The U.K. reached a draft deal with its European Union partners to lift its objections to turning the European Central Bank into a supervisor, according to two EU officials, in a move that paves the way for the end of over a year of negotiations on the proposals.
Ambassadors for the EU’s 28 nations agreed yesterday to put final adoption of the law on the agenda of today’s meeting of finance ministers in Luxembourg, according to the officials, who spoke on condition of anonymity because the decision isn’t public. Once that takes place, the legislation can be published by the EU, beginning a 12-month countdown for the ECB to fully take on its new role.
European Central Bank Executive Board member Joerg Asmussen said he’s “very, very confident” that EU finance ministers will sign off on the bill today.
Britain blocked approval of the law last month on concerns that safeguards to prevent the U.K. from being marginalized in meetings of the European Banking Authority could be unwound. The U.K. lifted its reservations yesterday after receiving support for a declaration stating that voting rules agreed on for the EBA will be respected, a U.K. official confirmed.
EU leaders said last year that the ECB should be given oversight powers over euro-area lenders as a first step in building a banking union that would break the links between banks and sovereigns, and so boost confidence in the bloc’s financial system.
FDIC Says China Among Countries Near Deals on Bank-Failure Path
China, Switzerland, Germany and Japan are among nations close to reaching arrangements with U.S. regulators to ease the dismantling of failed banks, said Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg.
U.S. regulators are working with German and Swiss counterparts on joint white papers similar to agreements already in place with the U.K. for how banks governed by multiple jurisdictions could be unwound by their host nations, Gruenberg said in remarks prepared for a speech Oct. 13 in Washington. The FDIC will secure memorandums of understanding on bank resolutions with China and Japan soon, he said.
The 2010 Dodd-Frank Act empowered the FDIC to seize a firm and dismantle it if regulators think a bankruptcy would pose a significant threat to the financial system. This resolution authority hasn’t been tested, and Gruenberg said his agency will disclose a full description of its approach by year-end -- opening the idea to public comment.
Germany and Switzerland share the U.S. preference for a so-called single point of entry, in which the host nation takes over a failed bank’s holding company, imposes losses on shareholders and lets healthy subsidiaries stay open. The approach depends on long-term debt held in the parent to absorb losses and capitalize a healthy bridge company, Gruenberg said. The agency is consulting with the Federal Reserve on a future rule to set a minimum.
U.S. regulators will run simulation exercises with U.K. counterparts this year and in 2014, Gruenberg said.
Art Murton, the FDIC official in charge of planning for resolutions, and Bank of England Deputy Governor Paul Tucker said on Oct. 12 that the U.S. system is ready to handle a big-bank collapse.
Norway Tightens Bank Rules Measuring Losses in Event of Default
Norway will tell its banks to base their capital ratios on bigger loss assumptions in the event of a default.
The Finance Ministry in Oslo said Oct. 13 banks in Scandinavia’s richest economy per capita will need to raise their loss-given-default floor on mortgage assets to 20 percent from 10 percent, according to a statement on its website. The rules will become effective from January and banks will also need to ensure their subsidiaries follow the new requirement, the ministry said.
The outgoing government of Prime Minister Jens Stoltenberg is tightening bank standards as it hands over power to a Conservative-led coalition that has discussed easing lending caps. Norway’s financial regulator has argued in favor of stricter rules amid concern the nation’s housing market is overheating.
The Financial Supervisory Authority is also working on going through the banks’ models, in part with a view to increasing the lowest loss probabilities used.
Authorities in Norway have struggled to stabilize the housing market after near record-low borrowing rates fueled credit growth in western Europe’s biggest oil producer.
Billionaire Cohen’s Paintings May Fetch $60 Million at Auction
Billionaire hedge-fund manager Steven A. Cohen, whose firm is facing huge fines for securities fraud, will sell three paintings from his art collection at auction in New York next month.
The group will include two pieces by Andy Warhol and a Gerhard Richter, according to the New York Times. Cohen’s $9 billion net worth includes an art collection valued at about $750 million, according to Bloomberg’s Billionaires Index.
Cohen’s SAC Capital Advisors LP is accused in a grand jury indictment of insider trading. Last week, the company was told it would have to pay $1.8 billion and admit wrongdoing to resolve securities-fraud charges. Cohen has already agreed to pay $600 million.
