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UBS Fine, German-Swiss Accord, India Wal-Mart: Compliance

November 26, 2012

The U.K.’s Financial Services Authority today fined UBS AG (UBSN) 29.7 million pounds ($47.6 million) because of former trader Kweku Adoboli’s $2.3 billion trading loss. The FSA said the loss revealed serious weaknesses in management systems and internal controls at the largest Swiss bank.

Additionally, Finma, the Swiss regulator, said it instructed UBS to appoint an independent third party to report on the progress and completion of a program to fix these failings. The Swiss regulator also said that it may have to increase capital levels for operational risks.

Adoboli, a former trader in UBS’s London office, was sentenced to seven years in jail on Nov. 20 for fraud in relation to the loss, the largest from unauthorized trading in British history. About $2.1 billion of the loss arose from long positions in stock futures that peaked at $12.1 billion on Aug. 8, 2011, and were closed out three days later, while the remainder was incurred on short positions in stock futures that were entered afterward and peaked at $8.5 billion, Finma said.

Immediately following the discovery of the loss last year Finma introduced measures to limit the operational risk exposure of UBS until the controls at its investment bank were working effectively.

UBS said in an e-mailed statement that it’s “pleased” that the investigation has been concluded and that regulators acknowledged the steps the Zurich-based bank has taken since the incident.

For more, click here.

Special Section: European Banking Congress

Bankers, Reputations Dim, Dine on Humble Pie in Frankfurt

Deutsche Bank AG (DBK) co-Chief Executive Anshu Jain says telling people he works in banking is a conversation-killer at parties, as the industry fails to convince the general public that it’s changing.

Europe’s top banking executives met in the continent’s financial capital last week to discuss the industry’s future. Among the most hotly-debated topics was how lenders can regain the public’s trust, battered by taxpayer-funded bailouts and the deepest slump since World War II.

Carl Graf von Hohenthal, a consultant at public relations firm Brunswick Group, says there’s a perception that bankers are earning too much and not helping to raise living standards across economies after the crisis squeezed spending power.

An Ernst & Young LLP study of more than 28,500 retail bank customers in 35 countries in March found 40 percent of those questioned had lost trust in banks over the past year while 22 percent gained confidence.

For more, click here.

Weidmann Says ECB Crisis-Fighting Poses Long-Term Risks

Bundesbank President and European Central Bank Council member Jens Weidmann talked about the risks associated with the bank’s crisis-fighting policies and its proposed banking supervisory role.

A panel discussion followed, featuring Julian Nida- Ruemelin, Ludwig-Maximilians-University, Tomas Sedlacek, Ceskoslovenska Obchodni Banka, Guido Tabellini, Bocconi University. Todd Benjamin moderated the debate at the European Banking Congress, part of Euro Finance Week conference in Frankfurt that concluded Nov. 23.

For the video, click here.

Schaeuble Says Bankers Must Know Responsibility

German Finance Minister Wolfgang Schaeuble talked about trust in the banking system, regulation and the European debt crisis. He gave a keynote speech at the European Banking Congress, part of Euro Finance Week in Frankfurt.

For the video, click here.

Ingves, Bowles, Blessing, Stepic on Banking Regulation

Sveriges Riksbank Governor Stefan Ingves participated in a panel discussion about banking regulation at the European Banking Congress, part of Euro Finance Week in Frankfurt.

The other speakers were Commerzbank AG (CBK) Chairman Martin Blessing, European Parliament lawmaker Sharon Bowles, Raiffeisen Bank International (RBI) Chief Executive Officer Herbert Stepic and Professor at Geneva’s Graduate Institute of International and Development Studies, Charles Wyplosz. Todd Benjamin moderated.

For the video, click here.

Compliance Policy

German Lawmakers Reject Pact on Hidden Swiss Bank Accounts

Germany’s upper house of Parliament rejected an accord over undeclared bank accounts in Switzerland, dealing a blow to Swiss efforts to retain European clients spooked by a crackdown on tax evasion.

The Bundesrat, controlled by opposition parties after state election losses by Chancellor Angela Merkel’s Christian Democrats, voted to block the agreement signed by the two nations last year. While details of the Nov. 23 vote in Berlin weren’t disclosed, the outcome had been on the cards for months with the Social Democratic and Green parties lobbying against the accord.

