Category Archives: Finance

Caracas Warehouse Seized to Convert to Housing

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Anatoly Kurmanaev and Andrew Rosati write:  Venezuelan soldiers seized a food distribution center rented by companies including Nestle SA, PepsiCo. Inc and Empresas Polar SA in Caracas as the government looks to boost support ahead of elections.

The companies were given two months to remove equipment and stock at the La Yaguara industrial park, which will be converted to social housing, workers said. Several dozen workers of Polar, the largest Venezuelan food company, remain on the premises in protest against the expropriation.

President Nicolas Maduro in recent months has stepped up attacks on the private sector, which he accuses of profiteering and sabotage, as his popularity wanes ahead of the Dec. 6 congressional elections. He has blamed Polar and other private food companies for the chronic shortages of basic products and spiraling inflation, while maintaining currency and price controls that have made most of national production unprofitable.

Government ‘Terms’

“This is a scare tactic to get private companies to cooperate with the government ahead of the elections: helping them keep the right stores supplied and work on their terms,” Risa Grais-Targow, Latin America political analyst at consultancy Eurasia Group, said by telephone from Washington. “I think the government understands that taking over a company like Polar will create dangerous social dynamics.”

Carmen Arreaza, a 51-year-old elementary school teacher, and a few dozen other government supporters gathered in front of the warehouse to demonstrate support for the expropriation.

The government had first notified the landlord of plans to expropriate the industrial park in 2013, Nestle spokesman Andres Alegrett said by telephone from Caracas on Thursday. Nestle used the facility to dispatch about 10 percent of its products in the country, supplying sweets and drinks to the western side of Greater Caracas, he said.

“We are working to redirect the products to other facilities across the country,” Alegrett said.

It remains unclear whether the companies will keep the merchandise in the affected warehouses, Polar’s planning manager Douglas Vielma said Thursday afternoon.

The La Yaguara industrial park is also being used by U.S. grain trader Cargill Inc., Mexican bottler Coca-Cola Femsa SAB and industrial gases supplier Praxair Inc.

Warehouse Seizure.

Entrepreneur Alert: Iran Open for Business?

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If sanctions are lifted, business will go back to normal in Iran.  It will take a year, but if this deal goes through, carpets that will exported again.  This is a half a billion dollar business.  In the past, even if you could figure out how to export, the importer could not find a bank to take your money.  SWIFT, the international money transfer system, could not deal with money to or from Iran.  Practically speaking, transactions have to become routine.

The prospect of doing business in America are tantalizing.

Iran experienced its worse period from 2010 to 2012.  Inflation went through the roof to 40 percent.  Unemployment to 14 percent.

Sanctions limited trade significantly.  From medicine to laptaps, you could buy these goods through smuggling. The prices were exorbitant.

Oil revenues were cut.  Shipping companies could not bring goods into ports.

Businesses are lining up to get into Iran, the biggest untapped market currently.

Iran Opens

 

 

 

Lagarde Surveys the World

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Lagarrde says the world economy is recovering but fragile and “faces some downside risks.”

There is growing acceptance among Greece’s creditors that a restructuring of the country’s debt is inevitable, but only if Greece takes ownership of the bailout program by passing tough budget cuts and deep economic overhauls.

Greece has long bristled under Lagarde’s demands for politically unpalatable structural reforms — and this time is no different. During negotiations earlier this month over Athens’s latest bailout, Greek officials tried to boot the IMF from the so-called troika of creditors that also includes the European Commission and the European Central Bank.

Lagarde said that emerging markets are better prepared for the first Fed rate hike, having learned lessons from the taper-tantrum in May 2013.

She said she was pleased that Yellen has stressed that the timing of the first rate hike depends on the economic data.

Lagarde

Outside Board Members?

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Noah Smith writes:  More than a dozen years ago, the U.S. experienced a rash of high-profile accounting scandals. Now it’s Japan’s turn. Toshiba, one of the country’s largest technology firms and an internationally respected brand, revealed that it had systematically overstated its operating profits to the tune of about $1.2 billion during a seven-year stretch. The company’s chief executive officer, a number of other high-ranking executives and half of the company’s board has resigned.

The Toshiba scandal isn’t the first big case of Japanese corporate fraud to come to light in recent years. In October 2011, CEO Michael Woodford (no relation to the economist of the same name) blew the whistle on accounting fraud at his own company, optical equipment manufacturer Olympus. The fallout from that debacle is still unfolding. 

The first takeaway from these scandals is that there will probably be more of them. The consensus is that they happened because of problems with Japanese corporate culture. In both cases, observers have blamed secretive and autocratic management styles by top executives, as well as the generally hierarchical, closed nature of Japanese business. But the real problem is corporate governance itself. 

