Investments

Less than a year ago Swiss banking giant UBS was considered by many the best bank in the world, certainly for its wealth management which was also the largest at the time, and its image and reputation were top notch amongst private clients as well as institutional and government entities.

Not so these days : Their combined losses in 2008 and beg 2009 have shaken the financial community and left many of their clients and investors much worse off than when they started out with the bank and their shares have been in a free fall from its peak around US$ 60+ to now around US$ 10.

Now the bank finds itself in the wrong kind of spotlight again now having been sued by none other than the US Government who wants the bank to immediately hand over the names and full details of all their US clients, estimated around 52,000, who allegedly hid their secret Swiss accounts from U.S. tax authorities.

Bloomberg reports :

U.S. customers had 32,940 secret accounts containing cash and 20,877 accounts holding securities, according to the Justice Department lawsuit filed today in federal court in Miami. U.S. customers failed to report and pay U.S. taxes on income earned in those accounts, which held about $14.8 billion in assets during the middle of this decade, according to the court filing.

“At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes,” John A. DiCicco, acting assistant attorney general in the Justice Department’s tax division, said in a statement.

UBS does not intend, however, to just roll over and provide the IRS with these details according to the article :

UBS said in a statement that it expected today’s filing.

“UBS believes it has substantial defenses” to the U.S. attempt to enforce the summonses and will “vigorously contest” the case, the bank said in the statement. The bank’s objections are based on U.S. laws, Swiss financial privacy laws, and a 2001 agreement between UBS and the IRS, according to the statement.

The article goes on to quote a professor for saying that this could indeed mean the end of the famed and heavily guarded Swiss banking secrecy for which Switzerland is so well-known, at least in certain parts of the world including the EU and the US :

Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs Group Inc. partner, said a UBS loss in the case would be “very bad news” for Swiss banks.

Swiss Secrecy

“If you get to the point where you’re able to get information on 52,000 accounts just because they exist, not because of evidence of a crime, you’ve gotten rid of Swiss banking secrecy forever,” Smith said. “If the European Union follows suit, it’ll virtually be the end of secret accounts in Switzerland.”

The Washington Post puts another interesting angle on the story by including the former UBS banker, Bradley Birkenfeld, into the case :

The U.S. government has been probing UBS with help from sources such as a former UBS banker, Bradley Birkenfeld, who last year pleaded guilty to helping a California real estate mogul evade millions of dollars of taxes. Birkenfeld told investigators that UBS personnel went to elaborate lengths to help U.S. clients stash money in secret Swiss accounts.

 The investigation led to the indictment in November of a top UBS executive. The U.S. government has used internal bank documents to accuse UBS management of conspiring to deprive the U.S. Treasury of tax revenue.

In Wednesday’s settlement, UBS admitted that it schemed to defraud the United States, in some cases by helping clients set up offshore companies to hide the true ownership of their Swiss accounts. The operation allegedly generated hundreds of millions of dollars of profit for UBS. The government said it demanded smaller penalties from UBS than it could have in consideration of the international financial crisis.

At the moment UBS admittedly seems to have the upper hand in this unwinding case with only around 300 names and clients having so far been surrendered to the IRS and with UBS arguing a very strong case against the US law suit reference its Swiss banking laws, but as The Washington Post article concludes that this in itself may mean the biggest blow to Swiss banking secrecy ever and hence its image to world-wide clients who will wonder who is next in line :

By targeting information based in the United States, the IRS obtained the names of about 323 clients who held UBS accounts in both the United States and Switzerland and transferred money between them, IRS agent Daniel Reeves said in a separate court filing yesterday.

The greatest blow to Swiss bank secrecy thus far may be UBS’s decision to close the secret Swiss accounts of its American clients, forcing depositors to move their money and sending a message that customers can’t rely on the bank to keep their assets hidden.

