CoCo’s Flop, Myanmar Accounting, SEC Group: Compliance
Denmark’s experiment with contingent convertible bonds risks falling flat even before the first sale, according to the nation’s biggest bank.
The Financial Supervisory Authority said this week it will let banks use such hybrid debt to meet individual capital requirements. The regulator is also looking into allowing too-big-to-fail banks to use the securities to build buffers beyond individual capital requirements. According to Danske Bank A/S (DANSKE), investors probably won’t be interested in the hybrids at a price that would make them feasible for Danish lenders to sell.
The FSA argues stricter rules are needed to protect Denmark from a financial industry whose combined assets are four times the size of the $300 billion economy. For systemically important financial institutions, a government-appointed committee said in March that hybrid conversion triggers should fire once banks breach a capital threshold of 10.125 percent. Lawmakers have yet to approve the Sifi proposals.
To make convertible bonds work for too-big-to-fail banks at the current trigger proposal is “close to impossible,” according to Thomas Hovard, head of credit research at Danske Bank Markets in Copenhagen.
The FSA plans to provide more details in coming weeks on which hybrid instruments banks can use. It is still looking into the use of hybrids to fulfill proposed crisis-management buffers for too-big-to-fail banks, Director General Ulrik Noedgaard said.
Biggest Banks in Denmark Win Time as Sifi Bill Set for Split Denmark’s government is exploring the option of splitting proposed legislation for systemically important banks into smaller parts to ease its passage through parliament.
After opposition lawmakers refused to back proposals put forward by a government-appointed committee in March, the Business Ministry now says it may need to abandon its goal of pushing a single bill for too-big-to-fail banks through the legislature.
The Sifi committee identified Denmark’s six biggest banks, led by Danske Bank A/S and mortgage lender Nykredit A/S, as systemically important to the $300 billion economy and said they should hold as much as 5 percentage points in extra capital. Yet lawmakers have failed to find common ground over reserve requirements, splitting parliament as banks try to anticipate future regulatory standards.
Opposition lawmakers are questioning the committee’s proposal that Sifis convert debt into loss-absorbing equity once their regulatory buffers breach a 10.125 percent threshold, a level banks say is too high. Parliamentarians have also been split over how explicit Denmark should be in its provision of state guarantees for banks deemed too big to fail.
Denmark’s efforts to move ahead with Sifi legislation put it at the forefront of a regulatory drive in the European Union, where such laws have yet to be formulated.
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KPMG Says Myanmar Needs Rules Investors Can Rely on
Michael Andrew, chairman of KPMG International, the global accounting and professional services firm, talked about the challenges Myanmar faces as the southeast Asian economy opens up for foreign investments after half a century of military rule.
Andrew spoke from the World Economic Forum on East Asia in Naypyidaw, Myanmar, with Haslinda Amin on Bloomberg Television’s “Asia Edge.”
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Fracking Rule Comment Period Extended 60 Days by U.S. Interior
The U.S. Interior Department agreed to accept comments on its proposed rule on hydraulic fracturing for an additional 60 days after industry groups complained they needed more time to consider it and respond.
Interior Secretary Sally Jewell announced the extension of the initial period, which was to end June 24, yesterday at a hearing of the Senate Energy and Natural Resources Committee.
In the proposal released May 16, the Interior Department made a second attempt to establish national regulations for hydraulic fracturing, or fracking, on public lands.
The rule is being watched closely by the drilling industry because fracking is used in about 90 percent of the wells drilled on federal lands. A draft rule released last year was criticized by companies; a revised proposal was issued last month.
Senate Panel Approves Bill for Insurer Sales in Multiple States
The U.S. Senate Banking Committee unanimously approved a bill that approves sales by insurers in multiple states, according to a statement by the panel.
The bill will now head to the Senate floor.
The draft law sets up a nonprofit, independent board called the National Association of Registered Agents and Brokers that would allow the multi-state licensing of insurance sellers.
U.S. House Republicans Criticize Power of Shareholder Advisers
The two firms that dominate the shareholder advisory industry were accused by Republican lawmakers and the U.S. Chamber of Commerce of pushing activist proposals without sufficient oversight.
