The only way democratic control can be restored is by nationalising the banks to stiop these rootless capitalists playing with our lives.
rh
Telegraph
Bankers regain power as Davos summit ends with a big fudge
Back in 2009, the Western world's top bankers were so reviled in the aftermath of the sub-prime crisis that they didn't dare attend the annual Davos summit.
Davos, home of the annual World Economic Forum meeting
The only way democratic control can be restored is by nationalising the banks to stiop these rootless capitalists playing with our lives.
rh
Telegraph
Bankers regain power as Davos summit ends with a big fudge
Back in 2009, the Western world's top bankers were so reviled in the aftermath of the sub-prime crisis that they didn't dare attend the annual Davos summit.
Davos, home of the annual World Economic Forum meeting
By 2010, the bank boss-class did join the Swiss mountain-top gab-fest, but were still the whipping boys – with politicians berating them for "indecent behaviour" and "morally indefensible" pay packages.
This year, the bankers not only turned up and largely avoided political opprobrium, but they even succeeded in setting the Davos agenda. While some financially-literate people may view this as progress, it is actually a disaster.
The Western world's macroeconomic response to "sub-prime" – the virtual "money-printing" and massive fiscal boosts – has been a mistake of historic proportions. By borrowing even more, and debasing our currencies, our "leaders" have merely dodged – that is, delayed – the need for really tough actions. In doing so, they accelerated and accentuated the end of the West's economic hegemony. Future historians will deride them.
Yet just as feeble and counter-productive as our macroeconomic reaction to the biggest financial meltdown in almost a century has been our regulatory response. Over the last 18 months, some 500 representatives from 30 nations, including regulators and central bankers, have met dozens of times to "hammer out" 440 pages of new rules to govern the world's banks, the Basel III accord.
Yet the actual document is so full of fudges and escape hatches that it amounts to very little. The only concrete policy – requiring banks to hold more capital against potential losses – doesn't kick-in until 2018. Other measures designed to prevent future crises – such as liquidity standards and a global resolution mechanism for failing firms – have been postponed, allowing banks to carry on pretty much as before.
In truth, the Basel accord, amid dire warnings of lower lending and job losses, has been eviscerated by the all-powerful banking lobby. The banks' attritional lobbying treatment is also being applied to the "landmark" Dodd-Frank legislation – recently enacted in the US.
For the past few months, American officials have been turning the act into detailed rules that will govern how the US banking sector operates. Needless to say, Wall Street has had the upper hand in this process. This has been particularly noticeable ever since President Obama's approval ratings plunged, focusing his party machine on the need for campaign donations given next year's Presidential election.
Sheila Bair chairs America's Federal Deposit Insurance Corporation and also sits on the Basel committee's top decision-making body. As such, she has fought an often lonely campaign to impose meaningful bank reforms. "There will be changes to the banking model, but not fundamental changes," Bair recently conceded. "Hopefully there'll be some pressure for banks to get smaller and simpler," she added. But with the bankers back in the ascendancy, and politicians having played all their bail-out cards and still desperate for the banks finally to re-boot lending, the chance of such pressure materialising is very low.
Yesterday, as the Davos summit closed, executives from JP Morgan, Barclays and Credit Suisse among others summoned a meeting of Western finance ministers and other officials. Their message: the "banker bashing" must stop. Numerous ministers – including UK Chancellor George Osborne – helpfully chimed in, insisting it's "time to move on".
I agree that watching politicians hurl abuse at bankers for the sake of it is unedifying. It is also true that "bonus-caps" being imposed in the UK and some other European countries, while politically popular, are tokenistic and will anyway be largely circumvented.
Yet while the grand-standing and finger-pointing should stop, it is absolutely not time to "move on". The structural banking reforms we so desperately require are still a very long way from being agreed. The chances now are, given the Davos mood music, that they never will be.
One of the new Basel rules requires regulators to impose higher capital requirements on "systemically important" financial institutions. In back-room meetings at last week's summit, that provision was heavily diluted. At the same time, US regulators quietly dropped new accounting rules requiring loans and other financial assets to be carried on bank books at "fair value", based on market prices. This single reversal of a seemingly arcane rule, barely-reported, will have massive implications. Big American banks will, once again, be able to "mark to model", restoring their official licence to cook their books. Even the relatively minor regulatory changes that have been put in place since sub-prime are being gradually stripped away.
Elite bankers used Davos to try shifting the blame for the mess the world is in – stressing that the "over-indebtedness of countries, as well as the over-indebtedness of banks" is the reason behind this crisis. That's deeply disingenuous. Yes, certain Western governments – not least the UK – spent far too much during the decade before sub-prime. I don't remember too many bankers joining those of us who issued repeated warnings at the time.
Moreover, Western government indebtedness, while high before sub-prime, only became endemic and the source of broader financial instability because of the hundreds of billions of dollars spent on bank bail-outs, and the deeply destabilising spillover effects on global markets of the unprecedented degrees of leverage taken on by said banks.
The question of "too-big-to-fail" remains entirely unresolved. And it looks as if we've now passed the high watermark in terms of Western leaders' appetite for genuine banking reform. The country that should worry most about this grim reality, it pains me to write, is Great Britain.
The UK' banking sector is enormous, with the top 10 banks' balance sheets totalling a colossal 460 per cent of national income and the entire sector accounting for five times' GDP. America's banking sector is far less top-heavy and the total industry represents just one times GDP. So the US – with its relatively more manageable banks, and reserve currency status – can perhaps afford another systemic meltdown, followed by yet more bank bail-outs. The UK simply cannot.
