Britain’s Financial Services Authority proposed scrapping so-called equivalence rules that allow U.K.-based lenders to use international standards when calculating how much regulatory capital their overseas units must hold.
The move would force banks to calculate capital requirements for subsidiaries based outside the European Union using the FSA’s rules instead of local guidelines for the country in which the unit is based. The FSA proposed the change take effect starting Dec. 30.
Removing the equivalence rules “does away with any uncertainty in compliance with the calculation of group capital adequacy figures,” the FSA said in a statement on its website yesterday.
The European Commission, the EU’s executive arm, is drawing up capital rules as part of its implementation of globally approved capital rules known as Basel III, which were developed by the Basel Committee on Banking Supervision.
U.K. Requires Administrators to Notify of Insolvency Sales
Administrators of insolvent U.K. companies will be required to give notice to creditors if they’re planning to sell assets at less than full value, a move aimed at stopping owners from going bust to avoid debts.
Business Minister Ed Davey announced the change yesterday, saying he wanted to stop “phoenix” companies, where creditors find that a person who owes them money has declared insolvency, then bought back assets and gone back into business.
“Where such sales are at undervalue, creditors get less than they should,” Davey said in an e-mailed statement released by his department in London. “Competitors who pay their debts in full also suffer.”
The notice period would give creditors time to object to the administrators, or go to court if necessary, Davey said.
EU ‘Confident’ U.S. Ratings Firms Won’t Face European Curbs
European Union rules for credit rating companies are unlikely to be a barrier to U.S. based firms, EU regulators said.
U.S. efforts to bolster oversight of ratings firms mean the EU is “confident” that limits on the use of ratings published by American-based companies can be avoided, Chantal Hughes, a spokeswoman for the European Commission, said in an e-mailed statement.
The 27-nation EU agreed on measures in 2009 aimed at improving the quality of credit rating companies’ assessments, and at making their work more transparent. The EU said that other nations would have to put in place equivalent rules if their ratings firms’ decisions were to be taken into account by banks for regulatory purposes. It set a deadline for this of June 7.
Deutsche Boerse May Face EU Curbs Aside From NYSE Merger Probe
Deutsche Boerse AG may face demands from European Union governments to open up its derivatives-clearing business to competitors even before EU antitrust authorities rule on its takeover bid for NYSE Euronext.
Exchange operators would be pressured to give clearinghouses run by other companies the data they need to handle trades, under the latest version of draft rules being discussed by EU nations. This would allow rivals to compete with Deutsche Boerse’s Eurex Clearing joint venture, which processes all of the exchange’s derivatives trades.
Deutsche Boerse and NYSE Euronext said Feb. 15 they will combine in an all-stock takeover valued on the day at $9.53 billion. The deal, combining NYSE Euronext’s Liffe and Eurex, the trading venue jointly owned by Deutsche Boerse and the Swiss Stock Exchange, would put more than 90 percent of the region’s exchange-traded derivatives market in the hands of one organization.
The data-access plan is one of the possible alterations to proposals made by the European Commission last year to toughen regulation of derivatives traded away from exchanges. Hungary, which holds the EU’s six-month presidency, drew up the draft text, published on the EU website.
The rules are subject to further changes following talks among ministers.
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Special Section: Berlin Banking Conference
German President Discusses What Banks Learned From Crisis
German President Christian Wulff told the country’s banks that state rescue measures have dulled the industry’s appetite for reform and not enough has been learned from the financial crisis to avoid a rerun.
Wulff castigated bloated banking salaries. He also criticized the sale of highly complex financial products and the prevalence of high-frequency market trading, which he said are symptomatic of excess and should be reined in.
Andreas Schmitz, president of the Association of German Banks, said lenders “must be regulated, but not strangled.” New regulations, bank levies and taxes are “pushing lenders to their limits” even as they try to boost capital levels and provide loans, Schmitz said in a speech at the conference.
Commerzbank AG Chief Executive Officer Martin Blessing said lenders in Germany need more time than their counterparts in other countries to boost capital through retained earnings because many banks don’t have access to capital markets.
European stress tests will prove that most banks in the region are “in good shape” except for some lenders in Ireland, Greece and Portugal, said Hugo Banziger, chief risk officer at Deutsche Bank AG.
