November 18, 2017

Central Bank Signals Slight Optimism for Europe, but Interest Rates Stay Low

“We are seeing possibly the first signs this significant improvement in confidence and interest rates is finding its way to the economy,” Mr. Draghi said at a news conference after the bank’s decision to leave its benchmark interest rate unchanged at a record low of 0.5 percent.

The still fragile state of the euro zone economy means that any decision to raise interest rates is still a long way off, Mr. Draghi indicated. Policy makers expect “the key E.C.B. interest rates to remain at present or lower levels for an extended period of time,” Mr. Draghi said, repeating a pledge he first made a month earlier.

In London on Thursday, Britain’s central bank, the Bank of England, also decided to hold interest rates steady.

The Bank of England held its interest rate at 0.5 percent, also a record low, and made no change to its program of economic stimulus, leaving the target at £375 billion, or about $570 billion. In Britain, which does not use the euro, the government reported last week that the economy grew 0.6 percent in the second quarter from the previous quarter and that all main industries were reporting faster growth for the first time in three years.

For Mr. Draghi, it has been about a year since he defused fears of a euro zone breakup by promising to do “whatever it takes” to keep the common currency together. That expression of resolve helped check the euro zone’s decline, but was not enough to push the region into growth again.

Asked to take stock of the state of the euro zone today, Mr. Draghi listed numerous improvements, including stronger exports from countries like Spain and Italy; lower market interest rates for government bonds; and progress by political leaders in reducing their deficits and improving economic performance. “The picture seems to be better from all angles than it was a year ago,” he said.

But he took a more cautious view than many analysts of recent surveys of business sentiment, which have raised hopes that the euro zone economy could be emerging from recession. The surveys “tentatively confirm the expectation of a stabilization of economic activity at low levels,” Mr. Draghi said.

At least one analyst detected a nuanced shift in Mr. Draghi’s assessment.

“If there was any change at all, his description of economic prospects sounded slightly more optimistic,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, said in a note to clients.

“Slightly” is the crucial word. Credit for businesses remains scarce, Mr. Draghi noted, and the labor market is weak. Unemployment in the euro zone was stuck at a record high of 12.1 percent in June, according to official data published Wednesday, though there was an infinitesimal decline in the total number of jobless people: 24,000 fewer people were out of work in May out of a total of 19 million.

Even if the euro zone economy does emerge from recession soon, economists say, growth will be weak and it will take years before joblessness in countries like Spain — where more than a quarter of the work force is unemployed — returns to tolerable levels.

With interest rates already at record lows, Mr. Draghi has in recent months been trying to use his powers of persuasion to talk down market rates and make credit more available to businesses and consumers. Last month, he broke with precedent by promising to keep rates low for an extended period. Before then, the central bank refused to offer so-called forward guidance.

On Thursday, Mr. Draghi contested comments by some analysts that his forward guidance has not had much effect. It was successful in calming financial markets, he said, and partly successful in pushing down short-term market interest rates.

He left open the possibility that interest rates could fall further, but refused to say whether members of the bank’s Governing Council discussed a rate cut when they met on Thursday.

The job of the European Central Bank has been complicated recently by signs that the United States Federal Reserve could begin to gradually roll back its economic stimulus. On Wednesday, the Fed indicated it would continue its bond-buying program for at least another month.

Expectations of an eventually tighter United States monetary policy have unsettled financial markets in Europe, prompting Mr. Draghi to reassure investors that the European bank was a long way from going in the same direction.

Julia Werdigier contributed reporting from London.

Article source: http://www.nytimes.com/2013/08/02/business/global/european-central-bank-keeps-key-rate-at-0-5.html?partner=rss&emc=rss

Chinese Search for Infant Formula Goes Global

And baby milk powder, of course. Loads of it.

Rushing shelves at a supermarket in Germany, Chinese shoppers stuffed a half-dozen large cans into bags, one of the tourists said. “One woman told me, ‘If it was easier to carry, we would buy more; it’s good and cheap here,’ ” recalled the tourist, Zhang Yuhua, 60, who bought two cans.

Chinese are buying up infant milk powder everywhere they can get it, outside of China. And that has led to shortages in at least a half-dozen countries, from the Netherlands to New Zealand. The lack of supply is a reminder of how the consumption patterns of Chinese — and their rising food and environmental safety concerns — can have far-reaching impacts on critical daily goods around the world.

Big retail chains like Boots and Sainsbury’s in Britain now limit individuals to two cans of infant formula per purchase, and customs officials in Hong Kong are enforcing a two-can, or four-pound, restriction on travelers taking it out of the territory — with violators facing fines of up to $6,500 and two years in prison.

