Deutsche Bank verkauft Cosmopolitan-Casino

Deutsche Bank built and operated a casino in Las Vegas, but now they’ve sold it.

Originally, Deutsche Bank said, they only wanted to finance the construction of the casino. But the construction company ran into difficulties and DeuBa took over the project to complete it. The hotel and gambling complex is said to have originally cost $3.9 billion, and the bank sold it to a real estate fund of a financial investor Blackstone for $1.26 billion. Deutsche Bank emphasized that they didn’t lose much money on the project because their casino earned so well.

(DOY tcha   BONK   fair COW fft   caw SEE no.)

Schweigegeld oder Schmiergeld?

“Silence money or shmear money”; blackmail or bribery?

How do you show that a quiet illicit payment was corruption and not extortion?

The Bavarian Landesbank BayernLB came into some unexpected Formula One stock (through a series of events after a Deutsche Bank manager said things in a television interview that led to the end of Leo Kirch’s ability to get more loans and the subsequent implosion of the Kirch media empire). One of BayernLB’s managers started asking questions, in Germany and England, to learn about how Formula One was run in order to learn how much his bank’s new stock was worth. He found the racing empire curiously opaque. He found Bernie Ecclestone had a strange veto right, and filed lawsuits to counter it. Then, say prosecutors, Bernie Ecclestone decided to “turn” the diligent bank manager. A 44-million-euro payment was made (disguised as consulting fees and transferred in several installments to accounts in Austria).

The bank manager testified it was a bribe was to obtain BayernLB’s support for the sale of Mr. Kirch’s Formula One shares to a buyer Bernie Ecclestone preferred.

At his trial in Munich, Bernie Ecclestone’s lawyers are saying it was a blackmail payment to buy the bank manager’s silence after he made threats.

(SHVY gah geld   ode ah   SHMEAR geld.)

Weißgeldstrategie

“White money strategy.”

Under-the-table money is called Schwarzgeld, black money. Before Switzerland got rid of banking secrecy this year by joining the O.E.C.D.’s common standard for automatically sharing account holders’ banking data with the tax authorities in the account holders’ home countries, Switzerland first adopted a so-called “white money strategy” for several months. The Süddeutsche Zeitung said the policy involved trying to only attract and manage legal money. In some cases, under this policy, Swiss banks pressured their clients to make things right with the tax authorities at home, or lose their Swiss bank account.

How Switzerland’s new rules will look remains unclear, said the Süddeutsche. It’s possible that it may be easy to get around them by using letterbox firms or “shell” companies. “The only thing that will help against that is transparent company registers.”

(VICE geld shtraw tegue eee.)

„Es gibt ein paar tausend Banken in Europa, da kann man nicht alle kennen“

“There’s thousands of banks in Europe and you can’t know all of them”

is how BayernLB supervisory board member and former Bavarian state Economy Minister Erwin Huber (C.S.U.) supposedly explained in his April Fools Day testimony why he gave his approval to purchase the Hypo Alpe Adria yet knew nothing about the Carinthian bank. An S.P.D. politician responded, “Anyone who publicly documents their political inadequacy so authentically is, as the chair of the Economy Committee, a problem.” Mr. Huber has been chairing the Bavarian state parliament’s Economy Committee since October 2013.

Munich prosecutors had said they did not want to prosecute BayernLB’s supervisory board members for approving overpayment of >500 million euros in the purchase deal—plus some bribes that might be easier to prosecute, in separate trials—because the supervisory board was fooled by the dishonest representations of the bank’s management board, the defendants in the current trial. Three high-ranking C.S.U. politicians from the supervisory board have now testified at the management board’s criminal trial and stated that they were satisfied with the information presented to them by the management board in its argument for purchasing the HGAA.

Defendants in the trial of the BayernLB management board include Michael Kemmer, who moved on to become “managing director of the German Bankers’ Association” [Hauptgeschäftsführer des Bankenverbands], “an influential lobbyist.”

At the time BayernLB bought Hypo Alpe Adria, C.S.U. politicians on BayernLB’s supervisory board [Kontrollgremium] such as Bavarian finance minister Kurt Faltlhauser, interior minister Günther Beckstein and economics minister Erwin Huber wanted the Bavarian state bank to expand, into the Balkans. Bavaria’s then-governor Edmund Stoiber (C.S.U.) made a similar statement to journalists while on a visit to Croatia about then, ZDF heute journal reported.

Apparently BayernLB also bought a loss-plagued Hungarian bank that they want to sell.

(Ess   kipped   eye n   pah   t OW! zenned   BONK en   inn   oy ROPE ah,   dah   cannes   mon   nichh t   OLL ah   ken en.)

ISDAfix-Referenzwert

ISDAfix benchmark reference.

The International Swaps and Derivatives Association, Inc., website at ISDA.org said the ISDAfix is “the leading benchmark for annual swap rates for swap transactions worldwide.” Bloomberg* BusinessWeek.com’s April 2013 article called ISDAfix “a benchmark in the $379 trillion market for interest rate swaps, which corporations and governments use to fine-tune their borrowing costs.” Süddeutsche Zeitung’s August 2013 estimate was that a $450 trillion market was affected by this benchmark. A Reuters.com* Jan. 2014 market estimate was even higher: “The organization’s ISDAfix benchmark is an important reference point underlying contracts in the $630 trillion derivatives market, and ICAP collects data for the U.S. dollar-denominated part of it.”

The data used to set the US$ section of the ISDAfix benchmark were provided by thirteen banks to the New Jersey office of a U.K. broker or “intermediary trader” known as ICAP. U.K. financial data company Thomson Reuters* calculated the benchmark prices from ICAP’s banks’ data for the US$ section and from data it collected directly from banks for the other currencies. ICAP published its ISDAfix benchmark prices on a Reuters page every morning at 11 a.m. and updated them throughout the day based on reported transactions. ICAP’s data entry was not automated.

The S.Z. said Germany’s BaFin finance regulator started investigating ISDAfix fixing after Bloomberg reported that the U.S.A.’s Commodity Futures Trading Commission financial regulator was investigating perhaps fifteen banks and about a dozen current and former ICAP traders for possible pricing collusion.

Background from Bloomberg BusinessWeek.com:

“In their simplest form, swaps are used by investors to exchange a fixed interest rate for a floating one, or vice versa. They also come in profoundly more complicated flavors, and altogether they constitute more than half of the $639 trillion global derivatives market. ISDAfix, used by traders to settle contracts and value positions, is commonly found in hybrid securities known as structured notes that are popular with wealthy investors. While they affect everything from pension annuities to commercial real estate investments, ISDAfix rates are esoteric even by the standards of structured finance. …

“…Banks could earn millions by persuading ICAP brokers to delay their manual entry of data. Publishing stale prices can boost profits for banks dramatically. On a $500 million swap that matures in 20 years, for example, a delay that prevents the instrument from moving one basis point (0.01 percent) equals $1 million in profit for the dealer. […Also, ICAP’s] brokers match dealers by phone, then enter transactions into the 19901 screen by hand. The firm is paid commissions based on the size of the trades it matches.”

FT.com described a 2010 FT.com article saying that “prices capable of influencing Isdafix through the rate-setting process sometimes appeared to move in ways beneficial to a handful of banks.”

The ICAP brokerage was also hired to execute many ISDAfix-related trades for reasons that could have included exerting extra influence on ICAP-mediated benchmarks, said an online article from Rupert Murdoch’s Wall Street Journal*.

A 25 Sep 2013 Bloomberg.com article seemed to indicate that brokers were particularly able to game off-market trading price benchmarks, particularly in slow economic times when those relying on brokers’ reported pricing data had fewer sales of their own to glean comparable pricing data from. “To promote market integrity, it is critical that benchmark interest rates be anchored in observable transactions,” said C.F.T.C. chair Gary Gensler in 2013.

Update on 26 Sep 2013: ICAP was fined £55 million “for control failures that allowed employees to engage in Libor rigging” said an online Financial Times article. After admitting L.I.B.O.R. control failures, which the U.K.’s Financial Conduct Authority also called a poor compliance culture, the huge brokerage firm argued against reducing its ISDAfix role, saying that would give undue influence to the banks submitting ISDAfix pricing data. ICAP, the world’s largest broker for interbank transactions, couldn’t have been gaming the ISDAfix benchmark’s timing because people would have noticed, ICAP said.

Update on 26 Jan 2014: It was announced that ICAP was to be removed from its middleman role in ISDAfix, which was to be restructured so that banks would submit US$ pricing data to Thomson Reuters directly, said Rupert Murdoch’s WSJ.com. Thomson Reuters has been collecting the non-US$ ISDAfix data directly from banks for years, said Reuters.com, but the US$ data from ICAP for >15 years: “[ICAP] had been providing ‘snapshots’ using transaction-based information from its BrokerTec platform in addition to information from recent deals, the second source said, but the process would now return purely to a poll of participating banks.” Apparently the snapshots involved removing some outliers and averaging the data. ICAP said, “We appreciate ISDA’s interest in having a consistent polling process across each of the relevant currencies and fixings.”

ISDA said moving ISDAfix pricing data for all currencies to Reuters is a first step toward their goal of defining the benchmark based on actual trades (“live prices from trading venues” said FT.com), not just data submitted by banks. The new system will also be automated: “The second stage will be the move to an automated, market-based ISDAfix rate setting process, which is expected to begin in the second quarter of 2014,” said an ISDA spokesperson. ISDA said they will create a code of conduct and oversight committee for the benchmark.

ICAP’s C.E.O. Michael Spencer helped create the ISDAfix benchmark fifteen years ago. Reporting on the ISDAfix benchmark described ISDA as the benchmark’s “overseer” and as a lobbying group.

Update on 09 Mar 2014: Thomson Reuters has been granted U.K. regulatory approval to create a benchmark services subsidiary to handle the ~160 benchmarks the company helps calculate, including L.I.B.O.R. International benchmark regulations are about to be tightened this summer, according to a letter sent last summer by the International Organization of Securities Commissions (“a global body of central banks. They include oversight of third parties and policies for managing conflicts of interest” –FT.com) warning companies they had one year before new stricter rules. “Administrators of financial market benchmarks have to prove by the July deadline that they have improved systems for monitoring submitted figures,” said FT.com.

* The U.K.’s Reuters press agency was reporting on financial news related to the ISDAfix and it belongs to Thomson Reuters (since the Canadian Thomson Corp. bought Reuters in 2008). The parent company of Bloomberg News “competes with ICAP in some businesses, including foreign-exchange and swaps trading, and with Thomson Reuters in providing financial news and data” according to their disclaimer in an ISDAfix article. Rupert Murdoch’s News Corp. owns the Wall Street Journal and owned Dow Jones from 2007 to 2010, when it sold it to the C.M.E., Chicago Mercantile Exchange/Chicago Board of Trade group.

(EESS dah feex   ref ah R-R-RENTS veaht.)

Den Schluss schmeissen

Foreigner German for “banging the close.”

Banging the close was one of two unethical things several currency market traders said they could do to game exchange rates because a handful of large banks controlled half the market, according to a June 2013 article in FAZ.net. Traders at the big banks could input trades before and after a huge trade’s 60-second window and have an effect on the rate, despite the fact that “The benchmark exchange rates are based on actual transactions and not on banks’ estimates like the L.I.B.O.R. reference rate is.” The second thing was to arrange their day’s work around a pending large trade; they would get a poorer exchange rate for the client in order to buy back her sold currency more cheaply than would have been the case.

The June 2013 article also said authorities were investigating benchmark manipulation in crude oil and swap markets.

(Dane   SHLOOSS   shmigh sen.)

Cuando bandoleaba

“When I was a bandit,” according to Eric Hobsbawm*. These “violent popular heroes” in “individual or minority rebellion within peasant societies” may have been aspirational to crooked central bankers.

Bankers at England’s central bank may have been among those manipulating currency exchange rates to line their own pockets, said Süddeutsche.de. Several members of the “Chief Dealers Subgroup” of the Bank of England’s “London Foreign Exchange Joint Standing Committee” were among >20 currency dealers recently suspended from large banks around the world. The dealers have been accused of using chatrooms and nicknames such as “The Cartell” or “The Bandits Club” to discuss prices for currency markets.

Süddeutsche Zeitung said there’s gossip that UBS, which also suspended a currency dealer who was a member of the subgroup, might again seek immunity in return for testimony in a potential trial, as it did in the L.I.B.O.R. scandal.

“What’s hanging in the air is whether this central bank knew about the manipulation for years and whether its employees were involved in the affair,” wrote Süddeutsche.de, saying [corruption] at a central bank would add “a new dimension” to recent banking scandals. The Bank of England published minutes of the subgroup’s meetings from 2005 to 2013 this week that are said to be of interest in possible shenanigans. The subgroup last met in February 2013.

In the U.K., the Bank of England acts as a regulator to help ensure financial stability, Süddeutsche.de said. The government body investigating possible currency market manipulation is Britain’s Financial Conduct Authority.

“Currency markets,” said a Süddeutsche.de op-ed, “are the world’s biggest financial market, with a daily turnover of US$5.3 trillion. …London is the center, [where] about half the world’s currency business is transacted. That’s also where the London Fixing is calculated. It is a fixed exchange rate between currencies, the most important one is published every day at 4 p.m. The business is controlled by a few major banks.” Investigations of about 15 banks for currency manipulation began in fall 2013, but the Bank of England was supposedly warned about a potential problem in 2006.

