(Updates with Geithner-Barnier on bonus rules in Compliance Policy; Deere-LightSquared in Compliance Action; German online betting decision in Courts; Buiter, Tucker in Interviews/Speeches.)
June 2 (Bloomberg) -- Wall Street’s insurance fund for failed brokerages is “the worst kind of insurance company,” according to an investor who lost money with Bernard L. Madoff.
Leah Larsen, 72, who said she lost about $100,000 with Madoff, said the Securities Investor Protection Corp. denied her claim because her money was pooled with her brother’s account. SIPC is “constantly finding technical reasons for choking out victims,” she said.
Larsen was one of five investors who spoke at a forum held by SIPC yesterday at the Grand Hyatt hotel in New York. The purpose was to give investors a chance to voice their opinions on how to improve the group. It was the second in a series of national public forums soliciting input about the organization, which hasn’t been the focus of major new legislation in at least 30 years, according to the group’s website.
SIPC, based in Washington, is a nonprofit membership corporation overseen by the Securities and Exchange Commission and funded by brokerage firms to compensate investors whose accounts are missing stocks or other assets because of theft or other reasons when a member firm fails. SIPC may reimburse investors for assets of up to $500,000, including up to $250,000 in cash, and generally doesn’t reimburse investors who have been sold worthless investments.
The group is funded by assessments on its members, the website said, and had about $1.4 billion in assets in December, according to its annual report.
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European Bank Stress-Test Results Said to Be Delayed Until July
This year’s round of European Union bank stress-test results may be delayed until next month, a European Banking Authority official said.
The EBA, which is conducting the stress tests, has asked banks to submit more information, the official, who declined to be identified by name because the talks are private, said yesterday. The EBA said as recently as March that it would publish the results this month.
A date for publication hasn’t been set, because the EBA must ensure it is satisfied with the quality of submissions from the banks, the EBA official said yesterday.
Ninety banks will be expected to maintain a Core Tier 1 capital ratio of at least 5 percent under the stress-test scenarios, the EBA has said. 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 EBA tests will also examine the effect of a 75 basis- point-jump in interest rates on European sovereign bonds and an increase in short-term inter-bank financing costs of 125 basis points.
Treasury Reiterates U.S. Borrowing Authority Expires on Aug. 2
The Treasury Department reiterated that U.S. authority to borrow under the existing debt limit will expire in two months’ time on Aug. 2.
The Treasury “continues to project that the United States will exhaust its borrowing authority under the debt limit” on that date, Mary Miller, the Treasury’s assistant secretary for financial markets, said in a statement yesterday.
Treasury Secretary Timothy F. Geithner “continues to urge Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner,” she said.
The U.S. stayed under the $14.29 trillion debt limit last month by taking what Geithner has called “extraordinary measures.”
Geithner to Be Confronted by EU’s Barnier on Lack of Bonus Rules
Michel Barnier, the European Union’s financial services commissioner, will confront U.S. Treasury Secretary Timothy F. Geithner over the lack of American rules to restrict bonuses for financial-services workers.
The absence of binding laws regulating bankers’ pay in the U.S. means lenders can avoid curbs envisaged by the Group of 20 Nations in Pittsburgh in 2009, Barnier will tell Geithner when they meet in Washington today.
Financial watchdogs and politicians across the world sought to overhaul bonus policies following the collapse of Lehman Brothers Holdings Inc. in 2008 to prevent bankers from taking excessive risks in order to reap short-term gains. Barnier has said further action may be needed in the 27-nation region to prevent bonus payouts at “unjustifiable levels.”
Under EU rules, as much as 60 percent of a bonus payout for risk-takers and senior managers must be deferred for at least three years, and half of the remaining amount must be in the form of shares.
The Financial Stability Forum, the Financial Stability Board’s predecessor, published a set of principles in 2009 including that bonus payments should be deferred to take account of the lenders’ exposure to risk.
BDO Faulted for Advice Failure in Shore Capital’s Puma Takeover
BDO LLP, the accountancy firm, was censured by the U.K.’s finance regulator for failing to alert the country’s Listing Authority about Shore Capital Group Plc’s planned takeover of Puma Brandenburg Ltd.
BDO, which was advising London-based investment bank Shore Capital as its sponsor, tried to avoid classifying the deal as a reverse merger so trading in the bank’s shares wouldn’t be suspended, the Financial Services Authority said in a statement yesterday. The firm agreed with Shore Capital, whose shares are listed on the London Stock Exchange, to delay contacting the U.K. Listing Authority until after the deal was announced, the regulator said.
The reprimand is the first public censure of a sponsor by the FSA in regards to the stock listing authority’s rules, the regulator said.
