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Safe Harbor, ASIC Inquiry, JPMorgan Apology: Compliance

Oct. 19 (Bloomberg) -- U.S. lenders may get strong protections against lawsuits over government-backed mortgages under rules being weighed by the Consumer Financial Protection Bureau, according to two people briefed on the process.

The so-called qualified mortgage regulations would give banks including JPMorgan Chase & Co. and Wells Fargo & Co. safeguards against legal action arising from the underwriting process, provided the loans are backed by Fannie Mae, Freddie Mac or government insurers such as the Federal Housing Administration, according to the people who spoke on condition of anonymity because the discussions aren’t public.

The consumer bureau, which is crafting the rules as part of a broader overhaul of housing-finance oversight, revealed its plans in a meeting with other federal regulators Oct. 17, according to the people. Bureau officials have said they will issue a final rule by the statutory deadline of Jan. 21.

Once the rule goes into effect, lenders are expected to originate most of their loans according to the new standards in order to gain legal protection from the kind of lawsuits and “putbacks” that have cost banks billions in the wake of the mortgage crisis.

Jennifer Howard, the consumer bureau’s spokeswoman, didn’t immediately respond to messages seeking comment on the planning.

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Compliance Policy

EU Leaders Seek Deal on Bank Supervisor Starting in 2013

European leaders committed to their goal of establishing a euro-area bank supervisor by year-end, opening the prospect of direct aid to Spain’s banks.

The European Union will seek to agree on a framework that makes the European Central Bank the main supervisor by Jan. 1, according to conclusions released early today after leaders met at a summit in Brussels. The new system, intended to break the link between banks and governments at the root of the region’s financial crisis, will phase in over the next year and could cover all 6,000 euro-area banks by Jan. 1, 2014.

The supervisor can “probably be effectively operational,” allowing the euro bailout fund to lend directly to banks as soon as 2013, EU President Herman Van Rompuy told reporters around 3:20 a.m. this morning after the meeting. He said finance ministers will design rules for such bank rescues.

German Chancellor Angela Merkel, underscoring a go-slow approach, said before direct aid, the bank-oversight system needs to reach “practical completion.”

The so-called banking union dominated talks at leaders’ 20th crisis-fighting European summit. Leaders praised Greece for its efforts to meet commitments and secure its next aid installments, while sidestepping questions of when and how Spain might secure further assistance.

The EU has struggled to maintain momentum on a June plan to spur investor confidence by putting the ECB in charge of lenders across the euro area. Divisions have flared over the scope of the ECB’s authority and how losses would be shared.

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EU Summit Tussle Over Costs Risks Derailing Bank Union Plans

The French-backed effort to fast-track a European bank supervisor is running into German-led concern over potential costs as the region’s leaders tussle over putting their crisis-fighting blueprint into action.

Pressed by counterparts from France to Austria to move quickly on breaking the link between banks and governments in the euro area’s financial crisis, German Chancellor Angela Merkel demanded a “thorough” approach as the 27 European Union leaders met for talks in Brussels yesterday.

French President Francois Hollande told reporters as the two-day summit began that he was in favor of “moving forward.” Suggesting electoral considerations are holding Merkel back, he said Germany and France have a joint responsibility to get the euro area out of crisis and “we are almost there.”

The EU has struggled to maintain momentum on a June plan to spur investor confidence by putting the European Central Bank in charge of lenders across the euro area. Divisions have flared over the scope of the ECB’s supervisory powers and how losses would be shared.

A French official, briefing reporters after a meeting between Hollande and Merkel, said agreements in principle were possible. He said Finland, Sweden and the U.K. were the biggest obstacles.

The splits over banking may emerge as proxies for wider disagreements over EU budget rules.

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Compliance Action

JPMorgan Energy-Trading Unit Admits Error in Apology to FERC

JPMorgan Chase & Co.’s energy-trading unit admitted making mistakes in filings to state and federal regulators as it sought to avoid losing its authority to trade electricity.

