Julius Baer to pay US$547m for helping US tax cheats

FEB 5, 20168:30 PM

[NEW YORK] Julius Baer Group Ltd agreed to pay US$547 million to avoid US prosecution and admitted it helped American clients hide billions of dollars in assets from tax authorities while coaching its bankers on how to avoid detection.

Switzerland's third-largest lender made detailed admissions of wrongdoing and prosecutors agreed to drop a conspiracy charge in three years if the bank abides by the terms of the deal filed Thursday in federal court in Manhattan. Two of its client advisers, Daniela Casadei and Fabio Frazzetto, also pleaded guilty to conspiracy charges.  As part of the accord, Julius Baer admitted that it conspired since the 1990s to help clients cheat the Internal Revenue Service. It said it gave its bankers a memo called "US Clients Do's and Don'ts" to coach them on how to avoid scrutiny when they came to visit American clients with assets not declared to the IRS.

"When asked by officer what will you do while in the USA, say business and of course some leisure, trying to take some time to enjoy your beautiful country," according a statement of facts by the bank. "Proud government employees usually love this type of statement. One can throw in skydiving or another fun sport/activity."

Bankers were told to use only mobile phones registered in Switzerland and avoid hotel phones when speaking with clients. They were also advised to buy telephone calling cards and use them when calling abroad, allowing the use of "practically any phone with no specific link left behind." Julius Baer follows larger Swiss rivals UBS Group AG and Credit Suisse Group AG in resolving US tax probes. UBS did so by agreeing in 2009 to pay US$780 million, while Credit Suisse reached a US$2.6 billion deal in 2014.  As the UBS investigation intensified, Julius Baer opened 247 undeclared accounts from that bank in 2008, with one executive calling it "a big opportunity for us hopefully," according to the agreement.

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The bank, which once held US$4.7 billion in US assets, made US$219 million in revenue and US$87 million in profit on undeclared accounts from 2001 through 2011, according to US Attorney Preet Bharara.

Helped Lawbreakers "Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law," Bharara said in a statement.

Casadei, a 52-year-old Swiss, and Frazzetto, a 42-year-old citizen of Italy and Switzerland, were indicted together in 2011 and made their first appearance in US court this week. They each pleaded guilty to a conspiracy charge.

"While I was convinced I was acting in accordance with Swiss law, I agreed to assist these US clients," Frazzetto said.

Casadei said she "agreed with these US taxpayers to help them commit these crimes." Swiss Negotiations In late 2009, Julius Baer decided to approach US authorities proactively and report its activities, but Swiss regulators requested that it not do so "in order not to prejudice the Swiss government in any bilateral negotiations with the US government on tax-related matters," according to the pact.

When it finally approached US authorities, the bank took "exemplary actions" to come clean, including conducting a "swift and robust internal investigation" and giving the US government a "continuous flow of unvarnished facts," according to Bharara.

The plea agreement calculated an US$81 million penalty, which was an 85 per cent reduction of the bank's possible payment. The rest of the payments are considered restitution and forfeiture.

"Being able to close this regrettable legacy issue is an important milestone for Julius Baer," Chief Executive Officer Boris Collardi said in a statement. "The settlement ends a long period of uncertainty for us and all our stakeholders. This resolution allows us now to again fully focus on the future and our business activities." Responsibility Accepted Frazzetto's attorney, David B. Weinstein, said his client accepted responsibility and has worked with the Justice Department and IRS to "put this chapter behind him." "He looks forward to returning home to his family and friends who have supported him throughout this process," said Weinstein of Greenberg Traurig LLP.

Frazzetto and Casadei may face prison sentences of as long as five years. Prosecutors have said they will recommend lesser sentences for the two based on their cooperation.

"From now on, the market will focus on Baer's margins and capital available for acquisitions," said Jonas Floriani, an analyst at Keefe, Bruyette & Woods with an outperform rating on the stock.

