Business and finance – Page 12

WSJ trashes SA’s black government

The Wall Street Journal has published an article painting a bleak picture of South Africa’s economy, saying labour unrest has caused its economic growth to fall behind other African states.

“The unrest is exposing a stark reality – South Africa is falling behind, even in Africa,” read the Wall Street Journal article, published on its website on Friday.

The article said Rwanda, which had 800 000 people killed in the same year the ANC took power, had managed to achieve annual economic growth near 8% since 2004, more than double South Africa’s 3.7% growth rate during the same period.

It said that when Zambia held its democratic elections in 1991, it scrapped nationalisation, but South Africa “is debating nationalisation and other ways to intervene in the mining sector”.

Countrywide strikes coupled with unemployment and income disparity were posing a grave challenge to the ruling party, read the Wall Street Journal article.

Brazil’s economy had grown around the same pace as South Africa’s but its income disparity had diminished, it added. – Sapa

African economies to grow rapidly, says IMF

Sub-Saharan Africa is poised to enjoy the type of high growth rates not seen outside Asia in the next few years, the International Monetary Fund said Monday, as the region’s unbridled economic rise continues.

The IMF predicted the region’s economy would grow at 5.0 percent in 2012 and 5.7 in 2013, a little slower than expected this year, but faster than expected next year.

“Sub-Saharan Africa is expected to continue growing strongly in the near term,” the Fund said in its regular economic outlook.

Ghana and the Ivory Coast are expected to top the region’s growth this year, with growth of over eight percent.

Oil producers Nigeria, Angola and Gabon will also see strong growth.

The outlook for the rest of the region is also rosy, raising hopes that Africa may be on the verge of experiencing the type of growth that has transformed Latin America and South East Asia in recent decades.

“Economic activity in sub-Saharan Africa has expanded by more than five percent in each of the past three years — continuing a decade-long run of strong performance that was only briefly interrupted by the global downturn in 2009,” the IMF said.

But there were a flew blots on an otherwise positive landscape.

Africa’s leading economy South Africa is likely to experience weak growth of around 2.6 percent this year, thanks in part to spillovers from Europe’s debt crisis.

The IMF predicted South Africa’s economy would grow 3.0 percent next year.

The IMF also warned that African nations must use the prolonged boom to help create a nest-egg for any trouble ahead.

And Sub-Saharan Africa still has a long way to reach its potential. Today it accounts for just 2.5 percent of world GDP — or 1.3 percent excluding South Africa and Nigeria. – AFP

South African strikes hurt currency, bonds

South Africa’s rand sank this week to within sight of three-year lows against the dollar as a wave of strikes spread beyond the mining sector, threatening the biggest industrial crisis since the end of apartheid.

After two months of violent labor unrest in the platinum and gold mines, Japanese car giant Toyota said on Thursday its Durban plant had fallen victim to the wildcat strikes that are shaking Africa’s biggest economy only three months before an ANC leadership election.

President Jacob Zuma is favorite to win re-election as head of the ruling party, although a widening of the strikes and sell-offs of the rand and domestic bonds threaten to expose his lack of economic expertise.

So far, a wave of foreign flows into the bond market related to South Africa’s October 1 inclusion in the influential Citi World Government Bond Index (WGBI) on October 1 have helped underpinned domestic asset prices.

But signs are emerging that the WGBI effect is waning, and concerns about the strikes’ impact on growth is rising.

The rand has lost nearly 1.3 percent this week, recording its fourth daily loss in five days on Wednesday as strikes, a yawning current account gap and a Moody’s ratings downgrade took their toll.

“These events have had a marked impact on the currency, not-withstanding the evidence of substantial purchases of South African bonds by foreign investors on the back of the WGBI inclusion,” said Bruce Donald, a strategist at Standard Bank

“The strikes are certainly one of the factors impacting investor sentiment towards South Africa in terms of the political uncertainty it might create. It also has negative consequences for growth and for the current account through its impact on mining exports.”

In July, before the wave of strikes started with a wildcat walkout at Lonmin’s Marikana platinum mine, exports of minerals, precious stones and metals accounted for half of all South Africa’s trade receipts.

Moody’s last week cut South Africa’s sovereign credit rating to Baa1 from A3 amid a souring of investor sentiment over the protests that have hit production in the world’s top platinum producer and No. 4 gold producer.

All that has put pressure on Zuma’s government, which was criticized for its handling of the unrest at Marikana, where more than 40 people were killed in August, the majority shot dead by police.

