May 23, 2017

High & Low Finance: Barclays, Caught Short, Is Now in a Bind

So said Chris Lucas, finance director of Barclays, three months ago.

It turns out that a British regulator disagrees.

Shares of Barclays lost 10 percent of their value during the first three trading days of this week after the company disclosed that its capital — as seen by the regulator — needed to grow by 38 percent to be adequate under new rules, unless the bank reduced its assets. And the regulator was not willing to give Barclays as much time as it wanted to raise that capital.

Barclays is scrambling. It plans to sell stock through a rights offering. It plans to raise still more capital through so-called CoCos — contingent convertibles, to the uninitiated. Those are bonds that pay interest unless bank capital levels fall too far. In that case, they automatically convert into stock. It also plans to shed some assets, which reduces the amount of capital that it needs.

Barclays is lucky in one respect. If it were subject to the rules being proposed by regulators for large banks based in the United States, it would need far more capital.

What is going on may come to be known as the revolt of the regulators. They were profoundly embarrassed by the clear evidence that banks were undercapitalized before the credit crisis despite the banks’ claims to the contrary. The revolt is most intense in the financial centers with the biggest banks — the places where the pain to governments would be greatest if another round of bailouts were needed.

It is useful to try to understand why the banks were so undercapitalized that bailouts were needed.

The answer lies in international rules that grew ever more complicated and gave the banks wide latitude to make judgments about the safety of the loans they had made and the securities they had bought.

Bank capital, the financial cushion that banks have to hold to absorb potential losses, is usually expressed as a percentage of “risk-weighted assets.” Some assets receive full weight in the calculations, and some — viewed as virtually risk-free — receive no weight and thus have no effect on how much capital a bank needs.

All that makes sense — if you can figure out the risks. But of course that is not easy. At first, there were fairly simple categories, with a certain type of loan receiving a certain risk allocation. But that led some banks to load up on the riskiest assets within any category and to invent assets that would seem to be low-risk and therefore not need much capital.

As time went on, the rules allowed banks to make more and more judgments. They could use bond ratings from Moody’s or its competitors to determine how safe an asset was. And if they wanted, they could use their own risk models to make the decisions.

How’s that for regulatory abdication? Rather than seek to review and judge bank assets, the regulators essentially allowed the banks to evaluate their own decisions.

After the financial crisis, regulators meeting in Basel, Switzerland, produced a new set of rules, called Basel III. They tightened up what counted as capital and took steps to improve the risk ratings. They raised the required capital levels.

But they did one more thing, and that is turning out to be critical. They adopted leverage ratios for banks.

In principle, a leverage ratio is simple. Calculate how much capital a bank has and divide it by the bank’s total assets, without any risk weighting. In practice, of course, it is not quite so simple. But it is a lot simpler than the other calculation of risk-weighted assets. When all this goes into effect, banks are supposed to meet both sets of rules.

At first, the big banks do not seem to have focused on the leverage ratio. But that is what trapped Barclays and it is what may force several other large banks on both sides of the Atlantic to raise more capital — or dispose of assets to bring down the amount of capital they need.

Article source: http://www.nytimes.com/2013/08/02/business/barclays-caught-short-is-now-in-a-bind.html?partner=rss&emc=rss

Boeing Asks for Beacon Checks on Up to 1,200 Jets

The blaze caused serious damage to the jet owned by Ethiopian Airlines at London’s Heathrow on July 12.

Between 1,100 and 1,200 Boeing aircraft of all sizes have been fitted with the beacons, but Boeing is asking that airlines inspect as many as possible and report back within 10 days to help regulators decide what action to take, if any.

“Boeing is asking specific operators of 717, Next-Generation 737, 747-400, 767 and 777s to inspect aircraft with the Honeywell fixed emergency locator transmitters,” a Boeing spokesman said in an emailed statement late on Sunday.

“The purpose of these inspections is to gather data to support potential rule-making by regulators,” he added.

British accident investigators traced the fire to the area housing one of the units and recommended worldwide inspections of all lithium battery-powered emergency locator transmitters.

The U.S. Federal Aviation Administration instructed airlines on Thursday to remove or inspect Honeywell fixed emergency beacons in the model which caught fire, the 787, but has not so far widened its mandatory checks to other models.

The beacons in question are designed to help rescue workers locate aircraft in the event of a crash.

They are installed on approximately 20 types of aircraft, including many Boeing and Airbus passenger jets and several types of business aircraft.

“Boeing’s recommendation of fleet-wide checks of the Emergency Locator Transmitters (ELT) suggests that Boeing thinks it is not a 787 problem, but an ELT problem,” said Paul Hayes, director of safety at UK-based aviation consultancy Ascend.

The July 12 fire reawakened concern in the industry about Boeing’s advanced carbon-composite Dreamliner, which was grounded for more three months this year after two incidents involving overheated lithium-ion batteries.

