Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Investors see bright side of China data
By Telis Demos in London
Copyright The Financial Times Limited 2010.
Published: August 2 2010 08:19 | Last updated: August 2 2010 14:42
http://www.ft.com/cms/s/0/cc3d16ae-9dfd-11df-b377-00144feab49a.html


Monday 14.40 BST: Markets saw the bright side of a report that Chinese manufacturing is slowing, and are now accelerating their risk-taking on the back of strong European manufacturing activity and bank earnings.

The FTSE All-World index is up 1.7 per cent, the yen is sinking against riskier currencies and crude oil is seeing a three-month high above $80 a barrel.

China’s government-calculated purchasing managers index was reported on Sunday to have dipped to its lowest level since February 2009, following moves by Beijing to tighten access to credit throughout the economy.

That dip, however, is still consistent with double-digit growth, according to HSBC economists who produce a private index, which also showed a decline. The move was also not unexpected after China said last week its intention was to allow the economy to slow in order to cool inflation.

Growth hopes are seeing European markets rise sharply. The pound and the euro are making new high marks, and the FTSEurofirst 300 index is up 2.1 per cent, exceeding last week’s top mark and reaching a three-month high. Perceptions of credit risks are also falling for the financial sector and sovereign debts.

Two of the biggest banks in Europe, HSBC and BNP Paribas, reported strong earnings on the strength of decreasing losses in retail banking. Eurozone economies also reported their manufacturing PMI figures today, with overall activity thus far increasing marginally more than expected.

Asia was boosted by confidence in growth around the region, even as the rise in PMIs in South Korea and Thailand also slowed. South Korea’s exports rose more than forecast in July, it was reported over the weekend, and India’s PMI index ticked back up to a multi-year high.

All eyes will stay on the US, however, as the question of monetary policy hangs in the balance. Wall Street’s S&P 500 index opened up 1.3 per cent, right at its 200-day moving average. The market has been unable to hold above that level since its May correction.

Fears are that the US economy is running out of steam in spite of loose policy and strong corporate earnings, which have not led to greater investment by industrials in new production. Last Friday it was reported that second-quarter GDP grew at 2.4 per cent, after 3 per cent growth in the first quarter.

Indications of late are that policy will loosen further. Alan Greenspan, former Federal Reserve chairman, said over the weekend that the economy was “very distorted”, heavily relying on a manufacturing rebound, and “on pause” at the moment. Fed-watchers at Nomura said that they expect the Fed to loosen policy at its next meeting on August 10.

☼ Factors to watch. A slew of US economic data will add depth to the picture, with the Institute of Supply Management’s index of industrial activity to be reported later today, and non-farm payrolls on Friday. ☼

• Europe. Stocks were up around the region. The UK’s FTSE 100 index is up 2.1 per cent, Germany’s Dax is up 1.8 per cent and France’s Cac 40 is up 2 per cent. Two megabanks reported profit jumps. BNP Paribas reported a 31 per cent rise in profits over last year, though profits shrank 8 per cent from the previous quarter. HSBC credited a decline in bad loans for a sharp increase in first-half profit over last year. European banks were up 3.1 per cent.

Flashes of production indices from around Europe were mostly showing increases, notably Germany’s, its fastest increase in three months. Investors also seemed to be cheered that Germany’s austerity package was facing political hurdles in the lower house, which could allow Europe’s biggest economy to drive growth faster.

France, however, showed activity falling to an 11-month low, and the UK showed slight easing, though the print still topped forecasts.

• Asia. Shares were up across the board. Hong Kong’s Hang Seng index was the leader, up 1.8 per cent. Mainland China is keeping up, with the Shanghai composite index rising 1.3 per cent. The Nikkei 225 index was up 0.4 per cent, slowed by rumours of a Bank of Japan rate hike but supported by Honda doubling its prior-year earnings and raising its forecast of sales to the US.

Korea’s Kospi 200 index was up 1.3 per cent, and Mumbai’s Sensex was higher by 1.2 per cent following the positive growth news. India’s market has rolled back and forth in recent weeks as a debate on the pace of inflation – too fast, according to the central bank, but just right according to the government – has roiled sentiment.

