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Draghi Takes Bold Approach at European Central Bank

December 7, 2011 by Leave a Comment

Since taking office a little more than a month ago, he has presided over an interest rate cut, signaled a greater willingness to deploy the bank’s resources to fight the European debt crisis and turned up the pressure on governments to remake the euro zone.

More action is likely on Thursday when the bank’s policy council meets. Analysts predict another cut, perhaps a big one, in the bank’s benchmark interest rate, now at 1.25 percent.

The central bank is also expected to start offering longer-term loans to commercial banks to compensate for a flight from European financial institutions by private lenders.

And Mr. Draghi is likely to re-emphasize the bargain he hinted to political leaders last week: The central bank will take steps to temporarily stabilize financial markets if politicians make real progress on fixing the structural flaws in the euro zone to make future debt crises less likely.

It remains unclear just what Mr. Draghi meant — just as it remains uncertain whether Germany, the euro region’s chief financier, will go along with whatever steps Mr. Draghi might have had in mind.

But Mr. Draghi seems unburdened by past policy moves by the central bank and determined to take the initiative before the strains of the crisis exhaust him, as they sometimes seemed to have worn on his predecessor, Jean-Claude Trichet.

While Mr. Trichet, whose term ended in October, remains an esteemed figure in Europe, with legendary stamina, three years of nearly nonstop crisis management took their toll in his final months in office. For now, at least, Mr. Draghi, a former head of the Bank of Italy, appears fresh and unafraid of putting his own stamp on policy.

“Draghi can say different things,” said Marie Diron, an economist in London who advises the consulting firm Ernst Young. “People won’t say, ‘This is not what you were saying a few months ago.’ It makes a change of policy, a bit of U-turn, easier.”

But will it be enough to satisfy the large body of economists and political leaders who contend that the last stage of the crisis must include much more aggressive and controversial action by the central bank?

Guntram B. Wolff, deputy director of Bruegel, a research organization in Brussels, argues that the central bank may have no choice but to become the lender of last resort to governments and not just commercial banks, as the only way to prevent market panics that drive up borrowing costs for sovereign governments, like Italy’s.

“A lender of last resort needs to be created in order to stop self-fulfilling sovereign crises,” Mr. Wolff wrote on Monday. “Interest rates paid on sovereign bonds in a number of countries are clearly the result of self-fulfilling crisis, which will ultimately force default even on a country like Italy, with devastating consequences for the euro area as a whole.”

For all his differences in tone, Mr. Draghi inherited the tensions that made Mr. Trichet’s tenure so difficult, including a mandate for the central bank that did not anticipate the crisis now threatening the European and global economies. He faces, as Mr. Trichet did, resolute opposition from Germany to any expansion of the bank’s writ beyond a single-minded focus on price stability.

Mr. Draghi, in a speech to the European Parliament last week, hinted that the central bank would intervene more aggressively in bond markets to keep interest rates under control in countries like Italy and Spain, if euro zone leaders would exert more financial discipline over member nations. But it is not yet clear what he meant.

Would the central bank simply expand bond-buying modestly? Or would it cross the Rubicon and buy securities on a scale that would significantly enlarge the money supply? He did not say.

In any case, the reaction in Germany to Mr. Draghi’s remarks was swift. Jens Weidmann, the president of the German central bank, said he remained stalwartly opposed to more bond market intervention, which he said he regarded as an illegal transfer of debts from one country to another. Mr. Draghi would risk straining the unity of the euro zone if he radically stepped up European Central Bank purchases of government bonds over the objections of Germany, the European Union’s largest member.

Article source: http://feeds.nytimes.com/click.phdo?i=afcc7df3488f9daaacf86b1d60529597

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Acquisitions at Olympus Scrutinized

October 25, 2011 by Leave a Comment

TOKYO — Even as the F.B.I. in the United States investigates exorbitant advisory fees that the Japanese company Olympus paid to a firm with links to the Cayman Islands, a second set of deals is drawing scrutiny here in Japan.