This week, Reserve Bank Governor Gill Marcus noted the rand remained vulnerable to “changing risk perceptions in global financial markets and domestic issues, such as the tragic events at Marikana”.

Joining the club

The rand has been lifted by about 84 billion rand ($10 billion) of portfolio flows since the start of 2012 as foreign accounts that track the WGBI stocked up on local debt ahead of the October 1 inclusion, Marcus said.

But the governor cautioned these levels were not sustainable.

Despite its recent strong run, the rand is still among the weakest performers against the dollar so far this year in a basket of 20 emerging market currencies, shedding more than four percent since January.

By contrast, units such as the Hungarian forint, Polish zloty and Turkish lira have rallied 9 percent, 8 percent and 4 percent respectively.

The rand hit 8.4524 earlier on Thursday, within sight of Wednesday’s month low of 8.4590. A sustained hold below the 8.45 area could push it to 8.55/dollar, then all the way towards the three-year low of 8.71 it hit in early June amid intense concerns about Europe’s debt crisis.

Waning WGBI flows make the currency more vulnerable to swings in global risk appetite as investors eye the unabating credit crunch in the single currency area.

“We expect the WGBI flows could start to ease up now after the actual inclusion date and perhaps thin out over the next week or two and then normality could kick back into effect,” said Sean McCalgan, a market analyst at ETM.

“That leaves the rand in a rather vulnerable position,” he added. “WGBI is one of the only positive drivers working in favor of the rand at the moment.”

($1 = 8.4415 South African rand) – Reuters

‘The American Dream is a Myth’

The finance industry must take the blame for the growing divide between the rich and poor in the United States, says Nobel Prize-winning economics professor Joseph Stiglitz. In an interview with SPIEGEL, he accuses the industry of preying on the poor and buying government policies that help them get richer

American economist and 2001 Nobel Prize winner Joseph Stiglitz works as a professor at Columbia University. Stiglitz discusses how wealth disparity is dividing America and how Europe can best overcome the euro crisis.

SPIEGEL: What is the scale this inequality?

Stiglitz: In the last decades, income and wealth disparity have grown dramatically in this country. Let me give you an example: In 2011, the six heirs to the Walmart empire commanded wealth of almost $70 billion, which is equivalent to the wealth of the entire bottom 30 percent of US society.

SPIEGEL: What has become of the American dream?

Stiglitz: This belief is still powerful, but the American dream has become a myth. The life chances of a young US citizen are more dependent on the income and education of his parents than in any other advanced industrial country for which there is data. The belief in the American dream is reinforced by anecdotes, by dramatic examples of individuals who have made it from the bottom to the top — but what matters most are an individual’s life chances. The belief in the American dream is not supported by the data.

There has been no improvement in well-being for the typical American family for 20 years. On the other side, the top one percent of the population gets 40 percent more in one week than the bottom fifth receive in a full year. In short, we have become a divided society. America has created a marvelous economic machine, but most of the benefits have gone to the top.

SPIEGEL: With five more weeks to go in the presidential campaign, inequality hasn’t played a serious role yet, though.

Stiglitz: It has been a topic, but typically only underneath the surface. One cannot expect a scientific debate on the Gini coefficient, the statistical measure of inequality.

SPIEGEL: But who exactly represents the one percent?

Stiglitz: It is the group of people who get 20 to 25 percent of the income. Their share has doubled in the last 30 years. And they own about 35 percent of the wealth or more. They have the best houses, the best education and the best lifestyles.

SPIEGEL: Don’t the rich also give something in return? In Germany, the upper one percent contributes almost a quarter to the tax revenue, and the top ten percent more than half of the taxes. Isn’t that an appropriate share?

Stiglitz: I don’t know about the German numbers. What I can say is that the top one percent in the United States has an average tax rate of less than 30 percent of their reported income, and the large proportion who take much of their income as capital gains pay far less. And we know that they are not reporting all of their income.

SPIEGEL: We thought that as a rule Americans don’t begrudge the rich their wealth, though.

Stiglitz: There is nothing wrong if someone who has invented the transistor or made some other technical breakthrough that is beneficial for all receives a large income. He deserves the money. But many of those in the financial sector got rich by economic manipulation, by deceptive and anti-competitive practices, by predatory lending. They took advantage of the poor and uninformed, as they made enormous amounts of money by preying upon these groups with predatory lending. They sold them costly mortgages and were hiding details of the fees in fine print.

SPIEGEL: Why didn’t the government stop this behavior?

Stiglitz: The reason is obvious: The financial elite support the political campaigns with huge contributions. They buy the rules that allow them to make the money. Much of the inequality that exists today is a result of government policies.

SPIEGEL: Can you give us an example?

Stiglitz: In 2008, President George W. Bush claimed that we did not have enough money for health insurance for poor American children, costing a few billion dollars a year. But all of a sudden we had $150 billion to bail out AIG, the insurance company. That shows that something is wrong with our political system. It is more akin to “one dollar, one vote” than to “one person, one vote.”

SPIEGEL: Ninety-nine percent against 1 percent: That actually sounds like the perfect setting for a revolution. Why are things still so calm in the US?

Stiglitz: The United States doesn’t have much of a revolutionary spirit. My real concern is that people get alienated from politics. In the last election we had a voter turnout among young people of around 20 percent. These are the people whose future is most at stake, and 80 percent of them think it’s not worth to vote because it is a rigged system and in the end the banks are going to run the country anyway.

SPIEGEL: With a debt burden of $16 trillion there is not much room for maneuvering.

Stiglitz: The United States can borrow at close to a zero percent interest rate, we would be stupid not to invest more money and create jobs. And we could also make efforts to ensure that the super-wealthy pay their fair share. We could raise more money in a variety of ways. Look at the mining companies: The government grants them the right to extract resources for far less than it should, but auctions could make sure that they pay appropriately.

SPIEGEL: So your answer to the inequality problem is to transfer money from the top to the bottom?

Stiglitz: First, transferring money from the top to the bottom is only one suggestion. Even more important is helping the economy grow in ways that benefit those at the bottom and top, and ending the “rent seeking” that moves so much money from ordinary citizens to those at the top.

SPIEGEL: Is redistribution also the strategy when it comes to Europe and the euro crisis — moving money from the north to the south?

Stiglitz: The main problem in Europe right now are the austerity packages, they depress demand and weaken economic growth. The reversal of this policy is absolutely essential to develop growth and more equality. Spain, for example, gets weaker and weaker, money flows out of the country, and it is a vicious downward spiral.

SPIEGEL: Isn’t the real problem the lack of competitiveness? Spain and the other countries in crisis have lived beyond their means, that’s why they are in trouble.

Stiglitz: No, Europe’s crisis is not caused by excessive long-term debts and deficits. It is caused by cutbacks in government expenditures. The recession caused the deficits, not the other way around. Before the crisis Spain and Ireland ran budget surpluses. They cannot be accused of fiscal profligacy. More fiscal discipline will only worsen the downturn. No economy ever recovered from a downturn through austerity.

SPIEGEL: You assume that a government knows best where to create jobs. Don’t you overestimate that ability?

Stiglitz: We need roads, bridges and airports. That’s obvious. The returns from public investments in technology on average have been very high — think about the Internet, the Human Genome Project and the telegraph.

SPIEGEL: There are also many examples of public money that was wasted. The US space program cost a fortune, and the results were questionable.

Stiglitz: But even those expenditures are still less than the money wasted by America’s private financial sector, and the billions spent to bail out companies from the financial sector. One corporation alone, AIG, got more than $150 billion — more than was spent on welfare for needy families from 1990 to 2006.

SPIEGEL: The government also became owner of these companies and even managed to sell parts of them with a profit, though. Aren’t you afraid that this strategy of ever bigger stimulus packages might lead to inflation?

Stiglitz: Not necessarily. The central bank has the ability to take out liquidity from the system.

SPIEGEL: But it is much harder getting the liquidity out than getting it in.

Stiglitz: A well-managed central bank has lots of tools. It can raise interest rates or reserve requirements for private banks. So I think there is actually relatively little danger. The weakness in the European economy poses much more of a risk than any risk of moderate inflation. Better some job where the pay has declined in real terms by a few percent than no job at all.

SPIEGEL: What do you think Europe’s future prospects are?

Stiglitz: Europe is facing a critical point. The alternatives are “more Europe” or “no Europe.” The halfway configuration is unstable.

SPIEGEL: Which option would be better for Germany?

Stiglitz: Both strategies will cost Germany money, but the “more Europe” option will cost less. Europe needs a common banking system and a common financial framework. If Europe borrows as a whole it could have even better access to credit than the United States. So “more Europe” is not only better for Spain or Italy, but also for Germany.

Another petrol shock ahead

October will see the highest single increase in the petrol price in SA and there is a possibility that it will go up again next month.

Chief economist at the Efficient Group Dawie Roodt said the increase was a record one, but warned that this was not the end of petrol price inflation.

As from midnight motorists will pay 93c a litre more for their petrol while diesel will increase by 69c/l.

The wholesale price of illuminating paraffin will also go up 73c/l.

Currently costing R11.04/l in Gauteng, petrol will cost R11.97 as from midnight. It will be R11.62/l at the coast.

The new price of diesel is R10.95/l, and of illuminating paraffin is R8.34/l.

Roodt said consumers were likely to see a second petrol price increase of about 20c next month, as we had not yet seen the full effect of a weaker rand on the petrol price.

He said the good news was that the price was likely to fall in November by about 20c, and the month after it could come down further, if other factors such as oil and the rand improved.

Roodt compared a change in petrol prices to throwing a pebble in a pond, which caused ripples through other sectors.

“At the moment food prices are going up because of all sorts of international factors because of the drought in the US,” said Roodt. He said food prices generally reacted sooner to other price changes, meaning they would go up quickly.

“The next couple of months are going to be tough, especially for the poorer consumers because they spend a greater percentage of their income on commodities,” he said.

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Food prices could increase in the next few months too.

The idea that some petrol stations would hold back their stock until the price increased was “ridiculous”, said the chairman of the SA Petroleum Retailers Association, MC Lamprecht.

“The loss of reputation and trust [that the petrol station would suffer] far outweighs any advantage they might gain,” he said.

Petrol stations are set to be inundated with customers today as people flock to fill up, and Lamprecht asked these consumers to be patient.

The increase was due to crude oil prices, international product prices, and the rand-dollar exchange rate, the Energy Department confirmed in a statement.

Zuma blames apartheid

South Africa’s president says the mining unrest that captured international attention following the police killing of 34 striking miners will be resolved through negotiation.

President Jacob Zuma told the Associated Press that the Aug. 16 killings at the Lonmin PLC platinum mine in Marikana should not be viewed as “the kind of incident that will be a common occurrence” or “that things have gone out of control in South Africa.”

He said the strikes which spread to other, mostly gold, mines were a direct consequence of the strike at Marikana and that they too would be resolved through negotiation.

Zuma denied that the strikes revealed startling inequalities in post-apartheid South Africa, saying it was not a problem that has “arisen now,” blaming the problem on the legacy of apartheid. – AP

Microsoft evaded $6,5 billion in US taxes

MicrosoftLogo — The giant US software company evaded $6,6 billion in taxes

Large multinational companies such as Microsoft and Hewlett Packard have used tax loopholes to avoid billions of dollars in income taxes over the last three years, according to a Senate committee report issued Thursday.

The report says multinationals dodge taxes by shifting profits to low-tax jurisdictions overseas and using loopholes to avoid taxes on repatriated income. The Senate Permanent Subcommittee on Investigations released the report ahead of a hearing Thursday at which representatives of Microsoft and Hewlett Packard were to testify.

The report says Microsoft used offshore tax avoidance strategies with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda to save at least 6.5 billion dollars in federal corporate income taxes.

Hewlett-Packard used a different tactic, according to the report. It created a series of occasional short-term internal loans with the apparent support of its auditor that allowed it to access offshore cash for domestic operations without paying taxes.

Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations, didn’t accuse the companies of acting illegally.

“Major US corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe,” Levin said in a news release.

“At a time when we face such difficult budget choices, and when American families are facing a tax increase and cuts in critical programs from education to health care to food inspections to national defense, these offshore schemes are unacceptable.” – DPA

Persisting Divides in Global Competitiveness as Switzerland, Singapore and Finland Top Competitiveness Rankings in 2012

Competitiveness gap widening among European countries
US remains world’s innovation powerhouse despite decline in overall ranking
People’s Republic of China most competitive among large emerging markets; India, Russia fall
Download the full report profiling 144 economies, highlights, rankings and more at http://www.weforum.org/gcr
Watch the video interviews on the results of the report

Geneva, Switzerland, 5 September 2012 – Switzerland, for the fourth consecutive year, tops the overall rankings in The Global Competitiveness Report 2012-2013, released today by the World Economic Forum. Singapore remains in second position and Finland in third position, overtaking Sweden (4th). These and other Northern and Western European countries dominate the top 10 with the Netherlands (5th), Germany (6th) and United Kingdom (8th). The United States (7th), Hong Kong (9th) and Japan (10th) complete the ranking of the top 10 most competitive economies.

