Madoff displays remorse in prison

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Disgraced financier Bernie Madoff has told an interviewer he has terrible remorse and horrible nightmares over his epic fraud, but also said he feels happier in prison than he's felt in 20 years.

Barbara Walters told ABC's "Good Morning America" on Thursday that she interviewed Madoff for two hours at the prison in Butner, N.C., where he's serving a 150-year sentence. No cameras were allowed in the prison.

Walters said Madoff told her he thought about suicide before being sent to prison. But since he's been there, he no longer thinks about it.

His comments come ahead of his wife's appearance Sunday's episode of CBS' "60 Minutes." Ruth Madoff said in excerpts that they tried to kill themselves after he admitted stealing billions of dollars in the largest Ponzi scheme in history.

Police remove Mark Madoff's body from his apartment where he was found dead. The son of financier Bernie Madoff killed himself after the family's scandal came to light. Jessica Rinaldi/Reuters

Walters quoted Madoff as saying: "I feel safer here (in prison) than outside. I have people to talk to, no decisions to make. I know I will die in prison. I lived the last 20 years of my life in fear. Now, I have no fear because I'm no longer in control."

She also said he told her he understands why his one-time clients hate him, and that the average person thinks he "robbed widows and orphans." But he also told her, "I made wealthy people wealthier."

Ruth Madoff's appearance on "60 Minutes" will be her first interview since her husband's December 2008 arrest. She says they had been receiving hate mail and "terrible phone calls" and were distraught.

"I don't know whose idea it was, but we decided to kill ourselves because it was so horrendous what was happening," she says in the interview, according to excerpts released by CBS.

She says it was Christmas Eve, which added to their depression, and she decided: "I just can't go on anymore."

She says the couple took "a bunch of pills" including the insomnia prescription medication Ambien, but they both woke up the next day. She says the decision was "very impulsive" and she's glad they didn't die.

The couple's son Andrew Madoff also will talk about his experience.

'I just can't go on anymore'—Ruth Madoff

Another son, Mark Madoff, hanged himself by a dog leash last year on the anniversary of his father's arrest. Like his parents, he had swallowed a batch of sleeping pills in a failed suicide attempt 14 months earlier, according to his widow's new book, "The End of Normal: A Wife's Anguish, A Widow's New Life."

Bernie Madoff was arrested on Dec. 11, 2008, the morning after his sons notified authorities through an attorney that he had confessed to them that his investment business was a multibillion-dollar Ponzi scheme. He admitted cheating thousands of investors. He pleaded guilty to fraud charges.

Madoff, who's in his 70s, ran his scheme for at least two decades, using his investment advisory service to cheat individuals, charities, celebrities and institutional investors.

An investigation found Madoff never made any investments, instead using the money from new investors to pay returns to existing clients — and to finance a lavish lifestyle for his family. Losses have been estimated at around $20 billion, making it the biggest investment fraud in U.S. history.

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Bank payout cuts and profits to plug capital holes

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By Steve Slater and Sonya Dowsett

LONDON/MADRID | Thu Oct 27, 2011 12:18pm BST

LONDON/MADRID (Reuters) - Europe's banks may need to raise less than 30 billion euros (26 billion pounds) under a plan hammered out in overnight talks to halt a euro zone debt crisis, as dividend and bonus cuts, earnings and IMF aid provide the bulk of a recapitalisation.

Banks have to find 106 billion euros to shore up their capital by the end of June, as one part of a three-pronged plan to restore confidence in the sector and halt a eurozone debt crisis from spreading.

The news sent banks shares soaring over 6 percent.

After tense talks that ran to the early hours of Thursday, private sector investors also agreed to halve the value of their Greek government debt holdings -- taking a collective 103 billion euro hit -- which marked a breakthrough for EU leaders.

"It's short on detail but it's progress," said Simon Maughan, head of trading for Europe at MF Global.

"There's a fairly defined timeline to deal with this. The banks have to raise all of the money by the end of June, so they've got to get on with it," he added.

Bank shares jumped on relief that the deadlock had been broken. By 11:20 a.m. the STOXX European bank index was up 6.7 percent at a 10-week high of 146 points.

WHO NEEDS CAPITAL?

Banks in Spain, Italy, France, Portugal, Greece and elsewhere were told they needed to recapitalise to be able to better withstand eurozone sovereign bond losses and an economic downturn.

But the scale of cashcalls needed by banks is expected to be limited, as they take other options to help their capital ratios improve in the next eight months, bankers said.

Of the sum needed, 30 billion euros is already being provided to Greek banks under an aid plan and Portugal's banks, who need 7.8 billion euros, can also tap an aid package.

Belgium's Dexia (DEXI.BR), which needs 4 billion euros, is also being restructured with state help, as is Volksbanken, which accounts for much of Austria's 3 billion euro need.

Spain's Santander (SAN.MC) can meet 8.5 billion euros of its capital need with a convertible bond.

If banks at risk of a capital shortfall cut dividends this year and next it could save about 32 billion euros, analysts at Credit Suisse estimated earlier this week.

Asset sales and debt liability management plans will provide further cash. Some deleveraging -- as long as it is not what the European Banking Authority (EBA) deems "excessive" -- will lift capital ratios further.

That could see banks needing to raise less than 30 billion euros from investors. With European bank shares trading at an average 0.6 times book value, any capital raising would be painfully dilutive for investors.

The amount needed was in line with expectations, though Spanish banks need more than many analysts' forecast, at 26 billion euros.

Santander said its capital shortfall is 15 billion euros, or 6.5 billion with the convertible bond benefit. Peer BBVA (BBVA.MC) needs 7.1 billion euros and Banco Popular (POP.MC) needs 2.4 billion.

Even so, analysts said the exercise had failed to address the root cause of Spanish banks' capital needs -- their hefty exposure to toxic real estate assets.

"Our main concern remains about the pending clean-up of the real estate and developer exposure for Spanish banks, which requires an additional recap of up to 45 billion euros," said Francisco Riquel, analyst at N+1 Equities.

"We doubt that debt markets will open up for Spanish banks at reasonable prices, and we thus expect the credit crunch to accelerate."

The EBA said it would take steps to re-open the medium-term funding market for banks which have been shut out, putting in place a public guarantee scheme. But again, there were few details.

Seventy banks were tested under the repitalisation plan. The EBA did not break down how much each lender needs, leaving that to the banks and national regulators.

France's BNP Paribas (BNPP.PA) requires 2.1 billion euros, Societe Generale needs 3.3 billion and BPCE, the mutual that owns Natixis (CNAT.PA), is in need of 3.4 billion.

BNP Paribas should be able to meet its needs by retaining earnings, and so could the other French banks, analysts said.

Other major banks expected to need to bolster capital include Italy's UniCredit (CRDI.MI) and Germany's Deutsche Bank (DBKGn.DE), although the latter has said it will be able to meet its shortfall without any state help.

Shares in BNP Paribas, SocGen and Deutsche Bank rallied over 14 percent due to their modest capital needs, while Credit Agricole (CAGR.PA) leapt 21 percent as it did not need funds.

(Additional reporting by Lionel Laurent in Paris; Editing by David Hulmes and David Cowell)

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Global risk for investors only pared by EU deal

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By Jeremy Gaunt, European Investment Correspondent

LONDON | Thu Oct 27, 2011 2:39pm BST

LONDON (Reuters) - The late-night rescue package agreed by euro zone leaders to cool their dangerous debt crisis will at least allow investors to look at other things for a while.

Unfortunately, those things include slow, stuttering U.S. growth, a near-recessionary euro zone economy and the danger of Chinese growth slowing too quickly.

And the underlying problems of euro zone debt remain.

In effect, the package has taken one of the biggest hurdles in the steeplechase down a bit.

This will allow many investors to be slightly more risk positive in their allocations and could help build a short-term rally in assets such as stocks, as normally occurs in the fourth quarter.

But the track is still strewn with too many dangers to call the financial crisis over and embrace a bull stock market rally.

"There is a long, long road ahead. The European policymakers appear to be winning this battle, but the war has many years to go yet," said Chris Cheetham, chief investment officer of HSBC Global Asset Management, which runs around $453 billion in investments.

Financial markets greeted the euro zone debt agreement robustly on Thursday, relieved to see plans for a beefed-up rescue fund, more bank capital requirements and debt relief of bankrupt Greece..

World stocks, for example, climbed to a 3-month high and the euro was near 7-week highs against the dollar.

Investors have actually been building up for this. Cheetham said his firm started putting a bit more risk into its portfolios a few weeks ago when it became apparent that the euro zone was going to have to come up with a plan.

The agreement was widely seen as "positive". As Mike Lenhoff, chief strategist at wealth managers Brewin Dolphin put it: "A broad outline for a workable agenda has been put in place where none existed before and this is progress."

But it would be a mistake to interpret progress as a definitive solution.

UNDERLYING PROBLEM

First, the euro zone debt crisis has not gone away. The agreement -- which is arguably a minimum of what markets wanted -- has not even been finalised.

Investors will be looking closely at next week's Group of 20 summit in Cannes to see to what extent the financing of the euro zone's EFSF rescue can be clarified.

It will be a case of "show me the money".

"A lot's left to be discussed at the G20," said one asset allocator at a leading French investment firm, who asked not to be identified. "We need meat on the bone."

Even if that is forthcoming in a way that pleases markets, however, the underlying problem of euro zone debt has not been dealt with.

A lot of the debt exists because peripheral euro zone economies are uncompetitive, both within the euro zone and in comparison with emerging markets.

One tricky issue, for example, will be how countries such as Italy reform their economies and institute austerity in order to become more competitive without hurling themselves into recession.

