An elevator controlled remotely. A bank office referred to by its code name. A sheaf of bank statements hidden in the pages of Sports Illustrated.
At times, a US Senate report into how Credit Suisse, a bank based in Zurich, helped its American customers hide billions of dollars of assets from Treasury reads more like a John Grisham novel than a white paper.
The report, the product of a two-year investigation, was released on Tuesday by the Senate permanent subcommittee on investigations. It contends that the bank actively helped thousands of Americans conceal their wealth offshore. Brady Dougan, the chief executive of Credit Suisse, and other top bank officials are scheduled to appear along with two Justice Department officials at a hearing on the report on Wednesday.
”It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore,” Senator Carl Levin, a Michigan Democrat and the subcommittee’s chairman, said in a statement.
The report is scathing both to the financial institution and to American law enforcement, which the subcommittee accuses of dragging its feet in holding the bank and the relevant taxpayers accountable.
The 176-page report charges that from at least 2001 to 2008, the Swiss bank helped its American customers evade taxes through a variety of means, including opening accounts in the name of shell companies and sending Swiss bankers to the US to secretly recruit new clients and avoid creating a paper trail.
In one instance, it says, a Credit Suisse banker travelled to the US to meet the customer at the Mandarin Oriental Hotel and ”over breakfast handed the customer bank statements hidden in a Sports Illustrated magazine”.
The bank’s New York office also ”kept a document listing ‘important phone numbers’ of intermediaries that formed offshore shell entities for some of the bank’s US customers” and urged American customers to come to Switzerland to do their banking, opening a full-service office in the Zurich airport, the report said.
That office even had a code name, ”SIOA5”. Mr Dougan told the Senate investigators that the airport office was for the convenience of clients heading to and from Swiss ski resorts, so that they would not have to go out of their way to Zurich.
Credit Suisse did not respond to a request for comment on the report.
One American client recalled visiting a Credit Suisse office and taking an elevator with ”no buttons” that was ”controlled remotely”.
”The prospect of US prosecution has been forceful enough to cause 43,000 taxpayers to self-report and pay nearly $6 billion in taxes and penalties,” a Justice Department spokeswoman said.
Five years ago, the US charged the largest Swiss bank, UBS, with aiding tax evasion. UBS admitted guilt and paid $780 million in fines and other costs.
This month, Credit Suisse reported net income of about $300 million, in the fourth quarter of 2013. Last week it paid a fine of $196 million for failing to register with the agency before advising American clients.
Suggestions that employment growth in the services sector can make up for job losses in manufacturing sometimes prompt a claim that the services sector doesn’t create wealth, it consumes it: Flight Centre’s founder, Graham Turner, would disagree.
Flight Centre reported a 14 per cent rise in December-half underlying net profit to $104.7 million on Wednesday, and is one of those companies investors wish they had picked before it took off.
It floated in 1995 at a price that valued it at about $75 million. It’s valued at just under $5 billion today, and its five-year share price return is just over 1000 per cent – 1245 per cent including dividends that total more than $1 billion since listing.
It’s got demographics on its side right now: baby-boomers are booking more trips as they get to the end of the full employment arc. They are shoring it up against the rising tide of the internet, and the Australian dollar’s fall has so far also not caused major problems.
Flight Centre says it is converting itself from a travel agent to a travel retailer that manufactures its own travel deals and builds customer databases that allow more tightly targeted marketing, and it’s a classic ”clicks and mortar” retail business. Retail shop numbers rose by 8.2 per cent to 2643 last year.
It’s also a classic services sector company – one that receives income that has been generated elsewhere, but then builds something.
It builds stores, with an attendant economic multiplier effect. It is lifting its own job numbers as it expands. Turner’s estimate is that the head count rose by about 1000 last year to about 15,000.
Flight Centre’s shares traded slightly down after it reported its results but jumped in the final hour of trading to close 2 per cent higher at $50.82. Its shares were $31.50 a year ago, and while it has maintained its guidance for 8-to-12 per cent growth in full-year earnings before tax, investors might be forgiven for thinking that the moment to buy has passed.
It is worth noting, however, that questions about the durability of Flight Centre’s business model existed a year ago, too. The bricks-plus-clicks and mortar model still appears to be holding its own against internet travel and accommodation retailers (one of them, Australia’s Wotif group, reported an 18 per cent fall in December half earnings on Wednesday), and the 14 per cent profit rise and a 15.1 per cent jump in revenue in the December half both beat the 8.2 per cent rise in shop numbers.
