Bank Coordination, PCAOB Lawsuits, Portugal: Compliance

The Federal Reserve and four other U.S. financial regulators said they agreed to coordinate supervision of federally insured banks with assets exceeding $10 billion under the Dodd-Frank Act in a move that will tighten supervision.

The agencies will coordinate examinations and share information about how the largest banks comply with consumer protection laws, the Fed said yesterday in a joint statement. The Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau also signed the statement.

The coordination is expected to lead to “greater uniformity and efficiencies in supervision and help to minimize regulatory burden on covered depository institutions,” the agencies said in the statement.

Compliance Policy

Basel Committee to Discuss South African Corporate Debt Proposal

South Africa’s central bank will seek backing from other members of the Basel Committee on Banking Supervision to ensure corporate debt can be classified as highly liquid when its rating exceeds that of the sovereign.

That, for example, would mean that a higher-rated Anglo American Plc bond won’t be discounted by South Africa’s lower risk ceiling, said Rene van Wyk, who represents South Africa’s central bank on the Basel committee.

Van Wyk made the remarks in a presentation in Pretoria yesterday. That qualification may boost the country’s bond market, he said.

The Basel committee aims to revise the December 2010 draft of the so-called liquidity coverage ratio this year as part of a regulatory overhaul intended to avoid a repeat of the collapse of Lehman Brothers Holdings Inc. in 2008. The group is weighing changes to a list of easy-to-sell assets, which banks must hold to survive a 30-day credit squeeze. The committee also wants to ensure banks can run down their liquidity coverage ratio buffers during times of market stress.

Countries helping to draw up the Basel III rules have been asked to propose national solutions.

The bank bailout facility proposed by South Africa, which has a sovereign rating of BBB+ from Standard & Poor’s, may be unnecessary should corporate debt be counted as highly liquid, Van Wyk said. The size of the proposed facility would depend on the size of the default, he said.

Doty Says PCAOB Should Be Able to Publicize Lawsuits Like SEC

The Public Company Accounting Oversight Board should be permitted to publicize enforcement actions to increase auditors’ awareness of which practices are unacceptable, PCAOB Chairman James Doty said yesterday.

Doty made the remarks to reporters in Washington after speaking at an event sponsored by Compliance Week, a corporate governance information service.

Congress created the PCAOB in 2002 to oversee audits of public companies after Enron Corp. collapsed following an accounting scandal. Doty urged lawmakers to remove a ban on the Washington-based nonprofit corporation publicizing enforcement cases the way Securities and Exchange Commission does.

Under the Sarbanes-Oxley Act, PCAOB cases must first be reviewed by a hearing officer and then by the SEC, Doty said. PCAOB claims can only be made public if the auditor being accused settles or takes the case to federal court. The SEC routinely announces lawsuits filed against firms or individuals.

Legislation last year in the U.S. Senate that would allow the PCAOB to publicize enforcement actions. Similar legislation in the House. Neither bill has advanced beyond the Senate Banking and House Financial Services committees.

U.A.E. National Board Set to Lower Sukuk Costs: Islamic Finance

The cost of selling Islamic bonds in the United Arab Emirates may decline as the Arab world’s second-biggest economy mulls a centralized Shariah board to emulate Malaysia, Credit Agricole SA and Moody’s Investors Service said.

The central bank is calling for the board’s creation to facilitate sukuk offerings, Saif Al-Shamsi, assistant governor for monetary policy and financial stability, said in a speech delivered for Governor Sultan bin Nasser al-Suwaidi on May 23. Malaysia, the world’s biggest market for Islamic bonds, has regulations and products approved by the central bank and a centralized Shariah board unlike Persian Gulf nations.

A national standard-setting board may also help overcome differences over whether notes comply with Islam’s ban on interest and reduce fragmentation, said Khalid Howladar, a senior credit officer at Moody’s.

Regional standards are still developing in the industry, whose assets are forecast by the Kuala Lumpur-based Islamic Financial Services Board to almost triple to $2.8 trillion by 2015.

A central board could bring more transparency and liquidity, according to Howladar.

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Compliance Action

Portugal to Inject More Than 6.6 Billion Euros to Shore Up Banks

Portugal said it will inject more than 6.6 billion euros ($8.2 billion) into its banking system to help Banco Comercial Portugues SA, Banco BPI SA and Caixa Geral de Depositos SA meet capital requirements.

