Doubling Bank Capital, VAT Fraud, Mitsubishi: Compliance

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June 24 (Bloomberg) -- U.S. regulators are considering doubling a minimum capital requirement for the largest banks, which could force some of them to halt dividend payments.

The standard would increase the amount of capital the lenders must hold to 6 percent of total assets, regardless of their risk, according to four people with knowledge of the talks. That’s twice the level set by global banking supervisors.

U.S. regulators last year proposed implementing the 3 percent international requirement for what’s known as the simple leverage ratio. Now the Federal Reserve and Federal Deposit Insurance Corp., under pressure from lawmakers, are weighing increasing that figure for some of the biggest banks, according to the people, who asked not to be identified because the discussions are private.

Five of the six largest U.S. lenders, including JPMorgan Chase & Co. and Morgan Stanley, would fall under the 6 percent level, according to estimates by investment bank Keefe, Bruyette & Woods Inc. That means they would have to retain more of their earnings and withhold dividends to build capital.

Among the biggest U.S. banks, only San Francisco-based Wells Fargo & Co. would exceed the 6 percent threshold being considered, with a 7.3 percent ratio estimated by KBW in a report this week. Morgan Stanley would be the worst, with 3.8 percent. JPMorgan and Citigroup Inc. would be at 4.5 percent, Goldman Sachs Group Inc. at 4.6 percent and Charlotte, North Carolina-based Bank of America Corp. at 5.1 percent. JPMorgan, Citigroup and Goldman Sachs are all based in New York.

Morgan Stanley Chief Executive Officer James Gorman said in an interview June 21 that his New York-based company doesn’t have capital problems.

Banks don’t report what their ratios would be under the new Basel method of calculating assets or the off-balance-sheet items that would go into the calculation. Spokesmen for the five other companies declined to comment.

By going above the figure adopted in 2010 by the Basel Committee on Banking Supervision, the U.S. also could put pressure on Europe to affirm its commitment to the standard, which is seen as a tool to rein in risk in the financial system. Regulators in the U.K. and Switzerland told banks June 20 to increase their ratios of capital to total assets.

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Compliance Policy

EU Finance Ministers Support Proposal to Combat VAT Fraud

European Union finance ministers agreed on a proposal to combat fraud related to value-added taxes, in a meeting in Luxembourg June 21.

The plan spells out how and when to allow reverse charges on VAT, a consumption tax usually paid by purchasers. Fraud is a particular concern for mobile phones, tablet computers, gas, electricity and cereals and other industrial crops.

EU leaders had called on finance ministers to adopt the anti-VAT-fraud measures “by the end of June 2013 at the latest” as part of a 10-point plan to crack down on tax avoidance.

VAT fraud in Europe costs billions if not trillions, Irish Finance Minister Michael Noonan told reporters in Luxembourg June 21 as the meeting began.

Ten European power and gas groups, including Eurelectric, Eurogas and London Energy Brokers’ Association, welcomed the decision, which they say will help prevent further abuse of the markets for criminal purposes.

The package approved June 21 includes the possibility of introducing the reverse-charge mechanism to certain goods at a national level. The agreement will also create a quick reaction mechanism that will allow immediate measures for a maximum of one year in case of major fraud attack. That mechanism will apply until the end of 2018 and any renewal will require further regulatory approvals.

Compliance Action

U.K. Regulator Said to Study Banks’ Share-Sale Lockup Waivers

The U.K. markets authority will study whether banks behaved appropriately when they enabled big shareholders to sell shares they’d promised to hold, according to people familiar with the matter.

Investors complained after Bank of America Corp. in May helped Lloyds Banking Group Plc sell 77 million shares in St. James’s Place Plc two months after telling buyers that Lloyds wouldn’t sell more of the British wealth manager’s stock for a year, said the people who asked not to be identified because the discussions weren’t public.

Banks managing share sales for companies with big blocks of stock sometimes enter “lockup agreements” in which the selling shareholder promises not to unload more shares for a set amount of time. The practice, which seeks to reassure buyers that a new sale that could depress prices isn’t imminent, has prompted complaints when banks later waive the lockups.

