Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Archive | November, 2016

Standard Life annuity sales slide

Posted on 30 April 2014 by

Fresh evidence of the upheaval George Osborne’s planned pensions reforms are causing the industry emerged on Wednesday when Standard Life warned sales of annuities had slumped.

The FTSE 100 company said sales of annuities, which allow pensioners to convert retirement pot into income, had fallen by half since the chancellor unveiled the shake-up in the budget six weeks ago.

    Standard Life generates about a quarter of its UK new business profits from annuities on an embedded value basis, an insurance-specific metric. Across the group, however, they account for only 6 per cent of annual operating profits.

    The group said it was well placed to deal with the changes, pointing to the scale of its asset management operation and its alternative “income drawdown” offering.

    Analysts said the drop in Standard Life’s annuity sales was to be expected.

    Across the group, assets under administration rose from £233.1bn a year ago to £247.8bn as of the end of March.

    But the headline first quarter numbers were shy of some analysts’ forecasts, because of weaker-than-expected flows of funds from third party pensions investors.

    Shares in Standard Life eased 1 per cent to 382p.

    The Chancellor’s retirement income overhaul has also raised concerns about possible job losses in the life insurance sector.

    MGM Advantage this week disclosed plans to make redundant about 80 employees who focus on annuities. The retirement income group said it was drawing up plans to sell alternative products.

    Temasek and RRJ take a stake in ING arm

    Posted on 30 April 2014 by

    Singapore’s state investment company and a private equity fund founded by the Malaysian dealmaker Richard Ong are to take a stake worth €1.3bn in ING’s Europe and Japan insurance arm as it gears up for a stock market launch.

    Temasek and RRJ have agreed to become “cornerstone” investors in the Amsterdam listing of the insurer, which is set to rank among Europe’s biggest flotations of the year.

      Their investment will equate to a stake of between a sixth and a quarter in the insurer if investors put a price tag of between €5bn and €8bn on its total equity as analysts expect.

      The involvement of Temasek, one of the world’s most influential investors, is a sign of how it is starting to place bets on the economic recovery in Europe, having earlier made similar investments in the growth of Asia’s insurance business.

      Under the terms of the arrangement with ING, the Dutch financial services group will receive €750m from RRJ and €425m from Temasek in cash. It will also receive €100m from a Temasek subsidiary, SeaTown.

      The investors will take an initial equity stake worth about €150m in the insurer, which regulators have forced ING to sell because of its government bailout during the financial crisis, when it floats.

      Most of the investment will initially take the form of ING debt but will gradually convert to the equity of the insurer, being renamed NN Group.

      “It’s building confidence – it’s very significant for us,” said Lard Friese, the insurer’s vice-chairman who is expected to become its chief executive.

      ING is preparing to fire the starting gun on the IPO in the coming weeks, people familiar with the matter said. No firm decision has been taken on timing.

      The planned listing will be a rare coup for the Euronext group of exchanges, which comprises the Dutch bourse and counterparts in Brussels and Lisbon.

      Temasek, which managed a portfolio valued at S$215bn (US$171bn) as of March 2013, has increased its focus on Europe with the opening last month of its first office in London, which it is using as a beachhead to do deals in the region.

      Last month, Temasek highlighted its focus on what it called “recovering Europe” when it bought a 25 per cent stake in Hutchison Whampoa’s AS Watson health and beauty chain for $5.7bn. AS Watson has a significant presence in countries of eastern Europe, and owns Superdrug in the UK.

      In a statement on Wednesday, Temasek noted in connection with its investment in the Dutch life insurer that NN “also has a presence in central, eastern and the rest of Europe, as well as operations in Japan”.

      The investment is also Temasek’s first significant deal in Europe in partnership with RRJ, which was founded by Mr Ong, a former Goldman Sachs banker.

      In 2012 his brother Charles, a former chief investment officer at Temasek, joined the group as co-chairman and co-chief executive with Mr Ong.

