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Friday, 24 May 2013

HSBC faces court threat as deal on money laundering charges stalls

Judge may take action that could leave HSBC facing a criminal prosecution and threat to its ability to do business in the US

HSBC's controversial $1.9bn (£1.6bn) settlement deal with the US authorities over money laundering charges has stalled after a row between the justice department and the judge overseeing the case.

The deal – known as a deferred prosecution agreement (DPA) – meant HSBC was exempt from prosecution and triggered a storm of criticism. Judge John Gleeson is now believed to be considering rejecting the deal, a move that could leave HSBC facing a criminal prosecution and the threat that its charter to do business in the US could be revoked.

The bank will hold its annual meeting in London on Friday and is expected to be asked for an update on the agreement.

US authorities reached the deal with HSBC last December after uncovering evidence that the bank had illegally conducted transactions on behalf of Mexican drug lords, terrorists and customers in Cuba, Iran, Libya, Sudan and Burma – all countries that were subject to US sanctions.

Gleeson, a former assistant attorney general, made his name prosecuting drug rings and organised crime, most notably securing the conviction of John Gotti, the Gambino crime family boss. The justice department is believed to be challenging the need for Gleeson's approval after failing to get a quick signature while the judge is upholding his opinion that he must sign off on the DPA.

Court officials would not comment on the case. The judge last referred to the case on 15 February, noting solely that he had not yet approved or disapproved of the settlement. Last December Gleeson said there had been "much publicised criticism" of judges rubber-stamping DPAs.

The agreements are an increasingly common settlement which allow a company to pay a fine to stop a criminal prosecution.

John Coffee, Adolf A Berle professor of law at Columbia University, said judges were increasingly unhappy with DPAs.

"There is a serious disconnect between judges and prosecutors about whether prosecutors are doing anything meaningful," he said.

Senator Chuck Grassley lambasted the justice department over the settlement last year and said it was "inexcusable" that they had not brought a criminal prosecution against the bank. "What I have seen from the department is an inexplicable unwillingness to prosecute and convict those responsible for aiding and abetting drug lords and terrorists. I cannot help but agree with an editorial in the New York Times that 'the government has bought into the notion that too big to fail is too big to jail'," he wrote in a letter to attorney general Eric Holder.

At the time of the deal's announcement Stuart Gulliver, HSBC chief executive, said: "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again."

HSBC has been seeking a deferred prosecution agreement.

HSBC has undergone a drastic management overhaul since the issues came to light and has strengthened its compliance policies and procedures. It is continuing to implement those changes as the US authorities work on a resolution to the DPA disagreement.

Stuart McWilliam, senior campaigner with lobby group Global Witness, said: "News that the DPA hasn't yet been signed off gives the justice department a clear opportunity to reconsider the penalties HSBC should face for its widespread money laundering failures.

"Given that over 35,000 people were brutally slain in Mexico at the hands of drug traffickers while HSBC laundered at least $880m of their money, it's shocking that the current system of sanctions does not include senior executives being held personally responsible for the actions of their institutions. Is HSBC too big to jail?"

Gleeson would not be the first judge to challenge a DPA in recent months. Last year Jed Rakoff refused to sign off on an agreement between Citigroup and the Securities and Exchange Commission over the sale of "toxic" mortgage bonds. In his opinion the $285m settlement was "neither reasonable, nor fair, nor adequate, nor in the public interest". That dispute is ongoing.

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Article source : http://www.guardian.co.u

Thursday, 23 May 2013

'Investment calculator' offers investors transparency on fees

A new tool launched on Wednesday promises British investors a way to cut through what its authors call the "smoke and mirrors" used by investment firms to charge hidden fees and get a more realistic valuation of their investments.

The True and Fair Calculator works out the cost of investments in pounds and as a percentage, giving an estimate of returns after all costs and fees.

It is based on data streams from investment research firm Morningstar and was devised by True and Fair, a campaign to boost transparency in the industry spearheaded by Alan and Gina Miller, founders of wealth management boutique SCM Private.

It builds on a similar tool created by the United States' Securities and Exchange Commission in 2005, which was used by more than a million consumers in its first three years.

The investment industry has come under mounting scrutiny in recent months as the public and regulatory backlash since the 2008 financial crisis spreads beyond the banking industry.

Britain's financial watchdog has already called for an end to hidden fees levied by asset managers.

"We hope this drives new levels of cost transparency which results in greater competition among product providers, gives information to aid better decision making by consumers and their advisers and provides a foundation for more realistic investment expectations," said Gina Miller.

Profits raised by the Calculator will be donated to charities for financial education and care for the elderly, True and Fair said.

Article source: http://uk.reuters.com

US Fed's Ben Bernanke hails benefits of stimulus

US Federal Reserve chairman Ben Bernanke has told Congress that it is too soon to end the central bank's monetary stimulus programme or raise interest rates.