Investment Banking, Investment Management, US Investments Bloomberg, IRS, Swiss banking sector, UBS, US Government, Washington Post, Wealth Management

This author was amazed to read that UBS of all banks were voted Forecaster of the Year by MarketWatch given the fact that UBS has been one of the biggest losers of the Credit Crunch and also caused massive losses for its investors.

MarketWatch reports on their recently released results:

U.S.-based economists at two Swiss banks took top honors in MarketWatch’s forecasting contest, MarketWatch announced Monday.

A team of economists at Credit Suisse led by chief economist Neal Soss had the most accurate forecasts of economic data released in December among 44 economists surveyed, winning its third Forecaster of the Month award.

And the team at UBS led by chief economist Maury Harris had the most accurate forecasts over the course of 2008, winning the team’s second Forecaster of the Year award in the past three years. Harris and O’Sullivan have won five monthly contests, including this past September’s. They also garnered the full-year title in 2006.

Is it not a fair question to ask then : How could things go so bad if they could see it coming ?

How it all works, Investment Banking, Investment Company, Investment Management MarketWatch, UBS, UBS credit crunch & executive bonuses

There is no denying that the otherwise supreme and untouchable Swiss Banking sector has suffered the worst blow to its name and status in 2008 where the Credit Crunch exposed clear cracks in the foundation of what the world perceived to the best and strongest, and most well-protected banking sector in the world.

This post looks into some of these cracks and tries to look ahead for Switzerland’s traditional flagship and main revenue earner.

Business Standard quotes Philipp Hildebrand, the vice-chairman of the Swiss National Bank’s governing board for saying that the recent liquidity injections into the Swiss banking sector, and notably the USD 60 billion aid package and deal with UBS, has had positive effects but warns that the crisis is far from over :

The liquidity situation at UBS, in particular, has stabilised, he said.

“Nevertheless, further losses cannot be ruled out in view of the difficult market conditions,” Hildebrand said.

“The situation remains serious, and the SNB will continue monitoring it closely together with the Swiss Federal Banking Commission and the Federal Department of Finance.”

The article continues to summarize the year for the two Swiss banking giants, UBS & Credit Suisse, and points out that even though Credit Suisse has fared better with smaller losses and write-offs than its big brother UBS, there are now signs that Credit Suisse too will be posting huge negative results in the comings quarters :

UBS, which posted billions of dollars in asset writedowns, was forced to accept a state rescue package in a bid to restore client confidence and stem asset withdrawals which reached a colossal 83.7 billion Swiss francs ($70.2 billion) in the third quarter.

Credit Suisse, Switzerland’s second biggest bank, has until now fared better than its peer UBS, with asset writedowns of about 12 billion Swiss francs.

But losses are beginning to pile up at the bank, with a warning of a 3.0 billion Swiss franc loss for the two months ending November following a 1.26 billion Swiss franc loss for the third quarter.

New York Timesthrows light on another low-profile yet renowned Swiss Private Bank, Geneva-based Union Bancaire Privée, who like UBS and other more publicly known Swiss banks,  have also been badly hit by the recent Madoff scandal and Ponzi Scheme :

Now, as the links between Bernard L. Madoffand elite private banks like Geneva-based Union Bancaire Privée emerge, this well-polished reputation has been tarnished by the $50 billion Ponzi schemethat Mr. Madoff has been arrested for and accused of running.

L’Affaire Madoff, as it has become known here and in Geneva, has cast an unwanted spotlight onto the normally shadowy world of private bankers in Switzerland and other cozy hiding places of offshore wealth, like the Cayman Islands and Luxembourg.

And while there are many Swiss victims in terms of total exposure, UBP is the best-known private bank to get hit, with $700 million of its clients’ money invested with Mr. Madoff.

The article continues to dig deep into this private bank giant’s relationship with Mr. Madoff and asks why they did not react as other institutions did when they supposedly got access to documents that should have raised red flags:

With assets of $125 billion and a client base of wealthy individuals, families and institutions that reach from Qatar to Uruguay to Russia and throughout Europe, it is one of Switzerland’s biggest pipelines for channeling client money into hedge funds worldwide.

