Author: Ben Debski

Montenegro has had its fair share of political ups and downs in recent years. Now fully independent it is welcoming foreign direct investment with open arms – and the opportunities, for those in the know, are mouth-watering. Legal expert Ana Kolarevic has represented the interests of leading foreign investors in Montenegro for some time. The list of her clients extends to more than 80 percent of foreign companies and individuals who’ve started business and investments in Montenegro. The high proportion of businesses relying on her judgement stems from the fact that there are few lawyers as experienced as Kolarevic in this fast-changing part of Europe.

Wide range of legal expertise
Kolarevic specialises in all types of corporate and commercial law, not to mention civil and administrative transactions. So who’s a typical Kolarevic client? Typically Kolarevic says it’s a domestic or foreign client launching a new greenfield project – a project that has to pass through all the legal and administrative hurdles until operation can commence. “That includes all the stages of privatisation, tendering, negotiations, contracting, company formation, etc. Personally I tend to agree with the thesis that the best attorney is one whose clients are not involved in litigation. It’s an art of resolving a problem while providing good protection to your client and not exposing him to court expenses. That counts for a lot,”  she says. Her office has an excellent team of external collaborators who are experts in finance, taxing, architecture and land surveying, to name but a few specialties. But Kolarevic’s essential unique selling point has to be her experience in operating inside a country where few outsiders are naturally confident. “I think my clients appreciate the security I give them. They always know how they stand and always have reliable, impartial information on the basis of which they may assess their risks. These are necessary ingredients to proper decisions.”

Although overseas law firms are slowly starting to penetrate Montenegro themselves, home-grown expertise with an intimate knowledge of the country’s legal byways and culture is irreplaceable and unique, especially in a country whose infrastructure is still way behind most EU states. Yet foreign legal firms are also making inroads into the country. “I welcome foreign competition. It’s an excellent driver for better performance and more creative ideas towards the improvement of legal services generally. Also, it can mean good cooperation with other foreign legal offices in Montenegro. It’s a good thing.”

The Kolarevic advantage
• Court representation and production of constitutional documents and drafting internal corporate contracts;
• Organising shareholder meetings and supplying advice regarding the application of the Companies Act;
• Assisting in entering into funding agreements and preparing related security;
• Organising share purchase procedures;
• Legal assistance in labour relations, including obtaining of work and residence permits for non-residents;
• Preparation of contracts required for operation
of business organisation including privatisation
and due diligence, and;
• Transactions and activities related to urban planning and development.

Why invest in Montenegro?
It’s a good question. But the answer is simple. Montenegro is on the move. The overall investment and business climate in the country is startlingly better than it was even just two years ago, despite the current global recession. “The main priority is to improve the environment to such an extent that it becomes attractive to as many investors as possible and makes them decide to stay in Montenegro as long as possible,” says Kolarevic. “The legislative framework is being upgraded, with good prospects to follow the timeframe established in the National Plan of Integration with the EU.”

Although Montenegro only became independent in 2006, the country has achieved significant improvement results according to recent evaluations of foreign observers and EU agents. “In all fields too,” says Kolarevic. “Even during the time of war conflicts in the region, the transition process and all other related phenomena, Montenegro has been perceived as a politically extremely stable state in the Balkans during the previous two decades. Although a small territory, due to its multiethnic harmony and stable state system, Montenegro has become an important factor of stability in the region.”  

Recent EU 2006 and 2007 statistics point to:
• Montenegro being a European leader in FDI per capita and FDI share in GDP;
• Increasing FDI due to rising levels of privatisation;
• Low customs duties, simple incorporation procedure and low corporate income tax continue to attract investors, and;
• Significant opportunities in tourism, and a new, recently liberalised regime of capital and current transactions are all helping drive internal and external investment.  

Low taxes and EU membership en route
Ana Kolarevic knows foreign investors always favour countries fully committed to market-based reforms. Foreign companies in Montenegro have equal legal treatment as local ones she confirms. “A foreign investor may operate in Montenegro as a corporate entity or as an individual; there is no restriction on the amount of capital invested, which can be invested in any branch of industry. Financial and other resources may be freely transferred, including profit and dividends. Also, a foreign investor may acquire a title on real estate.”

The Montenegrin tax regime has also become one of the most competitive ones in Europe says Kolarevic, with corporate taxes of just nine percent. That means foreign investors have plenty of opportunity to maximise operating gains from their investment. And with EU membership only a matter of time, the investment case is hard to ignore. “The EU criteria is very strict. But Montenegro has worked hard. The European perspective of West Balkan countries is of crucial importance for the stability and progress of the region and the EU. Institutional reform was one of the key steps on that path, and Montenegro is currently focused on the reform of the state administration and judiciary.”

Taking the rough with the smooth
Although economic legislation has spurred investor interest, Kolarevic warns that the application of law still remains inconsistent. Montenegro, she reminds investors, is still undergoing the growing pains of most Eastern European economies switching to a market economy. “That is why regulatory risk is still relatively high in Montenegro. EU experts have warned Montenegro that public consultation should be mandatory for all the laws, which would increase the transparency in the work of institutions. Also, there is still work to be done in the parliamentary supervision of the quality and coherence of laws.”