These other deals, which caused Olympus to lose hundreds of millions of dollars, involved an enterprising ex-Nomura banker and his well-connected older brother, whose roles have not yet received much public attention.

The former banker, Nobumasa Yokoo, runs a consulting firm that Olympus hired to advise it on acquisitions. Among other deals, documents show, Mr. Yokoo directed hundreds of millions of Olympus’s dollars into buying three money-losing start-up companies — with which he himself had been involved as an investor or executive — only to have Olympus quickly write off most of their value.

His older brother, Akinobu Yokoo, headed an investment unit that steered Olympus’s money into various other companies — from e-commerce to Italian restaurants — that had little to do with the business of making medical imaging equipment and digital cameras. A write-down of those investments helped plunge Olympus into the red in the fiscal year that ended in March 2009.

It is unclear how the Yokoo brothers became so involved in Olympus’s acquisition strategy. But their roles are evident from an examination of publicly available company filings and reports by credit ratings companies, as well as financial documents provided by Olympus’s recently ousted chief executive, Michael Woodford.

Mr. Woodford contends that he was fired after confronting the company’s chairman and board over the three deals linked to the younger Yokoo brother as well as exorbitant fees paid over Olympus’s 2008 acquisition of the British medical equipment maker Gyrus after the Japanese financial magazine Facta raised questions about the purchases. In the turmoil since Mr. Woodford’s firing on Oct. 14, Olympus shares have lost almost half their value. The transactions involving the Yokoos are separate from the Gyrus acquisition, which is currently the subject of an investigation in the United States by the Federal Bureau of Investigation. Mr. Woodford on Monday night said he was in contact with the F.B.I., though he declined to elaborate.

Documents most clearly link the younger Yokoo brother with at least three of the companies he later advised Olympus to acquire between 2006 and 2008 for a total of $773 million. Those companies — Humalabo, a maker of face creams; News Chef, a manufacturer of microwavable cookware; and Altis, a medical waste recycler — were relatively new and had never made money, credit research reports show. Olympus wrote off three-quarters of that total investment within a year of completing the deals.

Olympus says it has done nothing wrong other than making some business bets that turned sour. Nobumasa Yokoo could not be located for questions, while Akinobu Yokoo’s current employer would not make him available for comment.

So far, Japanese authorities have not indicated they are investigating the deals involving Nobumasa Yokoo, and neither brother has been accused of any wrongdoing.

But investors are pressing Olympus for answers. In an Oct. 20 letter, Southeastern Asset Management, an American money manager, with a 5 percent stake, demanded full disclosure on the three acquisitions — including whether any parties related to Olympus were affiliated with their previous owners.

“The questions that have been raised cannot go unanswered,” Southeastern Asset Management wrote. Olympus said last week it would form an independent panel to investigate the acquisitions, in light of shareholder pressure.

Nobumasa Yokoo’s part of the story traces as far back as 1998, to his days at the Japanese financial powerhouse Nomura. According to company records at the time, Mr. Yokoo — who had also spent time on Wall Street at Wasserstein Perella — was head of Nomura’s prestigious Shinjuku Nomura Building branch. There, he dealt with some of the firm’s top clients, including Olympus.

But in June of that year, he and many others at the firm chose to leave after a scandal involving payoffs to Japan’s organized crime gangs led to resignations, and later arrests, of top executives. Mr. Yokoo was not implicated in the scandal. But he left, telling the Nikkei business daily at the time that he wished “to be able to cook the rice I live on.”

Shortly afterward, Mr. Yokoo founded Global Company, a management consulting firm, according to Global’s legal filings.

