Italy Bank Buffers, CFTC Votes, FHA Subsidy: Compliance

Italian banks’ capital buffers risk being depleted because of poor asset quality and weak profitability should an economic recession persist, the International Monetary Fund said.

Twenty of Italy’s banks, which account for about one-third of the nation’s banking industry, will see their Basel III core capital measures slide by as much as 14 billion euros ($19 billion) below a key global benchmark in 2015 should an economic downturn continue into next year, the Washington-based fund said in an e-mailed report published Sept. 27.

Banks in the euro region’s third-largest economy are struggling to improve asset quality and profitability as the longest recession in more than 20 years makes it harder for businesses and households to repay loans. Italy’s economy may contract 1.7 percent this year, according to the average estimate of 43 economists surveyed by Bloomberg, after shrinking 2.4 percent in 2012.

The capital shortfall of banks could widen should they be forced to increase provisions or reclassify loans as a result of upcoming European Central Bank-led asset quality reviews, the IMF said. Accelerating the write-off of bad loans would improve profitability and reduce funding costs, increasing confidence in the industry and helping to increase lending, the IMF said.

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Compliance Policy

CFTC Said to Plan October Votes on Client Funds and Speculation

The U.S. Commodity Futures Trading Commission next month plans to complete rules to boost protection of customer funds and release a new proposal for limits on speculation in oil, natural gas and other markets, according to two people familiar with the matter.

The agency is debating the regulations internally and plans to vote at an Oct. 24 meeting in Washington, according to the people, who asked not to be named because the schedule is private. The customer-protection rules have been under debate for more than a year, while earlier rules limiting speculation were overturned by a federal judge.

Steve Adamske, a CFTC spokesman, declined to comment on the schedule, which could change because of internal debate. The agency’s customer protection rules, proposed after the collapse of MF Global Holdings Ltd. initially left a gap of $1.6 billion in client funds, have spurred opposition from the futures industry. One part of the proposal required brokerages to at all times of the day keep enough of their own money, or residual interest, on hand to account for their customers’ deficits.

The CFTC said the proposal would avoid the possibility that brokerages would use end-of-the day balancing to “obscure a shortfall.” The change from industry practice would tie up additional capital and would probably lead to increased costs for clients, according to brokerages that objected to the rule.

The agency is considering changing the proposal to require the calculation of deficits to be completed by the close of business the day after a trade occurs, according to one of the people.

EU Weighs Reducing Bank Contributions to Single Resolution Fund

The European Union is weighing reducing banks’ contributions to a proposed single resolution fund for failing banks to 0.8 percent of deposits from the 1 percent proposed by the European Commission.

Within 10 years after legislation creating a Single Resolution Mechanism and fund is enacted, the fund’s available financial means “shall reach at least 0.8 percent of the amount of deposits of all credit institutions authorized in the participating member states,” according to a document prepared by the Lithuanian presidency of the EU and obtained by Bloomberg News.

China Can Resume IPO After Reforms, Securities Times Says

China can resume initial public offerings only after new rules are officially announced and take effect, the Securities Times reported, citing a China Securities Regulatory Commission spokesman at a Sept. 27 news conference.

A prolonged IPO halt isn’t good for companies’ financing and the stock market’s long-term healthy development, the spokesman was cited as saying.

Separately, the commission released risk provisions rules for mutual funds that will take effect Jan. 1, Caixin reported, citing the regulator.

Compliance Action

Mizuho Falls Most in Four Months on Gangster Loans

Mizuho Financial Group Inc. fell the most in almost four months in Tokyo trading after Japan’s banking regulator penalized the lender for dealing with organized crime groups.

The shares of Japan’s third-biggest bank by market value declined as much as 4.1 percent, the biggest drop since June 3, closing at 213 yen. The benchmark Nikkei 225 Stock Average slid 2.1 percent.

The Financial Services Agency said on Sept. 27 it ordered Mizuho’s banking unit to strengthen legal compliance and controls after it failed to prevent more than two years of transactions with “anti-social” groups, a term commonly used in Japan to describe yakuza crime syndicates. Through consumer credit companies, Mizuho Bank Ltd. made 230 loans valued at about 200 million yen ($2 million), the FSA said.

