banking sector

France’s Treasury Chief Works to Guard Credit Rating

January 3, 2012 by NewsMaker Leave a Comment

Mr. Fernandez, the head of the Treasury within the Ministry of the Economy, Finance and Industry, has already been through a similar crisis-management exercise. That came in early August, when Standard Poor’s cut the top credit rating of the United States government while most of the French elite was on vacation.

Within hours on a summer Saturday morning, Mr. Fernandez helped organize a series of emergency calls with his boss, Finance Minister François Baroin, and others in Paris’s circle of policy makers, to prevent the American crisis from sending a financial tsunami across the Atlantic.

Later that day, Mr. Baroin appeared on French television to question the validity of the United States downgrade. President Sarkozy interrupted his vacation in a show of engagement. But behind the scenes, Mr. Fernandez did much of the heavy lifting.

It was not the first time in the two-year-long European crisis that Mr. Fernandez has quietly kept things moving. And it probably will not be the last.

As France and Germany take the lead in trying to hold the euro currency union together, Mr. Fernandez has emerged as one of Paris’s top power brokers — whether in promoting the French position on the banking sector’s participation in a Greek bailout, or the creation of a rescue fund for troubled countries, or the recent deal by most European Union governments to shore up the foundations of the euro zone.

So much confidence has been placed in Mr. Fernandez that the French news media have started calling him the “guardian of the triple-A.”

But Mr. Fernandez, at 44 a youthful technocrat whose soft blue eyes belie an inner sang-froid, chuckles about the moniker with an almost embarrassed air.

“I’m a civil servant,” he said demurely. “I do what I have to do.”

What he must do now could prove crucial to how well France weathers the country’s seemingly inevitable debt downgrade. Because the demotion has been widely telegraphed by the three major credit rating agencies, Mr. Fernandez and other officials do not expect the impact to be devastating.

Still, a lower credit rating will probably make it more expensive for France to service its debt, and more difficult for the Europewide rescue fund — of which France is a major backer — to operate. That, in turn, could renew tensions between France and Germany over how to manage the euro crisis.

For every photo op in which Mr. Sarkozy and Chancellor Angela Merkel of Germany trumpet a new step forward, Mr. Fernandez has spent countless hours behind the scenes with an influential man in the presidential cabinet, Xavier Musca, Mr. Sarkozy’s powerful chief of staff, and Berlin’s point man, Jörg Asmussen, to smooth and soothe the sometimes testy French-German relationship.

Mr. Fernandez also exchanges e-mails frequently with officials at the Treasury Department to keep up on developments across the Atlantic. And his ability to parse mind-numbing financial issues better than nearly any other French civil servant helped French leaders look smart during the Group of 20 meetings to which France played host in 2011.

Doing all this largely below the public radar is apparently the way Mr. Fernandez prefers to work. In a country where discretion is a highly prized commodity, his effectiveness comes from operating in the shadows.

“Ramon is the right man in the right place,” said Christine Lagarde, who worked with Mr. Fernandez until last summer, when she resigned as France’s finance minister to become the managing director of the International Monetary Fund.

“He is smart, experienced, a good negotiator, but also a critical part of a close-knit network of advisers to the leading political figures,” Ms. Lagarde said.

For Mr. Fernandez’s efforts, he was made a chevalier of the French Legion of Honor in December, in a ceremony under the gilded ceilings of the Élysée Palace. Mr. Sarkozy cited Mr. Fernandez as a pillar in the management of France’s future.

Yet such moments are rare. Mr. Fernandez generally eschews the elitist trappings embraced by most other government dignitaries.

He rides a motor scooter to work, for example. The idea of being chauffeured around “gives me a headache,” he said. On the scooter, “you take some fresh air, and you are forced to focus on just one thing.”

Article source: http://feeds.nytimes.com/click.phdo?i=89d4e3e22c8c3d4a7241cd5fae9e99f3

Filed Under: Business News Tagged With: bailout, banking sector, finance minister

Moody’s Downgrades Cyprus Over Economic Woes

July 27, 2011 by NewsMaker Leave a Comment

LONDON — In the latest downgrade to hit a euro-zone country, Cyprus had its credit rating cut by Moody’s Investor Service on Wednesday because of its banking exposure to Greece, political jostling and recent disruptions to the country’s power supply.

Moody’s cut the country’s long-term government bond rating two levels to Baa1 — still an investment grade — from A2. It assigned a negative outlook, signaling the next move may be another downgrade, and also cut the country’s short-term ratings.

