Banks’ Living Wills, Libor Blueprint, China: Compliance
Summaries of company-written plans for unwinding the nine largest systemically important banks operating in the U.S. will be made available to the public tomorrow, Federal Deposit Insurance Corp. officials said.
JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Barclays Plc (BCS), Deutsche Bank AG (DB), Credit Suisse Group AG (CS) and UBS AG (UBSN) are required to file the so-called living wills to the FDIC and the Federal Reserve by July 2, FDIC officials said on a conference call June 29. Each bank also must produce a public summary, and the information in those sections will likely contain data from existing public sources, with proprietary information reserved for the regulators, said the officials, who disclosed the information under terms that required they not be identified.
Lenders with more than $250 billion in nonbank assets will be the first group of banks to deliver the liquidation plans, expected to run into thousands of pages. The plans, mandated by the Dodd-Frank Act, are meant to give regulators a way to shutter complex financial firms without taxpayer bailouts or market turmoil that followed the 2008 bankruptcy of Lehman Brothers Holdings Inc.
By the end of 2013, a total 125 banks are required to deliver plans for taking their companies into bankruptcy should the need arise, FDIC officials said. The regulators will determine whether each living will represents a credible path to a rapid and orderly closure. The regulators will have 60 days from submission of the plans to request more information from the companies if the plans aren’t considered complete.
CFTC Votes 5-0 to Propose Cross-Border Swaps Guidance
The U.S. voted to propose guidance for the international reach of Dodd-Frank Act derivatives rules for JPMorgan Chase & Co., Goldman Sachs Group Inc. and other financial institutions, according to two people briefed on the matter.
The guidance approved June 29 after a unanimous vote by the CFTC’s five commissioners will determine which overseas units of U.S. banks must comply with rules dictated by the 2010 regulatory overhaul. The vote was conducted through a private process in which commissioners gave their approval on paper.
Financial firms set up legal entities in part to minimize regulatory, capital and other requirements through “regulatory arbitrage.” CFTC Chairman Gary Gensler said. The guidance allows for so-called substituted compliance in some cases where overseas jurisdictions have comparable rules, he said.
“Foreign swap dealers, as well as overseas branches of U.S. swap dealers, in certain circumstances, may rely on substituted compliance when transacting with foreign affiliates guaranteed or operating as conduits of U.S. entities,” Gensler said in the statement.
The CFTC document will be open for public comment, which Gensler said isn’t required for so-called interpretive guidance. The agency didn’t immediately release the guidance or a separate document governing the timetable for compliance.
India Signals Tax-Avoidance Clampdown Won’t Be Retrospective
India proposed that a clampdown on tax avoidance due in 2013 won’t apply retrospectively or to cases below a certain monetary threshold, seeking to assuage concern that the plan will deter foreign investment.
The draft guidelines released by the finance ministry in New Delhi late in the day on June 28 would also exempt foreign institutional investors if they refrain from routing money to India via tax shelters. The indicative rules are for discussion and feedback and haven’t been seen by Prime Minister Manmohan Singh, who has final approval, the government said June 29.
Singh, who took charge of the finance ministry earlier last week, has told officials to revive confidence in India after economic growth slowed and proposed tax changes from March’s budget damped investor sentiment, stoking a plunge in the rupee. The June 28 draft suggests overseas investors with exposure to Indian stocks through so-called participatory notes won’t be targeted, Deloitte Touche Tohmatsu India Pvt. said.
Overseas funds were net sellers of Indian stocks in April and May on concern the planned General Anti-Avoidance Rule, or GAAR, would apply to their holdings.
Pranab Mukherjee, who resigned as finance minister on June 26 to run for the presidency, retreated on the GAAR proposals in May in a bid to salvage investor confidence in Asia’s third-largest economy, delaying their implementation to the fiscal year beginning April 1, 2013.
U.S. Treasury Secretary Timothy F. Geithner discussed the tax plans with Mukherjee in April after American trade and lobby groups said they may lead to retroactive levies for periods of as much as 50 years and deter foreign investment. U.K. Chancellor of the Exchequer George Osborne has said the proposals could damage India’s investment climate.
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Barclays Fines Mean Libor Enforcement Measures Not Enough
The blueprint regulators gave Barclays (BARC) Plc and other banks for correcting Libor-rate abuses may not be enough to salvage a benchmark so discredited it needs to be overhauled.
