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  1. Caisse-led bailout met with cautious optimism Central bank and Finance Minister welcome Montreal proposal TARA PERKINS and JOHN PARTRIDGE AND HEATHER SCOFFIELD August 17, 2007 Already coined the "Montreal proposal," the Caisse-led plan to bail out a battered $40-billion portion of the commercial paper market is not a sure-fire solution yet. Jerry Marriott, managing director of asset-backed securities at DBRS Ltd., was blunt when asked whether the proposal is a complete answer to the crisis in the third-party asset-backed commercial paper (ABCP) sector. "We don't know," he said in an interview yesterday. Many details of the rescue package still have to be worked out, and it needs more support. But the participants believe they have bought some time and a final deal is in the cards. The agreement was brokered yesterday by the Caisse de dépôt et placement du Québec during a series of meetings in Montreal. The other nine signatories range from heavyweight global banks such as Deutsche Bank AG and HSBC Holdings PLC to Canadian players such as National Bank. DBRS, the sole debt-rating agency to rate these securities in Canada, was present for the meetings but says it was not an active participant in devising the plan. DBRS has been taking some heat for its role in building up the sector. Key elements of the plan are to convert short-term debt into longer-term instruments, while also slapping a temporary moratorium on both investors trying to get their money out of the trusts and on issuers seeking financial injections from their lenders to keep the paper afloat. The third-party ABCP market - the portion of the ABCP market not administered by the banks - has been hammered by a sudden exodus of investors and a refusal by many banks and other lenders to honour agreements to provide backup liquidity. The Bank of Canada and Finance Minister Jim Flaherty put out statements yesterday welcoming the Montreal proposal. The plan to pursue an orderly restructuring of the Canadian ABCP market "provides an opportunity for parties to work through the many complex issues related to the market," the central bank said. It also welcomed confirmation from Canada's big banks that they will support their own bank-sponsored ABCP programs. The third-party segment accounts for about one-third of the total ABCP market, while the other two-thirds is dominated by bank-sponsored trusts. "Together, these initiatives should help support the functioning of financial markets in Canada," the central bank said. But sources suggested that the central bank and Finance Department were unimpressed that Canada's big banks weren't further involved in the initiatives to bail out the non-bank ABCP market. An escalating crisis would likely have led to a forced liquidation of the assets in these trusts - a situation that could spread trouble into the broader economy. Mr. Flaherty said in a press release that it's "in the best interest of all involved that sponsors, liquidity providers (including large international banks) and investors (including large pension funds) engage constructively to pursue orderly market solutions to this liquidity situation." He added that one of the attractive features of the proposal is that it "provides time for full information and analysis of these securities." The creation of the long-term notes, which might carry maturities as long as 10 years, is expected to reduce the amount of liquidity risk in the ABCP market, Huston Loke, head of global structured finance at DBRS, said yesterday. Dealers that are part of the consortium have indicated that they would assist in making a market for these notes, "so should implementation of the proposal be successful, it is likely that investors looking to liquidate could do so at a time of their choosing, reducing the likelihood of selling at distressed prices or into a highly volatile credit environment," he said.
  2. Downturn Ends Building Boom in New York Charles Blaichman, at an unfinished tower at West 14th Street, is struggling to finance three proposed hotels by the High Line. NYtimes By CHRISTINE HAUGHNEY Published: January 07, 2009 Nearly $5 billion in development projects in New York City have been delayed or canceled because of the economic crisis, an extraordinary body blow to an industry that last year provided 130,000 unionized jobs, according to numbers tracked by a local trade group. The setbacks for development — perhaps the single greatest economic force in the city over the last two decades — are likely to mean, in the words of one researcher, that the landscape of New York will be virtually unchanged for two years. “There’s no way to finance a project,” said the researcher, Stephen R. Blank of the Urban Land Institute, a nonprofit group. Charles Blaichman is not about to argue with that assessment. Looking south from the eighth floor of a half-finished office tower on 14th Street on a recent day, Mr. Blaichman pointed to buildings he had developed in the meatpacking district. But when he turned north to the blocks along the High Line, once among the most sought-after areas for development, he surveyed a landscape of frustration: the planned sites of three luxury hotels, all stalled by recession. Several indicators show that developers nationwide have also been affected by the tighter lending markets. The growth rate for construction and land development loans shrunk drastically this year — to 0.08 percent through September, compared with 11.3 percent for all of 2007 and 25.7 percent in 2006, according to data tracked by the Federal Deposit Insurance Corporation. And developers who have loans are missing payments. The percentage of loans in default nationwide jumped to 7.3 percent through September 2008, compared with 1 percent in 2007, according to data tracked by Reis Inc., a New York-based real estate research company. New York’s development world is rife with such stories as developers who have been busy for years are killing projects or scrambling to avoid default because of the credit crunch. Mr. Blaichman, who has built two dozen projects in the past 20 years, is struggling to borrow money: $370 million for the three hotels, which include a venture with Jay-Z, the hip-hop mogul. A year ago, it would have seemed a reasonable amount for Mr. Blaichman. Not now. “Even the banks who want to give us money can’t,” he said. The long-term impact is potentially immense, experts said. Construction generated more than $30 billion in economic activity in New York last year, said Louis J. Coletti, the chief executive of the Building Trades Employers’ Association. The $5 billion in canceled or delayed projects tracked by Mr. Coletti’s association include all types of construction: luxury high-rise buildings, office renovations for major banks and new hospital wings. Mr. Coletti’s association, which represents 27 contractor groups, is talking to the trade unions about accepting wage cuts or freezes. So far there is no deal. Not surprisingly, unemployment in the construction industry is soaring: in October, it was up by more than 50 percent from the same period last year, labor statistics show. Experience does not seem to matter. Over the past 15 years, Josh Guberman, 48, developed 28 condo buildings in Brooklyn and Manhattan, many of them purchased by well-paid bankers. He is cutting back to one project in 2009. Donald Capoccia, 53, who has built roughly 4,500 condos and moderate-income housing units in all five boroughs, took the day after Thanksgiving off, for the first time in 20 years, because business was so slow. He is shifting his attention to projects like housing for the elderly on Staten Island, which the government seems willing to finance. Some of their better known and even wealthier counterparts are facing the same problems. In August, Deutsche Bank started foreclosure proceedings against William S. Macklowe over his planned project at the former Drake Hotel on Park Avenue. Kent M. Swig, Mr. Macklowe’s brother-in-law, recently shut down the sales office for a condo tower planned for 25 Broad Street after his lender, Lehman Brothers, declared bankruptcy in September. Several commercial and residential brokers said they were spending nearly half their days advising developers who are trying to find new uses for sites they fear will not be profitable. “That rug has been pulled out from under their feet,” said David Johnson, a real estate broker with Eastern Consolidated who was involved with selling the site for the proposed hotel to Mr. Blaichman, Jay-Z and their business partners for $66 million, which included the property and adjoining air rights. Mr. Johnson said that because many banks are not lending, the only option for many developers is to take on debt from less traditional lenders like foreign investors or private equity firms that charge interest rates as high as 20 percent. That doesn’t mean that all construction in New York will grind to a halt immediately. Mr. Guberman is moving forward with one condo tower at 87th Street and Broadway that awaits approval for a loan; he expects it will attract buyers even in a slowing economy. Mr. Capoccia is trying to finish selling units at a Downtown Brooklyn condominium project, and is slowly moving ahead on applying for permits for an East Village project. Mr. Blaichman, 54, is keeping busy with four buildings financed before the slowdown. He has found fashion and advertising firms to rent space in his tower at 450 West 14th Street and buyers for two downtown condo buildings. He recently rented a Lower East Side building to the School of Visual Arts as a dorm. Mr. Blaichman had success in Greenwich Village and the meatpacking district, where he developed the private club SoHo House, the restaurant Spice Market and the Theory store. He had similar hopes for the area along the High Line, where he bought properties last year when they were fetching record prices. An art collector, he considered the area destined for growth because of its many galleries and its proximity to the park being built on elevated railroad tracks that have given the area its name. The park, which extends 1.45 miles from Gansevoort Street to 34th Street, is expected to be completed in the spring. Other developers have shown that buyers will pay high prices to be in the area. Condo projects designed by well-known architects like Jean Nouvel and Annabelle Selldorf have been eagerly anticipated. In recent months, buyers have paid $2 million for a two-bedroom unit and $3 million for a three-bedroom at Ms. Selldorf’s project, according to Streeteasy.com, a real estate Web site. “It’s one of the greatest stretches of undeveloped areas,” Mr. Blaichman said. “I still think it’s going to take off.” In August 2007, Mr. Blaichman bought the site and air rights of a former Time Warner Cable warehouse. He thought the neighborhood needed its first full-service five-star hotel, in contrast to the many boutique hotels sprouting up downtown. So with his partners, Jay-Z and Abram and Scott Shnay, he envisioned a hotel with a pool, gym, spa and multiple restaurants under a brand called J Hotels. But since his mortgage brokers started shopping in late summer for roughly $200 million in financing, they have only one serious prospect for a lender. For now, he is seeking an extension on the mortgage — monthly payments are to begin in the coming months — and trying to rent the warehouse. (He currently has no income from the property.) It is perhaps small comfort that his fellow developers are having as many problems getting loans. Shaya Boymelgreen had banks “pull back” recently on financing for a 107-unit rental tower the developer is building at 500 West 23rd Street, according to Sara Mirski, managing director of development for Boymelgreen Developers. The half-finished project looked abandoned on two recent visits, but Ms. Mirski said that construction will continue. Banks have “invited” the developer to reapply for a loan next year and have offered interim bridge loans for up to $30 million. Mr. Blaichman cuts a more mellow figure than many other developers do. He avoids the real estate social scene, tries to turn his cellphone off after 6 p.m. and plays folk guitar in his spare time. For now, Mr. Blaichman seems stoic about his plight. At a diner, he polished off a Swiss-cheese omelet and calmly noted that he had no near-term way to pay off his debts. He exercises several times a week and tells his three children to curb their shopping even as he regularly presses his mortgage bankers for answers. “I sleep pretty well,” Mr. Blaichman said. “There’s nothing you can do in the middle of the night that will help your projects.” But even when the lending market improves — in months, or years — restarting large-scale projects will not be a quick process. A freeze in development, in fact, could continue well after the recession ends. Mr. Blank of the Urban Land Institute said he has taken to giving the following advice to real estate executives: “We told them to take up golf.” Correction: An article on Saturday about the end of the building boom in New York City referred incorrectly to the family relationship between the developers William S. Macklowe, whose planned project at the former Drake Hotel is in foreclosure, and Kent M. Swig, who shut down the sales office for a condominium tower on Broad Street after his lender, Lehman Brothers, declared bankruptcy. Mr. Swig is Mr. Macklowe’s brother-in-law, not his son-in-law.
