Foreclosure Settlement, Libor Probe, EBA ‘Boost’: Compliance

Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks reached a $25 billion settlement with 49 states and the federal government to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.

In what the U.S. called the largest federal-state civil settlement in the nation’s history, the banks have committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.

“There are something like 10 million-plus homes under water to the tune of half a trillion dollars,” said Lynn Turner, the former chief accounting officer at the Securities and Exchange Commission and a managing director at consulting firm Litinomics Inc. in Los Angeles. “I don’t think this settlement, which lets all the bank executives off the hook for filing false documents with courts, is going to make much of a dent.”

The accord announced yesterday in Washington was 16 months in the making, following a move by states to investigate bank foreclosure practices in 2010. The deal will “begin to turn the page on an era of recklessness” that led to the housing bubble, President Barack Obama said in Washington, where he was joined by administration officials and state attorneys general.

The nation’s five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- negotiated the settlement with federal agencies, including the Justice Department, and state attorneys general.

The deal comes more than a year after attorneys general from all 50 states announced a probe into foreclosure practices following disclosures that banks were using faulty documents to seize homes.

Oklahoma reached a separate agreement worth $18.6 million with the banks and didn’t sign the federal settlement, according to a statement from the state’s attorney general, Scott Pruitt.

The $25 billion agreement includes $1.5 billion in payments to some 750,000 borrowers who lost their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also provide $3 billion in refinancing to lower homeowners’ interest rates. A website has been set up to give information on the settlement.

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Compliance Policy

EU Agrees on Clearing Law for Over-the-Counter Derivatives

European Union officials and lawmakers brokered a deal on rules to force trading of some over-the-counter derivatives through clearinghouses to safeguard financial markets.

The law, approved after negotiations in Brussels yesterday, will empower EU regulators to decide on types of derivatives that should be centrally cleared. Traders who flout the rules would face penalties including fines. The law also sets rules on management of clearinghouses, including on reserves they must hold to protect themselves from insolvency.

Global regulators have sought tougher rules for OTC derivatives since the collapse in 2008 of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc., two of the largest traders in credit-default swaps. Lawmakers have said that clearing firms should also face tougher regulation because a crisis at one of them could threaten the global financial system.

Negotiators on the EU rules sought to address concerns from U.S. banks that they could face discrimination.

U.S.-based companies warned last year that a draft of the law would grant exemptions from clearing rules to derivatives trades between different units of the same bank, but only if these units were both based in Europe.

The accord would empower ESMA to settle disagreements between national supervisors on whether a clearinghouse should be authorized.

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EU Banks to Boost Capital by $130 Billion, Regulator Says

European banks plan to boost capital by about 98 billion euros ($130 billion), 26 percent more than regulators originally required, while excluding lenders in Greece and those in the midst of restructuring.

The European Banking Authority also said in an e-mailed statement it won’t subject banks to stress tests on their balance sheets this year, citing the current efforts to raise capital. The measures would result in banks reducing lending to the real economy by “less than 1 percent of the total amount” of capital raised, the EBA said.

The agency excluded all Greek banks, Dexia SA, Austria’s Oesterreichische Volksbanken AG and Germany’s WestLB AG from the most recent calculations because they are restructuring their businesses or already under obligations tied to receiving money from the International Monetary Fund.

The EBA told European banks to raise 114.7 billion euros in fresh capital in December to respond to the sharp drop in the value of securities issued by euro-area governments. The agency also required banks to keep a core Tier-1 capital ratio of 9 percent and hold additional reserves, called a sovereign buffer.

Banks submitted plans to raise capital in January. The EBA has said lenders aren’t allowed to reduce lending to reach the capital-ratio goals. Groups of financial supervisors will have further meetings on the plans this month.

Canadian Securities Regulators Streamline Rules on ETFs

Canadian Securities Administrators introduced amendments streamlining access to market for exchange traded funds by eliminating need to apply for regulatory exemptions, according to a statement on the regulator’s website.

The amendments come into force April 30 after ministerial approval. The purpose of the reform is to reduce regulatory costs, which the CSA anticipates will benefit investors, the regulator said in the statement. The CSA also expects the new amendments to make the funds more resilient to certain short-term risks by introducing liquidity restrictions, the CSA said in the statement.

SEC Backs Away on Real-Time Data in Market-Tracking System

U.S. Securities and Exchange Commission Chairman Mary Schapiro is backing away from a proposal to require live reporting of trading data as part of the agency’s planned market-surveillance system.

John Nester, an SEC spokesman, said yesterday in a statement that Schapiro believes, based on comments received by the agency, that “very substantial benefits” of a consolidated audit trail can be achieved without incurring the costs and risks of real-time reporting.

Schapiro hasn’t scheduled a vote on the audit trail, which the SEC says would help track the cause of disruptions such as the May 6, 2010, market plunge that temporarily erased $862 billion in equity value before stocks recovered by day’s end.

Later that month, the SEC proposed building the audit trail -- a multibillion-dollar centralized data hub that would capture “customer and order event information” as it happens. The real-time reporting idea was faulted by the Financial Industry Regulatory Authority, as well as brokerages and exchanges that expressed concern over the plan’s cost, which the SEC initially estimated at $4 billion to build and $2.1 billion a year to maintain.

The SEC currently keeps tabs on the markets using data terminals from private industry. Senate Republicans sent a letter to Schapiro last month asking why the SEC was pursuing a real-time audit trail instead of a cheaper alternative proposed by Finra.