The U.S. Commodity Futures Trading Commission ordered Barclays on June 27 to keep thorough records on how it determines its London interbank offered rate submissions and to erect so-called Chinese walls between traders and rate-setters. It also said lenders should expect random checks from regulators on whether their submissions reflect actual borrowing costs.
Investors say the plans are little more than window-dressing. Barclays, the U.K.’s second-largest lender, was fined a record $451 million and its top executives agreed to forgo bonuses after investigators found traders and senior managers “systematically” tried to rig the Libor (US0003M) and Euribor, its equivalent in euros. With other lenders facing similar sanctions, the British Bankers Association, which oversees Libor, is under pressure to prove the rate is fit for purpose.
Bank of England Governor Mervyn King said at a press conference to present the central bank’s Financial Stability Report in London June 29 that the idea of basing the Libor calculation on the word of bankers “is now dead.” Libor is determined by banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because banks’ submissions aren’t based on real trades, the potential exists for manipulation by traders.
At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for more than $360 trillion of securities, including mortgages, student loans and swaps. Barclays employees overseeing Libor and Euribor submissions routinely accommodated requests that benefited traders at their own and other banks, the CFTC said.
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Separately, the U.K. finance regulator has “a number of investigations concerning Libor” beyond the case that resulted in a record fine levied against Barclays last week, the agency’s acting head of enforcement Tracey McDermott said.
Citigroup Inc., Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc, Lloyds Banking Group Plc (LLOY) and Deutsche Bank AG (DBK) are among the firms some regulators are investigating. A total of 18 banks are surveyed as part of the process of determining Libor and related rates.
Barclays is assisting the investigation into other firms and individuals, and was the first to provide “extensive and meaningful cooperation,” the U.S. Justice Department said.
SEC Suspends Trade in China Medical ADRs on Information Accuracy
Trading of China Medical Technologies Inc.’s American depositary receipts was suspended by the U.S. Securities and Exchange Commission, which cited questions on the accuracy of the company’s public information.
The regulator ordered a temporary suspension in the company’s shares, starting June 29 and ending on July 13, according to a statement on the SEC’s website.
Trading was suspended “because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the status of the company’s officers and directors, the accuracy of the company’s financial statements and filings with the Commission,” the SEC said.
Japan Advisory Business Registration Revoked on Insider Trading
Japan Advisory Ltd., a hedge-fund adviser, had its business registration revoked by the nation’s authorities and the securities watchdog recommended the company be fined for its involvement with insider trading of Nippon Sheet Glass Co. (5202) shares.
The Securities and Exchange Surveillance Commission recommended Tokyo-based Japan Advisory pay a penalty of 370,000 yen ($4,655) for breaching insider trading rules related to a Nippon Sheet Glass share offering in 2010, according to a statement by the watchdog. The registration was suspended for breaching securities laws related to insider trading, the Kanto Local Finance Bureau said June 29 in a statement.
The case is among the latest to be brought to light by Japanese regulators since March as they examine share transactions before the announcement of public offerings.
Japan Advisory, while advising two foreign-based hedge funds, obtained information about Nippon Sheet Glass’s share sale from employees at a brokerage in talks to underwrite the offering, according to the SESC statement.
A person who answered the phone at Japan Advisory said she wasn’t authorized to speak to the press and declined to comment, adding that no one with authority was available for a comment. Calls to the company outside business hours weren’t answered.
Banking Group Cancels Party This Week Following Libor Probe
The British Bankers’ Association, the U.K. group that oversees the publication of London interbank offered interest rates, canceled a party scheduled for this week following the record fine against Barclays Plc for manipulating the benchmark.
Angela Knight, the BBA’s chief executive officer, said in a memo obtained by Bloomberg News that the industry needs to “think long and hard about its collective behavior” and it would be “wrong” to proceed with the reception.
Finra Says It Lost $84 Million in 2011 Amid Lower Trading Volume
The Financial Industry Regulatory Authority said it lost $84 million in 2011 as lower trading volume reduced revenue from fees and a more risk-averse strategy shrank returns on its portfolio, according to an annual report released June 29.