The weaker Australian dollar is also not yet translating to a decline in overseas travel. The $A fell from US105.6¢ in April last year to US89.9¢ by year-end, but outbound departures rose by 14 per cent in the December half.
Flight Centre says flight numbers have risen by about 80 per cent in a decade. Competition among the airlines has intensified, ticket prices have fallen. The cuts Qantas is poised to announce are a response to the pressure – but for Flight Centre, higher flight numbers are a positive force.Ziggy figures it
NBN Co chairman Ziggy Switkowski and former Labor communications minister Stephen Conroy crossed swords on Tuesday over Switkowski’s comment at a Senate estimates committee hearing that $7 billion had been spent on ”3 per cent of the [NBN] build”, but it was an argument about the number of angels on a pin-head.
Switkowski got tripped up trying to make the point that present statistics are an unreliable pointer to the future of the project.
NBN fibre has passed just over 300,000 premises, and is intended to pass 10 million. That is the 3 per cent number that Switkowski used (the NBN has referred to it before), and a total of $7.3 billion had been sunk into the project by December 31. That obviously does not mean, however, that the project will cost $210 billion to build: the NBN’s own estimate in its update last December was $33 billion.
The NBN is big, but it’s still basically a construction project, and construction projects absorb money and time at the front end as their foundations are built.
By December 31, $3.5 billion had been sunk into a broadband ”transit network” that connects towns and cities. The transit network ”passes” no premises in a statistical sense, but it is the NBN’s spine. At December 31, it was 60 per cent complete, and 38,000 kilometres long.
Another $658 million had been spent on hardware for the satellite portion of the network that will service remote areas, including two satellites that are being built in California, and a ground station at Bourke in western New South Wales.
Backbone infrastructure for the wireless portion of the network that will be sandwiched by fibre and satellite was in place at a cost of $408 million, and 94 of a planned 121 points of interconnect for companies wanting to tap into the network had been completed. The NBN is behind its original schedule, but is far from only 3 per cent complete.
The fading impact of discounting and surging wholesale gas prices are expected to help energy group AGL offset the effect of subdued demand after a soft December-half profit.
AGL has maintained its year-to-June net profit guidance at $560 million-$610 million following a weak December-half net profit of $261 million, which was down 27.1 per cent year on year.
Earnings were hit by a warm winter and heavy discounting although stripping out the impact of futures contract valuations, the underlying net profit declined a more modest 11.4 per cent to $242 million.
Earnings a share dropped 28.2 per cent to 46.9¢, with the interim dividend held steady at 30¢.
”We expect subdued demand conditions to continue,” AGL’s chief executive, Michael Fraser, told analysts on Wednesday.
In the December half, excluding the purchase of Australian Power and Gas, AGL saw electricity consumption fall 8 per cent with gas usage down 9 per cent. Margins on electricity sold to commercial and industrial customers have also fallen to 2 per cent from 3 per cent.
Mr Fraser pointed to ”fierce competition” from ERM Power, which has been ”writing very low margin business” and has affected all suppliers in the sector.
More recently, heatwave conditions in South Australia and Victoria have helped to lift demand, notwithstanding the loss of output from Loy Yang A and the Torrens Island power stations for a time in January.
These higher volumes have ”given confidence” in meeting the profit guidance, Mr Fraser said, especially with a decline in discounting and customer churn outside of Victoria.
AGL is waiting for NSW government approval for a gas development project at Gloucester, north of Newcastle, which ”is absolutely essential for security of supply for NSW gas”, he said.
AGL is also seeking approval to carry out hydraulic fracturing at a pilot gas project and, even if it is able to proceed soon, AGL is unlikely to be in a position to make final investment decisions until 2015, which may threaten the chances of bringing this project on by late 2016, as anticipated.
The delays in pursuing the Gloucester project comes as the wholesale gas price in Queensland has reached $10 a gigajoule, against the backdrop of strong gas demand as a number of gas export projects are being completed. ”There is upward pressure on prices – right up and down the east coast,” he said.
Sydney Airport is talking about buying back the lease to Terminal 3.Sydney Airport has not budgeted for the prospect of shared domestic and international terminals over the next five years despite failing to reach an agreement with Qantas to buy back the airline’s lease over Terminal 3 and its jet base.
