Intrade Shortfall, BOE Stress, Borsa Istanbul: Compliance
Intrade, the betting website that halted trading last month amid a probe into suspected financial irregularities, told customers it has found a $700,000 shortfall in client funds as it seeks their backing for a survival plan.
The Dublin-based company uncovered the shortfall after comparing cash on hand and in member accounts with balances on the exchange’s system, Ronald Bernstein, who became a director in November and is leading the rescue effort, said in an e-mail to clients, a copy of which was obtained by Bloomberg News. He confirmed the letter’s contents.
Intrade, which let people bet against one another on the outcomes of events, such as U.S. presidential elections, stopped taking wagers and froze member accounts on March 10 after saying it had uncovered suspected financial irregularities. The company is now asking members to accept immediate repayment of half their frozen money and waive claims to the rest on the “solemn promise” that Intrade will try to refund that later.
Investors have until April 9 to sign up to the plan, he wrote. The company is still in “active” talks with investors, Bernstein said.
BOE Says Investors May Be Taking ‘Too Rosy’ a View of Stress
The Bank of England said rising equity markets don’t reflect the underlying economic situation and warned that investors may be underestimating risks in the financial system.
Gains by equities since mid-2012 “in part reflected exceptionally accommodative monetary policies by many central banks,” the BOE’s Financial Policy Committee said April 5 in London in the minutes of its March 19 meeting. “It was also consistent with a perception among some contacts that the most significant downside risks had attenuated. But market sentiment may be taking too rosy a view of the underlying stresses.”
At the meeting, the FPC recommended that U.K. lenders raise 25 billion pounds ($38 billion) of additional capital to cover bigger potential losses, possible fines for mis-selling and stricter risk models. While banks have strengthened their resilience in recent years, the FPC said April 5 that not all of them may be able to withstand unexpected shocks and maintain lending to companies and households.
The FPC discussed potential threats from the crisis in Cyprus, which agreed on an international bailout last month. While at the time of the March 19 meeting there were “minimal signs” of spillovers to other financial systems, there was “a risk that this situation could change,” the committee said.
The panel, which was operating on an interim basis until the start of last week, recommended that financial institutions limit payouts such as bonuses and dividends. In their discussion, the FPC members noted the potential threats to the financial system from increased risk appetite among investors.
The FPC also said that banks’ leverage ratios, a measure of their debt to equity level, would remain “very high” even after the new recommendations were met. It said there would be “little margin for error against a backdrop of low growth in the advanced economies.”
The committee, without naming any banks, said the Prudential Regulation Authority should take leverage ratios into account when determining individual bank capital requirements.
EU’s Semeta Says Austria in ‘Lonely’ Position on EU Savings Plan
Austria may find itself isolated if it continues to resist European Union savings-tax proposals, EU Tax Commissioner Algirdas Semeta said.
Semeta said Luxembourg is loosening its opposition to automatic exchange of information, citing comments from that nation’s Finance Minister Luc Frieden to Frankfurter Allgemeine Zeitung. The tax chief said this “long-overdue” shift paves the way to move ahead on the EU negotiations, which have been stalled since last year.
“The spotlight is now on Austria,” Semeta said in a statement. “If it continues to resist this inevitable progress towards greater transparency, it will find itself in a lonely and quite unsustainable position.”
Luxembourg and Austria last year vetoed negotiations over the extension of a savings tax because of concerns that they would be forced to give up banking secrecy measures that attract foreign depositors. The two countries blocked the European Union from starting talks on updating the seven-year-old tax accord with Switzerland, Liechtenstein, Monaco, Andorra and San Marino.
U.K. Says Bonus Curbs It Fought Threaten Financial Stability
Banker bonus curbs backed by the rest of the European Union imperil efforts to make lenders more resilient in crises, the U.K. said in a new attack following Chancellor of the Exchequer George Osborne’s defeated bid to block the measures.
The limits banning bonuses more than twice fixed pay “will be damaging to financial stability and the soundness of affected credit institutions” and “are not consistent with internationally agreed principles,” the U.K. said in a statement to the EU’s Council of Ministers, published on the EU’s website.
