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U.K. Court Orders Banks to Pay Tax on Bonuses: The U.K.’s highest court ordered UBS and Deutsche Bank to pay taxes on shares given to employees more than a decade ago as bonuses. The decision occurred in two separate cases as British authorities argued in the court that the banks’ bonus strategy was designed to avoid taxes. The two banks had awarded shares to employees from 2003 to 2004 in one-off bonus plans; the shares were created through offshore vehicles in the island of Jersey and the Cayman Islands. These vehicles were designed to meet restricted share rules, meaning they were not subject to tax deductions or insurance contributions. Altogether, around 426 employees participated in the UBS scheme, which allowed them to avoid nearly $70 million in tax and national insurance payments. Deutsche Bank said in a statement that all payments due from their tax scheme had been paid. UBS has previously paid the amount owed, but it was refunded when UBS prevailed in a lower court.
Former Salomon Chief Dies: Former Salomon Brothers chief executive and chairman John Gutfreund has died at the age of 86. Gutfreund earned the moniker, “the king of Wall Street,” after he turned Salomon Brothers into one of the largest securities traders. In particular, the bank became the primary dealer of U.S. Treasury bonds and a prominent underwriter of corporate securities. Salomon Brothers during his time at the helm also became one of the first banks to create tradable securities out of home mortgages. But Gutfreund was perhaps as famous for his personality as he was for his business acumen. As detailed in Michael Lewis’ “Liar’s Poker,” the company’s head honcho was famous for pacing about the trading floor and sneaking up on employees, always with a cigar in his mouth or hand. Gutfreund also helped inspire generations of bankers and financial professionals, among them Michael Bloomberg, who put in a 15-year stint at the bank. Gutfreund’s time at the top was cut short when he was ousted after the bank became embroiled in a scandal regarding illegal bidding in Treasury bond auctions. Nevertheless, it’s hard to ignore the resounding influence of his legacy.
Central Banks Choose Next Steps: Around the world, central bankers are preparing to meet to decide their next steps. And the results of these choices are likely to vary. In Europe, the European Central Bank announced additional stimulus. The bank has expanded its bond-buying program to about $86.86 billion per month and will now purchase corporate debt in addition to government debt. The ECB also cut the key lending rate to zero from 0.05% and dropped the deposit facility to negative 0.4% from negative 0.3%. Prior to the decision, investors were very wary as they continue to recover from the last extension to quantitative easing, which missed expectations and led to a sell-off. And there’s good reason for observers to expect more from the ECB, since inflation has remained well below the 2% target. Senior bankers in Europe though are fearing the effects of possible negative rates, in particular the effects on earnings. Next week, Federal Reserve officials are expected to make no changes to short-term interest rates, while leaving the door open for rate hikes later in the year. Members of the Fed have expressed contentment about the American economy's strength despite worldwide turmoil, and the strong jobs market. But with the global economy so tentative and inflation remaining stubbornly low, there’s a fear that raising rates too fast could weaken the economy. But investors may not want to get too comfortable. The Wall Street Journal details the threat of the so-called “Yellen call,” or the opposite of the famous Greenspan put, which could keep stock prices in check. Today’s Fed, while responsive to moves in the market, isn’t necessarily going to delay a rate hike for that reason alone. And if you look at Japan, you’ll see proof why negative rates may not be a great idea. The Bank of Japan is expected to decline to take any action at its monetary policy meeting next week – a change since the central bank’s governor Haruhiko Kuroda has for a long time been restless in attempting new approaches to stimulate the country’s economy. There, the backlash against the central bank’s choice to go to negative rates has reached deafening levels, with some citizens storing cash in safes for fear that banks may begin to charge interest on deposits.
Wall Street Journal
States are using money from mortgage settlements with the country’s largest banks in a variety of ways, according to an analysis by the paper. Altogether, the nation’s big banks have paid $110 billion in fines for their role in the mortgage bubble that led to the financial crisis. In New York state, some of that money is funding a horse barn and stables at the state fair. In Delaware, local police have used some of the funds to subsidize their email accounts. But those cases are the minority: most of the money, according to the paper’s analysis, went back to the federal government. And what’s been done with it since is largely a mystery. The Treasury and Justice Departments received $49 billion and $447 million respectively, but there’s little information on how or if it was spent. A Treasury spokesman said Congress authorizes how the funds are spent, and the Treasury’s figure does include money that went to Fannie Mae and Freddie Mac. Some observers are calling for greater transparency.
Financial Times
Iran is set to join a growing list of countries that have set up so-called "bad banks" to absorb the losses of toxic loans. Other countries that have taken this approach include Sweden, Japan and South Korea. The central bank’s choice to create a “bad bank” stems from its desire to improve its non-performing loans and capture interest from overseas investors. The central bank also revealed a plan to unify its official and market exchange rates and to recapitalize the country’s banking system. Iran may also seek to borrow money from overseas investors in the Eurobond market, the paper said. The “bad bank” move though also underscores the perceived weakness in Iran’s banking system, where bad loans account for more than 15% of the banks’ balance sheets. In Iran, banks have an outsized influence on the country’s economy, so any improvement to these figures could help stimulate economic activity.
By 2020, the frequency with which people in the U.K. visit a bank branch is expected to drop by half – all thanks to the prominence of mobile banking. Consulting firm CACI has estimated there were 427 million customer visits to branches last year, in 2020 they are only expected to visit branches around 268 million times. Computer logins are also expected to drop to 528 million in 2020 from 705 million currently. By then, however, mobile banking logins are expected to jump to 2.3 billion a year. The report is likely to bolster previously announced plans from the country’s top banks to shrink their branch networks as well as boost new mobile-focused companies such as Atom Bank.
New York Times
Regulators need to play catch-up with the financial technology industry, which has exploded in size without much accountability, according to a column. Part of the problem, the author contends, is that states remain a patchwork quilt of outdated rules as they apply to fintech. Each state continues to hold different standards for money transmitters and consumer lenders, and not all of their examiners are up on the latest technology. Consequently, the column notes that Western Union and a bitcoin start-up will be subject to the same rules, despite being unalike in many, many ways. Adding to the problem, the author argues, is the Consumer Financial Protection Bureau has a relatively limited mandate despite being accountable for fintech firms’ customers. Ultimately, the author believes either an existing regulator must take charge and develop a way of accounting for fintech firms, or a new, technologically focused financial regulator must be created.
