Pandit Bonus, EU Repo Oversight, Brazil M&A: Compliance
Citigroup Inc. (C)’s $4.7 billion pretax writedown of its Morgan Stanley Smith Barney stake probably won’t reduce a profit-sharing plan’s award for Chief Executive Officer Vikram Pandit that could total $24 million.
That’s because the plan doesn’t count losses at Citi Holdings, the division of unwanted assets that includes the Smith Barney brokerage, a regulatory filing shows. The exclusion may mean more pay for Pandit this year even as the board considers cuts in his 2011 compensation package, which shareholders rejected in April amid criticism that he collected millions of dollars in rewards too easily.
Citigroup’s board promised to discuss Pandit’s 2011 pay with top shareholders after 55 percent of the votes cast rejected the package. The CEO’s profit-sharing award, which is tied to 2011 and 2012 results, would add to more than $10 million in multiyear stock awards and the $15 million pay package he received for 2011, when the New York-based bank’s shares tumbled 44 percent.
If no changes are made, Citigroup will have paid Pandit about $261 million in the five years since he became CEO, including his personal compensation and about $165 million for buying his Old Lane Partners LP hedge fund in 2007 in a deal that led to his becoming CEO. The bank shut Old Lane soon after Pandit took the post, causing a $202 million writedown.
The latest charge was triggered last week after Citigroup, the third-biggest U.S. bank by assets, agreed to sell its 49 percent stake in the brokerage joint venture to its partner, New York-based Morgan Stanley. The two owners, which had disputed the unit’s worth, finally valued the venture at $13.5 billion -- about 40 percent less than Citigroup’s estimate two months ago. The agreement forced Citigroup to write down its stake by $4.7 billion, or $2.9 billion after taxes.
The decline won’t affect Pandit’s profit-sharing payout, according to terms of a package offered last year to dissuade Pandit from leaving, a May 2011 filing shows.
Pandit said in a June interview that directors are discussing his pay with shareholders and that he expects some resolution by year-end. The board’s personnel and compensation committee members are meeting with shareholders to “fully understand their concerns,” Shannon Bell, a spokeswoman for the bank, said in a Sept. 13 e-mail.
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Global Regulators Weigh Lending-Rate Overhaul Amid Libor Scandal
Global regulators and central bankers debated tougher oversight of interbank lending rates in the wake of the scandal engulfing Libor, according to an EU official.
The steering committee of the Financial Stability Board weighed how to coordinate nations’ response to the manipulation of Libor during a conference call today, the official said. The FSB is scheduled to meet in Tokyo on Oct. 11-12.
FSB Chairman Mark Carney told reporters last month that the FSB would seek to ensure that “the world transitions to a better version of reference rates” with “buy-in globally.”
Confidence in Libor, the benchmark interest rate for more than $500 trillion of securities, plummeted following Barclays Plc (BARC)’s admission that it submitted false rates. The revelations have provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes of interbank lending rates to the top of the political agenda.
EU representatives on yesterday’s call outlined steps the 27-nation bloc is taking in the wake of the Libor scandal, including a bolstering of market-abuse sanctions and a consultation on overhauling governance of how market benchmarks are set, said the official, who wouldn’t be cited by name because the talks are private.
European Parliament lawmakers will hold a public hearing on Sept. 24 into the Libor scandal.
Indonesia Bank Multiple-Licensing Rule May Be Done This Fall
Bank Indonesia is meeting with bankers to explain the multiple-permit requirement for their expansion plans, Governor Darmin Nasution says in Jakarta yesterday.
The regulation for the multiple-permit requirement possibly may be completed by the end of October or early November, according to Nasution.
Central banks will use their capital as the base for setting the multiple-licensing requirement, he said.
Greek Finance Ministry Says Talks on Opap Tax Issues Ongoing
Greece is in talks with the European Commission’s competition regulator on the taxes levied on games of chance in the country, according to a filing yesterday by Opap SA (OPAP), Greece’s biggest gambling company, at the Athens bourse.
The Greek state has been in talks with the regulator for “a long time” on the games of chance tax issue and the talks are ongoing, according to a statement by the Finance Ministry, made in response to a querie by the Hellenic Capital Markets Commission.
The Greek regulator inquired on Sept. 14 about a Greek media report that said the commission may ask for Opap’s land-based games tax to be raised to 30 percent immediately to adhere to European Union regulations.
Irish Said to Prefer Bonds Over ESM to Refinance Anglo Irish
Irish authorities now favor using government bonds to refinance the rescue of the former Anglo Irish Bank Corp., easing funding pressure on the state over the next decade, according to two people familiar with the matter.
Under a plan being weighed by officials, Enda Kenny’s government would inject as much as 40 billion euros ($52.4 billion) of notes of as long as 40 years in maturity into the bank, said one of the people, who asked not to be identified because the talks are private. These may be used as collateral for European Central Bank funds, replacing 30 billion euros of so-called promissory notes used for the bank’s 2010 bailout.
