Azure Global : 05/14/13

Tuesday 14 May 2013

IMF study queries whether blanket curbs on banks are worthwhile

IMF economists suggest reforms would not have prevented Lehman Brothers crisis in 2008 and urge tailored solutions

The government's plans to prevent a second damaging financial crisis were called into question on Tuesday when a group of economists from the International Monetary Fund said the costs of ring-fencing speculative City activities could outweigh the benefits.

A discussion paper written by six IMF staff members said policymakers in the UK, the US and the European Union should consider tailoring their solutions to the riskiness of individual banks rather than imposing blanket solutions.

While accepting that the reforms reflected a deep sense of unease with the risk culture in evidence before the crisis of 2007, the study – a discussion paper and not official IMF policy – called for a global cost-benefit analysis that would show whether the reforms were worthwhile.

Traders at the Chicago Exchange in 2008 as global markets plunged on news that Lehman Brothers had filed for bankruptcy protection

The authors said: "The structural measures to reform banks such as the US Volcker rule, the UK's Vickers ring-fence, and the EU's Liikanen proposal, which would create functional separation of businesses, all reflect a deep sense of unease with the risk culture engendered by the assumption of trading and speculative investments by deposit-taking banks."

But they added that the proposed reforms would not have prevented the crisis at Lehman Brothers in September 2008, the event that brought the global financial system to the brink of collapse.

"Looking back, however, restrictions on proprietary trading or investments in private equity alone would not have prevented major bank failures such as Lehman Brothers. Nor would reorganizing the bank into separate subsidiaries in each host and home country have facilitated its global, group-wide resolution."

The study said Britain, the US and the EU were important financial centers and that they could bring benefits to the global economy if the structural reforms led to greater stability.

"Nevertheless, our analysis suggests that these policies will also have potentially significant global costs given that they will be imposed on internationally active and systemic financial institutions.

"Our assessment points to the need for a global cost-benefit exercise encompassing the extraterritorial implications of structural measures. This is necessary to confirm whether the benefits of structural measures match or exceed costs at a global level as it would be difficult to justify them otherwise."

The study raised three possible objections to the reforms: the challenge of implementing them successfully; the possibility that risk would migrate to other parts of the financial system, such as "shadow banks"; and that there would be costs in making banks less diverse.

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Article source : http://www.guardian.co.uk

RBS warns of further job cuts and branch closures

Chairman of bailed-out bank faces hard questions over pay deals as he tells AGM of further changes ahead of privatization

Job losses and branch closures are looming at the Royal Bank of Scotland, the chairman of the bailed-out bank has warned as shareholders accused the bank of having "cosy" and "unsustainable" pay deals.

Sir Philip Hampton told his fifth AGM of the 81% taxpayer-owned bank that £450m would be spent on computer systems after last year's "big IT failure" when customers were unable to access their accounts.

The meeting was attended by 130 private investors and Jim O'Neil, the outgoing chief executive of UK Financial Investments, which looks after the taxpayer stake. One shareholder asked for reassurances that there were "no more skeletons in the cupboard" after last year's £390m fine for rigging Libor and IT failures and the continuing mis-selling scandals.

Hampton, speaking at the AGM in the bank's HQ on the outskirts of Edinburgh, said he couldn't make any promises but insisted the worst was over at the bank. He said earlier this month the bank would be ready for privatization next year.

He cleared the way for job cuts and closures – the bank has 1,900 branches before 316 are sold due to EU state aid rules. "We have work to do over the coming years to get our business in the right shape ... and that could mean further impacts on employees".

Stephen Hester, named chief executive when Fred Goodwin was ousted amid the October 2008 bailout, has already axed 40,000 staff, leaving a workforce of 135,000.

Hampton fielded a string of hostile questions, including from private investor Kenneth Cramond, who called for the remuneration committee to resign because it had a "cosy" relationship with the bank. He said the vote on the pay policies was a sham because of the influence of UKFI – the remuneration report was passed with barely any registered dissent – and that if the bank had not paid out bonuses "we'd have turned a profit a year ago". Some £600m was paid in bonuses last year.

Royal Bank of Scotland chairman, Sir Philip Hampton, arrives for the AGM in Edinburgh

"We can't go on rewarding failure," said Cramond. He pointed out that the 2% pay rise for branch staff was higher than those of public workers, who have had a three-year pay freeze.

