U.K.-Solvency II, Austrian Bank Tests, Libor Probes, BayernLB: Compliance
Prudential Plc (PRU), the U.K.’s biggest insurer by market value, said it’s working with the government to ensure European Union capital rules are “sensible” and don’t make the company leave London.
Prudential said last month it was reviewing its domicile in light of the Solvency II rules, which are designed to harmonize European insurers’ capital requirements. The regulations are “ill thought out,” Prime Minister David Cameron said March 7 in a parliamentary debate. Members of the European Commission are writing and debating the rules, which are due to be implemented in 2013.
Prudential said in an e-mailed statement yesterday that it wants to ensure “the insurance industry in the U.K. and the rest of Europe remains competitive and can deliver good returns to policyholders and shareholders within a sensible capital framework.”
Prudential, led by Chief Executive Officer Tidjane Thiam, said last month the regulations may require it to hold extra capital within Jackson National Life, its U.S. business that generates 36 percent of its revenue. Prudential, which gets 40 percent of its revenue from Asia, has been based in the U.K. since it was founded in 1848.
Aviva Plc (AV/), the U.K.’s second-biggest insurer by market value, shares Prudential’s concerns over Solvency II’s capital requirements for U.S. subsidiaries, CEO Andrew Moss said.
U.S. House Passes Bill to Reduce SEC Rules for Private Firms
The U.S. House voted to approve a package of measures to roll back Securities and Exchange Commission rules for newly public companies and closely held firms looking for investments.
The Republican-controlled House voted 390-23 yesterday to pass the legislation, moving it to the Democratic-controlled Senate, where leaders in both parties have said they will push to send the bill to President Barack Obama for final approval.
The proposals have found bipartisan support that has been rare in the current Congress as lawmakers look to help small firms and startups facing regulatory hurdles and tight lending standards after the credit crisis.
The House measure pulled together six individual bills incorporating legislation that would allow companies to use general solicitation to find investors, permit startups to use “crowdfunding” to raise capital, and adjust thresholds that determine whether companies have to register with the SEC.
The Obama administration has pushed portions of the bill since last year, including the crowdfunding exemption, which would allow startups to use platforms like Twitter Inc. and Facebook Inc. (FB) to raise funds. The administration pushed for the lawmakers finish the bill quickly.
The bill also includes a provision that would provide exemptions and a phase-in of SEC rules for “emerging growth companies” -- for some firms with less than $1 billion in annual gross revenue.
Democrats have outlined potential problems that rolling back the rules may cause relating to investor protection. The final shape of the bill will depend on the Senate, where Democrats are meeting to craft a similar package.
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Irish Life Plans to Introduce Sovereign Annuity Via NTMA Bonds
Irish Life & Permanent (IPM) Plc is in final preparations for the introduction of the country’s first sovereign annuity product for the pension market.
“The company hopes to launch the new annuity by the summer subject to final agreement with the National Treasury Management Agency,” the Dublin-based company said in a statement.
The new product will be manufactured using new bonds issued by the Treasury for the Irish pensions industry, Irish Life & Permanent said in the statement.
Defined-benefit retirement plans guarantee their payments by buying annuities that typically invest in top-rated German bunds. Irish pension managers have been lobbying the government to let them switch to annuities tied to lower-rated local securities that offer high yields in a bid to repair deficits.
Rules to Back Bonds With Equity May Come Soon, Handelsblatt Says
Europe may soon introduce regulations requiring minimum capital requirements for bonds owned by banks, Handelsblatt said, citing Ulrich Schroeder, who heads Germany’s state-owned development bank KfW Group.
Such requirements may be introduced when the Basel III rules come into effect, the newspaper cited Schroeder as saying.
EU Watchdogs Said to Notify Banks on Capital Plans by Today
European bank supervisors will have notified 28 banks by the end of today whether their plans to raise capital satisfy requirements, according to three people familiar with the discussions.
A minority of the lenders will have to give more details on how they intend to sell assets and retain earnings to meet the European Banking Authority’s 9 percent goal for core Tier-1 capital ratios, said one of the three people, who all declined to be identified because the talks are private. The banks may also have to provide contingency plans to raise capital, the person said.
The EBA told banks to raise 114.7 billion euros ($151.6 billion) in fresh capital by the end of June as part of measures introduced to respond to the sharp fall in the value of securities issued by euro-area governments. The authority required banks to keep a core Tier-1 capital ratio of 9 percent and hold additional reserves, called a sovereign buffer, against the debt of weaker euro-area countries, based upon the market price of the bonds.
The EBA will host a meeting next month in London of the 27 national bank supervisors of the European Union. The meeting will examine the plans of banks that haven’t yet complied, according to the people familiar with the talks.
Banks submitted their plans to raise capital in January and the EBA said in December that lenders aren’t allowed to reduce lending to hit the target ratios.
