Mortgage Servicer Deal, Basel’s Four Years: Compliance

Ten of the largest U.S. mortgage servicers will pay a combined $8.5 billion under an agreement that will end case-by-case reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators.

Companies including JPMorgan Chase & Co., (JPM) Bank of America Corp. and Citigroup Inc. (C) must provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers, according to a settlement announced yesterday by the Office of the Comptroller of the Currency and the Federal Reserve. They were among 14 servicers ordered to hire independent consultants to help clean up foreclosure practices amid claims that they improperly seized homes in the wake of the subprime mortgage crisis.

The agreement announced yesterday covers Bank of America, Citibank, JPMorgan Chase as well as Aurora Bank FSB, MetLife Inc. (MET), PNC Financial Services Group Inc. (PNC), Sovereign Bank, SunTrust Banks Inc. (STI), US Bancorp (USB) and Wells Fargo & Co. (WFC)

About 495,000 borrowers applied by the Dec. 31 deadline to have their foreclosure histories examined for missteps in response to letters sent by regulators to 4.4 million potential claimants. Another 159,000 foreclosures were chosen in a sampling process, according to the OCC.

The agency said in June that servicers would be required to deliver lump-sum payments to borrowers who had been wronged --as much as $125,000 plus lost equity in the most egregious cases.

Compliance Policy

Banks Win 4-Year Delay as Regulators Loosen Basel Liquidity Rule

Global central bank chiefs gave lenders four more years to meet international liquidity requirements and watered down the measures in a bid to stave off another credit crunch.

Banks won the delay to fully meet the so-called liquidity coverage ratio, or LCR, following a deal struck by regulatory chiefs meeting Jan. 6 in Basel, Switzerland. They’ll be able to pick from a longer list of approved assets including equities and securitized mortgage debt as they seek to build up buffers of liquidity for use in a financial crisis.

Banks and top officials such as European Central Bank President Mario Draghi pushed for changes to the LCR, arguing that it would choke interbank lending and make it harder for authorities to implement monetary policies. Lenders have warned that the measure might force them to cut back loans to businesses and households.

Regulators at the Basel Committee on Banking Supervision struggled throughout 2012 to revise the LCR. The LCR would force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. It’s a key component of a package of capital and liquidity measures, known as Basel III, drawn up to avoid a repeat of the 2008 financial crisis.

Basel III has been subject to mounting criticism for its complexity, amid delays to its implementation in the European Union and U.S. The liquidity rule sets out a stress test that banks should apply to their books.

A draft version of the measure was published by regulators in 2010, on the basis that it would take effect on Jan. 1, 2015.

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Tarullo Sees Biggest Banks With New Fed Rule Protecting Taxpayer

Federal Reserve Governor Daniel Tarullo is pushing an agenda to regulate banks beyond the restraints in the Dodd-Frank Act, including making them fund more of their assets using long- term borrowing.

The Fed and the Federal Deposit Insurance Corp. are holding preliminary discussions on a rule that would require holding companies for the largest U.S. banks to maintain a minimum amount of long-term debt that would aid in winding them down in case they fail, FDIC spokesman Andrew Gray said.

As the Fed governor in charge of bank supervision, Tarullo leads the central bank’s effort to implement the 2010 Dodd-Frank Act and is now pressing beyond it to limit the kind of systemic risks that required taxpayer-funded bailouts in the 2008-2009 financial crisis. Tarullo, 60, became President Barack Obama’s first appointee to the Fed in January 2009 after previously serving as an aide to President Bill Clinton.

Tarullo’s agenda for reducing risk also includes strengthening supervision of so-called shadow banking that falls outside traditional regulation and limiting the risk that the biggest banks once again become too big to fail through mergers and more complexity.

The push to get banks to use more long-term borrowing is aimed at creating a class of stakeholders that could step in to shoulder losses in case of a failure and reduce the need for taxpayer funding.

