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European Finance Ministers Near Deal on Aid to Banks

October 22, 2011 by Leave a Comment

On the second day of talks here, the ministers also said that holders of Greek bonds would have to take much bigger losses than the 21 percent originally agreed to in July, though one bank official said that despite the ministers’ consensus, no agreement was near on write-offs that could reach as high as 60 percent.

The ministers also reported that France and Germany had made progress on a third issue, how to increase the firepower of a rescue fund for the euro zone. Germany’s chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, along with other European leaders, continued negotiating later Saturday.

“I believe that now we have reached a more realistic view of the situation in Greece and that we will provide the necessary means to be able to protect the euro,” Mrs. Merkel said as she arrived at a gathering of European center-right leaders outside Brussels. The Sunday meeting would not bring final decisions, she said, adding that the leaders would take definitive steps at another scheduled meeting on Wednesday.

Despite resistance from Spain and Italy, agreement seemed close on a plan worth around 100 billion euros, or $138 billion, to recapitalize European banks. The measure is intended to help banks better withstand turmoil in the markets.

“We have laid down foundations for an agreement on the banking side,” said Anders Borg, Sweden’s finance minister.

The talks on Saturday established an improved tone over the past week, when differences between Mrs. Merkel and Mr. Sarkozy burst into the open.

But the challenge remains for leaders to construct a comprehensive and credible package of measures by Wednesday’s meeting.

Ministers were on track to ask bankers to write off around half of the value of their Greek bond holdings after a report by international lenders suggested that the economy in Greece had deteriorated so significantly that the 60 percent haircut was needed.

“We have agreed yesterday that we have to have a significant increase in the banks’ contribution,” Jean-Claude Juncker of Luxembourg, who is the head of the euro group of finance ministers, said on Saturday. He did not offer a specific figure.

But Charles Dallara, the managing director of the Institute of International Finance, which has been negotiating on behalf of the banks, said the two sides were “nowhere near a deal,” The Associated Press reported.

One remaining worry is that Greece shows few signs of returning to economic growth and, though he declined to say how much in losses banks would be willing to accept, Mr. Dallara added, “We would be open to an approach that involves additional efforts from everyone.”

Greece’s deteriorating economic outlook was the subject of intense discussions among the ministers with Germany and the Netherlands pressing their case that private investors needed to take bigger losses.

According to the international lenders’ report, a 60 percent loss for bondholders would be needed to bring Greece’s debt below 110 percent of gross domestic product by 2020. That represents a huge increase from the 21 percent losses private investors agreed to accept only three months ago.

Without action, Greece’s financing needs could amount to roughly 252 billion euros through 2020, the document said, while under a worse outlook, the needs, including rollover of existing debt, could approach 450 billion euros. The emerging comprehensive package is highly complex and involves painstaking negotiations around issues that are often linked. For example, the deal to strengthen European banks is seen as vital to protect the banks from the fallout from write-downs on Greek bonds.

The ministers agreed on Friday to release the majority of loans worth 8 billion euros to prevent Greece from defaulting. The International Monetary Fund could contribute about 2 billion euros to that fund.

The biggest area of difference between France and Germany seemed to be narrowing after France appeared to be giving ground on how to bolster the euro rescue fund.

Mrs. Merkel had firmly opposed the French suggestion that the fund, the European Financial Stability Facility, should get a banking license, which would enable it to borrow from the European Central Bank.

France’s finance minister, François Baroin, said on Friday that the issue was “not a definitive point of discussion for us,” adding that “what matters is what works.”

On Saturday, the Dutch finance minister, Jan Kees de Jager, said that use of the central bank was “no longer an option” but that two options were under consideration.

Both options involve plans to insure against a portion of losses on Italian or Spanish bonds. Under one version this insurance would be offered by the bailout fund.

