October 30, 2020

I.M.F. Trims Global Growth Forecast as Emerging Markets Lag

WASHINGTON — Many major emerging economies have weakened since the spring, the International Monetary Fund said on Tuesday in the latest update to its economic forecasts, while advanced economies, including the United States and Europe, continue to trudge along with subpar growth and the euro area remains mired in recession.

The fund now expects the global economy to grow about 3.1 percent in 2013, the same rate as in 2012 and down from growth of 3.9 percent in 2011. That is 0.2 percentage points lower than the Washington-based fund forecast in April.

Olivier Blanchard, the fund’s chief economist, said in the periodic update that emerging economies were experiencing a “slowdown in underlying growth,” and the fund lowered its forecasts for China, India, Brazil, Mexico, South Africa and Russia, among other countries. “It’s clear that these countries are not going to grow at the same rate as they did before the crisis,” he said.

Given that emerging economies have in no small part powered the global recovery, their slowdown has a significant effect on the rest of the world, the fund said. For instance, Mr. Blanchard said, if growth in the so-called BRICS — Brazil, Russia, India, China and South Africa — were 2 percentage points slower than expected, a half-percentage point would be knocked off the United States’ growth rate. “It matters,” he said.

The fund said that the recession in the euro area had proved deeper than expected in recent months because of the persistent combination of tight credit conditions, low demand and government budget cutting. Next year, the fund’s forecasters expect growth to pick up in the 17 countries of the euro zone, but to a slower rate than previously thought — just 0.9 percent, down from about 1 percent as forecast in April.

Accenting that concern, Standard Poor’s, the credit ratings agency, on Tuesday cut Italy’s long-term rating a notch to BBB, just two steps above “junk” status, citing the country’s falling economic output and weakened financial system. The fund warned, as it has before, that the United States’ tax and spending policies were slowing its recovery. Private demand is improving as the turnaround in the housing market helps to repair households’ balance sheets and as the Federal Reserve continues its campaign to encourage investors to invest with accommodative monetary policy, the fund said. But tax increases and budget cuts were weighing on growth, it warned.

The fund cut its estimate of United States growth by 0.2 percentage points for both 2013 and 2014. It now sees the country’s economy growing 1.7 percent this year and 2.7 percent next year.

Japan is one bright spot in the global economy, the I.M.F. said. The country has been mired in stagnation and deflation for a decade. But since the beginning of the year, the government has been engaged in an athletic effort to spur the economy with aggressive asset purchases by the central bank and a jolt of government spending. The I.M.F. raised its estimate of the country’s current-year growth to 2 percent, up 0.5 percentage points from its April forecast.

Among emerging economies, different countries were suffering from different problems, the fund said. In some cases, infrastructure bottlenecks and other capacity constraints were stifling economic activity. In other cases, among big exporters like Russia, lower commodity prices were hurting growth.

Demand is weakening for goods from countries like Nigeria and South Africa, weighing down the whole sub-Saharan region, the fund said. And countries in the Middle East and North Africa continue to see disruptive political transitions, including violent ones.

The prospect of the Federal Reserve tapering its extraordinary asset-buying program — essentially taking its foot off the accelerator, if not putting it on the brakes — is sending shudders through the global economy, too. Financial markets have become more volatile and yields have increased in part because of uncertainty about the Fed’s policies, the fund said.

The rising yields “largely reflect a one-time re-pricing of risk,” it said. “However, if underlying vulnerabilities lead to additional portfolio shifts, further yield increases and continued higher volatility, the result could be sustained capital flow reversals and lower growth in emerging economies.”

The World Bank, the I.M.F.’s sister institution, has noted that businesses and governments in many lower-income developing economies have engaged in huge infrastructure projects financed with rates pushed down by the Fed. As interest rates rise, it has warned, some of those projects might fail — revealing financial bubbles and causing economic turbulence in the coming months.

Article source: http://www.nytimes.com/2013/07/10/business/economy/imf-trims-global-forecast-as-emerging-markets-lag.html?partner=rss&emc=rss

Executive Pay Report: An Unstoppable Climb in C.E.O. Pay

Well, what a difference a few months and a larger pool of C.E.O.’s make. According to an updated analysis, the top 200 chief executives at public companies with at least $1 billion in revenue actually got a big raise last year, over all. The research, conducted for Sunday Business by Equilar Inc., the executive compensation analysis firm, found that the median 2012 pay package came in at $15.1 million — a leap of 16 percent from 2011. 

