BBC News - Government backs jailing reckless bankers

The government has said it will support most of the recommendations produced by the Parliamentary Commission for Banking Standards.

The Parliamentary Commission was highly critical of aspects of the banking industry

Top of the list will be a new criminal offence of reckless misconduct by top bankers, with a possible jail term.

Banker bonuses are to be deferred by up to 10 years, and could be repayable if the bank has to be bailed out.

But the government did not agree to toughen limits on banks' risk-taking or to scrap its bank holding company.

In a 571-page report issued last month, the Commission had called for a much tougher "leverage ratio" for banks - a measure that limits the total amount of loans and investments a bank can make relative to the amount of capital the bank holds to absorb losses on those assets.

But Chancellor George Osborne has stuck steadfastly to the lower level internationally agreed and laid out by the Bank for International Settlements in Basel.

Mr Osborne was also called on to abolish the UK Financial Investments - the government's holding company for its stakes in Royal Bank of Scotland and Lloyds Banking Group - which the Commission described as a "fig leaf" for government intervention in the banking sector.

The government refused, noting that "UKFI is staffed by highly expert professionals with extensive experience in the banking sector".

However, the government did reiterate that it would consider the case for splitting Royal Bank of Scotland - currently 81%-owned by the government via UKFI - into a "good" High Street bank that could be quickly sold back to the private sector, and a "bad" bank to sit on and work out existing problematic loans.

Burden of proof

The chancellor said that he was pleased to accept the Commission's main recommendations, promising: "Where legislative changes are required, we will amend the Banking Reform Bill, which is currently before Parliament."

The Commission's report focused primarily on the problem of making bankers individually responsible for the performance of their institutions and business areas.

Among the plethora of recommendations to be adopted by the government:

• there will be a new system for approving who can fill senior positions at UK banks, with senior bankers being given clear individual responsibilities
• if a bank breaks any rules, the burden of proof will be on the relevant senior bankers to show that they took all reasonable steps to stop it happening
• the time limit for regulators to bring action against miscreant bankers will be extended beyond the current three years

The government also threw its weight behind proposals to increase competition between the High Street banks.

The newly-created Prudential Regulation Authority - which sits within the Bank of England and is responsible for ensuring that excess risks do not build up within the banking system - will be given an additional role in ensuring competition among the banks.

A new "payments regulator", which has yet to be created, will be asked by the government to explore ways of making it easier for people to transfer their accounts to rival banks, and to look at whether the banks should no longer collectively control the inter-bank payments system.

Bloomberg News - Swiss Banks May Lose $522 Million U.K. Tax Accord Payment

By Dylan Griffiths 

Valentin Flauraud/Bloomberg

A Swiss national flag flies from a flagpole above Lake Geneva in Geneva.

Credit Suisse Group AG (CSGN) and other Swiss banks may lose most of the 500 million-franc ($522 million) guarantee payment they made to the U.K. government as part of a tax deal, theSwiss Bankers Association said.

That payment, under an accord signed by Switzerland and the U.K. in October 2011, covered the failure by bank clients to disclose undeclared money in the past. With fewer untaxed U.K. assets in Switzerland than previously expected, the banks may not be reimbursed by their British customers, the Basel-based association said in an e-mailed statement today.

“The possibility can therefore not be ruled out that either none or only a small part of the bank’s guarantee payment of 500 million francs will be recovered,” the association said.

Switzerland and the U.K. signed the agreement to settle a dispute over tax evasion by wealthy Britons holding offshore accounts with Swiss private banks. With many British clients opting for voluntary disclosure and others holding resident non-domiciled status, which means they don’t fall under the withholding tax deal, the repayments by bank customers will be smaller than expected, the association said.

That may cost Credit Suisse as much as 90 million francs, which will be booked in the second quarter, the Zurich-based bank said in a statement

Under the accord, Swiss banks will levy a withholding tax of 27 percent on capital gains earned by Britons with offshore accounts. Revenue generated will go to the British Treasury, while client identities remain secret.

Sky News - Stronger Economy 'Puts Brakes On Carney'

The Bank of England's new governor is widely tipped to change course from his predecessor by not voting for more QE later.

