July 24 (Bloomberg) -- Lubert-Adler Partners LP, the Philadelphia-based private-equity firm, may participate in a bid for all or part of Corus Bankshares Inc., the Chicago lender crippled by loans to build condominiums, Bloomberg’s Jonathan Keehner and Jason Kelly reported.

Lubert-Adler is among at least four investors weighing bids for Corus, said the people, who asked not to be named because the talks are private. The Federal Deposit Insurance Corp. has indicated that the bank, which said this week it understated its first-quarter loss by $16 million, may be seized as soon as Aug. 6, the people said.

“The appeal of these distressed bank deals is buying at a discount with a potential government guarantee on some losses,” said Joseph Vitale, a partner at New York-based law firm Schulte Roth & Zabel LLP, who advises buyout firms on investments in financial institutions. “There’s a real chance to reap the upside.”

New York developer Related Cos., Thomas Barrack’s Colony Capital LLC and J.C. Flowers & Co. are also mulling bids for Corus. The 51-year-old bank’s fate rests with the FDIC because the lender and its financial adviser, Bank of America Corp., haven’t been able to find a buyer willing to complete a deal without government assistance.

Lubert-Adler and Related Group, an affiliate of Related Cos., announced a $1 billion investment vehicle last year to buy mortgages and property from developers, lenders and owners. Lubert-Adler focuses on real-estate investments.

The FDIC, led by Sheila Bair, is wrestling with the role private investors should play in the resolution of the banking crisis. After closing BankUnited Financial Corp. and IndyMac Bank, regulators agreed to loss-sharing provisions when selling them to investors this year.

The regulator proposed takeover rules two weeks ago that buyout managers said would deter them from pursuing future deals.

“There’s a question on what Corus signifies about the FDIC’s proposed rules,” said Vitale. “Will it follow the precedent of other recent private equity deals or will they subject the buyers to something new based on how they expect to finalize the rules?”

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Bogus Textron, Harmon Bids Fueled ‘Suspicious’ Trades

Bogus takeover bids for Textron Inc. and Harman International Industries Inc. reaped more than $5 million for a Kuwait-based financier and firms who placed “highly profitable and suspicious” bets beforehand, the U.S. Securities and Exchange Commission said in a lawsuit targeting the traders.

The SEC sued Hazem Khalid Al-Braikan and the firm he heads, Al-Raya Investment Co., as well as United Gulf Bank BSC and Kipco Asset Management Co. for bets they allegedly placed before a July 20 media report that an investor group planned to buy Harman. Al-Raya and Kipco also profited on trades when a Kuwaiti newspaper reported a bid for Textron, the SEC said. “No such offer existed,” the agency wrote in the complaint yesterday.

“This case exemplifies the SEC’s swift and surgical investigative skills and our determination to follow the trail wherever it leads,” SEC Enforcement Director Robert Khuzami said in a statement.

Shares of Textron rose as much as 58 percent and Harman’s shares rose as much as 10 percent on the days that media reports announced fake offers. The agency persuaded a federal court judge in Manhattan to temporarily freeze the defendants’ assets while it investigates. The SEC hasn’t yet accused anyone of orchestrating the false reports.

The complaint says Al-Braikan is chief executive officer of Al-Raya, an asset-management firm created in 2007. Al-Raya said in a June 2008 statement that Citigroup Inc. owned 10 percent of the firm. Citigroup spokeswoman Danielle Romero-Apsilos declined to comment.

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U.S. Prosecutors Let Informant Solomon Dwek Launder $3 Million

Solomon Dwek bribed a politician, arranged to buy a kidney and tried to hide assets from creditors in a bankruptcy -- all with the blessing of federal prosecutors.

Dwek, a failed real-estate developer from Deal, New Jersey, who was charged with bank fraud in 2006, is the cooperating witness in criminal complaints against 44 people arrested yesterday in a corruption and money-laundering case, Bloomberg’s David Voreacos reported, citing three people familiar with the matter.

The 36-year-old’s undercover work in political and religious communities in New Jersey and New York makes Dwek the main link between the three mayors, two state assemblymen, five rabbis and one alleged human organ dealer taken into custody in the sweep, these people said.

“How could one guy bring down so many people?” said Charles Stanziale, a Newark-based trustee liquidating Dwek’s property in a personal bankruptcy. “Well, if you stay with it and you’re working full time, one guy gets to meet another guy and it’s like a chain.”

Dwek is a rabbi’s son who was vice president of the Deal Yeshiva School in West Long Branch, New Jersey.

