Fed Guidelines, ChiNext Lock-up, LVMH: Compliance

The Federal Reserve is preparing guidelines for supervisors to use in assessing whether banks are strong enough to boost dividends or buy back shares, a person familiar with the matter said.

The Fed plans to release the guidelines as soon as this month, said the person, who declined to be identified because the plan hasn’t been made public. The Fed is seeking to standardize procedures for supervisors to evaluate inquiries from banks, the person said.

Concerns that bank capital was under pressure from souring loans prompted Fed officials in February 2009 to issue a letter to its regional supervisors telling them banks “should reduce or eliminate dividends” when earnings decline or the economic outlook deteriorates. The new guidelines may show the Fed’s confidence in banks’ health is being restored.

Some banks may not be able to raise their dividends as they prepare for higher capital requirements.

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Compliance Policy

ChiNext Tightens Rules on Executives’ Share Sales

China’s ChiNext bourse for technology companies tightened rules governing share sales by top managers amid concern outgoing executives of companies on the exchange may flood the market with stock.

Executives won’t be able to sell their shares for at least 18 months after the company’s initial public offering, according to the new rule posted on ChiNext’s website Nov. 4. Managers who quit within six months of a listing will be unable to sell stock for at least 18 months after resigning.

The new rules may impact 200 billion yuan ($30 billion) to 300 billion yuan of shares held by executives at ChiNext companies, said Yao Weiwei, an analyst at Huatai Securities.

The latest restrictions augment existing rules that prevent controlling shareholders from selling shares for three years after the IPO. Pre-IPO individual investors are subject to a 12- month lockup. Before the new rule, executives typically pledged not to sell stock within six months of resigning.

Executives who depart their companies between six months and a year after listing won’t be allowed to sell their shares until 12 months after resigning.

Disallowing U.S. Ratings Hurts Capital, Stability, EBF Says

European financial market stability and banks’ capital ratios may be hurt if regulators disallow the use of U.S. credit ratings in Europe, according to the European Banking Federation.

Ratings companies in the European Union should be able to endorse the judgments of non-EU firms if the outside firms’ conduct “fulfills requirements which are at least as stringent” as those for local raters, according to current regulations the lobby group cited in a letter to the European Commission.

Instead, EU authorities are interpreting the requirement to mean that endorsement is allowed only if the regulation, and not just the conduct, of firms in the non-EU country is as demanding as in Europe, according to the EBF. Only Japan meets that condition, while the U.S. regime is “merely broadly equivalent,” the EBF said.

The Financial Times reported on the letter earlier.

Bursa Derivatives to Start Accepting Yuan as Margin Collateral

Bursa Malaysia Derivatives Berhad will start accepting Chinese yuan as margin collateral for trading in the Malaysian derivatives market, Yusli Mohamed Yusoff, chief executive officer of the bourse, said at a contract-signing ceremony with the Dalian Commodity Exchange in Guangzhou Nov. 5.

The agreement makes “the Malaysian futures market appealing and accessible,” by accepting the Chinese currency as a margin deposit, Yusli said, adding that the contract shows the “importance of China traders” to the Malaysia market.

The measure will begin this month, Ong Kheng Kok, manager of clearing and settlement, said in interview without elaborating.

Australia Banks Seek to Change Tax Laws, Financial Review Says

Australia’s banks are lobbying the government to change tax laws to accommodate the new capital and liquidity rules being developed by the Basel Committee on Banking Supervision, the Australian Financial Review said, citing unidentified people familiar with the request.

The proposed new rules, which are designed to avoid a repeat of the global financial crisis, may increase the cost of funding for the banks, the Review reported.

FSA Accused of Causing ‘Mortgage Famine,’ Independent Reports

Redrow Plc, a U.K. house builder, accused the Financial Services Authority of causing a “mortgage famine” by imposing stringent lending rules, the Independent reported.

Steve Morgan, the company’s chairman, said damping lending at a time of housing shortage is “laying the foundations for the next boom-bust cycle,” the newspaper reported.

