South Africa Oil, Swedish Debt, Derivatives: Compliance

Sept. 12 (Bloomberg) -- Exxon Mobil Corp., Royal Dutch Shell Plc and other energy companies operating in South Africa said planned changes to mineral and energy laws lack clarity and will deter investment in the continent’s largest economy.

Changes to the 2002 Mineral and Petroleum Resources Development Act, being processed by parliament, would give the state an unspecified free stake in all new oil and gas ventures and the right to name two directors to their boards. The state would be able to force mine operators to process some output locally and declare some minerals strategic to secure supplies.

South Africa, closed to foreign investment until apartheid ended in 1994, is seeking to develop its oil resources to boost and diversify an economy with a 25.6 percent unemployment rate. While Irving, Texas-based Exxon and the Hague-based Shell have stakes in offshore blocks, extraction has yet to take off. The country imports 70 percent of its oil needs, processing the remainder of its fuels from coal and gas.

Parliament’s mineral resources committee began four days of public hearings on the draft bill yesterday. On July 30, officials from the Department of Mineral Resources told lawmakers they were winning over business to the new laws and they didn’t expect the regulations to hurt investment.

Shell said the proposed bill gives the mineral resources minister excessive regulatory discretion and doesn’t clarify the size of stakes the state intends to take in new energy ventures.

Eskom Holdings SOC Ltd., the state power company, said coal should be declared a strategic mineral and exports of some grades should only be permitted after being offered to domestic energy producers at a cost that provided for “fair returns.”

The draft law has also drawn objections from mining companies.

Compliance Policy

ECB to Start Bank Oversight Powers in October 2014 After EU Vote

The European Central Bank is set to take on oversight powers over all euro-area banks as early as October 2014 after lawmakers backed the plan for a single supervisor in a vote today in Strasbourg, France.

The adoption of the proposals followed a deal between the ECB and the parliament earlier this week in which the Frankfurt-based central bank pledged to disclose details from meetings of its bank-oversight board. Legislators had refused to approve the supervision powers until an agreement on democratic scrutiny was reached.

The oversight role is the first step of EU leaders’ plan to create a banking union in the euro area, with centralized supervision and crisis management of lenders.

Finance ministers are set to have a first discussion of plans for centralized bank resolution in the euro area at a two-day meeting beginning today in Vilnius, Lithuania.

Under the deal struck this week with lawmakers, the ECB will disclose a “comprehensive and meaningful record of proceedings” from meetings of its bank-supervision board, according to a statement from the assembly’s Liberal group.

The ECB is also preparing a balance sheet assessment of the banks that it will directly oversee, to be completed before it takes on its supervisor role.

Banks Face EU Demand to Join Benchmark Setting to Avoid Exodus

Banks in the European Union may be forced to submit data for the setting of benchmarks such as Libor and Euribor as part of an EU bid to repair trust in the process amid claims of widespread manipulation.

The European Commission may propose this month that supervisors be handed powers to intervene when the rate-setting panel of a “critical benchmark” has lost, or is “likely” to lose, 20 percent of its member banks, according to draft plans obtained by Bloomberg News.

Regulators would be able to require banks to submit data and would also be able to demand changes to “the code of conduct, methodology or other rules of the critical benchmark,” according to the draft proposals. Michel Barnier, the EU’s financial services chief, is scheduled to present a final version of the plans on Sept. 18.

Barnier warned earlier this year that banks might be forced to participate in setting Libor and Euribor rates after lenders including Citigroup Inc. and HSBC Holdings Plc pulled out of some panels amid the rigging scandal.

Euribor-EBF, the group that administers the setting of Euribor rates, said in January that it was facing an exodus of lenders from its rate-setting panels.

Barnier’s plans would need approval from national governments in the 28-nation EU and the European Parliament.

Chantal Hughes, a spokeswoman for Barnier, declined to comment.

Swedes Face Forced Deleveraging as Debt Swells to Record

Sweden is looking into the option of forcing households to start amortizing their mortgages in an effort to prevent debt loads rising from a record.

Martin Andersson, director-general at the Swedish Financial Supervisory Authority, made the remarks about mortgages to reporters after a parliament hearing in Stockholm, saying the measure could be necessary if household debt accelerates.

Swedish apartment prices have more than doubled since 2000, sparking concern a housing bubble may be brewing after private debt hit a record last year. A report in March from the Financial Supervisory Authority showed that, at the current pace of amortization, it takes Swedish households 140 years on average to repay their home loans. Only 40 percent of borrowers with mortgages smaller than 75 percent of their property’s value actually pay down their debt, according to the report.

The government and central bank say the development has left households vulnerable to financial shocks. Sweden is already pursuing stricter regulatory standards for Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB than those set elsewhere in an effort to protect the economy from a bank industry that’s four times its size.

