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A Tangled Web of Banking and Politics.

By John Dietz - Email Editor

Date : July 22, 2008

Dear Valued Reader,

It is going to take a very good spade to dig to the bottom of the current economic rubble. The circumstances unfolding in the financial showground serve as a backdrop for future regulation and legislation.

The Ensuing Story
Do you remember the account of the LGT Bank employee in Lichtenstein who stole the names and accounts of a number of German citizens (reported as high as 1,200) along with some citizens of other countries (including the US and the UK)? He was developing a data base while employed in exchange for the reduced punishment (authorized by German Chancellor Angela Merkel) from a previous crime and a sum of cash reported to be 7.3M USD. (Read the story here.)

Hold that thought! Do you remember the Justice Department serving a so-called “John Doe” summons on the foreign bank UBS AG to find out if any Americans are evading taxation? The summons directed UBS AG to produce records identifying US taxpayers who had accounts with the bank in Switzerland between 2002 and 2007, and who chose to have their accounts remain hidden from the IRS and for which UBS did not have a tax form known as a W-9. (Read the story here.)

Our two conclusions were as such; in the first story, that there would be a spreading of the investigation with a subsequent crackdown into other banking sectors and in the second story, that there would be some type of closed-door meetings in a collaborative effort that would result in a cooperation agreement. Well, I think we are on the right track!

Caught in the Spider’s Web
Last week Heinrich Kieber, the former employee, LGT whistleblower and declared fugitive by Lichtenstein, provided video tape testimony before the US Senate telling of stories where US clients used code names and called banker’s on cell phone numbers that were listed outside of the country of Lichtenstein. Current officials from LGT declined to testify. He is now reported by different names (A.K.A.) in the Witness Protection Program, but this is unconfirmed. Add that to this week’s progress on the UBS situation.

In a statement, UBS said it "has been working diligently with US and Swiss authorities" to provide information to US investigators. At the hearing, a UBS executive said the bank will no longer provide "undeclared" accounts to US citizens and is "winding down" its business involving already existing accounts. UBS now faces controversy with British clients.

The Deceitful Web Grows
This financial fire burns in the entire worldwide economy with England being close behind the US. (Barclay’s Bank was denied their request for an additional $4.5 billion capitalization from the Bank of England.) Some analysts say that the credit crisis is going to be worse in England. Now mix oil on an already hot fire with the credit crisis, the banking crisis and the mortgage crisis and the “tax fire” rages to the summit. The underlying tone and action will be more and more regulation by the governments, the IRS and the Central Banks. Most analysts predict no major problem in the big banks, but show slight apprehension for the regional and smaller banks. Depositors are anxious as to what would happen to their money. One potential solution is similar to IndyMac Bank in Southern California.

IndyMac is now under FDIC takeover, which makes it IndyMac Federal Bank, FSB; depositors can now continue doing business with the successor bank. The agency expects to operate the bank until it can be sold to another institution. For now, it is business as usual. IndyMac is not the only US Bank suffering, with last quarter reports of loses in Wachovia, Citigroup and Bank of America.

On Monday, The Bank of America, the US second largest bank, said second-quarter earnings fell 41 percent to $3.41 billion, but still easily beat expectations on record revenues of $20.32 billion. BofA officials claim that provision expenses for troubled loans rose over $1.8 billion USD.

In the case of troubled financial institutions, we have investors and shareholders, depositors and those who default on loans. Many legislators are scratching their heads trying to figure out which of these people deserve to get their money back, and of course, logic tells us that it is impossible for everyone to be made whole. Some Bear Sterns shareholders have suffered greatly even though the institution is still in business. Many employees chose stock options versus retirement plans, and while retaining their shares, they are worthless compared to what they once were.

In terms of IndyMac, if you had more than $100,000, there is no guarantee that you will get your money back; of course, $100,000 is insured. About 10,000 of IndyMac's 275,000 accounts contained uninsured sums, and uninsured money making up about $1 billion of the bank's $19 billion in deposits.
FDIC coverage depends on the type of accounts you hold and the legal ownership of the account. We often speak about proper Asset Protection and planning, including proper titling. Many retirement accounts, such as IRAs, 401(k)s, SEP-IRAs, Simple and Keogh accounts, are insured to $250,000 per person. Some pension and retirement plans may have additional insurance protections. Institutions monitored by the SEC get SIPC and state insurance fund protection.

Deposits maintained in different forms of legal ownership qualify for added protection.

The stories above lay at the very heart of Asset Protection. Every asset we value is worth professional analysis for its safety. The depositors at IndyMac are now thinking they should have read the fine print on the FDIC brochure. Bear Sterns employees should have diversified their holdings. The UBS tax avoidance schemes are often misinformed people who could have settled on sensible compliant tax mitigation solutions with qualified advice. One thing we can agree upon is that we have all seen this troubled web at other points in history.

It is never too late to start with a healthy dose of assessment and we should all hope we never have to say it is “too late.” Feel free to contact our firm for an Asset Protection fix.

Until next time,
 
John

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