Austrian Banks, IRS Probes, Solvency II Study: Compliance

Austrian supervisors won’t impose a capital surcharge on the country’s biggest lenders such as Erste Group Bank AG and Raiffeisen Bank International AG before rules for “too-big-to-fail” banks are agreed internationally.

There’s no need for the Alpine nation to take action before the Basel Committee on Banking Supervision or the European Union have decided how to deal with so-called systemically important financial institutions, or SIFIs, the co-chairman of Austria’s financial supervisor FMA told journalists April 14.

Governments and regulators are trying to avoid a repeat of the turmoil in financial markets that followed the 2008 collapse of Lehman Brothers Holdings Inc. and led to taxpayer-funded bailouts of lenders across the world. Switzerland has proposed a surcharge for its two largest banks, UBS AG and Credit Suisse Group AG. Mario Draghi, Italy’s central bank governor, has told Italian banks to boost reserves and a U.K. panel last week sought tougher capital rules for the country’s biggest lenders.

Austrian banks’ total assets make up 4.2 times the country’s gross domestic product, exceeding the euro area average of 2.8 times GDP, mostly because of their business in eastern Europe.

Separately, Oesterreiche Volksbanken AG, Austria’s fourth-biggest lender, said its largest shareholders will buy back 300 million euros ($433 million) of capital injected by the state.

The purchase will boost the 58 percent stake held by 62 local and regional cooperative banks when the capital is later converted into common stock, said Walter Groeblinger, a spokesman for the Vienna-based lender.

Other investors include Germany’s DZ Bank with a 25 percent holding, Munich Re with a 10 percent stake and Raiffeisen Zentralbank Oesterreich AG with 6 percent.

Volksbanken was among the Austrian banks hit hardest by the financial crisis and the state injected 1 billion euros of the non-voting participation capital in 2009 to help cover losses after nationalizing the lender’s Kommunalkredit unit. Volksbanken, which is also selling its eastern European business to raise capital, plans to repay another 300 million euros by 2014 and the remaining 400 million euros by 2018.

Compliance Policy

Solvency II Rules on Real-Estate Assets ‘Too High,’ Study Shows

Capital requirements for European insurers’ real estate investments under proposed new Solvency II rules are “too high,” according to a study carried out Investment Property Databank and backed by Germany’s BVI association of investment and asset management.

The study found a “stress factor” of 15 percent, instead of the proposed 25 percent, would be sufficient to calculate the amount of capital required to back real-estate assets held by insurers, BVI said in an e-mailed statement April 15.

Bundesbank Report Spotlights Potential Deficiencies in ESM Terms

Terms for the future European Stability Mechanism agreed on by European leaders in March have potential deficiencies and require tightening before they can be fully accepted by member states, according to the Bundesbank, whose findings will likely support skeptics in Germany.

The agreements, forged by the European Council at a March 24-25 summit, contain “imprecise” rules on voting aid for debt plagued states from 2013 and potentially “contradictory” rules on the roles of private creditors, said the central bank in its latest monthly report today.

The Bundesbank report gives ammunition to German lawmakers demanding stricter rules to overcome the euro debt crisis. Some members of Chancellor Angela Merkel’s Free Democratic Party coalition partner want euro-area countries to leave the currency union if they don’t adhere to German-style fiscal discipline.

The Bundesbank comments come amid concern that Greece will have to restructure its debt, sending the euro to its biggest decline in more than a month against the dollar.

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Compliance Action

IRS Criminal Probes Rise on UBS Disclosures: Chart of the Day

The IRS has increased its criminal investigations by more than 27 percent since 2008, the year a Senate committee revealed widespread tax evasion by U.S. residents with Swiss bank accounts.

The CHART OF THE DAY shows the number of IRS investigations for crimes such as tax evasion that involve legally earned income increased to 1,948 last year from 1,531 in 2008.

The Senate’s Permanent Subcommittee on Investigations conducted a series of high-profile investigations of tax haven banks in July 2008, which revealed the extent of tax evasion by U.S. residents with hidden Swiss bank accounts. Zurich-based UBS AG admitted in February 2009 that it had helped U.S. taxpayers hide their accounts and agreed to turn over information on thousands of U.S. residents with Swiss bank accounts.

That disclosure led the IRS to beef up its investigations into tax crimes. IRS Commissioner Douglas H. Shulman said the IRS expects to receive the names of more than 7,500 U.S. citizens with UBS accounts. As the chart shows, those convicted of tax crimes risk jail time. The IRS has channeled its enforcement resources toward detecting tax evasion among the wealthiest taxpayers.

Banco Industrial de Venezuela Fined by U.S. Regulators

The Board of Governors of the Federal Reserve System and two U.S. state regulators said they have issued a cease and desist order and $1.8 million in fines against Caracas-based Banco Industrial de Venezuela CA and its agencies in New York and Miami.

The order “is designed to address deficiencies revealed in repeated examinations of the agencies by the Federal Reserve” and two state supervisors, the Florida Office of Financial Regulation and the New York State Banking Department, according to a statement April 15. The order also addresses the bank’s “lack of audited financial statements,” according to the statement.

The order restricts the bank’s U.S. entities from making new loans or taking on new customers without the approval of its U.S. banking supervisors, the statement said.

SMBC Nikko Securities Defrauded Clients, Japan Regulator Says

SMBC Nikko Securities Inc., a brokerage unit of Sumitomo Mitsui Financial Group Inc., was found to have fraudulently taken money from clients, Japan’s Financial Services Agency said April 15 in a statement on its website.

The regulator ordered the brokerage to submit a business improvement plan by May 13, the statement said.

