2
$\begingroup$

A large international bank with its central seat in Switzerland has accumulated tremendous wealth and absorbed many smaller banks, becoming a thorn in the eye of the government of a powerful dictatorship because its oligarchs are gradually transferring all of their assets abroad to evade the ridiculously high taxes and homeopathic interest rates the ministry of commerce and the state bank of the dictatorship mandates. The foreign bank specializes in these clients, waging a "financial war" against the state institutions. The Glorious Leader is angered. Several high-ranking ministers and officials of the secret police and intelligence service meet and decide that something must be done. The following idea is propagnated:

  • On a certain day of relatively low stock market activity, "Operation X" starts - the state offers to buy shares of the bank at double or triple price. At the same time, oligarchs whom the government manages to bribe withdraw their accounts and send them to a smaller Swiss bank or to the homeland, where they are offered privileged conditions for the storage of their wealth.
  • As soon as the majority of the shares is in the hands of the government - a large advertising campaign in support of the takeover is utilized - the seat of the bank is moved to the capital of the dictatorship and it is registered under the laws of the country, temporarily as a subsidiary of a fake state company. All assets of the bank are transferred, foreign accounts closed and a majority of the personnel fired.
  • Finally, the bank is fully nationalized and then dissolved, and the ownership of all money - especially that of the defiant oligarchs - is now in the hands of the state. The last operation is fully legal under the laws of the nation as private banks are actually outlawed and the state reserves the right to dissolve and confiscate any company at will.

My question is:

  • Is this plan realistic and could it work out?
  • What might be the likely consequences of such a hostile takeover and dissolution? What will be the extent of the economical crisis caused by the operation?

Information:

  • The bank has a market capitalization of about 100 billion USD. It is controlled by a fourteen-man board of major shareholders, of which one is a Medwedian national and agent, nine are Swiss nationals, one is an Austrian, one is an American and two are large manufacturing companies represented by their CEO's.
  • The dictatorship has a large GDP; as such, about 300 to 400 billion USD are immediately avaliable (from confiscation of private assets, hyper-production, preparatory measures, etc...) to it.
  • An additional fund of 100 billion USD has been made for bribing the board.
Improve this question
$\endgroup$
7
  • $\begingroup$ "Large international bank" means what exactly? That is, what's the market capitalization of this bank? Is a majority of the voting shares even traded on the stock exchange? Who are the major shareholders? The regulator? For example, UBS has a market capitalization of about 70 billion USD, and an estimated value of about 100 billion USD; this means that the irate dictator must find somewhere around 40 to 50 billion USD to burn on this exercise. Then there is the small problem that the bank's board has ample means to make the takeover much more expensive. $\endgroup$ – AlexP Feb 18 '18 at 16:58
  • $\begingroup$ Clarified in the question. $\endgroup$ – MedwedianPresident Feb 18 '18 at 17:04
  • 2
    $\begingroup$ ... And then there is the small problem that a bank cannot generally move a person's account from one country to another country. See, a person has an account with a specific branch of the bank, under the laws of a specific country. The bank cannot simply decide to move the account to another country, with different laws -- the person must agree. And GDP is comparable to turnover, not profit; in fact, must countries run deficits. And then there is the problem of the Swiss regulator even allowing a large bank to be taken over by a dictatorship... $\endgroup$ – AlexP Feb 18 '18 at 17:09
  • $\begingroup$ The problem seems to be disloyalty by the oligarchs more than their current mechanism for smuggling wealth around. There are always more ways to smuggle wealth. $\endgroup$ – user535733 Feb 18 '18 at 17:19
  • 2
    $\begingroup$ This plan is entirely unnecessary. The Glorious Leader's nation's Parliament only has to pass a law acquiring the bank. This is usually called 'nationalization'. Why bother with stock market. Just go for the jugular. The international fiance sector won't like it, but when they liked anything governments do? $\endgroup$ – a4android Feb 19 '18 at 0:03
5
$\begingroup$

There's a simpler solution to this, provided of course that your country is not dependent on international credit or trade in order to survive.

Create a State Bank.

As a sovereign state, you have the legal ability to be in (or out) of any business you wish. In the modern world governments don't want to run banks because they want to encourage private investment and let the market drive the economy in a way that the politicians can't be held accountable for if things go south, but in this case...

Your bank starts up, and offers an immediate benefit; no taxes AT ALL are paid on funds that are held in the state bank. Why? Because you have access to the funds, and as such your country is effectively raising private funds outside of the bonds market to initiate capital works.

Then, you hit the (other) banks with an 'off-shoring' tax. That means, that for every dollar they shift off-shore, they pay (say) 10% of the value of the transaction. What that does is make it non-viable to off-shore money overnight and bring it back in to start the morning's trading. That makes your country less profitable to the multi-nationals, and also gets them to pay tax on money that they're moving off shore as profits as well.

