NEWS,30.07.2012

Draghi under pressure to deliver euro pledge

European Central Bank (ECB) President Mario Draghi must back up his pledge to do what it takes to protect the euro when the bank's policymakers meet on Thursday or else face deep disappointment from investors hungry for, and expecting, immediate action. In his boldest comments to date, Draghi said last week that, within its mandate, the ECB was ready to do whatever it takes to preserve the euro, fuelling expectation it could revive its bond purchase programme as it did a year ago when it started buying the government debt of Spain and Italy.But that is far from certain. The ECB might instead explore new policy tools such as outright asset purchases, or quantitative easing, something its peers in Britain, the United States and Japan are already using to stimulate growth.There have also been recent suggestions that it could empower national central banks to broaden their asset buying abilities.The ECB is under intense pressure from within and outside the euro zone to intervene and bring those governments' soaring borrowing costs under control as the debt crisis deepens and increasingly poses a risk to the global economy. Reflecting the increased tension, U.S. Treasury Secretary Timothy Geithner is travelling to Germany, the euro zone's biggest economy and key to any euro rescue plan, on Monday to meet Germany's finance minister and Draghi. The ECB chief will also meet Bundesbank President Jens Weidmann, a strong opponent of the ECB's mothballed government bond purchase programme, ahead of Thursday's ECB meeting, a central bank source said. Italian and Spanish bond markets rallied after Draghi's comments last week, but fresh turmoil is on the cards if Draghi fails to persuade investors on Thursday that the ECB stands behind its pledge. "With expectations running high, the scope for disappointment at Thursday's ECB policy meeting has increased considerably," said Nicholas Spiro at Spiro Sovereign Strategy.The August meeting usually draws little attention and in fact the ECB used to skip the summer month's meeting until 2006 - the last year in which it took policy action in August.The ECB could well break with tradition this year.Huw Pill, economist at Goldman Sachs and a former senior ECB official, said the ECB could decide on Thursday to buy unsecured debt of bank or firms via the national central banks to spare its own balance sheet. "We forecast the announcement of measures to permit national central banks to purchase private-sector assets under their own risk to implement 'credit easing', within a general framework approved by the Governing Council," Pill said. Another cut in interest rates seems less likely as the ECB assesses the impact of its July rate cut to a new record low at 0.75%. At that meeting, the bank also decided to stop paying banks interest on their overnight deposits with it.A poll showed 44 out of 69 economists expect the ECB to cut rates again by the end of the year, with seven saying the bank would cut already in August. Draghi's remarks last Thursday left many in the market wondering whether his message had been intended and if so how far the ECB would be prepared to go before it reaches the limits of its mandate."If you had just landed from planet Mars, and this was the first time that you had heard the ECB speak on this issue, you might think that it was about to fire a big bazooka at sovereign bond markets," said David Mackie, economist at J.P. Morgan."But, having listened carefully to the central bank over the last two and a half years, we don't think that is about to happen," he added. Germany's Bundesbank doused hopes for renewed bond purchases on Friday, saying it still opposed the programme. Instead the ECB would rather see Europe's permanent ESM bailout fund start buying the bonds of euro zone strugglers, but the fund's limited fire power could make its intervention less effective. One solution would be to give the ESM access to ECB funding and Austrian policymaker Ewald Nowotny last week broke ranks with his colleagues, saying such a step had merits. Draghi's candid remarks took some of his fellow Governing Council members by surprise, having not agreed with them before hand on the message he would send. This has prompted concerns Draghi may have raised false hopes in the market."Nothing new has been discussed (on action ECB could take), but Draghi is not a man to make comments lightly and at the end of the day he is the one calling the shots," said a euro zone central bank source. "There was always going to be a time when Draghi decided he had to act," the source said. Draghi did not have a pre-written speech when he spoke in front of an investment conference in London on Thursday and only much later that day did the ECB publish the transcript online.Another source said Draghi was not flagging an imminent move, and any action would likely come only in September or October, in conjunction with euro zone governments, and with a request from Spain for a bailout programme, which Madrid was still trying to avoid.

Spanish economy shrinks faster

Spain slid deeper into recession in the second quarter as a tough new round of austerity to head off the budget crisis that threatens the euro took effect both on overall demand and the price consumers have to pay for goods. The first official numbers on gross domestic product showed the economy shrank 0.4% from the previous quarter after contracting 0.3% in the first three months of the year. The economy was 1.0% smaller than a year earlier. Consumer prices according to both Spanish and EU methodology rose 2.2% year-on-year, with the EU-harmonised increase above forecasts being due to medicine price hikes put in place by the government to save money and deflate the deficit. Economists warned price hikes, and especially a 3-point rise in value-added tax due to come into effect in September, would distort consumer prices while the deepening recession reflected slower domestic demand. That will further weaken the government’s efforts to get the economy growing again - vital if it is to meet targets on reducing its budget shortfall and halting a market-inspired crisis in how it finances its debt. “To properly follow Spain's economic reality, I would look at domestic service inflation, which is where we’ll see stagnation and even deflationary pressures. Consumption remains very weak,” economist at Madrid-based broker Intermoney Jose Carlos Diez said. Spain slipped into the second recession since 2009 in the first quarter and is expected to continue to shrink until well into 2013 as consumers and businesses rein in spending and the eurozone debt crisis saps investor confidence. Fears over the health of Spain’s economy as it fights to reduce its public deficit has lifted funding costs to euro-era highs in recent weeks leading many to think an application for a full-bailout could soon become inevitable. A full breakdown of the growth data will be published August 28, while the final price data will be available August 14.