      Temasek has partnered with RRJ before, notably in 2012 when the two jointly bough a stake in Kunlun Energy, a PetroChina unit.

      They then jointly invested $468m in Houston-based liquefied natural gas company Cheniere Energy, which is set to become a large exporter of LNG from the US. Temasek last year then sold its stake in Cheniere.

      Insurers face fresh round of stress tests

      Posted on 30 April 2014 by

      European regulators have signalled a fresh round of stress tests for insurance companies as concerns grow about how the sector is coping with persistently low interest rates.

      The European Insurance and Occupational Pensions Authority is to probe how well insurers would deal with financial market shocks and unexpected rises in their liabilities.

        The exercise will hone in on insurers’ ability to handle weak returns from the fixed income instruments that dominate their investment portfolios. Life and pension groups, in particular, are under pressure because of the financial commitments they have made to policyholders.

        The stress tests will assess the impact on insurers of lower values of government bonds and corporate debt, as well as shocks to equities and property.

        They will also consider risks to insurers’ liabilities – such as changes to mortality and longevity for life assurers and losses from natural catastrophes for their non-life peers.

        “The design and the magnitude of the shocks will properly stress insurance companies’ financial position,” said Gabriel Bernardino, chairman of EIOPA.

        EIOPA’s disclosure comes just a day after its sister organisation, the European Banking Authority, unveiled the scenarios for its stress test of banks.

        Banks that failed previous tests were forced to strengthen their balance sheets.

        However, EIOPA has opted against taking a “pass-fail” approach to the insurance tests. The regulator is not expected to publish the names of any insurer when it discloses the results in November.

        The latest stress tests come three years after the previous round, which showed one in 10 insurers failed to cope with a series of damaging financial market and economic shocks.

        Nevertheless, EIOPA said at the time that the industry’s finances were robust and insurers maintain that they remain well capitalised and present lower risks to the wider financial system than banks.

        The tests are the latest regulatory scrutiny of insurers. Several big companies in the sector have been designated “too big to fail”. All European insurers need to comply with the forthcoming Solvency II regime.

        The stress tests will be based on the new capital requirements, which take effect at the start of 2016.

        Labour to take on private landlords

        Posted on 30 April 2014 by

        ©Getty

        Ed Miliband, Labour leader

        Private landlords are the latest “vested interest” to be targeted by the Labour party, with Ed Miliband set to promise longer tenancies, more stable rents and an end to up-front lettings fees.

        The Labour leader, launching his party’s election campaign for local and European elections, will promise to tackle what he calls “the terrible insecurity of Britain’s private rental market”.

        The move is the latest element of the opposition’s campaign on the “cost of living”, which has seen salvos against banks, energy companies, betting companies, pension providers, housebuilders and transport firms. But critics warn the move could undermine attempts to create a more professional private rented sector.

          Mr Miliband will say: “The next Labour government will legislate to make three-year tenancies the standard in the British private rented sector.”

          “Tenants can’t be surprised by rents that go through the roof.”

          The announcement comes amid a historic shift in Britain away from home ownership and social housing towards private rented property with 4m households now living in the sector.

          The trend has been driven by rising house prices and the sell-off of council houses since the 1980s under Margaret Thatcher’s Right to Buy scheme – as well as an influx of buy-to-let investors.

          “Generation rent is a generation that has been ignored for too long,” Mr Miliband will say. “Nine million people are living in rented homes today . . . a Labour government will take action to deliver a fairer deal for them too.”

          Labour will promise to end the typical £350 fee which people pay agents to secure a tenancy.

          It will also enforce new three-year contracts which landlords would not be able to break simply for the sake of getting a higher rent. Instead they would only be able to end the contract – with two months’ notice – if they had a good reason such as rent arrears, antisocial behaviour or breaches of the agreement.

          Party officials said the policy did not amount to a crude Venezuela-style rent cap.

