Overseas Deposits, JPMorgan Legal Reserves: Compliance

Sept. 11 (Bloomberg) -- The Federal Deposit Insurance Corp. approved a rule responding to concerns that commercial depositors in overseas branches of U.S. banks could be disadvantaged in the event of a lender’s collapse.

FDIC board members meeting in Washington yesterday unanimously voted to adopt a measure responding to U.K. regulators’ concern that U.S. banks favored domestic depositors over foreign-based account holders. The agency in February proposed that overseas branches of the U.S. companies make an FDIC-estimated $1 trillion in deposits payable in either country.

One of the FDIC’s chief concerns was writing a rule that walls off the insurance fund from non-U.S. deposits, so the final proposal maintained a clear barrier. The adopted version was virtually unchanged from the February proposal.

The rule is a revision of the agency’s definition of “insured deposit” to make overseas accounts of corporate customers also payable in the U.S. It puts foreign depositors who aren’t covered by FDIC insurance in line ahead of general creditors in a liquidation. About 40 percent of such deposits are in the U.K., according to the FDIC.

In a joint letter to the agency in April, officials from Bank of New York Mellon Corp., Northern Trust Corp. and State Street Corp. said that instead of forcing banks to make the deposits dually payable, the FDIC could just give the same treatment to all global deposits of a bank without extending insurance protection -- an effort they acknowledged would have required more rulemaking.

Chairman Martin Gruenberg said in February that the rule would bring U.S. banks into compliance in the U.K. without requiring the institutions to turn their branches into subsidiaries.

The Clearing House Association LLC, a New York-based trade group that represents large U.S. banks including JPMorgan Chase & Co. and Bank of America Corp., described the restructuring of foreign-branch deposit agreements as “administratively challenging” and costly.

U.S. banks are likely to make their foreign branch deposits dually payable only when forced to do so by a foreign regulator because of “negative consequences,” the Clearing House Association said in a letter to the FDIC.

Compliance Policy

Hedge Funds No Systemic Risk to Australia Financial System

Hedge funds pose no systemic risk to Australia’s financial system, the Australian Securities & Investments Commission said in a report released on its website.

In the report, ASIC identified hedge funds that “manage only a small share of Australia’s A$2.1 trillion managed funds industry with more than half of these holding less than A$50 million each.”

“Australian hedge funds do not currently appear to pose a systemic risk to the Australian financial system,” the survey indicates. Listed equities represent surveyed hedge fund managers’ greatest asset exposure, with 32 percent being in Australian-listed shares, according to the website report.

EU Lawyers Clash Over Legality of 11-Nation Transaction-Tax Plan

European Union lawyers are clashing over whether a proposed 11-nation financial-transaction tax is legal under the 28-nation bloc’s governing treaties.

Lawyers for the Council of the European Union, which represents the executives of EU member states and makes laws in tandem with the EU Parliament, say the tax plan goes too far and would discriminate against countries that don’t participate, according to an EU document. The legal service of the European Commission, which proposed the levy, stands by the plan and will offer a rebuttal, said Emer Traynor, a spokeswoman for EU Tax Commissioner Algirdas Semeta.

The EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by France, Germany and nine other EU nations that have so far signed up. The plan would charge a 0.1 percent rate for stock and bond trades and 0.01 percent for derivatives transactions, with some exemptions.

The feud centers on proposals for worldwide tax collection on trades involving a bank or financial security based in one of the participating nations. The council’s Sept. 6 legal opinion said the EU can’t justify such an aggressive approach just to keep traders from moving outside the participating-nations zone.

The commission’s plan exceeds the jurisdiction of participating nations, the council opinion said.

The council legal opinion was reported earlier by Reuters.

ECB, European Parliament Reach Accord on Bank-Oversight Minutes

The European Central Bank reached an agreement with the European Parliament on access by lawmakers to the minutes of the ECB’s bank-oversight board, clearing an obstacle to the next step in Europe’s planned banking union.

The ECB agreed to disclose to the European Union assembly a “comprehensive and meaningful record of proceedings” related to bank supervision, the Liberal group in the EU Parliament said yesterday in an e-mailed statement from Strasbourg, France. A spokeswoman at the Frankfurt-based ECB confirmed by text message that an accord had been reached without providing further details.

The deal clears the way for a Sept. 12 vote by the 28-nation EU Parliament on the euro area’s Single Supervisory Mechanism. The ECB is on track to begin a one-year transitional period as soon as the EU Parliament holds its final vote.

FSOC Says It Continued Discussion of Non-Bank Financial Firms

The Financial Stability Oversight Council yesterday discussed non-bank financial companies that could be designated systemically important and heard an update from Securities and Exchange Commission Chairman Mary Jo White about Nasdaq’s halt in trading last month.

Prudential Financial Inc. said in July it would challenge the council’s proposal to designate the insurer and made its arguments to the regulators later that month.

