EU Bank Capital, Banks as ‘Utilities,’ Intel: Compliance

Diplomats from the European Union’s 27 member countries failed to reach a deal yesterday in Brussels on how much leeway national regulators should have to force their banks to hold more capital than the region’s law requires, said an EU official familiar with the matter.

That leaves it up to EU finance ministers to overcome entrenched divisions on how to apply bank capital rules across the region at their planned May 2 meeting.

Nations have clashed over proposals by Michel Barnier, the region’s financial services chief, to fix banks’ core capital requirements at 7 percent of their risk-weighted assets, with limited exceptions for national regulators to set higher thresholds. The figure was proposed by Barnier in 2011 as part of a draft law to apply rules agreed upon by the Basel Committee on Banking Supervision.

The U.K., Spain and Sweden are among a group of countries warning the plans would unacceptably restrain national powers. Other governments, including France, Italy and Austria, have backed Barnier’s approach. Denmark, which holds the rotating presidency of the EU, has sought to broker a compromise on the rules, which must be agreed upon both by governments and lawmakers in the European Parliament before they can take effect.

At yesterday’s meeting, the U.K. and France clashed over Danish proposals to allow nations to impose extra capital requirements on their banks of as much as 5 percent of risk-weighted assets, said the official, who declined to be identified because the talks are private.

Denmark has called a meeting of finance ministers on May 2 to seek a deal among governments on the law.

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Compliance Policy

Bonuses Under Threat in EU Vision of Banks as Utilities

Bankers face a backlash from European Union lawmakers determined to cut their bonuses as part of a quest to reshape lenders as utilities like water and electricity providers rather than money-making machines.

The European Parliament is proposing an array of amendments to a draft law implementing capital rules by the Basel Committee on Banking Supervision to attack the bonus culture legislators partly blame for bringing the region’s economy to the brink of collapse. A vote is set for May 8.

Public outrage and shareholder rebellions have already led some banks to limit payouts. Barclays Plc Chief Executive Officer Robert Diamond said last week that he will forgo about 11 percent of his total compensation until the bank improves profitability in a bid to placate investors opposed to his pay package. His move follows a decision by Citigroup Inc. shareholders to reject that bank’s executive pay plan.

Lenders have struggled to find winning counter arguments to the EU parliament’s plans, with lawmakers insisting that the tougher requirements are a cornerstone of their position on the draft Basel law.

Michel Barnier, the EU’s financial-services commissioner, who is responsible for draft legislation, has promised to consider proposing extra rules on bonuses.

The City of London Corporation, which represents the capital’s biggest financial district, said this month that Europe can’t afford to “drive away” the best and brightest minds by giving the impression it doesn’t welcome high earners.

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Finra Increases Fees on Brokerages to Offset Loss at Agency

The Financial Industry Regulatory Authority is proposing to raise fees on the brokerages it oversees to offset a “significant loss” of revenue during fiscal 2011.

The changes would include a 25 percent increase in trading fees, higher levies for Finra’s advertising compliance reviews, and new fees for first-time members and membership applications. The new assessments were described in a letter posted on the regulator’s website from Richard Ketchum, Finra’s chairman and chief executive.

Lower trading volumes and revenues for the industry resulted in less money being collected by the regulator, Ketchum said in the letter, which didn’t say by how much Finra’s income fell.

CFTC Said to Debate Small-Bank Clearing Exemption in Dodd-Frank

The U.S. Commodity Futures Trading Commission is poised to consider a rule that could require smaller banks to clear swaps and comply with higher collateral standards under the Dodd-Frank Act, according to two people briefed on the measure.

The so-called end-user rule, which may come up for a final vote next month, will determine when companies must use clearinghouses to reduce risk in trades. Dodd-Frank, the 2010 regulatory overhaul, requires the CFTC to consider a small-bank exemption that isn’t currently in the measure, according to the people, who requested anonymity because the process isn’t public. The agency is debating whether to include an exemption, according to a third person.

Banks with as much as $50 billion in assets are urging the CFTC to exempt them from the clearing requirement, arguing that their trades don’t pose the financial-system risk the law is meant to rein in. Lenders including Los Angeles-based City National Bank, San Antonio-based Frost National Bank and Susquehanna Bank of Lititz, Pennsylvania, have told regulators they should be considered end-users of swaps.

Dodd-Frank calls for most derivatives trades to be moved into clearinghouses, though Congress asked regulators for some exemptions, notably for end users. The law authorizes the CFTC to consider exempting banks with assets of $10 billion or less.

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Market-Abuse Penalties Too Disparate Across EU, Regulator Says

European financial regulators should do more to harmonize penalties for insider-traders and market manipulators, the region’s top markets regulator said.