Lending to mobsters “is negative in terms of Mizuho’s reputation and that’s why we’re seeing its shares falling,” said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. “This could happen to any other big lender in Japan as they have all probably made affiliated loans like these. The regulator just sent a wake-up call.”

Mizuho’s transactions with the groups, including gangs, were mostly automobile loans, an FSA official said at a news briefing in Tokyo on Sept. 27, asking not to be named in accordance with the agency’s policy.

Mizuho is considering penalties for some employees, including pay cuts, and will give further details in a report it plans to submit to the FSA by Oct. 28, said Masako Shiono, a Tokyo-based spokeswoman. The lender in response to the penalty has formed a committee to consider improvement measures and deal with any impact on its customers, she added.

Regulatory Wait for New U.K. Banks Doubles Over Five Years

U.K. financial services firms must wait an average of almost six months for approval from the U.K. markets regulator, double the time it took five years ago.

There is an average wait of 25.8 weeks for a new bank or brokerage to gain approval from the Financial Conduct Authority, according to statistics compiled by London-based law firm Reynolds Porter Chamberlain published today.

The FCA, formerly known as the Financial Services Authority until April, had outlined plans in March to cut in half the time it took startup banks to get approval.

The 25.8-week wait is the second-longest in the past five years, according to RPC. In the second quarter of 2012 new firms had to wait an average of 25.9 weeks.

“We’re constantly seeking to improve the efficiency of the authorisation process but there is a balance to be struck between speed on the one hand and protecting consumers and the wider financial system on the other,” the FCA said in a statement.

Federal Housing Administration to Take $1.7 Billion Subsidy

The Federal Housing Administration will take about $1.7 billion from the U.S. Treasury to shore up its insurance fund after losses on defaulted mortgages depleted reserves.

The government mortgage insurer will take the draw today, the last day of the fiscal year, FHA Commissioner Carol Galante said in a letter sent to Congress Sept. 27. The agency has about $30 billion in liquid assets and needs more because it is required to keep enough money on hand to cover all projected future losses.

Projections show the FHA won’t require a subsidy in fiscal year 2014. Still, the agency’s need for taxpayer funds for the first time since it was established in 1934 could give ammunition to Republicans in Congress seeking legislation to shrink its mission.

The FHA insures $1.1 trillion worth of mortgages and backs about 15 percent of U.S. loan originations for home purchases, almost quadruple the 4 percent share it had in 2007.

The House Financial Services Committee passed a Republican bill in July that would largely limit FHA coverage to first-time borrowers purchasing moderately priced homes. The Senate Banking Committee in July approved a bipartisan measure that would set a floor on premiums the agency charges and require it to hold more money in reserve.

The FHA has authority to take the money without prior approval from Congress. The draw won’t affect the federal debt ceiling because the money is being transferred between government accounts, not spent.

Banks Pressed by U.S. Lawmakers for Details on Deals at Colleges

Democratic lawmakers including Senator Elizabeth Warren Sept. 27 demanded that eight U.S. banks produce information about agreements they may have with colleges to encourage students to use their products.

“These lucrative deals are great for banks and great for colleges, but students can get hurt when they are steered into financial products that carry high fees,” the group of lawmakers wrote in the letter to Citigroup Inc., Wells Fargo & Co. and six other banks.

They cited a 2012 report by the U.S. Public Interest Research Group, a consumer organization that criticized bank practices.

The letter also went to chief executives of U.S. Bancorp, PNC Financial Services Group Inc., SunTrust Banks Inc., TCF Bank, Huntington Bancshares Inc. and Commerce Bancshares Inc. Higher One Holdings Inc., a New Haven, Connecticut-based company that provides financial services to students, was also sent a copy of the letter.


Billionaire Cuban Goes to Trial in SEC’s Insider Case

Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, faces trial over U.S. regulators’ claims he engaged in insider trading when he sold his stake in a Canadian Internet search company nine years ago.

The Securities and Exchange Commission in 2008 accused Cuban of acting on confidential information when he unloaded his 600,000 shares of four years earlier, just before it announced a private placement of shares.

