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DealBook: News Corp. Considers Dividing Itself Into Two

June 26, 2012 by Leave a Comment

1:29 a.m. | Updated The News Corporation is considering dividing itself into two companies, cleaving its publishing arm from its far larger entertainment division, a person briefed on the matter told DealBook early on Tuesday.

If News Corporation follows through, it would essentially mean splitting off the newspaper business that once formed the heart of the company from the Fox movie studio and television networks that now represent the strongest and most profitable parts of Rupert Murdoch‘s media empire.

Such a split, which may take the form of a corporate spinoff, would create a publishing business that included The Wall Street Journal, The Times of London, The New York Post and the HarperCollins book-publishing business.

The Murdoch family would likely retain control of the newly split companies under such a scenario, this person said.

It isn’t yet clear whether Mr. Murdoch will ultimately proceed with the move — something he had rejected in the past — though he has softened his opposition more recently. Should the company settle on this path, it could announce its intentions to pursue a split as soon as this week, the person said.

A News Corporation spokeswoman, Julie Henderson, declined to comment.

News Corporation’s chief operating officer, Chase Carey, said publicly earlier this year that the company’s management team had considered a split. But at the time, he said, no decision had been made.

Such a move would come amid the ongoing investigations into alleged hacking by News Corporation’s British newspapers, a damaging scandal that led to the shuttering of the News of the World and undermined the company’s $12 billion bid for the portion of British Sky Broadcasting that it did not already own.

The fallout from the hacking scandal has grown over the past year to touch upon an array of figures, including British Prime Minister David Cameron and Mr. Murdoch’s son, James, who led the company’s British newspaper operations. The country’s broadcast regulator has been reviewing News Corporation’s status as a “fit and proper” owner of television stations in Britain.

But the person briefed on the matter said that a split was more closely tied to attempts to improve shareholder value. Many restive shareholders have long preferred that the company focus on its more lucrative entertainment assets, which together generated $23.5 billion in revenue in the year ended in June 2011. The publishing business, by contrast, contributed $8.8 billion in revenue.

News Corporation’s shares have risen 20 percent over the past 12 months, but some of that ballast has been supplied by an expensive buyback program. The company’s stock fell 1.4 percent on Monday, to $20.08.

The company’s deliberations were first reported by The Wall Street Journal.

Article source: http://dealbook.nytimes.com/2012/06/26/news-corp-considers-dividing-itself-into-two/?partner=rss&emc=rss

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DealBook: Microsoft to Buy Yammer for $1.2 Billion

June 25, 2012 by Leave a Comment

Microsoft announced on Monday that it will buy Yammer, a social network service for businesses, for $1.2 billion in cash, as it seeks to strengthen its enterprise software business and compete more directly with Salesforce.com.

Under the terms of the expected deal, Yammer will be added to Microsoft’s office division and will continue to be led by David Sacks, its chief executive.

Yammer, which calls itself “the enterprise social network,” is a sort of Facebook for business. Its Web-based service allows companies to create private social networks, where employees can privately chat, shares files and collaborate on projects.

“The acquisition of Yammer underscores our commitment to deliver technology that businesses need and people love,” Steve Ballmer, Microsoft’s chief executive, said in a statement. “Yammer adds a best-in-class enterprise social networking service to Microsoft’s growing portfolio of complementary cloud services.”

It was co-founded in 2008 by Mr. Sacks, a former PayPal executive who spun the business out of Geni, a genealogy and social networking site.

Over the past four years, the service has grown at a rapid clip, as more companies turn to the Web for secure solutions to enhance inter-office communication and collaboration. Yammer, which offers both free and subscription services, has more than five million users and is used by more than 85 percent of Fortune 500 companies.

It has raised a total of $142 million in venture capital, recently adding $85 million in late February, in a financing round led by Draper Fisher Jurvetson. The company’s roster of investors and board members is stacked with former Facebook executives and members of the so-called PayPal mafia. Founders Fund, the venture firm led by PayPal cofounder Peter Thiel, and Social+Capital, a firm partially backed by Facebook, are both major backers. Sean Parker, the former president of Facebook and an executive general partner at Founders Fund, is a board member.

