Republican Gains, FSA, China Money: Compliance
The Republican gains in Congress mean U.S. companies from Goldman Sachs Group Inc. to Wellpoint Inc. may be able to weaken or block what they consider President Barack Obama’s anti-business policies on health care, the environment, taxes and financial reform.
The election will put Republicans in charge of the House Financial Services Committee that Massachusetts Democrat Barney Frank has headed since 2007. A Wall Street critic, Frank and Senator Christopher Dodd, a Connecticut Democrat who is retiring, wrote the Dodd-Frank law aimed at reining in abuses that they say contributed to the financial crisis.
Republicans’ new power gives them the ability to shape more than 240 rules that may be needed to implement the Dodd-Frank law, including regulations establishing the direction and independence of the new Consumer Financial Protection Bureau. Rulemaking by the Commodity Futures Trading Commission and other agencies on bank capital standards, derivatives and proprietary trading also will draw increased scrutiny.
The regulatory oversight and ability to weaken rules may benefit banks including Goldman Sachs, JPMorgan Chase & Co., and Bank of America Corp., all of which lobbied against elements of the Dodd-Frank law, saying they would hurt profits.
The election results also will bolster Republican efforts to defeat Obama’s proposals to increase taxes on companies’ overseas profits.
In addition, U.S. carriers expect to gain with Republican control of the House, as Congress scraps proposals to limit the outsourcing of maintenance work and to subject global alliances to antitrust enforcement, as well as other measures to help the aviation industry.
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Compliance Policy
FSA Delays Publishing Bonus Rules to Wait for EU Regulator
The U.K.’s Financial Services Authority is delaying publishing its final rules on bank pay to wait for guidelines from European regulators.
The FSA will present its plans in December, after the Committee of European Banking Supervisors issues its guidelines on bonuses earlier in the month. The deadline for banks and other financial firms to implement the rules is Jan. 1, leaving banks less than one month to update their bonus structures.
Bankers would be limited to receiving one quarter of their bonus in cash in an upfront payout under CEBS proposals released last month. The EU is implementing rules on bonuses as part of a range of measures to rein in the risk-taking blamed for causing the worst financial crisis since the Great Depression.
The U.K. FSA has proposed expanding the firms covered by its rules on bonuses from 27 banks to 2,500 firms, including building societies and hedge funds.
International Trade May Be Hurt by Basel Rules, Companies Say
Companies may face higher costs and reduced financial support when exporting or importing goods as a result of reforms to bank capital rules, a coalition of business associations warned yesterday.
The reforms will harm global trade and economic growth by increasing the amount of capital that banks must hold when they provide trade finance, the associations, which include the Institute of International Finance and the National Foreign Trade Council, said in a letter to the Group of 20 countries.
The G-20 has asked the Basel Committee on Banking Supervision to reform capital rules for banks to ensure that they can’t build up excessive levels of risk on their balance sheets. Banks say that some reforms proposed by the Basel committee will add to what they see as already too high capital charges on trade finance, making it less attractive for them to provide it.
Trade finance consists of short-term loans and guarantees provided by banks to companies to support import and export activities.
Regulators Need More Power, Bigger Budgets, FSB Says
Regulators failed to adequately police the world’s biggest banks before the credit crisis because they lacked resources and independence, a group of global financial watchdogs said.
The supervision of too-big-to-fail banks must become “more intense, more effective and more reliable,” the Financial Stability Board said in a report on its website Nov. 1. The group of regulators and central bankers called on national governments to preserve the budgets of financial watchdogs, saying this is a time of “broad civil-service cost reduction initiatives.” The FSB said the cuts are occurring at a time when “high expectations” are being placed on agencies “to ensure financial stability in a volatile environment where more skilled resources are required.”
The Group of 20 countries set up the FSB last year, putting it in charge of coordinating efforts to strengthen global financial regulation in the wake of the crisis. It replaced the Financial Stability Forum, an advisory group with no formal role that was created in 1999 after the Asian financial crisis.
Regulators were criticized for their failure to prevent conduct that led to the global financial crisis in 2008.
“Reinforcing the operational independence of supervisory agencies is critical,” the FSB said.
China Will Conduct Inspection of Drug Industry, Xinhua Reports
Six Chinese government departments have started a joint inspection of drug safety, Xinhua News Agency said, citing an announcement from the State Food and Drug Administration.
The agencies, including the Ministry of Health, Ministry of Public Security and the State Administration of Industry and Commerce, will focus on 11 provinces and Chongqing municipality, Xinhua said.
