Zions CDOs, 12 Nations Tax Accords, UBS: Compliance

Zions Bancorporation, Utah’s biggest lender, said most of its bank and insurance trust-preferred collateralized debt obligation securities and other asset-backed CDOs won’t be allowed under the new Volcker Rule, possibly costing the company about $387 million.

The non-cash charge may be “materially greater or less than the impact estimated,” and the bank is evaluating ways to comply with the new rule that “optimizes shareholder value,” the Salt Lake City-based company said yesterday in a statement. The charge will affect fourth-quarter and full-year results, Chief Financial Officer Doyle Arnold said during a conference call.

The charge is more than Zions earned for any calendar year since 2007. The estimated impact was based on conditions as of Sept. 30, and the bank said prices for the securities had improved since then.

The bank said it’s unclear what effect the divestitures mandated by the Volcker Rule will have on trading prices. The rule approved by federal regulators last week is designed to keep banks from making risky trading bets with their own money that might cause them to collapse.

Compliance Policy

EU Banks Shrink Assets by $1.1 Trillion as Capital Ratios Rise

European Union banks have shed more than $1.1 trillion of assets since the end of 2011 in a shift away from risky investments such as asset-backed debt as regulators push lenders to shore up their balance sheets.

Lenders reduced assets weighted for risk by 817 billion euros ($1.1 trillion) between December 2011 and June 2013, the European Banking Authority, the bloc’s top banking regulator, said in a report yesterday. Banks’ core Tier 1 capital ratios, a measure of how well they can absorb losses, rose to 11.7 percent from 10 percent during the time period.

Global banks have raised about $500 billion in capital in the aftermath of the financial crisis five years ago and are moving closer to complying with tougher global capital rules known as Basel III that include restrictions on banks’ use of debt.

The EBA released more than 700,000 data points detailing how much capital lenders have and where they invest. The agency scrapped its annual stress test in favor of a review next year of banks’ asset quality led by the European Central Bank, which will become the euro area’s chief banking supervisor in 2014.

The reduction in assets comes mostly from banks shedding securitizations and cuts in trading activity, according to the EBA, which was set up in 2011 to harmonize banking rules across the 28-member EU.

12 Agreements Signed to Help U.S. Fight Offshore Evasion

Twelve governments have reached agreement with the U.S. Treasury on easing the reporting of foreign-held bank accounts by U.S. taxpayers, part of the Internal Revenue Service’s effort to combat offshore tax evasion.

The agreements will help implement the Foreign Account Tax Compliance Act, which as of July 1 will require that information about such accounts be supplied directly to the U.S.

The intergovernmental agreements -- known as IGAs -- are a critical part of compliance with the 2010 foreign account tax law, international tax lawyers said in interviews.

FATCA requires U.S. financial institutions to impose a 30 percent withholding tax on payments made to foreign banks and other financial entities that don’t agree to identify and provide information on U.S. account holders. IGAs, in general, allow the foreign financial institutions to report the information to their own governments, which then would share the data with the IRS.

The 12 agreements have been reached with the Cayman Islands, Costa Rica, Denmark, France, Germany, Ireland, Japan, Mexico, Norway, Spain, Switzerland and the U.K.

Bermuda, Italy and Hungary are among those that have initialed accords -— generally the last step before the pact is formally signed -— and Malta has concluded negotiations on an IGA, according to publicly available information.

Treasury officials have said the number of jurisdictions negotiating agreements has increased to more than 70.

U.S. Regulators Clarify Oversight Approach for Some Mortgages

Four U.S. financial regulators issued guidance aimed at clarifying “safety-and-soundness” expectations and Community Reinvestment Act considerations related to Qualified Mortgage loans and non-Qualified Mortgage loans offered by regulated entities.

The agencies say they don’t expect a lender’s decision to originate only Qualified Mortgages, absent other factors, would “adversely affect” their evaluations under the Act, according to a joint statement.

The Act requires banks to make loans in all areas they serve, including low-income neighborhoods.

China to Investigate Pricing in Antitrust Drive, Regulator Says

China will begin to supervise pricing in certain industries and punish companies that break antitrust rules, the nation’s top economic planner said, after crackdowns on makers of products such as baby formula and cars.

