Politics

Transaction tax still controversial

French President Nicolas Sarkozy announced at the end of January he would introduce a transaction tax. Originally he wanted to bring in the transaction tax together with Chancellor Angela Merkel by 2014, if necessary only in the 17 countries of the Eurozone. Merkel, however, has problems with the commitment, as her coalition partner the FDP will accept the tax only for all 27 EU countries. Another alternative would be to introduce the tax in accordance with the country-of-domicile principle, with the tax depending not on the place of trade but the tax residence of the actor. Meanwhile, Allianz CEO Michael Diekmann threatened that Germany’s largest insurer would escape to London if the transaction tax in the eurozone came in. Federal Finance Minister Wolfgang Schäuble (CDU), however, indicated he was still working hard on the introduction of the tax in the EU countries. The tax is on the agenda for the EU summit in late Jauary.

Roland Berger to the fore on European credit rating agency

Following the downgrade of France and the bad ratings for other European countries, the European Commission favours a European rating agency. To the fore here is an initiative of consulting firm Roland Berger. The core idea is a marketplace, a large platform, on which issuers disclose their information. From the available facts, the new rating agency is to derive their grades. Its judgments are then accessible to investors. Not the issuers, as is usual for the big three in the industry, should pay but the investors. Roland Berger partner Markus Krall wants by mid 2012 to collect around 300 million euros for building the agency from banks and other investors. It is now necessary to transform the expressions of interest into legally binding commitments, says Krall. The privately funded, non-profit foundation will have its headquarters in Holland and receive no State funds. The operating subsidiary may be located in Frankfurt and have a strong presence in Paris. If everything goes smoothly, the first sovereign ratings could be created by the end of the year and the first bank appraisals launched in early 2013. After three to five years the Agency should be self-supporting, and investors getting their stake back with interest. Other initiatives for a European rating agency have been taken by, among others, the German Environmental Foundation with its ENRA (European sustainable rating agency) project, the Bertelsmann Foundation and the Eacra platform, a consortium of European small agencies.

Banks and insurance companies should rate themselves

To date, insurance companies must, for funds which are invested for retirement, base themselves on the ratings of the three major agencies, and sell government bonds which do not have the top AAA rating. Following the recent downgrading of more euro countries by S&P in mid January, the CDU/CSU parliamentary group called for the rules for large institutional investors to be changed. Banks and insurance companies should accordingly assess the creditworthiness of countries themselves. Chancellor Angela Merkel (CDU) rallied behind this initiative. Now, the proposal will be submitted to EU finance ministers for consideration.

Greens against cap on bank levy

The bank tax introduced in summer 2011 after long discussion first became due at the end of 2011. The new levy meets with resistance especially from the Greens, because it has been capped twice. Thus, it may be at most a fifth of the profits, and in addition not exceed half the average earnings for the three preceding years. The financial expert for the Greens, Gerhard Schick, demands that this cap be lifted, because instead of the targeted amount for a normal revenue year of one billion euros, the Finance Ministry expects a revenue of only €589 million for 2011. This means the fund for the restructuring of banks, to be filled up to €70 billion from the levy, will scarcely be able to act. Schick sees the acceptability limit as a farce and therefore wants the cap checked for constitutionality.

Does a delisting violate shareholder rights?

The Federal Constitutional Court has been engaged since mid January with the question of whether it violates the property rights of shareholders when a company moves from the regulated market of a stock exchange to the open market, thus undergoing a so-called delisting. Whereas in the regulated market requirements such as quarterly reporting, regular releases on current business processes and comprehensive annual reports are conventionally imposed on listed companies, the reporting requirements on the open market are much more lax. Particularly for SMEs this constitutes a veritable cost advantage. But the rules for a move from the regulated market or even a complete withdrawal from the market are not yet explicitly set. The precedent is the family-run company Lindner KGaA, which in 2006 changed from normal floor trading on the Munich Stock Exchange to the OTC segment M:access and has since then had a legal battle with its investors about the legality of this withdrawal. There is disagreement particularly about whether the shareholders are entitled on delisting to compensation​​ for the decline in value of their securities associated with the change of segment. A federal court (BGH) ruling is now to settle this. While many SMEs have been listed since the millennium stock-market boom, they would for financial reasons like to leave were the procedure for this clearly regulated. So far, only so-called “cold delisting” through a squeeze-out is clearly defined.

