Cyprus Contagion, Venezuela’s Dollar, Fannie: Compliance
Cyprus’s parliament rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force savers to shoulder part of the country’s bailout in a standoff that risks renewed tumult in the euro area.
Cypriot legislators in the capital Nicosia voted 36 against the proposal with none in favor in a show of hands yesterday. There were 19 abstentions. Hammered out by euro-area finance chiefs over the weekend, the deal had sought to raise 5.8 billion euros ($7.5 billion) by drawing funds from Cyprus bank accounts in return for 10 billion euros in international aid.
European policy makers are weighing how far to push Cyprus after lawmakers in the Mediterranean nation rejected the unprecedented levy, throwing into limbo a rescue package designed to keep it in the euro.
Stocks and the euro gained as investors speculated that the European Central Bank, whose Governing Council meets today in Frankfurt, will continue to support the country’s banks. Luxembourg Finance Minister Luc Frieden called for the 17 euro finance ministers to reconvene as soon as possible to forge a new bailout.
While Cyprus accounts for less than half a percent of the 17-nation euro economy, European officials including Dutch Finance Minister Jeroen Dijsselbloem said that Cyprus must contribute to its own bailout, while stressing that the Cyprus situation is unique.
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The euro will depreciate, just not because of Cyprus, according to Morgan Stanley, a self-described long-term bear on Europe’s common currency.
As the proposed levy threatened to undermine Europe’s banking system, strategists at Morgan Stanley, who expect the 17-nation currency will fall to $1.17 over time, said they see the prospects for a rebound.
The pledge by European Central Bank President Mario Draghi in July to do whatever it takes to preserve the currency union is still reverberating through financial markets, underpinning the euro and the region’s fixed-income markets. Draghi said this month that his untapped bond-buying program, known as Outright Monetary Transactions, remains an “effective” backstop.
The sluggish pace of global growth means major central banks around the world are extending their five-year-old monetary easing into a third round after they beat back recession and financial crisis. The ECB kept interest rates unchanged at a record-low 0.75 percent when policy makers met March 7, with Draghi noting at his press conference that some officials discussed cutting borrowing costs.
Stress in European funding markets has eased as Draghi’s efforts have reduced speculation that the euro bloc will break up, according to the Bloomberg Financial Conditions Monitor.
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DeMarco Calls for New Push on Reform as Fannie Profits Return
Fannie Mae and Freddie Mac (FMCC), the two government-seized mortgage financiers, appear increasingly likely to pay billions of dollars to the U.S. Treasury, focusing attention in Washington on what should replace them.
Edward J. DeMarco, the acting regulator of the two companies, was scheduled to appear before the House Financial Services Committee yesterday to urge lawmakers to reduce or eliminate the mortgage market’s reliance on taxpayers. At the same time, a Senate panel was scheduled to hear testimony from the authors of an alternate plan for housing-finance reform issued in February by an independent commission.
Washington-based Fannie Mae (FNMA) and McLean, Virginia-based Freddie Mac have been under U.S. conservatorship since 2008 and have drawn nearly $190 billion in taxpayer aid to stay afloat during that time. Lawmakers who don’t want the companies to return to their previous government-sponsored status are becoming concerned that political momentum for winding down and replacing them could erode as the housing market rebounds and profits soar.
Fannie Mae, in a regulatory filing on March 14, raised the possibility that it could soon be required to send as much as $62 billion to the U.S. Treasury because, once it is profitable, it may have to start counting potential tax credits as part of its net worth. The company said it would delay filing its earnings report for the quarter ended Dec. 31 while it studies the accounting issue.
Regardless of the outcome, Fannie Mae said it still expects to report “significant net income” for the quarter.
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Coba Project Abandons Plan to Oversee European Consolidated Tape
Coba Project Ltd. has abandoned its attempt to administer a consolidated tape for European share prices because of “insufficient support” from banks, fund managers, data providers and stock exchanges.
Consolidated tape lacks support from the institutions needed to make it happen, according to Graham Dick, the former head of business development at Chi-X Europe Ltd., and Mark Schaedel, the former global head of market data at NYSE Euronext (NYX), who started the Coba Project.
