Freeing-Up Yuan, Bank Profit Hoarding, Mexico: Compliance

July 11 (Bloomberg) -- China’s central bank released rules allowing companies to move yuan abroad more freely as the authorities seek to bolster global use of the nation’s currency.

Companies can now open yuan accounts with local banks through which they can lend in the currency to overseas affiliated companies, the People’s Bank of China said in a statement posted on its website July 9. The so-called yuan-pool lending business can be shared between subsidiaries or affiliated firms under one company, the central bank said.

China, the world’s second-largest economy, has promoted the role of the yuan in international trade and financing as it moves to reduce control over the currency and open up its financial markets. That effort has included expanding channels for cross-border capital flows and foreign investments and setting up direct trading of the yuan with more currencies.

Chinese authorities earlier allowed companies to lend yuan to their affiliates as part of a trial program.

The central bank also said July 9 it will allow companies to move yuan raised overseas back into China through yuan accounts with local lenders. Companies may also provide yuan-denominated guarantees for their foreign operations, according to the statement.

Compliance Policy

SEC Votes to Lift 80-Year-Old Ban on Hedge-Fund Advertising

Hedge funds and other companies seeking private investments will be allowed to advertise publicly for funding under a rule approved yesterday by the U.S. Securities and Exchange Commission.

The rule, which passed under a 4-1 vote, is the first one mandated by last year’s Jumpstart Our Business Startups Act to be completed by the SEC. A deadline for the regulation set by Congress lapsed more than a year ago.

The rule will ease 80 years of advertising restrictions intended to help ensure small investors aren’t lured into taking inappropriate risks. Under the measure, startups and other small companies would also be able to use advertising to raise unlimited amounts of money.

The rule affects how companies raise money through private offerings, which are exempt from requirements to publicly report financial statements.

State securities regulators say private offers were the most common product leading to enforcement actions in 2011. The North American Securities Administrators Association protested the SEC’s plan for lifting the advertising ban after it was proposed in August. The state regulators said the SEC’s plan failed to provide guidance to companies about appropriate advertising and didn’t include any investor protections.

The rule proved controversial at the five-member commission, with Democratic Commissioner Luis A. Aguilar voting against the rule and citing concerns about the risk of fraud, and fellow Democratic Commissioner Elisse B. Walter voting for the rule and saying the SEC will scrutinize how advertising is used.

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U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom

The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors.

The eight largest firms, including JPMorgan Chase & Co. and Morgan Stanley, would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed July 9. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply.

The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.

Morgan Stanley and Bank of New York Mellon Corp. currently have the lowest ratio of equity to assets of the eight banks, according to estimates from analysts. Investors may get more information when the banks report second-quarter results, beginning July 12.

September data from the largest banks show their holding companies fell short of the new leverage requirement by $63 billion, according to the joint proposal by the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency. Insured lending units would need $89 billion more capital. The firms can fill the gaps by retaining profits and without selling more stock, the regulators said.

The changes would affect U.S. companies with assets exceeding $700 billion or those with custody of more than $10 trillion of customer assets. Besides JPMorgan, Morgan Stanley and BNY Mellon, the affected lenders include Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., Bank of America Corp. and Boston-based State Street Corp.

Bankers have resisted the stricter capital standards, saying that lending might be curtailed and that the remedies adopted after the financial crisis, such as the 2010 Dodd-Frank Act, should be given time to work.

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Compliance Action

Barclays Could Favor Asset Sales to Meet BOE Target

Barclays Plc will probably satisfy demands for a lower loans-to-equity ratio by selling assets, rather than stemming the flow of credit to British borrowers and risking a political backlash.

Britain’s second-largest bank by assets could speed a plan to cull assets at its investment bank and shrink its short-term secured-asset lending activities, or repo financing, according to Mike Trippitt, an analyst at Numis Securities Ltd. in London. The bank could also issue equity, Morgan Stanley analysts say.

Barclays must either raise about 7 billion pounds ($10.4 billion) in equity or shed 240 billion pounds of assets to meet the 3 percent leverage ratio set by the Bank of England’s Prudential Regulation Authority, analysts estimate. That target, aiming to limit the risks to the taxpayer in a repeat of the financial crisis, would mean banks must hold 3 pounds of equity capital for every 100 pounds of assets. London-based Barclays’s current leverage ratio is 2.5 percent.

The lender trades at 0.75 times its book value, according to data compiled by Bloomberg. Out of Britain’s five biggest banks, Royal Bank of Scotland Group Plc is the only other lender to trade below its net asset value.

Paul Tucker and Andrew Bailey, deputy governors of the Bank of England, surprised Barclays last week when they said the leverage ratio should be imposed immediately, five years earlier than the initial deadline agreed by global regulators.

Barclays spokesman Chris Semple declined to comment.

U.S. Crackdown on Debt Collectors Takes Aim at Large Banks

Banks supervised by the Consumer Financial Protection Bureau now face penalties if they mistreat consumers while collecting debts, the latest move in a broader crackdown on debt-collection practices the agency has pursued since last year.

The new policy, which follows efforts to rein in abusive credit-card and lending policies, will plug a gap in federal anti-harassment law that generally excluded creditors who collected debt themselves, rather than hiring third parties.

Regulators at the state and local level are also considering a mixture of legal action and regulation to restructure an industry that generated hundreds of thousands of consumer complaints about harassment by bill collectors as recession-hit Americans struggled to pay down debt.

