FCC Bolstered, ISDAfix E-Mails, Swedish Banks: Compliance

May 21 (Bloomberg) -- The U.S. Supreme Court bolstered the authority of federal administrative agencies, upholding Federal Communications Commission deadlines for local zoning authorities considering applications for new wireless facilities.

The high court, voting 6-3, said yesterday it would defer to the FCC’s interpretation of a federal law that sets the boundaries of the agency’s authority.

Although courts normally defer to the expertise of administrative agencies when they interpret ambiguous statutes, opponents of the FCC deadlines said that principle shouldn’t apply when an agency is determining its own jurisdiction.

The ruling drew a dissent from three justices who are often Scalia’s allies on questions of federal power -- Chief Justice John Roberts and Justices Samuel Alito and Anthony Kennedy.

Roberts called his disagreement “fundamental,” saying judges shouldn’t defer to regulators’ interpretation of a law until a court determines that the agency had jurisdiction in the first place.

Justices Clarence Thomas, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan joined Scalia in the majority.

The dispute centered on a provision in the 1996 Telecommunications Act that gives the FCC power to “prescribe such rules and regulations as may be necessary in the public interest to carry out” the law.

The FCC was battling the Texas cities of Arlington and San Antonio, which objected to a 2009 agency ruling that said local zoning authorities had to act within a “reasonable period of time” on applications for new wireless towers and antennas.

The case is Arlington v. FCC, 11-1545, U.S. Supreme Court (Washington).

Compliance Policy

Swedish Banks Get No Mercy as EU Capital Agenda Ignored

Swedish Finance Minister Anders Borg said he won’t cave to pressure from banks or the European Union to harmonize standards and insists capital ratios in the largest Nordic economy need to be higher than those elsewhere.

Some of Sweden’s biggest banks have argued the government’s approach is hurting their ability to lend. Without harmonized capital rules, banks will suffer competitive distortions, Nordea Bank AB Chief Executive Officer Christian Clausen has repeatedly warned. Clausen, who is also president of the European Banking Federation, said in February lenders need “one rule book.”

Yet Borg’s tougher stance is supported by debt markets, which have rewarded Sweden’s banks with some of Europe’s lowest funding costs and default risks.

Sweden’s four biggest banks need to hold at least 10 percent core Tier 1 capital of their risk-weighted assets this year, and no less than 12 percent by 2015. That compares with Basel III’s 7 percent requirement by 2019 and a 9 percent minimum standard for some European banks.

Financial Markets Minister Peter Norman, who oversees banks, argues harmonized capital rules make no sense because each country has its own financial risks to deal with.

For more, click here.

ASX Advises ASIC to Shelve Minimum Trade Resting Time, AFR Says

ASX advised the Australian Securities and Investments Commission to put aside the minimum trade resting time proposal, the Australia Financial Review reported.

Report cited the submission from ASX to the Commission.

ASX warned the proposal forcing traders to hold their positions for a minimum time would prove costly and do little to bolster market confidence, according to AFR.

The planned rule would only apply to trades of $500 or less, the newspaper said.

EU Parliament Panel Seeks Depositor Preference in Bank-Loss Law

A European Parliament committee called for uninsured depositors to be given greater protection than debtholders at failing banks, in proposals that would hand regulators the power to impose creditor losses at crisis-stricken lenders from mid-2016.

The European Union assembly’s economic and monetary affairs committee approved the creditor-writedown rules in a vote yesterday in Strasbourg, France, as part of its negotiating position on draft EU rules aimed at taking taxpayers off the front line for bailing out banks. Negotiations will take place with EU national governments.

The Parliament committee also called on governments to build up bank-financed funds that could be tapped to cover restructuring costs at failed lenders.

Compliance Action

Euro Banks May Have $386 Billion Capital Deficit, Berenberg Says

A review of asset quality by euro zone’s banking regulators of the region’s banks may show a capital shortfall of 300 billion euros ($386 billion) to 400 billion euros led by France and Germany, according to analysts at Berenberg Bank.

The European Banking Authority and the European Central Bank are under “huge pressure” to curb concern that asset quality is inadequate, Berenberg analysts in London including Nick Anderson wrote to clients yesterday. The largest deficits may be in France and Germany followed by the Netherlands, Berenberg said.

The EBA last week postponed stress tests until 2014, allowing time for an ECB-led review into the assets held by some lenders in the debt-laden bloc. The EBA said the ECB asset check will “help dispel concerns over the deterioration of asset quality due to macroeconomic conditions in Europe.”

