Capital One Auto, ICE-NYSE, Bank of Spain: Compliance

Capital One Financial Corp. (COF), the worst performer this year in the KBW Bank Index, agreed to pay $3.5 million to resolve U.S. regulatory claims the bank set aside inadequate reserves for auto loan losses in 2007.

Peter Schnall, Capital One’s former chief risk officer, also agreed to pay $85,000 to settle, and David LaGassa, who managed the loan-loss forecasting, will pay $50,000, the Securities and Exchange Commission said yesterday in a statement. They didn’t admit or deny the claims in settling.

Capital One’s auto loan profits came primarily from subprime loans to borrowers with weaker credit histories, the SEC said. In 2007, Capital One’s forecasting tool found that the deteriorating credit markets would increase losses; however, the bank failed to properly incorporate those findings in its financial reporting, according to the SEC.

As a result, the bank underestimated by 18 percent the amount of funds it should set aside in the second quarter of 2007 and by 9 percent the following three months, according to the SEC.

“No consumers were affected, the SEC does not criticize the company’s or the auto finance unit’s reserves as of 2007 year end, and the settlement does not require a restatement of Capital One’s financial results,” Tatiana Stead, a company spokeswoman, said in an e-mailed statement. “The settlement will not affect any current or future business activities by Capital One.”

Harry Weiss, an attorney at Wilmer Cutler Pickering Hale & Dorr LLP representing Schnall, and Michael Trager, LaGassa’s lawyer at Arnold & Porter LLP, didn’t respond to telephone calls seeking comment.

Compliance Policy

Bank of Spain Said to Weigh Uniform Refinanced Loan Criteria

The Bank of Spain wants to refine rules spelling out how banks should classify refinanced loans, said two people familiar with its plans.

The regulator wants to impose more uniform criteria for classifying loans that have been refinanced by banks, said the people, who asked not be identified because the information isn’t public. Banks use some discretion when classifying their refinanced loans and the regulator wants to set limits to that, the people said.

Increased refinancings by banks as Spain’s economic slump drags into its sixth year have attracted the scrutiny of analysts concerned that the practice may disguise loan losses.

El Pais reported the plans April 23. Officials for the Bank of Spain and Economy Ministry declined to comment.

Congress Must Craft ‘Credible’ Plan to Wind Down GSEs

Private risk taking in the U.S. mortgage market will “remain muted” until Congress comes up with a “credible transition plan” from a government-dominated market, James Millstein, the U.S. Treasury Department’s former chief restructuring officer, told lawmakers.

The plan must provide for a “better balance of private risk and public support,” Millstein said. If government gets the Fannie Mae (FNMA) and Freddie Mac (FMCC) wind-down wrong, the Federal Housing Finance Agency may “wind the enterprises back up,” creating market uncertainty that turns off investors, Millstein said in prepared testimony before House Financial Services Committee.

Redwood Trust (RWT) Chief Executive Officer Martin Hughes told the committee he believes the private secondary mortgage market can “grow quickly to provide liquidity to a very large share” of the market without the need for a government guarantee if the needs of investors are met and the government “gives the private market room to grow.”

Millstein, CEO of Millstein & Co., has been putting forward plan to privatize Freddie Mac and Fannie Mae.

EU States Seeking Clarification on Financial Transaction Tax

Eleven European Union countries that have signed on to a planned financial transaction tax, or FTT, are seeking clarification on a number of points related to its impact and implementation, an EU Commission spokeswoman said.

“The last technical meeting showed that there is still full commitment from the 11 member states to move ahead with the common FTT,” Emer Traynor said by e-mail in Brussels yesterday.

Traynor said it’s “very normal” for member states to seek clarification during the negotiating process. “The commission will be more than happy to provide answers to all the questions the member states have,” she said. “We will be replying in detail to the issues they have raised at the next technical meeting on 22 May, and expect that we will be able to allay many of their concerns.”

Compliance Action

ICE-NYSE Deal Will Be Reviewed by EU Antitrust Authority

The European Commission said it will review plans by IntercontinentalExchange Inc. (ICE) to purchase NYSE Euronext (NYX) after national regulators didn’t object to it taking the lead.

Antoine Colombani, a spokesman for the European Union’s Brussels-based antitrust authority, said it now has jurisdiction over the deal, which has yet to be formally notified by the companies.

ICE, the energy and commodity futures bourse, said in March that it sought an EU review of its acquisition to avoid separate probes in the U.K., Spain and Portugal.

