(Updates with Level Global, FSA insider trading and Sony in Compliance Action; Morgan Keegan in Courts; and Sants in Interviews/Speeches.)
June 29 (Bloomberg) -- Singapore said it will raise capital rules for local lenders to more than the global minimum to solidify the city’s reputation as a financial hub after regulators tightened norms for the world’s biggest banks.
Lenders incorporated in Singapore will need to meet a minimum common equity Tier 1 capital adequacy ratio of 6.5 percent from Jan. 1, 2015, the Monetary Authority of Singapore said in a statement yesterday. That’s 2 percentage points more than the so-called Basel III rules announced last year.
Policymakers in the Southeast Asian nation aim to join U.S. and European regulators in shoring up capital at banks that are deemed too big to fail. The Basel Committee on Banking Supervision this weekend said that systemically important banks must hold as much as 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis.
The Basel III capital rules announced last year, which apply to a broader group of banks worldwide, are scheduled to be phased in from 2013 through 2019. National regulators should treat the rules as a minimum standard that they can surpass if they wish, according to the Bank for International Settlements, the parent organization of the Basel committee.
The world’s largest banks will have to meet the Basel surcharges using core Tier 1 capital, also known as common equity, regulators said in a June 25 statement. The extra measures for as many as 30 of the biggest lenders will be imposed in addition to the Basel rules announced last year that require lenders to hold core capital equivalent to at least 7 percent of their risk-weighted assets.
Singapore plans to raise the Tier 1 capital adequacy ratio to 8 percent from 6 percent and introduce a capital conservation buffer of 2.5 percentage points.
Solvency Rules Should Ease for Asset-Backed Debt, AFME Says
Insurers would need less regulatory capital to hold top- rated residential mortgage-backed securities under a financial lobby group’s counter-proposal to rules being drawn up by European lawmakers.
The Association for Financial Markets in Europe said insurance firms should set aside capital equal to 2.8 percent of holdings of five-year bonds secured by prime U.K. and Dutch mortgages, according to the proposal obtained by Bloomberg News. That’s as little as a sixth of the capital charge regulators used in tests of new rules known as Solvency II.
AFME’s proposal will “give lower capital charges to high- quality products with good credit performance and low price volatility,” according to the London- and Brussels-based group’s document. AFME, created in 2009, represents more than 160 bond and equity market participants including Goldman Sachs Group Inc. and Bank of America Corp.
Solvency II, which aims to align insurers’ risks with capital to offer more protection to policyholders, comes into effect in 2013. Banks and insurers in Europe lost or wrote down a total $107 billion of investments in securities bundling subprime mortgages and consumer loans since 2007, according to data compiled by Bloomberg.
The rules are being developed by the European Commission, the European Insurance and Occupational Pensions Authority in Frankfurt and local regulators. Rob McIvor, a London-based spokesman at AFME, declined to comment.
U.K. Law Should Change to Block Debit-Payment Fees, OFT Says
British law should be changed to prevent customers being made to pay additional charges when they use debit cards to buy airline tickets and other goods and services online, the U.K.’s antitrust regulator said.
A three-month investigation found evidence of “drip pricing” surcharges that cost U.K. consumers 300 million pounds ($479.1 million) in 2009 in the airline industry alone, the Office of Fair Trading said yesterday in a statement.
The probe followed a so-called supercomplaint filed with the OFT in March by Which?, a U.K. consumer-rights group. Which? argued that many surcharges exceed the true cost of processing credit and debit transactions. The group singled out retailers, taxi services and low-cost airlines including Ryanair Holdings Plc.
Ryanair yesterday said the OFT’s findings won’t affect it because it doesn’t use surcharges.
U.K. charter carrier Monarch Airlines said it welcomed the OFT stance on fees.
U.S. Proposes Derivatives Monitoring System, Nikkei Says
The U.S. Treasury Department has proposed to Japan requiring financial institutions to report transactions using a universal identification system, the Nikkei newspaper said, citing Adam Lavier, a Treasury official.
Discussions are also taking place in Europe, Nikkei said.
Deutsche Boerse to Seek EU Approval of NYSE Deal, Almunia Says
Deutsche Boerse AG will seek European Union approval in coming days for its plan to buy NYSE Euronext, Joaquin Almunia, the EU’s competition chief, said yesterday in London.
Almunia said EU antitrust regulators will examine the deal with “objectivity” and aim to present in Brussels “formal notification of the proposed merger in the coming days.”
French AMF Regulator Says Soitec Will Publish Statement
Soitec SA, or Silicon-On-Insulator Technologies, had its shares suspended pending a statement from the company, Christine Anglade, a spokeswoman for France’s AMF regulator, said by telephone yesterday.
Soitec manufactures substrates used in the production of semiconductors in the microelectronics industry.
Anglade declined to say when the statement by the company might be made.
