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Broad Audit of Chinese Government Agencies Set

July 28, 2013 by

HONG KONG — The National Audit Office of China said Sunday that it would conduct a broad audit of debts incurred by government agencies, in the latest sign of Beijing’s concern that heavy borrowing by local governments and their affiliates might pose a broader threat to the economy.

The audit office issued a single-sentence statement saying that it had been instructed by the State Council, or cabinet, to carry out the audit.

Western economists have estimated total local government debt in China at $2 trillion to $3 trillion and rising.

China avoided most of the effects of the recent global financial crisis through a huge program of government spending financed by debt. The stimulus program has encompassed projects ranging from a national grid of high-speed train routes to the construction of thousands of roads and bridges by municipalities, towns and villages.

In an interview last month with the Web site of People’s Daily, a deputy head of the fiscal audit section of the National Audit Office said that since last year, the outlook for the economy as a whole, and for government revenue in particular, has “not been too sunny.”

“Under these circumstances, how to avert financial risks is quite an urgent issue, said the official, Ma Xiaofang.

Those concerns have already prompted the office to audit 36 local governments this year, following a similar check in 2011, Mr. Ma said. “We must have more insight into problems, risks and hazards in local government debt management,” he said.

China has made periodic efforts over the years to assess the scope of local government debt, and Sunday’s statement by the National Audit Office was too terse to be clear about how comprehensive the latest effort would be. Bankruptcy proceedings started this month by the City of Detroit have surprised and alarmed many in China, however, prompting renewed concern about the financial health of Chinese cities and towns.

While the Chinese government has considerable unused borrowing capacity at the national level as well as $3 trillion in foreign exchange reserves, any move by the central government to bail out profligate local governments would be politically contentious within China.

Using the foreign exchange reserves to cover local government debts would also be extremely difficult for practical reasons. The central bank has financed those reserves mostly by borrowing money from Chinese commercial banks and needs to be able to repay these banks.

Beijing imposes many restrictions on the ability of local governments to borrow at all. But local governments have been widely sidestepping these restrictions by setting up special financing entities that borrow the money for them.

Many local governments also own businesses and have used their political connections to help these businesses obtain loans from state-owned banks. This has further increased possible financial liabilities for the local governments themselves.

These governments’ revenues tend to be heavily dependent on the sale to developers of long-term leases for government land, which is then used for building apartment towers, factories, shopping malls and other projects.

Developers’ interest in these leases tends to be highly cyclical, soaring when the real estate market is strong and crashing when real estate prices fall. With Beijing trying to improve the affordability of housing for the past couple years by limiting real estate speculation, developers have been more cautious about acquiring further leases.

Many local governments have also guaranteed loans to borrowers in politically favored sectors like solar panel manufacturing. That allows the borrowers to obtain loans at extremely low interest rates. But the local governments are then exposed to huge losses if the borrowers default — a constant risk given the overcapacity and declining profit margins that bedevil many Chinese industries.

“These problems must attract serious attention, and there should be effective measures taken to strengthen management of local government debt,” Mr. Ma said.

Article source: http://www.nytimes.com/2013/07/29/business/global/broad-audit-of-chinese-government-agencies-set.html?partner=rss&emc=rss

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E.U. Proposes Giving Countries Time to Cut Deficits

May 29, 2013 by Leave a Comment

But the Brussels-based European Commission also cautioned against the temptations of debt-fueled economic stimulus, stressing in its annual review of economic policy recommendations that Europe instead needs to dismantle rigid labor regulations and remove other “structural” obstacles to growth.

The mixed message marked Europe’s latest response to an economic crisis that has led to six consecutive quarters of negative growth, left even previously robust northern economies battling recession and pushed overall unemployment to nearly 12 percent and to more than twice that in Spain and Greece.

“The fact that more than 120 million people are at risk of poverty or social exclusion is a real worry,” said José Manuel Barroso, the president of the European Commission, at a news conference. “There is no room for complacency,” he said, describing the situation in some countries as a “social emergency.”

Addressing concerns that Europe has pushed too hard for spending cuts, Mr. Barroso — using an economists’ euphemism for austerity — said “we now have the space to slow down the pace of consolidation.” But he also warned that “growth fueled by public and private debt is not sustainable.” This, he added, is “artificial growth.”

