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France Télécom Board Backs Chief Executive

June 17, 2013 by Leave a Comment

Mr. Richard’s grip on the job became uncertain last week after he was placed under formal investigation in connection with what was suspected to be fraud involving a 2008 arbitration case. But in a statement Monday, the board of the company, which is changing its name to Orange, expressed “its full confidence in Stéphane Richard and his ability to effectively meet the numerous challenges facing” the company. “In particular, the board considers that the legal measures affecting Stéphane Richard do not impede his ability to fully and effectively lead Orange as its chairman and chief executive officer.”

The statement said the board had also asked an independent board member, Bernard Dufau, “to follow the situation.”

With its 27 percent stake in France Télécom, the government appoints three of the 15 directors on the board, and its vote tends to be decisive.

Mr. Richard’s continued stewardship at France Télécom, at least for the short term, was essentially secured on Sunday when Mr. Hollande told the M6 television network that the executive had the state’s support, as long as the investigation did not stop him from performing his functions at the company.

“If the judicial procedure takes a turn such that he can no longer lead the enterprise, at that moment another decision will be taken,” Mr. Hollande added.

The company employs about 170,000 people worldwide. Mr. Richard has been chief executive since February 2010 and is credited with helping to restore stability after a major restructuring led by his predecessor caused morale to plunge. Company unions last week called for Mr. Richard to stay on despite the investigation.

Mr. Richard denies any wrongdoing, and a formal investigation does not necessarily lead to charges or trial.

In 2008, he was a top aide to Christine Lagarde, the French finance minister at the time, when a businessman named Bernard Tapie was awarded 403 million euros, or about $538 million, by an arbitration panel to settle a commercial dispute with Crédit Lyonnais, a state-owned bank. Mr. Tapie had been a lifelong Socialist, but he changed parties to support the 2007 election bid of former President Nicolas Sarkozy. Investigators are seeking to find out if Mr. Tapie might have received special treatment, and the state has begun working to overturn the award.

Ms. Lagarde, currently head of the International Monetary Fund, is also being investigated in the case as an assisted witness, a less serious status than formal investigation. She also denies any wrongdoing.

Investors appeared to support Mr. Richard’s expected retention, with shares of France Télécom ending 3.1 percent higher in Paris.

Article source: http://www.nytimes.com/2013/06/18/business/global/france-telecom-expected-to-back-chief-executive.html?partner=rss&emc=rss

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Hollande’s TV Appearance Criticized

March 29, 2013 by Leave a Comment

On a stage set that looked as if it came from a game show, Mr. Hollande, a Socialist, responded to questions that were critical of his leadership with combativeness and his trademark wit, discussing everything from a troop withdrawal timetable in Mali to a new effort to construct a 75 percent tax on incomes over a million euros (about $1.3 million) a year. Still, even some on the left found Mr. Hollande less than inspiring in the face of stagnant economic growth, record and rising unemployment and general French unhappiness with the state of the country.

Underscoring the gloom, the government announced Friday that France missed its deficit target for 2012 of 4.5 percent of gross domestic product, hitting 4.8 percent, as total government debt rose to 90.2 percent of G.D.P. from 85.8 percent in 2011.

An editorial in the left-wing newspaper Libération said Friday that Mr. Hollande’s television performance had disappointed “the many who wanted more than a puff — but rather a blast of anger or revolt” over economic hardship and unemployment. The author of the editorial, Éric Decouty, said the president had been “often bland, almost banal.”

And Mr. Hollande was widely mocked for saying that “all the tools are on the table” to fix the economy. Jean-François Copé, the president of the center-right Union for a Popular Movement, disparaged the remark as “horrible,” saying: “Is this what the president of the republic is now? Someone who is in a garage to repair a car?” Marine Le Pen, head of the far right National Front, said similarly: “One cannot bring minor responses taken from a little D.I.Y. toolbox.”

François Fillon, the former prime minister, said that Mr. Hollande “is not a president who is combating the crisis but worsening it” through his economic policies.

Mr. Hollande’s ministers and his party defended him, and he remains securely in power, with another four years to his term and an effective majority in Parliament.

But he has already conceded that his vow to cut the budget deficit this year to 3 percent of G.D.P. will not be met, with 3.4 percent likely. He now promises to get to 3 percent by 2014, when he expects growth to pick up. His finance minister, Pierre Moscovici, has said that the government must cut spending and will not raise taxes further.

Thursday night, however, Mr. Hollande promised that military spending would not be cut this year, though it will be in 2014, and that his symbolic effort to tax incomes over one million euros at 75 percent for two years, which was thrown out by the constitutional court, would be adjusted to put the extra burden of tax onto the companies paying such salaries.

