1. It’s Déjà Venezuela All Over Again ~ Will Greece Bring Back Debt Swaps?
Greece is Latin America. Not today’s Latin America, but Latin America of 1988. That was when Mexico, Brazil and Venezuela were lining up to renegotiate their debt. The solution developed, by then Treasury Secretary Nicholas Brady, was replacing existing bonds with new deeply discounted bonds (and additional inducements including principal that was essentially backed by a US Treasury bond). It was, in short, a default with a negotiated repayment plan. When the Latin American debt swaps ended I presumed that was the last we would see of the structure. Greece, despite membership in the European Union, is actually looking like an old Latin American. If Greece does default or “renegotiate its debt,” as S&P said this week is imminent, what then? One important upshot will be ISDA (International Swap Dealers Association) making the determination of whether a default has occurred such that the $70.8 billion in outstanding credit default swaps (CDS) will be triggered. The net losses for the CDS counterparties are expected to be over $3 billion. Whatever the next few months bring, let’s hope that Greece rebounds as well as Brazil whose GDP surpassed that of the U.K. just last month.
2. Is it Insider Trading if Everyone Was in on it? SEC Charges 7 More With Insider Trading
For those of you keeping track, the five-year insider trading probe that lead to the conviction of Raj Rajaratanam, charges against 55 others and substantial fines, has resulted in another seven arrests. Senior hedge fund executives from top funds including Level Global, Diamondback Capital and Neuberger Berman, were charged this week—accused of swapping material, nonpublic information on Dell and other high-tech companies. What interests me about this particular case is that the information was passed between fund managers of different funds. The details of the indictment have not yet been released, but the previous convictions appear to show a loose coalition of friends and associates sharing insider information obtained through bribes and illegal means. The only “insider info” my coworkers share is that the snack machine has gotten refilled…
3. 7 Dodd-Frank Land Mines in the Year Ahead
Lots of rules and regulations mandated by the Dodd-Frank Act will roll out in the coming year. But seven pieces of the massive legislation will move front and center as their implementation looms imminent in 2012.
- Designation of which banks are significantly important financial institutions
- Limitation of proprietary trading under the Volcker Rule
- Enhanced supervision of larger bank holding companies
- FDIC undertakes its new role as potential receiver for bankrupt non-bank financials
- The largest financial institutions will need to file their “living wills” – a plan to wind down in the event of bankruptcy
- New rules and regulations altering mortgage origination, servicing, and securitization
- The Consumer Financial Protection Bureau is expected to hit its stride – financial institutions are anxious to see how the new agency functions
4. Taboo Subject: Corruption in China
Anyone who has lived or travelled extensively overseas knows that other cultures perceive graft differently than our own. So how is an institution to do business in China and not step a foul of the Foreign Corrupt Practices Act? Corporate Counsel has a few ideas.
The FCPA makes it unlawful to offer a “corrupt payment” to a foreign official for the purpose of obtaining or retaining business, or gaining a business advantage. The Act defines a “corrupt payment” as anything of value intended to induce the recipient to misuse an official position to wrongfully direct business. In China this begs the question – what qualifies as an official position? With so many state-owned companies isn’t every executive essentially in an official position? In a nod to reality the FCPA designates certain smaller payments as “facilitation payments” intended to expedite a routine function.
It is critical that companies be cautious. Such payments should only be used if the payments are legal under the laws of the foreign official’s government and the payment was a reasonable expenditure for the promotion of the product or execution of a contract. It is a thin and tenuous line. Taboo or not, we recommend discussing openly with your legal advisers before risking payments that may violate the FCPA.
5. The Cost of Putting Your Clients First – The SEC Tries to Calculate the Costs of Raising the Fiduciary Standard
Last January the SEC recommended a new universal fiduciary standard for all financial advisers, rather the less stringent suitability standard that is now in use.
The new standard would require advisers to act in the best interests of the client. But some members of Congress want to know what the change would cost. This kind of cost-benefit analysis is difficult with something as esoteric as a fiduciary standard. But expect this battle to heat up in the next few months as consumer advocates seeking tougher standards and financial advisers fight for the status quo.
And Dodd-Frank Ridiculously Simplified…
BusinessWeek has reduced the entire 848-page act to a single graph.