Naked Short-Sale Ban, N.Y. Bank Probe, Barclays: Compliance
May 18, 2011, 9:05 AM EDTBy Carla Main
(Updates with U.S. mortgage paperwork, Basel rules and U.K. bank PPI claims in Compliance Policy section, Krause in Interviews/Speeches and Kohn in Comings and Goings.)
May 18 (Bloomberg) -- European Union governments agreed to curb so-called naked short-selling of government bonds and stocks, while Germany said the group should have gone further and banned credit default swaps tied to the debt.
Finance ministers from the region’s 27 countries endorsed restrictions on speculation at a meeting in Brussels yesterday, insisting traders must have at least a “reasonable expectation” that they can obtain the underlying securities which they agree to sell short. Ministers didn’t back a last- minute German request for a ban on so-called naked credit- default swaps tied to sovereign debt.
Politicians including German Chancellor Angela Merkel and French President Nicolas Sarkozy have claimed that naked short- selling and naked CDS worsened the euro area’s sovereign-debt crisis, and have called for EU curbs. Michel Barnier, the EU’s financial-services chief, said last year that such trades could lead to “disorderly markets and systemic risks.”
Yesterday’s deal concerns changes to proposals from the European Commission last year. Governments will now work out the final version of the law with the European Parliament.
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Compliance Policy
EU Stress Test Results to Be Published in June, Matolcsy Says
European Union bank stress test results will be published in June, Hungarian Economy Minister Gyorgy Matolcsy told journalists in Brussels yesterday.
Banks and regulators should aim to find “private-sector solutions” to reinforce the capital of lenders that fail this year’s round of EU stress tests, finance ministers of the 27- nation EU said yesterday after a meeting in Brussels.
“The use of public funds will be available only as a last resort, in case of need and subject to strict conditionality,” the finance ministers said in an e-mailed statement. ‘Any public support will be contingent on the submission of a restructuring plan.”.
Ninety banks will be expected to maintain a Core Tier 1 capital ratio of at least 5 percent under the stress-test scenarios, the European Banking Authority, which is carrying out the tests, said earlier this month. This year’s exams will include a review of how lenders would handle a 0.5 percent economic contraction in the euro area in 2011, as well as a 15 percent drop in European equity markets.
The EU’s stress tests on banks’ capital are unlikely to lead to ratings changes, Standard & Poor’s Rating Services said in a statement yesterday.
Banks Say Simpler Mortgage Form Could ‘Stifle’ New Products
For Elizabeth Warren, the Obama administration adviser setting up the Consumer Financial Protection Bureau, simpler mortgage paperwork is a “regulatory sweet spot” that will cut lender costs and borrower confusion.
That view hasn’t stopped battle lines from forming around the prototype “mortgage shopping sheet” the agency plans to publish today. Industry groups say the revisions may lead to limits on innovation and variety in lending, while consumer advocates are resisting changes that might limit borrowers’ right to sue to stop a foreclosure.
The consumer bureau, created by the Dodd-Frank Act and set to begin work on July 21, is required to propose the simplified form by a year after its start date. Warren has said the goal is to have a document that succinctly shows the costs of a loan and gets to borrowers early enough to allow for comparison shopping.
Consumer bureau officials yesterday began showing bankers, mortgage brokers, realtors and consumer groups two prototypes that will be published today, according to two people present at the meetings.
The forms are based on current law and regulations regarding what lenders have to disclose, the people said. Until now, simplification of disclosures has been impeded by a lack of coordination among federal agencies and laws. That obstacle will be removed when the consumer bureau takes over enforcement and regulation writing in July.
Lenders, however, may face billions of dollars in costs if the type and timing of documentation are changed and those costs could be passed on to consumers, according to David Stevens, who leads the Mortgage Bankers Association.
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Loan Renewals to Become Harder on Basel Rules, UniCredit Says
Speculative-grade companies may find it harder to refinance loans as new regulations hamper bank liquidity, prompting a turn in the credit cycle, according to UniCredit SpA analysts.
Banks under Basel III are seeking long-term funding at a time when insurers are favoring short-term securities as a result of new solvency rules. That’s draining liquidity for banks by limiting appetite among insurers for their bonds, Christian Weber, a Munich-based strategist at UniCredit, wrote in a note to clients yesterday.
Speculative-grade issuers in Europe cut debt to an average 4.9 times cash flow from a peak of 6.4 times in 2007, according to Fitch Ratings, while the amount of net debt held by borrowers in the euro region has fallen 8 percent this year, CreditSights Inc. said yesterday.
A change in the credit cycle “is definitely going to come sooner or later,” Weber said.