He complained that a bitter policy debate that has often cast austerity as the enemy of growth “has been to a large extent futile and even counterproductive.”

Five year after the global financial crisis swept in from the United States, most European countries, with the notable exception of Germany, are still stuck in economic doldrums and show scant sign of even the modest recovery achieved by the United States and Japan, which have both opted for more government-funded stimulus than Europe.

This dismal record has put champions of fiscal rigor at the European Commission under intense pressure to back off unpopular budget cuts and instead follow the prescriptions of John Maynard Keynes, the late British economist who urged that government spending be ramped up in times of crisis.

The policy recommendations announced Wednesday in Brussels don’t suggest any U-turn in policy but they do confirm a slow but steady shift away from swiftly limiting deficit spending. Olli Rehn, the commission’s senior economic policy maker, announced that seven countries would be given more time to reach a deficit target of 3 percent of gross domestic product.

France, Poland, Slovenia and Spain, he said, will be given an extra two years, while Belgium, the Netherlands and Portugal will each get an extra year.

Mr. Rehn said that Europe still needs “fiscal consolidation” in the long-run but added that its pace this year would be “half what it was last year and to some extent it will be slowed further.” The decision to give France more time, he said, was based on expectations that its socialist president, François Hollande, would push through long-stalled reforms to cut the cost of hiring workers and boost the country’s flagging competitiveness. A key part of this, Mr. Rehn said, is pension reform.

Mr. Hollande responded angrily to the commission’s proposals, particularly those concerning the pension system. “The European Commission cannot dictate to us what we have to do,” French media quoted the president as saying. Mr. Hollande insisted that the shape of any pension reform, a highly contentious issue in France, “is up to us, and to us alone.”

France’s legislature earlier this month enacted a modest trim of labor regulations but Mr. Hollande, under fire from within his own party and deeply unpopular with the public at large, faces an uphill struggle to implement reforms that, when attempted by his predecessors, led to large street protests and labor unrest.

The extension granted to France and others immediately raised eyebrows among some analysts, who said these countries might use them as an excuse to relax their reform efforts. “Countries are going to interpret these recommendations in self-serving ways,” said Mujtaba Rahman, the director for Europe for the Eurasia Group, a research group. “The commission argues its rules are being applied intelligently, but countries such as France will use this to argue they have prevailed on Europe to end austerity.”

Wrangling over how to best address Europe’s crisis has created deep splits, dividing richer countries from poorer ones and triggering a widespread public backlash against the European Union and established political elites in individual countries. It has also divided policymakers in Brussels.

In a remarks published Wednesday by German media, the energy commissioner, Gunther Oettinger, scoffed at assurances that France is working to get its economic house in order and said “too many in Europe still believe that everything will be fine.” France, he said, “is completely unprepared to do what’s necessary,” while Italy, Bulgaria and Romania “are essentially ungovernable.” The European Union, he added, “is ripe for an overhaul.”

Mr. Barroso, the commission president, declined to comment on Mr. Oettinger’s remarks.

Andrew Higgins contributed reporting.

Article source: http://www.nytimes.com/2013/05/30/business/global/eu-proposes-giving-countries-time-to-cut-deficits.html?partner=rss&emc=rss

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Emerging Asian Economies on Track for Solid Growth, Report Finds

April 9, 2013 by Leave a Comment

HONG KONG — The economies of developing Asia appear to have settled into a new growth path that will allow the region to expand by between 6 percent and 7 percent a year — a pace that is significantly slower than that seen before the global financial crisis, yet represents a firm trajectory that could last over the next decade.

“It looks like we’re in a new trend,” said Changyong Rhee, the chief economist of the Asian Development Bank, which on Tuesday released its new forecasts for emerging Asia. The region spans developing countries like China, India, Indonesia and Thailand, but not Japan.

After relatively muted growth last year, when the region expanded by 6.1 percent, developing Asia is expected to pick up speed again with growth of 6.6 percent this year and 6.7 percent next year, according to the bank’s projections.

“The era of double-digit growth is over,” Mr. Rhee said. But, he added in an interview in Hong Kong, the United States is showing signs of recovery, and the euro zone likely to “muddle through” its debt crisis for the foreseeable future. That backdrop leaves developing Asia enjoying a relatively stable growth that was not yet visible just six months ago, when the development bank made its last projections for the region.

