Swiss bank UBS AG and the U.S. government have agreed to settle a long-running dispute over the disclosure of names of wealthy American clients suspected of tax evasion, a U.S. government lawyer said Wednesday.
The settlement is expected to involve the disclosure to U.S. authorities of thousands of names of people suspected of using offshore accounts to conceal assets and evade taxes.
Washington’s case against UBS, the world’s second-largest wealth manager, had strained relations between the United States and Switzerland because it challenged the latter’s jealously guarded bank secrecy laws.
The case therefore has big implications not just for Switzerland, whose private banks manage around $2 trillion of foreign wealth, but for the entire offshore banking industry.
At a roughly three-minute hearing before U.S. District Judge Alan Gold in Miami, U.S. Department of Justice tax lawyer Stuart Gibson said the government would drop the case against UBS once a final settlement was in place.
"The parties have initialed agreements," Gibson said. "It will take a little time for the agreements to be signed in final form."
The U.S. government and UBS had reached a settlement in principle on July 31. Subsequent talks focused on how to transfer client data to Washington while respecting Swiss bank secrecy laws.
U.S. authorities had been seeking the names of 52,000 wealthy American clients suspected of trying to evade taxes quick cash.
The authorities believe many of the clients either inherited substantial wealth and have European roots, are frequent business travelers who receive offshore compensation via Swiss accounts, or intended their accounts from the start as a means to avoid U.S. taxes.
But UBS, backed by the Swiss government, held onto the data, calling the U.S. demand a fishing expedition that would breach Swiss laws and bilateral tax agreements.
In February, UBS had agreed to pay $780 million to settle criminal charges it had faced in a similar tax dispute with the U.S. government.
It agreed to hand over data related to about 250 U.S. clients who held secret accounts, and promised to close its offshore business to U.S. clients.
Swiss bank secrecy rules have eroded in recent years, and in March the government made concessions to abandon the distinction between tax fraud and tax evasion when dealing with foreign authorities.
UBS (UBS) shares were up 1% at 16.01 Swiss francs in afternoon trading in Switzerland. In the United States, they were up 1% at $14.87 in morning trading.
Freddie Mac, the second largest provider of U.S. home mortgage funding, Friday posted its first quarterly profit in two years as gains from hedges and a one-time accounting change offset still-lofty credit losses.
For the first quarter in four, Freddie Mac said it would not need a capital injection from the Treasury to maintain its business of providing credit for U.S. housing. But it said it continues to rely on government money to keep it afloat.
Freddie Mac (FRE, Fortune 500) and larger rival Fannie Mae (FNM, Fortune 500) are seen as key barometers of the U.S. housing market, having expanded their scope as competitors fell during the financial crisis. Under government control since September, they are also being asked to do more for U.S. efforts to stabilize the shaky housing market, even though that is turning out to be a costly effort.
Together, the companies own or guarantee more than $5 trillion in U.S. mortgages.
"Our outlook remains cautious due to rising foreclosures, growing unemployment, tight lending standards, and buyers’ reluctance to reenter the market," John Koskinen, Freddie Mac’s interim chief executive officer, said in a statement.
Freddie Mac reported second-quarter net income of $768 million, compared with a $9 payday loan online.9 billion loss in the first quarter and a $821 million deficit in the period a year ago.
After payments of $1.1 billion in preferred stock dividends to the U.S. Treasury, Freddie Mac had a net loss of 11 cents per diluted common share.
Freddie Mac said profit was cushioned by a $5.1 billion increase in equity due to the adoption of accounting rules that govern how it must recognize losses. It also had a $4.2 billion gain from derivatives that rose in value as interest rates rose, and greater interest income as its borrowing costs fell.
Provisions for credit losses declined to $5.2 billion in the second quarter from $8.8 billion in the previous period, driven by recent home price improvements, it said. But that benefit is likely seasonal, and provisions will probably rise again, it said.
Fannie Mae on Thursday reported a $14.8 billion quarterly net loss, and noted a "significant uncertainty" to its long-term health given the lingering housing crisis and costs taken to slow foreclosures.
China’s latest spying allegations against global miner Rio Tinto Ltd were nothing new, a spokeswoman for Australia’s Foreign Minister Stephen Smith said on Monday, adding Australia wanted China to deal with the case expeditiously.
