July 13, 2020

Euro Watch: German Economy Shrank in Fourth Quarter

The Federal Statistical Office in Wiesbaden estimated that the German economy shrank about 0.5 percent in the final three months of 2012, compared with the previous three months. The decline was largely the result of sagging investment by German managers worried about the future of the euro zone.

And despite reassurances from economists that growth would bounce back quickly in Germany, the data underlined how closely the country’s fate remained tied to its ailing euro zone allies.

“This idea that Germany is a powerhouse dragging the rest of Europe along with it is a bit of a myth, to be honest,” said Philip Whyte, a senior research fellow at the Center for European Reform in London. “You have a very weak periphery, and a core which is not as strong as everyone seems to believe.”

Throughout the European debt crisis Germany has managed to float above the bad news, enjoying record employment, rock-bottom borrowing costs and export-led growth that kept chugging in spite of the cloud hanging over the euro zone. But Germany’s European partners are also among its biggest customers, leaving it vulnerable to the Continent-wide slowdown made worse by the very austerity policies championed by Chancellor Angela Merkel.

Portugal’s central bank on Tuesday cut its economic forecast for this year, saying the economy would contract more steeply than expected. France has probably missed its target for reducing the budget deficit, according to data published Tuesday, raising the prospects of deeper spending cuts and additional taxes. Meanwhile, elections pending in Italy next month have ground that country’s drive toward economic overhauls to a halt.

“The longer the euro crisis lasts, the more difficult the situation becomes for Germany,” said Stefan Kooths, an economist at the Kiel Institute for the World Economy. “We have always said Germany is not a Teflon economy.”

The German government is scheduled to release its report on the economy Wednesday and will forecast growth of 0.5 percent this year, the Handelsblatt newspaper reported, saying it had obtained a copy of the document. In the context of the euro zone as a whole, which is in recession with record unemployment, any growth is considered positive.

But most forecasts are based on the assumption that financial markets will remain calm. If anything were to shake investor confidence in the euro zone, like political turmoil in Italy or Greece, the weak growth rate would mean that Germany would not have much of a cushion against recession.

France is en route to missing its deficit reduction target this year, according to preliminary data released Tuesday by the French government. Although the government aimed for a deficit of 4.5 percent of gross domestic product, data for November suggest the shortfall will be 4.8 percent, ING Bank estimated.

That means the French president, François Hollande, would have to find an additional €5 billion, or $6.7 billion, in revenue to meet the 2013 budget target, and could risk another downgrade of the country’s credit rating.

The data also indicate the challenge of keeping France’s overall level of debt from rising beyond its current level, which is already above 90 percent of G.D.P.

“Today’s figures underline how difficult the task will remain for François Hollande to keep the debt below 100 percent of G.D.P. during his mandate, and France’s rank in the core of the euro zone,” Julien Manceaux, an economist at ING, wrote in a note.

German public finances contrast with those of France. Together, German federal, state and local governments recorded a budget surplus for the year equal to 0.1 percent of G.D.P, the statistical agency in Wiesbaden said. That is the first government surplus since 2007, and it creates leeway for Ms. Merkel to stimulate the economy with public spending if the downturn is worse than expected.

The fiscal strength in Germany underscores the inequities within the euro currency union. Already, the government has been expanding a program that encourages companies to cut worker hours rather than eliminate jobs. The so-called short work program uses government money to compensate employees for some of the wages they lose by putting in fewer hours.

Within the region, Germany has served as a crucial counterweight to the struggling economies of Southern Europe, and helped to stabilize the euro zone as a whole.

Article source: http://www.nytimes.com/2013/01/16/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

DealBook: 3 Unorthodox Ways to Solve Europe’s Debt Crisis

IN Europe, they don’t like to talk about Plan B’s.

As the European sovereign debt crisis enters its fourth year, the region’s policy makers are sticking with a familiar playbook. Their crisis response moves in fits and starts as compromises are struck between the most powerful countries in the euro zone. Then, aid is typically granted only if the recipients adopt policies that often lead to protracted economic pain.

Some fresh initiatives have recently occurred, like the European Central Bank’s commitment in September to stop government borrowing costs from rising too far. And Europe’s leaders talk about one day forming a fiscal and political union.

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For the most part, Europe has avoided radical solutions, and there are good reasons for the piecemeal approach. Adventurous policies could backfire badly. They could prompt even more economic pain, and open even wider rifts between the countries that make up the euro zone.

