Bafin-EFSF Capital, Solvency II, BATS, UK Banks: Compliance
German financial regulator Bafin opposes a proposal by the European Banking Authority to give the European Financial Stability Facility the power to directly inject capital into banks.
Bafin’s representative on the EBA board of supervisors voted against a draft letter to the council of European finance and economy ministers containing the proposal, the German regulator’s spokesman Ben Fischer said in an interview yesterday.
The majority of the 27 EBA members approved the plan, the Financial Times Deutschland reported yesterday, citing an unidentified person close to the German government. Under its current setup, EFSF can only grant funds to governments.
The EFSF should only lend to states and not to banks, said Michael Meister, the senior finance and economy spokesman for German Chancellor Angela Merkel’s Christian Democrats.
Banks should turn to the governments of the countries in which they have their headquarters, Meister said. He told reporters in Berlin yesterday that the EFSF should lend only to states.
“I would make a plea that we stick to extending guarantees for states,” he said.
Solvency II Directive May Cost Dutch Insurers $350 Million
Implementation of Solvency II, the proposed risk-based regulation for insurers in Europe, may lead to about 243 million euros ($350 million) in one-time costs for Dutch insurers, according to the country’s government.
In addition, insurers including Aegon NV (AGN) and ING Groep NV (INGA), will incur 33 million euros in extra administrative and compliance expenses a year, the Dutch finance ministry said in an explanatory note to draft legislation published on its website yesterday.
The rules, scheduled to come into effect in 2013, aim to provide a common regulatory framework for all insurers within the European Union and to strengthen insurers’ reserves to protect policyholders against a decline in financial markets. Firms that plan to use internal models to calculate solvency capital requirements, which the EU rules allow, may have combined one-off costs of 112.7 million euros, the Dutch government said.
According to Dutch central bank figures, six insurers will apply the internal models from the start of the implementation of the EU rules, the finance ministry said.
Insurers have until Oct. 7 to submit their comments on the government’s implementation proposal.
U.K. Local Councils to Raise Money on Capital Markets, FT Says
U.K. local councils intend to raise money by issuing bonds for the first time in decades as a result of the government’s decision to raise interest rates on central government loans, the Financial Times reported. Wandsworth council, which is advised by Morgan Stanley (MS) and HSBC, plans to issue 250 million pounds ($408 million) of bonds, the FT said.
Ernst & Young director Luke Reeve said between 10 and 20 councils would turn to capital markets to raise money, the newspaper also said. The Local Government Association plans to appoint advisers to study the creation of a collection agency to issue aggregate council bonds, the FT said, citing Mark Luntley of the LGA.
BATS Gets SEC Approval for U.S. Primary Listings-Business Rules
BATS Global Markets has received approval from the Securities and Exchange Commission on the rules for its U.S. primary listings business, which it plans to start in December, the company said in a press release.
All securities will be listed on the BATS BZH Exchange, the statement said.
The Lenexa, Kansas-based exchange operator asked the SEC in May to let it list companies on the BZX Exchange. It delayed the creation of the corporate-listings business to December from Sept. 1 in an announcement on Aug. 4.
LightSquared to Face Congressional Science Committee Hearing
Philip Falcone’s proposed LightSquared wireless service faces a hearing Sept. 8 before the U.S. House Science, Space and Technology Committee, the panel announced yesterday.
Witnesses at the hearing, entitled “Impacts of the LightSquared Network on Federal Science Activities,” are to include officials from the Transportation Department and the National Aeronautics and Space Administration, according to a notice from the committee distributed by e-mail.
LightSquared is seeking regulators’ approval to build a $15 billion wholesale network of 40,000 base stations using airwaves previously reserved mainly for satellites. Makers and users of global-positioning system devices, which rely on satellite signals, say LightSquared would disrupt navigation equipment on aircraft, boats, tractors and automobiles.
The Federal Communications Commission is considering Reston, Virginia-based LightSquared’s proposal.
