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26 February 2020

Governance in Swiss translation?

 

6 July 2018

 

 

30 October 2017

 

20 September 2017

 

 

5 July 2017

Human Rights: Ethos and other global investors successfully push global apparel brands to improve working conditions in Bangladesh

Four years ago, in the aftermath of the Rana Plaza tragedy, the ‘Accord’ on Fire and Building Safety in Bangladesh (the ‘Accord’) created a five-year, legally binding framework for factory inspections aiming to identify and remediate unsafe working conditions in Bangladesh’s textile industry. By publishing an Investor Statement on the 4th Anniversary of the Rana Plaza tragedy this spring, a coalition of global institutional investors, amongst whom Ethos and the members of the Ethos Engagement Pool International, pushed heavily for a prolongation of the ‘Accord’ until all remediation measures are completed.

To double down on this effort, Ethos and the members of the Ethos Engagement Pool International have followed up the Investor Statement with direct letters to eight key corporate members of the ‘Accord’. The companies were asked to extend the ‘Accord’ for the period of time needed to remediate the remaining issues and to broaden the current scope of the framework to include freedom of association and the right to collective bargaining for workers.

On 29 June 2017, several companies and trade unions have agreed to renew the ‘Accord’ for an additional term of three years. The agreement will enter into effect when the current ‘Accord’ expires in May 2018. The renewed framework builds on its previous features such as independent safety inspections, training of workers in health and safety protocols and remediation of all remaining issues, but adds improvements like granting severance pay to employees when they are laid off or relocated due to safety reasons. Last but not least, the renewed agreement puts greater emphasis on freedom of association and collective bargaining, and broadens the scope of the Accord to include additional parts of the supply chain where similar risks exist.

The explosion of a boiler at a Multifabs factory in Bangladesh on July 3, 2017 which resulted in several fatalities underscores the importance of renewing and strengthening the Accord to ensure that such accidents are avoided in the future.

 

 

20 April 2017

Ethos has taken good note of Credit Suisse’s voluntary decision to reduce by 40% the variable remuneration of the executive management and to keep the board’s fees unchanged.

In Ethos’ view, the remunerations are still too high in light of the CHF 2.7 billion loss posted by Credit Suisse in 2016.

Ethos therefore maintains its voting recommendations issued on 7 April 2017. Ethos recommends to oppose the remuneration report, the amount of fees for the board, the fixed and variable remuneration of the executive management, as well as the reelection of the Chairman, Urs Rohner and the Vice-chairman Richard Thrornburgh.

 

 

20 April 2017

 

 

30 January 2017

Ethos launches the first Swiss stock exchange index dedicated to corporate governance

In the follow-up to its 20th anniversary, the Ethos Foundation launches a new stock exchange index dedicated to corporate governance at Swiss companies. In collaboration with the Swiss Stock Exchange (SIX Swiss Exchange), Ethos publishes the "Ethos Swiss Corporate Governance Index" (ESCGI) which takes into account the main corporate governance best practice criteria in order to define the weight of the different constituents. This is the first index of this type on the Swiss stock market. The index allows investors to reduce the weight of companies that entail a corporate governance risk.

The new index "Ethos Swiss Corporate Governance Index (ESCGI)" privileges the companies that respect corporate governance best practice. The "Ethos Corporate Governance Principles" serve as a reference for the modification of the weighting of the companies comprised in the classic index of the Swiss market, the "Swiss Performance Index (SPI)". For Ethos’ CEO Vincent Kaufmann, "the innovative methodology of this index allows mitigation of the risks of poor corporate governance that are ignored by the classic indices. This provides investors with a better protection from corporate governance risks."

The expertise of SIX Swiss Exchange allows Ethos to benefit from the best competencies in the construction of indexes and to offer investors a credible and professional alternative to the use of traditional indexes. "The Ethos mandate to establish a corporate governance index confirms our index calculation capabilities and supports the positive development of our proprietary index suite," comments Chris Landis, Division CEO SIX Swiss Exchange.

An innovative approach

The index objectives aim to:

- Reduce the corporate governance risks by underweighting or excluding companies that do not apply best governance practices

- Reduce the carbon impact of the index by underweighting companies with significant carbon emissions

- Avoid overweighting companies that are under a serious controversy

- Avoid overweighting companies that have a weight exceeding 15% in SPI

- Overweight companies that do not fall into one of the above categories.

The criteria which are applied in order to measure the corporate governance risk are evaluated according to "Ethos Corporate Governance Principles," which are founded on current best practice in corporate governance in Switzerland and abroad. The following criteria are notably taken into consideration:

- Capital structure: negative impact when there are multiple classes of shares or an opting out/up clause

- Board: negative impact when the level of board independence is low or when there exists a permanent combination of the chairman/CEO function

- Remuneration: negative impact when the variable component of executive management remuneration is very large or when the board receives options.

"Tailor made" indexed fund

As of 30 January 2017, the new ESCGI index will serve as reference for the management of the fund "Ethos – Equities CH indexed Corporate Governance". This fund is managed by Pictet Asset Management and replicates in detail the ESCGI index. It has the advantage of indexed management in terms of reduced management fees while at the same time integrating the Ethos expertise on corporate governance. The associated voting rights are systematically exercised in accordance with the Ethos voting guidelines. The voting positions are communicated on the Ethos website two days before each general meeting and in a quarterly report especially prepared for this purpose. The fund will be open to private investors very soon (process underway at the FINMA).

 

 

8 December 2015

Sika: Ethos supports the board in the ongoing legal procedure at the Court of Zug

The Ethos Foundation was accepted as an accessory party in support of the board of directors in the trial opposing it to the Burkard Family at the Cantonal Court of Zug. The family has demanded the cancellation of the decisions taken at the last general meeting where the board decided to limit the registered voting rights of the SWH family holding to 5% of the total registered shares. Precisely one year after the announcement by the Burkard Family of its decision to sell its holding in Sika to the competitor Saint Gobain, Ethos confirms its determination to support the board in its will to preserve the independence of Sika.

On 8.12.2014 the Burkard Family had announced its decision to sell its stake in Sika which corresponds to 16% of the capital and 52% of the voting rights. Since then, the Ethos Foundation has taken different initiatives to contribute to preventing the takeover by Saint Gobain, which is not in the long-term interest of Sika stakeholders. In particular:

- On 23.12.2014 Ethos and 11 institutional investors filed a shareholder resolution at the annual general meeting of 14.4.2015 demanding removal of the opting out clause.

- On 14.1.2015, Ethos launched a support group for the resolution demanding removal of the opting out clause. The group quickly united 220 institutional and private shareholders. The 12 shareholders who initiated the resolution and the members of this group finally represented 7% of the capital and 4% of the voting rights.

- At the annual general meeting on 14.4.2015 the resolution aiming for the removal of the opting out received 97% support from the shareholders with no tie to the family. It was rejected nonetheless as the Burkard Family opposed it and was able to use all of its 52% of voting rights.

- At the extraordinary general meeting of 24.7.2015, Ethos took position against the proposals of the Burkard Family to modify the composition of the board.

- The 8.12.2015, Ethos announces having been accepted by the Court of Zug as an accessory party (according to Art. 74 of the Civil Procedure Code) to support Sika in the litigation opposing it to the Burkard Family. As accessory party, Ethos has access to all documents in the case file. Ethos may also use all means of prosecution or defence as well lodge appeals.

As a long-term shareholder of Sika, the Ethos Foundation has a clear interest that Sika remains independent and does not come under the control of the competitor Saint Gobain, as would have been the case had the sale of the shares of the Burkard Family actually taken place. In this perspective, Ethos supports the decision by the board to limit the registered voting rights of the SWH family holding to 5% of the total registered shares for certain votes which were held at the last general meetings. This measure was taken in line with the Sika articles of association.

Ethos has a overriding interest that the Court of Zug decide in favour of the board, which explains why the Foundation is now engaging itself as an accessory party in support of the board in the case opposing it to the Burkard Family. The letter addressed by the chairman of the board of Sika to the shareholders on 4.12.2015 clearly presents the different reasons why the takeover by Saint Gobain is not in the interest of Sika. Ethos is confident that the Court of Zug will take into account in its judgement the long-term interests of Sika stakeholders.

  Letter of 4.12.2015 from the Chairman of Sika to shareholders

 

 

22 November 2015

Swiss agrochemical/agriculture company Syngenta - Request for comprehensive strategic review

by Dr. Folke Rauscher

As shareholders of Syngenta we believe that Syngenta’s potential to create value for all its stakeholders is being substantially compromised. Board and management of Syngenta have missed several opportunities to increase value creation. Due to the ongoing gradual erosion of market share, and the loss of over CHF 10 billion in market value resulting from the rejection of a takeover offer without meaningful negotiations, we have now organized ourselves through the formation of a shareholder alliance. We demand a full and comprehensive strategic review to thoroughly evaluate all opportunities for value creation and urge the Board of Directors to refrain from selling the vegetable and flower seeds businesses.

The Alliance of critical Syngenta-shareholders has been formed in October 2015 by independent private and institutional shareholders and counts on the support of already more than 130 members.

The Alliance of critical Syngenta-shareholders is concerned that the Board of Directors and management of Syngenta have missed several opportunities to improve value creation and did more than once not reach the targets set by themselves.

We want to ensure that the Board undertakes a full and comprehensive strategic review to thoroughly evaluate all opportunities for value creation that promises are kept, financial targets are met and shareholders are informed in a timely and open matter.

If you are disappointed Syngenta shareholder or if you share our Corporate Governance concerns, please join our Alliance: http://www.critical-syngenta-shareholders.com/en-us/

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

7 October 2015

Ethos Study on the 2015 Swiss Proxy Season: Mixed picture in terms of implementation of Minder Initiative

At the end of the 2015 Swiss proxy season Ethos publishes a study on the different aspects tied to the implementation of the Minder Initiative and the corporate governance of the companies comprised in the Swiss Performance Index (SPI). Ethos has found that the spirit of the Minder Initiative is often circumvented regarding the vote on the remunerations of the board and executive management. In addition, several principles of good governance are often not respected such as the independence of the board or the equal treatment of shareholders.

Circumvention of the Minder Initiative

At the 2015 annual general meetings of Swiss listed companies, shareholders were able for the first time to vote on the global amount of the remuneration for the board and the executive management respectively. The ordinance against excessive remuneration (ORAb) however allows each company to decide on the vote modalities.

