NEWS,11.07.2012

Swiss bank raided for foreign tax evaders

 

German tax authorities have launched raids into Credit Suisse clients and French officials searched the homes of UBS employees, part of crackdowns on foreigners suspected of evading taxes through the two largest Swiss banks.Switzerland's strict banking secrecy rules, which have helped build a $2 trillion offshore financial sector, have infuriated cash-strapped governments elsewhere as they try to stop tax evasion by wealthy citizens.Roughly 5,000 German clients of Credit Suisse are being probed on suspicion of tax evasion and some had their homes searched, a source at the bank said on Wednesday, as European tax officials broaden their investigation to clients from banks.Meanwhile, the offices of UBS in Lyon, Bordeaux and Strasbourg were raided on Tuesday on suspicion of money-laundering and aiding tax evasion, according to a source at that bank.The private homes of several high-ranking UBS employees in Strasbourg were also searched, the UBS source said.UBS said it was cooperating with authorities. The French prosecutor's office declined to comment because the investigation was ongoing.It was not immediately clear whether the raids in Germany and France were coordinated or in any way connected.Credit Suisse said it was aware that German tax authorities were investigating its clients but gave no further comment.The source at the bank said tax authorities in the German towns of Bochum and Duesseldorf were probing its clients over Bermuda-based life insurance products which may have been used to avoid tax. Tax officials in both towns declined to comment.The Frankfurt prosecutor said one client was searched.The German investigation comes against the backdrop of a deal reached with Switzerland to levy taxes on German assets stashed in Swiss bank accounts that is due to come into effect next year pending German parliament approval.Peter V. Kunz, professor for business law at Berne University, said the new investigation into Swiss bank clients could add to scepticism over the deal, which German opposition politicians say is too lenient on tax evaders."I don't think it will derail the agreement altogether, but it does simplify things for its opponents," Kunz said.Duesseldorf and Bochum are in the German state of North-Rhine Westphalia, where the Social Democrat-led regional government has been one of the most vocal opponents of the deal that would also end prosecutions of Swiss banks and employees."Our tax inspectors must be able to do their work unimpeded, which is to root out criminal evaders. No tax agreement should prevent that," the region's finance minister, Norbert Walter-Borjans, said in a statement.North-Rhine Westphalia bought names of Swiss bank clients from an informant in 2010. Two sources told Reuters the targets for the latest investigation were culled in part from that information.Germany has long been trying to crack down on tax evasion.In 2008, data leaked from Liechtenstein's LGT bank revealed that wealthy citizens including former Deutsche Post chief Klaus Zumwinkel had stashed money in the tiny principality.Zumwinkel received a suspended jail sentence after admitting tax evasion.Credit Suisse struck a deal with German tax authorities last September, agreeing to pay 150 million euros ($183.83 million) to end an investigation over allegations the bank and its employees helped Germans dodge taxes.UBS was forced in 2009 to pay a fine and release the names of 4,500 clients to US officials to end a damaging tax probe. US authorities are still investigating Swiss banks including Credit Suisse and Julius Baer over tax offences.Switzerland is trying to get the US investigations dropped in exchange for the payment of fines and the transfer of names of thousands more US bank clients.

 

Spain banks to minimise hit for investors

 