  3. Avec quelques commentaires architecturaux pour vous tous. Source: Dallas News “This,” says Martin Robitaille, “is the Old Sulpician Seminary. It dates to 1685 and is the oldest building still standing in Old Montreal. And this,” he goes on, sweeping his hand at a building across the street from the seminary, “is Mistake No. 1.” The more formal name of the latter edifice is the National Bank of Canada Tower. It was finished in 1967 and is done in the International Style: 52 concrete pillars rising 32 stories, covered in black granite, framing black-tinted windows. “Its elegant, sober appearance was intended to harmonize with the rest of the historical quarter of Old Montreal,” according to a panel in the nearby Centre d’histoire de Montréal museum, but many, including Robitaille, think it most certainly does not. Robitaille could be considered biased: He’s a professional tour guide, and his beat today is the section of Montreal just north of the St. Lawrence River, roughly a dozen blocks long and three blocks wide, that is the city’s historic center. The quarter’s small, crooked streets are filled by handsome buildings of dressed limestone, some somberly Scottish and plain, some effusively Italian, with intricate carvings and terra cotta ornamentation. Stand at any of a dozen intersections — Sainte-Hélène and des Récollets is a good example — and you are transported, architecturally at least, back in time. Which is why Robitaille finds the incursion of something in the International Style so grating. It really ruins the mood. His tour begins at Place d’Armes, in the shadow of a statue of one of the people who founded the city in 1642, Paul de Chomedey de Maisonneuve. “They came here to convert the natives,” Robitaille says. “Not so successful. After about 20 years, it became a commercial center. The fur trade.” As European demand for fur grew, so did Montreal. Its success as the funneling point of pelts from Canada’s vast forests to the Continent made it the obvious spot to locate head offices when settlers began to pour into the west. “The Golden Age was from 1850 to 1930,” Robitaille says. “That’s when Montreal was at its best.” And that’s when most of the buildings in Old Montreal were constructed. Robitaille’s tour takes us along Rue Saint-Jacques, once the heart of Montreal’s — and Canada’s — financial district. At the corner of Rue Saint-Pierre he points out four bank buildings, two of which, the CIBC and the Royal, still perform their original function. The Royal’s banking hall, built in 1928, is “a temple of money,” our guide says: soaring stone, coffered ceiling, echoing and imperious. The other two banks have been turned into high-end boutique hotels . LHotel is the plaything of Guess Jeans co-founder Georges Marciano. Marciano has sprinkled its lobby and hallways with $50 million worth of art from his private collection, including works by Roy Lichtenstein, Joan Miró, Robert Rauschenberg , Marc Chagall, David Hockney, Jasper Johns and Andy Warhol. Across the road, the former Merchants Bank is now the St. James, “considered the most luxurious hotel in town,” says Robitaille. The top floor is where folks like Elton John, U2 and the Rolling Stones stay when they’re in town. We twist and turn through Old Montreal’s narrow streets. Hidden away at 221 Saint-Sacrement is one of the few old houses left, three stories, solid stone. Today, it houses offices. “Most of the architecture surrounding us is commercial, not residential,” Robitaille says. The banks were the most lavish in design, but the warehouses, many now renovated as condominiums, were nearly as spectacular. When Robitaille was a child, his parents never brought him to Old Montreal. Then, as now, it was a bit cut off from the present-day downtown, further north, by the auto route Ville-Marie. After the banks decamped in the 1960s, Old Montreal spent the next several decades in decay. At one point, much of it was to be torn down for yet another freeway. A slow-swelling preservation movement finally gained traction in 1978 when the grain elevators blocking the view of the St. Lawrence River were demolished and a riverside walk opened. Over the next three decades, investors began to see the value in resuscitating the neighborhood. Now, more than 5,000 people call Old Montreal home, living mainly in converted warehouses. Restaurants, cafes, small hotels and plenty of art and clothing stores keep the area bustling. A tour like Robitaille’s is a fine way to be introduced to Old Montreal. For those who want to know more, two museums, the Centre d’histoire de Montréal, in a 1903 fire hall next to Place d’Youville (the site of the two Canadas’ parliament until rioters torched it in 1849), and the Pointe-à-Callière Montreal Museum of Archaeology and History, are the places to go. In the basement of the latter are the ruins of buildings that previously stood on the site, along with part of the tunnel that Little Saint-Pierre River once ran through and the city’s first graveyard, filled largely with the bodies of those killed by Iroquois attacks in the settlement’s earliest days. For those who prefer to strike out on their own, Discover Old Montreal, a well-illustrated booklet published by the provincial government, provides a detailed self-guided walking tour and is for sale in both museums. For those who just want to soak in the ambience, the simplest thing is to start in Place Jacques Cartier and stroll first east and then west along Rue Saint-Paul, Montreal’s oldest street. (Its rough paving stones make comfortable walking shoes a necessity.) Robitaille’s final stop is at the Château Ramezay. Built in 1705 as a home for the governor of Montreal, it served several other purposes through the years, including sheltering Benjamin Franklin in 1776, before it became a museum in 1895. “It’s one of only six buildings from the French period, before 1763, still standing,” says our guide. A block away is the modern courthouse complex, finished in 1971 and designed by the same people who did the National Bank tower. “That,” says Robitaille with a final flourish, “is Mistake No. 2.” And so Old Montreal comes to an end.
  4. The Saudi capital is unlikely to become an alternative to Dubai any time soon May 11th 2013 | RIYADH |From the print edition THE glass-clad skyscrapers are reaching ever higher into Riyadh’s dusty sky. The first tenants are due to move to the King Abdullah Financial District in the Saudi capital’s north-west later this year. But they may well find it a lonely place: enthusiasm is clearly lacking for the development, which boasts 42 buildings and 900,000 square metres of office space—similar in scale to London’s Canary Wharf. Granted, new office districts often take time to come to life. Canary Wharf had to battle against sceptics for many years before becoming the success it is today. But it is unclear how Riyadh’s new district will develop into what it is meant to be: a sober Saudi alternative to Dubai’s exuberant International Financial Centre. To date just 10% of the district’s office space has been leased; tenants will include the country’s stockmarket regulator, the Capital Markets Authority, and one large local bank, Samba. A further 10% is under negotiation, according to sources close to the developers of the project. A big problem is its size. The Saudi economy may be doing well on the back of high oil prices, but not so well that its businesses could easily digest all the extra property. The new financial district has three times as much high-end office space as the rest of Riyadh. In other words, even if every company in the city’s plusher offices moved to the new district it would still be two-thirds empty. Costs are another hurdle. “It might be prestigious but why should I pay an arm and a leg to be there?” asks a local executive. Some banks, like Arab National Bank and Al Rajhi Bank, are building new towers elsewhere. Even the Saudi central bank is thought to be staying where it is. But if banks do not fill the space, then who will? Accountants, lawyers and insurance firms are not nearly numerous enough. They also remain to be convinced of the development’s merits. “There’s going to be all those towers, but for what? It looks like an overbuilt proposition,” says a Riyadh lawyer. Nor are foreign firms likely to be of much help. Riyadh may be the centre of the region’s biggest economy, boasting more people and oil revenues than anywhere else. But unlike Dubai, as a financial centre the city is inward-looking, with banks largely servicing the domestic economy. That, as well as a lack of cultural life, prevent it from becoming a regional financial hub. Yet at some point the new district may still serve its purpose. The owner has pockets deep enough to take the long view. The project was the brainchild of the Capital Markets Authority, with support from the Public Pensions Agency. One of the agency’s subsidiaries, the Rayadah Investment Company, has taken over the development, which is estimated to cost between $7 billion and $10 billion. More important, so many near-empty buildings will be a political embarrassment, in particular since the new district carries the king’s name. Authorities may yet lean on the banks to move. Optimism and market forces alone will certainly not be enough to fill all the space. From the print edition: Finance and economics http://www.economist.com/news/finance-and-economics/21577424-saudi-capital-unlikely-become-alternative-dubai-any-time-soon-empty?frsc=dg%7Cc
  5. (Courtesy of the Financial Post) Congrats to the National Bank of Canada. Singapore supposedly like the new Switzerland.
  6. April 29, 2009 By LANDON THOMAS Jr. LONDON — Tetsuya Ishikawa reaped the fruits of London’s financial boom, structuring and selling his small share of the complex securities that fueled both his professional rise and the uninterrupted economic growth of Britain. When the boom went bust last year, he lost his job at Morgan Stanley, along with about 28,000 other Londoners working in finance. Mr. Ishikawa, who has written a fictional memoir, has no plans to return to the City, as London’s banking district is known. But Britain’s revenue-starved Labor government will find no such escape. “By 2010, the U.K. will have the largest budget deficit in the developed world,” said Richard Snook, a senior economist at the Center for Economic and Business Research in London. “The problem is that the financial services industry has been a huge cash cow for the British government for the last 10 years and now it is going into reverse.” The country’s budget deficit has soared to 12 percent of gross domestic product; its public debt burden could soon reach 80 percent of annual economic output, a figure that would leave it roughly in the same position as Greece. But at a time when Britain more than ever needs a financial sector firing on all cylinders, its economic engine is conking out — for a number of reasons, including some that critics blame on the government. All told, more than 70,000 jobs in finance are expected to disappear over the next two to three years, a big chunk of the total estimated job losses of about 280,000 in London. The British government has poured hundreds of billions of pounds into preventing several of its largest banks from falling into bankruptcy as the extent of their bad bets became evident. But there is little prospect of a revival anytime soon, as the government is about to impose stiffer demands on banks to keep high capital ratios and to rely less on leverage and once-lucrative trading activities. That, combined with a more aggressive posture by the regulatory authorities to put a check on bonuses, is likely to hasten what has already been a sharp falloff in corporate and income taxes from the City. The economic contribution from the British financial sector, according to the Office for National Statistics, peaked at 10.8 percent of G.D.P. in 2007 — up from 5.5 percent in 1996, just before Labor took over. By comparison, the contribution from financial services in the United States to the American economy never exceeded 8 percent. In a bid to capture more revenue, the British government has decided to raise tax rates on the affluent, many of them working in finance. But the new top income tax rate of 50 percent for those earning at least £150,000, or $219,000, may only make things worse, said Mr. Snook, the economist. “These people are highly mobile and they will leave London,” he said. “The impact on public finances will be negative.” Britain’s top tax rate will soon rank fourth behind those of Denmark, Sweden and the Netherlands — not quite the advertisement one would expect from one of the world’s leading financial centers. In many ways, Mr. Ishikawa’s career tracked the credit explosion that has now imploded. When he began work as a lowly credit analyst in 2002, banks in London issued about £20 billion in securities linked to various mortgage instruments. His career took off as that figure surged to over £180 billion by 2008, when Mr. Ishikawa secured for himself a $3 million bonus from Morgan Stanley as a reward for peddling assets that turned out to be toxic. With that line of business virtually defunct, banks in the coming years must return to lower-risk and lower-return businesses like equity and bond underwriting, foreign exchange trading and traditional deal-making — businesses that may well be profitable, but can in no way make up for the loss of such a lush specialty. The Center for Economic and Business Research estimates that corporate and income taxes from the financial industry will shrink from 12 percent of the overall tax take in 2007 to 8 percent this year and perhaps lower in the years ahead, a prospect that could force Britain to increase its already substantial borrowing requirement. The crisis has humbled all financial centers, from Wall Street to Dubai. According to an index produced in Britain that ranks financial centers around the world, the City of London still comes out on top, closely followed by New York. The gap, though, between these two and Singapore, which is now third, is narrowing. Lord Adair Turner, the chairman of the Financial Services Authority, agrees that London as a financial center will be in for an adjustment and says that a large portion of the banking industry’s profit contribution to the economy was “illusory.” But even in a more restrictive environment, he points out, London’s importance as a global financial hub and the most valuable trading center in Europe will not go away. “The City is important today for the same reason it was important in 1890,” he said. As for Mr. Ishikawa, who is 30 and grew up in Britain as the son of a successful Japanese executive, he is putting his hopes into a new career as a writer. His book, “How I Caused the Credit Crunch,” chronicles the debauched excesses of the boom — he was briefly married to a Brazilian lap dancer — by lightly fictionalizing his six-year stint in finance. “I really don’t miss it,” he said, sipping a coffee near the building where he was laid off. “There are many more kids out there more hungry than me.” Like Faruq Rana, for example. Mr. Rana, the 26-year-old son of Bangladeshi immigrants, was born and reared in Tower Hamlets, a district abutting Canary Wharf that has Britain’s highest unemployment rate. From his window, he can see the towers of Citigroup and Barclays reaching into the sky and his ambition to one day work as a trader in one of those buildings soars nearly as high. “Every day when I wake up and open up my window, I can smell my job,” said Mr. Rana, who is a student in a government-financed program at Tower Hamlets College that prepares local youths for jobs in the financial industry. Unlike Mr. Ishikawa, Mr. Rana did not go to Eton or Oxford, but he remains undeterred. “I have the motivation and the drive,” he said. “I think I can be one of them.” http://www.nytimes.com/2009/04/29/business/global/29city.html?ref=global-home
