U.K. Trade-Clearing Suit, JICA Probe, EnBW Deal: Compliance
The U.K. sued the European Central Bank over plans to block trades in some euro-denominated securities from being cleared outside of the 17 countries that share the currency.
In the first such move by a government, the U.K.’s lawsuit against the ECB over its location policy for clearinghouses was registered at the EU General Court in Luxembourg. A hearing could come within two years and a ruling may take as long as three years.
The case was registered at the EU court, the region’s second-highest, on Sept. 15, according to the tribunal’s press service, the same day the U.K. Treasury said it would take action. In parallel with the court case, the U.K. is seeking safeguards in a draft EU law on over-the-counter derivatives that would protect clearinghouses from pressure to relocate.
EU finance ministers this week agreed to stipulate in the law that “no member state or a group of member states” should be discriminated against as a venue for clearing services. The final version of the rules must be hammered out in negotiations between governments and lawmakers in the European Parliament.
The case is: T-496/11 pending case, United Kingdom v. ECB.
Brazil Antitrust Review of M&A Deals to Last Up to 240 Days
Brazil’s antitrust reviews of merger and acquisition transactions will be limited to 240 days, Vinicius Carvalho, head of the Justice Ministry’s antitrust arm, told reporters in Brasilia.
Congress approved a bill yesterday allowing Cade, the country’s antitrust regulator, to analyze transactions before they are concluded.
EU Rules on Markets, Insider Trading Set for Oct. 20
The European Commission will present proposals on Oct. 20 to toughen rules for trading on financial markets in the 27- nation region.
It will also present measures to better tackle market manipulation and insider dealing, the commission said on its website today.
The commission said high-frequency trading will be included the proposals, which are known as the Markets in Financial Instruments Directive.
The proposals will “ensure that the legislation is fully up-to-date concerning the latest technological developments and market developments, such as the emergence of new trading platforms and high frequency trading, in the interests of fair competition and efficient markets,” the commission said on its website.
JICA to Ask Underwriter SMBC Nikko About Insider-Trading Probe
Japan International Cooperation Agency, a government body providing development assistance, said it asked SMBC Nikko Securities Inc., the lead underwriter for its bond sale, to explain its insider-trading probe.
JICA, as the agency is known, will invite bankers from SMBC Nikko as early as this week to account for the investigation by Japan’s securities watchdog over possible insider-trading violation, said Yoshifumi Omura, director of capital markets division at the Tokyo-based body. The decision on whether to exclude the brokerage as an underwriter for its 20 billion yen ($261 million) bond sale in December will be made based on the findings, he said.
Omura said yesterday in an interview in Tokyo that JICA is “examining the situation” and will not make decisions until it conducts hearings.
JICA has hired SMBC Nikko, Daiwa Securities Group Inc. (8601) and Mitsubishi UFJ Morgan Stanley Securities Co. to underwrite the planned bond sale for individual investors.
SMBC Nikko is being investigated by Japan’s Securities and Exchange Surveillance Commission for a possible insider trading violation by an executive that allegedly related to Enoteca Co., a Japanese wine importer, the brokerage said in an e-mailed statement.
Deutsche Boerse, NYSE May Need Concessions to Appease EU
Deutsche Boerse AG and NYSE Euronext (NYX) may need to offer concessions to quell formal European Union concerns over their plan to create the world’s largest exchange, lawyers said.
Deutsche Boerse and NYSE Euronext yesterday received a statement of objections listing the European Commission’s “provisional position” on the combination, the companies said. The statement lays out possible competition problems.
Joaquin Almunia, the EU’s antitrust commissioner, said last month that he’s “concerned” the deal maymonopolize the derivatives market. Regulators have also cited fears of reduced innovation in derivatives products and technology and less competition for post-trade clearing services.
Robert Rendine, a spokesman for NYSE in New York declined to comment. Frank Herkenhoff, a spokesman for Deutsche Boerse didn’t respond to calls seeking comment. Almunia also declined to comment on the details of the EU’s complaint yesterday.
Almunia’s comments suggest that the EU may seek remedies such as “product licenses to third parties, allowing third parties to use the Deutsche Boerse clearinghouse and fees concessions,” said Suzanne Rab, a lawyer at King & Spalding in London.
The EU can require companies to change their behavior or to sell off units to eliminate possible competition concerns. It currently has a deadline of Dec. 13 to rule on the deal, which it can extend if required.
Loreley Sues Deutsche Bank Over CDOs ‘Designed’ to Fail
Deutsche Bank AG (DBK), Germany’s biggest bank, was sued by Loreley Financing over $440 million worth of collateralized debt obligations purchased from 2005 to 2007.
The bank is accused of defrauding the plaintiffs into purchasing CDOs that were “destined -- and indeed, designed -- to fail,” Loreley Financing said in a complaint filed Oct. 5 in New York State Supreme Court in Manhattan.
Loreley Financing is a group of special purpose entities based in Jersey, the largest of the Channel Islands, a dependency of the U.K. with its own legislative assembly and known as a tax haven. The entities were formed for long-term investing in CDOs, Loreley Financing said in the complaint.
“We believe these claims are unfounded and will vigorously defend against them,” Frankfurt-based Deutsche Bank said in a statement.
The case is Loreley Financing (Jersey) No. 3 Ltd. v. Deutsche Bank Securities Inc., 652737/2011, New York State Supreme Court, New York County (Manhattan).
EnBW Deal Guarantees Violated State Constitution, Court Says
The government of Baden-Wuerttemberg violated the state constitution when it authorized 4.7 billion euros in guarantees as part of the purchase of a 45 percent stake in EnBW Energie Baden-Wuerttemberg AG (EBK), a court ruled.
