Austrian Bonus, Class Actions,‘Obscene’ Carry: Compliance

Austria, whose banks’ combined bonus pool is a sixth the size of the figure for Germany’s Deutsche Bank AG, is putting restrictions on bonuses exceeding 30,000 euros ($40,000) from this year.

Bonuses paid to “risk buyers” such as traders or loan officers that are above this level or equivalent to more than a quarter of the annual fixed salary must be deferred over a five-year period, the co-head of the Finanzmarktaufsicht regulator, Helmut Ettl, told journalists in Vienna yesterday. If the bank’s economic situation worsens during the five-year period, payments have to be skipped, Ettl said. The rules apply for the first time for bonuses paid this year for fiscal 2012.

Austrian banks, focusing on retail banking at home and in eastern Europe, have already used modest average compensation structures. Only 14 employees working for the country’s banks at home and abroad were paid more than 1 million euros in total compensation in 2011, according to an FMA survey of 26 lenders Ettl presented. The banks surveyed had 2,282 employees.

Overall, banks paid 590 million euros in bonuses in 2011. Deutsche Bank, based in Frankfurt, said it paid 3.6 billion euros.

The FMA is largely implementing European Union regulations, while defining the national threshold, Ettl said. Under the new rules, just 60 percent of bonuses can be paid out immediately, with the remaining 40 percent being phased over five years. For bonuses exceeding 150,000 euros, or 100 percent of fixed salaries, only 40 percent can be paid at once.

Special Section: Davos

Cameron Pledges Clampdown on Aggressive Tax Avoidance

U.K. Prime Minister David Cameron set out his agenda for the Group of Eight summit in June, including tackling extremism, tax avoidance and hunger. He also commented on his vision of a more competitive European Union.

He spoke at the World Economic Forum’s annual meeting in Davos, Switzerland. WEF founder Klaus Schwab also spoke.

For the video, click here, and for more, click here.

Monti, Kenny, Rutte Speak in Davos on Euro-Zone Outlook

Italian Prime Minister Mario Monti, Irish Prime Minister Enda Kenny, Dutch Prime Minister Mark Rutte and Denmark Prime Minister Helle Thorning-Schmidt spoke about the outlook for euro-zone economies, banking supervision and unemployment.

They spoke at the World Economic Forum’s annual meeting in Davos, Switzerland. The Financial Times’ Lionel Barber moderated.

For the video, click here.

Kotak Mahindra Urges Caution on New India Bank Licenses

Uday Kotak, chairman of Kotak Mahindra Bank Ltd., talked about the Indian banking industry, stocks and economic growth.

He spoke with Francine Lacqua and Matthew G. Miller on Bloomberg Television’s “The Pulse” on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland.

For the video, click here, and for more, click here.

Noonan Says Ireland Set to Exit Bailout by End of 2013

Irish Finance Minister Michael Noonan discussed Ireland’s plans to exit its international bailout and return to bond markets.

He spoke with Francine Lacqua on Bloomberg Television’s “The Pulse” on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland.

For the video, click here.

Compliance Policy

CoCos Allowed for Danish Banks If Are Triggers Strict

Denmark’s financial watchdog will let banks issue new hybrid debt instruments to meet tougher capital demands only if the securities convert into equity early enough to avoid eating into regulatory buffers.

Danish banks can use contingent convertible bonds as long as they convert before capital levels breach core Tier 1 equity thresholds or in the event individual solvency requirements aren’t met, said Anders Balling, head of the Financial Supervisory Authority’s banking analysis division in Copenhagen.

The regulator is trying to take a tougher line on banks to avoid another credit-driven property bubble without squashing Denmark’s economic recovery. Bond investors have demanded a premium from Danish banks since the Nordic country in 2011 became the first in Europe to enforce a resolution framework that pushed losses onto senior creditors.

Denmark is exploring the option of allowing more exotic funding vehicles to help banks build their capital buffers as the government commits to its goal of protecting taxpayers from bailouts.

For more, click here.

