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Cibor Clears Hurdle, Gazprom Antitrust Probe: Compliance

The Danish Bankers Association ruled out the likelihood that the Copenhagen interbank offered rate was manipulated from 2007 through the middle of this year, while offering to improve oversight of the banks fixing the rate.

“While there’s no evidence that points to misleading Cibor rates, it’s the Bankers Association’s view that there are grounds for clarifying the rules that guide those setting the rate,” the group said in an e-mailed statement yesterday. There is a “need for a public oversight body that will be able to increase confidence in the rate, given recent criticisms,” the group said.

The bankers’ association pledged in July to conduct its own investigation of Cibor after analysts at Swedish bank SEB AB said the rate had been fixed too high. Cibor serves as a benchmark for about 20 percent, or $70 billion, of all Danish residential and commercial property loans. As much as 7.5 trillion kroner ($1.3 trillion) in financial contracts are affected by the rate, the bankers group said yesterday.

Business Minister Ole Sohn said July 10 his department will conduct a separate probe.

Joergen Horwitz, the director of the bankers association in Copenhagen, said in an interview yesterday that he assumes the government will “stick to its plan” and conduct its own independent investigation.

The Danish central bank handed over publication of Cibor, which is based on quotes from lenders including Danske Bank A/S and Nordea Bank AB, to Nasdaq OMX Group Inc. in April last year, saying it could no longer “assess the quality” of the rate. Barclays Plc ceased providing bids for Cibor last month, reducing the number of quoting banks to seven.

For more, click here.

Compliance Policy

ECB’s Draghi Criticizes Global Regulators’ Bank Liquidity Rule

European Central Bank President Mario Draghi criticized the so-called liquidity coverage ratio rule proposed by global regulators for lenders, telling lawmakers that the standard discourages banks from lending to each other.

Draghi made the remarks in a closed-door session of the European Parliament in Brussels. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI Sept. 3.

Global regulators are split over how far to revise the draft LCR rule, which would require banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. The ECB is pushing the Basel Committee on Banking Supervision to expand the types of assets banks can use to meet the requirements, according to three people familiar with the talks.

The central bank presented its plan for overhauling the LCR during discussions in the Basel committee’s working groups, including a meeting in New York last month, according to one of the people, who couldn’t be named because the talks are private. Its arguments received only limited support, the person said.

The Frankfurt-based ECB referred to the closed-door format of the hearing and didn’t provide any further comment on Draghi’s remarks. The ECB has warned regulators that the LCR may hamper efforts to combat the euro-area debt crisis by curtailing lending and making it harder for central banks to implement monetary policies.

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Japan FSA Plans Tougher Penalties to Prevent Repeat of AIJ Fraud

Financial Services Minister Tadahiro Matsushita said the regulator will consider boosting the role of trust banks in preventing fraud by asset management firms.

The Financial Services Agency will also review the application from Japan Post Bank to begin providing mortgage, corporate and unsecured loans for individuals, Matsushita said. The agency will examine the impact of Japan Post’s entry into loan market on country’s commercial banks, according to the minister.

Europe Proposes Quota for Women on Big Company Boards, FT Says

The European Commission is drafting a proposal for Europe’s listed companies to reserve at least 40 percent of their non-executive board seats for women by 2020 or face fines, the Financial Times reported, citing a copy of the legislation it has obtained.

The proposal is expected to be introduced next month by Viviane Reding, the European Union justice commissioner, according to the newspaper.

In January, women held 13.7 percent of board positions in big listed groups, EU data showed, according to the paper.

Compliance Action

Gazprom Faces EU Antitrust Probe Over Gas Sales to Europe

OAO Gazprom, Russia’s natural-gas export monopoly, faces a European Union antitrust probe over sales of gas in central and eastern Europe.

The European Commission said it’s investigating whether Gazprom imposed unfair prices by linking natural gas and oil prices, prevented gas from being traded between countries and hindered the diversification of supply.

“Such behavior, if established, may constitute a restriction of competition and lead to higher prices and deterioration of security of supply,” EU regulators said in an e-mailed statement.

The Kremlin questioned the European Union’s timing of the probe, saying Russia’s natural-gas export monopoly is a “reliable supplier.”

Gazprom is applying the same, commonly used pricing formula, linked to oil prices, that it has for years, Dmitry Peskov, President Vladimir Putin’s spokesman, said by phone today.