Greece, for example, is already in the position of trying to cut its huge debt to GDP ratio at the same time that its GDP is projected to contract 5 percent this year and 2 percent next year.

"(The deal) has not solved the long-term problem for Europe," said Richard Cookson, chief investment officer at Citi Private Bank.

IT'S THE (GLOBAL) ECONOMY

What the EU deal may do, however, is allow investors to focus more on some of the other issues facing them, notably the state of the world's three largest economies.

The problem here is that that is not as positive as it could be.

There are some signs that the U.S. economy is on the mend from a mid-year slump, but joblessness remains stubborn and growth projections are well below trend.

In the euro zone, the fear is of recession, particularly given the damage to growth from the debt crisis.

China, the world's second largest economy, is struggling to avoid a so-called hard-landing in which growth would suddenly plummet.

"It's back to business with all the lingering worries. On a relative basis, China and the U.S. will become more importrant. But the euro zone problems have not gone away," said William De Vijlder, chief investment officer of BNP Paribas Investment Partners in Brussels.

(Reporting by Jeremy Gaunt; Editing by Stephen Nisbet)

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Banks Bow to ‘Last Word’ From Merkel

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October 27, 2011, 4:48 AM EDT By Aaron Kirchfeld

(Updates with market reaction in fifth paragraph. For more on the European debt crisis, see EXT4.)

Oct. 27 (Bloomberg) -- The world’s biggest banks bowed to what German Chancellor Angela Merkel called the “last word,” agreeing to write down their Greek government debt by half in the pivotal piece of the euro area’s bid to stem the financial crisis.

The Institute of International Finance, which represents financial companies, agreed to “develop a concrete voluntary agreement on the firm basis of a nominal discount of 50 percent on notional Greek debt held by private investors,” Managing Director Charles Dallara said in a statement e-mailed at 4:26 a.m. in Brussels.

Euro-area leaders who called Dallara into a meeting at about midnight, forcing a break in their 10-hour summit, said that while the bond transaction will be voluntary, the decision resulted from an offer he couldn’t refuse.

“It was the fiercely delivered wish by Merkel, Sarkozy, Juncker, that if a voluntary agreement with the banks was not possible, we wouldn’t resist one second to move toward a scenario of the total insolvency of Greece,” Luxembourg Prime Minister Jean-Claude Juncker told reporters. That “would have cost states a lot of money and would have ruined the banks.”

The euro rose and stocks advanced, with the currency gaining 0.7 percent to $1.4007 at 9:45 a.m. in Brussels. The Stoxx Europe 600 Index surged 2.5 percent and Standard & Poor’s 500 Index futures added 1.6 percent. The Stoxx 600 Banks Index jumped 5.3 percent, the biggest gain since Sept. 27.

Deal Linchpin

The package, negotiated by the umbrella group for more than 450 financial firms, should set the basis for the decline of the Greek debt to gross domestic product ratio with an objective of reaching 120 percent by 2020, the IIF said. The deal with Merkel and French President Nicolas Sarkozy broke a deadlock and came hours after Dallara issued a statement that “there is no agreement on any element of a deal.”

“The details are important, but the fact that 17 euro leaders with all their different agendas managed to reach a deal is encouraging,” said Dirk Becker, a banking analyst at Kepler Capital Markets. “It might seem chaotic, but in the end the Europeans can find a solution, and if not they’ll keep trying.”

The Greek deal paved the way for euro leaders to announce an agreement on boosting the firepower of the rescue fund to 1 trillion euros ($1.4 trillion) and a 106 billion euro- recapitalization of European banks. The second crisis summit in four days delivered tools to extinguish the two-year-old crisis that threatens to ravage Italy and France and brake the world economy.

‘Only One Offer’

“We’re in a much better position than we were 24 hours ago, but there is still a big question over just how they intend to leverage the rescue fund up to one trillion, and how the banks are supposed to get to this 106 billion euros,” said Mike Trippitt, an analyst at Oriel Securities Ltd. in London.

The IIF last week proposed a loss of 40 percent on Greek debt, one person familiar with the discussions said at the time, after euro leaders pressured Greek investors to scale up a July accord that foresaw 21 percent losses for bondholders. Today’s agreement does include 30 billion euros in cash to sweeten the offer from the euro zone, officials said today.

“We really made only one offer,” Merkel told reporters after the summit. “The bank delegates took that back to their representatives. And this offer was specified in such a way -- and we said that it’s our last word -- that they took it up.”

--With assistance from Tony Czuczka, Helene Fouquet, Stephanie Bodoni and Jonathan Stearns in Brussels. Editors: James Hertling, Edward Evans, Frank Connelly

To contact the reporter on this story: Aaron Kirchfeld in Brussels at akirchfeld@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net.

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Nokia Starts Lumia Phone Marketing Blitz

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October 27, 2011, 3:56 AM EDT By Amy Thomson, Katie Linsell and Diana ben-Aaron

(Updates with Nokia shares in fifth paragraph.)

Oct. 27 (Bloomberg) -- Nokia Oyj Chief Executive Officer Stephen Elop said he beat expectations by getting the company’s first Microsoft Corp. smartphone on the shelves in time for Christmas. Winning consumers will require a marketing blitz.

The Lumia 800 phone, unveiled yesterday after more than eight months into its partnership with Microsoft’s Windows Phone system, has a higher-resolution camera than Samsung Electronics Co.’s Galaxy Nexus and a lower price tag than Apple Inc.’s iPhone 4S. The device will start selling in Europe next month for 420 euros ($584), excluding taxes and subsidies.

Elop, a former Microsoft executive, said yesterday that marketing spending on the Lumia series, including that by phone companies and retailers, will triple compared with prior product launches. Nokia lined up 31 phone companies including Vodafone Group Plc to lure back consumers who have dumped Nokia in favor of the iPhone and devices running Google Inc.’s Android.

“You are not going to be able to turn a corner of a street or look at a TV or go on the Web or anything without seeing the Nokia marketing campaign,” said Ben Wood, an analyst at CCS Insight in London. “They’ve kept themselves in the marketplace but this is the big, big bet. There’s a lot of money on the table.”

Nokia shares have tumbled 41 percent in Helsinki since Feb. 11, when Elop announced the partnership with his former employer and said he would phase out the Finnish company’s 10-year-old Symbian operating system. Investors were skeptical Nokia would be able to deliver a competitive phone in time for the holiday season. Nokia rose 3.4 percent to 4.96 euros at 10:25 a.m. in Helsinki.

Consumer Impressions

The Lumia launch comes less than two weeks after Apple started selling the iPhone 4S. Samsung announced the Galaxy Nexus last week. Windows Phone may be Elop’s last chance to claw back share in the fast expanding smartphone market after the company lost more than 60 billion euros in market value since Apple introduced the iPhone in 2007.

“When I think of Windows I think of computers, not phones,” said Alice Reidy, a 27-year-old secondary school teacher from Ipswich, England, who has an iPhone 3GS. “I’ve had old-school Nokias without even a touchscreen and I think the brand is reliable. But I don’t think of it for smartphones.”

Apple and Google Inc.’s Android have helped slash Nokia’s smartphone market share to 20.9 percent in the second quarter from 50.8 percent when the iPhone came out in 2007, according to Gartner Inc. estimates.

First Signs of Speed

“We’re changing the way Nokia operates, what is an acceptable speed, how do we accelerate and you’re seeing the first signs of that,” Elop said yesterday in London.

To appeal to a wider range of consumers, Nokia also introduced the 270-euro Lumia 710, along with the Asha family of low-priced phones targeting consumers in emerging markets.

The Lumia 800 is available in cyan, black and magenta, features an 8 megapixel camera, while Samsung’s Galaxy Nexus, which will begin selling next month and is the first mobile phone running on Google’s latest Android version, has a 5 megapixel camera.

Apple’s latest iPhone 4S, which sold more than 4 million units in the first three days after it was introduced, has an 8 megapixel camera and its cheapest version costs 629 euros in Germany and France, without an operator contract. Samsung hasn’t disclosed a price for the Galaxy Nexus.

While Nokia’s Windows phones are technically “excellent” and have a “best in class camera,” even a marketing push and subsidies by operators probably won’t help the Finnish company to win back clients immediately, said Francisco Jeronimo, a analyst at market researcher IDC.

Brand Loyalty

“It’s an excellent device and it will compete with Apple’s iPhone 4S and Samsung’s Galaxy Nexus but this won’t happen overnight,” Jeronimo said. “Over the next two quarters they won’t drive the same volumes as the iPhone or Android because consumers don’t know the phone.”

Apple had the highest brand loyalty among mobile phone- vendors in the U.S. and Europe, according to a study by Strategy Analytics.

To differentiate the Lumia phones, Nokia’s marketing campaign will use the distinctive Windows Phone interface with its big, colorful tiles that contrast with the smaller icons of the Apple and Android interfaces as a main selling point.

Unlike an Apple or Google device, a Windows phone doesn’t present users with rows of icons representing apps. Instead, the home screen consists of a layout of tiles that represent the phone’s key functions. The latest version, known as Mango, includes automatic photo tagging and voice dictation.

Smartphone Boom

The smartphone market may be big enough to help Nokia win over new customers. Smartphone sales by volume will grow by 40 percent next year to 645 million units, Gartner says. Windows Phone may become the No. 2 smartphone operating system in 2015, with a market share of 21 percent, according to the researcher.

Nokia has also been trying to create a global social media campaign and used agencies such as London’s 1000heads to help stay in touch with bloggers and technology enthusiasts, bringing their feedback to Nokia and lending them devices to review.

