The Watering Hole: April 14, UBS

source NYT

Before I start. For us here “UBS” is of course a household name, but our gummitch pointed out my half-cocked assumption and houseofroberts corrected it below in the comments. Thanks to both of you.

Today is General Assembly of UBS in Basle. There are some points of interest in that. Main point: Will Ospel, Rohner, Kurer and Wuffli be discharged from liability for the Years 2007 and 2008? If not, UBS will have to reconsider charging them with fraud or breach of trust. This thread will be updated as soon as the results are in.

The voting on a discharge from liability for the managing board as well as for the supervisory board was a clear “No” for the year 2007, which has never happened before in Swiss business history.

Discharging board and management, traditionally largely an annual formality, means the company itself and the shareholders who vote for it would no longer have the option of pursuing legal action against them [former management], unless new information came to light. (more)

The legal consequences are not really clear yet, the current chairman of the supervisory board, Kaspar Villiger, has already made clear that the management of the bank will hold on to it’s decision not to press charges to hold the former management accountable for their actions. Given the fact that UBS owes those four a multi-billion loss, shareholders lost billions and no dividend was paid either, there might be someone outside the management, however, who may beg to differ.

Now, this is all going to end the banks’ greedy and irresponsible ways of making money. Not.

Zurich-based UBS eked out majority support–nearly 55%–for 2009 pay in a non-binding vote, but board and management members present were grilled by disgruntled shareholders.

“With their new bonus plan, UBS is going back to errant ways,” said Rolf Luethi, a retail shareholder from Oberrieden, Switzerland. (more)

Bonus packages have been approved by the general assembly but a 45% No vote is considered something of a warning.  I will not hold my breath, however, that UBS, or any other major bank, will go back to respectability. As long as “too big to fail” is accepted as an excuse and as long as there remains a tax paying middle class that can be squeezed for a bailout, it’s going to be business as usual. In the end all they really want is getting all the money, yours, ours, everyones.

This is, nevermind my ranting, an open thread. So feel free to comment on whatever is on your mind.

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Major Blow to Swiss Banking System

(HT: houseofroberts)

The Swiss banks are renowned for their secrecy and their lenient stance when it comes to tax evasion and this makes Switzerland into the top destination for money from all kinds of sources. Websites like www.swiss-offshore-banking.com praise the advantages of the system:

The Swiss Banking system is second to none. Revered the world over, Swiss Bankers are known for their privacy, professionalism and discretion. Swiss banking laws are very strict and it is illegal for a banker to reveal the personal details of an account number unless ordered to do so by a judge.

This is long established in Swiss law. Any banker who reveals information about you without your consent risks a custodial sentance if convicted, with the only exceptions to this rule concerning serious violent crimes.

Swiss banking secrecy is not lifted for tax evasion. (emphasis by me) The reason for this is because failure to report income or assets is not considered a crime under Swiss banking law. As such, neither the Swiss government, nor any other government, can obtain information about your bank account. They must first convince a Swiss judge that you have committed a serious crime punishable by the Swiss Penal Code.

No more. In a landmark development the Swiss Bank UBS has agreed to hand over data of about 300 US citizens and their banking accounts to the IRS and pay a $ 780 mn fine on top of that. This hit Switzerland where it hurts most. The finance industry is one of the most important contributors to Swiss wealth the outcry is immense: The Zurich based NZZ writes:

Wenn die Schweizerische Finanzmarktaufsicht (Finma) tatsächlich, wie das Gerücht geht, unmittelbar davorsteht, in einer bisher einmaligen Aktion Daten von einigen hundert Kunden der UBS an die amerikanischen Behörden auszuliefern, oder dies womöglich schon getan hat, ist dies ein folgenschwerer Schlag für den Finanzplatz Schweiz, aber auch für den Rechtsstaat Schweiz.

If the Swiss financial oversight agency  (Finma), as rumours have it, is set to hand out data on several hundred customers to US authorities, or possibly has already done so,  this is a severe blow to Switzerland’s finance market as well as it’s legal system. (my translation and in case of errors, my bad) (article)

Well, it’s not an “if” anymore here’s the text of the agreement.

Switzerland’s neighbours, namely the Germans are waiting for a crack in the armour of the Swiss banking secrecy for quite a while now and the pressure on Switzerland was growing during the last months. After the fall of the tax haven Liechtenstein in the wake of the arrest of former Deutsche Post boss Zumwinkel, it looks as if Switzerland could be next.  This comes at a most inconvenient moment. Swiss banks have suffered greatly from the banking crisis and there is a credit bubble in Eastern Europe on the verge of bursting which may lead to another wave of write-downs and will bring the Swiss economy and currency to the verge of desaster.

I can’t wait to read tomorrow’s newspaper and I brace for the opening of the Swiss stock exchange.

