Bloomberg News

Swipe-Fee Appeal, Basel Bond Math, U.K. Whale Probe: Compliance

August 22, 2013

The U.S. Federal Reserve will appeal a judge’s decision that its rules on debit-card transaction fees were illegal, a lawyer for the central bank said during a court hearing in Washington.

The general counsel for the bank, Scott Alvarez, told U.S. District Judge Richard Leon that the bank would file its appeal yesterday.

The hearing came after retailers battling banks over debit-card transaction costs were handed a victory by Leon, who said merchants were overcharged billions of dollars under an unlawful swipe fee set by the Fed.

The decision, unless overturned on appeal, will force regulators to revisit rules that bankers said will cost them 45 percent of their swipe-fee revenue. Lenders collected about $16 billion annually from those fees before the Fed’s regulation. The ruling also threatens to erode Visa (V:US)’s dominance of the U.S. debit-card market and benefit smaller rival MasterCard Inc. (MA:US) as merchants would have more say about how transactions are processed.

In his July 31 ruling, Leon said the Fed considered data it wasn’t allowed to use under the Dodd-Frank law in setting the cap on the so-called swipe fees at 21 cents, and neglected to bolster competition in card networks.

The case is NACS v. Board of Governors of the Federal Reserve System, 11-cv-02075, U.S. District Court, District of Columbia (Washington).

Compliance Policy

Banks Crafting Bonds for Basel Face Math Snag Nykredit Sees

As bankers in the world’s biggest mortgage market per capita design debt to meet funding rules set by the Basel Committee on Banking Supervision, Denmark’s largest home-loan provider says the exercise may be a waste of time.

The math behind Basel’s net stable funding ratio suggests even three-year bonds may not be long enough to keep an issuer above water if markets really were to shut down for 12 months, said Soeren Holm, chief financial officer at Copenhagen-based Nykredit Realkredit A/S, Europe’s biggest issuer of mortgage-backed covered bonds.

Using “very strict Basel math, you have to have quite a long maturity of five or seven years,” Holm said.

Banks in Denmark’s $500 billion mortgage bond market have been scrambling to adapt to Basel’s funding requirement. The rule threatens to wipe out one of Denmark’s most popular home finance constructions, in which one-year bonds are rolled over annually to fund 30-year mortgages.

The home-loan arm of Danske Bank A/S (DANSKE), Denmark’s biggest bank, has responded by designing a three-year bond with an interest rate that adjusts every six months. Yet according to Holm, whose bank competes with Danske for mortgage clients, swapping one-year bonds for three-year securities will still leave lenders facing a funding gap.

Denmark’s mortgage banks are now split over how to tackle new funding rules. Standard & Poor’s and Denmark’s committee on too-big-to-fail banks also have singled out the nation’s one-year mortgage bonds as a risk.

The panel recommended enforcing a national funding rule next year, four years before Basel’s net stable funding requirement is due to take effect.

For more, click here.

Swiss Still Deliberating Deal With U.S. on Untaxed Assets

The government of Switzerland continues to deliberate with the U.S. on untaxed assets, Swiss spokesman Andre Simonazzi said after the government’s weekly meeting in Bern.

He said more information would be provided at the conclusion of deliberations, declining to say when that may be.

Switzerland is in talks with the U.S. to shield banks from being charged for allegedly aiding U.S. tax evaders after Wegelin & Co. pleaded guilty and closed its doors.

Credit Suisse (CSGN) is among a dozen financial institutions subject to the U.S. probe.

Parliament in June rejected a bill that would have enabled the transfer of client data and established legal protection for bank employees. Switzerland is now negotiating an alternative with the U.S.

Compliance Action

U.K. Prosecutors Join U.S. Probe of JPMorgan London Whale Loss

U.K. prosecutors are working with U.S. authorities and British financial regulators as part of an investigation into a $6.2 billion loss on derivatives at JPMorgan Chase & Co. (JPM:US)

The Serious Fraud Office, which is in charge of most U.K. white-collar crime enforcement, is “liaising with our U.S. counterparts” and the Financial Conduct Authority, spokeswoman Jina Roe said in an e-mail yesterday.

U.S. prosecutors unsealed charges against London-based JPMorgan traders Javier Martin-Artajo and Julien Grout last week for allegedly attempting to hide trading losses caused by Bruno Iksil, the Frenchman known as the “London Whale” because his portfolio was so large.

