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Flaherty renews insurance battle with banks

Finance minister warns banks that selling insurance on websites can't continue

Finance Minister Jim Flaherty and the banks are headed for a showdown over the institutions’ desire to skirt federal rules by selling insurance on their websites.
Speaking to reporters in Washington on the weekend, Mr. Flaherty said the issue, which first emerged in October, is “still around,” even though the Harper government is intent on stopping the practice, which the Finance Department insists violates the spirit of rules that forbid the big banks from selling insurance in their branches.
“We’ve had the discussions, but I’m going to have to make clear to them what they can do on their websites,” Mr. Flaherty told reporters after attending a meeting of the committee of finance chiefs that guides the work of the International Monetary Fund. “I will be meeting with some of the bank executives within the next 10 days or so and that will be one of the subjects we’ll talk about.”
This parochial concern sprang up amid weightier issues of sovereign debt risk and the state of the world economy because of a campaign that put Mr. Flaherty in a position he rarely inhabits: squarely on the same side as the country’s financial institutions.
At a meeting of the Group of 20 finance ministers and central bank governors on Friday, Mr. Flaherty tripped up a push by Britain, Germany and France to win G20 endorsement of a levy on financial institutions to raise funds for future bailouts and curb risky behaviour.
Mr. Flaherty’s efforts drew quick praise from the Canadian Bankers Association, which isn’t usually so eager to applaud a politician who makes a point of reminding audiences that he is the “minister of finance” not the “minister of banks.”
A vocal, and lonely, critic of the bank levy proposal ahead of the meeting, Mr. Flaherty rallied emerging market powers to his side, killing whatever momentum the Europeans, with tacit support from the United States, had for a global bank tax. The G20 rejected an interim report by the IMF that recommended a levy, calling on the fund to go back to the drawing board to consider other options, including Canada’s suggestion that banks be told to sell debt that would convert to equity capital when trouble hits.
Mr. Flaherty and other Canadian officials were buoyant after their diplomatic win, demonstrating that the world’s established economic powers will have more difficulty dictating the agenda of the G20 than they did the work of the smaller Group of Seven, whose leaders ceded co-ordination of the world economy to the larger group last year. Mr. Flaherty’s aggressive stand against some of Canada’s traditional allies also reflects a new confidence on the world stage based on Canada’s relative success in weathering the financial crisis.
“It is unique for Canada to stand out so distinctly,” Tom Bernes, acting executive director of the Centre for International Governance Innovation and a former Canadian executive director at the IMF, said in an interview in Washington over the weekend.
Mr. Flaherty suggested that he bested the supporters of the bank levy by having a better understanding of the developing economies in the G20, saying he sensed there would be little enthusiasm for a tax “based on my experience with the Asian countries in particular.”
Mr. Flaherty acknowledged there was “some hesitancy to disagree so clearly” with so many of his G7 allies, but he decided that “our first duty is to our own countries.”
But it would be a mistake to think Mr. Flaherty, who has irritated financial institutions on everything from user fees at cash machines to codes of conduct on credit cards, has suddenly gone soft on the banks.
Asked whether he thought his political opponents back in Ottawa might use his alliance with Bay Street over the global levy against him, Mr. Flaherty raised the insurance issue as an example of why the banks “aren’t very happy with me.”
Nor does he seem to care.
“I don’t live in a world where I think the banks are that fond of me, nor should they be,” Mr. Flaherty said. “They’re in business to make a profit, but they have a protected public position in Canada, so they have to accept that government has a significant role to play and that role is on behalf of the Canadian people.”
Mr. Flaherty said he has personally viewed the banks’ websites, and accepts that it will be logistically difficult for them to satisfy the government’s directive to keep information about insurance policies away from their general banking pages.
He doesn’t seem to care about that, either.
“It’s not an easy thing to do,” Mr. Flaherty said. “But I think we can get there in a way that will be businesslike, that they can live with.”

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Countries that weathered the global economic crisis with their financial systems relatively unscathed are being shortsighted by opposing a global bank levy, the IMF's chief said on Saturday.

