May 23 (Bloomberg) -- Accounting changes that would require companies to report more of their leases as assets and liabilities may encourage businesses to structure shorter-term rental agreements that could hamper the ability of lessors to predict cash flows, according to Fitch Ratings.
The International Accounting Standards Board and the Financial Accounting Standards Board last week proposed rule changes in an effort to improve transparency for a company’s leverage, assets and risks to which it is exposed from entering into leasing transactions. Most leases aren’t currently reported on a lessee’s balance sheet, a system that has been criticized for not fully reflecting a company’s finances.
The new standard, which is open for public comment until Sept. 13, would require a lessee to recognize assets and liabilities for leases of more than 12 months, IASB and FASB said in the May 16 statement.
China to Tighten Bond Sale Rules on Local Governments, Companies
China will tighten rules on bond sales by polluters, local government financing vehicles with higher debt levels and companies in industries with overcapacity as the government seeks to redirect the economy.
The National Development and Reform Commission, which approves bond sales by entities that local governments set up to finance projects, ordered greater scrutiny for bond sale applications from LGFVs with asset-liability ratios above 65 percent and credit ratings below AA+, according to a statement on the website of the nation’s top economic planner May 21.
China has been seeking to control borrowing by local governments while stabilizing growth, on concerns that a slowdown may trigger defaults and saddle banks with bad loans. Local governments may have more than 20 trillion yuan ($3.26 trillion) of debt, former Finance Minister Xiang Huaicheng said in April, almost double the level disclosed in a 2011 report by the National Audit Office.
The NDRC will also tighten its examination of bond sales by companies with debt-to-asset ratios exceeding 75 percent and credit ratings below AA+, according to the statement.
The agency will accelerate and simplify the approval process for major state-level infrastructure projects and industries given priority for development, such as alternative energy, environmental protection and affordable housing. Bond sales by companies with AAA credit ratings will be supported, as will sales of debt backed by collateral from issuers with ratings of AA+ and above, according to the statement.
The NDRC is responsible for approving bond sales by companies that aren’t publicly traded, sharing supervision of China’s debt markets with the People’s Bank of China and the China Securities Regulatory Commission.
Sanders Offers Bill Banning Bankers From Fed Boards
Senator Bernie Sanders, an Independent from Vermont, has offered a bill that would ban bankers from sitting on 12 regional Federal Reserve boards, according to an e-mailed statement from the senator.
One purpose of the bill is “to restrict conflicts of interest on the boards of directors” of Federal Reserve banks, according to a copy of the proposed legislation on Senator Sander’s website. The bill would also end the practice of giving bankers a say in the selection of the Federal Reserve directors who regulate them.
The bill is co-sponsored by Senators Barbara Boxer, a Democrat from California, and Mark Begich, a Democrat from Alaska. A companion bill was introduced in the House by Representative Peter DeFazio, a Democrat from Oregon.
EU Leaders Tackle Tax Evasion as Luxembourg Resists Haste
EU leaders vowed to investigate “aggressive” tax planning as Luxembourg continued to object to speedy action on an updated information-sharing accord.
At a one-day summit in Brussels, the 27-nation bloc sought to find common ground on hunting down tax dodgers and collecting revenue to offset the recession. At the same time, they hedged their bets on a long-delayed update to the EU’s savings tax accord, which governs how nations share data on earnings from cross-border accounts.
Prime Minister Jean-Claude Juncker said Luxembourg was “under pressure” to allow the EU to move ahead.
EU leaders gathered to discuss taxes and energy markets against the backdrop of a struggling economy and lingering debt crisis. Conclusions for the meeting sought to acknowledge the EU’s many efforts to improve conditions in both areas.
“Negotiations will begin as soon as possible” on tax deals with Switzerland, Liechtenstein, Andorra, San Marino and Monaco now that finance ministers have signed off on a negotiating mandate, the summit conclusions said.
BoE Wants U.K. Banks to Use Alternatives to CoCos, Sky Says
The U.K. Prudential Regulation Authority, the new regulatory arm of the Bank of England, has privately told the biggest British banks it prefers they use methods other than contingent convertible bonds to raise capital, Sky said, citing unidentified people close to the Authority. This marks a change from earlier support for instruments, Sky said.
Deputy Bank of England Governor Paul Tucker expressed concerns, saying the trigger point at which “CoCos” would convert into equity wasn’t being set high enough, Sky reported.
Bankers said setting the trigger too high will discourage potential investors, Sky said.
The Prudential Regulation Authority declined to comment, the newspaper said.
