Canadian banks issued a record amount of domestic debt this year as they rushed to get ahead of new rules that will make issuing subordinated bonds costlier as of next month.
Lenders such as Royal Bank of Canada and Canadian Imperial Bank of Commerce sold C$31.6 billion ($31.8 billion) in domestic bonds this year, or 11 percent more than in 2011 and the most in Bloomberg League Tables dating to 1999. So far in December, banks sold C$4.6 billion in bonds, more than double the amount from the same period last year, the data show.
Borrowing accelerated before rule changes take effect that will change the way regulators treat callable subordinated debt, which banks use to build capital provisions. Beginning Jan. 1, Canadian banks will no longer be able to issue subordinated notes as so-called Tier 2 securities, part of a system where lenders classify capital depending on the ability of the bonds to absorb losses.
Next year’s issuance of debt by the country’s eight largest banks will fall as much as 20 percent, said John Aiken, an analyst in Toronto at Barclays Plc. Although banks aren’t restricted from issuing subordinated debt, it won’t be as economical for them to do so, he said.
Canada’s banking regulator released final Basel III capital adequacy rules this month that aim to bring the country’s lenders into line with new global standards beginning next year.
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Japan FSA Panel Proposes Tougher Penalties on Insider Trading
The advisory committee of Japan’s Financial Services Agency has recommended penalties against leakers of confidential corporate information, including planned share sales.
Brokerages that leak information should be fined the equivalent of as much as three months of fees earned selling securities on behalf of the company whose information is leaked, plus some underwriting fees, the panel said in a final recommendation paper. The penalties against asset managers that trade on inside information should be increased to as much as three months of management fees. The names of brokerage employees who leak confidential corporate information should be disclosed in public in egregious cases, the panel said.
The government seeks to win parliament’s endorsement on the law amendment to stiffen penalties.
Australian Regulators Work On Shadow Banking Rules, The Age Says
Corporate and prudential regulators in Australia will jointly develop plans to improve regulation of the so-called shadow banking industry, The Age reported yesterday.
The regulations mark “the final stages of a regulatory crackdown on finance companies that issue debentures to retail investors,” according to the newspaper.
The Australian Securities and Investments Commission and the Australian Prudential Regulation Authority will “consult more widely with industry” early in the coming year so as to better regulate unsecured loans, The Age said.
The proposals include the introduction of mandatory minimum capital and liquidity requirements for retail debenture issuers.
Dodd-Frank Swap Rules Delayed Six Months for Overseas Trades
The largest Wall Street banks and foreign-based financial companies won a six-month delay in some swap regulations for overseas trades, even as they must begin registering with U.S. regulators by year-end.
The Commodity Futures Trading Commission, the main U.S. derivatives regulator, voted 4-1 to leave the registration deadline in place while providing a delay until July 12 for capital and other requirements for overseas operations of JPMorgan Chase & Co., Goldman Sachs Group Inc. and other banks, the agency said in a statement. The CFTC also reduced the number of overseas offices immediately registering.
The international reach of CFTC swap rules has been one of the most controversial elements of the agency’s Dodd-Frank Act rules, prompting opposition from financial companies. The agency has also faced criticism from European and Asian regulators over the reach of a rule requiring trades to be guaranteed at clearinghouses and traded on exchanges or other platforms.
The CFTC is working with international regulators to determine when overseas rules can be used to substitute compliance with Dodd-Frank measures.
Under the exemption order, foreign-based banks and overseas operations of U.S. banks don’t need to count trades they have with non-U.S. clients to determine whether they cross the threshold requiring registration with the CFTC. The agency also sought additional public comment on how to define U.S. entities and foreign branches of U.S. companies.
Dennis Kelleher, CEO of Better Markets, a Washington-based organization advocating stricter financial regulation, said the delay fails to protect U.S. taxpayers.
China Web Stocks Sink on State Rules as E-House Jumps
Chinese equities fell Dec. 24 in New York, after posting the longest stretch of weekly gains since October, as concern the government will take stricter measures to control the nation’s online access sent Internet stocks lower.
The Standing Committee of the National People’s Congress, China’s lawmaking body, will decide this week on proposed legislation that would require Web users to register their real names to gain Internet access, the Xinhua news agency reported Dec. 23. Sina Corp., owner of the Twitter-like Weibo service in China, dropped the most in three weeks and Sohu.com Inc. retreated from a six-month high. E-House China Holdings Ltd. surged the most in two weeks.
The People’s Daily newspaper, published by the ruling Communist Party, has featured during the past week front-page editorials calling for more regulation of the Web, saying the “chaotic Internet” needs to be controlled.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., also declined. The ETF has risen 12 percent this year.
Japan May Expand List of High-Capital Banks, Nikkei Says
Japan may expand its list of banks it requires to maintain high levels of capital, Nikkei reported, without attribution.
Major trust banks, including Sumitomo Mitsui Trust and Norinchukin, would be added to the list of Japanese banks required to maintain the higher levels, according to the Nikkei report. The proposal recommends a capital ratio 0.5 point higher than regular banks for the newly designated banks, to be phased in beginning in 2016.
Mitsubishi UFJ, Mizuho Financial, Sumitomo Mitsui Financial are on the G-20 list of 28 global banks that are to have the 2.5 point surcharge.