In Japanese companies, boards are almost always made up of people who work for the company. This provides a strong incentive for empire building in which managers try to expand market share — and their own perks and privileges — instead of profitability or shareholder value. Basically, Japanese managers can run companies like their own private fiefdoms.  

That style of management looked OK when market share was rocketing upward in the 1970s and 1980s. But since the Japanese economy slowed and international competition intensified, its flaws have taken a heavier toll. Japanese white-collar productivity is horribly low relative to other advanced nations, and its companies have traditionally been far less profitable than those in the West. 

It is worrying to see accounting fraud at a company such as Toshiba. Toshiba is one of Japan’s star performers, an internationalized company that has been disciplined by global competition. 

In the U.S., the accounting scandals of the early 2000s in companies such as Enron and WorldCom resulted in the Sarbanes-Oxley Act, a harsh crackdown that many cite as a reason for the reluctance of companies to list themselves on public exchanges. But in Japan, there is the hope that the response will be a different kind of reform — improvement of corporate governance in general. 

The administration of Prime Minister Shinzo Abe recently introduced a new corporate governance code that requires outside directors on boards and encourages a focus on shareholder value. In parallel to this effort, the government should continue trying to cut ties between Japanese companies and the Japanese mafia. Another thing it should do — which hasn’t, to my knowledge, been proposed — is to stop making entertainment expenses tax-deductible. 

There is the hope that the accounting scandals are a bad sign for the short term but a good sign for the long term. If all goes right, problems that are exposed today will be rooted out tomorrow. 

Who's On the Board?

Lagarde Calls for Debt Relief for Greece

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Heather Stewart writes: Christine Lagarde has warned that Greece needs “significant” debt relief – laying down the conditions for the IMF to take part in the third bailout. She said any rescue plan for Greece will be unworkable without some form of debt relief.

“For any programme to fly, a significant debt restructuring should take place.”

Lagarde added that a rescue plan would have to involve “four legs”:

  • sensible fiscal targets, that are delivered
  • structural measures to open up the Greek economy
  • sufficient financing to make the programme workable
  • debt restructuring

Lagarde added that the IMF would be looking at what the Greek government does, not what it says, promising to disregard what she called political “noise”, and focus on “deeds, not creeds”.

Greek Debt Relief

Smart Phone Addiction?

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According to a recent Gallop poll, 81 percent of smart phone users keep them with them all the time.  Seventy-two percent said they checked the smart phone at least once an hour.

Ever since the first iPhone arrived in 2007, smartphones have gradually taken over our lives. We use them to listen to music, take photos, follow the news and sometimes even to make phone calls. They have become a constant presence in both our professional and our personal lives.

Especially young Americans can hardly keep their eyes away from their phone screen. 22 percent of 18- to 29-year-olds glimpse at their phone every few minutes and another 51 percent do so several times an hour.

Interestingly, most smartphone users don’t seem to consider their device usage excessive. 61 percent of the respondents claim to use their own device less frequently than the people around them – a misperception that is not entirely unlike addict behavior.

Smart Phone Addiction

Immigration Thru Channel Tunnel

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The British government is facing calls for tough action to resolve the Calais crisis amid fears that up to 150 illegal immigrants are reaching Britain each night.

As Theresa May, the Home Secretary, led an emergency Cobra meeting Wednesday the Channel Tunnel operators turned on the British and French government for failing to act.

And in a further deepening of the crisis, Mrs May faced a serious set-back in the courts as senior judges banned a fast-track detention scheme used to process migrants who reach Britain and claim asylum.

The key ruling means it will be much harder for the Government to remove migrants, as it emerged more than 300 foreigners detained under the scheme have already had to be freed by the Home Office.

Britain’s borders are expected to come under renewed attack later on Thursday as French trade unions are poised to launch further wildcat strikes, leading to queues of lorries which are sitting targets for stowaways.

Immigrants at Calais heading for Britain

US Fed Rates: Strong Dollar, Slow Growth Around the World?

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The Rocky Road to Globalization:

The Federal Reserve meeting in Maui hints interest rate rise later this year.

The Fed said economic growth continued to meet its expectations, and it indicated officials did not need to see much more progress before raising rates. The statement said officials wanted to see “some further improvement in the labor market,” suggesting the finish line is closer than at the Fed’s last meeting in June, when the central bank said it sought “further improvement.”

The decision to keep rates near zero for at least a few more weeks was unanimous, supported by all 10 voting members of the Federal Open Market Committee. But a number of those officials have said that they do not intend to wait much longer.  While growth remains disappointing by historical standards, the Fed said the economy continued to expand at a “moderate” pace, which was driving “solid job gains and declining unemployment.”

The statement also was notable for the absence of bad news. Although there was no mention of global problems, the Fed has to consider the impact of the strong dollar world wide.