  7. Free-trade zone for Shanghai Mr Li's big idea Jul 16th 2013, 5:34 by V.V.V. | SHANGHAI IF PRESS reports are to be believed, Shanghai's dreams of surpassing Hong Kong to become the region's leading financial centre may have a powerful supporter in Beijing. According to Xinhua, the official government newswire, the ruling State Council has approved plans championed by Li Keqiang, the newish premier, for an ambitious free-trade zone in the mainland's second city. The idea has set the country's press and local wags alight with speculation about how far such an idea could go. Take the conservative view, and the project is a useful albeit limited boost to trade and regional integration. On this view, the new free-trade zone would integrate modern transportation and communications infrastructure with a tax-free framework for domestic and foreign firms. This would help boost China's efforts to become a pan-Asian supply chain hub. Allowing the free movement and warehousing of metals, for example, could also allow Shanghai to develop world-leading commodities exchanges. But if you listen to the plan's more enthusiastic boosters, this idea represents nothing less than a crucible for all of the liberal economic reforms that the new administration hopes will eventually take off across the country. Those dreaming of faster financial liberalisation say that the new zone will allow foreign banks, currently inhibited by red tape from achieving scale or much profitability, to expand rapidly and easily. Domestic banks, currently restricted in their overseas activities, are supposedly going to be allowed to experiment in the new zone with products and services currently banned at home. Technology enthusiasts are claiming that the long-standing ban on video game consoles will be lifted—if consoles are themselves manufactured in the Shanghai free-trade zone. What to make of all this? It is not yet clear what the government really intends to do. However, one problem that officials will confront is that of leakage: since innovations are sure to produce price differences inside and outside the zone, how exactly will they keep enterprising locals from finding ways to arbitrage the difference? The more ambitious the scheme, the more likely it is to fail; the more conservative it is, the less relevant it becomes. That is why the only serious and sustainable way forward for China is to liberalise the entire economy, not just a tiny sliver of it. http://www.economist.com/blogs/analects/2013/07/free-trade-zone-shanghai?fsrc=scn/fb/wl/bl/libigidea
  8. The French election and business The terror The 75% tax and other alarming campaign promises Apr 7th 2012 | PARIS | from the print edition EUROFINS SCIENTIFIC, a bio-analytics firm, is the sort of enterprise that France boasts about. It is fast-growing, international and hungry to buy rivals. So people noticed when in March it decamped to Luxembourg. Observers reckon it was fleeing France’s high taxes. It will soon be joined by Sword Group, a successful software firm, which voted to move to Luxembourg last month. As France enters the final weeks of its presidential campaign, candidates are competing to promise new measures that would hurt business. François Hollande, the Socialist candidate, and the current favourite to win the second and final round on May 6th, has promised a top marginal income-tax rate of 75% for those earning over €1m ($1.3m). He has declared war on finance. If the Socialists win, he pledges, corporate taxes will rise and stock options will be outlawed. Other countries welcome global firms. “France seems to want to keep them out,” sighs Denis Kessler, the boss of SCOR, a reinsurer. Jean-Luc Mélenchon, an even leftier candidate than Mr Hollande, has been gaining ground. Communists marched to the Bastille on March 18th to support him. The right offers little solace. Nicolas Sarkozy, the incumbent, is unpopular partly because of his perceived closeness to fat cats. To distance himself, he has promised a new tax on French multinationals’ foreign sales. If Mr Hollande wins, he may water down his 75% income-tax rate. But it would be difficult to back away from such a bold, public pledge. And doing business in France is hard enough without such uncertainty. Companies must cope with heavy social charges, intransigent unions and political meddling. The 35-hour work week, introduced in 2000, makes it hard to get things done. Mr Hollande says he will reverse a measure Mr Sarkozy introduced to dilute its impact by exempting overtime pay from income tax and social charges. The 75% income-tax rate is dottier than a pointilliste painting. When other levies are added, the marginal rate would top 90%. In parts of nearby Switzerland, the top rate is around 20%. French firms are already struggling to hire foreign talent. More firms may leave. Armand Grumberg, an expert in corporate relocation at Skadden, Arps, Slate, Meagher & Flom, a law firm, says that several big companies and rich families are looking at ways to leave France. At a recent lunch for bosses of the largest listed firms, the main topic was how to get out. Investment banks and international law firms would probably be the first to go, as they are highly mobile. Already, the two main listed banks, BNP Paribas and Société Générale, are facing queries from investors about Mr Hollande’s plan to separate their retail arms from investment banking. He has also vowed to hike the corporate tax on banks from 33% to nearly 50%. In January Paris launched a new €120m ($160m) “seed” fund to attract hedge funds. Good luck with that. Last month Britain promised to cut its top tax rate from 50% to 45%. No financial centre comes close to Mr Hollande’s 75% rate (see chart). Large firms will initially find it hard to skedaddle. Those with the status ofsociété anonyme, the most common, need a unanimous vote from shareholders. But the European Union’s cross-border merger directive offers an indirect route: French firms can merge with a foreign company. Big groups also have the option of moving away the substance of their operations, meaning decision-making and research and development. Last year, Jean-Pascal Tricoire, the boss of Schneider Electric, an energy-services company, moved with his top managers to run the firm from Hong Kong (where the top tax rate is 15%). For now, the firm’s headquarters and tax domicile remain in France. But for how long? Pressure to leave could come from foreign shareholders, says Serge Weinberg, the chairman of Sanofi, a drugmaker. “American, German or Middle Eastern shareholders will not tolerate not being able to get the best management because of France’s tax regime,” he says. At the end of 2010, foreign shareholders held 42% of the total value of the firms in the CAC 40, the premier French stock index. That is higher than in many other countries. It is not clear whether the 75% tax rate would apply to capital gains as well as income. As with most of the election campaign’s anti-business pledges, the detail has been left vague. Mr Sarkozy has offered various definitions of what he means by “big companies”, which would have to pay his promised new tax. Some businessfolk therefore hope that the most onerous pledges will be quietly ditched once the election is over. But many nonetheless find the campaign alarming. French politicians not only seem to hate business; they also seem to have little idea how it actually works. The most debilitating effects of all this may be long-term. Brainy youngsters have choices. They can find jobs or set up companies more or less anywhere. The ambitious will risk their savings, borrow money and toil punishing hours to create new businesses that will, in turn, create jobs and new products. But they will not do this for 25% (or less) of the fruits of their labour. Zurich is only an hour away; French politics seem stuck in another century. http://www.economist.com/node/21552219
  9. The banking system in eastern Europe is increasingly vulnerable to a severe economic downturn, Moody’s has warned, saying western European banks with local subsidiaries are at risk of ratings downgrades. “The relative vulnerabilties in east European banking systems will be exposed by an increasingly tougher operating environment in eastern Europe as a result of a steep and long economic downturn coupled with macroeconomic vulnerabilities,” Moody’s said in a report. The ratings agency said it expected “continuous downward pressure on east European bank ratings” because of deteriorating asset quality, falling local currencies, exposure to a regional slump in real-estate and the units’ reliance on scarce short-term funding. Eurozone banks have the largest exposure to central and eastern Europe, with liabilities of $1,500bn – about 90 per cent of total foreign bank exposure to the region. Shares of the handful of banks with substantial investments in eastern Europe – led by Austria’s Raiffeisen and Erste Bank, Société Générale of France, Italy’s UniCredit (which owns Bank Austria) and Belgian group KBC – tumbled after the ratings agency said it was concerned about the impact of a slowdown and the ability of the parent banks to support their support units in the region. The Austrian banking system is the most vulnerable, with eastern Europe accounting for nearly half of its foreign loans, while Italian banks are exposed to Poland and Croatia and Scandinavian institutions to the Baltic states. Central and eastern European currencies have come under intense pressure in recent weeks. The credit crisis has raised fears over the region’s ability to finance its current account deficits and slowing global growth has heightened concerns over the health of its export-dependent economies. The Polish zloty plunged to a five-year low against the euro on Tuesday, while the Czech koruna hit a three-year trough against the single currency and the Hungarian forint falling to a record low. The Prague and Warsaw stock indices meanwhile fell to their lowest levels in five years, while the smaller markets of Budapest, Zagreb and Bucharest skirted close to multi-year lows. The euro dropped to a two-month low against the dollar on Tuesday on heightened concerns over eurozone banks’ exposure to the worsening conditions in eastern Europe. Amid the growing sense of crisis in eastern European economies, Hungary on Tuesday outlined plans to save Ft210bn (€680m, $860m) this year to prevent an increase in the budget deficit. Hungary’s economy is expected to contract by up to 3 per cent this year, much more than earlier expectations. Antje Praefcke at Commerzbank said eastern European currencies were in a “self-feeding depreciation spiral.” “The creditworthiness of local banks, companies and private households, who hold mainly foreign currency denominated debt, is deteriorating with each depreciation in eastern European currencies, thus further undermining confidence in the currencies,” she said. Ms Praefcke said further depreciation of eastern European currencies was thus a distinct possibility, which was likely to undermine the euro. “The collapse of these currencies is likely to constitute a risk for the euro,” she said. “So far markets have largely ignored this fact, but are unlikely to be able to maintain this approach if the weakness of the eastern European currencies continues.” Western European banks have piled into the former Communist countries in recent years as economic growth in the region outpaced domestic gains. The accession of 10 new members to the European Union in 2004, and of Romania and Bulgaria in 2007, added to optimism about the region. In 2007, Raiffeisen and Erste Bank earned the vast majority of their pre-tax profits in eastern European countries including Russia and Ukraine. Since the onset of the global financial crisis, Hungary, Latvia and Ukraine have all received emergency loans from the International Monetary Fund, with other countries in the region expected to follow.
  10. Twenty-five people at the heart of the meltdown ... * Julia Finch, with additional reporting by Andrew Clark and David Teather The Guardian, Monday 26 January 2009 The worst economic turmoil since the Great Depression is not a natural phenomenon but a man-made disaster in which we all played a part. In the second part of a week-long series looking behind the slump, Guardian City editor Julia Finch picks out the individuals who have led us into the current crisis Greenspan Testifies At Senate Hearing On Oil Dependence Former Federal Reserve chairman Alan Greenspan, who backed sub-prime lending. Alan Greenspan, chairman of US Federal Reserve 1987- 2006 Only a couple of years ago the long-serving chairman of the Fed, a committed free marketeer who had steered the US economy through crises ranging from the 1987 stockmarket collapse through to the aftermath of the 9/11 attacks, was lauded with star status, named the "oracle" and "the maestro". Now he is viewed as one of those most culpable for the crisis. He is blamed for allowing the housing bubble to develop as a result of his low interest rates and lack of regulation in mortgage lending. He backed sub-prime lending and urged homebuyers to swap fixed-rate mortgages for variable rate deals, which left borrowers unable to pay when interest rates rose. For many years, Greenspan also defended the booming derivatives business, which barely existed when he took over the Fed, but which mushroomed from $100tn in 2002 to more than $500tn five years later. Billionaires George Soros and Warren Buffett might have been extremely worried about these complex products - Soros avoided them because he didn't "really understand how they work" and Buffett famously described them as "financial weapons of mass destruction" - but Greenspan did all he could to protect the market from what he believed was unnecessary regulation. In 2003 he told the Senate banking committee: "Derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so". In recent months, however, he has admitted at least some of his long-held beliefs have turned out to be incorrect - not least that free markets would handle the risks involved, that too much regulation would damage Wall Street and that, ultimately, banks would always put the protection of their shareholders first. He has described the current financial crisis as "the type ... that comes along only once in a century" and last autumn said the fact that the banks had played fast and loose with shareholders' equity had left him "in a state of shocked disbelief". Mervyn King, governor of the Bank of England Mervyn King When Mervyn King settled his feet under the desk in his Threadneedle Street office, the UK economy was motoring along just nicely: GDP was growing at 3% and inflation was just 1.3%. Chairing his first meeting of the Bank's monetary policy committee (MPC), interest rates were cut to a post-war low of 3.5%. His ambition was that monetary policy decision-making should become "boring". How we would all like it to become boring now. When the crunch first took hold, the Aston Villa-supporting governor insisted it was not about to become an international crisis. In the first weeks of the crunch he refused to pump cash into the financial system and insisted that "moral hazard" meant that some banks should not be bailed out. The Treasury select committee has said King should have been "more pro-active". King's MPC should have realised there was a housing bubble developing and taken action to damp it down and, more recently, the committee should have seen the recession coming and cut interest rates far faster than it did. Politicians Bill Clinton, former US president Clinton shares at least some of the blame for the current financial chaos. He beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans. In 1999 Clinton repealed the Glass-Steagall Act, which ensured a complete separation between commercial banks, which accept deposits, and investment banks, which invest and take risks. The move prompted the era of the superbank and primed the sub-prime pump. The year before the repeal sub-prime loans were just 5% of all mortgage lending. By the time the credit crunch blew up it was approaching 30%. Gordon Brown, prime minister The British prime minister seems to have been completely dazzled by the movers and shakers in the Square Mile, putting the City's interests ahead of other parts of the economy, such as manufacturers. He backed "light touch" regulation and a low-tax regime for the thousands of non-domiciled foreign bankers working in London and for the private equity business. George W Bush, former US president Clinton might have started the sub-prime ball rolling, but the Bush administration certainly did little to put the brakes on the vast amount of mortgage cash being lent to "Ninja" (No income, no job