The marriage of Yammer and Microsoft which also invested in Facebook — makes sense, given the importance of the enterprise consumer to Microsoft and recent moves by Yammer to align itself closer to the software giant. In April, Yammer acquired oneDrum, a British start-up focused on file sharing and enterprise collaboration solutions, for an undisclosed sum.

“When we started Yammer four years ago, we set out to do something big,” Mr. Sacks said in a statement. “We had a vision for how social networking could change the way we work. Joining Microsoft will accelerate that vision and give us access to the technologies, expertise and resources we’ll need to scale and innovate.”

Microsoft’s pursuit of Yammer comes as the enterprise market converges with the consumer Web. Traditionally, a company’s technology purchasing decisions were made top-down, controlled by a handful of information technology experts. That model is rapidly eroding with the rise of Web-based services that are created to be lightweight and user-friendly. Start-ups like Yammer reel in consumers with free versions. Those consumers then become evangelists at their companies, encouraging their employers to adopt the application and pay for a premium subscription.

A Yammer acquisition will allow Microsoft to compete more directly with Salesforce, which offers a similar messaging product called Chatter. Salesforce has also been aggressive in adding social-related applications to its portfolio, recently spending $689 million for BuddyMedia, a social marketing business that works with companies like Ford Motor and L’Oreal. The service helps companies build and manage their advertising campaigns across social networking sites, like Twitter and Facebook.

Article source: http://dealbook.nytimes.com/2012/06/25/microsoft-to-buy-yammer-for-1-2-billion/?partner=rss&emc=rss

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DealBook: Amid Debt Crisis, Banks Confronted by Familiar Problems

June 25, 2012 by Leave a Comment

The European Central Bank in Frankfurt, Germany.Arne Dedert/European Pressphoto AgencyThe European Central Bank in Frankfurt, Germany.

Despite efforts to strengthen the international banking industry, many of the world’s largest financial institutions still face the same pressures that confronted the sector after the collapse of Lehman Brothers in 2008, according to the Bank for International Settlements.

In its annual report, published on Sunday, the association of the world’s central banks said major international banks continued to be weighed down by investor skepticism about their future earnings and their ongoing reliance on government-backed financing.

The report said that to win back investor confidence, financial institutions should write down their underperforming assets and increase their cash reserves.

“Banks need to repair their balance sheets,” the B.I.S., based in Basel, Switzerland, said in its report. “This will entail writedowns of bad assets, thus imposing losses on banks’ stakeholders.”

Regulators worldwide have demanded that banks and other financial institutions clean up their balance sheets, but the firm still have a long way to go.

European financial institutions, for example, are currently trying to offload more than 2.5 trillion euros, or $3.1 trillion, of noncore loans, or roughly 6 percent of total European banking assets, according to the accounting firm PricewaterhouseCoopers.

The average ratio of loans to deposits for European institutions — a key measure of a firm’s exposure to bad loans — currently stands at 130 percent, sizably higher than the average of 75 percent for other banks worldwide, according to statistics from the B.I.S.

The association of central banks said that the Continent’s financial institutions remain too reliant on cheap, short-term loans provided by the European Central Bank, as many banks, particularly in Southern Europe, struggle to raise new funds from the capital markets.

“Many banks depend strongly on central bank funding and are not in a position to promote economic growth,” the B.I.S. report said.

The ongoing dependence by global financial institutions on wholesale funding will likely lead to continued high financing costs for banks for the foreseeable future, as investors demand larger amounts of collateral to protect against potential losses.

In Europe, where exposure to government debt has left financial institutions vulnerable, one-fifth of banks’ assets were set aside last year as a guarantee to obtain new financing, the B.I.S. said. Institutions in Southern Europe have been hit the hardest. The amount of assets used for collateral by Greek banks, for example, rose tenfold between 2005 and 2011, and currently stands at around 33 percent of total assets.

As banks reduce their exposure to risky assets in economies that are struggling amid the global economic slowdown, many firms have pulled back on lending to other financial institutions, particularly in overseas markets. The B.I.S. said that borrowing among banks in the euro zone fell drastically between 2008 and 2011, as local firms reduced their international lending by 43 percent over the period.

Government “debt holdings are an important drag on banks’ efforts to regain the trust of their peers and the markets at large,” the B.I.S. report said. “Exposures to sovereigns on the euro area’s periphery are perceived as carrying particularly high credit risk.”