Stanziale, a lawyer with McCarter & English, isn’t involved in the criminal probe, he said in an interview. Dwek’s lawyer, Michael Himmel of Lowenstein Sandler in Roseland, New Jersey, didn’t return a call seeking comment.

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JPMorgan Said to Raise Some Banker Salaries Beginning in 2010

JPMorgan Chase & Co., the second-largest U.S. bank by assets, will increase salaries for investment bankers, making their pay more competitive after rivals took similar steps, a person familiar with the firm said.

The plan, unveiled yesterday at a meeting with investment bank co-heads Steven Black and William Winters, affects those who earn half or more of their total compensation in year-end bonuses, the person said, declining to be identified because pay matters are confidential. It will be implemented in 2010 and details will be announced closer to the end of this year. The salary increase doesn’t change total pay.

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For banker bets on second half, click here.

FASB May Expand Use of Fair-Market Values on Financials

The Financial Accounting Standards Board is girding for another brawl with the banking industry over mark-to-market accounting. And this time, it’s the FASB that has come out swinging, Jonathan Weil of Bloomberg News reports.

It was only last April that the FASB caved to congressional pressure by passing emergency rule changes so that banks and insurance companies could keep long-term losses from crummy debt securities off their income statements.

Now the FASB says it may expand the use of fair-market values on corporate income statements and balance sheets in ways it never has before. Even loans would have to be carried on the balance sheet at fair value, under a preliminary decision reached July 15. The board might decide whether to issue a formal proposal on the matter as soon as next month.

“They know they screwed up, and they took action to correct for it,” says Adam Hurwich, a partner at New York investment manager Jupiter Advisors LLC and a member of the FASB’s Investors Technical Advisory Committee. “The more pushback there’s going to be, the more their credibility is going to be established.”

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SEC Approves Exemptions on CDSs for ICE Clear Europe, Eurex

The U.S. Securities and Exchange Commission said it approved conditional exemptions to allow ICE Clear Europe Ltd. and Eurex Clearing AG to operate as central counterparties for clearing credit default swaps.

The conditional exemptions provide the SEC with regulatory oversight of the central counterparty, and should enhance the quality of the swap market and the agency’s ability to protect investors, the SEC said.

Banning Naked Swaps May Unintentionally Boost Funding Costs

A ban on naked trading in the $26.4 trillion credit-default swaps market being considered by U.S. lawmakers would have the unintended consequence of making it more expensive for companies to borrow, traders said.

“It will inevitably lead to higher costs of funding across all U.S. corporations, significantly reduce liquidity in credit markets, and further widen the opacity” of other instruments that rely on credit swaps for pricing, said Tim Backshall, chief strategist at hedge fund adviser Credit Derivatives Research LLC in Walnut Creek, California, in an interview yesterday.

Credit-default swaps were created as a way for corporate lenders and bondholders to protect themselves from defaults. Naked swaps, where the investor doesn’t own the debt on which the contracts are based, have proliferated in the market and may be prohibited under legislation being drafted by House Financial Services Committee Chairman Barney Frank.

“The question of banning naked credit-default swaps is on the table,” Frank, a Massachusetts Democrat, said in a Bloomberg Television interview yesterday.

Credit-default swaps were used by American International Group Inc. to bet on residential mortgage debt, driving the insurer to the brink of bankruptcy when it couldn’t come up with collateral as prices plunged. Regulators have blamed the market for exacerbating the financial crisis.

The legislation Frank plans to release next week might disrupt the flow of capital to companies by making it costlier for investors to hedge their stakes, said Robert Pickel, chief executive officer of the International Swaps and Derivatives Association, a New York-based industry group that sets rules and guidelines for the market.

“Having people who are in there speculating adds liquidity and depth to the market so that anybody who is a pure hedger, they can tap that market and know they have a deep and liquid market to turn to,” Pickel said in an interview yesterday.

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Bair, Schapiro Endorse Regulator Council to Oversee Market Risk

Federal Deposit Insurance Corp. Chairman Sheila Bair and Securities and Exchange Commission Chairman Mary Schapiro urged Congress to create a regulatory council to monitor firms for risks, breaking with an Obama administration plan giving the power to the Federal Reserve.

A group of financial agencies would be more effective at detecting problems and would offer a diversity of views, Bair and Schapiro told the Senate Banking Committee yesterday as lawmakers consider legislation to reform Wall Street rules.

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For more from Tarullo, click here.

For Obama Fed proposal losing support, click here.

