Bloomberg News

‘Wind-Down’ Power Repeal, Vodafone Probe, CBOE: Compliance

April 16, 2012

A U.S. House panel will consider a repeal of the power established by the Dodd-Frank Act to seize and wind-down systemically risky financial firms.

Representative Spencer Bachus, an Alabama Republican and the chairman of the Financial Services Committee, has included the repeal in a measure aimed at finding almost $30 billion in spending cuts as House Republicans search for ways to avoid automatic reductions to the Department of Defense.

Republicans opposed the resolution authority during the 2009 and 2010 debate over the financial regulatory overhaul that would become Dodd-Frank, arguing that the mechanism used to pay for the Federal Deposit Insurance Corp. to dismantle a firm would itself lead large Wall Street firms to take undue risks.

The repeal is part of a broader measure the panel is required to produce that would cut at least $29.8 billion. Bachus is proposing to cut $35.1 billion over 10 years through four actions: repeal of the resolution authority; ending the Obama administration’s Home Affordable Modification Program, or HAMP; a reauthorization with structural changes to the National Flood Insurance Program; and placing the Consumer Financial Protection Bureau under the congressional appropriations process.

The panel is scheduled to consider the measure April 18 and, if it is approved by the Republican-led committee, it will then be sent to the Budget Committee for use in preparation for the appropriations process, which is expected to begin soon. Senate Democrats have already said they will not advance the House budget adopted in March and the lawmakers, who control the chamber, have refused to make substantive changes to Dodd-Frank.

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Compliance Policy

Biggest Banks May Need 17% Core Capital Under EU Draft Plans

Europe’s biggest banks may need to hold core-capital reserves of as much as 17 percent under plans being weighed by European Union lawmakers.

The region’s parliament is considering allowing regulators to impose capital surcharges of as much as 10 percent of a bank’s assets, weighted for risk, according to a set of suggested compromises on a draft law prepared by Othmar Karas, an Austrian lawmaker guiding the adoption of global bank-capital and liquidity rules.

The surcharges would be on top of standard requirements that lenders hold core reserves of 7 percent and would be applied to banks “in the highest category of systemic relevance,” according to the document, obtained by Bloomberg News.

Governments and lawmakers in the 27-nation EU are considering rules for lenders that would go far beyond international agreements approved by the Basel Committee on Banking Supervision. Denmark, which holds the rotating presidency of the EU, has proposed empowering nations to set surcharges of up to 3 percent across their banking systems. Karas on April 12 suggested adding language to the legislation that would ban banker bonuses that exceed fixed pay, following calls from other lawmakers to rein in excessive compensation.

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CFPB Warns Banks, Nonbanks Against ‘Irresponsible’ Contractors

The Consumer Financial Protection Bureau says financial firms may be held responsible for actions of companies they hire, according to CFPB statement.

The bureau “will take a close look” to ensure consumers are protected against dishonest third parties, and will “hold all appropriate companies accountable” when the law is broken, the agency said in the statement.

The agency expects firms to have an “effective process for managing the risks of service provider relationships,” it said in the statement. It recognizes that the use of third parties is often an “appropriate business decision for supervised banks and nonbanks.”

JOBS Act May Allow Small U.S. Banks to Avoid SEC Reporting Rule

As many as 600 U.S. banks will escape some of the Dodd- Frank and Sarbanes-Oxley rules enforced by the U.S. Securities and Exchange Commission under the JOBS Act President Obama signed last week, an American Bankers Association lobbyist said.

The number includes institutions that until last week had to register as public companies and report to the SEC, but can now deregister, saving them money, said James Ballentine, the association’s executive vice president for congressional relations.

The banks will still be subject to regulation -- including Dodd-Frank provisions -- enforced by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. State-chartered banks will remain subject to supervision by the Federal Reserve and state regulators.

The JOBS Act lifts the shareholder threshold at which banks must register with the SEC to 2,000 from 500, as long as fewer than 500 are non-accredited investors. It exempts employee shareholders from this count. Until now, de-registration required a bank to have either less than $10 million in assets or fewer than 300 recorded shareholders. The JOBS Act raises the shareholder threshold to 1,200.

The shareholder provision will allow institutions to avoid SEC shareholder registration only. Whether they are subject to other SEC requirements will depend on a bank’s product offerings. The SEC would still regulate swaps for non-registered banks.

SEC-registered companies are subject to most of the provisions of Sarbanes-Oxley, some provisions of Dodd-Frank and other SEC mandates. Bankers have complained that the benefit to being publicly held is often outweighed by the high cost of regulatory compliance -- costs that have put pressure on some banking organizations to keep the number of its shareholders low to avoid registration.

Compliance Action

Vodafone Faces Expanded EU Probe With O2 on Mobile-Payment Deal

Vodafone Group Plc (VOD), Telefonica SA (TEF)’s O2 and Everything Everywhere Ltd. face an expanded probe by European Union regulators examining their U.K. mobile-phone payment system.