China’s state secrets agency said on its Web site on Saturday that Rio Tinto had spied on steel mills for six years which led to them overpaying $102 billion for iron ore, Rio Tinto’s biggest earner low rate payday loans.
(Reporting by James Grubel)
A government investigator overseeing the $700 billion bailout reported on Thursday that outsiders, including some lawmakers, lobbied regulators on behalf of banks seeking money.
"I am writing on behalf of one of my constituents to express my support of their application for assistance and support under the Troubled Asset Relief Program," one lawmaker wrote, according to audit report by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program.
Barofsky found 56 instances in which outside parties contacted regulators. Of those 56 firms, 16 got bailouts. And three of those 16 companies did not meet standard bailout criteria, but received money after regulators found "mitigating factors" justifying help, according to Barofsky.
The inspector general’s report did not disclose the names of the banks examined or the people, including lawmakers, who lobbied on their behalf.
Barofsky said he found no evidence that bailouts were granted because of outside lobbying.
"SIGTARP did not identify any instances of external pressure having undue influence during the application review process," Barofsky wrote free 3-in-1 credit report.
Still, the report calls on regulators to do more to shine a light on the issue.
Treasury Department staffers told the IG’s office that they had received calls from those lobbying for bailout applicants but they didn’t document the calls.
The report recommends that Treasury provide a more detailed and cleaner accounting of how each bailout decision maker votes. It also said Treasury and other regulators must maintain better records of talks they have with outside parties trying to lobby about bailouts.
Earlier this year, several news reports said that Reps. Barney Frank, D-Mass., and Maxine Waters, D-Calif., reached out to regulators about bailouts for banks.
The nation’s economy is starting to rebound, but the Obama administration’s massive stimulus package had little to do with it.
The gross domestic product contracted at an annual rate of 1%, a significantly slower decline than the past two quarters. Economists had expected a drop of 1.5%.
While government spending at all levels increased in the second quarter, only a small amount of the $787 billion stimulus package had trickled out by June 30.
As of July 3, only $60.4 billion of recovery funds had been distributed, the largest chunk of which went to help states cope with rising Medicaid costs. Much of the $43 billion in stimulus tax relief — which includes the Making Work Pay tax credit for individuals – also kicked in during the quarter.
"I don’t think the effect of stimulus has been very large," said Edward Lazear, an economics professor at Stanford’s Graduate School of Business who advised former President George W. Bush. "Very little has gone out."
Non-defense federal government spending provided a 0.15 percentage point boost to GDP, while state and local government spending contributed 0.30 percentage points, according to the Commerce Department. Federal spending jumped nearly 11%, though much of it was in the defense arena, while state and local government outlays increased 2.4%.
To be sure, stimulus spending had some effect. Some of the early components of stimulus to be distributed have allowed people to spend more, said Dean Baker, co-director of the Center for Economic and Policy Research. Those who received the $25 increase in unemployment benefits have likely already put those funds into the economy.
And states did put the money they received to use, which contributed to the fastest growth in state and local government spending since the middle of 2007, according to Josh Bivens, an economist with the Economic Policy Institute.
Some economists say that the GDP numbers would have been worse without the stimulus funds. Bivens estimated the recovery act money may have contributed as much as 3 percentage points of annualized growth to the quarter free business cards.
But others expect the figures to be revised downward in the future. They point to an 8.9% contraction in business spending and a 7% decline in hours worked, which doesn’t mesh with a mere 1% decline in GDP.
The true test of the stimulus package will come in the fall, when the government reports economic activity for the third quarter. The administration is working to get the money out the door quicker, as complaints mount that stimulus is not having its promised effect.
"The third quarter will be a critical time period for assessing the stimulus package," said Mark Thoma, an economics professor at the University of Oregon.
Friday’s GDP report comes as some experts are calling for a second stimulus package to further juice the economy. They say the first was not enough to promote a recovery.
"It is preventing a collapse," said L. Randall Wray, senior scholar at the Levy Economics Institute of Bard College. "I wouldn’t say it is big enough to get us growing."
Others, however, say that more government funding will not address the key issues — such as the housing and financial markets turmoil — holding back the economy.
"You will feel better, but it won’t really get at the heart of the problems driving the crisis," said Philip Levy, a scholar at the American Enterprise Institute who worked in the Bush administration.