The UK’s Air Accidents Investigation Branch (AAIB) said the London fire was not related to those batteries.

AIRBUS REVIEW

Airbus said it would carry out a review of the way the emergency beacons are installed onboard its planes, but stopped short of asking airlines to inspect them across its fleet.

“Our records do not show any incidents of this nature,” a spokesman for the European planemaker said.

“However, as a precautionary measure, we will do an additional review of the integration of the device in order to determine whether there is a need to apply any lessons from the AAIB findings,” the spokesman said.

The fire on the Ethiopian-owned jet broke out after it had been parked for eight hours at a remote airport stand.

It caused extensive damage in the rear of the plane and scorched the top of the outer skin of the fuselage.

Japan’s ANA Holdings Inc, which operates the world’s biggest fleet of Dreamliners, said last week it found damage to the battery wiring on two 787 beacons during checks.

Damage was slight, but the beacons have been sent to Honeywell for inspection, ANA said.

Qatar Airways meanwhile denied that one of its Dreamliners had caught fire after industry sources said smoke had been reported near an electrical panel, while the plane was on the ground in Doha.

The aircraft has not flown since July 21, according to web tracking data, an unusually long downtime for an active jet.

“I can unequivocally say that there was no fire. It was just a minor issue, not even an incident. We’re working with Boeing to get it fixed very soon,” an airline spokeswoman said.

No timeline for the repair was available.

Boeing declined to comment.

(Additional reporting by Tim Kelly and Regan Doherty; editing by Stephen Coates and Tom Pfeiffer)

Article source: http://www.nytimes.com/reuters/2013/07/29/business/29reuters-boeing-dreamliner-airbus.html?partner=rss&emc=rss

F.A.A. Orders Airlines to Inspect Transmitter Wiring

Safety investigators are examining whether a pinched wire on a harness connecting a battery to the transmitter caused or helped spread the fire. They also want to check the transmitters’ battery for signs of unusual heating or moisture.

While the agency prepares the order over the next few days, Boeing plans to instruct all 13 airlines that use the Dreamliner to either inspect or remove the transmitters, which send out a plane’s location after a crash.

The F.A.A.’s plans to order only an inspection fall short of a recommendation on Thursday by British investigators, who called on the F.A.A. to order airlines to disable the batteries. It also might place the F.A.A. in conflict with other regulators. Air Transport World, a trade publication, on Friday quoted a spokesman for the European Aviation Safety Agency as saying that it was drafting instructions to European airlines to remove the transmitters.

The British Air Accidents Investigation Branch also called on Thursday for a broader safety review of similar devices in thousands of other jets. But the F.A.A. will take more time to review the recommendation.

Reuters reported on Friday that Japanese authorities planned to temporarily waive rules that require its airlines to have transmitters on their planes. That action would allow All Nippon Airways and Japan Airlines, which fly more than 40 percent of the 68 Dreamliners delivered so far, to remove the devices if they saw fit.

Boeing and regulators from the United States, Europe and Japan have been trying to devise a solution that would work even if various countries differ on whether the devices should be removed or merely inspected.

The British investigators made their recommendations after finding signs of disruption in the battery cells of an emergency transmitter on an Ethiopian Airlines 787 that caught fire while parked at Heathrow Airport. The British said the investigation was still in its early stages, and the cause had not been established.

British investigators called for quick action to address the problem because most passenger jets do not have fire suppressant systems near the transmitters, which are attached to the top of the plane just in front of the tail. That area received the most damage from the fire on the Ethiopian Airlines 787, which had been parked at Heathrow for 10 hours.

If such a fire occurred in flight, the British investigators said on Thursday, “it could pose a significant safety concern and raise challenges for the cabin crew.”

The Dreamliner, which makes extensive use of lightweight composite materials and cuts fuel costs by 20 percent, is crucial to Boeing’s future.

United States officials have said that the lack of proof about the cause of the fire — and the fact that none of the transmitters had been known to cause a fire in more than 50 million flight hours — suggested that simply inspecting, rather than removing, the devices should be sufficient.

In its report on Thursday, Britain’s Air Accidents Investigation Branch said that about 6,000 of the transmitters had been produced by Honeywell Aerospace since 2005. The transmitters are used in a wide range of aircraft, including Airbus planes. Honeywell and other manufacturers also make similar devices for thousands of other commercial and business jets.

Aviation experts said the devices have been particularly helpful in locating the wreckage of smaller private and corporate planes. The global positioning and communications systems on the 787 and other large jets are so sophisticated that they constantly relay the planes’ locations to computers on the ground, making the devices less critical.

Given the possibility of malfunction, Boeing and Honeywell have each said it would be prudent for airlines to temporarily remove the devices from 787s while the investigation into the cause of the fire continues.