U.K. Banks Spent Up to $351 Million on Payment Insurance Claims
U.K. banks paid out as much as 215 million pounds ($351 million) in the first six months of 2011 as redress for misselling of payment protection insurance, the nation’s financial regulator said.
The U.K. Financial Services Authority has collected data from 16 banks accounting for 92 percent of PPI complaints made between Jan. 1 and the end of June, finding these lenders paid 215 million pounds. The regulator said it will take “tough action” against those that do not provide “appropriate redress.”
PPI generates as much as 5.5 billion pounds revenue annually for U.K. banks, the FSA has estimated. The insurance covers payments on credit cards and mortgages in case of illness or unemployment.
Customers who bought PPI rarely compared prices and terms or switched providers and usually weren’t aware they could buy it from a firm other than their lender, the U.K.’s Competition Commission has said. The FSA introduced rules in August 2010 after it found financial firms reject more than half of PPI complaints they received.
ARM Asset Backed Securities Refused License by Luxembourg Agency
ARM Asset Backed Securities SA, a Luxembourg-based special- purpose vehicle, won’t be allowed to redeem its bonds or pay coupons after the country’s financial watchdog refused to grant it a license.
ARM has four weeks to appeal the decision, the Commission de Surveillance du Secteur Financier said in an e-mailed statement yesterday.
A district court “will be requested to pronounce the dissolution and order the liquidation of ARM” if the decision is unchallenged, the CSSF said.
Dover Motorsports Is Latest U.S. Stock Halted by Circuit Breaker
Dover Motorsports Inc. (DVD) yesterday became the latest U.S. stock 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. equities before prices rebounded. 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.
Oracle’s Dealings Abroad Investigated by U.S., WSJ Says
U.S. authorities are looking into whether software company Oracle Corp. (ORCL) breached federal anti-bribery laws in its dealings abroad, the Wall Street Journal reported.
The newspaper cited unidentified people familiar with the matter. The authorities involved are the Federal Bureau of Investigation’s Washington field office, prosecutors in the Justice Department’s criminal division and lawyers at the Securities and Exchange Commission, according to the newspaper.
Oracle’s software sales to countries in west and central Africa are among transactions being investigated, the paper reported.
An Oracle spokeswoman declined to comment on whether there is an investigation and lawyers for the company didn’t respond to requests for comment, the Journal said.
Capital Rules May Cut Bank Profitability to 11%, McKinsey Says
Lenders may struggle to earn more than an 11 percent return on their equity as they implement rules and capital requirements costing $610 billion over the next seven years, according to a report from McKinsey & Co.
Global regulations, including the mandatory clearing of over-the-counter derivatives and higher capital requirements, may force banks to pass on a “portion of the higher regulatory costs” to customers, the study said. Banks should “conserve capital and boost efficiency” to stay profitable, London-based McKinsey said.
“After mitigation, average returns-on-equity across businesses will likely be 11 to 12 percent but with considerable variation,” according to the report, written by a McKinsey team led by Philipp Haerle and Thomas Poppensieker in Munich. “Some of the worst-hit businesses with ROEs below the cost of capital may have to be disposed of, especially at banks with weak franchises.”
European lenders will need to raise an extra 423 billion euros ($610 billion) by 2019 to comply with global capital rules approved by the Basel Committee on Banking Supervision, according to a European Union study. The Basel committee also said last month that 28 banks would be subject to additional capital requirements to rein in too-big-to-fail banks.
Global banks started a counterattack against the capital guidelines last week, warning the rules may reduce lending and harm growth.
FDIC Objects to BofA’s $8.5 Billion Mortgage-Bond Settlement
The Federal Deposit Insurance Corp. filed an objection to Bank of America Corp. (BAC)’s proposed $8.5 billion mortgage-bond settlement with investors, joining investors and states that are challenging the agreement.
The FDIC, the receiver for failed banks, owns securities covered by the settlement and said it doesn’t have enough information to evaluate the accord, according to a filing yesterday in federal court in Manhattan.
