Greek Debt Holders, Finra Warning, Erste: Compliance

The Institute of International Finance, which lobbies on behalf of banks, is pressing members that hold Greek government debt to support a rescue package amid concern it may not reach its 90 percent participation target.

European lenders including Deutsche Bank AG and BNP Paribas (BNP) SA pledged to back the plan brokered by the Washington-based lobby group. Together, banks that own a total of 61 billion euros ($88 billion) of Greek debt have signed up, according to figures from the European stress tests this month. Banks holding a further 37 billion euros have yet to state their intentions.

Banks pledged on July 22 to participate in a bond exchange and debt buyback program as European leaders sought to halt the spread of the sovereign debt crisis. The IIF said in a statement it had secured support from 18 European banks for the proposal, by which bondholders will swap holdings for new securities with lower interest rates and longer maturities. The IIF said it wanted owners of 90 percent of Greek debt to back the plan.

Austria’s Erste Group Bank AG (EBS), Cyprus’s Marfin Popular Bank Pcl, Portugal’s Banco Comercial Portugues SA (BCP) and France’s Groupe BPCE are yet to decide whether to sign up to the project, according to four people with knowledge of the situation who declined to be identified because the talks are private. The four own about 5.7 billion euros of Greek debt, according to the EBA data. Officials at the banks declined to comment.

Agricultural Bank of Greece, the third largest holder of Greek bonds with 7.9 billion euros, is also yet to pledge its support, as is Royal Bank of Scotland Group Plc, which holds 1.2 billion euros. A spokesman for Edinburgh-based RBS declined to comment, while Agricultural Bank of Greece (ATE) didn’t return calls.

Greece’s financing package will consist of 109 billion euros from the euro region nations and the International Monetary Fund.

Compliance Policy

Finra Issues Investor Warning on Structured Notes, Junk Bonds

Investors should be aware of the risks in buying structured notes, high-yield bonds, and loan funds as the Federal Reserve keeps interest rates at record low levels, according to the Financial Industry Regulatory Authority.

Investors may be tempted to “chase” returns by investing in “riskier and sometimes complex” notes as yields on many fixed-income investments are at historically low levels, the industry-backed regulator said yesterday in a statement distributed by Business Wire.

Compliance Action

Erste May Lose Right to Use Savings Banks’ Capital in EU Plan

Erste Group Bank AG may have to abandon using affiliated savings banks to bolster its reserves under the European Union’s proposed implementation of global capital rules.

The EU’s proposals don’t give Erste the leeway it would need for the capital to be recognized, spokesman Michael Mauritz said on the telephone from Vienna. Austria’s biggest lender will seek to lobby lawmakers at the European Parliament for an exemption for Erste, he said.

Erste in 2002 reached a deal with 51 regional savings banks to guarantee each other’s deposits. While Erste has little or no stake in the savings banks, the system gives the Vienna-based lender powers over them. Erste is counting the assets and the capital of the banks toward its reserves.

The EU plans are based on a global accord among members of the Basel Committee on Banking Supervision. The Basel deal would lead to Erste’s capital ratio dropping about 1.3 percentage points, the lender said last year.

The bank will seek to avoid the capital reduction by making tweaks to the guarantee system if it can’t convince the EU to change its proposals, Mauritz said.

Erste is scheduled to report second-quarter results on July 29.

RBC, TD Have Traits of ‘Important’ Banks, Moody’s Says

Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD), the two largest Canadian lenders, have traits that may make them “systemically important” because of their large capital markets businesses, according to Moody’s Investors Service.

Moody’s included Royal Bank, the largest Canadian lender, and Toronto-Dominion, the No. 2 bank, on a list of 28 “global systemically important banks” based on three criteria, according to a report yesterday. Royal Bank ranks 22nd and Toronto-Dominion ranks 27th on the list, which includes banks with “significant” capital markets investments.

“We are not suggesting these are the banks that are included in the Basel Committee list,” said Carlos Suarez Duarte, assistant vice president and analyst for Moody’s, said in a telephone interview.

The Basel Committee on Banking Supervision disclosed July 19 how authorities will apply levies for the world’s most systemically important banks, guiding investors in calculating extra funds that the lenders must raise.

Canada’s banks, ranked the soundest in the world by the World Economic Forum, aren’t on a list of 28 lenders that could face capital surcharges if too-big-to-fail rules were applied today, Canada’s Office of the Superintendent of Financial Institutions said July 19.

