Mortgage Writedowns, Tar Sands Loophole, SEC: Compliance

Fannie Mae and Freddie Mac won’t forgive principal on delinquent mortgages they guarantee even as the U.S. Treasury Department is offering incentive payments for writedowns, the companies’ regulator said.

Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency were to change its longstanding policy barring the government-owned mortgage-finance companies from loan modifications that include debt writedowns, Edward J. DeMarco, the agency’s acting director, said yesterday said at a briefing with reporters.

The decision comes after months of mounting pressure to reverse the policy from activist groups and congressional Democrats, who touted it as a way to keep more families from losing their homes to foreclosure. FHFA has been in discussions since January with Treasury officials, who offered Fannie Mae and Freddie Mac as much as 63 cents for each dollar of principal reduction, using unspent funds from the Troubled Asset Relief Program.

Treasury Secretary Timothy F. Geithner criticized the decision in a letter to DeMarco, saying the use of targeting principal reductions would provide “much-needed help to a significant number of troubled homeowners.”

DeMarco released a detailed analysis showing that under most scenarios, even while there might be a net benefit to the government-sponsored enterprises, taxpayers would lose money because they would be funding the program through the Treasury.

Fannie Mae and Freddie Mac have completed 1.1 million loan modifications since the end of 2008, and have engaged in more than 1 million other transactions to avert foreclosures.

Special Section: Libor Probe

Deutsche Bank Says Internal Libor Probe Clears Management Board

Deutsche Bank AG, Germany’s largest lender, said an internal probe has so far cleared current and former management board members of wrongdoing amid a global investigation of interest-rate manipulation.

“A limited number of employees, acting on their own initiative, engaged in conduct that falls short of the Bank’s standards, and action has been taken accordingly,” Paul Achleitner, the Frankfurt-based company’s supervisory board chairman, said in a letter to employees yesterday. He didn’t give further details about the employees or actions taken.

Russia Wants More Oversight of Ruonia, MosPrime After Libor Row

Russia’s central bank is in talks with the Federal Financial Markets Service on increasing oversight over Russian interbank rates Ruonia and MosPrime, said Bank Rossii Deputy Chairman Sergey Shvetsov, adding that discussions center on empowering the watchdog to regulate the interbank market.

While there are no signs of rate-rigging in Russia, the regulators are monitoring the scandal surrounding the London interbank offered rate, Shvetsov told reporters in Moscow yesterday.

Deutsche Bank Says Facing Lawsuit Over Yen Libor, Derivatives

Deutsche Bank AG, one of at least a dozen banks being probed over allegations of interest-rate rigging, is being sued over claims it manipulated the Yen Libor rate and the price of derivatives tied to the Euroyen benchmark.

The suit was filed in April in the U.S. by parties the bank didn’t identify who allege Deutsche Bank was one of a group of banks that rigged the Yen London interbank offered rate, the Tokyo Interbank Offered Rate for yen held overseas and the price of Euroyen-based derivatives, Frankfurt-based Deutsche Bank said in a statement yesterday.

The suit is one of several potential class actions filed against the bank in the U.S. The other suits relate to allegations the bank manipulated U.S. dollar Libor and the prices of derivatives tied to that rate.

Banks are the target of litigation as regulators probe firms over clams they artificially understated their cost of borrowing or allowed traders to manipulate interest rates and profit from bets on interest-rate swaps.

Deutsche Bank reiterated yesterday that it’s co-operating with regulators and said an internal investigation has so far cleared current and former management board members of wrongdoing.

UBS Chief Says Bank Isn’t Central to Libor Investigations

UBS AG Chief Executive Officer Sergio Ermotti said there is no reason to single out the Swiss bank in the probes regulators worldwide are conducting into the possible manipulation of London interbank offered rates.

He made the remarks at a press conference in Zurich yesterday in response to a question on reports that the bank may have had a key role in rigging Libor.

UBS is among firms including Citigroup Inc., Royal Bank of Scotland Group Plc and Deutsche Bank AG being investigated worldwide for practices in setting Libor.

UBS said previously that it received conditional immunity or leniency for cooperating with the U.S. Justice Department’s and Swiss Competition Commission’s antitrust investigations into submissions of yen Libor and the euro-yen Tokyo interbank offered rate, or Tibor.

The Canadian Competition Bureau also granted the bank conditional immunity in its investigation into yen Libor, while the Swiss commission granted immunity on Swiss franc Libor and certain transactions related to it.

Barclays Documents Seized in Italy in Euribor Fraud Probe

Barclays Plc offices in Milan were searched by Italian prosecutors who seized documents as part of a fraud and market-manipulation probe into banks’ roles in setting the Euribor benchmark interest rate.

Police obtained files dating from 2007 through 2012, including e-mails, Michele Ruggiero, a prosecutor in the city of Trani, said by phone yesterday. Officials for Barclays in London declined to immediately comment.

