Thursday, August 11, 2022

IMF Calls For Global Guidelines On Climate Reporting

By City A.M - Aug 09, 2022,

The European Central Bank and IMF are calling on more consistent global standards for corporate climate reporting.
The warnings come after the London Stock Exchange Group said multiple standards at the same time risked splintering the supply of information to investors.
Scrutiny of ESG-labelled products for investors has grown in the past year over fears of greenwashing and a lack of standardization in the industry.

Global guidelines on corporate climate reporting must fall in line with those in Europe and the US or investors could be hit by fragmented and inconsistent information, the European Central Bank and IMF have warned.

Financial institutions globally are looking to establish standards for corporate climate reporting in a bid to stamp out ‘greenwashing’, with Frankfurt-based International Sustainability Standards Board (ISSB) proposing global “baseline” measures.

But the European Union and the US Securities and Exchange Commission are already drafting standards for climate guidelines, prompting the International Monetary Fund to warn there needed to be coordination and alignment between the sets of rules.

“Interoperability between the forthcoming ISSB standards and jurisdictional requirements remains one of the largest challenges that harmonization work ultimately faces,” the IMF said.

“It is important to avoid further fragmentation.”

The warnings come after the London Stock Exchange Group, which required listed firms to comply with ISSB disclosures, said multiple standards at the same time risked splintering the supply of information to investors.

The group has warned it has identified several key differences in definitions used in climate terms by the EU and ISSB.

The ECB added to calls and said that in order to meet users’ expectations, the ISSB and other standard setters needed to “iron out” differences and come up with baseline standards that are widely implemented globally.

Watchdogs in the UK have issued similar warnings and backed internationally aligned standards as they look to clamp down on the prevalence of greenwashing and bring ‘environmental, social and governance’ (ESG) ratings under regulation.

The FCA said in June that it would “strongly support” an internationally coordinated approach to the regulation of ESG data and ratings.

Scrutiny of ESG-labelled products for investors has grown in the past year over fears of greenwashing and a lack of standardization in the industry.

By City AM

BP agrees to sell stake in Ohio refinery to Cenovus for $300M

A joint venture of BP PLC and Husky Energy Inc., which was acquired by Cenovus Energy in 2021, has owned the Toledo refinery since 2008. Standard Oil of Ohio first opened the refinery in 1919.
BP PLC

By Emily Burleson – Reporter, Houston Business Journal
Aug 10, 2022

BP PLC’s (NYSE: BP) crude refining business in the U.S. is shrinking now that the London-based supermajor has agreed to sell its stake in a Toledo, Ohio, refinery to its joint venture partner.

Calgary-based Cenovus Energy Inc. (NYSE: CVE) agreed to pay about $300 million in cash to buy out BP’s 50% stake in the 160,000-barrels-per-day refinery, known as BP-Husky Toledo Refinery, the companies said Aug. 8. The two companies also said they would enter a long-term supply agreement.

The deal is expected to close before the end of 2022. At that point, Cenovus will own and operate the entire refinery, which had been a joint venture between BP and Husky Energy Inc., another Canadian oil company, since 2008. Cenovus inherited Husky’s 50% stake in early 2021 when its acquisition of the integrated oil and gas company closed.

BP said it expects that Cenovus will rehire the 580 employees at the Toledo refinery.

Standard Oil of Ohio first opened the Toledo refinery in 1919. In recent years, the joint venture completed a maintenance turnaround on the facility's isocracker and reformer units and also spent more than $130 million on projects that reduced certain units' emissions, according to BP.

Following the Toledo refinery’s sale, BP will be left with just two refineries in the U.S., which make up about half of its global refining capacity: the massive Whiting refinery in Indiana with the capacity to refine 435,000 barrels per day and the 240,000-barrels-per-day Cherry Point refinery in Washington. BP’s five other refineries are in other countries.

Other major companies are also reducing the number of refineries they own in the U.S., like Shell PLC (NYSE: SHEL), or trying to exit the refining business altogether, like LyondellBasell Industries NV (NYSE: LYB).

Meanwhile, BP's refinery deal with Cenovus is just the latest in a series of assets changing hands between the two companies.