An explosion at a naval base earlier this month badly damaged the Vasilikos power plant, which supplies about half of the country’s power generation capacity. That has caused regular power outages, and Moody’s said in a statement that the power shortage is likely to hurt the economy, which it now expects to stagnate this year, and expand only 1 percent next year.

The rating agency also cited the “increasingly fractious domestic political climate” and “the material risk that at least some Cypriot banks will require state support over the medium term as a result of their exposure to Greece” as a reason for the downgrade.

Cyprus bonds fell on Wednesday and Italian and Spanish bonds also dropped as investors became increasingly concerned whether an aid package assembled this month by European leaders to help Greece’s troubled finances and restore confidence in the euro zone would be enough. The yield on Cyprus’s 10-year bond rose 0.13 percentage points to 10.043 percent.

Banks in Cyprus continue to hold “substantial” Greek debt and would be affected in the case of a sovereign debt default, Moody’s said.

The ratings agency also said it was concerned about the large role the banking sector plays in the Cypriot economy. Bank assets amount to about 600 percent of gross domestic product in Cyprus, excluding foreign bank subsidiaries, Moody’s said.

The July 11 explosion that destroyed the plant and killed 13 people also rattled the government. Costas Papacostas, the defense minister, and Petros Tsalikidis, chief of the national guard, resigned amid criticism about failing to take steps that could have prevented the accident. Some 98 gunpowder containers were left stacked for more than two years in an open field near the power station.

The political friction might make it harder for the center-left government, which does not have an absolute majority in parliament, to push through various spending cuts and privatizations announced on July 1.

“This adverse development increases implementation risk to the government’s plans, many of which will require not just cross-party support but also acceptance by the trade unions,” Moody’s said.

On Tuesday, a number of parties accused the government of backtracking because they feared an angry backlash from Cyprus’s powerful labor unions, Reuters reported from Nicosia.

Cyprus, which adopted the euro on Jan. 1, 2008, is seeking to bring down a budget deficit that hit 5.3 percent of gross domestic product last year.

Article source: http://feeds.nytimes.com/click.phdo?i=e0715796354b9376bacefb2e22853727

Filed Under: Business News Tagged With: banking sector, negative outlook, power outages

Iceland’s Big Thaw

May 15, 2011 by NewsMaker Leave a Comment

During Iceland’s boom years, which lasted from 2003 until 2008, a customer showed up at Guffi’s dealership wanting to buy a Porsche on credit, no money down. Guffi didn’t inquire about the man’s line of work; in fact, he didn’t care if the man paid back the loan — that was the bank’s problem, not his. Guffi sold the Porsche, and the customer drove it for a month or so until the first payment was due. The man had no interest in making the payment, and so Guffi, who always aimed to please, helped the man resell the vehicle for a profit. Guffi did the same thing a month later, and again a month after that; all told, Guffi sold the same car five times in six months, amazingly charging a higher price on each successive sale.

To understand how this strategy was even possible, it helps to know a little about banking in Iceland. In 2001, the Icelandic government began relinquishing control of the banking sector to allow for privatization. One consequence, says Gylfi Zoega, a professor of economics at the University of Iceland, was that “ownership of the banks went to a few wealthy businessmen.” These businessmen, Zoega says, hired local bankers, who had very limited experience in international banking, to run things; they issued bonds on the international market, where institutional investors were only too happy to buy them. After all, this wasn’t Argentina — this was Iceland, a Scandinavian country whose national banks had no history of defaulting on their loans. “It appeared to be a sound investment,” Zoega says. Money poured into the country, and the economy boomed. With the help of the banks, investors went on spending sprees, buying large stakes in foreign and domestic businesses; the prices of everything from houses to used cars soared; Iceland’s stock market spiked, rising 900 percent between 2002 and 2008; and, of course, money flowed into the hands of all sorts of Icelanders, like Guffi.

Guffi sold a lot of cars during the boom, but he didn’t save much. When I asked him what he spent his money on, he replied that he traveled widely, skied often and entertained a number of girlfriends from abroad. “Take a look at the beautiful girls from Ukraine and Switzerland,” he told me wistfully. “You’re like a kid in a toy store. Several times, I’ve brought them home so that they can have a vacation here. Then I show them Iceland.” He added, thoughtfully: “What I was doing was good for the tourism business.”

