April 17, 2024

News Analysis: Euro Zone Plan to Limit Bonuses Rattles Bankers

Europe is pushing to cap bankers’ bonuses, but the bankers, once again, may be a step or two ahead of the rule makers.

Like a thunderclap, the European proposal to limit bonuses is reverberating across the global financial industry. Many bankers say, predictably, that such a step would be disastrous. Europe’s sharpest financial minds, the argument goes, will decamp to New York or Hong Kong at the very moment they are needed to help restart Europe’s economy.

Despite the outcry, which is particularly loud in London, the regulations that are being proposed may not turn out to be onerous at all. Bankers are already talking about ways to get around them. And, in any case, big banks have already been retooling pay practices and trying to keep a lid on compensation. Why? To bolster their profits and share prices.

As is often the case with financial regulation that follows a crisis, the risk is that the new rules, while sensible on paper, will be too late. What is more, they could have some adverse, unintended consequences.

The proposal, reached early Thursday under an agreement by European Union lawmakers and government officials, could mean that, starting next year, the coveted bonuses that many bankers across the 27 countries in the bloc receive will be capped at the level of their annual salaries.

Financial firms would be able to hand out payments that amount to double the salaries with the approval of a majority of shareholders. If bonuses exceed salaries, then a quarter of that additional payout must be deferred for at least five years. European officials say that the proposal is not yet final.

The rule’s rationale is to limit the high-reward, high-risk behavior by bankers that contributed to the global financial crisis. And given the high level of government support that banks receive, the argument goes, a bigger say in corporate governance could help prevent another disaster.

European bankers say the rules will prompt top talent to flee to less restrictive regions. Others indicate they will simply find some ways around the rules.

For example, some analysts say lower bonuses will be offset by higher fixed salaries, which could end up placing even heavier financial burdens on banks and their shareholders than bonuses do, because bonuses are easier to adjust from year to year.

Experts also point out that with higher fixed salaries, it will be harder to claw back bonuses from employees whose trades go bad or who violate laws or regulations. That is because most bonuses now are deferred, and are often paid in the form of stock, so they can easily be retracted.

Big banks, like JPMorgan Chase, Royal Bank of Scotland and Barclays, have used clawbacks in this way. And bankers say that this threat has itself become a powerful deterrent to risky or unethical behavior.

But the restrictions may only further solidify the changing world of banker pay, rather than shake up compensation practices.

Big financial firms once had a lot of leeway over how much they paid their employees, but — on paper, at least — that changed considerably after the financial crisis of 2008. With the industry reeling, the Group of 20 countries set up a framework for regulating pay.

One of the top principles was the tying of bankers’ pay to the amount of risk they took when doing trades. Bankers are typically rewarded compensation for one year’s performance, but they receive the cash or the shares that make up that reward over several years.

In theory, that gives banks the ability to cancel that pay if trades do not meet preset targets. This approach does not necessarily focus on the overall level of pay, however.

Raising base salaries could run straight into the framework that linked pay to the financial performance of trades. By promising to pay an employee a large sum upfront, the bank would essentially loosen the link between compensation and risk.

Connecting the two is the main principle at the heart of regulators’ new approach. If traders make a bad bet, it would be harder for bosses to punish them through their paycheck.

Michael J. de la Merced and Peter Eavis contributed reporting from New York.

Article source: http://www.nytimes.com/2013/03/01/business/global/prospect-of-bonus-caps-rattles-uk-bankers.html?partner=rss&emc=rss

DealBook: Behind the Scenes, Some Lawmakers Lobby to Change the Volcker Rule

Senator Scott Brown broke with Republicans to support the expansion of federal financial regulation.Elise Amendola/Associated PressSenator Scott Brown broke with Republicans to support the expansion of federal financial regulation.

As regulators put the finishing touches on new rules for Wall Street, they remain entangled in a partisan fight over the overhaul.

In public letters and closed-door meetings, more than 100 lawmakers have lobbied the Federal Reserve and other authorities over the Volcker Rule, records show. The rule, intended to restrict banks from placing risky trades and investing with hedge funds, has drawn an outcry from Republicans who want to mute its effect and some Democrats who want to strengthen it.

