The U.S. Treasury Department and members of Congress are preparing to move forward with plans to expand government-backed refinancing programs to underwater homeowners whose loans are packaged in private-label securities.
Senator Jeff Merkley, an Oregon Democrat, is drafting a bill modeled on a proposal he outlined last year to set up a federal trust to purchase or guarantee refinanced mortgages, according to two people familiar with the discussions who asked not to be identified because the bill hasn’t been introduced.
The trust, as described in Merkley’s earlier proposal, would provide relief to borrowers with privately owned loans and probably would be set up under the oversight of an existing housing agency. If Congress doesn’t pass such a measure, the Treasury is planning to step in to pay for rate modifications for those homeowners.
Treasury also is poised to approve a pilot program in Oregon that would use federal housing aid to purchase mortgages from private securities and modify the interest rates, a model that could be used in other states, according to two people familiar with the plan, who asked not to be identified because it hasn’t been announced.
The efforts come a year after President Barack Obama called for a universal refinancing program in his State of the Union address. Underwater borrowers who purchased homes when rates were above the current historic lows can often save hundreds of dollars a month if they refinance, adding to their disposable income and potentially stimulating the economy.
Almost 1.8 million borrowers have taken advantage of the Home Affordable Refinancing Program for mortgages backed by government-owned Fannie Mae and Freddie Mac since it began in 2009. The Merkley plan would create a similar avenue for an estimated 930,000 borrowers whose loans are in private-label securities and who are current on their payments, according to the proposal outlined last year.
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Barnier Tells EU Lawmakers in Letter Not to Block Swap Rules
Michel Barnier, the European Union’s financial services chief, told lawmakers to drop a threat to block derivatives rules, saying the plan may harm the EU’s credibility and give its global competitors a boost.
Barnier made the comments in a letter dated Jan. 30 and obtained by Bloomberg News.
Global regulators are seeking to toughen rules for the $639 trillion market for OTC derivatives, which became a target for oversight after the 2008 collapse of Lehman Brothers Holdings Inc., and the rescue of American International Group Inc. (AIG:US), two of the largest traders in credit-default swaps.
The Group of 20 nations agreed in 2009 that standard types of OTC trades should be pushed through clearinghouses, and logged in repositories. The EU adopted legislation in 2012 to apply the international agreement and is now in the process of adopting technical rules to flesh out the law.
Members of the European Parliament have threatened to reject two technical standards proposed by Barnier’s aides amid concerns they would be too onerous for non-financial businesses and aren’t in line with the overall legislation. The parliament’s economic and monetary affairs committee is scheduled to vote on the matter on Feb. 4.
Stefaan De Rynck, a spokesman for Barnier, couldn’t be immediately reached for comment.
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EBA to Get Stronger Stress Test Powers, EU Lawmaker Giegold Says
Sven Giegold, the European Union lawmaker in charge of draft rules for the European Banking Authority, said that he’s “very optimistic” that the law will give the EBA “stronger power” over bank stress tests.
Giegold said the new law should give the EBA the power to carry out on-the-ground inspections to check that data it is receiving is accurate, Giegold told reporters at a conference in Brussels.
This should apply to site-visits of regulators and also of individual banks, he said.
Negotiations on the draft law, which is part of a package of legislation to hand the European Central Bank oversight powers, may be concluded by a meeting of finance ministers on March 5, Giegold said.
Talks are continuing about whether the EBA should be tasked with carrying out annual bank stress tests, Giegold said.
U.S. Consumer Bureau Seeks Comment on College Finance Products
The U.S. Consumer Financial Protection Bureau is seeking input on the impact of financial products marketed to students through colleges and universities, the agency said in an e- mailed statement yesterday.
A 2009 law on credit cards restricted some kinds of marketing practices on college campuses, according to CFPB. The bureau is seeking information in particular on other kinds of products, such as student identification cards that can be used as debit cards, cards that tap scholarships and student loans, and bank accounts affiliated with a particular school, according to the statement.
The agency is seeking public comments through March 18 about student experiences with the products, fees charged, how the deals are set up, information shared with financial companies when they work with a school and how the products are marketed to students.
Google Submits Settlement Offer, EU Antitrust Chief Says
Google Inc. (GOOG:US) submitted an offer to European Union regulators in a bid to settle a probe into whether the world’s largest search engine operator discriminates against rivals, the EU’s antitrust chief said.
EU Competition Commissioner Joaquin Almunia told reporters in Brussels today that his officials would study the proposal.
Almunia had asked Google to submit concessions by the end of January to address allegations that the company promotes its own specialist search-services, copies rivals’ travel and restaurant reviews, and has agreements with websites and software developers that stifle competition in the advertising industry. He first told Google in May that he wanted to settle the case.
Antoine Colombani, a spokesman for Almunia, said he couldn’t anticipate if Google’s offer was sufficient to allay antitrust concerns or whether it would be sent to rivals and customers for comments. If this market test is successful, the EU can make the commitments legally binding. Such a settlement would avoid possible fines against the Mountain View, California-based company.
