The Great Debate UK

English divorce law is recipe for financial strife

–The author is a Reuters Breakingviews columnist. The opinions expressed are her own–

It’s hard to feel sympathy when millionaires divorce. But after some mega-payouts in recent English court cases, a review of the law is welcome. While marriage isn’t a business transaction, the wealthy in particular could benefit from being able to agree legally enforceable pre-nuptial agreements.

England’s divorce laws are a mess. That creates huge uncertainty as to the division of assets when couples separate. Unlike the formulaic divisions of continental Europe, a London divorce can seem like a crapshoot. That really matters when the numbers involved are huge.

To anyone in business and finance accustomed to dealing with big money and thick contracts, pre-nuptial agreements look like the obvious solution. But until recently, these had little force. That changed in October, when a dispute between German heiress Katrin Radmacher and her French ex-husband, a former banker, led to a Supreme Court ruling that pre-nups would be decisive so long as they were “fair”.

The snag is that this still leaves plenty of scope for disagreement as to what is “fair” — and that decision is in the hands of English judges. There is no reason, in principle, why adults should not be free to contract with one another to spare needless disputes and expense later. So it would be better if the law concerning pre-nups were set out on the statute books rather than subject to courts’ discretion.

For any such regime to be robust, it would need the two parties to be required to fully disclose their assets, and to take independent legal advice. After all, any transaction should involve some good due diligence.

When our biggest challenge is ourselves

-Carol Hall is a partner and new Head of Walkers’ Investment Funds Group in Hong Kong where she specializes in hedge funds and private equity funds and advises on general corporate matters. The opinions expressed are her own.The opinions expressed are her own. Reuters will host a “follow-the-sun” live blog on Monday, March 8, 2010, International Women’s Day. Please tune in.–-

Seeing women succeed in management positions is uplifting and empowering. But I think it is fair to say that the challenges women face in the workplace depend very much on the profession. There are certainly some professions that view women and men as equals at all levels, but some professions present more of an obstacle to women. As a general rule, women are still underrepresented in the senior management level of most professions, particularly related to finance.

In my view, one of the biggest challenges that women still face in the workplace, regardless of their industry, is themselves.  We think we have to be the Superwoman – the high-flyer at work, the super Mom, the darling daughter, all things to all people. We try to participate in the classroom. We bake the cookies for bake sales. We help out at scout meetings. In short, we try to do everything. It’s likely we’ve all been guilty of trying to do everything at one time or another.

An important key to our success is to realise it is not possible to do everything and do it well. We need to plan, prioritise and set realistic expectations as to what we can do. We also need to realise that as more women succeed and gain prominence in business, there will be more pressure on women to do it all.

In the global financial and legal industries there is an expectation of long hours and extensive commitment. There is a struggle for power and an expectation to win – all the time. But that doesn’t mean we need to sacrifice a work-life balance.

Personally, I’ve benefitted from working at a firm that highly values diversity of gender and ethnicity within its management.  There is a real camaraderie on the local level and on the global level which makes for a great working environment.

The firm is very business orientated and there is a strong commitment to delivering a high quality work product and to developing our various practice groups to meet the challenges of an ever changing business landscape.

“Green growth” strategy viable for African economy

-Michael Keating is director of the Africa Progress Panel. The opinions expressed are his own.-

After a decade of solid progress Africa is now facing the daunting task – at a time of economic crisis – of maintaining stability, economic growth and employment, addressing food security and combating climate change. No country on the continent is escaping the impact of volatile fuel and commodity prices, the drop in global demand and trade.

The global economic crisis, however, is serving as a wake-up call for both African leaders and their international partners. The Africa Progress Panel’s 2009 report, launched Wednesday in Cape Town by panel members Kofi Annan, Graca Machel and Linah Mohohlo, argues just this.

Africa is rich in potential and there is an, often overlooked, opportunity to be seized. More investment is needed in Africa’s real economy, particularly infrastructure, renewable energy, agriculture and communications. The explosion of mobile telephony and spread of financial services to the poor have shown the potential for innovative development models.

There is also an opportunity to set a low carbon growth and development agenda, investing in the Africa’s vast solar, hydro, wind, thermal and biomass resources. A continental “green growth” strategy might attract the financial and technological support of richer countries, not least as Africa can contribute solutions to the global climate change challenge. Investment in such initiatives will not only generate jobs and boost trade in Africa, but also create markets for the world.

To cope with crisis and to seize these opportunities, Africa needs determined and accountable leadership at the national level and concerted presence and negotiation capacity on the global stage. Sceptics see both in short supply and fear that crisis will unravel progress on governance and accountability.

But this does not mean that the rest of the world can walk away. Whilst the primary responsibility rests with African leaders, businesses can play a key role, as can Africa’s trading and donor partners.

Europe votes conservative in crisis

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Europe’s voters trust conservatives more than the left to handle the most severe financial and economic crisis since World War Two.

