Julius Baer, Turkey Fees, Swiss Boutiques: Compliance

Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, informed some American clients that their accounts meet the criteria of a U.S. request for data amid a Justice Department offshore tax-evasion probe.

The U.S. Internal Revenue Service is seeking information on accounts of Americans “owned through a domiciliary company” and held at any time between the beginning of 2002 and the end of last year, the Zurich-based bank wrote in a letter obtained by Bloomberg News and dated May 16.

Julius Baer is working on a request for information from Switzerland’s tax authority under a 1996 tax treaty with the U.S., Sabine Jaenecke, a spokeswoman for the bank, said yesterday. She declined to comment on a report in Neue Zuercher Zeitung that more than 100 Julius Baer clients were affected.

Julius Baer is one of at least 14 Swiss financial firms under investigation by the Justice Department for allegedly helping Americans hide money from the IRS. A Swiss court ruled in March that Switzerland could hand over account data under the 1996 tax deal, paving the way for information transfers by banks and raising the possibility of a breakthrough in two-year-old Swiss-U.S. talks to resolve the probe.

“We confirm the receipt of a request for information from the Federal Tax Administration in Switzerland based on the effective double-taxation agreement between Switzerland and the U.S.,” Jaenecke said in an e-mailed statement. “We are currently working on the request from the Swiss authority.”

Switzerland, the biggest haven for offshore wealth, wants to prevent another bank being indicted after Wegelin & Co. pleaded guilty in a Manhattan federal court in January to conspiring to help conceal more than $1.2 billion from the IRS.

Julius Baer approached U.S. officials in bid to clinch agreement similar to that secured by UBS AG to shield it from prosecution after it accepted undeclared money from U.S. taxpayers, Tages-Anzeiger reports, citing “several independent sources”.

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Compliance Policy

Banks Rebuked for Spin Tactics as Denmark Slams Sifi Pleas

Denmark’s government lashed out at the nation’s banks for deploying what it called spin tactics to try to persuade policy makers to delay regulatory reform.

The nation’s financial industry, which says Denmark risks stalling a recovery by moving ahead with too-big-to-fail rules faster than the European Union, is misleading politicians and businesses with its rhetoric, Economy Minister Margrethe Vestager said. She ruled out slowing down steps toward stricter requirements for systemically important lenders and reiterated her stance that banks won’t get tax breaks to help them through the transition.

Vestager said May 27 in an interview in Copenhagen that it would be “spin to say Denmark is a first mover on financial regulation.”

Denmark’s biggest banks are urging lawmakers to block a March proposal by a government-appointed committee on how to treat systemically important financial institutions. The Sifi committee says the nation’s six biggest banks must hold as much as 5 percent extra capital against their risk-weighted assets. The banks say such requirements are only fair if matched by a guarantee they’ll be exempt from Denmark’s bail-in rule.

The industry, led by Danske Bank A/S and Nykredit A/S, also argues the proposal puts Denmark at the forefront of regulatory reform at a time when businesses are struggling to gain access to credit made more costly by stricter rules. The EU has yet to unveil standards for its too-big-to-fail lenders.

Banks warn the result of not waiting risks turning into a replay of Denmark’s 2010 decision to pioneer bail-in legislation in the EU, a move that left most of the industry shut out of wholesale funding markets.

Turkey Bank Profit Dropkicked as Overdraft Rates Capped

Turkey capped the interest rate lenders can charge on overdrafts, fueling speculation banks will face additional regulatory measures that risk eroding profits and sending bond yields higher.

Overdraft rates will be subject to the central bank’s 2.22 percent upper limit on credit cards, policy makers said on May

25. That compared with as much as 5 percent the largest banks charge on overdrafts, data compiled by Bloomberg from company websites showed.

A banking association official declined to comment, while representatives from Garanti, Vakifbank, Isbank and Yapi Kredi weren’t immediately available to comment.

Turkish banks have faced mounting criticism about rates they charge customers from government officials including Economy Minister Zafer Caglayan, who was cited by the state-run Anatolia news agency on May 22 as saying that interest is “the mother of all evils.”

A draft law on consumer protection will give the banking regulator the authority to impose limits on fees and commissions as well, Customs Minister Hayati Yazici was cited as saying by the state agency on May 12.

The central bank measures that took effect yesterday come almost three months after Turkey’s antitrust board slapped a collective fine of 1.12 billion liras on 12 banks, saying they collaborated in setting interest rates, deposit rates and credit-card fees.

Separately, a new regulation published in Turkey’s Official Gazette yesterday expanded the financing means for real estate investment trusts, or REITs, the Capital Markets Board said in a statement on its website.

The regulation imposes as a condition that at least 51 percent of REIT assets be comprised of real estate investments. In addition, REITs only need regulatory approval for share transfers that result in a change in control of management after initial public offerings.

Compliance Action

Henderson Sees Swiss Tax Treaties Consolidating Asset Managers

Henderson Global Investors, a U.K.-based investment firm that manages 65.7 billion pounds ($99 billion), expects the costs of complying with tax treaties and other regulation requirements will lead to consolidation among Swiss asset managers.