In June, BP agreed to sell Cenovus its 50% non-operated stake in the Sunrise oil sands project in northern Alberta. In return, BP will receive $600 million Canadian dollars as well as Cenovus’ 35% non-operated stake in the undeveloped Bay du Nord project offshore Newfoundland and Labrador. That deal is expected to close in the third quarter of 2022.

The several discoveries within the Bay du Nord project have recoverable reserves estimates of about 300 million barrels of oil, BP said.

BP CFO Murray Auchincloss said Bay du Nord was a “fantastic discovery” during the company’s second-quarter earnings call with investors on Aug. 3.

“It's a lovely reservoir,” Auchincloss said. “We're happy to take the 35% interest in that and work with the operator, Equinor. And we'll talk to you more about it once we close because then we can actually say stuff. Right now, we're on the outside.”

BP North America, which is based in Houston, is one of the city’s 10 largest energy industry employers, according to Houston Business Journal research.

Column: Tax provisions may be Democrats' most unexpected victory in the inflation bill

Michael Hiltzik
Wed, August 10, 2022

The new budget bill championed by President Biden and congressional Democrats will give the IRS more funding than it has received in decades.

(Pablo Martinez Monsivais / Associated Press)

The budget reconciliation bill just passed by the Senate and heading for final congressional approval offers dramatic improvements in American policies aimed at fighting global warming and improving healthcare.

There's too much in this legislative smorgasbord that Democrats have dubbed the Inflation Reduction Act to cover in one sitting, so I'll focus on one topic that's sure to interest almost everybody: taxes.

The measure addresses tax policy in two major ways. One is a steep increase in funding for the Internal Revenue Service.

These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans.

IRS Commissioner Charles Rettig, assuring the Senate that he'll use agency funding to go after rich tax avoiders

The IRS has been on a congressionally imposed starvation diet virtually since the 1970s, which has been a get-out-of-paying ticket for corporations and the wealthy for all that time.

Scoffing at the tax laws won't be so easy for them going forward, because the act almost doubles the IRS budget, providing $80 billion in new funds over the next 10 years.

The second provision imposes a minimum income tax of 15% on the nation's richest corporations, specifically those reporting profits of $1 billion a year, beginning in 2023. The measure also imposes a 1% tax on stock buybacks, also starting next year.

More on the corporate tax in a moment. First, let's examine the importance of the new IRS funding, which would partially go toward hiring as many as 87,000 new agents and other employees.

The sheer scale of the funding and workforce increase has made anti-tax conservatives' heads explode. "Why would Congress, in one bill, increase the IRS workforce by something like 92%?" asks Byron York of the Washington Examiner. "It doesn't seem possible. It certainly doesn't seem wise."

You might ask: "Why not?" York has an answer, though it certainly doesn't seem cogent. He asserts that the increase is based on the idea "that Americans are evading all sorts of taxes, creating a 'tax gap,'" the difference between taxes owed and taxes paid.

"The Biden administration says tax cheats are primarily 'high-income,'" York writes. Well, not the Biden administration alone. The conclusion has also come from economists at the IRS, Carnegie Mellon University and UC Berkeley, who showed last year that America's tax-cheats-in-chief are the 1%, who consistently concealed as much as 21% of their income from tax collectors.

Of the unreported income, about 6 percentage points is hidden by “sophisticated evasion that goes undetected in random audits,” their paper said.

York and his conservative fellows have been attacking the IRS funding by suggesting that the army of some 80,000 new agents and other employees will turn their firepower on middle- and upper-middle-class Americans and small businesses, not on the wealthy. But that's just scare-mongering.

IRS Commissioner Charles P. Rettig assured senators in an Aug. 4 letter that the IRS would honor its directive from the Biden White House not to raise audit rates on taxpayers making less than $400,000 a year.

Regarding the funding and workforce increases, he wrote: "These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans," but for targeting "large corporate and high-net-worth taxpayers [who] often engage teams of sophisticated representatives who pursue unsettled or sometimes questionable interpretations of tax law."

That's where the money is. The Congressional Budget Office has estimated that the new IRS funding could produce more than $200 billion in higher collections over the next decade, or about $2.55 in gain for every dollar spent.

