britain

Asian Stocks Decline for Third Time in Four Days on Europe Concern, Yen

June 8, 2010

By Anna Kitanaka June 9 (Bloomberg) — Asian stocks fell for the third time in four days as the stronger yen dragged down Japanese exporters and on concern Europe’s debt crisis will worsen after Fitch Ratings called the U.K.’s fiscal challenge “formidable.” Nissan Motor Co., a carmaker that gets about 75 percent of its revenue outside Japan, slumped 2.7 percent in Tokyo. Canon Inc. , a Japanese electronics maker that counts Europe as its biggest market, declined 1.5 percent. Nintendo Co., the maker of video-game consoles and which gets 85 percent of sales outside Japan, sank 3.6 percent. Newcrest Mining Ltd., Australia’s largest gold producer, rose 1.3 percent in Sydney as investors seeking a haven drove the metal’s price to a record yesterday. “Europe’s fiscal concerns are remaining,” said Hiroichi Nishi , an equities manager in Tokyo at Nikko Cordial Securities Inc. The MSCI Asia Pacific Index fell 0.2 percent to 110.06 as of 10:42 a.m. in Tokyo, with about as many stocks declining as advancing. The gauge has retreated 15 percent since this year’s high on April 15 on concern debt crises among European countries will undermine a global economic recovery. The drop has cut the price of stocks in the index to 14.1 times estimated earnings on average, near the lowest level since January 2009. Japan’s Nikkei 225 Stock Average dropped 0.9 percent, even after a Cabinet Office report showed the nation’s machinery orders rose more than economists estimated in April. Australia’s S&P/ASX 200 Index slid 0.2 percent before reports that economists said will show Australian home-loan approvals fell in April. South Korea’s Kospi index was little changed. Nissan, Honda, Canon Futures on the Standard & Poor’s 500 Index fell 0.4 percent. The index rose 1.1 percent yesterday as a rally in commodity markets boosted oil and metals producers, overshadowing losses by semiconductor companies. Nissan, Japan’s third-largest automaker, slid 2.7 percent to 623 yen. Canon , the world’s biggest maker of cameras and office equipment, declined 1.7 percent to 3,630 yen. Honda Motor Co. , which gets 81 percent of its sales outside Japan, fell 2.8 percent to 2,622 yen and was the biggest drag on the MSCI Asia Pacific Index . The yen strengthened to as much as 108.90 per euro today from 109.86 at the 3 p.m. close of Tokyo stock trading yesterday. Against the dollar, the Japanese currency appreciated to as much as 91.24 from 91.77. A stronger yen lowers the value of overseas income at Japanese companies when converted into their home currency. ‘Formidable’ Fiscal Challenge The U.K. government needs to accelerate budget-deficit cuts to protect Britain’s top credit rating, Fitch Ratings said yesterday. “The scale of the United Kingdom’s fiscal challenge is formidable and warrants a strong medium-term consolidation strategy — including a faster pace of deficit reduction than set out in the April 2010 budget,” Fitch said. In Sydney, Newcrest Mining climbed 0.8 percent to A$33.44. Rival St. Barbara Ltd. increased 2.9 percent to 35 Australian cents. Avoca Resources Ltd., an Australian gold exploration company, jumped 5.5 percent to A$2.29. The price of gold climbed to $1,254.50 an ounce in New York yesterday, surpassing the previous high of $1,249.70 set on May 14, as demand for the metal rose among investors seeking a haven from the financial turmoil in Europe. Gold for immediate delivery fell 0.1 percent today to $1,235.30 an ounce. To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net .

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Euro Rises, Sending Oil, S&ampP 500 Higher Gold Surges to Record

June 8, 2010

By Nick Baker June 8 (Bloomberg) — The euro strengthened while oil and U.S. stocks rallied amid speculation the Swiss National Bank sold the franc to safeguard the economic recovery. Gold climbed to a record. The euro increased 0.4 percent to $1.196 and pared its loss against the Swiss franc at 12:31 p.m. in New York. Crude futures rose 0.7 percent to $71.96 a barrel in New York. The Standard & Poor’s 500 Index rallied 0.2 percent to 1,052.78, led by commodity producers including Exxon Mobil Corp. and Freeport- McMoRan Copper & Gold Inc. Gold futures rose as much as 1.1 percent to $1,254.50 an ounce. U.S. stocks recovered from losses driven by semiconductor companies and retailers as traders bet central bankers in Switzerland are selling francs, driving up the euro and commodities prices. Equities had advanced earlier after Federal Reserve Chairman Ben S. Bernanke said the economic recovery is intact. Shares plunged in Europe and gold surged after Fitch Ratings said Britain’s deficit challenge is “formidable.” “There is a lot of value in this market,” said Howard Ward , a money manager at Gamco Investors Inc. which manages $26 billion in Rye, New York. “I would lean against the fear and take advantage of the low prices.” The franc climbed to a record 1.3746 per euro after Switzerland’s Federal Statistics Office said foreign-currency reserves jumped to 232.4 billion Swiss francs ($202 billion) in May, from 153.6 billion francs in April. ‘Exploded’ “Swiss reserves exploded last month,” Christian Lawrence , a foreign-exchange strategist at Royal Bank of Canada in London, said today in an investor note. It calls “into question how long the Swiss National Bank can keep this up.” UBS AG said it ended a recommendation to buy the franc versus the euro after the Swiss currency reached the bank’s forecast of 1.38. The Fed chairman helped alleviate concern about the pace of the economic recovery that following slower-than-estimated jobs growth in the U.S. last month. After losing 14 percent since April 23, the S&P 500 closed at a seven-month low yesterday. Confidence among U.S. small businesses rose in May to the highest level in 20 months as executives planned to add to inventories, a private survey showed. To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net .

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Stocks, Pound, U.S. Futures Drop on U.K. Debt Concern Gold Reaches Record

June 8, 2010

By Claudia Carpenter June 8 (Bloomberg) — European stocks fell for the third day and the pound weakened after Fitch Ratings said Britain’s deficit challenge is “formidable,” adding to concerns that the region’s fiscal crisis is spreading. U.S. futures, copper and oil erased gains, while gold climbed to a record. The Stoxx Europe 600 Index slipped 1.3 percent, dragged down by E.ON AG and Tesco Plc shares, at 10:39 a.m. in London. Futures on the Standard & Poor’s 500 Index dropped less than 0.1 percent. Sterling declined 0.4 percent to $1.4414. Copper fell 0.3 percent, and oil retreated 0.4 percent. Gold futures for August delivery rose to $1,254.50 an ounce in New York. Fitch said the U.K. needs to accelerate plans to reduce its budget deficit. The warning came one day after Prime Minister David Cameron told Britons to expect years of spending cuts, while the European Union pledged tougher sanctions on governments that break deficit rules. “This is not a pretty environment for equity investors,” Dennis Gartman , economist and editor of “The Gartman Letter” said in a Bloomberg radio interview. “Prices are going to continue to more lower. We are revising down ‘guestimates’ for earnings. It’s the start of a bear market.” Benchmark indexes in the U.K., Spain, Germany, France and Italy declined more than 1 percent. E.ON and RWE, Germany’s biggest utilities, dropped more than 2 percent in Frankfurt after Germany signaled plans for levies on the nuclear power industry. BP Plc retreated 3.3 percent in London as the commander of the U.S. response team to the leaking Gulf of Mexico well said it’s still unknown how much crude continues to spill. Tesco, the U.K.’s biggest retailer, fell 2.8 percent after saying Chief Executive Officer Terry Leahy will retire next year. Asian stocks rose for the first time in three days after Federal Reserve Chairman Ben S. Bernanke said the U.S. recovery remains intact. The MSCI Asia Pacific Index gained 0.3 percent. To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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EU to Speed Reviews of Budgets, Tighten Penalties for Excessive Deficits

June 7, 2010

By James G. Neuger June 8 (Bloomberg) — European Union governments vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece-fueled debt crisis that has undermined the euro. Finance ministers agreed to impose fines on countries that fail to deliver on deficit-cutting pledges even before shortfalls surpass the euro region’s limit of 3 percent of gross domestic product. “Up to now, you only got fined for driving through the red light of the 3 percent,” EU President Herman Van Rompuy told reporters late yesterday after meeting with EU finance ministers in Luxembourg. “From now on, you could also be in trouble for crossing the orange light.” To back up the planned tightening of the rules, the ministers also said they will press ahead with deficit cuts next year, balking at U.S. pleas for looser budget policies to help speed the recovery from the worst recession since World War II. The euro has fallen 17 percent this year as the debt crisis exposed cracks in the monetary union and prompted deficit cuts across Europe that may hobble the economic rebound. The euro slid as low as $1.1877 yesterday, the weakest since 2006, before recovering to $1.1917. Under the German-inspired Stability and Growth Pact, countries with deficits above the euro-area limit face fines of as much as 0.5 percent of GDP unless they get the budget back into compliance. Fiscal Crisis No country has been fined during the euro’s 11-year lifespan. Germany, which authored the rules in the 1990s and led the way in diluting them in 2005, is spearheading the campaign to stiffen them again after euro governments put up as much as 860 billion euros ($1 trillion) to contain Greece’s fiscal crisis. Under the revamped system, each government will present its broader assumptions for growth, inflation, taxing and spending in the spring, about six months before national budgets go through parliaments. “Timing is key,” Van Rompuy said. A government plotting a high deficit “will have to justify itself to its peers” and would come under pressure to change course. Countries with overall debt that exceeds the EU limit of 60 percent of GDP would come under extra scrutiny. Proposals to strip repeat deficit offenders of their rights to vote on EU policies are off the table for now because that would require a change to EU treaties, a process that took eight years for the bloc’s current treaty. In-Depth Discussion “We focused on what we can do in the short term and under the current treaty framework,” Van Rompuy said. The first in-depth discussion of the overhaul of EU fiscal legislation coincided with a renewed pledge to keep cutting deficits in 2011. Budgets will remain “neutral” in 2010, becoming “clearly restrictive as of 2011 when recovery is expected to gain momentum,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing yesterday’s meeting of euro-region finance ministers in Luxembourg. Europe’s determination to press ahead with belt-tightening measures defies a June 5 call by U.S. Treasury Secretary Timothy F. Geithner for “stronger domestic demand growth” in countries like Germany with trade surpluses. The government of Germany, Europe’s largest economy, yesterday announced a four-year, 80 billion-euro package of tax increases and spending cuts, and pressed the rest of Europe to follow suit. “Solid finances are the best form of crisis prevention,” German Chancellor Angela Merkel told reporters in Berlin. Industrialized World European forecasts show the U.S. leading the recovery in the industrialized world, with an expansion of 2.8 percent in 2010 outpacing the euro region’s estimated 0.9 percent. The U.S. will remain ahead in 2011, with growth of 2.5 percent beating Europe’s 1.5 percent, the European Commission says. Europe’s economy expanded 0.2 percent in the first quarter, with exports and government spending pacing the third straight quarterly increase. The economy is strained by unemployment of 10.1 percent, the highest in the euro’s 11 1/2-year history, and spending cuts to prevent a Europe-wide debt shock. Investors concerned about the spread of the European debt crisis poured into German bonds yesterday, pushing the 10-year yield as low as 2.54 percent, the lowest since at least 1989, the year the Berlin Wall fell. European stocks dropped, leaving the benchmark Stoxx Europe 600 Index 11 percent below its year- to-date high on April 15. Austerity Programs Greece, Spain, Italy and Portugal are among euro countries with austerity programs in the works. France plans a three-year spending freeze. In the Netherlands, polls point to a victory in June 9 elections by Mark Rutte’s Liberals, which vow to cut spending by 20 billion euros by 2015. Europe-wide efforts “should not leave any doubt as to our determination to halt and to reverse the increase in the debt ratios,” Juncker said. In Britain, the largest of the 11 European Union countries not using the euro, Prime Minister David Cameron prepared voters for the deepest spending cuts in a generation, saying “the overall scale of the problem is even worse than we thought.” To contact the reporter on this story: James G. Neuger in Luxembourg at jneuger@bloomberg.net

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EU to Speed Reviews of Budgets, Tighten Penalties for Excessive Deficits

June 7, 2010

By James G. Neuger June 8 (Bloomberg) — European Union governments vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece-fueled debt crisis that has undermined the euro. Finance ministers agreed to impose fines on countries that fail to deliver on deficit-cutting pledges even before shortfalls surpass the euro region’s limit of 3 percent of gross domestic product. “Up to now, you only got fined for driving through the red light of the 3 percent,” EU President Herman Van Rompuy told reporters late yesterday after meeting with EU finance ministers in Luxembourg. “From now on, you could also be in trouble for crossing the orange light.” To back up the planned tightening of the rules, the ministers also said they will press ahead with deficit cuts next year, balking at U.S. pleas for looser budget policies to help speed the recovery from the worst recession since World War II. The euro has fallen 17 percent this year as the debt crisis exposed cracks in the monetary union and prompted deficit cuts across Europe that may hobble the economic rebound. The euro slid as low as $1.1877 yesterday, the weakest since 2006, before recovering to $1.1917. Under the German-inspired Stability and Growth Pact, countries with deficits above the euro-area limit face fines of as much as 0.5 percent of GDP unless they get the budget back into compliance. Fiscal Crisis No country has been fined during the euro’s 11-year lifespan. Germany, which authored the rules in the 1990s and led the way in diluting them in 2005, is spearheading the campaign to stiffen them again after euro governments put up as much as 860 billion euros ($1 trillion) to contain Greece’s fiscal crisis. Under the revamped system, each government will present its broader assumptions for growth, inflation, taxing and spending in the spring, about six months before national budgets go through parliaments. “Timing is key,” Van Rompuy said. A government plotting a high deficit “will have to justify itself to its peers” and would come under pressure to change course. Countries with overall debt that exceeds the EU limit of 60 percent of GDP would come under extra scrutiny. Proposals to strip repeat deficit offenders of their rights to vote on EU policies are off the table for now because that would require a change to EU treaties, a process that took eight years for the bloc’s current treaty. In-Depth Discussion “We focused on what we can do in the short term and under the current treaty framework,” Van Rompuy said. The first in-depth discussion of the overhaul of EU fiscal legislation coincided with a renewed pledge to keep cutting deficits in 2011. Budgets will remain “neutral” in 2010, becoming “clearly restrictive as of 2011 when recovery is expected to gain momentum,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing yesterday’s meeting of euro-region finance ministers in Luxembourg. Europe’s determination to press ahead with belt-tightening measures defies a June 5 call by U.S. Treasury Secretary Timothy F. Geithner for “stronger domestic demand growth” in countries like Germany with trade surpluses. The government of Germany, Europe’s largest economy, yesterday announced a four-year, 80 billion-euro package of tax increases and spending cuts, and pressed the rest of Europe to follow suit. “Solid finances are the best form of crisis prevention,” German Chancellor Angela Merkel told reporters in Berlin. Industrialized World European forecasts show the U.S. leading the recovery in the industrialized world, with an expansion of 2.8 percent in 2010 outpacing the euro region’s estimated 0.9 percent. The U.S. will remain ahead in 2011, with growth of 2.5 percent beating Europe’s 1.5 percent, the European Commission says. Europe’s economy expanded 0.2 percent in the first quarter, with exports and government spending pacing the third straight quarterly increase. The economy is strained by unemployment of 10.1 percent, the highest in the euro’s 11 1/2-year history, and spending cuts to prevent a Europe-wide debt shock. Investors concerned about the spread of the European debt crisis poured into German bonds yesterday, pushing the 10-year yield as low as 2.54 percent, the lowest since at least 1989, the year the Berlin Wall fell. European stocks dropped, leaving the benchmark Stoxx Europe 600 Index 11 percent below its year- to-date high on April 15. Austerity Programs Greece, Spain, Italy and Portugal are among euro countries with austerity programs in the works. France plans a three-year spending freeze. In the Netherlands, polls point to a victory in June 9 elections by Mark Rutte’s Liberals, which vow to cut spending by 20 billion euros by 2015. Europe-wide efforts “should not leave any doubt as to our determination to halt and to reverse the increase in the debt ratios,” Juncker said. In Britain, the largest of the 11 European Union countries not using the euro, Prime Minister David Cameron prepared voters for the deepest spending cuts in a generation, saying “the overall scale of the problem is even worse than we thought.” To contact the reporter on this story: James G. Neuger in Luxembourg at jneuger@bloomberg.net

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Investors Favor Obama’s America Over BRICs in Poll Showing Lost Confidence

June 7, 2010

By Mike Dorning June 8 (Bloomberg) — The U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis. Investors are putting their money on President Barack Obama ’s stewardship of the U.S. economy even as his job- approval rating has declined, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers. Almost 4 of 10 respondents picked the U.S. as the market presenting the best opportunities in the year ahead. That’s more than double the portion who said so last October, when the U.S. was rated the market posing the greatest downside risk by a plurality of respondents. Lawrence Summers , director of the White House National Economic Council, said this attests to Obama’s success in “restoring the United States to strong economic fundamentals.” He added that “while there remains much to do, the U.S. economy is growing.” “We’ve seen the bottom; we’re firm, and the United States is slowly moving forward,” said Wayne Smith , 51, managing director of fixed-income trading at Uniondale, New York-based Northeast Securities , which manages $3.5 billion. Following the U.S.’s 39 percent rating as the most promising market were Brazil, chosen by 29 percent; China, 28 percent; and India, 27 percent. Those are three of the four so- called BRICs, large emerging markets that also include Russia. Just 6 percent chose Russia. In a poll taken in January, China was the favorite followed by Brazil. Respondents were allowed to pick multiple countries. ‘Least Dirty Shirt’ The U.S. is one of the few relative bright spots in a global market rattled by the Greek debt crisis. Bill Gross , co- chief investment officer of Pacific Investment Management Co. and manager of the world’s largest bond fund, called the U.S. “the least dirty shirt,” in a Bloomberg Radio interview. Forty-two percent of investors now believe the world economy is deteriorating, double the 21 percent who thought so in January. U.S. investors were the most pessimistic about the global economy, with 58 percent saying it is getting worse versus 31 percent of Europeans and 35 percent of Asians. Europeans were the most pessimistic about their own region, with 40 percent viewing it as deteriorating; 21 percent of U.S. investors viewed their home region negatively, while 9 percent in Asia felt that way. International views of the European Union have declined sharply. More than half of respondents believe the EU offers the worst investment opportunities, up from a third who said so in January, when Europe also ranked at the bottom. Debt Crisis The crisis in Greece, where soaring deficits have stirred fears of a government default, has rippled throughout Europe, with credit agencies downgrading sovereign debt in Portugal and Spain. On June 4, stocks slumped as a comment by a Hungarian official that his nation’s economy is in a “very grave situation” fanned concern the debt crisis will spread. The turmoil has drawn a flood of international money into U.S. government debt, with yields on 10-year Treasury notes dropping from 3.99 percent on April 5 to 3.15 percent at 4:18 p.m., New York time yesterday. While the Standard & Poor’s 500 Index has declined more than 13 percent since its April 23 high, the benchmark U.S. stock index is up more than 30 percent since Obama took office. Can’t Keep Up “While American companies cut down the workforce at their plants as fast before as they are now hiring workers back, European companies were not able to respond in a similar way,” said poll respondent Ofir Navot , 35, of Tel Aviv, head of global investments for Ramco Mutual Funds, which manages about $400 million. Investors’ rising confidence in the U.S. economy isn’t reflected in their appraisal of Obama: The poll shows his job- approval rating dropped to 51 percent from 60 percent in January. Investors remain bullish on China’s long-term prospects. More than 6 of 10 believe China will replace the U.S. as the world’s largest economy within 20 years. Almost a quarter believe it will do so within a decade. Respondents don’t share Treasury Secretary Timothy Geithner ’s optimism that China will revalue its currency soon. A majority said it will be at least a year before the country does so. Making Money The quarterly Bloomberg Global Poll of investors, traders and analysts on six continents was conducted June 2-3 by Selzer & Co. , a Des Moines, Iowa-based firm. It is based on interviews with a random sample of 1,001 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.1 percentage points. Even with the pessimism over the global outlook, more investors see a chance to make money in this environment. Thirty-five percent said they are seeing opportunity and taking risks, up from 27 percent who said so in January. Asian investors were especially likely to see rewards ahead, with 48 percent saying they are taking more risks. With poll respondents confident in U.S. growth prospects, the emerging doubts about a global economic recovery haven’t translated into major shifts in views toward asset classes. As in the January poll, stocks are considered the most attractive asset class for the coming year. While commodities were second, the portion of investors choosing them declined to 23 percent from 31 percent. Bearish on Bonds Bonds were chosen as the asset class likely to offer the worst returns, with 36 percent of respondents saying that. Real estate was rated next worst, chosen by 24 percent. Investors in Asia, where there are fears that China’s property market is overheated, were the most pessimistic about real estate, rating it the worst asset to hold. Poll respondents by an almost 2-to-1 margin expect to increase rather than decrease holdings of stocks during the next six months. More than half of investors believe the S&P 500 index will be higher in six months, though sentiments are bearish on the Euro Stoxx 50 index and Britain’s FTSE index. Investors are also bullish on crude oil prices, which usually rise along with economic activity. Forty-nine percent believe oil prices will be higher in six months compared with 24 percent who say they will be lower. The rest expect little change. Gold Seen Rising By a margin of 47 percent to 30 percent, respondents say they expect the price of gold, a traditional hedge against political and economic turmoil, to rise in six months. By a margin of 50 percent to 25 percent, they see yields on the 10- year Treasury note rising. Fears of inflation are muted. Only a little more than a quarter consider it a major threat in “the next couple years.” The regions considered most at risk were China, cited by 19 percent of respondents, followed by the U.S., cited by 17 percent, and the Euro zone, picked by 10 percent. To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story. To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net .