Banks typically fund their longer-term assets with short- term debt, making a profit on the interest-rate difference between the two. In a bank failure, stockholders are typically wiped out, and short-term debt can evaporate quickly as creditors refuse to renew commercial paper and short-term notes.

In addition to looking at bank capital structure the Fed last month published a proposal that would require stricter oversight of foreign banks with large U.S. operations.

For more, click here.

Compliance Action

Barclays Among Banks Asked by Zimbabwe to Cap Lending Rates

Barclays Plc (BARC) and Standard Chartered Plc (STAN) are among banks being asked to curb lending rates in Zimbabwe as the government pressures the financial services industry to aid economic recovery.

A draft agreement between 23 banks and the Reserve Bank of Zimbabwe, a copy of which has been obtained by Bloomberg, stipulates that lending rates cannot be more than 10 percentage points above the companies’ cost of financing, which currently ranges between 1 percent and 7 percent while banks charge lending rates of as much as 25 percent.

There is a need to ensure “that bank charges and interest rates promote financial inclusion, stability and economic growth,” the central bank and the banks say in the agreement, which is yet to be ratified. The Bankers Association of Zimbabwe met with Tendai Biti, the finance minister, to discuss the agreement on Jan. 4.

“The matter is still under discussion and we hope it will be finalized soon,” said George Guvamatanga, the president of the bankers association. Calls to the Harare-based central bank went unanswered, while Biti was said to be unavailable.

Other African countries have sought to reduce lending rates by banks in recent months.

New Mortgage Rules Readied by CFPB as Banks Seek Time to Comply

Banks including PNC Financial Services Group Inc., SunTrust Banks Inc. and BB&T Corp. (BBT) are pushing the U.S. Consumer Financial Protection Bureau to give them a year to comply with new mortgage underwriting rules that could be released as early as this week.

The consumer bureau’s so-called qualified mortgage regulation, which requires lenders to ensure a borrower’s ability to repay, will be released in connection with a hearing in Baltimore scheduled for Jan. 10, according to two people briefed on the plans.

The qualified mortgage rule, mandated by Congress as part of the 2010 Dodd-Frank Act, is aimed at tightening lax underwriting that fueled the housing bubble by protecting borrowers from loans they can’t afford and, in return, protecting some lenders from lawsuits.

Seven regional banks wrote to CFPB in recent weeks asking that rules be “sequenced” to minimize disruptions to mortgage lending. The banks proposed a final compliance date of Jan. 21, 2014, for the qualified mortgage rule.

A second hearing, in Atlanta on Jan. 17, will feature new rules on mortgage servicing, according to the people briefed on the plans. In their letter, the banks sought a compliance date of July 21, 2014, for the servicing rules.

Jen Howard, a spokeswoman for the consumer bureau, declined to comment. The people briefed on the plans asked not to be identified because the plans haven’t been made public.

Dodd-Frank requires completion of the qualified mortgage rules and some of the servicing rules the CFPB is finalizing by Jan. 21, 2013. The law authorizes the agency to give as many as 12 months for implementation of the required rules.

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Euribor Facing Bank Exodus After Rabobank’s Departure, EBF Says

Euribor, the base rate for trillions of euros of lending, may face an exodus of contributors after Rabobank Groep’s departure, according to the banking lobby that administers the scandal-hit benchmark.

“If some other very important banks witness Rabobank deciding to leave, they might do the same,” Cedric Quemener, the director of Brussels-based Euribor-EBF, which is tied to the European Banking Federation, said in an interview.

The euro interbank offered rate is derived from a daily survey of interbank lending rates conducted for Euribor-EBF by Thomson Reuters Corp. Rabobank, the biggest Dutch savings bank, withdrew from the Euribor panel on Jan. 3, citing changes in money markets which in the past year have seen a drop-off in lending between banks.

