March 28, 2024

Despite New Health Law, Some See Sharp Rise in Premiums

Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own.

In California, Aetna is proposing rate increases of as much as 22 percent, Anthem Blue Cross 26 percent and Blue Shield of California 20 percent for some of those policy holders, according to the insurers’ filings with the state for 2013. These rate requests are all the more striking after a 39 percent rise sought by Anthem Blue Cross in 2010 helped give impetus to the law, known as the Affordable Care Act, which was passed the same year and will not be fully in effect until 2014.

 In other states, like Florida and Ohio, insurers have been able to raise rates by at least 20 percent for some policy holders. The rate increases can amount to several hundred dollars a month.

The proposed increases compare with about 4 percent for families with employer-based policies.

Under the health care law, regulators are now required to review any request for a rate increase of 10 percent or more; the requests are posted on a federal Web site, healthcare.gov, along with regulators’ evaluations.

The review process not only reveals the sharp disparity in the rates themselves, it also demonstrates the striking difference between places like New York, one of the 37 states where legislatures have given regulators some authority to deny or roll back rates deemed excessive, and California, which is among the states that do not have that ability.

New York, for example, recently used its sweeping powers to hold rate increases for 2013 in the individual and small group markets to under 10 percent. California can review rate requests for technical errors but cannot deny rate increases.

The double-digit requests in some states are being made despite evidence that overall health care costs appear to have slowed in recent years, increasing in the single digits annually as many people put off treatment because of the weak economy. PricewaterhouseCoopers estimates that costs may increase just 7.5 percent next year, well below the rate increases being sought by some insurers. But the companies counter that medical costs for some policy holders are rising much faster than the average, suggesting they are in a sicker population. Federal regulators contend that premiums would be higher still without the law, which also sets limits on profits and administrative costs and provides for rebates if insurers exceed those limits.

Critics, like Dave Jones, the California insurance commissioner and one of two health plan regulators in that state, said that without a federal provision giving all regulators the ability to deny excessive rate increases, some insurance companies can raise rates as much as they did before the law was enacted.

“This is business as usual,” Mr. Jones said. “It’s a huge loophole in the Affordable Care Act,” he said.

While Mr. Jones has not yet weighed in on the insurers’ most recent requests, he is pushing for a state law that will give him that authority. Without legislative action, the state can only question the basis for the high rates, sometimes resulting in the insurer withdrawing or modifying the proposed rate increase.

The California insurers say they have no choice but to raise premiums if their underlying medical costs have increased. “We need these rates to even come reasonably close to covering the expenses of this population,” said Tom Epstein, a spokesman for Blue Shield of California. The insurer is requesting a range of increases, which average about 12 percent for 2013.

Although rates paid by employers are more closely tracked than rates for individuals and small businesses, policy experts say the law has probably kept at least some rates lower than they otherwise would have been.

“There’s no question that review of rates makes a difference, that it results in lower rates paid by consumers and small businesses,” said Larry Levitt, an executive at the Kaiser Family Foundation, which estimated in an October report that rate review was responsible for lowering premiums for one out of every five filings.

Federal officials say the law has resulted in significant savings. “The health care law includes new tools to hold insurers accountable for premium hikes and give rebates to consumers,” said Brian Cook, a spokesman for Medicare, which is helping to oversee the insurance reforms.

“Insurers have already paid $1.1 billion in rebates, and rate review programs have helped save consumers an additional $1 billion in lower premiums,” he said. If insurers collect premiums and do not spend at least 80 cents out of every dollar on care for their customers, the law requires them to refund the excess.

As a result of the review process, federal officials say, rates were reduced, on average, by nearly three percentage points, according to a report issued last September.

Article source: http://www.nytimes.com/2013/01/06/business/despite-new-health-law-some-see-sharp-rise-in-premiums.html?partner=rss&emc=rss

DealBook: British Authorities to Announce Changes in Libor Oversight

Martin Wheatley of the Financial Services Authority will outline plans to overhaul Libor on Friday.Simon Newman/ReutersMartin Wheatley of the Financial Services Authority will outline plans to overhaul Libor on Friday.

LONDON — British authorities are set to announce significant changes to the interest rate at the heart of a recent manipulation scandal as they aim to improve the accuracy and reliability of the benchmark.

