November 29, 2023

High & Low Finance: When Accountants Act as Bankers

That is the law in Britain, a regulatory tribunal declared this week. The tribunal ruled that Deloitte L.L.P. had failed in its professional responsibilities in its work for MG Rover, the failed automaker, and for the “Phoenix Four,” four businessmen who took over the automaker in 2000 and ran it into the ground, taking out millions of pounds for themselves in highly dubious transactions before the company failed.

The tribunal issued a “severe reprimand” to Deloitte and levied a fine of £14 million ($22 million) against the accounting firm, a record in Britain. It fined Maghsoud Einollahi, a retired Deloitte partner, £250,000 and barred him from the profession for three years.

“They placed their own interests ahead of that of the public and compromised their own objectivity,” said the tribunal, convened by the Financial Reporting Council. “This was a flagrant disregard of the professional standards expected and required.”

Deloitte was the auditor for MG Rover, but the audits have not been challenged. Instead, it was the corporate finance work, run by Mr. Einollahi, that drew the condemnation.

The ethics rules of the Institute of Chartered Accountants in England and Wales — a group that all accountants and accounting firms must belong to — require accountants to consider the “public interest.” This ruling appears to be the first that makes clear just how far that can go.

“It has been put to us that in corporate finance work and tax work the only duty that a member owes is to his client, provided that he acts with integrity, and that the public interest is not a matter that needs to concern him,” the tribunal wrote. “We do not accept this.”

British auditing firms have gained some success in competing with investment banks in providing advice on mergers and corporate restructurings and have been able to charge high fees that are contingent on the success of a transaction. The ruling did not say such fees were barred, but it did say that accounting firms must carefully guard against conflicts of interest.

It conceded that the requirement to take the public interest into account could make it harder for accountants to win such business, but said that did not matter. “It is this duty to consider the public interest that provides comfort to the client that matters are being dealt with properly and with integrity.”

Deloitte argued that the public interest was not involved because MG Rover was a private company. The board rejected that, noting that Deloitte itself bragged about its role in preserving jobs when the Phoenix group took over MG Rover from BMW, the German carmaker, and that Mr. Einollahi cited the public interest in preserving jobs when he wrote to British tax authorities seeking favorable tax rulings.

In 2000, BMW concluded that it had made a mistake in acquiring MG Rover and set out to find a buyer. After one deal fell through, it settled on a company called Phoenix Venture Holdings, which bought the company for £10.

Even that nominal price drastically overstated what was paid. BMW chipped in what was called a dowry — a £427 million interest-free loan for up to 49 years.

That loan became the source of some of the money the businessmen took out of MG Rover before it failed in 2005. Rather than have the loan go to the car company, the Phoenix Four directed it to their parent company, which then lent the money to the car company, charging interest. They then distributed the “profits” that they realized from the interest to themselves.

Another strange deal involved the men’s being owed £10 million by the company even though they had invested only £60,000 each.

They wanted the figure to be £75 million, but that arrangement could not be completed. According to a later government report on the fiasco, Peter Beale, one of the Phoenix Four, blamed Sue Lewis, a partner in Eversheds, a prominent law firm that was advising the company, for keeping them from realizing the full amount.

Ms. Lewis testified that Mr. Beale had told her “it wasn’t her position to be raising questions about the directors’ remuneration and that she had done it on a number of occasions in a way that he had thought was inappropriate.”

The law firm, Mr. Beale said, was not “anybody’s moral guardians.”

Floyd Norris comments on finance and the economy at

This article has been revised to reflect the following correction:

Correction: September 12, 2013

An earlier version of this column misstated the amount of money that the Financial Reporting Council said that Deloitte had received for tax work from MG Rover from 2000 to 2005. It was £1.8 million, not £1.8 billion.

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Social Media’s Effects On Markets Concern Regulators

That is the question the financial industry and government regulators are trying to answer after a Twitter hoax on Tuesday that claimed President Obama was injured in an explosion at the White House. That report caused the Dow Jones industrial average to drop temporarily by 150 points, erasing $136 billion in market value.

The markets recovered in minutes, but the episode has heightened concern among regulators about the combination of social media and high-frequency trading.

The vulnerability, in part, stems from the Securities and Exchange Commission’s decision this month to let companies and executives use social media sites like Twitter and Facebook to broadcast market-moving news.

