New UK nuclear plants threatened by EU state aid rules

The Government’s energy strategy hinges on contracts to guarantee investors the price they will receive for power generated by new plants.

But Charles Hendry, the energy minister, said on Tuesday that the Government could not provide the direct Treasury-backed guarantees investors want, because of EU state aid rules.

Ministers are yet to explain exactly who will act as the counterparty instead of the Treasury, but industry figures warned the Energy Select Committee that alternatives would be less credit-worthy and so would push up costs.

Volker Beckers, chief executive of RWE npower, said the counterparty was “crucial”. When the contracts for difference (CfD) – the power price guarantee framework – were proposed last year, companies expected they would be “backed by government”, and that effectively the Treasury would ultimately be “signing the cheque”. “Now we are miles away from that point,” he said.

Investors could no longer count on a “AAA-backed contract” and that “inevitably has an impact” on the cost of capital, he said.

RWE and E.ON pulled out of a UK nuclear joint venture in March, citing financial difficulties in Germany, and are seeking a buyer.

A consortium led by EDF will decide this year whether to build new reactors in Somerset and is negotiating with ministers over its CfD.

Mr Hendry told MPs that, instead of Treasury-backed guarantees, the proposed CfD system would be “delivered” by National Grid – but if a future government reneged on agreed power prices, the energy companies could then sue the Government for costs.

“EDF says that there are other ways in which it would be cheaper for them but we are yet to be persuaded that that would be permissible under state aid rules,” he told The Daily Telegraph.

Tim Yeo, energy committee chairman, said the proposal was “bound to push up the cost of capital and, at worst, may deter investment”. He urged ministers to raise the issue of state aid with the European Commission “urgently”.

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George Osborne wins battle for tougher rules on UK banks

The agreement struck in Brussels yesterday between European Union finance ministers will allow the UK to implement key policies recommended by the Independent Commission on Banking (ICB) last year, such as retail ring-fences and 10pc capital buffers, designed to protect the country from another financial crisis.

The Chancellor fought off stiff opposition from France in particular, which wanted to strip national supervisors of authority by centralising banking regulation in Brussels.

However, he failed to overturn attempts to water down Basel 3, the internationally agreed standards on banking regulation, and was threatened with a new battle after Michel Barnier, the EU’s financial services commissioner, revealed plans for a controversial bonus cap.

Under governance reforms he is championing, Mr Barnier wants to limit bonus awards to a multiple of both salary and the bank’s lowest wage.

Mr Osborne is already facing a fight with the European Parliament over plans to prevent banks paying bonuses that are larger than salaries in the next round of negotiations over regulation.

Mr Barnier said he wanted shareholders to set the ratios and, echoing Vince Cable’s reforms in the UK, intends to give investors a binding vote on pay.

Mr Barnier’s plans will have soured the Chancellor’s mood after the European Council agreed that banks should comply with the central Basel 3 requirements of holding 4.5pc core tier one capital and a further 2.5pc counter-cyclical buffer against potential losses.

Mr Osborne was less successful on the issue of too-big-to-fail banks, though. The directive did not enforce Basel 3 rules that require the largest banks to hold a further 1pc to 2.5pc of capital.

Britain will still be able to implement Basel 3 in full, however, thanks to a clause clearly added for the UK’s benefit that said “member states would be able to apply systemic risk buffers of up to 3pc for all exposures?.?.?. without having to seek prior Commission approval”.

An earlier draft would have required sign-off from Brussels for any decision to raise capital ratios above 7pc, which Mr Osborne said at the time would have made him “look like an idiot”.

Although the directive as it stands will allow countries to opt out of the stricter Basel 3 rules,

Mr Osborne said any member states that did would be punished by the markets.

The directive also gave national regulators the power to use macro-prudential tools, such as loan-to-value mortgage caps, to rein in excessive lending without consulting Brussels. Supervisors could increase the risk weighting of assets by up to 25pc, as well.

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Schwab to Abide by FINRA's Rules

According to Reuters, the judge of the U.S. District Court for the Northern District of California has dismissed the lawsuit filed by The Charles Schwab Corporation (SCHW) against the Financial Industry Regulatory Authority (FINRA) in February 2012. The lawsuit followed the enforcement case filed by FINRA against Schwab.

In October 2011, Schwab included a new provision in the agreements of more than 6.8 million customer accounts, prohibiting them from initiating or joining class-action lawsuits against the brokerage firm. Under class-actions, small investors join together to file court cases against the company to recuperate the losses incurred.

Further, Schwab also asked for customers’ consent to evade industry arbitrators from their authority to consolidate claimants against the company and file a case.