Article source: http://www.nytimes.com/2011/10/25/business/global/acquisitions-at-olympus-scrutinized.html?partner=rss&emc=rss

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Media Decoder Blog: Dow Jones European Executive Resigns

October 12, 2011 by Leave a Comment

3:47 p.m. | Updated The News Corporation, already grappling with the fallout from a phone-hacking scandal in Britain, has suffered another blow to its operations in Europe. The top European executive at Dow Jones Company, a unit of the News Corporation, resigned Tuesday after an internal inquiry revealed an agreement between The Wall Street Journal Europe’s circulation department and a Netherlands-based company that was featured in articles in the paper.

In an e-mail to his staff Andrew Langhoff, managing director of Dow Jones Company’s European, African and Middle East operations, and publisher of The Wall Street Journal Europe, said he would leave his post immediately. The announcement comes after revelations that two articles in The Wall Street Journal Europe’s Special Reports section were the result of a deal struck between the circulation department and the consulting firm Executive Learning Partnership, or ELP.

“Because the agreement could leave the impression that news coverage can be influenced by commercial relationships, as publisher with executive oversight, I believe that my resignation is now the most honorable course,” Mr. Langhoff said. In a separate statement Dow Jones said the publisher “has the ultimate responsibility for this matter.”

A clarification published on Wednesday explained to readers that a “now-expired agreement between the Circulation Department of The Wall Street Journal Europe and Executive Learning Partnership” prompted the two articles in the Special Reports section on Oct. 14, 2010, and March 14, 2011. The “reporting and writing were solely the responsibility of the News Department,” the clarification said. “However, any action that creates an impression that news coverage can be influenced by commercial interests is a breach of the ethical standards of Dow Jones Co.”

The Guardian reported Wednesday that Dow Jones’s European unit had struck additional deals with corporate sponsors in order to raise The Journal’s circulation figures in the European Union, Russia and Africa. Through Journal-sponsored seminars the company offered companies cheap subscriptions in bulk to distribute to students, according to the British newspaper.

In a statement on Wednesday, a Dow Jones spokesman said: “Dow Jones initiated the original investigation into the deals in question and the employees involved in late 2010. The circulation programs and the copies associated with ELP were legitimate and appropriate, and the agreement was shared with ABC UK [Audit Board of Circulation] before the deal was signed.”

“At this point, we no longer have relationships with the employees or third parties directly involved in these agreements, and we continue to believe that these deals were valid.”

Mr. Langhoff’s resignation came the same day that British lawmakers confirmed that Les Hinton, the former chief executive of Dow Jones Company and The Wall Street Journal’s publisher, would testify in a continuing investigation into allegations of phone-hacking at the company’s now shuttered British tabloid The News of the World.

A close friend and trusted aid of the chairman and chief executive, Rupert Murdoch, with nearly 50 years of experience at the News Corporation, Mr. Hinton resigned from his post in July. Before running Dow Jones Mr. Hinton oversaw the News Corporation’s British newspaper arm, News International, during the time that the hacking was said to have taken place. The scandal has led to the resignation and arrest of several top News Corporation executives.

Mr. Hinton previously testified before a British parliamentary committee in 2007 and 2009. At that time, he told the committee that hacking at The News of the World had not spread beyond one reporter. He will deliver his testimony via video conference on Oct. 24. Mr. Murdoch, his son James Murdoch and the former head of News International, Rebekah Brooks, have already testified.

In the last several years the News Corporation has invested heavily in the London-based Wall Street Journal Europe in a bid to displace its main competitor, The Financial Times. However, the European version of the paper has had a hard time gaining traction. It currently has a circulation of about 73,250.

Dow Jones said it was searching for a replacement. In the interim, Kelly Leach, senior vice president and head of strategy for Dow Jones, will oversee the region, the company said Wednesday.

Executive Learning Partnership could not be reached for comment.

Article source: http://mediadecoder.blogs.nytimes.com/2011/10/12/dow-jones-european-executive-resigns/?partner=rss&emc=rss

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Saudi Arabia Defies OPEC and Raises Oil Output

June 10, 2011 by Leave a Comment

The Saudi newspaper Al-Hayat reported on Friday that oil officials there had decided to increase production to 10 million barrels a day in July, from 9.3 million barrels, with most of the additional output going to China and other growing Asian economies.

