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‘Important’ Banks, Pay Gap, Bond Mandate: Compliance

Jan. 25 (Bloomberg) -- Societe Generale SA Chief Executive Officer Frederic Oudea said global plans to list banks deemed systemically important and make them hold extra capital may backfire by creating more lenders that are too big to fail.

Banks have “real concerns” about the Financial Stability Board and other regulators “designating groups of firms” as systemically important, said Oudea, adding that lenders are also seeking changes to liquidity rules drawn up by the Basel Committee on Banking Supervision.

Oudea, who chairs the Institute of International Finance’s steering committee on regulatory capital, made the comments yesterday in a statement on behalf of the IIF. The Basel measures on liquidity may constrain lending and make banks hold too much sovereign debt, Oudea said.

The FSB plans to finish by mid-2011 a first list of lenders that are systemically important on a global scale. Globally significant lenders are so big that their “distress or failure would cause significant dislocation in the global financial system and adverse economic consequences across a range of countries,” the board said in November.

The FSB was set up by the Group of 20 nations in 2009 to oversee the work of groups setting international financial rules. The IIF represents more than 400 financial firms around the world.

For more, click here.

Compliance Policy

U.S. Treasury’s Report on Fannie, Freddie Reform Delayed

A Treasury Department report on the future of U.S.-owned mortgage companies Fannie Mae and Freddie Mac will be delivered to Congress in the first half of February, rather than by the end of this month as prescribed under the Dodd-Frank regulatory overhaul law, an official said.

Fannie Mae, based in Washington, and Freddie Mac of McLean, Virginia, have been surviving on taxpayer aid since they were taken over by the federal government in 2008 amid mounting losses linked to subprime mortgages. They have drawn more than $150 billion in taxpayer funds to remain solvent.

Under Dodd-Frank, the administration was to deliver a proposal for ending the losses and restructuring the nation’s mortgage finance system before the end of January.

Treasury Secretary Timothy F. Geithner instead will deliver the report in mid-February so the timing won’t interfere with the president’s State of the Union speech today and President Barack Obama’s budget proposal the week of Feb. 13, according to an administration official who spoke on condition of anonymity because the timing hasn’t been made public.

Representative Randy Neugebauer, a Texas Republican who leads the investigative panel of the House Financial Services Committee, said he is “disappointed” in the administration’s delay.

The Wall Street Journal previously reported the delay.

U.S. Regulators May Shrink Wall Street Pay, Bonuses

Workers at big Wall Street banks took modest cuts in pay last year even as financiers continued to outpace other professionals in earnings -- a gap that regulators and lawmakers are working to narrow.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.’s investment bank spent an average of $330,212 on salaries, bonuses and benefits for each of their 124,556 workers in 2010, according to financial reports released since Jan. 14. That’s down 2.7 percent from 2009.

Investment bankers still make much more than other experienced professionals earn, even in jobs as complex and high-stress as those on Wall Street. Bank compensation consultants say it remains to be seen whether new federal regulations will have much impact on the gap.

Investment bank compensation typically includes a salary and a bonus, which can include cash or can be in the form of stock and stock options. The new rules mandated by Dodd-Frank are widely expected to include requirements that banks use deferred compensation for a portion of executive pay.

The proposals will follow compensation guidelines issued by the Federal Reserve and three other regulators in June. They said a review of pay practices found many big banks to be “deficient” in curtailing the risk-taking that fueled the financial crisis.

The agencies are required to complete the rules by April.

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U.K.’s FSA Considers Tougher Consumer-Protection Measures

The U.K. Financial Services Authority said it may toughen oversight of financial products sold to the general public, as it prepares to be split into two new regulators.

Closer supervision may include “product stress testing to ensure that likely risks” are “fully understood and assessed from a customer’s point of view.” Measures to “guard against likely mis-sales” are also under consideration, according to a report on the FSA’s website.

Consumer protection, as well as enforcement of both civil and criminal market-abuse rules, will be carried out by the Consumer Protection and Markets Authority after the U.K.’s financial regulator is abolished by 2012.

Investors May Get Help Recovering Losses From French Regulator

Investors who lose money because of violations of financial-market rules may get help recovering damages from French regulator the Autorite des Marches Financiers under a proposal.

The regulator should study the cost of market abuses to investors and savers in its investigations and provide the findings to judges for victims to use in lawsuits to recover their losses, an AMF advisory committee said today.

While the AMF lacks the authority to order institutions to pay back what the abuses cost individuals, the French parliament raised the amount it can levy in fines.

The AMF asked for comments on the proposal through the end of next month.

