Politics

USA delays IFRS

The German government is calling on the US to accept international accounting, and pushing for more of an orientation towards sustainable business in the international accounting standards, stated the Börsen-Zeitung on 6 October. While in late February the SEC had in principle confirmed introduction of international accounting standards according to IFRS for US firms too from 2015-16 onward, to date the US have not yet made any clear commitments. Specific decisions can, however, be expected only in coming years. It is therefore unclear whether and when the as far as possible uniform accounting standards for listed and capital-market-oriented companies aimed at by the German government will become a reality. The trend to fair-value accounting, which treats unrealized value increases in exactly the same way as realized ones, is under increasing international criticism here. Current value accounting had proved “volatile, pro-cyclical, and too short-term oriented” in the crisis, said Bundesbank president Franz-Christoph Zeitler, who is also calling for accounting rules to be checked with an eye to the goal of sustainability.

Print to be compulsory again?

The abolition of compulsory securities disclosures in print media might be further delayed. The German government, according to its own statements, has not yet decided whether the transition period should again be extended. Once it expires, information for investors need be disclosed only electronically, no longer in so-called official bourse gazettes. The SPD’s financial-markets expert Carsten Sieling is demanding that small investors should continue to be able to follow up all relevant information in a daily newspaper. The German legislature had initially, when it took over the EU transparency directive in 2006, created a transition period until the end of 2008 up to which publication in print media continued to be necessary. After one and a half years, the German government assessed the process with the assistance of financial-market watchdogs BaFin and of market participants and investor protectors, and extended the period by two further years until the end of 2010. Issuers are complaining of the high costs of disclosures.

Bankers’ bonuses too high

The pay of executives of state-supported banks has been limited to €500,000 since last year. However, this provision so far does not apply to second- and third-rank managers. A check by the government’s stabilization fund (SoFFin) showed that 68 employees below board level were receiving more than the highest amount specified for executives. 35 of these managers work at Commerzbank, 24 at WestLB, seven for Aareal Bank and two for HRE. HRE alone paid bonuses for the year 2009, when high losses were registered, amounting to 25 million Euros to 1,400 employees. Against this background, the North-Rhein-Westphalia state government wishes through a Bundesrat initiative to limit pay of all bankers, not just executives, in state-supported credit institutions to €500,000. Europe’s banking watchdogs are also discussing whether to limit bonuses in future to a specified multiple of basic pay. Only a maximum of 20% of bonuses is to be paid out, with the rest distributed in the form of shares.

Basel III: Advantages for cooperative banks

After the Basel committee for bank regulation reached agreement to equity-capital rules for financial houses in September, the credit institutions’ liquidity buffers are now coming under fire. According to Financial Times Deutschland, countries like Germany, France, Brazil, Italy and Japan have agreed in a discussion paper that looser liquidity rules should apply to top institutions acting in concert than to other banks. The point is controversial, since the rule would apply not just to cooperative banks, but also to Landesbanks. However, these were particularly hard hit by the crisis. The committee is agreed that credit institutions in general ought to keep higher liquid resources available in order to remain solvent in severe crises. Short-term and long-term liquidity indices are under discussion.

Tax on financial activities instead of financial transactions

In early October tax commissioner Algirdas Semeta gave a definite no on a financial-transactions tax. It would make little sense for Europe to go it alone here, was the reason. Germany and Austria had strongly supported taxing financial transactions, but had already failed at international level in the G20 in late June and were now pushing for a European solution. The financial-transaction tax model provides for a tax of 0.01 to 0.5% on the purchase or sale of shares, derivatives or currency on the exchange. The counter-argument, now brought up by Semeta too, is that if Europe goes it alone, stock-exchange transactions would move out into other regions. With the financial-activity tax advocated by Semeta and brought into the discussion by the IMF, by contrast, the entire profits of financial institutions, and bonuses exceeding a certain amount, would have a levy charged on them. This tax would affect the financial economy as a whole, but not dam speculation, say critics. Bank association Bundesverband deutscher Banken (BdB) strongly rejects any further bank taxes.

Company ratings: open to new providers

As a consequence of the financial crisis, which was partly fueled by the ratings by the established ratings agencies, firms evaluating companies for their creditworthiness will as from 2011 have to be licensed by the financial oversight authorities. Alongside established agencies like Standard & Poors, Moodys or Fitch, particularly such smaller and new companies as fund rater Feri, Creditreform of Düsseldorf, French credit insurer Coface or Allianz subsidiary Euler Hermes are coming on to the market. The Federal Institute for financial services oversight (BaFin) had registration applications from eleven suppliers in Germany before it by the end of October. Europe-wide, 25 companies are seeking a licence. The newcomers see growth chances particularly in rating small businesses.

Also at the end of October, the Financial Stability Board (FSB), which coordinates reform of worldwide financial systems for the G20 countries, published a list of proposals for reducing the influence of ratings agencies. It calls for authorities, banks and investors to develop alternative standards for rating a company’s creditworthiness.