Bloomberg News

Bank ‘Living Wills,’ Adviser Rule, EU Bank Jobs: Compliance

September 14, 2011

(Updates with Greek aid in Compliance Policy; Japan banks, EU bank jobs and N.Z. securities in Compliance Action; and Ochoa in Interviews/Speeches.)

Sept. 14 (Bloomberg) -- U.S. regulators approved two sets of guidelines that banks including Citigroup Inc. and JPMorgan Chase & Co. will have to follow in drafting plans to protect the broader economy in the event of their own collapse.

The Federal Deposit Insurance Corp. board voted unanimously yesterday to release a joint final rule laying out what the largest and most complex financial firms must include in so- called living wills they’re required to file. The panel also approved contingency planning guidelines for insured banks.

The Federal Reserve is still required to approve the living-wills rule before it can become final.

Congress, in the Dodd-Frank Act, expanded regulators’ authority to seize and unwind lenders in response to the market tumult that followed the September 2008 bankruptcy of Lehman Brothers Holdings Inc. The new rules are designed to eliminate the need for bailouts by giving the FDIC power to liquidate large firms whose failure could threaten the financial system.

Banks with at least $50 billion in assets will have to file plans, as will any firm designated as systemically important by the Financial Stability Oversight Council.

The final rule changes the filing timeline from an April draft proposal released by the FDIC and Fed, moving toward a tiered phase-in based on the total of non-bank assets held by firms.

The agency also approved unanimously a separate rule dictating resolution plans for FDIC-insured banks with more than $50 billion in assets. The rule, which the agency began drafting before the completion of the Dodd-Frank Act, would apply to 37 banks and thrifts, according to a senior FDIC official. Thirty four of those firms would be required to file resolution plans with the Fed because of the size of their parent company.

The rule would have an effective date of Jan. 1, 2012, and would be subject to a 60-day public comment period.

For more, click here.

Compliance Policy

Ketchum Says Finra ‘Uniquely Positioned’ to Oversee Advisers

The head of Wall Street’s self-funded regulator said the group would be ready to assume oversight of investment advisers in addition to broker-dealers if that’s what Congress decides.

Richard Ketchum, chairman and chief executive officer of the Financial Industry Regulatory Authority, told lawmakers at a House Financial Services Committee hearing yesterday that his Washington-based group would create a unit to oversee advisers.

Finra “would establish a separate entity with separate board and committee governance to oversee any adviser work, and would plan to hire additional staff with expertise and leadership in the adviser area,” Ketchum told members of the House panel’s capital markets subcommittee.

Representative Spencer Bachus, the Alabama Republican who leads the Financial Services Committee, has drafted a bill that would put one or more self-regulatory groups in charge of overseeing retail advisers, under the authority of the Securities and Exchange Commission. That bill and proposed new standards for how broker-dealers treat clients were examined by lawmakers at yesterday’s hearing.

The Dodd-Frank Act, enacted last year, directed the SEC to look into the practices of financial advisers in response to high-profile frauds that were exposed in the wake of the 2008 financial crisis. The SEC’s study concluded that the agency needs to address its inability to inspect a sufficient number of investment advisers on a regular basis.

The report presented options including using new SEC fees to pay for an expanded inspections program or moving investment advisers under a self-regulatory organization.

For more, click here.

High-Frequency Firms May Face Tougher EU Market-Abuse Rules

The European Union is considering listing “specific examples of strategies using algorithmic trading and high- frequency trading” that should be banned and punished by regulators as market manipulation.

The measures to increase investor protection and reduce volatility are part of plans to clamp down on market abuse in the region, according to a draft of the proposals obtained by Bloomberg News.

“There are particular automated strategies that have been identified by regulators which, if carried out, are likely to constitute market abuse,” the European Commission document says. “Further identifying abusive strategies will ensure a consistent approach in monitoring and enforcement by competent authorities.”

High-frequency traders have come under increased regulatory scrutiny following the so-called flash crash in May of last year, during which the Dow Jones Industrial Average briefly lost almost 1,000 points.

The EU move follows investigations by U.S. regulators into the practices of high-frequency traders.

