UPDATE 1-U.S. SEC probing banks over possible mismanagement of ADRs - WSJ

Dear Viewers,

The U.S. Securities and Exchange Commission is investigating whether big banks have been mishandling securities in the American Depositary Receipt (ADR) market, the Wall Street Journal reported on Monday.

The SEC has sent subpoenas to four banks over the issue - Bank of New York Mellon Corp (BK.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE) (DB.N) and JPMorgan Chase & Co (JPM.N), the Journal reported, citing people close to the matter. (on.wsj.com/2eFTBJ4)

The probe, which is looking at whether the banks have broken controls designed to prevent market abuse and tax fraud, will not necessarily result in enforcement action, the report said.

A major focus of the SEC inquiry is the "pre-release" of ADRs, where banks issue depositary receipts to investors without first having the underlying shares in their custody, the Journal reported.

That means the shares could be sold short without actually having them - a practice known as "naked short selling", which is illegal.

ADRs represent shares of foreign companies that are held in custody by U.S. banks. Trading in ADRs rather than the underlying shares reduces administration and trading costs, both for companies and for investors.

Deutsche Bank and Citigroup declined to comment on the report, while the other two banks did not immediately respond to requests for comment. Thanks.

UPDATE 1-GE alerts airlines about engine part after American Airlines fire

Hello Dear Visitors,

General Electric Co is seeking to remove an engine part from service after an American Airlines jet erupted in flames last week, it told air carriers in a letter seen by Reuters on Saturday.

The manufacturer has identified a “limited number” of parts closely related to one used by American that had a "material anomaly," according to the letter sent on Friday.

All but one of the parts are now out of service, GE said in the letter. It added that it was working with the single airline with an aircraft still equipped with the part to ensure its removal from service.

GE did not name the airline. A company spokesman, Rick Kennedy, confirmed that GE had sent the letter and said it was still in the early stage of an "intense investigation."

On Oct. 28, American Airlines Flight 383 from Chicago to Miami aborted takeoff following an "uncontained" engine failure, a rare event in which components spew from an engine and can tear through the aircraft cabin or rupture fuel tanks in the wings. The airline was flying a Boeing Co 767 aircraft with CF6-80C2 engines made by GE.

In this instance, the failure caused a fuel leak that resulted in a fire, though no one aboard was seriously injured.

An American Airlines spokesman said none of the company's aircraft in operation had the additional parts that GE referred to in the letter. The spokesman added that American was turning over a part from an engine not in operation to the U.S. National Transportation Safety Board (NTSB) for further examination.

U.S. investigators have yet to assign blame for last week's incident. However, they said on Friday that a so-called stage 2 disk in the engine showed what appeared to be cracking. 

The disk's corrupted material likely indicated a manufacturing defect, either by the parts or metal maker, said Jim Hall, a former NTSB chairman.

In its letter, GE stressed the reliability of its CF6 engines which it said had flown more than 400 million hours since the 1970s.

GE will update engine operators if action is later required, the letter said.

Bloomberg earlier reported news of the letter from GE. Thanks.