Canada Credit Unions, JPMorgan ‘Whale’ Order: Compliance
Canada’s federal government issued new rules on Dec. 21 that give credit unions the option to become federally incorporated entities, allowing them to expand across the country and better compete with banks.
Credit unions, financial institutions owned by their customers and overseen by provincial regulators, have been waiting for the changes first announced in the 2010 federal budget. The Department of Finance released the final rules in a statement on its website.
Credit unions choosing to convert would fall under the oversight of Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, giving them the ability to operate nationally instead of being limited to their home provinces.
David Phillips, chief executive officer of the trade association for the country’s credit unions, said in a statement that the organization welcomed the announcement as a “major milestone.”
Banks’ Loan-Loss Reserves Seen Jumping 50% in FASB Proposal
Banks’ loan-loss reserves may jump about 50 percent under a proposed U.S. accounting-rule change that redefines how quickly firms must recognize bad debts, standard-setters said.
The Financial Accounting Standards Board’s proposed rule, revising a February draft, pushes banks to start recognizing losses on loans, debt securities and other financial receivables when firms see early signs of potential loss. The policy would move from an “incurred loss” model to an “expected loss” model, similar to changes under consideration by the International Accounting Standards Board, which sets the rules used in most nations outside the U.S.
FASB’s estimate shows banks probably would need to boost reserves by billions of dollars if the new rule is implemented. JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, had $24 billion in its allowance for credit losses at the end of September. Charlotte, North Carolina-based Bank of America Corp., ranked No. 2, had $26 billion.
Spokesmen for Bank of America, New York-based JPMorgan and Citigroup Inc., the third-largest U.S. bank, declined to comment.
The FASB draft is open for comment until April 30. Even if the final proposal is adopted next year, it probably won’t take effect before 2015, according to a person with knowledge of the plans, who requested anonymity because the timing wasn’t announced. The effective date was left blank in the Dec. 20 draft.
The accounting board is looking to change how reserves and asset values are measured after the financial crisis forced lenders to devote capital to losses, leaving some of the world’s largest banks struggling to meet regulatory thresholds and remain solvent.
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Banks Told by U.S. Regulator to Share Cyber Attack Information
A U.S. banking regulator told financial institutions to report cyber attacks to law enforcement and alert customers to their impact as new assaults targeted PNC Financial Services Group Inc. (PNC) and other banks.
The Dec. 21 alert from the U.S. Office of the Comptroller of the Currency warned about a wave of so-called distributed denial-of-service attacks. Such actions harness networks of infected computers to pump large volumes of Internet traffic at websites, often causing slowdowns or disruptions.
A group calling itself Izz ad-Din al-Qassam Cyber Fighters announced plans to attack banks in a Dec. 10 statement posted on the website pastebin.com. The comptroller’s office, which didn’t identify targeted banks or the groups responsible for the attacks, said fraudsters can use them to distract bank personnel to disrupt bank operations.
China to Allow Companies to Invest Idle Proceeds, Xinhua Says
China will allow listed companies to invest idle proceeds from fundraising in “safe, good liquidity” investment products, such as government bonds and wealth management products from banks, the official Xinhua News Agency reported, citing China Securities Regulatory Commission.
Companies will be allowed to use raised funds to temporarily bolster working capital for 12 months, compared to 6 months previously, Xinhua reported.
Thirty percent of the raised funds can be used within 12 months to permanently bolster working capital and pay bank loans, up from 20 percent previously, Xinhua reported.
Rate Scandal Sees U.K. Fines Triple Previous Record in 2012
Penalties against Barclays Plc (BARC) and UBS AG for their roles in the Libor rate-rigging scandal helped the U.K. Financial Services Authority more than triple its previous fines record in 2010 to at least 312 million pounds ($506 million) this year.
The FSA’s penalties would have been even higher, at more than 400 million pounds, without discounts granted in about two- thirds of cases for cooperation with the regulator, London-based law firm Reynolds Porter Chamberlain LLP said in an e-mailed statement.
The FSA fined Barclays around 60 million pounds and UBS 160 million pounds this year for attempting to manipulate the London benchmark interbank interest rate, known as Libor.
Global authorities are investigating claims that more than a dozen banks altered submissions used to set benchmarks to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier.
