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EU Pension, Short-Sell Ban, GM Bonuses: Compliance

The European Commission said it will start on July 7 “a wide-ranging debate on the future of pensions in Europe.”

The consultation will “call for views and fresh ideas” for possible future actions, the European Union’s executive agency said in an e-mailed statement July 2.

The commission said it will also publish draft measures on July 12 including proposals to improve deposit-guarantees in European banks and a plan to enhance EU investor compensation schemes.

The EU agency will also publish July 12 possible changes to insurance guarantee programs. The document “will set out ideas for a coherent framework” in order to “remedy existing loopholes and inequalities,” the commission said.

Compliance Policy

German Short-Selling Ban Advances in German Parliament

German lower-house lawmakers approved a ban on naked short-selling of euro-area government bonds, credit-default swaps based on the bonds and shares of German companies in a bid to counter “volatility” of the euro.

Chancellor Angela Merkel’s coalition passed the measure July 2 in the Bundestag in Berlin, confirming the main elements of the government’s May 19 ban on naked swaps that was criticized by other European countries, the European Union and economists for Germany’s go-it-alone approach.

Intraday trading isn’t affected by the legislation, which also gives Germany’s BaFin regulator the power to ban financial market instruments for as long as 12 months. The Bundesrat, parliament’s upper house, plans to debate the measure on July 9 and can propose changes.

Separately, Germany and France will make a joint proposal for a EU tax on financial transactions in the next few days, Finance Minister Wolfgang Schaeuble said in parliament July 2. Imposing an EU-wide tax won’t be easy and limiting the tax to euro-area countries is an option, he said.

EU Has ‘Doubts’ Over Hungary Bank Tax, Matolcsy Says

The European Union has “serious doubts” about Hungary’s plan for a “brutal” bank tax that is key to meeting its creditor-approved budget deficit target, Economy Minister Gyorgy Matolcsy said.

The government failed to agree with lenders July 1 on a 120 billion-forint ($526 million) tax for this year after the owners of six banks withdrew the negotiating mandates of their local units, Matolcsy said in an interview in Budapest July 2.

Hungary pledged last month to meet the budget deficit target set by the International Monetary Fund and European Union. The nation is seeking to extend the bailout when it expires in October and sign a two-year precautionary loan agreement of as much as 20 billion euros ($25 billion) starting next year, Matolcsy said. The EU and IMF will review Hungary’s budget policy starting this week.

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Japan May Remove Insurance Asset Allocation Rules, Nikkei Says

Japan’s Financial Services Agency plans to ask the Diet to eliminate investment regulations restricting asset allocations at insurers, which may result in more higher-yielding overseas bonds, Nikkei English News reported, without saying where it obtained the information.

Japanese insurers now are required to invest no more than 30 percent of their assets in domestic shareholdings, 30 percent in foreign-currency-denominated assets and 20 percent in real estate, Nikkei said.

Russian Legal Revamp May Free 100,000 Entrepreneurs

Russian lawmakers say they plan to overhaul the law on economic crimes, resulting in the early release of as many as 100,000 imprisoned executives and entrepreneurs as the government seeks to attract investors.

Andrei Nazarov, deputy head of the committee that handles civil and criminal legislation in the lower house of parliament, on June 30 introduced amendments to the criminal code designed to implement a decree by President Dmitry Medvedev. Nazarov said he will offer further amendments, including one ending pre-trial detention for economic offenses.

Medvedev is trying to show investors their rights will be protected as he asks American business leaders for help in diversifying the economy.

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Compliance Action

HSBC Clients With Asian Accounts Said to Face U.S. Tax Probe

The Justice Department is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the Internal Revenue Service, according to three people familiar with the matter.

The investigation is “a global initiative by IRS and the Department of Justice,” said Robert McKenzie, an attorney at Arnstein & Lehr in Chicago who said he spoke to two people who got letters.

The probes show how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland and UBS AG, the largest Swiss bank, said Barbara Kaplan, a tax lawyer at Greenberg Traurig LLP in New York. London-based HSBC is Europe’s biggest lender by market value.

HSBC spokeswoman Diane Bergan declined to comment.

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European Banks’ Hidden Losses May Threaten EU Stress Test Plan

The U.S. government’s bank stress tests a year ago helped financial stocks to rebound 36 percent over the next seven months. Europe’s plan to follow may not be as successful.