So much for the idea that shareholders were finally getting through to corporate boards on the topic of reining in pay.

At least the stock market returns generated by these companies last year exceeded the pay increases awarded to their chiefs. Still, at 19 percent in 2012, that median return was only three percentage points higher than the pay raise.

In other words, it’s still good to be king.

Because the data shows only chief executives’ pay, it does not reveal how good it still is to be a prince. Brian Foley, an independent compensation consultant in White Plains, pointed out that the 2012 compensation of the No. 2 executives at some of these companies would have vaulted them to the top ranks on the C.E.O. roster.

“The interesting thing is that there are people at these companies that make as much or more than other C.E.O.’s,” Mr. Foley said. “I’m sure it’s a case of ‘Look at what the C.E.O. has; I want more of that.’ “

Lawrence J. Ellison, founder and C.E.O. of Oracle, the software company, is a familiar face on the pay charts, and is ranked No. 1 this year. And had his two top lieutenants been included, they, too, would have landed among the top five on the list. Safra A. Catz, Oracle’s chief financial officer and co-president, and Mark V. Hurd, also a co-president, each received packages worth $52 million in 2012. (Mr. Hurd, you might remember, received severance of more than $12.2 million when he left Hewlett-Packard in 2010.)

As usual, cash pay for many of the managers pales next to the value of the stock and option grants they received. Median cash compensation was $5.3 million last year, while stock and option grants came in at $9 million.

Stock grants are clearly where the action is, and their value can really add up. Equilar’s analysis calculates the median value of stock holdings of these top C.E.O.’s at $51 million.

The trouble is, stock grants, which are supposed to create an incentive to improve a company’s performance, are also where pay excesses and disconnects arise, compensation consultants say. How these boards measure corporate performance can create pay problems by failing to align long-term incentives with shareholders’ interests.

This is a significant lapse, given how hefty the incentive awards of stock or options can be. Performance shares generally comprise at least 50 percent of a typical chief executive’s long-term incentive award, consultants say.

The median of combined stock and option awards last year for the 200 C.E.O.’s on the list was 60 percent of pay. But individual cases can be far larger. Mr. Ellison received $90.7 million in options in 2012, or 94 percent of his nearly $96.2 million in total pay. Over all, Mr. Ellison’s compensation was up 24 percent from last year; his shareholders’ returns, meanwhile, were negative 22 percent in the company’s fiscal year, which ended in May.

Mr. Ellison was hardly alone in receiving boatloads of stock in 2012. Among the five top C.E.O.’s receiving compensation packages that were at least double those of last year, stock and option awards — which can vest over several years — provided the major kick.

Those executives included Robert A. Kotick of Activision Blizzard, the software publishing company; James Q. Crowe of Level 3 Communications, the communications network company; and Mark G. Parker of Nike. Mr. Kotick received stock awards worth almost $56 million, or 86 percent of his total. Of Mr. Crowe’s $40.7 million in pay, stock and option grants amounted to $37 million, or 91 percent of the total. At Nike, Mr. Parker’s stock and option awards were 77 percent of his $35.2 million in compensation.

At least shareholders of Level 3 and Nike made money on their stocks in fiscal 2012 — a gain of 36 percent at Level 3 and 30 percent at Nike. Activision’s holders weren’t so fortunate: their company’s shares lost 12 percent.

Article source: http://www.nytimes.com/2013/06/30/business/an-unstoppable-climb-in-ceo-pay.html?partner=rss&emc=rss

Confidence Slumps in Euro Zone

The Economic Sentiment Indicator for the 17-country euro zone slipped 1.5 percentage points to 88.6. Economists polled by Reuters had expected a decline to 89.3.

The disappointing figures highlight the euro zone’s difficult road out of recession and the souring of the mood among companies and consumers since March, after an optimistic start to the year.

What is likely to be of most concern is the fact that pessimism has set in even in Germany, which has Europe’s biggest economy, where economic sentiment worsened by 2.3 points. Morale also fell in France and Italy, meaning that the euro zone’s three largest economies are all witnessing a marked decline in the confidence that is crucial to get output growing again.

