US Intermediate Holding Company: Structuring and Regulatory Considerations for Foreign Banks

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday April 14, 2014 at 9:33 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, attorneys in the Financial Institutions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum; the full publication, including diagrams, tables, and flowcharts, is available here.

The Federal Reserve’s Dodd-Frank enhanced prudential standards (“EPS”) final rule requires a foreign banking organization with $50 billion or more in U.S. non-branch/agency assets (“Foreign Bank”) to place virtually all of its U.S. subsidiaries underneath a top-tier U.S. intermediate holding company (“IHC”). The IHC will be subject to U.S. Basel III, capital planning, Dodd-Frank stress testing, liquidity, risk management requirements and other U.S. EPS on a consolidated basis.

…continue reading: US Intermediate Holding Company: Structuring and Regulatory Considerations for Foreign Banks

European Court of Human Rights Shakes Insider Trading Rules

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday April 13, 2014 at 9:24 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Guido Rossi, former Chairman of the Consob (Italian SEC), and Marco Ventoruzzo of Pennsylvania State University, Dickinson School of Law, and Bocconi University.

A recent and groundbreaking decision of the European Court of Human Rights (ECHR) in Strasburg might shatter the entire structure of the Italian and European regulation of market abuse (insider trading and market manipulations). The case is “Grand Stevens and others v. Italy”, and was decided on March 4, 2014.

The facts can be briefly summarized as follows. In 2005, the corporations that controlled the car manufacturer Fiat, renegotiated a financial contract (equity swap) with Merrill Lynch. One of the goals of the agreement was to maintain control over Fiat without being required to launch a mandatory tender offer. Consob, the Italian securities and exchange commission, initiated an administrative action against the corporation and some of its managers and consultants, accusing them of not having properly disclosed the renegotiation of the contract to the market. The procedure resulted in heavy financial fines (for some individuals, up to 5 million euro), and additional measures prohibiting some of the people involved from serving as corporate directors and practicing law. At the same time, a criminal investigation was launched for the same facts. It is not necessary here to discuss the merits of the controversy, it is sufficient to mention that the sanctioned parties challenged the sanctions in Italian courts, but did not prevail.

…continue reading: European Court of Human Rights Shakes Insider Trading Rules

SEC Exempts “Foreign Issuer” From Filing a Preliminary Proxy Statement

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday April 12, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Yafit Cohn, Associate at Simpson Thacher & Bartlett LLP, and is based on a Simpson Thacher memorandum by Ms. Cohn.

On January 31, 2014, the Securities and Exchange Commission (“SEC”) issued a no-action letter to Schlumberger Ltd. (“Schlumberger” or “the Company”), permitting the Company not to file a preliminary proxy statement under Rule 14a-6(a) when the only matters to be acted upon by stockholders at the Company’s annual meeting were either specifically excluded from the filing requirements by Rule 14a-6(a) or were certain ordinary and routine matters required to be submitted for stockholder approval under Curaçao law on an annual basis.

…continue reading: SEC Exempts “Foreign Issuer” From Filing a Preliminary Proxy Statement

Shock-Based Causal Inference in Corporate Finance

Posted by Bernard Black, Northwestern University School of Law, on Friday April 11, 2014 at 9:03 am
  • Print
  • email
  • Twitter
Editor’s Note: Bernard Black is the Nicholas D. Chabraja Professor at Northwestern University School of Law and Kellogg School of Management. The following post is based on a paper co-authored by Professor Black and Vladimir Atanasov at the Mason School of Business, College of William and Mary.

Much corporate finance research is concerned with causation—does a change in some input cause a change in some output? Does corporate governance affect firm performance? Does capital structure affect firm investments? How do corporate acquisitions affect the value of the acquirer, or the acquirer and target together? Without a causal link, we lack a strong basis for recommending that firms change their behavior or that governments adopt specific reforms. Consider, for example, corporate governance research. Decisionmakers—corporate boards, investors, and regulators—need to know whether governance causes value, before they decide to change the governance of a firm (or all firms in a country) with the goal of increasing firm value or improving other firm or market outcomes. If researchers provide evidence only on association between governance and outcomes, decisionmakers may adopt changes based on flawed data that may lead to adverse consequences for particular firms.

…continue reading: Shock-Based Causal Inference in Corporate Finance

Reliance by Directors: What’s a Conscientious Director to Do?

Posted by Peter Atkins, Skadden, Arps, Slate, Meagher & Flom LLP, on Friday April 11, 2014 at 9:01 am
  • Print
  • email
  • Twitter
Editor’s Note: Peter Atkins is a partner of corporate and securities law matters at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden, Arps memorandum by Mr. Atkins. The views expressed in this post are those of Peter Atkins, a senior partner of the firm, and are not presented as those of the firm. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In its recent decision in In Re Rural Metro Corporation Stockholders Litigation, [1] the Delaware Court of Chancery, in a footnote, touches on what it means for directors to be “fully protected” by §141(e) of the Delaware General Corporation Law when they rely on information, opinions, reports or statements provided to them by officers, employees, board committees or experts. While not central to the Rural Metro decision, this is an issue that should be of interest to conscientious public company directors. Below I suggest that, as currently applied, §141(e) does not sufficiently protect conscientious directors, examine why that may be so, highlight the need for alternative approaches to provide truly full protection without undermining other important conduct imperatives Delaware law imposes on directors and others, and offer some suggestions toward that end.

…continue reading: Reliance by Directors: What’s a Conscientious Director to Do?