The Davos consensus is that the UK is at the "cutting edge" of radical banking reform. After all, our government-appointed Independent Banking Commission, chaired by Sir John Vickers, last week said that Britain's big banks were mistaken to assume that the IBC will necessarily leave them intact.
Yet even Vickers' "radical outburst" – as it was described to me by one top banker – falls far short of what is required, and that's assuming the policies he is floating are actually implemented (a heroic assumption).
The IBC is considering ways of forcing "universal banks" – which combine high-street banking and riskier investment banking under one roof – to "ring-fence", or "subsidiarise", their component parts. This will no doubt spark yet more fevered lobbying by the banks, to fend off such "draconian" reforms.
Yet far from ring-fencing these activities, we need them to be carried out in completely separate institutions – as was the case in the UK before the City's 1986 "Big Bang" and in the US before the depression-era Glass-Steagall legislation was repealed in 1999. Otherwise, the investment bankers will inevitably continue to lever-up retail deposits, while enjoying the security of a taxpayer-backed guarantee – precisely the phenomenon which got us into this ghastly situation.
Nothing less than total retail-wholesale separation will do.
Telegraph
The world’s economic cycle is no longer moving in the West's favour, argues Jeremy Warner.
Since last week’s shock announcement of a fall in fourth-quarter GDP, the Government has found itself unexpectedly on the back foot in the debate over austerity. The news yesterday that service industries rebounded strongly last month, as the snows melted away, will go some way towards evening things out. But it will be at least a year before we can say for sure whether the Coalition’s bold experiment in fiscal consolidation is undermining or supporting the process of economic renewal.
Would that this faintly tired debate was all we had to worry about. Behind the all-consuming focus on the ups and downs of the monthly growth surveys, there are much more momentous developments afoot, and they don’t bode well. After the credit-fuelled excesses of the past decade, a daunting process of transition awaits the British economy, of which the fiscal consolidation is only a part. If, by the end of it, we’ve managed to limit the decline in relative living standards to 10 per cent, we’ll have done well. It’s much more likely to be closer to 20 per cent. And while the amount that the economy grows in the meantime will obviously affect the size of this squeeze, it can’t eradicate it.
Let’s start with prices. According to yesterday’s UN figures, world food prices rose to another record high in January, up 3.4 per cent on December’s. Fed by explosive growth in demand in the developing world, the costs of fuel, metal and other commodities are following a similar trajectory.
The effect is to create what, for the West, is a quite unfamiliar phenomenon. Inflation is rising, even though the “rich” economies remain profoundly weakened, with abundant spare capacity and surplus labour. For the first time in living memory, America no longer determines the nature of the commodities cycle. The West is out of kilter with the rest of the world, and with little ability to force through wage claims that match inflation, many of its citizens are finding that their living standards are deflating accordingly.
Theoretically, we should be able to catch up quite quickly, once growth and past rates of productivity gain have been properly restored. But in practice, the pressure on real wages and disposable incomes is likely to persist for some years. That’s because the productive potential of the UK and many other advanced economies has been badly damaged by the recession.
Much of the rest of the squeeze will come from the Government’s fiscal consolidation. As things stand, public spending is at close to 50 per cent of GDP. To be sustainable, that has to shrink to a little under 40 per cent. Even that might be thought of as too much by some free-market purists – but as long as healthcare funding comes overwhelmingly from the public purse, it will be unrealistic to attempt to trim further.
Some of this adjustment will take place of its own accord, as the economy returns to normal. But the impact of the recession means that quite a bit will have to be surgically removed: we can no longer afford the size of public sector we once had.
The Government’s hope is that private enterprise will fill the gap in employment and demand left by a retreating state. How realistic is this ambition?
Well, we are already seeing a few reasonably encouraging signs. Business investment is growing strongly again, and thanks in part to the weakened pound, manufacturing is experiencing something of a boom. In a potent example of this renaissance, McLaren Automotive is building a £40 million facility in Woking to produce its new high-performance sports car. The project will create 300 jobs, and hundreds more in the supply chain.
Unfortunately, this is but one small success story in a sector tragically shrunken by 30 years of neglect. Nor is Woking the sort of place that is crying out for investment: it’s the North East, and other areas that have become highly dependent on public sector employment, that need the help.
Today, manufacturing accounts for no more than 8 per cent of employment in the UK. Even if its present rate of growth is sustained, it can’t realistically be expected to compensate for the 600,000 jobs slated to be lost in the public sector. Modern high-value-added manufacturers are a far cry from the mass employers of yesteryear: they tend to be quite small-scale, high-capital, low-labour operations. Again, the UK is going to take years of painful adjustment to achieve the desired switch to an economy that balances vibrant services with a thriving manufacturing sector.
Can public policy assist? A little, perhaps, by providing the right tax incentives for regional investment and the requisite degree of supply-side reform. Achieving the hoped-for levels of private investment in the renewal of the country’s infrastructure will also require government policy to be conducive. But in the end, whatever George Osborne comes up with in next month’s Budget by way of a growth strategy can only help oil the cogs. Come what may, the change is being forced upon us. It may be worth the journey, but it’s not going to be a comfortable one.
6:00AM GMT 08 Feb 2011
Note: I really don't like the look of these bond/shares. I can envisage a situation where a bank could fall into hostile hands simply because a single buyer holds massive ammounts of cocos in the bank and the bank defaults. It is also not clear what happens if the bank is rescued by a takeover by another bank. Therev is also the fact that in the end the government will have to bail out a bank if its fall will undermine the banking system. Then the holders of cocos would benefit from that aid. RH
Telegraph
Bank CoCo bond market could be worth £590bnThe nascent market in bonds that convert into the shares of banks when they get into trouble could be worth as much as €700bn (£590bn) within seven years.