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G-20 Fails on Bank Tax, Calls for Joint &lsquoPrinciples&rsquo

June 6, 2010

By Gonzalo Vina and Theophilos Argitis June 6 (Bloomberg) — Group of 20 nations failed to agree on a proposal to impose a global tax on banks that was aimed at making the financial industry shoulder the cost of bailouts, settling instead for a common set of guidelines. G-20 finance ministers and central bank governors said in a statement in Busan, South Korea, that governments will take account of each nation’s “circumstances and options.” The result allows nations such as Canada, China and Brazil, whose banks suffered less during the global financial crisis, to skip introducing a tax. European countries and the U.S. have advocated the levy. “If we’re living in an ideal world, a global financial tax would be a good idea but in reality, it is almost impossible to implement,” said Tomo Kinoshita , an economist at Nomura Holdings Inc. in Hong Kong. “There are too many obstacles.” Yesterday’s statement leaves in place an initiative to seek tighter global standards for capital levels at banks, which is a “more practical” way to help reduce the risk of financial crises, Kinoshita said. Banks have opposed the effort, warning that the costs may curb credit expansion and economic growth. European governments and the U.S. have advocated a bank tax to be adopted in every major country to prevent lenders from relocating to jurisdictions that don’t charge the levy. The International Monetary Fund was asked by the G-20 last year to recommend how to tax the industry. Ministers yesterday said they now recognized that there’s a “range of policy options” open to countries and agreed instead to adopt “principles” that protect taxpayers and reduce the risks of further crises. Canada’s Opposition Canadian Finance Minister Jim Flaherty , speaking at a press briefing at the conclusion of the two-day G-20 gathering in Busan, said the plan lacked majority backing among G-20 nations and is a “distraction.” He said “there is no agreement” to proceed with a tax. Instead, Canada has proposed that countries force lenders to keep “contingent capital” on hand to ensure taxpayers don’t end up paying the bill for any future bailouts. Such securities could convert to equity in a time of crisis to ensure that lenders remain well capitalized. The IMF recommended that financial institutions’ non- deposit liabilities and the sum of their profit and compensation should be taxed to help pay for future bailouts. Led by Canadian opposition, G-20 officials at a meeting in Washington pushed back talks by ordering the IMF to study the issue further. IMF Task “The problem is not uniformity, the problem is to do things which are consistent and that do not create arbitrage in terms of regulation and taxation,” the fund’s Managing Director Dominique Strauss-Kahn said in Busan, Korea’s second-largest city. The principles will be written in a way that avoids inconsistency in the different systems, he said. The G-20 separately said that “it is critical that our banking regulators develop capital and liquidity rules” tough enough to ensure lenders can withstand further crises. The rules should be agreed by November, with implementation targeted for the end of 2012, the statement said. At stake for banks is the potential need to raise as much as $375 billion in fresh capital under the proposals being discussed, according to estimates by UBS AG. JPMorgan Chase & Co. predicted in February that annual earnings at 13 of the largest banks would drop by $20 billion. Europe, U.S. Michel Pebereau , chairman of BNP Paribas SA, France’s largest bank, and Clemens Boersig , chairman of Deutsche Bank AG, Germany’s biggest, wrote to G-20 leaders last month on behalf of the European Financial Services Round Table, a lobbying group, saying the new rules would harm bank lending more than capital markets. “Most European countries mainly have a banking- dominated financial system,” they wrote, noting that credit outstanding as a percentage of gross domestic product is almost twice as high in the 27-nation EU as in the U.S. U.S. banks have made opposite arguments in their meetings with regulators and in letters to the Basel committee: The rules will harm them more than European and Asian lenders. New definitions of capital wouldn’t count certain assets used only by U.S. banks, and the liquidity standards underrate the stability of deposits insured by the Federal Deposit Insurance Corp., the lenders said. “A fair degree of national discretion will be essential,” the American Bankers Association wrote in April. British Plan Chancellor of the Exchequer George Osborne said that Britain will push ahead with a plan to implement a tax and that he will unveil further details in his June 22 budget. The U.K. wants tax revenue to finance general government expenditure, marking it aside from other European nations who want the tax to fund future bailouts. “If one country goes alone in the bank tax, there will be a risk of regulatory arbitrage,” said Venkatraman Anantha- Nageswaran , who helps manage about $140 billion in assets as global chief investment officer at Bank Julius Baer & Co. in Singapore. To contact the reporters on this story: Gonzalo Vina in Busan, South Korea at gvina@bloomberg.net ; Shamim Adam in Singapore at sadam2@bloomberg.net

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G-20 Fail to Agree on Global Bank Tax, Aim for Capital Rules by November

June 5, 2010

By Gonzalo Vina and Theophilos Argitis June 6 (Bloomberg) — Group of 20 nations failed to agree on a proposal to impose a global tax on banks that was aimed at making the financial industry shoulder the cost of bailouts, settling instead for a common set of guidelines. G-20 finance ministers and central bank governors said in a statement in Busan, South Korea, that governments will take account of each nation’s “circumstances and options.” The result allows nations such as Canada, China and Brazil, whose banks suffered less during the global financial crisis, to skip introducing a tax. European countries and the U.S. have advocated the levy. “If we’re living in an ideal world, a global financial tax would be a good idea but in reality, it is almost impossible to implement,” said Tomo Kinoshita , an economist at Nomura Holdings Inc. in Hong Kong. “There are too many obstacles.” Yesterday’s statement leaves in place an initiative to seek tighter global standards for capital levels at banks, which is a “more practical” way to help reduce the risk of financial crises, Kinoshita said. Banks have opposed the effort, warning that the costs may curb credit expansion and economic growth. European governments and the U.S. have advocated a bank tax to be adopted in every major country to prevent lenders from relocating to jurisdictions that don’t charge the levy. The International Monetary Fund was asked by the G-20 last year to recommend how to tax the industry. Ministers yesterday said they now recognized that there’s a “range of policy options” open to countries and agreed instead to adopt “principles” that protect taxpayers and reduce the risks of further crises. Canada’s Opposition Canadian Finance Minister Jim Flaherty , speaking at a press briefing at the conclusion of the two-day G-20 gathering in Busan, said the plan lacked majority backing among G-20 nations and is a “distraction.” He said “there is no agreement” to proceed with a tax. Instead, Canada has proposed that countries force lenders to keep “contingent capital” on hand to ensure taxpayers don’t end up paying the bill for any future bailouts. Such securities could convert to equity in a time of crisis to ensure that lenders remain well capitalized. The IMF recommended that financial institutions’ non- deposit liabilities and the sum of their profit and compensation should be taxed to help pay for future bailouts. Led by Canadian opposition, G-20 officials at a meeting in Washington pushed back talks by ordering the IMF to study the issue further. IMF Task “The problem is not uniformity, the problem is to do things which are consistent and that do not create arbitrage in terms of regulation and taxation,” the fund’s Managing Director Dominique Strauss-Kahn said in Busan, Korea’s second-largest city. The principles will be written in a way that avoids inconsistency in the different systems, he said. The G-20 separately said that “it is critical that our banking regulators develop capital and liquidity rules” tough enough to ensure lenders can withstand further crises. The rules should be agreed by November, with implementation targeted for the end of 2012, the statement said. Chancellor of the Exchequer George Osborne said that Britain will push ahead with a plan to implement a tax and that he will unveil further details in his June 22 budget. The U.K. wants tax revenue to finance general government expenditure, marking it aside from other European nations who want the tax to fund future bailouts. “If one country goes alone in the bank tax, there will be a risk of regulatory arbitrage,” said Venkatraman Anantha- Nageswaran , who helps manage about $140 billion in assets as global chief investment officer at Bank Julius Baer & Co. in Singapore. To contact the reporters on this story: Gonzalo Vina in Busan, South Korea at gvina@bloomberg.net ; Shamim Adam in Singapore at sadam2@bloomberg.net

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G-20 Fail to Agree on Global Bank Tax, Aim for Capital Rules by November4

June 5, 2010

By Gonzalo Vina and Theophilos Argitis June 5 (Bloomberg) — Group of 20 nations failed to agree on an effort to impose a global tax on banks that was aimed at making the financial industry shoulder the cost of bailouts, settling instead for a common set of guidelines. G-20 finance ministers and central bank governors said in a statement in Busan, South Korea, that governments will take account of each nation’s “circumstances and options.” The result allows nations such as Canada, China and Brazil, whose banks suffered less during the global financial crisis, to skip introducing a tax. European countries and the U.S. have advocated the levy. “If we’re living in an ideal world, a global financial tax would be a good idea but in reality, it is almost impossible to implement,” said Tomo Kinoshita , an economist at Nomura Holdings Inc. in Hong Kong. “There are too many obstacles.” Today’s statement leaves in place an initiative to seek tighter global standards for capital levels at banks, which is a “more practical” way to help reduce the risk of financial crises, Kinoshita said. Banks have opposed the effort, warning that the costs may curb credit expansion and economic growth. European governments and the U.S. have advocated a bank tax to be adopted in every major country to prevent lenders from relocating to jurisdictions that don’t charge the levy. The International Monetary Fund was asked by the G-20 last year to recommend how to tax the industry. Ministers today said they now recognized that there’s a “range of policy options” open to countries and agreed instead to adopt “principles” that protect taxpayers and reduce the risks of further crises. Canada’s Opposition Canadian Finance Minister Jim Flaherty , speaking at a press briefing at the conclusion of the two-day G-20 gathering in Busan, said the plan lacked majority backing among G-20 nations and is a “distraction.” He said “there is no agreement” to proceed with a tax. Instead, Canada has proposed that countries force lenders to keep “contingent capital” on hand to ensure taxpayers don’t end up paying the bill for any future bailouts. Such securities could convert to equity in a time of crisis to ensure that lenders remain well capitalized. The IMF recommended that financial institutions’ non- deposit liabilities and the sum of their profit and compensation should be taxed to help pay for future bailouts. Led by Canadian opposition, G-20 officials at a meeting in Washington pushed back talks by ordering the IMF to study the issue further. IMF Task “The problem is not uniformity, the problem is to do things which are consistent and that do not create arbitrage in terms of regulation and taxation,” the fund’s Managing Director Dominique Strauss-Kahn said in Busan, Korea’s second-largest city. The principles will be written in a way that avoids inconsistency in the different systems, he said. The G-20 separately said that “it is critical that our banking regulators develop capital and liquidity rules” tough enough to ensure lenders can withstand further crises. The rules should be agreed by November, with implementation targeted for the end of 2012, the statement said. Chancellor of the Exchequer George Osborne said that Britain will push ahead with a plan to implement a tax and that he will unveil further details in his June 22 budget. The U.K. wants tax revenue to finance general government expenditure, marking it aside from other European nations who want the tax to fund future bailouts. “If one country goes alone in the bank tax, there will be a risk of regulatory arbitrage,” said Venkatraman Anantha- Nageswaran , who helps manage about $140 billion in assets as global chief investment officer at Bank Julius Baer & Co. in Singapore. To contact the reporters on this story: Gonzalo Vina in Busan, South Korea at gvina@bloomberg.net ; Shamim Adam in Singapore at sadam2@bloomberg.net

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BP&rsquos Hayward Faces Downgrades, Investors as Spill May Cost Job

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward faces rising speculation that the worsening oil spill will cost him his job as he grapples with worried investors, rating downgrades, U.S. politicians and public anger over the company’s inability to control the crisis. Hayward will address London’s investors and analysts tomorrow, spokesman Mark Salt said by phone. Moody’s Investors Service and Fitch Ratings downgraded BP today because the costs from the accident will hurt finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to pay a dividend. Criticism of Hayward grew this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company may become a takeover target. Yesterday, he apologized for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividends. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP sheared away the riser from its leaking Gulf of Mexico well today, a precursor to the company’s attempt to lower a cap onto the leak and divert oil to ships on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. The 53-year-old was born in Slough, England, 25 miles west of London and studied in Birmingham and then in Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would raise production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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JPMorgan London Unit Gets Record Fine From U.K.&rsquos FSA

June 3, 2010

By Caroline Binham June 3 (Bloomberg) — JPMorgan Chase & Co. ’s London unit was fined a record 33.3 million pounds ($48.6 million) by Britain’s financial regulator for not properly separating client money from the firm’s accounts. An average of $8.6 billion wasn’t properly segregated by JPMorgan Securities Ltd. in an error that went undetected for seven years, the Financial Services Authority said in a statement today. As much as $23 billion of client money held by the bank’s futures and options business wasn’t put in separate overnight customer accounts between 2002 and 2009, the FSA said. The bankruptcy of Lehman Brothers Holdings Inc. , which roiled financial markets worldwide in 2008, forced the FSA to put financial companies on notice that they must properly separate client funds. New York-based Lehman’s creditors filed more than $830 billion of claims and regulators worldwide are trying to unravel how money moved through its global units. “The FSA has repeatedly emphasized the importance of ensuring that client money is adequately protected,” said Margaret Cole , the FSA’s enforcement director. “This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules. Firms need to sit up and take notice of this action — we have several more cases in the pipeline.” Had the company gone bankrupt, clients could have lost all their money because they would have been unsecured creditors rather than having the right to claim back money from ring- fenced accounts, according to the regulator. Reduced Fine JPMorgan spokesman David Wells declined to comment. The New York-based bank escaped a 47.6 million-pound fine by cooperating with the regulator, according to the FSA’s statement. No clients lost money, and the mistake didn’t affect the bank’s financial reporting, the FSA said. JPMorgan said in August that it may have mixed 8.5 billion pounds of clients’ money with its own funds, and that it hired KPMG LLP to review its accounts. The breach was “regretful,” according to an internal memo by JPMorgan Securities Chief Executive Officer Daniel Pinto and obtained by Bloomberg News. “The settlement involves us paying a fine based on a fixed formula of 1 percent of the average amount of client money held by our F&O business,” Pinto said in the memo. “As the FSA acknowledges, JPMorgan Securities Ltd. is one of the largest holders of client money in the U.K., and the size of the fine reflects that.” ‘Patently Inconsistent’ The error stemmed from the 2000 merger of JPMorgan & Co. with the Chase Manhattan Corp., according to the FSA’s investigative report . After the merger the combined treasury function didn’t recognize client money from the futures and options business, according to the report. The regulator said in January that two firms that it didn’t identify faced a penalty after the FSA started investigations into how they held client money. Those inquiries were started at the same time as a London judge ruled that the FSA’s client- money rules were “patently inconsistent and flawed” in a case over the administration of Lehman’s European unit. The regulator said at the time that it would consult on changes to parts of its rulebook, specifically over transfer arrangements and on firms keeping buffers that could top up client-money accounts. Proposals are scheduled later this year. “The client-money regime was neglected by the FSA prior to the financial crisis,” said Darren Fox , a regulatory lawyer at Simmons & Simmons advising a hedge fund in the Lehman case. “I wonder whether today’s fine is symptomatic of the FSA’s guilty conscience in relation to the Lehman client-money failings, for which the FSA received a fair bit of flak.” Tougher Approach Today’s fine is nearly twice as much the then-record 17 million-pound fine levied against Royal Dutch Shell Plc in 2004 for market abuse. The agency has said fines will increase as part of its new tougher approach following the financial crisis. In some cases, penalty size will triple. The U.K.’s coalition government has said it will merge some of the FSA’s enforcement powers with other prosecutors to form a white-collar crime agency even in the wake of increased penalties and criminal cases filed by the FSA. The FSA may also lose its independence to the Bank of England and Chancellor of the Exchequer George Osborne is considering scrapping it, the Guardian newspaper reported today, citing government sources. “It’s good to see they’re doing their job; they’ve got to crack down on abuses,” Vince Cable , the Liberal Democrat lawmaker who is the coalition government’s business secretary, said of today’s fine in a Bloomberg TV interview. “The basic point, which I know the chancellor is trying to ensure, is that the Bank of England has proper oversight of systemic risk. How you do it administratively is not an easy task.” Amid the uncertainty, the FSA enforcement team separately suffered a defeat today with its first loss of an insider- trading trial. Two lawyers and a former chief financial officer were cleared today by a London court in the regulator’s fourth criminal case of insider dealing to reach jury trial. To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net

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BP’s Hayward Faces Ratings Downgrade, Investor Wrath as Spill May Cost Job

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward faces rising speculation that the worsening oil spill will cost him his job as he grapples with worried investors, rating downgrades, U.S. politicians and public anger over the company’s inability to control the crisis. Hayward will address London’s investors and analysts tomorrow, spokesman Mark Salt said by phone. Moody’s Investors Service and Fitch Ratings downgraded BP today because the costs from the accident will hurt finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to pay a dividend. Criticism of Hayward grew this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company may become a takeover target. Yesterday, he apologized for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividends. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP sheared away the riser from its leaking Gulf of Mexico well today, a precursor to the company’s attempt to lower a cap onto the leak and divert oil to ships on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. The 53-year-old was born in Slough, England, 25 miles west of London and studied in Birmingham and then in Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would raise production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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BP Chief to Address Investors Amid Speculation He May Be Forced to Resign

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a conference call with investors and analysts tomorrow, spokesman Mark Salt said in a telephone interview. Fitch Ratings downgraded BP to AA from AA+ today because the cost of dealing with the accident will hurt the company’s finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to make dividend payments. Criticism of Hayward has mounted this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company could become a takeover target. Yesterday, Hayward had to apologize for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividend payments. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. Hayward, 53, was born in Slough, England, 25 miles west of London. He studied in Birmingham and then Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would increase production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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BP Chief to Address Investors Amid Speculation He May Be Forced to Resign

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a conference call with investors and analysts tomorrow, spokesman Mark Salt said in a telephone interview. Fitch Ratings downgraded BP to AA from AA+ today because the cost of dealing with the accident will hurt the company’s finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to make dividend payments. Criticism of Hayward has mounted this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company could become a takeover target. Yesterday, Hayward had to apologize for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividend payments. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Improve Safety Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. Hayward, 53, was born in Slough, England, 25 miles west of London. He studied in Birmingham and then Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would increase production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

Read the full article →

BP’s Hayward Will Address Investors Amid Speculation He May Be Forced Out

June 3, 2010

By Brian Swint June 3 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward will address investors tomorrow as his handling of the worst oil spill in U.S. history prompts speculation he may be forced to leave the company. Hayward, leading BP’s effort to contain the spill in the Gulf of Mexico, will speak on a call with investors and analysts tomorrow, spokesman Mark Salt said by phone. Moody’s Investors Service and Fitch Ratings downgraded BP today because the costs from the accident will hurt finances. Two U.S. senators said yesterday it would be “unfathomable” for BP to pay a dividend. Criticism of Hayward grew this week after BP’s failure to stem the flow from the damaged well caused the biggest share price drop in 18 years and raised the risk the London-based company may become a takeover target. Yesterday, he apologized for comments last week that he wanted his “life back.” “The pressure is on Hayward at the moment, primarily from politicians,” said David Paterson, head of corporate governance at the National Association of Pension Funds in London. “Investors clearly will want some answers in order to understand what the long-term future for the company is.” More than 40 billion pounds ($59 billion) has been wiped off the value of BP since the April 20 explosion that killed 11 workers on the Deepwater Horizon rig. Credit Suisse said yesterday the disaster may cost BP as much as $37 billion, almost double this year’s likely profit, risking a cut in dividends. Dividend Cut “There is a question mark over the chief executive officer,” said Colin McLean , of SVM Asset Management Ltd. in Edinburgh, which holds BP shares. “The dividend will continue but be cut. A quarter or a third is quite possible.” BP paid a dividend of 56 cents a share last year. If it maintains it, the ratio of dividend to the current share price would be 9.3 percent, more than any of the company’s 18 global peers, according to Bloomberg data. Irish bookmaker Paddy Power offered even odds that Hayward will leave his post by the end of year. The New York Daily News yesterday called him “the most hated — and clueless — man in America” for his handling of the crisis. “It looks increasingly likely that heads will roll, and Tony will be in the frame,” Dougie Youngson , an analyst at Arbuthnot Securities Ltd. in London, said in a Bloomberg Television interview. “The longer these things go on, the shakier things look for the company.” Under Fire Hayward, whose call tomorrow will be relayed on BP’s website, has come under fire from lawmakers after BP initially underestimated the size of the leak, starting with 1,000 barrels a day and then raising it to 5,000 barrels a day. U.S. Geological Survey and science adviser Marcia McNutt said May 27 the well may have been gushing 19,000 barrels a day. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP is trying again today to sever the pipe to install a device that will divert the crude to a ship on the surface. An attempt to plug the well with mud and debris failed last weekend. That means that the flow of oil from the well probably won’t be stopped until August, when the drilling of relief wells is scheduled for completion. Hayward’s Apology Hayward apologized yesterday for what he called “hurtful” comments saying that he wanted the spill to end in order to get “his life back.” That followed comments in which he said that the environmental impact of the spill would be “very, very modest” and that the amount of oil and dispersant is tiny compared to the size of the Gulf. Hayward spent much of his first three years as CEO working to improve BP’s safety record after a series of accidents, including the deadly March 2005 Texas City refinery explosion that helped bring down his predecessor, John Browne . “Safety has been a major plank of Hayward’s tenure,” the National Association of Pension Funds’ Paterson said. Unlike Browne, Hayward didn’t attend Oxford or Cambridge, Britain’s most elite universities. The 53-year-old was born in Slough, England, 25 miles west of London and studied in Birmingham and then in Edinburgh, where he earned a PhD in geology in 1982. He joined BP the same year to work in the North Sea and worked in Asia, South America and the U.S. before becoming CEO in 2007. Hayward lowered BP’s operating costs and bolstered production, last year overtaking the output of Exxon Mobil Corp., the world’s biggest energy company. In March, he said the company would raise production by as much as 2 percent a year through 2015. “Hayward only just got his feet under the table and is highly regarded within the company,” said Peter Hitchens , an analyst at Panmure Gordon in London. “I don’t think Hayward will step down, but you can never rule these things out. BP is starting to be seen as a walking catastrophe.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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JPMorgan Fined Record $49 Million for Failing to Isolate U.K. Client Cash

June 3, 2010

By Caroline Binham June 3 (Bloomberg) — JPMorgan Chase & Co. ’s London unit was fined a record 33.3 million pounds ($48.9 million) by Britain’s financial regulator for not properly separating client money from the firm’s accounts. An average of $8.6 billion wasn’t properly segregated by JPMorgan Securities Ltd. in an error that went undetected for seven years, the Financial Services Authority said in a statement today. Client money held by the bank’s futures and options business wasn’t put in a separate overnight customer account, the FSA said. The bankruptcy of Lehman Brothers Holdings Inc. , which roiled financial markets worldwide in 2008, forced the regulator to put financial companies on notice that they must properly separate client funds. New York-based Lehman’s creditors filed more than $830 billion of claims and regulators worldwide are trying to unravel how money moved through its global units. “The FSA has repeatedly emphasized the importance of ensuring that client money is adequately protected,” said Margaret Cole , the FSA Enforcement Director. “This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules. Firms need to sit up and take notice of this action — we have several more cases in the pipeline.” Had the company gone bankrupt, clients could have lost all their money, according to the regulator. Reduced Fine JPMorgan spokesman David Wells declined to comment. The New York-based bank escaped a 47.6 million-pound fine by cooperating with the regulator, according to the FSA’s statement. No clients lost money, and the mistake didn’t affect the bank’s financial reporting, the FSA said. The fine is nearly twice as much the 17 million-pound fine levied against Royal Dutch Shell Plc in 2004 for market abuse. The 33.3 million pounds represents 1 percent of the average amount of client money that wasn’t properly separated, according to the regulator’s statement. The agency has said fines will increase as part of its new tougher approach following the financial crisis. In some cases, penalty size will triple. To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net

