Bloomberg News

U.A.E. Guidelines, Congo Contracts, U.K. ‘CHAPS’: Compliance

June 01, 2011

(Updates with U.K. Serious Fraud Office and South Korea bond rules in Compliance Policy, UBS in Compliance Action, BHP in Courts and Weidmann and SEC staff in Comings and Goings.)

June 1 (Bloomberg) -- The United Arab Emirates’ central bank imposed new guidelines on banks that include mandatory monthly liquidity reports and periodic stress tests as it seeks to tighten liquidity management through qualitative requirements.

The requirements, effective Sept. 1, are aimed at reducing “the frequency and severity of banks’ liquidity problems,” according to a central bank circular distributed to bankers. “This is achieved by ensuring banks have a robust risk liquidity management and governance process and they are holding sufficient liquid assets to withstand a liquidity stress.”

The U.A.E. is struggling to boost bank lending after a credit squeeze in a market that had been growing more than 30 percent annually in the previous three years.

The circular said boards of directors must familiarize themselves with liquidity risk management and they will bear responsibility for liquidity risk. It calls on all banks to submit monthly liquidity reports within the first 15 days of each month and to conduct periodic stress tests and adjust liquidity based on the outcome.

In November, the central bank said banks should book provisions for bad loans quarterly instead of waiting until year-end. The guidelines classify loans and provisions in line with the Basel Committee on Banking Supervision standards.

Compliance Policy

U.K. Banks Risk Liquidity Cut If CHAPS Hit, BOE Says

U.K. banks could experience liquidity restrictions within an hour if a lender stops or reduces its transfers through the nation’s large-value transaction system, according to a Bank of England research paper.

Analysis showed the risk of at least one counterparty in the U.K.’s Clearing House Automated Payment System, or CHAPS, becoming “liquidity constrained” within the first hour of a bank halting transfers was “substantial,” economists Marcelo Perlin and Jochen Schanz said in the paper published by the U.K. central bank on its website yesterday.

The financial crisis strained the payments system with record volumes and the collapse of Lehman Brothers Holdings Inc. created confusion among traders about how to settle transactions. CHAPS, operated by the central bank, carries sterling-denominated inter-bank payments and handled about 250 billion pounds ($413 billion) a day in 2008.

Congo to Publish all Oil, Gas, Timber, Mining Contracts Online

The Democratic Republic of Congo will make all contracts involving mineral, timber, oil and gas concessions public within 60 days of signing, the government said.

Documents will be published in the official government gazette, as well as on ministry websites and in at least two Congolese daily newspapers, according to a decree signed by the Prime Minister and Ministers of Environment, Hydrocarbons, and Mines on May 20. The decree was published on the Mines Ministry’s website May 30.

Congo has a third of the world’s cobalt, 4 percent of its copper, and deposits of gold, tin ore and diamonds. It also has the world’ second-largest tropical forest, which it plans to license for oil exploration.

The World Bank has been pushing for Congo to make its contracts public to increase transparency in the natural- resource industry after decades of war and dictatorship left the nation’s economy devastated.

U.K. Fraud Office Said to Stay Independent of New Crime Agency

The U.K. Serious Fraud Office, which prosecutes Ponzi schemes and corruption, will remain independent after some Cabinet ministers sought its abolition, a person involved in the discussions said.

Home Secretary Theresa May will set out plans as soon as next week for a new National Crime Agency, which is intended to tackle serious crime, and make clear the SFO won’t be folded into it following disagreements over the new bureau’s role, the person said. He spoke on condition of anonymity because the government discussions are private.

Chancellor of the Exchequer George Osborne announced plans to fold the SFO into an economic crime agency last year. While Osborne dropped those plans, the SFO’s future was in doubt until this reprieve.

South Korea to Tighten Rules on Card Companies’ Bond Sales

South Korea plans to tighten regulations on bond issuance of credit-card companies to curb increasing household debt, the Munhwa Ilbo reported, citing an unidentified financial regulatory official. The government will announce details at the end of this month, according to the Korean-language newspaper.

Compliance Action

Telkom South Africa Told to Explain Lawsuit, May Post Loss

Telkom South Africa Ltd., which said it may post a full- year loss, was told by the Johannesburg Stock Exchange to clarify a lawsuit involving its Nigerian unit.

Andre Visser, general manager of issuer services at the bourse, said in a telephone interview yesterday that the explanation must determine “whether there is a price-sensitive matter” that Telkom should have disclosed to its shareholders. Telkom, Africa’s biggest fixed-line phone company, hasn’t responded to the exchange’s request, according to Visser.

The company has no comment on Visser’s statement, spokesman Pynee Chetty said.

Telkom’s Multi-Links Telecommunications Ltd. is being sued for $252 million by Helios Investment Partners LLP over the leasing of mobile-phone towers in Nigeria, according to court papers Helios filed in Lagos, the country’s commercial capital. Telkom is opposing the lawsuit, it said in an e-mailed response to questions on May 24. Since then, it has yet to provide clarification in response to seven written and telephone requests from Bloomberg News for comment.