In looking for signs of unusual heating or moisture in the transmitter’s battery, investigators are also considering whether distinctive characteristics of the 787 could have played a role.

The 787’s cabin maintains a higher humidity level than other jets to increase passenger comfort. One theory is that the humidity could have created condensation that caused a short circuit in the battery or its wiring.

Another concern is that the composite skin absorbs more heat from the sun than the aluminum on other planes. That has prompted questions about whether the battery in the transmitter could have been degraded by excessive heat from the skin.

But battery experts said that barring a flaw in the battery’s construction, the transmitter is sealed so tightly that neither moisture nor heat was likely to cause a short circuit. “I can’t really subscribe to either one of those,” said Ralph J. Brodd, a battery consultant in Henderson, Nev.

Article source: http://www.nytimes.com/2013/07/20/business/boeing-787-inquiry-zeroes-in-on-transmitters-wire.html?partner=rss&emc=rss

DealBook: Morgan Stanley Announces a Buyback, and Its Shares Rise

Morgan Stanley's headquarters in New York.Mark Lennihan/Associated PressMorgan Stanley’s headquarters in New York. The firm posted a 42 percent rise in profit and said it would buy back part of its stock.

Morgan Stanley shares rose more than 4 percent on Thursday after the firm announced it planned to buy back a chunk of its own stock.

News that the firm had received approval from the Federal Reserve to repurchase $500 million worth of its stock was good for shareholders, whose stake in the company has been diluted in recent years as the firm issued millions of shares to pay employees. This dilution has weighed on the stock, and it was trading in the teens earlier this year.

The stock rose about 4.4 percent, or $1.16, to close at $27.70, a level it has not hit since 2011. It is the first buyback Morgan Stanley has undertaken since the financial crisis and comes after the firm’s decision to buy the remaining stake of its wealth management business, a move James P. Gorman, the firm’s chairman and chief executive, has heralded as “transformational.”

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Morgan Stanley received approval from regulators in June to buy the rest of its wealth management division, a joint venture it formed with Citigroup during the crisis. Since then, the firm has been working to diversify its earnings, moving away from riskier businesses like trading and into wealth management, which offers steady, albeit lower returns. Its ability to purchase all of that division gave it full control of the operation and the full share of the profits.

Mr. Gorman told analysts that the firm was careful to have the wealth management purchase in order — and paid for — before it started spending money on stock buybacks.

The other good news for shareholders was the firm’s second-quarter earnings, which came in slightly ahead of analysts’ expectations.

The firm reported that second-quarter profit applicable to Morgan Stanley’s common shareholders rose 42 percent, to $802 million, or 41 cents a share, compared with $564 million, or 29 cents a share, in the period a year earlier. Overall net income was $980 million, compared with $591 million in the period a year earlier.

The results, however, were affected by two big charges, one related to Morgan Stanley’s credit spreads and the other to its recent purchase of the remaining stake of the wealth management business. Stripping out those charges, the firm had a profit of $872 million, or 45 cents a share. That beat the estimates of analysts polled by Thomson Reuters, which had projected a profit of 43 cents a share.

Morgan Stanley’s revenue, excluding those charges, rose to $8.3 billion in the second quarter from $6.6 billion in the period a year earlier.

The results were driven by decent performances in most of its business units, notably wealth management and equity and debt trading. Morgan Stanley is coming off what was a weak second quarter of 2012 and is also enjoying what seems to be a better operating environment for all banks.

Morgan Stanley is the last big financial institution to report second-quarter earnings, and results have been generally strong as lenders seem to be benefiting from a pickup in the American economy. Goldman Sachs, for instance, reported that its net income doubled, beating analysts’ expectations handily.

At Morgan Stanley, wealth management, which is led by Gregory J. Fleming, was a big focus for analysts on the quarterly conference call.

That unit, with 16,321 financial advisers, posted net revenue of $3.5 billion, up more than 10 percent. Its pretax profit margin, a widely watched figure on Wall Street, came in at 18.5 percent. That margin, which previously had been around 17 percent, was higher than the firm’s expectations.

Institutional securities, which houses Morgan Stanley’s banking and trading operations, posted net revenue, excluding the debt charge, of about $4.2 billion, up about 40 percent from a year earlier.

The firm experienced a solid increase in revenue from various segments in this department, including debt and equity underwriting, investment banking, and currency and commodities trading.

The fixed-income sales and trading unit reported that adjusted revenue rose to $1.2 billion from $771 million in the period a year earlier. This year’s performance was slightly below what analysts were hoping for.

In the second quarter, there was a sudden and sharp rise in interest rates after the Federal Reserve indicated it might wind down its bond purchase program, which has helped the economy recover from the financial crisis.

Ruth Porat, the bank’s chief financial officer, told analysts that the firm reduced the risk it was taking trading interest rate products.

