Interview: UBS France chief tells us he wants to grow despite tax probe

(Full story) 

By Lionel Laurent and Matthias Blamont

PARIS Fri Jun 28, 2013 4:54pm BST



(Reuters) - An internal review by UBS's (UBSN.VX) French unit into allegations that it sold products designed to evade taxes has yet to find evidence of law-breaking, the Swiss bank's French chief told Reuters on Friday.

Putting a positive spin on UBS France's financial health and downplaying the impact of an ongoing tax probe by the French authorities, Jean-Frederic de Leusse told Reuters the bank had shed jobs, tightened risk controls and was targeting market-share gains at its wealth-management business.

Governments across the world are cracking down on tax evasion in the wake of the financial crisis and France's Socialist government is under pressure to act after its budget minister quit over an undeclared bank account in March.

UBS is being probed over its sales practices after a former executive told the authorities that Swiss bank accounts were being illegally sold on French soil and recorded in a separate account-keeping system used to help calculate bankers' bonuses.

The investigation is ongoing but France's ACP banking regulator, after mounting its own inquiry, this week fined UBS France 10 million euros (8.5 million pounds) - its biggest-ever fine - for dragging its heels in fixing lax risk controls.

Describing the fine as "disproportionate", UBS' de Leusse said the bank would likely appeal. There was no sign yet of illegal activity in transactions reviewed by UBS France, he added.

"We are fully cooperating with the authorities and we are justifying each transaction, line by line, to show that what has been done was legal," de Leusse said on Friday in an interview at the bank's offices near the Paris Opera House.

De Leusse, previously an investment banker at boutique firm Arjil and before then an executive at Credit Agricole (CAGR.PA), said that he had seen no evidence of impropriety so far.

"At this stage I have not identified any transaction that would be an issue," he said.

Interview: SocGen CEO says EU should be strict on bank failure

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(Reuters) - Europe's legal framework to decide who pays if banks fail should avoid granting too much flexibility to individual EU member states, the head of French bank Societe Generale (SOGN.PA) told Reuters on Wednesday.


The law on rescuing and closing banks in the EU is central to the 27-nation bloc's banking union, which aims to prevent future financial crises and get the economy out of recession.

EU states have been at odds on how to distribute the cost of shuttering banks. Germany favors strict norms across the EU on how losses would be spread across shareholders, bondholders and depositors.

Britain, Sweden and France want more flexibility. SocGen Chief Executive Frederic Oudea appeared to distance himself from the French government's position.

"There should not be too much flexibility," Oudea said in an interview on the sidelines of a finance conference.

"It is better to have the same rules of the game from one country to the next and that these rules be clear, understandable and applicable for both depositors and investors."

SocGen, France's second-largest listed bank, was among the lenders caught in the flare-up of the eurozone's sovereign-debt crisis in 2011. It has since cut jobs and sold assets to bolster its balance sheet and is eyeing an extra 900 million euros ($1.17 billion) in savings by 2015 to lift profits.

Despite the bleak picture for the eurozone economy, which remains mired in recession, Oudea said he did not think SocGen would need to cut costs more aggressively than planned.

The CEO also appeared to dismiss the idea of a sharp rise in loan-loss provisions in SocGen's home market, despite a jobless rate that is at 15-year highs and consumer belt-tightening.

"We are not seeing a rise in defaults," he said.

French Bank SocGen Now Wants To Buy An Asset It's Been Trying To Sell For 2 Years (sources)

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(Reuters) - French bank Societe Generale is in talks to buy out rival Credit Agricole's 50-percent stake in their jointly owned brokerage Newedge, several sources familiar with the matter told Reuters.

SocGen had previously sought to exit derivatives-focused Newedge, as part of a post-crisis drive to strengthen its balance sheet, but a lack of buyers has pushed France's No. 2 listed bank to look instead at ways it might better integrate the business by taking full control, the sources said.

 

SocGen and Credit Agricole have yet to reach agreement on a price, one of the sources said, adding it was a complex business in an uncertain market environment. The total business has an equity value of around 800 million euros to 1 billion euros ($1.07-$1.33 billion), according to banking and analyst sources.


"SocGen, which previously has wanted to sell its 50-percent stake in Newedge, is now looking at buying the whole business," said one of the sources. "After trying to sell it, it became obvious that they weren't going to get a good price, so now it's about doing the next best thing."

Spokeswomen for Societe Generale and Credit Agricole CIB declined to comment. Newedge referred a request for comment to its parent shareholders.

SocGen - which has kicked off a drive to cut 900 million euros in costs through 2015 - is giving priority to flow products, or the trading of low-risk securities that consume little capital, and believes that taking over Newedge would fit into this strategy, the source said.

Newedge has also recently taken steps to restructure itself. In December it said it was considering a split of its asset execution and clearing businesses as part of a wider restructuring aimed at making it more competitive.