Newark, New Jersey-based Prudential was the only one of three companies that appealed the FSOC’s ruling subjecting them to heightened Federal Reserve supervision. American International Group Inc. and General Electric Co.’s financial unit were designated and didn’t challenge the council’s decision.

Citigroup Joins HSBC in Mulling Shanghai Free Trade Zone Plans

Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc signaled interest in a proposed free trade zone for Shanghai as China’s leaders seek to revamp the world’s second-largest economy to bolster growth.

Attracting international lenders will help China achieve its goal of making Shanghai, a port city with more people than Greece and Portugal combined, a global finance hub by 2020. The zone, which in addition to foreign trade will feature looser rules on matters such as interest rates and business licenses, is part of Premier Li Keqiang’s drive to sustain growth by shifting the economy toward services and consumption.

China announced last month its cabinet had approved the plan to set up the nation’s first such zone on 29 square kilometers (11 square miles) in Shanghai, calling it a crucial move in adapting to global economic and trade development, while further opening up the world’s second-largest economy.

Policy makers may allow free conversion of the yuan under the capital account and market-oriented interest rates on a trial basis in the zone, according to a draft plan seen by Bloomberg News. Qualified foreign banks may be allowed to set up branches or joint ventures with local lenders in the area, while some Chinese banks may offer offshore services, according to the draft.

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EU Parliament Backs Benchmark Rigging Sanctions in Abuse Law

Bankers and traders found guilty of rigging benchmark rates will face tougher European Union fines and other sanctions under rules adopted by EU lawmakers.

Members of the European Parliament backed a deal reached with national governments to boost the minimum penalties used by regulators when they punish perpetrators. As well as rate rigging, the draft law covers other kinds of market manipulation and insider trading.

Compliance Action

U.K. Probing Alleged ISDAfix Rate Manipulation, Regulator Says

U.K. regulators are investigating alleged manipulation of a benchmark measure tied to interest-rate swaps, the agency’s chief told lawmakers in London yesterday.

The Financial Conduct Authority is working with the U.S. Commodity Futures Trading Commission, FCA Chief Executive Officer Martin Wheatley said at yesterday’s hearing. The CFTC is going over 1 million e-mails as well as taped phone calls as it examines whether ISDAfix, which helps determine everything from interest on annuities to borrowing costs on bonds linked to skyscrapers, was manipulated, a person familiar with the situation said earlier this year.

The British regulator’s review comes after the CFTC issued subpoenas to current and former brokers at ICAP Plc, the International Swaps & Derivatives Association and 15 Wall Street dealers as part of its probe, Bloomberg News first reported April 8. Two people familiar with the matter told Bloomberg News in April that the FCA and CFTC were looking into whether ISDAfix had been manipulated.

Brokers on ICAP’s U.S. interest-rate swap desk in Jersey City, New Jersey -- who are the focus of the investigation -- were paid as much as $7 million a year at the market’s peak, earning the group the nickname “Treasure Island,” two people familiar with the matter said in April.

“ICAP is cooperating with the CFTC’s wider inquiry into this area, and due to its pending nature, we will not be commenting further,” Guy Taylor, a spokesman for London-based ICAP, said in an e-mailed statement yesterday.

JPMorgan Boosts Bank’s Legal Reserves for Potential Claims

JPMorgan Chase & Co., the biggest U.S. bank by assets, increased its litigation reserve by more than $1.5 billion in the third quarter to help cover potential legal claims.

Chief Financial Officer Marianne Lake said Sept. 9 at the Barclays Global Financial Services Conference in New York that the “reserves covers a number of different matters,” and there’s “been a crescendo of activity in past weeks,” to which the bank is reacting.

JPMorgan added 3,000 employees to bolster internal controls and compliance as it grapples with multiple investigations and regulatory orders, Lake said. The U.S. is conducting criminal investigations linked to the bank’s energy-trading and mortgage-backed securities businesses as well as separate probes of its anti-money-laundering safeguards, foreclosures, credit-card collections and a record trading loss in London last year.

The bank named two new members to its board and announced expanded powers for lead director Lee R. Raymond to help bolster risk oversight, according to a company statement.

SEC Probes Gold Fields on South African Black-Ownership Deal

Gold Fields Ltd. said the U.S. Securities Exchange Commission is investigating an ownership deal that helped the South African producer of the metal secure a mining license. The shares fell to the lowest in a month.

The SEC is probing the transaction associated with the grant of the mining permit for the South Deep operation near Westonaria, 55 kilometers (34 miles) southwest of Johannesburg, Gold Fields said yesterday in a statement.

In 2010, Gold Fields agreed to issue 600,000 shares to a black-owned group and allowed it to buy 10 percent of South Deep. South African law requires mining companies to sell at least 26 percent of their local operations to black citizens, with transactions that benefit workers, communities near sites and trusts for the poor being favored.