While the bank’s second-quarter results were a marked improvement over those in the period a year earlier, the firm is still producing a return on equity, excluding the two charges, of just 5.6 percent. This is up from 2.1 percent in the period a year earlier but still well below what it costs the bank to simply cover its debt expenses and other capital costs. To do that, it needs to achieve a return on equity, an important measure of profitability, of closer to 10 percent.

 

Article source: http://dealbook.nytimes.com/2013/07/18/morgan-stanley-profit-rises-42-percent/?partner=rss&emc=rss

DealBook: Japan’s Largest Bank to Pay $250 Million Fine for Iran Deals

New York State authorities are poised to impose a $250 million fine on the Bank of Tokyo-Mitsubishi UFJ over claims that the bank, Japan’s largest by assets, transferred illicit funds on behalf of Iran and other countries blacklisted from doing business in the United States, according to people briefed on the case.

The bank, which is expected to settle the case on Thursday with New York’s financial regulator, Benjamin M. Lawsky, was accused of routing 28,000 payments worth about $100 billion through its New York branches. To avoid detection, Mr. Lawsky is expected to contend, the bank stripped information from the wire transfers that could have exposed the identity of the Iranian entities.

The bank approved the illegal transfers over at least a five-year span, ending in 2007, according to the people briefed on the case.

In addition to Iran, the bank is thought to have had dealings with Sudan and Myanmar. At the time, those countries were all operating under United States sanctions.

A spokesman for the Bank of Tokyo Mitsubishi declined to comment. The bank, according to the people briefed on the case, is thought to have voluntarily alerted regulators to its activity. It also has moved to bolster its internal controls in the years since.

Still, the $250 million penalty dwarfs an earlier settlement that the bank reached with an arm of the Treasury Department. Last year, the agency imposed an $8.6 million fine on the bank over its violations of United States sanctions.

The action on Thursday is Mr. Lawsky’s latest attack on foreign banks that enable sanctioned countries like Iran to tap into the American financial system. In August, Mr. Lawsky struck a $340 million pact with the British bank Standard Chartered, which he accused of transferring hundreds of billions of dollars in tainted money for Iran and lying to regulators.

The case became a source of tension between Mr. Lawsky and federal authorities, who were slower to act against the bank. In December, federal regulators and prosecutors reached their own deal with the bank.

It is unclear whether Mr. Lawsky’s action on Thursday will aggravate those tensions, given that he imposed a fine nearly 30-times that of federal authorities.

Mr. Lawsky’s aggressive style – and rare decision to act alone – inspired comparisons to Eliot L. Spitzer. Mr. Spitzer, during his tenure as New York’s attorney general, similarly received praise and criticism for his tough tactics on Wall Street and his tendency to muscle aside federal authorities.

A spokesman for Mr. Lawsky’s agency, the New York State Department of Financial Services, declined to comment.

The action against the Japanese bank caps a busy week for Mr. Lawsky. On Tuesday, the New York regulator took aim at the bank consulting industry, leveling a $10 million fine and one-year ban against Deloitte, one of the nation’s most prominent consultants. Mr. Lawsky accused Deloitte of watering down recommendations it made about fixing Standard Chartered’s dealings with Iran. It did so, he said, “based primarily on Standard Chartered’s objection.”

In the case against the Bank of Tokyo-Mitsubishi, Mr. Lawsky is expected to order the bank to hire an outside consultant to examine its operations. The consultant, the people briefed on the case said, will have to abide by a new set of standards that Mr. Lawsky unveiled this week.

Article source: http://dealbook.nytimes.com/2013/06/20/worlds-largest-bank-to-pay-250-million-fine-for-iran-deals/?partner=rss&emc=rss

DealBook: Deutsche Bank Posts a Profit and Agrees to Raise Its Capital Reserves

Anshu Jain, right, and Jürgen Fitschen, co-chairmen of Deutsche Bank.Kai Pfaffenbach/ReutersAnshu Jain, right, and Jürgen Fitschen, co-chairmen of Deutsche Bank.

8:17 p.m. | Updated

FRANKFURT — Deutsche Bank, Germany’s largest bank, moved Monday to address criticism that it has too thin a cushion against risk, announcing that it planned to issue $3.65 billion in new stock to increase its capital reserves.

The bank had earlier resisted the move, which was first booed and then cheered by the stock market. The company also said that its first-quarter profit rose as cost-cutting offset a decline in revenue from investment banking.

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Since the 2008 financial crisis, banks have been under intense pressure from regulators to raise capital so they are better able to absorb shocks. Deutsche Bank has faced criticism for having too little capital compared with other banks its size.

The bank had been reluctant to issue new shares, which dilutes the value of existing equity, and instead sought to raise the ratio of capital to money at risk by selling assets or other measures. The bank did not immediately explain its change of course, but it is becoming increasingly clear that banks throughout Europe have little choice but to take steps designed to prevent future financial crises. Shareholders of Commerzbank, Germany’s second-largest bank, backed plans earlier this month to issue new shares.

