HSBC-Libor Probe, Dutch Deposit Guarantee, Basel: Compliance

HSBC Holdings Plc received requests for information from regulators and prosecutors in the U.K., U.S. and European Union as part of an investigation into whether the London Interbank Offered Rate, or Libor, was manipulated.

HSBC, Europe’s largest bank, is cooperating with the probe, the company said in a regulatory filing yesterday. The bank also said it is the subject of separate investigations involving U.S. anti-money laundering laws and mortgage foreclosure practices.

The U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, the Department of Justice and the U.K. Financial Services Authority are investigating submissions made by banks regarding Libor rates and whether there were attempts to manipulate them. Libor is the rate of interest at which banks borrow funds from other banks in the London market.

“These ongoing matters are at an early stage,” HSBC said. “Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these regulatory investigations or putative class actions lawsuits, including the timing and potential impact, if any, on HSBC.”

The bank also received grand jury subpoenas and other requests for documents from the U.S. Attorney’s Office, the Department of Justice and the New York District Attorney’s Office over its units’ bank note and dollar clearing services, compliance with the U.S. Bank Secrecy Act, anti-money laundering controls and the Office of Foreign Asset Control requirements.

“It is likely that there could be some form of formal enforcement action in respect of some or all of the ongoing investigations,” HSBC said.

Separately, Barclays Plc, Britain’s second-largest bank by assets, said that the European Commission is among the regulators investigating the process for setting Libor.

In its half-yearly report published today, the bank added the EU’s Brussels-based antitrust authority to a list of regulators examining Libor setting which it disclosed in April.

“Barclays is co-operating in the relevant investigations and is keeping regulators informed,” the bank said in today’s filing.

Compliance Policy

Dutch Banks to Pay 4 Billion Euros Into Deposit Guarantee Fund

Dutch banks will have to pay a quarterly premium of 0.025 percent of deposits in ten years starting from July 2012 to create a guarantee fund to reimburse depositors when a bank fails, according to a legislative proposal published by the Finance Ministry yesterday.

Based on current deposits the fund would have a target size of 4 billion euros ($5.8 billion). In addition, banks will pay a risk-premium of as much as 100 percent of that contribution according to their level of risk, the ministry said.

IMF Backs U.K. Bid to Exceed Basel Bank Rules in Clash With EU

The International Monetary Fund said the U.K. is right to seek the power to exceed minimum capital standards on banks endorsed by global regulators, siding with Britain in a clash with the European Union.

IMF made the statement in a report on the U.K. published in Washington yesterday.

Michel Barnier, the EU’s financial-services commissioner, has clashed with some governments in the 27-nation EU over how to interpret and implement last year’s deal by the Basel Committee on Banking Supervision. Finance ministers including U.K. Chancellor of the Exchequer George Osborne, Spain’s Elena Salgado and Sweden’s Anders Borg have criticized plans to make it harder for national regulators to set tougher capital rules than the accord, known as Basel III.

Barnier last month proposed common rules to put in place Basel III in the EU, arguing in favor of harmonizing core requirements.

Chantal Hughes, a spokeswoman for the commission, didn’t immediately respond to a phone call seeking comment.

U.K. Watchdog Tells Retail Financial Advisers to Disclose Fees

The U.K.’s Financial Services Authority published rules requiring independent financial advisers to disclose fees they receive for directing clients into certain funds.

Advisers must give customers details of fees or commissions they get for arranging the sale of retail investment products, the watchdog said in a statement on its website yesterday.

The rules, which take effect at the end of next year, are part of an overhaul of the U.K. retail investment industry.

Large-Scale Bank M&A Unlikely as Rules Crimp Deals, KPMG Says

Banks are unlikely to pursue large-scale mergers and acquisitions for at least two years as rules aimed at preventing another financial crisis crimp dealmaking, according to a study by KPMG LLP.

The average size of a banking takeover has been falling by 64 percent annually during the past three years, dropping to $87 million in 2010 from $243 million in 2007, the accounting firm said in a report yesterday.

Regulators in Europe and the U.S. are forcing banks to bolster capital, leaving them with less cash to finance acquisitions. They’re also forcing the biggest lenders, those deemed too-big-to-fail, to hold additional capital to prevent a repeat of the crisis that followed the collapse of Lehman Brothers Holdings Inc. in September 2008.