“Nokia probably churns out a few hundred devices a month on trials just to get people talking about it,” said James Whatley, “engagement manager” at 1000heads, whose Nokia word of mouth program is being rebranded as Nokia Connects. “So when you go to Google Nokia you’re going to find user reviews.”

Nokia will give as many as 60,000 Windows Phone devices to bloggers and “cultural influencers,” said Steve Overman, vice president for marketing creation. The Lumia campaign is “the biggest Nokia has done,” including staged outdoor happenings and viral Internet campaigns as well as traditional TV, cinema and print ads, he said.

Reviving the Mini

Nokia’s brand has tumbled to 14th place from eighth in the 2011 Interbrand global rankings. Apple has risen from 33rd to 8th since releasing the iPhone, while Google has advanced from to 4th place from 20th.

If Nokia wins back customers with the Microsoft partnership, it would be akin to what Bayerische Motoren Werke AG did to the Mini brand, said Jez Frampton, CEO of Interbrand, a unit of Omnicom Group Inc. Mini, salvaged from the wreckage of the failed takeover of the U.K.’s Rover Group, is central to BMW’s small-car strategy.

“The Mini was much loved in the 1960s but fell out of favor because it stopped making the right kind of product,” Frampton said. “Then BMW bought the rights to the brand and what gave people confidence was that BMW were powering it, effectively, so you have an equivalent of Microsoft inside.”

--With assistance from Kati Pohjanpalo in Helsinki. Editors: Simon Thiel, Kenneth Wong

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Katie Linsell in London at klinsell@bloomberg.net; Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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Europe Bolsters Crisis-Fighting Tools

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October 27, 2011, 11:57 AM EDT By James G. Neuger and Simon Kennedy

(Adds Weidmann comment in 23rd paragraph. For more on the European debt crisis, see EXT4.)

Oct. 27 (Bloomberg) -- European leaders bolstered their crisis-fighting toolbox with a plan that may generate only limited relief for stressed sovereigns unless it can be fleshed- out within weeks.

“It remains a deal long on intentions and short on details,” said Jens Larsen, chief European economist at RBC Capital Markets in London. “Until we know how the mechanisms will work, it will be hard to judge whether this will be sufficient to entice investors to provide support to European governments.”

Europe’s currency, stocks and bonds rose after 10 hours of talks ended in Brussels with governments boosting the heft of their rescue fund to 1 trillion euros ($1.4 trillion) and persuading bondholders to take 50 percent losses on Greek debt. Measures also included a recapitalization of European banks and a potentially bigger role for the International Monetary Fund in strengthening the bailout fund.

Still to be worked out in negotiations, which may fall prey to fresh bouts of political infighting and investor revolt, is just how the firepower of the 440 billion-euro rescue facility will be leveraged and what banks will get in return for accepting the Greek haircut. As next week’s Group of 20 summit looms, nations from Greece to Italy remain under pressure to restore fiscal order and the onus is on a Mario Draghi-run European Central Bank to keep buying bonds.

Buying Time

“The announcement is enough to buy some time,” said Charles Diebel, head of market strategy at Lloyds Banking Group Plc in London. “Officials have certainly come up with a comprehensive list of actions, but we are certainly still a long way from all the process parts being in place.”

The euro rose as much as 2 percent to $1.4181, the highest since July 1. Yields on Italian and Spanish 10-year bonds fell and the Stoxx Europe 600 Index surged 3.5 percent to the highest since Aug. 3.

There have been false dawns before in the two years since Greece first revised its budget math. Policy makers initially underestimated the threat posed by the Mediterranean nation and then repeatedly failed to muster the financial firepower to prevent it from engulfing Portugal and Ireland before tainting Italy and Spain. Leaders had already declared victory after July talks which featured a 21 percent Greek writedown.

Italian Auction

“Markets now appear to be resigned to tardiness on the part of policy makers and grudgingly prepared to accept that resolution will not be achieved in a single step,” Goldman Sachs Group Inc. strategists said in a note to clients.

An early test of Europe’s latest initiative comes tomorrow when Italy auctions as much as 8.5 billion euros of bonds. The euro-area’s third-largest economy has become a focal point as investors question whether authorities can ring fence the country’s 1.9 trillion euros of borrowing, the euro-region’s second-biggest debt burden in nominal terms after Germany.

Italian Prime Minister Silvio Berlusconi heard demands from EU allies at the summit to present a comprehensive plan to speed debt reduction by spurring economic growth that has lagged behind the EU average for more than a decade. Weeks of bickering within his ruling coalition made it impossible for Berlusconi to pass new measures and he instead offered a 14-page blueprint for reforms that pledged action on asset sales, easing of labor laws and raising the retirement age.

Recession Threat

The summit was the second in four days and the 14th in the 21 months since Europe pledged solidarity with Greece. It came amid mounting global pressure for the euro-area to quarantine Greece and prevent speculation against Italy, Spain and France from ravaging its economy and triggering the second global recession in three years.

“The world’s attention was on these talks,” German Chancellor Angela Merkel told reporters after the summit concluded at about 4:15 a.m. today. “We Europeans showed tonight that we reached the right conclusions.”

Banks bowed to pressure from leaders as their negotiator agreed to higher “voluntary losses” to smooth a second bailout for Greece, which will now include 130 billion euros of official aid, up from 109 billion euros envisioned in July. Just hours before the accord, Institute of International Finance Managing Director Charles Dallara said “there is no agreement,” before he received a rare invite to join the talks.

Greek Haircut

The banks’ resistance was broken by a threat “to move toward a scenario of total insolvency of Greece, which would have cost states a lot of money and which would have ruined the banks,” Luxembourg Prime Minister Jean-Claude Juncker said.

Still to be decided are the finer points of the write-off such as the collateral banks will be given in return and whether future bank debt is backed by a national or European guarantee. Banks and insurers will be asked to accept a writedown of half the nominal value of their Greek bonds.

That “haircut” aims to reduce the country’s debt level to 120 percent of gross domestic product in 2020, still twice the EU limit, though down from the 162 percent forecast for this year. Dallara said in Brussels today that he was confident the participation rate would “very, very high.”

The writedown will make Greece’s debt more sustainable though “this position is fragile and dependent on a set of rather optimistic macro assumptions,” said Nicola Mai, an economist at JPMorgan Chase & Co. If the country’s economy fails to rebound more debt restructuring may be needed, he said.

Leveraging EFSF

Leaders backed two ways of leveraging up the European Financial Stability Facility, which is too small to defend countries such as Italy, which has a debt of more than three times the EFSF.

Under plans to be spelled out in November, the fund will be used to partly insure bond sales and a special investment vehicle will be created that would court outside money from public and private financial institutions and investors to further boost its muscle.

French President Nicolas Sarkozy spoke today with Chinese President Hu Jintao to try to tap support from the country with the world’s largest currency reserves. Hu hopes that the measures will help to stabilize markets, state-owned China Central Television reported after the call. Japan plans to support the increase, and is waiting to hear from European officials on details for the program, according to a person familiar with the matter.

Two-Tier Market

The insurance scheme may still fail to draw investors amid concern its sponsors won’t honor their commitments and questions over the timeframe and amount of guarantees on offer, said Karen Ward, an economist at HSBC Holdings Plc. It could also create a two-tier bond market as investors shy away from the previously- issued unprotected debt, she said.

Economists at Royal Bank of Scotland Group Plc said the 1 trillion-euro goal still falls short of what’s necessary to truly defend Spain and Italy, while warning the special investment vehicle may struggle to issue enough cheap debt to lure outside investors.

The very use of leverage drew criticism from the Bundesbank with President Jens Weidmann saying the “instruments that have been tabled are similar in their design to those that helped to cause the crisis.”

Europe also struck a bank-recapitalization accord, setting a June 30, 2012, deadline for lenders to reach core capital reserves of 9 percent after first writing down their sovereign- debt holdings. Banks that fail to raise enough capital on the markets will first tap national governments, falling back on the EFSF rescue fund only as a last resort.

Bank Capital

The challenges to overcome on that front include deciding which assets banks can count as capital and how financial institutions will raise it given their reluctance to seek cash from shareholders. The European Banking Authority estimated banks’ capital needs at 106 billion euros, with Spanish banks requiring 26.2 billion euros and Italian banks 14.8 billion euros.

The figure is “at the low end of expectations,” said Philippe Bodereau, head of credit research at Pacific Investment Management Co. in a telephone interview. “It would be positive if we saw banks launching rights issues, but most will try to get there by selling businesses, retaining earnings, cutting dividends and deleveraging.”

ECB Role

Leaders tiptoed around the broader role of the politically independent ECB in keeping the euro sound, making no mention of its bond-purchase program in a 15-page statement. The Frankfurt- based central bank was said to be purchasing Italian debt today and Holger Schmieding of Joh. Berenberg Gossler & Co. said it will likely have to keep doing so as policy makers round off their plan. Incoming ECB President Draghi yesterday indicated the policy will continue.

“Without ECB support, the chances of this deal putting an end to the euro debt crisis are now probably below 50 percent,” said Schmieding, Berenberg’s chief economist.

The pact received conditional support from abroad as leaders prepare for the Nov. 3-4 G-20 summit in Cannes, France, which had been set as a deadline for a new European plan and may pave the way for more international assistance. The U.S. Treasury had no immediate comment on the European agreement.

“They need to keep up momentum and urgently to fill in the elements” of the package, said U.K. Prime Minister David Cameron. Canadian Prime Minister Stephen Harper called the agreement “grounds for cautious optimism,” which now needs to be detailed and implemented.