High-frequency trading systems are designed to make trades based on keywords within milliseconds. The hoax message also went out on a new feature on Bloomberg’s financial data terminals that delivers select Twitter posts to hedge funds, investment banks and other users.

On Tuesday, the Commodity Futures Trading Commission plans to hold a public meeting in Washington with a couple of dozen high-frequency traders to discuss whether there should be additional safeguards to protect against the effects of social media on markets.

Even as markets rebounded on Tuesday, some investors lost money on the quick decline while others made money if they bet on a sharp drop.

“In 2010, we passed Dodd-Frank, the big financial reform bill, but nowhere in there do they mention high-speed trading or technology,” said Bart Chilton, a member of the trading commission. “That’s how quickly markets are morphing. Now, here we are three years later, woefully unprepared.”

The false report (“Breaking: Two Explosions in the White House and Barack Obama is injured”) was posted on Tuesday after Syrian hackers broke into The Associated Press’s Twitter feed.

Immediately, the mood shifted on the floor of the New York Stock Exchange.

“It was nine, 10, 11 seconds and it was fast and then the question was ‘Why’?” said Andrew Frankel, co-president of the brokerage firm Stuart Frankel Company.

He said traders realized shortly after that the post was a hoax since the television screens showing Bloomberg and CNBC had nothing about an explosion at the White House. Still, the episode recalled the 2010 “flash crash,” when an automated trading program caused the Dow to sink more than 600 points, and it left a deep skepticism of social media on the trading floor.

“You look at how quickly that happened and now everyone wants to release corporate earnings on Twitter,” Mr. Frankel said, in between calling out, “Sell!” to his team. He added: “The concern is ‘How do you know what’s right and what’s not? How do you know what’s hacked and what isn’t?’ ”

Spokesmen for Twitter and The A.P. declined to comment.

Even though Syrian hackers remain the prime suspects, the trading commission is now investigating 28 different futures contracts and specifically examining the five-minute period before and after The A.P.’s Twitter account was hacked. It is looking to see if there were anomalous trades, and investors who benefited from them.

“To think it was all lost because of this hack attack is very disconcerting,” Mr. Chilton of the commission said. “We would be irresponsible if we turned a blind eye to these debacles.”

The decision to allow market information on social media came after Reed Hastings, chief executive of Netflix, had posted on Facebook that the service had exceeded one billion hours of streamed video a month, sending its stock price up.

“We appreciate the value and prevalence of social media channels in contemporary market communications, and the commission supports companies seeking new ways to communicate,” the S.E.C. said on April 2.

Two days later, Bloomberg introduced a feature on its financial data terminals that incorporates a stream of relevant Twitter posts delivered to investors. All of Bloomberg’s more than 310,000 subscribers, who pay at least $20,000 a year for access to the terminals, now have access to those posts, which the company says are clearly identified as Twitter messages.

“The S.E.C.’s decision reflects the reality that we were dealing with in that this information is being distributed by companies and investors are consuming it and we needed to get it on the terminal,” said Brian Rooney, the company’s core product manager for news, adding, “We’re not in a world where people live in a vacuum.”

At the same time, the use of algorithms designed to peruse millions of sources of information like blogs and social media to analyze and execute trades is only becoming more widespread.

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DealBook: In the Persian Gulf, Struggling to Adapt as Deals Dry Up

 Sheik Maktoum al-Hasher Maktoum, 35, is the executive chairman of Shuaa Capital,  one of the largest investment companies in Dubai.Shuaa Capital Sheik Maktoum al-Hasher Maktoum, 35, is the executive chairman of Shuaa Capital, one of the largest investment companies in Dubai.

DUBAI — As a new wave of austerity has left many financial firms around the world struggling, their counterparts in the Persian Gulf region have too been forced to hunker down.

In an environment of dwindling trading volume on domestic markets and a disappointing pace of deals, some of the region’s most prominent investment banks are undergoing drastic changes. It is a stark contrast to the mood in the last decade, when both international and regional investment banks were bulking up to pursue deals in the Middle East.

Trading on the Dubai Financial Market slumped to average daily volume of $48.5 million in 2011, an 89 percent drop compared with 2007, according to data from Coldwell Banker. That sharp drop in volume decimates revenue for brokerage firms. Average trading volume on the Abu Dhabi Securities Exchange is also down.

