Goldman Market-Shock Test, ECB Change, Lloyds: Compliance
Goldman Sachs Group Inc. (GS) said it could survive a global market shock that would send stocks down almost 40 percent and produce $20 billion in trading losses for the firm.
Goldman Sachs would maintain a Tier 1 common ratio of at least 8.9 percent during the shock, above the 5 percent minimum, the New York-based firm said in a disclosure of its company-run stress test. The test included the assumption of a “reputational event” specific to Goldman Sachs that would reduce its revenue over the nine-quarter length of the exam.
Goldman Sach’s performance in its own test topped that in the Federal Reserve’s version in March, in which it had a minimum Tier 1 common ratio of 5.8 percent. The Fed’s test had different assumptions and covered a different time period.
The firm projected it would have a $6.2 billion net loss over the nine quarters from April 2013 to June 2015 in a “severely adverse scenario.” It would have $15.5 billion of pre-provision net revenue in the period, overwhelmed by $20 billion in trading and counterparty losses, $1.1 billion in other losses and a $600 million provision for loan losses.
Separately, Citigroup Inc. (C), the third-largest U.S. bank by assets, could incur $21.2 billion of losses over nine quarters through mid-2015 and stay above minimum regulatory capital levels in a severe financial downturn.
The bank’s Tier 1 common capital ratio would fall to as low as 9.1 percent under a severely adverse scenario, above the 5 percent minimum set by U.S. regulators, the New York-based company said yesterday in a presentation on its website.
Citigroup’s figures assume $43.1 billion in pre-provision net revenue and an equal amount of loan losses in the nine quarters from the end of March 2013 through June 2015.
Separately, Bank of America saw Tier 1 capital ratio under its stress test at June 30, 2015, at 10.6 percent, according to a statement posted on its website.
Bundesbank Says ECB Bank Oversight May Need Primary-Law Change
European Union lawmakers will probably have to amend the rules governing the European Central Bank as it embarks on the complex task of regulating banks, according to the Bundesbank.
Sabine Lautenschlaeger, vice president of the German central bank, said in Frankfurt yesterday that a “primary law change” may be needed to simplify the governance structure and “separate monetary policy more clearly from banking supervision.”
The ECB is set to oversee banks, starting next year, as part of an effort to create a banking union that would break the link between lenders and states, which spawned the sovereign debt crisis. Critics say the move may create a conflict of interest at the central bank as policy makers are charged with guaranteeing the stability of Europe’s financial sector while fighting inflation.
The Bundesbank vice president said her concerns don’t mean she favors delaying plans for more concerted controls of European lenders.
Kenyan Bourse Authority Completes Draft Rules for Futures Trade
Draft regulations, aimed at creating a fair and efficient futures exchange, are open for public comment until Oct. 17, the Capital Markets Authority, the regulator for Kenya’s Bourse, said in an e-mailed statement.
“The development of the two draft regulations bring to completion the requisite regulatory framework for the establishment of a futures market in Kenya,” the authority said in the statement.
Plans to set-up a futures market in Kenya have been delayed since at least 2009.
U.K. to Sell $5.3 Billion Lloyds Stake, Five Years After Bailout
The U.K. government plans to sell a 3.3 billion-pound ($5.3 billion) stake in Lloyds Banking Group Plc (LLOY), its first disposal since bailing out the lender in 2008.
U.K. Financial Investments Ltd., which oversees the government’s holding in the bank, is selling 4.28 billion shares to money managers, the London-based body said in a statement yesterday.
Chancellor of the Exchequer George Osborne, constrained by the biggest austerity program since World War II, could use the proceeds to fund tax cuts or more spending before the next general election, due in 2015. He has said Royal Bank of Scotland Group Plc, which received a 45.5 billion-pound bailout, is still burdened by too many poor assets to be sold.
The transaction will reduce the Treasury’s stake in Lloyds to 32.7 percent from 38.7 percent. JPMorgan Chase & Co., Bank of America Corp. and UBS AG are managing the offering, according to a statement from UKFI. The government still owns 81 percent of Edinburgh-based RBS.
The Lloyds sale is the government’s biggest since the financial crisis.
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HSBC Joins Morgan Stanley in Plan to Screen for Money Laundering
HSBC Holdings Plc (HSBA) and Morgan Stanley are working with outside firms to develop a shared client-screening service amid a crackdown by regulators on money laundering.
