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CEO-Worker Pay, BOE Policy, Solvency II: Compliance

May 1 (Bloomberg) -- Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, according to data compiled by Bloomberg. The numbers are based on industry-specific estimates for worker compensation.

Almost three years after Congress ordered public companies to reveal actual CEO-to-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement.

The leading opponent of mandatory pay-ratio disclosure is a Washington-based non-profit called the HR Policy Association, which represents top human resources executives at about 335 large corporations.

Pay-ratio supporters, led by activist investors and trade unions including the AFL-CIO and the $52.4 billion United Auto Workers Retiree Medical Benefits Trust, say mandatory disclosure would help inform shareholders on advisory say-on-pay votes at companies’ annual meetings.

For more, click here.

Separately, James Cotton, a retired International Business Machines Corp. lawyer, wrote a 1997 article in the Northern Illinois Law Review arguing public U.S. firms should disclose the ratio of their chief executives’ pay to their workers.

Bloomberg’s Elliot Blair Smith reported on Bloomberg Television.

For the video, click here.

Compliance Policy

Japan Joins Germany in Opposing Fed’s Proposed Foreign Bank Rule

Japan joined Germany in opposing a proposed U.S. Federal Reserve rule aimed at compelling large foreign bank holding companies to hold more capital and liquidity in their American subsidiaries.

Bank of Japan Executive Director Hiroki Tanaka asked the Fed Board of Governors in an April 30 letter to “carefully consider major concerns” it has about the proposed rule. Japan’s Financial Services Agency asked that the proposed rule take into account “deference to home country regulation and supervision” in a letter signed by Masamichi Kono, the regulator’s vice commissioner for international affairs.

The letters followed an April 26 note by Bundesbank Vice President Sabine Lautenschlaeger and Bafin President Elke Koenig to the Fed board that “‘go it alone’ national initiatives can tend to weaken the global setup and stability” of systemically important banks “instead of stabilizing them.”

The Fed’s proposal would affect Deutsche Bank AG, Germany’s biggest lender, which last year dropped its bank holding company status so that it could meet U.S. requirements without assigning additional capital and liquidity to its unit in the country. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, has operations in the U.S. including its San Francisco-based UnionBanCal Corp. unit.

Tanaka said the Bank of Japan is concerned about the rule’s “inconsistency” with joint global efforts to enhance the stability of the global financial system, as well as its “one-fits-all” approach for liquidity requirements. He asked the Fed not to impose additional regulatory requirements on U.S. units of foreign banks that satisfy standards at home.

Fed officials have signaled they are unlikely to back down because their experience in the financial crisis showed that some of the biggest borrowers from their emergency facilities were foreign banking groups in need of dollar funding.

Foreign banking organizations with global consolidated assets of $50 billion or more would be required to meet the standards on July 1, 2015.

Solvency II Rules Seen as Costing U.K. Insurers $310 Million

European rules aimed at making insurers safer may cost the industry as much as 200 million pounds ($310 million) a year in the U.K., said Andrew Bailey, the country’s top banking and insurance supervisor.

The delayed rules, known as Solvency II, may see insurance premiums increase by 0.1 percent to cover the cost of compliance, Bailey, chief executive officer of the Prudential Regulation Authority, said in a letter to Andrew Tyrie, chairman of the U.K.’s Treasury Select Committee, dated April 19 and released by Tyrie yesterday.

Solvency II, intended to harmonize the way insurers allocate capital against the risks they take across the 27-member European Union, was originally scheduled to come into force in 2013. The regulations may not be implemented before 2016, Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, has said.

Osborne Says BOE Financial Policy Remit Must Support Growth

Chancellor of the Exchequer George Osborne told the Bank of England that its financial-stability policies should take into account the weakness of the economy and refrain from curbing the recovery.

Setting the Financial Policy Committee’s first remit, Osborne said the central bank must acknowledge the economic cycle when setting policy. He also said there is a need for “clear” communications to win the confidence of financial markets and called for a list of risks by the end of the year.

Osborne shut the previous financial regulator, and gave most of its powers to the BOE to overhaul regulation which, Osborne said, failed in part because the structure wasn’t adequate. Under the new Financial Services Act, he has the power to set the FPC’s objectives and how it should operate in order to support the government’s economic policies.

The remit “‘recognizes that there may be short-term trade offs between the committee’s second objective of contributing toward sustaining economic growth and its primary objective of addressing sources of systemic risk, which may vary at different points in the economic and credit cycle,” Osborne said. “It is particularly important at this stage of the cycle that the committee takes into account, and gives due weight to, the impact of its action on the near-term economic recovery.”

For more, click here.

