Lloyds ‘Incentive’ Probe, Bankers’ Board Vote: Compliance
Lloyds Banking Group Plc (LLOY) is being investigated by a U.K. regulator over how bonuses and other incentives were used to motivate staff to improperly sell some products to consumers, a person familiar with the case said.
The Financial Services Authority referred the bank to its enforcement division for further proceedings, according to the person, who asked not to be identified because the probe is confidential.
An FSA review of 22 firms found that incentive programs for bank staff “were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed,” Martin Wheatley, a managing director of the regulator, said in a speech in London yesterday.
The failings at one firm were “so serious” that they merited further investigation, the FSA said in a statement. That company is Lloyds, said the person.
“We have made significant changes to our incentive schemes,” Lloyds said in a statement. “We reward behaviors that are focused on achieving correct customer outcomes and excellent service as well as monitoring sales to ensure that colleagues have met customer needs appropriately.”
Lloyds has set aside 4.3 billion pounds ($6.8 billion) to compensate customers who were mis-sold payment protection insurance, more than any other U.K. bank. British regulators said last year that consumers may receive as much as 9 billion pounds in compensation as a result of improper sales of PPI.
Toby Parker, a spokesman for the FSA, declined to comment. The probe was reported earlier yesterday by the Financial Times.
Banker Plan Would Fund Super-PACs to Influence Senate Races
A banking trade group is preparing to set up a political fund that would allow members to funnel money anonymously to pro-industry candidates in the final months of the U.S. election campaign.
The American Bankers Association board is set to vote today on a plan to create a nonprofit that would donate to super- political action committees, or super-PACs, that can spend unlimited amounts on TV ads and other campaign activities.
ABA officials, during a conference call Sept. 4 to brief member firms, said they intend to raise several million dollars in the next few weeks and concentrate their contributions on six to 12 fiercely contested U.S. Senate races. Attempts in the Republican-controlled House to roll back regulation of the financial industry, particularly the 2010 Dodd-Frank Act, have so far run aground in the Democratic-controlled Senate.
The ABA’s effort comes only two months before elections for president and Congress. Craig Holman, a lobbyist for Public Citizen, which tracks the influence of money on politics, said donations from the nonprofit could affect some races.
A series of court decisions and regulatory changes in 2010 unraveled previous federal limits on political donations. The donors pool their money in nonprofits, which keep contributor names secret, and super-PACs, which have amassed $350 million through the end of July.
The ABA’s proposed fund would be a nonprofit, or 501(c)(4), which would allow the organization to disburse money into key Senate races and fund advocacy efforts.
The Washington-based trade group represents about 5,000 banks of all sizes, from community lenders to large Wall Street firms like JPMorgan Chase & Co. (JPM)
The association also donates to candidates through a more stringently regulated political action committee that has given more than $2.8 million this election cycle to candidates from both parties.
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Barnier’s Banker Bonus Compromise Rejected by EU Lawmakers
European Parliament lawmakers rejected a compromise proposal on measures to regulate banker bonuses, saying the plans are too weak.
Legislators rejected the proposal, advocated by European Union Financial Services Commissioner Michel Barnier, during a meeting yesterday on a draft Basel bank-capital law, said Philippe Lamberts, the lawmaker leading the work on the measures for the parliament’s Green group.
While EU lawmakers have called for a ban on bonuses that exceed fixed pay, governments are concerned that the measure may harm competitiveness. Barnier has advocated an alternative approach based on empowering shareholders.
Members of the parliament at the meeting said that the compromise plan “wasn’t even a basis to start discussions,” Lamberts said in an interview in Brussels.
Haldane Says Macroprudential Policy Expectations Must Be Limited
Global financial regulators are turning to macroprudential tools to address systemic risk; development of “this regulatory edifice has gone from architect’s drawing board to builder’s construction site” at “warp speed,” he wrote.
“Provided macro-prudential frameworks are operated flexibly and an undue weight of expectations is not placed on their shoulders, they offer a route to avoiding some of the sins of the recent past,” Haldane wrote in Risk Magazine.
