Bloomberg News

JPMorgan Risk, Antitrust Pleas, BlackBerry: Compliance

April 15, 2013

JPMorgan Chase & Co. (JPM:US), whose trading loss of more than $6.2 billion last year was fueled by the adoption of a formula that understated risks, has adopted yet another model.

JPMorgan said April 12 that it employed a new formula to judge the risk of its credit derivatives position, at least the fourth such model it’s used since January 2012. The portfolio was built by Bruno Iksil, known as the London Whale because his bets were so big they moved markets.

The bank changed its measurement of value at risk, or VaR, for the credit derivatives book in the first quarter of this year “to achieve consistency with like products” within the corporate and investment bank, JPMorgan said April 12 in a supplement. “This change had an insignificant impact” to average VaR for fixed income and the investment bank’s trading and credit portfolio, the New York-based bank said.

JPMorgan had previously changed the VaR model, which estimates the most amount of money a trading position can lose on 95 percent of the trading days, when the corporate and investment bank took over most of the credit book from the chief investment office last year. That change last year reduced JPMorgan’s estimated risk by 24 percent to $115 million in the third quarter.

JPMorgan’s switch of risk models in January of last year may have helped fuel the trading loss at the chief investment office, Chief Executive Officer Jamie Dimon told the Senate Banking Committee in June. The January 2012 switch and the timing of the firm’s disclosures are the focus of an inquiry (JPM:US) by the Securities and Exchange Commission as the U.S. examines how long executives knew about the CIO’s swelling bets and losses.

Separately, U.S. Senator Carl Levin said he plans to forward results from his panel’s nine-month investigation into JPMorgan Chase’s record trading loss to the Justice Department and SEC to review for possible wrongdoing by company executives.

Levin made the remarks in an interview on Bloomberg Television April 12.

Mark Kornblau, a spokesman for the bank, declined to comment on Levin’s remarks.

Levin, a Democrat from Michigan, said referrals to the Justice Department and the SEC are “fairly routine” following a review by his panel and, if the staff hasn’t already sent their report to investigators, they should.

Compliance Policy

Europe Moves Toward Tax-Evasion Clampdown After Six-Nation Push

The European Union moved closer to agreement on a coordinated clampdown on tax evasion as a total of nine countries backed an initiative for automatic sharing of bank details across borders.

The bloc’s six biggest nations won support from the Netherlands, Belgium and Romania for their proposal to adopt the U.S.’s FATCA information-exchange program, EU Tax Commissioner Algirdas Semeta said in Dublin yesterday. Semeta also said the 27-nation EU is closing in on updates to a savings tax accord as holdouts Luxembourg and Austria show willingness to compromise.

Governments from the U.K. to Poland are eyeing what the commission estimates is 1 trillion euros ($1.3 trillion) of lost tax revenue as many European nations struggle to narrow budget deficits. Politics is also spurring the initiative, notably in France, where President Francois Hollande’s popularity has slumped after his budget minister resigned and admitted having an offshore bank account following months of denials.

Luxembourg, one of the countries that previously resisted giving up its banking secrecy rules, dropped its opposition April 10, though Finance Minister Luc Frieden said April 13 that he wants Europe to win broader global support for the initiative within the Group of 20 nations.

The position of Austria, the other EU nation that has defended banking secrecy, may also be shifting.

For more, click here.

U.S. Antitrust Plea Deals Won’t Name Non-Culpable Employees

The U.S. Justice Department’s antitrust division said it will stop publicly naming individuals associated with corporate antitrust plea agreements who aren’t believed to be culpable in any alleged wrongdoing, according to a statement.

The names of so-called carved-out employees, which included those who refused to cooperate with a probe, are currently included in publicly filed corporate plea deals, Assistant U.S. Attorney General Bill Baer said April 12 in an e-mailed statement.

Employees against whom the government is still developing evidence, or employees with “potentially relevant information” who can’t be located, will be omitted from the publicly filed portion of plea agreements.

In the past, corporate plea agreements have included a provision offering non-prosecution protection to those employees who cooperate and whose conduct didn’t warrant prosecution. The division excluded, or carved out, employees who were believed to be culpable from such receiving non-prosecution deals.

Baer said the division will continue to exclude from non- prosecution agreements any employees whose conduct may warrant prosecution.

Those decisions will be made on an “employee-by-employee basis” depending on the evidence, he said.

“We will continue to demand the full cooperation of anyone who seeks to benefit from the non-prosecution protection of a corporate plea agreement, and will revoke that protection for anyone who does not fully and truthfully cooperate with division investigations,” Baer said.

CBRC Orders Banks to Control Loans to LGFVs, Sina.Com Says

The China Banking Regulatory Commission ordered banks to control their total outstanding loans to local government financing vehicles, or LGFVs, Sina.com reported, citing guidelines dated April 9.

