German prosecutors raid Commerzbank in tax evasion probe

Pens with Commerzbank logo are pictured at the bank's annual news conference in Frankfurt on February 12, 2015. (REUTERS/Ralph Orlowski/File Photo)
Updated 10 November 2017
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German prosecutors raid Commerzbank in tax evasion probe

FRANKFURT: Germany’s Commerzbank has become the target of a tax evasion probe in which several current and former managers are suspected of evading 40 million euros ($47 million) in taxes via so-called dividend stripping.
Prosecutors said on Friday they had searched the offices of a major Frankfurt bank and private homes this week.
The bank involved was Commerzbank, according to a person familiar with the matter who was speaking on condition of anonymity.
Commerzbank, Germany’s second-biggest lender, said it was cooperating with authorities.
Dividend stripping, also known as “cum-ex” transactions, involved buying a stock just before losing rights to a dividend, then selling it, taking advantage of a now-closed legal loophole that allowed both buyer and seller to claim tax credits.
Frankfurt prosecutors, together with federal crime police and tax officials, conducted the Commerzbank searches on Tuesday. They included the offices of the bank as well as the flats of three suspects in Frankfurt and nearby Hanau.
The legal news agency Juve first reported the news.
Investigations into the use of such schemes by a number of banks in Germany have been going on for several years. The practice may have cost the state billions of euros in tax over many years.
Last year, Portigon Financial Services, formed from parts of failed German lender WestLB, was searched by prosecutors as part of a probe into allegations that WestLB may have been involved in cum-ex trades..
Last month, prosecutors raided the Frankfurt offices of law firm Freshfields Bruckhaus Deringer in relation to a former client’s cum-ex transactions.
A number of banks have already paid hundreds of millions of euros in back taxes and tens of millions to settle disputes with German authorities.
Last year, German financial watchdog BaFin closed the German operations of Maple Bank due to over-indebtedness relating to the tax evasion investigations.
The Commerzbank investigation focuses on five current and former employees aged between 51 and 63, as well as unknown individuals suspected of involvement in the scheme to evade 40 million euros of taxes from 2006 to 2010, prosecutors said.
The investigation also extends to unknown individuals and trades in 2008 at Dresdner Bank, which was taken over by Commerzbank in 2009. Prosecutors said the volume of those trades was more than 10 billion euros, with a further 75 million euros in evaded taxes.
In a statement on Friday, Commerzbank said it had identified cum-ex trades at Dresdner Bank that it halted upon the 2009 takeover. Commerzbank also said it conducted a voluntary investigation at the end of 2015 into all trades between 2003 and 2011 that “revealed that there were cum-ex trades at Commerzbank.”
Commerzbank said it proactively notified the authorities with the preliminary results of that investigation and is cooperating fully.
Shares of Commerzbank dipped on the news midafternoon, but recovered somewhat to trade 0.7 percent lower at 1613 GMT.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.