Ethos regrets that only 28% of the companies have decided to request a retrospective vote (at the end of the financial year) on the variable remuneration. The others propose to vote on the amount of the bonus in advance when the annual results are not yet known, which constitutes a blank check and does not accurately reflect the spirit of the Minder Initiative. Ethos fully supports the revision project of Swiss company law which prohibits such a practice.

Limited contestation at the annual general meetings

The average support to the board’s proposals remained stable in comparison to last year at around 96%. Ethos was much more critical with only 84% positive recommendations.

The most contested proposals are the advisory votes on the remuneration report with an average support of 88% (Ethos 45%). The capital increase requests received an average support of 91% (Ethos 61%). Finally, the remuneration amounts were accepted at an average rate of 94% (Ethos 65%), despite the amounts often remaining relatively high. This observation casts doubts on the effectiveness of the Minder Initiative.

Remunerations still high

In financial year 2014, the global amount of board and executive remuneration of the 206 companies in the SPI Index rose by 4%, while the SPI itself gained 13%. At the 20 largest companies of the SMI index the remunerations nevertheless often remained very high with an average of CHF 2.5 million for the chairman of the board and CHF 8.2 million for the CEO.

Unequal treatment of shareholders

Ethos points out that half of the SPI companies have a shareholder controlling more than 33% of the voting rights. Most of these companies have also introduced one or several protection measures which allow them to have control over the company with a minority share of the capital. 36 companies have multiple categories of shares with different nominal values and 50 companies limit the exercise of voting rights for certain shareholders. In addition, 57 companies have an opting out (or opting up) clause which releases the purchaser of more than a third of the share capital from making a public offer to the rest of the capital.

The possibilities of unequal treatment of shareholders can present a major risk to minority shareholders. For this reason Ethos proposes to limit discrimination of shareholders in the framework of the Federal Council’s modernization project of Swiss company law.

Ethos Study «Annual General Meetings 2015, Remuneration and Corporate Governance at SPI Companies» (French)

Ethos Study «Annual General Meetings 2015, Remuneration and Corporate Governance at SPI Companies» (German)

 

1 June 2015

Ethos opposes the merger of Holcim and Lafarge at the extraordinary general meeting on 8 May 2015

Ethos recommends rejecting the merger of Holcim and Lafarge at the general meeting on 8 May 2015. Ethos is of the opinion that Holcim on a stand-alone basis is better placed to create long term value than the new entity. Also, the merger will have a negative effect on corporate governance as the new group will have two co-chairmen and a board with less than half independent members. The integration of the decentralised functioning of Holcim and the centralised organisation that is Lafarge entails a major risk of dysfunction.

Ethos analysis of the extraordinary general meeting of Holcim

After having analysed the relevant documents and after several contacts with the representatives of the board and the executive management of the future company, Ethos has come to the conclusion that the proposed merger between Holcim and Lafarge is not in the interest of the shareholders and a majority of the other stakeholders of Holcim. Ethos therefore opposes the share capital increase necessary for the completion of the merger requested at the general meeting on 8 May 2015.

Major financial risks

Ethos is not convinced by the strategic rationale of the merger and is of the opinion that certain assets of Lafarge might have a negative impact on the profitability of the new group. Holcim would be better off delivering value to its shareholders on a stand-alone basis. Lafarge’s goodwill of EUR 11 billion as well as limited investments to improve and renew its infrastructure in the past five years could have a negative impact on the financial results of the new group.

The risk appears even greater when considering that the board of Holcim clearly states not having carried out a detailed due diligence on the quality of the assets of Lafarge. Also, Holcim refuses to publish the two fairness opinions on which the board based its decision to support the operation.

Negative impact on corporate governance

Upon completion of the merger, the new board will have 7 representatives of each company. While five of the 7 representatives of Holcim are independent, this is the case for only one on Lafarge’s side. The new board will thus be far less independent than Holcim’s current one. The chosen solution to appoint two co-chairmen (Messrs. Reitzle and Lafont) constitutes a major risk of confusion and conflict. For example, in case of absence of Mr. Reitzle, it is the vice-president (Mr. Hess) who will replace him and not the co-chairman.

In terms of the integration of the two structures, there exists a legitimate concern regarding the two very different corporate cultures. The decentralised functioning of Holcim stands in contrast to the centralised organisation that is Lafarge. Ethos is of the opinion that there is a major risk of demotivation and departure amongst key employees of Holcim, such as heads of certain markets that will be limited in their autonomy. Finally, no information was given on the impact of the merger on jobs. As synergies are estimated at 250 million Swiss francs by elimination of duplicative functions, it is to be feared that this will lead to several thousand job cuts.

 

27 December 2014

Ethos and 11 shareholders submit a resolution to the extraordinary general Meeting of Sika to remove the opting out clause

The Ethos Foundation and 11 shareholders (representing 1.7% of the capital, see list below) today filed a shareholder resolution to the agenda of the extraordinary general meeting of Sika, the convocation of which was announced on December 10. The resolution requests the removal of the opting out clause from the articles of association. This provision allows the competitor Saint Gobain to buy from the Burkard Family the company Schenker Winkler Holding, which holds 52% of the voting rights with only 16% of the capital, without making an offer to the rest of the capital. This is very detrimental to minority shareholders and endangers one of the flagships of Swiss industry despite the company currently being well positioned in its market with very good growth perspectives.

The articles of association of Sika currently contain an opting out clause that allows an investor who purchases more than a third of the voting rights to be exempted from the obligation to make an offer to the rest of the capital. This is currently the case with Saint Gobain buying from the Burkard family their Schenker Winkler Holding, a company that controls 52% of voting rights with only 16% of the share capital. The combination of a double class of shares and an opting out clause has allowed the Burkard family to sell its stake with an 80% premium on the share price.

The resolution presented here demands the removal of the opting out clause. This provision strongly penalises minority shareholders in the case of a sale of the shares by a controlling shareholder. After the removal of the opting out clause, the buyer of the shares held by Schenker Winkler Holding will have to make an offer to the rest of the capital. In addition, the offer must be made at equal conditions to all shareholders as the payment of a control premium is prohibited by the Stock Exchange Act (SESTA). It is probable that Saint Gobain will refrain from the purchase under such constraint.

The Schenker Winkler Holding should actually not be allowed to vote on the removal of the opting out clause, as it has a major conflict of interest in this matter. It would thus be only the 48% of voting rights held by the minority shareholders that should have the right to decide on whether to maintain or remove the opting out clause. In case of rejection, Ethos reserves the right to file an appeal with the Swiss Takeover Board (TOB).

Ethos invites the Burkard family to assume its social responsibility by reconsidering the sale of the Schenker Winkler Holding to the competitor Saint Gobain, by committing to not oppose Ethos' resolution and by refraining from removing three current board members.

Shareholders co-filing the resolution at the extraordinary general meeting of Sika:

 Ethos  Swiss Foundation for Sustainable Development

 Aargauische Pensionskasse, Aarau

 Anlagestiftung der Migros Pensionskasse, Zurich

 Bernische Pensionskasse, Berne

 Caisse Inter-Entreprises de Prévoyance Professionnelle (CIEPP), Geneva

 Complan (Swisscom Pensionskasse), Berne

 Luzerner Pensionskasse, Lucerne

 Pensionskasse Basel Stadt, Basel

 Pensionskasse Stadt Zürich, Zurich

 Pictet Funds SA (Ethos), Geneva

 Raiffeisen Futura Swiss Stock, St Gallen

 Vontobel Fund CH  Ethos Equities Swiss Mid & Small, Zurich

 

4 December 2014

Ethos' 2015 voting guidelines: A guarantee for good corporate governance

The Ethos Foundation publishes the voting guidelines which it will apply at the 2015 annual general meetings. In particular, this new edition specifies the expectations regarding the application ordinance of the «Minder» initiative. A new appendix concerning the maximum number of external mandates has thus been included. A negative vote recommendation will now be issued when certain governance rules are not respected. In the future, Ethos will systematically oppose the discharge if the board of directors does not include at least four members and it will refuse the election of the chairman if he also serves as CEO.

The Ethos voting guidelines are revised annually in their entirety in light of the latest developments in corporate governance. In particular, the 2015 edition respects all the demands of article 22 of the ordinance against excessive remuneration which stipulates that Swiss pension funds must exercise their voting rights in the interest of their beneficiaries in such a way as to assure the prosperity of the pension fund in a sustainable manner.

The discharge will be refused if the board of directors continues to have less than four members in a permanent manner.

The election of the chairman of the board of directors will be refused if the candidate is simultaneously CEO and this combination of functions is permanent.

The total amount of remuneration for the executive committee can be refused if the amount requested is significantly higher than that of a peer group.

A maximum number of external mandates is set respectively for the members of the board of directors and of the executive committee.

To be considered independent, a member of the board of directors may not receive variable fees or fees paid in options.

Ethos 2015 voting guidelines

 

8 October 2014

Implementation of the Minder initiative: Vote modalities in contradiction with the spirit of the initiative

Ethos simultaneously publishes its first report on the implementation of the Minder initiative and its 2013 board and executive remuneration study. In general, the companies have become more transparent with regard to their remuneration systems. However, the ordinance of application of the Minder initiative (ORAb) leaves it to the board to propose the modalities of the vote on the remuneration amounts. These modalities are often in contradiction with the spirit of the Minder initiative. In particular, Ethos and many other shareholders cannot accept prospective votes on variable remuneration without adequate safeguards set in the articles of association. This explains why the votes on the statutory modifications related to the ORAb were often the cause of much debate this year.

The 2014 general meetings of Swiss listed companies were dominated by the entry into force on 1 January 2014 of the ordinance against excessive remuneration (ORAb), following the approval by the Swiss people of the Minder initiative in March 2013. The ORAB requires that by the end of 2015 at the latest, the companies must have streamlined their articles of association and submitted the amounts of board and executive remuneration to a binding vote of the shareholders. Halfway to the deadline, Ethos publishes a survey on the implementation of the ORAb by the 150 largest Swiss listed companies.

Of the 136 companies subject to the ORAb, 96 (70%) have already put to the vote various amendments to the articles of association, namely those that fix the vote modalities for board and executive remuneration. However, only 29 companies (21%) have already proposed at the 2014 AGM a binding vote on the amount of board and executive remuneration.

