Europe Bank Scrutiny, Proxy Guide, BNP Rises: Compliance

A U.S. crackdown on financial institutions for alleged sanctions-busting threatens to penalize more European banks after France’s BNP Paribas SA was fined a record $8.97 billion for dealing with blacklisted countries.

French banks Credit Agricole SA and Societe Generale SA, Commerzbank AG of Germany and UniCredit SpA, Italy’s largest lender, are among other financial institutions being investigated by U.S. authorities.

Authorities around the world are increasing their scrutiny of lenders in the aftermath of the financial crisis, looking into allegations ranging from aiding tax evasion to dealings with blacklisted regimes to manipulating interest rates and currencies. The probes are forcing banks in Europe to set aside reserves of cash just as the European Central Bank conducts a review of their capitalization.

The U.S. has brought at least 22 cases against financial firms since 2009 for doing business or handling funds linked to sanctioned countries, according to announcements on government websites.

Compliance Policy

Proxy Advisers Must Disclose Conflicts of Interest, SEC Says

Companies that recommend to investors how to vote in corporate elections must disclose conflicts of interest that could be viewed as affecting their advice, the U.S. Securities and Exchange Commission said.

The SEC guidance released yesterday responds to criticism from the U.S. Chamber of Commerce and others of proxy advisers, whose recommendations can influence the outcome of elections on executive pay and boards of directors. Advisers such as Institutional Shareholder Services Inc. also consult for some companies that are the subject of their voting recommendations.

The advisers must tell investors relying on their recommendations about any conflicts of interest when they furnish the advice, the guidance states. ISS has said its proxy analyses currently tell investors that the company could be a consulting client and states further information is available upon request.

The SEC said in its guidance that the proxy advisory firm must provide notice to the recipient of a significant relationship or a material interest, and this can’t be done with “boilerplate language.”

Compliance Action

Telefonica German Merger Approval Augurs More Europe Phone Deals

The European Union approval of the merger of two national wireless carriers in its biggest economy will give the struggling $230 billion industry a reprieve while setting the stage for a new round of mergers and acquisitions.

The clearance of Telefonica SA’s 8.55 billion-euro ($12 billion) deal to acquire Royal KPN NV’s E-Plus unit in Germany, announced today, ends a year of uncertainty about competition in a country with more than 110 million mobile-phone accounts. It may also set a precedent for future mergers and acquisitions with the elimination of a major European wireless discounter.

E-Plus and Telefonica Deutschland Holding AG, the third-and fourth-largest mobile carriers in Germany, will together compete for market share with Vodafone Group Plc and Deutsche Telekom’s local units. In most other major markets, including Italy, France, Spain and the U.K., four network carriers fight for accounts that often outnumber inhabitants.

BNP Rises Most in Year as Bank Maintains Dividend After Fine

BNP Paribas SA, France’s largest bank, posted the biggest advance in almost a year in Paris trading after saying a record $8.97 billion fine for breaking U.S. sanctions won’t force it to reduce its dividend or derail growth plans.

The gain trimmed this year’s decline to 9 percent.

While the U.S. fine will result in a 5.8 billion-euro ($7.9 billion) charge in the second quarter, BNP said it intends to match last year’s dividend of 1.50 euros a share in 2014. The bank is also sticking with three-year growth targets and said it doesn’t plan to raise capital.

BNP agreed to plead guilty in court documents June 30 to processing almost $9 billion in banned transactions involving Sudan, Iran and Cuba from 2004 to 2012. The company will be temporarily barred from handling some U.S. dollar transactions.

The settlement ends a five-year U.S. probe.

Separately, BNP Paribas is seeking an exemption from a U.S. prohibition on criminal entities serving as investment advisers. The lender and three affiliates -- Fischer Francis Trees & Watts Inc., Bishop Street Capital Management Corp. and Impax Asset Management Ltd. -- are seeking exemptions from the Securities and Exchange Commission, according to a regulatory filing.


Wheeler Says BNP Paribas’s Reputation Needs Rebuilding

Chris Wheeler, banking analyst at Mediobanca SpA, discussed BNP Paribas SA’s guilty plea to U.S. sanctions violations and agreement to pay an $8.97 billion fine.

He spoke with Mark Barton and Manus Cranny on Bloomberg Television’s “Countdown.”

For the video, click here.

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