The Basel Committee on Banking Supervision last year made it more expensive for banks to lend to riskier borrowers by raising the cost of the capital they’re required to set aside against the loans. The new rules follow regulations known as Basel II, which are being adopted now and require lenders to allocate more capital against higher-risk loans.
Banks Asked FSA to Cut PPI Claims Interest Rate, FT Reports
U.K. lenders that have to repay billions of pounds of improperly sold payment-protection insurance failed in a bid to have the interest rate on compensation claims reduced, the Financial Times reported.
The banks approached the Financial Services Authority before pursuing an unsuccessful court case to block the claims, the FT said, citing a previously unreported section of a consultation paper published by the FSA in March 2010.
Compliance Action
Goldman Sachs, BofA Said to Meet in Attorney General Probe
Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley will meet with New York Attorney General Eric Schneiderman as part of an investigation into mortgage securitization, according to a person familiar with the matter.
The meetings, which will take place in coming weeks, were requested by Schneiderman, 56, said the person, who didn’t want to be identified because the discussions aren’t public. Schneiderman, who took office in January, is examining mortgage practices and the packaging and sale of loans to investors, the person said.
Federal regulators and all 50 state attorneys general are scrutinizing how the biggest U.S. financial firms handle home loans. Last month, as states coordinated settlement talks with banks over foreclosure practices, Schneiderman said that any joint accord shouldn’t preclude individual states, such as New York, from continuing their own inquiries.
Lauren Passalacqua, a spokeswoman for his office, declined to comment on the planned meetings. Michael DuVally, a spokesmen for New York-based Goldman Sachs, and Lawrence Grayson, a spokesman for Bank of America in Charlotte, North Carolina, also declined to comment. Mark Lake, a spokesman for Morgan Stanley, didn’t return e-mails and phone calls seeking comment after normal business hours.
Barclays Pays Top Staff 7% Interest on Deferred Cash Bonuses
Barclays Plc will pay 7 percent interest annually to senior employees on cash bonuses deferred for at least five years under the bank’s plan to link compensation with long-term performance.
The final cash payment would be forfeited if the bank’s core Tier 1 capital ratio, a measure of financial strength, falls below 7 percent or if the staff member leaves, Simon Hodges, a director in the bank’s compensation and benefits team, said in a speech in London yesterday. The bank’s highest return for customers is a 4.25 percent rate on a four-year bond.
The program, which started in February, is targeted only at “very senior people,” Hodges said. The so-called contingent capital plan features instruments that behave like bonds which convert into a bank’s ordinary shares when a specific trigger event occurs.
European Union regulators approved rules to curb incentives for excessive risk-taking last year, imposing limits on cash payouts and the size of bankers’ bonuses.
A spokesman for Barclays wasn’t immediately available to comment.
Maersk, CMA CGM Raided by EU in Shipping Antitrust Probe
AP Moller-Maersk A/S, owner of the world’s largest container shipping company, CMA CGM SA and Hapag-Lloyd AG were among companies raided by European Union antitrust officials over possible collusion.
The European Commission made unannounced inspections at the offices of companies active in “container liner shipping in several member states,” it said in an e-mailed statement yesterday. It didn’t name the companies involved.
EU regulators said they had “reason to believe” that the companies may have breached EU cartel or monopoly-abuse rules. The raid doesn’t mean that the companies are guilty of anti- competitive behavior, the commission said.
Maersk will “fully cooperate with the Commission’s employees to investigate the matter thoroughly,” Christian Kledal, the head of Maersk’s legal group, said in an e-mailed statement. The company’s “practices are in compliance with EU competition legislation,” he said.
Hapag-Lloyd, the shipping company owned by TUI AG and Albert Ballin GmbH, said it is also under investigation.
Hapag said in a statement that regulators were checking whether companies have breached antitrust rules since October 2008, when the EU ended immunity to deals, known as liner shipping conference agreements, which fixed prices for almost two decades.
CMA CGM, the world’s third-largest container shipping company, is also part of the EU probe, it said in an e-mailed statement. The closely held Marseille-based company said it is cooperating with regulators.
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Edmond de Rothschild Says Lisbon Office Inspected
Banque Privée Edmond de Rothschild Europe said its Lisbon office was inspected by supervision and judicial authorities May 16 as part of an inquiry directed at two former clients of the wealth manager.
A government prosecutor directed the investigation, which involves two clients, and not the bank itself, the Portuguese Attorney General’s Office said in an e-mailed statement. It didn’t specify if they were current or former clients. Materials were seized as part of the search, the office said.
The bank provided all the “legally required” cooperation, Edmond de Rothschild said in its own statement. The company said its business continues “in full normality.”
OTC Derivatives Cash at Risk Dropped to $21 Trillion, BIS Says
The amount of cash at risk in the global over-the-counter derivatives market dropped at the end of 2010 as the value of interest-rate swaps declined. Overall trading totals rose 3 percent.
