Barclays Plc (BARC), the U.K.’s second- largest lender by assets, paid investment bankers bonuses “incapable of justification” as employees focused on revenue at the expense of clients, according to an internal report.
In the report commissioned by the bank after it was fined 290 million pounds ($428 million) for manipulating Libor in June, Rothschild vice chairman Anthony Salz criticized the lender for failings in its culture and urged it to improve its openness and transparency. In parts of the company, there was “a sense that senior management did not want to hear bad news,” which “contributed to a reluctance to escalate issues of concern,” according to the 236-page report published yesterday.
“Based on our interviews, we could not avoid concluding that pay contributed significantly to a sense among a few that they were somehow unaffected by the ordinary rules” Salz wrote.
Antony Jenkins, 51, who replaced Robert Diamond as chief executive officer in August, is seeking to rein in pay and boost profits to shareholders to help restore investor confidence in the wake of the Libor scandal. The London-based bank plans to eliminate some 3,700 jobs this year after posting an annual loss of 1.7 billion pounds.
Barclays paid its top 70 executives “consistently and significantly above” the industry norm, according to the report.
“The report makes for uncomfortable reading in parts,” Barclays Chairman David Walker said in an e-mailed statement. “Our initial review of the report’s recommendations is that they are substantially aligned with work already progressing.”
Jenkins and Walker both declined to be interviewed about the report, John McGuinness, a London-based spokesman for the lender, said by telephone.
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U.K. Banks Try to Dodge EU Bonus Caps by Defining Risk-Taker
U.K. lenders are preparing to lobby the European Union’s chief banking regulator to reduce the number of employees hit by rules capping bonuses, two people familiar with the talks said.
The European Banking Authority will in the next 12 months decide which employees will be covered by the curbs after the EU said they would apply to risk-takers. Banks are trying to have the rules apply to fewer workers by recommending that the definition of a risk-taker be made stricter, said the people, who declined to be identified because the talks are private.
The EU brokered a draft deal in February to outlaw banker bonuses that are more than twice fixed pay, a move lawmakers said would prevent excessive payouts and curb irresponsible risk-taking. U.K. Chancellor of the Exchequer George Osborne opposed the curbs, saying they would harm the competitiveness of the nation’s finance industry.
The U.K. has 1,300 so-called code staff, who have received Financial Services Authority approval and would be affected by the cap as it stands, Andrew Bailey, Britain’s top bank supervisor, said on March 13. According to “back of the envelope” calculations, employees may get as much as 500 million pounds ($756 million) more in base pay to offset the limit, he said.
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Chilton Seeks End-User Enforcement Delay for CFTC’s Swaps Rules
The U.S. Commodity Futures Trading Commission should refrain from sanctioning so-called end-users of swaps for six months while the agency seeks to clarify its Dodd-Frank Act rules, Commissioner Bart Chilton said yesterday.
Commercial and energy companies deserve a more transparent rulemaking process that provides greater certainty, Chilton said in comments prepared for a telephone news conference to propose what he called an End-User Bill of Rights.
Chilton, one of three Democrats on the five-member CFTC, said he won’t vote until Oct. 31 to approve enforcement action against any end-user making an effort to comply with the rules being imposed under Dodd-Frank, the 2010 regulatory overhaul.
Derivatives provisions of Dodd-Frank were enacted to give regulators more oversight of the $639 trillion global swaps market. The CFTC and Securities and Exchange Commission were authorized to write rules requiring that trade information be reported to so-called swap data repositories that function as central record-keepers.
The rules are failing to give regulators a full picture of the swaps market, the information isn’t usable in its current form, and has overwhelmed the CFTC’s computer systems, Scott O’Malia, a Republican CFTC commissioner, said March 19.
The CFTC has set an April 10 deadline for reporting of information about trades involving end-users. Chilton called on the agency to give the firms a six-month delay for reporting historical information. Lobby groups representing Barclays Plc, JPMorgan Chase & Co. and Goldman Sachs Group Inc. (GS:US) have also urged that the CFTC delay the reporting rules for their clients.
Covered Bonds Will Be Spared in EU Bail-In Rule, Lawmaker Says
European Union plans to impose losses on creditors of failing banks will spare covered bonds and other secured debt, said Gunnar Hoekmark, the lawmaker leading work on the measures in the European Parliament.