Britain also criticized the broader legislation containing the pay rules, saying it may fail “in certain significant areas” to properly implement global standards agreed on by the Basel Committee on Banking Supervision. The Basel group has promised to report on whether the final version of the EU rules clashes with an international accord known as Basel III.
The U.K., which lacks a veto on financial laws, was the sole dissenting voice opposing a deal struck between governments and EU lawmakers last month on how to apply the Basel rules -- which more than triple the core reserves that banks must hold against possible losses. The European Parliament insisted on adding the pay curbs in a bid to stop excessive bonuses that it said spurred irresponsible risk taking.
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Istanbul Opens New Bourse as Erdogan Seeks to Build Finance Hub
Prime Minister Recep Tayyip Erdogan rang the opening bell at the new Borsa Istanbul April 5, marking its first trading day.
The new bourse incorporates the 28-year-old Istanbul Stock Exchange with the Istanbul Gold Exchange and the Izmir-based derivatives exchange. The exchange plans to encompass commodities and electricity trading in the near future, as a part of Erdogan’s plan to make Istanbul a regional financial center and Turkey’s economy one of the world’s 10 biggest by 2023.
Turkish equities were the second best performers worldwide last year, with the benchmark ISE National 100 Index (XU100) surging more than 60 percent in dollar terms. It has added almost 5 percent this year.
Still, the value of listed companies is lower than some competitors, with many Turkish companies preferring to stay private.
Ten companies started trading in Istanbul last year, according to data compiled by Bloomberg. It may take a few more years for Borsa Istanbul to hold its own initial public offering, and it may eventually consider merging with other exchanges, Huseyin Erkan, chief executive of the World Federation of Exchanges and a former head of the Istanbul exchange, said in an interview at the ceremony. Turkey’s new capital markets law, which came into effect on Dec. 30, has turned the bourse into a joint stock company with capital of 423.2 million liras ($235 million).
At the ceremony, Turkish officials pledged to encourage more firms to go public.
CFPB to Start Releasing Mortgage Rule Compliance Guides
The U.S. Consumer Financial Protection Bureau will start releasing “plain language” compliance guides this week to help the mortgage industry comply with new regulations, the CFPB said in an e-mailed statement.
The agency has set up an e-mail list to share information about specific regulations.
Asia Currencies Have Worst Week Since January on BOJ Push, Curbs
Asian currencies fell the most last week since January as policy makers from the Philippines to Japan proposed measures that tend to weaken their exchange rates.
The Bank of Japan said April 4 it would double monthly bond buying to 7 trillion yen ($73 billion) to fight deflation and South Korea’s presidential office signaled it favors lower borrowing costs. The Philippine central bank is considering steps to spur capital outflows, Governor Amando Tetangco said last week, while data signaled the U.S. economy is starting to cool.
North Korea said on April 3 that it will restart all facilities at the Yongbyon nuclear site shut by a 2007 disarmament accord. Overseas funds pulled a net $625 million from the Korean stock market last week through April 4.
Malaysia’s ringgit rallied after Prime Minister Najib Razak dissolved parliament on April 3 and called for national elections.
Hong Kong Bourse Mulls Rates, Materials for After-Hours Trading
Hong Kong Exchanges & Clearing Ltd., which today is starting after-hours trading in equity futures, will later offer trading on currency, interest-rate and commodity futures, said bourse executive Calvin Tai.
The world’s largest exchange company by market value will open a trading session from 5 p.m. to 11 p.m. for standard contracts on the Hang Seng Index (HSI) and the Hang Seng China Enterprises Index. This will create the infrastructure to later offer currency, interest-rate and commodity futures, Tai, co- head of equities, fixed income and currency, said in a telephone interview April 5.
The extra session will allow existing investors to hedge and adjust positions when news breaks in European hours, Tai said. Hong Kong owns the London Metal Exchange. The Shanghai Futures Exchange also plans to add after-hours trading in a bid to become a more global marketplace, an official at the bourse said March 13.
Tai said the Hong Kong exchange operator plans to expand after-hours futures trading to mini contracts on the city’s two main indexes by the end of the year if the program is successful. There is no timeline to add futures on other asset classes, he said.
