May 2, 2024

You are here: Home / Archives for barclays

Sprint Faces Challenges With or Without AT&T’s Deal for T-Mobile

September 5, 2011 by Leave a Comment

Nevertheless, Sprint would face the same daunting problems endemic to the wireless industry if the merger were thwarted, industry analysts say.

“It essentially maintains the status quo, which, given the results of Sprint over the last couple of years, is not the best place to be,” said Christopher King, an analyst with Stifel Nicolaus.

Mr. King says that Sprint has arguably already lost to Verizon and ATT. Sprint itself has acknowledged the difficulties it faces when competing against companies whose scale will allow them to secure better deals on hardware. The company has also argued that the amount of spectrum that a combined ATT and T-Mobile would control would be anticompetitive.

Other analysts are more optimistic about Sprint’s chances, as the company appears to be stemming the loss of subscribers after several years of serious erosion. Even so, its market share of subscribers on contracts dropped to 13 percent in 2010, down from 17 percent in 2008, according to Barclays Capital. The company reported a net loss of $847 million in the second quarter of this year.

Sprint, which sells a number of smartphones using the Google Android operating system, is to a large degree pinning its hopes of attracting more customers on the phone that performed that magic for ATT and Verizon: the Apple iPhone. Analysts widely expect the two companies will reach an agreement.

But the most pressing issue facing Sprint, the analysts say, is its need to build a fourth-generation, or 4G, wireless network. It would give Sprint customers a speedy wireless connection most suited to data-hungry smartphones. Because 4G offers service similar to home broadband Internet, wireless companies want to build out 4G networks as the way to provide data service to compete with established providers.

And Sprint is falling behind and faces a daunting row of hurdles just to stay in the game.

Data service is becoming increasingly important to a wireless industry that is experiencing declining revenue from voice traffic. Data charges will account for more than 41 percent of the revenue from contracted wireless subscribers in 2011, according to James Ratcliffe, an analyst at Barclays. That compares with less than 30 percent in 2009.

Almost everyone who wants a cellphone already owns one, so the only way for wireless companies to add voice customers is to poach them from rivals. The number of people demanding data service, on the other hand, is growing as cellphone users embrace smartphones, so wireless companies can earn more from existing customers by persuading them to add larger data plans to their voice plans.

Sprint has an advantage in this market because it continues to offer unlimited data plans, while ATT and Verizon have tiered plans.

It could hold that advantage if it aggressively builds out a 4G network that is wider and better than its rival’s 4G networks. But it is not clear that will happen. The company is planning to set out a new strategy for its 4G network next month at its investor conference in New York, and declined to comment before then.

All the options the company has at its disposal have flaws, according to experts.

Sprint relies on awkward partnerships to secure the amount of spectrum it needs to build a new network. ATT and Verizon have largely been able to buy outright the spectrum they need. ATT has cited access to additional spectrum as a major reason it needs to acquire T-Mobile.

For Sprint, which lacks the capital of its larger rivals, securing spectrum has been even more difficult. It has set out to patch together what it needs through collaborations. In 2008 it entered a partnership to acquire a large portion of Clearwire, a troubled wireless company that controls a large swath of spectrum.

The two companies set out to build a 4G network in tandem, hoping to benefit from a significant head start. This allowed Sprint to market the country’s first 4G network, and it became the first wireless carrier to offer a 4G smartphone, the HTC Evo 4G, in June 2010. But the effort soon slowed, in no small part because of Clearwire’s tenuous financial situation. Verizon has since overtaken Sprint as the nation’s largest 4G provider.

Verizon’s network is built on a technology called LTE, which is incompatible with the WiMax technology that Sprint’s network is based on. That presents Sprint with yet another problem because Verizon’s technology is becoming the industry standard. Sprint could soon have trouble persuading hardware manufacturers to build devices for its network.

Sprint has said it will shift to LTE. But there will still be eight million to 10 million orphaned Sprint devices running on WiMax by the end of the year, according to Mr. Ratcliffe of Barclays. Sprint will have to support that technology for some time, which adds to its costs.

Sprint’s solution is a deal it reached with LightSquared, a company that sells spectrum to niche carriers. LightSquared agreed to pay Sprint $9 billion to build a 4G network using its spectrum.

