Swiss banks must lure affluent clients from emerging markets or face a “slow death” as the pursuit of tax dodgers by U.S. and European authorities results in outflows of assets, industry officials and investors said.
Western Europeans may pull as much as 135 billion francs ($139 billion), or 15 percent of their holdings, from Swiss banks, said Herbert Hensle of Cap Gemini SA. (CAP) Bank Sarasin & Cie AG (BSAN) reported last week that private clients withdrew 3 billion francs from Swiss locations in the year through June.
Switzerland built the world’s biggest offshore wealth center during an era of “black money” that ended when the U.S. sued UBS AG (UBSN) three years ago. Many of the highest fee-generating European and American customers are withdrawing funds as the hunt for tax evaders widens. As many as 100 Swiss banks will vanish, according to Vontobel Holding AG (VONN) Chief Executive Officer Zeno Staub.
Francois Reyl, chief executive officer of Geneva-based Reyl Group, which manages 5.5 billion francs of assets, said those banks that don’t adapt, “will die a slow death.”
Some banks are already under pressure. EFG International AG (EFGN) last month reported outflows from continental Europe in the first half, while net new money from private clients at Vontobel fell 86 percent to 100 million francs from a year earlier.
Switzerland passed bank secrecy laws in 1934. Swiss banks amassed one-third of the world’s offshore wealth over the next 75 years, before the U.S. government sued UBS on Feb. 19, 2009, to force the disclosure of 52,000 American customers who allegedly hid undeclared assets in Swiss accounts.
Almost one in three banks will disappear or merge with other firms over the next five years as fees fail to compensate for rising regulatory costs and difficult market conditions, Vontobel’s Staub told Handelszeitung this month.
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Vietnam to Ease Rules to Lure Stock Investors, Speed Up IPOs
Vietnam (VNINDEX) plans to ease rules on equity trading and accelerate initial public offerings of state-owned companies this year to attract investors to a market that’s valued about 15 times less than Singapore’s.
The State Securities Commission is preparing to cut the minimum holding period for stocks, Nguyen Doan Hung, vice chairman of the commission, said in an e-mailed response to questions from Bloomberg on Aug. 2. The regulator is also considering widening stock trading bands and starting an online auction system to boost volumes and speed up sales, he said, without specifying when the measures may be started.
The value of Vietnam’s equity market has jumped 40 percent this year, the biggest expansion after Venezuela, according to data compiled by Bloomberg. Malaysia’s market is valued at $435 billion and Indonesia’s $407 billion, while Japan, Asia’s biggest market, is worth $3.42 trillion.
To help lure investors, the State Securities Commission wants to cut the minimum period investors must hold shares to two days from three days by the end of this year, and reduce it further to one day next year, said Hung.
As well as easing rules on trading, the regulator wants the nation’s two exchanges in Hanoi and Ho Chi Minh City to set up online auction systems to speed up IPO activity, Hung said.
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Polish Regulator Seeks Better Data on Banks’ Capital Adequacy
Poland’s lenders should “improve” the quality of their capital adequacy data as systemic risk among lenders “remains elevated,” Wojciech Kwasniak, deputy head of the country’s financial regulator, said in a letter to bank executives dated July 31 and published on its website today.
MSRB Seeks Comments on Plan to Gather Info on 529 College Plans
The Municipal Securities Rulemaking Board issued a request for public comment on a proposal to collect and analyze market information on 529 college savings plans.
The proposed MSRB rule would require securities firms that act as 529 plan underwriters, commonly referred to as primary distributors, to submit information on a quarterly basis to the MSRB about the plans, a statement from MSRB said.
CFTC’s Chilton Says There Were ‘Devious Efforts’ in Silver
The silver market was affected by “devious efforts” to move the price of the precious metal, according to Bart Chilton, a member of the U.S. Commodity Futures Trading Commission.
Chilton made the remarks in an e-mail yesterday in response to questions from Bloomberg. He said in the e-mail that there “have also been silver and gold market anomalies outside of the silver investigate window that have raised, and continue to raise, market concerns.”
The enforcement division of the Washington-based agency began pursuing allegations of manipulation in the silver market in September 2008. Investigators have analyzed more than 100,000 documents and interviewed dozens of witnesses, the CFTC said in a November 2011 statement. Chilton said last month the investigation may be completed as early as September.
“We will decline to comment because the commission has not decided a course of action on this matter,” Steve Adamske, a CFTC spokesman, said on the silver investigation.
