Sunday, 1 July, 2012

Page 02

UK orders bank

review, calls

Diamond to panel

BERLIN/PARIS

AGENCIES

NeWSPAPeRS in Spain, Italy andFrance on Saturday toasted thetriumph of their leaders - MarioMonti, Mariano Rajoy and Fran-cois Hollande - in pushing Merkel

into a U-turn that would long have been un-thinkable.

even German newspapers said Merkel hadbeen made to accept demands for the euro zonerescue fund to be able to inject aid directly intostricken banks from next year and intervene onbond markets to support troubled memberstates. “There’s no doubt about it - the chancel-lor was blindsided at the euro summit,” wroteinfluential columnist Nikolaus Blome of Bild, adaily with 12 million readers. The summit endedon Friday with agreement on new steps to try toprevent a catastrophic breakup of the single cur-rency. Popular at home for insisting on austeritymeasures and tough conditions forthose indebted euro zone states gettinghelp, Merkel was quick to put a posi-tive spin on the summit, telling re-porters: “We had an interest infinding solutions.” There was no signthat the summit had damaged herreputation on Friday as bothhouses of parliament voted toback the euro zone’s perma-nent bailout scheme. AndMerkel does not face any par-ticular political challenge atthe moment.

But the concessions of“Frau Nein” were far biggerthan earlier compromisesin the name of savingthe euro. “Merkel

caves in - money for ailing banks,” read theheadline on Germany’s left-leaning Sued-deutsche Zeitung. Bild wrote: “Italy and Spaingot what they wanted: It’ll be easier to borrowexcessively again... It was the first time in morethan two crisis years that euro states didn’t fol-low Germany’s orders.” Footballing compar-isons have been widespread after Italy knockedGermany out of the euro 2012 tournament in ashock 2-1 victory on Thursday. “This time it wasworse, the defeat was about the euro,” said re-spected Deutschlandfunk radio.‘1-0 TO HOLLANDE’: In France, left-leaningdaily Liberation had a front page splash showingHollande and Merkel dressed in their nationalfootball shirts with “1-0 to Hollande” over thetop. It devoted its first four pages to his sum-mit triumph. Liberation said it was thepressure from Hollande, Monti andRajoy that made Merkel buckle andaccept a growth plan and bankingunion mechanism. It applaudedhis negotiating prowess. “The nightthe South made Merkel cave in,”was the headline over a Liberationreport on the Brussels summit.

France’s right-leaning daily Le Fi-garo called Spain and Italythe real winners. “Just like infootball, it is thanks to Italy

and Spain that the dynamicsof the match have changedand that Angela Merkel hasbeen forced back against

the wall.” Italy’s leading daily,Corriere della Sera, captured the

e u -

phoric mood in Italy. A front-page cartoon “Asuper Mario in Brussels too” showed Monti inthe triumphant clenched-fists pose of Italystriker Mario Balotelli after his second goalagainst Germany. The diminutive figures of anannoyed-looking Merkel and a meek-lookingHollande watch him. “Italy is not just a greatteam, it’s a great country and it may be good toremember it,” the paper wrote, giving credit toMonti for making Italy a leading player in eu-rope again. Left-leaning daily La Repubblicanoted that after four years during which Ger-many had “dictated both the music and thelyrics” at euro zone summits, three of the four

main countries had re-fused to dance to

Merkel’sbeat.

NEW YORK

AGENCIES

Apple and Samsung, the world’s largest consumer elec-tronics corporations, are waging legal war in several coun-tries, accusing each other of patent violations as they viefor supremacy in a fast-growing market for mobile de-vices.

Friday’s decision, by U.S. District Judge Lucy Koh inSan Jose, California, comes days after she also slapped apre-trial ban on sales of Samsung’s Galaxy Tab 10.1, atablet computer that runs on Google Inc’s (GOOG.O) An-droid and goes toe-to-toe with the iPad.

