Bloomberg News

Fannie-Freddie ‘Largesse,’ Telmex, BNP-SocGen: Compliance

March 23, 2012

The days of big spending on conferences and charity are over at Fannie Mae (FNMA) and Freddie Mac (FMCC) and the companies’ regulator should make sure it stays that way, the auditor of the Federal Housing Finance Agency said in two reports released yesterday.

The FHFA Inspector General opened an investigation into travel spending at the government-owned mortgage companies last year after U.S. lawmakers complained that Fannie Mae and Freddie Mac spent over $600,000 to send more than 90 employees to a Mortgage Bankers Association conference in October.

About half those expenditures -- which went toward sponsoring the convention and hosting dinners and other meals -- was “of questionable value,” according to a report.

“There is no indication that any business conducted by the Enterprises with their clientele at the convention could not have been conducted as well without this largesse,” the audit said.

After the conference, the FHFA instituted new restrictions on travel spending at the companies and barred conference sponsorships without prior approval.

The companies, which own or guarantee most U.S. mortgages, have faced spending restrictions since they were seized by the government in 2008 after investments in risky loans pushed them to the brink of insolvency. Together, they have drawn almost $190 billion in taxpayer aid so far.

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Compliance Policy

U.S. Senate Backs Easing Capital Rules for New Public Companies

The U.S. Senate, with wide bipartisan support, backed a reduction in U.S. Securities and Exchange Commission rules for start-up and newly public firms, setting up a final House vote on the measure.

The Senate voted 73-26 to pass the bill, which has been subject to a week-long fight between investor advocates and business groups, as well as infighting within and between Democrats, over whether the measure will lead to fraud or give closely held firms the freedom to more easily raise capital and, by extension, create jobs.

The House, which passed a similar measure earlier this month, will have to vote on the Senate version before President Barack Obama, who supports several provisions in the bill, can sign it into law.

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Slim’s Telmex Targeted in Mexican Rules on Leasing Lines

Mexico’s telecommunications regulatory agency approved rules implementing price and quality controls for dedicated lines leased by billionaire Carlos Slim’s Telefonos de Mexico SAB to competitors.

The rules will go into effect in “the coming days” when they are released in the official gazette, the agency known as Cofetel said yesterday in an e-mailed statement.

Carriers designated as dominant by Mexico’s antitrust agency will face regulations to prevent them from “engaging in conduct that hurts the development of equal competition, or hurt consumers through the fixing of arbitrarily high prices in services offered,” Cofetel said.

Telmex, as the Mexico City-based unit of America Movil SAB (AMXL) is known, dominates the market for originating, carrying and completing phone calls as well as leasing lines to rivals, the antitrust agency found in 2009. The agency declared America Movil’s wireless unit Telcel dominant in the mobile-phone market the following year.

Telmex is the only company to be designated as dominant by the antitrust agency in the market for dedicated lines.

The rules tighten the government’s oversight of the phone carrier controlled by Slim. More rules are coming in other areas in which the antitrust agency has declared Slim’s companies dominant, Cofetel President Mony de Swaan said in a January interview.

America Movil and Telmex are appealing the antitrust agency’s rulings on their dominance. The companies have 70 percent of wireless customers and almost 80 percent of fixed lines.

Telmex had no immediate comment, said an official who asked not to be named because of company policy.

The rules obligate any carrier designated as dominant to provide competitors using leased lines with quality “that in no case can be inferior to that which the carrier provides itself or to its subsidiaries or affiliates.” Service requests must be attended to “with punctuality,” Cofetel said.

The agency didn’t specify what prices dominant carriers can charge for the lease of dedicated lines.

FSA Increases Annual Budget to $914 Million in Final Year

The U.K. Financial Services Authority increased its annual budget by 15.6 percent to 578.4 million pounds ($914 million) in its last year of operation, citing the challenges of structural changes and implementing European rules.

The financial watchdog, funded by the firms it regulates, is preparing to be abolished by 2013 and replaced by two new regulators to police banks and markets. About 1,100 people will move to the Prudential Regulatory Authority at the Bank of England while the rest of the FSA’s 4,000 employees will go to the Financial Conduct Authority.

The regulator increased its budget by 10 percent last year to 501 million pounds as it started two separate business units to mirror the creation of the Prudential Regulatory Authority and Financial Conduct Authority in 2013.

Credit-Ratings Firms Need to Improve Transparency, Esma Says

Credit-rating firms such as Fitch Ratings Ltd., Moody’s Investors Service Inc. (MCO) and Standard & Poor’s must improve their computer systems, documentation of rating decisions and transparency of their methodology, the European Union’s markets authority said.

