Bloomberg News

IRS Budget, Lloyds’ Plan, Deutsche Bank Trades: Compliance

June 09, 2011

(Updates with EU loan guarantees in Compliance Action; Ex- RBS executive in Courts; SocGen in Interviews/Speeches; and Lam, Lagarde, Rasi in Comings and Goings.)

June 9 (Bloomberg) -- Internal Revenue Service Commissioner Douglas Shulman said proposed budget cuts to his agency would hurt tax enforcement and voluntary compliance.

Shulman made the remarks about the budget yesterday in Washington before a Senate Appropriations subcommittee.

The U.S. House has yet to recommend a specific budget level for the agency. The House set a funding level for a group of agencies including the IRS that would suggest a budget below the $12.1 billion the agency will receive this year. The IRS is seeking an increase of almost 10 percent in its budget.

Shulman said that, without additional information reporting, the IRS has few levers it can use to attack the estimated $345 billion annual gross tax gap. That gap is the difference between taxes owed and taxes paid.

Shulman noted that recent efforts to improve information reporting, such as a requirement on businesses to report some purchases that was repealed this year, can run into political opposition.

For more, click here.

Compliance Policy

FSA Says Price Comparison Websites Should be Clearer to Clients

The U.K.’s Financial Services Authority said price comparison websites should be clearer about whether they are introducing, arranging or advising customers to buy insurance policies, according to a statement from the regulator yesterday.

The FSA sent a letter to “firms operating price comparison websites to ensure they are aware of their regulatory Requirements,” the authority said in the statement.

The letter follows a review carried out between June and September 2010, according to the statement.

Compliance Action

Senate Rejects Amendment to Delay Debit Swipe Fee Rule

The U.S. Senate rejected a six-month delay of a Federal Reserve rule capping debit-card swipe fees set by Visa Inc. and MasterCard Inc., whose shares fell after the vote was completed.

Senator Richard Durbin of Illinois, the No. 2 Democrat in the chamber, led the opposition to the delay amendment, which was defeated yesterday in a 54-45 vote. The measure needed 60 votes for approval.

For the video report, click here.

For related story, click here.

For commentary by Michael Greenberger, click here.

Lloyds Says U.K. Commission Plan May Not Mean Extra Branch Sales

Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio said the U.K.’s Independent Commission on Banking hasn’t told the lender whether it should sell extra branches, other assets, or nothing at all.

“We don’t even know if it’s branches, it could be other assets or liabilities,” Horta-Osorio told the House of Commons Treasury Committee in London yesterday.

The government-appointed ICB said in its interim report two months ago that the London-based bank should sell “substantially” more assets than the 600 outlets agreed with the European Union following Lloyds’ 20 billion-pound ($32.7 billion) taxpayer bailout. The government should agree with Lloyds, in which it holds a 41 percent stake, on the extent of that sale, the ICB said.

The ICB said in its report that the current Lloyds plan is “insufficient” and will have a “limited effect on competition.”

Any extra sales are unwarranted and would be against the interests of Lloyds’ shareholders, including the U.K. taxpayer, Horta-Osorio said. He described the market as competitive and said the bank sees “no evidence that justifies that divestment.”

In a November 2009 ruling, the EU stated that the bank must sell “at least” 600 branches in England and Wales and surrender 4.6 percent of the U.K. checking-account market.

The lender is sending out a so-called information memorandum, a description of what’s being sold, to prospective bidders this week. This will give a list of the 600 branches, including locations and business mix, said a person with knowledge of the plan.

Canada’s OSC Investigating ‘Matters Related’ to Sino-Forest

The Ontario Securities Commission, Canada’s main stock market regulator, is investigating “matters related” to Sino- Forest Corp., whose shares have plunged more than 75 percent after a short seller said the company’s production figures may not be accurate.

Wendy Dey, a spokeswoman for the Toronto-based regulator, confirmed yesterday in an e-mailed response to questions that the OSC is “investigating matters related to Sino-Forest.” Carolyn Shaw-Rimmington, another spokeswoman for the regulator, declined to elaborate on the statement.

Sino-Forest has plunged about 76 percent since June 1 after Muddy Waters Research, the firm founded by short seller Carson Block, said in a report the forestry company’s disclosures of land holdings don’t match Chinese city records and that its stated production figures may not be accurate.

The Hong Kong- and Mississauga, Ontario-based company told the Globe and Mail newspaper yesterday that allegations by Block are “false, unjustified and unfair.”

Regulators and investors have increased scrutiny of Chinese companies trading in North America.

Deutsche Bank Unites Derivatives Trades as Swaps Oversight Looms

Deutsche Bank AG is consolidating trading and processing services for listed and over-the-counter derivatives before U.S. and European regulations take effect.

The Dodd-Frank Act financial overhaul required swaps that are to be processed by clearinghouses to be routed through the part of a bank that handles futures transactions, forcing the dealers who dominate the market to reorganize. Futures contracts by law must be traded on an exchange and cleared.

Congress mandated the clearinghouse requirement after over- the-counter derivatives contributed to and complicated efforts to resolve the financial crisis. The European Union last month moved closer to adopting a clearing mandate for most interest- rate, credit-default and other swaps.

