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Iceland, Prosecutor of Bankers, Sees Meager Returns

February 3, 2013 by Leave a Comment

Today, the burly, 48-year-old former policeman is struggling with a very different sort of suspect. Reassigned to Reykjavik, the Icelandic capital, to lead what has become one of the world’s most sweeping investigation into the bankers whose actions contributed to the global financial crisis in 2008, Mr. Hauksson now faces suspects who “are not aware of when they crossed the line” and “defend their actions every step of the way.”

With the global economy still struggling to recover from the financial maelstrom five years ago, governments around the world have been criticized for largely failing to punish the bankers who were responsible for the calamity. But even here in Iceland, a country of just 320,000 that has gone after financiers with far more vigor than the United States and other countries hit by the crisis, obtaining criminal convictions has proved devilishly difficult.

Public hostility toward bankers is so strong in Iceland that “it is easier to say you are dealing drugs than to say you’re a banker,” said Thorvaldur Sigurjonsson, the former head of trading for Kaupthing, a once high-flying bank that crumbled. He has been called in for questioning by Mr. Hauksson’s office but has not been charged with any wrongdoing.

Yet, in the four years since the Icelandic Parliament passed a law ordering the appointment of an unnamed special prosecutor to investigate those blamed for the country’s spectacular meltdown in 2008, only a handful of bankers have been convicted.

Ministers in a left-leaning coalition government elected after the crash agree that the wheels of justice have ground slowly, but they call for patience, explaining that the process must follow the law, not vengeful passions.

“We are not going after people just to satisfy public anger,” said Steingrimur J. Sigfusson, Iceland’s minister of industry, a former finance minister and leader of the Left-Green Movement that is part of the governing coalition.

Hordur Torfa, a popular singer-songwriter who helped organize protests that forced the previous conservative government to resign, acknowledged that “people are getting impatient” but said they needed to accept that “this is not the French Revolution. I don’t believe in taking bankers out and hanging them or shooting them.”

Others are less patient. “The whole process is far too slow,” said Thorarinn Einarsson, a left-wing activist. “It only shows that ‘banksters’ can get away with doing whatever they want.”

Mr. Hauksson, the special prosecutor, said he was frustrated by the slow pace but thought it vital that his office scrupulously follow legal procedure. “Revenge is not something we want as our main driver in this process. Our work must be proper today and be seen as proper in the future,” he said.

Part of the difficulty in prosecuting bankers, he said, is that the law is often unclear on what constitutes a criminal offense in high finance. “Greed is not a crime,” he noted. “But the question is: where does greed lead?”

Mr. Hauksson said it was often easy to show that bankers violated their own internal rules for lending and other activities, but “as in all cases involving theft or fraud, the most difficult thing is proving intent.”

And there are the bankers themselves. Those who have been brought in for questioning often bristle at being asked to account for their actions. “They are not used to being questioned. These people are not used to finding themselves in this situation,” Mr. Hauksson said. They also hire expensive lawyers.

The special prosecutor’s office initially had only five staff members but now has more than 100 investigators, lawyers and financial experts, and it has relocated to a big new office. It has opened about 100 cases, with more than 120 people now under investigation for possible crimes relating to an Icelandic financial sector that grew so big it dwarfed the rest of the economy.

To help ease Mr. Hauksson’s task, legislators amended the law to allow investigators easy access to confidential bank information, something that previously required a court order.

Parliament also voted to put the country’s prime minister at the time of the banking debacle on trial for negligence before a special tribunal. (A proposal to try his cabinet failed.) Mr. Hauksson was not involved in the case against the former leader, Geir H. Haarde, who last year was found guilty of failing to keep ministers properly informed about the 2008 crisis but was acquitted on more serious charges that could have resulted in a prison sentence.

Article source: http://www.nytimes.com/2013/02/03/world/europe/iceland-prosecutor-of-bankers-sees-meager-returns.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Fate of Euro May Hinge on Italian Savers

November 23, 2011 by Leave a Comment

LONDON — Even though Europe’s debt crisis has turned Rome into financial ground zero, Italy has been able to lean on at least one solid support: the relatively large amount of government debt held by Italians themselves.

Nearly 57 percent of Italian debt is held by Italian banks, insurance companies and individuals. Those holdings have helped slow the flight of capital from Italy, even as foreign investors have been withdrawing their money from the country to park in safe havens like German, Swiss, American or Japanese government bonds.

But financial officials have become jittery about the possibility that Italians may stop buying this debt, and instead become more like Greeks and send their hard-earned savings abroad.

If that were to happen, it would greatly raise the odds that Italy, the third-largest economy that uses the euro currency, would be forced to seek a bailout — a move that could risk the future of the entire euro zone.

Hoping to stave off that calamity, the country’s banking industry and some prominent businessmen have banded together to sponsor a “buy Italian bonds day” next Monday, in which individual Italians who buy government bonds will be able to do so without paying commissions.

It is but the latest step taken by Italy’s increasingly skittish financial establishment to induce the nation’s cash-rich savers to continue financing the country’s sky-high debt, which is 130 percent of the gross domestic product. Compared with debt-saddled Greece, Spain and Ireland, Italy is much less reliant on foreign investors to finance its debt.

And more so than in any other euro zone country, Italian citizens have been active buyers of government debt, with such bond holdings representing 10 percent of household assets. So far, the evidence suggests that Italian households are not panicking.