applicants) borrowers who could not afford them. Neither did he rein back Wall Street with regulation (although the government did pass the Sarbanes-Oxley Act in the wake of the Enron scandal). Senator Phil Gramm Former US senator from Texas, free market advocate with a PhD in economics who fought long and hard for financial deregulation. His work, encouraged by Clinton's administration, allowed the explosive growth of derivatives, including credit swaps. In 2001, he told a Senate debate: "Some people look at sub-prime lending and see evil. I look at sub-prime lending and I see the American dream in action." According to the New York Times, federal records show that from 1989 to 2002 he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. At an April 2000 Senate hearing after a visit to New York, he said: "When I am on Wall Street and I realise that that's the very nerve centre of American capitalism and I realise what capitalism has done for the working people of America, to me that's a holy place." He eventually left Capitol Hill to work for UBS as an investment banker. Wall Street/Bankers Abby Cohen, Goldman Sachs chief US strategist The "perpetual bull". Once rated one of the most powerful women in the US. But so wrong, so often. She failed to see previous share price crashes and was famous for her upwards forecasts. Replaced last March. Kathleen Corbet, former CEO, Standard & Poor's The credit-rating agencies were widely attacked for failing to warn of the risks posed by mortgage-backed securities. Kathleen Corbet ran the largest of the big three agencies, Standard & Poor's, and quit in August 2007, amid a hail of criticism. The agencies have been accused of acting as cheerleaders, assigning the top AAA rating to collateralised debt obligations, the often incomprehensible mortgage-backed securities that turned toxic. The industry argues it did its best with the information available. Corbet said her decision to leave the agency had been "long planned" and denied that she had been put under any pressure to quit. She kept a relatively low profile and had been hired to run S&P in 2004 from the investment firm Alliance Capital Management. Investigations by the Securities and Exchange Commission and the New York attorney general among others have focused on whether the agencies are compromised by earning fees from the banks that issue the debt they rate. The reputation of the industry was savaged by a blistering report by the SEC that contained dozens of internal emails that suggested they had betrayed investors' trust. "Let's hope we are all wealthy and retired by the time this house of cards falters," one unnamed S&P analyst wrote. In another, an S&P employee wrote: "It could be structured by cows and we would rate it." "Hank" Greenberg, AIG insurance group Now aged 83, Hank - AKA Maurice - was the boss of AIG. He built the business into the world's biggest insurer. AIG had a vast business in credit default swaps and therefore a huge exposure to a residential mortgage crisis. When AIG's own credit-rating was cut, it faced a liquidity crisis and needed an $85bn (£47bn then) bail out from the US government to avoid collapse and avert the crisis its collapse would have caused. It later needed many more billions from the US treasury and the Fed, but that did not stop senior AIG executives taking themselves off for a few lavish trips, including a $444,000 golf and spa retreat in California and an $86,000 hunting expedition to England. "Have you heard of anything more outrageous?" said Elijah Cummings, a Democratic congressman from Maryland. "They were getting their manicures, their facials, pedicures, massages while the American people were footing the bill." Andy Hornby, former HBOS boss So highly respected, so admired and so clever - top of his 800-strong class at Harvard - but it was his strategy, adopted from the Bank of Scotland when it merged with Halifax, that got HBOS in the trouble it is now. Who would have thought that the mighty Halifax could be brought to its knees and teeter on the verge of nationalisation? Sir Fred Goodwin, former RBS boss Once one of Gordon Brown's favourite businessmen, now the prime minister says he is "angry" with the man dubbed "Fred the Shred" for his strategy at Royal Bank of Scotland, which has left the bank staring at a £28bn loss and 70% owned by the government. The losses will reflect vast lending to businesses that cannot repay and write-downs on acquisitions masterminded by Goodwin stretching back years. Steve Crawshaw, former B&B boss Once upon a time Bradford & Bingley was a rather boring building society, which used two men in bowler hats to signify their sensible and trustworthy approach. In 2004 the affable Crawshaw took over. He closed down B&B businesses, cut staff numbers by half and turned the B&B into a specialist in buy-to-let loans and self-certified mortgages - also called "liar loans" because applicants did not have to prove a regular income. The business broke down when the wholesale money market collapsed and B&B's borrowers fell quickly into debt. Crawshaw denied a rights issue was on its way weeks before he asked shareholders for £300m. Eventually, B&B had to be nationalised. Crawshaw, however, had left the bridge a few weeks earlier as a result of heart problems. He has a £1.8m pension pot. Adam Applegarth, former Northern Rock boss Applegarth had such big ambitions. But the business model just collapsed when the credit crunch hit. Luckily for Applegarth, he walked away with a wheelbarrow of cash to ease the pain of his failure, and spent the summer playing cricket. Dick Fuld, Lehman Brothers chief executive The credit crunch had been rumbling on for more than a year but Lehman Brothers' collapse in September was to have a catastrophic impact on confidence. Richard Fuld, chief executive, later told Congress he was bewildered the US government had not saved the bank when it had helped secure Bear Stearns and the insurer AIG. He also blamed short-sellers. Bitter workers at Lehman pointed the finger at Fuld. A former bond trader known as "the Gorilla", Fuld had been with Lehman for decades and steered it through tough times. But just before the bank went bust he had failed to secure a deal to sell a large stake to the Korea Development Bank and most likely prevent its collapse. Fuld encouraged risk-taking and Lehman was still investing heavily in property at the top of the market. Facing a grilling on Capitol Hill, he was asked whether it was fair that he earned $500m over eight years. He demurred; the figure, he said, was closer to $300m. Ralph Cioffi and Matthew Tannin Cioffi (pictured) and Tannin were Bear Stearns bankers recently indicted for fraud over the collapse of two hedge funds last year, which was one of the triggers of the credit crunch. They are accused of lying to investors about the amount of money they were putting into sub-prime, and of quietly withdrawing their own funds when times got tough. Lewis Ranieri The "godfather" of mortgage finance, who pioneered mortgage-backed bonds in the 1980s and immortalised in Liar's Poker. Famous for saying that "mortgages are math", Ranieri created collateralised pools of mortgages. In 2004 Business Week ranked him alongside names such as Bill Gates and Steve Jobs as one of the greatest innovators of the past 75 years. Ranieri did warn in 2006 of the risks from the breakneck growth of mortgage securitisation. Nevertheless, his Texas-based Franklin Bank Corp went bust in November due to the credit crunch. Joseph Cassano, AIG Financial Products Cassano ran the AIG team that sold credit default swaps in London, and in effect bankrupted the world's biggest insurance company, forcing the US government to stump up billions in aid. Cassano, who lives in a townhouse near Harrods in Knightsbridge, earned 30 cents for every dollar of profit his financial products generated - or about £280m. He was fired after the division lost $11bn, but stayed on as a $1m-a-month consultant. "It seems he single-handedly brought AIG to its knees," said John Sarbanes, a Democratic congressman. Chuck Prince, former Citi boss A lawyer by training, Prince had built Citi into the biggest bank in the world, with a sprawling structure that covered investment banking, high-street banking and wealthy management for the richest clients. When profits went into reverse in 2007, he insisted it was just a hiccup, but he was forced out after multibillion-dollar losses on sub-prime business started to surface. He received about $140m to ease his pain. Angelo Mozilo, Countrywide Financial Known as "the orange one" for his luminous tan, Mozilo was the chairman and chief executive of the biggest American sub-prime mortgage lender, which was saved from bankruptcy by Bank of America. BoA recently paid billions to settle investigations by various attorney generals for Countrywide's mis-selling of risky loans to thousands who could not afford them. The company ran a "VIP programme" that provided loans on favourable terms to influential figures including Christopher Dodd, chairman of the Senate banking committee, the heads of the federal-backed mortgage lenders Fannie Mae and Freddie Mac, and former assistant secretary of state Richard Holbrooke. Stan O'Neal, former boss of Merrill Lynch O'Neal became one of the highest-profile casualties of the credit crunch when he lost the confidence of the bank's board in late 2007. When he was appointed to the top job four years earlier, O'Neal, the first African-American to run a Wall Street firm, had pledged to shed the bank's conservative image. Shortly before he quit, the bank admitted to nearly $8bn of exposure to bad debts, as bets in the property and credit markets turned sour. Merrill was forced into the arms of Bank of America less than a year later. Jimmy Cayne, former Bear Stearns boss The chairman of the Wall Street firm Bear Stearns famously continued to play in a bridge tournament in Detroit even as the firm fell into crisis. Confidence in the bank evaporated after the collapse of two of its hedge funds and massive write-downs from losses related to the home loans industry. It was bought for a knock down price by JP Morgan Chase in March. Cayne sold his stake in the firm after the JP Morgan bid emerged, making $60m. Such was the anger directed towards Cayne that the US media reported that he had been forced to hire a bodyguard. A one-time scrap-iron salesman, Cayne joined Bear Stearns in 1969 and became one of the firm's top brokers, taking over as chief executive in 1993. Others Christopher Dodd, chairman, Senate banking committee (Democrat) Consistently resisted efforts to tighten regulation on the mortgage finance firms Fannie Mae and Freddie Mac. He pushed to broaden their role to dodgier mortgages in an effort to help home ownership for the poor. Received $165,000 in donations from Fannie and Freddie from 1989 to 2008, more than anyone else in Congress. Geir Haarde, Icelandic prime minister He announced on Friday that he would step down and call an early election in May, after violent anti-government protests fuelled by his handling of the financial crisis. Last October Iceland's three biggest commercial banks collapsed under billions of dollars of debts. The country was forced to borrow $2.1bn from the International Monetary Fund and take loans from several European countries. Announcing his resignation, Haarde said he had throat cancer. The American public There's no escaping the fact: politicians might have teed up the financial system and failed to police it properly and Wall Street's greedy bankers might have got carried away with the riches they could generate, but if millions of Americans had just realised they were borrowing more than they could repay then we would not be in this mess. The British public got just as carried away. We are the credit junkies of Europe and many of our problems could easily have been avoided if we had been more sensible and just said no. John Tiner, FSA chief executive, 2003-07 No one can fault 51-year-old Tiner's timing: the financial services expert took over as the City's chief regulator in 2003, just as the bear market which followed the dotcom crash came to an end, and stepped down from the Financial Services Authority in July 2007 - just a few weeks before the credit crunch took hold. He presided over the FSA when the so-called "light touch" regulation was put in place. It was Tiner who agreed that banks could make up their own minds about how much capital they needed to hoard to cover their risks. And it was on his watch that Northern Rock got so carried away with the wholesale money markets and 130% mortgages. When the FSA finally got around to investigating its own part in the Rock's downfall, it was a catalogue of errors and omissions. In short, the FSA had been asleep at the wheel while Northern Rock racked up ever bigger risks. An accountant by training, with a penchant for Porsches and proud owner of the personalised number plate T1NER, the former FSA boss has since been recruited by the financial entrepreneur Clive Cowdery to run a newly floated business that aims to buy up financial businesses laid low by the credit crunch. Tiner will be chief executive but, unusually, will not be on the board, so his pay and bonuses will not be made public. ... and six more who saw it coming Andrew Lahde A hedge fund boss who quit the industry in October thanking "stupid" traders and "idiots" for making him rich. He made millions by betting against sub-prime. John Paulson, hedge fund boss He has been described as the "world's biggest winner" from the credit crunch, earning $3.7bn (£1.9bn) in 2007 by "shorting" the US mortgage market - betting that the housing bubble was about to burst. In an apparent response to criticism that he was profiting from misery, Paulson gave $15m to a charity aiding people fighting foreclosure. Professor Nouriel Roubini Described by the New York Times as Dr Doom, the economist from New York University was warning that financial crisis was on the way in 2006, when he told economists at the IMF that the US would face a once-in-a-lifetime housing bust, oil shock and a deep recession. He remains a pessimist. He predicted last week that losses in the US financial system could hit $3.6tn before the credit crunch ends - which, he said, means the entire US banking system is in effect bankrupt. After last year's bail-outs and nationalisations, he famously described George Bush, Henry Paulson and Ben Bernanke as "a troika of Bolsheviks who turned the USA into the United Socialist State Republic of America". Warren Buffett, billionaire investor Dubbed the Sage of Omaha, Buffett had long warned about the dangers of dodgy derivatives that no one understood and said often that Wall Street's finest were grossly overpaid. In his annual letter to shareholders in 2003, he compared complex derivative contracts to hell: "Easy to enter and almost impossible to exit." On an optimistic note, Buffett wrote in October that he had begun buying shares on the US stockmarket again, suggesting the worst of the credit crunch might be over. Now is a great time to "buy a slice of America's future at a marked-down price", he said. George Soros, speculator The billionaire financier, philanthropist and backer of the Democrats told an audience in Singapore in January 2006 that stockmarkets were at their peak, and that the US and global economies should brace themselves for a recession and a possible "hard landing". He also warned of "a gigantic real estate bubble" inflated by reckless lenders, encouraging homeowners to remortgage and offering interest-only deals. Earlier this year Soros described a 25-year "super bubble" that is bursting, blaming unfathomable financial instruments, deregulation and globalisation. He has since characterised the financial crisis as the worst since the Great Depression. Stephen Eismann, hedge fund manager An analyst and fund manager who tracked the sub-prime market from the early 1990s. "You have to understand," he says, "I did sub-prime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold." Meredith Whitney, Oppenheimer Securities On 31 October 2007 the analyst forecast that Citigroup had to slash its dividend or face bankruptcy. A day later $370bn had been wiped off financial stocks on Wall Street. Within days the boss of Citigroup was out and the dividend had been slashed.
