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BW Businessworld

Globescan: MGlobescan: Marriage In The Skiesarriage In The Skies

Tax authorities in Australia and New Zealand are probing local clients of a Panama-based law firm at the centre of a massive data leak for possible tax evasion.

Photo Credit : Shutterstock

Alaska Air Group said it had agreed to buy Virgin America for $2.6 billion to expand its flights on the US West Coast. Alaska Air said in a news release that the merged airline will become the fifth-largest in the US and will help it compete against larger rivals for lucrative business and international travellers visiting San Francisco and Los Angeles as well as Seattle, where the company is based. The acquisition will herald the first US commercial airline merger since US Airways and American Airlines combined in 2013 to form the world’s largest carrier. Alaska’s offer of $57 per share in cash represents a premium of about 47 per cent to Virgin.

Probe On
Tax authorities in Australia and New Zealand are probing local clients of a Panama-based law firm at the centre of a massive data leak for possible tax evasion. Other jurisdictions are likely to follow suit following the leak over the weekend of details of hundreds of thousands of clients in more than 11.5 million documents from the files of law firm Mossack Fonseca, based in the tax haven of Panama. The documents are at the centre of an investigation published by the International Consortium of Investigative Journalists and more than 100 other news organisations around the globe. A German newspaper said it received the huge cache of documents and shared them with the other media outlets.

The leaked “Panama Papers” cover a period over almost 40 years, from 1977 until last December, and allegedly show that some companies domiciled in tax havens were being used for suspected money laundering, arms and drug deals and tax evasion. “I think the leak will prove to be probably the biggest blow the offshore world has ever taken because of the extent of the documents,” said Gerard Ryle, director of the International Consortium of Investigative Journalists. Britain’s Guardian newspaper said the documents showed a network of secret offshore deals and loans worth $2 billion led to close friends of Russian President Vladimir Putin. Reuters could not independently confirm those details.

Not Bankable
The state of California sued Morgan Stanley, accusing the bank of hiding the risks of complex mortgage debt and other securities it sold, causing big losses for the state’s public pension funds, CalPERS and CalSTRS. Kamala Harris, the state attorney general, said Morgan Stanley concealed or downplayed the risks of toxic residential mortgage-backed securities and “structured investment vehicles” it marketed from 2004 to 2007, sometimes encouraging credit rating agencies to award unjustifiably high ratings. She said the bank’s conduct reflected “a culture of greed and deception” that fueled the 2008 financial crisis and caused the California Public Employees’ Retirement System and California State Teachers Retirement System to lose hundreds of millions of dollars. California accused Morgan Stanley of violating the state’s False Claims Act and various state securities laws. It seeks a variety of damages plus civil fines.

Cult Car
Tesla Motors said orders for its new Model 3 electric sedan topped 253,000 in the first 36 hours — a fast start for the company’s first mass-market vehicle, which may not begin to reach customers for another 18 months or more. Tesla chief executive Elon Musk tweeted that the Model 3, which is slated to go into production in late 2017, will sell at an average price of $42,000, including the price of options and additional features, which would give the initial flurry of orders an estimated retail value of $10.6 billion. That intense interest, fanned in part by a steady stream of tweets by Musk, could help boost Tesla’s stock price, which closed Friday at $237.59, up 3.4 per cent. The stock has soared more than 60 percent since hitting a 12-month low in February. The car’s average selling price projected by Musk is well above the $35,000 base price.

Big Fall
Global investment banking fees fell 29 per cent in the first quarter of 2016 from a year earlier as market volatility put a brake on dealmaking and equity and debt capital markets activity, a data showed. Global fees for services ranging from merger and acquisitions advisory services to capital markets underwriting reached $16.2 billion by the end of March, the slowest first quarter for fees since 2009. Regionally, fees in the Americas totaled $8.7 billion, down 32 per cent from last year. Fees in Europe were down 27 per cent at $3.9 billion and the Asia-Pacific region saw an 18 per cent decline to $2.6 billion.

Bailout Bluff
IMF managing director Christine Lagarde denied that IMF staff would push Greece closer to default as a negotiating tactic on a new Greek bailout deal, which she said was “still a good distance away”. She wrote in a letter to Greece’s PM that the debt talks should continue despite damage from reports of a leaked transcript suggesting that IMF staff may threaten to leave the bailout to force European lenders to offer more debt relief. “Speculation that IMF staff would consider using a credit event as a negotiating tactic is simply nonsense,” she wrote.

Killer Work
Japan is witnessing a record number of compensation claims related to death from overwork, or “karoshi”, a phenomenon previously associated with the long-suffering “salary man” that is increasingly afflicting young and female employees. Labour demand, with 1.28 jobs per applicant, is the highest since 1991, which should help Prime Minister Shinzo Abe draw more people into the workforce to counter the effect of a shrinking population, but lax enforcement of labour laws means some businesses are simply squeezing more out of employees, sometimes with tragic consequences.

Global Ambition
Japan’s biggest bank, Mitsubishi UFJ Financial Group, is on the lookout for acquisition opportunities in the US and Indonesia as it pursues its goal of becoming a global financial powerhouse, the head of its core unit said. “As a global commercial bank, the United States and Asia are our base,” said Bank of Tokyo-Mitsubishi UFJ president Takashi Oyamada, said. He didn’t say how much the bank plans to spend on potential new acquisitions. “In terms of growth potential and demographic characteristics, (the next target) is Indonesia. We are looking for acquisition opportunities there,” Oyamada said, without specifying any targets. Assets up for grabs in Indonesia include Australia and New Zealand Banking Group’s 39 per cent stake in PT Bank Pan Indonesia.

Debt Swap
China’s first batch of debt-to-equity swaps is expected to “resolve” £109 billion in potential bad banking debt in three years or less, media group Caixin reported. In a cover story in its weekly magazine, Caixin cited a single “high-level” source at China Development Bank, a policy bank under the direct supervision of the State Council, regarding the scope of the programme without stating how the person had knowledge of the plans.