Iowa Attorney General Tom Miller is leading a multistate effort that is “in the early stages” of determining how the states could foster changes to how credit-card issuers and collectors who buy charged-off debt keep track of consumer information. Many complaints stem from attempts to collect a non-existent debt, or one that’s already been repaid.

The Consumer Financial Protection Bureau, created by the Dodd-Frank law of 2010, supervises banks with assets over $10 billion, ranging from JPMorgan to regional players like Lafayette, Louisiana-based Iberiabank Corp., for compliance with federal consumer-protection rules. It also oversees non-bank financial firms, such as credit bureaus, payday lenders and debt collectors.

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Tiger Asia Accused of Insider Trading in Hong Kong Tribunal

Tiger Asia Management LLC, which admitted in the U.S. to illegally using inside information to trade Chinese bank stocks, was accused of the same offense in a Hong Kong tribunal.

The New York-based hedge fund firm, its founder Bill Hwang and its officers Raymond Park and William Tomita traded on advance information from bankers arranging placements of China Construction Bank Corp. and Bank of China Ltd. shares in 2008 and 2009, according to a notice today by Hong Kong’s Securities and Futures Commission.

The SFC first sued Tiger Asia in 2009. The case was delayed by a legal challenge to its power, which the regulator won in April. The Market Misconduct Tribunal that will hear the new case can force the firm to disgorge profits made or losses avoided, and can also ban individuals from dealing in securities. The SFC didn’t provide details of what penalties it is seeking.

Hwang didn’t immediately respond to an e-mail seeking comment.


SEC Votes to Lift Ban on Hedge-Fund Advertising

The U.S. Securities and Exchange Commission conducted an open meeting on a rule that would allow hedge funds and other companies seeking private investments to advertise publicly for funding.

The rule, which passed in a 4-1 vote, is the first one mandated by last year’s Jumpstart Our Business Startups Act to be completed by the SEC.

The commission also approved a new proposal, on a 3-2 vote, that seeks to monitor how advertising is used and whether it contributes to more fraud. The SEC also approved a rule that blocks felons and others found culpable of securities-law violations from marketing private offers.

For the video, click here.

Banks May Shrink Balance Sheets on Rules, Fink Says

Laurence D. Fink, chief executive officer of BlackRock Inc., talked about investment strategy, financial regulation, and the outlook for global bonds.

Fink, who spoke with Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers,” also discussed Federal Reserve monetary policy.

For the video, click here.

Mexico Oil Monopoly Ending to Pemex as JPMorgan Backs Reform

Mexico is on the cusp of opening its energy industry to outside investment as a wide consensus has developed that the constitution must be changed to end the government’s monopoly on production, according to a board member of state-controlled oil producer Petroleos Mexicanos.

The country needs “very deep” reforms to lure investment to its natural gas and crude fields after eight years of declining oil output, and proposed changes could be ready by the end of summer, Hector Moreira, who also is a former official in the country’s Energy Ministry, said yesterday at the Bloomberg Mexico Conference in New York. A congressional bill to open the oil monopoly would prompt as much as $50 billion in annual investments if approved, he said.

Much-needed changes will open the way for faster growth and a stronger currency in the region’s second-largest economy, Gray Newman, Morgan Stanley’s chief Latin American economist, said at the event. Officials from JPMorgan Chase & Co. and Grupo Financiero Banorte said they’re optimistic President Enrique Pena Nieto will lead a successful effort at reforms this year.

A slowdown in economic expansion is putting pressure on Pena Nieto to gain approval to open the energy industry and change laws to boost tax collection, reforms he says may lift growth to 6 percent.

Pena Nieto said his administration will send bills to overhaul energy and tax policies to lawmakers when regular congressional sessions resume in September.

For more, click here.

Separately at the conference, Mexico’s Deputy Finance Minister Fernando Aportela talked about the country’s economy, banking industry and currency.

He spoke with John McCorry, Bloomberg News’s executive editor of the Americas.

For the video, click here.

Comings and Goings

Juncker Places Political Fate in Hands of Luxembourg Grand Duke

Luxembourg Prime Minister Jean-Claude Juncker, the European Union’s longest-serving head of government and a leader in European public finance, placed his political fate in the hands of the country’s grand duke after his ruling coalition collapsed.

Juncker, 58, who has been Luxembourg’s premier since 1995, planned to meet with Grand Duke Henri today after the Luxembourg Socialist Workers’ Party, part of the ruling coalition, called for new elections yesterday.

The schism came after Juncker was implicated in a security service spying probe. During a marathon hearing in parliament yesterday, he denied allegations of using the secret service to further his own aims and those of his Christian Social People’s Party.

“I don’t have much choice,” Juncker said at the close of yesterday’s debate, indicating that he’d propose new elections to the head of state. Today, after a government meeting, Juncker said: “I will talk about the situation with the grand duke and he will then make the decisions he can take.”

Under Luxembourg’s constitution, the grand duke has the power to dissolve parliament. In that case, an election must be held within three months.

Juncker said Luxembourg needs “a fully functional government,” and dismissed reports that his Cabinet would resign. “Reports that today was the last meeting of the government are totally unfounded,” he said. “We can’t be without a government until November.”

A Luxembourg government minister since 1984 and prime minister since 1995, Juncker has been a driving force on the single currency.

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

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

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