U.S. and China tiptoe towards trade truce
The United States and China edged closer towards a limited trade deal, which would see a decrease in existing tariffs that have impacted the world’s two largest economies for nearly two years. The announcement, which pushed U.S. stocks to record highs on 12 December, saw investors breathe a sigh of relief at a potential agreement between the two superpowers. Both the U.S. and China have been in talks for two months in a bid to reach a truce. Tensions eased this month as the U.S. met a key demand from Beijing by offering to roll back existing tariffs on Chinese goods and remove the threat of new tariffs on a further US$156 billion of Chinese consumer goods. In exchange, China committed to large annual purchases of U.S. farm goods and made pledges related to intellectual property and currency. China’s foreign ministry did not confirm whether a deal was close, but said the positive market reaction showed that an agreement would be in the interest of both sides. “It’s what the international community wishes for. China is committed to resolve and manage the differences,” said a spokesperson for China’s foreign ministry.
Customers will make of break virtual banks, says KPMG
The profitability of Hong Kong’s virtual banks depends on their ability to convince customers to switch their payroll accounts from traditional banks, according to KPMG’s annual Hong Kong Banking Outlook 2020 report, released on 4 December. Doing so would provide them with access to an affordable and stable fund source. The city’s eight virtual banks hope to launch in the first quarter of next year. They are expected to only garner two or three percent of the city’s deposit base during the first year as each will only attract a few thousand customers, according to Paul McSheaffrey, KPMG China’s Head of Banking and Capital Markets, Hong Kong. He expects virtual banks to focus on retail business by providing loans through their retail partners, and then gradually move into longer term lending, such as mortgages.
Big China IPO makes small trading debut
The Postal Savings Bank of China made its trading debut on the Shanghai Stock Exchange on 10 December. Shares opened at 5.60 yuan, 1.8 percent higher than its initial public offering (IPO) price of 5.50 yuan, and closed 2 percent higher at 5.61 yuan. The Beijing-based bank, the largest bank in Mainland China by number of branches, hopes to raise 28.45 billion yuan through the IPO, or up to 32.71 billion yuan if it exercises its greenshoe option. Its debut listing was met with disappointment from investors in Mainland China, as most companies see increases of up to 30 percent on trading day. Its lacklustre listing suggest a shift in customer interest towards digital banks. “It’s not a lack of money but a lack of interest in the banking sector,” Margaret Yang, Market Analyst at CMC Markets, told the Financial Times.
Exxonmobil found not guilty in securites fraud trial
Exxonmobil was found to be not guilty by the New York Supreme Court on 10 December of engaging in fraud through its statement about how it accounted for the costs of climate change regulation. The US$1.6 billion lawsuit, brought by New York Attorney General Letitia James alleged that the energy company was deliberately understating the potential long-run impact of future legislation or litigation related to climate change on its profits. The lawsuit, which was the first climate fraud case to go to trial, is the result of a four-year investigation. “Despite this decision, we will continue to fight to ensure companies are held responsible for actions that undermine and jeopardize the financial health and safety of Americans across our country, and we will continue to fight to end climate change,” said James.
HSBC to pay US$192 million for tax evasion
HSBC’s Swiss private bank will pay upwards of US$192 million in fines after admitting to the United States Department of Justice (DoJ) that it conspired with U.S. taxpayers to avoid taxes. According to the DoJ, the bank conspired with its employees, third-party and wholly-owned fiduciaries and clients in the U.S. between 2000 and 2010 to defraud the U.S. with respect to taxes, commit tax evasion and file false federal tax returns. The bank used code names, numbered accounts and accounts in names of nominee entities in the British Virgin Islands, Liechtenstein and Panama to conceal the true ownership of the accounts.
The IASB identifies nine different definitions of operating profits
The International Accounting Standards Board (IASB) has put forward proposals to improve financial reporting standards related to the reporting of profit and income. The improvements, announced on 17 December, would require companies to provide their profit subtotals for operating profit, operating profit and income and expenses from integral associate and joint ventures, and profit before financing and income tax. A sample of 100 companies analysed by the IASB identified nine different definitions of operating profits, which has made it problematic for investors and analysts to conduct company performance comparisons. The standards, if approved, are expected to come into effect at the beginning of 2023.
Big Four urged to address climate change
European investors are putting pressure on the Big Four to take urgent action on climate-related risks, warning that failure to do so would result in more damage than the financial crisis. The investors, who collectively manage more than £1 trillion worth of assets, submitted a letter to the Big Four in January voicing concerns that climate change was overlooked in accounting and audits. The investors also want auditors to challenge assumptions about long-term prices for oil and gas, which underpin shareholder returns. “This time around, we need our auditors to be on the front foot and raise the alarm where executives fail to reflect foreseeable losses or liabilities,” said Natasha Landell-Mills, Head of Stewardship at Sarasin & Partners, who is spearheading the campaign with 29 investors.
U.S. warns of tax on French goods
The United States’ government threatened to tax US$2.4 billion worth of French goods in response to a digital services tax imposed by France that would affect large U.S. tech companies. The decision, announced on 2 December, would slap punitive duties of up to 100 percent on goods such as cheese, champagne, sparkling wine, make-up, handbags and homeware such as porcelain and bone china. French Minister of the Economy and Finance Bruno Le Maire has called the threat “unacceptable” and vowed to retaliate if the U.S. proceeds with the decision. Earlier this year, France voted in favour of imposing a new 3 percent digital levy on big tech companies that generate more than €750 million in global revenue and €25 million in France.
PwC U.K. to curb office alcohol consumption
PwC in the United Kingdom has issued new rules to clamp down on when and where employees can consume alcoholic beverages in the office. Under the new protocol, staff members can only drink alcohol on PwC premises if it has been supplied by the firm’s in-house catering team at designated events. The move aims to curb an increase of inappropriate conduct and harassment in the workplace. The firm made five partners redundant for inappropriate behaviour such as bullying over a period of three years. Though it is unclear whether the firing was related to the consumption of alcohol, the move also comes in response to multiple scandals in the U.K.’s accounting sector, which has seen partners from the Big Four leave the firms over accusations of improper conduct.
Grant Thornton U.K. fined £422,500 for audit deficiencies
Grant Thornton, the sixth largest accounting firm in the United Kingdom, was fined £650,000 by the Financial Reporting Council (FRC) after admitting its audit work on parts of an unnamed listed company were inadequate. Its audit engagement partner was also fined £20,000. However, both the firm and partner have had their fines reduced to £422,500 and £13,000 respectively due to early admissions and disposal of the case. The FRC said the audit on the company’s principal assets was insufficient, and the audit team relied unduly on the company’s externally appointed experts in the valuation of the assets.
Telecommunications group guilty of bribery
Swedish telecommunications group Telefonaktiebolaget LM Ericsson has agreed to pay out more than US$1 billion to the United States Securities and Exchange Commission and Department of Justice to settle bribery charges early this month. The group admitted to a two-decade long scheme which saw it use agents and consultants to bribe government officials with slush funds, bribes, gifts and graft in Djibouti, China, Vietnam, Indonesia and Kuwait to raise profits. The group was ultimately found guilty of conspiring to violate the anti-bribery provision of the Foreign Corrupt Practices Act. It also struck a three-year deferred prosecution agreement. “Today’s guilty plea and surrender of over a billion dollars in combined penalties should communicate clearly to all corporate actors that doing business this way will not be tolerated,” said U.S. Attorney Geoffrey S. Berman.