How has President Obama’s $787 billion stimulus program affected you or your community? Are you seeing a benefit from the Making Work Pay tax cuts or the additional $25 in unemployment benefits? Are you seeing construction jobs or other stimulus-funded work in your neighborhood? Do you still have a job because of stimulus funds? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com or send in an iReport and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
Stocks surged Thursday, hitting their highest levels in nearly 9 months, as investors eyed the latest batch of better-than-expected profits and forecasts and a report that suggested the labor market is starting to stabilize.
The Dow Jones industrial average (INDU) rose 83 points, or 0.9%, ending at its best level since Nov. 4. It was also the highest close for the blue-chip index in 2009.
The S&P 500 (SPX) index added 11 points, or 1.2%, ending at its highest point since Nov. 4.
The Nasdaq composite (COMP) gained 16 points, or 0.8%, to reach its highest close since Oct. 1.
The major gauges had managed bigger gains earlier in the session, but lost a little momentum by the close.
Stocks drifted for the first three sessions of this week, as the recent euphoria that lifted markets faded out. The major gauges all gained between 11% and 12% in the previous two weeks as investors welcomed a spate of better-than-expected quarterly results.
But after this week’s early volatility, stocks charged ahead Thursday.
"The market is finally getting its arms around the fact that we are close to being out of this recession," said Burt White, chief investment officer at LPL Financial.
White pointed to three supporting factors: the drop in the continuing claims portion of the weekly jobless report, the cumulative effect of better profit reports, and lessening fears about a slowdown in Asia and the global economy.
Friday brings the biggest economic report of the week, the first reading on second-quarter gross domestic product growth. GDP is expected to have shrank at a 1.5% annualized rate, according to forecasts. GDP shrank at a 5.5% annualized rate in the first quarter.
"It’s important than GDP is roughly in line," said Ron Kiddoo, chief investment officer at Cozad Asset Management. "If we get a bad number, you’re going to see a selloff."
The Chicago PMI, a regional reading on manufacturing, is due shortly after the start of trading and is expected to have risen to 43 in July from 39.9 in June.
Also on tap: quarterly results from Dow component Chevron (CVX, Fortune 500). The oil services firm is expected to report earnings of 90 cents per share, versus $2.90 a year earlier.
Labor market: The number of Americans filing unemployment claims for a week or more, a measure known as continuing claims, slipped by more than expected.
According to a Labor Department report, continuing claims dipped to 6.2 million last week, from a revised 6.25 million the previous week, for their lowest level since mid-April and short of forecasts for 6.3 million.
The continuing claims report overshadowed the regular weekly jobless claims report, which showed a bigger-than-expected rise to 584,000. However, that rise was largely related to seasonal issues related to auto plant shutdowns cashadvance.
Quarterly results: Two Dow components reported results Thursday morning.
Oil behemoth Exxon Mobil (XOM, Fortune 500) reported a steep drop in second-quarter income due to weaker demand and falling oil and gas prices. Weaker quarterly earnings missed estimates on weaker revenue that topped estimates. Shares fell 1%.
Dow component Travelers (TRV, Fortune 500) also reported weaker profit that missed forecasts. But the financial company also boosted its full-year earnings forecast. Shares fell 2%.
Among other companies reporting results, telecom Motorola (MOT, Fortune 500) posted higher quarterly earnings that topped forecasts on weaker revenue that missed. The company shipped 14.8 million phones in the quarter, nearly half what it shipped a year ago, but more than what analysts expected. Shares gained 9.4%.
Other movers: Stocks gains were broad-based Thursday, with 25 of 30 Dow components rising, led by IBM (IBM, Fortune 500), Chevron (CVX, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), Caterpillar (CAT, Fortune 500), Coca-Cola (KO, Fortune 500) and United Technologies (UTX, Fortune 500).
Shares of Dow component General Electric (GE, Fortune 500) gained nearly 7%. Goldman Sachs upgraded it to "buy" from "neutral" after legislators appeared to back down on the question of whether GE should separate itself from its troubled finance unit GE Capital.
A variety of financial shares gained, including Dow components Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and American Express (AXP, Fortune 500).
Other financial gainers included Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500) and Wells Fargo (WFC, Fortune 500). Regional banks KeyCorp (KEY, Fortune 500), Regions Financial (RF, Fortune 500) and Fifth Third Bancorp (FITB, Fortune 500) advanced as well.