Across the euro zone, sectors ranging from industry to retail trade showed falling confidence. Sentiment in services fell 4.1 percentage points.

The commission’s measure of the euro zone’s business cycle reflected the malaise, decreasing 18-hundredths of a point to minus 0.93, lower than the minus 0.89 level expected by economists.

Many now expect the European Central Bank to cut interest rates to lower the cost of borrowing and help improve morale. The benchmark European rate, the refi rate, stands at 0.75 percent, a record low; many economists expect a cut to 0.5 percent.

Germany’s economic resilience and changes in Southern Europe had sown hope early in the year that the euro zone could pull out of recession before the end of the year, but the messy bailout of Cyprus and the inconclusive Italian elections in February have weighed on confidence. France’s weak economy and public accounts are also a concern.

Consumer confidence in the euro zone increased 1.2 points, however, and in Spain, sentiment improved by almost 1 point, in a sign that changes may be helping business despite record unemployment.

Article source: http://www.nytimes.com/2013/04/30/business/global/30iht-eurozone30.html?partner=rss&emc=rss

Bucks Blog: Steps to Guard Against Identity Fraud

If you get a letter notifying you that your personal data was involved in a corporate data breach, you should pay close attention, a new report says.

Nearly a quarter of people who receive such letters become victims of identity fraud, the report, from Javelin Strategy Research, found. (The firm makes a consumer version of its report available free.)

The latest report from Javelin is based on an online survey, using a probability-based panel fielded by Knowledge Networks, which questioned 5,249 adults in the United States from Sept. 20 to Oct. 12, 2012. For questions answered by all participants, the margin of sampling error is plus or minus one percentage point; for questions answered by all 857 participants who were identity fraud victims, it is plus or minus three percentage points.

The survey was sponsored in part by Citigroup Inc., Intersections LLC and Visa Inc. The sponsors were not involved in the tabulation, analysis or reporting of the final results, Javelin said.

The annual report found that the incidence of identity theft overall was about 5.3 percent of consumers, compared with 4.9 percent the year before.

Much of the increase was driven by so-called “new account” fraud, involving the unauthorized opening of general use or store brand credit cards, as well as “account takeover” fraud, in which the identity thieves may change consumers’ contact information — like their mailing addresses — to gain illegal access to their accounts, the report said.

Data breaches involving Social Security numbers are the most damaging, the report found, because they can be used to open new accounts and authenticate existing ones. Consumers who had their Social Security number compromised in a data breach were five times more likely to be the victim of fraud than consumers on average.

So, what should you do if you get a breach letter?

First, contact the company to make sure the letter is legitimate, Javelin advises. Then, don’t take the letter as some sort of reassurance. If you get one, you need to be more vigilant — not less — about checking your account statements and your credit report for suspicious activity, like new accounts you don’t remember opening or charges you didn’t make.

“We have a national problem, which is getting people to take these notifications seriously,” said Jim Van Dyke, Javelin’s chief executive.

If the company reporting the breach offers free monitoring of your credit report, you should use it, Mr. Van Dyke advised. “A surprising proportion of people don’t even take advantage of an offer of free service,” he said. At a minimum, you can check your credit reports without charge at AnnualCreditReport.com. (You can also request one from the different credit bureau — there are three big ones — every four months.)

Putting a security freeze on your credit report stops the fraudulent opening of new accounts without your knowledge. There may, however, be an “inconvenience” factor involved in lifting the freeze, in case you do want to apply for credit, Mr. Van Dyke said. (There’s also usually a small fee involved, unless you’re already an identity theft victim.)

Putting a fraud alert on your credit report is a less sweeping step that lets lenders know to do extra checking before issuing new credit in your name, and is usually a good idea if your Social Security number is compromised.

A security freeze or fraud alert won’t help if the data exposed in the breach was, say, the account number of a credit card you already had open. In that case, you need to check your account regularly — either online, or by checking your paper statement — for suspicious charges. Or, as the Identity Theft Resource Center suggests, you can request a new card with a new account number, if the card company doesn’t offer you one voluntarily.

What other steps can you take? In general, Javelin advises, never reveal your full nine-digit Social Security number unless it’s necessary. If you’re asked for it to establish your identity, ask if you can provide another form of identification instead. Also, ask service providers like cable companies and utilities to replace the last four digits of your Social Security number with a different four-digit security code to validate your identity when you call for service.