The collapse of an agreement that would have imposed a withholding tax on offshore accounts held by Germans is a setback for Swiss banks as they try to stem withdrawals by customers concerned about a widening hunt for tax dodgers. German opposition parties say the accord contains too many loopholes for tax evaders and keeps client identities secret.

German Finance Minister Wolfgang Schaeuble said he plans to call a mediation committee with the opposition to look for a compromise. A formal decision on the committee will be made by Merkel’s Cabinet on Nov. 28. The Social Democrats will continue to oppose the initiative, Steffen Rulke, a Berlin-based spokesman for the party, said Nov. 21.

Germany may lose 13 billion euros ($16.8 billion) in tax revenue next year without the accord, Thomas Schaefer, finance minister of the state of Hesse, said in a speech to the Bundesrat.

Switzerland built the world’s biggest offshore wealth center during an era of “black money” that started to crumble when the U.S. sued UBS AG (UBS:US) three years ago. The so-called Rubik accord with Germany would have retained an element of banking secrecy, even as a crackdown on tax evasion by the U.S. and European authorities leads to demands for more transparent arrangements, including automatic exchange of information.

For more, click here.

Latvia Refines Laws on Money Laundering, Watchdog Says

Latvia has improved legal mechanisms to combat money laundering, helping clinch convictions for violating the controls, a European watchdog said.

The Baltic country brought its laws on money laundering in line with international standards and adopted better regulations for asset recovery, particularly by subjecting indirect proceeds from the crime to confiscation, Moneyval, the Council of Europe’s monitoring body for money laundering and terrorism financing, said in an e-mailed report Nov. 23.

Latvia continues to need better rules on freezing terrorist assets under the United Nations Security Council resolutions, according to the report.

India Looks to Regulate High-Frequency Trading, Sinha Says

Brief stoppage in automated trading is important for efficient price discovery, Securities and Exchange Board of India Chairman U.K. Sinha said in Mumbai.

The board, known as Sebi, will soon announce restrictions to avoid huge stock crashes, including pre-checking of orders and pricing. Sebi will take action against people responsible for lapses. He refused to comment on specifics.

Trading in Nifty and some of biggest companies halted for 15 minutes Oct. 5 after a 50-stock gauge sank an unprecedented 16 percent.

Sebi plans to set up a working group for rationalization of routes for foreign investments.

Schwab CEO Calls for Floating NAV for Institutional Money Funds

Charles Schwab Corp. (SCHW:US), the fifth-biggest provider of U.S. money market funds, called for a compromise in the industry’s showdown with regulators that would impose a floating share value on institutional products that invest in corporate debt.

Regulators should allow funds that invest only in U.S. government-backed securities, and prime funds that cater to smaller investors, to keep the traditional $1 constant share value because they are less at risk of credit losses and investor runs, Chief Executive Officer Walter Bettinger wrote Nov. 23 in an opinion article for The Wall Street Journal. Separating retail and institutional investors would be “manageable,” Bettinger said.

U.S. regulators and asset managers have debated new rules for money-market mutual funds since September 2008, when the collapse of the $62.5 billion Reserve Primary Fund triggered a wider investor run on prime money funds and helped freeze global credit markets.

For more, click here.

Compliance Action

Wal-Mart Suspends Indian Workers Amid Bribery Investigation

Wal-Mart Stores Inc. (WMT:US), the world’s largest retailer, said some workers at its joint venture in India have been suspended, as it conducts inquiries into potential violations of U.S. anti- bribery laws.

The retailer is conducting a “complete and thorough investigation,” it said in an e-mailed statement Nov. 23. The Indian venture, Bharti Walmart Pvt., has suspended planned store openings until the probe is completed, the Economic Times reported Nov. 23, citing two unidentified people.

Wal-Mart, based in Bentonville, Arkansas, on Nov. 15 said it started inquiries into potential violations of the Foreign Corrupt Practices Act in India, Brazil and China. The U.S. Department of Justice and the Securities and Exchange Commission are looking into allegations Wal-Mart systematically bribed Mexican officials so it could more quickly open stores.

Wal-Mart is trying to gain a foothold in India, where the government in September decided to allow foreign companies to invest in multibrand store chains, a sector they had previously been barred from.