• Debt. Japanese 10-year bonds are at fresh post-crisis lows, yielding 1.06 per cent, down 1 basis point. Other “haven” bonds are in sell-off mode, however, including the benchmark US Treasury, with yields up 4 basis points at 2.95 per cent. German Bunds are also up 4 basis points, yielding 2.70 per cent.

Spanish sovereign debt is also in demand, down 8 basis points. Spanish bond credit-default swap spreads are tighter, indicating cheaper prices for protection against default. Portuguese and Italian bond spreads are also tighter.

European senior financial debt spreads, to their lowest level since mid-April, according to Markit. However, three-month Euribor futures, an interest rate that measures interbank lending risk, rose 0.2 basis points after falling for the first time since April on Friday.

• Currencies. The asset class was consistent with rising risk appetite, as the Canadian and Australian currencies, powered by commodities exports, have been tightly correlated, suggestive of a risk trade. Both are higher by 0.6 per cent against the US dollar.

The yen dipped from one-year highs reached on Friday following the US’s disappointing GDP growth report. It was 0.3 per cent lower against the US dollar, at Y86.74. It was also down 0.8 per cent against the South African rand and 1 per cent against the New Zealand dollar, key carry trade pairs.

The pound was stronger against the US dollar, up 0.9 per cent at $1.5859, its highest level since February. The euro picked up steam at mid-session, now up 0.4 per cent to $1.3116, a three-month high, after bursting through the $1.31 ceiling and gaining momentum.

• Commodities. US crude oil was is higher by 2.4 per cent, at $80.83 a barrel, its highest level since May. Even gradual Chinese growth is supportive of the market, markets seem to indicate. Fears about US growth have also not seen oil tank as quickly as other risky commodities, with crude off only 8 per cent from its peak of the year.

Gold changed course and is up 0.6 per cent $1,188 an ounce. Bullion has largely been in stasis of late as investors are chased from the precious metal by stabilising outlooks in Europe and potential deflation in the US, but long-term worries about the impact of looser monetary policy on inflation remain. However, it is still off its nominal all-time high at $1,261.

Follow the Global Market Overview on Twitter at @telisdemos.





Bernanke faces US growth mysteries
By Robin Harding in Washington
Copyright The Financial Times Limited 2010
Published: August 1 2010 17:57 | Last updated: August 1 2010 17:57
http://www.ft.com/cms/s/0/4768a892-9d8c-11df-a37c-00144feab49a.html


If Ben Bernanke, Federal Reserve chairman, expected the release of second-quarter growth data to clear up the “unusually uncertain” outlook for the US economy, then he will have been sorely disappointed.

On the surface, the numbers were easy to interpret. Growth over the previous quarter at an annualised rate fell from 3.7 per cent in the first three months of this year to 2.4 per cent in the second. That fits with many other signs that the recovery is slowing down.

The details, however, hide a series of economic mysteries – about how fast the economy can grow, how weak it actually is, and what US consumers have been up to for the past few years – that policymakers will have to solve.

The most interesting numbers in the release were not about the second quarter at all – they were revisions for 2007, 2008 and 2009. These showed that the recession was even deeper than previously thought. Output in 2009 was 1 per cent below the previous estimate.

“The recession was un usually long and unusually severe and has proved unusually resistant to unusual amounts of stimulus,” says Neil Soss, chief economist at Credit Suisse in New York.

There are two ways to read the revisions. One is that the economy is even further from using its full capacity than previously believed – an argument for more easing by the Fed. The other is that the economy’s capacity to grow is less than thought.

Paul Ashworth, senior US economist at Capital Economics, says he leans towards the latter explanation because inflation numbers remain the same. Less growth for the same inflation suggests a lower potential to grow.

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Explore the US state fiscal crisis and examine each state’s 2011 budget gap and credit ratings

Another question is quite how weak the economy actually is. Purchases by US consumers and businesses grew a lot faster in the second quarter than in the first – up by 4.1 per cent from 1.3 per cent – it is just that many of them came from abroad.

Companies also added less to their inventories, which lowers growth but not final demand in the economy.