The settlement won't impact 2016 results as Julius Baer set aside provisions for the payment last year, Zuercher Kantonalbank analyst Michael Kunz wrote in a note to investors.

Julius Baer shares rose as much as 2.9 per cent in Zurich trading and were up 2.7 per cent at 40.49 francs as of 12:10 a.m.

A dozen or so Swiss banks, such as Pictet & Cie. Group SCA and the Swiss unit of HSBC Holdings Plc, are still waiting to end criminal tax investigations by the US

Another 80 Swiss banks avoided prosecution in the past year by agreeing to pay US$1.37 billion in penalties and voluntarily disclosing their wrongdoing as part of a Justice Department program. BSI SA agreed to pay US$211 million while Union Bancaire Privee settled for US$188 million.

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China M&A flurry drives cross-border activity to 11-year high

FEB 5, 20166:48 PM

[LONDON] Worldwide cross-border mergers and acquisitions activity has hit US$132.7 billion so far in 2016, up 31 per cent compared with a year ago and the strongest year-to-date period since 2006, driven by Chinese acquisitions, Thomson Reuters data shows.

ChemChina agreed to buy Swiss seeds and pesticides group Syngenta this week for US$43 billion, the largest-ever foreign purchase by a Chinese firm and the biggest-ever Chinese-involvement M&A deal, according to the data.

Chinese acquisitions abroad now account for 47 per cent of overall cross-border activity so far this year, comprising four of the top six cross-border deals.

After hitting a record high in 2015, worldwide M&A activity has got off to a sluggish start, down 22 per cent compared with the same period last year, totalling US$241 billion.

Falling oil prices and worries about slowing growth in China has spooked markets in January causing volatile swings across asset classes and could make corporate boards more cautious on pulling the trigger on big M&A transactions.

That volatility has also dragged down the pace of new global equity offerings, which are down 45 per cent compared with a year ago, totalling just US$33 billion, the lowest year-to-date level for ECM activity in eight years.

HSBC, has moved into third position in the M&A league tables after advising ChemChina on its blockbuster deal, trailing Goldman Sachs and JPMorgan in first and second place.

REUTERS

    
 

China-backed development bank appoints five foreign vice presidents

FEB 5, 20166:03 PM

[BEIJING] The Asian Infrastructure Investment Bank (AIIB) appointed five non-Chinese vice presidents, the China-backed lender said on Friday, following vows that it would be an international institution and not used to boost Beijing's influence.

The AIIB, first proposed by President Xi Jinping less than two years ago, has become one of China's biggest foreign policy successes. Despite the opposition of Washington, almost all major US allies - Australia, Britain, German, Italy, the Philippines and South Korea - have joined.

The United States, which initially cautioned nations against joining the AIIB, had expressed concern over how much say China would wield within the bank, to the benefit of its state-run companies.

The five posts include a vice president of policy and strategy, a corporate secretary and chief officers for risk, investment, and administration, the bank said in a statement.

"This is an exceptionally strong and committed group who bring wide and varied experience and a wealth of expertise that will serve the bank well," AIIB President Jin Liqun said.

Danny Alexander, a former chief secretary of Britain's Treasury, was appointed as corporate secretary, and Germany's Joachim von Amsberg, a World Bank officer, was appointed as vice president of policy and strategy.

The other posts are held by former senior officials and bankers from India, South Korea and Indonesia.

A successful AIIB that sets itself apart from the World Bank and the International Monetary Fund (IMF) would be a diplomatic triumph for China, which opposes a global financial order it says is dominated by the United States and does not adequately represent developing nations.

Jin has said that as the bank ramps up operations in 2016, it is expected to lend up to US$2 billion in the first year and then US$10 billion to US$15 billion a year for the next five or six years.

He has also said the bank will have an internal department focused on compliance and integrity that reports directly to the board and that it will not be "the instrument of the Chinese government".