* Eric Hobsbawm’s book Bandits describes three subtypes: noble robbers like Robin Hood, avengers like the Brazilian cangaçeiro Lampiao and haiduks or “primitive resistance fighters.”

Flotter

Nimbler.

Also, more agile, speedy, swift, brisk, deft, lissome, slippy, nippy and “fly.”

Non-bank-owned “mortgage servicing” companies have been buying up mortgage servicing rights from large banks in the U.S.A., controlling 3% of the mortgage servicing market in 2010 and 17% in 2014 said NYTimes.com. Homeowners in trouble seeking help with their mortgage found themselves being asked to supply the same documentation over and over as their mortgage servicing was sold on from group to group.

Initially, some U.S. regulators thought that moving banks’ mortgage management responsibilities from mortgage servicers the banks owned to private companies the banks didn’t own would benefit consumers because the private companies would be “nimbler.”

One of the largest of these companies, Ocwen, has now been found to have been cutting numerous corners. It was also affiliated with companies that profit from foreclosures. The chair of Ocwen was chair of a company that bought foreclosed properties and turned them into rentals, but Ocwen told regulators that it maintained an “arms-length relationship” from his foreclosure company.

Though it’s been said the private mortgage servicers are unregulated in the U.S., there may instead be a bit of a patchwork of too-light regulation because in December 2013 the U.S.’s Consumer Financial Protection Bureau and 49 state attorneys general negotiated a $2.1 billion settlement with Ocwen for “mortgage servicing violations.” The C.F.P.B. commented that Ocwen “took advantage of borrowers at every stage of the process.”

Cut corners attributed to the private mortgage servicers have included:

  • Robosigning fake paperwork
  • Other missing paperwork that wasn’t counterfeited
  • Demanding wrongful fees
  • Wrongful evictions
  • Not updating technology and procedures and not hiring sufficient employees to handle the huge influx of mortgages despite assurances to the contrary and despite the overloaded software’s apparently accidental triggering of wrongful foreclosures
  • Profit-motivated rushing of processing
  • Possible hosing of the housing-derivatives investors who bought mortgage-based financial securities

The head of the state of New York’s Department of Financial Services, Benjamin Lawsky, installed an independent monitor at Ocwen who reported on the inadequate bookkeeping, as a result of which Mr. Lawsky stopped Wells Fargo’s sale or transfer of mortgage servicing rights for 184,000 mortgages, worth $39 billion, to Ocwen in February 2014.

Ocwen was headquartered in Atlanta, with staffing centers in India and Uruguay, an affiliate incorporated in the tax haven of Luxembourg and an affiliate based in the tax haven of the Cayman Islands.

The structure of the companies and possibly of the hedge funds investing in them during their recent rapid growth begs the question of whether mutual stock price embetterment has been an objective and, if so, how that was done. It looks as if moving profits and losses around the world for tax benefit could also have been envisioned. You have to note the big banks’ balls in selling off their buggy business as “rights” rather than paying people to take it as a favor. The ways innovated to make money off such a venture might be instructive. They might include gaming of a U.S. system in which state regulators have to do the job of federal regulators while families lose their homes.

Ocwen itself said that servicing mortgages has a limited lifespan and it has been seeking to diversify. FT.com reported the company was planning to sell up to $1 billion in a new type of debt this year: mortgage-servicing-rights-backed bonds.

(FLAW tah.)

Gehaltszulage, Taschengeld, Spesen

“Extra salary,”

“pocket money,”

and the German word that, depending on how loosely your company defines it, may mean money for expenses, room and board, sundries, fees, entertainment. “Ausser Spesen nichts gewesen” (ow! sah   SHPAY zen   nix    geh VEY zen) means a sales trip occurred in which few positive results were achieved apart from enjoying the per diem for expenses.

After the E.U. capped bankers’ bonuses at 1x to 2x annual salary, London banks have started renaming their lagniappes in ways that don’t easily translate into German. Last fall some of the bonus lolly was being paid as “top up” money, and now they’re being called “allowances.”

NYTimes.com said new nomenclature may also include “role-based pay” and “reviewable salary.”

Gray areas are being found, NYTimes.com said, between fixed pay and variable pay. The new bonuses can include giving employees variable pay at fixed, regular time intervals, not having it count toward a pension, resetting it every year like a salary, changing it in response to environmental factors like a bonus.

Renaming bonuses may make it harder to “claw” them back after risk management mistakes, as well as impede efforts to encourage employees to take a longer-term view by e.g. requiring bonuses to be paid out in installments over several years.

(G’HALT soo log en,   TOSH en geld,   SHPAY zen.)

Direktbank

A new type of bank apparently that doesn’t spend a lot of money on brick-and-mortar branches. Direktbanks use the internet and provide interest advantages. ING-Direktbank, the German subsidiary of the large Dutch bank ING, is the first major bank in Germany to eliminate overdraft interest rates for the standard giro accounts everyone uses in lieu of checking. Overdrafts there will now be charged the bank’s normal interest rate for short-term small loans [Dispokredit or drawing credit], which they also lowered from 8.5% to 7.95%. The eliminated overdraft interest rate had been 12%; other German banks are still charging up to 18% on overdrafts. The European Central Bank’s prime interest rate is currently 0.25%.

Spiegel.de said that last year ING-Diba acquired half a million new customers. That was before they eliminated overdraft interest and other banks didn’t.

The bank’s top German executive also proposed that a [neutral, reliable] central authority should publish a list of all short-term credit and overdraft pricing schemes offered at all German banks. Perhaps the Stiftung Warentest could do it, he said, mentioning a product-testing foundation that has the reputation of Consumer Reports in the U.S.A.

Update on 21 Apr 2014: A Spiegel.de article said some smaller banks were first to end overdraft interest rates on giro accounts but it didn’t list them. The article was in praise of another bank of the Genossenschaftsbank type (a mutual?) which reduced the highest interest rate on one type of extreme overdraft.

(Dear ECKED bonk.)

Vorabentscheidungsverfahren

“Advance decision process.”

For the first time ever, Germany’s supreme court, the Bundesverfassungsgericht in Karlsruhe, sent a case on to the European Union’s supreme court, the European Court of Justice in Luxembourg. It was for a “decision in advance” on a lawsuit brought in Germany by members of the C.S.U. and Leftists political parties together with other groups, about whether the policy of the European Central Bank announced by Mario Draghi (Goldman Sachs) of buying theoretically unlimited amounts of debt from Member States would be exceeding the Bank’s current brief by redistributing money to countries that hadn’t cleaned up their governments yet. It’s also feared if left unlimited the policy might put the E.C.B. in the hazardous position of becoming a “bad bank” on behalf of the banks in the troubled countries whose debt it was buying.

Süddeutsche.de reported that this sort of debt purchasing, which a government must promise to cut costs and carry out structural reforms in order to receive, has never occurred, but the announcement that it was possible calmed the markets in 2012. Spiegel.de made it sound more like the structural reforms and cost cutting were linked to aid from the Euro-Rettungsschirm, the “euro rescue umbrella” bailout programs, but repeated that the E.C.B. has never carried out any of these so-called Outright Monetary Transactions.

After the Bundesverfassungsgericht receives the decision of the European Court of Justice on these questions, said the Spiegel.de article, it will then decide its own case. And here are four ways the Bundesverfassungsgericht said in its 52-page submission that the European Court of Justice might deal with the Bundesverfassungsgericht’s concerns:

  • “The bond purchases should not undermine the policies of the bailout funds [Rettungsschirme] which link loans to clear conditions such as savings programs and reform programs.”
  • “The E.C.B. would have to rule out the possibility of a debt haircut [Schuldenschnitt] for the purchased bonds, because in the end a haircut would mean financing of the country.”
  • “Individual Member States’ bonds may not be bought in unlimited amounts.”
  • “The E.C.B. should influence so-called pricing [Preisbildung] as little as possible by buying bonds shortly after their emission by the States.” Apparently the E.C.B. previously agreed to limit O.M.T.’s in this way to some degree by agreeing to not buy bonds immediately after emission and to follow purchasing time frames that will be defined in a guideline that will not be made public.

(Fore OB ent SHY doongs fair FAR en.)

Straftatbestand

A criminal offense, fulfilling the conditions to meet the definition of a crime.

The outgoing E.U. parliament voted to pass draft rules making it a crime to manipulate interest rates in the European Union. After approval by the Member States, countries will have two years to implement the new rules, and their minimum penalty of at least four years in jail, into national laws. Countries may impose stricter penalties.

The E.U. parliament’s press release said the passed legislation criminalized more than interest rate manipulation:

“The draft rules lay down tougher criminal penalties, including prison terms, for serious market abuses such as unlawful disclosure of information, insider dealing or market manipulation and also inciting, aiding or abetting them.”

[…]

“Market manipulation offences punishable by a four-year jail term would include entering into a transaction or placing an order which gives false or misleading signals about the supply, demand or price of one or more financial instruments or providing false or misleading inputs to manipulate the calculation of benchmarks, such as the London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (EURIBOR).

“Insider dealing offences punishable by fouryears’ imprisonment include those in which inside information is used with intent to buy or sell financial instruments or to cancel or amend an order.”

(SHTROFF tot beh SHTOND.)

Trennbankengesetz

“Separated banks law,” proposals for which are in the works in Brussels.

Spiegel.de wrote that financial industry lobbyists can no longer induce many significant changes to the E.U.’s banking union but they’ve been trying so hard to affect the bank separation law now under discussion that interior commissioner Michel Barnier has ordered E.U. officials to stop meeting with bank lobbyists. That phase of the process is now officially over, he said, and the industry was abusing the system.

“In view of our workload and the sensitivity of our current dossier, until instructed otherwise Market D.G. employees should not meet with bankers, their representatives or their associations.” “Thank you for conscientiously following this order from our commissioner.” –From Spiegel.de-viewed excerpts of an email sent by Mr. Barnier’s general director Jonathan Faull to his employees in early December 2013.

Mr. Barnier’s spokesperson told the magazine he wants to implement the new bank structure reforms currently being drafted before the E.U. parliamentary election in May 2014.

Spiegel.de said the new rules would be based on the 2012 report of group of experts under Finnish central bank chief Erkki Liikanen that found banks “ought to separate their own securities trading, derivatives trading, loans to hedge funds and loans to private equity companies from the rest of their ‘customer business.'”

Trennbanken and Universalbanken [separated banks and universal banks] are two German ways to differentiate between “consumer banks” and post-deregulation’s sprawling “investment banks” or “speculating banks.”

It would be nice if the discussion introduced a new word for the investment banks’ term “Chinese walls” to describe their in-house arrangements for artificially blocking information flows that could generate in-house profits. “Chinese walls” seems insulting to China.

(TR-R-R-ENN bonk en geh ZETTS.)

Der breuer’sche Barolo

“Mr. Breuer’s Barolo,” in this case not a decent Italian red wine but possibly a secret project at Deutsche Bank in 2002 to deliberately bankrupt media magnate Leo Kirch’s empire and profit from breaking up and selling off his businesses. Leo Kirch claimed this happened until he died. Now supposedly an email has turned up containing evidence of at least some perjury. “Project Barolo” would have been the name of the secret undertaking, which took place when Rolf E. Breuer was the head of Deutsche Bank. The found email from a London investment division was cc’d to Mr. Breuer and dated January 2002.

ZDF heute journal’s Sina Mainitz said the Süddeutsche Zeitung reported prosecutors are now investigating whether four former members of Deutsche Bank’s management board [Vorstand] and the C.E.O. Jürgen Fitschen lied in the Kirch trial when they said they never made plans to break up the media empire. Mr. Kirch’s conglomerate collapsed after Mr. Breuer accidentally let slip in a February 2002 interview that Deutsche Bank thought the conglomerate, a Deutsche Bank client, might no longer be solvent. Mr. Kirch’s ability to obtain new loans was curtailed and his companies began filing for bankruptcy in April 2002.

(Dare   BROY ahsh eh   bar OH lo.)

Reibach, Rebbach

Profit.

After international news showed architect’s drawings of the thoughtless shopping center scheduled to replace one of Istanbul’s last green parks, people outside Turkey started wondering how much excess power the country’s developers might be exercising over the country’s democratic processes. And if developers could pull such strings, who else could?

Now a recent kerfuffle has exposed that the state might be one of the developers.

Last week Istanbul police made dawn arrests to bring in for questioning “scores” of people who included three sons of Erdoğan ministers, an Erdoğan-party mayor, three “lions of construction,” “the general manager of Turkey’s largest housing developer, the partly state-owned Emlak Konut GYO” and the boss of a government-owned bank; one of the construction tycoons “recently made headlines with controversial mega-projects and works for the notoriously opaque state housing agency (Toki),” according to the Guardian. At the time of the arrests, the accusations in the air were wild and wonderful: hoarding millions in shoeboxes, bribery, building illegally, illegally converting nature preserves into development land, money laundering, “dubious gold deals with Iran,” reported Süddeutsche.de.