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RBS Securities Said to Hire Credit Suisse’s Achoa for Debt Capital Markets

June 1, 2010

By Drew Benson June 1 (Bloomberg) — Charles Achoa is joining RBS Securities Inc. as head of Latin America debt capital markets after 13 years at Credit Suisse Group AG, according to a person familiar with the situation. Brazilian-born Achoa is slated to start with the unit of Royal Bank of Scotland Group Plc, Britain’s biggest government- owned bank, in August, and he will be based in Stamford, Connecticut, said the person, who declined to be identified because Achoa hasn’t started his new job. RBS Securities spokesman Michael Geller declined to comment. Credit Suisse spokeswoman Karen Laureano-Rikardsen confirmed that Achoa left the company last month. E-mails and a phone call to Achoa weren’t returned. To contact the reporters on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net

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Bank of England’s Posen Sees Low Risk of U.K. Economy `Turning Japanese’

May 25, 2010

By Scott Hamilton May 25 (Bloomberg) — Bank of England policy maker Adam Posen said the U.K. and U.S. economies are at a “low risk” of following Japan into a so-called lost decade of stagnation even as the threat of deflation remains. “The U.K. and U.S. economies are at low risk of turning Japanese in the sense of having recurrent recessions through macroeconomic policy mistakes,” Posen said in a speech at the London School of Economics yesterday. Still, “we all share some risks and problems in common with Japan circa 1995” and deflation “cannot be ruled out.” Britain’s economy probably grew faster than initially estimated in the first quarter as the recovery strengthened, data today may show . Japan’s so-called lost decade, which Posen refers to as its “Great Recession,” was a period during the 1990s in which the economy slipped in and out of recession and grew at an average rate of about 1 percent a year. When a “large negative shock” risks a severe economic contraction, central bankers and governments “have to intervene and do so proactively,” said Posen, who joined the Bank of England’s Monetary Policy Committee last year. “It is impossible to completely offset such negative structural effects, and unfortunately, I believe that there is reason to think they will be larger and more immediate in the U.K. today than they were in Japan in the 1990s.” ‘Less Room’ The U.K. “worryingly combines a couple of financial parallels to Japan,” which include dependence on a few large banks for sources of credit and a high level of savings amongst companies that may indicate they may be slow to increase investment, Posen said. Also, the U.K. has “far less room for fiscal action to compensate for them than Japan had.” The policy maker said that while the U.K. export outlook may benefit from the pound’s weakness, foreign sales may be restrained by “poor external demand.” The pound has fallen about 25 percent against a basket of currencies since the start of 2007. “One major problem which Japan did not face during its Great Recession was poor prospects for external demand and the need to reallocate productive resources across export sectors,” Posen said. “The U.K., U.S., and many euro-area economies do now face this challenge simultaneously, which may limit the pace of, and our share in, the global recovery.” With Europe accounting for about half of the British exports, weak economic growth on the continent may hurt the U.K. economy in particular, Posen said. The prospects for “strong growth in most of the euro area are rather dim for the next several years,” he said. GDP Report Data today may show the U.K.’s economic recovery was stronger than previously measured in the first quarter. Gross domestic product rose 0.3 percent, instead of the 0.2 percent initially estimated, according to the median forecast of 28 economists in a Bloomberg News survey. The Office for National Statistics will release that data at 9:30 a.m. in London. Bank of England officials voted unanimously on May 10 to keep their bond purchase plan at 200 billion pounds ($289 billion) as risks to economic growth from Europe’s debt crisis outweighed concerns about faster inflation. Inflation accelerated to 3.7 percent in April, the fastest pace in 17 months and exceeding the government’s upper 3 percent limit. Posen said in a footnote to his speech that this deviation is preferable to deflation. “No, I am not happy” about the overshoot, Posen said. “If this proves to be other than temporary factors at work, the MPC should take action. But I’d certainly rather have us temporarily overshooting by around 1 percent than facing oncoming deflation.” During questions, Posen said that he can see “the end of the road” for Britain’s fiscal stimulus and the nation is “aware” of the risks to extending it too long. To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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Ian Welsh: As the Euro and the Pound come under pressure bend over and kiss Europe’s economy goodbye

May 24, 2010

The catch-22 continues. First, the Euro under pressure: Global Markets Overview: A sudden drop in the single currency reverses an early tentative advance for stocks as traders once again frett about the fragility of the eurozone economy Second, the Pound under pressure: Speculators extended their short positions in sterling to record levels after the recent UK election as worries escalated over the government’s finances Third, a usterity in Britain: Britain will be a “leading voice for fiscal responsibility” within Europe as it embarks on a sustained programme of cutting public spending, chancellor George Osborne said on Monday. Announcing an initial £6.2bn of cuts for the current financial year, Mr Osborne said it was important to cut the deficit urgently so that debt repayments did not “spiral out of control.” Fourth, a bank in Spain goes under: The euro came under renewed attack on Monday as concerns over Europe’s fiscal problems intensified after Spain’s central bank took control of a savings bank.. A 146-year-old lender owned by the Catholic Church, was taken over by the Bank of Spain in the latest move by the central bank to restructure the country’s troubled mutually owned banks, or “cajas”. Here’s the catch-22. Investors are worried about deficits, so they get out of bonds or demand higher bond rates and attack currencies. The response to that by governments is to slash spending: austerity. But austerity will crash out the economy, which will hurt the stock market and damage the ability of governments to pay their debts. As long as governments feel they are at the mercy of the hot money, and as long as the hot money insists that governments both be fiscally austere and have good economies, there is no way out. Notice, that while China has significant issues, it does not have this issue because it does not rely on hot money. No smart government should. Currency flows are far too fast, not only should there be a tax on all currency flows but every smart country should make it essentially impossible to move large amounts of money in and out of its economy quickly without taking a huge haircut. Flighty money is more trouble than it’s worth. Money that wants to come, and stay, and really invest in the economy should be welcome, but fast money should be heavily discouraged. The harm done by such money is far larger than the good. Likewise the hot money needs to be taught a lesson. Such “investors” seem to think that they deserve higher than market returns in exchange for lending money. The people lending money are expected to bear all the risk, and expected to get less than market returns (since they’re giving the surplus to the hot money). Would you borrow money under such circumstances? Of course not, which is why no one who doesn’t have a sure thing does, which is why the economy doesn’t grow, because the idle money thinks it deserves most of the returns and none of the risk, and entrepreneurs aren’t interested in that deal.

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Retirement At 60? Europe Faced With Cuts In Generous Benefit System

May 24, 2010

LONDON — Six weeks of vacation a year. Retirement at 60. Thousands of euros for having a baby. A good university education for less than the cost of a laptop. The system known as the European welfare state was built after World War II as the keystone of a shared prosperity meant to prevent future conflict. Generous lifelong benefits have since become a defining feature of modern Europe. Now the welfare state – cherished by many Europeans as an alternative to what they see as dog-eat-dog American capitalism – is coming under its most serious threat in decades: Europe’s sovereign debt crisis. Deep budget cuts are under way across Europe. Although the first round is focused mostly on government payrolls – the least politically explosive target – welfare benefits are looking increasingly vulnerable. “The current welfare state is unaffordable,” said Uri Dadush, director of the Carnegie Endowment’s International Economics Program. “The crisis has made the day of reckoning closer by several years in virtually all the industrial countries.” Germany will decide next month just how to cut at least 3 billion euros ($3.75 billion) from the budget. The government is suggesting for the first time that it could make fresh cuts to unemployment benefits that include giving Germans under 50 about 60 percent of their last salary before taxes for up to a year. That benefit itself emerged after cuts to an even more generous package about five years ago. “We have to adjust our social security systems in a way that they motivate people to accept regular work and do not give counterproductive incentives,” German Finance Minister Wolfgang Schaeuble told news weekly Frankfurter Allgemeine Sonntagszeitung on Saturday. The uncertainty over the future of the welfare state is undermining the continent’s self-image at a time when other key elements of post-war European identity are fraying. Large-scale immigration from outside Europe is challenging the continent’s assumptions about its dedication to tolerance and liberty as countries move to control individual clothing – the Islamic veil – in the name of freedom and equality. Deeply wary of military conflict, many nations now find themselves nonetheless mired in Afghanistan on behalf of what was supposed to be a North Atlantic alliance, shying away from wholesale pullout while doing their utmost to keep troops from actual combat. Demographers and economists began warning decades ago that social welfare was doomed by the aging of Europe’s baby boomers. Some governments had been trimming and reforming, but now almost all are scrambling to close deficits in order to prevent a wider collapse of confidence in the euro. “We need to change, to adapt … for the sake of the protection of our social model,” European Union Commissioner Joaquin Almunia of Spain told reporters in Stockholm Thursday. The move is risky: experts warn the cuts could undermine the growth needed to pull budgets back on a sustainable path. On Monday, Britain unveils 6 billion pounds ($8.6 billion) in cuts – mostly to government payrolls and expenses. The government has promised to raise the age at which citizens receive a state pension – up from 60 to 65 for women, and from 65 to 66 for men. It also plans to toughen the welfare regime, requiring the unemployed to try to find jobs in order to collect benefits. Britain says it will limit child tax credits and scrap a 250-pound ($360) payment to the families of every newborn. Ministers are reviewing the long-term affordability of the country’s generous public sector pensions. Funding for Britain’s nationalized health care service will be protected under the new government, however, and should rise each year to 2015. France’s conservative government is focusing on raising the retirement age. Many workers can now retire at 60 with 50 percent of their average salary. Extra funds are available for retired civil servants, those with three or more children, military veterans and others. A parliamentary debate is planned for September. Unions in France are organizing a national day of protest marches and strikes on Thursday to demand protection of wages and the retirement age. In Spain, billions in cuts to state salaries go into effect next month, and the Socialist government has frozen increases in pensions meant to compensate for inflation for at least two years. “They’ve hit us really hard,” said Federico Carbonero, 92, a retired soldier. He said he was unlikely to live long enough to see the worst of the pension freeze, but had no doubts he would have to start relying on savings to maintain his lifestyle. Spain is cutting assistance payments for disabled people by 300 million euros ($375 million) and did away with a three-year-old bonus of 2,500 euros ($3,124.25) per new baby. It also has proposed hiking the retirement age for men from 65 to 67. Countries in northern Europe have done a far better of reforming social welfare and have unemployment systems that focus on re-employing people instead of making their unemployment comfortable, said Gayle Allard, a professor of economic environment and country analysis at the Instituto de Empresa in Madrid. Denmark and other Nordic countries are known for the world’s highest taxes and most generous cradle-to-grave benefits. Denmark has implemented a system known broadly as “flexicurity,” which combines flexibility for employers to hire and fire workers with financial security and training to prepare for new jobs. Denmark had a 7.5 percent unemployment rate in the first quarter of this year, well below the EU average of 9.6 percent. Swedish and Finnish unemployment stood at 8.9 percent. Norway, with some of the world’s most generous unemployment benefits fully funded by oil for the forseeable future, has Europe’s lowest jobless rate, just 3 percent in April. Southern European countries that have not moved toward reforming welfare in the same ways are paying a steep price. After sharp cutbacks imposed as the condition of an international bailout this month, Greeks must now contribute to pension funds for 40 instead of 37 years before retiring, and the age of early retirement is set to 60 at the earliest. Civil servants with monthly salaries of above 3,000 euros ($3,750) will lose two extra months of salary – one paid at Christmas, the other split between Easter and summer vacation. In Portugal, seen as another potential candidate for bailout, the government is focusing on hikes in income, corporate and sales taxes and has avoided drastic changes to welfare entitlements. Unemployment benefits will be cut somewhat and the out-of-work will have to accept any job paying more than 10 percent more than what they would receive in unemployment benefits. The government is also stepping up checks on welfare claims, freezing public sector pay and slicing public investment. “There’s been a lack of willingness to shift away from welfare as purely social protection towards an approach which has been in much of northern Europe in recent years, which is welfare as social investment,” said Iain Begg, a professor at the London School of Economics and Political Science’s European Institute. Otto Fricke, a budget expert for the Free Democrats, the coalition partner of German Chancellor Angela Merkel’s Christian Democratic Union, told The Associated Press that no decisions on cuts have been made, but everything is on the table except education, pension funds and financial aid to developing countries. At least one high-ranking CDU member has called for the idea of protecting education to be re-examined, however. German public education, which was virtually free until 2005, when some of Germany’s 16 states started charging tuition fees of 1000 euros ($1,250) a year. Virtually all Germany’s students pay that much or less to attend state-funded universities, including elite institutions. Education isn’t as cheap elsewhere in Europe but the 3,290 pounds ($4,720) per year paid by British students at Cambridge is still far less than Americans pay at comparable schools like Harvard, where annual tuition comes in just shy of $35,000. The idea of cutting education is proving hard to swallow in the face of Germany’s promise to contribute up to 147.6 billion euros ($184.5 billion) in loan guarantees to protect Greece and other countries that use the euro from bankruptcy. “I am worried that this crisis will also affect me on a personal level, for example, that universities in Germany will raise the tuition in order to pay the loan they give to Greece,” said Karoline Daederich, a 22-year-old university student from Berlin. ____ Associated Press writers Juergen Baetz and Kirsten Grieshaber in Berlin, Malin Rising and Karl Ritter in Stockholm, David Stringer in London, Veronika Oleksyn in Vienna, Harold Heckle in Madrid, Elaine Ganley in Paris, Elena Becatoros in Athens and Barry Hatton in Lisbon contributed to this report.

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Emerging Market Stocks, Commodities Rally, Led by China; U.S. Futures Drop

May 24, 2010

By Gavin Serkin May 24 (Bloomberg) — Emerging-market stocks gained, lifting the benchmark index by the most in eight days, and commodities rallied on speculation China will delay efforts to cool economic growth. U.S. stock index futures fell. The MSCI Emerging Markets Index advanced 0.6 percent as of 10:14 a.m. in London as the Shanghai Composite Index jumped the most in seven months. The Stoxx Europe 600 Index rose 0.3 percent, rebounding from a six-month low. Futures on the Standard & Poor’s 500 Index fell 0.5 percent after the U.S. benchmark index advanced 1.5 percent on May 21. Copper rose for a third day and palladium for a second day. The ruble strengthened the most since January against the euro. The euro declined against all 16 of its most-traded peers. President Hu Jintao said China will move gradually and independently in changing the nation’s exchange-rate mechanism, as talks with the U.S. opened in Beijing today. China should be cautious in introducing new tightening measures because the global economic environment is complex, Xu Lianzhong , an official with the National Development and Reform Commission’s price monitoring center, wrote in a commentary published today in the China Securities Journal. “The market is expecting a softening in the government’s stance on tightening given the uncertain outlook on global growth,” said Larry Wan , Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million. China’s Gains The Shanghai Composite jumped 3.5 percent, paring its retreat this year to 18 percent. China Vanke Co. , the nation’s biggest listed developer by market value, surged 4.9 percent. India’s Bombay Stock Exchange Sensitive Index advanced the most in two weeks as Citigroup Inc. said the benchmark climb 10 percent by December. Reliance Natural Resources Ltd. soared 22 percent in Mumbai after Chairman Anil Ambani and his brother Mukesh Ambani agreed to scrap a deal that prevented the billionaires from competing with each other in business. The decline in U.S. futures indicated the S&P 500 may pare some of its late rally on May 21, when it broke a three-day losing streak as investors speculated equities may have fallen too much following a 12 percent retreat since April 23. Sales of U.S. previously owned homes probably rose 5.6 percent in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit, economists said before a report from the National Association of Realtors at 10:00 a.m. in Washington. Metals Advance In London, Rio Tinto Group , the world’s third-largest mining company, gained 2.1 percent as base metals advanced. Barratt Developments Plc rose 3.2 percent after JPMorgan Chase & Co. recommended Britain’s biggest homebuilder by volume. Prysmian SpA rallied 2.4 percent in Milan on a report a group of investors are considering buying a stake in the company. Markets including Switzerland, Austria, Norway, Denmark and Greece are closed today for public holidays. Copper for delivery in three months gained 0.5 percent to $6,881 a metric ton on the London Metal Exchange. Nickel and zinc also advanced. Gold for immediate delivery added 0.8 percent to $1,185.89 an ounce and palladium by 2.3 percent to $446.60 an ounce. Crude oil for July delivery rose 0.4 percent to $70.28 a barrel in New York trading. The euro weakened 1.1 percent to $1.2436 and 111.82 yen. The Dollar Index, which tracks the currency against those of six major U.S. trading partners, rose for the first time in four days, climbing 0.8 percent. Bonds Climb Government bonds rose, with the yield on the 10-year Treasury dropping 4 basis points to 3.21 percent. German 10-year government bonds advanced for a fifth day, driving the yield almost 2 basis points lower to 2.65 percent, after earlier sliding to within a basis point of the lowest level since at least 1990. The cost of insuring against losses on European corporate bonds fell, with credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield companies declining 6.5 basis points to 581.75, according to Markit Group Ltd. Swaps tied to government securities sold by Greece, whose deficit crisis sparked declines in sovereign debt that have roiled markets this month, dropped 46.5 basis points to 672, CMA DataVision prices show. To contact the reporters on this story: Gavin Serkin at gserkin@bloomberg.net

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Robert Kuttner: Get a Grip: Austerity Does Not Produce Prosperity

May 23, 2010

Austerity has suddenly become the universally prescribed cure for the fallout from the financial collapse. If widely adopted, it will prove worse than the disease. The price of the rescues of Greece, Spain and Portugal is to be brutal deflation. The International Monetary Fund, which supposedly learned from its earlier mistakes of imposing austerity on already damaged economies, is back in cold-bath mode, demanding higher taxes and dramatically reduced spending as its pound of flesh. The European Central Bank and key leaders of the E.U. are promoting economic pain as the price of relief. Here at home, President Obama has sworn off serious new outlays for jobs or aid to the states, and is using his fiscal commission to pursue a bipartisan consensus on spending cuts and higher taxes. The nations of the European Union are being treated as the object lesson in the costs of profligacy. This is supposedly what happens when you provide decent social benefits to regular people . In fact, most of Europe had reasonably well-disciplined budgets until a made-on-Wall-Street economic crisis took down their economies. The budget deficit here and overseas does need to return to a more moderate level — after we get an economic recovery. But the problem with the austerity treatment during a recession is that if everyone tightens their belts at once, there is nobody to buy the products; the economy shrinks and repayment of debt is even more arduous. As John Maynard Keynes famously wrote, “The patient does not need rest. He needs exercise.” You don’t have to be a Keynesian to recognize that the economics of belt-tightening is a fool’s errand in a recession. With the exception of a few smaller nations, the large deficits in the OECD countries are not the result of fiscal profligacy, but of revenue losses caused by the downturn. And in the case of Greece, supposedly the poster child for profligacy, the new Socialist Papandreou government is having to clean up after the fiscal finagling of its conservative predecessor. Greece certainly needs tax reform to make sure that so many of its very wealthy do not hide their assets. It does not need general austerity. The US has been spared this phase of the crisis so far, because the Federal Reserve has been willing to be buyer of last resort of all manner of securities, including government debt. This remedy is far from ideal, and it needs to be wound down as soon as recovery comes, as well as combined with structural reforms. But the Fed rescue certainly beats a total collapse In Europe, by contrast, this rescue act is far more difficult politically and institutionally. Sovereignty is divided along nations pursuing their own self-interests, a fledgling E.U. and a central bank that lacks either the Fed’s full powers, its history, or its self-confidence. But Europe had better come through this test as a more unified and politically effective system or we will all suffer. This is no time for skeptics of the Euro or the E.U. to be gloating. In fact, the Germans and the French have put their self-interest aside, and have pushed for a rescue plan that prevents default on government bonds and benefits Europe’s less affluent nations. With aid to Greece monumentally unpopular, German Chancellor Angela Merkel was willing to lose a key state election in order to prevent a Euro collapse This statesmanship is admirable — but the austerity demands are not. The current global economic crisis, now entering a new phase as a crisis of sovereign debt, has only one rough precedent. The last time major nations (such as Germany, its European creditors, and much of Latin America) faced insolvency, the combination of financial collapse and deflation helped create depression, dictatorship, and then World War II. In the US, we finally ended the Great Depression with massive wartime borrowing and public outlay. We ended the war with a debt-to-GDP ratio of more than 120 percent, more than double today’s ratio. In Britain, debt-to-GDP peaked at about 250 percent. But all of the war spending recapitalized industry, re-employed and trained jobless workers; and after the war pent up consumer demand powered a record boom and rising revenues paid down the debt. There was plenty of wartime sacrifice, but it was shared. Citizens bought war bonds and used ration books. There were wage and price controls. Surtaxes on high incomes were over 90 percent. Interest rates were administered through a deal between the Treasury and the Fed, and the war debt was financed with cheap money. Inflation rose slightly after the war, but was manageable. And thanks to the deferred demand and careful economic management of the war years, peacetime conversion brought not a recession but a boom. Today’s situation is different. The origin of all the debt is not a war but a financial collapse. The new round of financial panic is the result of still fearful markets, a still fragile banking system, and deficits caused mainly by reduced output, not overspending. In this context, it is insane to think that we can recover from a financial panic and an economic recession by inducing a worse recession in the name of fiscal soundness. For now, while the real economy heals, there is no substitute for aggressive central bank intervention to restore markets in sovereign debt. The right grand bargain is tough financial reform and limits on Wall Street–so that this crisis is never repeated. The wrong grand bargain is austerity for everyone else. Robert Kuttner’s new book is “A Presidency in Peril.” He is co-editor of The American Prospect and a senior fellow at Demos.