Spanish newspaper Expansion reported today that the EU may consider forcing losses on covered bond investors in future bank rescues as part of legislation to lift the burden from taxpayers. EU nations have injected 1.7 trillion euros ($2.2 trillion) into their banking systems since the 2008 collapse of Lehman Brothers Holdings Inc., according to European Commission data.
Under proposals from Michel Barnier, the EU’s financial services chief, regulators would have the power to impose losses on a crisis-hit lender’s unsecured bondholders, or convert that debt to equity, once the bank’s capital has been wiped out. The writedown plans excluded debt “backed by assets or collateral.”
Covered bonds are debt backed by pools of assets, usually mortgages, that remain on the issuer’s balance sheet.
The EU faces a self-imposed June deadline to adopt legislation for handling bank failures, which requires approval from the parliament and national governments before it can take effect.
Hungary to Use FX Reserves for FX Swaps, Matolcsy Says
Hungary may cut central bank foreign currency reserves by 3 billion euros, Magyar Nemzeti Bank President Gyorgy Matolcsy said at news conference in Budapest.
Hungary aims to cut the amount in two-week central bank bonds by 900b forint, Matolcsy said.
The reduction of foreign currency reserves is within the risk threshold, Matolcsy said.
Dutch to Seek EU Approval for SNS Reaal Bridge Bank for Property
The Netherlands pledged to seek European Union approval before setting up a separate bank for unwinding SNS Reaal NV (SR)’s property assets, regulators said in a letter.
SNS also pledged not to acquire stakes in any companies or to advertise its state-ownership in return for temporary EU authorization for the Dutch takeover of the country’s fourth- largest lender in February, the European Commission said in the document published on its website yesterday.
“The Dutch state informed the commission that it is seriously considering a bridge bank to completely separate the problematic property finance portfolio from the remaining assets,” the Brussels-based EU authority said. The government “indicated that it would only put the bridge bank in place after having received approval of the commission.”
The EU must still grant final approval for a 300 million- euro ($385 million) recapitalization and a 1.1 billion-euro bridge loan for SNS Reaal as well as a 1.9 billion-euro recapitalization for its SNS Bank unit.
Silvercorp Confirms It Received Subpoena From U.S. SEC
Silvercorp Metals Inc. (SVM) said it recently received a subpoena from the U.S. Securities and Exchange Commission regarding Muddy Waters and others. The company said it is cooperating fully with the SEC.
Yesterday, Silvercorp fell 11 percent after the report of the SEC probe on a “short-seller” fight.
Indonesia Plans to Set Up New Shariah Bank, Bisnis Reports
Indonesia plans to convert its existing state-owned banks into an Islamic bank or to combine state-owned banks’ shariah units, Bisnis Indonesia reported, citing State-Owned Enterprises Minister Dahlan Iskan.
The government will make a final decision on the matter in the next three months, according to the report.
Analyst Teeple Released on $200,000 Bond in Insider Case
Hedge fund analyst Matthew Teeple was released on $200,000 bond in New York in connection with what prosecutors call a $27 million insider-trading scheme.
Teeple, an analyst for an unidentified San Francisco-based hedge fund, didn’t enter a plea yesterday before Magistrate Judge Kevin Nathaniel Fox in Manhattan federal court to charges of conspiracy and securities fraud.
David Riley, the former chief information officer for Foundry Networks, was charged in March in a felony complaint filed in Manhattan accusing him of tipping Teeple about Foundry’s acquisition by Brocade Communications Systems Inc. (BRCD:US) The U.S. Securities and Exchange Commission also sued the two, as well as a third man, John V. Johnson.
Eric Bruce, a lawyer for Teeple, declined to comment on his client’s court appearance yesterday or name the hedge fund where Teeple works or if he is still employed there.
As part of the bail requirement, Teeple’s travel is restricted to New York and New Jersey and he must turn over his passport. Teeple’s next hearing is set for April 25.
Riley, Teeple and Johnson are the latest to be charged as part of a law enforcement initiative by Bharara’s office and the FBI in New York against insider trading at hedge funds. The most serious charge of securities fraud carries a sentence of as long as 20 years in prison, Manhattan U.S. Attorney Preet Bharara’s office said.
The criminal case is U.S. v. Riley, 13-mag-00806, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and Exchange Commission v. Teeple, 13- cv-02010, U.S. District Court, Southern District of New York (Manhattan).
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RBS Shareholders Sue for $6 Billion on 2008 Rights Offering
Royal Bank of Scotland Group Plc and former Chief Executive Officer Fred Goodwin were sued by 12,000 shareholders who said the lender misled them in 2008 when it issued new shares months before a government bailout.