Less than a day later, the heads of five Istanbul police departments involved in the arrests, which Süddeutsche.de described as an “anti-corruption fishing expedition,” had lost their jobs. The decapitated police departments included Financial Crimes, Organized Crime and Smuggling units, and the unsonned cabinet ministers were Interior, Economics and Environment & City Planning, according to the Guardian.

Süddeutsche.de said Gezi Park protesters had always claimed that large construction projects in Istanbul were corrupt and used to make “the big Reibach.” If you had connections to Mr. Erdoğan’s conservative-religious AKP (“Party for Justice and Development”).

The arrests and police firings may have been an outward symptom of a fight for influence between Mr. Erdoğan’s associates and the associates of a Turkish cleric named Fethullah Gülen, “who directs an international religious community from his U.S. exile,” warned Süddeutsche.de. The two religious groups used to “dominate” Mr. Erdoğan’s ruling conservative-religious AK party. Mr. Gülen could help persuade voters, while Mr. Erdoğan could protect Mr. Gülen’s business interests, wrote Spiegel.de, which included media outlets, a bank, schools and training centers that have helped millions of high school students pass college entrance exams (“repetitories” in German, dershane in Turkish). In any case, the increased international attention on Turkish news and better information about Turkish politics and business is welcome.

The strange variety in the accusations against the arrestees might make more sense were they to indicate pieces of networks once used for circumventing the old embargoes against Iran:

“The flight into conspiracy theories doesn’t change the fact that it still must be clarified whether the manager of the state-owned Halkbank helped an Iranian businessman with money laundering, with the sons of the Interior and Economy Ministers allegedly assisting in various ways. Washington [D.C.] people had been taking negative notice for some time of the fact that Turkey was using detour routes to pay for its gas and oil deliveries from Iran ever since sanctions had excluded Teheran from the interbank system. Again and again, couriers with suitcases full of gold were spotted in the Istanbul airport. That’s why it’s remarkable that Ankara people are denying they knew anything about these questionable activities, long ago.” –Süddeutsche.de article

“Suitcases full of gold” must be a metaphor in the Turkish press.

Update on 22 Dec 2013: Mr. Erdoğan has now fired 70 top police and justice officials. He might be not only firing them but having some arrested as well.

FAZ.net concluded its update with an assessment of Mr. Erdoğan’s current situation:

“[Mr.] Erdoğan, who has held this office since March 2003, has taken a hit. Presumably he would still win any election that took place now. But the once-charismatic prime minister has turned into a table-thumping/blustering choleric. For him, democracy means having elections; liberal values such as protecting minorities are not part of his idea of democracy. More and more people are objecting to the fact that [Mr.] Erdoğan is acting as the nation’s morals police, who wants to tell people what to eat and how many children to have. He’s lost from view the fact that the AKP, which has been ruling without a coalition partner since 2002, owes its rise among other things to the image of being a ‘clean party.’ The kemalist parties that ruled Turkey until 2002 were voted out of office for, among other things, corrupt business practices that drove Turkey to the edge of bankruptcy in 2001. In recent years, corruption around [Mr.] Erdoğan has begun spreading like a cancer again. The Gülen movement is ‘clean’ though, says [Mr.] Arinc. The Erdoğan vs. Gülen war will continue.”

Update on 24 Dec 2013: Spiegel.de wrote that Mr. Erdoğan has threatened to break the hands of troublemakers and that more journalists were imprisoned in Turkey than in any other country.

Update on 07 Jan 2013: Last night Mr. Erdoğan fired hundreds of police, 350 in Ankara alone, according to the Dogan press agency and CNN Turk, said Süddeutsche.de. Those relieved of their duties included police officers and 80 higher-ranked officials in the divisions of Financial Crimes, Organized Crime and the anti-smuggling authority.

Update on 08 Jan 2013: Mr. Erdoğan removed from their posts Turkey’s deputy police chief and the police chiefs of 15 provinces, including the capital city of Ankara. On Tuesday night his party submitted draft legislation to give the government more power in naming judges and prosecutors. The E.U. commission is concerned, the Financial Times said, “that government moves to remove, reassign and fire police officers and investigators ‘could undermine the current investigations and capacity of the judiciary and the police to investigate matters in an independent manner'” in Turkey.

(RYE bochh,   rebb ochh.)

Neues SEPA-Zahlungssystem

“New S.E.P.A. payment transfer system.”

A new bank transfer system for making payments is scheduled to go into effect in 33 European countries on 01 Feb 2014 for companies and associations and at a later date for individual people. S.E.P.A. transfers will use new 22-digit I.B.A.N. bank account numbers. There were concerns that some businesses hadn’t updated their forms in time to fit in the extra digits. On 24 Oct 2013 the Bundesbank warned that some firms were starting late and their mistakes could hurt their employees.

The new transfers between accounts in any of the 33 countries are supposed to cost no more than a domestic transfer and arrive no later than the next business day.

(NOY ess   ZAY pah   TSOLL oongs iss taym.)

Bankenberatung bemängeln

German consumer protection groups “criticized the deficiencies in investment advice banks give to consumers,” saying the old issue persists that bank advisors’ recommendations depend more on the commission the advisor will earn from the investment than the return the customer will reap, the risk they will be exposed to, whether they can afford the product, and/or possibly also the harm propagated by the company invested in.

ZDF heute journal’s financial correspondent Valerie Haller said consumer protection groups such as the Verbraucherzentrale Baden-Württemberg warned that better and qualified bank advising would only happen if investment advisory services and investment sales were separated within the banks. Bank investment advisors ought to have specialist qualification (usually this means courses and a test) and the quality of their advice ought to be monitored by government with sanctions applicable after violations. These systemic changes need to be made via new legislation from the Bundestag, a consumer protection rep said.

Ms. Haller added that the banks countered by claiming ~90% of their customers said they were satisfied with the investments they’d been advised to make, to which the consumer protection groups responded that they had evidence many customers didn’t understand what they’d bought.

Apparently bank advisor’s commissions have been banned by law in the U.K., though either this was done recently or it was incomplete because a new fine was just imposed on Lloyds Banking Group for two billion pounds’ worth of bonus-fueled overselling from 2010 to 2012. The listed “products” oversold to the possibly up to 700,000 customers do not include stocks and bonds, and the Guardian quoted the U.K.’s Financial Conduct Authority’s director of enforcement and financial crime as saying customers will not be “‘put first'” while companies still “‘incentivise their staff to do the opposite.'” The Guardian said she mentioned that “the fine had been increased by 10% because Lloyds failed to heed repeated warnings about sales practices and because it had been fined 10 years ago for poor sales incentives.”

The Baden-Württemberg consumer protection group’s webpage reminds readers that Germany’s statute of limitations period for suing banks after incorrect investment advice was recently lengthened from three to ten years. Also that bank investment advisors have been required by law since 2010 to keep a record describing what was said in their meetings with clients and potential clients when discussing potential purchases of stocks or bonds [Wertpapiere]; this does not apply for consultations about other products, such as the ones Lloyds was just fined for overselling. After a consultation, German bank advisors must sign a copy of the protocol and give it to the consultee, who does not have to sign it even though some banks have claimed the opposite. The German law mostly lets the banks decide how the protocol will look but does define the following general requirements:

1. Reason for the consultation

2. Length of consultation

3. Advice-relevant information about the customer’s personal situation

4. Data about the financial instruments and investment services discussed

5. The customer’s wishes and investment goals, and their relevant weightings

6. Advisor’s product recommendations and reasons why

(BONK en bear AH toong   bem ENG elln.)

Europäische Abwicklungsfond für marode Banken

European winding-down fund for rotten banks.

After years of discussions, European finance ministers have agreed on some corner points for how they’re going to deal with busted banks: an F.D.I.C.-type fund to settle up bad banks and close them out. The fund is to be created over the course of the next few years and stocked with an initial 55 billion euros provided by the banks themselves, as is the case for F.D.R.’s F.D.I.C. in the U.S.A. The new bank-funded fund is intended to help keep mismanaged banks from shifting their risks onto taxpayers again.

Update on 12 Dec 2013: ZDF Brussels correspondent Udo van Kampen explained the order of who will be called on to bail out troubled banks in the entire E.U.: first Eigentümer (“owners” = bank stockholders?), then Gläubiger (“creditors” = people who have bought the bank’s debt-based bonds?), then accountholders with >100,000 euros deposited at the bank, then taxpayers.

The bank-funded bad-bank fund will not be fully available until 2023, Mr. van Kampen said, and “The new liability rules for banks are now going to go into effect in 2016, two years earlier than planned.”

An economist pundit summed up the steps the E.U. has taken to prevent another huge financial collapse like the one that started on 15 Sep 2008: “We have a common European financial authority, now we have a bank settlement fund and we have creditor liability [Gläubigerbeteiligung, creditors having a stake]: that should help us avoid a similar crisis in the future,” said Carsten Brzeski, describing progress toward establishing the three “pillars” planned for the E.U.’s banking union in 2012 and 2013.

(Oy roe PAY ish ah   OB vick loongs fɔ̃   fir   mah ROAD ah   BONK en.)

Nach versteckten Risiken prüfen

Investigating/testing/auditing for hidden risks.

Update on 05 Dec 2013: Scheduled to take over responsibility for Europe’s largest banks at the end of 2014, the European Central Bank started its latest “stress test” on the risk management being exercised by the 128 largest European banks. This included 24 German ones, of which ARD tagesschau.de listed the following: Deutsche Bank, Commerzbank, some Landesbanks, DZ Bank, Hamburg Sparkasse and the Wüstenrot & Württembergische (not a bank but a “financial company”; many pies). Structures and solutions for the stress test were not yet entirely defined. National finance ministers were meeting to decide who would be responsible for banks found to have too many hidden risks: Italy wanted Europe to be on the hook for bailing them out, for example, and Germany wanted the national governments to be responsible first. The stress test was expected to last nearly one year.

(NOCHH   fair SHTECKED en   REE zee ken   prüü fen.)

Verschleierte Vermögensverwaltungsverträge

Veiled wealth management contracts.

270 tax police searched about 40 Commerzbank branches at their Frankfurt headquarters and elsewhere on 03 Dec 2013 seeking information about Italian partners who had advised the bank’s customers on how to avoid taxes using what only looked like tax-exempted life insurance, according to Bochum prosecutors who executed the razzia with Düsseldorf tax officials.

ZDF heute journal’s finance correspondent Valerie Haller said assets such as stock or bonds in “depots” at the bank that should have been subject to capital gains tax were instead “wrapped in fake life insurance” by the friendly insurer. The long (12-year) period of the fake life insurance instruments conveniently allowed some tax evasion statutes of limitations to expire. Unlike real life insurance, these instruments let customers continue investing the money wherever they chose while avoiding significant tax and remaining rather anonymous. Real life insurance that qualifies for German tax breaks must also insure against a risk (the death of the insuree), according to a German law passed in 2009 to tighten up these loopholes. After the 2009 law, said a 2012 S.Z. article, such life insurances bought by Germans had to be reported immediately to the Bundesfinanzministerium [Federal Finance Ministry] when bought in Germany, but when bought outside the country the sellers were only obligated to report them to the German government when the policies were paid out.

The Italians are rumored to have been working for an Italian insurance company called Generali, though that has not been confirmed. Handelsblatt.com heard it was Generali subsidiary PanEurope Ltd., headquartered in Ireland, and added that the scheme had a minimum deposit requirement of half a million euros but prosecutors thought this one had been used to avoid taxation on several hundred million. Reporting on a similar investigation in 2012 of German insurance customers at the Swiss bank Crédit Suisse, Süddeutsche.de said English names for the scheme included “insurance wrappers” and “private placement insurance.”

Commerzbank is only being called as a witness, the bank’s representatives said. They only managed das Depot, which translates as portfolio but has always sounded more like an armored box.

The Green party took advantage of the event to call once more for a German criminal code for companies, in addition to individual people, so that companies can be prosecuted for crimes.

(Fair SHLY ah teh   fair MƏG oongs fair VAULT oongs fair TRAY geh.)

L.I.B.O.R.-Klagen

L.I.B.O.R. lawsuits.

The U.S. company Fannie Mae has filed complaints seeking about half a billion euros in damages from multiple banks around the world for L.I.B.O.R. benchmark interest rate manipulation. Deutsche Bank is one of the defendants.

Update on 01 Nov 2013: ZDF heute journal financial correspondent Frank Bethmann said the many banks found to have participated in L.I.B.O.R. manipulation have been fined about 2.7 billion euros total by the world’s bank oversight authorities alone so far. Now more and more company lawsuits keep “fluttering in,” making them possibly the costlier threat. He said Deutsche Bank had now set aside 4.1 billion euros for legal fees. “But that shirt could prove too short as well, particularly in the U.S.A.”

Update on 06 Nov 2013: FAZ.net reported that insiders told Reuters news agency that before 2014 the E.U. competition commissioner wants to fine six banks a total of 1.5 billion euros for L.I.B.O.R. benchmark manipulation, including Barclays, Royal Bank of Scotland (R.B.S.), the Dutch Rabobank (“genossenschaftlich” bank meaning it started life as a mutual?), and the “broker” I.C.A.P. The Swiss bank U.B.S. will be excused from this fine—said to be the largest bank fine in E.U. history—because they were the first to testify. These six banks admitted this particular wrongdoing and as a result the E.U. said it will reduce those fines by 10%.

