Bloomberg News

Volcker Rule CLO Relief, Madoff Workers Trial, ECB: Compliance

December 12, 2013

The Volcker Rule, which curbs risk-taking by banks by imposing restrictions on speculating with their own money, excludes collateralized loan obligations that don’t hold assets other than loans, according to the Loan Syndications & Trading Association.

The final rules released Dec. 10 by U.S. banking regulators don’t include ownership and transaction bans on CLOs, thus allowing warehousing and market-making in their assets and liabilities, Bram Smith, executive director of the New York-based trade association, said in an e-mailed statement. The restrictions don’t allow the funds to invest in bonds and other CLOs, and provide no provision to exempt existing CLOs, which means banks holding such obligations would have until July 2015 to divest them, Smith said.

The original proposed rules extended the ban on CLOs and other asset-backed securities before being revised.

Issuance of CLOs may be affected by the implementation of other new regulations such as the risk-retention rules that require fund managers to hold a portion of the debt they package and sell. The LSTA sent a letter in October to federal agencies in response to their proposals, asking the regulators to take into account the kind of debt bundled by CLOs.

Formation of CLOs, the biggest buyers of leveraged loans, may decrease after the implementation of new regulations, Wells Fargo & Co. (WFC:US) said in a September report.

Courts

Madoff Delirious in Bid to Avoid Handcuffed Exit, Jury Is Told

Bernard Madoff planned every detail of his firm’s demise in the days before he was arrested five years ago to avoid being marched past his 200 employees in handcuffs, the con man’s former finance chief told a jury.

Madoff, in papers spread across his desk, wrote a series of names and dates in a schedule of events leading up to the exact day his $17 billion Ponzi scheme would finally come to light, Frank DiPascali, the former executive, testified Dec. 10 in Manhattan federal court in the trial of five ex-colleagues.

DiPascali, who joined Madoff’s company in 1975, said he learned of the plan during a private meeting in the con man’s office.

“He turned to me and said, crying, ‘I’m at the end of my rope,’” DiPascali told a jury. When DiPascali expressed confusion, Madoff shouted, “I don’t have any more goddamned money -- don’t you get it? The whole goddamn thing is a fraud!”

DiPascali is the highest-ranking former Madoff executive to testify in the first criminal trial stemming from the scheme, which was exposed after Madoff’s arrest by federal authorities at his Manhattan apartment on Dec. 11, 2008. Five of his former employees are on trial in federal court in Manhattan, accused of aiding his fraud for decades and getting rich in the process.

DiPascali, the former finance chief, said that while he knew he’d been lying to customers and regulators for years about fake trades, he didn’t know the firm was out of money and that it was a Ponzi scheme, according to his testimony.

Madoff asked DiPascali if he and his wife had money, according to his testimony. Madoff told him his own wife, Ruth, would be taken care of because she had $30 million of her own money saved, as well as houses in her name, DiPascali said. It was then DiPascali realized he was going to jail, according to his testimony.

In the week before his arrest, Madoff confessed to his sons, who worked for the firm, and told the same story to FBI agents who arrested him at his apartment Dec. 11, 2008.

Madoff, 75, is serving a 150-year prison sentence in North Carolina.

The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).

Ex-Glencore Oil Trader Fired for Drinking Loses ‘Ludicrous’ Suit

An ex-Glencore Xstrata Plc (GLEN) trader who was fired in 2010 for drinking too much lost a wrongful-termination lawsuit against the company, with a judge calling the case “ludicrous.”

Judge Richard Seymour in London earlier dismissed a portion of the lawsuit over a share award worth about $1.2 million and yesterday rejected the remaining wrongful-termination claim seeking about 12,000 pounds ($20,000).

Kearns, who earned about $500,000 a year, “regularly consumed excessive amounts of alcohol,” making him unable to function effectively, Seymour said in a written decision.

Kearns must pay Glencore’s legal costs of at least 150,000 pounds, the judge said.

Jonathan Cohen, a lawyer for Baar, Switzerland-based Glencore, said Kearns didn’t realize how much the company tried to help him.

The case is Kearns v. Glencore UK Ltd., High Court of Justice, Queen’s Bench Division (London).

Interviews

Former FDIC Head Isaac Likes Volcker Rule, Voices Concerns

William Isaac, former head of the Federal Deposit Insurance Corporation, global head of financial institutions at FTI Consulting, (FCN:US) chairman of Fifth Third Bancorp (FITB:US) and author of “Senseless Panic: How Washington Failed America,” said while he has long been a supporter of the Volcker Rule, he is concerned about the ability of regulators to implement it because of its complexity. Isaac spoke with Bloomberg’s Kathleen Hays and Vonnie Quinn on Dec. 10 on Bloomberg Radio’s “The Hays Advantage.”

For the video, click here.

FBR’s Miller Says Volcker Rule Enforcement is Key

Paul Miller, managing director and banking analyst at FBR Capital Markets, said banks have already strengthened their controls over trading desks, with some eradicating some prop trading desks completely. Miller said the rule does limit growth and earnings into the future. Miller speaks with Bloomberg’s Kathleen Hays and Vonnie Quinn on Dec. 10 on Bloomberg Radio’s “The Hays Advantage.”

For the audio, click here.

Volcker Says He Didn’t Help Write Final Rule That Bears His Name

Paul Volcker said he wasn’t involved with writing the final version of the rule that bears his name, staying abreast of developments from a distance as regulators crafted details of his curbs on trading by banks.

“It’s not my function to stay involved with the agencies,” Volcker, 86, said in an interview. “I personally stayed away from talking with any of the principals.”

The former Federal Reserve chairman said he didn’t know how the final draft was worded before it was published Dec. 10. “You probably have read the rule more than I have,” Volcker said. “It’s complicated, but I was gratified to see that the rule itself is shorter than my own home insurance policy.”

Comings and Goings

France’s Daniele Nouy Appointed as ECB Bank Oversight Chief

The European Parliament appointed Daniele Nouy to the helm of the European Central Bank’s oversight arm by a vote in Strasbourg, France, yesterday of 555 in favor and 50 opposed with 52 abstentions. Nouy, who is French, shepherded her country’s lenders through the dark days of Europe’s debt crisis.

As the chief supervisor of euro-area banks, she’ll have one year to help to build the institution from the ground up and get it ready to assume its supervisory powers in full next November.

ECB oversight is the first step in European Union leaders’ June 2012 pledge to break the cycle in which banks and nations compound each other’s financial strains. The bloc’s finance ministers are now wrangling over a European resolution mechanism to handle euro-area bank failures.

For more, 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 story: Michael Hytha at mhytha@bloomberg.net.


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