U.K. Chancellor of the Exchequer George Osborne backed tougher rules for the banking industry, including legislation to jail reckless bankers and giving regulators the power to defer bonuses for as long as 10 years.
In its response to the recommendations of the Parliamentary Commission on Banking Standards, the government said yesterday it plans to implement the main findings, with new laws if needed.
Pay reform is part of a program of sweeping change proposed by the commission, a cross-party group of lawmakers set up last year by Osborne after a series of scandals and five years of poor returns for the financial industry. The recommendations being adopted go further than changes introduced by U.K. regulators after the financial crisis, which forced bankers to wait as long as five years to get their bonuses.
Osborne plans to introduce legislation later this year that would make “reckless” management of lenders a crime, meaning executives of failed firms could face jail time.
The government also “strongly supports” calls that a substantial part of variable compensation for the highest earners at banks should be deferred for up to a decade to reflect the length of time it takes for profits and losses from transactions to be realized.
Other suggestions backed by the government include powers to claw back bonuses awarded by banks that receive state aid and paying staff in bail-in bonds that convert into capital to absorb losses, leaving managers exposed to losses if their firm goes bust.
U.S. Banks Said to Face Two New Standards in FDIC Capital Vote
The biggest U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. may face tougher capital standards than global peers under a plan set for a vote today by the Federal Deposit Insurance Corp.
The agency could set leverage ratios of 5 percent and 6 percent, one for parent companies and another for their U.S.- backed lending units, said a person with knowledge of the plans. That would be as much as twice the international standard of 3 percent. The person, who asked for anonymity ahead of today’s vote, didn’t specify which rate would apply to which entity.
The U.S. plan would go beyond rules approved in 2010 by the 27-nation Basel Committee on Banking Supervision to prevent a repeat of the 2008 financial crisis. The changes would make lenders keep more funds as a buffer against losses, which bankers say could mean lower profits and more asset sales.
The leverage ratio measures capital as a flat percentage of assets, eschewing formulas that let banks hold less capital for assets deemed less risky. The Basel panel added the leverage ratio to buttress bank safety, and U.S. regulators must sign off before Basel’s decree applies to domestic lenders.
While the Federal Reserve adopted the international standard last week, Fed Governor Daniel Tarullo said 3 percent is too low and that a U.S. boost was close to being proposed.
The changes would affect the eight U.S. institutions already tagged as globally important, according to Tarullo. The Financial Stability Board, a group of international central bankers that coordinates global financial rules, identified them as JPMorgan, Citigroup, Wells Fargo & Co., Goldman Sachs Group Inc., Bank of America Corp., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp.
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EU to Toughen Creditor-Loss Rules at Failing Banks From August
The European Union is set to toughen its rules on state support for failing banks from Aug. 1, as it seeks to ensure that private creditors take a hit before taxpayers, and that bailed-out lenders face pay curbs.
The European Commission is scheduled to publish the updated bank state aid guidelines tomorrow, according to an EU official, who asked not to be cited by name because the measures haven’t been made public.
The updated guidelines, which will take effect next month, will require shareholders and junior creditors at a failing bank to face losses before any government funds are provided, according to a draft of the plans obtained by Bloomberg News in May. Lenders would also be expected to abide by “strict executive pay policies,” according to the draft, drawn up by the staff of Joaquin Almunia, the bloc’s antitrust chief.
EU governments have provided 1.7 trillion euros ($2.2 trillion) of support to their banking systems since the 2008 collapse of Lehman Brothers Holdings Inc., according to commission data. Nations have dealt with failing banks in a variety of ways.
The state aid guidelines will be published on the same day that Michel Barnier, the EU’s financial services commissioner, presents draft legislation to centralize bank resolution in the euro area.
Banks Urged by Regulators to Adopt Tougher Internal Auditors
Banks were pushed by two U.K. financial regulators to empower internal auditors to stand up to senior decision makers within the firm and oversee risk taking.
Regulators expect banks to have internal auditors that can provide a challenge to management, Andrew Bailey, the Bank of England’s top banking supervisor, said in an e-mailed statement.
