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MSRB Adviser Rule, N&P Fined, ICICI Credit Curb: Compliance

Financial advisers to municipal governments will be limited in their ability to make campaign contributions under a new rule adopted by the Municipal Securities Rulemaking Board.

The limits, adopted at the agency’s two-day meeting in Nashville last week, need approval by the Securities and Exchange Commission, said Michael Bartolotta, chairman of the Washington-based board, which oversees the $2.9 trillion market for state and local government debt.

The restrictions would make advisers subject to board regulation for the first time, Bartolotta said in a conference call with reporters yesterday. By limiting use of campaign contributions to win advisory work, the MSRB wants those firms to be chosen based on “skill and merit,” he said.

Under the rule, advisers would be banned from working for governments to which they made campaign contributions to elected officials.

Advisers will face the same limits as underwriters. The MSRB now bans contributions to issuer officials who influence hiring underwriters and advisers, with limited exceptions.

The MSRB, with new authority over municipal advisers under the Dodd-Frank legislation overhauling financial market regulation, took other steps to oversee advisers that help state and local governments plan bond sales, enter derivative contracts and run pension plans. The board is seeking comment on a draft rule on the supervision of municipal advisers.

Compliance Action

Norwich and Peterborough to Pay $84 Million Over Keydata Sales

Norwich and Peterborough Building Society was fined 1.4 million pounds ($2.3 million) for failing to advise customers about the risks of investing in Keydata Investment Services Ltd. structured products.

Norwich and Peterborough, a British customer-owned lender, also agreed to pay 50 million pounds to compensate customers for losses, the U.K. Financial Services Authority said in a statement yesterday. The lender didn’t give 3,200 customers suitable advice over a three-year period about the structured investment products issued by Keydata, which was forced into insolvency in 2009. The FSA and the U.K.’s Serious Fraud Office, the agency that prosecutes complex crime and corruption, have been investigating the firm’s collapse.

The building society “has been deeply concerned for those customers who bought these products and who lost out following Keydata’s administration in 2009,” Norwich and Peterborough Chairman Gordon Horsfield said in a statement. “We are very sorry for the hardship and anxiety that they have suffered.”

Norwich and Peterborough cooperated with the FSA and settled early, the regulator said.

ICICI May Curtail Loans to Indian Clients From U.K., Canada

ICICI Bank Ltd. (ICICIBC), India’s second-largest lender, said it may curb credit to Indian companies from its U.K. and Canadian units as regulators seek to curtail risks tied to funds it collected in those nations.

A tightening of the rules may make it tougher for ICICI Bank to tap demand from Indian clients for overseas loans as domestic borrowing rates climb. Regulators globally are increasing oversight after European governments spent $5.3 trillion bailing out banks amid the worst financial crisis in 70 years and the U.S. set up a $700 billion fund to buy troubled assets from lenders.

The Mumbai-based lender began discussions with regulators in Canada and the U.K. last year after it was told about the proposed restrictions, a person with direct knowledge of the matter said. ICICI Bank aims to take a decision about its international operations in three to six months, the person said, declining to be identified before a public announcement.

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Egypt Central Bank Says Lenders Should Carry Out Stress Tests

The Egyptian Central Bank urged all lenders to carry out stress tests to assess the impact of the country’s worst political crisis in three decades on their credit portfolios.

Banks can design “several assumptions and scenarios to measure the impact of variables and adverse events,” the regulator said in a statement on its website yesterday.

Banks should also “urgently” review loan portfolios “and study the situation of each client separately, taking into consideration the impact of the crisis on them,” the central bank said.

Foreclosure Talks Said to Yield Some Agreements With Banks

Attorneys general negotiating a settlement of a 50-state investigation of foreclosure practices have reached agreements with lenders on some terms while failing so far to reach an accord on potential monetary payments by the banks, said a person familiar with the talks.

The probe was triggered by claims of faulty foreclosure practices following the housing collapse which law enforcement officials said may violate state law. Significant progress has been made on a deal with lenders, which include Bank of America Corp. and JPMorgan Chase & Co. (JPM), with agreements in principle reached on several issues, said the person, who didn’t specify the areas of accord as they may change as talks proceed.

