May 18, 2024

Piraeus Bank’s Michalis Sallas Reaches the Top in Greece

But now that he has managed to turn his bank into Greece’s largest, ensuring that Piraeus will be eligible for a bailout from the European Union, Mr. Sallas runs the risk that some of the steps he has taken along the way may come back to haunt him. Those moves include borrowing more than 100 million euros ($132 million) from a friendly banker in a bid to prop up the falling shares of his own bank and making risky loans to people and entities with ties to Piraeus.

Europe is preparing to close the books on perhaps the most ambitious aspect of its plan to keep Greece afloat: a cash injection of about 50 billion euros into the country’s four largest banks.

And bank governance has emerged as a critical issue, with the country’s creditors, who arrived in Athens this week to carry out their latest audit, insisting that continued aid is conditional on banks’ demonstrating that their conduct is above reproach.

Still, Greece’s overseers from the European Union and the International Monetary Fund may well find that even with increased oversight, changing the freewheeling business culture that long defined the Greek financial system will be easier said than done.

The rapid rise of Mr. Sallas exemplifies that culture. A tough, charismatic banker who seized control of Piraeus in 1991 and built it up by dint of more than 15 mergers and acquisitions, Mr. Sallas reached the pinnacle of the Greek banking world in March when he capitalized on Cyprus’s banking disaster, buying the Greek units of that island’s three biggest financial institutions, Bank of Cyprus, Laiki Bank and Hellenic Bank.

His supporters say that Mr. Sallas should be hailed for his entrepreneurial expertise and robust appetite for risk. Seeing an opportunity to reinvent his bank, they say, he has stolen a march on his more sclerotic counterparts.

“He is someone who can really navigate the system in Greece,” said John P. Rigas, a Greek-American hedge fund operator and client of the bank who owns an Athens-based investment company in which Piraeus holds the largest share. “This bank has gone from a teetering No. 4 to a solid No. 1 in just a year.”

But others say that Mr. Sallas has pushed the boundaries of proper banking too far and that his maneuvering in the murky world of Greek finance, where the interests of bankers, the media and politicians often commingle, should be more closely scrutinized.

“Piraeus has long used problematic methods that call for investigation,” said Costas Lapavitsas, a political economist at the University of London who follows banking and politics in Greece. “What concerns me is that Piraeus has emerged as the leading bank in Greece not because it improved these methods. The old regime is just adapting to the new conditions, and for me that is a sign of sickness and not health.”

Anthimos Thomopoulos, deputy chief executive of the bank, said all aspects of Piraeus’s business “have been exhaustively examined by independent auditors and regulators, inside and outside Greece, with no adverse findings.”

A trained economist, Mr. Sallas, who is 62, made his first career strides working under Andreas Papandreou, the Socialist premier who led Greece in the 1980s. In the years since taking over Piraeus his influence has continued to expand. He is close to the governor of the central bank, George Provopoulos, who until 2008 was vice chairman at Piraeus. And the bank is one of the largest advertisers in the Greek media.

Altogether, European governments and the International Monetary Fund have staked about 200 billion euros of taxpayer money on keeping Greece in the euro zone and eventually restoring its economy to health. To justify this commitment, Europe has subjected Greece’s largest banks to a root-and-branch investigation, focusing in particular on related-party lending, or loans to entities in which the bank may have a financial interest, and has concluded that they have finally cleaned up their acts.

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Today’s Economist: Casey B. Mulligan: Varieties of Not Working


Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Today’s Economist

Perspectives from expert contributors.

Employment can be a better indicator of labor market activity than unemployment, because unemployment is not the only way that a person can be without work.

The blue series in the chart below shows the reduction in unemployment since March 2012, expressed as a percentage of the population (e.g., in a population of 100 million, 0.1 percentage points means 100,000 people and 0.5 percentage points means 500,000.) In order to correct for the movement of baby boomers into retirement, I used Bureau of Labor Statistics data only for people 25 to 54 years old (this group is about 124 million and has been falling a little). Over the subsequent year, and especially since mid-2012, unemployment was reduced significantly.