His three works will be offered at Sotheby’s (BID) contemporary art sale on Nov. 13. Warhol’s 1963 “Liz #1 (Early Colored Liz)” is estimated at $20 million to $30 million. His “5 Deaths on Turquoise (Turquoise Disaster),” also from 1963, is valued at $7 million to $10 million. Sotheby’s showed the paintings as part of its exhibition at the Katara Art Center in Doha last week.
The Richter is a 1986, 10-by-8-foot abstract painting titled “A. B. Courbet,” according to a person familiar with the matter. It is estimated at $15 million to $20 million.
Cohen actively buys and sells in the art market. He will face fierce competition from 12 other Warhols at the November evening sales, led at Sotheby’s by the large 1963 canvas “Silver Car Crash (Double Disaster),” estimated at more than $60 million.
Christie’s seven lots on Nov. 12 include Warhol’s 1962 painting of an oversized Coke bottle, estimated at $40 million to $60 million.
Ping An Securities Fined 51.1 Million Yuan by CSRC for Wanfu IPO
Ping An Securities Co. was fined by the China Securities Regulatory Commission for its managing of the public offering of Wanfu Biotechnology (Hunan) Agricultural Development Co. (300268)
Wanfu Biotectnology (Hunan) is a maker and seller of processed rice products.
The company received a 51.1M yuan fine, while 25.55M yuan income from the public offering is to be forfeited.
In addition, the Commission suspended the company’s sponsorship qualification for three months. The company is controlled by Ping An Group.
Ex-Madoff Workers Seen Choosing Bets on Freedom Over Plea Deals
Five former employees of Bernard L. Madoff on trial over allegations they aided in his $17 billion fraud probably scrapped plea talks involving harsh prison terms to gamble for total exoneration from a jury, ex-prosecutors said.
The U.S. had little reason to offer the group leniency in exchange for testimony against others, since Madoff and his top aides had already pleaded guilty, said Philip Hilder, a former federal prosecutor in Houston who represents defendants accused of white-collar crimes.
Opening statements may begin as soon as today, after U.S. District Judge Laura Taylor Swain in Manhattan completes jury selection that started a week ago. Jurors will hear what may become the fullest account of how Madoff carried out the biggest Ponzi scheme in U.S. history.
The former employees, all of whom have pleaded not guilty, are Annette Bongiorno, Madoff’s personal secretary, who worked with him for 40 years and helped recruit investors; Joann Crupi, a manager of large accounts at Madoff’s investment firm; Daniel Bonventre, operations chief; and computer programmers Jerome O’Hara and George Perez.
The five stand out for opting to challenge the strength of the government’s evidence after prosecutors secured guilty pleas from their bosses, an uncommon strategy in white-collar cases.
Three of the five were offered plea agreements that were turned down, and two had talks with prosecutors that failed to lead to formal offers, according to two people familiar with the matter who asked not to be identified because they weren’t authorized to discuss the negotiations.
The absence of plea deals could be because there are no more big players for the remaining defendants to testify against, or because they don’t know enough about the fraud, experts said.
Madoff, 75, admitted to federal agents in December 2008 that his company was a sham. He pleaded guilty to 11 counts and was sentenced to 150 years in prison.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
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Libor Splits U.K. Judges as Barclays Case Goes to Appeals Court
Judge Jeremy Cooke told lawyers assembled in his London courtroom last February he wouldn’t allow Indian property company Unitech Ltd. (UT) to add accusations of Libor-rigging to its lawsuit against Deutsche Bank AG.
Realizing he’d contradicted another judge in the U.K.’s only other Libor lawsuit, Cooke explained he disagreed with his colleague. Months earlier, Judge Julian Flaux had given Guardian Care Homes permission to link its swap losses to Barclays Plc (BARC)’s Libor fixing.
The Court of Appeal will decide who was right in the rare judicial split following a hearing scheduled to begin yesterday in London. If the court adopts Flaux’s approach to alleged victims, it could open the door to more suits against lenders accused of manipulating the London interbank offered rate, the baseline for about $300 trillion of contracts worldwide.