The back-to-back triumphs - significant because pre-trial injunctions are rarely granted - meant Apple had abetter week in court than last week, when Chicago federalcourt judge Richard Posner ruled the iPhone maker couldnot pursue an injunction against Google’s Motorola Mo-bility, effectively ending that case. “Apple has made a clearshowing that, in the absence of a preliminary injunction,it is likely to lose substantial market share in the smart-phone market and to lose substantial downstream salesof future smartphone purchases and tag-along products,”Judge Koh said in Friday’s ruling.

Koh scheduled a hearing on Monday to considerwhether to put the Galaxy Nexus injunction on hold pend-ing appeal. And she said in court that she might rule onSunday whether or to similarly put on hold the earlier in-junction on the Galaxy Tab. Apple has waged an interna-

tional patent war since 2010 as it seeks to limit the growthof Google’s Android system, the world’s most-used mobileoperating platform. Opponents of Apple say it is usingpatents too aggressively in a bid to stamp out competition.Spokeswoman Kristin Huguet reiterated her previousstatement, accusing Samsung of copying the look and feelof its products. Samsung said in a statement that it is “dis-appointed” in the decision. “We will take all availablemeasures, including legal action, to ensure the GalaxyNexus remains available to consumers,” the statementadded As a condition of the injunction, Apple was orderedto post a bond of more than $95 million, to secure pay-ment of damages sustained by Samsung should the in-junction be deemed a wrongful decision later. The ordershall become effective upon posting of the bond.

DHAKA

AFP

Bangladesh on Saturday called a World Bank de-cision to cancel a $1.2-billion loan to build thenation’s biggest bridge — aimed at transformingthe poverty-hit south — “a bolt from the blue”.

The development lender on Friday cancelledthe loan for the country’s Padma bridge project,saying the government had not cooperated in in-vestigating “high-level” corruption in the project.

“The World Bank cannot, should not, and willnot turn a blind eye to evidence of corruption,”the World Bank said.

Bangladesh’s Communications MinisterObaidul Quader told reporters the Washington-based bank had scrapped the credit deal based onallegations “which do not necessarily mean thatcorruption charges have been confirmed”.

“It is unfortunate, regrettable — and myste-rious,” the minister said, adding that the lender’sdecision came at a time when the country’s anti-graft agency was investigating the allegations.

“It’s like a bolt from the blue,” he said.The proposed 6.2-kilometer (3.8-mile) bridge

over the Padma river — the local name for theGanges — would connect the capital Dhaka tocoastal districts.

The $3-billion bridge is planned to go intoservice in 2014. It is designed to carry a highwayand rail line and is aimed at transforming thecountry’s impoverished southern region throughbetter road and rail connections. Right now, alltraffic across the Padma must rely on ferries,

which are often unsafe due to overloading andpoor maintenance. The loan was approved inFebruary 2011, but allegations of corruption inthe tender process led the bank to freeze the loanlate last year.

The World Bank said it had provided evi-dence of corruption from two probes into thebridge case to Bangladesh’s prime minister, fi-nance minister and the Anti-Corruption Com-mission’s chairman in September 2011 and April2012. The Bangladesh chapter of the Berlin-based global graft watchdog Transparency Inter-national called the World Bank decision“embarrassing and disappointing”.

“It comes as an acid-test for the government,which must demonstrate to the nation that it hasthe courage and capacity to bring to justice thoseagainst whom allegations of corruption havebeen raised,” it said.

It also asked the bank to review the decisionas it said the bridge is much needed to reducecrushing poverty in Bangladesh’s south.

“Neither the World Bank, not the governmentcan punish the people of the country for an al-leged crime of a handful of people,” Trans-parency InternationalBangladesh headIftekharuzzaman, who uses one name, said in astatement.

The corruption allegations also involve Cana-dian contractor SNC-Lavalin.

Late last year, Ottawa issued charges againsttwo former company executives after a year-longinvestigation using evidence provided by theWorld Bank.

