Olympus Fees, Internet Ads, Health-Care Law, PMI: Compliance
Olympus Corp. (7733) said three executives helped conceal decades of losses by paying inflated fees to takeover advisers, the first admission of wrongdoing since accusations from its former chief executive officer engulfed the Japanese camera maker four weeks ago.
The company fired Executive Vice President Hisashi Mori over his role in covering up the losses with former Chairman Tsuyoshi Kikukawa, who resigned last week, and said auditor Hideo Yamada would step down.
The company’s admission that the three colluded to hide losses from investors fails to address the roles played by other officials, according to the company’s biggest overseas shareholder.
That shareholder is now demanding investor relations head Akihiro Nambu go too. The demand is based on Nambu’s role as a director of Gyrus Group Plc, the U.K. takeover target used to funnel more than $600 million in inflated advisory fees to a Cayman Islands fund. After Nambu, the rest of the board must follow, said Josh Shores, a London-based principal for Southeastern Asset Management Inc.
Shores said the action is necessary because the board failed to ask questions. Shores also noted there “is a third party somewhere who received this money.”
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Olympus shares plunged by the daily limit and pulled other Japanese equities lower on concerns the country hasn’t escaped corporate governance weaknesses that have dogged it since the stock market bubble burst at the end of 1989.
Japanese and U.S. regulators are probing allegations that more than $1.5 billion was siphoned through offshore funds. That money may have been used to cancel out non-performing securities that Olympus was keeping off its books, according to a report in the Shukan Asahi magazine, which cited people familiar with the process.
Olympus released a statement yesterday that said an independent investigation found advisory fees and takeover payments were used to hide soured investments from the 1990s.
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Separately, Nomura Holdings Inc. (8604) shares tumbled to the lowest in at least 37 years, leading a decline in Japanese brokerages, after Olympus’s statement concerning the hidden losses.
Nomura didn’t participate in Olympus’s concealment of losses, said Hajime Ikeda, managing director of corporate communications for the securities firm.
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Internet Advertisers Revise Privacy Program After FTC Concerns
An Internet-advertising industry program to enforce privacy safeguards is expanding in response to concerns from U.S. regulators and consumer-advocacy groups.
The voluntary program, announced last year by an advertising-industry coalition, calls for letting consumers block ads that are based on their Web-browsing habits. The U.S. Federal Trade Commission expressed concern that the program didn’t apply to other forms of online tracking.
The changes will let consumers block other kinds of Internet-data collection, with the exception of information gathering required for companies’ “operations and system management,” said Stu Ingis, general counsel for the Digital Advertising Alliance, which administers the program, in an interview Nov. 7.
Jessica Rich, deputy director of the FTC’s consumer protection bureau, expressed concern in an August interview that the self-regulatory program didn’t go far enough to let consumers opt out of being tracked online. The FTC has power to act when companies engage in unfair and deceptive trade practices.
Under the revised program, participating companies will also be barred from collecting data on consumers’ Internet browsing to determine eligibility for employment, credit, medical treatment or insurance, Ingis said. The changes will take effect next year, he said.
The Digital Advertising Alliance includes the Association of National Advertisers, the Direct Marketing Association and the Interactive Advertising Bureau. Bloomberg LP, the parent of Bloomberg News, is a member of ANA and IAB.
FSA Proposes Rules for Life Insurers Allowing Bond Investments
The U.K.’s Financial Services Authority proposed guidelines for life insurance companies on how they manage assets, including permission to invest money in some indexes and bonds.
“While regulation cannot protect policyholders from market movements, these rules are designed to ensure that they can be confident that their money is being invested prudently,” Sheila Nicol, FSA director of policy, said in an e-mailed statement.
The rules are aimed at protecting holders of unit-linked and index-linked life-insurance policies. The new rules ensure compliance with Solvency II, the European Union directive relating to insurance that comes into effect in 2013 and 2014, according to the statement on the website.
EU to Propose Law Giving Watchdogs More Powers in Capital Plan
Bank supervisors may get more powers to enforce a European Union plan to recapitalize lenders, said Chantal Hughes, spokeswoman for Michel Barnier, the EU’s financial services chief.
