JPMorgan Chase & Co., Goldman Sachs Group Inc. and the $648 trillion swaps market will enter a new era of transparency when Dodd-Frank Act regulations for dealers begin taking effect today.
The rules, more than two years in the making at the U.S. Commodity Futures Trading Commission, will improve oversight of a market that for three decades has largely escaped federal regulation, CFTC Chairman Gary Gensler said Oct. 10. The agency is preparing a series of exemptions and guidelines to ease the transition and phase in regulations.
“The days of the opaque swaps market are ending,” Gensler said in a speech at George Washington University, where he compared the new regulations to securities rules enacted in the 1930s. “The swaps market reform going into effect this week holds out similar potential. Bright lights of transparency will shine. Dealers will have to come under comprehensive regulation.”
Starting today, companies must begin tallying their derivatives trades to determine if they will be deemed swaps dealers subject to Dodd-Frank’s highest capital, collateral and trading standards, which may erode profits.
The designation will apply to JPMorgan, Goldman Sachs and the other financial firms dominating a business that generates more than $30 billion in annual profit for the world’s largest banks, according to an estimate from consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos.
The agency has been bombarded with requests from lobbying groups to ease or delay the measures, designed to limit risk and increase transparency in the market after largely unregulated trades helped fuel the 2008 credit crisis.
Dodd-Frank gives the Treasury Department authority to exempt foreign-exchange swaps and forwards from most of the law’s clearing and trading regulations. Gensler also said there would be a publication to address concerns about asset-backed securities vehicles that use swaps.
EU Said to Weigh Delaying Basel Bank Rules for Up to a Year
The European Union may consider pushing back when lenders need to start phasing in tougher Basel bank-capital rules by as much as a year after warnings that pressing ahead with the original timetable may drive up costs, according to three people familiar with the talks.
EU lawmakers and officials, facing a Jan. 1 international deadline for incorporating the rules, held the latest in a series of meetings yesterday on how the bloc should implement the Basel measures, said the people, who asked not to be identified because the negotiations are private.
Representatives of Cyprus, which holds the rotating EU presidency, and legislators from the European Parliament, discussed whether the start date for phasing in the measures within the bloc could be delayed beyond the beginning of next year, said the people. Possible alternative dates might include July 1, 2013, or Jan. 1, 2014, one of the people said.
The implementation date was on the agenda for yesterday’s meeting, four people said. Othmar Karas, the lawmaker leading work on the draft rules in the European Parliament, denied that any discussion took place at the meeting on a change of dates for when the rules might enter into force.
Karas has requested written comments on the issue of when the legislation should enter into force, a person said.
Daniel Koster, a spokesman for the parliament’s EPP group, of which Karas is a member, said by phone that the question of timing hasn’t been discussed and Karas hasn’t asked for written comments.
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U.K. Will Stay Out of European Banking Union, FSA’s Turner Says
The U.K. won’t allow its lenders to be supervised by the European Central Bank, Financial Services Authority Chairman Adair Turner said in a speech designed to boost his candidacy for the top post at the Bank of England.
The U.K. will not be part of the Eurozone banking union, Turner told financial executives in London yesterday. He also said regulators may further ease capital and liquidity rules if economic growth remains elusive.
European Union leaders in June embarked on plan to give the ECB oversight of the banking system in a step toward offering direct bailouts from the euro-area’s sovereign debt crisis fund. All 27 EU nations must approve the oversight proposal for it to move forward. Non-euro nations have called for assurance their voices won’t be drowned out.
Finance ministers have acknowledged the EU is unlikely to implement the new oversight regime by the start of 2013 as initially hoped.
Turner has overseen a loosening in FSA requirements for banks to hold capital and liquidity buffers since June. He said regulators “need to be ready if these measures prove insufficient, to consider further policy innovations” to overcome “powerful economic headwinds.”
U.A.E. Rules Unlikely to Derail Dubai Refinancing, BofA Says
Dubai’s state-linked companies are unlikely to struggle to refinance debt even after the central bank imposed rules curtailing bank lending to the government, according to Bank of America Corp.’s Merrill Lynch unit.