The boulevard ofbroken promises

ISLAMABAD: Auditor General of Pakistan has revealed that National HighwayAuthority (NHA) has suffered a loss of Rs 328.208 million due to deposit ofrevenue at lesser rate on toll plazas being illegally operated by NLC. According toaudit report of 2010-11 it has been said that in June 2009 senate approved apolicy that 25% toll plazas being operated by National Logistic Corporation(NLC) and Frontier Works Organization (FWO) on national highways networkbe auctioned to private operators and ministry of communication and NationalHighway Council also approved the policy. National Assembly standingcommittee on communication endorsed this policy of ‘award of 01 toll plazas to01 operator, resultantly bids of 26 toll plazas were called to be opened inaccordance of this policy. Audit report revealed that NHA issued letters ofacceptance to highest bidders of eight toll plazas however NLC did not hand overthe toll plazas to the new operators till the time of the audit and continued todeposit revenue as per the previous formula of %age of revenue basis rather thanthe net guranteed revenue formula (fixed monthly amount initial period of oneyear extendable for further one year from Aug 03 2009 to Aug 2011. Reportfurther revealed that during Aug 2009 t0 June 2011 National Highway authorityNHA suffered a loss of Rs 328.208 on toll plazas which were operated illegally byNLC. Audit maintains that less recovery was due to deficient revenue recognitionpolicies to the rules/regulations and material weakness in internal control. Theauthority failed to realize due revenue in a climate of financial constraints anddeclining resource availability. This mismanagement was pointed out by auditorgeneral but authority did not respond to the audit observation. The DAC in itsmeeting held on December 29-30-2011 directed to get toll plazas vacated fromNLC with further delay. ONLINE

Pakistan pays back $107.6million to IMFKARACHI: Pakistan has repaid an installment of $107.6 million toInternational Monetary Fund (IMF) as part of the principal amountagainst loan of $7.9 billion. The payment was made in accordance ofSpecial Drawing Right (SDR) stood at 71.066 million. This was the thirdrepayment of loans after installments of $394 million and $399 millionwere paid in February and May 2012 by the central bank. Therefore,more than $ 900 million has been paid to IMF so far in the currentfinancial year 201-12, which is equal to 588 SDR. The foreign exchangereserves of the country have fallen sharply in the second half of thecurrent financial year mainly on the payment of loans, high imports billand negligible inflows of foreign earnings through exports and foreigndirect investment. It declined to by $82 million to $14.964 billion duringthe week ended on June 21 against $15.046 billion a week earlier. Theliquid foreign exchange reserves have declined by a massive $3.26 billionin the current fiscal year 2011-12 as the reserves reached a record level of$18.31 billion by end the of previous financial year. The depletingreserves have impacted negatively on the rupee value, which constantlyfell against dollar in interbank and open market, crossing the level of 94and 96 respectively in the recent weeks. INP

MERKEL’S U-TURN

Nein! Non! No…Maybe...

Okay, yes!Angela Merkel was portrayed across Europe as the big loser of a euro zoneshowdown in Brussels after the German chancellor was forced to accept thecrisis-fighting measures championed by countries struggling with their debts

NHA has suffered loss of Rs 328.208m

Flabbergasted!Bangladesh stunned as Wold Bank cancels bridge loan

Thirty love, AppleA US judge granted Apple Inc’s (AAPL.O) request for a pre-trialinjunction against the sale of Samsung Electronics Co Ltd’s(005930.KS) Galaxy Nexus phone, handing the iPhone makerits second legal victory against Samsung in a week

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02Sunday, 1 July, 2012

Business

LONDON

AGENCIES

US and British authorities finedBarclays $450 million for ma-nipulating the London Inter-bank Offer Rate (Libor), theinterest rate on loans that

banks make to each other. Barclays was thefirst to settle in an investigation that is ex-pected to name others and reaches acrosseurope, Japan and North America.

The scandal has fuelled public outrageat the culture and practices of the bankingindustry and prompted calls from lawmak-ers across the political spectrum for an in-quiry. The British government plans a short,urgent review that would allow it to amendthe Financial Services Bill currently goingthrough parliament, a spokeswoman for thePrime Minister said. The review will exam-ine Libor and the possibility of criminalsanctions. “The person leading the reviewwill want to talk to those involved, the Bankof england, the FSA (Financial Services Au-thority) and people who use Libor,” MarkHoban, financial secretary to the Treasury,told BBC television.

