March 20, 2023

Retailers Split on Bangladesh Factory Collapse

Several American and European retailers have sought to minimize any ties they had to factories inside the building, Rana Plaza, while some other companies have been quick to acknowledge their ties to those garment suppliers — and have pledged to contribute to a fund to help families of the victims.

In addition, representatives of two dozen retailers and apparel brands, including Walmart, Gap, HM and Carrefour, met outside Frankfurt on Monday to discuss what can be done to improve factory safety in Bangladesh. Two labor advocates who attended the meeting — which the German government had arranged long before last Wednesday’s factory collapse — said it remained unclear whether those companies would agree to the financial commitments needed to ensure safety at the more than 4,000 garment factories in Bangladesh.

The Children’s Place, a retail chain based in Secaucus, N.J., that operates 1,100 stores, said that although a garment factory inside Rana Plaza had produced apparel for it, “none of our apparel was in production” there “at the time of this terrible tragedy.”

Customs documents show that over the past eight months, the New Wave factory inside Rana Plaza had made more than 120,000 pounds of clothing that had been sent in 21 shipments to the Children’s Place. A two-ton shipment arrived in Savannah, Ga., on April 5.

The Cato Corporation, a retailer of women’s clothing that has more than 1,300 stores in 31 states, also played down any link to the building. In a statement, Cato said New Wave Bottoms, also located there, “was a factory of one of our vendors.”

“However, we did not have any ongoing production at the time of the incident,” the statement said.

New Wave Bottoms has shipped more than 90,000 pounds of apparel to Cato since November, customs documents show, with nine tons arriving at the Port of Charleston in South Carolina in February.

After Bangladeshi labor groups said they had found labels of Benetton clothing in the rubble, Benetton initially denied using any factories in the building. But as more labels and documents showing Benetton orders were found and publicized, the company revised its response, saying it had placed only a one-time order there and had severed ties with that factory.

Ineke Zeldenrust, international coordinator of the Clean Clothes Campaign, an anti-sweatshop group based in Amsterdam, criticized Western companies that sought to distance themselves from the building that collapsed. “It is high time for Benetton to stop this senseless game of always trying to pretend they’re not there,” she said.

Primark, a low-price British retailer, quickly acknowledged that one of its suppliers had occupied the second floor of the eight-story building. Primark has pledged to compensate victims who worked for its supplier and their families, saying compensation would include long-term aid for children who lost parents, financial aid for the injured and payments to the families of the deceased.

“Primark notes the fact that its supplier shared the building with those of other retailers,” the company said. “We are fully aware of our responsibility. We urge these other retailers to come forward and offer assistance.”

Loblaw, a Canadian discount chain, and El Corte Inglés, a prominent Spanish retailer, have also pledged to participate in a compensation fund.

Ms. Zeldenrust called on all Western companies that had obtained garments from the five factories inside Rana Plaza to create a $30 million compensation fund, and praised those that had already agreed to contribute.

On Monday, she attended the meeting that the German Agency for International Cooperation had called to help upgrade factory safety in Bangladesh. Worker advocacy groups are urging Western companies to join a plan — embraced so far by just PVH, the parent company of Tommy Hilfiger and Calvin Klein, and Tchibo, a German retailer — for independent inspections and for the Western companies to underwrite any needed building or fire safety improvements.

“It was a productive meeting, but there was no concrete outcome,” Ms. Zeldenrust said. She added that a deadline was set, and “by May 15, we should know whether there will be a plan.”

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DealBook: UniCredit’s Weak Share Offering Is Poor Omen in Europe

Federico Ghizzoni, the chief executive of UniCredit, on Saturday attributed the slide in the bank's stock largely to “technical reasons.”Alessandra Benedetti/Bloomberg NewsFederico Ghizzoni, the chief executive of UniCredit, on Saturday attributed the slide in the bank’s stock largely to “technical reasons.”

LONDON — UniCredit, Italy’s largest bank, is undergoing a trial by fire in the stock market, underscoring the challenges that European banks face in trying to right themselves.