About six years ago, that business, known as a fund of funds, began to rake in larger fees when it decided to set up a vehicle called M-Invest Ltd to funnel cash to Mr. Madoff’s firm.

Through this relationship, UBP claimed it was able to gain close insight into Mr. Madoff’s investment operations, through copies of trade tickets and an unusual degree of access granted by Mr. Madoff himself to UBP’s representatives, according to a confidential internal letter sent to investors on Dec. 17, obtained by The New York Times.

The memorandum, while seeking to reassure investors, could raise questions about why UBP, unlike others who claimed to have seen red flags, did not use its access to delve more deeply into the unusually consistent annual returns that Mr. Madoff’s funds were reporting.

According to the memo, “We have met with Bernard Madoff and various principals several times at Madoff’s office, twice within the last year, and have had numerous conversations in between.” The letter stated that several of UBP’s senior investment professionals met with Mr. Madoff in 2004 and 2007, and that UBP’s structured risk analysis unit “had a full review in 2006 and recently in 2008 with Madoff himself.”

UBS again made negative headlines for the Swiss banking sector and for European private banks in general with the recent case where The United States indicted UBS wealth management chief Raoul Weil in November, accusing him of helping Americans hide $20 billion from U.S. tax authorities, which many saw as a warning shot for banks who provide offshore services for wealthy clients :

Bradley Birkenfeld, a former UBS banker, has pleaded guilty to helping clients avoid U.S. taxes. On one occasion, he smuggled diamonds into the United States inside a toothpaste tube for a client, according to a grand jury indictment against him.

 

Weil, the highest-ranking UBS executive hit by the U.S. tax investigation, says he is innocent and has stepped aside to fight his case in court. UBS has in the meantime admitted that tax fraud occurred in a limited number of cases at the bank.

 

As a result of the case, banks inside and outside this landlocked nation are watching the UBS case unfold and rethinking how to do business with rich individuals.

 

“This does send the message to other banks: you have to get your house in order if you want to work with Americans and American residents,” said Stephanie Jarrett, a tax expert at law firm Baker & McKenzie.

And the Reuters article goes on to point out that there could be severe repercussions for the private banking industry in Lichtenstein, Jersey and Switzerland if the UBS tax probe case unfolds negatively :

Now, thanks to a U.S. tax probe into Swiss bank UBS (UBSN.VX)and other pressure, a quiet revolution is brewing in the $7 trillion world of offshore banking, as banks realize that holding untaxed money can ultimately sting them.

 

“Some countries have decided that they want to make it more difficult for Switzerland, Liechtenstein and other centers to serve their client base,” said Prince Max, who oversees about $80 billion in client assets at LGT Group, owned by Liechtenstein’s ruling family.

It will be interesting to see if the previously untouchable Swiss banking sector, and not least their many formerly reputed Private Banks, can make a come back in 2009 and beyond to win back the many unhappy private and institutional clients who suffered major losses in 2008 ?

This blog will monitor the development.

Equity Investment, Investment Banking, Investment Fund, Investment Management Credit Suisse, Madoff Scandal, Ponzi scheme, Private banking, Swiss banking sector, UBS

Year end is approaching fast and it is common to find analysts and experts trying to predict what will happen in the coming year. Not less so this year after what has been a very turbulent and difficult year with several large economies sliding into full blown Recession, the stock markets globally having lost in excess of a third of their value, some more, the property market having collapsed in major countries and several large commercial companies being threatened with bankruptcy and closure. Not to mention the financial sector which has seen some astounding collapses or bail outs in the last minute by governments.

One company, SAXO Bank who is a leading player in the Forex market, has made it a kind of tradition to come out with what they boldly call: “10 Outrageous Claims 2009″ which in their own analysts words is :

(A) thought provoking and controversial “Black Swan” exercise (that) always factors in the less likely scenarios as perceived by the market.