On Friday, Martin Wheatley, the managing director of Britain’s Financial Services Authority, will outline plans to increase oversight of the rate-setting process, which underpins more than $350 trillion of financial products like mortgages and student loans.

As part of that effort, regulators are stripping the British banking group that currently oversees the interest rate — the London interbank offered rate, or Libor — of its power. The British government, in turn, will take a more hands-on role, including making rate manipulation a criminal offense.

The benchmark itself will also be retooled to address some of its inherent weaknesses. The goal is to base Libor, which measures the rate at which banks lend to each other, on actual market transactions, rather than estimates.

“The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust,” Mr. Wheatley says in an advance text of the remarks he is to deliver in London. “It has torn the very fabric that our financial system is built on.”

Libor Explained

The scrutiny of Libor has intensified this year as authorities around the globe have ramped up their investigation into rate-rigging at more than a dozen big banks. Regulators are concerned that the institutions, including HSBC, Deutsche Bank and JPMorgan Chase, submitted false rates.

In June, the British bank Barclays agreed to pay $450 million to settle charges that employees manipulated the rate to increase profits and make the institution appear healthier. Several top officials, including the chief executive, Robert E. Diamond Jr., resigned as a result of the scandal.

“Libor needs to reflect the values of the market,” said David E. Kovel, a partner at the law firm Kirby McInerney who is representing clients in a potential class-action suit related to Libor. “There’s no doubt the way that the rate is set up now makes it susceptible to abuse.”

The changes to Libor, some of which may require changes to British law, are expected to be introduced over the next 12 months.

The Financial Conduct Authority, a new British regulator that will become part of the Bank of England, the country’s central bank, will have primary responsibility for regulating Libor. Mr. Wheatley of the Financial Services Authority will lead the new agency when it is created next year.

“We can’t allow the unfettered latitude that banks previously enjoyed,” Mr. Wheatley’s advance text says. “Much greater rigor and transparency must be introduced.”

Under the proposal, regulators will pare back the number of currencies and maturities included in the Libor system. Critics have questioned the accuracy of Libor, given the lack of actual bank lending transactions, particularly in smaller currencies like the Swedish krona.

To improve the system, five of the current 10 currencies, including the Canadian dollar, will be phased out over the next year. Instead, Libor will focus mainly on major currencies like the United States dollar and the euro. In all, regulators are looking to cut the number of Libor rates to 20, from 150.

Individual banks’ rate submissions will be delayed by three months, rather than released in real time. This change means Libor will not readily reflect a bank’s health, potentially eliminating a motivation to submit false rates.

If a bank reports a high rate, it can be a sign of underlying troubles at the firm. During the financial crisis, Barclays submitted artificially low rates to deflect concerns about its financial position, according to regulatory documents.

Despite the changes, analysts worry that Libor may still be easy to manipulate. Since the financial crisis, banks have not been willing to take the risk of lending to other institutions. In their proposal, regulators indicate that the process will still rely on some “level of judgment” when hard data are not available.

“There are few markets where there’s a significant amount of liquidity,” said Darrell Duffie, a finance professor at Stanford University. “It makes sense to prune down the number of maturities.”

The British government will also replace the British Bankers’ Association, the London-based trade group, as Libor’s overseer. The organization, which established the benchmark rate in 1986, has come under mounting criticism for failing to catch the manipulation, which dated back to at least 2007, according to regulatory filings.

Under the proposed changes, a new administrator will be selected in the next 12 months. The future role of the data provider Thomson Reuters, which currently collects the daily rate submissions on behalf of the trade association, is uncertain.

“British Bankers’ Association clearly failed to properly oversee the Libor setting process and should take no further role in the administration and governance of Libor,” Mr. Wheatley’s advance text says.

He will also take aim at the excesses within the financial services sector that led to the manipulation of Libor, arguing that traders at many of the world’s largest banks were too focused on securing large bonuses. “Libor needs to get back to doing what it is supposed to do,” the text says, “rather than what unscrupulous traders and individuals in banks wanted it to do.”