Officials in Hong Kong are treating baby milk smugglers like criminals who traffic in more illicit kinds of powder. In April, the customs police held a news conference to announce that a two-day “antismuggling operation” had resulted in the breaking up of three “syndicates,” the arrest of 10 people and the seizure of nearly 220 pounds of formula worth $3,500.

On the mainland, Chinese parents’ obsession with foreign milk powder, which stems from distrust of domestic brands, is stirring a nationalistic “buy China” movement among some officials.

This month, a government agency announced it had begun an investigation into price-fixing in the baby milk powder industry; targets of the inquiry included some of the biggest foreign companies. Officials also announced stricter inspection procedures throughout the industry, and editorials by state-run news organizations said they hoped Chinese powder makers would improve their standards so as to “defeat” the foreign companies.

Travelers who manage to arrive in China with large amounts of baby milk powder must elude Chinese customs officials, who are now enforcing strict limits on formula imports.

“Milk powder safety is the issue of No. 1 concern among pregnant women and new-baby households,” said Allen Wang, chief executive and co-founder of Babytree.com, the largest online forum for Chinese parents. “People are asking friends, ‘What do you recommend? How do you store up foreign brands? Can you help me if you travel overseas?’ ”

Worries over domestic infant formula surged in 2008, when six babies died and more than 300,000 children fell ill from drinking milk products that had been tainted with melamine, a toxic chemical.

In response, many Chinese turned to buying imported infant milk powder. But in the years since, there have been occasional reports of distributors or retailers in China adulterating foreign-made powder with Chinese formula, and so many Chinese consumers have begun getting their powder directly from overseas.

A survey by the Pew Research Center showed that 41 percent of Chinese said last year that food safety was a very serious problem, compared with just 12 percent in 2008.

“How can we still trust mainland-made food after reading all these horrendous stories on food safety issues?” said Tina, 28, a Guangzhou resident and the mother of a baby girl. “We are the parents of our children, and nobody can accuse us for just wanting the best for our babies. It’s not that we don’t love our country — we just dare not take the risk.”

Tina, who spoke on the condition that only her English name be used, says she gets 80 percent of her formula through the mail from relatives in New Zealand. And family members go about once a month to Hong Kong to buy diapers and other baby supplies. “Most of my friends get others to carry in baby formula from abroad,” she said.

In China, more mothers are breast-feeding because of the recent scandals, but formula remains popular for various reasons, including aggressive marketing by formula makers. Mr. Wang said Babytree.com’s surveys show about two-thirds of mainland households with babies use formula, and foreign brands command a 60 percent market share. Beijing News reported in May that statistics showed the amount of foreign milk powder that China imports leapt to 310,000 tons in 2009, more than twice the amount in 2008, when the scandal hit. In 2011, it was 528,000 tons.

Amy Qin and Shi Da contributed research from Beijing, and Hilda Wang from Hong Kong.

Article source: http://www.nytimes.com/2013/07/26/world/asia/chinas-search-for-infant-formula-goes-global.html?partner=rss&emc=rss

Markets Rise on Thought That Fed Will Continue Stimulus

Investors are in a game of wait-and-see with the Federal Reserve. On Monday, they sent stocks higher as they guessed that the Fed would continue trying to prop up the economy.

The major stock indexes all rose about 1 percent in early trading and stayed there for most of the day before dipping slightly in the afternoon. The Standard Poor’s 500-stock index rose 12.31 points, or 0.8 percent, to 1,639.04. It had been up as much as 20 points.

The market’s gains were broad. Telecommunications was the only one of the 10 industry sectors in the S. P. 500 to post a loss. Netflix did better than any other stock in the S. P. 500 after announcing that it would run original TV series from DreamWorks Animation.

There were few big company announcements or economic reports, and trading was light. Investors will have to keep guessing about the Fed’s future actions until Wednesday, when the chairman, Ben S. Bernanke, holds a news conference at the end of a two-day policy meeting.

Investors sent stocks up Monday because they think Fed policy makers will determine that the economy is not recovering fast enough. A still-weak economy would influence the Fed to continue its programs intended to stimulate the economy: keeping interest rates low to encourage borrowing, and buying bonds to push investors into stocks.

Doug Lockwood, branch president of Hefty Wealth Partners in Auburn, Ind., said it was not rational for the stock market to regard bad news as good, and to be yanked back and forth more by the actions of a central bank than the underlying fundamentals of the economy.

The market has been in flux since May 22, when Mr. Bernanke said that the Fed would consider pulling back on its bond-buying program if measures of the economy, especially hiring, improve. The comment, made in response to a question from the Joint Economic Committee in Congress, was not expected. In the 17 trading days since then, the Dow Jones industrial average has swung by triple digits 11 times.

On Monday, the Dow rose 109.67 points, or 0.7 percent, to 15,179.85. The Nasdaq composite rose 28.58, or 0.8 percent, to 3,452.13.