But Sprint hit yet another barrier. Federal regulators are hesitant to allow the companies to use this spectrum because it interferes with GPS frequencies.

Between Clearwire and LightSquared, Sprint should have the spectrum it needs to build its network, analysts say, but it is unclear how it will be able to make the investment to take advantage of this. There is speculation that Sprint will have to buy Clearwire outright, or assemble a consortium of other companies to help it do so.

Another option would be a collaboration with cable companies that control spectrum and could be willing to work with Sprint.

Charles S. Golvin, a telecom analyst at Forrester Research, thinks that Sprint’s best hope, whether or not the ATT and T-Mobile merger goes through, is to differentiate itself with unlimited data plans as it builds a reliable network. There is a certain marketing advantage to going against Goliath and saying, “We’re the little guys, we have to try harder,” Mr. Golvin said.

“That sort of story could work for them.”

Article source: http://feeds.nytimes.com/click.phdo?i=14a1aab462b52f8908e04cb185fea117

Filed Under: Business News Tagged With: , ,

DealBook: Barclays Reports Profit Plunge

August 2, 2011 by Leave a Comment

Barclays, one of the largest banks in Britain, said Tuesday that profit fell 38 percent in the first half because of costs for compensating customers for mistakes in selling some insurance and as earnings at its investment bank declined.

Net income fell to £1.5 billion, or $2.45 billion, in the first six months of this year from £2.4 billion in the same period last year, the company said. That was better than the £1.3 billion median profit estimate by analysts polled by Bloomberg News.

“It’s been a very difficult operating environment,” said the chief executive, Robert E. Diamond Jr. “I am pleased with the progress made across Barclays.”

Like many of its rivals, Barclays is reviewing its business to reduce costs. It was in the process of cutting about 3,000 jobs this year, Mr. Diamond said. Barclays cut 1,400 positions in the first half and Mr. Diamond said he “would expect the trend of the first half to continue and likely increase somewhat.”

Barclays said it set aside £1.8 billion for bad loans and other credit risks in the first half, a drop of 41 percent from a year earlier. Return on equity, a measure of profitability, improved to 9.1 percent from 6.9 percent. Barclays had set itself a target to reach a return on equity of 13 percent by 2013.

Barclays Capital, the securities unit, reported 9.3 percent lower pretax profit in the first half of £2.4 billion, after demand for its credit, currency and commodities services and products declined.

Pretax profit at its retail banking operation fell to £446 million in the first half from £1.2 billion after its operations on the European continent, especially in Spain, widened its pretax loss amid a deteriorating economic environment. It also set aside £1 billion to compensate customers it mistakenly sold some payment insurance to, it said.

Article source: http://dealbook.nytimes.com/2011/08/02/barclays-reports-profit-plunge/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Default Seen as Unlikely, but Markets Prepare

July 24, 2011 by Leave a Comment

Some debt traders said they were looking for evidence of progress toward a deal before markets open on Monday.

“This press conference was a pretty significant moment,” said Ajay Rajadhyaksha, head of United States fixed-income strategy at Barclays Capital, referring to President Obama’s announcement after markets had closed for the week that talks had broken down. “I would be pretty surprised if investors did not exhibit a greater degree of worry when we walk in Monday morning than they have shown so far.”

Aware of the pressure of Monday’s market opening, Speaker John A. Boehner said Saturday that Congressional leaders were working on a new deficit-reduction plan that would resolve the impasse and allow the debt ceiling to be raised. He said he hoped the plan could be announced within the next 24 hours.

Even if a deal is reached, investors have become increasingly worried that the rating agency Standard Poor’s may reconsider its certification of government securities as an ultrasafe investment. The company has said there is a 50 percent chance it will downgrade the rating in the next three months, depending on whether the federal government adopts a long-term plan to pay down its debts. Such a move could send interest rates higher for a broad range of government and consumer loans.

Some of the options still on the table to raise the debt ceiling, involving smaller packages of spending cuts, might not be sufficient to satisfy S. P. or Moody’s and Fitch, two other rating agencies that have expressed concern over the debt negotiations.

“I think the market still has confidence that the debt ceiling will be raised in time,” said Terry Belton, head of fixed-income strategy at JPMorgan Chase. “The focus is on downgrade risk.”