Prepared Remarks From Martin Wheatley

Article source: http://dealbook.nytimes.com/2012/09/27/british-authorities-to-announce-changes-in-libor-oversight/?partner=rss&emc=rss

DealBook: HSBC Official Will Give Up Post

David Bagley told senators that he would step down as head of compliance for HSBC.Jonathan Ernst/Bloomberg NewsDavid Bagley told senators that he would step down as head of compliance for HSBC.

9:00 p.m. | Updated

The top compliance executive for global banking giant HSBC announced during a Senate hearing on Tuesday, which examined the global bank’s repeated failure to stop illegal foreign transactions, that he will step down from that role.

David Bagley, the head of compliance for the British bank since 2002, broke from his prepared testimony to tell the Senate Permanent Subcommittee on Investigations that “now is the appropriate time for me and for the bank for someone new to serve as the head of group compliance.”

The subcommittee released a report on Monday accusing HSBC, Europe’s largest bank, of serving as a conduit for money flowing into the United States from Mexican drug traffickers and Middle Eastern banks with ties to terrorists.

Mr. Bagley was one of six HSBC executives who appeared in front of the subcommittee. Paul Thurston, the former head of HSBC’s offices in Mexico, said that when he arrived in Mexico in 2007 the problems he found “frankly took my breath away.”

All of the executives apologized for the bank’s past conduct and promised reform, though the senators expressed their doubts in light of the bank’s being cited by regulators in 2003 and 2007 for extensive money-laundering violations.

“We have some ways to go to regain the trust of regulators and the public,” said Irene Dorner, the chief executive of HSBC’s operations in the United States. “We’re burning the bridges to make sure no one can get back to the way it was before.”

Ms. Dorner is part of the new top management that has been brought in to HSBC since regulators accused the bank of wrongdoing in 2010. Some of the executives at the hearing were at the bank during the period covered by the report, from 2001 to 2010, and were accused of having direct responsibility for some of the shortcomings.

Christopher Lok, the former head of HSBC’s banknotes department, was said to have pressed other executives at the bank to reopen the account of a Saudi Arabian bank with suspected ties to Al Qaeda.

During the hearing, Mr. Lok said that “there were some occasions when I communicated with my colleagues in compliance in a manner that was unnecessarily aggressive and harsh. These communications were unprofessional, and I deeply regret them.”

The head of the subcommittee, Carl Levin, Democrat of Michigan, said he was happy to hear the bank’s contrition, but he added that accountability “has been significantly missing in this situation.”

Regulators have recently cracked down on several banks that were accused of not doing enough to stop transactions coming into the United States from countries facing financial penalties, like Iran and North Korea. The Senate subcommittee used HSBC as a “case study” for problems it said are widespread in the finance industry.

The Senate report also said that HSBC’s American regulator, the Office of the Comptroller of the Currency, had not adequately punished HSBC when it discovered problems at the bank.

Thomas J. Curry, who became the comptroller of the currency in April, told the subcommittee that his agency was embracing the report’s recommendations for changes at the agency.

“The agency has been much too slow in responding and addressing what are significant weaknesses and violations at this institution,” Mr. Curry said, noting that some of the examiners’ conduct was troubling and reprehensible. He said that in the future he wants the agency to be more nimble and take in the complete picture of the bank’s operations.

Senator Tom Coburn of Oklahoma, the panel’s ranking Republican, asked Grace E. Dailey, the Office of the Comptroller’s former large bank supervisor, to sum up where the agency had failed. She said examiners had done a lot of work but failed to step back and take prompt action. Not pleased, Mr. Coburn said that kind of answer means that the problems will persist.

Mr. Curry stepped in to assure the senators that the panel’s concerns will be “thoroughly and fairly reviewed” and the proper action taken. Pushing for specifics, Mr. Levin asked what happens when an examiner wants to take action against a bank but is prevented by a supervisor. “They can appeal to me,” Mr. Curry said.

Mr. Levin predicted that Mr. Curry will be fielding calls from examiners in the coming months.

Article source: http://dealbook.nytimes.com/2012/07/17/hsbc-says-official-will-step-down-as-bank-vows-to-fix-scandal/?partner=rss&emc=rss

DealBook: Barclays Names Chief Operating Officer

LONDON – Barclays said on Friday that it had named its investment banking co-head, Jerry del Missier, to the newly created position of chief operating officer.

