Rolande notes

NEW YORK Oct 18 (Reuters) - Bank of America filed a motion late Monday to disqualify Quinn Emanuel Urquhart & Sullivan as counsel to AIG in the insurer’s $10 billion suit claiming BofA, Merrill Lynch, First Franklin Financial, and Countrywide misrepresented the mortgage-backed securities they sold AIG.According to BofA’s lawyers at Munger, Tolles & Olson, a Quinn Emanuel partner who reviewed a draft of AIG’s complaint previously worked at Munger — and was privy to confidential information about how Merrill Lynch and its mortgage origination unit First Franklin intended to defend against MBS claims. Munger asserted that its former partner, Marc Becker, has a direct conflict of interest that should result in Quinn Emanuel’s removal from the AIG case.”Quinn undertook this representation without even requesting a conflict waiver and screened Becker from involvement in this case only after defendants raised the issue,” the Munger disqualification motion said. “By then it was too late — Quinn had represented AIG in preparing this lawsuit for months, and Becker had already been involved in drafting the complaint and a significant motion in the case. Quinn’s flouting of the ethical rules mandates disqualification.”Munger’s filings, first spotted by my Reuters colleague Noeleen Walder, disclose a trove of information about what happened between AIG and BofA in the months before AIG filed its $10 billion suit in July. They also raise the possibility that Bank of America will move to disqualify Quinn Emanuel in other cases involving MBS allegations against Merrill or First Franklin, including suits by the Federal Housing Finance Agency, Allstate , and Massachusetts Mutual.Quinn Emanuel’s counsel, Gregory Joseph, said Munger’s disqualification motion is purely tactical. “Marc Becker practiced at Munger Tolles for 19 years as a highly respected and trusted associate and partner. They know perfectly well that he would not share any confidential information and he never did,” Joseph said in an email. “Bank of America doesn’t want to face Quinn Emanuel on the other side. Its motion never even addresses the governing standard — whether there is any risk of trial taint — because of course there isn’t.” (Quinn, as I’ve reported, pioneered MBS litigation and has filed dozens of suits for MBS investors, including most of the FHFA’s cases.)Here’s the back story: Marc Becker was a partner at Munger Tolles until 2008, when he moved to Quinn Emanuel’s London office. According to declarations by Munger partner Marc Dworsky and former First Franklin general counsel and CEO Mark Malovos, Becker worked with First Franklin officers to craft an MBS defense strategy while he was a Munger partner. “Through his communications with Merrill Lynch and First Franklin representatives, Becker had access to highly confidential information and analysis regarding First Franklin’s home loan origination business,” the Dworsky declaration said. “Even more significantly, Becker was provided First Franklin’s internal projections of its exposure in connection with mortgage originations — the sensitivity and confidentiality of which is self evident.”Munger’s filings said the firm first became aware of Becker’s alleged conflict in September, as partners reviewed Munger Tolles’ past work for Merrill Lynch and First Franklin. On Sept. 19, the firm sent a letter to AIG counsel Michael Carlinsky of Quinn, asserting that Becker had worked on Merrill Lynch and First Franklin matters, that Quinn Emanuel had not requested or received a waiver of conflict from either of them, and that both Becker and Quinn Emanuel should be disqualified as a result. Munger said it was first raising the issue with Quinn in a letter, rather than in a court filing, “given the importance of the issue.” The Munger letter asked Quinn to disclose whether Becker had worked on the AIG complaint.At the same time, Munger partner Brad Brian emailed Quinn partner John Quinn. “Can we talk about Marc Becker and AIG v. Merrill?” Brian’s email said. Quinn replied, “Needless to say, Marc in London, has had and will have nothing to do with case.”Nevertheless, Quinn Emanuel was concerned enough about Munger’s letter that it brought in Joseph, whose Sept. 26 letter to Munger Tolles is a fascinating document. In it, Joseph asserted that BofA has been trying to knock Quinn Emanuel out of representing AIG since last January, when AIG and BofA signed a tolling agreement. In March or April, according to the Joseph letter, BofA informed AIG that it could participate in the talks that eventually produced the proposed $8.5 billion deal with Countrywide MBS investors — but only if it ditched Quinn Emanuel.Moreover, the Joseph letter asserted, BofA has its own conflict problem. The bank’s associate general counsel, Christopher Garvey, worked on AIG matters as a partner at Goodwin Procter, and though AIG waived the conflict for prelitigation talks, Joseph wrote, AIG didn’t realize Garvey was still technically a Goodwin partner “seconded” to BofA. “Goodwin represented AIG in mortgage lending matters,” Joseph wrote. “If BofA pursues its reckless charge against Quinn Emanuel, AIG will be forced to address Mr. Garvey’s conflicts, and this will not be limited to Mr. Garvey but extend to all whom Mr. Garvey has tainted.”Munger