Bloomberg News

Stress Tests-Banker Pay, Google, FX Debates: Compliance

March 14, 2013

JPMorgan Chase & Co. (JPM:US) Chief Executive Officer Jamie Dimon personally stands to miss out on about $1.39 million a year if the Federal Reserve decides last week’s stress-test results don’t justify a dividend increase.

That’s how much extra income Dimon could get from his stake of about 6 million shares if his New York-based bank raises its payout as much as analysts predict. The sum dwarfs the combined $73,300 of new annual dividends at stake for his CEO peers at Bank of America Corp. (BAC:US), Goldman Sachs Group Inc. (GS:US) and Wells Fargo & Co. (WFC:US), based on forecasts compiled by Bloomberg.

Bankers will find out whether they get any boost today when the Fed announces which capital plans at the 18 largest U.S. lenders won approval. Regulators have pressed firms since the 2008 credit crisis to give executives more stock and less cash to align their interests with those of shareholders (BAC:US). CEOs are poised to get a windfall if payouts increase and shares rise -- or to suffer with their investors if results sputter.

Banks are required to pass stress tests run by the Fed and submit capital plans that include any changes in dividends or stock-buyback programs. The four lenders haven’t disclosed how big a raise they’re seeking, while New York-based Citigroup Inc. and Morgan Stanley (MS:US) have said they didn’t ask for increases.

Any income boost will be tempered by higher federal taxes that took effect this year.

Spokesmen for the four banks declined to comment on the stakes in relation to dividend increases.

For more, click here.

Compliance Policy

Argentina Plans State Bank Credit Card to Cut Commission Charges

Argentina is planning to create a credit card issued by state-owned Banco de la Nacion Argentina for purchases at retailers that would agree not to accept cards from other banks, according to Osvaldo Cornide, president of the Confederation of Medium Businesses.

Interior Trade Secretary Guillermo Moreno is studying the creation of the card that would charge retailers 1 percent commission compared with the 3 percent levied by banks, said Cornide, who discussed the plan with Moreno on March 11.

Officials at Moreno’s office didn’t return phone calls and e-mails seeking comments.

The plan for the new card coincides with efforts by President Cristina Fernandez de Kirchner’s government to hold down costs in South America’s second-biggest economy, where economists estimate consumer prices rose 26 percent in 2012.

A card with lower fees would help retailers boost profit margins though it may undermine sales if participating stores weren’t allowed to accept other cards, said Miguel Calvete, director of the Federation of Chinese Supermarkets and Associations.

Federico Sturzenegger, president of Banco de la Ciudad de Buenos Aires, said Fernandez is seeking to restrict competition and use the cards as a lever to tighten government control over supermarkets and their prices.

U.A.E. Considering Currency Swap Accord With China

The United Arab Emirates is considering a currency swap accord with China, U.A.E. Governor Sultan al-Suwaidi told reporters in Manama, Bahrain.

The U.A.E. is studying the experience of Asian nations with currency-swap agreements.

EU May Put Short-Term Bank Creditors in Firing Line for Losses

Overnight interbank loans may no longer be safe from losses when a lender fails, according to new European Union proposals to force costs on to creditors before turning to taxpayers.

Liabilities of less than one month had been shielded from EU plans to standardize how financial failures are handled across the 27-nation bloc. Now nations are weighing changes to EU financial services Commissioner Michel Barnier’s proposed rules for imposing bank-creditor losses, according to the document prepared by Ireland, which holds the EU’s rotating presidency, and obtained by Bloomberg News.

The draft law should treat debts with the same level of seniority equally as much as possible, according to the document, dated Feb. 27. Regulators could be given some scope to exempt certain classes of creditors from writedowns on a case- by-case basis, and short-term liabilities could be added to offset the effect of taking those exceptions out of the pool of assets that can be targeted, the document showed.

EU leaders have set a June deadline for governments and the European Parliament to agree on legislation setting out how authorities should handle bank failures. Senior bank bondholders are in the crosshairs as the unsecured creditors who might be most affected.

A spokeswoman for Ireland’s EU presidency, who couldn’t be named in line with official policy, declined to immediately comment.

For more, click here.

Japan Securities Group Plans Insider-Trading Rules, Nikkei Says

The Japan Securities Dealers Association plans to implement rules in July to prevent insider trading before public share sales, Nikkei newspaper reported.

Brokerages would be required to talk to issuers to consider canceling or postponing sale if leaks move prices, Nikkei reported.

The Association will release the proposal soon for public comment, and hopes to regain public trust in industry through new rules, the paper said.

Japan’s ruling party sought changes in July to insider- trading rules that would allow criminal charges and fines for brokerages and bankers who leak stock offering information, according to a document obtained by Bloomberg News at that time.

