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EU Short-Term Creditors, SEC Fines, HSBC Hire: Compliance

Short-term creditors of failing banks may face losses as a last resort under draft plans from the European Union to allow cross-border lenders to fail without resorting to public money.

Regulators should write down only debt of a less than one-year maturity or derivatives if losses from longer-term debt aren’t “sufficient to restore the capital of the institution and enable it to operate as a going concern,” according to a draft European Commission proposal obtained by Bloomberg News.

Michel Barnier, the EU’s financial-services commissioner, had delayed proposing the law, which was originally scheduled for September and allows for creditors of banks to take losses, because of recent market turbulence. World leaders in the Group of 20 nations are seeking to agree on measures to wind down failing lenders without the need for public bailouts.

Banks would have to pay into national funds to help cover the costs of bank failure, under the measures.

The euro area’s bail-out fund, the European Financial Stability Facility, or EFSF, could be used to top up these funds in exceptional circumstances, the draft says.

Europe’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis.

With prodding from the U.S. after a series of stopgap accords failed to protect Italy and Spain from market turmoil, the ministers started talks on channeling ECB loans to cash-strapped euro nations through the IMF, aiming to bring the central bank on to the front lines without violating its ban on direct lending to governments.

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Compliance Policy

SEC’s Schapiro Asks Congress to Raise Limits on Securities Fines

The U.S. Securities and Exchange Commission is seeking congressional authorization to impose bigger penalties for wrongdoing amid criticism that the agency hasn’t done enough to punish misdeeds tied to the credit crisis.

Fines against individuals would be capped at $1 million per violation instead of $150,000 and penalties for firms could rise to $10 million from $725,000 for each act under a proposal included in a letter dated yesterday from SEC Chairman Mary Schapiro to Senator Jack Reed, the Rhode Island Democrat who leads a subcommittee that oversees the agency.

The SEC proposal, which would also triple the amount the agency could seek under an alternative formula based on the violator’s gains, was issued the day that U.S. District Judge Jed Rakoff in New York rejected a proposed $285 million settlement with Citigroup Inc. The proposal also contains provisions aimed at curbing repeat offenses.

Rakoff criticized the agreement, aimed at resolving claims the Wall Street bank misled investors in a $1 billion financial product linked to souring mortgages, saying it was “a very good deal for Citigroup” and represented “a mild and modest cost of doing business.”

For more, click here.

Bank Regulator Proposes Risk Measures to Replace Credit Ratings

U.S. banking regulators proposed a rule required by the Dodd-Frank Act that would strip credit-ratings references from quality standards used in evaluating investment portfolios.

Under the proposal released yesterday by the Office of the Comptroller of the Currency, banks would have to seek alternative measures of creditworthiness in investment securities, securities offerings, and foreign bank capital equivalency deposits. The agency said in a statement that it would take public comments on the proposal for the next 30 days.

For national banks purchasing securities, the proposal replaces credit ratings with a demonstration that the security issuer can “meet financial commitments under the security for the projected life of the asset or exposure.”

Most EU States Prefer National Bank Guarantees, Draft Shows

European Union nations prefer to set up bank-guarantee plans at the national level rather than through a central coordinator or syndicated program, a draft EU document shows.

National efforts to support the banking industry are the only option “that could be activated swiftly,” according to the document, which was prepared for meetings of EU finance ministers yesterday and today in Brussels. The document, dated Nov. 28, assesses other options for more closely linked banking aid that failed to draw broad support.

As governments try to regain the confidence of financial markets, ministers will seek to agree this week on the best way to support Europe’s banks, in line with an October agreement by EU leaders to aid the banking industry.

For more, click here.

EU Seeks Rotation of Company Auditors in Regulatory Overhaul

Banks and listed companies would be required to rotate their auditors under European Union proposals aimed at improving audit quality and boosting competition in the industry.

The plans published by the European Commission yesterday include curbs on large audit companies’ right to offer consultancy services, the Brussels-based regulator said in a statement on its website.