Barclays, the U.K.’s second-largest bank, was fined a record 290 million pounds ($455 million) in June for attempting to rig the London interbank offered rate and Euribor, its equivalent in euros, to appear healthier during the financial crisis. U.K. fraud prosecutors July 30 said they will investigate the manipulation of Libor and other interest rates after deciding that existing British criminal law covers the conduct involved.

Compliance Policy

EU’s Tougher Capital and Bonus Rules May Be Delayed, FSA Says

The European Union may miss a January 2013 deadline to implement tougher capital and bonus rules, the U.K. Financial Services Authority said on its website today.

Discussions among lawmakers and finance ministers from the 27-member bloc have taken longer than originally scheduled, making it “clear the legislation will not be adopted earlier than autumn 2012,” the U.K. financial watchdog said in a statement. Translation, verification and signing of the text make it “unfeasible” that the rules will take effect on time.

Governments face a January 2013 deadline set by the Basel Committee for Banking Supervision to implement the draft law, which would more than triple the core capital that lenders must have to 7 percent of their risk-weighted assets. EU lawmakers have sought to limit bankers’ bonuses to no more than their annual salary as part of their implementation of the rules.

Money Funds Seen Failing in Crisis as SEC Bows to Shadow Lobby

Money-market fund companies have doubled lobbying efforts to convince regulators and lawmakers that they aren’t a threat to the financial system. The money may have been well-spent.

The 10 biggest money-fund managers and the Investment Company Institute trade group reported combined lobbying spending of $16 million in the first half of 2012 and $31.6 million last year in disclosures that reference money-market mutual funds, according to a review of documents by Bloomberg News. That compares with $16.7 million in all of 2010.

The companies are seeking to block new rules championed by Securities and Exchange Commission Chairman Mary Schapiro that are headed for a vote before a divided commission as soon as this month. The proposal would force funds to abandon their fixed $1 share price or introduce withdrawal limits and capital buffers.

For more, click here.

Markey Urges Geithner to Close Tax Loophole for Tar Sands Oil

U.S. Representative Edward Markey, a Democrat from Massachusetts, called on U.S. Treasury Secretary Timothy Geithner to close the tax loophole that could result in “millions of dollars in lost revenues, revenues intended by Congress to be made available for dealing with the aftermath of oil spills.”

Markey made the request in a letter to Geithner in which he cited the Internal Revenue Service as saying tar sands imported into the U.S. aren’t subject to per-barrel excise tax. Such taxes are the largest source of revenue to the Oil Spill Liability Trust Fund, which was created to help in the aftermath of oil spills.

The loophole may lead to as much as $48 million in lost revenue this year based on current levels of tar sands imports, and also puts taxpayers at risk for having to pay for oil spills. Democrats released a report on the loophole yesterday.

Compliance Action

Marine Insurance Antitrust Probe Dropped by European Regulators

European Union regulators dropped an antitrust probe into marine-insurance agreements among groups of ship owners, saying there wasn’t conclusive evidence that they unfairly shut out commercial insurers.

“The market investigation was not sufficiently conclusive to confirm the commission’s initial concerns,” the European Commission said in an e-mailed statement today.

The commission started a probe in 2010 to examine certain provisions accompanying claim-sharing and joint-reinsurance agreements. The protection and indemnity agreements previously had a 20-year antitrust exemption that expired in February 2009.

The 13 members of the International Group of P&I Clubs, based in London, cover 95 percent of the world’s tankers, according to Andrew Bardot, the group’s secretary and executive officer. Members follow EU law to access the reinsurance pool, he said in January.

Verizon Wireless to Pay $1.25 Million on Internet Complaints

Verizon Wireless agreed to pay $1.25 million to resolve an investigation of whether it interfered with customers’ use of smartphones to relay Internet signals to other devices, the U.S. Federal Communications Commission said.

Under the agreement, Verizon will tell online applications websites that it no longer objects to programs that support the practice, known as tethering, in which a smartphone is used to feed data over a wired connection to another device.

Verizon “did not block its customers from using third-party tethering applications,” Richard Young, a Verizon spokesman, said in an e-mailed statement yesterday. The consent decree “allows us to focus on serving our customers,” Young said.

Bank of Spain Says Auditors Completed Analysis of Bank Assets

The Bank of Spain said audit firms completed a first stage of an analysis of Spanish bank loans and foreclosed assets, according to an in e-mailed statement yesterday by the bank.

The results were delivered to Spanish authorities yesterday, according to schedule, the regulator said. Results won’t be published because they are an intermediate phase in the process.

Using the auditors’ results, Oliver Wyman will carry out a second “bottom-up” stress test of individual banks to determine their capital needs. Results of the second test are due in the second half of September, the Bank of Spain said in the e-mailed statement.