This set of fines is for the yen L.I.B.O.R. manipulation subscandal of the L.I.B.O.R. manipulation scandal. Deutsche Bank may be facing additional U.K. and U.S. fines for U.S. dollar L.I.B.O.R. manipulation.

Financial regulators around the world are also investigating more than a dozen banks for Eur.I.B.O.R. benchmark manipulation. On 06 Nov 2013 FAZ.net reported that insiders said the E.U. Commission was negotiating fines to half a dozen banks for that as well, including Deutsche Bank and possibly Royal Bank of Scotland and Société Générale. FAZ.net reported the U.K.’s Financial Times reported each of these six will have to pay up to 800 million euros for that set of fines. And that Bloomberg.com reported the British bank H.B.S.C. had withdrawn from those fine negotiations, giving up the proffered 10% fine rebate for admitting wrongdoing.

German Wikipedia said the Eur.I.B.O.R. is set on the basis of data submitted by 32 European “credit institutions,” minus the top 15% and bottom 15% outliers, to the “information agency” Thomson Reuters. The Eur.I.B.O.R. is then published by Reuters.

English Wikipedia said the Eur.I.B.O.R. was created by combining “domestic” benchmark rates, such as from Paris, Frankfurt and Helsinki, in 1999. It said there is still a separate Euro L.I.B.O.R. set in London, based on data from 16 banks.

(LEE boar CLOG en.)

Beibehaltung

Retention.

April 2013: After it became known the chair of the supervisory board [Aufsichtsrat] of Germany’s richest and most successful soccer team, Bayern Munich, was under investigation for voluntarily reporting himself [Selbstanzeige] as having an insufficiently reported and taxed ~500 million euros in a Swiss bank account, there seem to remain some loose ends in his origin story for where the half billion came from*. Yet on 06 May 2013 Bayern Munich’s supervisory board voted not to accept Uli Hoeneß’s resignation as its head. Members of the supervisory board who supported Mr. Hoeneß at this meeting included: Herbert Hainer, C.E.O. of Adidas. Rupert Stadler, C.E.O. of Audi. Timotheus Höttges, chief of Finances and Controlling at top Bayern sponsor Deutsche Telekom. Martin Winterkorn, C.E.O. of Volkswagen. Edmund Stoiber (C.S.U.), former candidate for German chancellor in the C.D.U./C.S.U. party.

10 May 2013: Mr. Hoeneß is suing the responsible prosecutor’s office for being the source of the press’s discovery of the investigation into the mysterious half billion euros, in April 2013.

30 Jul 2013: Uli Hoeneß has been charged with alleged tax evasion. The Economic Crimes Chamber [Wirtschaftsstrafkammer] of the second Munich Landgericht [Münchener Landgericht II] must now decide whether it will allow the trial to proceed and whether to open the main trial. The decision is expected in late September 2013.

04 Aug 2013: The president of the German Soccer Association [Deutscher Fussballbund e.V., D.F.B.], Wolfgang Niersbach, declared his support for Uli Hoeneß.

07 Aug 2013: Stern.de report that an anonymous informant told the second state prosecutors office in Munich [Münchener Staatsanwaltschaft II] that Mr. Hoeneß’s untaxed millions are not limited to one account at the Swiss Vontobel bank (said by prosecutors to have contained 500 million Swiss francs but said by Mr. Hoeneß in April 2013 never to have exceeded around 15 to 20 million euros, tops). Stern.de reported the informant said Mr. Hoeneß’s Vontobel account had balances consistently [“durchgehend“] exceeding 500 million Swiss francs in years before 2008 and also supplied information about stock dealings and transactions involving numbered accounts at three other Swiss banks: Crédit Suisse, Julius Bär and the Zürcher Kantonalbank.

The whistleblower said Deutsche Telekom stock with which Mr. Hoeneß participated in so-called dividend stripping was also involved.

04 Nov 2013: Mr. Hoeneß will have to “answer before a court” after all, starting ~10 Mar 2014. Landgericht Munich II’s “Economic Chamber” [Wirtschaftskammer] announced it will allow trial of charges against him of tax evasion and providing inaccurate answers. His Selbstanzeige earlier this year “contained errors.”

Frank Bräutigam, ARD tagesschau.de’s excellent legal correspondent, said the trial will evaluate the correctness of the Selbstanzeige (timeliness, completeness and accuracy). If the court determines that the Selbstanzeige was not properly executed, next it must decide how much money was improperly handled and what penalties could be imposed.

The Bayern Munich football club’s supervisory board reconfirmed that they want to retain Mr. Hoeneß as president of the club.

14 Mar 2014: Uli Hoeneß’s trial for 3.5 million euros of tax evasion was this week. In the two weeks before the trial started on Monday, he apparently gave prosecutors 50,000, some said 70,000, pages of Vontobel bank account statements previously withheld. On Monday he surprised reporters by announcing he’d actually not paid 18 million euros tax, but this was the ultimate number, no more revelations. On Tuesday, an auditor testified that the amount was actually 27 million. He was found guilty of 28.5 million euros in tax evasion and sentenced to 3.5 years, which will probably be in an open prison. On Friday, he said he would not appeal. The prosecutors may still decide to appeal. Uli Hoeneß resigned as president of the FC Bayern Munich soccer club and chair of FC Bayern Munich Inc.’s supervisory board.

Mr. Hoeneß’s salary tended to be about 10 million euros per year. The Vontobel account never had more than 150 million euros in it at one time.

(BY beh HALT oong.)

* Mr. Hoeneß said he netted 500 million euros between 2000 and 2012 by compulsively playing the stock market starting with a 10-million-euro combination gift/loan in 2000 from a now-deceased friend, a former C.E.O. of Adidas.

Der grosse Schweiger

“The great silence-maintainer.” No, not Til Schweiger.

This is said to be the nickname of oligarch Dmitrij Jewgenjewitsch Rybolowljew. Originally a cardiologist from Perm, then he sold medical therapy based on magnetism, went into investment, became the head of a private bank, bought a majority interest in Uralkali. He sold his Uralkali interest in 2010 for ~$5 billion. Bought up to 10% of the Bank of Cyprus (but the bank’s website only listed him as owning 5% after the Cypriot banking crisis in 2013). He bought a $100 million villa from Donald Trump in May 2010 and 2/3 of the Monegasque royal family’s French soccer club AS Monaco in late 2011.

Süddeutsche.de wrote “Mr Rybolovlev and his 24-year-old daughter Yekaterina tend to invest in status symbols”: billion-dollar divorce (his not hers), $88 million NYC apt., paintings collection, private jet, leasing a Mediterranean island from the Onassis heirs.

(Dare   GROSS ah   SHVYE gah.)

“Reich der verdeckten Parteispenden”

“Empire of hidden donations to political parties.”

Austria continues to have fascinating scandals. This Süddeutsche.de article based on News.at reporting and dated a month before their recent parliamentary election describes some salacious-sounding goings-on. Investigations into corruption in “the” phone company Telekom Austria for “stock price manipulation, questionable Eastern European dealings and alleged law buying” has turfed up unreported donations to both the conservative party Ö.V.P. and the social democrats S.P.Ö. The Ö.V.P. and S.P.Ö. have been in a grosse Koalition for the past few national governments and are about to form a new grosse Koalition, though with the weakest results so far.

The unreported political donations came from: Telekom Austria, Österreichische Lotterien [“Austrian Lotteries”], Raiffeisen bank, the Austrian post office corporation [Österreichische Post AG], P.S.K. bank and the Industriellenvereinigung [“Federation of Austrian Industry,” abbr. IV; Wikipedia says this is the Austrian employers’ lobbying organization]. There appears to be a Jack Abramoff king-lobbyist character involved: Peter Hochegger, his company Valora AG, and an agency Mediaselect to which they transferred funds. Peter Hochegger has been under investigation for scandals from the time when the ex-Haider F.P.Ö. was in a ruling national coalition with the conservative Christian Ö.V.P.

In the 29 Sep 2013 Austrian parliamentary election, the two biggest parties barely got enough votes to form another grosse Koalition (the last one, journalists speculated). The racist ex-Haider F.P.Ö. came in third. Other small parties also did well, in an indication of voter frustration: Austrian Green party ~10%, the weird new party of a Canadian-Austrian billionaire ~5%, and the new party of “young neoliberals” ~5% (though if it’s like the German neoliberal party F.D.P. appears to be, this group will front with young politicians—rapid risers with amazing management skills!—while old men quietly run the show, selling a network disguised as a reservoir of superior business knowledge).

(R-r-rye chh   dare   fair DECK ten   pah TIE shpen den.)

Abwicklung von Hypo Alpe Adria

Winding up, closing down, resolution, clearing, of Austrian bank Hypo Alpe Adria. The E.U. Commission appeared to give its permission to break up the struggling bank on 02 Sep 2013. The European competition authority still had to give its approval.

In 2009 the country of Austria took back HGAA from the BayernLB, Bavarian Landesbank, and nationalized it. Hypo continued losing money. By 2012 Austrian taxpayers had given the bank 3 billion euros bailout, but still it needed ~800 million euros in the first half of 2013 and a projected 700 million in the second half, with expectations of ~5 billion euros more required by 2017. The plan is now to sell the Austrian branch to a British investor in Q4 2013, close the Italian branch and sell off the other southern European banks (250 branch offices employing 4300 workers) by 2015.

The reporting repeating the numbers cited by the Austrian finance ministry varies, and it’s hard to match up the cited numbers with the years given. Austrian finance minister Maria Fekter (Ö.V.P.) said the numerical uncertainty is partially because they don’t know how much they’ll get in the sale of the southern European branches. They also want to move HGAA’s failed loans, worst paper and unsellable divisions “away” into a “separate Abwicklungseinheit,” a separate clearing unit, also called an “Abbaubank,” literally breakdown or decomposition bank but apparently called in English a “restructuring unit,” “separate from the core bank.” Without the Abbaubank device, Austrian taxpayers might be on the hook for 16 billion euros, another Austrian finance ministry number, to wind down the HGAA.

We know a bit about what happened under Carinthian and Bavarian management of HGAA. What happened in Italy?

Austria will be holding a parliamentary election on 29 Sep 2013.

Update on 14 Mar 2014: It’s been decided that the Hypo Alpe Adria group will be wound down as a “bad bank,” into a “deregulated, private-economy-organized company” said Austrian finance minister Michael Spindelegger. About 18 billion euros in bad paper will be moved into this vehicle. The decision will increase Austria’s national debt >5%, from ~75% to >80% of the country’s gross national product. HGAA’s subsidiary banks in Italy and the Balkans are to be sold as quickly as possible. It should take the bad bank about a decade to finish closing down the organization, only after which the true costs will be known, said a social minister who will no longer be social minister a decade from now.

Update on 17 Jun 2014: The Austrian state of Carinthia owes ~12 billion euros because of guarantees it made for Hypo Alpe Adria. Carinthia’s annual budget is apparently ~1 billion euros.

A week ago Austria’s cabinet passed a special law that said Carinthia will no longer be responsible for all the bank’s debt that it has guaranteed. This should save the state ~800 million euros while stirring up a lot of trouble for Austria.

Austria’s federal government is deliberately avoiding bankruptcy for the troubled bank because they fear it would pull the state of Carinthia into bankruptcy. The cabinet passed this “special law” haircutting non-first-tranche holders of HAA debt, whose riskier tranche under normal circumstances would only come into play after a bankruptcy. The Green party said they should just declare the bank bankrupt and work out fair haircuts for all. Carinthia’s most important services such as day care centers and hospitals are mandated by law, said the Greens, so the bank’s creditors wouldn’t be able to pull much money out of the state government. “These investors have not earned the protection of the taxpayers.”

(OB vick loong   fon    HIPPO   I’ll pay   ODD ree ah.)

Amtshilfe

Administrative cooperation.

Switzerland said they will provide administrative cooperation to governments seeking evidence about tax cheats even if the governments are using “stolen” data. However, Switzerland said, it does not want to cooperate with governments that “actively” acquired stolen data (such as the German state of Rhineland-Palatinate, der Spiegel suggested) but will now cooperate with governments with which those “actively” acquired data have been shared.

(OMTS hill fah.)

Anklagebehörde

“Prosecuting authority,” prosecutors’ office.

The Bavarian state bank BayernLB (Bayerische Landesbank), owned by the state of Bavaria and the Sparkasse banks (the largest German public bank), bought the Austrian bank HypoGroup Alpe Adria in 2007 and lost billions of euros as a result. On 07 Aug 2013 the Munich regional court Münchener Landgericht I announced it would not permit prosecution of charges brought against the entire Landesbank’s management board [Vorstand] while criticizing that charges hadn’t been brought against members of the higher-level overseeing “administrative board” [Verwaltungsrat], which gave permission for the sale. The supervisory Verwaltungsrat contained important C.S.U. politicians who might have been thus being protected by Bavarian prosecutors, the Bavarian judges imputed. Bavarian opposition parties S.P.D. and Freie Wähler [Free Voters] had filed complaints against BayernLB Verwaltungsrat members and state ministers Erwin Huber, Günther Beckstein and Kurt Faltlhauser plus some less important C.S.U. politicians for breach of trust of bank assets [“Veruntreuung von Bankvermögen”] in the Austrian acquisition, according to Süddeutsche.de and tagesschau.de.