Kolarevic meanwhile says she is not someone who makes big promises. She says she knows that what eventually counts for all her clients without exception is the end result. “That is why I try hard not to disappoint them. That is my strength. At the start, I am realistic and frank with clients, without being a pessimist. But I believe it is better to work diligently towards the achievement of the goal rather than making over-optimistic promises at the start. Often I can get a much better outcome then expected.”

She adds that she is always delighted to welcome foreign investors to Montenegro. “The foundations of my law office are firm. They lie in my extensive experience in judiciary, my knowledge, professionalism and the need for justice.”

With a son back in Ecuador, he says he will probably return home to Guayaquil rather than scrape a hand-to-mouth living from employers who dodge social security costs by giving him work under the table. But most migrants, faced with hardship in Spain or worse in places like Senegal or Bolivia, seem to be choosing the former.

“What lots of them do is to stay in Spain, working in the black economy,” said Vicente Marin, a lawyer specialising in immigration in Granada, southern Spain.

Spanish visa rules often deny renewal requests if migrants become unemployed and fail to make sufficient social security payments. So a side-effect of the economic contraction that has continued for seven straight quarters has been the growth of an illegal underclass.

Beyond boding ill for social harmony, this could also impose an extra financial burden, draining tax revenues and productivity from a country whose weak competitiveness and high unemployment have already lured speculators betting against its government debt.

The black economy, estimated to account for almost a quarter of Spain’s gross domestic product, costs the government up to 25 billion euros a year in lost tax revenue and also traps workers in low-skill, low-pay occupations.

Already, large numbers of migrants survive by providing labour for cash in hand, no questions asked. You often see little hand-written signs posted around Madrid offering to refit your house or fix your plumbing for bargain-basement prices.

Besides acting as a safety net for migrants banned from legal jobs, the black economy reinforces barriers between recent arrivals and native Spaniards.

First crisis for multi-ethnic Spain
Five million migrants arrived during Spain’s decade of heady economic growth from the mid-1990s, finding work on mushrooming construction sites, in shops or as domestic helpers.

There are no official figures but Carlos Gomez Gil, head of the Immigration Observatory at the University of Alicante, estimates as many as 300,000 could have lost their papers during the economic crisis.

“This novel, extraordinarily rapid and profound crisis is going to have a big effect on Spain’s recently arrived immigrant population, which still hasn’t had time to settle down here and is still politically, socially and economically fragile,” Gomez Gil wrote in a recent paper.

“This is the first crisis Spain has ever experienced with an immigrant population,” he said.

Things were very different when Wilson first came in 2003. Work was easy to find in a construction boom, for wages many times higher than back home around the mangrove swamps of Guayaquil.

“There’ve been ups and downs, it hasn’t been easy, but I’ve got used to it here,” said Wilson, 29, who prefers not to reveal his surname for fear of provoking the immigration authorities. He expects his visa renewal request in July to be refused.

Cast-offs from construction
Like Wilson, a large proportion of the newly illegal migrants are male manual workers from Latin America or North Africa – cast-offs from the building sites.

“About 40 percent of immigrants have only been educated to primary school level, and, as those in the construction sector lose their jobs, there is a big problem finding them new employment,” according to Josep Oliver, professor of applied economics and the Autonomous University of Barcelona.

He sees a tougher future for such unskilled migrants in a sustained period of stagnation, where the main hope for economic growth is in industries such as renewable energy that require a more highly trained workforce.

“If the government does not provide continual retraining and education they run the risk of becoming a structurally unemployed population,” he said.

Of course, Spain could never have had its property boom without these foreign workers. They were also a vital ingredient in the cycle of speculation and credit that inflated construction and related activity to an unsustainable 25 percent of its GDP.

Besides building the houses, migrants bought many of them too, contributing to the country’s 600 billion euros in outstanding mortgages. Spanish banks funded many of these by issuing bonds in Germany.

Climate hardens
Despite the speed with which Spain became an ethnically mixed society, it has so far avoided the tensions associated with immigration seen in other European countries.

“One of the principal forces for the integration of foreigners into Spanish society is work,” said Marin.

The Socialist government held an amnesty for 600,000 illegal immigrants in 2005, granting them visas if they could show proof of employment. And like left-of-centre politicians elsewhere in Europe, Prime Minister Jose Luis Rodriguez Zapatero welcomed immigration as a way to make Spain more tolerant and diverse, and to ensure an ageing population would be able to continue to afford its social security system.

The government once spoke of how immigration could increase Spain’s population by 50 percent to 66 million.

Now unemployment is around 18 percent – and 10 percentage points higher among foreign workers – it is changing its tune.

It has drastically cut back on working visas, tightened rules on family reunification and offered money to migrants wanting to leave Spain. In a stark departure from its previous talk of diversity, the government put up billboards featuring dark-skinned people and the question “Thinking of going home?”

The climate has also hardened outside Madrid.

In January, the Catalan town of Vic decided to restrict access by illegal immigrants to healthcare. While it was criticised by the government and forced to back down, several leading members of Spain’s conservative opposition came out in favour of the move.