Bureau of Labor Statistics

But reduced unemployment is not the same as more employment, because the third labor force classification is “out of the labor force.” Neither the unemployed nor those out of the labor force have a job, but only the unemployed are actively looking for one.

The red series in the chart shows that the “out of the labor force” ranks have increased roughly as much as unemployment has been reduced, and the difference between the blue and the red series indicates the change in the fraction of the population that is employed. For the months when the blue series is above the red series, employment per capita has increased since March 2012.

Because the blue series hardly exceeds the red series, if at all, the large majority of the reduction in unemployment has been associated with offsetting increases in people out of the labor force.

While the reduction in unemployment and the growth in the out of the labor force more or less cancel each other out, jobs are at least being created fast enough to absorb the growth in the working-age population. That additional population increases demand, which contributes to the jobs being created.

Retirements and going to school could increase the number of people out of the labor force, but the data I’ve shown are for an age group in which retirement and schooling are rare. For the 25-to-54 age group, “out of the labor force” typically represents people who are finding ways to get by without working.

Some people moving out of the labor force devote their time to caring for their young children while their spouses obtain cash income for the family. That some of the growth in those out of the labor force has occurred among married people suggests that such specialization in the family could be part of the story. But the fact that this group is growing especially among unmarried people suggests that family specialization explains at best a minority of the aggregate changes.

Unemployment insurance benefits are paid only to people who report that they are actively looking for work. Some unemployed have long been skeptical that they can find a good job and are just going through the motions of job search to satisfy the unemployment program’s requirements (see this testimony to a House subcommittee by Stacey G. Reece, co-owner of a recruitment firm in Gainesville, Fla., who said he witnessed people “applying for jobs only to protect their status for unemployment insurance”).

When such a person’s unemployment benefits run out, he may look less actively for work, which changes his classification from unemployed to out of the labor force.

The termination of unemployment benefits can, and sometimes does, have the opposite effect, because the loss of income can make out-of-work people more seriously consider accepting a low-paying job. But unemployment insurance is by no means the only safety-net program. The Supplemental Nutrition Assistance Program (formerly known as food stamps) is a major and newly expanded safety-net program and does not require its beneficiaries to work or be looking for work. Curiously, SNAP has been expanding while the unemployment rate falls.

People without jobs increasingly take part in the disability insurance program, which does not require people to look for work because “disability” means that the person is unable to work. Medicaid is another major safety program that does not require its participants to work.

A significant part of the recent reductions in the unemployment rate may reflect movements of people between safety net programs rather than any significant change in their job-finding prospects.

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DealBook: After 4th-Quarter Loss, Société Générale Plans Overhaul

The headquarters of Société Générale in Paris.Jacky Naegelen/ReutersThe headquarters of Société Générale in Paris.

5:05 a.m. | Updated

PARIS — Société Générale posted a larger-than-expected fourth-quarter loss on Wednesday and said it would move to cut costs and simplify operations.

The bank reported a net loss of 476 million euros, or $640 million, compared with a profit of 100 million euros in the period a year earlier. Analysts surveyed by Reuters had expected a net loss of about 237 million euros.

Profit was hurt by a charge of 686 million euros as the bank revalued its debt, an accounting obligation because the market for those securities has improved. The company also took 380 million euro write-down of good will in its investment banking business, mostly on its Newedge Group joint venture with Crédit Agricole.

Société Générale also set aside 300 million euros as a provision against unexplained “litigation costs.” Like many of its global peers, the bank is under investigation from the authorities in a number of countries on suspicion that it conspired to manipulate the London interbank offered rate, or Libor. But bank officials declined to say whether that provision was specifically related to the investigation.

The bank said fourth-quarter net income would have been about 537 million euros excluding the one-time items. The bank’s shares fell 3.6 percent Wednesday in Paris trading.

Under Frédéric Oudéa, its chairman and chief executive, Société Générale has been working to emerge from the financial crisis as a leaner institution. It said that from mid-2011 to the end of 2012, it disposed of 16 billion euros of loan portfolio assets from the corporate and investment banking unit and an additional 19 billion euros of other assets.