EBA Rejects Bid to Alter Stress-Test Rule for Austrian Banks
The European Banking Authority will continue to disqualify in its stress-test calculations some forms of non-voting capital Austrian lenders have sold to investors, according to the country’s financial regulator.
The EBA’s board of supervisors rejected a proposal to count so-called participation capital toward the requirement for banks to hold reserves of 9 percent of risk-weighted assets, Klaus Grubelnik, a spokesman for Austria’s Finanzmarktaufsicht regulator FMA said by phone from Vienna.
Erste Group Bank AG (EBS) and Raiffeisen Zentralbank Oesterreich AG (RZBOPA) were among lenders told by the EBA to boost their capital to shield against losses amid Europe’s debt crisis. Both banks’ shortfall would be smaller if the EBA counted against that target participation capital that was sold to private investors in 2009 in a combined deal together with state aid, which is allowed by the EBA.
The FMA remains confident that the banks will reach the 9 percent capital threshold required by the EBA, Grubelnik said.
Singapore Regulator’s Help Sought by Others in Libor Probes
The Monetary Authority of Singapore said regulators elsewhere sought its help with probes into the possible manipulation of the London interbank offered rate.
“MAS is aware of investigations into possible manipulation of interbank rates by other regulators and has received requests for assistance from some,” the Singapore central bank said March 7 in an e-mailed response to questions from Bloomberg News. It didn’t identify the regulators involved.
Regulators worldwide are investigating whether banks routinely lied about their true borrowing costs to avoid the perception they faced difficulty raising funds. They’re also probing whether traders rigged submissions to benefit their own wagers on derivatives tied to the rate. The moves have called into question whether banks can be trusted to set Libor, the basis for $360 trillion of securities worldwide, with only minimal regulatory oversight.
“MAS will also work with the relevant authorities to act on any suspected manipulation” by Singapore-based financial institutions or individuals, the regulator said. “MAS will assist where it is appropriate to do so.”
The U.S. is conducting a criminal investigation into suspected manipulation of benchmark rates including Libor, the Justice Department said in a letter to a federal judge that was made public on March 6. The Feb. 27 letter is the first public acknowledgment by the department of the criminal probe. British and Europe watchdogs are also scrutinizing potential collusion between firms involved in trading derivatives based on the rate.
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BayernLB Owner, EU to Hold Talks on Restructuring by End-March
Negotiations between Bayerische Landesbank (BLGZ)’s biggest owner and European Union regulators who must approve its restructuring will take place later this month, EU Competition Commissioner Joaquin Almunia said. He made the remarks at a Copenhagen conference.
Almunia said he will hold “an important meeting” with Bavarian officials by the end of March to discuss remaining issues on how the state-owned bank will share the costs of a 2008 government bailout and restructuring measures it must make in return for EU approval for the rescue.
The Brussels-based antitrust authority has required banks to sell off units or change behavior to compensate for billions of euros in government subsidies and guarantees. Munich-based BayernLB will probably sell a real-estate unit to meet EU requirements that it focus on its main business, according to the German state of Bavaria, which owns 94 percent of the bank.
BayernLB is the last of several German state-owned banks to require EU approval for a bailout during the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.
SNB Board, Deputies Cleared in KPMG Probe, Tages-Anzeiger Says
The KPMG probe into transactions of the Swiss central bank’s current board members and the three deputies didn’t find any breaches of internal rules, Tages-Anzeiger reported, citing an undisclosed person familiar with the investigation.
The SNB Bank Council sees no obstacle to appointing Thomas Jordan new president, the Zurich-based newspaper reported. Under the SNB’s planned tougher internal rules, some of the transactions discovered in the KPMG probe would no longer be acceptable, the newspaper said.
Thomson Reuters Offer to End EU Probe Failed to Allay Doubts
Thomson Reuters Corp. (TRI)’s offer to settle an antitrust case with European Union regulators failed to allay competition concerns, the EU’s antitrust chief said.
The company needs to provide an “effective solution” to respond to regulators’ doubts that customers can easily switch financial-market-data suppliers, EU Competition Commissioner Joaquin Almunia said in a speech in Copenhagen yesterday.
Thomson Reuters tried to end the EU antitrust probe in December by offering licenses for customers to use Reuters Instrument Codes to retrieve data from other suppliers and provide them with information for computer systems to link the codes with those used by competitors. Almunia increased scrutiny of financial markets last year with probes into banks’ possible collusion over credit default swaps and the setting of the London Interbank Offered Rate.
The information and solutions company, based in New York, said it would be “inappropriate to comment” because it is still analyzing feedback from the market test. It “will continue to fully cooperate with the EU,” according to an e- mailed statement sent by Yvonne Diaz, a London-based spokeswoman for the company.
Thomson Reuter’s competitors and customers were asked to respond to its offer and proposed license fees before they could become final. If accepted, regulators can then make an offer binding and drop their antitrust investigation. The alternative is to continue a probe, which can result in fines of as much as 10 percent of yearly sales.