BayernLB’s management board allegedly cited a falsely inflated purchase price to the supervisory administrative board, so theoretically criminal charges should be brought against management board members, according to tagesschau.de. But the Munich Landgericht I court denied prosecution of that on 07 Aug 2013, citing the latitude enjoyed by managers in negotiating sales. This allegedly angered Bavarian state prosecutors. Also angered by accusations they’d protected C.S.U. politicians by not bringing charges against members of the higher-level Verwaltungsrat [administrative board] supposed to monitor or do “controlling” of BayernLB’s management board, Bavarian state prosecutors responded that the management board members had failed to adequately inform the higher-level administrative board; indeed the supervisory Verwaltungsrat was deliberately defrauded with malice aforethought (“vorsätzlich arglistig getäuscht”) by members of the BayernLB management board, in the opinion of the prosecutors. The supervisory administrative board that okayed the deal consisted of people from the Bavarian state government (ruled by the C.S.U. since 1946) headed by Edmund Stoiber and people from the Sparkasse banks.

The German bank manager Bernie Ecclestone was accused of paying a bribe to was a member of BayernLB’s management board [Vorstand], not supervisory board [Verwaltungsrat].

In its 07 Aug 2013 announcement in the ongoing discussion about whom to prosecute at BayernLB, the Munich Landgericht noted that this sale of banks between state governments was partially a political act. But because no one could have foreseen events, the Munich Landgericht was only going to look into the BayernLB management board’s criminal culpability in overpayment of an additional 75 million euros lost by subsequently purchasing additional shares, and not into the BayernLB management board’s overpayment of 550 million euros in the 1.7-billion-euro deal as the prosecutors originally proposed.

Prosecutors filed a complaint about the Landgericht’s decision not to allow a criminal trial against the BayernLB management board for the lost half billion; the Munich higher regional court [Oberlandesgericht] “will now have to decide the dispute taking place in its own house.”

Before Bavaria bought it, according to the Guardian.co.uk, the Carinthian state government-owned Hypo Alpe Adria “acted as financier” for the horrifying Jörg Haider, charismatic leader of a terrifying populist racist Austrian political party that promoted hatreds in order to surf them to power. WienerTageszeitung.at wrote that HGAA had had to help support Haider’s Carinthian state government’s “patronage policies” [“gönnerhafte Politik”]. The recent Munich Landgericht I court decision about how to prosecute the Bavarian side did allow prosecution of an accusation that Jörg Haider, Kärntner Landeshauptmann [“Captain of Carinthia”] at the time of the sale, received a soccer stadium sponsorship bribe from BayernLB (2.5 million euros). An Austrian website also talked about overpayment for the expert opinion of an Austrian tax adviser associated with Haider as another possible bribe to him from the deal (6 million euros for six pages). No details found yet about money improperly funneled to Haider & Co. before the sale, when his party controlled the government that owned the bank.

According to the Manager-Magazin.de article, a 2007 audit by the Österreichische Nationalbank [Austrian National Bank] reported that Hypo Alpe Adria was shuffling fake capital around as early as spring 2006 to hide its losses, through obscurant Liechtenstein entities, and selling stock to itself to create the illusion of solvency. There was no Austrian regulatory follow-up on the audit report apparently.

BayernLB’s purchase of HGAA has already sparked multiple trials, with more to come. For example, Manager-Magazin.de wrote that Munich prosecutors initiated a criminal trial against BayernLB management board members on 05 May 2011—that trial hasn’t started yet—and BayernLB sued its former management board members for 200 million euros in damages in a civil trial that actually did start, on 19 Jun 2012. An Austrian criminal trial sentenced a Carinthian state party chief to five years in prison on 10 Oct 2012 for diverting money from the sale to his political party (a state government coalition partner with Jörg Haider’s FPÖ). The current head of the Bavarian C.S.U. party, Horst Seehofer, is to testify in Vienna before a commercial court [Handelsgericht Wien] about the schlamassel. When they gave Hypo Alpe Adria back to the country of Austria, did BayernLB sign a paper saying they would not sue for damages? The Vienna trial is about 3 billion euros of Bavarian taxpayer money that now-nationalized Hypo Alpe Adria does not want to return; this would be in addition to the 3.7 billion euros Bavaria already spent to bail out the bank.

Update on 24 Oct 2013: Bavarian prosecutors won their appeal! The Munich Oberlandesgericht overturned the Munich Landgericht’s decision and will be allowing full prosecution of ex-C.E.O. Werner Schmidt and six of the seven members of the BayernLB management board on the counts sought, for breach-of-trust losses of 550 million euros in the 2007 purchase of Hypo Alpe Adria in addition to the 75 million lost on extra HGAA stock bought after the purchase.

Update on 27 Feb 2014: Three former management board members of Hypo Alpe Adria were given prison sentences by an Austrian court for granting investors buy-back guarantees and thus, the court said, costing the bank several million euros. The Klagenfurt court [Schöffensenat] said they held back important information when they sold Hypo Alpe Adria to Bavarian state bank BayernLB. A 2.5-million-euro dividend they issued was also not in order, the court said.

In this breach of trust trial, former management board member Josef Kircher was sentenced to three years, some of which was changed to probation because he was willing to testify. Former management board member Siegfried Grigg was sentenced to three and a half years. The Flick Foundation was fined 600,000 euros. Former H.A.A. C.E.O. Wolfgang Kulterer was sentenced to one year. He has already been sentenced to several years in a related Hypo Alpe Adria matter in January 2014, when he admitted having kept mumm about side agreements. Former Hypo manager Tilo Berlin is also a defendent in the breach of trust trial but was unable to appear for health reasons, delaying resolution.

(ON clog ah beh HEARD ah.)

Untreue wegen mangelndes Risikomanagement

Breach of trust due to inadequate risk management.

The entire former management board of northern German bank HSH Nordbank is on trial in Hamburg for approving a deal in 2007 allegedly without sufficiently informing themselves first (“bullwhipping it through in only three days right before Christmas” on the basis of a memo that did not contain the data required by due diligence, so the prosecutors). This is the first time an entire bank board has been put on trial in Germany, but it presumably won’t be the last.

In 2007, to avoid receiving a lower rating from the Wall Street ratings agencies one year before the bank’s scheduled stock market launch, prosecutors said, HSH Nordbank moved a collateralized debt obligation package that included risky real estate and commodities paper “away” into an entity called Omega 55, for which the French bank BNP Paribas guaranteed. In return, HSH guaranteed when BNP Paribas moved risky paper, valued at 2.4 billion euros and including Iceland government bonds from Lehman Brothers, into the Omega 55 entity [Zweckgesellschaft, “special-purpose vehicle” according to Bloomberg.com]. HSH’s guarantees for BNP Paribas securities ended up costing HSH >150 million euros in 2008; ultimately in the course of the global financial crisis the bank had to be bailed out by 30 billion euros that included taxpayer money from its majority owners, the German states of Schleswig-Holstein and Hamburg, and taxpayer money from the German bank bailout funds BaFin and SoFFin. Omega 55’s losses were in part kept off the bank’s books, which is why two of the six former HSH board members are further going to be tried for balance sheet falsification [Bilanzfälschung, “false accounting” according to Bloomberg.com]. Guilty verdicts in the breach of trust trial could also result in a civil lawsuit from HSH against its former managers.

Update on 23 Jul 2013: Bloomberg.com reported that charges were also brought against managers from Bayerische Landesbank (BayernLB), Sachsen LB and Landesbank Baden-Württemberg, but these cases have not yet gone to trial.

Update on 16 Dec 2013: HSH Nordbank has been accused of dividend stripping.

Update on 28 May 2014: Hamburg prosecutors are asking for probation and fines of up to 150,000 euros, after they reduced their estimate of damage done to the bank from ~150 million euros to ˜50 million. This is in the breach of trust trial, for signing off on what was a “circular transaction” in 2007, without questioning inconsistencies in the information presented to them.

Update on 09 Jul 2014: The entire former management board of HSH Nordbank was found innocent. Dubious deeds and dereliction of duty, said the judge from the Economic Crimes Court [Wirtschaftsstrafkammer], but he didn’t think there was enough evidence to prove serious dereliction of duty. Also there’s no evidence that the HSH Nordbankers profited financially from the damage they caused. Trials against managers from IKB and the Baden-Württemberg Landesbank for their risk management before the global financial crisis have also been canceled, said Spiegel.de. At the time, what those bankers did was neither illegal nor unusual.

The states of Hamburg and Schleswig-Holstein had to pump 13 billion euros into HSH Nordbank to bail it out.

Update on 10 Jul 2014: The judge gave the prosecutors the option of appealing this decision, and they will appeal it to the supreme court in Karlsruhe.

(OON troy ah   vague en   MON geln dess   REESE ee co men edge ment.)

Goldpreis, Silberpreis

Price of gold, price of silver.

In March 2013 the U.S.A.’s Commodity Futures Trading Commission was looking into, but not formally investigating, possible gold and silver price manipulations in London, the world’s largest gold market. The F.A.Z. mentioned they were especially interested in the “too-intransparent” way the spot price for a troy ounce of gold is set in London twice a day by five banks: Barclays, Deutsche Bank, HSBC Holdings, PLC, Bank of Nova Scotia and Société Générale S.A. The silver price in London is set once per day, at noon, by Bank of Nova Scotia, Deutsche Bank and HSBC. A March 2013 article in Rupert Murdoch’s Wall Street Journal mentioned that the market prices for these metals were important also for the estimated ~$198 million in derivative contracts held by commercial banks in the U.S.A. in September 2012, according to the Office of the Comptroller of the Currency (O.C.C.).

The C.F.T.C. started investigating whether the price of silver had been gamed in 2008 after the silver price fell sharply. No results were ever announced from that investigation, nor was it ever officially closed.

Update on 25 Sep 2013: The C.F.T.C. officially closed its five-year investigation into gaming of silver market prices “without bringing any enforcement actions” reported Bloomberg.com.

Update on 27 Nov 2013: Germany’s BaFin financial regulator announced they would be investigating possible manipulation of gold and silver prices, which Handelsblatt.com said would be called das Goldfixing and das Silberfixing in German. BaFin said that they could not comment on the ongoing investigation but that they were interested in benchmark manipulation in Europe, including benchmarks for the so-called noble metals, currencies and interest rates. Gold and silver prices had been being set by benchmarks controlled by only a handfull of European banks, the Handelsblatt said Wall Street Journal Deutschland said, and alleged that British financial authorities were looking into gold and silver price gaming as well.

Update on 09 May 2014: A wave of U.S. lawsuits is said to be rolling toward the five banks that set the gold price twice each day in London.
The Frankfurter Allgemeine reported on the findings of one analyst, who will be testifying for the plaintiffs, from examining publicly available gold price data from 2010 to 2013. The banks’ twice-daily phone conferences to set the price could take two minutes or two hours, but averaged 15 minutes. During that time, there were bigger fluctuations in the gold price than during the rest of the day when the phone conferences weren’t taking place. The price moved up and down but mostly downward. After the teleconference, the price settled back to where it was before the meeting. During the phone conferences, the banks had access to information their customers did not: the volume of gold being traded, and the prices at which they were trading. That information wasn’t supposed to be shared, but. The U.S. plaintiffs say, look at L.I.B.O.R.

Deutsche Bank is now withdrawing from the five banks, leaving four banks: Barclays, HSBC, Bank of Nova Scotia and Société Générale.

Update on 16 Aug 2014: The price of silver will now be set electronically by auction, in a service offered by the Chicago Mercantile Exchange and Thomson Reuters.

(GOALED prize,   ZILLLL beh prize)

Kupferpreis

Price of copper.

After lobbying by firms claiming reducing copper supply would not drive up copper prices, in December 2012 exiting U.S. Securities and Exchange Commission chair Mary L. Schapiro gave the banks Goldman Sachs, JP Morgan Chase and BlackRock the S.E.C.’s approval to buy up 80% of the copper available on the market and hold it in warehouses as backing for new copper-based investment funds. The NYTimes.com article went on to say copper is used in so many manufacturing applications that it is sometimes tracked as an indicator for the economy as a whole.

(COOP fur prize.)

Erdgaspreis

Price of natural gas. A March 2013 article in Rupert Murdoch’s Wall Street Journal mentioned that the Commodity Futures Trading Commission said the Libor benchmarks manipulation scandal came to their attention after “firms and traders” were sanctioned for reporting false data to energy index compilers in attempts to manipulate natural gas prices between 2003 and 2005.

(ED gauze prize.)

Ölpreis

In 2011 a Goldman Sachs study apparently stated that market speculation had indeed helped drive up the price of oil for consumers. In 2012 U.S. Commodity Futures Trading Commissioner Bart Chilton said, “Using the Goldman Sachs research figure, and multiplying 10 cents times 233.9 million, would mean that theoretically there’s a ‘speculative premium’ of as much as $23.39 a barrel in the price of NYMEX crude oil.” Mr. Chilton has also said that the commodities business is a possible loophole for banks in the U.S.’s new frequently-postponed “Volcker rule” intended to reseparate banking from investment gambling.

