The European Union may consider expanding options available to companies to block hostile takeovers as part of a review of legislation on corporate acquisitions.
The European Commission in Brussels is examining whether firms have too little power to use defensive measures such as share-transfer restrictions or multiple voting rights to prevent a hostile takeover, according to a letter from the regulator obtained by Bloomberg News.
EU regulators have struggled to clarify how far companies can go under existing law to protect themselves against unwanted takeovers. Hermes International SCA, the maker of Birkin bags, won a waiver of French market rules to shield itself against a possible bid from LVMH Moet Hennessy Louis Vuitton SA earlier this year.
The commission will examine “control structures and barriers to takeovers,” according to the letter, sent to law firms and trade associations earlier this month. It will also examine how EU rules on issues such as treatment of minority shareholders during an acquisition compare with those in other regions.
The review is being carried out to satisfy a requirement that it assess how well a 2004 law on takeover bids is working.
The study is part of an early fact-finding process, Olivier Bailly, a spokesman for the commission, said in an e-mail. The results will be available by the end of this year, he said.
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Special Section: Jackson Hole
Central Bankers Urge Governments to Throw Economic Lifeline
Central bankers gathered at an annual retreat in Jackson Hole, Wyoming, this weekend had a message for political leaders: monetary policy alone can’t keep the global expansion going.
Federal Reserve Chairman Ben S. Bernanke urged adoption of “good, proactive housing policies” to reverse the depressed U.S. real estate market and warned lawmakers to avoid steps that may hurt short-term growth. Ewald Nowotny of the European Central Bank Governing Council said euro-area governments should expand the powers of their regional bailout fund.
“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Bernanke said at the annual conference of policy makers and economists, sponsored by the Kansas City Fed.
The call to arms ended a month in which the Fed and the ECB raced to shield their economies from fiscal tightening and strengthen a world economy that is losing momentum. Reports this week may underscore the challenges faced by policy makers: U.S. payroll growth probably slowed in August, and confidence in Europe’s economy fell to its lowest since April 2010, economists forecast. Fed policy makers will meet for two days in September instead of one so they can discuss options for spurring growth.
The policy makers met for three days to discuss ways to bolster long-term economic performance. They gathered as banks from UBS AG to Citigroup Inc. cut their forecasts for global expansion and predicted the Fed, ECB and Bank of Japan will keep benchmark interest rates at or near record lows through 2012.
The dilemma for policy makers is that four years to the month since the start of the global credit crisis they have fewer remedies to aid the faltering expansion. Government budget deficits are high and interest rates are already at or near record lows.
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Separately, Brown University economist Ross Levine said in a paper for the conference that regulators aiming to improve financial systems through tougher capital rules should also focus on strengthening market discipline.
Levine examined the topic in his paper titled “Regulating Finance and Regulators to Promote Growth” released Aug. 27 at the annual meeting.
Stanley Says Fed ‘Relatively Optimistic’ on U.S. Economy
Stephen Stanley, chief economist at Pierpont Securities LLC, discussed the U.S. economy and Ben S. Bernanke’s Aug. 26 speech at the symposium in Jackson Hole, Wyoming.
For the video, click here, and for more commentary, click here.
Hubbard Says ‘Total Overhaul’ of U.S. Tax Code is Needed
Glenn Hubbard, dean of Columbia University’s Graduate School of Business, talked about Federal Reserve Chairman Ben S. Bernanke’s Aug. 26 speech at the symposium in Jackson Hole, Wyoming, and the outlook for the U.S. economy and an overhaul of the nation’s tax code.
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House Will Focus on Eliminating Federal Regulations, Cantor Says
Republicans will focus on limiting government regulations, including environmental and labor rules, that are creating “burdens to job creators,” U.S. House Majority Leader Eric Cantor said.
The agenda for the rest of the year will include repealing or scaling back Environmental Protection Agency rules on power plant pollution, ozone standards and greenhouse gas emissions, Cantor, a Virginia Republican, said yesterday in a memo to Republican lawmakers.
House Republicans also plan legislation to prevent the National Labor Relations Board from restricting where an employer can create jobs, he said.
The labor board has been accused by Republicans and business groups such as the U.S. Chamber of Commerce of pushing a pro-union agenda. The House will also work on a plan that would give small business owners a tax incentive for hiring and expansion, he said.
Senator Charles Schumer, a New York Democrat, said House Republicans are “‘struggling to play catch-up’’ following a call by Federal Reserve Chairman Ben S. Bernanke ‘‘called for more aggressive fiscal policies than they have supported so far.’’
Lawmakers return from their August recess next week.