Another shareholder, Gavin Palmer, interrupted the AGM to hand out a petition to try to set up a new committee on the board.

Campaigners against mining in the Appalachian mountains protested outside the AGM, and in the meeting Paul Corbit Brown urged the board to rethink financing such activities. He held up bottle of Appalachian tap water to complain that it was not fit to drink because of mining activities.

Hester, who waived his 2012 bonus following the IT failures, said it would take a further 18 months to get the bank's capital ratios "in the final shape that we and our regulators want".

Article source : http://www.guardian.co.uk

BP and Shell raided after allegations they colluded to rig oil prices

European commission carries out 'unannounced inspections' to investigate claims prices were rigged for more than a decade

The London offices of BP and Shell have been raided by European regulators investigating allegations they have "colluded" to rig oil prices for more than a decade.

The European commission said its officers carried out "unannounced inspections" at several oil companies in London, the Netherlands and Norway to investigate claims they may have "colluded in reporting distorted prices to a price reporting agency [PRA] to manipulate the published prices for a number of oil and biofuel products".

The commission said the alleged price collusion, which may have been going on since 2002, could have had a "huge impact" on the price of petrol at the pumps "potentially harming final consumers".

Lord Oakeshott, former Liberal Democrat Treasury spokesman, said the alleged rigging of oil prices was "as serious as rigging Libor" – which led to banks being fined hundreds of millions of pounds.

He demanded to know why the UK authorities had not taken action earlier and said he would ask questions of the British regulator in Parliament. "Why have we had to wait for Brussels to find out if British oil giants are ripping off British consumers?" he said. "The price of energy ripples right through our economy and really matters to every business and families."

RAC technical director David Bizley said the allegations were "worrying news for motorists" who are already suffering due to the high cost of keeping a vehicle.

"Motorists will be very interested to see what comes of these raids. Whatever happens the RAC will continue to campaign for greater transparency in the UK fuel market and for a further reduction in fuel duty to stimulate economic growth."

Four months ago the Office of Fair Trading (OFT) ruled out an investigation into petrol price fixing after finding "very limited evidence" that pump prices rise quickly when the wholesale price goes up but fall more slowly when it drops.

The European authorities declined to name any of the companies raided but BP, Shell, Norway's Statoil and Platts, the world's leading oil price reporting agency, all confirmed they are being investigated.

In a statement Shell said: "We can confirm that Shell companies are currently assisting the European commission in an inquiry into trading activities."

BP said: "BP is one of the companies that is subject to an investigation that was announced by the European commission. We are co-operating fully with the investigation and unable to comment further at this time."

Statoil, which is 67%-owned by the Norwegian government, said: "The authorities suspect participation by several companies, including Statoil, in anti-competitive agreements and/or concerted practices contrary toArticle 53 of the European Economic Area (EEA) [market manipulation].

"The suspected violations are related to the Platts' Market-On-Close (MOC) price assessment process, used to report prices in particular for crude oil, refined oil products and biofuels, and may have been ongoing since 2002."

The suspected violations – related to the Platts’ price assessment process – may have been going on since 2002.

Platts said the investigators had "undertaken a review at its premises in London this morning in relation to the Platts price-assessment process".

The EC said the big oil companies may have "prevented others from participating in the price assessment process, with a view to distorting published prices".

"Any such behaviour, if established, may amount to violations of European antitrust rules that prohibit cartels and restrictive business practices and abuses of a dominant market position.

It warned: "Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers."

Luke Bosdet of the AA said British motorists would be relieved that the "lid is finally being lifted off the dark and murky world of oil pricing".

"Because prices are set in secret, drivers and consumers have no idea whether or not the price they pay at the pumps is a fair reflection of the wholesale price."

Shadow energy and climate change secretary Caroline Flint said: "These are very concerning reports, which if true, suggest shocking behaviour in the oil market that should be dealt with strongly.

"When the allegations of price fixing in the gas market were made, Labour warned that opaque over-the-counter deals and relying on price reporting agencies left the market vulnerable to abuse.