Resilient women
But while men with low levels of education are struggling, female immigrants in service industries and as housekeepers are finding their jobs resilient, according to Joaquin Aguilar of the Spanish Commission for Assistance to Refugees (CEAR), a non-governmental organisation that helps migrants find work.

“In 2007, we used to see 35 percent men and 65 percent women, and now it’s the other way round. It’s basically because of the construction effect, because the African or Latin American men who worked in construction and didn’t have any other skills have lost these jobs,” he said.

He added that he was hearing anecdotal evidence of rising domestic violence among immigrant communities as men struggled to come to terms with the new economic reality.

Cleonice da Rocha, a middle-aged Brazilian woman who came to Spain to work as a housekeeper, said her husband had gone back to Brazil after failing to get work.

After renewing her visa at government offices in Madrid overlooked by the barbed wire fences of a psychiatric hospital and the ruins of a notorious Franco-era prison, she said her job meant she was staying in Spain with her young daughter.

“I want to go back too,” she said.

Since its foundation in 1896, the Banco de la República Oriental del Uruguay has been highlighted because of its commitment in fostering the economic growth and development of Uruguay.

As a commercial and development bank, it faces every day challenges in generating profitability levels in accordance with the fulfilment of its key objective: to honour its social commitment to promote the financial inclusion, investments, production and exports of Uruguay.

The excellent management of the company allowed it to be in the position of the main financial institution of the country, with a market share over 44 percent. Recognised by its soundness, reliability and efficiency, the Banco República has consolidated its social role in recent years, incorporating the concept of sustainability as the main gauge of its performance.

In 2009, the Banco República adhered to the United Nations Global Compact. This initiative of the UN has the objective to ensure that the world’s nations adopt the 10 main principles related to Human Rights, Labour Rights, Environment Protection and the struggle against corruption. This commitment represents for the bank the responsibility to disseminate and locally promote the principles of the Global Compact.  That is why, the bank is presenting proposals to work together with customers and suppliers in order to collaborate and further the awareness about the concept of sustainability in the Uruguayan population, and, at institutional level, in the implementation of a Environmental System that includes the control of indirect impacts generated by the financial activity through the granting of loans and the financing of investments, as well as the direct impact produced from the internal processes of the institutions.

First, the banks channel funds for investment projects with a direct impact on social, economic, and environmental welfare levels. The Banco República has as one of its main objectives the promotion of productive investments, focusing on those presenting economic, social and environmental sustainability conditions. With this guideline, the bank was first in the line in the ranking of financial institutions of the country, becoming the first Uruguayan bank to subscribe the Equator Principles. The inclusion of these principles which constitute a series of requirements to be taken into account to finance projects over $10m, guarantees that the main projects financed by the bank be those managed with social responsibility and integrating the best practices to manage social and environmental risks.

Nevertheless, a sustainability analysis should also be applied to projects of lower amounts, as those of the SME, which are key anchors for the sustainability of Latin American countries. In this regard, in order to evaluate the lower value productive projects, the Banco República considers important features such as: the incorporation of clean technology systems or quality/traceability systems, giving important benefits to those reaching higher standards of development. Likewise, it offers assistance to enterprises to adopt the best eco-efficient practices.

The adoption of the best “eco-efficient” practices in the internal processes of banking companies is a recent process in expansion, which implies the inclusion of ecological considerations in social responsibility policies, such as the energetic consume, the selection of suppliers, the debris handling, the ecology in offices and the internal awareness of the environmental problem.

In 2010 The Banco República approved its Institutional Policy of Energetic Efficiency and Environmental Care, which has as objective to balance the bank’s activity with the multiple aspects included in the Environment pledge. In general, the main guidelines refer to: respect for human health, ensuring the total balance of the bank’s activities with the preservation of physical and mental health of anyone involved, and the effects that those activities generate on the environment, health, and security.

The institutional awareness and program, tries to integrate all levels of the organisation to fulfil the policy, as well to promote the active participation of employees to suggest additional proposals and to implement actions involving all the population in environmental protection.

Energetic efficiency is recognised as an essential requirement for sustainable development. A special effort has been put on the implementation of a program that attempts to acquire technology which can lead to energy and efficiency savings and the further monitoring and control of the results.

The environmental care section includes a set of definitions and actions, such as: the acquisition of products compatible with environmental sustainability and energetic efficiency, the development of processes oriented to the reduction, re-use and recycling of paper and the design of mechanisms minimising the production of debris.

Finally, with the emergence of environmental issues at a global and national level, it is necessary that banks go forward to the creation of green financial products and orientate their business to the promotion of investments with higher environmental value. Furthermore, banks should aim to develop an environmental engineering program allowing to advise and train other companies to identify and reduce environmental risks.

Therefore, the Banco República provides specific assistance with conditions that directly affect companies in processes such as the incorporation of cleaner production mechanisms, as well hiring technical consultancies and advisors. This line also covers financing for the implementation of clean production systems, consultancies in order to detect opportunities, relocation for environmental reasons, compliance with environmental legal provisions and the generation of energetic efficiency projects.

Recently, we entered into an agreement with Sumitomo Mitsui Banking, from Japan, aiming at entering the carbon offsets market, to foster the environmental commitment of Uruguay’s companies with the quantification of emissions. Uruguay is still in a very early stage in regards measuring and calculation of the carbon footprint, therefore this agreement is hugely significant.

