Dodd-Frank Repeal, OCC Bank Probe, Daley: Compliance

U.S. Representative Michele Bachmann, founder of the House Tea Party Caucus, introduced a bill to repeal the Dodd-Frank financial overhaul law.

Bachmann, pushing the bill on the second day of the new congressional session, said yesterday in a statement that the law signed by President Barack Obama in July “grossly expanded the federal government beyond its jurisdictional boundaries.”

Representative Darrell Issa, a California Republican who chairs the House Oversight Committee, is an original co-sponsor of the repeal bill, Bachmann’s statement said.

House Republicans assumed control of the chamber yesterday, with Speaker John Boehner of Ohio taking the gavel from Nancy Pelosi, a California Democrat. Boehner said last year that he supported a repeal of Dodd-Frank and Representative Spencer Bachus, the Alabama Republican and new chairman of the House Financial Services Committee, said he would try to change several provisions.

Bachmann, a Minnesota Republican, served on the Financial Services panel when the committee considered the financial regulatory overhaul.

Representative Barney Frank, co-author of the law and former chairman of the Financial Services Committee, said the bill “reveals the hypocrisy” of Republican statements on the economy.

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Compliance Policy

Ireland May Set Up Second Agency to Help Shrink Banks

Ireland may set up a second asset-management agency to slim down the country’s banking system and help lenders reduce their reliance on European Central Bank funding.

The National Asset Management Agency, established in 2009, purged banks of about 71 billion euros ($92 billion) of risky commercial real-estate loans. Now, a second organization is being considered, Jill Forde, a spokeswoman for the Dublin-based central bank, said yesterday by telephone.

Ireland was forced to resort on Nov. 28 to an 85 billion-euro aid package, led by the European Union and the International Monetary Fund, on investor concern the cost of rescuing lenders including Anglo Irish Bank Corp. would swamp the state. About 35 billion euros is earmarked for the country’s banks.

As part of the accord, Ireland’s central bank agreed to the “steadily deleveraging” of the banking system and measures to cut the lenders’ dependence on short-term funding from the European Central Bank.

Matthew Elderfield, head of financial regulation at the central bank, said in an interview with the Irish Independent yesterday that a second asset-management agency could take over non-core assets such as the whole of a bank’s U.K. division. It could warehouse these assets as they are being prepared for sale, he said.

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Hutchison Says Spectrum Change May Cause Consolidation

Hong Kong billionaire Li Ka-shing’s Hutchison Whampoa Ltd. said U.K. regulator Ofcom’s decision to open more frequencies for fast-Internet technology could distort the mobile-phone market and may lead to further consolidation.

Ofcom is the U.K.’s communications industries regulator.

Spectrum that was restricted to voice phone calls and text messages using earlier 2G technology is now also available for mobile operators to offer wireless Internet and other high-capacity data services, the regulator said yesterday in a statement. The move is unlikely to distort competition, Ofcom said.

U.K. operators including the newly merged mobile-phone units of Deutsche Telekom AG and France Telecom SA are seeking access to additional mobile spectrum to cope with increasing demands for data. The merger of the two units to form Everything Everywhere reduced the number of operators to four. The new company, Telefonica SA’s O2 and Vodafone Group Plc will be able to offer more applications such as video on smartphones after Ofcom’s decision.

Ofcom plans to add frequencies in an auction in the first quarter of 2012, with the bandwidth available for use in 2013, Chief Executive Officer Ed Richards said in November.

Gas Extraction Rules Should Be Avoided by U.S., Lawmakers Say

Natural-gas production from federal lands using water and chemicals shouldn’t be constrained by Interior Department regulations, a bipartisan group of House members said.

Energy companies that inject liquids into rock to extract natural gas, a process called hydraulic fracturing, may be ordered to disclose the mixture’s ingredients, to show they use materials that don’t hurt the environment, U.S. Interior Secretary Ken Salazar said on Nov. 30.

Lawmakers led by Representative Tim Murphy, a Pennsylvania Republican, and Dan Boren, an Oklahoma Democrat, said in a letter to Salazar dated Jan. 4 that most hydraulic fracturing is safe and raised concern that hastily created regulatory burdens will increase energy costs to consumers.

Expansion of fracturing has triggered opposition in communities where residents say the mixture may taint local drinking water.

The Environmental Protection Agency is gathering data for a report ordered by Congress on the effect of fracturing on drinking water. The lawmakers wrote that the department should delay any regulations until the study is completed in 2012.

The Interior Department is reviewing the letter, Kendra Barkoff, an agency spokesman, said yesterday in an e-mail.

