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Political Donations, EU Banks, Citigroup, FCC: Compliance

Sept. 4 (Bloomberg) -- The U.S. Securities and Exchange Commission said bankers may be donating illegally to state and local politicians who hire them to underwrite bond deals.

The SEC’s Office of Compliance Inspections and Examinations said on Aug. 31 that banks may be breaking the law by underwriting bond deals within two years of the donations. The SEC said financial institutions may also have made inadequate disclosures to regulators.

The SEC is urging banks to take greater steps to comply with limits on political donations enacted in 1994 to curb the practice of awarding bond deals to campaign contributors. The SEC didn’t identify banks or say whether any cases triggered enforcement action. Judith Burns, a spokeswoman for the SEC, declined to comment.

“We hope that by describing practices that our examiners have observed, we will promote compliance by helping firms to consider how each of them can most effectively meet their obligations,” Carlo di Florio, the director of the compliance office, said in a statement.

The compliance issues related to donations were described in a so-called risk alert from the SEC.

The SEC has previously cautioned banks against running afoul of the curbs on political donations. In March 2010, the agency warned that the rules also apply to top bank executives after faulting a JPMorgan Chase & Co. vice chairman who was a fundraiser for a one-time California state treasurer.

The Municipal Securities Rulemaking Board, which writes regulations enforced by the SEC, has also evaluated whether stricter curbs are needed over political giving by underwriters. On Aug. 15, it proposed forcing greater disclosure of contributions to election campaigns that support new bond deals, citing concerns that banks are using donations to win business.

Compliance Policy

EU Plan Said to Give ECB Sole Power to Grant Bank Licenses

The European Central Bank would have the sole power to grant banking licenses under proposals to give it supervisory powers and build a euro-area banking union, a European Union official said.

The ECB would have a monopoly on granting all bank licenses within the 17-nation euro area under the draft rules, due to be unveiled on Sept. 12, the official said, speaking on condition of anonymity because the plan isn’t final. This means the ECB could decide to withdraw banks’ licenses, although national regulators would still control when to shut down a lender.

Under the proposals, which are being drafted by the European Commission, the EU’s regulatory arm, the ECB would also gain discretion over which banks to supervise directly and when it will delegate day-to-day oversight responsibilities, the official said.

National regulators will retain control over when and how to close a bank under the proposals. At the same time, the central bank would be able to make recommendations and have a voice in the process, and it will have authority over setting capital requirements.

“The ECB should be given full supervisory powers related to financial stability,” Stefaan De Rynck, a spokesman for Michel Barnier, the EU’s financial services chief, told reporters Aug. 31 in Brussels. National regulators should remain in charge of some other tasks, including consumer protection and payment services, he said.

If adopted, the proposals would be a major step toward creating an EU-wide financial services framework that can override national self-interest. EU officials want the ability to rein in local banking systems that have proven as big a source of systemic risk as their larger, internationally operating counterparts.

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Banker Bonuses Would Be Curbed by Shareholders Under EU Plan

Banker bonuses would be limited by shareholders under compromise plans criticized by European Union lawmakers who are calling for stricter limits on financial-industry pay.

Michel Barnier, the EU’s financial services chief, has proposed that bank investors should set maximum ratios on the size of bonuses compared with fixed pay, according to a document obtained by Bloomberg News. The European Banking Authority would publish aggregate data on the limits.

Bonuses that are a “large” multiple of fixed pay “are likely to encourage excessive risk taking and undermine confidence in the financial sector generally,” according to the plans.

Bankers are facing a backlash from European Parliament lawmakers determined to cut variable pay as part of a quest to reshape lenders as utilities rather than money-making machines. The regulatory push comes as public outrage and shareholder rebellions this year forced some banks, including Citigroup Inc. and Barclays Plc, to retreat from their initial pay plans.

Barnier’s move is an attempt to broker a compromise between parliament members, who are calling for a ban on bonuses that exceed fixed pay, and national governments that are concerned about the impact the measure may have on competitiveness.

The ban has become a sticking point in negotiations on a draft law to overhaul bank rules that the EU is seeking to settle by Jan. 1, 2013.

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FCC Chief Said Ready to Propose Changing Test on Spectrum Deals

Federal Communications Commission Chairman Julius Genachowski will propose altering how the agency judges whether airwaves purchases by wireless providers raise anti-competitive concerns, two officials said.

Changes would affect largest U.S. mobile carrier Verizon Wireless, AT&T Inc. and smaller wireless carriers as they buy frequencies. The companies need FCC approval as they seek to acquire airwaves to meet soaring demand for wireless data sparked by the popularity of smartphones such as Apple Inc.’s iPhone.

Genachowski will propose changes to the so-called spectrum screen at a meeting Sept. 28, said the agency officials, who spoke last Friday on condition of not being identified because the matter hasn’t been made public. They didn’t say whether Genachowski’s proposed changes would make it easier or more difficult for companies to buy airwaves.

