Dodd-Frank under fire
House Financial Services Committee Chairman Jeb Hensarling’s (R-Texas) planned Financial CHOICE Act primarily targets the Dodd-Frank Act’s financial regulation provisions. But Cooley LLP’s PubCo@Cooley blog writes that the bill also includes provisions that, “if adopted, would undo almost the entire repertoire of corporate governance-related and specialized disclosure provisions in Dodd-Frank.” The bill would, for example:
* Repeal specialized public company disclosures for conflict minerals, extractive industries and mine safety;
* Expand the Sarbanes-Oxley Act Section 404(b) exemption for non-accelerated filers to include issuers with up to $250 million in market capitalization (up from the current threshold of $75 million) or $1 billion in assets for banks;
* Repeal the burdensome mandate that publicly traded companies disclose the ratio of median vs. CEO pay; and
* In the event of certain financial restatements, hold bad actors responsible by limiting ‘clawbacks’ of compensation to the current or former executive officers of a public company who had control or authority over the company’s financial reporting.
According to the Wall Street Journal, Hensarling is expected to formally introduce the bill next week.
The Journal also obtained a new 18-page summary with additional details of Hensarling’s proposal, including greater detail on how banks could opt into an alternative regulatory regime that would free them from complying with the so-called Volcker rule, and from having banks show how they could go through a bankruptcy without a taxpayer bailout.
Source: Center for Audit Quality
Financial CHOICE Act Summary
254 Groups warn Congress: Don’t mess with Dodd-Frank
Some 254 outside groups, including unions and non-profits, sent aggressive letters to Capitol Hill warning legislators, who are starting work on government funding bills, not to include any “riders” that would roll back or water down the 2010 Dodd-Frank financial reform law.
A top concern by these groups, reports the Washington Examiner, is GOP efforts to change the structure of the Consumer Financial Protection Bureau created by the Dodd-Frank law. Another of their concerns is that Republicans may try to block a new Obama rule on conflicts of interest in retirement advice, a far-reaching rule planned by the Department of Labor that the GOP has claimed will price out low-income savers.
Among the signatories to the letter were the retirees’ group AARP, the union group AFL-CIO and the financial reform advocates Americans for Financial Reform.
What’s a bank to do?
There are not many bankers who would dispute that the 2010 passage of the Dodd-Frank law has made their lives miserable. With more regulations, higher capital reserves, restrictions on their ability to make certain investments, and stress tests that keep getting tougher, you’d think bankers would welcome someone advocating the dismantling of the Dodd-Frank law.
Last month, the presumptive Republican presidential nominee, Donald Trump vowed to scrap the law, telling Reuters in an interview that “Dodd-Frank has made it impossible for bankers to function.” Bankers immediately reacted by sending their lobbyists to Capitol Hill to voice their disagreement. Wait-what?
After six years, quietly working with regulatory agencies to implement the law in a kinder, gentler way, they are weary. In addition, anger at Wall Street has been a resonating theme in the presidential election campaigns, and bankers are fearful of what might replace the law if it were totally repealed by a new President.
The banks understand the public mood and have gone low profile. Spending on lobbying by the securities and investment industry fell 8 percent, to $97 million, between 2011 and 2015, according to the Center for Responsive Politics and reported by New York Times Dealbook.
Richard Hunt, head of the Consumer Bankers Association, a Washington trade group, said he appreciated Trump’s interest in changes to the financial regulatory system. “It certainly needs some perfecting,” he said. But added, “To have an outright repeal of Dodd-Frank I don’t think would serve the banking industry or consumers. It would create a messy regulatory environment.”
Now, that House Financial Services Committee Chairman Jeb Hensarling’s (R-Texas) is pushing his Financial CHOICE Act (see related story above) that primarily targets the Dodd-Frank Act’s financial regulation provisions, it will be interesting to watch what the financial industry will do.
No fine write-off
It’s well known that fines and penalties paid to government agencies are not tax deductible. Whether it’s the SEC, or that parking ticket for an expired meter while at a business lunch, there’s no write-off for breaking the law. But what about fines paid to self-regulatory organizations (SROs)?
The Internal Revenue Service has just ruled that the Financial Industry Regulatory Authority (FINRA), an SRO, is effectively a government agency when it comes to enforcing securities regulations. “If a fine is imposed on a taxpayer for violation of the securities laws and regulations, the deductibility of the fine should not depend on whether the same type of bad conduct is being punished by the SRO or directly by the SEC,” according to the associate chief counsel of the IRS.