Newedge last year reported a halving of net profit, to 14 million euros ($18.67 million), versus 33 million in 2011. It had around 50 billion euros in assets at end-2012.

(Reporting by Lionel Laurent in Paris, Michael Flaherty and Nishant Kumar in Hong Kong; Additional reporting by Denny Thomas in Hong Kong and Matthias Blamont in Paris; Editing by Carmel Crimmins and Elaine Hardcastle)

I spoke too soon...

...in my previous post, when I puzzled over the lack of French outrage over the PRISM reports in The Guardian and the Washington Post.

Now that the face of Edward Snowden is attached to the story, there's been some reaction from... ...Marine Le Pen, head of the far-right National Front.

And much like the Glenn Becks and Michael Moores of this world, Le Pen's response is to lionize Snowden (proof that there is often an overlap between extremes of both left and right). She even wants President Francois Hollande - whose administration, as far as I can tell, has offered no real response to or condemnation of the PRISM revelations - to offer Snowden asylum in France (!) in a gesture to show that France is a great "land of liberty".

(Full marks go to Europe 1 radio for actually trying to get a reaction out of French Digital Economy Minister Fleur Pellerin, who said on Monday: "The information that has come out is worrying...But the companies concerned have stated that they were unaware of the programme and did not participate. I think it's too early to form an opinion.")

As I discussed in my previous post, France does not have a great track record in curbing surveillance powers and several recent laws have been attacked by advocacy groups as giving too much power to the authorities to monitor, filter and spy on telecommunications.

Yet the French media are treating this as a kind of distant US story, despite the obvious potential implications for French users of Google, Facebook, etc.

French tech-industry website www.usine-digitale.fr even interestingly posits the theory that French cloud-computing providers will benefit by distancing themselves in terms of security from their U.S. rivals.

In other words, despite the global nature of the Internet and the incredible dominance of U.S. tech companies and websites over the whole planet, the PRISM story may turn national and be a further push for online services to be cut up and balkanized - much like the banking sector in the wake of the 2008 financial crisis.

But let's wait and see how users react...

Le Prisme

The U.S. PRISM story turned out to be utterly gripping this weekend, even though it managed to completely eclipse the potentially far more terrifying earlier report on the NSA's regular collection of 'metadata' on millions of U.S. calls. (The Obama administration defended the practice of collecting telephone records, while Verizon declined to comment.)

There were some ripples in Europe, as our coverage indicated, with lawmakers in UK, Germany and Switzerland calling for more information - though in France the reaction was pretty muted.

So why was the weekend news in France focused on national stories and the French Open rather than a potential threat to privacy that could theoretically stretch to France if information on French citizens was being collected by PRISM?

Not sure. But what is interesting is that France has already done a lot of soul-searching about surveillance and cybersnooping over the past few years - and seemingly come to terms with it.

Under previous president Nicolas Sarkozy came "Hadopi", the agency that allowed music and movie rights holders to monitor peer-to-peer sharing and meted out punishments to those who were illegally downloading content. Also under Sarkozy came "Loppsi 2", a law that The Register painted as worse than Australia in the "Big Brother stakes". Though France's constitutional court later scrapped a few of its measures, the law gives the authorities greater powers to combat cybercrime and terrorism - by planting spyware to monitor those suspected of serious crimes, for example, albeit only with a judge's approval. Rights groups were especially angry over the law's allowing of filtering, censorship and blocking of offensive websites without court approval - right now it only concerns sites displaying child pornography but the advocacy groups said there was a risk it might broaden.

Now, under Francois Hollande, France is preparing its own electronic surveillance data-gathering platform, called PNIJ. (Internal documents have been leaked by blogs, while the broad outline has been openly confirmed by police unions among others.) Now I don't know *at all* what PRISM is for sure, given the disparity between the Powerpoint presentations given by the Washington Post and the Guardian and the official statements by the tech companies and the U.S. intelligence chief, but if we take the authorities at face value and imagine that it is a quicker, easier but still legal way for the authorities to request and gather telecommunications data on a court-approved basis, then, well, that's pretty much what the PNIJ seems to be according to the leaked documents. The rest is up to the laws regarding electronic surveillance, which are obviously different in both countries.

There hasn't been much outrage at all over PNIJ in France, apart from those police staff who say they aren't equipped to deal with it and some blogs and other reports that warn it might be risky to centralise private data in this way.

So while things may change, for now I can understand why there might not be an instinctive rush by France to find out exactly what kind of snooping has been going on in the U.S., largely because getting to grips with the surveillance going on in France has been controversial enough for a good few years now.

Even the French gripe about "l'exception culturelle"

There's a nice piece by Simon Kuper in the FT about France's "exception culturelle" and why it "makes more sense than ever," basically arguing that it is only fair for France to seek to give its domestic artists and filmmakers a helping financial hand in a world where the English language rules the roost and where technology has made the global media market a lot more crowded.

You can read it here, if you can afford to break the paywall.