Even if you don’t get a breach letter, Javelin advises monitoring your bank and credit card accounts electronically at least once a week — and preferably daily. Use whatever method is easiest for you — checking online, via a mobile app, or touch-tone banking. And take advantage of any automatic account alerts your bank offers.

Have you ever received a data breach notice? What did you do as a result?

Article source: http://bucks.blogs.nytimes.com/2013/02/21/steps-to-guard-against-identity-fraud/?partner=rss&emc=rss

A Gigantic Sigh of Relief as Tax Uncertainty Ends

Even though Congress’s last-minute deal means higher taxes for almost all Americans, businesses and consumers are relieved that some of the uncertainty about what they will owe the government this year is gone.

“Once something gets settled, even if it’s not the most popular settlement option, it still gives you a sense of what the rules are and what you need to do to readjust,” said Sam Ramey, the owner of Sultan Mediterranean Cafe in North Andover, Mass., who says he hopes the deal will bolster the spirits of his customers.

“It’s not that you say ‘Today I’m not buying a sandwich because of all the uncertainty,’ but if you don’t feel that ease of mind that lets you go out and buy a sandwich, you don’t go out and buy a sandwich,” he said.

Congress’s compromise on taxes eliminates some uncertainty. But there’s no getting around the outcome that it will also reduce how much consumers have available to spend on dining out and other discretionary expenses.

Altogether, the end of the payroll tax holiday, the income tax increase on the wealthiest Americans and other provisions will probably shave 0.7 to 1.5 percentage points off economic growth in 2013, estimate many economists. They are forecasting growth in output this year of just over 2 percent, almost identical to that of 2012.

The housing rebound, the natural gas boom, looser credit for small businesses, pent-up demand for new cars and other encouraging trends will be tempered by the fiscal tightening, though not nearly as much as if taxes had risen as they were scheduled to do without a deal.

“We’ve definitely averted the worst-case recession scenario,” said Jay Feldman, an economist at Credit Suisse. “We’re still looking at some fiscal drag, but it’s an amount the economy can absorb.”

The tax deal is also expected to result in hiring growth at last year’s pace, meaning the creation of 150,000 to 160,000 payroll jobs a month, according to Michael Gapen, senior United States economist and asset allocation strategist at Barclays.

Without the tax increases, employers would probably be adding more than 200,000 jobs a month.

Altogether, that means the economy will “create 600,000 fewer jobs in 2013 — leaving the unemployment rate 0.4 percentage point higher — than it would have if the 2012 tax policies had been kept in place,” said Mark Zandi, chief economist at Moody’s Analytics.

Congress’s tax deal will be felt most keenly in the beginning of the year, since workers around the country immediately have to start paying an additional 2 percent in taxes on their wages and salaries as a result of the end of the temporary payroll tax holiday.

“That may surprise a lot of people as Christmas shopping bills come due and they find they have less in their paychecks,” said Mr. Feldman.

Most analysts’ estimates for the fiscal bargain’s effects on the economy do not take into account remaining negotiations over major spending cuts and an increase in the debt ceiling. Congress seems unlikely to resolve either of these issues until March.

“Only part of the poison pill that gave us the fiscal cliff has been addressed,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “What Congress did in the last 48 hours is effectively strap on a bungee cord to the economy. That is, we fell off the cliff briefly on Jan. 1, then bounced back safely onto the cliff after both houses passed tax accord.”

Congress decided to pause for two months on the $110 billion in mandated spending cuts set to take effect in 2013. These cuts would be evenly divided between defense and nondefense federal spending, and military contractors and other companies that rely heavily on federal money are expected to pull back some in the coming months, said Michael Feroli, the chief United States economist at JPMorgan Chase.

It remains unclear how much of these cuts will materialize when Congress is done haggling. Neither the Republicans nor the Democrats want them to take effect in full, a result that would shave around a half to a full percentage point off output growth this year.

The across-the-board reductions may be swapped out at least in part for other, unknown kinds of spending cuts or tax increases, which has left some Americans concerned about whether they might be in the cross hairs themselves.

Republicans have been pushing for a new formula that would curb Social Security benefits, for example.