Institutional Shareholder Services Inc. and Glass, Lewis & Co., the leading companies advising large investors how to cast their votes, were criticized by Republican lawmakers at a hearing June 5 for advocating agendas that they said hurt company value and for advising shareholders on issues in which they have a potential financial interest.
Representative Scott Garrett, the New Jersey Republican who heads the House subcommittee that oversees capital markets, said the firms team with unions, pension funds and “other activist shareholders” to push an agenda that is “generally immaterial to investors.”
“The discussion at the hearing would have benefited from the presence of proxy advisers including Glass Lewis,” said Robert McCormick, chief policy officer for the firm, in an e-mail. His company has addressed and resolved conflict-management points, he said, and it’s working with other advisory firms on an industry code of practice.
“The special-interest groups that testified against proxy advisers today are attempting to attack and discredit the messenger rather than focus on the issue of what makes good corporate governance and who ultimately is responsible for the vote,” Cheryl Gustitus, an ISS spokeswoman, said in an e-mail, referring to the June 5 hearing. She said ISS provides independent analysis in a “transparent manner with significant input from many constituencies.”
SEC Commissioner Daniel Gallagher said in a speech last month that the advisory industry should be examined to determine whether the firms are excessively relied on in corporate elections and whether their work benefits shareholders financially.
Ex-InterMune Finance Chief Sued by SEC for Tipping Friend
Ex-InterMune Inc. (ITMN) Controller Bruce Tomlinson was sued by the U.S. Securities and Exchange Commission for allegedly disclosing tips in 2010 about the drug Esbriet to a former business associate.
Tomlinson, who was vice president of finance and InterMune’s principal accounting officer, tipped Michael Sarkesian, a Swiss businessman, about nonpublic information on the progress of a European regulatory review of InterMune’s application to market Esbriet in Europe, the SEC said in a complaint filed yesterday in federal court in San Francisco.
Esbriet is used to treat a fatal lung disease.
Sarkesian used the information to cause purchases of call options to be made through a trust for the benefit of his wife, resulting in a profit of $616,000, the SEC said.
The value of the options soared in December 2010 on news that an EU committee had approved the application.
The commission is seeking a court order permanently blocking Tomlinson from violating securities laws or acting as an officer or director of a publicly traded company and unspecific civil penalties. Sarkesian wasn’t sued in the case.
Colleen Mahoney, an attorney for Tomlinson, didn’t immediately return an e-mail seeking comment on the complaint.
The case is SEC v. Tomlinson, 13-02549, U.S. District Court (San Francisco).
Thailand-Based Trader Sued by SEC Over Smithfield Deal Profits
A Thailand-based trader was sued by U.S. regulators over claims he reaped more than $3 million in profits trading ahead of the announcement that Smithfield Foods Inc. would be acquired by China’s biggest pork producer.
Shuanghui International Holdings Ltd. agreed on May 29 to acquire Virginia-based Smithfield, the world’s largest hog producer, for about $4.72 billion. Badin Rungruangnavarat made his purchases from May 21 through May 28 using an account at Interactive Brokers LLC, the SEC said. He sought to withdraw more than $3 million from his account on June 3, the SEC said.
The SEC obtained an emergency court order to freeze his assets, the agency said.
The SEC said there is no known defense counsel for Rungruangnavarat.
Special Section: Gensler Conference Comments
Gensler Says Interbank Offer Rates Need Replacement
U.S. Commodity Futures Trading Commission Chairman Gary Gensler talked about a European Union proposal to hand oversight of the London interbank offered rate to the European Securities and Markets Authority.
Gensler, who spoke with Bloomberg’s Dominic Chu at a Sandler O’Neill & Partners LP conference in New York, also discussed global regulatory oversight of derivative trades. They spoke on Bloomberg Television’s “Market Makers.”
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CFTC’s Gensler Pushes Swaps Market Reform at Regulation Meeting
“Swaps market reform is a key component in ensuring that firms are not too interconnected, too complex or too in the shadows of the market to fail,” Commodity Futures Trading Commission Chairman Gary Gensler said yesterday.
