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26
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Years
MONDAY, MAY 16, 2011
BUSINESS
Spanish banks offer high rates, plus free iPads, TVs MADRID: Spanish banks are offering high interest rates plus free iPads, TVs and Blu-ray recorders in a knockdown battle for customers, prompting deep concern in the government. Madrid may now call an end to the fierce competition for fear of the damage it may wreak on the bottom lines of Spain’s banks, many still mopping up the bad loans from an exploded property bubble. An array of gifts are on offer to lure customers to transfer their accounts: an iPad at Banesto, a flatscreen T V at Caixa, a video game console at Santander and a Blu-ray player at Caja Madrid. The battle has intensified recently but it is not new for Spain, said Carmen Ortiz, head of investor rela-
tions at Banco Popular, the thirdlargest listed bank. “I have worked 20 years at the bank and I have always seen this,” Ortiz said. The authorities are concerned about astronomical rates on offer for new deposit accounts: 3.5 percent, 4.0 percent, even 4.75 percent a year. Many other European countries offer no such returns, nor gifts. This generosity “has introduced a new element of pressure on the financial results of Spanish credit entities,” still recovering from the collapse of a property bubble in 2008, said the Bank of Spain. Moreover, banks were starting to offset these higher costs with an increase in interest rate charges for
loans. Banco Popular confirmed it had “transferred” this extra cost to short-term business loans, with no regrets. “We have captured almost three billion euros in deposit accounts since the start of the war last year and we have gained more than 340,000 new customers,” said the bank’s Ortiz. “In three years we have reduced our dependence on the interbank market by more than 15 billion euros.” That, in fac t, is the main motive. Financial markets, worried about the strength of the Spanish economy, have tightened and in some cases closed off entirely banks’ access to the interbank market for overnight loans, their classic financ-
ing mechanism. So banks are turning instead to the general public. The advantage, according to the IE Business School’s financial sector director, Manuel Romera, is that banks can diversify their portfolios and escape an interbank market dependant on a more limited number of actors who can impose their own conditions. But “in this headlong rush, banks are paying higher interest rates on deposit accounts than they get for loans, so in the end they lose,” said Romera. That is especially true for those banks that have a lot of mortgage loans, which are long-term and cannot be re-negotiated. Already since Januar y, those banks that have received public aid
have been banned by the Bank of Spain from entering into these “aggressive sales policies.” The government now wants to prevent all banks from offering interest rates more than 1.5 percentage points above the six-month Euribor rate, the benchmark for the eurozone, which would mean a ceiling of about 3.2 percent. A decree will be approved “in the coming weeks,” said the state secretariat for the economy. The plan has not gone down well with banks. “It would be a backwards step to go back to a situation like the 1980s with regulated interest rates and generally a great degree of economic inter ventionism,” said a spokeswoman for the Spanish Banking Association. —AFP
US not yet prepared for expanded Panama canal Poor infrastructure could hit bid to boost trade NEW ORLEANS: The United States could get a major trade boost from the soon-to-be-finished expansion of the Panama Canal, but experts worry poor infrastructure means Uncle Sam will miss the boat. From 2014 some of the largest ships in the world will again fit through the 80 kilometer (50-mile) Panama Canal. Vessels carrying around 14,000 containers rather than today’s 5,000 will be able to cross the isthmus. Traffic is expected to double through the inter-oceanic waterway, which already handles around five percent of world trade. For people linked via the canal-most notably consumers in the eastern United States and factory owners in China-that could spell cheaper goods and lower costs. It could also provide President Barack Obama with a late boost in his effort to double US exports by 2015 and help create jobs. In Florida alone, the authorities believe upgrading the Port of Miami to handle these larger ships could help create 30,000 jobs. But during a visit to Washington this week the canal’s administrator Alberto Aleman Zubieta expressed concern that the United States is not ready. “There is a lot of infrastructure that basically needs to be upgraded,” he said, pointing to problems with dock length, port depth and rail and road links. Like much of America’s infrastructure, US ports are creaking from years of underinvestment, and many even struggle to handle today’s largest “panamax” ship sizes. “We don’t have the channel depths that are required to take the post-panamax vessels,” Dave Sanford of the American Association of Port Authorities admitted flatly. The list of ports that do, he said, “is really short. It’s only one port: Norfolk (Virginia).” While Baltimore, New York
From 2014 some of the largest ships in the world will again fit through the 80 kilometer (50mile) Panama Canal. and Miami may also be ready by 2014, they handle a fraction of US trade and are not on the Gulf Coast, which serves consumers and exporters in the vast center of the country. Perched on the meandering Mississippi, the Port of New Orleans is one of many facilities that has struggled to match infrastructure to its opportunities. It is investing $650 million on new canal-linked projects,