Fed Would Get FDIC Board Seat in Obama Regulatory Overhaul Plan

Draft legislation sent to Congress by the Obama administration yesterday would combine the Office of the Comptroller of the Currency, which oversees national banks, and the Office of Thrift Supervision, which regulates savings and loans. The heads of both agencies currently have seats on the five-member Federal Deposit Insurance Corp. board; the Fed would fill the remaining FDIC slot.

“We don’t view the Federal Reserve’s role in the banking system as inconsistent with its role in monetary policy, so by extension we would not view it as a conflict for them to be a member of the board of the FDIC,” Michael Barr, the Treasury Department’s assistant secretary for financial institutions, said on a conference call to discuss the Obama plan.

OTS’s Bowman Says Case Hasn’t Been Made for Abolishing Agency

Office of Thrift Supervision acting director John Bowman, whose agency oversaw failed lenders such as Washington Mutual Inc., said the Obama administration hasn’t made a good case for its plan to abolish the regulator.

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FDIC’s Bair Seeks Fund to Wind Down Finance Firms

Federal Deposit Insurance Corp. Chairman Sheila Bair urged U.S. lawmakers to impose fees on the nation’s largest financial firms to keep the government from having to prop up companies deemed too large to fail. House Financial Oversight Committee Chairman Barney Frank yesterday endorsed Bair’s position.

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Fed Proposes Rules for Mortgage Disclosures, Loan-Broker Pay

The Federal Reserve, seeking to retain a consumer- protection role in the Obama administration’s regulatory overhaul, proposed expanding mortgage disclosures for consumers and restrictions on compensation for loan brokers.

The Fed’s Board of Governors yesterday unanimously approved restrictions on “steering” consumers to loans that boost compensation for mortgage originators. The guidelines also require lenders to give borrowers clear information on loan terms before closing.

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Senior Mortgage Investors Benefit From U.S. Guidance

The government waded into a fight between different classes of mortgage-bond investors with guidance that benefits owners of the highest-ranking securities at the expense of other debt holders.

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Blankfein Un-Demonizes Goldman by Paying TARP Warrants in Full

Goldman Sachs Group Inc. may have gone from public enemy to model citizen in eight days.

The most profitable firm on Wall Street paid 98 percent of fair market value to buy back warrants from the U.S. government this week, after BB&T Corp. and U.S. Bancorp paid less than 60 percent, according to University of Louisiana finance professor Linus Wilson. JPMorgan Chase & Co. has disagreed with the price set by the Treasury for the warrants, which the U.S. received when it bailed out the banks last year.

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Courts

Ex-Credit Suisse Broker Butler’s Fraud Trial Begins

Former Credit Suisse Group AG broker Eric Butler intentionally misled clients about securities bought on their behalf, falsely claiming they were backed by federally guaranteed student loans, a prosecutor told jurors.

Assistant U.S. Attorney Greg Andres told a federal jury in Brooklyn, New York, yesterday that Butler, 37, and his partner, Julian Tzolov, 36, lied to their clients for years, resulting in millions of dollars in losses.

“This is a case about the defendant’s lies,” Andres said. “The defendant and his partner promised something better, a better opportunity.”

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SEC Filings, Interviews, Company News

Agency CMOs Soar Back to Normal Pace as Banks Buy, Amherst Says

Issuance of collateralized mortgage obligations repackaging standard agency home-loan securities has soared to a pace typical before the “liquidity crises” of recent years, reflecting demand from banks and money managers, according to Amherst Securities Group analysts.

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Neuberger Berman to Acquire Lehman Brothers Trust Company

Neuberger Berman Group LLC, a money manager for institutions and individuals, agreed to acquire the businesses of Lehman Brothers Trust Co. NA and Lehman Brothers Trust Co. of Delaware. The information was distributed yesterday in an e- mailed statement.

Separately, leaders of Wall Street’s biggest commercial and investment banks crafted a plan to bail out Lehman Brothers Holdings Inc. the weekend before it went bankrupt, only to see the deal die when U.K. regulators blocked a sale to Barclays Plc, according to a book on the Federal Reserve’s role in the financial crisis.

The heads of Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and five other banks agreed Sept. 14 to put up about $4 billion, with the Fed contributing an additional $6 billion, to indemnify Barclays against bad loans on Lehman’s books, according to “In Fed We Trust,” the book by David Wessel, a Wall Street Journal reporter, to be published Aug. 4.

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Finra Fines 5 Bank Brokerages $1.7 Million on Oversight Lapses

Five bank brokerages, including a unit of Wells Fargo & Co., will pay $1.65 million to end claims of supervisory lapses in sales of variable annuities, mutual funds and investment trusts to elderly clients.