The markets regulator will meet with representatives of the Association of British Insurers and possibly other investors to discuss their concerns over the next few weeks, one of the people said. The ABI wrote to the Financial Conduct Authority this month after Lloyds sold a new round of St. James’s Place stock on May 23. St. James’s Place stock fell 10 percent on the day of the sale.

“We are aware of the issue and can’t comment further,” said a spokesman for the FCA. Bank of America, based in Charlotte, North Carolina, and London-based Lloyds, Britain’s biggest mortgage lender, declined to comment on the issue.

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Cerberus Takes On Former World’s Richest Man in Seibu Fight

Cerberus Capital Management LP is battling Seibu Holdings Inc. shareholders including Yoshiaki Tsutsumi, once the world’s richest man, for seats on the Japanese company’s board. History suggests the investment company, run by Stephen A. Feinberg, will fail in the attempt.

Seibu President Takashi Goto has said he won’t offer “any concessions” to the New York-based investor even as Prime Minister Shinzo Abe plans to require companies to have at least one outside director. The fight for control at the Tokyo-based train and hotel operator shows the challenge overseas private-equity funds face in Japan, where attempts by foreign investors to gain board representation have mostly been beaten back.

Cerberus, Seibu’s largest investor with a 35.5 percent stake, recommends executives including former U.S. Vice President Dan Quayle and former U.S. Treasury Secretary John Snow to the board ahead of a June 25 shareholder meeting. The investment company, which oversees more than $20 billion, aims to boost Seibu’s profitability before an initial share sale.

Cerberus has spent about 120 billion yen ($1.2 billion) acquiring 35.5 percent of Seibu, which isn’t listed. In comparison, the fund spent $7.4 billion to buy an 80.1 percent stake in Chrysler LLC in 2007.

Cerberus published a list of nine topics last week that it wants to raise at the shareholders meeting, including failures to meet profit targets.

Abe wants to add outside directors to companies to increase independence and aims to double foreign direct investment in Japan to 35 trillion yen by 2020, according to the government’s growth strategy.

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Mitsubishi UFJ to Pay $250 Million Iran Settlement to New York

Mitsubishi UFJ Financial Group Inc. agreed to pay $250 million to the state of New York to settle claims it transferred billions of dollars for countries facing U.S. sanctions including Iran, Sudan and Myanmar.

Bank of Tokyo-Mitsubishi UFJ Ltd., the main lending unit of Japan’s biggest bank by market value, moved an estimated $100 billion through the state for government and privately owned entities on the Specially Designated Nationals list issued by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) between 2002 and 2007, the New York State Department of Financial Services (DFS) and New York Governor Andrew Cuomo said in a statement June 20.

The transfers involved about 28,000 clearing transactions and the bank routinely stripped information from wire transfer messages that could identify countries and people subject to international sanctions, the department said.

The Bank of Tokyo instructed employees that “in order to avoid freezing of funds” they should “omit” information that could have identified transactions involving an “enemy country,” according to the DFS statement.

The bank in 2007 identified the issues cited by the DFS, voluntarily and promptly ceased the practices, reported them to all of its regulators and has been cooperating fully with them, Mitsubishi UFJ said in a statement to the Tokyo Stock Exchange June 21.

The company will retain a consultant approved by the department for a one-year compliance review of the bank’s operations, it said.

“We have no higher priority than conducting our business with integrity and full regulatory compliance.” Yuji Okumura, a Tokyo-based spokesman for Mitsubishi UFJ, said June 21. “We will continue to work constructively with DFS, the compliance consultant and all our regulators in our key markets around the world.”

Mitsubishi UFJ is the largest shareholder in New York-based Morgan Stanley and owns San Francisco-based lender UnionBanCal Corp. The company was the world’s biggest bank when it was created in 2005 through a merger.

In December, the bank reached a separate agreement with the Foreign Assets Control office, paying $8.6 million to settle charges it had removed information from $5.9 million in fund transfers that might have caused the transfers through the U.S. to be blocked or rejected because they involved sanctioned parties.