Investors say they don’t know if some banks are hiding bad loans, whether they have enough capital to withstand a debt default by a European state and whether governments can afford to rescue them. The European Union still hasn’t disclosed the tests’ criteria, including if they contain a sovereign default.

National Bank of Greece SA, Dexia SA and Commerzbank AG were the lenders whose tangible common equity was most eroded in a simulated stress test that Citigroup Inc. analysts ran on 13 European firms. Their test included sovereign debt and loan losses, they said in a June 21 report to clients.

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U.K. Financial Regulator Bans Six People for Mortgage Fraud

Six people were banned from working in the U.K. financial- services industry for their involvement in mortgage fraud.

The people falsified mortgage applications and then obstructed the Financial Services Authority’s investigation into the fraud, the regulator said yesterday in a statement.

FSA enforcement director Margaret Cole said in the statement that cracking down on mortgage fraud is a “priority.”

Acom, Consumer Lenders Surge After Osaka Zone Report

Acom Co. led a surge in Japanese consumer lender stocks after the Mainichi newspaper reported that the Osaka government will seek to start a business zone with looser lending rules than national laws.

Acom, Promise Co., and Aiful, Japan’s three largest consumer lenders by assets, are slashing jobs and closing branches to cope with rules from June 18 that cap interest rates and loan volumes. The lenders are cutting loans and battling to survive after a 2006 crackdown on coercive lending practices and court rulings that forced them to repay billions of dollars in overcharged interest.

Osaka is in the final stages of a proposal to the Japanese government to allow the municipality to override the nation’s lending rules introduced in June, the Mainichi newspaper reported on July 3.

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Drugmakers Prompt Fewer Concerns in Thwarting Generics, EU Says

Drugmakers are provoking fewer antitrust concerns in their attempts to keep generic competitors off the market, a European Union probe into the industry showed.

The proportion of “potentially problematic” patent settlements between branded-drug makers and producers of lower-priced generic medicines more than halved, compared with the results of an earlier investigation, the European Commission said today. The amount of money involved in settlements also fell. The report “appears to show” increased awareness in the sector of “potential competition concerns,” said Joaquin Almunia, the EU competition commissioner.

Antitrust regulators on both sides of the Atlantic are focusing on how the settlements might harm consumers.

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BMW, Mazda Cars Examined for Flaws in Power Steering, U.S. Says

Bayerische Motoren Werke AG and Mazda Motor Corp. cars are under investigation by the U.S. auto-safety regulator for possible defects that can cause the power steering to fail, raising the risk of a crash.

The BMW Z4 and Mazda3 have been the subject of 140 complaints related to a flaw in the power steering, the National Highway Traffic Safety Administration said July 2 on its website. The probe covering more than 342,000 cars may lead to recalls.

The safety agency is elevating oversight of defects following record recalls of more than 8 million vehicles by Toyota Motor Corp., the world’s largest carmaker.

“We will provide all the information they request and we cooperate with them always at these levels,” said Tom Kowaleski, a U.S.-based spokesman for BMW, based in Munich.

“We are aware of the NHTSA concern,” said spokesman Jeremy Barnes, who is a U.S. spokesman for Hiroshima, Japan- based Mazda. “We are working hand-in-hand with NHTSA on the investigation.”

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Delta, US Airways Drop New York-Washington Asset Swap

Delta Air Lines Inc. and US Airways Group Inc. won’t pursue a swap of takeoff and landing slots in New York and Washington under regulators’ terms, a setback to strengthening their holds on two eastern U.S. markets.

The airlines instead will challenge in federal court the U.S. requirement that they give rivals more access to flights at New York’s LaGuardia Airport and Ronald Reagan Washington National Airport, according to a filing with the U.S. Transportation Department and Federal Aviation Administration.

Delta had sought to expand at LaGuardia to complement its hub at Kennedy International Airport and dominate New York. US Airways sought to build its base in Washington and secure the right to serve valuable international routes. The decision avoids a requirement that some flight slots be auctioned, opening the door to low-cost rivals like Southwest Airlines Co.