“Hopefully Congress has at least some compassion left buried in their minds and hearts and will step up to the plate and make sure our benefits aren’t cut,” said Terry Grigg, 63, of San Diego. His only income is about $12,000 from Social Security and disability benefits while he undergoes treatments for invasive skin cancer and a hernia. “That would really be a slap in the face to the common man, to seniors, to vets.”

Medicare would be the primary target for cuts if Congress wanted to address the country’s long-term debt problems, many economists say. So far, though, most politicians have been reluctant to do so.

“From a political standpoint we’ve got this tax deal done,” said Steve Blitz, director and chief economist at ITG Investment Research. “Then we need to get this debt ceiling and spending piece done. And I think if we can get the second piece done, however minimal it ends up being, that allows the process to begin a serious discussion on the obvious: medical costs.”

Article source: http://www.nytimes.com/2013/01/03/business/after-tax-deal-economists-see-drag-on-growth.html?partner=rss&emc=rss

Chinese Manufacturing Sector Expanded in December

An important gauge of China’s giant manufacturing sector published Tuesday showed a third successive month of expansion in December and underlined the view that the world’s second-largest economy has settled into a mild rebound that is likely to extend into 2013.

A survey of purchasing managers in the manufacturing sector, released by the national statistics bureau on the first day of the new year, produced a reading of 50.6 points for December. Figures above 50 mean the sector is growing, while those below suggest contraction.

A similar survey released by HSBC on Monday painted a similar picture of solidifying recovery. That index, which is more focused on smaller, privately held businesses than its official counterpart, came in at 51.5 – a full point above the November reading, and the highest in 19 months.

After a marked slowdown during much of 2012, the Chinese economy began to regain some momentum during the last few months of the year. A modest increase in exports, combined with government-induced infrastructure spending and other economy-supporting measures, dissipated fears of a ‘’hard landing’’ during the final quarter of 2012. Analysts widely expect the economy to have expanded about 8 percent in 2012, and to record similar or even slightly stronger growth in 2013.

At the same time, however, analysts caution that the Chinese economy will need to grapple with a host of major challenges and that growth is likely to slow by several percentage points over the next decade.

‘’Looking forward, China’s cyclical rebound still faces strong headwinds,’’ Li-Gang Liu and Louis Lam, economists at ANZ, commented in a research note on Tuesday. ‘’Economic and policy uncertainties in the U.S. and the E.U. suggest that external demand for Chinese exports will remain sluggish.’’

Domestically, the government is grappling with rampant corruption and environmental degradation, a widening gap between rich and poor, and the need to reduce the dominance of state-owned enterprises. For growth to be sustainable, the economy will also need to become more driven by domestic demand, rather than government-induced investment and exports, analysts believe.

China’s rapidly changing demographics — an aging population will cause the proportion of non-earners to soar in the coming years — is adding considerable time pressure.

‘’The problem is not so much how to maintain short-term growth momentum, but how to prepare China for the demographic challenge ahead,’’ Yao Wei, an economist at Société Générale in Hong Kong, said at a media briefing in last month. ‘’Within ten years, China will have worse demographics than South Korea or Japan. The window of opportunity for policymakers is closing very quickly,’’ she added.

Article source: http://www.nytimes.com/2013/01/02/business/global/chinese-manufacturing-sector-expanded-in-december.html?partner=rss&emc=rss

Economix Blog: The Fed vs. the Fiscal Cuts: Not a Fair Fight



Dollars to doughnuts.

Since the financial crisis began, the Federal Reserve has taken the lead on stimulating the economy. It starting easing long before the Recovery Act was even a twinkle in Congress’s eye, and it has continued its stimulus efforts in the last couple of years to counteract fiscal tightening while the Recovery Act was petering out. As Mervyn A. King, the governor of the Bank of England, explained this week, central banks around the world have pursued monetary easing to offset fiscal tightening.

The problem is that fiscal tightening is now a much bigger potential negative for the economy than monetary easing is a positive.

The Fed announced today that it would provide more stimulus, by purchasing $45 billion in long-term Treasuries each month after its continuing “Operation Twist” concludes this month. This was welcome news to the markets, which have been clamoring for the Fed to do more, even though the marginal returns to more Fed stimulus get smaller and smaller. The first big injection of money into the economy does a lot; the second, not quite as much; the third, much less; and so on.