International Monetary Fund Managing Director Dominique Strauss-Kahn suggested a bank tax would be helpful in preparing for crises that could strike anywhere and indirectly criticized countries that might think they would never feel the brunt of a downturn.
"The countries ... which are likely to implement (a bank tax) are the ones having had problems in the banking sector," Strauss-Kahn said. "The others say, 'We didn't have a problem so we're immune.'"
"Maybe it's a bit shortsighted," he added, without naming any countries. Canada has taken a lead role in rallying opposition to a tax on banks, and anti-poverty organization Oxfam zeroed in on it for that stance.
"It would be shameful if Canada blocks a tax that could provide hundreds of billions of dollars for countries that have been devastated by the economic meltdown," Oxfam said in a statement distributed at IMF headquarters, where its semi-annual meetings were held.
"If the IMF can be on the side of the angels, why can't Canada?" Oxfam asked.
The possibility of setting some kind of levy on banks split Group of 20 finance ministers at a meeting on Friday and carried on into the subsequent IMF gathering, where Strauss-Kahn faced questions about it from reporters.
He said that before the crisis it was likely that the United States, Britain and some European countries thought they could manage their way through safely, which proved to be incorrect because they were forced to fund massive bank bailouts.
"So I'm not sure that this kind of instrument -- it's true also for strong regulation -- shouldn't be applied everywhere," Strauss-Kahn said in best diplomatic fashion.
Canadian Finance Minister Jim Flaherty said on Friday that not only was he steadfastly opposed to a tax but also that he had persuaded some colleagues from other Group of 20 rich and emerging countries to join him.
There are other voices, notably in the banking industry, that want to stop the idea of a bank tax in its tracks.
The Institute of International Finance, which represents 390 firms worldwide, wrote to G20 finance ministers after Friday's meeting to lay out their case against a tax.
"The IIF sees no merit in the idea that any levy on the financial sector should be paid into general revenue. Neither do we believe that an ex-ante levy on the banking system should be used to finance the bailing out or recapitalization of failing institutions," IIF Managing Director Charles Dallara said in the letter made public on Saturday.
Dallara suggested such a tax designed to fund future bailouts would only encourage excessive risk-taking, since it meant there would be cash on hand to rescue them in any case.
"That would contribute to the persistence of moral hazard and weaken market discipline," he said.
Dallara said the IIF will propose measures for managing failures by winding up firms and suggested that would be a more useful approach than considering new taxes.
"We can no longer contemplate a world in which public or private sector funds are used to bail out or recapitalize failing firms."
The IIF is to offer a paper on a proposed resolution arrangement to the Financial Stability Board, which is made up of G20 central bankers and regulators and coordinates financial reforms.

Greece seeks aid talks with IMF

Group to send team to begin laying groundwork for rescue

The International Monetary Fund will send a team to Greece Monday to begin laying the groundwork for a rescue, should the debt-stricken nation make the request for help.
In a statement issued in Washington Thursday, IMF Managing Director Dominique Strauss-Kahn said Greece asked him to send a team “to begin discussions with the Greek authorities this coming Monday on policies that could provide the basis for fund financial assistance, under a multi-year program, in the case that the authorities decide to ask for such assistance.”
The Greek request comes amid signs that investors are losing faith in the mutibillion-euro backstop that European governments arranged for Greece last weekend.
After a respite following the announcement that European governments were prepared to put up €30-billion in the first year of a rescue, markets turned against Greece because of uncertainty about how quickly it could access the money if needed. The euro fell Thursday and the gap between Greek 10-year debt and the German equivalent widened to a near record.
The IMF is a partner in the European rescue plan, with reports saying the Fund could contribute €15-billion, as well as provide much of the technical assistance.
Mr. Strauss-Kahn said the request from Athens to begin discussions with the IMF is “consistent” with the European program.

Germany and France split over solution to Greek financial crisis

Greek taxi drivers march in Athens during a 24-hour strike, a protest against tax measures introduced to try to relieve the crippling national debt crisis
The split between Europe’s leaders over aid to Greece widened yesterday as Germany softened its opposition to a bailout by the International Monetary Fund and France insisted on a European solution to the crisis.
As Berlin and Paris bickered over the politics of IMF intervention in the eurozone, an outspoken board member of Germany’s central bank said that Greece had not done enough to mend its finances. Asked what Greece should do if it could not refinance its debt, Thilo Sarrazin said: “Then it should do what every defaulter has to do and file for insolvency.”
The European Commission urged member states yesterday to make a political commitment to a standby rescue plan. A summit meeting in Brussels next week will address Greek warnings that soaring borrowing costs may jeopardise its efforts to cuts its budget deficit. Greece threatened this week to call on the IMF for aid if Europe failed to come up with concrete proposals for a rescue package.
Olli Rehn, the Economic and Monetary Affairs Commissioner, said that the European Union must “come to a more specific political conclusion about the European framework for co-ordinated and conditional action, if needed and required”.

Related Links

• Q&A: Greece — the crisis in full

• Eurozone ministers discuss Greece rescue

The French Government waded in to support Greece, however, stating that the priority was to find a European solution to the crisis, suggesting it was premature to talk about an IMF loan.

IMF wants bigger global economy role

The head of the International Monetary Fund says the body wants new authority to supervise the global financial system.
Speaking in Washington, Dominique Strauss-Kahn said the IMF needed to update its mandate as the global economy emerges from the worst recession in decades.
'We must build on this positive momentum: to transform the Fund into an institution even better equipped to meet the challenges of the post-crisis era,' the IMF managing director told a meeting of the Bretton Woods Committee.

