April 19, 2019

Tensions Escalate in Cyprus as Banks Prepare to Reopen

The president of Bank of Cyprus, the nation’s largest bank, was fired Wednesday by the central bank in consultation with the international lenders who are finalizing the terms of a €10 billion, or $13 billion, bailout of the heavily indebted country.

Meanwhile, President Nicos Anastasiades opened a criminal investigation into how the nation’s banks had been brought to the brink of collapse. His aim, he said, was “to find and attribute responsibility wherever it belongs.”

Tensions have intensified in Nicosia, the capital, in recent days as citizens, confronted with banks that have been closed for almost two weeks, have grown impatient waiting for the bailout deal to be finalized so that they can get access to their money. Many are also angry at what they see as Mr. Anastasiades’s inept political handling of the situation.

Demonstrations that first attracted hundreds here last week have been swelling into increasingly agitated gatherings of thousands of people amid the dawning realization that their future under the terms of the bailout deal will become increasingly bleak.

At the same time, a blame game has escalated among the ruling class. Mr. Anastasiades has started making incendiary statements about the central bank president, Panicos O. Demetriades, hinting strongly that he wants to see Mr. Demetriades ousted. That, in turn, has raised concerns about the central bank’s independence.

“The knives are out,” said a person involved in the talks, who declined to speak publicly because the talks were private.

Attention focused Wednesday on capital controls, without which the banks in Cyprus cannot open as planned on Thursday. The banks have been closed since March 16 to prevent a bank run while bailout talks were under way.

The Cypriot finance minister, Michalis Sarris, said Wednesday that a flood of withdrawals was bound to happen quickly, and that the restrictions would at least help stem a mass flight of deposits.

“Each day that banks remain closed creates more uncertainty and more difficulties for people, so we would like to do our utmost to make sure that this new goal that we have set will work,” he said.

Under European Union treaties, restricting the free movement of capital is forbidden. Critics say that what is happening in Cyprus shows that E.U. rules will be flouted when the International Monetary Fund, the European Central Bank and E.U. leaders find it convenient to do so.

The person involved in the forging the details of how capital controls will be implemented in Cyprus acknowledged Wednesday that this simply should not be happening. But “if you did not have them, then probably 100 percent of deposits would fly out of the country,” said the person.

Nonresident depositors, including Russians and businesses with substantial amounts in Cypriot banks, are especially eager to get their money out, the person said.

Authorities are bracing for as much as 10 percent of the €64 billion in deposits in Cypriot banks to be pulled out when banks reopen Thursday, the person said, adding that restrictions could be tightened further if necessary.

Faith in Cyprus’s banks has been severely undermined, not only because Mr. Anastasiades and E.U. leaders introduced the idea of skimming savers’ accounts to pay for the bailout, but also because authorities have prolonged bank closures for such a long time.

If Bank of Cyprus does not reopen for some reason on Thursday, “it will create a self-fulfilling prophecy that we have a problem that can’t be resolved,” the person said.

Instability has gripped Bank of Cyprus in recent days. The central bank has essentially directed every step the private bank must take since Cyprus’s creditors demanded that the nation’s second-largest bank, Cyprus Popular Bank, fold and move a large number of accounts to Bank of Cyprus.

The Bank of Cyprus chief executive, Yiannis Kypri, has protested what he called central bank interference with a private company and tendered his resignation Tuesday, a move that was rejected by the bank’s board.

But on Wednesday, the central bank chief, Mr. Demetriades, forced out Mr. Kypri and the entire Bank of Cyprus board in a joint decision with international lenders as part of the legal moves required for that bank to be consolidated.

On Tuesday a huge crowd gathered in front of Bank of Cyprus, shouting angrily about the devastation that the recent measures would wreak on jobs and the economy. The crowd then headed to the central bank to demand the resignation of Mr. Demetriades, whom many see as handling the situation with an iron fist.

By imposing capital controls, European and Cypriot officials have effectively created two classes of euro — a good and a bad. If a depositor has €1 million in a Cypriot bank but cannot access it or take it to another country, then the money is effectively worthless, since it cannot be spent in Cyprus or abroad.

“It has to be acknowledged that this is something entirely new,” said Nicolas Véron, a senior fellow at Bruegel, a research concern in Brussels, and a visiting fellow at the Peterson Institute for International Economics in Washington.

“The question is, Can the euro zone survive capital controls?” Mr. Véron said. “This will shape expectations in other countries, and the issue is whether capital controls can be avoided in future episodes.”

