China IPOs, Serb Bad Debt Rules, Airplane Web: Compliance

China asked initial public offering advisers to inspect their clients’ financial statements over the next three months as regulators step up efforts to combat fraud.

The China Securities Regulatory Commission said on its website Dec. 28 that it will randomly examine “self-inspection” reports from investment banks and accounting firms. The CSRC will take legal action against issuers and advisers if misconduct such as earnings manipulation and financial irregularities is found, according to the statement.

Several recent high-profile fraud cases involving Chinese companies have prompted mainland and Hong Kong regulators to toughen rules on IPO advisers. Hong Kong’s securities regulator this month proposed making banks criminally liable for false statements in IPO documents.

In 2011, the CSRC issued a warning letter to Ping An Securities Co., adviser of Hunan Shengjingshanhe Bio-Technology Co. and suspended the licenses of two Ping An employees after it rescinded approval for Shengjingshanhe’s IPO plan due to “major omissions” of financial information.

The number of companies awaiting approval for IPOs in China swelled to more than 800 in December as regulators delayed reviewing new applications on concern a flood of shares may further weigh on the nation’s benchmark stock market.

Compliance Policy

Serb Central Bank Amends Bad Debt Rules to Boost Credit Activity

Serbia’s central bank has amended rules on bad debt, allowing lenders to transfer non-performing loans from their portfolios to third parties and release funds for greater credit activity.

Non-performing loans stood at 399.5 billion dinars ($4.6 billion) at the end of the third quarter this year, accounting for 19.9 percent of banks’ credit portfolios, according to central bank data. Loan-loss reserves stood at 127.9 percent of all non-performing loans.

“Considering that the high level of problematic loans is to the greatest degree a consequence of late loan repayments by companies, new regulatory solutions allow banks to cede the claims” in line with international practice and standards, the Belgrade-based Narodna Banka Srbije said in an e-mailed statement Dec. 28.

It also called on banks to “invest additional effort” and “restructure claims against companies that have a chance to recover despite difficulties.”

The new rules, taking effect on Dec. 31, will also allow banks to determine the creditworthiness of their retail clients based on income and loan track-record, allowing them to be more flexible in determining customers’ credit risk, it said.

FCC Eases U.S. Licensing Rules for Internet Access on Airliners

The U.S. Federal Communications Commission Dec. 28 moved to ease licensing requirements for in-flight Internet services.

The FCC, which shares regulation of in-flight communications with the FAA, has since 2001 authorized companies to offer Internet service on a case-by-case basis, the agency said in a news release. The new rules set up a way to establish that systems meet standards for not interfering with aircraft controls, a step toward getting FAA approval, the FCC said.

The agency in an order set rules for satellites to communicate with mobile devices used by aircraft passengers and crews. In such systems, an antenna on the airplane communicates with satellites, and mobile technologies such as Wi-Fi spread signals within the aircraft’s hull, the FCC said.

The new rules will allow “faster, more efficient” licensing of the technologies, the agency said.

Brokers Must Seeks Owners of Unclaimed Funds, Wash Post Says

Brokers will be required to search for customers they have lost track of to send them dividends, interest payments and other distributions under a new rule adopted this month by the Securities and Exchange Commission, the Washington Post reported.

The rule will apply when checks exceeding $25 remain uncashed. When that occurs, the obligation to search for and notify the securities holder applies, the SEC said, according to the newspaper. The notice would have to be mailed no later than seven months after the check was sent, the paper reported.

China Securities Regulator Proposes Rules for Insurers’ Funds

Chinese insurers rose in Shanghai trading after the nation’s securities watchdog said they would be allowed to set up mutual funds, boosting optimism that the industry would benefit from increased demand.

The China Securities Regulatory Commission posted draft rules on its website yesterday allowing insurers’ asset management units and securities brokerages to set up mutual funds, a move the regulator said seeks to “attract various funds into the capital market.” While it could only contribute marginally to profits, the new policy reinforces prospects that insurers may benefit more from a possible market rally as the nation’s economic growth stabilizes, said Guodu Securities Co.

China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world’s second-biggest economy is gaining traction.

The Shanghai Composite fell 5.2 percent in the first nine months of this year as China’s economic expansion cooled. China Life’s profit slumped 56 percent to 7.4 billion yuan ($1.2 billion) for that period after recording 29 billion yuan in impairment losses to recognize declines in its stock holdings. The equity gauge has rallied 15 percent this month.

A fund management operation could only make a “fairly small” contribution to insurers’ profits since most of the fund management companies’ net income is less than 1 billion yuan, Deng Ting, Guodu’s Beijing-based analyst, said by phone.

The CSRC is seeking public feedback on its new rules, which require insurers and brokerages to have at least 20 billion yuan in assets under management.

Compliance Action

SEC Halts Southridge Trading After Statement on Kinross Venture

Trading in Southridge Enterprises Inc. was halted by the U.S. Securities Exchange Commission after the mining company said last week it was forming a partnership with Canada’s Kinross Gold Corp. in Mexico.

The temporary suspension was initiated because of questions regarding the accuracy of statements made by Southridge concerning “certain claims regarding a joint partnership and an arrangement to obtain funding and to change the listing venue for Southridge stock,” the SEC said Dec. 28 in a statement.