Lloyds Banking Group and Royal Bank of Scotland have already issued CoCo bonds Photo: Getty Images
So-called contingent convertible bonds, or CoCos, have been heralded as a way to prevent banks having to rely on taxpayer support when they get into trouble. According to analysts at Barclays Capital, European banks could sell at least €500bn of them by 2018.
Lloyds Banking Group and Royal Bank of Scotland have already issued CoCo bonds, but Barcap estimates they must together sell nearly €50bn of these bonds by 2013 to meet new capital requirements for banks.
Taken together, the UK banks in Barcap's report need to sell about €86bn of CoCos within the next three years and including Barclays itself it is likely the figure would exceed €100bn.
The largest individual seller of CoCos could be Spanish bank Santander, according to Barcap.
"Our bottom-up analysis suggests that the CoCo market could be huge," said the Barcap analysts.
One of the biggest initial problems for CoCos has been finding people willing to buy them as they do not naturally fit in the portfolios of either equity or fixed income investors.
Barcap expects hedge funds to be large buyers and several large funds have already indicated their interest in buying CoCos, including Algebris and Odey Asset Management.
The banks' own staff could also be handed billions of pounds worth of CoCos as part of the deferred component of their bonuses.
Most important will be convincing fixed income funds that CoCos are a good investment, according to Barcap, in particular large pension funds and insurance companies that are the mainstay of the debt markets.
It will be important to get any CoCos issued included in a bond index and Barcap reckons that inclusion in a major indices could increase the amount of bonds a bank could sell by a factor of six.
Neil Clark: These revolts aren't peculiar to Muslims - they're about young
people having no hope
By Neil Clark
LAST UPDATED 7:33 AM, FEBRUARY 8, 2011
ShareTens of thousands of people, fed up with economic hardship, unemployment, and the corruption of their country's ruling elite, gather in their capital city's main square and call for the resignation of their pro-western government and for new elections to be held.
No, I'm not referring to events this week in Cairo, but Belgrade. While Egypt's disturbances have made front page news the world over, Serbia's huge anti-government protests have gained far less media attention. And the Serbs aren't the only Europeans who are taking to the streets to express their disapproval of their leaders.
In neighbouring Albania, 20,000 demonstrators took part in anti-government protests in Tirana last month (above), during which four civilians were shot dead, and 17 policemen injured. Large anti-government demonstrations were again held in Tirana and other Albanian cities on Friday.
On January 28, in the Turkish-half of Nicosia in northern Cyprus, around 40,000 people gathered to protest against their government: a general strike was also held.
Many commentators have portrayed the revolts against the ruling regimes in Tunisia and Egypt as something peculiar to the Arab world. It's all to do with Islamists trying to take control, or about the 'Arab world's 1989', we're told.
In fact, they're part of a global phenomenon. What is fuelling the anti-government protests in the Middle East, in Serbia, Albania and Turkish Cyprus are economic factors. People are taking to the streets, not because they are Islamists, far-leftists, or far-rightists, but principally because they want a life. They want jobs and a decent standard of living.
It's revealing to look at the unemployment figures - and in particular the youth unemployment figures - in the countries where the disturbances are occurring.
. Youth unemployment in Tunisia doubled in the period 1996/7 to 2006/7 and is estimated to be around 30 per cent, with the country's official overall rate of unemployment is 14 per cent.
. In Egypt, people under 30 make up for 90 per cent of the 9.4 per cent officially unemployed - though most analysts believe the real rate to be much higher.
. In Serbia, overall unemployment is almost 20 per cent, with youth unemployment a staggering 50 per cent.
. In Albania, unemployment is around 14 per cent, with around 50 per cent of young people unemployed.
. In Turkish Cyprus, 12 per cent are unemployed with 31.4 per cent of young people without a job.
The street protests in these countries illustrate a growing discontent, particularly among the young, with the neo-liberal model of globalisation and rising anger against corrupt and out-of-touch political elites who seem not to care about their predicament.
And the bad news for those elites is that the discontent is only going to spread.
Last August, the International Labour Organisation revealed that 81 million young people worldwide were without jobs at the end of 2009 - the highest level of youth unemployment ever. The ILO expects the increase to have continued throughout 2010, and with governments across Europe committed to deficit-slashing austerity programmes, unemployment is only going to get worse in 2011.
It's not just about people not having jobs. It's also to do with rocketing prices of basic commodities. World food prices rose to a record high in January, up 3.7 per cent from December, with the World Bank President Robert Zoellick warning: "We are going to be facing a broader trend of increasing commodity prices, including food commodity prices."
As the economic pressure on ordinary people intensifies, could what happened in Tunisia - the overthrowing of an unpopular government by angry citizens who have simply had enough - happen in Europe?
It's not just the governments in Belgrade and Tirana who ought to be concerned. In Greece, with more IMF/EU induced austerity on the way, the situation could flare up again at any time. Romania is another country to keep your eyes on: last year the country saw its largest anti-government demonstrations since the fall of Ceausescu in 1989, with 50,000 taking to the streets in opposition to the government's austerity measures.
And there's nothing to say that large-scale anti-government protests won't spread to Britain, too, with economists warning of a double-dip recession and youth unemployment reaching a record high in January.
It seems that across Europe ruling elites have a choice: either change their economic policies and put full employment back on the agenda, or face an increasingly angry populace.
Up to now, the years 1848 and 1917 are the ones most associated with revolution. Judging by the way it's going so far, 2011 could end up surpassing them all.