The airport operator unveiled plans to spend $1.2 billion on improvements, including to roads, over the next five years alongside the release of its full-year results. Sydney Airport’s earnings before interest, tax, depreciation and amortisation increased by 7.3 per cent to $910 million, outpacing a 4.1 per cent rise in international passenger growth.
The company also forecast it would increase distributions to shareholders to 23.5¢ this year compared with 22.5¢ last year, all of which was covered by operating receipts.
Sydney Airport has been in talks with Qantas about buying back the lease over Terminal 3, which expires in 2019 and the airline’s jet base, which expires in 2020. The federal government last week approved a plan to create integrated domestic and international terminals.
But Sydney Airport chief executive Kerrie Mather said the timing of the move depended on access to the Qantas terminal and jet base, along with overall airline demand and it therefore was not part of the five-year budget.
”We’re in an ongoing dialogue with Qantas in relation to the terminal but also in relation to a whole range of other opportunities,” she said. ”There is no agreement necessary until 2019.”
The airport so far has also failed to reach an agreement with Virgin about its placement within an integrated terminal area because the airline opposed an initial plan for it to move to the present international terminal, which is further from the CBD.
Sydney Airport shares rose 11¢ to $4.05 after the airport’s results on Wednesday, having increased in value by 29 per cent over the 12 months, compared with a 8.7 per cent rise in the benchmark S&P/ASX200 index during that period.
Ms Mather said the Chinese market was performing strongly, with more demand than the air capacity rights available under bilateral air services agreements. Chinese travellers also tended to be among the highest retail spenders, so any increase in flights helped drive the airport’s income.
Ms Mather said any international route cuts that Qantas might announce on Thursday probably would be offset by increased growth from other carriers. Sydney Airport receives 70 to 75 per cent of its revenue from international flights, which is a more important business than the domestic market. Ms Mather said the domestic market outlook was ”subdued”.
”The domestic market has seen lower capacity growth over the last year as a result of the airlines focusing increasingly on yield,” she said.
Trainer Chris Waller. Photo: Jenny EvansRiva De Lago is one of a number of early nominations leading Sydney trainer Chris Waller is considering for Canberra’s Super Sunday on March 9.
But Thoroughbred Park is in a battle for entries with Warwick Farm’s Chipping Norton Stakes Day as the Sydney autumn carnival heats up.
Riva De Lago won the group 2 Sebring Stakes (1400 metres) at Rosehill last spring and has accumulated more than $500,000 in prizemoney.
The six-year-old son of Encosta De Lago has been nominated for the listed National Sprint (1400m) in Canberra, but the group 3 Liverpool City Cup (1300m) at Warwick Farm is also an option.
Champagne Cath, who finished third in the group 2 Light Fingers Stakes (1200m) at the weekend, could run in the listed Canberra Guineas (1400m), while the $200,000 Canberra Cup (2000m) is an option for Prix Vicomtesse Vigier (3110m) winner Brigantin.
Waller’s racing manager Liam Prior said they would have nominations in each of the four feature races – the $275,000 Black Opal Stakes (1200m), the Cup, the Guineas and the Sprint – but wouldn’t finalise them until early next week.
Riva De Lago resumed from a spell last Saturday, finishing seventh to Terravista in the group 3 Southern Cross Stakes (1200m) by 4½ lengths.
”Possibly [Riva De Lago], he’s nominated for the Liverpool City Cup as well, so we’ll assess both lots of nominations and work it out from there,” Prior said on Wednesday.
”I’d say a majority of horses would be nominated for both races.
”He’ll be better suited for 1400 [metres] second-up though.
”I think we’ve got four [nominated] in the Guineas, four in the Cup, one in the Sprint, a couple in the two-year-old [Black Opal] and once we assess where each horse is best placed we’ll make decisions on where each of them will run.”
Sam Kavanagh’s Midsummer Sun is an early nomination for the Cup.
The son of Monsun won the Gosford Cup (2100m) in January.
Peter Snowden said Ghibellines, Memorial and Careless would all be nominated for the Black Opal, with the former the most likely to run.
Ghibellines was third to Fighting Sun in the listed Canonbury Stakes (1100m) at Rosehill last start. Wistful, which finished third in the group 3 Summoned Stakes (1600m), was an option for the National Sprint, as was Seaside.
Nominations close on Tuesday.
BLACK OPAL STAKES DAY: At Thoroughbred Park, March 9. Tickets available at Ticketek, gates open at 11.30am.