Separately, the company has cooperated with antitrust regulators’ investigation into its long-term gas supply contracts with central and eastern Europe, the European Commission said today.

Gazprom, which supplies about a quarter of European gas, and customers including RWE, E.ON’s Ruhrgas and Hungary units, OMV AG and Poland’s Polskie Gornictwo Naftowe I Gazownictwo SA were raided by EU officials last year to uncover information on prices and supplies. Companies found to violate EU competition rules can be fined as much as 10 percent of annual revenue.

Sergei Kupriyanov, a spokesman for Gazprom, couldn’t be reached for comment immediately on his mobile phone after working hours in Moscow.

E.ON, Germany’s biggest utility, and RWE negotiated with Gazprom to weaken the link between gas and oil prices in supply contracts as oil costs surged. The companies lost hundreds of millions of dollars as they sold gas to customers at less than it cost to source. Gazprom agreed to adjust accords with E.ON over prices for gas under long-term contracts and is in arbitration with RWE, its main partner for supplying the Czech Republic.

While Gazprom has yielded to pricing demands from German and French customers, it has conceded little to countries further east, which are largely dependent on Russian gas, said Patrick Heren, a London-based consultant.

Lithuania’s government last year asked the EU to investigate Gazprom for refusing to cut gas prices after the state announced it would split ownership of gas sales and transmission. Gazprom estimates export revenue from sales to Europe will rise this year to $61 billion from $57 billion last year, approaching the record $64 billion in 2008, Deputy Chief Executive Officer Alexander Medvedev said on June 20.

Barclays Told by Lawmakers to Hasten Hedging Product Redress

Barclays Plc, the U.K. bank fined for Libor manipulation, was criticized by lawmakers for being slow to provide redress to customers that were mis-sold interest-rate hedging products.

The comments were made by nine members of parliament led by Emma Reynolds in a letter yesterday to the bank’s new Chief Executive Officer Antony Jenkins, seen by Bloomberg News.

The bank swung to a net loss in the first half of 410 million pounds ($651 million) after setting aside 450 million pounds to compensate customers wrongly sold interest-rate hedging products.

Rate swaps are contracts that convert floating-rate debt into fixed-rate debt, or vice versa. They are supposed to keep payments within a specific range. When interest rates fall, for example, customers might pay less interest on a loan to balance out the higher cost of the swap.

HSBC Holdings Plc, Europe’s biggest bank, said in July it set aside $240 million to compensate customers sold interest rate swaps that later lost them money. Royal Bank of Scotland Group Plc made a 50 million-pound provision last month.

“In line with the Financial Services Authority review process guidelines we are prioritizing those clients that are in financial distress,” London-based Barclays said in an e-mailed statement yesterday.


Ex-Porsche CFO Haerter Stands Trial Over $12.5 Billion Bank Loan

Former Porsche SE Chief Financial Officer Holger Haerter denied allegations he misled a bank when the automaker refinanced a 10 billion-euro loan ($12.5 billion) in 2009.

The charges are “clearly wrong,” Haerter said today to reporters before the opening of the trial in Stuttgart, Germany.

Two other managers, identified only as XY and XY, are on trial with Haerter. They’re accused of understating Porsche’s liquidity needs by 1.4 billion euros, had all purchase options it then held on Volkswagen AG shares been exercised.

The case is part of a broader criminal investigation into allegations investors were misled about Porsche’s plans to take control of VW and a derivatives strategy it set up as part of that plan. Stuttgart prosecutors are still probing Haerter and former Chef Executive Officer Wendelin Wiedeking on market manipulation and breach of trust allegations.

Frank Gaube, a Porsche spokesman, declined to comment.

The two companies agreed to combine in 2009 after Porsche racked up more than 10 billion euros of debt in its unsuccessful hostile bid for VW. Porsche started accumulating VW shares in 2005. A merger between the two companies was scrapped last year because of the lawsuits.

To avoid further delays, Wolfsburg, Germany-based VW finally purchased the Porsche auto business and completed the transaction on Aug. 1.

Chinese Medical Firm Sued by SEC Over Weight-Loss Product

China Sky One Medical Inc. and its top executives were sued by the U.S. Securities and Exchange Commission over claims they inflated revenue by about $20 million with fake sales of a weight-loss product.

The pharmaceutical products firm, which began trading on U.S. markets after a 2006 reverse merger, claimed in 2007 that a Malaysian company would become exclusive distributor of its “slim patch,” generating $1 million a month in sales, the SEC said yesterday in a lawsuit filed in federal court in California. Chief Executive Officer Yan-qing Liu certified the false statements, which appeared in company disclosures through 2010 and continue to affect its balance sheet, the SEC said.