Compliance Action

SEC Creates ‘Worthless’ Mandate for Asset-Backed Bond Issuers

The U.S. Securities and Exchange and Commission failed investors by allowing issuers of asset-backed bonds to conduct their own checks of data on the underlying debt, said Sue Allon, founder of a mortgage-review company.

Allon said a review conducted by the issuer is “worthless.” Her company, Denver-based Allonhill LLC, provided audits on the only set of new U.S. home loans securitized in almost three years.

The agency on Jan. 20 approved rules that will force issuers to conduct reviews of loans and leases packaged into securities and disclose information about the results. The SEC, creating regulation required by the Dodd-Frank financial-overhaul law, said bond sellers could hire third parties to handle the audits, without mandating the use of outside companies even as it created increased liability for such firms if they are hired.

The securitization industry contributed to the U.S. housing bubble that peaked in 2006, helping spark almost $2 trillion of losses at the world’s largest financial companies, many of which survived only as a result of government bailouts, according to data compiled by Bloomberg.

John Nester, an SEC spokesman, declined to comment.

For more, click here.

HP Probe by German Prosecutors Again Seeks Help From Russia

German prosecutors probing bribery allegations at Hewlett-Packard Co., the biggest maker of personal computers and printers, have sent another request for assistance to Russia.

Russian authorities were asked “very recently” to interview several witnesses in the case, Wolfgang Klein, spokesman for Saxony’s Chief Prosecutor’s Office in Dresden, Germany, said in an interview yesterday. Information Russia provided last year prompted the latest request, Klein said.

Dresden prosecutors are investigating whether current and former Hewlett-Packard employees engaged in bribery, improper use of funds and tax evasion. Hewlett-Packard is cooperating with the investigation, Ina Ramsaier, a German spokeswoman for the Palo Alto, California-based company said.

The U.S. Justice Department and the Securities and Exchange Commission joined the probe in September and are also examining whether Hewlett-Packard violated the Foreign Corrupt Practices Act. Germany has shared findings in the case with U.S. investigators.

SEC Opens Investigation Into Massachusetts Treasurer’s Office

The U.S. Securities and Exchange Commission has subpoenaed documents from the Massachusetts Treasurer’s office a month after Bloomberg News reported that a Goldman Sachs Group Inc. banker aided former Treasurer Tim Cahill’s failed run for governor.

Al Gordon, a treasury spokesman, said in an e-mail yesterday that the office is cooperating fully with the request for documents, and declined to comment further.

The Boston Globe reported yesterday that the SEC is probing links between Cahill and Neil Morrison, a former Goldman Sachs investment banker in Boston who worked as an adviser to the treasurer’s gubernatorial campaign last year while he was still employed by the bank. The Globe cited an official briefed on the document request.

Gordon declined to comment on the report. Morrison didn’t immediately return a call to his home and an e-mail to his personal account. John Nester, an SEC spokesman, didn’t immediately return an e-mail and telephone call seeking comment.

Michael DuVally, a Goldman Sachs spokesman, declined comment on the SEC probe.

Ofgem Approves Expansion of Scotland’s High-Voltage Networks

Ofgem, the U.K. energy regulator, approved investment of 95 million pounds ($150 million) to boost the capacity of Scotland’s high-voltage energy networks.

Most of the money will be spent by National Grid Plc and Iberdrola SA’s Scottish Power unit upgrading the interconnector between Scotland and England to allow for more exports of renewable energy from Scotland, the London-based regulator said in an e-mailed statement today.

Polish CO2 Registry Expects Suspension to Extend Past Jan. 26

Poland’s carbon registry said it will most likely face an extended suspension beyond Jan. 26 because it doesn’t have in place yet the additional security measures demanded by the European Union to lift the trading restrictions.

It is too early to say when the database, which tracks emissions ownership, will be allowed to resume full operations, Malgorzata Sedziwa, a Warsaw-based official at the registry, said by telephone today. A supplementary check was ongoing, she said.

The EU regulator in Brussels on Jan. 19 blocked most transactions in the European registries after a series of computer-hacking attacks.


JPMorgan Wins at U.S. High Court in Credit-Card Case

The U.S. Supreme Court, ruling in favor of a JPMorgan Chase & Co. unit, shielded banks from some lawsuits by consumers whose credit-card interest rates were increased after they went into default.

The justices yesterday unanimously said that a Federal Reserve Board regulation, since changed, let Chase Bank USA raise James A. McCoy’s interest rates without notifying him. Chase’s cardholder agreement said the company could impose higher rates in the event of a default.