The inspection will focus on “media hype,” the sale of fake drugs by mail, the implementation of drug-industry regulations and reorganization, and drug-quality standards, the news agency said.
U.S. CFTC Gains Power to Regulate Deceptive Trading, NYT Says
The U.S. Commodity Futures Trading Commission gains the power to regulate “manipulative and deceptive” behavior in the commodities, futures and swaps market, as part of the Dodd-Frank financial regulations, the New York Times said.
It also gets new clout to police derivatives such as credit default swaps and the exchanges that will trade the contracts, the newspaper said.
U.K. Banks Voice Concern Over Payment-Protection Bill, FT Says
U.K. banks say the cost of implementing new regulatory measures for payment protection insurance might be considerably higher than the Financial Services Authority’s estimate of 4.4 billion pounds ($7.1 billion), the Financial Times reported.
The warning is contained in an application for a judicial review of the measures that was lodged with the High Court in London last month, the newspaper said, adding that the measures are due to take effect within weeks.
U.S. Considers Excluding Currency Swaps From Derivatives Rules
The U.S. Treasury requested public comment last week to determine if it should exempt currency swaps and forwards from regulation being developed to overhaul the $615 trillion over- the-counter derivatives market.
Treasury Secretary Timothy F. Geithner, under powers granted to him under the Dodd-Frank regulatory overhaul, will decide whether to exempt either or both of these foreign- exchange derivatives. The Washington-based Commodity Futures Trading Commission was given authority under the financial regulation legislation to develop new rules to stem systematic risk in the market. The public comment period ends Nov. 29.
Foreign-exchange trading reached a record $4 trillion a day on average, according to the latest Bank for International Settlements triennial central bank survey of foreign exchange and derivatives published in September.
Compliance Action
JPMorgan Said to Be Investigated Over Subprime CDO Disclosures
JPMorgan Chase & Co. is the subject of an investigation to determine if it failed to tell investors in a financial product linked to subprime mortgages that hedge fund Magnetar Capital helped select the underlying assets before betting against them, a person familiar with the matter said.
The U.S. Securities and Exchange Commission is probing whether JPMorgan allowed Magnetar to choose assets for a $1.1 billion collateralized debt obligation known as Squared, according to the person, who declined to be identified because the investigation isn’t public. JPMorgan lost about $880 million on the deal, according to ProPublica, which reported the investigation Nov. 1.
The JPMorgan inquiry is part of a broader investigation of how Wall Street firms bundled and sold mortgage-linked investments as the housing market declined in 2007, contributing to more than $1.8 trillion in losses and writedowns worldwide.
“We, like other firms, have received inquiries from the SEC related to collateralized obligations,” JPMorgan spokeswoman Kristin Lemkau said. “We are cooperating fully with these inquiries.”
SEC spokesman John Nester declined to comment.
“Magnetar did not select the assets for the Squared transaction or require that any specific assets be put into the transaction,” spokesman Steven Lipin said in a statement.
China Said to Plan Trial of Short-Dated Commercial Paper Sales
China plans to allow top-rated companies to sell commercial paper with maturities of as little as a day as part of efforts to develop the nation’s money markets, according to three bankers familiar with the matter.
Nine state-owned enterprises will trial the securities, which will be issued on the interbank market with maximum maturities of nine months, the bankers said, asking not to be identified because the information is private.
China currently allows companies to sell commercial paper due in one year.
No one at the office of the National Association of Financial Market Institutional Investors, which regulates sales, was immediately available for comment. The plan was reported earlier by Dow Jones Newswires.
Electronic Cigarettes’ Nicotine Vapor Stokes U.S. Regulators
Electronic cigarettes are pitting regulators against anti- smoking forces on whether to allow sales now to speed efforts to help smokers quit or ban them until they are proven safe and effective.
Proponents of the battery-powered devices that produce a nicotine vapor instead of tobacco smoke urge the Food and Drug Administration to consider them a tool for smokers seeking a tobacco-free alternative. The American Lung Association wants sales suspended unless proven in clinical drug trials.
The FDA is appealing a U.S. District Court ruling that the agency lacks authority to regulate the devices as drugs because they are recreational, not therapeutic. Potential users spend $1.2 billion on smoking-cessation products and $80 billion on cigarettes a year, according to the U.S. Centers for Disease Control and Prevention. The FDA said e-cigarettes may work with smokers the way methadone clinics wean heroin addicts by giving them a less harmful form of an addictive substance.