The price of crude oil rose throughout the day but ended 4 cents lower at $98.03 a barrel in New York. Gold edged down $4.50 to $1,383.10 an ounce.

In the market for government bonds, the benchmark 10-year Treasury note fell 13/32 to 96 7/32, bringing the yield up to 2.18 percent from 2.13 percent late Friday.

Jim McDonald, chief investment strategist at Northern Trust in Chicago, said Mr. Bernanke would seek to “walk back” on some of his previous comments, and reassure investors that the Fed will not pull back on stimulus until it is sure the economy is ready. The surprise factor, more than the substance of Mr. Bernanke’s comments, might have been what unnerved investors, McDonald said.

The fact that Mr. Bernanke is now expected to regard the economy as still weak enough to need stimulus stems from a jobs report and low inflation since his testimony, analysts said.

This month, the government reported that the United States added 175,000 jobs in May — not enough to cut into the unemployment rate. And on Friday, the government said that a crucial measure of inflation — the producer price index, which measures wholesale prices — rose just 0.1 percent after stripping out the volatile costs of food and gas. That is important because the Fed knows that its stimulus measures can stoke inflation; if inflation is low, the central bank has more flexibility to keep pumping money into the economy.

Two measures of economic data released on Monday were positive, though both are considered less important gauges of the economy. A report on manufacturing in New York State showed a pickup, and a survey of American home builders said they were more optimistic about sales than they had been in seven years.

Article source: http://www.nytimes.com/2013/06/18/business/daily-stock-market-activity.html?partner=rss&emc=rss

European Central Bank Debates Options, but Stands Pat

The lack of any action illustrated the gulf between those at the central bank who expect a recovery, even if weak, by the euro zone economy — which has been shrinking for a year and a half — and economists and central bankers elsewhere who fear that the euro zone is sinking ever deeper into stagnation.

Mario Draghi, the president of the E.C.B., said at a news conference Thursday that the bank’s Governing Council, meeting earlier in the day, had an “ample discussion” about measures to stimulate the economy. Those, he said, included even taking the unprecedented step of imposing a de facto penalty on commercial banks that hoard cash rather than lend it.

But amid uncertainty about what recent economic indicators are saying about future growth, “we see no reason to act at this point,” Mr. Draghi said at a news conference.

“The Governing Council agreed there was not any directional change that would justify taking action at this time,” he said, even as the E.C.B.’s own economists changed their economic forecast to a gloomier reading for the rest of the year.

The downward revision projected that the euro zone’s economy would shrink by 0.6 percent this year, worse than the 0.5 percent decline previously forecast. But the central bank expects growth in the euro zone of 1.1 percent next year, slightly higher than previous forecasts.

The E.C.B. left its main interest rate at 0.5 percent, a record low. Most analysts did not expect the bank to cut the rate only a month after reducing it from 0.75 percent.

In recent months, Mr. Draghi has floated some unconventional ways of steering credit to countries like Italy and Spain, where even healthy companies have trouble getting bank loans. For example, he has raised the possibility that the E.C.B. would work with the publicly owned European Investment Bank to make it easier for banks to package and sell bundles of small-business loans.

The E.C.B. had even said it was considering obliging banks to pay to store their money at the central bank, rather than earn interest on it — resulting in a so-called negative deposit rate. The goal would be to force banks to put their money to work by lending it. Mr. Draghi indicated that the central bank’s Governing Council had considered that move Thursday but decided not to proceed with it.

Economists who have been pressing the central bank to take more aggressive action to stimulate the economy were disappointed.

“The E.C.B. had increased expectations that it would be able to present a new quick fix for the real economy” by increasing lending to small and midsize businesses, Carsten Brzeski, an economist at ING Bank, said in a note to clients. “Today’s press conference shows that the ECB has returned into its garage, carefully studying what is left there.”

During his news conference, Mr. Draghi cited “downside risks surrounding the economic outlook for the euro area.” Those, he said, include the possibility of weaker-than-expected domestic and global demand and slow or insufficient policy changes in euro zone countries.

After Mr. Draghi’s comments, the value of the euro strengthened against the American dollar, settling at $1.3253. European stock markets closed down about 1 percent.

Mr. Draghi made it clear that he did not belong to those who believed the euro zone was heading down the same path as Japan, which has struggled for two decades to achieve sustained growth. Mr. Draghi told reporters that he saw no danger of deflation — a broad decline in prices that can throttle business investment and has afflicted Japan.

Price declines in some countries were the result of lower prices for oil and food, he said, not the “explosive dynamics downward” that would meet his definition of deflation.

“We don’t see anything like that in any country,” Mr. Draghi said.

Some recent economic indicators have kept alive the hope that the euro zone is close to hitting bottom. Surveys have shown that businesses and consumers are a little less pessimistic than they were. And inflation has accelerated slightly, although it is still below the E.C.B. target of about 2 percent.