Faster growth in China — by far the region’s largest economy — and what Mr. Rhee called the “remarkable” resilience of southeast Asian economies have been the main drivers of growth there growth, lifting domestic consumption and intraregional trade, and in the process also reducing the region’s reliance on the world’s advanced, and slower-growing, economies.

Growth, however, will be very uneven, with China likely to grow at between 7 percent and 8 percent; the Asean region, comprising countries like Thailand and Malaysia, growing around 5 percent; and more developed economies like Hong Kong, Singapore or Taiwan expanding at little more than 3 percent.

Moreover, events in other parts of the world continue to pose major potential risks to Asia.

Among them, the development bank said, are the wrangling over the U.S. debt ceiling and the struggles to implement austerity measures in Europe. Border disputes within Asia, potential asset bubbles inflated by the monetary stimulus efforts of the world’s developed economies, and the possible reversal of capital inflows once that monetary stimulus ends also represent risks to Asia.

The Asian Development Bank also issued a stark warning on Asia’s rapidly growing energy needs. The region, the bank said, is moving along a “dangerously unsustainable energy path” that “could result in environmental disaster” and increase the region’s reliance on the oil-exporting nations of the Middle East.

“Asia could be consuming more than half the world’s energy supply by 2035, and without radical changes carbon dioxide emissions will double,” Mr. Rhee said. “Asia must both contain rising demand and explore cleaner energy options, which will require creativity and resolve, with policymakers having to grapple with politically difficult issues like fuel subsidies and regional energy market integration.”

Article source: http://www.nytimes.com/2013/04/10/business/global/emerging-asian-economies-on-track-for-solid-growth-development-bank-says.html?partner=rss&emc=rss

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Draghi Dismisses Any Nation’s Move to Drop the Euro

April 5, 2013 by Leave a Comment

During the last year, Mario Draghi, president of the bank, has managed to quiet financial markets, cap government borrowing costs and contain the euro zone crisis by making it clear that the bank would not allow the 17-country euro currency union to come apart. But it is not clear what tools he sees at his disposal.

In a news conference, he also gave no indication how the central bank might stimulate the moribund economies of the euro zone. The bank said Thursday that it would leave its benchmark interest rate unchanged. “Cyprus is no turning point in euro policy,” Mr. Draghi said. There is “no Plan B.”

Making sure that “credit will flow to the real economy seems to be the E.C.B.’s No. 1 priority,” Carsten Brzeski, an economist at ING Bank, wrote in a note to investors. “However, judging from today’s news conference, the E.C.B. looks rather clueless on how to tackle the problem.”

The bank left its benchmark interest rate unchanged on Thursday at 0.75 percent, while the Bank of England held its rate steady at 0.5 percent. With both central banks’ rates already at record lows, there might be little room to use interest rates as an economic stimulus. But the euro zone economies, like that of Britain, are stagnant and in need of help wherever they can find it.

Mr. Draghi said the European Central Bank was looking for new ways to stimulate lending in the weak euro zone economy and could move quickly. “We will assess all the data in coming weeks and we stand ready to act,” he said, without offering many clues about what measures he might have in mind.

The global financial crisis in recent years has forced central banks around the world to do much more than simply tweak the official interest rate as they did in the past. On Thursday, Haruhiko Kuroda, the new governor of the Bank of Japan, Japan’s central bank, announced that it would seek to double the amount of money in circulation over two years to try to end years of falling prices.

Mr. Draghi said there was a consensus among the 23 members of the European Central Bank’s governing council not to cut rates even lower “for the time being.” The bank also discussed other, unconventional ways to help countries where credit remained tight, he said.

“The experiences of other countries tell us we have to think deeply before we can come up with something useful and consistent within our mandate,” he said.

Large-scale purchases of corporate debt, which the Federal Reserve has used to stimulate lending in the United States, would be more difficult in Europe because most companies get their credit directly from banks, Mr. Draghi indicated.

With inflation already below the European bank’s target of about 2 percent, some analysts have worried that the euro zone faces a risk of deflation — a broad decline in prices that can be more destructive and difficult to cure than inflation. Mr. Draghi said, however, that risks to price stability were “broadly balanced,” indicating that he did not see a major risk of deflation.