Business leaders are highly critical of Mr. Hollande’s policies. They believe he has done too little to reduce corporate taxes and to loosen the tight labor laws that make hiring and firing expensive, and therefore, they say, add to unemployment and the prevalence of temporary contracts.

Bosses and moderate labor unions agreed to a modest deal in December to overhaul the labor market, a pact that was considered a major Hollande success. But business leaders warn that the president is allowing Socialist legislators to attach weakening amendments to legislation intended to incorporate those changes.

“It’s essential to see it honestly translated into the law,” Henri de Castries, the chairman and chief executive of the major French insurance company AXA, said in an interview. “The president gave his word. And if Parliament were to do something else and change the balance, this would be a very, very, very bad signal at a time when it’s the last thing the business community needs, and it would be a bad sign for those on the union side who took the risk. It would destroy confidence further when we need to build compromises.”

As the criticism of Mr. Hollande increases, former President Nicolas Sarkozy has dropped hints of a political comeback. He, however, faces legal questions over accusations that he “exploited the frailty” of France’s richest woman, Liliane Bettencourt, to get campaign money in 2007, a charge he sharply denies.

His wife, Carla Bruni-Sarkozy, is making her own political waves. “The Penguin,” a song on her new album, “Little French Songs,” appears to mock Mr. Hollande, though she denies that the song is about him. “He takes on his little sovereign air, but I know him, the penguin, he doesn’t have the bearing of a Lord,” she sings.

In another song, “My Raymond,” which she happily says is about Mr. Sarkozy, she compares him, favorably, to dynamite and an atomic bomb. “My Raymond, he’s got everything right, it’s authentic stuff, we can’t say that he hesitates to cross the Rubicon.” She adds: “Whatever fools say about him, Raymond is dynamite.”

Also on Friday, there were more signs of labor unhappiness at the stalling economy. Workers at a small greeting card company in southern France temporarily detained the head of the company and the chief of the Dutch firm that owns it after laid-off employees were told they would not get severance pay. The workers’ action was backed by the Socialist mayor of the town, Cabestany.

Article source: http://www.nytimes.com/2013/03/30/world/europe/hollandes-tv-appearance-is-criticized.html?partner=rss&emc=rss

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ArcelorMittal, Announcing Loss, Indicates No Further Plant Closures in Europe

February 6, 2013 by Leave a Comment

The main reason for the losses was $5 billion in write-downs on plants, nearly all of them in Europe, the company said.

Thomas O’Hara, an analyst at Citi in London called the results “operationally weak” in a note, but said that 2013 was likely to see better results.

ArcelorMittal previously announced the long-term idling of blast furnaces at Florange, France, various facilities at Liège, Belgium, and electric arc mills in Spain and Luxembourg as part of what it calls its “asset optimization” program designed to achieve $1 billion in annual savings.

The company said Wednesday that “the essential components” of this program had now been announced, indicating that the major elements of its downsizing in Europe have now been made public.

“2012 was a very difficult year for the steel industry, particularly in Europe where demand for steel fell a further 8.8 percent,” Lakshmi N. Mittal, the company’s chairman and chief executive, said in a statement.

He added that the company had “recently seen some positive indicators” which, along with measures taken to reduce costs, he expected to lead to an improvement in the business this year.

The idlings and closures led to tensions with labor unions and a showdown with the government of President François Hollande over the closure at Florange, which employs 2,000 workers. The French government had threatened to nationalize the facility. ArcelorMittal agreed to invest €180 million, or $234 million, in the site but indicated that the two blast furnaces would remain closed.

ArcelorMittal has been hit particularly hard in Europe, where the company has about half of its global workforce and makes close to half its steel. The key flat carbon Europe unit, which supplies the beleaguered auto industry, reported a $2.9 billion operating loss for the fourth quarter, making an average loss of $487 on every metric ton it produced.

Despite the company’s struggles, which have included downgrades of its debt to junk status, ArcelorMittal is still able to raise money in the markets. Last month it quickly raised $4 billion through an offering of shares and convertible notes in an effort to reduce net debt, which it forecasts will be $17 billion in June.

ArcelorMittal is cautiously forecasting an improvement this year, saying that steel shipments are likely to increase by 2 percent to 3 percent and operating earnings improve. The company continues to focus its new investments on mining rather than steel. The company announced Wednesday that the board had approved a $1.5 billion expansion of its iron ore mine in Liberia.