In the new role, Mr. del Missier will work with the heads of the bank’s different units to streamline and improve computer systems and operations, Barclays said in a statement. Rich Ricci, who ran Barclays’ investment banking unit with Mr. del Missier, will become sole head of the business.

The change comes as Barclays is seeking to reduce costs and comply with stricter financial regulation in Britain that forces banks to separate their investment banking operations more clearly from those businesses that hold retail deposits.

Robert E. Diamond, Jr., the chief executive of Barclays, said the appointment “brings even more management focus on accelerating” its priorities of improving its capital position and increasing returns.

Mr. del Missier said he was looking “to ensure that we continue to exceed our customers’ and clients’ expectations at every instance, while delivering on our commitments to our shareholders, regulators and broader stakeholders.”

Mr. del Missier joined Barclays in 1997. Before becoming co-head of the investment banking operation in 2010, Mr. del Missier was responsible for the unit’s technology and operations committee.

Article source: http://dealbook.nytimes.com/2012/06/22/barclays-names-chief-operating-officer/?partner=rss&emc=rss

Europe Weighs a Tough Law on Online Privacy and User Data

The proposed data protection regulation from the European Commission, a copy of which was obtained by The New York Times, could have significant consequences for all Internet companies that trade in personal data, whether it is pictures that people post on social networks or what they buy on retail sites or look for on a search engine.

The regulation would compel Web sites to tell consumers why their data is being collected and retain it for only as long as necessary. If data is stolen, sites would have to notify regulators within 24 hours. It also offers consumers the right to transport their data from one service to another — to deactivate a Facebook account, for example, and take one’s trove of pictures and posts and contacts to Google Plus.

The proposed law strikes at the heart of some of the knottiest questions governing digital life and commerce: who owns personal data, what happens to it once it is posted online, and what the proper balance is between guarding privacy and leveraging that data to aim commercial or political advertising at ordinary people.

“Companies must be transparent about what they are doing, clear about which data is being used for what,” the European Commission’s vice president for justice, Viviane Reding, said in a recent telephone interview. “I am absolutely persuaded the new law is necessary to have, on the one hand, better protection of the constitutional rights of our citizens and more flexibility for companies to utilize our Continent.”

Ms. Reding is scheduled to release the proposed regulation on Wednesday in Brussels. The European Parliament is expected to deliberate on the proposal in the coming months, and the law, if approved, would go into effect by 2014.

The regulation is not likely to directly affect American consumers. For American companies, its silver lining is that it offers one uniform law for all 27 countries in Europe. Currently each country, and sometimes, as in the case of Germany, each state, has separate laws about data protection.

Even so, many of the provisions are likely to be costly or cumbersome. And the proposed penalties could be as high as 2 percent of a company’s annual global revenue, according to a European diplomat who did not want to publicly discuss unreleased legislation.

“Individuals are getting more rights. The balance is tilting more to the individual versus the companies,” said Françoise Gilbert, a lawyer in Palo Alto, Calif., who represents technology companies doing business in Europe. “There is very little that’s good for the companies other than a reduction of administrative headaches.”

Perhaps for historical or cultural reasons, Europeans tend to be more invested in issues of data privacy than Americans. Certainly, the proposed regulation is evidence that European politicians consider it to be a more urgent legislative issue than members of the United States Congress. Privacy bills have languished on Capitol Hill. Those that have been proposed, by Senator John Kerry and others, have none of the strict protections included in the draft European regulations.

For the most part, American companies have pushed for a system of self-regulation and regard European-style regulations as a hindrance to innovation.

Ronald Zink, chief operating officer for European affairs at Microsoft, pointed to the potential difficulty of obtaining explicit consent. He gave the example of Microsoft’s Xbox Kinect system, which stores body measurements so it can visually recognize repeat players. He worried that the proposed law would require players to provide consent every time they played a game, even if the information never left the game console, requiring more time and effort on the player’s part. “We have designed the product to be private,” Mr. Zink said. “We put a lot of thought into how this controls our work in terms of privacy by design.”

Kevin J. O’Brien contributed reporting from Berlin.