Data from Markit, a research firm, confirmed the continued downturn on Thursday. Its survey of business activity showed a marked drop in France and a stalling of growth in Germany, the largest and most robust economy in the euro zone.

Mr. Draghi predicted that the euro zone would recover, but he sounded slightly less confident than in the past. “Tight credit conditions,” he said, “will continue to weigh on economic activity.”

The Bank of England’s decision to keep the benchmark interest rate unchanged on Thursday was made despite concern that new data might show that the British economy fell back into recession at the start of the year.

Mr. Draghi found himself devoting much of the hourlong news conference to trying to dispel fears that Cyprus represented an ominous new phase of the euro zone crisis.

Mr. Draghi acknowledged that an initial decision by officials from the European Union, the International Monetary Fund and the central bank to impose a tax on small bank deposits was “not smart, to say the least.” But he pointed out that euro zone officials had quickly corrected that error.

At the same time, he defended the decision that did stick: to place much of the burden of bailing out Cyprus banks on large depositors. In a long discourse on the lessons of Cyprus, he said it showed the need for centralized banking supervision that would enable regulators to detect problems before they became a broader threat.

While European leaders have agreed to give the central bank power to oversee euro zone banks, they remain divided on measures to protect depositors and to deal with failed financial institutions.

Mr. Draghi warned that countries where banking risk was several times larger than the economy — as in Cyprus, Britain and Luxembourg — were especially vulnerable. Those countries have to be more conservative, he said, avoiding large budget deficits and ensuring that the banks have ample capital buffers. “If anything, the events on Cyprus have reinforced the governing council’s determination to support the euro while maintaining price stability and acting within our mandate,” he said. The muted market reaction to events in Cyprus, he said, showed that “we are now in a position to cope with serious crises without them becoming existential or systemic.”

He said no country in the euro zone would be better off leaving the euro, as some commentators have suggested. “What was wrong with Cypriot economy doesn’t stop being wrong if they are outside of the euro,” Mr. Draghi said. “An exit entails many risks — big risks.”

Melissa Eddy reported from Frankfurt and Jack Ewing from London. Julia Werdigier contributed reporting from London.

Article source: http://www.nytimes.com/2013/04/05/business/global/european-central-bank-holds-steady-on-interest-rate.html?partner=rss&emc=rss

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E.C.B. Chief Says Cyprus Shows Commitment to Euro

April 4, 2013 by Leave a Comment

“Cyprus is no turning point in euro policy,” Mario Draghi, president of the E.C.B., said at a news conference. And he rejected suggestions that Cyprus or any other country might leave the euro, or be better off if it did.

There is “no Plan B,” Mr. Draghi said.

Nor is there, for now at least, a Plan B even for the European Union’s bigger, but moribund, economies. Survey data published Thursday showed a further slide in business confidence on the Continent.

The E.C.B. left its benchmark interest rate unchanged Thursday at 0.75 percent, while the Bank of England held its rate steady at 0.5 percent. With both central banks’ rates already at record lows, there might be little room to use interest rates as a stimulus. But the euro zone economies, like that of Britain, are stagnant and in need of help wherever they can find it.

Mr. Draghi said the E.C.B. was looking for new ways to stimulate lending in the weak euro zone economy, and could move quickly. It was unclear, though, what options might be available.

“We will assess all the data in coming weeks and we stand ready to act,” he said, without offering many clues about what measures he might have in mind.

The global financial crisis in recent years has forced central banks around the world to do much more than simply tweak the official interest rate as they had in the past. On Thursday, Haruhiko Kuroda, the new governor of the Bank of Japan, announced that it would seek to double over two years the amount of money in circulation, initiating a bid to end years of falling prices.

But the E.C.B., with its mandate to defend price stability above all else, is more constrained than its counterparts in other developed nations.

During the past year, Mr. Draghi has managed to quiet financial markets, cap government borrowing costs and contain the euro zone crisis by making it clear that the E.C.B. would not allow the 17-country euro currency union to unravel. He repeated those reassurances Thursday. But it is not clear what tools he sees at his disposal.