He said the Fed's policies were "providing significant benefits" and changing course now could harm growth.

He warned that a "premature tightening of monetary policy" would risk "slowing or ending the economic recovery".

US rates have been between 0% and 0.25% since December 2008.

However, later on Wednesday the minutes of the Fed's last meeting were released, highlighting divisions on the policy-setting Federal Open Market Committee over when the Fed should start to wind down its $85bn-a-month asset purchasing programme.

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth," the minutes said.

Mr Bernanke said the recovery could slow if the Fed changed its policie

"However, views differed about what evidence would be necessary and the likelihood of that outcome.

"One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the Committee had several other tools it could potentially use to do so."

Deflation risk

US stocks turned negative after the minutes were released, with the Dow Jones down 25.84 points at 15,361.74.

Shares have been hitting record levels in recent weeks, held up by the prospect that monetary policy would remain generous to help strengthen the weak economy.

At the same time, the Fed's willingness to continue its support underlines the weakness of the US economy and is causing some investors to fear company profits may be held back by tepid growth.

Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, said the minutes had been "largely superseded" by Mr Bernanke's testimony "but they do reinforce the idea that the doves - who are the ones making policy - will need a great deal of persuading to change their stance".

The Fed has pledged to keep US interest rates at their record low level until the US unemployment rate falls below 6.5%.

In his latest testimony to the Joint Economic Committee, Mr Bernanke noted that unemployment had now fallen to a four-year low of 7.5%, but the job market was still weak.

He added that inflation was running below the Fed's long-term target of 2% and said current monetary policy was helping to counter "incipient deflationary pressures".

The Fed's purchases of US government securities had "kept inflation from falling even further", he said.

The Federal Reserve buys bonds as a way of increasing the money supply and improving liquidity in the financial system, in the hope of sparking economic growth and supporting employment.

Article source: http://www.bbc.co.uk

Osborne prepares ground for RBS and Lloyds sell-off

IMF calls on chancellor to devise a 'clear strategy' for bailed-out banks and pour more taxpayer funds into them if necessary

George Osborne is preparing to set out his plans to return bailed-outLloyds Banking Group and Royal Bank of Scotland to the private sector after the International Monetary Fund called on him to devise a "clear strategy" for the two banks.

The Washington-based body, in London to present its annual health check on the UK economy, also told the chancellor that if the two banks needed more capital to bolster their financial strength he should pour in more taxpayer funds, as it would prove beneficial to the economy.

Some £65bn of taxpayer money is already locked up in shares in RBS and Lloyds, which both issued stock market announcements to insist they did not need to tap investors – particularly taxpayers – for fresh funds to plug capital shortfalls, estimated to be about £10bn.

There is mounting speculation the government is preparing to kickstart a sell-off of part of its 39% Lloyds stake

The intervention of the IMF forced Osborne to give the clearest indication yet he will outline his strategy for the two banks next month, with speculation focusing on his Mansion house speech in June.

More generally, the IMF said banks should be required to raise equity, cut dividends and show restraint on remuneration rather than cut back on lending.

Osborne said he would reveal his decision on Lloyds and RBS after the crucial report by the Parliamentary Commission on Banking Standards, which is expected to report next month . The report may call for full nationalisation of RBS, already 81% state owned. Lloyds is 39% owned by the taxpayer.

"Having refocused their business, now is the time for a clear strategy on how to return RBS and Lloyds to the private sector in a way that protects value for the taxpayer," Osborne said.

Shares in the two banks rose after they said their long-running discussions with the new City regulator, the Prudential Regulation Authority (PRA), over capital requirements ended. The banks said they could sell off businesses and cut down on risks rather than raise fresh funds to fill the shortfall.

Lloyds ended nearly 2p higher at 62.96p – above the 61p level the government now sees as break-even – and RBS ended 7.4p up at 349.6p.

The IMF presented a dilemma for Osborne by making clear that value to taxpayers should be central in any sell-off. Shares in both banks are firmly below levels the City regards as break-even: 73.6p for Lloyds and 502p for RBS, levels leaving taxpayers with £17bn of losses..

"Any strategy should seek to return the banks to private hands in a way that maximises the value for taxpayers, strengthens confidence and competition in the sector, and minimises outward spillovers," the IMF said as it indicated a strategy should be outlined by the end of the year. "In this context, if a sovereign backstop is required to meet a capital shortfall, it should be provided, as this would have a high multiplier."

The IMF did not indicate when stakes should be sold off and noted that "challenges remain" as the banks had failed to sell the branches which the European Union had demanded should be disposed of in return for £65bn of state aid.

