President Barack Obama installed Richard Cordray as head of the Consumer Financial Protection Bureau with a recess appointment yesterday, testing the limits of his executive authority to fill the post without Senate approval.
Cordray, speaking at the airport in Cleveland, where he was accompanying the president to a speech on the economy, said he would be “100 percent focused” on protecting the American consumer. Cordray is the former attorney general of Ohio.
Obama nominated Cordray to be the bureau’s first director in July, almost one year after enactment of the Dodd-Frank financial regulatory law creating the agency. Republicans blocked Cordray’s confirmation by the Senate last month. Putting him in the job yesterday may set up an election-year court fight between the White House and Congress.
The president’s decision drew quick criticism from Senate Republican leader Mitch McConnell, who said in a statement that Obama “arrogantly circumvented” the American people and upended “long-standing” practices that limited recess appointments.
The Constitution gives a president the power to make appointments when the U.S. Senate is in recess. To keep Obama from appointing officials after Congress started a holiday break last month, congressional Republicans refused to adopt a resolution to formally adjourn and senators have appeared every three days for a brief pro forma session.
Obama’s press secretary, Jay Carney, cited a legal opinion by the White House counsel’s office that determined the Senate was in recess and not conducting any business.
Without a director in place, the consumer bureau can’t supervise and regulate non-bank financial firms, such as mortgage originators and payday lenders.
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Bernanke Sends Congress Fed Study of Options to Lift Housing
Federal Reserve Chairman Ben S. Bernanke sent a staff study on the U.S. housing market to House and Senate committees yesterday discussing policy options to help clear away one of the biggest drags on the economy.
“The challenge for policy makers is to find ways to help reconcile the existing size and mix of the housing stock and the current environment for housing finance,” according to the paper sent to members of the Senate Banking Committee and the House Financial Services Committee. “Fundamentally, such measures involve adapting the existing housing stock to the prevailing tight mortgage lending conditions.”
The Fed chairman said policies that would help resolve the slumping housing market could include programs to ease the conversion of foreclosed properties to rental properties. Avoiding foreclosure through “a broad menu” of loan modifications could also help minimize foreclosures, he said.
A policy of no action at all means “the adjustment process will take longer and incur more deadweight losses, pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large,” Bernanke said in the 26-page paper released by the Federal Reserve Board yesterday.
Bank Bonus, Capital Rules Are 2012 Priorities for EU Agency
The European Union’s top bank regulator will focus on developing tougher rules for lenders’ capital, bonuses and liquidity this year.
The European Banking Authority will use data on bankers’ bonuses “for the design of the technical standards that it will develop in 2012-2013,” the agency said in a document posted on its website yesterday. The London-based EBA will make rules for banks to hold “better quality capital” as part of the region’s implementation of global standards known as Basel III.
The EBA told banks last month to raise 114.7 billion euros ($147.3 billion) in fresh capital by the end of June as part of measures introduced to respond to the euro area’s sovereign-debt crisis. Lenders should look to bolster reserves by cutting bonuses, retaining earnings or issuing shares, it said.
The EBA’s predecessor, the Committee of European Banking Supervisors, set bonus rules in December 2010 that limited upfront cash payouts to around a quarter of the total bonus to link incentives to the long-term performance of the firm.
Banks were quizzed on the number of employees who make more than 1 million euros as part of the data collection exercise this year.
The authority will also collect information to develop rules for a maximum leverage ratio by 2015, and draft definitions and impact studies for liquidity regulations.
Sarasin Says Employee Disclosed Hildebrand Currency Buy
Bank Sarasin & Cie. AG, the Basel, Switzerland-based private bank, said it fired an employee who passed data on currency trades by the family of Swiss National Bank Chairman Philipp Hildebrand to a political opponent. The data allegedly showed the sale of 500,000 Swiss francs for dollars by Hildebrand’s wife on Aug. 15.
Matthias Wabl reported from Zurich on Bloomberg Television’s “The Pulse” with Maryam Nemazee.
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Google Decision Hasn’t Been Made by EU’s Antitrust Regulator (1)
European Union regulators haven’t decided whether they should file a formal complaint against Google Inc. over possible discrimination against rivals in search results, the EU’s antitrust chief said.