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According to the text of his speech, he said he was floating the idea of a new multilateral surveillance procedure. 'This would allow - indeed require - the Fund to assess the broader and systemic effects of country-level policies, and the associated risks, in a fundamentally different way,' he said.
The 186-nation IMF currently is responsible for economic surveillance country by country, as well as developments relating to the global economy as a whole. But Mr Strauss-Kahn said that, in practice, most of its efforts so far had been at the country level.
'One result of this has been that we have not paid enough attention to the linkages and spillovers between economies - including those that transmit through the arteries of the global financial system,' he said.

Keiser Report №20: Markets! Finance! Scandal!

IMF provides $250bn cushion against global crisis

The International Monetary Fund said Thursday it would soon inject $250 billion (Dh918 billion) into member nations' coffers to cushion the blows of the global economic crisis.

Employing a rarely used tool, the IMF said its board of governors approved the allocation to its 186 members "to provide liquidity to the global economic system by supplementing fund's member countries' foreign exchange reserves."

The action is part of a $1.1 trillion plan agreed by Group of 20 leaders in early April to tackle the global financial and economic crisis. The G20 also planned to triple IMF resources to $750 billion.

"The general SDR allocation is a key example of a cooperative multilateral response to the global crisis, offering significant support to the fund's members in this challenging period," the IMF said.

The board of governors, representing all members, approved the plan to allocate Special Drawing Rights (SDRs) equivalent to $250 billion, by far the largest general SDR allocation in the institution's six-decade history.

The disbursement takes effect on August 28.

An SDR is an interest-bearing IMF asset based on a basket of international currencies – the dollar, yen, euro and pound – that is calculated daily and which members can convert into other currencies.

The IMF has explained that some members may choose to sell part or all of their allocations to other members in exchange for hard currency – for example, to meet balance of payments needs – while other members may choose to buy more SDRs as a means of reallocating their forex reserves.

The global economy is beginning to pull out of the worst recession since World War II, the IMF says, but it expects recovery will be sluggish and financial systems remain fragile.

The board of governors approved the special SDR allocation on August 7, following its July 17 endorsement by the executive board.

The operation will increase each member country's allocation of SDRs by roughly 74 per cent of its quota in the fund, which is broadly based on the member's relative size in the global economy.

The distribution dwarfs the total 21.4 billion SDRs ($33 billion; Dh121 billion) allocated in yearly installments through two previous general allocations: 9.3 billion SDRs in 1970-1972 and 12.1 billion in 1979-1981.

The IMF also announced a special SDR allocation of $33 billion would be made on September 9.

The special allocation was authorized by an amendment to the IMF Articles of Agreement proposed in September 2007. On August 5 the United States joined 133 other members in supporting the amendment, meeting the majority threshold.

"The special allocation will make the allocation of SDRs more equitable and correct for the fact that countries that joined the fund after 1981 – more than one fifth of the current IMF membership – had never received an SDR allocation," it said.

Thirty-nine countries have joined the IMF after 1981, including Russia, the former Soviet bloc countries and Switzerland.

The largest of the new SDR allocations will go to the most advanced economies because of their relatively heavier quotas. The United States, the biggest stakeholder, will get a combined SDR allocation of 30.4 million SDRs, or roughly $47.3 billion.

The IMF underscored that "nearly $100 billion of the general allocation will go to emerging markets and developing countries, of which low-income countries will receive over $18 billion."

The general and special allocations will bring the members' total to 204 billion SDRs, about $316 billion.

IMF increases Pakistan loan to $11.3bn

WASHINGTON, The International Monetary Fund on Friday increased its loan to Pakistan by $3.2 billion to a total of $11.3 billion and said some of the money would be available immediately as the government deals with increased security costs.

The IMF said Pakistan's economy is stabilizing but the outlook for 2009/10 remains difficult, with the government needing to assist almost three million people displaced by fighting between security forces and Taliban militants.

The IMF said it would immediately release $1.2 billion to Pakistan under an IMF economic program, first agreed in November 2008 to avert a balance of payments crisis and shore up reserves.

The IMF said a portion of the new funds will be used to finance priority spending by the government until the disbursements of donor support pledged for 2009/10 are received.

The remainder will go toward bolstering Pakistan's foreign exchange reserves to ensure the economy is protected from such shocks as a surge in global oil prices.

IMF mission chief to Pakistan, Adnan Mazarei, said it was critical that donors deliver the aid without any delays.

Still, he said key economic targets under the IMF program had been met, including lower inflation, despite the difficult political and security conditions in the country.