The head of advisory services at BDO, Gervase MacGregor, said the partner at BDO who handled the Shore Capital matter has since left for unrelated reasons.
“We have reviewed our guidance for sponsor work, delivered refresher training on the regulatory regime for all corporate finance partners and directors, and established a corporate finance public risk committee which approves all new transactions,” MacGregor said in an e-mailed statement.
Mexico Antitrust Agency Probes Phone, Internet, TV Services
Mexico’s antitrust agency launched an investigation into the market for pay-TV, Internet and landline phone services, which cable carriers package together to lure customers from Telefonos de Mexico SAB.
The probe will focus on possible collusion between competitors in the market, the agency said yesterday in the federal gazette, without identifying the companies involved. The investigation follows a probe of phone interconnection fees started by the agency last month.
Grupo Televisa SA controls three cable operators that offer packages of TV, phone and Web service, and it shares a brand, Yoo, with Megacable Holdings SAB, the nation’s largest cable carrier. Telmex filed a complaint in March with the antitrust agency against Televisa and Megacable, saying their commercial agreements hurt competition.
The cable carriers have denied their collaboration hurts competition.
U.S. Municipal Securities Rulemaking Board Adopts Conflict Rule
The Municipal Securities Rulemaking Board has adopted a rule change to address possible conflicts of interest by financial intermediaries in municipal bond underwritings, the board said in a statement.
The change to Rule G-23 prohibits municipal securities dealers from acting as a financial adviser to a municipal entity on a new bond issue and later acting as an underwriter on the same issue, according to the statement.
The prohibition “addresses conflicts of interest, real or perceived, that are too great for disclosure and consent to overcome,” MSRB Executive Director Lynnette Kelly Hotchkiss said in the statement.
Before the change, the rule allowed a dealer serving as financial adviser for a new issue of municipal securities to resign from that role and serve as underwriter for the same issue, so long as disclosure and consent requirements were met.
The rule change becomes effective Nov. 27.
Spain, Ireland Get EU Nod to Extend Bank Aid for 6 More Months
Spain and Ireland won European Union permission for further extensions to state guarantee programs for banks until Dec. 31.
The guarantees are “an appropriate means of remedying a serious disturbance in the Irish and Spanish economies,” said the European Commission in an e-mailed statement yesterday. The regulator has said it plans next year to phase out extra state help for banks if market conditions allow.
UBS Marketing Probed by France Following Regulator’s Complaint
UBS AG is under investigation in France after the country’s financial-institutions regulator sent a complaint to the Paris prosecutor over the bank’s marketing practices.
A preliminary investigation into the complaint was opened in February and is being conducted by the French customs service to determine if it warrants a full probe, Agnes Labregere- Delorme, a spokeswoman for the Paris prosecutor, said yesterday.
“The bank is bound by particularly strict rules” in countries where it operates, said Dominique Gerster, a spokesman for UBS, in an e-mail. He declined to comment on the inquiry that’s under way, and said “the bank has not put in place, nor participated in any way, in a system to assist in tax evasion.”
The Prudential Control Authority, or ACP as the regulator is known, oversees banks and other financial institutions. A spokeswoman for the authority declined to comment.
The investigation was reported earlier yesterday by Agence France-Presse.
Deere Says Falcone’s Service to Cause ‘Massive Interference’
Philip Falcone’s proposed LightSquared wireless service would “create massive interference” with precise agricultural gear guided by global positioning systems, Deere & Co. told federal regulators.
Tests conducted in New Mexico show the performance of Deere’s GPS receivers deteriorated within 22 miles of a LightSquared base station, Deere said in a filing May 31 with the Federal Communications Commission.
The FCC is to review concerns that LightSquared, which is backed by Falcone’s Harbinger Capital Partners hedge fund, may interfere with GPS service. LightSquared proposes serving 260 million mobile devices over a network of 40,000 terrestrial towers, using airwaves once reserved primarily for satellite signals.
Makers and users of global-positioning devices, which depend on low-powered transmissions from satellites, say the LightSquared service may overwhelm GPS signals used by mobile phones, aircraft, tractors and military gear. A federal advisory committee has concluded the service may snarl aviation navigation unless it is modified to avoid interference.
The FCC awaits a June 15 report from a working group studying interference issues before deciding whether to let LightSquared move ahead. The group includes GPS users, LightSquared executives and federal officials.
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German Online-Bet Ban Legal, Top Administrative Court Says
Germany’s online-betting ban was upheld by the nation’s top administrative court, which said the rules are in line with constitutional and European Union law.