Article source: http://dealbook.nytimes.com/2012/06/24/amid-debt-crisis-banks-confronted-by-familiar-problems/?partner=rss&emc=rss

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DealBook: S.E.C. Looking at Possible Violations by Exchanges

June 23, 2012 by Leave a Comment

Facebook executives ring the opening bell on May 18 with Nasdaq chief Robert Greifeld.Zef Nikolla/Facebook, via European Pressphoto AgencyFacebook executives ring the opening bell on May 18 with Nasdaq chief Robert Greifeld.

Nasdaq has blamed Facebook’s botched debut last month on flawed computers and “technical errors.”

Regulators suspect it may be something more. The Securities and Exchange Commission has opened an investigation into the exchange for its role in the initial public offering of Facebook, according to people briefed on the inquiry. Regulators are examining whether Nasdaq failed to properly test its trading systems, which broke down during the I.P.O., and whether the exchange violated rules when it rewrote computer code to jump-start trading.

The Facebook investigation comes after a broader inquiry into trading breakdowns and other problems at the nation’s largest exchanges, including two previously undisclosed cases involving Nasdaq’s archrival, the New York Stock Exchange, the people said.

The agency’s enforcement unit, which has opened more than a dozen related cases, is examining whether exchanges lack adequate controls and favor select investors.

As investor confidence in the market wanes, the worry is that missteps by the exchanges are contributing to the dissatisfaction. Since the financial crisis, investors have seen their portfolios erode, prompting them to flee stocks.

“If exchanges have technical problems, that slows capital formation and erodes the confidence,” said Senator Jack Reed, Democrat of Rhode Island, who held a hearing this week on the initial public offering process.

While none of the exchanges has been accused of any wrongdoing and the S.E.C. may never take enforcement action, the crackdown represents a significant shift. Traditionally, the agency has been relatively cozy with the industry, which is increasingly under pressure to produce profits since the exchanges became publicly traded companies.

Along with the threat of enforcement cases, the S.E.C. has stepped up its inspections of exchanges and introduced several measures to improve the safety of the markets. For example, the agency has approved proposals that would help limit volatility in specific stocks, including circuit breakers that would halt trading.

“Cases against exchanges are few and far between, and inevitably a big deal,” said Stephen J. Crimmins, a partner at the law firm KL Gates and a former enforcement official at the S.E.C.

Facebook’s initial public offering highlights the problems facing exchanges — and how regulators are finding their responses lacking.

On May 18, its first day of trading, Facebook got off to a rocky start. Nasdaq delayed the start of trading and later flooded the market with shares, adding to investor trepidation.

Nasdaq’s lack of communication — and at times, lack of contrition — aggravated the situation, according to documents and executives, bankers and regulators. On a May 31 call with the chairwoman of the S.E.C., Mary L. Schapiro, and other officials, Nasdaq’s chief executive expressed confusion about the S.E.C.’s aggressive approach.

“We’re regulators, too,” said the chief executive, Robert Greifeld, adding “we’re all in this together.”

The Facebook debacle comes after a flurry of trading breakdowns. In March, BATS Global Markets canceled its own I.P.O., after its systems faltered. Nasdaq last year halted trading in dozens of stocks amid technical problems.

Such experiences echo the so-called flash crash. On May 6, 2010, the Dow Jones industrial average plummeted more than 700 points in minutes, before recovering shortly thereafter.

In nearly every case, companies blamed technical malfunctions. But regulators say some breakdowns may point to more fundamental issues.

The S.E.C. is also examining whether some exchanges give undue priority to high-frequency trading firms and big institutional investors through its order types and data disclosure.

The New York Stock Exchange is among the most prominent players facing scrutiny from regulators, who have opened two investigations into the Big Board, according to people briefed on the matter who spoke on the condition of anonymity because the cases are not public.

The S.E.C., the people said, is examining whether the New York exchange violated rules by distributing in-depth stock data to paying clients faster than the public received general information. The issue was first discovered in the rubble of the flash crash.

The exchange declined to comment. But people close to the exchange have attributed the problem to unintended technical shortcomings.

The S.E.C., which has penalized the Direct Edge exchange for having “weak internal controls,” is also pursuing the Chicago Board Options Exchange for not properly policing the markets.