“When markets are this volatile, it can be difficult to persuade retail investors to stay in the long run, even though opportunities are there,” said Nick Tolchard, managing director here for the asset management firm Invesco.

In light of the new reality, Shuaa Capital, an investment company with a 30-year history, is one of several regional firms making sweeping changes to cut costs. “Everything that could possibly go wrong has already happened to us, and we’re still here,” said Sheik Maktoum al-Hasher Maktoum, 35, who recently took on the role of executive chairman of Shuaa, one of the largest investment companies here. He is also the nephew of Sheik Mohammed bin Rashid al-Maktoum, the ruler of Dubai.

“Now that the entire industry is facing changes, we knew we had to act fast, and we didn’t hesitate with where and when to cut costs in the company,” he said.

Dubai’s ruler, through the Dubai Group, spent heavily on large stakes in several investment companies here, including acquiring a 48.4 percent stake in Shuaa at what turned out to be near the top of the market.

After the pullback in market trading, Shuaa is aiming to cut costs 71 percent by the middle of this year. It has closed its operations in Jordan and Egypt, and reduced the work force in its Saudi Arabia office, Sheik Maktoum said.

It has also cut its global staff to 232 employees at the end of the first quarter of 2012, from 390 at the beginning of 2011.

Difficulties remain despite reorganization efforts. Shuaa’s shares are stuck near an eight-year low. The firm has not reported a profit since 2007. Last year, it reported a net loss of 294 million dirhams, or $80 million. And Moody’s Investors Service downgraded its rating on Shuaa last month.

EFG Hermes, a leading regional investment bank, is bringing in a smaller but wealthier firm, Qinvest of Qatar, which is putting in $250 million in exchange for a 60 percent stake in the company’s brokerage, advisory and wealth management units.

Turmoil in the Arab world put pressure on the EFG Hermes’s brokerage and investment banking business, which led the firm to report to an 81 percent drop in profit last year, to 133 million Egyptian pounds, or $22 million.

Qatar, by contrast, is on an upswing as a regional power broker, thriving on oil and natural gas income.

The new institution formed from the deal, to be called EFG Hermes Qatar, will be able to grow on advisory fees from Qatar’s aggressive acquisition spree, fueled by an estimated $20 billion to $30 billion in annual cash set aside for investments. And Qatar will obtain what it has been seeking: a prestigious regional investment bank.

“Their valuation is different from us,” said a person close to the transaction, speaking of the Qataris, who added that the bank would become “a platform for Qatar Inc.” The person asked to be anonymous so as not to jeopardize business relationships.

Still, the deal shows how far EFG Hermes had to retrench. The market cap of the firm is now $884 million, less than the $1.1 billion that Dubai’s ruler paid in 2007 for a 25 percent stake.

Some financial institutions, including Bank Alkhair in Bahrain, are battling corruption charges in court. Others have not been fortunate enough to find a buyer and have shut operations. In March, the Bahraini investment firm Arcapita filed for bankruptcy protection in the United States, where it had offices, after failing to refinance its $1.1 billion credit facility.

Senior management shuffles have become commonplace to appease shareholders as new strategies are adopted for a leaner environment. Citadel Capital in Cairo reshuffled its board this week, while Rasmala Investments in Dubai changed its chief executive in November 2010.

Last month, Shuaa Capital appointed its fourth chief executive in three years, Colin Macdonald, and brought in Sheik Maktoum as executive chairman in April.

“In commercial banks like Emirates NBD, there’s been relative stability at senior levels, but where there’s been the greatest turnover is in classic investment companies like Shuaa,” said Peter Vayanos, a partner in Abu Dhabi for the international consulting firm Booz Company. “The business model that helped these companies succeed in the past is no longer there.”

Shuaa, which has five core business lines including investment banking, asset management, finance, private equity and the brokerage house, has abandoned its consumer brokerage business.

“The brokerage business is linked to the performance of regional stock exchanges, reflecting the value of stocks held, and as soon as volume trickles away, brokerage businesses suffer,” Mr. Vayanos said.

Rasmala Investments reduced its brokerage arm in the United Arab Emirates, according to the firm’s founder and a former chairman, Ali al-Shihabi. It is now focused on revenue-generating units, including asset management and corporate finance. The firm also heavily reduced operations in Saudi Arabia, cutting its payroll to three people this year from 35.