EU Competition Commissioner Joaquin Almunia’s statement was published on the European Parliament’s website in Brussels yesterday.
The EU is investigating Google over claims it discriminated against other services in its search results and stopped some websites from accepting rival ads. Microsoft Corp. is among companies that asked the agency to examine the Mountain View, California-based search engine.
The Association of Spanish Newspaper Publishers is the latest to complain to regulators about Google’s behavior, saying on Dec. 23 that Google “abuses its dominant position” by using news content without paying for it.
If news providers opt out of appearing in Google’s search results, they effectively “disappear from the Internet,” the association said. It declined to comment further today.
Al Verney, a spokesman for Google in Brussels, declined to immediately comment.
The commission is still considering whether to treat the Spanish letter as a formal complaint, said a press officer who couldn’t be identified in line with official policy.
Ex-UBS Wealth CEO Failed to Act on Risk Failures, FSA Says
John Pottage, the former chief executive officer of UBS AG’s wealth-management unit in the U.K., didn’t heed warning signs that risk controls in the division were ineffective before an unauthorized trading loss was discovered, the U.K.’s finance regulator said.
Pottage, now a senior executive at the bank’s headquarters in Zurich, should have started a review of controls after a client-money breach, a payment fraud, and other failings were discovered, the Financial Services Authority said in court papers. He also should have done an “adequate initial assessment” of the unit’s controls after becoming CEO, a lawyer for the FSA said at a trial in London yesterday.
Pottage’s actions constituted a regulatory breach, FSA lawyer Andrew Hochhauser said in the first day of closing arguments in the case, where the ex-CEO is challenging a 100,000 pound ($156,000) fine. The case is the first time the regulator has sought to penalize an executive for oversight failures.
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Rajat Gupta Seeks to Have Some Insider-Trading Counts Thrown Out
Rajat Gupta, the former Goldman Sachs Group Inc. director charged with insider trading as part of the Galleon Group LLC probe, asked a judge to dismiss some of the counts against him.
The government’s indictment focuses on two instances in which the U.S. said Galleon co-founder Raj Rajaratnam traded on information he allegedly received from Gupta, though it “improperly uses those two instances to create five purportedly separate substantive securities-fraud charges,” according to Gupta’s filing in federal court in Manhattan.
“The five substantive securities fraud counts in the indictment, because they stem from just two purported unlawful acts, repeatedly charge what are, at most, two alleged offenses,” according to the filing Jan. 3. Gupta asked the judge to consolidate the charges or order prosecutors to choose which to pursue.
In a separate filing Jan. 3, Gupta asked that prosecutors be barred from using wiretap evidence. The government intends to present a “circumstantial case” based on the timing of alleged telephone calls between Gupta and Rajaratnam and recordings the U.S. obtained by wiretapping Rajaratnam’s cell phone, according to the filing.
Gupta’s lawyers said the court’s rejection of a similar bid by Rajaratnam to bar the intercepts as evidence during his trial was incorrect.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, didn’t immediately return a call seeking comment on the filings.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
Citigroup Sues Hedge Fund Manager in Singapore Over Gold Losses
Citigroup Inc.’s Singapore unit sued Hong Kong-based hedge fund manager Raghavendran Rajaraman, seeking to recoup $1.03 million in trading losses the bank says he incurred after gold fell from a record high in September.
Rajaraman had $19.2 million worth of gold in his account on Sept. 23 which the bank sold, along with other collateral, on Sept. 26 “in the face of a rapidly deteriorating market,” leaving a $1 million shortfall, according to a Nov. 18 lawsuit filed with the Singapore High Court. The first closed hearing is scheduled for Jan. 27.
The bank liquidated Rajaraman’s account after it reached a so-called forced sell level and got his authorization, according to court papers.
Rajaraman works with hedge fund 3 Degrees Asset Management and was a currency options trader with Citigroup in Singapore until 2007, according to the lawsuit. Rajaraman isn’t a 3 Degrees employee, Moe Ibrahim, founder of the hedge fund, said in a phone interview.