Meanwhile Congress is contemplating fiscal tightening that is much more potent than the Fed’s easing.

Forecasters have estimated that all the spending cuts and tax increases scheduled for the end of the year would shave around 3 to 3.5 percentage points from output growth next year. Few expect Congress to let this happen, of course.

Still, the policy compromise that many insiders do anticipate — eliminating most of the draconian spending cuts scheduled for 2013, extending the Bush-era tax cuts for all but the highest earners, and allowing the payroll tax holiday and emergency unemployment benefits to end as scheduled — will probably shave 2 to 2.5 percentage points off output growth early next year, according to Charles Dumas, chairman of Lombard Street Research. To put that in context, output growth for 2012 is shaping up to be only about 1.7 percent.

It’s no wonder that Ben S. Bernanke, the Fed chairman, has urged Congress to engage in more stimulus. More recently, he pleaded with them to at least not engage in the anti-stimulus that austerity measures amount to. The Fed has been going into overdrive, but even the most aggressive monetary policies are unlikely to reverse the output damage that severe fiscal tightening is expected to cause.

Article source: http://economix.blogs.nytimes.com/2012/12/12/the-fed-vs-the-fiscal-cuts-not-a-fair-fight/?partner=rss&emc=rss

Euro Watch: Bonds in Spain and Italy Shaken by Italian Politics

Shares of Italian banks, which are big holders of the government’s bonds, were among the hardest hit.

The action came in the first day of trading after Prime Minister Mario Monti said over the weekend that he would soon step down after his predecessor, Silvio Berlusconi, withdrew his party’s support from Mr. Monti and said he would again seek election as prime minister.

Mr. Berlusconi, a four-time prime minister, left office a year ago as markets pushed Italy to the brink of financial collapse. Mr. Monti, an economist who was appointed as his temporary successor, has restored Italy’s credibility with investors, who have given the country a break on its borrowing costs. But those gains have come at the cost of painful austerity measures that have worsened the country’s economic situation and given Mr. Berlusconi an opening to attack.

The Milan benchmark index, MIB, fell more than 2 percent on Monday. Italian banks, which remain sensitive to declines in the country’s bond prices, were among the big losers. Intesa Sanpaolo, the most active stock, fell 5.2 percent, as did UniCredit.

Mr. Monti, who joined other leaders in Oslo on Monday to receive the Nobel Peace Prize awarded to the European Union, said at a news conference that the market reactions “need not be dramatized.”

“I am confident,” he said, that the Italian elections would result in a government “that will be responsible and oriented toward the E.U. and this will be in line with efforts the Italian government has made so far.”

The decline in bond prices sent their yields, or interest rates, higher — an indicator of the Italian government’s borrowing costs. The spread between interest rates on Italian 10-year sovereign bonds and equivalent German securities, the European benchmark for safety, grew to 3.5 percentage points on Monday. That was up from 3.25 percentage points late Friday, suggesting that investors were growing more wary of holding Italian debt.

The yield on Italian 10-year bonds, which breached 7 percent this year, ended trading on Monday at 4.8 percent, up 29 basis points. A basis point is one-hundredth of a percent.

Bonds of Spain, which is the other big economy of concern in the euro zone, also came under renewed pressure on Monday after Mr. Monti’s announcement.

The spread between Spanish 10-year bonds and equivalent German bonds widened to 4.27 percentage points from 4.16 points on Friday. The yield on the benchmark Spanish 10-year rose 10 basis points, to 5.5 percent; it reached 7.1 percent in July amid concerns that Spain would be forced into a full bailout after having to negotiate a 100 billion euro, or $129 billion, rescue package for its banks in June.

Luis de Guindos, the Spanish economy minister, warned that Italy’s political turmoil would affect his country.

“When doubts emerge over the stability of a neighboring country like Italy, which is also seen as vulnerable, there’s an immediate contagion for us,” he said Monday morning on Spanish national radio.

Asked whether Spain would itself seek further European rescue funding, he instead said, “The help that Spain needs is that the doubts over the future of the euro be removed.”

Speaking before the Nobel ceremony on Monday, the European Commission president, José Manuel Barroso, said Italy must “continue on the road of structural reforms.” The elections, Mr. Barroso said on Sky News, “must not be used to postpone reforms.”