Japan’s Financial Services Authority next year will start evaluation of banks to determine the list.
Russia Plans Tax Law for Off-Shore Projects, Vedomosti Says
Russian government ministries approved a draft tax law for companies working on the continental shelf, Vedomosti reported, citing an unidentified government official.
The law may be signed by year-end. The draft law doesn’t contain the amendment proposed by the Natural Resources Ministry that had added a profit tax for offshore projects, the newspaper reported, citing Deputy Minister Denis Khramov. The newspaper said Khramov didn’t elaborate.
The draft included all of the government’s proposed tax incentives, the paper reported, citing Deputy Energy Minister Pavel Fedorov.
Companies will pay a mineral extraction tax at five to thirty percent of the oil price, will be guaranteed a stable tax regime for 15 years, and will get tax benefits, according to draft law.
SouthGobi Says Mongolia Corruption Probe to Look At Licensing
SouthGobi Resources Ltd. said the Mongolian Independent Authority Against Corruption is continuing its investigation into historical licensing issues, according to a statement to the Hong Kong stock exchange.
The Authority will investigate divestment of SouthGobi licenses to third parties and the involvement and conduct of government officials. SouthGobi said the authority has concluded its questioning of its chief legal counsel Sarah Armstrong, and she is no longer a suspect.
SEC Puts Off Decision on BlackRock’s Copper ETF to February
The Securities & Exchange Commission, the U.S. regulator, delayed a decision to approve or disapprove BlackRock Inc.’s proposed copper exchange-traded fund from Dec. 24 to Feb. 22.
More time is needed to consider comments submitted, the SEC said in a notice dated Dec. 21 on its website. NYSE Arca Inc. had filed on June 19 a request to list the iShares Copper Trust, sponsored by BlackRock Asset Management International Inc., the SEC said.
Melissa Garville, a spokeswoman for BlackRock in New York, declined to comment Dec. 24 on the SEC’s decision.
JPMorgan Chase & Co. won regulatory approval for the first U.S. ETF backed by physical copper, according to an SEC order on its website date Dec. 14. The regulator accepted the proposal amid remarks from some industrial users that the product may disrupt the copper market.
Comings and Goings
Ukraine Central Banker Joins Government Amid IMF Loan Talks
Ukrainian President Viktor Yanukovych promoted central bank chief Serhiy Arbuzov to first deputy premier as the government seeks its third bailout loan from the International Monetary Fund since 2008.
Serhiy Arbuzov, who led Natsionalnyi Bank Ukrainy since December 2010, will be responsible for the country’s finances and economy, as well as trade, social, tax and agricultural policies, Yanukovych said in a decree posted on his website Dec. 24. Ihor Prasolov, who was head of the central bank’s advisory council, was appointed economy minister.
The country’s legislature approved Mykola Azarov’s return as prime minister on Dec. 13, after he resigned earlier in the month due to his election to parliament.
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El-Erian Named by Obama to Lead U.S. Global Development Council
President Barack Obama will appoint Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., to head the U.S. global development council.
El-Erian, who shares the title of co-chief investment officer of Newport Beach, California-based Pimco with Bill Gross, will be chairman of Obama’s global development council, which was created earlier this year to advise the president on ways to promote economic development and good governance in countries all over the world, according to a Dec. 21 statement from the White House. El-Erian, 54, will head the council as a member of the private sector and his role at Pimco won’t change.
El-Erian coined the “new normal” phrase in 2009, which describes an era of lower returns, heightened government regulation, diminishing U.S. clout in the world economy and a bigger role for developing nations. He is the author of “When Markets Collide,” a 2008 New York Times bestseller, and regularly writes commentaries on topics ranging from the global economy to education.
Congressman McHenry to Lead House Investigations Subcommittee
Congressman Patrick McHenry, a Republican from North Carolina, was chosen to lead the House Oversight and Investigations Subcommittee in the 113th Congress, according to a statement on his website.
The appointment was made by the incoming chairman of the Financial Services Committee, Congressman Jeb Hensarling, a Republican from Texas.
As chairman, McHenry “will provide oversight of the Federal Reserve, Treasury, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Department of Housing and Urban Development, the Federal Housing Finance Agency, and the Export-Import Bank,” according to the statement.
Aso Named Japan’s Next Finance Chief as Abe Primes Fiscal Pump
Taro Aso, a champion of pork-barrel spending when prime minister, will become Japan’s sixth finance chief in three years, auguring expanded fiscal stimulus in the world’s third-largest economy.
Aso, 72, will also serve as deputy prime minister and financial services minister in Prime Minister Shinzo Abe’s administration, Chief Cabinet Secretary Yoshihide Suga said in Tokyo today. Fumio Kishida will be foreign minister, while Akira Amari will be economy minister.
The finance minister’s first task will be to deliver his party’s pledge of a “large-scale” supplementary budget to stimulate the economy, which is forecast to shrink for a third straight quarter. At issue will be averting any sell-off in the bond market as the nation grapples with debt in excess of twice the size of gross domestic product.
The incoming Liberal Democratic Party leadership team has championed both fiscal and monetary stimulus, along with a weaker exchange rate to end Japan’s deflation and restart growth.
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