The primary reason for doing this “Black Swan” exercise every year is to counter-balance human psychology, which is usually skewed towards optimism. We tend to be somewhat more pessimistic in our Yearly Outlook than the average analyst in the market, and believe that it is important for the investor to always factor in the less likely scenarios (as perceived by the market). Please keep in mind that this is more of a thought exercise than a set of outright predictions – we do not consider the chances are better than 50-50 for all of these claims.

So what are the Danes’ predictions of doom and gloom then ? Well is has everything from Revolutions to Crude Oil falling belwo US$ 25 to the Euro falling below 1 US$ - here is a list of the 10 Outrageous Claims as summarized by Michael Haltman of Gather.com :

1. An Iranian Revolution
2. Crude dropping to $25 a barrel
3. The S&P 500 falling to 500 (880 now)
4. Italy dropping the Euro
5. Australian dollar slumping versus the Yen
6. The Euro falling below $1.00
7. Chinese GDP growth falling to 0% (current estimates range from 6-10%)
8. Eastern European Forex Pegs to Fail
9. Sharp declines in commodities prices
10. Yen could become the Asian currency peg over the dollar

MarketWatch quotes one of their team leaders from their Research & Strategy Division, David Karsbol, Chief Economist at Saxo Bank:

It is not even outrageous to call this the worst economic crisis ever. We have, regrettably, been rather precise in almost all predictions from last year. What used to be outrageous now seems to be the norm”, says Karsbol.

“In a year when markets and economies have fluctuated more widely than ever before nothing seems out of the ordinary or impossible. We believe that 2009 will be equally unpredictable and therefore have made ten outrageous predictions largely focusing and what might happen to global indices and currencies. The good thing is, overall, we predict 2009 will be a turning point because it can’t get much worse” says Karsb0l.

“In 2008 the S&P 500 has fallen well over 25% below its 1182 high of 2007, world oil prices got close to the predicted high of $175, and UK growth has turned negative. Who knows which of our 2009 forecasts will prove to be right but judging by previous years some of them most certainly will,” he adds.

     “When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.” (John M. Richardson, Jr)

“The best thing about the future is that it comes only one day at a time.” (Abraham Lincoln)

     “Stop acting as if life is a rehearsal. Live this day as if it were your last. The past is over and gone. The future is not guaranteed.” (Wayne Dyer)

My interest is in the future because I am going to spend the rest of my life there” (Charles F. Kettering)

He who laughs last laughs longest

 

Currency, Equity Investment, How it all works, Investment Banking, Investment Company, Investment Management, Investment News, Investment Services 2009 Forecast, Australian Dollar, Commodity prices, Crude Oil, Euro, Iran, SAXO Bank, Yen

SEC Chairman Christopher Cox

 

The Bernard Madoff investment fraud scandal is still evolving with Mr Madoff having been brought before a judge in NYC recently and lately with an open admission of guilt by the SEC Chairman Christopher Cox.

This post highlights his admission of lack of control and investigation and considers what the experts feel about the same.

In a MarketWatch article on the subject Mr Cox is quoted for saying :

In a statement Cox said an initial probe into how Madoff’s alleged fraud remained undetected revealed “multiple failures” by the regulator to thoroughly investigate the former Nasdaq chairman and his firm.

“The Commission has learned that credible and specific allegations regarding Mr Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action,” Cox said in the statement.

He’s revolted by what he found out, but it’s also in his interest to be revolted,” said James Cox, a securities law professor at Duke University in Durham, North Carolina who isn’t related to the SEC chairman. “He’s taken a lot of heat over SEC enforcement.”

Cox said he has ordered a full review to investigate the past allegations against Madoff and why they were not found to be credible. The probe, to be led by the regulator’s inspector general, will also look at all staff contact and relationships with the Madoff family and firm and whether they had any impact on decisions by SEC staff.