Shares of UniCredit have been in free fall as investors have balked at a new stock offering meant to bolster the bank’s capital. Since last week, UniCredit’s market value has plunged by more than 40 percent.

It is a bad omen for struggling European banks. At the behest of regulators, the region’s financial institutions must raise a combined $145 billion by June. But banks may have a tough time convincing investors to plow more money into the beleaguered industry if UniCredit’s experience is any indication.

“I think this should scare policy makers,” said Nicolas Véron, a senior fellow at Bruegel, a research institute in Brussels. “Banks have been saying for some time that it’s impossible for them to raise money collectively in this market.”

Investors remain skittish, as the sovereign debt crisis continues to rattle the markets. On Monday, the German government sold six-month bills at a negative yield, the latest sign that safety is more important than returns in the current environment.

UniCredit is suffering from the same worries. Last week, the bank announced a plan to sell new stock at 1.943 euros a share, in a so-called rights offering. At that level, the company said, the price represented a 43 percent discount to UniCredit’s market value, making certain assumptions about the offering.

On Monday, the first day of trading, investor demand remained weak. The offering closed at 47 euro cents.

“The first problem with UniCredit is that they come from Italy,” said Werner Schirmer, an analyst at Landesbank Baden-Württemberg in Stuttgart. “The timing is really bad.”

Given investors’ fears, the next few months could be rocky for the region’s banks. The European Banking Authority in October began pushing banks to increase their core Tier 1 capital ratios, a buffer against financial shocks, to 9 percent of assets. UniCredit has to raise its reserves by more than $10 billion.

“Some banks will be able to raise capital, but there’s a finite market for these assets,” said Karl Goggin, a banking analyst at NCB Stockbrokers in Dublin.

Many banks had hoped to tap the equity markets to raise money. But “the UniCredit rights issue today was a wake-up call from a lot of other banks,” said a high-level investment banker at a European firm, who was not authorized to talk publicly. “It shows that you want to avoid raising equity through a rights issuance if at all possible.” That leaves banks with just a handful of options, include selling business operations, particularly in overseas markets, and rejiggering their debt holdings to free capital.

Healthier banks should be able to meet the new requirements. On Monday, Grupo Santander of Spain, which had been ordered to raise roughly $19 billion, said it had reached its capital target, six months ahead of the deadline. Santander bolstered its reserves largely by converting 6.8 billion euros in bonds into shares, retaining profits and transferring a stake in its Brazilian unit to an outside investor.

But the Spanish bank has notable advantages over UniCredit. For one, Santander has large overseas businesses, particularly in Latin America and Britain, and a diverse retail deposit base to offset its stagnating home market. By comparison, UniCredit, which has large operations in Italy, Germany and Austria, has suffered because of its established presence in Eastern European countries that have felt the effects of the Continent’s sovereign debt crisis.

Italian banks generally have been under pressure. After the European Central Bank’s decision to offer unlimited funds on a three-year basis, the country’s banks stepped up to the coffers. Italian banks borrowed more than 200 billion euros in December, more than double the amount in November, according to the Bank of Italy.

As banks like UniCredit lumber along, the situation could ripple through the economy. Analysts fear that banks will pull back on their lending, weighing on growth.

“If banks cut lending to achieve capital adequacy, we should expect a really, really big credit crunch and really deep economic downturn to ensue,” said Carl B. Weinberg, chief economist at High Frequency Economics.

“What UniCredit’s plight suggests is that banks that are in a dark situation cannot sell equity shares to the public,” he added. “That is not good for the economy.”

Investors are scared. Since laying out its offering plans, shares of UniCredit have fallen by 45 percent to 2.29 euros. Trading in the bank’s stock was suspended a few times on Monday because of market volatility.

The bank’s chief executive, Federico Ghizzoni, earlier blamed “technical reasons” for the stock weakness, according to a report by Reuters that cited the Corriere della Sera. Prime Minister Mario Monti told France 24 television last week that the bank had “encountered some temporary difficulties” because of the capital increase.

But at the current price, UniCredit’s market value of $9.65 billion is only slightly more than the amount the bank had hoped to raise with its rights issue.