Manhattan U.S. Attorney Preet Bharara said Aug. 14 that he was “hopeful” the men, neither of whom are in the U.S., would return to face the charges. Grout’s lawyers have said he’s in France, and Martin-Artajo’s have said he is away from his home in the U.K. on vacation.

The U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, and the U.K. FCA are also probing the losses.

Courts

ThinkStrategy’s Kapur Avoids Prison in Fraud Case Sentence

ThinkStrategy Capital Management LLC’s Chetan Kapur, who initially was accused of deceiving investors about returns in his hedge funds, avoided prison when he was sentenced to time served for failing to keep adequate records.

Kapur, 38, was sentenced yesterday by U.S. District Judge John F. Keenan in federal court in Manhattan to the 12 1/2 months he already spent in custody. Kapur was charged in July 2012 with securities fraud, investor adviser fraud and wire fraud in connection with losses at his funds from 2002 to 2010.

The former hedge fund manager contended that he lost money along with other investors and tried to salvage their holdings. He pleaded guilty last month to one count of failing to keep adequate records. Prosecutors dropped the other charges.

In November 2011, the U.S. Securities and Exchange Commission alleged that Kapur misled investors about his funds’ track records and invested with fraudulent funds including Arthur Nadel’s Valhalla and Victory funds and Samuel Israel’s Bayou Superfund. The SEC, which said ThinkStrategy had $520 million in assets at its peak in 2008, settled its case against Kapur that same month.

Nadel, who pleaded guilty in 2010 to defrauding investors of $168 million, died in prison. Israel, Bayou’s co-founder, is serving a 22-year prison term after admitting to hiding millions of dollars in losses.

Kapur has been free on bail since last month, said his attorney, Daniel Arshack.

In a statement to the judge, Kapur said he is “personally and professionally very upset about the losses we experienced” and that he lost much of his own savings in the funds.

Julie Bolcer, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on the case.

The criminal case is U.S. v. Kapur, 1:12-cr-00535, U.S. District Court, Southern District of New York (Manhattan).

Diamond Foods to Pay $11 Million to Settle Investor Lawsuit

Diamond Foods Inc. (DMND:US) agreed to pay $11 million in cash to settle a class-action lawsuit over accounting errors that led to earnings restatements and ended its bid for the Pringles potato-chip brand.

Diamond also will issue 4.45 million common shares to a settlement fund to resolve claims on behalf of investors who bought stock from Oct. 5, 2010, to Feb. 8, 2012, the San Francisco-based company said today in a statement. Diamond denied all claims of wrongdoing or liability in the suit, which targeted the snack-and-nut company and two former officers.

“We believe this proposed settlement eliminates the burden of further time, expense and risk related to the class action,” Chief Executive Officer Brian J. Driscoll said in the statement. The accord is valued at $96.1 million based on Diamond’s closing share price Aug. 20, according to court documents filed yesterday.

In February, a Delaware judge threw out an investor suit against the company brought by a retirement fund for Hialeah, Florida, employees, saying their claims should be decided by a court overseeing a similar case in California.

A portion of the $11 million settlement announced today will be funded by Diamond’s insurers, the company said. The accord is subject to court approval.

The case is In Re Diamond Foods Inc. Securities Litigation, 11-cv-05386, U.S. District Court, Northern District of California (San Francisco).

Interviews

Bair Warns on Politically Motivated Actions Over Banks

Former Federal Deposit Insurance Corp. Chairman Sheila Bair, Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian and Stanford University economics professor John Taylor participated in a panel discussion about the U.S. economy, Federal Reserve policy and financial industry.

Journalist Jennifer Schonberger moderated the panel at the National Press Club in Washington.

For the video, click here.

Comings and Goings

Aveng CEO Quits After ‘Taxing’ Collusion Investigation

Aveng Ltd. (AEG), South Africa’s second-biggest builder, said Chief Executive Officer Roger Jardine will leave at the end of the month after a regulatory investigation into collusion in the industry.

“The Competition Commission’s investigation process has been personally very taxing, particularly as I have had to deal with matters that occurred before my appointment and of which I had no personal knowledge,” Jardine, who was CEO for five years, said in a statement from the company yesterday.

Aveng accepted a 307-million rand ($30 million) fine in June after admitting collusion to fix contract prices to build stadiums for the 2010 Soccer World Cup. It was one of 15 companies to reach an agreement with the commission.

While the South African construction business has been “a major disappointment,” the rest of the group’s business “is holding its own under very difficult market conditions,” Jardine said in the statement.

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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    (Visa Inc)
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  • MA
    (MasterCard Inc)
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