Making sure that “credit will flow to the real economy seems to be the E.C.B.’s number one priority,” Carsten Brzeski, an economist at ING Bank, wrote in a note to investors. “However, judging from today’s press conference, the E.C.B. looks rather clueless on how to tackle the problem.”

Mr. Draghi said there was a consensus among the 23 members of the central bank’s Governing Council not to cut rates even lower “for the time being.” The bank also discussed other, unconventional ways to help countries where credit remains tight, he said.

“We will continue to think about this issue in a 360-degrees way,” Mr. Draghi said. “The experiences of other countries tell us we have to think deeply before we can come up with something useful and consistent within our mandate.”

Large-scale purchases of corporate debt, which have been used by the Federal Reserve to stimulate lending in the United States, would be more difficult in Europe because most companies get their credit directly from banks, Mr. Draghi indicated.

With inflation already below the E.C.B.’s target of about 2 percent, some analysts have worried that, like Japan, the euro zone also faces a risk of deflation — a broad decline in prices that can be more destructive and difficult to cure than inflation. Mr. Draghi said, however, that risks to price stability were “broadly balanced,” indicating that he did not yet see a major risk of deflation.

Mr. Draghi found himself devoting much of the hourlong news conference trying to dispel fears that Cyprus represented an ominous new phase of the euro zone crisis.

He acknowledged that an initial decision by officials from the European Union, the International Monetary Fund and the E.C.B. to impose a tax on small bank deposits was “not smart, to say the least.” But he pointed out that euro zone officials quickly corrected that error.

Article source: http://www.nytimes.com/2013/04/05/business/global/european-central-bank-holds-steady-on-interest-rate.html?partner=rss&emc=rss

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Irish Search for Billionaire’s Assets Leads to Russia

April 3, 2013 by Leave a Comment

MOSCOW — The Irish government is promoting a partnership with one of Russia’s largest banks to help seize assets in the former Soviet Union belonging to Sean Quinn, a bankrupt Irish businessman who was once the country’s richest man.

The government-owned Irish Bank Resolution, which is trying to recoup losses from the collapse of the Quinn family’s real estate empire, has been working with Alfa Group, which is controlled by the billionaire Mikhail Fridman and other wealthy Russians.

The Irish hope to seize a dozen properties in Russia and Ukraine, Ireland’s ambassador to Russia, Philip McDonagh, said Wednesday at a news conference in Moscow.

Mr. McDonagh said Alfa Group, the conglomerate that recently exited a joint venture with BP in Russia, TNK-BP, would be “successful in asserting the claims over the properties in question for the benefit of the Irish state.”

Mr. Quinn, 65, is under investigation for avoiding payment of €2.8 billion, or $3.5 billion, in loans he owes to Irish Bank Resolution, formerly Anglo Irish Bank, which seized the Quinn Group Conglomerate in 2011.

His downfall, brought on by ruinous investments and the global financial crisis, came to personify the Irish economic collapse. Mr. Quinn declared bankruptcy and he, his son, and a nephew were jailed for contempt of court for hiding assets from the bank acting as a bankruptcy receiver.

The receiver has linked up with the asset recovery branch of Alfa Bank, called A1. Alfa Bank is known for its aggressive litigation in Russia’s civil arbitration courts in legal conflicts with BP and other Western businesses. Alfa’s suit against BP in 2011, for example, kept the British oil giant from joining a venture to explore the Arctic Ocean with Rosneft, the state oil company.

On Wednesday, Dmitry Vozianov, the acting director of A1, said of Mr. Quinn’s investments in Russia: “If we say we’re going to return the assets, then there is no doubt that we will get them.”

Directors of A1 said Wednesday that they would receive 25 percent to 30 percent of the value of any assets recovered under the agreement.

Representatives for A1 and the Irish bank said they were seeking to recoup as much as $500 million by seizing Quinn holdings including shopping malls in Moscow and Kiev and an office tower in Moscow.

Article source: http://www.nytimes.com/2013/04/04/business/global/irish-search-for-billionaires-assets-leads-to-russia.html?partner=rss&emc=rss

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Iceland, Prosecutor of Bankers, Sees Meager Returns

February 3, 2013 by Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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An Italian Bank Caught in the Vortex of Election Politics

January 28, 2013 by Leave a Comment

MILAN — The chief executive of a regional Italian bank embroiled in a scandal with political and even Europe-wide implications said Monday that recent revelations of past mismanagement and questionable deals would not impede efforts to turn around the beleaguered institution.