J.P. Morgan Ventures Energy Corp. “regrets and apologizes for its failure to address” the Federal Energy Regulatory Commission’s communications in an investigation of JPMorgan’s electricity trading in California and the Midwest, according to a filing yesterday. The FERC has threatened to suspend the company’s trading powers, a penalty JPMorgan said “is not an appropriate or proportionate response” to the errors.

The FERC ordered the company on Sept. 20 to show that it didn’t violate agency rules and said it may suspend JPMorgan’s authority to sell power and related services at market-based rates shouldn’t be suspended.

The JPMorgan unit didn’t discuss the allegation of market manipulation in its apology yesterday. The company said it inadvertently supplied the FERC and the California Independent System Operator Corp. with inadequate information in their investigation. CAISO manages the state’s power grid.

Mary O’Driscoll, a spokeswoman for the agency, said the commission won’t comment on the company’s filing.

Surging Stocks at Australia’s Open Prompt Regulatory Inquiry

Trades in about a dozen Australian equities including Australia & New Zealand Banking Group Ltd. and AMP Ltd. surged at the open in the absence of company news, prompting inquiries by the market regulator.

The incident comes 2 1/2 months after Knight Capital Group Inc., one of the biggest market makers in U.S. stocks, bombarded American exchanges with mistaken orders in the first minutes of trading on Aug. 1. The company blamed the mishap on defective software. Two weeks ago, orders for Indian stocks improperly entered by a Mumbai brokerage sent the S&P CNF Nifty Index down 16 percent over eight seconds before it rebounded.

The Australian Securities and Investment Commission has commenced informal inquiries into the incident, Andre Khoury, a Sydney-based spokesman for ASIC said in a statement. There haven’t been any requests to cancel trades, Matthew Gibbs, Sydney-based spokesman for ASX Ltd., operator of the country’s main bourse, said by telephone.

“Today was the expiry day for the October ASX 200 Index futures contracts, which often generates heightened trading activity as investors seek to unwind their positions,” Gibbs, said by e-mail yesterday. “ASX alerted ASIC this morning and has been closely monitoring trading throughout the day, which has been orderly.”

The stocks that moved unusually yesterday were mainly those attached to companies whose tickers begin with the letters A and B. Australia’s market opens in phases according to the alphabetical order of tickers, ASX said.

Australian regulators are considering requiring all trading algorithms to have an inbuilt “kill switch” to immediately disable them if they malfunction, ASIC Chairman Greg Medcraft told a conference in Sydney Oct. 10.

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Bank of Scotland Is Fined $6.7 Million Over Mortgage Records

Lloyds Banking Group Plc’s Bank of Scotland was fined 4.2 million pounds ($6.7 million) over failures to keep accurate mortgage records between 2004 and 2011 by the U.K. Financial Services Authority.

The bank had mortgage records for 250,000 customers spread across two “unaligned systems,” breaching FSA rules for a lender to “organize and control its affairs responsibly,” the regulator said in an e-mailed statement.

The regulator censured Bank of Scotland earlier this year for “very serious misconduct” at its corporate division that led to it getting a government bailout during the financial crisis. Bank of Scotland embarked on a program of goodwill payments for some customers who took out mortgages before September 2007, Lloyds said. The lender won’t ask for the money back, the FSA said.

“Bank of Scotland has apologized to customers, co-operated fully with the regulator throughout this process and has agreed to pay a fine,” Lloyds said in an e-mailed statement.

The lender settled at an early stage in the investigation, the FSA said.


Ex-GE Bankers Sentenced in Bid-Rig Scam Targeting Cities

Three former General Electric Co. bankers were sentenced to prison terms ranging from three to four years for defrauding cities and the U.S. Internal Revenue Service in a bid-rigging scheme involving municipal bonds.

U.S. District Judge Harold Baer in Manhattan sentenced Steven Goldberg to four years in prison while Peter Grimm and Dominick Carollo each received three years.

The three were found guilty by a federal jury in Manhattan in May of conspiracy to commit fraud by manipulating auctions for municipal bond investment contracts.