In addition to the new financing, Pakistan would be eligible for another $1 billion in IMF resources under a special allocation of $250 billion worth of Special Drawing Rights (SDRs) for the fund's 186 member countries.

The allocation of SDRs, an international reserve asset and the fund's internal unit of account, was agreed to by a Group of 20 leaders' summit in April to help countries weather the global financial crisis.

But Mazarei said it was important to boost low tax revenue in Pakistan and urged the government to quickly implement plans for Value Added Tax and broaden tax administration reforms.

Much of Pakistan's tax burden falls disproportionally on the manufacturing sector.

"These reforms will make the economy less vulnerable, provide the steady flow of resources needed to reduce poverty and develop basic infrastructure, and strengthen the government's ability to deal with the pressing needs of the population, which are now compounded by the large number of (internally displaced people)," the IMF said.

The IMF said unresolved problems in the energy sector were undermining Pakistan's growth potential and were a major burden on public finances.

Mazarei said Pakistan had recently reached an agreement with the World Bank and Asian Development Bank on a set of measures to help improve finances of the electricity sector through increases in electricity prices.

He said by August next year electricity tariff differential subsidies would be eliminated, making additional fiscal resources available to the government.

Mazarei said fiscal discipline was a concern in Pakistan, with budget slippages caused by unexpected spending for refugees and security. In addition, there were shortfalls in revenues and excess spending by provinces, he added.

"Looking forward we're asking the authorities to maintain fiscal discipline," he said, adding that the government had put in place measures to ensure more discipline in provinces.

The IMF waived a performance target under the program related to increased supervision over banks by the central bank. Mazarei said the authorities have committed to implement the measure by Sept. 1.

Pak to formally request IMF for augmentation of loans

ISLAMABAD : Pakistan would formally request for the augmentation of loans in the International Monetary Fund (IMF) Board of Directors meeting scheduled to be held on August 7, 2009 in Washington.
The Board of Directors would also review the performance of Pakistan's economy from March end to June for the grant of third tranche of US $ 840 million under the Standby Arrangement Facility to the country,s a senior official of the Ministry of Finance told APP here.
He said that Pakistani would also formally request for the augmentation of the loan and hope that the fund on the basis of the performance of the country would augment the loan of US $ 4 billion for Pakistan.
Pakistan and IMF in November 2008 reached an 23-month Stand-By loan agreement of $7.6 billion to meet the country's balance of payments difficulties and help stabilize country's economy.

IMF to sell gold to assist low-income countries

Dominique Strauss-Kahn announces unprecedented move to assist poor countries

BASSETERRE, St. Kitts – PLANS to reduce risk exposure in economies of low-income countries will soon be actualised as the International Monetary Fund (IMF) has announced that it will sell some of its gold reserves to increase lending facilities for developing nations.

The announcement, made July 29, would make about US$8 billion accessible to low-income countries over the next two years. Although the decision has just been announced, the international financial organization has described the move as “unprecedented” and a way to significantly increase funding for more vulnerable countries during the ongoing global financial and economic crisis.

According to the IMF, interest payments on current loans for such countries would also be suspended until the end of 2011 in order to ease the economic stresses. In preparation for this move, the Board has approved a number of measures which it deems significant to increase concessional lending to up to a total of US$17 billion in the next five years.

The release stated, "Some of the money to boost IMF lending to low-income countries will come from the envisaged sales of IMF gold. The IMF Executive Board will consider a plan for the Fund to sell about 400 metric tons of gold in order to create a new income model for the institution.”

This news is refreshing for low-income countries, as some of the proceeds of those sales may be used to help provide new subsidy resources for concessional lending to those countries.

It was noted in March by the IMF that the global financial crisis poses serious threats to poorer countries and could reverse progress made over the last decade. In the words of IMF Managing Director Dominique Strauss-Kahn, the new facility is "an unprecedented scaling up of IMF support for the poorest countries, in sub-Saharan Africa and all over the world".

"Since the crisis hit, we have been listening and responding to our member countries. The scaling up in the IMF's support not only will help these low-income countries weather a crisis that is not of their making. Once the crisis has passed, it will also pave the way for a progress in the battle against poverty," Strauss-Kahn noted.

The new lending facilities would take effect later this year after the organization’s donor countries confirm their consent.

EU, Ukraine reach agreement on gas sector reform, loan

BRUSSELS, August 1 (RIA Novosti) - The European Commission said the EU and Ukraine have reached an agreement to reform the Ukrainian gas sector, and Kiev will be given an international loan to buy Russian gas.

Commission President Jose Manuel Barroso said Friday evening: "I'm extremely pleased that political agreement has been reached with Ukraine on reform of its gas sector which opens the way for a financial assistance package to be provided by the International Financial Institutions to Ukraine."

"The agreement should provide the stability needed to significantly reduce the risk of a further gas crisis between Ukraine and Russia and therefore provide the security of supply that Member States and our consumers expect," he said.