The government has committed to putting up 3.5 billion euros of capital for Banco Comercial, the Finance Ministry said yesterday in a statement posted on the securities regulator’s website. Banco Comercial said the state will buy 3 billion euros of hybrid securities by the end of June and the lender also plans to raise 500 million euros in a capital increase in the third quarter.

Portugal in May 2011 agreed on a European Union-led bailout that will provide as much as 78 billion euros in financial aid, of which as much as 12 billion euros are earmarked to shore up the country’s banks. State-owned Caixa Geral will not use the funds.

Under the bailout’s terms, Portuguese lenders were required to have a 9 percent core tier 1 ratio at the end of last year and maintain that level through June after government bond holdings are written down to market prices. They must boost the ratio to 10 percent by the end of 2012.

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SEC Enforcement Chief Defends Post-Crisis Record on Executives

The U.S. Securities and Exchange Commission hasn’t sought enforcement actions against top investment banking officials in connection with the housing-finance collapse because decisions about mortgage securities can’t usually be traced to the executive suite, the agency’s enforcement director said. enforcement director said.

Collateralized debt obligations and “other deal-specific matters often aren’t vetted at the senior corporate levels,” SEC Enforcement Director Robert Khuzami said in an interview broadcast yesterday on the C-Span cable network. “You’re not going to see as many prosecutions of those folks for those types of violations as you might otherwise.”

The SEC has faced criticism from lawmakers, judges and investors who say it hasn’t been tough enough in holding individuals on Wall Street to account for actions leading to the 2008 financial crisis, which was triggered by the failure of mortgages packaged into securities.

The agency has largely targeted its enforcement effort at lower-level employees or at Wall Street firms themselves for misleading investors.

The SEC is litigating at least four cases related to complex financial products linked to residential mortgages and has taken action against more than 55 senior executives at entities including at banks and mortgage companies, Khuzami said.

He added that the agency needs a bigger budget “to be even more effective.”

Japan Regulator Seeks U.S. Help Probing Trades, Nikkei Says

Japan’s Securities and Exchange Surveillance Commission has asked the U.S. Securities and Exchange Commission to help it investigate trading in shares of Tokyo Electric Power, Nikkei newspaper reported.

Calls to the commission outside of business hours were answered by a recorded message.

Payday Lenders Using Indian Tribes to Evade Laws Draw Scrutiny

U.S. regulators and Congress are scrutinizing partnerships between Native Americans and outside investors in online payday lending businesses accused of exploiting tribal sovereignty to evade state consumer-protection laws.

The push has divided Native American groups, with critics of payday lending opposing tribal involvement in the businesses, which charge interest rates as high as 521 percent for short-term loans. Other Indian groups, formed to represent the nascent industry in Washington, are pushing back against the regulators.

The partnerships have drawn the attention of federal regulators largely because of sovereign immunity, the legal doctrine that restricts state interference in tribal affairs.

At least 10 Indian tribes have lending businesses, according to the Native American Lending Alliance and the Native American Fair Commerce Coalition, both year-old trade associations.

The tribes and their outside partners are part of the fast-growing ranks of online payday lenders, which originated 35 percent of the $32 billion in payday loans made in 2010, according to a Jan. 9 report by JMP Securities, a San Francisco-based investment bank. Some Native Americans have embraced online lending in part because sovereign immunity limits the reach of state consumer-protection laws, and only Congress can modify this immunity. That legal status has generated investor interest in working with the tribes.

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Bafin Says EADS May Be Denied Bank License, Handelsblatt Reports

Germany’s financial regulator, Bafin, said the European Aeronautic, Defence & Space Co. may not get the banking license it seeks to allow it to put its money with the European Central Bank, Handelsblatt reported, citing an unidentified Bafin spokesman.

Placing money temporarily with the ECB or borrowing money from it isn’t the same as conducting a banking business, the newspaper cited the Bafin spokesman as saying.

Hans Peter Ring, EADS’s former chief financial officer, has previously said the company might seek a banking license to broaden its options in obtaining finance for airlines and suppliers.


UniCredit, Barclays Bankers Indicted in Italy Tax Probe

Former UniCredit SpA Chief Executive Officer Alessandro Profumo is among 20 bankers and ex-managers of Italy’s biggest lender and of Barclays Plc charged with fraud in a tax probe linked to an investment plan known as Brontos.

Milan judge Laura Marchiondelli today scheduled the trial for Oct. 1, prosecutor Alfredo Robledo said. UniCredit used the Brontos vehicle, arranged by Barclays, to evade taxes, according to Robledo. Brontos was created to make it appear that interest on a deposit account were dividends earned on fictitious securities, Robledo has said in court papers. Interest earned on deposits is taxed in full in Italy, while the rate on dividends is 5 percent.