Prime Minister David Cameron, askedabout a full public inquiry, told BBC televi-sion: “Let’s take our time, think this throughcarefully...Let’s get this right.” A public in-quiry would be a risky step for a governmentalready under fire over a string of embar-rassing revelations in a year of public hear-ings following 2011’s phone-hackingscandal. The chief executive of Barclays, BobDiamond, has been summoned to appearbefore British lawmakers on WednesdayJuly 4 to answer questions about the scan-dal. On his last appearance before a parlia-mentary committee last year Diamond saidit was time for bankers to stop apologizing.He is now under intense pressure to quitBarclays, where he ran the investment bank-ing arm Barclays Capital when the interestrate rigging occurred in 2005-2009.

“Parliament and the public need to

know what went wrong and whether theperpetrators have been rooted out,” said An-drew Tyrie, head of Parliament’s TreasurySelect Committee, which will be questioningDiamond. “We also need to be given confi-dence that this has been put right.”

Other banks being investigated in theglobal probe include Citigroup (C.N), HSBC(HSBA.L) and UBS (UBSN.VX). No crimi-nal charges have been filed but Britain hascalled in the fraud squad to investigate pos-sible crimes. Bank of england GovernorMervyn King launched an angry attack onBritish banking culture on Friday, sayingsomething had gone very wrong with an in-

dustry which he derided for resorting to “de-ceitful” methods to make money.

The country’s most powerful monetaryofficial, he said a fundamental overhaul wasneeded for a sector that is reeling from astring of financial scandals.

Britain’s banking industry, one of thelargest cogs in Britain’s economy and im-portant for tax revenue, has been knockedby a series of damaging headlines.

In the same week as the Libor scandalerupted, Britain’s Financial Services Author-ity said it had settled with four banks - Bar-clays, RBS, HSBC (HSBA.L) and Lloyds(LLOY.L) - after finding evidence they mis-

sold products to protect small businessesagainst a rise in interest rates.

Justice Secretary Ken Clarke said that ifany of the ongoing investigations revealedsuspected criminal offences “they should bebrought to trial”.

“We are very bad at prosecuting finan-cial crime in this country,” he told BBC radioon Saturday.

“That is why when we’re setting up theNational Crime Agency we should look atthe record of the Serious Fraud Office. I sus-pect financial crime is easier to get awaywith in this country than practically anyother sort of crime.”

Uk orders bank review,

calls Diamond to panelg The British government ordered an independent review into the workings of key lending rates

between banks, after Barclays (BARC.L) was found guilty of rigging them, and summoned the

bank’s boss to answer questions about the scandal

TOKYO

AGENCIES

Japan’s Nikkei average jumped 1.5 percenton Friday to close above the key 9,000 levelfor the first time in seven weeks after euro-pean leaders agreed to take emergency actionto bring down borrowing costs for Italy andSpain.

The Nikkei was down 10.7 percent thisquarter, however, in its worst quarterly per-formance since last year’s July-Septemberperiod, though it is still up 6.5 percent so farthis year.

“Obviously, you’ve got a quick snap reac-tion as shorts look to cover. Whether thisdeal (in europe) actually changes anything isa big question. The problem is that longer-term measures are needed,” a trader at a eu-ropean brokerage said, referring to the eurozone agreement. “One of the positives thatyou can take away is that the eU is actuallydoing something rather than sitting aroundand talking ... The problem is that the bailoutfund hasn’t got any bigger. It doesn’t do any-thing to fix the underlying problem.” eurozone leaders agreed that the region’s rescuefunds could be used to stabilise bond marketswithout forcing countries that comply witheU budget rules to adopt extra austeritymeasure or economic reforms. They alsoagreed that the bloc’s future permanentbailout fund, the european Stability Mecha-nism, would be able to lend directly to recap-italise banks without increasing a country’sbudget deficit.