“Banking has to become boring again,” Rüdiger Filbry, director of the German banking practice at the Boston Consulting Group, said during a meeting with reporters Monday, referring to the industry in general. “We expect significantly lower profits than we have seen in the past.”

Deutsche Bank's headquarters in Frankfurt. The bank said net profit in the first quarter was $2.16 billion, up nearly 18 percent.Hannelore Foerster/Getty ImagesDeutsche Bank’s headquarters in Frankfurt. The bank said net profit in the first quarter was $2.16 billion, up nearly 18 percent.

Deutsche Bank portrayed the share sale as the logical next step in a campaign to increase capital that began last year and has already made the bank safer. “Deutsche Bank ranks today amongst the best-capitalized banks in the world in our global peer group,” Jürgen Fitschen and Anshu Jain, co-chief executives of the bank, said in a statement.

Deutsche Bank, which has large operations in the United States, may also have been reacting to pressure from the Federal Reserve. The Fed has pressed foreign lenders to hold more capital at their local operating units to make sure that the American operations have the financial strength to absorb losses.

Banks also face a deadline to meet new global standards known as Basel III, which began taking effect this year. Deutsche Bank said the share sale and other measures would raise the ratio of capital to assets, as defined by the new rules, to 9.5 percent from 8.8 percent at the end of the quarter. That is comfortably above capital requirements that are being phased in through the beginning of 2019.

Deutsche Bank executives had earlier grumbled about the new rules, saying they were unnecessarily restrictive. Stefan Krause, the bank’s chief financial officer, said in a call with analysts in January that the rules “were really not very helpful in terms of helping global financial markets.”

On Monday, however, the bank said that it would issue 2.8 billion euros in new shares. The sale will increase the number of existing shares by about 10 percent and could reduce the size of the dividend that shareholders would otherwise receive. Deutsche Bank said it would sell the shares privately to institutional investors and would not sell them publicly.

Deutsche Bank shares fell about 2 percent in trading in New York before recovering and finishing up 3.7 percent, at $43.85.

Proponents of bigger capital buffers argue that they will ultimately benefit banks because the lenders will pay a lower risk premium to raise money on capital markets.

While Deutsche Bank avoided a direct government bailout — one of the few large German banks to do so — it continues to cope with fallout from the financial crisis as well as numerous legal scandals.

Those include a tax evasion inquiry that led to a raid on company headquarters in late 2012 involving hundreds of police officers who surrounded the bank’s high-rise headquarters in Frankfurt. Executives have also acknowledged that the bank could face additional lawsuits related to its sale of securities tied to the United States subprime mortgage market.

The German central bank is also said to be looking into accusations that Deutsche Bank hid billions of dollars in losses to avoid a potential bailout during the financial crisis. The investigation stems from accusations that Deutsche Bank understated the value of credit derivatives positions beginning in 2007 that were worth as much as $130 billion in so-called notional terms.

The bank has also been ensnared by the global investigation into rate manipulation. Last month, Deutsche Bank said it allocated an additional 600 million euros ($775 million) to cover its legal costs, a move that reduced its pretax profit for 2012 by the same amount.

News of the share sale initially overshadowed the bank’s earnings report. Net profit rose to 1.66 billion euros ($2.16 billion), up nearly 18 percent from 1.41 billion euros in the period a year earlier, Deutsche Bank said in announcing earnings a day earlier than previously scheduled.

Mr. Fitschen and Mr. Jain said in a statement that the earnings report “reflects the strength of our franchise in the face of continued regulatory challenges and cost efficiencies arising from our operational excellence program.”

Since taking over the bank last year, the two leaders have promised to cut back on risk-taking and address what they acknowledged were ethical lapses in the past. The bank said on Monday that it had reduced its assets, the total amount of money at risk, to 325 billion euros ($423 billion) at the end of the first quarter compared with 334 billion euros ($435 billion) at the end of 2012.

Much of the increase in profit came from cost-cutting. Deutsche Bank said it cut expenses not including interest by 370 million euros, to 6.6 billion euros.

Article source: http://dealbook.nytimes.com/2013/04/29/deutsche-bank-profit-rises-as-bank-plans-to-raise-new-capital/?partner=rss&emc=rss

DealBook: Shares in Bank of America Fall as Earnings Miss Forecasts

A Bank of America branch in Manhattan.Andrew Gombert/European Pressphoto AgencyA Bank of America branch in Manhattan.

10:22 a.m. | Updated

Bank of America reported first-quarter earnings on Wednesday that fell well short of Wall Street’s expectations but were substantially higher than in the period a year earlier.

