Lender Liquidity, Tax Dodgers, CDS Probe: Compliance

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Lenders’ liquidity should be examined in the next round of bank stress tests in the wake of the European Union’s fiscal crisis, the region’s economic and monetary affairs commissioner said.

Olli Rehn said new tests in 2011 should gauge lenders’ ability to withstand funding crises, a measure omitted from this year’s EU exams, which were passed by two Irish banks before the country requested an international bailout.

Global regulators including the Group of 20 nations are focusing on ways to bolster banks’ liquidity and capital to prevent a rerun of the worst financial crisis. An exodus of deposits from Irish lenders caused a funding shortfall, leading to the bailout package of 85 billion-euro ($113 billion) aid package for the country.

Preparation for the next round of EU stress tests will start in February, Rehn said. Regulators will gather data for the tests under the guidance of the European Banking Authority, the European Central Bank and the European Commission, the 27-nation EU’s executive arm.

Allied Irish Banks Plc and Bank of Ireland Plc passed the 2010 exams on their capital holdings. Anglo Irish Bank Corp. wasn’t tested.

Compliance Policy

German Tax Dodgers to Face Tighter Filing Rules Amid Crackdown

German tax dodgers trying to escape punishment will face tighter rules on filing voluntary tax declarations as the government cracks down on a practice that exploded after authorities bought CDs containing stolen data.

German investors will have to include all undeclared taxable holdings in any voluntary filing, according to a draft of the measure that Chancellor Angela Merkel’s Cabinet is set to approve today.

The rules aim to prevent tax evaders from declaring only holdings they suspect may have come to light to sidestep punishment. Since German authorities first announced their intention to buy a CD containing data on Swiss accounts on Feb. 2, thousands of Germans have filed voluntary declarations.

While the draft law outlines the importance of luring tax evaders to the legal fold, it condemns the abuse of “partial” declarations. The law would come into effect after it passes the lower house of parliament, or Bundestag.

The German finance authorities’ practice of purchasing stolen data from unidentified parties has become a source of tension between Germany and Switzerland. German and Swiss authorities announced Oct. 7 they’re seeking a broader agreement that could resolve the issue by establishing a withholding tax that will raise revenue directly from offshore accounts while maintaining clients’ secrecy. A working group will begin negotiating the terms of such an accord at the beginning of next year.

EU Rules Out Aid Boost, Counts on ECB to Fight Crisis

European finance ministers ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro ($1 trillion) crisis fund, counting on European Central Bank bond purchases to calm debt-spooked markets.

A week after handing Ireland an 85 billion-euro lifeline, the finance chiefs voiced confidence that Spain and Portugal will tame their budget deficits and said the existing credit line is enough to defend them in an emergency.

As the Irish parliament prepared to approve spending cuts, finance ministers from all 27 European Union countries endorsed the EU budget’s 22.5 billion-euro share of the support program and gave Ireland an extra year, until 2015, to bring its deficit down to European limits.

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French Government Wants New Solar Energy Rules by Mid-February

The French government has asked Jean-Michel Charpin to lead talks with the country’s solar industry aimed at adopting new regulations for development of the energy in France.

In a statement, French government ministers including Finance Minister Christine Lagarde said the consultations with industry should lead to a regulatory framework by the middle of February.

The government has warned of a “speculative bubble” in the industry.

Banks Told by U.K. FSA to Improve Liquidity Management

Britain’s banks may be vulnerable to market crises because they don’t ensure they have enough liquid assets to meet daily obligations, the U.K. Financial Services Authority said in a draft proposal.

The FSA said that it had found areas of “concern” when surveying banks’ compliance with liquidity rules. Shortfalls include the way some banks measure risks to cash flow, how they manage the stocks of liquid assets during the trading day and their management of collateral.

“A majority of firms did not give enough evidence that they actively managed their intra-day liquidity positions, especially under stressed conditions,” the FSA said on its website. “History has demonstrated” that non-receipt of a payment during the trading day “could be the tipping point” for a lender to become insolvent, the FSA said.

Regulators are seeking to strengthen banks’ stocks of cash and other liquid assets to prevent them from collapsing during a credit crunch. An exodus of deposits from Irish lenders sparked a liquidity shortfall that led European governments and the International Monetary Fund on Nov. 28 to agree on an 85 billion-euro ($114 billion) aid package for the country.

