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Bank of America is 2nd Major U.S. Financial Institution to Face Derivatives Proxy Vote By Shareholders April 26th, 2010
The verdict at BofA’s Wednesday Annual Meeting comes on the heels of a huge 30 percent support at Citigroup on the same Resolution. Of the four derivatives disclosure resolutions being filed, that with BofA may be the most telling, considering how the mishandling of Credit Default Swaps (a type of derivative) tripped up BofA’s Merrill Lynch.
With a much higher-than-expected 30 percent of Citigroup shares voted on April 20th in favor of more disclosure of derivatives practices, the focus now shifts to Bank of America (BofA), where shareholders will vote Wednesday (April 28th) on the same resolution sponsored by faith-based institutional investors belonging to the 300-member Interfaith Center on Corporate Responsibility (ICCR). The BofA vote will take place as Congress debates the fate of financial regulatory reform, including increased derivatives disclosure.
The resolution gives shareholders an opportunity, as they did at Citigroup, to express their concerns about the lack of transparency in the derivatives market that contributed significantly to the financial crisis. The higher-than-expected vote from Citigroup shareholders resulted even though the United States government, which controls 27 percent of Citigroup as a result of the bank bailouts, failed to fully support the resolution.
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Senate Urged to Include Derivatives Regulation in Financial Reform Bill April 25th, 2010
The Oblates joined a broad array of groups concerned about commodity speculation in urging the inclusion of a bill regulating derivatives in the larger Senate financial reform legislation being debated this week. Specifically, the groups are asking that the “Wall Street Transparency and Accountability Act” (reported out of the Agriculture Committee on Wednesday by a bipartisan vote), be incorporated into the “American Financial Stability Act” (S.3217) – otherwise known as the comprehensive “Wall Street Reform” bill.
The Missionary Oblates signed a letter generated by the Commodity Markets Oversight Coalition, an informal alliance of industry groups, consumer advocates and academics, representing commodity producers, processors, distributors, retailers, and residential, commercial and industrial end-users. The signatories believe that policy in the commodity trading markets should aim to strengthen oversight, transparency and stability, and to address inadequacies in the existing derivatives markets, both regulated and over-the-counter. As faith-based shareholders, the Missionary Oblates have been pressing for better management of derivatives in discussions with the financial services sector for a number of years.
Read the letter… (Download PDF)
ICCR Resolution at Citigroup Garners 30% of Shareholder Vote! April 20th, 2010
A Resolution put forward by faith-based shareholders with Citigroup on the complex financial instruments known as derivatives garnered a significant 30% of the shareholder vote at the banks’ AGM today. The Oblates of Mary Immaculate joined the Maryknoll Sisters, the Sisters of Charity of St. Elizabeth, N.J. and other members of the Interfaith Center on Corporate Responsibility in filing the Resolution.
Sr. Barbara Aires, coordinator of Corporate Responsibility for the Sisters of Charity of St. Elizabeth, NJ, said: “We consider this double-digit vote in favor of the resolution to be a moral victory that sends a strong message to Wall Street that the ‘old ways’ on derivatives and all of the attendant market-crashing risk they involve is no longer acceptable.”
ICCR Board Member Rev. Seamus Finn, director, Justice, Peace & Integrity of Creation, Missionary Oblates of Mary Immaculate was quoted in the Wall Street Journal as saying that ICCR members took this action because they are concerned “about those who are on the margins of the financial system, those in developing markets and the emerging market world.”
According to the resolution, “The recent financial crisis has resulted in the destruction of trillions of dollars of wealth and untold suffering and hardship across the world. …Very high degrees of leverage in derivatives transactions contributed to the timing and severity of the financial crisis.”
The US government holds 27% of outstanding shares in Citigroup as a result of last year’s bank bailout, and shareholders were disappointed that the US failed to vote all of its shares in favor of the derivatives resolution.
Fr. Finn excoriated the Treasury Department’s decision, saying “If taxpayers are going to own major shares of banks in exchange for bailouts then they should be just as active as other shareholders in providing guidance to management. The U.S. government controls over a quarter of outstanding Citigroup shares. It had an extraordinary opportunity here to vote all of its shares in telling Wall Street that more derivatives disclosure is vital.”
The Resolution called for the bank to disclose by Dec. 1 its policies on securing collateral for the derivatives they use in order to mitigate risk, and for using customer funds for other speculative activities. Derivatives are complex financial instruments that played a large role in the 2008 financial crisis.
Additional votes on shareholder resolutions on derivatives put forward by ICCR members will take place on April 28 at Bank of America, May 7 at Goldman Sachs, and May 18 at J.P. Morgan.
Learn more on the ICCR website …
RiskMetrics and Proxy Governance Support ICCR Shareholder Proposal on Derivatives April 7th, 2010
RiskMetrics and Proxy Governance, respected proxy advisory services, in a significant move, have supported the Resolution on derivatives filed by religious investors, including the Oblates of Mary Immaculate. The Resolution filed by members of the Interfaith Center on Corporate Responsibility (ICCR) requests that the company provide greater disclosure regarding derivatives as a way to reduce systemic risk in the financial sector.
A lack of transparency in derivatives holdings was responsible in large part for destabilizing the financial system in 2008. Specifically, the shareholder proposal filed with Citibank requests the company to report to shareholders on the firm’s policy concerning the company’s derivative activities. The religious groups have expressed concerns for years about the risk inherent in derivatives trading, arguing that greater transparency is needed.
The full text of the shareholder proposal is available here…
Religious Proposal on Swaps Disclosure Gets Attention April 6th, 2010
Goldman Sachs Group Inc. and JPMorgan Chase & Co. aren’t doing “God’s work” when it comes to derivatives, according to investor groups of nuns and priests. The investors were referring to a remark made last November by Goldman Sachs Chief Executive Officer Lloyd Blankfein’s who said he was a banker doing “God’s work”
“The use of these instruments, if they’re not disclosed by the dealers and the information made available, by their very nature can contribute to systemic risk,” said Father Seamus Finn, a director with the Missionary Oblates of Mary Immaculate in Washington, D.C., one of the co-sponsors of the resolutions.
Shareholders will vote starting this month on proposals sponsored by the Sisters of Charity of Saint Elizabeth and 14 other religious organizations, asking Goldman Sachs, JPMorgan, Citigroup Inc. and Bank of America Corp. to give more information on the collateral used in their derivatives trading.
It’s the first time the four banks, among the largest U.S. swaps dealers, will put to a nonbinding vote a call to explain how collateral of derivatives customers is used and to keep it from other accounts. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin.
The U.S. Securities and Exchange Commission, in February and March decisions, backed the religious groups’ bid to put the proposal up for a vote by shareholders of JPMorgan, Bank of America and Citigroup. New York-based Goldman Sachs, the most profitable firm in Wall Street history, agreed separately to add the resolution to its proxy statement.
Articles on this proposal appeared late last week in Bloomberg and Bloomberg Business Week. Read the full story here…
