Fitch Cuts JPMorgan Rating as S&P Calls Outlook Negative

By Michael J. Moore - May 12, 2012 11:00 AM GMT+0700

JPMorgan Chase & Co. (JPM), the largest and most profitable U.S. bank, had its credit grade lowered one level by Fitch Ratings and Standard & Poor’s said it may follow after the bank revealed a $2 billion trading loss.

The lender’s long-term issuer default rating was cut to A+ from AA-, and the short-term grade was lowered to F1 from F1+, Fitch said yesterday in a statement. Fitch placed all parent and subsidiary long-term ratings on rating watch negative.

Enlarge image

Signage stands outside JP Morgan Chase & Co. headquarters in New York. Photographer: Peter Foley/Bloomberg

Play Video

May 11 (Bloomberg) -- Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Bloomberg's Dawn Kopecki and Christine Harper talk about JPMorgan's $2 billion trading loss after what Dimon said was an "egregious" failure in the firm's chief investment office. This report also includes comments from Bloomberg Television contributing editors William Cohan, Thomas Brown and Neil Barofsky, Portales Partners' Charles Peabody, Aegis Capital's Stanley Crouch, Fifth Third Asset Management's Keith Wirtz and Rochdale Securities' Richard Bove. (Source: Bloomberg)

Standard & Poor’s cited the possibility of broader problems with JPMorgan’s hedging strategies, which the credit rater said isn’t “consistent with what we have viewed as the company’s sound risk-management practices.” A downgrade might result if the missteps prove to be wider, or if management “is pursuing a more aggressive investment strategy than we originally believed” and misses financial targets, according to an S&P statement. S&P affirmed JPMorgan’s A rating.

JPMorgan announced the loss linked to synthetic credit securities on May 10. Chief Executive Officer Jamie Dimon told analysts that the New York-based firm’s chief investment office took flawed positions tied to the investments that may cost an additional $1 billion this quarter or next.

“The magnitude of the loss and ongoing nature of these positions implies a lack of liquidity,” Fitch said. “It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight.”

JPMorgan is under review by Moody’s Investors Service for a possible two-level downgrade. The credit rater said in February it was examining 17 lenders and securities firms with global capital-market operations.

Downgrade’s Consequences

A downgrade could raise borrowing costs and oblige the firms to put up more cash for collateral calls and termination payments tied to derivatives contracts. Collateral calls were blamed in the 2008 credit crisis for draining cash and driving firms toward failure.

Morgan Stanley, Credit Suisse Group AG and UBS AG may be reduced three levels, Moody’s said. Analysts said before Dimon spoke that the industry-wide cuts could push more business to JPMorgan, Credit Suisse, Goldman Sachs Group Inc. and Deutsche Bank AG because they’d be left with some of the highest grades if Moody’s goes through with all its maximum reductions.

Joe Evangelisti, a spokesman for JPMorgan, didn’t immediately return a message requesting comment.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Read more...

Fed Officials Seek More Information on JPMorgan Trade

By Craig Torres and Caroline Salas Gage - May 12, 2012 7:54 AM GMT+0700

Federal Reserve officials are gathering more information about the trading position that led to a $2 billion loss at JPMorgan Chase & Co. (JPM), which they have known about for several weeks, according to a person familiar with the matter.

Fed officials don’t view it as their role to approve or reject individual trades at banks, the person said. Rather, their job is to ensure the firms have sufficient capital to withstand losses, said the person, who wasn’t authorized to discuss the matter and asked not to be identified.

Enlarge image

JPMorgan Chase & Co. chairman and CEO Jamie Dimon. Photographer: Mario Tama/Getty Images

Play Video

May 11 (Bloomberg) -- Federal Reserve officials are gathering more information about the trading position that led to a $2 billion loss at JPMorgan Chase & Co., which they have known about for several weeks, according to a person familiar with the matter. (Source: Bloomberg)

Enlarge image

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon. Photographer: Scott Eells/Bloomberg

Enlarge image

Bloomberg News first reported April 5 that London-based JPMorgan trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market. Photographer: Peter Foley/Bloomberg

JPMorgan Chief Executive Officer Jamie Dimon announced the “egregious” trading loss yesterday, two months after the biggest U.S. bank by assets passed a Fed stress test that put its loans and securities through a scenario of deep recession and a simulated global financial market shock.