“The bulk of the European banks are solid,” Banziger said in a panel discussion at the Berlin conference yesterday. “We don’t need the stress tests to show that Irish banks, Greek banks, and possibly Portuguese banks are in trouble -- that’s known in the markets.” The European Union plans to publish the results of a new round of stress tests in June after last year’s examination was criticized for not being stringent enough.
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Fed Releases Discount-Window Lending Records Under Court Order
The Federal Reserve released thousands of pages of secret loan documents under court order, almost three years after Bloomberg LP first requested details of the central bank’s unprecedented support to banks during the financial crisis.
The records reveal for the first time the names of financial institutions that borrowed directly from the central bank through the so-called discount window. The Fed provided the documents after the U.S. Supreme Court last month rejected a banking industry group’s attempt to shield them from public view.
The central bank has never revealed identities of borrowers since the discount window began lending in 1914. The Dodd-Frank law exempted the facility last year when it required the Fed to release details of emergency programs that extended $3.3 trillion to financial institutions to stem the credit crisis. While Congress mandated disclosure of discount-window loans made after July 21, 2010 with a two-year delay, the records released yesterday represent the only public source of details on discount-window lending during the crisis.
The Fed was forced to make the disclosures after the U.S. Supreme Court rejected an appeal by the Clearing House Association LLC, a group of the nation’s largest commercial banks.
For more, click here, and see Atkins video in Interviews section, below.
Ally Files for Public Offering of U.S. Treasury’s Stake
Ally Financial Inc. filed for an initial public offering of the U.S. government’s majority stake as part of the auto and home lender’s plan to regain its independence.
The size, price and timing for the sale haven’t been set, Detroit-based Ally said yesterday in a statement. Ally chose Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. to underwrite the sale, according to the statement.
The U.S. Treasury Department holds a 74 percent stake in Ally’s common shares after funding at least three rounds of aid totaling $17.2 billion during the financial crisis. Ally, formerly known as GMAC Inc., was deemed crucial to the survival of the auto industry by U.S. regulators.
Chief Executive Officer Michael Carpenter, 64, returned the lender to profitability last year with $1.08 billion in net income. The company had almost collapsed as losses piled up from subprime home lending.
ECB Suspends Minimum Credit-Rating Threshold for Irish Debt
The European Central Bank said it will accept all debt instruments backed by the Irish government as collateral against ECB loans as the country attempts to shore up its banking industry.
The Frankfurt-based ECB said Ireland’s commitment to recapitalize its banks and comply with a consolidation program prescribed by the European Union and International Monetary Fund must be assessed “positively.” The suspension of the minimum credit-rating threshold is based on “this positive assessment of the program,” a capital increase for Ireland’s four banks and the decision to “deleverage and downsize the banking sector,” the ECB said.
Irish regulators yesterday instructed four banks to raise 24 billion euros ($34 billion) in additional capital following stress tests on their businesses, and the government said it plans to merge two of the lenders. Allied Irish Banks Plc, the biggest lender during a decade-long economic boom, requires 13.3 billion euros, the central bank in Dublin said.
Ex-Citigroup Brokers in Australia Charged With Insider Trading
Two former brokers at Citigroup Inc.’s wealth advisory unit in Western Australia and their client were charged with insider trading, the Australian Securities and Investment Commission said.
Roberto Catena, 46, and Colin Hebbard, 74, both former brokers at Citigroup Wealth Advisers Ltd. in Perth, used non-public information in 2006 and advised clients to buy Vision Systems Ltd., knowing the company was a possible takeover target, ASIC said in a statement today.
On a takeover announcement, shares of target companies usually rise because buyers offer a premium, and investors sometimes expect higher bids to follow.
Judy Hitchen, a spokeswoman at Citigroup, declined to comment when contacted by phone.
None of the accused were required to enter a plea today and they were freed on bail until the next hearing, scheduled for April 27, ASIC said.
SEC Said to Investigate Sokol Over Lubrizol Stock Purchases
David Sokol, the Berkshire Hathaway Inc. manager who resigned after disclosing that he bought stock in a firm whose takeover he helped negotiate, is being investigated by U.S. regulators, a person with knowledge of the matter said.