Banks’ Senior Debt Holders May Face Losses Under EU Crisis Plan

The European Union proposed that bank regulators be granted powers to write down lenders’ senior debt and veto new products, as part of a package of measures to protect taxpayers from future financial crises.

Options being considered include empowering authorities to write down or convert into equity “all senior debt deemed necessary to ensure the credit institution is returned to solvency,” the European Commission said today.

The EU is aiming to avoid a repeat of the financial crisis that followed the 2008 failure of Lehman Brothers Holdings Inc. and resulted in European governments setting aside more than $5 trillion to support banks. The plans echo calls from the Financial Stability Board for regulators to ensure that lenders can be wound down without taxpayer support.

Under the plan, national regulators of cross-border banks would also get powers to prevent “the development or sale of new business lines or products” if it would make it harder to wind down the lender in a future crisis situation.

The commission, the executive arm of the 27-nation EU, said it’s seeking views on its proposals until March 3 and intends to present draft legislation on the plans in June. The measures would then need approval from governments and lawmakers in the European Parliament.

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U.K.’s FSA May Seek to Block Hostile Bank Takeovers, WSJ Says

The U.K.’s Financial Services Authority may ask the government for powers to block hostile takeovers in the banking industry in order to preserve financial stability, the Wall Street Journal reported, citing a speech by FSA Chairman Adair Turner.

He said “aggressive, contested” takeover bids don’t allow as much due diligence to be carried out as in agreed mergers, citing Royal Bank of Scotland Plc’s takeover of ABN Amro NV as an example.

The FSA, therefore, is considering asking the government to introduce legislation empowering the regulator to refuse aggressive takeovers, the Journal said.

U.S. Commodity Regulator to Discuss Speculation Curbs Jan. 13

The top U.S. commodity regulator will consider a plan next week to curb speculation in raw materials including oil, gold and wheat as part of the Dodd-Frank law regulations.

The Commodity Futures Trading Commission said yesterday that it will discuss position limits at their next meeting on Jan. 13. The rules would cap the number of contracts traders can hold.

The Dodd-Frank Act gave the CFTC until January to rein in speculation in the energy and metals markets and until April for agricultural commodities. Last month, CFTC Chairman Gary Gensler told lawmakers the commission wouldn’t meet the deadline because it doesn’t yet have sufficient data.

The commission delayed a vote on the proposal at a Dec. 16 public meeting.

Compliance Action

OCC Probing 39 U.S. Lenders for Lapses Including Self-Dealing

The U.S. regulator that oversees nationally chartered financial institutions is investigating 39 banks or bank officials for a range of regulatory or criminal misconduct including insider dealing.

Daniel P. Stipano, deputy chief counsel of the Office of the Comptroller of the Currency, said in an interview with Bloomberg News that the allegations also include money laundering, unfair lending and unsound banking practices. Some cases might be referred to law enforcement agencies for prosecution, he said.

Stipano declined to say which banks or bank employees are the subject of scrutiny. The agency is prepared to impose penalties if it finds that regulations were violated, he said. However, if the agency finds evidence of criminal misconduct, it will refer the case to law-enforcement agencies.

The OCC, an independent unit within the U.S. Treasury Department, supervises 1,487 national banks with total assets of $8.5 trillion, according to an annual report dated Oct. 1. The agency hasn’t previously disclosed the number of investigations it is conducting and Stipano declined to provide figures for previous years.

Treasury Prohibits U.S. Citizens From Dealings With Gbagbo

The U.S. Treasury Department barred Americans from conducting financial or commercial transactions with former Ivory Coast President Laurent Gbagbo, his wife and three advisers.

“Today’s designations will isolate him and his inner circle from the world’s financial system and underscore the desire of the international community that he step down,” Adam J. Szubin, director of the Treasury’s Office of Foreign Assets Control, said in a statement yesterday.

EU Burden Sharing Proposal Pushes Up Senior Bond Insurance Cost

European Union proposals that pave the way for senior bondholders to share in the losses of failing banks are pushing the cost of debt insurance to a six-month high.

The Markit iTraxx Financial Index of credit-default swaps protecting the senior debt of 25 European banks and insurers rose 16.5 basis points since a draft plan was circulated on Jan. 4, and climbed to 185.5 basis points, the highest since June 9, according to JPMorgan Chase & Co. prices at 11 a.m. in London.

The proposal for so-called bondholder burden sharing is part of EU plans to protect public finances from future financial crises, which may also give regulators the power to block new products and limit trading risks at banks they consider too big to fail. Senior bank swaps are also rising as banks in the region increase issuance of covered bonds.