“This is the way the system should work,” said Mark Calabria, a former Senate Banking Committee staff member and now director of financial regulation studies at the Cato Institute in Washington. “The capital should be there to actually absorb losses.”

The U.S. Securities and Exchange Commission opened a preliminary investigation into JPMorgan’s disclosures related to the trades, according to a person briefed on the probe who spoke on condition of anonymity because the matter isn’t public.

JPMorgan’s announcement points to gaps in the Fed’s enforcement of governance and risk management, said Robert Eisenbeis, a former research director at the Atlanta Fed.

‘Watching the Store’

“The fact that Jamie Dimon could come out and make some of those statements” raises “lots of questions about who was watching the store,” said Eisenbeis, who is now chief monetary economist at Sarasota, Florida-based Cumberland Advisors. The Fed “ought to be going in and looking at the internal controls and monitoring procedures that the institution is taking, and stress those.”

Krishna Guha, a spokesman for Federal Reserve Bank of New York, JPMorgan’s regulator, declined to comment. JPMorgan spokesman Joseph Evangelisti also declined to comment.

The Financial Stability Oversight Council, a group of regulators charged with preventing a financial crisis, wasn’t convened to discuss the JPMorgan loss and had no plans to meet, said a Treasury Department official who declined to be identified. The council is chaired by Treasury Secretary Timothy F. Geithner and includes Fed Chairman Ben S. Bernanke.

Capital Ratio

JPMorgan’s tier 1 common capital ratio, a measure of capital strength tracked by the Fed, never dipped below 5 percent in the 2012 stress scenario despite a hypothetical $28 billion in trading and counterparty losses and $56 billion in loan losses, according to results of the stress tests released on March 13.

“I don’t think this particular number is big enough to get in the way of the capital buffers that JPMorgan has,” Robert Engle, winner of the Nobel Prize in economics, said of the $2 billion loss.

“We think of JPMorgan as being one of the more systemic institutions because it is so big,” said Engle, a professor at New York University’s Stern School of Business, who helped develop a model of systemic risk at the school’s Volatility Lab. “But because it is big, a loss like this is not going to bring it to its knees.”

JPMorgan shares fell 9.3 percent to $36.96 at the close of trading today in New York. The KBW Bank Index of 24 financial stocks was down 1.2 percent to 46.40.

Separately, the Commodity Futures Trading Commission, the main U.S. derivatives regulator, has been reviewing JPMorgan’s derivatives trading activities since last month, according to another person who was briefed on the matter.

The CFTC hasn’t opened an enforcement action against the bank, according to the person, who spoke on condition of anonymity because the review is private.

To contact the reporters on this story: Craig Torres at ctorres3@bloomberg.net; Caroline Salas Gage at Csalas1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Read more...

Facebook Co-Founder May Gain Choosing Singapore Over U.S.

By Danielle Kucera, Christine Harper and Jesse Drucker - May 12, 2012 8:57 AM GMT+0700

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

Enlarge image

Eduardo Saverin, co-founder of Facebook, in New York City. Photographer: Jason Kempin/Getty Images for Common Sense Media

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“It’s plainly lawful and at the same time profoundly ungrateful to the country that provided these opportunities for him,” said Edward Kleinbard, a tax law professor at the University of Southern California in Los Angeles. “He benefited from his U.S. education, the contacts he made at Harvard, and most important the extraordinary openness and flexibility of our economy that encourages startup ventures to flourish.”

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made the move “around September” of 2011, Tom Goodman, a spokesman for Saverin, said in an e-mailed statement.

‘Practical’ Residence

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” Goodman said. Saverin still does hold Brazilian citizenship, Goodman said.