Some of the imports seem to have been businesses buying IT kit, an idea borne out by strong results from the technology sector and logistics companies such as FedEx. Technology investment should be good for future growth.

On the other hand, the 0.7 percentage points that real estate investment added to second-quarter growth look odd because most surveys say residential and commercial markets are still weak. The extent of the past revisions is a reminder to be cautious about all second-quarter numbers: they may yet be heavily revised.

A final area of mystery is the consumer. Consumption in 2007, 2008 and 2009 was revised down but consumer incomes were revised up as statisticians found more dividend income. The result is that savings rates are much higher than previously thought: 5.9 per cent in 2009 instead of 4.2 per cent.

Consumers who are saving more may be better able to increase their spending in future and boost the recovery. It also suggests the economy has moved further towards relying on investment rather than consumption as a source of growth, although net exports are still lagging behind.

One challenge of economic mysteries is that the clues keep changing in this way. The people who have to find the solution are Mr Bernanke and his colleagues at the Fed.

Mr Bernanke will deliver a speech today that might give some hint to his thinking but much depends on non-farm payroll figures, which are due on Friday before a federal open market committee rate-setting meeting next week. If private job creation is well below 100,000 for the third month in a row, it will be strong evidence that growth continues to stagnate.

Some members of the FOMC have trimmed their own growth forecasts since the last meeting in June and the committee is likely to reflect the weaker data by changing its statement on the economy.

There is also likely to be some formal discussion of the tools available if the Fed does decide to ease further. But drastic changes to policy, such as restarting asset purchases, are still unlikely unless the economy suffers another shock.

Contributions to Q2 growth
Imports have dragged down growth in the US (change in percentage points)

• Consumption +1.15
• Investment +2.09
• Inventories +1.05
• Exports +1.22
• Imports -4.00
• Gov spending +0.88

Source: Bureau of Economic Analysis










Mortgage investors scale back
By Aline Vanduyn in New York
Copyright The Financial Times Limited 2010
Published: August 1 2010 18:16 | Last updated: August 1 2010 18:16
http://www.ft.com/cms/s/0/7456c7f6-9d8e-11df-a37c-00144feab49a.html


Mortgage investors have been scaling back positions on fears that the US government might again intervene in the home loans market.

Investors sitting on tens of billions of dollars of paper profits in mortgage trades have called it quits after notching up returns this year of about 6 per cent.

There has been speculation among investors that the government might decide to offer homeowners a way to refinance mortgages and replace them with cheaper loans.

The value of mortgage bonds is particularly sensitive to when homeowners repay the mortgages.

There have been no comments or specific suggestions from Washington about such a programme, but it has been discussed in the past as one potential policy response to the economic downturn.

“Even if there is a very small chance of a refinancing programme happening, some investors have taken profits because they have made so much money in high-coupon mortgage bonds this year,” said Ajay Rajadhyaksha, head of US fixed income strategy at Barclays Capital.

US homeowners can refinance their mortgages as long as they can get a cheaper one.

But even though mortgage rates are at a record low, refinancing has not recovered, in spite of a small pick up last year.

This reflects the stricter standards many mortgage lenders are applying when considering new applications, as well as the fact that the drop in house prices across the US has left some homeowners with mortgages which are worth more than their houses.

A government programme aimed at making it easier to replace mortgages with cheaper ones could reduce monthly home loan bills and boost consumer spending, an important driver of US economic activity.

The US Treasury is planning a conference this month to discuss the mortgage market, including reform of state-backed mortgage financiers Fannie Mae and Freddie Mac, which are now financing nearly all new mortgages.

“The mortgage summit planned later this month has begun to attract a lot of attention among mortgage investors and has led to growing speculation of a massive [refinancing] wave,” said Steven Ricchiuto at Mizuho.

He said the interest paid on the average loan included in mortgage-backed debt was about 5.6 per cent.

A rise in mortgage refinancing activity would particularly hurt the value of the $700bn-worth of so-called “high-coupon” mortgage bonds. Many are trading above 100 cents in the dollar, meaning they cost above par value.

If the mortgages are refinanced, the bonds backed by the mortgages are repaid at par, meaning that investors would lose any amount above that.