Using bonds would mark a strategy shift by Irish Finance Minister Michael Noonan who has advocated tapping the European Stability Mechanism to cut the cost of the nation’s banking rescue. The bond plan would sidestep potential political opposition in Europe to using the euro-region’s bailout funds to refinance the bank’s funding, the people said.
While the ECB would prefer if the promissory notes were replaced by ESM bonds than Irish securities, this would need approval from all member states of the rescue fund and increase the amount of Ireland’s bailout, according to the two people. The state applied for a 67.5 billion euro bailout in 2010.
ECB to Set Up Repo Database as EU Moves to Rein in Shadow Banks
The European Central Bank plans to boost oversight of trading in repurchase agreements by setting up a transactions database amid a push by regulators to rein in so-called shadow banking, a European Union document shows.
Michel Barnier, the EU’s financial services chief, raised the plan at a meeting of European Union finance ministers and central bankers in Nicosia, Cyprus, on Sept. 14-15, according to the document, whose authenticity was confirmed by an EU official. The database would cover the European market for repos. The official spoke on condition of anonymity because the talks are private.
Barnier told the meeting that he is working on regulations targeted at “key actors” in the shadow-banking system, in particular money-market mutual funds, according to the document.
Money-market mutual funds merit particular attention because of risks to their liquidity, Barnier told the meeting, adding that he was “disappointed” that the U.S. Securities and Exchange Commission had proved unable to agree on rules for the $2.6 trillion industry, according to the document.
Repurchase agreements are contracts in which one investor agrees to sell a security and then buy it back at a future date at a fixed price. They’re one of several shadow-banking activities targeted by regulators concerns that they may be used to evade a global clampdown on excessive risk-taking.
The European Commission, the 27-nation EU’s executive arm, plans to publish draft rules for shadow banks in November.
Brazil M&A Reporting Rules May Change to Appease Asset Managers
Brazil’s antitrust authority may change merger reporting requirements for investment funds after complaints that the regulations, which took effect three months ago, are too sweeping.
Carlos Ragazzo, general superintendent of Cade, as the authority is known, said the authority is talking to capital markets associations and lawyers in Brazil and abroad. The goal is to bring to the board the possibility of change in the regulation for funds’’ as a way of improving legal procedure Ragazzo said in an interview.
The merger law, which Brazil President Dilma Rousseff signed late last year, requires buyers to seek antitrust approval before closing a deal. It forces funds to report acquisitions to Cade if annual revenue exceeds 750 million reais ($373 million) at either the fund’s shareholder, the fund-management company or other companies from the same sector in the fund’s portfolio or among the management company’s holdings.
Under the new legislation, Cade said it will take no more than 330 days to review a proposed merger. Otherwise, it will be automatically approved. The new rules were intended to prevent mergers from taking place before antitrust regulators had a chance to review them.
Cade may also seek changes in legislation covering venture-capital investments.
Brazil mergers have declined 40 percent this year to $45.4 billion, data compiled by Bloomberg show. The number of deals fell to 463 from 480 in the same period last year.
Vodafone Considers $2.2 Billion Tax Provision on Indian Law
Vodafone Group Plc (VOD), which has resisted setting aside money for a $2.2 billion tax bill in India, may make a provision to cover the legal risks, Chief Financial Officer Andy Halford said in an interview.
The world’s second-largest mobile-phone operator is consulting on the need for a provision after an amendment by India’s government to its tax law made the company potentially liable for the payment, Halford said. A decision will be made by November, he said.
The potential tax payment would add to Vodafone’s costs of investing in the second-largest wireless market. The operator in January defeated the initial government demand for taxes stemming from its 2007 acquisition of Hutchison Whampoa Ltd. (13)’s Indian operations in the country’s top court. In March, the government unveiled an amendment to the law to retrospectively tax cross-border transactions dating back to April 1, 1962.
The British operator, which also faces increased costs for radio frequencies in India, is relying on fast-growing markets such as India as consumers cut spending in debt-stricken Europe, where the operator derives as much as 70 percent of its revenue. Vodafone had refused to take a provision as it waited for the court ruling, saying it wasn’t liable for the bill.
India initially had planned to implement the tax amendment in 2013. In September, a panel set up by India’s prime minister recommended deferring the implementation by three years on “administrative grounds.” The body is scheduled to submit final recommendations at the end of September.
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China Challenges U.S. Anti-Subsidy, Anti-Dumping Measures at WTO
China complained at the World Trade Organization yesterday about U.S. anti-subsidy and anti-dumping measures applied to Chinese exports including paper, steel, tires, magnets, chemicals, kitchen appliances, wood flooring and wind towers.
Yesterday’s request for consultations is the first step in WTO dispute proceedings and means the two governments must hold talks for at least two months in a bid to resolve the matter. If the discussions fail, China can ask WTO judges in Geneva to rule.
Separately, the U.S. requested dispute-settlement consultations with China at the WTO over the Asian nation’s alleged use of export subsidies for its auto industry, the U.S. Trade Representative’s office said.