But a combination of fear and competing ideals may also be preventing Europe from thinking too far outside the box. Policy makers seem to bow to three sacrosanct objectives. First, no country can drop out of the euro zone. Second, everything must be done to avoid using write-downs to reduce government indebtedness. Third, any European country receiving aid must agree to tough terms, accepting austerity and a loss of national independence in the process.

“They still seem to be favoring the ad hoc measures, unfortunately,” said Raoul Ruparel, head of economic research at Open Europe, a research group that believes the European Union needs to be more transparent and accountable. “They are still short of some sort of big leap.”

EXPRESSING SOLIDARITY Anti-austerity advocates march in Athens.Yannis Behrakis/ReutersEXPRESSING SOLIDARITY Anti-austerity advocates march in Athens.

Yet Europe may eventually need to take more drastic action.

Most of the region’s economies show few signs of producing robust growth any time soon. This means unemployment in the euro zone — already at a record 11.7 percent — will remain high. If anything, the mistrust between Europe’s northern and southern countries is more intense than it was three years ago.

What follows are three plans that aren’t bound by the policy makers’ current orthodoxy. Right now, such ideas have little chance of being adopted by European leaders. But if the region doesn’t emerge from its slump, policy makers may need some bold solutions.

1. Tackling the Debt Problem

The first plan focuses on the crisis’s root cause, sovereign debt.

In the case of Greece, Europe’s leaders realized that the country’s debt could not be sustained. So Greek bonds have been written down and restructured.

European policy makers don’t want to do that for other countries, because it might prompt sell-offs in the region’s government bond markets and hurt the banks that hold sovereign debt.

As a result, potential candidates for a debt restructuring, like Portugal and Ireland, must try to bolster their economies while being weighed down with heavy debt burdens. The disadvantage of this approach is that private investors may simply stay away from these countries, weakening their economies indefinitely.

But one type of debt restructuring could be adapted to suit Europe’s situation. It is an approach championed by Lee C. Buchheit, a lawyer at Cleary Gottlieb Steen Hamilton, a New York law firm that has advised nations on debt restructurings. He acknowledges that big write-downs of sovereign debt could be too jarring and unpopular in Europe.

Instead, he says, a stressed country’s debt could be extended. For instance, under this plan, a 10-year government bond would not need to be paid back for, say, 30 years. And its interest rates could be substantially reduced, at the same time. Uruguay got this type of deal in 2003.

Stretching out the obligations would provide a long period in which troubled countries could right themselves, without the added stress of having to finance their debt. “Extending maturities long enough, at a sufficiently low coupon, is an alternative to inflicting a principal haircut on that debt stock.” Mr. Buchheit said.

Mr. Buchheit anticipates a potential hurdle to his plan. A large share of some countries’ debt is held by official lenders, like other governments. It is rare to amend the terms of official debt.

But Mr. Buchheit says there could be an advantage to applying the extension to official debt. It could increase the likelihood of private lenders returning to a country. “If the maturity date of all official sector debt was extended by 20 years, the market would know that it could lend for up to 19 years without fear of competing with official sector credits for payment,” Mr. Buchheit said.

If Europe got ambitious it could invite a wide range of countries to do debt extensions, including Italy, Belgium and Spain. The big economic obstacle is that the extended debt would initially have to be marked down, even if there were no actual haircuts to the debt’s principal.

This would hurt the holders of the government bonds and create financial instability. But that might soon be outweighed by the greater economic confidence created by the less oppressive debt load.

2. Printing Money

The second idea asserts that the European Central Bank should have more power to stimulate countries undergoing economic and financial stress.

In September, the region’s central bank did take a major step. The central bank’s president, Mario Draghi, said the bank would do “whatever it takes” to preserve the euro. To do that, it set up a new government bond-buying program, called outright monetary transactions. Just announcing the program helped drive up the prices of Italian and Spanish sovereign debt, making it easier for their governments to borrow,

But that effect may not last. Like other types of European aid, this program requires that the recipient nations agree to a strict set of conditions, which include economic and policies that are likely to create more austerity.

Such conditions present potential problems. They deter countries from taking the central bank’s support, which leaves a cloud of uncertainty hanging over their markets. And if a country’s government does agree to the conditions, the austerity can lead to more banking sector problems and even political instability.

Some analysts say the central bank should be unilaterally allowed to support unstressed countries without attaching strings to the program. “All the countries that might use this have already done austerity,” said Paul De Grauwe, a professor of European political economy at the London School of Economics.

Countries like Germany would object strongly to loosening the terms of any such program. But in reality such a step would merely make the central bank more like the Federal Reserve. For instance, the Fed hasn’t had to wait for Congress to pass certain bills before carrying out its own bond-buying programs.