The EU is reviewing audit rules following the collapse of Lehman Brothers Holdings Inc., which the commission said raised questions about the quality of company audits.

Banks, insurers and listed companies would be required to rotate the audit firm they use every six years, with a four-year gap before the firm could be rehired, the commission said. The rotation period could be extended to nine years if a company uses more than one auditor, the commission said.

Audit companies would be banned from providing consulting services to their clients to avoid conflict of interest, the commission said.

Large audit firms would also be obliged to “separate audit activities from non-audit activities,” the commission said. This separation would amount to “a complete ban on the provision of non-audit services,” it said.

Compliance Action

NYSE Reviews AMR Listing on Bankruptcy Filing; Shares Plunge

NYSE Euronext is reviewing the listing status of AMR Corp. stock, which plunged yesterday after the company filed for bankruptcy.

AMR stock was halted for more than three hours after the company announced the filing. Swings in the stock triggered at least 15 more five-minute pauses under exchange circuit breakers designed to limit volatility.

While shares were trading yesterday, the NYSE said it may move to suspend AMR should it receive evidence that the price will be “abnormally low,” or it gets “authoritative advice that the securities are without value,” or fall below the exchange’s listing requirements, according to a statement.

American Airlines parent AMR Corp. filed for bankruptcy yesterday.


Schaeuble Defends EFSF Panel at German Constitutional Court

German Finance Minister Wolfgang Schaeuble defended giving a parliamentary subcommittee the ability to quickly approve emergency or classified euro rescue-fund actions at the nation’s top court.

Germany’s Federal Constitutional Court in Karlsruhe heard arguments in a case filed by two opposition lawmakers, who say the rules curb their parliamentary rights and put power in the hands of too small a group.

The government argues the subcommittee must be allowed to make decisions privately so that the European Financial Stability Facility, or EFSF, can take actions requiring strict confidentiality, such as bond purchases on the secondary market.

The court on Sept. 7 cleared Germany’s participation in the EFSF while stressing the legislature, the Bundestag, must keep authority over budgetary aspects of the rescue plan. The court’s judges in October halted committee activities while the suit is pending. The judges are expected to issue a ruling later this year.

The case is: BVerfG, 2 BvE 8/11.

Del Monte, KKR Deal Faces U.S. Antitrust Probe, Lawyer Says

Del Monte Foods Co.’s $5.3 billion sale to a group of private-equity firms led by KKR & Co. is the target of a U.S. Justice Department antitrust probe, a lawyer who sued over the deal said in a court filing.

Federal prosecutors have been “investigating the facts and circumstances surrounding the sale of Del Monte,” Stuart Grant, a lawyer for Del Monte shareholders, said in a Nov. 23 court filing as part of an $89.4 million settlement of investors’ claims over the deal.

Investors in San Francisco-based Del Monte argued in the lawsuit in Delaware Chancery Court in Wilmington they weren’t getting enough for their shares in the buyout. Other shareholders, who filed a related federal court suit in San Francisco, questioned whether private-equity firms rigged bids to artificially lower the price paid for the maker of Meow Mix cat food and Milk Bone dog biscuits.

Gina Talamona, a Justice Department spokeswoman, declined to comment yesterday on whether the antitrust division was investigating the Del Monte buyout. Kristi Huller, a KKR spokeswoman, and Chrissy Stengel, a Del Monte spokeswoman, didn’t immediately return calls seeking comment on the filing Nov. 28.

The Delaware case is In re Del Monte Foods Co. Shareholder Litigation, CA6027, Delaware Chancery Court (Wilmington).

For more, click here.

Australian Regulator Loses Bid to Overturn Metcash Ruling

An Australian appeal court upheld Metcash Ltd.’s acquisition of the Franklins supermarket chain from Pick n Pay Stores Ltd., raising the bar for the country’s competition regulator to justify denials of mergers.