Circumventing the spirit of the Minder initiative

The average rate of approval of the amendments to the articles of association was only 88%, due to the fact that several companies have proposed amendments that circumvent the spirit of the Minder initiative which is not always well perceived by the investors. In particular:

- The vote modalities often stipulate prospective votes for the variable remuneration. A maximum amount is put to the vote at the beginning of the period, instead of retrospectively, at the end of the period, when the results of the companies are known.

- Following the prohibition of severance payments, almost half of the companies have foreseen the possibility to include in the executive contracts remunerated non-compete clauses.

- More than 33% of the companies could pay to their board members performance-based fees instead of solely fixed fees.

The transparency of the annual bonus and incentive plans should be improved

Ethos also published its annual report on board and executive remuneration in Swiss listed companies. In 2013, the remuneration in the 100 largest Swiss listed companies slightly increased (+2%). This is mainly due to the financial sector where the remunerations were up 8%. It is interesting to note that this increase is slower than the increase in both the market cap and the net income of the companies reviewed.

It appears that the obligation to submit the remuneration to shareholder vote is an incentive for many boards to increase transparency and become more vigilant with regard to their remuneration structure. There is however still much room for progress. For example, approx. 40% of the companies under review still refuse to publish the maximum bonus. With regard to long term incentive plans, half of the companies do not publish the precise performance targets for vesting.

 

18 July 2014

Consultation by economiesuisse on the revision of the Swiss Code of best practice for corporate governance: Ethos' response

The Ethos Foundation commends the decision to carry out a revision of the Swiss Code of best practice for corporate governance. In the current Code dating back to 2002 (with an appendix added in 2007), several points do not reflect international best practice anymore.

An ambivalent project

In general, Ethos is satisfied that the «Comply or explain» principle was introduced in the new version of the Code. This principle is now established in most codes of best practice abroad. Another positive amendment to the Code is the stipulation that the board of directors should pursue the sustainable development of the company.

It is however regrettable that the new version of the Code neither makes mention of the principle of equality of treatment of shareholders (a single class of shares), nor of the “one share one vote” principle (no registration or voting rights limit). These concepts are recognized as fundamental in all international best practice documents.

Numerous exceptions to best practice allowed

Following detailed analysis of the articles of the new Code project, Ethos regrets that several exceptions remain possible (see Ethos' response to the consultation). In particular, point 27 of the project stipulates that the rules of the Code of best practice can be adapted to small or medium sized companies. This concerns approx.180 out of 200 companies included in the SPI index. By allowing these companies to fix other governance rules (e.g renouncing the establishment of key board committees) the Code becomes practically meaningless for 90% of the targeted companies.

Regarding the external auditor (point 28), the project leaves a broad margin to the external auditor firm when ensuring its independence and organization. The code should, on the contrary, promote the alignment with the new EU regulation issued on 27 May 2014. Ethos is of the opinion that audit firms should respect at least the following two rules:

- Non audit fees shall not exceed audit fees.

- The maximum mandate length should not exceed 7 years for the lead auditor and 20 years for the audit firm respectively.

 

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VIPsight Archives Europe - Switzerland

2011 2012 2013

 

15 June 2014

Ethos opposes the discharge and executive remuneration at the UBS and Credit Suisse Group general meetings

The Ethos Foundation recommends to oppose the discharge, as well as the remuneration report at the general meeting of UBS (7 May) and Credit Suisse Group (9 May). In 2013, an increase in the variable remuneration of the employees of the two banks took place, while both had to book new litigation provisions of respectively CHF 1.8 billion (UBS) and CHF 2.1 billion (Credit Suisse Group).

In 2013, new provisions amounting to the double of the dividend were booked both by UBS and Credit Suisse Group (CSG). New evidence was also revealed in relation to the sale of financial products and the management of tax issues in the United States. Several investigations are pending on possible manipulation of foreign exchange rates (UBS). All this demonstrates that the two boards of directors have difficulty controlling the banks' operations, prompting Ethos to recommend opposing the discharge of board members.

In parallel, the aggregate amount of the variable remuneration of employees was CHF 3.2 billion at UBS (+28% on 2012) and CHF 3.6 billion at CSG (+6% on 2012). In particular, the “risk takers”, that is approximately 550 persons at UBS and 500 at CSG, received an average remuneration of CHF 1.9 million each at UBS and CHF 2.6 million at CSG, of which 80%is variable. While at the same time, the European Union has implemented stringent rules with regard to variable remuneration, in order to limit the risks taken by these people. In light of all this, Ethos recommends to oppose the remuneration report of the two banks.

UBS: For the implementation of the Minder initiative, no to the re-appointment of the external auditor

At UBS, Ethos supports the amendments to the articles of association in order to implement the Minder initiative. The bank will propose a prospective vote on base salaries and a retrospective vote on variable remuneration, in light of achieved results, which Ethos commends.

Ethos however recommends to oppose the re-appointment of Ernst & Young who have been the bank's external auditors since 1997 and invoiced total fees of CHF 116 million in 2013. Ethos is not satisfied by the quality of the audit, as the auditor did not detect any of the recent scandals that have hit UBS.

Credit Suisse Group: No to the amendments to the articles and to the conditional capital increase for the employees

In the context of the implementation of the Minder initiative, the amendments to the articles of association stipulate that the vote on executive remuneration can either be prospective or retrospective. Such vote modalities are too vague. In particular, Ethos cannot approve in advance a maximum amount for the variable remuneration without knowing in detail the performance targets that have to be achieved to receive this remuneration.

CSG also requests an increase of conditional capital for the employees. This pool of capital (2.57% of issued capital) can be used for the employee incentive plans that allocate more than 3% of the issued capital each year to the employees. In light of the potential dilution that this amount entails and the excessive number of shares reserved for the plans, Ethos recommends to refuse the proposal.

Vote recommendations for UBS

Vote recommendations for Credit Suisse Group

 

31 March 2014

Political and philanthropic donations: Swiss listed companies lack transparency

Based on a survey of the 100 largest Swiss listed companies published today by Ethos, only 50% of companies disclose information on political and philanthropic spending. Few companies explain their policy with regard to donations. Only Mobimo, a real estate company, submits the global amount of donations to an advisory vote of the shareholders at the annual general meeting.

Of the 21 companies that make political donations and disclose related information, only 4 publish the amounts. For philanthropic donations, 14 of the 36 companies disclosed their donations.

Ethos' recommendations

In light of the risks in terms of cost and reputation of these donations, Ethos recommends that listed companies:

Establish a policy with regard to political and philanthropic donations that includes the approval process.

Be transparent with regard to the policy as well as the donations made in the financial year under review.

Submit the maximum potential amounts for spending in the year for approval at the AGM.

 

10 December 2013

Ethos and the Committee on Workers Capital have launched Global Proxy Review 2013

Ethos and the Global Unions Committee on Workers Capital (CWC) announce the launch of Global Proxy Review 2013, a report and interactive website that encourages investors to take an active role in proxy voting oversight for global equity portfolios.

The votes profiled in the report encompass ESG issues at companies in 15 economic sectors. They include votes held at multinational corporations such as: Wal-Mart, News Corporation, Barrick Gold, Heineken, Standard Bank, Telefonica, UBS and Glencore-Xstrata. Approximately one third of the votes selected related to executive compensation, reflecting a continued preoccupation toward excessive executive pay one year after the ‘shareholder spring’ of 2012. National regulatory contexts are also evolving to facilitate active ownership by shareholders; ‘say-on-pay’ votes are now mandatory in all countries featured in the report except Canada and the results are binding in Australia, the Netherlands, the UK (starting in October 2013) and will become binding by 2015 in Switzerland. In addition to governance issues, the votes profiled also include significant social issues such as reporting on human rights related risks.

 

14 November 2013

Soon a new Swiss referendum on the CEO's pay

Following the success of the of Minder initiative in early 2013 another new Swiss initiative named "1:12" presented by the Young Socialists will be submitted to the citizens vote on November 24.

This new proposed rule requires that the gap between the lowest and the highest salary of a firm should not exceed the factor 12 while the first Swiss groups pay 200 times the lowest salary.

Thus, an employer could not receive more than CHF 600,000 a year if the lowest paid employee receives only CHF 50,000 a year. Is this initiative a threat to the competitiveness of Swiss group or the only way to end excessive multinational salaries?

Wait and see !

 

23 June 2013

Ethos co-signs investor statement following deadly fire in garment factory in Bangladesh

Ethos is among 123 global investors that have published a joint declaration on 16 May 2013 deploring the loss of 1'300 lives in several accidents in garment factories in Bangladesh. In the wake of the most recent fire that took place on 8 May, socially responsible investors reacted rapidly calling on industry leaders in Europe and the United States to implement humane working conditions at the garment factories of their subcontractors in Asia. According to the signatories of the declaration, these incidents are an illustration of the failure of global companies to assure humane working conditions to the employees of their subcontractors.

According to the signatories of the declaration, the business model which provides cheap clothes in Western countries incentivizes corruption and lax oversight, as there is fierce competition at low-cost producing nations for garment manufacturing contracts. The local governments turn a blind eye to audit oversight in global supply chains, hoping to attract investments to stimulate their struggling economies. In light of the indecent wages and unacceptable working conditions, the signatories of the declaration call on brands and retailers to implement the internationally recognized standards of the International Labour Organisation.

 

17 March 2013

Mobimo - advisory vote on political and charitable donations

Ethos Foundation commends Mobimo's decision to request an advisory vote of the shareholders on political and charitable spending. This is the first time that a Swiss listed company implements such a vote allowing shareholders to give their opinion on a very sensitive issue.

Ethos Foundation recognises the pioneer step of Mobimo's board which has decided to propose two advisory votes on political spending at the forthcoming annual general meeting. The first vote is on CHF 30'000 spent on charitable donations and CHF 38'000 spent on political donations in 2012. The second vote seeks to allow the board to spend up to CHF 100'000 in political and charitable donations in 2013. Very few Swiss listed companies are transparent with regard to political and charitable donations, which is why Mobimo's decision is particularly commendable.

The question of political and charitable donations by listed companies is an increasingly sensitive issue to which Ethos will pay particular attention as of this year. The Ethos Engagement Pool, the dialogue programme of 90 Swiss pension fund members of Ethos with Swiss listed companies, has made political donations a central topic in 2013. In this context, Ethos Académie, a forum open to the general public launched by Ethos Foundation, will organise a debate on this matter and will contribute to a study on current practice in Switzerland and abroad.

