Ally TARP Exit, IRS ID-Theft Battles, HSBC: Compliance

The U.S. Treasury and the watchdog for its bailout program are sparring over whether the department has an adequate exit plan for auto lender Ally Financial Inc.

“While Treasury has noted that it has several options for possible divestment, including a public or private sale of stock or other sale of Ally assets, Treasury has not decided which of these exit paths to take,” the special inspector general for the Troubled Asset Relief Program said in a report yesterday. “It is essential that when the government finally exits Ally that it do so forever.”

Timothy Massad, the Treasury’s assistant secretary for financial stability, said in a letter to the inspector general released Jan. 29 that the exit plan involves “two strategic initiatives” -- the reorganization of Residential Capital LLC, the bankrupt mortgage company owned by Ally, and the sale of Ally’s international operations.

Detroit-based Ally, which received a $17.2 billion bailout, is 74 percent owned by the U.S. government. The special inspector general report said Ally still owes U.S. taxpayers $14.6 billion.

The debate over Ally is the latest in a series of spats between the Treasury and the special inspector general, or SIGTARP, the oversight body created as part of the TARP bailouts. In a Jan. 28 report, the SIGTARP criticized the Treasury for failing “to rein in excessive pay” at bailed-out companies. The quarterly report released yesterday also showed that the special inspector general’s office is still growing as the bailout program winds down.

“Ally is highly confident in its ability to repay the remaining U.S. Treasury investment in full,” Ally spokeswoman Gina Proia said in an e-mailed statement. “We have taken a number of steps in 2012 designed to best position the company to exit TARP, and there has been significant progress thus far.”

Compliance Action

Refunds Seen Postponed in IRS Quest to Stop ID Theft

Some taxpayers seeking a quick refund may have to wait longer than usual this year as the Internal Revenue Service tries to stop criminals who steal others’ identities and file fraudulent returns.

The agency, which begins accepting 2012 returns today, is making its automated system more sensitive to signs of potential fraud, meaning some returns will get a closer look. Last year, the IRS prevented $20 billion in fraudulent refunds from being issued, up from $14 billion the previous year.

The tax agency’s efforts to combat identity theft reflect the tension in the IRS’s multiple missions, said Benson Goldstein, a senior technical manager at the American Institute of Certified Public Accountants in Washington.

The IRS has been trying to shorten processing times to accelerate refunds, in part to encourage electronic filing and in part to reduce taxpayers’ reliance on short-term loans. The speed of refunds presented an opportunity for fraud.

The IRS expects to meet its goal of delivering 90 percent of refunds within 21 days, Michelle Eldridge, a spokeswoman for the agency, said in an interview Jan. 29. That compares with months of waiting for taxpayers who are victims of identity theft.

Taxpayer identity theft has become more prevalent in the past few years. For fiscal 2012, the IRS’s identity-theft unit received about 450,000 cases, up 78 percent over the previous year, according to the National Taxpayer Advocate, an independent organization within the agency.

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Bank Rossii to Introduce Basel III Capital Requirements in April

Basel III capital and capital adequacy requirements are to start April 1, Alexey Lobanov, deputy director of the Bank Regulation Department at Russia’s Central Bank said yesterday by e-mail.

“Prudential supervision” is seen beginning Oct. 1, Lobanov said.

New rules require a core Tier I capital ratio of 5.6 percent, a Tier I capital ratio of 7.5 percent, and a total capital adequacy ratio of 10 percent, which is already in effect, Lobanov said.

Basel III financial rules are to be introduced gradually. By 2019, Basel III will require 4.5 percent minimum equity capital, 6 percent minimum Tier-1 capital, and 2.5 percent capital conservation buffer.

Netflix’s Hastings Says Won’t Retreat in SEC Facebook-Post Case

Netflix Inc. Chief Executive Officer Reed Hastings said he will keep posting on Facebook as the U.S. Securities and Exchange Commission weighs whether to file a lawsuit over a disclosure he made on the social network.

Hastings made the comments yesterday in an interview at Bloomberg’s New York headquarters, saying that while he didn’t set out to become an example, he did not intend to “back down.”

