MF Global Accounting, Bank State Aid, U.K. Loans: Compliance
An accounting technique used by MF Global Inc., the failed broker-dealer, is being reviewed by the U.S. Securities and Exchange Commission, agency Chairman Mary Schapiro said.
The SEC is in talks with the Financial Accounting Standards Board about “repurchase-to-maturity” agreements that MF Global used in off-balance-sheet accounting, Schapiro said yesterday during a hearing before the U.S. Senate Agriculture Committee in Washington.
Schapiro said the agency was talking with FASB about whether more disclosure is needed. The agreements used by MF Global are the only type of repurchase agreements that can be used off balance sheet, she said, speaking alongside Commodity Futures Trading Commission Chairman Gary Gensler.
Both the SEC and FASB also are looking into whether the methods MF Global used to account for its investments in European debt were legal.
MF Global Holdings Ltd. (MF), the parent company of the broker once run by former New Jersey Governor and Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed the eighth-largest U.S. bankruptcy after a wrong-way $6.3 billion bet on bonds of some of Europe’s most indebted nations.
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Separately, Corzine may be subpoenaed to testify before the Senate Agriculture Committee if he doesn’t respond to an invitation to appear, according to the lawmaker who leads the panel.
Senator Debbie Stabenow, a Michigan Democrat, said she isn’t ruling out a subpoena for Corzine, who hasn’t answered a request to testify at a Dec. 13 hearing in Washington. She said she expects a response from Corzine, a fellow Democrat who served in the Senate. The Agriculture Committee set a meeting today to consider issuing a subpoena for Corzine to testify at a Dec. 8 hearing, according to two people briefed on the matter.
Steven Goldberg, a spokesman for Corzine, declined to comment on Stabenow’s remarks and on whether he would testify.
MF Global Inc. will have a shortfall in customer funds even if all the money in customer accounts at U.S. depository institutions is recovered, James W. Giddens, the trustee overseeing the firm’s liquidation said.
Giddens has said there may be as much as $1.2 billion in missing funds.
“The trustee has determined that even if he could recover everything that is at U.S. depositories, there will be a shortfall in what MF Global management should have segregated at U.S. depositories,” according to a document, dated yesterday, from Giddens’s office that was obtained by Bloomberg News. Kent Jarrell, a spokesman for the trustee, confirmed the authenticity of the document and said it was part of a briefing Giddens gave yesterday in Washington with congressional aides and a lawmaker.
The CFTC, SEC, Justice Department and trustee’s office are investigating the missing client funds.
CFTC Commissioner Bart Chilton, a Democrat, said he will monitor the agency’s staff to ensure it’s doing everything possible to collect and properly distribute customer funds.
EU Banks May Escape Some Costs of State Aid in Rule Overhaul
Banks will be shielded from extra costs for guarantees from governments roiled by Europe’s sovereign-debt crisis under an overhaul of the region’s state-aid rules published yesterday.
The European Commission said its system for setting the fees that banks pay to governments for guarantees will “reflect their intrinsic risk, rather than the risk related to the member state concerned or the market as a whole,” according to an e- mailed statement. The aid rules “will apply as long as required by market conditions.”
EU governments spent 757 billion euros ($1 trillion) in state guarantees for banks from October 2008 to December 2010. The Bloomberg Europe Banks and Financial Services Index (BEBANKS) has fallen more than 33 percent in the past year on concerns lenders have been weakened by the European debt crisis. European leaders agreed last month to bolster bank capital in an effort to restore confidence in the banking system.
The new pricing system will reduce the guarantee fees by about 20 basis points, with banks paying an average of 1 percent of the value of the guarantee to the government that granted it, according to an EU official. It won’t compensate entirely for the wide spreads on bonds for euro-area governments.
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Separately, the European Union may exempt bank debt issued before 2013 from proposals forcing investors to take losses at failing lenders, said a person familiar with the plan.
Excluding the debt is designed to prevent lenders’ funding costs from rising, said the person, who declined to be identified because the discussions are private. The exemption could be extended if banks struggle to raise funds, the person said. The law would need approval from national governments and the European Parliament before taking effect.
Under draft proposals obtained by Bloomberg News, holders of long-term unsecured senior debt in a collapsing bank would be first in line to take losses once a lender’s capital and other subordinated debt is exhausted. Long-term bonds would be those with a maturity of more than one year.
A spokeswoman for the European Commission declined to comment on the draft law.
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FSA Finds $78.5 Billion U.K. Commercial Loans at Risk, BoE Says
The U.K.’s financial regulator found about a third of commercial real-estate loans, or 50 billion pounds’ ($78.5 billion) worth, are in forbearance, where a loan’s rules are relaxed in anticipation of them being breached.
A review by the Financial Services Authority found as much as 8 percent of U.K. residential mortgages are in forbearance, which includes methods such as payment holidays and loan maturity extensions and the relaxation of loan-to-value ratios, according to the Bank of England’s financial stability report published yesterday.
The financial policy committee of the Bank of England asked the FSA to review U.K. mortgage forbearance in June. The FSA’s review included about three-quarters of U.K. mortgages and for commercial loans surveyed the six largest banks, which issue about two-thirds of commercial loans.
The amount of outstanding mortgages in the U.K. was 1.088 trillion pounds as of the end of June, according to the Council of Mortgage Lenders, a trade group.
House Passes Bill to Curb U.S. Rules Costly for Businesses
The U.S. House of Representatives passed legislation that would force more government analysis of how a regulation affects businesses before a rule takes effect.
