Bloomberg News

OMERS Bill, ING Assets, Commodity Staff Turnover: Compliance

November 29, 2011

(Updates with EU bank guarantees in Compliance Policy and MF Global, Greece-online gambling and HRJ probe in Compliance Action.)

Nov. 28 (Bloomberg) -- Canadian financial institutions are opposing a push by the Ontario Municipal Employees Retirement System, which manages C$54 billion ($51.5 billion) in assets, to manage voluntary pension plans proposed by the government.

Canada’s Conservative government introduced a bill Nov. 17 to create tax-sheltered pensions known as Pooled Registered Pension Plans (PRPPs), to be aimed at employees who don’t have employer-sponsored plans. The bill doesn’t specify what type of institution will be allowed to administer the plans.

Allowing pension funds such as OMERS to manage the plans would help lower costs while keeping the quality of service high, the fund’s Chief Executive Officer Michael Nobrega said in a Nov. 18 letter to Minister of State for Finance Ted Menzies, which was obtained by Bloomberg News.

Insurance companies and banks argue public pension funds would have an unfair advantage administering the plans because they don’t face the same regulations and costs.

Public pension funds, banks and insurance companies are governed by different rules such as tax regimes, said Marion Wrobel, vice president of policy and operations at the Canadian Bankers Association, in an e-mailed statement.

OMERS, which manages the pensions of about 400,000 municipal employees in Canada’s most-populous province, has been searching for new sources of capital to generate greater returns. Nobrega called on the Ontario government in 2009 to allow mergers among pension funds to create “superfunds” that could compete for assets in global markets.

Unlike Canada’s banks and insurers, OMERS isn’t regulated by the Office of the Superintendent of Financial Institutions. Rather, it is overseen by the Financial Services Commission of Ontario.

The federal and provincial governments agreed last year to set up the new pension system, and the provinces must pass their own legislation to allow PRPPs to come into effect.

For more, click here.

Compliance Policy

Swedish Banks Told to Meet Tougher Capital Rules From 2013

Sweden’s biggest banks will need to target tougher capital standards than those set by international regulators in a move the government says will protect taxpayers in the largest Nordic economy from future losses.

Sweden’s four biggest banks, Nordea Bank AB, SEB AB, Swedbank AB and Svenska Handelsbanken AB will be required to target common equity Tier 1 capital of at least 10 percent of their risk-weighted assets from January 2013, according to a joint statement Nov. 25 by the Stockholm-based Riksbank, Financial Supervisory Authority and Finance Ministry. The required ratio will rise to 12 percent in 2015, they said.

The stricter rules will “create more stable banks, prevent future crises and thus reduce the risk of costs for taxpayers,” according to the statement.

Finance Minister Anders Borg has advocated tougher regulatory standards for Swedish lenders since the beginning of the year to ensure the country doesn’t suffer a rerun of its 1990s bank crisis.

Regulators in the U.K. and Switzerland have also signaled they will require their banks to target more rigorous capital standards.

For more, click here.

China Formalizes, Expands Margin Trading, Short-Selling

China issued rules on margin trading and short selling and will widen the scope of underlying securities eligible for such transactions, as it seeks to deepen the nation’s capital markets.

The rules took effect Nov. 24, the Shanghai Stock Exchange said in a statement posted on its website. China will on Dec. 5 broaden securities eligible for margin trading and short sales to include stocks in the exchange’s 180 Index and in four open- ended exchange-traded funds, including the China 50ETF, the statement said.

The formalization follows a trial program, approved by the China Securities Regulatory Commission in January 2010, and comes after former CSRC Chairman Shang Fulin said in June 2010 that margin trading and short selling will be expanded “steadily.”

The new rules require investors to offer as a deposit at least half the value of securities in a margin financing or a short selling transaction. For risk control, when short-sale or margin transactions reach 25 percent of an individual security’s market value, the stock exchange may suspend these trades until the percentage drops to below 20 percent.

U.K. Lawmakers Ask Osborne to Spell Out Financial Tax Costs

U.K. Lawmakers called on Chancellor of the Exchequer George Osborne to spell out the costs of opposing a proposed European tax on financial transactions, saying a lack of facts obscures whether Britain should adopt it.

Andrew Tyrie, chairman of Parliament’s Treasury Committee, asked Osborne to provide estimates of the amount of revenue the tax would raise after taking into account how banks would respond to it and whether they would shift trading to other parts of the world.

