Austria, whose banks' combined bonus pool is a sixth the size of the figure for Germany's Deutsche Bank AG (DBK), is putting restrictions on bonuses exceeding 30,000 euros ($40,000) from this year.
Bonuses paid to "risk buyers" such as traders or loan officers that are above this level or equivalent to more than a quarter of the annual fixed salary must be deferred over a five- year period, the co-head of the Finanzmarktaufsicht regulator, Helmut Ettl, told journalists in Vienna yesterday. If the bank's economic situation worsens during the five-year period, payments have to be skipped, Ettl said. The rules apply for the first time for bonuses paid this year for fiscal 2012.
Austrian banks, focusing on retail banking at home and in eastern Europe, have already used modest average compensation structures. Only 14 employees working for the country's banks at home and abroad were paid more than 1 million euros in total compensation in 2011, according to an FMA survey of 26 lenders Ettl presented. The banks surveyed had 2,282 employees.
Overall, banks paid 590 million euros in bonuses in 2011. Deutsche Bank, based in Frankfurt, said it paid 3.6 billion euros.
The FMA is largely implementing European Union regulations, while defining the national threshold, Ettl said. Under the new rules, just 60 percent of bonuses can be paid out immediately, with the remaining 40 percent being phased over five years. For bonuses exceeding 150,000 euros, or 100 percent of fixed salaries, only 40 percent can be paid at once.
Compliance Report
CoCos Allowed for Danish Banks If Are Triggers Strict
Denmark's financial watchdog will let banks issue new hybrid debt instruments to meet tougher capital demands only if the securities convert into equity early enough to avoid eating into regulatory buffers.
Danish banks can use contingent convertible bonds as long as they convert before capital levels breach core Tier 1 equity thresholds or in the event individual solvency requirements aren't met, said Anders Balling, head of the Financial Supervisory Authority's banking analysis division in Copenhagen.
The regulator is trying to take a tougher line on banks to avoid another credit-driven property bubble without squashing Denmark's economic recovery. Bond investors have demanded a premium from Danish banks since the Nordic country in 2011 became the first in Europe to enforce a resolution framework that pushed losses onto senior creditors.
Denmark is exploring the option of allowing more exotic funding vehicles to help banks build their capital buffers as the government commits to its goal of protecting taxpayers from bailouts.
For more, click here.
Compliance Action
IRS Suspends Regulation of Tax-Return Preparers
The U.S. Internal Revenue Service suspended its regulation of tax-return preparers after a federal court ruling said the agency lacked authority, removing a tax-compliance tool that was years in the making and raising concerns from the national taxpayer advocate.
With the tax-filing season starting Jan. 30, hundreds of thousands of return preparers won't have to register with the federal government, pass a competency test or meet continuing- education requirements. U.S. District Judge James Boasberg in Washington invalidated the regulations in a decision Jan. 18 and enjoined the IRS from enforcing them. Boasberg, picked for his post by President Barack Obama, wrote that the IRS overstepped its authority by relying on an 1884 law that allowed it to regulate people presenting cases before the Treasury Department.
The IRS responded yesterday by suspending the program. The 15-hour annual continuing-education requirement started in 2012 and the testing requirement was taking effect this year. The agency said it is considering the court's decision and will "take further action shortly."
The rules were designed to impose standards on hundreds of thousands of return preparers who aren't certified public accountants, attorneys or enrolled agents already licensed to practice before the IRS. The idea, promoted by former Commissioner Douglas Shulman, was to require minimum qualifications and help the agency combat tax fraud.
For more, click here.
Sovereign Debt, Structured Finance Ratings to Face EU Review
The European Union's top markets regulator said it would review how credit-ratings companies evaluate sovereign debt and structured products, following concerns market volatility increased in the past year.
EU lawmakers voted in favor of rules last week that would place curbs on how credit-rating firms update markets about the quality of government debt and give investors the right to sue if they lose money because of poor quality or deliberately distorted credit assessments.