The charges grew out of a five-year investigation by federal antitrust prosecutors into the $3.7 trillion municipal bond market. Including the three defendants, 15 people have been convicted in the government’s investigation into municipal bonds, the Justice Department has said.

The case is U.S. v. Carollo, 10-cr-00654, U.S. District Court, Southern District of New York (Manhattan).

Blackstone’s James Says Collusion Lawsuit Is Fabrication

Tony James, president of Blackstone Group LP, said allegations that the biggest buyout firms colluded in bidding on takeovers are untrue and may have been politically motivated in an election year.

He made the statement in response to a question from Bloomberg News on a conference call discussing third-quarter earnings.

Top executives at private-equity firms including Blackstone, Bain, KKR & Co. and Carlyle Group LP assured each other in e-mails that they wouldn’t compete on deals to avoid driving up prices and angering competitors, according to an amended complaint unsealed last week by a federal judge in Boston. The correspondence was cited as evidence that the firms rigged bids in 19 leveraged buyouts and eight other transactions, including the biggest deals of the LBO boom.

The amendment to the complaint, which was first filed in 2007, was unsealed Oct. 11 after U.S. District Judge Edward Harrington granted a request by the New York Times to make it public. Besides James, representatives for KKR and TPG Capital, also named in the complaint, said the firms compete vigorously for deals and there is no evidence of the alleged conspiracy.

The plaintiffs include the Police and Fire Retirement System of the City of Detroit, a public pension fund, and a Minnesota-based investor, Kirk Dahl, who owned shares of Freescale.

The case is Dahl v. Bain Capital Partners LLC, 07-12388, U.S. District Court, District of Massachusetts (Boston).

For more, click here and click here.

Hong Kong Firm to Pay $14 Million to Settle Insider Trading

A Hong Kong-based firm sued for insider trading in July will settle the case by paying more than $14 million, the U.S. Securities and Exchange Commission said in a news release.

The SEC filed an emergency action against Well Advantage to freeze its assets less than 24 hours after the firm placed an order to liquidate its entire position in Nexen Inc.

The SEC alleged that Well Advantage had stockpiled shares of Nexen stock based on confidential information that China-based CNOOC Ltd. was about to announce an acquisition of Nexen.

The proposed settlement is subject to the approval of U.S District Judge Richard J. Sullivan in Manhattan.


Bankers Warn U.S. of Fiscal Cliff Threat, Nichols Says

Robert Nichols, president of the Financial Services Forum, talked about a letter from some top bank executives warning of the threat the so-called fiscal cliff poses to the U.S. and global economies.

The fiscal cliff refers to $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts. Nichols spoke with Tom Keene and Sara Eisen on Bloomberg Television’s “Surveillance.”

For the video, click here.

Comings and Goings

FSA Censure Shouldn’t Rule Turner Out of BOE Job, Tyrie Says

U.K. lawmaker Andrew Tyrie, who heads Parliament’s Treasury Committee, said new criticism of the Financial Services Authority shouldn’t rule Chairman Adair Turner out of the race to be the next Bank of England governor.

The committee, which will scrutinize the government’s proposed candidate to replace Governor Mervyn King, published a report today that rebuked the FSA for failing to stop Royal Bank of Scotland Group Plc’s 2007 purchase of ABN Amro Holding NV. The panel said the watchdog showed poor judgment and should have intervened in the deal, which brought RBS close to collapse.

Speculation on who will succeed King in June is centering on Bank of England Deputy Governor Paul Tucker, seen as the favorite, and Turner after the close of applications last week. Chancellor of the Exchequer George Osborne plans to announce a new governor by the end of the year, and former Prime Minister Tony Blair said in an interview yesterday that King will be a “hard act to follow.”

In the report, the Parliament committee also criticized the Bank of England and the Treasury for their role. It attacked Turner for initially resisting a postmortem of the affair.

For more, click here.

To contact the reporter on this story: Carla Main in New York at

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

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