Bloomberg News

India Investor Tax, BofA Bonus, EnBW Raid: Compliance

March 04, 2013

India dumped a proposal to tighten rules for overseas investors seeking to benefit from double taxation treaties after money managers said the change was too onerous and foreign funds sold the most shares in a year.

The so-called tax residency certificate needed to claim benefits is “necessary but not sufficient,” according to the budget documents released Feb. 28, stoking investor concerns that tax treaty benefits will become harder to avail. The finance ministry said March 1 the certificate will be accepted as proof and authorities won’t “go behind the TRC and question his resident status.”

Overseas and local companies often route investment into India through Mauritius-based firms because capital gains these firms make on Indian shares aren’t taxed in the Asian nation. Overseas funds sold a net $237 million of stocks Feb. 28, the most in almost a year, paring this year’s inflow to $8.23 billion, data from the regulator show.

The rule would have created ambiguity regarding the additional documents that will have to be produced to enjoy these benefits, Shefali Goradia, a partner at BMR Advisors, a Mumbai-based tax and deals advisory, said Feb. 28.

Bilateral treaties are meant to ensure that capital gains arising from sale of shares are taxed only in the investors’ country of residence and not where the company is based, thus avoiding the payment of taxes twice over.

Compliance Action

Citigroup Says Credit-Card Abuse Probes Fuel $266 Million Cost

Citigroup Inc. (C:US), the world’s biggest credit-card lender, is facing rising costs from the misselling of so-called add-on card products in the U.K. and U.S.

Citigroup boosted reserves by $266 million last year to compensate U.K. customers wrongly sold payment protection insurance, or PPI, according to a regulatory filing March 1 by the New York-based lender. The bank may also face penalties from U.S. regulators amid an industrywide probe into the sale of payment protection and identity monitoring products, according to the filing.

Lenders including Discover Financial Services (DFS:US) and Lloyds Banking Group Plc (LLOY) are dealing with the costs from the improper selling of products such as PPI, which is used to cover payments on credits cards if customers get sick or lose their jobs. Britain’s biggest banks have reserved more than 13 billion pounds ($19.5 billion) for PPI compensation, while U.S. firms including JPMorgan Chase & Co. (JPM:US) and Charlotte, North Carolina- based Bank of America Corp. (BAC:US) are retreating from the market for add-on card products amid scrutiny from regulators.

“While the number of customer complaints regarding the sale of PPI significantly increased in 2012, and the number could continue to increase, the potential losses and impact on Citi remain volatile and are subject to significant uncertainty,” Citigroup said in the filing.

The boost brought the amount set aside for PPI claims in the U.K. to $376 million at Dec. 31, Citigroup said. Rising U.K. customer complaints triggered by “continued regulatory focus” prompted the increase, according to the filing.

The complaints stem primarily from two Citigroup consumer- finance entities, CitiFinancial Europe Plc and Canada Square Operations Ltd., formerly known as Egg Banking Plc, the lender said. While Citigroup has sold or is winding down these businesses, it retains potential liability for the PPI sales, the bank said.

Customers who bought PPI rarely compared prices and terms or switched providers, and usually weren’t aware they could purchase the insurance from other companies, the U.K.’s Competition Commission has said.

EDF, Morgan Stanley Offices Raided in Probe Over EnBW Deal

Electricite de France SA and Morgan Stanley (MS:US)’s Paris offices were raided as part of German prosecutors’ probe into the 4.7 billion-euro ($6.1 billion) repurchase of a stake in EnBW Energie Baden-Wuerttemberg AG. (EBK)

The raids took place the third week in February at the request of Stuttgart prosecutors who are investigating former Baden-Wuerttemberg state Prime Minister Stefan Mappus and Dirk Notheis, the former head of Morgan Stanley’s German business. EDF and Morgan Stanley aren’t targets in the case, prosecutors’ spokesman Jan Dietzel said by phone March 1.

The Stuttgart probe is looking at whether Mappus misused his power to authorize the state’s repurchase of a 45 percent stake in EnBW from EDF without involving legislators. Morgan Stanley advised the state government on the deal. Notheis left the bank shortly after the probe became public.

Baden-Wuerttemberg has also started arbitration over the price on the December 2010 stake purchase, which it claims was too high.

EDF and Morgan Stanley declined to comment, as did Wolf Schiller, Notheis’s attorney. Stephan Holthoff-Pfoertner, a lawyer for Mappus, didn’t immediately return calls seeking comment. Frank Mastiaux, EnBW’s chief executive officer, declined to comment.

