Canada Takeovers, EU Bank Rescue, Russian Banks: Compliance

The Canadian government is moving ahead with plans to increase the threshold for foreign takeover reviews, Industry Minister Christian Paradis said.

The federal reviews will only be done when the target companies have an enterprise value of at least C$1 billion ($972 million), and the new system will be phased in using three steps over the next four years. That’s up from businesses with an asset value of C$330 million currently.

Prime Minister Stephen Harper is seeking to assure foreign companies the country is open to investment amid criticism the system is unpredictable. Harper in 2010 rejected a hostile takeover bid for Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd in 2010.

While Harper pledged to raise the threshold during an election campaign in 2008, and formally announced his plans in a January 2009 budget, final regulations have yet to be introduced to implement the changes.

The threshold immediately will increase to an enterprise value of C$600 million following a 30-day public consultation and the final publication of the regulations, according to the May 25 statement. That threshold will increase to C$800 million in two years, and to C$1 billion in four years.

The government will also change the way it appraises companies, using enterprise value instead of asset value, it said. In addition, it will also begin offering formal mediation procedures to resolve disputes over whether a company has undertaken commitments made during a purchase in the review process, Paradis said in the statement.

Compliance Policy

U.K. FSA Tells Banks to Clearly Post Deposit Guaranty Terms

U.K. banks will have to display posters and stickers in their branches and on websites explaining to customers how their deposits are covered by government guarantees, the financial regulator said May 27.

Starting Aug. 31, banks must clearly explain to customers that deposits of as much as 85,000 pounds ($133,000) are covered by the guarantee, the Financial Services Authority said in an e-mailed statement yesterday. Customers using a U.K. branch of a foreign bank must be informed their deposits aren’t covered by Britain’s Financial Services Compensation Scheme and explain which nation will protect their money, the FSA said.

The European sovereign-credit crisis has shaken confidence in the currency union’s banking system.

India Market Regulator to Arbitrate Some Cases in Place of Fines

India’s market regulator will arbitrate cases involving insider trading and so-called front running instead of settling them with fines.

The rule will come into effect immediately and will consider all new and pending applications, the Securities & Exchange Board of India said in a statement on its website.

In 2010, SEBI had banned a dealer at HDFC Asset Management Co. for front running, where a trader executes an order on his own account taking advantage of prior knowledge of a transaction expected to influence the price of a security. The incident led to estimated losses of 23.8 million rupees ($428,404) at the country’s second-biggest money manager.

Chinese Regulator to Help Private Companies to Raise Capital

The China Securities Regulatory Commission will modify rules to help privately owned companies to raise capital, part of government efforts to aid smaller businesses struggling for funds.

The regulator will support sales of bonds and public shares by private companies, and encourage them to list overseas, the CSRC said in a statement on its website May 24. The government will also speed up the establishment of an over-the-counter market and encourage private investment in securities and futures brokerages, it said.

China’s efforts last year to cool inflation and rein in home prices with lending curbs and higher interest rates reduced the availability of financing for smaller businesses, prompting bankruptcies and suicides in the city of Wenzhou. The government said last week it will let small and medium-sized companies sell bonds through private placements starting in June.

The nation is encouraging companies to raise more money through stock and bond sales to reduce their dependency on bank loans and increase the transparency of their finances.

CSRC Chairman Guo Shuqing has been an advocate of expanding China’s corporate debt market.

Unsecured Creditors Face Losses in EU Plan for Failing Banks

The European Union will seek to give regulators the power to impose writedowns on senior unsecured creditors at failing banks as part of measures to prevent taxpayers from footing the bill for saving crisis-hit lenders.

The writedown powers would apply to senior unsecured debt and derivatives, while some other claims, including secured debt and deposits that are protected by government guarantee programs, would be shielded from the losses, according to draft plans obtained by Bloomberg News. Regulators would have the so-called bail-in powers from the start of 2018.

EU Financial Services Commissioner Michel Barnier had delayed proposing the law, which was originally scheduled to be released in September 2011, because of market turbulence. The plans, scheduled to be published on June 6, will have to be agreed on by finance ministers from the EU’s 27 member states and members of the European Parliament before they become law.

The bail-in powers must be in place across the EU by the start of 2018, the commission’s draft proposal said. As well as writing down claims, national regulators would also have the power to convert them into equity, according to the draft rules.

Under the plans, banks with “systemic relevance” would be required to issue a minimum amount of capital instruments, subordinated debt and other claims that could be written down in a crisis.