The Committee of European Banking Supervisors said in August that banks should carry out such reverse stress tests to identify scenarios that may threaten their solvency.

CDS Probe Shows Trading Curb Unneeded, Hedge Fund Group Says

The Alternative Investment Management Association, which represents hedge funds, urged policy makers against imposing “radical curbs” on credit-default swaps after a European Commission report found trading in the instruments didn’t trigger Greece’s financial crisis.

The commission’s “own report has concluded that sovereign CDS trading did not cause the sovereign debt crisis,” AIMA Chief Executive Officer Andrew Baker said in a statement yesterday in London.

Baker’s comments addressed a European Commission investigation completed in May that found “no conclusive evidence” CDS trading led to “higher funding costs” for member states. A report disclosing the findings was released yesterday after the Dutch newspaper Het Financieele Dagblad obtained the document through a freedom of information request.

The commission earlier this year proposed limits on so-called naked short-selling of swaps in which market participants bet prices will fall without ever holding the underlying bonds.

Chantal Hughes, an EU spokeswoman, confirmed the report’s authenticity. “It’s an interim report and clearly shows that there is no conclusive evidence one way or another” as to how credit default swaps affect the bond market, she said.

Compliance Action

Chemical Wholesalers Get $20 Million Price-Fixing Fine

Germany’s antitrust regulator fined 12 chemical wholesalers a total of 15.1 million euros ($20.2 million) as part of a probe into regional price fixing.

The fines are the result of a settlement between the companies and the Bonn-based Federal Cartel Office, the regulator said in an e-mailed statement yesterday. Among those to pay fines are units of Solvadis Holding Sarl, Overlack AG, Stockmeier Holding GmbH and Julius Hoesch GmbH, the office said. All of the companies cooperated with the probe.

The probe started in 2006 after Brenntag AG, which took part in the cartel, applied to the regulator for leniency. As a result, Brenntag wasn’t fined, the office said. The regulator is investigating 16 additional wholesalers that weren’t identified in the statement.

A lawyer for the Solvadis unit declined to comment. Stockmeier and Julius Hoesch representatives didn’t immediately return calls seeking comment.

Brenntag bolstered its compliance efforts and there is zero tolerance for antitrust violations at the company, its spokesman, Hubertus Spethmann, said.

Kenyan Government to Regulate Fuel Prices, Daily Nation Says

Kenya plans to regulate the price of fuel starting Dec. 15, capping the mark-up to 6 shillings (7 cents) a liter for wholesalers and 3 shillings a liter for retailers, the Daily Nation reported, citing a government gazette notice.

Kenya’s Energy Ministry will decide monthly whether the increase will remain at the same level or be adjusted, the Nairobi-based newspaper said. KenolKobil Ltd., a Kenyan fuel retailer, said a government-imposed price cap on fuel could lead to product shortages, according to the newspaper.


Mutual Fund Company Shareholder Suits May Divide High Court

The U.S. Supreme Court, hearing arguments in a case involving Janus Capital Group Inc., debated placing new restrictions on securities fraud suits by shareholders of mutual fund companies.

The justices yesterday reviewed a federal appeals court decision letting shareholders sue Janus and a subsidiary for helping produce allegedly misleading prospectuses for Janus mutual funds. Janus contends that the funds are separate legal entities and that neither the parent company nor the subsidiary were responsible for the prospectuses.

The case is a follow-up to a 2008 Supreme Court decision that restricted securities suits against a company’s banks and business partners. Yesterday’s case, like the case in 2008, is expected to divide the court along ideological lines.

The latest fight stems from allegations that the Janus funds allowed preferred clients to engage in market timing, a practice of making frequent, short-term trades at the expense of other investors. Denver-based Janus agreed in 2004 to pay $201 million and cut fees by $125 million to settle claims by state and federal regulators.

Janus’s subsidiary, Janus Capital Management LLC, serves as the investment adviser to the funds, with day-to-day responsibility for their management.

The case is Janus Capital Group v. First Derivative Traders, 09-525.