Compliance Action

IRS Suspends Regulation of Tax-Return Preparers

The U.S. Internal Revenue Service suspended its regulation of tax-return preparers after a federal court ruling said the agency lacked authority, removing a tax-compliance tool that was years in the making and raising concerns from the national taxpayer advocate.

With the tax-filing season starting Jan. 30, hundreds of thousands of return preparers won’t have to register with the federal government, pass a competency test or meet continuing-education requirements. U.S. District Judge James Boasberg in Washington invalidated the regulations in a decision Jan. 18 and enjoined the IRS from enforcing them. Boasberg, picked for his post by President Barack Obama, wrote that the IRS overstepped its authority by relying on an 1884 law that allowed it to regulate people presenting cases before the Treasury Department.

The IRS responded yesterday by suspending the program. The 15-hour annual continuing-education requirement started in 2012 and the testing requirement was taking effect this year. The agency said it is considering the court’s decision and will “take further action shortly.”

The rules were designed to impose standards on hundreds of thousands of return preparers who aren’t certified public accountants, attorneys or enrolled agents already licensed to practice before the IRS. The idea, promoted by former Commissioner Douglas Shulman, was to require minimum qualifications and help the agency combat tax fraud.

For more, click here.

Sovereign Debt, Structured Finance Ratings to Face EU Review

The European Union’s top markets regulator said it would review how credit-ratings companies evaluate sovereign debt and structured products, following concerns market volatility increased in the past year.

EU lawmakers voted in favor of rules last week that would place curbs on how credit-rating firms update markets about the quality of government debt and give investors the right to sue if they lose money because of poor quality or deliberately distorted credit assessments.

The U.S. Securities and Exchange Commission Jan. 22 barred Egan-Jones Ratings Co. from grading government debt and asset-backed securities for 18 months after settling claims the company misled the regulator over how long it had been rating the two asset classes.

The plans approved by EU lawmakers on curbing how credit-ratings companies update markets about the quality of government debt are intended to make such updates less likely to roil markets and to give investors recourse when ratings are off the mark. European Parliament legislators backed the plans. Final sign-off by the EU’s 27 governments is needed before the deal can take effect.

ICAP Says FSA Investigating Firm as Part of Global Libor Probe

ICAP Plc, the world’s largest broker of transactions between banks, is being investigated by the U.K.’s Financial Services Authority as part of its probe into Libor rigging.

“One of ICAP’s interdealer broker subsidiaries has been notified that it is the subject of an FSA investigation,” the London-based firm said in a statement today.

The regulator is examining whether the company helped manipulate the London interbank offered rates for the Japanese yen and possibly U.S. dollar, the Financial Times newspaper reported earlier, citing a March 2012 FSA memo. The FSA has assigned seven of the 50 people working on its investigation to focus on ICAP’s activities, the newspaper said.

ICAP is already being probed by Canada’s Competition Bureau for allegedly facilitating the manipulation of yen Libor by panel banks, according to papers filed with the Ontario Superior Court in May.

U.S. Bank Deposits Drop Most Since 9/11 as FDIC Support Ebbs

Clients of the largest U.S. banks withdrew funds this month at the fastest weekly pace since the Sept. 11 attacks as a deposit-insurance program ended and customers tapped into their year-end cash hoards.

Customers may be moving money no longer insured by the U.S., drawing down year-end balances and investing in advancing equity markets. A Federal Deposit Insurance Corp. backstop, the Transaction Account Guarantee program, or TAG, ended last month, prompting some analysts, investors and trade organizations to predict it could drive funds from the banking system.

The transaction-account protections were introduced in the wake of the 2008 credit crisis and had guaranteed about $1.5 trillion in non-interest-bearing accounts above the FDIC’s general limit of $250,000. The program expired Dec. 31.

Deposits closed the year at about $5.4 trillion, the highest month-end total in 2012 and more than $500 billion higher than at the end of 2011, according to Fed data.

Industry groups such as the American Bankers Association and Independent Community Bankers of America had sought an extension for TAG to keep accounts from being moved.