          Landlords and tenants would have to set initial rents based on market value, with a rent review no more frequently than once a year.

          At that point landlords would be prevented from raising rents any higher than an “upper ceiling” set in place by legislation. That cap would be based on a benchmark such as average market rents.

          But Marnix Elsenaar, head of planning, at law firm Addleshaw Goddard, said the move could make undermine attempts to attract institutional investors into the incipient “build-to-let sector”.

          “Much of the attraction for investors is a lack of restrictions around planning use or rent levels,” he said. “Rent caps would severely undermine the potential to get the investment we desperately need in the sector.”

          An increasing number of professional property developers are moving into the lettings business. The former Olympic Village in Stratford, east London, has been converted into rented housing run by Get Living London, which offers longer-term tenancies and inflation-based rents.

          Delancey plans to develop a tower full of rented flats at Elephant and Castle in south London.

          Meanwhile, start-up Essential Living has vowed to shake up the capital’s lettings market, dominated by small amateur landlords. Martin Bellinger, its chief operating officer, said landlords needed to offer the “flexibility” of both short and long-term leases.

          “At a time when everyone is falling over themselves to support a professionalised rental sector, proposing rent caps would be absolute madness. It will kill off institutional investment in one fell swoop,” he said.

          Ian Potter, chief executive of letting agents’ membership body Arla, said the typical high street agent was not charging excessive amounts. Any tenancy of more than three years would need a legal deed to be signed in the presence of a solicitor, involving complicated and expensive legal fees, Mr Potter said.

          Housing market ‘a threat to stability’

          Posted on 30 April 2014 by

          A leading Bank of England official has warned that Britain’s housing market poses the biggest threat to its financial stability.

          Spencer Dale, the Bank’s chief economist, said a meeting of the Financial Policy Committee in June would consider possible responses.

          History showed that the UK housing market could switch from being “comfortably warm to dangerously hot in a relatively short period of time,” Mr Dale said in a response to a questionnaire from MPs.

            Mr Dale, who will take over as the Bank’s financial stability chief in June, said in testimony to the Treasury select committee that the housing market was not yet overheating. Mortgage approvals were still a third off their pre-crisis levels. But the BoE “should be nervous” about the pace of recovery.

            His words contrast with the Bank’s verdict in its November Financial Stability Report, when it stated that there was “little evidence” that housing posed an immediate threat to stability.

            Since then there have been signs of mounting inflation in the property market, with values rising at a 10 per cent annual pace.

            On Tuesday the BoE’s Prudential Regulation Authority put the property market at the heart of a tough set of stress tests aimed at gauging leading banks’ ability to weather a major downturn.

            The stress test scenarios included a 35 per cent crash in the housing market, as well as a 30 per cent fall in commercial property values.

            Mr Dale said in the parliamentary hearing that policy makers could not afford to sit back and let the housing market gains spin out of control, adding that if they waited until they were sure that a bubble had emerged it would be too late.

            Shortly after Mr Dale’s comments on the housing market, Andy Haldane, who is set to move from being head of financial stability to chief economist, made it clear that the central bank was not likely to raise interest rates soon. He is due to take up a seat on the Monetary Policy Committee in June.

            Cementing his dovish reputation in a written questionnaire, Mr Haldane made it clear that he sees the biggest risks to the economy are weaker conditions in other countries, financial market “dislocations”, or bubbles in asset markets which would damage medium-term growth prospects.

            Some investors are already anxious about prime central London property values. Grosvenor Group, the central London landlord owned by the Duke of Westminster and his family, cut its luxury housing development pipeline by £240m and sold off various assets in the centre of the capital during the 2013 financial year.

            Mark Preston, Grosvenor group chief executive, said: “We have been concerned about the level of property values in some markets, particularly in prime central London residential property.”

            The BoE’s Mr Dale said a question was whether there was a London-specific issue in housing or whether the strength would start spreading across the rest of the country.