Recently, the Banco República and the Union of Exporters of Uruguay (UEU) decided to start working together on the creation of a program to provide support to companies, by means of advisory, financial and business opportunity detection services. The main objective is to help companies progress in incorporating environmental topics in their activities and start to implement procedures and mechanisms for calculation, measurement and later certification of environmental quality.

This year, there is a plan to increase awareness by holding sessions to provide information about the best eco-efficient practices, measurement and certification mechanisms, as well as looking at the change in regulation at a national and international level, and its impact on companies’ competitiveness. Banco República has progressed significantly towards positioning itself as a sustainable bank in regards of financing eco-efficient projects as well as converting some internal processes in the institution towards environmentally friendly practices.

At an institutional level, the bank has the priority to advance the measurement of its emissions, in order to know the exact effects generated from the use of energy or vehicles, thus being able to adopt the most efficient measures. At the same time, we have carried out some improvements to the existing building infrastructure in accordance with a higher environmental protection, together with the construction of new eco-friendly branches.

The bank has also started work on projects to reduce paper consumption and incorporating more recycled paper as well as the replacement of IT equipment with computers that are more environmentally efficient.

The bank’s commitment with sustainability has resulted in the international recognition of Banco República as Sustainable Bank of Uruguay in 2009 and 2010, with this being the first time that a national institution has achieved such recognition.

For more information: (598 2) 1896 -2710; www.portalbrou.com.uy

Trust is the main ingredient to the financial sector, because it ensures a constant capital flow into the sector. To maintain confidence in the banking sector banks need to fully restore the trust put in them not only by customers, but by all stakeholders of these institutions. This means that banks should take into account all direct and indirect stakeholders when defining and implementing their strategy. The underlying idea is that the banking sector should not only focus on the causes of the financial crisis, but should also consider the impact of the climate crisis and the food crisis on society.

Environment
Many economic analyses look at how western societies can return to the economic growth of before the crisis as soon as possible by making some adjustments in regulatory and remuneration policies. However, more fundamental changes are needed in bankers’ economic thinking and acting. It is essential that they take the boundaries of growth as a starting point and take into account the impact of production on the environment and depletion of natural resources. Our national product should not just be measured in economic terms, but should also consider the costs for the environment. Sustainability is good business.

Banks Must Go Back to Basics
Attract money from new customers and channel it in a responsible way to businesses that contribute to a sustainable society. Many banks still focus on compliance to formal regulations. A big step forward would be if banks would see sustainability as good business and would integrate sustainability within the company. To achieve that, a shift from the short to the longer term is necessary when reviewing investment opportunities and risks. Banks can in their policies make a significant and proactive contribution to sustainability by selecting companies that produce in a durable way, offering products which stimulate sustainability, only providing loans if companies meet certain sustainability criteria and offering lower interest rates to companies that provide a positive contribution to a sustainable society.

Credit
In the developing countries and emerging markets where FMO (the Netherlands Development Finance Company) is active, access to financial services is still very limited. By focusing on the provision of services (credit and savings) to entrepreneurs, for example small and medium sized enterprises, and to low income groups in their country, banks can directly contribute to reducing poverty and improving living standards.

The financial crisis made many banks in Europe and the US decide to withdraw from developing countries, causing a negative effect on the economies of those countries and access to credit. It is of great importance to developing countries in Latin America, Africa, Eastern Europe and (Central) Asia that the international banks return to these regions and thus make a contribution to sustainable economic growth. Development banks such as FMO can play a catalytic role in the process of becoming agents of change.

The Netherlands Development Finance Company (FMO) is the international development bank of the Netherlands. FMO invests risk capital in companies and financial institutions in developing countries. With an investment portfolio of €4.2bn, FMO is one of the largest bilateral private sector development banks worldwide. Thanks in part to its relationship with the Dutch government, FMO is able to take risks which commercial financiers are not – or not yet – prepared to take. FMO’s mission: to create flourishing enterprises, which can serve as engines of sustainable growth in their countries.

Further information: www.fmo.nl

       
Whereas all the signals in the financial markets from autumn 2008 onwards at the latest were set to insecurity and crisis, customer demand at the GLS Bank in Germany rose by leaps and bounds. If in the equivalent period of the previous year the financial institution processed 2,500 calls per week, that number rose to 5,000-6,000 after the start of the crisis.

“Something which this small cooperative bank can manage should also be possible for other financial institutions,” the newspaper Süddeutsche Zeitung demanded in August 2008. The Ruhr Nachrichten newspaper noted: “The GLS Bank is growing and growing and growing.”

In recent years, the bank has grown by 20 percent, but in the crisis year 2008 it recorded growth in the balance sheet total of more than 27 percent and thus crossed the billion line for the first time in its history. Corresponding growth of 25 percent was also recorded by the GLS Bank in the field of loans and deposits. The GLS Bank is continuing its successful course without interruption, with growth of more than 30 percent in 2009.