Level Global Settles SEC Claims Tied to Goldman Sachs Trades
Level Global Investors LP, the hedge fund that is closing after the FBI raided its offices in an insider-trading probe, agreed to pay more than $3.2 million to resolve claims it violated anti-manipulation rules.
Level Global, which has offices in New York and Greenwich, Connecticut, made about $2.68 million in 2009 by short-selling Goldman Sachs Group Inc. and Regions Financial Corp. during a restricted period and then buying the shares in a public offering, the Securities and Exchange Commission said in an administrative order yesterday.
SEC rules prohibit investors from selling short a stock, a bet that its price will fall, within five business days of participating in a public offering of the same security. The provision, known as Rule 105, aims to prevent investors from artificially depressing the price shortly before the sale.
In a separate order yesterday, Brookside Capital LLC, an affiliate of Boston-based private-equity firm Bain Capital LLC, agreed to pay $2.12 million to resolve SEC claims it made similar improper trades in Lincoln National Corp. in June 2009. In settling the claims, Level Global and Brookside, which has about $10 billion in assets under management, didn’t admit or deny the SEC’s allegations.
Lee Richards, an attorney for Level Global at Richards Kibbe & Orbe LLP in New York, didn’t return a phone message left after regular business hours. Ganek didn’t return an e-mail.
Brookside Capital “cooperated with the SEC, paid all associated costs and its funds were not harmed,” Alex Stanton, a spokesman for the firm, said in an e-mailed statement.
U.K. Insider-Trading Suspects Face Interviews, Lawyer Says
Seven people arrested by Britain’s financial regulator last year in its highest-profile insider-trading probe are being called in by the regulator for final interviews over the next three months.
Stephen Pollard, a lawyer for Moore Capital Management LLC’s Julian Rifat, said the suspects in the case have been scheduled for interviews with the regulator in July, August and September. The FSA is probing whether the suspects engaged in the front-running of block trades by using knowledge of upcoming securities sales, generally on behalf of a corporate client, to generate a profit for themselves.
The people, including employees from Deutsche Bank AG, Exane BNP Paribas and Moore Capital, were put on extended bail until later this year as the Financial Services Authority continues to investigate the case. The regulator arrested the seven suspects in March of last year. Those questioned include Rifat, Deutsche Bank’s Martyn Dodgson, Exane’s Clive Roberts, Novum Securities Ltd.’s Graeme Shelley and Iraj Parvizi, a director of Aria Capital Ltd.
Front running is a practice in which a trader takes a position to capitalize on advance knowledge of a sale that is expected to influence the price of stocks or commodities.
Money managers are barred from trading on such information under U.K. law.
Chris Hamilton, a spokesman for the FSA, declined to comment.
Sony Cooperating With U.S. Antitrust Probe of Battery Business
Sony Corp. said it is cooperating with a probe by the U.S. Justice Department’s antitrust division as part of a wider investigation into competition in the rechargeable battery business.
The Tokyo-based company’s U.S. subsidiary, Sony Electronics, received the request for information on May 3, Keita Sanekata said in an e-mailed statement. Sanekata declined to comment further on the scope of the investigation disclosed in an annual report filed yesterday.
Lithium batteries account for the largest portion of the global market for rechargeable batteries. They are used in smartphones, personal computers, tablets and plug-in electric vehicles. The largest battery makers cut prices in 2010 amid a supply glut, according to the Institute of Information Technology, a Tokyo-based market research firm.
Merrill, UBS Commit Fraud on Swaps, Lombardy Tells U.K. Court
Bank of America Corp.’s Merrill Lynch unit and UBS AG committed fraud and made “an unfair profit” through hidden fees charged on swaps, according to U.K. court filings by the Italian region of Lombardy, which must set aside millions of euros to cover potential Greek bond losses.
Both banks “deliberately failed to disclose the implicit costs of the transaction, intending to derive an advantage” from the region’s “inexperience and ignorance,” lawyers for Lombardy said in court filings this month.
The region was responding to lawsuits filed by Merrill Lynch and UBS at the High Court in London last July. The banks are seeking confirmation that derivatives contracts with the region, home to Italy’s financial capital Milan, are valid.
The case centers on a 2002 agreement between the banks and the region that changed the way Lombardy would repay a $1 billion 30-year bond. Under the deal, Lombardy was to make the payments in installments instead of a so-called bullet repayment when the bond matured. The banks set up a fund to invest the city’s payments in securities, such as sovereign bonds, until the debt matured. Lombardy said in a statement June 27 it will set aside 153 million euros ($218 million) for potential losses on Greek bonds held in the fund.
“I was 25, had recently graduated, and had a junior role on the desk at the time of the transactions,” Gaetano Bassolino, a UBS banker, said. A spokeswoman for UBS declined to comment further.