The EBA carried out the last formal EU stress tests in 2011, which were criticized for not catching shortfalls at the lenders.

CFTC Said to Review 1 Million E-Mails in ISDAfix Investigation

Commodity Futures Trading Commission investigators are poring over one million e-mails and instant messages as part of their price-manipulation probe of a swaps benchmark that helps determine interest rates on everything from annuities to bonds linked to skyscrapers.

Investigators preparing to interview bankers and brokers in the coming weeks are scouring the records collected under subpoena for any evidence that the world’s largest banks and ICAP Plc brokers rigged the ISDAfix swaps rate, said a person familiar with the matter, who asked not to be named because the probe is private. ICAP Chief Executive Officer Michael Spencer said last week that the company’s investigations have turned up no wrongdoing.

Steve Adamske, a CFTC spokesman, declined to comment, as did Guy Taylor of ICAP.

The CFTC issued subpoenas to current and former ICAP brokers, as many as 15 Wall Street dealers and to ISDA, Bloomberg News first reported April 8, citing people familiar with the matter. The U.K. Financial Conduct Authority also started an inquiry into how the benchmark swaps prices are set in British pounds, Bloomberg reported two weeks later, citing people familiar with that review.

Companies and money managers in the $379 trillion swaps market rely on the ISDAfix benchmarks to value their trades.

Bloomberg LP, the parent of Bloomberg News, competes with ICAP in some businesses, including foreign exchange trading.

Sweden Yield Little Affected by Discount Curve Plan, Danske Says

The Swedish financial watchdog’s proposal for a new Solvency II-based discount rate curve will have “limited effect” on Swedish bond yields in the short-term, Danske Bank A/S said in a client note yesterday.

In the long-term, the new curve would improve the situation for life insurance and pension companies from a regulatory perspective since the hedge ratio is set to rise to 60 percent from 35 percent, according to Danske Bank.

The curve is set to diminish fire sales of equities and flows into bonds in times of crisis and unsettled markets, the bank said. In such a market environment, Swedish bonds with long maturities may not be bought as aggressively as has been the case in recent years, according to Danske Bank.

The Swedish FSA said yesterday that its proposal will now be submitted for consultation. The new curve is set to be implemented next year.

Senators Question CFTC on Oversight of Energy Swap Markets

Democratic senators from the U.S. West Coast asked the U.S. Commodity Futures Trading Commission whether proposed rules exempting energy traders from regulation will undermine the Dodd-Frank Act and hinder oversight of energy markets, according to a statement on the website of Senator Dianne Feinstein of California.

“We are concerned that CFTC is failing to bring energy swap dealers under its oversight, which limits CFTC’s ability to monitor for manipulation, excessive speculation and systemic risk in energy markets,” according to a letter to agency Chairman Gary Gensler from the senators.

They asked the CFTC in the letter to “closely analyze” the matter.

The letter was sent by Feinstein, with Senators Barbara Boxer of California, Ron Wyden and Jeff Merkley of Oregon, and Patty Murray and Maria Cantwell, who are both from Washington.

Lack of Sukuk, Funds Stunts Private Banking Growth for Muslims

Islamic private banking services catering to Muslim millionaires are insufficient to meet demand because of a dearth of sukuk and fund products, according to Standard Chartered Plc and CIMB Group Holdings Bhd.

Shariah-compliant plans are too small for the wealthy to create a diversified pool of investments and maximize returns, Wasim Saifi, Standard Chartered Bank’s global head of Islamic consumer banking, said in a May 13 interview. Indonesia’s Manulife Link Dana Pasar Uang Syariah, the biggest sukuk fund, had $91.5 million of assets in January, compared with $2.04 trillion for Pacific Investment Management Co., manager of the world’s largest fixed-income fund based in the U.S.

Safa Investment Services, a Geneva-based Islamic asset management company, estimates there’s more than $1 trillion of cash from Muslim millionaires that’s largely going into conventional products in bonds and commodities. Sukuk sales reached $15 billion this year, compared with global corporate debt issuance of $1.7 trillion. Only four real-estate investment trusts compliant with Koranic principles have started since the first one began in Malaysia in 2006.

CIMB in Kuala Lumpur has delayed plans to roll out more Shariah-compliant products for clients who reach minimum investment requirements. Standard Chartered will begin offering private banking products that comply with Muslim tenets in Singapore over the next 12 months.