This minimum amount should be equivalent to 10 percent of a bank’s non-equity liabilities, the document says.

Stefaan De Rynck, Barnier’s spokesman, declined to immediately comment on the document.

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Compliance Action

Putin Cutting Capital Rules in Russia May Hurt Bank Bonds

Just as global regulators push banks to fortify their balance sheets, President Vladimir Putin’s government is stoking investor concern by easing rules on capital for Russia’s lenders.

A Ministry of Finance draft law seeks to cut the minimum capital that banks must have to take customer deposits which may hurt bank bonds, said Moody’s Investors Service on May 21. The yield on dollar debt due 2020 from VTB Group, Russia’s second-biggest bank, is 262 basis points above similar maturity debt with the same Moody’s credit rating from Banco do Brasil. On May 1, it was 241 wider, according to data compiled by Bloomberg.

Katrin Robeck, an analyst at Moody’s in Moscow, said in a May 23 phone interview that it is “the opposite” of what regulators are doing elsewhere.

The proposed cut in the minimum capital adequacy ratio, a measure of capital relative to risk, to 10 percent from 11 percent may encourage banks to lend more, boosting the economy. Basel III, named after the Swiss city which houses the Bank for International Settlements, would tighten controls on bank capital following the global financial crisis while in Russia the authorities are seeking to relax capital requirements.

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Kuwait Market Regulator Sets June 30 for Investment Law

Kuwait’s Capital Markets Authority said investment funds have until the end of June to comply with a law regarding ownership of securities.

The CMA “gives notice to all licensed persons of the need to settle funds investing in securities before June 30,” it said in an e-mailed statement May 24.

The capital markets law, which places restrictions on investment funds, stipulates that funds may not own more than 10 percent of a publicly traded company, or invest more than 10 percent of the fund in one company.

Sweden FSA Monitoring Bank Access to Dollars as Crisis Deepens

Sweden’s financial watchdog is monitoring banks’ access to dollars on concern Europe’s worsening debt crisis may interrupt the flow of funds from the U.S., said Uldis Cerps, a director at the financial regulator and a member of the Basel Committee on Banking Supervision.

Following the 2008 collapse of Lehman Brothers Holding Inc., Swedish banks needed a $30 billion cash injection from the central bank to stay afloat. As a result, regulators in the largest Nordic economy spent much of last year urging banks to reduce their reliance on short-term dollar funding. Since then, Sweden’s banks have built up their capital buffers and are meeting minimum liquidity requirements, Cerps said.

Concern that dollar funding into Europe may again become scarce has risen as the debt crisis shows no sign of abating. With speculation mounting that the euro area may splinter, investors are trying to gauge how badly banks will suffer.

Europe’s lenders are also girding for a spate of ratings downgrades from Moody’s Investors Service, which in February placed 114 banks in the region on review.

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Dynamic Decision’s Alberto Micalizzi Fined $4.7 Million in U.K.

Alberto Micalizzi, the founder of collapsed hedge fund Dynamic Decisions Capital Management Ltd., was fined 3 million pounds ($4.7 million) for misleading investors and the U.K. financial regulator.

Micalizzi “lied to investors about the true position of the fund” in 2008, when it suffered losses of more than $390 million, and artificially inflated its value via debt contracts that weren’t “legitimate” financial instruments, the U.K. Financial Services Authority said in an e-mailed statement. Micalizzi will challenge the fine at a tribunal, the FSA said.

A message for Micalizzi’s lawyer in Italy wasn’t immediately returned.

Sumitomo Mitsui Trust Is Probed in Second Insider-Trading Case

Sumitomo Mitsui Trust Holdings Inc., Japan’s fourth-biggest bank by market value, said it’s being investigated for possible insider trading, the second such probe in two months.

“We are fully cooperating” with the Japanese Securities and Exchange Surveillance Commission on the case, Sumitomo Mitsui Trust said in a statement in Tokyo yesterday, adding that it apologizes to customers and stakeholders.

The SESC will seek to fine a fund management arm of Sumitomo Mitsui Trust for insider trading relating to a public share offering of Mizuho Financial Group Inc. in 2010, Reuters reported May 26, citing people with knowledge of the matter. The securities regulator believes an employee of Nomura Holdings Inc., an underwriter of the Mizuho sale, told the fund manager about the offering before it was made public, Reuters said.

Keiko Sugai, a spokeswoman for Tokyo-based Nomura, declined to comment on the report. A spokesman for the SESC wasn’t immediately available to comment.


