By Francesco Canepa and Andy Bruce

FRANKFURT (Reuters) -European supervisors tried to stop a rout in the market for convertible bank bonds on Monday, saying owners of this type of debt would only suffer losses after shareholders have been wiped out – unlike what happened at Credit Suisse.

Regulators in the European Union and Britain were reacting to a decisions by Swiss authorities to write off Credit Suisse’s Additional Tier 1 (AT1) bonds even as stockholders received shares in UBS.

The EU regulators – the European Central Bank, the European Banking Authority and the Single Resolution Board – said they would continue to impose losses on shareholders before bondholders.

“This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions,” they said in a statement.

The comments helped the price of bank bonds cut losses and were echoed by the Bank of England shortly after.

“Holders of such instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in this hierarchy,” the Bank of England said in its statement.

All institutions welcomed, however, “the comprehensive set of actions taken yesterday by the Swiss authorities” to save Credit Suisse, using the same phrase in their separate statements.

In a package engineered by Swiss regulators on Sunday, UBS Group AG will pay 3 billion Swiss francs ($3.2 billion) for 167-year-old Credit Suisse Group AG and assume up to $5.4 billion in losses.

Under the deal, the Swiss regulator decided that Credit Suisse’s additional Tier 1 bonds – or AT1 bonds – with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in the takeover deal announced on Sunday.

AT1 became popular with banks and market participants in the past decade as lenders looked for ways of building up capital to meet supervisors’ requirements without issuing equity.

“Additional Tier 1 is and will remain an important component of the capital structure of European banks,” the EU regulators said in their joint statement.

Credit Suisse’s AT1 bonds contained a clause allowing Swiss authorities to write them off if the bank became unviable, regardless of what happens to the shares.

This clause is not typically included in EU bonds, analysts said.

(Reporting by Francesco Canepa, Editing by Louise Heavens and Nick Zieminski)

FRANKFURT (Reuters) – Global banks borrowed only token amounts on Monday via an enhanced, seven-day dollar swap unveiled by the U.S. Federal Reserve late on Sunday to ease funding stress in global markets.

Faced with the risk of a fast-moving loss of confidence in the stability of the financial system, the Fed said it would offer daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the euro zone would have the dollars needed to operate.

Two banks in Switzerland borrowed $101 million on Monday while in the euro zone, a single bank borrowed $5 million. In Japan and Britain, the take-up was zero.

Such swap facilities have been a constant feature of global central bank cooperation for years but demand for funds outside acute crisis periods has been negligible.

While the recent volatility in bank shares risked morphing into a broader crisis, central bank swap lines have barely been utilised, with the take up well below $1 billion now, compared to $446 billion at the beginning of the COVID-19 pandemic and a peak of $583 billion in the finance crisis of 2008.

Banks on aggregate have had ample liquidity for years, and many suffer from sitting on too much cash rather than too little.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and by Kevin Liffey)

By Nandita Bose

WASHINGTON (Reuters) – Rideshare and delivery companies want the Biden administration’s nominee for the Department of Labor to clarify her position on an incoming worker-classification rule that could expand workers’ rights, a trade group representing the companies said on Monday.

The Department of Labor in October proposed a rule that would make it more difficult for companies to treat workers as independent contractors, which would shake up ride-hailing, delivery and other industries that rely on gig workers.

The Flex Association, which represents companies such as Uber and Lyft, sent a letter to Biden on Monday asking that his nominee to lead the U.S. Department of Labor, Julie Su, explain how she would implement the proposed rule in a “manner that protects independent work.”

The group this month said Su’s record on flexible work was “troubling” and called for a “meticulous review” of her record in the Senate confirmation process.

Democrats’ narrow control of the Senate means Su’s confirmation is unlikely to be impacted but the final worker classification rule is expected this year and the push to lobby against it by groups such as the Flex Association is picking up momentum.