High prices will fix what politicians cannot
By Trevor Houser
Copyright The Financial Times Limited 2010
Published: August 1 2010 20:19 | Last updated: August 1 2010 20:19
http://www.ft.com/cms/s/0/d0cc7bbc-9d97-11df-a37c-00144feab49a.html


The Gulf of Mexico oil spill was bad enough for BP to change its chief executive. It was not bad enough for the US to change its energy policy. Last month Barack Obama, US president, used the spill to call for a new push on clean energy. But weak follow-through, a divided Democratic caucus and a unified Republican opposition saw meaningful US energy legislation shelved last week. Now, the reality of a high oil price may be about to change America’s petroleum habits, even if policymakers cannot.

It seems as if we have been here before. Mr Obama’s post-BP address is strikingly similar to a speech given by President Jimmy Carter in the late 1970s, attempting in vain to use the last oil crisis to change US energy policy. Mr Obama acknowledged the parallels, but promised a different outcome. But while Washington’s resolve faltered again, the industry’s economics are not following the old script.

Ultimately, it was this drop in prices, rather than poor speechmaking, that hobbled Mr Carter’s attempts to reduce America’s oil consumption. US clean-energy research might have hit record levels between 1979 and 1981, but as oil prices fell, funding for clean-energy innovation fell in step. By the late 1990s, spending on clean-energy research was down by more than 75 per cent from its peak. The spectre of the 1980s oil price crash seemed to inhibit investment, even when oil prices rose again in 2003.

The difference today is that oil prices are unlikely to fall. Demand for oil is driven by economic growth. Today that means emerging economies, and China in particular. The developed world has seen oil use drop by 7 per cent since 2007, but demand in the developing world is up 10 per cent. Chinese demand has doubled during the past decade. As a result, oil has stayed expensive, in spite of the worst economic downturn since the Great Depression.

There is also little hope that new supply will bring much relief. Opec countries control an increasing share of global reserves and are not inclined to increase production just to give consumers a break. With most new onshore resources in politically unstable countries, the International Energy Agency predicts that over the next two decades the lion’s share of new non-Opec production will occur offshore, much of it in deep water. The real lesson of the Gulf spill is that drilling the deep Macondo well reflected the reality that there are few cheap and easy options elsewhere.

The only silver lining on a painful future for consumers is that expensive oil is just what is needed finally to kick-start the petroleum detox. The fact that high oil prices survived the crisis excises the ghosts of the 1980s, and gives entrepreneurs and investors confidence to support cleaner vehicles and develop alternative fuels. Nearly all of the world’s largest vehicle manufacturers now plan plug-in hybrid or fully electric vehicles within two years, with General Motors rolling out the Chevy Volt last week. At $20 per barrel, powering the Volt with electricity costs more than filling a comparable car with gasoline. But at $80, Volt drivers save enough on fuel to offset the vehicle’s high price. Faced with expensive oil, the chemicals industry is turning to natural gas, increasingly abundant thanks to the shale gas boom, and venture capitalists are betting on advanced biofuels.

Make no mistake, clean-energy deployment driven by a tight oil market will be slower, more limited, and less pleasant in the absence of good policy from Washington. And as oil accounts for only a quarter of global greenhouse gas emissions, high prices will do little to address climate change compared with the cap and trade proposals Congress put on hold. But today’s oil markets make public investment in clean-energy research and development, just now returning to 1970s levels, more palatable – and a change in America’s relationship with petroleum seems possible at last.

The writer is a fellow at the Peterson Institute for International Economics













German strength drives eurozone recovery
ByRalph Atkins in Frankfurt
Copyright The Financial Times Limited 2010
Published: August 2 2010 11:57 | Last updated: August 2 2010 14:33
http://www.ft.com/cms/s/0/7523f106-9e1d-11df-b377-00144feab49a.html


The eurozone’s industrial recovery shows scant signs of slowing but is relying almost entirely on Germany to drive growth, according to a closely watched survey.

The July eurozone manufacturing purchasing managers’ index was on Monday revised slightly higher, confirming that the sector had entered the second half of the year on a strong note. The sharpest improvement was in Germany, however, with growth prospects remaining weak elsewhere and the French index dropping to its lowest level for ten months.

