Repurchase agreements are set to be excluded from a proposed European Union financial transaction tax, an EU official said.
At a working group meeting May 4 in Brussels, a consensus emerged to remove repos from the types of trades covered by the proposed tax in order to prevent potential damage to banks’ funding markets, the official said on condition of anonymity because the discussions are private. EU governments remain divided on other issues such as where the levy will be collected in cross-border situations and whether to exempt pension funds and so-called UCITS funds.
The European Commission, the EU’s regulatory arm, proposed a wide-ranging tax last fall that it estimates could raise 57 billion euros ($75 billion) annually across the 27-nation bloc. In the May 4 discussions, the commission said that excluding repos could reduce potential revenues and weaken the levy’s effectiveness.
In a typical repo agreement, a company sells a security to another in exchange for cash in a transaction that reverses after an agreed period of time. Financial institutions often use repos as an alternative to other forms of inter-bank lending.
Spain, France, the U.K., Belgium, Sweden, the Czech Republic and the Netherlands all pressed for taking repo transactions out of the scope of the proposed tax, the EU official said. The Netherlands also continues to push to exclude pension funds, which the commission has opposed.
If pension funds are excluded, that could lead to more pressure from nations including France and Germany to exempt UCITS funds, the official said. UCITS, meaning Undertakings for Collective Investment in Transferable Securities, is a regulated European fund format that allows managers to invest in derivatives, according to the commission’s website.
Officials are also debating who should collect the tax on trades by bank branches that do business in other EU nations.
Bond-Disclosure Rules Backed by SEC to Protect States From Banks
The U.S. Securities and Exchange Commission in August will begin enforcing regulations that require banks to warn state and local governments about the risks and conflicts of interest in bond deals they arrange.
The rules were proposed by the Municipal Securities Rulemaking Board last year and are aimed at preventing Wall Street underwriters from steering public officials toward complicated debt financing without disclosing the risks. They were approved May 4 by the SEC, which will enforce them.
The disclosures are part of the effort to reshape financial regulations to prevent a repeat of the credit-market crisis of 2008, and stem from Congress’s decision to provide added protections for state and local governments. The economic crisis hit taxpayers with billions of dollars in unexpected costs when complex bond deals, once pitched as money savers, backfired as credit markets seized up.
Under the regulations, banks that underwrite bond deals for public officials will have to disclose risks tied to those transactions. Among them is the possibility that interest costs could soar, as they did for local governments that issued floating-rate bonds tied to derivatives known as interest-rate swaps. Those contracts failed to produce the protection from rate changes that they were designed to provide and forced governments to pay penalties to escape when they backfired.
Banks will also have to disclose incentives they have to recommend such transactions, including payments received from other parties in the deal, such as a bank that provides investments or derivatives in connection with it.
Underwriters will have to disclose whether they trade credit-default swap contracts that provide them money only if their client stops paying its debts.
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SEC’s Schapiro to Meet Group Seeking Political-Disclosure Rule
A coalition of groups pushing the U.S. Securities and Exchange Commission to require that public companies disclose political donations will get a chance to press their case with the agency’s top official this week.
SEC Chairman Mary Schapiro will meet tomorrow with representatives including New York City Public Advocate Bill de Blasio and Common Cause President Bob Edgar, the coalition said in a statement May 4. The meeting will be Schapiro’s first with groups seeking the disclosure requirement after earlier sessions involving SEC staff and an adviser to the chairman, according to memos on the agency’s website.
With almost six months until the presidential election, groups opposed to a 2010 Supreme Court decision that lifted bans on corporate campaign spending are turning to the SEC to address their concerns. Since August, the SEC has received comments from almost 260,000 people expressing support for some type of disclosure requirement, according to its website.
A spokesman for Schapiro didn’t respond immediately to requests for comment on the meeting. The related 2010 Supreme Court case was Citizens United v. Federal Elections Commission.
Luis Aguilar, a Democrat who is one of the agency’s five commissioners, has said he would back a disclosure rule.
Drugmakers’ Deal With Obama Said to Be Probed by House Panel
Pfizer Inc. (PFE) and Merck & Co. (MRK) are being pulled into an expanding congressional investigation into the agreement drugmakers reached with the Obama administration to support the Democrats’ overhaul of the U.S. health-care system, according to three people familiar with the talks.
The probe began last year, with Republicans on the House Energy and Commerce Committee seeking documents from an industry trade group, said the people, who aren’t authorized to speak publicly. When that group didn’t cooperate, the panel decided to target Pfizer, the world’s biggest drugmaker, along with Merck, Amgen Inc. (AMGN), Abbott Laboratories (ABT) and AstraZeneca Plc (AZN), said one of the people.