The Nikkei ended up 132.67 points at

9,006.78 after trading as high as 9,044.04, reversing a small decline at the end of themorning session. Friday’s gain took the indexabove its 200-day moving average at8,942.99, but it remained below its 13-weekmoving average at 9,015.99. U.S. stock indexfutures also bounced after the news, withS&P futures up 1.3 percent and Dow Jonesfutures up 1.1 percent. Nomura Holdings,Japan’s top investment bank, surged 3.9 per-cent on Friday. It was also boosted by reportthat Nomura will cut top managers’ pay andis considering a temporary halt to some op-erations as it looks to resolve a costly insidertrading scandal. Mitsubishi UFJ FinancialGroup and Sumitomo Mitsui Financial Groupwere up 1.6 and 0.9 percent respectively.

economy-sensitive exporters also en-joyed the bounce, with Toyota Motor Corp up2.6 percent and Honda Motor Co adding 3.2percent. The broader Topix index climbed1.5 percent to 770.08. Trading volume on theindex hit a three-week high, withnearly 2 bil-lion shares changing hands. Shun Maruyama,chief Japan equity strategist at BNP Paribasin Tokyo, said short covering by investorswould likely continue until mid-July. “Thenear-term target is 9,300 to 9,400. After theshort covering, we will have to look at funda-mentals. These are not necessarily good,” hesaid. “The market will also enter earningsseason. Profit guidance will not be so good.”Maruyama said the short selling ratio onJapanese stocks currently stood at 27 per-cent, down from more than 30 percent inMay. Short covering tends to emerge whenthe ratio reaches 28 to 30 percent.

Oil posts fourth

biggest daily gain

on recordNEW YORK

AGENCIES

Oil surged on Friday in heavy trading to thefourth biggest daily gain on record, as a dealby european leaders to shore up euro zonebanks triggered frantic short-covering byfunds that had been riding crude’s pricecollapse over the last quarter. Despite thesharp gains, both international benchmarkBrent and U.S. oil futures posted theirbiggest quarterly declines since the fourthquarter of 2008 due to weak demand, amplesupply and economic worries. Oil’s gains forthe day came as part of a wider market rally,with the euro and world stocks rising aftereuro zone leaders agreed on measures to cutsoaring borrowing costs in Italy and Spainand recapitalize regional banks. Brent crudeoil futures rose more than $6 a barrel tonear $98 while U.S. crude jumped by morethan $7 to settle just below $85 a barrel —the fourth largest daily gains in dollar termssince the contracts were launched. Crudedrew further support from a strike inNorway that cut production of oil andnatural gas liquids by 230,000 to 250,000barrels per day, or up to 13 percent of thecapacity of the world’s No. 8 crude exporter.“The NYMeX just went wild. It never lookedback. Just up, up and away.” said JohnTroland, an independent energy advisor inHouston, referring to the New YorkMercantile exchange where benchmark U.S.crude oil futures trade.

Gas supply to

Faisalabad industry

suspended FAISALABAD

ONLINE

Gas supply to industries in Faisalabad hasbeen suspended for two days disruptingindustrial output and rendering dailywagers unemployed. As per the new gasload mangment plan, the gas supply toindustrial units would be closed for twodays. Regular supply will be resumedfrom 2nd July to 6th July under the newschedule. Industrialist has rejected theincrease of 1 day in gas load shedding bygovernment and has demandeduninterrupted gas supply to industries.

HOWARD DAVIES

In the last few weeks, the idea of establishing a Eu-ropean banking union has become the latest remedyadvanced as a solution to the long-running euro cri-sis. But, whatever the merits of a banking union –and there are many – proposals to establish oneraise more questions than can currently be answered.

The motivations of those who advocate a bank-ing union differ markedly. For some, particularly insouthern Europe, it is seen as a means of shifting theburden of supporting their indigent banks to thosewith deeper pockets. For others, especially in the Eu-ropean Union’s Brussels Eurocracy, it is seen as an-other leap forward in the construction of a Europeansuper-state. Taking their cue from the sacred RomeTreaty’s reference to “ever closer union,” the Euro-pean Commission’s theologians view every crisis asan opportunity to advance their federalist agenda.