Guidelines published last week by the Chartered Institute of Internal Auditors seek to improve governance within banks. Internal auditors assess whether organizations are managing risk properly and warn members of the firm’s board if they anticipate problems.
The new code creates industry-specific benchmarks that can be checked by regulators, the CIIA said in a separate statement. It also calls for internal auditors to report to the chairman of a company’s audit committee.
China Ex-Rail Chief Given Suspended Death Sentence for Bribery
China’s former railway minister was given a suspended death sentence for abuse of power and taking bribes, making him the highest-ranking official convicted since Xi Jinping took over the Communist Party last year.
Liu Zhijun, 60, will be deprived of political rights for life and all his property will be confiscated, the official Xinhua News Agency said yesterday, citing the Beijing No. 2 Intermediate People’s Court. Under Chinese law, his death sentence may be reduced to life imprisonment for good behavior.
The punishment completes the downfall of an official whose case symbolized the corruption that accompanied the roll-out of the world’s biggest high-speed rail network. Allegations of graft surrounding the rail construction, along with a 2011 bullet-train crash that killed 40 people, reflect broader concern over the quality of China’s infrastructure expansion.
Liu was charged with accepting 64.6 million yuan ($10.5 million) in bribes between 1986 and 2011, Xinhua said.
Banks in Singapore Face Burden From MAS Rate-Rigging Censure
Singapore’s censure of 20 banks for trying to rig benchmark interest rates will result in a “significant burden” on the lenders, Lawrence Wong, an acting minister and board member of the city’s central bank, said.
The Monetary Authority of Singapore last month ordered them to set aside as much as S$12 billion ($9.4 billion) at zero interest, pending steps to improve internal controls. ING Groep NV, Royal Bank of Scotland Group Plc and UBS AG were among the banks at which 133 traders tried to manipulate the Singapore interbank offered rate, swap offered rates and currency benchmarks in the city-state.
Singapore joins the U.S., U.K. and Japan in cracking down on alleged rate manipulation. Hong Kong’s central bank last month extended its probe of possible misconduct in setting the city’s benchmark interest rates following Singapore’s move.
Rigging key rates will be made a criminal offense and supervision will be brought under the Monetary Authority of Singapore’s direct oversight. While a few supervisors knew of the rigging attempts, the regulator didn’t find evidence that senior managers were aware, Wong said.
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Wynn Resorts Says SEC Ends Probe on Donation Without Action
Wynn Resorts Ltd. said U.S. securities regulators completed an informal inquiry into the company and won’t be taking enforcement action.
The Salt Lake City office of the Securities and Exchange Commission opened a probe of Wynn Resorts in February, focusing on a donation by Wynn Macau Ltd. to the University of Macau Development Foundation, the company said in a filing yesterday.
The SEC’s decision marks a step forward for founder Steve Wynn and his company’s court battle against Japanese billionaire Kazuo Okada, formerly the casino operator’s largest shareholder. Okada had publicly questioned the donation. Wynn later seized his former partner’s stock over alleged wrongdoing in the Philippines.
Wynn Resorts, the majority owner of Wynn Macau Ltd., sued Okada last year for breach of fiduciary duty and redeemed his 20 percent stake in the casino operator, alleging he made potentially illegal payments to Philippine government officials that could threaten the company’s gaming licenses. Okada, 70, filed counterclaims to undo the redemption of his shares.
The lawsuit was put on hold in May while U.S. authorities pursue a criminal investigation into possible bribery of Philippine officials by the Japanese billionaire.
The Nevada Gaming Control Board in February advised Wynn that it had completed an investigation of Steve Wynn and related companies in Macau and found no violations of the state gambling regulations, the company said in its filing.
S&P Request to Throw Out Ratings Fraud Suit Tentatively Denied
Standard & Poor’s effort to have the U.S. Justice Department’s fraud lawsuit over credit ratings on mortgage-backed securities thrown out was tentatively rejected by a federal judge.
U.S. District Judge David Carter issued a tentative ruling to lawyers for the company and the Justice Department at a hearing yesterday in Santa Ana, California. The judge said he initially planned to let the case proceed, though he hasn’t made a final decision.