Germany Seeks Decentralized Euro-Area Bank-Failure Mechanism

Germany is urging the European Union to abandon plans for a powerful central authority to handle bank failures, warning the measure would be undermined by a lack of U.K. participation and constitutional complications.

The German government is seeking to build support behind an alternative blueprint for a “network of national resolution authorities” and backstop funds to deal with crisis-hit banks in the euro area, according to a proposal obtained by Bloomberg News. This “decentralized” system would avoid “bureaucratic cost and complexity,” according to the paper, dated March 13.

A central authority that is ultimately backed by the taxpayer “would imply significant legal risk both in terms of European law and constitutional law,” according to the document. “There is not much room left for further centralization” under the bloc’s current treaties, it says.

Germany’s policy pits it against the European Central Bank, European Commission, and euro-area governments including France, which have called for rapid steps to push crisis intervention at failing banks to the EU level, in a bid to help nations repair their ravaged public finances and restore confidence in lenders.

A spokesman for the German Finance Ministry declined to comment directly on the document, while saying that it’s healthy to have a debate about the resolution plan.

ECB Vice President Vitor Constancio called last week for swift progress to put in place a “strong authority” with “a privately funded European resolution fund at its disposal,” as well as access to taxpayer money as a last resort.

Compliance Action

Twitter Attack Prompts U.S. CFTC to Speed Automated-Trading Rule

The top U.S. derivatives regulator yesterday promised to publish in the coming months ideas for boosting oversight of automated and high-frequency trading after a market-moving hack of the Associated Press Twitter feed.

Commodity Futures Trading Commission Chairman Gary Gensler made the remarks at a meeting in Washington about technology. The April 23 hack placed a false report about an attack on the White House on the news service’s Twitter feed. Traders responded by wiping out $136 billion from the Standard & Poor’s 500 Index before it recovered within minutes.

The CFTC’s so-called concept release would seek comment in May and June on new testing, supervision and risk controls for automated trading, Gensler said. A concept release is an early regulatory step to seek comments on if or how authorities might propose eventual rules.

CFTC Commissioner Bart Chilton has said the agency is looking into the trading activity of 28 futures contracts in the five minutes before and after the fake report.

CFTC Demands Banks Prove They Are Complying With Dodd-Frank Act

The U.S. Commodity Futures Trading Commission has given the world’s largest banks until May 3 to prove they are complying with a part of the Dodd-Frank Act.

The 2010 law requires swaps brokers to accept or reject a trade for clearing in less than 60 seconds. Goldman Sachs Group Inc., Bank of America Corp., Credit Suisse Group AG, UBS AG, Barclays Plc and JPMorgan Chase & Co. were among the banks that received the April 17 letter, a copy of which was given to Bloomberg News. The CFTC in November granted three-month delays to at least eight banks for implementing the time standard.

The CFTC is writing and implementing rules mandated by Dodd-Frank, which overhauled U.S. financial regulation in the wake of the 2008 credit crisis. The act gave regulators oversight of the over-the-counter swaps market for the first time, including requirements that most trades be sent to clearinghouses to reduce systemic risk. To help the market move to electronic trading, the CFTC said cleared trades must be accepted “as quickly as would be technologically practicable if fully automated systems were used.”

The CFTC cited an April 9 article on the website of Risk magazine that quoted unnamed swaps brokers saying some banks are not adhering to the time limits, according to the letter in which Ananda Radhakrishnan, director of the CFTC’s division of clearing and risk, asks the banks’ futures commission merchants to prove they are adhering to the regulations.

The CFTC set three phases for the clearing mandate to begin. The first became effective March 11, requiring dealer banks, major swaps participants and so-called active traders to clear their transactions. The CFTC defined active traders as any firm trading 200 or more swaps per month.

The second clearing deadline is June 10, when hedge funds, insurance companies, regional brokers and other swaps users will have to begin clearing trades. The third phase of the clearing rule takes effect in September.

Steve Adamske, a CFTC spokesman, and representatives of the banks, declined to comment.

Courts

FCIB Accounts Under Scrutiny by IRS for Possible Tax Crimes

A U.S. judge authorized the Internal Revenue Service to seek information about possible tax evasion through offshore accounts at Canadian Imperial Bank of Commerce’s FirstCaribbean International Bank.

The IRS may seek information on FCIB’s U.S. customers by serving a so-called John Doe summons on Wells Fargo & Co., which holds the bank’s U.S. correspondent account, U.S. District Judge Thelton Henderson ruled April 29 in federal court in San Francisco.

At least 129 taxpayers voluntarily disclosed to the IRS that they held undeclared accounts at FCIB, based in Barbados, according to an affidavit by IRS Revenue Agent Cheryl Kiger.