Mark Carney started work as governor of the Bank of England on Monday

Evidence that the UK's economic recovery is gathering pace is widely expected to result in the Bank of England maintaining its support at current levels today.

The Monetary Policy Committee (MPC), which has been meeting for the first time under the leadership of new bank governor Mark Carney, announces its decisions on the base rate of interest and quantitative easing (QE) at midday.

While the base rate has not been changed since March 2009 - and will not be adjusted today - there has been a school of thought that Mr Carney may have favoured extending QE, also known as asset purchases, in the nearer term to help support growth efforts.

But recent economic data has suggested in unison that the speed of recovery has accelerated - with the British Chambers of Commerce the latest group to upgrade its growth expectations for the second quarter of the year and 2013 as a whole.

The closely-watched Purchasing Managers' Index surveys also pointed to growing output in manufacturing, construction and the crucial service sector - which recorded its fastest rise in activity in two years last month.

The slew of positive news is likely to have dispelled any immediate pressure for the bank to increase its QE programme beyond its £375bn level - allowing Mr Carney some breathing room.

Other members of the nine-strong MPC repeatedly thwarted his predecessor Sir Mervyn King's efforts to boost QE by £25bn during his final months, as five times he was defeated by a 6-3 majority.

Despite his aim to achieve "escape velocity" for the economy, it is thought that Mr Carney will not want to go out on a limb and face a defeat just four days into the job.

Sir Mervyn pointed out last week that while his Canadian successor may be more "persuasive", he only holds one vote on the MPC.

Some economists expect that Mr Carney will begin to take action to pull the UK out of the doldrums from August.

Vicky Redwood of Capital Economics said he was likely to introduce "forward guidance", which helps reassure markets that interest rates will remain low in the future while she predicted there was a 50% chance of QE also being resumed.

Bloomberg News - Portugal’s Coalition Splinters on Austerity Fatigue

De Melo Moreira/AFP via Getty Images

Men look through a window as protesters take part in a demonstration against the government's austerity measures during a general strike in Lisbon on June 27, 2013.

Portuguese borrowing costs topped 8 percent for the first time this year after two ministers quit, signaling the government will struggle to implement further budget cuts as its bailout program enters its final 12 months.

Secretary of State for Treasury Maria Luis Albuquerquereplaced Vitor Gaspar at the Ministry of Finance. That prompted Paulo Portas, who leads the smaller CDS party in the coalition government, to quit, saying the new minister would offer “mere continuity” of the country’s deficit-cutting plans.

“It sounds the alarm bell of austerity fatigue,” said David Schnautz, a strategist at Commerzbank AG in New York. “This domestic noise is definitely negative.”

Portugal’s 10-year (GSPT10YR) bond yield jumped to 8 percent earlier today, the highest level since Nov. 27, and was hovering at 7.65 percent as of 11:10 a.m. London time. The nation pays an average 3.2 percent for loans it received as part of the aid package.

Prime Minister Pedro Passos Coelho is battling rising unemployment and a deepening recession as he cuts spending and increases taxes to meet terms of a 78 billion-euro ($101 billion) rescue plan monitored by the European Union, theInternational Monetary Fund and the European Central Bank, known as the Troika. Coelho announced measures on May 3 intended to generate savings of about 4.8 billion euros through 2015 that include reducing the number of state workers.

Coelho Speech

“I will try to clarify and guarantee with the CDS party all the conditions for the stability of the government and to proceed with the strategy of overcoming the nation’s crisis,” Coelho said in a speech last night, adding that he has no plans to resign.

The difference in yield that investors demand to hold 10-year Portuguese bonds instead of German bunds is about 600 basis points, exceeding this year’s average of 461. The gap is down from a euro-era record of 16 percentage points in January 2012.

“The issue at stake here is whether the present government follows policies of fiscal responsibility or not,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “The public seems to imagine a better deal with the Troika can be struck, as if Greece and Cyprus are not sufficient warning.”

The eighth review of Portugal’s aid program is due to start on July 15, the Finance Ministry said on June 19.