  11. Ottawa boosts mortgage buyout by $50B Eoin Callan, Canwest News Service Published: Wednesday, November 12 TORONTO - After a sustained lobbying campaign by Bay Street executives that culminated in a breakfast meeting with senior government officials in Toronto Wednesday, Ottawa agreed to the most pressing demands of Canadian banks squeezed by the credit crisis. "We had asked for four things and we got all four," Don Drummond, a senior vice-president at TD Bank Financial Group, said after Ottawa unveiled co-ordinated measures to buy up to $75-billion worth of mortgages, facilitate access to capital markets, provide extra liquidity and loosen reserve requirements. Jim Flaherty, the Finance Minister, said the moves meant Canada was making good on a pledge he made during talks with his international counterparts to collectively bolster the banking system ahead of a summit on the financial crisis this weekend in Washington. The actions were a sign of the "commitment" of Ottawa to ensure the country's financial system remained strong, said Gerry McCaughey, chief executive of Canadian Imperial Bank of Commerce, which, along with TD, is thought to be among the main beneficiaries of new looser rules on minimum capital requirements. But executives who participated in the process cautioned state interventions to ease the credit crisis had proven to be more art than science, as the United States Wednesday ditched an earlier plan to buy up toxic assets at the same time Ottawa was expanding its own scheme to buy mortgage-backed securities by $50 billion. Executives said it remains to be seen if the interventions finalized at Wednesday morning's meeting would succeed in lowering the premium banks pay for medium-term financing, which is about five times higher than before the credit crisis. In a bid to ease funding pressures, executives persuaded the Conservatives to reduce to 1.1 per cent from 1.6 per cent the fee to be charged if banks invoke a special new government guarantee when they borrow money in international capital markets. Banks argued the previous higher rate had actually encouraged lenders to nudge up the premium they were charging banks at a time when other countries were offering more generous terms. The Finance Minister said he would resist new global initiatives that might put Canadian institutions at a competitive disadvantage during the weekend summit in Washington. But he said Ottawa's ability to influence the outcome was being undermined by the absence of a federal securities regulator in Canada, which is alone among major industrialized nations in not having national oversight of financial markets. "It is difficult for us to go abroad and say governments should get their house in order when there is a glaring omission at home," he said. Flaherty said a key objective of the moves announced Wednesday was addressing "concerns about the availability of credit" for business borrowers, adding that "the government stands ready to take whatever further actions are necessary to keep Canada's financial system strong among external risks." The Bank of Canada also said it would boost the availability of affordable credit in the banking system by $8 billion, using new rules that mean institutions can bid for cash using almost any form of collateral. Banks also welcomed a move late Tuesday by the Office of the Superintendent of Financial Institutions to allow them to top up their capital reserves with securities that are a hybrid of debt and equity. The regulator clarified Wednesday that a related measure on treatment of money lent by banks to other financial institutions under the government guarantee of interbank lending "would have the effect" of "increasing their regulatory capital ratios, all else being equal", but would "not count as regulatory capital." Bank analysts said the interventions were positive for Canadian banks, but warned they would be squeezed further in the coming months as the global economic slowdown hit home and losses on bad loans mount. Ian de Verteuil, an analyst at BMO Capital Markets, cited as an example how falling demand for coal could by next year jeopardize more than $10 billion in bank loans made to finance the acquisition by Teck Cominco of Fording Canadian Coal Trust. Royal Bank of Canada, Bank of Montreal and CIBC each have about $1 billion in exposures, while TD and Scotiabank each have $400 million of exposures to the deal, which the companies expect will be viable. But bank executives remained bullish Wednesday, with TD chief executive Ed Clark saying he was still on the hunt for U.S. acquisitions.
  12. Wall Street, R.I.P.: The End of an Era, Even at Goldman Article Tools Sponsored By By JULIE CRESWELL and BEN WHITE Published: September 27, 2008 WALL STREET. Two simple words that — like Hollywood and Washington — conjure a world. Goldman Sachs’s headquarters in New York. The company, a golden child of the financial sector, faces a very different future and mission amid seismic changes wrought by the credit crisis. Lloyd C. Blankfein led Goldman’s securities division before becoming chief executive in 2006. A world of big egos. A world where people love to roll the dice with borrowed money. A world of tightwire trading, propelled by computers. In search of ever-higher returns — and larger yachts, faster cars and pricier art collections for their top executives — Wall Street firms bulked up their trading desks and hired pointy-headed quantum physicists to develop foolproof programs. Hedge funds placed markers on red (the Danish krone goes up) or black (the G.D.P. of Thailand falls). And private equity firms amassed giant funds and went on a shopping spree, snapping up companies as if they were second wives buying Jimmy Choo shoes on sale. That world is largely coming to an end. The huge bailout package being debated in Congress may succeed in stabilizing the financial markets. But it is too late to help firms like Bear Stearns and Lehman Brothers, which have already disappeared. Merrill Lynch, whose trademark bull symbolized Wall Street to many Americans, is being folded into Bank of America, located hundreds of miles from New York, in Charlotte, N.C. For most of the financiers who remain, with the exception of a few superstars, the days of easy money and supersized bonuses are behind them. The credit boom that drove Wall Street’s explosive growth has dried up. Regulators who sat on the sidelines for too long are now eager to rein in Wall Street’s bad boys and the practices that proliferated in recent years. “The swashbuckling days of Wall Street firms’ trading, essentially turning themselves into giant hedge funds, are over. Turns out they weren’t that good,” said Andrew Kessler, a former hedge fund manager. “You’re no longer going to see middle-level folks pulling in seven- and multiple-seven-dollar figures that no one can figure out exactly what they did for that.” The beginning of the end is felt even in the halls of the white-shoe firm Goldman Sachs, which, among its Wall Street peers, epitomized and defined a high-risk, high-return culture. Goldman is the firm that other Wall Street firms love to hate. It houses some of the world’s biggest private equity and hedge funds. Its investment bankers are the smartest. Its traders, the best. They make the most money on Wall Street, earning the firm the nickname Goldmine Sachs. (Its 30,522 employees earned an average of $600,000 last year — an average that considers secretaries as well as traders.) Although executives at other firms secretly hoped that Goldman would once — just once — make a big mistake, at the same time, they tried their darnedest to emulate it. While Goldman remains top-notch in providing merger advice and underwriting public offerings, what it does better than any other firm on Wall Street is proprietary trading. That involves using its own funds, as well as a heap of borrowed money, to make big, smart global bets. Other firms tried to follow its lead, heaping risk on top of risk, all trying to capture just a touch of Goldman’s magic dust and its stellar quarter-after-quarter returns. Not one ever came close. While the credit crisis swamped Wall Street over the last year, causing Merrill, Citigroup and Lehman Brothers to sustain heavy losses on big bets in mortgage-related securities, Goldman sailed through with relatively minor bumps. In 2007, the same year that Citigroup and Merrill cast out their chief executives, Goldman booked record revenue and earnings and paid its chief, Lloyd C. Blankfein, $68.7 million — the most ever for a Wall Street C.E.O. Even Wall Street’s golden child, Goldman, however, could not withstand the turmoil that rocked the financial system in recent weeks. After Lehman and the American International Group were upended, and Merrill jumped into its hastily arranged engagement with Bank of America two weeks ago, Goldman’s stock hit a wall. The A.I.G. debacle was particularly troubling. Goldman was A.I.G.’s largest trading partner, according to several people close to A.I.G. who requested anonymity because of confidentiality agreements. Goldman assured investors that its exposure to A.I.G. was immaterial, but jittery investors and clients pulled out of the firm, nervous that stand-alone investment banks — even one as esteemed as Goldman — might not survive. “What happened confirmed my feeling that Goldman Sachs, no matter how good it was, was not impervious to the fortunes of fate,” said John H. Gutfreund, the former chief executive of Salomon Brothers. So, last weekend, with few choices left, Goldman Sachs swallowed a bitter pill and turned itself into, of all things, something rather plain and pedestrian: a deposit-taking bank. The move doesn’t mean that Goldman is going to give away free toasters for opening a checking account at a branch in Wichita anytime soon. But the shift is an assault on Goldman’s culture and the core of its astounding returns of recent years. Not everyone thinks that the Goldman money machine is going to be entirely constrained. Last week, the Oracle of Omaha, Warren E. Buffett, made a $5 billion investment in the firm, and Goldman raised another $5 billion in a separate stock offering. Still, many people say, with such sweeping changes before it, Goldman Sachs could well be losing what made it so special. But, then again, few things on Wall Street will be the same. GOLDMAN’S latest golden era can be traced to the rise of Mr. Blankfein, the Brooklyn-born trading genius who took the helm in June 2006, when Henry M. Paulson Jr., a veteran investment banker and adviser to many of the world’s biggest companies, left the bank to become the nation’s Treasury secretary. Mr. Blankfein’s ascent was a significant changing of the guard at Goldman, with the vaunted investment banking division giving way to traders who had become increasingly responsible for driving a run of eye-popping profits. Before taking over as chief executive, Mr. Blankfein led Goldman’s securities division, pushing a strategy that increasingly put the bank’s own capital on the line to make big trading bets and investments in businesses as varied as power plants and Japanese banks. The shift in Goldman’s revenue shows the transformation of the bank. From 1996 to 1998, investment banking generated up to 40 percent of the money Goldman brought in the door. In 2007, Goldman’s best year, that figure was less than 16 percent, while revenue from trading and principal investing was 68 percent. Goldman’s ability to sidestep the worst of the credit crisis came mainly because of its roots as a private partnership in which senior executives stood to lose their shirts if the bank faltered. Founded in 1869, Goldman officially went public in 1999 but never lost the flat structure that kept lines of communication open among different divisions. In late 2006, when losses began showing in one of Goldman’s mortgage trading accounts, the bank held a top-level meeting where executives including David Viniar, the chief financial officer, concluded that the housing market was headed for a significant downturn. Hedging strategies were put in place that essentially amounted to a bet that housing prices would fall. When they did, Goldman limited its losses while rivals posted ever-bigger write-downs on mortgages and complex securities tied to them. In 2007, Goldman generated $11.6 billion in profit, the most money an investment bank has ever made in a year, and avoided most of the big mortgage-related losses that began slamming other banks late in that year. Goldman’s share price soared to a record of $247.92 on Oct. 31. Goldman continued to outpace its rivals into this year, though profits declined significantly as the credit crisis worsened and trading conditions became treacherous. Still, even as Bear Stearns collapsed in March over bad mortgage bets and Lehman was battered, few thought that the untouchable Goldman could ever falter. Mr. Blankfein, an inveterate worrier, beefed up his books in part by stashing more than $100 billion in cash and short-term, highly liquid securities in an account at the Bank of New York. The Bony Box, as Mr. Blankfein calls it, was created to make sure that Goldman could keep doing business even in the face of market eruptions. That strong balance sheet, and Goldman’s ability to avoid losses during the crisis, appeared to leave the bank in a strong position to move through the industry upheaval with its trading-heavy business model intact, if temporarily dormant. Even as some analysts suggested that Goldman should consider buying a commercial bank to diversify, executives including Mr. Blankfein remained cool to the notion. Becoming a deposit-taking bank would just invite more regulation and lessen its ability to shift capital quickly in volatile markets, the thinking went. All of that changed two weeks ago when shares of Goldman and its chief rival, Morgan Stanley, went into free fall. A national panic over the mortgage crisis deepened and investors became increasingly convinced that no stand-alone investment bank would survive, even with the government’s plan to buy up toxic assets. Nervous hedge funds, some burned by losing big money when Lehman went bust, began moving some of their balances away from Goldman to bigger banks, like JPMorgan Chase and Deutsche Bank. By the weekend, it was clear that Goldman’s options were to either merge with another company or transform itself into a deposit-taking bank holding company. So Goldman did what it has always done in the face of rapidly changing events: it turned on a dime. “They change to fit their environment. When it was good to go public, they went public,” said Michael Mayo, banking analyst at Deutsche Bank. “When it was good to get big in fixed income, they got big in fixed income. When it was good to get into emerging markets, they got into emerging markets. Now that it’s good to be a bank, they became a bank.” The moment it changed its status, Goldman became the fourth-largest bank holding company in the United States, with $20 billion in customer deposits spread between a bank subsidiary it already owned in Utah and its European bank. Goldman said it would quickly move more assets, including its existing loan business, to give the bank $150 billion in deposits. Even as Goldman was preparing to radically alter its structure, it was also negotiating with Mr. Buffett, a longtime client, on the terms of his $5 billion cash infusion. Mr. Buffett, as he always does, drove a relentless bargain, securing a guaranteed annual dividend of $500 million and the right to buy $5 billion more in Goldman shares at a