The central bank has sought to tame debt growth by keeping its main lending rate higher than the rate of inflation alone would warrant. The bank estimates private debt will swell to a record 177 percent of disposable incomes in 2015.

Singapore Proposes Rule Changes to Protect Credit-Card Borrowers

Financial institutions will have to review borrowers’ total debt and credit-card limit before granting new cards or additional unsecured credit, the Monetary Authority of Singapore said in a statement.

Companies must inform borrowers of costs when rolling over credit-card debt, according to the statement.

In addition, companies will not be allowed to grant more unsecured credit to individuals who have debt 60 days past due, or unsecured debt already exceeding one year’s income, the authority said in the statement.

The authority is seeking public comment on draft amendments until Oct. 10, according to the statement.

Compliance Action

SEC Probing Schilling’s Failed 38 Studios Video-Game Bond Deal

The U.S. Securities and Exchange Commission is investigating a $75 million financing by a Rhode Island agency for Curt Schilling’s bankrupt video-game company.

The Rhode Island Economic Development Corp. sold federally taxable municipal bonds backed with the state’s moral obligation to induce the former Boston Red Sox pitcher to move 38 Studios LLC from Massachusetts to Providence in 2010. The company declared bankruptcy last year, with taxpayers on the hook to repay the bonds.

Rhode Island television station WPRI was first to report that the Economic Development Corp. hired a law firm to help respond to the SEC’s staff during five months last year, citing documents it obtained through an open-records request. Melissa Czerwein, a spokeswoman for the Economic Development Corp., said in an e-mail that the report was accurate and that the agency wouldn’t comment at the SEC’s request.

John Nester, a spokesman for the SEC, declined to comment on the investigation in an e-mail. Christine Hunsinger, a spokeswoman for Democratic Governor Lincoln Chafee, also declined to comment.

“We don’t talk about the 38 Studios issue because of pending litigation,” Hunsinger said.

Rhode Island is suing the insolvent company.


RBS Sued by WestLB Bad Bank Over CPDO Deal That Lost $42 Million

Royal Bank of Scotland Group Plc was sued by the successors of WestLB AG for allegedly misleading the failed German lender in a 2007 derivatives investment that lost more than 60 percent of its value.

WestLB lost 31.7 million euros ($42 million) on a 50 million-euro deal linked to constant proportion debt obligations created by RBS’s ABN Amro unit, Erste Abwicklungsanstalt and Portigon AG, the two entities that control the remnants of the bank, according to court documents filed Sept. 6 in London.

The triple A-rated instruments were “considerably riskier” than advertised, while ratings companies assessed them using faulty models provided by ABN, according to the claim. Portigon is helping EAA sell Dusseldorf, Germany-based WestLB’s holdings and wind up its operations.

CPDOs, leveraged vehicles that comprised default insurance linked to company indexes, lost almost all their value after the 2008 collapse of Lehman Brothers Holdings Inc. caused the price of underlying credit-default swaps to fall.

“The notes, and the rating assigned to them, were an ABN creation and ultimate liability for the wholesale failure of the notes rests with ABN and RBS,” Sean Upson, a lawyer for EAA and Portigon, said in an e-mailed statement.

WestLB’s push into international investment banking ended when the European Union ordered it to cease operations last year as a condition for 17 billion euros in aid.

RBS bought Amsterdam-based ABN Amro Holding NV for 72 billion euros in 2007. Sarah Small, a spokeswoman for the bank, declined to comment on the suit.

The case is: Erste Abwicklungsanstalt (Anstalt des offentlichen Rechts) & Anr v. The Royal Bank of Scotland Plc & Ors, High Court of Justice, Chancery Division, HC13A01413.

Corzine Urges Dismissal of CFTC Suit Over MF Global Collapse

Jon Corzine, the former chief executive officer of bankrupt MF Global Holdings Ltd., asked that a lawsuit against him by the Commodity Futures Trading Commission be dismissed.

The CFTC sued Corzine in June for failing to oversee the brokerage company properly while it spiraled toward failure in 2011 as $1.6 billion in customer funds went missing. After “exhaustive investigations lasting 19 months,” the CFTC hasn’t produced evidence to support its claims, Corzine said in a filing Sept. 10 in federal court in New York.

MF Global’s collapse on Oct. 31, 2011, a year and half after Corzine joined, was the eighth-biggest bankruptcy in U.S. history. Wrong-way $6.3 billion trades on bonds of some of Europe’s most-indebted nations helped destroy the firm and its brokerage unit, which listed assets of $41 billion and debt of $39.7 billion in its Chapter 11 filing.

