Bloomberg News

Sweden’s Banks, Freddie Libor Suit, Cyprus: Compliance

March 21, 2013

Swedish regulators should consider raising risk weights on mortgage assets above the 15 percent proposed last year to help the industry pad itself against potential losses, Riksbank Governor Stefan Ingves said.

While existing plans to impose stricter bank rules have strengthened Sweden’s financial system, there remain “several areas that require further examination,” Ingves said yesterday in a speech in Stockholm. These include banks’ ability to meet short-term liquidity needs, as well as whether lenders should cover costs incurred by the central bank to hold foreign reserves needed to shield the industry from currency risks, he said.

Sweden’s financial regulator last year proposed tripling risk weights applied to mortgage assets as part of a broader drive to stem imbalances in the housing market. In 2010, Sweden capped new mortgages at 85 percent of property values. Though the measures helped slow borrowing growth, property prices are still rising and household debt will hit a record 173 percent of disposable incomes this year, the central bank estimates.

Raising risk weights to 15 percent would require Sweden’s largest banks to set aside an additional 20 billion kronor ($3.1 billion) in capital, led by 7.2 billion kronor at Swedbank AB and 5.5 billion kronor for Svenska Handelsbanken AB, the regulator said Nov. 26.

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Compliance Policy

Banker Bonus Curbs Sealed as EU Clinches Deal on Basel Law

Bankers may feel the pinch from European Union bonus curbs starting in 2015, after Britain failed to water down a tentative agreement from last month aimed at reining in excessive risk- taking.

European Parliament lawmakers and Ireland, which holds the rotating presidency of the EU, kept bonus restrictions unchanged, as they sealed a deal yesterday overhauling bank capital and liquidity rules for the 27-nation EU.

The bid to ban bonuses more than twice fixed pay is part of EU legislation to apply international bank capital and liquidity rules, known as Basel III, drawn up following the collapse of Lehman Brothers Holdings Inc. While yesterday’s accord paves the way for the EU to start phasing in the Basel law by next January, it comes too late to limit 2014 bonus awards.

Talks on the rules had dragged on for a year and a half before the Irish presidency and lawmakers negotiated the bonus agreement. The parliament had insisted that the legislation include restraints on pay to curb excessive awards and irresponsible behavior.

The bonus rules would apply to EU banks, including overseas units. They would also apply to EU-based units of banks from beyond the bloc’s borders.

The European Banking Authority will work out the details of the discounting method, said an EU official who asked not to be identified citing government policy.

EU lawmakers on the economic and monetary affairs committee today backed legislation that would extend similar bonus caps to fund managers.

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Wall Street Wins in Swap-Rule Revisions Moving in U.S. House

U.S. House lawmakers advanced legislation that would ease Dodd-Frank Act derivatives rules and give banks greater ability to trade swaps overseas.

The House Agriculture Committee voted yesterday to move seven measures, including one to allow trading of almost all types of derivatives by units of banks that hold government- insured deposits -- such as JPMorgan Chase & Co. and Citigroup Inc. (C:US) A separate bill would restrict U.S. regulators’ ability to apply rules to overseas transactions.

The measures, which would need approval from the House and Senate before heading to President Barack Obama, are part of an effort to amend or limit the regulatory overhaul the president signed into law less than three years ago. Dodd-Frank requires the Commodity Futures Trading Commission and Securities and Exchange Commission to create swap-market rules after largely unregulated trades helped fuel the 2008 credit crisis.

The lawmakers are working to undo Dodd-Frank provisions even as the CFTC and other regulators are trying to complete the overhaul.

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ECB Said Likely to Delay Vote on Emergency Cyprus Bank Lending

The European Central Bank is likely to delay a decision on whether to continue to supply Cypriot banks with emergency funds as it awaits clarity on the nation’s bailout, two people familiar with the deliberations said.

The ECB assumes that a bank holiday in Cyprus will be extended to the end of the week, and there is a public holiday on the Mediterranean island on March 25, the people said on condition of anonymity.

That means policy makers don’t need to vote on whether to extend or halt Emergency Liquidity Assistance to Cypriot banks at their mid-month meeting in Frankfurt, which started yesterday and ends today, the people said.

Europe Plays I-Didn’t-Do-It Blame Game on Cypriot Deposit Levy

To listen to the German and French governments, the European Central Bank and European Commission, no one was responsible for the Cypriot deposit tax that was unanimously endorsed in the early hours of March 16 and fell apart March 19.

German Finance Minister Wolfgang Schaeuble opened the blame game on Sunday, telling ARD television that the commission, ECB and Cypriot government engineered the swoop on ordinary bank accounts and “now they have to explain it to the Cypriot people.”