A downgrade would raise the government’s borrowing costs, exacerbating its financial problems, because investors generally demand higher interest rates to hold riskier debt. Consumers and businesses also would face higher borrowing costs because the rates on Treasuries are widely used as a benchmark to set the rates on other kinds of loans.

The government cannot borrow more than $14.3 trillion, the current debt ceiling, a limit that it reached in May. Since then, however, Treasury has continued to repay securities as they come due and issue new debt in their place, a process known as rolling over debt. Officials are concerned that it will become harder to find investors willing to participate in the weekly auctions, and that the remaining buyers will begin to demand higher interest rates.

Over the last few weeks staff members in the Office of Debt Management, a part of the Treasury, have been phoning the desks of the 20 major Wall Street dealers for Treasury bonds to assess investor demand for coming debt auctions, and to seek assurances that the dealers themselves will buy any surplus.

About $87 billion in federal debt comes due on Aug. 4, and roughly $410 billion comes due throughout the rest of August. If interest rates climbed even a tenth of a percentage point, the added cost to roll over the debt would be an extra $500 million a year.

Wall Street is also worried about the effect that a ratings downgrade would have on various assets that are implicitly backed by the federal government, including agency mortgages or municipal bonds.

The heightened uncertainty is prompting financial firms and other companies to stockpile cash. Walter Todd of Greenwood Capital, a wealth management firm in Greenwood, S.C., said that so far he had advised his own worried customers not to do the same, operating under the assumption that a deal would be reached. But after the talks fell apart on Friday, Mr. Todd said he and his partners began to discuss a more pessimistic possibility.

“If nothing changes, if the headline out of the weekend is that the talks have broken down, I think you’ll start to see assets reacting to that,” Mr. Todd said. “It blows my mind that it’s come to this. It’s incredibly irresponsible what’s happening, on the part of both sides.”

Other investors said they did not view the opening of markets on Monday as a critical deadline, as they still expected a deal, but that each passing day would put a little more stress on the markets. Bond prices fluctuated last week on the news from Washington, falling Thursday after S. P.’s latest warning, then rising on Friday amid renewed talk that a deal was imminent.

“Every day without an agreement increases the risk of default,” said Ward McCarthy, chief financial economist at Jefferies Company. “Congress likes to go to the edge of the precipice with the debt ceiling, and we are headed toward the edge again.”

Binyamin Appelbaum reported from Washington, and Eric Dash from New York. Louise Story contributed reporting from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=45b12a0949655ce6e82c93ae9a944969

Filed Under: Business News Tagged With: , ,

Investors Scramble to Prepare for the Unthinkable

July 23, 2011 by Leave a Comment

Some debt traders said they were looking for evidence of progress toward a deal before markets open on Monday.

“This press conference was a pretty significant moment,” said Ajay Rajadhyaksha, head of United States fixed-income strategy at Barclays Capital, referring to President Obama’s announcement after markets had closed for the week that talks had broken down. “I would be pretty surprised if investors did not exhibit a greater degree of worry when we walk in Monday morning than they have shown so far.”

Investors also are increasingly worried that even if a deal is reached, the rating agency Standard Poor’s may reconsider its certification of government securities as an ultrasafe investment. The company has said there is a 50 percent chance it will downgrade the rating in the next three months, depending on whether the federal government adopts a long-term plan to pay down its debts. Such a move could send interest rates higher for a broad range of government and consumer loans.

Some of the options still on the table to raise the debt ceiling, involving smaller packages of spending cuts, might not be sufficient to satisfy S. P. or Moody’s and Fitch, two other rating agencies that have expressed concern over the debt negotiations.

“I think the market still has confidence that the debt ceiling will be raised in time,” said Terry Belton, head of fixed-income strategy at JPMorgan Chase. “The focus is on downgrade risk.”

A downgrade would raise the government’s borrowing costs, exacerbating its financial problems, because investors generally demand higher interest rates to hold riskier debt. Consumers and businesses also would face higher borrowing costs because the rates on Treasuries are widely used as a benchmark to set the rates on other kinds of loans.

The government cannot borrow more than $14.3 trillion, the current debt ceiling, a limit that it reached in May. Since then, however, Treasury has continued to repay securities as they come due and issue new debt in their place, a process known as rolling over debt. Officials are concerned that it will become harder to find investors willing to participate in the weekly auctions, and that the remaining buyers will begin to demand higher interest rates.