Osborne Said to Recover RBS Bailout at 19% Below Rescue Cost

The U.K. would recover the cost of rescuing Royal Bank of Scotland Group Plc (RBS) at a share price 19 percent below what the government paid to bail out the lender in 2008, said three officials familiar with the matter.

The government would break even on its investment at 407 pence a share compared with the average 502 pence paid during its rescue, said the people, who asked not to be identified because they weren’t authorized to speak publicly. That’s because the price takes into account fees paid by RBS to the Treasury for the bailout and other programs during the crisis, the people said.

Royal Bank of Scotland Chief Executive Officer Stephen Hester on Feb. 28 said the lender, which received the biggest banking bailout in the world, may be ready to be returned to private hands before the 2015 vote. A Treasury official said the government hasn’t set out a target price or a timetable for the sale.

Chancellor of the Exchequer George Osborne could potentially use the proceeds of a sale to fund tax cuts or more spending before a general election in two years that polls say his Conservative Party may lose. Prime Minister David Cameron has kept open the option of giving away RBS shares to the public.

Osborne is also seeking to sell the government’s stake in Lloyds Banking Group Plc, which it rescued in 2008.

Libya’s Sovereign Fund Cooperating With SEC on Goldman Probe

The Libyan Investment Authority, the nation’s sovereign wealth fund, is cooperating with the U.S. Securities and Exchange Commission on its probe into the fund’s dealings with Goldman Sachs Group Inc. (GS:US)

The LIA is also considering legal action against Goldman Sachs, the fifth-biggest U.S. bank by assets, to recover losses on its investments, the fund said in an e-mailed statement Feb. 28. The SEC has been investigating possible violations of U.S. anti-corruption laws by Goldman Sachs for more than a year. Reuters reported the LIA’s cooperation Feb. 28.

John Nester, an SEC spokesman, and Michael DuVally, a Goldman Sachs spokesman, declined to comment when contacted by Bloomberg News Feb. 28.

Under Muammar Qaddafi, the sovereign wealth fund had assets of about $60 billion and turned to financial firms including Goldman Sachs to achieve its goal of 8 percent annual returns. The bets didn’t always work out, leading to losses of $1.75 billion on structured products bought in 2007 and 2008, $900 million of which was with Goldman Sachs, the fund’s former chairman said in June.


Credit Suisse Not Liable for Saudi Woman’s $31 Million Loss

A Credit Suisse Group AG (CS:US) unit wasn’t negligent when it advised a Saudi Arabian investor who lost $31 million on structured notes after failing to make a margin call, a London judge ruled.

Basma Al Sulaiman, a Saudi national, was given about $40 million in a 2003 divorce settlement with Walid Al Juffali, a member of one of Saudi Arabia’s richest families, according to the ruling. Al Sulaiman invested some $28 million of her money into 23 structured notes from Credit Suisse Securities Europe Ltd. and Plurimi Capital LLP, almost all of which were leveraged by loans from the bank.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Notes backed by certain types of mortgage loans fell in value during the financial crisis.

Paul Howcroft, a lawyer for Al Sulaiman, declined through a law firm spokeswoman to comment. Credit Suisse also declined to comment.

Comings and Goings/Executive Pay

Merrill Sued by Private Equity Banker for $14 Million Bonus

Matthew Turner, a former private equity executive at Bank of America Corp. (BAC:US)’s Merrill Lynch unit, sued the company for about $14 million in bonuses he says were promised and never paid.

Turner, who was head of private equity for Europe, the Middle East and Africa before leaving the bank in June 2011, claimed its Merrill Lynch International subsidiary breached the terms of his contract, according to documents from his London lawsuit filed in December.

The $14 million includes a share of profits from two Merrill Lynch funds and some of the proceeds from deals he worked on, including the bank’s sale of Foxtons Ltd. loans to Haymarket Financial LLP in 2010.

Turner’s lawsuit is one of the largest individual bonus claims filed in London.

Bank of America spokeswoman Victoria Garrod declined to comment. Turner’s lawyer Joanna Blackburn didn’t immediately respond to a phone call and e-mail seeking comment.

Turner gave up “valuable compensation” including bonuses and carried interest, or a share of a fund’s profits, from his former employer Palamon Capital Partners to join Merrill in 2007, he said in court documents.

Merrill Lynch denied breach of contract, in court documents setting out its defense.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

The Aging of Abercrombie & Fitch

Companies Mentioned

  • C
    (Citigroup Inc)
    • $48.65 USD
    • 0.03
    • 0.06%
  • DFS
    (Discover Financial Services)
    • $56.23 USD
    • -0.35
    • -0.63%
Market data is delayed at least 15 minutes.
blog comments powered by Disqus