“This is still a solid bank,” Fabrizio Viola, chief executive of Monte dei Paschi di Siena, said Monday at a news conference in Milan.

In the past week revelations of transactions that may have disguised the extent of the bank’s losses during the global financial crisis have become political fodder ahead of Italy’s national elections next month.

And the disclosures have raised questions about the degree of scrutiny given Monte dei Paschi di Siena by Mario Draghi, who was still head of Italy’s central bank when the problems developed. Mr. Draghi, of course, is now president of the European Central Bank.

At issue is whether Monte dei Paschi di Siena, or M.P.S. as it is known, hid losses it incurred after acquiring the Italian bank Antonveneta in 2008, for €9 billion — a price that even at the time was widely derided as far too high. Now under scrutiny are two complex transactions M.P.S. conducted with Deutsche Bank and Nomura that critics say enabled M.P.S. to mask some of its losses.

Mr. Viola, part of the new management that came to the bank last year, said Monday that an investigation now under way would produce findings by mid-February, ahead of national elections scheduled for Feb. 24 and 25.

With M.P.S. based in Siena, in a part of northern Italy that is a stronghold of the leftist Democratic Party, the conservative former prime minister Silvio Berlusconi, who is trying to be a spoiler in next month’s elections, has been trying to lay blame for the scandal at the Democratic Party’s doorstep. Meanwhile, the current prime minister, Mario Monti, has had to defend his government’s decision to bail out the banks with loans granted last year.

More broadly, though, the problems at M.P.S. provide an extreme example of an old-line banking pattern that analysts say is still disturbingly commonplace in Europe. As with most Italian banks, M.P.S.’s primary shareholder is a local foundation, which receives dividends that are to be used to pay for social projects as well as cultural and charitable enterprises. That gives M.P.S. an extensive veil of political relationships that can be hard for any national overseer to peer through.

The same combination of local political influence and lax control has also afflicted many banks in Germany and Spain, with taxpayers left suffering the consequences. Indeed, grave lapses by national regulators are among the main reasons European leaders have decided to put the European Central Bank in charge of bank regulation.

But now there is a possible snag in the plan: Mr. Draghi, who is expected to lead that overhaul, was at least nominally the overseer of M.P.S. while it was digging itself into a deep hole.

Many analysts, though, question whether Mr. Draghi — or any Italian regulators — would have had enough information to recognize the bank’s problems, since there appears to have been a deliberate attempt to conceal losses. And in any case, the Bank of Italy may not have had legal power to prevent M.P.S. from making bad decisions.

But at the very least Mr. Draghi’s proximity to the scandal is untimely as the E.C.B. and euro zone leaders finally seemed to be rebuilding credibility in the common currency. The decision to create a centralized banking supervisor at the E.C.B. is a big part of the effort to restore confidence in the euro zone.

“Italy is a country where even national regulators can have a trouble getting a grip on what is happening at the local level,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. Mr. Véron stressed that there was no evidence Mr. Draghi deserved any blame for the Monti dei Paschi scandal.

But Mr. Véron said, “It clearly does create perception problems, because there’s a question mark about the appropriateness of the Bank of Italy’s response at the time.”

“At this point it’s only a question mark,” Mr. Véron said. “We don’t have any facts.”

A spokesman for the E.C.B. declined to comment Monday.

Article source: http://www.nytimes.com/2013/01/29/business/global/an-italian-bank-caught-in-the-vortex-of-election-politics.html?partner=rss&emc=rss

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Inside Asia: In Australia, Miners Break New Records

January 28, 2013 by Leave a Comment

SYDNEY — Despite all the doomsayers predicting an end to the Australian mining boom, the country is continuing to pump out metal, coal and natural gas after an investment bonanza, giving a boost to exports and extending the country’s 21-year run of economic growth.

Since the boom began in 2007, mining companies have poured 268 billion Australian dollars, or $282 billion, into new projects. But long construction times mean that actual output has lagged.

That is changing as the major miners in Australia are breaking production records, with double-digit growth expected this year.

The higher export volumes should help plug any hole left in the Australian economy as the huge investments in mining begin to wind down. The sector accounts for 8 percent of Australia’s 1.5 trillion-dollar economy, four times its long-term average.

