Overseas Deposits, JPMorgan Legal Reserves: Compliance

The Federal Deposit Insurance Corp. approved a rule responding to concerns that commercial depositors in overseas branches of U.S. banks could be disadvantaged in the event of a lender’s collapse.

FDIC board members meeting in Washington yesterday unanimously voted to adopt a measure responding to U.K. regulators’ concern that U.S. banks favored domestic depositors over foreign-based account holders. The agency in February proposed that overseas branches of the U.S. companies make an FDIC-estimated $1 trillion in deposits payable in either country.

One of the FDIC’s chief concerns was writing a rule that walls off the insurance fund from non-U.S. deposits, so the final proposal maintained a clear barrier. The adopted version was virtually unchanged from the February proposal.

The rule is a revision of the agency’s definition of “insured deposit” to make overseas accounts of corporate customers also payable in the U.S. It puts foreign depositors who aren’t covered by FDIC insurance in line ahead of general creditors in a liquidation. About 40 percent of such deposits are in the U.K., according to the FDIC.

In a joint letter to the agency in April, officials from Bank of New York Mellon Corp., Northern Trust Corp. (NTRS) and State Street Corp. (STT) said that instead of forcing banks to make the deposits dually payable, the FDIC could just give the same treatment to all global deposits of a bank without extending insurance protection -- an effort they acknowledged would have required more rulemaking.

Chairman Martin Gruenberg said in February that the rule would bring U.S. banks into compliance in the U.K. without requiring the institutions to turn their branches into subsidiaries.

The Clearing House Association LLC, a New York-based trade group that represents large U.S. banks including JPMorgan Chase & Co. (JPM) and Bank of America Corp., described the restructuring of foreign-branch deposit agreements as “administratively challenging” and costly.

U.S. banks are likely to make their foreign branch deposits dually payable only when forced to do so by a foreign regulator because of “negative consequences,” the Clearing House Association said in a letter to the FDIC.

Compliance Policy

Hedge Funds No Systemic Risk to Australia Financial System

Hedge funds pose no systemic risk to Australia’s financial system, the Australian Securities & Investments Commission said in a report released on its website.

In the report, ASIC identified hedge funds that “manage only a small share of Australia’s A$2.1 trillion managed funds industry with more than half of these holding less than A$50 million each.”

“Australian hedge funds do not currently appear to pose a systemic risk to the Australian financial system,” the survey indicates. Listed equities represent surveyed hedge fund managers’ greatest asset exposure, with 32 percent being in Australian-listed shares, according to the website report.

EU Lawyers Clash Over Legality of 11-Nation Transaction-Tax Plan

European Union lawyers are clashing over whether a proposed 11-nation financial-transaction tax is legal under the 28-nation bloc’s governing treaties.

Lawyers for the Council of the European Union, which represents the executives of EU member states and makes laws in tandem with the EU Parliament, say the tax plan goes too far and would discriminate against countries that don’t participate, according to an EU document. The legal service of the European Commission, which proposed the levy, stands by the plan and will offer a rebuttal, said Emer Traynor, a spokeswoman for EU Tax Commissioner Algirdas Semeta.

The EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by France, Germany and nine other EU nations that have so far signed up. The plan would charge a 0.1 percent rate for stock and bond trades and 0.01 percent for derivatives transactions, with some exemptions.

The feud centers on proposals for worldwide tax collection on trades involving a bank or financial security based in one of the participating nations. The council’s Sept. 6 legal opinion said the EU can’t justify such an aggressive approach just to keep traders from moving outside the participating-nations zone.

The commission’s plan exceeds the jurisdiction of participating nations, the council opinion said.

The council legal opinion was reported earlier by Reuters.

Compliance Action

JPMorgan Boosts Bank’s Legal Reserves for Potential Claims

JPMorgan Chase & Co., the biggest U.S. bank by assets, increased its litigation reserve by more than $1.5 billion in the third quarter to help cover potential legal claims.

