Bloomberg News

Australia Predators, Turkey, Frankfurt Talks: Compliance

November 20, 2012

Australia should charge professional investors if they use predatory trading strategies in the equity market, according to ASX Ltd. (ASX), the operator of the country’s main stock exchange.

The statement was made by ASX Chief Executive Officer Elmer Funke Kupper, according to notes of a speech delivered in Melbourne yesterday. Funke Kupper didn’t elaborate as to how or who would identify and charge this form of trading.

Governments in Australia, Hong Kong and Singapore are considering the extent to which high-frequency trading and other electronic strategies should be regulated. Firms using high- frequency tactics say they serve as market makers on electronic exchanges. The computerized infrastructure of equity markets has come under scrutiny in the past three years following Knight Capital Group Inc.’s (KCG:US) $457 million loss in August and the American flash crash of May 2010. The fastest firms can now execute a trade in under 10 microseconds.

The Australia Securities and Investment Commission, the nation’s financial regulator, last month said some high- frequency traders submit and then cancel thousands of rapid-fire quotes for stocks, decreasing the ease with which a security can be bought and sold.

ASX has suffered declining equity-trading volumes in its first year after losing its monopoly as Australia’s only public bourse with the entry of Nomura Holdings Inc.’s Chi-X Australia Pty. ASIC has consulted investors and brokerages on electronic trading and final rules are expected soon.

Special Section: Frankfurt Conference

Frankfurt Split Shows Europe Tension in Fitschen Rules Push

The effort to establish a euro-area banking regulator in Frankfurt is exposing deepening fault lines among the city’s banks as policy makers jostle over the shape of the industry.

Deutsche Bank AG co-Chief Executive Officer Juergen Fitschen, an advocate, is among top executives and officials meeting at the Euro Finance Week conference in the currency union’s financial capital yesterday. At the center of the debate will be how much power the European Central Bank, based in Frankfurt, should be allowed to wield.

The argument pits Fitschen, who favors centralized ECB regulation, against more than 1,500 smaller banks that lend more cash to Europe’s biggest economy than he does. The discord over banking union mirrors a wider dispute between politicians, regulators and central banks across the continent that has led the Bundesbank, also based in Frankfurt, to lock horns with the ECB. At stake is a revival of last year’s bank share sell-off, prompted by foot-dragging on steps to stem Europe’s debt crisis.

European leaders in June agreed to hand oversight and the authority to wind down failed banks to the ECB as a precondition for the European Stability Mechanism, the 500 billion-euro ($638 billion) permanent rescue mechanism, to lend directly to financial institutions. The policy is designed to help break the link between states and lenders.

For more, click here.

Frankfurt Panelists Discuss Single Bank Supervisor

Peter Praet, head of economics at the European Central Bank, participated in a panel discussion at the Euro Finance Week conference in Frankfurt. The other speakers were Lars Feld of the Walter Eucken Institute, Uwe Froehlich, president of the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken, and Gerhard Schick, the finance spokesman of Germany’s Green Party.

Reinhard Schmidt of Goethe University and Udo Steffens of the Frankfurt School of Finance moderated.

For the video, click here.

BaFin’s Koenig Says 2016 Is Realistic Start Date for Solvency II

Solvency II won’t begin in 2014, Elke Koenig, the president of Germany’s financial markets supervisor BaFin, said in a speech at the Euro Finance conference in Frankfurt.

2016 is much more realistic, or perhaps even 2017, Koenig said.

ECB Shouldn’t Be Single Bank Supervisor, Stark Says

Juergen Stark, former European Central Bank chief economist, discussed the outlook for Greece, European Central Bank “credibility” and plans for a European banking union.

He spoke from Frankfurt with Guy Johnson on Bloomberg Television’s “The Pulse.”

For the video, click here.

Fitschen Says Banks Must Be Able to Be Innovative

Deutsche Bank AG Co-Chief Executive Officer Juergen Fitschen discussed European banking industry culture, remuneration and re-nationalization. He spoke at Euro Finance Week in Frankfurt.

For the video, click here.

Compliance Policy

Turkey Sees Room for 60 Banks to Operate, Regulator Says

Turkey expects to allow about 60 foreign and local banks to operate as an increasing number of institutions apply for licenses, according to Mukim Oztekin, head of the Banking Regulation and Supervision Agency.

About 49 banks are currently operating in Turkey, Oztekin said yesterday.

Italy’s largest retail bank, Intesa Sanpaolo SpA applied to Turkey’s regulator to open a branch and Bank of Tokyo- Mitsibushi, a unit of Japan’s biggest lender Mitsubishi UFJ Financial Group Inc. (8306), has made a formal application, he said.