--With assistance from Stephanie Bodoni, Helene Fouquet, Gonzalo Vina, Tony Czuczka, Ewa Krukowska, Jim Brunsden, Jonathan Stearns, Chiara Vasarri, Aaron Kirchfeld, Jurjen van de Pol, Angeline Benoit and Rebecca Christie in Brussels. Editors: Andrew Davis, Fergal O’Brien

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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WPP Predicts Full-Year Revenue Growth to Slow on Europe Woes

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October 28, 2011, 4:57 AM EDT By Jonathan Browning and Amy Thomson

(Updates with CEO comment in third paragraph.)

Oct. 28 (Bloomberg) -- WPP Plc, the biggest advertising company, said fourth-quarter sales growth will slow as an economic slowdown in the U.S. and Europe hurts marketing budgets.

Full-year revenue on a like-for-like basis will grow 5 percent compared with a previous forecast of about 5.9 percent, the Dublin, Ireland-based company said today in a statement.

“I feel pretty much OK” about 2012, Chief Executive Officer Martin Sorrell told Bloomberg Television’s “On the Move” with Francine Lacqua, adding that he predicts the industry will grow by 4 percent next year. Politicians are “not likely to do anything unpleasant before elections,” he said. “The biggest concern is the U.S. deficit, that’s the elephant in the room.”

Some companies are cutting marketing budgets as the sovereign debt crisis in Europe and the U.S. hampers growth. Sorrell has said he intends to double spending on deals in 2011 to tap into faster-growing markets in Latin America and Asia to shield the company from a slowdown in more developed markets.

WPP has announced its intentions to buy at least two dozen companies this year, up from at least 17 in 2010, according to Bloomberg data.

In the U.S., new media advertising companies remain expensive, Sorrel said in an interview. “People haven’t adjusted their price expectations to what’s been happening to the stock markets,” he said.

Dividend

WPP, which said in June it will increase the dividend payout ratio, held talks with investor Capital Research following the share price drop this year, Sorrel said. “They are very much of the view that continuous increase in the dividend is better than share buyback.”

The company now predicts the full-year gross margin will be 5.7 percent, down from a previous forecast for 6.6 percent. At the same time, WPP said its operating margin “should improve” beyond the 70 basis points growth achieved in the first half.

WPP rose 1.3 percent to 686 pence at 9:33 a.m. in London trading. The stock has fallen 13 percent this year.

--Editors: Simon Thiel, Robert Valpuesta.

To contact the reporters on this story: Jonathan Browning at jbrowning9@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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New York Wrestles Over Extending Millionaires Tax

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October 28, 2011

Audio for this story from Morning Edition will be available at approx. 9:00 a.m. ET

Enlarge Hans Pennink/AP

Demonstrators supporting the Occupy Wall Street movement — and an extension of the millionaires tax in New York — protest in Albany on Oct. 21.

Hans Pennink/AP

Demonstrators supporting the Occupy Wall Street movement — and an extension of the millionaires tax in New York — protest in Albany on Oct. 21.

The so-called millionaires tax on New York's top wage earners is set to expire at the end of the year, even as the state struggles to balance its books. A poll released Thursday shows that New Yorkers favor extending the tax by more than 2 to 1.

But the millionaires tax also has its opponents, including the state's popular and powerful governor, Democrat Andrew Cuomo.

John Samuelsen, president of New York City's transit workers union, called on lawmakers to extend the millionaires tax during a rally this week outside City Hall in Manhattan.

"The wealthiest people in New York state are going to get a nice take-home pay raise on Jan. 1, while working families continue to struggle," Samuelsen says in a video clip from the rally posted on the union's website. "It's not the wealthiest New Yorkers that need monetary relief. It's working families."

The tax in question actually applies to individuals who make more than $200,000 a year, or $300,000 a year for families. When it was enacted in 2009, the tax was supposed to be temporary. But there are many in New York who would like to see it extended.

"We have such great need in New York. And we also have the greatest income disparity of any state in the nation," says Ron Deutsch of New Yorkers for Fiscal Fairness, who has been arguing for years that the state needs to shift more of its tax burden to the top wage earners.

Deutsch credits Occupy Wall Street protesters with giving the issue more visibility.

"They're concerned about income inequality. They're concerned about the tax code and how it favors the wealthiest among us," he says. "The Occupy movement has really created space for dialogue that we haven't had for far too long."

Enlarge Evan Agostini/AP

Gov. Andrew Cuomo, shown at the AOL Huffington Post Game Changers Awards on Oct. 18 in New York, has said extending the tax on top earners would be bad for business.

Evan Agostini/AP

Gov. Andrew Cuomo, shown at the AOL Huffington Post Game Changers Awards on Oct. 18 in New York, has said extending the tax on top earners would be bad for business.

The Governor's Response

New York is facing a projected budget deficit of more than $2 billion next year, and recent polls show that an overwhelming majority of New Yorkers support extending the millionaires tax rather than cutting services. But Cuomo, who has some pretty enviable poll numbers himself, does not seem impressed.

At a news conference last week, the governor said the tax is bad for business because it encourages some of the state's most affluent residents to leave.

"The competitiveness of this state is hurt when you're one of the highest tax states in the nation, and businesses and people are more mobile than ever before," Cuomo said. "I also believe that point is all but inarguable."

Competition With Other States

The majority of New York's wealth is concentrated in and around New York City — and it's relatively easy for workers there to commute to Connecticut or New Jersey. But there's some debate about whether taxes are really driving anyone out of New York.

"There's just really no evidence that people are very responsive to small changes in tax rates at the state level," says Charles Varner, a sociologist at Princeton University.

Varner studied the effect of a similar tax on the top 1 percent of wage earners in New Jersey. He found that people consider a lot more than just taxes when they decide to move.

"Where do you want to live? Where is the weather nice? Where does my family live? Where do my friends live? ... Tax rates are just way, way down the list," he says.

Still, opponents of the millionaires tax say Cuomo's argument does have merit. Dan DiSalvo, a senior fellow at the Manhattan Institute, a conservative think-tank, says New York is already one of the most-taxed states in the nation.

"For Gov. Cuomo to make New York competitive and attractive to businesses across the county, he's got to compete with other states," DiSalvo says. "And raising taxes on wealthy individuals is not the kind of signal to send to people who want to come and open a business and make a lot of money."

And, of course, there's the political calculus for Cuomo to consider. The first-term governor campaigned last year on a promise not to raise taxes. And he seems determined to keep that promise — no matter what the polls say.

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Commodity funds upbeat on China

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By Claire Milhench

LONDON | Thu Oct 27, 2011 2:24pm BST

LONDON (Reuters) - Senior fund managers remain optimistic about the prospects for Chinese commodity demand and the outlook for crude oil, but investor fervour for commodities is now more tempered compared with the zeal of recent years.

Doubts about the strength of China's growth prospects have led to weakened investor appetite for commodities over the last quarter amid heightened price volatility, but market watchers expect China to loosen its tight liquidity policy by year-end.

Speaking at the World Commodities Week conference in London on Wednesday, Seth Kleinman, head of energy strategy at Citi, said Citi's base case assumption was China would avoid a "hard landing", favouring a "muddle through" scenario instead.

With investors bailing out of commodities in September he said value was already emerging in certain industrial metals.

"The commodity bull run will resume, it is just on pause for the immediate future," he told conference delegates.

However, markets remain jittery. Iron ore sold off heavily after Chinese steel mills stopped buying and cut production.

The poor steel numbers have increased fears of a hard landing in China, and Kamal Naqvi, global head of institutional sales at Credit Suisse, noted that delegates to the conference were not "religiously bullish" about commodities and China this year.

But fund managers such as Colin O'Shea, head of commodities at Hermes, remain relatively upbeat about the prospects for growth and China's appetite for key commodities such as oil and base metals.

"It comes down to the level of stocks they hold," he argued, speaking to Reuters on the sidelines of the conference on Wednesday. "Globally stocks are pretty low and the Chinese want to manage growth - they don't want a hard landing."

O'Shea said that Hermes saw signs of potential loosening ahead, despite concerns this year about food price inflation.

"They will want to try to keep growth going - I don't think we will have a Chinese crash next year."

Another senior commodities manager with a major hedge fund who did not want to be named said that China was an area of potential concern, but for the moment he remained sanguine.

"There may be a slowdown over the next six to 12 months," he said. "They can't keep building the way they have, but there is still a lot of infrastructure to construct."

He said he had been quite bearish on metals going into the third quarter but is now more positive following the September sell off. He favours the platinum group metals, as platinum is now trading below gold, and he expects an uptick in car sales.

Further out he was more cautious about Chinese demand. "Two to three years down the road there is the possibility of a correction," he said.

INVESTOR FLOWS

Investor enthusiasm for commodities has waned this year due to heightened volatility. Barclays Capital reported that the third quarter ended with $393 billion in commodity investments, down from $408 billion at the end of the second quarter.

September saw the largest decline in key commodity indexes the S&P GSCI and the DJ-UBS since May 2010 and October 2008 respectively, BarCap noted.

"All in all, the recent outflow along with recent aggressive selling of commodities by hedge funds suggests commodity investors are expecting the worst," said BarCap.

But some managers detected signs of investor interest returning in certain segments.

JB Germain, head of EMEA commodity solutions at Citi, told Reuters his pension fund and asset management clients had reduced their notional overall exposure to commodities, but over the last month they have begun to come back to the market.

In particular, they have been seeking exposure to crude oil. "They are worried about the upside risk," he said.

Hermes' O'Shea pointed to the persistent tightness in crude, saying that overall he remained pretty constructive on the sector. "We are still in a supply-constrained world."