It may take at least two months to reach a final agreement, said the person, who declined to be identified because the talks are private. An accord remains out of reach because states want principal reductions for borrowers, which is more than banks agreed to in deals reached with U.S. regulators last week, said Allison Schoenthal, a lawyer at Hogan Lovells in New York.

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who leads the negotiations for the states, declined to comment. Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment. Thomas Kelly, a spokesman for New York-based JPMorgan, didn’t respond to an e-mail seeking comment.

The 50 states, along with federal agencies including the Justice Department, seek to set requirements for how banks service loans and conduct home foreclosures.

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Courts

Investment Funds Allege Banks Conspired to Manipulate Libor

Three investment funds accused banks including Bank of America Corp., JPMorgan Chase & Co., HSBC Holdings Plc (HSBA), Barclays Bank Plc (BARC) and Credit Suisse Group AG (CSGN) of conspiring to manipulate the London interbank offered rate. The lawsuit was filed April 15 in New York federal court.

The banks allegedly sold Libor-based futures, options, swaps and derivative instruments “at artificial prices that defendants caused,” thereby harming investors, FTC Capital GmbH of Vienna, FTC Futures Fund SICAV of Luxembourg and FTC Futures Fund PCC Ltd. of Gibraltar contend in the complaint.

Last month a person close to an investigation on possible Libor manipulation said regulators in the U.S. and U.K. were cooperating in the probe. The U.S. Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission are working together with the U.K.’s Financial Services Authority on the probe, according to two people familiar with developments.

“We believe the suit is without merit,” said Danielle Romero-Apsilos, a spokeswoman for Citigroup. Lawrence Grayson, a spokesman for Bank of America and Jennifer Zuccarelli, a JPMorgan spokeswoman, each declined to comment.

Deutsche Bank spokesman Ronald Weichert said he couldn’t immediately comment. Eberhard Roll and Walter Hillebrand-Droste, spokesmen for defendant WestLB AG in Dusseldorf, weren’t immediately reachable for a comment.

Officials at Lloyds Banking Group Plc (LLOY) and HSBC Holdings Plc weren’t immediately available to comment. A spokeswoman at Barclays Plc and a spokeswoman for Credit Suisse, both in London, each declined to comment.

The case is FTC Capital v. Credit Suisse, U.S. District Court, Southern District of New York (Manhattan).

Citigroup, Morgan Stanley Cleared in Parmalat Market-Abuse Case

Citigroup Inc. (C), Deutsche Bank AG (DBK), Morgan Stanley (MS), Bank of America Corp. and bankers at the firms were acquitted by a Milan court in a market-abuse case relating to the 2003 collapse of Parmalat Finanziaria SpA, Italy’s biggest dairy company.

Milan prosecutors claimed the banks knew Parmalat’s true financial situation when they sold bonds and carried out transactions on behalf of the food maker. The company, now called Parmalat SpA (PLT), collapsed in Italy’s biggest bankruptcy and its founder Calisto Tanzi has been convicted for misleading investors.

Parmalat’s failure left the maker of juices and long-life milk with 14 billion euros ($20 billion) in debt, about eight times the amount reported to investors.

Citigroup, the third-biggest U.S. bank, said in a statement handed out to reporters in Milan that the ruling confirms the bank and its employees had no involvement.

Warsaw Court Overturns 338 Million-Zloty Regulatory Fine on TPSA

A Warsaw court overturned a 338 million-zloty ($120.45 million) fine on Telekomunikacja Polska SA, the largest Polish phone company, for failing to get approval from regulators for rates for broadband services, the unit of France Telecom SA known as TPSA said in an e-mailed statement yesterday.

Piotr Dziubak, a spokesman for the regulator, didn’t answer a phone call seeking comment.

Taylor Bean Jury Weighs Ex-Chairman’s Role in Fraud Case

The case against Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker Mortgage Corp. and accused mastermind in a “stunning” mortgage fraud, ended with prosecutors saying he stole millions of dollars out of greed and his lawyer saying Farkas is innocent while others made mistakes.

Farkas and the government, which for the first time used the figure of $3 billion to describe the size of the fraud, made final arguments to the jury yesterday in federal court in Alexandria, Virginia. Later, jurors began weighing whether Farkas is guilty of 14 counts of conspiracy and bank, wire and securities fraud.

Farkas, 58, is charged with orchestrating a fraud involving fake mortgage assets that duped some of the country’s largest financial institutions, targeted the federal bank bailout program and contributed to the failure of Montgomery, Alabama-based Colonial Bank.

