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German Finance Minister Puts Focus on Unemployment

May 9, 2013 by Leave a Comment

LONDON — A failure to tackle high youth unemployment could destroy democratic support for the European Union’s governments, the German finance minister, Wolfgang Schäuble, said Thursday, in an apparent concession that the euro zone’s focus on austerity must be tempered by other policies.

Speaking at an investment conference in London, Mr. Schäuble cited joblessness among young people as Europe’s biggest problem, arguing that the Continent faced the difficult task of “enhancing growth but in a sustainable way.”

“We will have to speed up in fighting youth unemployment, because otherwise we will lose the support, in a democratic way, in some populations of the European Union,” he said.

Mr. Schäuble, seen as one of the hawks among European finance ministers, said he supported recent moves by the European Commission, the bloc’s executive, to give some countries more time to bring down their budget deficits. But he also emphasized the need for more structural reform in Europe.

Across the Continent there are growing signs of austerity fatigue among voters amid worries that a focus on retrenchment is pushing economies into a downward spiral. Last month, José Manuel Barroso, the president of the European Commission, said austerity had hit the limits of public acceptance.

The unemployment rate in Greece reached 27 percent in February, according to figures released on Thursday, and the jobless rate for young people was more than 60 percent. The overall jobless rate is also expected to be 27 percent this year in Spain, where more than half of young people are out of work.

Speaking before a two-day meeting of Group of 7 finance ministers in Britain, Mr. Schäuble argued that progress in stabilizing the euro zone crisis meant that it would no longer be the main obstacle to global growth.

He struck a conciliatory tone over plans, supported by Germany, for a European financial transaction tax. Mr. Schäuble said there was “a long way to go” before any decision on the proposal, which Britain has challenged.

Article source: http://www.nytimes.com/2013/05/10/business/global/german-finance-minister-puts-focus-on-unemployment.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

A Mending Spain Finds Willing Bond Buyers

January 18, 2013 by Leave a Comment

On Thursday, the Spanish Treasury sold €4.5 billion, or $5.9 billion, of debt, including bonds with a maturity of as much as 28 years. The average interest rate paid by Madrid on two-year bonds was 2.71 percent, down from 3.36 percent in December — a level not reached since March of last year.

The interest rate on the benchmark 10-year Spanish bond stood at 5.03 percent Thursday. Last year that rate spiked above 7 percent — a level that many economists believe places an unsustainable burden on governments.

Higher interest rates make it not only more expensive but also more difficult for governments to borrow the money they need. Consistently high borrowing costs helped force Greece, Ireland and Portugal to seek international bailouts.

But the renewed sense of optimism in Spain this week led the government to suggest that the country’s economic recession would not be as deep and prolonged as had been feared. When drafting its 2012 budget, the government had expected the economy to contract 1.5 percent, but officials now expect the final figure for last year to be lower.

“The government is adopting the right measures to overcome the crisis, and these efforts are about to bear fruit,” Foreign Minister José Manuel García-Margallo said at an investment conference here Wednesday. “Foreign investors are coming back.”

But some foreign investors in Mr. García-Margallo’s audience gave a much more cautious reading on the recent market rally, as well as warning that it was too early for talk about an economic turnaround.

“Optimism is the flavor of the day, but perhaps people are overoptimistic,” said Birgitte Olsen, fund manager at Bellevue Asset Management in Zurich. “We’ve now seen some car companies shift their production lines to Spain, but a lot more reforms and work need to be done to return to growth and job creation.”

Still, Ms. Olsen said, “it makes sense for any company that has the opportunity to sell bonds to do it right now.”

Indeed, last year’s trickle of Spanish corporate debt issuance has turned this month into a flow. On Wednesday, Banco Santander sold €1 billion of seven-year bonds at an interest rate of 4 percent. In the first two weeks of January, a handful of other Spanish banks, as well as Telefónica and energy companies including Gas Natural and Red Eléctrica, sold bonds totaling over €7 billion, with most sales heavily oversubscribed.

“The results of some of these Spanish bond issues would have been impossible just three months ago, but it’s unclear to me whether what has now opened is really a long-term window,” said Michael Gierse, a fund manager at Union Investment in Frankfurt, which has €180 billion in assets under management.

The next litmus test for investors, Mr. Gierse said, would come at the end of the month, when the Spanish authorities are expected to lift a ban on the short-selling of all stocks trading on the country’s exchanges. The ban, intended to reduce market volatility, was to be lifted at the end of last October but was then extended by three months to help ailing companies like Banco Popular issue debt. Short-selling lets investors sell borrowed shares in the hope that their price will fall and that they could then be repurchased more cheaply, allowing the investors to pocket the difference.

“Once the short-selling ban gets lifted, we will have a much clearer idea of whether this market rally is for real,” Mr. Gierse said. For now, he added, “I don’t think that investors from outside the euro zone are already back in Spain.”

One reason for such wariness is that investors endured a roller-coaster ride last year.

Article source: http://www.nytimes.com/2013/01/18/business/global/18iht-spaindebt18.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Fund Titans Battle Over Herbalife

January 10, 2013 by Leave a Comment

Daniel S. Loeb, founder of Third Point.Steve Marcus/ReutersDaniel S. Loeb, founder of Third Point.

10:21 p.m. | Updated

They are two of the richest and most prominent hedge fund managers in Manhattan.

About the same age and athletic build, they favor brash, headline-grabbing investments. They make the rounds in New York charity circles. They live blocks apart in luxury buildings on the Upper West Side. They spend summers not far from each other in mansions in the Hamptons.

Yet, they find themselves locked in a battle over, of all things, a nutritional supplements company that makes protein bars and energy shakes.