Another hedge fund manager said he was becoming more positive on crude oil again after a period of bearishness, but is holding back until the markets enter a more settled risk-on phase, and investor flows return.

"I like the fundamentals but it is too early - we won't see much going into commodities. Until then it will remain volatile - plus the price is still fairly high," he noted.

Other veteran fund managers were also conservative in their assessment of investor flows into commodities over the next 12 months. "I think flows will be modest in or out of the space," said Bob Greer, real return product manager at PIMCO.

"There will be a little inflow, a little outflow, but nothing major either way."

(Reporting by Claire Milhench; Editing by Alison Birrane)

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Markets soar on Europe crisis plan

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World stock markets moved sharply higher Thursday after European Union leaders meeting in Brussels agreed early in the day to a plan to address the region's debt crisis.

The Toronto Stock Exchange gained 279.38 points, or 2.3 per cent , to close at 12,465.44. The Dow Jones industrial average in New York rose 339.51 points or 2.86 per cent, higher to 12,284.59, after trading up as much as 415 points. The Dow hasn't closed above the 12,000 level since Aug. 1, 2011.

It was on course to make the biggest one-month gain in its history.

The S&P 500 gained 42.59 points, or 3.43 per cent, to 1,284.59, erasing its loss for 2011 and putting it on pace for the biggest monthly percentage gain since 1974.

The Nasdaq composite index gained 87.96 points, or 3.32 per cent, to 2,738.63.

In addition to news of a debt deal in Europe, the Dow was also boosted by new data showing the U.S. economy grew by 2.5 per cent last quarter.

Some analysts said the rally was overdone, considering the lack of details on how the plan will actually work.

"I think maybe this market probably is getting a little ahead of itself," said Fred Ketchen, manager of equity trading at Scotia Capital.

"What we really need is some more clarification and that will take a lot of patience because it isn't going to come all of a sudden by snapping your fingers together."

'The summit is likely to be the corner from where the odds start to change in the right direction.'—Erik Nielsen, global chief economist at Unicredit

But others said the deal was a breakthrough.

"The summit is likely to be the corner from where the odds start to change in the right direction," said Erik Nielsen, global chief economist at Unicredit.

Total trade by Canadian businesses with the European Union — excluding the UK — is small but not insignificant at $50 billion, or six per cent of total Canadian trade.

But “stability in Europe is of particular importance to many Canadian businesses,” Benjamin Reitzes, BMO Capital Markets senior economist said.

The Canadian dollar also rocketed higher on the news, gaining 1.36 cents to close above parity with its U.S. counterpart, at 100.88 cents US.

The loonie has not closed above parity in more than a month.

The euro gained strongly against the American dollar, rising more than two per cent to $1.42 US.

'We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis,' France's President Nicolas Sarkozy says. Yves Herman/Reuters

European markets also rose, with London's FTSE 100 closing up 2.89 per cent, Frankfurt's DAX ahead by 5.35 per cent while the Paris CAC 40 gained 6.28 per cent.

Shares in Asia posted solid gains earlier in the day. Japan's Nikkei 225 index rose two per cent, South Korea's Kospi added 1.5 per cent and Hong Kong's Hang Seng gained 3.3 per cent.

December oil closed up $3.76, or 4.2 per cent, at $93.96 US per barrel. Gold gained $24.20 to $1,747.70 US an ounce.

The deal means holders of Greek government-issued bonds would agree that those are worth only half what they were when issued and increases the European fund available to rescue troubled governments and banks by to €$1.4 trillion ($1.97 trillion Cdn).

The fund is intended to serve as a firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.

French president Nicolas Sarkozy also said he planned to seek commitments from China to contribute to the enlarged rescue fund. Both China and Japan have indicated they are willing, but no amount has been set.

A commitment might be announced when the leaders of the G20 meet in Cannes, France, next week.

European Commission President Jose Manuel Barroso says Europe 'must never find itself in this situation again.' Virginia Mayo/Associated Press

"We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis," Sarkozy told reporters after the meeting.

"Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."

The leaders have also asked the big European banks which hold dodgy Greek debt to raise €106 billion ($149 billion) by June, “which sounds like a lot of money,” David Baskin of Baskin Financial Services told CBC News, “but compared to the amount of money, for example, that was lost in the American mortgage fiasco it’s, relatively speaking, peanuts.”

The important thing is, that it quantifies the amount, it puts it in a box, there’s no discussion about it anymore. Everybody knows what it’s going to be.”

Baskin said markets were also buoyed by the fact that the EU leaders actually took the issue seriously enough to agree on a plan.

“At the very least they showed that they can do something, that it’s not going to be endless dithering to the end of time.”

But most of all for the markets, said Baskin, the agreement allows what is technically a Greek default without triggering complex financial derivatives, called credit default swaps, that are designed to ensure bond holders from losses.

Large European banks are thought to be on the hook for potentially trillions in losses for backing that insurance, Baskin said, “and that’s a huge relief to the entire banking system.”

The complex financial details of how to enact the deal have still to be worked out, and European leaders will have to do that quickly and skillfully in order to satisfy markets.

It's unclear whether the bailout fund changes will be enough to prop up Italian and Spanish banks, or whether the bond write-down will be enough to pull Greece from the brink.

Eurozone finance ministers are to work out the terms of the scheme in November.

Past attempts to contain Europe's two-year debt crisis have proved insufficient. Greece has been surviving on rescue loans since May 2010. In July, creditors agreed to take some losses on their Greek bonds, but that wasn't enough to fix the problem.

With files from The Canadian Press and The Associated Press

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Wheat growers to sue marketing board

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The Western Canadian Wheat Growers Association says it will sue the Canadian Wheat Board and eight of its directors for alleged misuse of farmers’ money.

The lawsuit would be the third legal action filed in connection with Ottawa's plans to open up western Canadian wheat and barley marketing. The CWB announced this week it is suing the federal government over Bill C-18, which, if passed, would end single desk selling of western wheat and barley through the board. And another group, Friends of the Canadian Wheat Board wants the courts to review the federal legislation.

Agriculture Minister Gerry Ritz has argued that western Canadian farmers shouldn't be forced to sell their grain through the wheat board.

The wheat growers association agrees.

"We have been contemplating legal action against the CWB for quite some time now," said Kevin Bender, president of the Wheat Growers. "The CWB’s decision to file a legal action against the federal Minister of Agriculture was the tipping point. We cannot stand idly by and watch the CWB directors continue to misuse our money."

"We hope to prevent the CWB from wasting our money and standing in the way of legislation that will give us the freedom to sell our own grain," said Bender. An application to the courts is expected to be filed early next week.

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BNP, SocGen Speed Up Trading-Book Cuts

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October 27, 2011, 12:41 PM EDT By Fabio Benedetti-Valentini

(Closes shares in eighth paragraph.)

Oct. 27 (Bloomberg) -- BNP Paribas SA and Societe Generale SA, France’s largest banks, are accelerating cuts in their 1.1 trillion-euro ($1.5 trillion) trading books to avoid going to shareholders or the government for capital.

The banks, which last month began a program to trim about 300 billion euros in assets by 2013, have focused on cutting dollar-funded businesses such as aircraft lending after Europe’s sovereign debt woes squeezed funding. The lenders’ statements show that their trading operations have not gone unscathed.

Reluctant to lose their top spots in the risky yet lucrative trading and derivatives business, Societe Generale and BNP Paribas hadn’t shrunk the operations as much as rivals such as Deutsche Bank AG and UBS AG. The French banks may have little choice after European Union leaders pushed lenders to boost capital. BNP Paribas and Societe Generale need 5.4 billion euros in new capital, the region’s banking regulator said today.

“It’s a striking sin of pride,” said Francois Chaulet, who helps manage 250 million euros at Montsegur Finance in Paris. “They all want to keep their rankings, but French banks risk not having the necessary capitalization.”

The two banks have already made some cuts. In the first half, BNP Paribas statements show its trading book, with bonds, equities, repurchase agreements and derivatives, shrank about 8 percent to 717 billion euros, after holding steady in 2010.

Societe Generale’s trading book slipped 4 percent in the first six months to 219 billion euros, after rising 35 billion euros last year. Its derivatives trading fell 8 percent to 176 billion euros after rising by a similar percentage last year.

Shares Jump

French banks need about 8.8 billion euros in fresh capital, according to the European Banking Authority, with 2.1 billion euros for BNP Paribas and 3.3 billion euros for Societe Generale.

BNP Paribas and Societe Generale said they’ll meet the new capital requirements through their own means, without reaching out to shareholders or the state. BNP Paribas rose 17 percent in Paris, the biggest jump almost 1 ½ years, to 35.13 euros. Societe Generale gained 23 percent, also the steepest rise since May 10, 2010, to 22.99 euros.

The two banks have said they are shrinking corporate- and investment-banking, without commenting on specific cuts. Societe Generale’s corporate- and investment-banking unit, home to its trading business, accounted for 30 percent of sales and 44 percent of net income in 2010. At BNP, it was 27 percent of revenue and 41 percent of pretax profit.

‘Almost Intact’

Between 2007 and 2010, BNP Paribas cut its post-Fortis- purchase capital-markets assets including trading and derivatives by about 10 percent and Societe Generale by about 6 percent, estimates Christophe Nijdam, an analyst at AlphaValue in Paris. For Frankfurt-based Deutsche Bank the figure was 25 percent, Credit Suisse Group AG 55 percent and UBS 47 percent.

“For French banks, it was unthinkable before this summer, but the trading book is no longer immune from cuts,” he said. “They’re naturally more inclined to cut other businesses before the trading book. Some of the trading book is more profitable but also riskier. They prefer to cut the lending book.”