My only issue with the piece, aside from the fact that it equates U.S. tax breaks on donations to the art world with French levies on movie-theater tickets purchased in France (the parallel would surely only work if art galleries or museums based in U.S. were forced to give away exhibition proceeds to the state), is that it doesn't touch on criticism from even within France of some of the ways cultural subsidies work here.

Take the movie industry. In France, there is a blunt-force approach to promoting home-grown talent that involves simply siphoning off cash from a variety of sources in the media industry and then reinvesting the cash pot into domestic entertainment. Ticket sales at cinemas are taxed at 11%; revenues from TV advertising and licence-fee revenues, as well as telecom operators' subscription revenues are taxed at anywhere up to around 5%; video/DVD and video-on-demand sales are taxed at 2%.

All this made for a total cash pot of 841 million euros ($1.1 billion) in 2011 for the CNC, the Centre National du Cinema, which takes in the money and decides how to allocate it for the good of French cinema.  That's a 59% increase from 2007's intake, only a slightly less impressive rate of growth than registered by the  money put into various financial products by the CNC over the same period (growth rate of 63%). You can find all these figures in a typically dry report from France's state auditors, the Cour des Comptes.

Aside from the seeming incongruity of relying on ticket sales from, say, Iron Man 3 or The Great Gatsby to fund the development of French movies, via a tasty advance to budding film projects, the big problem with all this money sloshing around is that it artificially bloats - rather than supports - unpopular cultural output, critics say.

A fun piece by Capital.fr ran the numbers in April to determine who were the biggest black holes of cinema subsidies in France. In pole position, director Jacques Doillon, whose last three movies had an average budget of over 2 million euros, an average subsidy of 880,000 euros and attracted an average total audience of just under 25,000 people. That's a subsidy of 35.90 euros per ticket. The article also hones in on pouty actress Emmanuelle Beart, whose movies are regularly given subsidies despite having a batting average of under 30,000 viewers.

Some French filmmakers have become increasingly vocal about the perceived injustice of the way these subsidies are doled out. The producer of Oscar-winning silent smash The Artist - cited by Kuper in his column as an example of a French movie that could actually compete on the world stage because it wasn't in French - said in 2012 that the CNC was a "buddies' network" that only gave money to movies that would never get made otherwise. (He says The Artist didn't get the CNC's subsidy.)

French director Matthieu Kassovitz also blamed the subsidy system for failing to breathe new life into French cinema. A case of sour grapes, some might say, given that his last three movies got 1.4 million euros in subsidies on average, according to Capital.fr. On the other hand, the CNC denied funding for his 1995 classic La Haine, which was huge.

A lot of the distress concerns the opacity of the CNC's decision-making process. Sure, we know who sits on the committees that award advance funding - namely screenwriters and filmmakers who are actively working in the industry, which already seems kind of ethically fraught to me but whatever - but it's not clear exactly what tips one script into the good pile over any other if we accept that financial viability is not a criteria.

So yes, by all means, say that it makes sense that France would want to preserve its domestic entertainment industry from being forced to give up crucial subsidies. But there has to be a point at which, when even the patient doesn't want to take the medicine, you look at changing the treatment.

As Happy And Wealthy As...A Frenchman?

Some enjoyably counterintuitive figures for you today.

The French, who are famous for being incredibly gloomy, for applauding soak-the-rich rhetoric and for grinding economic stagnation, are actually happy and pretty darn wealthy, as it turns out.

A new poll for Le Monde by BVA (ironically the same polling agency that ranked France as more pessimistic than Afghanistan and Iraq) found that 81% of French people were happy. Happy and rather self-satisfied, given that more than two-thirds said they were better off living in France than in US, Europe or the rest of the world. A majority also said that President Francois Hollande and his Socialist administration, which only a year ago seemed to embody popular French resistance to austerity and any change to the generous social safety net, needed to be more aggressive in pursuing reform.

Compare that with Credit Suisse's Wealth Report from October, which reported that France has more dollar millionaires than any other country in Europe. A country that culturally shies away from bling, that views bosses and businesses as barely one notch below demonic and that supports more taxes on the wealthy has more millionaires than the UK or Switzerland! Of course, once you hit the 50 or 100 million dollar mark, France finds itself overtaken by Germany and the UK. But the millions matter.

A lot of this won't come as much of a surprise to France-watchers, who know that French households have for decades been shunning debt and risk and accumulating wealth by stocking up on property (a whopping two-thirds of assets) and tax-friendly life-insurance funds. As a result the French are more prepared than most think to see changes to their social model. You tend not to want more austerity once you actually feel its effects; see how the Brits have turned on George Osborne's bitter economic medicine.

The question is what happens next to all this wealth. Can house prices avoid a serious correction? Will the French always be happy with low-leverage, low-return investments? Will the happiness itself continue? The hope in some corners must be that with minimal changes to the system and a cyclical pick-up in confidence, those wealthy French households will go back to spending again. But for the pessimists, that would only make the next crash much harder to overcome.