The European Commission will propose a law that may give national regulators powers to ban bonus payments at banks that don’t participate fully in the recapitalization plan.
EU Transaction Tax Debate Highlights Euro-Area Disagreement
Bank tax proposals exposed broad disagreement among European Union policy makers yesterday, during the first public debate over EU plans to draw revenue from banks and other financial firms.
Finance ministers from Germany, Austria and Belgium said the 17-nation euro area might need to move ahead on introducing a financial-transaction tax on its own unless resistance from the U.K. and other nations outside the currency union can be overcome. At the same time, euro members Italy, Luxembourg and Ireland said they may oppose the tax without other countries participating.
The European Commission has proposed an EU-wide plan that it says would raise 57 billion euros ($79 billion) a year. Yesterday’s meeting of finance and economy ministers in Brussels was the first debate over the proposal since it was released in September.
During today’s debates, nations including France, Germany, Spain, Belgium and Finland spoke in favor of the current EU proposal. Nations that oppose the proposal include the U.K., Sweden, the Czech Republic and Bulgaria.
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U.K. FSA Fines Dubai Investor Goenka Record $9.6 Million
The U.K.’s finance regulator fined Dubai-based investor Rameshkumar Goenka $9.6 million for market abuse, its largest- ever fine against an individual.
Goenka, 66, manipulated the price of Reliance Industries Ltd. (RIL) securities on the London Stock Exchange by executing a high volume of orders in the final seconds of trading to inflate the payout on a structured product tied to the closing price, the U.K. Financial Services Authority said in a statement today.
Tracey McDermott, the acting director of enforcement for the FSA said the “impact of such behavior” affects “market confidence.”
The fine includes a penalty of about $6.5 million and restitution to reimburse the bank $3.1 million, which overpaid him as a result on the structured product. Goenka received a 30 percent discount for settling the case, the FSA said. Goenka’s lawyer, Stephen Gentle, didn’t immediately respond to a call seeking comment.
The fine levied against Goenka was high because of his “extensive experience as an investor,” and because his action was pre-planned and intentional and he intended to take the same action in relation to another structured product, the FSA said.
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Linamar Faces EU Probe Into German Aid for Car-Parts Factory
Linamar Corp. (LNR) faces a European Union investigation into 26.7 million euros ($36.5 million) of German government aid to help it build a new car-parts factory.
The European Commission said in an e-mailed statement today it would examine whether the Guelph, Ontario-based auto-parts maker needed the government grant and tax breaks to make the investment in the new facility, which is to manufacture engine and transmission parts in Crimmitschau, Germany.
SKF, Schaeffler Raided in EU Probe of Ball-Bearings Makers
The European Commission said it made unannounced inspections at the premises of companies that produce bearings for automotive and industrial use over concerns that they may have violated antitrust rules. It didn’t name the companies.
SKF, the world’s largest ball-bearings maker, said in a statement that EU officials visited its facilities in Gothenburg, Sweden, and Schweinfurt, Germany. Schaeffler Group was also inspected, company spokesman Marcus Brans said in a phone interview. Both companies are cooperating with regulators.
Japan’s antitrust agency is probing price-fixing among ball-bearings manufacturers, companies including Jtekt Corp. and Nachi-Fujikoshi Corp. said in July. EU regulators can fine companies as much as 10 percent of yearly sales for joining a cartel to set prices.
Jtekt and Nachi-Fujikoshi didn’t immediately respond to e- mails seeking comment.
Obama Health-Care Law Ruled Constitutional by Appeals Court
President Barack Obama’s health-care legislation requiring almost all Americans to have medical insurance beginning in 2014 is constitutional, a U.S. appeals court ruled.
The U.S. Court of Appeals in Washington yesterday upheld the measure Obama signed into law in March 2010 in a 2-1 opinion. It was the third appellate court to rule on the constitutionality of the Patient Protection and Affordable Care Act, and the second to reject a legal challenge to the insurance mandate.
The Washington appeals court may be the last to rule on the law before the U.S. Supreme Court takes it up. The Obama administration asked the high court to review an Aug. 12 ruling by the Atlanta appeals court that found the insurance mandate is unconstitutional.