The lawsuit represents more than 10 percent of Telkom’s market capitalization, which makes it “significant” enough to require official disclosure, Visser said. “We’ve asked Telkom to explain the circumstances around the matter because we cannot just look at the value of the claim.”

Telkom said in a statement yesterday it may report a loss for the fiscal year ended March 31, compared with a restated profit of 8 billion rand ($1.2 billion) the year before.

For more, click here.

Mizuho Ordered to Improve ‘Corporate Culture’ After Glitch

Mizuho Financial Group Inc., Japan’s third-largest bank by market value, was ordered by regulators to improve operations and repair its “corporate culture” after computer systems failed following the March earthquake.

“Efforts to generate a sense of unity as a group have been insufficient” since 2002, when it had an earlier systems failure, the Financial Services Agency said in a statement in Tokyo yesterday. The bank must submit a report detailing how to improve its business by June 30, it said.

Malfunctions at the retail bank delayed transactions worth more than $10 billion after the record earthquake. Mizuho last week proposed a management reshuffle and unveiled plans to combine administrative and systems functions at its retail, corporate and trust units to prevent a repeat of the glitch.

The bank, which apologized for the “great trouble” it caused to customers, pledged to improve operations and will unveil details later, it said in a statement.

Washington’s First Heritage Bank Closed; Columbia State Buys

First Heritage Bank of Snohomish, Washington, was closed May 27 by state regulators and Columbia State Bank of Tacoma, Washington, agreed to assume all its deposits, the Federal Deposit Insurance Corp. said in a statement.

First Heritage had $174 million in total assets and $163 million in total deposits as of March 31, the FDIC said.

For a table listing banks that have failed since 1934 and their cost since 1986 in millions of dollars to the Deposit Insurance Fund, click here. The table uses data provided by the FDIC.

UBS Unit’s Madoff Fund Ties Weren’t Disclosed in E&Y Report

A UBS AG unit’s ties to Bernard Madoff’s investment fund weren’t divulged in an auditor report by Ernst & Young LLP to Luxembourg’s regulator.

The 2008 report didn’t mention Bernard L. Madoff Investment Securities LLC in a list of custodians the Zurich-based bank used, according to a copy obtained by Bloomberg News. An agreement existed between UBS Luxembourg SA and Madoff’s firm which allowed the Ponzi scheme operator to be sub-custodian for LuxAlpha Sicav-American Selection, Jean Guill, the Luxembourg finance regulator’s director general, said in an interview.

UBS and its local units are defendants in more than 100 lawsuits in Luxembourg filed by investors who lost millions of dollars through the funds, for which it acted as custodian, charged with overseeing and managing deposits and payments to investors.

Irving H. Picard, the trustee liquidating Madoff’s business, sued the bank last year in U.S. Bankruptcy Court in New York seeking at least $2.5 billion. He claims UBS “actively assisted” in the Ponzi scheme by sponsoring and administrating international feeder funds that invested with Madoff.

Ernst & Young declined to comment.

UBS said it maintains its position that the LuxAlpha fund was created at the request of wealthy clients who wanted a fund that allowed them to continue investing with Madoff and that was made clear to the investors, their advisers and the regulator.

“UBS does not have responsibility to these shareholders for the unfortunate results of the Madoff scandal,” Dominique Gerster, a bank spokesman, said in an e-mail.

For more, click here.

Courts

BHP Billiton Wins $580 Million Dispute Over Australia Tax

BHP Billiton Ltd. won a $580 million dispute with the Australian tax office as the country’s top court ruled the world’s biggest mining company wasn’t liable for additional taxes sought by the government.

The High Court of Australia yesterday upheld a Federal Court ruling that BHP properly wrote off debt for building a more than A$2 billion ($2.1 billion) hot-briquetted iron plant at Boodarie, Western Australia.

The ruling is a windfall for Melbourne-based BHP, which already paid half the taxes in dispute in accordance with the tax office policy and will recover the payment.

Tax authorities disputed BHP’s handling of the write-off because the mining company borrowed from its finance unit to pay for part of the plant’s construction beginning in 1995.

The Australian Tax Office disallowed most of the deductions, saying the finance unit didn’t deal with the processing plant unit at arm’s length, since both companies were BHP subsidiaries.

The case is Commissioner of Taxation v. BHP Billiton Ltd. File No.: M117-120/2010. High Court of Australia.

Interviews/Speeches

Bloomberg’s Cohan Says Warren Cannot Win Confirmation

Bloomberg’s William D. Cohan said Elizabeth Warren, the Harvard Law School professor President Obama would like to run the newly created Consumer Financial Protection Bureau, can’t get confirmed. Cohan is a Bloomberg View columnist. The opinions expressed are his own.

Cohan talked with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.” They were joined by Julia Coronado, chief economist for the Americas at BNP Paribas in New York.