The bank made 20 cents a share in the first quarter, compared with 3 cents in the year-ago period. Analysts were expecting a profit of 23 cents a share. Bank of America, the nation’s second-largest lender when measured by assets, had revenue of $23.5 billion in the first quarter.

The company’s shares fell nearly 4 percent in morning trading, to $11.80.

Since the financial crisis, Bank of America’s performance has been hurt by large mortgage-related losses, but in recent months investors have been betting the bank would regain its footing. Its shares have risen nearly 40 percent in the last 12 months. Earlier this year, regulators approved the bank’s plan to buy back stock, a clear sign they felt the lender was on firmer ground.

In a statement, Brian T. Moynihan, Bank of America’s chief executive, said, “Our strategy of connecting our customers to all we can do for them is working.”

The question now is how the latest earnings will affect the recent optimism surrounding the bank, which lends to individuals and companies and has a large Wall Street presence through its Merrill Lynch unit.

Other large banks have reported earnings that exceeded analysts’ estimates this quarter, so Bank of America’s failure to do so may unnerve some investors. The debate will be over whether the bank fell short because of deeper issues that will be hard to resolve, or because of items that will have less of a negative effect as time passes.

Much uncertainty surrounds the cost of litigation relating to bad mortgages. Most of these troubled loans were made by Countrywide Financial, which Bank of America acquired in 2008. Bank of America has settled several big mortgage lawsuits, including one on Wednesday for $500 million, which was led by the Iowa Public Employees’ Retirement System. In the first quarter, Bank of America had litigation expenses of $881 million.

Some analysts wonder whether the bank has set aside enough money to cover future settlements. In particular, they say that litigation expenses could be far higher if a pending settlement with Bank of New York Mellon does not gain court approval.

“We have established significant reserves for settlements with various counterparties, including 22 of the world’s largest investors, Fannie Mae, Freddie Mac and others,” said Jerome F. Dubrowski, a spokesman for Bank of America. “We believe we are appropriately reserved for the exposures we face, and we have provided investors with a range of possible loss estimates that could go beyond those reserves.”

The first-quarter results also revealed a mixed performance in Bank of America’s current mortgage business. Initially, the bank did not participate in the mortgage refinancing boom as strongly as rivals like Wells Fargo. But in recent months it has jumped back in.

In the first quarter, Bank of America originated $23.9 billion of mortgages, well up from $15.2 billion a year earlier. But revenue from writing new mortgages actually fell to $815 million from $928 million in the period a year earlier. This shows that profit margins in the new mortgage business have fallen as Bank of America has stepped up activity.

The quarter contained bright spots for shareholders. The bank said it made headway in cutting expenses, something investors are watching closely. As banks struggle to increase revenue, they can improve earnings by reducing costs.

“There were many examples of progress this quarter,” Bruce R. Thompson, Bank of America’s chief financial officer, said in a statement. “We reduced noninterest expense by nearly $1 billion year-over-year.”

In addition, Bank of America set aside significantly less money for its reserve against bad loans, which gave earnings a big boost.

Bank of America’s Wall Street operations were also mixed. Trading revenue was $4.5 billion, excluding accounting adjustments related to the bank’s own debt. The bank reported trading revenue of $5.2 billion in the first quarter of 2012.

Investment banking fees were up, however, and the wealth management unit, which includes the Merrill Lynch brokerage, had a strong quarter. Revenue in the unit rose to $4.4 billion from $4.1 billion in the period a year earlier.

One of the criticisms of banks since the financial crisis is that, as they work through their difficulties, they have failed to lend enough. Bank of America had on its books a smaller amount of loans to individuals in the first quarter. The figure was down to $551 billion from $599 billion. But the bank’s loans to companies rose to $355 billion from $315 billion in the year-earlier period.

While Bank of America’s earnings per share increased a lot when measured using generally accepted accounting principles, it was actually down on a measure that investors often look at. This nonstandard metric excludes arcane accounting charges. Absent those charges in the first quarter of 2012, the bank made 31 cents a share.

This year’s first quarter contained very little effect from such charges, so the 20 cents a share the bank reported Wednesday should be compared with the 31 cents a share from the period a year earlier. In effect, under this approach, Bank of America’s earnings fell by more than a third.

Article source: http://dealbook.nytimes.com/2013/04/17/bank-of-america-earnings-rise-but-fall-short-of-forecasts/?partner=rss&emc=rss

Google to Face National Regulators Over Privacy Policy

Data protection agencies in Britain, Germany, Italy, Spain and the Netherlands said Tuesday that they were moving to take action against Google over the policy, which the company introduced last year. They joined the French regulator, which had initiated a European Union inquiry on behalf of its counterparts across the 27-nation bloc.

While the regulators have repeatedly threatened the company with tough talk of a united front, the news Tuesday reflects the reality that privacy laws are fragmented across the Union, giving Google little incentive to yield.