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Ex-Credit Suisse CDO Chief Serageldin Pleads Not Guilty to Fraud
Kareem Serageldin, the ex-global head of Credit Suisse Group AG (CSGN)’s structured credit trading business, pleaded not guilty to charges he led a 2007 scheme to mark up the value of debt securities to meet targets and boost year-end bonuses for his $5.35 billion trading book.
Serageldin, a U.S. citizen who lives in England, was taken into custody by the Federal Bureau of Investigation April 5 after he was extradited from the U.K., Assistant U.S. Attorney Eugene Ingoglia told U.S. Magistrate Judge Kevin Fox at Serageldin’s arraignment the same day in Manhattan.
Fox ordered Serageldin released on $1.5 million bond, to be co-signed by his brother and guaranteed with $750,000 in cash, a bail package agreed between Serageldin and prosecutors before the court proceeding. Serageldin is scheduled to return to court April 12.
He was arrested outside the U.S. consulate in London in September.
Sean Casey, a lawyer for Serageldin, declined to comment on the case after the arraignment. Victoria Harmon, a spokeswoman for Zurich-based Credit Suisse, declined to comment.
The U.S. criminal cases are U.S. v. Higgs, 12-cr-00088, and U.S. v. Siddiqui, 12-cr-00089, U.S. District Court, Southern District of New York (Manhattan). The SEC case is U.S. Securities and Exchange Commission v. Serageldin, 12-cv-00796, U.S. District Court, Southern District of New York (Manhattan).
Boleat Says Financial Transaction Tax Is ‘Misconceived’
Mark Boleat, chairman of the Policy and Resources Committee of the City of London, discussed financial services regulation, caps on bonuses and proposals for a financial transaction tax.
He spoke with Francine Lacqua and Guy Johnson on Bloomberg Television’s “The Pulse.”
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CFPB Says 4 Mortgage Insurers Fined in Kickback Probe
Richard Cordray, director of the Consumer Financial Protection Bureau, and Kent Markus, director for enforcement, spoke on a teleconference about an agreement by four mortgage insurers to pay more than $15 million in penalties to settle claims they paid illegal kickbacks to lenders in exchange for business.
The four companies involved are Genworth Mortgage Insurance Corp., part of Genworth Financial Inc. (GNW); United Guaranty Corp., a unit of American International Group Inc. (AIG); Radian Guaranty Inc., a unit of Radian Group Inc. (RDN); and Mortgage Guaranty Insurance Corp., a unit of MGIC Investment Corp. (MTG)
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Comings and Goings/Executive Pay
Prudential Pays CEO $11.9 Million for 2012 After U.K. Reprimand
Prudential Plc (PRU), the U.K.’s biggest insurer by market value, paid Chief Executive Officer Tidjane Thiam 7.8 million pounds ($11.9 million) in 2012 even after he was reprimanded by the British regulator.
Thiam, 50, received a 1 million-pound salary, 2 million pounds in bonus and 4.4 million pounds in long-term incentives for performance periods ending in Dec. 31, 2012, London-based Prudential said April 5 in its annual report. The firm paid its directors 35.2 million pounds last year compared with 31.4 million pounds in 2011, it said.
The Ivory Coast-born French national during the last week of March became the first serving CEO of a FTSE 100 (UKX) company to receive a public reprimand from the U.K. regulator for not informing it of the insurer’s $35.5 billion bid for AIA Group Ltd. (1299) early enough in 2010. Prudential was fined 30 million pounds. The insurer, which competes with AIA selling life insurance in Asia, has risen almost 90 percent in London trading since the deal failed three years ago as Thiam boosted sales, profits and dividends.
The firm’s 2010 performance share plan will be paid in full, Andrew Turnbull, chairman of Prudential’s remuneration committee, wrote in the report.
Prudential’s operating profit rose 25 percent to 2.53 billion pounds in 2012, beating analyst estimates, on higher earnings in Asian countries such as Indonesia, Singapore and Malaysia. Thiam raised the company’s full-year dividend 16 percent to 29.19 pence a share. That’s 53 percent more than when he joined the firm in 2009.
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