Bloomberg News

Living Wills Rejected, Lloyds Sued, Capital One: Compliance

August 07, 2014

The Federal Reserve and Federal Deposit Insurance Corp. told 11 of the largest U.S. and foreign banks, including JPMorgan Chase & Co. (JPM:US) and Goldman Sachs Group Inc. (GS:US), that they failed in their efforts to create so-called living wills.

The firms spent two years working on hypothetical bankruptcy plans to prove they aren’t “too big to fail.” The agencies ordered the banks to simplify their legal structures and revise some practices to make sure their collapse wouldn’t damage the wider financial system.

The living-wills exercise was a key check on large banks written into the Dodd-Frank Act, a regulatory overhaul prompted by the 2008 financial crisis and the collapse of Lehman Brothers Holdings Inc.

The banks were sent letters outlining specific deficiencies the agencies want them to fix. The industry expressed irritation that the firms didn’t get more direction from regulators before filing their most recent plans last month.

The banks should develop a “less complex legal structure” and amend financial contracts by next year to give regulators more time to resolve a failing institution, the agencies said.

Spokesmen for the banks declined to comment on the living wills.

Compliance Action

Capital One Is Sent Subpoenas in New York Money-Laundering Probe

Capital One Financial Corp. (COF:US) said it received subpoenas from the Manhattan district attorney’s office as part of a money-laundering probe.

The request relates to “certain check-casher clients of the commercial-banking business,” the McLean, Virginia-based firm said Aug. 5 in a regulatory filing. Capital One said it’s cooperating with the investigation.

Capital One is exiting the business of providing services to check cashers and related companies after determining it “no longer fits within the bank’s strategic priorities,” a bank spokeswoman, Tatiana Stead, said in an e-mailed statement.

Joan Vollero, a spokeswoman for Manhattan District Attorney Cyrus R. Vance Jr., declined to comment.

ITT Educational Scrutiny From U.S. Regulators Joined by Lenders

For-profit college ITT Educational Services Inc. (ESI:US), already under pressure from the U.S. Education Department, is facing stricter terms from lenders that could put its operations at risk.

Last week, ITT Educational disclosed an agreement with creditors that would push its loans into default should the government delay access to student-aid funds, the lifeblood of for-profit colleges, by more than five days. On Aug. 4, the company’s market value shrank by almost half and ITT said Chief Executive Officer Kevin Modany will step down in February.

A delay of more than five days wouldn’t automatically lead to an ineligibility of Title IV financial-aid funds for ITT Educational, Nicole Elam, a spokeswoman for the company, said in an e-mail.

Modany’s departure announcement coincided with a 46 percent drop in ITT Educational’s shares after the company said a deal fell through to raise as much as $119.1 million by selling and leasing back real estate. Modany is leaving for “personal reasons” that have nothing to do with the company’s health, Elam said. Modany declined to comment.

ITT Educational, based in Carmel, Indiana, is facing investigations of its marketing by a group of state attorneys general, and the Consumer Financial Protection Bureau has sued the company over its loan practices. A separate suit by the New Mexico attorney general claims violations of state marketing and advertising laws.

Courts

Lloyds Is Sued by 220 Investors Over Its 2008 Takeover of HBOS

Lloyds Banking Group Plc (LLOY) was sued by 220 investors who said they were misled into supporting a 2008 takeover of HBOS Plc that prompted a 20 billion-pound ($34 billion) bailout from the U.K. government.

Britain’s biggest mortgage lender and its executives “knew or ought to have known that the acquisition of HBOS was not a good deal for shareholders of Lloyds and would not be in their best interests,” the investors said in legal documents from the U.K. claim, which was filed in London yesterday.

Lloyds’s “position remains that we do not consider there to be any legal basis to the claims,” the lender said in an e-mailed statement. “We will robustly contest this legal action.”

Harcus Sinclair, a law firm acting for the investors, yesterday sought a group litigation order, which would allow a large number of claimants to be jointly represented at a single trial.

The value of the claim is currently about 2 million pounds ($3.4 billion). That figure may rise if more investors sign up after the filing.

The litigation order needs to be ratified by senior judges, according to Matthew Marsh, a London court official.

Comings and Goings

BOE Loses Second Executive as Prudential Lures Regulator Adams

Julian Adams quit his job as head of insurance supervision at the Bank of England to join Prudential Plc, (PRU) becoming the second senior official to leave the central bank this week for a post in the private sector.

Adams will take up the role of group regulatory director at Prudential next year, the BOE said yesterday.

His move follows the departure of Spencer Dale, who said Aug. 4 that he is quitting his job as executive director for financial stability to join BP Plc. (BP/)

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

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Joe Schneider, Charles Carter


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