            “We do need to be on our mettle on this,” he said.

            Half of Saga shares could go to public

            Posted on 30 April 2014 by

            Pensioners on a foreign holiday©Dreamstime

            UK’s over-65 population is expected to soar by 2030

            Saga is preparing to offer up to half the shares in its planned London listing to retail investors in what is shaping up to be one of the biggest ever allocations to the public in a UK stock market launch.

            About 700,000 of Saga’s customers have registered interest in taking part in the flotation of the insurance-to-travel group, which fired the starting gun on its offering on Wednesday.

              Bankers handling the transaction are considering earmarking between 30 and 50 per cent of the equity to individuals subject to demand, people familiar with the matter said. No decision has yet been taken.

              A retail allocation of that scale would dwarf the 20 per cent allocated to the public in the flotation of Royal Mail last year.

              “I’m determined that we should give customers a good share of this,” said Andrew Goodsell, executive chairman of Saga, which sells a range of products to the over-50s.

              The offer has yet to be priced, but the people said Saga’s private equity backers Permira, CVC Capital and Charterhouse hoped investors would value its equity at as much as 20 times earnings.

              The shares are expected to offer a dividend yield of between 2.5 per cent to 3 per cent as Saga eyes paying out between two-fifths and half of earnings. This would translate into a market capitalisation of between £2.5bn and £3bn.

              The company said on Wednesday it planned to raise net proceeds of £550m from the float, helping reduce net debt to £700m.

              The lower debt burden would help the group expand, said Mr Goodsell. “We’ve operated with very substantial leverage for a long time. That has inevitably been a constraining factor in things we’ve wanted to do.”

              Saga is planning to expand its wealth management platform to capitalise on the Chancellor’s pensions overhaul.

              Fund managers have raised concerns Saga is trying to boost its rating by avoiding the insurance sector, from which it generates most of its profits. Premiums in personal insurance have come under pressure in recent months.

              But Saga, which also offers a wide range of products from legal services to domiciliary care, said the London Stock Exchange had already decided it should be part of the consumer services sector. Most sales come from non-insurance.

              Backers will try to woo investors with the promise of predictable earnings and a business model that targets the UK’s most affluent demographic.

              Individuals will be required to invest at least £1,000 in the listing. The group has launched a television advertising campaign fronted by Larry Lamb, the former Gavin and Stacey star.

              Saga is expected to publish a prospectus for the offer with financial details in the coming days.

              Carlyle in credit market warning

              Posted on 30 April 2014 by

              Carlyle co-founder Bill Conway warned that yield-starved investors were snapping up credit securities without properly evaluating risk, as the US alternative asset fund manager reported an 18 per cent decline in quarterly economic net income.

              “Given geopolitical and macroeconomic events, we’re surprised at how ebullient credit markets have been in 2014. The world continues to be awash in liquidity and investors are chasing yields seemingly regardless of credit quality and risk,” Mr Conway said during a conference call with analysts on Wednesday.

                Institutional investors are investing in riskier debt securities such as leveraged buyout loans in their hunt for yield amid record low interest rates. They are also abandoning normal creditor protections at a faster rate and in greater proportions than at the peak of the credit bubble.

                Mr Conway said cheap debt financing inflated asset prices, making the investing environment “more challenging” for private equity groups such as Carlyle. But he insisted the firm’s dealmakers were still finding investments at “attractive prices”, while locking in low loan interest rates for their portfolio companies.

                Reflecting a buoyant environment for disposals, the Washington-based asset manager reaped $3.1bn in proceeds from selling assets in the first three month of this year, while spending €1.1bn on new deals, it said. Over 12 months, disposals have amounted to $16.3bn, compared with $6.8bn for new investments.

                The group committed another $3bn on new deals that have not yet closed during the quarter. Investments have included the acquisition of Johnson & Johnson’s ortho clinical diagnostics unit, worth about $4bn including debt.