 

3 March 2013

Enhanced rights for shareholders – Ethos’ position following the approval of the Minder initiative by the Swiss people

Ethos Foundation is satisfied that, in the future, the shareholders of Swiss listed companies will have rights with regard to board and executive remuneration. Both the Minder popular initiative and the parliamentary counter-project were pursuing the same objective. Ethos will now weigh in for the introduction of the most important provisions of the counter-project in the law of application of the initiative that will be elaborated by the Swiss parliament.

Dominique Biedermann, Ethos' managing director, said: “we are pleased that, in the future, shareholders of Swiss listed companies will have rights with regard to board and executive remuneration”. According to the Ethos Foundation, the Swiss Parliament's indirect counter-project was globally better aligned with shareholder interests and more efficient than the popular initiative. Ethos however accepts the Swiss people's decision and will weigh in so that the most important provisions of the counter-project are included in the application law.

In particular Ethos will insist on:

· The introduction of a binding vote of the shareholders on the remuneration system described in a comprehensive manner.

· The possibility for shareholders holding 0.25% of the share capital to place an item on the agenda of the general meeting, in order to amend the remuneration system.

· The possibility to clawback remuneration deemed excessive with regard to the results achieved.

· The obligation for the independent representative not to vote on behalf of shareholders if not specifically instructed.

· The obligation for the companies to disclose the minutes of the general meeting within 20 days after the meeting, including the precise results of the votes.

· The obligation for the board of directors to draft an annual remuneration report that must be audited by the company's external auditor.

 

3 February 2013

A new stewardship code for investors

A group of institutional investors, proxy advisors and business representatives have presented in Zurich this morning the “Guidelines for institutional investors governing the exercise of shareholder rights in Swiss listed companies”. They thereby give a clear signal in favor of self-regulation.

Ethos is satisfied that this project which it has contributed to initiate is being realised today. For many years, Ethos has constantly reminded institutional investors of the necessity to adopt common rules of good conduct with regard to stewardship. It is their duty towards the beneficiaries that they represent to exercise their participation rights in a systematic and transparent way.

In this context, Ethos is committed to exercising its own participation rights in Swiss listed companies systematically and transparently and to escalating its activities when appropriate. This not only consists in exercising its voting rights, but also in carrying on a constructive dialogue with the board and management, acting collectively with other investors and, if necessary, submitting shareholder resolutions at general meetings.

Guidelines for institutional investors

 

7 September 2012

Remuneration decreases in the financial sector

In 2011, the aggregate board and executive remuneration in the financial sector companies fell by 23% while it grew by 5% in the other sectors. Overall, remuneration was down 6% compared to 2010.

The chairmen of the board received on average CHF 1.1 million in 2011 (down 17% on 2010). The other members of the board received on average CHF 210'000 (-4%). The CEO's 2011 average pay was CHF 3.2 million (-6%), while the other executives received on average CHF 1.8 million (-7%). Despite these decreases, the levels of remuneration remain high: The top 20 highest paid in executive management received more than CHF 5 million each, while the top 20 highest paid chairmen received more than CHF 1 million each.

Positive impact of «Say on Pay» on transparency and dialogue

Progress was slow in terms of "Say on Pay votes": In 2012, only 49 companies implemented such a vote, which is only four more than last year. However, the contestation rises year after year. In 2012, the average opposition to the remuneration report was 14.4%, up from 13.6% in 2010. At the same time, Ethos notes an improvement in the transparency of the remuneration reports, as well as a more open attitude toward dialogue in the companies that submit their remuneration report to shareholder vote.

Popular initiative «against excessive remuneration»: Ethos supports the counter-project of the Swiss Parliament

Convinced that regulation is necessary to enhance shareholder rights, Ethos supports the counter-project of the Swiss Parliament which was established in response to the popular initiative «against excessive remuneration».

Only the counter-project requires listed companies to prepare a remuneration report that should be submitted to the shareholder vote. This allows to have a say, not only on the amount of executive remuneration, but also on the remuneration system, including the bonus and incentive plans which are often the sources of high payouts for executive management. In addition, the shareholders can submit resolutions on the agenda of general meetings to amend the remuneration system.

Rapid entry into force

The counter-project proposes a balanced distribution of competences between the board of directors and the shareholders. The shareholders' general meeting will have a binding vote on the envelope of board fees. The remuneration of the executive management will be of the board's remit and described in the remuneration system that will have to be approved by the shareholders in an advisory manner. Following amendment of the articles of association, however, the shareholders' vote could become binding.

Eventually, the counter-project will lead to a rapid enhancement of shareholder rights with regard to board and executive remuneration, as it will be enacted immediately by force of law. On the contrary, the initiative sets a series of principles to be included in the Swiss Constitution, which will subsequently have to be converted into a set of regulations following a long process of elaboration of new laws.

 

3 May 2012

UBS: The shareholders vote with Ethos and oppose the capital increase for the incentive plans of the employees

At the UBS annual general meeting today, shareholders refused the proposed capital increase for the employee incentive plans, demonstrating that they do not agree with an excessive remuneration system. The remuneration report was also not approved by 40% of votes while 47% of the shareholders did not discharge the board and executive management. Ethos had recommended to oppose the UBS remuneration report, the proposed capital increase as well as the discharge.

For the fourth consecutive year, a significant number of shareholders have opposed the remuneration report, a sign that shareholders have become more determined and critical toward the board over this issue. Dominique Biedermann, Executive Director of Ethos said: "The UBS remuneration system should be amended; in particular, the variable remuneration should be limited and tied to the base salary".

Refusal to increase the capital for the incentive plans of the employees

The proposed capital increase to finance the employee incentive plans was refused by the shareholders. This proposal only received 62% approval that is less than the 66% affirmative votes required for a capital increase without pre-emptive rights. This demonstrates that the shareholders are no longer willing to support an excessive remuneration system.

Disputed discharge

Furthermore, 47% of the shareholders did not grant discharge to the board and executive management as they want to maintain the board's liability with regard to the CHF 1.8 billion loss due to the non authorised trading activities in the investment bank.

 

2 February 2012

General Meetings of Swiss Companies: More Say on Pay and Increasing Opposition

48 of the 100 largest Swiss listed companies will propose an advisory vote of their executive remuneration at their 2012 annual general meeting (up from 45 in 2011). This progress is the result of long term constructive dialogue between Ethos and Swiss listed companies. However, the corporate governance of many companies still falls short of best practice, which results in more opposition at general meetings and puts pressure on management to initiate a continuous improvement process.

Institutional investors are increasingly interested not only in general meetings of listed companies, but also in long term dialogue with investee companies. Such engagement leads to positive results.

Progress in Terms of Best Practice

In the context of its dialogue with listed companies, Ethos recently sent a letter to the chairmen of 56 listed companies that were not in line with certain best practice standards with regard to general meetings. Notably to companies that do not propose an advisory vote of the remuneration report, or that do not put their minutes with the exact results of the vote for each item on the agenda on their website, or do not use electronic voting. The answers of the 31 companies that responded to Ethos' letter give the following picture for 2012:

 

48 companies will propose an advisory Say on Pay (2011: 45)

 

94 companies will put the minutes of the general meeting on their website (2011: 89)

 

86 companies will publish the exact results of the vote for each item on the agenda (2011: 80)

 

51 companies will use electronic voting at their general meeting (2011: 49)

This trend is confirmed in the Ethos Engagement Pool 2011 summary results, which also include additional information. For example, 76 companies had adopted and published a code of conduct in 2011, up from 42 at the beginning of the engagement in 2006. As of today, the Ethos Engagement Pool includes 76 Swiss Pension Funds with total assets under management of approximately 110 billion Swiss franks. On behalf of its members, the pool engages the dialogue with Swiss listed companies with the aim of improving the companies' corporate governance, as well as their environmental and social responsibility.

Increasing Opposition at General Meetings

The 2012 general meeting season is now underway. As in 2011, Ethos expects increased opposition, notably on issues of executive remuneration, discharge of the board as well as capital increase requests. In 2011, the average approval rate was 86.9% for capital increase requests, 87.3% for executive remuneration and 96.3% for the discharge.

 

1 November 2011

Swiss companies’ planning for climate protection is short-term

Thirty-four of Switzerland's 100 largest listed companies have set CO₂ emissions reduction targets. For most of the companies concerned, the targets extend no further than 2012 – long-term strategies remain the exception. This is one of the important results of the recent questionnaire conducted by the Carbon Disclosure Project (CDP), the Ethos Foundation and Raiffeisen Switzerland, who asked the 100 largest listed Swiss companies about climate change-related opportunities, risks and strategies; 59 per cent responded.

On behalf of the Carbon Disclosure Project (CDP), Ethos and Raiffeisen have asked Switzerland's 100 biggest listed companies about their climate strategy. The rating agency Inrate wrote the report. The responses reveal that only 34 of those companies report to the CDP on their greenhouse gas emissions reduction targets. Most of the companies have relative reduction targets, for example a drop in proportion to production or staff numbers. The emissions of a company that has relative targets can nonetheless rise in absolute terms, should the company step up production or increase its staff.

Lack of a clear political framework prompt most companies to plan no further than 2012

The absence of a national and international legal reference frame for private sector emissions reductions is a source of uncertainty. This is reflected in the questionnaire results: over 60 per cent of the reduction targets indicated extend no further than 2012. Many companies are reluctant to include long-term reduction targets in their strategies in the absence of a clear political framework. In addition, 58 per cent of the companies anticipate regulatory risks with regard to climate change – a substantial increase since the previous year, when only 38 per cent anticipated such risks. This trend reflects the increasing uncertainty about future regulations.

Improved quality of reporting

In all, 66 per cent of the participating companies decided to make their replies public (2010: 60 per cent). Overall, the transparency and quality of the responses to the CDP information request improved, as revealed by the average disclosure score, which rose from 47 to 55 points (out of a possible total of 100). Disclosure scores assess the quality and completeness of a company's response.