For more, click here.


Sarbanes-Oxley Whistle-Blower Shield Gets High Court Review

The U.S. Supreme Court will rule on the reach of the 2002 Sarbanes-Oxley investor-protection law, agreeing to decide whether the law’s whistle-blower protections cover the employees of a publicly traded entity’s contractors.

The justices yesterday said they will hear an appeal from two former employees of a privately held company that provides investment advice and management services to the Fidelity mutual funds. The workers say they lost their jobs after reporting fraud.

The case will likely pit business groups against President Barack Obama’s administration, testing the scope of a law enacted after the collapses of Enron Corp. and WorldCom Inc.

The case “presents a question of pivotal importance to the integrity of the securities markets and to the preservation of investor confidence,” the two employees, Jackie Hosang Lawson and Jonathan M. Zang, argued in their appeal.

The case will be of particular importance to the mutual fund industry because of its unusual corporate structure. While the funds themselves are publicly traded, they typically have few if any employees, instead using privately held companies to conduct day-to-day activities.

The court will take up the case during the nine-month term that starts in October.

The case is Lawson v. FMR LLC, 12-3.

Wal-Mart Must Turn Over More Bribery Files, Judge Concludes

Wal-Mart Stores Inc. officials must turn over more internal files on what directors knew about claims that executives handed out bribes to facilitate Mexican real-estate deals, a judge ruled.

The world’s largest retailer must provide documents about how officials set up the investigation of the Mexican bribery allegations and some files the company argued were covered by the attorney-client privilege, Delaware Chancery Court Judge Leo Strine ruled yesterday in Wilmington. Investors are seeking the files as part of suits over claims that Wal-Mart directors didn’t properly oversee company operations.

U.S. and Mexican prosecutors said last year they are investigating the bribery allegations, first reported by the New York Times. The newspaper said an executive of Wal-Mart’s Mexican unit alerted company officials in 2005 about bribes paid to facilitate construction of new stores and warehouses.

“There’s no evidence whatsoever to support a claim of a cover-up,” Stephen Norman, one of the company’s lawyers, told Strine.

The case is Indiana Electrical Workers Pension Trust Fund IBEW v. Wal-Mart Stores Inc., 7779-CS, Delaware Chancery Court (Wilmington).


Lew Warns Low Rates Encourage Risky Behavior by U.S. Investors

U.S. Treasury Secretary Jacob J. Lew warned that a “reach for yield” spawned by record-low interest rates could spur investors to engage in riskier behavior.

Lew, in testimony prepared for a U.S. Senate hearing today, also said the Financial Stability Oversight Council expects to vote “in the near term” on whether to submit an initial set of non-bank financial companies to enhanced Federal Reserve supervision because their failure could endanger the financial system.

“Yield-seeking behavior is apparent in several markets,” Lew said. “The issuance of high-yield bonds reached a historical high in the fourth quarter of 2012. While underwriting standards remain conservative in many markets, there are some examples of loosening standards.”

Fed policy makers have also expressed concern that the central bank’s benchmark interest rate, which has been held near zero since December 2008, is encouraging risky behavior.

Some real estate investment trusts, “which are highly exposed to a rise in interest rates, have grown considerably in recent years,” Lew said in his testimony for a Senate Banking Committee hearing on the financial stability council’s annual report.

The council is led by Lew and includes Fed Chairman Ben S. Bernanke. The council’s report, released last month, lists potential risks to the financial system.

For more, click here.

Levitt Says SAC’s Cohen Will Refuse to Answer Questions

Arthur Levitt, former chairman of the Securities and Exchange Commission, says SAC Capital Advisors’s Steven Cohen will invoke his Fifth Amendment right against self-incrimination when he appears before a grand jury investigating insider trading practices. Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Comings and Goings

Sifma Names Gregg CEO to Help Mend Wall Street-Washington Divide

Judd Gregg, the former U.S. senator who has been an adviser to Goldman Sachs Group Inc., has been named chief executive officer of the Securities and Financial Markets Association, Wall Street’s largest lobby group.

The selection of Gregg, 66, a New Hampshire Republican who left the Senate in 2011, was announced by Sifma in a statement yesterday.

The Sifma job is one of Washington’s highest-paid lobbying positions. Ryan earned $3 million in compensation and benefits in 2011, according to the trade group’s most recent tax filing.

For more, click here.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.

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