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Connecting the Dots on the Bailout Bonanza

Over the weekend, Congressman John Boehner (R-OH) said that congress needs to present a clean bill to bail out Wall Street – money only for Wall Street and nothing for Main Street:

Boehner suggested giving Treasury Secretary Paulson the “powers as quickly as possible.” “There are a lot of well-meaning, well-intentioned ideas out there, but they don’t need to be part of this package,” he said, referring to assistance for average working families.

Wall Street, which created this problem, along with Phil Gramm, who championed deregulation and sponsored the Gramm (R-TX)-Leach (R-IA)-Bliley (R-VA) act, also known as the Financial Modernization Act, which removed all of the safegards which were put in place after the Great Depression. These safegards were created to prevent another financial collapse, allowing banks to get into high-risk markets. These banks then bought up “securitized” mortgage instruments as investments. Unfortunately, because of the deregulation, nobody was paying attention to the quality of these mortgages which were banded together and sold in varying grades based on the risk of the mortgages (homeowners) in these instruments.

Often, sub-prime mortgages were included in what was supposed to be A grade instruments. People were given mortgages without proof of income. People without jobs obtained mortgages. People were pushed into taking low-introductory rate mortgages with very low rates (some at 3% or less) which then reset to higher annual percentage rates, some into double digits. The result? People lost their homes, neighbors of those homes foreclosed upon lost upwards of 20% of the value of their homes which then made those homes harder to sell, sometimes resulting in additional foreclosures not related to the problems listed above, and the financial markets were flooded with junk investment instruments. The end result; financial meltdown.

Wall Street says this bailout will shore up their bank accounts the financial markets.

As of right now, there is nothing in the current bailout bill on Capital Hill to help people who might be losing their houses or who have lost their jobs. We are unimportant. It is Wall Street that needs help. You know, those same people who walked away with millions and billions in bonuses over the last two years while they continued to allow this financial disaster to happen.

This clean bill which Boehner demanded has over the weekend, with the help of intense lobbying, been loaded up with additional bailout protection for FOREIGN financial institutions (Barclay -UK, and UBS – Switzerland). The New York Times reports:

Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.

On Sunday, the Treasury secretary, Henry M. Paulson Jr., indicated in a series of appearances on morning talk shows that an original proposal introduced on Saturday had been widened. “It’s a distinction without a difference whether it’s a foreign or a U.S. one,” he said in an interview with Fox News.

Good to know. I am sure that the people thoughout this country will appreciate that the mega giant banking firms in other countries will be getting our taxpayer dollars.

But let’s make some connections here.

Phil Gramm, one of the primary masters of the financial deregulation act worked to deregulate the financial markets, then went to work for UBS as Vice Chairman and Washington lobbyist – a foreign financial firm, and earned between $1 and $2 million dollars from that firm, is now was instrumental in getting that same firm included in this taxpayer funded bailout.

Let’s run this down again for anyone who may have missed it:

  • Boehner (Republican – OH)
  • Gramm (Republican – TX), now lobbyist and Vice Chairman for UBS a Swiss firm. Also a McCain advisor and possibly the next Secretary of the Treasury.
  • Leach (Republican – IA)
  • Bliley (Republican – VA)
  • UBS is now being included in a bailout with American worker tax dollars.

Not too much of an organization chart is needed here. I am sure it is all coincidental, though.

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John McCain’s banker problem

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John McCain’s campaign is in dire straits, nevermind the serious campaigning has just started. He has lost numerous advisors, two pastors and a campaign strategist, who wouldn’t take part in the upcoming campaign against Obama. Poll numbers show an Obama bump, not as dramatic as the latest Newsweek poll suggests, but a steady increase in approval for Barack Obama, as seen in the polls provided by RCP.

Admittedly short of knowledge when it comes to economics McCain turned to Phil Gramm the former Texas Senator. Gramm is the kind of economist Republicans profess to love most, budget balancing and anti government-spending and supply-side oriented. But Gramm is vice chairman of and a lobbyist for the Zurich based UBS (United Bank of Switzerland), too. The UBS is a major casualty of the subprime mortgage crisis and Gramm has lobbied on behalf of the bank to avoid stronger regulation and federal action in the mortgage crisis.

There is more. In Florida UBS banker Bradley Birkenfeld has been arrested on allegations of having helped UBS customers in the US committing tax fraud, by funnelling money into Liechtstein. Initially refusing to cooperate, Birkenfeld caved in last week and pleaded guilty. The US asks the UBS to release bank details of 20’000 US customers. This has led to a sense of panic not only within the bank and among America’s rich, but in Switzerland, too, which sees its famed banking secrecy in jeopardy and sent a delegation of government officials to the US. To no avail. Now FBI agents will “assist” Swiss authorities in their research into the alleged tax fraud.

You can find this and some more, namely Gramm’s connection to Enron, here.

A worthy advisor for a Republican candidate indeed.