Federated Investors Inc. (FII), the third- largest manager of U.S. money-market mutual funds, is planning legal action to block rule changes being contemplated by the U.S. Securities and Exchange Commission that the company said could destroy the $2.7 trillion cash-management industry.
Federated will the proposed rule change by both a regulatory and legal means, Christopher Donahue, chief executive officer of Pittsburgh-based Federated, said Jan. 27 in a conference call with analysts.
Money-fund providers and regulators have been wrestling for three years over how to make the funds safer without destroying the appeal of the investment product, which is used by corporations and millions of households. The SEC is expected to make two proposals before the end of March.
The first plan, which the industry has long warned would lead investors to abandon money funds, would eliminate their stable $1 share price. The second would combine capital buffers and a 30-day holdback of a portion of all redemptions. Donahue said Jan. 27 that Federated would fight either of the two rules.
Donahue said he would take legal action under the Administrative Procedures Act, claiming the SEC had not done sufficient analysis of the rules’ impact. John Nester, a spokesman for the SEC, declined to comment.
Donahue added that legal action could also delay the implementation of any new rule.
The redemption restriction being planned by the SEC, according to Donahue, would require funds to hold back 3 percent of any client withdrawal for 30 days.
Special Section: World Economic Forum
Incredible Shrinking Bankers at Davos Humbler Amid Austerity
Leaders of the world’s biggest banks touted the virtues of austerity at the World Economic Forum in Davos -- for themselves, not just for over-indebted governments.
Many arrived in the Swiss Alps following a year marked by weak revenue, declining stock prices and cuts in jobs and compensation. The finance and banking industries remain the “least trusted” for the second consecutive year, according to a 20-country survey released earlier this week by public relations firm Edelman.
Financial companies, mainly in Western Europe and the U.S., have announced more than 238,000 job cuts since last year’s meeting in Davos, according to data compiled by Bloomberg. Bank of America Corp. (BAC), Deutsche Bank AG (DBK), and HSBC Holdings Plc (HSBA) are among banks selling businesses and slimming down as they adapt to capital requirements approved by the Basel Committee on Banking Supervision, new national regulations and a slowdown in economic growth in Europe.
Deutsche Bank (DBK), the biggest German lender, is considering a sale of its asset-management unit as it raises capital to adapt to Basel rules. The Frankfurt-based lender is reducing costs globally and said in October it will cut 500 jobs from its corporate banking and securities unit by March 31.
A year ago, bankers in Davos were trying to persuade regulators to relax new regulations, arguing that banks that held less capital and were subject to fewer restrictions would be an aid to economic growth. Those arguments weren’t successful, said Barclays Plc (BARC) CEO Robert Diamond in an interview before a private meeting of finance executives Jan. 26. Barclays announced 422 U.K. job cuts earlier this month.
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Trichet, Roubini, Sands, Turner Discuss Big Banks
Former European Central Bank President Jean-Claude Trichet, New York University professor Nouriel Roubini, U.K. Financial Services Authority Chairman Adair Turner, Standard Chartered Plc (STAN) Chief Executive Officer Peter Sands, former Mexican central bank Governor Guillermo Ortiz, Luxembourg Finance Minister Luc Frieden, participated in a panel discussion about the banking industry.
Among the topics discussed by the panel were banking regulations, whether the banking system is “fragile” and the industry is “fragmented.”
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Clayton Dubilier CEO Says He’d Accept Carried-Interest Change
Clayton Dubilier & Rice LLC Chief Executive Officer Donald Gogel said he’d accept changes to the carried-interest tax rate that enhances compensation for private-equity partners.
The controversy over U.S. presidential candidate and former buyout executive Mitt Romney’s tax rate may lead to changes to the U.S. tax code, including the carried-interest rate, Gogel said in an interview with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland.
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EU to Seek Deal on Clearing Law for Over-the-Counter Derivatives
European Union lawmakers and officials will meet this week to thrash out a deal on clearing rules for over-the-counter derivatives, paving the way for implementation before a Dec. 31 deadline.
Talks planned for tomorrow in Brussels will focus on “the big question” of what powers regulators should have to override national decisions authorizing clearinghouses, said Sharon Bowles, a U.K. lawmaker who chairs the parliament’s financial regulation committee. Denmark, which holds the EU’s rotating presidency, will lead the negotiations with members of the European Parliament and Michel Barnier, the EU’s financial services chief.
