Legal Tabs, Shipping Probe, Cooperative Probe: Compliance

Europe’s biggest banks, led by Lloyds Banking Group Plc and Deutsche Bank AG, have racked up more than $77 billion in legal costs since the financial crisis, five times their combined profit last year.

Since September 2008, the 18 banks with the highest litigation expenses paid at least $24.9 billion settling lawsuits and probes, set aside $31.5 billion to compensate U.K. clients improperly sold products including mortgage insurance and earmarked $20.9 billion for further penalties, data compiled by Bloomberg show. The sum equates to spending $42 million a day. The total may be higher as many settlements aren’t public.

The penalties come as regulators require firms to set aside more funds to strengthen finances and as executives look for ways to boost shareholder returns even amid lower revenue.

As the six biggest U.S. banks have allotted more than $100 billion to legal expenses, payouts in Europe are accelerating.

The payments have hurt banks’ profit and slowed efforts to build capital. Future penalties may prompt firms to delay boosting dividends or buying back stock, analysts at KBW, a unit of Stifel Financial Corp., said in a report to clients this month.

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Compliance Policy

Fiduciary Standard for Brokers Backed by SEC Advisory Panel

Investment brokers advising retail customers would face a standard requiring them to recommend products in the best interest of clients under a proposal from a U.S. Securities and Exchange Commission advisory panel.

Members of the SEC’s Investor Advisory Committee voted Nov. 22 to recommend imposing a fiduciary duty on brokers who provide personalized investment advice. Brokers now are required only to steer clients toward trades or investments deemed suitable, while investment advisers are obliged to put clients’ interests first.

The Dodd-Frank Act of 2010 called on the SEC to study the existing standards for providing personalized advice. The agency has said many retail investors are confused by the different roles played by investment advisers and brokers and recommended a uniform fiduciary standard apply to both.

Brokers who give customers recommendations to buy, sell or hold a security and don’t provide advice wouldn’t have a fiduciary duty under the committee’s approach. Those who “hold themselves out” as advisers should have a fiduciary duty, the committee said in its recommendation.

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German Bank-Financed Rescue Fund to Reach 1.8 Billion Euros

A rescue fund financed by German banks will hold 1.8 billion euros by the end of the year, the Federal Agency for Financial Market Stabilization said Nov. 22 in e-mailed statement.

German banks are able to draw on additional financial help when, in a crisis, cash in the fund, known as the Bank Restructuring Fund, is inadequate, the FMSA said in the statement.

Banks paid less into the fund in 2013 due to “weaker” results in 2012, the group said.

The fund was set up by law in 2011 as a successor to the government-financed Soffin rescue fund.

Compliance Action

RBS Hires Clifford Chance for Internal Business Loans Probe

Royal Bank of Scotland Group Plc appointed Clifford Chance LLP to investigate whether it pushed companies that owed it money into difficulties to boost profit.

RBS said in an e-mailed statement today it appointed the law firm after a report by Lawrence Tomlinson, chairman and founder of LNT Group Ltd., said that once companies were in default, the bank could charge them advisory fees and buy their assets at reduced prices. Business Secretary Vince Cable has referred RBS to the Financial Conduct Authority.

Chris Hamilton, a spokesman for the FCA in London, declined to comment on the report, as did a spokesman for the U.K.’s Prudential Regulation Authority.

U.K. lenders, including 81 percent taxpayer-owned RBS, have been criticized by the government for holding back lending to businesses since the 2008 financial crisis as they boost capital reserves and clean up their balance sheets.

Container Liner Shipping Companies Probed by EU on Price Signals

European Union regulators opened an antitrust investigation into container liner shipping companies, saying they signaled pricing changes to each other with press and website statements, the EU said in an e-mailed statement Nov. 22.

The announcements are made several times a year and contain the amount of increase and the date of implementation, which are generally similar for all announcing companies and could allow them to raise prices on transport services to and from Europe, the regulators said in the statement.