below-market price. While the price tag for his blessing was steep, the impact was priceless. “Buffett got a very good deal, which means the guy on the other side did not get as good a deal,” said Jonathan Vyorst, a portfolio manager at the Paradigm Value Fund. “But from Goldman’s perspective, it is reputational capital that is unparalleled.” EVEN if the bailout stabilizes the markets, Wall Street won’t go back to its freewheeling, profit-spinning ways of old. After years of lax regulation, Wall Street firms will face much stronger oversight by regulators who are looking to tighten the reins on many practices that allowed the Street to flourish. For Goldman and Morgan Stanley, which are converting themselves into bank holding companies, that means their primary regulators become the Federal Reserve and the Office of the Comptroller of the Currency, which oversee banking institutions. Rather than periodic audits by the Securities and Exchange Commission, Goldman will have regulators on site and looking over their shoulders all the time. The banking giant JPMorgan Chase, for instance, has 70 regulators from the Federal Reserve and the comptroller’s agency in its offices every day. Those regulators have open access to its books, trading floors and back-office operations. (That’s not to say stronger regulators would prevent losses. Citigroup, which on paper is highly regulated, suffered huge write-downs on risky mortgage securities bets.) As a bank, Goldman will also face tougher requirements about the size of the financial cushion it maintains. While Goldman and Morgan Stanley both meet current guidelines, many analysts argue that regulators, as part of the fallout from the credit crisis, may increase the amount of capital banks must have on hand. More important, a stiffer regulatory regime across Wall Street is likely to reduce the use and abuse of its favorite addictive drug: leverage. The low-interest-rate environment of the last decade offered buckets of cheap credit. Just as consumers maxed out their credit cards to live beyond their means, Wall Street firms bolstered their returns by pumping that cheap credit into their own trading operations and lending money to hedge funds and private equity firms so they could do the same. By using leverage, or borrowed funds, firms like Goldman Sachs easily increased the size of the bets they were making in their own trading portfolios. If they were right — and Goldman typically was — the returns were huge. When things went wrong, however, all of that debt turned into a nightmare. When Bear Stearns was on the verge of collapse, it had borrowed $33 for every $1 of equity it held. When trading partners that had lent Bear the money began demanding it back, the firm’s coffers ran dangerously low. Earlier this year, Goldman had borrowed about $28 for every $1 in equity. In the ensuing credit crisis, Wall Street firms have reined in their borrowing significantly and have lent less money to hedge funds and private equity firms. Today, Goldman’s borrowings stand at about $20 to $1, but even that is likely to come down. Banks like JPMorgan and Citigroup typically borrow about $10 to $1, analysts say. As leverage dries up across Wall Street, so will the outsize returns at many private equity firms and hedge funds. Returns at many hedge funds are expected to be awful this year because of a combination of bad bets and an inability to borrow. One result could be a landslide of hedge funds’ closing shop. At Goldman, the reduced use of borrowed money for its own trading operations means that its earnings will also decrease, analysts warn. Brad Hintz, an analyst at Sanford C. Bernstein & Company, predicts that Goldman’s return on equity, a common measure of how efficiently capital is invested, will fall to 13 percent this year, from 33 percent in 2007, and hover around 14 percent or 15 percent for the next few years. Goldman says its returns are primarily driven by economic growth, its market share and pricing power, not by leverage. It adds that it does not expect changes in its business strategies and expects a 20 percent return on equity in the future. IF Mr. Hintz is right, and Goldman’s legendary returns decline, so will its paychecks. Without those multimillion-dollar paydays, those top-notch investment bankers, elite traders and private-equity superstars may well stroll out the door and try their luck at starting small, boutique investment-banking firms or hedge funds — if they can. “Over time, the smart people will migrate out of the firm because commercial banks don’t pay out 50 percent of their revenues as compensation,” said Christopher Whalen, a managing partner at Institutional Risk Analytics. “Banks simply aren’t that profitable.” As the game of musical chairs continues on Wall Street, with banks like JPMorgan scooping up troubled competitors like Washington Mutual, some analysts are wondering what Goldman’s next move will be. Goldman is unlikely to join with a commercial bank with a broad retail network, because a plain-vanilla consumer business is costly to operate and is the polar opposite of Goldman’s rarefied culture. “If they go too far afield or get too large in terms of personnel, then they become Citigroup, with the corporate bureaucracy and slowness and the inability to make consensus-type decisions that come with that,” Mr. Hintz said. A better fit for Goldman would be a bank that caters to corporations and other institutions, like Northern Trust or State Street Bank, he said. “I don’t think they’re going to move too fast, no matter what the environment on Wall Street is,” Mr. Hintz said. “They’re going to take some time and consider what exactly the new Goldman Sachs is going to be.”
  13. Canadian Commercial Paper Plan Likely to Be Approved By Joe Schneider June 3 (Bloomberg) -- A Canadian judge will probably approve a plan to convert C$32 billion ($31.8 billion) of frozen commercial paper to new notes by the end of the week, though court appeals may keep investors waiting months to get their money back. ``I will have a decision with reasons by Friday,'' Ontario Superior Court Judge Colin Campbell said at the end of a hearing in Toronto today. ``I'll approve,'' unless there's something in his notes that convinces him to change his mind, the judge said. Lawyers representing some of the noteholders have already indicated they plan to appeal Campbell's ruling once it comes out. Some investors object to the plan's limitations on lawsuits targeted at the banks and brokers that sold the paper, which hasn't traded since August. James Woods, who represents 18 companies that want to sue including pharmacy chain Jean Coutu Group Inc., said if the judge rules as he indicated, his group will likely file to the Court of Appeal. ``If we find fraud against banks that are not ABCP dealers, there is no recourse,'' Woods said, urging the judge to reject the proposal at today's hearing. ``It's inconceivable.'' New notes may be issued as early as the end of June if there are no appeals, said Purdy Crawford, a lawyer who led a group of foreign and Canadian banks and pension funds that drafted the proposal. All appeals must be exhausted before the notes are issued, he said. Quick Appeal ``We can't close until we get the sanction,'' Crawford told reporters. ``I am assured by our lawyers that the Court of Appeal will agree to an expedited hearing.'' The insolvent asset-backed paper hasn't traded since August, when investors shunned the debt on concerns about links to high-risk mortgage loans in the U.S. A group of foreign banks as well as Canadian lenders and pension funds led by Caisse de Depot et Placement du Quebec negotiated the so-called Montreal Proposal in August. The plan would convert the insolvent 30- to 90-day debt into new notes maturing within nine years. Banks agreed to provide funding to back the new notes on the condition that they be given immunity from any lawsuits stemming from the sale of the notes. Campbell said in a May 16 ruling he wasn't satisfied protection from lawsuits over potentially criminal conduct such as fraud was fair, and he delayed approval. The banks agreed to change the plan to allow limited suits under certain conditions within nine weeks following the plan's approval. Possible Fraud Campbell criticized the lawyers opposing the plan for failing to provide examples of potential outstanding fraud. ``So we defeat the plan on the off chance that there is something out there?'' Campbell asked. Once the new notes are issued, investors can hold them to maturity or try to trade them in the secondary market. Some clients of Canaccord Capital Inc. will be paid in full for their debt, under an agreement announced by the Vancouver-based brokerage in April. The case is Between the Investors Represented on the Pan- Canadian Investors Committee for Third-Party Structured Asset- Backed Commercial Paper and Metcalfe & Mansfield Alternative Investments II Corp., 08-CL-7740, Ontario Superior Court of Justice (Toronto). To contact the reporters on this story: Joe Schneider in Toronto at [email protected] http://www.bloomberg.com/index.html?Intro=intro3
  14. Henry Michaels spent 25 years as an investment banker with New York-based firms such as Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Citigroup Inc. When the financial crisis deepened this year, he abandoned the struggling U.S. companies for a job at Royal Bank of Canada. A cyclist passes the Royal Bank of Canada headquarters in Toronto in this file photo. Photographer: Norm Betts “In this crisis, strength and stability matter,” said Michaels, 48, who resigned as co-head of Citigroup’s banks and diversified financials group in May to join RBC Capital Markets in New York. “RBC is in growth mode, and it’s nice to be playing offense.” Canadian banks, bolstered by their reputation as the world’s soundest, are adding investment bankers even after rivals slashed almost 316,000 jobs worldwide since the collapse of the U.S. subprime market in 2007, according to data compiled by Bloomberg. Lenders including RBC, BMO Capital Markets and CIBC World Markets have hired more than 700 investment bankers, analysts and traders in the U.S. and Canada this year, including from rivals such as Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch and Citigroup. “The profile of the Canadian banks on the global scale has been heightened exponentially over the course of the last year,” said Rose Baker, a managing partner in Toronto with executive recruitment firm Heidrick & Struggles International Inc. “They look more powerful and are able to attract talent that was historically not available to them.” Soundest Banks Canadian lenders, based in Toronto’s financial district known as Bay Street, have remained profitable amid the crisis because of tighter restrictions on lending and higher capital requirements. As a result, Canada’s biggest banks posted about $20.4 billion in writedowns and credit losses since 2007, a fraction of the $1.62 trillion taken by global financial- services firms in the period, according to data compiled by Bloomberg. The World Economic Forum last month named Canada as home to the world’s soundest banks for the second straight year. The resilience allowed the Canadian lenders to climb the ranks of global firms. Three Canadian banks now rank in the top 10 among North American lenders by market value. Three years ago, only Royal Bank made the list. Canadian banks are taking on experienced bankers as larger firms trim ranks. North American banks and brokerages cut 9.9 percent of their workforce in the past two years, according to Bloomberg data. Bank of America Corp. eliminated 46,150 jobs, while Citigroup cut 38,900 positions and Lehman fired 13,390 employees. Job Cuts By comparison, Canada’s five biggest banks pared 3,135 jobs, or about 1.1 percent of their staff, in areas such as consumer banking, according to company filings. RBC Capital Markets hired 325 investment bankers this year, including about 200 in its U.S. offices, said spokeswoman Katherine Gay. The hires included a Citigroup team of Michaels, Jerry Wiant and Sean Burke, who joined in July to expand RBC’s financial institutions group. Resumes are still coming in, said Doug Guzman, RBC’s head of global investment banking. “Five or six years ago we would have had to go hire headhunters for every single spot we wanted to hire because we didn’t have a network, our name wasn’t sufficiently known,” Guzman, 44, said from Toronto. RBC also recruited James Caldwell from Banc of America Securities in July to head up a new aerospace and defense group out of New York. In April, RBC expanded its U.S. real estate banking group by hiring John Case from UBS AG. “Our ability to build the business faster makes us a more attractive place to work,” Guzman said. ‘Different Careers’ Bank of Montreal’s investment bank attracted 30 people from non-Canadian firms this year as directors and managing directors at its U.S. and European offices. “We’ve been able to do an awful lot in a nine-month period because people are entertaining and receptive to considering new and different careers, or careers with different firms,” said Bill Butt, global head of investment and corporate banking at BMO Capital Markets in Toronto. BMO’s recruiting allowed it to expand investment-banking services for industries including health care, food and consumer, and energy. Hires included Peter Boukouzis, 41, who left Rothschild’s New York office after eight years to move to Houston with his wife and three kids in August. “I’ve had a number of folks from other firms ask me if BMO is still hiring in the U.S.,” said Boukouzis, who advises oil and gas companies on takeovers. Canadian firms “have not gone unnoticed, both for the expansion in the U.S. market and the stability.” European Expansion In May, BMO hired Greg Pearlman and two others from Bank of America in Chicago to expand services for food and consumer companies. The firm also added a seven-member equity products sales team from UBS for its London and Paris offices in August. Canadian Imperial Bank of Commerce, which sold its New York-based investment banking business in January 2008, has also recruited from international firms to bolster its ranks, mainly in Toronto. The bank hired 32 senior bankers from foreign firms in the past nine months, including former Merrill Lynch banker Susan Rimmer, who heads up part of CIBC’s debt capital markets business, and former Lehman takeover specialist Geoffrey Belsher. Bank of Nova Scotia’s investment bank hired five Wells Fargo & Co. bankers to expand its stock lending business in the U.S. last month. In March, Scotia Capital bought an energy trading business from UBS, adding about 60 employees in New York. Canadian banks had a “big advantage” in the past six months for attracting skilled bankers, Heidrick & Struggles’ Baker said. The challenge now is to keep them, she added. Retention “As some of the international banks like Bank of America and Citi get their house in order, they may lose some of that advantage,” Baker said. “As the market turns, it’s going to be all about how they retain them.” Bill Vlaad of Vlaad & Co., a Toronto-based recruiter specializing in the financial-services industry, says Canadian banks have “increased their weight class” during the slump, though they shouldn’t count the competition out. “One hundred and fifty years of global dominance in capital markets doesn’t just disappear overnight,” Vlaad said. “Some of these names that we’ve seen in the paper will shine again, and there’s something very rewarding about having those names on your resume.”