The bank’s revamping, and an improvement in sentiment in the euro zone economy, has helped to restore its market standing. After a difficult 2011 that was marred by questions about Société Générale’s exposure to Greece, the bank’s shares have rallied, gaining 49 percent in the last year.

“We have achieved all our objectives” for 2012, Mr. Oudéa said in a conference call on Wednesday with analysts. He noted that the bank had sold TCW, an American asset-management unit; Geniki Bank in Greece; and National Société Générale Bank, an Egyptian lender.

In a research note to investors, Andrew Lim, a banking analyst at Espírito Santo in London, said that while “management has dealt convincingly with concerns about weak capital adequacy and liquidity in 2012, Société Générale is still struggling to convince investors that it can achieve improved returns.”

Société Générale said its Tier 1 capital ratio, a measure of the bank’s ability to withstand financial shocks, stood at 10.7 percent at the end of December, up 1.65 percentage points from a year earlier. The French firm said it expected to attain a Core Tier 1 capital target under the accounting rules known as the Basel III standard of 9 percent to 9.5 percent by the end of 2013.

The measures announced on Wednesday aim to focus the bank on three core businesses: French retail banking, international retail banking and financial services and corporate and investment banking and private banking.

The Société Générale group employs about 160,000 around the world, and it was not immediately clear whether the announcement of a reorganization, which officials said was likely to be accompanied by some branch closings, meant the bank would follow the lead of other large global institutions with a round of layoffs.

Mr. Oudéa did not provide much detail on his plans, saying in the conference call that he was committed to working with unions and employees to ensure that the reorganization went smoothly.

The French bank published its latest results a little more than five years after Jérôme Kerviel, a trader in the bank’s equity derivatives business, built unauthorized positions that led to a 4.9 billion euro loss for Société Générale.

Mr. Kerviel’s conviction on charges of breach of trust and forgery was upheld in October by the Paris Court of Appeals. He also was ordered to serve a three-year prison term, pending appeal, and to repay the bank for the full amount of the loss.

On Tuesday, Mr. Kerviel told the French radio station RTL that he was challenging the repayment order in a labor court, saying he had been ordered to pay without a third-party expert being allowed to study the damages. He added that he was suing Société Générale for an amount equivalent to the 4.9 billion euro trading loss.

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Domestic Workers Convention May Be Landmark

Even countries that fail to ratify the pact will eventually be judged by its standards, they said, and the campaign to pass it had enlisted fresh allies, newly mindful of abuses from unpaid wages to rape.

Two days later, Saudi Arabia, a major destination for domestic workers, beheaded an Indonesian maid — at once highlighting the need for protections and the challenges of putting them in place.

The execution followed reports from maids who said their Saudi bosses had burned or beaten them, and the condemned woman, who killed her employer, said she had been abused. But when the Indonesian president protested, the Saudis stopped hiring Indonesians and pointedly turned to cheaper workers from countries less likely to complain.

The twin developments — accord in Geneva and maid wars in Riyadh — show opposing forces in a global campaign to protect domestic workers, an overlooked group of as many as 100 million people.

More broadly, that campaign tests the effort to raise work standards in a world of cheap and mobile labor. Many domestic workers are migrants, and the precedents could shape the treatment of other migrant groups. On Sept. 30, for example, Hong Kong’s High Court struck down a law that had excluded domestic workers from the residency rights offered to other foreign citizens, potentially allowing 100,000 maids to gain the right to stay.

The events show that “officials have not forgotten about migrant workers,” said Philip Martin, an economist at the University of California, Davis. “But they are also a reminder of the difficulties of extending effective protections to them.”

“The receiving countries can always say, ‘We will get workers somewhere else,’ ” he said.

While acknowledging such challenges, the treaty’s supporters say that it establishes vital new principles and that it will accelerate changes already under way. Before the pact was approved, Singapore, Jordan and New York State had passed new laws, and proposals are being considered in places as different as California and Kuwait. Even Saudi Arabia, a source of frequent abuse complaints, is considering changes that officials may feel more inclined to accept after voting for the pact.

