Wegelin ends with a whimper

The Wegelin saga has reached its conclusion with a somewhat unexpected guilty plea:

Switzerland’s oldest bank is to close permanently after pleading guilty in a New York court to helping Americans evade their taxes.

Wegelin, which was established in 1741, has also agreed to pay $57.8m (£36m; 44m euros) in fines to US authorities.

It said that once this was completed, it “will cease to operate as a bank”.

The bank had admitted to allowing more than 100 American citizens to hide $1.2bn from the Internal Revenue Service for almost 10 years.

The Swiss banking industry seems decidedly rattled by the plea and by what the Wegelin partners have said, as demonstrated by this commentary:


Fidelity markets update

Fidelity now appears to gone live with the eight additional markets they announced they would be adding earlier this year – there doesn’t seem to have been any official announcement of this, but the exchanges, currencies and commissions are now listed on the international trading pages of their website.

The new markets are Austria, Denmark, Finland, Greece, Ireland, Poland, South Africa and Spain and all relevant new currencies have also been added (Danish Krone, Polish Zloty and South African Rand). Rates look reasonable – for online trades, the euro markets are €19 (US$25) like others already on the platform, Denmark is DKK160 (US$28), Poland is PLN90 (US$29) and South Africa is ZAR225 (US$27). However, there is of course a foreign currency conversion charge on top, of up to 1%.


Legal status of ADRs

Earlier this year, HSBC won a case against HM Revenue and Customs involving the payment of stamp duty on ADRs as part of its ill-fated purchase of US sub-prime lender Household in 2003. It wasn’t exactly a high-profile case and I only stumbled across it recently while searching for something completely different. But looking at legal commentary on it, the judgment raised an awkward question about the legal status of American depository receipts (ADRs).

ADRs in brief

An ADR provides a way for shares in a foreign company to be traded on US exchanges. The underlying foreign shares traded on the overseas exchange are deposited in a custodian bank and the depository bank issues a receipt giving the buyer rights over these shares. This receipt can be traded in the US markets – either on exchange or off-exchange depending on the nature of the ADR – just like a normal share. See here for a fuller explanation of how ADRs work.

The buyer of the ADR is not recorded on the company’s shareholder register, but they are entitled to all the economic benefits from them and we usually work on the basis that the investor is the beneficial owner. This is actually how most domestic shares are held these days anyway – rather than the individual investor being on the shareholder register, they are held “in street name”/”in nominee”, which means the legal owner is a non-trading subsidiary of your broker, but you are the beneficial owner (English law, and systems derived from it, allowing strict legal title to be separated from beneficial rights).

Crucially, beneficial ownership separates the shares from the assets of the stock broker, meaning that in the event the firm fails, they are not available to the broker’s creditors – the investor still has rights over them. So HSBC’s case against HMRC was interesting because the tribunal found itself considering the question of whether an ADR actually carries a beneficial ownership in the underlying shares.


Fidelity to add eight new markets

In what looked like a carefully timed attempt to make Charles Schwab’s new international service less newsworthy,  Fidelity has announced that it will be adding eight new countries to its international platform by the end of 2012. The proposed new countries are Austria, Denmark, Finland, Greece, Ireland, Poland, South Africa and Spain.

There are no details on fees yet, but assuming they are sensible, Fidelity’s international service may start to look a relatively decent option for US residents to invest in a wide range of international markets at reasonable cost. Countries such as Poland and South Africa are still hard to trade in a cost-effective way, especially since US investors don’t have easy access to international firms such as Saxo Bank.


Charles Schwab launches new international trading account

Charles Schwab has extended its international investing services, following Fidelity’s decision to do the same earlier this year. The new Schwab Global Account offers online access to 12 non-US markets: Australia, Belgium, Canada, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, Norway and the UK.

Schwab is initially is offering zero commission online trades until the end of 2013 – thereafter, international commissions will be in the range of US$15-35 online and US$50-75 by telephone (at current exchange rates). Currency conversion fees will be up to 1% and there is also a 0.1-0.25% fee from the local brokers that Schwab uses to execute trades abroad (something that isn’t clearly displayed on the Schwab website, but can be found in the latest fees guide [PDF]).