U.K. Lobby Groups Say EU Transaction Tax Will Risk Recovery
Three U.K. business lobby groups told the European Union its proposed financial transaction tax will harm economic recovery and damage the trading bloc’s competitiveness.
The tax will be paid for by consumers, rather than the financial companies it targets, in the form of price increases, the Confederation of British Industry, the British Bankers’ Association and EEF, the U.K. manufacturers’ organization, said in a joint letter today, seen by Bloomberg News.
The EU estimates the tax could raise 30 billion euros ($39 billion) to 35 billion euros a year. The plan would charge a 0.1 percent rate for stock and bond trades and 0.01 percent for derivatives transactions, with some exemptions for primary-market sales and trades with the European Central Bank.
The tax would affect everyday goods such as fixed-rate mortgages, gas and electricity, where suppliers use derivatives to hedge their exposure to market prices, as well as ordinary financial deals, the lobby groups said.
Separately, the European Investment Bank says it would have to absorb as much as 1.65 billion euros ($2.1 billion) in extra costs under proposals for the financial-transaction tax.
The EIB wants a blanket exemption for any trading activity related to it, similar to the European Central Bank’s proposed treatment. An EIB spokesman declined to comment on the report when contacted today.
European policy makers are increasingly leaning on the bank to help combat record euro-area unemployment and a second year of recession.
JPMorgan Fined $4.5 Million for Wealth Management Failings
The U.K. markets regulator fined a JPMorgan Chase & Co. unit 3 million pounds ($4.5 million) for failing to keep up-to-date records of clients and lacking risk and compliance controls.
Senior management at JPMorgan International Bank didn’t have “sufficient information and oversight tools” to correct the problem in its wealth management business for two years, the London-based Financial Conduct Authority said in an e-mailed statement today.
“Customers of wealth managers should be able to expect the firm to keep complete, up-to-date client records so that they can give the right advice,” Tracey McDermott, director of enforcement and financial crime at the FCA, said. “In this case the firm did not have complete records, nor did its management have the information they needed to recognize this.
The regulator said that the bank’s computer-based record system didn’t hold sufficient information and that its suitability reports didn’t have adequate statements about client needs.
‘‘We have fully cooperated with the FCA and have enhanced our procedures to ensure that they are compliant with regulatory requirements,” the bank said in an e-mailed statement. “As the FCA has noted in its press release, there has been no detriment to customers identified to date.”
South Miami Settles SEC Claim It Misled Muni-Bond Investors
The Florida city of South Miami misled investors by failing to disclose that it had used tax-exempt bond proceeds to help a developer finance a downtown parking and retail project, according to U.S. regulators.
The community in Miami-Dade County with about 11,000 residents borrowed $12 million at tax-exempt rates by selling debt through the Florida Municipal Loan Council, which raises money on behalf of cities, the Securities and Exchange Commission said yesterday in a statement. The city failed to disclose that it loaned the proceeds to a private developer, putting the bonds’ tax-exempt status at risk, the SEC said.
The SEC has stepped up enforcement of disclosure rules for state and local governments that borrow in the $3.7 trillion municipal-bond market. Most of the securities issued by state and local governments are held by individual investors seeking safe, tax-exempt returns. The agency has also sought greater power over issuers, whose reporting requirements are more lax than those for corporations that sell debt and equity.
While South Miami didn’t pay a fine, it agreed to hire an independent consultant to conduct annual reviews of its disclosure practices for three years to settle the charges. The city neither admitted nor denied wrongdoing, the agency said.
Donald Wall, a lawyer for South Miami at Squire Sanders LLP, didn’t immediately respond to a telephone call seeking comment on the settlement.
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Direct Edge Selects Finra to Provide Stock Exchange Surveillance
Direct Edge Holdings LLC has selected the Financial Industry Regulatory Authority to provide market surveillance services on behalf of the Jersey City, New Jersey firm’s two licensed stock exchanges.
The agreement announced yesterday in a joint statement will give Finra, the brokerage industry self-regulator, surveillance oversight of more than 90 percent of U.S. equities trading volume.
Direct Edge is the 3rd biggest U.S. stock exchange operator.
“This nearly complete view of market activity will allow Finra to expand its role as an investor guardian by identifying abusive activity across multiple markets,” they said in the statement.
Court Ruling Puts Cloud Over Consumer Agency as Work Slows
A court ruling that cast doubt on the authority of its director has hampered the U.S. Consumer Financial Protection Bureau, slowing some enforcement, impeding recruitment of a second-in-command and delaying joint ventures with the states, people briefed on the agency’s work said.