If convicted of the single conspiracy charge, Farkas faces as long as 30 years in prison.

Taylor Bean, based in Ocala, Florida, was servicing more than 500,000 mortgages including $51 billion of Freddie Mac loans when it collapsed in August 2009, according to court records.

The case is U.S. v. Farkas, 10-cr-00200, U.S. District Court, Eastern District of Virginia (Alexandria).

Interviews/Speeches

Czech Banker Says Preventing Crises by Regulation Is ‘Nonsense’

Attempts to prevent economic crises through regulatory and supervisory measures are bound to fail as market economies are “generating crises by definition,” Czech central bank Governor Miroslav Singer said.

Czech policy makers have been critical of initiatives that may weaken national supervisory powers. The country hasn’t had to bail out any of its banks in the global financial crisis and the Prague-based Ceska Narodni Banka has “considerable worries” about proposed changes in banking supervision, Singer said in an interview in Washington on April 16.

Czech banks weathered the financial crisis as their exposure to toxic assets accounted for less than 1 percent of all assets, banks had a liquidity surplus and deposits exceeded loans, according to central bank data. The largest Czech banks are owned by foreign institutions, including KBC Groep NV (KBC), Societe Generale SA (GLE) and Erste Group Bank AG. (EBS)

Global regulators are overhauling bank capital and liquidity requirements because existing rules, known as Basel II, failed to protect lenders from insolvency during the financial crisis. The new requirements, known as Basel III, are scheduled for full implementation by 2019.

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Noyer Says French Lenders Could Withstand Euro-Area Default

Bank of France Governor Christian Noyer said French banks could withstand a default by a euro-area nation, as Greek bond yields surged to a record amid concern the country will renege on its debt.

French banks’ holdings of southern European sovereign debt represent 38 percent of their total tier-1 assets, and it’s 13 percent excluding Italian government bonds, Noyer said in a speech in New York yesterday.

The remarks represent an effort to reassure investors that banks in Europe’s main economies can cope with the debt crisis amid speculation Greece may restructure its debt after it was forced to take a 110 billion-euro ($156 billion) bailout last year. The Bloomberg Europe Banks and Financial Services Index fell for a third session yesterday after two German officials last week spoke of a possible Greek restructuring.

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Pappas Says Online Poker Probe Hurts Players, Keeps Money Frozen

John Pappas, executive director for the Poker Players Alliance, talked about the fraud charges brought by the U.S. Justice Department against Internet gambling companies Pokerstars, Full Tilt Poker and Absolute Poker.

Pappas spoke with Margaret Brennan on Bloomberg Television’s “InBusiness.”

For the video, click here.

Warren Says Consumer Bureau to Release Model Mortgage Forms

Elizabeth Warren, the Obama administration adviser charged with setting up the U.S. Consumer Financial Protection Bureau, said the agency will soon release model mortgage forms that may become the basis of new regulations on home finance.

“We’ve come up with a couple of prototypes,” Warren said yesterday during a meeting with community bankers in Louisville, Kentucky. “In a few weeks, we’ll be ready to share those prototypes.”

Warren, 61, has made simplification of mortgage disclosure forms a centerpiece of her work at the new agency, which is scheduled to officially begin work in July. Warren has said that many of the forms now in use are duplicative.

Warren has touted mortgage disclosure as a way community banks can make inroads against larger rivals like JPMorgan Chase & Co. and Bank of America Corp. If disclosure is simpler and less costly, community banks can compete based on their close ties to customers, she said.

“A community banking model works for American families,” Warren said during the session.

Warren highlighted how the new agency has built outreach to community banks into its initial structure, with a “box” on its organizational chart for a liaison to community banks and other small firms.

In an interview, Warren said that public release of the prototypes would come before advance notice of proposed rulemaking. After the release, she said in her remarks, the bureau will seek public comment, and has budgeted for five phases of testing of the forms with consumers.

The inspector general of the Treasury Department, which currently houses the bureau, has said these notices, an early phase of creating new regulations, could come before the agency is scheduled to assume its full powers on July 21.

To contact the reporters on this story: Carla Main in New Jersey at cmain2@bloomberg.net Ellen Rosen in New York at erosen14@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.

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