Trebor Banstetter, a spokesman for Atlanta-based Delta, declined to comment beyond the filing. The transportation department also declined to comment on the airlines’ decision, said Bill Mosley, an agency spokesman.

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General Motors Gives $6.66 Million in Stock to Top Executives

General Motors Co., the largest U.S. automaker, gave stock valued at $6.66 million to 14 top managers, including $1.33 million worth to Chairman and Chief Executive Officer Ed Whitacre.

The 123,347 shares were valued at $53.98 each, a price determined by a third party, the company said July 2 in filings with the U.S. Securities and Exchange Commission.

GM gives executives salary stock units and restricted shares to augment their compensation, which is constrained by government rules because the automaker is 61 percent owned by the U.S. Treasury Department. The company must disclose the shares it grants in filings every quarter.

Whitacre, whose stock would be worth about $2.31 million based on GM’s bonds, also receives a $1.7 million annual cash salary.

Chief Financial Officer Chris Liddell was awarded 15,979 shares worth about $862,500 under GM’s valuation and $1.5 million at market rates. Liddell receives a base salary of $750,000 a year.

Energy Hedge Funds Close After Investor Withdrawals

Energy hedge funds in Europe are collapsing after investor withdrawals forced managers to scale back bets amid sliding prices for oil, coal and electricity.

At least six funds managing more than $158 million shut in the first half, including four in May and June, according to data compiled by Bloomberg. London-based Rampart Capital LLP succumbed after failing to reach “critical mass” within nine months of opening, according to Chief Investment Officer Marcello Romano.

The funds were battered after Brent crude fell in May by the most since November 2008 and German power had its fourth monthly drop this year. Liquidations around the world rose to about 240 in the first quarter, compared with 165 in the previous three months, Chicago-based Hedge Fund Research reported June 8.

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SEC Sues Utah Man For $145 Million Real Estate Investing Fraud

The Securities and Exchange Commission sued Travis Wright, of Utah, for falsely telling customers their $145 million would be invested in commercial real estate while instead directing funds to other ventures, including a sandwich-in-a-can business.

Wright, 47, sold promissory notes for his Waterford funds to about 175 investors from 2001 to 2009, the SEC said in a lawsuit filed at U.S. court in Salt Lake City July 1. Wright used only $6 million of investor money in a manner consistent with his promises, using more than $15 million to live a “lavish” lifestyle, the agency alleged.

The SEC is seeking disgorgement and unspecified fines, as well as an order that Wright be prohibited from selling securities.

No one could be reached at two telephone numbers listed to Travis L. Wright in Ogden, Utah. A phone number for Waterford Funding, LLC, was busy. Court documents did not list a lawyer for Wright. Berkshire Bank Sues First American Over Appraisal

Berkshire Bank, a commercial bank based in Manhattan, sued First American Appraisal and Consulting Services LLC., claiming the company overvalued a proposed condominium development in Brooklyn, New York.

First American pegged the market value of the proposed project at $47 million, at least 33 percent more than its legitimate value, according to the lawsuit filed July 2 in New York state Supreme Court in Manhattan.

Berkshire, a subsidiary of New York-based Berkshire Bancorp Inc., relied on the appraisal to make a $13.8 million loan in 2007 to Westshore 480 Development LLC, the owner of the property, the suit says. Westshore defaulted on the loan, resulting in a foreclosure sale March 25 that left a deficiency of $6 million, Berkshire said. The suit alleges negligence, professional malpractice and breach of contract, and seeks $6 million in damages from the company, which was dissolved, and its successor parent CoreLogic Inc.

Bob Visini, a spokesman for CoreLogic, said the company doesn’t comment on pending litigation.

The case is Berkshire Bank v. First American Appraisal, 650803/2010, New York state Supreme Court (Manhattan).


Liddell Says Swap Clearinghouse Plan ‘Good for System’

Roger Liddell, chief executive officer of LCH.Clearnet Group Ltd., discussed the potential impact of U.S. financial-regulatory overhaul legislation on the over-the-counter derivatives market.

Liddell talked with Deirdre Bolton on Bloomberg Television’s “InsideTrack.”

For the video, click here.

Merkel Says EU Rescue Deal Only Bought Time for Euro

German Chancellor Angela Merkel said that the European Union’s 750 billion-euro ($945 billion) rescue package for the euro is only buying time for governments to cut budget deficits. The task now before the EU is a “policy of saving” and scaling back deficits, she said.