The Securities and Exchange Commission is probing whether Sokol, 54, bought shares in Lubrizol Corp. on inside information that Berkshire was considering buying the company, said the person, who declined to be identified because the investigation is secret. The SEC is seeking records from Sokol’s brokerage and examining trading data from the Financial Industry Regulatory Authority, the person said.
“I don’t believe that I did anything wrong,” Sokol told CNBC yesterday in a televised interview. “I can understand the appearance issue, and that’s why we made it public.”
Buffett didn’t immediately respond to an e-mail request for comment sent to his assistant, Carrie Kizer.
For more, click here and click here, and see Atkins video in Interviews section, below.
Romeo Discusses EU Regulation of Technology Providers
Saverio Romeo, a senior analyst at Frost & Sullivan, talked about the European Union’s stance on technology providers who are dominant in the region.
He spoke with Maryam Nemazee from Nanjing on Bloomberg Television’s “The Pulse.”
For the video, click here.
CFTC’s O’Malia Says Swap Rules Will Fail Without Transparency
U.S. derivatives rules being crafted under the Dodd-Frank Act will fail if they let buyers and sellers trade in markets without price transparency, Commodity Futures Trading Commission member Scott O’Malia said.
“I will not view the commissions’ efforts as a success if we create a market structure that fractures liquidity and creates an incentive to utilize dark pools, simply because our rules do not provide the flexibility necessary to facilitate on-exchange transactions,” O’Malia said yesterday in remarks prepared for a meeting on swap execution facilities. Dark pools are private venues that allow stock trades without publicly displaying bids and offers.
The CFTC and the Securities and Exchange Commission are writing rules to govern derivatives markets after largely unregulated trades exacerbated the subprime mortgage crisis in 2008. Dodd-Frank, the financial-regulation overhaul enacted in July, requires the two agencies to define new swap execution facilities as an alternative to exchanges.
O’Malia is one of two Republicans on the five-member commission.
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Atkins Comments on Sokol’s Berkshire Departure, Fed Disclosure
Paul Atkins, a former commissioner at the U.S. Securities and Exchange Commission, talked about the resignation of David Sokol from Berkshire Hathaway Inc.
Atkins, who spoke with Margaret Brennan on Bloomberg Television’s “InBusiness,” also discussed the Federal Reserve’s release of secret loan documents under court order at the request of Bloomberg LP.
For the video, click here. For more about the Fed, see Compliance Action section, above.
Comings and Goings
Bassi Takes on Mifid Role in EU Internal Markets Unit, FT Says
Ugo Bassi, who has headed the asset-management group at the European Union’s internal markets department, is assuming responsibility for securities markets, the Financial Times reported.
That means he will take over from Maria Velentza much of the work on the Mifid directive on markets in financial instruments; Velentza will head a new financial stability group, covering matters such as crisis management, the newspaper said.
Tilman Lueder moves from the department’s intellectual property group to take over Bassi’s old job, the FT said.
Basel Committee Chairman Wellink Says Successor Not Selected
Nout Wellink, who heads the Basel Committee on Banking Supervision, said the next committee chairman hasn’t yet been selected.
“I still want to step down from the Basel Committee, I have already said farewell, but I am working full swing as no successor has been selected,” Wellink, whose term as Dutch central bank president ends in July, said in an interview with Dutch RTLZ television yesterday.
Consumer Bureau Hires Former Capital One Executive West
Elizabeth Warren, the White House and Treasury Department adviser charged with setting up the new U.S. Consumer Financial Protection Bureau, announced that Catherine West, a former top executive at Capital One Financial Corp., will serve as the new agency’s associate director and chief operating officer.
West, who also served as COO at J.C. Penney Company Inc. and held a variety of positions at Capital One, will oversee a number of functions at the new agency, including human capital, procurement, information technology and a consumer complaint response center, the Treasury Department said in a news release.
Gail Hillebrand will serve as associate director of consumer education and engagement. Hillebrand was most recently a senior attorney for Consumers Union, an advocacy group that publishes Consumer Reports magazine.
The consumer bureau is scheduled to begin work on July 21.