Spanish banks in line for European aid are looking at ways to minimise losses for small savers who will be forced to take a hit on certain bonds and shares they bought in the ailing lenders, under conditions enforced by Brussels.Although no overall figure for losses is yet clear due to uncertainties about the eurozone bailout of banks stricken by a housing bust and recession, retail investors are reckoned to hold some €30bn ($37bn) in subordinated debt and stock in Spain's small and medium-sized banks.Only a portion of that would be facing losses as banks able to comply with new capital requirements on their own or to pay back public money by June 2013 would escape the rule.This means investors at Santander, BBVA, Caixabank and Popular as well as other smaller sound banks would be safe as these lenders have already a core tier one capital ratio above the 9% required by European authorities. Furthermore, four nationalised banks - Bankia, NovaCaixaGalicia, CatalunyaCaixa and Banco de Valencia - are discussing formulas with the European Commission to minimise the cost to customers, many of them elderly, who were often sold these complex financial instruments as savings products."We're currently negotiating the amount of the hit. The Commission wants it rather high but we're confident we can obtain something lower," said a source at one of those banks."Several options are on the table. Convert the preference shares into bonds, into deposits, or into other instruments."Other banking sources said such options were being actively looked at and implemented with individual clients in some cases.Once the principle of a haircut has been agreed with Brussels, the government has the possibility to pay compensation for the losses.Last month, EU Competition Commissioner Joaquin Almunia said conditions on the aid for the banks forbade the use of European funds to compensate bondholders, so holders of preferential shares should accept losses at market value. But he stressed that national or local governments had the right to do so.Although using scarce public money to compensate investors might be unpopular, the first banking source said the option was still on on the table. "It's one thing to compensate for a loss and break competition rules, but it's quite another thing for the state to make a sovereign political choice," the banker said.Spain will require banks receiving state aid to enforce losses on hybrid capital and junior debt holders, according to a European Union document obtained by Reuters. It will modify existing legislation by end-August to allow these losses to be enforced, the draft Memorandum of Understanding said. Spanish banks have €65bn ($80bn) of subordinated debt outstanding, or €47bn excluding the country's two healthy big banks Banco Santander and BBVA, according to Barclays.Of this, retail investors hold 62% in instruments such as preferential shares that can pay a dividend, a much higher proportion than in countries like Ireland where junior bondholders were also forced to share losses in a bank bailout.The selling of preferential shares to retail investors, many of them elderly bank customers with little financial knowledge, has outraged Spaniards in a long-running scandal pre-dating the €100bn rescue package.Bankia, the nationalised bank likely to receive the largest share of European funds when they materialise later this year, has €3.1bn in preferential shares outstanding.The lender, which has asked for €19bn in rescue money, is in talks with the EU, the Bank of Spain and the stock market regulator to find a way to compensate investors, a spokesman for the bank said.Listed banks in the past have converted preferential shares into equity while non-listed savings banks have opted to swap them for term deposits. Barclays Capital suggested in a note on Wednesday that retail debt holders could be compensated by a national fund, but other experts said this would be difficult. Prime Minister Mariano Rajoy announced a package of new taxes and spending cuts on Wednesday aiming to slash €65bn more from the budget deficit by 2014. In this climate, public compensation for investors will be politically unsavoury.Bank clients stung by losses on preferential shares harangued the new chief executive of rescued lender Bankia at a shareholders' meeting last month."My wife and I had some money in a deposit and (the bank) took it out of the fixed deposit and put it in preferential shares, shamefully duping me with lies," said 85 year old retiree Miguel Garcia Tribaldo.New Bankia chief Jose Ignacio Goirigolzarri warned at the meeting that his options were limited in finding a solution for investors.The market price of these instruments varies from around 40% of face value to practically zero in some extreme cases, experts said. The central bank will discourage any bank in receipt of state aid from compensating junior bondholders with more than 10% of market price, the EU document said.NovaGalicia, a savings bank in northeastern Spain in line for state aid, has €960m of preferential shares held by retail clients, while CatalunyaCaixa has €480mBanco Valencia, the fourth bank almost certain to receive European funds, has €100m in subordinated debt held by retail investors but no preferential shares held by this kind of customer, a spokeswoman for the bank said. NovaGalicia is subject to a court probe into alleged misselling of these instruments to retail clients. El Pais daily cited a purchase form for €6,000 worth of shares signed by an 86-year-old woman's fingerprint.

Spanish miners hurl rocks at cops in protest

Coal miners threw rocks, bottles and firecrackers at riot police who fired rubber bullets in the Spanish capital on Wednesday as tens of thousands protested mining subsidy cuts.Clashes between young protesters and charging police resulted in 23 light injuries, including 12 demonstrators, six police, three onlookers and two journalists, emergency services officials said.A band of demonstrators rained down projectiles including firecrackers, glass bottles and rocks on riot police who protected themselves with their shields.Police could be seen chasing some of the protesters and firing rubber bullets into the air to disperse others."There was a police charge in front of the industry ministry," said a Madrid police spokesperson. Officers backed by dozens of police vans were seen deployed outside the building.Five people were arrested, police said.A few hundred metres way, another group of several dozen protesters outside Real Madrid's Bernabeu stadium were seen throwing stones and drinks cans at riot police.Police charged to try to detain one of them."Out, out," shouted protesters. "These are our weapons," they cried, raising their hands to the sky.Jeffrey Fernandez Sanchez, 27, a miner from Leon, said he saw the violence. "The police provoked them so there would be trouble," he charged.Hundreds of miners who had hiked more than 400km over two weeks from northern coal regions were joined by masses of workers from other sectors, the vast majority of whom were peaceful."Join all our struggles with the miners," read one banner hoisted in the crowd outside the Industry Ministry.Some of the miners at the rally had emerged the previous day from more than a week spent underground in the pits to protest the drastic cuts to state support on which the industry depends.Violent clashes had already broken out between miners and police in more than a month of protests in the northern mining towns over Madrid's decision to slash coal industry subsidies this year to €111m from €301m last year.Unions say the cuts will destroy coal mining, which relies on state aid to compete with cheaper imports, and threaten the jobs of around 8 000 coal miners and up to 30 000 other people indirectly employed by the sector.Carlos Marcos, 41, a miner from the town of Ponferrada in Leon who came on one of the hundreds of coaches that brought protesters into the Spanish capital, welcomed the broad support from other workers."It is impressive because the government never pays us any attention. The real cancer in this country is the politicians," Marcos said.Like other miners, he criticised Prime Minister Mariano Rajoy's conservative government for refusing to help miners more, even as it doles out rescue money to crisis-hit Bankia and other lenders."For the miners they can't find €200m but for Bankia there is €23bn," Marcos said.As the miners rallied, Rajoy announced to parliament a €65bn austerity package to rein in spiralling debt, including a rise in value added sales tax.Vicente Nunez, a 42-year-old steel worker, said he came from Asturias to demonstrate in support of the miners as he walked with a group in black shirts and the Asturias flag, which is light blue with a yellow cross."We work in the metal industry. It is all a chain, we all depend on each other," Nunez said."I have never seen a situation like this. We had crises in '92 and '98 but this time there is no future, no solutions. This schism in society is going to be bigger, more conflictual," he predicted.