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David Isenberg: The Olympics Will Be Protected by Aegis: Ay, There’s the Rub

May 21, 2010

It appears that people in London for the 2012 Olympics can rest easier; at least in theory. One of Britain’s major private security firms will be helping to protect them. It was announced on Feb. 17 that Aegis Defence Services Ltd., headquaartered in London, won a multiple awardees contract award from the Olympic Delivery Authority to provide security consultancy services( Lot 3. Contract Award Notice No.: 2010/S 33-046942, Contract No.: 9938). No contract amount was specified. According to the award description Aegis is to provide: The provision of specialist, strategic and tactical advice regarding the security of the Olympic Games, specifically: 1. Security Design and Engineering Consultancy Services; 2. Security Strategic, Planning and Operations Consultancy Services; and 3. Corporate Security Consultancy Services. Aegis is a heavyweight in the private security industry, or as it calls itself, a “British security and risk management company.” It has been among the biggest firms in Iraq, judging by the value of its past contracts. Back in May 2004 Aegis won a contract, despite a protest by DynCorp, another security firm, valued at a maximum of $293 million over the next three years to provide antiterrorism support and analysis and to serve as a clearinghouse for information between coalition forces in Iraq and security contractors. Before Aegis was awarded that contract, coordination between the U.S. military and civilian contractors was handled through the Regional Operations Centre (ROC). In June 2005 the Pentagon extended the contract for a second year and expanded it. The new deal was worth about $145 million. For its money Aegis had to pay a staff of 500 based all over the country, organize the coordination of intelligence from all the security firms and the military, and also provide a central emergency hotline, so that if someone is ambushed on the road, there is one number (or radio frequency) he or she can ring for help. It operated one national and six regional command centers in cities across Iraq. Staff acts as a link between coalition forces and civilian contractors on security issues, passing on information on the activity of insurgents. They provide a daily intelligence service to contractors and track the position of their vehicles. In addition, Aegis established 75 teams of eight men each to provide security on all major Iraqi government projects following the handover of sovereignty. Back then it was the fifth-largest contract ever awarded by the CPA, amounting to almost 3 percent of the CPA Program Management Office’s entire Iraq reconstruction budget. As Tim Spicer, cofounder and head of Aegis, said in a BBC interview: “We’re currently employing about 500 people. We’re not actually responsible for everybody’s security, what we’re responsible for is the coordination, in a number of civil military operation centres, the coordination of the security of the reconstruction companies and its interface with military operations–the counter-insurgency operations.” The award of this contract struck many observers as odd, as Aegis had no significant experience in Iraq, or the Middle East for that matter, and its expertise was largely limited to antipiracy consulting. Although Aegis subsequently had its challenges and controversies it did its job well enough that the contract was renewed and has been awarded other contracts. In January it was awarded a contract by the Pentagon to provide Facility Protective Services in East Afghanistan, Shindand. The Special Inspector General Iraq Reconstruction (SIGIR) issued an audit on January 14, 2009 that found “well-supported contract awards to Aegis; appropriate government oversight of Aegis’s bills, inventories, performance, and operations; and contract performance assessed as satisfactory to outstanding.” Aegis described the report on its website as “commending Aegis as a reliable, responsible, and cost-effective partner to government.” Aegis did not mention that the SIGIR report also found that contract administration could be improved. Specifically: There is no central location for the contract-related electronic records that provide a history of Aegis’s performance and the government’s actions to oversee the contractor. Communications between U.S. agencies and the U.K. agency auditing Aegis’s invoices have broken down. Aegis has not shared in the cost of replacing government-provided vehicles lost due to the negligence of Aegis personnel because this cost-sharing is not required by the contract. Still, Aegis seems a reasonably well run company nowadays. Certainly, far more so than Sandline , the famous private security company founded by Tim Spicer, who founded Aegis. Sandline ceased all operations on April 16, 2004. Aegis started operations the same year. In 2004 the International Peace Operations Association, a U.S. private military and security trade group, asked Aegis to apply for membership, but the application was rejected by a British competitor. Aegis is a founding member of the British Association of Private Security Companies (BAPSC), a British trade group. It is also a member of the Private Security Company Association of Iraq . So everything is just great, right? Aegis can help protect athletes and spectators. Well, since we are talking about England let me borrow from Shakespeare’s Hamlet, “To sleep: perchance to dream: ay, there’s the rub.” Apparently Aegis’s work in Iraq wasn’t good enough to prevent some friendly fire. One wonders if the Olympic Development Authority was aware that it was Aegis security contractors who shot and permanently disabled U.S. Special Forces sergeant Khadim Alkanani as he returned to Baghdad International Airport after an intelligence mission in June 2005. In his subsequent law suit Alkanani claimed his shooting was “remarkably similar” to other incidents which employees of Aegis Defense Services have captured on ” trophy videos ” which showed “senseless shootings of innocent personnel in automobiles from an armed vehicle.” Of course, immediately after the shooting, the Aegis employees apologized for shooting him and his three-vehicle convoy, Alkanani says. They claimed they had mistaken them for suicide bombers – though Alkanani’s convoy had been traveling directly behind the contractors and had stopped and showed identification at two checkpoints before the shooting. The shooting took place within the main gate of Baghdad International airport, where there were no ongoing hostilities nor a credible threat of imminent hostilities, the complaint states. Alkanani says he received prompt medical treatment for a bullet wound to his right foot, but subsequently developed Hepatitis C and has not regained full use of the foot. The disability ended his military career, resulting in his discharge in September 2006. On February 8 the U.S. District Court for the District of Colombia granted a summary judgment for Aegis dismissing Alkanani’s case. The reasoning for the dismissal is quite fascinating. The facts were not in dispute. Alkanani was shot by Aegis contractors. Instead, Aegis showed that it did not exist as a corporate entity at the time of the alleged incident. Judge Richard Roberts reasoning was straightforward. Aegis provided evidence that it simply didn’t exist at the time of the alleged shooting (the company was incorporated in the U.S. in 2006). Its parent company, meanwhile, argued that the court didn’t have personal jurisdiction. Evidently while a corporation is liable for the torts of its employees if committed within the scope of employment, corporate liability attaches only upon corporate existence. And, under Delaware law, a limited liability company such as Aegis does not exist until it files a certificate of formation with the Secretary of State. According to the judgment, Aegis LLC, the U.S. company that is part of the worldwide Aegis Group filed its certificate of formation with the Delaware Secretary of State on May 30, 2006. And Aegis LLC was not a party to the service contract awarded by the U.S. Department of the Army to Aegis UK on May 25, 2004, and Aegis LLC did not provide security services under the contract. Because Aegis LLC presented undisputed evidence that it was not formed as a corporation until nearly a year after the alleged shooting, the defendant’s summary judgment motion was granted. So is this the end for Alkanani’s case? Maybe. After Roberts’ judgment, Alkanani’s legal team, sent an emergency request for the judge to withdraw them. The contended that the parties had agreed to a Feb. 15 deadline for the opposition motions, and that Roberts had ruled too quickly. Word of advice to the Olympic Development Authority. You might want to ensure the Aegis unit you signed a contract with is officially incorporated and deemed to legally exist.

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U.K. Posts Record April Deficit of $14.4 Billion as Emergency Budget Looms

May 21, 2010

By Craig Stirling May 21 (Bloomberg) — Britain had the biggest fiscal deficit for any April since monthly records began in 1993, underlining the scale of the squeeze to come as Chancellor of the Exchequer George Osborne prepares an emergency budget. The 10 billion-pound ($14.4 billion) shortfall compared with 8.8 billion pounds a year earlier, the Office for National Statistics said in London today. The result was lower than the 10.9 billion-pound median forecast in a Bloomberg News survey of 15 economists. The report sets the scene for what economists say will be the sharpest cuts in public spending for a generation. Osborne has ordered departments to find 6 billion pounds of savings this year and will set out further reductions in his June 22 budget. “The direction of the public finances will be given a huge steer by the emergency budget,” said Philip Shaw , chief economist at Investec Securities in London. “We suspect that the new chancellor will announce some draconian changes to fiscal policy, resulting in a significant and necessary decline in public borrowing this year.” The pound extended gains against the dollar and was trading up 0.6 percent at $1.4404 as of 9:36 a.m. in London. The 10-year gilt yield was up 1 basis point at 3.57 percent. Britain this month formed its first coalition government for 65 years following inconclusive elections, ending 13 years of Labour Party rule. Coalition Unity Conservative Prime Minister David Cameron and his Liberal Democrat deputy Nick Clegg yesterday said they were united over the need for immediate action to reduce the deficit, the largest in the Group of Seven at 11.1 percent of gross domestic product last year. Cameron has refused to rule out raising the rate of value-added tax, a 17.5 percent levy on sales. The looming budget-cutting drive has overshadowed prospects for consumer spending as the economy emerges from its worst recession on record. Osborne has pledged to cut the deficit at a faster pace than Gordon Brown ’s Labour government had planned. Next Plc, the U.K.’s second-largest clothing retailer, said on May 5 that it was “very cautious” on the outlook for households because “whatever form this action takes, it is likely that it will act to restrain growth in consumer spending.” Tax Take There were signs the economic recovery is starting to help the public finances, with tax revenue rising 7.2 percent in April from a year earlier. In cash terms, VAT soared 34 percent from a year earlier, corporation tax gained 13 percent and national insurance contributions, a payroll tax, increased 22 percent. Central government spending climbed 6.5 percent. There was also a 7.5 billion-pound downward revision to the last fiscal year, 5.5 billion pounds of which came in March alone. The statistics office said the revision was due to higher tax receipts, particularly income tax and VAT, than initially estimated. For the fiscal year through March, net borrowing excluding financial interventions was 156 billion pounds, instead of 163 billion pounds. Total borrowing was 145 billion pounds rather than 153 billion pounds. A measure of cash entering and leaving the Treasury showed an 8.8 billion-pound deficit in April. Economists predicted a 7 billion-pound shortfall, according to the median forecast of 8 economists. Separate data released today showed business investment rose in the first quarter. Corporate spending on equipment, vehicles and buildings increased 6 percent from the previous three months. It dropped 11 percent from a year earlier. To contact the reporter on this story: Craig Stirling in London at cstirling1@bloomberg.net .

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`Complex Prime’ Is The New Subprime for Struggling U.K. Mortgage Borrowers

May 20, 2010

By Jon Menon and Kevin Crowley May 20 (Bloomberg) — U.K. mortgage lenders are offering loans to “almost prime” and “complex prime” borrowers with “minor historic credit issues” who may have experienced financial “blips.” They don’t use the word subprime. Three years after defaults on U.S. subprime mortgages sparked the worst financial crisis in almost 80 years, General Electric Co.’s GE Money unit and Investec Plc ’s Kensington division are once again lending to British customers rejected by mainstream banks. This time, they say they’re offering less money to clients with better credit histories. “‘Subprime’ sends messages out that people are lending money to individuals who can’t repay it,” said Gerry Bell , marketing director for GE Money ’s U.K. mortgage unit. “Our customers have clear track records” though some may have had “minor credit blips,” he said. Now loans are less risky, he said. “It’s very different from where we were in 2007.” Mortgage lending fell 60 percent to 143.5 billion pounds ($206 billion) last year from 2007, the height of the British property boom. Overseas-based lenders such as Morgan Stanley and Lehman Brothers Holdings Inc. closed units or halted lending for borrowers with checkered credit histories. Now, Britain’s market is recovering, with home loans increasing by 45 percent in March from a year earlier, the Council of Mortgage Lenders said on May 17. “There’s a genuine market for people that are not particularly bad risks,” said Ray Boulger , an adviser at mortgage broker John Charcol Ltd. “The lack of supply means there is a market for subprime lending at higher rates.” ‘Credit Issues’ At its peak in 2006, the U.K. subprime market accounted for 24.7 billion pounds of loans, about 7.1 percent of total gross lending, according to research by Datamonitor. Subprime loans now probably make up less than 4 percent of the U.K. mortgage market, according to Christophe de Noaillat , an analyst at Moody’s Investors Service in London. That’s seen as an opportunity by some. Aldermore Bank , owned by Morgan Stanley and leveraged buyout firm AnaCap Financial Partners LLP, plans to introduce residential mortgage products for clients with “minor historic credit issues” this quarter, according to the company’s website. “If the income can be proven or verified by an accountant, that’s fine with us,” the company said on its website. The lender doesn’t accept customers with mortgage arrears within the past 12 months or court orders to repay debts, so-called county court judgments , in the last three years. ‘Struggling to Get Mortgages’ Aldermore will finance lending entirely through money it secures from customer deposits, rather than through securitizing the loans, and will only lend to “credit-worthy borrowers,” said spokesman Josh Cooper. He rejected the term “subprime”. “There are thousands of credit-worthy borrowers who are struggling to get mortgages who shouldn’t be,” Cooper said. Morgan Stanley’s London-based spokesman Hugh Fraser said the bank’s 40 percent investment in Aldermore was made using client money from its fund of funds business and that the bank isn’t directly re-entering the subprime market. Subprime has a long way to go to get to its 2006 level, when securitizations, a process where loans were parcelled up into bonds and sold to investors, helped fuel a borrowing boom. Since January 2009, no new non-prime, or so-called non- conforming retail mortgage-backed securities, have been sold, Moody’s Investors Service said. That compares with 127 such offerings between 2001 and 2008. Late payments for non-conforming mortgages declined to an average of 19 percent in February from a peak of 21 percent in June last year, Moody’s said. ‘Complex Prime’ “The prime mortgage securitization market is beginning to open up, but it may take a while for investors to get comfortable with non-conforming securitizations,” said Kruti Muni, senior credit officer at Moody’s. Lloyds Banking Group Plc sold 4 billion pounds of mortgage-backed bonds in September, the first sale since the market shut in 2007. Kensington ended loans to customers with an adverse credit history in November 2007 and halted prime lending in August 2008, said spokesman Alex Hammond. It began lending again to prime customers in November and re-entered the “complex prime” market at the end of March, he said. The lender accepts borrowers with a maximum of two county court judgments of as much as 750 pounds, through a product called “Prime One.” Before the credit crunch, Kensington would accept borrowers with existing arrears and with county court judgments of as much as 7,000 pounds, said spokeswoman Karen Agombar. Today, it will only extend a loan worth as much as 80 percent of the value of a property, down from 90 percent before. ‘Seriously Abused’ GE Money is providing loans to people who have defaulted twice before and for borrowers with a single county court judgment. The loans are financed by GE, its parent, Bell said. There are few signs of a return to the excesses of the mortgage market, according to British debt advisers. “We haven’t come across inappropriate lending” in the non-prime mortgage market this year, said Beverley Budsworth, managing director of The Debt Advisor Ltd. , which advises consumers on debt issues. Before the credit crisis, the secured lending market was “seriously abused,” with loans provided to customers who couldn’t afford the payments, she added. In 2007, New York-based Lehman and GMAC-RFC, the British mortgage-lending unit of Detroit-based GMAC LLC, provided 13 billion pounds of U.K. home loans, more than HSBC Holdings Plc , Europe’s biggest bank, according to the Council of Mortgage Lenders. New York-based Lehman went bankrupt in September 2008 and GMAC pulled out of the U.K. market the same year. Some loans for people with a spotty credit history can be offered at more than double the interest rates of prime products. Platform , part of the Co-operative Bank, offers 8.69 percent mortgages that revert to a floating rate after two years to “almost prime” customers, according to its website, while Kensington offers two year fixes at 5.99 percent. HSBC’s First Direct bank offers two-year fixed rates loans for prime borrowers from as little as 3.09 percent. To contact the reporters on this story: Jon Menon in London at jmenon1@bloomberg.net

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Iran’s Uranium Deal Defended by Brazil as U.S., Allies Express Skepticism

May 17, 2010

By Nicole Gaouette and Roger Runningen May 18 (Bloomberg) — The U.S. and its European allies expressed skepticism about Iran’s agreement to swap enriched uranium for nuclear fuel, even as other nations on the United Nations Security Council said the deal may defuse tensions. “This creates an absolutely new situation,” said Brazilian Foreign Minister Celso Amorim in radio comments recorded yesterday in Tehran. Brazil, working with Turkey, brokered an arrangement that Amorim said “totally attended” to questions from nations seeking tougher economic sanctions on Iran. The U.S. and Britain said the agreement skirts international demands central to concerns that Iran is developing a nuclear weapons capability. Among the U.S. objections was Iran’s statement that it doesn’t view the agreement as an obstacle to enriching uranium to a level that UN inspectors say would be required for weapons-grade material. “Given Iran’s repeated failure to live up to its own commitments, and the need to address fundamental issues related to Iran’s nuclear program, the United States and international community continue to have serious concerns,” White House press secretary Robert Gibbs said in a statement. British Foreign Secretary William Hague said Iran would have to do “a lot more” to prove its intentions are benign. The details of the plan must be laid out “clearly and authoritatively” to the United Nations’ nuclear agency before consideration by the international community, Gibbs said. The swap brokered by Turkey and Brazil will provide Iran nuclear fuel in a form usable only in a Tehran medical-isotopes reactor and would be carried out under the supervision of the UN’s International Atomic Energy Agency , said Iran’s state-run Press TV. Lula, Erdogan Iran agreed to hand to Turkey about half of its enriched uranium in exchange for fuel to run the medical reactor. The deal, brokered by Brazilian President Luiz Inacio Lula da Silva and Turkish Prime Minister Recep Tayyip Erdogan , comes as the U.S. is rallying support for tougher sanctions against the oil- producing Persian Gulf state. The U.S. said this diplomatic “pressure track” would still be pursued, especially because Iran signaled it has no intention of abandoning its main enrichment operation. Uranium can fuel a reactor for power generation or, enriched to higher degrees, form the core of a bomb. UN inspectors said in February that Iran was close to the 20 percent threshold that can open the way to a weapon. The activity of “enrichment to 20 percent inside our country will still continue,” Iranian Foreign Ministry spokesman Ramin Mehmanparast said after the signing of the deal, according to the official Islamic Republic News Agency. ‘Deceptive Deal’ Jim Phillips , a Middle East affairs research fellow at the Heritage Foundation in Washington, said the announcement that Iran would continue enriching uranium shows the arrangement brokered by Turkey and Brazil “is a deceptive deal.” “If you take this deal on its own terms, there’s no need for Iran to continue enriching to 20 percent,” Phillips said. The approach is “one more ploy by Iran to delay sanctions,” he said. Nicholas Burns , a former undersecretary of state involved in President George W. Bush ’s efforts to rein in Iranian nuclear ambitions, said the deal “is a giant step backward” and a distraction. He described the effort as a miscalculation by Brazil and Turkey. “This is a side show,” Burns said in a telephone interview from Harvard University in Cambridge, Massachusetts. “The real issue is to have Iran stop its enrichment program. This allows Iran to continue it. And if it allows Iran to block sanctions, that’s a big problem because it lets Iran off the hook.” ‘Vague’ on Talks The Iranian declaration is “vague” about the government’s willingness to negotiate with the five permanent members of the Security Council — the U.S., France, the U.K., China and Russia — plus Germany, Gibbs said. French Foreign Ministry spokesman Bernard Valero raised doubts about Iran’s reliability. “Let’s not forget the Iranians have made multiple contradictory statements on this subject in recent months,” he said in an e-mail. Brazil and Turkey hold two of the 10 rotating seats on the 15-nation Security Council and have been outside the talks by UN powers on possible sanctions. The Turkish Foreign Ministry said the Iran deal “showed a solution could be achieved through a diplomatic channel, and all efforts should be exerted in this way.” Russian President Dmitry Medvedev of Russia told reporters in Kiev that the countries negotiating on Iran should meet to determine if the agreement is sufficient to stave off new sanctions. Transactions, Cargo Further UN penalties might target financial transactions or authorize more aggressive steps to intercept contraband cargoes. The U.S. has talked about targeting Iran’s Revolutionary Guard Corps, which has broad business and security interests. While the U.S. and its European allies said the stance on holding Iran accountable to UN resolutions hasn’t changed, Iran said its action negated any need for further action. “There is no opportunity or excuse for sanctions now,” Ali Akbar Salehi , head of Iran’s Atomic Energy Organization, said in televised comments. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net ; Nicole Gaouette in Washington at ngaouette@bloomberg.net .

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European Stocks Rebound From Decline; Euro Weakens, U.S. Futures Fluctuate

May 17, 2010

By Gavin Serkin May 17 (Bloomberg) — European shares rose and U.S. index futures rallied, recovering from Friday’s decline. The euro weakened to the lowest level in more than four years and oil dropped for a fifth day on speculation Europe’s debt crisis is worsening. The euro slid to as low as $1.2235. The Stoxx Europe 600 Index climbed 0.8 percent as of 10:32 a.m. in London, while futures on the Standard & Poor’s 500 Index rose 0.1 percent, reversing losses of as much as 1.3 percent earlier today. The MSCI Emerging Markets Index lost 2.2 percent as the Shanghai Composite Index tumbled 5.1 percent, the most since August 2009. One week after agreeing to a $1 trillion financial lifeline for the euro region, finance ministers meeting in Brussels today are under pressure to show they can cut deficits fast enough to satisfy investors and police budgets once targets are met. Analysts lifted profit outlooks for the next year for companies on the Euro Stoxx 50 Index by 2.5 percent in April, the most since 2006, according to data compiled by Bloomberg. The benchmark index is trading at 10.2 times forecast income, below this year’s peak of 11.8. “There are very strong earnings, however those companies very exposed to internal European demand will have a very hard time making earnings the next couple of years,” Christian Blaabjerg , chief equity strategist at Saxo Bank A/S, said in an interview with Bloomberg Television from Copenhagen. “We’re not going to avoid austerity measures on a bigger scale.” The euro declined against 12 of the 16 most-traded currencies. The pound tumbled to the lowest level in more than 13 months against the dollar after U.K. Prime Minister David Cameron said the government discovered “very bad” spending decisions by the previous administration. Treasury Yields The yield on the 10-year Treasury was little changed at 3.46 percent, while yields on similar-maturity German bunds rose 3 basis points to 2.88 percent. Greek 10-year bonds were little changed at 8.23 percent. Investors had become more skittish after Greek Prime Minister George Papandreou said Greece is considering legal action against U.S. banks that may have contributed to the country’s debt crisis. “It does fell a bit like deja vu all over again,” Jim Reid , head of fundamental strategy at Deutsche Bank AG in London, wrote in a client note. “Yet again, the market is seizing on any slight weakness in Europe’s resolve as an excuse to head for the exit in risk.” Corporate Bonds Sovereign debt concerns also affected corporate bonds, with the cost of protecting against a default on company securities rising for a third day. The Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies climbed 1.6 basis points to 111.3, near the highest level in more than a week, according to Markit Group Ltd. Banks are paying more to borrow from one another over short periods, with the London interbank offered rate for three-month dollar loans forecast by Monument Securities Ltd. in London to rise for a fifth day. The Libor rate may climb to 0.465 percent, according to Monument, from a nine-month high of 0.445 percent on May 14. The Stoxx Europe 600 Index rebounded from its 3.4 percent slump on May 14, after swinging between gains and losses earlier today. Banco Popolare Scrl surged 8.1 percent in Milan after earnings beat estimates. BP Plc rallied 2.1 percent in London after saying it made a breakthrough yesterday in its attempt to control oil leaking in the Gulf of Mexico. Prudential Plc fell 0.5 percent after it started the Britain’s biggest rights offering to raise $21 billion. Man Group Plc, the biggest publicly traded hedge fund firm, slumped 7.1 percent after agreeing to buy GLG Partners Inc. for $1.6 billion. U.S. Futures The decline in U.S. futures indicated the S&P 500 may extend its May 14 slump. OSI Pharmaceuticals Inc. slipped 4.4 percent in Germany after Astellas Pharma Inc. agreed to buy the U.S. company for $4 billion, in an improved offer that’s still 3.8 percent less than OSI’s last traded price. China’s Shanghai index sank to the lowest level in a year after Premier Wen Jiabao warned the government will “decisively” contain gains in home prices and the Ministry of Commerce said the euro’s decline is pressuring exporters. Thailand’s benchmark SET Index retreated 2.7 percent, the most in a month, after at least 36 people were killed in fighting between the military and anti-government protesters. Russia’s Micex Index dropped 0.9 percent while the ruble weakened 1.7 percent against the dollar, the biggest slump since December. Crude oil dipped below $70 a barrel in New York in its longest losing streak in five weeks. Oil for June delivery fell as much as 2.5 percent to $69.82 a barrel on the New York Mercantile Exchange. The contract has dropped 18 percent so far this month as a strengthening dollar eroded demand for commodities. Copper for delivery in three months fell 2.5 percent to $6,750 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also retreated. Gold prices in euros and British pounds reached records today and bullion priced in dollars traded within about 1 percent of an all-time high. To contact the reporters on this story: Gavin Serkin at gserkin@bloomberg.net