New York Said to Probe Insurers Over Captive Coverage
New York’s Department of Financial Services sent letters last month to about 80 life insurers in the state seeking details on financial arrangements with captive insurance companies, a person familiar with the matter said.
The companies, which include MetLife Inc. and Lincoln National Corp. (LNC), faced a deadline yesterday to provide the information, said the person, who declined to be identified and wasn’t authorized to speak on the matter.
Captives are companies set up by an insurer to cover the parent’s risks. Bermuda and the Cayman Islands were the most common locations for captive insurers in 2010, according to the Insurance Information Institute. Vermont is the state with the largest number of captives, at 572 in 2010.
Ron Klug, a spokesman for the New York Department of Financial Services, declined to comment on the matter in a telephone interview. The letters were reported earlier in the day yesterday by the Wall Street Journal.
MetLife uses captive reinsurers and letter of credit facilities to comply with certain reserve requirements that are related to universal life and term life insurance policies, Chris Breslin, a spokesman for New York-based MetLife, said in an e-mail.
Michael Arcaro, a spokesman for Lincoln National, had no immediate comment.
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Turkey to Track Money Hidden in Foreign Accounts, Sabah Says
An accord with Switzerland goes into effect on Jan. 1, while Turkey is working on agreements with 10 other international tax havens it’s identified including the Bahamas, the Virgin Islands and Panama, the Istanbul-based newspaper quoted Simsek as saying.
Turkey has also signed information-sharing protocols with the governments of Malaysia, Singapore and Luxembourg, Simsek said, according to Sabah.
Goldman Sachs Among Firms Pledging Better Controls to Japan FSA
Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) are among banks in Japan that pledged to improve how they safeguard information as the nation’s financial regulator seeks to restore confidence dented by insider trading.
Goldman Sachs will train staff on ethics and confidentiality, the New York-based bank said in a statement on its Japanese-language website today. JPMorgan plans to increase compliance staff in Japan and boost monitoring of communication between employees to avoid leaks, it said in a statement.
The Financial Services Agency last month asked 12 securities firms to report on how they manage corporate information after finding Nomura Holdings Inc. (8604) failed to prevent leaks that led to insider trading. The regulator last week ordered Nomura to improve its securities operations, a week after the top two executives at Japan’s biggest brokerage resigned over the scandal.
Goldman Sachs employed about 850 staff at its Japanese brokerage unit as of March 31. The Wall Street firm is offering training programs on compliance and ethics and telling staff they may be fired if they leak inside information, said Hiroko Matsumoto, a Tokyo-based spokeswoman.
Mitsubishi UFJ Morgan Stanley Securities Co., Mizuho Financial Group Inc. (8411), Sumitomo Mitsui Financial Group Inc. (8316), New York-based Citigroup Inc.’s local unit also plan to boost compliance measures.
NYSE in Discussions With SEC to Resolve Market-Data Feed Inquiry
NYSE Euronext is working with the U.S. Securities and Exchange Commission to address compliance with a rule prohibiting markets from disseminating information to subscribers faster than it is sent to organizations that provide the data publicly.
NYSE Euronext and the SEC are resolving possible violations of “a technical rule governing the timing of delivery of certain exchange market data,” Richard Adamonis, a spokesman, said in an e-mail. “The company does not expect that any settlement of this matter will be material.”
U.S. securities exchanges aren’t allowed to release data about trades and their best bids and offers to clients faster than they send it to the organizations that collect and disseminate it publicly. Exchanges earn money from the sale of subscriptions to proprietary and public data feeds, or streams of information.
Proprietary market data from an exchange enables clients to get transaction-related information faster than the public since the content doesn’t have to be collected from all venues and aggregated. Rule 603(a) of Regulation NMS prohibits releasing information faster through a proprietary data feed.
Second TSE System Error in Seven Months Halts Derivatives
The Tokyo Stock Exchange Group Inc.’s second major system error in seven months halted derivatives trading for about 95 minutes, cutting equity volumes, driving government bonds lower and sending futures traders to its smaller Osaka rival.
The failure lasted from about 9:20 a.m. to 10:55 a.m. local time, the bourse operator said. Trading in Topix Index shares was 20 percent below the average for the time of day after index and government bond futures were halted. Japanese 10-year government bonds fell during the breakdown. A similar error caused the biggest disruption in six years on Feb. 2 when a fault prevented backup systems engaging, halting trading for 3.5 hours in some of the country’s biggest companies.