The European Central Bank has been morethoughtful, though no less enthusiastic, arguing thata banking union should have three objectives. First,stronger eurozone-wide supervision should reinforcefinancial integration, “mitigate macroeconomic im-balances,” and improve the conduct of monetary pol-icy. How a single EU supervisor would address theproblem of imbalances is not explained, but it issurely a worthy aim.

The second objective should be to “break thelink between banks and sovereigns,” which has beena particularly dangerous feature of the last year,while the third is to “minimize the risks for taxpayersthrough adequate contributions by the financial in-dustry.” The third aim could be achieved country bycountry, but it is certainly arguable that an across-the-board banking levy, or a Europe-wide financial-transaction tax, would eliminate competitivedistortions.

How might these laudable objectives be

achieved? The European Commission has argued thata fully-fledged banking union would need to rest onfour pillars: a single deposit protection scheme cov-ering all EU (or eurozone) banks; a common resolu-tion authority and common resolution fund, at leastfor systemically important and cross-border banks; asingle European supervisor for the same banks; anda uniform rule book for prudential supervision of allbanks in Europe.

Anyone who has been involved in banking su-pervision can see at once that these four pillars willrequire careful construction. Many individual coun-tries have taken a generation to develop their owndomestic schemes. And, in this case, three big polit-ical issues have yet to be resolved.

First, the identity of the single European bank-ing supervisor remains undecided, and the ECB hasseen an opportunity for a power grab. Centralbankers in Europe have always resented the narrowmonetary-policy mandate given to the ECB under theMaastricht Treaty. Banking supervision was not in-cluded among the ECB’s objectives, though one arti-cle of the treaty gives the system of European centralbanks as a whole the task of contributing to effectivesupervision. They now argue that the simplest solu-tion would be to expand that remit and make the ECBthe de facto pan-European supervisor.

That is not the outcome favored by the Euro-pean Commission, which has only just set up the Eu-ropean Banking Authority. The EBA is closely linkedto the Commission itself, and is seen as the naturalcandidate for a broader role.

The Commission has a case, but it also has aproblem. During the political horse-trading that pre-ceded the creation of the EBA (together with twoequivalent bodies for securities and insurance), itwas agreed that the new authority would be basedin London. That seemed logical at the time, but notif the EBA’s role is to be broadened. How could a eu-

rozone supervisor be based outside the eurozone?The second unresolved question is how to

achieve a banking union in legal terms. Constitu-tional change on this scale would normally require anew European treaty. But that would take time, andEurope’s leaders have run out of it.

Furthermore, there is no guarantee that votersin countries that require a referendum on treatychanges would support a further transfer of sover-eignty. So the likely outcome is that, in the EU’s time-honored fashion, the banking union will beconstructed using existing powers, finessing the sov-ereignty question, and avoiding any reference topublic opinion. That points towards reliance on theECB. The final question is what such a eurozonebanking union would mean for the single financialmarket, and especially for EU countries that are out-side the single currency. Many of them would sign upwillingly, as they intend to join as soon as possible,in spite of the euro’s difficulties. But that is not thecase for the United Kingdom, and London remainsthe continent’s biggest financial center, by far.

I fear that the French and Germans have nowlost patience with the troublesome British, and are re-luctant to cut a deal. And Euroskeptic British politi-cians see this as an opportunity to recast the UK’srelationship with the EU; indeed, for some, it meansa chance to negotiate an exit. Opinion in the City ofLondon tends to favor a middle way, which wouldallow the UK to cling to the benefits of the single mar-ket, without conceding unified regulation. That willbe hard to pull off. I suspect that a banking union ofsome kind will be implemented, and soon. Otherwise,the eurozone banking system will collapse. But theconsequences of such a step for Europe’s great free-trade experiment could be serious, and, if not man-aged carefully, could lead to Britain’s withdrawal. Thepolitical stakes are high, and the outcome is likely toreflect that. COurtESy PrOJECt SyNdICAtE

One big unionEU agreement lifts optimismg Both Nikkei, Topix rally 1.5 pct g But Nikkei still down

10.7 pct for the qtr, worst since Q3 2011

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