Federal Court Justice David Yates dismissed the Australian Competition & Consumer Commission’s appeal against a court approval of the acquisition. Yates ordered the regulator to pay Metcash’s legal costs as he announced the ruling today in Sydney on behalf of a three-member appeal panel.

Metcash’s purchase of the stores was allowed to go ahead Sept. 20 when Federal Court Justice Peter Jacobson denied the ACCC’s request to delay the acquisition until the appeal was heard. Today’s decision upholds a higher standard for ACCC to follow in assessing the effects of future mergers.

Federal Court Justice Arthur Emmett had ruled the ACCC must prove that its view of what a market would look like with and without a proposed acquisition must be more probable than any competing argument. The regulator failed to prove it would be more likely than not that an alternative buyer would be found for Franklins, he said at the time.

Franklins has 80 stores and 10 franchise outlets in Australia.

The case is Australian Competition & Consumer Commission v. Metcash Trading Ltd. NSD1533/2011. Full Court of the Federal Court of Australia (Sydney).


Coffee Says MF Showed ‘Very Weak’ Risk Management

John Coffee, a Columbia University law professor, talked about MF Global Holdings Ltd.’s trading practices and risk management and former Chief Executive Officer Jon Corzine’s involvement in trades.

Coffee spoke on Bloomberg Television’s “InBusiness With Margaret Brennan.”

For the video, click here.

ESMA’s Maijoor Comments on Short-Selling, Other Rules

Steven Maijoor, the chairman of the European Securities and Markets Authority, said that an “end-March” deadline for ESMA to issue rules on short selling was “very unfortunate.”

“Hopefully in future we will have much longer,” he said at a Brussels conference yesterday. The European Parliament voted this month on a draft European Union short-selling law. ESMA would be tasked with providing technical guidance on how to implement the measures.

ESMA is “determined to introduce some rules” for exchange-traded funds, Maijoor said yesterday.

The rules should reduce risks for retail investors, he said. ESMA plans to have draft guidance ready by “around” the end of this year, he said. The ESMA chairman said he will meet at the beginning of December with the U.S. Securities and Exchange Commission and “a number of Asian regulators” to discuss central clearing rules for derivatives.

Maijoor also said the agency will publish guidance on hedge-fund pay as well as leverage levels.

Comings and Goings

HSBC Said to Hire Senior Stress-Test Official From U.K.’s FSA

HSBC Holdings Plc plans to hire a senior official from the U.K.’s Financial Services Authority who worked on banking stress tests as head of capital management, according to two people familiar with the situation.

Alan Cathcart is scheduled to start work at the lender at the beginning of next year, said one of the people, who declined to be identified because the appointment isn’t public.

The European Banking Authority will release as soon as next week updated stress-test recommendations for banks to raise additional capital in the wake of the euro-area debt crisis. U.K. banks probably won’t have to raise more capital, Andrew Bailey, head of banking supervision at the FSA said Nov. 24.

Cathcart, is at least the eighth senior official to leave the regulator since the government said in 2010 it would abolish the agency.

The FSA has restructured into two divisions to prepare for a government-mandated handover of lender supervision to the Bank of England. The supervisor has split internally into a prudential regulatory authority and a consumer protection agency.

Spokesmen for the FSA and HSBC in London declined to immediately comment. Cathcart didn’t immediately return a voice-mail at his office at the FSA.

France’s Coeure Backed by Euro-Area Ministers for ECB Board

France’s Benoit Coeure has been backed by euro-area finance ministers to succeed Italy’s Lorenzo Bini Smaghi on the European Central Bank’s Executive Board.

Luxembourg’s Jean-Claude Juncker, who leads the group of finance chiefs from the 17 euro nations, said at a press briefing yesterday after a meeting in Brussels that the groups unanimously backed Coeure. His nomination must now be approved by European Union leaders, which is likely to happen when they meet on Dec. 8.

Coeure, currently chief economist at the French Treasury, would give Europe’s second-largest economy a voice on the ECB board, which it has lacked since Jean-Claude Trichet’s term as the central bank’s president ended last month.

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