U.K. Banks Seen Sacrificing Lending for BOE Capital Demand
U.K. banks, under pressure from the Bank of England to increase capital, may do exactly what the central bank doesn’t want them to do: cut lending.
While trimming or delaying dividends, selling assets, reducing pay or raising equity would also bolster capital, banks such as government-owned Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY) may be tempted to shrink lending, said Paul Mumford, who helps manage about 350 million pounds ($569 million) including Barclays Plc, RBS and Lloyds shares at Cavendish Asset Management Ltd. in London.
Britain’s four-biggest banks may need as much as 60 billion pounds in extra capital to meet future loan losses, compensate customers and pay regulatory fines, according to the Bank of England’s Financial Stability Report last month. Central bank Governor Mervyn King is pressing banks to raise capital levels without reducing lending to support an economy struggling to avoid a triple-dip recession.
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JPMorgan Said to Face First Enforcement Action on Whale Loss
JPMorgan Chase & Co. will be the target of a regulatory enforcement order stemming from mistakes that led to at least $6.2 billion in trading losses, according to a person briefed on the situation.
The Office of the Comptroller of the Currency is preparing to issue a cease-and-desist order requiring the largest U.S. bank to fix internal risk controls that contributed to its wrong-way bet on credit derivatives, according to the person, who asked not to be named because the discussions aren’t public. Chief Executive Officer Jamie Dimon, 56, said in May that the firm’s strategy was beset by “errors, sloppiness and bad judgment.”
The timing of the enforcement is uncertain, the person said.
The faulty trades within the bank’s chief investment office -- associated with London-based trader Bruno Iksil, widely known as the London Whale -- may eventually cost more than $6.2 billion, Dimon has said.
That investment office within JPMorgan’s national bank suffered from “inadequate risk management, Comptroller of the Currency Thomas Curry said during U.S. Senate testimony in June.
The U.S. Senate Permanent Subcommittee on Investigations is also probing the loss.
SEC Files Suit Against Former New Generation Biofuels Chairman
The U.S. Securities and Exchange Commission filed a civil action against Lee S. Rosen, the former chairman of New Generation Biofuels Holdings Inc. (NGBF), alleging he fraudulently avoided reporting his ownership interest in the company.
Rosen will settle with the SEC without admitting or denying the allegations, according to an agency statement Dec. 21. Rosen will pay a total of $911,484 in fines and will be barred from serving as a company’s officer or director.
The complaint alleges that in addition to receiving $666,000 in direct payments, he ‘‘indirectly benefited’’ from using New Generation shares held in trusts as partial payment for a yacht.
The SEC earlier suspended trading of Columbia, Maryland- based company, citing its lack of public disclosures since the period ending June 30, 2011.
A phone message left for Bryan McPhee, a company spokesman, wasn’t returned. An e-mail sent to him couldn’t be delivered. Previous filings said the company makes biofuels from oils and animal fats.
Barclays Staff Ask U.K. Court for Anonymity in London Libor Suit
Barclays Plc traders and employees who made submissions to set interest rates applied to a U.K. court asking for anonymity in the U.K.’s first civil lawsuit related to manipulation of the London interbank offered rate.
A hearing is scheduled for Jan. 21 to decide whether the bank’s staff implicated in the suit, filed by Guardian Care Homes Ltd. over a loss-making interest rate swap tied to the benchmark, can remain anonymous, according to court spokeswoman Rachael Collins in London.
Barclays was ordered to give affiliates of Guardian Care the identities of 208 employees named in the bank’s disclosure to regulators over the Libor-rigging allegations.
Kevin Roberts, a lawyer at Morrison & Foerster LLP representing some of the workers, didn’t immediately return a phone call and e-mail seeking comment. Jon Laycock, a Barclays spokesman, declined to comment.
The case is Graiseley Properties Ltd. & Ors. v. Barclays Bank Plc, High Court of Justice, Queen’s Bench Division Commercial Court, No. 12-1259.
Mathew Martoma Indicted for $276 Million Insider Trade
Mathew Martoma, the former SAC Capital Advisors LP portfolio manager accused in what prosecutors have called the biggest insider-trading case, was charged in an indictment with making $276 million for the firm on inside tips about a clinical drug trial, a sign that he may not be considering a plea deal.
The insider-trading indictment sets in motion a criminal trial process that puts new pressure on him to cooperate with the government’s investigation of the hedge-fund firm founded by billionaire Steven A. Cohen.
