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Danish Bond Losses, Solvency II, Hanoi Exchange: Compliance

Denmark is trying to persuade the rest of Europe to match rules exposing bondholders to losses after the failure of a regional bank last month left lenders in the Nordic country risking higher funding costs.

The collapse of Amagerbanken A/S on Feb. 6 forced a 41 percent loss on unsecured senior bonds and prompted Moody’s Investors Service 10 days later to cut ratings on five Danish lenders, including Denmark’s biggest, Danske Bank A/S, as it factored out state protection. The insolvency was the first to test rules Denmark put in place in October and set a European Union precedent for senior creditor losses amid a region-wide debate on burden sharing.

Thomas Broeng Joergensen, acting director of international financial affairs at the Copenhagen-based Financial Supervisory Authority, said in a March 20 e-mail that “a level playing field in Europe is crucial for ensuring an effective, transparent single market.”

Denmark is arguing the financial crisis hasn’t adequately stemmed risk-taking amongst bond investors and wants the EU to enforce the “possibility of debt writedowns” to discipline markets, according to a March 4 letter sent to the European Commission. EU financial services chief Michel Barnier in January said bank regulators should be able to write down lenders’ senior debt, though a final agreement has yet to be reached.

Separately, Bank of England Chief Cashier Andrew Bailey said creating a “credible” plan to force bank bondholders to share losses when a lender collapses will increase discipline in running banks. Bailey made the remarks at The Economist’s Future of Banking conference in Paris yesterday.

For more about Denmark, click here.

For more about Bailey’s remarks, click here.

Compliance Policy

EU Insurer Rules Will Need ‘Fine Tuning,’ Regulator Eiopa Says

Solvency II, the planned risk-based regulatory framework for European insurers, needs to be simplified before it’s introduced in 2013, the regulator overseeing the industry said.

Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, made the remarks to reporters in Frankfurt yesterday.

The proposed regime for EU insurers, which is being developed by the European Commission, Frankfurt-based Eiopa and local regulators, has been criticized by the industry for being too complex. The rules were tested in a fifth quantitative impact study, named QIS5, from August to November.

Regulators will work on reducing volatility that may be induced by the rules, “especially for long-term insurance products,” Bernardino said. It would also “make sense” to allow for transitional periods in areas such as “equivalence, hybrids and technical provisions,” he said.

Eiopa will publish details this week on a stress test that will be conducted among European insurers, Carlos Montalvo, executive director-elect of Eiopa, said at a press conference.

Swiss Christian Democrats Back Too-Big-To-Fail Bank Proposals

Switzerland’s Christian Democrats are backing the government’s proposals to limit risk-taking by UBS AG and Credit Suisse Group AG.

The proposals were criticized by three of the country’s four biggest political parties, casting doubt on the timetable for parliamentary approval.

While the Social Democrats said the capital requirements are insufficient, the Swiss People’s Party wants “concrete measures” to split up the banks in a crisis situation so that failing units don’t threaten the economy. The Swiss Liberals, by contrast, said the government’s organizational requirements, in case of a potential failure, are too harsh.

Swiss rule-makers want UBS and Credit Suisse, which each have assets more than twice the size of the Alpine economy, to hoard capital to cut the risk of an Icelandic-style collapse. Swiss central bank President Philipp Hildebrand yesterday said he remains confident that the proposals will be turned into law.

Parties and industry groups had until today to comment on too-big-to-fail proposals based on an Oct. 4 report from a government-appointed panel of experts. The proposals will be updated and sent to lawmakers next month. They could be approved at the earliest during parliament’s three-week autumn session, which starts on Sept. 12, Swiss parliament spokesman Mark Stucki said last month.

For more, click here, and click here.

FDIC to Weigh Mortgage Risk and Living Will Rules on March 29

The Federal Deposit Insurance Corp. may vote to seek comment next week on a proposal for requiring lenders to retain risk when they bundle mortgages for sale to investors, according to a statement released by the agency.

The FDIC board will consider a notice of proposed rulemaking on credit risk retention at a board meeting in Washington on March 29, the FDIC said yesterday in the statement.

U.S. regulators including the FDIC may propose that loans have at least a 20 percent borrower down-payment to be exempt from the requirement that lenders keep a stake, a government official with knowledge of the discussions said on March 1.

In addition to the FDIC, five other federal agencies must agree to the proposal.

Separately, FDIC Chairman Sheila Bair said so-called living wills required by the Dodd-Frank Act will help systemically important financial firms “rationalize” their business models and mitigate some of the risks that exacerbated the credit crisis in 2008.

