Bent, Scrapping ECB Plan, Banco Popular: Compliance

Bruce R. Bent II, president of the failed $62.5 billion Reserve Primary money-market fund, was found negligent by a jury on one claim of violating a securities law while his father was absolved of all claims in a lawsuit by the U.S. Securities and Exchange Commission.

The federal panel of six women and one man in Manhattan yesterday cleared both Bents on claims they defrauded investors and the younger Bent on six of seven claims brought by regulators. His father, Bruce R. Bent, was cleared on all four claims against him, including that he “knowingly and recklessly violated” U.S. securities law and “aided and abetted” the company and corporate entities in violating them.

The SEC sued the Bents, their investment advisory firm Reserve Management Co. and Resrv Partners Inc. in 2009, alleging they had defrauded customers by falsely claiming they would support the fund financially when it faced a run by investors after Lehman Brothers Holdings Inc.’s 2008 bankruptcy.

The fund held $785 million in Lehman debt on Sept. 15, 2008, the day Lehman filed the biggest bankruptcy in history, causing the run on the fund and triggering its failure the following day when it “broke the buck” by failing to maintain a $1-a-share net asset value, or NAV.

The SEC alleged the Bents lied on the morning after Lehman announced its bankruptcy, falsely telling investors, regulators and the fund’s trustees that they would use money from their firm, Reserve Management, to support the $1 net asset value of fund shares. The elder Bent was vacationing in Europe when Lehman collapsed.

After 2 1/2 days of deliberations, the jury yesterday found that RMCI and Resrv Partners “knowingly and recklessly” violated federal securities laws and that RMCI had acted “negligently” and violated a federal law regulating investment advisers. The panel also found Bruce Bent II hadn’t participated in the recklessness of the entities.

Both Bents testified in their own defense in the trial, which began Oct. 9.

The case is SEC v. Reserve Management Co., 09-cv-04346, U.S. District Court, Southern District of New York (Manhattan).

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Compliance Policy

EU May Scrap Plan to Hand ECB Sole Power Over Bank Licenses

The European Union may scrap plans to give the European Central Bank sole power to grant and withdraw banking licenses in the euro area as nations tussle over the details of setting up a single supervisor.

Some EU countries insist “that the key issue of access to and removal from the market should remain within the remit of national authorities,” according to a document on the bloc’s website, which doesn’t name the countries. Some governments have also pushed for the power to grant and withdraw licenses to stay at the national level unless and until the EU sets up a central system to handle failing banks, according to the document.

This debate means the proposal will be revised, the document says. EU finance ministers also may adjust the timetable for the ECB to take on bank oversight tasks because of concerns that plans to fully phase in the responsibilities by Jan. 1, 2014, may not be feasible, according the document.

Squabbling among EU nations may derail the bloc’s bid to reach agreement by the end of the year on how to make the ECB a supervisor. Nations are split over how to give a voice to non-euro nations that volunteer for ECB supervision, according to the document, which was prepared for a meeting of EU finance ministers today in Brussels. They also disagree on how to divide up tasks between the ECB and national regulators.

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EU’s Semeta Urges ‘Quick Progress’ on Financial Transaction Tax

European Union Tax Commissioner Algirdas Semeta called on finance ministers to make “quick progress” toward a financial-transaction tax for participating nations.

All 27 nations and the European Parliament must agree for the Brussels-based commission to design a tax for willing nations under so-called “enhanced cooperation” procedures. The commission requested clearance last month.

Semeta told lawmakers yesterday he will urge finance ministers gathering in Brussels to push the measure forward when he addresses them today. The commissioner is expected to speak at a meeting of the European Parliament budget committee.

The EU’s new transaction-tax proposal will be based on a previous plan that, when considered for all 27 EU nations, was estimated to be able to raise 57 billion euros ($72 billion) each year. Semeta said the EU would revise its revenue estimates and also take into account concerns raised with the previous initiative.

Eleven nations so far have said that they would like to be part of the transaction-tax planning. Semeta said EU lawmakers could consider the transaction tax as early as a December plenary debate. He also called on EU finance ministers to move ahead with a proposed savings tax that has been stalled.

