Bloomberg News

China-Auto Recall, Oil, WJB Capital, Finra: Compliance

August 16, 2012

An Australian recall by China’s two biggest car exporters for potential cancer-producing asbestos parts may threaten plans by Chinese automakers to expand into the U.S. and Europe amid intensifying competition at home.

Australia was to be the “testing area” for Chinese carmakers looking to enter larger markets and the recall has dealt a blow to those ambitions, according to Dunne & Co. Great Wall Motor Co. (2333) and Chery Automobile Co. recalled 23,000 of their vehicles sold in Australia after authorities found asbestos in some models.

The use of asbestos in exports raises concerns about the quality and safety of products made in China, which has struggled with repeated health scares relating to tainted products. Vehicle exports from the country may rise about 50 percent this year, extending record shipments in 2011, according to the official trade chamber.

Algeria, China’s second biggest export market for cars in 2011, prohibits the use of asbestos for most uses, according to the International Ban Asbestos Secretariat’s website. Chile, Uruguay and Egypt are others among China’s top 10 auto export markets last year that have similar bans.

Shang Yugui, a spokesman at Great Wall, the biggest maker of sport utility vehicles and pick-up trucks in China, said the company became aware of the issue in April and then stopped using the parts in question. The components were used in some vehicles sold in China and overseas markets, he said, without giving more details.

“We need to reflect at Great Wall,” Shang said. “We became careless after our repeated checks showed that the asbestos parts won’t cause harm to the human body.”

Chery said workers mistakenly used a wrong batch of parts that wasn’t meant for cars to be exported to Australia. The automaker hasn’t discussed recalling vehicles with similar asbestos parts in markets outside of Australia, a spokesman, Huang Huaqiong, said Aug. 14. The company will issue recalls if the respective authorities require them, Huang said.

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Compliance Policy

U.S. Regulators Propose New Rules for Higher-Risk Mortgage Loans

The Federal Reserve and five other federal financial regulatory agencies proposed new appraisal requirements for higher-risk mortgage loans as part of the financial system overhauls required under the Dodd-Frank Act.

The rule would require lenders for those mortgages to use certified appraisers who prepare written reports based on a physical inspection of the home, the Fed said in a statement yesterday. The agencies also proposed requiring creditors to disclose the purpose of the appraisal to applicants and give them free copies of the reports.

Under the Dodd-Frank Act, mortgage loans are considered higher risk if they’re backed by the borrower’s home and have interest rates above a certain level. The Fed is seeking comments on the rules, which it is proposing jointly with the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Federal Housing Finance Agency, National Credit Union Administration and Office of the Comptroller of the Currency.

Oil Industry Calls for U.S. to Release Offshore Drilling Rule

Energy companies and environmentalists said the Interior Department should move quickly and issue a final rule tightening safety requirements for offshore drilling operations after the BP Plc (BP/) oil spill more than two years ago.

The Natural Resources Defense Council of New York wants the new regulation to require companies such as BP and Exxon Mobil Corp. (XOM:US) to demonstrate their spill-containment equipment works before they start drilling. The American Petroleum Institute asked the Interior Department to require less testing in its final rule than in interim regulations introduced shortly after the BP disaster.

BP is the largest holder of the leases in the deep waters of the Gulf of Mexico, where its Macondo well exploded in April 2010, killing 11 rig workers and spilling millions of barrels of oil.

The Interior Department’s Bureau of Safety and Environmental Enforcement, which is writing the rule, didn’t have any immediate comment. David Pettit, a senior attorney at the Natural Resources Defense Council, in a telephone interview, agreed that the administration has had sufficient time to draft its rule and should do it quickly.

Compliance Action

Finra Expels WJB Capital, Bars Chief for Misstating Records

The Financial Industry Regulatory Authority expelled WJB Capital Group Inc. for misstating financial records and barred the firm’s chief executive officer from the securities industry.

A Finra statement yesterday cited events from 2009 through 2011 at New York-based WJB, which shut its brokerage in January. Craig Rothfeld, the CEO, and Chief Financial Officer Gregory Maleski misstated the firm’s finances on its balance sheet, including the conversion of $9.8 million in compensation for 28 employees to forgivable loans, Finra said.

