JPMorgan Talks, Bid Rigging, Danish Mortgages: Compliance

JPMorgan Chase & Co.’s (JPM) negotiations with federal and state authorities to resolve a series of investigations tied to mortgage bonds are focusing on a potential $11 billion figure, including $4 billion for consumer relief, a person familiar with the talks said.

The amount isn’t final, said the person, who asked not to be identified because the negotiations aren’t public. Those involved in the talks include the U.S. Justice Department, the Department of Housing and Urban Development and New York Attorney General Eric Schneiderman, who is co-chairman of a federal and state working group on residential mortgage-backed securities.

JPMorgan Chief Executive Officer Jamie Dimon arrived at the Justice Department in Washington yesterday to personally discuss the settlement with Attorney General Eric Holder, according to a person familiar with the meeting. Federal officials rejected a proposal from the bank earlier this week to pay between $3 billion and $4 billion to settle the probes, a separate person with knowledge of the negotiations said.

The talks are still fluid and the size of the settlement keeps changing, according to another person familiar with the matter. The people said they weren’t sure which claims may be resolved. The bank is trying to resolve as many probes as possible before the end of the third quarter on Sept. 30, according to people familiar with the bank’s thinking.

JPMorgan is seeking to negotiate a resolution to mortgage-bond investigations being conducted by federal and state authorities, including probes by U.S. attorneys in Philadelphia, Washington and Sacramento, California, according to another person briefed on the effort.

The bank has also tried to settle a $6 billion claim by the Federal Housing Finance Agency, according to the person, who also asked not to be identified because the talks are private.

Joe Evangelisti, a spokesman for the New York-based bank, declined to comment on the negotiations.

“Talks are ongoing,” Lauren Horwood, a spokeswoman for Sacramento U.S. Attorney Ben Wagner, one of the federal officials involved in the talks, said Sept. 25.

Last week, JPMorgan agreed to pay $920 million in penalties over $6.2 billion in losses stemming from derivatives trading by the bank’s chief investment office in London.

For more, click here, and see Interviews/Conferences, below.

Compliance Policy

Germany Rejects Plan for $68 Billion Fund to Aid Non-Euro Banks

Germany rejected a European Commission proposal to turn a 50 billion-euro ($68 billion) rescue fund into a bank backstop for member states outside the single-currency bloc.

The European Union’s balance-of-payments fund currently has about 40 billion euros available, after being used to help Latvia, Hungary and Romania. The commission, the EU’s executive arm, now wants to overhaul the fund and add a tool for bank aid that could be tapped by non-euro countries whose lenders fail next year’s continent-wide stress tests.

The German government and those of five other EU member states, including non-euro countries, reject the plan, which isn’t needed to maintain financial stability, a German Finance Ministry official said by telephone yesterday on customary condition of anonymity.

The Brussels-based commission wants a resource that can operate alongside the euro area’s 500 billion-euro firewall, the European Stability Mechanism, so that the entire 28-nation EU is braced for the results of next year’s stress tests. The goal is to reach a deal by the end of this year so that the tool can be ready by mid-2014, when the commission also hopes to have finished negotiations on when the firewall can provide direct aid to euro-zone banks.

The European Central Bank will be conducting balance-sheet reviews of major banks across the euro area as it prepares to take on new oversight duties in the second half of 2014. If all the proposed backstops are in place, the EU would have as much as 400 billion euros available to handle any banking problems that emerge.

China May Allow Non-Financials to Set Up Consumer Finance Units

The China Banking Regulatory Commission plans to allow non-financial companies to set up consumer finance companies, the regulator said in a statement on its website yesterday, citing revised draft rules and seeking public opinion.

Non-financial companies will require experienced strategic investors to meet regulatory requirements, according to the statement. The minimum stake requirement for major shareholders will be lowered to 30 percent from the current 50 percent, the commission said in the statement.

Consumer finance companies will be allowed to accept deposits from their shareholders in China, according to the statement.

Danish Regulator Cracks Down on Mortgage Banks as Risks Grow

Denmark’s financial regulator is preparing a set of guidelines due to be unveiled next year to stop mortgage banks falling deeper into a funding mismatch spawned by reliance on short-term borrowing.

The Financial Supervisory Authority, criticized in a government-commissioned report last week for failing to curb risk-taking in the years leading into the financial crisis, plans to set limits on issuance of bonds backing interest-only and adjustable-rate mortgages in the $500 billion market, Director General Ulrik Noedgaard said.

A government-appointed committee investigating the causes behind Denmark’s housing and banking crises said last week regulators should have done more to prevent an explosion in lending. More than one-third of the country’s commercial banks have closed since a property bubble burst in 2008, according to the Organization for Economic Cooperation and Development.