called Joseph’s assertion about Garvey “flatly incorrect” and “a smokescreen raised in an attempt to deflect attention from Quinn’s breach of its ethical duties” in an Oct. 4 reply to the Joseph letter. More importantly, the Munger letter said, Joseph hadn’t answered its question: Did Becker work on the AIG case against BofA?It turns out that he did, as Joseph conceded in a second letter to Munger Tolles. Becker wasn’t part of Quinn’s AIG team, Joseph said, but had spent a total of 5.8 hours reading and suggesting structural changes in a draft of the original complaint and then reviewing AIG’s remand motion after BofA removed the case from New York state supreme court to federal court. Joseph said, however, that Becker never disclosed any confidential information about Franklin Financial or Merrill Lynch. (The Quinn partner didn’t even remember, according to Joseph’s first letter, that he’d done MBS work for those Munger clients.)Munger’s response was to file Monday’s disqualification motion. Quinn Emanuel, as Munger noted in a footnote, is no stranger to such motions: It successfully moved to disqualify the Glaser Weil firm from representing MGA Entertainment in the Bratz doll dispute because a former Quinn lawyer had moved over to the Glaser firm. (Quinn Emanuel has also been in a long-running effort to remove Apple counsel Bridges & Mavrakis in the Samsung patent case in San Jose.)This blog post first appeared here:

* Euro zone crisis erodes investor confidence in commoditiesBy Jane LeeKUALA LUMPUR, Oct 18 (Reuters) - Copper and zinc led a decline in commodities on Tuesday after China’s gross domestic product growth slowed and delays in finding a solution to the euro zone crisis heightened concerns that the global economy will slip into a recession.Three-month copper on the London Metal Exchange fell for a second day, zinc tumbled the most in more than two weeks, oil prices shed more than half a percent and spot gold dropped 0.5 percent. Grains, already under pressure due to a pick up in harvest, were also not spared.China’s economic expansion eased slightly in the third quarter to its slowest pace since the second quarter of 2009 as the world’s growth engine and top energy consumer strained against tight monetary policy at home and softening demand abroad.”Fundamentally, demand from China will not collapse but growth will be slower,” said Yao Wei, a Hong Kong-based economist at Societe Generale, who forecasts China’s gross domestic product growth will slow to 8.3 percent in 2012 from an estimated 9 percent this year.”If we have a stable global financial backdrop, it will help China better manage its economy.”LME copper lost 2.6 percent to $7,299 a tonne by 0736 GMT, after dropping 0.7 percent in the previous session.Supply disruptions caused by strikes at two Freeport-McMoran Copper & Gold mines, including one of the world’s largest copper mines in Indonesia, kept a floor under copper prices, which have lost almost a quarter of their value so far this year.Zinc was the biggest loser among base metals, falling 2.6 percent on the LME and 4.4 percent on the Shanghai Futures Exchange SZNc2.The weak global economic outlook amid mounting worries about the euro zone debt crisis and news that China’s GDP growth eased to 9.1 percent, slightly below forecasts of 9.2 percent, dragged down Asian shares.Germany said on Monday that a summit of EU leaders next Sunday would not produce a miracle cure for the euro zone’s sovereign debt crisis, a warning that pushed down markets after a rise in the past week on expectations of a breakthrough.German Finance Minister Wolfgang Schaeuble told a conference in Duesseldorf that European governments would adopt a five-point plan at the Brussels meeting to address the turmoil that has clouded the outlook for the global economy.The most-active copper contract on the Shanghai Futures Exchange lost 2.6 percent to 54,440 yuan ($8,545.51) per tonne, after falling 0.2 percent in the previous session.HARVEST, ECONOMIC WOES DRAG GRAINSThe gloomy economic outlook and China data also dented investor sentiment in a grains market that is already weighed down by a pickup in harvest.”It’s bearish via the impact on non-food commodities, particularly on energy prices,” said Malcom Bartholomaeus, a Melbourne-based analyst at Profarmer Grain Australia, which provides grains marketing advice.”That in turn will ripple through to vegetable oils, corn which is used in ethanol, and then back to food grains like wheat.”Corn for December delivery declined 0.3 percent to$6.38-3/4 per bushel, after two consecutive sessions of gains.U.S. soy futures for November delivery on the Chicago Board of Trade declined for a second day, dropping 1 percent to $12.40-1/4 a bushel after hitting a two-week high on Friday.Soy rose nearly 10 percent last week, notching its biggest weekly gain on a percentage basis in more than two years as farmers refuse to sell soybeans despite a rapid clip in harvesting the 2011 crop.Wheat for December delivery slipped 0.1 percent to$6.24 per bushel. Prices Wc1 have fallen 21 percent this year after a 47 percent jump in 2010.Global wheat harvest estimate for 2011/2012 was boosted to 681.2 million tonnes in October from 678.12 million tonnes a month earlier, according to the U.S. Agriculture Department.GOLD, OIL