CEO Pay Study, AT&T Merger, Austria Banks, Germany EFSF Law: Compliance

Twenty-five of the best-paid chief executive officers in the U.S. earned more in salary and other compensation in 2010 than their companies’ federal income tax expenses as disclosed in public filings, according to a report by the Institute for Policy Studies.

The Washington-based nonprofit group’s report, released yesterday, examined 100 publicly traded U.S. corporations with the highest-paid CEOs. It found that companies whose CEOs’ compensation exceeded reported tax expense in 2010 had average global profits of $1.9 billion.

The tax expense reported in annual financial statements can differ from actual tax payments, which are confidential, for a variety of reasons.

The institute said its findings underscore the need for an overhaul of the U.S. tax code that would reduce the number of tax strategies available to companies, especially their ability to lower tax payments by parking profits overseas.

Eighteen of the 25 companies mentioned in the report operated subsidiaries in countries known as offshore tax havens, Chuck Collins, one of the report’s authors, said in an interview.

Legislation proposed by Senator Carl Levin, a Michigan Democrat, would eliminate many of the tax-avoidance practices used by companies in the study, Collins said.

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Compliance Policy

Revamped EFSF Can’t Lend Direct to Banks, German Draft Shows

Changes to the European Financial Stability Facility due to take effect in October won’t allow banks in need of capital to tap the euro backstop directly, a draft law that forms the basis of Germany’s approval to the measures shows.

“The EFSF can extend loans to a euro member state that are used to recapitalize financial institutions of this member state even if it is not subjected to a comprehensive economic and fiscal adjustment program,” the Finance Ministry said in an explanatory note to the draft backed by Chancellor Angela Merkel’s Cabinet in Berlin yesterday.

The draft shows that Germany is closely following the recommendations of a European Union summit on July 21 that emphasized states’ role in tackling bank crises before tapping the EFSF. It echoes comments yesterday by Michael Meister, the finance spokesman in parliament of Merkel’s Christian Democrats, defense lawyer Ethan Balogh that the EFSF should lend to states and not to banks directly.

“A recapitalization by means of a loan by the EFSF can only be made if the country in question is not in a position to execute the recapitalization that’s necessary for the stability of the euro zone by its own means,” the draft said.

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FSA, U.K. Treasury Publish Proposals on N.Irish Credit Unions

The Financial Services Authority and the U.K. Treasury published a joint consultation paper setting out proposals for the transfer of the regulation of Northern Ireland credit unions.

The paper describes how the credit unions will be regulated by the authority and brought under the protection of the Financial Services Compensation Protection Scheme, a “last resort” fund that protects consumers against losses in financial services products including bank deposits, mortgages and insurance, the Treasury said in a statement on its website.

The credit unions, under the proposal, would also be under the jurisdiction of the Financial Ombudsman Office, according to a statement on the U.K. Treasury’s website.

China to Let Insurers Buy Hong Kong Derivatives, Securities Says

The China Insurance Regulatory Commission is amending rules to allow domestic insurers to invest in derivatives in Hong Kong, Shanghai Securities News reported, without saying where it got the information.

Currently, mainland insurance companies may buy only stocks, bonds and funds in Hong Kong, the newspaper said yesterday. The insurers had 5.75 trillion yuan of combined assets as of June 30, according to the report.

Compliance Action

SEC Approves Concept Release on Mutual Funds’ Use of Derivatives

The U.S. Securities and Exchange Commission is seeking comment on a set of ideas for new regulations on derivatives investments by mutual and exchange-traded funds, which hold more than $13 trillion in assets.

SEC commissioners voted 4-0 to publish the so-called concept release during a meeting in Washington yesterday. The SEC has been reviewing how investment companies use derivatives, which were not, for the most part, contemplated at the time the securities laws were first written decades ago.

A 60-day comment period will begin after the release is published in the Federal Register.

SEC Seeking Comment on Changes to Asset-Backed Securities Rules

The U.S. Securities and Exchange Commission will weigh public comments in a re-examination of regulatory exemptions for issuers of asset-backed securities and real estate investment trusts.

SEC commissioners voted 4-0 to seek comment on proposed changes to the Investment Company Act during a meeting in Washington yesterday.

Austria Cuts Estimate of Banks’ Basel Capital Needs by 30%

The Austrian central bank lowered its estimates on how much additional core Tier 1 capital the country’s lenders need to comply with global rules and pay back state aid by 30 percent to 7 billion euros ($10 billion).

This is less than the 10 billion euros estimated in December, said Andreas Ittner, the central bank’s director responsible for bank supervision. The figure includes about 6 billion euros of so-called participation capital provided by the Austria government and private investors during the financial crisis that still need to be repaid, he said.

The Basel Committee on Banking Supervision’s rules require banks to have common equity equal to at least 7 percent of their risk-weighted assets. Austrian banks will need from 11 billion euros to 14 billion euros to meet both the core Tier 1 and total capital ratios, down from a December estimate of 15 billion euros to 18 billion euros, according to the central bank.