Regulatory probes across the globe into banks’ attempts to manipulate interest-rate benchmarks have led to fines and settlements totaling about $2.6 billion for Barclays, Royal Bank of Scotland Group Plc (RBS), UBS AG (UBSN) and ICAP Plc. (IAP) E-mails released in the investigations show traders tried to influence rates to boost trading profits.
The Deutsche Bank and Barclays cases are at face value similar -- both began as claims that banks sold their clients unsuitable interest-rate swaps. Unitech and Guardian sought to add Libor allegations to those suits.
While the appeal court won’t resolve either case, it will determine whether victims can void contracts linked to Libor, or just seek compensation for losses.
The Barclays, Deutsche Bank appeal is scheduled to last four days. Yesterday was set aside for judges to read the documents. Public hearings begin today.
The cases are Graiseley Properties Ltd. & Ors v. Barclays Bank Plc, High Court of Justice, Queen’s Bench Division, Commercial Court, 12-1259; and Deutsche Bank AG (DBK) & Ors v. Unitech Global Limited & Anr, High Court of Justice, Queen’s Bench Division, Commercial Court, 11-1199 (X1Q6M1JRB282).
FBR’s Miller Says U.S. Won’t Default on Bond Payments
Paul Miller, managing director at FBR Capital Markets, discussed the possibility of a U.S. debt default and ratings downgrade.
He spoke from Arlington, Virginia, with Guy Johnson and Hans Nichols on Bloomberg Television’s “The Pulse.”
For the video, click here.
EU Stress-Test Backstops Must Be Nationally Funded, Finland Says
Backstops for banks failing next year’s European Union stress tests should be built without money from the euro region’s permanent rescue fund, Finland’s Finance Minister Jutta Urpilainen said.
“The banks’ owners and investors will be the first ones in line to bear the burden, and after that we’ll need national backstops for possible recapitalizations,” she said in an interview in Luxembourg yesterday. For the European Stability Mechanism, “our stance is that only when there is common supervision and the slate is wiped clean for the banking union, that’s when a joint fiscal backstop can exist.”
The European Central Bank is slated to take over supervision of all euro-area banks next year, after a transition period in which regulators will assess the quality of banks’ assets and their resilience to shocks. Euro-area nations are now sparring over what kind of financing options need to be in place to deal with potential capital shortfalls that are uncovered.
Deutsche Bank’s Jain Says FX Rigging Allegations Eroding Trust
Deutsche Bank AG Co-Chief Executive Anshu Jain, whose company is the world’s biggest trader of currencies, said allegations that traders rigged those markets have further eroded trust in the financial industry.
The Federal Bureau of Investigation, which was already looking into alleged manipulation of the London interbank offered rate, or Libor, is in the early stages of a probe into the $5.3 trillion-a-day currency market, a person familiar with the matter, who asked not to be identified because the inquiry is confidential, told Bloomberg News on Oct. 11.
“Issues like Libor manipulation, allegations of foreign-exchange manipulation, this is sapping at the very core of what we are trying to do,” Jain, 50, said during a panel discussion at the annual meeting of the Institute of International Finance in Washington last week. He said the problem calls for “long-term reform.”
Authorities in the U.K., Switzerland, the European Union and the U.S. are investigating whether traders manipulated foreign-exchange prices. U.K. regulators are focusing on an electronic chat room used by currency traders at financial companies, the Wall Street Journal reported on its website, citing people familiar with the matter. The investigation has found a group of traders who used names such as “The Cartel,” “The Bandits’ Club,” and “The Dream Team,” according to the Wall Street Journal.
Comings and Goings
Barclays Says Hector Sants to Take Temporary Leave of Absence
Barclays Plc said its head of compliance and government, Hector Sants, is to take a temporary leave of absence because of “exhaustion and stress.”
Sants, 57, plans to return to work at Britain’s second-largest bank by assets next year, a spokesman for London-based Barclays said by telephone today. The company declined to say who will fill in for Sants.
Barclays hired Sants, the former chief executive officer of the Financial Services Authority, in December after the lender was fined 290 million pounds ($462 million) by regulators last year for submitting false London and euro interbank offered rates. He reports to CEO Antony Jenkins, who is seeking to overhaul the culture of the bank following scandals including wrongly sold loan insurance.
Sants’s leave comes after Lloyds Banking Group Plc CEO Antonio Horta-Osorio returned from a nine-week absence for exhaustion in 2011.
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