Indignation in Nicosia led other finance ministers from France to Finland to disown what they had decided.

France’s Pierre Moscovici said he had wanted an exemption for accounts worth less than 100,000 euros ($129,500). Austria’s Maria Fekter said ECB demands made that impossible. Joerg Asmussen, the ECB Executive Board member who took part in the finance chiefs’ all-night Brussels meeting, pleaded not guilty, saying the central bank didn’t insist on “this specific structure of the levy.”

Other non-authors of the tax on sub-100,000-euro accounts included Spanish Economy Minister Luis de Guindos, Finnish Finance Minister Jutta Urpilainen and the Brussels-based commission, which said yesterday that it wasn’t comfortable with the package in “all its elements” and added that “decisions are taken by the member states.”

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Iceland Unveils Bill Restricting Foreigners’ Property Purchases

Iceland’s Interior Minister Ogmundur Jonasson introduced a bill curbing foreigners’ ability to buy property in the country, according to a statement on the parliament’s website.

The bill, which is being discussed in the Reykjavik-based legislature, seeks to prevent people who aren’t citizens of Iceland from purchasing properties that include water rights or fishing rights. The interior minister would be authorized to grant exemptions to people or companies operating in Iceland.

The legislation follows Iceland’s repeated rejections of Chinese billionaire Huang Nubo’s plan to invest $200 million in 300 square kilometers (116 square miles) of land in the north part of the island to develop a resort and mountain park.

Compliance Action

ICE Said to Put Hold on Investor Swaps Clearing After SEC Rule

Intercontinental Exchange Inc. (ICE:US) has put on hold plans to clear some credit-default swaps for hedge funds and money managers after the U.S. Securities and Exchange Commission doubled the amount of collateral the traders need to post, according to two people familiar with the decision.

Intercontinental, owner of the world’s largest credit-swap clearinghouse, and investment firms agreed to wait to begin clearing so-called single-name trades after the SEC’s March 8 decision made them too costly, said the people, who asked not to be named because the decision was private. Investors were hoping the rule would reduce margin because those contracts often are offset by opposing trades linked to indexes, lowering risk to clearinghouses.

The development underscores the complications of having two regulators overseeing separate parts of the $639 trillion over- the-counter derivatives market. The SEC and Commodity Futures Trading Commission are imposing new rules under the 2010 Dodd- Frank Act, including requirements for margin backing trades that Finadium LLC said may contribute to as much as $6.7 trillion in additional collateral needs for market participants.

Dodd-Frank gave the SEC jurisdiction over swaps linked to individual debt issuers while the CFTC has oversight of all other swaps. Under the bifurcated regulatory oversight of the credit-swaps market, many large investors are mandated to clear their index trades, while they’re not required to do the same for the single-name trades they hold because the SEC hasn’t completed its rules, the Managed Funds Association, an investor lobbying group, said in a Feb. 11 letter to the SEC.

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Smart-Card Chipmakers Said to Face European Antitrust Complaints

Chip manufacturers face antitrust complaints from European Union regulators over possible price-fixing of microchips for smart cards, according to three people familiar with the probe.

The European Commission may soon send a so-called statement of objections cataloging antitrust concerns in the case that dates back more than four years, said the people, who didn’t identify the companies concerned and who asked not to be named because the EU process isn’t public. Such complaints are usually a precursor to fines.

The Brussels-based EU agency said in 2009 that it raided companies that make chips for telephone SIM cards, bank cards and identity cards because they may have fixed prices, allocated customers and exchanged commercially sensitive information.

Antoine Colombani, a spokesman for the commission, declined to comment on the EU regulator’s next steps in the smart-card chips probe.

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Singapore Meets Basel III Bank-Capital Rules, Regulators Say

The Basel Committee on Banking Supervision said Singapore successfully implemented an overhaul of international bank- capital rules.

An assessment by regulators found that “Singapore’s overall capital regime is in line with the requirements of the Basel framework,” the group said in a statement on its website.

Any deviations from the so-called Basel III rules “were not considered by the assessment team to be material,” it said.

China Banks Rally on Valuation as Regulator May Loosen Loan Rule

Chinese banks rallied in Shanghai and Hong Kong, rebounding from valuations near record lows as a newspaper reported that regulators may ease enforcement of loan rules at smaller lenders.

The China Banking Regulatory Commission encouraged small banks to focus on branches’ loan-to-deposit ratios using the average daily level each month and to stop checking the ratio on any given day, the 21st Century Business Herald reported, citing a person it didn’t identify.

China doesn’t allow banks to lend more than 75 percent of their deposits, to contain risk.