Many economists point out that signs of a recovery are very weak and have urged the E.C.B. to be bolder. Unemployment remains a persistent problem, with joblessness in the euro zone at a record high of 12.2 percent. France reported on Thursday a 10.8 percent unemployment rate for the first quarter, also a record high.

Marie Diron, an economist who advises the consulting firm Ernst Young, expressed disappointment that the central bank had not done more to ensure that record-low interest rates were reaching businesses and consumers in troubled euro countries, where market rates remained punishingly high. She wrote in an e-mail, “The E.C.B. needs to intervene to ensure that its very accommodative monetary policy reaches the real economy.”

Article source: http://www.nytimes.com/2013/06/07/business/global/ecb-keeps-interest-rates-unchanged-in-hopes-for-recovery.html?partner=rss&emc=rss

E.C.B. Cuts Key Interest Rate to 0.5%, a New Low

The central bank, meeting in Bratislava, cut its benchmark interest rate to 0.5 percent from 0.75 percent, which was already a record low. It was the first change in interest rates since July 2012 and the bank’s fourth cut since Mario Draghi took over as its president in November 2011.

The central bank will continue providing unlimited loans to banks at the benchmark interest rate “as long as needed” and at least until mid-2014, Mr. Draghi said at a news conference after the announcement.

Even at its new low of 0.5 percent, the European Central Bank’s benchmark rate remains higher than the 0.25 percent rate the Federal Reserve has had in place since late 2008. On Wednesday, the Fed said it would maintain its stimulus campaign, buying $85 billion a month in Treasury and mortgage-backed securities. The Fed added that it would consider adjusting its efforts to spur growth and reduce unemployment in the United States.

A cut by the European Central Bank was widely expected after a series of economic indicators in recent weeks foreshadowing an extended downturn in the euro zone, with recession even threatening the seemingly unstoppable German economy. On Thursday, two stalwarts of corporate Germany, BMW and Siemens, warned of lower profits for 2013 because of the downturn in European markets.

Many economists argued that the central bank was practically obliged to cut rates. Inflation in the euro zone was just 1.2 percent in April, well below the E.C.B. target of about 2 percent. The central bank is mandated to maintain price stability above all else, which includes heading off deflation — a downward spiral in prices that can be even more destructive than inflation.

But there is widespread skepticism about the likelihood that the rate cut will do much to restore the flow of credit in countries like Italy and Spain, which are in the midst of long-term slumps. The cut could have negative effects in Germany, where low interest rates have fueled steep rises in home prices in some cities.

“A rate cut will only have a small impact on the economy but it will signal an easier monetary policy stance,” Marie Diron, an economist who advises the consulting firm Ernst Young, wrote in an e-mail ahead of the decision.

Investor reaction to the rate cut was muted. European markets initially rose after the announcement, but then slumped lower.

Many banks in Europe, whose shyness to lend the E.C.B. is trying to address, may regard the cut with mixed feelings. While the new rate will lower the cost of raising money, the cut may also reduce the profit margin on mortgages or other forms of lending. Many banks in Europe are barely profitable and can ill afford any more problems.

Some economists argue that there is little the central bank can do to force-feed credit to small businesses in countries like Greece and Portugal that are suffering prolonged downturns. Banks’ reluctance to grant loans reflects the sad fact that many businesses and consumers are poor credit risks, Richard Barwell, an economist at Royal Bank of Scotland, wrote in a note to clients.

Mr. Barwell referred to a recent European Central Bank survey that found that the biggest problem for businesses in countries like Italy is finding customers, not credit. The central bank cannot help businesses with that problem, he wrote. Still, he said, “the E.C.B. has reached the point where it has to do something.”

A cut may, however, help some exporters by helping to reduce the value of the euro compared to the dollar and other major currencies. A lower official interest rate tends to make it less attractive to hold euros, and drive down the exchange rate, making European products cheaper in foreign markets.

A rate cut “would be a sign that policy makers understand it is time to find a way to compete,” Marco Tronchetti Provera, chief executive of the Italian tire maker Pirelli, said during an interview last week.

The central bank also cut the higher rate it charges for overnight loans, the so-called marginal lending facility, to 1 percent from 1.5 percent. The benchmark rate of 0.5 percent, known as the main refinancing rate, is what banks pay to borrow for a week or more and is the rate that normally has the most powerful effect on the economy.

The European Central Bank left the rate it charges banks to park money at the bank, the deposit rate, at zero. There has been speculation in the past that the E.C.B. would cut the deposit rate below zero, charging banks to park their money, in order to discourage lenders from hoarding cash rather than issuing loans. But there was fear that move could have unintended consequences.