Others say the CBO was thinking too small. "The benefit could be $500 billion or even possibly, if they do a great job, $1 trillion,” former Treasury Secretary Lawrence Summers said on Bloomberg Television last week. “I’m pretty optimistic about the fiscal potential here if the administration really steps up.”

The IRS budget has long come under pressure in part because of a series of fabricated scandals designed to undermine its credibility. Remember the 2012-13 version promoted by Rep. Darrell Issa? His claim was that the agency had targeted conservative nonprofit groups for special scrutiny at the behest of the Obama White House.

Turned out that this didn't happen — the agency was trying to be tough on all nonprofits that were breaching the tax law by engaging in political activities, and was even tougher on progressive organizations.

But Issa achieved his and his conservative pals' real goal, which was to intimidate the IRS out of enforcing the nonprofit rules at all. The agency's budget was collateral damage — the Republican-controlled Congress gutted its budget in 2014, appropriating $1.5 billion less than what the Obama administration had requested.

Each budget cut, whether measured in real or inflation-adjusted dollars, hamstrung the agency's ability to do its job. Taxpayer services shrank, callers with even ordinary questions were placed on hours-long holds — if they could get through at all. This lowered the agency's public reputation to a subterranean level.

Who benefited? The rich, that's who. Audits of the wealthy became an endangered species. In 2010, the audit rate of personal tax returns reporting income of $10 million or more was 21.2%. By 2019, the Government Accountability Office reported, it had fallen to 3.9%. This in a period when the number of those returns nearly doubled, rising from 13,000 to 24,000.

The low water mark may have been reached in 2019, when the IRS received more than 23,450 tax returns from households reporting $10 million or more in income for 2018. It audited seven. (Not a misprint.)

The trend toward lower audit rates was seen in almost every income segment, but of course the opportunity for tax avoidance and evasion is greater at the top — the wealthy tend to receive more of their income from sources that need to be reported voluntarily, such as investment gains, rather than from wages, which are reported by employers.

At this moment, Rettig told the senators, "the IRS has fewer front-line, experienced examiners in the field than at any time since World War II, and fewer employees than at any time since the 1970s."

The impact on enforcement is direct, he wrote, because examining the returns of wealthy individuals requires specialized skills and experience that the agency can't bring to bear. "As a result," he wrote, "the IRS has for too long been unable to pursue meaningful, impactful examinations of large corporate and high net worth taxpayers to ensure they are paying their fair share."

That brings us to the second key tax provision in the reconciliation measure, the corporate minimum tax. This has also come under fire from agents for the rich and corporate managements, such as the American Institute of Certified Public Accountants.

The minimum tax is aimed at some of the scores of rich corporations paying zero in federal taxes — 55 of them in 2020, according to research by the Institute on Taxation and Economic Policy. These companies aren't necessarily breaking the law; they're just taking advantage of tax loopholes begging to be closed. The reconciliation act's drafters say the tax will apply to 150 to 200 corporations.

What seems to stick in the craw of corporate taxpayers most about this provision is how it defines income.

Rather than allowing corporate taxpayers to apply all the myriad tax breaks that make income reportable to the IRS disappear — such as research credits, meal and entertainment expenses, net operating losses carried forward into later years and so on — the minimum tax will be based on the profit that a company declares to its shareholders. That's known as "book" or "financial statement" income and is typically much higher.

Companies like to minimize what they report to the IRS and maximize what they report to shareholders; now those subject to the minimum tax will have to give the same number to both.

The accounting profession is scandalized by the very idea. The American Institute of Certified Public Accountants says the principle "violates numerous elements of good tax policy and may result in unintended consequences," although it would seem that the main consequence, which is higher tax collections from corporations, is quite openly intended by the drafters of the act.

The organization asserts that "imposing tax according to financial statement income takes the definition of taxable income out of Congress’ hands and puts it into the hands of industry regulators.... Public policy taxation goals should not have a role in influencing accounting standards or the resulting financial reporting."

This point is a little hard to parse. Accounting standards don't arrive on the wings of a dove or derive from natural forces; they're based on what the law requires.

In this case, the law requires that the same standards will apply to financial disclosures filed with the Securities and Exchange Commission and the tax returns filed with the IRS. Both reports tend to be overseen by CPAs, so where's the problem?

