ESMA-Credit Raters, Cyprus, Kuroda’s ‘Fixer’: Compliance
The European Union regulator that oversees Moody’s Investors Service (MCO), Standard & Poor’s and Fitch Ratings said credit rating companies are falling short of standards set by the bloc.
The European Securities and Markets Authority found failings in the “process of disclosure and implementation of changes” to the methodology used to rate the creditworthiness of Europe’s banks, the Paris-based agency said in an e-mailed statement yesterday.
Moody’s, S&P and Fitch registered with ESMA in 2011, becoming directly supervised by a single EU regulator for the first time.
ESMA focused its review on the links between bank and sovereign credit ratings and found that, for one or more of the ratings companies, “the information used for certain rating actions referred to significantly outdated data.” The watchdog can fine companies if they don’t respond to the findings.
Credit rating firms have improved their record keeping, internal controls and level of involvement of senior management in rating decisions since ESMA’s last annual review was completed in March 2012, the regulator said.
Fitch Ratings is “committed to meeting its regulatory obligations” said Mark Morley, a London-based spokesman. “To the extent that any of the issues raised in this report apply to Fitch they will be promptly addressed.”
“Moody’s is fully committed to complying with the European regulation and to further enhancing the transparency, performance and processes surrounding our ratings as part ESMA’s continuing supervision of our industry,” said Daniel Piels, a spokesman.
EU Officials Pressing for Cyprus Bank Tax Signal Flexibility
European policy makers signaled flexibility on the application of an unprecedented bank tax in Cyprus, seeking to overcome outrage that threatens to derail the nation’s bailout. European shares and the euro fell.
While demanding that the levy raise the targeted 5.8 billion euros ($7.6 billion), finance officials said easing the cost to smaller savers was up to Cyprus. A vote on the tax, needed to secure 10 billion euros in rescue loans, was delayed for a second day until today. Banks may not reopen today after a holiday yesterday, state-run broadcaster CYBC reported.
While Cyprus accounts for less than half a percent of the 17-nation euro economy, the raid on bank accounts risks triggering new convulsions in the financial crisis that began in 2009 in Greece. Moody’s Investors Service said that the move is a significant step toward limiting support for bank creditors across Europe and shows that policy makers will risk financial- market disruptions to avoid sovereign defaults.
Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm since the ECB pledge in September to backstop troubled nations’ debt. With no government in Italy, Spain in the throes of a political scandal and Greece struggling to meet the terms of its own bailout, more turmoil could hamper efforts to end the crisis.
The levy -- as of now 6.75 percent of all deposits as much as 100,000 euros and 9.9 percent above that -- whittled the euro-area’s bailout of Cyprus to 10 billion euros, down from an original figure of about 17 billion euros, near the size of the nation’s 18 billion-euro economy.
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Separately, Swiss stocks declined from the highest level in five years amid concern an unprecedented levy on bank deposits in Cyprus will deepen the euro area’s sovereign-debt crisis.
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U.K. FSA to Publish Early Investigation Notes With Names
The U.K. Financial Services Authority plans to publish warning notices with the names of targets of their investigations and what rules they suspect they may have broken at the same time the subjects themselves are notified of the probe.
The regulator published a consultation paper yesterday with proposals on how it will use its new power to “promote early transparency of enforcement proceedings,” the FSA said in a statement on its website yesterday.
Kuroda Gets BOJ Monetary-Policy Fixer as Amamiya Returns
Incoming Bank of Japan (8301) Governor Haruhiko Kuroda will have a veteran of quantitative easing as his top policy planner, after Masayoshi Amamiya was brought back from running the bank’s Osaka branch.
Amamiya, who led the monetary affairs department for six years before being sent to Osaka in May, got his old job back as one of six executive directors, according to a BOJ statement in Tokyo March 17. The veteran central banker did a stint at the Finance Ministry earlier in his career, an experience he may tap as the government and BOJ step up policy coordination.
The central bank official, 57, was at the helm of the department that draws up policy options when the BOJ adopted a goal of 1 percent inflation and surprised forecasters by injecting 10 trillion yen of stimulus in February 2012. Now, his return gives him a chance to plot strategy as Kuroda attempts to corral the nine-member board behind more easing.
The return of Amamiya after less than a year as head of the Osaka branch breaks with typical tenures in the job.
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Japanese Prime Minister Shinzo Abe’s path to revive the world’s third-biggest economy through increased monetary stimulus will fail to turn around persistent deflation, said Waseda University professor Yukio Noguchi. If the BOJ begins to directly underwrite Japanese government bonds, a process known as monetization, it could lead to capital flight, a plunge in the yen and runaway inflation, Noguchi said. That may be the only way the nation can lighten the burden of its public debt, he said.
