Shrinking Bank Empires, Bitcoin Status, Corporate Tax Avoidance

By Peter Ward     July 29, 2016

Big Bank Empires Shrink

How does a bank lose 69 million customers? Around a decade ago, Citigroup’s empire stretched across the world, offering consumer banking in 50 countries and serving 268 million people. But since the financial crisis of 2008, Citigroup has shut retail operations in more than half of the countries in which it previously operated, reduced the number of branches by more than two-thirds, and halted its subprime lending, student loans and life insurance businesses.

An interactive article published by Bloomberg News on Tuesday shows how Citigroup and HSBC have both lost millions of customers as they cut back their international networks.

The first graph shows Citigroup’s dwindling empire. In 2006 the bank had operations in 50 countries, but in 2016 it has just 21, and is exiting a further three countries. Another graphic illustrates the cuts in number of customers and staff. Citigroup boasted 268 million customers in 2007, but in Q2 of this year served 199 million. Staff numbers have also been slashed – from 374,000 employees in 2007 to 220,000 in 2016.

HSBC has exited territories at a comparable rate. The bank operated in 60 countries in 2008 but was only operational in 26 countries in 2015. Further graphics display how both banks have altered the makeup of their businesses drastically. Profits from consumer banking have dropped for both companies between 2006 and 2015, while profits from corporate and investment banking have increased over the same period.

Bitcoin – Money or Property?

Is Bitcoin money? A judge in Florida ruled this week that the cryptocurrency should be defined as property, rather than money.

Miami-Dade Circuit Judge Teresa Mary Pooler ruled that a man charged with illegally transmitting and laundering $1,500 in bitcoin was innocent as bitcoin doesn’t qualify as currency.

Bitcoin was created in 2009 and first found popularity on the dark web, where it could be used to buy goods and services without using national currencies.

Judge Pooler wrote in an eight-page opinion that bitcoin has some attributes in common with money, such as being exchanged for items of value and being accepted by some merchants but not by all of them. She argued that because the currency’s valuation fluctuates wildly, bitcoins have a “limited ability to act as a store of value, another important attribute of money.”

In 2014 the Internal Revenue Service declared that bitcoin would be taxed as physical property, and if a person were to sell it and a make a profit, bitcoin is taxable as if it were a house or a share of stock. The Commodities and Futures Trading Commission last year defined virtual currencies like bitcoin as commodities for regulatory purposes.

Coal Plant Valuations Hit Local Communities

How can corporate tax avoidance affect local communities? An article by The Texas Observer published on Monday reveals the owner of Texas’ biggest fleet of coal-fired power plants is trying to maneuver its way out of paying its property taxes, and local schools and facilities are suffering as a result.

In August last year, Luminant Corp., the largest taxpayer in North East Texas’ Titus County, claimed its power plant in Monticello was only worth one-seventh of its appraised value of $341 million. Days later the company filed a suit against the appraisal district in Titus County, which meant under Texas law Luminant will only pay taxes on its own valuation, for as long as the litigation is ongoing.

Overnight, the independent school district budget of Mount Pleasant, the largest city in Titus County, was cut by 10%, as the county struggled to come to terms with the revenue loss. In the last year Luminant has filed lawsuits against appraisals in four other rural counties where it owns coal plants. The company has also sued in Somervell County, where it owns a nuclear plant. A state district judge ruled against Luminant, but the company filed an appeal on June 1.

In 2008, the Monticello plant was appraised at $1.05 billion. Today, Luminant claims it is worth only $50 million. The company has sued and then come to a settlement within a few months in the past, but now appears to be adopting a more stubborn stance.

Meanwhile, the local government has suffered. Mount Pleasant independent school district’s tax rate is already at the legal limit, meaning the school board had to eliminate a local homestead exemption, which raised homeowners’ tax bill collectively by $800,000 – not a popular move in a conservative and poor county. 84% of Titus County’s students are considered economically disadvantaged.

Washington D.C.’s Low Income Solar Plan

Solar panels on roofs can save homeowners significant amounts of money, but households with low incomes struggle to afford the initial outlay. On Tuesday, The Atlantic reported on Washington D.C.’s attempts to ensure clean energy is an option for everyone.

Households that install solar systems can get 30% of the cost as a tax credit, and some estimates put savings on monthly bills at between 10 and 20%. But setting up these systems can cost tens of thousands of dollars, which means the use and savings of them are enjoyed mostly by the wealthy.

Washington D.C.’s clean-energy plan aims to have at least half of the city’s power from renewable energy sources by 2032, and is targeting inequality at the same time. The city has mandated that just under one-third of the money set aside for solar initiatives must target low-income neighborhoods.

Solar systems have already been installed in some low-income housing in D.C., but the city now wants to target renters in multi-family units to make an even bigger impact. The city is seeking out partnerships with owners of apartment buildings and non-profits that own and operate affordable housing.

This Week’s Top Headlines

Nintendo shares plummet after investors realize it doesn’t actually make Pokémon Go – Sam Byford, The Verge

Fed holds rates and says there are now fewer reasons to be worried about the US economy – Akin Oyedele, Business Insider

Facebook earnings beat expectations – BBC

A tale of two tech giants: Apple soars as Twitter shares dive after earnings – Kate Rooney, CNBC

Elon Musk Says It’s ‘Pencils Down’ for Tesla’s Model 3 – Tom Randall, Bloomberg News

Oracle Buys NetSuite in Deal Valued at About $9.3 Billion – Jing Cao, Brian Womack, Bloomberg News

New York Times swings to Q2 loss on lower print ad sales – Roger Yu, USA Today

Ford’s Profit Declines 9% on Lower China Sales – Christina Rogers, Wall Street Journal

IMF ‘overly optimistic’ about success of EU bailouts – Andrew Walker, BBC

Curbs on persistent debt collectors offer hope to Americans in the red – Jana Kasperkevic, The Guardian

 

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