Another sheaf of complaints was issued by the National Taxpayers Union, an anti-tax think tank. The NTU grouses that raising taxes by an estimated $260 billion to $313 billion over 10 years is a mistake when the economy "may already be in a recession or soon tipping into one."

Leaving aside that whether the economy is at risk of a recession seems to be a doubtful proposition just yet, the tax bite is at best a "nibble." That's the term used by Princeton economist Alan Blinder, a former vice chairman of the Federal Reserve, in a Wall Street Journal opinion piece rebutting the hand-wringing about the minimum tax sounded by, among others, the Wall Street Journal editorial board.

Not only is the proposed tax increase tiny, Blinder wrote, but to the extent it affects corporate decision-making, it will prompt companies to use "more labor, not less." Good for job growth, in other words.

"You’ll probably need a magnifying glass to see any damage to investment or jobs, and any such damage will surely be dwarfed by the bill’s job-creating provisions on climate change and prescription drugs," Blinder wrote.

None of this will keep Republicans and conservatives from attacking the reconciliation bill with smoke, mirrors and persiflage. But the salient point remains that the bill represents a major advance in policies that help all Americans, not merely corporations and the wealthy. In its own way, it's a new deal.

This story originally appeared in Los Angeles Times.

Demand for chips is collapsing just as Joe Biden signs bill to jump-start more U.S. chipmaking

Nicholas Gordon

Wed, August 10, 2022

U.S. President Joe Biden signed the CHIPS and Science Act on Tuesday, ending an almost yearlong saga to spend $52 billion to attract chip manufacturing back to the U.S.

Surrounded by members of Congress from both parties and representatives from the chipmaking industry, Biden called the act “a once-in-a-generation investment in America itself” that would bring jobs back to the U.S. and lower costs for consumers.

Biden also shared news that Micron Technology, which manufactures memory chips, would invest $40 billion over 10 years in U.S.-based manufacturing. The company said the investment would create 40,000 jobs.

But Idaho-based Micron delivered a far more somber message in a regulatory filing that same day, warning investors that its fourth-quarter sales would come in at the low end, if not below, previous forecasts. Micron had earlier predicted sales of $7.2 billion, which was already lower than the $9.1 billion predicted by analysts.

Micron’s lower forecast helped drag chip stocks down Tuesday despite the good news from the White House. The Philadelphia Semiconductor Index, which tracks chipmaking companies like Micron, Intel, Nvidia, and [hotlink]Taiwan Semiconductor Manufacturing Co.[/hotlink] (TSMC), fell by 4.6%.

Micron’s warning reflects a slowdown in demand for chips across the industry that’s arriving just as the CHIPS Act passes and chipmakers prepare to break ground on new U.S. plants. The poor timing provides an unfortunate backdrop to the long-awaited legislation, which all parties—chip CEOs, lawmakers, and Biden himself—are eager to tout as a huge win.

Softer demand

For much of the COVID pandemic, semiconductors—tiny chips that power not just computers and smartphones, but cars, home appliances, and countless other electronic devices—were in short supply, as stuck-at-home consumers bought more devices to get them through lockdown. The shortage paralyzed manufacturing, but also led to record profits for chipmaking companies.

But now chip CEOs are worried that an oversupply of chips will drag down sales and profits for the rest of 2022 and into 2023. Consumers, returning to normal life in this stage of the pandemic and worried about inflation, are buying fewer consumer electronic devices, lowering demand for the semiconductors that power them.

Semiconductor sales will increase only 7.4% this year, predicts consulting firm Gartner, far below the 26% growth reported in 2021.

Micron CEO Sanjay Mehrotra told Bloomberg that the drop in chip demand was now expanding beyond consumer electronics to hit other sectors that seemed to be more resilient, like data centers and the automotive sector.

Other U.S.-based chip companies are struggling, too. On Monday, Nvidia slashed its revenue guidance for the current quarter by 17%, led by a 33% decline in gaming-related revenue. (Nvidia will officially publish its second-quarter earnings on Aug. 28)

Intel earlier reported a net loss of $454 million for the second quarter of 2022, and warned that PC sales would fall by 10% this year.

