BofA Tax Set-Aside, Wylys Penalty, Fed Patience: Compliance

Bank of America Corp. must set aside $490 million of its Aug. 21 $16.7 billion settlement to cover taxes that borrowers face on forgiven mortgage debt -- a step taken by the Justice Department to give homeowners relief that Congress has failed to provide.

The bank’s accord with U.S. and state authorities to settle claims over flawed bond sales is the first major settlement to include funds to be used in case lawmakers don’t extend forgiveness on home-loan debt reductions. The tax credit expired on Dec. 31.

The relief is designed to avert foreclosures, particularly where home values are depressed, by letting borrowers shrink mortgages or sell homes for less than the amount they owe without having to pay taxes on the difference. It’s one of many provisions that have been stalled amid partisan disagreements. The Bank of America settlement is sparking renewed calls for lawmakers to act on it.

The funds set aside in the settlement would only cover part of borrowers’ tax bills. And those getting loan reductions under earlier bank settlements could be required to treat that aid as income unless the law is changed.

Banks Hooked on Short FX Debt in Sweden Win Watchdog Respite

Sweden’s financial regulator said banks under pressure from the government and central bank to curb short-term foreign currency funding have little room to adjust their financing, given the economy they operate in.

Finance Minister Anders Borg has repeatedly told banks in the largest Nordic economy to wean themselves off short-term wholesale funding, particularly in currencies other than kronor, after a market freeze in 2008 left lenders reliant on central bank liquidity. The Riksbank has even suggested charging banks to help cover the cost of holding reserves needed to hedge banks’ currency risks.

Yet Uldis Cerps, head of banking at the Swedish Financial Supervisory Authority in Stockholm, said in an interview at the agency’s headquarters Aug. 20 that the sheer size of Sweden’s export sector -- half the nation’s gross domestic product comes from sales abroad -- creates a demand for dollars and euros that banks need to service. Swedes also prefer investing in funds and stocks to putting their cash in deposit accounts, limiting banks’ access to household savings for their funding needs.


Goldman Sachs Says EU Violated Defense Rights in Antitrust Case

Goldman Sachs Group said European Union regulators violated the firm’s rights in refusing to supply documents it sought in an energy price-fixing probe, according to a court filing today.

Goldman Sachs’s appeal at EU’s General Court, in a case relating to power cables sold to energy providers, was published in the Official Journal today.

The bank also argued that the court was wrong in maintaining that a holding bank is liable as a parent company for a fine on cable maker Prysmian SpA by claiming the bank was able to influence the company through its stake, rather than allocating a fine specifically to the bank.

Case is T-419/14, The Goldman Sachs Group v Commission.

Wylys Argue They Can’t Pay $728 Million Penalty Demanded by SEC

Lawyers for Samuel Wyly and the estate of Charles Wyly, found liable for using a web of offshore trusts to hide stock holdings and engage in illegal trading, argued against the $728 million demanded by the Securities and Exchange Commission, claiming it would bankrupt them.

Lawyers for the Wylys and the SEC Aug. 22 delivered closing arguments in the second phase of a trial over the amount they should pay as a result of a jury verdict in May. Samuel Wyly and his brother’s estate have a combined net worth of only $119 million, their lawyers said.

They argued the regulator failed to prove a connection between the amount sought and the transactions for which jurors found them liable, and claimed there was no evidence any investors were harmed by the securities laws violations. The Wylys claimed in court papers they shouldn’t be required to pay more than $1.38 million.

The SEC cut its demand from $1.41 billion after U.S. District Judge Shira Scheindlin in Manhattan rejected an earlier calculation.

The case is SEC v. Wyly, 10-cv-05760, U.S. District Court, Southern District of New York (Manhattan).


Lockhart Says Patience Is Called for With Fed Rate Hike

Atlanta Federal Reserve President Dennis Lockhart talked about the state of the U.S. economy, the “normalization” of Fed policy, and financial regulation.

Lockhart spoke with Bloomberg’s Kathleen Hays at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, on Bloomberg Radio’s “The Hays Advantage.”

To listen, click here.

Before it's here, it's on the Bloomberg Terminal.