(Updates with Special Section on Greek debt crisis, India bank asset sales in Compliance Policy, RBS and Fannie-Freddie in Compliance Action, O’Reilly Automotive in Courts and Stark in Interviews.)
Sept. 12 (Bloomberg) -- The European Union’s planned tax on financial transactions should have a “broad base” covering equities, bonds, currencies and derivatives to ensure it can’t be evaded, the finance ministers of France and Germany said.
The levy should be imposed when at least one party to a trade is located in the EU, with territorial coverage in the region to be “as broad as legally permissible,” Germany’s Wolfgang Schaeuble and France’s Francois Baroin said in a joint letter to the European Commission published Sept. 9.
The commission, the 27-nation EU’s executive arm, last month said it will draw up proposals for a transaction tax before a summit of world leaders in November, backing calls by French President Nicolas Sarkozy and German Chancellor Angela Merkel for the levy.
The region’s lenders have criticized the plans, warning that such a measure will harm economic recovery.
Discussions among nations on how the money raised by the tax should be spent shouldn’t delay progress in setting it up, the ministers said.
Special Section: Greece
Germany Readies Surrender in Fight to Save Greece
Germany may be getting ready to give up on Greece, as measures in the credit markets signal growing concern about the smaller nation’s ability to repay investors.
Yields on Greek two-year notes rose above 60 percent today for the first time. Credit-default swaps to insure the country’s five-year bonds and to speculate on government securities closed at an all-time high of 3,500 basis points on Sept. 9, according to CMA. The contracts are the highest in the world and more than three times the 1,134 basis points for Portuguese debt.
After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, German Chancellor Angela Merkel is laying the groundwork for what markets say is almost a sure thing: a Greek default.
Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won’t get the money unless it meets fiscal targets, and as investors raised bets on a default.
Protecting their banks and a hardening of rescue terms risk isolating Germany and unnerving global policy makers already fretting that the region’s political tussles are roiling markets and threatening growth. Underscoring the tone of weekend talks of Group of Seven finance chiefs, U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television that European authorities must “demonstrate they have enough political will” to end the crisis.
Lars Feld, a member of the German government’s council of economic advisers, said today that a “disorderly restructuring” of Greece may take place if the Greek government decides to get out of the euro zone.
Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said Germany’s concern is broader than Greece, which is in its third year of a deepening recession, and centers on how its banks and economy would cope if the debt crisis spreads.
“Germany is preparing for the worst, which is that the crisis in the euro zone is going to be much bigger for everyone,” Erixon said.
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For commentary by Lars Feld, click here.
For commentary by Neil Barofsky, former special inspector general for the Troubled Asset Relief Program, click here.
For more, see GMEET <GO> for more on the G-7 meeting.
Separately, questions over Greece’s ability to meet the terms of its first rescue package are dogging the indebted nation as bondholders weigh whether to participate in a debt exchange that’s crucial to a second bailout.
Greece sought preliminary responses Sept. 9 from bond investors to the proposed debt swap, part of a 159 billion-euro ($220 billion) European Union rescue plan agreed upon in July. Responses to the inquiry, which isn’t a formal offer, are nonbinding and will be aggregated by regulators country by country, according to the Greek government.
The Greek government is still trying to show it can reach budget-cutting targets required for the next 8 billion-euro payment from a bailout engineered in 2010.
Greece said last week that it will accelerate further austerity measures as pressure mounted from European partners before the payment of the sixth tranche of bailout loans under last year’s 110 billion-euro loan package. A scheduled quarterly review of Greece’s progress by the EU and the International Monetary Fund was unexpectedly suspended for 10 days and won’t resume until mid-month.
For more, click here, and see Interviews section, below.
Swap Lobbyists Pushing SEC Version of Trading Rules Over CFTC
The Securities and Exchange Commission and Commodity Futures Trading Commission are expected, because of rules created by Congress, to work in tandem to oversee the $601 trillion swaps market. This may lead financial companies to stoke differences between the two in a quest for favorable treatment.
The 2010 Dodd-Frank Act gave the CFTC authority over most swaps, with the SEC overseeing those based on securities, to improve transparency and reduce risk in the market.
Firms including BlackRock Inc., the world’s largest asset manager, have praised the SEC’s approach to a rule meant to curb abuses by swap dealers selling to less sophisticated investors including pension funds, endowments and local governments. Lawmakers told regulators to write the rule after swaps pushed Jefferson County, Alabama, to the brink of bankruptcy.