Article source: http://www.nytimes.com/2013/03/28/business/global/tensions-escalate-in-cyprus-as-banks-prepare-to-reopen.html?partner=rss&emc=rss

Dutch Negotiator Takes Blame for Cyprus Failure

The Dutch finance minister, who announced a tax on depositors in Cyprus, suggested as much on Thursday. Under a barrage of questions from puzzled and attention-seeking lawmakers in the European Parliament, he accepted blame for the agreement on the tax.

The decision to impose the levy on small depositors “was not stopped by me because it was a compromise which brought together the different interests and the different goals that we share,” said Jeroen Dijsselbloem, president of the group of finance ministers whose 17 countries use the euro. “As the Eurogroup president, I will take responsibility,” he said, but added that the levy was “a joint decision.”

“Whether we are incompetent or not, I’ll leave up to you to judge,” he told lawmakers at a scheduled hearing that turned into an accounting for the turmoil after the announcement, which frightened savers by proposing to tax their deposits and raised additional doubts about the viability of the euro currency.

Further complicating matters, Nicos Anastasiades, the newly elected Cypriot president, involved in negotiations last Friday night, blocked a proposal to lower the tax on small depositors, fearing that a higher tax on bigger depositors would cause them to flee and hollow out the island’s vital financial services sector.

Mr. Dijsselbloem said that he should have “communicated more right from the start” on why the levy — particularly on deposits of less than 100,000 euros, or $130,000 — should not be seen as a threat to savers across Europe. He insisted that there had not been “a huge loss of confidence” in a blocwide rule that guarantees deposits up to 100,000 euros.

As the Cypriot Parliament postponed until Friday a vote on fresh proposals, Mr. Dijsselbloem said that a levy on deposits was inevitable to help cover the cost of a bailout, but that a revised arrangement should put a greater burden on richer depositors.

Mr. Dijsselbloem, 46, was elected just two months ago as president of the euro zone group, succeeding Jean-Claude Juncker, the prime minister of Luxembourg and a seasoned participant of European politics, who had held the post since 2005. He cuts a youthful figure among the graying cadre that keeps the machinery of the European Union running.

Dutch officials characterize Mr. Dijsselbloem as a gutsy and gracious politician. He remained cool Thursday under a sustained attack. But he has had little experience at the top levels of government or European affairs, having assumed the finance portfolio, his first Dutch cabinet post, late last year.

Mr. Dijsselbloem, whose Eurogroup term lasts two and a half years, immediately quickened the metabolism to the group by announcing meetings on his Twitter account and calling ministers to Brussels earlier in the day with the goal of ending meetings earlier.

The initial results were mixed.

The decision on the levy was announced after what participants characterized as a rancorous and chaotic 10-hour meeting that also involved the European Central Bank and International Monetary Fund — two members of the so-called troika that includes the European Commission and helps set the terms of euro zone bailouts.

Sharon Bowles, a British member of the European Parliament who leads its Economic and Monetary Affairs Committee and introduced Mr. Dijsselbloem on Thursday, said she did not want to go “too much on a witch hunt,” but demanded to know how plans to tax small depositors had gotten so far.

“I know that you can get around it, calling it a wealth tax, or a levy or whatever,” Ms. Bowles said. But, she said, many citizens across the European Union had “a lot of concern” and wanted to know: “Is this a new tool in the toolbox? Are they safe? And what is to be expected?”

She suggested that Mr. Dijsselbloem’s presentation had been clumsy and should have included “more sensitivity” to concerns about whether the 100,000-euro deposit guarantee was still valid. She noted that he had waited two days to issue a second, clarifying statement.

Mr. Dijsselbloem conceded errors.

“Of course we should have spent more time, more wording, right from the start, on the distinction between a one-off wealth tax, a contribution, etc., which is a completely different thing” from the blocwide deposit rule, he said.

In seeking a solution for Cyprus, Mr. Dijsselbloem has faced the reluctance of Northern European nations, including his own, to give money to a divided island in the eastern Mediterranean and to save a banking system that has long benefited Russian investors. Many lawmakers, particularly in Germany, suspect those investors of involvement in money laundering.

The Cypriots have stoked concerns by seeking to protect a banking sector that José Manuel Barroso, the president of the European Commission, said Thursday was based on “an unsustainable financial system that is basically eight times bigger than” the island’s gross domestic product.

Derk Jan Eppink, a Dutchman elected to the European Parliament from Belgium, needled Mr. Dijsselbloem over allowing the Russians to help decide the fate of Cyprus.

Tens of thousands of Russian citizens live on Cyprus, and Moscow has a strategic interest in the island because of its proximity to its ally Syria and because of newly discovered offshore gas reserves.