Membership of the now 40-strong Euribor panel has become potentially expensive with the possibility of litigation, fines and criminal penalties for fiddling the rate and the cost of implementing future rules. Rabobank’s departure from the panel that sets the benchmark for euro lending followed the exit of Bayerische Landesbank, Germany’s second-biggest state-owned lender, which said it withdrew from the Euribor panel on Jan. 1 due to “business-strategic reasons.”

“I do sincerely hope this chapter can be closed next year,” Rabobank Chief Executive Officer Piet Moerland told Bloomberg News when questioned about the investigation.

Courts

Coutts Wins Bid to Throw Out Employment Claim by Whistle Blower

Royal Bank of Scotland Group Plc’s Coutts & Co. won the dismissal of a lawsuit bought by an anti-money laundering expert who said the bank reneged on a job offer when it discovered he had given authorities information about a previous employer.

Judge Hilary Norris threw out the claim at a London employment tribunal today because Martin Woods never worked for the bank and a valid employment contract hadn’t been agreed on.

When working for Wachovia Bank as a money laundering reporting officer in 2008, Woods revealed the extent to which “hundreds of millions, perhaps billions of Mexican drug money,” was being laundered through the bank, he said in his witness statement.

Woods, a former police officer, said Coutts had formally offered him a three-month contract to work on its anti-money laundering team. The offer was later withdrawn with no explanation, he said.

The bank argued Woods was never an employee and didn’t have the right to file an employment tribunal claim.

“We have consistently denied the allegations made by Mr. Woods and are pleased with the tribunal’s decision to strike out the claim,” said Caroline Wells, a spokeswoman at Coutts.

Interviews

Dichtl Says Banks Need More Diverse Liquidity Sources

Otto Dichtl, managing director at Knight Capital Europe Ltd., discussed global bank liquidity rules set out by global central bank chiefs.

He spoke with Mark Barton on Bloomberg Television’s “Countdown.”

For the video, click here.

Levitt Says Bank Lobby ‘Succeeded’ in Easing Basel Rule

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said a watered down liquidity rule for banks from the Basel Committee “amounts to no regulation at all.” Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Comings and Goings

London Finance Job Vacancies Fell 35% Last Year, Recruiter Says

Job vacancies at London financial-services companies fell by more than a third last year as banks cut staff in response to tighter regulation and weaker securities markets, recruitment firm Astbury Marsden said.

New vacancies in the British capital’s City and Canary Wharf financial districts dipped 35 percent to 35,115 in 2012, down from 54,025 in 2011, the London-based recruiter said in a statement yesterday. There were about 800 new City jobs available in December, compared with about 1,490 in the same month in 2011, the recruiter said.

Major structural changes by banks, including the winding down of entire units, resulted from “tighter regulation, including higher capital requirements,” which forced up costs at a time of declining revenues, said Mark Cameron, chief operating officer at Astbury Marsden in London.

Securities firms have been shedding staff to reduce costs as the debt crisis curbed trading and stock and bond offerings slumped.

SEC Names Ex-CFTC Enforcement Chief Aronow General Counsel

The U.S. Securities and Exchange Commission yesterday named Geoffrey F. Aronow, a former enforcement chief at the Commodity Futures Trading Commission, to be its top in-house lawyer.

Aronow, a Washington-based partner at law firm Bingham McCutchen LLP, will begin his role as SEC general counsel later this month. His clients have included Christine Serwinski, who was chief financial officer at MF Global Holdings Ltd.’s North American broker-dealer before it collapsed in 2011.

The SEC general counsel evaluates regulations, advises the SEC chairman and represents the agency in lawsuits and other legal matters.

Aronow, 57, is the first outsider hired by new SEC Chairman Elisse B. Walter, who took over after Mary Schapiro left the agency last month. He served as director of enforcement at the CFTC from 1995 to 1999, according to his biography on Bingham’s website. He also has served on disciplinary panels for the Financial Industry Regulatory Authority, the brokerage industry’s self-regulator.

Aronow didn’t respond to voice messages seeking comment.

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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