Tuesday, March 15, 2016
Bank of Japan negative rate move backfires; Investors file multi billion-dollar suit against Volkswagen; Kuwait decides on 10% tax on corporate profits
1 Bank of Japan negative rate move backfires (Straits Times) It's a strange world when bank accounts earning almost no interest are one of the most attractive investments around. Despite the Bank of Japan's efforts to spur risk-taking with negative rates, cash is flowing out of funds targeting bills and commercial paper in favour of 0.001 per cent savings plans, according to Deutsche Bank and Monex Group.
Eleven money-market funds stopped accepting new investment in February as banker association data showed deposits climbed almost 6 per cent. The influx of cash is causing headaches for lenders that either have to pay to park reserves at the central bank or invest in a government bond market with negative yields in maturities as long as 10 years.
It also undermines Prime Minister Shinzo Abe's strategy of encouraging companies and households to invest more of their cash, a key part of his goal to reflate the world's third-largest economy.
"This is investment to savings - the exact opposite of what the government has been trying to promote," said Nana Otsuki, chief analyst at Monex. "The banks really don't want excessive amounts of deposits that they can't invest, but they do want the customers."
As predicted by economists, the Bank of Japan kept rates unchanged at a policy meeting on March 15, the first since their decision to introduce negative rates in January. The board decided to amend conditions of the policy to exclude so-called money reserve funds from negative rates. Differing from money-market funds, they are used by brokerages to settle securities trading for clients.
With banks also cutting loan rates to record lows, they face a profit squeeze unless they can find ways to stem the flow of unwanted deposits. Their dilemma: either start charging account holders and risk losing clients, or keep deposit rates positive and find other ways to offset the costs of holding excess reserves at the BOJ.
2 Investors file multibillion-dollar suit against Volkswagen (The Guardian) Almost 300 institutional investors in Volkswagen have filed a multi-billion dollar suit against the carmaker for what they claim were breaches of its stock market duty in the emissions cheating scandal.
The lawsuit, for damages of €3.3bn ($3.6bn), was filed at a regional court in Braunschweig in VW’s home state of Lower Saxony and is being brought by 278 investors from all over the world, including German insurers and US pension fund Calpers. In 2015 VW was caught using “default device” software to systematically cheat on US regulators’ emissions tests.
Martin Winterkorn, the global chief executive of VW, resigned in September 2015 in the near-immediate aftermath of the scandal, which wiped billions of euros off VW’s market value and left the company facing fines of as much as $20bn and a criminal investigation by the US Department of Justice. Law firm TISAB said the German lawsuit claims VW neglected to keep the markets properly informed between June 2008 and 18 September, 2015.
3 Kuwait decides on 10% tax on corporate profits (Khaleej Times) Kuwaiti Finance Minister Anas al Saleh has said that the cabinet had approved a plan to impose a 10 per cent tax on profits of companies. The cabinet also approved a re-pricing of some commodities and public services, he added, without elaborating.
Corporate taxes are currently levied at different rates for local and foreign companies, although most Kuwaiti companies do not presently pay taxes on income. Other charges are levied though: some firms must pay an employment tax and make mandatory contributions for zakat, or Islamic alms, and for a scientific research foundation.