Macroprudential policy is at a “similar stage to monetary policy in the 1950s.” He sees “enormous scope for further research into regulatory instruments to support macro-prudential ends” and says “it may be necessary to look beyond the set of instruments typically used for micro-prudential purposes.”
Work is also needed on legal entity identifiers and product identifiers to improve risk management, he said in the magazine article.
EU Seeks Views on Libor Overhaul Plans in Rate-Rigging Response
The European Commission is seeking views on possible rules to overhaul Libor, Euribor and other so-called market benchmarks in the wake of the scandal over interbank lending rates.
European Union regulators are weighing options such as forcing banks to provide real transaction data rather than estimates and increasing the number of lenders involved in the rate setting, according to an e-mailed statement from the commission.
Confidence in Libor, the benchmark interest rate for more than $500 trillion of securities, plummeted following Barclays Plc (BARC)’s admission that it submitted false rates. The revelations have provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes of interbank lending rates to the top of the political agenda.
Barclays, the U.K.’s second-largest bank by assets, was fined 290 million pounds ($460 million) in June for its role in rigging Libor for profit.
The commission will seek views on possible measures until Nov. 15, it said.
Separately, Barclays Plc said some employees that were involved in the Libor scandal are no longer employed by the bank.
“It would be inappropriate to comment about specific individuals, although the employees involved no longer work at Barclays,” the bank said in an e-mailed statement. “The firm undertook a thorough and robust internal disciplinary process promptly following the regulatory review which was completed in late July.”
U.K. Competition Regulator to Review Retail Gasoline Prices
The U.K. Office of Fair Trading said it would investigate pricing in the 32 billion-pound ($50.8 billion) market for gasoline and diesel fuel amid concerns about high retail prices.
The U.K. antitrust regulator said in a statement yesterday it wants to identify whether or not there are competition problems that it can take on in the market as it asked consumer and industry groups to provide information to the agency over the next six weeks.
Andy Peake, ASDA Group Plc’s director of petrol trading, said in an e-mail that the group’s preference would be a “national price” for fuel that everyone would charge.
The regulator said it will look at four areas to understand how prices are set, including whether a reduction in the price of crude oil is passed onto consumers and if major supermarkets and oil companies make it harder for independent retailers to compete. Between June 2007 and June 2012 the pump price of gasoline rose 38 percent from 97 pence a liter to 1.34 pounds, while diesel climbed 43 percent from 96 pence a liter to 1.39 pounds, according the Automobile Association Fuel Price Report.
Katherine Edwards, Tesco Plc (TSCO)’s group regulatory affairs director said the group has brought real competition into the petrol market.’’
Macquarie Private Wealth Probed By Regulator, AFR Says
Macquarie Group (MQG)’s private wealth division is being investigated by Australian Securities and Investments Commission over possibly breaching laws aimed at upholding client interests, the Australian Financial Review reported, without saying where it obtained the information.
ASIC is examining whether Macquarie’s retail stockbroker provided full information required in statements of advice as to whether advisers were acting in the best interests of clients and bank’s compliance systems, AFR reported.
The ASIC team is in dialog with Macquarie and has asked for more information, according to AFR. Andre Khoury, a spokesman at ASIC, declined to comment on the report. Lisa Jamieson, a spokeswoman at Sydney-based Macquarie, declined to comment.
Former MAN Executives Samuelsson, Hornung Probed Over Corruption
Former MAN SE (MAN) Chief Executive Officer Hakan Samuelsson and former Chief Financial Officer Karlheinz Hornung are being investigated on corruption allegations by German prosecutors.
The probe was opened after the former head of MAN’s audit department testified in a related trial last month that both knew about “possible corrupt practices” regarding business deals in Slovenia, Thomas Steinkraus-Koch, spokesman for prosecutors in Munich, said in an e-mailed statement yesterday.
The office “opened a probe because the two former MAN managers are suspected of aiding in bribery in business relations,” Steinkraus-Koch said. He said the case is not barred by the statute of limitations.