Over the last few weeks staff members in the Office of Debt Management, a part of the Treasury, have been phoning the desks of the 20 major Wall Street dealers for Treasury bonds to assess investor demand for coming debt auctions, and to seek assurances that the dealers themselves will buy any surplus.

About $87 billion in federal debt comes due on Aug. 4, and roughly $410 billion comes due throughout the rest of August. If interest rates climbed even a tenth of a percentage point, the added cost to roll over the debt would be an extra $500 million a year.

Wall Street is also worried about the effect that a ratings downgrade would have on various assets that are implicitly backed by the federal government, including agency mortgages or municipal bonds.

That, coupled with the myriad problems that failing to raise the debt ceiling could cause, prompted Wall Street’s main lobbying arm, the Securities and Investment Management Association, to organize an advocacy campaign earlier this week. “Urge the administration and Congress to raise the debt ceiling and protect our economy from additional strain,” it said in an e-mail circulated to member firms.

The heightened uncertainty is prompting financial firms and other companies to stockpile cash. Walter Todd of Greenwood Capital, a wealth management firm in Greenwood, S.C., said that so far he had advised his own worried customers not to do the same, operating under the assumption that a deal would be reached. But after the talks fell apart on Friday, Mr. Todd said he and his partners began to discuss a more pessimistic possibility.

“If nothing changes, if the headline out of the weekend is that the talks have broken down, I think you’ll start to see assets reacting to that,” Mr. Todd said. “It blows my mind that it’s come to this. It’s incredibly irresponsible what’s happening, on the part of both sides.”

Other investors said they did not view the opening of markets on Monday as a critical deadline, as they still expected a deal, but that each passing day would put a little more stress on the markets. Bond prices fluctuated last week on the news from Washington, falling Thursday after S. P.’s latest warning, then rising on Friday amid renewed talk that a deal was imminent.

“Every day without an agreement increases the risk of default,” said Ward McCarthy, chief financial economist at Jefferies Company. “Congress likes to go to the edge of the precipice with the debt ceiling, and we are headed toward the edge again.”

Binyamin Appelbaum reported from Washington, and Eric Dash from New York. Louise Story contributed reporting from New York.

Article source: http://www.nytimes.com/2011/07/24/business/investors-weigh-options-after-debt-talks-stall.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: HSBC Aims for $3.5 Billion in Savings, Trimming Retail

May 11, 2011 by Leave a Comment

HSBC said Wednesday that it plans to cut costs by as much as $3.5 billion over the next three years to improve profitability, which it said could be hurt by stricter financial regulation.

HSBC, one of Europe’s biggest banks, said it will focus on commercial banking activities and wealth management while scaling back its retail banking operations to the most-profitable countries.

‘‘This is not about shrinking the business but about creating capacity to re-invest in growth markets and to provide a buffer against regulatory and inflationary headwinds,’’ the chief executive Stuart Gulliver said. He was expected to give more details about the plan when he meets investors later on Wednesday.

HSBC is not alone among banks seeking to streamline at a time when new financial regulations force them to hold on to more of their capital, resulting in pressure on profitability. The Barclays chief executive Robert E. Diamond said in February that he would review businesses and close some that do not generate enough return.

HSBC, which has already decided to withdraw from Russia’s retail banking market, said it would test all of its operations and businesses for profitability and a set of other criteria. The bank also set a target for its cost efficiency ratio of 48 percent to 52 percent.

HSBC surprised some investors on Monday when it said that costs as a proportion of income rose to 60.9 percent in the first quarter from 49.6 percent in the first three months last year. The higher costs overshadowed a 58 percent increase of net income in the quarter.

The London-based bank, which generates about half of its profit in Asia, weathered the financial crisis better than many of its rivals and did not have to ask for financial help from the government. But its share price started to lag behind that of Deutsche Bank, JPMorgan and Barclays this year as some investors raised concerns about rising costs and the pace of growth.

Article source: http://dealbook.nytimes.com/2011/05/11/hsbc-aims-for-3-5-billion-in-savings-trimming-retail/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Bucks: Teach for America Equalizes Health Costs for Domestic Partners

May 4, 2011 by Leave a Comment

What if You're Gay - Your Money - Bucks Blog - NYTimes.com

Teach for America is the latest organization to ensure that its employees with same-sex partners get the same treatment as opposite-sex married couples when it comes to health care costs.