And in another step to ease the credit crunch in southern Europe, Mr. Draghi said the central bank would also consult with European Union institutions on how to revive the market for asset-backed securities, in which outstanding loans are bundled and sold to investors. A more lively market for asset-backed securities could also help lending, although Mr. Draghi did not immediately explain what steps he had in mind.

Article source: http://www.nytimes.com/2013/05/03/business/global/03iht-euro03.html?partner=rss&emc=rss

Bailout Grows Riskier as Cypriot Economy Stumbles

With time running out until Cyprus’s devastated banks must reopen their doors to the public, Cypriot and European officials are scrambling to put in place a set of measures that would allow jittery depositors access to their savings while preventing many billions of euros from fleeing the country.

But as officials grind yet again through their economic models, they are confronting a disturbing prospect: Estimates that the Cypriot economy would shrink about 3 percent this year, a forecast that underpins the country’s controversial international bailout package, will need to be revised drastically given the shock that the island’s small economy has endured from the extended closure of its banks.

The bailout package being put together by the troika of international lenders — the International Monetary Fund, the European Central Bank and the European Commission — will consist of about €10 billion, or $13 billion, in loans for Cyprus itself. But the cost of bailing out the island’s two largest banks, Bank of Cyprus and Laiki Bank, is to be borne by the banks’ large, uninsured depositors.

At a news conference on Tuesday, the governor of Cyprus’s central bank, Panicos O. Demetriades, said that he expected big depositors at the Bank of Cyprus to get a “haircut,” or loss, of about 40 percent on their €14 billion in long-term deposits. In exchange, depositors will receive shares in a recapitalized bank.

But with many economists now estimating that the Cypriot economy will contract 5 percent to 10 percent this year, it could well be that the depositors will have to take an even bigger haircut so that the bank can free up cash to protect its rapidly deteriorating loan book.

At Laiki Bank, which is even worse off, about €4 billion of deposits will be put in a bad bank and are most likely to be wiped out as the bank is wound down.

Debt experts say that as painful as such a trimming might be, it may not be enough to guarantee the viability of the Bank of Cyprus, given the state of the economy.

“If you are not hugely conservative with regard to valuing Bank of Cyprus’s loans, the bank will be bankrupt in 12 months,” said Adam Lerrick, a sovereign debt specialist at the American Enterprise Institute.

Indeed, as of the third quarter of 2012, problem loans for the bank were 22 percent of the total, one of the highest ratios in the euro zone. That figure will have grown significantly over the past several months, economists here say.

Adding to the sense of confusion enfolding the country’s financial sector, the chairman of the Bank of Cyprus resigned abruptly Tuesday following a showdown with Mr. Demetriades, the head of the central bank, and the Finance Ministry.

The bank chairman, Antreas Artemis, complained that the authorities rode roughshod over him and his board of directors by moving unilaterally to sell off units of the bank in Greece and for planning to impose a devastating haircut on big depositors.

In a statement later in the day, the bank said Mr. Artemis’s resignation had not been accepted and “will only apply if not withdrawn within one week,” Reuters reported.

On Tuesday, the Cypriot central bank said it had appointed Dinos Christofides, a well-known local businessman, to act as special administrator for Bank of Cyprus. Mr. Christofides has long experience in auditing and advising major local and international companies.

Also Tuesday, Fitch Ratings said it was cutting its credit grades on Cypriot banks because of the losses imposed by the bailout deal on senior creditors. Fitch said it was cutting its rating on Laiki to “default” and its rating on Bank of Cyprus to “restricted default,” a grade Fitch said means the bank has experienced a payment default on a bond, loan or other material obligation but has “not entered into liquidation or ceased operating.”

Article source: http://www.nytimes.com/2013/03/27/business/global/bailout-grows-riskier-as-cypriot-economy-stumbles.html?partner=rss&emc=rss

E.U. Officials’ Salaries Draw Fire

BRUSSELS — Days ahead of a summit meeting where leaders of the European Union’s 27 member states are to wrestle again with a proposed seven-year budget for the bloc, an E.U. spokesman was forced to defend the salaries pulled down by some officials.

At a time when many European governments have been compelled to impose stringent budget cuts, the issue of salaries and perquisites for E.U. officials has resonated. In November, Prime Minister David Cameron of Britain called on officials in Brussels to share the pain that austerity measures have brought to millions of Europeans.

On Sunday, the German newspaper Die Welt am Sonntag stoked the controversy by comparing the salaries of some E.U. officials to the compensation paid to Chancellor Angela Merkel.

Anthony Gravili, a spokesman for the European Commission, told a news conference on Monday that such figures were flawed.

“It’s a totally unfair comparison,” said Mr. Gravili, who offered a lengthy rebuttal of the article but did not mention the newspaper by name. “No official earns more than Chancellor Merkel.”