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Heathrow, Gatwick Airports Shut as Volcanic Ash Cloud Moves Across London

May 16, 2010

By Steve Rothwell May 17 (Bloomberg) — Heathrow, Gatwick and London City airports closed from 1 a.m. until 7 a.m. today, National Air Traffic Services Ltd. said, citing a “high density ash cloud” that continues to move further south. The U.K. no-fly zone, which is imposed by the Civil Aviation Authority, now includes Farnborough, Shoreham, Biggin Hill, all airfields in Northern Ireland, Scottish Western Isles, Oban, Campbeltown, Caernarfon and Aberdeen, as well as the three London airports. Stansted and Luton will remain open, NATS said. Airports across northern England, including Manchester and Liverpool, will reopen from 1 a.m. after being closed since 1 p.m. yesterday, NATS said. Cardiff remains open but operations “may be limited due to close proximity of the no-fly zone,” NATS said. British authorities are imposing a no-fly zone on the U.K.’s major transport hub as a cloud of volcanic ash disrupts travel for a third time in a month. Thousands of flights across Europe have been canceled in the past month since the eruption of the Eyjafjallajökull volcano on concern the resulting cloud of ash might damage aircraft engines and endanger passenger safety. British Airways Plc is “likely to experience significant disruption to our operations on Monday morning,” the London- based company said in an e-mailed statement. EasyJet Plc and Ryanair Holdings Plc both canceled flights yesterday because of the airspace restrictions. ‘Beyond a Joke’ The closure of Manchester airport was “beyond a joke,” Virgin Atlantic Airways Ltd. founder Richard Branson was cited as saying by the Guardian newspaper yesterday. “Over 1,000 flights took off from France last week in similar conditions to that which exist in Manchester,” Branson said. Airports in Northern England and Scotland including Carlisle, Norwich, Doncaster, Humberside and Birmingham and East Midlands will also reopen at 1 a.m. Edinburgh and Glasgow airports remain open. Dublin airport will remain closed until at least noon today, the Irish Aviation Authority said. Five-day ash prediction charts made available by the Met Office forecast a cloud containing ash concentrations that exceed engine manufacturer tolerance levels will remain over parts of the U.K. today. The ash will no longer pose a risk to U.K. airspace from tomorrow, the charts show. The ash, which is contaminating the air between 15,000 feet (4,572 meters) and 20,000 feet, is being pushed toward the U.K. capital by winds from the northwest, Met Office spokesman Barry Grommet said in an interview yesterday. The cloud will likely be pushed away from Britain later today as winds blowing from the southwest dominate the weather. Volcanic Dust The first wave of disruption began in mid-April, halting air travel across the U.K. for six days. Some airports closed again previously this month on concern the volcanic dust may clog engines and scar windscreens. Speed sensors, critical in flight, can also be disabled by the ash. “There is extensive cloud over the U.K. and that has been confirmed by a research aircraft,” Gromett said. “It’s a much shorter-lived prospect this time round. By lunchtime on Tuesday the charts show most of the ash should be well away from the U.K.” To contact the reporterS on this story: Steve Rothwell in London at srothwell@bloomberg.net

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Greece May Take Legal Action Against US Banks For Role In Debt Crisis

May 16, 2010

ATHENS, Greece — Greek Prime Minister George Papandreou declared he is not ruling out taking legal action against U.S. investment banks for their role in creating the spiraling Greek debt crisis. Both the Greek government and its citizens have blamed international banks for fanning the flames of the debt crisis with comments about Greece’s likely default, actions that are causing the country’s borrowing costs to soar. “I wouldn’t rule out that (legal action) might be a recourse. But we need to let due process (take its course) and then make our judgments once we get the results from the investigations,” Papandreou said in a CNN interview broadcast Sunday. Papandreou also said a parliamentary investigation will examine the rapid swelling of Greece’s debt and international banking practices to examine whether the financial sector engaged in “fraud and lack of transparency.” The European Union and the International Monetary fund have approved a euro110 billion ($136 billion) bailout package for Greece, part of an overall euro750 billion ($1 trillion) rescue loan package to protect the euro, the common currency of 16 European nations. The Greek leader also urged more regulation of the markets which, in his view, are now betting against the European governments that have poured billions into them since the global financial crisis began in 2008. Some European governments plan to push for tighter regulation of hedge funds this week – a move opposed by Britain, home to the financial hub of London. Papandreou also tried to counter criticism, expressed mainly in Germany, that Greeks are getting a free ride and rejected widespread international skepticism about Greece’s ability to pay back its loans. Greek debt is scheduled to exceed 140 percent of its economic output in 2012. “We are paying back the loans we are getting … this saying that ‘we are handing out money to Greece’ is not true,” he told the CNN show “Fareed Zakaria GPS.” “It is very easy to scapegoat Greece and Greece bashing very often gets entangled in regional politics.” He insisted his government has made the unpopular but necessary decision to implement austerity measures. “We are ready to make the changes … we have made our mistakes. We are living up to this responsibility. But at the same time, give us a chance,” Papandreou said. Still, another top German economist expressed doubts Sunday about Greece’s ability to repay. Deutsche Bank AG’s Chief Executive Josef Ackermann created an uproar Thursday for mentioning the possibility that Greece might have to restructure its debt – but Dekabank’s chief economist, Ulrich Kater, was quoted as agreeing with him Sunday in the German news website Handelsblatt. “It will be very, very difficult for Greece to orderly repay its debt,” Kater was quoted as saying, adding that Greece’s new austerity measures and its lack of competitiveness were dooming the country’s prospects for economic growth, making debt reduction difficult. Despite widespread anger about tax hikes and other austerity measures imposed by Papandreou’s Socialist government, his party still enjoys more support than its predecessor, the discredited conservative party. According to a poll published Sunday in conservative-leaning newspaper Kathimerini, Papandreou’s popularity has plunged from 53 percent in January to 43 percent in May. The same poll showed that opposition leader Antonis Samaras has sunk from 26 percent approval in February to 18 percent in May. On the other hand, 76 percent of respondents also say they are unsatisfied with the Socialist government’s performance. The poll was conducted May 6-10 with a sample of 1,006. Its margin of error was plus or minus 3.2 percent.

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Prudential AIA Acquisition Costs May Increase on Plans to Sell Junior Debt

May 13, 2010

By Kevin Crowley and Bryan Keogh May 13 (Bloomberg) — Prudential Plc , Britain’s biggest insurer, may pay an extra $167.5 million a year in interest as it boosts capital to win regulatory approval for the acquisition of American International Group Inc. ’s main Asian unit. Prudential is considering selling $5 billion of junior debt instead of senior bonds to help fund the purchase, said a person with knowledge of the discussions, who declined to be identified because the talks are private. The sterling- denominated junior subordinated notes yield about 8.43 percent, compared with 5.08 percent for senior debt in the currency, according to Bank of America Merrill Lynch index data. The 3.35 percentage point difference would add about $167.5 million of annual interest expense. “This will be an issue for investors and will certainly add to the cost of an already expensive-looking deal,” said Marcus Barnard , a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “Prudential will have to work harder to make the deal a success in terms of more cost savings, disposals and releasing capital for shareholders.” Prudential, already facing opposition to the takeover from investors including Neptune Investment Management Ltd. , must overcome the U.K. regulator’s concern that it won’t have enough capital in reserve to pay policyholders to proceed with the $21 billion rights offer that will fund the takeover. Prudential can increase its regulatory capital by selling junior debt instead of senior debt because it counts as a buffer against losses. “Changing the funding mix from senior debt to subordinated will be more expensive, but it will boost their regulatory capital, which is what the regulator wants,” said Antonello Aquino , an analyst at Moody’s Investors Service in London. Prudential spokesman Robin Tozer declined to comment. Rights Offering Delayed The insurer, which is paying $35.5 billion for AIA, was forced by the regulator to delay the offering last week, stoking further concern among shareholders that the deal is too costly. Prudential said it’s holding talks with Britain’s Financial Services Authority about its capital reserves. Changes to the insurer’s plans will be published in the rights offering prospectus. That may be published tomorrow or, more likely, next week, the person said. AIG will receive $25 billion in cash and $10.5 billion in new Prudential shares and other securities for AIA, the London- based insurer said on March 1. Prudential has said it planned to raise $5 billion in senior debt to help fund the cash component of the deal. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Cameron Leads First U.K. Coalition Since World War II With Clegg as Deputy

May 12, 2010

By Robert Hutton and Thomas Penny May 12 (Bloomberg) — Conservative leader David Cameron struck a deal with Britain’s No. 3 party to form the first coalition government since World War II, ending 13 years of Labour control. “We have deep and pressing problems,” Cameron said following his arrival at the prime minister’s Downing Street residence 90 minutes after Gordon Brown ’s departure last night. “For those reasons, I aim to lead a proper and full coalition. That’s the right way to provide this country with the strong and stable, good and decent government this country needs.” Cameron, 43, replaced Brown after five days of unprecedented talks following elections May 6 that failed to produce a majority for the first time since 1974. His coalition partner, Nick Clegg , head of the Liberal Democrats, became deputy premier. They’ll propose 6 billion pounds ($9 billion) of cuts within 50 days to reduce a record budget deficit , raise the threshold to pay income tax, study a split between retail and investment banking and increase the Bank of England’s oversight of the financial industry, Conservative officials said. With 363 lawmakers in the 650-seat House of Commons , the two-party government may ease investor concern that last week’s inconclusive vote would leave Britain with a leader too weak to fix U.K. finances. The pound and gilts rose yesterday after reports that Cameron was set to succeed Brown. Sterling added 0.7 percent to $1.4956 before slipping to $1.4928. The 10-year gilt yield fell 4 basis points to 3.88 percent. ‘Market’s Favorite’ “A Conservative-Liberal democrat coalition is the market’s favorite outcome,” said Philip Shaw , chief U.K. economist at Investec Plc in London. U.K. government debt will rise to 77 percent of gross domestic product this year and may approach 100 percent by 2014, Standard & Poor’s says. The rating company cut its outlook on the U.K.’s AAA grade from stable in May 2009, saying debt may rise to a level incompatible with its top assessment. “We’re going to form a new government and more important than anything else a new kind of government,” Clegg told reporters after his party approved the deal early today. “I believe we are united in wishing to tackle the immense challenges this country faces and deliver a fairer future for Britain.” Winston Churchill With the deal struck, Cameron and Clegg, 43, each have to overcome skepticism over allying with a traditional antagonist. The Liberals haven’t had a role in government since Winston Churchill led a unity Cabinet 65 years ago. Conservatives have been out of power since 1997. “I would rather be in a minority government,” Conservative lawmaker Graham Brady said. “Realistically, there’s not much more prospect of whatever arrangement is reached lasting for very long.” “The odds are against it lasting four years,” said Andrew Russell , a lecturer at Manchester University, and author of “Neither Left Nor Right,” a history of the Liberal Democrats. “It’s possible it could last a couple of years. A lot depends on personal chemistry.” Buckingham Palace Standing outside his official residence in London, Brown announced his resignation and then travelled the mile to Buckingham Palace to tender his resignation to Queen Elizabeth II and recommend Cameron as his successor. She then summoned Cameron and asked him to form a government. In the May 6 election, the Conservatives won 306 districts, a net gain of 97 from the previous election in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of Parliament. The Conservatives and Liberal Democrats agree to reconcile campaign differences over Cameron’s proposals to cut spending and lower inheritance taxes and Clegg’s bid to eliminate income taxes on those with the lowest incomes and loosen immigration rules. There are also disagreements over policy toward the European Union. Clegg favors dropping the pound for the euro under the right circumstances, a stance opposed by Cameron. The parties agreed Britain wouldn’t join the euro . Sarkozy, Merkel Clegg attacked the Conservative leader during an April 15 debate over his decision to pull his party out of an alliance in the European Parliament with French President Nicolas Sarkozy and German Chancellor Angela Merkel and join up with euro- skeptic east Europeans. The Liberal Democrat called the Conservatives’ new allies “a bunch of nutters, anti-Semites, people who deny climate change exists, homophobes.” U.S. President Barack Obama called Cameron to congratulate him and invite him to the U.S. later this year. Merkel also called Cameron last night. At 43 years and seven months, Cameron is the youngest U.K. leader since 1812. Tony Blair was four days short of his 44th birthday when he took office in 1997. Cameron has infuriated some on his own side since he became Conservative leader at the end of 2005 with his efforts to reach out beyond traditional supporters. He put forward a pro-gay rights agenda and opposed building another runway at London’s Heathrow Airport on environmental grounds. Cameron and his wife Samantha divided their time between the North Kensington district of west London where they have their main home and the district he represents in Parliament, Witney, 70 miles (110 kilometers) west of London. Genetic Illness The couple has two young children and a baby due in September. Last year their first son, Ivan, who suffered from a rare genetic illness, died at the age of six. Cameron is the kind of Conservative leader Britain hasn’t seen in decades: someone from a wealthy background who went to Eton, Britain’s most famous private school. His ancestors include King Henry VII, who ruled in the 15th century, and at least seven earls. British politics has seen a backlash against politicians from upper-class families since the mid-20th century. The last such Conservative leader was Alec Douglas-Home, a Scottish earl who in 1963 gave up the noble title he inherited from his father, and his seat in the unelected House of Lords, so he could gain election to the House of Commons and become prime minister. He lasted 12 months before losing to Labour’s Harold Wilson in the October 1964 general election. To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Thomas Penny in London at tpenny@bloomberg.net

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U.K. Prime Minister David Cameron to Seek Coalition With Liberal Democrats

May 11, 2010

By Robert Hutton and Kitty Donaldson May 11 (Bloomberg) — Conservative leader David Cameron took over as Britain’s prime minister and said he wants to form a coalition with Nick Clegg ’s Liberal Democrats after Gordon Brown stepped down. Cameron, 43, will form the first Conservative administration since 1997 after Brown submitted his resignation to Queen Elizabeth . The monarch appointed Cameron as the new premier in a ceremony at Buckingham Palace in London. Clegg’s party was meeting this evening to discuss Cameron’s proposal for an alliance, forged after five days of talks that followed the inconclusive May 6 election. “We have deep and pressing problems,” Cameron said after he arrived at the prime minister’s Downing Street residence this evening. “For those reasons, I aim to lead a proper and full coalition. That’s the right way to provide this country with the strong and stable, good and decent government this country needs so badly.” The pound rose, buoyed by expectations that Cameron’s party will move to cut the record budget deficit. Sterling climbed 0.8 percent to $1.4963 at 9:15 p.m. in London. “A Conservative-Liberal democrat coalition is the market’s favorite outcome,” said Philip Shaw , chief U.K. economist at Investec Plc in London. Stocks, Gilts With 363 lawmakers in the 650-seat House of Commons , a two- party government might ease investor concern that the failure of the vote to produce a majority would leave Britain with a leader too weak to fix its finances. U.K. stocks and gilts also rose today after reports that Cameron was set to succeed Brown. U.K. government debt will rise to 77 percent of gross domestic product this year and may approach 100 percent by 2014, Standard & Poor’s says. The rating company cut its outlook on the U.K.’s AAA grade from stable in May 2009, saying debt may rise to a level incompatible with its top assessment. The Conservatives and Liberal Democrats agreed during their talks to focus on deficit reduction, while Cameron yielded on the Liberal Democrats’ core demand to overhaul the voting system. The Conservatives and Liberal Democrats disagreed during the campaign over Cameron’s proposal to lower inheritance taxes and Clegg’s bid to eliminate income taxes on those with the lowest incomes and loosen immigration rules. Identity Card Both parties support abolishing Labour’s plans for a national identity card and have talked about splitting up retail and investment banking and introducing a levy on banks. There are differences over policy toward the European Union. Clegg favors dropping the pound for the euro under the right circumstances, a stance opposed by Cameron. Conservative members of Parliament were also meeting this evening. If the Liberal Democrats don’t back a deal, Cameron will have to lead a minority government. At 43 and seven months, Cameron is the youngest U.K. leader since 1812. Tony Blair was four days short of his 44th birthday when he took office in 1997. Brown, 59, quit when talks on a possible Labour-Liberal Democrat coalition collapsed yesterday. His departure brought to a close 13 years of Labour rule in the U.K., during which the longest economic expansion for 200 years was followed by the deepest recession in more than a century. “I have been privileged to learn much about the very best of human nature, and a fair amount too about its frailties, including my own,” Brown said in the speech that ended his 35- month tenure, with his wife Sarah by his side. They then walked down Downing Street, hand-in-hand with their two sons, before getting into the car to see the queen. The Conservatives won 306 districts in the election, a net gain of 97 from the previous vote in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of the 650-seat House of Commons. It was the first hung Parliament after an election since 1974. “As leader of my party, I must accept that is a judgment on me,” Brown said of the election result yesterday. To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net .

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Stocks Retreat in Europe After Biggest Gain in a Year; Santander, Rio Fall

May 11, 2010

By Julie Cruz May 11 (Bloomberg) — European stocks fell on concern a $1 trillion lending package, which sent the Stoxx Europe 600 Index to the biggest gain in 17 months yesterday, won’t solve the region’s debt crisis. Asian shares and U.S. index futures slid. Banco Santander SA , Spain’s biggest lender, sank 4.4 percent as banks led declines in Europe. BHP Billiton Ltd., the world’s largest mining company, retreated 2.2 percent as accelerating Chinese inflation increased pressure for the government to tighten monetary policy. Solarworld AG slid to the lowest level in almost five years after earnings dropped. The Stoxx 600 slid 1.6 percent to 250.19 at 11:00 a.m. in London. The benchmark gauge for European shares jumped 7.2 percent yesterday after the European Union and International Monetary Fund unveiled a 750 billion-euro ($954 billion) financial assistance package and the European Central Bank said it will purchase government and private debt. The index is still down 8.1 percent from this year’s high on April 15. “You cannot resolve the debt crisis by issuing more debt or putting up guarantees,” Christian Blaabjerg , the Hellerup, Denmark-based chief equity strategist at Saxo Bank A/S, said in an interview with Bloomberg Television. “Markets will come back and test the will of the ECB/EU on how to deal with this enormous debt.” Asian, U.S. Stocks The MSCI Asia Pacific Index sank 1 percent as China’s inflation accelerated, bank lending exceeded estimates and property prices jumped by a record, increasing pressure on the government to raise interest rates and let the currency appreciate. Futures on the Standard & Poor’s 500 Index dropped 1 percent. The Stoxx 600 retreated 8.8 percent last week, the biggest slump since November 2008, amid concern that a previously announced 110 billion-euro assistance program for Greece would be insufficient to keep Europe’s most indebted nations from defaulting. Greece may have its credit rating lowered to junk within the next month, Moody’s said late yesterday, citing the country’s “dismal” economic prospects. Marek Belka , the director of the International Monetary Fund’s European department, yesterday said he doesn’t consider the latest European rescue package a “long-term solution.” ECB council member Axel Weber said the bank’s purchase of government bonds poses “significant” risks, Germany’s Boersen-Zeitung reported. Willing to Resign In the U.K., Gordon Brown said last night he’s willing to resign as prime minister and leader of Britain’s Labour Party, clearing the way for talks with Nick Clegg ’s Liberal Democrats on forming a government. Brown’s surprise announcement came just an hour after indications that the Liberal Democrats were struggling to seal an alliance with David Cameron ’s Conservatives following the inconclusive May 6 election. Santander fell 4.4 percent to 9.08 euros after yesterday jumping 23 percent, leading the Stoxx 600 Banks Index to a 3.4 percent decline. Barclays Plc sank 3.8 percent to 317.15 pence, while Allied Irish Banks Plc slumped 7.8 percent to 1.27 euros. BHP Billiton dropped 2.2 percent to 1,939 pence and Rio Tinto Group, the world’s third-biggest mining company, lost 3 percent to 3,265 pence as copper slid as much as 1.7 percent. Basic-resource shares had the second-biggest drop among 19 industry groups in the Stoxx 600 . Salzgitter AG lost 2.3 percent to 56.67 euros. Germany’s second-biggest steelmaker was downgraded to “sell” from “buy” at UBS AG, which said “the risks are now more biased to the downside as the current uncertain real demand outlook and the usual summer lull reduces the likelihood of any panic buying of steel in the near term.” Solarworld, Deutsche Boerse Solarworld slid 6.4 percent to 9.17 euros, the lowest level since July 2005. The German solar-panel maker said first-quarter earnings before interest and taxes fell to 24.8 million euros from 37.8 million euros. Deutsche Boerse AG retreated 1.6 percent to 54.66 euros. Europe’s biggest exchange said first-quarter net income fell 24 percent to 156.9 million euros, missing the 164.2 million-euro average of six analyst estimates compiled by Bloomberg. The company took a charge of 27.8 million euros for previously announced job cuts. Portugal Telecom SGPS SA jumped 8.9 percent to 7.75 euros. Portugal’s biggest telephone company rejected an offer from Telefonica SA for its 50 percent stake in Brasilcel, the venture that controls Brazilian wireless operator Vivo Participacoes SA. Telefonica slid 4.9 percent to 15.89 euros. Deutsche Post AG gained 1.3 percent to 12.09 euros. Europe’s largest mail carrier reported first-quarter net income of 1.7 billion euros. The average estimate of five analysts surveyed by Bloomberg was 1.51 billion euros. The company’s shares were raised to “accumulate’ from “hold” at Equinet AG. To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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Brown Offer to Quit Upends U.K. Coalition Talks as Liberal Democrats Wooed