He hasn’t filed his defense and didn’t return three calls to his mobile-phone. Richard Healy, Rajaraman’s lawyer at Oldham, Li & Nie, declined to comment.
“We intend to pursue the case and it’s inappropriate for us to comment further,” said Citigroup’s Singapore-based spokesman Adam Abdur Rahman.
Citigroup breached its agreement by closing his account without prior notice, according to an Oct. 7 letter from Oldham, Li & Nie to the bank’s lawyers including William Ong at Allen & Gledhill LLP. Rajaraman’s lawyers said in the letter that he suffered a loss of $1.7 million as a “direct consequence of the bank’s breach,” as well as further losses by prematurely liquidating the account.
The case is Citibank Singapore Ltd. v Raghavendran Rajaraman S826/2011 in the Singapore High Court.
Deloitte Shanghai Unit Ordered to U.S. Court in SEC Probe
Deloitte Touche Tohmatsu CPA Ltd. was ordered to appear in a U.S. court after rejecting a demand by the Securities and Exchange Commission for documents related to an investigation of Deloitte’s former client, Longtop Financial Technologies Ltd.
U.S. Magistrate Judge Deborah Robinson ruled yesterday that D&T Shanghai must explain in court why it hasn’t complied with a subpoena issued in May seeking documents that the regulator claims are “critical” to its probe of possible fraud at Longtop, a financial software maker based in Hong Kong.
She didn’t rule on whether D&T Shanghai must comply with the subpoena.
Michael Warden, a lawyer for D&T Shanghai, wrote in a July 8 letter to the SEC that China law prevented his client from turning over documents.
Warden didn’t immediately respond to telephone or e-mail messages seeking comment on yesterday’s ruling.
Longtop said in May that D&T Shanghai quit because of errors in the company’s financial records. The SEC also began an investigation. In July, the SEC and the Public Company Accounting Oversight Board met with counterparts in China to discuss cross-border oversight.
D&T Shanghai resigned as Longtop’s auditor after discovering numerous improprieties during the year ended March 31, 2011, according to the SEC.
The case is U.S. Securities and Exchange Commission v. Deloitte Touche Tohmatsu CPA Ltd., 11-mc-00512, U.S. District Court, District of Columbia (Washington).
Dugan Says Regulatory Uncertainty Worst Thing for Banks
John Dugan, partner at Covington & Burling LLP and former U.S. comptroller of the currency, talked about government financial regulations. While there are “very significant regulatory costs” coming out of Dodd-Frank, the “worst thing facing banks right now is the uncertainty” of the regulation.
Dugan spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “InsideTrack.” John Kanas, chief executive officer of BankUnited Inc., also spoke.
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Levitt Says Money Market Funds Need More Transparency
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said the SEC “is going to move to force money market funds to reveal exactly what they are worth on a daily basis.” Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
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Germann Says Hildebrand Must Restore Confidence in SNB
Hannes Germann, a lawmaker in the upper house of parliament from the Swiss People’s Party, talks about Phillip Hildebrand’s tenure as head of the Swiss National Bank after his wife purchased dollars in August.
Germann speaks from Zurich with Maryam Nemazee on Bloomberg Television’s “The Pulse.”
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Comings and Goings
Societe Generale Says It Plans to Eliminate 1,580 Bank Jobs
Societe Generale SA, France’s second-largest lender, plans to cut about 1,580 jobs at its corporate and investment bank, about 10 percent of the unit’s total, as the sovereign debt crisis crimps revenue.
The reductions include 880 voluntary departures in France, where most of the division’s employees are based, and 700 job cuts in other countries, spokeswoman Laetitia Maurel said by telephone yesterday. The bank still plans to hire 2,500 people in France this year as it expands its consumer bank, the Paris-based lender said in a statement yesterday.
Societe Generale is eliminating jobs as banks prepare for regulations on minimum capital levels and the sovereign-debt crisis persists, threatening revenue from trading and investment banking. Financial firms globally announced more than 200,000 job losses in 2011, up from about 58,000 in 2010, according to data compiled by Bloomberg.