He also sought clarification about the potential impact on financial services in the U.K. and on British firms that trade with the euro region if the single-currency area pressed ahead with the tax.

Osborne criticized European Union plans for a financial transaction tax in an article in the Evening Standard newspaper earlier this month.

EU Said to Shield Banks Getting Guarantees in Debt-Roiled States

Banks in states roiled by Europe’s sovereign-debt crisis may be partly shielded from extra costs when they seek government guarantees, according to two people familiar with the situation.

The European Commission will publish rules on state aid for lenders that may dilute the effect of turmoil in the euro area on the fees that banks have to pay for guarantees on their loans and bonds, said the people who couldn’t be identified because the discussions aren’t public. Under the plans, the formula for setting the fees would reduce the impact of soaring debt- insurance costs for the country giving the backstops, one of the people said.

“Renewed tensions” in financial markets are forcing European Union regulators to extend into 2012 special state aid rules for banks that have allowed governments to inject billions of euros into the industry, said EU Competition Commissioner Joaquin Almunia this month. He said he was planning to “clarify and update the rules on pricing and other conditions.”

The costs of insuring against default on European sovereign and financial company debt rose to records as the euro-region’s crisis deepened, with Italy paying the highest yields to sell short-dated bills in 14 years.

For more, click here.

Compliance Action

ING Chief Says EU May Need to Relax Demands for Asset Sales

ING Groep NV Chief Executive Officer Jan Hommen said the European Union may need to relax demands that financial companies sell assets, given that there’s “no market” for deals as the sovereign-debt crisis worsens.

ING, the biggest Dutch financial-services company, is under EU orders to complete a restructuring program that includes selling its entire insurance operations before the end of 2013. The demand was a condition for approval of its bailout by the Dutch government during the financial crisis of 2008 and 2009.

Hommen made the remarks at an investor event in Amsterdam on Nov. 25, adding that executives from other European banks have told him they are also having trouble disposing of assets. European banks should collectively demand the EU relax its rules for every institution rather than ask for “a favor” individually, Hommen said.

For more, click here.

Olympus’s Woodford to Work With Board to Avoid Delisting

Olympus Corp.’s former president Michael C. Woodford pledged to work with the Japanese camera maker’s board to try and avoid delisting after three executives were implicated in a scheme to hide losses resigned.

The company’s priority is to produce accounts by the Dec. 14 deadline set by regulators to avoid being removed from public trading, Woodford told reporters in Tokyo Nov. 25 after his first board meeting since being axed.

The resignation of former Olympus Chairman Tsuyoshi Kikukawa and two senior aides gives the company an opportunity to add board members untainted by the scandal. Woodford’s exposure of $687 million in fees paid by Olympus to a now- defunct Cayman Islands-based fund rattled investors, prompting Prime Minister Yoshihiko Noda to say the payments could damage the country’s international reputation.

While Olympus shareholders including Southeastern Asset Management Inc. have called for the 51-year-old Briton to be reinstated, it wasn’t discussed at the Nov. 25 board meeting, Woodford told reporters.

For more, click here, and click here.

Separately, KPMG International LLP’s global chairman, Michael Andrew, said fraud was evident at Olympus Corp. and his firm met all legal obligations to pass on information related to Olympus’s 2008 acquisition of Gyrus Group Ltd. before it was replaced as the cameramaker’s auditor.

Andrew, who spoke to reporters at the Foreign Correspondents’ Club in Hong Kong, said it was “pretty evident” there was “very significant fraud” in which a number of parties were complicit.

Official conclusions about Olympus’s accounting practices will come from investigations by Japanese authorities, he said. Tokyo-based Olympus is waiting for a third-party panel’s report, spokesman Yasutoshi Fujiwara said in response to Andrew’s statement.

For more, click here.

MF Global U.K. Administrators Seek to Return Money by March

MF Global’s U.K. administrators said they hoped to return some money to the collapsed broker’s clients by March.

Once a claim is approved, funds can be distributed to MF Global U.K. Ltd.’s clients within 14 days, special administrators KPMG LLP said in an e-mailed statement. While it didn’t set a final deadline for claims, KPMG has asked clients to submit claims for money and assets held by MF Global by March 30.

The proportion of client money paid out depends on how much is returned by other institutions, KPMG joint special administrator Richard Heis said.

MF Global Holdings Ltd., the New York-based holding company, sought bankruptcy protection Oct. 31 in the U.S. when bets on European debt soured. The broker’s U.K. customers had their funds frozen and put in a client money pool when it collapsed.