That was the key message of European Parliament elections that produced strong results for incumbent conservatives in Germany, France, Italy and Poland, but heavy defeats for governing socialists in Britain, Spain and Hungary.

The vote may ease political pressure for big government spending programmes to revive the economy, but it is unlikely to slow the drive for tighter financial regulation, which the next European Union legislature is set to make a key cause.

The pan-European poll should help low-key conservative Jose Manuel Barroso secure a second five-year term at the head of the executive European Commission with a mandate to extend supervision to all financial markets and institutions.

The strong showing for green parties means legislation to fight climate change and promoting clean energy will remain high on the new assembly’s agenda. In Germany, which holds Europe’s most important national election this year on Sept. 27, Chancellor Angela Merkel’s Christian Democrats emerged with a good chance of ditching their Social Democratic coalition partners and forming a centre-right coalition with the liberal Free Democrats instead.

The mainstream left’s retreat across the continent, except for Greece and Slovakia, was one of the big stories of the poll. Socialist floor leader Martin Schultz called it “a very sad evening for social democracy in Europe”. Environmentalist greens were the main beneficiaries in France and Germany. But in many countries, working class voters stayed home or switched to the extreme right, the far left or anti-EU nationalists.

Liquidity & inflation, lessons from the 1940s

– John Kemp is a Reuters columnist. The views expressed are his own –

LONDON, April 24 (Reuters) – Comparisons between the current downturn and the Great Contraction of 1929-33 have multiplied as commentators and investors have tried to forecast the recession’s likely depth and duration. But as the U.S. economy shows signs of stabilising and attention switches to future inflation the more useful comparison is actually with the 1940s. The massive build up of highly liquid assets (cash and bank balances) during the Second World War is the closest parallel to the current escalation of bank reserves as a result of quantitative easing programmes in the United States and elsewhere around the world. The relatively modest pick up in consumer prices after the war ended may hold lessons for the outlook for inflation over the next five years. There is a risk the commodity markets may have over-estimated the speed with which excess liquidity will be transformed into higher inflation and higher prices. The outbreak of war was accompanied by an unprecedented build up of liquidity in the U.S. financial system. Deficit-financed spending on armaments and the war effort finally eliminated the persistent under-employment of the previous decade and ensured strong growth in corporate revenues and household incomes. At the same time, households and firms had little opportunity to spend the money. The Federal Reserve imposed strict limits on consumer credit from September 1941 onwards. Consumer durables disappeared from the shops as the government first restricted then banned production of motor vehicles, refrigerators, washing machines and other electrical appliances for civilian use to conserve output capacity for the war effort. The result was a massive increase in cash and bank balances. After having been flat for the previous 20 years, the amount of cash in circulation quadrupled from $6 billion to $25 billion between 1939 and 1945. Bank deposits more than doubled from $43 billion to $101 billion (https://customers.reuters.com/d/graphics/POSTWARADJUSTMENT.pdf).    But while inflation rose when wartime price controls were lifted, the increase was nowhere near as much as expected given the massive overhang of liquidity which had built up. To paraphrase Arthur Conan Doyle about the dog that did not bark at night time, the surprise was not that inflation rose so much after the war, but that it rose so little. Consumer prices rose just 8 percent in 1946, 14 percent in 1947 and 8 percent in 1948, and actually declined in 1949 — and this was after the removal of extensive price controls that had limited increases for 5 years. There was no inflation outbreak.

LIQUIDITY DEMAND In terms of the standard monetary equation (MV=PT), where changes in the money stock (M) and demand for liquid balances (cash and bank deposits) (V) are related to changes in output (T) and the price level (P), the increase in currency and bank deposits (M) was largely absorbed by an increased desire to hold liquid balances (a fall in V) by firms and households even after the war was over. In non-technical terms, increased demand for liquid balances persisted for several years after the conflict had ended and helped mop up the increased amount of cash and bank deposits. Increased demand for liquid balances ensured most of the extra liquidity created during the conflict remained safely bottled up within the banking system. In their seminal “Monetary History of the United States”, Milton Friedman and Anna Jacobson Schwartz attributed increased demand for savings in the form of currency and bank deposits to widespread fear about a resumption of the depression and mass unemployment once wartime spending ended. Even though the economy continued to grow strongly, households behaved as if another slump was imminent, and chose to save rather than spend accordingly. Experience after the Civil War and World War One had taught them to fear the war’s end would be accompanied by a sharp recovery driven by speculation and inventory building, promptly followed by an equally sharp downturn. Worries about a return of unemployment caused households and firms to hold far more cash than had been the case in the 1930s. As a result, much of the “excess liquidity” which caused policymakers to fear a surge in inflation was not, in fact, “excess” at all. Only when the outbreak of the Korean War (1950) removed the spectre of unemployment and deflation did the liquidity overhang become a severe problem for inflation and monetary policy, forcing the Fed to begin a sustained campaign of interest rate increases and other measures to mop up excess liquidity. The Friedman-Schwartz interpretation highlights the importance of household and corporate expectations when deciding how much liquidity in cash and bank balances the private sector wants to maintain, and whether increases in the money supply will have an impact on inflation. So long as households and firms fear recession and unemployment, high demand for liquid balances and a cautious approach to spending and borrowing will prevent even sharp increases in the money supply from becoming inflationary. Only once the threat of renewed slump and unemployment has receded will money supply growth start to show in spending and prices.

