Vietnam, Taiwan Limits, BaFin ‘Shoppers’: Compliance

A group of Vietnamese banks and funds asked the government to raise a cap on foreign ownership in lenders to 35 percent to 40 percent, according to a statement on the website of the Vietnam Association of Financial Investors.

The grouping of 63 companies, including the three biggest Vietnamese banks and international funds, are also seeking regulatory changes that would allow overseas investors to buy shares with non-voting rights in domestic banks and companies, according to the Dec. 23 statement. Foreign ownership in local banks is currently limited to 30 percent.

Allowing overseas companies to hold bigger stakes will help bolster the lenders’ financial strength, make local stocks more attractive to overseas investors and add to foreign indirect investment in the nation, according to the statement. Vietnam’s benchmark VN Index has slumped 4.4 percent this year.

The association recommended that the government accelerate share sales at state-owned enterprises including Saigon Beer- Alcohol Beverages Corp., Vietnam’s biggest beer producer; Vietnam Mobile Telecom Services, known as Mobifone; and PetroVietnam Oil Co., according to the statement.

Compliance Policy

Taiwan Cuts Limits on Banks’ Holdings of Currency Derivatives

Taiwan’s central bank said it will rein in limits on the use of exchange-rate derivatives to combat currency speculation by foreigners.

Banks’ holdings of non-deliverable forwards and options in the Taiwan dollar will be limited to 20 percent of their positions in the local currency with immediate effect, the central bank said in an e-mailed statement late yesterday. The ceiling was previously one-third. Deliverable forwards are exempt from the restrictions as they are used by local companies to protect earnings against exchange-rate fluctuations, it said.

The change is designed “to maintain order in the currency market and to prevent foreign speculative capital from intervening in the market,” the statement said.

The central bank has intervened in the foreign-exchange market on most days for more than six months to check appreciation that may hurt exports, according to currency traders who declined to be identified because of the sensitivity of the matter.

Taiwan last month restored curbs on foreign investment in its debt, joining South Korea, Thailand and Brazil in seeking to curb currency gains that threaten export growth. Foreign funds can invest only up to 30 percent of their portfolio in government bonds and money-market products, the Financial Supervisory Commission said Nov. 9, reintroducing limits that were scrapped in 1995.

Bank Pay Should Be More Transparent, Basel Group Says

Bankers’ pay should be more transparent to investors to prevent lenders from hiding policies that encourage irresponsible risk taking, global regulators said in draft proposals that concern lenders’ pay and bonuses.

International rules on the disclosure of pay “will allow market participants to assess the quality of a bank’s compensation practices and the incentives towards risk taking they support,” Fernando Vargas, chairman of the Basel Committee on Banking Supervision’s task force on remuneration, said in a statement published on the group’s website yesterday.

Countries are imposing rules on bankers’ pay to prevent a repeat of the excessive risk taking that they say contributed to the global financial crisis. European Union regulators earlier this month imposed limits on cash payouts and the size of bonuses in the industry.

The Basel committee said it’s seeking views on its proposals, which concern the transparency of lenders’ pay polices, until Feb. 25.

Banks should disclose information including the “parameters” used to decide the size of bonus awards, and to decide the proportion of bonuses that are paid in stock rather than cash, the committee said.

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Clues to Consumer Bureau’s Direction Seen in Hiring, Structure

Less than six months after Congress established the Consumer Financial Protection Bureau, the agency’s hires and organizational chart may already be revealing its priorities and approach to regulating retail credit markets.

Elizabeth Warren, in charge of setting up the bureau, is building a structure that will likely persist if she does not become its Senate-confirmed director. For example, she has created a division to research the need for rules and their impact, rather than having researchers work as support staff for units overseeing credit cards, mortgages and other products.

The consumer bureau established by the Dodd-Frank financial regulatory overhaul will for the first time provide consolidated federal oversight of consumer credit products. It will write consumer disclosure and lending rules for large banks including New York-based JPMorgan Chase & Co. and Charlotte, North Carolina-based Bank of America Corp. and other financial firms such as Western Union Co. and MoneyGram International Inc.

While most of the agency’s top positions, identified in an organizational chart made public on Dec. 20, remain unfilled, some of Warren’s early choices carry clues about her strategy. She has brought in Ohio’s attorney general, Richard Cordray, known for suing big banks over foreclosures, to head enforcement. To oversee credit-card regulations, Warren tapped David Silberman, a financial executive who also negotiated credit card deals for the AFL-CIO labor federation.

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German Bank Regulator to Send Undercover Agents to Test Banks

Germany’s BaFin financial regulator will send undercover agents, known as mystery shoppers, to banks next year to test the quality of advice given to clients, German Finance Ministry spokeswoman Jeanette Schwamberger said.

The purpose is to ensure that the requirements of the Securities Trading Act “are adhered to” when banks sell financial products, Schwamberger told reporters at a regular government press conference yesterday in Berlin.

The mystery shoppers will test whether bank employees adhere to legal requirements, said Schwamberger, whose ministry supervises BaFin. The undercover customers will be hired on a temporary basis, she said.

German Chancellor Angela Merkel’s government is stepping up pressure on banks to better advise customers after non-profit consumer organizations, including Stiftung Warentest, said that some lenders offer inadequate service.

China to Raise Small Vehicle Tax, Ending Incentives

China will raise sales tax for small vehicles starting next year, ending incentives that helped the nation overtake the U.S. as the world’s largest auto market.

The government will on Jan. 1 raise the tax on vehicles with engines of 1.6 liters or smaller to 10 percent from 7.5 percent, the Ministry of Finance said in a statement on its website today. China halved the rate to 5 percent in 2009 before increasing it to the current level this year.