ICE agreed on Dec. 21 to acquire NYSE Euronext for cash and stock totaling $8.2 billion at the time. EU regulators blocked Deutsche Boerse AG (DB1)’s purchase of NYSE last year, citing concern over competition in derivatives and clearing.

Brookly McLaughlin, a spokeswoman for Atlanta-based ICE, and Caroline Tourrier, a spokeswoman for NYSE Euronext in Paris, said they had no further comment beyond the commission announcement.

Citigroup Says Debt Beats Peers in Advance of ‘Bail-In’ Rule

Citigroup Inc. (C), the bank that took the most U.S. aid during the credit crisis, said it’s better-prepared than some rivals to withstand the impact of new anti-bailout rules that could force lenders to sell more debt.

Citigroup’s so-called bail-in plan -- a rescue that makes debt investors and stockholders absorb losses instead of taxpayers -- shows the bank already has issued more long-term debt than some of its largest rivals, Treasurer Eric Aboaf said during an April 22 investor presentation. That leaves the New York-based bank in a better position as regulators decide how much more debt lenders should add to their buffers, Aboaf said.

The U.S. is designing ways to wind down failing banks without unpopular measures such as the publicly funded $700 billion Troubled Asset Relief Program. The 2010 Dodd-Frank Act gives regulators tools to dismantle a large, distressed firm, and the Federal Reserve and Federal Deposit Insurance Corp. are considering whether banks should be told to issue long-term debt now that could be converted to equity in an emergency.

The idea, part of the so-called orderly liquidation authority or OLA, has ruffled fixed-income investors concerned about the prices of existing bonds and burdens that could fall on senior bondholders, according to a December report by UBS AG (UBSN) analysts led by Robert Smalley.

Fed Governor Jerome “Jay” Powell said last month that the central bank and FDIC are “considering the pros and cons” of setting a floor for long-term unsecured debt to absorb losses and capitalize a bridge holding company for banks that fail.

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Merkel to Boost KfW Oversight as Bank Grows to Germany’s No.3

Chancellor Angela Merkel’s coalition plans to boost oversight of the KfW Group lender after the publicly owned bank’s growth propelled it to Germany’s No. 3 position by assets.

The Frankfurt-based bank, formed in 1948 to make development loans and that had assets of 511 billion euros ($664 billion) in 2012, is big enough to require supervision by the BaFin regulator and the Bundesbank, Klaus-Peter Flosbach, a finance spokesman for Merkel’s Christian Democrats, said in an e-mail yesterday. The coalition has drawn up a bill to facilitate better oversight, Flosbach said.

Other state-owned lenders such Norddeutsche Landesbank Girozentrale and BayernLB are already subject to full BaFin scrutiny. Germany’s third-biggest lender after Deutsche Bank AG and Commerzbank AG (CBK) augments its activities as a bank for projects including improving building insulation and export finance for small- and medium-sized companies and by acting as an off-budget lender to the government.

KfW, which has some 5,000 employees, is co-owned by Germany’s states -- with a 20 percent stake -- and the federal government, which owns the remainder, according to its website.


Dougan Says Credit Suisse ROE Shows Strategy Is Working

Credit Suisse Group AG (CSGN) Chief Executive Officer Brady Dougan discussed the bank’s return on equity and private wealth.

He also discussed corporate governance issues, including executive compensation. In addition, Dougan talked about the U.S. tax-evasion probe and the bank transaction tax.

The discussion was in Zurich with Bloomberg Television’s Caroline Hyde.

For the video, click here.

Serra Says a Bank Should Not Be a ‘Prop-Trading House’

Davide Serra, founding partner and portfolio manager at Algebris Investments, talked about proposals to set minimum capital requirements for banks and his investment strategy for financials.

Serra, who spoke with Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers,” also discussed Italy’s new prime minister and the outlook for the government.

For the video, click here.

Too-Big-To-Fail Banks Are ‘Global Issue,’ Posen Says

Former Bank of England policy maker Adam Posen talked about financial regulation and the global banking system.

Posen, now president of the Peterson Institute for International Economics, spoke with Sara Eisen and Erik Schatzker on Bloomberg Television’s “Market Makers.”

For more, click here.

Banks, Taxpayers Need Disaster ‘Cushion,’ Vitter Says

U.S. Senator David Vitter, a Louisiana Republican, talked about financial regulation and legislation to set minimum capital requirements for banks.

He spoke with Betty Liu on Bloomberg Television’s “In the Loop.”

For the video, click here.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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