3. Redrawing Boundaries

The third plan, from Hans-Olaf Henkel, a former German business leader, is the most radical in some ways. It would create two currency zones in Europe.

Northern countries like Germany and Holland would use one currency, while nations like Spain, Italy and France would belong to another. Once it traded, the southern euro would probably be worth less than the northern euro.

In such a situation, the southern countries would have undergone a currency devaluation. That could help correct some of the imbalances skewing Europe’s economy. Devaluations were the norm in the region before the euro, and often helped, says Mr. Henkel.

When a country’s currency falls in value, it increases the competitiveness of its economy. In particular, the country finds it easier to export. While the shot in the arm from a devaluation is temporary, it can create a useful window of time in which countries can institute necessary structural reforms.

Mr. Henkel says the plan could hold back the economies of northern euro countries, because their new currency would effectively be more expensive than the current euro. “It would hurt us,” he said. “But that would be our contribution to the competitiveness of the south.” The plan also envisions countries being able to move from one currency to the other.

Most European Union officials would vehemently oppose the two-currency approach. It would probably end their vision of a unified Europe.

But Mr. Henkel says Europe is already deeply divided. He said, “With this idea, we’d at least have a divide that is recognized.”

Article source: http://dealbook.nytimes.com/2012/12/11/3-unorthodox-ways-to-solve-europes-debt-crisis/?partner=rss&emc=rss

DealBook: UBS to Cut 10,000 Jobs in Major Overhaul

UBS headquarters in Zurich.Fabrice Coffrini/Agence France-Presse — Getty ImagesUBS headquarters in Zurich.

LONDON – The Swiss bank UBS announced plans on Tuesday to eliminate up to 10,000 jobs and cut costs in a major overhaul that dragged down earnings.

In the latest quarter, UBS posted a loss of 2.2 billion Swiss francs ($2.3 billion) for the three months ended Sept. 30, citing restructuring costs and charges connected to its own debt. The bank recorded a net profit of 1 billion francs in the period a year earlier.

Like many European banks, UBS is dealing with the effects of the sovereign debt crisis and the sluggish European economy. With profits eroding, UBS is moving to reduce its riskier operations and focus on its profitable wealth management group.

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The investment bank will bear the brunt of the cuts. Over the next two years, UBS said it would reduce its work force by as much as 16 percent, bringing the total employees worldwide to 54,000 employees. Last year, the bank announced a separate batch of 3,500 job cuts.

“This decision has been a difficult one,” the bank’s chief executive, Sergio P. Ermotti, said in a statement. “Some reductions will result from natural attrition, and we will take whatever measures we can to mitigate the overall effect.”

The layoffs are part of a broader plan to cut costs at UBS. The latest moves will help reduce expenses by 3.4 billions Swiss francs by 2015. Added to the bank’s previous efforts, UBS expects annual costs savings of 5.4 billion francs over that period.

The bank, which is based in Zurich, said the cost savings would come primarily from its diminished investment banking operations, where the bank planned to eliminate most of its fixed-income businesses because they had become unprofitable. The smaller investment banking unit would focus on advisory services, research, equities, foreign exchange and precious metals, UBS said in a statement.

Andrea Orcel, who joined UBS last year from Bank of America, will lead the smaller investment banking division, while Carsten Kengeter, the current co-head of the unit, will step down from the executive board to oversee the sale of the bank’s unprofitable investment banking businesses and financial positions.

By shrinking the investment bank, UBS should help improve its capital position. The changes will bring the firm’s so-called risk-weighted assets to below 200 billion francs by 2017, compared with the current level of more than 250 billion francs, reducing the bank’s exposure to riskier financial assets. Risk-weighted assets in the investment banking division are to decline 23 percent, to around 70 billion francs.

UBS said its common equity Tier 1 ratio, a measure of a firm’s ability to weather financial shocks, stood at 9.3 percent under the so-called Basel III rules. The bank plans to raise that figure to 11.5 percent by next year.

“We are now able to take further decisive action to transform the firm and position it for future success,” Mr. Ermotti said.

But the restructuring efforts have weighed heavily on the bank’s results. In the latest quarter, UBS said it had incurred a loss of 3.1 billion francs related to its investment banking business, as well as a loss of 863 million francs connected to charges on the value of its debt. The firm expects to book a charge of 500 million francs in the fourth quarter, which would lead to a net loss for that period.

The bank faces other headwinds.

In the latest quarter, pretax profit for its wealth management unit fell 32 percent, to 600 million francs, compared with the period a year earlier. The loss in its investment banking unit soared to 2.9 billion francs from a loss of 650 million francs in the third quarter of 2011, while pretax profit in its retail and corporate unit fell 40 percent, to 409 million francs.