Mark Scott reported from London, and David Jolly from Paris. Landon Thomas Jr. contributed reporting from London.

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Easing Debt Crisis Will Take Time, E.U. Official Warns

“We are at a turning point, a decisive point that requires clear and determined responses, comprehensive responses,” José Manuel Barroso told reporters in Brussels. “We are at a very, very sensitive point in European construction.”

His position echoes what the German government has said in recent days in preparation for a meeting of European leaders in Brussels on Sunday.

“Even if we do arrive at a political decision on everything that is on the table, which I hope we will, that doesn’t necessarily mean that there will not then have to be an implementing phase,” Mr. Barroso said. “You cannot hope that this will be the end of all our troubles, but I very much hope that important, long term, positions, which are important for the future of the European Union and the euro, will come about.”

The comments came a day after Moody’s Investors Service raised the pressure on euro-zone leaders by downgrading Spain’s long-term sovereign rating by two notches and placed it on watch for further downgrades.

Moody’s cut Spain’s rating to A1 from Aa2, a lower investment-grade rating, citing concerns over debt levels in the Spanish banking and corporate sectors, as well as broader concerns about weakening growth among countries that share the euro.

The agency also warned that a further cut for Spain was possible if the euro debt crisis intensified. Italy and other ailing euro economies have also recently received credit rating downgrades, reflecting concerns both about their own prospects and the squabbling among European leaders over what would be a viable solution to the euro debt crisis.

Mr. Barroso’s comments also reflect the fact that negotiations over plans to increase the firepower of the euro bailout fund, and to increase the contribution of banks to the Greek bailout, remain very difficult, said one European official speaking on condition of anonymity. Another sensitive issue is how to raise the funds to recapitalize European banks.

Discussions on both issues are expected to continue in Frankfurt later Wednesday at a gathering to mark the departure of the president of the European Central Bank, Jean-Claude Trichet, which is likely to be attended by many key players.

With talks intensifying, rumors continued to swirl. Germany’s finance minister, Wolfgang Schäuble, told lawmakers in Berlin that the firepower of the euro zone bailout fund, the European Financial Stability Facility, might be increased to a maximum of €1 trillion, or $1.38 trillion through an insurance model, Financial Times Deutschland reported.

Asked about plans to strengthen the facility, Olli Rehn, the European commissioner for economic and monetary affairs, said in Brussels that there was no agreement yet and that this was “very much a work in progress.”

Mr. Barroso declined to comment on the decision by Moody’s to downgrade Spain but said that the country might gain new protection if the bailout fund were expanded. Under an agreement struck in July, the fund will gain the power to extend aid to nations that do not require a full bailout; currently Greece, Ireland and Portugal have received international rescue packages.

Increasing the power of the European stability fund “is precisely so that, if necessary, we can respond to situations in countries that are not currently covered by programs,” Mr. Barroso said.

Moody’s decision to downgrade Spain followed similar ones by Standard Poor’s and Fitch Ratings. Last Thursday, S.P. lowered Spain’s long-term debt rating by one notch, to AA minus from AA, because of the country’s poor growth prospects and troubled banks.

“Spain’s large sovereign borrowing needs as well as the high external indebtedness of the Spanish banking and corporate sectors render it vulnerable to further funding stress,” Moody’s wrote in a note.

The government in Madrid has pledged to lower its public deficit to 6 percent of gross domestic product this year from 9.3 percent of G.D.P. in 2010. It has stuck to a growth forecast of 1.3 percent this year — a figure that also underpinned its 2011 budget deficit plan — even though most economists now expect Spain to post growth of about 0.7 percent this year.

Elena Salgado, the finance minister, also recently dismissed a forecast by Goldman Sachs that Spain would fall back into recession at the start of 2012.

Moody’s, meanwhile, said that it expected growth next year of “1 percent at best,” compared with earlier expectations of 1.8 percent.

“Lower economic growth in turn will make the achievement of the ambitious fiscal targets even more challenging for Spain,” Moody’s wrote. The agency added that it also had “serious concerns regarding the funding situation of the regional governments and their ability to reduce their budget deficits according to targets.”

