September was, as ever, a busy month financially around Europe, so to keep you in the loop here were the major happenings from around the continent last month.
Rate Swap Scandal Rolls On
September kicked off with yet another embarrassing moment for banks and the seemingly never ending rate swap scandal, when it was revealed by property services company DTZ that property developers could receive compensation and preferential lending terms worth up to 10 billion GBP in return for dropping legal cases against banks over the mis-selling of interest rate derivatives.
It was estimated by DTZ – using data from derivatives experts Vedanta Hedging and law firm Collyer Bristow – that as many as 1 in 5 commercial lenders in the UK could have a valid mis-selling claim. Speaking to the Telegraph who reported on the story, Vedanta Hedging founder Abhishek Sachdev said, “As we have been saying for more than two years, we believe the existence of large swap mark-to-market liabilities on commercial real estate loans is one of the most important factors holding up the entire UK lending market.”
DTZ data revealed that claimants received, on average, cash or cash equivalent settlement packages of 1.5 million GBP, with claims against banks ranging from small companies to high-profile businessmen such as Lord Alan Sugar.
FTT Seen as Illegal by EU Lawyers
The efforts by European hierarchy to impose a financial transaction tax (FTT) were dealt a major blow in mid-September, after a leaked 14-page document dated September 6 revealed Brussels’ own lawyers think that the policy ‘infringes upon the taxing competences’ of states that do not adopt it. It was also deemed ‘discriminatory’ and ‘not compatible’.
Open Europe, a UK-based think tank opposed to the policy, told the Telegraph: “The FTT is dying a death of a thousand cuts; this one could be the final one.” However, a statement released from Berlin, insisted EU lawyers’ opinions had done nothing to change Germany’s stance. “The German government advocates a swift introduction of the FTT for good reasons,” said the statement.
“We want to make the financial sector contribute adequately to the costs of the financial crisis. Nothing has changed on that. The legal concerns must be cleared up and dispelled as quickly as possible.”
Eurogroup Approves Next Tranche of Financial Assistance for Cyprus
There was a further boost for the Cypriot authorities last month when Eurozone finance ministers endorsed the next tranche of financial assistance to the country. €1.5 billion was disbursed to Cyprus, marking what was called ‘an important milestone for restoring confidence in the Cypriot financial sector’.
Talking about Cyprus in a statement, the Eurogroup said it “welcomes the conclusion of the Troika’s first review mission that the adjustment programme for Cyprus is on track,” adding that authorities have “taken decisive steps to stabilise the financial sector, meet the fiscal targets and taken structural reforms forward.”
“Cypriot authorities will continue to gradually relax the administrative measures that had been put in place in view of the unique and exceptional situation of Cyprus’ financial sector,” the statement said.
Cyprus has been excluded from international markets from early 2011, since receiving €10 billion in financial assistance from the Troika, which is made up of the IMF, ECB, and EC.
European Stocks Rise after US Federal Reserve Announcement
The European stock market received an unexpected boost in mid-September, when the US Federal Reserve chairman Ben Bernanke announced that the bank would not be scaling back its economic stimulus programme until the economy had shown further improvement. This meant that the bond-buying plan would continue, thus keeping cheap money flowing – and stock markets across the continent rose as a result. London’s FTSE 100 rose by 1% to 6625.4 and France’s CAC closed up by 0.85%. Germany’s DAX also closed at a new high.
Eyebrows Raised over Google’s Tax Practices
Internet search giant Google has been accused of using clever accounting tactics to dodge tax payments of around £150 million, the Financial Times reported. According to latest accounts, the UK arm of the search giant’s operation paid just 11.6 million GBP in corporation tax on 3 billion GBP of sales.
Google insists that its UK facility merely provides marketing services to its European base in Ireland; however, an investigation by Reuters alleged that it was, in fact, UK employees that were responsible for sales.
Google’s UK turnover was 506 million GBP in 2012, with profits of 36.8 million GBP. In addition to the 11.6 million GBP paid in corporation tax, a 24 million GBP tax provision was set aside for share awards to employees for the period between 2005 and 2011.
Google insists that, like most multinationals, it pays the bulk of its 1.2 billion tax bill where it originates, in the United States. In a statement, the company was also keen to add that it is a ‘significant contributor to the UK economy’. Critics, though, say that accounting in this way may have allowed the company to reduce its tax bill by around 150 million GBP last year.
This monthly financial review was penned by the writers at Carman Online Content Publishing, a UK-based copywriting agency working out of Fife, in Scotland.