UBS warned that clients might remain cautious in the face of Europe’s debt crisis and the volatility in global financial markets.

“Failure to make progress on these key issues would make further improvements in prevailing market conditions unlikely and would thus generate headwinds for revenue growth, net interest margins and net new money,” UBS said.

Article source: http://dealbook.nytimes.com/2012/10/30/ubs-to-cut-10000-jobs-in-major-overhaul/?partner=rss&emc=rss

DealBook: Bets on European Bonds Paying Off for Funds

When fear gripped the European markets in April, the money manager Robert Tipp decided to buy more Portuguese government bonds. He figured that European officials wouldn’t let the country turn into another Greece.

“They wanted to have some success stories, and Portugal was one they wanted to keep in,” said Mr. Tipp, who runs the Prudential Global Total Return Fund.

Such contrarian bets are looking pretty smart right now. Last week, the European Central Bank pledged to buy huge amounts of the region’s sovereign debt, potentially putting a floor under the prices of Italian, Portuguese, Spanish and Irish bonds.

But bond funds may have to brace for a bumpy ride. Despite the progress, uncertainty looms.

“You always have to be concerned with the exit strategy,” Mr. Tipp said.

With the extraordinary level of support from the central bank, mutual fund managers are reaping big returns on their purchases. Since April, Portuguese bonds are up more than 32 percent, making Mr. Tipp’s fund one of the top performers this year. The gains are equally strong for Irish government bonds, and the debt of Italy and Spain has rallied in recent weeks as well.

“This is a new chapter in monetary policy and a new chapter in the debt crisis,” said Scott A. Mather, head of global portfolio management at the Pacific Investment Management Company, known as Pimco. “It doesn’t mean all the problems are solved, but this is a more effective and powerful program.”

Portugal's construction sector is on the verge of collapse and in need of an emergency program to help restructure debt, the country's biggest industry group said.Mario Proenca/Bloomberg NewsPortugal’s construction sector is on the “verge of collapse” and in need of an emergency program to help restructure debt, the country’s biggest industry group said.

Pimco funds went on a buying spree of Italian government bonds this spring and summer. Italy was making progress with important reforms, Mr. Mather said, but the anticipation of central bank support was also decisive in the manager’s decision to buy Italian bonds. “That was already being hinted at.”

In some ways, it’s hard to see how the mutual funds can lose. The European Central Bank’s recent move is intended to prevent the crisis from worsening. Without it, Europe could slip back into a vicious cycle where plunging government bond prices damage the financial system and the wider economy.

Even so, the potential payoffs are far from guaranteed.

Mutual funds hold bonds that don’t pay back investors for many years. If a large investor tries to dump its holdings in a small market, the sales could drive down the prices of the country’s bonds.

The eventual returns will also depend on a country’s willingness to stick to the reform plan. The central bank’s bond-buying program will have strings attached to pressure countries to follow the measures. But some governments may balk at adopting them, or voters, tired of austerity, may remove pro-reform governments.

Consider the situation of Franklin Templeton, the big mutual fund manager. It owned about $7.8 billion of Irish government bonds at the end of June, according to an analysis of Bloomberg data, which amounted to roughly 7 percent of the country’s total government bonds.

So far, the funds managed by Franklin Templeton have made nice gains on their Irish government bonds. In euros, the bonds have returned 21.2 percent this year, counting both price appreciation and interest payments.

But it might be hard to sell the bonds in a hurry without depressing prices. The debt could also suffer if Ireland struggled to meet economic and political goals.

Michael Hasenstab, who manages the Templeton Global Bond fund, which owns large amounts of the Irish bonds, has written publicly that he believes the country can tough it out. Lisa Gallegos, a spokeswoman for Franklin Templeton, said the fund had a “well-diversified and large asset base” that would help insulate “against the need to sell positions before their targets have been achieved.”

Then there are the outliers, the countries that may not benefit from the central bank’s aid. For example, Hungary is in the European Union, but it does not use the euro currency. As a result, officials may have less incentive to bail out the country if its economic problems worsen, especially since Hungary’s government has pursued policies that have unsettled the union and the International Monetary Fund.

Hungarian government bond prices are up 15 percent this year, measured in the country’s currency. But the debt could plummet if it appears that the government is unable to reach an agreement with the I.M.F. for a big credit line.

“Up until recently I was kind of certain they’d get a program, but now I’m quite a bit less optimistic,” said Daniel Hewitt, an analyst with Barclays.