Bank of America to Pay $137 Million in Muni Bid-Rigging Cases

Bank of America Corp. agreed to pay $137 million to settle investigations of its involvement in a conspiracy to rig bids on 88 municipal bond contracts, the U.S. Securities and Exchange Commission and Justice Department said.

Bank of America, based in Charlotte, North Carolina, agreed to pay $36 million to settle an SEC case. The bank will pay an additional $101 million to resolve investigations by other federal and state agencies, the SEC said.

Bank of America has been aiding a nationwide Justice Department probe since at least 2007 in return for leniency. The settlement also involves 20 states, the Office of the Comptroller of the Currency, the Internal Revenue Service and the Federal Reserve Bank, Connecticut Attorney General Richard Blumenthal said in a release.

“Bank of America is pleased to put this matter behind it and has already voluntarily undertaken numerous remediation efforts,” the company said in a statement.

Eight former bankers and financial advisers, including former employees of UBS AG, JPMorgan Chase & Co. and Bank of America, have pleaded guilty in connection with the probes.

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Ex-Law Firm Technology Manager Accused of Insider Trading

U.S. regulators sued a former law firm employee, claiming he reaped illegal profits by trading on inside information about acquisitions including Cerberus Capital Management LP’s July purchase of DynCorp International Inc.

Jeffrey Temple, 40, traded in advance of at least 22 buyouts since June 2009 while serving as technology manager for the law firm, the Securities and Exchange Commission said yesterday in a lawsuit filed in federal court in Wilmington, Delaware. Temple and his brother-in-law, Benedict Pastro, reaped more than $182,000 in illegal profits from the trades, the SEC said in the suit, which didn’t identify the law firm.

Temple also traded ahead of 2009 announcements about Google Inc.’s planned acquisition of On2 Technologies and Disney Inc.’s bid for Marvel Entertainment Inc., the SEC said.

The SEC is seeking disgorgement of profits and unspecified penalties.

Phone calls to Elizabeth Moskow-Schnoll, Temple’s attorney at Ballard Spahr LLP, and Daniel Lyons, a lawyer for Pastro, weren’t returned.


Jaczko Sees Licensing of New Reactors in 12-18 Months

Gregory Jaczko, chairman of the Nuclear Regulatory Commission, discussed the outlook for construction of new nuclear-power reactors in the U.S. and the disposal of nuclear waste.

Jaczko, who spoke with Margaret Brennan on Bloomberg Television’s “InBusiness,” said the NRC will start making decisions on applications to build new U.S. reactors in 12 to 18 months.

For the video, click here.

Taylor Calls for Substantial Changes to Muni Bond Rules

Christopher Taylor, former executive director of the Municipal Securities Rulemaking Board, talked about Bank of America Corp.’s agreement to pay $137 million in restitution for its involvement in a conspiracy to rig bids on 88 municipal bond contracts.

Taylor spoke with Carol Massar and Matt Miller on Bloomberg’s “Street Smart.”

For the video, click here.

Swan Says Australian Bank Reforms to Support Funding Diversity

The Australian government’s planned banking reforms will include measures that support stability and a diversity of funding sources for the entire banking system, Treasurer Wayne Swan said in a speech in Brisbane yesterday.

Details of the plan will be announced within the next week, he said, according to the prepared text of a speech to a business audience.

Comings and Goings

Goldman Sachs Hires Markowitz From New York Attorney General

Goldman Sachs Group Inc. hired David A. Markowitz from the New York Attorney General’s office.

Markowitz will be an associate general counsel and a senior member of the litigation and regulatory proceedings group, said David Wells, a spokesman for New York-based Goldman Sachs. Before joining the attorney general’s office in 2008, where he was chief of the investor protection bureau, Markowitz worked on the New York office staff of the U.S. Securities and Exchange Commission for eight years.

Goldman Sachs paid $550 million in July to settle fraud charges filed by the SEC, the largest such settlement ever by a Wall Street firm. The Wall Street Journal said last month that Goldman Sachs bankers are under investigation for allegedly leaking information about health-care transactions to help certain investors.

Wells declined to comment. The Journal reported Markowitz’s move yesterday on its website.

At the SEC, Markowitz’s last role was as assistant regional director. He led insider-trading cases among others, according to a biography published on the Practising Law Institute website.

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