Bloomberg News

Corporate Speech, EU Transaction Tax, Brazil: Compliance

October 10, 2011

(Updates with Italy downgrade in Compliance Action, Rajaratnam in Courts, Merkel in Interviews/Speeches and Koenig and Douetil in Comings and Goings.)

Oct. 10 (Bloomberg) -- Business groups appealed to the California Public Employees’ Retirement System not to use its $218 billion power as the largest U.S. public pension to push the boards of corporations in which it invests to vote on political donations and disclose them annually.

A coalition led by the California Chamber of Commerce, the state’s biggest business group, said the proposed policy would handcuff publicly traded companies in the political arena.

The U.S. Supreme Court, citing free-speech protections, ruled last year that corporations and unions could spend their own money on elections, not just contributions from employees and political-action committees.

The pension’s proposal “is an unfair and discriminatory mandate on corporate boards of directors,” that will chill the ability of businesses to defend themselves from political attacks, the business organizations said yesterday in a letter to the Calpers board.

The proposed rule would require boards to “ensure that only contributions consistent with and aligned to the interests of the company and its shareowners are approved.” It also would require corporations to disclose political contributions every year, including those to third-party groups that attempt to influence elections.

The proposed policy was reviewed by a subcommittee in August and awaits approval by the full investment committee.

The California State Teachers’ Retirement System is considering a similar policy.

Compliance Policy

Europe Financial Tax Would Have ‘Dramatic’ Impact, Banker Says

The European Commission’s proposed financial-transaction tax, which imposes a levy on stock, bond and derivative trading, would push business out of Europe and hurt its economic recovery, the head of the Nordic region’s biggest bank said Oct. 7.

Christian Clausen, chief executive officer of Nordea Bank AB and president of the European Banking Federation, said in a phone interview that the financial markets are “very fragile” right now. “Any tax of this magnitude would impact banks and society quite a lot.”

The plan, set to take effect in 2014 and raise about 57 billion euros ($76.5 billion) a year, would set minimum tax rates for financial transactions throughout the 27-nation EU, the commission, the European Union’s Brussels-based executive body, said in a Sept. 28 statement. Clausen said the tax would have “dramatic” financial consequences as it would reduce liquidity to Europe’s markets and push trading out of the region.

The proposal would assess trading of stocks and bonds at a 0.1 percent rate, with a 0.01 percent rate for derivatives contracts. The tax is meant for banks, investment firms, insurance companies, pension funds, stockbrokers and hedge funds, among other types of financial firms, the EU said.

Other countries, such as Britain, home to Europe’s biggest financial center, Sweden and the Netherlands have opposed the plan, with some saying it is unworkable if not enacted on a global basis.

The EU said it is seeking to insulate households and small businesses from the tax.

Thailand’s New Telecom Regulator Receives Royal Endorsement

Thailand’s new telecommunications regulator received the endorsement of King Bhumibol Adulyadej, and plans to start work on Oct. 10, said Thakorn Thantasit, the agency’s acting secretary-general.

The Senate earlier this month chose 11 members of the new regulator, the National Broadcasting and Telecommunications Commission. The agency will be responsible for setting the framework for the sale of so called third-generation mobile- phone licenses in Thailand.

Compliance Action

Brazil Starts Insider-Trading Probe Related to Earning Reports

Brazil is stepping up efforts to fight insider trading related to earnings releases after identifying suspicious patterns, chief securities regulator Maria Helena Santana said in an interview Oct. 7 at Bloomberg’s office in Sao Paulo.

The new system being developed will monitor markets and detect trading patterns on the days before earnings releases, Santana said.

She declined to comment on the number or names of the companies and investors being investigated.

The use of non-public information to trade securities is a crime in Brazil and penalties range from one to five years in prison and a fine of as much as three times the illegal profit.

Hedefonline Among Turkish Currency Platforms Facing Ban

Hedefonline, Youtradefx and Finexo are among 32 web-based foreign currency trading platforms that face closure after a legal complaint by the market regulator that they’re operating without the required permission.

The regulator in Ankara made a request to prosecutors to shut down the platforms and end their operations, according to a statement on its website Oct. 6. The move follows a probe into their activities that found they were operating illegally, it said.

