Sunday
17th January 2010
China persuades Google to stay back | Turkey to set up 50MW windmills | RBZ Teeters On the Brink of Collapse
Goldman Sachs bankers 'set for 81% rise in bonuses'
Analysts predict big payouts despite political pressure
Jill Treanor - The Observer
Goldman Sachs bankers are forecast to enjoy an 81% rise in their pay and bonuses for 2009, even though the bank may be forced to respond to political pressure by reducing the amount of money it sets aside for employee payouts in the fourth quarter of the year.
Goldman is braced for a furore this week when it completes the US bank reporting season on Thursday, following the row sparked by rival JP Morgan when it disclosed on Friday that it would be handing out $9.3bn (£5.7bn) in bonuses and salaries for 2009.
By the time Goldman unveils the size of its bonus pool, Citigroup, Bank of America and Morgan Stanley will all have published their figures. They are likely to show that chancellor Alistair Darling's estimate for £550m of revenue from his 50% bonus tax was too cautious.
JP Morgan alone is estimated to face a bonus-tax levy from the exchequer of at least £300m. It admitted on Friday that Darling's super-tax influenced its decision to pay staff just 11% of revenues in the fourth quarter compared with a more usual 50%, prompting predictions that other banks would also reduce pay for the final three months of the year. Analysts at Wells Fargo Securities expect Goldman's compensation costs "to drop materially", as do those at JMP Securities, who also predict changes to the way Goldman Sachs structures its payouts so staff receive more in shares.
If bonuses are paid in shares they do not appear under the expense of "compensation" reported by banks, which includes the costs of paying staff such as salaries, benefits and pensions. A new stipulation from the G20, included in its principles on pay introduced in the wake of the banking crisis, states that banks ought to defer bonuses over at least three years and pay a greater proportion of them in shares.
But the JMP Securities analysts concluded that even though the proportion of pay and bonuses to revenues will fall at Goldman, "we still expect an 81% rise in compensation per employee in 2009 to $599,000 per head … although this remains 14% below peak 2007 compensation levels".
Goldman's top executives have already tried to respond to public anger over pay by promising to take their bonuses in shares rather than cash and are also forcing their best-paid employees to make charity donations.
The bank has traditionally reserved 45% of its revenues to pay staff. But analysts note the reductions being expected in the bonus pool in the fourth quarter of the year still give Goldman a competitive advantage in hiring staff: average pay levels remain relatively high.
Goldman is thought to have taken a strategic decision to be last of the major Wall Street firms to report results. It was originally expected to publish last week. Like Morgan Stanley, it traditionally informs staff of their bonuses a day or two before the formal publication of results. But this year both banks appear to have delayed releasing that information until after the figures have been published. Some staff may not learn the terms of their individual payouts until the start of the following week.
Analysts say the last three months of a bank's year are quieter, as traders restrict risk-taking to ensure they do not jeopardise their bonuses. But the last quarter of 2009 was also slower for many banks as the extraordinary revenues seen recently from bond trading eased.
Item club predicts a 'painful' recovery dependent on exports to Asia
Forecasting group's economic health check warns growth will slip back following end of VAT cut and car scrappage
Heather Stewart - The Observer
Britain's recession-hit economy faces a "decade of painful readjustment," and recovery will depend on exporters' success in winning new business from the roaring Asian tigers, the Ernst & Young Item Club predicts today.
Official figures next week are expected to confirm that the UK climbed out of the deepest recession in a generation in the last quarter of 2009.
But in its quarterly health check of the economy, the forecasting group says the bounce-back so far has been driven by the car scrappage scheme, Alistair Darling's VAT cut, and factory restocking.
With these forces exhausted, the report's author, Peter Spencer, warns that growth will slip back, struggling to hit a sickly 1% this year, before recovering to 2.5% in 2011.
That is much weaker than the chancellor pencilled in last month, when he delivered his pre-budget report. The Treasury forecasts growth of 1.25% this year and 3.5% in 2011, and Gordon Brown is pinning his hopes on the return of the feelgood factor before the expected general election in May.