Google continues “to work co-operatively with the commission,” the company’s Brussels-based spokesman Al Verney said in an e-mailed statement.
The U.S. ended an investigation into Google’s search business last month, saying there was no evidence that the company’s actions harmed consumers.
Japanese Auto-Component Makers Bracing for EU Cartel Fines
Toyota Motor Corp. (7203) suppliers embroiled in the largest cartel probe on record have rebounded from a slump that followed almost $1 billion in fines in Japan and the U.S. Now they face the prospect of even more penalties in Europe.
EU fines will probably be announced this year, said Takeshi Shinagawa, a director at the Japan Fair Trade Commission. Parts makers Sumitomo Electric Industries Ltd. (5802), JTekt Corp. (6473) and at least 12 others could get EU cartel fines higher than those levied in Japan, he said.
Toyota affiliate Denso Corp. (6902) and Sumitomo Electric, also a supplier to Honda Motor Co. and Nissan Motor Co., have been investigated in cartel probes following raids of four manufacturers by watchdogs in the U.S., the EU and Japan in 2010.
Antoine Colombani, a spokesman for the European Commission, declined to comment on future fines for car parts makers. He said regulators have visited producers of automotive lighting, safety equipment, bearings and thermal systems and had no deadline for completing the inquiries. These add to a formal probe the EU opened in August into car wire harnesses that didn’t identify companies under investigation.
The probes include companies based in Japan, Europe and the U.S., and have widened to Canada and Australia. So far, Japanese companies have received the biggest penalties.
Sharis Pozen, then the Justice Department division’s acting chief, said the U.S. investigation was the agency’s largest ever. Fines in Europe can be as much as 10 percent of sales, though authorities rarely impose the maximum.
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Deutsche Bank Considers Selling CoCos to Meet U.S. Capital Rules
Deutsche Bank AG (DBK), Europe’s biggest bank by assets, is considering selling contingent convertible bonds to bolster capital at its U.S. unit should the Federal Reserve implement stricter rules for foreign banks.
The Fed in December proposed subjecting two dozen foreign banks with at least $50 billion of global assets to stricter capital rules to lower risks to the financial system. That could erode the ability of the banks to compete and may prompt “retribution” from European regulators seeking tighter rules for U.S. firms, Stefan Krause, the Frankfurt-based lender’s chief financial officer, said yesterday on a conference call with analysts.
CoCos convert into shares when a bank’s capital ratio falls below a predefined level.
Deutsche Bank said it expects to take a charge of 2 billion euros ($2.7 billion) to 2.5 billion euros in the fourth quarter related to its U.S. Taunus unit under German HGB accounting rules, Krause said. That won’t stop the bank from paying a dividend for 2012 and has no bearing on its capital levels or profit under IFRS rules, he said.
The “conservative” German accounting rules require valuations to reflect the performance of a business as far as five years in advance, said Krause.
Libor Rate-Rigging Brings Record Fines, Banker Arrests
The London interbank offered rate is the basis for more than $300 trillion of securities. The banks that set the rate stand accused of rigging it for years to boost profits. Five years after alarm bells first sounded, regulators are handing out fines and criminal sanctions to those responsible for rate manipulation. This story is featured in the March issue of Bloomberg Markets Magazine.
Bloomberg Television’s Mark Barton reports.
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Rajaratnam Two-Time Tipper Roomy Khan Gets One Year in Prison
Roomy Khan, the former Intel Corp. executive twice convicted of passing illegal tips to Raj Rajaratnam, was ordered to serve one year in prison for obstructing justice after she’d agreed to help the U.S.
Defense lawyers and prosecutors sought leniency for Khan, 54, saying she helped the government win convictions against hedge fund managers Rajaratnam, Doug Whitman and others. Khan was twice convicted of passing illegal tips to Galleon Group LLC co-founder Rajaratnam, once in 2001 and again in 2009.
Manhattan U.S. Attorney Preet Bharara’s prosecutors cited Khan’s cooperation in a letter to the judge, despite her having lied, destroyed evidence and tipped off co-conspirators to the government’s investigation when she was working with federal agents.
Another cooperator in the governor’s insider-trading crackdown, former Barai Capital Management LP analyst Jason Pflaum, who testified against an expert networking consultant convicted by a jury in 2011, yesterday was spared a prison sentence.
Pflaum, who was a key government witness at the trial of former Primary Global Research LLC consultant Winifred Jiau, was ordered by U.S. District Judge Jed Rakoff to serve two years’ probation and forfeit $500,000.
In Khan’s case, Rakoff said he couldn’t ignore that after pleading guilty and agreeing to cooperate with a federal investigation of Rajaratnam in California, she returned to insider trading and passed the fund manager illegal tips. He said that Khan obstructed justice after she agreed to cooperate with federal investigators in New York in 2007.
Rakoff described Khan’s conduct as a “whole series of lies” that “cannot be ignored.” He directed Khan to forfeit more than $1.5 million she earned as a result of the scheme.
