Bloomberg News

Broker Audit Failure, Bank Aid, Rule ‘Output’: Compliance

August 22, 2012

U.S. accounting watchdogs said a review of 10 brokerage auditors found they all performed deficient work, and some failed to take required steps to help ensure investors’ funds are safeguarded.

Reviews of 23 broker audits conducted by the firms found most financial statements weren’t reviewed well enough to justify signing off on them, the Public Company Accounting Oversight Board’s said Aug. 20 in a report on its interim inspection program. The PCAOB didn’t name the auditors and brokerages in the report and said they were all smaller firms.

The report came a week after New York-based WJB Capital Group Inc. was expelled from the brokerage industry for misstating financial records and nine months after the collapse of MF Global Holdings Ltd. (MFGLQ:US), which left customer funds unaccounted for when it filed for bankruptcy.

The PCAOB, which is supervised by the Securities and Exchange Commission, has followed Dodd-Frank Act mandates to expand brokerage oversight after Bernard Madoff was found to have used a tiny, storefront audit firm while running his multibillion-dollar Ponzi scheme.

Last year, the audit watchdog established an interim inspection program to provide an initial picture of auditing among the 4,400 registered broker-dealers. The first public report from the program revealed a host of violations.

For more, click here.

Compliance Policy

EU Assembly Seeks Views on Libor Scandal Ahead of Public Hearing

European Parliament lawmakers are seeking views on how to prevent any repeat of the scandal engulfing interbank lending rates and on whether manipulation of the benchmarks was more widespread than reported.

The assembly’s economic and monetary affairs committee is probing what steps should be taken to stamp out “manipulation and establish integrity” in market indexes such as Libor and Euribor, the parliament said in a statement published on its website. The committee will hold a hearing on the abuse of interbank lending rates on Sept. 24.

The parliament is seeking views on “specific measures” that “should be taken at European/global level to improve investor confidence,” it said. The consultations will run until Sept. 17.

U.K. Government Bank Aid During Crisis Was ‘Effective,’ BOE Says

U.K. government measures during the financial crisis to prop-up failing banks were “effective” and helped restore lenders’ access to wholesale funding markets, according to a Bank of England research paper.

“Access to wholesale funding markets does indeed respond positively to intervention,” economists Andrew K. Rose and Tomasz Wieladek said in the paper published in London yesterday. “The share of non-retail deposits in total liabilities rose by over 38 percent following intervention, an amount that is economically and statistically significant. As one objective of crisis intervention was precisely to stabilise flighty financial market funding, it seems to have been effective.”

Rose and Wieladek also found that the size of a lender in relation to the entire banking system increases the probability of it receiving official aid.

“This finding is consistent with the idea that some banks in the British banking system were deemed to be ‘too big to fail,’” they said.

Rules Reduce U.S. Manufacturing by $500 Billion, Industry Says

Regulations on U.S. manufacturing may reduce output by as much as $500 billion this year, according to an industry- sponsored study that cast doubts on President Barack Obama’s efforts to trim red tape in the federal government.

The Obama administration has established an average of 72 regulations on manufacturers annually, an increase from the 45 per year imposed under President George W. Bush, according to the study, commissioned by the Manufacturers Alliance for Productivity and Innovation, based in Arlington, Virginia.

With job creation a central theme in the U.S. presidential race, the health of manufacturing companies is of importance to both Obama and his Republican challenger Mitt Romney. Industry groups including the U.S. Chamber of Commerce and National Association of Manufacturers have said federal regulations hinder economic growth.

During remarks in Windham, New Hampshire on Aug. 18, Obama said his administration has “created 4.5 million new jobs, half a million in manufacturing.” Romney is scheduled to visit LeClaire Manufacturing Co., a maker of aluminum casings, in Bettendorf, Iowa, today.

Major regulations -- a category of rule where compliance costs are estimated at more than $100 million -- reduce economic output by $200 billion to $500 billion in 2010 dollars, according to the study, which examined data from the White House Office of Management and Budget during the last three decades. Exports this year may be 6.5 percent to 17 percent lower, it said.

For more, click here.

U.K. May Turn Euro Bank Plan to Advantage in Fight for Control

The U.K. may draw on the euro area’s attempts to build a banking union to bolster its case for an opt-out from European Union plans to pool oversight and rescue measures for lenders.

The U.K. wants to be excluded from any bank failure plans that involve transferring rescue funds across borders and finds justification for this stance in euro-area integration efforts, according to policy-planning documents obtained by Bloomberg News. In Europe’s banking union plan, the U.K. also finds grounds for its opposition to centralized limits on how far national regulators can toughen capital requirements, the documents show.

EU leaders including European Central Bank President Mario Draghi, and Jose Barroso, the president of the European Commission, have called for a banking union to break the link between governments and lenders in the euro area and so ease the bloc’s debt crisis. The U.K. stance may mean more hurdles in getting the project up and running. In addition to making a slate of new proposals, the commission may have to overhaul draft laws that are already under discussion.

In addition to a single supervisor, centered on the ECB, the banking union project includes setting up a common deposit guarantee fund and a central authority for handling failing lenders. The commission will give more detail on the measures, including a draft law on supervision, around Sept. 11.

For more, click here.

Compliance Action

Botswana Stock Exchange to Swap to Automated Trading on Aug. 24

Botswana’s stock exchange said it will start using an automated trading system on Aug. 24.

