The Royal Bank of Canada was ordered to pay $75.8 million in damages to former shareholders of Rural/Metro for failure to disclose conflicts of interest during a buyout. Rural/Metro is a Scottsdale, Arizona based company that provides ambulance and firefighting services to about 700 communities in 21 states. New York-based private equity firm Warburg Pincus bought out Rural/Metro for $17.25 per share following recommendations from RBC investment bankers. Rural/Metro shareholders sued over the buyout, alleging that the company accepted an improperly low offer from Warburg due to advice from conflicted RBC bankers.
RBC Ordered to Pay $75.8 Million in Conflicts Lawsuit
FOREX Market Scandal: Is “Too Big to Fail” Also “Too Big to Prosecute?”
The first LIBOR scandal caused severe commotion in the banking industry after it unveiled the lack of scrutiny banks exercised with respect to the determination of daily interest rates. However, the international banking industry is now facing a potentially bigger scandal than the first LIBOR interest rate catastrophe. This time, the epicenter of the scandal is the FOREX market.
German Prosecutors Charge Deutsche Bank Executives
Munich’s prosecutor’s office charged several Deutsche Bank top executives, including its current co-chief executive, Jürgen Fitschen, and Deutsche Bank was named as an associated party to the case.
Banco Espírito Santo Bailout
After financial turmoil, the Portuguese bank, Banco Espírito Santo (“BES”), will be shut down and bailed out by a plan approved by the European Commission. Part of the bank will remain and continue to operate as Novo Banco; this bank will include healthy assets and senior debts. The troubled portion of BES will continue to house “shareholders and subordinated debtors who will be written down against the bad assets formed mainly of exposure to the rest of the Espírito Santo and to the bank’s Angolan unit.”
Argentina’s Debt Crisis
Last week, Argentina defaulted on its debt for the third time in three decades, setting the country up for a debate on how to move forward. This default is Argentina’s second default in 13 years, and its spiral is causing concern not only in Latin America, but also in the U.S. and Europe. The Argentine stock market has taken a slight hit, which may have global repercussions.
FDIC Issues Guidance on Requests by Banks That Are S-Corporations for Dividend Exceptions to Capital Conservation Buffer
The FDIC issued guidance (the “Guidance”; FIL-40-2014) to banks and savings associations that have elected S-corporation tax treatment (collectively, “S-corporation Banks” and each an “S-corporation Bank”) concerning the factors that the FDIC will consider when it receives a request from an S-corporation Bank to pay dividends to its shareholders “to cover taxes on their pass-through share of the [S-corporation Bank’s] earnings, where these dividends would otherwise not be permitted under the capital conservation buffer contained in the new Basel III capital rules.” The capital conservation buffer, when it takes effect, will limit the amount of dividends a bank can pay when its capital ratios fall below the threshold levels of the buffer. The capital conservation buffer will be phased-in over the years 2016 through 2018 and will become fully effective in 2019. There are currently approximately 2,000 U.S. community banks, which are structured for tax purposes as Subchapter S corporations.
More Problems for Credit Suisse
Credit Suisse just confirmed that it is facing regulatory inquiries over its dark pools (private stock trading platforms). Credit Suisse is one of the largest dark pool operators, joined by Barclays and UBS. Credit Suisse has now joined more than 30 defendants in lawsuits over high-frequency trading currently pending in the U.S. District Court for the Southern District of New York. UBS and Deutsche Bank are also facing inquiries from regulators, including the Securities and Exchange Commission (“SEC”) and Eric T. Schneiderman, the New York Attorney General. Credit Suisse has not commented on which regulators are investigating the Zurich-based bank.
Credit Suisse Has Its Largest Loss Since the Financial Crisis
Zurich-based investment bank, Credit Suisse, recently reported a second-quarter loss of 700 million Swiss francs (779 million dollars)—the bank’s largest lost since the financial crisis in 2008. The loss stands in contrast to the bank’s net profit of 1.05 billion francs in the previous year. The loss is the aftershock of a settlement Credit Suisse reached with the United States in May by pleading guilty to one count of conspiring to aid tax evasion. The bank was helping Americans hide their money in Swiss accounts in order to avoid paying U.S. taxes. As a result, Credit Suisse agreed to pay $2.6 billion in penalties. In regards to the bank’s recent legal issues, Brady Dougan, the bank’s Chief Executive Officer in the U.S., said that “there is no issue that has taken more of [the bank’s] time over the past five to six years.”
SunTrust Agrees to Mortgage Settlement with the Department of Justice
On Thursday, July 3, SunTrust agreed to pay $320 million in a settlement with the Department of Justice (“DOJ”) after an investigation of alleged violations of the Home Affordable Modification Program (“HAMP”). The settlement funds intend to provide relief to borrowers who were adversely affected by SunTrust’s actions; a prevention fund will also be established as a result of the settlement.
France Lashes Out Against Dollar in Wake of BNP Paribas Ruling
Last week French global banking giant BNP Paribas (BNP) settled with U.S. authorities in a case which they were convicted of committing large-scale violations of U.S. economic sanctions. BNP’s guilty plea cost them $8.9 billion in fines along with a temporary ban on dollar-clearing transactions.
The ruling has brought to the forefront the issues that arise with the dollar’s monopoly over international transactions. According to U.S. law, banks are subject to U.S. economic sanctions in any processing of U.S. dollar transactions, even if the operations include non-U.S. branches.