Bloomberg News

Capital Buffers, India Takeovers, EU Bank Pay: Compliance

July 29, 2011

(Updates with Consumer Bureau plan and SEC proxy access rule in Compliance Policy, and Societe Generale and Ex-Pegasus Wireless executive in Courts.)

July 29 (Bloomberg) -- Money-market mutual funds would be forced to create capital buffers equaling 1 percent to 3 percent of assets to protect against losses under a plan now favored by staff at the U.S. Securities and Exchange Commission, according to three people briefed on the regulator’s deliberations.

Top SEC officials, seeking to make money funds safer, prefer the plan over another capital buffer idea crafted by Fidelity Investments and calls to eliminate the funds’ stable share price, said the people, who asked not to be identified because they weren’t authorized to speak publicly. The concept is based on recommendations submitted to the agency in January by university economists known as the Squam Lake Group.

Regulators and fund executives have wrestled for almost three years over how to prevent a recurrence of the run on money-market funds that followed the September 2008 collapse of the $62.5 billion Reserve Primary Fund. The industry has fought a proposal to strip funds of their stable share price, saying it would kill the product that manages $2.64 trillion for companies and households, and represents the largest collective purchaser of short-term corporate debt in the U.S.

The SEC’s staff remains undecided on several details of the plan, including exactly how big the buffer should be, two of the people said. If the plan is endorsed by agency staff, SEC commissioners will have to approve it and may still consider rival proposals, the people said.

Florence Harmon, a spokeswoman for the SEC, declined to comment.

For more, click here.

Compliance Policy

Indian Regulator Eases Takeover Rules to Spur Investment

India’s market regulator eased takeover rules, seeking to lure investors after mergers and acquisitions in the South Asian nation slumped.

The new rules will help investors raise their holdings in companies to as much as 25 percent, without having to offer to buy additional shares from the public, the Securities and Exchange Board of India’s Chairman U.K. Sinha told reporters in Mumbai July 27. The previous cap was 15 percent. Investors who breach the new limit will have to buy an additional 26 percent stake, Sinha said.

The regulations will help companies attract investors amid a fall in the stock market, said Arindam Ghosh, a partner at law firm Khaitan & Co. The value of acquisitions in India has dropped 37 percent this year to $27.5 billion, data compiled by Bloomberg show. Foreigners account for 63 percent of this spending, the data show.

The market regulator, known as SEBI, rejected a proposal from its panel that would have required acquirers to buy all shares of the target company.

In Japan, the trigger for an open offer is 33.3 percent, while in Hong Kong it is 30 percent and in Singapore 29.99 percent. In all three, breaching the limit requires an acquirer to make an offer for the entire company.

EU Banks Told to Reveal How Many Staff Make 1 Million Euros

Banks will be quizzed by the European Union’s top banking regulator on the number of employees who make more than 1 million euros ($1.43 million) in a review of implementation of pay and bonus rules.

The European Banking Authority will also gather aggregate data on compensation broken down by business area, the regulator said in a statement on its website yesterday.

The move “is a further step towards greater disclosure of remuneration,” the EBA said. The London-based agency said it’s seeking “a common approach across the EU” for gathering pay data.

Regulators across the world are targeting bankers’ pay and bonuses to prevent a repeat of the excessive risk taking and focus on short-term profits that they say contributed to the global financial crisis of 2008. They have called for payouts to be linked to success, instead of rewarding failure.

The EBA’s call for banks to disclose details on pay stems from an EU law adopted in November 2010.

The data on bankers paid more than 1 million euros should encompass the business area involved and the main elements of salary, bonus, long-term awards and pension contributions, according to the EU law. It stated the information should be published by the EU’s banking agency in “aggregate” form.

For more, click here.

EU May Classify Spot Carbon Permits as Financial Instruments

The European Union’s regulator may propose classifying spot carbon-dioxide contracts as financial instruments to better protect the world’s biggest emissions market from fraud.

The European Commission, the EU regulatory arm, is planning to present draft measures by the end of this year to enhance the supervision of the spot market after online thieves illegally transferred allowances valued at around 25 million euros ($36 million) in January. The EU’s options include extending the Markets in Financial Instruments Directive, or Mifid, to cover spot carbon deals, or designing a tailor-made regime.