The list of companies with indications of their participation, whether they published their responses and their disclosure scores may be consulted on page 37 of the study: Carbon Disclosure Project 2011: Switzerland 100 Report

 

29 June 2011

Ethos Survey on Executive Remuneration: Pay Raises in the Financial Sector

The total remuneration paid to the boards and the executive management of the Swiss listed companies included in the financial sector rose by 8%, while it remained stable in the other sectors. The 2010 executive remuneration survey of Ethos Foundation also shows that 56% of the companies under review implemented an advisory vote on their remuneration report at their 2011 annual general meeting, up from 38% in 2010. Despite this increase, self-regulation does not seem to function adequately. Ethos therefore considers that Swiss company law, the Swiss code of best practice and the Corporate Governance Directive of the SIX Swiss Exchange should be urgently revised.

Ethos Foundation published its survey of the 2010 board and executive remuneration in the 48 largest Swiss listed companies (comprising the SMI and SMIM indexes).

Variable remuneration is not always variable

In 2010, the members of the executive management of the 48 largest Swiss listed companies received on average CHF 3.1 million. The chairmen of the board received CHF 2.4 million, while the other members received CHF 300'000. The aggregate remuneration of the boards and executive management of the companies included in the survey was CHF 1.29 billion (+ 2% on 2009). There was a 8% increase in the financial sector, while the remuneration in the other sectors remained globally unchanged. The evolution of the total remuneration during the past six years shows a link between remuneration and performance in the financial sector, but not in the other sectors (see graph).

Significant raise in base pay

The remuneration paid in the financial sector is twice as high as the one paid in the other sectors. In the companies of the financial sector included in the survey, the members of executive management received an average remuneration of CHF 4.7 million, compared to CHF 2.5 million for the other sectors.

A key feature of the 2010 executive remuneration is the general increase of the base salaries of the companies operating in the financial sector. On average, base salaries rose by 15% reaching CHF 900'000 per person. For the CEOs in particular, the increase is 66% on average. The base salaries remained however stable in the other sectors. Generally, the variable part of remuneration largely exceeds 50% of total remuneration. The highest variable remuneration (78% of total on average) was observed in the SMI companies of the financial sector.

Say on Pay: More negative votes

56% of the companies under review (27 companies) have proposed, at their 2011 annual general meeting, an advisory vote of their remuneration system or report, up from 38% in 2010. The rate of opposition rose to more than 16% in 2011 (up from 11% in 2010). For the first time in Switzerland, a remuneration report was not approved. In fact, the remuneration report of Weatherford International received only 44% approval. The remuneration became the most contested issue at the 2011 general meetings of Swiss companies.

Swiss law and the Swiss code of best practice should be urgently revised

Despite the increase in the number of companies that have established a “Say on Pay”, many still refuse to do so. This shows that self regulation in the field of executive remuneration does not function adequately. Most companies argue that they do not want to change their practice as long as this is not imposed by law. According to Dominique Biedermann, executive director of Ethos Foundation, “Our laws, codes and directives are no longer adapted to the current situation with regard to executive remuneration. It is therefore urgent to proceed with the revision of Swiss company law, the Swiss Code of best practice, as well as the Directive on Corporate Governance of the SIX Swiss Exchange.”

 

Welcome to VIPsight Asia - South Korea

 

Author

Youngjae Ryu

 

15 August 2011

Irony of Corporate Inheritance

by Youngjae Ryu

During the regime of Kim Ilsung, the father of Kim Jungil and the founder of North Korea, there were various predictions made by South Korean experts studying North Korean politics on how long the North Korean regime could survive after Kim Ilsung’s death. The prediction said that the regime would fall apart in just three seconds, or if longer, three months. However, their prediction turned out to be wrong. Kim Jungil still has been dominating the hermit country for the last seventeen years. What is more, he intends to turn the power over to his son, Kim Jungeun. It seems like the revival of a feudal society.

We can easily find out similar feudal examples in South Korea. Korean big churches are one of the examples. Many Korean pastors of big churches, who are seemingly known to pursue spiritual enlightenment and salvation in the next life, have failed to disguise their secular greed. Even after their retirement at seventy, a rule clearly stated in the Korean church law, they try to act as regents of the church and bequeath their positions to their sons. Several years ago, a heated controversy was aroused when the pastors of the two largest Korean churches did exactly the above.

We can also see similar cases in the Korean conglomerates quite frequently. A number of Korean major conglomerates are on the process of adopting the third generation management, in which three successive generations of the founding family have ultimate power. Samsung’s Lee Jaeyong and Hyundai Motor’s Chung Eisun, each being the grandsons of the founders, are searching for loopholes around the law in order to succeed their fathers.

The two cases above, where the eldest son receives the father’s wealth, or position, are the remains of Confucianism in Korea and bring about serious problems in contemporary society. North Korean regime’s inheritance is clearly reversing the universal development of democracy and mankind. At the same time, it paralyzes and ridicules human’s rational thinking and reasonable judgment.

Korean churches’ inheritance stems from the private ownership of churches. Inheritance of the church can be justified only on the premise that the wealth of the church belongs to the founding pastor. This premise, however, contradicts the basis of Christian values which states that all churches belong to God. Thus, this sort of church inheritance denies God’s ownership of the church and gives this right to the pastors instead.

When it comes to corporate inheritance, the ownership of the corporate belongs to the shareholder according to Korean commercial law. The controlling shareholder, therefore, has the right to bequeath the firm by paying the inheritance tax and obeying the law. However, what the Korean conglomerates are doing are far from legal. Korean conglomerates have wrong perceptions when it comes to corporate ownership. In other words, they believe that the controlling shareholder is the ultimate and only owner of a public company.

This sort of thinking directly goes against the basic principle forming public companies which states that the company does not only belong to the controlling shareholder, but also to other institutional and individual investors who hold the shares of the company in the stock market. Power elites working for the conglomerates fail to nurture this right perception. Rather, they try to find loopholes around the law that would help the inheritance process. Samsung’s issuing of the convertible bond, and Hyundai Motor and SK’s wealth transfers, are all the successful outcomes of their work.

There are two solutions to this problem. First, it is the change of perception on the part of the third generation. Many of the third generations have received the Anglo American education growing up abroad, and studying renowned, foreign MBA courses. If they have the right mind, they would have hopefully nurtured the rationality to denounce their fathers’ steps and establish a new paradigm of democratic capitalism.

Second, it is the perception change of Korean institutional investors. They should claim their own ownership of the company and think of themselves as a key part of corporate governance. They should make voice and seek to change the misleading behaviors of conglomerates before the third generation conforms to the inheritance system.

While I strongly oppose to the inheritance of the North Korean regime and the Korean major churches, I agree to the concept of corporate inheritance with the premise that the controlling shareholders receive acceptance from other institutional and individual investors and abide by the law throughout the process. If this is possible, then this problem currently inciting furious controversy might instead develop into a way to revive one positive side of Korean tradition in the capital marke.

 

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VIPsight Archives Asia - South Korea

 

15 April 2011

Korean Chaebol’s Wealth Transfer

Korean 20 Chaebols(Conglomerates) allegedly used inter-group transactions with their unlisted subsidiaries as a means of wealth transfer. The case has been revealed right after Ministry of strategy and finance had announced that it would impose tax on the profit made by conglomerate’s unfair allocation of purchasing deal to its subsidiaries. In particular, most of the subsidiaries are owned by the controlling shareholder’s family.

On the 4^th of April, DART of Financial supervisory service and Chabol.com, the only websites for evaluating the share value of Korea’s Chaebol, said that among the unlisted subsidiaries of top 30 Chaebol groups in asset size, 20 subsidiaries in which offspring of the groups’ chairmen holds a major shares, have close to 50% of inter-group trading ratio. This ratio is far above the average inter-company trading ratio (28.2%) of the whole subsidiaries including 20 listed-subsidiaries of the Chaebols. In one sense, it is questionable whether subsidiaries of Chaebol Group deliberately gave large portions of the deals to the unlisted companies owned by Chairmen’s offspring.

The disclosure of Chaebol’s inter-group transaction was meaningful as a first attempt to make such information public while there has been rising criticism against the Chaebol’s controlling shareholders transferring the wealth using family owned unlisted subsidiaries.

Thanks to the enormous support from the Chaebol’s core business, sales of the Groups’ unlisted subsidiaries increased by 3.27 times compared to 2006. JANG, Sejun, the first son of JANG, hyungjin who is YOUNG POONG, CORP’s chairman, owns the 33.3% of YOUNG POONG DEVELOPMENT CO., LTD. The total sales of the YOUNG POONG DEVELOPMENT CO., LTD were 13.2 billion KRW while inter-group sales were 13 billion KRW which account for 98.1% of the total sales. Last year, the company’s net profit was about 1.8 billion KRW which resulted in high dividend of 30,000 KRW per share.

For LOTTE, the first and the second daughter of the chairman owns 18.5% of LOTTE FRESHDELICA CO., food and beverage company. Its inter-group sales account for 97.5% of the total sales, 58.4 billion KRW. LOTTE FRESHDELICA CO. grew so fast that its sales have increased by 16 times over the past 10 years.

Inter-group transaction ratio for the top-2 Chaebol Groups is no different.

Samsung SDS whose major shareholder is LEE, Jaeyong, the first son of LEE, kunhee and the CEO of Samsung Electronics, has 36.7% of inter-group sales ratio. Hyundai Amco.Co.Ltd whose major shareholder is JUNG, Yisun, the first son of JUNG, Mongkoo and the vice chairman of Hyundai motors, has 57.3% of inter-group sales ratio.

Among the 20 unlisted companies that were researched, 10 companies gave dividend last year.

JUNG, Yisun’s dividends income from Hyundai Amco’s share was 12.5 billion KRW while LEE, Jaeyong had 3 billion KRW and LEE, Haewook, the vice-chairman of Daerim, received 2 billion KRW as dividends income from Daerim I&S. This year, Hyundai Amco’s cash dividends were around 50 billion KRW which makes the company’s dividend ratio 74.3%.

Welcome to VIPsight Europe - Malta

 

Author

Joseph Bonett

 

14 April 2018

Under the carpet

by Emanuel Fenech, San Ġwann

For his debut as the new chairman of the Malta Financial Services Authority, John Mamo could not have uttered a string of more unfortunate words and statements when addressing a parliamentary committee meeting. He is reported to have described Deutsche Bank as a “well-known money-laundering channel” and London as a centre for money-laundering, adding a piece of advice that Malta should not “be a masochist”. He called on Germany and Sweden to stop criticising us because they themselves did not have a clean slate either. Well, there you have it, if we thought that a new broom makes for a cleaner sweep, this one intends to carry on where the other left. Sweeping dust under the carpet.

