Bloomberg News

Muni-Bond Advisers, Vickers ICB Report, Lloyds: Compliance

September 13, 2011

(Updates with Deutsche Boerse-NYSE report in Compliance Policy; Sino-Forest, Hanlong Mining and London Stock Exchange in Compliance Action; and Dachille and Finel-Honigman in Interviews.)

Sept. 13 (Bloomberg) -- The agency that oversees the U.S. municipal-bond market delayed proposed rules for financial advisers until the Securities and Exchange Commission defines who will be subject to the regulation.

Municipal advisers would face new limits under the Dodd- Frank Act, which Congress passed more than a year ago. The Municipal Securities Rulemaking Board said it is putting its proposed rules on hold until the SEC issues a legal definition of municipal adviser.

The rulemaking board’s proposals must be approved by the SEC. Before that happens, those with a stake in the outcome are allowed to suggest changes to the SEC.

The delay affects proposed rules prescribing financial advisers’ duty to their customers and a ban on political giving to win business, the MSRB said. The hundreds of businesses that provide advice to local public officials who raise money in the $2.9 trillion municipal-bond market were largely unregulated until the passage of Dodd-Frank, which closes loopholes illuminated by the financial crisis.

The MSRB said it will resubmit the rules once the SEC completes its work. The decision may delay the regulations only for months because the SEC is aiming to complete its work by year-end, according to an agency timeline.

Under Dodd-Frank, municipal advisers must register with the SEC and are subject to rules created by the MSRB. The SEC in December issued proposed regulations regarding registrations, though it has yet to complete them.

The SEC’s definition of who is a municipal adviser drew criticism from local bankers who said it was too broad and would subject them to added regulations for providing services such as bank accounts.

Special Section: ICB Report

Britain to Implement Vickers’s Bank Protection Plan by 2019

Britain’s government will force lenders to insulate their consumer banking units by 2019 as Chancellor of the Exchequer George Osborne seeks to shield customers and taxpayers from another financial crisis.

The Independent Commission on Banking, chaired by former Bank of England Chief Economist John Vickers, recommended in a 360-page report published yesterday that banks build fire breaks between their consumer and investment banks. The plans will cost the industry as much 7 billion pounds ($11 billion), the report said. Osborne, 40, pledged the government will legislate by the end of the current parliamentary session in 2015. British bank shares fell.

Osborne told reporters yesterday he plans to “stick to” Vickers’ timetable.

The government last year asked Vickers, 53, to chair a commission considering ways to enhance competition and reduce the risks posed by the financial industry. U.K. banks including Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Plc lobbied the commission and the government to delay implementation if it went ahead with the fire break plan, arguing it could harm the U.K.’s faltering economic recovery.

Once the recommendations are implemented, the so-called ring-fenced units will include all checking accounts, mortgages, credit cards and lending to small- and medium-sized companies, the report said. As much as a third of U.K. bank assets, or about 2.3 trillion pounds, will be included, the document said. Trading and investment banking activities will be excluded from the ring-fence.

For more of this story, click here.

Separately, Britain’s banks should become more transparent in their dealings on products for consumers and small businesses and make it easier for them to switch checking accounts, a government-appointed commission said in the ICB report.

The Financial Conduct Authority, once it has been set up, should work with banks to provide information in relation to the cost of their services, the ICB said yesterday.

A current account redirection switching service should also be created by Sept. 2013 to smooth the process of switching accounts for consumers and small businesses, the ICB said.

Separately, the panel’s proposals don’t clash with European Union proposals, the European Commission said yesterday.

“At first glance,” implementation of the Vickers report can be done in a way that complies with current and pending EU legislation, said Chantal Hughes, a spokeswoman for the commission. This includes EU proposals to implement Basel III capital rules in similar ways across the 27-nation region.

The Vickers report recommended that the U.K.’s biggest banks hold more capital than required by the Basel Committee on Banking Supervision.

Osborne Says Bank Report Is ‘Impressive Piece of Work’

U.K. Chancellor of the Exchequer George Osborne spoke in the House of Commons about the Independent Commission on Banking report published yesterday.

Britain’s government will force lenders to insulate their consumer banking units by 2019 to shield customers and taxpayers from another financial crisis.

For the video, click here.

Compliance Policy

Deutsche Boerse-NYSE Deal Is Good for Europe, Report Concludes

Deutsche Boerse AG and NYSE Euronext’s planned merger will improve financial market stability and competition in Europe and boost consolidation, according to a report commissioned by the Frankfurt exchange operator and published today.

