April 24, 2024

Europeans Struggle Toward Debt Solution

With Europe’s economic and financial woes weighing on prospects for global growth, officials said they had agreed to take “all necessary measures needed to stabilize the financial system” and to contain the troubles. The officials did not provide specifics, but said they were working toward introducing a grand plan at a meeting on Oct. 23 in Brussels.

The United States Treasury Secretary, Timothy F. Geithner, who along with President Obama has urged the Europeans to move more forcefully to keep the crisis from infecting the global economy, said he was “encouraged by the direction and speed” at which the Europeans were moving, and by French and German pledges to find a solution.

“But as you know,” Mr. Geithner said, the ultimate impact of Europe’s efforts is “all in the details, and it’s very hard to judge the impact that something will have until you see it take shape.”

“They clearly have more work to do on strategy and details,” he added.

European leaders have sharply raised expectations that a comprehensive solution will be introduced by the time the presidents and prime ministers of G-20 nations gather in Cannes, France, in early November to address the troubles in the global economy.

By doing so, they have set a high bar: investors have calmed the wild volatility that hit global stock markets the past couple of months, on the belief that leaders will produce measures to tackle the crisis within weeks.

It remains to be seen whether that trend will reverse if investors are unconvinced that the package will keep the crisis that started in Greece from spreading to Spain and Italy. That is the foremost goal of all the European efforts.

“The results of Oct. 23 will be decisive,” France’s finance minister, François Baroin, said at a news conference.

In the search for answers, the International Monetary Fund, which is overseeing the bailout of Greece, Ireland and Portugal, also floated the idea of raising hundreds of billions in new funds from its emerging market and other members. But Europeans want to avoid the perception that they need additional help from the I.M.F., and the plan seemed unlikely to gain traction.

The specter of a downturn in Europe has started to trouble leaders in other countries, including the United States and Britain, where officials have pressed the Europeans to strengthen their rescue fund for weak European economies and banks, and to ensure that the troubles in Greece do not engulf bigger countries like Italy and Spain.

Indeed, while officials pledged unity in fighting the crisis, some thorny divisions still lingered. G-20 leaders said they looked forward to “further work” to maximize the impact of the rescue fund, the European Financial Stability Facility, that is meant to keep the sovereign debt crisis in Greece from spreading to other nations and the European banking system at large.

German financial officials continued to express skepticism about expanding the facility, either by injecting additional cash into it, or through other, less conventional means.

Wolfgang Schäuble, the German finance minister, said proposals for expanding the effective size of the facility by letting it borrow from the European Central Bank were “not on the table,” saying this was against the bank’s mandate.

“Of course there are ways of taking advantage of the size of the E.F.S.F. in efficient ways to avert infection, but there is no sense, on the weekend before we have to decide on these things, to speculate about them,” he added.

After playing down calls by the I.M.F. for Europe’s banks to raise more capital, leaders now acknowledge that banks need to set aside hundreds of billions of euros in additional cash. The case became more urgent after Dexia, a troubled French-Belgian lender, had to be bailed out last week, raising questions about the need to recapitalize other banks.

Eric Pfanner contributed reporting from Paris.

Article source: http://www.nytimes.com/2011/10/16/business/global/europeans-struggle-toward-debt-solution.html?partner=rss&emc=rss

Stocks Fall in Europe for a Second Day; Asia Markets Mixed

LONDON — Stock markets in Europe fell for a second day Friday as investors braced for a speech by the chairman of the Federal Reserve and more data on the U.S. economy.

Anticipation that there would be some message from the Fed chairman, Ben S. Bernanke, on more economic stimulus at a symposium in Jackson Hole, Wyoming, had helped to push global stock markets higher at the beginning of the week but had waned by Thursday.

Markets in Asia were mixed on Friday, with the MSCI Asia Pacific index up 0.3 percent after dropping several times during the day.

“Investors are waiting what Bernanke says and I don’t think there’s a great deal of expectation in the market,” Ian Scott, global head of equity strategy at Nomura, said. “Clearly people would rather hear what he’s going say and decide their strategy after that.” Mr. Bernanke is scheduled to speak at about 8 a.m. Mountain time — about 10 a.m. in New York and 5 p.m. in London.

Mr. Scott added that Mr. Bernanke’s speech was not the only information investors were waiting for. With uncertainties around the state of the global economy continuing, investors are holding out for more economic data to back up some recent disappointing survey figures.

“It’s a question of letting time pass and see some harder data,” Mr. Scott said.

As a sign of just how jumpy some investors are, Germany’s DAX index dropped 4 percent in 15 minutes in late trading on Thursday, surprising many investors who said there did not seem to be a clear reason for the sharp drop. Some analysts blamed it on speculation about an extended short selling ban in Europe or fear of a possible cut of Germany’s credit rating, but authorities quickly denied both rumors.

