Bloomberg News

Banker Pay, Monte Paschi Bailout, Auto-ABS: Compliance

March 01, 2013

European plans to levy the world’s toughest bonus restrictions on bankers drew condemnation in London as the industry warned it may backfire as firms raise fixed pay instead.

The agreement of European Parliament lawmakers and government officials in Brussels yesterday to ban bonuses that are more than twice bankers’ fixed pay starting Jan. 1, if ratified by European Union countries and the full Parliament, will be a blow to banks in the 27 member states, pay consultants and the U.K. government said.

The City, as the London district is known, is the world’s No. 1 financial center, according to consulting firm Z/Yen Group Ltd., and is the European securities operations hub of firms including Deutsche Bank AG (DBK), UBS AG and Credit Suisse Group AG. (CSGN) It’s also home to a financial-services industry where employment may fall to a 20-year low in 2013 and that has been plagued by scandals including interest-rate rigging and government bailouts of U.K. banks.

About half of European investment-banking activity is conducted through London and the U.K.’s financial firms generated almost 12 percent of the country’s tax revenue from 2011 to 2012, according to TheCityUK, a bank lobbying group.

U.K. Prime Minister David Cameron’s spokesman, Jean- Christophe Gray, told reporters in London yesterday that the impact on competitiveness should be considered. He said that smaller bonuses would mean larger basic pay, which isn’t subject to any delay or clawback.

Banks have already increased base salaries as a proportion of total compensation after European regulators, including those in the U.K. and France, restricted when and in what form bankers can be paid after the financial crisis.

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Compliance Policy

Car Loans Help Drive Poland Regulator Toward ABS Market

Poland’s financial watchdog is seeking to help banks fund lending more cheaply by developing the asset-backed securities market as the nation faces its worst economic slowdown in more than a decade.

The Financial Services Authority is studying the ABS market and will propose regulatory changes, Wojciech Kwasniak, the FSA’s deputy chairman, said in an e-mail Feb. 27. Getin Noble Bank SA (GNB), Poland’s second-largest mortgage provider, sold 518.7 million zloty ($163 million) of debt backed by car loans in December, the nation’s first such sale since before the collapse of Lehman Brothers Holdings Inc. in 2008.

For a country opening the ABS market, sales can reach between 5 percent and 10 percent of banks’ mortgage loans, according to Bank of America Merrill Lynch (BAC:US). The Polish regulator is trying to spur lending growth as the economy will expand this year at the slowest pace since 2001 amid a slump in consumption and investment, the European Commission said on Feb 22.

Poland needs to bring legal and tax rules governing asset backed securities more in line with western Europe, Pawel Lopuszynski, Warsaw-based head of Treasury at BRE Bank Hipoteczny SA, said by phone Feb. 27.

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Malaysia Said to Tighten Onshore Dollar-Ringgit Fixing Rules

Malaysia is said to tighten its onshore dollar-ringgit fixing rules beginning today.

The new rules will narrow the spread to 10 pips from 20 pips.

The stricter guidelines “are an apparent response to heightened global scrutiny of other benchmark global interest rates,” the Wall Street Journal reported earlier this week.

The guidelines are expected to improve the transparency of the daily reference price “for the onshore U.S. dollar- Malaysian rinngit exchange rate, known as fixing,” the Journal reported, citing a notice provided to banks by the Financial Markets Association Malaysia.

Compliance Action

Monte Paschi Receives $5.3 Billion Bailout From Italy

Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, received a 4.07 billion-euro ($5.3 billion) bailout from the Italian state to help it reach a capital requirement set by European regulators.

The funds include 171 million euros to cover interest payments on existing aid as Monte Paschi will probably incur a loss for 2012, the bank said in a statement yesterday. Monte Paschi received 1.9 billion euros in state aid in 2009 through the issue of so-called Tremonti bonds, which have been converted into new securities and form part of the amount requested.

The bank will likely need more help going forward, as bad loans continue to rise and its operating profits struggle, analysts at Royal Bank of Scotland Group Plc in London said.

Italy approved a law last year allowing Monte Paschi to raise funds by selling securities to the government, labeled “Monti” bonds after Prime Minister Mario Monti. The securities have a 9 percent coupon that may rise to as much as 15 percent. In case of losses, Monte Paschi may pay the annual interest on aid by giving shares to the government.