The danger now is that “Putin is going to keep you dangling,” Mr. Eppink said, referring to the Russian president, who denounced the weekend bailout proposal. Now, Mr. Eppink warned, “Russia will exert influence over Cyprus.”

Article source: http://www.nytimes.com/2013/03/22/business/global/eurogroup-chief-takes-some-blame-for-cyprus-crisis.html?partner=rss&emc=rss

E.C.B. Hardens Deadline for Cyprus Bailout Deal

Meanwhile, the mood turned sour on the streets of Nicosia, the Cypriot capital, where people flocked to cash machines Thursday morning to withdraw as much money as possible after the government declared that banks would remain closed until next Tuesday to give officials time to renegotiate the bailout deal.

Cyprus’s president is due to present international lenders with a revised plan later Thursday with the goal of raising enough money to satisfy creditors while also passing muster with Parliament. Cypriot lawmakers voted down a bailout proposal on Tuesday containing a controversial tax on bank deposits that had been negotiated with Cyprus’s European Union partners over the weekend.

The European Central Bank gave Cyprus until Monday to reach an agreement with the European Union and the International Monetary Fund if it wanted to continue to receive the low-interest loans that are essential to keeping its banks afloat.

From that point onward, the E.C.B. said it would only consider a fresh influx of emergency funding, as requested by Cyprus, “if an E.U./I.M.F. program is in place that would ensure the solvency of the concerned banks.”

Cypriot banks, which have been closed since Saturday, will remain closed through a national holiday Monday, the government announced late Wednesday, hoping to avoid a bank run while the bailout is being renegotiated.

But at branches of Laiki Bank and the Bank of Cyprus in downtown Nicosia, where lines had virtually disappeared over the last three days, there was an air of exasperation, anger and anxiety Thursday morning as people hoped that funds would still be on hand by the time it was their turn to make a withdrawal. Only one of two cash machines at each bank branch was working.

“Time is up — we want our cash,” said Maria Melitou, an accountant.

“Our friends in Europe brought us to this point,” she added. “We expected more.”

Irena Margilou, 32, the 13th person in an 18-person line at Laiki Bank’s cash machine, spoke in an embittered voice. “We don’t know what the future holds,” she said.

She questioned what she said was German insistence that the Cypriot government skim money from people’s bank accounts to secure a €10 billion, or $13 billion, bailout. “It’s like you’re telling us to just leave our money in our mattress,” she said. “What is happening to European solidarity?”

After the Cypriot Parliament on Tuesday rejected a plan to impose a one-time tax on bank deposits of 6.75 percent for accounts under €100,000 and 9.9 percent for amounts above that, the government on Thursday was planning to propose nationalizing pension funds from state-run companies and conducting an emergency bond sale to help raise the €5.8 billion the indebted country needs to secure the bailout.

The proposals are meant to sharply reduce the amount of money that would be raised by the tax on bank deposits, which was a condition of the original bailout deal negotiated with Cyprus’s three international lenders — the E.C.B., the I.M.F. and the European Commission, known collectively as the troika.

But even the revised plan contains a bank tax that, while much smaller than originally proposed, might still not be palatable to Parliament.

Under the new plan, all Cypriot bank deposits of up to €100,000 would be hit by an immediate one-time tax of 2 percent. Deposits above that threshold would be subject to a 5 percent levy.

The fallback was being cobbled together as Cyprus’s finance minister pressed his case in Moscow on Wednesday in hopes of securing additional aid from Russia, many of whose wealthiest citizens have big deposits in Cypriot banks.

Representatives of the troika were in Nicosia on Thursday but were not certain to sign off on Cyprus’s latest plan.

Cypriot banks have frozen all accounts in a financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.

The authorities have ordered Cypriot banks to keep automated bank machines filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies who do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.

Melissa Eddy contributed reporting from Berlin.

Article source: http://www.nytimes.com/2013/03/22/business/global/ecb-hardens-deadline-for-cyprus-bailout-deal.html?partner=rss&emc=rss

DealBook: Setting Aside More Cash for Legal Woes, Deutsche Bank Cuts 2012 Profit

FRANKFURT — Deutsche Bank on Wednesday revised its 2012 profit sharply downward as it set aside more money to cover the potential cost of legal proceedings

Deutsche Bank, Germany’s largest lender, set aside an additional 600 million euros ($775 million) to cover legal problems, reducing its pretax profit for 2012 by the same amount. As a result, net profit for the year was 291 million euros, about 400 million euros less than the bank reported on Jan. 31.

Like many big European institutions, Deutsche Bank, which is based in Frankfurt, faces a raft of legal woes.