That contrasts with the views of Abe’s picks to run the Bank of Japan. Kuroda, who has said the central bank should buy a large amount of longer-term bonds to achieve its goal of 2 percent inflation, and Kikuo Iwata, confirmed as one of two deputy governors, who has said bond buying can end deflation within two years.
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Banks Raise Cross-Border Lending by Least in 13 Years, BIS Says
Global banks’ cross-border lending increased at the slowest rate in 13 years in the third quarter, restrained by a contraction in loans to financial firms in the euro-area, the Bank for International Settlements said.
Foreign banks are reducing their lending to European banks on concern that the region’s sovereign debt crisis could be exacerbated by political uncertainty in Italy, the area’s third- largest economy. Banks are also reducing lending as they try to meet the stricter capital requirements set by the Basel Committee on Banking Supervision.
Lenders reporting to BIS increased cross-border assets by $33 billion, or 0.1 percent, in the three months through September, according to data released by the BIS March 17. Cross-border claims on non-banks increased by $153 billion, or 1.4 percent, in the period. Lending to banks fell by $120 billion, or 0.7 percent.
‘Wash Trades’ by High-Speed Firms Probed by CFTC, WSJ Says
The U.S. Commodity Futures Trading Commission is looking at whether some high-frequency traders distort stock and futures markets by acting as buyer and seller in the same transaction, the Wall Street Journal reported, citing people familiar with the matter.
Such trades may be illegal because they feed false information into markets and can be used to manipulate prices. So-called “wash trades” also give the false impression of higher volume in trading.
The names of companies involved in the probe were not released, the paper said.
Madoff Business Partner Kohn Says She Gave $60 Million to Family
Bernard Madoff’s European business partner, Sonja Kohn, told a U.K. court she gave $60 million from the convicted fraudster to companies and trusts linked to her family.
Liquidators of London unit Madoff Securities International Ltd. are pursuing Kohn to recover fees she was paid to introduce European clients to his Ponzi scheme. She was ordered to come to a London court to answer questions about the assets.
Kohn, 64, said she couldn’t remember details of all the companies and trusts that received the money, or who controlled them.
Liquidators of Madoff’s estate are trying to recover at least $80 million from the directors of his firm’s U.K. unit and others who profited from the Ponzi scheme. Kohn, a former economics adviser to the Austrian government, set up companies in the British Virgin Islands, Italy and Gibraltar for the income from Madoff. Most of the companies have been wound up, she said.
Pushpinder Saini, a lawyer for the liquidators, said Kohn was really in control of the companies and could return assets if she wanted.
Kohn’s lawyer Trevor Asserson told the judge his client was also a victim of the fraud and hadn’t suspected any wrongdoing. He didn’t immediately respond to an e-mail seeking comment.
Madoff is serving 150 years in prison in North Carolina for the fraud that caused his New York-based firm to collapse in December 2008 sparking investigations and dozens of lawsuits.
SAC’s Plotkin Said to Have Been Tipped by Ex-SAC Analyst
A convicted SAC Capital Advisors LP analyst at the center of a federal criminal probe of insider trading passed inside information to SAC fund manager Gabriel Plotkin, according to internal e-mails and two people familiar with the matter.
The U.S. Securities and Exchange Commission said last week in a court filing that the analyst, Jon Horvath, funneled nonpublic information on technology stocks to two unidentified portfolio managers at Steven Cohen’s $15 billion hedge fund. The men then traded on the information, reaping more than $6 million for SAC Capital. Previously, only one had been identified in a separate court case: SAC fund manager Michael Steinberg.
The SEC’s complaint, filed the same day as its $616 million insider trading settlement with two SAC units, cited the same e- mails included as evidence by prosecutors in the trial of two of Horvath’s co-defendants. In those messages, Horvath passed information that came from inside Dell Inc. (DELL) and Nvidia Corp. (NVDA), previewing earnings announcements. Steinberg and Plotkin, listed as recipients, exchanged messages with Horvath, according to the government’s evidence.
Plotkin, 34, didn’t return a message seeking comment left at his home. The SEC’s March 15 complaint against the SAC units didn’t name him or Steinberg, or indicate whether they knew Horvath’s information was obtained illegally. Horvath pleaded guilty and is cooperating with the government.
Neither Steinberg nor Plotkin has been accused of any wrongdoing.
Cohen hasn’t been sued or charged, and has denied any wrongdoing.
Plotkin did “nothing wrong” and “has built a successful career on a commitment to sound fundamental research,” Jonathan Gasthalter, a spokesman for SAC Capital, said in an e-mailed statement March 17. “Plotkin lost over $6 million that day on a large Dell long position. He owned 1.8 million shares and 3,000 of Oct. 24 call options.”
