Austria’s regulators are discussing rules for its top banks that will curb excessive lending in eastern Europe with the European Commission, according to the Central Bank Governor Ewald Nowotny.
He told reporters in Vienna on Feb. 24 that the regulators didn’t want to publish the rules without the commission’s consent. The discussions will be completed “shortly,” Nowotny said.
Austria’s financial markets regulator and the central bank in November presented a plan that restricts new loan business to 1.1 times the deposits and wholesale funding that Raiffeisen Bank International AG, Erste Group Bank AG and UniCredit Bank Austria AG’s local units in eastern Europe are able to raise on their own. They also brought forward capital rules from the Basel Committee on Banking Supervision.
The regulators have yet to publish a comprehensive version of the rules, an action initially scheduled for the end of 2011.
The banks “de facto meet the rules already,” Nowotny said.
U.K. Plan for Forced Power Sales Won’t Aid Competition, RWE Says
RWE AG, one of the six biggest electricity generators in the U.K., said a proposal by regulators to force utilities to sell a proportion of their generation in auctions won’t improve competition.
The company expressed its concerns Feb. 24 in an e-mailed statement with comments by Dan Meredith, a company spokesman.
The U.K. is seeking to boost trading volumes in the power market to help entice investors and boost competition as consumer bills rise. Ofgem, the U.K.’s electricity and gas market regulator, said Feb. 22 it may force the nation’s six biggest utilities to sell 25 percent of their generation in monthly auctions of contracts as far as three years in advance.
Netherlands, Spain Among EU States Warned by EU on Energy Rules
The Netherlands, Spain and six other European Union nations must still put in place EU rules to open up energy markets, the European Commission said.
The Netherlands, Spain, Bulgaria, Cyprus, Luxembourg, Romania and Slovakia haven’t informed EU regulators of national laws to implement EU rules for power and natural-gas markets, while Estonia hasn’t notified any laws for gas markets, the EU said today in an e-mailed statement. Regulators can take EU member states to court if they don’t draft the rules.
Schaeuble Seeks to Cut Banks From Market Regulator, Spiegel Says
Finance Minister Wolfgang Schaeuble is seeking to remove banking representatives from the board of Germany’s BaFin financial-market regulator and replace them with academics or members of research institutes, Der Spiegel reported, without saying how it got the information.
Schaeuble’s goal is to reduce the influence of the bank lobbies, which currently have a vote on BaFin’s board along with government representatives, the magazine said yesterday.
Greece Invites Investors to Debt Swap, Biggest Restructuring
Greece’s government formally asked investors to exchange their holdings of government debt for new securities in the biggest sovereign restructuring in history.
“The Ministerial Council of the Hellenic Republic today approved the terms of invitations to be made to private sector holders,” the Ministry of Finance said Feb. 24 in a statement on a website set up for the exchange. The bonds subject to the invitation had a total face value of about 206 billion euros.
The government seeks a 90 percent participation rate and set a 75 percent rate as a threshold for proceeding with the transaction, according to the statement.
Parliament approved laws Feb. 23 to permit the exchange and cut 106 billion euros ($143 billion) of the country’s debt. Private creditors gave their backing earlier last week as euro area finance ministers weighed a 130 billion-euro package for the nation, its second rescue.
The swap is required to secure the European bailout and is geared toward averting the collapse of the Greek economy and default by a member of the euro. The exchange must be completed before March 20, when the country has to redeem 14.5 billion euros of bonds. In return, Greece has promised 3.2 billion euros of public-spending cuts. Interest payments on the new securities are set to start March 12.
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Warner Chilcott Gets U.S. Attorney Subpoena on Drug Practice
Warner Chilcott Plc and some non-executive employees received a subpoena from the U.S. Attorney’s Office in Massachusetts for information on a “wide range of matters,” including its sales and marketing practices.
The Feb. 22 subpoena seeks information on payments to people who are in a position to recommend drugs, medical education, clinical trials, off-label use and employee training for key products, the Dublin-based company said Feb. 24 in a filing with the U.S. Securities and Exchange Commission.
“We intend to cooperate in responding to the subpoena but cannot predict or determine the impact of this inquiry on our future financial condition or results of operations,” Warner Chilcott said.