  15. Could the Miami skyline one day resemble Manhattan’s? Apr 5th 2014 | MIAMI | From the print edition A mirror of prosperity ICON BRICKELL, a three-tower complex in Miami’s financial district, was supposed to be a flagship project for the Related Group, the city’s top condominium developer. It would boast 1,646 luxury condos, a 91-metre-long pool, and a hundred 22-foot columns in its entryway. By 2010, however, it had become a symbol of the excesses of the city’s building boom, and Related was forced to hand two of the towers to its banks. Miami condo prices plunged to 60% below their peak. The vacancy rate jumped to 60%. Predictions flew that the market, the epicentre of America’s property crash, would take ten years to come back, or even longer. The speed of the recovery has surprised everyone. Condo prices are already back near peak levels in Miami’s most desirable areas, and at 75-80% elsewhere. The available supply of units has fallen back to within the six-to-nine-months-of-sales range considered normal, from a stomach-churning 40 in 2008. Only 3% of condos are unoccupied. Sales of condos and single-family homes are above pre-crisis levels across Miami-Dade County. Commercial property, too, has rebounded, with demand outstripping supply. Developers are once again relaxed enough to crack jokes. “I call the current expansion the Viagra cycle,” jokes Carlos Rosso, Related’s president of condominium development. “We just want it to last a little longer.” The recovery has been partly driven by low interest rates and bottom-fishing by private equity, which helped to clear excess inventory. But the biggest factor is that the city nicknamed the “Capital of Latin America” has attracted a flood of capital from Latin America. Rich people in turbulent spots such as Venezuela and Argentina are seeking a safe haven for their savings. Estate agents are also seeing capital flight from within the United States. Individuals pay no state or city income tax in Miami, unlike, say, New York, whose mayor wants to hike taxes on the rich further. “Somebody said to me, ‘Give me three reasons why this will continue.’ My answer was: Maduro, Kirchner and De Blasio,” chuckles Marc Sarnoff, a Miami city commissioner, referring to the leaders of the capitalist-bashing regimes in Venezuela, Argentina and New York. Another attraction is the 40% rise in Miami condo rents since 2009, buoying the income of owners who choose not to live in the tropical hurly-burly that Dave Barry, a local author, calls “Insane City”. Brokers report increased business from Eastern Europe and the Middle East (Qatar Airways will fly direct to Miami from June), and an uptick in inquiries from Chinese buyers. Is another bubble forming already? Developers say this time is different, and in some ways it is. In a few years Miami has gone from the most- to the least-leveraged property market in America. Buyers of new condos typically have to put 50% down, half of that before building starts. Banks are loth to extend construction loans unless 60-75% of the units are already sold. In both residential and commercial projects, they require developers to put in much more equity than before. Mr Rosso says Related now puts in three times as much, which limits its ambition. The firm now has 2,000 condos in the works, a tenth of what it was building in 2007. Still, a supply glut is possible. With developers gung-ho again, around 50 towers are under construction or planned in downtown Miami (including the Porsche Design Tower, whose well-heeled inhabitants will be able to take their cars up to the level on which they live in a special lift—this is useful if you really love your car). More were added last month when Oleg Baybakov, a Russian mining-to-property oligarch, bought a trio of condo-development sites for $30m, more than triple their assessed market value in 2013. Miami’s developers are adept at using “smoke and mirrors” to hide the true number of pre-sold units, says Peter Zalewski of Condo Vultures, a property-intelligence firm. Some see the first signs of trouble. The stock of unsold condos and houses has crept up slightly since last summer. A local broker says that Blackstone, a private-equity firm with a taste for bricks and mortar, bought $120m of properties with his firm’s help in 2013 but “won’t do anything like that this year”. Mr Zalewski says banks are competing harder to finance certain projects, but this may not be a sign of unadulterated bullishness. They may simply be betting that many of the 134 towers proposed but not yet under construction in South Florida won’t get built—meaning the 57 that have already broken ground will do better than forecast. Much will depend on whether Latin Americans remain addicted to Miami property and, should their ardour cool, whether Americans and others would take up the slack. Few domestic buyers are comfortable putting 50% down, especially when most of it is at risk if the project fails. One or two developers have begun to accept 30% down, a possible sign of increased reliance on home-grown buyers. The market should get a fillip from the current and planned redevelopment of several chunks of downtown Miami. One of the most ambitious projects is Miami Worldcenter, a 30-acre retail, hotel and convention-centre complex that will feature Bloomingdale’s, Macy’s and a giant Marriott hotel. A science museum will soon join the art museum . These projects build on progress made over the past decade towards becoming a world-class city, from the opening of dozens of top-notch restaurants to Art Basel picking Miami as one of the three venues for its shows (“the Super Bowl of the Art World”, as Tom Wolfe called it in his Miami novel, “Back to Blood”). Tourism is at record levels. Miami is the only American city besides New York in the top ten of Knight Frank’s 2014 global-cities index, which ranks cities by their attractiveness to the ultra-wealthy. (It comes seventh, ahead of Paris.) Property is still far cheaper than in most other cities on the list (see chart). Miami’s Downtown Development Authority (DDA) is dangling the city’s low taxes and lovely weather in front of companies to persuade them to move there. This is starting to bear fruit, especially in finance: Universa, a $6 billion hedge fund in California, recently agreed to relocate, following part of Eddie Lampert’s ESL. SABMiller, a giant brewer, has moved its Latin American head office from Colombia. . “I lived a long time in New York, but here [in Miami] it’s easier to make something from nothing,” enthuses Nitin Motwani, a DDA board member, who talks of the city’s skyline one day resembling Manhattan’s. Mr Zalewski is more cautious. Miami’s property market is “a great game”, he says, but “all it would take to send a chill through the entire market is one big project to go sideways.” Developers who joke about Viagra should keep some aspirin within reach, just in case.
  16. http://www.economist.com/world/americas/displaystory.cfm?story_id=15726687&source=hptextfeatureCanadian cities Mar 18th 2010 | CALGARY AND TORONTO From The Economist print edition And the gloom in Toronto TIME was when the decision over where to put a new Canadian capital-markets regulator would have been automatic. Toronto, Canada’s most populous city and the capital of Ontario, the most populous province, has long been the country’s business and financial centre. The biggest banks are there, as is the stock exchange. Legions of lawyers, accountants and bankers flock daily to the towers surrounding King and Bay streets. And yet the Canadian government is in two minds over the home for the new authority, and may end up splitting it between several cities—partly to placate provincial regulators jealous of their purviews. This hesitation has brought grumbles from politicians in Ontario. But it is tacit recognition that economic and political power in Canada are slowly shifting westward, and in particular to Calgary, the main business centre in Alberta, a province with a large oil and gas industry. Toronto still has the top spot. Greater Toronto has 5.6m people, or almost five times as many as Calgary. It is home to more corporate headquarters than any other Canadian city. Of the 20 biggest companies in Canada, ten are based in the Toronto area. But six are now in Calgary. All are oil and gas firms, whose towers form the city’s dramatic skyline, set against the backdrop of the Rocky mountains. And Calgary has the momentum. The new housing developments that surround the city and stretch to the foothills are evidence that Alberta is sucking in people and investment from the rest of Canada. Between 1999 and 2007, while head-office employment grew by 14.1% in Toronto, it soared by 64.6% in Calgary, according to a report by the OECD, a research body. Alberta’s economy swiftly brushed off the recession. Its leaders dismiss hostility from greens to the tar sands that are the source of much of its hydrocarbons. If Americans do not want their oil, then Alberta will build a pipeline to the west coast and sell it to China, they say. Dave Bronconnier, Calgary’s mayor, laughs off the idea that his city might soon supplant Toronto. But he admits that he has tried to woo one of Canada’s big five banks to come and set up its headquarters. He is also courting branch offices of banks from China, the Middle East and South Korea. Office rents are higher in Calgary than in many other cities, though they have fallen sharply since 2008. But low business taxes and the lack of a provincial sales tax make overall operating costs lower than in Ontario. The city wants to become a global centre for energy companies. Its rivals are Houston, Dallas and Dubai, rather than Toronto, says Mr Bronconnier. This boosterism is in sharp contrast to the downbeat mood back east. Despite the strength of the banks, Toronto and Ontario—the home of Canadian carmaking—have fared badly in the recession. In an editorial earlier this month the Toronto Star, the city’s biggest newspaper, bemoaned growing social inequality, worsening gridlock, a deteriorating transport system and rising taxes. “There’s a nagging but entirely justified sense that Toronto has lost its way,” the paper concluded. Ontarians as a whole are feeling uneasy. In a recent poll taken in the province for the Mowat Centre, a think-tank, half of respondents felt that Ontario’s influence in national affairs is waning and about the same number thought the province is not treated with the respect it deserves. A generation ago Toronto benefited from an influx of businesses from Montreal fleeing the threat of Quebec separatism. That threat has receded, but federal politicians are ever-sensitive to the French-speaking province’s demands. Alberta’s politicians are becoming increasingly bolshy as their economic muscle grows. And Ontario? Torontonians were long used “to assuming that they are the centre of the universe,” as Joe Martin, a business historian at the University of Toronto, puts it. They are awakening to a world in which their planet, though still the biggest in the Canadian firmament, is being eclipsed. Copyright © 2010 The Economist Newspaper and The Economist Group. All rights reserved.
  17. jesseps

    VISA Codesure

    <object width="640" height="385"><param name="movie" value="http://www.youtube.com/watch?v=YX08fdvFwaM&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/watch?v=YX08fdvFwaM&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="640" height="385"></embed></object> Pretty cool. I wonder if we will see this in the near future. RBC are releasing some or all of their new credit cards with to be used by PayWave systems, which is convenient, but does not make sense when you have chip&pin on the card to stop people from using it. Even with the chip&pin security, the card can still be entered manually and be used. One thing I would like for Canadian banks to start handing out security keys for bank accounts. Instead of having to update your password or remembering it when you go online. The key has a randomly generated password you need to use to access your account online. Only person I have seen something like that was my ex. http://en.wikipedia.org/wiki/Security_token
  18. Are Bay Street's golden days coming to an end? Eoin Callan, Financial Post Published: Wednesday, February 11, 2009 Some of Canada’s banks are already exploring ways to change their reward structure for investment bankers to avoid creating incentives for dealmakers to hastily arrange risky deals and walk away after collecting their bonuses.ReutersSome of Canada’s banks are already exploring ways to change their reward structure for investment bankers to avoid creating incentives for dealmakers to hastily arrange risky deals and walk away after ... When Ed Clark receives his multi-million-dollar bonus next week, the chief executive of TD Bank will face immediate pressure to return the money. Bay Street's best-paid chieftain is being singled out by shareholders after three of his peers handed back their bonuses at a time when bank bosses around the world are being publicly shamed for dragging the globe into the worst recession in decades. The pressure from investors comes amid growing signs that a deep shift is afoot in the way executives and investment bankers on Bay Street are paid that could have a lasting impact on the industry. Shareholders, regulators and politicians are beginning to push for far-reaching changes in incentives in a bid to mitigate risk and help avoid the catastrophic failures that have plunged the global banking industry into crisis. Some of Canada's banks are already exploring ways to change their reward structure for investment bankers to avoid creating incentives for dealmakers to hastily arrange risky deals and walk away after collecting their bonuses. BMO Financial is in the midst of a thorough overhaul of the way it compensates bankers. The review has not been publicly disclosed, but bankers have been told to expect significant changes after similar moves at international banks such as UBS, which has introduced delays and clawback provisions for bonuses. But other banks are likely to be caught flatfooted as Ottawa prepares to sign up to a set of international guidelines on pay for bankers that are being drawn up in advance of an upcoming summit of the Group of 20 nations in London. Canada's top banking regulator said Wednesday that a consensus was emerging at a special three-day meeting in Paris "to set out sound practice guidelines on compensation for the consideration of both the [Financial Stability Forum] and the G20." "There is [a] general agreement that supervisors have a role to play in assessing whether institutions meet and implement sound practices for compensation," Ms. Dickson added by e-mail from Paris. Reform of compensation practices at banks to mitigate risk is likely to be one of the handful of tangible reforms to emerge from the summit of world leaders, said John Kirton, director of the G20 Research Group at the University of Toronto "There are not many areas of consensus ... compensation is an easy one," said the professor. But policymakers stress that Canada is likely to stop well short of moves by Washington to cap pay or other more interventionist approaches that have accompanied part nationalizations in the U.K. Instead, the approach in this country is likely to involve the supervisor taking into account of compensation schemes when evaluating the level of risk at Bay Street banks and determining the amount of capital they must hold in reserve. This is seen as a more subtle way of pressuring banks to reform their compensation schemes. While a link between compensation and capital requirements would be unwelcome on Bay Street, several bank compensation experts said Wednesday it could create an opening for them to tackle huge wage bills, which are a major cost for financial institutions. But the awarding of hefty bonuses amid a recession induced by the financial system has also triggered a wider social debate about executive compensation, as oft-repeated arguments about retaining "talent" wear thin. While these "moral and ethical" views are not shared by many investors who are critical of executive compensation, they see an opportunity to make common cause. Michel Nadeau, director of the Institute of Governance of Private and Public Organizations, said he was shocked by the level of compensation Canadian bank boards had awarded to executives amid a bruising year for investors. "There is something wrong in that world," said the former executive at Caisse de dépôt et placement du Québec, the Quebec pension fund. Shareholders are also not shy about enlisting the muscle of securities regulators in pushing pay up the agenda. A shareholder group representing many of the country's largest investors cited executive compensation as its "number one" priority for 2009 during a private meeting this week with Ontario Securities Commission, according to documents obtained by the Financial Post. The group also drew the attention of enforcement officials to a probe launched by New York Attorney General Andrew Cuomo, who said Wednesday he was investigating "secret" moves to pay bonuses early at Merrill Lynch. While the investors group did not make allegations of wrongdoing, a person familiar with the discussions said there were precedents for securities regulators investigating compensation matters. The Canadian Coalition for Good Governance, which represents investors with $1.4-trillion of assets under management, has also met with the chairmen of each of Canada's top banks. "Compensation is the big issue right now," said Stephen Jarislowsky, a major shareholder in Canadian banks who manages $52-billion. But his immediate focus is next week's bonus award to Mr. Clark, who was paid a $12.7-million bonus by TD last year, making him Bay Street's highest paid executive. "Ed is the worst offender," said Mr. Jarislowsky.