Saudi oil officials did not comment on the report, but the fact that they did not deny an article that appeared in the tightly controlled Saudi press was taken by analysts as confirmation.

The price of a barrel of light sweet crude dropped by nearly $2.50 to below $99.43 a barrel in Friday trading, returning to the level that existed before the OPEC meeting in Vienna this week that ended in disarray, with delegates refusing to raise official production levels.

The Saudi move, which was not unexpected, shows that Saudi Arabia will try to counteract any shortages in the market arising from the turmoil sweeping through North Africa and Middle East.

The fighting in Libya has taken 1.3 million barrels off the world market, and the turmoil in Yemen and Syria has subtracted an additional 300,000 barrels.

“The Saudis are showing they can take unilateral action,” said Andrew Lipow, a former Amoco trader who is president of his own consulting firm. “It will show the markets that the Saudis are serious about tempering further increases in price.”

Saudi Arabia is by far the largest producer and exporter in the Organization of the Petroleum Exporting Countries, and is the only member that has considerable spare production capacity. That normally gives the country predominant power in OPEC.

But this year, tensions are running high between Saudi Arabia and Iran as they compete to influence political tides convulsing the region, particularly in Bahrain, where more than 1,000 Saudi troops are bolstering a Sunni monarchy against mostly Shiite protesters supported at least verbally by Iran.

Iran, which holds the revolving OPEC presidency this year, blocked Saudi efforts at the group’s meeting in Vienna to raise official production quotas. Since many countries including Iran already are exceeding the quotas, the failure to increase them was seen as largely a symbolic slap at Saudi Arabia.

Middle East and oil analysts viewed the Saudi decision Friday as a counterpunch directed at Iran, one that would ultimately show that Saudi Arabia remained the most powerful OPEC member whether it acted inside or outside the cartel.

“Saudi Arabia is meeting an Iranian challenge,” according to an article published online by the Dubai-based, Saudi-owned Al Arabiya news organization. “The kingdom signaled its intention to confront Iran and meet potential shortages in supply.”

But there is only so much Saudi Arabia can do to satisfy a tightening world market. The country has an estimated spare production capacity of 2.5 million to 3 million barrels a day, a thin cushion especially if violence spreads in the Middle East and with oil consumption growing through much of the developing world.

China alone imported 876,000 more barrels a day this May than in the same month last year, according to Barclays Capital.

In its monthly report, OPEC estimated on Friday that global demand would rise by 2.5 million barrels a day in the second half of the year. With demand growing and production rising by a mere 200,000 barrels a day among non-OPEC producers, the report predicted there would be “much higher demand for OPEC crude, reaching a level higher than current OPEC production and implying a draw in inventories.”

OPEC members are currently producing 28.8 million barrels a day, about 1 million barrels a day below what world markets will require in the second half of the year, according to Jeff Dietert, an oil analyst at Simmons Company International, an investment bank.

“This incremental supply will help keep oil prices from rising more sharply,” Mr. Dietert said of the Saudi move, but he added that prices would probably still go up.

Article source: http://feeds.nytimes.com/click.phdo?i=6affdb927c1ac2f2db9b99dc19988e4e

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Crude Oil Falls Below $100 a Barrel

May 6, 2011 by Leave a Comment

After four months of surging higher, oil prices plummeted by almost 9 percent as traders worried that American drivers were beginning to balk at paying nearly $4 a gallon of gasoline. 

Energy specialists had a variety of explanations for the drop, including Thursday’s weak employment data and a strengthening dollar that tends to make all dollar-denominated commodities cheaper in dollars and more expensive for holders of other currencies.

 “Pop goes the bubble,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm.  “It seems unlikely you will see any tightening in the market in the coming months. The worst of the political threats have passed us.”

