Bloomberg News

CEO-Worker Pay Ratio, BOE Policy, Solvency II Costs: Compliance

May 01, 2013

Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, according to data compiled by Bloomberg. The numbers are based on industry-specific estimates for worker compensation.

Almost three years after Congress ordered public companies to reveal actual CEO-to-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement.

The leading opponent of mandatory pay-ratio disclosure is a Washington-based non-profit called the HR Policy Association, which represents top human resources executives at about 335 large corporations.

Pay-ratio supporters, led by activist investors and trade unions including the AFL-CIO and the $52.4 billion United Auto Workers Retiree Medical Benefits Trust, say mandatory disclosure would help inform shareholders on advisory say-on-pay votes at companies’ annual meetings.

For more, click here.

Separately, James Cotton, a retired International Business Machines Corp. (IBM:US) lawyer, wrote a 1997 article in the Northern Illinois Law Review arguing public U.S. firms should disclose the ratio of their chief executives’ pay to their workers.

Bloomberg’s Elliot Blair Smith reported on Bloomberg Television.

For the video, click here.

Compliance Policy

Solvency II Rules Seen as Costing U.K. Insurers $310 Million

European rules aimed at making insurers safer may cost the industry as much as 200 million pounds ($310 million) a year in the U.K., said Andrew Bailey, the country’s top banking and insurance supervisor.

The delayed rules, known as Solvency II, may see insurance premiums increase by 0.1 percent to cover the cost of compliance, Bailey, chief executive officer of the Prudential Regulation Authority, said in a letter to Andrew Tyrie, chairman of the U.K.’s Treasury Select Committee, dated April 19 and released by Tyrie yesterday.

Solvency II, intended to harmonize the way insurers allocate capital against the risks they take across the 27- member European Union, was originally scheduled to come into force in 2013. The regulations may not be implemented before 2016, Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, has said.

Osborne Says BOE Financial Policy Remit Must Support Growth

Chancellor of the Exchequer George Osborne told the Bank of England that its financial-stability policies should take into account the weakness of the economy and refrain from curbing the recovery.

Setting the Financial Policy Committee’s first remit, Osborne said the central bank must acknowledge the economic cycle when setting policy. He also said there is a need for “clear” communications to win the confidence of financial markets and called for a list of risks by the end of the year.

Osborne shut the previous financial regulator, and gave most of its powers to the BOE to overhaul regulation which, Osborne said, failed in part because the structure wasn’t adequate. Under the new Financial Services Act, he has the power to set the FPC’s objectives and how it should operate in order to support the government’s economic policies.

The remit “‘recognizes that there may be short-term trade offs between the committee’s second objective of contributing toward sustaining economic growth and its primary objective of addressing sources of systemic risk, which may vary at different points in the economic and credit cycle,” Osborne said. “It is particularly important at this stage of the cycle that the committee takes into account, and gives due weight to, the impact of its action on the near-term economic recovery.”

For more, click here.

Germany Seeks Decentralized Euro-Area Bank-Failure Mechanism

Germany is urging the European Union to abandon plans for a powerful central authority to handle bank failures, warning the measure would be undermined by a lack of U.K. participation and constitutional complications.

The German government is seeking to build support behind an alternative blueprint for a “network of national resolution authorities” and backstop funds to deal with crisis-hit banks in the euro area, according to a proposal obtained by Bloomberg News. This “decentralized” system would avoid “bureaucratic cost and complexity,” according to the paper, dated March 13.

A central authority that is ultimately backed by the taxpayer “would imply significant legal risk both in terms of European law and constitutional law,” according to the document. “There is not much room left for further centralization” under the bloc’s current treaties, it says.

Germany’s policy pits it against the European Central Bank, European Commission, and euro-area governments including France, which have called for rapid steps to push crisis intervention at failing banks to the EU level, in a bid to help nations repair their ravaged public finances and restore confidence in lenders.

A spokesman for the German Finance Ministry declined to comment directly on the document, while saying that it’s healthy to have a debate about the resolution plan.

ECB Vice President Vitor Constancio called last week for swift progress to put in place a “strong authority” with “a privately funded European resolution fund at its disposal,” as well as access to taxpayer money as a last resort.