“Both these banks meet our criteria.” he said. Standard Chartered Bank is interested in opening a branch or carrying out investment banking activities in Turkey, while South Korean banks were also interested, Oztekin said, without giving names.

U.K. Businesses Back Income Tax Overhaul, Sunday Telegraph Says

The U.K. national insurance and income tax should be merged, according to 79 percent of the respondents in a survey of 1,125 businesses conducted by the Institute of Directors, a membership organization of business leaders, according to the Sunday Telegraph.

The move would “reduce costs, drive up wages and create jobs,” the survey found, according to the newspaper.

National insurance should be replaced with new rates of income tax from 2017, according to the report, the newspaper said.

Compliance Action

U.S. Banks Have Provided $26.1 Billion Under Foreclosure Accord

The five largest U.S. mortgage servicers have provided about $26.1 billion for borrowers so far under a $25 billion settlement over abusive foreclosure practices, according to a court-appointed monitor.

The aid included $2.6 billion in principal relief for about 22,000 borrowers, the Office of Mortgage Settlement Oversight said in a report released yesterday. Lenders including Bank of America (BAC:US) Corp., JPMorgan Chase & Co. (JPM:US) and Wells Fargo & Co. (WFC:US) aided a total of 309,385 borrowers, according to the report.

The report is required under the settlement agreement filed in federal court in February, which was reached after attorneys general from all 50 states announced a probe into foreclosure practices following disclosures that banks were using faulty documents to seize homes. It is a preliminary estimate of banks’ efforts, not a formal assessment of progress toward meeting their obligation to spend $20 billion on borrower relief and an additional $5 billion in payments to states and the federal government.

The banks, also including Citigroup Inc. (C:US) and Ally Financial Inc., negotiated the agreement with federal agencies, including the Justice Department, and 49 states.

About $17 billion of the agreement will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also provide $3 billion in refinancing to lower homeowners’ interest rates.

Deutsche Bank’s X-Trackers to Offer Physical-Replication ETFs

Deutsche Bank AG will follow Societe Generale SA (GLE) in offering exchange-traded funds backed by bonds and shares amid concern over the use of derivatives to track the performance of underlying indexes.

The Frankfurt-based bank’s DB X-Trackers unit, Europe’s second-largest ETF manager, will, as of next month, sell ETFs on a number of benchmark equity indexes, joining existing swap- based products, the company said in a statement yesterday. SocGen’s Lyxor Asset Management said in September it will offer funds that buy physical assets.

Regulators and companies such as Fidelity Investors have criticized ETFs that use derivatives to mimic stock, bond or currency returns. They have argued that clients risk losing money if the banks writing the swaps become insolvent. Managers of synthetic-replication methods say their products follow the underlying investments more accurately than ETFs that have to buy the physical assets. They also argue that their reporting standards are often higher than mutual funds.

AIG Opts Against Contesting Systemic-Risk Designation, CEO Says

American International Group Inc. (AIG:US), the first non-bank to disclose it’s under consideration to be labeled a potential risk to the financial system, said it won’t contest such a designation, which could lead to tighter capital rules.

Chief Executive Officer Robert Benmosche said in a Nov. 1 letter to the office of the Financial Stability Oversight Council that the company would “welcome supervision by the Federal Reserve.”

Federal regulators are evaluating which non-banks should be subject to additional oversight as systemically important financial institutions to prevent a repeat of the bailouts that were undertaken in 2008 to stabilize the economy. Benmosche has scaled back (AIG:US) risk and sought to assure investors, clients and regulators that AIG is better able to weather a downturn.

AIG received a rescue in 2008 that swelled to $182.3 billion to prevent the firm from collapsing amid the financial crisis. The New York-based insurer is still 16 percent owned (AIG:US) by the U.S., which has recouped the cost of the bailout. Jim Ankner, a spokesman for the insurer, declined to comment.

Prudential Financial Inc. (PRU:US), the second-largest U.S. life insurer, and General Electric Co.’s finance arm are also under review to be designated systemically important. The oversight council can still consider other companies.

Ads by 19 Mortgage-Related Companies Probed by Two U.S. Agencies

U.S. regulators are investigating 19 mortgage-related companies over potentially misleading advertisements, including some that used Facebook Inc. (FB:US)’s website, the agencies announced yesterday.

The Consumer Financial Protection Bureau said in the statement it had opened investigations into six companies. The Federal Trade Commission, the other agency involved in the probes, is looking at 13 firms, Thomas Pahl, the FTC’s assistant director in the division of financial practices, told reporters on a conference call.

Neither agency released the names of the companies.

The consumer bureau and the FTC also announced they had sent warning letters to 32 mortgage-related companies that the agencies said may be violating the Mortgage Acts and Practices Advertising Rule.