The agency will seek comment on the proposed rule, part of its expanded mandate under the financial-regulation law, to guide systemically important companies in drafting plans for unwinding their business in the event of a collapse, Bair said yesterday in an interview with Bloomberg News.

FDIC board members will consider the agency’s living will proposal on March 29, according to a statement released yesterday.

Compliance Action

Hanoi Exchange to Limit Share Price Moves on Debut by May

The Hanoi Stock Exchange, Vietnam’s second-biggest, said it will require companies to set an initial share price on debut and limit moves to a maximum 30 percent from that level after “unreasonable” disparities between prices and value.

Companies seeking to list on the bourse will have to submit their proposed initial price for approval starting in May, the bourse said in an e-mailed statement yesterday. The rule will apply to listings on Hanoi’s informal “over-the-counter” market, known as UpCoM, starting in April, with price moves on debut limited to 40 percent, the exchange said.

Some investors have ordered shares at “unreasonable prices -- too high or too low -- compared with stock values, affecting the reference prices of companies in subsequent trading days, and that led to an erroneous reflection of the indexes,” the exchange said in the statement. There is currently no maximum move on debut. The daily limit is 7 percent after the first day.

Vietnam is seeking to improve its stock market’s image after the benchmark VN Index dropped 2 percent last year, the second-worst performance among Asia’s 15 biggest markets.

Irish Program Able to Meet Capital Needs, Regulator Says

Ireland’s top financial regulator, Matthew Elderfield, said the country’s bailout program is capable of handling any outcomes from next month’s stress tests on banks.

Regulators have earmarked as much as 35 billion euros ($50 billion) from the country’s bailout package as extra capital to inject into the banks. The stress tests, which will be published on March 31, will determine the final amount. Ireland may need to spend more than 35 billion euros, Reuters reported March 21, citing unidentified euro-area sources.

Ireland, which has already pumped 46.3 billion euros into lenders after bad debts soared, is carrying out its third round of stress tests to determine how much capital lenders should hold in reserve against potential losses. The assessment’s worst-case scenario includes a 60 percent decline in house prices from their peak, a contracting economy and a jump in unemployment.

Elderfield said yesterday that this year’s stress tests will be “more conservative, more transparent” and have “stronger external verification” than previous assessments.

For more, click here.

Mizuho Faces Regulatory Action After ATM System Outages

Mizuho Financial Group Inc. will face regulatory action after system failures following Japan’s March 11 earthquake delayed salary payments to 620,000 Japanese and forced the banking-unit head to refuse a top lobbying post.

Financial Services Minister Shozaburo Jimi said at a press briefing yesterday that the agency would ask Mizuho to submit a formal report “at the correct time,” on the cause of the outage, after which it would take “appropriate action.”

The breakdown of Mizuho’s automated teller machines nationwide last week delayed transactions valued at 829.6 billion yen ($10 billion) and curtailed access to funds as the nation grappled with food, water and power shortages in the aftermath of the temblor. ATMs located at Mizuho’s 440 branches have resumed operating, spokesman Nariyuki Murakami said yesterday.

The bank, Japan’s third-biggest by market value, is studying the cause of the problem that started on March 15, four days after the country’s most powerful earthquake, and delayed 1.16 million transactions.

For more, click here.

Federal Reserve Allows Some Banks to Increase Dividends

JPMorgan Chase & Co., Wells Fargo & Co. and Goldman Sachs Group Inc. were among lenders that disclosed more than $16.2 billion in common stock buybacks and $5.4 billion of annualized dividend increases last week, according to data compiled by Bloomberg.

The Federal Reserve told U.S. banks whether capital plans they submitted in January were approved. Banks deemed strong enough were cleared to raise dividends and buy back shares. Some also are repurchasing trust preferred securities, or TruPS.

For more, click here.

Creditex Expands U.S. Electronic Credit-Swaps Index Trading

Creditex, the credit-swaps brokerage owned by Intercontinental Exchange Inc., said it expanded its electronic-trading options for indexes as it prepares to meet new derivatives regulations.

Creditex, bought by Intercontinental for $625 million in 2008, has been offering electronic trading for credit-default swaps since 2004 in Europe and 2009 in the U.S., the company said in a statement yesterday. The brokerage, which also offers telephone-based execution, has been offering trades via computer for the Markit CDX investment-grade and high-yield, high-risk indexes since March 7. It plans to register as a swap-execution facility under the Dodd-Frank Act passed last year.

