THE MIAMI HERALD
MiamiHerald.com
INTERNATIONAL EDITION
BUSINESS BRIEFS
3B
Fed to list firms posing ‘systemic’ risk
• ENTERTAINMENT
BY ERIC DASH
New York Times Service
JAE C. HONG/AP
SHOW STEALER: With strong attendance, Disney’s parks division was able to restore pricing for tickets and hotel rooms to near-normal levels.
Disney parks business help drive rise in profit From Miami Herald Wire Services
Walt Disney said its theme park business returned to positive growth in the most recent quarter after declining for nine straight quarters. With strong attendance, Disney’s parks division was able to restore pricing for tickets and hotel rooms to near-normal levels. Over the last two years, Disney put in place a series of steep discounts to counter the recession. For the quarter, which ended on Jan. 1, Disney reported net income of $1.3 billion, or 68 cents a share, up from $844 million, or 44 cents a share, a year earlier. Revenue in the quarter, the first of Disney’s fiscal year, increased 10 percent to $10.7 billion. • CHINA U.N. ISSUES WARNING ON WHEAT DROUGHT The United Nations’ food agency has warned that a severe drought was threatening the wheat crop in China, the world’s largest wheat producer, and resulting in shortages of drinking water for people and livestock. China has been essentially self-sufficient in grain for decades, for national security reasons. Any move by China to import large quantities of food in response to the drought could drive international prices even higher than the record levels recently reached. “China’s grain situation is critical to the rest of the world — if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world’s grain markets,” said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Banos, Philippines. The state-run media in China warned Monday that the country’s major agricultural regions were facing their worst drought in 60 years. World wheat prices are already surging and have been widely cited as one reason for protests in Egypt and elsewhere in the Arab world. • BANKING UBS POSTS ITS FIRST ANNUAL PROFIT SINCE 2006 UBS, the Swiss banking giant, said its business had turned around in 2010 as it posted its first annual profit since before the financial crisis. The bank reported a profit of 7.2 billion Swiss francs ($7.5 billion) for the year in contrast to a 2009 loss of 2.7 billion francs. UBS last posted an annual profit in 2006. Over the ensuing three years, failed bets on the U.S. real estate market led it to combined net losses of more than 29 billion francs and a government rescue. • ECONOMY BRITAIN TO INCREASE TAX ON BANKS The British Treasury said it would raise its annual tax on bank balance sheets this year to ensure the recovering financial sector made a “fair contribution” to the public purse. The levy, announced in June, will now bring in ¤2.5 billion or $4 billion, starting this year. It had been set initially at ¤1.7 billion for 2011 because of fears that banks would have trouble absorbing the additional expense. But George Osborne, the chancellor of the Exchequer, said on the BBC on Tuesday that the banks’ health had improved enough to impose the full annual tax. • AUTOMAKER NISSAN QUARTERLY PROFIT JUMPS 78 PERCENT Nissan reported a 78 percent jump in quarterly profit and raised its full-year forecasts Wednesday as vehicle sales grew in North America, Europe and Asia. Nissan’s October-December net profit totaled 80.07 billion yen ($976.4 million), up from 44.97 billion yen a year earlier. Sales for its fiscal third quarter rose 5.3 percent to 2.103 trillion yen. The maker of the Leaf electric car now expects 315 billion yen in profit for the year through March. • MEDIA CURRENT TV ADDS OLBERMANN FOR IDENTITY The small cable channel Current TV hopes that Keith Olbermann can do for it what he did for MSNBC: give it a clear identity. The channel, co-founded by Al Gore five years ago, said that Olbermann would start producing and hosting a prime-time program in late spring. The as-yet untitled hour of news and commentary will effectively mimic Countdown, the MSNBC program Olbermann created eight years ago and quit hosting last month. It is a bid by Current TV to be noticed. The channel averages just 23,000 viewers in prime time each night and desperately needs a boost. • PERU LIMA TO BUY DOLLARS IN CURRENCY MARKET Peru’s government will buy $100 million in the foreign exchange market each month to stem the currency’s rally, Finance Ministry spokesman Fernando Mendoza said. The government will buy dollars “in the coming months” should the sol continue to appreciate, Mendoza said in a telephone interview from Lima today. The sol has climbed 1.4 percent against the dollar this year, the second-biggest advance among six Latin American currencies tracked by Bloomberg, and rallied to the highest level since May 2008 on Feb. 2.