The FCC’s test generally limits buyers to amassing one-third of airwaves in any market. Purchases that would carry a company’s holdings beyond that threshold invite extra scrutiny from the agency, which may require companies to sell airwaves so frequencies remain available for competitors.

The agency is preparing to auction airwaves relinquished by television broadcasters to help relieve shortages for mobile carriers.

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U.K. Watchdog Plans to Curb Commission-Led Sales: Independent

Martin Wheatley, the managing director of Britain’s Financial Services Authority, will announce tomorrow that the commission-led selling of all financial products is to be banned, the Independent reports, without saying where it got the information. The prohibition will be introduced after Wheatley takes over as chief of a new Financial Conduct Authority next spring.

A ban on commission payments to financial advisers for sales of investment products under the Retail Distribution Review, which comes into force on Dec. 31, will be extended.

Wheatley will unveil his plans in a speech to City of London notables tomorrow morning.

Compliance Action

U.K.’s FSA to Start Independent Review Into RBS Computer Failure

The U.K.’s Financial Services Authority is to start an independent investigation into computer failures at Royal Bank of Scotland Group Plc that left some of its 17 million customers unable to access their accounts.

The review was revealed in correspondence between FSA Chairman Adair Turner, RBS Chief Executive Officer Stephen Hester and Treasury Committee Chairman Andrew Tyrie, published today by parliament.

Turner wrote in a letter to Tyrie on July 13 that on receipt of the independent review, the agency will consider whether further regulatory action is required.

The FSA review will also seek to understand why it took longer to resolve the matter for customers of its Ulster Bank division, according to the letter.

RBS set aside 125 million pounds ($199 million) to cover the costs of the computer glitch, saying it will pay all fees, charges and debt interest which may have been charged in error as a result of the incident. Hester said on June 29 that he won’t seek a bonus this year following the failure.

RBS spokesman David Gaffney declined to comment. FSA spokeswoman Cerris Tavinor declined to comment beyond the letter.

In the Courts

Citigroup Settles Suit Over Home-Equity Credit Reductions

Citigroup Inc. will let customers challenge the suspension of home-equity loans and provide $120 apiece to some ex-borrowers whose credit lines were cut, under the settlement of a lawsuit challenging its practices.

The accord, disclosed last Friday in documents filed in federal court in San Francisco, resolves a class action, or group lawsuit, that accused the bank of improperly suspending or reducing home-equity lines of credit for several hundred thousand customers.

Citigroup’s Citibank unit will improve its suspension notices and restore some customers’ access to home-equity accounts under the agreement, according to the filing.

Borrowers who closed their accounts and were charged a fee are eligible for $120 each under the agreement. The filing doesn’t say how many borrowers that covers. New York-based Citibank agreed to pay $1.2 million to the customers’ lawyers.

The settlement requires court approval, and customers seeking the $120 payment will need to submit claims. Customers whose accounts were suspended or reduced by Citibank based on their property value from 2008 through January are eligible for settlement benefits.

Citibank denied wrongdoing, according to the court filing by the customers’ lawyers. Mark Rodgers, a bank spokesman, declined in an e-mail to comment immediately on the agreement.

The case is In Re Citibank Heloc Reduction Litigation, 3:09-cv-00350, U.S. District Court, Northern District of California (San Francisco).

JPMorgan Sued by Louisiana Pension Fund Over Currency Trades

JPMorgan Chase & Co. was accused in a lawsuit of manipulating clients’ foreign-exchange transactions for its own benefit.

The Louisiana Municipal Police Employees’ Retirement System filed a complaint Aug. 30 in Manhattan federal court alleging that the bank took advantage of investors by causing them to pay what were often the worst currency rates available on a given trading day.

“JPMorgan’s scheme allowed it, in violation of its contractual and fiduciary obligations, to extract hundreds of millions of dollars in illicit risk free profits from its clients under the guise of FX trading,” according to the complaint.

JPMorgan, the largest bank in the U.S. by assets, recorded more than $4 billion in foreign exchange revenue between 2005 and 2011, according to the complaint.

The pension fund, which is suing on behalf of other institutional investors for which the New York-based bank executed currency trades since 2005, is seeking damages, punitive damages and disgorgement of profits.

A JPMorgan spokeswoman, Jennifer Zuccarelli, didn’t immediately return a call seeking comment on the lawsuit.

The case is Louisiana Municipal Police Employees’ Retirement System v. JPMorgan Chase & Co., 12-cv-6659, U.S. District Court, Southern District of New York (Manhattan).

AT&T’s $600 Million Bid Undervalues NextWave, Investor Says

NextWave Wireless Inc., the wireless technology provider, was sued by a shareholder who contends AT&T’s $600 million takeover offer undervalues the company’s shares.

The shareholder, Burt Weiss, said in a filing Aug. 31 in Delaware Chancery Court that directors have a duty to get the best price for the shares and instead agreed to sell the company at an initial $1 a share, with possible further contingent payments, without conducting an auction or other market-check.