Similarly, Rasmala Investments reduced costs by 50 percent in 2011 and has scrapped its investment research department. “As a private company, we were able to ruthlessly cut costs,” said Mr. Shihabi.

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DealBook: Morgan Stanley to Cut 1,600 Jobs

Morgan Stanley plans to eliminate 1,600 jobs by the end of the first quarter of 2012, the firm said on Thursday.

“As we conduct our year-end performance management process and evaluate the right size of the franchise for 2012, we anticipate the elimination of approximately 1,600 positions across the firm globally,” Jeanmarie McFadden, a Morgan Stanley spokeswoman, said in a statement.

The reductions, which amount to about 2.6 percent of Morgan Stanley’s global work force, are expected to come across all job levels in all divisions, including investment banking, trading and support functions, according to a person with knowledge of the plans.

The 17,000 financial advisers in the Morgan Stanley Smith Barney unit are not expected to be affected by the cuts, the person said, though other employees in the unit may be laid off.

It has been a rough year for investment banks, many of which have been shedding thousands of jobs in an attempt to cut costs or stave off losses. In October, the New York State comptroller, Thomas P. DiNapoli, estimated that nearly 10,000 securities industry employees in New York could lose their jobs by the end of 2012.

The cuts are not the year’s first for Morgan Stanley, which announced earlier that it had laid off 300 low-performing financial advisers. The new round of cuts is part of an effort to buttress the bottom line and bolster profitability. In October, James P. Gorman, the chief executive, told analysts that Morgan Stanley intended to pay “those employees who are delivering value.”

Shares of Morgan Stanley rose about 3 percent on Thursday morning on news of the impending layoffs.

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DealBook: In Latest Deals, Big Roles for Boutique Investment Banks

From left, Frank Quattrone of Qatalyst, Robert Pruzan of Centerview and Peter Weinberg of Perella Weinberg.Left to right: Peter DaSilva for The New York Times; Kirsten Luce for The New York Times; Simon Dawson, via Bloomberg NewsFrom left, Frank Quattrone of Qatalyst, Robert Pruzan of Centerview and Peter Weinberg of Perella Weinberg.

For merger advisers this year, it has been good to be an independent.

Two big deals last week — Google’s $12.5 billion takeover bid for Motorola Mobility and Hewlett-Packard’s $11.7 billion purchase of Autonomy — underscored the growing influence of boutique investment banks. Among the firms that helped propel the two transactions were Qatalyst Partners, Centerview Partners and Perella Weinberg Partners, as well as the biggest independent investment bank, Lazard.

Only Barclays Capital, which advised H.P., is a full-service bank that can lay claim to a significant role in either deal. While other big names were listed as advisers to Autonomy, nearly all were added at the last minute, according to people briefed on the matter who asked for anonymity because the discussion among the banks was private. “Last week was a boutique week,” said Peter Weinberg, a scion of a legendary Goldman Sachs family who co-founded Perella Weinberg. “It’s a strip of the financial services market that’s experiencing secular growth.”

Since the passing of the financial crisis, boutique investment banks have claimed that their time has come. Their pitch is relatively simple: we sell advice and advice alone. They have no research arms or proprietary trading businesses, which trade for the bank’s own account, that could lead to a conflict of interest.

Boutiques, as well as their larger publicly traded cousins like Lazard and Evercore Partners, have largely risen in the league tables so far this year, bolstered by their work on big deals like ATT’s $39 billion takeover of T-Mobile USA and Express Scripts’ merger agreement with Medco Health Services. (Greenhill Company and Evercore advised ATT alongside JPMorgan Chase. Medco retained Lazard as well as JPMorgan.)

Led by the technology banker Frank P. Quattrone, Qatalyst has climbed to 29th place in Thomson Reuters’ league tables as of Monday, thanks to its role as adviser to Motorola, Autonomy and others. It has earned an estimated $34.2 million in fees this year, according to Thomson Reuters and Freeman Consulting. Mr. Quattrone founded Qatalyst in 2008 after emerging victorious from a long legal battle against obstruction-of-justice charges. In just its second year of operations, the firm was ranked 79th and earned an estimated $14 million.

Centerview Partners, which was founded five years ago, has laid claim to a number of big mandates this year, including advising Express Scripts, Motorola and Capital One Financial in its purchase of the ING Group’s American online banking arm. It is also one of three advisers to Kraft Foods in its planned spinoff of its North American grocery business. That has led to an estimated $71.7 million in fees.