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THURSDAY, FEBRUARY 10, 2011
Federal regulators are taking an expansive view of the types of companies that could be deemed essential enough to the financial system that they should be subjected to greater oversight. The Federal Reserve, in a 22-page proposal required by the Dodd-Frank financial legislation, outlined Tuesday initial criteria for identifying “systemically important financial institutions,” whose collapse would pose a serious threat to the economy. The Fed says at least 35 companies, all of them big banks, may pose systemic risks, but that number could grow to include nonbanks like large hedge funds, insurers, asset managers and consumer finance companies. Even payment companies like Visa and MasterCard could face greater oversight under the Fed’s proposed guidelines. “They have made sure that nobody is going to be excluded on a definitional basis,” said Jaret Seiberg, a policy analyst at MF Global. “What’s left to play out is how regulators employ this authority.”
To determine whether a company is systemically important, the proposal suggests regulators first look at a company’s two most recent fiscal years to see if more than 85 percent of its assets or revenues were tied to financial activities. It leaves room for judgments on a “case-by-case basis,” giving regulators wide discretion. For financial companies, the distinction is not trivial. Those deemed systemically important will face higher capital requirements and tougher regulatory scrutiny. They could also be forced to break up if they started teetering. Policymakers hope the expanded definition of “too big to fail” can help avoid a repeat of the abrupt collapse of Lehman Brothers, which helped set off a financial crisis. The Fed guidelines represent only the first stage of a lengthy process and could cause new lobbying by the financial industry. Even before the plan’s release, representatives from the hedge fund industry — including officials from D.E. Shaw and Paulson — met with Fed officials to discuss how firms would be designated.
So did BlackRock, the asset manager, and the Financial Services Roundtable, a group representing the nation’s largest banks and insurance companies. Now that the proposed criteria have been made public, more firms may ratchet up their efforts to avoid being deemed systemic — or at least try to press for less onerous oversight. The proposal will remain open for public comment through March 30. By midyear, the Fed plans to submit final rules for approval by the Federal Stability Oversight Council, a board of top financial regulators responsible for executing the policies set forth by the Dodd-Frank Act. The council’s work will result in a new list of systemically important firms. About 35 big banks, each with assets of $50 billion or more, will automatically make the cut. This group includes Wall Street giants like Bank of America, Citigroup and Goldman Sachs as well as the 16 or so other large banks that were required to undergo comprehensive stress tests during the depths of the financial crisis.
But nonbanks could also face harsher oversight if they have $50 billion or more in consolidated assets, or if their businesses were so closely intertwined with large traditional banks that they could put the broader financial system at risk. That may rope in big investment firms, like Citadel, the Fortress Group and Blackstone; large insurers like the American International and the Hartford; and big money managers like Fidelity Investments and Vanguard. Consumer and specialty lenders like General Electric Capital and the CIT Group could also be included. The new guidelines also define “data processing, data storage, data transmission services” as financial activities, meaning credit bureaus like Experian as well as payment companies like First Data, Visa and MasterCard could fall under the new rules since their businesses are closely tied to the giant banks. Officials from these companies said they were studying the proposed guidelines, declined to comment or did not return phone calls.