The case was revived in 2010 after U.S. District Judge Sidney A. Fitzwater in Dallas dismissed it. Fitzwater came close to throwing it out again in March. Jury selection is scheduled to start today and the trial, with Fitzwater presiding, is expected to last eight to 10 days.

Cuban, 55, maintains he did nothing wrong.

“The SEC has alleged that Mark Cuban defrauded Inc. by unlawfully misappropriating confidential information for Mr. Cuban’s personal use in his sale of Mamma securities,” his lawyers said in a court filing. “The record shows that nothing could be further from the truth.”

He is chairman of the high-definition television network HDNet and has owned the Mavericks since 2000, as well as the Landmark Theatre chain.

Cuban contends the SEC can’t prove a confidentiality agreement was formed between him and and says he made no agreement that he couldn’t trade on information about the private share offering, Fitzwater wrote.

Cuban’s lawyers have said the commission’s proof falls short in several other areas, including whether he was reckless, whether he disclosed he was going to sell his stock and whether he used the offering information to sell, according to the summary statement.

“We look forward to a fair trial,” Chris Clark, one of Cuban’s attorneys, said in an interview. “We think the truth will come out and Mr. Cuban will be vindicated.”

Judy Burns, a spokeswoman for the SEC, declined to comment on the trial.

The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).


CFTC to Propose New Draft of Margin Rules, Gensler Says

Gary Gensler, chairman of the Commodity Futures Trading Commission, spoke about plans to boost protection of customer funds and new swaps trading rules.

Gensler spoke to a group of corporate treasurers at the U.S. Chamber of Commerce in Washington.

For the video, click here.

Rosengren Says ‘Overdue’ Money-Fund Rules Needed for Stability

Federal Reserve Bank of Boston President Eric Rosengren said tougher oversight of money-market mutual funds is “overdue” and called on the U.S. Securities and Exchange Commission to adopt rules that curb risks to the financial system.

“The financial stability concerns surrounding MMMFs remain real, five years after the financial crisis,” Rosengren said in remarks prepared for a speech Sept. 27 in New York. “MMMF runs should not be allowed to once again impede the flow of stable funding within our financial system.”

Rosengren echoed a call by all 12 Fed district banks presidents that the SEC extend its proposed rules for money-market mutual funds to a bigger chunk of the industry’s $2.6 trillion in assets. All money funds that buy corporate debt, not just those that cater to institutional investors, should abandon their fixed $1 share price, the Fed presidents said in a Sept. 12 letter to the SEC.

“While the severe runs occurred at institutional prime funds during the last financial crisis, there is no assurance that the next crisis will avoid retail funds,” Rosengren said.

The SEC’s floating share price would apply to about $968 billion in institutional funds that buy corporate debt, known as prime funds, and $78 billion in institutional funds focused on municipal debt, as they are currently categorized by the industry. Extending the rule to prime retail funds would add about $517 billion.

Comings and Goings

SEC Trial Lawyer Who Beat Fabrice Tourre Said to Step Down

Matthew Martens, the head of the U.S. Securities and Exchange Commission’s trial unit who won a fraud ruling in court against former Goldman Sachs Group Inc. executive Fabrice Tourre, is leaving the agency, a person with knowledge of the matter said.

Martens, 41, joined the SEC in August 2010 as the enforcement division struggled to restore its reputation after missing Bernard Madoff’s multibillion-dollar fraud. His deputy, Matthew Solomon, will take over as chief litigation counsel when he leaves in the coming weeks, said the person, who asked not to be identified because the decision isn’t yet public.

Martens, who earlier in his career worked as a law clerk for former Supreme Court Chief Justice William Rehnquist, was thrust into the spotlight as the lead trial attorney to argue the SEC’s case against Tourre, who was accused of misleading investors about a financial product linked to subprime mortgages. Martens’s victory in court bolstered pledges by SEC Chairman Mary Jo White to seek more onerous settlements even if it could lead to more trials.

Martens is in talks with several private law firms, according to the person.

John Nester, an SEC spokesman, declined to comment.

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