BANKTHINK

SEC Suit Could Boot Chinese Companies from U.S. Stock Exchange, Consumers Trust Bankers over Politicians, Stockbrokers

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Receiving Wide Coverage ...

SEC Sues Auditing Firms: The Securities and Exchange Commission is suing Chinese affiliates of the Big Four accounting firms Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers as well as BDO for failing to produce documents related to fraud investigations at nine China-based companies. Charges were filed against the auditors as part of a larger investigation into the Chinese companies themselves, following a string of "so-called reverse mergers" that led to billions of dollars in investor losses. Depending on how this plays out, the case could wind up having broad implications. The Journal reports the affiliates could wind up being barred from auditing U.S.-traded firms, which "could complicate the audits of multinational companies doing business in China." Meanwhile the FT says the move "could lead to the wholesale delisting of Chinese companies from the U.S. stock market" since it could leave Chinese companies in the U.S. without auditors. (The Journal actually echoes these concerns in a separate article.) Not surprisingly, the Big Four auditors say they plan on working with regulators to find a "diplomatic solution."

Wall Street Journal

The Bank of England's Financial Policy Committee is recommending changes be made to bankers' pay since "badly structured contracts can lead to risks being mismanaged and undermine the stability of the financial system." The committee said companies should avoid linking pay to short-term targets, defer bonuses or pay employees in shares or debt securities. The recommendations call to mind a recent BankThink piece in which contributor J.V. Rizzi urged financial institutions to go one step further when changing compensation models and "reintroduce an element of personal liability for highly paid senior bank executives."

Financial Times

Federal Reserve officials and mortgage industry representatives "clashed" on Monday over a new paper that suggests financial institutions — which reported big mortgage-related revenue last month — might be using "easy monetary policy" to their own advantage. (In other words, banks are keeping profits for themselves and not passing on the benefits to the consumer, and by extension, the economy in general.) Said one participant, in defense of the financial institutions, "If banks are making money hand over fist, then why aren't there more new entrants to the market? There's just so much uncertainty."

Former HBOS executive Sir James Crosby apologized to Parliament Monday for his role in the banks' failure, acknowledging that its downfall was caused by incompetence and adding "the level of impairment in the corporate bank could not be explained by the financial crisis alone." He did, however, "remain evasive" on whether he would consider giving up his knighthood.

New York Times

Dealbook's Andrew Ross Sorkin is out with a new column profiling Warren Buffett's inclination to invest "in companies that he sees as solid operations and essential to the economy, like railroads, utilities and financial companies, and holds his stakes for the long run."

Elsewhere ...

According to a new Gallup Poll, consumers trust bankers more than they trust car salespeople, members of Congress, advertising practitioners, stockbrokers , HMO managers, senators, insurance salespeople, lawyers, state governors, business executives and journalists. They do not, however, trust them more than chiropractors, psychiatrists, clergy, college teachers, police officers, dentists, engineers, medical doctors, pharmacists and nurses.

And, Lastly ...

A new blog post from Thomas Brown suggests KBW shortchanged shareholders in its recent merger with Stifel. Per Brown, who analyzed the recently released S-4 filing related to the merger: "By dint of its hard-headed negotiating, KBW's board was able to get Stifel to raise its offer by $20.8 million. But of that, only $3.8 million will go to shareholders, while the rest — the $17 million boost in the retention pool — will go to KBW employees."

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Big Winners and Losers for Banks on Election Night

Republicans won a sizable victory late Tuesday, retaking the Senate after losing it eight years ago. Banks, too, largely benefited, as an ally of the industry captured a Senate seat in West Virginia, two credit union allies fell and a key Democratic senator squeaked past. Here's how election night played out for banks.

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