KPMG said its report was based on 23 interviews with banking executives from the world’s largest banks and banking association members.

Compliance Action

Ex-Ernst & Young Executives Barred by PCAOB Over Fake Papers

The U.S. audit industry watchdog barred two former Ernst & Young LP executives over claims they drafted fake working papers to mislead regulators who were planning to inspect their work.

Peter O’Toole, who was a partner at Ernst & Young, agreed to pay a $50,000 fine and will be banned from the industry for at least three years, the Public Company Accounting Oversight Board said in a statement yesterday. Darrin Estella, a former manager at the New York-based firm, was barred for at least two years for his role in creating the documents, the PCAOB said.

After learning that the PCAOB planned to inspect a 2009 audit, O’Toole told Estella to create and backdate a document related to a review of how their client valued an investment, the PCAOB said. Estella drafted the document on another employee’s laptop using a flash drive, which he later threw away in an effort to hide the misconduct.

O’Toole and Estella resolved the claims without admitting or denying the allegations, the PCAOB said.

“The PCAOB has not alleged any deficiencies in the carrying out of the audit, or that any of the alleged conduct was designed to hide an audit failure, or that the alleged backdated document did not portray audit work that did not take place,” Eugene Goldman, O’Toole’s attorney at McDermott Will & Emery, said in a telephone interview.

William Lovett, Estella’s lawyer at Collora LLP, declined to comment.

German, Swiss Tax Talks ‘Not Finished Yet’, Spokeswoman Says

Negotiations between Germany and Switzerland to settle a dispute over tax evasion by wealthy German clients aren’t finished yet though they’re “far advanced,” German Finance Ministry spokeswoman Silke Bruns told reporters at a regular government press conference in Berlin yesterday.

Bruns said she “wouldn’t be surprised” if a treaty was signed this month.

Indiana Bank Closure Brings Failed Bank Cost to $5.06 Billion

The closure of Integra Bank of Evansville brings the cost of failed banks to the Federal Deposit Insurance Fund in 2011 to $5.06 billion, according to data provided by the FDIC.

Integra, which had 52 branches, was closed July 29 by regulators and the FDIC was appointed as receiver. Evansville’s Old National Bank will assume all of Integra’s deposits.

For a table listing banks that have failed since 1934 and their cost since 1986 in millions of dollars to the Deposit Insurance Fund, click here.


SEC Complaint Against Gabelli Reinstated by Appeals Court

Marc J. Gabelli, a former portfolio manager of Gabelli Global Growth Fund, must face a lawsuit against him brought by the U.S. Securities and Exchange Commission, a federal appeals court said, reversing a lower-court ruling.

The SEC alleged in a 2008 complaint that Gabelli, a son of founder Mario Gabelli, had authorized the fund to be market timed by Folkes Asset Management, now known as Headstart Advisers Ltd., and that former Gabelli Funds LLC Chief Operating Officer Bruce Alpert had allowed it to continue.

The U.S. Court of Appeals in New York yesterday reversed a decision by U.S. District Judge Deborah A. Batts dismissing the complaint on the grounds that the SEC waited too long to seek civil fines against them. Batts ruling last year also threw out securities fraud claims against Alpert. The appeals court ruled the claim for civil penalties isn’t subject to time limitations.

A lawyer representing Marc Gabelli, Lewis J. Liman, didn’t return a telephone message. SEC spokesman Kevin Callahan declined to comment on the ruling.

“We’re disappointed with the decision,” said Kathleen Massey, a lawyer for Alpert. “We disagree with the court’s analysis.”

Massey said she is confident Alpert will prevail when the facts are considered once the case is returned to the trial court.

Market timing is the practice of short-term buying, selling and exchanging of mutual funds to exploit pricing inefficiencies.

The case is SEC v. Marc Gabelli, 08-cv-3868, U.S. District Court, Southern District of New York (Manhattan).

Ex-General Re Officers Win Retrial After Convictions Tossed

Four former executives at General Reinsurance Corp. and one at American International Group Inc. won reversal of their 2008 convictions on charges that they defrauded AIG investors of as much as $597 million.

