Financial Review

HSBC – Too Big To Jail

Sinclair Noe — February 9, 2015

 

Podcast: Play in new window | Download (Duration: 13:18 — 6.1MB)

DOW – 95 = 17,729
SPX – 8 = 2046
NAS – 18 = 4726
10 YR YLD + .02 = 1.95%
OIL + .90 = 52.59
GOLD + 5.40 = 1239.70
SILV + .28 = 17.07

Let’s start with oil; OPEC lowered its estimate for non-OPEC supply growth this year by about 400,000 barrels a day, the biggest reduction since the forecast was introduced in August. The US led with a cut of 130,000 barrels a day while estimates for Colombia, Canada and Yemen were also trimmed. The group said it may boost global demand forecasts beyond this month’s slight increase amid rising U.S. gasoline use.

OPEC’s research department said: “The main factors for the lower growth prediction in 2015 are price expectations, a declining number of active rigs in North America, a decrease in drilling permits in the US and a reduction in the 2015 spending plans of international oil companies.”

The United Steelworkers strike continues with walkouts at two of BP’s refineries over the weekend. The strike now encompasses more than 5,000 workers at 11 refineries across the country, which account for about 13% of U.S. fuel-making capacity. Facility owners also hit by the strike include Shell, Tesoro, Marathon Petroleum and LyondellBasell.

Cheap gasoline prices have increased 13 cents in the past two weeks to $2.20 a gallon, nationwide average; but not everybody is buying the idea that oil will keep going up from here. According to US Commodity Futures Trading Commission data cited on Bloomberg. After a two-week rally that pushed oil up 14%, short bets on West Texas Intermediate jumped 1.2% while net-long positions dropped for a third week.

Edward Morse, Citigroup’s global head of commodity research writes that the recent surge in oil prices is just a “head-fake,” and oil as cheap as $20 a barrel may soon be on the way. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out. A pullback in production isn’t likely until the third quarter. Citi reduced its annual forecast for Brent crude for the second time in 2015. Prices in the $45-$55 range are unsustainable and will trigger “disinvestment from oil” and a fourth-quarter rebound to $75 a barrel. According to the report prices this year will likely average $54 a barrel.

Of course that’s just a guess. I don’t know, you don’t know, and Citigroup doesn’t know, but they print their guesses on glossy paper.

HSBC is a British multi-national bank; it used to be called the Hong Kong and Shanghai Banking Corporation; the UK and Hong Kong are considered home markets, but they also have a subsidiary in Switzerland. And it turns out, they have been misbehaving for quite some time.

At its height, HSBC’s secretive Swiss arm hid a total of $120 billion in assets. These funds were collected from wealthy clients all over the world and have already led to criminal investigations and charges against the bank in France, Belgium, the US and Argentina.

In a report released on Sunday, the International Consortium of Investigative Journalists, an organization based in Washington, along with the newspaper Le Monde in France, The Guardian in Britain, the BBC program “Panorama” and CBS News’s “60 Minutes,” said that secret documents revealed that bank employees had reassured clients that HSBC would not disclose details of their accounts to tax authorities in their home countries and discussed options to avoid paying taxes on those assets.

The documents were stolen from HSBC by a former employee in Switzerland in 2007 and were given to the French authorities, who in 2010 shared them with officials in Britain, Spain and the United States, among other nations. The leaked Swiss HSBC files implicate the bank in apparent misbehavior all over the world; some 30,000 accounts, and about 2,900 clients connected to the US, providing the IRS with a trail of evidence of potential American taxpayers who may have been hiding assets in Geneva. The US Department of Justice and IRS have been investigating HSBC’s Swiss banking operations since the documents were first handed over in 2010 but the scale of those inquiries remain unclear. Tomorrow, Maryann Hunter, who is on the board of governors of the Federal Reserve, and has some responsibility for regulation of foreign banking organizations operating in the US, will give evidence to the Senate banking committee. On Thursday, Geoffrey Graber, a deputy associate attorney general at the DoJ who oversees settlements with Wall Street banks, will appear before a House judiciary subcommittee. Both are expected to be questioned about the leak.