In siding with Chase, the court said it was deferring to the Fed’s interpretation of the rule, known as Regulation Z. Although the Fed changed the regulation in 2009 to require notification to defaulting customers, the Obama administration argued that companies before then didn’t have to provide notice.

The San Francisco-based 9th U.S. Circuit Court of Appeals had ruled against Chase in a decision that led to similar suits being filed in California against other banks.

The case is Chase Bank v. McCoy, 09-329.

Innospec Former Chief Settles Foreign Bribe Case With SEC

The former chief executive officer of Innospec Inc., Paul W. Jennings, agreed to settle foreign bribery allegations brought by the U.S. Securities and Exchange Commission.

Jennings agreed to pay about $229,000 in penalties to resolve claims that he bribed Iraqi and Indonesian officials to win contracts for the company’s specialty chemicals, the SEC said in a statement. The agency filed a civil complaint yesterday against Jennings in federal court in Washington.

Jenning’s attorney, Jay Holtmeier, didn’t immediately return a telephone message seeking comment. Innospec spokesman Brian Watt declined to comment on Jennings’s settlement, saying the company resolved its matter with authorities last year.

The case is U.S. Securities and Exchange Commission v. Jennings, 11-cv-00144, U.S. District Court, District of Columbia (Washington).

For more, click here.

British Bankers to Challenge FSA Over Credit-Insurance Rules

The British Bankers’ Association is challenging the U.K. finance regulator’s plan to change rules on how consumer complaints over payment-protection insurance should be treated.

At a court hearing in London today, the BBA planned to ask Judge Duncan Ouseley to stop the Financial Services Authority from imposing the requirements because it is unclear under the law how the complaints should be handled, the BBA said in an e-mailed statement.

Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc are among U.K. banks that may have to pay as much as 5.1 billion pounds ($8.2 billion) in compensation and costs for improper PPI sales, Morgan Stanley analysts said in a report published in October. U.K. antitrust regulators also cracked down on the product, banning banks from selling most types of PPI at the same time they sell the loans it insures.

PPI is used to cover payments on credit cards and mortgages in case of illness or unemployment. Customers who bought PPI weren’t aware they could have bought the product from competing companies, the U.K.’s Competition Commission has said. The agency, which defends its new complaint-handling measures as a fair solution, says it will “vigorously” contest the BBA’s challenge.

The FSA issued its new guidelines in August and clarified them in November after the BBA asked for a court review. Firms reject almost half the PPI complaints they received, and “some reject nearly all,” the FSA said in August.

Britain’s Financial Ombudsman has identified tens of thousands of cases of “mis-selling” according to a statement issued today by Adam Phillips, the chairman of the U.K.’s financial-services consumer panel.


EFSF’s Lending Capacity to Be Boosted, Juncker Tells RTBF

Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said ministers are working to strengthen Europe’s safety net for debt-laden countries.

Juncker made the remarks during a RTBF radio interview broadcast on Jan. 22. The ministers will do “everything possible” to increase the level of the lending capacity of the European Financial Stability Facility, Juncker said.

Nations from the 17-member euro area are in talks about expanding the lending capacity of the EFSF and widening its role to include debt purchases.

Silva Says All European Banks Remain Undercapitalized

Ralph Silva, a strategist at Silva Research Network, talked about the outlook for Spain’s savings banks and the U.K.- sponsored Independent Commission on Banking. He commented on the prospects for compliance with Basel III and the future of the cajas.

“The cajas absolutely have to merge,” Silva said. “They’re overly reliant on the mortgage business.”

He spoke with Francine Lacqua on Bloomberg Television’s “On The Move.”

For the video, click here.

Comings and Goings

Saudi Arabia Approves New Board for Stock Exchange

Saudi Arabia’s cabinet approved a new board for the Saudi Stock Exchange for a three-year term, according to a statement on the bourse website today.

The nine-member board will comprise Mansour Bin Saleh Al Mayman of the Ministry of Finance, Abdullah A. Al-Hamoudi of the Ministry of Commerce and Industry, and Abdulrahman Al-Hamidy of the Saudi Arabian Monetary Agency.

Bisher M. Bakheet, Ahmed Al-Khateeb, Taha A. Al-Kuwaiz and Abdulrahman Yahya Al-Yahya will represent brokerage companies, while Saudi Telecom Co. Chief Executive Officer Saud Bin Majid Al Daweesh and Knowledge Economic City Chairman Sami Baroom will represent companies listed on the bourse.

Baroum and Bakheet replaced former board chairman Fahad Al-Mubarak and board member Ahmed Farid Al-Aulaqi.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: David E. Rovella at

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