INFLATION POSTPONED The current build up of huge amounts of liquidity in the banking system as a result of quantitative easing, and soon from the monetisation of a substantial proportion of the government’s budget deficit, is resulting in a similar liquidity overhang. But the experience of the 1940s suggests the market may be over-estimating the inflationary potential. Everything depends on how far the searing experience of the past 18 months produces a lasting shift in saving and borrowing behaviour, or is quickly forgotten. But over the next 18 months, fear of unemployment and the risk of a double-dip recession are likely to restrain corporate and individual spending, as well as bank lending, keeping many of those apparently excess bank reserves safely bottled up in the banking system. Even beyond that, the need to rebuild devastated portfolios and a more cautious approach to spending and saving could result in a one-off increase in demand for currency and bank balances that will soak up some if not all of the recent rise in money supply. The medium-term (3-5 year) outlook is still for faster rate of inflation than the advanced economies have been used to over the past decade (perhaps 3-4 percent per year). But expectations of a huge inflationary breakout may prove wide of the mark. If true, corporate bonds at good spreads over benchmark government rates could provide unexpectedly attractive returns to investors. But investors betting on a resurgence of commodity prices could face a longer wait than anticipated, with contango payments in the meantime eroding the advantage of any eventual rise in the flat price.

Look to deal numbers for M&A green shoots

LONDON, April 23 (Reuters) – Volumes may be down, but there are green shoots appearing in the M&A market after the frozen winter of financial distress. This doesn’t mean a return to the boom years of a few years ago. It could take years for deal values to reach the dizzy heights of the second quarter of 2007, given falls in asset prices. But the number of deals is recovering fast. This fell off a cliff in Q1 of 2009 and at just over 8,000 deals was the lowest global tally since Q3 2004. The week starting March 29 was the busiest of the year in terms of deals announced, with 821 transactions, and the 5th busiest since Sept. 2008, according to Thomson Reuters data. There are still some complications (the disappearance of loan-funding, equity market volatility to name just two), but investors seem to be back on the hunt for bargains. M&A deals may tend to be pretty hit and miss (indeed the failure rate is high) but historically the best returns from deals have been achieved on those struck during economic downturns, when activity is low. True, M&A has been fuelled so far this year by a spate of large deals in the pharmaceuticals sector, an area that has been least affected by the crunch, with healthcare accounting for 27 percent of the total of $472 billion of announced deals during Q1. Pfizer’s <PFE.N> $68 billion acquisition of Wyeth <WYE.N> and Merck’s <MRK.N> $41 billion takeover of Schering-Plough <SGP.N> were the blockbusters. But this was only just ahead of the distressed financials sector at 25 percent. And it is this area of activity which will grab a significant share of deals (by volume if not by value) as banks, insurers and fund management companies rejig their portfolios and vulture investors pick off the walking wounded. The restructurings resulting from the meltdown in financial services are just getting underway. Look at the businesses UBS <UBSN.VX> is  selling, Barclays’ <BARC.L> disposal of iShares, or indeed the auctions of Citigroup <C.N> and Royal Bank of Scotland <RBS.L> units in Asia. Banking groups are under pressure to offload non-core businesses to strengthen weakened balance sheets and therefore are less sensitive to value. Add the assets which governments will have to repackage or offload once they have feel confident they have stabilised the sector and the deal pipeline starts to look positively healthy. No wonder some investment bankers — especially those in boutiques and which thus have no conflicts with mainstream financial businesses — are rubbing their hands. The main constraint on buyers (other than those lucky or sensible enough to still be sitting on cash) is obtaining financing. It is possible for companies to raise money for deals that seem to investors to make strategic sense. Roche <ROG.VX> of Switzerland, for instance, tapped the bond markets for a whopping $39 billion to fund its Genentech buy-out. But stock market investors aren’t flush with cash and are wary of giving companies a free hand. UK’s Pearson <PSON.L> recently had to pull a small share issue that was designed to give it a cash pile from which to make opportunistic acquisitions. Meanwhile, it is still difficult to obtain loan finance from banks, and the bond markets are only really available to larger companies. Even so, with debt-strapped companies being forced to sell off assets to meet covenants and prices relatively low, there should be plenty of action this year. – At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. (Edited by David Evans)