Bank Liquidity, CoCo Market, Madoff Son Dies: Compliance

U.S. regulators adopted requirements for the level of high-quality liquid assets banks must stockpile to survive a 30-day liquidity drought, a major step in efforts to prevent a repeat of the 2008 credit crisis.

Big banks are said by the Federal Reserve to be about $100 billion short of $2.5 trillion in easy-to-sell assets they need to meet the standards approved yesterday by the Fed and Office of the Comptroller of the Currency and set for a Federal Deposit Insurance Corp. vote. Municipal bonds are excluded from the category of assets banks can use to reach the target.

The agencies also will propose a rule on collateral for swaps traded outside of clearinghouses and wrap up rules on how much loss-absorbing capital must be held against total assets.

The liquidity and leverage-ratio rules are based on accords reached by the Basel Committee on Banking Supervision.

Banks have four months to reach an 80 percent liquidity level at the start of the year, and will have another two years to reach full compliance by Jan. 1, 2017.

Compliance Action

CoCo Market Seen Swelling to $80 Billion on Review

The market for the riskiest bank debt will probably swell by more than 50 percent to $80 billion in Europe by year-end as lenders bolster capital ratios.

Faced with stress tests and an asset quality review in coming weeks, European banks will issue about 20 billion euros ($26 billion) more additional Tier 1 notes this year, according to Barry Donlon, head of capital solutions for Europe, the Middle East and Africa at UBS AG in London. There are about $52 billion of the securities currently outstanding.

Regulators created contingent capital bonds, known as CoCos, to push the burden of policing the banks onto investors by forcing bondholders to pay for collapses.

Swiss Regulator Probes Espirito Santo Unit Over Securities Sales

The Swiss financial regulator is probing the role played by Banque Privee Espirito Santo SA’s owners and whether the lender breached rules in selling investments linked to the Portuguese financial group.

The probe by the Swiss Financial Market Supervisory Authority, or Finma, follows similar inquiries in Portugal, where regulators are investigating the sale of securities involving Banco Espirito Santo SA and how the group’s companies helped fund each other. Banco Espirito Santo was bailed out last month after losses on loans.

The company “will collaborate closely with Finma within the bounds of this procedure,” Banque Privee Espirito Santo, based in Pully, said in an e-mailed statement.


SAC Capital Engaged in Racketeering, Drug Firm Investors Say

SAC Capital Advisors LP engaged in racketeering as part of a scheme to use inside information to trade in drugmakers Elan Corp. and Wyeth LLC, investors in the two companies alleged in a revised lawsuit.

A group of Elan and Wyeth investors suing SAC over alleged insider trades filed an amended complaint yesterday in Manhattan federal court. In support of a new racketeering claim, the investors cited insider trading by a dozen ex-fund managers and analysts, including eight men who were convicted in New York, in a scheme that ran from 1999 to 2010.

The goal of the conspiracy “was to increase management fees and investment returns” for SAC founder Steven A. Cohen, 58, who “created a culture at SAC that encouraged insider trading.” according to their complaint.

SAC Capital, which has changed its name to Point72 Asset Management LP, agreed last year to pay $1.8 billion and plead guilty to securities fraud and other charges to resolve insider-trading charges filed by Manhattan U.S. Attorney Preet Bharara.

“The plaintiffs were not injured by SAC’s trading,” Jonathan Gasthalter, an spokesman for Point72 with the firm Sard Verbinnen & Co., said in an e-mailed statement. They “cannot successfully state a claim under this law, which they seek to twist to give themselves an undeserved windfall,” he said.

Cohen has not been charged with criminal wrongdoing.

SAC last month lost a bid to dismiss the case.

The case is Kaplan v. SAC Capital Advisors, 12-cv-09350, U.S. District Court, Southern District of New York (Manhattan).

Notable Passing

Andrew Madoff, Convicted Con Man’s Surviving Son, Dies at 48

Andrew Madoff, convicted con man Bernard Madoff’s only surviving son, died at age 48.

He died yesterday at Memorial Sloan Kettering Cancer Center in New York after battling mantle cell lymphoma, his attorney, Martin Flumenbaum, said in an e-mailed statement.

As heads of the trading desk at Bernard L. Madoff Investment Securities LLC, Madoff and his brother, Mark, led the market-making business, while their father, based on another floor, invested clients’ money.

The firm’s clients invested $17.5 billion in principal and were led to believe they had a total of $64.8 billion in their accounts. On Dec. 10, 2008, the brothers contacted the Federal Bureau of Investigation to expose their father’s long-running fraud.

Though sued for millions of dollars, the brothers were never charged with criminal wrongdoing.

Madoff’s father was sentenced to 150 years in prison. Mark Madoff took his own life on Dec. 11, 2010, the second anniversary of his father’s arrest.

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