Fed Researcher Sees Little Harm to Growth From Capital Buffers
Tougher capital requirements aimed at offsetting future financial crises may protect banks with little harm to the economy, a Federal Reserve Bank of San Francisco economist said.
‘‘These buffers raise the classic regulatory dilemma of safety versus economic growth, but may provide protection against financial calamity at an acceptable cost,’’ Oscar Jorda, a research adviser at the regional Fed bank, said in a paper released yesterday.
Policy makers are trying to design regulations that account for swings in the economy and financial markets and avoid a repeat of the financial panic that began with the collapse of subprime mortgage market in 2007. The Basel Committee on Bank Supervision last year proposed requiring banks to increase their quantity and quality of capital.
Under Basel III the idea of variable or countercyclical buffers was introduced, which would require institutions to boost capital amid lending booms to strengthen balance sheets and slow any credit bubbles. International, systemically important firms would be asked to hold extra equity.
Jorda cited studies of the economic impact. ‘‘These estimates should be woven into the regulatory decision-making process,’’ Jorda said in the bank’s Economic Letter.
Rehn Says European Banks Are Moving Forward on Boosting Capital
European banks are ‘‘moving forward’’ in their efforts to boost capital in the aftermath of the region’s latest round of stress tests, European Union Economic and Monetary Affairs Commissioner Olli Rehn said.
Rehn made the remarks yesterday in the prepared text for a speech to the European Parliament’s economic committee in Brussels. ‘‘EU banks are significantly better capitalized now than they were one year ago,” he said.
Christine Lagarde, the new International Monetary Fund chief, said on Aug. 27 that European banks should be forced to build up their capital to prevent the debt crisis from infecting more countries. Lagarde, a former French finance minister who took the helm at the Washington-based IMF in July, said banks should add “substantial” amounts of capital and said a mandatory move would be the most efficient process.
SEC Sues Florida Men for Bilking Teachers in $22 Million Scam
The U.S. Securities and Exchange Commission sued two Florida men, claiming they defrauded teachers and retirees in a $22 million Ponzi scheme by posing as a private-equity fund while enriching themselves.
James D. Risher and Daniel Sebastian fraudulently lured more than 100 investors with promises of annual returns of as much as 124 percent, the SEC said yesterday in a lawsuit filed in U.S. District Court in Florida. Risher, who spent 11 of the past 21 years in jail, spent customers’ funds on jewelry, gifts and real estate in North Carolina and Florida, the SEC said.
Sebastian attracted clients from his prior job as an insurance broker, persuading at least one investor to liquidate an annuity and invest the proceeds in the fund, according to the SEC. The two men paid themselves millions of dollars in fees and sent customers false account statements, the SEC said.
Burton Wiand, Sebastian’s attorney, said in a telephone interview that his client had been “deceived” by Risher and voluntarily reported the scheme to the SEC and criminal authorities once it became evident to him. Sebastian has since cooperated with government officials as well as attorneys representing former clients, Wiand said.
Risher was indicted on related criminal charges June 29. A phone call to Adam Allen, a public defender who has represented Risher in the criminal matter, wasn’t immediately returned.
Deceased Enron CEO Lay Triumphs Over IRS in Tax Court
Kenneth Lay, the deceased chief executive officer of Enron Corp., defeated the Internal Revenue Service in the agency’s bid to collect $3.9 million from his estate and his wife, the U.S. Tax Court ruled. Deirdre Bolton reports on Bloomberg Television’s “InsideTrack.”
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New U.S. Consumer Hotline Not Routing Some Complaints to Banks
Some consumer credit-card complaints haven’t reached banks that issued the cards because of technical problems in the new system created by the Consumer Financial Protection Bureau, industry groups and regulators said.
The month-old complaint response system has failed to properly route all inquiries, a problem bureau spokeswoman Jen Howard said the agency will resolve “within a matter of weeks.” Howard didn’t say how many complaints have been held up.
The agency launched the system, which is required by the Dodd-Frank financial-overhaul law, on July 21. Its website invites consumers to file complaints about credit cards, the most common form of consumer credit, and will eventually cover other financial services. Previously complaints about banks were handled by agencies including the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve, all of which now refer calls to the bureau.
Some banks found that their volume of complaints dropped as the bureau’s system failed to work properly, said Richard Hunt, head of the Consumer Bankers Association. The banks were concerned they might be blamed for unanswered queries, he said.
Howard said in an e-mailed response to questions that the bureau expects the technical issues to be resolved in “a matter of weeks.”
Richard Riese, a senior vice president at the American Bankers Association Center for Regulatory Compliance, said the start-up problems demonstrate that the bureau is “clearly not prepared to take on the transfer of these responsibilities.”