Fines for insider-trading have ranged from 64 euros ($84) to 6 million euros across the European Union’s 27 member states, according to a report by the Paris-based European Securities and Markets Authority. Meanwhile, the number of staff at national supervisors dedicated to market enforcement ranged from two to 127, ESMA said in the study.

The European Commission is currently reviewing the region’s Market Abuse Directive as part of an overhaul of financial regulation following the 2008 financial crisis and national supervisors are cracking down on abuse.

EU Parliament May Seek to Scrap Credit-Ratings Rotation Plan

European Union lawmakers may scrap plans by Michel Barnier, the region’s financial services chief, to force companies to rotate the credit ratings company they hire to assess their debt.

The proposals are “excessively complex and very difficult,” Leonardo Domenici, the legislator guiding adoption of the rules in the European Parliament, told a debate in the assembly’s economic and monetary affairs committee in Brussels today. It may be necessary to “work on an alternative system,” he said.

One option may be to require businesses to carry out a tender procedure to select a ratings company, he said. Domenici reiterated calls for a ban on ratings of government debt that haven’t been requested by national authorities.

Barnier proposed the rotation rule last year as part of measures to toughen regulation of the industry amid concerns that some ratings decisions were unjustified and exacerbated the region’s fiscal crisis.

Compliance Action

Vestjysk Bank, Aarhus Lokalbank Win EU Approval for Rescue Aid

Vestjysk Bank A/S and Aarhus Lokalbank A/S won temporary European Union approval for rescue aid from the Danish government.

The European Commission authorized the aid to the banks, which agreed to merge in January, to address funding challenges and help them meet new capital requirements. Denmark must submit a restructuring plan within six months for the EU to grant final approval for the financial help, regulators said in an e-mailed statement yesterday.

Vestjysk Bank, based in Lemvig, Denmark, will convert state-held hybrid capital of about 297 million kroner ($52 million), giving the state a majority holding, it said in January.

SEC Extends Compliance Date on Large Trader Rule

Broker-dealers’ time to comply with certain requirements of the large trader reporter rule has been extended by the U.S. Securities and Exchange Commission, BNA reported yesterday.

The SEC April 20 extended to May 1, 2013 the date by which registered broker-dealers must comply with the recordkeeping, reporting and monitoring requirements of the large trader reporting rule the commission adopted last year.

Broker-dealers that are large traders, or have large trader customers that are either broker-dealers or that trade through sponsored access arrangements, are exempt from the rule’s recordkeeping and reporting requirements until Nov. 30, 2012, the SEC said, according to BNA’s report.

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Courts/Regulatory Hearings

GP Noble Boss Stole $84 Million From Pension Plans, SFO Says

Tony Morris, the co-founder of U.K. finance firm Money Portal Plc, stole 52 million pounds ($84 million) from pension plans to fund his lifestyle, the Serious Fraud Office said.

Morris, whose company owned pension fund operator GP Noble Trustees Ltd., went on trial this week at a London criminal court over the allegations. He is charged with stealing 30 million pounds from GP Noble and its pension funds between July and August 2007, and 22 million pounds from GP Noble and BDC Trustees Ltd. in April 2008.

The money was spent on luxuries including a 150,000-pound Aston Martin, David Farrer, a lawyer for the SFO said at the trial yesterday.

Morris has denied the allegations and his lawyer will present his defense later in the trial.

Intel Fights $1.4 Billion EU Antitrust Fine at July Hearing

Intel Corp., the world’s largest maker of computer chips, will fight a 1.06 billion-euro ($1.4 billion) antitrust fine by European Union regulators at a July court hearing.

Intel’s challenge at the EU’s General Court will be heard over four days from July 3 to July 6, according to a spokesperson for the Luxembourg-based tribunal who couldn’t be identified in line with official policy.

The Santa Clara, California based company is seeking to overturn a 2009 decision from the European Commission that said its use of rebates violated EU antitrust rules. The antitrust fine was the biggest ever issued by the EU, more than double the 497 million-euro penalty against Microsoft Corp. in 2004. Advanced Micro Devices Inc., which initiated the EU antitrust case, had struggled to overcome Intel’s hold on the market for processors that run PCs.

Antoine Colombani, a spokesman for the EU regulator, declined to comment.

The case is T-286/09 Intel v. Commission.

SEC Reaches $33 Million Settlement in Insider Trading Case

A stock trader, a lawyer and a mortgage broker who all pleaded guilty to an insider-trading scheme that spanned 17 years agreed to pay $33 million to resolve a U.S. Securities and Exchange Commission lawsuit.

Stock trader Garrett D. Bauer will pay $31.7 million, mortgage broker Kenneth T. Robinson will pay $845,235 and attorney Matthew H. Kluger will pay $516,510, according to a statement by the SEC. The agency sued the men in federal court in Newark, New Jersey, where they pleaded guilty last year.