Measures such as consumption-tax rebate, subsidies for rural car buyers and incentives to trade in older models helped China’s industrywide vehicle sales jump 46 percent last year to 13.6 million. The mainland surpassed the U.S. for the first time in 2009 to become the world’s biggest automobile market.

Compliance Action

AIG Gets Bank Credit as Benmosche Sees ‘Finish Line’

American International Group Inc., the insurer bailed out by the U.S., garnered $4.3 billion in bank credit lines in another step toward repaying taxpayers and gaining independence.

The credit, provided by more than 30 banks and administered by JPMorgan Chase & Co., includes two $1.5 billion facilities, one for three years and the other for 364 days, AIG said yesterday in a regulatory filing. AIG’s property-casualty division Chartis Inc. got $1.3 billion, the insurer said.

AIG, which is seeking to replace government funds with private capital, said Dec. 8 that it struck a deal to repay a $20 billion Federal Reserve Bank of New York credit line and would then turn to stock sales to repay the U.S. Treasury Department. The insurer must demonstrate access to capital markets before the U.S. fully withdraws its support, Treasury Chief Restructuring Officer Jim Millstein has said.

The deals are contingent upon the insurer paying down its New York Fed credit line by March 31, the filing said.

Mizuho Expects Higher-Than-Basel Capital Ratio, No Share Sale

Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, expects to exceed international capital requirements without additional stock offerings, the lender’s chief executive officer said.

The Tokyo-based bank plans to meet the capital rules by “steadily” building profit, managing risk assets and reducing costs to buffer the effects of possible economic slowdowns or increases in bad loans, CEO Takashi Tsukamoto said in an interview this month.

With a lower capital ratio than those of its two bigger local rivals, Mizuho plans to cut operating costs by 50 billion yen ($600 million) in three years. Slowing loan demand at home is prompting Japan’s largest banks to seek growth in Asia led by China and India, where infrastructure projects need financing.

Mizuho has already bolstered its capital by raising more than 1 trillion yen over the past two years through share sales.

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BaFin Tells German Life Insurers to Raise Provisions, FTD Says

German financial regulator BaFin has ordered life insurers to raise provisions on some contracts as early as next year to be able to meet interest-rate guarantees to customers, Financial Times Deutschland reported, without saying where it got the information.

The higher cost for life insurers, which may exceed 1 billion euros ($1.3 billion) annually, would force them to set aside more money from their earnings, the newspaper said, adding that specific calculations aren’t available yet.

Federal Reserve Emergency Fund Benefited Foreign Banks, FT Says

More than half of the credit granted under a U.S. Federal Reserve emergency facility set up during the financial crisis went to foreign banks, the Financial Times reported, citing its own analysis of Fed figures.

The so-called term auction facility was started three years ago to provide one-month loans to creditworthy banks and in August 2008, it started offering three-month loans as well; details of the uses to which the facility was put may fuel political criticism of the Fed, the newspaper said.

Rabobank Groep of the Netherlands and Canada’s Toronto- Dominion Bank, which are among the only banks in the world with triple A credit ratings, used a total of more than $20 billion under the facility, the FT said.

While the Fed declined to comment, it has said that all of its emergency credit was repaid in full with interest, the newspaper added.

Courts

Basler Kantonalbank Says It’s Unaware of U.S. Tax Investigation

Basler Kantonalbank, a Swiss regional lender, said it’s not aware of any investigation against it by the U.S. Justice Department in relation to alleged tax evasion by Americans, rejecting the allegation “with all resoluteness.”

No one has made a “direct accusation” against Basler Kantonalbank, the lender said in an e-mailed statement yesterday. The bank said it’s not a party in the lawsuit against former UBS AG banker Renzo Gadola, 44, who pleaded guilty last week in federal court in Miami to helping wealthy Americans hide assets from the Internal Revenue Service and said he had encouraged clients to open accounts at Basler Kantonalbank.

The Justice Department opened a criminal probe into Swiss cantonal banks, including Basler, the New York Times reported on Dec. 24, citing two unidentified people briefed on the matter. The authorities are looking at whether Wall Street banks might have been used by the Swiss regional banks to pool client money so individual customers couldn’t be identified, it said.

Basel, Switzerland-based Basler Kantonalbank said it never engaged in activities such as advising clients in the U.S. or actively helping them to evade taxes, and has no indications that any employees engaged in such activities in breach of internal guidelines.

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Interviews

China Should ‘Moderately’ Raise Capital Requirements, Liu Says

China needs to “moderately” raise capital requirements on the nation’s biggest banks to counter cyclical risks and take into account big lenders’ systematic importance, Liu Mingkang, Chairman of the China Banking Regulatory Commission said in an interview with Caixin magazine.

The banking regulator will also improve systems for capital adequacy ratios, leverage ratios, liquidity ratios and non- performing loan ratio tolerance, and strengthen the magnitude and frequency of supervision, according to the transcript of the interview posted at Caixin’s website today. The regulator is drafting rules for the nation’s “too big to fail” financial institutions, Liu said.

Putin Comments on Unsecured Loan Funds, Lowering Interest Rates

The remaining 48 billion rubles ($1.6 billion) of unsecured loans given to Russian banks during the credit crisis should be paid back, Prime Minister Vladimir Putin said.

He made the remarks at an event for lender VTB Group in Moscow today.

Russian lenders need to offer lower interest rates on loans and the government will work with the central bank to achieve that objective, Putin said at the VTB Group event.

VTB Group’s profit will be more than 50 billion rubles ($1.7 billion) this year, Putin added, citing VTB Chairman Andrei Kostin.

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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