                Economic net income fell to $322m before tax in the three months ended March 31, from $394m in the same period a year ago, weighed down by losses on international real estate assets and higher pay. The metric includes revenues from fees levied on assets under management and Carlyle’s share of profits on realised as well as unrealised gains.

                Although the investing environment has grown more challenging over the past few quarters, we have been successful in committing to several exciting investment opportunities, and we are executing sales at attractive prices around the world

                – Bill Conway, Carlyle co-chief executive

                The fund manager, which last month appointed JPMorgan executive Mike Cavanagh as co-president, said pay and benefits rose 27 per cent in the period, while revenues grew 5 per cent, boosted by new commitments from investors and an increase in the value of assets. Economic net income after taxes of $0.85 per share missed an analyst consensus of $1.01 per share compiled by Thomson Reuters. The figure was also affected by a $17m loss posted by Carlyle’s real asset operations.

                However, distributable earnings, which exclude the group’s carried interest on unrealised gains, advanced 7 per cent to $183m, or $0.52 a share, from $171m a year earlier. Carlyle amassed $5.5bn of new commitments in the quarter, which along with acquisitions, helped bring assets under management to $198.9bn.

                Private equity groups have rushed to sell stakes in their portfolio companies through listings and disposals to take advantage of stock markets nearing all-time highs. In turn, they have been more careful investing their funds amid high prices.

                Carlyle’s “dry powder”, the term used by private equity fund managers to describe unspent commitments sitting in their funds, stood at $56.3bn at the end of March, including $23.9bn in its corporate private equity funds.

                Shares were down 4 per cent to $32.75 as of 6.40pm GMT.

                Credit Suisse unit draws tax scrutiny

                Posted on 30 April 2014 by

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                For years, Credit Suisse used a secondary Swiss banking brand, Clariden Leu, to woo clients who wanted a smaller, more personalised experience. Now, its decision to keep that little-noticed unit separate has become an issue in the long-running US tax evasion investigation.

                Interviews and internal emails show that former Americas private bank head Anthony DeChellis resigned last year after disagreeing with colleagues over what he believed to be newly discovered documents related to US-linked accounts, which he wanted to hand to the US Department of Justice.

                  Under investigation by the DoJ and the Senate permanent subcommittee on investigations, Credit Suisse and its chief executive Brady Dougan have blamed the violations on a small group of former bankers centred at SALN, a Swiss-based desk that was supposed to be the main hub for offshore US clients.

                  Emails reviewed by the FT show, however, that Mr DeChellis had concerns about US-linked accounts that fell outside SALN.

                  These included accounts at Clariden Leu, a subsidiary formed in 2007 by the merger of five Credit Suisse-owned private banks in Switzerland. Clariden Leu has attracted much less public attention than SALN but is also part of the US investigation, according to a Senate report from this February.

                  Clariden Leu, with 240 relationship managers, had almost 2,000 US-linked accounts with almost SFr1.8bn in assets in 2008, according to an August 2008 Credit Suisse report obtained by the Senate subcommittee. It was one of seven business units that handled US accounts, besides SALN.

                  Credit Suisse began reviewing its US accounts for tax compliance after US authorities revealed a tax evasion investigation of Swiss competitor UBS in 2008. Clariden Leu initiated a similar review that was “lagging Credit Suisse efforts,” the Senate report found.

                  In July 2011, seven former Credit Suisse bankers were indicted on federal charges of conspiracy to defraud the US. At that time and up to now, the DoJ only described some of them as employees of a “wholly owned subsidiary”. But two had ties to Clariden Leu, including Andreas Bachmann, who pleaded guilty in March 2014, said people with direct knowledge of the matter.

                  Mr Bachmann worked until 2006 at Credit Suisse Fides, one of the banks folded into Clariden, these people said. The DoJ indictment said the accused Clariden bankers “knew and should’ve known that they were aiding and abetting US customers in evading their US taxes”.