The investors may seek as much as 4 billion pounds ($6 billion) in the class-action suit filed in London, the RBOS Shareholder Action Group said yesterday in a statement. It’s the second complaint in less than a week over the rights issue after pension funds and investment firms sued on March 28.
RBS is 81 percent owned by British taxpayers after getting the world’s biggest bank bailout -- 45.5 billion pounds -- in 2008 and 2009 at the height of the global financial crisis. The lender had raised 12 billion pounds from investors in the share sale before collapsing under the weight of bad loans.
Former RBS Chairman Tom McKillop, ex-head of corporate markets Johnny Cameron and former finance director Guy Whittaker were also named in the suit filed yesterday in London.
David Gaffney, a spokesman for Edinburgh-based RBS, declined to comment and Cameron declined to comment.
New Century Media, a public relations firm that used to represent Goodwin, said it no longer worked for him and wasn’t able to provide details for his current spokesman. Evolva SA, a Swiss company where McKillop is chairman, declined to provide contact details. An RBS spokesman said the bank didn’t have contact details for Whittaker. Numbers for the men couldn’t be located on directory assistance.
A similar class action brought by pension funds against RBS in New York was dismissed in 2011 when U.S. Judge Deborah Batts ruled the court wasn’t the correct forum for the dispute. The investors said they were misled about the risk from subprime debt and the ABN Amro Bank NV acquisition.
Ex-Goldman Sachs Trader Admits to Hiding $8 Billion Position
Former Goldman Sachs Group Inc. trader Matthew Taylor pleaded guilty to concealing an unauthorized $8 billion trading position in 2007, causing the bank to lose $118 million.
Taylor, 34, pleaded guilty to a single count of wire fraud at a hearing yesterday before U.S. District Judge William H. Pauley in Manhattan federal court. Taylor, who has a plea agreement with the government, told Pauley he took the position, which was 10 times the amount he was permitted to take, and lied to his employer when asked about it.
The judge set a July 26 sentencing date and released Taylor on a $750,000 bond. The maximum sentence for wire fraud is 20 years in prison.
“We are very disappointed by Mr. Taylor’s unauthorized conduct and betrayal of the firm’s trust in him,” Michael DuVally, a spokesman for New York-based Goldman Sachs, said in a statement yesterday.
Taylor was accused Nov. 8 in a lawsuit by the U.S. Commodity Futures Trading Commission of concealing an $8.3 billion position.
Goldman Sachs cited “alleged conduct related to inappropriately large proprietary futures positions in a firm trading account,” in a so-called U-5 form, according to a Financial Industry Regulatory Authority document.
The CFTC case is U.S. Commodity Futures Trading Commission v. Taylor, 12-cv-08170, U.S. District Court, Southern District of New York (Manhattan).
Jimmy Dunne Says He Wouldn’t Serve on a Bank Board
Jimmy Dunne, co-founder of Sandler O’Neill & Partners LP, talked about the outlook for the banking industry, the role of bank boards and financial regulation.
Dunne, who spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers,” also discussed Fed policy.
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Comings and Goings
SEC San Francisco Director Fagel to Leave Agency
Marc Fagel, director of the U.S. Securities and Exchange Commission’s San Francisco office, will leave agency later this month for the private sector.
Fagel, 46, has been with the SEC for more than 15 years, the agency said in an e-mailed statement. As head of the San Francisco office, Fagel supervised a staff of more than 100 attorneys, accountants, and other professionals, according to a statement on the SEC’s website.
The statement did not specify Fagel’s plans after his departure.
Diversity Hiring Standards for Banks to Be Set by U.S. Agencies
U.S. regulators including the Consumer Financial Protection Bureau will seek public input on proposed standards to evaluate workforce diversity at banks and other financial companies.
The agencies plan to develop a uniform standard to assess companies’ efforts to hire women and minorities while “taking into consideration differences such as entity size, capability, and history,” according to a report by the CFPB’s Office of Minority and Women Inclusion released this week.
The Dodd-Frank law that created the CFPB mandates the creation of an Office of Minority and Women Inclusion in each regulator. It directs the offices to develop standards for encouraging diversity, promoting women- and minority-owned contractors and assessing regulated institutions on diversity.
Other goals include coordinating between agencies, avoiding “undue burden” on regulated companies, and using data that is already readily available, according to the report. The work involves the Federal Deposit Insurance Corp., the Federal Reserve, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission, according to the report.
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