The Republicans last month began negotiating directly with the companies in e-mails, calls and meetings demanding documents and information outlining what the industry agreed to with President Barack Obama in 2009 and 2010, when the law was being worked on in Congress. Michael Burgess, a Representative from Texas, said in a telephone interview he’s been frustrated by a lack of cooperation.
A White House spokesman declined to comment about the investigation. Peter O’Toole, a spokesman for New York-based Pfizer, said the company is cooperating, as did Tony Jewell, an AstraZeneca spokesman. Kelly Davenport, a spokeswoman for Thousand Oaks, California-based Amgen, said the drugmaker is aware of the probe.
Adelle Infante, an Abbott spokeswoman, and Ron Rogers, a spokesman for Merck, didn’t immediately reply to e-mails seeking comment.
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Thomson Reuters Seeks to Overcome EU Antitrust Concerns
Thomson Reuters Corp. (TRI) offered extra commitments to European Union regulators in a bid to settle an antitrust probe over its securities identification codes.
The financial news and information provider made the revised offer after an earlier attempt to end the case failed to satisfy EU demands to make it easier for customers to switch suppliers of market data.
The European Commission opened an investigation into the Thomson Reuters codes in 2009, saying customers may potentially be locked-in to working with the company because replacing the codes required “a long and costly procedure” to rewrite or reconfigure software applications.
“After reviewing the feedback from the European Commission’s market test, Thomson Reuters submitted a revised offer to the EC which is aimed at addressing the comments of our customers,” said Yvonne Diaz, a spokeswoman for the New York- based company. “It is premature to comment further.”
Joaquin Almunia, the EU’s antitrust commissioner has increased scrutiny of financial markets with probes into whether Goldman Sachs (GS) Group Inc., JPMorgan Chase & Co. and 14 other investment banks colluded to shut out rivals from information on the swaps market. He’s also investigating the setting of the London Interbank Offered Rate.
Antoine Colombani, a spokesman for Almunia, said the EU had received the commitments. He didn’t give details.
Bloomberg LP, the parent of Bloomberg News, competes with Thomson Reuters in selling financial and legal information and trading systems.
RBS Damps Speculation of Immediate Sale After Aid Repayment
Royal Bank of Scotland Group Plc damped speculation of an immediate sale of the government’s stake in the bank after the lender said it’s poised to repay the last of the emergency loans received in its bailout.
Chief Executive Officer Stephen Hester told reporters as the lender posted a 4 percent increase in first-quarter operating profit May 4 and there is “no desire” to sell at the current share price.
The repayment of 164 billion pounds ($265 billion) of emergency aid it received from the U.K. and U.S. governments by will remove an obstacle to the lender’s return to private ownership. The U.K. could start selling its stake in RBS at a loss, Jim O’Neil, chief executive officer of U.K. Financial Investments Ltd., the body that manages the government’s holding in the bank, told lawmakers on March 14. The government has also made presentations to potential investors. The talks are still at an early stage, the people said.
RBS said it will resume discretionary dividend payments to preference shareholders after a European Union ban expired at the end of April.
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SEB’s $8.3 Billion Real-Estate Fund Faces Make-or-Break Day
Investors in Frankfurt-based SEB Asset Management AG’s 6.4 billion-euro ($8.3 billion) property mutual fund had until 1 p.m. today to decide whether to pull their money out of the fund, which will be liquidated if it’s unable to meet all demands for repayment.
SEB ImmoInvest (SEBIMMO), the largest of 13 German real-estate funds that suspended redemptions after the global financial crisis, was opened for one day to take requests. ImmoInvest has “considerably” more than 30 percent of its assets in cash or equivalents after selling properties, SEB Asset Management Chief Executive Officer Barbara Knoflach said last month.
Since the global recession that ended in 2009, German real- estate mutual funds have struggled to meet redemption requests, causing six funds to be liquidated. Several more, including funds owned by Credit Suisse Group AG (CSGN) and UBS AG (UBSN), face deadlines this year to reopen or liquidate, according to Germany’s financial trade group, Bundesverband Investment und Asset Management, or BVI.
SEB ImmoInvest (S3EA) is the first German property fund to open for one day to offer redemptions. The fund would allow withdrawals once a year, instead of daily, if it continues after today.
SEB ImmoInvest has been closed for almost two years. The fund owns buildings in Paris, Singapore and Rome as well as 19 properties in Berlin’s Potsdamer Platz complex. CS Euroreal must tell investors this month whether they plan to reopen, according to regulatory deadlines.
SEB Asset Management, a unit of Skandinaviska Enskilda Banken AB (SEBA), is due to announce the level of requests for redemptions later today.
S. Korea Financial Services Regulator Suspends 4 Savings Banks
South Korea’s Financial Services Commission ordered four banks to halt operations after they failed to meet financial strength criteria. The lenders are Solomon Savings Bank (007800), Korea Savings Bank (025610), Mirae Mutual Savings Bank and Hanju Savings Bank, according to the regulator.