The trading of equity, debt and exchange-traded funds will be automated, Dudu Garekwe, head of trading and listing at the Gabarone-based Botswana Stock Exchange, said in the statement yesterday.

Citadel Urges SEC to Accept Nasdaq Settlement on Facebook IPO

The U.S. Securities and Exchange Commission should approve Nasdaq OMX Group Inc. (NDAQ:US)’s proposal to pay firms $62 million for losses suffered in Facebook Inc. (FB:US)’s public debut, Citadel LLC said.

The Chicago-based hedge fund, whose Citadel Securities executes about 10 percent of U.S. equity volume, told the SEC in a letter Aug. 21 that its Citadel Execution Services unit traded more than $3.8 billion of Facebook stock for customers on May 18. Nasdaq OMX, the second-biggest U.S. equity exchange owner, proposed the compensation pool in July after Facebook’s initial public offering was marred by technology breakdowns.

The recommendation brings New York-based Nasdaq OMX a step closer to putting the mishap behind it after the exchange’s handling of the offering drew criticism from member firms, competitors and investors. Citadel, run by Ken Griffin, lost as much as $35 million in trading related to the offering, according to a person with knowledge of the firm. Knight Capital Group Inc. (KCG:US) lost $35.4 million in Facebook trading.

Citadel and Knight operate equity wholesaling groups, or brokers that executes orders for individual investors sent by retail securities firms such as Charles Schwab Corp. (SCHW:US), TD Ameritrade Holding Corp. (AMTD:US) and Fidelity Investments.

For more, click here.

Greek Prosecutor Probes 475 Bankers For Tax Evasion, Thema Says

A Greek financial crimes prosecutor ordered a preliminary investigation into 475 bank employees who haven’t submitted a tax declaration for at least three years, Proto Thema newspaper reported, without citing anyone.

Greece’s economic crimes unit, known as SDOE, will conclude the investigation by Sept. 10, the Athens-based newspaper said. The persons in question have annual incomes of as much as 200,000 euros, Proto Thema said.

Courts

Austria’s Highest Court Orders Retrial for Former Hypo Alpe CEO

Wolfgang Kulterer, Hypo Alpe-Adria-Bank International AG’s former chief executive officer, faces a retrial on charges he misused bank funds, a victory for prosecutors seeking to hold executives responsible for the bank’s near-collapse in 2009.

Austria’s highest court overturned the acquittal of Kulterer and two other executives and ordered the lower court to reconsider whether the managers acted improperly when lending 2 million euros ($2.5 million) to a regional airline which later went bankrupt, court spokesman Ronald Rohrer said in an e-mailed statement. The case must be retried by a new judge at the Klagenfurt court.

Austria agreed at the end of 2009 to nationalize Hypo Alpe to avert its collapse after bad debts piled up and majority owner, Germany’s Bayerische Landesbank, pulled its support.

Kulturer said he was surprised by yesterday’s verdict, according to the Austrian Press Agency. His lawyer Ferdinand Lanker didn’t immediately return a call to his office seeking a comment. Kulterer was convicted in May of misuse of funds in a separate case, where his appeal is pending.

Interviews

Bowles Says Banking Union Will Be Examined Next Month

Sharon Bowles, chairwoman of the European Parliament’s Economic and Monetary Affairs Committee, talks about European banking union, Basel III requirements and the Market Abuse Directive.

She spoke with Guy Johnson on Bloomberg Television’s “The Pulse.”

For the video, click here.

Lamy Says U.S. to Repeal Trade Law With Russia in Days

World Trade Organization Director General Pascal Lamy discussed Russia’s WTO accession, foreign direct investments and global trade relations.

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

For the video, click here.

Persimmon CEO Says First-Time Buyers Need Targeted Help

Mike Farley, chief executive officer of Persimmon Plc (PSN), talked about first-half profit, reported yesterday, and the outlook for the U.K. property market. He discussed U.K. government assistance programs to lift the housing market and the need for targeted programs to help first-time buyers.

He spoke from London with Mark Barton on Bloomberg Television’s “Countdown.”

For the video, click here.

Swiss Tax Treaty Has No Chance, German State Minister Tells TA

Switzerland’s tax treaty with Germany has “no chance” as it currently stands, Rhineland-Palatinate Finance Minister Carsten Kuehl said in an interview with Swiss newspaper Tages- Anzeiger.

Kuehl, who is a member Germany’s Social Democratic Party, wants German offshore assets in Switzerland to be taxed a minimum of 25 percent instead of the currently proposed 21 percent, according to the report.

Notable Passing

Meles, Ethiopian Leader Behind Economic Growth, Dies at 57

Meles Zenawi, the Ethiopian prime minister praised for overseeing one of Africa’s fastest-growing economies and criticized by human rights advocates, has died from an infection after being sick for weeks. He was 57.

Meles had been recuperating at a hospital overseas from an undisclosed ailment when he died late in the day on Aug. 20, government spokesman Bereket Simon said in a phone interview yesterday from the capital, Addis Ababa. Meles led Africa’s second-most populous country for more than two decades.

His economic policies, which mixed a large state role with private investment, helped the country achieve economic growth rates of as much as 12.6 percent. The economy expanded an average of 11 percent annually from 2004 through 2011, according to International Monetary Fund data.

Infrastructure was one of the biggest beneficiaries of increased government spending.

Deputy Prime Minister Hailemariam Desalegn is now serving as acting prime minister, Bereket said.

For more, click here.

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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