The other would form an agency to buy bonds, perhaps attracting new investors like sovereign wealth funds. This would buy bonds on the primary and secondary markets using insurance offered by the bailout fund, said one official briefed on discussions but not authorized to speak publicly.

One advantage of this plan might be that it could force clearer conditions for reform on countries whose bonds are bought.

Article source: http://www.nytimes.com/2011/10/23/business/global/european-finance-ministers-shaping-greek-rescue-and-effort-to-aid-banks.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: British Panel Urges Sweeping Banking Overhaul

September 13, 2011 by Leave a Comment

Banks at Canary Wharf in London.Andy Rain, via European Pressphoto AgencyBanks at Canary Wharf in London.

6:47 p.m. | Updated

LONDON — As banks across Europe came under renewed pressure, Britain’s government proposed a radical industry makeover on Monday that could cost the financial firms as much as £7 billion ($11 billion).

On Monday, the government-appointed Independent Commission on Banking called for banks to separate their deposit-taking operations from investment banking services, stopping short of completely breaking up the firms. The panel plans to give banks until 2019 to adapt to new rules intended to make the financial sector more stable, saying an “extended implementation period would be appropriate.”

George Osborne, the chancellor of the Exchequer, said the commission, led by a former Bank of England chief economist, John Vickers, “has done an excellent job.”

“John Vickers himself has set out a timetable and I intend to stick to that timetable,” Mr. Osborne said.

John Vickers, a former Bank of England chief economist, headed a 14-month review of British banks.Leon Neal/Agence France-Presse — Getty ImagesJohn Vickers, a former Bank of England chief economist, headed a 14-month review of British banks.

Jon Pain, a partner at KPMG, called the proposals “game changing” and said they were “a return to a more simple 1940s and ’50s style of retail banking where it is perceived as more of a basic utility.”

The proposals, which go beyond banking reforms in the United States and elsewhere, are expected to lead to extensive lobbying from the banks before any final decisions on new rules are made by the British government.

Under the proposal, British banks would have to separate their businesses taking deposits and lending to consumers and businesses from groups involved in stocks, derivatives and equity and debt underwriting. The two subsidiaries would be separately capitalized, have different boards, different cultures and report results as if they were two different companies, the commission report said. Capital from the investment banking unit could be injected into the retail bank if needed, and the two businesses could share customers and expertise, the commission said.

Some banking executives have argued that the changes would hurt investors, the economy and industry competitions.

Banks with large investment banking operations, including Barclays and Royal Bank of Scotland, may be most affected by the new rules, some analysts have said. The separation could drive up their funding costs if investors and lenders perceived them as riskier. Spokesmen for the two banks declined to comment.

British banking stocks fell on Monday, with Barclays down 1.6 percent and Royal Bank of Scotland more than 3 percent, as markets were unnerved by the nagging prospect of a Greek default.

But the commission has argued that the benefits — particularly a healthier banking industry with less probability of government bailouts — would outweigh the short-term costs.

“Retail subsidiaries would be legally, economically and operationally separate from the rest of the banking groups to which they belonged,” the commission said in its 360-page report. “The improved stability that structural reform would bring to the U.K. economy would be positive for investment both in financial services and the wider economy.”

The 2019 deadline is about four years later than some analysts had expected; the new rules would be adopted after the next general election.

Prime Minister David Cameron has grown increasingly nervous that making major changes now could harm an already weak economic recovery, two government officials said last week. They declined to be identified because no final decision had been made.

Mr. Vickers warned the government that scrapping parts of the proposals or changing them in favor of the banks would be “a great mistake.”

“The too-big-to-fail problem must not be recast as a too-delicate-to-reform problem,” Mr. Vickers said.

“More stress for banks” this year because of Europe’s sovereign debt crisis “underlines that the status quo is not an option,” he said. “Things will need to change.”

Ed Balls, the opposition Labor Party’s candidate for the treasury position, said the commission put forward “a tough and radical proposal” and that “the stalled recovery is not an excuse for ducking reform.”