Telegraph
IMF: Japan's debt and deficit 'are not sustainable'
Telegraph
IMF: Japan's debt and deficit 'are not sustainable'
IMF: Japan's debt and deficit 'are not sustainable'
Japan's outstanding debt and fiscal deficit "are not sustainable", the IMF warned on Wednesday, adding that Tokyo must tackle the issues if it wants to avoid future trouble.
The comments by IMF deputy managing director Naoyuki Shinohara come weeks after Standard & Poor's lowered the country's credit rating and accused the government of not having a clear plan to ease the debt mountain.
"If you look at Japan's outstanding debts and fiscal deficits, I think they are not sustainable over the medium- and long-term," Shinohara told reporters on the sidelines of a seminar in Tokyo.
"If (Japan) leaves the fiscal situation as it is, it could leave the source of trouble for the future," he said.
"It is important to make a national consensus at the earliest possible time and form a concrete agreement on how to achieve fiscal rehabilitation."
He added, however that "we don't think serious problems will occur imminently," citing Japan's huge pool of savings.
A rapidly ageing population, entrenched deflation and a feeble economy have made it hard for lawmakers to curb borrowing, with years of pump priming creating a debt load that is well on course to exceed 200 percent of GDP.
Nearly a third of government spending is being swallowed up by a social security system catering to a rapidly greying society, Standard & Poor's warned, with that ratio set to rise without reforms as Japan continues to age.
Prime Minister Naoto Kan's centre-left government has prioritised social security reform and an overhaul of the tax system, but the opposition has so far refused to begin talks over the issue.
The government has been able to fund its growing fiscal gap by raising money in the domestic market and its ability to do so is seen as sustainable for now, with banks and pension schemes holding around 95 percent of the debt.
But analysts warn pressures will increase as the population ages and dips into savings to spend in retirement.
On the Japanese yen, which continues to hover close to 15-year highs against the dollar, Shinohara said: "We maintain the view that the current yen rates are roughly in a range consistent with (Japan's) medium-term fundamentals."
The yen's rise has prompted calls from exporters for the government to do more to weaken a currency whose strength makes their products less competitive against rivals such as South Korea, while eroding profits.
But with a large trade and current account surplus, Japan has a relatively weak case to lower its currency to boost exports, some analysts argue.
Shinohara also warned that Japanese banks may need to further increase capital buffers against risks such as a possible economic slowdown from European debt problems and bursting
Telegraph
'Racist US bankers' to blame for credit crisis
The failure of racist American bankers to provide black home owners with fair mortgages fuelled the financial crisis, Trevor Phillips, the equalities chief, will claim in a major speech this week.
Trevor Phillips said before the crash that black families in the US were more likely than white people to be charged higher interest rates and have a subprime loan Photo: PA
Calling on the Government to ensure that the programme of public sector cuts does not fall disproportionately on minorities, Mr Phillips will warn that discrimination can have unexpected economic consequences.
Addressing the Policy Exchange think tank, he will argue that the phenomenon of subprime home loans, which led to the 2008 banking collapse, emerged because even wealthy black families could not obtain regular mortgages.
A number of banks involved in the crash, including Lehman Brothers and Royal Bank of Scotland (RBS), were over reliant on toxic subprime loans to customers who could not afford to maintain repayments.
Mr Phillips will say: “I know it's not a thing that the bankers and economists like to talk about, but the American financial crisis was precipitated at least in part by racial prejudice.
“Why were so many minority families taking these expensive loans?
Because discrimination left them with no choice.
“The rapid growth of the sub-prime market in the past decade probably owed more to the history of racial discrimination than any other factor."
Mr Phillips said before the crash that black families in the US were more likely than white people to be charged higher interest rates and have a subprime loan.
In order to prevent a repeat of the problem here during the recovery, he said the Equalities Commission would carry out a review of the Coalition’s cuts programme.
Mr Phillips will say: “Racism did not cause the crisis … we would probably have faced a meltdown at some point even if all the loans had been to white folks.
“But there is no doubt that when the full story is unravelled we'll find that a racial factor did play a role in what happened.
“We now know what it led to. Perhaps now is the time to make sure that we don't repeat the mistakes we made going into recession on the way out.
“The spending review and the cuts that follow must not fall disproportionately on already disadvantaged social groupings.”
Telegraph
IMF raises spectre of civil wars as global inequalities worsen
The International Monetary Fund (IMF) has warned that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries.
Dominic Strauss-Kahn believes the world could see war over high unemployment Photo: AP
Dominique Strauss-Kahn, the IMF's chief, said the economic rebound across the world is built on unstable foundations, with many rich nations still strapped in job slumps while the rising powers of China, India and Brazil already facing the threat of overheating. "It is not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis," he said.
"Global unemployment remains at record highs, with widening income inequality adding to social strains," he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. "We could see rising social and political instability within nations – even war," he said.
The IMF has published a paper entitled Inequality, Leverage and Crisis arguing that the extreme gap between rich and poor – with echoes of the US in the late 1920s – was an underlying cause of the Great Recession from 2008-2009.
The paper, by the Fund's modelling unit, warned of "disastrous consequences" for the world economy unless workers regain their "bargaining power" against rentiers. It suggests radical changes to the tax system and debt relief for workers.
Mr Strauss-Kahn said the toxic global imbalances that caused the financial crisis are re-emerging, naming China and Germany as the two arch-sinners that rely on export surpluses to power growth at the expense of the US and other deficit countries.
In a veiled warning to China and other countries holding down their currencies for commercial advantage, the IMF chief said "exchange-rate adjustment should not be resisted". Nor should capital controls be imposed to stop the inflow of funds.