Article source: http://www.nytimes.com/2013/02/07/business/global/arcelormittal-announcing-loss-indicates-no-further-plant-closures-in-europe.html?partner=rss&emc=rss

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France Details Plan to Shrink Banking Risk

December 19, 2012 by Leave a Comment

“My real adversary has no name, no face, no party; it will never be a candidate, even though it governs,” he told supporters at Le Bourget, near Paris. “It is the world of finance.”

Of course, 11 months is a long time in politics. The banking overhaul bill rolled out Wednesday by Mr. Hollande’s finance minister, Pierre Moscovici, was a far cry from the tough talk of January. Les Échos, a French financial daily, summed up the general reaction in a Page One headline: “Hollande’s signature bank law project is on the rails.”

Gone is the strict separation of investment banking from the consumer, or retail, business and its insured deposit base, with banks required simply to “ring-fence” trading for their own books in separately capitalized subsidiaries that remain within the organization. And loopholes in proposed bans on high-frequency trading and agricultural commodity speculation have left those measures essentially toothless.

The banking bill fell well short of a proposal put forth by Erkki Liikanen, the governor of the Bank of Finland, that all banks on the European Union quarantine their risky trading activities. It also fell short of the strictest version of the so-called Volcker plan in the United States, which would prohibit lenders from engaging in proprietary trading altogether.

But French bankers and officials including the Bank of France governor, Christian Noyer, had argued forcefully that Mr. Hollande’s original plans would have put the country’s financial firms at a competitive disadvantage to foreign rivals. Expectations for the bill had been ratcheted down in recent months.

“This isn’t reform for the sake of the banking lobby,” Mr. Moscovici said after he presented the proposal to the cabinet. “It preserves the French universal banking model that has stood the test of time.” The bill represents, he said, a campaign promise Mr. Hollande has kept.

The French Banking Federation said in a statement that the bill would “create new constraints and additional charges at an inopportune moment, when the banks must make considerable efforts to adapt to the Basel III capital rules.”

But analysts played down the significance of the measures, and shares of the biggest French banks — BNP Paribas, Crédit Agricole and Société Générale — rose in Paris on Wednesday.

“It’s all mirrors and smoke,” Christophe Nijdam, a banking analyst at AlphaValue in Paris, said. “In blunt terms, this is not banking reform.”

As evidence, Mr. Nijdam estimated the proposal would require BNP, the largest French lender, to segregate activities that represented just 0.5 percent of its net banking income. In contrast, he said, the Liikanen proposal would require BNP to segregate activities that represented an estimated 13 percent of that income. The difference is important, because if the riskier activities were separated, their financing costs would rise, reducing profitability.

The bill also calls for the creation of a guarantee fund, paid for by a levy on financial institutions, that could be called on to help pay for any banking disaster.

It also gives the government greater reach. The existing Prudential Supervisory Authority would be given the power to wind up any faltering banks. A new agency, the Financial Stability Council, would be charged with anticipating systemic risks to the banking sector, and have the power to order banks to raise capital or take other measures when they encountered difficulties.

Nicolas Véron, a senior fellow at Bruegel, a research institute in Brussels, said the new resolution authority might turn out to be the most important element in the bill. “France has long had a tradition that banks don’t fail,” he said, “and this represents a significant step away from that.”

The banking bill was adopted by the cabinet but must still obtain parliamentary approval. It must also be brought into conformity with emerging European Union rules.

“I was always skeptical that France could do it alone,” Mr. Véron said, adding that it was “not suitable” for the government to be pushing for integration at the E.U. level through a banking union while pushing for a different policy at the domestic level.

On a day when Mr. Hollande was making headlines on a state visit to Algeria, it also fell to Mr. Moscovici to warn that further pension overhauls might be necessary — a revelation that carries political risk for the government.

Mr. Moscovici told RTL radio that changes to the retirement system would have to be considered, despite fixes made in 2010 by Nicolas Sarkozy, Mr. Hollande’s conservative predecessor. Mr. Sarkozy’s changes, including an increase in the retirement age by two years, to 62, were to have kept the system solvent until 2018. But a new study by a government body, the Conseil d’Orientation des Retraites, estimates the retirement plans would have a combined deficit of €18.8 billion, or $23.8 billion, in 2017, up from €15 billion last year.

The study, first reported this week in Le Monde, proposed several means of addressing the gap, including an increase in payroll deductions, a reduction in the average pension, or adding six months to the retirement age.

Mr. Moscovici also sought to play down suggestions of policy differences among members of Mr. Hollande’s government, saying it was natural that ministers would express themselves differently even though they agreed on overall direction.