The proposals for burden-sharing will only apply to bonds issued after the regulations come into force, probably in 2013, according to the discussion paper obtained by Bloomberg News.


ACA Financial Guaranty Sues Goldman Sachs for Fraud

ACA Financial Guaranty Corp. sued Goldman Sachs Group Inc. for at least $120 million, alleging fraud and unjust enrichment in connection with a mortgage-linked investment that last year led to a $550 million settlement between the bank and U.S. Securities and Exchange Commission.

ACA is a guarantor of municipal bonds.

Goldman Sachs developed and sold the collateralized debt obligation known as Abacus for hedge-fund client Paulson & Co. in 2007, according to the complaint filed yesterday by ACA in New York state court in Manhattan.

Abacus was “worthless” when Goldman Sachs marketed it to ACA, a bond insurance company, the suit alleges.

Goldman Sachs agreed to the SEC settlement in July over claims the bank misled investors in CDOs linked to subprime mortgages. The New York-based bank didn’t admit or deny wrongdoing as part of the settlement.

The SEC lawsuit, filed in April, claimed Goldman failed to disclose that Paulson helped pick the underlying securities and bet against the investment vehicles. As part of the settlement, Goldman acknowledged it was a “mistake” for its marketing materials to state that the portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson in the selection process.

Other suits over the Abacus transaction are pending.

The case is ACA Financial v. Goldman Sachs & Co., 650027/2011, New York state Supreme Court (Manhattan).


Mendelson Calls Scrutiny of Secondary Market ‘Noise’

Jason Mendelson, managing director at Foundry Group, talked with Bloomberg’s Cris Valerio about regulatory scrutiny of so-called secondary transactions that involve companies that have yet to go public. They spoke at the Consumer Electronics Show in Las Vegas.

“There’s a lot of financial engineering going on right now,” Mendelson said. There are also “bankers sitting on the sidelines hoping these lawyers figure it out,” he said, referring to ways to create secondary transactions.

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Comings and Goings

Obama Picks JPMorgan’s Daley for Chief of Staff Job

President Barack Obama named William Daley, a JPMorgan Chase & Co. executive and former commerce secretary, as his chief of staff, putting a Washington veteran with strong ties to business into a key White House job.

Daley, 62, is the youngest son of the late Richard J. Daley, who served more than 21 years as Chicago’s mayor, and the brother of the city’s current mayor, Richard M. Daley. He was a political mentor to Rahm Emanuel, Obama’s former chief of staff, who is now running for mayor of Chicago.

Daley’s appointment comes amid a retooling of the administration as Obama prepares an agenda for the second half of his term, which includes an effort to repair relations with businesses after coming under fire from industry groups.

After serving as president of SBC Communications for more than two years, Daley joined New York-based JPMorgan, the second-biggest U.S. bank by assets, in 2004, serving as Midwest chairman and the bank’s head of corporate responsibility. He also serves on several corporate boards, including Boeing Co. and Abbott Laboratories. Daley was named by Clinton to the board of Washington-based Fannie Mae in October 1993 and was reappointed in 1995.

Daley’s ties to the business and financial community may help the administration as Obama continues an effort to increase cooperation between government and business to accelerate the nation’s economic recovery.

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FrontPoint Starts Hedge Funds After Firing Health-Care Team

FrontPoint Partners LLC closed a debt fund to new investors after winning more than $1 billion in commitments and plans to start two new funds this year, after it had to shut down its health-care fund because of an insider-trading probe.

FrontPoint, based in Greenwich, Connecticut, sees the biggest opportunities in emerging markets, commodities and European credit, according to Michael Kelly, co-chief executive officer of the firm. FrontPoint will hire people from outside the firm to staff the funds, he said. The funds will probably start in the second half of the year.

FrontPoint fired all 12 members of its health-care team last month, after client withdrawals of about $3 billion. Chip Skowron, co-manager of the firm’s health-care funds, was put on leave in connection with a probe into insider trading by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.

FrontPoint has said it’s “cooperating fully” with federal authorities. Neither the firm, which had $7.5 billion under management at the beginning of November and now manages about $4.5 billion, nor Skowron have been accused of wrongdoing.

Kelly said the firm has “a great deal of support from big investors” and “we’ve been able to move forward.”

SFC’s Wheatley Considered to Head New U.K. Regulator, FT Says

Martin Wheatley, chief executive officer of Hong Kong’s Securities and Futures Commission, is a leading candidate for the top post at the U.K.’s planned Consumer Protection and Markets Authority, after it is created out of the Financial Services Authority next year, the Financial Times said, without attribution.

The leading internal candidate for the job is Margaret Cole, the FSA’s director of enforcement, the newspaper said.

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