Yet, what he said about Germany, London and Sweden is not correct. The last time I looked, neither German Chancellor Angela Merkel nor British Prime Minister Theresa May had a chief of staff and a Cabinet minister found out to have opened companies in Panama, with instructions to open bank accounts to deposit €1 million a year. In Malta, we do not only have the Prime Minister’s chief of staff and a senior Cabinet minister being caught out to have done so but, two years down the line, both have been confirmed in their position. Neither have we heard that reports penned by the financial watchdogs of Germany, Sweden and the UK, pointing fingers at those close to their prime ministers, going missing, as we had in Malta. Nor have we read reports about their chief of police doing an imitation of the famous three monkeys as valuable evidence was being spirited out of those countries, as we had in Malta.

So, perhaps, Mamo, should have been a mite more circumspect in his words and set our mind at rest that we will be seeing colossal change of how the MFSA will be going about its business of looking after the reputation of our country, which, under the Muscat government, has been thrown to the dogs.

 

1 November 2017

FEEDBACK are venture of Better Finance in Partisan Politics of Climate change

In our opinion it is better not to get involved in the partisan politics of Climate Change. This band wagon is being promoted by a USA vice-president and I for one will not take marching orders from a US has been vice president.

I for one am in favour of climate change. For example centuries ago Iceland was more fertile than it is today undoubtedly as the world was warmer and at that time no scientist can blame that natural Earth cycle on man made emissions. If the Earth becomes warmer, large areas now uninhabited would open up to become habitable. Also sea transport would be facilitated in seas bound over much of the year. As an association, very small admittedly, we are all in favour of what adds value, increases opportunities for investment offers challenges to be overcome by more investment!

When the Icelandic volcano a few years back grounded for days all flights in Europe, was this man made?

The ash spewed out undoubtedly has contributed to global warming, as the massive erruption of the Indonesian volcano so many years back to mention just two examples. By writing into laws the curtailment of carbon emissions our right to freedom of movement is being violated, as well as our right to private property. When Britain decommissioned its coal fired power stations due to such concerns and sold them cheaply to the People's Republic of China, we saw a seismatic shift in investment from the old Continent with its clear cut and respectful industrial regulations to an area where workers are virtually 'serfs' in the Workers' Paridise

As you know, countries with a parliamentary democracy abide by what they sign in international treatises. Not so dictatorial regimes such as Russia, China, Vietnam...should we allow these rivals in finance beat us by getting ourselves tied up? (in garters I was going to add, a once used English expression before 'political correctness' set in!)

 

19 July 2017

Rumblings in Malta

An attempt was made to sideline me by stooges for the party in power, however I do not campaign for shareholders rights according to whether it pleases the powers that be or the opposition party but being non-partisan political I always have held and hope to hold a high ethical standard which translates in little financial support coming this way! But no matter thrift never killed!

I am aware that in the United States (maybe elsewhere) it is increasingly being pushed that shares are issued with no voting rights; In Malta the Bank in which the state has the 'lion's share' though not a majority of shareholding recently lost Correspondence Bank status with amongst others Deutsche Bank.

I guess this was for a weighty reason though its new top appointee (an employee) tried to justify it. Incidentally its Chairman, a man of standing, resigned, or was made to resign to be replaced by said employee to do 'his master''s bidding' Now the group in control are determined to deprive shareholders rom yearly voting in a Board of Directors but instead having a Board appointed for 3 years at a stretch. Something similar has already been implemented as regards Local Councils in Malta and Gozo so now the march for absolutism is directed at the public institutions through 'puppets on a string'.

 

 

31 January 2015

Malta Stock Exchange

At present the largest deal on the Malta Stock Exchange is underway. The company which operates amongst others the Hotel hit recently in Tripoli, Libya, Corinthia is proposing to take over the Maltese franchise hotels of the Radisson brand. Both are at the lower end of the dividend paying league. Some speculate that the large family shareholders of the Malta Radisson brand want to ride along in the comfort of the much larger Corinthia with the retail shareholders again and again having their holdings % diluted. 75% of Radisson Malta is held by three members of one family, one of whom might have signaled that he wanted out, which would have sent waves. Radisson Malta is hosting the Heads of State of the forthcoming ex-British empire, Commonwealth.

Corinthia, run by International Hotels Investment (IHI) is also facing diminishing returns from its hotels in Libya, St. Petersburg, central Europe (it also has a hotel in Portugal and one in London). Might it want to get its hand on the Euro 35 million recently taken in by Radisson Malta from its freshly issued Bond? A Bond which at the time did not mention anything about a tie up with Corinthia? Apart from which another Bond issued to finance a mixed hotel and commercial project in Libya is on hold because of the civil war, yet the coupon will very soon come up for payment....

There is much speculation going about, and some are seeing more pieces falling into place when looking back at the time just prior to the issue of the Island Hotel Group Company (IHGC) bond issue, when one of its 4 hotels was 'sold off', thus burdening the company with a Euro 35 million Bond on 3 hotels not 4!

From the Malta & Gozo Shareholders Association (MAGOSA)

 

28 November 2014

KPMG Malta to buyout listed IT company

In Malta, KPMG made an offer to acquire Crimsonwing, an international IT company focusing on Microsoft Dynamics and e-Commerce business solutions. Crimsonwing is listed on the Malta Stock Exchange.

KPMG's offer values Crimsonwing at €26 million.If successful, the acquired business will become known as KPMG Crimsonwing and will be jointly owned by KPMG's firms in the UK, Netherlands and Malta. Crimsonwing's Founder, David Walsh, will be chief executive of KPMG Crimsonwing which will combine KPMG's current Microsoft Dynamics teams in the UK and Netherlands with Crimsonwing to create an overall team of approximately 350 people. The combined entity has a goal of more than doubling in size over three years.

Crimsonwing plc, founded in 1996, is an award-winning consultancy providing industry-specific business, mobile and cloud solutions for international clients related to Microsoft Dynamics and e-Commerce. Crimsonwing developed market leading software incorporating their own intellectual property creations for industries such as print management, property lease management and for membership organisations.The proposed acquisition is consistent with the KPMG's strategy of building an Advisory practice which combines business expertise with the underlying technology capabilities required to implement business solutions. If successful, it will follow the acquisition of Safira, a provider of Business Process Management solutions, and Cynergy Systems, a Digital and Mobile specialist.

The deal will make m the KPMG Malta the largest professional services employer in the Maltese islands. It will help to employ even more people in Malta and provides access to European-based clients. Combining Crimsonwing with the Dynamics consulting team will strengthen and cement KPMG's position as a leading business partner of Microsoft.

 

17 November 2014

Locally one of the listed banks in Malta, Lombard Bank Malta Limited has as one of its largest shareholders a Cyrpriot bank which for the past months if not years has not been sending its directors for Board meetings. This Malta Stock Exchange listed bank, though being one of the original banks listed on this Exchange, has time and again not been subjected to the European stress tests as it is deemed not large enough. Is it lucky for Lombard Bank Malta Limited that time and again there are other non listed banks in Malta with a larger balance sheets who get stress tested instead?

 

27 August 2014

Blind men leading the blind?

At a time where investors/shareholders are seeking better returns, so too in Malta many are investing handsomely in ungraded local bonds which pay a slight premium on the public treasury rate for its gilts. Till now maturing bonds have generally been rolled over at an ever deceasing rate of interest. Maltese investors/shareholders are rumoured to have burned their fingers on the princely sum of half a billion euors lost in investments overseas such as in Argentina, the Netherlands and elsewhere.

When a decrease in FDI is welcome news

Investors/shareholders in Malta listed equities do not always look with pleasure on an increase in FDI (foreign direct investment). They have good reason to be wary. Malta is a small market and largish international companies have in the recent past swooped on fat Malta Stock Exchange listed companies, taken them over with little opposition or benefit such an increase in share price for decade long holders by small investors of such shares. A case in point is the Spanish Mapfre group takeover of Middle Sea Insurance.

Malta's largest listed equity

 

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VIPsight Archives Europe - Malta

 

16. September 2013

Re Banks' winding down regime, small shareholders with little say in the way Banks' are run re justifiable ask that what can be salvaged for these small shareholders should feature in any planned EU amendments.
These days the news has been buzzing with the story of the high executives who lost Lehman Brothers and other bottom up Banks and other listed companies yet 5 years down the line are still living lavish lifestyles. In all too many winding down of failed banks the shareholders end up with nothing while vulture funds have rich pickings.

Vodafone shareholders voted by over 75% to buy Kabel Deutschland. In Malta on the other hand the only listed telephone company with Dubai majority shareholding, ignored the small shareholders and invested in Greece, has lost millions and seems not to have learned the lesson but is deliberating whether to invest more against the wishes of the small shareholders who claim that the company is loosing market share in Malta through its unfocused strategy.

Germany wins allies over banking union concerns

Brussels' blueprint for the next leg of European banking union has hit a wall of objections, with Germany winning significant backing for its strong reservations to the plan to centralise the way banks are wound down.

http://www.ft.com/cms/s/f6f95614-1c8f-11e3-a8a3-00144feab7de.html

On August 30, RS2 Software plc announced that the major European Bank referred to in their company announcements of May 16 and June 19, which had expressed an interest in acquiring a significant stake in RS2, was Barclays Bank plc. The company also explained that Barclays agreed to acquire 4,250,000 RS2 shares (equivalent to 10 per cent of the issued share capital) from Information Technology Management Holding Limited (ITM) at a pre-agreed price of €1.22 per share. The agreement was part of a wider transaction for Barclays to acquire up to 20 per cent of RS2.

 

23 February 2013

Midi to sells its shares in The Point through public offering

Midi plc has announced plans to sell its shares in The Point and the underlying car park through an initial public offering.

"The company believes that the disposal of a long-term commercial assets such as The Point through the sale of its ordinary shares in TML is today in the best interest of its business, and hence of its shareholders," the company said in a statement.

The sale, it added, would release significant financial capital back to Midi and strengthen its capabilities to deliver against its current plans by reducing the bank borrowings.

MIDI Group is offering 42.4 million shares and TML is issuing 14 mln shares. This combined offering of 56.4 million shares is all at a price of €0.50 for a total IPO value of €28.2 million

According to a valuation by KPMG and DeMicoli Associates, the assets are worth €58 million.

