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from Global Investing:

Emerging markets facing current account pain

Emerging markets may yet pay dearly for the sins of their richer cousins. While recent financial crises have been rooted in the United States and euro zone, analysts at Credit Agricole are questioning whether a full-fledged emerging markets crisis could be on the horizon, the first since the series of crashes from Argentina to Turkey over a decade ago. The concern stems from the worsening balance of payments picture across the developing world and the need to plug big  funding shortfalls.

The above chart from Credit Agricole shows that as recently as 2006, the 34 big emerging economies ran a cumulative current account surplus of 5.2 percent of GDP. By end-2011 that had dwindled to 1.7 percent of GDP. More worrying yet is the position of "deficit" economies. The current account gap here has widened to 4 percent of GDP, more than double 2006 levels and the biggest since the 1980s. The difficulties are unlikely to disappear this year, Credit Agricole says,  predicting India, Turkey, Morocco, Tunisia, Vietnam, Poland and Romania to run current account deficits of over 4 percent this year.

Some fiscally profligate countries such as India may have mainly themselves to blame for their plight. But in general, emerging nations after the Lehman crisis were forced to embark on massive spending to buck up domestic consumption and offset the collapse of Western export markets. For this reason, many were unable to raise interest rates or did so too late. As the woes of the Turkish lira and Indian rupee showed last year, the yawning funding gap leaves many countries horribly exposed to the vagaries of global risk appetite.

There are some supportive factors however. The Fed's signal this week that  U.S. interest rates are unlikely to rise before 2014 shows  that central banks in Europe and the United States will continue to gush money for now. So there should be enough cash available to plug the gaps in emerging nations' balance sheets. Second, as growth eases, so will the deficits.  For these reasons, Credit Agricole says the market will be forgiving of large current account deficits this year. But it warned:

What will happen once (developed market) rates are raised is another story, and emerging markets would better have fixed their main imbalances when the global monetary normalisation begins.

from DealZone:

UBS dodges bigger bullet in tax pact

Embattled Swiss bank UBS struck a deferred prosecution agreement with the U.S. Justice Department that will cost them $780 million. It could have been worse.

Though paying a hefty fine, the Swiss bank is paying ZERO punitive fines, despite conceding that they helped U.S. residents -- estimated to number 250 -- avoid paying income taxes over an eight year period.

The agreement announced on Wednesday specifies that UBS will give up $380 million of profit from eight years of cross-border business -- of which $200 million will be paid to the U.S. Securities and Exchange Commission and $180 million to the Department of Justice -- and $400 million for back taxes, tax penalties and restitution for unpaid taxes and interest .

But it will not pay a penalty. In addition to wining points for its cooperation, Uncle Sam evidently took pity on a bank that has already suffered billions of losses from fixed-income trades and investments during the credit crunch. Halfway down Page 3 of the agreement Reuters found this little nugget:

"In recognition of the current international financial crisis and after consultation with the Federal Reserve Bank of New York, the government will forgo additional penalties."

Not bad considering the 43-page agreement spells out some seriously naughty behavior.

"Beginning in 2000 and continuing until 2007, UBS, through certain private bankers and managers in the United States cross-border business, participated in a scheme to defraud the United States and its agency, the IRS..."