Equity Investment, Investment Banking, Investment Company, Investment Fund, Investment Management, Investment News, Investment Securities, Investment Services, US Investments Bernard Madoff, financial scam, Insider trading, The Securities and Exchange Commission (SEC)

Here is the latest overview of major equity investment companies and how they are faring :

Wall Street Journal reports that Carlyle is feeling the Squeeze now which includes layoffs !

Carlyle Group LLC is cutting 10% of its staff, the first large U.S. private-equity firm to announce firmwide layoffs as the industry braces for leaner times.

The Washington buyout shop will cut about 100 positions, the first layoffs in Carlyle’s 20-year history. Other large firms also are considering cutbacks, according to two people familiar with discussions.

The layoffs show how no part of Wall Street’s ecosystem is immune from the recession. There was a belief that private-equity firms would be a refuge from the financial crisis. But for firms such as Carlyle, declining asset values and a paucity of new deals have taken their toll.

It seems that Carlyle’s Co-Founder David Rubenstein issued a warning late 2007 about greed taking over, yet with few listening during the days of bull markets, the results seemed inevitable - the article then concludes :

As the effects of those credit decisions continue to shake up the world’s banks, private-equity activity has disappeared in tandem. That is a reversal from the leveraged-buyout bonanza of 2006 and 2007. During that stretch, private-equity shops snapped up companies valued at roughly $1.4 trillion in debt and equity, according to data provider Preqin. Adjusted for inflation, that is about one-third of all LBOs ever.

Like its peers, Carlyle has had a difficult year, registering losses from the collapses of its mortgage-securities hedge fund, Carlyle Capital; energy-trading company SemGroup LP; and telecom operator Hawaiian Telcom Communications Inc.

Despite its woes, the firm remains a fund-raising juggernaut, recently closing on $14 billion for its next buyout fund. Across its 64 funds, Carlyle has about $40 billion of uninvested capital. The firm also closed one of the year’s largest buyouts, a $2.54 billion acquisition of Booz Allen Hamilton Inc.’s U.S. government-consulting business.

Elsewhere, The Times reports on troubled Lehman Brothers and how people from the inside is trying to salvage the company from hostile take-overs :

A management buyout team (MBO) yesterday beat two of America’s biggest private equity firms to buy a majority stake in Lehman Brother’s prized investment management business.

The team led by George Walker, the bank’s global head of investment management, outbid a consortium comprising Bain Capital and Hellman & Friedman in an auction run by the US Bankruptcy Court in New York. A third, unnamed bidder had also been in the auction but only for a select few assets.

Lehman Brothers went bust in September with debts of $613 billion, (£414 billion) making it America’s biggest-ever bankruptcy. Alvarez & Marsal, the defunct investment bank’s liquidators, said that the MBO team’s offer represented greater value and certainty of closing than a $2.15 billion bid from the private equity consortium.

Investment management and banking sure are not what they used to be but perhaps the MBO can save Lehman - the article goes on :

The deal will see represent 51 per cent of Lehman’s investment management business go to the MBO team, while Lehman Brothers Holdings, which is overseen by Alvarez & Marsal, will retain 49 per cent. Mr Walker will become chief executive of the spun-off business, to be called Neuberger Investment Management. Joe Amato will continue to run Neuberger Berman as the new company’s biggest operating unit.

The Bankruptcy Court is scheduled to approve the deal on December 22, with the deal likely to close in the first quarter of next year. Mr Walker said: “I am thrilled to be moving forward towards becoming an independent, standalone company.”

 

Equity Investment, Investment Banking, Investment Management, Investment News Carlyle, Equity, Lehman Brothers

Read about the latest turmoil within one of the investment banking giants……..

According to MarketWatch Credit Suisse said Thursday that it will cut roughly 5,300, or 11%, of its jobs after posting a loss of around 3 billion Swiss francs ($2.5 billion) for the first two months of the fourth quarter.

Most of the job cuts will come in the group’s investment-banking arm, where it is also sharply cutting its risk exposure and reducing or eliminating trading activities in certain sectors.

Investment Banking, Investment News Credit Suisse, investment advisors, investment bank, UBS