Government Tensions

Coelho said he didn’t accept Portas’s resignation and hasn’t asked President Anibal Cavaco Silva to dismiss his partner, citing the foreign affairs minister’s role as leader of a coalition party.

“Portas’s resignation is likely to prove final, and he seems to have the solid backing of both his party and its supporters,” Mujtaba Rahman, a London-based analyst at Eurasia Group, said in a note today.

Social Security Minister Pedro Mota Soares and Agriculture Minister Assuncao Cristas will hand in their resignations to Coelho today, broadcaster TVI reported on its website last night, without saying how it obtained the information. Both ministers are from Portas’s CDS party.

“The grand bargain in the euro zone is that the strong, notably Germany and the ECB, support the weak and that the weak accept the conditions attached to such support,” Christian Schulz, an economist at Berenberg Bank in London, wrote in a note following the Portuguese resignations. “If one country were to lose the political will to stay the course, tensions in the euro zone could rise again.”

Market Return

Portugal has planned to return to the bond markets with the country’s aid package scheduled to end in June 2014. The nation sold 10-year bonds on May 7 for the first time in more than two years as a global decline in interest rates spurred demand for higher-yielding assets. Portugal had stopped selling bonds until this year after requesting the bailout in April 2011.

The country has started the pre-financing for 2014 and already has all of the funds it needs for this year, Portuguese Finance Minister Vitor Gaspar said on May 7.

“Ambiguity over the medium term financing plans is still something of a challenge,” Eurasia’s Rahman said.

A deeper recession and higher unemployment levels are “exacerbating social and political tensions and, in turn, testing the government’s resolve to continue with adjustment policies and reforms,” the IMF said June 13 in a staff report about the seventh review of the aid program.

Big Challenges

“The risks and challenges of the near future are enormous,” Gaspar wrote in his resignation letter dated July 1. “They demand government cohesion.”

The EU may consider extending the deadline for Portugal to meet its deficit targets if economic conditions worsen, Jeroen Dijsselbloem, head of the group of euro-area finance ministers, said on May 27. Dijsselbloem said the government hasn’t yet requested another change of timetables and targets.

On March 15, the government announced less ambitious targets for narrowing the budget deficitas it forecast the economy will shrink twice as much as previously estimated this year. It targets a deficit of 5.5 percent of gross domestic product in 2013, 4 percent in 2014 and below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. Portugal forecasts debt will peak at 123.7 percent of GDP in 2014.

Gaspar’s resignation shows the risk of reforms faltering, Organization for Economic Cooperation and Development Chief Economist Pier Carlo Padoan said yesterday at the Lisbon Council in Brussels. “Fatigue may suddenly erupt and the temptation to go backward may be very, very strong,” he said.

By Anabela Reis & Joao Lima

BBC News - UK business confidence 'at six-year high'

Business confidence in the UK is at its highest level since 2007, the latest economic survey from a leading business group has suggested.

Export sales have boosted the UK's economic prospects, the BCC says

The quarterly survey from the British Chambers of Commerce (BCC) is the latest indication that the UK's economic recovery is strengthening.

The BCC said export sales had grown by their fastest rate since it began publishing its survey in 1989.

It now expects GDP to grow by 0.6% in the second quarter of 2013.

That is significantly more positive than its previous forecast, where it predicted growth of 0.9% for the whole year.

"The UK upturn is slowly strengthening," said David Kern, the BCC's chief economist, citing strong export data as particular cause for optimism.

"The remarkable export balances show that the service sector is capable of increasing its trade surplus over time and can work to reduce our overall trade deficit," he said.

"Developing the export potential of this sector is critical to long-term prosperity."

The BCC said the number of businesses looking to export had increased in the face of a flat domestic market, and exporters were increasingly looking to the rest of the world outside Europe.

'False dawns' warning

The survey adds to a slew of recent positive data suggesting the UK economy is beginning to strengthen after a long and slow recovery from the global financial crisis.

On Monday, purchasing managers' index data suggested UK manufacturing grew at its fastest rate in two years in June, while Bank of England figures showed that mortgage approvals hit a three-and-a-half-year high in May.