Gay people who are fortunate enough to work for employers that extend health benefits to their same-sex partners are still at a disadvantage: they must pay an extra tax on the value of those benefits that heterosexual married couples do not pay.

After Teach for America became aware of this issue through the Bucks blog, it decided to adopt the policy known as “grossing up,” where employees are reimbursed for these extra costs.

“We were inspired to make this important policy change, ensuring that all of our employees in domestic partnerships (whether same or opposite sex couples) don’t feel the burden of this unfair tax,” Aimée Eubanks Davis, chief people officer at Teach for America, said in an e-mail. “We are currently retroactively reimbursing affected employees as of Jan. 1, 2011.”

Over the course of the last year, a number of companies have adopted similar policies. Google began covering the costs last year, and, shortly thereafter, several other companies, including Barclays, Facebook and Apple, followed suit. We’ve been keeping track of the changes at various companies on this chart. Even though the effort has been gaining speed in recent months, some organizations, including Cisco, Kimpton Hotels and the Gates Foundation, already had the policy in place.

Under federal law, employer-provided health benefits for domestic partners are counted as taxable income if the partner is not considered a dependent. The tax owed is based on the value of the partner’s coverage that the employer pays for. Heterosexual married couples are not subject to the tax.

While many companies only reimburse gay employees with partners since their unions are not recognized by the federal government, Teach for America is covering the costs for all employees with domestic partners.  Employees will receive the reimbursements in their semimonthly paychecks.

“It was clear to us that it was the right thing to do for our staff members,” said Ms. Davis of Teach for America, “and we were in a position to do it, so we did.”

Do you know of any companies that have recently adopted a similar policy? If so, please drop us a note in the comment section below.

Article source: http://feeds.nytimes.com/click.phdo?i=f701533100c8b89f243f1fef54433c6f

Filed Under: Your Money Tagged With: , ,

DealBook: Barclays and Credit Suisse Show Weakness

April 27, 2011 by Leave a Comment

LONDON — Barclays and Credit Suisse on Wednesday reported earnings declines for the first quarter, partly because of weaker revenue from their investment banking operations.

Barclays said its first-quarter profit fell 5 percent, to £1.01 billion ($1.67 billion), from £1.07 billion in the period a year earlier. Still, the bank’s chief executive, Robert E. Diamond Jr., said Barclays had “made a good start in 2011 in a challenging external environment.”

At the bank’s annual shareholder meeting in London on Wednesday, the earnings performance fueled criticism about executive pay packages at Barclays Capital, the bank’s investment banking unit, where pretax profit fell 33 percent in the quarter.

Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers, said there was “disappointment that Barclays has failed to keep pace with some of its global peers.” Shares of Barclays fell 4.8 percent in London on Wednesday.

Credit Suisse, one of the largest Swiss banks, said its first-quarter net income fell 45 percent, to 1.14 billion Swiss francs ($1.3 billion), from 2.06 billion francs in the period a year earlier.

The bank attributed to decline in part to a write-down of 467 million francs on Credit Suisse’s own debt and the value of some derivatives. Earnings were also hurt by the appreciation of the Swiss currency against the dollar, it said.

Pretax profit at Credit Suisse’s investment banking operation fell 25 percent, to 1.34 billion francs, from 1.8 billion francs. Revenue from sales and trading at the unit fell 7.7 percent, less than at Wall Street rivals, and less than the 17 percent drop at Barclays Capital.

Credit Suisse shares showed little change on Wednesday in Zurich trading.

Earlier this year, both banks cut their targets for return on equity, a measure of profitability, on expectations that stricter capital rules and banking regulations would make banking less profitable.

Barclays is now aiming for at least a 13 percent return on equity and Credit Suisse at least 15 percent, compared with about 18 percent for both before.

Quarterly earnings at Barclays raised doubts among some analysts that the bank could meet this target by 2013.

“Although hard to achieve given the nature and influence of Barclays Capital, we believe that the group needs to deliver a few quarters of steady improvement in its return on equity to convince investors,” said Nic Clarke, an analyst at Charles Stanley in London.

The Independent Commission on Banking, which is backed by the British government, called this month for Barclays and other large banks to hold more capital to protect individual depositors in the event that their investment banking operations lost money.