U.S. Senator Carl Levin, a Michigan Democrat, said the SEC was proposing weaker controls than Congress wanted when it added the provision to the Dodd-Frank overhaul of rules for Wall Street.
Under the law, swap dealers must act in the best interests of towns, cities and other so-called special entities when serving as their adviser. The CFTC proposed regulations implementing those requirements on Dec. 9; the SEC proposed its rule on June 29.
Under the SEC proposal, an adviser would be considered independent if it didn’t receive more than 10 percent of gross revenue from the special entity in the previous year. The CFTC proposal would consider dealers to be independent if they don’t have “material business relationships” with special entities.
The comment period for the SEC’s proposal expired more than a week ago. John Nester, an SEC spokesman, declined to comment on the rule proposal, and Steve Adamske, a spokesman for the CFTC, didn’t immediately respond to a request for comment.
The agencies could decide to forge a common standard or they could stay on different paths, forcing dealers to follow two sets of rules.
India Decides on Enabling Borrowing in Yuan, Bank Asset Sales
Indian policy makers will hold a meeting on Sept. 15 to consider letting local companies borrow in yuan, according to a finance ministry official with direct knowledge of the matter.
Officials from the nation’s central bank, the finance ministry and the capital markets regulator, Securities and Exchange Board of India, will review overseas debt rules, said the person, asking not to be identified before any public announcement from the government.
The meeting may help address requests from Indian power producers purchasing equipment from Chinese vendors, the official said, without elaborating.
Separately, India’s department of disinvestment eased rules for investment banks, allowing them to manage its asset sales program and handle capital raising plans of non-state companies in the same business, the Mint newspaper reported, citing officials it didn’t name.
The former restriction, which raised questions about possible conflicts of interest, was imposed after bankers advising a share sale of state-run Steel Authority of India Ltd. were found to handling the share sale plan of rival private company Tata Steel Ltd., the newspaper reported.
FBI Raid on Solyndra May Herald Escalation of Watchdog Probe
An FBI raid on Solyndra Inc., a solar-panel maker that failed after receiving a $535 million loan guarantee from the U.S. Energy Department, may signal the escalation of a probe into President Barack Obama’s clean-energy program.
Agents for Energy Department Inspector General Gregory Friedman, who has called the department’s clean-energy loan program lacking in “transparency and accountability,” joined in the search Sept. 8 at the Fremont, California, headquarters of Solyndra, which filed for bankruptcy protection on Sept. 6.
Republicans critical of the program stepped up their attacks following the raid, and two House Democrats questioned the integrity of the company, indicating a potential political crisis for the president. A foundation headed by an Obama campaign contributor was a principal investor in Solyndra.
The Energy Department gave Solyndra the most federal backing awarded a solar manufacturer.
The Federal Bureau of Investigation executed a search warrant at Solyndra, bureau spokeswoman Julie Sohn said in an interview. Sohn said she couldn’t provide details about the investigation. Solyndra, which shut its factory and fired 1,100 people, said in its filing for bankruptcy protection that it had liabilities of $783.8 million.
Dave Miller, a Solyndra spokesman, and Debra Grassgreen, the company’s bankruptcy attorney with Pachulski Stang Ziehl & Jones LLP, didn’t immediately return calls seeking comment on the raid. White House spokesman Eric Schultz declined to comment on the raid, referring questions on law enforcement to the Justice Department and on loans to the Energy Department, which also declined to comment.
Deloitte Says Chinese Law Prevents Sending Documents to SEC
Deloitte Touche Tohmatsu Ltd.’s China affiliates said they have cooperated with the U.S. Securities and Exchange Commission as much as possible under Chinese law regarding its former auditing client Longtop Financial Technologies Ltd.
The law precludes Deloitte from producing the requested documents to a foreign regulator without approval from China’s own regulatory authorities, spokesman Wilfred Lee said in an e- mailed statement Sept. 9.
The SEC said Sept. 8 that it filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of Longtop after subpoenas issued in May. Longtop said that month that Deloitte quit because of errors in the company’s financial records. In July, the SEC and Public Company Accounting Oversight Board met with counterparts in China to discuss cross- border oversight.
“This is essentially a matter between regulators in China and the United States; Deloitte China is happy to comply with any outcome that is agreed between them,” the company’s statement said.
Spherix Is Latest U.S. Stock Halted by Circuit Breakers
Spherix Inc. is the latest U.S. stock halted by circuit breakers implemented in June 2010.
The curbs were created after the 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. equities before prices rebounded. New rules proposed by exchanges on April 5, 2011, would shift the market to a limit-up/limit-down system that prevents shares from moving more than a certain amount.