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Pioneer Pays Record Fines, Promises No Further ‘Utterances’
Pioneer Foods Ltd., the South African maker of Weet-Bix breakfast cereal, agreed to pay 500 million rand ($72 million) to settle antitrust cases.
As part of the settlement, the company promised not to “make any utterances that may reasonably be construed as a threat to enter into a price war or an inducement to raise prices,” the company said yesterday in a statement.
The Paarl, Western Cape-based producer settled cases over price-fixing in flour and maize, collusion in flour, bread and maize, “exclusionary conduct” against independent bakeries and anti-competitive practices in poultry and egg supply, South Africa’s Competition Commission said in a separate news release.
The payments, combined with a fine of 195.7 million rand imposed on Pioneer on Feb. 3 for agreeing with rivals to raise bread prices, represent the largest overall settlement imposed on a single company by the commission, Ebrahim Patel, economic development minister, said in an e-mailed statement.
Pioneer said annual profit may slump 95 percent and it won’t offer a final dividend.
Pioneer Managing Director Andre Hanekom wasn’t immediately available to comment when Bloomberg called his mobile phone.
Courts
FSA Arrests Two in London in Insider-Trading Probe
The U.K.’s financial regulator and police searched buildings in London and Germany and arrested a “city professional” as part of an insider-trading investigation.
The Financial Services Authority arrested a 37-year-old man and a 28-year-old woman in London, the regulator said in a statement yesterday. City of London Police and the FSA also searched two addresses in London and worked with police and prosecutors in Hesse, Germany, to conduct a search there.
The case isn’t related to any ongoing insider-trading investigations, the regulator said.
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Doctor Charged With Tipping Fund on Albuferon Drug
A French doctor who worked as a consultant for Human Genome Sciences Inc. has been charged by the U.S. with insider-trading for allegedly tipping off a hedge fund about negative results of Albuferon drug trials.
Dr. Yves Benhamou, 50, was arrested yesterday on two federal charges filed by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara, the FBI in New York said. Human Genome Sciences, or HGSI, is a developer of gene-based drugs.
Benhamou held dual positions, working as an adviser to HGSI on the Rockland, Maryland-based company’s hepatitis C drug’s Albuferon trials while also holding positions as a paid consultant to at least six hedge funds, the U.S. said. He is charged with one count of conspiracy to commit securities fraud and one count of securities fraud. He faces as long as 20 years in prison if convicted.
Joseph Zwicker, a lawyer for Benhamou, didn’t immediately return a voice-mail message left at his office seeking comment.
The U.S. Securities and Exchange Commission yesterday also sued Benhamou for allegedly providing information to hedge funds regarding trials of Albuferon, according to a filing in Manhattan federal court.
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Interviews/Speeches
Brazil Corporate Governance Best Among BRICs, Landers Says
Brazil has better corporate governance and transparency than Russia, India and China, said Will Landers, who oversees about $10 billion in Latin American stocks at BlackRock Inc.
“The work done by CVM and Bovespa really differentiated Brazil from the BRIC world,” Landers said, referring to the country’s securities regulator and stock exchange. He spoke at a Brazilian-American Chamber of Commerce event in New York.
Clear rules, transparency and availability of companies to shareholders helped Brazil take stock market leadership in the region from Mexico, Landers said.
Europe Won’t Be Haven From U.S. Rules, Barnier Says
European regulation won’t allow U.S. traders to sidestep the strictures of the Dodd-Frank financial overhaul, European Union Financial Services Commissioner Michel Barnier said.
“Our measures aren’t always identical, but they must be coherent and reciprocal,” Barnier said in an interview yesterday in Chicago, where he is wrapping up a six-day trip to the U.S. that included meetings with Treasury Secretary Timothy Geithner and Gary Gensler, chairman of the Commodity Futures Trading Commission.
Dodd-Frank is the largest rewrite of Wall Street rules since the Great Depression. The law gives Gensler’s agency the ability to establish rules governing the $615 trillion over-the- counter swap market. The EU is planning its own overhaul of derivative rules and has proposed fines for traders who don’t report details of their contracts as well as measures to force more transactions through central clearinghouses.
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Comings and Goings
Connecticut’s Insurance Commissioner Thomas Sullivan Resigns
Connecticut Insurance Commissioner Thomas Sullivan, appointed to the position in 2007, resigned as Governor Jodi Rell’s term comes to a close.
His letter of resignation to Rell was forwarded by the governor’s spokeswoman in an e-mail.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.
To contact the editor responsible for this report: David E. Rovella at drovella@bloomberg.net.
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