Canada’s federal government issued
new rules on Dec. 21 that give credit unions the option to
become federally incorporated entities, allowing them to expand
across the country and better compete with banks.
Credit unions, financial institutions owned by their
customers and overseen by provincial regulators, have been
waiting for the changes first announced in the 2010 federal
budget. The Department of Finance released the final rules in a
statement on its website.
Credit unions choosing to convert would fall under the
oversight of Canada’s banking regulator, the Office of the
Superintendent of Financial Institutions, giving them the
ability to operate nationally instead of being limited to their
home provinces.
David Phillips, chief executive officer of the trade
association for the country’s credit unions, said in a statement
that the organization welcomed the announcement as a “major
milestone.”
Compliance Policy
Banks’ Loan-Loss Reserves Seen Jumping 50% in FASB Proposal
Banks’ loan-loss reserves may jump about 50 percent under a
proposed U.S. accounting-rule change that redefines how quickly
firms must recognize bad debts, standard-setters said.
The Financial Accounting Standards Board’s proposed rule,
revising a February draft, pushes banks to start recognizing
losses on loans, debt securities and other financial receivables
when firms see early signs of potential loss. The policy would
move from an “incurred loss” model to an “expected loss”
model, similar to changes under consideration by the
International Accounting Standards Board, which sets the rules
used in most nations outside the U.S.
FASB’s estimate shows banks probably would need to boost
reserves by billions of dollars if the new rule is implemented.
JPMorgan Chase Co. (JPM), the largest U.S. bank by assets, had $24
billion in its allowance for credit losses at the end of
September. Charlotte, North Carolina-based Bank of America
Corp. (BAC), ranked No. 2, had $26 billion.
Spokesmen for Bank of America, New York-based JPMorgan and
Citigroup Inc., the third-largest U.S. bank, declined to
comment.
The FASB draft is open for comment until April 30. Even if
the final proposal is adopted next year, it probably won’t take
effect before 2015, according to a person with knowledge of the
plans, who requested anonymity because the timing wasn’t
announced. The effective date was left blank in the Dec. 20
draft.
The accounting board is looking to change how reserves and
asset values are measured after the financial crisis forced
lenders to devote capital to losses, leaving some of the world’s
largest banks struggling to meet regulatory thresholds and
remain solvent.
For more, click here.
Banks Told by U.S. Regulator to Share Cyber Attack Information
A U.S. banking regulator told financial institutions to
report cyber attacks to law enforcement and alert customers to
their impact as new assaults targeted PNC Financial Services
Group Inc. (PNC) and other banks.
The Dec. 21 alert from the U.S. Office of the Comptroller
of the Currency warned about a wave of so-called distributed
denial-of-service attacks. Such actions harness networks of
infected computers to pump large volumes of Internet traffic at
websites, often causing slowdowns or disruptions.
A group calling itself Izz ad-Din al-Qassam Cyber Fighters
announced plans to attack banks in a Dec. 10 statement posted on
the website pastebin.com. The comptroller’s office, which didn’t
identify targeted banks or the groups responsible for the
attacks, said fraudsters can use them to distract bank personnel
to disrupt bank operations.
China to Allow Companies to Invest Idle Proceeds, Xinhua Says
China will allow listed companies to invest idle proceeds
from fundraising in “safe, good liquidity” investment
products, such as government bonds and wealth management
products from banks, the official Xinhua News Agency reported,
citing China Securities Regulatory Commission.
Companies will be allowed to use raised funds to
temporarily bolster working capital for 12 months, compared to 6
months previously, Xinhua reported.
Thirty percent of the raised funds can be used within 12
months to permanently bolster working capital and pay bank
loans, up from 20 percent previously, Xinhua reported.
Compliance Action
Rate Scandal Sees U.K. Fines Triple Previous Record in 2012
Penalties against Barclays Plc (BARC) and UBS AG for their roles
in the Libor rate-rigging scandal helped the U.K. Financial
Services Authority more than triple its previous fines record in
2010 to at least 312 million pounds ($506 million) this year.
The FSA’s penalties would have been even higher, at more
than 400 million pounds, without discounts granted in about two-
thirds of cases for cooperation with the regulator, London-based
law firm Reynolds Porter Chamberlain LLP said in an e-mailed
statement.
The FSA fined Barclays around 60 million pounds and UBS 160
million pounds this year for attempting to manipulate the London
benchmark interbank interest rate, known as Libor.
Global authorities are investigating claims that more than
a dozen banks altered submissions used to set benchmarks to
profit from bets on interest-rate derivatives or make the
lenders’ finances appear healthier.
U.K. Banks Seen Sacrificing Lending for BOE Capital Demand
U.K. banks, under pressure from the Bank of England to
increase capital, may do exactly what the central bank doesn’t
want them to do: cut lending.