The IRS ruling may ultimately be challenged in court, however, because of a recent U.S. Tax Court decision that ruled the opposite. The case involved a fine paid to the Chicago Mercantile Exchange (an SRO) by one of its members. The court sided with the member and allowed the tax deduction.
Overdressed bankers get the memo
The old adage “dress for success” has had a change of clothes. Though many businesses have long ago embraced “business casual” attire — at least on Fridays — Wall Street’s investment banking firms were suit and tie stalwarts. It was rumored that many bankers actually slept in pinstriped pajamas.
Steeped in tradition, proper banker etiquette called for formal dress for meetings with wealthy clients. But the times they are a changing, and more often those wealthy clients are tech execs. Today’s “well-heeled” are not so well-dressed.
Just weeks after J.P. Morgan Chase’s Chairman and Chief Executive Jamie Dimon returned from a trip to meet with Silicon Valley technology companies, the firm’s management committee circulated an internal memo allowing pullover sweaters, khakis, and polo shirts. (The firm does not allow shorts… unless it’s on a stock).
Not to be left behind in the “keeping it real” contest, one Big-Four accounting firm immediately announced that wearing jeans is OK, but only on days when not meeting clients. Good grief, what’s next? Suppose we’ll lose the green eye shades?
Money talks, but it speaks a foreign language
Microsoft announced this week that it’s buying LinkedIn for $26.2 billion. Say what you will about whether it’s a smart move for Microsoft to pay $196 a share – a 50% premium over last Friday’s closing price, and about seven times LinkedIn’s annual revenues, to pick up a money losing company with slowing growth.
But in Uber-land, no tech valuations are too surprising anymore, so that’s not really the story. A Wall Street Journal editorial centered in on how the Federal Reserve’s monetary policy is shaping the financing of deals.
Not only does the U.S. have the highest corporate income tax rate among industrialized nations, it taxes foreign profits when a company brings those profits back to the U.S. So, although Microsoft’s balance sheet holds more than $105 billion in cash, cash equivalents and short-term investments, $103 billion of it is held by its foreign subsidiaries and would be subject to material repatriation tax effects. Add to that Fed policy that continues to hold interest rates near zero, and reports the Journal, Microsoft plans to borrow most or all the cash to complete the purchase.
Playboy Mansion sold
Next door neighbor, 32-year old business tycoon Daren Metropoulos, a principal at private-equity firm Metropoulos & Co., and owner of Hostess Brands, the maker of Twinkies, has bought the famed Playboy mansion. Still in escrow, the sale price has not yet been confirmed, though the Los Angeles Times is reporting that it sold for about half of its $200 million listing price.
Hugh Hefner, now 90 years old, originally bought the 20,000 square-foot Holmby Hills property in 1971 for $1.1 million. It was valued at nearly $55 million in 2011. As part of the deal, Hefner will continue to live in the house for the rest of his life. Upon his death Metropoulos, who bought his current house from Hefner back in 2009 for $18 million, plans to combine the two properties into a 7.3-acre compound.
RATHER DIE FIRST
Her obituary read in part: “Faced with the prospect of voting for either Donald Trump or Hillary Clinton, Mary Ann Noland of Richmond chose, instead, to pass into the eternal love of God on Sunday, May 15, 2016, at the age of 68.” Ms. Noland was not the only one to make such a political statement reports Yahoo News:
Pittsburgh Chiropractor Jeffrey Cohen’s obit read: “Jeffrey would ask that in lieu of flowers, please do not vote for Donald Trump.” And, just days after Hillary Clinton announced her 2016 presidential bid, the family of 81-year-old Larry Upright announced his death by urging friends and family not to vote for her: “The family respectfully asks that you do not vote for Hillary Clinton in 2016,” read Mr. Upright’s April 15, 2015 obituary.
Such last requests are made every election cycle according to Yahoo News, though the historic unpopularity of both parties’ likely nominees could be skewing the comments more negative this time around.
Though we can’t be certain if these last requests will usher the departed through the pearly gates, we’re pretty sure that the rest of us are feeling the burn of having to live through this election year from hell.
1942 – 2016
“Only a man who knows what it is like to be defeated can reach down to the bottom of his soul and come up with the extra ounce of power it takes to win when the match is even.”
“I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.”
“A man who views the world the same at 50 as he did at 20 has wasted 30 years of his life.”
“Hating people because of their color is wrong. And it doesn’t matter which color does the hating. It’s just plain wrong.”
Simply the right choice
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