The European Securities and Markets Authority said in an e- mailed statement yesterday that it focused on sovereign debt and bank credit ratings and hasn’t yet determined “whether any of the observations in the report constitute a breach” of the rules governing the firms.

France Needs Reform Minister, AMF’s Jouyet Tells Acteurs Publics

France needs a junior minister in charge of financial reform, Jean-Pierre Jouyet, president of France’s financial markets regulator, said in an interview published yesterday on the website of Acteurs Publics.

Jouyet, head of the Autorite des Marches Financiers, said the proposal by Pascal Canfin, a member of the European Parliament, is “a very good idea that answers a real need for coordination” and could allow France a stronger voice in negotiations with other countries, according to Acteurs Publics, a monthly magazine.

Such a post would be under the Finance Minister, whose agenda is too full to allow adequate focus on the issue, Jouyet told Acteurs Publics.

SASAC Plans Overseas Investment Rules, 21st Century Says

China’s State-Owned Assets Supervision and Administration Commission is considering making overseas investment rules for central government-owned companies to prevent the erosion of assets, 21st Century Business Herald reported yesterday, citing an unidentified SASAC official.

Overseas equities and ownership of offshore companies held by individuals on behalf of the government must be registered with SASAC by the end of this month, according to the newspaper.

SASAC will also “clean up” the transfer and capital injections of overseas state assets and changes of state stakes in Hong Kong-listed “red chip” companies, according to the report.

Compliance Action

AIJ Chiefs May Face Japan Criminal Probe for Hiding Losses

Two directors of AIJ Investment Advisors Co., the Japanese investment firm suspected of hiding more than $1 billion of losses on pension money, may face a criminal probe for their role in the case, regulators said.

AIJ President Kazuhiko Asakawa, 59, and director Shigeko Takahashi, 52, allegedly conspired to conceal trading losses and fabricate reports on the assets managed to attract pension funds, the Securities and Exchange Surveillance Commission said in Tokyo today. The firm oversaw 145.8 billion yen ($1.8 billion) of clients’ money and lost 109.2 billion yen from derivatives trades directed by Asakawa over nine years, the SESC said.

The case has spurred authorities to conduct checks on 265 Japanese fund managers amid growing concerns that retirement assets are at risk in a country where more than a fifth of the population is over 65.

Regulators today searched AIJ’s Tokyo headquarters and revoked its registration. They ordered brokerage ITM Securities Co. to halt business for six months for allegedly selling the funds with the knowledge that reports of their value were false.

AIJ’s clients included 84 pension funds representing 880,000 workers ranging from taxi drivers to medical practitioners.

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Deutsche Bank Reorganizes U.S. Unit Amid Capital Regulations

Deutsche Bank AG (DBK), Germany’s biggest lender, implemented a plan to alter the status of its main U.S. subsidiary in response to capital rules being imposed under a U.S. regulatory overhaul.

The division, known as Taunus Corp., is no longer a U.S. bank holding company effective Feb. 1 after the German firm reorganized the ownership of its U.S. banking subsidiaries, Deutsche Bank said in a report published on its website on March 20. Deutsche Bank Trust Corp. is now the “top-tier” U.S. bank holding company subsidiary, the firm said.

Deutsche Bank shareholders in May 2011 approved plans to reorganize the U.S. unit to meet new regulations without requiring additional capital. Chief Financial Officer Stefan Krause said last month the project is “ongoing.” Overseas lenders including Barclays Plc are altering their U.S. holding subsidiaries because the Dodd-Frank Act of 2010 would otherwise force the divisions to comply with the same capital rules as domestic banks.

“We have always had and will continue to have appropriate capital levels in all our U.S. regulated entities,” spokesman Christian Streckert said by e-mail yesterday. “This action, which does not diminish any of our regulatory oversight, allows us to streamline our organizational structure, strengthening an already strong institution.”

EU May Limit Planned Insurance Exemptions for Tankers to Iran

The European Union may scale back a plan to allow some insurance contracts for Iranian oil by permitting cover against the risk of tanker collisions and spills only until July 1, according to three EU officials.

The three-month exemption for such insurance under a forthcoming EU embargo on Iranian oil would toughen a proposal from February to exclude these contracts from the sanctions altogether. Because insurers of almost all the world’s tankers follow EU law, its provisions on insurance tied to Iranian oil would have an impact beyond the bloc’s borders.