"These latest allegations of price fixing in the oil market raise very similar questions. Consumers need to know that the prices they pay for their energy or petrol are fair, transparent and not being manipulated by traders."

Shadow financial secretary to the Treasury Chris Leslie said: "If oil price fixing has taken place it would be a shocking scandal for our financial markets.

"Labour tabled amendments in Parliament last year calling for commodities like oil to be part of the Financial Conduct Authority's regulatory net, but Ministers refused to act. They should explain why they complacently failed to do so."

The raids come six months after the Guardian revealed claims of a gas trading scam that led to investigations by the energy regulator, Ofgem, and the Financial Services Authority (now the Financial Conduct Authority) which is ongoing.

The inquiry by Brussels also comes at a time when the price-reporting agencies are under wider scrutiny and have been told by Iosco, the umbrella group of financial regulators, to tighten up the way they work.

There has been deep unease since the Libor scandal that traded commodities such as oil and gas have become increasingly important as investments and yet many of the transactions are not going through exchanges where prices can be checked and transparency for investors assured.

Mounting concern that energy trading had become an area of potential market abuse was highlighted in a feature in the Financial Times last week. This triggered a response from Platts.

In a letter to the FT this week, Larry Neal, the president of Platts, said: "Your comparison of PRA activity to Libor is a false one … While PRAs do obtain information from 'traders who may have a vested interest in moving the markets, the agencies do not have any such vested interest. In contrast, our role is providing market transparency."

Last week the Guardian reported that some major energy companies, plus banks and trading houses have stopped providing information to the PRAs whose indices have underpinned the wholesale and in turn the retail gas market.

Officials at Statoil, were among those who said that they had ceased co-operating with three PRAs – Platts, Argus and Icis Heren.

Before Christmas, the French oil group Total said in a letter to Iosco: "Sometimes the criteria imposed by PRAs do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer."

Article source : http://www.guardian.co.uk

UK plunges down economic wellbeing league, while US remains top

In terms of disposable household income, UK fell from fifth place to 12th place over six years, according to new report

The UK has plunged down an economic wellbeing league, falling from fifth place to 12th over six years, according to a new report that underlines the pressure on Britons' finances amid rising unemployment.

The Office for National Statistics ranked OECD countries in terms of disposable household income from 2005 to 2011, but on a separate ONS labour-market ranking Britain dropped even further, falling 12 places over the six years.

The ONS looked at various economic factors that might affect wellbeing across the OECD club of mostly rich nations as part of its scheme to measure national wellbeing. It ranked the United States top in terms of disposable household income, followed by Luxembourg. Chile was ranked bottom out of 30 countries.

Statisticians said part of the UK's drop down the disposable household income table was due to the devaluation of the pound, which raised the price of goods and services in the UK relative to other countries. But the ONS also noted other factors including changes to taxes and benefits.

Household actual drop in income per head 2011. Source: OECD

"Over the course of the recession, as unemployment rose, people paid less in taxes and claimed more benefits – causing less of a strain on household income. However, as the economy emerged from the first period of contraction (measured by GDP), households began to feel the squeeze on their incomes as these effects wore off," the ONS said.

Opponents of the government's austerity drive seized on the apparent deterioration in UK household finances. The Trades Union Congresssaid the squeeze on incomes reflected slow wage growth, currently running at little more than 1% on average, compared with inflation of 2.8% at the latest count.

"The combination of recession and austerity has taken its toll on household finances, with income levels in the UK falling behind many of its European neighbours," said TUC general secretary Frances O'Grady.

"Even before the recession, household spending in the UK was far more reliant on debt than in other advanced economies. In order to address this as a country we need to obsess less about housing bubbles and focus instead on securing decent pay rises and creating better paid jobs."

The ONS report also looked at spending and wealth and said the UK remained "relatively strong" compared with other OECD countries on those measures.

It was on unemployment that the UK suffered the most dramatic drop in the international rankings. However, the ONS noted the "UK labour market has been more resilient than in previous recessions" in that employment did not fall as far and unemployment did not rise as much.

With the unemployment rate at 8% in 2011, the UK was more than halfway down the labour market league table. It ranked 21 out of 34 countries. That ranking was down 12 places from 2005.

Norway was top of the league with unemployment at just 3% and Spain was bottom at 21.6%.

