SEC Credit-Rating Rules, 401(k) Bill, WTO’s Airbus Aid Ruling: Compliance
Dominique Strauss-Kahn resigned as the 10th leader of the International Monetary Fund, kicking off a contest for his successor as Europeans seek to retain the job amid a lack of unity among emerging-market nations.
“I want to devote all my strength, all my time, and all my energy to proving my innocence,” Strauss-Kahn said in a statement released by the Washington-based IMF four days after his arrest on sexual-assault charges. The fund said it will comment “in the near future” on the succession. Strauss-Kahn, 62, had been leading polls for France’s 2012 presidential election.
European officials, who have picked IMF heads for 65 years under a deal that also gives the U.S. the lock on the top World Bank post, moved to retain the privilege, with Sweden backing French Finance Minister Christine Lagarde. Russia and South Africa have called for an emerging-market candidate, while some Asian policy makers suggested someone from their region.
Strauss-Kahn, a former French finance minister, was arrested May 14 on accusations of sexually assaulting a hotel maid and has been held at New York’s Rikers Island jail complex since he was ordered held in custody at his arraignment May 16. He is asking a second judge to release him on bail.
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SEC Looks to Revamp Credit-Rating Practices Under Dodd-Frank
The U.S. Securities and Exchange Commission will seek comment on Dodd-Frank Act rules that would expand disclosure requirements and grading methods for firms that provide ratings for debt securities.
SEC commissioners voted 5-0 yesterday in Washington to release a proposal that would make it easier for investors to assess the quality of credit ratings and identify potential conflicts of interest.
Under the SEC proposal, each rating would have to include background on how grades were determined, including information on the likelihood of default and any third-party due-diligence services used to examine asset-backed securities. Firms would be required to send the SEC annual reports about the effectiveness of their internal controls.
Dodd-Frank, the regulatory overhaul enacted in July, sought to force changes in the credit-rating industry after lawmakers faulted inflated grades from ratings firms for fueling the housing bubble before the 2008 credit crisis.
The vote will release the measure a 60-day comment period before commissioners can give final approval.
For video of the vote, click here.
Senate Bill Would Limit Use of 401(k)s as Rainy Day Funds
Workers will be limited in tapping their 401(k) retirement plans for loans under legislation two senators introduced yesterday that’s designed to counter the erosion of retirement assets.
Senator Herb Kohl, a Wisconsin Democrat, said in a statement yesterday that “A 401(k) savings account should not be used as a piggy bank,” noting that many Americans are treating retirement savings as “rainy day funds” because of difficult economic times.
Kohl, 76, who’s chairman of the Senate Special Committee on Aging, introduced the “SEAL 401(k) Savings Act” with Senator Mike Enzi, 67, a Wyoming Republican. The bill would reduce the number of loans workers may take from a 401(k) and give participants more time to repay after losing a job. It will allow savers to contribute to their plan after taking a hardship withdrawal and ban debit cards linked to the accounts, according to the legislation.
The Senate bill would limit the number of outstanding loans for each participant to three. Employers would have the option to reduce the number for their plans, said Joe Bonfiglio, a spokesman for Kohl’s aging committee. There is no rule right now limiting the number of loans workers may take and it varies by company, Bonfiglio said.
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U.S. Seeks Airbus Rudder-Control Changes on UPS, FedEx Jets
U.S. operators of the Airbus SAS A300 and A310 jetliners must modify rudder-control systems within four years to prevent excessive movements of a tail-fin part that caused an American Airlines crash in New York in 2001, the Federal Aviation Administration said in a proposal.
The modification would need to be made on 215 planes in the U.S. and cost $42.7 million if one option outlined in the proposal is followed, according to a notice to be published in the Federal Register today. United Parcel Service Inc. (UPS) and FedEx Corp. (FDX) are the lone U.S. carriers still operating the planes, said Clay McConnell, a spokesman for Toulouse, France-based Airbus.
The sensitivity of the A300-600 jet’s rudder-control system contributed to the American accident, the National Transportation Safety Board found in 2004, killing 265 people, making it the second deadliest U.S. aviation accident.
FSA’s Sants Says PRA to Monitor Bank Bonuses, Dividends, FT Says
U.K. Financial Services Authority Chief Executive Officer Hector Sants said British banks’ future bonus and dividend payments will depend on their satisfying regulators that the payments won’t weaken capital reserves or erode sound risk management, the Financial Times reported, citing an interview with Sants, who is to become head of the planned Prudential Regulatory Authority.
The assessments will be “part of the ongoing supervisory process,” and “part of a dialogue, not a pass, fail process,” Sants said, according to the FT.
Banks will also have to publish detailed information about their assets that they so far only share with regulators, the FT said, citing Sants.