A White House official said Su, in her role as deputy secretary of labor, has ensured that “workers receive all the rights and protections available to them under Federal law — she will continue that commitment if confirmed as Secretary of Labor.”

The official, who did not wish to be named, said proper classification protects workers and ensures that they are eligible for basic things like minimum wage, overtime and unemployment insurance.

“Julie has always and will continue to defend these basic rights, consistent with Federal law,” the official said.

Most federal and state labor laws, such as those requiring a minimum wage and overtime pay, only apply to a company’s employees, who can cost companies up to 30% more than independent contractors, studies suggest.

Biden this month urged the U.S. Senate to quickly confirm Su and hailed his nominee for her past work to increase worker wages and expand protections.

Before joining the U.S. Department of Labor, Su was the secretary for the California Labor and Workforce Development Agency, and before then was California labor commissioner from 2011-2018.

A report on her tenure released in May 2013 found that her work resulted in a spike in enforcement activity.

There was a concerted push by many union and labor officials, as well as progressives in the Democratic Party, to get Biden to appoint Su to the role both for her familiarity with the agency and labor policy.

(Reporting by Nandita Bose in Washington; Editing by Mark Porter and Josie Kao)

(Reuters) -JPMorgan Chase & Co CEO Jamie Dimon is leading talks with the chiefs of other big banks about fresh efforts to stabilize First Republic Bank, the Wall Street Journal reported on Monday, citing people familiar with the matter.

Shares of First Republic fell 46% to $12.41 as investors fretted that the $30 billion deposited by several big U.S. banks into the lender would not be enough to ease its troubles.

The banks are considering an investment into First Republic, the WSJ report said, adding that the plan could involve converting some or all of the $30 billion of deposits into a capital infusion.

JPMorgan and First Republic declined to comment on the report. A spokesperson for First Republic pointed to an earlier statement where the bank said it was “well-positioned to manage short-term deposit activity”.

On Sunday, ratings agency S&P Global downgraded First Republic deeper into junk status, citing persistent risks to the lender’s liquidity.

(Reporting by Niket Nishant in Bengaluru; Editing by Devika Syamnath)

By Francesco Canepa and Balazs Koranyi

FRANKFURT (Reuters) -Financial market turmoil may do some of the European Central Bank’s work for it if it dampens demand and inflation, ECB President Christine Lagarde said on Monday.

With investors and bankers worrying about the risk of a banking crisis, Lagarde reaffirmed that market turbulence won’t stand in the way of the ECB’s fight against inflation – but it might actually help it.

This was a likely reference to the fact that both higher central bank rates and jitters in the banking sector tend to have the same effect by discouraging lending and cooling economic activity.

“Clearly financial stability tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes,” Lagarde told European lawmakers.

The ECB raised the interest rate it pays on bank deposits by 50 basis points on Thursday to 3% and Lagarde reaffirmed on Monday that the inflation outlook alone would warrant more rate hikes.

But she made no commitment, likely concerned that market turmoil could fundamentally change the outlook.

Investors have scaled down their bets on how far the ECB will push the deposit rate this year to 3.1% from more than 4% only two weeks ago.

Some critics said the ECB will be forced to make a choice between fighting inflation and preserving financial stability — an argument Lagarde firmly rejected in a hearing at the European Parliament’s Committee on Economic and Monetary Affairs.

For inflation, Lagarde said interest rates will remain the ECB’s main tool while for the bank sector, the ECB can utilise its existing lending facilities or devise new ones, Lagarde said.

Financial stocks tumbled last week on fears of a new banking crisis, but they rose on Monday after UBS Group’s state-backed takeover of Credit Suisse appeared to close off one source of worry for the global banking sector.

Lagarde said euro zone banks were resilient and their exposure to Credit Suisse was in the millions of euros rather than the billions.

But she repeated a warning that they should prepare for slower economic growth, higher funding costs and lower lending volumes.