The results highlight the eurozone’s dependence on Germany’s industrial export-led recovery, which continues to gather steam. The VDMA German engineering association reported separately that orders placed with its members in June had been 62 per cent higher than a year before.

The year-on-year rise in German orders reflected the weakness of business in mid-2009. But Hannes Hesse, the VDMA’s director, said the data underscored the “dynamism” of the sector. Particularly encouraging, he said,was a 67 per cent increase in domestic orders, that pointed to a revival in internal demand.

In recent months worries have mounted about the sustainability of Germany’s recovery amid a gloomier global outlook.

Growth data due for release next week are expected to show that Germany’s gross domestic product expanded rapidly in the second quarter – perhaps by 1.5 per cent or more compared with the previous three months. That makes a eurozone slowdown inevitable in coming months, but the latest purchasing managers’ indices suggest it might not be as pronounced as initially feared.

“With final data even stronger than the surprisingly buoyant ‘flash’ [or preliminary] estimates, there has been no loss of momentum from the second quarter,” said Chris Williamson, chief economist at Markit, which produces the survey.

However, he went on: “This is clearly a very uneven recovery … Only in Germany, the Netherlands and Austria are manufacturers taking on staff in significant numbers.” Job losses were accelerating in France, Mr Williamson added.

The eurozone manufacturing purchasing managers’ index rose from 55.6 in June to 56.7 last month – the highest for three months. With a figure above 50 indicating an expansion in activity, it showed the 10th consecutive month of growth. The initial “flash” estimate for July had been 56.5.

Germany’s index jumped markedly from 58.4 in June to 61.2, also the highest for three months and signalling the second-sharpest improvement in operating conditions since the series began in April 1996. Italy also reported an improvement, with its index rising from 54.3 to 54.4. But the recent improvements in Spain have been more modest, although its index rose from from 51.2 to 51.6. For France, the index dropped from 54.8 to 53.9.








Geely completes purchase of Volvo for $1.5bn
By John Reed in London
Copyright The Financial Times Limited 2010
Published: August 2 2010 11:45 | Last updated: August 2 2010 11:45
http://www.ft.com/cms/s/0/b25238b6-9e1e-11df-b377-00144feab49a.html


Ford Motor said it had completed the sale of Volvo Cars, its Swedish marque, to Chinese carmaking group Geely for $1.5bn.

The deal, agreed in March, marks the US company’s last disposal of an overseas car brand, and the biggest overseas acquisition yet by a Chinese automaker. Li Shufu, Geely’s chairman, said the signing marked “a historic day for Geely, which is extremely proud to have acquired Volvo Cars”.

Ford said that Zhejiang Geely Holding Group had on Monday paid $1.3bn in cash and issued a $200m note to complete the sale – a lower amount than the $1.8bn the US carmaker said it planned to raise from the deal when it was agreed in March.

However, Ford said that a “true-up” of purchase price adjustments later this year “is expected to result in additional proceeds to Ford”. Geely said that the closing price reflected adjustments in areas such as pension obligations and working capital.

The US carmaker paid $6.45bn for Volvo in 1999 when it was split from the truckmaking group of the same name. Ford sold its UK Aston Martin brand to Kuwaiti-led investors in 2007, and Jaguar and Land Rover to India’s Tata Motors in 2008.

Geely said that Stefan Jacoby, formerly chief executive of Volkswagen of America, would become Volvo’s new chief executive on August 19, replacing Stephen Odell, who will now become chief executive of Ford’s European arm.

Mr Li will become Volvo’s new chairman. His board’s members will include Hans-Olov Olsson, a former president and chief executive of Volvo Cars, and Håkan Samuelsson, formerly chief executive of MAN, the truck group.

Volvo will retain its headquarters in Gothenburg and manufacturing presence in Sweden and Belgium, but Geely said its new management “will have the autonomy to execute on its business plan under the strategic direction of the board”.

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Geely said in March when the deal was agreed that it planned to nearly double Volvo’s sales to 600,000 in five years, largely by building market share in China, where it is currently has only a small presence.

The deal’s closing followed more than a year of talks, and was marked at a signing ceremony in London attended by Mr Li and Lewis Booth, Ford’s chief financial officer.