mostly on container terminals, but CEO Gary LaGrange said the por t is still not at fighting weight. “We’ll be ready, but not as ready as we could be, or should be,” he said. Blame for the unpreparedness is being spread far and wide: George Washington, the Army Corp of Engineers and Congress are all in the firing line. Since Washington’s time the US army has played at role
ensuring waterways are navigable. Even today the Army Corps of Engineers-with one eye on its own limited budget and resources-must approve and execute many upgrades. Congress, which is currently focused on cutting US debt, then has to approve funding. That results in significant delays, according to many in the industr y. LaGrange said New Orleans already holds much-sought-after permission
to dredge its channel to 50 feet (15 meters) — enough to handle post-panamax ships. But bureaucracy means the project is on the back burner. “Right now it is everything we can do to get the Corp of Engineers to maintain it at its current 47 foot depth,” he said. Similarly the Port of Beaumont, in Texas is waiting for approval of a $1.2 billion project to deepen its channel. But even if the project is approved this year, it is likely to take 15 years to complete. “Our system is broken, it’s just broken. It needs to be fixed,” said John Roby, head of the port’s customer services. In the meantime shippers are looking to deeper ports beyond the United States; to Freeport in the Bahamas and Kingston in Jamaica. “Unless we can get more channel capacity they are going to be the primar y beneficiaries of an expanded canal,” said Sanford of the American Association of Port Authorities. Ultimately that may cost US consumers. “If you can’t take advantage of the economies of scale that the larger vessels offer, said Paul Bingham and economist with Wilbur Smith Associates, “the bottom line is it’s going to cost you more.” “For the economy that ultimately means that the consumers are going to be worse off.” —AFP
Belarus faces economic disaster without reform MINSK: Belarus’s outdated economic model is no longer sustainable and the ex-Soviet state needs painful but urgent reform to avoid a looming economic catastrophe, analysts say. A currency crisis that prompted queues outside exchange kiosks reminiscent of the chaos after the USSR’s collapse has shown up the lack of prospects for the country’s still heavily state-controlled economy. The economic model championed by autocratic President Alexander Lukashenko the socalled “Lukanomika”, or Luk-economy-saw the country chase high growth rates but also create a huge current account deficit as its need for imports drained hard currency. The country now needs to shut lossmaking enterprises that are heavily reliant on imports, hike interest rates sharply to battle 18 percent inflation and embrace market reform for the first time in two decades. But these are measures the former collective farm boss who has ruled the country of 10 million which borders three EU states for almost 17 years has little inclination to implement, according to analysts. The central bank this week made possibly its boldest move yet during the crisis by allowing banks to set retail currency exchange rates at the market rate, which effectively devalued the Belarussian ruble for consumers by 30 percent. But this move, which was accompanied by an interest rate hike from 13 to 14 percent, is far from enough. “A single devaluation is not going to solve the problem so long as there is not a full scale liberalization” said leading liberal Belarussian economist Leonid Zlotnikov. “But a market economy would wipe away the values that Lukashenko holds dear and would create demands for new values like democracy, human rights and a free press.” “So it’s fully understandable why Lukashenko is not going to adopt market
reform.” He said that the currency crisis now risked tipping into a “full-scale economic crisis” as it was unlikely Belarus could attract the one billion dollars needed each month to overcome the problems. “Belarus has two paths ahead,” said Zlotnikov. “Either a return to the incomplete economic reforms of the start of the 1990s or the logical conclusion of the Belarussian model by moving to the Cuban example with a very low quality of life.” ‘Like the Soviet Union in 1991’ Belarus has been pinning its hopes on a substantial loan from Moscow, but Russia’s Finance Minister Alexei Kudrin has made clear Minsk can only expect $1 billion this year from a regional-economic grouping. “The funds alone are unlikely to solve the problem,” said Raiffeisen economist Andreas Schwabe in a note to clients, estimating Belarus’ financing gap for this year at $5 billion to $10 billion. “It seems likely the financial troubles are not completely over in Belarus,” he added. The problems have come to a head just as Lukashenko is being ostracized by the West over a brutal crackdown on the opposition after protests over his December election victory that was condemned by observers. They have also coincided with the country’s first deadly bombing since its independence, when 14 people were killed last month in a mysterious attack on the Minsk metro which has yet to be solved. Despite the increasingly insistent calls for economic change, Lukashenko this past week showed he was in no mood for reform, which he said was being promoted by a “fifth column”-his favorite term for the suppressed opposition. “People are crying out-and especially from that fifth column-that we need immediate reforms and more reforms,” he said. “But what reforms are needed? What reform are they offering us? They are offering us reform towards destruction.” —AFP
KAMPALA: Vendors select potatoes at Nakasero market on Saturday in central Kampala. Top opposition leader Kizza Besigye over the last month has been leading “walk-to-work” protests over the rising cost of food and fuel and government corruption. —AFP
Sri Lankan-born Rajaratnam was found guilty on all 14 counts of insider trading cases.