Finra, which earned $54.6 million in 2010, oversees more than 4,000 brokers and funds itself through fees on the industry, including trades conducted by its members, and income from investments. The U.S. Securities and Exchange Commission oversees Finra’s activities and must sign off on the rules it proposes.
Finra sought SEC approval in April for an increase in trading and other fees to help offset the revenue loss.
The organization will pay Richard Ketchum, Finra’s chairman and chief executive officer, a $1 million salary in 2012, according to the report, along with almost $1.3 million in incentive compensation. Vice Chairman Stephen Luparello will receive a compensation package worth almost $1.3 million this year and Todd Diganci, the executive vice president and chief financial officer, will earn almost $1.2 million.
Peter Madoff Pleads Guilty to Conspiracy at Brother’s Firm
Peter Madoff pleaded guilty to conspiracy in Manhattan federal court three years to the day after his brother Bernard was sentenced to 150 years in prison for directing the biggest Ponzi scheme in U.S. history.
A chief compliance officer of Bernard L. Madoff Investment Securities LLC who helped his brother run the firm for four decades, Peter Madoff, 66, pleaded guilty June 29 to one count of conspiracy to commit securities fraud and one count of falsifying records. He faces 10 years in prison.
Bernard Madoff’s account statements when he was arrested reflected 4,900 accounts with $65 billion in nonexistent balances. Investors lost about $20 billion in principal. Peter Madoff, a lawyer who began working at the Manhattan-based firm in 1965, agreed as part of his plea not to ask U.S. District Judge Laura Taylor Swain in New York for less than a 10-year term.
FBI Assistant Director Janice K. Fedarcyk said in a statement that Peter Madoff played an “essential enabling role” in the fraud and made “a pretense of compliance.”
Madoff also agreed to forfeit $143.1 billion, including all of his real and personal property. The forfeiture calculation is based on the total funds that passed through the Madoff firm during the fraud and gives the government a green light to pursue any and all assets it can tie to him.
“I am deeply ashamed of my actions,” Peter Madoff said in his statement to the court. “I want to apologize to anyone who was harmed and to my family. And I’m here today to take responsibility.”
Swain accepted the plea agreement and approved bail so Madoff can remain free before his Oct. 4 sentencing. His travel is restricted and he must give up his passport.
The case is U.S. v. Madoff, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
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Wheatley Says FSA Assumes All Collar Products Mis-Sold
U.K. Financial Services Authority Managing Director Martin Wheatley talked about mis-sold interest-rate derivatives to small and medium-sized businesses.
He spoke with Bloomberg’s Lindsay Fortado in London.
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Comings and Goings
Barclays Chairman Agius Resigns Following Record Libor Fine
Barclays Plc Chairman Marcus Agius resigned in a bid to shield Chief Executive Officer Robert Diamond after the bank was fined a record 290 million pounds ($455 million) for rigging interest rates.
“I am truly sorry,” Agius, who had been chairman of Britain’s second-largest bank by assets since 2007, said in a statement today. “Last week’s events, evidencing as they do unacceptable standards of behavior within the bank, have dealt a devastating blow to Barclays’s reputation.”
John Sunderland, a Barclays director and former chairman of Cadbury Schweppes Plc, will oversee a search for a replacement, the London-based lender said. Michael Rake will become deputy chairman. Agius, 65, will remain in his position until his replacement is appointed.
He is the most senior executive to step down so far following probes by global regulators into whether lenders colluded to manipulate Libor. Lawmakers are pushing for Diamond’s resignation after U.K. and U.S. regulators found the lender “systematically” attempted to rig the London and euro interbank offered rates for profit.
Agius’s departure “will do little to appease the many who see Bob Diamond as having primary responsibility,” Gary Greenwood, a banking analyst at Shore Capital, said by e-mail. “While Agius’s departure will grab the headlines today, the bigger issue remains whether Diamond should also remain.”
Agius also stepped down as chairman of the British Bankers’ Association, the lobby group that oversees Libor.
France’s Ayrault Nominates Jouyet to Head Caisse Des Depots
French Prime Minister Jean-Marc Ayrault nominated Jean-Pierre Jouyet, currently head of the national stock market regulator Autorite des Marches Financiers, to become chief executive officer of state-owned Caisse des Depots et Consignations.
The nomination is subject to approval by the relevant National Assembly and senate committees, Ayrault said in an e-mailed statement.
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