Bloomberg News

Freeing-Up Yuan, Bank Profit Hoarding, Mexico Oil: Compliance

July 11, 2013

China’s central bank released rules allowing companies to move yuan abroad more freely as the authorities seek to bolster global use of the nation’s currency.

Companies can now open yuan accounts with local banks through which they can lend in the currency to overseas affiliated companies, the People’s Bank of China said in a statement posted on its website July 9. The so-called yuan-pool lending business can be shared between subsidiaries or affiliated firms under one company, the central bank said.

China, the world’s second-largest economy, has promoted the role of the yuan in international trade and financing as it moves to reduce control over the currency and open up its financial markets. That effort has included expanding channels for cross-border capital flows and foreign investments and setting up direct trading of the yuan with more currencies.

Chinese authorities earlier allowed companies to lend yuan to their affiliates as part of a trial program.

The central bank also said July 9 it will allow companies to move yuan raised overseas back into China through yuan accounts with local lenders. Companies may also provide yuan-denominated guarantees for their foreign operations, according to the statement.

Compliance Policy

U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom

The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends (JPM:US) as they face stricter capital rules than foreign competitors.

The eight largest firms, including JPMorgan Chase & Co. (JPM:US) and Morgan Stanley (MS:US), would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed July 9. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply.

The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.

Morgan Stanley and Bank of New York Mellon Corp. (BK:US) currently have the lowest ratio of equity to assets of the eight banks, according to estimates from analysts. Investors may get more information when the banks report second-quarter results, beginning July 12.

September data from the largest banks show their holding companies fell short of the new leverage requirement by $63 billion, according to the joint proposal by the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency. Insured lending units would need $89 billion more capital. The firms can fill the gaps by retaining profits and without selling more stock, the regulators said.

The changes would affect U.S. companies with assets exceeding $700 billion or those with custody of more than $10 trillion of customer assets. Besides JPMorgan, Morgan Stanley and BNY Mellon, the affected lenders include Citigroup Inc. (C:US), Wells Fargo & Co., (WFC:US)Goldman Sachs Group Inc. (GS:US), Bank of America Corp. (GS:US) and Boston-based State Street Corp. (STT:US)

Bankers have resisted the stricter capital standards, saying that lending might be curtailed and that the remedies adopted after the financial crisis, such as the 2010 Dodd-Frank Act, should be given time to work.

For more, click here.

Compliance Action

U.S. Crackdown on Debt Collectors Takes Aim at Large Banks

Banks supervised by the Consumer Financial Protection Bureau now face penalties if they mistreat consumers while collecting debts, the latest move in a broader crackdown on debt-collection practices the agency has pursued since last year.

The new policy, which follows efforts to rein in abusive credit-card and lending policies, will plug a gap in federal anti-harassment law that generally excluded creditors who collected debt themselves, rather than hiring third parties.

Regulators at the state and local level are also considering a mixture of legal action and regulation to restructure an industry that generated hundreds of thousands of consumer complaints about harassment by bill collectors as recession-hit Americans struggled to pay down debt.

Iowa Attorney General Tom Miller is leading a multistate effort that is “in the early stages” of determining how the states could foster changes to how credit-card issuers and collectors who buy charged-off debt keep track of consumer information. Many complaints stem from attempts to collect a non-existent debt, or one that’s already been repaid.

The Consumer Financial Protection Bureau, created by the Dodd-Frank law of 2010, supervises banks with assets over $10 billion, ranging from JPMorgan to regional players like Lafayette, Louisiana-based Iberiabank Corp. (IBKC:US), for compliance with federal consumer-protection rules. It also oversees non-bank financial firms, such as credit bureaus, payday lenders and debt collectors.

For more, click here.

Interviews/Hearings/Conferences

SEC Votes to Lift Ban on Hedge-Fund Advertising

The U.S. Securities and Exchange Commission conducted an open meeting on a rule that would allow hedge funds and other companies seeking private investments to advertise publicly for funding.

The rule, which passed in a 4-1 vote, is the first one mandated by last year’s Jumpstart Our Business Startups Act to be completed by the SEC.

The commission also approved a new proposal, on a 3-2 vote, that seeks to monitor how advertising is used and whether it contributes to more fraud. The SEC also approved a rule that blocks felons and others found culpable of securities-law violations from marketing private offers.

For the video, click here.

Banks May Shrink Balance Sheets on Rules, Fink Says

Laurence D. Fink, chief executive officer of BlackRock Inc. (BLK:US), talked about investment strategy, financial regulation, and the outlook for global bonds.

Fink, who spoke with Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers,” also discussed Federal Reserve monetary policy.

For the video, click here.

Mexico Oil Monopoly Ending to Pemex as JPMorgan Backs Reform

Mexico is on the cusp of opening its energy industry to outside investment as a wide consensus has developed that the constitution must be changed to end the government’s monopoly on production, according to a board member of state-controlled oil producer Petroleos Mexicanos.

The country needs “very deep” reforms to lure investment to its natural gas and crude fields after eight years of declining oil output, and proposed changes could be ready by the end of summer, Hector Moreira, who also is a former official in the country’s Energy Ministry, said yesterday at the Bloomberg Mexico Conference in New York. A congressional bill to open the oil monopoly would prompt as much as $50 billion in annual investments if approved, he said.

Much-needed changes will open the way for faster growth and a stronger currency in the region’s second-largest economy, Gray Newman, Morgan Stanley’s chief Latin American economist, said at the event. Officials from JPMorgan Chase & Co. and Grupo Financiero Banorte said they’re optimistic President Enrique Pena Nieto will lead a successful effort at reforms this year.

A slowdown in economic expansion is putting pressure on Pena Nieto to gain approval to open the energy industry and change laws to boost tax collection, reforms he says may lift growth to 6 percent.

Pena Nieto said his administration will send bills to overhaul energy and tax policies to lawmakers when regular congressional sessions resume in September.

For more, click here.

Separately at the conference, Mexico’s Deputy Finance Minister Fernando Aportela talked about the country’s economy, banking industry and currency.

He spoke with John McCorry, Bloomberg News’s executive editor of the Americas.

For the video, click here.

Comings and Goings

Juncker to Submit His Government’s Resignation Today

Luxembourg Prime Minister Jean-Claude Juncker, the European Union’s longest-serving head of government and a European finance leader, said yesterday that he’ll submit his government’s resignation today after being implicated in a probe into spying by his security service.

Juncker, 58, who led the group of euro-area finance ministers until January, is “politically responsible” for his failure to inform lawmakers of “irregularities and supposed illegalities” by the State Intelligence Service, according to a July 5 report by the country’s legislature.

He made the announcement yesterday at the end of a debate in parliament in Luxembourg. He faced a no-confidence vote in parliament after he was implicated in a probe into spying by his security service.

Juncker, 58, who led the group of euro-area finance ministers until January, is “politically responsible” for his failure to inform lawmakers of “irregularities and supposed illegalities” by the State Intelligence Service, according to a July 5 report by the country’s legislature.

Parliament called Juncker to testify yesterday in a session that began at 2 p.m. in Luxembourg yesterday. He concluded about two hours of testimony by denying allegations that he had used the secret service to further his own aims and those of his Christian Social People’s Party.

The secret service is accused of irregularities and possible illegal activities, especially during the period from 2004 to 2008, according to the report. Juncker challenged such assertions yesterday.

A Luxembourg government minister since 1984 and prime minister since 1995, Juncker has been a driving force on the single currency.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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