                  BNP warns of US fines

                  BNP Paribas ICN

                  US authorities are weighing criminal charges against BNP Paribas over possible violations of sanction rules as the Paris-based lender said that the eventual fine could be “far in excess” of the $1.1bn already provisioned, write Michael Stothard and Kara Scannell.

                  The Department of Justice is considering criminal charges against the bank, according to a person familiar with the matter as part of a wider settlement involving other state and federal authorities.

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                  Mr Bachmann said he was essentially told by a Credit Suisse Fides executive: “You know what we expect of you – don’t get caught,” according to his statement of facts in his guilty plea.

                  Clariden Leu was allowed to operate independently but a few Credit Suisse executives were on its board, including Hans-Ulrich Meister, Credit Suisse private bank co-head, and Romeo Cerutti, its general counsel.

                  “According to Credit Suisse, its operation of Clariden Leu was part of a common corporate ‘two brand’ strategy,” the Senate subcommittee reported. “While Credit Suisse was a big institution, Clariden Leu maintained the image of a small, independent Swiss brand.”

                  For a while, it was also treated differently in the bank’s response to tax probes. When Brazilian authorities launched a tax evasion investigation into Credit Suisse in 2006 that led to more than a dozen arrests in Brazil, the bank reacted with the “Cross-Border + Project” to review its regulatory structures in more than 80 countries.

                  As part of that effort, it initiated “Project W9” to identify Swiss accounts holding US securities opened by a US client. US citizens are required by the Internal Revenue Service to file W-9 forms with their banks.

                  But Credit Suisse did not require Clariden Leu to participate in the project. According to a January 2007 document update on Project W9, “any legal adaptations will only be valid for CS, not for Clariden Leu,” and “Implementation has to be decided by Clariden Leu management”.

                  Credit Suisse said in November 2011 it was integrating Clariden to cut costs and boost private banking performance. As part of the integration, the subsidiary was supposed to pass its US accounts for compliance review to SALN, which had employees with compliance training and became the bank’s hub to assess US-linked clients.

                  Lex on Credit Suisse

                  Lex

                  Swiss bank needs to do more to restructure its investment bank

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                  In early 2013, Swiss executives led by Latin America private banking head Silvan Wyss told Mr DeChellis they had discovered additional documents related to US-linked accounts at Clariden Leu and other units outside SALN, according to people familiar with the matter. SALN reported to Mr Wyss, who reported to Mr DeChellis.

                  The reporting lines reflected the siloed structure of units handling US offshore accounts, which were mainly in Switzerland and fell under Swiss compliance.

                  Mr DeChellis, concerned the documents showed that the alleged tax evasion efforts spread beyond SALN, sought to notify senior officials including Robert Shafir, his boss as co-head of private banking. Mr Shafir reports to Mr Dougan.

                  In an email on January 29 2013 to Mr Shafir, Mr DeChellis said: “I’m also going to try to co-ordinate with you the next time we are in [Switzerland] together. There are some legacy Clariden issues (CB) [cross border] brewing that we need to brief you on.”

                  On a trip to Switzerland on February 27, Mr DeChellis planned to bring the documents up at a private bank risk management committee meeting, according to an email to Mr Shafir that said “I have a major issue to surface today at the PB risk committee (not for email).”

                  That day, he also asked his assistant to set up a meeting with Pierre Gentin, global head of litigation, saying, “I’d like to discuss Valentina.” Project Valentina was the name of the internal investigation launched after the 2011 indictments to determine whether any activities violated company policies or laws.

                  The same day, Mr Meister and the head of private banking compliance, Ursula Lang, discussed the documents with Mr DeChellis, who was told he did not have enough details about their nature to bring them before the risk committee, people with direct knowledge of the matter said.

                  Ms Lang said she would look into the issue and get back to him, the people added.

