DZ Bank AG Sues HSBC Over $122 Million In RMBS

On January 31, 2012, German bank DZ Bank AG filed a complaint in New York state court against HSBC North America Holdings, Inc. and others relating to the purchase of $122 million in RMBS certificates. DZ Bank alleges that HSBC misrepresented and omitted critical information in its offering documents regarding underwriting standards, the characteristics of the loans underlying the securities, and the securities’ credit ratings. The complaint brings claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, breach of contract, and rescission. Complaint.

CFTC and SEC Report on International Swap Regulation

On January 31, pursuant to section 719(c) of the Dodd-Frank Act, the CFTC and the SEC delivered a report to Congress on international swap regulation. The report: (i) describes the regulatory framework for OTC derivatives in the Americas, EU and Asia; (ii) analyzes the similarities and differences across jurisdictions; (iii) discusses potential areas for harmonization; and (iv) makes recommendations for next steps. Joint Report.

Joint Guidance on Junior Lien Loan Loss Allowances

On January 31, the FDIC, Fed, NCUA, and OCC issued supervisory guidance on the allowance for loan and lease losses estimation practices for loans and lines of credit secured by junior liens on 1-4 family residential properties. The agencies reiterated key GAAP concepts and existing guidance relating to such loss estimation practices. FDIC Release.

Rating Agency Developments – Week of January 30, 2012

On January 25, Fitch updated its global dealer floorplan rating criteria. Fitch Release.

On January 24, DBRS released its CMBS rating methodology. DBRS Release.

On January 23, S&P updated its U.S. interest rate criteria to include assumptions for the five-year CMT Index. S&P Release.

On January 23, DBRS released its U.S. RMBS securities loss model and rating methodology. DBRS Report.

On January 23, DBRS described its U.S. RMBS surveillance process. DBRS Report.

*Note: Free registration is required for Fitch and S&P reports.

HAMP Program Expansion

On January 27, Treasury and the Obama Administration announced updates to the HAMP program which will aim to extend the reach of HAMP to a broader pool of homeowners. The updates to the program include: (i) extending the program through December 31, 2013 (which conforms to the extended deadline for the HARP program); (ii) providing for more flexible eligibility criteria, including the DTI and occupancy standards; (iii) increasing incentives for principal reduction from between 6 and 21 cents on the dollar to between 18 and 63 cents on the dollar; and (iv) offering principal reduction incentives for loans owned or guaranteed by Fannie Mae or Freddie Mac. Treasury Release.

SEC Authorizes FINRA to Collect SARs from Member Firms

On January 26, pursuant to the Financial Crimes Enforcement Network regulations, the SEC issued a letter to FINRA authorizing FINRA staff to ask for suspicious activity reports (SARs) and SAR information from member firms in certain circumstances. The SEC also issued a letter to chief executive officers of all SEC-registered FINRA member firms requesting that they make SARs and supporting documentation available to FINRA. FINRA Notice.

FSA Fines David Einhorn and Greenlight Capital £7.2 Million for Market Abuse Activity

On January 25, the U.K. Financial Services Authority (FSA) decided to fine David Einhorn and his hedge fund Greenlight Capital Inc £7.2 million for engaging in market abuse in relation to an equity fund raising by Punch Taverns Plc raising in 2009. Mr. Einhorn learnt of the proposed fund raising after which he instructed that his fund’s holding in the firm be sold. While the FSA accepted that Mr. Einhorn did not believe the information to be inside information, the FSA considered that his belief was unreasonable and that his failure to identify the information as such was a serious breach of the standard of market conduct expected from someone with his professional experience and of his industry standing. Press Release. Decision Notice for David Einhorn. Decision Notice for Greenlight Capital Inc.

BayernLB Sues Morgan Stanley Over RMBS

On January 25, 2012, Bayerische Landesbank filed a complaint in New York state court against several Morgan Stanley entities seeking to recover for losses allegedly incurred in connection with certificates in 22 RMBS offerings that BayernLB allegedly purchased in 2006 and 2007 for approximately $486 million. BayernLB alleges that Morgan Stanley made misrepresentations in the offering documents for those RMBS concerning the underwriting standards of the originators of the mortgage loans underlying the certificates, the appraisals of the mortgaged properties, and other facts regarding the quality of the mortgage loans. BayernLB asserts claims for common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation, and seeks rescission and damages. Complaint.

OCC Proposed Stress Tests

On January 24, the OCC requested comment on a notice of proposed rulemaking to implement Section 165(i)(2) of the Dodd-Frank Act, which would: (i) require national banks and Federal savings associations with consolidated assets of more than $10 billion to conduct annual stress tests and (ii) impose reporting and disclosure requirements. Comments must be submitted by March 26. OCC Release. Proposed Rule.