The agency’s suit against China Sky is the latest in a series of regulatory actions targeting financial statements from Chinese companies listed on U.S. exchanges. Several companies have been delisted and the SEC has sued auditors for failing to hand over information on firms.

The company recorded $19.8 million in revenue from Malaysian sales in 2007 and 2008, while the distributor bought only $167,542 in slim patches during that period. The SEC is seeking financial penalties against China Sky and Liu, and is also asking the executive to disgorge ill-gotten gains.

China Sky earlier said in a statement that Liu is ill and would be working “substantially less,” and that 26 mid-level managers recently resigned, according to the statement.

A phone call outside of normal business hours to a number listed for the Harbin, China-based company wasn’t answered. James Masella III, an attorney at law firm Blank Rome LLP in New York who was listed by the SEC as defense counsel, said he isn’t currently retained by the company in the matter.


Blessing Says Europe Banks Require Common Set of Rules

Martin Blessing, chief executive officer of Commerzbank AG, speaks in Frankfurt about European Union banking regulation, the impact of the debt crisis on the financial industry and political integration.

For the audio, click here.

Rehn, Barnier Comment Before Parliament EU Banking Union

European Union Economic and Monetary Affairs Commissioner Olli Rehn discussed steps toward a banking union.

Rehn, who spoke Sept. 3 before the European Parliament’s Economic and Monetary Committee in Brussels, also discussed common euro-area bonds.

For the video, click here.

Separately, Michel Barnier, the European Union’s financial services chief, said he’s confident of striking a balance on the respective roles of the European Central Bank and national regulators in the EU’s bank-oversight proposal.

Barnier said national supervisors “will have an important role to play, like in the past” under “ambitious” proposals concerning supervision of all banks in the 17-nation euro area, to be published on Sept. 12. He added that it is “not imaginable to exercise a direct, centralized supervision for all the banks.” Barnier made the remarks to reporters after speaking to European Parliament lawmakers in Brussels yesterday.

German Finance Minister Wolfgang Schaeuble said last week the ECB will need to focus its direct oversight on banks that can pose a systemic risk to Europe. He made the comment in an op-ed published Aug. 31 in the Financial Times.

This sort of triage is “common sense,” Schaeuble said. “We cannot expect a European watchdog to supervise directly all of the region’s lenders -- 6,000 in the euro zone alone -- effectively.”

Comings and Goings

Osborne Seeks BOE Governor; Economic Analyst Wood Resigns

Former Bank of England policy maker Charles Goodhart said U.K. finance minister George Osborne may struggle to find a successor for central bank Governor Mervyn King untainted by the financial crisis and banking scandals.

“There’s a general impression that whoever gets appointed needs to be as pure as Caesar’s wife,” Goodhart said in a telephone interview in London yesterday, referring to Julius Caesar’s comment that his wife must be above suspicion. “In the present climate, and after all the events of the past five to six years, it’s actually quite hard to find a Caesar’s wife.”

Osborne will shortly begin the search for a successor to King, who is scheduled to retire in June, and his task may have been complicated after the Libor scandal embroiled several potential candidates. At the same time, lawmakers are debating handing the central bank sweeping new powers over financial stability and bank oversight.

Goodhart, a professor at the London School of Economics who served as a founding member of the central bank’s Monetary Policy Committee from 1997 to 2000, said the changes may give one individual too much responsibility.

Still, the job is doable and its expanded power “makes it even more important to appoint a really excellent person for that position,” Goodhart said.

The search for a governor will begin as soon as this month and the successful candidate may be announced by the end of the year. Bank of England Deputy Governor Paul Tucker and Financial Services Authority Chairman Adair Turner have been linked to the job, as has former top U.K. civil servant Gus O’Donnell.

Separately, Bank of England official Robert Wood resigned as London’s finance industry lured a U.K. economic analysis manager from the central bank for the second time in less than a year.

Wood, who led analysis of British data for policy makers, will join Berenberg Bank this month, said two people with knowledge of the matter who declined to be identified because the appointment isn’t yet public. He follows a string of economists who held the position known inside the central bank as Head of the U.K. Team, using it as a springboard for jobs in London’s finance industry.

The move coincides with a second year of pay freezes for Bank of England staff, adding to the lure of more lucrative City posts.

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