Both Micron and Intel—which hope to receive government funding under the CHIPS and Science Act—say their plans to invest in the U.S. would not change as a result of these short-term struggles.

Asian chipmakers have largely weathered the demand slowdown better than their U.S. counterparts. TSMC reported a record 76.4% year-on-year increase in second-quarter profits. Korean chipmaker SK Hynix also reported a 56% year-on-year increase in profits in the second quarter.

But even Asian chipmakers are warning that demand is softening. In its second-quarter earnings call, TSMC told investors that its customers might work through their stockpiles, built up during the shortage, rather than place new orders. SK Hynix is also reportedly considering shrinking its 2023 capital expenditure plans owing to the expected drop-off in demand.

For now, chipmakers are only warning about demand in the near future. The CHIPS Act is aimed at the long term. Chip factories can take years to build; Intel expects to open its $20 billion facility in Columbus by 2025. Plus, lawmakers and the administration have framed the chips legislation as a national security issue, not necessarily as a way to meet current demand, arguing that the U.S. needs domestic manufacturing to safeguard its own supply of chips for advanced devices, like leading-edge military technology.

CHIPS Act China provision

The CHIPS Act, passed on a bipartisan basis by Congress and signed by Biden on Tuesday, spends $280 billion to expand U.S. research and development. Lawmakers and Biden administration officials said the bill would solidify the U.S.’s technological advantage against rivals like China.

Congress delayed approving the money for chipmaking subsidies for over a year, frustrating chipmakers who argued that their U.S. projects required public money.

Yet the conditions attached to government subsidies may lead to long-term changes to the chip supply-chain globally. The CHIPS and Science Act bars companies that receive U.S. subsidies from expanding manufacturing of advanced chips in China.

Both Samsung and SK Hynix are reportedly evaluating shifting manufacturing out of China to other locations. On Friday, Samsung CEO Roh Tae-moon announced that the company would invest $3.3 billion in semiconductor manufacturing in Vietnam.

This story was originally featured on Fortune.com

Credit Suisse's top investor Harris Associates discloses 10% stake

Wed, August 10, 2022

FILE PHOTO: The logo of Swiss bank Credit Suisse is seen in Bern

(Reuters) - Credit Suisse's top shareholder Harris Associates on Wednesday disclosed a stake of more than 10% in the Swiss bank.

The investment firm said in a filing that it owned 266 million shares, or a 10.1% stake, in the company as of end-July.

Harris Associates previously held a stake of around 5.2%, according to Credit Suisse's website. The bank's second-largest shareholder is Qatar Holding - a unit of the Qatari sovereign wealth fund - with a stake of about 5% as of Nov. 17. https://bit.ly/3PfMWmA

Credit Suisse is in the middle of what it has described as a "transition" year with a new CEO, restructuring aimed at curtailing risk-taking in investment banking and the bulking up of wealth management. Its shares have declined nearly 40% in 2022.

The company last month launched its second strategic review in less than a year to evaluate options for its securitised products business to attract third-party capital.

In May, when Reuters first reported about the strategic review, David Herro of Harris Associates said in an interview that there was no need for the bank to raise fresh equity capital.

(Reporting by Akanksha Khushi in Bengaluru; Editing by Aditya Soni)

Coinbase Under SEC Scrutiny Over Its Crypto-Staking Programs

Yueqi Yang Wed, August 10, 2022

(Bloomberg) -- Coinbase Global Inc. said it’s being probed by the US Securities and Exchange Commission over its staking programs, which allow users to earn rewards for holding certain cryptocurrencies.

The company “has received investigative subpoenas and requests from the SEC for documents and information about certain customer programs, operations and existing and intended future products,” according to a quarterly regulatory filing. The requests relate to Coinbase’s staking programs, asset-listing process, classification of assets and stablecoin products, the company said.

Staking services are offered by many crypto exchanges as a key way to diversify revenue from trading, which tends to drop during market downturns. It allows users to generate yield on certain crypto holdings by delegating them to help verify transactions and secure the blockchain network.

At Coinbase, blockchain-rewards revenue, primarily from staking, accounted for 8.5% of net revenue in the second quarter. It fell 16% sequentially to $68.4 million during the quarter, less than the decline in trading revenue.