Ex-Olympus CEO Woodford Settles Unfair-Firing Lawsuit in London

Michael Woodford, the former Olympus Corp. chief executive officer and president who was fired after trying to uncover suspected fraud, settled a London lawsuit against the company.

Woodford sued Olympus at an employment tribunal for discrimination and unfair dismissal under whistle-blowing rules and was said to be seeking $60 million, according to a person familiar with the claim.

Woodford, who spoke outside the hearing room today, said he and the company need to move on.

The Japanese camera maker had about $4 billion wiped off its market value after dismissing Woodford on Oct. 14 when he questioned inflated fees paid to the company’s advisers. Olympus has since admitted to hiding losses and a 13-year cover-up.

The agreement needs to be approved by the Olympus board next month, Woodford’s lawyer Thomas Linden said.

“We are in a negotiation with Woodford for settlement,” said Osamu Kobayashi, a spokesman for Tokyo-based Olympus, and declined to comment further.

While the terms of Woodford’s agreement weren’t revealed, it may include a 10 million-pound ($15.7 million) payment to Woodford, the Financial Times reported earlier today.

If reports of a 10 million-pound payout are correct, it would represent the largest ever sum recovered in a U.K. whistle-blowing claim, said employment lawyer Jo Keddie, who isn’t involved in the case.

Ex-Blue Index Senior Trader Not Guilty of U.K. Insider Charges

A former senior trader at Blue Index Ltd., Christopher Hossain, was found not guilty of insider trading after the brokerage’s founder and his wife pleaded guilty to the charges before the trial began.

A friend of the founder, Adam Buck, was also acquitted in the case after a five-week trial at a London criminal court. The FSA had alleged at the trial that the two men made at least 185,000 pounds ($290,000) combined trading on tips they received from the fund’s founder James Sanders.

Sanders, who pleaded guilty, traded on tips that Kronos Inc., aQuantive Inc. and Getty Images Inc. were the targets of takeover offers, the U.K. Financial Services Authority said. Blue Index co-owner James Swallow also pleaded guilty before trial. The information originated from Arnold McClellan, the head of the mergers and acquisitions advisory group at the accounting and consulting firm Deloitte LLP’s San Francisco office. McClellan’s wife, Annabel, is the sister of Sanders’s wife, Miranda. Sanders and his wife made 1.5 million pounds from trading on the tips, the FSA said.

Total profits generated by the defendants were about 1.9 million pounds, while profits made by Blue Index clients were approximately 10.2 million pounds, the FSA said in a statement. The three who pleaded guilty will be sentenced on June 19.

Annabel McClellan, who lives in San Francisco, was sentenced in the U.S. last year to 11 months in prison for obstructing a Securities and Exchange Commission investigation.

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Unsecured Creditors Face Losses in EU’s Plan for Failing Banks

The European Union will seek to give regulators the power to impose writedowns on senior unsecured creditors at failing banks as part of measures to prevent taxpayers from footing the bill for saving crisis-hit lenders.

The writedown powers would apply to senior unsecured debt and derivatives, while some other claims, including secured debt and deposits that are protected by government guarantee programs, would be shielded from the losses, according to draft plans obtained by Bloomberg News. Regulators would have the so-called bail-in powers from the start of 2018.

The cost of bank funding may increase as investors take on board the plans “but this is a natural process of getting taxpayers off the hook,” John Vickers, the chairman of the U.K.’s Independent Commission on Banking, said in a speech in Brussels May 25. “It’s not sinister that funding costs go up if it’s for that reason.”

The plans, scheduled to be published on June 6, will have to be agreed on by finance ministers from the EU’s 27 member states and members of the European Parliament before they become law.

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Comings and Goings

Vatican Bank Chief Forced Out After Money-Laundering Scandal

The Vatican bank, whose reputation took a blow over an investigation into money laundering, has fired Chairman Ettore Gotti Tedeschi after a tenure stained by a financial scandal.

In a vote of no-confidence, the board of directors unanimously agreed to remove Tedeschi, a Banco Santander SA banker who took the job in 2009, from his post for failing “to carry out various duties of primary importance,” according to a statement May 24 by Vatican spokesman Federico Lombardi.

Tedeschi said he was “torn” between wanting to explain the truth and not upsetting Pope Benedict XVI, according to an interview with Italian news agency Ansa May 25. “My love for the Pope prevails even over defending my reputation, which has been cowardly questioned,” he was cited as saying.

The bank, which is formally called the Institute for the Works of Religion, said it’s now hunting for a replacement who can “restore” relations with the financial community.

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