Julius Baer ordered to pay $162m over vanished East German cash

In this file photo taken on February 05, 2010 a man walks past the logo of the Swiss bank Julius Baer group at the headquarters in Zurich. (AFP)
Short Url
Updated 26 September 2020

Julius Baer ordered to pay $162m over vanished East German cash

  • The Zurich-based bank has been fighting a long running legal battle against the payment, but Switzerland’s highest court has now given its final decision, ordering Julius Baer to pay 150 million francs

ZURICH: Swiss private bank Julius Baer could seek to recoup 150 million Swiss francs ($162 million) from UBS after it was ordered on Friday to repay the German government over millions in East German cash that vanished after the fall of the Berlin Wall.
The German government has been seeking money that it says was illegally transferred out of East Germany when the communist regime collapsed.
At that time, large sums were moved from an East German foreign trade company to foreign banks, so the money could not be seized by a reunified Germany.
For more than 20 years the Federal Agency for Special Tasks (BvS) has been searching for the money which has since been withdrawn from the banks.
The agency has also been seeking to make banks involved liable for not preventing these withdrawals.
Julius Baer became involved due its acquisition of the former Swiss Bank Cantrade, which it picked up in 2005 when it bought Bank Ehinger & Armand von Ernst Ltd. from rival Swiss lender UBS.
The matter is related to unauthorized withdrawals between 1990 and 1992 from a Cantrade account of a foreign trade company established in East Germany, Julius Baer said on Friday.

BACKGROUND

German authorities have been trying to recover funds that were allegedly transferred out of East Germany illegally when the communist regime collapsed in 1990.

The Zurich-based bank has been fighting a long running legal battle against the payment, but Switzerland’s highest court has now given its final decision, ordering Julius Baer to pay 150 million francs.
BvS was not immediately available for comment on the decision.
The payment, which includes interest, is fully covered by a provision Julius Baer booked in December 2019, the Swiss bank said.
Julius Baer said it will notify UBS of the final ruling. It previously said it would pursue Switzerland’s biggest bank for payment under the warranties agreed when it acquired Bank Ehinger & Armand von Ernst from it. UBS did not immediately respond to a request for comment.


Turkey holds rates in surprise that sends lira to new low

Updated 48 min 55 sec ago

Turkey holds rates in surprise that sends lira to new low

ISTANBUL: Turkey’s central bank bucked expectations for a big interest rate hike on Thursday and sent the lira plunging to a record low by holding its policy rate at 10.25% and saying it had already made progress in containing inflation.
The bank, which also surprised last month when it hiked rates, said it would continue with liquidity measures to tighten money supply. It raised the uppermost rate in its corridor, the late liquidity window (LLW), to 14.75% from 13.25%. A Reuters poll of 17 economists had expected the bank to raise its key one-week repo rate by 175 basis points to address Turkey’s weak currency and double-digit inflation. Forecasts ranged from hikes of 100 to 300 bps.
The decision to leave the rate unchanged sent the lira down more than 2% to near 8 versus the dollar and prompted economists to question the central bank’s commitment to lowering inflation and its independence from the government.
“The (bank) is now back to a more unpredictable and opaque monetary policy framework. It appears as a severe miscalculation,” Per Hammarlund, chief emerging markets strategist at Swedish bank SEB.
The key policy rate remains below annual consumer price inflation, which stood at 11.75% in September, leaving real rates negative for lira depositors.
Turkey’s central bankers had surprised markets with a 200 basis point rate hike in September, the first monetary tightening in two years as it sought to rein in inflation.
Its so-called backdoor measures to rein in credit have raised the average cost of funding to 12.52% from a low of 7.34% in July. The LLW adjustment gives the bank more scope to raise funding costs.
“A significant tightening in financial conditions has been achieved, following the monetary policy and liquidity management steps taken to contain ... risks to the inflation outlook,” the bank’s monetary policy committee (MPC) said.
It said liquidity measures will carry on “until the inflation outlook displays a significant improvement.”
The lira touched a record low of 7.9845 against the dollar.
It is down 25% this year in a selloff prompted by concerns about high inflation and the central bank’s badly depleted FX reserves, and geopolitical worries including the prospect of trickier US ties under a possible Joe Biden White House.
Last month’s hike in the policy rate reversed a nearly year-long easing cycle in which it fell rapidly from 24%, where it was set in the face of a 2018 currency crisis.
“Last month the central bank took an important step to restore credibility and today’s decision seems like a step back. All this positive impact has been reversed significantly,” said Piotr Matys, senior EM FX Strategist at Rabobank.
Turkey’s economy contracted 10% in the second quarter because of the coronavirus pandemic and measures to combat it. Tensions in the Eastern Mediterranean and in the Nagorno-Karabakh conflict are also clouding the outlook.