Ford will continue to supply Volvo with engines and parts for defined periods, but is selling 100 per cent of the carmaker to Geely.

Alan Mulally, Ford chief executive, said in a statement that the sale would allow the company to sharpen its focus on the Ford brand around the world.

“Volvo is an excellent brand with a strong product line, and it has returned to profits after a successful restructuring,” Mr Mulally said. “We are confident Volvo has a solid future under Geely’s ownership.”









HSBC profit hits $11.1bn as bad debts fall
By Sharlene Goff
Copyright The Financial Times Limited 2010
Published: August 2 2010 10:56 | Last updated: August 2 2010 10:56
http://www.ft.com/cms/s/0/f0639d5c-9e19-11df-b377-00144feab49a.html


Pre-tax profit more than doubled at HSBC in the first six months of the year as bad debts fell to the lowest level since the start of the financial crisis and its investment banking division revealed a surprisingly resilient performance.

Group pre-tax profit rose to $11.1bn from $5.02bn a year ago. HSBC was profitable in every region except the US, where it posted a loss of around $80m.

Douglas Flint, finance director, said on Monday the profit growth had been driven by the bank’s retail and commercial businesses, which made a profit of about $4.3bn in the first half compared with around $1.2bn a year ago.

The personal financial services business returned to profit for the first time in two years, driven by a better performance in the US. While the North American business still made a loss, this was sharply lower than a year ago. HSBC said the division, which had been ravaged by losses on subprime loans, was boosted by a marked fall in loan impairments and a recovery in its core businesses. HSBC also sold its $4.3bn US car loan portfolio.

Across the bank, loan impairment charges fell to $7.5bn in the first six months, the lowest level since the financial crisis began. A year ago, impairments were almost $14bn.

HSBC said it had increased lending in the UK and was “very much open for business”. However, it hit out at an idea mooted by the government to force more banks to sign up to lending targets.

“Targets are difficult to formulate,” said Mr Flint.

As well as a strong retail performance, Mr Flint said the investment banking division had the “second best ever half-year results”. Profits from the global banking and markets (GBM) business were $5.6bn, down around 13 per cent from an exceptional first half last year but still robust compared with the sharp falls suffered by rival banks.

Mr Flint cautioned, however, that momentum in this business would be likely to stall in the second half of the year.

“We expect slightly reduced appetite and volumes in the second half,” he said.

HSBC had allocated “just over 20 per cent” of revenue at GBM for pay and bonuses.

Stripping out effects of currency movements and the valuation of the bank’s own debt, pre-tax profit rose by $2.2bn to $9.6bn.

Total sales were flat at $40bn. HSBC declared dividends totalling $2.8bn – 16 cents a share – payable from earnings per share of 38 cents.

Shares in HSBC rose 3.3 per cent to 667.6p in early London trading.





BNP boosted by retail banking strength
By Ben Hall in Paris
Copyright The Financial Times Limited 2010.
Published: August 2 2010 08:56 | Last updated: August 2 2010 11:49
http://www.ft.com/cms/s/0/a783682c-9e02-11df-b377-00144feab49a.html


BNP Paribas, France’s largest bank, reported a 31 per cent increase in net profit in the second quarter as provisions for bad loans fell to the lowest level for two years.

The bank easily beat analysts’ estimates when it said its net profit rose to €2.11bn ($2.76bn) in the second quarter. A continued recovery in its retail banking operations offset lower profits in its investment banking division, which was held back by three months of severe market volatility, a sharp contraction in primary markets anbd widening credit spreads.

Pre-tax profit from corporate and investment banking operations fell by 7.3 per cent on the second quarter of 2009, described by the bank as an “exceptional” period.

Last year’s merger with Fortis of Belgium accounted for a 11.8 per cent increase in revenues at €11.17bn. The bank said it was on course to achieve cost-savings worth €900m a year by 2012 following the merger.

Shares in BNP Paribas, the biggest bank in the eurozone by deposits, rose by as much as 4.7 per cent inmorning Paris trading. The stock has have rallied since regulators said the bank had comfortably passed EU stress tests and following indications last week that the authorities would soften proposed new capital requirements.