So on what is this consistent success based? In Germany, a rethink is evident among investors. Instead of solely pursuing the aim of the highest return, increasing numbers of investors are readjusting their objectives. Growing numbers of investors want to know the social and ecological effects of their investments in the real economy and have a say in how their money is used. There are good reasons for such a rethink:

First, the financial crisis has sharpened the awareness both of the effects which investments have and of the consequences of the decoupling of the financial sector from the real economy. Since the volume of financial losses and the large number of affected financial institutions worldwide has become known, since the rule “too big to fail” was not applied, distrust of the banking sector is rife among investors. The awareness has grown that banks were involved in financial transactions, some of which were complex and lacking transparency. Customers are questioning the hunt for the highest returns in which money is earned with money in an abstract way. They feel that they have not been properly informed and want to know for what possibly speculative transactions the banks are using their money.

Second, increasing numbers of people see themselves as being obliged to take personal responsibility in the face of the growing challenges to society brought about by social problems and advancing climate change. The number of consumers of organic food, green electricity or clothing produced in an ecologically and socially compatible way is steadily growing. Such a “Lifestyle of Health and Sustainability” (LOHAS for short) also includes taking account of sustainability criteria in financial investments. Investors see their investments as a lever to promote the sustainable development of society. For some it also represents a political statement.

The current situation makes clear that long-term confidence of investors in banks can only exist if customers are given a real basis on which to assess banking products through a transparent way of working and are thus enabled to make an informed decision which takes all aspects of a financial investment into account. In addition, it is clear that there is growing demand for socially, ecologically and economically sustainable investments. That is precisely the gap in the banking world which the GLS Bank fills with its products.

Transparency and Sustainability
The GLS Bank was established in 1974 as the first social and ecological bank in Germany. The aim of its business activities is the sustainable development of society. The GLS Bank sees money as a means to make things happen in society. On that basis it focuses the whole of its business activity on services which combine the individual benefit for its customers with a social and ecological benefit for society. It addresses people who wish to produce non∞material added value in addition to their financial added value and makes financing available in accordance with strict criteria exclusively to businesses and projects which serve social objectives in the ecological, social and cultural field.

From the perspective of the economy, the function of banks consists of supplying the real economy with a medium of exchange and capital. The GLS Bank focuses on precisely these core tasks – deposit and loan transactions. With banking services from current accounts through savings products and asset management to old age pensions and financing, the GLS Bank offers the most comprehensive range of sustainable banking products in Germany. Together with its current 73,000 customers, the bank is at present putting into practice more than 6,600 forward-looking enterprises and projects in regenerative energies, ecological agriculture, ecological building finance, natural food, independent schools and kindergartens, facilities for people with disabilities and housing projects.

This utilisation-oriented concept of the GLS Bank includes comprehensive transparency unequalled in Germany as well as an open communication policy. The bank is transparent about the way it uses resources and informs customers about the enterprises and projects financed: it regularly publishes all new loans in its customer magazine Bankspiegel, specifying the institutions receiving the loans as well as the amount and purpose of the loan. In this way investing customers can see at all times in which enterprises their money is being invested.

In addition, the GLS Bank offers its customers for all bank products – starting with opening a current account – the opportunity to decide the sector in which their money is to be invested. In this way customers can support specific areas of society. This exemplary transparency does not stop at the publication of its own investments either. Everyone can inspect the GLS Bank’s own investments on its website. In order to separate the sustainable from the non-sustainable sectors, enterprises and business activities, the GLS Bank works with rigorous positive and negative criteria. The 15 excluded criteria in total include, among others, nuclear energy, the arms industry and child labour. The bank refuses to work with enterprises which are tangent to these sectors because meeting the criteria is the prerequisite for loans being granted by the GLS Bank. It applies equally to the bank’s own investments.

In order to guarantee the highest quality and a consistent sustainable investment universe, the GLS Bank has implemented a two- stage research process. To this end it works together with the experienced rating agency Oekom Research AG as a first step, which also includes ecological and social criteria in its company analyses alongside the economic ones. On the basis of the values suggested by the agency, the in-house GLS investment committee examines in detail which businesses can be included in the GLS investment universe. The committee consists of internal and external experts who meet several times per year and routinely monitor the investment universe.
 
In questions of transparency and the strict implementation of a sustainable banking strategy, the concept of the GLS Bank sets standards. It provides investors with a sound basis on which to take decisions and makes the GLS Bank’s transactions verifiable and assessable. Furthermore, it offers a high degree of protection, something that is a central investment criterion specifically in times of crisis. Protection is also assured through the GLS Bank’s membership of the Volksund Raiffeisenbanken’s guarantee scheme, which guarantees all deposits to 100 percent, as well as a business policy which strictly excludes speculative financial transactions.

That the concept of the GLS Bank creates sustained confidence and proves convincing is shown not only by the enormous growth in the deposit and loan business but also by the increased number of customers. If the Bank had about 62,000 customers in 2008, this has risen to 73,000 in 2009. And growth is continuing. The GLS Bank clearly reflects the spirit of the times.

Analysts say that while the BOJ will want to save its ammunition for when sharp yen rises hurt a fragile economy, it may have to act around June, when government pressure for more steps could escalate ahead of upper house elections expected in July.

