SEC Restructure, Germany Antitrust, Greek Banks: Compliance
U.S. Representative Spencer Bachus said he is planning legislation to restructure the U.S. Securities and Exchange Commission to implement changes recommended by the agency’s inspector general, the Government Accountability Office and a consultant’s report mandated by the Dodd-Frank Act.
Bachus, an Alabama Republican who leads the House Financial Services Committee, said his “SEC Modernization Act” shouldn’t be interpreted as criticism of Chairman Mary Schapiro or any of her predecessors.
“It is the structure of the agency itself that is the main problem,” Bachus said yesterday in a statement announcing plans for the legislation. “This legislation will be a comprehensive restructuring of the SEC. It will make the SEC more efficient, consolidate duplicative offices, enable the agency to use better technology, and strengthen ethical safeguards to avoid conflicts of interest.”
The legislation would shutter the Office of Compliance, Inspections and Examinations and move its duties under the Division of Trading and Markets and Division of Investment Management. It would similarly split up the Division of Risk, Strategy and Innovation that Schapiro created as an agency research arm, re-assigning that role to separate offices inside the other four divisions.
Dodd-Frank required an independent analysis of the agency, produced in March by Boston Consulting Group Inc., which found the SEC is hundreds of employees short of what it needs to manage its duties and that too many of its offices report directly to the chairman.
Bachus’ bill would also limit how the SEC can spend a $100 million reserve fund set up by Dodd-Frank, requiring that the money go toward technology improvements.
The agency would also have to submit an annual agenda to Congress each year.
SEC Inspector General H. David Kotz declined to comment on the bill. His office has issued 11 reports this year examining SEC performance, making recommendations for improving economic analysis of rulemaking and investigating “improper actions” in securing agency leases.
Germany Tempers Plan to Split Companies Abusing Market Powers
Germany watered down a plan to create new antitrust powers to break up companies suspected of abusing their market position, suggesting government concern at the price-setting capacity of the four main utilities has eased.
Proposals by former Economy Minister Rainer Bruederle to split up companies on suspicion of abusing their position have now been dropped, a report posted yesterday on the Berlin-based ministry’s website shows. The government must instead prove market abuse.
Germany is revamping antitrust rules to bring them in line with European Union legislation that already permits unbundling, or splitting up. Bruederle had targeted E.ON AG, RWE AG (RWE), EnBW Baden-Wuerttemberg AG and Vattenfall Europe AG, which together generate about 80 percent of Germany’s power.
Chancellor Angela Merkel ordered a quicker phase-out of nuclear power in June that may loosen the big utilities’ grip on generation as more renewable-energy operators enter the market. The utilities started to divest their power grids after the EU stepped up regulatory pressure on transmission prices.
Greek Banks Should Consider Mergers to Help Funding, OECD Says
Greek banks should look at mergers with foreign lenders to help them tap market funding and shouldn’t rush to reduce their reliance on the European Central Bank, according to the Organization for Economic Cooperation and Development.
Greek banks have been left largely reliant on emergency support from the ECB amid a shrinking economy, downgrades by credit-ratings companies and concern over their holding of Greek government bonds. The country has received two international bailouts and its banks own about 48.4 billion euros ($69 billion) of the country’s sovereign debt.
“Further bank consolidation could be one option to increase access to market liquidity,” the Paris-based OECD said in a report yesterday. “Managers and shareholders should, however, explore the option of partnerships or mergers with foreign banks.”
The OECD said the financial system will remain “hobbled” until the public finances are strengthened and risks related to the economy decrease. The banking system is in a “difficult situation” and a balance must be found between “adequate prudential restraints” and allowing enough credit to fuel an economic recovery, it said.
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For more on Europe’s debt crisis, see EXT4
Greenspan Is Wrong on Equity Rules, Economists Argue in FT
Alan Greenspan, the former chairman of the U.S. Federal Reserve, who argued in a July 27 article in the Financial Times that compelling banks to use more equity funding is misconceived, was criticized by a group of prominent economists in yesterday’s issue of the newspaper.
In a letter signed by, among others, Anat Admati of Stanford University, Charles Goodhart of the London School of Economics and David Miles of Imperial College London, it’s argued that tougher capital requirements don’t constrain how banks invest their funds but merely require them to use less debt and more equity funding for investments.
Changing the funding mix “imposes few, if any, costs on the economy,” while offering better incentives to manage risk and fewer refinancing difficulties because of overhanging debt, the economists said.