The UK had one of the biggest drops over the six years although the US suffered similarly, down 13 places to 25th.

The ONS put the shakeup in the labour market rankings down to the nature of the recession.

"Many of the countries that have overtaken the UK and US in the rankings are smaller economies, less exposed to the 2008 downturn, which centred on the US and Europe. The fall of 12 places in the international rankings for the UK has therefore come despite historically the most stable labour market seen in a UK recession," it said.

Article source : http://www.guardian.co.uk

Apple chief Tim Cook charity auction stands at over $600,000

Anonymous bidder stands to pay around $20,000 a minute for half hour meeting with tech giant's chief executive

At more than $20,000 per minute, it's going to be a hell of a coffee break. A charity auction offering the highest bidder half an hour with Apple chief executive Tim Cook stood at $605,000 (£395,000) on Monday night.

Even before an expected last-minute flurry of interest when the auction on the Charity buzz website closes at 9pm UK time on Tuesday, the current highest bid means the 30 minutes or so the meeting is expected to last will generate two and a half times as much as when the site auctioned an entire day with former president Bill Clinton, which went for $255,000.

The bid for Cook almost reaches the site's previous record, when in March it auctioned off a Lamborghini Aventador LP 700-4 Roadster for $610,000.

An auction for a 30-minute meeting with Apple chief Tim Cook has passed the $600,000 mark.

The highest bidder for Cook at the time of writing declined to give a name – leaving it just as "J********n". Previous bidders have included companies that make accessories and covers for Apple devices.

But there isn't necessarily any expectation that Cook will spill the beans at the meeting on whatever Apple might be planning, explained Rakesh Kumar, founder of the five-strong startup Drbluetooth.com, which put forward $580,000 a week ago but was quickly outbid.

"It would give us a chance to showcase the whole concept of what we're doing to him," Kumar said. "What we can show on our website is very limited in comparison."

Winning the auction will require a $610,000 bid at least, and require Kumar to call on a 14-strong group of family and friends who have pledged to help pay if he wins. But he hopes that doing so could also bring the company, set up in Sunnyvale, California just nine months ago, to the attention of high-profile investors – even if Cook himself doesn't want to put Apple's money into it.

"I'm sure he would give us some frank opinions," Kumar said.

The money from the auction is being donated to the Robert Kennedy Centre for Justice and Human Rights. It marks a huge success for Charitybuzz, which has auctioned time with celebrities ranging from U2's Bono ($211,000) to Paul McCartney ($130,000 for a meeting), as well as cars, autographed instruments, and even a walk-on part in Scary Movie 5 ($100,000).

Having crashed through the $500,000 mark just two days after beginning, the auction is now restricted to bidders who have proved the financial bona fides to a bank, so that the bids are certain to be paid.

"Charitybuzz is blown away by the incredible support we've seen for the RFK Center for Justice and Human Rights through our coffee with Tim Cook online auction. It looks like this could break Charitybuzz's record for the top-grossing auction item since the company's launch in 2005. With 140 experiences on the auction block closing this Tuesday to benefit the RFK Center, including exclusive access to Robert De Niro, Alec Baldwin, Peyton Manning and more, we expect to raise well over one million dollars for human rights," said Coppy Holzman, Charitybuzz CEO and founder.

Sadly, Charitybuzz isn't able to generate as much excitement around every celebrity whose time it is auctioning.

An auction to "Get up close and personal with Piers Morgan on the set of CNN's Piers Morgan Live", which closes at 11pm BST on Tuesday, has attracted just four bids at the time of writing since bidding began on 23 April, the day before Cook's. And the current top bid of $2,250 is less than half the estimated value.

Article source : http://www.guardian.co.uk

House prices rise for first time since mid-2010, finds surveyors report

Government measures responsible for pickup in demand that has yet to be matched by increase in supply, says Rics

Fresh evidence that Britain's housing market is recovering from its long post-recession torpor has emerged as estate agents report the first upward trend in house prices in almost three years.

The Royal Institution of Chartered Surveyors (Rics) said the government's Funding for Lending Scheme (FLS) and the Help to Buy initiative announced in the budget were responsible for a strong pick-up in demand for residential property that was not yet being matched by an increase in the supply of homes to buy.