To a firm, the boutiques were founded by longtime deal makers from established names — Goldman, Morgan Stanley and Credit Suisse among them — who say they want to recreate the investment bank of old.

Some are growing at a rapid clip. Moelis Company was founded in 2007 by Kenneth D. Moelis, a former top UBS banker, and has embarked on a hiring spree, as well as opening offices in far-flung places like Dubai and Sydney, Australia. (It is now ranked 20th, ahead of RBC Capital Markets and the Jefferies Group, and has earned an estimated $112.3 million.)

And Perella Weinberg has built up an asset management arm that now oversees more than $8.2 billion in capital.

Still, for many of these firms the model is Felix Rohatyn of Lazard or Sidney Weinberg, Peter Weinberg’s grandfather, of Goldman. Those bankers concentrated on advising clients on an array of matters, deals or otherwise. Such matters may not always become public, according to executives from these firms.

“We do consider ourselves to be consiglieres to C.E.O.’s and to boards,” said Robert A. Pruzan, a Centerview co-founder who was formerly the president of Wasserstein Perella.

Yet each firm appears to have its own take on the independent model. Mr. Pruzan says that his firm is staked on big transactions for longtime clients like Kraft and PepsiCo, while Qatalyst has built itself up as a tech specialist that so far has fetched big premiums for the companies it sells.

But despite some claims from boutiques born after the financial crisis, such firms are unlikely to dislodge the top full-service banks from the league tables.

At No. 2 on Thomson Reuters’ league tables as of Monday, JPMorgan Chase has worked on 207 deals worth $390 billion. The three top independent banks in the tables — Lazard, Evercore and Greenhill — combined have worked on 212 deals worth nearly $394 billion.

Unlike boutiques, the full-service banks benefit from their vast trading arms and other operations. They can provide a fuller picture of how the capital markets may react to a potential deal as well as the necessary financing for a transaction. Barclays Capital, for instance, committed to providing £5 billion ($8.2 billion) to H.P. for its Autonomy deal, which Perella Weinberg could not do.

And many assignments for boutiques are providing fairness opinions to boards, which generate lower fees than active deal management. While they won’t turn down the work, bankers acknowledge that they seek a mix of both kinds of tasks to grow.

Still, these firms say that there can be a healthy balance between the big banks and their smaller brethren.

“The boutiques should have a meaningful share of the M.A. market, but not half, or even close,” Mr. Weinberg said. “The big firms have a critical role to play, particularly on the financing side.”

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Europe Faces Tough Road on Effort to Ease Greek Debt

Representatives of European governments and banks, continuing talks that have been under way for several weeks, expressed optimism that they could find ways that bond holders could voluntarily contribute to reducing Greece’s debt.

But S. P., responding to a French proposal to have banks give Athens more time to repay loans as they come due, seemed to leave little room for maneuver. The proposal would amount to a default, S.P. said, because creditors would have to wait longer to be repaid and the value of Greek bonds would effectively be reduced.

“Ratings agencies are saying, ‘We don’t think it’s voluntary; it’s just a way to hide a default’ — which it is,” said Daniel Gros, director of the Center for European Policy Studies in Brussels.

European leaders are trapped between domestic political demands for banks to share the cost of a Greek bailout, and the dire consequences of a default. These would include the collapse of Greek banks, probably followed by the collapse of the Greek economy and Greece’s exit from the euro zone.

A crisis in Greece could quickly spread to European banks, particularly in France and Germany, which own government bonds or have lent money to Greek individuals and businesses. Ratings of French banks have already suffered because of their vulnerability to the Greek economy. And once the precedent of a euro zone default had been set, investors would likely abandon the debts of other struggling members, including Portugal and Spain. More worryingly, a tower of credit default swaps — a form of debt insurance typically sold by investment banks — has been built on the debts of those countries, and the cost of paying up in a default would be huge.

As a result, officials predicted, European governments may have little choice but to abandon or modify the voluntary plan and fill the gap with more money from taxpayer coffers.

A senior figure in the Greek finance ministry, who spoke on condition of anonymity because he was not authorized to speak publicly, said on Monday that it was folly to think that the ratings agencies would view a debt exchange as purely voluntary and not representing a selective default.

“Now the official sector will need to find another 30 billion,” this person said, referring to the 30 billion euros ($43.6 billion) that European political leaders hoped to get from the private sector. That sum was never realistic in the first place, he said.