But the commission stopped short of calling for a separation of the banks’ consumer deposit banking and investment banking businesses.

The prospect of such a separation had fueled speculation that Barclays would move its operations to New York from London. Barclays had warned that splitting consumer operations from investment banking, which had made up the bulk of its profit for some years, would seriously harm London’s standing as a global financial center.

A final recommendation by the commission on new rules is expected in September.

At the Barclays shareholder meeting in London, the bank’s executives were called upon to justify compensation for top managers, which had started to creep up again despite tighter regulation.

Mr. Diamond was awarded £6.75 million in salary and bonus for 2010 after not receiving a bonus in 2009. His bonus of £6.5 million for 2010 was “less than many of his peers in other similar banks,” according to Richard Broadbent, chairman of the compensation committee of the Barclays board.

Credit Suisse’s chief executive, Brady W. Dougan, received total compensation of 12.8 million Swiss francs in 2010.

Marcus Agius, the Barclays chairman, told shareholders on Wednesday that ‘‘if we are to remain competitive in a global marketplace, it is simply not possible — as some seem to suggest — for us unilaterally to reduce compensation levels without affecting future shareholder returns.”

Some Barclays shareholders were surprised by the bank’s decision to buy back a portfolio of troubled assets, including some backed by American subprime mortgages, that it had sold to a group of former employees in 2009.

The step represents a reversal just a year and a half after Barclays contended that the sale, which was also a highly complex accounting maneuver, would make its earnings less volatile.

Barclays is buying back the £6 billion portfolio after changes in capital rules for loans — including the $12.6 billion loan that the bank granted the asset holding vehicle, Protium Finance — made the entire structure less attractive.

To facilitate a sale of the troubled assets, Barclays said on Wednesday that it would pay $83 million to the manager of the portfolio and $270 million to buy out unidentified investors in the vehicle. The bank said the transaction would not result in a loss or a gain.

Julia Werdigier reported from London, and David Jolly from Paris. Chris V. Nicholson contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=01b4bb7805aa252df15e75a37a086845

Filed Under: Business News Tagged With: , ,

DealBook: British Bank Panel Suggests Changes to Limit Risk

April 12, 2011 by Leave a Comment

LONDON — British banks should hold more capital and better shield individual customers from losses in other parts of their business, a government-backed commission said on Monday.

The proposals stopped short of any significant new regulations, like requiring a full split of retail and investment banking, which some banks had feared.

Instead, the commission said retail units, which take consumer deposits, should be isolated for protection, or ring-fenced, to allow them to survive even if other parts of the banks need to be wound down.

Shares in British banks were mixed in London on Monday, with Barclays and Royal Bank of Scotland rising and HSBC falling.

“The report has been extremely generous to the banks,” said Roger Nightingale, a strategic adviser to hedge funds and institutional investors in London.

The proposals, by the Independent Commission on Banking, go further than recent changes in the United States in trying to separate more clearly the traditional deposit-taking services from the riskier but more lucrative trading operations.

The commission also said larger banks, like Barclays, should hold at least 10 percent of equity related to risk-weighted assets, more than the 7 percent detailed in the so-called Basel III agreement to overhaul international bank regulation.

But the commission also said that because investment banks operate globally, British banks should not be subject to different capital rules than those agreed to internationally.

The proposed ring-fencing of the retail business means that banks with both retail and investment banking units, including Barclays and Royal Bank of Scotland, would have to finance the two businesses separately and not move capital from one area to the other.

The proposed changes would increase a bank’s financing costs, the commission said, but not as much as a complete split of retail and investment banking. And any costs would be more than offset by the benefit of “materially reducing the probability and impact of financial crises,” the report said.

Simon Gleeson, a partner at the law firm Clifford Chance, in London, said the proposed changes could prompt banks to take on more rather than less risk, or to raise prices for retail customers as the cost of doing business increases. “All of this would make the operating of retail banks more expensive,” he said.

The proposals are part of an interim report and are not definitive. But they were seen as Britain’s most important response to the banking crisis, which has left two of the country’s largest banks in government hands. Before the release of the report, Barclays and HSBC had threatened to move their headquarters abroad should new rules be too punishing, which they argued would leave them at a disadvantage to rivals elsewhere.