The high court justices will consider whether to take the cases at their conference on Nov. 10.
The case is Seven-Sky v. Holder, 11-5047, U.S. Court of Appeals for the District of Columbia (Washington).
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PMI Group Seeks to Undo Regulator’s Seizure of Insurance Unit
PMI Group Inc. (PMI), the mortgage insurer whose main unit was taken over by regulators last month, was expected to appear in court yesterday to ask an Arizona judge to undo the seizure and put PMI back in charge.
Arizona insurance regulators moved too quickly to take over PMI Mortgage Insurance Co. because the unit still has $2 billion in cash and liquid investments and can keep paying policyholder claims until 2014, PMI Group said in court papers filed in state court in Phoenix.
Arizona Director of Insurance Christina Urias took control of the unit last month on an interim basis until a formal hearing could be held on the company’s future, according to court papers. PMI Group is seeking to regain control of the unit until at least January, when a court hearing to confirm the seizure is scheduled.
The case is State of Arizona v. PMI Mortgage Insurance Co., CV2011-018944, Arizona Superior Court, Maricopa County, (Phoenix).
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Bawag Sues Linz for $575 Million in Swiss Franc Swap Dispute
Bawag PSK Bank, the Austrian lender controlled by Cerberus Capital Management LP, is counter-suing the city of Linz in a dispute over a 195 million Swiss franc ($216 million) swap contract.
The lender yesterday filed the suit for 417.7 million euros ($575 million) at the Commercial Court of Vienna, it said in an e-mailed statement. Linz last week sued Bawag, saying the bank didn’t inform Austria’s third-biggest city about the potential risks of the 2007 deal, which secured a franc bond.
Disputes over swap agreements, typically used by municipal agencies to lower interest payments, have spread through Europe with lawsuits in Germany, Italy and the U.K.
Linz, which also says the contract was entered into without proper approvals, is seeking 30.6 million francs in the case.
Reynolds Says Volcker Rule May Benefit Overseas Banks
James Reynolds, chief executive officer of Loop Capital Markets LLC, talked about the Volcker rule and its potential impact on U.S. banks and capital markets.
Reynolds, who spoke with Betty Liu on Bloomberg Television’s “In the Loop,” also discussed the congressional supercommittee on deficit reduction.
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Hildebrand Says SNB Needs Broader Mandate to Supervise Banks
Swiss central bank President Philipp Hildebrand commented on banking regulation during a panel discussion in Berlin yesterday.
“The SNB’s mandate says we are to contribute to financial stability,” Hildebrand said, referring to the Swiss National Bank. “In other words, we currently have no formal competence in the area of banking supervision.”
“We clearly feel the need for the financial-stability arsenal of the SNB to be enhanced. It should be geared toward augmenting the resilience of the banking system and moderating its pro-cyclical behavior,” Hildebrand said.
Hildebrand said the Swiss central bank will play “an active role” in combating the financial crisis.
To do that, “the formal legal competence of the SNB in the area of prevention needs to be enhanced carefully. We are working very actively at the moment with the government, parliament and Finma to achieve that objective,” he said, referring to the Swiss Financial Market Supervisory Authority.
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Swiss Regulator Says Orderly Exit of Big Banks ‘Unimaginable’
“UBS and Credit Suisse still cannot exit the market in an orderly way, just as other globally active large banks,” according to the draft of a speech set to be presented at a conference in Lucerne yesterday by Patrick Raaflaub, director of the regulator known as Finma. “An orderly splitting up, a forced clean-up, and processing of a large bank is still unimaginable.”
Switzerland’s lower house approved a new law curbing risk- taking by the country’s biggest banks on Sept. 30. Swiss policy makers are running ahead of counterparts in the U.S. and Europe to make sure UBS and rival Credit Suisse cut risks and hoard capital to avert the type of banking collapse that hobbled Iceland’s economy.
Raaflaub said “thick and qualitatively high reserve ’cushions’” are needed to make the system more stable.
Comings and Goings
JPMorgan Appoints Boeing Finance Chief James Bell to Board
Bell will also join the panel’s audit committee, New York- based JPMorgan said yesterday in a statement.
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