Aligning QRM, EU Bond Pricing, Heinz Surge: Compliance

Feb. 15 (Bloomberg) -- U.S. realtors and mortgage bankers say they hope President Barack Obama’s call for streamlined mortgage rules in his State of the Union speech will help them persuade regulators not to set a strict minimum down payment for home loans.

While the president was speaking broadly about a variety of rules that may be hampering credit availability, real estate agents, mortgage bankers and others who are angling for changes to a proposed regulation requiring lenders to keep a stake in risky loans say they will use Obama’s comments to help make their case.

At issue is the so-called qualified residential mortgage rule, which six banking regulators including the Federal Deposit Insurance Corp. and the Federal Reserve are aiming to complete this year. The regulators drew protests in 2011 when they released a preliminary draft requiring lenders to keep a stake in certain mortgages, including those with down payments of less than 20 percent.

Bankers and consumer groups said such a requirement would shut creditworthy borrowers out of the market, reshaping who can lend and who can borrow.

Now, industry participants and some lawmakers are pressing for the regulators to align the QRM rule with a measure with a similar name that is also aimed at preventing risky home lending: the qualified mortgage, or QM, rule. That guidance, issued by the Consumer Financial Protection Bureau in January, offers legal protections to banks that issue loans to borrowers spending no more than 43 percent of their income on debt.

Housing industry participants want the regulators writing QRM to drop the down-payment requirement and raise borrowers’ allowable debt load to 43 percent, essentially setting the same requirements in both the QM and QRM rules.

The concept has drawn support from lawmakers. Senator Bob Corker, a Tennessee Republican, is drafting a bill that would merge the two rules. He’ll offer the measure only if regulators don’t act on their own, said Laura Herzog, Corker’s communications director.

Meanwhile, a bipartisan group of senators who drafted the language requiring the QRM rule in the 2010 Dodd-Frank Act wrote a letter to regulators Feb. 13 urging them to drop a strict down-payment requirement.

It will probably be months before regulators, also including the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, come out with the QRM rule. Still, officials testifying at a Senate hearing yesterday said they would be open to the idea of aligning the two rules.

Compliance Policy

Bond-Pricing Disclosure to Shrink Europe Debt Market, AFME Says

Europe’s corporate debt market will shrink if disclosure rules on bond pricing are introduced because they will increase dealer costs, the Association for Financial Markets in Europe said.

The European Union is proposing traders must disclose firm prices before and after a transaction is completed under its Markets in Financial Instruments Directive, known as Mifid II. Almost $2 trillion of corporate debt was issued in Europe last year, according to data compiled by Bloomberg.

Regulators are demanding more transparency in credit markets following the worst financial crisis since the Great Depression. EU Financial Services Commissioner Michel Barnier is reviewing Mifid as part of a wider overhaul of the securities industry.

In an AFME survey, 56 percent of European investors questioned said the Mifid proposal for pre-trade transparency will negatively impact the market, the London-based industry body said Feb 4. The move may cause a drop in trading volumes, a cut in deal sizes and an increased cost of trading, investors told AFME.

AFME represents international lenders including Deutsche Bank AG, BNP Paribas SA, HSBC Holdings Plc and Royal Bank of Scotland Group Plc.

Banks in the U.S. are reducing bond holdings as the Dodd-Frank Act’s Volcker Rule seeks to limit risk-taking at the biggest financial institutions.

Regulators Tout Dodd-Frank Progress in Senate Panel Remarks

U.S. regulators told lawmakers they are making significant progress to prevent a repeat of the 2008 credit crisis, pushing back against complaints of slow progress and efforts to undo parts of the Dodd-Frank Act.

Officials from agencies including the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp., who testified yesterday at a Senate Banking Committee hearing on implementation of the 2010 regulatory overhaul, delivered opening remarks that highlight finished work and rules nearing completion while warning against attempts to roll back key provisions of the law.

Fewer than half the rules mandated by Dodd-Frank have been implemented by regulators, according to data compiled by Bloomberg. Among the measures awaiting completion are the Volcker rule ban on proprietary trading, and rules designed to increase transparency in derivatives markets and improve consumer protections for mortgage borrowers.

Of the 398 Dodd-Frank rules, 148 have been finalized and 124 haven’t yet been proposed, according to a Feb. 1 tracking report released by law firm Davis Polk & Wardwell LLP . Regulators have missed 279 Dodd-Frank rulemaking deadlines, according to the report.

Senator Michael Crapo of Idaho, the Banking Committee’s top Republican, questioned whether Dodd-Frank rules are “too complex, offering confusing and often contradictory standards and regulatory proposals.”