Deutsche Bank is dealing numerous lawsuits related to its sales of mortgages and mortgage-related derivatives in the United States before the financial crisis. Ronald Weichert, a Deutsche Bank spokesman, cited those suits as the main reason for setting aside more money for legal expenses.

The bank has also been ensnared by the global investigation into rate manipulation. In November, Deutsche Bank said it had set aside money for potential penalties related to the rate-rigging case. Now, it appears the German financial firm is increasing the buffer, partially in response to the string of recent settlements.

In February, Royal Bank of Scotland agreed to pay American and British regulators $612 million to settle claims that it rigged the London interbank offered rate or Libor. Last year, the Swiss bank UBS agreed to a $1.5 billion settlement and Barclays agreed to pay $450 million. The banks are also likely to face civil suits from people who paid more interest than they should have because of Libor manipulation.

In total, Deutsche Bank has set aside 2.4 billion euros in 2012 to cover possible judgments and other litigation costs. The legal expenses, the bank said, would not affect the dividend of 75 euro cents per share, which was announced in January.

Deutsche Bank was one of the few large German banks to avoid taking a direct government bailout during the financial crisis, and it is the only German bank able to compete in the same league as large American and British investment banks.

But Deutsche Bank continues to struggle with a daunting array of legal proceedings and official inquiries related to its behavior during the boom years. The bank’s co-chief executives, Anshu Jain and Jürgen Fitschen, have cut back on bonuses and taken other steps they say will discourage excessive risk-taking and unethical or illegal behavior in the future.

Article source: http://dealbook.nytimes.com/2013/03/20/deutsche-bank-cuts-2012-profit-and-sets-aside-more-cash-for-legal-woes/?partner=rss&emc=rss

Economix Blog: From Lehman to Cyprus



Notions on high and low finance.

The European decision not to honor deposit insurance in Cyprus, by making all depositors contribute to the cost of a bailout, reminds me of the decision to let Lehman Brothers go under. Moral hazard is being avoided. The question is what that will cost.

In the case of Lehman, the cost turned out to be far greater than anyone expected. Suddenly the crisis was affecting money market funds. We learned to our discomfort just how interrelated the world’s markets were. I doubt anyone involved in making the decision thought about money market funds until they learned one had just blown up, thanks to the Lehman failure.

In the wake of all the bailouts that followed Lehman, something of a consensus has evolved — at least among non-central bankers — that those who fund bad banks should suffer. Bank bondholders are clearly at risk.

But Cyprus banks apparently don’t have many bonds. If someone is going to suffer, it will be the depositors. So the clever idea of a one-time tax on bank deposits was adopted. It did not help the cause of the depositors that a lot deposits seem to come from Russian moguls, not exactly a sympathetic group.

But Europe should have learned from Britain’s fiasco at Northern Rock that deposit insurance matters, particularly for relatively small accounts. If they can wipe out such insurance in Cyprus, why not Spain? Or Italy? Or even France?

There is a risk that a lot of money will flow out of troubled countries’ banks. Those flows had started to reverse last year, after the European Central Bank stepped up to print money and reassure investors in government bonds. Now, there is every reason for depositors to seek out banks in the safest countries — and that means Germany.

Europe stands to save $7 billion out of the $17 billion a Cyprus bailout would cost. How does that compare with the cost of a run on Italian banks? There is no evidence the Europeans weighed that. Just as there is no evidence that the United States Treasury had any idea at all just how disastrous it would be if Lehman were allowed to fail.

The time to avoid moral hazard is when there is none. How is it that Cyprus banks were allowed to have capital structures that meant depositors had to suffer? How was it that Lehman had no liquidity when it needed it? Bad regulation is the answer.

Markets are down on Monday, but not disastrously. Perhaps it will turn out my fears are overstated, and that depositors will not panic in other countries. Let’s hope so.

Article source: http://economix.blogs.nytimes.com/2013/03/18/from-lehman-to-cyprus/?partner=rss&emc=rss

Cyprus Delays Bailout Vote, Fueling Euro Zone Turmoil

Facing eroding support, the new president, Nicos Anastasiades, asked Parliament to postpone until Monday an emergency vote on a measure to approve the bailout terms, amid doubt that it would pass. The euro fell sharply against major currencies ahead of the action, as investors around the world absorbed the implications of Europe’s move.

In an address to the nation, Mr. Anastasiades painted an apocalyptic picture of what would happen if Cyprus did not approve the strict terms: a “complete collapse of the banking sector”; major losses for depositors and businesses; and a possible exit of Cyprus from the euro zone, the 17 countries that use the euro as their currency.

He said he was working to persuade European Union leaders to modify their demands for a 6.75 percent tax on deposits of up to 100,000 euros, a move that would hit ordinary savers.

