Turkish Assets, Danish Triggers, Hedge Funds: Compliance

Turkey’s government submitted a bill to parliament offering an amnesty for repatriation of assets held by Turks abroad.

The bill proposes a reduced tax rate of 2 percent, with no questions to be asked about how the money was earned and no penalties to be applied, according to the draft submitted to the parliament in Ankara April 24.

Turkish citizens and companies have $130 billion of portfolio investments abroad, including more than $50 billion in U.S. Treasuries, the newspaper Milliyet reported on April 17, citing Deputy Prime Minister Ali Babacan. The Turkish private sector invested a record $4.5 billion abroad in 2012, Babacan said, according to Milliyet.

Turkish citizens and companies can declare money, gold, securities and other capital-markets instruments held abroad to tax offices by July 31 and pay a 2 percent tax on them within three months of the declaration, the draft says. The holdings can then be repatriated in installments.

Profits earned by overseas units of Turkish companies and proceeds from sales of unit stakes outside Turkey before Oct. 31 will also be exempt from corporate and income tax should the funds be repatriated by the end of the year for investment purposes, the draft says. The Cabinet may extend repatriation periods and a higher rate would be charged should the owners of the assets fail to pay the 2 percent tax after declaring them.

Compliance Policy

Retail Brokerages Must Seek Revenue From Customer Fees, FCA Says

Websites that offer investment advice should finance themselves by charging customers, rather than through fees from fund managers whose products are sold there, the U.K. finance regulator said.

The business model of online retail brokerages must be regulated so that investors can make “fully informed choices,” the Financial Conduct Authority said today in a statement on its website. Allowing websites to be financed primarily by fees from the companies whose products they sell risks limiting consumers’ choices because they won’t be offered products from providers who don’t pay, the regulator said.

The FCA’s predecessor, the Financial Services Authority, said last year that changes were needed to payment practices even though they would have a “significant impact” on platforms’ business models.

The new rules will come into force on April 6, 2014. Platforms will have an additional two years to move existing customers to the new charging model.

Danish Banks Fight Debt Triggers They Say Will Kill Lending

Denmark’s biggest banks are seeking to prevent a proposal aimed at safeguarding taxpayers against bailouts, arguing it will force them to tap more expensive equity to fulfill capital requirements and limit their ability to make loans.

As part of the plan, the government has set a trigger for converting debt to equity so high that investors will demand an equally high return, forcing lenders to raise costlier equity, said Steen Nygaard, head of group treasury at Jyske Bank A/S, Denmark’s second-largest listed lender.

Banks and mortgage lenders are urging Denmark to wait to set triggers until the European Union puts its regulations in place. The Danish public had until last week to respond to recommendations aimed at preventing taxpayers from having to shoulder the cost of bank collapses from a committee on so-called systemically important financial institutions.

Lawmakers are looking at the measures with the intention of passing legislation later this year. Under the current proposal, debt would convert to equity when the underlying equity falls below 10.125 percent of risk-weighted assets.

That’s almost twice current Danish and EU levels and significantly higher than what Standard & Poor’s requires, said Jens Moeller, managing director in DLR Kredit A/S, which is seeking to become designated a Sifi. If the high trigger scares off investors and prevents banks from raising debt, equity investors probably will demand an even higher return, he said.

The committee last month named six banks, including Danske Bank A/S and Nordea Bank AB, as too big to fail and advised them to hold as much as 5 percent additional capital.

Denmark became the first European country to force losses on senior creditors under a government framework when Amagerbanken A/S failed in 2011, a move that locked most Danish banks out of funding markets. Just months earlier, parliament had passed bail-in legislation Europe was expected to adopt. The EU faces a self-imposed June deadline for similar plans.

ECB’s Constancio Says Bank Health Checks Will Be Vital Test

The European Central Bank will thoroughly probe banks’ balance sheets as it prepares to assume oversight powers, seeking to reassure markets of the robustness of euro-area lenders.

The assessments, a requirement set out in the law handing the central bank oversight powers, are “a critical moment and a vital challenge” for the single supervisor, ECB Vice President Vitor Constancio said in Brussels yesterday.

The Frankfurt-based central bank is set to take on bank oversight powers next year as part of a bid by the 17 nations of the euro area to unite the solvency of banks and sovereigns. EU leaders agreed last year that the supervisor should be a first step in building a so-called banking union with common oversight and centralized crisis-response measures for lenders.