But he predicted that leaders would not turn their backs on Greece. “Europe has too much riding on this,” the official said. “Greece has done 80 percent of what it is supposed to have done. If Europe were to let Greece go that would be the end of euro zone solidarity.”

Europe is seeking to avoid a default at all cost because it could also initiate payment of credit-default swaps, with unpredictable results. There is little public information on which financial institutions have sold credit-default swaps and might have to absorb losses if Greece defaulted, but it is likely that American banks and insurance companies have taken on the largest share.

The shock to the global economy might compare to the collapse of Lehman Brothers in 2008, the European Central Bank has warned.

Mr. Gros said that calls for investors to roll over maturing Greek debt voluntarily could even backfire, by invoking memories of similar stopgap measures that preceded Argentina’s disorderly default in 2001.

Despite the discouraging assessment Monday from Standard Poor’s, European governments continued work on a contingency plan that they predicted would satisfy the ratings agencies and prevent Greece’s problems from provoking a wider crisis.

There was somewhat less urgency to the talks after euro zone finance ministers agreed over the weekend to provide Athens with financing of 8.7 billion euros ($12.7 billion) from the 110 billion euro bailout agreed to last year, to help the Greek government function through the summer. The new aid eliminates the prospect of a near-term default.

But the finance ministers put off the question of how to provide a second bailout, expected to total as much as 90 billion euros, to keep the country operating through 2014, when it is hoped that Greece will be able to return to the credit markets.

Negotiators are trying to put together a plan that would offer private investors good enough terms to encourage them to take part voluntarily while, at the same time, convincing angry voters in nations like Germany and the Netherlands that financial institutions are sacrificing, too.

Jack Ewing reported from Frankfurt and  Landon Thomas Jr. from Athens. Reporting was contributed by Stephen Castle in Brussels and David Jolly and Liz Alderman in Paris.

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DealBook: Fiat to Buy Full U.S. Stake in Chrysler

Chrysler 300 at the Detroit auto show.Andrew Harrer/Bloomberg NewsChrysler 300 at this year’s Detroit auto show.

7:02 p.m. | Updated

DETROIT — The Italian carmaker Fiat said Friday that it intended to buy the United States government’s full stake in Chrysler within 10 business days, giving it majority ownership of Chrysler.

The purchase, announced three days after Chrysler paid back its outstanding loans from the Treasury Department, would end the government’s involvement in Chrysler a little more than two years after the carmaker emerged from bankruptcy. It also would return Chrysler to foreign control four years after the dissolution of its merger with Daimler of Germany.

A Treasury spokesman, Mark Paustenbach, confirmed that the department had received notice from Fiat that it would buy the shares, but he declined to comment further.

Fiat and the Treasury will negotiate the purchase price, or have several investment banks determine a fair value if they cannot agree.

Fiat would hold 52 percent of Chrysler after obtaining the government’s shares. Under its agreement with the federal government, Fiat was given the option to buy the Treasury share within 12 months of Chrysler paying back its loans.

By the end of the year, Fiat said it expected to own 57 percent of the carmaker, which is based in Auburn Hills, Mich. The partnership agreement of the companies automatically gave 5 percent of Chrysler to Fiat when they begin producing a car rated at 40 miles per gallon. Fiat originally owned 20 percent of Chrysler and received 10 percent more as a result of helping Chrysler sell vehicles overseas and produce a fuel-efficient engine based on Fiat technology in the United States.

The chief executive of Fiat and Chrysler, Sergio Marchionne, has said he expects to have an initial public offering of Chrysler shares either late this year or in 2012, but Fiat’s decision to buy the government’s stake could affect those plans. Fiat has an option to raise its investment to more than 70 percent by buying a portion of the stake owned by a trust fund that pays for unionized retirees’ health care costs.

On Tuesday, Fiat paid $1.3 billion to buy an additional 16 percent of Chrysler, increasing its ownership to 46 percent, after Chrysler repaid $7.6 billion it had borrowed from the American and Canadian governments.

“We are changing both the image and the substance of our group,” Mr. Marchionne said at the loan repayment ceremony. “And we are regaining the faith of the public at large and, even more importantly, of our customers.”