According to Luca Mezzomo, chief economist at the banking group Intesa Sanpaolo in Rome, deposits in Italian banks remained stable through September. (The banks, in turn, use much of those savings to invest in government bonds.)

But Mr. Mezzomo concedes that the government has come under increasing pressure to do all it can to keep Italians buying bonds — especially now that foreigners are aggressively selling.

“I am confident that you will see demand from retail investors,” he said, pointing to the high yields on Italian debt. “There is a long tradition of investing in government bonds in Italy.”

The Italian treasury is doing its bit, too, with a plan to sell its debt online to individuals.

And while the high yields, or interest rates, on Italian bonds are an international distress signal, to domestic investors they may be a good way to profit.

“Bonds are a very lucrative investment now,” said Maria Letizia Ottavella, an architect in Rome. “I am deeply convinced that we should all buy Italian bonds to support our economy.”

And yet — and here’s where jitters arise — other indicators suggest that money is nonetheless fleeing Italy at worrisome levels.

John Whittaker, an economist at Lancaster University in Britain, has analyzed how much each of the 17 central banks within the euro zone’s system are borrowing from the European Central Bank. A sharp increase in this figure generally suggests money is leaving the country. When that happens, a nation’s central bank must borrow more to keep the banks afloat.

Mr. Whittaker found that between June and September of this year, the Italian central bank had borrowed 109 billion euros (roughly $145 billion) from the European bank. Before then, the Italian central bank had a 6 billion euro surplus at the European Central Bank. Mr. Whittaker says the borrowing surge was most likely a response to foreigners withdrawing their money from Italian banks, but says that it could also include Italians shifting some of their assets abroad.

“This is capital flight,” he said.

Relative to the 1.3 trillion euro pool (roughly $1.75 trillion) of Italian bank deposits, even 109 billion euros is a small figure. And it may largely reflect the move by foreigners to pull their money out of Italy. But if Italians were to follow suit, the consequences for the nation and the euro zone would be dire.

When Greece, Ireland and Portugal could no longer persuade enough domestic investors to buy bonds after foreigners decamped, the next step was a bailout.  

Gaia Pianigiani contributed reporting from Rome.

Article source: http://www.nytimes.com/2011/11/23/business/global/fate-of-euro-may-hinge-on-italian-savers.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Regulators Find Design Flaws in New Reactors

May 21, 2011 by Leave a Comment

The chairman, Gregory B. Jaczko, said that computations submitted by Westinghouse, the manufacturer of the new AP1000 reactor, about the building’s design appeared to be wrong and “had led to more questions.” He said the company had not used a range of possible temperatures for calculating potential seismic stresses on the shield building in the event of an earthquake, for example.

Mr. Jaczko said the commission was asking Westinghouse not only to fix its calculations but also to explain why it submitted flawed information in the first place. Earlier this year the commission staff said it needed additional calculations from Westinghouse to confirm the strength of the AP1000’s shield building. The building has not been built; the analysis of its strength and safety is all computer based.

The announcement comes as the commission and the American nuclear industry are facing increased scrutiny as a result of the calamity that began after an earthquake and tsunami damaged the Fukushima Daiichi nuclear plant in Japan in March, leading to releases of radioactive material. Various critics have asked the commission to suspend licensing of new plants, the relicensing of old ones and various other activities until the implications of the Fukushima accident are clearer.

While the commission has said it will evaluate the Japanese accident methodically, it had previously said it did not anticipate that this would cause a delay in approving the AP1000. Now, however, it appears far warier that it will finish this summer.

Westinghouse countered in a statement that the “confirmatory items” that the commission was asking for were not “safety significant.” It noted, and the commission agreed, that the company had been the first to identify some of the problems itself. Still, the commission seems to have taken a slightly darker view.

The Southern Company has already dug the foundations and done other preliminary work for two of the AP1000 reactors adjacent to its existing reactors at Plant Vogtle near Augusta, Ga. The Energy Department has promised loan guarantees for that project provided that the Nuclear Regulatory Commission approves the design.

South Carolina Electric and Gas has broken ground for another two, 20 miles northwest of Columbia.

The commission had previously said it expected to approve the AP1000 design this summer. But on Friday a spokesman for the commission, Scott Burnell, said the decision would be delayed for a period of time that he could not specify until Westinghouse submitted a third round of revised calculations.

“They need to be doing the work correctly and completely, and we need to have confidence that that’s what they’re doing,” said one commission official, who said he was not authorized to be quoted by name. “They have additional work they need to do, and a short time to complete it if it’s not going to have a significant impact on their schedule.”

Southern had been expecting to receive a license to construct and operate the new plant by the end of this year and to have the first reactor on line by mid-2016. On Friday, the company said it still planned to proceed. “We have confidence the AP1000 technology,” a company spokesman, Todd Terrell, said.

In addition to the plants in Georgia and South Carolina, ground has also been broken on four AP1000 reactors in China, two at Sanmen and two at Haiyang. Westinghouse, which is owned by Toshiba, is making parts for the Chinese units in factories in the Pittsburgh area.

The AP1000 was in principle designed so it would be faster to build and safer to run than previous models. The letters stand for “advanced passive,” with many of its safety features depending on natural forces like gravity and convective cooling rather than pumps and valves, which could be knocked out by electrical failures or floods as they were at Fukushima.

Article source: http://www.nytimes.com/2011/05/21/business/energy-environment/21nuke.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,