Hastings, 52, stirred controversy over SEC disclosure guidelines when he wrote in a July 3 Facebook Inc. post that viewing on Netflix’s video-streaming service had “exceeded 1 billion hours for the first time” in June.

In December, Hastings and Netflix each received a Wells Notice, indicating SEC staff had determined sufficient wrongdoing occurred to warrant a civil claim against Hastings and his Los Gatos, California-based streaming-video company for allegedly violating selective disclosure rules. The SEC is weighing whether to bring a case.

The incident, which could result in sanctions, has led to calls for the SEC to broaden its rules to allow social media such as Facebook and Twitter to be used to communicate to investors. Hastings has argued the information he discussed online was public and wasn’t material, since Hastings had said on his company blog several weeks earlier usage was approaching 1 billion hours a month.

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U.K. Regulator Bans Saipem Short-Selling After Share Plunge

The U.K.’s Financial Services Authority banned short-selling of Saipem SpA shares after a record drop prompted Italian authorities to investigate a stock sale in Europe’s largest oil-services provider.

The FSA said today the decision to ban short-selling of Saipem in the U.K. followed significant price movement and consultation with another competent authority.

Saipem plunged 34 percent yesterday when the Milan-based company cut a forecast for 2013 profit. The day before, Bank of America Corp. had managed the sale of almost 10 million shares, or 2.3 percent of the company’s stock, for an institutional investor that’s yet to be identified.

Italian stock-market regulator Consob said yesterday it was monitoring trading in Saipem shares after the placement and price plunge.

Barclays, RBS May Pay Billions Over Improper Derivatives Sales

Barclays Plc, Royal Bank of Scotland Group Plc and Britain’s two other biggest banks may have to pay as much as 5 billion pounds ($7.92 billion) to compensate small businesses improperly sold interest-rate derivatives following a probe by the U.K. financial regulator.

The lenders, including Lloyds Banking Group Plc and HSBC Holdings Plc, have set aside around 740 million pounds to cover the claims. Analysts say the total charges for the industry may be much higher than that after the Financial Services Authority said it found “serious failings” in reviews of product sales.

The claims against lenders may turn into another costly scandal for U.K. banks still paying back customers wrongly sold insurance on personal loans.

Banks offered derivatives to small business and individual customers over concerns that they might not be able to service loans if interest rates rose.

Lloyds said it’s “committed to doing the right thing.”

“We will work with our customers to ensure a fair and timely resolution of these issues,” RBS said in a statement.

Barclays will “put things right” where it hasn’t met the “expected standards,” the bank said in an e-mailed statement. “We look forward to engaging with eligible customers.”

HSBC said it will write to customers soon with details of the review and tell them later whether they may be compensated.

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FSA Probe of U.K. Annuity Market to Review Pricing, Fairness

The U.K. Financial Services Authority has begun an investigation into whether consumers buying annuities are getting a fair deal.

The FSA will conduct a pricing survey and review the availability of policies, it said in a statement today. The regulator may also probe whether companies selling annuities hinder consumer choice.

Annuities sold by life insurance companies guarantee fixed payments over a specified period of time. They are commonly used by retirees who can use their pensions to buy an annual income.


Unemployed U.K. Man Made $1 Million With Insider Tips, FSA Says

An unemployed British man made 692,644 pounds ($1.09 million) spread-betting with inside tips he received about upcoming mergers, a lawyer for the U.K. Financial Services Authority said.

Richard Joseph, 43, traded on information he received from Ersin Mustafa, who worked in the print room at JPMorgan Chase & Co.’s Cazenove unit, FSA lawyer Michael Bowes told a jury yesterday, the first of Joseph’s London criminal court trial.

Joseph, unemployed since the summer of 2000, was charged with conspiring to trade on shares of Abbot Group Ltd., Fiberweb Plc, IMI Plc, Expro International Group Plc, Greene King Plc and Aero Inventory Plc, based on the tips from Mustafa between September 2007 and July 2008.