Potential oil bottleneck points persist in privately held and/or operated oil infrastructure. Oil traders now own oil refineries. Pipelines are included in the infrastructure large banks have somehow acquired part ownership of. U.S. bank Morgan Stanley invested in the “global oil tanker operator” Heidmar in addition to “fuel chain supply manager” TransMontaigne. An F.A.Z. article described how the world’s three largest oil trading firms, Switzerland-based Gunvor, Vitol and Glencore—”prescient” commodity markets pioneer Marc Rich’s old firm—work today, supposedly on the basis of fast-computer-based price arbitrage rather than speculation. Moving into production, Glencore is now invested in oil wells, coal mines and metals mines, after its late-2012 fusion with Swiss competitor Xstrata.

Apparently a landmark 2003 U.S. Federal Reserve decision allowed U.S. investment banks to start “trading oil cargoes.” In July 2013 the Fed announced it was “reviewing” that decision. Though Fed deregulation may have unleashed the Wall Street side of recent international commodities speculation problems, the Fed probably cannot fix it now without simultaneous coordinated reforms from other regulators around the world.

(ILL prize.)

Spotmarkt

Spot market, where financial instruments or commodities are sold for immediate delivery, unlike the futures market where they are sold for delivery at a later date. Wikipedia said a spot market can be an organized market, an exchange or over-the-counter (O.T.C.).

Regarding the spot market price of aluminum: Goldman Sachs was accused of bottlenecking aluminum at Goldman’s Metro International aluminum warehouses outside Detroit, increasing customers’ delivery wait times since purchasing M.I. in 2010 from six weeks to sixteen months by first lowering prices to attract a stockpile (“50,000 tons in 2008” to “~1.5 million currently”) and then, actually, trucking a minimum daily regulatory-defined shipment amount of 3000 tons back and forth among the 27 warehouses. There were also accusations of understaffing, reduced shifts and prioritizing putting aluminum into storage over taking it out. The shuttle-shuffled delays raised a premium added to the price of all aluminum, driving up the spot market price “according to an arcane formula” even for metals bought directly from mines or refineries to bypass these warehouses. While delaying delivery the warehouses also continued charging rent on the stored metal. Perfectly legal according to current international regulations, apparently set by the London Metal Exchange.

The London Metal Exchange might need more disentanglement from the entities it is supposed to regulate. According to the NYTimes.com article, it still receives 1% of the rents collected by the ~700 warehouses it regulates around the world. Until 2012 it was owned by its member regulees, including Goldman Sachs, JP Morgan Chase, Barclays and Citigroup. Many of its metals warehousing regulations were written by a board populated by executives from banks, trading companies and storage companies. In July 2012 the L.M.E. was sold to Hong Kong Exchanges and Clearing, part-owned by the Hong Kong government, for ~$2 billion. A NYTimes.com description of the 2012 sale said it “will allow the Asian company to control the world’s largest futures trading exchange for metals like aluminum, copper and zinc, as emerging market demand for commodities remains strong.” In 2012 Hong Kong Exchanges and Clearing was supposedly hoping to get an exemption from Chinese laws preventing foreign companies from owning these sorts of metals warehouses in China.

The U.S.’s Federal Reserve Board could, said NYTimes.com, quit extending exemptions that allow banks like Goldman Sachs to invest in nonfinancial enterprises. Though the Fed’s stated conditions in allowing banks to diversify into commodities investment were “only if there was no risk to the banking system” and if the deals “could ‘reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices,'” yet many people would say its deregulation achieves the opposite effects, that big “diversified” banks’ risk management still appears to endanger U.S. and world economies and now banks’ having bought up important infrastructure might be presenting them with irresistable temptations such as artificial bottlenecking or even information advantages not all traders always refrain from using.

Update on 25 Jul 2013: The U.S. Senate’s banking committee has criticized that the Federal Reserve is not communicating well with them. However, wrote the F.A.Z., the U.S. Congress could pass its own banking reregulation rules without waiting for the Federal Reserve.

It’s unclear whether shadow trades are involved here, but it’s also unclear why everyone hasn’t gone broke if this is how they’re doing business:

“Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.”

If Goldman is indeed paying aluminum owners, fellow speculators, to rewarrant their metal and leave it in the warehouses piling up rent owed to Goldman, that might indicate some creative profits or at least useful losses are being made.

Aluminum is economically important enough that Chancellor Angela Merkel’s government has been giving aluminum refineries, notoriously high-volume electricity consumers, various electricity rebates that must be paid for by individual consumers or “ratepayers” in their home electricity bills because, Germany’s government said, the preservation of the aluminium supply was that significant for their economy as a whole.

(SHPOTT mocked.)

Außerbörslicher Schattenhandel

“Off-market shadow trading,” which der Spiegel says is also known as over-the-counter trading, done directly between speculators such as bank traders. May exceed trading in the (regulated) markets.

E.U. and U.S.A. regulators agree that they want to regulate O.T.C. trading. An F.A.Z. op-ed discussing recent U.S. Federal Energy Regulatory Commission (F.E.R.C.) fines mentioned that other U.S. financial authorities that could impose fines on international financial companies such as banks include the S.E.C. (Securities and Exchange Commission) and C.F.T.C. (Commodity Futures Trading Commission). It cited a quite-large Financial Times estimate of the size of global O.T.C. trading amounting to well over half a quadrillion dollars.

Regarding shadow-sector speculation in electricity: on 24 Jul 2013 the F.E.R.C.’s fine was upheld to London-based Barclays bank of nearly half a billion dollars to the bank (and $15 million to one manager and $1 million each to three traders) for benchmark manipulation affecting U.S. electricity markets between 2006 and 2008, including taking on-market losses in order to increase the value of off-market O.T.C. bets. Barclays intended to keep fighting the fine, however, and if the bank doesn’t pay it within the 30-day deadline the case could go to a U.S. federal court which could reset the fine. In January 2013 Deutsche Bank negotiated a settlement with the F.E.R.C. for the same electricity market gaming and received a fine of ~$1.5 million. On 24 Jul 2013 JP Morgan Chase was still negotiating with the F.E.R.C. about their fine for manipulating electricity prices in California and the Midwest; originally the settlement was said to be at nearly a billion but Chase succeeded in negotiating it down to less than one billion dollars though so far still more than Barclays’s ~$480 million.

Update on 30 Jul 2013: JP Morgan Chase’s F.E.R.C. fine for allegedly manipulating U.S. electricity markets was negotiated down to $410 million.

Regarding shadow-sector speculation in food commodities: The day before announcing its largest capital collection in its history as a mutual savings bank, on ~28 May 2013 Germany’s fourth-largest bank at the time published an open letter to the consumer advocacy organization Foodwatch.org saying their bank was joining their country’s second-largest bank and several smaller banks in pledging that they will no longer trade in or sell financial products based on agricultural commodities (such as grains). They recommended other banks also cease doing so in order to keep from driving up world food prices, remarking that investors’ demand to participate in food-based funds is low anyway. D.Z. bank said they have been and will continue to work closely with university academics to study and monitor world agricultural economics and the effects of food speculation. They requested government reregulation of both markets and of off-market trading to re-introduce “position limits” on the amount one entity, such as a hedge fund in the shadow financial sector, could wager on food-based financial products. After deregulation in the early 2000’s, “the speculators’ share in international commodity markets increased from 30% to 80%.”

At the time this D.Z. Bank letter was published, E.U. leaders intended to meet in late June 2013 to agree on regulations imposing these food-trading position limits but, said the head of the bank in question, “the financial sector” had already managed to introduce many loopholes into the drafts— “practically neutralizing the limitations on speculators,” said Foodwatch head Thilo Bode.

(Ow! ss ah BƏZZ lichh ah   SHOTTEN hond ell.)

 

Sich selbst als Geisel nehmen

“Taking yourself hostage.” Investigative journalism nonprofit ProPublica.org interviewed financial journalist Jesse Eislinger about bank regulation reform and the USA’s too-big-to-fail banks on 04 June 2013. Eislinger talked about the few oversized banks in the USA that get saved with taxpayer funds, and the smaller banks that don’t, and he interestingly compared the huge banks’ behavior to a scene in Mel Brooks’s Blazing Saddles when a man successfully takes himself hostage. US banks are allowed to grow too big, Eislinger said, because they claim it strengthens them to diversify into many sectors. In fact, they became and remain to this day unmanageable, as shown by the recent “London Whale” failure in 2012. When the “diversified” giant banks topple they essentially copy Mel Brooks’s autohostage joke by threatening to take out wide swathes of the US/world economy if not rescued by taxpayers. The situation is self-perpetuating as it now stands.

(Zichh   ZELBST   olls   GUY zel   nay men.)

Kaskade von Haftung

“Cascade of responsibility.” New package of banking rules agreed by the European finance ministers on 27 Jun 2013 defining an order of responsibility for saving failed banks: first the banks’ shareholders will pay/lose money. Next, people who loaned the banks money to make loans will pay. Then, owners of large accounts >100,000 euros will pay. Last, the taxpayers will pay. Savings accounts <100,000 euros at failed banks are guaranteed to be refunded, if need be by taxpayers.

CNN.com reported that a hierarchy was also defined among large depositors, with big businesses being asked to pay before small and medium-sized businesses.

Details the day after the announcement: Under the new rules, being called a “bail-in regime,” when a bank is unable to meet its financial obligations, 8% of its debt will be paid by the bank’s shareholders, creditors/bondholders and large depositors. The next 5% will be paid by country bank funds (that will have to be set up). If that’s still not enough, the country will have to decide what to do.

The Guardian.co.uk reported that the second layer, country bank funds, responsible for rescuing 5% of failed banks must “come from a resolution fund which has to be built up over 10 years and cover 0.8% of the insured deposits in any given country.” The UK got excused from having to create or at least fund that fund because they said they wanted to collect a “bank levy” instead, for what sounds like an FDIC-type scheme in which banks (help) pay for failed banks. CNN.com reported that the resolution funds would also contain mandatory bank contributions, however.

(Coss CAW deh   fon   HAWF toong.)

Inserito scidulam quaeso ut faciundam cognoscas rationem

“Please insert your ATM card and enter your PIN,” as it appears in Vatican City. From the book Found in Translation by Nataly Kelly and Jost Zetzsche.

There have been concerns about the Vatican Bank (the “Institute for Works of Religion,” IOR) and money laundering, to the extent that the European Central Bank even blocked Vatican Bank ATM and credit card terminals at one point, practically excluding Vatican City from the EU. In response to pressure from the Roman district attorney’s office, the Bank of Italy, Italy’s central bank, froze electronic transfers with EU banks for the IOR, which initially instead of cooperating tried to find a new banking partner in Switzerland. Now, the Vatican’s government has created a financial oversight authority which presented its first report on 22 May 2013, the first time in history such a thing has happened. The head of the authority announced that six suspicious cases had been reported to them. After investigating, they forwarded two of these cases to Vatican district attornies.

Update on 02 Oct 2013: A group of cardinals is meeting in Rome to discuss Vatican reforms that include issues at the Vatican bank. The I.O.R. published its financial data for the first time on 01 Oct 2013.

An 07 Oct 2013 Spiegel.de article said in Summer 2013 the Vatican Bank had ~1000 accounts held by people not actually eligible to have a Vatican bank account, containing ~300 million euros.

Update on 04 Dec 2013: Former U.S. ambassador to the Vatican Mary Ann Glindon is chairing a “papal committee” that will submit reform suggestions, but Pope Franziskus has already tasked his personal secretary Alfred Xuereb with overseeing the following reforms, said Spiegel.de:

  • “Thousands of accounts were closed. Only people in the global Catholic association [globaler Katholikenverbund] will be allowed to be I.O.R. customers in future.
  • “No more anonymous numbered accounts, long a house specialty.
  • “The bank will issue no loans, or if it does they will only be in a few ‘extraordinary cases.’
  • “Speculative or risky investments have been forbidden for customers’ money.

“These reforms have been described in detail in a manual for employees, as well as how to handle cash transactions; the I.O.R. averaged about triple the percentage of cash transactions as worldly banks.”

Neue Auflagen für inländische und ausländische Banken

“New requirements for domestic and for foreign banks.” A week after the EU passed a new package of bank reforms on 16 Apr 2013 intended to force European banks to operate on a more stable basis, an EU commissioner sent a letter to the USA’s Federal Reserve criticizing the Fed’s intention to impose similar terms not just on US banks within the US but on foreign banks in the US as well.

The key points in the Fed’s proposal would be to require large foreign banks to create North American holding companies for their activities there and to meet the standards US banks must fulfill for capital reserves and liquidity buffers in order to make the banks less vulnerable to failure. The Fed said in addition that the new rules were intended to mitigate risk from foreign banks’ recent tendencies in the USA to bet more strongly in capital markets, on short-term capital. The proposed provisos would apply for “large” foreign banks in the US, defined as having >$50 billion internationally and >$10 billion in the USA. Such as Barclays and the embroiled-in-scandal Deutsche Bank, “both of which have attempted to use modifications under corporate law to avoid stricter constraints in America” and both of which have received large bailouts from US taxpayers despite being foreign, the F.A.Z. pointed out.

