Orrick's Financial Industry Week in Review

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

FDIC Releases Proposal to Amend Stress Test Rule

On June 16, FDIC announced it is seeking comment on a notice of proposed rulemaking amending the Annual Stress Test rule. This proposed rule would shift the timing of the annual stress testing cycle by approximately 90 days and clarify that institutions covered by the rule will not have to calculate their regulatory capital ratios using the Basel III until the testing cycle beginning on January 1, 2016. The public comment period closes 60 days from publication in the Federal Register.  Press Release.  Proposed Rule

J. Christopher Giancarlo Sworn in as a Commissioner of CFTC

On June 16, J. Christopher Giancarlo was officially sworn in, after being confirmed by the U.S. Senate on June 3.  Press Release.    

Lael Brainard Sworn in as a Member of the Fed Board           

On June 16, Lael Brainard took the oath of office as a member of the Fed Board. In addition, Jerome H. Powell was sworn in for a second term, and Stanley Fischer was sworn in as Vice Chairman.  Press Release.   

SEC Adopts Updated EDGAR Filer Manual

On June 16, the SEC adopted revisions to the EDGAR manual and related rules. Among other changes, the revisions change the ABS Asset Class value from "Corporate Debt" for ABS-15G and ABS-15G/A to "Debt Securities."  The EDGAR system was scheduled to be upgraded the same day.  Rule

Rating Agency Developments

On June 18, Fitch released its criteria for analyzing multi-borrower U.S. CMBS transactionsFitch Report.

On June 18, Fitch released its criteria for rating securitizations in emerging marketsFitch Report.

On June 16, Fitch released its master criteria for revenue-supported obligations and entities in the public finance sectorFitch Report

Note: Free registration is required for rating agency releases and reports.

RMBS and Other Securities Litigation

ACE Files Complaint Re-Asserting Repurchase Claims Dismissed by the First Department

On June 18, trustee HSBC filed suit on behalf of ACE Securities Corp. Home Equity Loan Trust Series 2006-SL2 against DB Structured Products, Inc., a Deutsche Bank Subsidiary, in New York state court.  The complaint attempts to revive claims previously dismissed by New York's First Department intermediate appellate court.  In its December 2013 decision, the First Department held that the Trustee's claims were untimely and that the certificate holder-plaintiffs who initially had brought the claims lacked standing to sue.  Plaintiff asserts that the new complaint is properly brought under a procedure that permits refiling a suit within six months after dismissal on certain grounds, alleging that it has cured the deficiencies previously identified by the First Department.  In the new action, the plaintiff again alleges that DB Structured Products breached contractual representations and warranties related to mortgage loans underlying the securitization at issue.  Complaint.   

Fund Managers Sue Deutsche Bank for Breach of Contract and Fiduciary Duty

On June 18, financial institutions including BlackRock Inc., Pacific Investment Management Co., Prudential Financial Inc., DZ Bank AG, and Charles Schwab Co., sued Deutsche Bank National Trust Company in New York state court.  The suit alleges that Deutsche Bank breached contractual representations and warranties, knew there were defects in the loan origination process, and breached its fiduciary duty as to 544 RMBS trusts for which it served as trustee.  The plaintiffs also allege that the servicers of the trusts failed to give notice of the representation and warranty breaches or to enforce repurchase obligations, and that Deutsche Bank knew of these issues.  The complaint asserts six causes of action: (1) breach of contract; (2) violation of the Trust Indenture Act; (3) negligent breach of pre-default duty of independence; (4) breach of the fiduciary duty of care; (5) negligent breach of the duty of care; and (6) breach of the post-default fiduciary duty of independence.  The plaintiffs seek damages and costs.  Complaint.

RBS Settles with FHFA for US$99.5 Million

On June 19, the Federal Housing Finance Agency (FHFA) and RBS Securities Inc. (RBS) announced a US$99.5 million settlement of claims that FHFA brought against RBS in a case against a number of financial institutions in the United States District Court for the Southern District of New York.  FHFA alleged that RBS made false and misleading statements in disclosures relating to six RMBS securitizations.  It brought claims for violations of Sections 11 and 12(a)(2) of the Securities Act of 1933, as well as the Virginia Securities Act.  The settlement does not resolve claims that FHFA brought against RBS in two other actions pending in the Southern District of New York and the District of Connecticut, nor does it resolve FHFA's claims against any other defendant.  RBS did not admit any liability or wrongdoing.  Settlement Agreement

SunTrust Settles with DOJ for US$968 Million

On June 17, the United States Department of Justice announced a US$968 million settlement with SunTrust Mortgage Inc.  Other parties to the settlement are the Department of Housing and Urban Development, the Consumer Financial Protection Bureau, and the attorneys general of 49 states and the District of Columbia.  The settlement resolves allegations of mortgage loan origination, servicing, and foreclosure abuses.  Approximately US$500 million of the settlement will be used for homeowner relief.  The settlement also resolves claims under the False Claims Act that SunTrust originated and underwrote Federal Housing Administration-insured mortgages that did not meet applicable requirements.  Press Release.

New York Appellate Division Affirms Denial of Merrill Lynch's Motion to Dismiss Repurchase Claims

On June 17, New York's Appellate Division, First Department intermediate appellate court affirmed the denial of Merrill Lynch's motion to dismiss a repurchase suit brought by two RMBS Trusts.  The plaintiff-trusts allege that Merrill Lynch violated its contractual obligations to repurchase loans acquired from the now-bankrupt originator ResMae Mortgage Corporation.  The parties dispute whether Merrill Lynch guaranteed ResMae's obligation to repurchase loans that breached representations and warranties in the event that ResMae was not able to do so.  The First Department held that the contractual provision at issue was ambiguous and extrinsic evidence would be required to determine its meaning.  Supreme Court DecisionFirst Department Decision.

European Financial Industry Developments

ESMA Publishes Its Annual Report

The European Securities and Markets Authority (ESMA) has published its annual report for 2013 on its website.  The annual report highlights the objectives of ESMA through 2013 and the extent to which it achieved those objectives.  Report.   

Council of EU Agrees on General Approach on the Fourth Money Laundering Directive and Revised Wire Transfer Regulation

On June 15, the Council of the EU published a note (dated June 13, 2014) outlining the general approach of the Presidency of the Council of the EU to the proposed Fourth Money Laundering Directive (MLD 4).

On June 15, the Council of the EU also published a note (dated June 13, 2014) outlining the general approach of the Presidency of the Council of the EU to the proposed revised Wire Transfer Regulation (WTR).

On June 18, the Council of the EU published a press release stating that its Permanent Representatives Committee has called upon the incoming Italian presidency to begin negotiations with the European Parliament to adopt MLD 4 and the revised WTR.

MLD 4 contains, among other things, specific provisions concerning the identification of beneficial ownership.  The proposed directive and regulation are intended to ensure consistency between EU anti-money laundering rules and the international approach.  MLD4 ApproachWTR ApproachPress Release.   

Basel Committee on Banking Supervision Publishes Consultative Document on Guidelines Concerning Weak Banks

On June 18, the Basel Committee on Banking Supervision (BCBS) published a consultative document on supervisory guidelines for identifying and dealing with weak banks.  The guidelines are intended to assist bank supervisors and include information on supervisory preconditions for dealing with weak banks; techniques to identify weak banks; preparatory work on recovery; and corrective measures.

The BCBS has requested comments on the consultative document by September 19, 2014.  Document.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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