For more, click here.

EU Task Force on Greek Technical Aid to Report by End October

A European Commission task force began working with Greek authorities to identify the country’s technical-assistance needs and to accelerate its absorption of European Union structural funds.

The mission of about 30 officials, including national experts, will prepare an initial report by the end of October, commission spokesman Olivier Bailly told reporters in Brussels yesterday.

Horst Reichenbach, vice president of the European Bank for Reconstruction and Development and head of the task force, was to begin a three-day visit to Athens yesterday, Bailly said.

Compliance Action

Canadian Regulators Question Ads Promoting Stocks

Canadian regulators said the use of mass advertising to generate interest in securities may not comply with securities laws and may be misleading.

The regulators in Alberta, Ontario, Quebec, Nova Scotia, New Brunswick and Northwest Territories issued a notice saying the ads may not reflect positively on the integrity of issuers or the Canadian capital markets, according to a statement on the website of the Ontario Securities Commission.

House Panel to Examine Conflict Case of Ex-Sec Lawyer Becker

A U.S. House panel will examine whether the former general counsel of the U.S. Securities and Exchange Commission had a conflict of interest because of his family’s investment in the Bernard Madoff Ponzi scheme.

Subcommittees of the House Financial Services Committee will hold a joint hearing on Sept. 23 to look into David Becker’s actions while at the agency, according to a press release yesterday. Becker and his brothers had received a Madoff investment in the form of an inheritance and were sued by the bankruptcy court’s trustee to recover what he called fictitious profits.

At the SEC, Becker worked on legal issues relating to the recovery of Madoff investors’ assets.

Tsukuba Bank, Sendai Bank to Get Public Money on Tsunami

Tsukuba Bank Ltd. and Sendai Bank Ltd., Japanese lenders based in areas stricken by the March earthquake and tsunami, will receive a combined 65 billion yen ($845 million) of taxpayers’ money, the Financial Services Agency said.

The banking regulator said it approved an application by Tsukuba Bank, based in Tsuchiura of Ibaraki Prefecture north of Tokyo, for 35 billion yen. Sendai Bank will receive 30 billion of public funds, the FSA said in a statement in Tokyo.

Tsukuba Bank is among lenders in northeastern Japan that are under pressure to write off loans after the magnitude-9 temblor led to business failures. Corporate bankruptcies stemming from the disaster totaled 330, according to data compiled by Tokyo Shoko Research Ltd.

More Job Cuts Loom for Europe’s Banks Locked Into Higher Pay

European banks may resort to more jobs cuts or zero bonuses as they struggle to maintain fixed compensation levels amid deteriorating financial markets.

The companies are facing shrinking revenue and higher costs after raising base salaries of investment bankers by as much as 100 percent. That decision, which followed regulations to curb bonuses in the wake of the credit crisis, is irreversible even if conditions worsen, lawyers and consultants said, leaving banks with fewer options in their bid to improve margins.

“The legal, reputational, commercial and logistical risks” of cutting salaries “are huge,” said Jason Butwick, a London employment attorney at law firm Dechert LLP.

European banks including UBS AG, Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Credit Suisse Group AG have announced more than 70,000 job cuts since midyear, compared with 42,000 by U.S. peers, according to data compiled by Bloomberg.

Compensation cost as a percentage of net income at the 20 largest investment banks will increase for a second year to 65 percent in 2011 from 55 percent in 2009, Barclays Capital analysts said in an Aug. 10 report.

For more, click here.

N.Z. Securities Regulator Ends Six Finance Firm Investigations

New Zealand’s Financial Markets Authority said six investigations into finance companies will be stopped because further work wouldn’t be in the public interest.

Sixteen other investigations involving NZ$3.45 billion ($2.84 billion) of investor losses are continuing, it said in a statement on its website.

Companies no longer being investigated are Geneva Finance, Mascot Finance, Strata Finance, Finance & Leasing, St Kilda Finance and Direct Property Investments No.6.


Former SAC Capital Portfolio Manager Settles With SEC

Donald Longueuil, a former junior portfolio manager at SAC Capital Advisors LP, agreed to settle a civil suit filed by the U.S. Securities and Exchange Commission.