They admitted Kluger stole nonpublic data on about 30 corporate transactions while working at four law firms, including Skadden, Arps, Slate, Meagher & Flom LLP and Wilson, Sonsini, Goodrich & Rosati PC. Kluger passed tips to Robinson, who gave them to Bauer, who made trades. The companies included Sun Microsystems Inc., 3Com Corp. and Acxiom Corp.

The men consented to final judgments that are subject to a judge’s approval, according to the statement. Bauer has agreed to a bar on working as a broker, while Kluger agreed that he won’t appear before the SEC as an attorney. All three men are scheduled to be sentenced on June 4 in Newark.

The cases are Securities and Exchange Commission v. Kluger, Bauer, 11-cv-01936 and SEC v. Robinson, 12-cv-02438, U.S. District Court, District of New Jersey (Newark).

Barclays Accused Over Libor Fixing in U.K. Rate Swaps Lawsuit

Barclays Plc was accused of undermining the integrity of the London interbank offered rate in a lawsuit filed by a care home company which claims it was sold unfair interest rate swaps linked to the measure.

Companies in the Guardian Care Homes Ltd. group sued Barclays for repayment of about 12 million pounds ($19.3 million) and for termination of the swaps.

“Barclays knew of its own conduct in relation to the fixing of Libor rates and therefore knew, or ought to have known, that the Libor representations were untrue,” Guardian’s lawyers said in legal papers, citing the regulatory investigations and press reports.

Barclays considers the action “is completely without merit” and “will contest it vigorously,” Jon Laycock, a spokesman for the bank, said in an e-mailed statement.

Ex-Morgan Stanley Executive Pleads Guilty in Real Estate Scheme

Garth R. Peterson, a former Morgan Stanley executive, pleaded guilty to conspiracy for his role in the transfer of a multimillion dollar ownership interest in a Shanghai building to himself and a Chinese public official.

Peterson, 42, who was a managing director in Morgan Stanley’s real estate investment business, pleaded guilty yesterday in federal court in Brooklyn, New York, to conspiring to evade accounting controls, the Justice Department said in an e-mailed statement.

“I decided from the beginning that that I would mislead Morgan Stanley about who would be investing as a Chinese partner,” Peterson told U.S. District Judge Jack B. Weinstein. “I know what I did was wrong and I apologize for my actions.”

Peterson is scheduled to be sentenced July 17. He faces as long as five years in prison and a maximum fine of $250,000, prosecutors said.

Morgan Stanley is required, under the Foreign Corrupt Practices Act, to maintain the internal accounting controls Peterson violated, according to the Justice Department. The controls ensure accountability for the bank’s assets and prevent employees from paying or promising anything of value to foreign government officials, the Justice Department said.

Frank Wohl, Peterson’s lawyer, declined to comment after the hearing on the guilty plea.

The criminal case is U.S. v. Peterson, 12-cr-00224, U.S. District Court, Eastern District of New York (Brooklyn). The civil case is Securities and Exchange Commission v. Peterson, 12-cv-02033, U.S. District Court, Eastern District of New York (Brooklyn).


Delrahim on SEC Probe of Studios Over China Dealings

Makan Delrahim, a former deputy assistant attorney general for the antitrust division of the Department of Justice, talks with Bloomberg’s Jon Erlichman about a possible U.S. Securities and Exchange Commission investigation of movie studios over their dealings in China.

The SEC is investigating at least five studios in the U.S., Reuters reported April 24, citing an unidentified person familiar with the matter. Emily Chang also spoke on Bloomberg Television’s “Bloomberg West.”

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Isenberg Says ‘Crowdfunding’ Rules May Hurt Investors

Daniel Isenberg, professor of Management Practice at Babson Global, talked about the practice of so-called crowdfunding and how it relates to investor confidence.

Isenberg spoke with Deirdre Bolton on Bloomberg Television’s “Money Moves.”

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Schapiro Defends SEC Money-Market Rule to Congressional Critics

U.S. Securities and Exchange Commission Chairman Mary Schapiro defended her pursuit of potential rules that would toughen oversight of money-market funds from criticism on Capitol Hill.

In an appearance yesterday before the House Financial Services capital markets subcommittee, Schapiro rebutted lawmakers who said they were concerned that new rules for money market funds could damage the sector and disrupt the financial system.

“What motivates this is the desire that the taxpayer never be on the hook again as they were in 2008,” Schapiro said. “These are important issues that we as a regulator with responsibility for the economic system and systemic risk have to be willing to talk about.”

Once considered the among the safest investments, money-market funds have been a focus of regulators since the September 2008 collapse of the $62.5 billion Reserve Primary Fund triggered a broader run that froze global financial markets. Schapiro’s effort to impose rules on the funds is being hobbled by internal division at the SEC along with opposition from the U.S. Chamber of Commerce and congressional Republicans.

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