Large banks such as Emirates NBD PJSC and National Bank of Abu Dhabi PJSC, the biggest United Arab Emirates lenders, appear in “clear breach” of the rules “but are likely to benefit from regulatory forbearance,” London-based economist Jean-Michel Saliba wrote in a report yesterday. The regulation would encourage some government-related entities to seek alternative sources of funding, he wrote.
The U.A.E. central bank said April 4 that banks must not lend more than 100 percent of their capital to local governments and the same amount to government-related entities to help reduce risk. Banks had until Sept. 30 to comply. Assistant Governor Saif Al-Shamsi said Oct. 1 that the regulator will deal with each bank individually.
The U.A.E.’s sovereign issuers and government-related entities have about $32 billion of debt maturing in 2012, including $15 billion in Dubai, the International Monetary Fund said in March.
NBAD’s loans to entities controlled by the Abu Dhabi government made up 140 percent of its capital, according to BofA Merrill Lynch. The bank has been given until March to comply with the new central bank rules, Chief Executive Officer Michael Tomalin told Dow Jones on Oct. 8 in Kuala Lumpur, according to a bank spokesman, who declined to be identified because of company policy. The rules won’t affect the bank’s growth, Tomalin said.
FSA Fines Ex-Cattles Unit Director $160,000 Over Market Abuse
A former managing director of Cattles Plc’s Welcome Financial Services unit was fined 100,000 pounds ($160,000) by the U.K.’s finance regulator for market abuse.
John Blake was also banned from working in the industry, the Financial Services Authority said in a statement on its website yesterday. Blake is the third executive connected to Cattles penalized by the FSA this year. In March, James Corr, Cattles’ finance director, was fined 400,000 pounds and Peter Miller, Welcome’s finance director, was fined 200,000 pounds.
Cattles, based in Batley, England, was a subprime mortgage lender. According to the FSA, its subsidiary Welcome published “false and misleading information about the credit quality of its loan book” in its 2007 annual report, which was used in Cattles’s 2008 rights offering prospectus that raised 200 million pounds.
Cattles was sold last year to creditors including Royal Bank of Scotland Group Plc after its shares were suspended in 2009. It has accused PricewaterhouseCoopers Plc of accounting failures.
France Needs Non-Binding Shareholder Votes on Pay, Rameix Says
France should introduce a rule giving shareholders an advisory vote on executive pay packages before considering making the investor referendum mandatory, the head of the nation’s financial markets regulator said.
Gerard Rameix, president of the Autorite des Marches Financiers, made the remarks in an interview yesterday on Bloomberg Television.
France’s government has said that it will propose so-called say-on-pay legislation for shareholders before the end of the year. The AMF was expected to present its annual report on corporate governance and executive pay yesterday.
Chamber, Oil Trade Groups Sue SEC Over Foreign Payment Rule
The U.S. Chamber of Commerce and two oil industry trade groups brought a court challenge to the Securities and Exchange Commission’s rule requiring public companies to disclose payments of more than $100,000 made to foreign governments for commercial development projects.
The groups, in a lawsuit filed Oct. 10 in federal court in Washington, said the regulation violates the First Amendment of the U.S. Constitution and that the commission failed to properly consider the rule’s effects on competition. The rule will cost U.S. companies more than the $1 billion estimated by the commission, the groups said.
The groups said in the complaint that the rules will force companies to allow competitors to gain “sensitive commercial information” and they will have to abandon projects in countries where such disclosures are forbidden.
The regulation stems from the 2010 Dodd-Frank financial reform law, which ordered the agency to implement rules requiring that 1,100 oil, gas and mining companies report payments made to U.S. and foreign governments.
The trade groups say the SEC “grossly misinterpreted” Congress’s directive by requiring each public company to file a report on the commission’s online database detailing each payment made to a foreign government. Providing a compilation of payments would serve the same purpose without “further burdening U.S. companies or revealing trade secrets or pricing strategies,” according to the complaint.
The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S. District Court, District of Columbia (Washington).
Ex-UBS Client Roessel Avoids Prison in Offshore Tax Case
Wolfgang Roessel, a former client of UBS AG and Wegelin & Co., avoided prison for failing to report more than $11 million in Swiss accounts to U.S. tax authorities.
