Summit Notebook

from Global News Journal:

Waiting for Europe’s “appropriate response”

Will the euro zone finally act decisively?

Investors are hoping for something big from European leaders at the EU summit on Oct. 23 and of the Group of 20 on Nov. 3. But they also know the 17 nations of the euro have a habit of offering delayed, half-hearted rescues that have cost them credibility.

So there's been a lot of "urging" and "warning" in Brussels lately -- politicians and central bankers have all been demanding Europe act as international alarm grows that its sovereign debt problems may drag the world into recession. "Further delays are only aggravating the situation," said European Central Bank President Jean-Claude Trichet on Tuesday in his last appearance at the European Parliament, before he hands over the post to Mario Draghi on Nov. 1.

A day earlier, Germany's Deputy Finance Minister, Joerg Asmussen, at the parliament to promote his candidacy to join the ECB's board, made his call, saying "cooperation has to be increased," across the euro members, divided as to who should pay to rescue the heavily indebted nations of southern Europe. "I want to see a solution for debt sustainability for Greece," Asmussen said. So do so many others, especially Greek Prime Minister George Papandreou, who in Brussels on Thursday said it was a "crucial element to make the necessary decisions concerning Greece."

The European Roundtable of Industrialists, a business lobby of multinationals ranging from French car maker Renault to Spain's Telefonica, has also come through Brussels to make its point. The group's head, Leif Johansson, who is also chairman of Swedish phone maker Ericsson, warned that if European leaders fail to act, businesses could see a repeat of the liquidity freeze that followed the collapse of U.S. investment bank Lehman Brothers.

"The worst element of the 2008/2009 crisis was when liquidity froze," he said. "The worst scenario we have right now is that that could happen again ... and there is a real downside risk." 

The Oct. 23 summit is being billed as a make-or-break event where Germany and France, the main powers in the euro zone, must come up with the solutions investors want. A meeting last Sunday between German Chancellor Angela Merkel and French President Nicholas Sarkozy, and their promise of a comprehensive strategy, suggests there will be a serious attempt to put forward a framework to try to resolve the crisis.

Bank regulator Walsh has pragmatic philosophy on financial crisis repeat

John Walsh has spent many years in Washington — having worked at the Senate Banking Committee, the Treasury Department, and now as  acting Comptroller of the Currency — and has a bit of perspective on government reaction to crises over the years.

So he has a fairly pragmatic philosophical approach on whether U.S. efforts will succeed in making sure the financial crisis does not recur.

“It is hubris to imagine that we can anticipate all the things that can go wrong and prevent them. That has never happened in human history, I don’t know why it would happen here,” Walsh said at the Reuters Future Face of Finance summit.

The Dodd-Frank set of Wall Street reforms includes components that are “on point to try to avoid such a thing happening again,” he said.

The Federal Reserve and other bank regulators are “absolutely right” to add liquidity during a crisis, but that is different from having an expectation that large financial institutions must be saved from failing, Walsh said.

“It’s that challenge of trying to figure out who’s the dead guy in the crowd as the whole boat seems to be headed for the bottom — how do you keep the boat afloat but still weed out the bad actors on the boat that have gotten themselves into insolvency?” he said.

And with a bit of a twist on philosopher George Santayana’s famous saying, Walsh adds: “Those that have studied financial history know we’re doomed to repeat it.”

Can a U.S. regulator simply talk banks into lending? FDIC’s Bair is trying

When a regulator talks, do banks listen?

Banks are returning to profitability after the financial crisis and the head of the Federal Deposit Insurance Corp is trying to nudge them into lending again.

“You can’t force them to lend,” FDIC chairman Sheila Bair says. “But I think jawboning helps.”

The U.S. banking industry reaped big profits in 2010 as the financial crisis faded further into the distance.

If all the regulator can do is try to talk them into increasing lending, why should banks listen?

“Well, they don’t need to,” Bair said at the Reuters Future Face of Finance Summit.  But banks do listen to regulators, the healthier institutions will be “leading that charge” before others, and it would be a bad idea to try to force lending, she said.