The comments appear to align the IMF behind Washington in the simmering dispute over the declining dollar. China and Brazil have accused the US of covert currency warfare through quantitative easing, but the claim is slippery since the US has a huge structural trade deficit.
Mr Strauss-Kahn also hinted that parts of Asia are exceeding the safe speed limit for growth and needed to "tighten" further before inflation gets out of control. "There are risks of overheating, and even a hard landing," he said.
Telegraph
Mid-East contagion fears for Saudi oil fields
Risk analysts and intelligence agencies fear that Egypt's uprising may set off escalating protests in the tense Shia region of Saudi Arabia, home to the world's richest oilfields.
Saudi Arabia's main oil pipeline. 'The Shia are 10pc of the Saudi population. They are deeply aggrieved and marginalised, and sit on top of the kingdom's oil reserves' Photo: GETTY "Yemen, Sudan, Jordan and Syria all look vulnerable. However, the greatest risk in terms of both probability and severity is in Saudi Arabia," said a report by risk consultants Exclusive Analysis. While markets have focused on possible disruption to the Suez Canal, conduit for 8pc of global shipping, it is unlikely that Egyptian leaders of any stripe would cut off an income stream worth $5bn (£3.1bn) a year to the Egyptian state. "I don't think the Egyptians will ever dare to touch it," said Opec chief Abdalla El-Badri, adding that the separate Suez oil pipeline is "very well protected". The canal was blockaded after the Six Days War in 1967. There has been less focus on the risk of instability spreading to Saudi Arabia's Eastern Province, headquarters of the Saudi oil giant Aramco. The region boasts the vast Safaniya, Shaybah and Ghawar oilfields. "This is potentially far more dangerous," said Faysal Itani, Mid-East strategist at Exclusive. "The Shia are 10pc of the Saudi population. They are deeply aggrieved and marginalised, and sit on top of the kingdom's oil reserves. There have been frequent confrontations and street fights with the security forces that are very rarely reported in the media," he said. Saudi King Abdullah is clearly alarmed by fast-moving events in Egypt and the Arab world. In a statement published by the Saudi press agency he said agitators had "infiltrated Egypt to destabilise its security and incite malicious sedition". The accusations seem aimed at Iran's Shia regime, which has openly endorsed the "rightful demands" of the protest movement. There is deep concern in Sunni Arab countries that Iran is attempting to create a "Shia Crescent" through Iraq, Bahrain and into the Gulf areas of Saudi Arabia, hoping to become the hegemonic force in global oil supply. Goldman Sachs said the Mid-East holds 61pc of the world's proven oil reserves – and 36pc of current supply – which may compel global leaders to make "concentrated efforts" to stabilise the region. The bank said high levels of affluence should shield Saudi Arabia and the Gulf's oil-rich states from "political contagion". However, a third of Saudi Arabia's 25m residents are ill-assimilated foreigners and the country faces a "youth bulge", with unemployment at 42pc among those aged 20 to 24. Nima Khorrami Assl, a Gulf expert at the Transnational Crisis Project, said Shi'ites have been "stigmatised as a result of excessive paranoia since Iran's Islamic Revolution" and face systemic barriers in education and jobs. "Should the Gulf states do nothing or attempt to preserve the status quo, social unrest becomes inevitable. The current situation is inherently unstable," he told Foreign Policy Journal. Exclusive Analysis said Egypt's revolt had gone beyond the point of no return as protesters plan a 1m stong rally on Tuesday, with president Hosni Mubarak likely to be ousted within 30 days. John Cochrane, the group's global risk strategist, said the regime has so far refrained from ordering the army to crush protesters knowing that many officers will refuse to obey. "If asked to use lethal force, it is questionable whether the army's cohesion will hold together," he said. The Muslim Brotherhood, the best-organised of the diffuse protest movement, has reached out to the military, praising its "long and honourable history", but it has also begun to set up its own populist militias to protect the streets. A future government – with the Brotherhood pulling some strings – is expected to renationalise parts of industry, shifting away from "free-market" policies used to weaken the labour unions and steer contracts to an incestuous elite. Ezz Steel and other parts of the business empire of Ahmed Ezz may be seized, as well as infrastructure assets linked to corrupt ministers. The Brotherhood's "old guard" has so far controlled its hotheads but the organisation is close to Hamas in Gaza. Israel may soon find that it can no longer count on a secure southern border, even if Egypt's peace treaty remains in name. The outbreak of Arab populism vindicates claims by US neo-conservatives that the region is ripe for change, but this is not what Washington had in mind. "US interests are the first casualty," said Mr Itani. Fairly or unfairly, America is tarred with the Mubarak brush. Cairo may switch allegiance to the rising powers of Turkey, India, and above all, China. oeing found to receive US government subsidies Telegraph
US unemployment blamed on weather
The US jobless rate unexpectedly fell in January to the lowest level in 21 months, while payroll growth was depressed by winter storms.
The modest jobs gains are at odds with other data for January, which had suggested employment growth was picking up. Unemployment declined to 9 percent from December’s 9.4percent, the Labor Department said today in Washington. Employers added 36,000 workers, short of the 146,000 median gain projected by economists in a Bloomberg News survey. The dollar gained and Treasuries slid as the drop in unemployment pointed to a labor market that’s on the mend following the loss of almost 9 million jobs during the recession. Payrolls in construction and transportation, industries most affected by bad weather, declined in January, while factory employment rose the most since August 1998. The jobless rate, which was projected to rise to 9.5percent, declined as the number of unemployed fell by 590,000. Those people who said they were not in the labor force increased by 162,000 in January, according to the Labor Department’s survey of households. The drop from November’s 9.8 percent marked the biggest two-month decline since 1958. Bad weather prevented 886,000 Americans from going to work in the January survey week, the Labor Department’s survey of households showed.