  19. Laurentian thrives in trying times PETER HADEKEL, Freelance Published: 7 hours ago In the midst of the worst banking crisis in decades, small, regional-based Laurentian Bank is beating the pants off its much larger rivals. Earnings are up more than 30 per cent so far this year, and Laurentian stock has risen 37 per cent since January. That compares with a 14-per- cent decline for Bank of Montreal shares, a one-per-cent drop at Royal Bank and a 21-per-cent fall at CIBC. The TMX financials index is down nine per cent over the same period. Laurentian has plenty of cash and its capital ratio is among the best in the industry, Réjean Robitaille says. So much for the talk that a small financial institution could not survive in an age of behemoths. Laurentian, the country's seventh-largest bank, had only a tiny exposure to the asset-backed commercial paper market that collapsed in Canada and no exposure to the U.S. mortgage market. It's one of the few feel-good stories in the current financial mayhem. In contrast, big mortgage lenders and an investment bank in the U.S. have gone down, and huge writeoffs have been taken at most of the big banks in Canada. "It's bad," Laurentian CEO Réjean Robitaille said yesterday when I asked him about the troubles hitting the financial system. This week, the U.S. nationalized mortgage lenders Fannie Mae and Freddie Mac, while investment bank Lehman Brothers teetered on the brink. But investors shouldn't lump all financial institutions together, he says. In this case, small really is beautiful. "Look around the world, there's a lot of institutions that may not have the same size as others but that are doing quite well. Why is that? Because they have a good focus, and strong execution. "Look at what happened in the United States to the big players. ''Nobody four or five years ago would have said that Bear Stearns or Lehman Brothers" would get into trouble, Robitaille said. Clearly, being a giant is no advantage right now. Laurentian may not have the same scale as some of its rivals, but it can react more quickly. Give it credit for making some smart moves. Its total exposure to the troubled non-bank, asset-backed commercial paper market, frozen last year under the so-called Montreal Accord, is just $20 million. Of that amount, about $4.3 million has been written off. It wasn't dumb luck. The Laurentian credit committee wasn't comfortable with the ABCP market or with other exotic securities that other banks piled into, Robitaille said. "We've got a lower risk profile. ... We weren't in subprime lending or structured investment vehicles or derivatives," he said, rhyming off some of the complex products that have backfired on bigger banks. As a result, the balance sheet is strong and conservatively funded to a large extent by personal deposits. Laurentian has plenty of cash - about $4.5 billion - and its capital ratio is among the best in the industry, Robitaille says. In this case, lack of ambition has served it well. Five years ago, it sold 57 branches in Ontario to TD Bank, deciding that it couldn't afford to spread itself too thin. "We can't be everything to everyone," Robitaille says. The bank has identified three areas where it's focusing its energy and investment. These include the retail and small business market in Quebec, commercial real estate lending across Canada and financial products marketed to independent financial advisers. The bank also maintains a foothold in the investment business through Laurentian Bank Securities. Ironically, given the troubles banks have had in housing in the U.S., Laurentian is doing well by securitizing mortgages in Canada. It packages federally insured Canada Mortgage and Housing Corp. home loans for resale to investors, earning a profitable spread when it does so. "It's a very good product," Robitaille says, and this has turned out to be "the cheapest way to fund the bank." Third-quarter earnings per share were a record for Laurentian. "In a challenging year for banks, this is exceptional," said Desjardins Securities analyst Michael Goldberg in a research note. [email protected]
  20. Europe Works to Contain Crisis Article Tools Sponsored By NYC Times By CARTER DOUGHERTY, NELSON SCHWARTZ and FLOYD NORRIS Published: October 6, 2008 European nations scrambled further Monday to prevent a growing credit crisis from bringing down major banks and alarming savers as Sweden followed Germany, Austria and Denmark in offering new protections for bank deposits. As troubles in financial markets spread around the world, some governments are eager to act to avoid the mistakes of the 1930s when authorities sat on their hands during the Wall Street crash and its aftermath, Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management in London, said. Sweden became the latest European country to offer protection for bank deposits, after the German government offered blanket guarantees Sunday to all private savings accounts. Austria and Denmark also did the same. Britain’s government on Monday scrambled to find ways to help the country’s ailing banking sector and even considered a partial nationalization of the industry. The chancellor of the Exchequer, Alistair Darling, continued to consult with advisers on Monday on ways to stabilize the banking sector, which may include a recapitalization financed by taxpayers, said a person at the Treasury who declined to be identified because the discussions were private. Stocks fell sharply on Monday in London, Paris and Frankfurt. New bailouts were arranged late Sunday for two European companies, Hypo Real Estate, a large German mortgage lender, and Fortis, a large banking and insurance company based in Belgium but active across much of the Continent. Under the agreement, BNP Paribas will acquire the Belgium and Luxembourg banking operations of Fortis for about $20 billion. The spreading worries came days after the United States Congress approved a $700 billion bailout package that officials had hoped would calm financial markets globally. The crisis in Europe appears to be the most serious one to face the Continent since a common currency, the euro, was created in 1999. Jean Pisani-Ferry, director of the Bruegel research group in Brussels, said Europe confronted “our first real financial crisis, and it’s not just any crisis. It’s a big one.” Britain is coming under increasing pressure to act. Some investors criticized the government for failing to set up an American-style rescue fund and for its piecemeal approach to deal with each problem. “The government needs to get on their front foot and get control of their own destiny,” Mr. Chillingworth said. “We could well be in a period where we see a quasi-nationalization in the banking sector, where taxpayers are taking equity stakes.” Britain partly nationalized Bradford & Bingley last week after the mortgage lender struggled to get financing and brokered a takeover of HBOS by Lloyds TSB after its shares lost most of its value. From Tuesday, the government will also increase the amount of retail deposits it guarantees to £50,000, or $88,600, from £35,000. Some analysts said guaranteeing deposits might reinstate client confidence but would fall short of bringing back the trust among banks that is desperately needed to encourage them to lend to each other. British banks remain burdened by their exposure to worthless mortgage assets, but the larger problem remains their unwillingness to lend to one another — even after an injection of £40 billion by the Bank of England. “Liquidity is drying up,” said Richard Portes, a professor of economics at the London Business School. “The authorities have to deal with this paralysis in the money markets.” The European Central Bank has aggressively lent money to banks as the crisis has grown. It had resisted lowering interest rates, but signaled on Thursday that it might cut rates soon. The extra money, aimed at ensuring that banks have adequate access to cash, has not reassured savers or investors, and European stock markets have performed even worse than the American markets. In Iceland, government officials and banking chiefs were discussing a possible rescue plan for the country’s commercial banks. In Berlin, Chancellor Angela Merkel and her finance minister, Peer Steinbrück, appeared on television Sunday to promise that all bank deposits would be protected, although it was not clear whether legislation would be needed to make that promise good. Mindful of the rising public anger at the use of public money to buttress the business of high-earning bankers, Ms. Merkel promised a day of reckoning for them as well. “We are also saying that those who engaged in irresponsible behavior will be held responsible,” she said. The events in Berlin and Brussels underscored the failure of Europe’s case-by-case approach to restoring confidence in the Continent’s increasingly jittery banking sector. A meeting of European heads of state in Paris on Saturday did little to calm worries, though officials there pledged to work together to ensure market stability. President Nicolas Sarkozy of France and his counterparts from Germany, Britain and Italy vowed to prevent a Lehman Brothers-like bankruptcy in Europe but they did not offer a sweeping American-style bailout package. The growing crisis has underlined the difficulty of taking concerted action in Europe because its economies are far more integrated than its governing structures. “We are not a political federation,” Jean-Claude Trichet, the president of the European Central Bank, said after the meeting. “We do not have a federal budget.” Last week, Ireland moved to guarantee both deposits and other liabilities at six major banks. There was grumbling in London and Berlin about the move giving those banks an unfair advantage. But Germany proposed its deposit guarantee Sunday after Britain raised its guarantee. The German officials emphasized that the guarantee applied only to private depositors, not to the banks themselves. But on Monday, Mr. Steinbrück said the government was considering an “umbrella” to protect the banking sector. Unlike in the United States, where deposits are now fully guaranteed up to a limit of $250,000 — a figure that was raised from $100,000 last week — deposits in most European countries have been only partly guaranteed, sometimes by groups of banks rather than governments. In Germany, the first 90 percent of deposits up to 20,000 euros, or about $27,000, was guaranteed. Even before the Paris meeting began it was becoming clear that two bailouts announced the week before had not succeeded and that UniCredit, a major Italian bank, might be in trouble. UniCredit announced plans on Sunday to raise as much as 6.6 billion euros. Fortis, which only a week ago received 11.2 billion euros from the governments of the Netherlands, Belgium and Luxembourg, was unable to continue its operations. On Friday, the Dutch government seized its operations in that country, and late Sunday night the Belgian government helped to arrange for BNP Paribas, the French bank, to take control of the company for 14.5 billion euros, or about $20 billion. In Berlin, the government arranged a week ago for major banks to lend 35 billion euros to Hypo Real Estate, but that fell apart when the banks concluded that far more money would be needed. Late Sunday night the government said a package of 50 billion euros had been arranged, with both the government and other banks taking part. The credit crisis began in the United States, a fact that has led European politicians to assert superiority for their countries’ financial systems, in contrast to what Silvio Berlusconi, the prime minister of Italy, called the “speculative capitalism” of the United States. On Saturday, Gordon Brown, the British prime minister, said the crisis “has come from America,” and Mr. Berlusconi bemoaned the lack of business ethics that had been exposed by the crisis. Many of the European banks’ problems have stemmed from bad loans in Europe, and Fortis got into trouble in part by borrowing money to make a major acquisition. But activities in the United States have played a role. Bankers said Sunday that the need for additional money at Hypo came from newly discovered guarantees it had issued to back American municipal bonds that it had sold to investors. The credit market worries came on top of heightening concerns about economic growth in Europe and the United States. “Unless there is a material easing of credit conditions,” said Bob Elliott of Bridgewater Associates, an American money management firm, after retail sales figures were announced, “it is unlikely that demand will turn around soon.” Henry M. Paulson Jr., the United States Treasury secretary, hoped that approval of the American bailout, which involved buying securities from banks at more than their current market value, would free up credit by making cash available for banks to lend and by reassuring participants in the credit markets. But that did not happen last week. Instead, credit grew more expensive and harder to get as investors became more skittish about buying commercial paper, essentially short-term loans to companies. Rates on such loans rose so fast that some feared the market could essentially close, leaving it to already-stressed banks to provide short-term corporate loans. Europe’s need to scramble is in part the legacy of a decision to establish the euro, which 15 countries now use, but not follow up with a parallel system of cross-border regulation and oversight of private banks. “First we had economic integration, then we had monetary integration,” said Sylvester Eijffinger, a member of the monetary expert panel advising the European Parliament. “But we never developed the parallel political and regulatory integration that would allow us to face a crisis like the one we are facing today.” In Brussels, Daniel Gros, director of the Center for European Policy Studies, agreed. “Maybe they will be shocked into thinking more strategically instead of running behind events,” he said. “The later you come, the higher the bill.” While the European Central Bank has power over interest rates and broader monetary policy, it was never granted parallel oversight of private banks, leaving that task to dozens of regulators across the Continent. This patchwork system includes national central banks in each of the euro zone’s 15 members and they still retain broad powers within their own borders, further complicating any regional approach to problem-solving. “The European banking landscape was transformed fairly recently,” Mr. Pisani-Ferry said. “When the euro was first introduced, the question of cross-border regulation didn’t really arise.” Optimists say one potential long-term benefit from the current turmoil is that it often takes a crisis to propel European integration forward. “Progress in Europe is usually the result of a crisis,” Mr. Eijffinger said. “This could be one of those rare moments in E.U. history.”