Leverage, Bond Exemption, Irish Thunderbolt: Compliance

July 1 (Bloomberg) -- Deutsche Bank AG, continental Europe’s biggest bank, said it supports a plan by global regulators to create equal standards for lenders on capital holdings versus the value of their assets.

The Basel Committee on Banking Supervision this week proposed revamping standards for the leverage ratio to ensure that the rule would be applied consistently worldwide. Unlike European lenders such as Deutsche Bank, U.S. banks are able to reduce their total assets by excluding the value of some derivatives.

Deutsche Bank’s assets were 36 times the value of its equity at the end of March under the International Financial Reporting Standards, which apply to European banks, and 21 times under a method similar to the Generally Accepted Accounting Principles followed by U.S. banks, company filings show.

Under the Basel plan, banks would have to hold Tier 1 capital equivalent to 3 percent of their assets. While the leverage ratio won’t be binding until 2018, lenders would be obliged to start publishing how well they measure up to it by the start of 2015, according to the committee.

U.K., U.S. and Swiss regulators are increasingly looking at leverage, in addition to measures based on risk weightings assigned to different assets, to gauge banks’ financial strength.

Compliance Policy

Danish FSA Calls for Covered Bond Exemption in Basel Regulations

The Danish FSA called for an exemption for covered bonds in the Basel Committee’s proposed regulations on large exposures.

The regulator said in statement dated June 28 that the proposal might harm the functioning of the Danish covered bond market and “possibly covered bond markets in Europe.”

The FSA said new capital directives that will enter into force Jan. 1 will allow member states to exempt covered bonds from limits to large exposures.

The regulator said the capital directive exemption is justified by countries’ “very detailed regulation” of covered bond markets, and the market’s “very low default record.”

The Basel large exposure rules should include exemption, the FSA said.

China’s Securities Regulator Says Market Operations Stabilized

China’s financial-market operations have regained stability, with the impact of “sudden and temporary factors” fading, the China Securities Regulatory Commission said.

The nation’s economy is stable, with economic growth still in a reasonable range, the CSRC said in a statement posted on its website about a press briefing June 27, after a record cash squeeze hit the world’s second-largest economy.

Central bank Governor Zhou Xiaochuan June 27 sought to soothe concerns that the credit crunch will harm economic expansion, saying the nation will continue to implement a prudent monetary policy. Financial markets were rattled after the country’s overnight repurchase rate leaped to 12.85 percent on June 20, the most in Bloomberg-compiled data going back to 2003. It was at 5.05 percent as of June 28, more than double the average of 2.32 percent in the past five years.

The CSRC also said it will take action against property developers that hoard land, engage in speculation and drive up housing prices by suspending their listing, refinancing and asset restructuring plans.

The People’s Bank of China, in a statement on June 25, called on the nation’s big banks to further their roles as market stabilizers. The central bank said it would take steps to safeguard stability in money markets, and that tight liquidity was set to ease.

Basel Consults on Derivatives-Related Capital Rules

The Basel Committee on Banking Supervision said it’s seeking views on draft rules for how banks should measure the risk of losses on derivatives trades, and consequently how much capital should be placed behind the transactions.

The group is inviting comments until Sept. 27 on the proposals, which include capital rules to cover the risk that a clearinghouse might fail.

Oil Benchmarks Go From Trusted to Tainted as EU Missed Warning

The European Union’s top energy official ignored a warning delivered in 2009 about potential manipulation of Platts oil benchmarks “because markets trusted” them.

Andris Piebalgs, who was EU energy commissioner from 2004 to 2010, cited the confidence traders had in the pricing system when a lawmaker questioned the reliability of Platts’ prices more than three years ago. The warning went unheeded until May, when EU antitrust officials raided Platts, Royal Dutch Shell Plc, BP Plc, and Statoil ASA as part of an investigation into the possible rigging of benchmark energy assessments.

The EU’s oil probe escalated global action beyond financial benchmarks such as Libor, the London interbank offered rate. Regulators warned of “huge” damage to consumers if manipulation is confirmed and drew comparisons with the bank-rate scandal, which has seen Royal Bank of Scotland Group Plc, UBS AG, and Barclays Plc fined about $2.5 billion. Platts publishes the Dated Brent benchmark that helps determine the price of more than half the world’s oil.