Corzine, who is also a former U.S. senator and Goldman Sachs Group Inc. co-chairman, came to MF Global in March 2010.

Dennis Holden, a CFTC spokesman, didn’t immediately respond after regular business hours to a phone call seeking comment on the filing. Chad Silverman, a lawyer representing the CFTC, also didn’t immediately respond after regular business hours to an e-mail seeking comment.

The case is U.S. Commodity Futures Trading Commission v. MF Global Inc., 13-cv-04463 and 11-cv-07866, U.S. District Court, Southern District of New York (Manhattan.)


Bair Says U.S. Banks Still Have ‘Way Too Much Leverage’

Former Federal Deposit Insurance Corp. Chairman Sheila Bair talked about the fifth anniversary of the collapse of Lehman Brothers Holdings Inc. and the prospects for avoiding another failure of the U.S. financial industry.

Bair, now a senior adviser to the Pew Charitable Trusts, talked with Trish Regan and Michael McKee on Bloomberg Television’s “In the Loop.”

For the video, click here.

Coeure Says ECB Needs Global Derivatives Data for Bank Oversight

European Central Bank Executive Board member Benoit Coeure said the ECB will need better access to international data on over-the-counter derivatives when it starts to supervise euro-area lenders.

Access to derivatives data relating to a European bank’s overseas operations “is key to assessing the overall risk exposure of a given banking group,” Coeure said at an event in Paris yesterday. “We need to remove barriers to access and provide a mechanism to aggregate data across trade repositories and jurisdictions in order to be able to have a comprehensive overview of the risks in OTC derivatives markets.”

Nations are trying to bolster and align rules for the $633 trillion market for swaps and other OTC derivatives. The instruments became a target for reinforced oversight after the 2008 collapse of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc., two of the largest traders in credit-default swaps.

Comings and Goings

Deutsche Bank May Extend Fitschen’s Contract to Match Jain’s

Deutsche Bank AG, Germany’s biggest bank, will consider extending co-Chief Executive Officer Juergen Fitschen’s contract to match that of Anshu Jain.

The chairman’s committee of the supervisory board will propose extending his contract through March 2017 at a board meeting in late October, Frankfurt-based Deutsche Bank said yesterday in a statement on its website.

Deutsche Bank paired the 65-year-old head of operations in Germany with investment banker Jain, 50, last June to bridge its roles as a trading colossus. The bank is navigating litigation and probes that include allegations it mis-sold products related to U.S. mortgages and may have colluded with other lenders to try to rig interbank lending rates.

In their first year, Fitschen and Jain focused on shoring up their firm’s capital levels and set aside cash to pay for potential legal costs such as those resulting from the probe into interbank lending rates.

The bank increased litigation reserves to 3 billion euros ($4 billion) at the end of June from 800 million euros at the end of September, according to presentations on its website.

Regulators from Canada to Switzerland are investigating whether more than a dozen lenders, including Deutsche Bank, colluded to rig benchmark interest rates including the London interbank offered rate for profit or to mask their true cost of borrowing.

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

Promontory Financial Hires Top Official From U.S. Banking Agency

Promontory Financial Group LLC hired Mark Levonian, formally the top economist at the U.S. agency that regulates national banks, as the firm’s global head for enterprise economics and risk analysis.

In his new position, Levonian, who started work at the Washington-based consulting firm this week, will help banks with capital rules and stress testing -- the same topics he focused on while working for the Office of the Comptroller of the Currency. Promontory has counted big banks such as Bank of America Corp., Morgan Stanley and Wells Fargo & Co. among its clients.

Promontory, founded by former OCC head Eugene Ludwig, employs many former agency officials, including Julie Williams, once the agency’s top lawyer, and Wayne Rushton, former senior deputy comptroller and chief national bank examiner. The OCC’s current chief counsel, Amy Friend, also worked there, and Promontory hired former Securities and Exchange Commission Chairman Mary Schapiro after she stepped down last year.

Promontory has done work this year for Bloomberg LP, parent of Bloomberg News.

Mastic Hedge Fund Appoints James O’Brien as Chief Executive

Mastic Investment Advisory AG, the Zug, Switzerland-based commodities hedge fund, appointed James O’Brien as chief executive officer and chief risk officer.

O’Brien is a former colleague of Mastic Chief Investment Officer Kieran McKenna from Goldman Sachs Group Inc., according to a letter to investors obtained by Bloomberg News. O’Brien has since held senior trading roles at Cargill Inc., Lehman Brothers Holdings Inc. and Fortis Bank SA, the letter showed. The appointment was confirmed yesterday by a Mastic official who asked not to be identified in line with company policy.

Mastic “is a discretionary oil and refined products fund that uses a combination of relative value, volatility trading and directional investment strategies,” the letter 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

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