European Union leaders’ calls for banking union lack concrete proposals for funding a new joint financial-sector backstop, as showcased in the debate on whether the euro area’s firewall could provide direct aid to banks.
Broadening the European Stability Mechanism’s scope joins a list of proposals to protect depositors and deepen ties among banking supervisors, which have coalesced into elements of a banking union envisioned by leaders such as European Central Bank President Mario Draghi. As currently designed, the bailout fund will only be able to recapitalize banks if their home governments request an aid package and accept the accompanying conditions.
Calls to move toward “banking union” are growing in the 17-nation currency region and in the 27-nation European Union, which this week is unveiling new proposals for handling cross-border bank failures. Without more coordination, euro-area governments may be forced into a series of costly bailouts to avoid financial meltdown, said Nicolas Veron, senior fellow at Bruegel, a Brussels-based research organization.
The ESM, the euro area’s 500 billion-euro ($621 billion) permanent rescue fund, is under renewed pressure to help banks directly after Spain called on the EU for aid, even before the 17 participating nations have finished setting up the new firewall.
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Senior unsecured creditors will be put in the firing line to cover costs from failing lenders under European Union plans unveiled today, as the bloc seeks to end an era of bank bailouts and move toward more unified financial supervision.
Michel Barnier, the 27-nation bloc’s financial services chief, said the plans, which also include the setting up of a network of national bank-financed funds to stabilize crisis-hit lenders, are a necessary step to curb excessive risk taking and take taxpayers off the hook for rescues.
EU leaders, including European Central Bank President Mario Draghi and European Commission President Jose Barroso, have called for a banking union with more coordination of regulation, as lawmakers seek to bolster confidence damaged by debt turmoil. EU President Herman Van Rompuy plans to report on proposed “building blocks” for deeper integration in the 17-nation euro area to the next summit of EU leaders on June 28-29 in Brussels.
Barroso said in a statement that today’s proposal is “an essential step towards banking union in the EU.”
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Separately, Barnier said he will meet next week with Former Federal Reserve Chairman Paul Volcker as part of discussions with U.S. regulators.
Bill Boosting Checks of Retail Investment Advisers Gets Hearing
The House Financial Services Committee will meet at 10 a.m. today on H.R. 4624, known as the Investment Adviser Oversight Act of 2012. The bill authorizes one or more self-regulatory organizations for investment advisers.
The panel chairman, Spencer Bachus, a Republican from Alabama, and Carolyn McCarthy, a New York Democrat, introduced the legislation. The U.S. Securities and Exchange Commission examines 10 percent of the nation’s 12,000 investment advisers annually. The agency says that 38 percent of the advisers have never been examined.
Investment advisers opposed to the House measure say the outfit they presume will get the regulatory assignment isn’t up to the task. They will make their case at today’s hearing.
The presumed self-regulatory organization, or SRO, is the Financial Industry Regulatory Authority, which has come under fire recently for fee increases on the brokers it currently oversees and for the compensation paid to its top executives. Investment advisers’ industry groups intend to use that criticism to discredit the organization.
In light of Bernard Madoff’s fraud, lawmakers say oversight of investment advisers must be strengthened.
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House Panel Proposes $25 Million Cut to CFTC Funding
The House Appropriations Committee proposed a $25 million cut from last year’s level to spending by the Commodity Futures Trading Commission. Funding for the CFTC is included in the $140.7 billion Agriculture Appropriations Bill for fiscal year 2013. The bill will be considered by a subcommittee today.
CFTC funding of $180 million is $128 million below the budget request made by President Barack Obama, the committee said in e-mailed statement.
Funding for overall discretionary spending of $19.4 billion is $365 million below the current level and is $1.7 billion below Obama’s budget request.
Istanbul Stock Exchange Is Seeking Alliances, Babacan Says
The Istanbul Stock Exchange is seeking alliances and is interested in buying shares in “quite a few stock exchanges around the region,” Turkish Deputy Prime Minister Ali Babacan said.
Turkey won’t increase corporate and financial taxes “anytime soon” as it seeks to attract more financial investors as part of its plan to make Istanbul a financial center, Babacan said at a meeting of the World Economic Forum in Istanbul yesterday.
Britain’s FSA Eases Tests for Non-Executive Board Roles, FT Says
Britain’s Financial Services Authority is relaxing scrutiny of financial companies’ recruitment of non-executive directors, after complaints that tests imposed four years ago have led to a drop in the number of candidates for such appointments, the Financial Times said.