Still, the nervousness spread to Wall Street, where the Standard Poor’s 500-stock index closed down 1.56 percent on Thursday. After a positive report earlier in the week on durable goods sales, the outlook for the U.S. economy darkened somewhat Thursday with a government report showed that new claims for unemployment benefits rose more than expected last week. A report by the Commerce Department on the U.S. economy is due at 8.30 a.m. Friday in Washington.

Markets continued downward Friday in Hong Kong, where the Hang Seng index was 0.86 percent lower by midafternoon, and in India, where the Sensex was down 1.1 percent by the afternoon. The Nikkei 225-stock index rose 0.3 percent after Prime Minister Naoto Kan announced his resignation.

Gold rose 0.5 percent to $1,783.57 an ounce after falling earlier. Prices of the metal fell 4.3 percent this week after reaching a record on Aug. 23. Investors were spooked by four weeks of sharp declines on the stock markets and sought a haven, traders said.

Financial regulators in France, Italy and Spain extended a ban on short selling by another month on Thursday with the aim to calm large market swings. The ban, which regulators promised to review next month, did not prevent steep drops in banking shares earlier this month.

Article source: http://feeds.nytimes.com/click.phdo?i=9eeab646294f320096b4220d93804716

Reuters BreakingViews: BP Fast Becoming a Takeover Target

Almost a year since the Gulf of Mexico spill hobbled BP on its western front, the company finds itself bogged down in Russia. An arbitration court has ruled that BP’s proposed drilling alliance with Rosneft breaches terms of an existing joint venture with TNK-BP. Any resolution will probably be costly.

The fight with TNK-BP is especially damaging because Robert Dudley, BP’s chief executive, once led the venture.

Worse, BP is considering swapping 5 percent of its equity for a stake in Rosneft even if TNK-BP succeeds in blocking the drilling alliance outright. The reasoning is hard to justify.

Add it up and BP looks exposed. Adjust for the gain in global stock markets since the gulf fiasco, and BP’s market value of $146 billion is $75 billion below where it was before the spill.

Even if BP were to be found grossly negligent, the post-tax bill would be just under $50 billion. The problems in Russia, which account for about 10 percent of BP’s profit, justify some additional discount.

Though Shell, known for being ultracautious, would be unlikely to make a hostile offer, Exxon must be tempted. The cost savings from its 1998 deal to buy Mobil were about 10 percent of combined operating expenses. On that basis, an Exxon-BP combination could yield annual savings of $12 billion.

The industry already has cut fat over the last decade, so a more realistic figure may be $10 billion. Taxed and capitalized, this would be worth about $70 billion. That’s enough to pay for a 30 percent premium for BP shareholders and still leave room to resolve the issues over the Russian deal and the gulf spill.

Any deal still looks complex. Antitrust watchdogs would probably require ExxonMobil and BP to sell American refining and marketing activities. The gulf and Russian liabilities remain big overhangs. And there are political challenges for any advance on Britain’s national oil champion.

A deal in the short term doesn’t look likely, but the longer BP’s shares languish, the more the financial logic will overcome other worries.

Not Quite OpenTable

The dot-com sector’s latest crop of I.P.O. hopefuls wants to emulate OpenTable. They are all conjuring up comparisons to the company, a restaurant booking Web site whose shares have risen fivefold since they started trading. While similarities exist, none of the comers can quite match OpenTable.

Don’t blame underwriters and venture capitalists for trying. OpenTable’s $2.6 billion current market value means it trades at an enviable 18 times the $146 million analysts expect the company to book in revenue this year. And the stock fetches 99 times consensus estimated earnings per share of $1.10.

No wonder a handful of companies harnessing the Internet to add a new twist to relatively old business models want to sit around OpenTable. Two already have filed I.P.O. plans: Pandora in the radio trade and Zipcar in the rental-car business. Zillow, the real estate information service, could start an offering soon, too.

All of them may deserve to trade at a premium to their Jurassic competitors by dint of enormous top-line growth rates. Pandora’s annual advertising sales more than doubled in the year through Jan. 31. Zipcar’s top line grew 42 percent in 2010.

But investors sizing them up against OpenTable ought to consider the distinguishing factors. First, both Zipcar and Pandora are clawing most of their revenue away from traditional rivals. That limits the revenue pools they are stealing from. It also means competitors will fight back.

That raises a fresh question about barriers to entry. Zipcar has created a handy network of locations for its car-sharing customers, but Hertz has begun to create one of its own. Pandora’s brand is valuable and the stations its clients create make the service sticky, but it has no exclusivity on the musical content it provides.

OpenTable is in a different class because of the network effect: every restaurant that uses the reservation software makes the service more valuable for the site’s users. And restaurants will be happy to pay fees to OpenTable as long as it generates additional demand.

It’s hard to blame any I.P.O. newbie for wanting to cast itself as the OpenTable of its industry. But with few exceptions, investors should know better.

FIONA MAHARG-BRAVO, CHRISTOPHER SWANN and ROB COX

Article source: http://feeds.nytimes.com/click.phdo?i=1d3f76971ba3b43e7afb4b72f309e84c