The FSA’s standards will be based on recommendations from the crisis committee, Noedgaard said. The clampdown on lending follows warnings from Moody’s Investors Service, Standard & Poor’s and the central bank that a shift away from 30-year, fixed-rate mortgages during the past decade is threatening Denmark’s financial stability.

Compliance Action

Mizuho Penalized for Transactions With ‘Anti-Social’ Groups

Mizuho Financial Group Inc. (8411)’s lending unit was penalized by Japan’s banking regulator for failing to take steps to end more than two years of transactions with “anti-social” groups.

Mizuho Bank Ltd. was ordered to strengthen legal compliance and administrative controls, the Financial Services Agency said in a statement in Tokyo today. The unit of Japan’s third-biggest bank by market value made loans to the anti-social groups, the FSA said, without identifying them. The phrase is often used in Japan to describe criminal organizations.

Japanese authorities have stepped up efforts to combat yakuza gangs, whose activities range from extortion to fraud and money laundering, according to the National Police Agency. In the first penalty of its kind against a Japanese bank since 2007, the FSA told Mizuho to make a “clean break” from the groups after conducting 230 transactions, mostly car loans.

Mizuho made transactions valued at about 200 million yen ($2 million), an FSA official said at a news briefing in Tokyo, asking not to be named in accordance with the agency’s policy.

The bank has to formulate measures to prevent a recurrence and submit a business improvement plan by Oct. 28, the regulator said. It will report on its progress at the end of November and December and then every three months.

Mizuho “takes this order very seriously and deeply regrets these occurrences,” the bank said in a statement. The Tokyo-based company hasn’t decided any internal penalties yet, spokeswoman Masako Shiono said by phone.

Today’s action is the latest blow to Mizuho after the FSA punished the bank for a computer glitch that delayed transactions following the nation’s March 2011 earthquake.

Rabobank Said to Be Close to Libor Probe Settlement Next Month

Rabobank Groep may reach a settlement with regulators as soon as next month over claims the Dutch bank tried to manipulate benchmark interest rates, a person with knowledge of the matter said.

Rabobank, the Netherlands’ biggest mortgage lender, is likely to pay a fine higher than the 290 million pounds ($466 million) levied on Barclays Plc (BARC) in June 2012 and lower than the $612 million paid by Royal Bank of Scotland Group Plc, though it may be negotiated even below the Barclays fine, said the person, who asked not to be identified because the talks are private.

Rabobank, the only Dutch contributor to the London interbank offered rate, has had talks since at least 2011 with regulators including the U.S. Commodity Futures Trading Commission, the Justice Department and the U.K. Financial Services Authority.

Europe’s biggest agricultural lender is next in line to settle probes into Libor. The settlement’s timing was reported earlier by the Financial Times.

Hendrik Jan Eijpe, a spokesman for the Utrecht-based lender, said the company is cooperating with the investigations and declined to comment on the status of the probes. Rabobank in August said it took a provision to settle probes into Libor, without elaborating the size of the charge.

The lender previously said it received Libor-and Euribor-related subpoenas and information requests in nations including the Netherlands, U.K., U.S. and Japan.

China’s Capital Rules Compliant With Basel III, Basel Group Says

“China’s implementation of the Basel capital framework was found to be closely aligned with the Basel III global standards,” the Basel Committee on Banking Supervision said.

“Some differences with the Basel framework were found,” the Basel group said in statement on its website.

“None of the findings were judged to be material at this point,” the group said. China’s “response to the report expresses the strong commitment of the Chinese authorities to implement the global regulatory reforms,” the Basel group said.

Courts/Tribunals

GM Suppliers in Japan Plead Guilty in $5 Billion Cartel Case

Mitsubishi Electric Corp. (6503), Hitachi Automotive Systems Ltd. (6501) and seven other Japanese companies agreed to plead guilty and pay a total of $740 million in fines for a price-fixing conspiracy targeting automakers that included General Motors Co. (GM) and Ford Motor Co. (F)

Chrysler Group LLC and Toyota Motor Corp. (7203) were also among car companies operating in the U.S. that faced inflated costs on more than $5 billion of parts, affecting prices on at least 25 million vehicles, U.S. Attorney General Eric Holder said in a news conference yesterday in Washington.

The announcement brings criminal fines in the Justice Department’s continuing probe of price fixing in the auto-parts industry to more than $1.6 billion and the number of companies and individuals charged to 20 and 21 respectively, the Justice Department said in a statement.

Seventeen of the 21 executives have been sentenced to jail in the U.S. or have entered into plea agreements calling for “significant” prison sentences, Holder said. Two of them were charged yesterday.