Threadneedle to Review Risk Controls After Fraud Attempt
The U.K. finance regulator has asked Threadneedle, the London-based investment unit of Ameriprise Financial Inc., to review its systems and controls after a $150 million trading fraud was attempted.
The Financial Services Authority asked the firm to review the effectiveness of its compliance system. Threadneedle isn’t under investigation, Christopher Hamilton, a spokesman for the regulator, said today.
Threadneedle said this week that it blocked a “suspicious attempted trade” in August 2011. The firm reported the matter to the City of London Police and dismissed the trader, spokeswoman Alison Jefferis said.
The trader is Vladimir Gersamia, according to a person familiar with the investigation. Gersamia, who formerly helped manage about $2 billion in emerging-market debt at Threadneedle, didn’t respond to calls to his mobile phone. He left the firm in September, according to the FSA’s register.
London police arrested a 32-year-old man as part of the investigation in October and a criminal investigation into “a suspected $150 million trading fraud” is pending, police said. The man arrested was George Urumov, formerly the London-based global head of fixed income at Otkritie Financial Corp., a brokerage part-owned by Russia’s VTB Group, another person familiar with the matter said. Urumov declined to comment.
Threadneedle said the attempted trade was stopped by its systems and there was no loss to its clients.
Otkritie spokesman Alexey Karakhan didn’t immediately respond to a phone call and e-mail seeking comment. The Financial Times previously reported the identities of the men.
Prudential May Quit U.K. to Counter Solvency II Regulations
Prudential Plc, the U.K.’s biggest insurer by market value, may move its headquarters from Britain, where it was founded 164 years ago, if new European regulations hamper the business, the insurer said in statement.
The company is considering a number of options to maximize its “strategic flexibility.” This will include changing the domicile as a possible response to an adverse outcome on Solvency II, according to today’s statement.
Solvency II, a set of rules the European Union plans to introduce in 2013, is designed to align insurers’ capital reserves with the risks they take. Prudential Chief Executive Officer Tidjane Thiam has warned the new regulations may lead to “unintended consequences.”
The insurer may be concerned it will be forced to hold additional capital if the European rules clash with solvency regulations in the U.S., where the company gets more than a third of its revenue, according to Marcus Barnard, a London-based analyst at Oriel Securities Ltd.
Prudential shares are already listed in Hong Kong, and the city is the insurer’s second-biggest Asian market by revenue.
SEC Reviewing Trading Practices After Shift to Automation
The U.S. Securities and Exchange Commission is examining equity-trading practices that gained dominance in the past decade amid a shift to automation, according to an official in the agency’s enforcement division.
Daniel Hawke, head of the market-abuse unit, said at an event Feb. 24 that the SEC is looking into techniques such as co-location, in which exchanges let traders place computers close to the market’s systems to shave time off executions. He said other practices under examination include the rebates that venues pay to spur transactions, direct market access where brokers let investors send orders to venues themselves, and whether the types of orders exchanges offer are being misused.
Regulators are evaluating U.S. markets after rules since the 1990s boosted competition and spread stock trading across 13 exchanges and dozens of private, broker-run venues. While the shift cut investors’ costs, it made trading more complex, and scrutiny increased after a May 2010 rout erased $862 billion from equities in less than 20 minutes. Several practices Hawke highlighted are used by firms engaged in high-speed trading.
The SEC also is examining whether the self-regulatory organizations that operate exchanges are complying with and enforcing their own rules, Hawke said. Alternative venues that aren’t exchanges are operated by broker-dealers and must register with the agency. These include dark pools, or private venues that match orders without displaying order information.
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AIJ Suspension Undermines Japan Pensions Hedge Fund Appetite
The suspension of AIJ Investment Advisors Co.’s operations amid concerns hedge funds it manages had lost pension money may undermine plans by Japan’s retirement funds to boost returns to meet demand in an aging society.
The Financial Services Agency on Feb. 24 ordered the Tokyo-based firm with 183.2 billion yen ($2.3 billion) of client money to stop business for a month as the regulator investigates “possible losses” at AIJ’s hedge funds. The FSA also will undertake a nationwide probe of 263 asset managers.
The inquiry is a setback for Japan’s pension industry, which has been looking to diversify away from bonds and equities into alternatives investments, including hedge funds, to maintain steady returns and fund retiree benefits in a country with the world’s fastest-growing aging society and two decades of slumping markets.
