EU Banker Pay, Offshore Profits, Insider Study: Compliance

Europe’s top banking regulator proposed to make it harder for lenders to sidestep limits on bonuses by closing loopholes used to give discretionary payments on top of salaries.

The European Banking Authority said in a consultation paper published Wednesday that role-based allowances, based on seniority, would need to fulfill criteria such as being “predetermined,” “transparent to staff” and not dependent on performance to be classified as salary rather than bonus.

European Union lawmakers capped bonuses in 2013, adopting the world’s toughest bonus rules in a bid to tackle what they called a gambling culture blamed for contributing to the 2008 financial crisis. Royal Bank of Scotland Group Plc and HSBC Holdings Plc are among European banks that responded by giving employees allowances depending on seniority.

“Remuneration is either fixed or variable; there is no third category of remuneration,” the London-based EBA said.

The consultation period for the revised guidelines, which implement a legal opinion published by the EBA last year, ends on June 4. National regulators must comply with the rules or publicly explain reasons for ignoring them.

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Separately, Standard Chartered Plc’s executive board of directors opted to forgo their bonuses in light of the bank’s “disappointing performance” in 2014, Chairman John Peace said.

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Compliance Action

Profits Parked Overseas Top $2 Trillion as Firms Skirt U.S. Tax

Eight of the biggest U.S. technology companies added a combined $69 billion to their profits held offshore over the past year, even as some corporations in other industries felt pressure to bring cash back home.

Microsoft Corp., Apple Inc., Google Inc. and five other tech firms now account for more than a fifth of the $2.1 trillion in profits that U.S. companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations. The total amount held outside the U.S. by the companies was up 8 percent from the previous year, despite 58 companies’ reporting smaller holdings.

The money pileup, reflecting companies’ incentives to park profits in low-tax countries, has drawn the attention of President Barack Obama and U.S. lawmakers, who see a chance to tap the funds for spending programs and to revamp the tax code. That effort is stalled in Washington, and there are few signs tech companies will bring the profits back to the U.S. until Congress gives them an incentive or a mandate.

Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, declined an interview request about the offshore funds.

Microsoft referred to 2012 Senate testimony by Bill Sample, its vice president for worldwide taxes. He said then that the Redmond, Washington-based company is “fundamentally a global business” and U.S. law creates a disincentive for U.S. investment.

Google referred to a December 2013 letter that the Mountain View, California, company sent to the Securities and Exchange Commission. It said Google needs $20 billion to $30 billion for acquisitions outside the U.S., $12 billion to $14 billion for foreign subsidiaries’ share of developing intellectual property and $2 billion to $4 billion for capital expenditures.

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Interviews/Commentary/Studies

Fed Sheds Light on Turbulent 2009 With Transcripts

The Federal Reserve is opening its archives from 2009, a tumultuous year for a U.S. economy and global financial system struggling to pull out of the worst crisis and recession in seven decades.

The U.S. central bank on Wednesday in Washington released transcripts and some briefing materials from the 2009 meetings of Federal Open Market Committee policy makers with the customary five-year lag. The 2008 documents, published last year, ran more than 3,500 pages.

The Open Market Committee is concerned with the purchase and sale of securities in the open market.

As 2009 began, Barack Obama was sworn in as president. It was a year of rising mortgage delinquencies and government-led bank bailouts.

The latest materials will shed light on how then-Chairman Ben S. Bernanke and his colleagues debated some of the biggest crisis-era developments, including the Fed’s $1.15 trillion expansion of asset purchases, stress tests of U.S. banks and the government rescue of Bank of America Corp.

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Insider Trading Study Reveals Authorities’ Spinoff Blind Spot

Over the past year, a record 266 companies have spun off divisions in a trend bankers are calling “Spinmania.” If history is any guide, about 35 of those deals will have leaked undetected to inside traders.

A new study by a team of finance professors suggests one in eight corporate spinoffs and divestments in the U.S. between 1996 and the end of 2013 was preceded by suspicious trading in options markets. The Securities and Exchange Commission hasn’t brought a single case relating to such trading then or since, according to the report, due to be published later this month.

Regulators on both sides of the Atlantic have made tackling insider trading a priority in recent years, with high-profile cases aimed at hedge funds SAC Capital Advisors LP and Galleon Group LLC in the U.S., and Moore Capital Management LLC in the U.K. Those actions have centered on illegal trading on tips about mergers and acquisitions, where the impact of an announcement on a company’s share price tends to be larger than in a spinoff.

Spinoffs are when a company divests part of its business, usually via a sale or distribution of new shares, to create a new company. One reason for the spike in options may be that the returns available to traders with advance knowledge of a spinoff tend to be much lower than for those who get wind of a merger or acquisition. Options can boost those returns. Since many are traded over-the-counter and away from registered exchanges, they are also harder for the authorities to monitor.

The report follows a similar study published in May.

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