“The death of the mining boom has been greatly exaggerated, as the pickup in exports illustrates,” said Paul Bloxham, an economist at HSBC in Sydney. “And this is only the beginning of the export story. In the next few years, Australia is set to become a global energy player as LNG comes on stream,” he said, referring to liquefied natural gas.

With the Australian economy growing 3.1 percent in the year that ended in September, the country overtook Spain as the world’s 12th-largest economy. But it will need that boost in mining output and exports to come about quickly if it is to avoid a subsequent dip.

Given the scale of mining investments, even a modest pullback would hurt growth and could put the country at risk of a recession. Australia is the only developed country that largely dodged recession during the global financial crisis.

The need to offset that danger is a major reason investors believe the Reserve Bank of Australia will cut interest rates to a record low this year, after four similar cuts in 2012.

Yet recent production reports from Australia’s’s biggest miners do offer hope that exports are ramping up just in time.

BHP Billiton , Rio Tinto and Fortescue Metals all dug up record amounts of iron ore in the last quarter as well as for the whole of 2012. Chinese demand has proved strong enough for much of this output, even as prices kept rising.

Shipments of iron ore to China from Port Hedland in Australia climbed by a quarter in December from the previous month. Shipments were up more than 21 percent for the year.

Production from Australia’s main iron ore region of Pilbara is now predicted to rise about 17 percent in 2013, and all of that increase is expected to go to the export market.

The mineral that is essential to steel making already accounts for a fifth of the country’s exports, bringing in over 60 billion dollars a year. A decade ago it was worth just 15 billion dollars.

Likewise, coal output is forecast to expand about 10 percent this year, while shipments of oil and liquefied natural gas are starting to increase sharply.

This month, Woodside Petroleum announced a 46 percent jump in fourth-quarter production, in large part attributed to the strong performance of its flagship Pluto LNG project.

Santos, one of the country’s leading energy firms, reported a 13 percent rise in output, lifting revenue in the quarter to a record $876 million.

Australia has high hopes for liquefied natural gas as 190 billion dollars’ worth of projects are under way, with most of the natural gas already sold under long-term contracts. The government’s official forecaster predicts that export volumes of liquefied natural gas will rise 26 percent this year, and will quintuple by 2020, making it as valuable an earner as iron ore is now.

“L.N.G. will be the game changer,” said Brian Redican, a senior economist at Macquarie in Sydney. “It will be a truly extraordinary boon and a great tailwind for the economy.”

Figures like these have given the Australian treasurer, Wayne Swan, the confidence to scoff at reports of the demise of mining.

“We know that the upswing in actual mining production, output and export volumes is still ramping up, and that this will be a driver of Australia’s economic growth in future years,” Mr. Swan told a Harvard Club luncheon in New York this week.

An increase in output is long overdue. While earnings from all of Australia’s exports have risen by an average of 7.4 percent a year since 2006, volumes in the sector grew at less than 3 percent.

By contrast, import volumes have been running at twice that pace, in part because miners have been shopping for everything from remote-controlled trucks to platforms.

That has an impact, as volumes are what count when measuring real, or inflation-adjusted, gross domestic product.

As a result, net export volumes have subtracted from G.D.P. for no less than 20 of the last 27 quarters, even though the value of those exports rose sharply.

That cycle is expected to turn positive in coming years as shipments expand and miners need to import less equipment as projects are finished.

Wayne Cole is a Reuters correspondent.

Article source: http://www.nytimes.com/2013/01/29/business/global/in-australia-miners-break-new-records.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Advertising: Stalled Budget Talks Cast Long Shadow

December 4, 2012 by Leave a Comment

The executives spoke on Monday at the start of the 40th annual global media and communications conference, sponsored by UBS, in Midtown Manhattan. They addressed the possibility of a fiscal crisis in January as part of discussions about issues that could significantly curb growth in ad spending, among them the continued economic difficulties in the euro zone.

Widespread gloom about an inability to avert the fiscal crisis is one of four “gray swans” that are roiling markets, and marketers, said Martin Sorrell, chairman of WPP, the largest advertising holding group by revenue. The phrase is a play on the expression black swans, meaning highly improbable like the global financial crisis of 2008.