Americans who give up their citizenship owe what is effectively an exit tax on the estimated capital gains from their stock holdings at the time of the renunciation, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. In other words, for tax purposes, the IRS treats the stock as if it has been sold.

In Saverin’s case, the gain and subsequent tax bill would be based on the estimated fair market value as calculated by his tax advisers, not an actual open market sale. They could value his Facebook stake at less than it will be worth once shares trade publicly.

Saverin and his advisers could say that the value of his stake should be reduced for tax purposes because of the potential difficulty of selling the shares while the company was private.

‘Smart Idea’

Renouncing citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Avi-Yonah said. “Once it’s public you can’t fool around with the value.”

And even the tax bill triggered by Saverin dropping his U.S. citizenship can be deferred indefinitely until he actually sells the shares. In that case, Saverin would have to pay interest during the deferral period -- currently at an annual rate of 3.28 percent per year, Kleinbard said.

Gains from any future appreciation of the stock will be earned free of any capital gains tax both in the U.S. and in Singapore. Singapore does not impose a capital gains tax.

While Saverin helped start Facebook, he hasn’t always had a harmonious relationship with Zuckerberg. He scuffled with his Harvard University classmate over his ownership in Facebook. Saverin sued him and settled for an undisclosed amount.

Brazilian Investment

The 2010 movie “The Social Network” portrayed Saverin as a scorned friend who provided the company’s early financing and then got squeezed out. In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider- Man in “The Amazing Spider-Man,” due to be released in July.

Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman said. He has invested in Asian, U.S. and European companies.

He plans to invest in Brazilian and in other global companies that have strong interests in entering the Asian markets, Goodman said.

Saverin’s U.S. holdings include Jumio Inc., an online payments company, and ShopSavvy Inc., a price-comparison service.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records.

Income-tax rates for top U.S. earners will rise to 39.6 percent from 35 percent next year and rates on capital gains and dividends also are due to rise, unless Congress intervenes.

U.S. Loss

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, head of the global tax practice at Baker & McKenzie LLP in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

Some of the world’s largest wealth-management firms have ramped up efforts to fight tax evasion ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business.

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. That means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which may depress banks’ returns.

Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading the sale.

To contact the reporters on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net Sanat Vallikappen in Singapore at vallikappen@bloomberg.net Christine Harper in New York at charper@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

Read more...

California Deficit Swells to $16 Billion, Governor Says

By Michael B. Marois - May 13, 2012 2:49 AM GMT+0700

California’s budget deficit has swelled to $16 billion after tax collections trailed projections amid the tepid economic recovery, Governor Jerry Brown said in a comment on his Twitter post.

The shortfall has widened from the $9.2 billion Brown estimated in January, after lawmakers resisted the Democrat’s call for cost cuts, the federal government blocked other reductions and April income-tax revenue missed budget forecasts by $2 billion. On May 14, he’s set to unveil a revised spending plan and to say how he would erase the gap.

Brown, 74, set out an initial budget in January with $92.6 billion in spending for fiscal 2013, which begins in July. That plan stripped more than $4 billion from health and welfare programs while relying on higher income and sales taxes. The levy increases will go before voters in November. If rejected, schools will lose $4.8 billion midway through the year.

“We are still recovering from the worst recession since the 1930s,” Brown said in a YouTube video cited on his Twitter post. “Tax receipts are coming lower than expected and the federal government and the courts have blocked us from making billions of necessary budget reductions. The result is that we are now facing a $16 billion deficit.”

Brown this week submitted more than 1.5 million signatures to place the tax measure on the ballot. It would temporarily raise the state sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost rates on income starting at $250,000. The 10.3 percent levy on those making $1 million or more would rise to 13.3 percent, the most of any state.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

Read more...

Dow Drops Most in 2012 as Europe Concern Resurfaces

By Lu Wang - May 12, 2012 11:00 AM GMT+0700

U.S. stocks fell for a second straight week, driving the Dow Jones Industrial Average to the biggest loss of 2012, as political tension in Greece heightened concern about Europe’s debt crisis and JPMorgan Chase & Co. (JPM)’s $2 billion trading loss weighed on shares of banks.

