U.K. Payments Council, Chinese Audits, ECB Moves: Compliance
Hoban said in a speech in London yesterday that while Britain has a “world class” payments industry he wants it to be “even more responsive, innovative and competitive,’ according to remarks released by his office.
The Treasury, Bank of England and Financial Services Authority will spell out their plans early in 2012 and seek the views of banks and consumer groups before deciding the extent and shape of the overhaul. The decision to act follows a call from lawmakers to regulate the payments system.
Hoban wants the body to speed up implementing new technologies that would benefit consumers. He is seeking person-to-person payments via mobile phone, simplified direct debits and Internet payments to retailers direct from bank accounts.
Mutual Funds Including BlackRock Defend Use of Risky Derivatives
Leading asset-management firms are asking the U.S. Securities and Exchange Commission to use a light touch when tightening rules for how mutual and exchange-traded funds use derivatives.
BlackRock managing directors Joanne Medero and Ira Shapiro said in a Nov. 4 letter to the SEC that a set of mechanical rules ‘‘cannot take account of the diversity of derivatives and the multiplicity of ways they may be used by portfolio managers.’’ The letter said that when used ‘‘appropriately,’’ derivatives can be ‘‘effective tools’’ to achieve returns and control risks in funds.
SEC commissioners approved a first step toward rulemaking known as a ‘‘concept release’’ on Aug. 31, posing questions about funds’ leverage, diversification and valuation of holdings in derivatives. The agency is weighing whether it should intervene to ensure fund managers are properly gauging risk and could move to impose rules limiting leverage and concentration. The public comment period on the release closed this week.
The SEC, which oversees mutual funds under the Investment Company Act of 1940, stopped approving applications for new exchange-traded funds that make significant use of derivatives in March 2010, pending a review of the practice.
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Investors Mistrust Chinese Audits, U.S. Accounting Watchdog Says
China should permit U.S. inspectors to review auditors in that country to improve investor confidence in the books of U.S.-listed firms, said James Doty, chairman of the board overseeing U.S.-registered auditors.
Doty told reporters at a conference in New York yesterday that the market mistrusts the value of the Chinese balance sheet.
Officials from Doty’s Public Company Accounting Oversight Board and the Securities and Exchange Commission went to China in July to discuss the possibility of joint audit inspections. A follow-up meeting in the U.S. was canceled by the Chinese last month and hasn’t been rescheduled, Doty said.
Doty said the Chinese have expressed concerns that the inspections could reveal state secrets. He said he’s hopeful that the negotiations will be able to continue as Guo Shuqing, 55, takes over the China Securities Regulatory Commission.
The board is funded by audited companies and overseen by the SEC. It has the authority to block registration of China-based auditors or to de-register them.
SEC Shouldn’t Force Admissions in Settlements, Canellos Says
George Canellos, head of the U.S. Securities and Exchange Commission’s New York office, said the agency should retain its policy of settling cases without requiring the subjects of its probes to admit wrongdoing.
Canellos’s comments come a day after U.S. District Judge Jed Rakoff questioned the agency’s standard policy in his review of a proposed $285 million settlement with Citigroup Inc., which the agency accused of misleading investors in a collateralized debt obligation.
‘‘It is 100 percent clear that the appropriate standard for us to follow is to settle without requiring admissions” of guilt, Canellos said yesterday at a banking regulation event in New York. The “key objectives” of a settlement are to remove individuals who commit wrongdoing from the industry and to deter other wrongdoing by filing a detailed complaint of the conduct in question, he said.
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Special Section: MF Global
MF Global Australia Administrators Seek Deutsche Bank Cash
Administrators of MF Global Holdings Ltd.’s Australian units have about half the A$313 million ($318 million) MF Global clients are owed and say the biggest difficulty will be collecting money from overseas counterparties.
Deutsche Bank AG (DBK) is one of the foreign parties involved, Chris Campbell, a partner at Deloitte Touche Tohmatsu’s Australian unit, said in Sydney today. Deutsche Bank owes MF Global about A$48 million and hasn’t yet provided the administrators with a final accounting of closed-out positions, he said.
Amy King, a spokeswoman for Deutsche Bank in Australia, declined to comment immediately.
MF Global Securities Ltd. and MF Global Australia Ltd. were placed in administration Nov. 1 and their trading activities were halted. MF Global, the New York-based holding company, sought bankruptcy protection Oct. 31 in the U.S., listing debt of $39.7 billion and assets of $41 billion in court papers.
The Australian administrators met with about 1,000 MF Global clients and creditors today at a Sydney hotel to update them on the financial situation at the closed brokerage.
