Goldman Bonuses, Appraisal Rules, U.K. Banks: Compliance
Goldman Sachs Group Inc. (GS) won’t delay distribution of U.K. bonuses to help minimize employees’ tax rates, a person with direct knowledge of the decision said.
The firm had considered postponing incentive compensation due to employees from 2009, 2010 and 2011 until after top income-tax rates drop in April.
In remarks to lawmakers in London yesterday, Bank of England Governor Mervyn King criticized the plan as “lacking in care and attention to how others might react.” He said it’s “depressing” that banks may be willing to shift bonus payments to minimize workers’ tax burden.
Goldman Sachs accelerated delivery of $65 million in stock awards last month to 10 executives, including Chief Executive Officer Lloyd C. Blankfein, in a move that helped them avoid higher U.S. taxes that take effect this year. That change, which didn’t affect compensation for 2012, was made public by company filings at about 8 p.m. New York time on New Year’s Eve.
This week, the Financial Times and other media reported that Goldman Sachs, the fifth-biggest U.S. bank by assets, was reviewing whether to delay U.K. bonus payments due from prior years to help employees pay lower rates. The reports were met with criticism from U.K. politicians as well as King.
Management decided against proceeding with the plan, a decision that was ratified yesterday in a regular meeting of the board’s compensation committee, according to the person, who asked to not be identified because deliberations were private.
The decision by New York-based Goldman Sachs was reported earlier yesterday by British Broadcasting Corp. editor Robert Peston on Twitter.com.
Appraisal Standards for Higher-Risk Mortgages Approved by FDIC
U.S. mortgage lenders will get an additional year to implement new appraisal standards for higher-risk loans after regulators revised the Dodd-Frank Act measure to address concerns raised by financial firms.
Creditors issuing loans at above-average interest rates that don’t meet the “qualified mortgage” standard will need to get written reports by certified appraisers who physically inspect homes under rules approved yesterday by the Federal Deposit Insurance Corp., one of six regulators that must sign off.
Lenders will get the full 12-month implementation period permitted under the statute, according to John Fairbanks, a spokesman for the National Credit Union Administration.
In addition to the initial physical inspection, the rule requires a second appraisal when a home is being turned around for a quick, higher resale. Fairbanks said the final rule doesn’t require the second appraisal if the new sale price is only slightly higher.
The six U.S. regulators involved in the joint rule include the FDIC, NCUA, the Federal Reserve, Office of the Comptroller of the Currency, Federal Housing Finance Agency and Consumer Financial Protection Bureau.
BBA Proposes Independent Board to Monitor Banking Standards
The British Bankers’ Association, a financial lobby group, proposed creating an independent council to promote a new code of conduct for bankers after scandals eroded trust in the industry.
The code would guide banks on pay, what’s expected of boards and controls to prevent unethical behavior, the London- based BBA said in a submission to parliament published yesterday.
The plan comes after banks set aside about 11 billion pounds ($17.7 billion) to compensate customers mis-sold loan insurance and for the Libor scandal. Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, may pay as much as 500 million pounds in fines next week to settle allegations traders tried to rig interest rates, two people with knowledge of the matter said. Barclays Plc (BARC) was fined 290 million pounds in June for manipulating Libor.
The proposed Banking Standards Review Council “would need to be independent of the industry” with a non-banking chairman and a majority of non-banking members, including customers, the lobby group said in its submission to the Parliamentary Commission on Banking Standards.
U.K.’s Biggest Companies Lower Tax Rate With Overseas Business
The biggest U.K. companies paid taxes at a lower rate for the fourth consecutive year, partly by garnering more profit overseas, and caused public outcry by avoiding levies in Britain.
The effective tax rate for FTSE 100 companies, the largest traded on the London Stock Exchange, fell to 24.5 percent from 35.8 percent in 2009, according to UHY Hacker Young, a London- based accounting company. The firm said in an e-mailed statement that reductions in corporate taxes around the world, including in the U.K., have helped multinational companies reduce their tax payments.
U.K. Business Secretary Vince Cable said in December that governments should coordinate across borders to make companies pay more tax. More than 20 companies left the U.K. for tax reasons from 2007 to 2011, according to the accounting firm.
The government will be encouraged by tax-law changes that prompted a few to return, the firm said. An “anti-abuse” rule that may be considered by the U.K. government to limit tax avoidance could drive more companies away, the accountants said.
