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China Credit Cards, Danish Loans, Mortgage Deal: Compliance

China’s decision to allow Citigroup Inc. to issue credit cards in its own name may signal a step toward the government in Beijing opening its banking industry.

New York-based Citigroup is the second foreign bank, and the first Western one, to be permitted to issue credit cards in China.

The announcement Feb. 5 came as the World Trade Organization, acting on a U.S. complaint, probes the legality of China’s refusal to let foreign companies issue their own bank cards denominated in its currency or to permit companies such as Visa Inc., American Express Co., MasterCard Inc., Discover Financial Services and First Data Corp. to process card transactions in China.

China requires foreign banks to “co-brand” with Chinese operators to issue credit cards and execute payments through China UnionPay Data Co. The U.S. says the rules contravene a pledge the world’s most populous nation made when it joined the Geneva-based WTO in 2001 to open its debit- and credit-card markets to foreign processors by the end of 2006.

Bank of East Asia Ltd., Hong Kong’s third-largest lender, was the first non-mainland issuer of credit cards. More banks will probably follow, said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy.

Shannon Bell, a spokeswoman for New York-based Citigroup, declined to comment on whether conditions were attached to the permission. Nkenge Harmon, a spokeswoman at the U.S. Trade Representative’s Office in Washington, didn’t respond to e-mails asking for comment.

Compliance Policy

Danish FSA Proposes Tougher Rules for Writedowns on Bank Loans

Denmark’s financial regulator is proposing banks follow stricter rules on how they report bad loans in their accounts.

“The central part of the proposal is that loans to troubled property clients in the future need to be reduced to match the value of the property in question,” the Copenhagen-based Financial Supervisory Authority said in an e-mailed statement yesterday.

Most of Denmark’s banks already write down their loans in compliance with the new proposal while a “smaller group” will need to tighten impairment standards, the FSA said.

The proposal is designed to “boost credibility” around writedowns and “thereby increase confidence in banks’ accounts,” FSA Director General Ulrik Noedgaard said in the statement.

Biggest Ships Have ‘Robust’ Regulation, Are Safe, UN’s IMO Says

The world’s largest ships are robustly regulated and safe to sail even as their dimensions expand, according to the United Nations agency that sets global maritime rules.

Regulators haven’t let vessels, especially cruise ships, get so large that they present a hazard, according to Koji Sekimizu, secretary-general of the London-based International Maritime Organization. The growing size of vessels is under scrutiny after the Costa Concordia cruise ship grounded last month, killing at least 17 people.

The IMO’s remit includes ensuring the safety of and preventing pollution from a global fleet that it says exceeds 100,000 vessels and carries 90 percent of global trade. It’s up to the commercial market to decide the most appropriate size for vessels and the IMO won’t impose restrictions, Sekimizu said.

Sekimizu, director of the IMO’s safety division from 2004 until his appointment as secretary-general in December, said the agency spent a decade developing rules for the largest cruise ships that were implemented in 2010.

For more, click here.

Compliance Action

California, N.Y. Are Among Fewer Than 10 Mortgage Deal Holdouts

California and New York’s attorneys general haven’t signed on to a proposed settlement with five banks over foreclosure practices that has won the support of more than 40 states.

California’s Kamala Harris and New York’s Eric Schneiderman, who have pushed for changes to the deal, are among those who hadn’t joined the agreement as of yesterday’s deadline for states to decide. More than 40 states signed on to the accord, according to Iowa Attorney General Tom Miller, who is helping to lead talks with the banks.

All 50 states announced almost 16 months ago they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes. Officials from a group of state attorneys general offices and federal agencies, including the Justice Department, have since negotiated terms of a proposed settlement with the five banks, the nation’s largest mortgage servicers, that is said to be worth as much as $25 billion.

Miller didn’t say which states have signed on.

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. made a last-minute demand that New York drop claims filed against them Feb. 3 as a condition of the settlement, a person familiar with the matter said.

The banks have asked that many of the claims in the complaint be thrown out, the person said. The other two banks involved in the nationwide settlement proposal, Ally Financial Inc. and Citigroup Inc., weren’t named in the complaint.

The push by the three banks raised a new obstacle in getting Schneiderman’s support for the deal, said the person. Dani Lever, a spokeswoman for Schneiderman, declined to comment on the demand by the banks over the MERS lawsuit.