The Global Account seems to be distinct from the existing international trading service available through the Schwab One Account, which offered 20-30 countries for telephone trading, albeit at very high costs. While the Global Account mentions access to 30 countries in addition to the 12 online markets, this appears to mean the ability to trade ADRs and OTC stocks from other countries in US dollars, which is not at all the same thing as having direct access to a foreign market (selection will be more limited, liquidity will usually be poorer, spreads may be wider and prices may be stale).


Historical valuation data for global stockmarket indices

Long-term historical data on price/earning ratios, price/book ratios and dividend yields for stockmarket indices is extremely valuable in looking at long-term returns – but it can be very difficult to obtain. While price data is available for many major markets stretching back decades or more, valuation data typically hasn’t been recorded so carefully.

The figures that are available have usually been reconstructed from old earnings reports and are proprietary data sets that are expensive to access. For those who are willing to pay, Global Financial Data is probably the most comprehensive source for very long-term financial data of all kinds.

For those who can’t justify the cost of paid-for data, there are a few freely downloadable data series for some of the major indices around the world, although they are often hard to find and there is no consistency about which markets are available. The following links will take you to the ones I’ve found that are still updated  – if you’re aware of any others, please let me know in the comments below or by email.


Binck Bank, DUTrade and other updates

There have been a number of updates to the stock broker directory recently. These include entries for:

  • DUTrade, an online broker based in Bahrain and covering much of the Middle East and North Africa
  • Dutch discount brokerage Binck Bank – reported to be a good choice for derivatives and structured products on European markets
  • IW Bank, the online brokerage arm of Italy’s UBI Banca
  • Hong Kong broker Core Pacific – Yamaichi

Other major additions to the site include a comparison table of US discount online brokerages for trading domestic shares and options – a long-standing request from readers – and a comparison table of Hong Kong online brokers. There’s also a comparison table for fund supermarkets in centres such as Luxembourg and Singapore that will accept foreign clients.


The largest stock broker by number of clients

While writing the update on Boom Securities being taken over by Monex, I found a Monex press release that adds some more background to my earlier posts about the estimated stock broker market share in various countries (US, UK, Singapore):

In Japan, Monex, Inc. is an online brokerage firm with a client base of 1.2 million. There are only 8 online brokerage firms around the world that have a client base of over 1 million: TDAmeritrade, Charles Schwab, E*TRADE, and Fidelity in the United States, Cortal Consors in Europe, and SBI Securities, Rakuten Securities, and Monex, Inc. in Japan.

It’s no surprise to see the four US heavyweights on that list (in fact, I think there’s an omission – according to Reuters, Scottrade has 2.5 million accounts) and given the size of the Japanese market, the major players there must also have a significant user base. I’m a little surprised to realise that Cortal Consors has so many clients.


Fidelity expands international trading service

Fidelity, the largest US brokerage, at last seems to be making a serious effort in international markets, with the decision to open its international trading service to all account holders.

The firm has long had a decent set of overseas markets available for direct investment (as opposed to over the counter trading of foreign stocks in the US) and fees were generally not too excessive compared with peers. But the associated conditions were baffling – you needed a minimum balance of US$25,000 and over 120 trades per year or a balance of US$1,000,000. Any investor who met those criteria could and should find more suitable accounts at other brokers.

However, international trading is now available in accounts of all sizes, making it a reasonable proposition for the smaller investor. With another five markets just added (Mexico, New Zealand, Singapore, Sweden and Switzerland), it covers a good proportion of the major markets.


Is the S&P500 really 40% overvalued? – CAPE, equity q and intangible assets

Of all the tools we have for valuing the stock market, the cyclically adjusted price/earnings ratio (CAPE) and the equity q ratio are the most credible, with long histories and sound theory behind them. And right now, these suggest that the S&P500 is around 40% overvalued.

This isn’t quite as expensive as the market was in 2000, but it’s up there with other peak valuations over the past century. What’s more, stocks haven’t been consistently cheap for almost two decades, according to the same metrics. Even during the worst of the 2008-2009 panic, the market only briefly dipped below fair value.

That stands in sharp contrast to the usual stockbroker chatter that equities are cheap, but there’s no question which verdict investors should take more seriously. However, the degree and persistence of this overvaluation certainly raises some questions.

Few investors who look at CAPE and equity q seemed to have considered whether these measures could be giving us the wrong signals. But if you dig into the details, it seems very plausible that they could be making the S&P500 look more expensive than it is – although it’s still difficult to conclude that US stocks are cheap.