Scott Hammond, a deputy assistant attorney general who worked on the investigation said there are “more than a dozen separate conspiracies operating independently,” that all target U.S. automotive manufacturers.

The plea agreements must be accepted by a federal judge to become final.

The Mitsubishi Heavy case is U.S. v. Mitsubishi Heavy Industries Ltd. (7011), 2:13-cr-20711, U.S. District Court, District of Columbia (Washington).

For more, click here.

Ex-RBS Trader Fired Over Libor-Rigging Sues for Unfair Dismissal

A former Royal Bank of Scotland Group Plc trader sued the lender over his firing for alleged misconduct related to manipulation of benchmark interest rates.

Simon Green, who traded derivatives tied to short-term moves in interest rates in dollars and euros, filed an unfair dismissal suit, according to documents from a London employment tribunal. He was let go in March, weeks after the Edinburgh-based bank paid $612 million to settle with regulators probing its attempts to rig the London interbank offered rate.

Claims that traders tried to influence Libor, the benchmark for $300 trillion of contracts worldwide, led to criminal probes and regulatory fines for Barclays Plc, UBS AG (UBSN), RBS and broker ICAP Plc. (IAP) RBS has fired seven employees for misconduct related to Libor, a person familiar with the matter said in April.

Sarah Small, an RBS spokeswoman, declined to comment. The bank has said it will claw back bonuses from those involved to help pay any fines.

Green’s lawyer, Layla Bunni, said she couldn’t immediately comment when reached by phone at her office in London. Copies of the employment complaint aren’t publicly available.

Green may argue he was singled out unfairly, or that the bank knew about his actions and did nothing until regulators intervened, according to employment lawyer Jo Keddie, who isn’t involved in the case.

Ex-ChinaCast Chairman Sued by SEC Over Claims He Stole Millions

The U.S. Securities and Exchange Commission accused the former chairman and chief executive officer of ChinaCast Education Corp. (CAST) of stealing tens of millions of dollars from investors in a U.S. public offering.

Chan Tze Ngon, 57, transferred $41 million out of the $43.8 million raised from investors to a purported subsidiary in which he secretly held a controlling 50 percent stake, the SEC said in a statement. Chan also secretly pledged $30.4 million of ChinaCast’s cash deposits to secure the debts of entities unrelated to the company, according to the agency.

The SEC also sued Jiang Xiangyuan, ChinaCast’s former president for operations in China, over claims he avoided more than $200,000 in losses by illegally selling shares in the company on confidential information.

ChinaCast entered U.S. capital markets in 2006 through a reverse merger, in which a closely held firm buys a shell company already on an exchange in order to list shares without a public offering, the SEC said.

The Hong Kong-based company had a market capitalization of more than $200 million before the alleged frauds came to light, the SEC said.

Chan and Jiang, who live in China, have no known defense counsel, the SEC said.

Interviews/Conferences

Dimon Going to Justice a ‘Brilliant Move,’ Farley Says

Richard Farley, a partner at law firm Paul Hastings LLP, talked about JPMorgan Chase & Co.’s negotiations with federal and state authorities to resolve a series of investigations tied to mortgage bonds.

JPMorgan Chief Executive Officer Jamie Dimon arrived at the Justice Department in Washington yesterday morning reportedly to discuss a settlement with Attorney General Eric Holder. Farley spoke with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers.”

For the video, click here.

Bankers Weigh In On EU Challenges At Frankfurt Conference

Bankers gathered in Frankfurt at the European Supervisor Education Initiative’s conference yesterday. Speakers included European Central Bank Governing Council member Yves Mersch, European Banking Authority Chairman Andrea Enria, ECB Vice President Vitor Constancio and U.S. Federal Reserve Governor Jeremy Stein.

Among the topics covered were setting up the single supervisory mechanism and the European economic outlook.

For the Mersch audio, click here.

For the Enria audio, click here.

For the Constancio video, click here.

For the Stein video, click here.

SEC’s White Says Investigators Will Focus Cases on Individuals

U.S. Securities and Exchange Commission Chairman Mary Jo White said her agency will focus on bringing more cases against individuals who violate securities laws rather than the companies where they work.

“I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in,” White said in remarks prepared for delivery at a Council of Institutional Investors conference in Chicago yesterday. “It is a subtle shift, but one that could bring more individuals into enforcement cases.”

SEC investigators will also seek more mandatory compliance measures in settlements to prevent future misconduct and not just punish past wrongdoing, she said.

“Redress for wrongdoing must never be seen as a cost of doing business made good by cutting a corporate check,” White said.

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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