Turkey plans to limit web-based trading to authorized brokers.

Vedat Akgiray, Turkey’s chief market regulator, warned on Aug. 23 that investors may lose cash invested in foreign exchange trading even after making a profit, because unauthorized trading platforms may not pay up.

Erste May Give Up 2011 State Refund Plan, Analyst Poll Shows

Erste Group Bank AG, Austria’s biggest lender, may not repay 1.2 billion euros ($1.6 billion) in state capital until at least next year, 12 of 15 analysts polled by Bloomberg News estimate.

Erste, which is also the second-biggest bank in eastern Europe, has already missed its goal to redeem the funds in the third quarter. Of the 12 analysts that don’t expect repayment this year, 10 predict it to start next year.

Banks and regulators may be keen on retention of the capital as sentiment about Europe’s sovereign-debt crisis worsens and policy makers consider rescuing the banking system, analysts said.

Erste rival Raiffeisen Bank International AG, the third- biggest lender in eastern Europe, has said it doesn’t plan a refund for now. Analysts in the poll are split on Raiffeisen’s repayment schedule, with six estimating it will start in 2012 and six saying repayment will begin even later.

Erste was the first bank in Austria to get the non-voting participation capital from the state in 2009, along with 540 million euros from private investors. The bank may join Oesterreichische Volksbanken AG, whose planned repayment of 300 million euros of state aid this year may fail as supervisors are concerned the lender’s capital is insufficient, three people familiar with the situation have said.

For more, click here.

EU Leaders Under Pressure for Bank Rescue Plan Before G-20

European Union leaders are under pressure from investors to devise a comprehensive plan to rescue the region’s banks before a Group of 20 summit in November.

Plans to inject capital into Europe’s banks are “well under way,” European Commission President Jose Barroso said Oct. 7. The European Central Bank also reintroduced yearlong loans, giving banks unlimited access to cash through January 2013. Lenders in the region may need as much as 200 billion euros ($269 billion) of additional capital, according to the International Monetary Fund’s European head Antonio Borges.

Speculation that EU leaders may agree on a comprehensive recapitalization plan has helped to boost the Bloomberg Europe Banks and Financial Services Index 9 percent during Oct. 6 and 7. Bank stocks dropped 30 percent this year as investors became concerned that financial firms will have to write down their holdings of Greek, Italian, Spanish and Portuguese government bonds.

Even a recapitalization of European banks may fail to reassure investors because they will still question the ability of governments to meet their borrowing costs. EU leaders must decide who provides additional capital to the banks and what form it will take. German Chancellor Angela Merkel said on Oct. 5 that Europe’s rescue fund should be relied upon only as a last resort.

For more, click here.

Gagfah Says BaFin Lodges Complaint on Suspected Insider Trading

Gagfah SA said its management informed the company’s board that Germany’s BaFin financial services regulator lodged a complaint with prosecutors against five people relating to suspected insider trading. The company’s management also said they were unaware against which people the complaint was directed, and BaFin hadn’t contacted them directly.

The company will cooperate with authorities on this issue, Gagfah said.

Italy Downgrade Rules Out Bonds From FSA Buffer, JPMorgan Says

Italy’s credit downgrade by Fitch Ratings means the bonds will no longer be eligible for inclusion in the liquidity asset buffer required by the U.K. Financial Services Authority, JPMorgan Chase & Co. said.

Fitch cut Italy’s credit rating to A+ from AA- on Oct. 7. The nation is graded A2 with Moody’s Investors Service and A with Standard & Poor’s.

Courts

Galleon’s Rajaratnam Expected To Be Sentenced This Week

Galleon Group LLC co-founder Raj Rajaratnam is set to be sentenced this week for insider trading after being convicted by a jury in Manhattan federal court for directing the biggest insider-trading scheme in a generation.

Prosecutors say Rajaratnam, who was convicted in May, should serve as long as 24 1/2 years in prison, calling him the “modern face of insider trading.” Last month, judges in Manhattan sentenced two other convicted insider traders -- Zvi Goffer and Winifred Jiau -- to prison terms of 10 years and four years, respectively. Emanuel Goffer, Zvi’s brother, got a three- year sentence Oct. 7.