The wrangling has been on display at public hearings and in letters posted on regulatory Web sites. Still, some lawmakers have applied pressure behind the scenes.

Internal government documents provide a glimpse of one such lobbying effort last year, when an aide to Senator Scott Brown, Republican of Massachusetts, appealed to the Treasury Department and the Federal Reserve.

The documents show a back-and-forth between the Fed’s top lawyer and Mr. Brown’s staff. “I have a very urgent request,” Nathaniel Hoopes, Mr. Brown’s aide, wrote in an April 2011 e-mail. Seeking to fine-tune an exemption, he argued that a broad range of bank customers should be allowed to invest with hedge funds under the Volcker Rule. “My boss has been hearing it from constituents,” he added, referring to the rule’s impact on Massachusetts-based financial firms.

In a first draft of the rule released last fall, regulators agreed with that broad definition.

In response to Mr. Hoopes’s e-mail, the Fed’s general counsel, Scott G. Alvarez, acknowledged that “there are many difficult issues raised by the Volcker Rule.” In another e-mail, Mr. Alvarez encouraged Mr. Brown’s office to publicly voice its concerns, according to interviews with government officials and the documents. The Fed initially released the documents to a Democratic aide who obtained them through a public records inquiry.

In a statement, the Fed said that it routinely “seeks comment from the public and all interested parties on our rule-makings and carefully evaluates and weighs each comment.”

The Fed, like all regulators, provides feedback to lawmakers and has held several meetings with advocacy groups that support the Volcker Rule, including Americans for Financial Reform.

Still, the e-mails — while not improper or unusual — show that such discussions are not always public. The exchange with Mr. Hoopes came months before regulators opened a public comment period or even publicly released a draft version of the Volcker Rule.

The e-mails also indicate how, even after passing the Dodd-Frank Act, some lawmakers are still tinkering with its machinery.

Mr. Hoopes, who previously worked for an arm of Lehman Brothers, also pressed his case with the Treasury Department. In an e-mail to a Treasury official, he said, “This should be very simple and straightforward and I think the Fed is over-complicating it.”(The Boston Globe first reported about the e-mail this summer.)

Mr. Brown, one of three Republicans to vote for Dodd-Frank, is in a tight re-election fight with Elizabeth Warren, a Democrat. She made her name in Washington as a fierce critic of Wall Street and supporter of changes like the Volcker Rule.

The partisan haggling over the rule affects a number of regulators. But much of the pressure has centered on the Fed, where some lawyers have questioned whether the rule is too burdensome for Wall Street, according to government officials briefed on the matter. Officials spoke on the condition of anonymity because the rule-writing process is private.

“The Volcker Rule regulations have unfortunately been long delayed, obviously in my mind because the agencies are having difficulties reaching agreement,” said Michael Bradfield, the former general counsel at the Fed. “The well-known skepticism of some in the Fed about the workability of the Volcker Rule has undoubtedly contributed to this situation.”

Few rules present a greater challenge — or have provoked more political squabbling — than this one. Named for Paul A. Volcker, a former Fed chairman who campaigned for the rule, it aims to curb the sort of risk-taking that led to government bailouts in the financial crisis. The rule would largely prevent banks from making bets with their own money, a practice known as proprietary trading. It would also limit how banks invest in hedge funds.

But a draft proposal, released last fall, granted several broad exemptions to the proprietary trading ban. Regulators recently entered a final stage of rule-writing after a group of lawyers from the Fed and other agencies ironed out concerns over several exemptions, according to people briefed on the matter. While regulators initially hoped to complete the rule by September, the people said, they now expect a final version around the November election.

Several Democrats, echoing the antibank animus of the election season, have pushed the Fed to narrow the Volcker Rule exemptions.

Some regulators have stepped up their focus on the rule, too.

Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, which is helping to write the overhaul, said in a letter to the Fed last week that certain exemptions would “significantly undercut the fundamental purposes of the rule.”

Republican lawmakers counter that Dodd-Frank could jeopardize an already anemic economic recovery.

Mr. Brown, whose donors include major mutual funds like Fidelity, has been particularly vocal.

He supported the Volcker Rule after chipping away at one of its core tenets. During the debate on Capitol Hill, Mr. Brown championed an exemption that allowed banks to invest up to a 3 percent stake in hedge funds. Banks can also offer hedge fund investments to outside investors like pension funds.