Funding for Lending Scheme (FLS) and the Help to buy initiative will lead to higher house prices if new residential developments are delayed, warns Rics.

In its monthly health check of the property market, Rics said conditions were at their most buoyant since mid-2010, when the economy was recovering from the deep slump of 2008-09.

The report showed that buyer interest picked up sharply at the start of spring. Estate agents reporting a demand for property topped those reporting fewer new customers by 25 percentage points.

An increase in the number of buyers prompted sellers to put their homes on the market, but the upward trend in new instructions was less strong than demand. As a result, Rics said it had seen the first increase in prices last month since June 2010.

Peter Bolton King, its global residential director, said: "It is encouraging to see government initiatives are having an impact on the property market. Help to Buy, in combination with the Funding for Lending scheme, appears to be giving the market a shot in the arm. Sales are expected to pick up over the coming months, albeit from historically low levels.

"However, there are some understandable concerns that the measures will also lead to higher prices. In view of this, it is critical that developers are as good as their word and speed up the delivery of new stock."

The Rics report showed that surveyed members had sold 17.1 properties on average over the past three months. Although the performance in March and April has been the strongest in three years, transactions are at only half the level when the market was at its peak a decade ago, and a third lower than in the period leading up to the financial crash of 2007.

With other surveys of the housing market also providing signs of stronger demand, estate agents believe prices will continue rising for the rest of 2013. London Rics members were the most upbeat about the outlook, but prices are expected to go up in every region of the UK bar Northern Ireland.

Article source : http://www.guardian.co.uk

Birmingham airport calls for UK-wide aviation expansion to help economy

Manufacturers need better flight links outside London if coalition is to fulfil vow to rebalance economy towards exports, says CEO

Britain's manufacturers urgently need better flight links out of airports beyond London if they are to power the economic recovery, according to a report from Birmingham airport that seeks to shift the aviation capacity debate away from Heathrow expansion.

Kicking off a public campaign for a network of long-haul airports to serve the UK, Birmingham is releasing research that highlights its position in Britain's industrial heartland. The airport says it has the second largest business catchment in the UK and the biggest number of manufacturers.

Paul Kehoe, the airport's chief executive, argues that if the government is to fulfil its promise to rebalance the economy towards manufacturing and exports the country's aviation strategy needs to better serve businesses in the industrial heartland.

"This report shows that a surprisingly high proportion of the country's potential demand for business air travel comes from Birmingham airport's catchment area. But rather than flying from their local airport, we have ended up with an illogical situation where these businesses have to slog down the M1 or M40 to get to Heathrow – leaving them with huge time and cost implications and adding to the congestion at our London airports," he said.

The report, carried out by Capital Economics, found that more than half a million businesses are within the Birmingham airport catchment – around one quarter of all Britain's businesses. It highlights strong demand for flights to Asia and the Middle East from them, but says they are forced to travel from airports in the south.

Local businesses have argued that the aviation industry needs to operate more long-haul flights out of Birmingham, especially once a runway extension is completed next year.

Steve Brittan, whose manufacturing company BSA Machine Tools does 90% of its trade overseas, says with the domestic and eurozone economies struggling he is increasingly looking for business further afield. He travels out of Birmingham rather than Heathrow, but has to spend time changing planes in cities such as Amsterdam.

"Currently we have to fly via European hubs to connect with our customers that are located globally in Asia and the Americas. These difficulties can put off overseas customers visiting our plant in Birmingham," he said.

"This is the heart of manufacturing here and if we are serious about things … we need an international airport."

The report also highlights obstacles for business travellers coming into the UK, noting that Birmingham airport's catchment was the destination for a quarter of all foreign direct investment that came into Britain in 2011.

Peter Mathews at Black Country Metals argues that the current focus of the aviation industry on Heathrow is costing companies outside London business.

"There are people who come to London and won't travel up to Birmingham, and that is a problem. Manufacturing is not in London, it's in the Midlands and further north," he said.

The research was commissioned by Birmingham airport to help form its response to the Sir Howard Davies commission into aviation capacity, which is not due to report until June 2015, after the next general election. Davies has promised, however, that his interim findings in late 2013 will significantly narrow down the options for potential airport expansion.

Article source : http://www.guardian.co.uk