The European Commission extended until Aug. 27 its deadline to rule on the deal, it said in an e-mailed statement April 13. Regulators cited concerns that the companies may be able to block competitors from offering their own “mobile wallet” services to U.K. customers or to “degrade the quality” of services to make them less attractive.

The U.K.’s three largest mobile operators are seeking EU approval for the joint venture to help banks and advertisers access services which will allow people to buy items from groceries to clothes with their smartphones. After losing out to Apple Inc. (APPL:US) and Google Inc. (GOOG:US) in offering online application stores, the companies want to accelerate the development of additional services to drive revenue and boost smartphone sales.

“The shareholders in the proposed joint venture remain focused and determined to progress with the project,” the three companies said in a joint statement. “We remain confident that an extended review will conclude that the proposed joint venture is pro-competitive and will provide robust competition.”

The joint venture would have “very high market shares” in growing markets for mobile-payment applications, mobile advertising and data-analytic services, regulators said.

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Dutch Bankers Must Take Oath to Put Client First, De Jager Says

Dutch bankers and insurers will have to pledge an oath to put their clients’ interests first in a government bid to improve confidence in the financial sector.

Dutch Finance Minister Jan Kees de Jager described the oath, which he expects to “restore the moral authority of the sector,” in a letter to parliament April 14. The oath, which will be enforced by regulator AFM, is part of new financial regulations scheduled to take effect on Jan. 1, 2013.

The Dutch spent about 30 billion euros ($39 billion) on the 2008 bailout of Fortis’s Dutch units, including its stake in ABN Amro Holding NV. Separate aid for ING Groep NV (INGA), SNS Reaal NV (SR), Aegon NV (AGN) and the collapse of DSB Bank NV and Landsbanki Islands hf (LANDSBAN)’s Dutch Icesave unit drove up costs for the state and the banking sector, respectively.

A parliamentary committee on April 11 concluded that the previous Dutch government made “large errors” in its bailouts of Fortis, ABN Amro and ING, pushing up risks and costs for taxpayers. The committee in 2010 said the central bank’s supervision of DSB and Icesave had been insufficient.

Qatar May List Bonds, Sukuk in Drive to Deepen Debt Market

Qatar may list local-currency government bonds and sukuk on the country’s bourse this year as the world’s biggest exporter of liquefied natural gas seeks to deepen its debt market.

Qatar, which had the world’s fastest economic growth last year according to the International Monetary Fund, started listing treasury bills on the exchange at the end of last year.

The nation started selling treasury bills in May to mop up excess funds in the banking sector and set benchmark rates for companies to issue local-currency debt. Qatar, which will host the 2022 soccer World Cup, may spend close to $100 billion in “the medium-term” on projects, including the completion of a port and airport, a metro system and roads, the IMF said in a January report.

The nation has riyal-denominated government bonds and sukuk, or Islamic notes which comply with Islam’s ban on paying interest, due between 2012 and 2019, data compiled by Bloomberg show. The country sold 14 billion riyals ($3.8 billion) of treasury bills through the end of March, Central Bank Governor Sheikh Abdullah Saud Al Thani said in a speech at a Bloomberg conference in Doha.

Obama’s Bid to End Too-Big-to-Fail Undercut as Big Banks Grow

Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis.

Five banks -- JPMorgan Chase & Co. (JPM:US), Bank of America Corp., (BAC:US)Citigroup Inc. (C:US), Wells Fargo & Co. (WFC:US), and Goldman Sachs Group Inc. (GS:US) -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve.

Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did during the 2008 crunch.

That specter is eroding faith in Obama’s pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.

As weaker firms collapsed or were acquired, a handful of financial giants emerged from the crisis and have thrived. Since then, JPMorgan, Goldman Sachs and Wells Fargo have continued to swell, if less dramatically, thanks to internal growth and acquisitions from European banks shedding assets amid the euro crisis.

The industry’s evolution defies the president’s January 2010 call to “prevent the further consolidation of our financial system.”

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Study Reveals Hedge Funds Not Worried About SEC Registration

A majority of hedge funds do not view as “onerous” registration requirements of the U.S. Securities and Exchange Commission, according to a survey, BNA reported.

Compliance with the registration, which is required under the Dodd-Frank law, was studied by accounting and consulting firm EisnerAmper and Hofstra University’s business school. The study was released April 11.

In a survey of 41 senior hedge fund and asset management firm executives, the study found that roughly 68 percent of funds with more than $1 billion in assets under management, the so-called large funds, and about 37 percent of funds with less than $1 billion in assets under management, the so-called small funds, said that they wouldn’t be affected “at all” by the Dodd-Frank mandate, BNA reported.

In other findings, 79 percent of large funds and 63 percent of small funds prefer registration with the SEC rather than the states, the survey found.

All the large funds and the majority of small funds reported that they expect operating costs to go up moderately or significantly as a result of Dodd-Frank. They also expect an increase in “client inquiries” for additional information about the funds.