For the audio, click here.

Comings and Goings

Fed’s Stockton, Chief U.S. Economic Forecaster, Will Retire

The Federal Reserve Board said David Stockton, its head of U.S. economic research and forecasting since 2000, is retiring Sept. 30 after three decades at the central bank.

Stockton, 57, leads 325 people as director of the Division of Research and Statistics, the Fed said yesterday in a statement in Washington. No successor was named.

Stockton is one of the three top Board of Governors staff officials who brief Fed policy makers on interest rates and U.S. and international economic developments. While the Fed now discloses the ranges of economic growth, inflation and unemployment projections of governors and regional-bank presidents after Federal Open Market Committee meetings, the central bank keeps secret for five years the forecasts of Stockton and his staff. Minutes of the minutes are released after three weeks and use qualitative, rather than quantitative, language to describe the staff projections.

The research division also produces statistical releases including the Industrial Production and Flow of Funds reports and research to support the Fed’s responsibilities in financial stability and bank supervision.

Saudi Arabia to Introduce Quotas on Employment of Foreigners

Saudi Arabia will impose curbs on work permits for foreigners based on the number of Saudi citizens that a company employs, the official Saudi Press Agency said.

Companies that meet the requirement for employment of Saudis will be allowed to renew permits for foreign workers for a maximum of six years, SPA said, citing Labor Ministry spokesman Hattab al-Anazi. No details were given on the proportion required. Companies exceeding the quota for Saudis will be able to renew documents for foreign staff without restrictions, while those that fall short won’t get permits for foreigners, it said.

The quota system will come into effect in September, Labor Minister Adel Faqih told Al Arabiya television yesterday.

Former Egypt Bank Chairman Arrested on Sex Abuse Charges

The former chairman of Egypt’s Bank of Alexandria was charged with sexually abusing a maid at the Pierre Hotel in New York, police said.

Mahmoud Abdel Salam Omar, 74, chairman of El-Mex Salines Co., was arrested May 30 after a 44-year-old female maid alleged he attacked her May 29, according to a police department spokesman. Officers were called to the hotel in midtown Manhattan after she informed security of an alleged incident when she went to Omar’s room after he requested tissues.

Police charged Omar with sexual abuse, unlawful imprisonment, forcible touch and harassment. He plans to plead not guilty, according to his lawyers.

Omar is the former chairman of the Egyptian American Bank and the Federation of Egyptian Banks, according to the El-Mex Salines company website.

The Pierre said it’s cooperating with police.

Osama Abdel Aziz, the executive manager at El-Mex, couldn’t be immediately reached for comment and calls to the company went unanswered. Nobody was immediately available for comment at Bank of Alexandria.

Bundesbank Says Weidmann Takes Over Legal Department Duties

Bundesbank President Jens Weidmann will take over responsibility for the bank’s legal department, with immediate effect.

Weidmann will give responsibility for the bank’s revisions department to incoming board member Sabine Lautenschlaeger, the Bundesbank said in an e-mailed statement today. The Bundesbank said all other board members’ duties remained unchanged.

SEC Employee Fell for Scam, Misled Investors, Watchdog Says

A Securities and Exchange Commission worker who was a victim in an alleged Ponzi scheme gave fellow investors false and misleading information that could have hindered investigation of the fraud, the agency’s watchdog said.

The employee, based at SEC headquarters in Washington, shared nonpublic information with several investors during the agency’s investigation and litigation of the case, Inspector General H. David Kotz said in his semiannual report to Congress released yesterday. The report didn’t identify either the SEC employee or the firm accused of conducting the fraud.

Kotz opened his probe in February after a senior SEC official said the employee had told investors the company was legitimate and that people “would be receiving considerable sums of money,” according to the report. Investors knew the man worked at the SEC and believed he had knowledge of the probe, according to the report.

The employee was placed on administrative leave, and Kotz referred the matter for disciplinary action “up to and including dismissal,” according to the report.

The SEC sued the firm on Oct. 6 and won a judgment on Feb. 14, according to the report. Imperia Invest, a Web-based entity with a fictitious Bahamian address, was ordered to pay more than $15 million in a default judgment on Feb. 14 after failing to respond to the SEC’s lawsuit, according to court documents.

For more, click here.

--With assistance from Sikonathi Mantshantsha in Johannesburg; Mourad Haroutunian and Glen Carey in Riyadh; Michael J. Kavanagh in Kinshasa; Kitty Donaldson, Scott Hamilton and Renee Lawrence in London; Takahiko Hyuga and Shingo Kawamoto in Tokyo; Vivian Salama in Abu Dhabi; Stephanie Bodoni in Luxembourg; Joshua Gallu, Jesse Hamilton, Alex Tanzi, Scott Lanman and Craig Torres in Washington; Jeff Black in Frankfurt; Shinhye Kang in Seoul; Joe Schneider in Sydney; and Sylvia Wier 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.


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