In February, BATS Global Markets acknowledged receiving a request from the S.E.C. The agency, a person briefed on the matter said, is examining whether any collaboration between BATS and high-frequency trading firms could hinder competition.

Nasdaq represents one of the most prominent cases.

On the day of Facebook’s debut, its finance team, led by David A. Ebersman, stood on Morgan Stanley’s trading floor surrounded by scores of traders sporting white baseball caps stamped with “Facebook.” While the mood was initially festive, he was growing anxious.

The chief financial officer turned to the bankers: “Why aren’t we starting?” Nearby, a trader clutched phones to his ears, one with a call to another bank, the other to Nasdaq.

At about 11 a.m., Nasdaq said trading would begin in five minutes. After nothing happened, Nasdaq officials phoned S.E.C. trading experts to explain that everything was under control, according to a person briefed on the call.

Nasdaq’s computers were programmed to accept last-second modifications to orders of Facebook shares. When these trades kept piling in, the system reset the price over and over again. Some orders were not executed — or were placed at prices other than the opening bid of $42. Many traders, who usually receive confirmations in seconds, had no idea how many shares they held. “We were flying blind,” said one person at a market-making firm.

The S.E.C. is examining why Nasdaq lacked an action plan for navigating such a crisis, including plans to abort the I.P.O., and whether it failed to follow federal guidelines in running system tests. Nasdaq did run some 400 tests ahead of the Facebook I.P.O., and the company used the system in question for more than five years. Mr. Greifeld has publicly blamed “design flaws” in the system.

Ultimately, Nasdaq overrode the system manually, switching to a backup server. That move, too, has drawn scrutiny. Exchanges must follow their own strict trading procedures. In this case, Nasdaq changed its procedure on the fly without amending its rules. While the exchange may not have followed the letter of the law, a person close to Nasdaq said that the company had previously used the backup system with approval from regulators.

The exchange declined to comment.

Shares started trading at 11:30 a.m., sending brief applause through Morgan Stanley’s trading floor. The Facebook team, which had been hoping for a 5 to 10 percent jump from the offering price of $38, was relieved when it rose. The team headed to Teterboro Airport to fly back to California.

Then at 1:50 p.m., a second wave of confusion ripped through Wall Street. Traders saw an unexpected sell order of roughly 11 million shares. Some wondered whether a big hedge fund had dumped shares. Investors, on the fence about buying, backed off. Others sold. Within minutes, Facebook slipped $2, to roughly $40.

There was no mystery hedge fund seller. As Nasdaq started processing trades backed up in the system, those shares were dumped on the market, according to people with knowledge of the matter. About the same time, some Facebook shares that had ended up in an account at Nasdaq were also sold without warning. The move may have violated Nasdaq’s own rules, which do not explicitly allow the exchange to take a position in the shares of an I.P.O., according to one of the people.

While some analysts have pinned Facebook’s woes on Nasdaq, others have blamed the company and its bankers for being too aggressive on the size and price of the offering.

Facebook shares ended that first day at $38.23, roughly where they started.

Two days later, Mr. Greifeld called the I.P.O. “quite successful” over all and said that technical issues had not affected the price.

Facebook’s management team, which was beginning to grasp the extent of the problems, was livid. Some wondered why Nasdaq had made little effort to keep them apprised on Friday and kept them out of decision-making.

Mr. Greifeld called a senior executive, asking how the exchange could get back into its good graces. The executive erupted. “Bob,” the executive said, “You don’t understand what a hole you’re in.”

Nasdaq soon aggravated the trading woes. The exchange informed traders it might offer “financial accommodation” for claims filed on Monday. Some investors dumped shares, to prove a loss.

In the first hour of Monday trading, Facebook plunged from $38 to less than $34, swiftly wiping out billions of dollars in market value.

Article source: http://dealbook.nytimes.com/2012/06/21/as-facebook-seeks-answers-s-e-c-investigates-exchanges/?partner=rss&emc=rss

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DealBook: Bain Capital Buys Half of Japanese TV-Shopping Company

June 23, 2012 by Leave a Comment

Bain Capital agreed on Friday to buy 50 percent of one of Japan’s biggest television shopping companies marking the latest move by the private equity firm into that country.

Bain is acquiring the stake in the company, the Jupiter Shop Channel Company, from Sumitomo. The firm is paying more than $1 billion, a person briefed on the matter told DealBook.

