%1

Two affiliates of Lehman Brothers, the U.S. investment bank that collapsed in 2008 and fueled an economic crisis, filed for chapter 11 protection on Thursday, a reminder of the complexity of unwinding a global financial institution, Reuters reported on Friday. The two affiliates, Lehman Brothers U.K. Holdings (Delaware) Inc. and Lehman Pass-Through Securities Inc., were put into bankruptcy as part of a deal that will generate $485 million cash for the Lehman estate, according to court documents. The affiliates own residential mortgage-backed securities, real estate and stock in First Data Corp. (FDC.N), which helps process credit card transactions, among other assets, according to papers filed in the U.S. bankruptcy court in Manhattan. Affiliates of Brookfield Asset Management Inc. of Canada (BAMa.TO) are buying stakes in the Lehman affiliates, which were put into bankruptcy to carry out the deal. Administrators have spent years winding down Lehman’s holdings and have distributed around $147 billion to creditors, according to court records. More than 100 people still work for Lehman and the case remains one of the largest U.S. bankruptcies, even after the distributions to creditors. The estate holds $7 billion of assets, much of it cash, as it works through hundreds of remaining creditor claims and legal disputes.

New global swap-collateral rules will go into effect in the U.S. today, following a six-month pause prompted by international coordination and compliance difficulties, the Wall Street Journal reported today. The rules are the second phase that applies to smaller firms as part of a global regulatory effort to create a level playing field for swaps trades that aren’t routed through clearinghouses. The largest players in the market, mainly multinational banks, have been required to comply with the collateral rules since last September. Officials consider the new collateral rules to be a key part of their strategy to curb the spread of risk in derivatives markets. Regulators in Europe and the U.S. pushed back a March 1, 2017, deadline for smaller firms following a delay in completing the rules in Europe, as well as in response to concerns from firms that they wouldn’t have enough time to comply.

The Labor Department said yesterday that it will propose new ways for financial advisers to comply with its fiduciary rule during its proposed 18-month delay in the implementation of the measure's second phase, Investment News reported. The DOL said that the paused is needed to review the regulation under a directive issued by President Donald J. Trump earlier this year. "More time is needed...to take a hard look at any potential undue burden," the agency wrote in the delay rule proposal, which was posted on the website of the Federal Register. The agency is seeking to push back the original Jan. 1, 2018, applicability date to July 1, 2019, for enforcement mechanisms in the regulation, such as the so-called best-interest contract exemption that allows brokers to charge variable compensation for products as long as they sign a legally binding agreement to put their clients' interests ahead of their own. Other exemptions that would be delayed involve principal transactions and insurance and annuity contracts.

Investors are raising funds to take advantage of busted condominium projects and other distressed property as a correction shows signs of spreading in parts of the commercial real-estate industry, the Wall Street Journal reported yesterday. Firms that are either raising money or are planning to start soliciting funds targeting commercial-property woes include Madison Realty Capital, Delshah Capital and a venture of investor Michael Ashner and New York developer Steven Witkoff. Most big private-equity firms, like Blackstone Group LP and KKR & Co., aren’t raising funds specifically for distressed situations. But they have money available to take advantage of condo developments falling short of sales projections, shopping centers struggling with competition from online retail, delinquent debt and other problems surfacing in several markets. To be sure, no one expects the kind of carnage that commercial property suffered during the last downturn, which cost investors billions. Many property types — like downtown office buildings and distribution centers — continue to enjoy rent growth and have access to ample financing at low interest rates.

A foreign exchange front-running scheme at HSBC Holdings Plc may have involved at least 11 bank employees beyond the two executives who have been charged with crimes, Bloomberg News reported yesterday. Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, is scheduled to go on trial Sept. 18 in New York, accused of illegally using his knowledge to profit from a pending $3.5 billion currency transaction in 2011.  In a case that is the first of its kind to be brought by the the U.S., prosecutors say Johnson, and Stuart Scott, the bank’s former head of currency trading in Europe, conspired to take advantage of confidential information about an unidentified company’s plans to sell part of its stake in an Indian subsidiary and convert the proceeds from dollars to pounds.

The part of the Labor Department's fiduciary rule that has heartened supporters and caused heartburn for opponents, the best-interest contract, could become a casualty of the ongoing reassessment of the rule, Investment News reported today. The DOL said last week in a court filing in a lawsuit over the regulation that it is seeking an 18-month delay in the implementation of the remaining parts of the rule. Two provisions became applicable in June. The time-out will give the agency plenty of opportunity to undo the contract, which backers of the rule say gives it bite. Critics say that it is too complicated and raises liability costs. Under the legally binding agreement, brokers can earn variable compensation on products they sell to retirement investors as long as they act in investors' best interests. The regulation allows investors to file class-action lawsuits over violations, a provision that financial industry opponents are targeting. The request for information that will guide DOL's review of the rule, which was mandated by President Donald Trump, includes questions about the best-interest contract, providing a hint about DOL's intention to eliminate or change it.

Large brokerage firms typically offer thousands of mutual funds to clients. But compliance demands of the fiduciary rule, which began to take effect in June and requires stewards of tax-advantaged retirement savings to act in clients’ best interests rather than their own, are causing some firms to review their offerings, the Wall Street Journal reported today. Under the Obama-era regulation, which aims to eliminate conflicted advice that can arise based on incentives to sell financial products, those offering financial advice to retirement savers may earn commissions and compensation that might give them an incentive to recommend one product over another, but must do so under an exemption. For advisers who use the exemption, any fees must be level with similar investment products or services. That has put mutual funds, with their varying share classes and costs, under the spotlight. Advocates of the rule say weeding out high-cost or risky funds would benefit investors. But some managers fear the fund review will cause sales of their products to suffer and that fund expenses may be used as the key metric in the process, while financial advisers worry that funds they’ve used in clients’ portfolios for years will be discontinued.

The brokerage business fiercely fought the new retirement advice rule, but so far for Wall Street, it has been a gift, according to a Wall Street Journal commentary today. The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability. But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.

Regulators are seeking to delay the deadline for financial advisers to fully comply with a rule that would require them to act in their customers’ best interest, according to a federal court filing yesterday, the New York Times reported. The Labor Department, which sent the proposal to the Office of Management and Budget, said that it wanted to push back the full implementation of the so-called fiduciary rule to July 1, 2019, from Jan. 1, 2018, according to a court document filed in Federal District Court in Minnesota. The first part of the fiduciary rule took effect in June, and requires brokers, financial advisers and insurance agents to put their customers’ interests ahead of their own, at least when they are handling their retirement accounts. But the final pieces that are not yet in place are what gives the rule its teeth: Among other things, the rule would require financial professionals with conflicts of interest to sign a contract with customers, making the rule legally enforceable.