A dismal economic report on Monday served as a reminder that despite Mr. Monti’s success with investors, the real economy continues to suffer. Italian industrial production fell a seasonally adjusted 1.1 percent in October from September, and by 6.2 percent from a year earlier, Istat, the national statistics agency, reported.

Some analysts said they thought that Mr. Berlusconi’s re-emergence as a political leader was as responsible for unnerving investors as Mr. Monti’s unexpected decision to resign. Nicholas Spiro, managing director of Spiro Sovereign Strategy, a research firm, wrote on Monday in a note that Mr. Berlusconi remained “the boogeyman of investors,” who “epitomizes the dysfunctional nature of Italian politics.”

Angela Merkel, the German chancellor, was to meet on Monday with Mr. Monti on the sidelines of the Nobel ceremony, said Georg Streiter, a spokesman for the chancellor.

Ms. Merkel pushed to have Mr. Monti succeed Mr. Berlusconi. But she ended up facing Mr. Monti’s own economic reform ideas, which focused more on growth and job creation than on the austere fiscal discipline championed by Ms. Merkel.

As a rule, the German government does not comment on its partners’ domestic politics, but Foreign Minister Guido Westerwelle warned that an attempt to scale back Italy’s reform push could result in further destabilization in the euro zone.

“Italy cannot remain stagnant on two-thirds of its reform process,” Mr. Westerwelle said through a spokesman. “This would throw not only Italy but the rest of Europe into turbulence.”

Elisabetta Povoledo reported from Rome and David Jolly from Paris. Raphael Minder contributed reporting from Madrid and Melissa Eddy from Berlin.

Article source: http://www.nytimes.com/2012/12/11/business/global/11iht-eurozone11.html?partner=rss&emc=rss

United Is Struggling Two Years After Its Merger With Continental

But before the flight took off that morning, a computer glitch in one of the airline’s computer systems delayed 250 flights around the world for two hours.

So it goes at United these days. The world’s biggest airline, created after United merged with Continental Airlines in 2010, promised an unparalleled global network, with eight major hubs and 5,500 daily flights serving nearly 400 destinations. As an added benefit, the new airline would be led by Mr. Smisek of Continental, which was known for its attention to customer service.

But two years on, United still grapples with myriad problems in integrating the two airlines. The result has been hobbled operations, angry passengers and soured relations with employees.

The list of United’s troubles this year has been long. Its reservation system failed twice, shutting its Web site, disabling airport kiosks and stranding passengers as flights were delayed or canceled. The day of the 787 flight, another system, which records the aircraft’s weight once passengers and bags are loaded, shut down because of a programming error.

United has the worst operational record among the nation’s top 15 airlines. Its on-time arrival rate in the 12 months through September was just 77.5 percent — six percentage points below the industry average and 10 percentage points lower than Delta Air Lines. It had the highest rate of regularly delayed flights this summer, and generated more customer complaints than all other airlines combined in July, according to the Transportation Department.

The airline even angered the mayor of Houston, Continental’s longtime home and still the carrier’s biggest hub, when it unsuccessfully sought to block Southwest Airlines’ bid to bring international flights to the city’s smaller airport, Hobby. 

The United-Continental merger is weighing on the company’s finances. It took a $60 million charge in the third quarter for merger-related expenses, including repainting planes. It also took a $454 million charge to cover a future cash payment to pilots under a tentative deal reached in August.

While most large airlines reported profits this year, United has lost $103 million in the first three quarters of 2012, with revenue up just 1 percent to $28.5 billion. Its shares are up 7 percent this year compared with a 12 percent gain for the Standard Poor’s 500-stock index and a 24 percent gain for Delta.

“United remains at a challenging point,” analysts from Barclays wrote last month, and they forecast that the carrier would not begin to see the benefits of its merger until late in 2013 and into 2014. Still, while airlines initially struggle, mergers increase revenue eventually, as the example of Delta’s acquisition of Northwest Airlines demonstrated two years ago.

Mr. Smisek, taking a break from serving coffee halfway through the maiden 787 flight, acknowledged that things were not going as fast as expected, particularly given the aggressive targets he set two years ago. Back then, Mr. Smisek said the merger would be wrapped up in 12 to 18 months. He has since learned to be patient, he said.