John Vickers, who heads the commission, rejected claims that the commission bowed to bank pressures. “These are absolutely far-reaching reforms,” Mr. Vickers said at a news conference in London. “They could be absolutely transformative.”

The commission, which includes former banking executives, was set up by the government in June to suggest ways to improve stability and competition in Britain’s banking industry after the financial crisis. The Treasury is expected to receive a final report in September.

George Osborne, the chancellor of the Exchequer, welcomed the interim report as a “very, very good piece of work.”

Under the proposals, any retail banking operations would have to be run as a subsidiary of the larger banking group. The subsidiary would have to stick to its own capital ratios, but any capital above that could be moved from the retail banking business to other activities in the wider group. The banking group would also be able to continue selling financial products across its units, for example offering investment banking advice to retail banking clients.

“It would help shield U.K. retail activities from risks arising elsewhere within the bank or wider system,” the report said. “It could curtail taxpayer exposure and thereby sharpen commercial disciplines on risk taking.”

The commission said its recommendations sought a middle ground between the radical step of separating retail and investment banking and simply relying on higher capital requirements to increase the stability of banks.

In the event of the collapse of a bank, the commission suggests that claims of depositors should be ranked higher than those of unsecured creditors. “It’s amazing how so many senior debt holders came out whole” from the banking crisis, Mr. Vickers said.

The commission also recommended making it easier and less expensive for customers to switch between British retail banks as a way to increase competition.

Article source: http://dealbook.nytimes.com/2011/04/11/british-bank-panels-report-less-radical-than-feared/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: British Bank Panel’s Report Less Drastic Than Feared

April 11, 2011 by Leave a Comment

LONDON — British banks should hold more capital and better shield individual customers from losses in other parts of their business, a government-backed commission said Monday.

The proposals stopped short of any major new regulations, like requiring a full split of consumer deposit-taking, or retail banking, and investment banking, which some banks had feared.

Instead, the commission said retail units should be isolated for protection, or ring-fenced, to allow them to survive even if other parts of the banks needed to be wound down.

Shares in British banks were mixed in late trading in London on Monday, with Barclays and Royal Bank of Scotland rising and HSBC falling.

“The report has been extremely generous to the banks,” said Roger Nightingale, a strategic adviser to hedge funds and institutional investors in London.

The proposals, by the Independent Commission on Banking, go further than recent changes in the United States in trying to separate more clearly the traditional deposit-taking services from the riskier but more lucrative trading operations.

The commission also said larger banks, like Barclays, should hold at least 10 percent of equity related to risk-weighted assets, more than the 7 percent detailed in the so-called Basel III agreement to overhaul international bank regulation.

But the commission also said that because investment banks operate globally, British banks should not be subject to different capital rules than those agreed to internationally.

The proposed ring fencing of the retail business means that banks with both retail and investment banking units, including Barclays and Royal Bank of Scotland, would have to finance the two businesses separately and must not move capital from one area to the other.

The proposed changes would increase a bank’s financing costs, the commission said, but not as much as a complete split of retail and investment banking. And any costs would be more than offset by the benefit of “materially reducing the probability and impact of financial crises,” the report said.

Simon Gleeson, a partner at the law firm Clifford Chance in London, said the proposed changes could prompt banks to take on more rather than less risk, or to raise prices for retail customers as the cost of doing business increases. ‘‘All of this would make the operating of retail banks more expensive,’’ he said.

The proposals are part of an interim report and are not definitive. But they were seen as Britain’s most important response to the banking crisis, which has left two of the country’s largest banks in government hands. Before the release of the report, Barclays and HSBC had threatened to move their headquarters abroad should new rules be too punishing, which they argued would leave them at a disadvantage to rivals elsewhere.

John Vickers, who heads the commission, rejected claims that the commission bowed to bank pressures. “These are absolutely far-reaching reforms,” Mr. Vickers said at a news briefing in London. “They could be absolutely transformative.”

The commission, which includes former banking executives, was set up by the government in June to suggest ways to improve stability and competition in Britain’s banking industry following the financial crisis. The Treasury is expected to receive a final report in September.

George Osborne, the chancellor of the Exchequer, welcomed the interim report as a “very, very good piece of work.”