MAN, Europe’s third-largest truckmaker, agreed to pay 150 million euros ($189 million) in 2009 to resolve an inquiry into alleged bribes paid by its truck and turbo units.
“Of course I haven’t done anything,” Samuelsson said by telephone, denying any corruption allegations.
Hornung didn’t immediately return a call seeking comment. MAN spokesman Andreas Lampersbach declined to comment, saying this concerns individuals who haven’t worked for the Munich- based manufacturer for years. The men resigned in 2009.
Siemens spokesman Alexander Becker declined to comment.
EU’s Barnier Seeks Financial-Overhaul Completion by End-2013
Michel Barnier, the EU’s financial services chief, said that he’s targeting an end-2013 deadline for completing the EU’s overhaul of financial rules. Barnier was speaking at an event in Brussels today.
Barnier plans to meet today with European Commission President Jose Barroso to discuss plans for a banking union in the euro area.
Barnier also said at the conference in Brussels that an expert group, which is weighing options for overhauling bank structure, will complete its work this month.
Separately, Barnier, said that he will seek views by the end of the year on the financial industry’s role in supporting growth.
Barofsky Says Bank Bailout Presumption Still Exists
Neil Barofsky, former special inspector for the U.S. Treasury’s Troubled Asset Relief Program, a Bloomberg Television contributing editor and author of the book “Bailout,” talked about the U.S. banking industry and government bailouts.
He spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
(For the video, click here.)
U.S. SEC Needs to Investigate Short Sellers, Xinhua Says
Short sellers made “unjustified attacks” on China-based companies using “unreliable and ludicrous reports,” Xinhua wrote in a signed commentary. Therefore, the U.S. Securities and Exchange Commission needs to “seriously investigate” short sellers,’’ the paper said in the commentary.
The U.S. “cannot afford” a capital market that doesn’t attract Chinese companies, the Chinese newspaper said in the commentary.
While a “small number” of Chinese companies have falsified data and reports, the “majority” comply with rules and laws, according to Xinhua. The commentary was issued in response to the Citron Research report on Qihoo 360 (QIHU), which Xinhua called “inaccurate.”
Comings and Goings
BOE Struck by Lure of Banks as Economics Team Manager Leaves
Bank of England official Robert Wood resigned as London’s finance industry lured a U.K. economic analysis manager from the central bank for the second time in less than a year.
Wood, who led analysis of British data for policy makers, will join Berenberg Bank in London this month, said two people with knowledge of the matter who declined to be identified because the appointment isn’t yet public. He follows a string of economists who held the position known inside the central bank as Head of the U.K. Team, using it as a springboard for jobs in London’s finance industry.
The move coincides with a second year of pay freezes for Bank of England staff, adding to the lure of more lucrative City posts. Governor Mervyn King, who implemented the salary policy last year, thanked employees in this year’s annual report for their forbearance and singled out the struggle to hire and keep staff as a potential risk to its monetary-policy analysis.
Wood couldn’t be reached for comment. A Bank of England spokeswoman confirmed yesterday that Wood has resigned and said that he will be replaced by Venetia Bell. A spokesman for Berenberg couldn’t immediately comment.
The Bank of England’s annual report, published in July, said that a strategic priority was to “ensure the bank has the right people and processes to carry out its core purposes --- in particular during this period of transition,” referring to the transfer of bank-regulation powers from the Financial Services Authority. The report discussed the importance of retaining and nurturing talented bank staff.
The central bank’s pay freeze is set to be reviewed in March 2013. King asked in May to keep his pay frozen until he leaves in June 2013.
OCC Names Warwick as Director for Enforcement and Compliance
The U.S. Office of the Comptroller of the Currency named Ellen M. Warwick to serve as the agency’s director for enforcement and compliance, overseeing a unit that conducts investigations and recommends administrative actions.
The OCC, which supervises national banks and federal savings associations, announced Warwick’s appointment in a statement yesterday. She will replace Richard Stearns, who is retiring, said Bryan Hubbard, an OCC spokesman.
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