“The treaty was a watershed event,” said Nisha Varia, a researcher at Human Rights Watch. “There is now a global consensus that these women deserve the same rights as other workers. All the governments involved in this conversation will be under pressure to examine their labor laws.”

As a labor force composed mostly of women who work behind closed doors, domestic workers are hard to organize and vulnerable to attack. Many countries exclude them from labor laws, leaving no legal boundaries on their hours or pay.

In the United States, domestic workers are covered by minimum-wage laws, but they are excluded from federal statutes on occupational health, overtime and the right to organize.

As long ago as 1965, the International Labor Organization, a branch of the United Nations, saw an “urgent need” to protect domestic workers, whom it called “singularly subject to exploitation.” But interest in formal action waned, and women flooded the workplace, making nannies and maids a cornerstone of modern economies.

The export of domestic workers became big business in migration hubs like Indonesia and the Philippines, where more than half the migrants are women. Both countries celebrate the sums the women send home and simmer at the stories of mistreatment that percolate in the news media.

Saudi Arabia is a prime destination for both countries. In 2008, a study by Ms. Varia cited dozens of cases that amounted “to forced labor, trafficking, or slavery-like conditions.” While abuses occur everywhere, the report said, Saudi Arabia prosecuted few cases and sometimes allowed bosses to pursue retaliatory charges, like theft, against victims who complained.

A spokesman for the Saudi Arabian Embassy in Washington declined to comment. In the past, Saudi officials have accused critics of exaggerating isolated cases of abuse, and noted that legions of women still seek the jobs.

When the international labor group turned to domestic workers in 2010, Persian Gulf states, speaking as a bloc, called for nonbinding recommendations. In a reversal this year, they supported a binding treaty.

What is more, they strengthened it, with calls for stronger language on contract rights, overtime pay and access to courts during employer conflicts.

“It really made an impression,” said Ellene Sana of the Center for Migrant Advocacy in Manila. “When you think of abuses, you think of the gulf — yet here they are, standing up for domestic workers.”

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Pandora Gains on Subscriptions and Mobile Ads

In its first quarterly earnings since going public, Pandora Media, the company behind the Internet radio service, reported increased revenue on Thursday, as well as growth in subscriptions and mobile advertising.

For the three months that ended July 31, its fiscal second quarter, Pandora reported $67 million in revenue, up 117 percent from the same period a year ago. That beat the expectations of most analysts, who had predicted $60 million to $61 million. It was the company’s sixth consecutive quarter of triple-digit growth in revenue, measured year-over-year.

Pandora posted a net loss of $1.8 million, or 4 cents a share.

Advertising was $58.3 million of Pandora’s revenue for the quarter. Ads for mobile devices, where the majority of the service’s listening takes place, represented about half that amount. It was the first time mobile ad revenue had reached that level, the company said, although it has not disclosed the ratio in the past.

Last month, Pandora said that more than 100 million users had signed up for the service, and in a conference call with analysts on Thursday, Steven M. Cakebread, the chief financial officer, said that 37 million users tuned in at least once a month. For the quarter, Pandora users listened to a total of 1.8 billion hours of music, up 125 percent over the same period last year.

The company’s greatest expense is “content acquisition,” or royalties paid to music companies, and for the quarter Pandora paid $33.7 million for content, about half of its revenue.

Pandora raised $235 million in its stock offering on June 15, with shares initially priced at $16. On Thursday, the stock closed at $12.47, up 40 cents, or 3.31 percent, for the day.

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Facebook‘Face Recognition’ Feature Draws Privacy Scrutiny

BRUSSELS— European Union data protection regulators said on Wednesday that they would investigate Facebook over a feature that uses face-recognition software to suggest people’s names to tag in pictures without their permission, and a privacy group in the United States said that it planned to file a complaint with the Federal Trade Commission over the feature.

A group of privacy watchdogs drawn from the European bloc’s 27 nations will study the measure for possible rule violations, said Gérard Lommel, a Luxembourg member of the so-called Article 29 Data Protection Working Party. Authorities in Britain and Ireland said they are also looking into the photo-tagging function on the world’s most popular social networking service.