“I understand fully the shock of this painful decision,” he said, speaking with a grim look on his face as he stood between the Cypriot and European Union flags in the presidential palace. “That is why I continue to fight so that the decisions of the Eurogroup will be modified in the coming hours.” The Eurogroup is made up of the 17 euro zone finance ministers.

By size, Cyprus’s economy represents not even half a percent of the combined output of the 17 euro zone countries. Yet the impact of this weekend’s decision by European leaders to impose across-the-board losses on bank depositors — from the richest Russian oligarchs, who have increasingly deposited their money in Cyprus’s banks, to the poorest Cypriot pensioners — in return for 10 billion euros, or $13 billion, in bailout money could not be more far-reaching.

After five years of bailouts financed largely by European taxpayers, wealthy European nations have decreed that when a bank or country goes broke, bond investors and perhaps even bank depositors will pay a significant portion of the bill.

The change is driven in no small part by the growing reluctance by residents of nations like Germany — whose chancellor, Angela Merkel, faces an election this year — to continue to finance bailouts of troubled neighbors like Greece, Portugal, Italy, Spain, and now Cyprus. The resulting turmoil could create a wave of investor contagion that will challenge Mario Draghi, the president of the European Central Bank, to make good on his promise to do whatever it takes to protect the euro.

On Sunday, it was clear that a majority of Cyprus’s 56 lawmakers would not approve the terms of the bailout, which would lead to a likely loss of the rescue money that Cyprus so desperately needs.

The government extended a bank holiday it had imposed over the weekend, meaning banks will not open Tuesday as planned. There was talk that they might not open Wednesday, either.

In response, the European Central Bank applied more pressure to have the deal approved, sending two representatives to Cyprus on Saturday night to assure Cypriot banks that the central bank was “here for them — as long as the bill goes through Sunday or Monday morning before financial markets in Europe open,” said Aliki Stylianou, a press officer for the central bank of Cyprus.

Mr. Anastasiades’s cabinet gathered early Sunday with the heads of the central bank and the finance ministry to discuss how to carry out the levy, should it pass.

But some analysts expressed skepticism about the measure’s long-term effects even if Cyprus approves it.

“Whether the Parliament approves the measure or not, the effect will be the same,” said Stelios Platis, the managing director of MAP S.Platis, a financial services firm, and a former economic adviser to Mr. Anastasiades. “As soon as banks in Cyprus reopen, people will rush to take all their money out” because they do not believe it will not happen again.

To some degree, this policy shift was foreshadowed last month when Jeroen Dijsselbloem, the finance minister for the Netherlands who was recently tapped to lead the Eurogroup, forced investors of a failing Dutch bank to pay their share by writing down 1.8 billion euros’ worth of high-risk bonds to zero.

But it is one thing to wipe out bond investors and quite another to force a loss on bank depositors, including Cypriot savers who had their deposits insured and, like people all over the world, had the impression that a government-backed savings account was inviolable.

Liz Alderman reported from Nicosia, Cyprus, and Landon Thomas Jr. from London.

Article source: http://www.nytimes.com/2013/03/18/business/global/facing-bailout-tax-cypriots-rush-to-get-their-money-out-of-banks.html?partner=rss&emc=rss

After Negotiations, Cyprus Agrees to a Euro Zone Bailout Package

BRUSSELS — Cyprus reached a long-awaited bailout agreement early Saturday that puts some of the burden for shoring up the island’s beleaguered economy on its bank depositors.

The most contentious issue in months of negotiations was whether to force Cypriot depositors to take losses in order to make the country’s debt more manageable. The Cypriot authorities had sought to head off any such initiatives on the grounds that they would do lasting damage to their financial services sector.

In the early hours of Saturday morning, after 10 hours of talks, finance ministers from euro area countries, the International Monetary Fund and the European Central Bank agreed on terms that include a one-time tax of 9.9 percent on Cypriot bank deposits of more than 100,000 euros, and a tax of 6.75 percent on smaller deposits, European Union officials said..

“It’s not a pleasant outcome especially for the people involved,” Michalis Sarris, the Cypriot finance minister, told reporters. “This is a once and for all levy,” he added, saying it should ensure no further flight of depositors from Cypriot banks.

Jeroen Dijsselbloem, the president of the group of ministers, told a separate news conference that lenders had reached “a political agreement” to aid Cyprus. The challenges to reaching a deal were “of an exceptional nature,” he said.

The latest bailout for the euro zone broke new ground by requiring haircuts, or losses, for all Cypriot bank depositors. A previous bailout for Greece required a significant haircut for Greek bondholders in early 2012 — something that European Union officials said at the time would be a one-of-a-kind measure.