Ariane Dehn, who is head of sales at Henderson’s Zurich office, said the cost of providing infrastructure will cause boutique asset managers to struggle.

Switzerland, the biggest haven for offshore wealth, is in talks with the U.S. as well as Germany in a bid to resolve disputes over tax evasion, building pressure on banks to force their customers to be tax compliant. The U.K. signed an accord in 2011 which came into force this year in which Swiss banks will pay 500 million Swiss francs ($515 million) to the U.K. government to cover the failure by their clients to disclose undeclared money in the past.

The investment firm, which manages around 2 billion francs for Swiss clients and is a unit of Henderson Group Plc, adheres to the requests for compliance it gets from its most important clients, including banks with large wealth-management operations and Swiss private banks.

Oil Probe That EU Says Mirrors Libor May Reveal Huge Damage

Oil-price manipulation may have wrought “huge” damage to consumers, the European Union’s antitrust chief said yesterday, as he drew comparisons with EU investigations into rigging of bank rates including Libor.

While it’s too soon to draw conclusions from the May 14 raids on Royal Dutch Shell Plc, BP Plc, Statoil ASA and Platts, EU Competition Commissioner Joaquin Almunia said both sets of probe target price manipulation through a reporting system.

EU antitrust regulators arrived unannounced at Platts as well as at oil companies in its investigation into possible collusion by traders. Platts, whose U.K. operations at Canary Wharf are in the same building as BP offices, provided data and is cooperating with the inquiry. It continues to publish benchmark prices including North Sea Dated Brent, against which more than half the world’s crude is valued.

The three oil companies have all said they are cooperating with the commission.

The EU oil probe, which extends to undisclosed crude-derived products and biofuels, underscores how pricing in some energy markets lacks the transparency of financial products such as stocks and U.S. corporate bonds. Almunia said the goal in these investigations is “to make sure that the companies have not colluded to manipulate their prices through a reporting system.”

The EU’s investigations into benchmarks are running alongside ones by U.S. and U.K. regulators who uncovered widespread attempts by banks to manipulate Libor.

Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy markets news and information.

Iceland Regulator Concerned by HFF Bank Capital-Adequacy Ratio

The Housing Finance Fund, Iceland’s largest mortgage bank, faces growing risk over its declining capital-adequacy ratio, the island’s Financial Supervisory Authority said in an annual report published on its website.

“The capital-adequacy ratio of the fund has decreased over the past semesters and it’s posed with a significant repayment risk, especially under the current interest-rate regime,” HHF said in the report.

HFF, which provides mortgages linked to the inflation rate, is losing business to commercial competitors such as Arion Banki hf and Islandsbanki hf, which are unfettered by such indexation.

The bank’s capital ratio was 3.2 percent of its risk-weighted assets at the end of last year, compared with a 5 percent regulatory minimum, the fund said in March.

Iceland, which let its biggest banks default on $85 billion in 2008, said in February it would bail out the fund before it became unable to honor its debts.


Ex-AIG Chief Greenberg Seeks End to ‘Dead’ Spitzer Fraud Case

Former American International Group Inc. Chief Executive Officer Maurice “Hank” Greenberg asked New York’s highest court to clear his name and dismiss what remains of an eight-year-old lawsuit over an AIG accounting scandal.

The argument yesterday before the Court of Appeals in Albany came after New York Attorney General Eric Schneiderman said that while he wants to hold Greenberg personally liable, he no longer seeks money damages. He wants to bar Greenberg, 88, from working in the securities industry or serving as an officer or director of a public company.

Greenberg has long argued that the lawsuit, originally filed by then-Attorney General Eliot Spitzer, is groundless. Schneiderman contends that Greenberg and former AIG Chief Financial Officer Howard Smith bear responsibility for a sham transaction with General Reinsurance Corp. in 2000 and 2001 that inflated AIG’s loss reserves by $500 million.

New York State Solicitor General Barbara Underwood told the court the state wants to “protect the markets of New York from fraud” and “hold him accountable.”

Greenberg, who served in World War II and in Korea, has squared off against three attorneys general in his fight to defeat the lawsuit. Spitzer’s pursuit of the case forced Greenberg to step down from AIG in 2005 after he spent four decades building AIG into the world’s largest insurer.

Greenberg argues he got new ammunition on April 10 after a federal judge in New York approved a $115 million settlement of a class-action lawsuit, which resolved claims by AIG shareholders against Greenberg, Smith and other defendants.

Greenberg attorney David Boies told the appeals court the state is trying to keep the case alive “so they can delve into it more after eight years of not finding anything.” He also objected to what he called a change in tactics. The state argued that it never waived its right to an injunction, or court order limiting where Greenberg may work.

The case is State of New York v. Greenberg, 401720-2005, New York state Supreme Court (Manhattan).

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Deutsche Telekom Wins Dismissal of $791 Million Data Suit

Deutsche Telekom AG won dismissal of a lawsuit by the founders of Telegate AG seeking 612 million euros ($791 million) over claims the phone company overcharged for directory data.