In the 19th century, banks funded their assets with as much as 40 percent equity, and today banks often require borrowers to contribute equity of more than 25 percent, according to the letter.
The signatories conclude that “low equity requirements and manipulable risk-weighting systems,” rather than excessive equity, permit systemic risk to develop.
Google Faces Nine Complaints in EU Probe, Reuters Says
Google Inc. (GOOG) faces nine formal complaints in a European Union antitrust probe, Reuters reported, citing two people it didn’t identify.
Reuters said five recent complaints over Google’s behavior came from small companies. Three of those were transferred to the European Commission from national antitrust regulators and two were made directly to the Brussels-based EU agency, Reuters said, without identifying the companies.
Al Verney, a spokesman for Google, declined to immediately comment on the report when contacted by Bloomberg News, as did Mark English, a spokesman for the commission.
MetroPCS Is Latest Stock Halted by Circuit Breakers
Trading in the stock of MetroPCS Communications, Inc., the wireless communications company based in Richardson, Texas, was halted by circuit breakers implemented in June 2010.
The curbs were created after the 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. shares before prices rebounded. The pause lasts five minutes for Standard & Poor’s 500 Index (SPX) and Russell 1000 Index (RIY) companies as well as more than 300 exchange-traded funds when they rise or fall at least 10 percent within five minutes.
New rules proposed by exchanges on April 5, 2011, would shift the market to a limit-up/limit-down system that prevents shares from moving more than a certain amount.
For a table of securities that have been halted by U.S. circuit breakers since they were implemented, according to data compiled by Bloomberg, click here.
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Deutsche Bank to Assist Consob on Inquiry of Italy Debt Sales
Deutsche Bank AG said it will work with Consob as the Italian market regulator seeks information on the lender’s reduction in exposure to the country’s debt.
“Deutsche Bank will, of course, cooperate with Consob,” spokesman Ronald Weichert said in an e-mailed statement yesterday.
Consob has asked Deutsche Bank for details on transactions relating to Italian debt in the first half of the year, including where they were managed from, said a Consob official.
Lloyds May Post Loss on Rising Funding Costs, Loan Provisions
Lloyds (LLOY) Banking Group Plc, Britain’s biggest mortgage lender, may report a first-half loss as rising funding costs depress margins and it set aside 3.2 billion pounds ($5.2 billion) for mis-selling loan insurance.
Lloyds may post a net loss of 2.1 billion pounds for the six months to June 30, compared with a profit of 596 million pounds in the year-earlier period, according to the median estimate of seven analysts surveyed by Bloomberg. The net interest margin, the difference between what a bank earns on loans and its funding cost, may shrink to 2.04 percent from 2.1 percent in 2010, Credit Suisse Group AG (CSGN) analysts including Carla Antunes-Silva wrote in a note to investors last week.
Lloyds’s funding costs are rising as Chief Executive Officer Antonio Horta-Osorio tries to wean the bank off state support and onto costlier wholesale funding. Horta-Osorio said in June the bank would cut 15,000 jobs and reduce costs by an additional 1.5 billion pounds as it re-focuses on its U.K. business.
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South Africa Bails Out Swaziland as Cash Crunch Sparks Riots
South Africa agreed to lend Swaziland, Africa’s third-largest sugar producer, 2.5 billion rand ($368 million) to help its neighbor plug a budget shortfall, said Hlengani Mathebula, spokesman for South Africa’s central bank.
The South African Reserve Bank will facilitate the payment, Mathebula said in a phone interview today from Pretoria, the capital. Central Bank of Swaziland Governor Martin Dlamini said by phone from Mbabane the “matter has not been finalized.”
Swaziland, a landlocked country of 1.2 million people bordering South Africa and Mozambique, raised taxes and cut state spending after losing a third of its revenue when the global economic crisis reduced trade and slashed income from a regional customs union that includes South Africa. The African Development Bank wanted the government to cut salaries to access a loan from the lender.
South Africa’s National Treasury will hold a news conference today on the loan, it said in an e-mailed statement.
Macquarie, Bank of Queensland Lose Bid to Throw Out ASIC Suit
Bank of Queensland Ltd. and two other lenders lost a bid to dismiss a lawsuit that claims they knew Storm Financial Ltd. was violating regulations before the fund manager and adviser collapsed in 2009.