Compliance Action

Popular Selling Stock at Discount to Cover Capital Deficit

Banco Popular Espanol SA (POP) plans to sell as much as 2.5 billion euros ($3.2 billion) of discounted shares as the Spanish lender bids to close a capital shortfall.

Popular said on Oct. 1 it would sell shares and suspend its dividend as the lender seeks to avoid tapping state aid to cover a 3.22 billion-euro capital deficit revealed in stress tests that accompanied a European bailout for Spain’s banking system.

Shares of Popular, the only publicly traded bank with a capital shortfall that hasn’t been nationalized, have declined 66 percent this year.

The 15 underwriting banks include Deutsche Bank AG, Banco Santander SA (SAN), UBS AG (UBSN), Bank of America Corp.’s Merrill Lynch & Co. unit and JPMorgan Chase & Co., which will act as global coordinators, Chairman Angel Ron said. They have guaranteed 2.08 billion euros of the sale, with the remainder covered by pledges to buy stock from existing shareholders, he said.

Deutsche Bank underwrote 400 million euros and Santander 300 million euros, with the other global coordinators taking 230 million euros each, Chief Financial Officer Jacobo Gonzalez-Robatto said in an interview after the shareholder meeting. Commissions were about 2 percent plus a 1 percent success fee, he said.

While Ron faced questions from 16 shareholders, some of whom criticized management for making failed bets on real estate, shareholders at the Nov. 10 meeting approved the capital increase.

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BPI to Consider Share Sale to Boost Capital Ahead of Basel III

The Bank of the Philippine Islands will review its capital in the first quarter as it considers ways to boost capital ahead of the Basel III accord, President Aurelio Montinola told reporters in Manila yesterday.

The lender, known as BPI, is monitoring exposure to real estate and conducting a quarterly review, Montinola said.

Remittances are to keep rising, he said.

Deutsche Bank’s Jain Summoned to Testify to Bundestag on Libor

Deutsche Bank AG (DBK) co-Chairman Anshu Jain was summoned testify before a panel of German lawmakers at the Bundestag about the Libor-rigging scandal.

The topic of the hearing was designated the “Libor manipulation and other adverse developments in the financial industry,” according to a listing on the Bundestag’s home page. Hugo Baenziger, former chief risk officer of Deutsche Bank, representatives from the Bundesbank, WestLB successor Portigon, and Bafin, Germany’s financial markets regulator, also have been asked to attend.

Deutsche Bank is among the 18 institutions that helped set London and Tokyo interbank offered rates for dollars, euros and yen with Libor being the benchmark for $500 trillion of securities.

Christian Streckert, a Deutsche Bank spokesman, said the bank hasn’t received an invitation and declined to comment. The hearing will take place Nov. 28, Handelsblatt reported earlier yesterday.

Deutsche Bank Supervisory Board Chairman Paul Achleitner said July 31 in a letter to employees that an internal probe has so far cleared current and former management board members.

FSA Fines Savoy Investment $655,000 for Client Failings

The U.K. Financial Services Authority fined Savoy Investment Management Ltd. 412,000 pounds ($655,000) for failing to ensure the suitability of the investment portfolios of its wealth-management clients.

Savoy failed to keep adequate records of clients’ finances, leading to a risk that investment managers were making decisions “that did not match clients’ expectations and their attitude to risk,” the London-based regulator said in an e-mailed statement today.

The FSA carried out a review of conflicts of interest at asset management firms between June 2011 and February this year and said it would select some firms for follow up visits. The regulator said it observed poor practices including the favoring of certain customers over others, failing to report trading errors and inconsistent policies regarding the personal trading accounts of fund managers.

“This is clearly a significant fine but we have chosen to accept the FSA’s findings and agree an early settlement with them to allow our business to move forward,” Jonathan Polin, chief executive officer of Savoy’s parent company, Ashcourt Rowan (ARP) Plc, said in a statement today.

Courts

CME Lawsuit Over CFTC’s Swap-Database Rule Faulted by DTCC

CME Group Inc. (CME)’s lawsuit over U.S. Commodity Futures Trading Commission swap-data rules will undermine efforts to boost transparency following the 2008 credit crisis, the Depository Trust & Clearing Corp. said.