 Over the last four days, crude prices have declined by about 12 percent, the quickest drop so far this year. Similar declines have come for both light sweet crude, the United States benchmark, and Brent, the benchmark for Europe and Asia.

 Gasoline prices have not yet declined, though experts say they have probably peaked and will begin falling in the next few days — probably in time for the Memorial Day weekend. Prices at the pump increased by a fraction of a penny on Thursday, according to the AAA daily fuel gauge report, which reported that Americans paid an average of nearly $3.99 for a gallon of regular. That is still 10 cents higher than a week ago, 30 cents higher than a month ago, and more than $1 more than a year ago.

 For the day, crude oil for June delivery tumbled $9.44 a barrel, or 8.6 percent, to settle at $99.80 in New York trading.

Almost all commodities prices took a tumble on Thursday. Gold for June delivery dropped 2.2 percent, or $33.90, to $1,481.40 an ounce, while silver lost 8 percent or $3.148, to $36.24 an ounce. Other metals — including nickel, copper, palladium and platinum — all fell sharply. Coffee, corn, cotton, wheal and soybeans also dropped.

Equity markets were also lower on the day with the Dow Jones industrial average falling 1.1 percent while the broader Standard Poor’s 500-stock index lost 0.91 percent. The broader Nasdaq declined 0.48 percent.

Energy experts say that oil was particularly due for a price correction after rising more than 30 percent over the last year.

 The Energy Department reported that crude inventories last week had risen by 3.4 million barrels, largely because gasoline sales have eased. A variety of government and private surveys in recent days indicated that gasoline demand declined over last month by between 1.2 percent and 4 percent from the year before.

 Mastercard’s SpendingPulse, a report based on national retail sales and activity in MasterCard payments network, has reported six consecutive weeks of declines in gasoline consumption compared to last year. The declines have been shrinking in the last two weeks, however, and consumption for the week ending last Friday was only 0.6 percent lower than a year earlier.  

 Tom Kloza, the senior oil analyst at the Oil Price Information Service, said that while “most people are not changing their driving habits,” drivers in rural areas in the West and Southeast — where incomes tend to be lower and driving distances longer — are cutting back.

 “The driver can expect to see a slow erosion of prices,” Mr. Kloza said. “My expectation is what people pay this week will be the highest they pay for 90 days.”  

Mr. Kloza predicted that the price of a regular gallon of gasoline would drop about a quarter by Memorial Day to $3.75, and gasoline could drop as low as $3.50 a gallon later in the summer. Other analysts said oil prices would continue to decline in the coming days.

 “One day does not make a trend, but this correction was overdue,” said Addison Armstrong, senior director for market research at Tradition Energy, a consulting firm.  “The selling today was aided by an incredibly strong move in the dollar and the beginnings of some demand destruction. The fundamentals have not been strong enough to justify these levels.”  

The most immediate reason for the oil price spike since January — the turmoil in North Africa and the Middle East — continues to threaten oil supplies. Libya, an OPEC producer that provides high-quality crude that is difficult to replace, remains virtually off the world market. However aside from Libya, unrest has so far not had a significant impact on oil production or deliveries through strategic ports and waterways.

Meanwhile Algeria, Saudi Arabia, Oman and other important producers have so far remained largely stable, despite fears that political instability could create trouble for their oil fields. OPEC’s intentions remain a question mark. Early in the Libya crisis, Saudi Arabia pledged to expand its production capacity to fill any gaps in the market. But in recent weeks the kingdom has actually decreased production, saying the world market is flush with supplies.

OPEC spokesmen have given few hints about where the cartel wants prices and production levels to go since the last meeting of the group in December. OPEC meets again June 8, but with tensions high between Saudi Arabia and Iran, oil experts wonder if OPEC members can come up with an acceptable consensus to alter current policies to either cut or add to world supplies.

Article source: http://feeds.nytimes.com/click.phdo?i=cbd22a8c6ed0930ee5fc257c32433578

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