But with consumers, the government and the shattered banking system weighed down with debt after a decade of credit-fuelled excess, Spencer says the only hope for a long-term upturn is that the cheaper pound helps to spark a renaissance for manufacturers.
"The economy must now stand on its own two feet. Growth is almost totally dependent on a sustained upturn in the world economy and upon the energy and enterprise of UK exporters of our prized goods and services ... to cash in on a rebound in world trade," he said.
"With the Anglo-Saxons stony broke, earning money from world trade has to provide the main stimulus to keep output growing."
If industry does succeed in capitalising on rapidly expanding markets in Asia, Item says net trade could add as much as 1% to GDP in 2011, and 0.5% a year after that. However, Spencer warned it could take several years for the supply of credit to families and firms to be restored, as banking-sector balance sheets were repaired. "Credit flows are unlikely to normalise until the UK banks repay the obligations to overseas banks and the government that they built up on our behalf over the decade of debt," the report says, warning that this process could take years. "The UK economy has moved out of a decade of debt and into a decade of painful readjustment."
Despite rising inflation, Item expects the anaemic recovery to persuade the Bank of England to leave interest rates on hold at their current record low level of 0.5% well into 2010.
But with official figures this week expected to show that inflation jumped back above the Bank of England's 2% target in December, there are signs that some members of the Bank's monetary policy committee are already itching to raise rates.
The hawkish Andrew Sentance last week expressed confidence in the economy's "bouncebackability".
Britons could be forced to cut their working hours under an EU bid to ban employees from overtime
Kirsty Buchanan - Sunday Express
Britons could be forced to cut their working hours under an EU bid to ban employees from overtime.
In a move that could cost Britain almost £12billion a year, the European Commission is considering an end to the opt-out from the Working Time Directive.
This would force up to three million British workers exempt from the legislation to limit their working week.
The directive costs British business an estimated £4billion a year, but critics warn the bill could go “through the roof” if the opt-out is abolished. Michael Saunders, UK economist at Citigroup, said rising oil prices and the delayed effect of the depreciation in sterling could push inflation through 4% by the middle of the year. He predicted that the MPC to be, "among the early hikers in 2010," as central banks agonise about when to withdraw emergency support.
Shadow Foreign Secretary William Hague said: “Protecting the opt-out is crucial and there must be no concession to those who do not care what damage EU red tape is doing to them.”
In a consultation document sent to business leaders and unions, the European Commission warns the directive is “clearly unsatisfactory”, citing health and safety as the driving factor.
However, NHS staff are warning patients’ lives are at risk because of the EU restrictions. In August last year, junior doctors and surgeons in Britain were brought under the directive.
Ministers hailed the change as a boost for patient safety because it meant fewer exhausted doctors, but surgeons slammed the move, warning their complex specialism is too difficult to master in a restricted time. Meanwhile half the nurses questioned in a survey for Nursing Times said they felt patients were suffering because they had too little time to carry out basic care.
Mr Hague added: “We need to have the strongest possible safeguard for the NHS and our other public services by getting a permanent opt-out from EU laws.”
Stephen Booth, of pressure group Open Europe, said the UK should regain control of social legislation.
More hedge fund traders join rush to Geneva
Kate Walsh - Sunday Times
The UK’s third-largest hedge fund, Bluecrest, will move 50 of its highest-earning traders and fund managers to its new office in Geneva before the 50% income tax on high-earners kicks in on April 6.
The hedge fund, currently housed in an office overlooking London’s Buckingham Palace Gardens, is the first sizeable business — with $16.7 billion (£10 billion) under management — to move part of its operations to the Swiss canton.
The departure marks the beginning of an exodus of this highly mobile industry from Britain — a reaction to higher taxes and the threat of a new regulatory regime governing hedge funds from the European Union. A number of smaller hedge funds, including Amplitude Capital, have already relocated to low-tax jurisdictions. In Switzerland the income tax rate is closer to 25%.
David Butler of Kinetic, a firm that helps hedge funds to relocate, is currently working on eight mandates from British-based firms to find them office space in Switzerland. “They want to be out of the UK by April,” he said. “Geneva is the most popular choice. These people are a club: they go where the others are.” Butler predicts that up to 150 hedge funds will leave London.