“It is still a work in progress,” he said. “The integration of two airlines takes years. It’s very complex. If you look at where we were two years ago, we’ve come a long way.”

Admittedly, the process is complicated. Airline mergers mean combining different technologies, often old computer systems, as well as thousands of procedures used by pilots and flight dispatchers, gate agents, flight attendants and ground crew.

Setbacks are common. Like United, US Airways experienced a breakdown in its booking technology after its combination with America West in 2005. Delta’s on-time performance fell sharply in the year after its purchase of Northwest.

But today, Delta is a leader among big airlines in on-time performance. US Airways had a record third-quarter profit even though it still lacks common work rules for its pilots seven years after its merger.

Article source: http://www.nytimes.com/2012/11/29/business/united-is-struggling-two-years-after-its-merger-with-continental.html?partner=rss&emc=rss

High & Low Finance: A Central Bank Doing What Central Banks Do

That should be the slogan of Mario Draghi, the president of the European Central Bank.

In recent weeks, the new president publicly insisted the central bank would never do any of the things that Germany opposed. The bank would not drastically step up its purchases of Spanish and Italian government bonds. It would not directly finance European governments. It would not backstop European rescue funds or print money that the International Monetary Fund could use to bail out governments.

It would do only what central banks normally do. It would lend to banks.

It turns out that may be enough to stem the European crisis for at least a few years, and go a long way to recapitalizing banks in the process.

That fact only became clear on Wednesday, although Mr. Draghi announced his intentions on Dec. 8, when the central bank said it would offer to lend money to banks for three-year terms, in unlimited amounts, at a very low rate.

In reality, it was an offer banks could not refuse. They will initially pay the central bank’s official rate of 1 percent. But if the bank lowers the rate in coming months — as it is widely expected to do — the rate on these loans will drop as well.

There is no limit on what the banks can do with the money. But there is an obvious, virtually risk-free, option. A bank can buy short-term securities of its own government and pocket the difference — up to four or five percentage points — for the life of the securities.

On the same day the central bank announced its lending offer, Mr. Draghi held a news conference at which he talked very tough. He said he was surprised that a speech he had made a week earlier had been widely interpreted as signaling the bank was ready to make large scale purchases of Spanish and Italian bonds. He threw cold water on the idea of the bank funneling money to countries through the I.M.F.

Many observers — including me — focused on what he told reporters, not on what he announced. Bond yields rose. The yield on three-year Italian bonds leaped to 6.6 percent on Dec. 8 from 5.9 percent. For Spain, the comparable rate rose to 5.1 percent from 4.6 percent. Stock prices plunged, with the main Spanish index down 2 percent and its Italian counterpart off more than 4 percent.

It was more than Mr. Draghi’s rhetoric that had misled the market. In normal times, borrowing from a central bank is seen as a sign of weakness, and banks hate to do it for fear word will leak out that they had to do it. And banks have come under pressure to raise more capital in part because of their exposure to dubious government paper. Would they really line up to buy more, even with favorable financing?

The answer is yes. On Wednesday, the European Central Bank announced that 523 banks would borrow a total of 489.2 billion euros ($640 billion). That was above virtually every forecast.

On Tuesday, the same day the banks were putting in their requests for loans, Spain held an auction of Treasury bills. A month earlier, it had to pay an annual rate of 5.1 percent on three-month bills and 5.2 percent on six-month securities. This time the rates were 1.7 percent and 2.4 percent. Credit that plunge to Mr. Draghi.

Rates have also fallen significantly on government debt out to three years, but the declines in longer term rates have been smaller.

It now seems obvious that this was what Mr. Draghi had in mind. Spain and Italy will be able to borrow money from the market at rates they can live with, but this move is unlikely to have much effect on long-term rates. If those stay high, the pressure for austerity, as Germany demands, will remain.

There is no assurance that the banks will use all, or even most, of the money they borrowed, to buy government securities. It would be nice if some of it were lent to the private sector to spur growth and investment. But the logic of putting it in two- or three-year government notes is obvious.

Spanish two-year securities now yield about 3.6 percent, while Italian ones offer 5.1 percent. A bank that uses central bank money to buy them will clear the difference between those rates and 1 percent. The spread will be a little larger when the central bank lowers rates in a month or two. The securities will mature well before the loans come due.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

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