Enforcement is a matter for national agencies, rather than Brussels, though the French data protection agency, — which is known by its French initials, C.N.I.L., said it would cooperate with the other countries as they step up their scrutiny.

The C.N.I.L., said it had “notified Google of the initiation of an inspection procedure,” the latest step in a drawn-out investigation that began more than a year ago, when the agency said it thought the company’s privacy policy violated E.U. law. Other agencies said they would conduct their own inquiries, building on the work of the C.N.I.L.

The Google privacy policy streamlined the individual practices that had been in place across more than 60 Google services, from its search engine to its online mapping operation to YouTube.

The company said at the time that this was necessary to provide clarity to users, and to improve its services.

But European regulators, led by the C.N.I.L., which was empowered to investigate on behalf of 27 individual E.U. regulators, complained that the company had been insufficiently forthcoming about its use of personal data, especially when the information was used across different services for purposes like advertising.

Last October, the heads of the 27 agencies wrote to Google’s chief executive, Larry Page, demanding changes in the policy. They asked the company to do so within four months or risk sanctions.

“After this period has expired, Google has not implemented any significant compliance measures,” the C.N.I.L. said in a statement.

Google has insisted that its use of data complied with E.U. law, and it stood by that position Tuesday. “We have engaged fully with the data protection authorities involved throughout this process, and we’ll continue to do so going forward,” the company said.

Each of the national regulators now investigating Google has different procedures and enforcement powers.

In France, for example, the C.N.I.L. can fine privacy violators up to €300,000, or about $390,000 — a drop in the bucket for a global giant like Google. In some countries, regulators can bring criminal complaints; in others they cannot.

The European Commission, led by its vice president, Viviane Reding, has been pushing for an overhaul of the bloc’s privacy laws, under which data protection would be centrally regulated across the 27 countries. But the idea faces opposition from some member states.

The announcement Tuesday means the investigations into the privacy policy could continue for months, during which time Google could continue to keep the system in place.

“It is essential regulators find a sanction that is not just a slap on the wrists and will make Google think twice before it ignores consumer rights again,” Nick Pickles, director of Big Brother Watch, a privacy advocacy group in Britain.

Meanwhile, Google this week announced plans to replace its director of privacy for product and engineering, Alma Whitten, who helped create the privacy policy. Lawrence You, who helped start the team, will take over.

The privacy team at Google, which has 350 employees, was started in 2010 after two major privacy blunders at the company involving improper data collection by Street View cars and Buzz, an ill-fated social networking tool.

The employees do things like coach Google engineers on adding more privacy-friendly features to products, build tools like dashboards for Google users to control how their information is shared and make it more difficult for hackers to break into Gmail accounts.

The company said that Ms. Whitten’s retirement, though she is in her 40s, had been planned and was unrelated to the E.U. news.

“Alma has done so much to improve our products and protect our users,” Chris Gaither, a Google spokesman, said in a statement. “The privacy and security teams, and everyone else at Google, will continue this hard work to ensure that our users’ data is kept safe and secure.”

Claire Cain Miller contributed reporting from San Francisco.

Article source: http://www.nytimes.com/2013/04/03/technology/google-to-face-national-regulators-over-privacy-policy.html?partner=rss&emc=rss

Japanese Still Seeking Link in 787 Battery Incidents

Akinobu Yokoyama, a spokesman for Japan’s Transport Safety Board, said it was still not clear whether a short-circuit or other malfunction occurred within one or more of the eight cells in the new lithium-ion battery.

His comments in an interview came a day after Deborah Hersman, the chairwoman of the National Transportation Safety Board, said the problems on the Boston jet seemed to have originated in the battery. She said one of the cells had a short-circuit that created a “thermal runaway” as it cascaded through the rest of the cells, heating the battery to 500 degrees.

Given that the problems on the innovative jets occurred just nine days apart, it is crucial for investigators to determine whether they started in a similar manner. If the incidents seem to parallel one another, it could be easier for Boeing and its regulators to find a fix than if they are dealing with two different problems.

The Japanese investigation started later than the American one. Mr. Yokoyama said it was “not appropriate to talk yet about whether proximity of the cells within the battery is a structural problem or a cause of the battery malfunctions.”

“By looking at the battery, it is obvious there was a thermal runaway,” he said. “But we have yet to determine with any certainty why that happened.”

Ms. Hersman said Thursday that American investigators still did not know what caused the short-circuit in the cell of the battery in the Boston jet. She also said that in certifying the lithium-ion batteries in 2007, the Federal Aviation Administration accepted test results from Boeing that seriously underestimated the risk of smoke or fire.

The 787 is the first commercial plane to use large lithium-ion batteries for major flight functions. The batteries are more volatile than conventional nickel-cadmium batteries, but they weigh less and create more power, contributing to a 20 percent gain in fuel economy over older planes.