Steinberg has done “absolutely nothing wrong,” said his lawyer, Barry Berke. “At all times his trading decisions were based on detailed analysis as well as information that he understood had been properly obtained.”
Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara’s office, and John Nestor, a spokesman for the SEC, declined to comment on the agency’s allegations or the two recipients of Horvath’s e-mails.
The criminal case is U.S. v. Newman, 12-cr-00121; the SEC case is SEC v. Sigma Capital, 13-cv-01740. Both are in U.S. District Court, Southern District of New York (Manhattan).
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Goldman Sachs Rejected by Top Court in Mortgage Securities Case
The U.S. Supreme Court turned away an appeal by Goldman Sachs Group Inc. (GS) in an investor lawsuit over mortgage-backed securities whose value plummeted during the 2008 financial crisis.
The justices yesterday left intact a federal appeals court ruling that partially backed the NECA-IBEW Health and Welfare Fund, which is pressing the case.
At issue was whether NECA, which bought certificates from two of 17 disputed Goldman Sachs trusts, had legal “standing” to sue on behalf of investors in the other 15 offerings. The court did not consider the issue of class-action status.
The New York-based 2nd U.S. Circuit Court of Appeals said NECA’s claims were similar to those stemming from five other offerings, all of which contained loans made by a Wells Fargo & Co. (WFC) unit and GreenPoint Mortgage Funding Inc. The appeals court said NECA had standing to press those claims, though not any claims concerning the other 10 trusts.
The case is Goldman Sachs v. NECA-IBEW Health and Welfare Fund, 12-528.
U.K.’s Cameron Speaks About Newspaper Regulation Deal
British Prime Minister David Cameron spoke before Parliament about the agreement between Britain’s main political parties on measures to regulate newspapers in the wake of the News Corp. hacking scandal.
Cameron’s Conservatives reached a deal in late-night talks with Deputy Prime Minister Nick Clegg’s Liberal Democrats and the opposition Labour Party to introduce a Royal Charter creating a new newspaper complaints body, backed by a clause in a bill passing through Parliament yesterday that will make it difficult for the nature of the charter to be changed.
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Kaufman, Bove Talk About JPMorgan Hearing, Trading Loss
Former U.S. Senator Ted Kaufman, a Delaware Democrat, talked about the outlook for U.S. banking regulation and JPMorgan Chase & Co. (JPM)’s “London Whale” trading loss last year.
Kaufman spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
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Richard Bove, an analyst at Rafferty Capital Markets, also talked about last week’s hearing and said JPMorgan shareholders and others were not hurt by the London Whale trading incident. Bove spoke Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers.”
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Levitt Says Bull Market Will Mute Calls for Regulation
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said “in a roaring bull market, cries for more regulation will be muted.” Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”
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Chidambaram May Ease India FDI Caps, Seeks Interest-Rate Cut
The Indian government sees the case for a cut in borrowing costs; the decision rests with the central bank, according to India’s finance minister.
Finance Minister Shri Palaniappan Chidambaram made the remarks in a wide-ranging interview on March 15.
India mulls scrapping or easing caps on foreign-direct investment in many industries, Chidambaram said.
Last month’s budget provides space for an interest-rate cut, he said. Inflation remains “a worry,” especially food- price increases. Importers and exporters seem “quite happy” with the rupee at 54-55 per dollar, he said.
Government can contain “runaway expenditure,” according to Chidambaram. Revenues are to rise as economic growth accelerates, he said. The current-account deficit is a bigger concern than the budget shortfall.
India will try to woo investment from companies that are among the world’s 500 largest and have yet to commit to the country. India is considering measures to lure “longer tenure” portfolio inflows from overseas, Chidambaram said.
On the threat of a credit-rating downgrade, Chidambaram said it has “clearly receded by quite a few yards.”
Comings and Goings
U.K. Finance Regulator Appoints Chairmen to Independent Panels
The U.K. finance regulator appointed chairmen to the three independent panels that critique its policies from the point of view of the firms it regulates.
Graham Beale, the chief executive officer of Nationwide Building Society, was named head of the Financial Conduct Authority’s practitioner panel, the regulator said in a statement today. Andrew Turberville Smith, the finance director and chief operating officer of Weatherbys Bank Ltd., will head the smaller business practitioner panel, and Paul Swann, president of ICE Clear Europe Ltd., is taking the role of chairman of the markets practitioner panel.
Germany Picks Bafin Head for Bank Supervision, Sueddeutsche Says
Germany’s finance ministry will propose Bafin chief Elke Koenig for the country’s spot in the Europe’s new top body responsible for banking supervision, Sueddeutsche Zeitung reported, citing unidentified people close to the government.
Koenig was picked over Bundesbank’s candidate Sabine Lautenschlaeger, according to Sueddeutsche.
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