Baudouin Prot, chief executive, said BNP Paribas was “extremely well capitalised” and had experience a marked fall in its cost of financing since the test results were published.

Continuous profits had enabled it to lifts it tier one capital ratio – a key measure of balance sheet strength – from 7.4 per cent at the end of 2006 to 10.6 per cent at the end of June 2010, Mr Prot said. The equity tier one ratio rose from 5.6 per cent to 8.4 per cent over the same period.

Provisions for bad loans in the second quarter fell by 53.9 per cent on the same period in 2009 to €1.08bn, a 19 per cent decrease on the first three months of 2010.

The bank reversed €118m of previous write-downs in its corporate and investment banking division, saying it had seen “no new significant doubtful loans” during the quarter.

BNP Paribas said the cost of provisions for bad loans had fallen to its lowest level since the second quarter of 2008. The fall in the cost of risk was particularly marked at BancWest, its Californian retail unit, and in some of its eastern European operations, notably in Ukraine.

BancWest posted a pre-tax operating profit of €153m following a €62m loss in the second quarter of 2009.

However, the cost of bad loans at BNL Banca Commerciale in Italy inched up to €205m in the second quarter.

Mr Prot insisted that there would be a “stabilisation or moderate increase” in bad loans provisions at the bank’s Italian operations.

He also played down the anticipated effect of government austerity measures in France and elsewhere in Europe on its retail banking operations, saying the boost to confidence from a gradual return to budgetary discipline would offset a fiscal tightening.







Move to halt BP drilling off Libya
By Guy Dinmore and Eleonora de Sabata in Rome
Copyright The Financial Times Limited 2010
Published: August 1 2010 17:43 | Last updated: August 1 2010 23:09
http://www.ft.com/cms/s/0/b8b3d062-9d87-11df-a37c-00144feab49a.html


Plans by BP to start drilling for oil and gas off Libya within weeks have prompted growing calls for a moratorium on deepwater operations while Mediterranean states assess the environmental impact in light of the Gulf of Mexico disaster.

Stefania Prestigiacomo, Italy’s environment minister, has become the first senior official within the European Union to suggest that a moratorium might be appropriate while the Mediterranean’s 21 littoral states find a “common voice”.

Plans for deepwater drilling in the confined waters of the Mediterranean “give rise to serious concern”, she told the Financial Times in written comments.

Referring to a proposal by Günther Oettinger, the EU’s energy commissioner, for a moratorium within EU waters, she added: “A moratorium could be a right approach for potentially dangerous drilling . . . to give Europe time to define a new and specific strategy for the Mediterranean especially in light of the risk exposed by the Deepwater Horizon spill.”

BP confirmed on Sunday night that it had a rig in place preparing for deepwater drilliing in Libya’s Gulf of Sirte, but that no firm date had been set for the start of drilling. The company said last week that it would begin drilling the first of five wells in the area “within weeks”. The well is to be about 200 metres deeper than the Macondo well drilled by the Deepwater Horizon rig which exploded on April 20, killing 11 workers and causing the most serious environmental disaster in US waters.

Environmental groups as well as local Italian politicians and Italy’s opposition Democratic party have also called for a suspension of deepwater drilling in the Mediterranean. Libya’s Gulf of Sirte lies some 500km from Italian and Maltese territory.

BP shrugged off calls for a moratorium. “There isn’t one suggested,” a BP spokesman told the FT. “And who is the authority for the ‘Med’?” he asked.

BP’s comments reflect the lack of an institutional mechanism co-ordinating Mediterranean-wide policies while individual states – including Italy – have recently approved a considerable number of oil and gas exploration projects of their own, some in deep waters.

Franco Frattini, Italy’s foreign minister, last week suggested that BP’s activities in the Gulf of Sirte be referred to the Union for the Mediterranean. But the proposed community of EU and littoral states has had a difficult birth, first stalled by internal EU rivalries and then complicated by tensions between Israel and its Arab neighbours.

There are questions over whether Mediterranean states are equipped to deal with an oil spill of that magnitude.