It will take at least three months but probably less than a year to put all the finances together and return the money to investors, Campbell said.
Separately, MF Global Hong Kong Ltd.’s provisional liquidator announced today the broker-dealer’s Asia business units will be sold “individually” rather than as a single platform. Patrick Cowley, a principal at KPMG in Hong Kong, said “complexities and challenges arising from the Chapter 11 filing in New York” meant bidders couldn’t agree to terms.
MF Global Missing Funds May Be ‘Massive’ Ploy, Chilton Says
The $593 million shortfall in client money at MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31, appears to result from a “massive hide-and-seek ploy,” Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, said yesterday.
The agency took the rare step of publicly announcing its investigation, which began on Oct. 31, saying it was in the public interest to confirm the enforcement action. Jill E. Sommers was named as the senior commissioner during the probe, after Gary Gensler, the agency’s chairman, recused himself.
Chilton, a Democrat, in an e-mail yesterday described the investigation as “a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy.”
Gensler recused himself from the investigation because of his history with Jon S. Corzine, the former head of MF Global. Gensler worked with Corzine at Goldman Sachs Group Inc. and during his time as a Senate aide, while Corzine represented New Jersey as a U.S. senator.
Diana DeSocio, a spokeswoman for MF Global, didn’t respond to requests for comment. Steven Goldberg, a spokesman for Corzine in New York, said he had no immediate comment.
MF Global Bondholders May Get as Little as 10%, Fitch Says
MF Global Holdings Ltd.’s bondholders may recover as little as 10 cents on the dollar in the company’s bankruptcy, according to Fitch Ratings.
Owners of the failed broker’s senior unsecured debt will get back between 10 percent and 30 percent of the notes’ face value, Fitch said today in a report. The analysis is based on MF Global’s balance sheet as reported in public filings and doesn’t consider the potential performance of the broker’s European sovereign debt portfolio, said Fabrice Toka, an analyst at the ratings company in New York.
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French Regulator Opens Probe into S&P Erroneous Rating Message
France’s stock market regulator opened an investigation into Standard & Poor’s accidental dissemination of a message that suggested France’s top-notch credit rating had been cut, it said in an e-mailed statement.
The AMF also asked Europe’s financial regulator to look into the matter.
HSBC, First Niagara Agree to Sale of 26 Branches, U.S. Says
First Niagara Financial Group Inc. (FNFG) and HSBC Holdings Plc agreed to the sale of 26 HSBC branches in the Buffalo, New York, region to ease government antitrust concerns about competition in the city’s retail and small-business banking market, the U.S. Justice Department said.
The action will allow Buffalo-based First Niagara to proceed with its $1 billion purchase of 195 of London-based HSBC’s New York and Connecticut branches, according to a Justice Department statement.
The proposed acquisition of the 195 branches is subject to final approval by the Office of the Comptroller of the Currency.
Canada Police Begin Criminal Sino-Forest Probe, Globe Says
The Royal Canadian Mounted Police has begun a criminal investigation of Sino-Forest Corp. to determine whether the Chinese timber producer defrauded Canadian investors, the Globe and Mail reported, citing two people it didn’t name.
Sino-Forest, based in Hong Kong and Mississauga, Ontario, is already being reviewed by the Ontario Securities Commission, Canada’s main securities regulator.
The OSC suspended trading of Sino-Forest on the Toronto Stock Exchange in August and said some directors and officers may have engaged in acts that “they knew or should have known” were a fraud. Sino-Forest executives have denied the allegations.
Carolyn Shaw-Rimmington, a spokeswoman for the OSC, said in an e-mail that the regulator “has referred the matter to the RCMP and that the OSC investigation is ongoing.”
RCMP officials in Ottawa and Toronto didn’t immediately return phone calls yesterday from Bloomberg News. Superintendent Dean Buzza, who heads the RCMP’s Integrated Market Enforcement Team, didn’t confirm nor deny the probe’s existence, the Globe reported. Stan Neve, a spokesman for Sino-Forest in New York, declined to comment.
Ex-UBS Client Werdiger Gets One-Year Term on Tax Charges
Richard Werdiger, 64, a diamond merchant and former UBS AG (UBSN) client who pleaded guilty to using a Swiss account to hide more than $7.1 million from U.S. tax authorities, has been sentenced to a year and a day in prison.
Werdiger is one of 36 Americans charged since 2007 in a U.S. crackdown on offshore tax evasion, and his was the longest prison term by a day. He pleaded guilty in March in federal court in New York, paid a civil penalty of $3.84 million and was fined $50,000 Nov. 9 at his sentencing.