DROPGold, which has moved in tandem with equities and other commodities in recent weeks, dropped half a percent, but analysts remained bullish about the long-term outlook for the precious metal.”It will not be the end of problems there,” said Mark Pervan, global head of commodity research at ANZ Investment Bank in Melbourne. “There will be residue risk in the market, and the market would have to long gold.”Spot gold fell 0.5 percent to $1,662.29 an ounce, down from a three-week high of $1,694.60 in the previous session. U.S. gold futures GCcv1 edged down 0.7 percent to $1,664.40 an ounce.Brent crude LCOc1 for December lost 0.7 percent to $109.42 a barrel, after falling to as low as $109. U.S. crude CLc1 shed 51 cents to $85.87, one day before the front-month November contract expires.Oil prices were however supported by lower Angolan crude production expected in December.Angola will export around 1.69 million barrels a day of crude oil in December, trade sources said on Monday, down from 1.84 million barrels a day originally scheduled to load in November. (With additional reporting by Carrie Ho, Rujun Shen and Francis Kan; Editing by Himani Sarkar)

— The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further, as highlighted by the recent revision in our Banking Industry Country Risk Assessment on Spain to Group 4 from Group 3.— As a consequence, we are lowering our long-term sovereign credit ratings on Spain to ‘AA-’ from ‘AA’.— The outlook on the long-term rating is negative.LONDON (Standard & Poor’s) Oct. 13, 2011—Standard & Poor’s Ratings Services today lowered the long-term rating on the Kingdom of Spain from ‘AA’ to ‘AA-‘, while affirming the short-term ratings at ‘A-1+’. The outlook is negative. The transfer and convertibility assessment remains ‘AAA’, as it does for all members of the eurozone.The lowering of Spain’s long-term rating reflects our view of:— Spain’s uncertain growth prospects in light of the private sector’s need to access fresh external financing to roll over high levels of external debt amid rising funding costs and a challenging external environment;— The likelihood of a continuing deterioration in financial system asset quality as reflected in the recent revision of our Banking Industry Credit Risk Assessment score for Spain to group 4 from group 3 (see “Spain Banking Industry Country Risk Assessment Revised To Group 4 From Group 3 On Heightened Economic Risk”, published Oct. 11, 2011);— The incomplete state of labor market reform, which we believe contributes to structurally high unemployment and which will likely remain a drag on economic recovery.Under our recently updated sovereign ratings criteria, the “economic” score was the primary contributor to the lowering of Spain’s long-term rating. The scores relating to other elements of our methodology—political, external, fiscal, and monetary—did not directly contribute.While in our view the factors impeding a potential recovery of domestic demand are not unique to Spain, they impact Spain with particular force given its high level of private sector leverage, much of which is funded externally. This is reflected in Spain’s negative net international investment position, estimated at 94% of GDP in Q2 2011. A key component of this is short-term external debt, which, at around 50% of GDP in Q2 2011, we view as high. Spanish monetary and financial sector institutions accounted for slightly over one-half of total external debt at the end of Q2 2011, 57% of which is short-term debt. In our opinion, this leaves the economy vulnerable to sudden shifts in external financing conditions.External leverage at such levels increases uncertainty about the trajectory of the economy, as much depends upon the access of these Spanish borrowers to international markets, as well as the state of external demand. We believe that these factors, in turn, will be influenced by the direction of policy decisions made by eurozone institutions, including the ECB, and Spain’s eurozone partners. In 2011, we expect the Spanish economy to grow around 0.8% in real terms, while for 2012, we expect real GDP growth to be around 1%, weaker than the 1.5% we estimated in our February 2011 research update (see “The Specter Of A Double Dip In Europe Looms Larger”, published Oct. 4, 2011).These forecasts are, of course, estimates and subject to various factors, including:— The possibility that the private sector’s protracted deleveraging process may accelerate due to a further tightening of credit conditions. This could hinder any recovery in private investment, even though real fixed investment has already declined by nearly 30% cumulatively between 2008 and end 2010.— Harsher repricing in the real estate market particularly for new housing, to which the banking sector remains particularly exposed, which may result in a higher-than-previously-expected accumulation of problematic assets in the financial system. This, in turn, could slow the flow of financial resources to more productive sectors of the economy and weigh on the recovery (see “Spain Banking Industry Country Risk Assessment Revised To Group 4 From Group 3 On Heightened Economic Risk”, published Oct. 11, 2011).