The rules are necessary to combat the dangers associated with unregulated gaming over the Internet, Germany’s Federal Administrative Court, based in Leipzig, said in an e-mailed statement yesterday. The ban is also in line with EU law because it targets all forms of betting regardless of who offers them, according to the judges.
The bank follow the “legitimate goal” of targeting “special risks” associated with unlimited access to Internet gaming and aims to protect juveniles and people who “may have a strong inclination to gaming or who may develop it,” the court said.
The EU’s top court ruled last year that Germany’s betting monopoly, which only allows publicly owned companies to offer most sports betting, violates European laws because it’s not coherent. The German court yesterday said since the online ban also applies to bets on horse races and offers by government- owned sports-betting monopolies, it’s in line with EU rules. Germany has faced criticism for allowing private horse betting while outlawing other forms of sport bets.
Bwin e.K., the German affiliate of Bwin, said it will file a constitutional complaint over yesterday’s ruling.
The case is BVerwG 8 C 5.10.
First Trust’s Wesbury Says Regulation Caused Recession
Brian Wesbury, chief economist at First Trust Portfolios LP, said mark to market accounting “caused the recession.” The recession “was not a failure of capitalism,” he said.
Wesbury talked with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.” They are joined by James Shugg, a senior economist at Westpac Banking Corp. in London.
For the audio, click here.
Jain Says Deutsche Bank Is Facing Regulatory ‘Headwind’
Anshu Jain, head of corporate and investment banking at Deutsche Bank AG, gave a presentation in London about the bank’s strategy and outlook. In addition to a corporate and investment banking analysis, Jain discussed the impact of regulations, including compliance with the Basel Accords.
For the video, click here.
Buiter Says Majority of BOE Policy Makers Should be External
Former Bank of England policy maker Willem Buiter said the majority of the central bank’s Monetary Policy Committee should be external members appointed for a single term to avoid what he called “groupthink and political capture.”
Buiter made the remarks in a paper that expanded on comments first made at a Parliament committee hearing on May 23.
In the paper, dated June 1, he said that the Prudential Regulatory Authority should be outside the central bank. He also said the Special Resolution Unit for failing institutions should be under the joint authority of the Treasury and the Bank of England.
In addition, repeating his comments from last month, he said the U.K. Treasury rather than the central bank should be at the “center” of financial stability and the chancellor of the exchequer should chair the Financial Policy Committee.
BOE’s Tucker Says Clearinghouses Should Do More to Monitor Risks
Bank of England Deputy Governor Paul Tucker said clearinghouses are becoming “systemic” in their importance to the global financial system and need to do more to monitor risks among their members.
“Central counterparties need to adopt prudent collateral policies, but also to monitor the robustness of their clearing members and risks from the business that they are bringing to the CCP,” Tucker said in prepared remarks for a speech in London yesterday. “That means collecting and analyzing information from clearing members on large positions taken by their customers. I am not convinced that that is sufficiently recognized by clearinghouses or by standard setters.”
The Group of 20 nations is encouraging greater use of clearinghouses to cut some of the risks attached to over-the- counter derivatives after the September 2008 collapse of Lehman Brothers Holdings Inc. Because of their increasing importance, officials should have a policy to deal with the failure of a central counterparty that may involve either a recapitalization or unwinding of its transaction book, Tucker said.
Comings and Goings
SEC’s Top Foreign Bribery Lawyer to Join Simpson Thacher
Cheryl Scarboro, a 19-year U.S. Securities and Exchange Commission lawyer who has led the agency’s foreign bribery investigations since last year, is leaving to join law firm Simpson Thacher & Bartlett LLP.
Scarboro, 47, will become a partner in Simpson Thacher’s Washington office in the government and internal investigations practice, the firm said yesterday in a statement.
Under Scarboro’s watch, the SEC focused corruption probes to look across industries and regions it considered more prone to bribery, instead of targeting individual firms. In November, the agency reached a $237 million settlement with seven oil services companies accused of bribing officials in Africa, Asia and South America, and earlier this year launched a sweeping probe into whether financial firms were making improper payments to win business from sovereign wealth funds.
Bloomberg News reported Scarboro’s plans earlier yesterday.
--With assistance from Joshua Gallu, Todd Shields and Ian Katz in Washington; Peter J. Brennan in Los Angeles; Heather Smith in Paris; Scott Hamilton, Ben Moshinsky, Fergal O’Brien and Lindsay Fortado in London; Aoife White in Brussels; Crayton Harrison in Mexico City; Karin Matussek in Berlin; and Elizabeth Ody in New York. Editor: Glenn Holdcraft
To contact the reporter on this story: Carla Main in New Jersey at email@example.com.
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