Article source: http://feeds.nytimes.com/click.phdo?i=de96f21c4c8af4d28b9aebeb8d0b5a27

Bucks Blog: Defining Who Can Invest in Private Offerings

In the years before the financial crisis, private offerings of stock held much allure. They often offered outsize returns, but only to those who seemed to have the inside track.

But the great recession inflicted much damage to many of those offerings — defined as anything from real estate deals to hedge funds. While some of the investments in these offerings dropped significantly in value, there are still offerings that hold the prospect of large returns.

Paul Sullivan, in his Wealth Matters column this week, discusses the current guidelines for who can participate in private placements, the term the financial industry uses. The two most commonly used measures are annual income — over $200,000 for an individual and $300,000 for a couple — and net worth of at least $1 million.

But Mr. Sullivan talks to a number of lawyers and financial service professionals who argue that wealth should not be the sole criterion for these types of investments. Instead, they said, investors need to have a certain financial sophistication so they understand the risks of private placements.

The question for regulators, as he points out, is how do you define who is wealthy enough and financially sophisticated enough to invest in these offerings? Any suggestions?

Article source: http://feeds.nytimes.com/click.phdo?i=6c65af59a27b77420c4475a9a6e87f06

DealBook: U.S. Inquiry of MF Global Gains Speed

Tina Fineberg for The New York Times

The investigation into MF Global is intensifying as federal authorities unearth new details and confront potential obstacles in their hunt for roughly $1.2 billion in customer money that disappeared from the brokerage firm.

While prosecutors and regulators have jointly conducted dozens of depositions with former and current employees, a senior official in the Chicago office of MF Global recently declined to meet with the federal authorities, people briefed on the investigation said.

That official, Edith O’Brien, a treasurer at MF Global, is considered a “person of interest” in the investigation, the people said. Federal authorities suspect that she transferred about $200 million to JPMorgan Chase in London on the eve of the bankruptcy of MF Global, money that turned out to be customer cash.

Authorities had expected to interview Ms. O’Brien last month. She instead balked at meeting voluntarily, asking first to strike a deal with criminal authorities that would excuse her from prosecution. the people said. The criminal investigation is led by the Federal Bureau of Investigation and federal prosecutors in Chicago and Manhattan.

The request by Ms. O’Brien is the first in this case, one person briefed on the investigation said. Still, such requests are common in federal investigations and it does not suggest that she violated Wall Street regulations. Ms. O’Brien has not been accused of any wrongdoing, and there is no indication that she intentionally transferred customer money to JPMorgan.

Ms. O’Brien’s lawyer, Reid H. Weingarten, did not respond to requests for comment.

The investigators are deposing employees as they search for the missing money. Some authorities are now examining whether MF Global used money from futures customers to pay securities customers who were closing accounts as the firm began to collapse, according to a person briefed on the matter.

Federal authorities also suspect that some customer money passed through MF Global’s banks, including JPMorgan Chase, and the clearinghouses that helped unwind the firm’s balance sheet, including the Depository Trust and Clearing Corporation.

While Ms. O’Brien’s testimony could prove crucial, investigators lack access to other important sources that could help unravel the mystery surrounding the missing money. The potential impediments to the case include the lack of access to certain internal documents at MF Global. The firm has withheld the e-mails and other documents from investigators on the grounds of attorney-client privilege.

Louis Freeh, the trustee overseeing MF Global's bankruptcy case.Alex Brandon/Associated PressLouis Freeh, the trustee overseeing MF Global’s bankruptcy case.

Louis Freeh, the trustee overseeing the bankruptcy proceedings of MF Global, has not waived the legal provision, which shields records from examination by law enforcement.

The trustee’s office said they have not received any complaints from investigators, and would be “inclined to waive privilege” if it were hampering the investigation. Experts say it is common for trustees to assert attorney-client privilege in such cases to protect the interest of the company’s creditors and shareholders, whom the trustee represents.

Mr. Freeh has already agreed to share the confidential documents with a separate trustee overseeing the distribution of customer cash, James Giddens, according to a person with knowledge of the matter.

The agreement allows Mr. Giddens access to the documents that could help expedite the return of customer cash — so long as his office does not share them with law enforcement and others. The agreement continues an earlier deal reached with the firm’s general counsel, Laurie Ferber, the person said.