The study by Hendrik Enderlein, a former European Central Bank economist who is now a professor of political economy at the Hertie School of Governance, concluded that the merger will help Europe regain ground lost to other financial centers though jobs will likely be eliminated in the process.

Deutsche Boerse and NYSE Euronext forecast cost savings of 400 million euros ($545 million) when they announced the plan to create the world’s biggest owner of equities and derivative markets in February. The Enderlein report follows the publication last week of a study alleging that the merger plan flouts German exchange rules, concluding that authorities should block it as a result.

Deutsche Boerse said yesterday in an e-mailed statement that Germany’s BaFin financial-services regulator approved the merger.

Regulatory approval remains a hurdle for Deutsche Boerse and NYSE after both sets of shareholders approved the combination. The plan is the focus of an extended antitrust probe by the European Commission, which has set a Dec. 13 deadline to give its opinion on the deal. The all-stock transaction would give Deutsche Boerse 60 percent of the combined entity.

For more, click here.

Compliance Action

First National Bank of Florida Closed, FDIC Says

First National Bank of Florida in Milton, Florida, has been closed, according to a statement by the Federal Deposit Insurance Corp.

CharterBank of West Point, Georgia, will assume all of its deposits, the FDIC said. First National Bank had $296.8 million in total assets, including $280.1 million in deposits, according to the FDIC.

The cost to the Deposit Insurance Fund is $216.3 million, the FDIC said in the statement.

For a table listing banks that have failed since 1934 and their cost since 1986 in millions of dollars to the Deposit Insurance Fund, click here. Data for the table was provided by the FDIC.

Government Must Decide on Further Lloyds Sales, Panel Says

Lloyds Banking Group Plc should sell substantially more assets and the British government should seek agreement with the lender on how to do this, the Independent Commission on Banking said.

The panel didn’t specify what assets the London-based lender should sell beyond the divestiture of 632 branches already planned. Lloyds, the U.K.’s second-biggest taxpayer- assisted bank, has lobbied the commission and the government to spare it further asset sales beyond those agreed with the European Union in 2009.

Lloyds’s share price has fallen 50 percent since the ICB’s April interim report said it should sell more assets than the branch sales agreed following the lender’s receipt of more than 20 billion pounds ($31.7 billion) in state aid. Lloyds became the U.K.’s biggest provider of current accounts and the biggest mortgage provider with its takeover of HBOS Plc following the 2008 financial crisis.

The lender opposed an increase in branches sales, with Chairman Win Bischoff saying in May that the lender won’t sell “even one branch more” than what was agreed with the E.U. and the previous Labour administration.

Canada Watchdog to Hold Hearing on Sino-Forest Put Options

The Ontario Securities Commission will hold a hearing this week to consider modifying a temporary cease-trade order on the Canadian shares of Sino-Forest Corp. to allow the trading of some outstanding put options.

The Canadian Derivatives Clearing Corp. will petition the agency today to allow the trading of put contracts linked to Sino-Forest shares, Canada’s main securities watchdog said yesterday in a notice on its website.

In an order last week, the Toronto-based commission extended a trading ban on Sino-Forest shares to Jan. 25 as it investigates allegations of fraud at the Chinese tree-plantation operator.

Sino-Forest’s stock has plunged 74 percent in Toronto since June 1, the day before short seller Carson Block’s Muddy Waters LLC published a report alleging that the company overstated its timber holdings. Sino-Forest has denied Muddy Waters’ allegations and has assigned an independent committee to investigate the claims, hiring PricewaterhouseCoopers LLP to assist.

For more, click here.

Australian Regulator Investigates Hanlong Mining Executives

Australia’s securities regulator froze the assets and placed travel bans on executives of China’s Hanlong Mining Investment Pty as part of an investigation into suspected insider trading involving two takeover targets.

Steven Hui Xiao, managing director of Hanlong, a unit of China’s Sichuan Hanlong Group, had his assets frozen and was banned from leaving Australia until Sept. 22, the Australian Securities and Investments Commission said today in a statement. Three employees are helping the inquiry and will stand down from their positions pending its outcome, Hanlong said in a statement.

Sundance Resources Ltd. and Bannerman Resources Ltd., targets of takeover proposals from Hanlong, plunged in Sydney trading after the Supreme Court of New South Wales made the orders against Xiao and two other Hanlong employees. The Chinese company in July made a A$1.2 billion ($1.24 billion) bid for the rest of Sundance, a week after making a proposal to Bannerman.

