In September 2013 Italy became the world’s first country to introduce a tax on high-frequency trading. Italy’s government now collects 0.02% on all trades that take place in less time than half a second.
(Nool comma nool tsvy prote CENT.)
“Moving the market with fake orders that are cancelled at the last moment,” one issue Germans have worried about with high-frequency trading.
In addition to worrying about H.F.T., Germans have also worried about hedge funds, since the Clinton White House. A German review of Michael Lewis’s new book said in jurisdictions where high-frequency traders aren’t required to register as such, they often call themselves hedge funds.
(Dane MAWKED mitt SHINE ow! f tr ague en bev AGUE en, dee im lets ten OW! g en blick on newell EARED vair den.)
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:
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.
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.)
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.)
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.)
Some insight into why left-leaning governments along the very densely populated Ruhr river, even under an S.P.D. + Green party state coalition government such as that of governor Hannelore Kraft (S.P.D.), might persist in doubling down on the “losing bet” on coal-fired power plants: financially-strapped town governments, such as the city of Essen where the huge utility RWE is headquartered, are heavily invested in private utilities’ stock. Essen bought almost 19 million shares of RWE stock in 2007 at ~75 euros and was still listing the stock in its books as worth 75 euros though they were trading at 27 euros when ZDF heute journal reported on this last month. Update on 01 Apr 2014: Essen adjusted its books to reflect its RWE stock’s current trading price, because new rules required the city to do so, and consequently lost 680 million euros on paper. Essen’s capital has now shrunk to ~15 million euros. The city estimates it will have debts of 18 million euros at the end of 2014 and >50 million at the end of 2015 and 2016 (2015 and 2016?). FAZ.net said other Ruhrgebiet cities invested in RWE stock as well.
The city utilities of the towns of Essen, Dortmund, Oberhausen, Bochum, Dinslaken and Duisburg along the Rhine and Ruhr rivers formed an entity called the Stadtwerke Konsortium Rhein-Ruhr which in 2011 bought 51% of STEAG (“the Anthracite Electricity Co.”), a company that operates coal-fired power plants, for a total of 1.2 billion euros in borrowed money.
Academics interviewed on ZDF heute journal said Germany’s energy future is in decentralized renewables, especially solar power and wind. They worried that the utilities stock the financially imperiled Ruhrgebiet cities have borrowed money to invest in wasn’t just tempting city and state governments to make questionable environmental policy but that they would acquire so much debt throwing good money after bad to subvention the old coal power plants that the towns might never recover financially.
Update on 21 Nov 2013: An expert opinion report found that ex-governor of Baden-Württemberg Stefan Mappus (C.D.U.) overpaid by ~780 million euros when he bought into private energy utility company EnBW in 2010, negotiating a shares purchase package for 4.7 billion euros. The report was commissioned by the Stuttgart prosecutors’ office. N.B.: Mr. Mappus was succeeded in office by Winfried Kretschmann, Germany’s first Green party governor, as a result of the fierce protests against the Stuttgart 21 train station expansion project (C.D.U.).
Update on 28 Feb 2014: RWE lost 2.8 billion euros in 2013. This is its first loss year in sixty years. The majority of the losses are from write-downs on gas and coal-fired power plants. It had calculated that its conventional large coal-burning power plants would be selling electricity at 50 euros/megawatt hour in 2014/2015 that it’s selling for 35 euros because of Germany’s investments in decentralized renewable energy sources. RWE’s stock price was almost 29 euros though because shareholders were expecting the news, a trader said.
Update on 04 Mar 2014: RWE’s C.E.O. Peter Terium said at a press conference that the utility “made mistakes too” and was late to invest in renewable energy sources, “perhaps too late.”
Perhaps one-third of their large coal-burning power plants is not earning enough from electricity sales to cover operating costs. The company is 30 billion euros in debt. They said they will have to make cuts, including cutting 10% of jobs by the end of 2016 which is a clear dog whistle to the S.P.D, and asked the German government to help them out of their dead end. The chair of the Mining, Chemistry, Energy union where the new general secretary of the S.P.D. used to work, who is also the new general secretary of the S.P.D.’s life partner, called for the government to support RWE’s request for more government support. Payment for maintaining offlined unprofitable coal-burning power plants would not be a subsidy, said RWE’s C.E.O.
Update on 12 Apr 2014: Spiegel.de reported that Wirtschaftswoche reported that Handelsblatt Online reported that the just top twenty municipal governments owning the most RWE stock lost 2.5 billion euros on paper in the recent write-down to the stock’s current trading price. Essen lost 680 million euros. Mülheim an der Ruhr lost 480 million. “The stock price adjustment is bringing some of them to the verge of bankruptcy.” Also, RWE’s C.E.O. Peter Terium recently confirmed that the utility might issue new stock to get fresh capital, further pushing down the price of its old stock. Wirtschaftswoche and/or Handelsblatt said the affected North Rhine-Westphalian “counties” [Kreis] include Hochsauerland, Rhein-Sieg and Rheinisch-Bergische and the affected North Rhine-Westphalian regional authorities [Landschaftsverband] include Westfalen-Lippe and Rheinland.
No one has explained yet how RWE could be so massively in debt yet 2013 was its first loss year since World War II, unless they’re saying the utility did it by hiding losses on paper while hoping for government support. A 03 Mar 2014 article headlined “Complaining as a Strategy,” in which Spiegel.de said C.E.O. Peter Terium still lacked a plan for bringing the utility giant forward into greatness, cited an RWE presentation dated February 2014 that said the company had debts of ~19 billion in 2008 which increased to ~30 billion euros in 2013. It said it appears the management has cut costs and already budgeted in government aid it expects to receive by explaining how poorly the company is doing, but it still lacks a plan for getting out of the “vale of tears.” Laudable investments in decentralized renewable energy sources such as “Blockheizkraftwerke [decentralized combined heat and power station units], Solarspeicher [storage units for solar energy] and smart home concepts” cannot offset the huge losses from investments in giant dirty power plants.
(Ow! fss FALL shah FEAHD geh ZETTS t)
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.
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 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.)
“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.)
“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.)
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.)
“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.)