In a shareholder letter Tuesday, Coinbase said the SEC in May sent a voluntary request for information, including about its listings and listing process, and it doesn’t know yet if the inquiry will become a formal investigation. The crypto exchange is under scrutiny by the SEC for potentially making unregistered securities available for trading, Bloomberg previously reported.

“As with all regulators around the world, we are committed to productive discussion with the SEC about crypto assets and securities regulation,” Coinbase said in the letter.

SEC proposes more transparency

rules into hedge fund exposures

Jennifer Schonberger

·Senior Reporter

Wed, August 10, 2022

The Securities & Exchange Commission (SEC) is proposing an amendment to a rule that would require private equity funds and hedge funds to disclose more information about their investments and assets to better surveil systemic risks.

The proposal would require certain advisers to hedge funds and private equity funds to report key events, and enhance reporting requirements for large private equity and liquidity fund advisers.

“With this final rule, regulators will gain transparency into an important sector of the financial marketplace to better assess risk to the overall system,” SEC Chair Gary Gensler said.

Specifically, the SEC proposal would expand reporting requirements for large hedge funds’ investment exposure and open investment positions, including reporting on exposures to different types of assets in order to offer insight into a fund’s portfolio concentration and large exposures to any specific assets. In particular, authorities are looking for funds to break out digital asset strategies.

People exit the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, D.C., U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kelly

In addition, the proposal would expand reporting requirements on large hedge funds’ borrowing and financing arrangements with counterparties, including central clearing counterparties.

The amendments, which are being proposed jointly with the Commodity Futures Trading Commission (CFTC), are a reporting tool used by these agencies and the Financial Stability Oversight Council (FSOC) to monitor systemic risk in the financial system.

'Far better transparency'

The action comes after Congress mandated the SEC and the CFTC following the Financial Crisis to consult with FSOC to create reporting requirements for advisers to private funds to offer more transparency for regulators to protect against systemic risks.

The SEC is taking action in this specific area of the financial sector as private funds have grown some 90% since 2010 to $20 trillion worth of assets, and are poised to surpass the size of the commercial banking system, which weighs in at $23 trillion.

Gensler said that if trends continue, then the private funds sector will become larger than the commercial banking sector.

SEC Chair Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee oversight hearing, September 14, 2021. REUTERS/Evelyn Hockstein/Pool

According to the chair, the SEC was also moved to take action on this now rather than later given the uncertainty in the markets in the first six months of this year following Russia's attack on Ukraine and central banks around the world beginning to raise interest rates. The SEC is focused on the relationship between hedge funds and their brokers or banks and what the risks are right now given that uncertainty, he added.

Crypto is a key area where regulators would gain visibility and oversight should the proposal be signed into legislation.

"We don't currently have the visibility that we would if we had this proposal,” Gensler told reporters on Wednesday. “If we were able to finalize and adopt [this], we would get far better transparency, though not to the level that a bank examiner would have.”

Additionally, the SEC has deemed it appropriate to break out exposure to crypto and crypto assets on any balance sheet and liability side as a separate category, and not for funds to account for crypto under cash and cash equivalents on the balance sheet.

“We know Bitcoin is very different than cash, than U.S. dollars,” Gensler said.

US Senators Warren, Sanders Ask Key Bank Regulator to Rescind Crypto Guidance

Nikhilesh De Wed, August 10, 2022

U.S Sens. Elizabeth Warren (D-Mass.), Bernie Sanders (I-Vt.), Richard Durbin (D-Ill.) and Sheldon Whitehouse (D-R.I.) asked the Office of the Comptroller of the Currency to rescind interpretative letters allowing banks to engage in crypto activities and explain how involved banks are becoming in crypto.

In an open letter addressed to Acting Comptroller Michael Hsu, the lawmakers said they were concerned that several interpretative letters published in 2020 and 2021 under former Acting Comptroller Brian Brooks (now CEO of crypto company Bitfury) that allowed banks to provide crypto custody services, issue payments with stablecoins, bank stablecoin issuers and engage in other crypto-related activities "essentially granted banks unfettered opportunity" to engage in problematic crypto activities. The interpretative letters, which also includes one published during Hsu's tenure, did not address any of the risks tied to crypto banking activities, the lawmakers said.