The outage is a further setback for the Tokyo exchange as it pursues a takeover bid for the smaller Osaka bourse, which dominates Japan’s equity derivatives business. It also highlights the vulnerability of global markets to computer malfunctions, a week after errors at market-maker Knight Capital Group Inc. (KCG) led to incorrect trades for more than 100 U.S. stocks. This week is the second-busiest for earnings on the 1,672-company Topix. Tokyo, which hosts the world’s No. 2 cash equities venue by the value of companies listed, stopped trading in 241 securities for 3.5 hours on Feb. 2 after a server failure. That error, which also occurred during the height of earnings season, followed a Dec. 29 cable malfunction that slowed trading. Another bug in 2006 derailed all trading.
A Tokyo Stock Exchange information technology planning document from September last year made building and maintaining “a trading system of the highest global standard” a core priority for developing the company’s derivatives market.
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Knight’s Joyce Sees Permanent Solution for Firm as Shares Plunge
Knight Capital Group Inc.’s weekend rescue put an end to solvency concerns at the firm, according to Chairman and Chief Executive Officer Thomas Joyce. It also sent the stock more than 70 percent below its level a week ago.
The Jersey City, New Jersey-based company, one of the country’s biggest market makers, faced too many risks to make its equity price a top priority in the bailout, Joyce said in a telephone interview yesterday. Knight fell 24 percent to $3.07 in New York as investors prepared for hundreds of millions of shares to enter the market via convertible securities.
Knight, driven to the brink of bankruptcy by trading losses Aug. 1, received $400 million through the sale of convertible stock. Jefferies Group Inc. conceived and structured the investment and bought shares along with Getco LLC and Blackstone Group LP, brokerages Stifel Nicolaus & Co. and TD Ameritrade Holding Corp., (AMTD) as well as the investment bank Stephens Inc.
While owners of Knight stock saw the value of their stake diminish after a 61 percent plunge last week, the firms behind the infusion are sitting on potential gains.
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Former Lloyds Digital Security Chief Admits $3.76 Million Fraud
Lloyds Banking Group Plc (LLOY)’s former head of digital banking fraud and security pleaded guilty to submitting false invoices totaling more than 2.4 million pounds ($3.76 million).
Jessica Harper admitted to one count of fraud by abuse of position and one count of money laundering at a court in London, the Crown Prosecution Service said in a statement.
Harper admitted to submitting fake invoices between 2007 and 2011 and then laundering the proceeds, the CPS said. She will be sentenced on Sept. 21.
Lloyds spokesman Ian Kitts declined to comment. Harper’s lawyer, Emma Lipscombe, didn’t immediately respond to an e-mail requesting comment.
Stora Enso Price-Fixing Case Revived by U.S. Appeals Court
Stora Enso North America Corp., a former unit of the Finnish commercial printing products company, must face an antitrust lawsuit brought by its customers, a federal appeals court ruled, reversing a trial judge’s dismissal of the case.
The U.S. Court of Appeals in Manhattan said yesterday that a jury could potentially find that the company, which was sold to Newpage Corp. in 2007, conspired to fix prices. The three- judge panel affirmed the lower court’s decision to throw out the case against its former Helsinki-based parent, Stora Enso Oyj (STEAV), for lack of evidence.
“We are confident that a jury reviewing all of the facts in connection with this case will conclude that there was no agreement to fix the prices of publication paper in the United States,” as a jury found in the criminal case, David Marx Jr., a lawyer for Stora Enso and its former U.S. unit, said in a phone interview yesterday.
The case is In re Publication Paper Antitrust Litigation, 11-cv-101, 2nd U.S. Circuit Court of Appeals (Manhattan).
Toes Says Glitches More Likely as More Rules Introduced
Jim Toes, president and chief executive officer of Security Traders Association, talked about financial-market regulation and Knight Capital Group Inc.’s software failure in one of its trading systems.
He spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
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Hintz Calls Knight Capital ‘Another Bear Stearns’
Brad Hintz, an analyst at Sanford C. Bernstein & Co., and Bloomberg’s Christine Harper talked about the outlook for Knight Capital Group Inc. after a software failure on Aug. 1 left the firm with positions that it later sold at a $440 million loss.
They spoke with Tom Keene, Scarlet Fu and Sara Eisen on Bloomberg Television’s “Surveillance.”
Separately, Hintz wrote in a weekend research note about the Knight rout and its significance in the debate about whether big banks should be split.
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