Google Called Before EU Data Watchdogs Over Privacy Concerns

Google Inc. (GOOG:US) will have to appear before a group of European Union data-privacy watchdogs as part of a probe that may lead to what the regulators called coordinated “repressive action” after it failed to fix flaws in its privacy policy.

Google will be called to appear “in the coming weeks” as regulators prepare for “repressive action, which should start before the summer,” France’s National Commission for Computing and Civil Liberties, or CNIL, said in an online statement yesterday.

“Our privacy policy respects European law and allows us to create simpler, more effective services,” Google spokesman Al Verney said by phone. “We have engaged fully with the CNIL throughout this process and will continue to do so going forward.”

The Article 29 Data Protection Working Party, which comprises national privacy authorities in the EU, decided to pursue Google after a two-day meeting in Brussels, after which it sent a letter with a list of recommendations.

CNIL Chairwoman Isabelle Falque-Pierrotin said last year the French authority may fine Mountain View, California-based Google for not complying, calling it “probable” that other European agencies would pursue Google if it didn’t.

Google may face repressive action because it failed to give “any precise and effective” responses to the EU group’s recommendations, CNIL said last week. Google said then that it had answered on Jan. 8, listing changes it’s made to improve the protections and asking to meet to discuss the case.

U.S. Regulators Lay Out Compensation Plan for Foreclosure Accord

About 4.2 million borrowers who went through foreclosures will hear from Rust Consulting Inc. within 31 days to outline their compensation under a settlement with 13 mortgage servicers, according to U.S. bank regulators.

The final details of an agreement with the largest U.S. mortgage servicers were released yesterday by the Federal Reserve and Office of the Comptroller of the Currency, who said that Rust was hired as the agent tasked with giving out $3.6 billion in cash payments to those foreclosed on in 2009 and 2010. Individual borrowers will receive as much as $125,000, depending on how their harm is categorized by the servicers.

The regulators reached the settlement in January for foreclosure faults after a U.S. housing-market collapse contributed to the worst financial crisis since the Great Depression. Another $5.7 billion is set to be spent by the firms on preventing future foreclosures and keeping borrowers in their homes.

Mortgage servicers were accused of engaging in improper foreclosure methods in 2009 and 2010, including so-called robo- signing of documents. Regulators initially ordered servicers to obtain independent reviews. That process was ended at those firms signing this latest settlement.

Courts

Convicted Ex-UBS Trader Adoboli Seeks to Overturn Jail Sentence

Convicted UBS AG (UBSN) trader Kweku Adoboli asked a British appeals court to overturn his seven-year prison sentence for causing a $2.3 billion loss through unauthorized trades.

Adoboli, 32, was convicted in November of two counts of fraud for causing the loss at the bank’s London unit. He filed the request to have his case reviewed with the U.K. Court of Appeal in London in December, according to court records made available this week. The appeals court must decide whether to hear the case.

Adoboli pleaded not guilty and argued at trial that managers at the Swiss bank pushed him to take too many risks and that rule-breaking at the bank was rampant. While he admitted causing the loss, he said it wasn’t done dishonestly. Adoboli was ordered to serve at least half of the seven-year term. He is serving his sentence at Verne Prison on the Isle of Portland, a jail on a small island off the south coast of Dorset, England, that was once a military barracks. He has joined the choir and taken on a volunteer role at the prison.

While the 10-member jury was unanimous in finding Adoboli guilty of one count of fraud during the period in which the loss was caused, jurors didn’t reach unanimous decisions on the remaining fraud count and on four counts of false accounting. He was convicted 9-1 on the second fraud charge, which dated back to 2008, and acquitted on the false accounting charges.

His lawyer, Tim Harris, didn’t immediately respond to a request for comment. UBS spokesman Richard Morton declined to comment.

Interviews

RBS Chairman Hampton Says Bank Targeting Government Sale in 2014

Royal Bank of Scotland Group Plc Chairman Philip Hampton said it would be “very good” if the bank was positioned for the government to start selling its 81 percent stake in 2014.

Hampton made the remarks to reporters yesterday in London, adding that the bank hit a number of milestones during 2012.