Bloomberg LP, the parent of Bloomberg News, competes with Thomson Reuters in selling financial and legal information and trading systems.
Ex-Coca-Cola Executive Sued by SEC Over Insider-Trading Claims
A former Coca-Cola Enterprises Inc. (CCE) executive was sued by U.S. regulators for buying his company’s shares based on confidential information about an acquisition of bottling operations in Norway and Sweden.
Steven Harrold, 53, who was a vice president in London for the Atlanta-based bottling company, bought the stock through his wife’s brokerage account one day before the February 2010 acquisition was announced, the Securities and Exchange Commission said in a lawsuit filed in U.S. District Court for the Central District of California yesterday. He had learned of the acquisition in January 2010 and signed an agreement to keep the information confidential.
Harrold made $86,850 in illegal profits on the trades, the SEC said.
Coca-Cola Enterprises bought the Scandinavian bottling operations in February 2010 from Coca-Cola Co. (KO), the world’s biggest soft-drink maker. The deal was announced as part of a larger transaction, valued at $12.3 billion, in which Coca-Cola Co. agreed to buy the North American operations of Coca-Cola Enterprises.
A phone call to Jean Nelson, Harrold’s attorney at Scheper Kim & Harris LLP in Los Angeles, wasn’t immediately returned.
U.S. Regulators ‘Paralyzed’ by Cost-Benefit Suits, Chilton Says
Wall Street banks are using the threat of lawsuits to prevent regulators from writing rules mandated by the Dodd-Frank Act, said Bart Chilton, a Democrat on the U.S. Commodity Futures Trading Commission.
“Some regulators live in constant fear and are virtually paralyzed by the threat” that they will face “spuriously” filed suits alleging that the costs and benefits of their rules weren’t adequately considered, Chilton said in a speech prepared for the Trade Tech 2012 conference yesterday in New York. “It is a bastardization of the conduct and use of cost-benefit analyses in regulatory rulemaking.”
The CFTC is defending against a challenge filed last year in federal court that the agency overstepped its authority under the Dodd-Frank Act and inadequately assessed the costs of new limits on speculation in oil, natural gas and other commodities. The lawsuit was filed by the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association.
The lawsuit is one of the financial industry’s highest profile efforts to challenge Dodd-Frank, the regulatory overhaul enacted in 2010. The associations represent JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), among other derivatives dealers. A judgment is pending.
Chilton, a supporter of the speculation limits, said banks and others should be required to provide cost analyses to rebut regulators’ conclusions.
Levitt Says Jobs Bill Will Emasculate Sarbanes-Oxley
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said a jobs bill making its way through Congress would also destroy investor protections offered in Sarbanes-Oxley legislation.
Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
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SEC’s Gallagher Says Some Advisers Shouldn’t Face Registration
Private-fund advisers serving the most sophisticated clients should be exempt from the full force of registration requirements under the Dodd-Frank Act, the U.S. Securities and Exchange Commission’s Daniel Gallagher said.
As private-equity and hedge funds prepare to meet a March 30 registration deadline, the SEC should consider letting some avoid parts of the requirement, Gallagher said yesterday in remarks prepared for a conference of the Investment Adviser Association in Arlington, Virginia. Gallagher, one of two Republicans among the SEC’s five commissioners, used the example of advisers who don’t use leverage and market their services “only to sophisticated and institutional investors.”
Dodd-Frank, the regulatory overhaul enacted in response to the 2008 credit crisis, requires the SEC to register private fund advisers. The agency’s registration rule, adopted before Gallagher joined the SEC in November, requires reporting of data on employees, investors and assets they manage.
Comings and Goings
CBOE Puts Executive on Leave Amid SEC Inquiry, WSJ Says
CBOE Holdings Inc. (CBOE) placed a senior compliance executive on leave after the U.S. Securities and Exchange Commission began investigating the options-market operator’s oversight of traders, the Wall Street Journal reported, citing people familiar with the matter.
The owner of the Chicago Board Options Exchange, the nation’s largest equity derivatives market, put Patrick Fay on administrative leave because of the SEC inquiry, the newspaper reported yesterday, citing two people familiar with the matter. Gail Osten, a CBOE spokeswoman, declined to comment.
CBOE Holdings said in its annual report filed Feb. 28 that the SEC began investigating whether the company was complying with its obligations as a self-regulatory organization.
Fay, a senior vice president for member and regulatory services since 2006, is among 10 “executive officers” listed on CBOE’s website. He rejoined the company in 2004 after 19 months at NQLX LLC. Before that, he spent 18 years with CBOE, according to the website.
CBOE, founded in 1973 as the first U.S. market for equity derivatives, is a self-regulatory organization required to write rules, monitor trading and ensure its customers aren’t breaking securities laws.
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