Societe Generale is the world’s largest equity derivatives house by sales, according to a June report by JPMorgan Cazenove. BNP Paribas is No. 3, behind Goldman Sachs Group Inc.

“To avoid weakening its results, Societe Generale has kept its corporate and investment bank almost intact,” said Pierre Flabbee, an analyst at Kepler Capital Markets in Paris. “If you want to cut the balance sheet’s size, capital-market commitments can fall at very high speeds, but results too.”

Worsening Context

Shrinking operations may result in an acceleration of job cuts at the banks. BNP Paribas Chief Executive Officer Baudouin Prot said Sept. 22 that the bank plans “significant” staff reductions at its corporate and investment-banking unit. Societe Generale said Sept. 14 that it’s seeking a 5 percent cost reduction at its unit with possible job cuts.

BNP Paribas and Societe Generale, both based in Paris, are racing to shrink balance sheets after their stocks plunged during the summer and U.S. money-market funds became reluctant to lend them dollars, making it difficult to refinance their international operations.

Before today, BNP Paribas, France’s largest bank, had tumbled 44 percent, while Societe Generale slid 54 percent since early July, more than the 26 percent drop in the 46-member Bloomberg Europe Banks and Financial Services Index.

“In many respects, the French banks have been holding on to the hope that things would be better,” said Julian Chillingworth, who helps manage 16 billion pounds ($25.5 billion) at Rathbone Brothers Plc in London.

Selling Frenzy

Markets have taken a turn for the worse. The biggest Wall Street firms are posting their worst quarter in trading and investment banking since the depths of the credit crunch. Deutsche Bank, Europe’s biggest investment bank, on Oct. 25 posted a decline in trading revenue for the third quarter.

Selling operations in the current financial context would be difficult, Chillingworth said.

“It’s all very well that you’re announcing sales of assets but you need to find a buyer,” he said.

BNP Paribas said last month it’ll cut risk-weighted assets by about 70 billion euros by the end of next year. It plans to slash total assets by 10 percent, or about 200 billion euros.

Societe Generale, France’s second-largest lender by market value, said this month it will shrink its risk-weighted assets by as much as 80 billion euros by 2013, decreasing funding needs by as much as 95 billion euros.

Tougher Rules

Their asset-cutting efforts mirror those of European rivals. UBS, Deutsche Bank, Barclays Plc and Credit Suisse have disclosed plans to shrink their combined risk-weighted assets by as much as $415 billion to prepare for stricter capital requirements under Basel III rules.

“Everybody is trying to reduce risk-weighted assets as soon as possible,” said Kian Abouhossein, a JPMorgan analyst in London. “They’ve already all started, but they’ll probably find it harder than expected because the environment is clearly getting tougher.”

Starting Dec. 31, European investment banks face higher risk-weighted assets as part of an upgrade of Basel II rules. The value-at-risk will be “stressed” for longer and capital charges on products such as credit-default swaps will increase.

Societe Generale said last year the upgraded Basel II rules will boost risk-weighted assets by 40 billion euros. BNP Paribas, which had capital markets risk-weighted assets of 71 billion euros at the end of 2010, said in March that upgraded Basel II and III will add about 60 billion euros more.

Capital Needed

The higher the risk-weighted assets, the more capital the banks need against them. Europe’s banks will need to raise 106 billion euros in fresh capital under tougher rules being introduced, the regulator said. The extra reserves aimed at meeting a temporary requirement for banks to hold 9 percent in core reserves, after sovereign debt writedowns, the EBA said.

EU leaders met yesterday to hammer out a package to bolster the region’s rescue fund, recapitalize banks and convince investors to cut Greece’s debt load to prevent contagion effects in Italy and Spain. Policy makers and bankers converged on a 50 percent writedown for Greece’s lenders.

At the end of June, French financial firms had $681 billion in public and private debt in Greece, Portugal, Ireland, Italy and Spain, according to Basel, Switzerland-based Bank for International Settlements. That’s the biggest exposure to those countries and almost a third more than German lenders.

‘Lesser Evil’

Both BNP Paribas and Societe Generale say they can meet new Basel capital requirements without capital injections. Avoiding capital increases may mean scaling back some risky trading businesses, and thus their capital needs.

“They will definitely have to reduce their trading activities,” said Valerie Cazaban, who helps manage 100 million euros at Stratege Finance in Paris. “It’s the lesser of the evils. It would shrink their balance sheets, it can be done in stages, and it is better than reaching out to shareholders.”

BNP, which reports third-quarter earnings Nov. 3, is cutting $82 billion in corporate- and investment-banking assets. In the first half, it cut liquidity needs by $22 billion, “mainly in capital markets activities,” the bank said.

Societe Generale, which is set to report results on Nov. 8, said Oct. 4 its “capital markets’ liquidity needs have already been significantly reduced during the summer.”

Deeper reductions in some of its trading operations may be in the offing.

“It’ll becoming very difficult to keep the trading and derivatives books intact,” said Montsegur’s Chaulet. “The banks must reduce risky assets, and raising capital in current conditions is impossible.”

--With assistance from Elena Logutenkova in Zurich, Aaron Kirchfeld in Frankfurt and Jim Brunsden in Brussels. Editors: Vidya Root, Frank Connelly

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net.

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net.

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Norway oil fund has second worst quarter ever

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By Victoria Klesty

OSLO | Fri Oct 28, 2011 9:51am BST

OSLO (Reuters) - Norway's sovereign wealth fund battled through the second worst quarter in its history in the three months to September as Europe's debt crisis and a fear of a worldwide recession hit share prices, Europe's biggest equity investor said on Friday.

The fund said in its quarterly report its return on investment was -8.8 percent against 0.3 percent growth in the previous quarter.

The value of the central bank-run fund stood at 3.055 trillion Norwegian crowns at the end of September, down from 3.111 trillion crowns at the end of June. On Friday it was worth 3.09 trillion, according to its website.

The return was 0.3 percentage points below the fund's benchmark portfolio, which a neutral weighting against all the markets the fund is allowed to invest in. Some 55.6 percent of the fund was allocated to stocks versus 60.5 percent at the end of the second quarter.

"Europe's debt crisis and fears of a global economic slowdown weighed on stocks in the quarter," said Yngve Slyngstad, chief executive of the fund's manager, Norges Bank Investment Management.

"Most of the fund's new capital was placed into equities to exploit the declines and take advantage of our long-term perspective."

Government bonds led gains in the fund's fixed-income investments, returning seven percent, the fund said.

Commonly known as the oil fund, it invests the Norwegian state's tax revenues from oil and gas activities abroad to save for future generations, and is one of the world's largest sovereign wealth funds.

The best performing stocks were Apple (AAPL.O), Vodafone VODL.L and IBM (IBM.N), while the worst were BNP Paribas (BNPP.PA), Siemens (SIEM.NS) and Daimler (DAIGn.DE).

(Writing by Gwladys Fouche; Editing by John Stonestreet)

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Hedge funds fret over bank counterparty risks

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By Tommy Wilkes

LONDON | Thu Oct 27, 2011 2:44pm BST

LONDON (Reuters) - Hedge funds, with memories of the havoc wreaked by Lehman's demise still fresh in their minds, are moving away from banks singled out by markets as higher risk, giving rivals a chance to grab lucrative business serving these key clients.

Banks such as JP Morgan (JPM.N), HSBC (HSBA.L) and SEB (SEBa.ST) have all seen hedge funds soliciting the services of their prime broking desks, which lend money to these specialist asset managers and provide back-office services.

"We have seen a significant increase in hedge funds moving business over to us recently, especially since September," said Chris Barrow, global head of sales for prime services at HSBC.

Three $1 billion-plus funds moved business to the British bank in a single day earlier this month, Barrow said.

The collapse of Lehman Brothers in 2008 exposed hedge funds to billions worth of frozen trades they were unable to close, often also finding that assets they thought were safe had been lent out to other parts of the bank. These worries have returned with the Euro zone debt crisis.

If a prime broker runs into problems related to its parent company, hedge funds may suddenly be asked to pay back their loans, forcing the fund to conduct a firesale of assets, potentially at knock-down prices.

Most funds now conduct their trades across multiple prime brokers, and demand more assets are held in safer, segregated accounts, limiting for now the extent of big shifts from one broker to another.

Nevertheless, the lessons from Lehman are prompting some funds to spread their business more widely, which could challenge the dominance of heavyweights such as Goldman Sachs (GS.N) and Morgan Stanley (MS.N) in an industry that generated around $10 billion in revenues in 2010.

Hedge funds, keen to placate investors still angry about past losses, are now closely watching the cost of insuring bank debt against default as a gauge of counterparty risk. This is measured by derivatives known as credit default swaps.

"I'd expect people to have been monitoring it... and some people will definitely have done something about it," said one hedge fund executive, asking not to be named.

The cost of insuring the debt of banks such as Morgan Stanley (MS.N) and Bank of America Merrill Lynch (BAC.N) is now double that of some rivals.

"It's a major issue," said one investor in hedge funds. "No-one wants to be put in the same situation again (as with Lehman). The wounds are still too fresh."

DON'T PANIC

Morgan Stanley, one of the largest players in the fiercely competitive industry, saw the cost of insuring its debt, based on 5-year CDS, rocket towards 600 basis points in early October.

It has since fallen to around 320 bps, but this is still more than double levels seen in July, according to finance industry data provider Markit.

Societe Generale (SOGN.PA), which jointly owns prime broker Newedge with Credit Agricole (CAGR.PA), has seen its 5-year CDS rise to around 270 bps from less than 130 bps in July, though the spread was falling on Thursday after Europe's leaders struck a deal to provide debt relief for Greece.