Banks also must cap the proportion of LGFV loans at last year’s levels to vehicles that have cash-flow coverage ratios of less than 100 percent or liability-to-asset ratios higher than 80 percent, the report cited the guidelines as saying.

Compliance Action

Banks Drop Off ISDAFix Panel as CFTC Probes Rate-Rigging

Banks are leaving the panel that sets ISDAFix, the benchmark for the $379 trillion swaps market, as regulators probe suspected manipulation of the rate.

HSBC Holdings Plc (HSBA), Europe’s largest bank by assets, and Japan’s Mizuho Financial Group (8411) stopped contributing to the ISDAFix dollar rate between November and January, and haven’t been replaced, documents on the International Swaps and Derivatives Association’s website show. The industry group didn’t give any reason for the lenders’ departure.

Firms are pulling out of rates such as the London interbank offered rate, Euribor and ISDAFix on growing concern that they may face lawsuits, fines and criminal penalties if found to have engaged in wrongdoing. Without data from a large number of firms, benchmarks risk becoming unrepresentative and losing the confidence of the market, said Owen Watkins, a former regulator at the U.K.’s Financial Services Authority.

ISDAFix is used as a reference for parties looking to settle interest-rate options and cancel swaps contracts.

For more, click here.

Barclays Received Most U.K. Bank Customer Complaints, FCA Says

Barclays Plc (BARC) topped the list of the most-complained about U.K. financial institutions in the second half of last year, according to data compiled by the markets regulator.

The bank, based in London, received 414,302 complaints, a 6 percent decrease from the first half of 2012, the Financial Conduct Authority said in an e-mailed statement today. Lloyds TSB Bank Plc was second with 349,386, a 19 percent decline.

U.K. banks have been buffeted by a series of consumer scandals in recent years, including improper sales of loan insurance and some derivatives products. The sales of the loan insurance, known as PPI, topped the list of complaints, followed by checking accounts, general insurance products, credit cards, and savings accounts.

Barclays said in a statement that it is continuing to make improvements to its customer service and has seen complaints fall by 184,000 in comparison to 2010.

“Our sole focus is on helping our customers and getting it right so they don’t feel the need to complain in the first place,” the bank said in a statement. “These actions will make a big difference going forward.”

Google Offer to Settle EU Antitrust Probe Unacceptable to Rivals

Google Inc. (GOOG:US)’s offer to settle an antitrust probe with the European Union by labeling its own services more clearly in Web search results is a “non-starter” for competitors such as Microsoft Corp.

Microsoft, French legal search engine Foundem and at least 10 other companies that filed complaints against Google with the EU will be able to give feedback on the remedies submitted by the Mountain View, California-based company to settle the almost three-year-old investigation.

Google, operator of the world’s largest Internet search engine, told the Brussels-based EU that it would create more distinction in searches between its own services and competitors, a person familiar with the negotiations said last week. Google also proposed to offer links to rival search engines, said the person, who asked not to be identified because the details of the offer aren’t public.

The EU is preparing a market test based on Google’s formal submission, Antoine Colombani, a spokesman for EU Competition Commissioner Joaquin Almunia, said last week while declining to comment on the specifics of Google’s offer. Al Verney, a spokesman for Google in Brussels, said that the company continues to cooperate with the commission.

For more, click here.

Standard Chartered in Talks With Zimbabwe on Black Ownership

Standard Chartered Plc (STAN), the U.K.’s second-largest bank by market value, said it’s in talks with Zimbabwe’s government on plans to increase black ownership of its business in the southern African nation.

Vicki Robinson, a spokeswoman for the London-based bank, made the statement in an April 12 e-mailed response to questions. “Standard Chartered has taken the conscious decision to continue to maintain our long-standing commitment to doing business in Zimbabwe,” she said in the e-mailed statement.

Under the country’s law, foreign-owned companies must sell or cede 51 percent of their operations to black Zimbabweans or the state-owned National Indigenization and Economic Empowerment Board. The head of the board, Wilson Gwatiringa, said Standard Chartered may lose its license if the bank doesn’t comply with the law, the state-owned Herald newspaper reported April 12.

That came after Harare-based Newsday April 11 reported that Zimbabwe Central Bank Governor Gideon Gono said there were no plans to force Standard Chartered to close. Impala Platinum Holdings Ltd. (IMP) and Anglo American Platinum Ltd. (AMS), the world’s biggest platinum producers, have agreed to cede 51 percent of their Zimbabwe operations to black ownership, while Barclays Plc and Standard Bank Group Ltd. have also submitted plans.

Standard Chartered, which operates in 16 African countries, said earlier this year that income from Africa rose 15 percent to $1.59 billion last year.