Chief Executive Officer Stephen Hester, who succeeded Fred Goodwin in 2008, has cut 907 billion pounds ($1.4 billion) of assets, eliminated more than 36,000 jobs and scaled back the securities unit following a 45.5 billion-pound bailout during the banking crisis. 2013 will be the last “really big” year of restructuring for Britain’s biggest government-owned lender, Hester, 52, told reporters yesterday.

It will be for the government to decide when to start selling its holding and when the bank can resume dividend payments, Hester said. The Edinburgh-based bank would “ideally” start paying dividends at the earliest opportunity, he said.

The government hasn’t set a timetable for the disposal of its stake in RBS, Jean-Christophe Gray, Prime Minister David Cameron’s spokesman, told reporters yesterday in London.

Efforts to reduce the U.K.’s holding are being hampered by regulatory fines for manipulating Libor and the payment of compensation to customers who were wrongly sold loan insurance and interest rate hedging products.

Aso Says Japan Post May Not Have Expertise to Approve Mortgages

Japanese Financial Services Minister Taro Aso signaled concern about Japan Post Holdings Co.’s plan to start residential and corporate lending, saying the state-run company doesn’t have the necessary expertise.

Aso made the remarks during a meeting with heads of financial lobby groups at the agency Feb. 28.

The state-owned parent of the bank and insurance units applied for government approval in September to start offering mortgages and corporate loans from April.

The Japanese Bankers Association is among groups that have opposed Japan Post’s entry to loan market, saying the move would distort fair competition.

Comings and Goings

Skills Shortage Boosts Courses, Scholars Sit on Shariah Boards

Islamic finance institutions are adding new courses as global demand for skilled staff outstrips the supply of new graduates by 10 times, threatening to slow the industry’s 19 percent annual growth.

Some 5,000 students are graduating each year, compared with a worldwide shortage of 50,000 professionals, Muhammad Zubair Mughal, chief executive officer of the AlHuda Center of Islamic Banking and Economics in Lahore, Pakistan, said in a Feb. 23 e- mail. Sales of bonds that comply with the religion’s ban on interest rose 26 percent to a record in 2012, according to data compiled by Bloomberg, while countries such as Egypt, Morocco and Russia are looking to sell sukuk for the first time.

Islamic banking assets at commercial lenders increased 24 percent to $1.3 trillion in 2011, taking annual average growth over the four years through 2011 to 19 percent, according to an Ernst & Young report released in December. That’s 50 percent faster than the overall banking sector, the company said.

The expansion has helped drive Shariah-compliant bond sales to $46.4 billion last year, according to data compiled by Bloomberg. Offers have reached $5.9 billion this year, 26 percent less than the same period in 2012.

The skill shortage has stifled innovation as many Shariah- compliant lenders simply come up with Islamic versions of existing financial products, rather than developing original offerings, according to Kuala Lumpur-based law firm Lee Hishammuddin Allen & Gledhill.

In most countries there’s no limit to the number of boards on which a scholar can advise on Shariah compliance, with one Syrian expert advising 101 financial institutions, standard- setting bodies and other entities, according to a 2011 report by Funds@Work AG, an investment research company based near Frankfurt.

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FTC’s Edith Ramirez Said to Be Obama’s Choice as Agency Chairman

Edith Ramirez, a campaign official for President Barack Obama and one of his law school classmates, will be named as head of the U.S. Federal Trade Commission, where she has been a commissioner for almost three years, according to a White House official.

Ramirez, 44, an intellectual property lawyer, served as an editor of the Harvard Law Review in 1990 and 1991 when Obama was its president. In 2008, Ramirez, who is Mexican-American and bilingual, was the Obama campaign’s Latino outreach director in California. She has been on the commission since April 2010.

The official asked for anonymity to discuss the appointment because the decision hasn’t been announced.

Ramirez’s public remarks in 2012, apart from official FTC statements, included discussions of children’s online privacy and intellectual property issues in technology and antitrust.

In an interview last year, Ramirez explained why she voted in favor of withdrawing an appeal of a court order that denied the FTC’s request to block Laboratory Corp. of America Holdings from buying Westcliff Medical Laboratories Inc. It was because the merger process had already begun, she said in the spring 2012 newsletter of the American Bar Association’s mergers and acquisitions committee.

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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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