NEWS,26.07.2012

G20 Tax Evasion Crackdown Yields Results But Challenges Remain

 A global campaign to tax trillions of dollars hidden in offshore tax havens has made revolutionary progress, an official leading the drive said, rejecting suggestions that the super rich are running rings around Western authorities.Pascal Saint-Amans, director of a unit at the Organisation for Economic Cooperation and Development, also cast doubt on estimates that the havens are illicitly sheltering wealth equivalent to several hundred times the fortune of Bill Gates.Leaders of the G20 group of leading Western and developing nations launched the campaign three years ago, aiming to claw back billions in lost tax revenue at a time when many governments are trying to cut huge budget deficits.Saint-Amans said his gut feeling was that before the G20's initiative at its 2009 London summit, people could hide their wealth in offshore havens without any risk of legal reprisals."Now you are at risk and that's a major change. That's a revolution," Paris-based Saint-Amans told in a telephone interview. Even if money is transferred abroad, rules improving transparency have made it easier for the taxman to find it, said Saint-Amans, whose unit is tasked with leading the Western efforts to fight tax evasion.The Tax Justice Network, a campaign group, estimated last weekend that as much as $21 to $32 trillion of financial assets are sheltered in offshore tax havens, representing up to $280 billion in lost income tax.That total wealth would dwarf the fortune of Microsoft Corp cofounder and philanthropist Bill Gates. In March Forbes magazine ranked Gates second on its global rich list with total wealth of a mere $61 billion.Saint-Amans suggested the TJN estimates might be overstated. "I was wondering where the equivalent of 450 Bill Gates are hiding from everyone. It looks like the equivalent 20,000 unknown billionaires in the world or 200,000 people with net worth of 100 million," he said.The Scorpio Partnership, a consultancy that analyses the global private wealth management industry, estimates the amount of money held offshore by people worth at least $1 million at a more modest $8-$9 trillion.Saint-Amans, who heads the OECD's Centre for Tax Policy and Administration, acknowledged his organisation makes no equivalent estimate. "I would rather spend the resource improving the legal framework and putting an end to loopholes than trying to find the magic number," he said.In a statement accompanying its research, TJN criticised the OECD and other international bodies for not doing enough to track offshore wealth, saying it was scandalous that institutions devoted so little research to the issue.G20 leaders agreed at their London summit to crack down on tax evasion and banking secrecy, and asked the OECD to publish lists of tax havens according to how cooperative authorities there are on releasing information about offshore wealth holdings.There are now 89 countries on the OECD's "white list" of jurisdictions that have implemented internationally agreed tax standards. These jurisdictions have between them signed more than 800 agreements on exchanging information with authorities other countries, Saint-Amans said."Until 2009, countries said being secretive is justified and fair. The change in the world is nobody says that any more, so that is a big change," he said.Western tax authorities have individually stepped up efforts to net more money hidden abroad by their own citizens through a series of amnesties targeting people with accounts in jurisdictions such as Switzerland and Liechtenstein.At the same time they have turned up the heat on citizens suspected of tax evasion. This has included using details of Swiss accounts originally stolen from HSBC by a former IT employee that found their way into the hands of tax authorities around Europe.Britain's HMRC tax office expects an amnesty offering leniency to people with accounts in Liechtenstein if they come clean to raise about 3 billion pounds, while a similar deal on Swiss accounts will bring in up to 7 billion pounds.Campaigners argue that such initiatives will achieve only limited success because a financial industry designed to ensure confidentiality across multiple jurisdictions makes it impossible to shut down tax fraud or money laundering."Anybody who's serious about holding money offshore ... will hold it through a trust," said Richard Murphy, a chartered accountant and director of Tax Research, a think-tank."You'd have the trust in one territory, the company in another territory, its directors in another territory and its bank account in a fourth territory. So making an application for information is not very simple."Murphy dismissed the OECD's progress in cracking down on tax havens, arguing that implementation of information exchange between territories is limited in practice and the process too complex to be workable."They've set up a system where it's virtually impossible to apply for information ... The OECD claiming they are making progress is like checking the stable door has been shut way after the horse bolted. Not just the horse, the entire stable has bolted," he said.The TJN research on offshore wealth - authored by James Henry, a former chief economist at consultant McKinsey & Co - highlights the "often unsavoury role" played by banks in catering to rich individuals who want to hide money offshore.Large private banks with offshore businesses reject the idea they aid tax evasion."Our Code of Conduct explicitly says not to assist clients in activities intended to breach their tax obligations," said a spokesman for Swiss bank Credit Suisse who declined to comment specifically on the contents of the TJN report But recent crackdowns by tax authorities in countries such as Britain, the United States and Germany have proved embarrassing for Swiss banks.German tax authorities are investigating roughly 5,000 German clients of Credit Suisse while French officials have searched the homes of UBS employees.At least 11 Swiss banks suspected of helping wealthy American clients dodge taxes are currently subject to a U.S. investigation.Saint-Amans said the OECD's efforts have focused on engaging with governments rather than imposing more supervision on financial institutions. The complexity of the industry, he said, meant that greater information exchange was the best way to tackle people using banking secrecy to break the law."I'm not sure that nationalising the banking industry throughout the world is the solution. The fact you have private practitioners being involved in a sophisticated environment is why you need to favour transparency and exchange of information," he said.Efforts to increase disclosure and combat both tax evasion and money laundering by international bodies such as the OECD and the Financial Action Task Force (FATF), a Paris-based inter-governmental body, have focused on self regulation."We've tried to ensure that what we're talking about is not to create some draconian system where we put a policeman in every financial institution which would be impossible to do," said a senior source at the FATF, which was set up to combat money laundering and terrorist financing.Nick Matthews, anti-money laundering and offshore financial industry specialist at Kinetic Partners, said purging the world's financial system is "incredibly difficult"."Clearly tax evasion leads to money laundering and is a crime but you would have money laundering even if there was no tax, because you still have proceeds from crime or corruption polluting the financial system," he said."That is why I say that no bank would ever stand up and claim that they are not being used to launder money. They appreciate that they are only as strong as their weakest link."