Now, Mr. Brown is fighting over the details of the exemption. While Democrats want to restrict access to customers who already have an account with the bank, Mr. Brown wants to expand the definition of “qualified investors.”

A spokeswoman for Mr. Brown said he was “proud to cast the deciding vote” for Dodd-Frank and that he worked “to protect Massachusetts jobs.”

In his lobbying, Mr. Hoopes first appealed to the Treasury Department, but then took his concerns to the Fed. A “narrow definition,” Mr. Hoopes warned in an April 2011 e-mail to the Fed, “was not intended for this purpose” and would shift money to unregulated pockets of the market.

In reply, Mr. Alvarez of the Fed suggested that Mr. Brown file a public comment letter. “Others have been commenting on various ways we should interpret the statute, and we would consider very carefully any comment from you as well,” Mr. Alvarez wrote.

What happened next is unclear. While Mr. Hoopes had a brief phone call with the Fed, people briefed on the matter said, no one can recall specifics or whether Volcker was even discussed.

Mr. Hoopes soon filed a comment letter and thanked Mr. Alvarez “for all the quick responses to my questions, etc.” It is unclear to what questions Mr. Hoopes was referring.

Article source: http://dealbook.nytimes.com/2012/09/20/behind-the-scenes-a-lawmaker-pushes-to-curb-the-volcker-rule/?partner=rss&emc=rss

The Media Equation: Reporter on British Phone Hacking Is Entangled in Story

In the wake of that revelation came these results: both Rupert and James Murdoch, the chief executive and deputy chief operating officer of News Corporation, which owned The News of the World, were called before Parliament; the company decided immediately to close the 168-year-old newspaper; more than a dozen former employees have been arrested; the article about Milly Dowler by Mr. Davies and Ms. Hill won top honors from the Foreign Press Association in London last week; and a broad investigation by the Metropolitan Police of London called Operation Weeting yielded more than 5,800 victims.

Oh yes, and the police have zeroed in on one more reporter: Ms. Hill.

Last August, after the Milly Dowler story broke, Ms. Hill wrote an article about the arrest of James Desborough, the former Hollywood reporter for The News of the World. The police decided that their investigation had been leaked, a detective from Operation Weeting was arrested and Ms. Hill was brought in for questioning “under caution,” which means she was read her rights and any answers she gave could be used against her in a criminal case.

Ms. Hill was initially questioned on a charge that she had induced a police official to illegally share information. Then in September, word came that she might be charged under Britain’s Official Secrets Act. The police backed off that charge after a huge outcry in the British press, but she remained at risk of being prosecuted on the original charge.

After the investigation into her reporting was announced, Ms. Hill suddenly found herself hunted, with reporters from the tabloid press camped out at her doorstep, digging into her personal life and following her with cameras when she went shopping for groceries.

“I am amazed, given that what I was doing was good old-fashioned journalism,” she said in an interview at a coffee shop in Midtown Manhattan. “I have done nothing more than speak to a source, without confirming or denying who that source is, and to criminalize that is utterly shocking. It is beyond ‘Alice in Wonderland’ territory.”

To be clear, Ms. Hill is not being pursued on the grounds that she paid bribes to the police or used anything more technologically advanced than shoe leather to obtain her story.

“Amelia paid no one, hacked no one and just did her job as a journalist,” Mr. Davies, whose reporting broke open the scandal to begin with, said in an e-mail.

With all of the targets of opportunity — 28 journalists have been named so far in the investigation of bribes and hacking — Ms. Hill remains surprised that reporting that helped uncover the illegal conduct in the first place has made her a target.

“It shows how emotional the police have become,” she said, tugging at her big multicolored scarf. “They have let their fury and embarrassment caused by my reporting distract them from the heinous crimes that repeated investigations had failed to uncover and sought to criminalize my work as a reporter. I showed the inner machinery of their investigation, which is what journalists do.”

Perhaps, but the results were not typical. In a matter of days after the article she wrote with Mr. Davies on the Dowler affair appeared, The News of the World was closed.