President Barack Obama last year appointed Richard Cordray director when the Senate wasn’t in session, the same day he made appointments to the National Labor Relations Board. The U.S. Court of Appeals in Washington on Jan. 25 concluded the NLRB moves were unconstitutional, which could also affect Cordray.
The Obama administration has appealed to the Supreme Court.
House Republicans have said they won’t take testimony from Cordray in the meantime. A Native American tribe has refused to supply information about its online lending business, claiming Cordray isn’t a legitimate director, according to three people with knowledge of the matter. Candidates to be Cordray’s deputy won’t pursue the job while his fate is unclear, two people familiar with the search said. The court case has hampered Cordray’s ability to find a permanent replacement for Raj Date, the agency’s first deputy who left to start a consulting firm, two people briefed on the search said.
The people all spoke on condition of anonymity because the matters aren’t public.
The headwinds haven’t stopped the bureau’s work. Since it was established by Dodd-Frank, the agency has obtained $425 million in restitution for consumers and has imposed fines including $15 million on mortgage insurers over kickbacks. The bureau warned banks about the consequences of discriminatory auto lending, released data on consumer complaints and published a study of payday lending.
Moira Vahey, a spokeswoman for the bureau, declined to comment on specific enforcement cases. She said the agency has “a broad range” of matters under way. Vahey also said the court case “has not impacted” the search for Date’s replacement.
She said the agency has “already joined state attorneys general in taking enforcement action,” including one that involved five states and led to a Dec. 21 court order against a firm that unlawfully charged advance fees for debt-relief services.
“The bureau is committed to rooting out practices that harm consumers,” Vahey said. “We have forged and will continue to build close partnerships with state and local law enforcement agencies to further our mission of protecting consumers.”
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Blankfein Says Goldman Focused on China After ICBC Sale
Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein talked about the firm’s growth strategy in China and operations in Salt Lake City, Utah.
He also discussed Goldman’s asset management business, financial regulations and client relations. Blankfein spoke yesterday with Bloomberg’s Erik Schatzker.
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Bernanke Testimony on Fed Exit Strategy, Economy
Federal Reserve Chairman Ben S. Bernanke testified about the central bank’s exit strategy from its asset purchase program, the U.S. economy and labor market, and the impact of budget cuts on growth.
He appeared before the Joint Economic Committee in Washington.
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Merkel Says EU Sends Clear Signal on Tax Evasion, Fraud
German Chancellor Angela Merkel spoke in Brussels about European Union energy policies and tax evasion rules.
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Comings and Goings
Pritzker Understated Income in Disclosure, Files Updated Form
Chicago billionaire Penny Pritzker substantially understated a portion of her income in a disclosure form required as part of her nomination to be U.S. Commerce Secretary and has amended the document.
Forms released online on the evening of May 21 by the Office of Government Ethics show that Pritzker earned additional income for consulting work on hundreds of trusts, including family trusts, beyond what she disclosed last week. The omission, discovered by Pritzker’s financial advisers, was due to a clerical error, according to Susan Anderson, a spokeswoman for the nominee.
“It is a substantial amount and we moved to correct the mistake as soon as it was discovered,” according to an e-mailed statement by Anderson.
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Gensler’s Recusal Criticized in CFTC Watchdog’s MF Global Report
Chairman Gary Gensler’s recusal from the U.S. Commodity Futures Trading Commission’s investigation into the collapse of MF Global Holdings Ltd. was unnecessary and wasn’t required by ethics rules, according to the agency’s internal watchdog.
Gensler decided not to participate after the brokerage filed for bankruptcy in October 2011 even after spending days leading up to the collapse monitoring the situation including through personal e-mail, the inspector general said in a report released in Washington yesterday.
Steve Adamske, CFTC spokesman, declined to comment on the report.
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Women Board Members Lead to Better Returns, SEC’s Aguilar Says
Corporate America should recruit more women to serve as directors and improve the disclosure of gender and ethnic diversity on their boards, Securities and Exchange Commissioner Luis A. Aguilar said yesterday.
Investors and companies are better served by businesses that have women on the board, Aguilar said in comments to the Women’s Executive Circle of New York. Public companies with women directors produce superior returns, manage risk better, and attract and retain more talent than companies that don’t have women on their boards, Aguilar said, citing academic and industry research.
Women fill 17 percent of the board seats at companies that make up the Standard & Poor’s 500 stock index, up from 13 percent in 2002, Aguilar said. Women comprise 47 percent of the total U.S. workforce, Aguilar said.
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