Market breadth was positive. On the New York Stock Exchange, winners beat losers three to one on volume of 1.36 billion shares. On the Nasdaq, advancers topped decliners two to one on volume of 2.57 billion shares.
Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.60% from 3.66% late Wednesday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, European and Asian markets both gained on improved profit reports.
U.S. light crude oil for September delivery rose $3.57 to settle at $66.72 a barrel on the New York Mercantile Exchange.
In currency trading, the dollar gained versus the euro and fell against the Japanese yen.
COMEX gold for December delivery rose $7.60 to settle at $937.30 an ounce.
"Microhoo" is finally a done deal, but will it really be able to make a dent in Google’s enormous search market lead?
It’s a difficult feat for sure. Google maintains 65% of the U.S. search market, compared to a combined 28% for Microsoft and Yahoo. But the newly partnered tech giants are hoping that one plus one equals more than two.
"This deal is really about scale," said Yahoo (YHOO, Fortune 500) Chief Executive Carol Bartz on a conference call. "By combining the … technology of both companies, we can create a real, viable alternative for advertisers."
In other words, size really matters to advertisers in the search market. More data means more relevant searches and ads, which means more money can be charged to advertisers.
It’s a fact that Microsoft (MSFT, Fortune 500) CEO Steve Ballmer said unfairly benefits Google (GOOG, Fortune 500), as many ad companies were less willing to deal with Microsoft or Yahoo because each maintained a tiny fraction of the market compared to the search leader. But Ballmer said a combined effort "provides consumers and advertisers … with a real No. 2 advertiser in search."
"It’s reasonable logic that two is better than three," said David Smith, analyst at Gartner. "The big picture is reaching a critical mass — the way advertising works is through a positive feedback loop, where the bigger you get, the better you get."
Smith said that Google has carved out such a dominant share of the market that there’s nowhere to go but down if competition ramps up from its biggest rivals.
Not No. 1, but strong No. 2. Even if Microhoo doesn’t make a run at the top of the search market, some argue that the deal is good for both firms, advertisers and consumers.
"Overall, the deal makes sense," said Shar VanBoskirk, search market analyst at Forrester Research. "It potentially creates synergies between the two firms — each had a gap the other one could fill — to create another one-stop-shop and a stronger second-place player."
VanBoskirk said the consumer experience on Yahoo.com and Bing.com will improve, because data sharing will help Microsoft and Yahoo better customize content for each user. And with more relevant ads, advertisers will get more clicks and a better return on their investment.
Furthermore, VanBoskirk said the partnership will free up development talent to improve Bing’s "decision engine" technology, which provide information on when airline prices will increase, what hotels to book and what to shop for cash advance loans.
"Google is a great search engine, but the next wave of search will be more than just finding Web sites," she said. "Both Bing and Yahoo try to do that, and the partnership will help them develop the online concierge experience that they offer."
In the end, VanBoskirk said the combined Microsoft and Yahoo search engine could cut Google’s 37-point market share lead to just 15 points.
Nothing to see here? Some analysts aren’t convinced that the deal will really make a difference.
"The amazing thing about this deal is how little impact it has," said Carl Howe, analyst at Yankee Group. "Search rankings won’t change, advertising rates will continue in a downward spiral and the regulatory hassles involved will benefit the very beast they’re hoping to bring down: Google."
Howe argued that Google is so massive, that all a combined deal would do is create a singular, distant No. 2 search company (Microhoo) rather than a distant No. 2 (Yahoo), and an even farther-away No. 3 (Microsoft).
Furthermore, all three companies have said that advertisers are paying less and less per click as the Internet becomes saturated with advertisements. If that trend continues, which Howe believes it will, then the deal doesn’t do much to help either Microsoft or Yahoo.
And, as both Microsoft and Yahoo expected, the antitrust battle has already begun. Senate Antitrust Subcommittee Chairman Herb Kohl, D-Wis., said Wednesday that his panel will closely review the proposed deal.
"The deal between Yahoo and Microsoft — industry giants and direct competitors in Internet advertising and search markets — warrants our careful scrutiny," said Kohl. He said the deal has "potentially far-reaching consequences for consumers and advertisers," including "dampening the innovation" in the tech industry.
Google didn’t offer much insight into its thoughts on the deal. "There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users. We’re interested to learn more about the deal," the company said in an emailed statement.
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