— High unemployment, expected at around 20%-21% in 2011-12, which will remain a drag on private consumption. Although the government has implemented some labor market reform measures, their impact on reducing labor market rigidities remains to be seen.— Economic growth in Spain’s main trading partners could slow further or contract, which may result in more subdued external demand for Spanish exports (see “The Specter Of A Double Dip In Europe Looms Larger”, published Oct. 4, 2011). Since 2009, exports have underpinned the economy’s modest growth and contributed to a sharp reduction in the current account deficit, which we expect to decline to 3.8% of GDP in 2011 from 10% of GDP in 2007.We have adopted a revised base-case macroeconomic scenario, which we view as consistent with the downgrade and the negative outlook. Compared with the February 2011 base-case (see “Kingdom of Spain ‘AA/A-1+’ Ratings Affirmed On Budgetary Consolidation And Structural Reforms; Outlook Negative” published Feb. 1, 2011), we expect GDP growth in 2011-13 will be weaker, with the stock of domestic credit to the private sector, estimated at around 165% of GDP in 2011, to decline somewhat faster. At the same time, we expect the strength of net exports to cushion the impact of a further tightening of fiscal policy.We have also adopted a downside scenario, consistent with another possible downgrade. The downside scenario assumes a return to recession next year, partly as a result of weaker external and domestic demand, with real GDP declining by 0.5% in real terms, followed by a weak recovery thereafter. Under this downside scenario, the current account deficit would decline, but the general government deficit would remain above 5.5% of GDP, at odds with the government’s fiscal consolidation targets.We have also adopted an upside scenario, which, if it occurred, we believe would be consistent with a change in the rating outlook to stable. The upside scenario assumes stronger growth next year, on the back of a pick-up in domestic demand, and supported by an easing in financial conditions and continued strength in exports. For details of all the scenarios, see our analysis on Spain to be published soon.Under all three scenarios we expect that Spain’s high private sector debt, and in particular the high stock of external debt—largely euro-denominated—will remain the key rating constraint for the foreseeable future. Narrow net external debt would range between 290% and 325% of current account receipts by 2014. Under our sovereign criteria these values would continue to imply an initial external score at the lowest possible level for a country with an actively traded currency, like Spain.Our macroeconomic analysis also indicates what we consider to be one of Spain’s main credit strengths: Even taking into account additional government-financed bank recapitalizations, we do not expect net general government debt to rise much above 70% of GDP, which compares favorably to Spain’s peers.In our view, the introduction of a ceiling for structural deficit and debt in the Spanish constitution underscores the authorities’ broad commitment to budgetary discipline. However, in the near term (and under our base-case scenario), we believe the government could miss its fiscal target due to budgetary slippages at the local and regional government levels and in social security, despite a better-than-expected

The Financial Times reported that Telefonica (BBB+/Stable) will trial an internet-calling product called ‘O2 Connect’ in the UK, which may become a commercial service in 2012. This will initially be a downloadable application available on Apple and Android smartphones. The application could potentially allow a Skype-type account - and phone number - to be accessed from a number of devices.”A key barrier to free voice at present is mobile termination rates which remain high compared to land line rates,” says Damien Chew, Senior Director in Fitch’s TMT team in London. “However, regulatory pressure has and will continue to drive these rates down. The lower they go, the more attractive free voice as a loss leader becomes to a variety of market players, beyond just internet call companies. This will translate into more downward pressure on voice prices.”The potential danger of this development for the operators is that they could become utility-like, providing undifferentiated data-only tariffs subject to intense price competition, with profit being siphoned off by application providers. However, mobile operators could combat this by using their knowledge of their networks - and possibly their ability to manage data flows through these applications - to claim a share of the application revenues to reinforce both profits and brand image.Overall, Fitch expects no negative revenue implications for O2 from the move. The product, if successful, could be a significant brand differentiator, attracting customers to O2’s data offering rather than competitors’. Any potential negative price implications will be further mitigated by the widespread practice of bundling voice, SMS and data for the UK’s post-paid customers.This application has network implications also, in that it could allow calls to be routed through WiFi connections rather than through mobile networks. This, if competitors follow suit, may remove one of the few remaining differentiators between networks - domestic signal coverage.