Hector Sants, the regulator’s chief executive officer, said candidates for non-executive positions will be interviewed only in exceptional circumstances, unless the intention is to give them key roles such as audit or risk committee chairmanships, the newspaper said.
U.S. Treasury Announces Auction of Stock in Seven TARP Banks
The U.S. Treasury Department announced an auction to sell stock from seven banks in the Troubled Asset Relief Program.
The Treasury said in a statement it would conduct auctions on Ameris Bancorp of Moultrie, Georgia; Farmers Capital Bank Corp. of Frankfort, Kentucky; First Capital Bancorp Inc. of Glen Allen, Virginia; First Defiance Financial Corp. of Defiance, Ohio; LNB Bancorp Inc. of Lorain, Ohio; Taylor Capital Group, Inc. of Rosemont, Illinois; and United Bancorp Inc. of Ann Arbor, Michigan. The Treasury said it expects the auctions to begin on June 11.
The Treasury has capital investments outstanding in 343 banks.
Syrian Islamic Bank Says It’s Unaffected by U.S. Sanctions
The Syria International Islamic Bank, placed under sanctions by the U.S. last week, said the measure hasn’t affected operations because the bank has no assets in the U.S.
The bank said on its website June 5 that its transactions are legally “flawless” and it has the documents to prove that. The U.S. designated the bank on May 30 as “acting for or on behalf of” the Commercial Bank of Syria and providing services to the Syrian Lebanese Commercial bank, both of which are subject to U.S. sanctions.
David Cohen, the Treasury’s undersecretary for terrorism and financial intelligence, said last week the action will add to economic pressure on the government of Syrian President Bashar al-Assad “by closing off a key evasion route.”
Assad is trying to quell a 15-month uprising against his rule. The crackdown has killed more than 10,000 people, according to United Nations estimates.
Deutsche Bank Gets IRS Approval to Boost Private-Fund Auctions
Deutsche Bank AG said the IRS will allow the company to handle more trading between buyers and sellers of stakes in private buyout and hedge funds.
The bank’s year-old dbRemarket platform was designated a Qualified Matching Service by the U.S. Internal Revenue Service, according to a statement yesterday. The designation means money managers can approve the sale of stakes accounting for as much as 10 percent of their funds through the exchange each year, up from 2 percent.
Private-equity investors including pensions, endowments and sovereign funds are seeking more flexibility to trade their stakes in funds that lock up money for 10 years or more. About $25 billion of so-called secondary transactions occurred in 2011, according to a January report by Cogent Partners.
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Morgan Stanley Will Pay $5 Million to Resolve CFTC Trade Claims
Morgan Stanley agreed to pay $5 million to resolve U.S. Commodity Futures Trading Commission claims that its future brokerage unlawfully traded positions off exchanges owned by CME Group Inc.
The futures trades in 2008 and 2009 were executed non-competitively and constituted “fictitious sales” in violation of commodity market regulations, the CFTC said yesterday in a statement announcing the fine. Morgan Stanley also had supervisory and record-keeping violations, the CFTC said.
“Morgan Stanley is pleased to settle this matter,” Mary Claire Delaney, a spokeswoman for the New York-based bank, said in an e-mailed statement. “As stated in the orders issued by the CFTC and exchanges, the settlements relate to trades initiated by a single former salesperson.”
JPMorgan Wins Preliminary Approval of Municipal Bond Accord
JPMorgan Chase & Co. won preliminary court approval of a $44.6 million settlement of a lawsuit in which it was accused of conspiring to rig bids on municipal bond deals.
U.S. District Judge Victor Marrero in New York ruled June 4 in a 2008 class-action antitrust case against JPMorgan and other banks. This settlement applies to only JPMorgan and its Bear Stearns unit. Other banks have settled, and state attorneys general have entered into accords with banks.
Justin Perras, a spokesman for New York-based JPMorgan, declined to comment on the ruling. Investors who brought the suit include the city of Baltimore and the University of Mississippi Medical Center.
Michael D. Hausfeld, a lawyer for the investors, didn’t immediately return a call seeking comment on the approval. The judge scheduled a hearing in the case for Dec. 14. As part of his ruling, Marrero agreed that certification of the case as a class-action suit was warranted.
The case is In Re Municipal Derivatives Antitrust Litigation, 08-cv-2516, U.S. District Court, Southern District of New York (Manhattan).