May 10, 2010

By Thomas Penny and Robert Hutton May 11 (Bloomberg) — Gordon Brown ’s decision to quit threw into disarray efforts to form a U.K. government, pitting his Labour Party against the Conservatives as both bid to forge an alliance with the Liberal Democrats. In the jockeying following May 6 elections that failed to produce a majority, Conservative leader David Cameron sweetened his offer to his Liberal Democrat counterpart, Nick Clegg , as Clegg’s deputies opened negotiations with Labour. These multiparty negotiations to form a government are unprecedented in post-World War II British politics and may unnerve investors as they threaten to drag on. The pound erased gains after Brown’s announcement as analysts and lawmakers suggested the U.K. faced another election by the end of 2011. “Brown has completely destabilized the basis of the Lib Dem-Conservative negotiations,” said Steven Fielding , director of the Centre for British Politics at Nottingham University. “Everyone’s thinking about the next election, which is probably less than 18 months away.” Brown, 59, said he’ll step down as prime minister after leading his party to its worst election result since 1983 after a 27-year career in national politics. Clegg had resisted allying with a politician who was rejected by voters. In the election, the first since 1974 to produce a so- called hung Parliament, Labour lost its House of Commons majority after 13 years, dropping 91 seats to 258. The Conservatives won 306 districts, a net gain of 97 from the previous election. The Liberal Democrats lost five seats and now have 57 members. First Chance Clegg said Cameron was entitled to the first chance to form a government since he won the most votes and Parliament seats. A deal reached after four days of negotiations was deemed unacceptable by Liberal Democrat lawmakers, leading Clegg to phone Cameron, both 43, and demand a full coalition and a referendum on an overhaul of the voting system to favor smaller parties. Brown’s surprise announcement came while Cameron was mulling those demands, pushing the Conservatives to respond by making what William Hague , the party’s foreign-affairs spokesman, called an offer that goes “the extra mile.” Alternative Vote “We will offer to the Liberal Democrats in a coalition government a referendum on the alternative-vote system,” he told reporters. Under such a system, voters number candidates in order of preference. Those choices are taken into account to ensure that the winner has the backing of at least half the electorate. Britain’s first-past-the-post electoral system gave the Liberal Democrats 9 percent of the seats in the House of Commons for 23 percent of the popular vote. The party favors proportional representation and the alternative-vote proposal may not go far enough to satisfy it. The parties also disagreed during the campaign over Cameron’s proposals to cut spending this year and lower inheritance taxes and Clegg’s bid to eliminate income taxes on the lowest earners. Since the election, they said they agreed to focus on reducing a record budget deficit forecast by the European Union to be 12 percent of gross domestic product this year. Brown made his announcement shortly after Liberal Democrat spokesman David Laws said his party needed more details from the Conservatives on their proposed alliance’s policies on a voting- system overhaul and taxation. ‘No Desire’ “I have no desire to stay in my position longer than is necessary,” Brown told reporters outside his Downing Street residence in London. Brown will remain as prime minister until a new Labour leader is chosen, something he said would happen by September. Foreign Secretary David Miliband , installed by bookmakers as favorite to win the contest, said candidates would not put themselves forward until there’s a deal on a new government. Last night, Labour Business Secretary Peter Mandelson began formal talks with the Liberal Democrats.     “Gordon Brown has made an important announcement,” Clegg said. “It could be an important element in a smooth transition to the stable government that people deserve — without prejudicing or predicting what the outcome of the talks will be between ourselves and the Labour Party.” ‘Final Attempt’ “The momentum looked like it was taking the Lib Dems towards some sort of partnership with the Conservatives,” said Andrew Russell , a lecturer at Manchester University and author of “Neither Left Nor Right,” a history of the Liberal Democrats. “This is Labour’s final attempt to find common cause with the Liberal Democrats.” Brown had also offered Clegg a referendum on the electoral system. Even if they agree on policies, Labour and the Liberal Democrats together wouldn’t have a majority and would need to bring in the smaller nationalist parties from Wales and Scotland. Nor would all Labour lawmakers back such a deal. “I have serious reservations about an alliance with all these different parties,” said Tom Harris , who represents a district in Glasgow, Scotland. “Given that we did lose badly in the election, we’re not prepared to sell every policy we have in order to keep power for a few short weeks.” “This will not be a sustainable coalition,” said Diane Abbott , who became Britain’s first black woman lawmaker in 1987. “We’ll be at the mercy of tiny parties that simply want to protect their countries from spending cuts.” To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net ; Robert Hutton in London at rhutton1@bloomberg.net .

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Brown Offer to Quit Upends U.K. Coalition Talks as Liberal Democrats Wooed

May 10, 2010

By Thomas Penny and Robert Hutton May 11 (Bloomberg) — Gordon Brown ’s decision to quit threw into disarray efforts to form a U.K. government, pitting his Labour Party against the Conservatives as both bid to forge an alliance with the Liberal Democrats. In the jockeying following May 6 elections that failed to produce a majority, Conservative leader David Cameron sweetened his offer to his Liberal Democrat counterpart, Nick Clegg , as Clegg’s deputies opened negotiations with Labour. These multiparty negotiations to form a government are unprecedented in post-World War II British politics and may unnerve investors as they threaten to drag on. The pound erased gains after Brown’s announcement as analysts and lawmakers suggested the U.K. faced another election by the end of 2011. “Brown has completely destabilized the basis of the Lib Dem-Conservative negotiations,” said Steven Fielding , director of the Centre for British Politics at Nottingham University. “Everyone’s thinking about the next election, which is probably less than 18 months away.” Brown, 59, said he’ll step down as prime minister after leading his party to its worst election result since 1983 after a 27-year career in national politics. Clegg had resisted allying with a politician who was rejected by voters. In the election, the first since 1974 to produce a so- called hung Parliament, Labour lost its House of Commons majority after 13 years, dropping 91 seats to 258. The Conservatives won 306 districts, a net gain of 97 from the previous election. The Liberal Democrats lost five seats and now have 57 members. First Chance Clegg said Cameron was entitled to the first chance to form a government since he won the most votes and Parliament seats. A deal reached after four days of negotiations was deemed unacceptable by Liberal Democrat lawmakers, leading Clegg to phone Cameron, both 43, and demand a full coalition and a referendum on an overhaul of the voting system to favor smaller parties. Brown’s surprise announcement came while Cameron was mulling those demands, pushing the Conservatives to respond by making what William Hague , the party’s foreign-affairs spokesman, called an offer that goes “the extra mile.” Alternative Vote “We will offer to the Liberal Democrats in a coalition government a referendum on the alternative-vote system,” he told reporters. Under such a system, voters number candidates in order of preference. Those choices are taken into account to ensure that the winner has the backing of at least half the electorate. Britain’s first-past-the-post electoral system gave the Liberal Democrats 9 percent of the seats in the House of Commons for 23 percent of the popular vote. The party favors proportional representation and the alternative-vote proposal may not go far enough to satisfy it. The parties also disagreed during the campaign over Cameron’s proposals to cut spending this year and lower inheritance taxes and Clegg’s bid to eliminate income taxes on the lowest earners. Since the election, they said they agreed to focus on reducing a record budget deficit forecast by the European Union to be 12 percent of gross domestic product this year. Brown made his announcement shortly after Liberal Democrat spokesman David Laws said his party needed more details from the Conservatives on their proposed alliance’s policies on a voting- system overhaul and taxation. ‘No Desire’ “I have no desire to stay in my position longer than is necessary,” Brown told reporters outside his Downing Street residence in London. Brown will remain as prime minister until a new Labour leader is chosen, something he said would happen by September. Foreign Secretary David Miliband , installed by bookmakers as favorite to win the contest, said candidates would not put themselves forward until there’s a deal on a new government. Last night, Labour Business Secretary Peter Mandelson began formal talks with the Liberal Democrats.     “Gordon Brown has made an important announcement,” Clegg said. “It could be an important element in a smooth transition to the stable government that people deserve — without prejudicing or predicting what the outcome of the talks will be between ourselves and the Labour Party.” ‘Final Attempt’ “The momentum looked like it was taking the Lib Dems towards some sort of partnership with the Conservatives,” said Andrew Russell , a lecturer at Manchester University and author of “Neither Left Nor Right,” a history of the Liberal Democrats. “This is Labour’s final attempt to find common cause with the Liberal Democrats.” Brown had also offered Clegg a referendum on the electoral system. Even if they agree on policies, Labour and the Liberal Democrats together wouldn’t have a majority and would need to bring in the smaller nationalist parties from Wales and Scotland. Nor would all Labour lawmakers back such a deal. “I have serious reservations about an alliance with all these different parties,” said Tom Harris , who represents a district in Glasgow, Scotland. “Given that we did lose badly in the election, we’re not prepared to sell every policy we have in order to keep power for a few short weeks.” “This will not be a sustainable coalition,” said Diane Abbott , who became Britain’s first black woman lawmaker in 1987. “We’ll be at the mercy of tiny parties that simply want to protect their countries from spending cuts.” To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net ; Robert Hutton in London at rhutton1@bloomberg.net .

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Conservatives, Liberal Democrats Focus on U.K. Deficit in Coalition Talks

May 10, 2010

By Robert Hutton and Kitty Donaldson May 10 (Bloomberg) — Conservative and Liberal Democrat spokesmen said they’re making progress on an agreement to forge a government after the U.K.’s inconclusive May 6 vote. “The negotiating teams are working really well together,” William Hague , the former Conservative leader, said after a 90- minute meeting today, the fourth with lawmakers from the third- biggest party. “Bear with us a little longer,” Nick Clegg , the Liberal Democrat leader, told reporters. Any potential agreement would focus on deficit cutting, spokesmen for the parties said yesterday, as they emphasized common ground in a bid to reassure investors. The jockeying threatened to roil markets as Europe grapples with a sovereign- debt crisis and Britain faces a record budget shortfall. “This was the worst possible time for this,” said Stuart Thomson , who helps manage the equivalent of about $100 billion at Ignis Asset Management in Glasgow. “We have a very febrile atmosphere over sovereign debt. Our view is that sterling is undervalued, but without a stable political situation and Conservative fiscal policy, it could go down further.” The pound added 1.3 percent to $1.4998 at 3:15 p.m. in London. The 10-year gilt yield rose 8 basis points to 3.9 percent. Sky News television reported this afternoon that an outline of a deal was in place. ‘Buoyant, Upbeat’ Liberal Democrat lawmaker Mike Hancock told reporters as he left a meeting with his colleagues that he hoped there would be a decision on a deal tonight. “The mood is very buoyant, upbeat,” Hancock said. “People have been critical of each other and have differing views, but nothing spectacular.” The negotiations were triggered by the first election since 1974 that failed to produce a majority. Gordon Brown , who remains prime minister and Labour leader, had his first post- election meeting with Clegg yesterday. “The markets accept that we have got a hung parliament and there has got to be some discussion,” Chancellor of the Exchequer Alistair Darling told the BBC’s Today radio program today. He said he hoped the Liberal Democrats and Conservatives can make a decision “by the end of the day” whether they “can do a deal or not,” although discussions that go into tomorrow are “not the end of the world.” Debt Outlook U.K. government debt will rise to 77 percent of gross domestic product this year and may approach 100 percent by 2014, Standard & Poor’s says. The rating company cut its outlook on the U.K.’s AAA grade from stable in May 2009, saying debt may rise to a level incompatible with its top assessment. The Conservatives won 306 districts in the vote, a net gain of 97 from the previous election in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of the 650-seat House of Commons. Clegg said Conservative leader David Cameron was entitled to the first chance to form a government since he won the most votes and Parliament seats. The parties disagreed during the campaign over Cameron’s proposals to cut spending this year and lower inheritance taxes and Clegg’s bid to eliminate income taxes on those with the lowest incomes. Economic stability and reducing a deficit forecast by the European Union at 12 percent of GDP this year would form the “central part” of an agreement, Hague told reporters yesterday. ‘Shift in Tone’ “The most likely outcome is a deal between the Conservatives and Liberal Democrats,” said Tim Bale , author of “The Conservative Party From Thatcher to Cameron.” “There has been a shift in tone, emphasizing what they have in common compared to their differences. Brown will be gone by mid-week unless it all collapses.” The scope of a deal ranges from a coalition, with Liberal Democrats in the Cabinet and agreeing to support Cameron in Parliament, to a “confidence and supply” agreement. In that arrangement, Clegg promises not to oppose the Conservatives on budgets or any issue where defeat would force an election. Clegg signaled that the parties may overcome their differences on overhauling the voting system. During the campaign, Clegg said “electoral reform is a first step which any government of whatever composition will need to introduce.” Yesterday, he included “fundamental political reform” at the end of a five-point list of “big changes” that will guide his party. Smaller Parties Brown has offered Clegg a referendum on the electoral system. Even if they agree on other matters, Labour and the Liberal Democrats together wouldn’t have a majority, and would need to bring in two other smaller parties. And even if that could be achieved, Brown may not be able to deliver his own party. In his 2 1/2 years as Labour leader, Brown has struggled to unite it behind him, fending off at least three coups. Two Labour lawmakers, Kate Hoey and John Mann , have already called for Brown to step aside. “Gordon Brown seems the least well-placed leader” to lead a coalition, said Jane Green, a lecturer in politics at Manchester University. Cameron has his own problems with his party, having failed to deliver a Parliamentary majority. He’ll face lawmakers at a meeting in London today at 6 p.m. “I would rather be in a minority government,” said lawmaker Graham Brady , who suggested another election may be in the offing before a full term is completed. “Realistically, there’s not much more prospect of whatever arrangement is reached lasting for very long.” To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net .

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Conservatives, Liberal Democrats Make Progress in Talks, Focus on Deficit

May 10, 2010

By Robert Hutton and Kitty Donaldson May 10 (Bloomberg) — Conservative and Liberal Democrat spokesmen said they’re making progress on an agreement to forge a government after the U.K.’s inconclusive May 6 vote. William Hague , the former Conservative leader, said talks were “going well” as he entered a fourth round of negotiations with lawmakers from the third-biggest party. “Bear with us a little longer,” said Nick Clegg , the Liberal Democrat leader. Any potential agreement would focus on deficit cutting, spokesmen for the parties said yesterday, as they emphasized common ground in a bid to reassure investors. The jockeying threatened to roil markets as Europe grapples with a sovereign- debt crisis and Britain faces a record budget shortfall. “This was the worst possible time for this,” said Stuart Thomson , who helps manage the equivalent of about $100 billion at Ignis Asset Management in Glasgow. “We have a very febrile atmosphere over sovereign debt. Our view is that sterling is undervalued, but without a stable political situation and Conservative fiscal policy, it could go down further.” The pound added 1.3 percent to $1.499 at 10:22 a.m. in London, tracking gains worldwide after European leaders agreed to an unprecedented package of measures to bolster the euro. The 10-year gilt yield rose 9 basis points to 3.92 percent. The negotiations were triggered by the first election since 1974 that failed to produce a majority. Gordon Brown , who remains prime minister and Labour leader, had his first post- election meeting with Clegg yesterday. ‘Markets Accept’ “The markets accept that we have got a hung parliament and there has got to be some discussion,” Chancellor of the Exchequer Alistair Darling told the BBC’s Today radio program today. He said he hoped the Liberal Democrats and Conservatives can make a decision “by the end of the day” whether they “can do a deal or not,” although discussions that go into tomorrow are “not the end of the world.” U.K. government debt will rise to 77 percent of gross domestic product this year and may approach 100 percent by 2014, Standard & Poor’s says. The rating company cut its outlook on the U.K.’s AAA grade from stable in May 2009, saying debt may rise to a level incompatible with its top assessment. The Conservatives won 306 districts in the vote, a net gain of 97 from the previous election in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of the 650-seat House of Commons. Clegg said Conservative leader David Cameron was entitled to the first chance to form a government since he won the most votes and Parliament seats. Policy Disagreements The parties disagreed during the campaign over Cameron’s proposals to cut spending this year and lower inheritance taxes and Clegg’s bid to eliminate income taxes on those with the lowest incomes. Economic stability and reducing a deficit forecast by the European Union at 12 percent of GDP this year would form the “central part” of an agreement, Hague told reporters yesterday. “The most likely outcome is a deal between the Conservatives and Liberal Democrats,” said Tim Bale , author of “The Conservative Party From Thatcher to Cameron.” “There has been a shift in tone, emphasizing what they have in common compared to their differences. Brown will be gone by mid-week unless it all collapses.” The scope of a deal ranges from a coalition, with Liberal Democrats in the Cabinet and agreeing to support Cameron in Parliament, to a “confidence and supply” agreement. In that arrangement, Clegg promises not to oppose the Conservatives on budgets or any issue where defeat would force an election. ‘Big Changes’ Clegg signaled that the parties may overcome their differences on overhauling the voting system. During the campaign, Clegg said “electoral reform is a first step which any government of whatever composition will need to introduce.” Yesterday, he included “fundamental political reform” at the end of a five-point list of “big changes” that will guide his party. Brown has offered Clegg a referendum on the electoral system. Even if they agree on other matters, Labour and the Liberal Democrats together wouldn’t have a majority, and would need to bring in two other smaller parties. And even if that could be achieved, Brown may not be able to deliver his own party. In his 2 1/2 years as Labour leader, Brown has struggled to unite it behind him, fending off at least three coups. Two Labour lawmakers, Kate Hoey and John Mann , have already called for Brown to step aside. ‘Least Well-Placed’ “Gordon Brown seems the least well-placed leader” to lead a coalition, said Jane Green, a lecturer in politics at Manchester University. Cameron has his own problems with his party, having failed to deliver a Parliamentary majority. He’ll face lawmakers at a meeting in London today at 6 p.m. “I would rather be in a minority government,” said lawmaker Graham Brady , who suggested another election may be in the offing before a full term is completed. “Realistically, there’s not much more prospect of whatever arrangement is reached lasting for very long.” To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net

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Cameron, Clegg Seek to Show Progress on U.K. Coalition Before Markets Open

May 9, 2010

By Kitty Donaldson and Robert Hutton May 9 (Bloomberg) — Talks on forming a British government with a parliamentary majority are set to continue into the week as Conservative David Cameron and Nick Clegg ’s Liberal Democrats seek to bridge differences on overhauling the electoral system. Negotiators, who include Liberal Democrat lawmaker Danny Alexander and former Conservative leader William Hague , met in London for a third round of talks today. Cameron isn’t scheduled to brief his lawmakers until 6 p.m. tomorrow. “It is important to show progress by tomorrow when the markets open,” Michael Gove , the Conservatives’ education spokesman and a Cameron adviser, said today on the BBC’s Andrew Marr Show. The pound and gilts fell May 7 on concern the political jockeying would undermine efforts to cut a record budget deficit. Sterling fell 0.2 percent to $1.4804 after dropping as much as 2.4 percent and gaining 0.7 percent. Government bonds slid, pushing the 10-year gilt yield up by 3 basis points to 3.84 percent. The negotiations to form an alliance to oust Prime Minister Gordon Brown were triggered by elections May 6 that failed to produce a majority, resulting in the first hung Parliament since 1974. Brown, who has also appealed to Clegg for an alliance, remains in office. Hague today called talks with the Liberal Democrats so far “very constructive.” Calls to Quit Sixty-two percent of people questioned in a YouGov Plc poll for the Sunday Times newspaper said Brown should quit now. Twenty-eight percent disagreed, YouGov said. YouGov questioned 1,406 adults online May 7 and yesterday. The Conservatives won 306 districts in the vote, a net gain of 97 from the previous election in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of the 650-seat House of Commons. With Cameron winning the most seats and votes, “one has to assume that he and Nick Clegg can make it work,” Diane Abbott , a Labour member of Parliament from London since 1987, said today on Sky News. Labour lawmakers Kate Hoey and John Mann became the first of the party’s elected officials to call on Brown to step down. “It is not tenable for Nick Clegg to be propping up Gordon Brown,” Mann said today on Sky News. Brown “needs to be making plans to step down as Labour leader, and when the government is formed, he should then be stepping down as prime minister.” Options Still, Liberal Democrat lawmaker Simon Hughes said a deal with Labour Party should not be ruled out. The talks with the Conservatives are “not the only show in town,” Hughes told Sky News today. “Let’s see how today goes, how tomorrow goes. If we can agree we will, if we can’t we move on.” Clegg, 43, told reporters today the Liberal Democrats would emphasize “the big changes we want.” They include changes to the voting system to give smaller parties greater representation in Parliament , an end to income tax for 3.6 million low earners, a breakup of big banks and cutting school class sizes. Cameron, who says he wants to stick with Britain’s first- past-the-post voting system, proposed setting up a panel to study an electoral overhaul. Brown offered Clegg an immediate referendum on the issue. There’s a “mountain to climb” to narrow policy differences between Liberal Democrats and Conservatives, former Liberal Democrat leader Paddy Ashdown said today on the Marr Show. Brown, 59, who was in Scotland today, would need an unprecedented four-way alliance including Scottish and Welsh nationalists to stay in power. ‘Self-Evident’ Brown’s inability to lead such a coalition is “self- evident,” Ashdown said. A failure by either Brown or Cameron, 43, to come to terms with potential allies would probably result in Cameron seeking to establish a minority government. Brown remains as prime minister until he advises Queen Elizabeth II , as head of state, that he is resigning. As Britain has no written constitution, the 84-year-old monarch is guided by conventions built up over hundreds of years. The main requirement for the queen is to find a political leader who can command the confidence of the House of Commons . “I am working on the assumption that we are going to have a minority government,” Simon Henig, a lecturer in politics at the University of Sunderland , said in a telephone interview. “There have been no formal deals in Britain apart from episodes during the wars.” To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net ; Robert Hutton in London at rhutton1@bloomberg.net

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Ann Pettifor: The Real Deal in London

May 8, 2010

Britain’s political elites are doing deals this weekend, trying to form a government. Gingerly making their way across the shifting tectonic plates of public opinion; wary of being tripped up again by voters. For, let’s face it, the British electorate are no fools. As the governor of the Bank of England apparently warned last week, they are mad as hell. Austerity measures will not be tolerated, and will keep any governing party out of power for a generation . So there is a lot to lose. Voters listened carefully last autumn as David Cameron, the leader of the Conservative Party and his Finance Minister, George Osborne turned a blind eye to the reckless behaviour of the City of London. They ignored the extent to which taxpayers had bailed out private bankers, and taken the full burden of their losses on to the public sector balance sheet. Instead Osborne implied that responsibility for economic failure lay with millions of public sector workers, and the essential services they provide. In a politically disastrous move, Osborne threatened to punish the innocents with a ‘ new Age of Austerity ‘ , while promising to give an inheritance tax break to the 3,000 richest families in the country. He vowed “to freeze the pay of millions of public sector workers, cut benefits enjoyed by the middle classes and cap civil service pensions at £50,000 a year.” As a result, and despite the fact that Conservatives were at that point 17 points ahead of Labour and headed for a landslide – their vote slumped. Canny British voters refused to behave like turkeys voting for Christmas, and steadily withdrew support. There then began a concerted effort to silence Osborne (it seems he was locked up in a cupboard for the duration of the election campaign). Nevertheless, the damage was done, and the Tories failed to muster a majority of seats in the House of Commons last Thursday . Labour, under the leadership of Gordon Brown and to the surprise of many, managed to staunch the political wounds inflicted earlier on his party by his predecessor, Tony Blair. 13.5 million had voted for Labour in 1997 – in good faith. By 2005 and during ‘the good times’ when Britain was growing at 3% per annum – Labour’s vote had plummeted to 9.6 million – which is why Blair had to go. He had lost the Labour Party 3.9 million voters. Then, just as Gordon Brown took over the premiership, ‘ the world economy fell off a cliff ‘. Economic failure, unemployment and the failure to rein in bankers cost Brown’s government about 900,000 votes last week – fully 3 million votes less than were lost under Tony Blair. In other words, Labour’s lost voters were lost long before 6th May, 2010. Sceptical of the Conservatives and fed up with Labour, voters turned their attention to the ‘new boy’ on the block – Nick Clegg, leader of the Liberal Democrats. Excited by the media spotlight, the inexperienced Clegg blundered, fell victim to hubris, and asked incredulously how Mr Brown could “squat” in No 10 even if Labour came third in the popular vote. In the event it was Mr Clegg’s Liberal Democrats that trailed in third place. As quickly as they had risen, his party’s hopes were dashed – thwarted by shrewd voters. Nevertheless, Cameron and Clegg have grabbed the post-election spotlight, and are doing deals behind closed doors to forge a coalition, and force out Brown. Many expect the negotiations to fail, for want of common ground – on for example, the cancellation of the Trident nuclear submarine, and electoral reform. So power-sharing is doomed to fail, if not this week, then by this autumn. In the meantime, the real deal-makers are to be found elsewhere. Across the Irish Sea . In Belfast, Northern Ireland. The fact is that none of the political parties can afford another election campaign for the next year or so, and the Lib Dems and Tories are too far apart for a sustainable power-sharing deal. Cameron knows this. So expect the Conservatives to put in calls to the 8 members of the Democratic Unionist Party , in the hope that their support will enable David Cameron to govern as a minority government. This way they would keep both Labour and the Liberal Democrats at bay. That is, if they are not dislodged by the tectonic plates of ‘austerity’ – that could keep Conservatives out of power for the next generation.