Croatia Can Privatize Brodotrogir Shipyard by July After Ruling

Croatia will be able to privatize the Brodotrogir shipyard by July 1 after European Union regulators approved the government’s plan to increase restructuring aid, the European Commission said.

Croatia has committed to sign the privatization for the yard within two weeks of the EU’s decision, the Brussels-based antitrust agency said.

The nation sought EU approval to increase aid of some 370 million euros ($479 million) to the yard prior to joining the 27-nation bloc in July.

Courts

Freddie Mac Sues BofA, UBS, JPMorgan for Alleged Libor Rigging

Freddie Mac (FMCC:US) sued Bank of America Corp. (BAC:US), UBS AG (UBSN), JPMorgan Chase & Co. (JPM:US) and a dozen other banks over alleged manipulation of the London interbank offered rate, saying it suffered substantial losses as a result of the companies’ conduct.

Government-owned Freddie Mac accuses the banks of acting collectively to hold down U.S. dollar Libor to “hide their institutions’ financial problems and boost their profits,” according to a complaint filed in federal court in Alexandria, Virginia.

The complaint lists 15 banks as defendants as well as the British Bankers’ Association. The banks include Citigroup Inc., Barclays Plc (BARC), Royal Bank of Scotland Group Plc, the Royal Bank of Canada (RY), Deutsche Bank AG and Credit Suisse Group AG. (CSGN)

Freddie Mac accuses the banks of fraud, violations of antitrust law and breach of contract. The housing financier is seeking unspecified damages for financial harm, as well as punitive damages and treble damages for violations of the Sherman Act.

Representatives of the banks who declined to comment on the lawsuit were Danielle Romero-Apsilos, a spokeswoman for Citigroup; Jennifer Zuccarelli, a spokeswoman for JPMorgan; Brandon Ashcraft, a Barclays spokesman; Bill Halldin, a Bank of America spokesman; Victoria Harmon, a spokeswoman for Credit Suisse; and Ed Canaday, a spokesman for Royal Bank of Scotland.

Eberhard Roll, a Portigon AG spokesman, didn’t respond to e-mail and phone messages requesting comment.

Calls to Bank of Tokyo-Mitsubishi UFJ Ltd. and Norinchukin Bank, both of Tokyo, which also were named in the complaint, weren’t answered on a public holiday.

“The BBA is aware of the lawsuit in the United States and is unable to comment,” Brian Mairs, a spokesman for the British Bankers’ Association, said in an e-mail.

Brad German, a spokesman for McLean, Virginia-based Freddie Mac, said the company doesn’t comment on litigation. Denise Dunckel, a spokeswoman for the Federal Housing Finance Agency, the conservator of Freddie Mac, also declined to comment.

Freddie Mac and its sister company, Washington-based Fannie Mae, could have lost a combined $3 billion because of Libor manipulation, the auditor of the FHFA said in a Nov. 3 internal memo urging the regulator to investigate further.

Freddie Mac and Fannie Mae, which have been under U.S. conservatorship since 2008, use Libor to determine interest payments on their investments in floating-rate financial instruments such as bonds and swaps.

The case is Federal Home Loan Mortgage Corp. v. Bank of America Corp. (BAC:US), 13-cv-00342, U.S. District Court, Eastern District of Virginia (Alexandria).

Interviews/Speeches

Libor Fines Going to Military Charities, U.K.’s Osborne Says

Fines imposed in connection with the Libor scandal are being donated to military charities, U.K. Chancellor of the Exchequer George Osborne said during comments to parliament about the budget in London yesterday.

“Further awards from the Libor banking fines have gone to good military causes, with money for combat stress to help veterans with mental-health issues and funds for Christmas boxes for all our troops on operations this year and next,” he said.

Comings and Goings

Bernanke Saying He’s Dispensable Suggests Tenure Is Winding Down

Federal Reserve Chairman Ben S. Bernanke said he’s “spoken to the president a bit” about his future and that he feels no personal responsibility to stay at the helm until the Fed winds down its unprecedented policies to stimulate the economy.

“I don’t think that I’m the only person in the world who can manage the exit,” Bernanke said when asked at a news conference in Washington if he’s discussed his plans with President Barack Obama. His term expires at the end of January.

Bernanke’s comments yesterday meshed with the views of some of Obama’s economic and political advisers who said Bernanke, 59, after spending most of his seven years on the job battling a financial crisis and its aftermath, is exhausted and wants to return to private life. The current and former administration officials asked to not be identified to describe the private conversations.

Yesterday’s remarks were a departure from Bernanke’s previous statements that he hasn’t discussed his plans with Obama or White House officials.

Michelle Smith, a Fed spokeswoman, declined to comment. Amy Brundage, a White House spokeswoman, didn’t respond to a request for comment.

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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