In the past three years, the number of mortgage products available to buyers with deposits of 5 percent or less has fallen from 1,224 to 33 and might drop further if changes proposed by the regulator come into force, the Independent cited Morgan as saying.

Compliance Action

LVMH Stake in Hermes To Be Probed by French Regulator

LVMH Moet Hennessy Louis Vuitton SA’s purchase of a 17.1 percent stake in Hermes International SCA will be investigated by French regulators to determine if securities rules were breached.

The Autorite des Marches Financiers will review how LVMH built up the stake in Hermes, the Paris-based luxury goods maker, AMF Chairman Jean-Pierre Jouyet said Nov. 5 in an interview on RMC radio.

LVMH last month changed terms of cash-settlement swap contracts in Hermes that it bought in 2008 so it could take physical delivery of the underlying shares and move the termination dates forward, according to a statement filed with the regulator last week.

LVMH “rejoices in the announcement of the opening of an investigation,” the company said Nov. 5 in an e-mailed statement. The investigation will show LVMH “scrupulously respected the applicable rules.”

When France tightened its disclosure rules last year, AMF recommendations to include cash-settled equity swaps weren’t included. LVMH said in the statement filed to the AMF explaining how it built up the stake, that it may add to its position “depending on the circumstances and the market situation.”

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SEC Finds No Evidence Cancellations Caused May 6 Crash

U.S. regulators haven’t found evidence that traders tried to profit during the May 6 stock-market crash by overwhelming exchanges with orders, a Securities and Exchange Commission official said.

There is no indication thus far that “one or more parties flooded the market with quotes” to cause delays in exchange feeds that list stock prices, Gregg Berman, a senior adviser to the SEC’s trading and markets division, said Nov. 5 at a Washington meeting of the SEC, CFTC and an advisory panel tasked with making recommendations to the regulators on how to prevent future crashes.

Berman’s comments were at odds with speculation by Nanex LLC, a market-data provider, which said high-frequency traders destabilized New York Stock Exchange trading by submitting and then canceling thousands of rapid-fire orders. Executives at Winnetka, Illinois-based Nanex have cast doubt on findings by the SEC and the Commodity Futures Trading Commission that sales of futures contracts by a single mutual-fund firm started a chain of selling that bled into stocks and exchange-traded funds.

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Resona Holdings to Repay $11 Billion of Japan Government Funds

Resona Holdings Inc., Japan’s fourth-biggest bank, plans to repay as much as 900 billion yen ($11 billion) of government bailout funds using proceeds from a share sale and internal reserves.

The Tokyo-based bank Nov. 5 registered to sell as much as 600 billion yen of common stock over the next year, according to an exchange filing. It plans to use money from the sale, plus 300 billion yen of reserves, to buy back preferred stock from the government and retire the shares to avoid potential dilution.

The bank plans to hire Nomura Holdings Inc. and Bank of America Corp.’s Merrill Lynch & Co. unit to underwrite the shares, the statement said.

Under former Prime Minister Junichiro Koizumi, Japan injected 1.96 trillion yen into Resona in 2003 after its capital fell below minimum regulatory requirements. As well as preferred shares, the state owns 42 percent of the firm’s common stock, according to data compiled by Bloomberg News.

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Turkey Says Mobius Probe Routine Investigation, Preliminary

Turkey’s investigation into share forecasts by Templeton Asset Management Ltd.’s Mark Mobius doesn’t carry any implication of violation of capital markets regulations, the regulator said.

The examination is “preliminary” and the consequence of investor complaints, the Capital Markets Board said in an e- mailed statement from Ankara Nov. 5. The probe will only escalate if it finds evidence of “a market abusive activity,”

Australian Regulator to Issue Rules on Bank Fees, Review Says

The Australian Securities and Investments Commission will this week publish new guidelines about how it will legally enforce rules stopping banks from imposing “unfair” exit fees on mortgages, the Australian Financial Review reported, without saying where it got the information.

Unfair exit fees will be defined as any charges found to be greater than necessary for a bank to recover legitimate costs, the newspaper said.

