Bloomberg News

EU Derivatives, Bank Deposits, Irish ‘Duopoly’: Compliance

June 20, 2011

(Updates with Turkish banks, U.A.E. cash limits and Greek bailout in Compliance Policy; U.K. bank lending in Compliance Action and KPMG-Kuwait Stock Exchange in Comings and Goings.)

June 20 (Bloomberg) -- European Union lawmakers won’t allow the U.S. to influence rules for clearing standardized off- exchange derivatives, the sponsor of the bill in the EU’s Parliament said June 17.

Werner Langen said he wrote to Treasury Secretary Timothy F. Geithner, saying the EU assembly won’t cave in to his calls to expand the scope of a draft law intended to force some trading of over-the-counter derivatives through clearinghouses. Langen said the Parliament opposes U.S. calls for the law to also include derivatives traded on exchanges.

Langen, a German member of the assembly, made the remarks to exchange executives, regulators and clearinghouses at the Federation of European Securities Exchanges annual convention in Athens June 17.

Regulators from the Group of 20 countries have sought to toughen rules on OTC derivatives such as credit-default swaps after the failure in September 2008 of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc., two of the largest CDS traders.

Geithner has argued that the scope of the rules should also encompass derivatives that are traded on exchanges in order to prevent regulatory loopholes.

The EU Parliament has argued in favor of restricting the measures to over-the-counter transactions, saying that the G-20 agreement wasn’t intended to cover exchanges.

EU governments and members of the assembly must agree on the final version of the law before it can take effect.

Compliance Policy

EU Officials Back Plan for Guaranteeing Bank Deposits

Banks will have to guarantee that deposits of 100,000 euros ($143,000) or less will be fully refunded if the lender fails, under draft plans approved by officials from European Union governments in Brussels.

Officials “agreed a general approach,” on the law intended to replace emergency measures adopted in 2009, according to an e-mailed statement June 17 from Hungary, which holds the EU’s rotating presidency.

The measures still need to be formally endorsed by EU ministers and lawmakers in the European Parliament before they can take effect.

Turkish Bank Regulator Increases Reserves on Consumer Lending

Turkey’s banking regulator increased the reserves banks must set aside against consumer lending, the latest in a series of steps designed to slow loan growth and rein in a booming economy.

The Banking Regulation and Supervision Agency in Ankara increased the general provisions banks must set aside against consumer loans to 4 percent from 1 percent for lenders whose consumer loan portfolio exceeds 20 percent of total lending. The decision, published in the June 18 Official Gazette, applies to consumer loans, not housing or automotive credits.

The regulator also redefined how it calculates consumer credit risk for the purpose of capital adequacy ratios, assigning a higher risk value to short-term consumer loans and increasing reserves for non-performing loans that exceed 8 percent of the total. The changes follow central bank increases to the required reserves banks must set aside against liabilities.

U.A.E. to Increase Visitor Cash Declaration to 100,000 Dirhams

The United Arab Emirates will raise the limit on undeclared cash visitors can take into the country to 100,000 dirhams ($27,226) from 40,000 dirhams in September, the central bank said.

Abdulrahim Mohamed Al Alwadi, executive director and head of the central bank’s anti-money-laundering unit, announced the change at a conference in Dubai yesterday.

Travelers leaving the U.A.E. now face no curbs on how much money they can take out. That will also be capped at 100,000 dirhams in September.

EU Must Work With Investors on Greek Bailout, Frieden Says

The European Union must work closely with investors on a new bailout for Greece to avoid triggering a “disastrous” default that deepens the euro area’s debt crisis, Luxembourg Finance Minister Luc Frieden said.

Frieden made the remarks in Bloomberg Television interview in Luxembourg today during a meeting of European finance chiefs.

Frieden said he is hopeful that investors will accept a voluntary rollover of their holdings in Greek debt.

On the eve of a confidence vote that threatens to topple Greek Prime Minister George Papandreou, the euro area’s top economic policy makers pushed Greece to pass laws to cut the deficit and sell state assets. They left open whether the country will get the full 12 billion euros ($17 billion) promised for July as part of last year’s 110 billion-euro lifeline.

“We think that the Greek authorities are determined to get the necessary approval in their parliament,” Frieden said. “If they do not fulfill their commitments, we cannot give them the next tranche. As of today, I think that they will get the necessary majority.”

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said any involvement of private investors in a response to Greece’s debt crisis must be voluntary.