Financial and technology companies in the Standard & Poor’s 500 Index slipped at least 1.7 percent for the week as JPMorgan tumbled 11 percent and Cisco Systems Inc. (CSCO)’s forecasts missed analysts’ estimates. Macy’s Inc. (M) lost 7.6 percent and Fossil Inc. sank 39 percent amid disappointing projections. Walt Disney Co. (DIS) rose 6.1 percent to an all-time high after the movie “Marvel’s The Avengers” earned a record $200.3 million in its opening weekend and profit beat analysts’ estimates.

Enlarge image

Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

Play Video

May 11 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks fell, sending the Standard & Poor’s 500 Index to a two-month low, as a slump in banks driven by JPMorgan Chase & Co.’s $2 billion trading loss overshadowed an increase in a gauge consumer confidence. (Source: Bloomberg)

The S&P 500 fell 1.2 percent to 1,353.39, the lowest level in two months. The index dropped 3.6 percent over two weeks, trimming its 2012 gain to 7.6 percent. The Dow slipped 217.67 points, or 1.7 percent, to 12,820.60 for its biggest weekly decline of the year.

“Europe is the big overlay,” Bernie Williams, a portfolio manager at USAA Investment, which oversees $52 billion in San Antonio, said in a phone interview. “People are relatively fearful, but the U.S. seems to be weathering this fairly well.”

Global equities declined during the week as an inconclusive election in Greece left political parties struggling to form a government. The impasse reignited concern over Greece’s ability to meet terms of its two bailouts and the possibility the country will leave the euro. In France, Francois Hollande, who defeated Nicolas Sarkozy as president, pledged to curtail austerity measures. The Europe turmoil overshadowed U.S. data showing jobless claims fell to a one-month low and consumer confidence rose in May to the highest level in four years.

Biggest Retreat

Concern that European officials would fail to contain the region’s debt crisis helped trigger the bull market’s biggest retreat last year. The S&P 500 plunged 19 percent from April 29 through Oct. 3, 2011, as Moody’s Investors Service cut its credit ratings on Portugal and Ireland to junk levels.

The index then rallied 29 percent to a four-year high on April 2 amid better-than-expected earnings and economic data. Per-share profits have topped projections at 70 percent of S&P 500 companies that reported results during the current earnings season, according to data compiled by Bloomberg.

The S&P 500 fell 0.8 percent in April and is down 3.2 percent in May as speculation grew that Europe’s debt crisis could slow the global economy. The index hasn’t posted back-to- back monthly declines since September. The Dow retreated in eight out of the past 10 trading sessions.

‘Egregious’

JPMorgan sank 11 percent to $36.96. Chief Executive Officer Jamie Dimon blamed an “egregious” failure in trading of synthetic credit securities for the trading loss. The firm’s chief investment office, run by Ina Drew, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon said.

Cisco tumbled 14 percent to $16.51. The largest maker of computer-networking equipment forecast fourth-quarter sales and profit that missed analysts’ estimates, saying some business clients are reluctant to spend. Chief Executive Officer John Chambers said orders from big companies fell in the third quarter and that it’s taking longer to sign large deals with corporate customers.

Cyclical, Defensive

Before this week, technology and financial stocks were market leaders this year, jumping 15 percent and 16 percent, respectively as a group, as investors snapped up stocks most tied to economic growth. Concern about the global slowdown prompted investors to seek safety in so-called defensive shares, driving S&P 500 gauges of phone stocks, utilities and health- care companies to the only gains this week.

The index of phone companies rallied 1.8 percent, the most among 10 S&P 500 groups. MetroPCS Communications Inc. (PCS) jumped 5.9 percent to $7.04. Deutsche Telekom AG is discussing a merger of its T-Mobile USA unit with the pay-as-you-go wireless carrier as it reviews options for the customer-losing business, according to people familiar with the matter.