This seems like a smart initiative taken by the US government and apparently before other governments such as the EU’s. There are dystopian science fiction novels about future earths in which only domestic banks are regulated and foreign banks go a-raiding abroad until they don’t much resemble banks any more.

(NOY ah   OW! f log en   foor   in LEND ish en   oond   ow! SLEND ish en   BONK en.)

Das neue Bankenpaket

The new package of bank regulations passed by the EU on 16 Apr 2013. It applies to all banks and is intended to strengthen their situation so they can’t bring down any more world economies. 1) Banks must set aside a higher percentage of reserve capital, a bigger “capital buffer,” to save them in times of crisis; 2) starting 2015 their total debt will be limited; 3) an upper limit was set for banker bonuses (max. 2x the annual salary).

(Doss   NOY ah   BONK en pock ate.)

 

Bankgeheimnis

“Banking secrecy.” Luxemburg announced on 07 Apr 2013 that they intend to relax their banking code of silence, “no longer strictly refusing” to automatically share information about international accounts with other countries’ tax authorities, starting in 2015. EU countries have also been in negotiations with Switzerland about similar issues for several years, though individually as separate countries and not with the full power of the EU.

Until now, foreigners banking in Luxemburg have paid an anonymous tax of 35% on interest earned there. This will be changed in Luxemburg e.g so that account holders’ names will be included in the information shared with German tax authorities.

German critics say this is insufficient because other Luxemburg income, such as company profits, remains untaxed for foreigners. Also, Luxemburg isn’t the only European tax oasis. Jürgen Trittin of the Green Party criticized Austria, for example, where names of foreign account holders earning interest in Austrian banks are only shared after initiation of criminal proceedings. Green Party finance guy Gerhard Schick wrote that the G20 summit in 2009 actually agreed to end Bankgeheimnis; certainly some reforms were enacted that year though movement has been slow since, until the recent data leak. The ZDF report concluded by saying that economists have warned that if only some tax oases reform their laws, the ones that don’t will profit from acquiring fleeing customers.

Update on 09 Apr 2013: “In principle, Liechtenstein has separated itself from its tax haven past.” Speaking of Liechtenstein, it looks like they had an interesting idea for a new field for financial services experts in former tax oases to move into: ratings agencies that are independent of the big three on Wall Street. The nonprofit Carlo Foundation (carlofoundation.org), said to be the world’s first independent fund rating agency, was founded in Liechtenstein in July 2012.

Update on 22 May 2013: At their summit in Brussels all 27 EU leaders confirmed in principle their finance ministers’ decision to eliminate Bankgeheimnis for “foreign”-held bank accounts, insurance policies and investments starting in 2015. The leaders of the two last holdouts, Luxemburg and Austria, said they too would agree to the automatic exchange of data after the EU as a whole negotiated banking agreements with relevant third-party countries such as Switzerland, Liechtenstein or Monaco. Luxemburg’s prime minister Jean-Claude Juncker said his country is particularly concerned that the same competition conditions apply in finance centers inside and outside the EU. Negotiations with Liechtenstein, Monaco, Andorra, Switzerland and San Marino about automatic exchange of banking data are underway and expected to be concluded quickly, in “two to three months.” If all goes according to schedule, EU leaders could completely eliminate Bankgeheimnis at their meeting in December 2013.

Update on 20 Mar 2014: The 28 E.U. heads of government agreed to end Bankgeheimnis in the European Union, with comprehensive exchanges of tax data. This will also end banking secrecy for foreigners, though that might mean only for foreigners from other E.U. member states. Five third-party countries, Switzerland, Liechtenstein, San Marino, Monaco and Andorra, also agreed to exchange sufficient information to end banking secrecy de facto with regard to interest income, said Luxemburg’s prime minister, saying this fulfilled Luxemburg’s conditions for also agreeing to the new policy.

The O.E.C.D.’s standard for automatic data exchange will be the orientation point, and the E.U. hopes it will become the standard for tax information exchange regulations worldwide, said E.U. Council President Herman Van Rompuy. But today’s breakthrough E.U. policy agreement goes beyond the requirements of the O.E.C.D. standard:

“In future, the data exchange is supposed to apply not only to private persons but also to certain trusts and foundations. The guideline will also apply for stock profits and certain insurance profits, particularly from life insurance and investment funds. The banks are also to be obligated to collect more information in future about the actual economic owners of companies.”

(BONK geh HIGH mniss.)

Durchgangssteueroase

“Pass-through tax oasis” or “flow-through tax oasis,” in a third country; also called a Vertragssteueroase (treaty tax oasis). The fierce discussion triggered in Germany by the publication of what is being called the  “Offshore Leaks” data trove on 04 Apr 2013 has moved from international tax avoidance by individuals, usually heirs in journalists’ examples, to international tax avoidance by companies, not least because these schemes do require a complex web of service providers and subsidiaries to move the money around. So, say your company earns income in a foreign country where your country has a double taxation agreement* with that country’s government not to tax it. As a first obfuscatory step, you can transfer this money to a Durchgangssteueroase, a third country that also has a nontaxation agreement with the country where you earned the income. The Netherlands is one of the world’s biggest pass-through tax oases because of agreements they’ve made with Asian countries that do a lot of manufacturing.

Income can thus be transferred out of high-tax countries to a pass-through tax oasis such as Mauritius to a zero tax oasis (Nullsteueroase) such as the Cayman Islands. Hans-Lothar Merten’s book “STEUEROASEN Ausgabe 2013: Neue Einblicke in die Offshore-Welt” explains that countries acting as pass-through tax oases justify being the first step in the chain by saying they are providing an important service in avoiding double taxation but, he says, what they are providing is in fact double nontaxation. ~20 trillion euros flowed through the Netherlands in this manner in 2012, Merten said [p. 29]. Ireland has provided useful related services.

German media are also reporting, or perhaps repeating each other’s examples of, perfectly legal situations where international companies’ foreign subsidiaries reduce their local net income by paying high licensing fees—for the rights to use their parent company’s brand—to subsidiaries in low-tax countries, perhaps while also deducting their expenses in high-tax countries.

(DOER chh GONGZ SHTOY er oh OZ iss.)

* Durchgangssteuerungsabkommen, “double taxation agreement,” “double tax treaty”: country A makes a (bilateral) agreement with country B to not tax income earned by country B people in country A. However, people who are residents of neither country can take advantage of the advantages by hiring an intermediary. The result is international flows of capital that are, writes Hans-Lothar Merten, inexplicable for any reason other than double taxation agreements and so-called “treaty shopping.” He cites the example of the island of Mauritius, which has double taxation agreements with ~50 other countries. Cyprus had them with ~45 countries, according to Wikipedia, with more in negotiation.

Kapitalverschleierung über Steueroasen

“Using tax oases to veil capital.” Methods for doing this were disclosed by financial data about 130,000 people, in 170 countries, >120,000 “mailbox companies,” >260 GB in >2 million documents from a time range of ~30 years sent anonymously to the International Consortium of Investigative Journalists over a year ago. The story hit the world press on 04 Apr 2013. Greek and Filipino tax authorities announced that they will be investigating. The vice president of Mongolia‘s parliament will probably have to resign. Some of the still-legal methods to create tax opacity to be gleaned from the data were shown to have been used by the Deutsche Bank in Singapore, which had an intermediary agent (Trustverwaltungsfirma, “trust administrator company”) create >300 companies in so-called tax paradises (Steuerparadise).

In response: Gerhard Schick (Green Party) suggested Germany follow France’s example of levying an additional tax on all transactions with low-tax countries, disincentivizing tax flight (Steuerflucht) by neutralizing the advantages. Joachim Poß (SPD) proposed “an international anonymous NGO and a comprehensive information exchange, starting here in Europe.” The Leftists party proposed following the USA’s example of linking tax obligations to citizenship, so that every German residing abroad would be obligated to report “their total income every year, how much property they owned in total and what taxes they had had to pay for that in the Seychelles that year. And the difference between that and their German tax obligation” would then have to be paid in Germany, said Gregor Gysi (Die Linken).

The Süddeutsche Zeitung reported that they and NDR were the two German media outlets given access to the data (of “the biggest leak in world history”), and furthermore that a representative of Finance Minister Wolfgang Schäuble requested access to the data on Thursday, 04 Apr 2013, but the SZ would not grant that request. The data were protected under freedom of the press (Pressefreiheit), which includes protecting one’s sources, the Süddeutsche wrote. Sharing the data with government authorities might endanger those sources and obstruct the SZ’s ongoing research. NDR also refused the request to share the data. Now Focus magazine seems to have acquired the data somehow.

Update on 06 Apr 2013: “I have a certain degree of pleasure from the fact that this public scandalization in all countries has very much increased the pressure,” said German finance minister Wolfgang Schäuble with quiet satisfaction on 05 Apr 2013. “And now we have better chances to make progress faster than was possible in the past.”

Critics say the German finance minister has to be kidding because everyone’s known about this for years. If Schäuble were serious, they say, his office would be drafting new legislation. Income tax is regulated state-by-state in Germany, for example, and some people are calling for it to be centralized, made into a uniform federal-level taxation system with fewer “tax bait” niches. The OECD seems to be the locus for international negotiations in response to the new information; that group wants to issue a list of proposed actions in response to the “Offshore Leaks” data trove by July 2013.

(Cop ee TALL fer SHLY er oong   üüüberrr   SHTOY er oh OZ en.)

Parlamentarisches Pokern

“Parliamentary pokering,” brinksmanship on the part of some politicians from countries with bartering and/or bluffing cultures.

(Parl ah ment ARR ish ess   POKE ern.)

Anlegergerecht

“In a way fair for investors.” Since June 2012 new rules have been in place for the investment side of German banks, which must now, according to the 4 Mar 2013 F.A.Z., “disclose fees, keep a record of what is said during investment consultations and give a copy of this record to the consulting clients. Investment advisors must be able to show documentation proving that they have been trained to have expertise in this area and that they have professional liability insurance.” Critics of the “gray capital market” say these rules are insufficient.

(On LAY grr geh RECT.)

Abzockerei

“Ripoffery,” word used in an exciting Swiss voters’ referendum to limit bonuses, and not just in banks! In Switzerland. The election is Sunday, 3 Mar 2013. Proponents of the referendum want performance-based salaries and for executives’ compensation to have to be approved by shareholders, the actual owners of the companies concerned. Pro-referendum posters say things like “Compensation excesses harm pension funds + Swiss old-age and survivors insurance + the people’s economy.”

(Ob TSOCK err eye.)

Kapitalpolster, Kapitaldecke

“Capital cushion,” “capital blanket.” The former is an informal and the latter a formal way of referring to the money a bank holds in reserve to cover its wagers, reserves which tended to fall dangerously low during deregulation but are now recovering. Deutsche Bank for example moved from <6% to 8% “core” capitalization in the past year. A bank with insufficient capital held in reserve is apparently said to have “thin capitalization” in English, whereas in German you would say its capital blanket is too short.

(Cop ee TALL pollster,   cop ee TALL deck eh.)

Trennbanken

Separation banks.” Germany’s ruling coalition has indicated that it wants to pass legislation that prevents banks from speculating with money from savings accounts. ZDF’s Valerie Haller said this would split today’s universal German banks into two entities under one roof: one for “consumer business” and one for “risk business” (probably “commercial banking” and “investment banking” in English). If the laws are in fact drafted and then pass, the new rules would come into force two years from now.

Update on 5 Feb 2013: Chancellor Angela Merkel’s cabinet has announced it will start putting together “a comprehensive bank regulation package” on Wed. 6 Feb 2013. They say it will include civil and criminal punishments for managers whose assumption of risk endangers their institutions, will separate “speculative banking” from “customer banking” and will require banks to have emergency plans in place in case of worst-case scenarios.

Update on 7 Feb 2013: They did it. On Wed. 6 Feb 2013 Finance Minister Wolfgang Schäuble (CDU) announced the proposals in his characteristically clear, reasonable, reliable-sounding way. The opposition criticized that the new banking regulations are late and don’t go far enough. “Too late and too vague,” said the SPD’s chancellor candidate Peer Steinbrück, who said he submitted a proposal to separate universal banks six months ago. About ten large banks in Germany will be affected by the new rules.

(TRENN bonk en.)

Das Himbeerreich

“The raspberry kingdom.” New play running with the same cast in two German theaters. It uses anonymized quotes collected by director Andres Veiel during a year of confidential interviews with bankers, brokers and board members.

Raspberries are considered elegant berries in Germany, and the title of the play refers to the great rock candy mountain bankers supposedly find themselves on when they retire.

(Doss HIMM beah reichh.)

BaFin

German Federal Financial Supervisory Authority,” which announced that it will be checking the bonuses paid by banks in Germany. “We think it’s important to verify whether banks are in fact complying with the laws’ requirements. Because checking bonuses and salaries is an important instrument for countering undesirable developments in the banking system.” The ruling coalition welcomes this because the announcement itself should cause better compliance with existing banking regulations. The SPD, which is in the opposition, says it’s not enough and that in this election year they will fight for stricter new laws and for radical limits to be set for banker remuneration.

(Baffin.)