Brevan Howard, the UK’s largest hedge fund, is also considering whether to open an office in Switzerland. Alan Howard, the founder, is said to be sounding out staff over whether there is sufficient demand among its 100 traders and fund managers to merit the move.
James Vernon, Brevan Howard’s chief operating officer, said that the proposed EU directive on hedge-fund regulation would make it “impossible” for it to do business in Britain.
One London-based hedge fund manager said: “They have no choice but to do this. We tried to hire a trader last week but he said he would not join unless he could be based in Geneva. People don’t want their fortunes subject to the ever-changing whim of the British government.”
British bank sector hails Obama bank levy as fair
Guy Jackson (AFP)
British bankers have welcomed US President Barack Obama's announcement of a levy to raise 90 billion dollars to recoup the Wall Street bailout, saying it restores parity to the global banking sector.
Obama's plan appeared to catch European governments and central banks by surprise, as did the president's aggressive tone -- he called corporate bonuses "obscene" and vowed "we want our money back and we are going to get it."
The proposals also raised eyebrows because the United States has shown great reluctance to impose global rules governing bankers' bonuses.
But the announcement appeared to be timed to tap into public anger at the paying of billions of dollars of bonuses over the next few weeks in a sector which had to be rescued by governments worldwide just months ago.
Until now, bankers in the City of London, the other main financial centre along with Wall Street, have claimed they were unfairly penalised by the tough conditions imposed by the British Treasury when it intervened to prop up banks.
British banks have also argued that the government's imposition of a 50-percent tax rate on bonuses until April could cause high performers to pack their bags and head for jobs in countries with less restrictive rules.
A combination of the two factors, British banks have warned, risks leaving them at a disadvantage compared to their colleagues in other financial centres.
So the British Bankers' Association (BBA), an industry body representing the sector, welcomed the Obama plan as a "levelling of the playing field."
"The US has moved up to the playing field that we are already on," BBA chief executive Angela Knight said.
"These are two distinctly different situations. The US has a deficit that it wants banks to meet. In the UK we are paying more and we started paying earlier and UK taxpayers will get back more than they contributed, which I think is only right."
Knight said the "real competition" for global banking jobs now was not between the US and the UK," but between the rest of the world and the fast-developing finance sector in China and elsewhere in Asia.
"If you are at a headquarters and you are deciding on strategic plans for the next two, or five to 10 years, what we don't want to see is action here in the UK that would see those centres being moved to the Far East."
She told AFP that however much people in Britain were concerned about the bonuses issue "they would be even more concerned if all the other jobs that hang off the sector and the tax that comes from them were to move elsewhere."
But some analysts think banks are deliberately exaggerating the potential risks of staff fleeing the traditional centres because it allows them to argue that they should continue paying themselves the multi-million salaries.
Keith Pilbeam, professor of international finance at City University in London, praised the Obama plan for spreading the repayments levy over 10 to 12 years, but said it failed to address the "central issue."
"The market failure is banking pay. The share prices are down massively and yet the bonuses and high pay are continuing," he said.
"Something does need to be done about that and it might be necessary to bring in pay caps through legislation."
He scoffed at suggestions that bankers were likely to flee the City and Wall Street if stricter restrictions were clamped on their pay and bonuses.
"It is just scaremongering from the banks. There is no way these guys are leaving London and New York. Some people around the margins might leave, but so what?
"And anyway, where is the talent they talk about when these guys have just destroyed shareholders' companies?"
Kevin Young, a Fellow in Global Politics at the London School of Economics, said neither the Obama plan nor British premier Gordon Brown's bonus tax would lead to the wider reform of the financial system that many think is necessary.
"It is inevitable that many banks and their associations won't like it (the levy) -- but ultimately it is a very minor measure designed to recoup funds, and does so over a long period of time," he said.
"It is more than a drop in the ocean, but is not an ambitious plan for reform -- rather just a way for the US taxpayer to recoup their cash."
What the introduction of both measures would change the most, he said, "is the public's perception that these leaders are addressing a systemic problem."