Constancio said that the asset health checks won’t be directly linked with the next round of EU-wide bank stress tests organized by the London-based European Banking Authority.

While it would be better to have the balance sheet assessment before the stress tests, “it can work either way,” Constancio said.

Compliance Action

Japan Strips Registration of U.S. Fund Manager MRI International

Japan’s finance regulator stripped U.S. asset-management company MRI International Inc. of its registration to operate in the country, saying it falsified business reports.

MRI also failed to manage assets from 2011, the Financial Services Agency said today in a statement. Japan’s Securities and Exchange Surveillance Commission conducted a joint investigation of Las Vegas-based MRI with U.S. counterparts, an SESC official said, asking not to be named in accordance with the commission policy.

The firm failed to separate assets collected from clients from funds used to pay investment returns, according to the regulator. The probe comes a year after Japan conducted the biggest investigation of the country’s assets managers amid allegations of fraud at AIJ Investment Advisors Co. AIJ, a Tokyo-based investment company, was found to have concealed losing more than 100 billion yen ($1 billion) of clients’ money.

The Nikkei newspaper earlier reported as much as 130 billion yen of MRI client’s funds may be missing, without citing sources. The SESC has yet to identify MRI’s asset balance and the amount of money that the company may have lost, the official said, adding that the firm’s inaccurate reports made it difficult to track the money flow.

Calls to MRI’s Tokyo office before the regulator’s announcement were transferred to an answering machine saying it will “deliver letters to clients in due course.” The office had a notice posted on its entrance saying business is closed today. Nobody answered the door this morning.

MRI, founded in 1998, sells investment products that are related to the rights to collect medical service fees, according to its website.

VW Investigated With Garcia Sanz Over T-Systems Bribery Case

Volkswagen AG and Francisco Javier Garcia Sanz, a member of its management board, are under investigation by German prosecutors over allegations they failed to prevent corruption at the company.

Prosecutors in Stuttgart, Germany, are reviewing whether Garcia Sanz and Volkswagen didn’t prevent an illegal sponsorship for the German soccer club VfL Wolfsburg, Claudia Krauth, a spokeswoman for the authorities, said yesterday. They are probing administrative, not criminal violations, she said.

Prosecutors charged three former employees and consultants of Deutsche Telekom AG’s T-Systems unit and two Volkswagen employees with bribery in 2011. The probe is looking into whether T-Systems managers tried to get an order for telecommunications supplies from Volkswagen worth 345 million euros ($450 million) in exchange for continuing a sponsorship deal with the soccer club for 16 million euros.

Krauth said the administrative probe “is linked” to the criminal case and while it may be added to the court case, that is still unclear.

Eric Felber, a spokesman for Wolfsburg, Germany-based Volkswagen, said the company won’t comment on a pending case. The allegations that Volkswagen didn’t do enough to prevent bribery are “baseless,” he said.

ENRC Faces Formal Bribery Investigation by U.K. Prosecutors

U.K. prosecutors opened a formal investigation into allegations that Eurasian Natural Resources Corp. paid bribes to win business in Kazakhstan and Africa.

The Serious Fraud Office probe is focusing on “allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries” in those regions, David Jones, a spokesman for the SFO, said in an e-mail.

ENRC Chairman Mehmet Dalman resigned April 23 as the mining company’s three founding shareholders and the Kazakh government consider making an offer to buy the company, which produces iron ore, copper and power. Dalman was replaced by director Gerhard Ammann, former chief executive of Deloitte & Touche LLP’s Swiss practice.

ENRC shares fell as much as 7 percent on news of the investigation.

The company is “assisting and cooperating fully with the SFO” and “is committed to a full and transparent investigation of its procedures and conduct,” it said in a statement.

Moody’s Investors Service downgraded the company’s corporate family rating and placed its ratings on review for further downgrade, according to a Moody’s statement.

On April 11, the London-based company said it replaced Dechert LLP, a U.S. law firm hired to investigate corruption allegations. It has hired Fulcrum Chambers LLP to work with the SFO.

After Dechert was replaced, the SFO sent the law firm a so-called Section 2a notice seeking documents from its investigation, a person familiar with the report said. Dechert spokesman Will Salomone declined to comment on the SFO order or the Dechert report.