Kinross, Canada’s third-largest producer of the metal, on Dec. 26 denied a statement from Southridge that the two were entering a partnership to develop projects in Mexico. Southridge, based in Dallas, rose as much as 88 percent in over-the-counter trading after it said earlier the same day the companies were working to finalize an agreement for the Cinco Minas and Gran Cabrera properties.

“Kinross wishes to make clear that there is no such joint partnership, joint venture or other similar such arrangement or agreement in place, and nor do we expect there to be such a joint partnership, agreement, acquisition, investment or other equivalent transaction involving Kinross and Southridge in the foreseeable future,” Toronto-based Kinross said in a separate statement Dec. 27.

The SEC said the suspension in Southridge trading would be from 9:30 a.m. New York time Dec. 28 through Jan. 11.

No one immediately responded to an e-mail or voice-mail messages left at the Texas phone number listed on Southridge’s latest press release.

Countrywide Loan Probe Ended by House Panel With No Action Taken

A U.S. House panel ended a probe of alleged preferential lending by Countrywide Financial Corp. to lawmakers and aides without taking action, saying the “serious matters” submitted for review fall outside its jurisdiction.

Allegations surrounding mortgage loans to House members and staffers through Countrywide Chief Executive Officer Angelo Mozilo’s “Friends of Angelo” initiative or other so-called VIP programs are either too old or involve people no longer employed in the House, the Ethics Committee’s Republican chairman and ranking Democrat said in a statement Dec. 27.

Ethics Committee Chairman Jo Bonner of Alabama and Representative Linda Sanchez of California said the committee conducted its own review of the role of Countrywide’s VIP unit, finding that while it offered quicker, more efficient processing and some discounts, the loans met basic underwriting standards and didn’t offer the best deals available in the marketplace.

The Senate Ethics Committee completed an investigation in 2009 saying lawmakers including former Banking Committee Chairman Christopher Dodd and Senator Kent Conrad didn’t violate rules when they refinanced loans with Countrywide.

Fannie Mae, which bought billions of dollars in mortgages from Countrywide under an exclusive agreement, has been under U.S. conservatorship since September 2008. Countrywide was acquired by Bank of America Corp., which has spent more than $40 billion to clean up mortgages inherited in the deal.

Mozilo, 74, agreed to a record $67.5 million regulatory settlement in 2010 to resolve claims that he reaped about $140 million by selling Countrywide stock while misleading investors about the quality of the company’s loans.

U.K. Regulator’s Rule-Tightening Hits Trouble on REITS, FT Says

U.K. property companies and investment managers are preparing to contest a proposal by the Financial Services Authority that may prevent the marketing of real-estate investment trusts to retail customers, the Financial Times reported today.

The watchdog organization said in the summer that financial advisers will be prevented from marketing “exotic investments” to unwary clients. Lawyers said the FSA’s definition of “unregulated collective investment schemes” might include REITs, which offer tax benefits and have long been marketed to small investors.

Peter Cosmetatos, finance chief at the British Property Federation, says it’s “absurd” to compare REITs to unauthorized collective investment schemes.

The FSA said the consultation is continuing and the rules’ structure is “not a foregone conclusion.” The agency is expected to announce rules by the end of March.

Small investors account for about 8 percent of shareholders in U.K.-listed REITs.


Porsche Wins New York Court Dismissal of Hedge Funds’ VW Lawsuit

Porsche Automobil Holding SE won an appeals court ruling dismissing a lawsuit by hedge funds that accused the German carmaker of concealing a plan to corner the market in Volkswagen AG shares.

There is an “inadequate connection” between New York and the events at issue in the case, with only e-mails and phone calls taking place in New York, the Appellate Division of the state Supreme Court said in a decision Dec. 27.

Porsche asked the appeals court in November to reverse a lower court’s decision rejecting its motion to dismiss the 2011 suit by 26 hedge funds including David Einhorn’s Greenlight Capital Inc.

The funds, which had bet that Volkswagen stock would fall, claimed Stuttgart, Germany-based Porsche misled investors by denying through much of 2008 that it intended to acquire Volkswagen, which is based in Wolfsburg, Germany, and by using manipulative trades to hide its stock positions. The plaintiffs sought more than $1 billion in damages.

The appeals court said witnesses and documents in the case are located in Germany, which provides an “adequate alternative forum.”

Robert Giuffra, an attorney for Porsche at Sullivan & Cromwell LLP, described the decision in a statement as “an important victory for Porsche.”

Porsche is also being sued in Europe over the issue.

James B. Heaton, an attorney for the plaintiffs, declined to comment about the decision.

The case is Viking Global Equities LP v. Porsche Automobil Holdings SE, 650435/2011, New York state Supreme Court, New York County (Manhattan).


Hintz Says U.S. Banks ‘Re-Pricing Their Businesses’

Brad Hintz, an analyst at Sanford C. Bernstein & Co., talked about the outlook for the U.S. financial industry in 2013.

He spoke with Tom Keene and Scarlet Fu on Bloomberg Television’s “Surveillance.”

For the video, click here.

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