Officials for UniCredit didn’t immediately return calls seeking comment, while a Barclays spokeswoman in Milan didn’t have an immediate comment. Profumo, now chairman of Banca Monte dei Paschi di Siena SpA, didn’t immediately return an e-mail seeking comment.

Lawyer Kluger Gets Record 12-Year Prison Term for Insider Trades

Attorney Matthew Kluger was sentenced to a 12-year prison term that is the longest ever imposed for insider-trading, exceeding the 11-year sentence given Galleon Group LLC co-founder Raj Rajaratnam last year.

Garrett Bauer, a trader who was sentenced yesterday to nine years in prison, participated in a scheme with Kluger that prosecutors said generated $37 million in illegal profit.

Kluger, 51, stole corporate merger tips from four law firms over 17 years and passed them to middleman Kenneth Robinson, who gave them to Bauer, 44. All three men pleaded guilty last year in federal court in Newark, New Jersey.

U.S. District Katharine Hayden yesterday said she wanted to send a strong message about the “radiating effect of the loss of confidence in the market” caused by insider trading.

Lawyers for both Kluger and Bauer, a day trader, said they would appeal their sentences. Robinson, 46, who cooperated with authorities and secretly taped the other men for the Federal Bureau of Investigation, is scheduled to be sentenced today. He is expected to get a shorter sentence. Prosecutors praised the terms imposed first on Kluger, and then on Bauer.

In pleading guilty last December, Kluger admitted stealing data on about 30 transactions when he was at four law firms. The companies included Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. When deals went public, Bauer sold shares and paid his partners in cash from ATMs.

Alan Zegas, Kluger’s attorney, argued that his client deserved far less time because he made less than $1 million. Outside of court, Zegas said he would appeal.

Kluger said he was disappointed with the sentence and doesn’t think his term should be longer than Rajaratnam’s because he cooperated with authorities after his arrest.

The case is U.S. v. Bauer, 11-cr-858, U.S. District Court, District of New Jersey (Newark).

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German Banks Prepared for All Scenarios for Greece, Bafin Says

Germany’s banks are prepared for all potential outcomes of Greece’s decisions on fiscal policy, said Elke Koenig, the president of the country’s Bafin financial market regulator.

“I’m not going to participate in speculation about the future fiscal policy of Greece but I am sure Germany’s banks are prepared for all possible scenarios,” she said in a copy of a speech to reporters in Bonn today.

Bafin and the Bundesbank are also tracking developments in Spain and Portugal, which are not comparable to those in Greece, she said. Germany’s banking system is “robust” even if it can’t detach itself completely from its environment, according to the regulator.

Merkel Says Systemic Banks May Require European Oversight

German Chancellor Angela Merkel said systemic banks may need supervision at the European level as the European Union weighs possible steps toward “political union.”

“The fiscal pact is one step, but it’s not sufficient yet,” Merkel told reporters in Berlin yesterday before talks with European Commission head Jose Barroso. “So we will also talk about to what degree one has to bring the systemic banks under specific European supervision to keep national interests from playing too large a role.”

She and Barroso met at the Chancellery to prepare for an EU summit on June 28-29 that is Europe’s latest effort to combat the euro-area debt crisis now in its third year and discuss more common economic policies.

Comings and Goings

Japan’s DPJ Adds Ex-Nomura’s Kondo to Team for Insider Probe

Japan’s ruling party added lawmaker Kazuya Kondo, a former banker at Nomura Holdings Inc.’s brokerage unit, to its working team that’s investigating insider trading, according to a memo obtained by Bloomberg News.

The group of 15 Democratic Party of Japan members, led by Tsutomu Okubo, a former managing director at Morgan Stanley, is seeking ways to restore market confidence, according to the document. Okubo’s secretary, who declined to be identified, confirmed the contents of the memo, which was dated today.

Newly appointed Financial Services Minister Tadahiro Matsushita yesterday pledged to deepen his agency’s probe into insider trading based on information leaked by share sale managers. So far, regulators have recommended fines of as much as 130,000 yen ($1,660) against the traders without identifying or punishing the underwriters, which people with knowledge of the matter say include Nomura and JPMorgan Chase & Co.

Kondo joined Nomura Securities Co. in 1997 and spent about 10 years working on retail brokerage business at the Tokyo-based firm, according to his website. He entered parliament in 2009.

Former Trade Minister Banri Kaieda also joined the group, according to the memo.

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