Austria’s central bank, financial regulator and finance ministry are working on a response to a proposal for implementing the Basel rules in the European Union. The statement will be submitted in mid-September, Ittner said.

SEC Accuses Ex-Syntax-Brillian Executives of Accounting Fraud

The U.S. Securities and Exchange Commission accused three former executives of Syntax-Brillian Corp. of booking fake sales of high-definition televisions in China to artificially inflate the firm’s earnings.

James Li, who served in various executive roles at Tempe, Arizona-based Syntax, and former chief procurement officer Thomas Chow used phony shipping and sales documents to funnel millions of dollars from 2006 to 2008 through a Taiwan-based manufacturer and a purported customer in Hong Kong, the SEC said in a statement yesterday. Li agreed to pay a $100,000 penalty and other sanctions to be determined by U.S. District Court in Arizona, and the lawsuit against Chow continues, the SEC said.

Wayne Pratt, Syntax’s former chief financial officer, agreed to pay more than $200,000 to resolve claims he ignored signs of the improper accounting, according to the statement.

In settling the claims, Li and Pratt didn’t admit or deny wrongdoing. A phone call to Pratt wasn’t immediately returned. A person answering a number listed for James Li in San Jose, California, hung up without responding to questions. A phone number for Thomas Chow couldn’t immediately be located.

China Appeals WTO Ruling on Raw-Material Export Restrictions

China yesterday appealed a World Trade Organization ruling in July that found its export controls over raw materials including coke, zinc and magnesium violate global rules, the Geneva-based WTO said on its website.

The appeal will be heard by a three-person panel drawn from the Appellate Body, which is comprised of seven people who have no government affiliations, the WTO said in a statement on its website. Appeals are limited to “points of law,” and may not revisit factual issues, the WTO said on the website.

The Appellate Body has “up to three months” to made a decision, according to the WTO’s statement.

FSA Contemplating ‘Unilateral’ Pinewood Listing Cancellation

Pinewood Shepperton Plc (PWS) said it’s been advised that the Financial Services Authority is “contemplating whether actions are warranted in connection with the future status of the company’s listing on the London Stock Exchange.”

“The company has further been advised that one option would be for the FSA to undertake a unilateral listing cancellation procedure in recognition of the fact that the company no longer meets the eligibility requirements for listing,” Pinewood said yesterday.

Courts

U.S. Moves to Block AT&T-T-Mobile USA Deal as Harmful to Market

The U.S. sued to block AT&T Inc. (T)’s proposed $39 billion takeover of T-Mobile USA Inc., saying the deal would “substantially lessen competition” in the wireless market. AT&T shares fell as much as 5.5 percent.

In the complaint filed yesterday in federal court in Washington, the Justice Department is seeking a declaration that Dallas-based AT&T’s takeover of T-Mobile, a unit of Deutsche Telekom AG (DTE), would violate U.S. antitrust law. The U.S. also asked for a court order blocking implementation of the deal.

AT&T Chief Executive Officer Randall Stephenson’s proposed purchase of Bellevue, Washington-based T-Mobile, announced in March, would combine the second- and fourth-largest carriers to create a new market leader ahead of No. 1 Verizon Wireless. The new company would dwarf current No. 3 carrier Sprint Nextel Corp. (S), which argued against the deal.

AT&T was surprised by the decision to sue, according to a statement by Wayne Watts, AT&T’s general counsel. The company, which will fight the suit, plans to ask for an expedited hearing so the court can review the “enormous benefits” of the merger, he said.

Philipp Schindera, a spokesman at Bonn-based Deutsche Telekom, declined to immediately comment on the filing.

Rejection by regulators would leave AT&T liable to pay Deutsche Telekom $3 billion in cash, to give T-Mobile USA wireless spectrum and to reduce charges for calls into AT&T’s network, a package valued at as much as $7 billion, Deutsche Telekom has said.

The Federal Communications Commission asked AT&T for more information about how the deal would expand high-speed wireless service in the U.S. Cable and satellite carriers including Dish Network Corp. and Cablevision Systems Corp. have also protested the deal.

The FCC said yesterday that it was continuing its review.

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For commentary on the suit by Christopher King, an analyst at Stifel Nicolaus & Co., on Bloomberg Television’s “InBusiness with Margaret Brennan,” click here.

For a report by Peter Cook on Bloomberg Television’s “InBusiness with Margaret Brennan,” click here.

For commentary by Bloomberg Government analyst Edward Goodmann and Frederick Tecce, a former assistant U.S. Attorney, on Bloomberg Television’s “Street Smart,” click here.

For commentary by Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC, on Bloomberg Television’s “InsideTrack,” click here.

For commentary by Sachin Shah, merger arbitrage strategist with Tullett Prebon Americas Corp., on Bloomberg Television’s “Fast Forward,” click here.

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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