PPI Extension, FASB Impact, Commerzbank's Dresdner Bonus Case: Compliance

Britain’s financial regulator introduced an emergency extension for customers who want to complain about a form of loan insurance.

The Financial Services Authority said May 28 that customers who aren’t satisfied with payment protection insurance, or PPI, have until October to complain to the Financial Ombudsman Service. The extension applies to customers who received responses from lenders about PPI complaints between November 2009 and April. Customers normally have a six-month window within which to refer complaints to the ombudsman.

PPI, which generates as much as 5.5 billion pounds ($8 billion) of annual revenue for U.K. banks, is sold to cover payments on credit cards and mortgages in case of sickness or unemployment. Such products have come under scrutiny from regulators.

Separately, the FSA said May 28 that the U.K.’s biggest financial companies will have to pay an extra 40.9 million pounds ($59.6 million) to the agency this year to fund the hiring of new supervisors.

The FSA said its annual fees were rising 9.9 percent to 454.7 million pounds from 413.8 million pounds last year. It proposed the fee increase in February, when it said the extra money would pay for 460 new supervisors. This is the second year in a row where the agency’s costs have risen because of extra staff, following a 28.5 percent increase last year.

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Compliance Policy

Regions, KeyCorp May Face Biggest Initial Impact of FASB Rules

Regions Financial Corp. and KeyCorp may be among U.S. banks facing the biggest initial impact from a Financial Accounting Standards Board proposal that would require lenders to report the fair value of loans on their books, according to analysts.

The two banks have the largest percentage gap between the carrying value and fair value of their loans of lenders analyzed by Jason Goldberg at Barclays Capital and David George at Robert W. Baird & Co., they said yesterday in notes to clients. FASB, which sets U.S. accounting standards, estimated that the new rules would take effect in 2013.

Banks would have to report the fair value and amortized cost of loans and some other financial instruments on their balance sheets under the new rules released by FASB for comment on May 26. Changes in fair value would in most cases be recognized in other comprehensive income, the panel said. That could cause swings of billions of dollars in the book values of some of the nation’s biggest lenders.

The rule changes could have dramatic effects on banks’ balance sheets.

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Compliance Action

Caja Madrid, Five Smaller Banks in Merger Discussions

Caja Madrid, Spain’s second-biggest savings bank, and five smaller lenders began talks on a possible merger as banking combinations accelerate ahead of a government rescue-fund June 30 deadline as the country’s property crash drives up loan defaults.

The Madrid-based lender with assets of about 190 billion euros ($235 billion) is in talks with Caja Insular de Canarias, Caixa Laietana, Caja de Avila, Caja Segovia and Caja Rioja over a combination under a Bank of Spain-endorsed model in which they would merge some central functions, the lender said in a filing to regulators May 28. The merger would combine lenders with total assets of about 228 billion euros, according to data from the Spanish savings bank association, known as CECA.

Australia to Run Ad Campaign Explaining Resource Tax

Australian Prime Minister Kevin Rudd’s government said it will run an advertising campaign to counter mining industry “misinformation” about the proposed 40 percent super profits tax on resource companies.

The promotion was granted under emergency powers after Treasurer Wayne Swan advised “there is an active campaign of misinformation about the proposed changes,” Cabinet Secretary Senator Joe Ludwig said in a statement May 28.

The decision waives the government’s own rules that spending on taxpayer-funded advertising should be approved by its own auditors.

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Pequot Trading Probe Could Yield $1 Million Bounty for Ex-Wife

The ex-wife of a former Microsoft Corp. employee could be eligible for a $1 million bounty as a so-called whistleblower for helping U.S. regulators impose one of the largest-ever insider trading fines. The bounty may be up to 10 percent of the fine paid in the case.

The Securities and Exchange Commission said May 27 it obtained “direct evidence” of market-moving information passed to Arthur Samberg of Pequot Capital Management Inc. by David Zilkha from a hard drive in possession of Karen Kaiser, Zilkha’s former spouse.

Though the bounty will be pursued, it “is by no means the reason” she brought the evidence to the SEC, Mark Sherman, Kaiser’s lawyer, said in an interview May 27.

The SEC, which pays bounties only in insider-trading cases, has asked lawmakers to expand that authority so it may reward tipsters for any leads that result in fines exceeding $1 million.

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For commentary, see Interviews section, below.

Goldman Tells SEC It Hopes to Avoid Fraud in Any Deal, WSJ Says

Goldman Sachs Group Inc. , the investment bank sued by the U.S. Securities and Exchange Commission April 16, told the SEC it would like to avoid a fraud charge as part of any deal it may strike to settle the lawsuit over the sale of a collateralized debt obligation, the Wall Street Journal reported, citing people familiar with the matter.