“I want to go back and really look at this again,” Carter said. He said he would issue a final ruling by July 15. The judge said that if he did grant the company’s request to dismiss the lawsuit, he would allow the government to amend its complaint.
The U.S., accusing the company of being more concerned about getting continuing business from companies that paid it to rate securities than the accuracy of the ratings, seeks as much as $5 billion in civil penalties. S&P argued that reasonable investors wouldn’t have relied on its “puffery” about credit ratings.
S&P’s generic statements about its business aspirations weren’t material to the banks buying securities and didn’t meaningfully change the mix of information available to investors, John Keker, a lawyer for the McGraw Hill Financial Inc. unit, said in court yesterday. He also said the statements were too generic to make a scheme to defraud because they did not show a specific intent to harm the investor.
Assistant U.S. Attorney George Cardona told the judge that S&P’s “puffing” about its ratings being independent and objective was material because the ratings were important in reassuring investors about the credit quality of the securities they bought from investment banks.
Cardona and Keker declined to comment after the hearing on the tentative ruling, which wasn’t immediately available from the court.
The case is U.S. v. McGraw-Hill Cos., 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).
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Thomson Reuters to Suspend Early Data Release Amid Probe
Thomson Reuters Corp. will suspend the early release of a consumer survey to select traders as part of an agreement with the New York Attorney General’s office, which is probing the matter.
New York Attorney General Eric Schneiderman is investigating the release of the Thomson Reuters/University of Michigan index of consumer sentiment to high-frequency traders two seconds ahead of other Thomson Reuters subscribers, the state said yesterday.
The two-second advantage is enough time for traders to take “unfair advantage” of access to the information, the attorney general’s office said in a statement.
Thomson Reuters is fully cooperating with the review and at the request of the attorney general will simultaneously distribute the survey to clients at 9:55 a.m. effective July 12, Lemuel Brewster, a company spokesman, said in a statement.
Thomson Reuters made the change voluntarily at the request of the attorney general, Brewster said.
“Thomson Reuters strongly believes that news and information companies can legally distribute non-governmental data and exclusive news through services provided to fee-paying subscribers,” Brewster said in his statement.
Thomson Reuters’s agreement to discontinue the release two seconds early removes a “prior distortion in the markets,” the attorney general’s office said. It will remain in effect while the state investigates, Schneiderman spokeswoman Melissa Grace said.
Bloomberg LP, the parent company of Bloomberg News, competes with New York-based Thomson Reuters in providing financial news and information. Bloomberg publishes a Consumer Comfort Index.
The Rosenblum case is Rosenblum v. Thomson Reuters (Markets) LLC, 13-cv-02219, U.S. District Court, Southern District of New York (Manhattan).
BBA CEO Says There’s Consensus for Bank Industry Change
British Bankers’ Association Chief Executive Officer Anthony Browne talked about tougher rules proposed by the government for the U.K. banking industry.
He spoke with Mark Barton and Anna Edwards on Bloomberg Television’s “Countdown.”
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Sporkin Sees Concerns With Ending Ban on Hedge-Fund Ads
Thomas Sporkin, a partner at BuckleySandler LLP, talked about this week’s expected vote by the U.S. Securities and Exchange Commission to lift the ban on advertising by hedge-funds and private equity firms.
Sporkin spoke with Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers.”
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Draghi Says ECB Communication Sharpened by Rate Outlook
European Central Bank President Mario Draghi spoke in Brussels about the euro area economic outlook and inflationary pressures. He also discussed a single bank supervisor and the provision of guarantees.
Sharon Bowles, chairwoman of the European Parliament’s economic and monetary affairs committee moderated the session.
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Comings and Goings
Credit Suisse Hires Ex-Finma Official Zulauf for Tax Compliance
Urs Zulauf, who was a former general counsel at Switzerland’s Financial Market Supervisory Authority and remained a board member there until the end of January, will join Credit Suisse in February.
Zulauf will support the bank in developing and implementing its policy on tax compliance with respect to client assets.
He is expected to report directly to General Counsel Romeo Cerutti and to Hans-Ulrich Meister, co-head of private banking and wealth management, according to a statement issued by the bank.