The downgrades by major rating agencies also come ahead of a Spanish general election on Nov. 20 that is expected to return the center-right Popular Party to power with a parliamentary majority, according to opinion polls.

Moody’s said that it expected Spain’s next government to be “strongly committed to continued fiscal consolidation,” warning that “Spain’s rating would face further downward pressure if this expectation did not materialize.”

Raphael Minder reported from Madrid.

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Europe’s Economic Powerhouse Drifts East

With large parts of Europe still in an economic rut and struggling to cope with a debt crisis, Germany is increasingly deploying its money and energy outside the euro zone to fuel its robust growth.

The shift in focus, while still in its early stages, could have profound economic and political implications because it comes at a critical time when the rest of Europe is counting on Germany to continue its traditional role as the locomotive of the Continent’s economy.

German companies, instead of concentrating their investment overwhelmingly on countries like France and Italy, are sending a growing proportion of their euros to places like Poland, Russia, Brazil and especially China, which is already the largest market for Volkswagen and could soon be for Mercedes and BMW.

The German government is following suit, committing more diplomatic resources to its growing trade partners, particularly China, whose prime minister, Wen Jiabao, brought an entourage of 13 ministers and 300 managers when he visited Chancellor Angela Merkel of Germany last month.

President Dmitri A. Medvedev of Russia brought a similar entourage with him Monday to Hanover for annual German-Russian consultations, including Alexander Medvedev, deputy chief executive of Gazprom.

The economic shift is already having profound consequences inside Europe. As Germany becomes less dependent on euro zone markets, there are signs that it is becoming stricter with its ailing partners, like Greece, Italy and Portugal, adding to the pressures already straining European unity.

“It reinforces a shift that we have seen in recent years for Germany to become rather more focused on its own national interests rather than sacrificing for some defined European interest,” said Kevin Featherstone, an expert on E.U. politics at the London School of Economics. “Germany is not giving up on Europe, but it is certainly frustrated.”

German politics are in line with the interests of German businesses like Fresenius, a health care company in Bad Homburg, near Frankfurt. Last year, Fresenius recorded a sales increase in Asia of 20 percent, to €1.3 billion, or $1.8 billion. That compared with its sales in Europe of €6.5 billion, up 8 percent.

Fresenius’s chief executive, Mark Schneider, said he expected the trend to continue, noting that China was trying to create a universal health care system that would ensure its people access to kidney dialysis and infusion therapies — the sort of products that Fresenius provides.

Germany, of course, remains deeply entwined with the euro zone, which is still its largest source of trade by far. But Western Europe’s share in the German pie is shrinking as companies focus new investment on more vibrant markets.

“I’m not sure I would call Germany the locomotive” for Europe anymore, said Marc Lhermitte, a partner at the consulting firm Ernst Young. “It’s an engine.”

Mr. Lhermitte was one of the directors of a study in May by the firm that looked at trends in cross-border investment around the world.

Last year, the euro area’s share of German exports fell to 41 percent from 43 percent in 2008, while Asia’s share rose to 16 percent from 12 percent, according to Bundesbank figures. During the same period, exports to Asia rose by €28 billion, while exports to the euro area fell by the same amount.

Fresenius is one of many companies that reflect the trend. Corporate investment in Western Europe is still rising in absolute terms, said Mr. Schneider, but “capital spending and employment is not rising as much as we are seeing in emerging markets.”

There are also signs that Germany’s prosperity is no longer helping the rest of Europe the way it did a few years ago. On the contrary, the rest of Europe, particularly its southern half, is falling further behind as the European Union struggles to deal with the sovereign debt crisis.

The Italian economy, for example, is no longer cruising in Germany’s slipsteam.

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German Banks Are Critical of Tough Standards for Stress Tests

FRANKFURT — A review of European banks could become a day of reckoning for some troubled German institutions, amid signs that the authorities may impose a tough standard for the funds that can be used to meet reserve requirements.

The European Banking Authority, which is conducting the stress tests, is expected to announce in the coming days how it will define capital reserves, the money that banks are required to set aside for unforeseen shocks.