Wells Fargo Investments LLC will pay $275,000 in fines while McDonald Investments will pay $425,000, the Financial Industry Regulatory Authority said in a statement yesterday. The regulator also fined IFMG Securities $450,000 and PNC Investments and WM Financial Services Inc., now part of JPMorgan Chase & Co., will both pay $250,000. The firms settled without admitting or denying the allegations, Finra said.

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PNC Earnings Decline More Than Analysts Estimated

PNC Financial Services Group Inc., the No. 5 U.S. bank by deposits, said profit fell 61 percent, a bigger drop than analysts estimated, as more borrowers fell behind on loans.

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Taylor Says Bernanke Gets Rate Rule Right While Goldman Doesn’t

John Taylor has a message for economists who say Ben S. Bernanke is ignoring a benchmark guide for interest rates: They’re wrong.

Taylor should know: He wrote the rule.

Economists from Goldman Sachs Group Inc., Macroeconomic Advisers LLC, Deutsche Bank Securities Inc. and even the San Francisco Federal Reserve Bank argue the Taylor Rule, a pointer for finding the correct level for interest rates, suggests the Fed should be doing a lot more to stimulate the economy.

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Safeco Fined by Connecticut for Overcharging Clients

Safeco Corp., the property insurer bought by Liberty Mutual Group Inc., was fined $434,000 by the Connecticut Insurance Department for overcharging clients and using unlicensed adjusters.

Credit Suisse Profit Rises 29% on Gains From Trading

Credit Suisse Group AG, the biggest Swiss bank by market value, said second-quarter profit rose 29 percent as revenue from trading stocks and bonds doubled.

Chief Executive Officer Brady Dougan cut 4,900 jobs since December, closed unprofitable businesses at the investment bank and reduced risk-taking to return the bank to profit this year. Earnings at the securities unit rose fivefold in the second quarter, while profit declined less than analysts predicted at the wealth-management unit.

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Comings and Goings

Merrill’s ‘Pachinko’ ABS Banker Jun Mihara Departs

Jun Mihara, 45, a managing director and head of global mortgage and securitized products in Japan who led Merrill Lynch & Co.’s push into asset-backed debt sales for “pachinko” gaming parlors, left this week as demand for securitized products wanes in Japan, said people familiar with the matter.

Three other employees at the unit departed during the past two months, reducing headcount at the securitization business to five, one of the people said.

ANZ Names Morschel Chairman After Eddington Pulls Bid

Australia & New Zealand Banking Group Ltd. has picked John Morschel as chairman after former British Airways Plc chief Rod Eddington withdrew amid concern that some shareholder groups may oppose his candidacy.

Morschel, 66, a former managing director at Lend Lease Corp. and director of Westpac Banking Corp., will take over in February, ANZ Bank said in a statement.

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Nomura to Hire Sanchez-Asiain as Spain Chairman, Expansion Says

Francisco Sanchez-Asiain, chairman of UBS Securities Espana, will leave the Swiss bank to join Nomura Holdings Inc. as head of Spain and Portugal, Expansion reported, citing unidentified people at Nomura. Sanchez-Asiain will probably join Nomura in September or October, the newspaper said.

Bank of America Names Neil Cotty Chief Accounting Officer

Bank of America Corp. named Neil Cotty its chief accounting officer. Cotty will succeed Craig Rosato, who has been named consumer credit risk executive, reporting to Chief Risk Officer Greg Curl.

International

Banks Should Consider Client Asset Officer’s Post, LIBA Says

Banks should to consider creating the post of client assets officer to speed up the return of cash and securities in the event of their bankruptcy, the London Investment Banking Association told the U.K. government.

The officer would help to return assets to clients as quickly as possible where there was no dispute over title, said LIBA, whose members include Goldman Sachs Group Inc. and Morgan Stanley, in a paper responding to a Treasury paper from May. The British government is consulting on how better to manage bankruptcies like Lehman Brothers Holdings Inc.’s failure in September.

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Geneva Funds of Funds Slump as Banks Struggle to Nullify Madoff

Geneva banks, which began investing client money in funds of hedge funds during the 1960s, are struggling to rebuild the business after market losses and Bernard Madoff’s Ponzi scheme cut assets by 72 percent.

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To contact the reporter responsible for this report: Lisa Brennan in New York at lbrennan1@bloomberg.net.

Last Updated: July 24, 2009 09:46 EDT