The Treasury has yet to recover about $2 billion of the $10.5 billion it lent to Chrysler in 2008 and 2009. Some of the money went to the portion of the carmaker — known as “old Chrysler” — that remained in bankruptcy, and is not expected to be repaid. President Obama is scheduled to visit a Chrysler plant in Toledo, Ohio, next week to highlight the company’s turnaround and loan repayment.

Chrysler expects to be profitable this year for the first time since its bankruptcy, a major milestone for a company that came close to being liquidated before the government stepped in to prevent its collapse. It earned $116 million in the first quarter, ending a streak of losses dating to 2006, and its sales and market share in the United States have increased as a result of vastly improved models like the Jeep Grand Cherokee sport utility vehicle.

The Treasury still owns 26 percent of another Detroit automaker, General Motors. It plans to reduce its stake later this year, though it might delay that sale in the hopes of receiving a better price.

Fiat’s Notice of Intent to Buy Out U.S. Stake in Chrysler

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DealBook: British Bank Panel Suggests Changes to Limit Risk

LONDON — British banks should hold more capital and better shield individual customers from losses in other parts of their business, a government-backed commission said on Monday.

The proposals stopped short of any significant new regulations, like requiring a full split of retail and investment banking, which some banks had feared.

Instead, the commission said retail units, which take consumer deposits, should be isolated for protection, or ring-fenced, to allow them to survive even if other parts of the banks need to be wound down.

Shares in British banks were mixed in London on Monday, with Barclays and Royal Bank of Scotland rising and HSBC falling.

“The report has been extremely generous to the banks,” said Roger Nightingale, a strategic adviser to hedge funds and institutional investors in London.

The proposals, by the Independent Commission on Banking, go further than recent changes in the United States in trying to separate more clearly the traditional deposit-taking services from the riskier but more lucrative trading operations.

The commission also said larger banks, like Barclays, should hold at least 10 percent of equity related to risk-weighted assets, more than the 7 percent detailed in the so-called Basel III agreement to overhaul international bank regulation.

But the commission also said that because investment banks operate globally, British banks should not be subject to different capital rules than those agreed to internationally.

The proposed ring-fencing of the retail business means that banks with both retail and investment banking units, including Barclays and Royal Bank of Scotland, would have to finance the two businesses separately and not move capital from one area to the other.

The proposed changes would increase a bank’s financing costs, the commission said, but not as much as a complete split of retail and investment banking. And any costs would be more than offset by the benefit of “materially reducing the probability and impact of financial crises,” the report said.

Simon Gleeson, a partner at the law firm Clifford Chance, in London, said the proposed changes could prompt banks to take on more rather than less risk, or to raise prices for retail customers as the cost of doing business increases. “All of this would make the operating of retail banks more expensive,” he said.

The proposals are part of an interim report and are not definitive. But they were seen as Britain’s most important response to the banking crisis, which has left two of the country’s largest banks in government hands. Before the release of the report, Barclays and HSBC had threatened to move their headquarters abroad should new rules be too punishing, which they argued would leave them at a disadvantage to rivals elsewhere.

John Vickers, who heads the commission, rejected claims that the commission bowed to bank pressures. “These are absolutely far-reaching reforms,” Mr. Vickers said at a news conference in London. “They could be absolutely transformative.”

The commission, which includes former banking executives, was set up by the government in June to suggest ways to improve stability and competition in Britain’s banking industry after the financial crisis. The Treasury is expected to receive a final report in September.

George Osborne, the chancellor of the Exchequer, welcomed the interim report as a “very, very good piece of work.”

Under the proposals, any retail banking operations would have to be run as a subsidiary of the larger banking group. The subsidiary would have to stick to its own capital ratios, but any capital above that could be moved from the retail banking business to other activities in the wider group. The banking group would also be able to continue selling financial products across its units, for example offering investment banking advice to retail banking clients.

“It would help shield U.K. retail activities from risks arising elsewhere within the bank or wider system,” the report said. “It could curtail taxpayer exposure and thereby sharpen commercial disciplines on risk taking.”

The commission said its recommendations sought a middle ground between the radical step of separating retail and investment banking and simply relying on higher capital requirements to increase the stability of banks.

In the event of the collapse of a bank, the commission suggests that claims of depositors should be ranked higher than those of unsecured creditors. “It’s amazing how so many senior debt holders came out whole” from the banking crisis, Mr. Vickers said.

The commission also recommended making it easier and less expensive for customers to switch between British retail banks as a way to increase competition.

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