Through the acquisition, Bain will buy a piece of one of Japan’s fastest-growing retail companies. Founded in 1996, Jupiter currently controls about 30 percent of the country’s TV-shopping market, according to Sumitomo. It draws an audience of about 27 million households across Japan, though it is available only in about half of the country’s households.

Jupiter generated about 120.9 billion yen, or $1.5 billion, in sales for the fiscal year that ended in March.

“We are pleased to enter this important partnership with Sumitomo Corporation and the company’s management team to accelerate the next phase of growth at Jupiter Shop Channel,” David Gross-Loh, a Bain managing director, said in a statement.

The transaction was led by Bain’s Tokyo office, which was opened in 2006 and has struck a number of deals since then. Among the firm’s acquisitions in Japan are Skylark, a big restaurant operator, and Bellsystem24, a major call center company.

Over all, Bain has struck at least three deals this year. Late last month, the firm agreed to buy Consolidated Container from a group led by Vestar Capital.

Article source: http://dealbook.nytimes.com/2012/06/22/bain-capital-buys-half-of-japanese-tv-shopping-company/?partner=rss&emc=rss

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DealBook: A Sober New Reality in Credit Downgrades for Banks

June 23, 2012 by Leave a Comment

Moody's downgraded 15 big banks, noting the changing nature of their Wall Street operations.Mark Lennihan/Associated PressMoody’s downgraded 15 big banks, noting the changing nature of their Wall Street operations. Graphic Graphic: Taken Down a Notch or Two

When a consumer’screditscore drops, it is hard to recover financially. Wall Street firms could face the same fate.

Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup all suffered credit ratings cuts on Thursday. The rating agency Moody’s Investors Service said that, even though these banks had moved to strengthen their operations, their core trading businesses contained structural weaknesses.

In other words, the downgrades reflect the new sober era for Wall Street.

SinceMoody’sput the banks on warning in February, the firms have had time to brace themselves and the immediate impact of the cuts is not likely to be drastic. But banking industry analysts say they think Moody’s actions will cause lasting pain.

“It will make life more difficult for the banks over the long run,” said Andrew Ang, a professor of business at Columbia Business School. “The effect of ratings is pervasive.”

Ratings at Bank of America, which owns Merrill Lynch, and Citigroup, which has a large investment bank, were cut to Baa2. At that level, their creditworthiness is at the lower end of the investment grade, just two levels above junk. Morgan Stanley was downgraded to Baa1, three notches above junk, and Goldman was reduced to A3, four notches above junk.

In many ways, those cuts echo investor sentiment about banks with large Wall Street operations. The stocks of Goldman, Morgan Stanley and similar firms trade at valuations that are depressed by historical standards, an indication that investors harbor deep doubts about the industry’s long-term prospects.

But the sharply lower credit ratings may cause more stress in the same areas that prompted the downgrades.

One of those trouble spots is short-term borrowing. Wall Street firms need to finance their operations at a low cost to make profits, so they make heavy use of short-termloansthat last from a few days to a few months.

Since the financial crisis, banks have made great efforts to make this critical financing source safer, partly by backing this debt with higher-quality assets.

Even so, the downgrades could push up the costs of these loans. With a lower credit rating, lenders might think there is a higher probability that the banks won’t repay the money.

“These firms have large amounts of debt that they have to keep rolling over, and they will have to pay more to do that,” Mr. Ang said.

They could also feel the pain in theirderivativesbusiness. Derivatives, financial instruments whose value is linked to prices of bonds and stocks, can be a lucrative for banks, especially when they are specially tailored for the customer on the other side of the trade.

But these clients, to protect themselves, may now demand better terms with downgraded banks, like increased collateral. Wall Street firms would then have to decide whether to give up the business, or go along with client demands and face weaker profits.

“Some banks may have to relax their terms in order to win business,” said Paul Gulberg, a brokerage analyst at Portales Partners.

The downgrade could also widen the chasm in the industry. While most big banks were downgraded, some got hit harder than others. At the high end of the rating spectrum is JPMorgan Chase. Citigroup and Bank of America fall much lower down.

“The downgrades will change the competitive dynamics of Wall Street,” said Mr. Gulberg, who said JPMorgan had been steadily increasing its market share in important businesses over the last several years.

The situation could be especially acute in the derivatives.