The averages used in the study are taken from effective tax rates reported by FTSE 100 companies in their latest annual reports or by their investor relations teams in the 12 months ended Oct. 31.
EU Lawmakers Back Sovereign-Debt Curbs for Ratings Companies
Credit-ratings companies will face European Union curbs on how they update markets about the quality of government debt under plans approved by the bloc’s lawmakers today.
The measures, intended to make it less likely that ratings decisions roil markets, will also give investors the right to sue if they lose money because of poor quality or deliberately distorted credit assessments. European Parliament legislators, voting in Strasbourg, France, backed the plans in a compromise deal with the EU’s 27 governments, which must now rubber-stamp the accord before it can take effect.
Under the EU plan, each credit ratings company would pick a maximum of three days a year when they would be allowed to publish so-called unsolicited assessments of governments’ creditworthiness.
Unsolicited ratings are those that haven’t been requested and paid for by a client. Ratings companies will be able to issue such ratings outside of their three dates if they can justify it to regulators.
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Siemens Agrees to Pay $10 Million to Settle New York Fraud Case
A Siemens AG (SIE) unit agreed to pay $10 million to settle allegations made by New York prosecutors that the company lied about its qualifications to win more than $200 million in infrastructure contracts.
Schlesinger-Siemens Electrical violated New York state law by filing false documents with two city departments, the New York District Attorney’s Office said in a statement on its website Jan. 14. Siemens takes responsibility for misconduct committed by its former business partner Schlesinger Electrical Contractors Inc., Munich-based Siemens said in an e-mailed statement.
New York’s Department of Environmental Protection awarded five contracts to Schlesinger-Siemens Electrical with a total value of $234.8 million between Aug. 31, 2005, and Jan. 19, 2007, New York District Attorney Cyrus Vance Jr. said a statement.
U.K. Will Widen Review of Financial Firm Sales Incentives
The U.K.’s financial watchdog is widening a probe into sales incentives at retail financial companies.
The Financial Services Authority will investigate practices at “high street banks and other firms in addition to the 22 firms that were originally assessed,” the agency said in an e- mailed statement today.
Separately, the regulator is in talks with banks to set a cut-off date for claims arising from alleged improper selling of payment protection insurance, the London-based Times reported, citing unidentified people with knowledge of the matter.
The British Bankers Association has suggested a summer deadline in return for agreement by banks to finance an advertising campaign making the public aware, the newspaper said. The FSA is sympathetic to banks’ concern that without a cut-off date, there may otherwise be no end to mis-selling claims, the Times said.
The British Bankers Association declined to comment, the Times said.
Broadband Research’s Kinnucan Gets 4 Years in Insider Case
Broadband Research LLC founder John Kinnucan, the expert- networker who refused to cooperate in a U.S. probe of insider trading before admitting to passing tips to hedge-fund clients, was sentenced to four years and three months in prison.
U.S. District Judge Deborah Batts yesterday in Manhattan federal court also ordered him to forfeit $164,000 he made in illegal profit. Kinnucan, who was indicted in February, pleaded guilty in July to one count of conspiracy and two counts of securities fraud.
In his plea, Kinnucan said he both obtained and gave tips to clients of his expert-networking firm, including two in New York. Prosecutors said he got inside information about SanDisk Corp. (SNDK), F5 Networks Inc. (FFIV) and OmniVision Technologies Inc. (OVTI), including quarterly revenue numbers, after befriending employees of technology companies.
In a submission by his lawyer, which hasn’t been made public and was referred to by the government in their court papers, Kinnucan sought a 24-month prison term, saying his conduct was “caused by stress, depression and alcohol abuse” after he learned he was the subject of an insider-trading investigation.
The case is U.S. v. Kinnucan, 12-cv-163, U.S District Court, Southern District of New York (Manhattan).
Apple Sued by Belgian Consumer Group Over Product Warranties
Apple Inc. (AAPL) is being sued by a Belgian consumer group over its product-warranty practices, more than a year after the iPad maker was fined by an Italian regulator over the same issue.
Test-Aankoop/Test-Achats filed a lawsuit at the commercial court in Brussels claiming Apple violates laws on consumer guarantees, it said in a statement yesterday. It cited customer complaints about information provided by Apple and authorized distributors about the company’s legal warranty, its one-year warranty and a warranty extension of as much as three years through the AppleCare Protection Plan.