But federal investigators have been too busy to miss the documents, according to one of the people briefed on the inquiry. Authorities are still sorting through the mountains of paperwork already before them, the person said. Still, at least one regulator worries that any delay could stymie the federal investigation in the coming weeks.

“We don’t have time to play 20 questions regarding what’s privileged and what’s not,” said Scott O’Malia, a Republican commissioner for the Commodity Futures Trading Commission

A patchwork of federal regulators has descended on the case, with the C.F.T.C. taking the lead role. Criminal charges, however, would come from the Justice Department.

More than two months after the funds vanished from client accounts at MF Global, customers have questioned why investigators still have not retrieved all of their money. There are some signs of progress, however. The C.F.T.C., the Justice Department and the Securities and Exchange Commission have collected thousands of documents and are tracing the money.

But reclaiming the missing money may prove harder than locating it. That’s because much of it went overseas, where bankruptcy laws often conflict with those in the United States. The complication could mean much legal wrangling before determining what money belongs to whom.

The search for the missing money is separate but related to the effort to uncover who is responsible for its disappearance.

Government authorities are aiming to build a case from the bottom up, and have largely spent time focusing on lower-level employees at the firm. Jon S. Corzine, the former chief executive of MF Global and a former New Jersey governor, has not yet been interviewed. Neither has his deputy, Bradley Abelow, who was the chief operating officer at MF Global, according to a person close to the case.

Neither Mr. Corzine nor Mr. Abelow has been accused of any wrongdoing in the case.

Spokesmen for the C.F.T.C. and the F.B.I. declined to comment.

The testimony of Ms. O’Brien — a senior official at the firm — was supposed to be an important element of the investigation. Ms. O’Brien has appeared numerous times before the C.F.T.C, often testifying as an expert. Her specialty: the protection of customer money at futures firms like MF Global.

Mr. Corzine told a congressional panel last month that she had assured him on Oct. 28 that the firm was not misusing customer money in its transfer to JPMorgan. After it was discovered that customer money was missing, MF Global filed for bankruptcy on Oct. 31.

Federal authorities have reviewed internal MF Global e-mails that instructed Ms. O’Brien to transfer roughly $200 million to JPMorgan Chase to satisfy an overdrawn account, though there is no indication that she knowingly transferred customer money. MF Global’s sloppy records may have obscured the fact that staff was dipping into customer cash to cover the firm’s own needs.

It is unclear who told Ms. O’Brien to transfer the money.

Just three weeks ago, regulators were optimistic about interviewing Ms. O’Brien, who has been a central character in the saga of the missing money.

That optimism began to wane in recent days, when her lawyer approached federal prosecutors about immunity from criminal charges. It is unclear whether the Justice Department is considering Ms. O’Brien’s request for a deal.

Ms. O’Brien has deep roots in Chicago’s financial world. In the 1990s she worked at Chicago-based Mesirow Financial and in 2000 she was named controller of Web Street Securities Inc. She later found a job at Man Financial, according to a court document. In 2005, Man Financial bought the remains of Refco, which had filed for bankruptcy.

In October, Ms. O’Brien was scheduled to speak at an industry conference at the Art Institute of Chicago a panel titled “Dodd-Frank Boot Camp: Margin and Collateral.”

Susanne Craig contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=0d5af0a4899bad8adb0a4c006ee17469

DealBook: UniCredit’s Weak Share Offering Is Poor Omen in Europe

Federico Ghizzoni, the chief executive of UniCredit, on Saturday attributed the slide in the bank's stock largely to “technical reasons.”Alessandra Benedetti/Bloomberg NewsFederico Ghizzoni, the chief executive of UniCredit, on Saturday attributed the slide in the bank’s stock largely to “technical reasons.”

LONDON — UniCredit, Italy’s largest bank, is undergoing a trial by fire in the stock market, underscoring the challenges that European banks face in trying to right themselves.

Shares of UniCredit have been in free fall as investors have balked at a new stock offering meant to bolster the bank’s capital. Since last week, UniCredit’s market value has plunged by more than 40 percent.

It is a bad omen for struggling European banks. At the behest of regulators, the region’s financial institutions must raise a combined $145 billion by June. But banks may have a tough time convincing investors to plow more money into the beleaguered industry if UniCredit’s experience is any indication.