Joseph made payments of more than 268,000 pounds to Mustafa, who also passed on tips from his brother, Ali, who worked at the UBS AG print room, prosecutors said.

Joseph pleaded not guilty to six charges of conspiracy to commit insider trading and will provide his defense later in the trial.

Mustafa has fled the U.K., Bowes said.

Tradition Agrees to Pay $250,000 to Settle Bond-Rig Suit

Tradition (North America) Inc., a unit of Paris-based broker Viel & Cie., agreed to settle allegations that it rigged bids for municipal bond reinvestment deals, according to officials in Massachusetts.

In a civil settlement, the broker agreed to pay $250,000 as well as submit to a probe of whether the firm owes any additional money, according to the state attorney general’s office.

The state alleged that Tradition, which conducted bidding processes among financial institutions for reinvestment deals, allowed certain companies to win the business at below-market rates. Tradition worked for the state between 2000 and 2004 and was supposed to get the highest interest rates from banks on investments of municipal bond proceeds, according to the attorney general’s office.

Representatives for Tradition in New York and Paris didn’t immediately respond to requests for comment.

The case is Commonwealth of Massachusetts v. Tradition Inc., 2010-04378, Massachusetts Superior Court (Suffolk County).


O’Malia Says U.S. Must Recoup All Peregrine Funds

Scott O’Malia, a Republican commissioner on the Commodity Futures Trading Commission, talked about the latest developments in the case of bankrupt commodities broker Peregrine Financial Group Inc., and the importance of technology in market oversight.

O’Malia, speaking with Stephanie Ruhle on Bloomberg Television’s “Market Makers,” also discussed staff changes at the CFTC.

For the video, click here.

Mursi Says Egypt Will Uphold Security of Foreign Investments

Egypt’s President Mohamed Mursi said his government seeks foreign direct investment and will uphold the legal security that is a pre-condition for attracting investors.

Mursi made his comments at a German-Egyptian trade conference in Berlin.

Comings and Goings

HSBC Hires Tax, Anti-Terror Chiefs to Bolster Controls Team

HSBC Holdings Plc appointed former U.S. Deputy Attorney General James Comey and ex-U.K. tax chief Dave Hartnett to a panel to combat financial crime after the bank paid $1.92 billion to settle money-laundering probes.

Comey, who will be a non-executive director at HSBC, joins Bill Hughes, 62, ex-head of the Britain’s Serious Organised Crime Agency; Juan Zarate, a former George W. Bush administration counter-terrorism adviser, and former U.K. diplomat Nick Fishwick, 54, in providing advice, London-based HSBC said in a statement yesterday.

Chief Executive Officer Stuart Gulliver’s attempts to reduce costs and improve profitability have been hurt by U.S. probes and by compensation claims from U.K. clients. A Senate committee said in July that lax oversight by top HSBC executives gave terrorists and drug cartels access to the U.S. financial system. The December settlement by Europe’s biggest bank by market value to end investigations into money laundering is the largest of its type reached in the U.S.

The HSBC committee will provide guidance on anti-money laundering systems and controls, tax transparency, preventing terrorist financing and drug financing, the bank said.

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OCC’s Head of Supervision for Largest U.S. Banks Leaves Position

Michael L. Brosnan has stepped down as chief of large bank oversight at the U.S. Office of the Comptroller of the Currency in a request that took the agency head by surprise.

Brosnan requested reassignment at the agency after supervising large banks since the 2008 credit crisis, according to an OCC statement released yesterday. Martin Pfinsgraff will take over as acting senior deputy comptroller for large bank supervision. Pfinsgraff, a former treasurer at a unit of Prudential Financial Inc. who has been the OCC’s deputy comptroller for credit and market risk, will assume the new role next month, according to the statement.

Brosnan has accepted a position as examiner-in-charge for the national bank of Salt Lake City, Utah-based Zions Bancorporation, according to the statement. He spent more than 21 years at the OCC before leaving in 2004 to join MBNA Corp., which was acquired in 2006 by Bank of America Corp.

Darrin Benhart, one of two deputy comptrollers running the Credit and Market Risk Group, will temporarily take over the entire group.

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