Finra Expels Canada Day-Trading Firm, Bars Chief Executive Beck

U.S. brokerage industry regulators expelled Biremis Corp. and barred its chief executive officer for failing to implement adequate safeguards to prevent money laundering and “manipulative trading.”

Biremis, formerly known as Swift Trade Securities USA, and CEO Peter Beck failed to create a supervisory system that would comply with securities laws from June 2007 to June 2010, the Financial Industry Regulatory Authority said yesterday in a statement. Violations included layering, or placing non-bona-fide trades to move the market in a way that leads to execution of an order on the other side, Finra said.

The company, whose sole business was executing transactions for day traders, failed to create safeguards against money laundering required by the U.S. Bank Secrecy Act, Finra said.

Beck and Biremis agreed to the settlement without admitting or denying wrongdoing, Finra said.

A telephone message left at a number for Biremis’s offices in Kelowna, British Columbia, before normal business hours wasn’t immediately returned.

VimpelCom Registers 50 Billion Rubles of Bonds With Regulator

OAO VimpelCom, a Russian mobile-phone company, registered 50 billion rubles ($1.6 billion) of domestic bonds with the Federal Financial Markets Service, the regulator said in an e-mailed statement yesterday.

Separately, Russia’s competition watchdog said parent company VimpelCom Ltd. shareholder Telenor ASA agreed that the chief executive officer of the Russian mobile operator should be a Russian citizen.

VimpelCom Ltd. is considered a strategic Russian company and therefore the CEO should be Russian, Igor Artemyev, head of the Federal Anti-Monopoly Service, told reporters in Moscow yesterday.

China Investigates Officials Over Tainted Capsules, Xinhua Says

Six government officials in eastern China are under investigation for dereliction of duty involving the production of contaminated medicine capsules, Xinhua News Agency said yesterday, citing the provincial procuratorate.

An initial probe showed that lax supervision by six food and drug administration officials in Zhejiang province caused incidents where several companies had made drug capsules with industrial gelatin, which contains excessive levels of chromium and is illegal to use for making drug capsules, Xinhua reported.


SEC Loses Lawsuit Against Ex-Citigroup Official Brian Stoker

The U.S. Securities and Exchange Commission lost a jury verdict in its lawsuit against former Citigroup Inc. official Brian Stoker over a deal at the center of the bank’s proposed $285 million settlement with regulators over subprime residential mortgage securities.

The jury reached its verdict yesterday in Manhattan federal court. The SEC had accused Stoker, the former director of Citigroup’s collateralized debt obligation structuring group, of violating securities law in putting together the assets underlying a $1 billion CDO.

The SEC claimed New York-based Citigroup structured and sold the CDO without telling investors that it helped pick about half the underlying assets and was betting they would decline in value by taking a short position.

The SEC was seeking to have Stoker disgorge profits from the deal and pay a fine.

U.S. District Judge Jed Rakoff, who oversaw the trial, last year rejected Citigroup’s $285 million settlement with the SEC in which the bank wasn’t required to admit any liability. That ruling is on appeal.

The case is U.S. Securities and Exchange Commission v. Stoker, 11-cv-7388, U.S. District Court, Southern District of New York (Manhattan).


Geithner Says U.S. Housing Programs May Take 2-3 Years

U.S. Treasury Secretary Timothy F. Geithner spoke about the U.S. housing market, the economy and regulatory matters.

Geithner, who spoke at an event at the World Affairs Council in Los Angeles, also discussed the European financial crisis. Council President Terry McCarthy moderated.

For the video, click here.

Walter Says SEC Should Set Muni-Bond Disclosure Rules

U.S. Securities and Exchange Commission Commissioner Elisse Walter speaks on a teleconference about regulation of the $3.7 trillion municipal-bond market.

In a report released yesterday following a two-year review, the SEC said Congress should let it set standards for what information municipalities must disclose to investors and require issuers to have audited financial statements.

For the audio, click here.

Comings and Goings

Duke’s U.S. Regulator Backs Utility Boards’ Right to Pick Chiefs

Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, said a utility’s board has the right to decide who runs the company while declining to discuss the ouster of Duke Energy Corp.’s chief last month.

Wellinghoff was asked yesterday to comment on the Duke board’s decision to fire Chief Executive Officer Bill Johnson, 58, within hours of the company completing the $17.8 billion takeover of Johnson’s Progress Energy Inc. The deal, approved by FERC on June 8, remains an open docket and Wellinghoff said he can’t comment on the case.

Duke replaced Johnson with Jim Rogers, 64, who ran the Charlotte, North Carolina-based company before the merger and had agreed to become chairman, clearing the job for Johnson. The shift triggered an investigation by the North Carolina Utilities Commission, which also approved the transaction.

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