“I think this should scare policy makers,” said Nicolas Véron, a senior fellow at Bruegel, a research institute in Brussels. “Banks have been saying for some time that it’s impossible for them to raise money collectively in this market.”

Investors remain skittish, as the sovereign debt crisis continues to rattle the markets. On Monday, the German government sold six-month bills at a negative yield, the latest sign that safety is more important than returns in the current environment.

UniCredit is suffering from the same worries. Last week, the bank announced a plan to sell new stock at 1.943 euros a share, in a so-called rights offering. At that level, the company said, the price represented a 43 percent discount to UniCredit’s market value, making certain assumptions about the offering.

On Monday, the first day of trading, investor demand remained weak. The offering closed at 47 euro cents.

“The first problem with UniCredit is that they come from Italy,” said Werner Schirmer, an analyst at Landesbank Baden-Württemberg in Stuttgart. “The timing is really bad.”

Given investors’ fears, the next few months could be rocky for the region’s banks. The European Banking Authority in October began pushing banks to increase their core Tier 1 capital ratios, a buffer against financial shocks, to 9 percent of assets. UniCredit has to raise its reserves by more than $10 billion.

“Some banks will be able to raise capital, but there’s a finite market for these assets,” said Karl Goggin, a banking analyst at NCB Stockbrokers in Dublin.

Many banks had hoped to tap the equity markets to raise money. But “the UniCredit rights issue today was a wake-up call from a lot of other banks,” said a high-level investment banker at a European firm, who was not authorized to talk publicly. “It shows that you want to avoid raising equity through a rights issuance if at all possible.” That leaves banks with just a handful of options, include selling business operations, particularly in overseas markets, and rejiggering their debt holdings to free capital.

Healthier banks should be able to meet the new requirements. On Monday, Grupo Santander of Spain, which had been ordered to raise roughly $19 billion, said it had reached its capital target, six months ahead of the deadline. Santander bolstered its reserves largely by converting 6.8 billion euros in bonds into shares, retaining profits and transferring a stake in its Brazilian unit to an outside investor.

But the Spanish bank has notable advantages over UniCredit. For one, Santander has large overseas businesses, particularly in Latin America and Britain, and a diverse retail deposit base to offset its stagnating home market. By comparison, UniCredit, which has large operations in Italy, Germany and Austria, has suffered because of its established presence in Eastern European countries that have felt the effects of the Continent’s sovereign debt crisis.

Italian banks generally have been under pressure. After the European Central Bank’s decision to offer unlimited funds on a three-year basis, the country’s banks stepped up to the coffers. Italian banks borrowed more than 200 billion euros in December, more than double the amount in November, according to the Bank of Italy.

As banks like UniCredit lumber along, the situation could ripple through the economy. Analysts fear that banks will pull back on their lending, weighing on growth.

“If banks cut lending to achieve capital adequacy, we should expect a really, really big credit crunch and really deep economic downturn to ensue,” said Carl B. Weinberg, chief economist at High Frequency Economics.

“What UniCredit’s plight suggests is that banks that are in a dark situation cannot sell equity shares to the public,” he added. “That is not good for the economy.”

Investors are scared. Since laying out its offering plans, shares of UniCredit have fallen by 45 percent to 2.29 euros. Trading in the bank’s stock was suspended a few times on Monday because of market volatility.

The bank’s chief executive, Federico Ghizzoni, earlier blamed “technical reasons” for the stock weakness, according to a report by Reuters that cited the Corriere della Sera. Prime Minister Mario Monti told France 24 television last week that the bank had “encountered some temporary difficulties” because of the capital increase.

But at the current price, UniCredit’s market value of $9.65 billion is only slightly more than the amount the bank had hoped to raise with its rights issue.

Mark Scott reported from London, and David Jolly from Paris. Landon Thomas Jr. contributed reporting from London.

Article source: http://feeds.nytimes.com/click.phdo?i=aefb9f58858a7fc2a19786ca8dd50ceb

Banks Retrench in Europe While Keeping Up Appearances

That includes Santander, the Spanish banking giant that European regulators say has the biggest capital hole to fill: at least 15 billion euros.