“The government will continue to pressure the Bank of Japan for action, given that the market is becoming increasingly cautious about each country’s fiscal deficit,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“The BOJ may act around June or July, either by expanding its fund-supply operation adopted in December or by increasing its outright government bond buying.”

The so-called core-core consumer price index, Japan’s narrowest measure of price gauge that excludes volatile food and energy costs, fell 1.2 percent from a year earlier, matching a record drop the month before.

The indicator, similar to the core index used in the US, fell for the 13th straight month, in a sign that weak demand was forcing companies to cut prices to lure consumers.

The nationwide core CPI, which excludes volatile food prices but includes energy costs, fell 1.3 percent in the year to the end of January. That was slightly smaller than a median market forecast of 1.4 percent fall but marked the 11th straight month of annual declines.

The core CPI index reading of 99.2 was the lowest in 17 years.

Keeping the pressure on
The Democratic Party-led government, faced with falling support rates, wants to avoid an economic downturn ahead of the summer upper house elections and has been urging the BOJ to support the economy even as most other major central banks examine rolling back stimulus.

Finance Minister Naoto Kan told reporters again after the CPI data was released that he expected the central bank to work towards ending deflation.

Many analysts say the BOJ’s most likely next step is to expand the fund-supply operation it adopted in December, either by raising the amount from 10 trillion yen ($112.2bn) or extending the duration of loans from three months.

The BOJ may also opt to increase its long-term government bond buying from the current 21.6 trillion yen per year, a move that would please the government if bond yields shoot up on concern over Japan’s fiscal deficit.

Assuming the BOJ doesn’t change the duration of assets it holds now, a lack of further central bank action would mean a sharp decrease in its balance sheet and therefore liquidity contraction at a time when Japan is still in deflation, said Robert Rennie, chief currency strategist at Westpac in Sydney.

“I fully expect additional quantitative easing measures through this year, and one will be an increase in ‘rinban’ operations” to buy JGBs outright.”

The BOJ is forecasting three years of deflation and has said it is committed to keeping interest rates near zero for as long as necessary. But it has offered few clues on what it might do beyond that to beat deflation.

Deflation hurts the economy as households put off spending on hopes that prices will fall further, forcing companies to cut prices to lure consumers.

The BOJ has caved in to government pressure before, when it introduced the three-month funding operation in December after a barrage of criticism that its economic assessment was too rosy.

Still, Naoki Minezaki, one of Kan’s two deputies, told reporters in an interview that while some in the government wanted the BOJ to loosen monetary policy, setting a rigid inflation target may not be the way to get the country out of deflation.

The finance minister said earlier in February that he would favour inflation of around one percent, although he did not specifically refer to an inflation target.

While that figure roughly matches the BOJ’s view, the mere mention of it by Kan was a sign the government was stepping up pressure for more BOJ action.

In a positive sign for the economy, industrial output rose much more than expected in January, as manufacturers ramped up production to meet demand from fast-growing Asia.

While market reaction to the CPI and output data were muted, the stronger-than-expected output figure capped gains in Japanese government bond futures.

Trusts, a legal concept born in 13th-century England to safeguard the assets of knights leaving for the Crusades, make up an estimated $5-trn global market and are viewed by lawyers and accountants as a growth area for the heavily pressed Swiss offshore banking industry. Switzerland, the world’s leading offshore centre, came under attack during the credit crisis by cash-strapped nations seeking to recoup tax revenues and its banks are seeking a new business model while traditional bank secrecy is eroding.

Several Swiss private bankers told Reuters they had noticed an increase in demand by wealthy customers for trusts, which are appealing to clients from emerging markets such as Latin America or Russia as they offer protection from expropriation, forced inheritance laws or expensive divorce settlements.

Trusts –seen by some experts as only worthwile for clients with at least $2m in assets – can also help reduce a client’s tax burden as the assets are passed on to a third party in a low-tax jurisdiction. But many Swiss private bankers remain wary of trusts as such structures could attract more unwelcome attention from foreign tax authorities, and there is an intrinsic conflict of interest for trustees between their loyalty to the client and to the bank that employs them.

“The market has seen an increase in demand,” said David Zollinger, who heads the New Markets division at Switzerland’s oldest private bank Wegellin. “(But) my perception is that Swiss private banks are gradually curbing their offer in this field. There is not only a conflict of interest and anyway these days banks that provide structures to clients run the risk to be considered an auxiliary to whatever offence the client may have committed abroad.” Nevertheless, demand is strengthening in many regions including Asia, where wealth is being passed on by self-made billionaires to the next generation. To the private banks, trusts can also offer a source of stability as the assets are normally held long-term. “Once in the trust, the assets are looked after for the benefit of the family and therefore tend to be very sticky assets,” said Nick Warr, a partner at law firm Taylor Wessing. All major Swiss private banks, including UBS and Credit Suisse, offer trust services.

Although the Swiss have no trust legislation per se, Switzerland recognises foreign law with regards to trust and is home to scores of legal and financial professionals active in this business, mainly on behalf of non-Swiss-based customers.

Trusts run from Switzerland received a boost in 2007 when the country’s government ratified an international convention on recognition of trusts, fuelling speculation they could become increasingly important for the Swiss banking industry.