Goldman has consistently denied any wrongdoing, and analysts expect the investment bank to negotiate a settlement that will include a fine and other penalties; lawyers for Goldman have met at least once with SEC representatives since the lawsuit was announced last month, the newspaper said.

Zambia to Sell First International Bond of $1 Billion

Zambia, Africa’s biggest copper producer, plans to sell its first international bond this year, raising $1 billion for rail and power projects, Finance Minister Situmbeko Musokotwane said in an interview with CNBC Africa.

The government expects to have its first sovereign credit rating by the third quarter and will proceed with the bond sale soon after that, Musokotwane said in Abidjan, the commercial capital of Ivory Coast.

Zambia abandoned a plan to seek a credit rating and sell a bond abroad in 2008 after the global financial crisis sparked a sell-off of emerging market assets. The southern African nation joins countries including Kenya, Ghana and Angola that want to tap international capital markets to help finance the building of power plants and railways as economic growth accelerates.

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Courts

Sojitz Faces U.S. Criminal Probe Over Alba Payments

U.S. prosecutors are investigating whether Sojitz Group, a Japanese trading company, paid bribes to employees of Bahrain’s state-owned aluminum producer, according to a court filing in a civil lawsuit. The payments would violate the Foreign Corrupt Practices Act, or FCPA.

The Justice Department disclosed the criminal probe May 27 in asking a judge to halt a lawsuit by Aluminum Bahrain BSC, or Alba, against Sojitz. Alba claims Sojitz paid more than $14.8 million in kickbacks to Alba managers to get discounts on aluminum prices. The U.S. investigation of Sojitz intersects with an FCPA probe of Alcoa Inc. according to the filing.

No one was immediately available at Sojitz’s New York office for comment, according to an operator and Timothy Treanor and Lynn Dummett of Sidley Austin LLP in New York who represent Sojitz didn’t immediately return calls seeking comment.

Alba attorney Mark MacDougall of Akin Gump Strauss Hauer & Feld LLP in Washington said the company “certainly respects the important role that the Department of Justice has to play.”

The cases are Aluminum Bahrain v. Sojitz Corporation, 09- cv-4032, U.S. District Court, Southern District of Texas (Houston) and Aluminum Bahrain v. Alcoa Inc., 08-cv-299, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

Commerzbank Loses Bid to Dismiss Dresdner Bonus Suits

Commerzbank AG failed in a bid to halt a lawsuit from more than 100 current and former bankers at its Dresdner Kleinwort unit in the largest U.K. bonus dispute stemming from the financial crisis.

Justice Peregrine Simon in London ruled May 28 that he hasn’t been given enough evidence to dismiss the case. He also ruled that claims based solely on events prior to a December letter to staff regarding their bonuses would have “no realistic chance of success” at trial.

At a hearing earlier last month, lawyers for Commerzbank said the financial crisis made it impractical for the bank to pay what it considered to be discretionary bonuses. The bankers say the bonuses are not discretionary.

Louise Beeson, spokeswoman for some of the claimants, said they planned to appeal the section of the judgment relating to the December letters.

The case is The parties named in Schedule A v. Dresdner Kleinwort Ltd. & ors, High Court, IHQ/10/0062 IHQ/10/0063.

Interviews

Cameron Pledges ‘Radical Tax Reform’ in Next Weeks, Months

U.K. Prime Minister David Cameron said his coalition government will set out plans for “radical tax reform” in the coming weeks and months, during which they “will go much, much further, especially with radical tax reform.”

Cameron made the remarks in a speech near Leeds, northern England.

“We’ll cut corporation tax rates by simplifying reliefs and allowances and tackling avoidance while protecting manufacturing industries.” His goal is to have “the most competitive corporate tax system in the G20,” he said.

Gary Aguirre, Douglas Burns, Discuss Pequot Fine

Gary Aguirre, a former U.S. Securities and Exchange Commission attorney, talked with Bloomberg’s Erik Schatzker about his investigation into hedge-fund firm Pequot Capital Management Inc.’s trading activities before he was fired from the SEC in 2005.

Pequot and its founder Arthur Samberg agreed to pay almost $28 million to settle regulatory claims they illegally tapped information from a Microsoft Corp. employee to bet on the software maker’s stock in 2001, the SEC said May 27.

Separately, Douglas Burns, a formal federal prosecutor, spoke with Bloomberg’s Mark Crumpton and Lori Rothman about the SEC’s oversight of financial markets, and Pequot Capital Management Inc.’s payment of $28 million to settle a lawsuit filed against it by the SEC.

He also discussed the possibility that Goldman Sachs Group Inc. may settle the SEC’s claims against the company.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

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