Apple, Google, Smartphone Firms Risk EU Location-Data Curbs
Apple Inc. (AAPL), Google Inc. (GOOG), and other smartphone technology companies may face tougher European Union restrictions on the way they handle user-location data after data privacy watchdogs said the information is private.
Information that could betray the location of devices such as Apple’s iPhones and phones running Google’s Android software must be treated as personal, requiring companies to comply with EU data protection law, EU privacy officials said in a nonbinding opinion published yesterday.
Data protection officials in Europe, including Germany and France, are investigating recent reports on the collection and storage of location data on Apple’s iPhones. Apple and Google last week defended their handling of user location before U.S. lawmakers.
The opinion, dated May 16, said information collected through the combination of a Wi-Fi access point with a mobile device’s location is also personal data, and subject to EU privacy rules.
“We have seen the Working Party’s paper and we are reviewing it closely,” Al Verney, a spokesman for Mountain View, California-based Google, said by telephone. “It’s worth remembering that Google can’t identify anyone using Wi-Fi header information, nor would we want to,” Verney said.
Apple spokesman Alan Hely didn’t immediately respond to a phone call and an e-mail seeking comment. Apple has said in statements it is “not tracking the location of your iPhone” and “has no plans to ever do so.”
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WTO Overturns Parts of Ruling Saying Airbus Got Illegal Aid
World Trade Organization appellate judges upheld a ruling that Airbus SAS got illegal subsidies from European Union governments to build some aircraft while saying some aid was less egregious than initially found.
The WTO’s Appellate Body backed parts of an EU appeal of the June 30 report. While it said Airbus received billions of dollars in illegal EU aid, it reversed a ruling that so-called launch aid provided by Germany, Spain and the U.K. for Airbus’s A380 superjumbo is a prohibited export subsidy -- considered to be the most blatant form of aid.
Appeals judges in Geneva yesterday agreed with the initial panel that loans by EU governments were unfair subsidies that had an adverse effect on U.S. rival Boeing Co. (BA)
Yesterday’s ruling is the latest in the almost seven-year legal battle over aid to Airbus and Boeing, the world’s two biggest commercial planemakers.
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ECB Rejects Greek Restructuring in Clash With Policy Makers
European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis.
European Union finance ministers for the first time this week floated the idea of extending Greece’s debt-repayment schedule as the nation struggles to meet the terms of last year’s 110 billion-euro ($156 billion) rescue. EU officials say that Greece won’t be able to return to markets and sell 27 billion euros of bonds next year as scheduled under the bailout, leaving them searching for alternatives to avoid a default.
Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said a “soft restructuring” is possible for Greece after the government in Athens takes additional steps to cut the budget, such as state-asset sales. He spoke in an interview with Austria’s ORF, according to a transcript posted on the state broadcaster’s website yesterday.
Soft restructuring, also referred to by EU officials as “reprofiling,” is a “pure extension of maturities of existing bonds without changing the principal and the interest rates,” German Deputy Finance Minister Joerg Asmussen said in Brussels yesterday. Such a setup would be designed to avert a chain reaction of claims linked to credit-default swaps.
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EU Delays Vote on CO2 Trade, Sales From $7 Billion Reserve
The European Union said it will discuss proposed changes to carbon-registry rules with member states today and will call a vote on the issue in June, a month later than originally planned.
The regulation designed by the European Commission, the EU executive in Brussels, will improve protection against abuse and fraud in the region’s carbon market and facilitate the creation and transfer to the European Investment Bank of permits from a special post-2012 reserve valued at around 5 billion euros ($7 billion). The EIB will sell the permits and the proceeds will be used to support low-emission technologies.
The EU Climate Change Committee, composed of representatives from national governments, was previously scheduled to vote today on the commission draft presented earlier this month.
“Given the broad range of proposals” the commission has decided to debate the amendments May 19 and call the vote on the proposals in mid-June in the next Climate Change Committee meeting,’’ Isaac Valero-Ladron, spokesman for the commission, said in an e-mailed statement yesterday.
The EU is tightening carbon trading rules and upgrading infrastructure security after thieves stole in January more than 2 million allowances from three national registries that track emissions transactions.
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Global Regulators Quiz Banks on Remuneration, Bonus Policies
Banks are to be quizzed by global regulators on how they have put in place international guidelines on pay and bonuses, following a review last year that showed implementation was incomplete.
The Financial Stability Board plans to “assess the different approaches to implementing” its principles by surveying “a sample of major firms directly” as well as national supervisors, the FSB said in a statement on its website. The FSB also intends to examine the impact of country- level measures to curb excessive pay.