Longueuil was sentenced to 30 months in prison in July after pleading guilty to criminal charges of conspiracy and securities fraud in a case that also included former SAC portfolio manager Noah Freeman, Samir Barai, founder of Barai Capital Management, and Jason Pflaum, an analyst who worked for Barai.

All four men pleaded guilty in a U.S. investigation targeting insider trading at hedge funds. The settlement, filed in U.S. District Court in Manhattan yesterday, says that Longueuil is cooperating with the SEC’s investigation.

Longueuil agreed to pay the SEC $353,000 in the settlement. The agreement gives him credit for the larger amount, $1.25 million, that he is required to forfeit to the government as part of the criminal conviction.

The case is Securities and Exchange Commission v. Longoria, 11-CV-753, U.S. District Court, Southern District of New York (Manhattan).


U.K. Banks Welcome to Relocate in Hong Kong, Says Donald Tsang

Hong Kong would “absolutely” welcome London-based banks HSBC Holdings Plc and Standard Chartered Plc if they decided to move headquarters to the former British territory, according to Chief Executive Donald Tsang.

“If HSBC or Standard Chartered were to change headquarters it would not undermine their business at all,” Tsang said in an interview yesterday. “They already have a healthy line of business in Asia.”

Tsang, who is in London to promote Hong Kong as a financial center to British business leaders, said that it was ultimately a decision for the banks and he didn’t “want to encourage a move that would impair relations” with trading partners including London and New York.

HSBC and Standard Chartered are among lenders required to comply with new British rules under plans published on Sept. 12 by the Independent Commission on Banking. China last month unveiled a package of measures to bolster Hong Kong’s role as a financial hub and to aid an economy that shrank in the second quarter for the first time since 2009.

Tsang was scheduled to meet Chancellor of the Exchequer George Osborne yesterday.

For more, click here.

Miller Sees ‘A Lot of Holes’ in European Bank System

Paul Miller, managing director at FBR Capital Markets Corp., talked about the outlook for the global banking system and investor sentiment.

Miller, who spoke with Betty Liu, Jon Erlichman and Dominic Chu on Bloomberg Television’s “In the Loop,” said “policy makers have learned lessons” about liquidity since 2008 that would help maintain trust among banks in the event of European country defaults.

For the video, click here.

Philippines Considers Audit on Revenue From Mining, Ochoa Says

The Philippines may participate in a global initiative on transparency in revenue from mining and exploration, Executive Secretary Paquito Ochoa said in a speech in Manila today.

The Southeast Asian nation “may have to consider beginning the process” to participate in the so-called Extractive Industry Transparency Initiative or EITI, which requires miners and companies in the so-called extractive industry “to publish what they pay and for the governments to publish what they receive,” Ochoa said.

Comings and Goings

Colombia Oil Regulator Zamora Resigns After Spurring Output

Colombian oil regulator Armando Zamora, who drew international investment to the Andean nation by auctioning oil rights to investors including Brazilian billionaire Eike Batista, has resigned after eight years.

Zamora will return to “professional and academic activities” after heading the National Hydrocarbons Agency, he said in a letter to President Juan Manuel Santos distributed yesterday by the agency. The agency didn’t name a replacement.

Zamora oversaw auctions of oil blocks that helped make Colombia the third-largest producer of crude in South America after Brazil and Venezuela. The government last year auctioned blocks to companies including Batista’s OGX Petroleo & Gas Participacoes SA and South Korea’s SK Energy Co. in a bid to spur more than $1 billion in spending over three years.

Under Zamora, the government signed contracts with companies for as much as $4 billion in investment in oil exploration and production, according to his letter yesterday.

--With assistance from Jim Brunsden in Brussels; Bob Van Voris in New York; Ambereen Choudhury and Liam Vaughan in London; Greg Chang in San Francisco; Jesse Hamilton and Phil Mattingly in Washington; Tracy Withers in Wellington; Cecilia Yap in Metro Manila; Shigeru Sato in Tokyo; and Heather Walsh in Santiago. Editor: Mary Romano.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

The Aging of Abercrombie & Fitch
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