The National Development and Reform Commission is seeking to strengthen regulation as it attempts to keep price levels stable, it said in a statement on its website, citing a meeting in Beijing Nov. 15. No industries were named in the statement.

The planned inspections extend a campaign that has brought investigations of companies including Qualcomm Inc. and record fines on milk producers such as Danone and Mead Johnson Nutrition Co.


Ex-UBS Trader Hayes Pleads Not Guilty in First Libor Prosecution

Tom Hayes, the former UBS AG and Citigroup Inc. trader, pleaded not guilty to conspiring to manipulate Libor in the first prosecution stemming from a global investigation into rate rigging.

Two former RP Martin Holdings Ltd. brokers, Terry Farr and James Gilmour, also pleaded not guilty to related charges at a London court today. The trio, who are being prosecuted by the U.K. Serious Fraud Office, are the first to enter pleas in the case.

More than a half dozen finance firms, including Barclays Plc and UBS, have been fined a total of about $6 billion since June 2012 for manipulating the London interbank offered rate, or Libor, the benchmark for more than $360 trillion of securities worldwide.

UBS Wins Dismissal of Suit Over $2.3 Billion ‘Rogue Trader’ Loss

UBS AG won dismissal of a lawsuit claiming the bank lied to investors about its risk-management practices before its disclosure of a $2.3 billion trading loss by “rogue trader” Kweku Adoboli.

Adoboli, who worked in UBS’s London office, was convicted of fraud and sentenced to seven years in prison last year. The unauthorized trading loss was the biggest in British history.

U.S. District Judge Katherine Forrest in Manhattan said yesterday in a ruling dismissing the suit that “such a significant loss” due to a rogue trader “is more akin to a claim of mismanagement” than fraud.

A group of investors led by two union pension funds sued UBS and several former top executives in June 2012, claiming they misled investors about the banks risk management systems and controls.

Forrest ruled the allegations of the suit weren’t specific enough to meet the requirements for claiming securities fraud.

The case is CDTS No. 1 & ATU Local 1321 Pension Plan v. UBS AG, 12-cv-04924, U.S. District Court, Southern District of New York (Manhattan).


A Closer Look With Arthur Levitt: Winthrop Smith on His New Book

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, interviewed former Merrill Lynch International Chairman Winthrop Smith, now the chairman and founder of WHS Holdings LLC and the chairman and chief executive officer of Summit Ventures NE Inc. They spoke on Bloomberg Radio’s “A Closer Look With Arthur Levitt.”

Smith talked about his new book on the history of Merrill and its role in “democratizing the capital markets.” He also talked about leadership on Wall Street and the financial crisis of 2008.

For the audio, click here.

Comings and Goings

Ex-UBS Banker Weil Faces Judge as Deal on Tax-Evasion Seen

Raoul Weil, the former head of UBS AG’s global wealth management business accused of conspiring to help Americans evade taxes, may help U.S. prosecutors rather than go to trial, according to lawyers following the case.

Weil, 54, was expected to make an initial appearance yesterday in federal court in Fort Lauderdale, Florida, where he was indicted in October 2008 and later declared a fugitive. His lawyer has said he is innocent. Weil hasn’t entered a plea in the case.

Weil is the highest-ranking banker among about 100 people charged since 2008 by the U.S. in a crackdown on offshore tax evasion. About three dozen foreign bankers, lawyers and advisers were charged. Most are at large. Tax lawyers not involved in the case said they expect Weil to plead guilty, cooperate with prosecutors, and seek leniency at sentencing.

Justice Department spokeswoman Dena Iverson declined to comment on the case.

Weil denies wrongdoing, according to his attorney, Aaron R. Marcu of Freshfields Bruckhaus Deringer LLP in New York.

“He has consistently denied doing or knowing of anything unlawful, and we look forward to the opportunity to present his case in court,” Marcu said in a statement. He wouldn’t comment on whether Weil may cooperate.

If Weil cooperates with prosecutors, they can urge a judge to give him a shorter sentence. He faces as many as five years in prison.

The case is U.S. v. Weil, 08-cr-60322, U.S. District Court, Southern District of Florida (Fort Lauderdale).

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