Financial watchdogs and politicians across the world have sought to overhaul bonus policies in the wake of the financial crisis to prevent bankers from taking excessive risks in order to reap short-term gains. Under European Union rules, as much as 60 percent of a bonus payout for risk-takers and senior managers must be deferred for at least three years, and half of the remaining amount must be in the form of shares.
The European Banking Authority will conduct a separate review of how effectively pay guidelines have been implemented by banks.
Goffer Trial Begins in New York on Insider-Trading Charges
Opening arguments began yesterday in the trial of Zvi Goffer and two others on insider-trading charges in a probe related to the prosecution of Galleon Group LLC co-founder Raj Rajaratnam.
Goffer, 34, is a former deputy of Rajaratnam’s who left Galleon and later founded Incremental Capital LLC. His brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both ex-traders at Incremental, are codefendants in a second round of cases growing out of a nationwide insider-trading investigation.
Zvi Goffer was at the center of the insider-trading scheme, one of three overlapping rings tied to Galleon, according to prosecutors. The Goffer brothers and Kimelman are charged with conspiracy and securities fraud.
Prosecutors allege that Zvi Goffer paid tens of thousands of dollars to two Ropes & Gray LLP attorneys for information on transactions the law firm was handling.
All three men denied wrongdoing.
Emanuel Goffer last week lost a bid for a two-week postponement of the trial because of what he called “inflammatory” publicity from Rajaratnam’s May 11 conviction.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
Blanchflower Doesn’t Rule Out Brown for Top IMF Post
David Blanchflower, a professor of economics at Dartmouth College and former policy maker at the Bank of England, talked about the outlook for a restructuring of Greek debt and former U.K. Prime Minister Gordon Brown as a potential replacement for International Monetary Fund chief Dominique Strauss-Kahn.
European Central Bank officials yesterday ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis. Blanchflower, a Bloomberg contributing editor, spoke on Bloomberg Television’s “InBusiness with Margaret Brennan.”
For the video, click here and for more about Greece and the ECB, see Compliance Action section, above.
U.K. Banks Will Be Made to Disclose More Data, BOE’s Bailey Says
U.K. banks will be made to publish more detailed information about their activities to encourage greater market discipline, according to the future deputy head of the British regulator tasked with overseeing lenders.
“We recognize that management, shareholders, creditors and auditors all play an important role in managing prudential risk,” Andrew Bailey, who will become the deputy chief executive of the Bank of England’s planned Prudential Regulation Authority, said in prepared remarks for a speech in London today. “To encourage more market discipline, the PRA will seek to publish some regulatory returns, though it will not go so far as to disclose its own supervisory judgments about firms.”
Governments around the world are seeking to provide standard systems for coping with failing banks after the global financial crisis. Bailey said the PRA will regulate with the aim that all lenders it oversees can fail or be closed in an “orderly manner with minimal impact” on the financial system.
Bailey last month joined the Financial Services Authority as the deputy head of its Prudential Business Unit, as well as becoming director of the organization’s division overseeing U.K. lenders.
Comings and Goings
Obama Makes SEC Picks, Nominates Gallagher and Incumbent Aguilar
President Barack Obama announced plans to fill two seats on the U.S. Securities and Exchange Commission, selecting a former SEC official, Daniel M. Gallagher, and nominating current commissioner Luis A. Aguilar for a second term.
Gallagher, 38, a Republican, will replace outgoing commissioner Kathleen L. Casey. Gallagher became a partner in the Washington office of Wilmer Cutler Pickering Hale & Dorr LLP after leaving the agency last year.
Gallagher declined to comment on the announcement yesterday.
Aguilar, 57, whose term expired in June, has continued serving in the position as permitted by the agency’s rules. Senator Robert Menendez, a New Jersey Democrat, endorsed his re- nomination in September.
Both nominees will face a Senate confirmation process. Aguilar is permitted to continue serving until the end of the year while he awaits the process. Casey’s term is set to expire next month.
Boucher Joins Sidley Austin in Government Strategies Group
Former U.S. Congressman Frederick “Rick” Boucher has joined Sidley Austin LLP as a partner in the firm’s Government Strategies Practice Group, according to a statement yesterday on the firm’s website. He will be the practice group’s Coordinator, said Peter Pochna, a Sidley Austin spokesman.
Boucher will be resident in Sidley Austin’s Washington office.
Boucher, a Democrat who served 28 years representing Virginia’s 9th Congressional District, finished out his last term in January 2011, after losing his final race in November, 2010, Pochna said.
He was a member of the House Energy and Commerce Committee, and the Judiciary Committee, and served as chairman of subcommittees relating to energy and telecommunications, where he was a “bipartisan leader” on those issues, the firm said in the statement.
Boucher will “help unify and expand Sidley Austin’s strong public policy efforts under a single practice group,” according to the statement.
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