The Commodity Futures Trading Commission and the Securities and Exchange Commission have until July to finish writing regulations for swap-execution facilities.

S&P Has Chance to Settle EU Antitrust Probe, Almunia Says

Standard & Poor’s may be able to reach a settlement with European Union antitrust officials to end a probe over licensing fees for securities identification numbers, the region’s competition chief said.

Joaquin Almunia, the European Union’s antitrust commissioner, made the remarks while appearing before the European Parliament in Brussels yesterday.

The European Commission sent an antitrust complaint to S&P in 2009 over the fees it charges financial firms and information-service providers for using International Securities Identification numbers in their databases. The EU antitrust agency opened the probe into S&P after the Brussels-based European Fund and Asset Management Association said that S&P’s fees were unfair.

S&P, owned by publisher McGraw-Hill Cos., has had “open and frank” talks with regulators, Michael Privitera, a spokesman in New York, said in an e-mail. The ratings company is “learning how we may be able to provide products and services more uniquely suited to the European market,” he said.

For more, see Interviews/Speeches section.


Deutsche Bank Loses First German High Court Case Over Swaps

Deutsche Bank AG, Germany’s biggest bank, lost a case over interest-rate swaps in the first ruling by Germany’s highest court concerning sales of the products that have spurred lawsuits against lenders throughout Europe.

The bank must pay Ille Papier Service GmbH 541,074 euros ($770,000) plus interest over the swap purchase, Federal Court of Justice Presiding Judge Ulrich Wiechers said. The bank didn’t adequately disclose the risks of the products, he said.

The ruling will influence dozens of disputes Deutsche Bank has with local German governments, community-owned utilities and companies that claim the lender sold swaps without adequately disclosing risks and fees for the products that were designed to lower interest payments. Cases over derivatives sales have spread throughout Europe.

Deutsche Bank lawyer Christian Duve said his client needs to analyze the written ruling. The “number of open disputes over these swaps is limited,” he said. “The bank has taken adequate risk provisions for this.”

There are eight cases pending at the top court and 17 in lower courts over the same type of derivative, according to Deutsche Bank.

Banks may fare better in the U.K., where dozens of swaps cases have been filed.

For more, click here.


CFTC’s Gensler Says Swap Rules Need International Consensus

Effective oversight of the $583 trillion global swaps market hinges on cooperation between regulators drafting new rules in the U.S. and Europe, Commodity Futures Trading Commission Chairman Gary Gensler said.

Gensler made the remarks in a speech to lawmakers at the European Parliament in Brussels yesterday.

U.S. and European Union regulators oversee a “significant majority” of the swaps market and must “find general consensus” on derivatives regulations, Gensler told members of the EU Parliament’s Economic and Monetary Affairs Committee. Convergence of rules is “critical” he said, in response to questions from lawmakers.

Regulators are drafting rules governing the derivatives market after largely unregulated transactions helped fuel the 2008 credit crisis. The CFTC and Securities and Exchange Commission are leading U.S. efforts, required under the Dodd-Frank Act, that seek to reduce risk and boost transparency by having most swaps guaranteed by clearinghouses and traded on platforms such as exchanges.

The EU’s focus only on derivatives traded away from exchanges may lead to gaps in regulation in the region compared with the U.S,, Gensler said.

For more, click here.

Almunia Says EU Will ‘Look Carefully’ at Bourse Merger

European Competition Commissioner Joaquin Almunia talked about Deutsche Boerse AG’s proposed acquisition of NYSE Euronext and competition in the region, among other topics.

He spoke to the European Parliament’s economic and monetary affairs committee.

For the video, click here.

Frank Says Republicans Face Hurdles Altering Law: Charlie Rose

U.S. Representative Barney Frank, the Democrat who co-authored legislation overhauling the financial industry last year, talked with Charlie Rose about Republicans’ chances of altering the law.

For the video, click here, and for more, click here.

Comings & Goings

EU Lawmakers Endorse Candidates for Financial Regulator Posts

Lawmakers in the European Parliament’s economic and monetary affairs committee voted to approve three executive directors for newly formed financial supervisory agencies.

Verena Ross’s appointment at the European Securities and Markets Authority, Carlos Montalvo’s appointment at the European Insurance and Occupational Pensions Authority and Adam Farkas’s appointment as executive director of the European Banking Authority were approved.

European Union nations and the parliament agreed last year to establish the three authorities in London, Paris and Frankfurt to regulate the banking, securities and insurance industries respectively. The European Parliament approved the appointment of the chairmen of the EBA, ESMA and Eiopa in February.

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