London Whale Case Among Dwindling Securities Class Actions

The number of securities fraud class-action cases filed last year fell 19 percent as litigation over mergers and acquisitions and the credit crisis decreased, according to a report.

The 152 cases filed in 2012 fell from 188 in 2011 and represented the second-lowest level in 16 years, according to the report by Stanford Law School and Cornerstone Research, a consulting firm.

Last year marked an end to securities fraud class-actions related to the credit crisis as no new cases were filed compared to three in 2011, according to the report. Credit crisis cases peaked in 2008 at 100.

Federal cases related to mergers and acquisitions dropped to 13 in 2012 compared with 40 in 2010 and 43 in 2011, according to the report. Those cases are now being pursued almost exclusively in state courts.

Although there were no class-action credit-crisis cases, according to the report, Wall Street banks are still contending with lawsuits and claims over mortgage securities sold during the housing boom.

Class-action securities filings against financial companies fell, according to the report. They were defendants in 15 filings, or 10 percent of all filings, compared with 25 filings in 2011 and 43 in 2010.

Stanford Investors Must Repay Bogus CD Profits, Judge Says

R. Allen Stanford’s defrauded investors must repay any interest they earned on the bogus certificates of deposit at the heart of the convicted Texas financier’s $7 billion Ponzi scheme, a Dallas judge ruled.

About 800 investors had urged U.S. District Judge David Godbey to reject lawsuits by Ralph Janvey, Stanford’s court-appointed receiver, seeking recovery of more than $220 million in profits they’d taken out of Stanford’s scheme before it was shut down by U.S. securities regulators in February 2009.

Godbey ruled that while investors have legitimate claims to recover the money they originally invested in a fraud scheme, they have no contractual claim to any interest from those funds because investment contracts with a Ponzi scheme are unenforceable.

Stanford, 62, was convicted in March of stealing more than $2 billion in investor deposits at his Antigua-based bank to fund a lavish personal lifestyle and bankroll money-losing private enterprises. He is serving a 110-year sentence in a Florida federal prison while he appeals that verdict.

The case is Janvey v. Alguire et al, 3:09-cv-0724, U.S. District Court, Northern District of Texas (Dallas).

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).

Peregrine’s Wasendorf Stole More Than $215 Million, U.S. Says

Russell Wasendorf Sr., the founder of now-bankrupt Peregrine Financial Group Inc., stole more than $215 million from the commodity firm’s customers, U.S. prosecutors said.

Wasendorf, then 64, pleaded guilty in September in federal court in Cedar Rapids, Iowa, to mail fraud and two counts of lying to federal prosecutors. He faces as long as 50 years in prison at his Jan. 31 sentencing.

Acting Iowa U.S. Attorney Sean Berry said in a sentencing memorandum filed yesterday in federal court in Cedar Rapids that while Wasendorf claims the loss is less than $200 million, the “actual loss in this case can be determined with remarkable precision.”

Wasendorf’s crimes came to light on July 9.

The case is U.S. v. Wasendorf, 12-cr-2021, U.S. District Court, Northern District of Iowa (Cedar Rapids).

The bankruptcy case is In re Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The regulatory case is Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).


Rangel Sees U.S. Tax Overhaul, Blasts Carried Interest

U.S. Representative Charlie Rangel, a Democrat from New York, talked about the outlook for an overhaul of the federal tax code this year and the code provision on carried interest, which he called “obscene.” Carried interest is a type of profit-sharing income earned by private-equity managers.

Rangel spoke with Bloomberg reporters and editors at Bloomberg’s office in Washington.

For the audio, click here.

Comings and Goings

CFTC Whistle-Blower Chief Rejoins SEC Enforcement Unit

Vincente Martinez, who helped start the U.S. Securities and Exchange Commission market intelligence office before stepping down in 2011, is returning to lead the unit responsible for evaluating tips, complaints and referrals.

Martinez will rejoin the SEC next month from the Commodity Futures Trading Commission, where he was the first director of the agency’s whistle-blower office. In his prior stint at the SEC, he worked for eight years in the enforcement division and became an assistant director of the market intelligence office when it was created as part of a restructuring of the unit.

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