An anti-corruption team summoned some employees and told them two weeks ago not to enter Bharti Wal-Mart’s office until after the investigation, the Economic Times reported. Wal-Mart didn’t provide any details of the people suspended or about the probe it is conducting, saying it would be “inappropriate” to comment before the investigation is complete. India’s Enforcement Directorate will seek documents from Wal-Mart relating to its financial investments and remittances in the country, Press Trust of India reported Nov. 15, citing a person it didn’t identify.

Cohen’s SAC Faces Client Questions as U.S. Investigators Circle

SAC Capital Advisors LP is seeking to calm investor concern about founder Steven A. Cohen’s trading in two drug stocks and possible regulatory sanctions after prosecutors for the first time tied Cohen to a specific transaction at the center of an insider-trading investigation.

Executives at the $14 billion firm have spoken to some of their largest clients after a former portfolio manager was arrested Nov. 20, the sixth time a current or former employee was linked to insider trading while working at the firm. The Stamford, Connecticut-based firm is telling investors that compliance procedures are robust and the hedge fund is cooperating with the government, said two clients, who asked not to be named because the fund is private.

Prosecutors say SAC, one of the best-performing hedge funds, reaped $276 million in profits and averted losses after Mathew Martoma, a former portfolio manager at a unit of SAC, used inside information from a clinical trial to trade in shares of two health-care companies in 2008. The investors said they are much more concerned about last week’s charges than previous ones because Cohen, according to a criminal complaint, traded those shares in his own portfolio and discussed them with Martoma.

Neither Cohen nor SAC have been accused of any wrongdoing. While Cohen wasn’t mentioned by name in last week’s complaint, he is the hedge-fund owner and investment manager referred to in the criminal complaint and a related civil case filed by the U.S. Securities and Exchange Commission, according to people familiar with the matter.

“Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” Jonathan Gasthalter, a spokesman for the firm, said last week.

For more, click here.

In the Courts

UBS Leads Wall Street Bid to Halt FHFA Mortgage-Bond Suit

UBS AG is seeking to block a U.S. lawsuit over billions of dollars in mortgage bonds in a case that could set back government efforts to recover losses Fannie Mae and Freddie Mac incurred in the housing crisis.

UBS is set today to argue that the U.S. Court of Appeals in Manhattan should overturn a lower-court ruling allowing the Federal Housing Finance Agency to pursue its lawsuit over losses on $6.4 billion in mortgage bonds sold to the two mortgage- finance companies.

At issue on appeal is whether the 2008 law that established the agency, which regulates Fannie Mae and Freddie Mac, also extended the time the government had to file claims against Zurich-based UBS and a group of other lenders.

The FHFA sued UBS and more than a dozen other banks, including JPMorgan Chase & Co. (JPM:US), Barclays Plc (BARC) and Goldman Sachs Group Inc. (GS:US), over mortgage securities sold to Fannie Mae and Freddie Mac. Four years after the financial crisis, banks are still grappling with liability tied to mortgage lending as investors and government authorities pursue claims and negotiate settlements.

Stefanie Johnson, a spokeswoman for the FHFA, declined to comment about the hearing. Megan Stinson, a UBS spokeswoman, didn’t respond to an e-mail seeking comment.

For more, click here.


Dombret Says Alternative to Libor Shouldn’t Be Forced on Banks

Bundesbank board member Andreas Dombret said while it may be worth considering using an alternative interest rate to the Libor rate, it should not be mandatory.

Dombret made the comments in a statement published by the Bundesbank Nov. 23.

The U.K. government plans to overhaul the setting of the benchmark London interbank offered rate, after Barclays Plc, Britain’s second-biggest lender, paid a record fine of $465 million in June for manipulating the benchmark which is used to set rates for more than $300 trillion of securities.

At least a dozen banks are being probed by regulators worldwide over allegations they colluded to manipulate the benchmark to profit from bets on derivatives.

While regulators and central banks globally, including the Bundesbank, debate Libor reform, at the end of the day “the choice of appropriate benchmark interest rates is a matter for the private sector,” Dombret said.

To contact the reporters on this story: Carla Main in New York at

Ellen Rosen in New York at

To contact the editor responsible for this story: Michael Hytha at

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