All 50 of the 787s that have been delivered so far have been grounded since mid-January.

That has also stopped Boeing from delivering more of the planes. Two European carriers, Thomson Airways and Norwegian Air Shuttle, said Friday that Boeing had notified them that the deliveries they had expected soon would be delayed.

Boeing’s rival, Airbus, plans to use smaller — and it says safer — lithium-ion batteries in its next-generation A350 jets, which will compete with the 787. Airbus reiterated Friday that it was watching to see how the investigations of the Boeing battery turned out.

“There is nothing that prevents us from going back to a classical battery on the A350, which we’ve been studying in parallel to the lithium battery from the beginning,” said Justin Dubon, an Airbus spokesman in Toulouse, France.

Nicola Clark contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/02/09/business/japanese-still-seeking-link-in-787-battery-incidents.html?partner=rss&emc=rss

DealBook: Global Rule Maker Defends Regulatory Efforts From Criticism

Stefan Ingves, the chairman of the Basel Committee on Banking Supervision and governor of the Riksbank, the Swedish central bank.Bertil Ericson/Scanpix, via Associated PressStefan Ingves, the chairman of the Basel Committee on Banking Supervision and governor of the Riksbank, the Swedish central bank.

DAVOS, Switzerland — The head of a panel that writes the global financial rulebook answered criticism that the so-called Basel Committee has gone soft on banks, arguing that lenders need more time to adjust to new regulations because the financial crisis has lasted longer than anyone expected.

Stefan Ingves, the chairman of the Basel Committee on Banking Supervision, was responding to some economists and other critics who interpreted a recent decision by the committee as a signal that regulators were losing their resolve to contain risk-taking by banks.

Earlier this month, the committee decided to give banks got more time to comply with a requirement that they maintain a 30-day supply of cash other assets that are easy to sell. The rule is supposed to make banks better able to survive a financial crisis like the one that occurred after Lehman Brothers collapsed in 2008.

When regulators drafted the rule in 2010, they did not expect the crisis to last so long and for banks to still be in such a weakened state, said Mr. Ingves, who is also governor of the Riksbank, the Swedish central bank. The important thing is that there is a rule at all, he said.

World Economic Forum in Davos
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“The Basel Committee has been discussing liquidity in different forms for 30 years,” Mr. Ingves said in an interview on Friday here at the World Economic Forum. “To get to a point where a global liquidity standard has been established is an achievement in itself.”

Banks will have until 2019 to fully comply with the requirement, instead of 2015 as originally planned. The rule will still achieve its purpose of making banks safer, Mr. Ingves said.

“If there’s stress in the system, a bank shouldn’t run out of money,” Mr. Ingves said. “It should take longer than the last time before you need to go to the central bank. It’s buying insurance within the private sector itself.”

The loosening of the rule this month raised concerns that members of the Basel Committee, whose decisions serve as a benchmark for national regulators around the world, would also become more lenient on other issues as they conduct a comprehensive overhaul of banking rules.

The Basel Committee also expanded the definition of liquid assets to include even securities backed by home mortgages, one of the financial instruments that helped case the crisis. Mr. Ingves pointed out that the rules contain safeguards to ensure that banks only use high-quality mortgage-backed securities.

Following the initial outcry about changes in the rules, some other leading economists have welcomed the decision, saying it simply acknowledges the need to balance stricter oversight with the need to make sure credit keeps flowing.

There was a danger that banks in western Europe would curtail lending in eastern Europe even more severely than they already have, said Erik Berglof, chief economist of the European Bank for Reconstruction and Development. The development bank, partly owned by the United States as well as European countries, supplies credit to the former Soviet Bloc countries as well as newly democratic countries in the Middle East.

The decision by the Basel Committee this month “was a good thing,” Mr. Berglof said in an interview. “It was particularly good for emerging markets.” In eastern Europe and many developing regions, most banks are foreign owned and dependent on their parent banks for financing.

The Basel Committee’s decisions are not binding and must be put into force by individual countries. The United States has agreed to the rules, but has come under criticism for being too slow to implement them and not sticking to the agreed blueprint. American officials point out that big banks in the country are healthier and already comply with the Basel rules that have yet to take effect.

Mr. Ingves was diplomatic when asked about the United States implementation, pointing out that the European Union is also taking longer to agree on how to apply the rules.

“They are a bit behind schedule but work is being done,” he said. “Both have said they will get this done. I have no doubt they will.”

At the World Economic Forum, the central issue is probably whether the euro zone crisis has reached a turning point. Mr. Ingves, a former official at the International Monetary Fund with decades of experiences in banking crises, was fairly optimistic.

“You never know, but it looks like it,” he said.

Article source: http://dealbook.nytimes.com/2013/01/25/amid-criticism-global-rule-maker-defends-regulatory-efforts/?partner=rss&emc=rss