“Tags of people on pictures should only happen based on people’s prior consent and it can’t be activated by default,” said Mr. Lommel. Such automatic tagging suggestions “can bear a lot of risks for users” and the European data protection officials will “clarify to Facebook that this can’t happen like this.”

Facebook said on its blog on Tuesday that “Tag Suggestions” was available in most countries after being phased in over several months. When Facebook users add photos to their pages, the feature uses facial-recognition software to suggest names of people in the photos to tag based on pictures in which they have already been identified. Before the feature was introduced, users could tag pictures manually without permission from their friends.

The feature is active by default on existing users’ accounts, and Facebook explains on its blog how people can disable the function if they don’t want their names to be automatically suggested for other people’s pictures.

“We launched Tag Suggestions to help people add tags of their friends in photos; something that’s currently done more than 100 million times a day,” Facebook, which is based in Palo Alto., Calif., said in an e-mailed statement. “Tag suggestions are only made to people when they add new photos to the site, and only friends are suggested.”

In Europe, where personal privacy is protected by law more often than in the United States, Google, Microsoft and Yahoo have also been pushed by data protection officials to limit the amount of time they store online users’ search records.

The Information Commissioner’s Office of Britain is “speaking to Facebook” about the privacy aspects of the technology, said Greg Jones, a spokesman for the group.

“We would expect Facebook to be upfront about how people’s personal information is being used,” Mr. Jones said. “The privacy issues that this new software might raise are obvious.”

The Irish data protection authority is also looking into the issue, said a spokeswoman, Ciara O’Sullivan.

The Article 29 group guides the work of national data protection agencies, which have the power to punish companies that break privacy rules.

Meanwhile, the Electronic Privacy Information Center, based in Washington, is working on its complaint and expected to file it with the F.T.C. Wednesday or Thursday, Marc Rotenberg, the group’s executive director, said in an interview. He said other privacy and consumer groups that he declined to identify planned to join the complaint.

A spokesman for Facebook, Andrew Noyes, declined to comment on the center’s plans for the F.T.C. complaint.

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DealBook: A.I.G. Outlines Share Sale Plan

The American International Group on Wednesday laid out plans for its upcoming share offering as it moved to get off government life support.

In a regulatory filing on Wednesday, A.I.G. said it would sell 100 million shares. The government, which has a 92 percent stake in the insurer, will sell 200 million shares. After the offering, United States taxpayers will have a 77 percent stake in the company, according to the filing.

The filing did not disclose a specific price for the offering but based on the closing price of shares on Tuesday, it would amount to about $8.9 billion, much less than once anticipated. If demand is strong enough, underwriters will have the option to sell an additional 45 million shares.

A.I.G., which will not receive any money from the shares sold by the government, plans to use $550 million of its own proceed to help pay for a settlement related to several securities fraud lawsuits. The settlement was previously disclosed. The rest of the money will go toward “general corporate purposes.”

The last few months have been tough for A.I.G. On May 5, it reported that net income fell 85 percent in the first quarter, driven by charges related to the earthquake disaster in Japan and a restructuring of its government bailout. Revenue dropped 6 percent, to $17.4 billion.

Earlier this year, A.I.G. shares had surged to more than $62 but today they are trading for less than $30, the level at which the government is expected to break even on its bailout.

Even so, the offering is a big step for the company, which is looking regain its independence.

During the financial crisis, A.I.G. teetered on the verge of collapse before the government orchestrated a huge bailout. The rescue package eventually left taxpayers with a 92 percent stake in the company.

The share sale represents the latest step by A.I.G. to repay taxpayers. In January, the company paid off its debt to the Federal Reserve Bank of New York. It has also sold off various assets to raise capital as part of its plan.

The Treasury Department had indicated earlier that it would like to hold two stock sales this year, potentially bringing its stake in A.I.G. down to about 33 percent. But much will depend on market conditions and demand.

A.I.G.’s annual meeting is to take place on Wednesday.

Bank of America Merrill Lynch, Deutsche Bank Securities, Goldman Sachs and JPMorgan Chase are the main underwriters for the A.I.G. offering.

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