MSV Life, which holds a 12.55% shareholding, has indicated an interest to acquire 20 million shares in the offering and it is expected that Midi and MSV will enter into a conditional subscription agreement prior to the initial public offering.

Bank of Valletta, which holds an 8.9% shareholding in Midi is expected to underwrite the issue of the 14 million shares.

Midi is to hold an extraordinary general meeting about its plans. The shares are expected to be offered next month.

 

7 May 2012

I note with satisfaction that Joseph Bonett’s quiet but determined stand in support of the minority shareholder, year in year out, at various annual general meetings of public listed companies on the Malta Stock Exchange, has brought a number of equally disgruntled minority shareholders together to form the Malta Association of Small Shareholders.  The European Charter of Human Rights, as well as that of the United Nations among others, guarantees the right to freedom of association and the right to enjoyment of one’s property. It is in the exercise of these rights that the Malta Association of Small Shareholders was founded to stand up to the bullying tactics of the majority shareholders seeing that the regulator either does not take sufficient action, only takes action when prompted by some court case, or worse still tries and stifles the participation of those with fewer votes from contesting for directors of the listed companies. However, contrary to what one of your senior editors Noel Grima stated in The Malta Independent on Sunday of 28 April, Mr Bonett was not the instigator or a participant in the uproar that ensued at the HSBC annual general meeting held on Wednesday 18 April. Several minority shareholders this time stood up for their rights, as they were not prepared to be steamrolled by the HSBC chairman using his guillotine tactics. The Malta Association of Small Shareholders, though a new player, is trying to group together minority shareholders and invites them as well as others sympathetic to our goals to lend their support and help us organise ourselves better to campaign for more just returns on the money we invested in shares. In particular, we would like to call on shareholders to forward their proxy votes to the Association, attend one or other of our weekly Saturday informal meetings held at the Workers Memorial Building, South Street, Valletta at 1.30pm to help the Association secure sponsorships for the newsletter and educational conferences it aims to hold and forward suggestions.

Frans Buhagiar

 

15 March 2012

Today is World Consumer Rights Day, which is celebrated by the consumer movement around the world.

This year is special because it is 50 years since President John F. Kennedy set out a vision of consumer rights and recognised consumers as a group. Since then, the set of rights identified by President Kennedy formed the basis for the eight consumer rights accepted today: the rights to basic needs, choice, information, education, redress, safety, be heard and healthy environment. This year’s theme is again financial services. The reason is simple. After the debacle of the financial crisis some years ago, it seems that the lessons that were learned have now been forgotten. Consumers around the world are getting a bad deal from financial services. A lack of effective competition in the market makes it difficult, if not impossible, for them to shop around. For example, consumers often have trouble understanding different financial products, whether due to lack of information or because the products themselves are too complex, or both. Furthermore, changing to a different provider can be challenging, either because the switching process is prohibitively complicated or simply because there are not enough financial institutions in the market competing to provide better deals. This is also recognised by two European commissioners, Michel Barnier and John Dalli.

Mr Barnier said: “Financial markets should be at the service of citizens, not the other way around. Europe must make financial services more fair and transparent for consumers everywhere in Europe.” Mr Dalli, on the other hand, acknowledged that “consumers are often overpaying for their basic financial services and do not always get the effective redress they deserve. The European Commission has not been passive in the face of this”. In fact, there are a number of projects that will be launched in an attempt to improve the situation in the EU. But what is the situation in Malta?

Though the recent financial turmoil did not hit directly our banking system, thousands of small investors practically lost their life’s savings through the advice they got from “experts” in the financial sector. It is a misfortune that we still lack data of the estimated amount Maltese investors lost through the financial turmoil and we are more disappointed that the banking system seems to be exerting its advertising muscle in the media to stifle any real discussion on this subject. In a recent study by the European Commission covering all 27 EU countries, eight out of 10 mystery shoppers encountered problems when switching financial providers. In Malta, none of the 10 mystery shoppers could successfully complete a switch.

Mind you, the sample of banks selected was based on those brands with the highest share of bank accounts. This goes a long way to show the real deal Maltese consumers are getting from the financial sector. I remember that, some years ago, soon after the introduction of the common principles on banking account switching, I wrote an article where I referred to my own experience. I had visited three branches of the three largest banks in Malta and I asked for information since I was aware that the Malta Bankers’ Association has prepared a leaflet on the subject. I found that none had the leaflet and none of the staff really knew about it. Even after some telephone calls, only in one occasion was the bank able to provide me with a copy of a press release. I also criticised the fact that the prepared leaflet was full of legal jargon and not understandable to the “average” consumer. I was criticised by some people for being too harsh. If anything, the above shows that the situation is still the same. It also shows that self-regulation is ineffective in Malta. We sincerely hope that the World Consumers Rights Day will not be just another day. The Consumers’ Association will continue to press to have a regulator that tells consumers what it does and publishes its investigations, is strong and stands up to the banks and for consumers and promotes competition and is proactive and acts on issues before they become problems.

Financial services revisited, by B. Borg Bonello - The Times, Malta

 

9 March 2012

Malta Bill makes collective action a ‘real possibility’

Malta's Collective Procedures Bill, which is currently in its second reading in parliament, includes the proviso that it will make collective action a real possibility. Although many people may say that this does not affect them in any way, the truth is that this is a good opportunity, as it allows someone to act, even if they do not have a direct interest in the case. This concept already existed in the Constitution of Malta, as it allows for two types of cases; personal action and collective action. The Constitution also lists a number of basic rights, among them enforceable and unenforceable ones. Whilst it is positive to speak about collective action, it should linked to the Constitution. This law sought to create new important concepts, as for the first time we are providing for the right to institute a collective action, which gives consumers and consumers of investment services far greater power.

 

9 March 2012

Malta's Minister of Finance stresses importance of sound corporate governance

Finance Minister Tonio Fenech said that sound corporate governance is an essential ingredient for financial stability, a critical feature in the long-term performance of the economy, and forms an integral part in the development of Malta’s financial sector. Addressing those who participated in Malta's Financial Regulator, which also hosts Continuing Professional Development courses, Malta's Minister of Finance, Economy & Investment (MFEI) said that recent events have placed corporate governance on the forefront of governments, regulators and particularly the media. It is self-evident that sound corporate governance is essential to the well-being of an individual company and its stakeholders, particularly its shareholders and creditors, he said. “We need only remind ourselves of the many financial institutions abroad whose financial difficulties and, in some cases ultimate demise, have been substantially attributable to weak corporate governance. However, sound corporate governance is not just a vital factor at the level of the individual institution. It is also a critical ingredient in maintaining a sound financial system and a robust economy.” Noting that the Malta's financial regulator is placing greater emphasis on the role of corporate governance in promoting financial stability, the Minister said the health of a financial system very much depends on the underlying soundness of its individual components and the connections between them – such as the banks, the investments sector and the payment systems. In turn, their soundness largely depends on their capacity to identify, measure, monitor and control their risks. The MFEI said there are few absolute ‘rights’ and ‘wrongs’ in the field of corporate governance, but some key principles stand out. He highlighted a few basic principles which he said should be given considerable importance:

• The importance of directors having a sound understanding of their company’s business, the nature of its risks and its strategic direction. This provides the foundation for the sound management of any company. It is absolutely crucial in any investment business;

• The ultimate responsibility for ensuring that a company’s risks are being properly identified, monitored and controlled lies in the boardroom;

• The importance of having an adequate representation of non-executive and independent directors on the board, and a clear separation of the position of board chairman and chief executive officer; and

• A fundamental need for directors to be scrupulous in ensuring that, individually and collectively, potential conflicts of interest are avoided or at least managed in ways that do not compromise the interests of the company.

 

 

20 January 2012

Re transfer of land without commensurate payment from Dubai majority share owned Malta Stock Exchange listed company GO plc to the Maltese state prior to Rating downgrade

I do not know about other telecom users but my experience in trying to exit a contract with GO plc has not been pleasant, despite attenuating circumstances and the contract not having been drawn up at a notary.
However this behaviour GO plc seems to resort to it when dealing with small fry. Otherwise it seems to be falling over itself to give ground to a big cheese, the state, which has asked for and obtained the large tract of GO plc owned land at Qawra, Malta with a vague statement that it was getting in compensation a clear title to the telephone equipment buildings housing its exchanges, when these same buildings had been transfered years back to this company when the Maltese state had sold its golden share stake to the Dubai state holding company TECOM.

J. Bonett

 

1 December 2011

Corporate Governance - Malta Station

A good 'corporate governance' wake up call to Malta shareholders: the Malta Airport Case I found it rather stiff that Malta International Airport (for which the state received millions when it sold off its shareholding) is acting as a virtual 'social benefit agency' to its client airlines by eliminating fees for several months. Fees out of which it generated part of its profit to defray its costs and pay out a meagre dividend to shareholders. Small equity holders amongst which hundreds if not thousands who due to the higher cost of living have for years not stepped on an airplane but who do not even get free parking in winter months at this facility which they part own. Some justice to the small shareholder! And would one need to be a guru to see in this fee elimination a ploy to shore up the national airline and from which other visitor airlines stand to handsomely benefit, with the only empty cap being held by the small shareholders who are not in line for any internal perks or increased pay from promotions to the parent company head office. It seems that horse trading is done best in connection with large flat open spaces and not limited to Marsa.

 

19 June 2011

If I may I would like to add a comment to what was placed at the top of the news items in the 16th June edition of the  International Financial Advisor magazine. It seems that a poorly performing pension scheme by 'the global, local bank',  which is the main rival of the Malta bank, (a listed and one of the top capitalised firms on the Malta Stock Exchange) slapped with a third of a million euro fine, was not taken to court, or slapped with any fine over its poor performing pension scheme which gave abysimal returns to investors. This however did not make the news. A case of international muscle power?

Similarly a non bank financial adviser firm in Malta based in the inner Marsamxetto Harbour locality of Msida which wrecked many an investor's hope of good returns from an investment in a Danish Fund likewise has not been fined anything by the Malta Financial and Services Authority, which when its premises where built destroyed a whole area of fertile grazing land, so much for political correctness and attention to the environment, or is Corporate Governance the mere occasional charitable donation?