It also raises questions about the nation’s corporate governance after camera maker Olympus Corp.’s admission that it covered up losses by overpaying advisers.
Regulators have been investigating AIJ, which invests in futures and options of equities and bonds, since the end of January, and discovered that the company has been unable to explain to investors the current state of the way their money is being managed, according to the FSA.
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Ex-KBR CEO Stanley Gets 2 1/2 Years in Prison for Foreign Bribes
Albert “Jack” Stanley, the former KBR Inc. chief executive officer, was sentenced to 2 1/2 years in prison for bribing Nigerian officials to win $6 billion in natural gas contracts for the company and its partners.
U.S. District Judge Keith Ellison, who handed down the sentence Feb. 23 in Houston, also sentenced Stanley, 69, to three years of supervised probation.
Stanley pleaded guilty in September 2008 to violating the U.S. anti-bribery law, the Foreign Corrupt Practices Act, and agreed to make restitution of $10.8 million, of which $1.55 million remains to be paid. He faced as long as seven years in prison under the terms of his cooperation agreement.
Larry Veselka, Stanley’s lawyer, asked that his client be sentenced to house arrest instead of prison, saying Stanley’s cooperation resulted in eight felony guilty pleas, four deferred-prosecution agreements and fines of $1.7 billion.
Stanley was “the linchpin, the foundation of the largest, most successful FCPA investigation ever,” Veselka said.
The cases are U.S. v. Stanley, 08-cr-00597; U.S. v. Tesler, 09-cr-00098; U.S. v. Kellogg Brown & Root LLC, 09-cr-00071; U.S. v. Technip, 10-cr-00439; U.S. v. Snamprogetti Netherlands, 10-cr-00460; and U.S. v. JGC Corp., 11-cr-00260, U.S. District Court, Southern District of Texas (Houston).
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SEC’s Schapiro Says More Civil Actions Coming in Crisis Cases
The U.S. Securities and Exchange Commission’s enforcement division isn’t finished pursuing cases connected to the 2008 financial crisis, said SEC Chairman Mary Schapiro.
“There are more actions to come,” Schapiro said Feb. 24 at a Washington securities-law conference, citing an enforcement record that has filed actions against Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co., and against executives at Bank of America Corp.’s Countrywide unit, Fannie Mae and Freddie Mac.
On another SEC effort, to institute a markets surveillance system the regulator can use to monitor equities trading activity, she said the “contours of the regulation are being finalized.” It “should eventually be expanded to include fixed income, futures and other markets,” she said.
Schapiro also said the agency is close to finishing Dodd-Frank Act mandates for the regulation of the security-based swaps markets.
Barnier, Reynolds, Geithner Comment on Volcker Rule
Michel Barnier, European Union financial services commissioner, talked with Bloomberg’s Meera Louis about the impact of the so-called Volcker rule on banks in the U.K., Germany and France.
The rule, named for former Federal Reserve Chairman Paul Volcker, was included in the U.S. Dodd-Frank Act to restrict risky trading at banks that operate with federal guarantees. They spoke Feb. 23 in Washington.
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Separately, U.S. Treasury Secretary Timothy F. Geithner said he’s confident regulators will be able to complete the Volcker rule ban on proprietary trading while allowing exceptions for market-making.
Separately, James Reynolds, chief executive officer of Loop Capital Markets LLC, talked about the potential impact of the so-called Volcker rule on hedge funds and the government’s role in U.S. businesses.
Reynolds, who spoke with Betty Liu on Bloomberg Television’s “In the Loop,” also discussed the outlook for pension funds and municipal bonds.
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Geithner, in a CNBC television interview Feb. 24, said he thinks U.S. regulators will be able “to do what the law requires -- that as we are limiting the risk these large institutions pose to the world, could pose in the future --we’re preserving well-designed, carefully constructed exceptions for market-making hedging, as the law intended.”
The so-called Volcker rule, named for former Federal Reserve Chairman Paul Volcker, was included in the Dodd-Frank Act to restrict risky trading at banks that operate with federal guarantees. Central bankers and regulators from around the world have voiced concern that the rule, which would apply to the U.S. operations of foreign banks, may also extend to firms’ operations outside the country.
On Europe, Geithner said it’s now “much less likely” that the continent’s debt crisis will cause global contagion and derail the U.S. economic recovery.