"Given the risks posed by cryptocurrencies to banks and their customers, we request that you withdraw OCC Interpretive Letters 1170, 1172, 1174, and 1179 and coordinate with the Federal Reserve and the Federal Deposit Insurance Corporation to develop a comprehensive approach that adequately protects consumers and the safety and soundness of the banking system," the letter said.

The OCC issued these letters between July 2020 and January 2021, when Brooks helmed the regulatory agency. At the time the crypto industry saw the guidance letters as potentially aiding mainstream adoption of crypto by letting regulated institutions – banks – become more involved in the industry.

Crypto activities do not have much in the way of retail protections, the lawmakers said, pointing to the collapse of Terra and Three Arrows Capital, and the bankruptcies of Celsius Network and Voyager Digital.

"While you declared that 'there has been no contagion from cryptocurrencies to traditional banking and finance' during this recent market turmoil, it is clear that stronger protections are necessary to mitigate crypto’s risks to the financial system and consumers," the lawmakers said.

The senators also asked a series of questions about how many banks have been approved to engage in crypto activities, what kinds of services those banks provide, the dollar volumes the banks hold tied to crypto and whether any of these banks are involved in other crypto-related activities such as trading derivatives.

Why Carlyle's Billionaire Founders Had Enough of Their Chosen Successor

Heather Perlberg and Dawn Lim
Tue, August 9, 2022

(Bloomberg) -- Inside Carlyle Group, battle lines were forming. On one side: Kewsong Lee, the executive hand-picked to assume the mantle of Carlyle’s co-founders and clear the path for a new generation of leaders. On the other: the very people who hand-picked him.

Growing tensions within the private-equity firm -- between a new CEO eager to assert power and an old guard reluctant to give it up -- reached the breaking point last week. Carlyle’s board members decided they had lost confidence in Lee’s leadership. The CEO, after seeking a larger pay package for his contract set to renew at the end of 2022, abruptly stepped down.

The change was announced Sunday night in a statement devoid of all that drama, saying both sides mutually agreed that “the timing is right” to find a new CEO and that founder William Conway would serve in the interim. But insiders said it was a long time coming.

And so ended one of the earliest attempts by some of the private-equity world’s original titans to find worthy heirs, a process proving difficult across the industry. Carlyle’s founders began prepping years ago, giving control to a pair of co-CEOs, Lee and Glenn Youngkin, who were supposed to work together seamlessly, each with different strengths and styles. But Lee sidelined Youngkin -- who made a successful jump to politics -- and then ended up with little choice but to leave, too. The firm is now starting its hunt anew.

Current and former executives and others close to Carlyle described how the latest drama unfolded over the past several months on the condition they not be named because of concern it could affect their work with the company.

Spokespeople for Carlyle and Lee had no comment.

This year began with Youngkin, 55, becoming governor of Virginia and Lee, 56, tightening his grip on the company they had once run together. But there were frictions between the sole CEO and some Carlyle stalwarts.

For years, Lee focused on consolidating businesses, cutting fat and putting resources in areas where he saw opportunities to grow the fee streams prized by shareholders, such as credit. He wasn’t known to be deferential to Carlyle veterans and welcomed how Zoom democratized internal dynamics. Starting in 2020, for example, he would often ask the same question in investment committee meetings: “Who’s the youngest person in the room? What have we missed?”

Supporters, including many current and former employees, saw him as a shrewd leader with the kind of investing smarts that Carlyle needed to move beyond its roots as a leveraged buyout firm and compete with more diversified peers. For all of their successes, the founders were known for taking chances that didn’t pay off. The firm took stakes in hedge funds like Emerging Sovereign Group and Claren Road Asset Management only to exit them. Lee inherited some of the mess from past missteps and played a large role in cleaning it up.

Decisive and assertive, Lee put his mark on things quickly. Credit is now 38% of its assets, up from 22% in the second quarter of last year, reflecting his drive to diversify revenue. When it was time to make a key decision on an expansion into insurance, emulating some competitors, Lee steered the board’s discussion to get the outcome he wanted. He talked to them about taking a minority stake in Fortitude Re -- his preference -- rather than taking a majority holding with a higher regulatory cost. That deal would eventually help the firm lock in about $48 billion in assets from Fortitude.