“If this were to happen in a forced manner, Greece’s situation would be assessed extremely negatively by the rating agencies,” Juncker told reporters in Luxembourg yesterday.

Juncker said he has “no worries” about the principle of involving bondholders in any rescue package for Greece.

The European Commission, European Central Bank and International Monetary Fund are working with Greece to stave off a default that would be a “disaster for Greece and the euro zone,” Frieden said. “I think that the government is determined to do whatever is necessary to avoid a default.”

European leaders have “no other choice” than to strive to bring stability to the single-currency area, Frieden said.

Compliance Action

Almunia to Monitor Bank of Ireland, Allied Irish ‘Duopoly’

Bank of Ireland Plc and Allied Irish Banks Plc will require “close surveillance” from European Union authorities because they will control Irish banking, the EU’s antitrust chief said.

The two lenders will work in a “de facto duopoly in the Irish market” as a result of Ireland’s strategy for the debt- plagued nation’s banking industry, Joaquin Almunia, the EU’s competition commissioner, said in the text of a Dublin speech June 17.

The prospect will require “close surveillance, because duopoly may hamper competition in Ireland’s banking market,” he said, adding that he will work with national authorities to help ensure rivals aren’t shut out.

Two other lenders, Anglo Irish Bank Corp. and Irish Nationwide Building Society, will be merged and wound down over a 10-year period and Almunia said he would approve Irish aid for both of them “by the end of this month.”

Dan Loughrey, a spokesman for Bank of Ireland in Dublin, said the Irish banking market “is very competitive and will remain so.”

Allied Irish Banks declined to immediately comment and Irish Nationwide declined to comment. Anglo Irish didn’t immediately respond to a call and an e-mail.

For more, click here.

EU States Backs CO2 Trade-Security Rule, $7 Billion Reserve

European Union governments approved a regulation to boost the security of the world’s biggest carbon market and bring forward sales of permits from a 5 billion-euro ($7.1 billion) reserve.

The regulation on the single EU carbon registry will improve shields against abuse and fraud after a spate of permit thefts earlier this year. It will also facilitate the creation and transfer to the European Investment Bank of allowances from the post-2012 reserve, which the EIB will then sell to raise funds for emissions-avoiding technologies.

The EU is seeking better protection for its emissions- trading system after computer hackers in January illegally transferred around 2 million allowances, valued at 32 million euros. Spot trading ground to a halt for 15 days following the theft as the commission ordered an EU-wide suspension of national registries that track transactions in carbon permits.

For more, click here.

U.K. Banks Curb Loans to Eurozone Banks, Sunday Telegraph Says

Barclays Plc, Standard Chartered Plc and other U.K. financial institutions may be creating a new “credit crunch” by reducing unsecured lending to eurozone banks, the Sunday Telegraph reported, citing unidentified sources.

Barclays has cut its lending to European banks over concern that some lenders have large exposures to troubled economies including Greece, Ireland and Portugal, the newspaper reported yesterday. Standard Chartered has withdrawn tens of billions of pounds in recent months from the inter-bank lending market in countries that use the euro and reduced its loans by two-thirds in the past few weeks, the report said.

Courts

Banks Accuse MBIA of Hiding Potential Losses From Regulator

MBIA Inc. hid potential losses of as much as $950 million on commercial real estate debt as it sought New York regulators’ approval to restructure its insurance business in 2008, banks including Bank of America Corp. and UBS AG claimed in court papers.

New York insurance regulators were given an internal presentation that included “manual overrides” of loan data that dropped potential losses from the debt to zero, the banks said in a brief that was filed in redacted form in March and unsealed June 16 in state court in Manhattan. A manual override is the review of an individual loan to adjust loss estimates.

When making its case to the regulators, MBIA, once the world’s biggest bond insurer, deleted parts of a presentation originally given in November 2008 to the company board’s credit risk committee, the banks said. Those deletions showed that in a “more stressful economic environment” the insurer could have losses from the debt of as much as $950 million, according to the banks’ court papers.

The banks’ claim is “absolutely false” and regulators were told of both the overrides and the impact they had on loss projections, Marc Kasowitz, a lawyer for MBIA, said in an interview June 16.

David Neustadt, a spokesman for the state insurance department, declined to comment.

Kasowitz said a trial is expected in early 2012.

The Article 78 case is ABN Amro Bank NV v. Dinallo, 601846- 2009, New York state Supreme Court (Manhattan).