There may be more than $1.2 billion missing from MF Global Inc.’s customer accounts in the U.S., according to the company’s court-appointed trustee James Giddens. The CFTC and the Securities and Exchange Commission are investigating cash movements at the firm before the bankruptcy filing.

MF Global, which was run by ex-Goldman Sachs Group Inc. co- chairman Jon Corzine, was the fifth-largest financial company bankruptcy by assets.

For more, see Interviews section, below.

Online-Betting Companies Complain to EU Over Greek Gambling Law

Online-gambling companies said they filed a complaint with European Union regulators asking them to demand changes to a Greek revenue-raising law that they claim hinders betting firms from starting services in the country.

The European Gaming and Betting Association, a group that represents Unibet Group Plc and Bwin.Party Digital Entertainment Plc, and the Remote Gambling Association said they asked the European Commission to address “as a matter of urgency” Greek measures that require new operators to be based in the country and handle financial transactions with Greek banks.

Gambling companies already operating in the country may also be required to pay tax on revenue from Greek customers retroactively from 2010, the groups said in an e-mailed statement.

The European Commission in Brussels declined to immediately comment on the matter.

SEC Said to Investigate Firm Run by Former 49er Team Members

The U.S. Securities and Exchange Commission is investigating whether HRJ Capital LLC, a defunct investment firm run by former members of the San Francisco 49ers football team, misled investors as it struggled to stay solvent in 2008, according to four people with direct knowledge of the probe.

Woodside, California-based HRJ operated funds of funds, investing $2.8 billion for public pension systems and star athletes. In early 2008, during the worst financial crisis in decades, HRJ had more than $300 million in unfunded commitments to buyout funds when it received capital calls to make good on its pledges, according to company records.

As Bloomberg Markets magazine reported in February, HRJ was unable to raise cash to meet those obligations and service loans from Silicon Valley Bank, a unit of Santa Clara, California- based SVB Financial Corp.

SEC lawyers are investigating whether HRJ and its senior managers improperly shifted debt to investors to try to meet those capital calls, according to the people, who declined to be identified because the probe hasn’t been made public.

For more, click here.

Interviews

Chilton Says Finding Missing MF Global Funds Is ‘Job One’

Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, talked about the CFTC’s search for MF Global Holdings Ltd’s missing customer funds.

Chilton, who spoke with Stephanie Ruhle on Bloomberg Television’s “InsideTrack,” also discussed a possible Dec. 5 CFTC vote to restrict how derivatives brokers invest client funds.

For the video, click here.

Comings and Goings

Bank Commodity Staff Turnover Seen Gaining as Rules Tighten

The world’s biggest investment banks have greater staff turnover in commodities than in fixed-income and currencies because of tightening regulations on trading, according to Coalition, a London-based research company.

That reflects “general market confidence and demand from non-banking competitors including trading firms, which do not have the same levels of regulatory constraints,” Coalition said in an e-mail, without giving figures. Coalition, founded in 2002, uses company announcements, its own research, media articles and information from people in the market. Coalition, founded in 2002, uses company announcements, its own research, media articles and information from people in the market.

The Commodity Futures Trading Commission is curbing the size of positions any one party can take in U.S. raw-material derivatives. Revenue from banks’ commodity units is still growing faster than overall sales, Coalition said.

Revenues generated by the 10 largest banks’ commodity units advanced almost 16 percent to a combined $5.49 billion in the first nine months from a year earlier, Coalition said. Overall revenue at the banks contracted 12 percent.

The job-cut rate at top 10 investment banks’ commodity units is smaller than at fixed-income and currency units at the banks, Coalition said. Commodity hedge funds attracted $7.91 billion from investors in the first 10 months, 10.2 percent more than a year ago and above the hedge-fund industry average of 2.1 percent, according to New York-based eVestment|HFN, which tracks the industry.

For more, click here.

--With assistance from Josiane Kremer in Oslo; Kim McLaughlin in Stockholm; Debra Mao in Hong Kong; Mariko Yasu, Naoko Fujimura, Chris Cooper in Tokyo; Chanyaporn Chanjaroen in Singapore; Lars Paulsson in London; Maud van Gaal in Amsterdam; Andrew Mayeda in Ottawa; Aoife White in Brussels; Esteban Duarte in Madrid; Edward Robinson in San Francisco; Gonzalo Vina and Kit Chellel in London. 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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