To help insulate their profits from a downgrade, many Wall Street firms locate derivatives trades in bank subsidiaries backed by government-insured deposits. As a result, these subsidiaries have higher credit ratings than the parent companies.

Citigroup, Bank of America and JPMorgan Chase have more than 90 percent of their derivatives in such subsidiaries. Morgan Stanley only has 5 percent.

Notably, Moody’s didn’t warn of possible future downgrades for these subsidiaries. But it did say the parent companies had a “negative outlook,” the agency’s way of saying it still had doubts about their creditworthiness.

Given that threat, the banks may try to do as much business as they can in these higher-rated subsidiaries. That could face resistance, especially if bank regulators think it is risky business.

“The banks already have every incentive to use their bank subsidiaries, but it’s even greater after the downgrades,” said Dennis Kelleher, president of Better Markets, a lobbying group that is pushing for stricter financial regulations. “That’s why regulators need to be on guard and scrutinize everything the banks are doing, or moving into, these subsidiaries.”

The downgrades may also intensify competition from outside the traditional players on Wall Street. Asset managers like BlackRock are making inroads, sometimes bypassing Wall Street in the process. Bond trading, a huge source of revenue for firms like JPMorgan, is especially vulnerable.

The downgrades will only help the insurgents. For instance, Moody’s rates BlackRock A1, two notches above Goldman, and one level higher than JPMorgan.

Article source: http://dealbook.nytimes.com/2012/06/22/a-sober-new-reality-in-credit-downgrades-for-banks/?partner=rss&emc=rss

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DealBook: America Movil Spends $1.59 Billion to Lift Stake in KPN

June 23, 2012 by Leave a Comment

A branch of KPN, the Dutch wireless phone and Internet service provider, in The Hague.Jock Fistick/Bloomberg NewsA branch of KPN, the Dutch wireless phone and Internet service provider, in The Hague.

América Móvil, the Mexican mobile operator owned by the billionaire Carlos Slim Helú, extended its foothold in Europe after paying 1.27 billion euros, or $1.59 billion, to increase its stake in the Dutch telecommunications company KPN to 20.9 percent.

The move, announced late on Thursday, comes as KPN is losing the battle to keep América Móvil from increasing its ownership in the European company.

The Dutch telecom company has been trying to sell its German and Belgian operations in an effort to thwart Mr. Slim’s advances.

On Thursday, KPN said it had broken off talks to sell its German business. The potential suitor had been the Spanish telecom giants Telefónica, according to a person with direct knowledge of the matter. KPN also said it would start the sale process for its Belgian unit in July.

The tactics follow an announcement in May from América Móvil that it had offered KPN shareholders 8 euros a share to increase its stake in KPN to 28 percent. Since then, the Mexican mobile operator has progressively bought shares in the company at prices well below its offer price

América Móvil’s most recent purchase of KPN shares averaged around 7.6 euros a share. In early afternoon trading in America, shares in KPN had fallen 4.2 percent, to 7.16 euros.

KPN said that América Móvil’s offer continued to undervalue the company.

América Movil’s bid for KPN is part of company’s strategy to expand into European markets.

Last week, the Mexican operator, which has more than 240 million customers across the Americas, said it had reached an agreement to acquire a 21 percent stake in Telekom Austria, increasing its total stake to 23 percent in that country’s market leader, in a transaction that will conclude by the end of the year.

Mr. Slim also owns a stake of about 8 percent in The New York Times Company.

Article source: http://dealbook.nytimes.com/2012/06/22/america-movil-spends-1-59-billion-to-lift-stake-in-kpn/?partner=rss&emc=rss

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DealBook: Barclays Names Chief Operating Officer

June 23, 2012 by Leave a Comment

LONDON – Barclays said on Friday that it had named its investment banking co-head, Jerry del Missier, to the newly created position of chief operating officer.

In the new role, Mr. del Missier will work with the heads of the bank’s different units to streamline and improve computer systems and operations, Barclays said in a statement. Rich Ricci, who ran Barclays’ investment banking unit with Mr. del Missier, will become sole head of the business.

The change comes as Barclays is seeking to reduce costs and comply with stricter financial regulation in Britain that forces banks to separate their investment banking operations more clearly from those businesses that hold retail deposits.

