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Scandinavian Banks, G-20 Meeting, Everbright: Compliance

Scandinavia’s biggest banks have failed to curb funding risks linked to financial innovation and will probably only avoid downgrades if national regulators force through stricter measures, according to Standard & Poor’s.

Steps taken to date by lenders including Denmark’s Danske Bank A/S (DANSKE) and Nykredit A/S, as well as Nordea Bank AB (NDA) and Svenska Handelsbanken AB (SHBA) in Sweden, aren’t enough, said Per Tornqvist, a Stockholm-based analyst at S&P. As competitive pressure “forces banks to maintain short-term funding,” regulators need to step in and help banks extend their funding maturities, he said.

AAA-rated Scandinavia’s biggest banks are more vulnerable to funding shocks than their peers in the U.S., France and Italy, according to a July analysis by S&P, which measured liquidity risks five years after the collapse of Lehman Brothers Holdings Inc. paralyzed the global financial system. The rating company criticized Nordic lenders’ practice of using funds as short as one year to finance loans as long as 30 years, as well as a reliance on short-term offshore borrowing.

Swedish banks are more dependent on market funding than banks in most other countries, according to the Financial Supervisory Authority in Stockholm.

In Denmark, home to the world’s largest mortgage bond market per capita, banks refinance as much as $228 billion annually, spread over quarterly auctions. About 50 percent of Danish borrowers refinance their mortgages annually, according to the FSA in Copenhagen.

Efforts to sidestep funding mismatches by inventing new securities will do little to persuade S&P the lenders are really addressing liquidity risks, Tornqvist said.

Banks are responding to the latest regulator demands that they protect themselves against funding misalignments by inventing new securities.

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Special Section: G-20 Meeting

Merkel Says G-20 Agrees on Regulation Plan for Shadow Banks

Group of 20 summit leaders in St. Petersburg Sept. 6 agreed on a road map for regulating shadow banks throughout the G-20, German chancellor Angela Merkel told reporters after the meeting.

Leaders from outside Europe “recognize that the euro areas crisis isn’t over yet but that confidence is returning, and when structural reforms continue and if we keep to our commitments and show we’re reliable -- that then we can overcome this crisis step by step,” Merkel said.

Merkel also said the G-20 leaders agreed to extend a commitment to refrain from new protectionist measures for another two years.

Carney Calls for Bank Risk-Model Clampdown to Repair Trust

Regulators must restrict lenders’ ability to escape tougher capital rules by changing how they measure risk, Financial Stability Board Chairman Mark Carney said, as he urged nations to finish an overhaul of bank rules.

“The risk models that banks use to calculate their capital needs show worryingly large differences,” Carney, governor of the Bank of England, said in a letter Sept. 5 to leaders from the Group of 20 nations meeting in St. Petersburg, Russia. “This must be addressed for depositors, investors, clients and authorities to have full confidence in the strength of bank balance sheets and their resilience during a downturn.”

The Basel Committee on Banking Supervision, an international regulators group, said in July that some lenders were backing investments with as much as 20 percent more capital than other banks. European banks generally apply lower risk weights to their holdings of bank-issued debt than lenders based elsewhere, the Basel group said.

International standards set by the Basel committee require banks to meet minimum capital requirements, measured as a percentage of their assets.

G-20 Members to Start Automatic Tax-Data Exchanges by End-2015

The Group of 20 “fully endorsed” a proposal by the Organization for Economic Co-operation and Development for automatic bilateral and multilateral exchanges of tax information.

The OECD and the G-20 will prepare the standard for the exchanges by February and plan to complete the technical details by mid-2014, according to a statement published after the St. Petersburg summit.

G-20 leaders also endorsed an action plan from OECD on avoiding tax-base erosion and profit shifting, according to the statement. The plan for exchanging tax information was backed by G-20 leaders in July.

Compliance Policy

Bank Rossii Plans to Post Foreign OFZ Holder Data on Site

Information on the structure of government debt holders will be published monthly, Interfax reported, citing Sergei Moiseev, deputy director of financial stability at Bank Rossii.

Data is to be made public with a 1 1/2-month time lag, according to the St. Petersburg-based central bank.