Mark Rodgers, a spokesman for New York-based Citigroup; Tom Goyda of San Francisco-based Wells Fargo; Tom Kelly, a spokesman at New York-based JPMorgan; and Gina Proia of Detroit-based Ally Financial declined to comment on the settlement condition.

“We’re interested in finding a path forward with a comprehensive settlement that benefits homeowners and communities,” said Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, declining to comment further.

The proposed settlement already requires Massachusetts, Nevada and Arizona, which have sued banks involved in the talks, to settle their claims, a person familiar with them said.

For more, click here.

Express Scripts-Medco Deal Opposed by Food Store Trade Group

The Food Marketing Institute, which represents 26,000 food stores and 14,000 pharmacies, urged a U.S. antitrust regulator to attempt to block Express Scripts Inc.’s bid to buy Medco Health Solutions Inc.

Officials at the trade group said in a Feb. 2 letter to Federal Trade Commission Chairman Jon Leibowitz that the deal, which would create the biggest U.S. firm for managing employees’ prescription-drug benefits, would “harm supermarket pharmacies by significantly reducing reimbursement rates.”

U.S. Senator Herb Kohl, chairman of the Senate’s antitrust subcommittee, also wrote Leibowitz on Feb. 2, saying the acquisition would “reduce choices” for large employers seeking so-called pharmacy benefit managers.

Cecelia Prewett, an FTC spokeswoman, declined to comment on the status of the Express Scripts-Medco investigation, which began after the companies announced the deal in July.

“We remain confident that the merger will close in the first half of this year,” Brian Henry, an Express Scripts spokesman, said yesterday. The company is cooperating with the FTC as it reviews the deal, he said.

Smith & Nephew Settles Bribe Cases With U.S. for $22 Million

Smith & Nephew Plc, Europe’s biggest maker of artificial hips and knees, agreed to pay $22.2 million to settle allegations by the U.S. Justice Department and Securities and Exchange Commission that it engaged in a scheme to pay bribes in Greece.

Smith & Nephew admitted in filings yesterday in federal court in Washington that two of its units were involved in a scheme for more than a decade to make “illicit payments” to doctors employed by government hospitals or agencies in Greece in violation of the Foreign Corrupt Practices Act.

The London-based company, which entered into a deferred prosecution agreement with the U.S., agreed to pay a $16.8 million fine to settle the criminal allegations and another $5.4 million to settle a civil suit filed by the SEC.

Had Smith & Nephew been convicted of the allegations the company could have been excluded from participating in U.S. health-care programs, according to prosecutors.

In a criminal information filed in the U.S. District Court in Washington, the Justice Department charged Smith & Nephew’s U.S. and German units with one count of conspiracy, one count of violating the FCPA and one count of aiding and abetting.

Prosecutors said they’ll seek to have the charges dismissed after three years as long as Smith & Nephew abides by its agreement with the Justice Department. The agreement requires the company to hire a corporate monitor and cooperate with any bribe probes.

Olivier Bohuon, Smith & Nephew’s chief executive officer, said in a statement that the company has a “world-class compliance program” which has been enhanced since the investigation began in 2007 and these “legacy issues” do not reflect the company today.

The case is U.S. Securities and Exchange Commission v. Smith & Nephew Plc, 12-00187, U.S. District Court, District of Columbia (Washington).

For more, click here.

Bats Global Says SEC Approves Its Market-Maker Incentive Program

Bats Global Markets Inc. said U.S. regulators approved its market-maker incentive system known as the competitive liquidity provider program, according to a statement.

The BATS competitive liquidity program was designed for BATS’ new U.S. primary listings, the company said. It is a rewards-based program designed to give market-makers an incentive “to make tighter quoted spreads with increased liquidity for each listing on BATS,” according to the statement.

The competitive liquidity program “particularly benefits small and mid-cap companies, which can be ‘‘challenged by a lack of liquidity in their stock,’’ making it difficult to attract larger investors.

ICE, EEX Compete to Supply 10 Billion Euro Carbon Platforms

ICE Futures Europe, the biggest exchange for greenhouse-gas trading, and European Energy Exchange AG in Germany will compete to provide platforms selling carbon allowances to airlines and other emitters.