About 10 percent of the world’s 15,000 trustees are based in Switzerland, Zollinger said, and another trust expert put at between 900 and 1,600 the number of fiduciary companies based in this Alpine country. But up to 70 percent of the foreign assets in Switzerland are already held in structures and trusts, said the industry expert. Trusts are also expensive to set up and can be complex, requiring the services of lawyers and accountants and thus limiting their usefulness to all but a wealthy elite.

Mireille Gavard, head of estate planning at Royal Bank of Canada’s Swiss unit said trusts are not viable for less than $2m. If the structure involves more than just financial assets, the threshold rises higher, she said. A senior Swiss private banker said trusts below $5m made no sense.

Analysts also question the compatibility of trusts, a feature of English common law, with the Swiss civil law system. “I would be very much against any legislation establishing a Swiss trust. We already recognise foreign trusts in Switzerland and so far it has worked well,” said Stephanie Jarrett, who heads the Geneva Wealth Management Practice Group at law firm Baker & McKenzie.

“If we bring in new legislation the risk is to end up with something that is a cross between a trust and a foundation.”

To settle a bitter dispute, UBS and the Swiss government agreed in August to disclose 4,450 secret accounts that U.S. citizens used to hide money from tax authorities.

But the settlement hit a stumbling block after a Swiss court ruled in January that such a transfer of data would breach existing Swiss law.

The tax row and uncertainty surrounding the settlement has led to billions of Swiss francs of client withdrawals at UBS.

By asking its parliament to approve the deal, Switzerland would do away with a legal distinction between tax fraud and tax evasion in providing assistance to the US and be allowed to speedily deliver the data Washington is seeking.

“We will in this way uphold the international commitments made by Switzerland with a view of finding a definitive resolution to the legal and sovereignty conflict with the United States,” the Swiss government said in a statement.

The Swiss administrative court ruling caused embarrassment for the Swiss government as it risked prolonging a legal nightmare for its already hard-pressed bank giant.

UBS said in a statement it intended to fulfill all commitments under both a criminal and civil settlement of the tax row. This included providing relevant client account information to the Swiss tax authorities.

Swiss bank secrecy laws prevent Berne from automatically sharing tax information with foreign authorities. Each request needs to follow an administrative process and clients of Swiss banks can appeal against a request for data transfer in court.

“If these folks want a fight, it’s a fight I’m ready to have,” he told
reporters at the White House, flanked by his top economic advisers and
lawmakers.

“We should no longer allow banks to stray too far from their central mission of serving their customers,” he said.

The
proposals, which need congressional approval, would prevent banks or
financial institutions that own banks from investing in, owning or
sponsoring a hedge fund or private equity fund.

They also
would set a new limit on banks’ size in relation to the overall
financial sector that would take into account deposits – which are
already capped – as well as liabilities and other non-deposit funding
sources.

Sources said Treasury Secretary Timothy Geithner had
hesitations about the proposals, concerned that good economic policy
was being sacrificed for politics. But a White House official said the
plan had the unanimous backing of Obama’s economic team.

Geithner
told the PBS programme “NewsHour” it is not in the national interest to
allow the financial industry to keep conducting business as usual.

“Our
financial system today is still operating under the same rules that
helped create this crisis. And we need to move with Congress to change
that system,” he said.

Proprietary trading operations
The
proposed rules also would bar institutions from proprietary trading
operations, unrelated to serving customers, for their own profit.

Proprietary
trading involves firms making bets on financial markets with their own
money rather than executing a trade for a client. These expert trading
operations, which can bet on stocks and other financial instruments to
rise or fall, have been enormously profitable for the banks but can
hold huge risks for the financial system if the bets go wrong.

The White House blames the practice for helping to nearly bring down the US financial system in 2008.

The White House said it wants to coordinate with international allies in its implementation of the measures.

Big financial institutions criticised Obama’s move.

“Trading,
proprietary or otherwise, did not lead to the financial crisis,” said
Rob Nichols, president of the Financial Services Forum, a lobbying
group for CEOs of firms such as Goldman Sachs and JPMorgan Chase.

He
said the government should be focused on better risk management,
corporate governance and other forms of regulatory oversight, “rather
than arbitrarily banning certain activities, or setting arbitrary size
limits.”

Obama’s move is the latest in a series to crack down
on banks and follows a devastating political loss for his party in
Massachusetts on Tuesday, when a Republican captured a US Senate seat
formerly held by the late Democratic Senator Edward Kennedy,
potentially imperiling his domestic agenda.

Bank shares slid
and the dollar fell against other currencies after Obama’s
announcement. JPMorgan fell 6.59 percent, helping push the Dow Jones
Industrial average down two percent.

Citigroup Inc fell 5.49
percent and Bank of America Corp fell 6.19 percent while Goldman
dropped 4.12 percent despite posting strong earnings on Thursday.

Ralph
Fogel, investment strategist at Fogel Neale Partners in New York, said
the move would have a major impact on big-name brokerage firms like
Goldman Sachs and JPMorgan.

“If they stop prop trading, it
will not only dry up liquidity in the market, but it will change the
whole structure of Wall Street, of the whole trading community,” he
said.