Genpact Ltd. (G) and Markit Group Ltd. are creating the service, which will help banks satisfy so-called know-your-client requirements, Hamilton, Bermuda-based Genpact said yesterday in a statement. The service will allow banks to start new trading relationships faster and cut costs by sharing expenses, according to the statement.
The U.S. fined London-based HSBC $1.9 billion last year over claims the lender gave terrorists and drug cartels access to the U.S. financial system. Europe’s biggest bank was accused of failing to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from HSBC Mexico, prosecutors said.
HSBC accepted responsibility at the time and said it’s “a fundamentally different organization from the one that made those mistakes.”
New York-based Morgan Stanley (MS), owner of the world’s largest brokerage, hasn’t faced fines over money laundering since the financial crisis.
Regulators have ordered U.S. banks including Citigroup Inc. and JPMorgan Chase & Co. to tighten their controls.
RBS Said to Settle Highland Suits Over $100 Million CDO Losses
Royal Bank of Scotland Group Plc settled lawsuits with Highland Capital Management LP over a failed debt deal that led to accusations of fraud and dishonesty, and losses of as much as $100 million, a person familiar with the cases said.
The settlement ends a four-year legal battle with lawsuits in London and Texas between RBS and Dallas-based Highland. The terms are confidential, according to the person, who asked not to be identified because they weren’t authorized to discuss it.
Highland said it lost as much as $100 million when RBS terminated a planned 500 million-euro ($668 million) collateralized-debt obligation at the height of the 2008 financial crisis and then seized the underlying loans.
The Edinburgh-based lender is being sued by as many as 16,000 investors over a 2008 share offering before its collapse in the 2008 financial crisis, as well as other claims from customers.
Stefan Prelog, a spokesman for Highland in New York, declined to comment on the settlement. A spokeswoman for RBS in London declined to comment.
The U.K. case is The Royal Bank of Scotland Plc v. Highland Financial Partners LP & Ors, U.K. Court of Appeal (Civil Division) A3/2012/1474.
Wabco Wins $272 Million Cut in EU Cartel Fine for Ideal Standard
Wabco Holdings Inc. (WBC) won a 203.4 million euro ($272 million) windfall after a European Union court cut the antitrust penalty it paid for Ideal Standard’s involvement in a bathroom fittings cartel.
The EU General Court in Luxembourg also trimmed Sanitec Corp.’s fine to 50.6 million euros from 57.7 million euros. Wabco was liable for the original fine as part of an accord linked to its spinoff from American Standard Cos. that predated the EU penalties.
The court said yesterday that EU regulators had wrongly held Ideal Standard guilty of colluding on the Italian market for ceramics for longer than was the case.
Wabco paid all of the 326.1 million-euros fine levied in September 2010 “and will keep the full amount of the reimbursement” awarded by the EU court yesterday, the company said in an e-mailed statement yesterday.
Sanitec, owned by EQT Partners AB, said in a statement it had made a provisional payment of 57.69 million euros in September 2010. It now expects to be reimbursed the difference plus interest.
Antoine Colombani, a spokesman for the commission in Brussels, said the ruling “confirms the substantial findings” of the regulator.
The cases are: T-412/10, T-411/10, T-408/10, T-396/10, T-386/10, T-380/10, T-379/10, T-381/10, T-378/10, T-376/10, T-375/10, T-373/10, T-374/10, T-382/10, T-402/10, T-368/10, T-364/10.
Miller Says Another Lehman-Like Crisis ‘Very Possible’
Harvey Miller, a partner at Weil Gotshal & Manges LLP, and David Resnick, president of Third Avenue Management LLC, talked about banking regulation the prospects for another financial crisis.
For the video, click here.
FDIC’s Bair Says Financial Regulations Benefit Families
Sheila Bair, the former chairman of the Federal Deposit Insurance Corp., and author of “Bull by the Horns,” discussed banking regulation and preventing the next financial crisis.
In her book, she does not “hold back,” in describing policy differences that arose during the financial crisis. She also touched on the topic of her forthcoming book.
Bair talked with Bloomberg’s Pimm Fox and Carol Massar on Bloomberg Radio’s “Taking Stock” on September 13th.
For the audio, click here.
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