Fläzen

Gemeinsame Bankenaufsicht

Common bank supervisory authority. At this week’s summit to define a road map for structural economic reforms of the European Union, EU heads of state did agree on how to make the ECB a supervisory authority for European banks. Goals included ensuring similar bank monitoring quality across Europe and enabling more rapid identification of national banks that are starting to slide into trouble. Starting in 2014, the ECB will monitor only banks that are particularly large (balance sheet >30 billion euros or >20% of their country’s economic output but in any case each country’s three largest banks) and/or internationally active; currently this would cover the ~150 most important banks in Europe and ~30 banks in Germany. In justified cases, the ECB will be able to audit additional bank types, such as banks that have received financial assistance, and after the first indications of financial crisis the ECB should be able to intervene with all banks. The new authority will be mandatory for Eurozone members, with voluntary participation for other members.

Germany had objected that giving the ECB authority over all European banks (~6000) would leave German taxpayers on the hook for banks in other countries. France had wanted to give the ECB authority over all European banks in order, they said, to get the new system up and running more rapidly. As it is, more French banks than German banks will be subjected to the new ECB monitoring (President Hollande said 95% of French banks and 82% of German banks will probably be covered by the new authority). The new system is intended to cut links between national banks and sovereign debt, capping the tendency for some governments to issue too much debt and for their national banks to buy too much of it. They’re still discussing how to avoid conflicts between the ECB’s monitoring and financial policy roles. To separate the two functions within the same institution, it has now been agreed that a board will be created that does not include people involved with the financial policy side. When the ECB’s governing council, the highest financial policy board at the ECB, disagrees with the ECB’s bank monitoring decisions, an “arbitration mechanism” will be applied. Experts say much remains to be clarified.

The European Stability Mechanism (ESM) should be up and running in 2013. It will be able to send capital directly to troubled banks, with the prerequisite that it first unanimously asks the ECB to take over running them, and the ECB agrees to do so.

Update on 12 Sep 2013: The E.U. parliament approved the creation of a central Bankenaufsicht, being variously translated as a central bank oversight, a banking union, a single bank supervisor or single supervisory mechanism, that is intended to increase the world’s economic stability by being separate from national governments and national bank associations. It is to be at the European Central Bank but to be kept strictly separate there from other E.C.B. business, somehow, and now planned to be up and running by Fall 2014.

Update on 15 Oct 2013: The E.U., in the form of the Member States’ finance ministers, agreed on the basic structure of the Bankenaufsicht, to be indeed located at the European Central Bank. It will have oversight over ~130 large European banks. Startup is scheduled for ~November 2014. Tagesschau.de added that the Bankenaufsicht is the first of three planned “pillars” of the E.U.’s banking union [Bankenunion]. The other two pillars, “a mechanism for winding down rotten banks [marode Banken] and a uniform deposit insurance [Einlagenversicherung],” have still to be defined.

A stress test is scheduled next month for Europe’s 130 largest banks, because people remain concerned that some large banks might have managed to keep some risk mismanagement hidden in their books, even at this late date. Only after banks have passed the upcoming stress test, however strict it turns out to be, will they be allowed into the protection or at least under the umbrella of the new Bankenaufsicht.

Tagesschau.de’s Rolf-Dieter Krause commented about the upcoming E.U. stress test, “After rather doubtful exercises of this type in the past, this time they say they are *really* going to test the banks.”

(Geh MINE zom eh   BONK en ow! ff zicked.)

Umsatzsteuer-Karussell

“Value-added tax carousel.” On 12 Dec 2012 there was a razzia at the Deutsche Bank in which 500 finance police searched its offices and employees’ apartments in several cities for evidence of German Umsatzsteuer tax fraud for CO2 pollution permits sold abroad. Again, the scheme seems to have been to pass the paper back and forth across borders until it was unclear whether the tax due in Germany had been paid, after which the bank printed receipts saying it had and asked the German I.R.S. to refund, in this case, the 19% V.A.T. for the supposedly foreign transaction. Süddeutsche Zeitung described it as the government’s advance payment of V.A.T. to dummy companies that never paid it back and then evaporated. Trade in CO2 pollution permits shot up between 2008 and 2010, and the German fiscus refunded billions of euros to such schemes, according to the Bundeskriminalamt.

The Frankfurt general district attorney, who has been investigating this since 2010, voiced concern that Deutsche Bank employees, among other things, did not report suspected money laundering as they were required to. Germany’s largest bank, DeuBa garnered at least 230 million euros via the scheme.

The first razzia looking for evidence in this carbon emissions trading carousel scheme was carried out in April 2010 (and an unknown person warned the bank the day before). In December 2011 a decision by the Frankfurt District Court [Landgericht] listed instances in which the Deutsche Bank apparently did not care to ask questions about its business partners. Journalist Klaus Ott described some of them in an article in the Süddeutsche Zeitung dated 30 April 2012: “A business account for a furniture store that wants to engage in emissions trading? A business account for a company that doesn’t have any offices yet? A C.E.O. who doesn’t speak German but signs German-language bank papers with no prior translation? No problem! And what about the risk management documents of the company bringing in the new partner? The bank isn’t interested, even though it is well known that something stinks in this industry.” Spiegel-Online reported that in one case a ten-minute conversation sufficed to set up this million-euro deal. People behind the scheme appear to have been located in London.

Update on 20 Dec 2013: Europe’s carbon emissions market is merely ~100 billion euros, Süddeutsche.de wrote, but the continent’s “more vulnerable” “scarcely monitored”  electricity and gas market is about nine times as large. It looks like the carousel tax scheme has been used there too, by Germany’s third-largest utility company EnBW but they’re not the only ones. Europol said that “criminals” used the carousel to avoid ~5 billion euros in value-added taxes in the carbon emissions market, but that the tax fraud may have been correspondingly higher in the bigger market.

The alleged electricity trading carousel was set up quickly, growing very large very fast. At EnBW, for example, tax auditors either found or made an in-house note that in 2011 “tax-free sales increased from circa one billion euros to ten billion euros within one year.” Germany’s F.B.I., the Bundeskriminalamt, was quoted as saying setting up the scheme required specialist expertise and in fact looked rather “organized.”

Süddeutsche.de indicated they learned these details from internal confidential papers from e.g. tax auditors in Karlsruhe and a central corporate I.R.S.-type office in Stuttgart [Zentrales Konzernprüfungsamt Stuttgart]. Europol, German prosecutors from multiple cities and German tax officials from multiple states are said to be investigating.

(OOM zots SHTOY err   car OO! sell.)

Systemrelevante Banken

System-relevant banks, that are “too big to fail,” otherwise known as GSifi (global systemically important financial institutions). The head of the USA’s FDIC and a hohes Tier from the Bank of England published a proposal in the Financial Times on 10 Dec 2012 for reregulating system-relevant banks and making them less of a global economic risk. Under this proposal, if these huge banks got in trouble their top managers would be able to be fired by the responsible regulatory authorities, their shareholders would lose part or all of their investment, their creditors would not be able to collect all their unsecured debt, and rules would be applied to the company/ies at the top level of the holding hierarchy rather than the shuffle of subsidiaries. To promote national financial stability, healthy subsidiaries around the world would be preserved even if the top-level holding company is wound down. There are currently said to be 28 system-relevant banks in the world, of which 12 are in the UK and USA.

(Cis TEHM rellll ev ont eh   BONK en.)

Steuerabkommen

“Tax agreement.” Germany’s ruling CDU/CSU + FDP coalition negotiated an agreement with Switzerland that untaxed German money in Swiss bank accounts could be subjected to a one-time tax (21% to 41%) and repatriated to Germany with no prosecution for tax evasion. This agreement had to be ratified by German parliament but was not because the SPD and Green Party objected to the low rates, saying tax avoiders would be granted immunity yet pay a lower overall tax rate than people who had obeyed the laws. The matter will now undergo arbitration.

Update on 06 Dec 2012: A tax agreement between Greece and Switzerland is under discussion that it is hoped would return 9 billion euros to Greece. Again, the tax evaders would pay between 21% and 41% and remain anonymous. Negotiations have been ongoing for two years. Süddeutsche Zeitung reported that over 20 billion euros were moved from Greece to Swiss banks between 2009 and 2011.

Gerhard Schick, finance speaker for the Green Party in the Bundestag, said in a position paper quoted in this Süddeutsche Zeitung article about the constitutionally anchored tax-free status of Greek shipping families that the EU should be negotiating these tax agreements with Switzerland, that the Swiss tendency to negotiate separately with each EU country gives Switzerland disproportionately too much power. “Divide et impera.”

Update on 12 Dec 2012: Arbitration was unsuccessful.

(SHTOY err OBB come en.)

Dividendenstripping

Dividend stripping.” A tax avoidance scheme the HypoVereinsBank is accused of, wherein they allegedly transferred customers’ stocks back and forth between German and foreign banks until it was unclear whether the Kapitalertragssteuer had been paid and then claimed more capital gains tax credits than were owed. Reuters and the Süddeutsche Zeitung reported that a single Frankfurt investor working with HVB and other banks was told he owed 124 million euros in tax for 2006–08 after the IRS-equivalent refused to accept his capital gains tax break from the scheme; he has been fighting in court since 2011 to get HVB to pay the tax bill. HVB and this investor split the profits 65% HVB, 35% investor. Wikipedia says dividend stripping lost its tax-law basis in 2000, Spiegel says it hasn’t been accepted by German tax authorities since 2007, and Süddeutsche Zeitung says since 2012.

Weird story about the HypoVereinsBank in Spiegel-Online on 30 Nov 2012: A guy accused his ex-wife and other HVB employees of large-scale tax avoidance schemes that moved money to Switzerland, was declared non compos mentis by the Bavarian justice system and has been locked up in a mental institution ever since (2006). The man probably was violent, but he may have been correct about the tax avoidance. He cited names and numbers when he blew the whistle to the Bavarian tax authority, but a judge who was not involved in that case called the tax office and told them not to investigate the bank because the whistleblower was crazy. The institutionalized whistleblower’s case was re-opened in 2013. He was set free  in the summer of 2013, after seven years of confinement. Laws committing people to mental institutions and keeping them there are going to be reformed as a result of his case. This started with an 05 Sep 2013 decision by the supreme court in Karlsruhe, the Bundesverfassungsgericht, which prioritized a review of the whistleblower’s case and announced failures of the various state courts and criteria that need to be met in future.

The Frankfurt district attorney’s HVB razzia last week found a trail leading to “a Swiss private bank.” Süddeutsche Zeitung says it is thought that Swiss banks will be a very fruitful place to investigate this German tax scandal. Deutsche Bank and UBS are now implicated as well.

Update on 16 Dec 2013: HSH Nordbank has been accused of dividend stripping.

(Dee veed END en shtrrrip pink.)

Hochgeschwindigkeitshandel

“High-speed trading.” On 25 Sept. 2012 the German social democrat party SPD (the opposition to Chancellor Angela Merkel’s conservative CDU/CSU + FDP coalition) announced their new proposed financial platform of increasing banking regulation, splitting “universal” banks into a business bank and an investment bank, creating an FDIC-type emergency fund with the banks’ own money to save troubled banks, capping mortgage debt at 80% of the unit’s value and limiting high-speed stock trading. One day later, on 26 Sept., Germany’s financial minister Wolfgang Schäuble (CDU) announced that the German government wants to limit high-speed stock trading.

ZDF heute journal said the government was now calling for the following: registration of high-speed traders, disclosure of computer code if a problem occurs and higher fees after too many “fake attacks” in which high-speed traders pretend to buy a stock in order to drive up the price, then rapidly cancel the larger purchase and sell what they were actually holding at the new higher price.

Respect for Wolfgang Schäuble’s quietly reasoned-sounding explanations. Simple, straightforward, highly credible-sounding. He does a great job with them. He’s also quite clever, distracting me from banking reregulation by seizing on this high-speed trading point.

According to tagesschau.de, Schäuble is calling for “mandatory licensing for high-speed traders. Transparency that enables the supervisory authority to identify abuses faster. And the ability for the stock market supervisory authority to, when bad developments are identified in the market, to immediately halt trading.” On 26 Sept. his political opponent in the SPD responded that this doesn’t go far enough and called not only for licensing of trading firms but also of trading algorithms. Germany’s Green Party said the simplest way to handle this would be to forbid high-speed trades, and furthermore that the government is limiting itself to too much of an observing, witness, role, rather than regulating. And the techie German Pirate Party said…?

(HOKE geh SHVIN dig kites hon dell.)

Finanzmarktstabilisierungsanstalt, FMSA

“Financial market stabilization institution.” From the SoFFin acronym, which stands for Sonderfonds Finanzmarktstabilisierung Finanzmarktstabilisierungsanstalt. SoFFin was founded in 2008 to stabilize struggling banks.

Update on 16 Jul 2013: Between 01 Jan and 30 Jun 2013, the German taxpayer-supported SoFFin fund paid out ~18 billion euros in aid, ~17 billion being in the form of Eigenkapitalhilfe [equity assistance? does this translation apply for banks?], which, ZDF heute journal reported, Hypo Real Estate benefitted most from, followed by Commerzbank and WestLB successor Portigon.

(Fee NONTS mark t shtah beel ee zeer oongs ON shtoll t.)

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