Rajaratnam conviction first step in larger war NEW YORK: Federal prosecutors’ victory against Galleon hedge fund founder Raj Rajaratnam in the biggest insider trading case in a generation is just the first step in a wider war against Wall Street corruption, analysts say. The crushing verdict reached on Wednesday, finding Sri Lankan-born Rajaratnam guilty on all 14 counts, is “definitely going to send a shock wave through the community,” David Webber, a law professor at Boston University, said. Webber predicted that authorities would be encouraged by bringing down Rajaratnam and that “those who have engaged in insider trading-I think they’re pretty terrified now.” Rajaratnam’s case also comes against the backdrop of a threeyear investigation into the practice of experts paying insiders for tips that can then be traded on by hedge-funds looking for the extra edge in a fast-moving, highly competitive market. “It is really insidious, pervasive. It’s a way of doing business,” James Cox, a law professor at Duke University, said. He cited estimates showing that between 20 and 60 percent of stock trades happen “before information is being made public.” Insider trading has long been considered difficult to prosecute, since there are so many legitimate ways to get information and it is hard to prove that someone traded due to knowledge of one particular piece of intelligence. Galleon prosecutors took the highly unusual tactic of wiretapping telephone conversations, something usually seen only in violent crime probes. That is now likely to continue. “I think that it validates in the government’s eyes the importance and success of using wiretaps and other advances in surveillance techniques to prosecute securities fraud,” Jacob Frenkel, an attorney specializing in white collar defense, said. Rajaratnam’s defense plans to appeal and this will likely challenge the legality of the wiretaps-and by extension the basis of the entire prosecution. Prosecutors have to get a judge’s authorization for wiretaps after proving that crucial evidence can only be obtained that way, a standard which the Galleon case appears to fit. “The appeal is going to be like climbing a very steep mountain,” Frenkel said. Future prosecutions will also be emboldened by the complete failure of Rajaratnam’s attempt to show his innocence by claiming that all his trades were based on open research. Once they heard the secretly recorded tapes, the jury did not buy the argument at all. “Paying a senior figure at McKinsey $500,000... for information on deals that this McKinsey partner knows about, or getting these phone calls from a member of the Goldman Sachs board who tells you that tomorrow the bank will announce a loss when the market expects a $2 profit: that’s clear insider trading,” Webber said. Webber said that investors have plenty of ways to do legitimate research and get on top of the competition. He pointed out the examples of John Paulson and Warren Buffett as honest traders, even if Buffett’s associate David Sokol has had to resign from Berkshire Hathaway under allegations of unethical trading. They now have even more incentive to mind their behavior. “There already is evidence that hedge funds are trying to strengthen their internal procedures. This verdict is only going to heighten that concern,” Cox said. —AFP
IMF may be tougher on Europe after Kahn PARIS: Whatever the outcome of sexual assault charges against its managing director, the International Monetary Fund may take a more distant and tougher line on sovereign debtors in Europe under new leadership. Dominique Strauss-Kahn has softened the IMF’s image as a stickler for fiscal orthodoxy and deregulation since 2007, and committed the global lender deeply to rescuing heavily indebted European countries-not the Fund’s traditional clientele. The French Socialist had been widely expected to return home by July to run for his party’s nomination in next year’s presidential election
before he was arrested on an Air France plane and indicted over an incident at a New York hotel. His lawyer has said he will plead not guilty and the IMF said it remained “fully functioning and operational”, but it is hard to imagine Strauss-Kahn staying in office for long while defending himself in a sex assault case. The next head of the IMF may well not be a European, given strong pressure from emerging countries such as China, India and Brazil for their increased economic weight and priorities to be reflected in the Washington-based fund. Complicating matters, StraussKahn’s deputy, John Lipsky of the
United States, announced on Thursday he would step down when his term ends in August. So the global financial institution faces a potential leadership vacuum at a crucial time. “The chances are the successor won’t be a European, and will want to rebalance the IMF’s priorities away from its massive commitment in Europe,” said Jean PisaniFerry, director of the Bruegel economic think-tank. Strauss-Kahn negotiated an increase in representation for the emerging nations at the IMF. He has campaigned for stricter financial regulation, created new credit lines to help states before they get into trouble and built an unprecedented
partnership with the European Union in euro zone bailouts. When the global finance crisis struck in 2007-8, he campaigned for bold stimulus spending to avoid another Great Depression and reinvented the IMF as a more socially conscious financial fire brigade, seeking to avoid what he saw as errors committed in Latin America and Asia in the 1980s and 1990s. For example, when IMF and European Commission officials negotiated a rescue program for Latvia in 2009, the IMF pushed for a fairer sharing of the tax burden in the Baltic state, because of concern that its flat income tax unfairly penalised the poor. —Reuters