FIX Protocol Ltd., the London-based organization that owns the global-messaging format for financial trading, published a set of guidelines in November for how trade reports and market data should be consolidated to improve price transparency for European equities. Days later, Dick and Schaedel established the Coba Project as their plan to implement the FIX proposals, setting out the costs and how to share revenue from the model.
Incumbent exchanges continue to provide the reference price for stocks listed on their markets, prompting calls for a consolidated tape that calculates prices from all the trading venues where equities are traded.
The European Commission is working on an update to its Markets in Financial Instruments Directive, or Mifid. It wants to make a data feed that shows the price, volume and location of individual stock trades.
Banks Cut Basel III Shortfall by $215 Billion in Mid-2012
The largest global banks increased their core reserves by about 166 billion euros ($215 billion) during the first half of last year, regulators said.
The world’s 101 biggest banks would have needed an extra 208.2 billion euros to meet so-called Basel III capital rules had the standards been enforced in June 2012, the Basel Committee on Banking Supervision said today in a statement, compared with a 374 billion-euro deficit at the end of 2011.
Lenders made headway toward meeting their Basel obligations, while the U.S. and European Union struggled to meet a January deadline to start implementing the Basel III accord. The measures -- scheduled to be fully in force by 2019 -- will more than triple the core capital that lenders must hold to at least 7 percent of their assets, weighted for risk.
Global rulemakers have clashed with lenders over the severity of the capital and liquidity rules, which were set out in 2010 as part of an overhaul of banking regulation in the wake of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.
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Venezuela to Announce Complementary Foreign Exchange System
Venezuela, aiming to close the gap between official and black-market exchange rates, said it will announce details of a “complementary” currency system for dollar purchases yesterday.
The system, to be known as Sicad, will run alongside the existing Cadivi system used to supply dollars for the purchase of essential imports, acting President Nicolas Maduro said March 18 on state television. The Cadivi system offers a dollar for 6.3 bolivars, compared with 23.5 bolivars on the black, or parallel, market.
Before his death from cancer on March 5, former President Hugo Chavez in February approved a 32 percent devaluation of the bolivar on the Cadivi system and shut down a central bank- administered currency market known as Sitme. That decision has left the market short of dollars, pushing down the bolivar on the black market.
The new Sicad system will be administered by the Finance Ministry’s foreign currency board, led by Finance Minister Jorge Giordani, and will be used for “special cases,” Maduro said, without elaborating. The new system will begin operating March 25.
The South American country will also announce new price controls, Maduro said, without providing details.
Maduro blamed the parallel dollar on the “corrupt right wing and a parasitic bourgeoisie betting” on the economy’s destabilization.
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U.K. Banks Urge Government to Broaden Scope of Lending Program
U.K. banks are urging the government to broaden the Bank of England’s Funding for Lending Scheme to include more collateral and additional companies to increase credit.
The program, introduced last August, could allow access to regulated firms and those whose parent companies have banking licenses, British Bankers’ Association Chief Executive Officer Anthony Browne wrote in a letter March 18 to U.K. Business Secretary Vince Cable obtained by Bloomberg News. Cable had asked for ways to enhance the plan in a meeting with the BBA on March 13, according to the letter.
Under the program, banks have been able to borrow treasury bills from the central bank to fund lending and have 18 months to use the facility and as long as four years to repay. Only banks with access to the discount-window facility can use the program, which accepts the same collateral. The flow of net lending shrank by 2.4 billion pounds ($3.6 billion) in the fourth quarter, and Bank of England Governor Mervyn King said on March 6 that results from the plan were “disappointing.”
Some of the funding could be allocated to Capital for Enterprise Ltd., a government-owned fund management company, or other government programs such as the Business Finance Partnership and Business Bank, the BBA said.
Former Oregon Governor Candidate Charged in Facebook Share Scam
Craig Berkman, who once ran for governor of Oregon, was arrested and charged with securities fraud for selling interests in non-existent pre-IPO shares of Facebook Inc. (FB) to investors.
Berkman, 71, was arrested yesterday at his home in Odessa, Florida, and charged by federal prosecutors in New York with making at least $8 million in two separate schemes, Manhattan U.S. Attorney Preet Bharara said in a statement yesterday.
