Governments across struggling southern Europe are allowing banks to shore up their capital with tax credits, even though this runs counter to the European Union’s drive to disentangle the finances of lenders and states.
Portugal last month joined Italy and Spain in permitting the conversion of some deferred tax assets into credits that banks can count toward the capital they’re required to have on hand. When a company overpays taxes in one period, it can book a deferred tax asset that reduces its liability in the future. Greece is considering a similar move.
The rule changes are a boon to banks as they try to satisfy tougher post-crisis capital requirements and pass this year’s health check conducted by the European Central Bank and the European Banking Authority. At the same time, the credits give banks a claim on the public purse, strengthening the vicious circle that fueled the euro-area crisis.
Euro-area governments in 2012 embarked on a concerted bid to break the link between banks and sovereigns by centralizing supervision and crisis management of lenders. This push enters a new phase on Nov. 4, when the ECB assumes oversight of euro-zone banks.
BOE Says Foreign Banks Need Crisis Plan for U.K. Branches
Banks from outside Europe must have clear plans on how to resolve their U.K. branches or risk losing their license, the Bank of England said.
Banks from countries such as the U.S. and China may be denied market access unless they “take all steps within their control to ensure that their resolution plan provides adequately for the resolution of the U.K. branch,” the Prudential Regulation Authority, a unit of the central bank, said in a policy statement. The rule comes into force today.
The Bank of England earlier this year tightened rules for non-European banks seeking a foothold in the U.K. by introducing a series of tests to preserve financial stability. Global regulators have encouraged banks to open subsidiaries rather than branches in other jurisdictions since the 2008 financial crisis because this gives the local regulator greater powers to set capital and liquidity rules.
The PRA said it would assess whether bank insolvency laws in a lender’s home nation are comparable to U.K. rules as well as “the credibility of individual banks’ resolution plans.”
F-Squared Investments Says Regulators Consider Civil Action
F-Squared Investments Inc., manager of investment products built using exchange-traded funds, said U.S. regulators were considering a civil action against the firm over performance claims made in the firm’s advertising materials.
The company received a Wells notice from the Securities and Exchange Commission on Aug. 13 informing it that SEC staff recommends an action, the firm said in a filing submitted Aug. 29. Brokerage firms RBC Wealth Management, Raymond James Financial Inc. and Wells Fargo Advisors LLC have pulled back on how much new business their advisers can do with F-Squared, according to a person with knowledge of the matter, who asked not be named because the information is private.
F-Squared had told clients in October it was under investigation by the SEC over its advertised performance record from April 2001 through September 2008, which weren’t based on actual client assets and contained errors.
“F-Squared has taken significant steps in recent years to improve its controls to ensure that these sorts of problems will not recur,” the company said in a statement. The performance claims in question were removed from all marketing materials in October.
The decision by the brokerages was reported earlier by the Wall Street Journal. Spokeswomen for Raymond James and RBC declined to comment. Rachelle Rowe, a spokeswoman for Wells Fargo Advisors, didn’t reply to an e-mail seeking comment. F-Squared said in its statement it intends to respond to the SEC and that it will continue to cooperate.
BP Is Found Grossly Negligent in 2010 Gulf of Mexico Oil Spill
Bloomberg’s Alix Steel reported that a federal judge has ruled BP Plc acted with gross negligence in setting off the largest offshore oil spill in the 2010 Gulf of Mexico disaster.
The finding may subject BP to higher penalties under the Clean Water Act, according to the ruling.
Analysts expect BP to fight the decision, Steel reported.
She spoke on “Market Makers.”
For the video, click here.
Comings and Goings
Kookmin Bank CEO Resigns After Reprimand by Korean Watchdog
Kookmin Bank Chief Executive Officer Lee Kun Ho resigned after being reprimanded by South Korea’s financial watchdog following a series of missteps at his bank and parent KB Financial Group Inc.
Lee’s resignation is immediate, according to an e-mail from the bank, the country’s largest lender. His departure follows months of scrutiny.
“I have fulfilled my responsibility as the bank’s CEO,” Lee said in the statement. “I believe the regulatory authority made an appropriate judgment of my actions.”