The European Commission didn’t identify the companies in the probe in its Nov. 22 statement.

Osborne Orders Probe Into Co-Op Bank After Flowers Scandal

U.K. Chancellor of the Exchequer George Osborne ordered an independent inquiry into events at Co-operative Bank Plc, a unit of Co-Operative Group Ltd., after the lender’s parent ceded control and former Chairman Paul Flowers was arrested.

The investigation has been agreed with the Prudential Regulation Authority and the Financial Conduct Authority, the Treasury in London said in an e-mailed statement Nov. 22. It will be led by an independent person agreed to by the regulators. The FCA and PRA are also considering whether to carry out formal enforcement investigations, the Treasury said.

Co-operative Group’s chairman, Len Wardle, resigned last week after leading the board that appointed Flowers.

Flowers, 63, was arrested Nov. 21 as part of a drug investigation, said a person with knowledge of the matter, who asked not to be identified because the investigation was confidential.


BOJ’s Kuroda, Bank of France’s Noyer Speak in Tokyo

Bank of Japan Governor Haruhiko Kuroda talked about the nation’s economy and policy, and Bank of France Governor and European Central Bank Governing Council member Christian Noyer talked about the region’s growth.

Kuroda and Noyer spoke at an event in Tokyo today.

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Schaeuble Says Single Bank Resolution Needs Legal Basis

German Finance Minister Wolfgang Schaeuble spoke at the European Banking Congress in Frankfurt Nov. 22 about monetary policy and banking supervision.

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Fitschen Says European Banks Losing Trade Finance Role

Juergen Fitschen, co-chief executive officer of Deutsche Bank AG, discussed the role of European banks in promoting global trade.

He spoke on a panel discussion at the European Banking Congress in Frankfurt moderated by Melinda Crane.

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Separately, Fitschen spoke at the Frankfurt Congress about how Europe’s banks should approach the European Central Bank’s stress tests.

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JPMorgan Deal Lacks Details From Justice, Kelleher Says

Dennis Kelleher, chief executive officer of Better Markets Inc., talked about the $13 billion settlement between JPMorgan Chase & Co. and the U.S. Justice Department ending probes into the bank’s sale of mortgage securities.

Kelleher, who spoke with Betty Liu on Bloomberg Television’s “In the Loop,” also talked about Federal Reserve chairman nominee Janet Yellen’s stance on bank regulation.

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George Says More Transparency Needed for Market Discipline

Federal Reserve Bank of Kansas City President Esther George said supervision of individual banks should be strengthened to increase transparency in financial markets and safeguard the broader financial system.

Supervision can be made more systematic, predictable and transparent by making reports from complex firms more easily understood so that shareholders and creditors can “provide the appropriate level of market discipline,” George said Nov. 22 in a speech in Paris. Without transparency, investors must rely on assurances from regulators, she said.


Bank of America Intern Died of Natural Causes, Coroner Says

Bank of America Corp. intern Moritz Erhardt died of natural causes, a London coroner said after hearing from Erhardt’s family and co-workers about working conditions at the lender.

Coroner Mary Hassell said Nov. 22 that the 21-year-old died on Aug. 15 of an epileptic seizure, while noting that “it’s not so natural” for a young man to die like this.

Hassell said at the inquest Nov. 22 that one of the triggers for epilepsy is exhaustion and it may be that fatigue was a trigger for the seizure that killed him, though it’s “only a possibility.”

Erhardt didn’t tell the bank about his epilepsy. He answered “no” to questions about whether he suffered from seizures on a medical form, according to Hassell, who read the document out loud in court.

Erhardt’s plight prompted the bank to set up a panel of senior managers to investigate his death.

U.K. newspapers, including the Guardian, reported he worked all night on several occasions in the weeks before he collapsed, citing co-workers it didn’t identify.

A spokeswoman for Bank of America in London declined to comment on the autopsy Nov. 21.

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