Ukraine is seeking a syndicated loan of over $4 billion from European banks to help pay its debts to Russian energy giant Gazprom until November 2009. An EC source said earlier that Ukraine could now be given up to half of the sum.

Barroso said in early June it would be difficult for the EU to help Ukraine keep up with its payments.

Russia, which supplies around one quarter of Europe's gas, briefly shut down supplies via Ukraine's pipeline system at the start of the year during a dispute with Kiev over unpaid debt.

The conflict was resolved in January, when Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, agreed deals on deliveries to and gas transit through Ukraine for 2009.

The ex-Soviet state transits around 80% of Russia's Europe-bound gas.

Sri Lanka agrees $2.5bn IMF loan

Sri Lanka has agreed a $2.5bn (£1.5bn) loan accord from the International Monetary Fund (IMF) to the help it weather the global economic crisis.

The agreement will now go the IMF board for final approval.

Reports suggest that an initial $313m will be made available immediately once the loan is approved.

The Sri Lankan government has said that the money will also be used to pay for post-war reconstruction work in the north and east of the island.

'Rebuilding reserves'

The end of the country's civil war represented a unique opportunity to undertake economic reforms, the IMF said.

"The government has formulated an ambitious programme aimed at restoring fiscal and external viability and addressing the significant reconstruction needs of the conflict-affected areas," it added.

The country has been hit by slowing tea and textile exports that have depleted the country's foreign currency reserves.

This is one area the programme will address.

"The IMF staff support this programme, specifically the government's goals of rebuilding reserves, reducing the fiscal deficit to a sustainable level and strengthening the financial sector," said the IMF.

Sri Lanka has been in discussions with the IMF regarding a loan for many months, with the government originally refusing to accept conditions laid down by the fund.

Press calls for new Non-Aligned role

Papers in the Middle East call for the Non-Aligned Movement (NAM) to find a new role and resolve internal conflicts at its meetings in Egypt's Sharm el-Sheikh.

There are calls for the movement to become a voice for the developing world and one paper says the worldwide financial crisis has given the body an opportunity to address the distribution of global wealth.

EGYPT'S PRO-GOVERNMENT AL-AHRAM

The key mission of the Non-Aligned Movement is to search for a new role and identity. In spite of the divisions and disagreements within the movement, it should stand more steadfast today than ever in the face of the globalisation that the US administration wants to impose on all countries. Consequently the movement is required to redefine the role it can play over the forthcoming period as a representative of the Third World's political and economic interests... It is also required to achieve cooperation between its members and square up to internal conflicts within it in the light of mounting ethnic problems, civil wars and border conflicts.

YEMEN'S GOVERNMENT-OWNED AL-THAWRAH

Radical changes in the world make it imperative for the Non-Aligned Movement to conduct a comprehensive review of the content, concepts and visions it formulated at the establishment stage 50 years ago... the members of the Non-Aligned Movement have an historic opportunity to prove that the movement has not grown old and can still develop and overcome any rift within itself.

UAE'S INDEPENDENT, PRO-GOVERNMENT AL-BAYAN

The movement may seem to be a valuable inheritance from the recent past of the struggle against colonialism and rejection of alliances and subordination policy. It is necessary to not marginalise its role and fragment its existing entity... the movement must become a voice for the developing world. If the G77 represents the economic side of the south, the Non-Aligned Movement is its political arm... We hope the slogan [international solidarity for peace and development] will be translated into a tangible reality to serve the interests of Third World countries.

JORDAN'S INDEPENDENT, PRO-GOVERNMENT AL-DUSTUR

Members of the Non-Aligned Movement have an important opportunity in the light of the earthquake that hit the international order as a result of the financial disaster... This makes it imperative for the summit to take courageous decisions that could lead to achieving security and stability in the world, especially in the Middle East, which has been living in tragic conditions for over 60 years as a result of the Israeli occupation.

IRAN'S CONSERVATIVE SIYASAT-E-RUZ

Although it involves 118 countries, the Non-Aligned Movement has not achieved its expected objectives with regard to the international community. It is time this movement became part of the international equation and stopped the continuation of the expansionist policies of certain major powers in the world.

IRAN'S HARD-LINE KEYHAN

The Non-Aligned Movement includes two-thirds of the world's countries, but only 20% of the GDP of the world belongs to them... As a major, influential and defining member, one of Tehran's recommendations for the Sharm el-Sheikh summit is to reform the UN and Security Council structure and increase the role and power of NAM countries in this regard.

