MF Global Hearing, EPA ‘War on Coal’, EU Freight: Compliance
Edith O’Brien, the MF Global Holdings Ltd. (MF) assistant treasurer who has become a key figure in tracing the disappearance of as much as $1.6 billion in customer funds, declined to answer questions from House lawmakers.
O’Brien, who appeared yesterday under subpoena before a House Financial Services subcommittee, invoked her constitutional right against self-incrimination during a hearing on the New York firm’s Oct. 31 bankruptcy.
After indicating that she would decline to answer all questions by members of the subcommittee, O’Brien was dismissed from the hearing room.
O’Brien was pulled from back-office obscurity onto center stage last year in testimony to Congress by former MF Global chief executive Jon S. Corzine.
She was identified by Corzine several times as an employee with knowledge of transfers that may have included customer funds in what he called the “chaotic” days before the firm sought Chapter 11 protection, becoming the eighth-largest bankruptcy in U.S. history.
Yesterday’s session is the panel’s third hearing on MF Global’s final days, when company executives discovered a nearly $1 billion deficit in customer segregated funds. The bankruptcy trustee overseeing liquidation of the firm’s brokerage unit has estimated the total shortfall between customer claims and assets available at $1.6 billion.
Attention on O’Brien heightened after the March 23 release of a memo drafted by congressional staff. The memo cites an e- mail from O’Brien noting that a transfer made in the days before the firm’s bankruptcy was done “Per JC’s [Jon Corzine’s] direct instructions.”
Corzine, 64, told lawmakers last year the firm’s back- office staff had “explicitly” informed him that the $175 million transfer made before the bankruptcy filing was legal.
“I never gave any instruction to misuse customer funds, I never intended anyone at MF Global to misuse customer funds and I don’t believe that anything I said could reasonably have been interpreted as an instruction to misuse customer funds,” Corzine told lawmakers in December.
For more, click here, and see Interviews/Hearings section, below.
Obama Power-Plant Rule Signals Demise of Coal As Energy Source
President Barack Obama’s proposed carbon-dioxide rules for power plants effectively prohibit new coal power plants, buttressing a shift away from a power source that fueled the Industrial Revolution to cheap natural gas.
Obama’s Environmental Protection Agency proposed the first limits on greenhouse-gas emissions from U.S. power plants March 27, setting a standard natural-gas facilities can meet. A new coal plant would need carbon-capture technology, which industry advocates say isn’t available at competitive rates.
With natural gas at decade-low prices, no new coal plants are being built, with or without the EPA rules, according to the agency’s analysis. For critics, from mining companies and utilities to coal-country lawmakers, the rules are the latest in a string of EPA regulations they say are meant to put the fossil fuel out of business.
West Virginia Democratic Senator Joe Manchin described the EPA in a statement as engaging “in a war on coal.”
The proposed nationwide standard is the first of its kind issued by the EPA for carbon dioxide. The rules will permit emissions from new power plants at 1,000 pounds of carbon dioxide per megawatt hour, about the level for a modern gas facility, according to the EPA. It applies to new plants, not existing ones.
The proposal will now be open to public comment, and revision by the agency before taking effect. Congress may also pass legislation to overturn the rule, Representative Joe Barton, a Texas Republican, said yesterday at a hearing in Washington.
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House Approves Curbs on FCC Authority to Set Merger Conditions
The Republican-controlled House of Representatives passed legislation that would limit the Federal Communications Commission’s authority to pursue concessions from companies seeking approval to merge.
The measure won approval March 27 in a largely party-line vote, 247-174, over objections from President Barack Obama’s administration. Under the bill, the FCC would be barred from imposing or accepting conditions on companies that aren’t related to a proposed merger.
A House Energy and Commerce Committee report accompanying the bill said the FCC has sought concessions that are outside of its authority to approve mergers, and that companies have proposed unrelated concessions to try to improve their chances of gaining agency consent.
The bill would require the commission to conduct a detailed survey of the communications industry before making decisions that could increase costs for businesses or consumers.
The Obama administration opposes the bill, according to a statement from the Office of Management and Budget.
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EU Lawmakers Back Deal on Clearing Rules for OTC Derivatives
European Union lawmakers voted to approve a deal on legislation to force trading of some over-the-counter derivatives through clearinghouses to safeguard financial markets.
The deal, endorsed in Brussels today, was reached last month by negotiators for the European Parliament and the region’s governments.
The rules will empower EU regulators to decide on types of derivatives that should be centrally cleared. Traders who flout the rules would face penalties including fines. The law also sets rules on management of clearinghouses, including on reserves they must hold to protect themselves from insolvency.
Libor Review Panel Includes Banks Probed for Manipulation
The British Bankers’ Association said a panel of lenders will review the London interbank offered rate, including some firms being probed for allegedly rigging the benchmark.