Manipulations in the open market

To put an end to ongoing price manipulation and other violations in securities trading in​​ the open-market segment, before Christmas the Deutsche Börse closed the little-regulated segment of the First Quotation Board to listings. Not infrequently, companies listed on the First Quotation Board are merely shell companies, the price of which is artificially pushed up through market letters, phones or e-mail. The Federal Financial Supervisory Authority (BaFin) has been observing the manipulations for several years, and in 2010 located around 90 percent of this market manipulation in the open market. Since March 2009, therefore, on the Second Quotation Board, open to businesses which are already listed on other stock exchanges, only shares are that are listed on exchanges with a certain minimum transparency requirement may be included. Since January 2011 those companies that arrived on the First Quotation Board without a prospectus must demonstrate a capital of €500,000, and the shares must have a minimum face value of €0.10. The German stock market had set a deadline for the companies to show these conditions. When some of them let it pass, the exchange operator in October terminated the listing agreement under private law for 170 shares, and stopped their listing in November. Despite the tightening of conditions and the cleanup, further market manipulation came in November and December. As a consequence from this, before Christmas new listings in the segment were finally frozen. Now, the Frankfurt Stock Exchange is working together with the Hessian Exchange Commission and the BaFin on an action plan that will put an end to the manipulation. Currently, 450 companies are listed on the First Quotation Board.

Amortization of unrealized losses on equities allowed

The Federal Finance Court (BFH) has just decided in two cases that shares that have fallen in value may be written off in the balance-sheet. In one case a company had acquired the shares of three other listed companies and accounted for them as capital assets. It had written off their exchange loss of approximately 35 percent by reducing the profits. A second company had written off shares in an investment fund which was based mainly on stocks. In both cases the tax authorities had initially argued that the impairment was not expected to be permanent and therefore not accepted the depreciations. Now the BFH has revised this assessment with its judgments. According to them, shares may be written off when on the balance-sheet date they have dropped in value by at least five percent compared to the time of acquisition.

GCGC for more independence of supervisory boards

Following the recent meeting of the Government Commission on the German Corporate Governance Code on 17 January, the Commission recommends that the Code Recommendation on the independence of supervisory boards be made more concrete. In future, a Supervisory Board should have an adequate number of independent members to ensure independent advice and supervision. Independent supervisory-board members here are those who have no business or personal relationship with the company or its board or third parties that could create a substantial conflict of interest. In addition, Supervisory Boards should for the future nominate specific goals for the number of independent board members, and do so by 2 March. The previous suggestion that the chairman should not chair the meetings of the Audit Committee will be redesignated as a recommendation.

Shareholders against women’s quota at Siemens

The association of employee shareholders failed at the General Meeting (AGM) of the conglomerate Siemens on 24 January with its application to introduce a fixed quota for women on the boards of the technology giant. The employees had demanded that the proportion of women on the Supervisory Board should be increased to at least 30 percent from 2013 and to at least 40 percent from 2018. The Board and Supervisory Board had rejected that request in advance of the AGM. Currently, four women sit on the Supervisory Board, two on the board. Siemens had, like the other 30 DAX companies, at a summit in October with Family Minister Kristina Schroeder and Labour Minister Ursula von der Leyen voted against a fixed quota for women, but also agreed to raise the group’s quota from its current ten percent to 12 to 13 percent by the end of 2015. Shareholder association Schutzvereinigung der Kapitalanleger (SdK) castigated the request of the workforce as unconstitutional: it violates the prohibition of gender discrimination.