The specific capital shortfalls of Lloyds and RBS were not disclosed but are thought to make up a large part of the £25bn hole identified by the the Bank of England's financial policy committee in March.

The IMF said the new stress tests by the PRA planned for 2014, following this year's exercise for the financial policy committee, should provide more detail about the methodology, results and bank-by-bank capital plans.

Lloyds, which analysts estimate has a £3bn shortfall, said it could plug its gap by generating profits and continuing to sell non-core assets, such as problem loans – ensuring taxpayers and other investors would not need to buy new shares or other types of financial instruments.

To underline the point, Lloyds raised £500m just after the stock market closed by selling another tranche of its stake in wealth manager St James's Place. Since March, Lloyds' stake in the firm has fallen from 57% to 21%.

RBS said it could fill its capital shortfall by selling off part of its US business, Citizens, and scaling back its investment bank.

The PRA said that further announcements would come from other banks once discussions over capital had been concluded. The City is most concerned about the outcome of discussion with Co-operative Bank.

Article source : http://www.guardian.co.uk

Wednesday, 22 May 2013

UK retail sales slump as shoppers balk at higher prices and cold weather

ONS said food shops were the worst affected as retailers reported a 1.3% decline in the amount of goods sold

Retail sales slumped in April after shoppers balked at rising prices and were reluctant to venture out to the high street in one of the coldest springs on record.

The Office for National Statistics said retailers reported a 1.3% decline in the amount of goods sold, with food shops the worst affected. Sales of food plunged 4.1% on the month, the weakest showing in almost two years. Shops also suffered a 0.2% contraction in the amount of money spent on the same month a year ago, which was the biggest year-on-year fall in retail spending since the turn of the century.

The cold weather was the biggest factor as the sale of barbecue food, garden furniture and summer dresses was put on hold. April was also a terrible month for garden centres following the big chill that effectively delayed spring by a month.

Cold weather was the biggest factor as the sale of barbecue food, garden furniture and summer dresses was put on hold

Several major stores have announced a significant bounce back in May, with garden centre sales reportedly up 70% in the first three months of the year, but the overall contraction, and especially the deterrent of rising food inflation, will concern the Treasury.

Ministers are hopeful of a bounce back in consumer confidence during 2013 to increase high-street sales and boost economic growth.

The ONS said consumer prices data showed that food prices had steadily been increasing and that a wide variety of food types contributed to the rise, including staple goods.

"This rise in prices will have squeezed consumers' disposable income, possibly resulting in them buying less or substituting cheaper goods for their normal purchases," it said.

Chris Williamson, chief economist at financial data provider Markit, said the weather-related drop in sales was a reminder that the economy remains in a fragile state.

"It is likely that spending will revive again in coming months, helping keep the country out of another downturn, though recovery will be only gradual as incomes continue to be squeezed," he said.

He pointed out that the underlying picture was more likely one of modest growth of sales following a 0.7% rise in the latest three months sales on the previous three-month period, which was the strongest rate of increase since last September.

"Households' views on their finances are the brightest for three years, according to Markit's household finance index for May. Being busier at work, rising house prices, news of the country having avoided another recession and buoyant equity markets have all helped generate more of a 'feel-good factor'."

Article source : http://www.guardian.co.uk

Apple chief calls on US government to slash US corporate tax

Tim Cook warns Congress that he would refuse to repatriate $100bn stashed offshore unless US severely reduced its 35% tax rate

Apple has called for US corporate tax rates to be slashed after it admitted sheltering at least $30bn (£20bn) of international profits in Irish subsidiaries that pay no tax at all.

In a dramatic display of how threats from multinational corporations are driving down taxes across the world, chief executive Tim Cook warned Congress that he would refuse to repatriate a total of $100bn stashed offshore unless it acted to slash the 35% US rate.

Cook said the tax rate for repatriated money should be set "in single digits" to persuade companies to bring it back. Standard tax for US profits should be, he said, in the "mid 20s".

He also revealed that Apple had struck a secret deal with the Irish government in 1980 to limit its domestic taxes there to 2%.

Three subsidiaries based in Ireland are also used to shelter profits made in the rest of Europe and Asia but are not classed as resident in any country for tax purposes – a tactic dubbed the "iCompany" by critics.

Cook's testimony to a Senate sub-committee investigating multinational tax practices largely confirmed its findings that Apple had taken tax avoidance to a new extreme by structuring these companies so they did not incur tax liabilities anywhere.

Phillip Bullock, the California company's head of tax, estimated that just one of these subsidiaries – Apple Operations International – had channelled $30bn in global profits over the last five years without filing a single income tax return.

Lower, lower: Apple CEO Tim Cook testifies before senators about his company's tax affairs.

The only taxes paid were on the interest earned by the cash pile and small sums in local markets. Senate investigators allege a total of $70bn has been sheltered this way in four years.