After a decade or less, the multinationals just pull out as it's no longer worth their time. Wait a year or two, and you privatise your state bank but you instigate a rule which says that no more than 5% of the bank can be owned by foreign nationals or companies that have a single foreign national in their directorship.

You've just created a private investment market, eliminated the multinationals and any future competition, and done so without generating a sovereign risk reputation for yourself among the big world banks. (Well, maybe a little one.)

This is fraught with problems of course, it's not a perfect solution. For one, as an authoritarian government, you're now directly responsible for REAL fiscal policy AND performance. But then, as an authoritarian government, that probably suits you and you wouldn't be considering taking over an international bank in the first place if this worried you.

Secondly, you now have effective control over exchange rates. Because you're making it hard for people to transfer your money off shore, exchange rates for your currency will go up. If you're not trying to export things or if you don't rely so much on tourism, then no problem but the irony of that is that eventually your balance of trade will make domestic industry unable to compete with imports. This one factor alone could collapse your economy unless VERY carefully handled.

Finally, you're going to kill your foreign investment market. Foreign companies won't invest in new factories or other job-creating schemes in your country unless you make it really easy for your currency to be shifted back to them as profit for their investment. If you have a developed industrial capacity already this may be less of an issue, but then you still need to see point 2 above.

Ironically, these economic pressures are not dissimilar to those you'd face 'appropriating' a major bank anyway. In that sense, you've done the same thing, only done it more cheaply and generated your own crowdfunding along the way to finance it.

So; the answer is that there is probably a cheaper way to achieve the same thing, but it's still a bad idea unless you have a finance minister and economic modelling team who know what they're doing.

Improve this answer
$\endgroup$
2
$\begingroup$
  • If this bank is traded on the stock market, why offer "inflated" prices at first? Pretend to be a hedge fund or day trader that wants some shares to gamble on rising courses. Pay the usual market price and not a Cent more.
  • After some time, analysts will notice the pattern that these day traders only buy and never sell. They might also get into trouble with financial disclosure rules, depending on where and how they are registered. This acitivity will drive the stock price up slowly. "Many investors are buying, what do they know that I don't know? Let's buy some stocks, too."
  • Then have a strawman bank come in and makes a formal takeover offer. Only now, higher prices are offered.

But even if you are the owner of a majority of the stock, and able to appoint a new chairman of the board and CEO, your company is still a bank under the regulations of the home country (Switzerland). As AlexP pointed out in his comment, they cannot simply do whatever they want with their deposits.

  • They might break Swiss law, liquidate assets and buy gold, move that physically. Nobody expects that, so regulators might react too late.
  • They might leak true or false information about their customers in a bid to get them indicted whereever they happen to live and the bank accounts frozen.

As for the dislocations, the mere fact that somebody tried a stunt like that could hurt the credibility of the banking industry worldwide, much like the Lehman crash did. As the credibility of all banks goes down, credit is no longer extended to the weaker banks, and some might fold. Replay of 2008.

Improve this answer
$\endgroup$
1
$\begingroup$

Why play fair?

Engage in psych-ops that would be securities fraud if conducted by a private person spreading convincing but false information that the enemy bank is about to collapse. Then, through a secret third party proxy, buy up the devalued shares.

Improve this answer
$\endgroup$
1
$\begingroup$

Is this plan realistic and could it work out?

In my humbred opinion, the answer is NO. And there are other ways by which state could get what it want.

Why not?

In short, shares go to the stock market when bank owner decides to multiplicate his money. He issued, say, 1,000,000 of shares and said something like Everybody could buy shares. The earned money I'll spend to bank develpment. He wants to control his own bank so he sells only few shares. He could buy and sell shares on stock market but half of all shares will never be sold. So if someone tricky buy all the shares from the stock market, she'll get only half of control.

In real life things could be more complex. In some conditions in some countries, the law require that if someone accumulate 51% of all shares, then she must offer to buy another shares with the same price. The owner could eventually have only 20%. But the key idea is same: No way to get 100% of control: blocking stake will be in owner hands.

Ways to get what you want (Only if you - a rich state)

Let's see to the UBS which AlexP mentioned. The bank was charged by US in tax evasion. From one hand, the Swiss bank could ignore what far-far country says. On the other hand, US could easily ban all UBS operations in US market. The possible losses were so big that UBS paid 700+ millions dollars before trial. Even more, it provided the infromation about its clients - the most sensitive data it has.

Swiss lawmakers approved a deal to reveal client data <...> of U.S. clients

If you say that US is the top country then I would agree with you. Most probably if, say, Nigeria or Armenia required from Swiss the same data then answer would be no. But it's politics: probably Nigeria could find some arguments something important for Swiss goverment and get private data about Nigerian oligarchs.

TL;DR It's too hard to buy a very big bank. But it's easy to push to it politically and get what you want. Cypriot banks know it's true

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.