Robert E. Diamond, Jr., the chief executive of Barclays, said the appointment “brings even more management focus on accelerating” its priorities of improving its capital position and increasing returns.

Mr. del Missier said he was looking “to ensure that we continue to exceed our customers’ and clients’ expectations at every instance, while delivering on our commitments to our shareholders, regulators and broader stakeholders.”

Mr. del Missier joined Barclays in 1997. Before becoming co-head of the investment banking operation in 2010, Mr. del Missier was responsible for the unit’s technology and operations committee.

Article source: http://dealbook.nytimes.com/2012/06/22/barclays-names-chief-operating-officer/?partner=rss&emc=rss

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DealBook: Europe Bank Shares Rebound After Cuts

June 23, 2012 by Leave a Comment

A branch of Credit Suisse in Basel, Switzerland. The I.R.S. asked for help in locating information on American account holders.Arnd Wiegmann/ReutersThe Swiss firm Credit Suisse had its credit score cut three notches.

6:48 a.m. | Updated

LONDON — Shares in many of Europe’s banks rebounded in late morning trading on Friday after initially trading lower, as investors reacted to a new round of credit downgrades for the world’s largest financial institutions.

The volatility in trading activity followed the decision late Thursday by the credit agency Moody’s Investors Service to cut the credit scores of major banks to new lows, reflecting new risks the industry has encountered since the financial crisis began.

Despite the widespread downgrades, analysts said the markets had already reacted to much of the pressures that have hit banks’ trading operations and affected their balance sheets.

The Euro Stoxx bank index, which contains the Continent’s largest financial institutions, has fallen 46 percent in the last 12 months.

This was reflected in how investors reacted to European bank stocks on Friday.

The Swiss firm Credit Suisse, which was warned last week by the country’s central bank to increase its capital reserves, faced a three-notch downgrade, the only bank to have such a pronounced reduction in its credit rating.

Credit Suisse’s share price, which fell as much as 1.9 percent in early morning trading in Zurich, rebounded to trade down less than 1 percent by early afternoon. The Swiss firm said it remained one of the best rated banks by Moody’s Investors Service in its peer group.

The credit rating of UBS was cut by two notches, which was slightly less than many analysts had been expecting. The Swiss financial firm’s shares, which dropped by 1.1 percent in early trading, also came back to trade around 0.4 percent higher on early Friday afternoon.

Moody’s said the wholesale downgrades across the banking industry reflected firms’ exposure to global financial markets, which have come under pressure from the European debt crisis and a broader slowdown in the global economy.

‘‘All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,’’ Moody’s global banking managing director, Greg Bauer, said in a statement.

Several European banks with exposure to capital markets, including Barclays of London, Deutsche Bank of Germany and BNP Paribas of France, all had their credit ratings cut by two notches. Shares of the three firms, which all fell approximately 1 percent early morning trading, all traded up around 1 percent by late morning.

The British bank HSBC, which has major operations in the fast-growing emerging markets in Asia, fared better than many of its European competitors after Moody’s cut its credit rating by only one notch. The bank’s stock rose less than 1 percent in morning trading in London.

Article source: http://dealbook.nytimes.com/2012/06/22/shares-in-european-banks-fall-on-ratings-downgrade/?partner=rss&emc=rss

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Today’s Economist: Simon Johnson: The End of the Euro Is Not About Austerity

June 21, 2012 by Leave a Comment

DESCRIPTION

Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

Most current policy discussion concerning the euro area is about austerity. Some people, particularly in German government circles, are pushing for tighter fiscal policies in troubled countries (i.e., higher taxes and lower government spending). Others, including in the new French government, are more inclined to push for a more expansive fiscal policy where possible and to resist fiscal contraction elsewhere.

Today’s Economist

Perspectives from expert contributors.

The recently concluded Group of 20 summit meeting is being interpreted as shifting the balance away from the “austerity now” group, at least to some extent. But both sides of this debate are missing the important issue. As a result, the euro area continues its slide toward deeper crisis and likely eventual disruptive breakup.

The underlying problem in the euro area is the exchange rate system itself – the fact that these European countries locked themselves into an initial exchange rate, i.e., the relative price of their currencies, and promised never to change that exchange rate. This amounted to a very big bet that their economies would converge in productivity – that the Greeks (and others in what we now call the “periphery”) would, in effect, become more like the Germans.