Germany’s KfW to Be Supervised by Bafin in Proposed Law Change

The German Finance Ministry commented yesterday on a draft law for KfW, the state-owned bank, proposing KfW be supervised by Bafin. The law is backed by Merkel’s Cabinet.

Bafin, the financial regulator, is to cooperate with Bundesbank in the supervision, according to the ministry statement.

KfW won’t become a “normal” bank. The ban on the government using KfW profits won’t change, according to the statement. Supervision will take KfW’s “special business model” into account.

KfW, which has assets of about EU500b, has become too large to be regulated by the Finance Ministry or the Economy Ministry, Handelsblatt reported. The cabinet was expected to vote on the law yesterday, according to Handelsblatt.

Citigroup Can Omit Investor Proposal on Splitting, SEC Says

Citigroup Inc. (C:US), the third-largest U.S. bank by assets, can omit from its annual meeting a question for shareholders that would require the lender to explore breaking up, the Securities and Exchange Commission said.

The SEC’s Office of Chief Counsel agreed with Citigroup that the proposal, submitted by Trillium Asset Management LLC, was vague enough that shareholders wouldn’t know what actions it required, according to an SEC letter to the bank dated March 12.

Some investors and analysts have questioned whether the largest banks would be worth more if broken up into smaller businesses. Citigroup trades at a discount to tangible book value, a measure of the firm’s liquidation value.

The proposal called for a committee to explore “extraordinary transactions” that would increase shareholder value, even those that separated the bank’s businesses.

Dow Jones Newswires reported the contents of the SEC letter earlier yesterday.

For more, see Interviews, below.

Compliance Action

Google to Pay $7 Million to Resolve States’ Street View Claims

Google Inc. (GOOG:US) agreed to pay $7 million to settle a multistate probe over the collection of data from unsecured wireless networks across the U.S. by vehicles taking images for the company’s Street View product.

The Internet search company signed the agreement with 38 states and the District of Columbia to resolve consumer protection and privacy claims, said the Connecticut Attorney General’s Office, which led the eight-state committee that investigated the matter and negotiated the company’s compliance.

The agreement requires Mountain View, California-based Google to educate employees about the privacy or confidentiality of user data and sponsor a nationwide public-service campaign to teach customers about securing wireless networks and protecting their personal information, according to the statement.

Google also agreed to continue to secure and eventually destroy data collected and stored by its Street View vehicles in the U.S. between 2008 and March 2010, according to Jepsen’s statement. The antenna-equipped vehicles collected network identification information along with data being transmitted over unsecured wireless networks as they were driving by.

The data may have included e-mail communications, confidential or private information that was being transmitted to or from the user at the time the vehicles were passing by and the locations of requested Web pages, according to the statement by Connecticut Attorney General George Jepsen.

Google, operator of the world’s largest search engine, has been grappling with scrutiny by government officials around the world over how it handles private information.

BHP Says Helping Probe After Beijing Olympics Bribery Report

BHP Billiton Ltd. (BHP), the largest mining company, said it’s helping an inquiry into possible breaches of anti-corruption laws after the Age newspaper reported bribery claims linked to the Beijing Olympics.

“We believe our Olympics activities complied with all applicable law,” Melbourne-based BHP said yesterday in an e- mailed statement, referring to its sponsorship of the 2008 games held in China. “As previously disclosed, BHP Billiton has been cooperating with the relevant authorities in an investigation into possible violations of anti-corruption laws.”

BHP is the subject of a joint U.S.-Australian bribery probe into its dealings with foreign officials including Chinese dignitaries under a multimillion-dollar hospitality and sponsorship program at the 2008 Olympics, the Age reported. The company said it’s continuing an internal inquiry that stems from a 2009 probe by the U.S. Securities and Exchange Commission.

China, the biggest purchaser of metals, is BHP’s largest customer, accounting for $22 billion in sales in fiscal 2012. A deal in Western Australia is being examined, the Age reported. The U.S. Department of Justice was conducting “law enforcement proceedings” involving BHP, the newspaper said. Michael Passman, a department spokesman, declined to comment.

“No company, that I am aware of, has ever fought a prosecution in the U.S.” in an anti-corruption case, Mini vandePol, a partner at Baker & McKenzie in Melbourne, said yesterday in a phone interview. It’s likely BHP will end up agreeing to settle with U.S. prosecutors, she said.

The Australian Federal Police has been involved and is coordinating with foreign counterparts and local regulators, a spokesman for the force said in an e-mailed statement.

“The AFP has received a referral that relates to the Australian aspects of the U.S. investigation,” the spokesman said. “Foreign bribery investigations are inherently complex due to their cross-border nature.”