“The subsidies provide an unfair advantage to auto and auto-parts manufacturers located in China, which are in competition with producers located in the United States and other countries,” the Trade Representative’s office said yesterday in a statement.
The trade complaint was cited as an issue in the U.S. presidential campaign.
U.K. Begins Tax-Evasion Probe With Focus on Lawyers, Hair Salons
U.K. began a crackdown on tax evasion, including among London lawyers, which it expects to bring in 19.5 million pounds ($32 million).
HM Revenue & Customs task forces starting today will focus on five “high risk” business areas in an effort to flush out tax evaders, the authority said in a press release. The Scottish motor trade and retail businesses in four U.K. regions are being targeted in the latest project, the agency said.
The task forces were introduced following a 917 million-pound government investment that began in 2011 to take on tax evasion, avoidance and fraud. The authority said it intends to raise 7 billion pounds each year by 2015 from the project.
Restaurants in southeast England and hair and beauty salons in the northeast of the country are also under scrutiny.
Peregrine’s Wasendorf Pleads Guilty to Embezzlement, Fraud
Peregrine Financial Group Inc. founder Russell Wasendorf Sr. pleaded guilty to stealing more than $100 million from the bankrupt commodities firm’s customers.
Wasendorf, 64, yesterday admitted to embezzlement, mail fraud and two counts of lying to federal regulators in an appearance before U.S. Magistrate Judge Jon Scoles in Cedar Rapids, Iowa.
Wasendorf, dressed in a prison-issue orange jumpsuit, was handcuffed and wearing leg shackles during the hearing. He was taken into custody after U.S. District Judge Linda Reade earlier yesterday stayed Scoles’s ruling that Wasendorf could be released from custody until sentencing.
In response to the judge’s direct questions, Wasendorf replied “guilty” to each of the four counts. He made no other comment.
The plea agreement calls for a prison sentence of as long as 50 years. Scoles said he would recommend to Reade to accept the plea. Reade will also set a sentencing date.
Wasendorf’s crimes came to light on July 9 when the founder of Peregrine, who was also the company’s chairman and chief executive officer, tried to kill himself by piping auto exhaust into the passenger compartment of his car parked outside the firm’s Cedar Falls, Iowa, headquarters.
In a written statement found with him then, Wasendorf said he’d been stealing from the company for almost 20 years.
The National Futures Association, an industry self-regulator, announced the same day that about $200 million in customer funds the firm reported was on deposit at its bank were unaccounted for.
Federal criminal charges were filed against him under seal two days later. He was arrested July 13.
The case is U.S. v. Wasendorf, 12-cr-2012, U.S. District Court, Northern District of Iowa (Cedar Rapids).
The bankruptcy case is In re Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The regulatory case is Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).
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Ex-Trader Adoboli in Debt, Had Personal Spread-Bet Accounts
Kweku Adoboli, the former trader on trial for allegedly costing UBS AG (UBSN) $2.3 billion from unauthorized trades, was in debt and had several spread-betting accounts in violation of the bank’s rules, a prosecutor said.
The bank’s compliance department notified Adoboli, 32, that he should have flagged his personal trading through the spread-betting firms IG Index Plc and City Index Ltd. to UBS beforehand, prosecutor Esther Schutzer-Weissmann said at his trial in London yesterday.
Adoboli’s personal bank accounts were mostly overdrawn and he had borrowed money from various short-term lenders, she said. At UBS, his pay rose from 40,500 pounds ($65,900) in 2005 to 360,000 pounds in 2010, including bonus, another prosecutor said at the opening day of his trial last week. He lost 123,000 pounds through his personal trading with IG Index in the year leading up to his arrest, Schutzer-Weissmann said today. Adoboli’s lawyers agreed not to challenge the information provided by the prosecutor.
The former trader is charged with falsifying records on exchange-traded fund transactions and other documents needed for accounting purposes as early as October 2008. Prosecutors also charged him with fraud. His trial, at a London criminal court, is scheduled to last eight weeks.
Adoboli worked for the Zurich-based investment bank’s Delta One desk, which handles trades for clients -- or risks the bank’s own money -- typically by speculating on a basket of securities. The loss UBS attributes to him came from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures.
Borg Says Sweden Has Clear Red Lines on Bank Oversight
Swedish Finance Minister Anders Borg talked about a proposal to put the European Central Bank in charge of policing lenders in the European Union.
He spoke Sept. 15 with reporters in Nicosia, Cyprus.
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Comings and Goings
SEC’s Schapiro Said to Be Recovering After Surgery Last Week
U.S. Securities and Exchange Commission Chairman Mary Schapiro underwent surgery last week and plans to return to the office on Sept. 19, according to a person with knowledge of the matter.
Schapiro had the surgery on Thursday, Sept. 13, and has been working from home since the following day, according to the person, who asked not to be identified because the matter wasn’t public.
Florence Harmon, an SEC spokeswoman, declined to comment.
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