Under the agreement, Bank of America would pay $8.5 billion to resolve claims from investors in Countrywide Financial Corp. mortgage bonds. The settlement was negotiated with a group of institutional investors, including BlackRock Inc. (BLK) and Pacific Investment Management Co. LLC, and would apply to investors outside that group.
Bank of New York Mellon Corp., the trustee for the mortgage-securitization trusts covered by the agreement, has asked a New York state judge to approve the settlement in November. An investor group is trying to move the case to federal court, which Bank of New York opposes.
Investors that would be bound by the settlement, including American International Group Inc. (AIG), have criticized the deal and Bank of New York’s role representing investors in the mortgage bonds. New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have sought to intervene in the case and asked the court to reject it.
Andrew Gray, an FDIC spokesman, said in an e-mail that the FDIC generally doesn’t comment on pending litigation.
“We believe that the trustee acted reasonably in entering into the settlement, and that there are compelling reasons why the agreement should receive judicial approval,” Lawrence Grayson, a Bank of America spokesman, said in an e-mail.
Kevin Heine, a spokesman for Bank of New York, said the company had no comment.
The state case is In the matter of the application of The Bank of New York Mellon, 651786-2011, New York State Supreme Court, New York County (Manhattan). The federal case is In the Matter of the Application of Bank of New York Mellon, 11- cv-5988, U.S. District Court, Southern District of New York (Manhattan).
Ex-Beazer Homes CFO O’Leary Settles SEC Lawsuit Over Bonus
The U.S. Securities and Exchange Commission settled a suit with Beazer Homes USA Inc. (BZH)’s former finance chief over stock- sale bonuses he got while the homebuilder’s accounting statements were out of compliance with federal law.
James O’Leary, the ex-CFO, must reimburse the company more than $1.4 million that he received after Beazer filed fraudulent financial results for fiscal 2006, the SEC said yesterday in a statement. The agency accused the Atlanta-based homebuilder of falsifying reports to overstate income.
The SEC filed a single-count complaint against O’Leary in Atlanta federal court alleging failure to reimburse, according to the statement. O’Leary isn’t accused of misconduct and didn’t admit or deny liability, the SEC said. A federal judge must approve the settlement.
Larry Iason, a lawyer for O’Leary, didn’t immediately return a call seeking comment.
The case is SEC v. O’Leary, U.S. District Court, Northern District of Georgia (Atlanta).
U.K.’s Cable Says Banks ‘Trying to Create Panic’ on Rules
Business Secretary Vince Cable said British banks are being “disingenuous in the extreme” in opposing likely proposals from the Independent Commission on Banking when it reports on Sept. 12.
Cable’s comments, in an interview with the London-based Times newspaper, responded to criticism from industry lobbyists like the British Bankers’ Association and the Confederation of British Industry. According to the CBI, proposals including the creation of firebreaks around consumer-banking units, would stifle economic growth unless they are delayed.
“It is disingenuous in the extreme to use the current context to argue against reform,” Cable told the Times. “Banks are in a way trying to create a panic around something which they know has got to happen.”
Cable said reforms to the banking sector, which will be published by the Commission, are necessary to tackle “the too- big-to-fail problem” and that taxpayers underwriting banks’ balance sheets cannot be allowed to continue.
John Cridland, Director General of the CBI, said in a British Broadcasting Corp. interview today that it would be “barking mad” to implement such plans at the moment given the U.K.’s faltering economic recovery.
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Comings and Goings
Blanchflower Calls Krueger ‘Fantastic’ Pick by Obama
David Blanchflower, economics professor at Dartmouth College and Bloomberg Television contributing editor, talked about President Barack Obama’s nomination of economist Alan Krueger to head the White House Council of Economic Advisers.
The nomination is subject to Senate confirmation. Krueger, who returned to Princeton University last November after serving as the Treasury Department’s chief economist for two years, would replace Austan Goolsbee.
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