Ethics and governance in the European Financial centers

Some Fortis press releases in 2008 are worth reading


25 January 2008 : Fortis confirms sound capital and solvency position and unchanged dividend policy

3 April 2008 : Fortis Banque Luxembourg achieves a net profit of EUR 676.8 million : Vigorous profitability confirmed. The crisis is not taken into account.

18 August 2008 : Fortis Banque Luxembourg - solid performance in first half-year 2008: Six-month net profit exceeds EUR 380 million


The annual report 2007 underlines three times that the bank does not have any subprime exposure.


Page 13

Exceptional, non-recurrent income was significantly lower than in 2006. Moreover, while we did not ourselves take positions with sub-prime exposure, our bank suffered, like many others, from the impact of the crisis on financial markets and the general business environment. As a result, net earnings were lower for the parent company alone; at consolidated level, they were equal to the previous year's record results

Page 19

In view of the turbulence resulting from the crisis in the US mortgage market and which affected financial markets, it is important to note that the Bank does not have any subprime exposure and has been particularly attentive to the management of credit risks and liquidity, in keeping with the Bank's traditional caution.

Page 28

In view of the turbulence resulting from the crisis in the US mortgage market and which affected financial markets, it is important to note that the Bank does not have any subprime exposure and has been particularly attentive to the management of credit risks and liquidity, in keeping with the Bank's traditional caution.


The report of the Reviseur d’Entreprise dated March 2008 unfortunately does not quote the subprime crisis and the potential risk.

In my opinion the auditor should have taken into account the risk by stating a reserve because of the incertainty due to the subprime environment and the lack of traceability of the financial derivatives markets and a possible indirect exposure because of the business relationships with financial institutions with direct exposure. Luxembourg is not a sanctuary. He relied to much on the preparation and presentation of too optimistic financial statements at a time when the subprime risk was growing worldwide.

Luxembourg, where the leading audit firm consider that clients' confidence if the cornerstone to the job, probably reduces the subprime problem in many audits all the more than clients want to demonstrate their growth (see Fortis motto "rise2" in the last press release dated 18 September 2008 that sounds strange today : Confirmed vigour of financial performance with net profit for the first half reaching a high EUR 388.4 million).

As I said, it is important to focus on long-term business issues as achieving quality in production and developing good relations with stakeholders (clients, staff, suppliers and the community) who are the actual addressees of audit reports, and not just on short-term results that are figures.

As Kenneth Blanchard said, "Managing only for Profit is like playing tennis with your eye on the scoreboard and not on the ball" (K. Blanchard, The power of Ethical Management. Ballantine, 1988, p. 109).



Which bank located in Luxembourg will be next ?

The Guardian has reported that the British government is attempting to torpedo a section of an international plan to eradicate tax evasion with the view of protecting the interests of City law and accountancy firms.

Know more

PwC Luxembourg has recently published a brochure called "Investment Management Luxembourg - the location of choice" that is worth reading in the context of the financial crisis and of the contestation of offshore centers and other tax havens.

Here are some extracts page 8 that are very representative of the local state of mind :


Being a small country in size and having had to rethink its traditional steel-based economy to make it a centre for international banks and funds, the Luxembourg government has always had an open and friendly ear for the financial community. The authorities, and particularly the financial regulator, are accessible and flexible; officials are welcoming, easy to contact and open to dialogue.
(...)
Luxembourg’s success has been and continues to be predicated on a combination of the depth and breath of the supporting infrastructure – service providers and professionals, systems and technology geared toward supporting the diverse and complex vehicles we see in the funds world today – in addition to a stable and business friendly regulatory and tax environment which effectively supports international fund providers


What does mean a business friendly regulatory environment ? Is it the role of a regulator (or of the justice) to be the "friend" of financial institutions ?
Definitely no.

What does mean a particularly flexible financial regulator? Does that mean a regulator that consider business over rules?
I am afraid yes because the regulator is involved in the promotion of the center.

What does mean officials are welcoming, easy to contact and open to dialogue? Does that mean that they some may be corrupted?
I am afraid yes because many officials are involved in networks with business people that may lead to conflicts of interest or corruption.

What does mean a "government that has always had an open and friendly ear for the financial community" Does that mean that if the financial community is not willing to abide by international recs (OECD, GRECO, FATF...) the governement is ready to give up before the financial community?
Definitely yes. There are many examples in public and official sources.


What is extraordinary with this jurisdiction is that the financial community governs in a way the country and this is admitted.