“The court found that ASIC had shown a solid basis for investigating whether Mr. Xiao may have contravened the Corporations Act insider trading provisions,” the regulator said in the statement.

John Mitchell, a lawyer at Arnold Bloch Leibler in Sydney who represents Xiao, wasn’t immediately available to comment.

“It is important to note Hanlong Mining is not under investigation and is conducting business as usual,” the company said. Chengdu-based Sichuan Hanlong vice-president Kang Huan is traveling to Sydney to oversee management of Hanlong’s interests in Australia, it said.

“Sundance has no comments, and proposes not to comment, in relation to the ASIC investigation,” the Perth-based company said in a statement. “Sundance notes that the investigation does not relate to the conduct of Sundance or its personnel.”

Peter Kerr, Bannerman’s chief financial officer, said it’s “business as usual” at the company and declined to comment further.

U.K.’s FSA Concerned by High-Volume Trade Discounts, FT Says

The U.K. Financial Services Authority has contacted trading platforms, including the London Stock Exchange, over concerns that volume discounts used to attract high-frequency traders are encouraging larger trades than might otherwise have been made, the Financial Times reported, citing people familiar with the FSA.

The exchange said it sought “to innovate” in pricing to meet “customers’ needs,” the newspaper reported. The London Exchange said it maintains “an active dialogue” with regulators who approve all pricing structures in advance.

Courts

Lloyd’s Underwriters Sue Saudi Bank Over Sept. 11 Claims

Members of Lloyd’s of London’s Syndicate 3500 sued Saudi Arabia’s National Commercial Bank and other defendants seeking the recovery of $215 million in claims paid to victims of the Sept. 11, 2001, terrorist attacks.

National Commercial, Saudi Arabia’s largest lender, and other Islamic banks and charities helped fund or channel funds to Osama bin Laden’s al-Qaeda network, which was responsible for the attacks in New York and Washington, lawyers for the syndicate said in a complaint filed last week in federal court in Pittsburgh.

The suit seeks recovery of amounts paid in settlement of Sept. 11 aviation cases. The families of about 600 people killed in the attacks sued National Commercial in 2002 seeking to freeze the assets of the bank.

The case is Underwriting Members of Lloyd’s Syndicate 3500 v. Kingdom of Saudi Arabia, 11-00202, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

Interviews/Speeches

EU Says It Has No Doubt U.S. Will Meet Basel Commitments

The European Union said it has “no doubt” that the U.S. will stick to its commitments to apply the Basel III capital and liquidity rules to its banks.

“It is essential,” that the members of the Group of 20 nations, including the U.S., implement the measures, Chantal Hughes, a spokeswoman for the European Commission said in Brussels yesterday. “We have no doubt that” the U.S. authorities “will hold to their commitments.”

She was responding to comments attributed to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon in the Financial Times. The U.S. should consider withdrawing from the Basel group of global regulators, he said, according to the FT.

“It’s not surprising that certain banks don’t want to implement those requirements,” said Hughes. “We shouldn’t have a short memory.”

Coffey Says Barclays, RBS Worst Hit by Banking Reforms

Jane Coffey, head of equities at Royal London Asset Management Ltd., and Matthew Fell, director of competitive markets at the Confederation of British Industry, discussed the Independent Commission on Banking report and its impact on U.K. banks including Barclays Plc and Royal Bank of Scotland Group Plc.

Coffey and Fell spoke with Andrea Catherwood on Bloomberg Television’s “Last Word.”

For the video, click here.

Malmgren Says Europe on Brink of Bank Failures, Defaults

Pippa Malmgren, president and founder of Principalis Asset Management, talked about the risk of bank failures and sovereign default in Europe.

She spoke with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

For the video, click here.

Doug Dachille Says Basel Rules Put Banking in ‘Time Out’

Doug Dachille, chief executive officer of First Principles Capital Management LLC, Irene Finel-Honigman, a professor of international and public affairs at Columbia University, and Carl Weinberg, founder of High Frequency Economics, talked about global financial markets and banking regulations.

They spoke with Pimm Fox on Bloomberg Television’s “Taking Stock.”

For the video, click here.

--With assistance from Nandini Sukumar, Chris Middleton, Ambereen Choudhury, Gonzalo Vina, Gavin Finch and Howard Mustoe in London; Jim Brunsden in Brussels; William Selway in Washington; Vivek Shankar in New York; Mariajose Vera in Muenchen, Germany; John Simpson in Toronto; Joe Schneider in Sydney; Christopher Donville in Vancouver; and Sophia Pearson in Philadelphia. Editor: Mary Romano.

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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