The Baden-Wuerttemberg constitutional court ruled the government shouldn’t have authorized the guarantees without asking the state legislature for approval beforehand. The case was brought by the Green party and the Social Democrats, the court said in an e-mailed statement yesterday. Both parties formed the opposition when they filed the suit and are now the ruling coalition in the German state.
Electricite de France SA, Europe’s biggest power generator, sold the stake in the utility on Dec. 6.
Northern Rock Share-Value Appeal Dismissed by U.K. Tribunal
A U.K. tribunal rejected an appeal of a decision that Northern Rock Plc shares had no value following a government bailout, reasoning that there was no evidence the government had damaged the bank.
Shareholders challenged the valuation of Northern Rock’s shares at zero when the lender was nationalized during the financial crisis in 2008, according the ruling dated Oct. 4.
The Bank of England provided emergency liquidity to Northern Rock in 2007 when money markets froze, leaving the bank unable to gain funding by securitizing its mortgages. The government took ownership of all Northern Rock shares in February 2008.
A call and e-mail seeking comment from the Northern Rock shareholder action group wasn’t immediately returned.
The case is Northern Rock v. Andrew Caldwell and HM Treasury, Upper Tribunal (Tax and Chancery Chamber), NR/001/2010.
McCain Says Corporate Repatriation Bill ‘Makes Sense’
U.S. Senator John McCain, an Arizona Republican, talked about President Barack Obama’s jobs bill and legislation that would let U.S. businesses bring home offshore profits at an 8.75 percent tax rate.
McCain, who spoke with Peter Cook and Pimm Fox on Bloomberg Television’s “Surveillance Midday,” also discussed a measure in Congress that would retaliate against China for undervaluing its currency.
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Silva Says Some Banks in Europe May Be Allowed to ‘Die’
Ralph Silva, an analyst at Silva Research Network, talked about the outlook for European banks. Silva described a “mood change” among Europe’s central banks that indicates “we are at that precipice” where they will let banks in their nations “go belly up.”
He also discussed European Central Bank interest rates and monetary policy. Silva spoke with Owen Thomas on Bloomberg Television’s “On The Move.”
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Geithner Says Obama Doesn’t Believe in Limits on Profitability
U.S. Treasury Secretary Timothy F. Geithner, responding to criticism of President Barack Obama’s remarks about bank fees, said the administration doesn’t think government should determine corporate profitability.
“The president believes, as I believe, that it’s not the role of government to determine how profitable firms are,” Geithner told the House Financial Services Committee yesterday. Geithner was answering a question by Alabama Republican Spencer Bachus, the panel’s chairman, about comments Obama made in an Oct. 3 interview with ABC News.
“If you say to the banks, ‘You don’t have some inherent right just to, you know, get a certain amount of profit if your customers are being mistreated, that you have to treat them fairly and transparently,’” Obama told ABC. “And my hope is, is that you’re going to see a bunch of the banks who say to themselves, you know what, this is actually not good business practice.”
Bank of America Corp., the biggest U.S. lender, is joining rivals including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and SunTrust Banks Inc. (STI) in rolling out new charges for debit-card users as Dodd-Frank Act rules imposed by the Federal Reserve take effect this month. The limits may reduce annual revenue at the biggest U.S. banks by $8 billion, data compiled by Bloomberg Government show.
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Almunia Calls for Tougher Bank Stress Tests, Bank Probes
Joaquin Almunia, the European Union’s antitrust commissioner, said the bloc urgently needs a solution to its sovereign debt woes. He was speaking at a conference in Brussels yesterday.
Almunia said he sees an urgent need for a reassessment of banks’ assets. Public support for lenders should be a last resort, according to Almunia, who added that a Greek exit from the euro currency would be a tragedy.
The European Banking Authority hasn’t received an official request to conduct additional bank stress tests, while it is aware of discussions on the matter, a spokeswoman for the agency said. The EBA is a technical body and isn’t taking any position on whether further stress tests are needed, she said.
Almunia also addressed the need for the European Union to examine any “huge” state recapitalizations of banks in the region as part of its oversight of government subsidies.
The commissioner, who is responsible for checking that state handouts don’t distort competition in the 27-nation region, said governments should stand by to act “as the last resort” to help banks if the market won’t provide the level of capital they need.
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Comings and Goings
Canada’s Dickson Supports Carney as Choice for Next FSB Leader
Canada’s top banking regulator, Julie Dickson, says she supports the idea of Bank of Canada Governor Mark Carney being named the next head of the Financial Stability Board.
Dickson, who spoke in an interview on Toronto-based BNN television, said Carney’s chances of succeeding Mario Draghi in the role are “very high.”
Separately, the Financial Stability Board published draft plans setting out how systemically important banks should report data to supervisors on the risks that they face. Yesterday’s plan calls for “better, homogeneous and consistent data” at the national and international level to help in monitoring risks. The plan calls for the development of a “data template” that will close gaps in information gathering.
Consumer Bureau Nominee Approved by Senate Banking Committee
Richard Cordray’s selection to lead the U.S. Consumer Financial Protection Bureau was approved by the Senate Banking Committee in a move that sets up a showdown with Republicans vowing to block any nominee for the post.
Yesterday’s 12-10 vote sends the nomination to the full Senate, where 44 Republicans have pledged to deny confirmation for anyone to serve as director until changes are made in the structure and funding of the new agency created by the Dodd- Frank Act. That opposition would block confirmation by the 100- member Senate, which would require at least 60 votes.
Cordray, the former Ohio attorney general now serving as the consumer bureau’s enforcement chief, was nominated by President Barack Obama in July. Republican lawmakers are seeking changes including replacing the director position with a five- member board and making the bureau’s budget subject to the congressional appropriations process.
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