Last year, the company denied a news report by Johannesburg-based Carte Blanche that the deal benefited influential people who helped it win the license needed to continue operating the mine.

“Given the early stage of this investigation, it is not possible to estimate reliably what effect the outcome this investigation, any regulatory findings, and any related developments may have on the company,” Gold Fields said.

U.S investors trade Gold Fields stock through American depositary receipts.

Korea Pension Boosts Stake in Six Firms as Disclosure Rule Eased

South Korea’s National Pension Service increased its holdings in six local companies to more than 10 percent after the government eased disclosure requirements for the country’s biggest investor last month.

The companies included Samsung C&T Corp., which helped build the world’s tallest building in Dubai, Mando Corp. and LS Corp., the NPS said in regulatory filings.

The state pension fund gained more scope to increase stakes after new rules that took effect Aug. 29 lengthened the timing of public filings for transactions above 10 percent to once a quarter from within five days. The NPS has said it will continue disclosing stakes within five days when they first breach the 10 percent level.

NPS also held more than 10 percent of SKC Co., IsuPetasys Co., a components maker, and Hansol CSN Co., according to the filings.


Fired Deutsche Bank Euribor Traders Win Labor Court Case

Deutsche Bank AG lost a lawsuit filed by four traders fired as part of the lender’s probe of the rigging of interest benchmarks.

Presiding Judge Annika Gey at the Frankfurt Labor Court today said the bank must give them their jobs back and pay their salaries. Three of the employees made submissions for Euribor and one for Swiss Franc Libor.

Regulators from Canada to Switzerland are investigating whether more than a dozen lenders, including Deutsche Bank, colluded to rig benchmark interest rates.

“The bank didn’t have adequate internal rules and controls in place and didn’t see to it that rate submitting and derivative trading was adequately separated,” Gey said in the ruling.

Deutsche Bank has fired at least seven employees over suspected misconduct in connection with rates. The bank, continental Europe’s largest by assets, said in February that while it would fire or suspend workers that acted inappropriately, it wouldn’t identify individuals.

Another banker, who was the most junior of the group involved in today’s case, reached a settlement with the bank, two people familiar with the matter said in July.

Deutsche Bank justified the dismissal of the employees by saying they had inappropriate communication with a trader the bank fired at the end of 2011 for trying to rig rates, one of the people familiar with the matter said in July.

The traders were based in Frankfurt and included two managing directors, two directors and a vice president, two people with knowledge of the matter said at the time. Submitting euro interbank offered rates was part of their responsibilities, the people said.

Credit Suisse Sued by Fund Over Mortgage Securities Losses

Credit Suisse Group AG was sued by the investment fund Phoenix Light SF Ltd. over alleged misrepresentations in the offering of $362 million worth of mortgage-backed securities.

Phoenix, based in Dublin, which took over claims to the securities from five other investors that have since collapsed or nearly collapsed, filed a complaint against Credit Suisse yesterday in state court in Manhattan.

The Zurich-based bank made misrepresentations and omissions about the credit quality of the loans underlying the securities in offerings from 2005 to 2007, Phoenix alleged in the complaint. Offering documents also failed to disclose that Credit Suisse was privately betting that the securities would default, Phoenix alleged.

Phoenix said in the complaint that the certificates are now rated at junk status, while defendants “profited handsomely from their roles” in structuring and selling them.

A Credit Suisse spokesman, Drew Benson, declined to comment on the lawsuit.

JPMorgan Chase & Co. and Goldman Sachs Group Inc., both based in New York, have also been sued by Phoenix Light over alleged misrepresentations about loans backing securities. The case is pending in Manhattan state court.

The case is Phoenix Light SF Ltd. v. Credit Suisse AG, 653123/2013, New York State Supreme Court, New York County (Manhattan).


CFTC’s Gensler Says He Never Received E-Mail Training

Gary Gensler, chairman of the Commodity Futures Trading Commission, testified about U.S. transparency laws and his use of his private e-mail account for communications as part of his work at the CFTC.

David Ferriero, the archivist of the U.S., former Environmental Protection Agency chief Lisa Jackson, former Energy Department loan program director Jonathan Silver, and former U.S. Deputy Chief Technology Officer Andrew McLaughlin also testified before the House Oversight and Government Reform committee in Washington.

For the video, click here.

Banks Seen at Risk Five Years After Lehman Collapse

Bloomberg’s Max Abelson talked about risks to banks five years after the collapse of Lehman Brothers Holdings Inc. and the ensuing financial crisis.

He spoke with Sara Eisen and Tom Keene and on Bloomberg Television’s “Surveillance.”

For the video, click here.

Levitt Says Dodd-Frank Law Is Failure for Many Reasons

Arthur Levitt, former chairman of the Securities and Exchange Commission, said only 30 percent of the Dodd-Frank Act has been implemented. Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the video, click here.

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

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

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