An Informed Approach to Issues Facing the Mutual Fund Industry

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday April 10, 2014 at 9:22 am
  • Print
  • email
  • Twitter
Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the Mutual Fund Directors Forum’s 2014 Policy Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As a practicing securities lawyer for more than thirty years, I have in the past advised boards of directors, including mutual fund boards, and I am well acquainted with the important work that you do. I also understand the essential role that independent directors play in ensuring good corporate governance. As fiduciaries, you play a critical role in setting the appropriate tone at the top and overseeing the funds’ business. Thus, I commend the Mutual Fund Directors Forum’s efforts in providing a platform for independent mutual fund directors to share ideas and best practices. Improving fund governance is vital to investor protection and maintaining the integrity of our financial markets.

…continue reading: An Informed Approach to Issues Facing the Mutual Fund Industry

Stress Tests Demonstrate Strong Capital Position of US Banks

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday April 10, 2014 at 9:21 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by H. Rodgin Cohen, Andrew R. Gladin, and Joel Alfonso.

On March 20, 2014, the Federal Reserve announced the summary results of the Dodd-Frank Act 2014 supervisory stress tests for the 30 largest U.S. banking organizations. The results demonstrate the sharply enhanced capital strength and resiliency of the U.S. banking system. Under an “extreme stress scenario”, these U.S. banking organizations could absorb an extraordinary downturn in “pre-provision net revenues” and an unprecedented level of loan losses and still maintain capital levels well above minimum regulatory requirements and almost 40% above the actual capital ratios in 2009.

…continue reading: Stress Tests Demonstrate Strong Capital Position of US Banks

Rethinking Basic: Towards a Decision in Halliburton

Posted by Lucian Bebchuk and Allen Ferrell, Harvard Law School, on Wednesday April 9, 2014 at 9:02 am
  • Print
  • email
  • Twitter
Editor’s Note: Lucian Bebchuk is William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance, Harvard Law School. Allen Ferrell is Greenfield Professor of Securities Law, Harvard Law School. They are co-authors of Rethinking Basic, a Harvard Law School Discussion Paper that is forthcoming in the May 2014 issue of The Business Lawyer and available here.

We have recently revised our paper Rethinking Basic (discussed earlier on the Forum here). Our revision, which will be published in the May issue of the Business Lawyer, takes into account, and relates our analysis to, the Justices’ questions at the Halliburton oral argument. As our revision explains, questions asked by some of the Justices at the oral argument suggest that the fraudulent distortion approach we support might appeal to the Court.

In the Halliburton case, the United States Supreme Court is expected to reconsider the Basic ruling that, twenty-five years ago, adopted the fraud-on-the-market theory, which has since facilitated securities class action litigation. Our paper seeks to contribute to this reconsideration by providing a conceptual and economic framework for a reexamination of the Basic rule.

…continue reading: Rethinking Basic: Towards a Decision in Halliburton

Regulation by Hypothetical

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday April 9, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Mehrsa Baradaran at the University of Georgia, School of Law.

U.S. banking regulation resembles a cat-and-mouse game of industry change and regulatory response. Often, a crisis or industry innovation will lead to a new regulatory regime. Past regulatory regimes have included geographic restrictions, activity restrictions, disclosure mandates, risk management rules, and capital requirements. But the recently enacted Dodd-Frank Act introduced a new strain of banking-industry supervision: regulation by hypothetical. Regulation by hypothetical refers to rules that require banks to predict future crises and weaknesses. Those predictions—which by definition are speculative—become the basis for regulatory intervention. Two illustrative instances of this regulation were codified in Dodd-Frank: stress tests and living wills. They are two pillars on which Dodd-Frank builds to manage risk in systemically important financial institutions (SIFIs). [1] As I argue in my forthcoming article, regulation by hypothetical in Dodd-Frank should be abandoned for three reasons: it relies on a faulty premise, tasks an agency with a conflicted mission, and likely exacerbates the moral hazards involved with governmental sponsorship of private institutions. Because of these weaknesses, the regulation-by-hypothetical regime must be either abandoned (my first choice) or strengthened. One way to strengthen these hypothetical scenarios would be to conduct financial war games.

…continue reading: Regulation by Hypothetical

Current Thoughts About Activism, Revisited

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on Tuesday April 8, 2014 at 9:19 am
  • Print
  • email
  • Twitter
Editor’s Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Steven A. Rosenblum, and Sabastian V. Niles. Wachtell Lipton’s earlier memorandum on current thoughts on activism is available here, their earlier memoranda criticizing an empirical study by Bebchuk, Brav and Jiang on the long-term effects of hedge fund activism are available here and here, and their earlier memoranda criticizing the Shareholder Rights Project are available here and here. The Bebchuk-Brav-Jiang study is available here, Lucian Bebchuk’s earlier response to the criticism of the Shareholder Rights Project is available here, and the Bebchuk-Brav-Jiang responses to the Wachtell Lipton criticisms of their study are available here and here.

We published this post last August. Since then there have been several developments that prompt us to revisit it; adding the first three paragraphs below.

First, Delaware Supreme Court Chief Justice Leo E. Strine, Jr. published a brilliant article in the Columbia Law Review, Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law in which he points out the serious defects in allowing short-term investors to override carefully considered judgments of the boards of directors of public corporations. Chief Justice Strine rejects the argument of the academic activists and activist hedge funds that shareholders should have the unfettered right to force corporations to maximize shareholder value in the short run. We embrace Chief Justice Strine’s reasoning and conclusions.

…continue reading: Current Thoughts About Activism, Revisited

« Previous PageNext Page »
 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine