NEWS,14.10.2012

Eyes peeled on US earnings

The central bank-induced highs of September have given way to concern about the depressed outlook for corporate earnings and the global economy.After the International Monetary Fund kicked off the week with a downgrade of its forecast for worldwide economic growth, US companies including Alcoa reminded investors that the headwinds facing Europe and China make corporate smooth sailing increasingly challenging.Indeed, Thomson Reuters data showed 11 negative outlooks for fourth-quarter results so far from Standard & Poor's 500 companies, while none are positive.Investors are anxiously awaiting results of Bank of America, Citigroup, Goldman Sachs and Morgan Stanley released in coming days after those of JPMorgan Chase and Wells Fargo failed to inspire on Friday."We need to see big banks doing well, and JPMorgan or Wells didn't give us the boost we were hoping for," Wayne Kaufman, chief market analyst at John Thomas Financial in New York, told Reuters. "Citigroup is the one we're looking for. If profits come in worse than expected there, that would make me more bearish about the economy in general."Among the slew of other US companies reporting this week are McDonald's, Microsoft, IBM, Intel and Johnson & Johnson.In the past five days, the Standard & Poor's 500 Index shed 2.2%, while the Dow Jones Industrial Average dropped 2.1%.There were some unexpected bright spots as reports showed that US jobless claims dropped to the lowest since 2008, while confidence among American consumers rose in October to the highest level in five years.Also, data showed that China's exports increased at the fastest pace in three months in September, fuelling hope the world's second-largest economy might be holding up better than expected after all.US data due in the coming days include retail sales, the consumer price index, industrial production, housing starts, and existing home sales.By and large, the appeal of the relative safe-haven of US Treasuries remained strong in the past week, bolstering demand for the US$66 billion of notes auctioned. The yield on 30-year bonds dropped 14 basis points last week, while the yield on 10-year debt yield declined nine basis points."The IMF brought everybody back to the global economic situation," Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee, told Bloomberg. "We went through roughly six weeks where everything looked more attractive than Treasuries."On Thursday, the US is scheduled to auction US$7 billion in 30-year Treasury Inflation Protected Securities.In Europe, investors will eye a meeting of EU finance ministers.Euro zone officials are considering new ways to lower Greece's debts because delays to reforms by Athens and continued recession have put the target of a debt to GDP ratio of 120 % in 2020 out of reach, Reuters reported.Europe's Stoxx 600 Index declined 1.7% last week. The euro also suffered, weakening 0.7% against the greenback in the past five days, and losing 0.9% against the yen.The region's debt crisis remains a key concern for investors.BlackRock chief executive Laurence Fink said he was still bullish on US equities but warned that the stock market could lose 5 to 10% in a correction in the final months of the year amid uncertainty over the euro zone's current key problem-child, Spain."The next three to four months we are going to probably have greater uncertainty and the market may test itself one more time," Fink said.

Germany and Singapore to co-operate over tax evasion

Germany and Singapore have agreed to co-operate more closely to reduce tax evasion, the German Finance Ministry said, amid signs that German tax evaders are moving funds to Asia's prominent wealth management centre.Recent media reports have suggested said that wealthy German citizens were shifting funds to Singapore from Switzerland, which signed a tax deal with Germany earlier this year.The new agreement will come into effect once both countries have ratified it domestically and will allow the two states to obtain more information from each other.The ministry said in a statement on Sunday a 2004 tax agreement between Germany and Singapore would be amended to conform to the international standards for exchanging information laid out by the Organisation for Economic Co-operation and Development (OECD).The agreement will cover all kinds of taxes, not just capital and income tax as was previously the case. The exchange of information could apply to taxpayers not resident in Germany or Singapore and would not be hindered by banking secrecy rules, the ministry said.Switzerland and Germany hammered out a new deal in April to confront tax evasion, but the centre-left SPD opposition has said it will block the pact in the upper house of parliament, arguing it is too lenient on tax dodgers.One of the SPD's criticisms has been that the agreement would allow people to evade taxes by taking their money out of Switzerland before the deal takes effect.Norbert Walter-Borjans, finance minister of the German state of North Rhine-Westphalia and one of the most vociferous critics of the Swiss tax deal, welcomed the agreement with Singapore."Every effective agreement which prevents tax evasion helps to make the tax system fairer and state finances more stable," he said in a statement.

 

Poland to pump €15.5bn into shale gas

Poland will invest 50bn zlotys (€15.5bn) in the exploration of shale gas by 2020, Finance Minister Mikolaj Budzanowski said on Saturday.Investment over the next two years will total 5bn zlotys (€1.2bn), which includes a €409m shale gas deal agreed in July by five Polish energy and mining groups, Budzanowski told the press."With the Russian gas accord terminating at the end of 2022, we must be well prepared to noticeably boost the exploitation of our own gas fields three years earlier," he said, adding that state money as well as private investment would be involved.Poland which has a population of 38 million has extractable shale gas deposits estimated at 1 920 billion cubic metres, according to an official report published in March.The National Geological Institute (PIG) said Poland's shale gas deposits are the third largest in Europe after those of Norway and the Netherlands.Its extraction could make the country independent of Russian imports.Poland burns 14 billion cubic metres of gas a year, two-thirds of which come from Russia.The government expects extraction to begin in 2014.The gas is extracted from rock through hydraulic fracturing or fracking, the drilling of underground shale rock formations by injecting chemicals and water to release the trapped natural gas.Opponents say it causes pollution of the ground water but energy groups say it provides access to considerable gas reserves and drives down the price.

 

Finance leaders back shielding growth

World finance leaders on Saturday endorsed a checklist of policy reforms aimed at pressuring Europe and the United States to tackle debt troubles that threaten to choke off global growth.To hold each others’ feet to the fire, the nations - meeting under the aegis of the International Monetary Fund - agreed to review progress in six months.Their 10-page agenda, however, largely summarised previously planned steps, such as deploying a new European Central Bank bond-buying programme and avoiding the US “fiscal cliff” of spending cuts and tax hikes set to take hold early next year.The checklist and checkup were an acknowledgement of frustration within the IMF and among many emerging market economies over a sluggish and piecemeal policy response to the major risks facing the world economy.IMF chief Christine Lagarde said nations had narrowed their differences over how to implement policy, seeking to downplay disagreements between the Fund and Germany over how quickly debt-laden countries such as Greece should cut budgets.“There was no objection to the recommendation that we gave to the membership, which was A-C-T,” Lagarde said, spelling out the word letter by letter.“We might not always agree on everything, but I think there is a general consensus that collective action is going to produce results,” she told reporters.  In a communique released after two days of talks, IMF members warned that global economic growth was decelerating and that substantial uncertainties and risks remained.But the IMF’s governing panel, representing the 188 member countries, praised steps that had already been taken, particularly in Europe, to make the world financial system safer, even if they had not yet gone far enough.“Members all agreed that we are in a better position today than we were six months ago,” said Singapore Deputy Prime Minister Tharman Shanmugaratnam, the chairperson of the committee.Spain’s economy minister, Luis de Guindos, said he felt the mood toward his country lifting too. Spain is under pressure to seek a bailout as it struggles to cope with high government debt and the cost of recapitalising its banks. “The atmosphere, from International Monetary Fund policymakers or from the private sector, is much more positive than it was before the summer,” de Guindos said.Euro zone sources said they expected Spain to seek financial aid from the euro zone in November.Still, finance leaders leave Tokyo with little concrete evidence that fresh progress was being made in the world’s debt trouble spots, hamstrung by political considerations.US presidential elections and a once-a-decade leadership change in China are just weeks away. The euro area has to navigate decisions through several national governments, which Russian Finance Minister Anton Siluanov likened to manoeuvring a supertanker with 17 captains at the helm.“If you decide to turn it in one direction, it happens very slowly,” he said.Emerging strainsReports from the IMF this week downgraded global economic growth forecasts for the second time since April and warned of the need for action in advanced economies to treat a debt hangover that stems in part from earlier efforts to quell the global financial crisis.To replenish its crisis-fighting war chest, the IMF has taken in $461bn in contributions from member countries, with Algeria and Brunei the newest members of the donor group, Lagarde said. The United States is among the notable absences from the list of contributors.Frustration over what many nations see as plodding progress in Europe and in Washington spilled into public view during the meetings.“Asia alone can’t carry the global economy,” said Australian Treasurer Wayne Swan. “It is time for the other players to get off the benches and start to pull their weight on global economic growth again.”Emerging markets, which have been caught in the downdraft created by weak economies in Europe and the United States, were disappointed that the IMF missed its target for enacting voting reforms that would make China the third most influential country within the lending institution. Lagarde said there were “one or two countries” that had not finalised the reforms, which were agreed in 2010, a thinly veiled reference to the United States. The Obama administration does not want to seek congressional approval for more IMF funding before the November presidential election.European leaders argued this week they had taken big strides toward building a stronger fiscal and banking union, and they earned at least some recognition from the rest of the world.“This broad framework offers a more promising strategy for addressing the crisis,” US Treasury Secretary Timothy Geithner said. “However, what is important is how it will be applied.”German Finance Minister Wolfgang Schaeuble pointed out that euro zone decision-making does take time given the number of national governments involved.“If we are not fast enough for markets, sorry, but markets have to wait,” he said.

NEWS,11.08.2012

Globalization and the Lessons of History

 

As the U.S. economy struggles to recover from the worst recession in 70 years, we face a new, much more challenging world. Economic globalization means that more countries are exporting their goods, generating first-rate research, and attracting investments: besides China, we compete with Brazil, India, South Korea, and Turkey. Although terrorism, elections, and natural disasters dominate headlines, globalization has been the most powerful trend over the last thirty years. Despite the recession, it shows no sign of abating. Dealing with globalization may tempt us to see other countries as simply our competitors or worse, as our enemies. If we are to deal with globalization more wisely, the lessons of history are crucial to understand.Globalization is not completely new. A century ago, the world economy went through a similar dramatic expansion. "For economic purposes all mankind is fast becoming one people," wrote James Bryce in 1903. For the first time, a world wide web of telegraph lines, centered on London, sent news and prices around the globe. The United States became an industrialized country because of millions of immigrants and a mountain of European investment. Tragically, the first era of globalization ended badly in two world wars, Communism, fascism, the Great Depression, and the Cold War. Why? Those who suffered from rapid economic change were often recruits for violent solutions; war could undo decades of economic progress. In short, those who gained from economic globalization became complacent about the need to maintain it and cavalier about the costs it generated. Old industries declining, migration, social problems in rapidly expanding cities all of these occur almost inevitably with economic growth. If social policies do not cushion the costs and help people adjust to the changes set off by economic growth, the entire system supporting economic growth can be undermined. At the same time, international peace and cooperation have been crucial to economic globalization. Prosperity in the long run depends on peace. The first era of globalization occurred in the late nineteenth century because Europe experienced the longest period of peace in its history. Only one, brief war the Crimean War occurred among more than two of the Great Powers. World War One broke out in part because leaders in Germany thought they could use violence to strengthen their country's position in the world economy. Instead, they nearly destroyed the entire world economy, and brought on more war. By the time Europe stabilized again, after a second, more awful war, the world economy was no bigger than it had been 35 years earlier, with a much larger population to feed.History also teaches us that we can do better. Nothing illustrates that nations can learn from the past as much as the difference between what the United States did in 1919, at the end of the First World War, and what we did in 1945-48, after the Second. In 1919, we turned our back on Europe and its problems. The world economy limped along and eventually collapsed into the Depression, while the unsolved problems of the War led to dictatorships and more war. After 1945, we did better. The United States created a range of international institutions in the late 1940s the UN, IMF, World Bank, NATO, the alliance with Japan, and the GATT, the forerunner of today's World Trade Organization. We also helped Europe set up what eventually became the European Union. With all their imperfections, these institutions and the cooperative agreements they support still provide a framework for worldwide economic growth. Because of them, we can travel, send money, buy and sell goods, and communicate among the nations of the world in a way that would have been unimaginable just a few decades ago.In tough times, it may be tempting to turn our backs on the rest of the world or to think that economic growth, once begun, runs on its own. But we depend on our global economic ties for future growth. By investing in our greatest resource  people  and improving our transportation and communications infrastructure, we can compete much more effectively than by tariffs or trade disputes. The history of the last century teaches us that dealing with the inevitable costs of globalization and working to maintain a peaceful world order are essential to all of us. Our generation has an opportunity to make great gains from a return to worldwide economic growth  but we must distribute the gains more fairly and work to build a cooperative international order. Our competitors are also our customers and our potential partners in a better world.

Federal Investigators Punt On Goldman Sachs Prosecutions

 

By 2006, Goldman Sachs traders knew that the investments packed with subprime home mortgages they had been selling at big profits for the last few years were more dangerous than they were letting on.Internally, they characterized these offerings as "junk,""dogs,""big old lemons" and "monstrosities." Nevertheless, the bank congratulated itself for successfully offloading the mortgage bonds onto others. The head of the bank's mortgage department extolled its success in reducing its subprime inventory, writing that his team had "‘worked their tails off to make some lemonade from some big old lemons.” These findings, included in the report released by the Financial Crisis Inquiry Commission nearly two years ago, helped inform at least one major regulatory enforcement action against the bank: a $550 million settlement with the Securities and Exchange Commission for misleading investors about the risks of a product known as Abacus. For a while, it seemed that a string of similar enforcement actions involving other mortgage investment products, whose eventual collapse in value brought down the housing market and very nearly the American economy, were imminent. On Thursday, Goldman Sachs announced in a regulatory filing that the SEC had dropped its investigation into a $1.3 billion mortgage bond known as Fremont Home Loan Trust 2006-E, even though it indicated earlier this year that charges were likely. Later in the day, the Department of Justice said it was ending its own Goldman investigation, launched after a congressional investigation chaired by senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) issued a report that found Goldman Sachs sold investments "in ways that created conflicts of interest with the firm’s clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients.”"The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time," the Justice Department said in a statement late on Thursday. Reuters reported that David Wells, a spokesman for Goldman Sachs, said in an email, "We are pleased that this matter is behind us."The SEC did not immediately respond to a request for comment. For industry critics, the decisions to drop the investigations are the latest indication that the federal government's law enforcement response to the greatest financial catastrophe since the Great Depression will end with a whimper. "I'm shocked but not surprised," said Simon Johnson, a former chief economist at the International Monetary Fund, and a Huffington Post contributor. "It reflects a pattern of failing to hold these large institutions accountable. To not even try sends a double signal, that there are different standards for us and for Wall Street."Johnson said he still holds out some hope for a grand settlement that would provide some financial compensation for the homeowners most damaged by the inflated pricing that came as a result of the bubble built by Wall Street.Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, and a frequent critic of the Obama administration's handling of the financial crisis, said in an email that the announcements are "a stark reminder that no individual or institution has been held meaningfully accountable for their role in the financial crisis." "Without such accountability, the unending parade of megabank scandals will inevitably continue," Barofsky said. Of the two federal agencies, the record of the Department of Justice in pursuing financial crisis cases is the thinnest. So far, the Justice Department has brought just one case, which ended when a federal jury in 2009 acquitted two Bear Stearns hedge fund managers accused of lying to investors about the soundness of the securities they were selling. After that, the Justice Department decided not to pursue cases against two men whose actions most Wall Street observers agree brought on the crisis: Angelo Mozilo, the former head of the defunct mortgage giant Countrywide and Joseph Cassano, who ran the financial products division at AIG.The SEC's track record has been a bit better, at least in terms of dollar recoveries. The regulator won about $2 billion in penalties since 2008 in financial crisis-related cases, including a record $67.5 million from Mozillo. The agency has been dogged, though, by complaints including from federal judge Jed Rakoff that its penalties are too small, doesn't target individuals and doesn't require defendants to admit guilt as part of settlement agreements. In May, the SEC dropped its probe of Lehman Brothers, even though an independent examiner appointed by the bankruptcy court of the defunct bank concluded that there were "actionable claims" against senior Lehman officers for using an accounting tool known as Repo 105 to book billions of dollars in phony sales to disguise the true extent of the bank's financial woes. Financial cases of any stripe, especially those that involve complex transactions involving structured finance products, are difficult to prove, said Arthur Wilmarth, a banking law professor at George Washington University. Even so, he said, he believes the SEC could have brought additional cases against Goldman Sachs that involved conduct similar to the Abacus deal. The agency could prevail in civil penalty actions by showing that Goldman "intentionally or recklessly misled investors," he said. That, in essence, is the argument made by another regulator the Federal Housing Finance Agency which filed a lawsuit against Goldman over the Fremont investment and other offerings last year. Goldman bankers knew that Fremont, a subprime lender, was selling it mortgages certain to fail, the suit alleges.Goldman knew of the originators’ abandonment of applicable underwriting guidelines and of the true nature of the mortgage loans it was securitizing," the lawsuit claims. The decision to drop the Goldman Sachs investigation also comes on the heels of a disappointing loss for the SEC in one of the very few trials involving a Wall Street executive accused of misleading investors about a mortgage product. A few weeks ago, a federal jury acquitted Brian Stoker, a mid-level Citigroup executive, of wrongdoing over his role in selling a $1 billion mortgage bond. In an unusual move, however, the jury included a note with its verdict urging the agency not to give up. “This verdict should not deter the SEC from continuing to investigate the financial industry, review current regulations and modify existing regulations as necessary,” said the statement, which was read aloud by Judge Jed Rakoff.

NEWS,30.07.2012

Draghi under pressure to deliver euro pledge

European Central Bank (ECB) President Mario Draghi must back up his pledge to do what it takes to protect the euro when the bank's policymakers meet on Thursday or else face deep disappointment from investors hungry for, and expecting, immediate action. In his boldest comments to date, Draghi said last week that, within its mandate, the ECB was ready to do whatever it takes to preserve the euro, fuelling expectation it could revive its bond purchase programme as it did a year ago when it started buying the government debt of Spain and Italy.But that is far from certain. The ECB might instead explore new policy tools such as outright asset purchases, or quantitative easing, something its peers in Britain, the United States and Japan are already using to stimulate growth.There have also been recent suggestions that it could empower national central banks to broaden their asset buying abilities.The ECB is under intense pressure from within and outside the euro zone to intervene and bring those governments' soaring borrowing costs under control as the debt crisis deepens and increasingly poses a risk to the global economy. Reflecting the increased tension, U.S. Treasury Secretary Timothy Geithner is travelling to Germany, the euro zone's biggest economy and key to any euro rescue plan, on Monday to meet Germany's finance minister and Draghi. The ECB chief will also meet Bundesbank President Jens Weidmann, a strong opponent of the ECB's mothballed government bond purchase programme, ahead of Thursday's ECB meeting, a central bank source said. Italian and Spanish bond markets rallied after Draghi's comments last week, but fresh turmoil is on the cards if Draghi fails to persuade investors on Thursday that the ECB stands behind its pledge. "With expectations running high, the scope for disappointment at Thursday's ECB policy meeting has increased considerably," said Nicholas Spiro at Spiro Sovereign Strategy.The August meeting usually draws little attention and in fact the ECB used to skip the summer month's meeting until 2006 - the last year in which it took policy action in August.The ECB could well break with tradition this year.Huw Pill, economist at Goldman Sachs and a former senior ECB official, said the ECB could decide on Thursday to buy unsecured debt of bank or firms via the national central banks to spare its own balance sheet. "We forecast the announcement of measures to permit national central banks to purchase private-sector assets under their own risk to implement 'credit easing', within a general framework approved by the Governing Council," Pill said. Another cut in interest rates seems less likely as the ECB assesses the impact of its July rate cut to a new record low at 0.75%. At that meeting, the bank also decided to stop paying banks interest on their overnight deposits with it.A poll showed 44 out of 69 economists expect the ECB to cut rates again by the end of the year, with seven saying the bank would cut already in August. Draghi's remarks last Thursday left many in the market wondering whether his message had been intended and if so how far the ECB would be prepared to go before it reaches the limits of its mandate."If you had just landed from planet Mars, and this was the first time that you had heard the ECB speak on this issue, you might think that it was about to fire a big bazooka at sovereign bond markets," said David Mackie, economist at J.P. Morgan."But, having listened carefully to the central bank over the last two and a half years, we don't think that is about to happen," he added. Germany's Bundesbank doused hopes for renewed bond purchases on Friday, saying it still opposed the programme. Instead the ECB would rather see Europe's permanent ESM bailout fund start buying the bonds of euro zone strugglers, but the fund's limited fire power could make its intervention less effective. One solution would be to give the ESM access to ECB funding and Austrian policymaker Ewald Nowotny last week broke ranks with his colleagues, saying such a step had merits. Draghi's candid remarks took some of his fellow Governing Council members by surprise, having not agreed with them before hand on the message he would send. This has prompted concerns Draghi may have raised false hopes in the market."Nothing new has been discussed (on action ECB could take), but Draghi is not a man to make comments lightly and at the end of the day he is the one calling the shots," said a euro zone central bank source. "There was always going to be a time when Draghi decided he had to act," the source said. Draghi did not have a pre-written speech when he spoke in front of an investment conference in London on Thursday and only much later that day did the ECB publish the transcript online.Another source said Draghi was not flagging an imminent move, and any action would likely come only in September or October, in conjunction with euro zone governments, and with a request from Spain for a bailout programme, which Madrid was still trying to avoid.

Spanish economy shrinks faster

Spain slid deeper into recession in the second quarter as a tough new round of austerity to head off the budget crisis that threatens the euro took effect both on overall demand and the price consumers have to pay for goods. The first official numbers on gross domestic product showed the economy shrank 0.4% from the previous quarter after contracting 0.3% in the first three months of the year. The economy was 1.0% smaller than a year earlier. Consumer prices according to both Spanish and EU methodology rose 2.2% year-on-year, with the EU-harmonised increase above forecasts being due to medicine price hikes put in place by the government to save money and deflate the deficit. Economists warned price hikes, and especially a 3-point rise in value-added tax due to come into effect in September, would distort consumer prices while the deepening recession reflected slower domestic demand. That will further weaken the government’s efforts to get the economy growing again - vital if it is to meet targets on reducing its budget shortfall and halting a market-inspired crisis in how it finances its debt. “To properly follow Spain's economic reality, I would look at domestic service inflation, which is where we’ll see stagnation and even deflationary pressures. Consumption remains very weak,” economist at Madrid-based broker Intermoney Jose Carlos Diez said. Spain slipped into the second recession since 2009 in the first quarter and is expected to continue to shrink until well into 2013 as consumers and businesses rein in spending and the eurozone debt crisis saps investor confidence. Fears over the health of Spain’s economy as it fights to reduce its public deficit has lifted funding costs to euro-era highs in recent weeks leading many to think an application for a full-bailout could soon become inevitable. A full breakdown of the growth data will be published August 28, while the final price data will be available August 14.

NEWS,14.03.2012.

Banker quits, calling firm 'toxic and destructive'

The Goldman Sachs Group, New York's lower Manhattan 

Goldman Sachs faced an unprecedented assault from one of its own after a banker published  a withering attack in the New York Times, calling the Wall Street titan a "toxic" place where managing directors referred to their own clients as "muppets." It was the latest blow for the storied investment bank, which has long supplied senators and cabinet secretaries to Washington but now draws comparisons to a "great vampire squid wrapped around the face of humanity.” In an opinion column in the Times, Greg Smith, who worked in equity derivatives, said Goldman had become "as toxic and destructive as I have ever seen it.” It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,'" Smith said. In the United States "muppet" brings to mind lovable puppets like Kermit the Frog, but in Britain, "muppet" is slang for a stupid person. Goldman Sachs issued a short statement in response:” We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.” In a subsequent memo to staff, Goldman Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn said Smith's views were in the minority among his 12,000 fellow vice presidents around the world.” And, what do our people think about how we interact with our clients? Across the firm at all levels, 89% of you said that the firm provides exceptional service to them," they said in the memo. Goldman shares were down 3.7% in trading, on a day when broader markets were only slightly lower. The company, which sometimes lacks for defenders given the hits to its reputation in recent years, garnered at least some public support in response to Smith.” The many people we have dealt with there have all been exceptionally talented and high-grade, and never once have we had a negative experience in which we felt that they took advantage of us or didn't do what they said they would do," well-known fund manager Whitney Tilson said in a note. While Smith, who did not return calls for comment, carried the title of executive director, it was not nearly as illustrious as it might sound. Worldwide, Goldman has roughly 12,000 vice presidents and executive directors. That compares with 450 managing directors, the next rung up in the Goldman hierarchy and a job classification that Smith didn't achieve. Overall, the company has about 33,000 employees, meaning that 36% of Goldman's workforce carried a similar title as Smith. According to the British Financial Services Authority's register, he joined Goldman's UK unit a year ago. Johannesburg-born Smith attended universities in his home country and in the United States, where he received a degree in economics from Stanford University in 2001. He also interviewed to be a Rhodes Scholar in South Africa in 2002.While at student at Stanford he had a summer internship at Paine Webber in 1999 and a summer internship at Goldman in 2000. Upon graduating from Stanford in 2001, he landed a job at Goldman as a financial stock analyst. He most recently worked a vice president for Goldman Sachs Services Ltd.Though relatively little is known about Smith otherwise, a friend of Smith's who knows him from London and is connected to him on Facebook, said he was a man of integrity.” He’s always been very honest and open. I wasn't aware he had any of those views. He always seemed to be happy. He's always been very social," the friend said, speaking anonymously. In contrast, questions began to arise about accomplishments that Smith trumpeted in his op-ed piece. Smith spoke with pride about his success in competitive table tennis, but it is not clear how much success he actually achieved. The website Table Tennis Nation reported that Smith was a regular at a club in New York's Chinatown neighbourhood; though other players said he lacked serious competitive talent. Internally, Smith's op-ed piece was not necessarily well received by former colleagues. A trader, who knew Smith but not well, said the company, is telling staff that Smith is a disgruntled employee who is leaving because he didn't make managing director. This trader, who did not want to be named, says former Goldman colleagues are saying that Smith "wasn't very commercial," which means he wasn't producing the kind of sales the company wanted. Outside Goldman's London headquarters on Fleet Street, one company employee said with a shrug of his shoulders, "He worked here for 12 years apparently. Then, suddenly, he changed his mind." Goldman Sachs - fourth among investment banks last year based on fee-income rankings compiled by Thomson Reuters and Freeman Consulting - was once described as "a great vampire squid" in Rolling Stone magazine. The reference was to Goldman's the extensive influence in politics and business. A lawyer representing an Australian fund in a suit against Goldman over mortgage-backed securities said he may seek Smith's deposition to help bolster his case.” Part of Goldman's defence is everybody is sophisticated and everybody knew as much as we knew did," the lawyer, Eric Lewis, said. "But if you're calling your clients muppets - most muppets don't have the cranial capacity of Goldman.” In recent years the company has faced other high-profile incidents damaging to its image after the near-collapse of the global banking system in 2008.Earlier this month it was accused of a major conflict of interest for advising El Paso Corp on its sale to Kinder Morgan, while being a significant shareholder in Kinder Morgan. One of its bankers, Fabrice Tourre - who referred to himself as "fabulous Fab" in emails - is still embroiled in legal claims in the United States after allegations that he duped buyers of a complex credit instrument. And two years ago, Chief Executive Lloyd Blankfein caused a media storm when he said that as a banker he was just "doing God's work," defending high banker pay and the role their institutions play in the economy. Paul Volcker, a former Federal Reserve chairman, called the Smith piece a "reflection of the change in market mentality over the last 15, over the last 20 years.” At an economics summit in Washington hosted by the Atlantic magazine, he said when Goldman went public in the 1990s and bought a large trading operation, "it became a trading organization and not customer oriented. Unsurprisingly, Smith's resignation letter captured the imagination of Twitter users. "Greg Smith" was a worldwide trending topic, meaning it had suddenly spiked in interest, while both that and "Goldman Sachs" were trending in the United States. Many of the commentators expressed surprise about the allegations in the piece, while others called for Smith to shed light on why he left the bank, or pointed out that he seemed to have been employed in a comparatively junior role. The letter also garnered mention on Facebook, which features pages like "Goldman Sachs Are Financial Terrorists.” As happens on the Internet in cases like this, near-instant parodies of Smith's letter cropped up. The most popular by far had Darth Vader of "Star Wars" fame resigning from the Empire via a letter similar to Smith’s.” To put the problem in the simplest terms, throttling people with your mind continues to be sidelined in the way the firm operates and thinks about making people dead," the film franchise's dark lord wrote.

NEWS,25.01.2012

            The $100 billion question of 2012

IF it ever happens, Facebook will be the frenzied float of 2012, with a possible valuation of $100b (£64.4bn).
But as Mark Zuckerberg considers the options on whether to publicly list the social media site which has 800m users, senior technology figures are asking how much Facebook will learn from the flotation of another internet giant in 2004. The question on everyone’s lips is will Facebook “do a Google” – largely shunning the Wall Street banking community and creating a retail offer via an auction?
Facebook is considering a flotation in New York that would raise about $10bn (£6.5bn) and value the company at $100bn, making it the largest initial public offering (IPO) by an internet company in history and one that’s likely to be accompanied by a record amount of hype.
Should anything close to these numbers be reached, an IPO will make Zuckerberg one of the world’s richest men and many of Facebook’s 3,000 employees exceedingly wealthy. “Zuckerberg has sought to delay an IPO for as long as possible.”      

As 2012 begins, the clock has almost stopped ticking for Facebook’s 27-year old founder to delay further.
Facebook will have to disclose its financial results by the end of April to comply with a US regulation requiring any company with more than 500 shareholders to do so.
While an IPO isn’t a legal requirement of disclosing results, most expect a Facebook float to follow shortly after the company opens its results up to the world.
Whatever a flotation means for Facebook’s long-term future, the company’s far more pressing challenge will be to execute the IPO without any hitches. That’s where David Ebersman, who joined Facebook as its chief financial officer from US biotechnology company Genentech in 2009, stepped in.
The early noises suggested that a Facebook IPO would consign Wall Street banks to a supporting role at best, echoing what Google did almost a decade earlier.
Facebook isn’t yet believed to have picked advisers, and Ebersman is said to have drafted the S-1 registration form, a critical document usually produced by banks, that doubles as a disclosure form for regulators and a marketing brochure for the company selling shares.
“There’s a tendency in the aggregate for Silicon Valley to be sceptical and cynical about Wall Street,” says Lise Buyer, who helped Google organise its IPO when she worked there and now advises companies that are going public on their relations with banks. “A banker’s seal of approval can help persuade an investor but if you’re Facebook you don’t need that.”
The muscle that Facebook brings to the table - the users themselves and revenues estimated to be close to $4bn this year - has led to predictions that Facebook might follow the example Google set in 2004 and sell shares by auction.
The idea, in part, would be to open the sale up to retail investors and sell the shares at a price that reflected true demand, rather than engineering a first day surge for those investors – who are also often clients of the banks – lucky enough to buy the shares at the IPO.
As speculation intensifies about when Facebook will file its S-1 – the moment when the public starting gun on the IPO process is fired – there would be considerable risks in completely avoiding Wall Street.
For a start, Google’s flotation is not seen as an unequivocal success. Google’s shares surged almost 20pc on the first day of trading, prompting accusations the auction system failed to accurately match the amount of shares sold with demand from investors.
Also, Facebook has already used banks to raise funds. In December 2010, Goldman Sachs drummed up $1bn for the company from its wealthiest clients. Even those technology bankers who believe the IPO process needs improving say you need very strong motivation to go public using a system every banker on Wall Street is hoping blows up.
“If you begin to introduce that [the auction] as a mechanism, you erode the value that Wall Street thinks it adds,” said Eric Risley, who was a technology banker at Bank of America and is now a partner at boutique adviser Architect Partners in Silicon Valley. “Wall Street was very pleased that the Google auction failed.”
It will be a surprise if Sheryl Sandberg, Facebook’s chief operating officer, doesn’t use her annual trip to the World Economic Forum at Davos at the end of the month to meet the Wall Street bankers who will also be at the gathering of business leaders in the Swiss ski resort.
The fees generated from taking technology companies public was a rare bright spot for Wall Street in 2011, with Morgan Stanley, Bank of America, JPMorgan Chase and Goldman Sachs making up the four biggest earners, according to Dealogic.
But analysts say that the flotation of video game pioneer Zynga in early December holds cautionary lessons for Facebook. Best known for the games Farmville and Cityville that are played on Facebook, Zynga’s shares ended their first day down 5pc and have yet to reach the $10 mark they were sold for.
Some put the blame on Zynga trying to sell too many shares. It sold 15pc of its stock, almost double the amount offered by professional networking site Linked-In last May. LinkedIn’s shares are now 40pc higher than the $45 they were first sold for.
“A busted Facebook IPO that trades underwater would seriously harm Facebook’s momentum and reputation, with everyone from major advertising agencies to valuable talent Facebook wishes to hire,” says Sam Hamadeh, managing director of PrivCo, a US firm that analyses privately held companies.