Month: November 2011

Michael Barnier Reassures the City Over Euro Zone Integration

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Michael Barnier, the European commissioner overseeing financial services, has used the opportunity of speaking before an audience in London on 4 November 2011 to highlight the commission’s view on the key areas of progress in the development of European Financial Regulation and to address growing concerns that increased integration within the euro-zone will isolate or penalise EU member states who are not subscribed to the single currency.

The key areas of regulatory development referred to in the speech included:

  • The proposed increase in capital and liquidity requirements in compliance with Basel III;
  • The measures designed to increase transparency within hedge funds;
  • The new rules regarding short selling and credit default swaps;
  • The increased transparency of over the counter derivatives;
  • The revision of the Markets in Financial Instruments Directive (MiFID 2) which will regulate technological developments such as high frequency trading; and
  • New proposals on how to target Market Abuse.

European Commission: Press release (SPEECH/11/721) (4 November 2011).

Citigroup and SEC Defend Proposed Settlement

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On November 7, 2011, Citigroup Global Markets Inc. and the Securities and Exchange Commission filed separate memorandums in support of their proposed settlement agreement in the United Stated District Court for the Southern District of New York. Citigroup and the SEC agreed to a settlement over allegations of wrongdoing by Citigroup’s mortgage-backed securities group wherein Citigroup agreed to pay $285 million in exchange for a “no admit, no deny” settlement. Judge Jed S. Rakoff ordered both parties to defend the proposed settlement after questioning the SEC’s decision to accept a non-admission of wrongdoing despite “alleg[ing] a serious securities fraud.” Citigroup defended the settlement in part by arguing that the public interest is better served by allowing sophisticated parties to compromise complicated matters in a manner that avoids wasteful litigation and exposing both parties to extreme results. It also argued that current market conditions penalize corporate stock prices simply because of a company’s involvement in litigation with a regulatory agency, and that a “no admit, no deny” result was necessary to minimize potential collateral consequences in the civil class actions and other litigations pending against Citigroup related to mortgage-backed securities and subprime mortgages. The SEC defended the settlement by stating that the outcome allowed for a quick resolution to the case while still “clearly conveying” that the alleged conduct by Citigroup occurred. Citigroup Submission. SEC Submission.

German Bank Initiates Mortgage-Backed Security Action Against Credit Suisse

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On November 10, 2011, IKB Deutsche Industriebank AG sued several Credit Suisse entities in the Supreme Court of New York, bringing claims for common law fraud, aiding and abetting fraud, and negligent misrepresentation, as well as claims under Sections 11, 12 and 15 of the Securities Act of 1933, in connection with nearly $215 million in RMBS allegedly purchased by IKB. To date, IKB has filed only a summons with notice. Without making any factual allegations, IKB seeks rescission and damages. Summons.

Insurance Company Files Mortgage-Backed Security Action Against Countrywide, Bank of America

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On November 9, 2011, National Integrity Life Insurance Co. filed a complaint against Countrywide Financial Corporation, former Countrywide executives and Bank of America in the United States District Court for the Southern District of New York, accusing Countrywide of fraud and misstatements in connection with nearly $450 million in RMBS allegedly purchased by the insurer. National Integrity alleges Countrywide abandoned its underwriting standards and misled the insurer about the quality of loans underlying the securities. National Integrity asserts causes of action for common law fraud, civil conspiracy, and violations of the Ohio Securities Act, the Ohio Corrupt Activities Act and federal securities laws, including Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Exchange Act of 1934. Complaint.

Rating Agency Developments

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On November 10, Fitch updated its criteria for ABCP. Fitch Release.

On November 9, Moody’s released its methodology on rating U.S. public power electric utilities with generation ownership exposure. Moody’s Methodology.

On November 9, S&P released its group rating methodologies and assumptions. S&P Release.

On November 9, S&P updated its methodologies and assumptions for rating banks. S&P Release.

On November 9, S&P updated its methodology for determining a Banking Industry Country Risk Assessment (BICRA). S&P Release.

On November 8, S&P issued advance notice of proposed criteria changes for European CMBS. S&P Release.

On November 7, S&P released its ratings methodology addendum for sovereigns with limited external data. S&P Release.

On November 7, DBRS released its methodology on rating Canadian RMBS and European Master RMBS. Canadian RMBS. European RMBS.

Note: Free registration is required for Fitch, Moody’s and S&P releases and reports.

SEC Listing Standard Rules for Reverse Merger Companies

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On November 9, the SEC approved rules issued by the three major U.S. listing markets (Nasdaq, NYSE, and NYSE Amex) to prohibit a reverse merger company from applying to list until the company: (i) completes a one year “seasoning period” by trading in the U.S. OTC market or another regulated or foreign exchange, and (ii) maintains a minimum share price for a required period. Reverse mergers permit companies to access U.S. investors by merging with an existing public shell company. SEC Release.

MSRB Request for Comment on Definition of Sophisticated Municipal Market Professional

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On November 8, the MSRB requested comment on updating its definition of sophisticated municipal market professional to reflect recent changes to both the availability of municipal market information and to FINRA’s rules on suitability for institutional accounts. Comments to the proposed definition must be submitted by December 13. MSRB Release.

Basel Committee Final Rules on G-SIBs

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On November 4, the Basel Committee on Banking Supervision issued rules for global systemically important banks (G-SIBs), outlining: (i) the committee’s framework to identify G-SIBs; (ii) the magnitude of additional loss absorbency G-SIBs should have; and (iii) procedures for phasing in the new requirement. Basel Committee Release. Final Rule.

NCUA Settles with Citigroup and Deutsche Bank in RMBS Dispute

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The National Credit Union Administration (“NCUA”), an independent federal agency that supervises and charters federal credit unions, reached a $145 million settlement with Deutsche Bank and a separate $20.5 million settlement with Citigroup, stemming from the banks’ sales of RMBS to five failed credit unions. The NCUA did not file a lawsuit against either Citigroup or Deutsche Bank, although the NCUA currently has RMBS suits pending against three other financial institutions. Press Release 1. Press Release 2.