Commentaries

UBS settlement leaves Switzerland scarred

UBS, Switzerland and the United States can all claim a sort of victory from the settlement on Wednesday of their tax dispute.

UBS gets to avoid a fine that — according to the Swiss justice minister — would have threatened its existence. The Americans get the details of some 4,450 accounts that they say have held up to $18 billion, on which fat taxes may be payable. And the Swiss get to draw a line under a threat to their fundamental banking secrecy.

Even so, there will be many who want to keep their financial affairs private who will look for other homes for their cash.

The basics of the deal are as follows. The U.S. will drop its “John Doe” summons that looked for the names of as many as 52,000 Americans with accounts at UBS. This had prompted the Swiss to threaten that they would seize UBS’s data rather than accede to what they saw as a fishing expedition that they said would break Swiss law.

The Americans now say they were never looking for so many accounts, which would include many law-abiding citizens.

Instead, the Swiss will hand over details of 4,450 (the Americans say it could be more than 5,000) accounts of Americans at UBS. The bank, which is the world’s second-largest wealth manager, will write to affected account-holders urging them to take part in an American tax amnesty, if appropriate.

The Americans gain twice over. First, the affected account-holders will, unless they are stupid, cough up any outstanding tax before the amnesty expires on Sept 23. Anyone with accounts at other foreign banks is also likely to put their affairs in order before Uncle Sam forces them to. Moreover, Americans will in future will careful to comply with U.S. tax law given the reach of the U.S. justice department.

Lufthansa milks EU drama for cost cuts

Lufthansa <LHAG.DE> is milking an antitrust standoff with the European competition regulators to extract maximum cost cuts from Austrian Airlines <AUAV.VI> as it seeks to cement its dominance of central Europe’s skies. The German flag carrier has held back key concessions to the European Commission needed to secure approval for the takeover of the ailing airline while it squeezes further concessions from Austrian’s workforce and its biggest shareholder, the Austrian government. It won another 150 million euros in savings from job cuts agreed in a third round of AUA cost-cutting this week. The EU regulator, which supports airline consolidation in principle, is right to insist that the creation of a central European mega-carrier should not be at the expense of consumer choice on key routes such as Vienna-Frankfurt. Lufthansa, which has set its own deadline of July 31 to clinch the deal, has the Austrians in a tight spot because the cost to the Austrian taxpayer would be far higher if it walked away. The Austrian government holding company, OIAG, says this could cost about 1,400 jobs and imply total costs of 840 million euros. The state has promised to assume 500 million euros of AUA’s 1 billion euros of debt as part of a Lufthansa deal. The German giant needs to reduce the cost of acquisitions it launched last year before the financial crisis hit air travel. It has already beaten down Sir Michael Bishop to lower the cost of his majority stake in British carrier BMI [BMI.UL] and has snapped up Brussels Airlines, the successor to bankrupt Belgian flag carrier Sabena. In the latter case, Lufthansa made concessions to the Commission on routes and take-off and landing slots to avoid restricting competition. But it has balked so far at the most important remedies for the Austrian deal, which concern what would be a monopoly on nine daily flights between Vienna and Geneva, operated jointly with another subsidiary, Swiss, and above all on feeder flights to its Frankfurt Airport hub to connect with its more lucrative transatlantic routes. If the Commission does not stand firm on these issues, it risks being overturned by the EU’s Court of First Instance, to which rivals Air France-KLM <AIRF.PA> and former Formula 1 racing ace Niki Lauda’s latest venture, Fly Niki, would undoubtedly appeal. Of course, Lufthansa could let the Austrian deal founder on EU competition concerns in hopes of picking up the pieces of a shrunken or bankrupt AUA later. But it might face competition were the airline’s assets to be sold out of bankruptcy. Both Air France and a consortium of Air Berlin and Fly Niki were interested last time. So the betting must be that, as with the Belgian deal, it will yield to Brussels’ demands to clinch the deal in the end.

from Margaret Doyle:

COLUMN – Swiss guard bank secrecy: Margaret Doyle

Margaret Doyle is a Reuters columnist. The opinions expressed are her own

By Margaret Doyle

LONDON, July 9 (Reuters) – The Americans are on a fishing trip. The fish they are after are big: 52,000 of their fattest fellow citizens, and they have invited the Swiss to land them. Understandably, the Swiss are not keen to haul in the net and hand over the source of much of their income.

The US demand that UBS <UBSN.VX> <UBS.N> disclose the names of 52,000 American citizens suspected of tax evasion has galvanised the Swiss government into threatening to bar the bank from doing anything of the sort.

The US administration would be ill-advised to pick a fight here, and there is plenty of room for a compromise. The Swiss have already agreed in principle that if the US can present evidence of suspected tax evasion, then they will be prepared to disclose account details. Their aim is to protect clients’ legitimate privacy (often against governments with more malign intent than President Obama’s) against wide-ranging fishing expeditions, while not harbouring fraudsters.

Meanwhile America, which has already forced the Swiss to be more open, smoothes the feathers of the ally that has represented the country’s interests in Teheran for three decades.

If a deal cannot be struck, it could be expensive for both UBS and the Swiss government, a minority shareholder after a massive bail-out. The judge in this Miami case has asked America’s Department of Justice to clarify if it would seek to seize UBS’s American operations if it fails to comply with a court order. That would mark an expensive exit from a market after so much hard work. UBS spent $12 billion on Paine Webber to establish its US wealth management business, but even in the go-go years it was no great success, accounting for a quarter of UBS employees but just 5 percent of profits.