Compliance Action

Twitter Attack Prompts U.S. CFTC to Speed Automated Trading Rule

The top U.S. derivatives regulator yesterday promised to publish in the coming months ideas for boosting oversight of automated and high-frequency trading after a market-moving hack of the Associated Press Twitter feed.

Commodity Futures Trading Commission Chairman Gary Gensler made the remarks at a meeting in Washington about technology. The April 23 hack placed a false report about an attack on the White House on the news service’s Twitter feed. Traders responded by wiping out $136 billion from the Standard & Poor’s 500 Index before it recovered within minutes.

The CFTC’s so-called concept release would seek comment in May and June on new testing, supervision and risk controls for automated trading, Gensler said. A concept release is an early regulatory step to seek comments on if or how authorities might propose eventual rules.

CFTC Commissioner Bart Chilton has said the agency is looking into the trading activity of 28 futures contracts in the five minutes before and after the fake report.

Courts

FCIB Accounts Under Scrutiny by IRS for Possible Tax Crimes

A U.S. judge authorized the Internal Revenue Service to seek information about possible tax evasion through offshore accounts at Canadian Imperial Bank of Commerce’s FirstCaribbean International Bank.

The IRS may seek information on FCIB’s U.S. customers by serving a so-called John Doe summons on Wells Fargo & Co. (WFC:US), which holds the bank’s U.S. correspondent account, U.S. District Judge Thelton Henderson ruled April 29 in federal court in San Francisco.

At least 129 taxpayers voluntarily disclosed to the IRS that they held undeclared accounts at FCIB, based in Barbados, according to an affidavit by IRS Revenue Agent Cheryl Kiger.

Ancel Martinez, a spokesman for San Francisco-based Wells Fargo, the fourth-largest U.S. bank by assets, had no immediate comment on the ruling. Mary Lou Frazer, a spokeswoman for Toronto-based CIBC, didn’t immediately return a voice-mail message seeking comment.

The case is In the Matter of the Tax Liabilities of John Does, 13-cv-01938, U.S. District Court, Northern District of California (San Francisco).

HSBC Liability for Madoff Losses Still an Issue Four Years On

Four years after Bernard Madoff pleaded guilty to running the largest Ponzi scheme in history, investors are still trying to get their money back.

Thema International Fund Plc is seeking about 1 billion euros ($1.3 billion) from HSBC Holdings Plc (HSBA) at a 14-week trial expected to start at the High Court in Dublin yesterday. The case is one of dozens to focus on banks’ role as “custodians” to investment funds that deposited money with Madoff.

HSBC, Europe’s largest bank, faces more than 50 complaints in Ireland over claims it failed to discover Madoff’s activities. The fraud hurt many investment vehicles like Dublin- based Thema, funds known as UCITS that target retail investors. At least three UCITS, which stands for Undertakings Collective Investment in Transferable Securities, were liquidated because of Madoff-related losses.

The banks say that as a custodian, their only responsibilities are to manage deposits and payments to shareholders.

“HSBC believes it has good defences to the claims made against it and will vigorously defend itself,” the London-based bank said in an e-mailed statement.

Alberto Benbassat, one of the five directors at Thema, said he was “pleased” the case was going to trial. William Fry, the law firm representing Thema, wouldn’t comment on client matters, a spokeswoman said.

Madoff, who turned 75 April 29, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history, using $65 billion in real and artificial assets. He is serving a 150-year sentence in U.S. federal prison.

For more, click here.

Interviews/Panels

Gensler Sees ‘Paradigm Shift’ in Regulating Derivatives

U.S. Commodity Futures Trading Commission Chairman Gary Gensler talked about regulatory oversight of derivative trades and securing markets against cyber attacks.

He spoke with Bloomberg’s Peter Cook at the Bloomberg Link Washington Summit.

For the video, click here.

CFTC Panel Meets on Swap Data Reporting

The Commodity Futures Trading Commission’s technology advisory committee conducted a public meeting in Washington to review issues related to swap data reporting.

For the audio, 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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