Sellers of bonds backed by mortgages, auto loans and commercial buildings will have to give investors more details to judge the quality of loans they have packaged under rules approved yesterday by the U.S. Securities and Exchange Commission.
The SEC’s five commissioners unanimously approved rules mandated by the Dodd-Frank Act after investors were burned by soured debt sold by Wall Street before the 2008 credit crisis. The new requirements will apply to the $750 billion market for private mortgage-backed securities, which imploded in 2008 and financed just 1 percent of new mortgages in 2013.
Banks eligible to expedite sales of asset-backed bonds with minimal SEC review will have to provide an executive’s certification that documents given to investors are accurate. They also will have to provide a process to review soured assets to determine whether they should be repurchased.
Credit Raters to Face New Conflict Limits Under SEC Rules
Credit-rating firms, whose lapses played a central role in the 2008 financial crisis, will face new restrictions on conflicts of interest under rules approved yesterday on a 3-2 vote by the U.S. Securities and Exchange Commission.
Firms including Moody’s Investors Service Inc. and Standard & Poor’s, a unit of McGraw Hill Financial Inc. (MHFI), will have to ensure they follow internal methodologies when grading debt and revising ratings. They will also have to disclose more about the accuracy of ratings, including a common way of presenting rates of defaults and downgrades for bonds backed by loans for homes and commercial buildings.
The rules seek to prevent raters from lowering their standards to win business. Ratings companies are paid to grade bonds by the firms selling them, which means they can lose business to rivals that offer higher ratings.
The rules include a strict prohibition on allowing sales and marketing considerations to influence grades. Firms also will have to re-examine ratings done by analysts who leave to join businesses whose products they have rated.
BofA’s Japan Unit Ordered to Pay $140 Million in Takefuji Case
Bank of America Corp.’s Japanese brokerage unit was ordered to pay 14.5 billion yen ($140 million) by the Tokyo High Court for its role in a bond transaction with failed consumer lender Takefuji Corp.
The court yesterday ordered Merrill Lynch Japan Securities Co. and an affiliate to pay compensation for losses stemming from the 2007 bond deal, overturning a district court judgment made last year, TFK, an entity responsible for repaying creditors following Takefuji’s 2010 bankruptcy, said in a statement on its website yesterday.
Merrill Lynch hasn’t decided whether it will appeal to the Supreme Court, said Tsukasa Noda, a Tokyo-based spokesman. The firm will examine the ruling and make a decision, he added. Charlotte, North Carolina-based Bank of America acquired Merrill Lynch in 2009.
Takefuji sued Merrill Lynch in 2010 for about 29 billion yen, arguing the brokerage failed to sufficiently explain the risks in the transaction designed to lower the consumer lender’s interest costs. The deal involved Takefuji investing 30 billion yen in a credit-linked security that was later liquidated as the securities backing it slumped.
Intel Fights Record $1.4 Billion Antitrust Fine at Top EU Court
Intel Corp. (INTC) asked the European Union’s top court to throw out a record 1.06 billion-euro ($1.4 billion) antitrust fine, saying a lower court was wrong to back the decision.
The world’s biggest chipmaker asked the European Court of Justice to overturn a June ruling that rejected Intel’s bid to erase the 2009 penalty. The fine was imposed for giving rebates to computer makers that favored its chips and shunned the products of its main competitor, Advanced Micro Devices Inc. (AMD)
Intel’s legal challenge asserts “legal errors” in the judgment, spokesman Chuck Mulloy said in an e-mailed statement. He declined to comment further on the case.
EU antitrust regulators haven’t lost a monopoly-abuse case at the Luxembourg-based courts in the last two decades.
The EU court’s press service said the Intel filing wasn’t yet formally registered.
Intel argued at a court hearing two years ago that EU regulators ignored exonerating evidence to build an “extreme case.”
IMF Director Lagarde Under Investigation for Tapie Case Role
International Monetary Fund Managing Director Christine Lagarde has been put under formal investigation for her role in an arbitration case during her time as French finance minister.
Lagarde in 2008 decided to allow arbitration to end a dispute between Bernard Tapie, a businessman and supporter of President Nicolas Sarkozy, and former state-owned bank Credit Lyonnais. Caroline Connan reported from Paris on Bloomberg Television’s “The Pulse” with Guy Johnson.
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