Referring to the recent dispute with ArcelorMittal, in which Mr. Hollande’s governmentthreatened to take over one of the company’s steel plants, Mr. Moscovici said that temporary nationalization could be “useful” when strategic interests were in play, but could not be an end in itself. He spoke after the industry minister, Arnaud Montebourg, told Le Monde that “temporary nationalization is the solution of the future.”

“Temporary nationalization is a part of the future, not the entire future,” Mr. Moscovici said.

Article source: http://www.nytimes.com/2012/12/20/business/global/france-details-plan-to-shrink-banking-risk.html?partner=rss&emc=rss

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Celebration Succumbs to Concern for Euro Zone

December 12, 2011 by Leave a Comment

In European trading and on Wall Street, shares fell sharply after Moody’s Investors Service and the Fitch Ratings warned that European efforts to protect the common currency had not resolved the immediate dangers of a significant economic downturn and troubles in the banking system.

By taking a “gradualist” approach to forging a true fiscal union among the 17 euro zone members, politicians were imposing additional economic and financial costs on the region, Fitch warned. “It means the crisis will continue at varying levels of intensity throughout 2012 and probably beyond, until the region is able to sustain broad economic recovery,” the agency said.

Moody’s said it was putting the sovereign ratings of European Union countries on review for a possible downgrade in the coming months. Standard Poor’s issued a similar warning last week, saying it could lower the sterling credit ratings of Germany and France and cut other countries’ credit scores as Europe headed into a probable recession next year.

On Monday, President Nicolas Sarkozy of France acknowledged that a loss of the nation’s triple-A rating could come soon, but said it would not pose an “insurmountable” difficulty. Mr. Sarkozy has made it a priority of his coming presidential campaign to keep the country’s top credit rating, and repeated a pledge to reduce the nation’s debt and deficit without cutting wages and pensions.

Mr. Sarkozy’s rival, the Socialist candidate François Hollande, said Monday that he would try to renegotiate the terms of the Europewide deal struck Friday if he were elected president in May, saying the pact would stifle growth.

With markets and rating agencies expressing mild disappointment with the deal, the spotlight returned to the European Central Bank, the only institution with overall responsibility for maintaining the health and integrity of the euro.

Amid last week’s political theater, the E.C.B. took a crucial step to help prevent the biggest European banks from succumbing to an increasingly volatile economic and market environment by agreeing to provide banks with unlimited funds for up to three years.

“That reduces the possibility of a Lehman moment quite substantially,” Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said during a conference call on the crisis. “It says to every bank in the euro area that even if you’re shut out of the market, we are the lender of last resort and provide you with necessary funding.”

While that may ease the pressure on the financial system, any further downgrade in the credit rating of European governments could raise the fever of the crisis by making it more expensive for the weakest countries to service their debts. It could also make it more difficult for banks in Italy, Spain and even France to get credit from other banks, causing a potential pullback in lending to consumers and businesses at a time when economic growth is already being squeezed.

In the lightning-fast world of financial markets, the efforts by Mr. Sarkozy, Chancellor Angela Merkel of Germany and other euro zone leaders appear to be moving too slowly to satisfy the demands of investors.

While the summit meeting in Brussels on Thursday and Friday marked a major step toward greater fiscal union among the core countries, the architecture will take months, even years, to construct.

In the meantime, the decision to embrace significant new spending cuts and tax increases across much of Europe at a time of economic weakness is expected to undermine growth in the immediate future, analysts said.

Carl B. Weinberg, the chief economist at High Frequency Economics, said some European banks that were already selling assets to keep enough money on hand were also curbing lending.

“We are now moving off the charts in terms of normal procedures, and moving into a grim time for European banks,” Mr. Weinberg said. “This is not a good time to be thinking of European bank shares because a contraction of credit has already begun and will get worse.”

Indeed, despite the political will to bring the euro zone under more centralized management, ratings agencies, banks and businesses are increasingly considering the possibility that countries could default, or leave the currency union.

Many governments and investors are hoping the E.C.B. will ride to the rescue by buying the bonds of troubled governments in Italy and Spain, in a bid to keep their borrowing costs from rising to levels that forced Greece, Ireland and Portugal to take international bailouts.

But Germany has opposed that move as being outside the bank’s mandate, and the E.C.B. president, Mario Draghi, made clear last week that the bank remained loath to take such steps.

Article source: http://www.nytimes.com/2011/12/13/business/global/moodys-warns-of-possible-downgrade-to-some-euro-zone-economies.html?partner=rss&emc=rss

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