At first, it was all going splendidly for Guffi as he Rollerbladed down Laugavegur Street with voluptuous girlfriends and sold and resold the same luxury cars. Then he became tired — exhausted, really. He was working 13-hour days. “Do you know how much time it takes to bring all those papers to the bank every time someone takes out a loan for a car?” he asked me. The girlfriends also proved enervating. “I found girls on the Internet; that’s heavy work. You’re reading all these stupid letters that they send.” By the time the crash hit, in late 2008, Guffi was relieved. Nowadays he sells fewer cars; he no longer regularly earns more money each time he sells the same car, but he still gets a commission, and his lifestyle is simpler. “I do nothing stupid, and then I have no stress,” he explained happily. “I have no more Ukrainian or Swiss girlfriends. I have an Icelandic woman now.”

Jake Halpern (jakehalpern@yahoo.com) is the author of “Fame Junkies.” His last article for the magazine was about freegans in Buffalo. Editor: Sheila Glaser (s.glaser-maggroup@nytimes.com).

Article source: http://feeds.nytimes.com/click.phdo?i=0b88b65acb84555699bb20e15fdfa536

Filed Under: Business News Tagged With: banking sector, guffi, institutional investors

Stocks & Bonds: Critical Reports on Banks Weigh on Financial Shares

April 15, 2011 by NewsMaker Leave a Comment

A Senate report released late Wednesday criticized rating agencies and banks, like Goldman Sachs, for their practices during the financial crisis, while federal regulators also released a report saying that banks did a poor job of handling the flood of foreclosures. The regulators said they would impose penalties, without giving the timing or amount.

In response, the banking sector was down almost 1 percent Thursday. Among the decliners were some of the 14 mortgage servicers that had signed consent agreements promising to overhaul their foreclosure practices.

“The uncertainty over this whole mortgage mess is contributing” to the decline in the financial sector, said Anthony G. Valeri, a senior vice president and market strategist for LPL Financial. “I think the market is waiting to see what the fines will be.”

“But it is a short-term concern for the market until we ultimately find out what the exact dollar amount is,” he said.

JPMorgan Chase, one of the banks signing a consent agreement, said it would add as many as 3,000 employees to meet the new regulatory demands. Its shares were down 2.8 percent at $44.97. Among other major banks, Citigroup fell 1.6 percent to $4.43; Bank of America was down 1.1 percent to $13.13; Wells Fargo declined 1.7 percent to $30.15; and Goldman Sachs lost 2.7 percent to $155.79.

Major indexes closed the day mixed. The Dow Jones industrial average rose 14.16 points, or 0.12 percent, to 12,285.15, while the Standard Poor’s 500-stock index added less than a point to close at 1,314.52. The Nasdaq composite slipped 1.3 points, or 0.05 percent, to 2.760.22.

Alan B. Lancz, the president of Alan B. Lancz Associates, said indexes might have gotten late-day help from initial public offerings, like that of the car-sharing company Zipcar, which gained 56 percent.

“As we headed into the last hour they were still showing significant gains,” Mr. Lancz said. “That maybe gave a spark to the buyers.”

Google rose $2.23, to $578.51, in the regular session but lost more than 5 percent in after-hours trading after reporting a quarterly profit that missed forecasts.

Shares of consumer staples were up 0.63 percent as a sector. Supervalu gained more than 16 percent, to $10.61, after forecasting fiscal-year earnings above Wall Street expectations. Kraft Foods closed at $32.95 and Coca-Cola at $68.31, each gaining more than 1 percent.

While the banking sector’s responsibility for the mortgage crisis drew most of the attention, analysts said other factors also weighed on the sector.

Nomura analysts said in a research note that a downward revision to gross domestic product, negative revenue and loan growth and an unpredictable regulatory backdrop have discouraged investors.

“We have spent the past few weeks on the road visiting investors,” the analysts said. “The overwhelming feedback on banks has been ‘Why bother?’ ”

“It’s just hard to get people to care about bank stocks right now,” Nomura said.

An increase in unemployment filings last week also weighed on the markets, as well as a monthly index on producer prices that showed energy costs were responsible for almost all of the increase in March.

Economists are concerned that increases in wholesales prices will be passed along and damp spending by consumers.

Downward revisions to economic growth, like the recent cut by the International Monetary Fund in its United States growth estimate, may have discouraged investors, Mr. Valeri added.

But the bond market has benefited. The yield on the 10-year Treasury bond was little changed Thursday at 3.5 percent.

“We thought going into this week that it would be a tough week for Treasuries given the fresh supply,” Mr. Valeri said, referring to an auction of 10-year bonds. “A new theme emerging this week that seems to have trumped the data, and even the auctions, was the potential of a slowdown in the economy.”

Article source: http://feeds.nytimes.com/click.phdo?i=020af463424071306512cea4fab8ab8e

Filed Under: Business News Tagged With: banking sector, nasdaq composite, stock index

Critical Reports on Banks Weigh on Financial Shares