Way back in  September 2010 pressure was being exerted in Parliament by the Opposition Spokesman against allowing licensed banks from acting as stockbrokers. Pressure which some concluded would favour the individual stockbrokers and independent stockbroking firms over the Malta bank which has the largest number of qualified and well paid employees and offers investment services from all its branches in contrast with  'the global, local bank' which only offers investment services from a few offices and has been known to push its own investments aggressively to Maltese careful savers.

Malta & Gozo Shareholders Association (MAGOSA)

http://www.international-adviser.com/article/malta-regulator-judgement-in-belgravia-funds-saga

 

10 May 2011

Legislative and Regulatory Developments

The Malta Financial Services Authority Annual Report for last year states that during 2010, the Authority conducted thirty-nine consultations on a variety of legislative initiatives particularly the transposition of EU Directives. Consultation papers were circulated to the financial services industry (but no mention whether same were sent to relevant NGOs) and were also placed on the Authority’s website.

The consultation documents were followed up by feedback statements incorporating comments made by the industry and suggested changes to the proposed legislation. Legislation implemented or under development in 2010 was related to, among others, the Capital Adequacy Directive, Payment Services, Electronic Money, UCITS IV, Contractual Funds, Limited Partnerships, Solvency II, Incorporated Cell Companies and the Trusts and Trustees Act.

The MFSA also signed Memoranda of Understanding with the (People's Republic of) China Securities Regulatory Commission, (the People's Republic of) China Banking Regulatory Commission. (One should keep in mind that Malta was the first European country to be visited years back by a Chinese head when 'China came in out of the cold' after Nixon's recognition of the People's Republic way back in the seventies). Other MoUs were signed with the Australian Prudential Regulatory Authority (as there are more Maltese living in Australia than in European Malta!) and a multilateral memorandum of understanding on co-operation and information exchange of the International Association of Insurance Supervisors [IAIS]. Malta’s stability has not gone unnoticed and in 2010 the World Economic Forum’s Global Competiveness Index put the country at No10 for the soundness of its banks and No11 for financial market development. These figures put Malta in the very front rank of world financial centres and greatly add to our global reputation.

Joseph Publius

 

7 March 2011

The Governor of the Bank of England, Mervyn King reccently was quoted by The Daily Telegraph as issuing a strong warning to those who flaunt corporate governance. He warned Britain risks suffering another financial crisis without reform of the country's banks. He interpreted the sentiments of many business analysts, and not just those in the UK, when he accused banks of "routinely exploiting their millions of customers". He went further in his scracthing criticism when he said: "If it's possible for financial services firms to make money out of gullible or unsuspecting customers, particularly institutional customers, they think that this is perfectly acceptable."

Rather than care of their customers' interests, many bankers aim to "simply maximise profits next week" so that they can then pay themselves huge bonuses. So we often see bankers and others in the financial industry brazenly expect reverential respect from their “gullible customers” and reticence on the part of the media lest the trust that the public puts in them is shattered. No wonder Mr King blames the “payment of bonuses” as part of this cultural problem.

A Financial Times publication, Money Management, in a recently survey published, demonstrated how investors are forking out thousands of euros in fees on their pensions, with many of the worst performing funds charging the highest amounts. Moreover, complaints against banks in the UK have mushroomed in the last several months as more and more small investors are shaking off their inertia and reverential fear to challenge the unfair treatment of banks and financial services providers.

In Malta we are not immune to the worrying reality that for some of our financial institutions profits come before customers. One can understand the limitations imposed on local journalists to conduct meaningful investigative journalism to expose the exploitation of certain classes of customers of financial services providers. But this needs to change if we are to converge with the more advanced EU countries in the protection of consumers. To often the local newspapers just print uncritically press releases from the local banks and financial institutions. At times letters to the editors also do not make it in print as these editors do not want to rock the boat! Thus these same editors are aghast when there is a whiff of censorship at some explicit student publication on the University campus but they themselves behave like the proverbial Spanish Inquistion.

The financial regulators in Malta and elswhere have an important role to play to put the customer back on top of the list of the financial services industry’s priorities. Small investors need to be protected from hard selling tactics used by bank staff who are often rewarded according to the amount of sales they achieve.

The regulators can also protect “gullible or unsuspecting” customers from aggressive marketing aimed at convincing people to borrow money that they probably cannot afford to repay. The property bubble built over the last few years, and in which many more millions is being pumped on, for our small islands, enormous developments which also mar the picturesqueness of our country, can have serious negative effects on our economy if it is not checked.

Banks should extend credit to those able to finance loans for the purchase of their own residence, as well as developers who provide these dwellings. But speculation needs to be kept in check by the enforcements of prudent lending criteria that manage the risks for both consumers and developers.

The small size of our economy in which two or three financial services providers dominate the market exposes us to significant systemic risk. This has often been highlighted by external institutions that regularly review the state of health of our economy. The worst risks are those that we do not know about, or which have been around for so long that we have become complacent about their implications.

 

10 March 2011

Fitch downgrades Malta state chairmaned Bank of Valletta’s long term rating to BBB+

The increase in the bank’s ratio of doubtful loans to gross loans, as highlighted in BoV’s annual report for FY2010, was attributed to the real estate and construction sectors. Although Fitch stated that these are now “showing signs of improvements”, expectations are that loan impairment charges will “remain higher than in the past.” Nevertheless, the rating agency concludes that BoV’s profitability will “continue to benefit from a more favourable domestic economic environment in FY11.”

Fitch has revised Bank of Valletta’s Long-term Issuer Default (IDR) Rating from A- to BBB+, with a stable outlook. The Short-Term rating was affirmed at ‘F2’, the Individual rating at ‘C’ and the Support rating at ‘2’. Fitch explained that this is the result of a “more cautious view” that it is adopting with regard to the level of concentration in the bank’s loan book, “given the small size of the domestic economy.”

The rating agency commended BoV’s “satisfactory profitability, sound liquidity and funding position, adequate capitalisation as well as its position as the largest bank in Malta.” Fitch affirms that the bank’s “funding and liquidity are sound and supported by a large and stable customer deposit base.” The bank’s ratio of lending to deposits continues to be kept “at conservative levels.”

However, apart from an increase in doubtful loans some investors in a Bank of Valletta scheme have suffered terrible losses and even have instituted a court case still pending in Malta's courts.

 

11 March 2011

For want of joining other investors & shareholdes Maltese are loosing millions of euros

To many Maltese in order to save a few euros from enrolling in a volontary non government organisation such as the Malta & Gozo Shareholders Association go ahead and invest their savings on the premise that regulatory authorities within the European Union and in non EU jurisdications keep a tight reign on investments. Unfortunately there are still mavericks in the markets and now and again investors find to their cost that they could have safegaurded better their interest by joining other investors and shareholders to share experience and knowledge but forfeited this laudable practice.

Around 120 Maltese investors have lost over €6 million in a failed Denmark-based currency trading scheme which seems to be a Ponzi scheme. They will have to wait four months for an investigation into the fraudulent affairs of the chief executive to be finalised. In a statement  the Malta Financial Services Authority confirmed it had been carrying out the necessary enquiries with the local financial intermediary based in Msida creek, the MFSP partnership, over the past few weeks.

The Maltese regulator said it had taken steps to ensure that both the authority and Maltese who had transferred funds to EURUS Safe Fund Account 2009 1 A/S, promoted by CECA Invest, were kept updated with developments relating to bankruptcy procedures initiated against promoter Per Norgaard.

“The authority has exchanged communication with the Danish financial regulator and with the official liquidator of the bankruptcy estate of Mr Norgaard, and is currently in direct contact with the liquidator, also to assist to the extent possible, in the process of identifying and safeguarding all assets pertaining to Mr Norgaard, which include a number of Maltese registered companies,” the MFSA said in a statement.

“The authority shall continue to monitor developments in the best interests of the affected Maltese persons.”

Malta's state broadcaster PBS on Monday 7 March reported that scores of Maltese had invested around 50 million krone in CECA, a private Danish company with various investment arms.

Mr Norgaard is under investigation b Danish authorities over the failure of the fund which the Danish press has likened to a Ponzi scheme. Reports claim funds were not invested according to the prospectus and served, instead, to support dividend payouts until the scheme was declared bankrupt at the end of last year.

Over €14 million has been lost in total, half of which belonged to Maltese investors. PBS said investors had been promised returns of 15 per cent.

Mr Micallef yesterday insisted it was too early to jump to conclusions and said that the Danish authorities were dealing with a case of fraud.

All existing investors had been regularly updated with information since December when MFSP Financial initiated legal proceedings, footing a €55,000 bill on behalf of its clients.

Mr Micallef explained EURUS traded in euro and US dollar and all quarterly dividends in the investment period since September 2009 had been received regularly. MFSP also held investments in the scheme which was licensed by the Danish regulator. Last November, however, MFSP became suspicious when delays were encountered in dividend payouts.

Martin Gras Lind, a top Danish lawyer, was engaged to look into Mr Norgaard’s affairs. His findings were handed over to Danish police and a civil bankruptcy petition was initiated against Mr Norgaard and his company.

An the MFSP spokesperson said Per Norgaard had admitted in court that he had falsified and misrepresented company and auditor re-ports.

On February 11, the Danish courts appointed trustee (or ‘curator’) Lars Bentsen to bring to light assets held by Mr Norgaard and hold them in trust. Once the procedure is finalised  Mr Bentsen will be able to establish the value of a list of assets to be liquidated that includes property and cars.

“It is very difficult at this stage in the research to give any sort of indication of what will be recovered,” Mr Micallef added. “These were private investments and a number of other companies have been identified in which Mr Norgaard had a shareholding.

“It is not the scheme which went wrong. What was wrong was the fraudulent decision of the chief executive who, without informing anyone, decided to invest the proceeds somewhere else. He was investing money elsewhere and managed to give the impression for a while that everything was in order by continuing to pay out dividends.”

MFSP stopped transferring funds to the scheme in February 2010 as the intermediary felt that in terms of portfolio management “it was enough of an exposure for this kind of scheme”.

The MFSP spokesperson said his company felt the least it could do was foot the legal bill at this stage so as not to burden local investors further and that it had always acted in good faith and  carried out all the due diligence which was required. The Danish institution was even visited  quarterly by a representative of the Maltese financial intermediary for updates and to meet the traders yet no alarm bells seem to have been dedacted.