Mr. Dijsselbloem declined to rule out taxes on depositors in other countries besides Cyprus in the future, but insisted that such a measure was not being considered. He said the tax would generate 5.8 billion euros.

Going into the meeting, finance ministers sought to limit the overall costs of the rescue plan while Christine Lagarde, managing director of the I.M.F., pushed for a deal that is generous enough to enable Cyprus eventually to pay the money back.

The Cypriot authorities wanted a plan that ensures that the island remains attractive to investors, who include many Russians with large deposits in the country’s banks.

Ms. Lagarde was blunt about the need for ministers to agree to a realistic package of measures. “All I know is that we don’t want a Band-Aid,” she said. “We want something that lasts, something that is durable and that will be sustainable.”

The key to a breakthrough was finding a way to bring down the bailout package, estimated at 17 billion euros ($22.2 billion). That amount is small compared with the rescue deal for Greece, but represents almost as much as Cyprus’s gross domestic product, which is about 18 billion euros.

The deal that emerged on Saturday morning was for a bailout of up to 10 billion euros, Mr. Dijsselbloem said.

Cyprus asked for the bailout in June last year. But talks faltered when the former president Demetris Christofias, a Communist, balked at measures like privatizations. The talks sped up after the election last month of Nicos Anastasiades of the Democratic Rally, a center-right party, to the presidency.

Some of the other elements of the deal involved Cyprus raising its low corporate tax rate to 12.5 percent from 10 percent, privatizing state assets and overhauling its banks to ensure that they are not havens for money laundering.

Russia also was expected to contribute to the arrangement, perhaps by agreeing to lower the interest rate on a loan worth 2.5 billion euros it has already made to Cyprus.

Mujtaba Rahman, a senior analyst with the Eurasia Group, a political risk research and consulting firm, said it was likely that countries like Germany and Finland would ultimately reach a deal with the I.M.F.

“The fact is that some governments in the north of Europe need the I.M.F. also to be contributing money to Cyprus in order to convince their parliaments to give approval to a deal,” Mr. Rahman said.

This article has been revised to reflect the following correction:

Correction: March 15, 2013

Because of an editing error, a headline on an earlier version of this article misspelled the name of the country in talks to receive a bailout. It is Cyprus, not Cypress.

Article source: http://www.nytimes.com/2013/03/16/business/global/showdown-looms-over-cyprus-bailout-deal.html?partner=rss&emc=rss

Once More, Troika Asks Greece to Sharpen Pencils

Greek officials scramble to tackle demands for more austerity to obtain the money, even as social distress deepens.

The cycle was staged again Thursday as the Greek government tried to figure out how to meet one of the troika’s toughest requirements: designating 25,000 of the country’s 650,000 or so civil servants for eventual dismissal.

That was one of the international creditors’ demands late Wednesday as their inspectors suspended the latest examination of Greece’s economic overhaul program, leaving town and leaving Greek officials to sharpen their pencils and steel their resolve to find more budget cuts.

The mission chiefs are expected to return to Athens in early April, the troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — said in a statement on Thursday.

After a week poring through Greece’s books, representatives of the three bodies did praise Greece for making “significant” progress in mending its finances. But they said Athens needed to follow through more strictly on pledges to reduce the size of its bloated government before unlocking the next installment of Greece’s bailout allowance: a 2.8 billion euro ($3.6 billion) tranche due next month.

On Wednesday night, Prime Minister Antonis Samaras and his finance minister, Yannis Stournaras, expressed confidence that Greece would receive the money, speaking ahead of a European Union economic summit meeting in Brussels. European leaders there are trying to head off a rising anti-austerity tide while there are signs that programs like the one in Greece are retarding the bloc’s return to growth.

In the eyes of Greece’s creditors, the country has fallen short too many times on pledges to cut government spending and revamp major areas of the economy that the outside experts say Greece requires if it is to move toward financial independence.

Recently, though, Greece has shown progress. It reported a primary surplus of 1.64 billion euros for January — meaning that the government was bringing in more revenue than it was spending, excluding interest payments. It was Greece’s first primary surplus since 2002.

Further, inflation was only 0.1 percent in February, the lowest reading in 45 years. Such data have largely quieted fears that Greece could exit the euro zone.

The judiciary has also made several prominent moves in recent weeks to show it is rooting out corruption by jailing two former politicians for graft and tax evasion.

And yet Greece, which has received more than 200 billion euros in bailout loans since May 2010, is still making little headway on structural changes that creditors say must happen if the economy is ever to resume growing and become self-sustaining.

