the industry is truly going to live up to its high potential as an abundant, domestically produced and clean fuel alternative, demand needs to catch up.  

Government Contracting

Opportunities & Challenges

The U.S. Government annually awards over seven million government contracts valued at over $500 billion. Today, serving as a prime contractor can pose many business, legal and regulatory challenges.  Government contractors need access to trusted advisors, like Navigant, who can help them maintain compliance with their business and contract administration systems in this ever-changing market.

Independent Commission on Banking

In June 2010 the Chancellor of the Exchequer announced the creation of the Independent Commission on Banking to consider structural and related non-structural reforms to the UK banking sector.  The proposals will aim to promote financial stability and competition in the sector.  The Commission will issue its report to Government on the 12th of September 2011.

Specific aims of the policy recommendations are: 

  • Reducing systemic risk in the banking sector, exploring the risk posed by banks of different size, scale and function;

  • Mitigating moral hazard in the banking system;

  • Reducing both the likelihood and impact of firm failure; and

  • Promoting competition in both retail and investment banking with a view to ensuring that the needs of banks’ customers and clients are efficiently served, and in particular considering the extent to which large banks gain competitive advantage from being perceived as too big to fail.

Navigant's Financial Services team has consulted with its clients and constructed detailed models of the proposals published in the interim report. Key concerns from the findings include unexpected consequences that may arise from proposed regulatory and structural change.

To continue the dialogue via Navigant’s LinkedIn Group “Independent Commission on Banking – Discussion Forum” click here.

2011 IMPACT Exchange:
Featuring David Axelrod and Ari Fleischer

Untitled Document
 2011 IMPACT EXCHANGE HIGHLIGHTS
 Navigant Impact Exchange Navigant’s Impact Exchange was an energetic point/counterpoint discussion between David Axelrod and Ari Fleischer, who provided their insights on business, regulatory, political and economic issues creating impact. Moderators Jan Hopkins Trachtman, an Emmy and Peabody Award winning journalist and former CNN anchor, and Roger McShane of The Economist, navigated the discussion and led audience Q&A with our speakers in New York and DC respectively.

Medicare Reform: What could it entail?

David and Ari explore a consumer-oriented market versus a system that rewards providers for the outcome of care delivery.

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David Axelrod and Ari Fleischer explore a consumer-oriented market versus a system that rewards providers for the outcome of care delivery.

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Medicare Reform: How could we bring the costs down?

David and Ari discuss the importance of preserving Medicare for future generations, as well as ways to bend the cost curve down.

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David Axelrod and Ari Fleischer discuss the importance of preserving Medicare for future generations, as well as ways to bend the cost curve down.

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Healthcare Reform: Will it be repealed?

In this segment, David and Ari discuss the difficulty Republicans would have in repealing healthcare reform regardless of the outcome of the 2012 presidential election.

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In this segment, David Axelrod and Ari Fleischer discuss the difficulty Republicans would have in repealing healthcare reform regardless of the outcome of the 2012 presidential election.

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Clean Energy: What role should the U.S. play when it comes to clean energy?

David and Ari take differing positions as to whether or not the United States should play a leadership role when it comes to clean energy. David believes the U.S. ought to compete and should compete in the energy space, while Ari admits that Republicans are split when it comes to clean energy and he would rather the markets dictate which energy source will be most effective.

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David Axelrod and Ari Fleischer take differing positions as to whether or not the United States should play a leadership role when it comes to clean energy. David believes the U.S. ought to compete and should compete in the energy space, while Ari admits that Republicans are split when it comes to clean energy and he would rather the markets dictate which energy source will be most effective.

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Energy: What should be the government’s role with respect to oil company subsidies?

David and Ari agree that the United States should not be subsidizing oil companies. Ari goes on to say that he is for lowest rates, least deductions, credits and subsidies as possible.

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David Axelrod and Ari Fleischer agree that the United States should not be subsidizing oil companies.  Ari goes on to say that he is for lowest rates, least deductions, credits and subsidies as possible.

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Energy: Is there a future to cap and trade?

David and Ari deliberate the future of cap and trade in light of the continued popularity of coal, natural gas and oil over more green forms of energy.

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David Axelrod and Ari Fleischer deliberate the future of cap and trade in light of the continued popularity of coal, natural gas and oil over more green forms of energy.

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General Counsel Corner

The challenges facing General Counsel (GC) and in-house legal departments are more daunting than ever. Heightened regulatory enforcement and today’s complex economic environment are creating additional pressures on General Counsel and their legal departments. Navigant’s experts present insightful perspectives on a wide variety of issues to help GCs better understand the issues impacting their business.

Smart Grid

Enabling New Energy

The convergence of forces in clean energy policy, utility regulations, energy markets, and technology is transforming the electricity landscape and driving advancement of the country's Electricity Grid to a "Smart grid" – a tightly integrated, information-based, and highly adaptive system.

The smart grid is a complex network of hardware, software and operators that has the poten­tial to fundamentally change the way in which electricity is delivered and consumed. The basic concept of the smart grid is to integrate technologies that enable enhanced monitoring, analysis, control and communication capabilities into the aging national electrical delivery system. The term “smart grid” is not meant to describe a single system, but rather serve as an umbrella to capture many different manifestations of an advanced power grid. Most stakeholders agree with the fol­lowing seven characteristics of an advanced power grid developed by the National Energy Technology Laboratory:

1. Self-heals
2. Motivates and includes the consumer
3. Resists attack
4. Provides power quality for 21st century needs
5. Accommodates all generation and storage options
6. Enables markets
7. Optimizes assets and operates efficiently

Protecting Client Assets

The protection of client money and assets continues to be a high priority for both investors and regulators. The application of the FSA rules can be difficult, in the context of diverse business lines, complex processes and lengthening supply chains.

Senior executives and staff need to have a good understanding of principles, best practice and areas of risk in order to comply and to implement the optimum pragmatic solutions for their businesses and for clients.

Navigant's industry experts are positioned to offer insights into the latest Client Money and Asset issues.

Follow Karen Bond on Twitter here for her unique insights and opinions.