Representatives of Germany’s public sector banks, while insisting the institutions are healthy, have expressed alarm in recent days that the standard may require them to exclude much of the borrowed capital they use to bolster their reserves. As a result, some German banks could fail the test, analysts said.

The tougher requirement would “create a danger that healthy institutions could be artificially made to appear sick,” Heinrich Haasis, president of the German Savings Banks Association, said in a statement Friday.

If the more severe definition of capital caused some German landesbanks to fail the stress tests, they could be required to raise more money, or in extreme cases even wind down their operations. Because the landesbanks are typically owned by state governments and local thrift institutions, German taxpayers would ultimately bear much of the financial burden. In that case, the landesbanks could become a liability for Chancellor Angela Merkel at a time when her party, the Christian Democratic Union, has lost ground in recent state and municipal elections.

Critics accuse the German government of trying to keep the landesbanks’ problems out of public view. “Germany has not done enough to restore confidence in the landesbanks,” said Jörg Rocholl, a professor at the European School of Management and Technology in Berlin. “The process should have been much faster and more comprehensive.”

The dispute revolves around so-called silent participations, money that the landesbanks have effectively borrowed from their owners, the savings banks and state governments, and counted toward their capital reserves. Regulators have expressed concern that, in a crunch, silent participations might not be very useful as a cushion against losses. New global banking guidelines call for such capital to be phased out as a component of so-called core Tier 1 equity, the most bulletproof form of reserves.

A related issue is how much capital banks must have to pass the European stress tests, which are scheduled for June and will examine whether banks are strong enough to absorb shocks like a sudden economic downturn. Reuters reported Friday that the European Banking Authority would require banks to have core Tier 1 equity equal to 5 percent of assets.

That is still less than new rules endorsed last year by the Group of 20 leading economies, which would require core Tier 1 equity of 7 percent of assets by the end of 2018.

Representatives of the E.B.A. and the European Commission said Sunday that they could not comment on what standards the stress tests would use.

The landesbanks, while insisting that they will pass the tests, have been lobbying the German government and European Commission to apply a less rigorous standard. “We have no indication that landesbanks will have problems with the E.B.A. stress tests and expect that all will pass,” Stephan Rabe, a spokesman for the Association of German Public Sector Banks, said in an e-mail. But he said that the association considers it unfair for the E.B.A. to apply standards that are not yet required by bank regulations, adding, “In our opinion the stress tests should be conducted according to existing rules.”

During the last round of European bank stress tests, in July, all seven landesbanks passed. But those tests were criticized as too lenient and failed to restore investor confidence in the health of the German banking system.

Some analysts have argued that Germany needs to confront the problems at the weakest landesbanks, like WestLB in Düsseldorf, and either supply them with more capital or wind them down. If not, the landesbanks threaten to drag down the German economy. Strong growth in Germany during the past year has helped compensate for weak growth in Southern Europe.

“The robust economic trend in Germany and positive labor market data have diverted attention from the fact that fundamental structural problems in the financial sector have still to be addressed,” a group including two former landesbank chief executives wrote in a study issued by Goethe University in Frankfurt last month. The authors warned that problems in the landesbanks threatened the hundreds of savings banks, or sparkassen, which dominate consumer banking in Germany and are crucial to the economy. The sparkassen, which usually have close ties to local governments, often own stakes in the landesbanks and depend on them for wholesale banking services.

The debate about how to design the stress tests takes place in the context of two decades of conflict between the European Commission and the landesbanks. In 2005, the commission required the landesbanks to give up the government guarantees that allowed them to borrow money more cheaply than commercial banks.

Without that competitive advantage, several landesbanks have been struggling to find a new reason for being. In addition, institutions like WestLB or BayernLB in Munich suffered billions of euros in losses tied to investments in the United States real estate market, and required taxpayer bailouts.

The European Commission has ordered WestLB to drastically scale back its activities and look for a buyer, as a condition for receiving government aid. But attempts to sell WestLB have been moving slowly amid meager interest from investors.

At the same time, political leaders are loath to curtail the activities of the landesbanks, which give them influence in the local economy and account for thousands of jobs.

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