The Malta-based UN agency charged with co-ordinating responses to maritime pollution in the Mediterranean says Libya does not yet have a national contingency plan for oil spill response but is working on one.

Data provided by the Libyan authorities to Rempec – the Regional Marine Pollution Emergency Response Centre – says they have the equipment to tackle a big spill.

But senior Italian officials in the environmental protection sector, who asked not to be named, insisted that other Mediterranean states lacked the capacity to deal with a spill on the scale of the Gulf of Mexico disaster. Italian budget cuts had undermined what had once been one of Europe’s most advanced response systems, they said. Rempec points out that even with a massive response only 10 per cent of oil spilt in disasters is recovered.

Environmentalists are concerned about the impact of a possible spill on the Mediterranean’s diverse sea life.

BP said its preparations for drilling in Libyan waters were “extensive, rigorous and detailed” and said it would not start any operation before it was fully confident it would be safe and efficient. BP said its spill contingency plan was based on “the standard industry three-tier model for preparedness”.

● A key two-step procedure to seal BP’s Macondo well could begin on Monday, the top US oil-spill official said on Sunday, Reuters reports from Houston.

“That could start as early as Monday night” or perhaps early on Tuesday, said Thad Allen, a retired Coast Guard admiral, referring to the “static kill” procedure to pump heavy mud and cement into the top of the well.

The well has been temporarily sealed for more than two weeks. But the “bottom kill,” which will pump mud and cement through a relief well into the bottom of the well’s reservoir, will seal it once and for all, said Mr Allen.









UAE to suspend BlackBerry services
By Andrew England in Abu Dhabi
Copyright The Financial Times Limited 2010
Published: August 1 2010 09:56 | Last updated: August 1 2010 18:34
http://www.ft.com/cms/s/0/38a8da8e-9d41-11df-a37c-00144feab49a.html


The United Arab Emirates is to suspend BlackBerry mobile communication services from October because, it said, they operate outside its laws and raise national security concerns.

Saudi Arabia appeared to be following suit, with an official at Saudi Telecom, a state-controlled company, saying the kingdom was banning BlackBerry messenger services.

The security-conscious Gulf states will be the first countries to take such actions but the announcements come after India raised similar concerns about Research in Motion’s network in recent weeks. Canada-based RIM is the company behind the BlackBerry brand.

BlackBerry services, such as e-mail and instant messaging, use internal encrypted networks that are difficult for governments to monitor. It is the only data services provider operating in the UAE that exports its data offshore and denies authorities access to its systems.

The UAE’s regulator said its decision was based on the fact that “certain BlackBerry services allow users to act without any legal accountability, causing judicial, social and national security concerns for the UAE”.

The UAE’s suspension will begin on October 11 and will also apply to roaming BlackBerry devices. The ban in Saudi Arabia, the Arab Gulf’s most populous nation and the Arab world’s biggest economy, was due to begin this month. The UAE government, which relies heavily on high-tech surveillance measures as key elements of its security infrastructure, said it had had discussions with RIM about its concerns but no progress was made.

Abdulrahman Mazi, a board member at Saudi Telecom, told the Al Arabiya satellite channel that he hoped the moves would pressure RIM into taking steps to “provide the information when needed”.

“UAE took a bolder step than Saudi Arabia whereas Saudi Arabia is only banning one, the messenger,” he said.

Last month, the Indian government renewed a threat to ban BlackBerry services unless RIM gave it access to data transferred by its secured messaging system. This was resolved last week after the head of internal security in India said RIM agreed to address concerns over the possible use of its data services by terrorists.

The UAE move will frustrate the 500,000 or so BlackBerry users in the emirate, which is the region’s business and tourism hub, and put scrutiny on the country’s control of information.

The telecoms market in the UAE is dominated by Etisalat, a state-controlled company, and its only rival is Du, which is majority owned by government entities.

But Mohammed al-Ghanim, director-general of the Telecommunications Regulatory Authority, dismissed suggestions that the regulator’s decision had anything to do with censorship.

“It is about regulatory compliance and we are not asking for RIM to do anything that is not apparently being done in developed nations or so-called open countries around the world,” he said.

RIM could not be reached for comment.

Additional reporting by James Fontanella-Khan in Mumbai