Let’s start with some good news. There are some very positive trends coming out of London and Wall Street which have hit the financial centers with sudden impact. Very low interest rates, and its related abundance of liquidity, have triggered pent up demand for capital. Many investors, already tired with low returns, fear they have missed the bottom of the bear market and are rushing in to catch the upswing. Consequently, investment houses and some banks note that they have cut too deeply and are reloading. The search for replacement talent has begun in earnest and salaries and bonuses have moved with the markets. There is talk of bonuses returning to 2007 levels with 2008 being seen as an anomaly. Recovery will take a while to wash through the system with unresolved commercial real estate, housing and other lending problems still dragging the sector. Bonus awards rules are unclear as working guidelines (witness what happened to Ken Lewis) and much criticized in the media. This will not hold back the push in the direction of a return to a more normal and orderly financial employment market. It may be a little too soon to declare the financial crisis over. We can see markets are on the way back and there is a very strong, and more than likely, a sustainable growth pushing the financial sectors. The effects of this will sooner, rather than later, reach our local markets as well.

Congress is convinced there is substantial tax revenue buried in off shore accounts and other clever tax shields. Most members of Congress do not understand the complexities of and competitive nature of world finance. Lacking other ready means of access they are determined one way or another of using the banking system to get at these tax revenues. Many plans are under discussion but there is none more aggressive than that being pushed by Senator Carl Levin, Democratic Senator from Michigan. Senator Levin is proposing legislation, under the banner of stopping tax abuse, which would require a level of compliance that would swamp the U.S. financial system’s ability to respond to its requirements. Determined to get his bill passed, he is trying to attach it to the health care bill, the financial institutions restructure legislation, the defense spending bill, or anywhere else he can stick it.

S.506-Proposed Stop Tax Haven Abuse Act has a laudable purpose of penalizing persons who are purposely cheating on their taxes. Probably we can all agree that this is justifiable and long overdue. But to make the banking system, especially the US banking system, responsible for policing the world tax compliance does not seem appropriate. The French government has also put pressure on their own banks to limit their activities in so-called gray tax havens, but the US is one of the very few countries which taxes earnings of US citizens on their world wide income. The French government action has led BNP Paribas to announce it has decided to exit Panama and the Bahamas.

Senator Levin’s legislation begins with the premise that you are guilty until proven innocent. This is certainly contrary to our country’s long legal precedent. His position is strengthened by a US court’s ruling in the case of US citizens with accounts in UBS Switzerland. The court agreed with the US government’s claim that having an account in Switzerland was, in itself, probable cause that you have committed a crime. Prior to this ruling the government had to demonstrate evidence that provided probable cause that one had committed a crime. As a result of this ruling, and a relentless IRS pursuit, 7,500 taxpayers have reported undeclared incomes in more than 100 banks in 70 countries. In isolation, it looks like a large number and gives credence to his legislation.

Here is where good intentions lead to overkill. Major features of Levin’s bill would make bankers, lawyers, trust officers and businessmen personably liable for tax reporting for being a signatory on an offshore account or trust. Individuals are presumed guilty of tax evasion unless they can prove they are innocent. There are a number of provisions that make it relatively impossible for US corporations and financial institutions to compete in the international financial arena, and makes the US an unattractive and prejudicial place for a foreigner or a foreign corporation to do business. Included in the bill are numerous tax filing requirements and a limitation on the use of tax experts in dealing with this maze.

In other bills, Congress wants to impose the flip side of the Swiss case and make it a bank’s responsibility to assure that accounts from non-residents are reported to the IRS (even though their earnings are not subject to US taxes) and that foreigners are tax compliant in their home country as well. Thus it is turning US-based banks into the tax collectors of the world, with stiff penalties when the banks slip up. We have already experienced other such legislation under the Patriot Act where banks have tied up as much as 20 percent of their entire staff in compliance regulation enforcement. The result is that a number of banks have chosen to exit the US, or in the case of US banks, international business, because of the added burden, which has done little to capture terrorists for which the act was intended. This is the simplified version of costly legislation which is on a fast track in Congress. Be informed and read it for yourself on our blog link and draw your own conclusions.

Related Links

• View full text of the Bill on opencongress.org
• Track the progress of this bill with govtrack.us
• Yahoo News – At least 7,500 seek tax amnesty on offshore accounts: US

No check for you – if you work for a bank that is in “troubled condition” which includes many banks in South Florida in today’s banking environment. If your bank has any type of regulatory agreement, it can be considered in “troubled condition.” So called Golden Parachute payments are not just for the high fliers. According to 12 CFR 359, a “golden parachute payment” generally is considered to be any payment in the nature of compensation to an institution-affiliated party (IAP) that is contingent on, or payable on or after, the termination of that party’s employment and is received when the bank making the payment is troubled.” Broadly defined it includes directors, officers and EMPLOYEES, among others. Check the fine print and regulation for your severance may not be what you counted on or were promised EVEN IN WRITING. Don’t count on it and know what your risk is, especially in accepting a new position. You have the right to appeal directly to the regulators, but good luck.

News and Views of the Financial Sector that You Won’t Get Anywhere Else

In the coming weeks we have a few things to say about….
Who is coming to town and who is turning out the lights?
What’s happening to salaries and what jobs are hot?

Every month we will deal with a cutting edge topic of interest for example…
The FDIC is running out of money. How will that affect our banks and is easing the requirements for venture capitalists to take over banks the right answer?
Where will this war of principles between the U.S. and Switzerland lead us? Is it over? How will it affect our market?

We will feature…

“Lunch with Nason” where we will have lunch with colleagues to discuss what’s on their mind about the future of banking, this market and where we go from here (or whatever else they would like to say).
“The Next-Gen Lunch” will capture the younger professional’s point of view. “On The Move” will highlight where your friends are hanging out now.
“Latin Beat” will provide fresh information from the field as our representatives in Panama and Peru will tell you what’s going on in the job market south of Key West.
“Reader’s Forum” will give you the opportunity to share your thoughts and opinions, unabridged, with your fellow bankers and business friends. We expect you will enjoy the chance to share facts, opinions and ideas.

The good news is that we see the job market on the way back up. Stay on top of it with our monthly updates.