So why, then, is Santander still planning to pay its shareholders 2011 dividends worth at least 2 billion euros in cash and even more in stock? That question goes to the heart of the economic challenge that Europe faces in the year ahead. A combination of government austerity, and the imposition of bigger capital safety cushions that are leading banks to retrench, seem all but certain to plunge the Continent back into recession less than three years after emerging from the last one.

 

But many banks are taking actions that will only intensify the blow. To preserve their allure as global brands, while trying to compensate for their battered share prices, big European banks like Santander remain intent on maintaining rich dividend payouts to shareholders. At the same time, they are selling assets, curbing lending and taking other belt-tightening measures to satisfy regulators’ demands for more capital.

 

“Our dividend is a sign of our expected future profits,” said José Antonio Alvarez, the chief financial officer of Santander. “Unless our expectations change we try not to cut the dividend.”

Santander, though by many measures the most generous, is not the only bank paying dividends as it scrambles to raise capital.

Its rival, the Spanish lender BBVA, plans to pay out nearly half its profits to shareholders, despite being under regulators’ orders to raise 6.3 billion euros in capital. To a lesser but still significant extent, Deutsche Bank and BNP Paribas will also be paying out dividends as they try to take in money to build their capital cushions.

All this is a sharp contrast to the way capital-short banks in the United States slashed dividends to conserve cash during the depths of the financial crisis that followed the Lehman Brothers collapse in 2008. The American government also injected cash into the banks, as Britain did with its weaker institutions.

So far, European governments have shown no inclination to do likewise for their banks. And critics say the contrast with the American experience shows how much European regulators are out of step, or even out of touch, with the banks they supervise — with potentially disturbing ramifications for the European economy.

“I do not think Europeans understand the implications of a systemic banking crisis,” said Richard Koo, the chief economist at the Nomura Research Institute in Tokyo and an expert on the financial stagnation in Japan in the 1990s. “When all banks are forced to raise capital at the same time, the result is going to be even weaker banks and an even longer recession — if not depression.”

A paper Mr. Koo wrote on the subject has gone viral on the Web, with many picking up on his recommendation that the banking crisis will not be solved until European governments inject large amounts of money into their banks.

“Government intervention should be the first resort, not the last resort,” Mr. Koo said in an interview.

There is little doubt that European banks need shoring up right now. That fact was made clear Wednesday, when 523 banks tapped the European Central Bank for a record 489 billion euros (nearly $640 billion) in loans. Compared with their American peers, they have been much more dependent on borrowing in recent years to finance their lending binges.

On average, European banks’ loan books exceed their deposits by 1.2 times. In the United States the average loan-to-deposit ratio is 0.70. The upshot is that it will probably take much longer for Europe’s banks to unwind their bad loans and debt than it has for American banks.

The European Banking Authority, after a third round of stress tests in October, has ordered Europe’s fragile banks to raise more than 114 billion euros in fresh cash in the next six months. By June 2012, the region’s financial institutions will need to increase their so-called core Tier 1 capital ratio — the strictest measure of a bank’s ability to resist financial shocks — to 9 percent of assets.

That ratio, higher than the 5 percent preliminary target that the Federal Reserve set for American banks this week, reflects the acute capital strains that European banks are facing.

Article source: http://www.nytimes.com/2011/12/23/business/global/european-banks-retrench-while-keeping-up-appearances.html?partner=rss&emc=rss

Business Briefing | Legal News: Comcast Chief to Pay Penalty on Stock Purchase

Comcast’s chief executive, Brian L. Roberts, will pay a $500,000 civil penalty for failing to notify antitrust authorities before acquiring voting securities as part of his compensation package, the Justice Department said. According to the complaint, Mr. Roberts failed to notify regulators before acquiring voting securities of Comcast as part of his compensation beginning in October 2007. This resulted in his holding about $120 million of Comcast stock. Mr. Roberts’s total compensation in 2010 was just over $31 million. He controls a third of Comcast’s voting stock and owns less than 2 percent of the company’s equity, according to a company filing. Comcast said the issue was a “technical and inadvertent violation that was self-reported, promptly corrected.”

Article source: http://feeds.nytimes.com/click.phdo?i=d47ecb1241728d435b9b777e299303ac