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David Gray: For Mother’s Day, Hope for Work-Life Balance and Workplace Flexibility

May 8, 2010

As we approach Mother’s Day, the biggest gift that many moms are looking for is a gift of time and balance. There is a mismatch between the structure of American work and the needs of most families. Fortunately, there may be increasing hope for parents and others struggling with work life balance. Poll after poll shows the desire for more workplace flexibility for American workers and families. The landscape might finally be turning towards constructive action in this space. On March 31, President Obama hosted the White House Forum on Workplace Flexibility. The President and the First Lady talked about their work-life balance challenges in a way that could resonate with the 85% of Americans who report that they struggle with work-life balance. More and more companies are turning to workplace flexibility policies to recruit and retain workers. Consequently, last spring, the Society for Human Resource Management announced a work-life balance policy platform, which highlighted workplace flexibility, and included recommendations to help businesses provide extended time off. At the White House Forum, Office of Personnel Management Chief John Berry announced plans to expand telework and efforts to make the federal government a more flexible employer. On April 22, the House Worker Protection Subcommittee held a hearing on the Work Life Balance Award Act of 2010, which would create and recognize incentives for businesses to support work-life balance, and has real potential for bipartisan support. Moreover, the development in Australia of new “right to request” legislation provides a possible model for the U.S. Employers who have told me over and over that if employees simply ask for flexibility and time off, they would grant the requests in most cases. Great Britain enacted a law in 2004 to give employees the right to “request” a flexible schedule. However, “right to request” legislation has gone nowhere in the U.S., in no small part because most proposals contain enforcement mechanisms that are unacceptable to business. The Australian model allows an employer to deny the request for legitimate business reasons and there is no review of the decision. With the enforcement provisions removed, the Australian model, or some version of it, provides a starting point for a model bipartisan conversation about increasing such workplace flexibility. Conversations between employers and employees about flexibility are going on in the private sector each day and efforts to enhance them, such as Australia’s model, are significant. Finally, the economic downturn has potential to highlight bipartisan work-life balance policies. An April 5 paper, co-authored by Kevin Hassett of the conservative American Enterprise Institute and Dean Baker of the liberal Center for Economic and Policy Research, argues that the best way for America to reduce its near-double digit unemployment rate is to promote work-sharing. The idea is that rather than laying off workers, employers would be encouraged by federal policy to reduce the hours of workers. So more workers would stay attached to work, but work fewer hours. Rather than paying unemployment insurance to workers who have been laid off and have no workforce attachment, those same funds would help make up the salaries of the workers who have reduced hours. Work-sharing is an important work-life balance concept that allows people to work reduced hours and spend more time with family. Interesting, the depression era Fair Labor Standards Act and its 40 hour work week became law as a kind of work sharing concept to reduce unemployment. The economic crisis is allowing leaders on both sides of the aisle to come together to argue for the expansion of flexibility policies. The result of the White House Forum is new momentum on workplace flexibility. For the first time in many years, the environment is beginning to look more promising for policies that help mothers, and all Americans, find more work-life balance.

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Clegg’s Liberal Democrats to Debate Cameron Bid for Alliance to Oust Brown

May 7, 2010

By Robert Hutton and Kitty Donaldson May 8 (Bloomberg) — Nick Clegg ’s Liberal Democrats meet today to consider Conservative David Cameron ’s bid for an alliance to oust Prime Minister Gordon Brown after the U.K. election failed to deliver a majority to any party. While Brown said he was willing to discuss a coalition with any party, Clegg said Cameron should have the first crack at forming a government because he won the most seats and had the most popular support in the May 6 vote. Cameron proposed a panel to study the central Liberal Democrat demand of overhauling the electoral system. Brown offered an immediate referendum. “The big sticking point is what’s in it for the Liberal Democrats,” said Andrew Russell , a politics lecturer at Manchester University and the author of “Neither Left Nor Right?”, a study of the Liberal Democrats. A deal “is not inconceivable. The chances are it wouldn’t work.” The pound and gilts fell on concern the political jockeying and subsequent recriminations would undermine efforts to reduce a record budget deficit. Sterling weakened 0.3 percent to $1.4792 at 7 p.m. in London. Government bonds declined, pushing the 10-year gilt up by 3 basis points to 3.84 percent. Negotiations began late yesterday after the first election since 1974 that yielded a so-called hung Parliament. Clegg and Cameron spoke by telephone and leaders of Brown’s Labour Party, which has governed since 1997, made public appeals to Liberal Democrats. Brown’s Bid Brown would need an unprecedented four-way alliance including Scottish and Welsh nationalists to stay in power. A failure by Brown and Cameron to come to terms with potential allies would probably result in Cameron seeking to establish a minority government. The Conservatives won 306 districts, a net gain of 97 from the previous election in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of the 650-seat House of Commons. “There is a case for going further than an arrangement that simply keeps a minority Conservative government in office,” Cameron said in London before holding a first round of talks with Clegg. “I want us to work together in tackling our country’s problems.” “Nick Clegg and David Cameron had a short telephone discussion this afternoon during which they agreed that they should explore further proposals for a program of economic and political reform,” the Liberal Democrats said in an e-mailed statement, without elaborating. Queen’s Role Brown, 59, remains as prime minister until he advises Queen Elizabeth II , as head of state, that he is resigning. As Britain has no written constitution, the 84-year-old monarch is guided by conventions built up over hundreds of years. The main requirement for the queen is to find a political leader who can command the confidence of the House of Commons . Speaking yesterday in front of the prime minister’s residence at 10 Downing Street, Brown proposed a referendum on introducing proportional representation in voting, something that would help the Liberal Democrats gain more seats in Parliament. He also pointed out that they share Labour’s opposition to cutting spending this year, in contrast to Cameron. For his part, Cameron offered to establish a committee to discuss the voting system and insisted he would want to cut spending immediately. The 43-year-old Conservative, who led his party to its biggest gain in seats since 1931, also listed all the areas where he wasn’t prepared to compromise. Policy Differences These include his party’s opposition to looser immigration controls and scrapping the submarine-based Trident nuclear deterrent. Both are favored by the Liberal Democrats. Clegg, 43, can’t agree to a deal on his own. Party rules require the assent of Liberal Democrat lawmakers and members. The party’s Parliamentary committee meets at midday in London. “It will be difficult for the Conservatives and the Lib Dems to come to any formal agreement,” said Stephen Driver , who teaches politics at Roehampton University in London. “What Clegg would get out of any Conservative deal would be very small indeed.” To contact the reporters on this story: Kitty Donaldson in London at kdonadlson@bloomberg.net ; Robert Hutton in London at rhutton1@bloomberg.net .

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Gulf Oil Rig Disaster And Mine Explosion Highlight Weak Safety Regulations

May 7, 2010

“I have here before me a pile of news clips collected over the last couple of weeks describing workers, men and women, young and old who have been crushed, electrocuted, burned, or who have died in falls, trench collapses and forklift accidents. These are the invisible relentless daily tragedies of the American workplace.” — OSHA Administrator David Michaels, April 27 Coal miners and oil drillers may not have been on T.S. Eliot’s mind when he penned “The Wasteland,” but April was surely the cruelest month for those who work in two of the most dangerous jobs in America. Last month saw the two biggest disasters in those industries in decades, with 29 miners dying in the Upper Big Branch mine explosion on April 5 and 11 workers killed in the oil rig explosion in the Gulf of Mexico on April 20. In the wake of the tragedies, headlines have been dominated by searing accounts of these workers’ last moments, lawmakers are demanding investigations and the public is looking for heads to roll at the mining conglomerate, Massey Energy, and the oil giant BP. In addition, many have blamed the government agencies that are supposed to regulate these industries for letting the companies get away with safety violations and for not mandating better safety procedures. On a larger scale, these tragic accidents reflect the failure of our regulatory system to protect worker safety and health, according to safety experts and former regulators. In the face of a corporate backlash and lack of media coverage, the current system has been progressively weakened over the last few decades and safety advocates fear that the Obama administration is not doing enough to strengthen such protections. Since it was established almost 40 years ago, the Occupational Safety and Health Administration, which guarantees every American a safe and healthful working environment, has had an immeasurable impact — the job fatality rate has fallen 80 percent since 1970 and injury rates have also fallen dramatically. But many workers are still killed on the job — 5,214 died in 2008, which doesn’t count the number who died from occupational diseases — and the agency has been blamed for failing to keep up with the times. Safety standards for some serious hazards — such as exposure to toxic chemicals — have not been updated since 1971. In addition, the understaffed agency only has 2,218 inspectors for over 130 million workers in the country. “The safety and health prevention system for workers is a dinosaur,” says Celeste Monforton, Assistant Research Professor at GWU School of Public Health. “It hasn’t been updated in 40 years. There is a very strong anti-regulatory bent in this country, and when these types of tragedies take place, people say, “How could this happen?” People don’t realize that without safety and health protections for workers — and an appreciation for what they can do — it’s no wonder that these things happen.” Monforton, who previously worked at OSHA, says that the agency has not been successful over the last 20 years in issuing regulations; the last rules covering refinery workers, for instance, haven’t been updated since 1989. Monforton also cites the agency’s reaction to the 2008 Imperial Sugar refinery explosion, which killed 14 workers and injured over 40 when sugar dust ignited, prompting recommendations to regulate exposure to combustible dust. “There hasn’t been any change,” she says, adding that the firm “hasn’t paid a dime in their penalty.” A spokesman for OSHA did not return an email for comment regarding Imperial Sugar and the combustible dust issue in time for publication. These problems are exacerbated by resistance from many businesses to safety regulations — as HuffPost first reported last week , BP and other oil producers have fought proposed safety regulations for years and Massey Energy challenged hundreds of violations cited by federal inspectors. Describing workers “who have been crushed, electrocuted, burned, or who have died in falls, trench collapses and forklift accidents” as “the invisible relentless daily tragedies of the American workplace,” OSHA director David Michael, in testimony before Congress , blamed businesses that ignore safety regulations. “Too often, we see employers who assess the benefits of refusing to comply with the law and compare them to the costs of complying with the law. If they find that the costs of compliance outweigh the penalties they will face if caught, they opt to gamble with their workers’ lives. This is a “catch me if you can” approach to safety and health. It is what we saw in action at Upper Big Branch and what we at OSHA see far too often in the workplaces we visit.” Michaels conceded that OSHA is hamstrung, since the law has not been updated and penalties haven’t been increased in 20 years, announcing that the agency just launched a new enforcement strategy requiring each employer to implement an injury and illness prevention program. * * * * * Both disasters illustrate unique weaknesses of the regulatory system, according to safety experts and former regulators. Though the Deepwater Horizon oil rig disaster is still being investigated, the rig’s lack of a backup device used in Norway and Britain to prevent blowouts and possible faulty cementing work have been criticized by oil drilling experts. In addition, there has been widespread concern about MMS and its ability to effectively regulate the industry, especially when it comes to worker safety and health issues. Most workplaces are regulated by OSHA — offshore drilling operations are one of the few exceptions. And MMS, which primarily is responsible for collecting royalties from oil and gas producers that drill on federal land and water, seems ill-equipped to deal with safety and health issues, as well as environmental risks. As HuffPost reported last week , MMS did not require BP to file a blowout plan when the company filed its exploration plan for the Deepwater Horizon rig last year and the agency underplayed the impact of a potential spill in its environmental impact statement on that region of the Gulf of Mexico. The agency has been faulted for assessing inadequate penalties, averaging $45,000 over the last 12 years, as reported by ProPublica . In addition, MMS has referred very few potential criminal violations to the Interior Department’s Inspector General, reports the Project on Government Oversight . In general, the oil industry has been allowed to police itself by MMS, with producers and drilling contractors voluntarily abiding by a safety management program devised by the American Petroleum Institute, an industry trade group. When the agency sought to require audits every three years to make sure that oil companies were abiding by the program, the industry fought back and the proposal has yet to take effect. The regulatory system for offshore oil rigs is considered more rigorous in Norway, Britain and other major oil producing countries. The safety record of U.S. offshore drilling does not compare well with overseas companies — over the past 5 years, an offshore oil worker in the U.S. was more than four times as likely to be killed than a worker in Europe, and 23% more likely to sustain an injury, according to a Wall Street Journal analysis of data . “We have seen platforms in the Gulf of Mexico that would never have been allowed in Norway,” says Dr. Urban Kjellén of the Norwegian University of Science and Technology. The safety philosophy for the design of these installations is very different in Norway — one of the things is that you segregate hazardous areas from non-hazardous areas by distance or explosion walls. That way, if you get leakage, if you get gas clouds and if they ignite, you are likely to limit the consequences and avoid a total loss of the platform. It’s a barrier.” Both the oil rig disaster and the mining tragedy illustrated the weaknesses of the US regulatory approach, which involves a checklist of prescriptive requirements, as compared to the European approach, which is more oriented towards reducing the risk to a tolerable level, focusing on making sure that workplaces are designed to function in an optimal way and to minimize human errors. One interesting difference is that the Norwegian system actually involves a more self-regulatory approach on the part of companies, but the enforcement is very strict with frequent audits. Former MMS head of regulatory affairs, Elmer Danenberger, disputes those criticisms, calling it a “cheap shot” in an interview with HuffPost and claiming that the agency is qualified to regulate the industry. “I think that MMS has done a pretty good job in that regard, it’s a quality organization,” he says adding that the job involves “waking up every day knowing that I may have had 5,000 perfect days but anything can happen today, every little operation, this could be the one that takes the whole company down, takes the whole offshore thing down.” He added that part of his job – and part of the rationale for the proposed safety regulations — is to “hold bad players accountable.” Danenberger also disputed the idea that a performance-based system is necessarily preferable to prescriptive regulations when it comes to safety regulation of workplaces. He notes that the Piper Alpha incident, the worst offshore oil disaster in the world in which 167 people died in an explosion and fire on a production platform in the North Sea in 1988, prompted recommendations for Britain to change from a rules-based system to a performance-based one. Yet, Danenberger adds, last year’s oil spill off the coast of Australia was blamed on a performance-based program. “So, you have the worst of both worlds.” One longtime safety and health official in the oil industry says that regulations would not have prevented the Deepwater Horizon explosion and oil spill, contrasting the industry with mining operations, “where disasters are a hell of a lot more common.” “This thing happened in an area where the industry is applying the best-available technology, the regulatory agency has some influence, but I think the influence on the big companies is limited to the extent that for these companies, it’s in their vested interest not to let this happen – look at how many billions BP will lose.” The former industry official, who declined to be named, dramatically pronounced that the oil rig disaster could have the impact that Chernobyl did on the nuclear power industry, freezing new projects for years to come. “More stringent regulations wouldn’t help prevent this from happening again — unless you said, ‘Don’t drill.’” * * * * * One of most-cited problems with the Upper Big Branch mine was that Massey Energy had racked up thousands of violations, including withdrawal orders for serious violations, yet none of them resulted in the closure of the mine. After Congress raised penalties for safety violations in 2006, the mining industry reacted by contesting more and more violations in order to delay the fines and prevent regulators from establishing the “pattern of violations” that might lead regulators to shut down unsafe mines. The number of citations contested has skyrocketed, from 7,200 in 2005 to 46,526 in 2009, creating a massive backlog for the Mine Safety and Health Administration. Massey Energy contested nearly all major citations issued against the Upper Big Branch Mine in 2009 and paid less than 20% of the fines levied against it. The company’s combative CEO, Don Blankenship, has butted heads with MSHA, saying that safety rules are “difficult to comply with” and “nonsensical.” Like its sister agency, MSHA also has had difficulty with its enforcement operations — 14% of the country’s underground coal mines were not inspected in 2006, according to a report by the Department of Labor’s inspector general. Monforton, who used to work at MSHA, says that the agency does not enforce its violations enough and that its financial penalties are minimal — for mining companies like Massey Energy, it’s just cheaper to pay those fines that to come up with a real plan [for worker safety and health].” The current regulations are essential, she argues. “We see deaths in all kinds of mines and 95% of the time, when the probe is done, what the agency finds is that the regulations were not followed. Regulations are designed to prevent these types of things, whether it’s certain amount of ventilation in a coal mine – it’s violating those things that lead to these deaths.” Critics of MSHA cite the fact that agency has only used the “pattern of violations” rule once since 1977 to shut down an unsafe mine. “They have institutionalized the concept that violations of law, whether serious or minor, are acceptable,” says Patrick McGinley, a professor at the West Virginia School of Law. In particular, he is troubled that after the Sago mine disaster in 2006, the agency failed to follow through on its promise to enforce the “pattern of violations” rule but instead allowed mines that improved their safety records to avoid penalties. “The goal should be compliance and not embracing operations that violate or rewarding the least-bad operator — just because you’re better than average doesn’t mean you’re good.” MSHA, which recently announced that it is expanding its investigation into the Upper Big Branch disaster, has vowed to improve its enforcement program. At a congressional hearing last week, MSHA director Joe Main admitted that the agency “has limited tools to hold bad actors accountable and to try to force them to change their behavior.” Both disasters highlight the fact that these high-risk resource-extraction industries have taken a high toll and that their unique regulatory cultures may need to be reexamined and updated to protect the safety and health of workers.

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Cameron Appeals for Coalition With U.K.’s Liberal Democrats to Oust Brown

May 7, 2010

By Kitty Donaldson and Robert Hutton May 7 (Bloomberg) — Conservative challenger David Cameron appealed to the Liberal Democrats to form an alliance to oust Prime Minister Gordon Brown after the U.K. general election failed to deliver a majority to any party. While Brown said he was willing to discuss a coalition with any party, Nick Clegg , the Liberal Democrat leader, said Cameron should have the first crack at forming a government because he won the most seats and had the most popular support.     “There is a case for going further than an arrangement that simply keeps a minority Conservative government in office,” Cameron said in London today. “I want us to work together in tackling our country’s problems.” Cameron, while gaining more seats than any Conservative leader in an election since 1931, fell short of his target. Clegg, second in the polls for much of the campaign, fell to third and lost seats. Brown led his party to its worst result since 1983. With 638 of 650 results declared, Cameron’s Conservatives had 301 seats to 255 for Labour and 55 for Clegg. “Imagine a game of poker in which everyone has been dealt a rather poor hand,” said Eric Shaw, lecturer in politics at Stirling University in Scotland. “There is a possibility that the player with the best hand wins, but there is a second possibility that the player who wins is the one who holds their nerve.” Pound, Gilts The pound and gilts fell on concern the political jockeying and subsequent recriminations would deflect efforts from reducing a record budget deficit. Sterling weakened 0.6 percent to $1.4641 at 2:50 p.m. in London. Government bonds declined, pushing the 10-year gilt up by 7 basis points to 3.87 percent. “All the talk today has been about constitutional issues and that’s not what the British government has got to deal with,” said Stephen Driver , who teaches politics at London’s Roehampton University. “The British government has got to deal with the deficit.” Brown remains as prime minister until he advises Queen Elizabeth II , as head of state, that he is resigning. As Britain has no written constitution, the 84-year-old monarch is guided by conventions built up over hundreds of years. The main requirement for the queen is to find a political leader who can command the confidence of the House of Commons. ‘Premature Resignation’ The Conservatives “will try to panic Gordon Brown in to a premature resignation,” said Robert Hazell , the director of the Constitution Unit at University College London. “We are so used to an overall victory it is regarded as a bit poor form for a prime minister to remain in office if he appears to have lost.” Whether an opposition can force Brown from office depends on its “chutzpah,” Hazell said. “Quite a lot does depend on the media and public perception.” Only one election since the queen took the throne in 1952 has failed to produce a majority. That was in February 1974, when Conservative Prime Minister Edward Heath called a snap election after a strike by coal miners seeking higher pay led to power shortages, and the government put the country on a three- day working week. Even though the Conservatives won the largest share of the vote, Harold Wilson ’s Labour Party took most seats. Heath attempted to stay in power and held unsuccessful talks on forming a coalition with the Liberal Party. He resigned four days after the vote, allowing Wilson to form a minority government that lasted until new elections in October. New Rules As the polls tightened this year, Gus O’Donnell , who as cabinet secretary is head of the Civil Service, accelerated plans to codify the conventions that surround elections and avert the uncertainty that would follow a similar result this time. “The key thing is Brown remains in office as prime minister until he chooses to resign,” said Hazell. “He is under a duty to remain in office until it is clear someone will command the support of the new House of Commons.” The queen “must not be left guessing who can command support in Parliament,” Hazell said. That means it must be clear that Cameron, Brown or Clegg has enough support from other parties to pass legislation or avoid defeat in a confidence vote. To contact the reporters on this story: Kitty Donaldson in London at kdonadlson@bloomberg.net ; Robert Hutton in London at rhutton1@bloomberg.net