Since Rajaratnam’s arrest in October 2009, judges in Manhattan federal court have sentenced 13 defendants in cases linked to Galleon. All but two pleaded guilty. The average prison term has been 35.8 months, or almost three years behind bars.

Typically, those convicted at a trial get longer prison terms than those pleading guilty. In addition to the two Galleon defendants who took their cases to a jury, Manhattan judges since 2003 have imposed sentences in three other cases where the main charge was insider trading and a jury returned a guilty verdict.

The average sentence has been six years and two months.

The Rajaratnam case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Interviews/Speeches

Fed’s Lockhart Says Regulators Must Work to End Bailouts

Federal Reserve Bank of Atlanta President Dennis Lockhart said regulators haven’t yet put in place a system that would allow orderly failures of the largest financial firms without taxpayer rescues.

“The system we should work toward is one in which no institution is too big to fail,” Lockhart said Oct. 7 in a speech in Atlanta at Emory University’s Goizueta Business School. “Much is being done in the aftermath of the Fed’s and the Treasury’s emergency interventions of 2008 to get to this state of affairs, but, in my view, this is a longer-term aspiration at this moment.”

The Fed and other banking regulators are working to avoid more taxpayer-funded bailouts following the rescues of insurer American International Group Inc. and Citigroup Inc., which stoked public anger against the central bank and Congress.

Lockhart said regulators must raise required levels of capital to protect against failure of the biggest banks.

“Maintaining this buffer is especially important for the larger, systemically-important institutions,” Lockhart said. He stressed the importance of shifting the risk to private shareholders and creditors, and away from taxpayers.

Merkel Says Bank Capitalization to Be EU Summit Topic

European Union leaders will discuss banks’ capital at their summit on Oct. 17-18, with finance ministers left to carry out the “implementation,” German Chancellor Angela Merkel said.

Merkel, speaking to reporters in Berlin Oct. 7 after talks with Dutch Prime Minister Mark Rutte, reiterated that she is willing to look into bank recapitalization. Even so, using the enhanced European rescue fund for banks should only be permitted as a measure of last resort, she said.

“This summit should deliver a signal related to the way we proceed on bank recapitalization,” Merkel said. “The finance ministers will have to work out the details and the implementation. In any case, I believe we will discuss it.”

Merkel’s comments are her most explicit backing yet for European steps to help shelter banks from the spillover effects of the region’s sovereign-debt crisis centered on Greece.

“We agree that we will follow the advice of the experts that if there are proposals on how we could recapitalize the banks, then we will of course do that,” Merkel said. The European Banking Authority should make proposals on capital, she said.

For more, click here and click here.

Comings and Goings

BaFin’s Appointment of Koenig as Head May Be Delayed, FTD Says

The planned appointment of Elke Koenig as the head of German financial regulator BaFin may be delayed, Financial Times Deutschland reported, without saying where it got the information.

Koenig isn’t likely to be named the successor of Jochen Sanio by the end of the year because of legal changes required to fulfill her pay request, the newspaper reported.

Brit Insurance Says Dane Douetil to Step Down From Oct. 27

Brit Insurance Holdings BV’s Chief Executive Officer Dane Douetil plans to step down, effective Oct. 27, according to a statement today on the exchange.

Douetil will be replaced by Mark Cloutier, subject to approval from the U.K. Financial Services Authority.

--With assistance from James Nash in Huntington Beach, California; Adam Ewing in Stockholm; Boris Groendahl in Vienna; Tuhin Kar, Gavin Finch, Paul Dobson and Liam Vaughan in London; Mariajose Vera in Muenchen, Germany; Felipe Frisch in Sao Paulo; Suttinee Yuvejwattana in Bangkok; Mark Bentley in Istanbul; Steve Matthews in Atlanta; Aaron Kirchfeld in Frankfurt; Tony Czuczka in Berlin; Jim Brunsden in Brussels; David Glovin, Patricia Hurtado and Bob Van Voris in New York; and Ali Berat Meric in Ankara. Editor: Stephen Farr

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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