Yet some executives at Carlyle were concerned that Lee’s push to shore up balance-sheet capital for growth initiatives would affect the size of dividend payouts. That intensified a debate inside Carlyle over how aggressively the firm should expand beyond its private equity businesses into other areas such as credit.

Eroding Values

Founders Conway, Daniel D’Aniello and David Rubenstein had always sought to foster a tight triumvirate at the top and prided themselves on being collegial and building consensus, people familiar with their style said.

But increasingly, some members of the board -- where the founders still sit -- worried that Lee was eroding Carlyle’s genteel values, risking the alienation of investors and employees. A wave of departures, including Tyler Zachem, Rodney Cohen and Ashley Evans, stirred a debate over whether talent loss was becoming more commonplace. At one point this year, the head of human resources, Bruce Larson, presented data to the board showing that recent attrition wasn’t unusual.

What’s more, Carlyle was falling out of favor with shareholders. By the end of last week, the stock was down 31% this year, worse than at Apollo Global Management Inc., KKR & Co. and Blackstone Inc.

Some of Lee’s attempts to grow the firm were posing new risks. A purchase of collateralized loan obligation assets from CBAM Partners earlier this year made Carlyle a major manager of those bundles of loans, but it exposed the firm to a selloff that ensued.

Fundraising for Carlyle’s flagship strategy went slower than expected. The firm told investors in June that it had so far gathered about $15 billion for its new buyout and growth fund. That’s less than the $17 billion it anticipated collecting by roughly midyear on the way to a $22 billion target. Lee had slashed the team at Carlyle responsible for raising money from the largest institutional investors, such as pensions, sovereign wealth funds and endowments in 2020.

His assertive style worked for dealmaking but it increasingly ruffled the founders, whose roles gradually diminished as he encouraged them to step back. He rebuffed their attempts to help bring in more money and provide advice.

The three founders had all taken on new projects in recent years. Rubenstein, for instance, writes books and hosts a show on Bloomberg Television.

But with departures and the stock slide continuing, the trio of billionaires -- who collectively hold more than 25% of the company -- were increasingly feeling the need to intervene.

In recent months, Lee worked with advisers to sketch out a compensation package for his next contract, seeking to boost his potential payout to a level more commensurate with what rival firms paid their leaders, people with knowledge of the situation said. But the other side wasn’t interested in such a negotiation. After he asked for a package worth as much as $300 million over five years, the three founders never responded, the Financial Times reported.

They’d had enough and Lee resigned.

Still, the strategy will remain the same, according to people close to the firm.

Investors though are concerned. The stock tumbled 7% on Monday and fell as much as 5.2% on Tuesday, as analysts highlighted the uncertainty created by the CEO’s abrupt exit.

“We doubt that there is anything substantively wrong with the company,” Oppenheimer analysts including Chris Kotowski wrote in a note to clients. “It is, in our mind, most likely a case of the empire striking back.”

Carlyle Partner and Investor-Relations Head Urquhart to Join Coatue

Gillian Tan
Wed, August 10, 2022

(Bloomberg) -- Carlyle Group Inc.’s global head of investor relations Nathan Urquhart is leaving the firm to become president at Coatue Management, according to a letter to investors seen by Bloomberg News.

New York-based Urquhart will start at Coatue in the coming months and will get involved in key management responsibilities, according to the letter, which confirmed an earlier Bloomberg News report. He will also oversee investor relations and fundraising efforts.

Urquhart was a partner at Carlyle and on its leadership and operating committees. He joined in 2019 after about 11 years at Oz Management. Urquhart had stints at UBS Group AG and JPMorgan Chase & Co. as well.

A Coatue spokesman declined to comment.

Carlyle said in a statement that David McCann has been appointed interim head to replace Urquhart, who will stay at the firm through year-end.

Coatue is led by Philippe Laffont, who started the hedge fund in 1999 after working at Julian Robertson’s Tiger Management. It managed about $59 billion as of Dec. 31.

Urquhart’s departure follows the unexpected resignation of Carlyle Chief Executive Officer Kewsong Lee on Sunday.