Pilots vote to keep Aer Lingus flying
Sunday Independent
After apparently going right to the brink, the Aer Lingus pilots blinked at the last minute. By voting to accept a 10 per cent pay cut and 76 redundancies, they have kept the airline flying, at least for the time being.
Finally, three months after it was unveiled, it looks as if CEO Christoph Mueller's restructuring plan, which will shave €97m off Aer Lingus's annual costs and shed 675 jobs, will be implemented.
Last week the Aer Lingus pilots voted to accept pay and job cuts. While they have yet to agree to the pension changes and outsourcing contained in the Mueller plan, that's just posturing. Having looked into the abyss and decided that they didn't like what they saw, any future strike threats by the pilots would ring very hollow.
The bad news is that, with Aer Lingus's cash reserves likely to have hit €280m at the end of 2009, down from €757m two years earlier, the Mueller package was the bare minimum needed to keep it flying.
All around the world, former flag carriers are feeling the pinch. Last week Japan Airlines had to be bailed out.
Unfortunately, Aer Lingus can't rely on such a bailout. It's hard to see Aer Lingus surviving as an independent company beyond the very short term.
India mulls pulling diamond traders out of China
Diamond World
India's Gems & Jewellery Export Promotion Council (GJEPC) is said to be seriously considering pulling out of its China-based diamond cutting and polishing business following the arrest of 21 Indian diamond traders last week, Commodity Online reported.
Chinese authorities arrested 21 Indian nationals last week in Shenzhen on suspicion of diamond smuggling. So far, the Indian diamond industry has a refused to divulge identities of the detainees, the majority of whom are Surat Diamond Association employees.
According to the report, it is believed that about 50% of India’s total diamond exports to China is conducted via illegal methods, i.e. done through Hong Kong, to save on tax and be competitive: Diamond imports into China entail a 4% tax for members of the Shanghai Diamond Exchange and 18% for non-members. Diamond imports into Hong Kong do not carry taxes and as such, it is attractive for any diamond merchant to export precious stones to Hong Kong.
China persuades Google to stay back
China on Saturday announced a sharp increase in the number of Internet users. The timing of the announcement suggests Beijing is trying to persuade Google to stay and give up plans to pull out its Chinese version from the country.
"There is no sense blowing things out of proportion and turning a business issue into a political or diplomatic dispute," Xinhua, the Chinese official news agency, said in a commentary on Saturday.
Xinhua pointed out that Baidu, the largest Chinese web portal, suffered a cyber attack on Tuesday that resulted in the site being shut down for three years. Baidu, with 58 per cent market share of Internet users, will be the biggest beneficiary if Google, China pulls out.
The Chinese news agency was apparently trying to suggest that attacks by hackers is not limited to Google and affects its rivals as well. Google had earlier cited attacks on its web site in China as one of the reasons why it was considering pulling out its Chinese version. Google, China has 31 per cent share of the market.
The country’s foreign ministry said on Thursday that China welcomes international Internet companies to conduct business within the country according to law.
Google has said it was considering pulling out its Chinese version because of hacker attacks in China and because the Chinese government was using its site to carry out investigation against human rights activists.
China Internet Network Information Center, an official agency, said on Saturday that the number of Internet users in the country has reached 384 million by the end of 2009 due to the expansion of Internet access in more areas and a rapid increase of mobile phone Internet users.
This accounts to a 28 per cent jump in one year. The number of mobile Internet users increased by 120 million to reach a total of 233 million.
China issued third-generation (3G) licenses to major telecom operators in January last year resulting in higher use of Internet. About eight per cent of all Internet users access the Internet only through mobile phones.
Apart from hacker attacks, Google is engaged in two other disputes in China. It has been charged by an association of Chinese writers of copyright theft as it displayed books in the local language without obtaining their permission. Google is in negotiations with the association but has refused to accept its demand to apologise.
Google has also been criticised by the Chinese censors for allowing its site to be used for distribution of pornography.