“I would err on the side of caution at the moment,” said Mr. Sorrell, whose hundreds of agencies include Grey, JWT, MEC, Mindshare, Ogilvy Mather and YR.

“Whichever way it comes out, it creates tremendous uncertainty,” he added. “It’s much tougher sledding.”

For instance, Mr. Sorrell said, “clients used to look at calendar years” in their planning processes, but “now they look at quarters.”

“We had lunch with the C.E.O. of one of our major packaged-goods clients in New York last week,” he said, and the executive talked about “how hard it is to predict the behavior of consumers month to month.”

“This is packaged goods, not capital goods,” he added for emphasis, almost shaking his head in wonderment.

As a result, Mr. Sorrell said, as WPP agencies go through their fourth-quarter planning for the new year, they are “being told to be cautious” and to budget smaller gains in revenue for 2013 than might otherwise be expected.

Another gray swan influencing Mr. Sorrell’s outlook for next year is, of course, the tumult in the euro zone. He seemed more sanguine about that problem, saying, “By and large, we’ll muddle through.”

Mario Draghi, president of the European Central Bank, has “done a brilliant job,” Mr. Sorrell said, quoting approvingly a remark Mr. Draghi made on Friday that European governments had been “living in a fairy world.”

Mr. Sorrell expressed optimism for the year after next, pointing to a “strong ray of hope” that could shine on the ad industry in 2014 as a result of spending related to the Winter Olympics, the World Cup and, he added, laughing, “would you believe, we have another U.S. Congressional election.”

Another speaker, Michael I. Roth, chairman and chief executive of the Interpublic Group of Companies, repeatedly used the word uncertainty in his remarks, but also said he saw opportunity amid the question marks.

“When clients are faced with this economic uncertainty,” said Mr. Roth, whose agencies include Deutsch, Draftfcb, Initiative, Lowe Partners and McCann Erickson, it is a chance for Interpublic to demonstrate that “we have the resources to move the needle” in selling goods and services for them.

Also, the current environment is not like the fourth quarter of 2008, Mr. Roth said, when the financial crisis led marketers to sharply and quickly cut their ad budgets.

“In this environment, our clients have plenty of cash,” he added. “The tone right now is O.K. and hopefully, we’ll see a good, vibrant December.”

“We don’t see a wholesale cutback in 2013,” Mr. Roth said, “at least so far,” adding that growth in American ad spending in the low single digits compared with this year “is a fair assumption to make.”

The Magna Global unit of Interpublic forecast on Monday that ad spending in the United States next year would increase 0.6 percent from 2012. That prediction assumes “we don’t fall off the fiscal cliff,” said Vincent Letang, executive vice president and director for global forecasting at Magna Global.

Also on Monday, the GroupM unit of WPP predicted a gain of 2.7 percent for American ad spending in 2013 and the ZenithOptimedia division of the Publicis Groupe forecast an increase of 3.5 percent. By comparison, their predictions for worldwide ad spending in 2013 compared with 2012 were somewhat stronger: Magna Global, up 3.1 percent; GroupM, up 4.5 percent; and ZenithOptimedia, up 4.1 percent.

Steve King, worldwide chief executive of ZenithOptimedia, said that in addition to the potential for a fiscal crisis, he was worried about “continued unrest in the Middle East and its impact on oil prices.”

Mr. Roth said that a possible fiscal crisis loomed larger as a “challenge” for Interpublic because Interpublic derived more of its revenue from the United States than did competitors like WPP, the Omnicom Group or Publicis.

To help insulate Interpublic, he said, “we will continue to invest in emerging markets” and “make sure we have powerful offerings” in fields like advertising, media services and digital marketing.

In a research note last week, Brian Wieser, an analyst at the Pivotal Research Group, estimated that an inability to resolve the fiscal crisis could result in American ad spending declining next year by 4 percent, or $9 billion, rather than growing by 1 percent as he has forecast.

“While economists’ consensus and our model speaks of optimism that this won’t happen,” Mr. Wieser wrote, “our brain increasingly thinks it just might.”

The UBS conference continues through Wednesday afternoon.

Article source: http://www.nytimes.com/2012/12/04/business/media/stalled-budget-talks-cast-long-shadow.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,
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