The central bank may start publication as early as this month. It is considering publication of a list of holders of shares, as well as corporate and municipal bonds, in the future.

Bank Rossii said in a July report that non-resident holdings of OFZs, a Russian abbreviation of Federal Loan Obligations, is approaching 30 percent of the emerging-market average.

Compliance Action

Everbright Removed From Shanghai Corporate Governance Index

Everbright Securities Co. (601788) was removed from the Shanghai Stock Exchange’s corporate governance index because it no longer meets the gauge’s criteria after being punished by the China Securities Regulatory Commission over erroneous trades, according to a statement posted to the exchange.

The company, China’s seventh-largest brokerage by market value, posted an unconsolidated net loss of 523 million yuan ($85 million) last month after $3.8 billion in erroneous trading orders that roiled China’s equity market and drew a record regulatory penalty.

Everbright incurred the unconsolidated loss, which doesn’t include contributions from subsidiaries, after disposing of assets following the Aug. 16 error, the company said in a statement to the Shanghai exchange Sept. 5. The figure is based on preliminary data and hasn’t been audited, the company said.

State-controlled Everbright has been ordered by the CSRC to pay a record 523 million yuan for insider trading in the aftermath of the errors. The regulator, which is cracking down on misconduct, barred the company from most proprietary trading and banned four of its executives from the market for life.

Everbright sold exchange-traded funds and index futures on Aug. 16 before telling the market it had made the erroneous buy orders, the CSRC said Aug. 30. Investors in Guangzhou and Shanghai are suing for damages, claiming they suffered losses.

H.K. Regulators Extend OTC Derivatives Rules Transition Period

Firms will have six months to comply with new over-the-counter derivatives regulations from the implementation date, the Hong Kong Monetary Authority and the Securities and Futures Commission said in a joint statement Sept. 6.

Public consultation on the detailed requirements of the new regime is expected in the fourth quarter, according to the statement.

Courts

Deutsche Bahn Loses EU Court Bid to Quash Antitrust Raids

Deutsche Bahn AG, Germany’s state-owned railway, lost its bid to overturn separate European Union decisions ordering antitrust raids at the company’s offices.

The EU General Court in Luxembourg decided Sept. 6 that regulators didn’t break EU rules with a series of inspections that Deutsche Bahn said started out as a “fishing expedition” seeking evidence of competition-law violations.

The European Commission, the EU’s antitrust watchdog, in 2011 raided Deutsche Bahn’s offices to check allegations that DB Energie was unfairly favoring the group’s rail-freight arm. During that first raid, the commission gathered evidence which led it to order a second and a third raid over the use of infrastructure by the companies in the Deutsche Bahn group.

Deutsche Bahn will study the ruling and decide about an appeal to the EU Court of Justice, the Berlin-based company said by e-mail.

According to the Sept. 6 ruling, the commission was entitled to use information gleaned in the first raid to justify subsequent inspections on the company focusing on different issues.

The cases are: T-289/11, T-290/11, T-521/11, Deutsche Bahn and others v. Commission.

Second Martoma Tipper Identified as SAC Insider Trial Nears

Former SAC Capital Advisors LP manager Mathew Martoma, who faces trial in November on insider trading charges tied to illicit tips on an Alzheimer’s drug, got some of his information from New Jersey physician Joel Ross, two people familiar with the matter said.

Ross, a geriatrician and clinical associate professor of medicine at Mt. Sinai School of Medicine, is the unidentified physician in a revised indictment filed against Martoma Aug. 22, said the people, who requested anonymity because they aren’t authorized to speak publicly. Referred to as Doctor-2, Ross provided confidential information to Martoma about a drug trial in July 2008, the U.S. said. He hasn’t been charged.

Martoma, 39, pleaded not guilty to charges of two counts of securities fraud and one count of conspiracy. His trial is scheduled to begin Nov. 4 in Manhattan federal court.

Ross didn’t respond to a call seeking comment on the allegations. Richard Strassberg, Martoma’s lawyer, didn’t respond to a voice-mail message left at his office seeking comment. Jerika Richardson, a spokeswoman for the office of Manhattan U.S. Attorney Preet Bharara, declined to comment.

Ross’s identity was reported earlier by the Wall Street Journal.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

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

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

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