U.S. Probes Whether Citi Misled Debt Fund Investors, WSJ Says

The U.S. Securities and Exchange Commission is investigating whether Citigroup Inc. misled investors about the riskiness of some soured debt funds, the Wall Street Journal reported, citing unidentified people familiar with the matter.

Former brokers at Citigroup’s Smith Barney unit made the allegations and were subsequently subpoenaed by the SEC, the Journal said. They left the company after disagreements over how the funds, including MAT Finance LLC and Falcon, were handled, the newspaper said. The funds invested in municipal bond and mortgage debt, using borrowed money.

Citigroup said it didn’t mislead investors, the Journal said. The SEC and a lawyer for the brokers declined to comment.

Courts

Man Charged in Philadelphia With $17 Million Fraud

U.S. prosecutors in Philadelphia charged and arrested Robert Stinson Jr. with running a $17 million Ponzi scheme tied to real estate hedge funds.

Stinson, 55, is accused of cheating more than 260 investors by promising returns of 10 percent to 16 percent from the funds, U.S. Attorney Zane David Memeger said Nov. 5 in an e-mailed statement. Stinson is charged with 26 counts of wire, bank, and mail fraud, money laundering, obstruction of justice, filing false tax returns and making false statements.

Stinson allegedly told investors the funds made short-term commercial mortgage loans, prosecutors said. He used investors’ funds to pay himself and family members, and buy cars and vacations, according to the indictment.

The U.S. Securities and Exchange Commission sued Stinson in June over the Ponzi-scheme allegations.

Stuart Patchen, an attorney for Stinson with the federal defender’s office in Philadelphia, didn’t immediately return a phone call seeking comment.

The lawsuit is SEC v. Stinson, 2:10-cv-3130, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

K1’s Kiener May Be Charged This Week, Prosecutor Says

K1 Group hedge fund founder Helmut Kiener may be charged this week over what prosecutors say was a scheme that led to hundreds of millions in losses at Barclays Plc, JPMorgan Chase & Co. and BNP Paribas SA.

Charges may be filed this week or next after the formal investigation is completed, said Dietrich Geuder, a spokesman for prosecutors in Wuerzburg, Germany. Kiener, 51, is the central figure in an international criminal probe of possible fraud and breach of trust that led to his arrest in October 2009. Dieter Frerichs, the former managing director of two K1 funds, shot himself in July.

Kiener has denied the allegations. Kiener’s lawyer Lutz Libbertz wouldn’t comment further, said Denise Raming, an employee at Libbertz’s office in Munich.

Prosecutors said in April they expect the total damages incurred as a result of the scheme, including harm done to investors and banks, to be about 300 million euros ($418 million).

K1 Global and K1 Invest have both filed for liquidation.

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Interviews/Speeches

Treasury’s Barr Says U.S. to Press for Less Bank Risk at G-20

U.S. Treasury Department official Michael Barr said the U.S. will push to reduce risk at large banks and bolster oversight of derivatives markets during talks of the Group of 20 nations.

Barr, Treasury’s assistant secretary for financial institutions, made the remarks in a speech in Washington Nov. 5.

The G-20’s political leaders, including U.S. President Barack Obama, will meet in Seoul this week.

Comings and Goings

U.K. Banks’ ‘Fear’ of FSA Fines Boosts Hiring, Recruiter Says

Banks’ “fear” of fines from the U.K. Financial Services Authority is causing them to boost numbers of regulatory- compliance staff, a recruiting firm said.

More than 700 of the 5,231 jobs created in financial services in the City of London last month were in the areas of compliance, product control and management of risk, because “the FSA is still taking such an aggressive line on fining organizations,” Mark Cameron, Astbury Marsden’s chief operating officer, said in an e-mailed statement.

Tougher enforcement of regulatory rules has caused the amount of fines handed down by the FSA to soar in recent years.

The increase reflects a “renewed focus” on enforcement since 2007, Christopher Hamilton, an FSA spokesman, said in an e-mailed statement.

Banks are also recruiting in anticipation of new rules on bank capital from the Basel Committee on Banking Supervision, according to Astbury Marsden.

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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