Bair, who is leaving the FDIC in June, says people tend to overestimate the power of a regulator.

from MacroScope:

APEC’s robots stealing the show

A guide at the "Japanese Experience" exhibition talks to Miim, the Karaoke pal robot, on the sidelines of the APEC meetings in Yokohama, Japan on Nov. 10. REUTERS/Yuriko Nakao

    Miim is one of the more popular delegates at the APEC meetings in Yokohama Japan. She sings. She dances. She tosses her shoulder length hair. She may not be able to spout an alphabet soup of APEC acronyms like the other Asia-Pacific delegates. But she's still pretty lively. For a robot.

    This week's meetings of the Asia-Pacific Economic Cooperation forum have been earnest and most comprehensive . Foreign and trade ministers issued a 20-page statement about all the things they talked about -- a giant free trade zone, protectionism, the Doha round, easing restrictions on businesses, simplifying customs procedures, promoting green industries, cooperating on health and security, you name it. They also have been, and pardon my French here, excruciatingly dull. So far, the meetings and their stupefying statements have been a testimonial to Japan's skill at stating the ambiguous. Call it the opaque meetings. Journalists from around the Pacific rim have been desperately trying to find news as the 21 APEC leaders gather for their annual pow-wow this weekend.

     The annual "silly shirts"  photo shoot, in which leaders don native attire for the class picture of their summit is usually good news fodder, but is going to be a  big let-down this year. The leaders are merely being asked to show up wearing "smart casual" for the photo shoot on Saturday night, before they head inside for a Kabuki show.

   Which brings us back to Miim, the karaoke robot. She, er it, is one of 130 exhibits on display at  "Japan Experience", a government-sponsored exhibition in  the Pacific Yokohama convention center where the APEC meetings are taking place. The exhibit also features "personal mobility vehicles",  a cyborg suit named HAL that enables the wearer to lift really heavy stuff and perform heroically in disaster relief, a talking delivery robot, cute robotic seal pets for use in pediatric therapy, and much other cool stuff . 

    "Welcome to APEC Japan 2010," the anatomically correct Miim says. "This exhibition shows Japan's strengths and attractions. Please see, feel and touch advanced technology and initiatives of Japan."

Avoiding another financial crisis

The Global Exchanges & Trading Summit takes place as lawmakers and regulators craft new rules to avoid a repeat of the financial crisis. The rising chorus for more transparency in capital markets could drive a host of new derivatives to exchanges and clearinghouses, propelling them out of the recession, but growing calls for a clampdown on speculation and automated trading could hit some of the world’s most powerful dealers and investors, undercutting the exchanges that rely on them. High-frequency trading is behind much of the spike in volumes over the last year, but as volatility drops from crisis-era highs, traders of all kinds are forced to reevaluate strategies, and exchanges are maneuvering to attract that business. A couple years after a period of blockbuster mergers, investors wonder whether the heavyweight exchange operators are angling for another round. Join us March 29-31 as we ask some of the biggest players in the industry to share their insights and outlook for the industry at the Reuters Global Exchanges and Trading Summit which will take place in New York, London, Hong Kong.

from Funds Hub:

UCITS IV Everyone

It is early days at the Reuters fund summit in Luxembourg, but already a few themes are building. For one thing, no one seems to be too negative about the investment climate.

For the most part, however, the attendees are focused on how the industry will recuperate from the battering it has suffered during the financial crisis. Again, there appears to be a degree of optimism. Most of the talk is about UCITS IV, which is fundspeak for a new kind of pan-European fund that is easier to distribute.

Essentially, it a) allows fund managers to register a fund in one place and have it listed across Europe and b) allows for smaller, local funds to be fed into it.

The big hope is that this will both build the industry and save money at the same time. Hence the optimism.

It does little, however, to address the underlying problem facing fund managers -- to get distrusting retail investors back into a market that many are still afraid of.

Thain says put shareholders first

John Thain says he put shareholders first and his interests second in deciding to sell Merrill Lynch to Bank of America.

Thain, speaking at the Reuters Global Finance Summit in New York, said a deal to sell a partial stake in Merrill Lynch to Goldman Sachs would have been better for him, but the sale of the entire Wall Street firm to Bank of America was the best outcome for shareholders.