The Fed has kept its benchmark interest rate near zero since December 2008, the centerpiece of its stimulus campaign to revive economic growth and increase employment since the recession. Officials have repeatedly extended that campaign as the economy disappointed their expectations, but in recent months, they have given clear signs they are becoming more worried about waiting too long to start raising interest rates than acting too soon.

Economic growth has increased after a rough winter, and employment expanded by an average of 208,000 jobs per month during the first half of the year. The unemployment rate fell to 5.3 percent.

Fed officials have said repeatedly that they plan to start raising rates this year as long as the economy keeps chugging along.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds target,” Janet L. Yellen, the Fed’s chairwoman.

Surveys of economic forecasters show that most expect the Fed to start raising interest rates at its next meeting, in mid-September. Measures of market expectations point to a December liftoff, however.

Inflation remains sluggish. Prices rose just 0.2 percent over the 12 months ending in May, according to the Fed’s preferred measure, a Commerce Department index of personal consumption expenditures. It was the 37th consecutive month that inflation has remained below the Fed’s declared target of 2 percent annual growth.

Ms. Yellen and other Fed officials, however, say they are increasingly confident that continued growth will push up prices to a more desirable level.

Global economic slowdown complicates the rate rise.

Interest rate rise

How Big Should the Banks Cushion Be?

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The Financial Stability Board (FSB) coordinates financial regulation for the Group of 20 economies and will finalize the rules by the end of September for endorsement by G20 leaders in November.

The FSB wants the top 30 banks to hold enough equity and long-term bonds so that if they fall into trouble they have enough resources without calling on taxpayers.

Major U.S. bank groups said in February the plan goes beyond what’s needed even at the lower end of the FSB’s range, but the calls appear to have been largely ignored.

“What we understand is that it will be going ahead largely as expected,” a senior banking industry source said.

“There will be tweaks here and there, but nothing substantial,” a G20 source added.

The buffer of “total loss absorption capacity” or TLAC would come on top of core capital requirements.

Standard & Poor’s has estimated that US$500 billion in bonds may have to be issued.

Mark Carney, the Bank of England Governor who chairs the FSB, has said the reform is crucial to ending “too big to fail” banks and drawing a line under the 2007-09 financial crisis.

Some banks like UBS and Bank of America have told analysts this month they are in a position to comply well ahead of the 2019 deadline, if not straight away.

“We’re going to start issuing TLAC in the current quarter, in 3Q, so we’re obviously not waiting to see the final regulations,” UBS Chief Financial Officer Tom Naratil told reporters on Monday.

“As we’ve indicated previously, it doesn’t really matter where it ends up, we feel that we’re well prepared to be able to address even the higher end of that band,” Naratil added.

Regulators in Continental Europe where some banks are still building up core capital cushions, want a final TLAC figure nearer 16 percent, while the Federal Reserve wants it around 20 percent, bankers said.

Settling for about 18 percent, as some bankers expect, will likely prompt the Fed to top this up with local requirements.

“Once the TLAC details have been finalised, the sector will be looking at how this is implemented in key jurisdictions, including whether any will gold plate,” said Oliver Moullin, a director at European banking lobby AFME.

The FSB, which had no comment, proposed that large banks from emerging markets like China be exempt from holding TLAC but bankers say the final rule will likely say this is temporary.

Banks with major units abroad must hold TLAC to reassure local regulators their taxpayers won’t be on the hook in a crisis. Under FSB proposals, these pools of TLAC could add up to well in excess of even 20 percent on a group basis.

“We have heard the FSB has found ways to mitigate that consolidation effect,” one senior European banker said.

Once a final TLAC figure is agreed, the banks will come under pressure to comply sooner rather than later, analysts said.

“I think banks will have to communicate as early as possible what their plans are to meet the requirements if they don’t meet them,” said Alexandre Birry, director, financial services ratings, at Standard & Poor’s.

SNL, a financial data company, said the next rung of lenders below the top 30 would also face investor pressure to meet the standards of the biggest players.

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Woman to Coach Football in US

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In his two years as Cardinals coach, Bruce Arians has assembled an eclectic mix of young and old assistants, ranging in age from their 20s to their late 70s.

This year, that staff will be even more diverse, including a woman and the creation of the Bill Bidwill Coaching Fellowship.

Jen Welter will work with the team’s inside linebackers throughout training camp and the preseason. It’s believed she is the first female to hold a coaching position of any kind in the NFL.

In addition, former Steelers linebacker Levon Kirkland becomes the inaugural participant in the fellowship named after the Cardinals owner.

Welter will be among seven coaching interns working with the team this summer. Her tenure in 2015 will be short, but meaningful.

Arians provided a hint last spring that such a move was possible, though he had no specific plans then.

Last spring, Arians was asked about Sarah Thomas becoming the NFL’s first female official. Arians mentioned that it would be reasonable to think a woman could also coach in the NFL.

Jennifer Welter football coach