Wells Fargo In Analyst Note, 'Does Service Mean Anything?'

A banking analyst suggested that good customer service hurts a bank's profits. Wells Fargo pissed off the wrong customer.Earlier this week, Richard X. 'Dick' Bove, a well-known banking analyst, blasted the bank in a research note entitled "Does Service Mean Anything?" According to Bove, 71, Wells Fargo royally botched his personal account, charging him mystery fees, bungling his mortgage refinance application and basically blowing him off on the customer service front. Bove, who had been a Wachovia customer for around 10 years before Wells Fargo took over, said the changes at the Tampa, Fla., branch where he had been banking were considerable. Gone was the greeter at the door, for example. In place of a friendly 'Hello' were sales desks. He recounts one occasion when he visited his branch to speak with a personal banker but was left waiting in limbo. "The bank officer made me wait a bit; came out of his office and entered a public bathroom; and then left the bank," Bove recounted in his note. "Nothing was solved for me on that visit."Wells Fargo acquired Wachovia in 2008, and former Wachovia locations in Florida were fully rebranded by July 2011, according to Wells Fargo. Bove said all his experiences took place at the same location on North Florida Avenue in Tampa.In his note, he assaults Wells Fargo for paying far more attention to profits than people. He concludes that customer service  the kind of customer service that involves developing a relationship over time  might actually hurt the bank's business strategy. "What my Wells Fargo experience suggests is that a succesful bank is one that keeps seeking new customers and selling them more products and not getting bogged down by offering service," he wrote in his note on July 23. Bove said he has since moved his personal bank account to JPMorgan Chase, although he told his mortgage and several other business accounts are still active with the bank.Wells Fargo did not comment directly on Bove's note when contacted by HuffPost. "We...recognize that we're only as good as our last interaction and we remain committed to putting our customers at the center of everything we do," Mary Eshet, a senior spokeswoman for the bank, said in an emailed statement. Bove's comments come as the disconnect between banks' business strategy and customer experience continues to be an issue for Americans. The banking analyst is not alone in feeling abandoned by bank customer service. A survey released Tuesday from Consumers Union, the advocacy arm of Consumer Reports, reported that nearly one-fifth of all consumers said they considered switching banks in the last year. The survey participants, like Bove, cited high fees and bad customer service.However, actually moving from one bank to another is a complicated process. More than half of the people who said they wanted to switch banks in the survey, said the reason they didn't complete the process was because of difficulty in transferring automatic payments. The survey included 1,157 adults and took place in May 2012.Consumers Union is calling on Congress and the year-old Consumer Financial Protection Bureau to consider reforms that would make it easier for consumers to switch banks. Suzanne Martindale, staff attorney for Consumers Union, said more consumers want to move their money but feel frustrated at the process. “Moving your money takes a lot of time and money and some bank policies make it harder than it should be," she said in a statement released with the poll results. "We need to make it easier for consumers to switch banks so they have a real choice when it comes to where to keep their money.”Bove is known for his independent voice, which has occasionally gotten him into trouble, as The New York Times pointed out in a 2010 story detailing a lawsuit he faced over some of his analysis.