Roessel, 71, was sentenced yesterday in federal court in Miami to eight months of home confinement and three years of supervised release. He was also fined $10,000. He pleaded guilty on May 30, admitting he filed a false tax return for 2007 and didn’t file Reports of Foreign Bank and Financial Accounts, or FBARs, from 2002 to 2007. He has paid $6.5 million in a civil FBAR penalty and back taxes.
Roessel cooperated with prosecutors in a crackdown on offshore tax evasion involving UBS and its clients.
In a telephone interview yesterday, Roessel’s attorney, Lee Stapleton, said her client “is glad to put this behind him.”
The Swiss account was “not part of Mr. Roessel’s life either as a place to hide U.S. income or as a foreign piggy bank,” Stapleton said. She described Roessel as a self-made man in the motion-picture equipment business who inherited money later in life.
In 2002, Roessel’s banker at UBS, the largest Swiss bank, told him that anonymous Swiss accounts were no longer available to U.S. clients, Stapleton said. He then opened a trust that included the proceeds of his inherited money. Later, he opened another account into which he transferred business-related proceeds, according to Stapleton.
Wegelin was indicted Feb. 2, charged with helping U.S. taxpayers hide more than $1.2 billion from the Internal Revenue Service.
The case is U.S. v. Roessel, 12-cr-60074, U.S. District Court, Southern District of Florida (Fort Lauderdale).
Goldman Sachs’s Tourre Gets July 15 Trial Date in SEC Suit
Goldman Sachs Group Inc.’s Fabrice Tourre will go to trial July 15 in the U.S. Securities and Exchange Commission’s lawsuit accusing him of misleading investors in a collateralized debt obligation.
U.S. District Judge Katherine Forrest in Manhattan set the trial date yesterday at the end of a hearing in which an SEC lawyer argued that she should reinstate some claims against Tourre that another judge dismissed earlier in the case.
Tourre, 33, who is studying for a Ph.D. in economics at the University of Chicago, wasn’t present in the courtroom yesterday. His lawyer, Pamela Chepiga, told Forrest that she will check with her client to make sure there is no conflict between his exams and the trial date.
The SEC sued Goldman Sachs and Tourre in April 2010. The New York-based investment bank agreed in July 2010 to pay $550 million to settle the allegations against it.
The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).
Comings and Goings
EU Parliament Panel Plans Negative Opinion on Mersch Role
The European Parliament’s Economic and Monetary Affairs Committee will issue a negative opinion on the nomination of Luxembourg’s Yves Mersch to the European Central Bank’s Executive Board, lawmaker Sylvie Goulard said.
Goulard said in an e-mailed statement yesterday that the recommendation aims at wider diversity, including gender balance, and “no judgment would be made on the competences of the candidate.”
Mersch’s nomination was put in limbo last month when the committee objected to the lack of female candidates for the post and postponed a planned hearing. The ECB seat has been empty since June 1. Mersch, the euro region’s longest-serving central banker, was selected by European finance ministers in July. The committee will hold a hearing on Mersch’s candidacy on Oct. 22.
Luxembourg Prime Minister Jean-Claude Juncker said Oct. 5 that the parliament doesn’t have the legal authority to stop Mersch’s candidacy. Euro-region leaders will give the final nod.
Bowles Cites Lagarde Succession to Strauss-Kahn in BOE Job
European Parliament lawmaker Sharon Bowles said that Christine Lagarde’s appointment to lead the International Monetary Fund provides a parallel example to show how she could replace Mervyn King at the Bank of England.
Bowles, who is chairwoman of the Parliament’s Economic and Monetary Affairs Committee, cited Lagarde’s diplomacy and negotiation skills this week when she announced her own application for governor, competing with potential candidates from Bank of England Deputy Governor Paul Tucker to Financial Services Authority Chairman Adair Turner. Bowles studied chemical physics and math rather than economics, and is the only woman and lawmaker known to seek the job.
Lagarde, 56, who is currently in Tokyo leading the IMF’s meetings, succeeded fellow French national Dominique Strauss-Kahn. Lagarde is a lawyer by training, unlike her predecessor, who is an economist.
Bowles said that she and Lagarde have “very similar kind of strengths,” and the BOE needs “a different kind of governorship.”