The involvement of the Justice Department, coming after the company first admitted possible breaches of anti-corruption laws to the SEC and the U.K. Serious Fraud Office, follows standard procedure in such investigations, Baker & McKenzie’s vandePol said. “We were all waiting for it last year,” she said.

Lodestone’s Linderum Said to Be Among FSA Insider-Trade Arrests

Carl Linderum, a founding partner of hedge fund Lodestone Natural Resources, was one of the three men arrested last month in London on suspicion of insider trading, according to a person with knowledge of the matter.

Linderum was arrested on Feb. 27, said the person, who asked not to be identified because the information hadn’t been publicly disclosed. Carl Esprey, 33, who has worked as a portfolio manager at GLG Partners Inc., was also detained in the same insider-trading probe.

Linderum is currently listed as “inactive” on the Financial Services Authority register. He started his career as a trainee at Morgan Stanley in 2003, according to the register, and subsequently worked at Brevan Howard Asset Management LLP. The Financial Times reported his arrest earlier.

Linderum didn’t answer a call seeking comment. Ben Belldegrun, another of Lodestone’s founding partners, declined to immediately comment.

The investigation is part of a push by the FSA to crack down on insider trading by employees at London’s biggest financial companies after having previously targeting lower- profile individuals.

Courts

Spanish Consumer Rules on Mortgages Are Unlawful, EU Court Says

The European Union’s highest court struck down parts of Spanish mortgage law, saying they are unfair on consumers and must be changed.

Spanish law needs to provide greater protection to borrowers who claim the terms of their mortgage are unfair, the Luxembourg-based European Court of Justice said in a statement on today’s case.

The ruling was triggered by the situation of a Spanish resident, Mohamed Aziz, who eventually lost his property after failing to make mortgage payments.

His bank, after unsuccessfully asking him to pay, took enforcement measures. Aziz’s house was put up for auction and with no bids made, under the terms of Spanish law, the bank took ownership of the property for 50 percent of its value. In January 2011, Aziz was evicted from his home.

The local court where the case is pending sought the EU court’s guidance on whether the Spanish law is in line with the bloc’s law on unfair terms in consumer contracts.

Interviews/Panels

Mayo Says Citi Shareholder Vote Should’ve Been Allowed

Mike Mayo, a CLSA Ltd. analyst, talked about the U.S. Securities and Exchange Commission’s decision yesterday to allow Citigroup to block a shareholder proposal that would have required the bank to explore splitting up.

He spoke with Stephanie Ruhle and Adam Johnson on Bloomberg Television’s “Lunch Money.”

For the video, click here.

Berg, Vamvakidis on Carry Trades, Emerging Currencies

Bernd Berg, emerging-markets strategist at Credit Suisse Group AG (CSGN), and Athanasios Vamvakidis, currency strategist at Bank of America Merrill Lynch (BAC:US), discussed emerging-market currencies and carry trades.

They talked about central bank monetary policies toward the euro and the dollar as well as emerging market developments.

They spoke at the Bloomberg Link FX Debates in London in a session moderated by Bloomberg Television’s Guy Johnson.

For the video, click here.

Bailey Informs Lawmakers About Solvency II, Banker Pay, RBS

European rules for insurance firms, known as Solvency II, may increase costs for policy holders by “several billion pounds,” Andrew Bailey, the U.K.’s chief banking supervisor, told lawmakers in London yesterday.

U.K. bankers covered by the European Union’s cap on bonus payouts may get as much as 500 million pounds ($746 million) more in regular paychecks as a result, Bailey said.

Bailey, who will lead the Prudential Regulation Authority when it starts operations next month, told lawmakers yesterday that he had “back of the envelope calculations” laying out the effect of the bonus curbs that are part of the implementation of global rules drawn up by the Basel Committee on Banking Supervision.

For more, click here.

Bailey also told lawmakers that he hasn’t “asked the government to put money into” Royal Bank of Scotland Group Plc.

Bailey made the comments in response to lawmakers’ questions on a report by into U.K. banks’ capital levels scheduled to be published later this month.

Comings and Goings

Japan’s Lower House Approves Kuroda for BOJ Governor

Haruhiko Kuroda was endorsed by the lower house of parliament to become Bank of Japan governor, clearing the first hurdle in Prime Minister Shinzo Abe’s plan to install a central bank leadership in favor of more easing.

Lawmakers in the chamber, which is dominated by the ruling coalition, today also approved Kikuo Iwata and Hiroshi Nakaso for two deputy governor posts.

Abe now needs to get his nominations through an upper house vote tomorrow, where his Liberal Democratic Party lacks a majority.

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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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $61.11 USD
    • -0.21
    • -0.34%
  • BAC
    (Bank of America Corp)
    • $16.95 USD
    • -0.09
    • -0.53%
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