Swiss Insurers, UPS Takeover, Dragon Systems: Compliance
Switzerland’s implementation of new solvency rules ahead of the European Union may reduce the appeal of Zurich as a base for reinsurers and insurers, the canton’s economy and labor office said.
Switzerland introduced stricter solvency rules known as SST in January 2011, requiring insurers to provide a mark-to-market valuation of assets and liabilities that for the first time takes into account their investments. Lobbying by German, British and French insurers has delayed this year’s planned implementation of the EU’s Solvency II rules that seek to align capital reserves with the risks companies take.
Zurich, home to Swiss Re Ltd. (SREN) and Zurich Insurance Group AG (ZURN), is concerned the rules threaten the role of insurers in creating a more diversified based for the canton’s bank-dominated financial industry. Record-low interest rates and a shortage of skilled workers provide other challenges to Zurich’s insurance industry, the canton said.
BOE Proposes Power to Target Risks in Mortgages, Derivatives
The Bank of England’s Financial Policy Committee proposed powers to alter the amount of capital banks hold against real-estate assets as well as derivatives and bonds as it seeks to strengthen the financial system.
While the FPC will seek to act at the “highest level,” it also sees a potential need to target capital at a “more granular level,” it said a draft paper published in London today. “Such an approach might help to tackle threats to stability before they spread, particularly by leaning against exuberance in specific subsectors,” it said, noting high loan-to-value mortgages as an example.
The FPC has sought powers over so-called sectoral capital requirements -- along with countercyclical capital buffers and leverage ratios -- from the government as the Bank of England prepares to take over the role of ensuring financial stability. The committee, led by BOE Governor Mervyn King, is currently operating on an interim basis as legislation passes through Parliament.
The FPC said the use of the countercyclical capital buffer and the sectoral capital requirements “will improve the ability of the financial system to withstand shocks.” King is due to appear at a Parliament hearing in London tomorrow to answer lawmakers’ questions on the BOE’s semi-annual Financial Stability Report. FPC members Andrew Haldane and Michael Cohrs will also attend the hearing.
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Obama to Join Talks on Financial-Services Trade Barriers
President Barack Obama is set to notify Congress early next week that the U.S. plans to participate in trade talks to lower national barriers to financial services, telecommunications and express delivery, according to people familiar with the decision.
U.S. Trade Representative Ron Kirk’s office is preparing a 90-day notification to Congress that it will take part in so-called trade in services negotiations at the World Trade Organization in Geneva, the people said. They declined to discuss the process on the record before a formal announcement.
Services are a growing portion of international trade, accounting for about $8 trillion in 2011, according to WTO statistics. The countries involved in the talks account for about 70 percent of global commerce.
Discussions probably will cover the cross-border movement of financial data, information and communications services, maritime, environmental and energy services and government procurement.
Nkenge Harmon, a spokeswoman for the USTR in Washington, declined to comment, saying by phone, “We haven’t notified Congress, and when we notify Congress, we’ll notify Congress.”
It would be the first new trade negotiation since Obama was re-elected in November.
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UPS Abandons TNT Express as EU Moves to Reject $6.9 Billion Bid
United Parcel Service Inc. (UPS), the world’s biggest package-delivery company, said it scrapped a 5.16 billion-euro ($6.9 billion) bid for TNT Express NV (TNTE) after European regulators moved to block the deal.
Antitrust officials told the companies last week that the latest remedies were insufficient, according to TNT, which fell as much as 51 percent in Amsterdam. TNT will get a 200 million-euro termination fee from Atlanta-based UPS following formal rejection of the combination, the biggest to fail in Europe since BAE Systems Plc and EADS called off a merger in October.
EU Competition Commissioner Joaquin Almunia will reach a decision on the case by Feb. 5, spokesman Antoine Colombani said.
UPS Chief Executive Officer Scott Davis said he was “extremely disappointed” by the failure of a deal that would have been the biggest in his company’s history, giving it a European market share similar to Deutsche Post AG (DPW)’s DHL, the region’s top express operator.
The deal will be formally terminated once the “inevitable” prohibition ruling has been received, TNT said. The Dutch company added that it “regrets this situation, having believed the merger was feasible and beneficial for all stakeholders.”
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Deutsche Bank’s Management Questioned by Bafin on Libor, HB Says
German financial watchdog Bafin is interviewing nine managers at Deutsche Bank AG (DBK) including co-Chief Executive Officer Anshu Jain, co-CEO Juergen Fitschen, Chairman Paul Achleitner and head of legal Richard Walker, Handelsblatt reported, without saying where it got the information.
Jain will be interviewed in January, according to Handelsblatt.
The investigation of top management should be terminated by end of February and the special investigation results should be published around the end of March, according to Handelsblatt.