ABD-AL-RAZZAQ AL-DAHSH IN LIBYA'S AL-JAMAHIRIYAH

Muammar Gaddafi is one of the strongest voices still calling for achieving international democracy and wealth sharing. The world cannot remain under the rule of an international minority. About 80% of the world's wealth cannot remain under the control of less than one-fifth of the world's population. This is why the presence of the [Libyan] leader is intended to give the momentum the summit needs in these circumstances.

WB, govt agree on 13.5pc raise in power tariff

ISLAMABAD- The government and the World Bank agreed here Wednesday on what the Finance Ministry officials called ‘inevitable’ 13.5 per cent increase in power tariff during the current financial year.
The agreement was reached at the end of three-day talks between the Government and the World Bank on the cumbersome power tariff issues.
“How much and when to pass on this increase to masses would be the political decision of the government,” the officials said adding that the government had convinced the experts of the World Bank and the Asian Development Bank that the prevalent energy crisis was not permitting it to increase the power tariff at once.
Finance Ministry spokesperson Asif Bajwa confirmed to The Nation that Banks missions and the government agreed on calculations of Rs 55 billion as the piled up difference between the cost of power generation and consumer price of electricity. “They (WB and ADB) have told us that this amount has to be passed on to consumers within this financial year” he added.
He said that since the financial institutions had left the timing of this inevitable increase to the government, therefore, there was no question of any deadline before the end of current financial year on June 30, 2010.
Bajwa further told The Nation that three-day negotiations concluded that Rs 122 billion were piled up on account of differential of price and generation cost of the Wapda. The government, he added, had undertaken to take away Rs 55 billion as the budgetary cost for the current financial year. “We’ll have to go for supplementary grants to adjust this amount,” he said answering this scribe’s question.

RHJ says Opel talks at advanced stage

FILE - In this March 23, 2009 file picture, an Opel logo is seen at an Opel car dealer in Oberursel, central Germany. Investor RHJ International says it is in advanced negotiations with General Motors Corp. on taking a majority stake in the U.S. auto maker's European Opel unit. RHJ, also known as Ripplewood, says in a brief statement Monday July 13, 2009 that discussions with GM "have been taking place over a number of weeks and are at an advanced stage." (AP Photo/Michael Probst, file) (Michael Probst - AP)

BERLIN -- Investor RHJ International SA said Monday it is in advanced negotiations with General Motors Corp. on possibly taking a majority stake in the U.S. auto maker's European Opel unit.

Brussels-based RHJ said in a brief statement that discussions with GM "have been taking place over a number of weeks and are at an advanced stage."

The company did not specify how big a stake it aims to take or what the talks are focused on. The announcement came even as Canadian auto parts maker Magna International Inc. and Russia's Sberbank continue their own talks with GM to rescue Opel.

German officials have stressed that a deal earlier this year for Magna and Sberbank to move ahead with a takeover of Opel is preliminary and have said that until a final agreement is nailed down other potential suitors remain in play - including China's Beijing Automotive Industry Corp.

Last week, GM confirmed that BAIC had put in its own bid for Ruesselsheim, Germany-based Adam Opel GmbH, whose brands include Opel and Vauxhall.

Italy's Fiat Group SpA, originally Magna's main rival, pulled out of talks with the German government in June over Opel, citing what it said then were unreasonable funding demands. It has said it remains interested, however.

Detroit-based GM, which emerged from bankruptcy protection last week, has remade itself as a smaller, leaner automaker in a broad restructuring that is slashing the company's units and brands.

RHJ calls itself a diversified holding company that "generally acquires businesses that are undermanaged" yet have strong growth potential.

Its holdings - from which it derives its revenue - include majority stakes in auto parts makers Asahi Tec Corp. and Niles Co. Ltd., both of Japan, and Belgium's Honsel International Technologies SA. It also holds stakes in resort operator Phoenix Resort K.K. and Columbia Music Entertainment Inc. in Japan.

According to its preliminary income statement, the company posted revenues of euro3 billion ($4.2 billion) in the fiscal year ending March 31 compared with nearly euro4.2 billion a year earlier. The full report is scheduled to be released July 31.

European banks in spotlight as Baltic crisis hits Sweden

Swedish banks have lent more than $75bn (£46bn) to Latvia, Lithuania and Estonia, led by Swedbank and SEB

Sweden is preparing to part-nationalise banks exposed to the economic collapse in Baltic states, raising fears that a string of Western European countries could face similar fallout from rising defaults in the former Communist bloc.