The most politically challenging moves for Greece’s coalition government involve the troika’s demands to continue cutting the number of public sector employees. Creditors said Greece had not provided enough details on how it plans to dismiss 7,000 civil servants accused of misdemeanors; to put 25,000 other workers into a special labor reserve that will eventually be eliminated; or to step up the pace of Civil Service retirements.

Until troika auditors are persuaded that Athens can hit those marks, the next aid installment may not be released.

Those measures would need to be taken even as Greek unemployment is at a record 26 percent. In the fourth quarter, nearly 1.3 million people were out of work, in a population of 10 million. Youth unemployment has surged to nearly 58 percent.

Greek consumers continue to make do with less, in response to three years of pay and pension cuts. The real disposable income of households has fallen by a third in that time, and recent increases in property taxes and the value-added tax have crimped spending.

The government reported a revenue shortfall of 260 million euros for the first two months of the year, citing increased tax evasion by citizens and businesses, and the closing of regional tax offices to trim government expenses.

And plans to privatize Greek state-owned assets to raise tens of billions of euros in revenue have stalled again. The head of the agency running that program stepped down last weekend after he was charged with breach of duty for commissioning a power plant in 2007 when he was head of the power board. It was the second such resignation in two years.

Officials say they remain hopeful, though, that some lucrative assets, including the state gambling agency, may be sold in the coming months, a step that they hope will restore confidence in the country and lure investors back to Greece.

Niki Kitsantonis contributed reporting.

Article source: http://www.nytimes.com/2013/03/15/business/global/once-more-troika-asks-greece-to-sharpen-pencils.html?partner=rss&emc=rss

DealBook: A Bad Year in Britain for Banks, Not Bankers

A branch of Barclays in London.Andy Rain/European Pressphoto AgencyA branch of Barclays in London.

8:57 p.m. | Updated

LONDON — British banks have been suffering amid dismal earnings, scandals and regulatory investigations, but three of the country’s largest financial firms handed out seven-figure pay packages to hundreds of employees last year.

The disclosures this week add to the growing debate over compensation, as regulators look to rein in bankers’ pay. On Friday, one labor union official in Britain criticized Barclays, calling the bank’s payouts “obscene.”

Since the financial crisis, regulators and investors have been pushing banks to rethink their pay practices. While the banks have made some efforts in recent years, compensations levels remain persistently high, prompting regulators to take further action.

Last week, the European Union proposed to cap bonuses at no more than the annual salary for the region’s bankers. The British government has resisted such efforts, saying the move could prompt an exodus of talent and could have the “perverse” effect of raising fixed salaries.

But the region’s banks cannot easily defend their outsize pay in the current environment. British institutions, already struggling to bolster profits since the crisis, have been tarnished by a series of scandals. In the latest disclosures on Friday, Royal Bank of Scotland, which is 82 percent owned by the British government after receiving a bailout during the financial crisis, announced on Friday that 93 of its employees earned more than more than £1 million, or $1.5 million, last year. The payments came even as R.B.S. reported a multibillion-pound loss last year. The bank did not disclose the similar figures of staff compensation for 2011.

Barclays, which came under fire after agreeing to a $450 million fine with American and British authorities related to the rate-rigging scandal, said in an annual report on Friday that 428 of its staff members still earned more than $1.5 million in 2012.

The British bank said the number of people earning more than that amount fell 10 percent compared with 2011. Barclays also paid five bankers more than $7.5 million each last year, down from 17 in 2011.

Another British bank, HSBC, said on Monday that 204 members of its staff fell into the million-pound-or-more pay bracket, a 6 percent increase from the previous year. HSBC, Britain’s biggest bank, also said on Monday that its net profit fell 17 percent last year because of a record fine to settle money-laundering charges and charges related to the value of its debt. HSBC settled charges that it transferred billions of dollars for nations under United States sanctions, enabled Mexican drug cartels to launder tainted money through the American financial system, and worked closely with Saudi Arabian banks linked to terrorist organizations.

The continued large payouts for some bank employees contrast with weak earnings at banks and a series of scandals connected to the manipulation of the London interbank offered rate, or Libor, and money-laundering allegations.

Last year, Barclays reported a net loss of $1.5 billion, in contrast with a profit of $4.5 billion for 2011. The loss was driven by provisions to cover legal costs related to the rate-rigging scandal and other improper activities. The British bank has also announced a wide-ranging cost reduction program that includes cutting 3,700 jobs and closing some business units and branches.

Amid widespread criticism, financial institutions have been reining in pay, partly driven by a fall in earnings connected to the European debt crisis.

At Barclays, the bank’s staff members will be evaluated against a set of standards, including integrity, put together by the bank’s chief executive, Antony Jenkins.