Berkman is charged with two counts of securities fraud and two counts of wire fraud. Each of the counts carries a maximum sentence of 20 years in prison, according to Bharara.
Berkman appeared in federal court in Tampa yesterday, where U.S. Magistrate Judge Thomas G. Wilson set a bail hearing for March 21, according to court records. Adam Allen, a federal public defender who represented Berkman in the Tampa court appearance, didn’t immediately return a voice-mail message yesterday seeking comment on the charges.
Prosecutors claim that in 2010, Berkman set up a company called Ventures Trust II LLC, telling investors it held shares in Facebook, the world’s biggest social network, which was then privately held. In reality, the fund held only a small, indirect investment in Facebook through another investment fund, according to a criminal complaint against Berkman that was unsealed yesterday. Berkman used Ventures Trust II to fraudulently raise $5.5 million from investors, prosecutors said.
Berkman, a Republican, ran for governor of Oregon in 1994. He lost his party’s primary election.
The criminal case is U.S. v. Berkman, 13-mj-00732, U.S. District Court, Southern District of New York (Manhattan). The SEC proceeding is Matter of Craig Berkman d/b/a Ventures Trust LLC, 3-15249, U.S. Securities and Exchange Commission (Washington).
Jain Sees Europe Banks at Risk of Regulatory Arbitrage
Anshu Jain, co-chief executive officer of Deutsche Bank AG, discussed the Cyprus deposit levy, the U.S. economy and bank capital rules.
He spoke at the Frankfurt Finance Summit.
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Luxembourg’s Frieden Says Cyprus Levy a Unique Solution
Luxembourg Finance Minister Luc Frieden talked about a proposed unprecedented levy on Cyprus bank deposits to help fund the island’s bailout.
He spoke with David Tweed on Bloomberg Television’s “Market Makers.”
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Comings and Goings
U.S. Senate Banking Panel Approves White, Cordray
The U.S. Senate Banking Committee approved the nominations of Mary Jo White to lead the Securities and Exchange Commission on a bipartisan vote, and Richard Cordray to head the Consumer Financial Protection Bureau in a party-line vote that reflected the remaining obstacle to his confirmation effort.
Yesterday’s 12-10 vote on Cordray, 53, saw all of the panel’s Democrats back him, while Republicans unanimously opposed him.
President Barack Obama’s second nomination of Cordray, the former Ohio attorney general can’t be confirmed unless Senate Republicans and Democrats can overcome a deadlock that has prevented a full-Senate vote.
Cordray’s nomination has been mired since 2011 in a dispute among Republicans over the structure and funding of the agency. Democrats insist the issues were settled by Congress when it passed the Dodd-Frank law in 2010.
Obama nominated Cordray to a five-year term on Jan. 24, more than a year after installing the former Ohio attorney general in the position using a so-called recess appointment. The Republicans’ position hardened after a federal court ruling raised questions on the validity of the recess appointment.
Separately, the committee voted 21-1 to send White’s nomination to the full Senate with unanimous support from the Republican members. Sherrod Brown, an Ohio Democrat, was the sole dissenter.
The full Senate probably will vote this week on the appointment of White, 65, according to a Senate aide who requested anonymity because the schedule hasn’t been set.
U.S. Fed’s Tarullo Appointed Chairman of FSB Regulation Group
U.S. Federal Reserve Governor Daniel Tarullo was appointed chairman of the Financial Stability Board’s standing committee on supervisory and regulatory cooperation, the FSB said in an e- mailed statement.
Tarullo replaces Adair Turner, chairman of the U.K. Financial Services Authority, in the role, according to the statement.
The FSB is an international body that coordinates national work of financial authorities and international standard-setting bodies.
Republican U.S. Senate Economist Said to Be Vetted for SEC
Michael Piwowar, the chief Republican economist for the U.S. Senate Banking Committee, is being vetted for an appointment to the Securities and Exchange Commission when a slot opens later this year, according to four people briefed on the matter.
Piwowar would be nominated for the seat held by Republican Commissioner Troy Paredes, whose term ends in June, according to the people, who spoke on condition of anonymity because the discussions aren’t public.
If Piwowar were nominated and confirmed he would be the only economist on a five-member commission that historically is made up of lawyers.
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