Finance Minister Anders Borg said the Swedish state will buy stakes in distressed banks if they fall deeper into trouble but will impose draconian terms.
"We want to be very clear so that people know what could happen," he said. "If the banks come to us with big credit losses, where they have previously earned big money on lending, then shareholders will take the consequences. We're going to be clear that insolvent banks that don't meet legal requirements will see an injection of funds, primarily through government ownership."
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Latvia rings alarm bell for Europe
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Swedish banks have lent more than $75bn (£46bn) to Latvia, Lithuania and Estonia, led by Swedbank and SEB.
Hakan Berg, Swedbank's head of operations in the Baltics, said his bank can cope with the shock losses from devaluations across the region. "We have tested the worst-case scenarios. We have adequate capital. It would not bring the bank down," he said.
The dramatic situation in Latvia went from bad to worse on Thursday as overnight rates reached 140pc, a sign that the country's currency peg in Europe's Exchange Mechanism is close to snapping. Credit default swaps measuring risk on Latvian debt rocketed above 750 after Latvia's treasury failed to sell a single note at a $100bn debt auction on Wednesday.
Latvian premier Valdis Dombrovskis said the country needs help "fast" from the European commission and International Monetary Fund, which has withheld the latest tranche of its €7.5bn (£6.6bn) bail-out because of the surging budget deficit. "Fears of a domino effect in the region are to a certain extent justified," he said.
The Baltic trio are all defending currency pegs at overvalued rates in a region where every other country (except Finland) has devalued by a third or so. They are each caught in a trap after allowing mortgage lending in euros and Swiss francs to mushroom out of control. However, there are ways of dealing with this as Argentina proved by passing a law that switched all dollar mortgages into pesos in 2001 – entailing a 70pc "haircut" for foreign creditors.
It is understood that Latvia is quietly exploring options to shield its homeowners from the exchange risk. This risks a bitter clash with Brussels, which has been insisting on peg discipline for ideological reasons – against the advice of the IMF. But the current course amounts to a slow crucifixion of the Baltic economies. Latvia's GDP is expected to contract by 18pc this year, and Lithuania's by 15pc.
Samir Patel from BH2 Research said the pegs are causing "monetary asphyxiation" and cannot be endured for long by any democracy. The inevitable devaluations may reach 50pc or more given the experiences of Thailand (52pc) and Indonesia (81pc) in the East Asia crisis. "Of course devaluations will unleash nasty economic and financial demons, but so will stubbornly holding currencies aloft. The demons are simply different," he said.
It is unclear whether Sweden's bank troubles are the first sign of broader strains for West European banks, which have lent $1.6 trillion to the former Communist bloc. Sweden's exposure to the region at 22pc of GDP is not the highest. Austria's exposure is 70pc of GDP, with $246bn outstanding in Central Europe, Ukraine and the Balkans.
The situation varies from country to country, with the lowest risk in Poland and the Czech Republic. Even so, Danske Bank warns that Austria could face losses reaching 11pc of GDP in an "ugly scenario". Sweden's losses would be 6pc, and Belgium's 3.6pc, the Netherlands' 2.3pc, and Italy's 1.5pc.
"The risk of contagion is serious, Nobody thought Iceland would set off a crisis in Hungary last year, but it did, and the same could happen again," said Lars Christensen, East Europe expert at Danske Bank.

Abu Dhabi makes $2.5-billion from Barclays sale

Fears raised of further sovereign wealth fund sales

Abu Dhabi sold more than 11 per cent of Barclays, making $2.5-billion (U.S.) from an investment that helped the British bank through the financial crisis and raising fears more may cash in on a recent rally in bank shares.
The Abu Dhabi government-owned International Petroleum Investment Company (IPIC) on Tuesday sold about £3.5 billion worth of instruments that are due to convert into Barclays shares by the end of June.
The shares were sold at 265 pence a share, said Credit Suisse, which handled the sale. The placing was at a 16 per cent discount from Monday's close of 316.25p.
Shares in Barclays fell 13 per cent to 274.5p by 1120 GMT, the biggest FTSE 100 faller. Other bank shares fell as the sale soaked up demand for stock.
The sale also stoked fears that other big Barclays investors may also look to take profits, and that other sovereign wealth funds might be looking to exit the investments they have made. Barclays raised funds from Qatar, China, Japan and Singapore investors last year.
“This tactical move brings into question any foreign investment in major companies – in particular investment from the Middle East,” said Manoj Ladwa, senior trader at London spread betters ETX Capital. “I would expect further falls from companies with similar exposure.”
“It's clearly a negative signal for the banking sector,” said David Thebault, head of quantitative sales trading at Global Equities in Paris. “After stepping in at the beginning of the credit crisis to buy stakes in troubled banks, these guys (Abu Dhabi) are now saying: ‘the recovery rally in financial stocks is over and the shares are now ripe for profit taking'.”
Singapore's state investor Temasek owns just under 2 per cent of Barclays and its incoming chief executive may cut its holding in banks as he reallocates money to energy and consumer sectors, Nomura analysts said earlier on Tuesday.
IPIC, an investment vehicle of the Abu Dhabi royal family, will have almost doubled its money since buying the mandatorily convertible notes (MCNs) in October, when Barclays raised funds privately rather than take a handout from the UK taxpayer.
The fundraising angered existing shareholders at the time. They said the Middle East investors were offered more attractive terms than they could get.
The MCNs are due to convert into about 1.3 billion shares at 153p per share before the end of this month. Including the conversion of other MCNs sold last year but excluding warrants held by Abu Dhabi and others, the stake sold represents just over 11 per cent of the British bank.
Barclays shares have soared more than five-fold in the last three months, after Britain's financial regulator said its capital was adequate.
IPIC said it was also considering selling £1.25 billion of another capital instrument it bought at the same time – reserve capital instruments that pay annual interest of 14 per cent – but had no plans to sell its warrants.
Abu Dhabi invested up to £4.75 billion in Barclays, including £1.5 billion on warrants exercisable at 197p. Its stake will fall to about 5-6 per cent with just the exercised warrants, from potentially just over 16 per cent.
IPIC, which in March bought a 9 per cent stake in German auto maker Daimler, said it had a “high regard” for Barclays and its management and strategy, but it was focusing its strategy on hydrocarbon-related investments.
Sheikh Mansour bin Zayed Al Nahyan, a member of the Abu Dhabi royal who is chairman of IPIC and oversaw the investment, has an estimated $4.9-billion fortune and earlier this year bought English soccer club Manchester City.

