Naked CDSs, Small Company Exchange, SNS: Compliance
U.K. Chancellor of the Exchequer George Osborne said for the first time regulators will get the power to break up banks, hardening legislation aimed at making lenders safer. He will also open up industry payment systems.
Osborne said in a speech today the breakup powers will be added to the Financial Services (Banking Reform) Bill to be presented to Parliament this week. Authorities will be able to split up an institution that doesn’t abide by “ring-fencing” rules to insulate retail operations from investment-banking activities. Bank payment systems will be regulated to make the system more responsive and allow new entrants into the industry.
Osborne made the remarks in Bournemouth, southern England, according to a text released by his office, citing “greed” that overcame good governance’’ in the banking system, giving rise to the need for the new law.
Osborne has come under pressure from lawmakers in both Prime Minister David Cameron’s coalition government and the opposition Labour Party to do more as the Libor manipulation scandal intensified. The British Bankers’ Association, the industry lobby group, said the new plan would mean banks have less money to lend.
The revised banking-bill legislation being presented this week won’t specify what would trigger an intervention. That will be identified in secondary legislation later. Osborne also said he’ll introduce detailed proposals for overhauling bank payments systems. The tougher approach marks a change of stance by Osborne, who said as recently as November he didn’t want the proposals changed for fear of “unpicking a consensus” developed in the past two years.
Osborne also wants Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender, to pay any fines for Libor manipulation from its bonus pool, a person with knowledge of the situation said on Feb 2.
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Naked Sovereign CDS Ban to Apply to Market-Makers, ESMA Says
The European Union’s top markets regulator granted market- makers an exemption from some tougher rules on short-selling, while stopping short of allowing them to trade naked sovereign credit-default swaps.
The European Securities and Markets Authority, set up in 2011 to harmonize rules across the bloc, said products that aren’t traded on a regulated market, including sovereign CDS, wouldn’t qualify for the exemption.
“ESMA has taken considerable time to closely consider the regulation and explore through a legal analysis whether there were ways to accommodate non-admitted/non-traded instruments,” the Paris-based agency said in a report on its website Feb. 1. “Results of the analysis led to a negative conclusion.”
German Finance Minister Wolfgang Schaeuble and lawmakers in the European Parliament have called for a ban on naked CDS trades on government debt over concerns the practice fueled the euro-area debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults. The EU agreed on short- selling restrictions, including on sovereign CDS, last year. ESMA’s guidelines clarified whether market-makers were subject to the curbs.
EU to Present Financial-Transaction Tax Proposal on Feb. 14
The initiative will be based on a prior transaction-tax proposal for all 27 EU nations that failed to gain support, the Brussels-based commission said in a statement on its website. The proposal must be agreed on by participating governments before it can take effect.
The objectives of the tax are to “deliver important new revenues, ensure a fair contribution from the financial sector to public finances, contribute to more responsible trading and enable a coherent approach to taxing this sector in the single market,” the commission said.
EU Weighs 2014 Start Date for Basel Bank Rules Beset by Delays
The European Union is weighing a Jan. 1, 2014, date for the gradual phase-in of Basel capital rules, as the bloc struggles to agree on how to apply a global accord designed to bolster defenses against future banking collapses.
The EU may also give bank regulators until the end of next January to devise technical details fleshing out parts of the so-called Basel III requirements, according to a document drawn up by Ireland’s EU presidency and obtained by Bloomberg News.
The international bank rules have been beset by delays as regulators across the world ponder how best to implement the measures, which more than triple the core capital lenders must hold and set standards for how lenders should manage risks. The EU, like the U.S., missed the start-of-the-year deadline to begin applying parts of the Basel III package.
The Basel Committee on Banking Supervision, the international group that drew up the standards, agreed last month to delay and water down another key part of the package designed to ensure banks have enough easy-to-sell assets in a crisis.
The EU’s implementing law is being negotiated by the European Parliament and national governments, which must reach agreement on the substance and timetable for the rules before they can take effect.
SEC Group Urges Creation of Exchange for Small Companies
The U.S. Securities and Exchange Commission should urge the creation of a new stock exchange limited to small companies that have trouble raising capital in public markets, an agency panel recommended Feb. 1.
The SEC Advisory Group on Small and Emerging Companies made the recommendation as its co-chairman suggested that a 2012 law intended to increase the number of initial public offerings might fail to have a big impact. That so-called Jumpstart Our Business Startups Act was designed to induce more IPOs by reducing disclosure requirements and restrictions on how firms can advertise for investors.