Klaus Harisch and Peter Wuensch can’t claim compensation, the Cologne Regional Court ruled yesterday. They had argued that the value of their Telegate shares had declined because Deutsche Telekom had overcharged for the data. The court also rejected a separate lawsuit by Telegate seeking 86 million euros over similar claims.

Deutsche Telekom has defended lawsuits for almost a decade by directory-service providers who said they were being charged too much for the services and data that Germany’s former phone monopoly was required by law to provide. The country’s top civil court last year backed two lower court rulings requiring Bonn-based Deutsche Telekom to pay back a combined 97.2 million euros in overcharged fees and legal costs.

Telegate, based in Munich, said in a statement that it would appeal the ruling that applied to the company. Georg Jochum, a lawyer for the plaintiffs, declined to immediately comment.

The Cologne court’s press office declined to give reasons for the judges’ ruling.

Yesterday’s cases are LG Koeln, 87 O 7/06 and 87 O 8/06.

Commerzbank’s Eurohypo Loses Suit Over Profit Certificates

Commerzbank AG’s Eurohypo unit must pay interest on profit certificates to a private-equity firm and a U.S. hedge fund after Germany’s top civil court ruled the lender was wrong to stop payments on the securities in 2009.

Germany’s Federal Court of Justice yesterday backed rulings won by Crown Ocean Capital Ltd. and QVT Financial LP.

Eurohypo stopped payments on the securities in 2009 after recording a loss. The certificates were originally issued by Rheinhyp AG and Hypothekenbank in Essen AG, which later became part of Eurohypo. Commerzbank bought the real estate lender in 2005 for an estimated 5.9 billion euros ($7.6 billion). The unit lost 3.5 billion euros in 2011 and is being wound down.

“The terms of the profit certificates didn’t have a rule for what happened to them in a takeover, so they needed to be adjusted,” Presiding Judge Alfred Bergmann said. “Since there was a positive outlook at the time” of the takeover, Commerzbank “must continue to fully pay interest.”

Commerzbank won’t comment until it receives the court’s written judgment, Nils Happich, a spokesman for the Frankfurt-based bank, said in an e-mailed statement.

Josef Broich, a lawyer for QVT, said while he also hasn’t seen the written judgment, the court press statement made it clear “the Federal Court of Justice fully followed the arguments we made from the beginning.”

Profit certificates are securities that entitle the holder to a portion of a company’s profits while obliging them to share in losses without giving them any ownership of the business.

The hearing yesterday was followed by more than a dozen private investors who hold the securities.

Yesterday’s cases are BGH, II ZR 2/12 and II ZR 83/12.


Jain Says Deutsche Bank ‘Considerably’ More Capitalized

Anshu Jain, co-chief executive officer of Deutsche Bank AG, spoke in Frankfurt about the 2008 financial crisis, banking rules and efficiencies.

For the video, click here.

Asmussen Says Monetary Union Needs Banking Union

European Central Bank Executive Board Member Joerg Asmussen spoke in Frankfurt about a euro-area banking union, supervision and financial stability.

For the video, click here.

Comings and Goings

Manhattan’s Vance Forms Financial Unit to Work With IRS, FBI

Manhattan District Attorney Cyrus Vance Jr. has formed a data-focused unit to help his office focus on the financial aspects of criminal activity from street crime to cybercrime, said David Szuchman, chief of the D.A.’s Investigation Division.

Twenty analysts assigned to the Financial Intelligence Unit will track financial crimes by reviewing data from banking, regulatory, law enforcement and open-source data, Vance said yesterday in a statement. The unit will refer potential cases to the Major Economic Crimes Bureau, under which it operates, and coordinate with agencies including the U.S. Internal Revenue Service, Federal Bureau of Investigation and Secret Service.

It will be overseen by Assistant District Attorney Jordan Arnold, and Polly Greenberg, chief of the Major Economic Crimes Bureau.

An economic-crimes unit formed in November 2010 has reviewed thousands of filings that generated investigative leads, Vance’s office said. The new unit will cooperate with federal authorities or other district attorneys’ offices in cases where jurisdictional issues prevent Vance’s office from bringing a case, according to the statement.

RBS Hires Ex-FSA Director Jon Pain as Head of Regulatory Affairs

Royal Bank of Scotland Group Plc, the recipient of the world’s biggest banking bailout, hired Jon Pain as its head of conduct and regulatory affairs.

Pain was previously partner for financial services at accounting firm KPMG LLP and earlier led the Financial Services Authority’s efforts at recapitalizing Britain’s banks in the wake of the 2008 crisis, the Edinburgh-based lender said in a statement. Pain will take up the newly created role in August.

RBS is the third U.K. bank, following Lloyds Banking Group Plc and Barclays Plc, to appoint a former regulator to a senior compliance role.

RBS was fined $612 million in February for rigging benchmark interest rates such as Libor and has set aside more than 2 billion pounds to compensate customers wrongly sold payment-protection insurance.

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