FINRA, the major non-governmental regulator for securities firms, executes financial regulation of member brokerage firms and exchange markets. It legalizes trading in equities, corporate bonds, securities futures, and options. Moreover, it also operates the prime arbitration forum in the United States for resolving disputes between member firms and customers, as well as between brokerage firm employees and their firms.

Therefore, FINRA, to inculcate major protection issues of investors and hold its position as a regulator, filed a disciplinary case against Schwab alleging that the company is trying to safeguard itself by preventing customers from suing it in class actions. Such provisions in Schwab's agreement would stop the investors from filing case against the firm to recover their losses.

Although Schwab argued that the process gets delayed while adhering with the procedures of FINRA, it did not really help the company.

Magistrate Judge Elizabeth Laporte has ordered FINRA to pursue further proceedings over its disciplinary case against the brokerage firm. However, it is unclear to investors whether Schwab will go along with FINRA or violate the rule by including such provision in its agreements with customers.

Such disputes dent the financials and reputation of the firms. This in turn, results in loss of valuable clients in the ongoing competitive markets. Moreover, existing investors’ confidence gets shattered by such moves.

Shares of Schwab currently retain a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. However, Schwab’s peer- E*TRADE Financial Corporation (ETFC) retains a Zacks #3 Rank (a short-term ‘Hold’ rating).

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Air India: Court rules pilot strike illegal

NEW DELHI (AP) -- Air India says a court has ruled that a strike by some of its pilots is illegal.

The state-owned airline's spokesman Prasad Rao said management sought the New Delhi High Court's intervention after nearly 150 of its 1,500 pilots called in sick for a second day Wednesday.

The pilots are protesting unpaid salaries and what they see as lack of opportunities to train on Boeing 787 Dreamliner jets that the airline has ordered.

The airline canceled three flights Wednesday from New Delhi to Singapore, Frankfurt and New York and one from Mumbai to New York.

The striking pilots were not immediately available for comment.

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Judge rules for DuPont on Kevlar antitrust claims

DOVER, Del. (AP) -- A federal judge in Virginia has ruled in favor of DuPont Co. in a dispute with a South Korean company that lost a trade secrets lawsuit last year.

The judge late Thursday granted summary judgment to DuPont on antitrust claims by Kolon Industries alleging that DuPont tried to monopolize the market for high-strength synthetic fibers used in products such as Kevlar body armor.

Earlier this year, the judge refused to overturn a jury's decision in the underlying trade secret lawsuit.

The jury ruled that Kolon had maliciously and willfully misappropriated DuPont's Kevlar technology and awarded DuPont a $919 million damage award.

DuPont says it will begin proceedings shortly to enforce that judgment, and that it has filed a motion requiring Kolon to stop making products using the stolen technology.

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Fed rules on turning foreclosures into rentals

WASHINGTON (Reuters) - The Federal Reserve took steps to encourage banks to turn more of their foreclosed homes into rental properties in new policy guidelines issued on Thursday that could help lessen the flood of distressed property sales that is depressing prices.

"Banking organizations should make good-faith efforts to dispose of foreclosed properties," the Fed said in a six-page policy statement.

But it said that given "extraordinary market conditions that currently prevail," renting out surrendered properties falls in line with its regulations.

Many at the Fed have argued that converting more single-family homes into rentals could curb declines in home prices that have fallen more than 30 percent from their peak in 2006.

The central bank issued a policy paper to Congress earlier this year and suggested lenders jump into the rental market as a way to reduce their losses on foreclosed properties, an approach that would also help shore up the housing market and meet the growing demand for rentals.

"The continued inflow of new real estate owned properties to the market -- expected to be millions more over the coming years -- will continue to weigh on house prices for some time," the Fed statement said.

The Fed cautioned that banks must always consider the overall "costs, benefits, and risks of renting," and that full documentation of a rental strategy is needed.

Banks are allowed to rent out a foreclosed property "without having to demonstrate continuous active marketing of the property provided that suitable policies and procedures are followed."

Those banks using 50 or more properties as rentals need to document how they are meeting supervisory standards, the Fed said.

Despite the number of repossessed properties being rented, the central bank reminded lenders must comply with federal, state, and local statues, including keeping up with maintenance codes and landlord-tennant laws.

Banks must carefully balance the demands of rehabilitation and leasing, the Fed warned, and establish policies to ensure the properties stay under standard maintenance codes.

If banks use property managers or outside agents to manage the repossessed properties, the Fed said contracts and solid track record are necessary.

(Reporting by Margaret Chadbourn,)

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