Under the proposals, any retail banking operations would have to be run as a subsidiary of the larger banking group. The subsidiary would have to stick to its own capital ratios but any capital above that could be moved from the retail banking business to other activities in the wider group. The banking group would also be able to continue selling financial products across its units, for example offering investment banking advice to retail banking clients.

“It would help shield U.K. retail activities from risks arising elsewhere within the bank or wider system,” the report said. “It could curtail taxpayer exposure and thereby sharpen commercial disciplines on risk taking.”

The commission said its recommendations sought a middle ground between the radical step of separating retail and investment banking and just relying on higher capital requirements to increase the stability of banks.

In the event of the collapse of a bank, the commission suggests that claims of depositors should be ranked higher than those of unsecured creditors. “It’s amazing how so many senior debt holders came out whole” from the banking crisis, Mr. Vickers said.

The commission also recommended making it easier and less expensive for customers to switch between British retail banks as a way to increase competition.

Article source: http://dealbook.nytimes.com/2011/04/11/british-bank-panels-report-less-radical-than-feared/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Portugal Stages Surprise Bond Auction; Ireland Is Hit With New Downgrade

April 1, 2011 by Leave a Comment

The government sold 1.65 billion euros ($2.3 billion) of short-term government debt, more than it had planned, after abruptly announcing the sale Thursday night. Lisbon said it was meeting “specific demand” for the debt without giving more details. The yield was 5.79 percent, 2.5 percentage points more than it paid at auctions of similar bonds last year.

Yet shortly after the auction was completed, Fitch, the ratings agency, cut Portugal’s credit rating by three notches, saying it was concerned that the country would not receive timely external support before the elections on June 5.

Some investors said that demand for the bonds could have come from China, which previously said it would support European economies troubled by large debt burdens, and Brazil, whose president was recently cited in a newspaper report as saying the country might buy Portuguese debt.

Portugal needs 9 billion euros in the short term to pay for two bond redemptions in April and June if it wants to avoid a bailout by the European Union and the International Monetary Fund.

Prime Minister José Sócrates resigned on March 23 after failing to push his latest austerity plan through Parliament. President Aníbal Cavaco Silva on Thursday set June 5 as the date for new elections.

The bond sale on Friday, which raised more than the 1.5 billion euros planned, bought Portugal some breathing room to sort out its finances and avoid becoming the third country in the euro zone to seek a bailout, after Greece and Ireland.

“It might be that what they’re trying to do is issue just enough short-term debt to get through to the elections and then the next government can ask for help,” said Laurent Fransolet, head of European fixed-income strategy at Barclays Capital in London.

Mr. Fransolet also said it was not surprising that Portugal preferred to raise the needed funds on the market rather than through a bailout. “There are other costs associated with going to the E.U. and the I.M.F., including political costs,” he said.

Carlos Costa Pina, the Portuguese secretary of state for Treasury and finance, said recently that Portugal would be able to meet its debt commitments for this year, including the redemptions of long-term debt in April and June.

Fears that Europe’s debt crisis was worsening again grew Thursday when Portugal disclosed a budget deficit that was higher than expected and it was revealed that four of Ireland’s most prominent financial institutions required a further capital injection of 24 billion euros to cover bad loans.

Ireland yielded to the European Central Bank on Friday when it agreed to protect bondholders even as the costs for bailing out its banks rose. The country had disagreed with the central bank on the issue, arguing that senior bond holders in the banks would have to share the losses to reduce the costs of the bailout.

Standard Poor’s, the debt rating agency, cut Ireland’s sovereign debt rating one notch to BBB+ from A but revised its outlook to stable. The cut left Ireland with a low investment grade.

Fitch on Friday cut Portugal’s long-term foreign and local currency ratings to BBB–, one notch above junk level, from A–.

Portugal had its sovereign credit rating lowered to BBB– by Standard Poor’s on Tuesday on concerns that the country might have to default on some of its debt. Officials in Lisbon said Thursday that the country’s budget deficit last year was 8.6 percent of its gross domestic product, well above the goal of 7.3 percent.

The government of Mr. Sócrates had already started to increase taxes and cut spending to try to reduce the budget deficit to 4.6 percent of G.D.P. this year. Portugal had a record deficit of 9.3 percent in 2009.

Article source: http://feeds.nytimes.com/click.phdo?i=fd395a3439b2a23e93b90f20584104c7

Filed Under: Business News Tagged With: , ,
« Previous Page