“I’m not proud of that,” she said. “I don’t think that we need fewer papers, we need more. The reporters there were just collateral damage, sacrificed to save Rebekah Brooks, and she arguably was being used to protect James Murdoch.” Ms. Brooks, the chief of News International, the British newspaper arm of News Corporation, eventually resigned.

Britain is now in the midst of hearings that are broadly looking into the conduct of the press. Last week, the so-called Leveson hearings included a red carpet full of celebrities who testified that their private lives had been kidnapped by tabloid aggression.

Ms. Hill believes the inquiry has value, but she says that most of the British press was far too quiet when it came to the allegations raised by Mr. Davies’s reporting back in 2009.

“All of the organs of truth were in this complicit silence after Nick’s stories,” she said. “People were terrified of Murdoch and they have every right to be terrified. With the politicians he is friendly with, the newspapers and television stations, he was able to punish his enemies. Remember that he was within days of getting his hands on BSkyB when this story finally took hold.

“This is not like ‘The Wizard of Oz’ when they pulled back the curtain and it was just a little man sitting there. He has serious weaponry at his disposal in Britain,” she said.

There are fewer arrows in that quiver. Just as News Corporation was about to swallow the majority share of the satellite service BSkyB that it did not own, it found an enraged public and government at its throat. The News of the World is gone and word came last week that James Murdoch had stepped down as a director of two subsidiaries that publish Murdoch-owned newspapers in Britain.

Ms. Hill, who came to The Guardian from The Observer a year and a half ago and has a broad range of interests as a reporter, does not want to spend years chasing the fallout from the hacking story, but for the time being she is very much in the middle of it. The police have concluded their investigation into her reporting and she anxiously awaits word on whether the Crown Prosecution Service will proceed with the case.

It’s a predicament she does not find amusing.

“I’m trying not to be on tenterhooks and think about what happens if the Crown Prosecution Service takes on the case, but if I am honest, it’s gnawing away at me,” she said. “It is upsetting and destabilizing. I can’t ever quite forget the nightmare could explode again. And this time, it would be really serious.”

E-mail: carr@nytimes.com;

Twitter.com/carr2n

Article source: http://feeds.nytimes.com/click.phdo?i=8b7ef22798924322d94198af1e84b949

Chinese Upset Over Counterfeit Furniture

Promoting itself as “a haven for premium products,” DaVinci is the place to go for Versace sofas, sumptuous Fendi Casa calf-skin couches or stylish chaise lounges stamped Made in Italy. A DaVinci bedroom set can sell for $100,000.

That’s why it set off a national consumer scandal when one of China’s biggest state-run media outlets reported last week that it had discovered a tawdry truth: some of DaVinci’s imported Italian furniture, the report said, is actually produced at a ramshackle factory in southern China.

Besides sullying DaVinci’s reputation, the revelations have raised questions about whether European furniture makers are keeping close enough tabs on their Chinese supply chain.

Maybe more significant, the scandal indicates that even in China — where consumers have long been willing to turn a blind eye to pirated DVDs and Gucci knockoffs — there are boundaries that no counterfeiter should breach. Not if the fakes are priced as high as the real thing.

“DaVinci plays a trick of mixing pearl and fish eye together, so we customers paid for pearl but got fish eye,” one customer complained in the Chinese news media.

In a Web outcry, customers have demanded refunds and posted details of how their DaVinci products turned out to be shoddily made or reeking of foul-smelling lacquers.

DaVinci, which was founded in Singapore before branching into China, tried to quiet the storm by holding a news conference last week in Beijing, along with European executives representing some of the luxury brands in question. But DaVinci’s chief executive, Doris Phua, fed the news cycle anew by breaking down in tears over loud interruptions by customers.

Ms. Phua insisted that the allegations were false.

That same day, however, customs officials in Shanghai said they had evidence that DaVinci was temporarily storing Chinese-made goods in a Shanghai warehouse, including cattle-hide sofas produced in nearby Zhejiang Province. The officials said that after a day spent in Shanghai’s Waigaoqiao Free Trade Zone, the products — with the paperwork duly filed — were imported back into the country.

“Staying at the bonded zone for a day, the products changed from domestically produced ones to imported ones,” Zhou Guoliang, a customs bureau official, told Chinese news media.