REUTERS

    
 

BlackRock finds value in battered state-owned Indian banks

BlackRock Inc has turned more bullish on India's state-owned lenders after concern over bad loans sent their valuations to a record low.

PHOTO: BLOOMBERG

FEB 5, 20165:03 PM

[MUMBAI] BlackRock Inc has turned more bullish on India's state-owned lenders after concern over bad loans sent their valuations to a record low.

"The non-performing assets issue has been debated and analyzed for quite some time now, and all the worries around it are in the stock prices," S Naganath, Mumbai-based chief investment officer at DSP BlackRock Investment Managers Pvt, the Indian venture of the world's largest money manager, said in an interview on Thursday. "If I take a three-year view, I would be very bullish on the public sector banks." The worst start to a year for Indian equities since 2011 has left a gauge of 12 state-owned lenders trading at 0.52 times its book value, an all-time low, data compiled by Bloomberg show. Indian lenders are grappling with rising bad loans amid the highest stressed-debt ratio in at least 14 years as a slower than expected revival in Asia's third-biggest economy erodes borrowers' capacity to service debt. The central bank has set a March 2017 deadline to help bolster balance sheets by increasing provisions.

The money manager held shares of State Bank of India and Bank of Baroda, the nation's biggest state lenders, in the DSP BlackRock Top 100 Equity Fund as of Dec 31, according to data compiled by Bloomberg. Banks made up a quarter of the 35 billion-rupees fund, which has returned 13 per cent annually in the 10 years through Jan 29. That compares with the 11 per cent yearly gain for the S&P BSE 100 Index during the period.

The proportion of Indian lenders' stressed assets, which include restructured and soured loans, to total advances reached a 14-year high of 11.3 per cent at the end of September, data compiled by the Reserve Bank of India show. State-owned banks recorded the worst capital-adequacy ratios among all financial institutions, the RBI data show.

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The NSE Nifty PSU Bank Index has lost 43 per cent of its market value in the past 12 months, twice as much as the NSE Nifty Bank Index, which includes HDFC Bank Ltd., India's most valuable lender. The selloff in the government-run lenders has shrunk the combined market value of the 12 banks in the PSU gauge to US$33 billion, less than HDFC Bank's US$39 billion.

HDFC Bank had a capital adequacy ratio of 15.9 percent at the end of December and a gross bad-loan ratio of 0.97 percent. That compares with 12.7 per cent and 5.1 per cent, respectively, for India's banking system as of Sept. 30, latest data available from the RBI show. The lender's shares have risen 22 per cent annually in the 10 years through Jan 29, compared with the 3 per cent yearly return for the Nifty PSU Bank gauge.

State Bank of India, the nation's largest, has slumped 43 per cent in the past year. The stock is valued at 0.7 times its net assets, compared with 4.2 times for HDFC Bank, data compiled by Bloomberg show. Bank of Baroda, the second-biggest by assets, has tumbled 30 per cent in the period and trades at 0.6 times its book value. Both lenders are due to post their fiscal third- quarter earnings next week.

"There may still be some more provisioning to be done, which may impact the earnings of banks in this quarter," Mr Naganath, who oversees US$5.8 billion in assets, said. "The stock prices reflect those concerns for private and public-sector banks, especially the latter."

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Payrolls in US rose 151,000 in January, jobless rate at 4.9%

FEB 5, 20169:54 PM

[WASHINGTON] Job growth settled into a more sustainable pace in January and the unemployment rate dropped to an almost eight-year low of 4.9 per cent, signs of a resilient labour market that's causing wage growth to stir.

The 151,000 advance in payrolls, while less than forecast, largely reflected payback for a seasonal hiring pickup in the final two months of 2015, Labour Department figures showed Friday. The jobless rate fell to the lowest level since February 2008. Hourly earnings rose more than estimated after climbing in the year to December by the most since July 2009.