He made the statements in prepared remarks for a meeting on cross-border application of swaps market regulation.
“If the offshore operations of financial institutions are allowed a free pass from reform, though, we will not fulfill Congress’s intent to end ‘too big to fail,’” Gensler said.
The chairman spoke at a Sandler O’Neill conference.
CFTC’s Gensler: No Delays for June 10 Clearing Date
The Commodity Futures Trading Commission won’t postpone the June 10 clearing requirement, Chairman Gary Gensler told reporters at a Sandler O’Neill conference in New York City.
The Investment Company Institute, Securities Industry and Financial Markets Association, and the Investment Adviser Association have asked the CFTC to delay until Sept. 9 the clearing requirement for interest rate and credit swaps.
Clearinghouses and brokers have had “inadequate time” to implement the technology necessary to provide “critical protection to their customers,” the groups wrote in a letter to the agency.
Levitt Calls CFTC Funding Cut by Congress ‘Shameful’
Arthur Levitt, former chairman of the Securities and Exchange Commission, says for Congress to cut funding to the Commodity Futures Trading Commission “while at the same time abdicating” regulatory control for the Dodd-Frank Act to the CFTC is “unconscionable.” Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”
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Stephen Ehrlich Sees ‘Demise’ of High-Frequency Trading
Stephen Ehrlich, former chief executive officer at Lightspeed Financial Inc., talked about reduced volume and falling profits in high-frequency trading.
Ehrlich, who spoke with Sara Eisen and Erik Schatzker on Bloomberg Television’s “Market Makers,” also discussed the impact of social media on high-frequency trading. Bloomberg’s Matt Philips also spoke.
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Fed’s Raskin Seeks to Clarify Bank Rules by Hastening Basel III
Federal Reserve Governor Sarah Bloom Raskin said regulators must complete new international capital rules because delays may be harming financial institutions by leaving them unsure how to plan for the future.
“Lending decisions and funding plans today are shaped by perceptions of business conditions in the future, and those conditions include the details of the final regulatory capital framework,” Raskin said yesterday in prepared remarks for a speech in Columbus, Ohio. “It seems obvious to me that uncertainty over that framework is weighing on the balance sheets of banks that will be affected by the rules.”
Raskin, who didn’t discuss the outlook for the economy or monetary policy, called for regulators to hasten the implementation of new capital rules known as Basel III, adopted by the Basel Committee on Banking Supervision, and designed to improve the quality and quantity of regulatory capital. Both the European Union and the U.S. missed a January 2013 deadline to begin phasing in the standards.
She said that while it is important “to get it right,” that should be balanced against the “costs of delay.”
U.S. banking regulators said in November that they were delaying implementation of new capital rules because of concerns expressed in the industry about understanding the rules and adapting to them.
Comings and Goings/Executive Pay
SEC Renames Division Focusing on Economic, Risk Analysis
The Division of Risk, Strategy and Financial Innovation of the U.S. Securities and Exchange Commission has been renamed, the agency said in a press release.
The group will now be known as the Division of Economic and Risk Analysis. Chief Economist Craig Lewis is head of the division.
The division was formed in 2009 when the Office of Risk Assessment, Office of Interactive Data, and Office of Economic Analysis were combined.
Banks Should Review Staff Pay to Prevent Libor Repeat, ESMA Says
European Union regulators are calling on banks to review how they pay staff that submit benchmark data, in the wake of the scandal engulfing interbank lending rates and oil price reporting.
The guidelines, drawn up by regulators in the European Securities and Markets Authority are part of a broader EU response to the rate-rigging scandal that may also see oversight of some “critical benchmarks,” such as Libor, given to the Paris-based agency.
Banks should remove “any direct link between the remuneration of staff involved in benchmark data submissions and the remuneration of, or revenues generated by, different staff” whenever there is a risk of a conflict of interest, according to guidelines published yesterday by Paris-based ESMA. Lenders should also “prevent or control the exchange of information between staff” whenever such contact could lead to attempts at rate manipulation.
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