The new Deutsche Bank unit will be called Markets Clearing and will offer customers access to interest rate, foreign exchange, credit, commodities and equities contracts, said Jon Hitchon, who will head the Frankfurt-based bank’s service. Deutsche Bank previously offered separate execution and post- trade services by asset class, such as in interest rates, he said.

U.S. regulators at the Commodity Futures Trading Commission and Securities and Exchange Commission are now writing rules to comply with Dodd-Frank that will lessen risk and increase price transparency. Final versions should be published by the end of the year, CFTC Chairman Gary Gensler said last week.

SEC Resolves Claims Over BuyaBeerCompany.com Plan to Buy Pabst

Two advertising executives who used Facebook and Twitter solicitations to attract investors for their effort to buy Pabst Brewing Co. have resolved regulatory claims that the campaign violated U.S. securities laws.

Michael Migliozzi II and Brian William Flatow received more than $200 million in pledges from more than 5 million investors through the BuyaBeerCompany.com website before it was shuttered in April 2010, the Securities and Exchange Commission said yesterday in a statement announcing a cease-and-desist agreement.

The two men, who never received any money, violated federal law by failing to register the offering before seeking to raise $300 million by selling shares to the public, according to the SEC. They promised investors certificates of ownership as well as beer of a value equal to the amount invested, the SEC said.

Pabst, the Milwaukee, Wisconsin-based brewer of Blue Ribbon and Old Milwaukee beers, was bought last year by private-equity firm C. Dean Metropoulos & Co.

The two men consented to the order without admitting or denying wrongdoing, the SEC said. A phone call to their lawyer, Steven Berkowitz, wasn’t immediately returned.

SEC Sees Suspected Insider Trading in Schneider’s Telvent Deal

The U.S. Securities and Exchange Commission ordered the trading profits of unidentified investors to be frozen because it suspects they used inside information to gain from Schneider Electric SA’s takeover of Abengoa SA’s Telvent GIT SA unit.

The investors bought 1,200 call options through an account at Pershing LLC with two thirds of the contracts acquired in the two trading days before the deal was announced, the SEC said in a statement on its website. The purchases accounted for 52 percent of the trading volume in the options on one day and the account made a profit of $475,000 on the trading.

Regulators are seeking to confiscate any illegal profit and impose fines on the investors, the SEC said.

EU Backs Some Small-Business Loans Unnecessarily, Auditors Say

A $1.4 billion European Union loan-guarantee program for small and medium-sized enterprises is backing too many projects that could find funding elsewhere, the European Court of Auditors said.

The court recommended more emphasis on “innovative” projects that lack the collateral for a traditional commercial loan. It found that 38 percent of the 181 loans analyzed were made to businesses that obtained loans while “not using them for innovation” by the study’s assessment, it said.

As of the end of 2009, the program guaranteed 10.6 billion euros in loans and had sustained 1.7 million euros in losses on more than 64,000 loans, according to the study.

The study found that about a quarter of the guaranteed loans were made to manufacturing companies, another quarter to retail businesses, and the rest to other industries including food services, transportation and construction.

The court of auditors did not offer a target for an acceptable level of loans to projects that have other loan options. The European Commission said it is comfortable with the program’s level of support to SMEs and that “deadweight” isn’t the same thing as bad budgeting.

The commission, the EU’s Brussels-based executive, is looking for better ways to evaluate the program, according to a statement attached to the report.

The European Court of Auditors is an independent audit institution that monitors the EU’s budget.

Courts

Privacy Group Plans FTC Complaint on Facebook Facial Recognition

A privacy-rights group said it plans to file a complaint with the U.S. Federal Trade Commission over Facebook Inc.’s facial-recognition feature for photo tagging.

The Washington-based Electronic Privacy Information Center is working on the complaint and was expected to file it with the FTC yesterday or today, Marc Rotenberg, the group’s executive director, said in an interview. He said other privacy and consumer groups that he declined to identify plan to join the complaint.

Facebook, owner of the world’s most popular social- networking service, said on its blog June 7 that “Tag Suggestions” are available in most countries after being phased in over several months. The feature uses facial-recognition software and when a user posts a new photo to their Facebook page it suggests peoples’ names based on pictures in which they have already been tagged.

The feature also is drawing scrutiny in the European Union, where a group of privacy watchdogs are studying phototagging for possible rules violations.

A spokesman for Facebook, Andrew Noyes, declined to comment on the center’s plans for the FTC complaint. The facial- recognition feature is active by default on existing users’ accounts, and Palo Alto, California-based Facebook explains on its blog how people can disable the function.

Murdoch’s Sun Can’t Identify Ex-RBS CEO Goodwin’s Mistress

Rupert Murdoch’s Sun newspaper can’t identify a woman who had an affair with former Royal Bank of Scotland Group Chief Executive Officer Fred Goodwin, a judge ruled, in a case involving super injunctions and corporate governance.

Justice Michael Tugendhat at the High Court in London today refused to allow the paper to name the woman, but modified a court order to allow more details about her job description to be published.