Brooklyn Money Manager Gets 20 Years for Ponzi Scheme

Philip Barry, a money manager from Brooklyn, New York, was sentenced to 20 years in prison for running a $45 million Ponzi scheme that defrauded hundreds of investors over three decades.

Barry, 53, was sentenced June 17 by U.S. District Judge Raymond J. Dearie in Brooklyn. After a one-week trial in November, a jury convicted him on all the counts he faced -- one of securities fraud and 33 of mail fraud. The money manager began accepting money in 1978 from investors, guaranteeing fictional annual profits, according to prosecutors. Instead, Barry used new investors’ money to pay earlier ones, prosecutors said. Barry’s fraud is believed to be the longest-lasting Ponzi scheme in U.S. history, they said.

In a separate action, the U.S. Securities and Exchange Commission said Barry diverted some of the investor money to a mail-order pornography business. In April, the SEC asked the court to dismiss a libel suit Barry brought over the accusation.

The criminal case is U.S. v. Barry, 09-cr-0833, the SEC case is Securities and Exchange Commission v. Barry, 09-cv-3860, and Barry’s suit against the SEC is Barry v. SEC, 10-cv-4071, U.S. District Court, Eastern District of New York (Brooklyn).

Ex-WaMu Executives in Settlement Talks With FDIC Over Losses

Ex-Washington Mutual Inc. Chief Executive Officer Kerry Killinger and Chief Operating Officer Stephen Rotella are in lawsuit settlement talks with the Federal Deposit Insurance Corp., according to a court filing.

Lawyers for Killinger, Rotella and David Schneider, Washington Mutual’s former home-loans president, exchanged settlement term sheets with FDIC attorneys and are “diligently working to resolve their remaining disputes,” according to court papers filed June 16 in federal court in Seattle.

“In some instances, the settlement terms must have consent of certain third parties,” lawyers for both sides said.

The FDIC sued the bank officials in March claiming they took extreme risks with WaMu’s home-loans portfolio, causing billions of dollars in losses. The agency’s complaint also sued Killinger’s and Rotella’s wives.

Lawyers for both sides asked the court to extend until July 1 the deadline for the former executives to file their initial response to the complaint.

Federal regulators in September 2008 seized WaMu, once the nation’s biggest savings and loan, and sold it to New York-based JPMorgan Chase & Co. for $1.9 billion.

The case is FDIC v. Killinger, 11-00459, U.S. District Court, Western District of Washington (Seattle).

Interviews/Speeches

BofA’s Moynihan Says Capital Rules May Discourage Lending

Bank of America Corp. Chief Executive Officer Brian T. Moynihan said excessive capital surcharges on the largest banks may limit lending and discourage investors from funding the industry.

“If you impact our returns and our business to a point, investors are going to look around and say there’s other places to put the money,” Moynihan, 51, said June 17 in an interview with Bloomberg Television in St. Petersburg, Russia, where the International Economic Forum is being held. “And that’s what you’ve actually seen in bank stocks.”

Draft plans circulated before a meeting to be held this week would subject banks to a sliding scale depending on their size and links to other lenders, said the people, who declined to be identified because the proposals aren’t public. Charlotte, North Carolina-based Bank of America is the largest U.S. lender.

“We just need to get through it, so the uncertainty is gone and we can figure out the change in business model,” Moynihan said.

For more, click here.

Greenspan Says Greece Default ‘Almost Certain’

Former U.S. Federal Reserve Chairman Alan Greenspan talked with Charlie Rose in New York about the possibility that Greece will default on its debt.

Greenspan also discussed the U.S. economy, federal budget deficit and Fed monetary policy. Other topics he covered included TARP and the Dodd-Frank law.

For the video, click here.

Comings and Goings

KPMG to Advise on Kuwait Bourse Privatization, Qabas Says

KPMG was hired to evaluate the assets of Kuwait Stock Exchange before a possible privatization of the bourse, Al-Qabas reported, citing unidentified people familiar with the matter.

A panel supervising the privatization process, which hired KPMG, may conclude its study by the end of this year, the newspaper said.

--With assistance from Nandini Sukumar in Athens; Sophia Pearson in Philadelphia; Aoife White, Ewa Krukowska and Jim Brunsden in Brussels; Stephanie Bodoni and Kelly Cregg in Luxembourg; Ali Berat Meric in Ankara; Stefania Bianchi in Dubai; Erik Larson in London; Dahlia Kholaif in Kuwait; and Thom Weidlich, Shannon D. Harrington, Lindsey Rupp and Brooke Sutherland 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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