Despite heated exchanges with committee chairman Carl Levin, Apple largely shrugged off criticism of the practice, insisting it was acting "in the letter and the spirit of the law".

An independent tax professor, Richard Harvey, testified that its tax avoidance was "probably legal" and could have been much more aggressive.

The Apple chief used his appearance to renew lobbying for Congress to cut a deal with multinationals to encourage them to bring back, or repatriate, the billions of dollars kept offshore to avoid tax.

Cook said he had no plan to bring back the $102bn built up by Apple at current tax rates, and recently opted to return money to shareholders by borrowing money instead. "I have no current plan to do so at the current tax rates.

"Unlike some technology companies, I am not proposing a zero rate," he said. "My proposal is that we have a reasonable tax for bringing back money from overseas.

"A permanent change is materially better than a short term tax holiday."

Cook said he "personally doesn't understand the difference between a tax presence and a tax residence".

He was even defended by some members of the committee who accused Levin and Republican John McCain of "bullying" Apple. "I am offended by the tone and tenor of this hearing," said fellow Republican and presidential hopeful Rand Paul.

The hearing was seen as a watershed in the increasing tense clashes between governments and multinationals, particularly technology groups such as Apple, Amazon and Google.

Edward Kleinbard, professor of law at USC Gould School of Law, said: "Apple is not an outlier in its efforts to produce 'stateless income' – income that is taxed neither in the United States nor in the countries where its foreign customers are located – but it is an outlier in the baldness of its strategies. Apple shifted tens of billions of dollars of income without even breaking into a sweat.

"The hearing will forcefully remind policymakers that international tax reform will require the implementation of really thoughtful anti-abuse rules, ideally developed in conjunction with other OECD member states.

Every country is the worse off when they facilitate multinationals aggressively pursuing stateless income strategies, just as every country is worse off when they all engage in trade wars."

Corporate tax expert Jennifer Blouin at University of Pennsylvania's Wharton business school said the Apple revelations were "extraordinary but not surprising".

"We have seen versions of this with Microsoft and with Google," she said. "I hope it gooses the notion that we need to fix the worldwide system."

She said Apple was working within the law but that the law was written before huge profits could be made by companies that trade not in goods and manufacturing but in ideas.

"I have worked in this area for years and it's been largely an obscurity. But it's at the forefront now, and it needs to get fixed."

Article source : http://www.guardian.co.uk

SSE fuels consumer anger as retail profits rise 30% to £410m

Scottish and Southern Energy posts results under the heading Earning the Right to Make a Profit

Scottish and Southern Energy saw a near 30% rise in profits from its retail customers last year, fuelling accusations that the big energy firms are profiteering at the expense of UK households.

Under the heading Earning the Right to Make a Profit, SSE announced operating profits of £410m from its retail arm in the year to the end of March.

SSE was hit by a mis-selling scandal that saw it fined a record £10.5m in April. The SSE chairman, Lord Smith of Kelvin, said on Wednesday: "Like everyone else associated with SSE I have no hesitation in apologising unequivocally for the breaches that occurred; but while the breaches were clearly wrong, the response has been absolutely right."

He said the company had reformed its retail operations since 2011 and introduced a sales guarantee to reimburse any losses experienced by customers joining the company.

The huge rise in profits will cause further outrage among fuel poverty campaigners and householders struggling to pay their bills. Speaking ahead of the results, Elizabeth Ziga, of the Fuel Poverty Action group, said: "While SSE customers were skipping meals to keep the heating on, the company continued to rake in bumper profits. To end this chilling profiteering, we have to break the big six's grip over our energy."

It will also heap more pressure on both the government and Ofgem, who have been accused of standing by as the big six suppliers profit at their customers' expense.

Last October SSE, which supplies 9.6m households with gas and electricity, raised domestic energy prices by 9% to coincide with the start of the coldest and longest winter of recent years. The company said on Wednesday that average household gas consumption in the UK rose by 21% last year, while electricity consumption was 5% higher.

The retail business helped drive adjusted profits before tax for the group – which includes SSE's networks and wholesale units – up 5.6% to £1.4bn.

The company did, however, write down the value of certain investments by almost £400m and was hit with charges related to claims from outages in prior years, while movements in derivative contracts dented profits by around £200m. That left total profits before tax at £601m for the year.

SSE upped its full-year dividend by 5.1% to 84.2p. It added that it will maintain annual dividend increases above inflation – as measured by the retail prices index – this year and beyond. Data out on Tuesday showed annual RPI fell from 3.3% to 2.9% last month.

The company confirmed that chief executive Ian Marchant would step down at the end of next month, after a decade at the helm of the company. He will be replaced by his deputy, Alistair Phillips-Davies.