The review, the second in four years, will include Barclays Plc, Royal Bank of Scotland Group Plc and HSBC Holdings Plc (HSBA), the London-based lobby group said in a statement yesterday. The three banks have all previously disclosed they are the subject of regulatory probes over the possible manipulation of the rate, the basis for $360 trillion of securities worldwide.
The BBA is under pressure to find an alternative way to calculate the measure, or cede control of it as regulators probe whether banks lied to hide their true cost of borrowing and traders colluded to manipulate the benchmark. Terry Smith, chief executive officer of interdealer broker Tullett Prebon Plc (TLPR), said in an interview this month there had been too great “a breakdown in trust” for banks to continue policing the rate.
Angela Knight, the former Conservative lawmaker and Treasury minister who is now chief executive officer of the BBA, didn’t return a phone call from Bloomberg News seeking comment. Officials at HSBC and RBS declined to comment, while a spokesman at Barclays didn’t return a telephone message.
The steering group will consider what financial instruments should be included for the purposes of defining the rate as well as code of conduct for all contributors, according to the BBA. The steering committee will also discuss whether to revise the “statistical underpinning” of Libor submissions, the BBA said.
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Kuehne & Nagel Fined With Panalpina for EU Freight Cartels
Kuehne & Nagel International AG (KNIN) and Panalpina World Transport Holding Ltd. (PWTN) were among companies fined 169 million euros ($225.6 million) by European Union regulators for price fixing of freight-forwarding surcharges.
Kuehne & Nagel units were fined 53.7 million euros and Panalpina 46.5 million euros, the European Commission said yesterday. Freight forwarders fixed prices for fees charged on goods sent on important trade routes between the EU and the U.S. and Asia, according to EU Competition Commissioner Joaquin Almunia.
Kuehne & Nagel said it would consider appealing the fine to the EU courts because regulators hadn’t “correctly investigated the facts” and drew “significantly incorrect factual and legal conclusions,” according to a statement from the company’s Chairman Karl Gernandt.
Panalpina said in an e-mailed statement that the infringements “likely did not affect prices paid by Panalpina’s customers.”
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Ex-Cattles Executives Fined $953,000 Over Misleading Data
Two former directors of Cattles Plc (CTT) and its subsidiary Welcome Financial Services Ltd. were fined a total of 600,000 pounds ($954,000) by the U.K.’s financial watchdog for publishing misleading information about loan credit quality.
The men were also banned from working in the lending industry, the Financial Services Authority said in a statement on its website yesterday. James Corr, Cattles’ finance director, was fined 400,000 pounds and Peter Miller, Welcome’s finance director was fined 200,000 pounds, the agency said.
Cattles, based in Batley, England, was a subprime lender. The firm’s prospectus to potential investors in April 2008 gave “misleading impressions of the firm’s financial health,” the FSA said.
“Over the last three years new management teams have been put in place at both Cattles and Welcome to stabilize the companies and restructure their operations and finances,” Cattles said in a statement. The FSA’s announcement “brings this matter to a close.”
Cattles was sold last year to creditors including Royal Bank of Scotland Group Plc after its shares were suspended in 2009.
Complaints to U.K. Banks Rose 21 Percent, Watchdog Says
Bank complaints in the U.K. rose 21 percent during the second half of last year, driven by an increase in insurance claims, the U.K. financial watchdog said.
Payment protection insurance complaints rose by 85 percent to 977,510 the FSA said in a statement on its website. Barclays Plc (BARC) received a total of 281,484 complaints while Lloyds Banking Group Plc (LLOY) faced 240,923 total complaints, according to FSA data.
The British Bankers’ Association, an industry group, lost a court challenge last year to stop the regulator from ordering lenders to pay compensation.
“We want to be the best bank for customers, so getting customer service right is vital,” Martin Dodd, customer services director at Lloyds, said in an e-mailed statement.
Barclays said it had reduced complaints over banking services by 31 percent year on year.
“Complaints are still higher than our customers should expect, but we are on the right track in bringing them down,” Antony Jenkins, chief executive of Barclays retail and business banking, said in an e-mailed statement.
EPH, EP Investment Advisors Fined by EU for Hampering Probe
Energeticky a Prumyslovy Holding AS and EP Investment Advisors were fined 2.5 million euros ($3.3 million) by European Union regulators for obstructing a 2009 antitrust investigation into the Czech electricity market.
The European Commission said the companies failed to block an e-mail account and diverted incoming mails “in breach of their obligations to cooperate” with regulators during antitrust inspections, according to an e-mailed statement yesterday.
EPH will consider an appeal to the EU courts after it has studied the decision, said spokesman Martin Manak in an e-mailed statement. EP Investment Advisors was previously named J&T Investment Advisors, the EU said.