U.K. Banks May Face FSA Probe of Rate-Swap Sales, Telegraph Says
U.K. banks may face an investigation by the Financial Services Authority into the alleged mis-selling of interest rate swaps to small businesses, the Sunday Telegraph reported, citing an unidentified spokesman for the regulator.
The FSA completed an initial investigation last week and ordered the banks to provide more information before a decision likely to be made in June, the newspaper said.
Wal-Mart Directors Sued by Pension Fund Over Mexico Bribe Probe
Wal-Mart Stores Inc. (WMT)’s board was sued by a California pension fund over its mishandling of allegations that the world’s largest retailer bribed Mexican officials to help fuel the company’s growth in the country.
Wal-Mart directors and executives responsible for overseeing the company’s Mexican unit should reimburse the Bentonville, Arkansas-based retailer for damages the chain suffered as a result of the bribery scheme, lawyers for the California State Teachers Retirement System said in a lawsuit filed May 3 in Delaware Chancery Court in Wilmington.
The suit claims the board’s “failure to address detailed and credible allegations of criminal activity” has caused the retailer “substantial harm.”
Both U.S. and Mexican prosecutors said last month they started probes of the bribery allegations, first reported by the New York Times. (NYT) The retailer’s growth in Mexico has turned the company into the country’s largest private employer with more than 209,000 employees.
“We are reviewing the lawsuit closely and thoroughly investigating the issues that have been raised,” David Tovar, a Wal-Mart spokesman, said May 3 in a telephone interview. The case is California State Teachers’ Retirement System v. Wal-Mart Stores Inc., 7490, Delaware Chancery Court (Wilmington).
Sky Capital Broker Harrington Gets Five Years for Fraud
Adam Harrington, a former broker at Sky Capital Holdings Ltd., was sentenced May 4 to five years in prison for his role in what prosecutors said was an eight-year scheme that defrauded investors of $140 million.
Sky Capital’s founder, Ross Mandell, who was tried with Harrington and convicted of the same four counts, was sentenced to 12 years in prison by the same judge, U.S. District Judge Paul Crotty in Manhattan May 3.
The pair defrauded investors with private placement investments in Thornwater LP and Sky Capital and manipulated the prices of the stocks by bribing brokers, prosecutors said. Harrington worked at Thornwater and Sky from 2000 to 2005 and managed Sky’s New York office. He and Mandell were found guilty in July 2011 of conspiracy, securities fraud, wire fraud and mail fraud. Both must report to prison on June 18, the judge said. Harrington was ordered to forfeit $20 million.
The case is U.S. v. Mandell, 09-cr-00662, U.S. District Court, Southern District of New York (Manhattan).
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Buffett Says U.S. Banks Are ‘In Fine Shape,’ Unlike Europe’s
Warren Buffett, whose Berkshire Hathaway Inc. has more than $20 billion invested in U.S. banks, said the nation’s lenders have “liquidity coming out of their ears” and are in better shape than European rivals.
“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chief executive officer, said May 5 at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” until getting assistance from the European Central Bank, he said.
Wall Street firms including JPMorgan Chase & Co. and Bank of America Corp. (BAC), emboldened after raising capital levels ahead of stricter international guidelines, are contesting efforts by U.S. policy makers to limit trading and risk. European banks have struggled amid the continent’s sovereign debt crisis and turned to the ECB for 1 trillion euros ($1.3 trillion) in three- year loans at a 1 percent interest rate.
Buffett, 81, is seeking to insulate Berkshire’s holdings from the concerns that weighed on the stocks of European lenders, said Mark Williams, a former Federal Reserve bank examiner who teaches finance at Boston University.
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Rochdale’s Bove Discusses Dodd-Frank Bank Regulation
Richard Bove, vice president and equity research analyst at Rochdale Securities LLC, discussed the Federal Reserve’s interpretation of the Dodd-Frank Act, and its impact on banks. Bove talked with Bloomberg’s Pimm Fox and Courtney Donohoe on Bloomberg Radio’s “Taking Stock.”
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Arthur Levitt Questions SEC Investigation of Egan-Jones
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission and senior adviser to Goldman Sachs, said the SEC probe of credit rating firm Egan-Jones Ratings Co. “doesn’t rise to the highest level of what the SEC should be fighting about.” Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
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U.K. Watchdog Will Question Banks Putting Profit Before Customer
The Financial Conduct Authority will question banks’ business strategies where there is a risk they will prioritize profits over treating customers fairly, Martin Wheatley, the agency’s chief, said in a speech May 3.
The FCA, due to begin operations next year, will expect banks to generate “good profits rather than profit at any cost, either to firms’ own stability or their customers’ best interests,” Wheatley told an audience of bankers in Scotland.
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