“We have been justifiably criticized for failures to engage effectively with and explain our decisions to shareholders and the wider public,” John Sunderland, chairman of the board remuneration committee, wrote in Barclays’ annual report released Friday. “We must also ensure that we pay no more than necessary to achieve Barclays objectives, and that we eliminate undeserved remuneration.”

At a recent meeting with investors, Mr. Jenkins, who took over as chief executive in August, also hinted that more job cuts could be in store for Barclays.

Talking about his priority to reduce costs and use more computer programs and technology to do so, he said that the bank could be looking for a way to operate with as few as 100,000 staff members over the next decade or so, according to a person with direct knowledge of his comments, who declined to be identified because the comments were not made in public. Barclays currently employs about 140,000.

As part of the overhaul, Barclays clawed back $450 million of deferred bonuses because of the bank’s involvement in the scandals, which also led to the resignation of Robert E. Diamond Jr. as its chief executive.

Barclays said it paid executive directors in total in 2012 less than half of what they received a year earlier. Mr. Jenkins bowed to public pressure and announced earlier that he would not take an annual bonus for 2012. His total remuneration was $3.9 million for last year, including $1.25 million in salary and $2.3 million as part of a long-term incentive plan. Mr. Diamond earned $9.5 million in 2011, according to the firm’s annual report.

The fate of the Royal Bank of Scotland continues to be a heated topic for political leaders. Mervyn A. King, the departing governor of the Bank of England, said at a British parliamentary hearing this week that R.B.S. could be split up in an effort to return ownership of the firm to the private sector.

“The whole idea of a bank being 82 percent owned by the taxpayer, run at arm’s length from the government, is a nonsense,” Mr. King said on Wednesday.

Royal Bank of Scotland also said it had taken back $453 million in current and future bonuses, mostly from its investment banking division, after the bank reached a $612 million settlement with authorities over its Libor issues.

Stephen Hester, the chief of Royal Bank of Scotland, earned $2.4 million last year, though he declined a bonus for 2012.

Article source: http://dealbook.nytimes.com/2013/03/08/fewer-barclays-employees-made-more-than-1-million/?partner=rss&emc=rss

DealBook: Lloyds Banking Reports a $2.2 Billion Annual Loss

António Horta-Osório, chief of Lloyds Banking Group.Carl Court/Agence France-Presse — Getty ImagesAntónio Horta-Osório, chief of the Lloyds Banking Group.

LONDON — The Lloyds Banking Group reported a net loss on Friday of £1.4 billion, or $2.2 billion, partly because it was forced to set aside billions of dollars to compensate customers that were inappropriately sold financial products.

Lloyds, which is 39 percent owned by the British government after receiving a bailout during the financial crisis, said it had made a further £1.9 billion of extra provisions during the fourth quarter related to a number of wrongdoings.

Amid reports that the British government may soon starting selling parts of its stake in the British bank, Lloyds said it was continuing to dispose of noncore assets, as well as refocusing on the bank’s main retail division.

‘‘My main objective is to get taxpayers’ money back,’’ Lloyds’ chief executive, António Horta-Osório, told reporters during a conference call early on Friday.

Mr. Horta-Osório is in line for a £1.5 million bonus for 2012 that will be paid in deferred shares that he will not be able to access until 2018. To receive the bonus, the British government also must have sold at least one-third of its holding in the bank above 61 pence a share, which is what local taxpayers paid to bail out the bank in 2008.

Lloyds shares are trading around 54 pence, and have risen 56 percent over the 12 twelve months.

The bank’s net loss narrowed last year to £1.4 billion, compared with £2.8 billion in 2011.

Earnings were weighed down by a series of extra charges, including an additional £1.5 billion, or $2.3 billion, charge in the three months through Dec. 31 for inappropriately selling insurance to customers. The extra provision takes the total amount that Lloyds has set aside to compensate consumers to £6.8 billion.

Lloyds also more than tripled the amount during the fourth quarter of the year that it will use to compensate small businesses that were inappropriately sold interest-rate hedging products. The figure now stands at £400 million, up from £90 million.

The British bank also said that it continued to cooperate with local and international regulators over the investigation into the manipulation of global benchmark interest rates. Other British banks, including Barclays and the Royal Bank of Scotland, have been fined millions of dollars in connection to the rate-rigging scandal.

‘‘It is currently not possible to predict the scope and ultimate outcome of the various regulatory investigations,’’ Lloyds said in a statement.

Article source: http://dealbook.nytimes.com/2013/03/01/lloyds-banking-books-a-2-2-billion-annual-loss/?partner=rss&emc=rss