Police were investigating one of the company’s employees on suspicion of taking as much as 880 million yen from 16 clients after guaranteeing returns on fake investments, the company said in a statement on April 8.

Crest Nicholson, ISG Pearce Win 82% Reduction of U.K. Fines

Britain’s antitrust regulator lost another round of appeals in its price-fixing case against U.K. builders after a court cut by 82 percent its fines against Crest Nicholson Plc and a former subsidiary, ISG Pearce Ltd.

The Office of Fair Trading was “wrong in principle” and out of step with its own guidelines when it fined the companies a total of 5.19 million pounds ($8.5 million) for joining a cartel to drive up prices, the Competition Appeal Tribunal ruled April 15 in London. The fine was reduced to 950,000 pounds. The tribunal described the penalty as “disproportionate and excessive.”

The regulator in 2009 levied fines totaling 129.5 million pounds against 103 builders, including Balfour Beatty Plc and Carillion Plc, the U.K.’s two biggest, for rigging bids from 2000 to 2006. Twenty-five companies appealed, including Kier Group Plc, whose penalty of 17.9 million pounds was reduced to 1.7 million pounds.

“We will consider these judgments in detail, alongside those in all other construction appeals, and will then decide whether to appeal to the Court of Appeal,” OFT spokesman Frank Shepherd said April 15 in a statement.

China Cuts 2011 Short-Term Foreign Debt Quota to Curb Inflow

China’s State Administration of Foreign Exchange cut its outstanding short-term foreign debt quota for the year to help curb inflows of so-called hot money.

The reduction will “help maintain balance in international payments and boost liquidity management,” SAFE said in a statement on its website April 15.

The quota for some Chinese banks will be reduced to $10.2 billion for the year starting from April 1, the currency regulator said. It set the quota for some foreign banks at $14.6 billion, according to the statement.

King Told by Dale Staff Shortage Forces Cutback in BOE Research

Bank of England Chief Economist Spencer Dale has told Governor Mervyn King that “significant” staff shortages will force him to cut back on research for policy makers during the next six months.

The bank’s Monetary Analysis department will “reduce the number of notes written” for the Monetary Policy Committee, Dale said in a March 25 memo seen by Bloomberg News. “We hope not to have to turn down direct requests” from panel members, he said. A Bank of England spokesman declined to comment.

The remarks suggest policy makers may need to rely on fewer resources to inform decisions at a time when the panel is split four ways on interest rates and is entering a quarterly forecast round to prepare for the monthly meeting on May 5. King has imposed a two-year pay freeze on staff, raising the prospect of defections elsewhere in London’s finance industry.

Dale said his department lacks staff because managers haven’t filled vacancies, some economists have transferred elsewhere in the bank, and some have resigned. He projects a 9 percent shortfall in the first half of this year. A lack of staff may persist until new graduate and doctorate-level employees start work in the fall.

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Matthew Kluger Granted $1 Million Bail in Insider-Trade Case

Matthew Kluger, the lawyer charged with passing merger-and-acquisition tips stolen from four law firms in a $34 million insider trading scheme, was granted $1 million bail April 15 in federal court in Newark, New Jersey.

Kluger was arrested April 6 at his home in Oakton, Virginia, and charged with passing inside information to a middleman who gave it to stock trader Garrett D. Bauer in a scheme spanning 17 years. The middleman, Kenneth T. Robinson, pleaded guilty April 11 and is helping prosecutors investigate the case.


Klibaner Expects More China Measures to Cool Land Prices

Michael Klibaner, head of China research at Jones Lang LaSalle Inc., the world’s second-biggest publicly traded commercial-property broker, talked about China’s real estate market.

Average land prices in major Chinese cities monitored by the government were up 8.5 percent in the first quarter from a year earlier, the Land and Resources Ministry said April 16. The increase in prices has slowed as government measures to cool speculation kick in, according to the ministry. Klibaner spoke in Hong Kong with Susan Li on Bloomberg Television’s “First Up.”

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Comings and Goings

U.K.’s Michael Ellam to Chair EU Financial Services Committee

Michael Ellam, managing director of the U.K. Treasury’s international and finance directorate, has been appointed chairman of the European Union’s financial services regulation committee.

Ellam will steer the work of the Brussels-based panel ahead of meetings of the EU’s 27 finance ministers while retaining his role at the Treasury in London, two U.K. government officials said yesterday. Another U.K. official, Verena Ross, director of the Financial Services Authority’s international division, was appointed director of the European Securities and Markets Authority, the two officials told reporters in Washington. The officials asked not to be identified by name, citing government policy.

The appointments will give the U.K. a greater say in the shaping of EU financial regulation after losing out to France when Michel Barnier took over as EU Financial Services Commissioner last year.

BofA Hires Ex-SEC Enforcement Chief Lynch for New Position

Bank of America Corp. hired Gary Lynch, formerly a U.S. Securities and Exchange Commission enforcement director and Morgan Stanley’s legal chief, as it seeks to resolve disputes with regulators over soured mortgages.

Lynch, reporting directly to Chief Executive Officer Brian T. Moynihan, will fill a new position overseeing legal and compliance operations and regulatory relations, Charlotte, North Carolina-based Bank of America said April 15 in a statement.

Moynihan, 51, is reshaping management as the company struggles to boost profit while dealing with lawsuits and investigations tied to troubled loans from the housing boom.

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South African Bank Regulator Kruger to Take Early Retirement

Errol Kruger, the registrar of South African banks, will take early retirement from July 31 after 34 years of service at the country’s central bank, the South African Reserve Bank said on its website April 15.

The search for Kruger’s replacement will start immediately, the Pretoria-based central bank said.

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