Deutsche Bank spokesman Christian Streckert declined to comment on the report and referred questions to Bafin.
AIG Fined $6 Million by California Over Marketing, Claims
American International Group Inc. (AIG), the insurer that repaid a U.S. bailout, has agreed to a two-year monitoring period and been fined $6 million by a California watchdog for claims and marketing violations.
The penalty was assessed against New York-based AIG’s National Union Fire Insurance Co. of Pittsburgh, according to a statement Jan. 11 from California Insurance Commissioner Dave Jones.
“We are pleased that this agreement is now effective,” Jon Diat, a spokesman for AIG, said in an e-mailed statement. “We are firmly committed to regulatory compliance.”
Deutsche Bank Libor Probe Result Should Be Public, Lawmakers Say
Deutsche Bank AG and Germany’s finance regulator are under pressure to publish findings of a probe into whether the lender rigged interest rates, with lawmakers saying a rule meant to protect banks is crippling efforts to explore what’s wrong with financial markets.
Unless a bank allows publication, German law bans the regulator, known as Bafin, from disclosing facts from reviews if it would be contrary to the lender’s interest. Lawmakers claim the practice, aimed at protecting business secrets, hinders effective controls.
Regulators from Canada to Switzerland are investigating whether more than a dozen banks including Deutsche Bank, Barclays Plc and Royal Bank of Scotland Plc colluded to rig the London interbank offered rate, the benchmark for more than $300 trillion of securities. UBS AG (UBSN), Switzerland’s largest bank, was fined $1.5 billion by U.S. and U.K. regulators for manipulating interest rates including Euribor. Barclays Plc was fined 290 million pounds ($467 million) in June last year for manipulating Libor and Euribor.
The U.S. Justice Department is conducting a criminal probe in parallel with civil investigations by the Commodity Futures Trading Commission and the U.K. Financial Services Authority.
Deutsche Bank denies any wrongdoing by its executives. Christian Streckert, a company spokesman, declined to comment on whether the bank will allow the Libor probe results to be disclosed.
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China Stocks Rise Most in Month on Market Access for Foreigners
China’s stocks rose the most in a month after the head of the securities regulator said the nation can increase by 10 times the size of two investment programs that allow foreign investors to buy securities.
China can raise quotas to allow foreigners as well as offshore yuan holders in Hong Kong to buy stocks and bonds in the mainland, said Guo Shuqing, chairman of the China Securities Regulatory Commission. Citic Securities Co. led a rally for brokerages on the prospect that increased demand for equities would boost profit.
China can raise the level of quotas for the Renminbi Qualified Foreign Institutional Investors and the Qualified Foreign Institutional Investors programs, Guo said at a conference in Hong Kong today.
The government scrapped a ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets last month, part of government efforts to encourage long-term foreign ownership and shore up slumping equities.
China has also started preparations for a trial program that would allow individuals to invest in overseas capital markets as the nation seeks a greater role for its currency in global finance.
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Deutsche Postbank Sues UBS Over $100 Million Securitization Deal
UBS AG was sued by Deutsche Postbank AG (DPB), a unit of Deutsche Bank AG, over allegations the Swiss lender didn’t honor a 75 million-euro ($100 million) securitization deal.
Postbank says in a London lawsuit that UBS failed to convert leveraged asset-backed securities into collateralized notes under the terms of a contract that required the action if UBS’s credit rating was downgraded. Postbank says the Zurich-based lender is in default because it didn’t convert the assets after it was downgraded along with 14 other banks in June 2012.
UBS denies the allegations and will defend itself vigorously, according to a statement from Richard Morton, a spokesman for the bank.
The Postbank press office in Bonn, Germany, didn’t respond to e-mails requesting comment.
Postbank is demanding early repayment of the full amount under the notes, according to the lawsuit. The court documents released last week contain only a one-page summary of the claim and further details haven’t been disclosed.
The case is Deutsche Postbank AG v. UBS AG, High Court of Justice, Queen’s Bench Division, Commercial Court, 12-1628.
FTC Sues Over Alleged $220 Million N.Y. Telemarketing Scam
The Federal Trade Commission sued to shut down an alleged $220 million telemarketing scheme operating out of the Empire State Building, saying it has victimized thousands of people, including the elderly and disabled.
The Tax Club Inc. has duped victims interested in working at home or setting up Internet businesses, charging them thousands of dollars for nonexistent small-business development services, according to court papers filed Jan. 10 in federal court in Manhattan by the FTC and the attorneys general of New York and Florida.
The Tax Club began in Utah and expanded to comprise at least 12 companies controlled by four individuals and run from the 60th floor of the landmark Manhattan office tower, the FTC and states said in court papers. They asked for an order shutting down the businesses, freezing their assets and appointing a temporary receiver.