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Europe’s Financial Transaction Tax Could Be Boost to Loan Market

The European Union’s proposed tax on financial transactions could benefit the region’s loan market, which would be exempt from the charge.

“The financial transaction tax includes all financial instruments and derivatives, but not loans,” according to a report from Clifford Chance LLP written by attorneys led by Dan Neidle, a London-based tax lawyer. “The pricing of corporate and government bonds may reflect direct and indirect FTT charges, and this may cause a move by corporates away from bond financing and towards loan financing,” it said.

The EU is trying to curb what it sees as a “patchwork” of local levies with a tax that it believes could raise 30 billion euros ($40 billion) to 35 billion euros a year.

“The FTT will not apply to day-to-day financial activities of citizens and businesses in order to protect the real economy,” the European Commission said in a statement. “Traditional investment banking activities” such as raising capital or restructuring deals will also be exempt, the Commission said.

The tax could be collected worldwide as soon as the start of next year by the 11 nations that have so far signed up to participate. Companies may stop raising floating-rate interest loans and entering into swap transactions to make them fixed-rate because of the tax, Clifford Chance said.

Senate Democrats Say Won’t Back Proposals to Revamp CFPB

Senate Democrats told President Barack Obama they are united in their opposition to any attempt to change the structure of the U.S. Consumer Financial Protection Bureau.

“We oppose efforts to weaken the CFPB through structural changes, including as the price for Senate approval of director Cordray’s nomination,” according to a letter sent yesterday and signed by all Senate Democrats except Senator Mark Pryor of Arkansas.

Independent Senators Angus King of Maine and Bernie Sanders of Vermont also signed the letter.

A group of about 43 Republican senators, in a letter to Obama earlier this month, said they will continue to oppose the confirmation of any nominated CFPB director until “key changes are made to ensure accountability and transparency at the bureau.”

Obama used a controversial recess appointment to appoint Richard Cordray head of the bureau in January 2012, bypassing Senate confirmation amid Republican opposition. Obama renominated Cordray on Jan. 24.

Compliance Action

SEC Investigators Review Surge in Heinz Options Before Merger

U.S. Securities and Exchange Commission investigators are reviewing whether a surge in bullish bets on H.J. Heinz Co. was fueled by inside information about Berkshire Hathaway Inc. and 3G Capital’s plan to buy the ketchup maker, a person familiar with the matter said.

Trading in Heinz call options, which give the right to buy the underlying shares and profit when the stock rises, increased Feb. 13 to the highest level since Jan. 31, data compiled by Bloomberg show. Heinz shares jumped 20 percent to $72.51 yesterday following the announcement that Warren Buffett’s Berkshire Hathaway and Jorge Paulo Lemann’s 3G Capital agreed to buy the Pittsburgh-based company for about $23 billion.

The agency’s review is in its early stages and a formal investigation may not result, according to the person, who asked not to be named because the matter isn’t public.

The SEC in recent years has sharpened its methods for linking people who make well-timed trades to those who might have access to confidential information about an impending merger or deal.

MetLife Wins Approvals From Fed, FDIC to Deregister as Bank

MetLife Inc., the largest U.S. life insurer, said it won approval from the Federal Reserve to deregister as a bank holding company after selling deposits to General Electric Co.

MetLife’s exit was also approved by the Federal Deposit Insurance Corp., the New York-based insurer said yesterday in a statement.

Santander, Co-Operative Improperly Sold Rate Hedges, FSA Says

Banks including Banco Santander SA’s U.K. business, Bank of Ireland and Co-Operative Bank Plc may have to compensate customers for improperly selling interest-rate hedging products to small companies, the U.K.’s financial watchdog said.

Around 90 percent of the products -- also sold by Allied Irish Banks Plc, Clydesdale Bank Plc and Yorkshire Bank Plc -- broke U.K. rules, the Financial Services Authority said in a statement on its website indicating the lenders agreed to review their sales of the products.

A “significant proportion of the cases” will “result in redress being due to the customer,” the agency said.

Barclays Plc, Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Lloyds Banking Group Plc reached agreement with the FSA on Jan. 31 on plans to review deals and compensate customers improperly sold rate-hedging products. The lenders may have to pay as much as 5 billion pounds ($7.75 billion) to compensate customers following the probe.

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 have reserved more than 10 billion pounds to cover customer claims over payment-protection insurance -- which was meant to pay credit-card bills and mortgages in case of illness or unemployment.