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Commerzbank Bonus Appeal Fails as Dresdner Bankers Win Again

Commerzbank AG must pay about 50 million euros ($65 million) to 104 bankers at its now-defunct Dresdner unit after a U.K. appeals court refused to overturn a judge’s decision that the German lender should honor bonus promises.

A pledge by Dresdner’s then Chief Executive Officer, Stefan Jentzsch, to set aside 400 million euros for bonuses in 2008, before the investment bank was acquired by Commerzbank, was binding, the court said today. Commerzbank, which reduced Dresdner bonuses by 90 percent, argued a 6.5 billion-euro loss at the unit justified the move.

While banks try to combat or avoid European Union proposals for some of the world’s toughest pay curbs, Frankfurt-based Commerzbank has fought legal battles in Germany, Italy and Japan to defend its bonus cuts. At the 2012 trial in London, Chief Executive Officer Martin Blessing said he wanted bankers to be motivated by loyalty not money.

The ruling “is a triumph for common sense and for some very well-established principles of English contract law,” Clive Zietman, the lawyer for 83 of the bankers, said in a statement.

Commerzbank said in an e-mailed statement it hadn’t decided whether to appeal to the U.K. Supreme Court. The ruling is a “regrettable outcome in view of the ongoing regulatory, public and shareholder calls to establish a sound relationship between banks’ performance and variable remuneration.”

The German lender bought Dresdner from Allianz SE in January 2009, the same year it took an 18.2 billion-euro bailout from Germany at the height of the financial crisis.


Levitt Says White Stepping Into ‘Real Firestorm’ at SEC

Arthur Levitt, former chairman of the Securities and Exchange Commission, said “a real firestorm” awaits new Chairman Mary Jo White over corporate campaign contributions.

Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Van Hollen Urges Disclosure of Corporate Political Donations

Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, talked about his support for disclosure requirements on corporate political donations.

“Voters have a right to know who’s spending all that money,” Van Hollen said.

He spoke to Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers.”

For the video, click here.

Lew Says Budget Cuts Hurt Tax Collection, IRS Enforcement

U.S. Treasury Secretary Jacob J. Lew said the automatic spending cuts known as sequestration will reduce tax collection and hurt the department by forcing it to cut back on training and postpone contracts.

Lew made the remarks in testimony prepared for a hearing yesterday before a House Appropriations subcommittee.

Workers at the Internal Revenue Service, which is part of the Treasury Department, will have to stay home without pay for as many as seven days between now and September, Lew said.

The cuts will also lead to fewer enforcement actions, Lew said.

On financial regulation, Lew told the House panel “it is critically important that we complete the process of implementing” the Dodd-Frank law. He said it’s “a matter of urgency to me that we get this done and we get it done quickly.”

Lew, 57, also said China is making “some progress” on allowing the yuan to strengthen and he is watching the country’s currency movements “very carefully.” He said he has told China’s new leaders that they need to “expand the band” in which the yuan trades.

Lew, 57, reiterated the Obama administration’s position that it can’t prioritize payments if Congress fails to extend or raise the federal debt limit.

Comings and Goings/Executive Pay

Hedge Fund Pay Lures Bankers Amid Regulation, Deutsche Bank Says

Hedge funds are luring bankers with prospects for better pay and will probably benefit as stricter capital rules push lenders to give up some businesses, Deutsche Bank AG Chief Financial Officer Stefan Krause said.

Krause, 50, made the comments yesterday at a conference in Berlin.

Investment banks are exiting some businesses as they become unprofitable because of planned capital rules designed to avoid a repeat of the taxpayer-funded bailouts that followed the 2007 meltdown of the U.S. housing market. Deutsche Bank is balancing efforts to lift profit by cutting pay and stretching the vesting period of bonuses with its ability to retain staff, Krause said.

“Our business is people-contingent and you’ll never be able to not pay competitively,” he told bankers attending the conference. “What you can do is structure your pay differently so it’s longer-term oriented.”

Most of the bankers who leave Deutsche Bank, continental Europe’s biggest lender by assets, move to hedge funds, according to Krause.

Hedge funds are loosely regulated investment pools usually open only to wealthy individuals and institutional investors.

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