Over the weekend, Shanghai’s official consumer watchdog agency ordered DaVinci to stop selling items bearing the label of the Italian brand Cappelletti, because of “fake ads” and “unqualified labels,” according to Shanghai Daily, the local English-language newspaper.

A spokesman for Cappelletti and the other European brands could not be reached for comment Monday.

The allegations first appeared early last week on China Central Television, China’s biggest state-run television broadcaster.

Now, angry people are using China’s popular QQ Web site to post information about other brands that claim to be from Europe, including clothing and a James Bond condom.

Article source: http://feeds.nytimes.com/click.phdo?i=862fc863ea3baa3330ff065200f20450

Pressure Rises on Cameron as Hacking Draws Wide Outcry

For the first time, Rupert Murdoch, the chief executive of News Corporation, released a statement on the scandal. “Recent allegations of phone hacking and making payments to police with respect to the News of the World are deplorable and unacceptable,” he said.

While promising full cooperation with police investigations, he strongly defended the head of the company’s Britain operations, Rebekah Brooks, who has become a focus of the scandal and was urged to resign on the Parliament floor on Wednesday. “I have made clear that our company must fully and proactively cooperate with the police in all investigations and that is exactly what News International has been doing and will continue to do under Rebekah Brooks’ leadership,” he said. “We are committed to addressing these issues fully and have taken a number of important steps to prevent them from happening again.”

Mr. Murdoch said that Joel Klein, the former New York City schools chancellor and current head of the News Corporation’s education unit, would “provide important oversight and guidance” in the investigations while Viet Dinh, a former assistant attorney general in the George W. Bush administration and non-executive director of the company, would keep the company’s board informed of all developments.

Mr. Cameron, facing a potential minefield from the scandal’s fallout, resisted immediately ordering a full inquiry into the workings of the often adversarial, scoop-driven British press, saying that such a step would have to wait for the outcome of the current police investigation, which was ordered after the police initially got nowhere.

“We do need to have an inquiry, possibly inquiries, into what has happened,” the prime minister, David Cameron, told Parliament after days of disclosures that have horrified Britons. There were reports that hackers working for News of the World, owned by News Corporation, listened to the voice-mail messages left on the phones of murder and terrorism victims. One was a 13-year-old girl who was abducted and murdered in 2002. Additionally, Scotland Yard detectives are also investigating whether the voicemail accounts of relatives of victims of the bombings of three London subway trains and a double-decker bus on July 7, 2005, had also been hacked, according to some of the relatives.

“We are no longer talking here about politicians and celebrities, we are talking about murder victims, potentially terrorist victims, having their phones hacked into,” Mr. Cameron said. “It is absolutely disgusting, what has taken place, and I think everyone in this House and indeed this country will be revolted by what they have heard and what they have seen on their television screens.”

A furor has been building in England for months after disclosures that journalists from News of the World, a mass-circulation gossip-laden Sunday tabloid, hacked into the voice-mail messages of celebrities and other prominent people. But, this week, the extent of the alleged hacking has broadened dramatically with reports that the newspaper hacked the cellphone of the slain 13-year-old girl nine years ago, deleting some messages to make room for more in a move that added to vain hopes that she was still alive.

The disclosures have focused on two people in particular — Rebekah Brooks, the chief executive of News International, which runs the British newspaper operations of Rupert Murdoch’s News Corporation, and Andy Coulson, a former News International editor, who went on to become Mr. Cameron’s director of communications before he was forced to quit in January, months after the phone-hacking scandal erupted with new vigor.

In his resignation statement, Mr. Coulson reiterated that he had been unaware of the hacking when it took place, but said that the scandal had proved too distracting for him to do his job.

As the catalog of allegations widened on Wednesday, the BBC reported that News International had passed material to the police relating to e-mails that seemed to show that payments authorized by Mr. Coulson had been made to the police for information.

Sarah Lyall reported from London, and Alan Cowell from Paris. Eric Pfanner contributed reporting from Paris.

This article has been revised to reflect the following correction:

Correction: July 6, 2011

An earlier version of this article contained a caption that referred incorrectly to the day the photo was taken. It was from Wednesday, not Thursday.

Article source: http://www.nytimes.com/2011/07/07/world/europe/07britain.html?partner=rss&emc=rss