The rule, which is jointly enforced by both agencies, does not apply to traditional depositories, so yesterday’s actions affect only non-banks. The agencies’ warning letters urge the companies to review the rule to assess compliance, and do not accuse them of legal wrongdoing.

For more, click here.

Courts

Celgene, Sanofi Executives Charged in Insider Trading Case

Executives at health-care companies Celgene Corp. (CELG:US), Sanofi (SAN) and Stryker Corp. (SYK:US) were among six people charged for their roles in an insider-trading ring that prosecutors said generated $1.48 million in illicit profit.

John Lazorchak, 42, director of financial reporting at Celgene, regularly tipped others to nonpublic information on acquisitions, quarterly earnings results and regulatory news, according to a Federal Bureau of Investigation complaint filed yesterday in federal court in Newark, New Jersey.

Mark Cupo, 51, the director of accounting and reporting at Sanofi-Aventis, now known as Sanofi; and Mark Foldy, 42, a marketing executive at Stryker Corp., also were charged. Prosecutors said most of the profit went to Lawrence Grum, 48, and Michael Castelli, 48, who also tipped friends and family. The case involves two sets of high school friends and at least one witness who secretly recorded Grum for the FBI.

Michael Pendolino, 43, a high school friend of Lazorchak, also was charged in the FBI complaint. The Securities and Exchange Commission sued the six men, as well as a seventh, James Deprado, claiming they made $1.7 million in illicit profit.

The six men charged by the FBI all appeared yesterday in handcuffs in court in Newark, where bail was set. Lawyers for the six men declined to comment.

Brian Gill, a spokesman for Summit, New Jersey-based Celgene, said the company learned Nov. 18 that Lazorchak would be charged and Lazorchak was fired yesterday morning.

Jean-Marc Podvin, a spokesman for Paris-based Sanofi, the parent of Sanofi-Aventis, didn’t immediately return a call.

“Mr. Foldy is no longer an employee and we have no further comments,” Jo Johnson, a spokeswoman for Kalamazoo, Michigan- based Stryker, said in an e-mailed statement.

The case is U.S. v. Lazorchak, 12-mj-6755, U.S. District Court, District of New Jersey (Newark).

For more, click here.

Stanford’s Accountants Guilty of Hiding $7 Billion Fraud

Two former accounting executives were convicted of helping Texas financier R. Allen Stanford hide a Ponzi scheme that bilked investors of $7 billion.

A jury of seven men and five women in federal court in Houston deliberated for 16 hours over three days before convicting Stanford’s ex-Chief Accounting Officer Gilbert Lopez, 70, and former Global Controller Mark Kuhrt, 40, of conspiring to hide a fraud scheme built on bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.

The men were each found guilty yesterday of 9 of 10 wire fraud counts and one count of conspiracy to commit wire fraud.

The men face prison terms of more than 20 years when they are sentenced Feb. 14 by U.S. District Judge David Hittner, who presided over the trial. Hittner ordered both men to be taken into custody over the government’s recommendation that they remain free on bond, citing the international nature of the scheme and the “potential contacts out there.”

Lawyers for both defendants said they will appeal the verdicts.

The case is U.S. v Lopez, 4:09-cr-0342, U.S. District Court, Southern District of Texas (Houston).

For more, click here.

Interviews/Hearings

U.K. Loan Insurance Redress ‘Mad,’ Ex-HBOS Director Says

Charles Dunstone, a former chairman of retail risk at HBOS Plc, said the levels of compensation provided to customers who claim they were wrongly sold payment-protection insurance are “mad.”

Payment protection insurance wasn’t improperly sold in the way the U.K.’s Financial Services Authority says it was, he told a Parliamentary Commission on Banking Standards committee yesterday. Dunstone retired from HBOS in 2008.

Lloyds Banking Group Plc (LLOY), which bought HBOS in 2009, this month set aside an additional 1 billion pounds ($1.6 billion) to compensate clients wrongly sold loan insurance, bringing its total earmarked for redress to 5.3 billion pounds. U.K. lenders have set aside about 11 billion pounds after regulators ordered them to compensate customers who were forced to buy, or didn’t know they had bought insurance to cover their repayments on mortgages, credit cards and other loans.

Earlier, Dunstone said he was “surprised” at the extent of losses incurred by HBOS’s corporate lending unit after he left the bank. HBOS became part of Lloyds in a government- brokered takeover that required more than 20 billion pounds of taxpayer aid.

FTN’s Low Waiting to Hear More on Mortgage Regulation

Christopher Low, chief economist at FTN Financial, said mortgage banking regulation “may have gone too far.” Low talked with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Arthur Levitt Says Financial Regulation Has Slowed

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, says the pace of regulation in the financial markets has slowed. Levitt talked with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

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

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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