Mr. Gravili criticized comparisons of Ms. Merkel’s monthly salary, excluding allowances and other additions, to E.U. salaries including allowances and benefits. European Commission show that the monthly base salary of the most senior E.U. official is €18,370, or $24,830. Ms. Merkel’s monthly base salary is €21,000. Of that, €17,000 is her pay as chancellor, while €4,000 is her reduced salary as a member of the German Parliament, Mr. Gravili said.

Once Ms. Merkel’s basic allowances as both chancellor and Parliament member were included, Mr. Gravili said, the chancellor’s monthly pay was about €25,000.

E.U. officials generally pay low taxes, but Mr. Gravili said he did not have the figures available to say whether this would raise the officials’ after-tax income above Ms. Merkel’s. Inge Grässle, a German member of the European Parliament and a member of the body’s budgetary control committee, said that the highest-paid E.U. official paid taxes equivalent to about 25 percent of their gross salary.

Germany contributes most to the E.U. budget, which was about €135 billion last year.

E.U. officials receive steady criticism about waste and bloat but only about 6 percent of all spending goes to the Union’s administration, which is staffed by 55,000 people, including 6,000 translators, most of them in Brussels.

European political leaders will gather in Brussels on Thursday to consider a budget proposal of roughly €1 trillion for 2014-2020. The proposal trims 1 percent from the European Commission’s requested spending for administrative costs. Britain has argued for deeper cuts, saying that those costs, while relatively small in comparison to the overall E.U. budget, are symbolically important.

Unlike E.U. officials, the 27 members of the European Commission are political appointees. Their salaries are much closer to those of national leaders like Ms. Merkel, and in some cases may exceed them.

José Manuel Barroso, the president of the commission, is paid a basic monthly salary of €25,351, a residence allowance equal to 15 percent of that salary, and additional allowances for expenses like running a household and schooling for children. The seven vice presidents of the commission earn basic monthly salaries of €22,963.

Mr. Gravili said he did not have the figures available to comment on the comparison of the commissioners’ after-tax salaries with Ms. Merkel’s.

Article source: http://www.nytimes.com/2013/02/05/business/global/eu-officials-salaries-draw-fire.html?partner=rss&emc=rss

In Davos, Atmosphere for Bankers Improves

FRANKFURT — Two years ago, Jamie Dimon, chief executive of JPMorgan Chase, told an audience in Davos that people should stop picking on bankers. Mr. Dimon is still waiting for his wish to come true.

Bankers, always a big presence at the World Economic Forum in the Swiss city of Davos, arrive this year under less regulatory pressure and with better profits than in past years. But they are still on the defensive.

Mr. Dimon, scheduled to appear on one of the first panels when the Davos forum opens Wednesday, is again embroiled in controversy. Last week JPMorgan’s board cut his pay for 2012 in half, to $11.5 million, holding him accountable for a multibillion dollar loss in derivatives trading.

International bankers are under fire from the law enforcement authorities as well, and one does not have to go far from Davos to find examples.

UBS, based in Zurich, agreed to pay a $1.5 billion fine to the global authorities after admitting this month that it had helped manipulate a key benchmark rate used to set mortgage and other interest rates. Wegelin, a private bank based in St. Gallen, Switzerland, shut down earlier this month after admitting it had helped wealthy Americans evade taxes. The bank, founded in 1741, was the oldest in Switzerland.

And at a news conference last week in Washington, the managing director of the International Monetary Fund, Christine Lagarde, lamented a “waning commitment” to tougher financial regulation and called upon the banking authorities to finish the job of fixing the world’s banks.

For all that, though, bankers may find the atmosphere in Davos a bit more congenial than in some recent years. Among the government overseers who will also be flocking to the Swiss town, there seems to be a growing feeling that the banks have taken enough bashing.

Earlier this month, for instance, an international conclave of central bankers and bank supervisors, meeting in Basel, Switzerland, relaxed new rules that were intended to ensure that banks would be able to survive an event like the collapse of Lehman Brothers in 2008.

The rules, which are not binding but serve as a benchmark for national regulators, would require banks to maintain a 30-day supply of cash or liquid assets that are easy to convert into cash. But after the decision in Basel this month banks would have until 2019 to accumulate the additional cash and assets, instead of 2015. The regulators also broadened the kinds of assets that qualify, so that now they can include even some mortgage-backed securities—the same general class of security that was at the heart of the crisis.

Many analysts see the decision as a gift to the banking industry, which had insisted that planned new regulations will force them to curtail lending. Bank stocks in Europe rose after the decision.

“Most bankers I talked to breathed a huge sigh of relief,” said Cornelius Hurley, a professor at the Boston University School of Law and former counsel to the U.S. Federal Reserve board of governors.