While trimming or delaying dividends, selling assets,
reducing pay or raising equity would also bolster capital, banks
such as government-owned Royal Bank of Scotland Group Plc and
Lloyds Banking Group Plc (LLOY) may be tempted to shrink lending, said
Paul Mumford, who helps manage about 350 million pounds ($569
million) including Barclays Plc, RBS and Lloyds shares at
Cavendish Asset Management Ltd. in London.
Britain’s four-biggest banks may need as much as 60 billion
pounds in extra capital to meet future loan losses, compensate
customers and pay regulatory fines, according to the Bank of
England’s Financial Stability Report last month. Central bank
Governor Mervyn King is pressing banks to raise capital levels
without reducing lending to support an economy struggling to
avoid a triple-dip recession.
For more, click here.
JPMorgan Said to Face First Enforcement Action on Whale Loss
JPMorgan Chase Co. will be the target of a regulatory
enforcement order stemming from mistakes that led to at least
$6.2 billion in trading losses, according to a person briefed on
the situation.
The Office of the Comptroller of the Currency is preparing
to issue a cease-and-desist order requiring the largest U.S.
bank to fix internal risk controls that contributed to its
wrong-way bet on credit derivatives, according to the person,
who asked not to be named because the discussions aren’t public.
Chief Executive Officer Jamie Dimon, 56, said in May that the
firm’s strategy was beset by “errors, sloppiness and bad
judgment.”
The timing of the enforcement is uncertain, the person
said.
Joe Evangelisti, a JPMorgan spokesman, and Bryan Hubbard,
an OCC spokesman, declined to comment on any potential
enforcement actions, reported earlier in the Wall Street
Journal.
The faulty trades within the bank’s chief investment office
— associated with London-based trader Bruno Iksil, widely known
as the London Whale — may eventually cost more than $6.2
billion, Dimon has said.
That investment office within JPMorgan’s national bank
suffered from “inadequate risk management, Comptroller of the
Currency Thomas Curry said during U.S. Senate testimony in June.
The U.S. Senate Permanent Subcommittee on Investigations is
also probing the loss.
SEC Files Suit Against Former New Generation Biofuels Chairman
The U.S. Securities and Exchange Commission filed a civil
action against Lee S. Rosen, the former chairman of New
Generation Biofuels Holdings Inc. (NGBF), alleging he fraudulently
avoided reporting his ownership interest in the company.
Rosen will settle with the SEC without admitting or denying
the allegations, according to an agency statement Dec. 21. Rosen
will pay a total of $911,484 in fines and will be barred from
serving as a company’s officer or director.
The complaint alleges that in addition to receiving
$666,000 in direct payments, he ‘‘indirectly benefited’’ from
using New Generation shares held in trusts as partial payment
for a yacht.
The SEC earlier suspended trading of Columbia, Maryland-
based company, citing its lack of public disclosures since the
period ending June 30, 2011.
A phone message left for Bryan McPhee, a company spokesman,
wasn’t returned. An e-mail sent to him couldn’t be delivered.
Previous filings said the company makes biofuels from oils and
animal fats.
Courts
Barclays Staff Ask U.K. Court for Anonymity in London Libor Suit
Barclays Plc traders and employees who made submissions to
set interest rates applied to a U.K. court asking for anonymity
in the U.K.’s first civil lawsuit related to manipulation of the
London interbank offered rate.
A hearing is scheduled for Jan. 21 to decide whether the
bank’s staff implicated in the suit, filed by Guardian Care
Homes Ltd. over a loss-making interest rate swap tied to the
benchmark, can remain anonymous, according to court spokeswoman
Rachael Collins in London.
Barclays was ordered to give affiliates of Guardian Care
the identities of 208 employees named in the bank’s disclosure
to regulators over the Libor-rigging allegations.
Kevin Roberts, a lawyer at Morrison Foerster LLP
representing some of the workers, didn’t immediately return a
phone call and e-mail seeking comment. Jon Laycock, a Barclays
spokesman, declined to comment.
The case is Graiseley Properties Ltd. Ors. v. Barclays
Bank Plc, High Court of Justice, Queen’s Bench Division
Commercial Court, No. 12-1259.
Mathew Martoma Indicted for $276 Million Insider Trade
Mathew Martoma, the former SAC Capital Advisors LP
portfolio manager accused in what prosecutors have called the
biggest insider-trading case, was charged in an indictment with
making $276 million for the firm on inside tips about a clinical
drug trial, a sign that he may not be considering a plea deal.
The insider-trading indictment sets in motion a criminal
trial process that puts new pressure on him to cooperate with
the government’s investigation of the hedge-fund firm founded by
billionaire Steven A. Cohen.