The firm then failed to provide for the appropriate payment of taxes, Finra said. Had WJB appropriately recorded the loans and tax obligations, the firm would have showed “substantial losses” in addition to those already occurring, Finra said.

WJB halted operations following a year in which the firm faced slower trading, a shortage of capital, and interest rates of 25 percent on some debts. Rothfeld and Maleski, who was barred from acting in a principal capacity, also misclassified certain items as allowable for net capital purposes, Finra said. As a result, WJB made securities transactions in 2011 while it was below its minimum required net capital, according to the statement.

Mark Skolnick, who was general counsel for WJB Capital in January, didn’t respond to messages seeking comment. Attempts to reach Rothfeld and Maleski weren’t immediately successful. Rothfeld, Maleski and WJB neither admitted nor denied the accusations and consented to the entry of Finra’s findings, the regulator said in the statement.

United Bank Nigeria to Seek Local License for Zambian Unit

United Bank for Africa Plc, a Nigerian lender, has applied for a local license for its Zambian unit to meet the southern African country’s new capital requirements.

The banking license requires $20 million of capital compared with $100 million for foreign operations, Phillips Oduoza, the group’s chief executive officer, told reporters yesterday in the Ugandan capital, Kampala.

The license may help the bank gain local shareholders, Oduoza said.

The conversion of the unit into a local bank follows a directive last month by Nigeria’s central bank to deter lenders from funding foreign operations. Banks must obtain new funds to recapitalize their foreign units and won’t be allowed to use money already raised by their parent companies, it said.

All the bank’s foreign subsidiaries except the Zambian unit are fully capitalized, Oduoza said. The bank operates in 15 other African countries and has offices in U.K., France and the U.S., according to its website.

Standard Chartered’s N.Y. Probe Ends as U.S. Inquiries Loom

Standard Chartered Plc (STAN), having settled a New York money laundering probe for $340 million the day before it was to defend its right to operate in the state, still faces federal inquiries over claims it helped sanctioned nations including Iran illegally funnel money through the U.S.

Regulators including the U.S. Treasury, Federal Reserve, Justice Department and Manhattan district attorney declined immediate attempts at a global settlement, said two people familiar with the matter. A coordinated effort was already in progress before New York’s unilateral deal, announced Aug. 14 by financial regulator Benjamin Lawsky, one of the people said.

The agreement doesn’t take into account all of the bank’s alleged violations, including those involving nations such as Sudan, said one of the people, who added that September is the earliest a universal deal may be reached. Shares of the bank rose as much as 5.1 percent in London yesterday as the New York settlement removed one pressing risk to the bank.

One analyst estimated that the bank’s loss of its New York license could have resulted in a 40 percent drop in earnings.

On Aug. 6, Lawsky issued an order accusing Standard Chartered of helping Iran launder about $250 billion in violation of federal laws. He accused the bank of a decade of deception, including keeping false records, in handling lucrative wire transfers for Iranian clients.

The New York regulator said Aug. 14 in a statement that “the parties have agreed that the conduct at issue involved transactions of at least $250 billion.” The $340 million fine will go to Lawsky’s agency, New York’s Department of Financial Services, and the state. The settlement includes a provision for on-site monitoring.

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Morgan Stanley Unit Fined Over Junior Trader’s $1.3 Billion Bet

Morgan Stanley (MS:US) Smith Barney, the brokerage venture of Morgan Stanley and Citigroup Inc. (C:US), was fined $450,000 after a trader amassed a $1.3 billion bet in 2009, Financial Industry Regulatory Authority records show.

The brokerage didn’t have enough controls in place to detect that Jared Weinryt, 31, had breached his $116 million trading limit as he made overnight bets on futures, Finra said this month. The trades led to losses for Morgan Stanley Smith Barney of about $14.9 million, according to Finra.

Regulators are pressing Wall Street to heighten risk controls after multibillion-dollar trading losses at UBS AG and JPMorgan Chase & Co., the collapse of MF Global Holdings Ltd., and Knight Capital Group Inc.’s $270 million loss.