Compliance Action

RBS Said to Dismiss 4 Bankers as Libor Probe Widens to Brokers

Royal Bank of Scotland Group Plc, the U.K.’s largest government-owned lender, dismissed at least four employees in connection with a probe of potential interest-rate manipulation, two people briefed on the move said.

Citigroup Inc. and Deutsche Bank AG have also dismissed, suspended or put traders on leave as part of the investigation, according to two more people, who declined to be identified because they weren’t authorized to discuss the case. ICAP Plc, the world’s largest broker of trades between banks, suspended an employee in the past six weeks and put two others on leave, another person said.

Regulators’ requests for information from interdealer brokers marks a widening of the global investigation into whether there were attempts to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor.

The investigation is being handled by the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, the U.S. Justice Department, Japan’s Financial Supervisory Agency and the U.K. Financial Services Authority. European Union antitrust regulators and the Swiss Competition Commission are also examining Libor rates.

Libor, a benchmark for about $360 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London.

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Insurer Seeks to Pay Corzine, MF Executives Up to $25 Million

An insurance company that issued to MF Global Holdings Ltd. $25 million of directors and officers liability insurance through the year ending in May asked a judge to let it pay legal defense costs.

U.S. Specialty Insurance Co. cited a class-action lawsuit against former Chief Executive Officer Jon Corzine in New York, cases in other states, and investigations into the company’s collapse being conducted by U.S. attorneys and regulators.

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German Regulator Says HRS Hotel Price Agreements May Break Rules

Germany’s antitrust regulator said Hotel Reservation Service Robert Ragge GmbH’s pricing agreements with hotels may harm competition.

The best-price clause in HRS’s agreements with hotels guarantees that the company would get the best hotel price, the highest room availability and the best cancellation policies for its complete Internet offering, the Federal Cartel Office said in an e-mailed statement today.

Andreas Mundt, president of the Bonn-based Cartel Office, said the clause makes it more difficult for newcomers to enter the market.

Today’s warning doesn’t mean the regulator has made a final decision on HRS and it will give the company the opportunity to respond, the Cartel Office said. Anja Klein, a spokeswoman for HRS, said the company will reply to the Cartel Office later today.


SIPC Ordered to Say Why It Shouldn’t Cover Stanford Victims

The Securities Investor Protection Corp. was ordered by a federal judge to explain why it shouldn’t begin a claims process for the victims of R. Allen Stanford’s alleged investment fraud.

U.S. District Judge Robert Wilkins in Washington yesterday ruled that SIPC, a nonprofit corporation funded by the brokerage industry, must tell the court by Feb. 16 why it shouldn’t be ordered to start a liquidation proceeding in federal court in Texas to handle more than $1 billion in possible claims related to the alleged Stanford fraud.

At issue is whether more than 7,000 brokerage customers who invested in the alleged $7 billion Ponzi scheme run by Stanford are entitled to have their losses covered by SIPC. The Securities and Exchange Commission sued SIPC in December to compel coverage.

Wilkins said he will decide whether SIPC must file an application for a protective decree in federal court in Texas.

The case is Securities and Exchange Commission v. Securities Investor Protection Corp., 11-mc-00678, U.S. District Court, District of Columbia (Washington).

U.S. Drops Antitrust Lawsuit Against Deutsche Boerse, NYSE

The U.S. Justice Department said it dismissed an antitrust lawsuit and proposed settlement agreement with Deutsche Boerse AG and NYSE Euronext because the two exchange owners have given up on their proposed merger.

The lawsuit and settlement are “no longer necessary since the parties have formally abandoned their plans to merge,” the Justice Department said in a statement yesterday.

Deutsche Boerse and NYSE Euronext terminated their merger agreement Feb. 2, a day after European antitrust regulators blocked the transaction because it would have concentrated too much derivatives trading in the hands of a single entity.

Ex-Takeda Executive Committed Insider Trading, SEC Claims

A former Takeda Pharmaceutical International Inc. executive was accused of using inside information to make more than $63,000 trading in call options, according a lawsuit filed by the U.S. Securities and Exchange Commission.

Brent Bankosky, a former director in Takeda’s business development group, used non-public information to trade in advance of Takeda’s announcement of transactions involving Cell Genesys Inc. and Millennium Pharmaceuticals Inc., the SEC said in a civil complaint filed yesterday in Manhattan federal court.

Bankosky also used information about confidential discussions between Takeda and two other drug companies, Arena Pharmaceutical Inc. and AMAG Pharmaceutical Inc., according to the agency. Bankosky failed to profit from his trades in those companies’ securities, the SEC said.

Bankosky has agreed to a partial settlement of the suit without admitting or denying the SEC allegations, said his lawyer, Robert Heim. Bankosky will contest the SEC request for an order barring him from acting as an officer or director of a public company, Heim said.

Bankosky agreed to pay more than $136,000 in the partial settlement, the SEC said.

Kara Hoeger, a spokeswoman for Osaka, Japan-based Takeda Pharmaceutical Co.’s North American unit, said in a statement that the company is cooperating with the SEC. Takeda has a training program that instructs employees in the company’s policies against insider trading, she said in the statement.

Bankosky resigned from Takeda in May, according to the SEC complaint.

The case is SEC v. Bankosky, 12-CV-1012, U.S. District Court, Southern District of New York (Manhattan).


EU Regulators to Focus on Shadow Banks, Barnier Adviser Says

Olivier Guersent, chief adviser to Michel Barnier, the European Union’s financial services chief, said regulating shadow banks would be a priority for the EU during the next two years. Barnier will seek views “this spring” on the topic, Guersent said.

He made the remarks at an event in Brussels yesterday.

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