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Cameron Wins Most Seats as Brown Signals Fight to Stay U.K. Prime Minister

May 7, 2010

By Thomas Penny and Gonzalo Vina May 7 (Bloomberg) — Conservative challenger David Cameron won the most seats in the British election, while falling short of a majority guaranteeing the ouster of Prime Minister Gordon Brown . Gilts and the pound fell on the indecisive result. In the first election since 1974 that failed to produce a majority, Nick Clegg , leader of the No. 3 party, said by winning a plurality in Parliament and the biggest share of the vote Cameron should have the first crack at forming a government. The rules grant Brown the first such opportunity. “It’s now for the Conservative party to prove that it is capable of seeking to govern in the national interest,” Clegg told reporters today in London. “I’ve also said that whichever party gets the most votes and the most seats, if not an absolute majority has the first right to seek to govern, either on its own or reaching out to other parties, and I stick to that view.” Cameron’s Conservatives took 291 seats in the 650-seat House of Commons with 620 results declared, making it impossible for them to gain outright control. Labour had 251 and Clegg’s Liberal Democrats 51. The Conservatives gained a net 96 seats and Labour lost 88. The pound weakened 1.5 percent to $1.4618, a 13-month low, at 11:15 a.m. in London. Gilt futures declined 1.1 percent. ‘Messier’ “The constitutional position is likely to be a lot messier than the markets have been discounting,” said Marc Ostwald , an analyst at the bond brokerage Monument Securites in London. “There has been little or nothing in the way of a risk premium priced into U.K. assets.” Cameron said Labour had lost its “mandate to govern.” He plans to make a statement at 2:30 p.m. on how he’ll seek to form a “strong and stable” government. Brown said he hoped to “play my part” in the next government. The result leaves the country and financial markets “in almost the worst position anyone can imagine,” said Tim Bale , a professor of politics at the University of Sussex. Neither Cameron nor a Brown-Clegg alliance would have a majority. Any deal may depend on nationalists in Scotland and Wales, said John Curtice , professor of politics at the University of Strathclyde in Glasgow. The only way to break the stalemate would be for Cameron to offer Clegg the promise to implement electoral reform, one of the Liberal Democrats’ top priorities. Clegg has called for proportional representation. ‘Easier’ “It will be easier for Labour to do a deal with the nationalists than it will for the Tories,” Curtice said. “Unless Cameron is prepared to do a deal on proportional representation, his path to Downing Street is blocked.” Business Secretary Peter Mandelson signaled the prospect of forging a coalition with the Liberal Democrats, saying that Brown retained the first shot at forming a government if the opposition failed to gain a majority. “The rules are, if it’s a hung parliament, it’s not the party with the largest number of seats that has the first go, it’s the sitting government,” he said. Brown appealed to the Liberal Democrats, in his first remarks after his re-election as a member of Parliament. In his Kirkcaldy district in Scotland, he said a coalition would “implement our commitments to far-reaching political reform, for which there is a growing consensus.” ‘Duty’ “My duty to the country coming out of this election is to play my part in Britain having a strong, stable and principled government,” Brown said. The Conservatives said Brown lost the right to lead and that they would speak to other parties to assemble a government. “It is already clear that the Labour government has lost its mandate to govern our country,” Cameron said in Oxfordshire after he was re-elected to Parliament. “It looks as if the Conservative Party is on target to win more seats at this election than we’ve won at any election for perhaps 80 years.” After a general election, the appointment of a prime minister is the prerogative of Queen Elizabeth II , as head of state. As Britain has no written constitution, the 84-year-old monarch is guided by conventions built up over hundreds of years. The main requirement for the queen is to find a political leader who can command the confidence of the House of Commons. “The key thing is Brown remains in office as prime minister until he chooses to resign,” said Robert Hazell , the director of the Constitution Unit at University College London. “He is under a duty to remain in office until it is clear someone will command the support of the new House of Commons.” The queen “must not be left guessing who can command support in Parliament,” Hazell said. To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net ; Thomas Penny in London at tpenny@bloomberg.net

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RBS Only U.K. Bank With First-Quarter Loss as Investment Bank Profit Drops

May 7, 2010

By Andrew MacAskill and Jon Menon    May 7 (Bloomberg) — Royal Bank of Scotland Group Plc reported a loss for the first quarter, the only major British financial institution to do so, as investment-banking profit unexpectedly slumped at the government-controlled company.    Profit at RBS’s investment bank fell 58 percent to 1.47 billion pounds ($2.2 billion) from a profit of 3.47 billion pounds a year earlier, the Edinburgh-based lender said in a statement today. Barclays Plc ’s investment banking unit last week posted a 62 percent rise in profit during the same period. RBS fell in London trading. “We have made good progress but there is still significant work to be done,” Chief Executive Officer Stephen Hester said in the statement. “The challenges we still face are real and should not be underestimated.” HSBC Holdings Plc today joined Barclays Plc and Standard Chartered Plc in posting a first-quarter profit, making RBS the only publicly traded British bank still reporting a loss. Lloyds Banking Group Plc , also bailed out by the U.K. taxpayer, said last week it returned to profit in the first three months of 2010. RBS dropped as much as 6.9 percent and was down 5.9 percent at 45.38 pence as of 10:50 a.m., the biggest decline in the five-member FTSE 350 Banks Index. The government, which owns 83 percent of RBS, has about a 4 billion-pound paper loss on its 45.5 billion pound investment. Net Loss RBS’s net loss was 248 million pounds compared with 902 million pounds in the year-earlier period, the statement said. “We don’t see a lot to get excited about in these numbers,” Joseph Dickerson , a London-based analyst at Execution Noble, with a “sell” rating on the stock, said in a note to clients. Investment banking results were disappointing, with rates and equities businesses looking to be “the culprit,” he wrote. Revenue at RBS Global Banking & Markets from the rates, currencies and commodities business declined 60 percent from a year earlier, when markets were experiencing an “exceptional environment,” RBS said. Events in Greece were a warning to governments and businesses that they need to keep debt levels under control, Hester said on a call with reporters. “We have always warned that the world does not spring effortlessly from despair to triumph,” Hester said. “It is entirely right that markets have had an uncomfortable reminder that it is not just plain sailing from here.” Unrealized Losses The bank held about 1.5 billion pounds in Greek debt and about 400 million pounds of unrealized losses, Finance Director Bruce Van Saun told reporters. All U.K. banks dropped in London trading today amid concern that the Greek debt crisis may cause the region’s most indebted nations to default, while the indecisive result of Britain’s elections fueled doubts about willingness to tackle the U.K.’s record budget deficit. HSBC today said first-quarter profit was “well ahead” of last year, as the U.S. unit posted its first profit in three years. The stock climbed 2.7 percent to 645.4 pence. RBS is continuing to sustain “damaging losses” at its investment bank as a result of staff departures because of restraints on pay, Hester said, with more than 1,000 investment bank employees left last year. “We spend a massive amount of time on the issue, if RBS does not have good people then it does not have a recovery.” Impairments Decline RBS said impairments dropped 14 percent to 2.68 billion pounds in the first quarter from 3.1 billion pounds in the last quarter of 2009. Impairment levels are “likely to remain high and there may be volatility in impairment losses, particularly in the non-core portfolio,” the bank said. RBS Insurance posted a 50 million-pound loss from a profit of 76 million pounds a year earlier. The British consumer banking division increased profit to 140 million pounds from 17 million pounds, while profit at U.K. corporate banking declined 0.9 percent to 318 million pounds. The bank reported a net interest margin of 1.92 percent up from 1.83 percent in the fourth quarter. The interest margin is expected to “gradually improve” over the rest of the year driven by an increase in margins at core retail and commercial divisions. To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net

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Pound Slides After Election Deadlock Suggests Deficit Won’t Be Tamed Soon

May 7, 2010

By Lukanyo Mnyanda and Paul Dobson May 7 (Bloomberg) — The pound sank the most in a year and a half against the euro and British bonds tumbled as the U.K. election failed to produce an outright winner, fueling concern that measures to tame the budget deficit will be delayed. The currency fell to a 13-month low against the dollar and gilts dropped after David Cameron ’s Conservatives fell more than 30 seats short of winning a majority in Parliament. Losses on 10-year gilts pushed the yield up by the most since October. Business Secretary Peter Mandelson said his Labour Party government should have a “first go” trying to remain in power, while Cameron said Labour had lost its “mandate to govern.” The FTSE 100 Index of stocks slumped 1.1 percent. “People are increasingly taking fright as to the unfolding political backdrop,” said Jeremy Stretch , a senior currency strategist at Rabobank International in London. “Gilt yields have rocketed. That’s not a particularly ringing vote of confidence, and sterling is reacting accordingly as well.” The pound fell 2.1 percent to 86.86 pence per euro as of 12:47 p.m. in London, the most since December 2008, after plunging as much as 3.5 percent. It dropped 1 percent to $1.4683, after slipping to the lowest level since April 2009. The currency pared its decline after Liberal Democrat leader Nick66 Clegg said the Conservatives, who have pledged to cut the deficit more quickly than the other parties, deserve the first chance at forming a government. Clegg’s party is Britain’s third-largest and may hold the balance of power. The difference in yield, or spread , between 10-year gilts and equivalent-maturity German bonds widened to as much as 119 basis points, the most since August 1998, according to Bloomberg generic data. It was 112 basis points, from 101 basis points yesterday. IMF Specter The Conservatives raised the specter last week of an International Monetary Fund bailout if the election produced an indecisive result. The pound has declined 4.9 percent this year, Bloomberg Correlation-Weighted Currency Indexes show, amid concern a hung parliament would bring a government too weak to manage Britain’s 167 billion-pound ($245 billion) shortfall. All but the safest government debt in Europe has faced greater investor scrutiny in the wake of Greece’s budget crisis and IMF-led bailout. The U.K.’s budget deficit is more than 11 percent of gross domestic product, the biggest in the Group of Seven nations. Credit-Default Swaps The cost of insuring against losses on U.K. sovereign debt jumped, with credit-default swaps tied to the securities rising 11 basis points to 102, the highest in three months, according to CMA DataVision prices. The increase signals investors’ perception of the nation’s credit quality has deteriorated. “Any excuse to sell sterling, traders will take it,” said Harry Adams , a currency trader at Schneider Foreign Exchange in London. “Ultimately markets don’t like uncertainty and we have a lot of it here. I don’t see this being sorted out quickly.” In the first election since 1974 with no party gaining a majority, the Conservatives have taken 294 seats in the 650-seat House of Commons with 625 results declared so far, making it impossible for them to gain outright control. Labour had 252 and Clegg’s Liberal Democrats 52. The Conservatives gained a net 97 seats and Labour lost 90. Yields Surge Standard & Poor’s affirmed its “negative” outlook on the U.K.’s AAA rating on March 29 “in the absence of a strong fiscal consolidation plan.” Moody’s Investors Service said Britain has moved “substantially” closer to losing the top rank as debt costs climb. Fitch Ratings said on March 24 that the pace of deficit reduction is too slow. The 10-year gilt yield increased 11 basis points to 3.92 percent, while the yield on the two-year note rose 3 basis points to 1.11 percent. “We’re probably going to get less fiscal consolidation than the market hoped for, and that’s clearly a negative for gilts,” said Elisabeth Afseth , an analyst at Evolution Securities Ltd. in London. “This can’t be seen as a good result for anybody.” The last time the U.K. had a hung parliament it took four days before Conservative Edward Heath resigned as premier, allowing the Queen to name Labour’s Harold Wilson to lead a minority government. “Sterling is as clear a barometer as you can get about the need for a government with a clear mandate,” said Simon Derrick , chief currency strategist at Bank of New York Mellon Corp. in London. “It’s that level of uncertainty that’s weighing on sterling. The results have been so erratic it’s difficult to get anything meaningful from them.” The unpredictability of the election prompted London’s Liffe derivatives exchange to allow futures contracts on gilts, the FTSE 100 Index and short-sterling to be traded from 1 a.m. London time. To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net ; Paul Dobson in London at pdobson2@bloomberg.net .

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Sleep-Deprived Traders Work at Midnight for U.K. Ballot; FTSE Futures Fall

May 7, 2010

By Nandini Sukumar May 7 (Bloomberg) — Traders across London started showing up for work around midnight as dealing desks opened in the early morning to react to the U.K. election. London’s Liffe derivatives exchange opened contracts on gilts, FTSE 100 Index and short-sterling futures at 1 a.m. today for the first time ever. Brokers brought in staff to cope with demand as the voting result tempts dealers with the promise of market volatility. FTSE 100 futures lost 2.3 percent to 2,580 as of 5:28 a.m. London time as a national exit poll projected David Cameron ’s Conservative party winning more seats in Parliament than Prime Minister Gordon Brown . “There’ll be some frenetic activity,” said David Buik , a market analyst at BGC Partners Inc. who has spent more than 35 years as a broker. He said his firm was expected to have about 50 to 60 employees in from 1 a.m. Whichever party forms a government must deliver a plan to reduce the U.K.’s budget deficit, which at more than 11 percent of gross domestic product is the largest in the Group of Seven nations. Standard & Poor’s and Moody’s say Britain’s AAA grade is under threat without convincing proposals to tame the nation’s finances. Concern that spiraling government debt will derail the economy roiled markets this week and wiped $250 billion off the value of European equities. Buik, who hosted an election night party, had planned to eschew champagne for water so he could come straight to BGC’s trading floor on the 19th story of the Barclays Plc building in London’s Canary Wharf. Midnight Arrival Six miles across town in the Mayfair district, Sebastian Jones, associate director of Berkeley Futures Ltd., had aimed to arrive at the firm’s Savile Row offices after midnight. “It will be a busy night,” said Jones, 32. Many clients “have already reduced their exposure to ensure they’re well placed to take fresh positions once a clear result becomes apparent.” Cameron’s Conservatives were forecast to have won 305 seats in the 650-seat House of Commons to Labour’s 255 and 61 for Nick Clegg ’s Liberal Democrats, the national exit poll showed. It would be the first election since 1974 when no party gained a majority. Without a majority, Brown or Cameron may need the backing of the Liberal Democrats to govern. “This election is probably the most important in the lives of current traders because the problems faced by the new government will be the hardest since Margaret Thatcher took over,” said Jones. “We expect volatility to be high.” Margaret Thatcher The pound had fallen 7 percent against the dollar this year on concern the election won’t deliver a clear result. Cameron’s Conservatives have said they plan to tackle the deficit immediately, while Labour and the Liberal Democrats favor delaying spending cuts until 2011 to protect the recovery. The U.K. economy grew 0.2 percent in the first quarter, half as much as forecast, the Office for National Statistics said April 23. “Volumes should be good because it’s potentially a major change in British politics,” said Dirk Hoffmann-Becking , banking analyst at Sanford C. Bernstein & Co. in London. “It will be fun, it doesn’t happen that often.” Liffe , the futures market owned by NYSE Euronext, offered three-month sterling interest-rate futures, gilt contracts and FTSE 100 Index futures three hours after polls close. It’s the first time the exchange changed its trading hours for an election. The bourse will have six employees monitoring the process, said spokesman James Dunseath . On the fourth floor of ICAP Plc’s offices in London’s Square Mile, more than 25 brokers will work through the night as results are transmitted on the plasma-screen televisions that line the room. They’ll be joined by a fresh shift at 6 a.m. Michael Spencer , chief executive officer and founder of ICAP, the world’s biggest broker of transactions between banks, recently announced his resignation as Treasurer of the Conservatives. “This is the first time I’ve pulled an all-nighter for an election,” said Don Smith , fixed-income strategist at ICAP, who has booked a hotel room near the office and doesn’t expect to return home until this evening. “It’s going to be a very, very interesting night.” To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

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Pound Weakens to 13-Month Low as Election Results Signal Hung Parliament

May 7, 2010

By Lukanyo Mnyanda and Paul Dobson May 7 (Bloomberg) — The pound fell to a 13-month low against the dollar and gilts dropped as the U.K. election failed to produce a clear winner, fueling concern that a new government won’t be strong enough to tackle the budget deficit. The currency fell for a sixth day as exit polls put David Cameron ’s Conservatives on course to win the most seats without gaining an overall majority. Ten-year gilts snapped five days of gains as Business Secretary Peter Mandelson said the sitting government should have the “first go” in trying to remain in power and Cameron said the Labour Party had lost its “mandate to govern.” The FTSE 100 Index of stocks slumped 1.3 percent. “Any excuse to sell sterling, traders will take it,” said Harry Adams , a currency trader at Schneider Foreign Exchange in London. “Ultimately markets don’t like uncertainty and we have a lot of it here. I don’t see this being sorted out quickly.” The pound fell 0.9 percent to $1.4706 as of 8:38 a.m. in London, after dropping to $1.4597, the lowest since April 2009. It lost 1.7 percent to 86.53 pence per euro. The pound has declined 4.2 percent this year, Bloomberg Correlation-Weighted Currency Indexes show, amid concern a hung parliament would leave the nation with a government too weak to manage its 167 billion-pound ($244 billion) shortfall. The U.K.’s budget deficit is more than 11 percent of gross domestic product, the biggest in the Group of Seven nations. IMF Specter In the first election since 1974 with no party gaining a majority, Cameron’s Conservatives had 285 seats in the 650-seat House of Commons with 600 results declared. Labour had 237 and Nick Clegg ’s Liberal Democrats 51. The Conservatives had gained a net 90 seats and Labour lost 83. The count won’t be completed until late afternoon. The Conservatives have pledged to make bigger cuts than Labour and the Liberal Democrats, Britain’s third main party. They raised the specter last week of an International Monetary Fund bailout if the election produces an indecisive result. Standard & Poor’s affirmed its “negative” outlook on the U.K.’s AAA rating on March 29 “in the absence of a strong fiscal consolidation plan.” Moody’s Investors Service said Britain has moved “substantially” closer to losing the top rank as debt costs climb. Fitch Ratings said March 24 the pace of deficit reduction is too slow. Four Days The last time the U.K. had a hung parliament it took four days before Conservative Edward Heath resigned as premier, allowing the Queen to name Labour’s Harold Wilson to lead a minority government. “Sterling is as clear a barometer as you can get about the need for a government with a clear mandate,” said Simon Derrick , chief currency strategist at Bank of New York Mellon Corp. in London. “It’s that level of uncertainty that’s weighing on sterling. The results have been so erratic it’s difficult to get anything meaningful from them.” The unpredictability of the election prompted London’s Liffe derivatives exchange to allow futures contracts on gilts, the FTSE 100 Index and short-sterling to be traded from 1 a.m. London time. The 10-year gilt yield increased 4 basis points to 3.84 percent, while that on the two-year note was little changed at 1.08 percent. To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net ; Paul Dobson in London at pdobson2@bloomberg.net .

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Video: Hansard Society’s Fox Sees Cameron Forming Government

May 7, 2010

May 7 (Bloomberg) — Ruth Fox, a director at the Hansard Society, talks with Bloomberg’s Andrea Catherwood about the options for Britain’s main political parties following yesterday’s general election.

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Euro Value Slides – And Europe Is Faced With Mounting Debt Crisis

May 6, 2010

LONDON — The euro slid further amid fears that Greece’s debt crisis would spread across the continent after a ratings agency warned Thursday that contagion could hit banks in weaker countries. Spain saw its borrowing costs rise ominously at a debt auction, and markets looked for some form of extra help from the European Central Bank. Credit ratings agency Moody’s Investor Service said the banking systems in Portugal, Italy, Spain, Ireland and Britain could all be hurt by a widening debt crisis. With Spain seeing its borrowing costs jump in its latest bond issue – a clear sign of market fear, since investors demand higher rates from borrowers they see as riskier – Europe remained delicately poised at a juncture. Moody’s said much depended on bailout loans agreed for Greece, and whether markets believed they would be decisive in keeping the country away from bankruptcy. Greece faces a May 19 repayment date and the loan money is expected to get there after approval by national parliaments, but its longer term prospects are less certain. “A key factor determining whether contagion risk continues in this case will be the market’s view of the likely success or otherwise of the recently agreed International Monetary Fund and European Union support package for Greece,” Moody’s said. That bailout offers the debt-ridden country euro110 billion ($142 billion) in loans over three years from the IMF and the other 15 countries that use the euro. Greek lawmakers were to vote Thursday on austerity measures required by the rescue, and the bill was widely expected to pass despite violent protests that culminated in three deaths Wednesday when protesters torched a bank. Parliament in Germany, where the bailout is unpopular, is expected to vote Friday and Chancellor Angela Merkel’s governing coalition appeared to have the votes to pass it, with even opposition politicians signaling support. The euro, which would take a severe blow in case of a government default, sagged 0.7 percent to $1.2739. It was as high as $1.51 late last year before the Greek crisis worsened. Against that sort of backdrop, and after months of delay in which Greece’s debt crisis threatened to spiral out of control, European leaders have been stressing their willingness to act in support of their 11-year-old project in sharing a currency. Merkel and French President Nicolas Sarkozy said in a letter published in daily Le Monde that they were “fully committed to preserve the solidity, stability and unity of the euro zone.” They said Europe must take “all measures necessary” to ensure such a Greek-style crisis doesn’t happen again. In the short-term, however, experts believe that the immediate task of containing the crisis depends on the bailout and whatever new policies the European Central Bank adopts Thursday. After the ECB announced, as widely expected, that it had left interest rates at a record low, analysts are waiting for comments from President Jean-Claude Trichet at a press conference. They are keen to see whether the bank decides to take bolder steps, such as buying government bonds to prop up debt markets and banks. It has already dropped the ratings requirement for banks to use Greek bonds to get short-term central bank credits, key support for Greece and the banking system in case Greece’s credit is downgraded further. “No doubt that today’s ECB meeting will be centered on Greece and the growing contagion effect that is taking place in the euro sovereign bond market,” said analyst at Credit Agricole CIB. They do not expect the bank to announce bond purchases “but Trichet’s responses to questions at the press conference will be examined even closer than usual.” An improvement in market sentiment will be needed if borrowing costs are to be kept in check – Spain’s latest 5-year bonds were issued at an interest rate of 3.58 percent, up from 2.84 percent in the last auction as recently as March. Moody’s warning on contagion came only a day after it put Portugal on watch for a possible downgrade of its sovereign debt and a week after rival Standard & Poor’s downgraded Greece’s government bonds to junk status. Moody’s said the banking systems of Portugal, Italy, Spain, Ireland and Britain all face challenges of different types, but warned that “contagion risk could dilute these differences and impose very real, common threats on all of them.” The banking systems of Portugal and Italy, like that of Greece, were not hit too hard by the global financial crisis, but their huge public debt load remains a threat. Banks in Spain, Ireland and the U.K. were more exposed to the credit crunch and have weakened their countries’ finances significantly over the past year, the agency said.

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