Alternatively, if the economies did not converge, the implicit presumption was that people would move; Greek workers would go to Germany and converge to German productivity levels by working in factories and offices there.

It’s hard to say which version of convergence was less realistic.

In fact, the opposite happened. The gap between German and Greek (and other peripheral country) productivity increased, rather than decreased, over the last decade. Germany, as a result, developed a large surplus on its current account – meaning that it exports more than it imports.

The other countries, including Greece, Spain, Portugal and Ireland, had large current account deficits; they were buying more from the world than they were selling. These deficits were financed by capital inflows (including some from Germany but also through and from other countries).

In theory, these capital inflows could have helped peripheral Europe invest, become more productive and “catch up” with Germany. In practice, the capital inflows, in the form of borrowing, created the pathologies that now roil European markets.

In Greece, successive governments overspent – financed by borrowing — as they sought to stay popular and win elections. Whether the new government installed on Wednesday after last weekend’s elections will make any progress is not clear.

Greece has already adopted a considerable degree of fiscal austerity. Now it needs to find its way to growth. Cutting the budget further won’t do that. “Structural reform” – a favorite phrase of the Group of 20 crowd – takes a very long time to be effective, particularly to the extent that it involves firing people in the short run. Throwing more “infrastructure” loans from Europe into the mix – for example, through the European Investment Bank – is unlikely to make much difference. Additional loans of this kind are likely to end up being wasted or stolen as more and more well-connected people prepare for the moment when the euro is replaced in Greece by some form of drachma.

In Spain and Ireland, capital inflows – through borrowing by prominent banks – pumped up the housing market. The bursting of that bubble has shrunk their real economies and brought down all the banks that gambled on loans to real estate developers and construction companies. Their problems have little to do with fiscal policy.

As conventionally measured, both Ireland and Spain had responsible fiscal policies during the boom, but they were building up big contingent liabilities, in the form of irresponsible banking practices.

When the banks blew up in Ireland, this created a fiscal calamity for the government, mostly because of lost tax revenue. It remains to be seen if Ireland can now find its way back to growth.

Spain still needs to recapitalize its banks – putting more equity in to replace what has been wiped out by losses — and, most important, it must also find a renewed path to private-sector growth. Investors are rightly doubtful that the current policies are pointed in this direction.

In Portugal and Italy, the problem is a longstanding lack of growth. As financial markets become skeptical of European sovereign debt, these countries need to show that they can begin to grow steadily – and bring down their debt relative to gross domestic product (something that has not happened for the last decade or so).

Fiscal austerity will not help, but fiscal expansion is also unlikely to do much – although presumably it could increase headline numbers for a quarter or two. The private sector needs to grow, preferably through exporting and through competing more effectively against imports.

Peripheral Europe could, in principle, experience an “internal devaluation,” in which nominal wages and prices fall and those countries become hyper-competitive relative to Germany and other trading partners. As a matter of practical economic outcomes, it is hard to imagine anything less likely.

Some politicians still hint they could produce the rabbit of “full European integration” from the proverbial magic hat. What does this imply about quasi-permanent transfers from Germany to Greece (and others)? Who pays to clean up the banks? What happens to all the government debt already outstanding? And does this mean that all Europe would now adopt German-style fiscal policy?

These schemes are moving even beyond the far-fetched notions that brought us the euro. “Europe only integrates in the face of crisis” is the last slogan of the euro  enthusiasts. Perhaps, but crises have a tendency to get out of control – particularly when they produce political backlash.

Most likely, the European Central Bank will provide some big additional “liquidity” loans to bring down government bond yields as we head into the summer. We should worry about how long any such feel-good policies last. Historically, August is a good month for a big European crisis.

As these difficult times approach, some people will admonish governments to stand up to markets. But when you are relying on capital markets to finance a large part of your continuing budget deficit and your debt rollover, this is empty bravado.

European governments should never have put their heads so far into the lion’s mouth with regard to public-sector borrowing. But the politicians, and many others, convinced themselves that they were all going to become more like Germany.

Peripheral Europe will never be like Germany. It’s time to face the implications of that fact.

Article source: http://economix.blogs.nytimes.com/2012/06/21/the-end-of-the-euro-is-not-about-austerity/?partner=rss&emc=rss

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