At issue in the Martoma case is a 20-minute phone call
prosecutors said he had with Cohen after allegedly receiving
negative test results about a drug that was intended for use by
Alzheimer’s patients. The day after the call, SAC liquidated a
$700 million position in Elan Corp. (ELN) and Wyeth LLC, the companies
that were promoting the drug.
The government claims SAC netted $276 million in profits
and averted losses in the Elan and Wyeth trades. Cohen isn’t
alleged in Martoma’s indictment to have known Martoma had inside
information. Prosecutors have made no claims about precisely
what was said on the call.
Jonathan Gasthalter, a spokesman for Stamford, Connecticut-
based SAC, declined to comment on the indictment. Gasthalter has
said Cohen and SAC acted appropriately in making the trades.
Cohen hasn’t been charged criminally or sued by regulators in
the case.
Martoma was arrested at his Boca Raton, Florida, home on
Nov. 20 and charged in a criminal complaint. The indictment
charges him with one count of conspiracy and two counts of
securities fraud. If convicted, Martoma faces as many as 20
years in prison on the securities fraud charges and five years
on the conspiracy charge.
‘‘Though disappointing, today’s events come as no
surprise,” Martoma’s lawyer, Charles Stillman, said in a
statement Dec. 21. “The simple fact is that Mathew Martoma did
not trade on inside information, is innocent of all these
charges and we look forward to his ultimate vindication.”
The case is U.S. v. Martoma, 12-cr-00973, U.S. District
Court, Southern District of New York (Manhattan).
Ex-Anglo Irish Chairman Fitzpatrick Charged for Hiding His Loans
Former Anglo Irish Bank Corp. Chairman Sean Fitzpatrick was
charged with hiding personal loans of as much as 139.8 million
euros ($184.5 million) from the auditors of the now-nationalized
bank.
Fitzpatrick, 64, appeared in court in Dublin Dec. 21 after
being charged with breaches of Irish company law for providing
“misleading, false or deceptive” declarations to company
auditors, according to court documents filed by prosecutors.
Earlier, Fitzpatrick and two other one-time Anglo Irish
directors were ordered on Oct. 8 to stand trial in relation to
loans to 16 clients to buy shares in the bank in 2008. He said
at the time that while the transactions “were inappropriate and
unacceptable from a transparency point of view,” they did not
breach banking or legal regulations.
Fitzpatrick was remanded on bail until March 1, when the
so-called book of evidence will be presented to the court. His
solicitor Michael Staines didn’t immediately return calls to his
office seeking comment on the charges.
Interviews
Themis’s Saluzzi Says NYSE, ICE Deal Good for ‘Players’
Joseph Saluzzi, co-head of equity trading at Themis Trading
LLC, said IntercontinentalExchange Inc. (ICE)’s plan to buy NYSE
Euronext (NYX) will be “good for the players involved.” Saluzzi
spoke with Bloomberg’s Pimm Fox and Vonnie Quinn on Bloomberg
Radio’s “Taking Stock.”
For the video, click here.
Comings and Goings
Stone Resigns From Accounting Oversight Board After SEC Claims
Mary Stone resigned from the Financial Accounting
Foundation’s board of trustees less than two weeks after she was
accused by the Securities and Exchange Commission of violating
her responsibilities in overseeing Morgan Keegan Co. mutual
funds during the credit crisis.
The FAF, which oversees the board that sets U.S. accounting
standards, expects to fill Stone’s spot next year, according to
a press release from the Norwalk, Connecticut-based
organization. Stone, an accounting professor at the University
of Alabama in Tuscaloosa, took a leave of absence on Dec. 10,
the day the SEC announced its claims against her and seven other
former directors of the funds.
The SEC accused the mutual funds’ directors of allowing
assets backed by subprime mortgages to be overvalued as the
housing market collapsed in 2007. The action followed a related
$200 million settlement with Morgan Keegan, a subsidiary of
Raymond James Financial Inc. (RJF), last year and sanctions against
two employees in 2010.
Stone and five other directors acted “diligently and in
good faith” and intend to contest the SEC’s allegations, which
they “emphatically deny,” their attorney, Stephen Crimmins of
KL Gates in Washington, said in a Dec. 10 statement. Stone
didn’t return a call for comment Dec. 21.
Beswick Appointed SEC Chief Accountant by Agency’s New Chairman
Paul A. Beswick, who has served as the U.S. Securities and
Exchange Commission acting chief accountant for the past several
months, was named to the position of chief accountant at the
agency Dec. 21 by SEC Chairman Elisse Walter.
The appointment of Beswick was announced in a statement.
To contact the reporter on this story:
Carla Main in New Jersey at
cmain2@bloomberg.net.
To contact the editor responsible for this report:
Michael Hytha at mhytha@bloomberg.net.