Savvy Gulf funds question global rally

Clouds gather over Abu Dhabi's Sheikh Zayed mosque, the third largest in the world. Financiers in the emirates are employing defensive tactics as they fear a new storm may hit equities Photo: AFP

Abu-Dhabi's retreat from Barclays Bank is a warning sign that sophisticated investors in the Gulf think the rally in global equities is starting to look mature.

As a result, they have begun to rotate out of "risk assets" into more defensive positions.
A senior manager for a Gulf fund said the shift away from Western banks was largely a tactical play. "They'll come back when shares are cheaper again, perhaps much cheaper. They are not fools," he said.

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The super-rich Emirate is likely to pocket around £1.5bn on its brief fling with Barclays. If the Wall Street adage - "sell in May and come back on Labour Day" - holds true this year, the exit from UK bank stocks may prove deft timing.
Qatar's Investment Authority (QIA) has also taken profits on Barclays, trimming its stake from 6.4pc to 5.8pc in April. It moved early, but wealth funds often use the technique of "layering" in and out of positions.
"They like to get out before they see the peak," said Stephen Jen, head of currencies at Blue Gold Capital and an expert on soverign wealth funds.
"They are not under pressure to pick tops and bottoms, so they go in at the knees and out at the shoulder. We have had have had a tremendous rally with the S&P 500 up over 40pc and there is a lot of concern in the markets that we could go into a second 'U' (of a `W'-shaped downturn)," he said.
The petro-states of the Gulf account for roughly half the $2 trillion of assets held by sovereign wealth funds worldwide. The giant is the Abu Dhabi Investment Authority (ADIA), which had an estimate $875bn at the top of the boom. It is the power behind the International Petroleum Investment Company (IPIC) in the Barclays deal.
After some false starts on, ADIA has emerged as a financial brain-trust that can compete toe-to-toe with Goldman Sachs or any private equity group. "They are among the best investors worldwide," says Larry Fink, head of BlackRock.
In the early 1990s ADIA was one of few to see that Japan was going through a deep structural crisis. It liquidated holdings in Tokyo while others held on as one bear market after another roared and fizzled. After twenty years the Nikkei is still down by three quarters.
ADIA's team, recruited globally and run by an Abu Dhabi royal who once traded European equities, is alert to the risk that this downturn could also prove intractable. A Japanese-style "Lost Decade" for the whole world may be unlikely after the enormous stimulus thrown at the crisis, but the emergency measures themselves create sovereign risk.
Like Norway's Petroleum Fund, ADIA holds a wide range of global assets in amounts that be sold easily and rarely reach a level where they set off protectionist worries - although it has just bought 9pc of Daimler, coming in as a white knight at the bottom of the market.
Gas-rich Qatar comes later to the wealth fund game. After a bad run buying Chelsea Barracks and London's Shard of Glass at the top of the bubble, and botching a bid for Sainsbury's, it has shaken up its funds and brought in top talent from around the world. It will not make the same error twice.

IMF lends $17bn to stricken Romania

Lending: The IMF has lent billions to struggling Romania, with others not far behind in the queue

The International Monetary Fund has approved a $17.1billion standby loan for Romania to cushion the effects of the world financial crisis.
A total of $6.6billion is available immediately, and the rest in installments, subject to quarterly review.
Eastern European countries were hard hit by the credit crunch after Lehman Brothers collapsed.

Even countries that had no direct exposure to souring U.S. assets suffered when financing dried up.