Deutsche Bank AG, Goldman Sachs Group Inc. (GS) and BNP Paribas SA top the Moody’s list.

U.K. Banks Have $1.35 Billion of Greek, Irish Bond Holdings

The 77 U.K. banks and building societies too small to have been included in the European Union stress tests have about 939 million pounds ($1.35 billion) of Greek, Irish, Italian, Portuguese and Spanish sovereign and financial institution debt.

The lenders also have about 62 million pounds of government bonds from those countries, the U.K.’s Financial Services Authority said in a statement posted on its website yesterday. In addition, the 77 have about 3.5 billion pounds of investments in the European Economic Area, which includes the 27 EU countries plus Iceland, Liechtenstein and Norway, the FSA said.

Barclays Plc (BARC), HSBC Holdings Plc (HSBA), Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group Plc (LLOY) held about 22.8 billion euros of government securities in troubled euro-member states, the lenders disclosed as part of the European Banking Authority’s stress tests earlier this month.

BRFkredit Eyes S&P After Moody’s Raises Capital Demand

Danish mortgage lender BRFkredit A/S hopes a Standard & Poor’s rating may lead to lowered funding costs because it disagrees with Moody’s Investors Service’s demand that it commit more money to insure its capital centers.

Lenders including Nykredit Realkredit A/S, Europe’s biggest issuer of covered bonds backed by mortgages, are dealing with an onslaught of hurdles from raters and regulators. Moody’s on June 10 cut the timely payment indicator and raised refinancing margins on some bonds, arguing a surge in adjustable-rate debt has added risk.

Denmark’s second-biggest issuer, Danske Bank A/S unit Realkredit Danmark, said last month it will no longer use Moody’s to grade its covered bonds after the rating company warned a downgrade would follow unless the lender found an extra $6.3 billion in capital to offset the perceived rise in risk. Realkredit Danmark, which is already graded by S&P, said it may also contact Fitch Ratings.

UBS Gets Antitrust Immunity From DOJ in Probe of Libor, Tibor

UBS AG (UBSN) said it was granted conditional immunity by some agencies, including the U.S. Department of Justice, that are investigating whether the London Interbank Offered Rate, or Libor, was manipulated.

The Swiss bank said it was recently told it has immunity from the Justice Department’s antitrust division regarding submissions for Yen Libor and Euroyen Tokyo Interbank Offered Rate, or Tibor, because it is cooperating with the probe, UBS said in a regulatory filing today.

The leniency agreement doesn’t bar other government agencies from prosecuting or suing them, UBS said. The Zurich- based bank is also eligible for a limit on its liability to actual, rather than triple, damages if the U.S. files a civil antitrust lawsuit.

Libor is the rate of interest at which banks borrow funds from other banks in the London market. The U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, the Justice Department and the U.K. Financial Services Authority are investigating how the British Bankers’ Association sets Libor rates and whether there were “improper attempts” to manipulate them, UBS said. The bank has also received demands for information from Japan’s Financial Supervisory Agency.

European Union antitrust regulators are also examining Libor rates, according to two people familiar with the probe. Several class-action, or group, lawsuits have been filed in the U.S. alleging banks manipulated the rate and prices of U.S. dollar Libor-based derivatives, UBS said.

Conflict-of-Interest Rules May Be Eased in 2012, Hamburg Says

Conflict-of-interest rules restricting scientists with financial ties to drug and device-makers from advising U.S. regulators may loosen next year, Food and Drug Administration Commissioner Margaret Hamburg said.

A 2008 policy limiting researchers who were paid by manufacturers from serving on advisory panels may be curtailing feedback the FDA receives, Hamburg told the advocacy group Public Citizen in Washington yesterday. Changes may come through a renewal of the law letting the agency receive fees from companies such as Pfizer Inc. (PFE) for product reviews.

“We have to be sure that FDA has subject-matter experts that we need for our important decision-making,” Hamburg said, adding that the agency also must “prevent inappropriate influence or distortion of information” that may compromise reviews. Patient-advocacy groups and academic researchers have expressed “valid concerns” about the conflict-of-interest policy, prompting an agency rules review, she said.

Republicans in Congress and manufacturers have criticized the pace of FDA reviews as too slow, blaming unanticipated requests for safety information from FDA staff and advisers.

Congressional action on product-review fees has created a “renewed sense of interest” and will provide critics of the policy with an opportunity to petition for fewer restrictions on participation on FDA advisory committees, Hamburg said.