Bank of America Merrill Lynch's (BAC.N) 5-year CDS is more than 300 bps.

The 5-year CDS spreads for JP Morgan and Credit Suisse (CSGN.VX) -- which has expanded in prime broking -- have also risen in recent months, but still trade at less than 150 bps.

The trigger for funds to move may be a specific level, which prime brokers and hedge funds say can be a CDS spread upwards of 300 basis points, or higher.

Morgan Stanley and Newedge declined to comment.

The re-emergence of so-called counterparty concerns as a result of the euro zone debt crisis has also had an impact outside the hedge fund community

Large agencies and companies have also been shifting their derivatives exposure, particularly from the U.S. investment banks.

DOMINANT PLAYERS

Sensing the appeal to hedge funds of a strong counterparty, some banks are now winning more business away from the traditionally dominant players.

Atilla Olesen, SEB Enskilda's Head of Prime Brokerage and Securities Finance said the Swedish bank was winning business from managers citing counterparty concerns.

"Sometimes it is the whole book and sometimes it is part of the book, depending on strategy and geography," he said.

JP Morgan, which captured Bear Stearns prime broking desk when it bought the bank in 2008, launched a complete prime services for European hedge funds in June.

The firm had seen some transfers, said a source familiar with the situation, but the moves were "not massive", reflecting a wide consensus that while some assets were being moved, the quantities were nowhere near 2008 levels.

The bank declined to comment.

JP Morgan was the biggest prime broker by assets in the second quarter of this year, capturing almost 28 percent of the market, ahead of Goldman Sachs' 20 percent and Morgan Stanley's 14 percent, according to data from Hedge Fund Research.

(Additional reporting by Douwe Miedema and Laurence Fletcher, Editing by Douwe Miedema and Jane Merriman.)

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Average weekly earnings rise in August

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Average weekly earnings increased slightly in August, up 0.8 per cent to $877.28 from July's level, Statistics Canada data showed Thursday.

The increase comes after two consecutive months of small declines. Compared with the same month a year earlier, average weekly earnings were up by 1.9 per cent. That's the smallest pace of increase since November 2009.

Non-farm payroll employment increased by 4,800 in August compared with July. Year over year, employment was up 1.6 per cent, or 238,400 jobs.

A decrease in hours worked was a factor in the slower rate of wage growth, the data agency said. The average work week declined 0.3 per cent from 33.0 hours in August 2010 to 32.9 hours in August 2011. The number of hours worked fell in both the goods-producing sector and the service sector.

But on a monthly basis, the average number of hours worked increased by 0.3 per cent from July to August.

Average earnings increased in every province, but Newfoundland and Labrador, New Brunswick and Alberta led the way.

The lowest growth rate occurred in Ontario, where the average weekly earnings of $894.17 in August has changed little since February 2011.

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Facebook to build Arctic server farm in Sweden

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Facebook is to build a new server farm on the edge of the Arctic Circle — its first outside the United States — to improve performance for European users, officials of the social networking site said Thursday.

It will also expose them to potential eavesdropping from a Swedish intelligence agency, according to Sweden's Pirate Party, a group opposing government interference with the internet.

Facebook confirmed Thursday it had reviewed potential locations across Europe and decided on the northern Swedish city of Lulea for the data center partly because of the cold climate — crucial for keeping the servers cool — and access to renewable energy from nearby hydropower facilities.

The move reflects the growing international presence of the California-based site, which counts 800 million users worldwide.

"Facebook has more users outside the U.S. than inside," Facebook director of site operations Tom Furlong told The Associated Press. "It was time for us to expand in Europe."

He said European users would get better performance from having a node for data traffic closer to them. Facebook currently stores data at sites in California, Virginia and Oregon and is building another facility in North Carolina.

The small Swedish Pirate Party, which is not represented in Parliament, warned that placing the servers in Lulea would also expose European users to eavesdropping from Sweden's National Defence Radio Establishment, also known by its Swedish initials FRA.

Lulea county president Karl Petersen, left, shakes hands with Tom Furlong, Facebook director of operations at the announcement of Facebook's first server outside the U.S. Susanne Lindholm/Associated PressThe agency can conduct surveillance on telephone conversations and data traffic to and from Sweden under legislation designed to fight cross-border terrorism and crime, which raised strong protests from privacy activists when it was passed in 2008.

Google's global privacy council Peter Fleischer called it "the most privacy-invasive legislation in Europe."

Jan Fredriksson, a spokesman for Facebook in Sweden, said the company was confident that restrictions on the agency's surveillance activities would protect the integrity of regular Facebook users.

"This isn't something that will affect users," Frediksson said. "Only people who are strongly suspected of terrorism can become subjected to this."

Facebook is facing its own privacy concerns in Europe over how long it retains users' information and other issues.

"Facebook isn't famous for caring about its users integrity, so they didn't care about it in this case either," Pirate Party leader Anna Troberg said.

FRA spokeswoman Anni Boelenius said the agency only conducts surveillance against specific threats to Sweden, including cyber security, Swedish troops abroad and the military capabilities of foreign powers.

"The surveillance is aimed at these phenomena and not against specific services or means of communication," she said.

The Lulea data center, which will consist of three 28,000-square metre server buildings, is scheduled for completion by 2014.

The site will need 120 MW of energy, fully derived from hydropower.

Located 100 kilometres south of the Arctic Cicle, Lulea lies near hydropower stations on a river that generates twice as much electricity as the Hoover Dam on the border of Nevada and Arizona, Facebook said.

In case of a blackout, construction designs call for each building to have 14 backup diesel generators with a total output of 40 MW.

Facebook didn't give the price of its investment, but Lulea officials have previously projected construction costs of up to $760 million. The Swedish government said it was ready to pitch in with $16 million.

"We knocked on doors at Facebook's head office (in Palo Alto, California) and today they're moving in to Lulea — this is huge, really huge," said Matz Engman, who heads the Lulea Business Agency, a public-private partnership working to attract businesses to the region.

With winter temperatures well below freezing and summertime highs that rarely climb above 25 C, Lulea has used its frigid climate as a selling point in its efforts to establish itself as a hub for server farms. Other Nordic cities have adopted similar strategies.

In 2009 Google purchased a paper mill in Hamina, southern Finland, and turned it into a data center, using seawater from the Baltic Sea for its cooling system.

Servers inside data centers are the backbone of internet services such as Facebook. The servers store and transmit billions of status updates, links, photos and all the outside apps used by Facebook's members.

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Behind the scenes of the eurozone's 11th hour deal

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Brussels (CNN) – Travelling to Brussels this weekend on the Eurostar, one couldn't help feeling as though the train was moving into the abyss: The endless money pit that was soon to become the "no eurozone."

Upon my return journey, all things euro appeared somewhat to have regained their star quality, after European Union leaders finally reached a deal on how to solve the eurozone's sovereign debt crisis.

At around 4:15am local time Thursday, and after hours of fraught negotiations, a pale and exhausted French president, Nicolas Sarkozy, mounted the podium in room 20.45 of the European Council. He was there to brief his compatriots, European neighbors and the world. Finally – it seemed - disaster had been averted.

After two summits in four days, the heads of the European Union's 27 members –including 17 of those that use the euro - agreed to what they called a “lasting” and “credible” solution.

The solution consists of a three pronged attack on the crisis. Firstly, the European Financial Stability Facility – or bailout fund – will be boosted four or five fold by borrowing. The value of Greek bonds will be slashed in half and finally, the region's most precarious banks ordered to raise their reserves of cash to protect against a financial shock.

The package – worth over a trillion euros – is certainly ambitious, but was it worth waiting for?

The term “11th hour” was never more apt, because in this case it did take these leaders 11 hours to see eye to eye.

If you think that is tough, spare a thought for the two thousand accredited journalists, many of whom, like your correspondent, waited 22 hours for the deal to be signed.

After the EU's first working session wrapped up sometime around 8:30pm local time, we were treated to a rather lacklustre formalization of plans to tackle the banks' balance sheets.

This was expected, but irony was noted: Who would have thought that the banks - the main protagonists of the 2008 crash - would have been the easiest hurdle to overcome?

By 11:30pm, it became obvious we were in it for the long haul. Rumors of a deadlock between officials and private bondholders of Greek debt heightened the tensions and sharpened moods.

Spanish wire journalist Maria Tejero Martin, and colleagues from the Efe news agency, gave up hopes of getting out to celebrate her birthday. They popped open a bottle of cava and serenaded her with a Happy Birthday song.

The room applauded. Cake was handed around.

By midnight the bar had stopped serving Belgian beer, much to the disappointment of some British colleagues who instead sat there glumly nursing cups of Belgian coffee.

One blogger tweeted "500 journalists held hostage by EU leaders at the European Council"' – drawing a humorous comparison with the tense situation at Tripoli's Rixos hotel earlier this year.

Another warned of a previous EU agricultural summit in 1988 that went on for four days.

I chipped in with tales of my days covering the seemingly endless conclave in Rome which saw Pope Benedict XVI succeed John Paul II.

The politicians weren't the only ones with bailout fatigue.

About an hour before the high-level wrangling wrapped up, the leaders left the room, recalculated some sums, checked their figures and went back in.

At 4:15am, as a new dawn began, the financial fireworks kicked off with confirmation of a consensus reached.

The framework was there and so were the figures, exceeding many dwindling expectations.

Today the world economy breathes a sigh of relief.

Europe's leaders appear stronger, and re-united after their lovers' tiff. But unless the summit's plans are implemented with all possible haste we are not yet out of the woods.