Merkel made the remarks in an interview with RTL television July 2 in Berlin.

EU’s Barnier Pledges Derivatives and Hedge Fund Regulations

Michel Barnier, the European Union Financial Services Commissioner, pledged to toughen regulation on financial derivatives, including credit default swaps and naked short-selling.

Barnier said a ban is “an option on which we are working,” Barnier said July 4 in an interview in Aix-en-Provence, France, adding that he wants “transparency, control and standardization.”

Barnier said the EU is “in the final stretch” before voting on rules to regulate managers of hedge funds and private equity firms. The accord should be reached in September when the bloc’s Parliament and national governments are due to reach an agreement, he said.

Dingell Assails Senate Rules, Praises Finance Bill

U.S. Representative John Dingell, a Michigan Democrat, talked with Bloomberg’s Al Hunt about Senate rules, legislation overhauling financial regulation, net-neutrality rules and prospects for additional stimulus.

Dingell, who has held his House seat since 1955, became the longest-serving member of Congress with the June 28 death of West Virginia Senator Robert Byrd.

For the video, click here.

ECB’s Paramo Says Stress Tests Don’t Need to Consider Default

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said bank stress tests don’t need to take the “absurd” scenario of a sovereign default into account, though they will consider sovereign risk.

“The euro cannot allow a default and therefore there’s no sense doing a stress test based on that,” Gonzalez-Paramo said. He made the remarks to reporters in La Coruna, Spain, on July 2. The tests will look at sovereign risk, he said.

The European Union plans to publish stress tests this month in a bid to reassure investors about the strength of the regions’ banks.

Comings and Goings/Notable Passings

K1 Hedge-Fund Director Frerichs Dies in Spain, Efe Reports

Dieter Frerichs, the former managing director of two British Virgin Island-based units of K1 Group, died of an apparent self-inflicted gunshot wound July 3 on the Spanish island of Mallorca, Efe reported, citing unidentified police officials.

He shot himself to avoid arrest, Spanish police and German prosecutors said.

Frerichs is a suspect in the German probe of K1, a hedge fund at the center of an international investigation. He was arrested in Spain in April and conditionally released in May, Efe said. Frerichs was 72, Efe said.

A call to the police headquarters in Mallorca by Bloomberg News July 3 was not answered.

For more, click here.

Swatch Maker Death Puts President With Clooney for Bern Service

A July 3 memorial service was held for Lebanese-born entrepreneur Nicolas Hayek, who is credited with rescuing the nation’s watchmaking industry and redefining what it means to be Swiss.

The service was attended by Swiss President Doris Leuthard, and more than 1,000 others at a conference center in the Swiss capital of Bern.

Hayek, founder of Swatch Group AG, the world’s largest watch manufacturer, was a true entrepreneur who gave a lot of impetus to Switzerland’s economy, said Franco Taisch, a professor of business law at the University of Luzern.

For more, click here.

Starsupply Hires Oil Broker Banned for Drunk Trades in Geneva

Steven Perkins, the oil trader banned by the U.K. financial regulator for making bets price would rise while in an “alcohol-induced blackout,” was hired by Starsupply Renewables SA in Switzerland.

Perkins, a former broker at PVM Oil Futures Ltd., was banned from working in the U.K. financial services industry for five years and fined 72,000 pounds ($109,000) by the Financial Services Authority. Starsupply will respect the FSA ruling and Perkins won’t trade in regulated markets, the biofuels brokerage said in a statement July 2.

Perkins joined an alcohol rehabilitation program after the incident and has been sober for almost a year, Starsupply said.

Chris Hamilton, a spokesman for the FSA in London, declined to comment.

HSBC Holdings Hires Tim Sykes From U.K. Financial Investments

HSBC Holdings Plc said it hired Tim Sykes, the former head of market-investment strategy at U.K. Financial Investments Ltd. Sykes had joined UKFI in January 2009, soon after UKFI was established in November the previous year to oversee the government’s stakes in banks that received financial assistance.

Sykes will become head of European banks and securities companies within the company’s global banking financial institutions group, HSBC said in an e-mailed statement July 2. He will start with HSBC in September.

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