Lombardy “was acting for its own account and had made its own independent decisions to enter the transaction and as to whether the transaction was appropriate or proper for it based upon its own judgment,” Merrill Lynch said in its lawsuit.
A spokesman for the region declined to comment.
Judge Rejects SEC Claims Morgan Keegan Misled ARS Investors
A U.S. judge rejected Securities and Exchange Commission claims that Regions Financial Corp.’s Morgan Keegan brokerage unit misled investors about $2.2 billion in auction-rate securities before the market for the instruments collapsed in 2008.
U.S. District Judge William S. Duffey Jr. said yesterday in a summary judgment in Atlanta that the SEC didn’t introduce any evidence showing Morgan Keegan instituted a “companywide policy encouraging its brokers to misrepresent ARS liquidity risks.” The “failure to predict the market does not amount to securities fraud,” Duffey wrote in the judgment.
The SEC sued Morgan Keegan in July 2009, claiming it encouraged brokers to push the debt before the $330 billion market froze in February 2008, and customers weren’t told about the growing risk the securities could become difficult to sell. Since then, dozens of banks have returned billions of dollars to harmed investors.
John Nester, an SEC spokesman, said the agency is considering whether to appeal. A phone call after normal business hours to Tim Deighton, a spokesman for Birmingham, Alabama-based Regions, wasn’t immediately returned.
Federal and state regulators have sanctioned banks for selling auction-rate securities as safe, cash-like investments. The instruments are typically municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through an auction.
The case is Securities and Exchange Commission v. Morgan Keegan, 09-01965, U.S. District Court, Northern District of Georgia (Atlanta).
Barclays, Citigroup Lawyers Say Regulator May Curb Innovation
Top lawyers for Barclays Plc and Citigroup Inc. said the U.K. regulator taking over for the Financial Services Authority may stifle innovation by using its power to ban risky financial products.
Brad Gans, Citigroup’s chief legal officer for Europe, Middle East and Africa, said it is how financial products such as collateralized debt obligations were used and sold, rather than how they were designed, that contributed to the global credit crunch. The products themselves weren’t bad, he said.
Gans made the remarks at a Financial Services Authority conference yesterday.
The FSA, the U.K.’s financial regulator, will be abolished by the end of 2012 and replaced by at least two new authorities as part of an overhaul of financial supervision. One of the replacement agencies, the Financial Conduct Authority, has been given powers to ban risky financial products or limit how they are marketed, as well as publish information about its disciplinary investigations while they are in progress.
“I don’t think the FSA should outlaw products, that’s too far,” Gans said. “We do want consumers to have choice.”
Mark Harding, the general counsel for Barclays, said “we just kill innovation” if we ban products.
U.K. Regulator’s ‘Focused Nature’ Will Free Staff, CEO Says
The U.K.’s regulator will benefit from the “more focused nature” of its new structure, which will free its staff to spend more time with individual firms, Financial Services Authority Chief Executive Officer Hector Sants said.
“We should recognize there has been improvement in the quality of staff in the FSA’s supervisory group,” Sants said at the British Bankers’ Association annual conference in London today. “It’s always a challenge to keep good staff where market price is more than regulators are able to pay.”
Comings and Goings
Lagarde Named First Female Head of IMF, Replacing Strauss-Kahn
Christine Lagarde was named the first female head of the International Monetary Fund to take on Europe’s debt crisis and balance the demands of fast-growing emerging nations with the needs of a recovering developed world.
Lagarde, 55, currently France’s finance minister, will begin July 5, the Washington-based fund said yesterday. She won the job over Mexican central bank governor Agustin Carstens after gaining a reputation as a skilled negotiator during the financial crisis within both the Group of 20 and the European Union as it provided bailouts for Greece, Ireland and Portugal.
Steering support for those countries and nurturing their economies will remain one of Lagarde’s biggest challenges as she moves from Paris to Washington to begin her five-year term as the IMF’s 11th leader. She will also need to restore morale at the fund, which is reeling from the arrest on charges of sexual assault and subsequent resignation of her predecessor, Dominique Strauss-Kahn. He has pleaded not guilty.
Lagarde will need to decide whether the IMF is ready to provide extra funding for Greece, which already received the second-largest loan in the fund’s history, as Europeans attempt to craft a new package to help the country avoid debt restructuring.
Lagarde was appointed finance minister by French President Nicolas Sarkozy in June 2007, just before the onset of the global financial crisis.
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--With assistance from Esteban Duarte in Madrid; Howard Mustoe, Lindsay Fortado, Kit Chellel and Erik Larson in London; Elisa Martinuzzi in Milan; Heather Smith and Mark Deen in Paris; Joshua Gallu, Kevin Costelloe and Sandrine Rastello in Washington; Eunkyung Seo in Seoul; Steven McPherson in Tokyo; Cliff Edwards in San Francisco; and Joyce Koh and Sanat Vallikappen in Singapore. Editor: Stephen Farr.
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