The suit, filed in federal court on Nov. 8, “threatens to dismantle and disrupt the entire regulatory regime statutorily mandated by the Dodd-Frank Act in order to preserve CME’s exclusive access to data that it acquires through its role as a derivatives clearing organization,” DTCC general counsel Larry E. Thompson said in a letter to the CFTC Nov. 11.

CME, the Chicago-based exchange operator that runs a swaps clearinghouse, is seeking an injunction against CFTC rules for reporting private trade information, claiming that submissions to so-called swap-data repositories would be redundant. DTCC, based in New York, is one of the firms given CFTC approval to run data repositories for interest rate and credit-default swaps, among other types of trades.

Dodd-Frank, the 2010 financial-regulation overhaul, directed the CFTC and the Securities and Exchange Commission to write rules for swap-data repositories to give regulators a better view on prices and volume in a $648 trillion market dominated by banks including Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Deutsche Bank AG.

The CFTC has granted provisional registration to DTCC Data Repository LLC and ICE Trade Vault LLC, a repository operated by Atlanta-based Intercontinental Exchange Inc. for information on energy, interest rate, credit and other swaps.

Steve Adamske, the CFTC’s spokesman, didn’t respond to telephone and e-mail requests for comment while U.S. government offices are closed for observance of Veterans Day.

CME said in the lawsuit that it is awaiting a response from CFTC on its June 7 application to become a data repository.

The case is Chicago Mercantile Exchange Inc. v. U.S. Commodity Futures Trading Commission, 12-cv-01820, U.S. District Court, District of Columbia (Washington).

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Interviews/Events

Bank Returns May Drop on Basel III Capital Needs, Maree Says

Bank returns are expected to decline given the high levels of capital lenders will have to hold to meet Basel rules, Standard Bank Group (SBK) CEO Jacko Maree said at conference in Cape Town.

Liquidity is going to be “huge issue” for banks in Africa after Basel III, Maree said. The rules on capital designed for first-world markets are “quite punitive” for markets with less depth, he added.

World Islamic Banking Conference to Convene in Bahrain, BNA Says

The World Islamic Banking Conference will hold its 19th annual meeting Dec. 9 to 11 in Bahrain, Bahrain News reported yesterday.

The conference will be a forum for Islamic finance experts to created “next generation” solutions to satisfy the increasing demands of consumers and investors, the paper said. The Islamic finance industry has experienced “mammoth growth” over the past decade, reaching an estimated $1 trillion in assets, BNA reported.

About 1,200 people are expected to attend from 50 countries, according to a statement on conference website.

Comings and Goings

Barclays Saudi Probe Adds to CEO Jenkins’s Regulatory Woes

Barclays Plc (BARC) Chief Executive Officer Antony Jenkins, almost two years after his predecessor said it was time for banks to stop apologizing, is still grappling with a multiplying number of probes by regulators.

The U.S. Department of Justice is investigating whether the lender made payments that violated the Foreign Corrupt Practices Act to win a banking license for its wealth-management unit and investment bank in Saudi Arabia, the Financial Times reported on Nov. 9, citing unidentified people familiar with the talks. The bank is already being probed by the Serious Fraud Office over fees it paid in 2009 to Qatar’s sovereign-wealth fund as the lender sought money to avoid a government bailout.

For Jenkins, who replaced Robert Diamond after the lender paid a record fine for manipulating Libor, the probes are likely to be a bigger setback to his efforts to show politicians the bank can put regulatory missteps behind it than the size of any fines, according to analysts. He may have to include stiffer internal controls to detect staff who break laws in pursuit of revenue when he announces the results of his review of Barclays’s operations in February, said Christopher Wheeler, a London-based banking analyst at Mediobanca SpA.

U.S. regulators this month also proposed levying a record $470 million in penalties on Barclays after it allegedly gamed energy markets in the Western U.S. from late 2006 to 2008.

John McGuinness, a Barclays spokesman, and the Department of Justice’s Rebekah Carmichael declined to comment on the Saudi probe.

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To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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