July 16, 2020

Police Search I.M.F. Chief’s Home in French Financial Case

The investigation concerns Ms. Lagarde’s decision in 2007 to refer to an arbitration panel a dispute between Bernard Tapie, a French billionaire and supporter of former President Nicolas Sarkozy, and the state-owned bank Crédit Lyonnais. The panel ultimately brokered a settlement that awarded Mr. Tapie about $580 million, including interest.

A panel of investigating magistrates is looking into whether she was complicit in embezzling public money in what critics say was an overly generous award to a presidential friend.

Ms. Lagarde has repeatedly denied any wrongdoing and has expressed her willingness to cooperate with any investigation.

Gerry Rice, the director of the External Department of the I.M.F. in Washington, declined to comment on the case Wednesday, but he said the fund’s board had discussed the possibility of French legal proceedings against Ms. Lagarde before its decision to appoint her as managing director in 2011. The board at the time “expressed its confidence that Madame Lagarde would be able to effectively carry out her duties,” Mr. Rice said in a statement.

In a statement, Ms. Lagarde’s lawyer, Yves Repiquet, said the IMF director hoped that the results of the police search would enable the truth to be established and would ‘’ultimately lead to the termination of al investigations.”

Mr. Tapie, a former Socialist politician who switched allegiance in 2007 to support Mr. Sarkozy’s center-right Union for a Popular Movement party, is a former owner of the Olympique Marseille soccer team who borrowed 1.6 billion euros from Crédit Lyonnais to buy the distressed Adidas sports empire in 1989.

But unable to keep up with the interest payments, Mr. Tapie converted his debt to the bank into shares of Adidas, which Crédit Lyonnais later sold in 1993 for more than the value of the loan. Mr. Tapie accused the bank of cheating him.

When he became president in 2007, Mr. Sarkozy suggested that the Finance Ministry — which was led by Ms. Lagarde and had been overseeing the dispute — move the case to arbitration.

In a French television interview in January, Ms. Lagarde said that referring the dispute to arbitrators was “the best solution at the time.”

This article has been revised to reflect the following correction:

Correction: March 20, 2013

An earlier version of this article incorrectly identified the amount of money Bernard Tapie borrowed to buy Adidas in 1989. It was 1.6 billion French francs, not 1.6 billion euros.

Article source: http://www.nytimes.com/2013/03/21/world/europe/police-search-imf-chiefs-home-in-french-financial-case.html?partner=rss&emc=rss

Bank of America Plans Stock Swap to Cut Debt

The new stock would be issued in exchange for preferred shares currently held by investors. The bank’s shares have been battered recently amid fears about the effect of the debt crisis in Europe and other worries that have been hanging over financial companies.

The exchange, which could involve up to 400 million common shares, could allow the bank to raise $2.76 billion, based on Thursday’s closing price of $6.91.

Brian T. Moynihan, the bank’s chief executive, has long maintained that additional share sales are not necessary to raise capital. Bank officials said the move was not driven solely by the need to increase its capital cushion, but was also an opportunity to reduce debt and interest expenses.

The plan was outlined Thursday in a filing with the Securities and Exchange Commission. A decision is not final, but the bank is likely to go ahead with the exchange shortly, according to one official.

By saving money on interest payments on the preferred shares, the move to issue new common shares would not reduce earnings and could actually add to earnings in the short term, the bank said in its filing.

In addition, swapping shares of common stock for the preferred shares will add to the bank’s Tier 1 capital base, because under international regulatory standards preferred stock does not count as common equity while common stock does.

Because the preferred stock is trading below par value, Bank of America can buy it back from investors at a price above where it is trading, yielding a gain for those shareholders. But because it is still below par, it allows Bank of America to book a gain on the difference.

“We want to exchange one form of capital, which is very expensive, for another, which counts toward our Tier 1 common equity on terms that are economically favorable to us,” said Jerry Dubrowski, a spokesman for the bank. “Our goal is to have the strongest balance sheet we can have, and this is an important step.”

Shares of Bank of America have fallen nearly 50 percent in 2011, as the bank faces tens of billions of dollars in liabilities for its role in the subprime mortgage mess as well as a slowdown in other parts of its business. Further increasing the number of shares outstanding from the current level of 10.1 billion is unlikely to win favor with investors. As a result, Bank of America’s stock fell nearly 2 percent in after-hours trading.

This is the second time this week that the company has reversed course. On Tuesday, Bank of America announced it was calling off plans to impose a $5 fee on debit cardholders after an uproar by consumers as well as politicians in Washington.

Under Mr. Moynihan’s leadership, Bank of America has been busy shedding noncore assets and raising capital. In August, it sold half its stake in the China Construction Bank, adding $3.5 billion to Tier 1 capital. It is now the nation’s second-biggest bank, having recently lost the top spot to JPMorgan Chase.

The billionaire Warren E. Buffett invested $5 billion in the company in August by buying preferred shares. That deal did not count toward Tier 1 capital but was widely seen as a crucial endorsement of Bank of America’s management team amid growing doubts among investors. His shares would not be affected by the bank’s latest plan.

Shareholders are sensitive about issuing new common stock because it dilutes the bank’s earnings per share. In this case, the dilution equals about 4 percent. Bank of America’s share count exploded after the financial crisis of 2008, because the company used stock to buy Merrill Lynch and also issued shares to pay the government back for two bailouts totaling $45 billion.

The deal with Mr. Buffett could cause a 5 percent dilution and that, along with the 4 percent dilution from the plan announced Thursday, means “shareholders are being nickel and dimed here,” said Chris Kotowski, an analyst with Oppenheimer.

Article source: http://feeds.nytimes.com/click.phdo?i=f2d3a5fc900c3e2aae6516f6f1ef7518

Economix Blog: The Bush Tax Cuts and the Deficit

How much do the Bush tax cuts and the alternative minimum tax patch widen the deficit? Take a look at the lightest blue bars below:

DESCRIPTIONCongressional Budget Office

That chart comes from the Congressional Budget Office’s latest report, released Wednesday, on the budget and the economic outlook.

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

The office is legally required to provide estimates for the budget under current law; this is known as the forecast “baseline.” Every year, though, Congress reliably makes changes to current law — changes that increase the deficit — just in the nick of time. This bar chart is intended to illustrate exactly how big those last-minute changes are, lest onlookers be tempted to ignore them.

The lightest blue bars, labeled “Extend Tax Policies,” represent an estimate of how the deficit will grow if Congress extends the Bush tax cuts and indexes the alternative minimum tax for inflation, as legislators are expected to do once again. As you can see, these moves alone more than double the size of the deficit for most of the years shown.

Just above this are much darker blue bars, labeled “Maintain Medicare’s Payment Rates for Physicians.” These represent the expectation that Congress will continue to nullify their own requirements to cut Medicare payments for doctors. The law says that Medicare’s payment rates for physicians’ services will fall by 30 percent at the end of 2011, but given Washington’s record on this “doc fix,” few expect that cut to be allowed to happen.

“Additional Debt Service” — the aqua strips at the top — refers to the interest payments the government will have to pay because it will need to borrow more money to account for the greater budget shortfall caused by continuing these tax and Medicare policies.

Article source: http://feeds.nytimes.com/click.phdo?i=d2249ad9f5fd8ff965d47ba30c321291