Last week, official data showed the services sector, which accounts for about three-quarters of the economy, is continuing to grow.

However, there are still concerns that the recovery could yet be derailed.

Speaking on BBC Radio 4's Today programme, BCC director general John Longworth said there had been "false dawns" of recovery before, where business expansion had been choked off by banks being unwilling to lend the money required.

He also said inflation remained a worry among businesses.

Bloomberg News - Obama Unveils Plan to Boost Electric Power in Sub-Saharan Africa

Saul Loeb/AFP via Getty Images

U.S. President Barack Obama acknowledges the audience after delivering a speech at the University of Cape Town on June 30, 2013.

President Barack Obama, putting his mark on U.S. aid to Africa, announced a plan to boost access to electric power in the sub-Sahara and said America stands to benefit if the continent reaches its full economic potential.

Obama unveiled the $7 billion initiative dubbed Power Africa at the University of Cape Town in a speech that his aides billed as the centerpiece of his three-country tour through Senegal, South Africa and Tanzania to promote trade and investment on the rapidly growing continent.

The president’s goal is to double access to electricity across six countries that the White House has singled out for promoting good governance -- Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania.

“I’m calling for America to up our game when it comes to Africa,” he said. “There’s no question Africa’s on the move, but it’s not moving fast enough for the child still languishing in poverty in forgotten townships.”

American companies see growing opportunity in Africa. U.S. merchandise exports to the 49-country region were $21 billion in 2011, up 23 percent from 2010, according to the Office of the U.S. Trade Representative. Imports from sub-Saharan Africa were worth $74 billion in 2011, up 14 percent from 2010. Most of that, about $60 billion, was crude oil.

Africa has 15 percent of the world’s population yet it accounts for only 3 percent of energy consumption, according to a 2011 report by the African Union and other organizations.

Mandela’s Health

With Nelson Mandela’s fragile health weighing heavily throughout the African trip, the U.S. president has invoked the anti-apartheid icon’s legacy to draw the connection between democratic values and economic growth.

Obama’s speech included a tribute to Mandela and he and his family toured the apartheid-era prison at Robben Island, finishing in a courtyard near Mandela’s former prison cell. He then visited a community center that provides HIV education and treatment run by Archbishop Desmond Tutu’s foundation.

While Africa is rising, progress is “fragile,” vulnerable to “the rot of corruption” and “the undertow of conflict,” Obama said in his speech.

He will travel today to Tanzania for the last stop of the three-nation tour. In the country’s fast-growing metropolis of Dar es Salaam, he’ll convene a roundtable of company executives and promote investments in electrification projects.

Recognizing Africa’s rapid growth -- as well as domestic budget constraints -- Obama said yesterday the U.S. is moving beyond the kind of direct financial assistance its provided in the past. Instead, he said he wanted to promote a new model that focuses on Africa’s “capacity to solve problems.”

Partnership Model

The power initiative follows the public-private partnership model and builds on his administration’s efforts to enhance food security, fight malaria and attempt to eradicate the spread of HIV/AIDs for Africa’s next generation, he said.

Power Africa’s $7 billion in government assistance will complement $9 billion in private funds to double access to power in sub-Saharan Africa, where more than two-thirds of the population is without electricity, according to the White House.

During the first, five-year phase, the project’s goal is to add more than 10,000 megawatts of cleaner, more efficient electric generation capacity and to expand electricity access to at least 20 million new households and commercial entities, according to the White House.

General Electric Co. (GE) is among the companies that have contributed to the $9 billion in private-sector funding for the program’s first phase. It has committed to help bring 5,000 megawatts of new energy to Tanzania and Ghana.

Increasing access to power will “plug Africa into the grid of the global economy,” Obama said.

Government Resources

Officials declined to put a price tag on the total effort and didn’t specify how much of the $7 billion in government resources Congress would need to appropriate for the initial phase. The sum isn’t all straight assistance and includes money from the U.S. Agency for International Development, the Overseas Private Investment Corp., the Export-Import Bank and other agencies, they said.