Gavan Nolan, a credit analyst at Markit, a data provider in London, agreed that changes in the rules “went further than many had presumed, and in a direction that seems to favor the banks.” Still, in a note to clients he added, “the effects shouldn’t be overstated.” The rules “will still make it more difficult to make money, in comparison to the previous era.”

The discussions at Davos may offer clues about whether the Basel decisions foreshadow other concessions..

There is a risk that efforts to rein in financial risk could lose momentum as the Lehman trauma fades, Mr. Hurley said.

“We said to ourselves back in 2008, a crisis is a terrible thing to waste,” he said. “It seems the farther away we get the evidence is that we are wasting it.”

The World Economic Forum tends to be a place for talk rather than action, but it is one of the few events that reliably brings central bankers, regulators, economists, legislators and bankers under one snow-laden roof.

The discussions sometimes have been contentious, as in 2010 when U.S. policy makers like Representative Barney Frank met behind closed doors with top bankers including Brian T. Moynihan, then the chief executive of Bank of America.

Article source: http://www.nytimes.com/2013/01/21/business/global/21iht-davosbanks21.html?partner=rss&emc=rss

Bankers to Find Atmosphere a Bit More Congenial in Davos

FRANKFURT — Two years ago, Jamie Dimon, chief executive of JPMorgan Chase, told an audience in Davos that people should stop picking on bankers. Mr. Dimon is still waiting for his wish to come true.

Bankers, always a big presence at the World Economic Forum in the Swiss city of Davos, arrive this year under less regulatory pressure and with better profits than in past years. But they are still on the defensive.

Mr. Dimon, scheduled to appear on one of the first panels when the Davos forum opens Wednesday, is again embroiled in controversy. Last week JPMorgan’s board cut his pay for 2012 in half, to $11.5 million, holding him accountable for a multibillion dollar loss in derivatives trading.

International bankers are under fire from the law enforcement authorities as well, and one does not have to go far from Davos to find examples.

UBS, based in Zurich, agreed to pay a $1.5 billion fine to the global authorities after admitting this month that it had helped manipulate a key benchmark rate used to set mortgage and other interest rates. Wegelin, a private bank based in St. Gallen, Switzerland, shut down earlier this month after admitting it had helped wealthy Americans evade taxes. The bank, founded in 1741, was the oldest in Switzerland.

And at a news conference last week in Washington, the managing director of the International Monetary Fund, Christine Lagarde, lamented a “waning commitment” to tougher financial regulation and called upon the banking authorities to finish the job of fixing the world’s banks.

For all that, though, bankers may find the atmosphere in Davos a bit more congenial than in some recent years. Among the government overseers who will also be flocking to the Swiss town, there seems to be a growing feeling that the banks have taken enough bashing.

Earlier this month, for instance, an international conclave of central bankers and bank supervisors, meeting in Basel, Switzerland, relaxed new rules that were intended to ensure that banks would be able to survive an event like the collapse of Lehman Brothers in 2008.

The rules, which are not binding but serve as a benchmark for national regulators, would require banks to maintain a 30-day supply of cash or liquid assets that are easy to convert into cash. But after the decision in Basel this month banks would have until 2019 to accumulate the additional cash and assets, instead of 2015. The regulators also broadened the kinds of assets that qualify, so that now they can include even some mortgage-backed securities—the same general class of security that was at the heart of the crisis.

Many analysts see the decision as a gift to the banking industry, which had insisted that planned new regulations will force them to curtail lending. Bank stocks in Europe rose after the decision.

“Most bankers I talked to breathed a huge sigh of relief,” said Cornelius Hurley, a professor at the Boston University School of Law and former counsel to the U.S. Federal Reserve board of governors.

Gavan Nolan, a credit analyst at Markit, a data provider in London, agreed that changes in the rules “went further than many had presumed, and in a direction that seems to favor the banks.” Still, in a note to clients he added, “the effects shouldn’t be overstated.” The rules “will still make it more difficult to make money, in comparison to the previous era.”

The discussions at Davos may offer clues about whether the Basel decisions foreshadow other concessions..

There is a risk that efforts to rein in financial risk could lose momentum as the Lehman trauma fades, Mr. Hurley said.

“We said to ourselves back in 2008, a crisis is a terrible thing to waste,” he said. “It seems the farther away we get the evidence is that we are wasting it.”

The World Economic Forum tends to be a place for talk rather than action, but it is one of the few events that reliably brings central bankers, regulators, economists, legislators and bankers under one snow-laden roof.

The discussions sometimes have been contentious, as in 2010 when U.S. policy makers like Representative Barney Frank met behind closed doors with top bankers including Brian T. Moynihan, then the chief executive of Bank of America.