The U.S. Securities and Exchange Commission Jan. 22 barred Egan-Jones Ratings Co. from grading government debt and asset- backed securities for 18 months after settling claims the company misled the regulator over how long it had been rating the two asset classes.
The plans approved by EU lawmakers on curbing how credit- ratings companies update markets about the quality of government debt are intended to make such updates less likely to roil markets and to give investors recourse when ratings are off the mark. European Parliament legislators backed the plans. Final sign-off by the EU's 27 governments is needed before the deal can take effect.
Courts
London Whale Case Among Dwindling Securities Class Actions
The number of securities fraud class-action cases filed last year fell 19 percent as litigation over mergers and acquisitions and the credit crisis decreased, according to a report.
The 152 cases filed in 2012 fell from 188 in 2011 and represented the second-lowest level in 16 years, according to the report by Stanford Law School and Cornerstone Research, a consulting firm.
Last year marked an end to securities fraud class-actions related to the credit crisis as no new cases were filed compared to three in 2011, according to the report. Credit crisis cases peaked in 2008 at 100.
Federal cases related to mergers and acquisitions dropped to 13 in 2012 compared with 40 in 2010 and 43 in 2011, according to the report. Those cases are now being pursued almost exclusively in state courts.
Although there were no class-action credit-crisis cases, according to the report, Wall Street banks are still contending with lawsuits and claims over mortgage securities sold during the housing boom.
Class-action securities filings against financial companies fell, according to the report. They were defendants in 15 filings, or 10 percent of all filings, compared with 25 filings in 2011 and 43 in 2010.
Stanford Investors Must Repay Bogus CD Profits, Judge Says
R. Allen Stanford's defrauded investors must repay any interest they earned on the bogus certificates of deposit at the heart of the convicted Texas financier's $7 billion Ponzi scheme, a Dallas judge ruled.
About 800 investors had urged U.S. District Judge David Godbey to reject lawsuits by Ralph Janvey, Stanford's court- appointed receiver, seeking recovery of more than $220 million in profits they'd taken out of Stanford's scheme before it was shut down by U.S. securities regulators in February 2009.
Godbey ruled that while investors have legitimate claims to recover the money they originally invested in a fraud scheme, they have no contractual claim to any interest from those funds because investment contracts with a Ponzi scheme are unenforceable.
Stanford, 62, was convicted in March of stealing more than $2 billion in investor deposits at his Antigua-based bank to fund a lavish personal lifestyle and bankroll money-losing private enterprises. He is serving a 110-year sentence in a Florida federal prison while he appeals that verdict.
The case is Janvey v. Alguire et al, 3:09-cv-0724, U.S. District Court, Northern District of Texas (Dallas).
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).
Interviews/Speeches
Rangel Sees U.S. Tax Overhaul, Blasts Carried Interest
U.S. Representative Charlie Rangel, a Democrat from New York, talked about the outlook for an overhaul of the federal tax code this year and the code provision on carried interest, which he called "obscene." Carried interest is a type of profit-sharing income earned by private-equity managers.
Rangel spoke with Bloomberg reporters and editors at Bloomberg's office in Washington.
For the audio, click here.
Cameron Says He'll Argue for Tax Transparency in Davos Speech
U.K. Prime Minister David Cameron said he'll use his speech to the World Economic Forum annual meeting in Davos, Switzerland, this week to argue for tax transparency. He made the remarks to lawmakers in Parliament in London yesterday during his weekly questions session.
"We need greater transparency over tax," he said.
Comings and Goings
CFTC Whistle-Blower Chief Rejoins SEC Enforcement Unit
Vincente Martinez, who helped start the U.S. Securities and Exchange Commission market intelligence office before stepping down in 2011, is returning to lead the unit responsible for evaluating tips, complaints and referrals.
Martinez will rejoin the SEC next month from the Commodity Futures Trading Commission, where he was the first director of the agency's whistle-blower office. In his prior stint at the SEC, he worked for eight years in the enforcement division and became an assistant director of the market intelligence office when it was created as part of a restructuring of the unit.
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.
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