The moderation in hiring still leaves the job market on solid footing and shows companies are confident about the outlook for domestic sales. A further tightening of labour conditions that sparks wage gains would help assure Federal Reserve policy makers that inflation will reach its goal.

"The pace in payrolls has just been outstanding - it's been way too good for the state of the economy and the world," Bricklin Dwyer, an economist at BNP Paribas in New York, said before the report. The slower rate of job growth is still "enough to push down the unemployment rate, so that's what matters for the Fed."

While employment at temporary-help agencies and couriers declined in January following a ramp-up leading into the year- end holidays, leading to a slower pace of payrolls for the month, the labour market showed strength elsewhere.

Retailers added almost 58,000 jobs last month, the most since November 2014, and the health care industry took on another 44,000 workers. Perhaps most surprising was a 29,000 gain in hiring at manufacturers, the biggest increase since August 2013.

Payrolls picked up at producers of fabricated metals, automobiles, food and furniture.

The median forecast in a Bloomberg survey called for a 190,000 gain in overall payrolls last month, with estimates ranging from gains of 142,000 to 260,000.

December payrolls were revised down to 262,000 from 292,000 and November employment was revised up to 280,000 from 252,000. The revisions to these months subtracted a total of 2,000 jobs to overall payrolls.

Friday's data showed a much-awaited pickup in wage growth is starting to manifest itself. Average hourly earnings rose 0.5 per cent from a month earlier to $25.39. The year-over-year increase of 2.5 per cent followed a 2.7 per cent jump in the 12 months ended in December, which was the biggest advance since mid-2009.

"Job growth is very strong, real incomes are strong, productivity is very poor, but nevertheless, people have money in their pockets," Dwyer said. "They're going to spend that now." The report also showed the average work week for all private employees increased by 6 minutes to 34.6 hours, the longest since August. A longer workweek often amounts to greater take-home pay for many employees.

The Labour Department's figures included its annual benchmark update, which aligns employment data with state unemployment benefit tax records.

The revision showed the economy created 206,000 fewer jobs from April 2014 to March 2015, in line with a preliminary projection of 208,000. Still, for all of 2015, the economy created 2.74 million jobs.

The unemployment rate, which is derived from a separate Labour Department survey of households, fell in January from 5 per cent in December.

The labour force participation rate, which indicates the share of working-age people who are employed or looking for work, increased to 62.7 per cent from 62.6 per cent.

Fed policy makers are tracking the labour market as part of their dual mandate for maximum sustainable employment and stable inflation. The jobs data take on added meaning as other parts of the economy have shown signs of slowing.

Economic growth decelerated to a 0.7 per cent annualized rate in the final three months of 2015 after growing at a 2 per cent pace in the third quarter. The manufacturing sector has contracted for four months, and data this week showed the softness may be extending to services industries, which make up about 90 per cent of the economy.

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Trade gap in US widens as exports fall to four-year low

FEB 5, 20169:49 PM

[WASHINGTON] The trade deficit widened in December as stable US domestic demand supported imports while weaker growth abroad held back overseas sales.

The gap increased 2.7 per cent to US$43.4 billion from US$42.2 billion in November, the Commerce Department reported Friday in Washington. The median forecast in a Bloomberg survey of 65 economists called for a deficit of US$43.2 billion.

Estimates in the Bloomberg survey ranged from trade gaps of US$40 billion to US$46.2 billion.

For all of 2015, the trade gap widened 4.6 per cent to US$531.5 billion, the biggest since 2012. The US petroleum deficit, adjusted for changes in prices, was the lowest ever.

China last year became the largest goods trading partner with the US, while Canada dropped to second. The value of combined exports and imports with China was US$598.1 billion in 2015.

After eliminating the effects of price fluctuations, which generates the numbers used to calculate GDP, the trade deficit widened to US$60.3 billion in December from US$59.2 billion a month earlier.

Imports increased 0.3 per cent, while exports decreased 0.3 per cent to US$181.5 billion in December, the weakest since January 2012.

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