The U.S. crackdown has led to charges against UBS, the largest Swiss bank, as well as at least 21 other bankers, advisers and attorneys. The Justice Department has said eight offshore banks are under grand-jury investigation for facilitating tax evasion.
Werdiger’s attorney, Ian Comisky, didn’t immediately return a call seeking comment after yesterday’s court appearance.
The case is U.S. v. Werdiger, 10-cr-325, U.S. District Court, Southern District of New York (Manhattan).
Ex-Directors at Military Body Armor Supplier Settle SEC Suit
Three former directors of DHB Industries Inc. will pay more than $1.6 million to resolve U.S. Securities and Exchange Commission claims over their roles in an accounting fraud at the military body-armor supplier.
Cary Chasin, Jerome Krantz and Gary Nadelman would be permanently barred from serving as public-company officers or directors under terms of the settlement, the SEC said yesterday in a statement. The accords are subject to court approval.
The SEC previously sued ex-DHB Chief Executive Officer David Brooks and two other former company officers for their roles in the fraud. The civil claims have been stayed pending resolution of criminal actions filed by the U.S. Attorney’s Office for the Eastern District of New York.
“Mr. Nadelman has accepted responsibility and is relieved to put this unfortunate chapter behind him,” Robert C. Gottlieb, his New York-based attorney, said in an e-mail. Messages seeking comment from lawyers for Chasin and Krantz weren’t immediately returned.
DHB changed its name to Point Blank Solutions in October 2007. The company, which filed for bankruptcy in April 2010, won court approval last month to sell almost all of its assets to an affiliate of Sun Capital Partners Inc. for $36.6 million.
The case is U.S. Securities and Exchange Commission v. Krantz, et al., 11-cv-60432, U.S. District Court, Southern District of Florida (Fort Lauderdale).
Alabama’s Jefferson County Declares Biggest Municipal Bankruptcy
Jefferson County, Alabama, filed the largest municipal bankruptcy in U.S. history, capping a more than three-year saga that began with the Wall Street credit crisis.
The Nov. 9 move by Alabama’s most-populous county came after state lawmakers failed to back a September agreement with creditors led by JPMorgan Chase & Co. (JPM) that would have reduced its sewer-system debt of more than $3 billion. Governor Robert Bentley and local leaders worked unsuccessfully for two months to rally support for the deal.
The Chapter 9 filing leaves creditors including JPMorgan, the biggest U.S. bank by assets, facing hundreds of millions of dollars in losses and may revive concern that defaults may rise in the $2.9 trillion municipal bond market. Residents of the county that’s home to Birmingham, Alabama’s largest city, also face unsustainable sewage fees to repay the debt that led to the debacle.
Jefferson’s bankruptcy may reignite investor concern that municipal defaults will rise, which earlier this year led investors to pull more than $30 billion from municipal-bond mutual funds.
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Merkley, Hambrecht, Dunbar, Epstein Discuss Volcker Rule
Senator Jeff Merkley of Oregon, Nick Dunbar, Bloomberg News reporter, Bill Hambrecht, chairman and co-chief executive officer of WR Hambrecht & Co LLC, and Gerald Epstein, chairman and professor of economics at University of Massachusetts Amherst, discussed the Volcker rule.
They talked with Bloomberg’s Kathleen Hays of “The Hays Advantage” on Bloomberg Radio.
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Comings and Goings
ECB’s Bini Smaghi Resigns, Opening Board Seat for France
Lorenzo Bini Smaghi will resign from the European Central Bank’s Executive Board at the end of the year. In a related development, fellow Italian Mario Draghi became the central bank’s president earlier this month.
Bini Smaghi, whose term officially ends in May 2013, will join Harvard University’s Center for International Affairs on Jan. 1, 2012, the Frankfurt-based ECB said in an e-mailed statement yesterday.
Italy’s Prime Minister Silvio Berlusconi had stepped up pressure on Bini Smaghi to quit in recent weeks in a bid to defuse a row with French President Nicolas Sarkozy over the Italian’s seat on the central bank’s six-member Executive Board. Sarkozy had backed Mario Draghi’s candidacy to head the central bank on the condition that Berlusconi get Bini Smaghi to step aside to make way for a French candidate and avoid leaving the board with two Italians when Frenchman Jean-Claude Trichet finished his term at the end of October.
Bini Smaghi is the fourth executive board member to leave this year.
“Throughout his mandate, including in taking his decision, Mr. Bini Smaghi has upheld the independence of the ECB,” the central bank said in a statement.
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