If the market “trusts” in the pricing-mechanism, then it “has a reason to trust,” Piebalgs, now the EU’s development commissioner, said in an interview in Brussels on June 27, referring to the oil-pricing system now under scrutiny. “I always believed that Libor is very reliable. It seems that sometimes things need to be checked.”

Spearheaded by Competition Commissioner Joaquin Almunia, the EU probe follows a series of critical reports about the $3.4 trillion-a-year oil market as early as 2011 from the International Organization of Securities Commissions.

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Compliance Action

Cohen Is Said to Remain Silent in Probe as SAC Managers Summoned

Billionaire hedge-fund manager Steven A. Cohen declined to testify before a grand jury about allegations of insider trading at his SAC Capital Advisors LP, said two people familiar with the matter.

Cohen, 57, made use of his Fifth Amendment right not to incriminate himself after being summoned to testify, said the people, who asked not to be identified because the information is private. It wasn’t clear whether he invoked the right before the grand jury or had been excused from appearing after informing prosecutors that he planned to use it.

Last year, the Securities and Exchange Commission deposed Cohen about trades made close to news that generated profits for his firm, people familiar with the matter said at the time.

Five SAC employees also received subpoenas in May to appear before a grand jury.

The $15 billion hedge-fund firm, based in Stamford, Connecticut, and its founder have moved to the center of a U.S. multi-year investigation of insider trading on Wall Street since former portfolio manager Mathew Martoma was charged in November in what prosecutors called the biggest insider-trading scheme in history. The investigation has hurt SAC’s business, with clients asking to pull billions of dollars from the fund last month.

The five-year statute of limitations covering Martoma’s 2008 trades, in which the hedge fund netted $276 million in profits and averted losses from alleged inside information concerning a drug trial, expires in late July.

Jonathan Gasthalter, a spokesman for SAC Capital at Sard Verbinnen & Co. declined to comment on whether Cohen had invoked his Fifth Amendment right, as did Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan. Cohen hasn’t been accused of any wrongdoing and has said he acted appropriately. Martoma has pleaded not guilty and is scheduled for trial on Nov. 4.

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EU Seeks Settlement by Year End on Libor-Euribor Rigging Probes

The European Union’s antitrust chief said he’s seeking a settlement with banks implicated in the rigging of Libor and Euribor interbank lending rates.

The EU is seeking to make decisions on its probes into potential rigging “by around the end of this year” using formal settlement procedures, Joaquin Almunia told reporters today in Brussels after he announced the escalation of a separate probe into collusion in the credit derivatives industry.

Global regulators have fined UBS AG, Barclays Plc and Royal Bank of Scotland Group Plc about $2.5 billion in the past year for distorting Libor and similar benchmarks. At least a dozen firms remain under investigation around the world. The probes have expanded beyond interbank lending rates to include markets ranging from oil prices to foreign exchange.

The EU is quizzing banks and brokerages in its probe into manipulation of interbank lending rates that may have helped them and others generate profits from derivatives trades.

Almunia has said that manipulating benchmarks such as Libor risks “systemic damage.”

Goldman Sachs Group Inc. and JPMorgan Chase & Co. were among more than a dozen financial institutions accused by the European Union of colluding to curb competition in the credit derivatives industry, Almunia said today.

“Some of the banks” involved in the CDS probe are also part of the investigations into Libor and Euribor manipulation, Almunia said.

Almunia’s spokesman, Antoine Colombani, said in an e-mail that they are exploring the possibility of settlements. He declined to elaborate.

For more, see Interviews/Speeches, below.

Angola Delays Secondary Bond Market Start to First Quarter 2014

Angola, Africa’s second-largest oil producer, pushed back the start of its secondary market for bonds to the first quarter of next year.

Archer Mangueira, the chairman of the country’s Capital Markets Commission, said in an interview June 28 at the London Stock Exchange that the start time is estimated, subject to development of infrastructure and training employees.

The publicly traded market for the Angolan notes had been planned to start by the end of September, Mangueira said last month. The market, which will use electronic trading, will add to Treasury bills already bought and sold among financial institutions and help develop a so-called yield curve, he said at the time.

Angola, which is seeking to boost foreign investment after a 27-year civil war that ended in 2002, forecasts economic growth of 7.1 percent this year from 7.4 percent in 2012.