Ancel Martinez, a spokesman for San Francisco-based Wells Fargo, the fourth-largest U.S. bank by assets, had no immediate comment on the ruling. Mary Lou Frazer, a spokeswoman for Toronto-based CIBC, didn’t immediately return a voice-mail message seeking comment.

The case is In the Matter of the Tax Liabilities of John Does, 13-cv-01938, U.S. District Court, Northern District of California (San Francisco).

HSBC Liability for Madoff Losses Still an Issue Four Years On

Four years after Bernard Madoff pleaded guilty to running the largest Ponzi scheme in history, investors are still trying to get their money back.

Thema International Fund Plc is seeking about 1 billion euros ($1.3 billion) from HSBC Holdings Plc at a 14-week trial expected to start at the High Court in Dublin yesterday. The case is one of dozens to focus on banks’ role as “custodians” to investment funds that deposited money with Madoff.

HSBC, Europe’s largest bank, faces more than 50 complaints in Ireland over claims it failed to discover Madoff’s activities. The fraud hurt many investment vehicles like Dublin-based Thema, funds known as UCITS that target retail investors. At least three UCITS, which stands for Undertakings Collective Investment in Transferable Securities, were liquidated because of Madoff-related losses.

The banks say that as a custodian, their only responsibilities are to manage deposits and payments to shareholders.

“HSBC believes it has good defences to the claims made against it and will vigorously defend itself,” the London-based bank said in an e-mailed statement.

Alberto Benbassat, one of the five directors at Thema, said he was “pleased” the case was going to trial. William Fry, the law firm representing Thema, wouldn’t comment on client matters, a spokeswoman said.

Madoff, who turned 75 April 29, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history, using $65 billion in real and artificial assets. He is serving a 150-year sentence in U.S. federal prison.

For more, click here.

Exchanges Win Dismissal of Market-Data Pricing Rule Case

NYSE Euronext, Nasdaq OMX Group Inc. and other exchanges can set prices for proprietary market data, a U.S. appeals court ruled, saying the Dodd-Frank financial reform law limits its right to review Securities and Exchange Commission decisions on the issue.

The U.S. Court of Appeals in Washington rejected arguments by NetCoalition, a group of Internet companies, and the Securities Industry and Financial Markets Association that the court still had authority to step in when the SEC accepted the rates the exchanges set for their data.

The coalition and Sifma had sought court review, contending that the exchanges were charging too much for the market data their members purchased. They argued that the SEC failed to properly investigate the exchange-set pricing and that the court should order the agency to reject it.

Bloomberg LP is a member of the NetCoalition.

NetCoalition will continue to fight the exchanges’ fees, its attorney, Roger Blanc, of Wilkie, Farr & Gallagher LP, said.

“This a procedural decision, not a decision on the merits,” Blanc said in a phone interview. “They’re basically charging monopoly rents for market data and those charges are paid by investors.”

The case is NetCoalition v. U.S. Securities and Exchange Commission, 10-1421, U.S. Court of Appeals for the District of Columbia (Washington).

Interviews/Panels

Gensler Sees ‘Paradigm Shift’ in Regulating Derivatives

U.S. Commodity Futures Trading Commission Chairman Gary Gensler talked about regulatory oversight of derivative trades and securing markets against cyber attacks.

He spoke with Bloomberg’s Peter Cook at the Bloomberg Link Washington Summit.

For the video, click here.

CFTC Panel Meets on Swap Data Reporting

The Commodity Futures Trading Commission’s technology advisory committee conducted a public meeting in Washington to review issues related to swap data reporting.

For the audio, click here.

Comings and Goings

Obama Said to Choose Congressman Watt for Fannie Mae Regulator

Housing industry officials expect President Barack Obama to nominate Representative Mel Watt, a Democrat from North Carolina, as director of the Federal Housing Finance Agency as early as today, according to three people briefed on the matter.

The White House has been struggling to find a replacement for Edward J. DeMarco, who has served as acting director since 2009. FHFA is charged with oversight of Fannie Mae and Freddie Mac, the two mortgage financing companies that were taken into U.S. conservatorship as a result of the housing crisis.

Watt was elected to Congress in 1992. In 2005, he was elected chairman of the Congressional Black Caucus, a post he held until 2006. He cosponsored the 2009 Credit Card Act that required more disclosures for consumer card products.

The people asked not to be identified because the briefings were private. Keith Kelly, a spokesman for Watt, declined to comment. The White House press office didn’t respond to requests for comment after regular business hours yesterday.

Lawmakers created FHFA in 2008, shortly before regulators seized Fannie Mae and Freddie Mac as the companies neared bankruptcy.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.

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