Underscoring the high level of public anger at banks, a
majority of 1,006 Americans surveyed in a Thomson Reuters/Ipsos poll
said executive pay was too high.

White House economic adviser
Austan Goolsbee said the proposals were not designed to be punitive. He
said they aimed to end the concept that some banks were “too big to
fail” and to show that when such firms “mess up, they die.”

Before
his announcement, Obama met with Paul Volcker, the former Federal
Reserve chairman who heads his economic recovery advisory board and who
favors putting curbs on big financial firms to limit their ability to
do harm.

The House of Representatives approved a sweeping
financial regulation reform bill on Decemeber 11 that included a
provision that would empower regulators to restrict proprietary
trading. The Senate has not yet acted on the matter.

According to Ana Maria Liron, branch manager of the bank which manages €365m of loans and deposits, “We moved our headquarters in December from the town centre to these offices, thinking there would be faster expansion on the estate. But there is a big slowdown here… No one expected such a long, hard crisis.”

Unlisted regional banks such as Guadalajara, which account for about 50 percent of Spain’s financial system, have been hit hard by the recession and collapse of the real estate sector after a decade-long boom. To some extent, they have only themselves to blame.

“The savings banks’ big mistake was that they continued to increase their exposure to real estate developers even when the property bubble had burst,” said Jose Carlos Diez, chief economist at local brokerage Intermoney Valores.

Jorge Algarate Gonzalo, local sales representative at real estate firm Afirma Grupo Inmobiliario, agreed. “Everybody was living beyond their means,” he said.

Bad loans at small lenders saw a seven-fold increase in the period from December 2007 to March 2010, according to Bank of Spain and savings banks’ data.

To pay for their excesses, the regionally controlled savings banks are now immersed in a painful consolidation process aimed at recapitalising the weaker institutions and halving their numbers from 45 to about 20 by mid-year.

Ghost town of Valdeluz

Just north of Guadalajara, which is about 60km (40 miles) northeast of Madrid in the autonomous region of Castilla-La Mancha, lies the sprawling Valdeluz housing development, another example of the boom-to-bust fate of Spain’s property sector.

According to the initial planning permission lodged with the local town hall in Yebes, the development was intended for 8,500 homes, but only around 2,000 have so far been built.

Seven schools and a large commercial centre were also in the plans but Valdeluz is now no more than a ghost town, with only 1,400 people registered with the local council.

Empty streets with half-built blocks of apartments are littered with placards on every corner offering flats for sale with as much as 100 percent bank financing.

But a salesman to conduct visits to the show flats is nowhere to be found.

“On plan, Valdeluz looked as if it would be a fantastic development … But the reality is very different,” said Maria Angeles Martin, who rents a 120-square-metre three-bedroom apartment for €450 a month against €650 two years ago.

“The main problem is the lack of basic services such as a doctor’s surgery,” said the 28-year-old new mother as she stocked up on items in the community’s only supermarket.

As she spoke, two female employees shuffled goods around on full shelves in the otherwise empty Supermercado de Madrid.

Bank of Spain pressure

Caja Guadalajara’s main clients are households and small and medium-sized businesses and its exposure to property developers accounts for about 30 percent of total business.

Savings banks also act as charitable institutions and invest part of their profits in social and cultural associations.

Caja Guadalajara’s net profit plummeted 60 percent in the first quarter to March hit by the continued slump in loan growth, while its bad loans ratio stood at 5.28 percent compared with a Spain banking sector average of 5.30 percent.

After rejecting an integration project in the early 1990s with other savings banks in the same region, Caja Guadalajara is about to rubber stamp a merger with Seville-based CajaSol in southern Spain.    

“There has been much more pressure on the savings banks recently from the Bank of Spain as a result of the crisis,” Liron said.

“The crisis is accelerating the restructuring process but the consolidation was long overdue due to the excessive number of savings banks branches in Spain.”

The Bank of Spain took control of a small, 146-year-old bank controlled by the Catholic Church, CajaSur, on May 22nd, in a move interpreted as a warning to the sector to accelerate the merger process or risk a similar fate.

Three days later, the central bank further tightened the screws on Spanish banks by proposing even tougher  provisioning requirements for real estate assets on their balance sheets.

CajaSol has 5,000 employees against its future partner’s 325, but only has a scant presence in the Castilla-La Mancha region so there is no overlap, Liron said.

The new merged entity, which will have combined assets of 34bn euro. Caja Guadalajara will offer early retirement to nearly 14 percent of its 325 employees.

Politicians to blame?

For Caja Guadalajara’s clients, the upcoming merger with CajaSol is not a cause for concern. But they show suspicion and scorn that politicians are getting involved.

“The savings banks should be privatised and the politicians got rid of. Politicians need to be sent far away from the savings banks,” said one client in the bustling town centre who did not want to give his name.

Wrangling amongst savings banks in different regions vying for the upper hand in a future merged group have been one

of the main factors behind the delay in sector consolidation.

The Caja Guadalajar-CajaSol tie up will be Spain’s first inter-regional merger.

“The savings banks are controlled by politicians who don’t know what needs to be done,” said Antonio Maqueta, a retired 74-year-old businessman.