BlackBerry Asks Regulators to Probe ‘False’ Returns Report

BlackBerry (BBRY:US), the Canadian smartphone maker, said it will ask securities regulators to investigate a report that its new phones have high return rates, arguing that the “false” information may have been released in a deliberate attempt to manipulate its stock price.

Detwiler Fenton & Co., a financial-services firm in Boston, said April 11 that U.S. retailers were seeing a significant increase in customers returning their Z10 phones because they don’t find them easy to use.

“In several cases, returns are now exceeding sales, a phenomenon we have never seen before,” Detwiler Fenton said. The report contributed to a 7.8 percent plunge in BlackBerry shares (BBRY:US) April 11, marking the stock’s worst one-day drop in almost two months.

BlackBerry, based in Waterloo, Ontario, responded that sales are meeting expectations and return rates are in line with the rest of the industry. It asked both the U.S. Securities and Exchange Commission and the Ontario Securities Commission to review the Detwiler report, saying it was either “a gross misreading of the data or a willful manipulation.”

BlackBerry, formerly known as Research In Motion Ltd. (BB), is counting on the new Z10 phone -- and its pending companion device, the Q10 -- to fuel a turnaround after years of market- share losses.

Anne Buckley, a spokeswoman for Detwiler Fenton, didn’t immediately return a message seeking comment.

For more, click here.

M&T Says Fed Money-Laundering Review Delays Hudson City Deal

M&T Bank Corp. (MTB:US) said a Federal Reserve review of its compliance with anti-money-laundering rules has delayed its planned purchase of Hudson City Bancorp. (HCBK:US) Both lenders declined in New York trading.

M&T hired an outside consulting firm as part of its effort to respond to the Fed, the Buffalo, New York-based bank said April 12 in a statement with Hudson City.

“In view of the potential timeframe required to implement this initiative, demonstrate its efficacy to the satisfaction of the Federal Reserve and otherwise meet any other regulatory requirements that may be imposed in connection with these matters, M&T and Hudson City believe that the timeframe for closing the transaction will be extended substantially,” the companies said in a statement.

The banks postponed until Jan. 31 the date at which either party can terminate the deal if a combination hasn’t already been closed, and said “there can be no assurances that the merger will be completed by that date.” The prior deadline was Aug. 27.

M&T announced the agreement in August, valued at $3.7 billion at the time, as part of an effort to expand into New Jersey. Hudson City has said record-low interest rates are pressuring profits from residential lending.

M&T said it will discuss the status of the Hudson City deal at a conference call scheduled for today to discuss first- quarter results.

Eric Kollig, a Fed spokesman, declined to comment on the regulator’s interactions with M&T.

Societe Generale Faces French Regulator Probe, Les Echos Says

Societe Generale (GLE) faces a probe by Autorite des Marches Financiers, the French market regulator, Les Echos reported.

An official from the regulator called for an 800,000 euro ($1.05 million) fine and an official warning for the bank, the newspaper said.

Societe Generale doesn’t have enough employees in its custodian bank unit to carry out relations with and audits of fund management companies correctly, the AMF official said, according to Les Echos. The regulator’s sanctions committee will decide on the case in “a few weeks”, according to the newspaper.

Courts

Ex-Altium Banker Charged With Insider Trading by U.K. Regulator

A former managing director at Altium Capital Ltd. was charged in an insider-trading ring and will face trial next year along with a former Deutsche Bank AG broker and four other men.

Grant Harrison was charged today with one count of conspiracy to commit insider trading, said Joseph Eyre, a spokesman for the Financial Conduct Authority. Harrison’s case was transferred to a higher criminal court for a hearing in September.

Harrison will be added as a defendant in the case against Martyn Dodgson, a former managing director at Deutsche Bank, a lawyer for the regulator said at a hearing last month. The case is scheduled to go to trial in September 2014 and last as long as three months.

The charges stem from the FSA’s biggest insider-trading investigation, known as Operation Tabernula, Latin for little tavern. The U.K. regulator arrested seven people and raided 16 addresses in London and southeast England in March 2010 as the FSA sought to crack down on insider trading among bankers and traders in London’s financial district.

Altium said in a statement last month that the allegations relate to a period when Harrison worked with a previous employer. Harrison’s lawyer, Gary Bloxsome, didn’t immediately respond to a call seeking comment.

Interviews

Dimon Says Goal Is to Reach 9.5% Basel Target This Year

JPMorgan Chief Executive Officer Jamie Dimon spoke on a teleconference about capital requirements imposed by the Basel committee.

For the audio, click here, and for more, click here.

Basel Rules Need to Be Replaced, Calomiris Says

Charles Calomiris, a professor at Columbia Business School, talked about bank regulations and capital requirements.

Calomiris, who spoke with Tom Keene, Scarlet Fu and Sara Eisen on Bloomberg Television’s “Surveillance,” also discussed the outlook for bank earnings and Federal Reserve monetary policy.

For the video, 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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