BofA Hedge Funds, MetLife, Gallagher Talk: Compliance

Bank of America Corp. cut ties with about 150 hedge funds last year in its prime brokerage group because new regulatory requirements designed to make the financial system safer are forcing lenders to reduce costs.

The second-largest U.S. bank made the decisions based on which relationships were profitable enough to keep amid new capital and liquidity rules, according to two people familiar with the bank’s strategy, who asked not to be named because details are private. The cuts included the majority of its quantitative hedge fund customers, or those that use computer programs to trade, one of the people said.

Prime brokerage, or the business of lending to and servicing hedge funds, has become less profitable as measured by return on equity under new rules known as Basel III, which are being put in place to prevent a repeat of the 2008 financial crisis. The regulations have prompted the biggest banks to trim relationships or increase fees for clients that don’t meet profitability targets.

Zia Ahmed, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment or say how many hedge fund clients the bank has.

Compliance Policy

Xi Vows to Wage Enduring Anti-Corruption Campaign in China

China’s President Xi Jinping said there will be no let-up in his “fierce and enduring” battle against corruption, which has already taken down thousands of senior officials including the country’s former security chief.

Xi vowed to maintain “high pressure” and “zero tolerance” on graft this year, as corruption “has not vanished” and “temptations still remain,” in speech at a plenary session of the Communist Party’s top disciplinary agency in Beijing yesterday.

“The anti-graft work in 2014 was effective and the campaign was a matter of life-or-death for the party and the nation,” Xi was quoted by the official Xinhua News Agency as saying at the plenum of Central Commission for Discipline Inspection. “The situation remains arduous and complex.”

While Xi is seeking to address a problem that he says risks undermining the party’s legitimacy, he is also trying to weaken some well-entrenched vested interests and consolidate his power, according to Jean-Pierre Cabestan, director for government and international studies at Hong Kong Baptist University.

His crackdown on graft -- the harshest since the republic’s founding in October 1949, according to state media -- kicked off weeks after he became party boss in November 2012 and has snared more than 100,000 communist cadres, including both “flies and tigers,” or low- and high-level officials, according to CCDI figures released last month.

Xi said this year’s anti-graft work would focus on strengthening official accountability mechanisms, keeping a closer eye on family members and close allies of potentially corrupt officials, and improving supervision of state-owned enterprises.

Courts

MetLife Sues Over Too-Big-to-Fail Label by U.S. Regulators

MetLife Inc., arguing that imposing higher regulatory standards will drive up the cost of financial protection for consumers, sued the U.S. government over a panel’s decision to label it critical to the economy, saying the call is premature.

The largest U.S. life insurer, in a complaint filed yesterday in Washington federal court, opposes the U.S. Financial Stability Oversight Council’s decision that it’s a systemically important financial institution, or SIFI. The designation would subject the company to more oversight.

The SIFI designation is authorized by the 2010 Dodd-Frank law and is intended to head off financial crises. It subjects designated companies to stricter Federal Reserve oversight that could include tougher capital, leverage and liquidity requirements. Final rules haven’t been written.

MetLife is the first company to file such a challenge in court. Insurers American International Group Inc. and Prudential Financial Inc. were designated last year as non-bank SIFIs, as was General Electric Co.’s finance unit.

New York-based MetLife has said it doesn’t deserve the systemic-risk label because its failure wouldn’t threaten the financial system.

The case is MetLife Inc. v. FSOC, 15-cv-00045, U.S. District Court, District of Columbia (Washington).

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Interviews/Commentary

U.S. Risks Losing Place as Market Leader, SEC’s Gallagher Says

The competitiveness of U.S. financial markets has suffered from costly over-regulation and the rise of financial centers in the Middle East and Asia, Securities and Exchange Commissioner Daniel Gallagher said in remarks prepared for a Women in Housing & Finance event.

“The United States is at risk of losing its status as the world’s capital markets leader,” Gallagher, a Republican, said in Washington. “Maybe not in the next year, or 10, but the trend is unmistakable.”

“The commission must find ways to eliminate the red tape that prevents businesses from forming in the first place,” Gallagher said.

He urged the SEC to quickly approve a new version of Regulation A, which will reduce regulatory requirements on public offerings up to $50 million.

CFTC Chairman Massad Will Travel to Asia to Discuss Swaps Market

Commodity Futures Trading Commission Chairman Timothy Massad will travel to Beijing, Hong Kong, Tokyo and Singapore this month to meet with government officials and market participants to discuss the swaps market, the agency said in a statement.

The trip reflects the “increasing importance of the Asian derivatives markets” and Massad’s “desire to further the dialogue” on common concerns between the U.S. and Asian nations, the agency said.

Massad is expected to make several speeches during the trip.

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