Turkey to set up 50MW windmills
The Nation - Pakistan
Punjab Chief Minister Muhammad Shahbaz Sharif has said that the people of Punjab are thankful to the Turkish government and investors on the tremendous welcome of their trade delegation. He said that such a delegation of Turkish businessmen will soon visit Punjab.
He was addressing a reception hosted in his honour by Department of Foreign Trade (DEIK) of Turkey in Istanbul Saturday. Vice Chairman of Punjab Investment Board Pir Saad Ahsanuddin and heads of prominent international trade organisations also addressed the function.
Various MoUs were inked between Pakistani and Turkish investors on this occasion. Four agreements were signed between Ghazi Tractors and Ali Akbar Group with Turk investors are of great importance under which Pakistan and Turkey will make trade in drip irrigation, power irrigation, high quality seeds and telecom sectors.
The Chief Minister said that the agreements made with Turkey are good omen for the economy of Pakistan. He said that we have to increase the volume of trade five times with Turkey for which the investors and traders of Punjab can play an important role in this regard. Turk investors assured their full cooperation to the Chief Minister Punjab on this occasion.
Murat Barsa, head of a reputed international institution of manufacturing windmills for generating electricity said that his institution has set up 5 mega watts windmills and is intending to set up 50 mega watts windmills in future. He said that the Turk investors had not faced any official hindrance in Pakistan. Contrary to other countries, bureaucracy of Pakistan has always cooperated with Turk investors.
Addressing a seminar organised by the Musaid, an organisation of Investors of Muslim World in Turkey, the Chief Minister said that all Muslim countries should cooperate with institutions like Musaid for promotion of mutual trade. Muhammad Shahbaz Sharif met with Kadir Topbas Mayor of Istanbul. The Mayor informed the delegation that he has visited Pakistan many times where he especially visited the Mazar of Hazrat Allama Iqbal.
The Chief Minister said that Istanbul and Lahore are twin cities since 1975 and time has come that practical steps should be taken for making this agreement useful for the citizens of both cities.
RBZ Teeters On the Brink of Collapse
ANGOP
The house that central bank governor Gideon Gono built over the past six years is tottering on the brink of collapse, weighed down by under-funding, a protracted labour dispute and failure to service debts, among a host of other problems. The bank confirmed this week that its existence was under threat.
Impeccable sources at the bank told the Zimbabwe Independent that Gono created a "monster" that was now haunting the Reserve Bank of Zimbabwe (RBZ) when he stitched a number of quasi-fiscal facilities since his appointment in December 2003.
The facilities, among them, the Productive Sector Facility, Basic Commodity Supply Side Intervention (Bacossi), Local Authorities Reorientation Programme (LARP), the Farm Mechanisation Programme and the Agricultural Support Enhancement Facility, were financed by printing money.
The quasi-fiscal activities, Gono argued, were meant to keep the country limping and to bust economic sanctions.
But with the dollarisation of the economy last January, printing money was rendered useless and the central bank's life blood dried leaving Gono with no option but to turn to the treasury for funding.
Finance minister Tendai Biti has not been of much help to the central bank as he has refused to adequately fund the RBZ arguing that there was need for reforms at the bank and that there was need to clip the governor's wings.
A war of attrition between Biti and Gono worsened the situation and now the bank's existence is under threat.
Sources told the Independent that the bank has operating without a board since 2008 and Biti had not shown any urgency to appoint a new one.
The absence of a board, the sources said, had resulted in the central bank failing to make crucial decisions to realign itself with the new economic dispensation in the country.
The bank's last board was made up of Gono as chairperson and members, Grace Chella, Clever Mumbengegwi, Mike Ndubiwa and Phineas Chihota. Its term of office ended in December 2008.
Staff morale at the bank, the sources said, had reached rock bottom with the top bank reportedly still paying its workers' salaries in the demonitised Zimbabwe dollar piling in their bank accounts. Employees at the bank are paid a US$150 monthly allowance.
This, the sources said, had resulted in the workers committee clashing on several occasions with Gono -- who is the chairperson of the bank's works council.
The sources said the workers and the RBZ went for arbitration last year and the bank was told to pay salaries in US dollars backdated to last July, but could not do so because there was no board to ratify the ruling and the bank was broke.
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