The House voted 263-159 yesterday for the measure, which President Barack Obama’s administration has threatened to veto. Lawmakers will consider two additional measures this month that would limit what Republicans call the regulatory overreach of the administration, which they said impedes the economic recovery.
The legislation would amend a 1980 law, which required the government to consider the economic impact of regulations limiting pollution or protecting health. The measure passed yesterday would force agencies to describe alternatives to a proposed rule that might minimize any adverse economic impact on small businesses. It would require a cumulative accounting of the costs of all rules on companies.
Two additional measures to curb agency powers on new regulations will be considered in the House this month. One would require a Congressional vote on every new rule, and the other would require Congress to choose the least costly option when establishing a new rule.
The legislation passed today is H.R. 527. The other measures are H.R. 3010 and H.R. 10.
Neuberger, Diamondback Workers Said to Face Possible Charges
Neuberger Berman Group LLC, Level Global Investors LP and Diamondback Capital Management LLC employees may face criminal charges as part of an insider-trading probe by U.S. authorities in New York, a person familiar with the matter said.
The charges may be filed as early as this month, said another person familiar with the probe who also wasn’t authorized to speak because the matter isn’t public. The new allegations stem from a four-year federal probe by the office of Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation in New York, the first person said.
James Margolin, a spokesman for the FBI in New York, declined to comment Nov. 29 on possible new charges in the probe. Ellen Davis, a spokeswoman for Bharara’s office, also declined to comment.
Steve Bruce, a spokesman for Stamford, Connecticut-based Diamondback, declined to comment on the probe. A representative for New York-based Level Global Investors also declined to immediately comment.
The possible charges were reported earlier by the Wall Street Journal. Rich Chimberg, an outside spokesman for New York-based Neuberger Berman, said, “We have not heard of any such allegation or investigation” against an employee named by the paper.
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FDIC to Weigh Alternatives to Ratings for Debt, Securitizations
The Federal Deposit Insurance Corp.’s board will consider proposing alternatives to credit ratings for debt and securitization positions at a meeting in Washington next week.
The FDIC announced the Dec. 7 meeting in an e-mailed statement Nov. 29.
Almunia to Communicate DB-NYSE Market Test Results Next Week
Joaquin Almunia, the European Union’s antitrust chief, said he will inform companies “next week” of the results of so- called market tests of proposed remedies by Deutsche Boerse AG’s and NYSE Euronext. (NYX)
The exchanges offered remedies to try to allay antitrust concerns over their proposed merger. Almunia made the comments at a conference in Brussels today.
Ex-Millennium Global Manager Sued by SEC Over Alleged Fraud
Michael Balboa, a former portfolio manager at Millennium Global Investments Ltd., was sued by the U.S. Securities and Exchange Commission over claims he engaged in a fraud scheme involving Nigerian sovereign debt.
The civil complaint was filed yesterday in federal court in New York against Balboa and Gilles De Charsonville, described by regulators as an independent broker based in Madrid. Balboa’s portfolio suffered almost $1 billion in losses and was forced to close in October 2008 in the wake of the credit crisis, the SEC said in court papers.
Federal prosecutors in New York filed a related criminal complaint against Balboa yesterday, charging him with conspiracy to commit securities and wire fraud and separate counts of wire and securities fraud. De Charsonville was not named in the criminal complaint.
The criminal case is U.S. v. Balboa, 11-mag-3038, and the civil case is SEC v. Balboa, 11-cv-8731, U.S. District Court, Southern District of New York (Manhattan).
Two Ex-Ferrostaal Managers Must Stand Trial on Bribery Charges
Ferrostaal has been ordered to join the criminal proceedings as an accessory party, the Munich Regional Court said in an e-mailed statement.
U.S. Judge Orders Asset Freeze in SEC Case Against Mattera
A federal judge ordered a freeze on the assets of funds in the case of a South Florida man accused of running an $11 million scam.
U.S. District Judge P. Kevin Castel ordered the preliminary injunction against Praetorian Global Fund Ltd. and its agents, according to a filing in federal court in Manhattan yesterday.
John Mattera, the operator of the funds, was charged by federal prosecutors and sued by the Securities and Exchange Commission for allegedly luring investors into paying for non- existent shares in closely held companies including Facebook Inc. and Groupon Inc.
The U.S. said that Mattera used most of the money to buy cars and other items for himself, according to court records.
The cases are SEC v. Mattera, 11-cv-8323, and U.S. v. Mattera, 11-cr-2947, U.S. District Court, Southern District of New York (Manhattan).
Comings and Goings
Reid Planning Senate Vote on Cordray to Lead Consumer Bureau
Reid told reporters in Washington yesterday that he would schedule votes next week to limit debate on “four or five nominations.” Adam Jentleson, a spokesman for the Nevada Democrat, confirmed that Cordray is part of that group.
Cordray, a former Ohio attorney general who is serving as the consumer bureau’s enforcement director, has drawn wide Republican opposition, which could be enough to block Cordray’s nomination. It would take 60 votes in the 100-member Senate to cut off debate and advance the nomination.
Jordan Thomas On Dodd-Frank Whistle-blower Program Report
Jordan Thomas, partner and chair of the Whistleblower Representation Department at Labaton Sucharow LLP, talks with Bloomberg Law’s Lee Pacchia about the whistle-blower provisions found in Dodd-Frank and the early results of the program.
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To contact the editor responsible for this report: Michael Hytha at email@example.com.