Isaac Valero-Ladron, climate spokesman for the commission in Brussels, said there is no “detailed timeframe” for presenting the proposal.

While carbon futures are already subject to Mifid and the Market Abuse Directive, known as MAD, contracts for prompt delivery, accounting for about 10 percent of trading, typically aren’t seen as financial instruments and aren’t bound by the same laws. Criminals used this regulatory gap to transfer without authorization about 2 million allowances from companies including Prague-based CEZ AS.

For more, click here.

Consumer Bureau Plans Enforcement Based on FTC’s Model

The U.S. Consumer Financial Protection Bureau plans to follow enforcement procedures “based largely on the existing, stable model” used by the Federal Trade Commission, according to a document on the bureau’s website.

The bureau, which began operations July 21, used the document to outline how it will seek documents, conduct hearings and deal with witnesses as it begins oversight of financial firms’ dealings with consumers.

President Barack Obama proposed creating the consumer bureau as part of what became the Dodd-Frank Act after lenders were accused of reaping profits by preying on borrowers before the subprime mortgage crisis. The agency, which will operate independently, will regulate products ranging from home mortgages to payday loans.

The posted rules by themselves give little insight into how forceful the consumer bureau will be in dealing with lenders, according to Howard Beales, a former FTC official who is now professor at George Washington University in Washington. The bureau could choose to resolve issues through supervision, the process of examining bank books and nudging them to make changes, rather than through lawsuits.

The consumer bureau also posted rules governing how it will conduct reviews in which firms can contest administrative penalties. It plans to use procedures now used by federal agencies overseeing banks.

House Republicans Cite SEC ‘Mismanagement’ in Proxy Rule

The U.S. Securities and Exchange Commission should act “far more cautiously” when figuring out the costs and benefits of the rules it writes, senior House Republicans on the Financial Services Committee said in a letter to SEC Chairman Mary Schapiro.

Representatives Scott Garrett of New Jersey, Randy Neugebauer of Texas and Jeb Hensarling of Texas said in the letter dated yesterday that last week’s rejection of the SEC’s so-called proxy access rule by the U.S. Court of Appeals in Washington “raises fundamental questions” about the regulator’s work. The lawmakers requested that the agency report what it spent on writing the rule and defending it in court.

In a July 22 ruling, the court agreed with the U.S. Chamber of Commerce and the Business Roundtable that the SEC failed to properly study the cost to companies if shareholders were given an increased ability to push candidates into board elections. The rule was mandated by the Dodd-Frank Act’s financial- regulatory overhaul enacted last year.

John Nester, an SEC spokesman, declined immediate comment.

Compliance Action

Lafarge, Holcim Say Indian Units Involved in Antitrust Probe

Lafarge SA and Holcim Ltd., the world’s largest cement makers, said their Indian units have been accused by local regulators of breaking the country’s antitrust rules.

The Competition Commission of India told Lafarge last month the company is among several accused of violations dating from 2005, the Paris-based cement maker said in a regulatory filing yesterday. Lafarge “vigorously defends itself against the allegations,” it said. The decision may come by the end of the year, it added.

Holcim’s Ambuja Cements and ACC units are being probed by India’s competition regulators and are “fully collaborating with the authorities,” Roland Walker, a spokesman for the Jona, Switzerland-based company, said in an e-mail.

Lafarge and Holcim are among companies facing a European Union probe into possible price fixing and import limits. Lafarge last year lost a challenge at the EU’s highest court against a 249.6 million-euro ($357 million) antitrust fine in 2002 for its role in another cartel.

ABN Allows Private Bank Clients to Switch Bank Free of Charge

ABN Amro Group NV will allow private banking clients to transfer to another lender free of charge in the next two months to comply with a European Union requirement for approval of state aid, it said in a statement on its website dated July 27.

The Netherlands-based bank provides private banking as well as retail banking and other services.

Courts

U.K. Bid to Limit Exposure to BT Pensions Rejected by Judge

The U.K. government lost a legal bid to limit its liability for BT Group Plc workers’ pensions, which lawmakers guaranteed after the telecommunications group was privatized in 1984.

The government’s case centered on a merger of pension plans in 1993, which added around 61,600 people and liabilities of 9.5 billion pounds ($15.5 billion) to BT’s plan. Judge George Mann in London ruled yesterday the U.K.’s attempt to raise that issue would be “an abuse of process” and rejected it.