                  The next day, February 28, she told Mr DeChellis by email that Mr Wyss’s team could offer additional resources to review the boxes of documents, and that any compliance issues found would be dealt with by the bank’s legal and compliance department. Mr Meister was copied on the email, with the subject “SALN”.

                  The review found the documents he referred to contained no new US client accounts, Credit Suisse says.

                  But Mr DeChellis did not see the offer of resources as adequate because he wanted to hand the documents to the Justice Department immediately, according to people with direct knowledge of the matter. On March 1, he forwarded the email from Ms Lang to Mr Shafir, saying “I’ll update you”.

                  On March 4, Mr DeChellis met Mr Gentin, who then notified outside counsel of their meeting, according to people with direct knowledge of the matter. That same day, Mr Shafir revealed in a previously scheduled meeting that the bank wanted to move Mr DeChellis to a different position.

                  The bank announced he was stepping down on March 5 2013, and now says he was moved for performance reasons. Mr DeChellis resigned a few months later, but only after taking his concerns to the justice department.

                  Credit Suisse executives clashed on tax probe

                  Posted on 30 April 2014 by

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                  The former head of Credit Suisse’s private bank for the Americas told government investigators he had clashed with superiors about the bank’s disclosures to a tax evasion probe, said people with direct knowledge of the situation.

                  The claim suggests there was disagreement at senior levels of Credit Suisse over its handling of an investigation for which it has set aside almost $1bn for legal provisions. The bank has not settled with investigators, and still faces the threat of criminal charges.

                    Internal emails seen by the FT support the claim by Anthony DeChellis, who had met the US Department of Justice and a Senate subcommittee on the bank’s behalf once before. His decision to take his concerns to investigators came in April 2013, shortly after he was told the bank wanted to move him from his job.

                    Mr DeChellis was concerned the documents showed that the alleged tax evasion efforts spread beyond a small group of former bankers whom Credit Suisse blamed for the misdeeds.

                    This February, the Senate permanent subcommittee on investigations accused Credit Suisse of helping more than 22,000 US clients avoid US taxes. The emails show Mr DeChellis raised concerns a year earlier about what he believed were new documents related to US-linked accounts.

                    On February 27 last year, he asked his assistant to set up a meeting with Pierre Gentin, global head of litigation, “to discuss Valentina,” the code name for the bank’s internal investigation.

                    On March 4 he met Mr Gentin, who notified outside counsel of their meeting, people familiar with the matter said. That day, Mr DeChellis was told he was being reassigned in a previously scheduled meeting with Robert Shafir, co-head of private banking.

                    In April, Mr DeChellis told DoJ officials he had advised colleagues that he wanted to notify authorities immediately about the documents, people with knowledge of the matter said.

                    On March 5, when Credit Suisse said Mr DeChellis was stepping down, it expressed gratitude for “his leadership, integrity and partnership in growing this business and positioning it well for the future.” Instead of taking a new role, he resigned, leaving in September.

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                    In response to inquiries from the FT, the bank said this week that Mr DeChellis’s exit related to performance and a long-planned reorganisation. “Due to the historic underperformance of the business, Credit Suisse, well before March 2013, decided to change management in Private Banking Americas,” it said.

                    A lawyer for Mr DeChellis declined to comment, as did the DoJ and Senate committee. The bank declined to make executives available for comment.

                    The documents “contained no new US client accounts,” Credit Suisse added, a claim disputed by others with direct knowledge of them. “The documents had been previously reviewed and relevant material already produced to US authorities,” it said. “Nonetheless, we reviewed the documents again and reconfirmed that they contained no new US client accounts.”

                    The bank offered more resources to review the documents but this did not satisfy Mr DeChellis, said people familiar with the matter and emails.

                    The dispute over the documents followed tensions between the Americas private bank and management in Switzerland, documented in the Senate report and emails, which show wider friction between silos within the bank’s New York and Zurich operations.