Morgan Stanley Smith Barney “detected the trading activity by a former employee that occurred three years ago, stopped it promptly, reported it to regulators, and has since added new controls designed to prevent a reoccurrence,” Christine Jockle, a spokeswoman for the unit, said in an e-mailed statement.

The brokerage employed Weinryt from 2006 to 2009, Finra records show. He bought and sold futures, agreements to trade assets at set prices and dates. He now works in the institutional fixed-income sales division of Palm Beach Gardens, Florida-based Kiley Partners Inc.

“We were delighted to have an opportunity to employ a smart and talented employee like Jared Weinryt,” Chief Executive Officer Michael Kiley said yesterday in a phone interview. He “does a great job for us and his clients.”

The industry regulator suspended Weinryt from trading for two months and fined him $7,500 earlier this year, records show. He consented to the sanctions without admitting or denying the findings, according to Finra.

Weinryt declined to comment.

Taiwan Government Mulls Selling Stakes in Some Companies

The Taiwan government is considering selling shares of some financial companies. The government holds only small stakes in companies such as Waterland Financial (2889), Yuanta Financial (2885), China Development Financial (2883) and Taiwan Life Insurance (2823), Deputy Finance Minister Tseng Ming-chung says by phone.

There are no details on stake sale, Tseng said.

The government is also considering easing the ban on the sale of state-owned land in Taipei City and New Taipei City under for sales under 500 ping, Tseng said.

A ping is a standard measure of space in Taiwan, equal to 3.3 square meters, or about 36 square feet.

Separately, the Taiwan government said it may sell shares of companies it doesn’t control, the Economic Daily News reported, citing an interview with Finance Minister Chang Sheng- ford.

Courts

Credit Suisse Sued by OK! Magazine Mogul in U.K. Over Swaps

Richard Desmond, chairman of the Northern & Shell Plc media group, sued a Credit Suisse Group AG (CSGN) unit for selling him a 50 million-pound ($78.5 million) derivative deal he said was inappropriately risky and impossible to understand.

The transaction, set up in 2007, was linked to a GLG Partners Inc. fund of hedge funds and included an interest-rate swap.

Desmond -- whose Northern & Shell group includes the Daily Express newspaper, OK! Magazine and adult channel Television X - - sued Credit Suisse for misrepresentation, breaching financial regulations and breach of duty. He wants the deal declared invalid, or damages equal to the cost of unwinding it -- about 18.7 million pounds.

Bank customers from British fish shops to Indian property companies have sued in the U.K. over interest-rate swaps they say they didn’t need or understand. The U.K. Financial Services Authority said in June it had agreed with banks including Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) to set up a compensation program to pay back small businesses that were sold unsuitable products.

Vanessa Neill, a London-based spokeswoman for Credit Suisse, and Desmond’s spokesman Sam Bowen declined to comment.

For more, click here.

Interviews

McFadden Says Barclays’s New Chairman Walker Is Credible

Pat McFadden, a Labour Party member of the U.K. Parliament’s Treasury Committee, talked about U.K. banking culture, regulation and the outlook for Barclays Plc under new Chairman David Walker.

He spoke with Manus Cranny on Bloomberg Television’s “Last Word.”

For the video, click here.

Carlsberg CEO Not Worried About Tightened Russian Regulation

Joergen Buhl Rasmussen, chief executive officer of Carlsberg A/S (CARLB), discussed the company’s second-quarter profit reported yesterday and its business outlook, including the prospect of tightened restrictions on advertising in the Russian market.

He spoke from Copenhagen with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

For the video, click here.

Comings and Goings

IRS Names Carol Campbell to Head Tax Preparer Oversight Office

Carol Campbell, now deputy chief of staff of the Internal Revenue Service, will take over the post of Head Tax Preparer from David Williams effective next month, IRS Commissioner Doug Shulman told the staff in e-mail yesterday.

Williams is returning to Capitol Hill.

The IRS three years ago began an effort to extend oversight of the return-preparer industry.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Andrew Dunn at adunn8@bloomberg.net.


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