As part of a legal battle about the extent of the guarantee, Mann ruled in October the government would be liable for the pensions of employees hired before and since the privatization if the telecommunications company collapsed. The London-based company’s pensions had a deficit at the end of September of about 5.2 billion pounds.

BT said in statement that yesterday’s ruling clarified what the government would be able to contest in a trial scheduled for November to resolve the remaining questions about the extent of the guarantee.

A spokesman for the U.K. Department for Culture, Media and Sport said it was too early to say what effect yesterday’s judgment would have on the overall case.

The case is: TLC 637/09 BT Pension Scheme Trustees v British Telecommunications Plc & ors.

SocGen Sues Tuscany, Joining Parade of Swap Disputes in London

Societe Generale SA sued the region of Tuscany over a 2005 derivatives deal, becoming at least the fifth bank to take its dispute with the Italian region to U.K. courts.

“We can confirm that Societe Generale has made a filing in the High Court in respect of the region of Tuscany,” the Paris- based bank said in a statement. “It is not appropriate at this stage to make any further comment.”

Tuscany is involved in a dispute with Bank of America Corp., UBS AG and Deutsche Bank AG over swaps contracts sold in 2002 to hedge against interest-rate changes on a 465 million- euro ($664 million) bond issued by the Italian region. Societe Generale didn’t take part in the original deal. It replaced UBS in one of the swap contracts in 2005, following an auction held by Tuscany.

Bank of America, UBS, Deutsche Bank and New York-based JPMorgan Chase & Co. have filed claims in London seeking a ruling on the validity of their contracts. Dozens of local governments in Europe have taken legal action against banks over derivatives contracts which turned out to cost far more than expected.

Jamie Curle, Tuscany’s lawyer, declined to comment on the lawsuit filed July 20 at High Court in London.

The case is Societe Generale v Regione Toscana, High Court of Justice, Queen’s Bench Division (London), 11-866.

For more, click here.

Ex-Pegasus Wireless Chief Knabb Pleads Guilty to Fraud

Ex-Pegasus Wireless Corp. Chief Executive Officer Jasper Knabb pleaded guilty to securities fraud and other charges in connection with a $25 million scheme to sell shares for bogus debt and funnel the proceeds to himself, family and friends.

Knabb, 44, created 31 fake promissory notes and other documents representing that Pegasus had outstanding debt, U.S. Attorney Melinda Haag in San Francisco said yesterday in an e- mailed statement.

Christopher Bruno, an attorney for Knabb, didn’t immediately return a voice-mail message seeking comment about the plea.

Knabb’s sentencing is scheduled for Nov. 3. He faces a maximum penalty on the conspiracy and securities fraud charges of 25 years in prison, as well as fines and restitution.

The case is U.S. v. Durland, 11-00009, U.S. District Court, Northern District of California (San Francisco).

Interviews/Speeches

Gieve Says U.S. Rating Downgrade Likely in Next Two Months

Former Deputy Bank of England Governor John Gieve, now a senior adviser at GLG Partners LP, discussed the U.S. debt- ceiling debate and risk of a credit-rating downgrade.

Gieve, who spoke with Francine Lacqua on Bloomberg Television’s “Last Word,” also commented on the European sovereign debt crisis.

For the Gieve video, click here.

Citi’s Brandes Says Odds of a U.S. Default Are Remote

Michael Brandes, global head of fixed-income strategy for Citi Private Bank, talked about the debt ceiling debate and the political implications for U.S. lawmakers.

Brandes spoke with Matt Miller on Bloomberg Television’s “InsideTrack.” Matthew Dowd, former chief political strategist for George W. Bush, and Neil Barofsky, Bloomberg Television contributing editor, also spoke. (Source: Bloomberg)

For the Brandes video, click here.

For more about negotiations in Congress, click here, and click here.

--With assistance from Kit Chellel and Erik Larson in London; Aoife, White Ben Moshinsky and Jim Brunsden in Brussels; George Smith Alexander in Mumbai; Anto Antony in New Delhi; Ewa Krukowska in Warsaw; Maud van Gaal in Amsterdam; Christopher Condon in Boston; Karen Gullo in San Francisco; and Carter Dougherty, Jesse Hamilton and Robert Schmidt in Washington. Editor: Andrew Dunn

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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