Large funds anticipate organizational changes in areas relating to liquidity, monitoring of counterparty risk, and transparency. Small funds expect organizational changes relating to transparency, monitoring of counterparty risk, liquidity and monitoring of service providers.

Courts

Ex-EBRD Banker Charged in London With Taking U.S. Firm’s Bribes

Former European Bank for Reconstruction and Development banker Andrey Ryjenko was charged with accepting bribes and laundering more than $3 million.

Ryjenko was accused, along with former Standard Bank Plc employee Tatjana Sanderson, of taking bribes to show favor to a company called Chestnut Consulting Inc. between September 2007 and March 2010, according to the indictment. The two were also charged with transferring the funds from Chestnut Consulting’s managing director Dmitrij Harder to Sanderson’s bank accounts.

The case is scheduled for trial in November, a judge at London’s Central Criminal Court, known as the Old Bailey, ruled April 13. The pair haven’t entered pleas in the case. Sanderson, whose last name was formerly Ryjenko, previously worked at Standard Bank, according to the U.K. Financial Services Authority’s register of approved people.

Chestnut Consulting is based in Southampton, Pennsylvania, and arranges financing for the energy, metals and mining, infrastructure, and industrial production firms, according to its website. Harder didn’t immediately respond to a call to his office or an e-mail.

Georgia Adumata, a spokeswoman for Ryjenko’s lawyer at Bindmans in London, and Jeremy Summers, a lawyer for Sanderson, didn’t immediately respond to calls seeking comment. A call to Standard Bank’s press office in London wasn’t immediately returned.

Interviews

EU Can’t Afford to Spurn Successful Bankers, City of London Says

The City of London Corporation, which represents the capital’s biggest financial district, said Europe can’t afford to “drive away” talent by giving the impression it doesn’t welcome high earners as the European Union considers capping bank bonuses.

“We should be wary of unintended consequences when it comes to bringing in pay legislation,” Stuart Fraser, the City of London policy chairman, said in an e-mailed response to questions April 13. “Banks have cut tens of thousands of jobs, partly due to the movement away from flexible bonuses to higher fixed-salary costs that was encouraged following the financial crisis.”

European legislators may seek to ban banker bonuses larger than fixed pay as part of a draft law on Basel capital rules. Othmar Karas, the lawmaker leading work on the rules, said April 12 at a meeting of the EU’s economic and monetary affairs committee that he’s seeking a compromise deal between different political groups after lawmakers proposed a variety of bonus curbs. Some bankers are receiving bonuses about 10 times larger than their base salary, according to a European Banking Authority survey released April 12.

London, the world’s biggest center for foreign-exchange trading, cross-border bank lending and interest-rate derivatives, is already battling the effect of Europe’s sovereign-debt crisis on its services as some politicians blame financiers for bringing the economy to the brink of collapse.

Comings and Goings

CBOE Hires Chief Compliance Officer Following U.S. Investigation

CBOE Holdings Inc. (CBOE:US) named a former U.S. Securities and Exchange Commission lawyer to oversee regulatory affairs at its exchanges, a month after announcing a federal inquiry and the resignation of a senior compliance executive.

Alexandra M. Albright, an attorney with Kirkland & Ellis LLP, will start April 23 as chief compliance officer, the Chicago-based company said April 13 in a statement. Albright worked at the SEC from 2001 to 2006, most recently in the enforcement division’s office of market surveillance.

The owner of the Chicago Board Options Exchange hired Albright a month after saying Patrick Fay quit. The exchange operator disclosed in February that the SEC is investigating whether CBOE complied with its obligations as a self-regulatory organization. Such firms are required to write rules for their markets, monitor trading and ensure that they and their customers aren’t breaking securities laws.

Best Buy Board Hires WilmerHale for Probe of Former CEO Dunn

Best Buy Co.’s (BBY:US) board hired Washington law firm WilmerHale for its investigation of former Chief Executive Officer Brian Dunn’s personal conduct, with two former federal officials involved in the probe.

Former U.S. Securities and Exchange Commission Director of Enforcement William R. McLucas and former U.S. Attorney for the District of Colorado Thomas Strickland are assigned to the case, Greg Hitt, a spokesman for Best Buy’s board, confirmed in an e- mail April 13. McLucas declined to comment April 13 in e-mail, and Strickland didn’t immediately return a phone call and e-mail seeking comment.

Best Buy announced Dunn’s resignation earlier last week, saying that the change was part of a “mutual agreement” that new leadership was needed. The company later said that a board committee was probing Dunn’s “personal conduct, unrelated to the company’s operations or financial control.”

That investigation centers on Dunn’s relationship with a female employee, people familiar with the matter said April 12. The probe is continuing and the board’s findings will be made public, said Ron Hutcheson, a Best Buy spokesman who works for Hill & Knowlton Strategies in Washington.

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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