Banks and large investors held $601 trillion of swaps, forwards and options, up from $583 trillion as of June, the Bank for International Settlements said yesterday. The total is on a notional basis, an amount used to calculate payments between traders, and doesn’t represent money that changed hands.
The amount outstanding for contracts on interest-rates, currencies, credit-default swaps and commodities has fallen from a high in June 2008. The financial crisis exposed broad risks in the unregulated market and the September 2008 bankruptcy of Lehman Brothers Holdings Inc., one of the largest swaps dealers, made it more expensive to trade as banks and money managers feared losing other large trading partners.
The Dodd-Frank Act, passed in the wake of the credit crisis, requires most swaps to be processed by a clearinghouse and traded on exchanges or similar systems.
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Interviews/Speeches
Canellos Says U.S. ‘Attuned’ to Insider-Trading
George Canellos, director of the U.S. Securities and Exchange Commission’s New York regional office, discussed the government’s use of wiretaps in insider-trading cases.
Canellos spoke with Margaret Brennan on Bloomberg Television’s “InBusiness.”
For the video, click here.
Deutsche Bank CFO Says Concerned About Shadow Banking System
Deutsche Bank AG Chief Financial Officer Stefan Krause said Germany’s largest bank is “greatly concerned” about the “shadow banking system.”
New rules such as higher capital requirements haven’t affected the shadow banking sector and regulators should address non-financial companies to ensure a “level playing field,” Krause said during a panel discussion at a financial conference in Frankfurt yesterday.
Global regulators said in April that information gaps may undermine their efforts to limit risks to the financial system from so-called shadow banks. Authorities have warned that shadow banks such as structured investment vehicles, hedge funds and money market mutual funds, could be used to evade attempts by regulators to clamp down on excessive risk-taking in the wake of the crisis.
Comings and Goings
Madoff Trustee’s Ex-London Lawyer Fired for Padding Expenses
A London lawyer who had represented the U.S. trustee liquidating Bernard Madoff’s assets was fired by his law firm for padding his expenses. He had been retained to help recover assets in Europe.
Christopher Grierson, a partner at Hogan Lovells LLP who advised on asset-tracing and fraud, claimed more than 1 million pounds ($1.62 million) in false expenses over a four-year period, according to the Lawyer, a trade magazine.
“Christopher acted entirely on his own,” the firm said in a statement yesterday. “He was a long-standing partner in the firm and highly regarded. We are very saddened and concerned by these events, which represent a major breach of trust.”
No clients were affected and Grierson agreed to repay the money within 14 days, Hogan Lovells said. The firm conducted an internal investigation and referred the matter to the Solicitors Regulation Authority, which oversees lawyer conduct. The Authority launched an investigation after the firm notified it, spokesman Colin Clark said.
Grierson declined to comment through a spokesman.
Kohn ‘Deeply Regrets’ Pain Caused in Banking Crisis
Former Federal Reserve Vice Chairman Donald Kohn said he “deeply regrets” the impact on consumers of the financial crisis unleashed by a credit market boom and the collapse of Lehman Brothers Holdings Inc.
Kohn is being considered for a seat on a committee of the Bank of England.
“I placed too much confidence in private market participants to police themselves,” Kohn told U.K. lawmakers in London yesterday when asked whether he wanted to apologize for the Fed’s role in the crisis. “I also agree that cops weren’t on the beat. The regulators were not alert to the risks as they could have been.”
Kohn, 68, retired in September and was a close ally of Alan Greenspan and Ben S. Bernanke, presiding over a housing boom, the worst U.S. financial slump since the Great Depression and the Fed’s deployment of unprecedented weapons to stem the turmoil. While Greenspan was lauded as one of the best central bankers in history when he retired in 2006, the Fed has subsequently been criticized for not seeing the crisis coming.
Kohn is now a nominee to join the Bank of England’s proposed Financial Policy Committee, which will meet quarterly on how to ensure banking stability. Its first meeting, which will be chaired by Mervyn King, is on June 16.
Kohn said yesterday he was fit to be on the Financial Policy Committee given his experiences, saying, “I believe I will not make the same mistake twice.”
--With assistance from Carter Dougherty in Washington; Scott Hamilton, Karen Eeuwens, Blanche Gatt, Ben Moshinsky, Lindsay Fortado and Abigail Moses in London; Jim Brunsden, Aoife White and Stephanie Bodoni in Brussels; Joao Lima in Lisbon; Aaron Kirchfeld in Frankfurt; and Matthew Leising, Karen Freifeld and Donal Griffin in New York. Editor: Stephen Farr.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.
To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.