The European Commission, the Brussels-based regulator of the world’s biggest carbon market by traded volume, said Jan. 11 it plans to open a tender for a temporary auction platform by this month, keeping the region on track to start early sales of allowances for the 2013 phase of the system in the second half of this year.

Germany, the U.K. and Poland are also setting up systems as the European Union seeks to sell most allowances starting next year instead of giving them away for free, as it has since 2005. The exchanges may sell more than half of the 2.3 billion metric tons of allowances next year, valued at about 10 billion euros ($13 billion) at benchmark prices.

ICE has applied with Britain’s Financial Services Authority for status as a recognized auction platform, ICE Futures Europe President David Peniket said Feb. 3 in an interview in London. ICE would also review tender documents from Germany and Poland before making a decision on those opportunities, he said.

The exchange is a unit of IntercontinentalExchange Inc. in Atlanta, the second-largest U.S. futures market.

‘‘EEX will submit bids for all tender processes,” Manuel Moeller, a spokesman for the Leipzig, Germany exchange, said yesterday in an e-mailed response to questions. EEX already handles auctions for Germany, Lithuania and the Netherlands.

Other European exchanges are expected to bid. While 24 of the EU’s 27 nations agreed to have a common auctioning platform, Germany, the U.K. and Poland opted to develop national systems. The temporary common platform will remain in place until a permanent one becomes operational.

For more, click here.


Contorinis Must Pay $8.3 Million in SEC Lawsuit, Judge Rules

Joseph Contorinis, an ex-Jefferies Paragon Fund money manager, must pay $8.3 million in a U.S. Securities and Exchange Commission insider-trading suit, a judge ruled.

U.S. District Judge Richard J. Sullivan in New York granted the SEC summary judgment, or a ruling before trial, in a Feb. 3 order, citing the facts proved at an earlier criminal trial.

Contorinis was accused of illegally trading on inside tips about bids for Albertsons Inc. supplied by Nicos Stephanou, an investment banker who was the government’s chief witness in the trial. Contorinis was convicted of securities fraud and conspiracy in a scheme that federal authorities said netted more than $7 million in illegal profits. He is serving a six-year prison term.

Stephanou, a longtime friend of the defendant employed as an investment banker at UBS AG, testified he passed him nonpublic information regarding efforts by Cerberus Capital Management LP, to acquire Albertsons, which was then the second-biggest U.S. grocer.

The SEC case is Securities and Exchange Commission v. Stephanou, 09-cv-011042, and the criminal case is U.S. v. Contorinis, 09-cr-01083, U.S. District Court, Southern District of New York (Manhattan).

BofA Investors Win Class-Action Status in Suit Over Merrill Deal

Bank of America Corp. investors won permission to proceed as a class action in their lawsuit claiming the company misled shareholders about the acquisition of Merrill Lynch & Co.

U.S. District Judge Kevin Castel in Manhattan ruled yesterday that the claims in the case may go forward on behalf of all investors who held Bank of America common stock and call options from Sept. 18, 2008, to Jan. 21, 2009. Castel also certified a class of investors who held common stock on Oct. 10, 2008, and were entitled to vote on the Merrill acquisition.

“Given the potential class size and the likelihood that individual recovery for some class members may be relatively modest, class certification is appropriate,” Castel wrote.

The suit, filed in 2009, claims Bank of America failed to disclose information about bonuses to Merrill employees and about the firm’s financial losses in the fourth quarter of 2008. The decision to grant class status allows investors to pool resources and gives their lawyers more leverage to push for a settlement with the bank.

Lawrence Grayson, a Bank of America spokesman, declined to comment on the ruling.

In July, Castel dismissed claims against Kenneth Lewis, the bank’s former chief executive officer.

The case is In re Bank of America Corp. Securities, Derivative and ERISA Litigation, 09-mdl-2058, U.S. District Court, Southern District of New York (Manhattan).


Callow Says Greece Remains ‘Very Dependent’ on Europe

Julian Callow, head of international economics at Barclays Capital, talked about the prospects for a solution to the Greek debt crisis.

Callow spoke with Tom Keene on Bloomberg Television’s “Surveillance Midday.”

For the video, click here, and for more, click here.

Ellen Rosen in New York at

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