The settlement with New York focuses on “alleged violations of New York state record-keeping requirements, not alleged violations of federal sanctions law,” which is the processing of transactions for sanctioned parties, John Sullivan, spokesman for OFAC at the Treasury department, said in a statement.

UBS Said to Close Commercial Banking Business in India

UBS AG will return its banking permit to India’s central bank, said a person briefed on the matter, asking not to be identified as the company will not make an announcement. The bank will wind down its commercial banking assets in the country over two years, the person said.

UBS will focus on equity capital market and mergers and acquisitions advisory business, the person said.

Closing the company’s only branch in Mumbai is “part of a strategy to conserve capital and wind up its capital intensive businesses,” the Economic Times reported June 21, citing “an official in the know,” who was not identified by name.

Closing the bank’s wealth management business, which is “being debated internally,” and the bank’s foreign exchange business could result in a loss of 50 jobs over two years, the paper said, citing the official.

CSRC Says Everbright Sec. Under Probe for Henan Tianfon’s IPO

China Securities Regulatory Commission said it is investigating Henan Tianfon Energy-Saving Panel Science & Technology Co. for alleged fraud in its initial public offering materials, according to a statement posted on the commission’s website June 21.

Everbright Securities, Reanda Certified Public Accountants and the law firm Jingtian & Gongcheng were investigated for their roles in the planned IPO.


Cooper Tire & Rubber Sued by Investor Over Apollo Takeover

A Cooper Tire & Rubber Co. investor sued to block the company’s $2.5 billion takeover by Apollo Tyres Ltd., saying the offer of $35 a share is too low.

Company directors have an obligation to get the best possible price, the Booth Family Trust said in a filing made public June 21 in Delaware Chancery Court in Wilmington.

“The proposed transaction is the result of an unfair process,” and “was negotiated and entered into in bad faith,” the trust said in the complaint.

Cooper Tire doesn’t comment on litigation, Anne L. Roman, a company spokeswoman, said in an e-mail.

The company, based in Findlay, Ohio, said June 12 it would be bought by Gurgaon, India-based Apollo to expand business around the world.

The case is Booth Family Trust v. Cooper Tire & Rubber Co., CA8668, Delaware Chancery Court (Wilmington).


Noonan Says Still Core Issues Outstanding on Bank Talks

Irish Finance Minister Michael Noonan, French Finance Minister Pierre Moscovici and Swedish Finance Minister Anders Borg spoke in Luxembourg after European Union talks on how to assign losses at failing banks broke down.

Efforts last week to assign losses at failing banks faltered as conflicts on “core issues” doomed 19 hours of talks in Luxembourg.

Finance ministers plan to reconvene on June 26 in search of an agreement on proposed rules for bank resolution and recovery in time for an EU summit that begins the following day in Brussels.

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Spain to Mull Incentives to Reduce Hidden Economy, Montoro Says

Spain may consider putting in place fiscal incentives to reduce the size of its hidden, or untaxed, economy, Budget Minister Cristobal Montoro said.

The nation may take steps on the “submerged” economy as part of tax reform in March, Montoro said.

He made the remarks at a news conference in Madrid June 21.

Holland Says Stock Market Will Be in ‘Better Shape’

Michael Holland, chairman of Holland & Co., talked about Federal Reserve policy, financial markets and investment strategy.

Holland spoke with Sara Eisen, Tom Keene, Michael McKee and Scarlet Fu on Bloomberg Television’s “Surveillance.”

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Comings and Goings

SEC Municipal Securities Enforcement Chief Greenberg Steps Down

Elaine Greenberg, head of the U.S. Securities and Exchange Commission enforcement unit that polices the $4 trillion municipal securities market, is leaving the agency for private industry.

Greenberg, who joined the SEC’s Philadelphia regional office in 1987, has led enforcement actions related to municipal securities offerings against the states of New Jersey and Illinois as well as the city of Harrisburg, Pennsylvania, the SEC said in a statement June 21.

Under her leadership, Greenberg’s unit also brought cases over bid-rigging and pay-to-play schemes, the SEC said.

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

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