Raw-materials and industrial companies fell the most as a group, sinking 2 percent and 1.8 percent, respectively. CF Industries Holdings Ltd., the largest U.S. maker of nitrogen fertilizers, fell 6.2 percent to $172.18 after Dahlman Rose & Co. recommended selling the shares. Dun & Bradstreet Corp., the owner of the Hoover’s business information service, slumped 13 percent to $66.59 after cutting its full-year sales forecast.

Macy’s, Fossil

Macy’s slid 7.6 percent to $37.98. The second-biggest U.S. department-store chain repeated its 2012 earnings forecast of no more than $3.30 a share. The average analyst estimate is $3.39.

Fossil (FOSL) plunged 39 percent, the most in the S&P 500, to $78.55. The watchmaker reported first-quarter revenue of $589.5 million, missing the average analyst estimate of $617.9 million, citing a softening economy in Europe. The company also lowered its 2012 earnings forecast to no more than $5.33 a share. The average analyst estimate was $5.56.

Disney climbed 6.1 percent to $45.56. The world’s largest entertainment company is working on a sequel to “The Avengers” and racing to get more merchandise in stores and plotting to get the characters in its parks, Chairman and Chief Executive Officer Robert Iger said.

Dean Foods Co. (DF) surged 18 percent, the most in the S&P 500, to $14.55. The biggest U.S. dairy processor boosted its full- year earnings forecast, saying it expects at least $1.10 a share. Analysts, on average, estimated 95 cents, according to a Bloomberg survey.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...

Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO

By Danielle Kucera, Sanat Vallikappen and Christine Harper - May 12, 2012 5:58 AM GMT+0700

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

Enlarge image

Eduardo Saverin, co-founder of Facebook, in New York City. Photographer: Jason Kempin/Getty Images for Common Sense Media

Play Video

May 11 (Bloomberg) -- Results of a Bloomberg investor poll show that 79 percent of respondents say Facebook is overvalued at $96 billion. Dominic Chu reports on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement.

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made that move “around September” of last year, according to his spokesman.

Besides helping cut tax bills stemming from the Facebook, the move may also help him avoid capital gains taxes on future investments since Singapore doesn’t have a capital gains tax.

Exit Tax

Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.

Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Avi-Yonah said. “Once it’s public you can’t fool around with the value.”

Saverin’s estimated gain, and subsequent tax bill, would be based on an appraisal by his tax advisers. They could have valued his Facebook stake at less than it will be worth once shares trade publicly, reducing his liability. For tax purposes, Saverin could say that the value of his stake should be discounted because of the potential difficulty of selling the shares while the company remains private.

Zuckerberg Scuffle

Saverin previously scuffled with Zuckerberg, his Harvard University classmate, over his ownership in Facebook. Saverin sued him and settled for an undisclosed amount.

The 2010 movie “The Social Network” added to Saverin’s fame after it portrayed him as a scorned friend who provided the company’s early financing and then was squeezed out. In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider-Man in “The Amazing Spider- Man,” due to be released in July.

Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman said. He has invested in Asian, U.S. and European companies, according to his spokesman.

He plans to invest in Brazilian and in other global companies that have strong interests in entering the Asian markets. “Accordingly, it made the most sense for him to use Singapore as a home base,” Goodman said in the statement.

Jumio, ShopSavvy

His U.S. holdings include Jumio Inc., an online payments company, and ShopSavvy Inc., a price-comparison service.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records.

Income-tax rates for top U.S. earners will rise to 39.6 percent from 35 percent next year and rates on capital gains and dividends also are scheduled to rise, unless Congress blocks the increases.

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, head of the global tax practice at Baker & McKenzie in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

Combatting Evasion

Some of the world’s largest wealth-management firms have ramped up efforts to fight tax evasion ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc, Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. all say they have turned away business.

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. That means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which may depress banks’ returns.

Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading the sale.

To contact the reporters on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net Sanat Vallikappen in Singapore at vallikappen@bloomberg.net Christine Harper in New York at charper@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

Read more...