                    Starting in 2012, Mr DeChellis was one of several Americas executives who questioned moves by private bank co-head Hans-Ulrich Meister and chief operating officer Rolf Bogli to reclassify some assets from the Americas to the business in Switzerland, a practice criticized by the Senate subcommittee.

                    Italy criticises EU over jobs and growth

                    Posted on 30 April 2014 by

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                    Italy’s finance minister has criticised the EU for paying only “lip service” to the need for more growth and jobs in Europe, saying the path to a balanced economic recovery lies through higher inflation and a weaker euro.

                      In an interview with the Financial Times, Pier Carlo Padoan rejected suggestions that Italy’s new government under Matteo Renzi, prime minister, was looking for a backdoor route to evade budget deficit reduction targets set for Rome by the European Commission. “Growth will not be achieved through short-cuts,” he said.

                      Italy, which is emerging from the longest recession since the second world war, wrote to the European Commission this month asking to “deviate temporarily from the budget targets”, citing exceptional circumstances. The request has raised worries in Brussels that the new administration wants to return to the old spending ways that led to Italy’s €2.1tn debt mountain.

                      However, Mr Padoan was adamant Italy was not seeking to renegotiate the so-called fiscal compact, which obliges Italy to reach and maintain a balanced structural budget while also reducing public debt. “We are going in the same direction, but at a slower speed,” he said, adding Italy would stick to a deficit target of 2.6 per cent of national income this year.

                      Still, the former chief economist for the Organisation for Economic Co-operation and Development insisted the EU needed to seize the window of opportunity opened by benign bond markets and do more to revive its flagging growth. He said EU governments had already done much to repair the financial sector and advance structural economic reform, but on growth and jobs “we have paid a lot of lip service to it but not done enough”.

                      Italy would seek to use its six-month EU presidency, starting in July, to complete this “unfinished chapter of the adjustment process”, he said. This would include a deepening of the single market as well as reforms for getting more credit flowing to the continent’s small and medium-sized enterprises.

                      Mr Padoan said Italy would not seek to change the intensity of commission surveillance. But he said Brussels should broaden the “focus” of the economic indicators it chose to look at, for example paying greater attention to the composition of spending cuts and tax rises. He also warned that the commission should take the same attitude vis-à-vis different countries in the eurozone, regardless of their political clout. “I would have liked to see a more symmetric adjustment in the euro area,” he said, when asked about Germany’s large current account surplus.

                      The finance minister also warned that eurozone deflationary pressures as well as the strength of the euro could prove stumbling blocks on the way to a recovery. “A lower exchange rate would be useful in the same way that higher inflation rates would be useful,” he said, echoing this week’s call for a lower euro by Manuel Valls, France’s premier.

                      Mr Padoan said the ECB should look at different options to ensure that prices did not edge any lower. “I would be in favour of instruments that facilitate the flowing of credit to SMEs,” he said.

                      In depth

                      Austerity Europe

                      EU unemployment

                      Europeans are braced for a new age of austerity as governments across the region take action to eliminate unsustainable budget deficits

                      Mr Padoan said Italy was ready to do its part to boost growth in the EU by implementing more structural reforms, including a shake-up of the labour market. So far, the government has only presented broad guidelines on its plans. These need to be discussed by parliament, with no reform expected until the autumn.

                      The finance minister said the government was ready for a confrontation with the unions, particularly on the principle that wages should be more closely linked to productivity. But he also said the administration would stay away from changing Article 18 of the labour statute protecting workers in companies of more than 15 employees from dismissal on economic grounds. “This is an ideological discourse . . . there are many other things that need to be reformed,” he noted.

                      Asked why his government should be able to pass meaningful structural reforms when its predecessors have largely failed, Mr Padoan said that the mood in Italy had changed and that there was greater urgency than in the past. “If this government does not deliver . . . then this is very difficult for the country”.