Regulators previously fined Suez Environnement and E.On AG for breaking seals attached to office doors during separate surprise inspections.
Co-Op CEO Adds to Concern Lloyds Bank Branch Sale May Collapse
Co-Operative Group Ltd. Chief Executive Officer Peter Marks said told reporters today there are “very material regulatory issues” to its proposed purchase of branches from Lloyds Banking Group Plc, fueling concern the deal may collapse.
Co-Op was in December named preferred bidder for the 632 branches that Lloyds has to sell by the end of November 2013 to comply with European Union state-aid rules after receiving a bailout. Lloyds last week delayed a detailed report to investors on the sale and said it would provide an update during the second quarter. Lloyds reiterated that it was preparing the division for an initial public offering.
Marks said the firm had a permanent CEO for its bank “waiting in the wings,” in response to questions over whether the Financial Services Authority was holding up the deal because of concerns about a gap in the management. He declined to identify the person or explain why he could not do so.
Marks told journalists that the deal was being held up because the Co-Op was doing “proper due diligence” on the branches and would not be “rushed” into completing a sale. He said the deal would conclude in weeks not months.
Most Japan Pensions Have No Investment Experience, Survey Shows
About 90 percent of managers under Japan’s employee pension system have no prior experience overseeing assets, according to a government survey made after AIJ Investment Advisors Co. was found to lose client money.
Only 2 percent of managers at the 558 retirement plans under Japan’s employee pension fund system were certified as analysts at a brokerage or financial planners, the survey by the Ministry of Health, Labour and Welfare showed. Those who had worked at financial institutions made up about 3 percent.
The results underscore concerns that retirement assets in Japan may be at risk after AIJ, led by Kazuhiko Asakawa, was found by regulators to cover up $1.3 billion of losses from wrong-way derivative trades. Pensions in the country are seeking ways to bolster returns that have been hampered by low bond yields and two decades of slumping stocks.
Fund performance rather than risk drove investment decisions at employee pension funds, the survey showed. Forty percent of respondents said performance was the most important element for making an investment. Investment process and risk management accounted for 10 percent to 20 percent.
Eighty-eight retirement plans said they had either invested with AIJ in the past or currently have money with the Tokyo- based asset manager.
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Supreme Court Hears Health-Law Arguments (Day 3, Pt. 1) (Audio)
The U.S. Supreme Court heard arguments about the constitutionality of President Barack Obama’s health-care overhaul in the case of National Federation of Independent Business v. Sebelius.
In yesterday’s morning session, the justices focused on what would happen to the law if the core requirement that Americans get insurance is struck down.
For the audio, click here.
Telefonica Loses Fight on 152 Million-Euro EU Antitrust Fine
Telefonica SA (TEF) lost a court challenge to a 152 million-euro ($202 million) antitrust fine by European Union regulators.
The EU’s General Court rejected the appeal by Spain’s biggest phone company and said the European Commission “rightly held that Telefonica had abused its dominant position” over the Spanish Internet market, according to a statement. The court also backed regulators’ view that deliberately underpricing wholesale services to hurt rivals, called “margin squeeze,” was a form of monopoly abuse.
Telefonica was fined by the commission in 2007 for abusing its monopoly over broadband Internet access in Spain by charging wholesale rates that were too close to retail prices between 2001 and 2006. Regulators said this prevented rivals from making a profit.
Telefonica will appeal the ruling to the region’s highest tribunal and is in “complete and profound disagreement” with today’s decision, it said in an e-mailed statement. The company “scrupulously abided by the telecommunications regulations imposed” by Spanish regulators.
The European Commission declined to immediately comment on the ruling.
The case is T-336/07 Telefonica and Telefonica de Espana v. Commission.
MF Global Executives Testify Before House Subcommittee
MF Global Holdings Ltd. (MFGLQ)’s general counsel Laurie Ferber, chief financial officer Henri Steenkamp and North America chief financial officer Christine Serwinski testified about the collapse of the brokerage.
JPMorgan Chase & Co. (JPM)’s Diane Genova, the National Futures Association’s Daniel Roth and the Financial Accounting Standards Board’s Susan Cosper also spoke before a House Financial Services subcommittee in Washington. MF Global’s assistant treasurer Edith O’Brien declined to answer questions.
For the video, click here and for more, see top section, above.
Berenzweig Says Corzine ‘Still Subject to Exposure’
Seth Berenzweig, managing partner at Berenzweig Leonard, and Richard Roth, founder and partner at The Roth Law Firm PLLC, talked about hearings before a U.S. House of Representatives subcommittee on MF Global Holdings Ltd. (MFGLQ)’s bankruptcy and use of customer funds.
They spoke with Trish Regan and Adam Johnson on Bloomberg Television’s “Street Smart.”
For the video, click here.
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