Article source: http://dealbook.nytimes.com/2011/09/12/britains-i-c-b-recomends-gradual-banking-reform/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Without Its Master of Design, Apple Will Face Many Challenges

August 25, 2011 by Leave a Comment

But the Apple team, analysts say, will face a far greater trial in achieving continued success without Mr. Jobs in charge.

Mr. Jobs, who said Wednesday that he was stepping down as Apple’s chief executive, said in an interview shortly after he returned to the company in 1997 that his leadership style had changed over the years, as he matured.

In his early years at Apple, before he was forced out in 1985, Mr. Jobs was notoriously hands-on, meddling with details and berating colleagues. But later, first at Pixar, the computer-animation studio he co-founded, and in his second stint at Apple, he relied more on others, listening more and trusting members of his design and business teams.

In recent years, Mr. Jobs’s role at Apple has been more the corporate equivalent of “an unusually gifted and brilliant orchestra conductor,” said Michael Hawley, a professional pianist and computer scientist who worked for Mr. Jobs and has known him for years. “Steve has done a great job of recruiting a broad and deep talent base.”

At Pixar, with a solid leadership team in place, the studio never missed a beat, and it continued to generate one critically acclaimed and commercially successful hit after another, including “Finding Nemo” and “Wall-E,” long after Mr. Jobs had gone back to Apple.

It is by no means certain, analysts say, that things will go that smoothly for Apple. Mr. Jobs, they note, was far more in the background at Pixar, where creative decisions were guided by John Lasseter. Pixar was sold to Disney for $7.4 billion in 2006.

At Apple, Mr. Jobs’s influence is far more direct. He makes final decisions on product design, if not in detail. No immediate changes, analysts say, will likely be discernible.

“The good news for Apple is that the product road map in this industry is pretty much in place two and three years out,” said David B. Yoffie, a professor at the Harvard Business School. “So 80 percent to 90 percent of what would happen in that time would be the same, even without Steve.”

“The real challenge for Apple,” Mr. Yoffie continued, “will be what happens beyond that road map. Apple is going to need a new leader with a new way of recreating and managing the business in the future.”

Mr. Jobs’s hand-picked successor, Timothy Cook, who has been the company’s chief operating officer, has guided the company impressively during Mr. Jobs’s medical leaves. But his greatest skill is as an operations expert rather than a product-design team leader — Mr. Jobs’s particular talent.

At Apple, Mr. Jobs has been the ultimate arbiter on products. For example, three iPhone prototypes were completed over the course of a year. The first two failed to meet Mr. Jobs’s exacting standards. The third prototype got his nod, and the iPhone shipped in June 2007.

His design decisions, Mr. Jobs explained, were shaped by his understanding of both technology and popular culture. His own study and intuition, not focus groups, were his guide. When a reporter asked what market research went into the iPad, Mr. Jobs replied: “None. It’s not the consumers’ job to know what they want.”

The notion of “taste” — he uses the word frequently — looms large in Mr. Jobs’s business philosophy. His has been honed by a breadth of experience and by the popular culture of his time. When he graduated from high school in Cupertino, Calif., in 1972, he said, “the very strong scent of the 1960s was still there.” He attended Reed College, a progressive liberal arts school in Portland, Ore., but dropped out after a semester.

When discussing Silicon Valley’s lasting contributions to humanity, he mentioned the invention of the microchip and “The Whole Earth Catalog,” a kind of hippie Wikipedia, in the same breath.

Great products, Mr. Jobs once explained, were a triumph of taste, of “trying to expose yourself to the best things humans have done and then trying to bring those things into what you are doing.”

Mr. Yoffie said Mr. Jobs “had a unique combination of visionary creativity and decisiveness,” adding: “No one will replace him.”

Article source: http://feeds.nytimes.com/click.phdo?i=52a84083003182878e7bf92fbe4c9732

Filed Under: Business News Tagged With: , ,