Chief Financial Officer Marianne Lake said Sept. 9 at the Barclays Global Financial Services Conference in New York that the “reserves covers a number of different matters,” and there’s “been a crescendo of activity in past weeks,” to which the bank is reacting.

JPMorgan added 3,000 employees to bolster internal controls and compliance as it grapples with multiple investigations and regulatory orders, Lake said. The U.S. is conducting criminal investigations linked to the bank’s energy-trading and mortgage-backed securities businesses as well as separate probes of its anti-money-laundering safeguards, foreclosures, credit-card collections and a record trading loss in London last year.

The bank named two new members to its board and announced expanded powers for lead director Lee R. Raymond to help bolster risk oversight, according to a company statement.

SEC Probes Gold Fields on South African Black-Ownership Deal

Gold Fields Ltd. (GFI) said the U.S. Securities Exchange Commission is investigating an ownership deal that helped the South African producer of the metal secure a mining license. The shares fell to the lowest in a month.

The SEC is probing the transaction associated with the grant of the mining permit for the South Deep operation near Westonaria, 55 kilometers (34 miles) southwest of Johannesburg, Gold Fields said yesterday in a statement.

In 2010, Gold Fields agreed to issue 600,000 shares to a black-owned group and allowed it to buy 10 percent of South Deep. South African law requires mining companies to sell at least 26 percent of their local operations to black citizens, with transactions that benefit workers, communities near sites and trusts for the poor being favored.

Last year, the company denied a news report by Johannesburg-based Carte Blanche that the deal benefited influential people who helped it win the license needed to continue operating the mine.

“Given the early stage of this investigation, it is not possible to estimate reliably what effect the outcome this investigation, any regulatory findings, and any related developments may have on the company,” Gold Fields said.

U.S investors trade Gold Fields stock through American depositary receipts.

Courts

Deutsche Bank Faces Hearing Over Fired Euribor Traders’ Claims

Deutsche Bank AG (DBK) faces a hearing in a lawsuit by four traders fired over the lender’s role in the alleged rigging of interest benchmarks after mandated mediation failed to produce a settlement.

The Frankfurt labor court will hear arguments today over whether the four men were wrongfully dismissed by the bank in February. Another banker, who was the most junior of the group, reached a settlement with the bank, two people familiar with the matter said in July.

Regulators from Canada to Switzerland are investigating whether more than a dozen lenders, including Deutsche Bank, colluded to rig benchmark interest rates. Deutsche Bank has fired at least seven employees over suspected misconduct in connection with rates. The bank, continental Europe’s largest by assets, said in February that while it would fire or suspend workers that acted inappropriately, it wouldn’t identify individuals.

Deutsche Bank justified the dismissal of the employees by saying they had inappropriate communication with a trader the bank fired at the end of 2011 for trying to rig rates, one of the people familiar with the matter said in July.

Peter Roelz, a lawyer for the four traders, declined to comment on the trial.

The traders fired in February were based in Frankfurt and included two managing directors, two directors and a vice president, two people with knowledge of the matter said at the time. Submitting euro interbank offered rates was part of their responsibilities, the people said.

A mediation hearing in April didn’t yield any results.

Interviews/Hearings

CFTC’s Gensler Says He Never Received E-Mail Training

Gary Gensler, chairman of the Commodity Futures Trading Commission, testified about U.S. transparency laws and his use of his private e-mail account for communications as part of his work at the CFTC.

David Ferriero, the archivist of the U.S., former Environmental Protection Agency chief Lisa Jackson, former Energy Department loan program director Jonathan Silver, and former U.S. Deputy Chief Technology Officer Andrew McLaughlin also testified before the House Oversight and Government Reform committee in Washington.

For the video, click here.

Banks Seen at Risk Five Years After Lehman Collapse

Bloomberg’s Max Abelson talked about risks to banks five years after the collapse of Lehman Brothers Holdings Inc. and the ensuing financial crisis.

He spoke with Sara Eisen and Tom Keene and on Bloomberg Television’s “Surveillance.”

For the video, click here.

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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