Italy’s competition agency fined Apple 900,000 euros ($1.2 million) in 2011, saying the Cupertino, California-based company misled consumers by “prominently advertising” that its products had a one-year manufacturer warranty and selling an extension when consumers have the right to an automatic two-year warranty. European Union Justice Commissioner Viviane Reding last year asked state governments to check whether Apple retailers failed to advertise buyers’ right to the two-year warranty for products such as the iPhone and the iPad tablet.
Alan Hely, a spokesman for Apple in London, didn’t immediately respond to a call and an e-mail seeking comment.
United Airlines Skirted Jet-Fuel Taxes, Illinois Agency Says
The airline’s United Aviation Fuels Corp. unit, which purchases jet fuel for United and its regional carriers, used an office in Sycamore, Illinois, that has no true sales activity, the agency said in the complaint filed Jan. 14 in state court in Chicago. The office has one staff member, who doesn’t work daily and doesn’t have a computer, according to the complaint.
United Airlines and its unit have been engaging in the sales since 2001, diverting tax money owed to the agency and other municipalities, according to the lawsuit. The RTA asked for a court order barring the practice, as well as recovery for unpaid taxes.
The lawsuit is “without merit,” said Jennifer Dohm, a spokeswoman for Chicago-based United Continental Holdings Inc., United Airlines’ parent company.
“The operation of our fuel subsidiary in Sycamore has been examined by tax authorities in the past and has been determined to comply with all applicable laws,” Dohm said in an e-mail. She said the company will fight the claims.
The case is Regional Transportation Authority v. United Aviation Fuels Corp., 2013CH01023, Circuit Court of Cook County, Chancery Division (Chicago).
EU’s Barroso Expects Bank-Supervisor Regulations Within Weeks
European Commission President Jose Barroso said regulations to create a single bank supervisor at the European Central Bank are proceeding quickly.
“I hope making the final step for formal adoption is a matter of weeks, not months,” he said in the text of a speech to the European Parliament in Strasbourg, France. Parliament members have worked “very efficiently” with the council of European nations to speed up work on the issue, he said yesterday.
The European Central Bank is slated to become the single supervisor for euro-area banks around March 1, 2014, a year after regulations are set to establish oversight operations. The new supervisor is one condition for allowing the 500 billion- euro ($667 billion) European Stability Mechanism to lend directly to banks.
The Brussels-based commission will move swiftly on other banking measures such as capital requirements, deposit-insurance standards and how to handle failing lenders, Barroso said.
Comings and Goings/Executive Pay
JPMorgan Halves Dimon Pay, Says CEO Responsible for Lapses
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon had his pay cut by half after a review of losses at the bank’s chief investment office found he bears responsibility for the blunders.
The CEO’s compensation for 2012 is $11.5 million, the New York-based bank said today on its website, compared with $23 million a year earlier. The 2012 sum includes a $1.5 million salary and $10 million of incentive compensation.
“Mr. Dimon bears ultimate responsibility for the failures that led to the losses in CIO and has accepted responsibility for such failures,” the New York-based company said today on its website after spending about eight months reviewing what Dimon, 56, has called “egregious mistakes” at the CIO.
JPMorgan is working to rebuild investors’ trust after losing more than $6.2 billion in last year’s first nine months on derivatives bets by U.K. trader Bruno Iksil, nicknamed the London Whale because his positions were so big. The debacle fueled legal claims against the company and its executives, and regulatory probes.
The bank said its review of Dimon took into account his decisions to replace senior managers, efforts to claw back their pay and the formation of a team to examine what went wrong.
Dijsselbloem a ‘Good’ Possible Next Eurogroup Head, Faymann Says
Austrian Chancellor Werner Faymann praised Dutch Finance Minister Jeroen Dijsselbloem’s qualifications as the possible next head of the group of euro-area finance chiefs, saying he is a “good candidate.”
Faymann made the remarks to reporters yesterday in Strasbourg, France.
Luxembourg Prime Minister Jean-Claude Juncker, who has led the group of euro-area finance ministers since 2005, is preparing to step down. His successor is due to be designated on Jan. 21. Faymann said the 17-nation euro area has yet to reach an agreement on Juncker’s successor.
Dijsselbloem, a member of the Labor Party in the Netherlands, was appointed Dutch finance minister in November as part of Liberal Prime Minister Mark Rutte’s coalition government following elections in September.
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