Federal Court of Australia Justice John Reeves ruled yesterday that the lawsuit can proceed. Investors will be able to claim damages from Bank of Queensland, Macquarie Bank Ltd. (MQG) and Commonwealth Bank of Australia if a judge rules that Storm broke the rules and they knew about it.
The Australian Securities & Investments Commission, which filed the lawsuit in December, made a valid claim for relief, Reeves wrote in a ruling posted on the Federal Court’s website.
Storm, which had managed A$4 billion ($4.4 billion), induced investors to mortgage their homes, take out margin loans and put the money into Storm Australian Index Trusts with the promise their returns would be enough to pay the loans and live off the proceeds in retirement, according to ASIC’s statement of claim. The banks didn’t exercise due diligence to determine if the investors could afford the loans, and failed to warn them of the risks and costs.
The company collapsed in January, 2009. Storm said at the time trading losses resulted in a decline in income which the company couldn’t absorb any longer.
The case is Australian Securities and Investments Commission v. Bank of Queensland Ltd. (BOQ), NSD1797/2010, Federal Court of Australia (Sydney).
SEC Claims Biotech Firm Lied About Goat Blood-Based Drug Tests
Four biopharmaceutical executives and their companies illegally raised $20 million from investors including terminally ill patients without disclosing that U.S. authorities had halted clinical trials on a drug derived from goat blood, the U.S. Securities and Exchange Commission said.
Immunosyn Corp. (IMYN), which claimed its drug had the potential to treat illnesses ranging from HIV to diabetic ulcers, didn’t tell investors the Food and Drug Administration had stopped the trials, the SEC said in a lawsuit filed Aug. 1 in U.S. District Court in Chicago. The San Diego-based firm also claimed European approvals were near for trials of the drug, SF-1019, when no applications had been submitted, the SEC said.
Douglas McClain Jr., Immunosyn’s chief financial officer, his father Douglas McClain Sr., the firm’s chief scientific officer, and James Miceli, Argyll Biotechnologies LLC’s chief executive officer, engaged in insider trading when they sold Immunosyn stock while knowing disclosures about the drug’s regulatory status were false, the SEC said. Immunosyn CEO Stephen Ferrone was also sued over the false statements.
Phone calls to the McClains, Ferrone, Miceli and Immunosyn weren’t immediately returned. A phone call to Blair Krueger, who was listed by the SEC as a defense counsel, also wasn’t immediately returned.
The case is Securities and Exchange Commission vs. Ferrone et al, 11-cv-05223, U.S. District Court, Northern District of Illinois (Chicago).
Ex-BOE’s Wadhwani and Goodhart Comment at London Event
Former Bank of England policy maker Sushil Wadhwani said he would probably vote to extend the central bank’s 200 billion-pound bond-purchase program this year if the economy weakened further.
Economic data is “gloomy” and if the “tail risk” of the U.K. tipping back into recession materialized, the U.K. government should also reassess its budget squeeze, Wadhwani, founder of Wadhwani Asset Management LLP, said at an event in London yesterday hosted by Fathom Financial Consulting. “I would use both monetary and fiscal policy to ease” the recession, he said.
In attendance at the same event, former Bank of England policy maker Charles Goodhart said he wouldn’t vote to extend the central bank’s 200 billion-pound bond-purchase program now.
“I wouldn’t vote for more QE now,” Goodhart, a professor at the London School of Economics, said at the Fathom Financial event. “I would wait and see.”
Comings and Goings
Geithner Says He Hasn’t Decided Whether to Leave Obama Team
U.S. Treasury Secretary Timothy F. Geithner said he hasn’t decided yet whether to leave the Obama administration now that Congress has raised the debt limit, changing his tone from previous comments on his future plans.
Geithner earlier signaled to White House officials that he’s considering leaving the administration after President Barack Obama reaches an agreement with Congress to raise the federal debt limit, three people familiar with the matter said in June.
Since then, Geithner has said several times he would remain in office for the “foreseeable future.” On June 30 he also said his son would return to New York to finish high school, “and I’m going to be commuting for a while.”
The House voted 269-161 August 1 to raise the debt limit, and the Senate voted 74-26 yesterday for the measure.
CFTC Nominee Wetjen Awaits Confirmation Vote in Full Senate
The Senate Agriculture Committee action yesterday sets up a confirmation vote in the full Senate. The agency is leading U.S. efforts with the Securities and Exchange Commission to write new rules, required under the Dodd-Frank Act, for the $601 trillion global swaps market.
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