Frontline Ltd. (FRO), Overseas Shipholding Group Inc. (OSG) and owners of at least 100 supertankers said last month they would no longer call at Iranian ports because of the insurance ban.

The latest plan, set to be discussed yesterday in Brussels by diplomats from the 27-nation EU, has the backing of most member nations, the European officials said on the condition of anonymity because the talks are confidential.

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BNP, SocGen Reviewing Appeal of AMF Fine for Market Violations

BNP Paribas SA (BNP) and Societe Generale SA, France’s largest banks, are considering appealing 500,000-euro ($658,000) fines issued by the Autorite des Marches Financiers for violating market-testing procedures before a bond sale.

The banks were fined by the AMF, France’s financial markets regulator, for breaking rules on how to conduct market polls to ensure against insider trading ahead of January 2009 bond issuances, according to the March 21 decision.

BNP Paribas said in a statement e-mailed by Paris-based spokeswoman Julia Boyce that the incident resulted from a “one- off administrative process” which has no consequence for clients.’’

Societe Generale (GLE) is considering “options” following the AMF decision, the Paris-based bank said in an e-mailed statement.

FSA Plans Review of Client Cash Process, Telegraph Says

The U.K. Financial Services Authority will undertake a review of how companies handle client money, according to a report by the Telegraph. The review comes in the wake of the collapse of MF Global Holdings Ltd. (MF), Lehman Brothers Holdings Inc. and WorldSpreads Group Plc (WSPR), the newspaper said.

The FSA will look at factors such as “inadequate records, ineffective segregation of client assets and low level of awareness of requirements in this area” as part of its current business plan, the newspaper reported.

The government agency is “also examining options to prohibit former bosses of failed banks from taking other well paid jobs in the City,” the Telegraph said, referring to London’s financial sector.

Courts

AT&T Accused of Improperly Billing U.S. Program for Deaf

A unit of AT&T Inc. (T) is accused of improperly billing the U.S. for millions of dollars in reimbursements of text-based communications under a federal program for the hearing-impaired.

The U.S. Justice Department March 21 intervened in a whistle-blower lawsuit in federal court in Pittsburgh that alleged the phone company violated the False Claims Act. AT&T failed to ensure that users of the Federal Communications Commission program were eligible, the U.S. alleges.

According to the complaint, AT&T allowed thousands of calls to be made on the system by users in Nigeria and other countries seeking to defraud U.S. merchants.

Marty Richter, a spokesman for Dallas-based AT&T, said in a statement that the company followed the FCC’s rules. He said that while it is possible for an individual to misuse IP Relay services, FCC rules “require the company to complete all calls by customers who identify themselves as disabled.”

The case is Lyttle v. AT&T Communications of Pennsylvania, 10-01376, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

Interviews/Speeches

Roth Expects a CFTC Rule on Use of Investor Funds

Daniel Roth, chief executive officer of the National Futures Association, talked about the U.S. Commodity Futures Trading Commission’s regulation of the futures market and the so-called Corzine Rule proposal which would place tighter restrictions on firms’ use of investor funds.

Roth spoke on Bloomberg Television’s “InBusiness With Margaret Brennan.”

For the video, click here.

Smith Says Money-Market Fund Business Model ‘Broken’

Henley Smith, chief investment officer at Commonwealth Asset Management LLC, talked about money-market mutual funds and reform. In the 2008 financial crisis, money market funds “were the left hook that no one really saw,” Henley said.

He spoke with Pimm Fox on Bloomberg Television’s “Surveillance Midday.”

For the video, click here.

Comings and Goings

Ex-Congressman Bartlett Retiring From Wall Street Trade Group

Steve Bartlett, head of one of the biggest trade associations for financial companies in Washington, is retiring at the end of the year, saying that “after 12 and a half years at the helm, it’s time for a new captain.”

Bartlett, chief executive officer of the Financial Services Roundtable, announced his plans in an e-mail sent to the group’s members yesterday. The former Republican congressman from Texas joined the association in 1999.

The roundtable, which lobbies on behalf of 97 large banks, insurers and other financial companies, has hired executive search firm Korn/Ferry International (KFY) to find a new CEO, Bartlett said.

According to two people familiar with the search, the association is looking to hire a former lawmaker or high-level regulatory official to replace Bartlett. Potential candidates the group wants to interview include former Representative Michael Oxley, an Ohio Republican, and Jill Sommers, a Republican commissioner at the Commodity Futures Trading Commission, the people said on condition that they not be named because the process is confidential.

Sommers declined to comment. Oxley didn’t immediately respond to a telephone message seeking a response.

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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