Risk analysts and intelligence agencies fear that Egypt's uprising may set off escalating protests in the tense Shia region of Saudi Arabia, home to the world's richest oilfields.
Saudi Arabia's main oil pipeline. 'The Shia are 10pc of the Saudi population. They are deeply aggrieved and marginalised, and sit on top of the kingdom's oil reserves' Photo: GETTY
"Yemen, Sudan, Jordan and Syria all look vulnerable. However, the greatest risk in terms of both probability and severity is in Saudi Arabia," said a report by risk consultants Exclusive Analysis.
While markets have focused on possible disruption to the Suez Canal, conduit for 8pc of global shipping, it is unlikely that Egyptian leaders of any stripe would cut off an income stream worth $5bn (£3.1bn) a year to the Egyptian state.
"I don't think the Egyptians will ever dare to touch it," said Opec chief Abdalla El-Badri, adding that the separate Suez oil pipeline is "very well protected". The canal was blockaded after the Six Days War in 1967.
There has been less focus on the risk of instability spreading to Saudi Arabia's Eastern Province, headquarters of the Saudi oil giant Aramco. The region boasts the vast Safaniya, Shaybah and Ghawar oilfields. "This is potentially far more dangerous," said Faysal Itani, Mid-East strategist at Exclusive.
"The Shia are 10pc of the Saudi population. They are deeply aggrieved and marginalised, and sit on top of the kingdom's oil reserves. There have been frequent confrontations and street fights with the security forces that are very rarely reported in the media," he said.
Saudi King Abdullah is clearly alarmed by fast-moving events in Egypt and the Arab world. In a statement published by the Saudi press agency he said agitators had "infiltrated Egypt to destabilise its security and incite malicious sedition".
The accusations seem aimed at Iran's Shia regime, which has openly endorsed the "rightful demands" of the protest movement. There is deep concern in Sunni Arab countries that Iran is attempting to create a "Shia Crescent" through Iraq, Bahrain and into the Gulf areas of Saudi Arabia, hoping to become the hegemonic force in global oil supply.
Goldman Sachs said the Mid-East holds 61pc of the world's proven oil reserves – and 36pc of current supply – which may compel global leaders to make "concentrated efforts" to stabilise the region. The bank said high levels of affluence should shield Saudi Arabia and the Gulf's oil-rich states from "political contagion".
However, a third of Saudi Arabia's 25m residents are ill-assimilated foreigners and the country faces a "youth bulge", with unemployment at 42pc among those aged 20 to 24.
Nima Khorrami Assl, a Gulf expert at the Transnational Crisis Project, said Shi'ites have been "stigmatised as a result of excessive paranoia since Iran's Islamic Revolution" and face systemic barriers in education and jobs. "Should the Gulf states do nothing or attempt to preserve the status quo, social unrest becomes inevitable. The current situation is inherently unstable," he told Foreign Policy Journal.
Exclusive Analysis said Egypt's revolt had gone beyond the point of no return as protesters plan a 1m stong rally on Tuesday, with president Hosni Mubarak likely to be ousted within 30 days.
John Cochrane, the group's global risk strategist, said the regime has so far refrained from ordering the army to crush protesters knowing that many officers will refuse to obey. "If asked to use lethal force, it is questionable whether the army's cohesion will hold together," he said.
The Muslim Brotherhood, the best-organised of the diffuse protest movement, has reached out to the military, praising its "long and honourable history", but it has also begun to set up its own populist militias to protect the streets.
A future government – with the Brotherhood pulling some strings – is expected to renationalise parts of industry, shifting away from "free-market" policies used to weaken the labour unions and steer contracts to an incestuous elite. Ezz Steel and other parts of the business empire of Ahmed Ezz may be seized, as well as infrastructure assets linked to corrupt ministers.
The Brotherhood's "old guard" has so far controlled its hotheads but the organisation is close to Hamas in Gaza. Israel may soon find that it can no longer count on a secure southern border, even if Egypt's peace treaty remains in name.
The outbreak of Arab populism vindicates claims by US neo-conservatives that the region is ripe for change, but this is not what Washington had in mind. "US interests are the first casualty," said Mr Itani.
Fairly or unfairly, America is tarred with the Mubarak brush. Cairo may switch allegiance to the rising powers of Turkey, India, and above all, China. oeing found to receive US government subsidies
Telegraph
US unemployment blamed on weather
The US jobless rate unexpectedly fell in January to the lowest level in 21 months, while payroll growth was depressed by winter storms.
The modest jobs gains are at odds with other data for January, which had suggested employment growth was picking up.
Unemployment declined to 9 percent from December’s 9.4percent, the Labor Department said today in Washington.
Employers added 36,000 workers, short of the 146,000 median gain projected by economists in a Bloomberg News survey.
The dollar gained and Treasuries slid as the drop in unemployment pointed to a labor market that’s on the mend following the loss of almost 9 million jobs during the recession.
Payrolls in construction and transportation, industries most affected by bad weather, declined in January, while factory employment rose the most since August 1998.
The jobless rate, which was projected to rise to 9.5percent, declined as the number of unemployed fell by 590,000. Those people who said they were not in the labor force increased by 162,000 in January, according to the Labor Department’s survey of households. The drop from November’s 9.8 percent marked the biggest two-month decline since 1958.