The advisory group said the exchange should be open only to sophisticated investors, which it did not define, because financial disclosure of the listed companies would be limited. The panel said the companies would still be subject to a regulatory regime “strict enough to protect investors but flexible enough to accommodate innovation and growth,” according to its draft recommendation.
The SEC isn’t required to hew to the advisory group’s recommendations. Still, some of the committee’s past suggestions were included in the JOBS Act legislation.
The SEC’s definition of such investors includes banks or other financial firms, organizations with assets in excess $5 million and individuals with a net worth of more than $1 million.
The committee also recommended the SEC adopt rules aimed at improving the liquidity of smaller-company stocks.
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OCC Said to Admit Missing JPMorgan’s VaR Change in Senate Probe
The U.S. Office of the Comptroller of the Currency told lawmakers it missed changes to JPMorgan Chase & Co. (JPM)’s risk- tracking system that could have alerted the watchdog sooner to the lender’s mounting derivatives bets, a person with direct knowledge of the matter said.
The OCC described the lapse in a report sent in last year’s second half to the Senate Permanent Subcommittee on Investigations, said two people, requesting anonymity because the discussions aren’t public. The congressional panel is set to release its own findings in coming weeks after examining how JPMorgan and regulators handled the bank’s botched trades, which resulted in losses exceeding $6.2 billion in the first nine months of 2012.
The admission of responsibility is among the first by regulators since an initial hearing in June of the oversight roles they played. Thomas J. Curry, then two months into his tenure as head of the OCC, told the Senate Banking Committee that his agency was examining whether there were “gaps within our assessment of the risks and risk controls in place” in JPMorgan’s chief investment office, where the losses occurred.
The lawmakers’ report will criticize the bank and the OCC for lax oversight of the trades, two people with knowledge of the matter said last month.
JPMorgan released the results of its own review on Jan. 16.
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SNS Nationalized in the Netherlands After Real Estate Losses
The Netherlands took control of SNS Reaal NV (SR) after real estate losses brought the fourth-largest Dutch lender to the brink of collapse, the country’s second banking nationalization since 2008.
The move, aimed at “stabilizing” SNS Reaal, will cost taxpayers 3.7 billion euros ($5 billion), the Dutch Finance Ministry said in a statement Feb. 1. SNS’s property-finance unit will be separated from the company.
The lender, which acquired ABN Amro Holding NV’s property- finance unit in 2006, has been hurt by losses on real estate loans that have left it struggling to repay a government bailout before next year’s deadline and bolster capital buffers. The nationalization includes issued shares, core Tier 1 capital securities and subordinated bonds, the ministry said.
SNS shares were suspended in Amsterdam.
Dutch Finance Minister Jeroen Dijsselbloem said that while the government will “expropriate” SNS equity and subordinated debt, senior bondholders won’t be affected.
Trading in all securities is suspended on regulated markets, said Martijn Pols, a spokesman for Dutch financial markets regulator AFM in Amsterdam. It’s possible that over-the- counter transactions are still taking place, he said. Trading in securities that weren’t expropriated will resume at a later time.
The nationalization comes less than five years after the Netherlands bought Fortis’s Dutch banking and insurance units and its stake in ABN Amro Holding NV for 16.8 billion euros when the company ran out of short-term funding, customers withdrew deposits and investors lost confidence.
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Griswold Booth Empty at NYSE as Broker Pulls SEC Registration
The company requested to terminate registration with the U.S. Securities and Exchange Commission and Financial Industry Regulatory Authority Jan. 31, according to Finra records dated Feb. 1. Its action came amid a plunge in U.S. equity volume that has squeezed profits for exchanges and the professionals who make their living on them.
Mark McCooey, president of the company, didn’t return e- mails seeking comment and phone calls to the firm went unanswered. The company was founded in March 1988 by the McCooey family, according to its website.
Griswold took in $8.4 million in commissions in 2011, the most recent data available, down from $10.6 million the previous year, according to SEC filings. It lost $381,563 in 2011 and $182,980 in 2010. U.S. brokerages must be listed with regulators to operate in the securities industry.
Small brokerages that make trades by phone or sell research are finding it harder to earn commissions amid shrinking trading volume and increased automation.