The U.S. Court of Appeals in New York yesterday ordered a new trial for General Re’s ex-Chief Executive Officer Ronald Ferguson, ex-Chief Financial Officer Elizabeth Monrad, ex-Senior Vice President Christopher Garand and ex-Assistant General Counsel Robert Graham. Former AIG Vice President Christian Milton also won reversal and a new trial. Federal jurors convicted them in Hartford, Connecticut, after a six-week trial.

The fraud centered on what prosecutors called a sham transaction to inflate AIG’s loss reserves by $500 million. It preceded by several years the financial crisis of New York-based AIG, which got a bailout of $182.3 billion from U.S. taxpayers.

The appeals court said the judge erroneously let prosecutors display to jurors three charts with AIG stock-price data. The charts suggested, without foundation, that the transaction caused the stock to plummet “and (given the role of AIG in the financial panic) prejudicially cast the defendants as causing an economic downturn that has affected every family in America,” a three-judge appeals panel ruled.

The case is U.S. v. Ferguson, 08-6211, U.S. Court of Appeals for the Second Circuit (New York).

For more, click here.

SEC Sues for Assets of Money Manager Who Killed Himself

The U.S. Securities and Exchange Commission sued the estate of J. David Salinas, an investment manager who committed suicide last month, claiming his companies ran a Ponzi scheme, selling investors bonds that didn’t exist.

Salinas, through his companies Select Asset Management and J. David Group, defrauded investors of more than $50 million from 2004 to the present, the SEC said in a complaint filed yesterday in federal court in Houston. The agency also sued Brian A. Bjork, chief investment officer of Select Asset.

While Bjork and Salinas promised investors safe corporate and other bonds, “the J. David Group corporate bond offering was bogus,” the SEC said.

The investors included numerous college basketball coaches. Salinas was a founder of an elite high school summer basketball program in Houston and a donor to college sports programs.

J. Randle Henderson, an attorney for Select Asset Management, said he couldn’t immediately comment on the lawsuit because he just received the complaint.

Salinas, 60, was found dead of a gunshot wound on July 17 at his home in the Houston suburb of Friendswood, Texas. The death was ruled a suicide, according to published reports. Kathleen Galloway, an SEC attorney, said in today’s filing that a Galveston County prosecutor told her July 17 that the death was “apparently a suicide.”

“David Salinas conducted all the bond transactions for the J. David Financial Group of companies,” Matt Hennessy, Bjork’s attorney, said. “Brian had no indication that David was deceiving his investors. Brian was shocked to learn of the degree of David’s deception.”

The case is SEC v. Bjork, 11-cv-02830, U.S. District Court, Southern District of Texas (Houston).

For more, click here.


BOE’s Haldane Says Policy Makers Could Use Haircuts as Tool

Andrew Haldane, the Bank of England’s Executive Director for Financial Stability, said policy makers could regulate collateral requirements to strengthen financial markets and prevent another credit crisis.

“A hands-off haircuts policy runs a significant risk of systemic collapse if haircuts are pro-cyclically trimmed during the upswing,” Haldane said in a speech in Edinburgh yesterday. A model measuring the impact of intervention shows that “even the weak policy shrinks the probability of collapse by more than half, whatever the initial level of haircuts. And under the tough policy, the financial system is effectively inoculated against haircut-induced pro-cyclicality.”

Haldane’s comments come amid the U.K. government’s shake-up of bank rules, which will invest the Bank of England with control of financial regulation. The central bank’s interim Financial Policy Committee recommended in June that banks take the opportunity of periods of “strong earnings” to build up capital. The interim panel will have power only to recommend action until its status is approved by Parliament.

Comings and Goings

OCC Names Benhart Deputy Comptroller for Credit, Market Risk

The Office of the Comptroller of the Currency named Darrin Benhart deputy comptroller for credit and market risk, according to a statement released by the agency in Washington yesterday.

Benhart will be one of two deputy comptrollers for credit and market risk at the agency. He will be a principal adviser on emerging systemic risks in the banking system, the OCC said in the statement.

Benhart joined the agency in 1992.

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