Bad weather prevented 886,000 Americans from going to work in the January survey week, the Labor Department’s survey of households showed.
Telegraph
Boeing received unfair subsidies from the US government, according to a WTO report, sparking another row with arch-rival Airbus.
Airbus said the WTO report showed Boeing was only able to launch the 787 Dreamliner (above) with subsidies. Photo: GETTY
Airbus said the report showed Boeing had received at least $5bn (£3.1bn) in illegal subsidies and was only able to launch its 787 Dreamliner with such support. Boeing denied the assertions.
Europe and the US have been fighting for more than six years over each other's subsidies for large passenger aircraft.
Monday's report by WTO experts marked the latest stage in the dispute as Airbus and Boeing battle for the $1.7 trillion passenger plane market.
The findings in the related cases could colour a decision in the coming weeks by the US Air Force on whether to award Boeing or EADS, Airbus's parent company, a $25-50bn contract for refuelling tanker planes.
Both companies have supporters in the US Congress, as Boeing would build and finish the tanker in Washington and Kansas while Airbus would assemble it in Alabama.
Mr De Gucht's spokesman noted on Monday the report confirmed those initial findings, suggesting Brussels was not keen to raise the stakes, or wanted to play down a previous WTO ruling that condemned its own support for Airbus.
"This solid report sheds further light on the negative consequences for the EU industry of these US subsidies and provides a timely element of balance in this long-running dispute," spokesman John Clancy said in a statement.
One EU diplomat said a political solution was preferable.
"Given the state of the global airline industry today, a political agreement is important for both sides of the Atlantic," the diplomat said.
The ruling, like the interim report, was handed only to the parties and was confidential. It will not be published for several weeks while being translated into French and Spanish.
US Trade Representative Ron Kirk's office said it could not provide detailed comment now as the report was confidential.
"Despite that the EU has publicly commented on the report, at this time we will simply say that the United States is confident that the WTO will confirm the U.S. view that European subsidies to Airbus dwarf any subsidies that the United States provided to Boeing," spokeswoman Nefeterius McPherson said.
Airbus said the report would show Boeing had received billions of dollars in illegal subsidies, depriving Airbus of $45bn in sales, an indication of what the EU could seek in sanctions if the case moved to retaliation.
WTO experts found last year that Airbus received illegal export subsidies from European governments and both sides have appealed against that ruling.
Appeals involving prohibited export subsidies are supposed to be dealt with in 60 days under WTO rules, but this case is so complicated that the WTO's appellate body has said it will not come to a conclusion until some time this year.
Boeing says the research and development grants it received pale into insignificance besides the support for Airbus.
In the Airbus case, WTO judges found the company had been able to launch a series of passenger aircraft only thanks to the government support and called for an end to export subsidies.
Both sets of countries have an interest in clarifying the rules for how governments can facilitate the development of new aircraft in a fair manner.
It could take until much later this year for the appeals process in both cases to run its course, but the two sides, aware that Brazil, Canada, China, India, Japan and Russia have en eye on the market, are eventually likely to negotiate a settlement.
Telegraph
BP faces US investigation into gas market manipulation
BP, the oil company struggling to restore its image in the United States following the Gulf of Mexico oil spill disaster, may face charges relating to manipulation of the US gas market.
"The US Federal Energy Regulatory Commission (FERC) and the U.S. Commodity Futures Trading Commission (CFTC) are currently investigating several BP entities regarding trading in the next-day natural gas market at Houston Ship Channel during October and November 2008," BP said on Wednesday.
The FERC's enforcing body is now considering whether to pursue charges against BP.
In 2006, the company was prosecuted on propane market manipulation charges in the country. BP paid around $300m to settle those charges.
“BP conducts its trading and transportation activities in compliance with the law and regulations,” Scott Dean, a company spokesman, said.
The company said it had fully cooperated with the FERC and the CFTC investigations and provided “a detailed response that it did not engage in any inappropriate or unlawful activity”.
Until now, "sweeping deficiencies and violations of law" characterize the Gulf Coast Claims Facility (GCCF) fund run by independent administrator Kenneth Feinberg, state Attorney General Jim Hood said in a memorandum to a federal court in Louisiana on Tuesday, Reuters reports.
"Court intervention and action is needed to compel BP to cure its failure to provide a claims process that fulfills the requirements of the Oil Pollution Act of 1990, state law and prior public commitments of BP," the memorandum said.
This news cames as the row between BP and it Russian partners in it joint venture TNK-BP escalated.
BP admitted it may be forced to pay compensation to its Russian oligarch partners, as the two sides agreed to let an UN arbitration court settle their latest bitter row.
The oligarchs, who co-own BP's Russian oil fields, are unhappy about their British partner's plans to swap £5bn of shares with Rosneft – a Kremlin-backed rival. On Tuesday they were granted an injunction to halt the £10bn Rosneft deal temporarily.
The furore overshadowed BP's full-year results and the first quarterly dividend payment since the Gulf of Mexico oil spill. The dividend, seven cents per share, is half its previous level. BP also swung to a full-year loss of $4.9bn (£3.1bn), posted lower-than-expected profits for the fourth quarter of $4.4bn and put its troubled Texas City refinery up for sale.
Oligarchs 'very friendly'
At a results presentation, Bob Dudley, the chief executive, insisted that relations were still "very friendly" with the oligarchs behind TNK-BP, the Russian joint venture that produces a third of BP's oil output. Asked about the dispute, he said: "I'm sure we will reach a good business resolution. It may be a financial or strategic direction. I think it will resolve itself."