Over a fateful weekend in September 2008, as Lehman hurtled toward bankruptcy, AIG floundered and the financial system looked into the abyss, Merrill held discussions with Bank of America, Goldman Sachs and Morgan Stanley for various transactions, Thain said.

Initial discussions with Bank of America involved either the sale of the entire company or a 9.9 percent stake and a multibillion credit line, the former Merrill CEO said.

With Goldman, discussions only involved the stake sale and the credit line. Discussions with Morgan Stanley about a strategic transaction were brief, he said.

“When Bank of America offered $29 a share on Sunday afternoon, it was clear to me that was the best thing for our shareholders,” Thain said. 

Thain was fired by Bank of America soon after the deal closed, and is now considering a career in private equity and other jobs. 

from Funds Hub:

A “remote, silent whirlwind”?

We may have just lived through the biggest financial crisis in 80 years, but its impact may still not have been big enough for people to learn the right lessons for next time.

Philip Wood, special global counsel at Allen & Overy, told today's Reuters Restructuring Summit in London's Canary Wharf that the effects on the Western world's populace of the credit crisis, while large, have simply not reached the proportions of 80 years ago.

"Do people remember (the lessons from a crisis)? Sometimes they do."

It took 140 years for the British to get over the South Sea Bubble of 1720 and introduce the Companies Act in 1862, he said.

"German inflation of the 1920s still casts a shadow over the German folk memory," he added.

"(But) I'm not too sure people will remember much about this one. Apart from a few unpopular people losing their jobs, it's not hit the population in the same way the Great Depression has, where people were hungry... it was catastrophic.

"We've lost a year's GDP, but for most people it's been a remote, silent whirlwind."

A “cash cow”

By Don Durfee

Safe havens have been few and far between during the global economic crisis, but one has been fairly reliable: infrastructure. So it’s not surprising that many companies are betting on the biggest infrastructure opportunity of them all, China’s $585 billion spending package.

One of those is NWS Holdings, a subsidiary of Hong Kong’s New World Development. Speaking at the Reuters China Investment Summit, executive director Tsang Yam Pui spoke glowingly about the company’s investment in a project to develop 18 rail container terminals around the country.

Rail looks like a promising area. China’s crumbling rail network is due for an upgrade and only 3 percent of domestic cargo is shipped in containers, compared with 20-30 percent in developed markets. Beijing will pour 700 billion yuan into the sector over the next three years and everyone from those laying the tracks to those making the train’s braking systems are hoping to cash in.

The company certainly needs a boost. Many of its other businesses, which range from stock broking to running Hong Kong’s convention centre, have suffered during the economic slowdown. It posted a 64 percent drop in six-month profit.

NWS also sees itself gaining from the country’s push to develop water projects — both treatment and supply — and expressways. In addition to its rail projects, to which its committing $1.76 billion, the company plans to commit another $146 million annually to these areas, Tsang said.

With any luck, China’s stimulus will perk up NWS’s own profit. Or, as Tsang described China’s rail investments: “For the MOR (Ministry of Railway), this project is a national mission and for us it is a future cash cow.”

Nomura: Lehman taking shape

Nomura’s takeover of Lehman Brothers’ European and Asia businesses is yielding results, and concerns the Japanese bank will struggle to marry cultures is misplaced, according to the man who drove the deal.

“It’s a very successful start and we’ve been happy with what we’ve got,” Takumi Shibata, chief operating officer for Nomura, told the Reuters Japan Investment Summit in Tokyo.

“We are finding surprisingly little differences between Lehman in Asia and Europe and Nomura in Asia and Europe. It was a marriage of two multicultural organisations, and both Lehman Brothers and Nomura aspire to be houses with a collegiate culture.”

Nomura had kept most of the Lehman staff it wanted to, has learnt from past international expansion mistakes, and was winning back business lost in the aftermath of the deal, he said.

It was number three in London equities trading in June, for example — from “nowhere” in December and number 8 in May.  Lehman had been number one before its collapse, however. “There’s no guarantee that we will go back to number one, but we want to be,” he said.

Nomura is also hiring bankers to beef up its U.S. presence, and is applying for an equity license in Australia and looking for a partner in China.