At issue in the Martoma case is a 20-minute phone call prosecutors said he had with Cohen after allegedly receiving negative test results about a drug that was intended for use by Alzheimer’s patients. The day after the call, SAC liquidated a $700 million position in Elan Corp. (ELN) and Wyeth LLC, the companies that were promoting the drug.
The government claims SAC netted $276 million in profits and averted losses in the Elan and Wyeth trades. Cohen isn’t alleged in Martoma’s indictment to have known Martoma had inside information. Prosecutors have made no claims about precisely what was said on the call.
Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC, declined to comment on the indictment. Gasthalter has said Cohen and SAC acted appropriately in making the trades. Cohen hasn’t been charged criminally or sued by regulators in the case.
Martoma was arrested at his Boca Raton, Florida, home on Nov. 20 and charged in a criminal complaint. The indictment charges him with one count of conspiracy and two counts of securities fraud. If convicted, Martoma faces as many as 20 years in prison on the securities fraud charges and five years on the conspiracy charge.
‘‘Though disappointing, today’s events come as no surprise,” Martoma’s lawyer, Charles Stillman, said in a statement Dec. 21. “The simple fact is that Mathew Martoma did not trade on inside information, is innocent of all these charges and we look forward to his ultimate vindication.”
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).
Ex-Anglo Irish Chairman Fitzpatrick Charged for Hiding His Loans
Former Anglo Irish Bank Corp. Chairman Sean Fitzpatrick was charged with hiding personal loans of as much as 139.8 million euros ($184.5 million) from the auditors of the now-nationalized bank.
Fitzpatrick, 64, appeared in court in Dublin Dec. 21 after being charged with breaches of Irish company law for providing “misleading, false or deceptive” declarations to company auditors, according to court documents filed by prosecutors.
Earlier, Fitzpatrick and two other one-time Anglo Irish directors were ordered on Oct. 8 to stand trial in relation to loans to 16 clients to buy shares in the bank in 2008. He said at the time that while the transactions “were inappropriate and unacceptable from a transparency point of view,” they did not breach banking or legal regulations.
Fitzpatrick was remanded on bail until March 1, when the so-called book of evidence will be presented to the court. His solicitor Michael Staines didn’t immediately return calls to his office seeking comment on the charges.
Themis’s Saluzzi Says NYSE, ICE Deal Good for ‘Players’
Joseph Saluzzi, co-head of equity trading at Themis Trading LLC, said IntercontinentalExchange Inc. (ICE)’s plan to buy NYSE Euronext (NYX) will be “good for the players involved.” Saluzzi spoke with Bloomberg’s Pimm Fox and Vonnie Quinn on Bloomberg Radio’s “Taking Stock.”
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Comings and Goings
Stone Resigns From Accounting Oversight Board After SEC Claims
Mary Stone resigned from the Financial Accounting Foundation’s board of trustees less than two weeks after she was accused by the Securities and Exchange Commission of violating her responsibilities in overseeing Morgan Keegan & Co. mutual funds during the credit crisis.
The FAF, which oversees the board that sets U.S. accounting standards, expects to fill Stone’s spot next year, according to a press release from the Norwalk, Connecticut-based organization. Stone, an accounting professor at the University of Alabama in Tuscaloosa, took a leave of absence on Dec. 10, the day the SEC announced its claims against her and seven other former directors of the funds.
The SEC accused the mutual funds’ directors of allowing assets backed by subprime mortgages to be overvalued as the housing market collapsed in 2007. The action followed a related $200 million settlement with Morgan Keegan, a subsidiary of Raymond James Financial Inc. (RJF), last year and sanctions against two employees in 2010.
Stone and five other directors acted “diligently and in good faith” and intend to contest the SEC’s allegations, which they “emphatically deny,” their attorney, Stephen Crimmins of K&L Gates in Washington, said in a Dec. 10 statement. Stone didn’t return a call for comment Dec. 21.
Beswick Appointed SEC Chief Accountant by Agency’s New Chairman
Paul A. Beswick, who has served as the U.S. Securities and Exchange Commission acting chief accountant for the past several months, was named to the position of chief accountant at the agency Dec. 21 by SEC Chairman Elisse Walter.
The appointment of Beswick was announced in a statement.
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