Other analysts believe the Hungarian government is drawing out negotiations so it can appear tough to the country’s electorate. After a while, they say, it will ultimately reach an agreement and Hungary will get its loan program. That could ignite a rally in Hungary’s bonds and its currency, aiding the bondholders.

Along the way to a potential resolution, the tensions could create problems for bond fund managers. Legg Mason and Oppenheimer Funds both owned small amounts of Hungarian bonds at the end of June, according to Bloomberg. Franklin Templeton dominates the market. It alone held some $8.8 billion of Hungarian government bonds this summer, roughly 12 percent of the country’s bonds.

If nothing else, bond fund managers need to be prepared for the unknown. The sovereign debt crisis has proved an unpredictable beast in the last two years. Just when officials think they have it under control, another problem emerges. The resulting volatility can be painful for the managers.

Mr. Tipp would know. While he has done well on recent purchases of Portuguese bonds, his earlier positions suffered. At the market nadir in January, he sold out of some Portuguese bonds that mature in 2037. Asked whether he took a loss on that investment, he said, “undoubtedly.”

Article source: http://dealbook.nytimes.com/2012/09/10/bets-on-european-bonds-paying-off-for-funds/?partner=rss&emc=rss

DealBook: Iran Inquiry Is Abrupt Reversal for Standard Chartered

Jf/Bloomberg NewsPeter Sands, chief executive of Standard Chartered.

6:07 p.m. | Updated

LONDON — Long a golden child among global banks, the British bank Standard Chartered now wears a somewhat tarnished crown.

The bank’s investors were rattled by accusations that it had schemed with the Iranian government to hide $250 billion in money transfers over nearly a decade. On Tuesday, shares of Standard Chartered fell as much as 25 percent — their sharpest one-day decline in more than two decades — before recovering to end London trading down 16 percent.

The accusations upset a widely held view of Standard Chartered as a banking success story, thanks to its large operations in emerging markets in Asia and elsewhere.

Unlike other European financial institutions hit by the Continent’s debt crisis, Standard Chartered, a London-based bank with roots that date to 1853, continued to report rising profits. Last week, the bank said its net profit for the first half of the year rose 11.3 percent, to $2.86 billion. Around 90 percent of the profit came from developing economies.

Central to Standard Chartered’s business is its ability to facilitate trade between emerging economies and developed countries by clearing transactions in New York City. That ability came under threat on Monday when New York State’s top banking regulator, the Department of Financial Services, said it had grounds to revoke the bank’s license in the state. The bank must appear before the state’s banking superintendent on Aug. 15 to explain why that should not happen.

Standard Chartered’s New York office, which has been licensed since 1976, primarily operates a dollar-clearing business, moving roughly $190 billion a day. It also does corporate lending, trade finance, foreign exchange trading and wire transfer services, among other business.

The regulator has accused the bank of masking more than 60,000 transactions for Iranian banks and corporations, pocketing millions of dollars in fees.

Senior management at the bank used the New York branch “as a front for prohibited dealings with Iran — dealings that indisputably helped sustain a global threat to peace and stability,” the regulator said.

The accusations cast a shadow over Peter Sands, the bank’s chief executive, who was the company’s financial director from 2002 to 2006. Mr. Sands had been mentioned as a potential future head of the rival British bank Barclays.

Standard Chartered has gone on the defensive, rejecting the New York regulator’s portrayal of the facts. The bank said that 99.9 percent of the transactions related to Iran complied with regulations.

The bank’s “review of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the U.S. government as a terrorist entity or organization,” it said in a statement.

Penalties connected to the money laundering case may cost Standard Chartered around $1.5 billion, according to Cormac Leech, a banking analyst with Liberum Capital in London.

Mr. Leech said the firm also could lose an additional $1 billion from a cutback in business operations connected to Iran, as well as $3 billion in market value if some of the bank’s senior executives, including Mr. Sands, are forced to resign.

However, analysts said on Tuesday that loss of the bank’s ability to operate in the United States was unlikely because authorities had focused their attention on monetary fines.

Still, the damage to Standard Chartered’s reputation and the continuing investigations into the bank’s activities with Libya, Myanmar and Sudan may weigh on earnings in the short term, according to Chintan Joshi, a banking analyst with Nomura in London.

The money laundering accusations come at a broadly difficult time for British banks.

Barclays agreed to a $450 million settlement with American and British officials in June after some of its traders and senior executives were found to have altered the London interbank offered rate, or Libor, for financial gain.