Corzine Defense to Misuse of Customer Cash Is Off Point for CFTC

Jon Corzine, former chief executive of bankrupt futures brokerage MF Global Holdings Ltd., has said he never ordered any misuse of customer funds to help his firm stay afloat as it dealt with margin calls on bad bets.

For the Commodity Futures Trading Commission, which said June 27 that Corzine “bears responsibility for MF Global’s unlawful acts,” that defense is irrelevant.

The CFTC sued Corzine June 27 for failing to oversee the company properly while it spiraled toward failure in 2011 as $1.6 billion in customer funds went missing. The CFTC alleged he did nothing about inadequate controls over misuse of customer funds, that he was aware of the firm’s extreme shortage of cash and that he didn’t ask any questions about where the money was coming from to make transfers he ordered.

The CFTC also sued former Assistant Treasurer Edith O’Brien and reached a settlement with the company’s brokerage unit, MF Global Inc., which agreed to pay about $1 billion in restitution to clients and a $100 million penalty. The settlement is subject to court approval.

Gary DeWaal, who served as general counsel for Newedge Group SA, one of the largest futures brokerages, for 17 years before starting his own consulting firm, said, “There was a gas smell at MF Global, and no one checked the stove.”

In effect, the CFTC claims in its complaint that the one who truly knew what the gas smell was about was Edith O’Brien, MF Global’s former assistant treasurer. Her job was to move client assets between the firm’s accounts as needed.

Unlike O’Brien, who Corzine ordered to move funds to cover an overdraft to JPMorgan Chase & Co., Corzine didn’t invoke his Fifth Amendment right to remain silent.

Corzine testified to Congress under subpoena and under oath that he asked for overdrafts with JPMorgan to be corrected, and that he never gave any instruction to misuse customer funds. He also said he didn’t believe anything he said could reasonably have been interpreted as an instruction to misuse customer funds.

The agency doesn’t claim O’Brien told Corzine directly that she used customer money for the brokerage’s business needs, a violation of the Commodity Exchange Act. Instead, it repeatedly says Corzine never asked any questions about how she was doing what he ordered her to do.

“This is an unprecedented lawsuit based on meritless allegations that Mr. Corzine failed to supervise an experienced back-office professional who was located in a different city and who did not report to Mr. Corzine or even to anyone who reported to Mr. Corzine,” his lawyer, Andrew Levander, said in a statement, referring to O’Brien, who was based in Chicago. “No evidence has been found that contradicts Mr. Corzine’s sworn testimony before Congress.”

Evan T. Barr, a lawyer for O’Brien, wasn’t available for comment.

Corzine bears responsibility for MF Global’s unlawful acts, the CFTC said June 27 in its complaint.

The case is U.S. Commodity Futures Trading Commission v. MF Global Inc., 13-04463, U.S. District Court for the Southern District of New York (Manhattan).

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Almunia Says Blocking CDS Market Access ‘Unacceptable’

European Union Competition Commissioner Joaquin Almunia spoke in Brussels about investigations into whether banks colluded to curb competition in the credit-default swap market.

For the video, click here.

Ireland’s Kenny Says Anglo Irish Bank Tapes Are ‘Thunderbolt’

Recordings of 2008 conversations between senior officials at the now defunct Anglo Irish Bank Corp. came as a “thunderbolt” when they were published by the Irish Independent newspaper, Prime Minister Enda Kenny said June 28.

The tapes reveal the “contempt and arrogance and insolence of senior personnel” at the bank, Kenny said in Brussels. The tapes have “damaged our reputation,” Kenny said, though everyone understands that “this was a time in the past.”

Kenny told lawmakers June 25 in Dublin that the government will hold a parliamentary inquiry into the wider banking crisis, as the leaked tapes dominated the Irish media earlier last week.

In all, the bank cost the state about 30 billion euros to save, and is in the process of being liquidated after the state took it over in 2009.

Hollande Says Banking Union Will Be Ready in Mid-2014

French President Francois Hollande spoke at a news conference in Brussels about banking supervision, euro area debt and unemployment.

For the video, click here.

EU’s Van Rompuy Sees ‘Steady’ Progress on Banking Union

European Union President Herman Van Rompuy, European Commission President Jose Barroso and Irish Prime Minister Enda Kenny speak at a news conference in Brussels on the outcomes from a leaders’ summit.

For the video, 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 story: Michael Hytha at mhytha@bloomberg.net

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