The deal is also unfairly designed to “cure the massive debt owed by the company to several of its officers and directors,” including senior and subordinated note-payoffs, “lucrative severance payments” and vested stock options, according to the lawsuit, filed in Wilmington.

The companies said Aug. 2 that Dallas-based AT&T would buy San Diego-based NextWave to add more network capacity for services such as mobile Internet access.

Jeff Seedman, a spokesman for NextWave at Finn Partners in San Francisco, said the company had no comment on the suit.

The complaint alleges that common stockholders were originally slated to get $6 a share, later reduced to $1, and that if the deal is consummated, some NextWave executives may receive cash incentive awards of $1 million each or more.

The case is Weiss v. NextWave, CA7821, Delaware Chancery Court (Wilmington).

Hudson City Bancorp Sued by Investor Over M&T Takeover Offer

Hudson City Bancorp was sued by a shareholder who claims a $3.7 billion buyout offer from M&T Bank Corp. is “fundamentally unfair.”

The shareholder, Howard Lasker, named Hudson City’s directors and M&T in the complaint filed in Delaware Chancery Court Aug. 30.

Lasker asked a judge to halt work on the proposed deal until Hudson City “adopts and implements a procedure or process to obtain a proposed transaction agreement providing the best possible terms for shareholders.”

Should the transaction go through, M&T would become the fourth-largest bank in New Jersey, measured by deposits. Hudson City has 135 branches in New Jersey, Connecticut and New York.

Hudson City, based in Paramus, New Jersey, and M&T, based in Buffalo, New York, announced the deal on Aug. 27.

Ronald E. Hermance Jr., Hudson City’s chief executive officer, wasn’t immediately available to comment on the lawsuit.

The case is Lasker v. Hermance, 7818, Delaware Chancery Court (Wilmington)

Ex-UBS Executive Ghavami Guilty in Municipal Bid-Rig Case

Ex-UBS AG managing director Peter Ghavami and two former colleagues were convicted of rigging bids for contracts for investing proceeds of municipal bond sales.

After about two days of deliberations, jurors in New York Aug. 31 found Ghavami, Gary Heinz and Michael Welty guilty of wire fraud conspiracy for rigging bids from August 2001 to July 2002 and arranging to pay kickbacks to the brokerage firm CDR Financial Products Inc. in exchange for help in manipulating auctions.

Ghavami and Heinz were further found guilty of wire fraud in connection with making payments. Welty was found not guilty of wire fraud, and Heinz was found not guilty of one count of witness tampering.

The trial followed a five-year federal antitrust investigation into the $3.7 trillion municipal bond market. With the Aug. 31 convictions, 19 of 20 people charged have been convicted or pleaded guilty to charges stemming from the probe, the government said. One is awaiting trial.

Zurich-based UBS, Bank of America Corp. and other banks have paid more than $700 million to settle U.S. claims over the scheme.

“We’re disappointed with the verdict but we look forward to pressing ahead in this fight,” Charles Stillman, a lawyer for Ghavami, said after the verdict.

Marc Mukasey, a lawyer for Heinz, said, “We respect the verdict. We will continue to fight hard for Gary in the next stage of the process.”

Lawyers for Welty, Preston Burton and Gregory L. Poe, declined to comment.

Sentencing dates have not yet been set for the three men. The most serious charge, conspiracy to commit wire fraud, carries a 30-year maximum sentence.

Issuers of tax-exempt municipal bonds must use competitive bidding when selecting firms to handle deals to invest the proceeds, according to the indictment in the case. Prosecutors alleged that the defendants skirted that requirement by colluding with competitors to set bid prices, often to deliberately lose the auctions.

Christiaan Brakman, a UBS spokesman and Joseph Evangelisti, a JPMorgan Chase spokesman, didn’t return calls seeking comment about the verdict. Russell Wilkerson, a spokesman for GE Capital, declined to comment on the cases. A Bank of America spokesman, William Halldin, also declined to comment.

The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).


Barclays Chief Tells Times New Rules Challenge Investment Bank

Barclays Plc Chief Executive Officer Antony Jenkins said the Basel III regulations may make some investment-banking operations unprofitable, the Sunday Times reported, citing an interview.

The U.K.’s plans to “ring-fence” retail units of the banks from risky operations may also affect profit at the investment division, Jenkins told the newspaper. The economic environment in most of the markets will remain challenging, Jenkins said, forecasting “many years of low to no growth.”

Jenkins said he has no plans to change the executive team and his top priority as a CEO is to “rebuild the reputation” of the bank, the Times reported.

Barclays named Jenkins as CEO on Aug. 30, as the bank recovers from the scandal over the manipulation of interest rates.

To contact the reporters on this story: Ellen Rosen in New York at; Carla Main in Jersey City, New Jersey, at

To contact the editor responsible for this story: Michael Hytha at

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