“Individual financial institutions should carefully preserve their current levels of resilience, to ensure that they could weather a potentially less favourable environment,” Lagarde said.

(Editing by Susan Fenton, Alison Williams and Hugh Lawson)

By Mike Scarcella

(Reuters) – Alphabet Inc’s Google has denied intentionally destroying evidence in the U.S. Justice Department’s antitrust lawsuit over the company’s search business, in a response to the government’s bid for sanctions in federal court.

The Justice Department last month alleged Google failed to preserve certain internal corporate “chat” communications. The DOJ said Google told U.S. investigators in 2019 that the company had put a hold on allowing auto-deletion of those instant messaging records.

Google said in Friday’s filing that the company made “reasonable” efforts to preserve communication records.

The bid for sanctions stems from lawsuits filed by the DOJ and a group of more than 30 states accusing Google of unlawful exclusionary practices to maintain its search business dominance. Google has denied the claims. The case, filed in 2020, is set to go to trial in September.

A Justice Department spokesperson declined to comment on Monday. Lawyers for Google and a representative from the company did not immediately respond to messages seeking comment.

The Justice Department asked U.S. District Judge Amit Mehta to set a hearing regarding the sanctions, but the court has not yet scheduled one.

Mehta last year denied an earlier Justice Department bid for sanctions against Google over claims it was shielding too many documents from review.

In its latest bid for sanctions, the DOJ alleged “Google’s daily destruction of written records prejudiced the United States by depriving it of a rich source of candid discussions between Google’s executives, including likely trial witnesses.”

Google’s lawyers said it was “meritless” to contend the company took steps to deprive the plaintiffs from information. Google said it has already disclosed millions of documents and “tremendous volumes of data” as part of the litigation.

The case is United States v. Google LLC, U.S. District Court for the District of Columbia, No. 1:20-cv-03010-APM.

(Reporting by Mike Scarcella; editing by Leigh Jones and Richard Chang)

By Sam Tobin

LONDON (Reuters) -EY’s plans to split its auditing and consulting arms have been dragged into a $2.7 billion lawsuit brought in London by the administrators of troubled hospital operator NMC Health PLC over concerns EY would be unable to pay if it loses the case.

The company, formerly known as Ernst & Young, has been planning to separate its auditing and consulting businesses, though reports this month suggested the move is likely to be paused.

EY – one of the world’s “Big Four” auditors, along with Deloitte, PwC and KPMG – appeared to confirm the pause in court filings released for a hearing at London’s High Court on Monday.

“NMC will be aware from press coverage … that the potential separation under consideration is paused,” the document said.

An EY spokesperson said in a statement: “This transaction is complex and will be the roadmap for re-shaping the profession, so it is important we get this right.

“We remain committed to the strategic rationale that underpins Project Everest (the proposed separation) and believe that a deal can and should be done.”

NMC, which sued EY last year for allegedly failing to identify that NMC’s financial statements were materially misstated between 2012 to 2018, asked for a court order requiring EY to provide details of the potential split.

Its lawyer Simon Salzedo said in court filings that NMC is concerned that the proposed separation would “reduce EY’s assets and future income”, and that EY would be unable to pay $2.7 billion if NMC is successful at trial.

However, EY – which denies any breach of duty to NMC – says it has already agreed to provide relevant information about the potential split to NMC.

EY’s lawyer Thomas Plewman also said in court filings that, as the proposed separation has been paused, the application is “premature and unnecessary”.

Judge David Foxton said on Monday that he was not going to make a court order, but that EY should notify NMC four weeks before any partnership vote on the split of EY’s business.

The judge also set a provisional trial date of April 2025.

NMC, which used to be listed in London, ran into trouble in late 2019 when short-seller Muddy Waters questioned its financials, which led to a sharp fall in its share price. It went into administration the following year after it disclosed more than $4 billion in hidden debt.

(Reporting by Sam Tobin, editing by Ed Osmond and Susan Fenton)