Suddenly Swiss banks are not being regulated gently. How they hate it

Global Outlook

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In Switzerland supervision has traditionally been rather hands-off, where it’s even existed. Britain’s Mark Branson, the chief executive of the country’s financial regulator, Finma, means to change that.

It isn’t going down terribly well.

The country’s financial sector has been forced to reform some of its hallowed practices as a result of external pressure from America and the European Union, which got fed up with their citizens using Switzerland’s banks to duck tax. And it had little choice but to act in the wake of some of the scandals that have afflicted a number of its bigger banks, notably UBS.

But it seems that the pesky Brit, appointed to run Finma in March of this year, wants to go further by taking the radical step of hunting out scandal rather than having it thrust upon him. This is waking sleeping dogs that some figures within the country’s establishment would rather have allowed to lie.

Take the case of Bank Coop. In a recent speech in Geneva, Mr Branson was at pains to point out that it was his enforcement staff who got suspicious about movements in the bank’s shares, and took it upon themselves to investigate.

In so doing, they found that it had been manipulating the share price for four years, and pointed the finger at the former chief executive Andreas Waespi. He was duly banned from management jobs in the finance sector for three years.

Such bans aren’t usually publicised in Switzerland, but this one was, and Mr Waespi lost the job of chief executive of Aargauische Kantonalbank, a local government-backed lender, where he had been due to start in March.

In the speech, Mr Branson seemed to indicate that others who have been similarly censured may also have their punishments publicised in future.

This, Finma’s new attitude, and perhaps Mr Branson’s status as an outsider, has generated considerable blowback and he has complained that his enforcement staff have been in receipt of threats.

Unfortunately for the old guard, they only appear to have spurred him on. The message to them is that if you’re not going to play nice, and fair, then you’d best find somewhere else to play.

Forex provisions: we’ve hardly got started yet

Which authorities are Barclays talking to in the US about settling the foreign-exchange trading scandal? The bank’s not saying, because it can’t. Ditto for UBS and Deutsche Bank. Both of them set aside large chunks of money for the possibility of legal difficulties this week, without specifying which legal difficulties. I’m thinking forex accounts for a sizeable chunk of them. Bet you are too.

These provisions need to be viewed with a great deal of caution. You can only make a provision if you have some idea of how much a particular event is going to cost you. The six banks involved in the UK Financial Conduct Authority’s planned mass settlement for its part of the global investigation have a fairly clear idea of what they are on the hook for.  The same is (probably) true for banks in the crosshairs of most of the other regulators that have either joined or plan to join the party. 

But the US is a different matter. The Department of Justice, Commodity Futures Trading Commission and Securities and Exchange Commission are all assumed to be in the mist of investigations.

It isn’t in any of their interests to play nice with banks, especially foreign ones, and settling with them will be extraordinarily expensive. They are, however, at least known quantities. Unlike the X factors – the other individuals and agencies who might fancy getting a piece of what could turn out to be a very rich pie.

We’ve already seen Eric Schneiderman, the New York Attorney General, and Benjamin Lawsky, New York’s superintendent of financial services, throwing curve balls (to borrow a phrase in vogue in the week baseball’s World Series was decided) on other issues. If the forex scandal isn’t on their radars, it could still find its way there. Or on to the radars of others. 

That’s before we’ve even started talking about the rash of class-action lawsuits on behalf of anyone who might have been momentarily disadvantaged by the banks’ actions. Those provisions? Think of them as starters. There’s a lot more money to be thrown around before we get to the coffee and petits fours.

Twitter could start twitching under welter of bad publicity

Remember when Facebook was pronounced doomed because of its struggles in monetising mobile? The brief flap that ensued demonstrates the danger  of extrapolating too far on the basis of a quarterly earnings report that fails to  come up to snuff.

But that doesn’t stop people from doing it. And it seems we’re at it again, only  this time Facebook is hot (sort of) while Twitter is not.

Getting compared with a behemoth like Facebook is problematic for Twitter, although its chief executive Dick Costolo doesn’t help himself when he invites us to do so by talking about “peers”.

For a start, it is at a far earlier stage of its development, loses money and may not start turning a profit until 2016. By contrast Facebook makes so much of the stuff that it can use it to buy and incubate other businesses (Instagram etc).

They also offer wildly different products. Facebook is a community gossip sheet that has inveigled itself deeply into users’ lives. So important has its service become that they keep using it no matter how much Facebook annoys them with its incessant changes to its privacy policy, its news feed and home pages. They share a vast amount of data with it, sometimes without even realising they’re doing so, even though lots of them dislike and mistrust it. Posts about its evil plots routinely go viral even though they (mostly) turn out to be hoaxes. Yet users are willing to assume the position even when they believe them.

That’s not the case with Twitter, which provides the headlines and not much more than that. It doesn’t know anything like as much about its users, when it even knows who they are. Some find it addictive. Others are more ephemeral.

As such, its brand looks to be far  more vulnerable to bad publicity than Facebook’s. And there has been quite a bit of that of late.

Is this putting people off? There’s an interesting debate to be had there. If it is, Twitter’s problems may extend beyond merely one set of disappointing quarterly financial results.