One of the hedge fund managers, William Ackman, claims that the company, Herbalife, is a house of cards — “the best-managed pyramid scheme in the history of the world” — and its stock is worth nothing. His rival and friend, Daniel S. Loeb, takes the opposite stance, arguing that Herbalife will not only survive, but thrive.

Their fight played out on a public stage on Wednesday, when Mr. Loeb disclosed that his investment firm Third Point had bought nearly nine million shares of Herbalife, now worth more than $350 million. Just weeks before, Mr. Ackman of Pershing Square Capital excoriated the company at an investment conference, betting $1 billion that the stock would fall in what is known as a short sale.

This is a “battle bigger than any sumo pairing,” said Jeffrey A. Sonnenfeld, a senior associate dean at Yale School of Management.

A spokeswoman for Herbalife declined to comment.

Their dispute centers on the company’s sales practices. Herbalife relies on an army of independent resellers who have incentive to recruit other members.

Mr. Ackman, 46, has taken aim at this network of resellers, saying that the recruitment efforts are more lucrative than the product sales. He also suggested that the company uses predatory practices to attract undereducated minorities with false promises of becoming millionaires.

Citing the 32-year history of Herbalife, Mr. Loeb, 51, called the short-seller’s thesis “preposterous.” He defended the company as a “compounder,” one that grows steadily year over year with a loyal clientele. Madeleine Albright, the former secretary of state, has extolled the virtues of its product.

Adding to the scrutiny, the Securities and Exchange Commission has opened an investigation into the company, according to a person briefed on the matter who spoke on the condition of anonymity because the inquiry was continuing. The agency has not decided whether to take action and Herbalife has not been accused of any wrongdoing.

Mr. Ackman and Mr. Loeb are similar figures on Wall Street.

Over the last decade, Mr. Ackman and Mr. Loeb have developed a reputation for their aggressive tactics, capitalizing on their rock-star status in finance to gain support for their strategies. Unlike many of their hedge fund compatriots, the activist investors are unafraid to take big positions in companies and demand change in very public ways.

They overhaul management teams, remake boards and dictate strategy, all in the hope of increasing their holdings. Or they just bet against a stock, if they don’t have faith.

Last year, Mr. Loeb was instrumental in the ouster of the Yahoo chief executive Scott Thompson. The activist investor, known for his acerbic pen, wrote scathing letters to the board of the Internet company, detailing how Mr. Thompson had padded his résumé.

“Now more than ever Yahoo investors need a trustworthy C.E.O,” Mr. Loeb wrote at the time. Since the firm first took a stake in 2011, shares of Yahoo are up more than 50 percent.

Mr. Ackman turned a $60 million investment in General Growth Properties into a $2.3 billion windfall by navigating one of the nation’s largest mall operators through bankruptcy. After taking a seat on the board, he successfully fended off a lowball takeover attempt while orchestrating a better deal.

They are not always successful. Mr. Ackman took on Target, battling with the retailer’s board in 2009 over how to improve its stock price. After spending millions of dollars on his campaign, he conceded defeat.

He is also bullish on a turnaround at J. C. Penney, bringing in the former Apple retail chief Ron Johnson. But since his first investment in late 2010, Penney’s stock has fallen 31 percent.

During the financial crisis, Mr. Loeb’s firm suffered along with many of his peers. His main fund lost about 33 percent in 2008.

Only one investor will be right on Herbalife.

In late December, Mr. Ackman announced an “enormous” short position in the company, in a three-hour presentation called “Who Wants to Be a Millionaire?” The investor cast doubt on the company’s sales of nearly $4 billion a year.

“I don’t think very many retail sales are actually happening at all,” said Mr. Ackman, who pledged to donate his personal proceeds from the bet against Herbalife to charity.

With his usual showmanship, Mr. Ackman also highlighted what he considered the more dubious aspects of the company’s culture. He showed an Herbalife video, featuring a tour of a distributor’s high-end home.

“Episodes of ‘MTV Cribs’?” Mr. Ackman asked. “No. These are Herbalife productions.”

In the end, the short-seller had a bold prediction: federal regulators would eventually shut down the company.

The investor’s statements sent the stock tumbling. Over the next four days, shares of Herbalife fell 30 percent. Months before, critical questions on a company’s earnings call by the activist investor David Einhorn prompted a similar sell-off, although the stock had started to recover before Mr. Ackman’s presentation.

Soon after Mr. Ackman’s campaign began, Mr. Loeb met with the company executives and bankers about Herbalife’s business, according to people with direct knowledge of the matter. He also conducted his own research, digging through the numbers.

The investor eventually decided Mr. Ackman was wrong, buying 8.2 percent of Herbalife. When Mr. Loeb disclosed the stake, he breathed life in the stock. It rose 4 percent on Wednesday to close at nearly $40, higher than when Mr. Ackman delivered his presentation.

Mr. Loeb indicated in a letter to investors that the shares had room to run, given the company’s strong revenue, profit and free cash flow. Over all, he estimates Herbalife stock is worth as much as $68.

“While the short-seller’s presentation was lengthy, it presented no evidence to show that Herbalife has crossed a line that would compel regulators to shut it down,” Mr. Loeb wrote, taking a shot at Mr. Ackman. Mr. Ackman promptly responded, welcoming any investor who “brings additional sunlight to the situation.”

On Thursday, Herbalife will tell its side of the story. The company will present to investors its first public rebuttal since Mr. Ackman’s attack last month.

Ben Protess and William Alden contributed reporting.

Article source: http://dealbook.nytimes.com/2013/01/09/loeb-counters-ackmans-bet-against-herbalife/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,