RBS posted the largest loss in U.K. corporate history in 2008 and required a 45 billion-pound ($74 billion) bailout following its acquisition of ABN Amro Holding NV. Goodwin was cleared of responsibility in December in a report by the Financial Services Authority on RBS’s rescue.

The rescue of RBS “may well explain why News Group consider that articles about Sir Fred Goodwin will be of interest to the public to whom they wish to sell The Sun,” Tugendhat said in the ruling. “But what is of interest to the public is not the same as what it is in the public interest to publish.”

The Sun’s lawyer, Richard Spearman, said at a June 1 hearing that an anonymity order was stifling public debate about corporate governance at the bank prior to its 2008 bailout. Hugh Tomlinson, the lawyer representing the woman, said at the same hearing that there was no need to change the order because there isn’t any evidence the affair contributed to the collapse of RBS.

Following today’s ruling, Tomlinson said he planned to challenge the judgment at the Court of Appeal.

For more, click here.

Interviews/Speeches

SocGen’s CIB Unit Should Have Core Tier 1 at 10%, Oudea Says

Societe Generale SA’s corporate- and investment-banking unit should have a core tier 1 ratio of about 10 percent, Chief Executive Officer Frederic Oudea said in a presentation webcast on the Paris-based bank’s website today.

Oudea reiterated that Societe Generale as a whole expects to have core Tier 1, a key capital strength indicator under new Basel III rules, above 9 percent by the end of 2013, according to the presentation.

Comings and Goings

Obama Considering Former Banker Raj Date to Head Consumer Bureau

President Barack Obama is considering nominating Raj Date, a former banker with Capital One Financial Corp. and Deutsche Bank AG, as head of the Consumer Financial Protection Bureau, according to a person briefed on the process.

Date, who is the bureau’s associate director for research, markets and regulation, was appointed in February to his current job by Elizabeth Warren, the Obama administration adviser who in September was given the task of setting up the new agency. He is on a short list of candidates to become director of the bureau, the person said.

Hong Kong Fails to Appoint New Regulator as Wheatley Departs

Hong Kong failed to name a new Securities and Futures Commission chief, leaving the watchdog with an interim head as record share sales and the growth of yuan-denominated products spur calls for more supervision.

Alexa Lam, the deputy chief executive, will run the agency until a replacement is found, the regulator said. The new SFC head will need to review how initial share sales are sponsored and oversee the introduction of regulations for over-the-counter derivatives, said Martin Wheatley, who ended his tenure yesterday.

Under Wheatley the SFC pursued reforms, including a crackdown on insider trading. The delay in naming a new regulatory head comes as Hong Kong attracts more shares sales from overseas. Wheatley, who announced his departure as chief executive officer in December, left to lead the agency that will take over most of the powers of the U.K.’s Financial Services Authority.

The Hong Kong government “is making good progress” in finding a replacement, said Terry Wong, a spokeswoman of the Financial Services and the Treasury.

For more, click here.

Lagarde Says IMF Selection Must Be Open, Based on Merit

French Finance Minister Christine Lagarde said she agrees with leading developing countries that the selection of the next managing director of the International Monetary Fund should be transparent and based on merit.

Speaking after meetings with Chinese leaders in Beijing to press her candidacy for the post, Lagarde said selecting the first woman to head the Washington-based agency would help improve the institution’s commitment to diversity. China, India and Brazil are among emerging economies that have demanded an end to the six-decade-old custom where the top job at the IMF goes to a European, with an American taking the deputy position.

“The IMF does not belong to anybody, it belongs to the 187 members of the fund,” Lagarde told reporters today in Beijing.

Lagarde, who is traveling to IMF nations around the world, is trying to turn attention away from her nationality by focusing on her track record as finance minister and running law firm Baker & McKenzie LLP, as well as her being a woman.

The IMF post fell vacant when fellow French national Dominique Strauss-Kahn resigned last month after being charged with sexually assaulting a chamber maid in a New York hotel.

For more, click here.

Italy’s Guido Rasi Nominated as Chief of EU Drug Regulator

The European Medicines Agency’s management board nominated Italian regulator Guido Rasi as the new executive director.

The appointment will be confirmed after a hearing before the European Parliament next month, the London-based EMA said yesterday in an e-mailed statement. Rasi has led the Italian drug regulatory agency since 2008 and has had a seat on the EMA’s management board since last year, the EMA said.

Andreas Pott will continue as EMA’s acting executive director until Rasi takes office, the agency said.

--With assistance from Kristen Hallam, James Lumley, Kevin Crowley, Gavin Finch and Thomas Penny in London; Matthew Leising in New York; Ben Sills in Madrid; Joshua Gallu, Eric Engleman, Sara Forden, Carter Dougherty, Robert Schmidt, Mike Dorning, Richard Rubin and Andrew Zajac in Washington; Rebecca Christie in Brussels; Stephanie Tong and Debra Mao in Hong Kong; Fabio Benedetti-Valentini in Paris; and Sean B. Pasternak in Toronto. Editor: Glenn Holdcraft

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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