Hamburg’s remarks were criticized by Robert Weissman, president of Public Citizen, who said “we need stronger protection rather than less.”

Courts

U.S. Securities Suits Fall Even as Chinese Company Cases Grow

Securities-fraud class-action lawsuits dropped the first six months of this year from the latter half of 2010, even with a boost from a wave of new cases targeting Chinese reverse mergers, according to a study.

The number of firms sued in securities-fraud suits fell to 94 from 104 in the previous six months, according to the study, released today by Stanford Law School’s Securities Class Action Clearinghouse and Cornerstone Research.

The tally was bolstered by suits involving mergers and acquisitions and claims against Chinese companies that acquired U.S. shell companies for the purpose of trading on U.S. stock exchanges. Together, those complaints accounted for almost half the filings, the study said.

Fraud claim based on false financial statements and accounting make up the majority of securities-fraud suits filed since the Private Securities Litigation Reform Act of 1995, according to data collected by the Stanford clearinghouse.

Securities-fraud claims against big companies, as a share of the total, also declined, according to the study. The percentage of complaints filed against companies in the Standard & Poor’s 500 Index fell to 8.5 percent of the total, down from 15.4 percent the previous six months, it said.

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Interviews/Speeches

Default by U.S. Can Be Avoided Until September, Silvia Says

The U.S. government can avoid a default for at least a month after the Aug. 2 deadline to lift the debt ceiling set by the Treasury Department, said John Silvia, chief economist at Wells Fargo Securities LLC.

“The Federal Reserve and the Treasury can work together to generate enough cash probably for the next two or three months to avoid any kind of automatic default on the Treasury debt,” Silvia, who is based in Charlotte, North Carolina, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “There’s a way of getting around this issue for at least another month or two.”

Political party leaders are preparing dueling plans for raising the U.S. debt ceiling, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt by Aug. 2. That is the date when the Treasury Department says its borrowing authority will end.

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Irish Get More Scope for Home Loan Restructure, Regulator Says

Matthew Elderfield, the Irish central bank’s head of financial regulation, said the extra capital the country’s lenders are raising gives them “more capacity” to restructure home loans.

“There are a couple of caveats,” he said in a speech in Donegal, in northwest Ireland. “At some point, when banking conditions have settled down sufficiently, the taxpayer will wish to recover some of that capital. Also, any approach to restructuring needs to take account of the risk that it creates incentives for borrowers to cease meeting their obligations.”

Moody’s Says EU Accord Likely ‘Neutral’ for Ireland, Portugal

The European Union’s agreement last week to solve the euro zone’s debt crisis and provide Greece with a second bailout will probably be “credit-neutral” for Ireland and Portugal, Moody’s Investors Service yesterday.

“The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece,” Moody’s said in a statement. “The impact of Thursday’s announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral,” the ratings company said, referring to a July 21 statement made by EU leaders.

For “creditors of other non-Aaa sovereigns with high debt burdens or large budget deficits” the agreement’s “negatives will outweigh the positives and weigh on ratings in future,” Moody’s said.

The EU support package for Greece allows the country an “orderly default” and buys time, according to Moody’s.

The package agreed at last week’s summit “incorporates the participation of private sector holders of Greek debt, who are now virtually certain to incur credit losses. If and when the debt exchanges occur, Moody’s would define this as a default by the Greek government on its public debt,” Moody’s said.

Comings and Goings

Soros Returns Client Money to End Hedge-Fund Career

George Soros, the billionaire best known for breaking the Bank of England, is returning money to outside investors in his $25.5 billion firm, ending a career as hedge-fund manager that spanned more than four decades.

Soros, who turns 81 next month, will hand back the money, less than $1 billion, by the end of the year, according to two people briefed on the matter. His firm will focus on managing assets solely for Soros and his family, according to a letter to investors. Keith Anderson, 51, chief investment officer since February 2008, is leaving, said the letter, signed by Soros’s sons Jonathan and Robert, who are co-deputy chairmen.

The move completes Soros’s transformation from a speculator, who in 1992 made $1 billion betting that the Bank of England would be forced to devalue the pound, to philanthropist statesman, a role he first imagined for himself as a Hungarian émigré studying at the London School of Economics after World War II, according to Soros’s writings. In the past 30 years, he has given away more than $8 billion to promote democracy and philanthropic causes, he said in a recent essay.

Soros’s sons said the decision was taken because new financial regulations would have made it necessary for the firm to register with the Securities and Exchange Commission by March if it continued to manage money for outsiders.

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

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

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