Lehman Seeks to Question JPMorgan London Whale Iksil Over Losses

Lehman Brothers Holdings Inc. wants Bruno Iksil, the former JPMorgan Chase & Co. trader known as the London Whale, to answer questions about losses Lehman says spurred unnecessary collateral calls that helped force it into bankruptcy.

JPMorgan in May disclosed billions of dollars in losses by London-based Iksil, who got his nickname because his positions were so big. Lehman, which has been fighting JPMorgan over $8.6 billion since 2008, said in a filing Feb. 13 in U.S. Bankruptcy Court in Manhattan that Iksil may have knowledge of the role JPMorgan’s chief investment office played in managing exposure to Lehman.

Lehman, which is gathering money to pay creditors an average of 18 cents on the dollar, said that it realized Iksil could help it after JPMorgan disclosed “risk management failures.” Iksil was “central” to a dispute with JPMorgan over valuing derivatives, New York-based Lehman said.

JPMorgan, a key lender to Lehman during the 2008 credit crisis, “largely” agreed that Lehman can conduct interviews on the alleged link between its failure and Iksil’s losses, although the trader, a French national, doesn’t want to talk, Lehman said in the filing. Lehman said in the filing that it wants to seek international judicial assistance in forcing Iksil to answer questions.

Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Lehman’s request. Dow Jones earlier reported the filing about Iksil.

Lehman filed the biggest bankruptcy in U.S. history in 2008, after piling on debt and making high-risk bets, according to an examiner’s report. Technically out of bankruptcy since March, the company has said it will continue to liquidate through about 2016.

The liquidation case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Lehman’s lawsuit against JPMorgan is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Israeli Bankers Helped California Man Cheat IRS, U.S. Says

A California man agreed to plead guilty to conspiring with bankers at two Israeli banks to hide offshore accounts and their income from the Internal Revenue Service, according to Justice Department court filings.

Zvi Sperling was accused yesterday in federal court in Los Angeles of conspiring with bankers at two Tel Aviv-based banks, identified only as Bank A and Bank B. The charging document, known as a criminal information, and a plea agreement filed yesterday didn’t identify the banks.

Sperling owns 49 percent of a wholesale goods company with his brother, who owns the rest, according to the plea agreement. Sperling had an account in China when he met Banker 1 from Bank A in 2001, according to the agreement. At that meeting in Beverly Hills, California, Banker 1 persuaded Sperling to move his money from China, according to the plea deal.

Steven Toscher, Sperling’s lawyer, said in a phone interview that his client “recognizes the serious mistakes that he has made and he accepts full responsibility for his conduct.”

Since 2008, U.S. prosecutors have cracked down on offshore tax evasion, charging at least 83 U.S. taxpayers or foreign bankers, lawyers or advisers with tax crimes.

No Israeli bank has been charged.

Sperling arranged so-called back-to-back loans, according to the information. From 2005 through 2008, he failed to report interest income of $381,563, according to the plea deal.

He has agreed to pay back taxes and civil penalties.

The case is U.S. v. Sperling, 13-cr-108, U.S. District Court, Central District of California (Los Angeles).

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U.S. Bank Study Shows Highest Annual Profits Since Crisis

U.S. commercial banks in 2012 recorded their highest annual profits since the 2008 financial crisis even as they saw a slight decline in net income for the last quarter, according to a study by Hamilton Place Strategies.

The report released yesterday by the Washington-based consulting firm examined government and industry data. It also found that banks continued to boost capital, putting the industry’s Tier One common capital ratio at 12.6 percent.

Comings and Goings

Vatican Names German Lawyer Von Freyberg to Head Embattled Bank

The Vatican hired a German lawyer to head its bank, which has lacked a director for almost nine months after being targeted in a money laundering probe, filling a vacuum a two weeks before the pope’s resignation.

Ernst von Freyberg, 54, a member of the religious order of the Knights of Malta, will remain based in Germany and spend three days a week at the Vatican, spokesman Father Federico Lombardi said at a press conference in Rome today. Von Freyberg was among 40 candidates and appointed by a commission of cardinals with the consent of the Pope, Lombardi said.

The appointment comes as the bank seeks to make progress on banking supervision and transparency to try to comply with international efforts to prevent money laundering. The Vatican has so far been unsuccessful its efforts to be added to the Organization for Economic Cooperation and Development’s so-called white list of financially transparent countries.

The Vatican bank, which reports directly to the pope and is formally called the Institute for the Works of Religion, or IOR, had been under the interim leadership of its vice chairman since the board of directors ousted former head Ettore Gotti Tedeschi.

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

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