The scheme has been in operation since at least 2008, they said.
Judith Archer, who represents all but one of the defendants, declined to comment on the allegations. Michael Hartmere, who represents an individual defendant, didn’t immediately return a phone call seeking comment.
The case is Federal Trade Commission v. Tax Club Inc., 1:13-cv-00210, U.S. District Court, Southern District of New York (Manhattan).
Goldman Sachs Says Dragon Rushed Toward Doomed $580 Million Deal
Goldman Sachs Group Inc. (GS) portrayed speech recognition pioneer Dragon Systems Inc. as rushing to close a $580 million deal without sufficiently vetting its buyer in a doomed union that triggered a negligence suit and landed the bank in Boston federal court.
Beginning its defense at the trial of the case this week, Goldman Sachs made its case to jurors who have spent weeks hearing how the 2000 all-stock deal was quickly followed by an accounting scandal that led to the collapse of suitor Lernout & Hauspie Speech Products NV. Goldman Sachs, which advised Dragon on the deal, called witnesses to counter allegations by Dragon founders Jim and Janet Baker that its negligence cost them their life’s work.
Testifying Jan. 9 for Goldman Sachs, former Dragon president John Shagoury agreed with a bank attorney that Dragon’s board of directors was focused on “speed and certainty” in the months leading to the deal. In response to a question, Shagoury acknowledged he didn’t blame Goldman Sachs that the stock options became worthless in the merger.
Dragon’s founders, who are seeking hundreds of millions of dollars in damages, claim that four Goldman Sachs bankers assigned to the transaction committed gross negligence by failing to pursue questions about Belgium-based Lernout & Hauspie’s finances that should have led them to avoid the deal.
They alleged in court papers that they lost their company and access to the technology they had spent their careers developing, including Dragon NaturallySpeaking dictation software, when Lernout & Hauspie filed for bankruptcy in November 2000. The deal closed in June of that year.
Goldman Sachs claimed its team gave Dragon competent advice and said it urged company management to press their accountants at Arthur Andersen LLP to probe Lernout & Hauspie’s finances.
The Bakers, who started Dragon in 1982, claim the bankers failed to do due diligence and never advised them to back away from the sale despite lingering questions about L&H’s unusual revenue spikes in Asia.
The case is Baker v. Goldman Sachs & Co., 09-cv-10053, U.S. District Court, District of Massachusetts (Boston).
UBS’s Li Says China Capital Markets to Improve in 2013
David Li, head of UBS AG’s operations in China, talked about the outlook for the country’s financial markets and growth.
Li, who spoke with Rishaad Salamat on Bloomberg Television’s “On the Move,” also discussed the impact of China’s business regulations on its economy.
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Former FDIC Chief Bair Says Bank Leverage Still High
Sheila Bair, a former chairman of the U.S. Federal Deposit Insurance Corp., said we “still haven’t fixed the problems” that led to the U.S. financial crisis. Bair talked with Bloomberg’s Tom Keene and Sarah Eisen on Bloomberg Radio’s “Bloomberg Surveillance.” They were joined by Robert Albertson, principal and chief strategist at Sandler O’Neill & Partners LP.
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Comings and Goings/Executive Pay
Goldman Said to Weigh Delaying U.K. Bonuses From Prior Years
Goldman Sachs Group Inc. is considering whether to delay delivery of some bonuses due from prior years for U.K. employees until after top income-tax rates fall on April 6, according to a person briefed on the matter.
The postponement would affect incentive compensation deferred from 2009, 2010 and 2011 and benefit those whose tax rates are set to decline to 45 percent from 50 percent, said the person, who requested anonymity because a decision hasn’t been made. The delay wouldn’t affect bonuses awarded for 2012, the person said.
New York-based Goldman Sachs, the fifth-biggest U.S. bank by assets, typically delivers executives’ restricted stock during January.
Michael DuVally, a Goldman Sachs spokesman, declined to comment. The Financial Times reported Jan. 12 that the bank was weighing whether to defer the bonus payments.
Wright Becomes FTC Commissioner Following Senate Confirmation
Joshua D. Wright was sworn in as a commissioner of the Federal Trade Commission Jan. 11 for a term that will end Sept. 25, 2019, according to a statement by the commission on its website.
Wright was unanimously confirmed by the senate Jan. 1. He will replace J. Thomas Rosch, who became a commissioner in January 2006.
Prior to becoming a commissioner, Wright was a professor of law at George Mason University School of Law. He has also served as a scholar in residence at the agency’s Bureau of Competition, the FTC said in the statement. His areas of expertise include antitrust and economics.
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