HSBC apologized last month for not cracking down soon enough on money laundering activities in the United States. David Bagley, the head of compliance for HSBC since 2002, resigned last month because of the scandal.

Analysts said Standard Chartered’s emphasis on emerging markets would help to limit the long-term effects of the allegations.

Last week, the bank said it planned to open more branches in countries with fast-growing economies, like China and India, as it exploits a decline in its competitors’ trading activity. Standard Chartered also reported double-digit growth in its wholesale and consumer banking divisions during the first six months of the year.

Before the money laundering accusations were made public, shares of the bank outperformed other financial institutions. Over the last 12 months, Standard Chartered’s stock rose 10.4 percent, compared with a 12.8 percent drop in the Stoxx Europe 600 Banks index.

Article source: http://dealbook.nytimes.com/2012/08/07/shares-of-standard-chartered-slide-amid-money-laundering-inquiry/?partner=rss&emc=rss

DealBook: Second-Quarter Profit Fell 42 Percent at Société Générale

Séverin Cabannes, left, and Frédéric Oudéa of Société Générale. The bank said it was hurt by slowing growth in Europe.Jacques Brinon/Associated PressSéverin Cabannes, left, and Frédéric Oudéa of Société Générale. The bank said it was hurt by slowing growth in Europe.

PARIS — Société Générale, the big French bank, reported second-quarter results on Wednesday that fell short of analysts’ estimates as it struggled against a downturn in Europe.

Net profit in the second quarter fell 42 percent, to 433 million euros ($530 million), compared with 747 million euros in the period a year earlier. Analysts were expecting the bank to earn 764 million euros in the latest quarter. The bank also said it was making progress in bolstering its capital cushion.

“Despite a challenging environment, the Société Générale Group has progressed, quarter after quarter, with its transformation strategy, in line with its objectives,” Frédéric Oudéa, the bank’s chief executive, said in a statement.

Société Générale took a series of write-downs related to past acquisitions, including 250 million euros on Rosbank in Russia and 200 million euros on TCW Group, a fund firm in Los Angeles. Analysts are waiting to see whether Société Générale sells TCW as part of a broader plan to raise money.

Like the results of its peers, the report raised concerns that financial weakness could persist as the debt crisis drags on.

The bank said growth in Europe slowed significantly in the second quarter, crimping some of its profitability from retail operations. Its international retail banking revenue fell nearly 2 percent, to 1.24 billion euros.

The bank signaled that it also continued to face financial challenges with its Greek subsidiary, Geniki Bank. In a statement, Société Générale said its operations in Central and Eastern Europe “excluding Greece” did well, but it did not provide figures for the Greek unit. Société Générale has recently cut financing to Geniki to a minimum as the Greek economy shrinks.

French banks have been reducing their exposure to Greece by selling much of the nation’s sovereign debt, and those with subsidiaries there are scrambling to figure out how to cope with the worsening situation. One of Société Générale’s French rivals, Crédit Agricole, said recently that it was in talks to sell its Greek subsidiary, Emporiki Bank, as soon as possible.

The debt crisis is also wreaking havoc on the investment banking business. The bank said customers remain reticent as policy makers struggle to find “durable solutions to the sovereign debt crisis.” Corporate and investment banking revenue fell more than 30 percent, to 1.22 billion euros.

Société Générale also noted deteriorating conditions in France, which has the largest economy in the euro zone after Germany’s. So far, France has avoided the worst of the debt crisis that first engulfed Greece and now Spain. But the economy has been softening, and the government’s share of the bill for cleaning up the crisis is likely to grow.

The bank’s French retail operations remained flat at 2.04 billion euros.

Shares of Société Générale rose 0.5 percent in Paris, to 18.11 euros.

Article source: http://dealbook.nytimes.com/2012/08/01/societe-generale-profit-falls-42-on-weak-economy/?partner=rss&emc=rss

DealBook: BNP Paribas Profit Falls 13% in Second Quarter

A BNP Paribas branch in Paris.Chris Ratcliffe/Bloomberg NewsA BNP Paribas branch in Paris.

PARIS — Europe’s deepening debt crisis curbed trading revenue at the French bank BNP Paribas, pushing its net profit down by 13 percent in the second quarter compared to the same period last year.

Net income in the three months through June 30 fell to 1.85 billion euros, or $2.27 billion, from 2.13 billion euros a year ago, France’s largest bank said on Thursday.

Revenue from its advisory and capital markets operations, a mainstay of its business, slumped 33 percent to 1.2 million euros.

“Against a general background of crisis in the capital markets and strong volatility, there was less demand from clients and the businesses were managed cautiously,” the bank said.