But just an hour later, lawyers for the two sides were fighting it out at London's High Court, where a judge granted a temporary order preventing all further talks between BP and Rosneft. It will apply until the dispute is heard at a United Nations arbitration court in Sweden and may be extended.
The billionaires known as Alfa Access Renova (AAR) – Mikhail Fridman, Len Blatvatnik, German Kahn and Viktor Vekselberg – claim the Rosneft deal violates their previous agreement with BP.
They claim that all deals in Russia should be conducted through TNK-BP and that it should have been included in talks. BP insisted that an injunction will not derail the deal, only cause a "time-out",adding that the oligarchs' threat to withhold a $1.8bn dividend was not material.
Wikileaks revelations
The row is a reignition of tensions between BP and the oligarchs from 2008, when Mr Dudley was forced to flee Russia alleging he had been harrassed.
US diplomatic cables revealed by Wikileaks claim Mr Dudley did not trust Rosneft and likened Russia's attitude towards the oil industry to Venezuela - where private assets were routinely seized.
Mr Dudley dismissed the cables as "more fairytale than fact". Asked what reasons he had for trusting the Kremlin and whether investors could be sure BP's Russian assets would not be seized, he said: "All I can promise is my belief that [seizure] won't happen."
Unveiling the company's strategic review, Mr Dudley said the Rosneft deal was a "good example" of potential future partnerships with state oil companies. He said a smaller BP would now focus on "value, not volume; and quality, not quantity".
Half of BP's US refining business will be spun off and the company will continue to sell peripheral assets to help fund the Gulf of Mexico oil spill. BP warned that oil production will be lower while it "consolidates". Output will also be hit by continuing disruption to activities in the Gulf of Mexico, where deepwater drilling has still not fully recovered.
BP also added an extra $1bn to its earlier $40bn estimate of the cost of the oil spill, at a time when analysts have been starting to cut their estimates for the bill.
Case stays secret
Shareholders may never know how deeply the dispute runs between BP and the oligarchs, because a judge ruled the Russians’ application for an injunction should be heard in private.
David Price, solicitor advocate for The Telegraph, challenged the ruling, arguing that information revealed in an earlier session attended by journalists should be reported in the public interest. However,
Mr Justice Burton decided the hearing should remain behind closed doors. This means the press cannot report which side wanted the hearing to be in secret and what their reasons are for asking for information to be kept out of the public domain.
More than 30 journalists were at the High Court expecting to hear details of the dispute between Alfa Petroleum Holdings, the vehicle of one oligarch, and BP.
After Mr Justic Burton granted the order, the two sides agreed to enter arbitration proceedings in Sweden, which will remain in private.
Telegraph
Record copper price tests $10,000
Copper has hit a fresh record high just below $10,000 a tonne on hopes of increased demand amid supply shortages, which could be made worse by giant Cyclone Yasi in Australia.
Economic data has shown strong demand from the Asian manufacturing sector for copper. Photo: ALAMY
Metals have been strong across the board this week, with tin hitting a record and nickel at its highest since May 2008.
The weak dollar has led investors trading in other currencies to seek commodity investments. Economic data has also shown strong demand from the Asian manufacturing sector, especially for copper.
Analysts pointed out that the most recent rally in the copper price may be less about fundamentals than the unwinding of positions in Shanghai ahead of the Chinese New Year.
However, there are still signs that there will be a shortage of the red metal this year,as mining companies have been reporting lower than expected production.
BHP Billiton, Xstrata and Rio Tinto found that output dropped 12pc in the first half of 2010. It appears that this trend continued in the second half of last year as well.
Australia's huge Cyclone Yasi forced a copper refinery and coal mines to shut and paralysed sugar and coal exports as it began pounding the northeast coast on Wednesday, threatening to further inflate world sugar, copper and coal prices.
The edge of the cyclone, one of the most powerful recorded, came ashore in north Queensland state, heading directly for sugarcane fields and threatening a 300,000-tonnes-a-year copper refinery in the coastal city of Townsville.
"We've shut everything down and that situation is likely to carry on for several days until a clearer picture emerges," said Josh Euler, a spokesman for the refinery owner, Xstrata.
Earlier this week, a 30,000 tonnes-a-year nickel refinery at Yabulu shut down ahead of the cyclone, and the major coal export terminals of Dalrymple Bay and Gladstone stopped loading ships.
Shipping in and out of the region has come to a standstill, with ports along hundreds of kilometres of coastline closed and bulk carriers retreating from the cyclone zone to safe anchorages.
Telegraph
Rothschild rebrand drops investment banking after 200 years
Five years after its onslaught, the financial crisis has claimed its latest high-profile victim: Nathan Mayer Rothschild.
Investment bank brands are continuing to be severely damaged by big bonuses and on-going banker bashing by politicians. Photo: CORBIS
Two hundred years after "the third son" founded his eponymous bank in London, "NM" is being dropped in a rebranding exercise designed to ditch the group's "investment banking image."
The group will now be called just "Rothschild," while the division previously named "investment banking" has been renamed "global financial advisory."
Staff at the London office were told about the rebranding in an internal meeting yesterday.
Sian Westerman, in charge of marketing at the bank, told The Daily Telegraph: "Whenever we talked about ourselves we found we were often describing what didn't do as much as what we did.
"So we'd say investment banking but immediately follow that with the fact we don't sell shares, we're not conflicted or self-serving, which felt very negative. We decided to badge the division as it is: financial, advisory and global." In 2010, total compensation and benefits at publicly traded Wall Street banks hit a record of $135bn, according to reach this week by The Wall Street Journal.
NM Rothschild was founded in 1811. The group has advised on deals including Cairn Energy and Walmart.
Posts