Europe is working to toughen rules on trading of OTC derivatives in line with a 2009 agreement among the Group of 20 nations. The Financial Stability Board warned last year that the EU may miss a deadline for implementing measures by the end of 2012 that include requiring trades in standard types of derivatives to be centrally cleared and logged in databases.
This week’s meeting may also tackle a planned exemption for derivatives trades between different units of the same bank, Bowles said. Denmark wants to ensure that the exemption would apply if one of the units is based outside Europe, Preben Aamann, a spokesman for the Danish presidency, said by e-mail.
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Iran Oil Curbs Extend to 95% of Tankers in EU Insurance Rules
European Union sanctions on Iranian oil will extend to about 95 percent of tankers because they are insured under rules governed by European law.
The International Group of P&I Clubs insures all but 5 percent of the global tanker fleet and its 13 member clubs follow European rules to participate in the claim-sharing pool, said Andrew Bardot, the London-based secretary and executive officer. Carrying Iranian oil would invalidate the ships’ cover against risks including spills and collisions, he said.
While the embargo on Iranian oil only covers the EU’s 27 member states, the extent of the region’s role in insuring ships will curb trade globally. Iran is the second-biggest member of the Organization of Petroleum Exporting Countries, and sends oil to China, Europe, Japan, India and South Korea. EU foreign ministers agreed to the ban on Jan. 23, seeking to increase pressure on Iran over its nuclear program, which the nation says is for civilian and medical purposes.
Vessels carrying oil from the nation will have to use “questionable” insurance, said Simon Schnorr, the London-based marine client director at Aon Risk Solutions, a unit of the world’s largest insurance broker.
The EU sanctions will still apply to shipping companies with no European link because of their insurance policies, according to Intertanko, the largest trade group representing tanker owners.
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Holder Announces Working Unit on Mortgage-Backed Bonds Fraud
A new U.S. government unit will investigate misconduct in the bundling of mortgage loans into securities that fueled the housing bubble and contributed to the financial crisis, Attorney General Eric Holder said.
In providing details about the new unit Jan. 27 at a news conference in Washington, Holder said that the Justice Department in the past few days has subpoenaed 11 financial institutions in related investigations.
Both civil and criminal capabilities will be used in pursuing the investigations, Holder said.
President Barack Obama announced the creation of the unit during his State of the Union speech on Jan. 24.
A coalition of labor unions, consumer advocates and political activists, including MoveOn.org, has been pressuring the administration to do more to probe banks’ home lending and the creation and sale of mortgage-backed securities.
The new unit will take control of existing civil and criminal investigations in an attempt to better coordinate efforts on mortgage fraud, according to the Justice Department. It will include officials from the Justice Department and the Securities and Exchange Commission as well as U.S. attorneys and state attorneys general.
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Comings and Goings
SEC’s Schapiro Said to Face Pushback Over Choosing Next Watchdog
U.S. Securities and Exchange Commission Chairman Mary Schapiro may have to revise her plan for hiring the agency’s next internal watchdog after at least three commissioners demanded greater say in the process, according to two people familiar with the matter.
Schapiro recently told commissioners that she had selected panels of senior SEC staff to rate, interview and suggest final candidates to succeed H. David Kotz, according to the people, who asked not to be named because the plans weren’t public.
Kotz, whose four-year tenure as inspector general ended Jan. 27, was accused by SEC employees and alumni of pursuing investigations that often lacked evidence of wrongdoing and unfairly damaged some workers’ reputations. Kotz also came under scrutiny for giving a lengthy interview to the host of a paid radio show who posted it on his website and uses it in marketing financial services.
The flap over Kotz’s tenure has made commissioners and staff more sensitive to how the agency oversees the inspector general’s office, the people said. While the watchdog previously reported to the chairman, the 2010 Dodd-Frank Act gave the responsibility to the full five-member commission.
Citing that change, three of the commissioners told Schapiro they should have an equal say over which staff will rate and interview candidates for the job, according to the people. The commissioners have also called for new procedures and policies to clarify who the new watchdog would report to and what kind oversight the commission would have.
Noelle Maloney, who has served under Kotz as his deputy, will be acting inspector general until a replacement is named, said SEC spokesman John Nester, who declined immediate comment on the hiring process.
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