RBS Plans Breakup of Commercial Real Estate Assets, Mail Says
Royal Bank of Scotland Group Plc, Britain’s biggest government-controlled bank, is planning to break up its 37 billion pound ($59 billion) commercial real estate portfolio, the Daily Mail reported.
The assets, ranging from supermarkets to hotels, will be split into 15 funds as RBS seeks to attract more investors, the newspaper said, citing an unnamed source. The bank is seeking partners to take a 50 percent stake in the funds and may receive interest from private-equity firms, it said.
Fannie, Freddie Said Near SEC Settlement on Loan Disclosure
Government-supported housing-finance agencies Fannie Mae and Freddie Mac are within months of settling claims that they failed to inform investors of their exposure to subprime mortgages before the 2008 credit crisis, according to a person with knowledge of the discussions.
The housing companies will neither admit nor deny defrauding investors, nor will they pay any fines under the proposed settlement with the U.S. Securities and Exchange Commission, said the person, who spoke on condition of anonymity because the talks are private.
Brad German, a spokesman for Freddie Mac, declined to comment, as did SEC spokesman John Nester. Amy Bonitatibus, a spokeswoman for Fannie Mae, didn’t respond to a request for comment late Sept. 8.
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CSK Auto Parent to Pay $20.9 Million to Settle U.S. Probe
O’Reilly Automotive Inc. agreed to pay $20.9 million to resolve a U.S. Justice Department probe of a scheme to manipulate earnings and double bill at CSK Auto Corp. before O’Reilly bought it in 2008.
CSK accepted responsibility for the illegal conduct of its former employees, and as part of the agreement neither company will face further prosecution, according to an e-mailed statement from the Justice Department Sept. 9. According to the non-prosecution agreement, former CSK employees misstated earnings at the company from 2001 to 2006, the Justice Department said.
The investigation has produced guilty pleas from three former CSK employees, according to the statement
Mark Merz, a spokesman for Springfield, Missouri-based O’Reilly, declined to comment on the agreement.
The case is U.S. v. Fraser, 09-cr-00372, U.S. District Court, District of Arizona (Phoenix).
Llewellyn Says Recapitalizing Banks Is Europe Priority
John Llewellyn, senior economic policy adviser at Nomura International Plc, discussed European banks and the debt crisis.
He spoke with Maryam Nemazee on Bloomberg Television’s “The Pulse.”
For the video, click here.
Truglia Says Greece Is ‘Very Close’ to Debt Default
Vincent Truglia, managing director at Granite Springs Asset Management, talked about the likelihood of a possible default on Greek sovereign debt.
Finance Minister Evangelos Venizelos dismissed “rumors” of a Greek default, saying the nation is committed to “full implementation” of the terms of a July agreement for a second aid package. Truglia spoke with Lisa Murphy on Bloomberg Television’s “Fast Forward.”
For the video, click here.
Stark Says No Nation ‘Really Protected,’ Irish Times Reports
European Central Bank Executive Board member Juergen Stark said no country is “really protected” in the current situation and that governments need to be “ahead of the curve” with budget cuts, the Irish Times reported.
“We have seen in the case of Greece and Ireland that there can be a sudden stop, that governments don’t have access to capital markets anymore to finance their budgets,” Stark told the Irish Times in the interview published today. “This can happen for larger, advanced economies too.”
He also said that euro-region governments “have no intention to expel a country,” according to the newspaper. “Conditionality is what counts, solidarity must not be overstretched. Solidarity never can be a one-way street.”
The Irish Times said it conducted the interview on Sept. 9, the same day Stark announced his resignation from the ECB.
Comings and Goings
Lacaille Says ‘Wavering’ ECB May Be Risky as Stark Quits
Richard Lacaille, chief investment officer at State Street Global Advisors, talked about Juergen Stark’s resignation from the European Central Bank’s executive board.
Lacaille also discussed the euro-area debt crisis. He talked with Andrea Catherwood on Bloomberg Television’s “Last Word.”
For the video, click here.
--With assistance from Jim Snyder, Jesse Hamilton and Silla Brush in Washington; Debra Mao in Hong Kong; Jim Brunsden and Rebecca Christie in Brussels; Nick Baker and James Sterngold in New York; Alan Crawford in Berlin; Jesse Riseborough in London; Simone Meier in Zurich; Joel Rosenblatt in San Francisco; and Anto Antony and Kartik Goyal in New Delhi. Editor: Andrew Dunn.
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