“The program is welcome support to the continent where energy access and energy poverty remain significant concerns,” said Taryn Wilkins, an analyst at Bloomberg New Energy Finance in Cape Town. “Key to the success of the implementation of the program is the support of local governments and policy regulation. To date this has been fragmented and inconsistent and resulted in slower development of energy infrastructure programs.”

Obama’s Engagement

The announcement came amid criticism that Obama’s engagement with sub-Saharan Africa has lagged behind his predecessors, Bill Clinton and George W. Bush, giving China an opportunity to tap the region’s resources.

Bush, who took U.S. spending on Africa to new levels, made a six-country visit in 2008 and a three-country stop in 2011 after he left the White House. His Africa legacy includes PEPFAR, a $15 billion commitment to prevent and treat AIDS infections, credited with saving or extending millions of lives.

Clinton signed the African Growth and Opportunity Act, a trade agreement with countries in sub-Saharan Africa.

Obama may meet his Republican predecessor while in Dar es Salaam. Bush will be there at the same time for a summit to empower Africa’s first ladies, sponsored by the George W. Bush Institute. First lady Michelle Obama will join Laura Bush at the event.

BBC News - EU summit in Brussels wrestles with youth unemployment

The record unemployment blighting much of Europe will be the focus of attention at a two-day EU summit set to open in Brussels.

Austria's youth apprenticeships have earned praise in the EU

Across the EU, nearly a quarter of people aged 18 to 25 have no job. In Greece and Spain more than half of people in that age group are jobless.

EU leaders will consider mobilising 6bn euros (£5bn; $8bn) earlier than planned to help youth training schemes.

There are also plans to boost bank lending to small businesses.

A source at the European Commission said an extra 10bn euros in funding for the European Investment Bank (EIB) could be used to encourage private banks to lend more to small and medium-sized businesses (SMEs), especially in the struggling southern "periphery" economies hit hard by the euro crisis.

The idea is to turn that 10bn into EIB guarantees worth 100bn - enough to cover loans issued by private banks. The source stressed that "it is not new money" - it would come from the EU structural funds already earmarked for Europe's poorer regions.

Weak lending

The focus is on SMEs because they account for about 99% of businesses in the EU, employing about 70% of the workforce, the Commission said. Despite the SMEs' importance in EU labour markets, bank lending to them fell by 10% in the first quarter of this year.

But the source told journalists at a pre-summit briefing that co-ordinating action on jobs "is not easy at European level - social policy is mainly a national competence".

The Commission's Youth Guarantee plan would offer young people across Europe a quality apprenticeship or job in the first four months after becoming unemployed or leaving formal education.

The EU Commissioner for Employment, Laszlo Andor, says the scheme could help to reduce the growing north-south competitiveness gap in the EU.

But the heavy lifting of job creation still has to be done by national governments, by making labour markets more flexible, stimulating growth and easing the tax and administrative burdens on SMEs, the Commission admits.

John Springford, an economic analyst at the Centre for European Reform, said the EU was facing "very large political roadblocks" hampering the necessary macro-economic changes.

"They are stumbling towards integration very slowly - when the financial markets relax the pressure, the progress stalls," the think-tank analyst told BBC News.

Germany - one of Europe's few economic bright spots amid the gloom of the euro crisis - is especially loath to pool risk at European level ahead of its general election in September, Mr Springford said.

Germany is making any aid for struggling eurozone economies strictly conditional on them enacting structural reforms, such as making it easier for companies to hire and fire. But such reforms are generally slow to bear fruit.

The draft summit conclusions, seen by the BBC, say the leaders note "the importance of shifting taxation away from labour as a means of increasing employability and boosting job creation and competitiveness".

The leaders will also discuss progress towards a eurozone banking union, as their finance ministers continue tough negotiations on a planned joint bank resolution scheme to deal with troubled banks.

It is proving tricky to agree on how losses would be borne by the stakeholders in struggling banks - that is, the bondholders, investors and holders of deposits above 100,000 euros.

This year's Cyprus banking crisis, with the unprecedented imposition of capital controls, has made EU governments cautious about taking on additional financial risks.

There are still fears that a bank run in one country could spread contagion across a still fragile eurozone