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Volkswagen Profit Climbs on SUV Demand

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October 27, 2011, 8:50 AM EDT By Andreas Cremer

(Updates with comments on Suzuki partnership beginning in 10th paragraph.)

Oct. 27 (Bloomberg) -- Volkswagen AG, Europe’s largest automaker, said third-quarter operating profit surged 46 percent on demand for Audi and VW brand sport-utility vehicles.

Operating profit advanced to 2.89 billion euros ($4.05 billion) from 1.99 billion euros a year earlier, the Wolfsburg, Germany-based company said today. Profit beat the 2.61 billion- euro average estimate of 15 analysts surveyed by Bloomberg. The shares rose the most in more than two years.

Chief Executive officer Martin Winterkorn is expanding in China and the U.S. in a bid to surpass Toyota Motor Corp. as the world’s biggest carmaker. The German manufacturer has a goal of boosting deliveries 11 percent this year to a record 8 million vehicles. VW stuck to a forecast that 2011 Ebit and revenue will be “significantly higher” than last year.

“VW’s business remains very solid,” said Frank Schwope, a NordLB analyst in Hanover, Germany, who recommends buying the stock. “They’re headed for a massive profit this year. The good performance should continue through the first half of 2012.”

Volkswagen rose as much as 12.15 euros, or 10.3 percent, to 130.35 euros, the most since Aug. 19, 2009, and was up 9.2 percent as of 2:23 p.m. in Frankfurt trading. The shares have gained 6.3 percent this year, valuing the German company at 55.6 billion euros.

Production Expansion

VW and Audi have expanded SUV production in the past quarter to meet high demand. Audi suspended summer holidays at its main factory in Ingolstadt, Germany, to maintain output of the Q5 SUV and extended around-the-clock production of the Q7 model in Bratislava, Slovakia. VW added shifts to increase production of the Tiguan compact SUV.

Third-quarter net income more than tripled to 7.04 billion euros. Profit was impacted by a gain from the revaluation of an option linked to VW’s planned combination with Porsche SE. Revenue gained 25 percent to 38.5 billion euros.

“Our strong business performance shows the strength and stability of our strategy,” Winterkorn said in a statement. “In light of the current economic uncertainties, we are continuing to monitor developments in the global automotive markets extremely closely.”

Daimler AG, the world’s third-largest maker of luxury vehicles, today reported a decline in quarterly profit for the first time in two years on slowing sales growth and costs for new models. PSA Peugeot Citroen, Europe’s second-largest carmaker, yesterday cut its 2011 auto profit target and said it may eliminate as many as 3,500 jobs as pricing pressure rises.

Unraveling Partnership

VW’s partnership with Suzuki Motor Corp. has deadlocked in recent months, with the Japanese manufacturer urging VW to sell back its 19.9 percent stake. VW has dismissed Suzuki accusations that it violated a cooperation accord by not sharing technology, and repeatedly said it plans to keep the holding.

Volkswagen said today that it no longer classifies Suzuki as an “associate,” retracting wording that set off the downward spiral in the tie-up. VW enraged Suzuki by saying in its annual report in March that it could “significantly influence financial and operating policy decisions” at Suzuki.

“The opportunity to exert notable influence upon Suzuki is, for the time being, no longer available,” Volkswagen said today, adding that it now lists Suzuki under ”other holdings.”

VW won European Union antitrust approval last month to take a majority stake in MAN SE. VW has been seeking closer links between MAN and Scania AB, also controlled by VW, with a goal of saving as much as 1 billion euros in annual costs.

A planned merger with Porsche SE is being held up by lawsuits in the U.S. and Germany, and investigations over accusations Porsche misled investors during a failed attempt to buy VW. Porsche has repeatedly denied all of the allegations.

Record Investments

The maker of the Golf hatchback, VW’s best-selling vehicle, plans to invest a record 62.4 billion euros over the next five years on plants, models, research and development to underpin its global expansion. VW wants to hire more than 50,000 workers through 2018 as it targets more than 10 million autos per year.

VW’s nine-month deliveries rose 14 percent to 6.1 million units, powered by a 15 percent increase in China and a 20 percent gain in the U.S. Sales of the namesake brand’s models, such as the Golf and Polo subcompact, rose 12 percent to 3.8 million, while deliveries of Audi cars, including the revamped A6 and the Q5 SUV, increased 17 percent to 973,000 autos.

Audi’s nine-month operating profit surged 74 percent to 3.96 billion euros, accounting for almost half of VW group gains. Profit at VW’s namesake brand more than doubled to 3.3 billion euros while cost-cutting steps at Spanish division Seat helped shrink the loss by more than half to 101 million euros.

“We are on the right track with our strict cost and investment discipline and will systematically continue along this path,” Chief Financial Officer Hans Dieter Poetsch said. “We have established a strong position and our sound finances mean we are well prepared for the future, even if this entails economic uncertainties.”

--Editors: Chad Thomas, Chris Reiter

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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Bank race for capital to see pay and dividends cut

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By Steve Slater

LONDON | Thu Oct 27, 2011 9:26am BST

LONDON (Reuters) - Europe's banks were told to cut dividends and bonuses to help them find 106 billion euros (93 billion pounds) to shore up their capital, and agreed to halve the value of their Greek government debt, sending their shares sharply higher .

After tense talks that ran to the early hours of Thursday, the agreement by private sector investors to take a 103-billion euro hit on their Greek bonds marked a breakthrough for EU leaders trying to halt a eurozone debt crisis from spreading.

"It's short on detail but it's progress," said Simon Maughan, head of trading for Europe at MF Global.

"There's a fairly defined timeline to deal with this. The banks have to raise all of the money by the end of June, so they've got to get on with it," he added.

Bank shares jumped on relief that the deadlock had been broken. By 8:20 a.m. the STOXX European bank index was up 4.4 percent.

"Agreement has emerged which should give markets reassurance that politicians are finally mindful of the urgency of putting sufficient measures together to prevent further contagion of the credit crisis into core European," said Vivek Raja, analyst at Oriel Securities.

Banks in Spain, Italy, France, Portugal, Greece and elsewhere were told they needed to recapitalise to be able to better withstand eurozone sovereign bond losses and an economic downturn.

The amount needed was in line with expectations, though Spanish banks need more than many analysts' forecast, at 26 billion euros.

Seventy banks were tested, but the European Banking Authority (EBA) did not break down how much each lender needs, although some announced details.

Spain's BBVA (BBVA.MC) said it needs 7.1 billion euros. Santander (SAN.MC) declined to say how much it needs, but it could be a similar amount to BBVA, analysts said.

France's BNP Paribas (BNPP.PA) requires 2.1 billion euros, Societe Generale needs 3.3 billion and BPCE, the mutual that owns Natixis (CNAT.PA), is in need of 3.4 billion.

Other major banks expected to need to bolster capital include Italy's UniCredit (CRDI.MI) and Germany's Deutsche Bank (DBKGn.DE), although the latter has said it will be able to meet its shortfall without any state help.

Shares in BNP Paribas, SocGen and Deutsche Bank rallied over 7 percent due to their modest capital needs, while Credit Agricole (CAGR.PA) jumped 10 percent as it did not need funds.

Capital raising by the banks is expected to be limited. Of the sum needed, 30 billion euros is already being provided to Greek banks under an aid plan.

Portugal's banks need 7.8 billion euros, and that country is also already receiving aid to help its banks. Belgium's Dexia

If banks at risk of a capital shortfall cut dividends this year and next it could save about 32 billion euros, analysts at Credit Suisse estimated earlier this week.

Asset sales and debt liability management plans will provide further cash. Some deleveraging -- as long as it is not what the European Banking Authority deemed "excessive" -- will lift capital ratios further.

That could see banks needing to raise less than 30 billion euros from investors. With European bank shares trading at an average 0.6 times book value, any capital raising would be painfully dilutive for investors.

(Reporting by Steve Slater; Editing by David Hulmes and David Cowell)

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EU trade deal could strengthen drug protection

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A trade deal with the European Union could make it harder to buy generic drugs, the association representing their manufacturers said Thursday.

The generic and name brand pharmaceutical industries duked it out over what's best for consumers, as MPs on the House Trade committee look at the possible impact of trade talks with the EU.

While the details of the talks aren't public, the Canadian Generic Pharmaceutical Association says European negotiators want to extend protection for brand-name drugs to help companies headquartered in Europe. The proposed measures could extend market exclusivity by 3½ years and cost Canadians an extra $2.8 billion a year in prescription drugs, the association's chairman said.

"These EU proposals also fail to recognize that Canada is already home to one of the strongest [intellectual property] regimes for pharmaceuticals in the world," Barry Fishman said.

The EU isn't making the demands to increase research and development funding in Canada, he added.

"They are making these proposals to increase the profits of pharma companies," Fishman said.

Extending protection could limit Canadian generic exports to the U.S. and Europe and lead to cuts in manufacturing jobs, he said. And previous increases in patent and exclusivity protection haven't led to more research and development funding, Fishman said.

But the brand name pharmaceutical companies invest about $1.3 billion a year in research, the president of the association representing the companies told MPs.

"Canada lags behind both the EU and the U.S. in terms of pharmaceutical IP. Those are the facts. We are not competitive," said Russell Williams, head of Rx&D.

Williams says the industry wants data protection increased to eight to 10 years. Ten years is the protection the EU provides its companies.

"The IP gap ... is the most pressing policy challenge for our industry," when they're competing for research centres within companies, said Brigitte Nolet, who spoke for Hoffman Roche, one of the companies Rx&D represents.

"Other nations, developed and developing, can also boast of their business climates and top-flight scientific talents," she said.

"With improved IP, our entire industry would have the tools to help maintain and draw even more opportunities."

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