At the same time, BNP Paribas said it had also significantly shored up the amount of capital regulators are requiring it and other financial institutions to hold in reserve against a worsening of the crisis.

The bank said it had completed 90 percent of a restructuring plan designed to bring in funds to lift its capital cushion to 9 percent by the end of the year to conform with new regulations.

Since the middle of last year, BNP Paribas, like other European banks, has moved to reduce its exposure to the crisis by shedding large amount of sovereign bond holdings from Greece and other troubled countries to help protect its capital levels. The bank took a write-down of 3.2 billion euros on Greek government debt in 2011.

BNP Paribas said its risk-related costs had fallen more than 20 percent in the first six months of 2012 compared to a year ago, to 1.8 million euros. That included a hit of 534 million euros it took in marking down the value of its Greek bond holdings in the second quarter of 2011.

The French bank said it continued lending into economies where it operates despite the difficult economic environment. As consumers reduced spending and stashed more money in their bank accounts, BNP Paribas said its commercial business was marked in particular by a growth trend in deposits across all its networks.

Revenue was stable at 3.96 billion euros compared to the second quarter of 2011, while operating expenses fell 1.2 percent from a year earlier.

In early morning trading in Paris, shares in the French bank rose 1.6 percent.

Article source: http://dealbook.nytimes.com/2012/08/02/bnp-paribas-profit-falls-13-in-second-quarter/?partner=rss&emc=rss

Euro Watch: Central Bank Chief Says He’s Set to Step in After Greek Vote

“The Eurosystem will continue to supply liquidity to solvent banks where needed,” Mario Draghi told a group of economists in Frankfurt.

His remarks were a reminder that European officials are increasingly intent on putting in place long-term structures that would make emergencies like Greece and Spain less likely to occur in the future.

Central banks in non-euro countries are also making contingency plans and reinforcing their defenses against spillover from the crisis in currency zone.

In Tokyo, the Bank of Japan governor, Masaaki Shirakawa, said the central bank was “prepared to take all possible measures to ensure the financial system does not come under threat,” calling the European debt crisis “the biggest risk factor we are paying attention to.”

“Whether or not we can maintain the stability of financial markets is critical,” Mr. Shirakawa said. “There is no silver bullet, but if concerns arise about liquidity, we are prepared to inject that liquidity.”

The British government and central bank announced plans Thursday for emergency measures to help increase lending to businesses hurt by the contraction of the credit market. George Osborne, the chancellor of the Exchequer, saying: “We are not powerless in the face of the euro zone debt storm,” he said.

In Bern, the Swiss central bank said it was prepared to spend unlimited amounts of money to hold down the value of the Swiss franc if the euro came under further pressure.

European leaders will hold a video conference call Friday to discuss the global economy and the crisis in the euro region in preparation for the Group of 20 meeting that starts Monday in Los Cabos, Mexico, a spokesman for the British government said.

Mr. Draghi also said Friday that a plan to remake the euro zone, which he is drawing up along with Herman van Rompuy, president of the European Council, and José Manuel Barroso, president of the European Commission, would be made public “in a matter of days” so that it can be considered by European leaders at a summit at the end of the month.

Mr. Draghi did not provide details. But based on public statements he and Mr. Barroso have made, it is likely that a central feature of the plan will be a so-called banking union in which euro zone countries would form a common insurance fund for bank deposits, to prevent bank runs.

The plan would also propose establishing a more powerful common regulator for the biggest banks, which are currently supervised primarily at the national level. It is possible that the E.C.B. would serve as that supervisor. And euro zone nations would establish a fund to close down terminally ill banks, to minimize the cost to taxpayers.

The plan is also likely to reflect Mr. Draghi’s call Friday for countries to take steps to designed to improve economic growth. They should dismantle regulations that make it difficult for companies to hire and fire workers, and remove bureaucratic procedures that make it difficult to start businesses. He also called for countries to get rid of regulations that protect businesses from competition or make it difficult for small businesses to offer services across borders.

A person familiar with the discussions among policymakers, but not authorized to speak publicly, said some of the measures could be adopted at a European Union summit at the end of the month, while leaders would agree on a timetable to implement the rest.

Although it would take some time to implement such a plan, Mr. Draghi said the existence of a credible roadmap would reassure investors and European citizens.

“Markets and people need to be reassured we are still traveling together,” he said.

The euro crisis headlines have been dominated this week by the market’s apparent rejection of Spain’s $125 billion banking sector bailout, but Greece’s moment of truth has been looming.