Not all banks are seeing the problems. Paul Hartwick, a spokesman for Chase Card Services, a part of JPMorgan Chase & Co. said the bureau’s system is functioning properly.
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Fitch Settles Calpers Suit Over SIV Ratings, Makes No Payout
Fitch Ratings Ltd. settled California Public Employees’ Retirement System’s negligence claims over its ratings on structured investment vehicles that later collapsed.
Under the settlement Fitch will make no payment to Calpers, the biggest U.S. pension fund, said Daniel Noonan, a Fitch spokesman. A notice of the settlement was filed Aug. 26, according to state court records in San Francisco.
“Fitch is pleased with the resolution of this case and the disposition reached with Calpers,” Noonan said yesterday in an e-mail. Noonan declined to comment about other terms of the settlement.
Calpers sued Moody’s Investors Service Inc., Standard & Poor’s and Fitch in July 2009 claiming $1 billion in losses alleging inaccurate risk assessments of three structured investment vehicles, or SIVs. The three ratings services had given the SIVs their highest ratings. Fitch is a unit of Paris-based Fimalac SA.
Brad Pacheco, a Calpers spokesman, didn’t immediately return a message seeking comment yesterday.
A state court judge in San Francisco ruled in December that the ratings by the three companies are a form of free speech protected under California law.
The case is Calpers v. Moody’s, 09-490241, Superior Court of California, County of San Francisco.
Canadian Trading Firm Appeals $13 Million FSA Market-Abuse Fine
The chief executive officer of Swift Trade Inc., a defunct Canadian trading firm, appealed an 8 million-pound ($13 million) U.K. fine for market abuse, saying a court will review evidence in the case.
The Financial Service Authority’s allegations against the Toronto-based company, which was dissolved in December, have been referred to the Upper Tribunal, former Swift Trade CEO Peter Beck said in a statement.
Swift Trade is accused of “layering,” in which multiple buy orders for shares are submitted and withdrawn to manipulate the price of a security. The company last week failed in a legal bid to prevent the U.K. regulator from publishing details of its investigation in a notice about the penalty.
The FSA may publish the notice this week, Judge Wyn Williams said at last week’s hearing. Joseph Eyre, a spokesman for the FSA in London, declined to comment.
Swift Trade also faces a regulatory probe in Canada.
Swift Trade will contest the allegations in a Canadian tribunal next year, the company said in a statement.
Comings and Goings
Obama Names Krueger to Head Council of Economic Advisers
President Barack Obama spoke at the White House about his decision to nominate Alan Krueger, a labor economist and former Treasury official, to lead the White House Council of Economic Advisers.
The nomination is subject to Senate confirmation. Krueger, who returned to Princeton University last November after serving as the Treasury Department’s chief economist for two years, would replace Austan Goolsbee. Obama also discussed federal efforts to assist the recovery from Hurricane Irene.
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Sino-Forest CEO Resigns Amid Investigation, Share Suspension
Sino-Forest Corp.’s Chief Executive Officer and Chairman Allen Chan resigned two days after a Canadian securities regulator said the company may have exaggerated timber holdings, the same charge made by short seller Carson Block in June.
Chan “voluntarily resigned” both positions, the Hong Kong- and Mississauga, Ontario-based company said in a statement Aug. 28. Chan was replaced by Executive Director Judson Martin as CEO and William Ardell as chairman. Ardell is leading Sino-Forest’s internal investigation of Block’s allegations.
Sino-Forest’s U.S. traded shares were halted after tumbling 72 percent to $1.38 on Aug. 26 in over-the-counter trading. The Ontario Securities Commission halted trading in Sino-Forest’s shares on Aug. 26 and said the company may have misrepresented revenue. Sino-Forest has plunged 67 percent in Toronto since Block’s Muddy Waters LLC published a report June 2 alleging that the company was a “fraud.”
Billionaire Richard Chandler, the biggest single investor in Sino-Forest, didn’t immediately respond to an e-mail seeking comment. Richard Barton, a Hong Kong-based external spokesman for Chandler, declined to comment. Chandler said Aug. 4 he increased his stake to 18 percent.
Sino-Forest has denied Muddy Waters’ allegations and established an independent committee of directors to respond to the accusations. The company said Aug. 16 the probe would take until the end of the year, later than the two to three months it estimated on June 14.
The OSC sanctions follow a warning from the U.S. Securities and Exchange Commission in June about buying stakes in companies that gain listings on its exchanges through so-called reverse takeovers.
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For a report by Matt Miller about the resignation on Bloomberg Television’s “InsideTrack,” click here.
For an interview of Carson Block, click here.