Hella Was Inspected by EU in Car-Light Cartel Probe Last Year
Hella KGaA Hueck & Co., a maker of car lights, said European Union antitrust regulators visited its head office in Lippstadt, Germany, in August.
“Hella is cooperating with the European Commission in this matter and fully supports the investigation,” Markus Richter, a company spokesman, said in an e-mailed statement.
The EU said last week it raided auto-lights manufacturers in July as part of an investigation into possible price-fixing. It didn’t identify the companies involved in the probe.
Ford Is Sued by Over 1,400 Ex-Employees on Visteon Pensions
Ford Motor Co. (F) was sued by more than 1,400 former U.K. workers for making misleading statements about the security of transferring their pensions to Visteon Corp. (VC) during the 2000 spinoff of the auto-parts company.
A U.K. judge ruled the claims should be tried together as group litigation, according to an order handed down in December and made public Jan. 31.
Visteon, spun off from Ford in 2000, filed bankruptcy in 2009 as the auto-parts industry faced slowing vehicle sales and reduced production.
“Ford views these claims as totally without merit and it will defend its position vigorously,” Brian Bennett, a U.K. spokesman for Ford, said in an e-mailed statement. “While Ford recognizes the severity of the situation for former Visteon U.K. employees, Visteon became an independent company in 2000 and was responsible for its own business decisions.”
Jonna Christensen, a U.K. spokeswoman for Visteon, declined to comment on the suit.
Unite, a British union that is now coordinating the litigation for the ex-employees, didn’t immediately respond to requests for comment.
Firestone Discusses Mary Jo White and Impact on Wall Street
Mary Jo White has spent decades as both a federal prosecutor and later as outside counsel for many financial institutions. If the Senate confirms her as chairwoman of the U.S. Securities and Exchange Commission, will Wall Street be facing a lawyer sympathetic to their interests, or the hard- nosed prosecutor she once was?
Rick Firestone, a partner at McDermott Will & Emery LLP, talked with Bloomberg Law’s Lee Pacchia about White and what her appointment will ultimately mean for the financial industry.
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Separately, SEC Chairman Elisse B. Walter said White, her designated successor, will be a quick study as the nation’s top financial-markets regulator.
Walter was appointed chairman after Mary Schapiro left the post in December.
“She’s a very quick study and she’s a very smart woman and I look forward to working with her as she comes,” Walter told reporters Feb. 1 in Washington, referring to White. “I think she’s terrific.”
Walter, 62, said she would remain chairman until White, a former U.S. Attorney in Manhattan, is confirmed by the Senate.
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Comings and Goings
Barclays’s Finance Director Lucas, Counsel Harding to Retire
Barclays Plc (BARC) said Finance Director Chris Lucas, who is under investigation by the U.K.’s Financial Services Authority, will retire as soon as a successor is named, as a series of fines and probes at Britain’s second-largest lender claimed another senior manager.
General Counsel Mark Harding will also retire, the London- based company said in a statement. Lucas, 52, has been Barclays’s finance director for almost six years.
Lucas was one of four past and present Barclays employees being investigated by the FSA about whether the bank adequately disclosed fees it agreed to pay to the Qatar Investment Authority when it sought to raise money from investors including the sovereign-wealth fund. His departure follows that of the company’s three top executives who stepped down last year after the bank was fined 290 million pounds ($455 million) for manipulating the Libor benchmark interest rate.
“Chris and Mark both expressed to me late last year that they were considering stepping down from their roles,” Barclays Chief Executive Officer Antony Jenkins said in a statement. “The rationale which each shared with me was consistent and, typically, grounded in wanting to do what is best for the bank.”
Draghi in Group of Thirty Not an ECB Conflict, Watchdog Says
Mario Draghi’s membership in the Group of Thirty, a policy group with members from both private and central banks, doesn’t undermine his independence as governor of the European Central Bank, the ombudsman for the European Union said.
Draghi’s membership in the group doesn’t affect the “independence, reputation and integrity” of the Frankfurt- based ECB, the ombudsman said in a report on his website. The investigation followed a complaint from Corporate Europe Observatory, a group that aims to curb the influence enjoyed by corporations in EU policy making, according to its website.
The Group of Thirty brings together senior executives at private banks, central bank governors, politicians and academics to discuss financial policy. Draghi’s predecessor at the ECB, Jean-Claude Trichet, is the group’s chairman.
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