Middleman Robinson Gets 27 Months for Insider-Trading Scheme
Kenneth T. Robinson, a middleman in an insider-trading scheme that generated $37 million in illicit profits, was sentenced to 27 months in prison by a U.S. judge who credited him for cooperating with authorities.
Robinson, 46, pleaded guilty in April 2011 after helping authorities describe how he passed corporate merger tips for 17 years from attorney Matthew Kluger to trader Garrett Bauer. Robinson then secretly recorded Kluger and Bauer for the Federal Bureau of Investigation.
Kluger was sentenced June 4 to 12 years in prison, the longest term ever for insider trading.
Robinson, a mortgage broker, faced a sentence of 70 to 87 months under advisory guidelines. He had admitted he knew both men before he began funneling tips from Kluger to Bauer in 1994.
U.S. District Judge Katherine Hayden said yesterday that she wanted to send a strong message about the loss of confidence in the market caused by insider trading.
At yesterday’s hearing, Robinson’s attorney, Francis Murray, said Hayden should send a different message that would encourage offenders to approach the government in insider-trading cases.
The case is U.S. v. Robinson, 11-cr-223, U.S. District Court, District of New Jersey (Newark).
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Akzo Nobel’s ICI Loses 91.4 Million-Euro Cartel Fine Appeal
Akzo Nobel NV’s Imperial Chemical Industries lost a court challenge seeking to overturn a 91.4 million-euro ($114 million) European Union cartel fine.
The EU’s General Court dismissed the company’s appeal in a ruling yesterday, rejecting ICI’s arguments that the European Commission set the fine too high and should have reduced it because the company voluntarily submitted evidence to investigators.
ICI, which makes Dulux paints, was one of four chemical makers fined 344.5 million euros by the EU’s antitrust regulator in 2006 for fixing the price of acrylic glass, used to make DVDs, car parts and household appliances.
Akzo Nobel hasn’t decided whether to appeal yesterday’s court ruling, Oskar Bosson, a spokesman for the company, said in a telephone interview. The company has already fully provided for the fine, he said. Arkema SA was also fined for participating in the cartel.
Akzo Nobel, the world’s largest paint maker, bought London-based ICI in 2008.
The case is: T-214/06 Imperial Chemical Industries v Commission.
Ritholtz, Barofsky on FDIC, Financial Regulations
Neil Barofsky, former special inspector for the U.S. Treasury’s Troubled Asset Relief Program and a Bloomberg Television contributing editor, and Barry Ritholtz, chief executive officer of FusionIQ, participated in a roundtable discussion about the role of the Federal Deposit Insurance Corp. and financial regulations.
They spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
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Canada Must Relax Carrier Foreign-Ownership Rule, Telus Says
Telus Corp., Canada’s third-largest wireless carrier, said the nation must further liberalize rules that restrict foreign ownership of telephone companies.
The federal government should allow non-Canadian investment for all companies in the telecommunications industry, not just for any with a market share of less than 10 percent, Telus Chief Financial Officer Robert McFarlane said in a speech yesterday at the Canadian Telecom Summit.
“We need to move towards the necessary second phase of liberalization of foreign-ownership restrictions for all carriers regardless of size,” McFarlane said.
Telus, Rogers Communications Inc. and BCE Inc., which together account for more than 90 percent of Canada’s wireless subscribers, are lobbying the government to ensure that they aren’t handicapped after Industry Minister Christian Paradis in March allowed companies with less than 10 percent market share to be as much as fully owned by foreign investors.
Paradis said the move would help the smaller players get financing to spur competition and lower costs for Canadian consumers.
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Comings and Goings
SEC Names Two Deputies to Help Lead Hedge Fund Enforcement Unit
The U.S. Securities and Exchange Commission’s asset management unit named two new deputies to help manage investigations into possible misconduct at hedge funds and private equity firms.
Julie Riewe and Marshall Sprung, who have both worked in the 75-person group since it was formed in 2010, will jointly fill a vacancy left by the departure of a senior attorney announced last week, according to Bruce Karpati, chief of the asset management enforcement group.
Riewe, 41, joined the SEC in 2005 from law firm Wilmer Cutler Pickering Hale & Dorr LLP. Sprung, 40, came to the SEC from law firm Gibson, Dunn & Crutcher LLP in 2003.
The deputy positions were created to replace Robert Kaplan, who had been co-chief of the unit with Karpati before joining law firm Debevoise & Plimpton LLP.