HSBC global and its US bank was forced to pay a $1.9 billion fine two years ago after the DoJ uncovered evidence HSBC subsidiaries had enabled clients to breach US sanctions against Cuba, Sudan and Iran and, due to oversight failures, allowed Mexican drug cartels launder billions of dollars. At the time, the settlement allowed HSBC to escape criminal indictments and keep the banking charter which enables it to operate in the US but the bank had to submit to a 5-year plan to stamp out money-laundering and other illicit practices, and the banks’ compliance would be overseen by an independent, court-appointed monitor.

HSBC is now just over two years into its reform plan, and has been deemed to be complying with the terms of the settlement. However, there are some concerns. In November, the bank reached a settlement with the Securities and Exchange Commission in which HSBC agreed to pay $12.5 million to resolve charges that its Swiss private banking division illegally provided investment and brokerage services to US clients.

So much for the idea that the problems are in the past. The huge amount of leaked info is quite bad for HSBC; it includes stories of coaching clients how to evade taxes; stories of clients being assisted in withdrawing bricks of cash from the Swiss bank. The evidence is quite damning, and yet, still no criminal charges. The Department of Justice will soon face a moment of truth, when they will have to decide whether the phrase “too big to jail” was real or just a crock.

And of course, HSBC is not the only bank that has misbehaved. Financial Times is reporting that the US Department of Justice is investigating whether Barclays and UBS sold structured products without disclosing the profit they were making from currency trades used to generate the products’ returns; essentially skimming profits or perhaps even betting against their own clients. Five major banks, including UBS, were fined $3.4B in November to settle forex allegations, although the DOJ was not one of the agencies involved in the deal. Barclays also did not take part in the earlier settlement.

The S&P 500 rose 3 percent last week, the most in seven weeks, as oil rebounded. The Dow posted its best weekly gain in more than a year. Of the firms that have reported profit so far this season, 78 percent beat analysts’ estimates, while 56 percent topped sales projections. Coca Cola, Time Warner, and MetLife are among 66 S&P 500 companies reporting quarterly results this week.

Comcast and Time Warner Cable’s $45B merger still remains in limbo, with the DOJ and FCC scrutinizing the deal and Tom Wheeler’s new net neutrality proposal. Investors began betting against the combination late last month, with shares of Comcast and Time Warner Cable falling sharply before recovering last week. If regulators allow the deal as is, the merged company would control about 35% of the country’s broadband Internet service coverage and just under 30% of pay television subscribers.

The National Association of Insurance Commissioners, a group representing state regulators, has announced the launch of an investigation into the recent data breach at Anthem. The health insurer revealed last week that hackers had broken into its database containing the personal information of about 80 million customers and employees. Anthem said it welcomes the review and “will cooperate fully.”

If you are one of the 80 million,1 of every 4, Americans who has ever had health insurance with Anthem Blue Cross, Anthem Blue Cross and Blue Shield, Blue Cross and Blue Shield of Georgia, Empire Blue Cross and Blue Shield, Amerigroup, Caremore, Unicare, Healthlink, and DeCare; I am sorry to inform you that your privacy and personal identity has been flushed down the toilet; let the class action lawsuits begin. Not all data breaches are created equal, and the Anthem health insurance hack is about as bad as they get for consumers.

Why? This time the crooks got Social Security numbers. For identity thieves, the Social Security number is the key that unlocks the vault, and they now have millions of them, plus they stole all sorts of other info, so they don’t have to guess when it comes to matching the Social Security data to you and everything you’ve ever worked for. If you have managed to save a nest egg for retirement, you will need to defend it, forever. How could this happen? Because Anthem didn’t encrypt our data, and there is no law that says they must.

Harris Poll has released a survey of America’s most- and least-loved corporations. Wegmans, a Rochester, New York grocer, claimed first place, followed by Amazon, Samsung, Costco, and Johnson & Johnson. Halliburton, Monsanto, Dish Network, and AIG were near the bottom of the list. The most hated company: Goldman Sachs.

Samsung’s TVs are listening to your every word. The company disclosed that its smart TVs will automatically capture all nearby conversations as part of its voice recognition features, and potentially transmit sensitive data to a third-party service. George Orwell saw it coming years ago.

A South Korean vacuum robot tried to devour its owner…Firefighters were called after it consumed some of her hair and refused to let go. …Yet Japan is still launching a robot hotel. A 72-room getaway will open this summer, staffed by 10 multilingual humanoids. What could go wrong?