“I understand the court’s reasoning and logic in giving a sentence but considering individuals who went to trial and got two years and a one-year sentence for Ms. Khan is a lot under the circumstances,” her lawyer, Stanislao German, said in an interview after court yesterday.
German said Khan wouldn’t appeal her sentence.
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Peregrine’s Wasendorf Gets 50 Years in Prison for Theft
Russell Wasendorf Sr., the founder of now-bankrupt commodities firm Peregrine Financial Group Inc., was sentenced yesterday to 50 years in prison for what prosecutors said was a theft of more than $215 million from customers.
Wasendorf was sentenced in federal court in Cedar Rapids, Iowa, the Associated Press reported. He used a printer, software and a post office box in a scheme to create false bank statements and other documents and hide from regulators and auditors that he embezzled customer funds over a 20-year period starting in the early 1990s, prosecutors said in court filings.
Assistant U.S. Attorney Peter Deegan told U.S. District Judge Linda Reade in court filings that Wasendorf deserved the maximum 50-year penalty because of the amount customers lost and the sophistication used to carry out the crime. Wasendorf started stealing customer funds within two years of Peregrine’s original financing.
He pleaded guilty in September to mail fraud and two counts of lying to federal prosecutors. His crimes came to light on July 9 when he tried to kill himself by asphyxiation with car exhaust outside the firm’s Cedar Falls, Iowa, headquarters.
Jane Kelly, an attorney for Peregrine, filed a sentencing recommendation for her client under seal. She couldn’t be reached for comment.
The case is U.S. v. Wasendorf, 12-cr-2021, U.S. District Court, Northern District of Iowa (Cedar Rapids).
CFTC Roundtable on ‘Futurization of Swaps’
U.S. Commodity Futures Trading Commission Chairman Gary Gensler held a public roundtable to discuss the “futurization” of the swaps market.
For the audio, which covers the morning session of the hearing, click here.
Jain Says Dialogue Between Regulators, Banks Is Good
Deutsche Bank AG co-Chief Executive Officer Anshu Jain discusses the bank’s capital ratio and discussions between regulators and banks on global financial rules.
He talked in Frankfurt with Bloomberg Television’s Guy Johnson.
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Separately, Jain said at a news conference in Frankfurt that he had discussed a possible global settlement of alleged rigging of interbank lending rates with fellow CEOs at the World Economic Forum in Davos last month.
“This came up in Davos, a number of bank CEOs were there and we openly discussed whether this made sense for there to be a process,” Jain said.
“There were unofficial discussions, where we felt that if you went back and looked at other industries that have gone through an industrywide settlement process, whether there is something to be gained.”
Comings and Goings/Executive Pay
Barclays’s CEO Antony Jenkins Says He Won’t Take Bonus for 2012
Barclays Plc (BARC) Chief Executive Officer Antony Jenkins said he won’t take a bonus for 2012 after a series of regulatory missteps including a fine for attempting to rig global interest rates.
Jenkins said in an e-mailed statement today that it is “only right that I bear an appropriate degree of accountability” for multiple issues “besetting” the bank. It would be “wrong” to receive a bonus in 2012 “given those circumstances,” he said in the statement.
Jenkins was in line for a bonus of at least 1 million pounds ($1.6 million), the Guardian newspaper reported on Jan. 29. Barclays was fined a record 290 million pounds in June for attempting to manipulate the London interbank offered rate and other benchmark interest rates, with the London-based lender’s three top executives, including former CEO Robert Diamond, departing after criticism by bank supervisors and politicians.
The bank is also being investigated by the Serious Fraud Office and the U.S. Justice Department.
Canellos Named Acting SEC Enforcement Chief as Khuzami Departs
George Canellos, deputy director of the U.S. Securities and Exchange Commission’s enforcement division, was named acting head of the unit that polices Wall Street, the agency said yesterday.
Canellos, 48, will serve on an interim basis in the job that will be left vacant by Robert Khuzami, who is leaving the SEC after four years as enforcement chief. Canellos begins the role on Feb. 8, the SEC said in a statement.
He became Khuzami’s deputy in April after three years overseeing the SEC’s regional office in New York, where he was responsible for about 400 staff, including investigators, accountants and examiners.
Canellos in 1994 became a U.S. prosecutor in the Southern District of New York, where he worked for Mary Jo White, the former U.S. attorney who was nominated Jan. 24 to become the next SEC Chairman.
After eight years as a prosecutor, Canellos entered private legal practice where he remained until 2009, when he left for the SEC.
CFPB Says Steve Antonakes Will Serve as Acting Deputy Director
Steve Antonakes will be acting deputy director of the Consumer Finance Protection Bureau while it continues its search for a replacement for Raj Date, whose last day at the agency was yesterday, the agency said in e-mailed statement.
Antonakes will keep his current job as associate director for supervision, enforcement and fair lending, the agency said in the statement.
Date was an early hire to the bureau in the fall of 2010. During the debate over the Dodd-Frank law that created the agency, he argued for it alongside Elizabeth Warren, the Harvard University law professor who subsequently became an Obama administration adviser charged with setting up the bureau. Warren is now a U.S. senator from Massachusetts.
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