U.S. charges 4 with insider trading BY DAVID S. HILZENRATH
Washington Post Service
WASHINGTON — On Nov. 20, after reading reports about a federal probe of insider trading, a hedge fund manager named Samir Barai allegedly sent a BlackBerry message to a colleague with some blunt instructions: Go to the office and shred “as much as you can,” put “all ur data files onto an encrypted drive,” and delete all e-mails from two particular contacts. “They need proof that we acted on something,” Barai allegedly added. Those communications and others are at the heart of insider trading and obstruction of justice charges the government announced Tuesday in a widening probe of hedge funds and firms that feed them research. The U.S. Justice Department charged three hedge fund portfolio managers and one analyst in a conspiracy that allegedly involved information about companies such as Advanced Micro Devices and Fairchild Semiconductor International. The scheme netted millions of dollars in illegal profits, the government said. Two of the defendants, Barai and Donald Longueuil, a former research analyst and portfolio manager, were also charged with obstruction of justice in what the U.S. attorney in Manhattan, Preet Bharara, called a “brazen cover-up.” The government said Longueuil described his effort to destroy two computer flash drives in a conversa-
BEBETO MATTHEWS/AP
UNTANGLING THE SCAM: U.S. attorney Preet Bharara details the flow of a trading fraud during a news conference in New York. tion with fellow defendant Noah Freeman, who at the time was cooperating with investigators. According to investigators, Longueuil told Freeman that he “pulled the external drives apart.” Then he put the pieces “into four separate little baggies,” stuffed them in his jacket, and at 2 a.m. on a Friday night, “I go on like a 20-block walk around the city . . . and try to find a garbage truck.” Longueuil said, according to investigators, that he threw the pieces “in the back of, like, random garbage
trucks . . . four different garbage trucks.” At a New York news conference, Bharara said the alleged coverup was “like something out of a bad movie.” FBI assistant director-incharge Janice Fedarcyk said the government benefited from the fact that the alleged conspirators “lacked a mobster’s better-honed instinct for conversational discretion.” The long-running federal probe, which also involves the Securities and Exchange Commission, has resulted in charges against more than
40 defendants, including Raj Rajaratnam, who founded Galleon Group and is awaiting trial. Many of the defendants have entered guilty pleas. Barai, 38, surrendered to authorities Tuesday, and Longueuil, 34, was arrested, the government said. Barai is the founder of Barai Capital Management. Longueuil was managing director at a Connecticut-based hedge fund that the government did not identify. Freeman, 35, and Jason Pflaum, 37, previously pleaded guilty to securities fraud charges, the government said.
Pact ensures VW workers a share of profits BY JACK EWING
New York Times Service
FRANKFURT, Germany — Volkswagen employees have agreed to a wage deal that ensures them a larger share of soaring profit in the German auto industry and might signal an end to a decade in which pay barely kept pace with inflation. “The time for ultralow wage increases in Germany is over,” said Jorg Kramer, the chief economist at Commerzbank in Frankfurt. But he and other analysts said Tuesday that the agreement at Volkswagen, the largest European carmaker, would not have much immediate effect on its rivals or other manufacturers, because their labor contracts do not expire until next year. That means that, for now, the deal is unlikely to increase the already worrisome inflation rate, or the pressure on the European Central Bank to raise official interest rates.
“I don’t think it will have any effect on European monetary policy,” Rolf Schneider, who is in charge of macroeconomic research at the German insurer Allianz, said of the VW agreement. The German economic boom has been driven partly by demand in China and other emerging markets for Volkswagen, Mercedes and BMW cars. Bayerische Motoren Werke said Tuesday that sales of BMW, Mini and Rolls-Royce brand vehicles rose 28 percent in January from a year earlier, as sales in the United States and Europe also recovered. Audi, a unit of Volkswagen that competes with BMW in the market for premium cars, said its unit sales rose 23 percent last month, delivering the best January for the brand. One reason for Germany’s export boom and competitiveness in world markets is that, for a decade, workers have accepted modest wage increases in return
for more job security. Now, with German unemployment declining and oil prices putting pressure on consumers, economists have been alert for signs that the period of wage restraint is ending. After a long bargaining session in Hanover that ended early Tuesday, the IG Metall union and Volkswagen agreed to give employees a 3.2 percent increase in base pay, plus a bonus equal to 1 percent of pay and no less than ¤500, or $680. Unlike Daimler and BMW, Volkswagen negotiates directly with IG Metall. In Germany, wage negotiations typically take place at a regional level between industry groups and unions. A general increase in wages in Germany, which has the largest economy in the euro area, would press the European Central Bank to raise interest rates, even though countries like Spain and Ireland are still struggling with slow growth. Economists say that monetary policy is al-
ready too loose for Germany, as the bank focuses on helping the weaker members of the euro area. Yet, the pressure from German wages has not been alarming. Kramer said only a quarter of the unionized workers in Germany could negotiate a pay raise this year, so the overall increase in pay for workers covered by collective bargaining would be only an estimated 1.8 percent. “The end of ultralow wage increases will be fully reflected only next year,” Kramer said. Ralph Wiechers, chief economist of the German Engineering Federation, an industry group, said that many companies still had workers on short shifts and had not fully recovered from the recession of 2009. The need to preserve jobs at these companies will help restrain wage demands next year. “Lots of companies are still a long way from their alltime highs,” Wiechers said.
2/10/2011 2:43:00 AM