Article source: http://www.nytimes.com/2013/01/21/business/global/21iht-davosbanks21.html?partner=rss&emc=rss

Record Loss for Embattled ThyssenKrupp

FRANKFURT — The German steelmaker ThyssenKrupp, battered by slow economic growth and a series of corruption scandals, reported the biggest loss in its history and confirmed that three top executives would leave the company.

The loss of €5 billion, or $6.5 billion, for the fiscal year that ended in September, was announced late Monday, capping a tumultuous year for a company that once symbolized German industrial might. The period was marked by the revelation of huge losses at the unit that operates steel plants in Brazil and Alabama, fines related to a price-fixing scandal, and other setbacks.

Last year the company lost €1.8 billion.

“I’m not going to talk anything up here, because it is obvious that a great deal has gone wrong in the past,” Heinrich Hiesinger, the chief executive of ThyssenKrupp, said at a news conference at company headquarters in Essen, Germany, on Tuesday.

ThyssenKrupp blamed €3.6 billion of the loss on its Steel Americas unit, which Mr. Hiesinger referred to as a “disaster.” He conceded that managers had valued plants in Rio de Janeiro and Calvert, Alabama, at far above their market value. Accounting rules required the company to record a loss after recognizing the factories’ actual worth.

The Brazil factory suffered from cost overruns during construction, and both mills were hit by slack demand, ThyssenKrupp said.

The fiscal-year loss means that ThyssenKrupp will not pay a shareholder dividend for the first time since it was created by a historic merger in 1999. Still, ThyssenKrupp shares rose about 1 percent in Frankfurt trading as investors concluded that Mr. Hiesinger, who became chief executive in January 2011, was grappling with the company’s problems.

“The track record of new management has been very solid,” analysts at Credit Suisse said in a note to clients Tuesday. “They are dealing with perhaps some of the most difficult issues of ThyssenKrupp’s existence.”

Blame for the problems fell on three members of the company’s six-member executive board. ThyssenKrupp said the three had agreed to terminate their contracts at the request of the company’s supervisory board.

The managers are Olaf Berlien, whose responsibilities included plant technology; Jürgen Claassen, the company’s longtime head of communications; and Edwin Eichler, who was in charge of Steel Americas. About 50 managers have already left the company after they were found to have violated compliance codes, Mr. Hiesinger said.

Mr. Claassen, who was also responsible for compliance with the company’s ethics rules, has been the subject of articles in the Handelsblatt newspaper and other news outlets accusing him of taking journalists on junkets that were considered lavish even by the flexible standards of the European press.

The Essen prosecutor’s office, which investigated the accusations, said last week that it had found no evidence that the trips broke any laws.

Questions have also been raised about whether top managers concealed the true extent of the company’s problems, but Mr. Heinrich said there was no evidence of wrongdoing.

“To date there are no facts indicating compliance infringements or illegal conduct by any of them,” he said.

But the huge loss, at a time when most big German companies continue to do well, was a further blow to ThyssenKrupp’s reputation.

In July, the company paid a €103 million fine to the German Cartel Office following accusations it was part of a conspiracy to fix the price of railway tracks sold to Deutsche Bahn, the national railroad, and other customers. The company warned Tuesday it may face additional investigations or lawsuits stemming from its involvement in the cartel.

Krupp, which merged with Thyssen in 1999 following one of the first hostile takeover battles in German history, was once the very symbol of the country’s industrial might — for better or worse.

Founded in 1811, Krupp was responsible for many advances in steel technology but also developed and built the cannons and other weapons that provided the foundation for German militarism in the 19th and 20th Centuries. During World War II, Krupp used slave labor at its factories. Its top managers were later convicted of war crimes, though they served only brief prison terms.

In recent years, ThyssenKrupp has been overshadowed by companies like Daimler and Siemens, reflecting a shift in Germany’s economic center of gravity from the Ruhr Valley to the south. Daimler is based in Stuttgart, Siemens in Munich.

With sales of about €40 billion in the fiscal year ended Sept. 30, ThyssenKrupp has about half the revenue of Siemens and a little more than a third the sales of Daimler. Still, it remains an enormous company with 152,000 workers, including 58,000 in Germany.

Besides making steel, primarily for automakers, ThyssenKrupp also makes elevators, builds and equips factories, and manufactures submarines and other naval vessels.

Mr. Hiesinger, a former Siemens executive, acknowledged Tuesday that “our leadership culture has failed in many areas of the company.”

“In the past there has been an understanding of leadership in which ‘old boys’ networks’ and blind loyalty were more important than business success,” he said. “And there were obviously some who thought that rules, regulations and laws do not apply to everyone.”

“I am aware that through this attitude we have lost a great deal of trust and credibility,” Mr. Hiesinger said. “We must now earn back both.”

Article source: http://www.nytimes.com/2012/12/12/business/global/record-loss-for-embattled-thyssenkrupp.html?partner=rss&emc=rss