Greeks return to the polls on Sunday after a May election failed to produce a workable coalition. The country’s fractured political map could again produce a struggle among parties led by the conservative New Democracy, the anti-bailout Syriza and socialist Pasok to muster sufficient allies to form a majority in Parliament.

Article source: http://www.nytimes.com/2012/06/16/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Europe Debt Crisis Weighs on Siemens

Profit in the last three months of 2011, which is Siemens’ fiscal first quarter, fell 17 percent to €1.5 billion, or about $1.95 billion, compared to a year earlier. Sales rose 2 percent to €17.9 billion, but a 5 percent decline in new orders, to €19.8 billion, augured poorly for future quarters.

“The uncertainties of the ongoing debt crisis have left their mark on the real economy,” Peter Löscher, the chief executive of Siemens, said in a statement. He said he expects a recovery in the second half of the year but “we must work hard to achieve our goals.”

The company, based in Munich, reported lower profit in all its major business areas, including a 36 percent decline in its energy unit, which Siemens attributed to delays in major power transmission projects and a loss in the division that makes wind turbines. The energy unit is the largest part of the company by sales.

The German economy has so far weathered the European debt crisis relatively unscathed, thanks to large exporters like Siemens that have profited from business in China and other countries where growth remains strong.

But the figures released Tuesday suggested that business from some emerging markets could be slowing. That would be a bad sign not only for Siemens but for other makers of industrial products which, along with automobiles, account for most of German exports.

Orders from Asia and Australia declined 9 percent in the quarter, Siemens said, and 3 percent for emerging markets overall. Orders from the United States rose 6 percent, the company said.

However, there were also other signs Tuesday that the looming slowdown in the European economy, and especially Germany, may not be as bad as feared.

A survey of purchasing managers by the data provider Markit Economics showed an unexpected rise in services and manufacturing output in January, led by Germany. Analysts had expected a decline.

The data “adds to tentative evidence suggesting that the downturn in the euro zone may be bottoming out,” the Dutch bank ING said in a note to clients. But the analysts added, “the underlying economic situation remains very fragile.”

Article source: http://www.nytimes.com/2012/01/25/business/global/europe-debt-crisis-weighs-on-siemens.html?partner=rss&emc=rss

Off the Charts: In Debt-Laden Europe, New Cars Stay in Showroom

Total new registrations of passenger cars in the European Union fell by nearly 2 percent in 2011, the European Automobile Manufacturers’ Association reported this week. It was the fourth consecutive year of declines.

The sales performance varied widely from country to country, reflecting the diverging economic fortunes on the Continent. New-car registrations set records in Belgium and Austria. German registrations were up nearly 9 percent, although they remain below their levels before the credit crisis.

But in troubled Greece, fewer than 100,000 new passenger cars were registered. That had not happened since at least 1990. In 2007, nearly 280,000 new cars were registered.

In Belgium, more than 50 new cars were registered for every 1,000 people. In Greece, the number was under nine. In Hungary, where new car registrations are less than half their level of four years ago, the figure is about half the Greek level.

New-car registrations in Europe provide an economic barometer of national conditions because no one really needs a new car. A family may need a replacement vehicle, but a used car can be purchased. Within the Common Market, it is easy to fill demand for used cars in struggling countries with trade-ins from customers in more prosperous economies.

The accompanying charts show the trends. Levels of wealth in the European Union were never close to equal, but the disparities have grown rapidly since the credit crisis began. Signs of a recovery in automobile demand in late 2009 vanished as the sovereign debt crisis emerged, first in Greece and then in other countries.

Over all, the 13.1 million cars registered in 25 members of the European Union was the smallest figure for any 12 months since data for the enlarged union began to be calculated in 2003. For the first 15 members of the European Union, data goes back much further. This was the lowest year for them since 1997, a year before the euro became the common currency for many countries.

The charts show the rapid decline in new-car registrations in the countries most hurt in the sovereign debt crisis. In 2007, Spain had 36 registrations per 1,000 residents, well above the European Union average of nearly 32. In 2011, the Spanish figure had dropped by half, and it was well below the European Union average. Ireland fell just as rapidly, although registrations did begin to pick up in 2011.

The figures reflect registrations of new passenger cars, and do not include small trucks. Figures for the United States, which do include such vehicles, are not directly comparable. But they showed increases in both 2010 and 2011.

All told, the countries in the European Union registered 15.8 percent fewer new passenger cars in 2011 than they had registered in 2007, the last full year before the credit crisis. The figure was up in seven countries, but down by 50 percent or more in eight nations.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://feeds.nytimes.com/click.phdo?i=05964fc28f615a2ba3f31203d9d12be3