The large emerging market economies (BRICS) display different performances. Despite a slight decline in the rankings of three places, the People’s Republic of China (29th) continues to lead the group. Of the others, only Brazil (48th) moves up this year, with South Africa (52nd), India (59th) and Russia (67th) experiencing small declines in rankings.Despite growing its overall competitiveness score, the United States continues its decline for the fourth year in a row, falling two more places to seventh position. In addition to the burgeoning macroeconomic vulnerabilities, some aspects of the country’s institutional environment continue to raise concern among business leaders, particularly the low public trust in politicians and a perceived lack of government efficiency. On a more positive note, the country still remains a global innovation powerhouse and its markets work efficiently.The report indicates that Switzerland and countries in Northern Europe have been consolidating their strong competitiveness positions since the financial and economic downturn in 2008. On the other hand, countries in Southern Europe, i.e. Portugal (49th), Spain (36th), Italy (42nd) and particularly Greece (96th) continue to suffer from competitiveness weaknesses in terms of macroeconomic imbalances, poor access to financing, rigid labour markets and an innovation deficit.

Download the full Global Competitiveness rankings
(PDF or Excel format)

Behind Singapore, several Asian economies are performing strongly, with Hong Kong SAR (9th), Japan (10th), Taiwan, China (13th) and the Republic of Korea (19th) all in the top 20.

In the Middle East and North Africa, Qatar (11th) leads the region while Saudi Arabia remains among the top 20 (18th). The United Arab Emirates (24th) improves its performance while Kuwait (37th) slightly declines. Morocco (70th) and Jordan (63rd) improve slightly. In sub-Saharan Africa, South Africa (52nd) and Mauritius (54th) feature in the top half of the rankings. However, most countries in the region continue to require efforts across the board to improve their competitiveness.

In Latin America, Chile (33rd) retains the lead and a number of countries see their competitiveness improve, such as Panama (40th), Brazil (48th), Mexico (53rd) and Peru (61st). Read more highlights of the report.

“Persisting divides in competitiveness across regions and within regions, particularly in Europe, are at the origin of the turbulence we are experiencing today, and this is jeopardizing our future prosperity.” said Klaus Schwab, Founder and Executive Chairman, World Economic Forum. “We urge governments to act decisively by adopting long-term measures to enhance competitiveness and return the world to a sustainable growth path.”

Xavier Sala-i-Martin, Professor of Economics, Columbia University, USA, said: “The Global Competitiveness Index provides a window on the long-term trends that are shaping the competitiveness of the world’s economies. In this light, we believe it offers useful insight into the key areas where countries must act if they are to optimize the productivity that will determine their economic future.”

Barclays, ABSA combine banks for ‘One Africa strategy’

Banking institutions Barclays and its subsidiary Absa are discussing combining to operate as one bank in Africa.

“This is expected to involve the combination of Barclays interests in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia and the Indian Ocean with Absa, with Barclays Bank PLC remaining as the majority shareholder of the combined African operation,” the two said in a joint statement on Tuesday.

“The listings of Barclays subsidiaries in Kenya, on the Nairobi Securities Exchange, and in Botswana, on the Botswana Stock Exchange, would be maintained.”

Only Barclays holdings in these listed subsidiaries would be included in the proposed combination.

The proposal would be subject to the approval of the boards of Barclays and Absa, and Absa shareholders and regulatory approvals.

“There can be no certainty that these discussions will lead to a combination,” the two banks said.

“The proposed combination would not be expected to be completed until 2013.”

The proposal, whether or not successful, could have an effect on the price of Absa’s shares.

Maria Ramos, CEO of Absa Group and Barclays Africa said: “This proposed combination… is the next logical step in delivering our ‘One Africa’ strategy, which Barclays PLC announced last year.”

“We have already consolidated the regional offices for Absa Africa and Barclays Africa, as well as introduced a global product strategy for banking across the continent.”

Ramos said she was excited by the opportunities for growth in Africa. – SAPA

$54,8m fine for South Africa’s Telkom

telkom_headquarters — Telkom headquarters in Pretoria, as seen from Church Square Photo: Wikipedia

The Competition Tribunal of South Africa has fined Telkom, the one-time monopoly state telephone company, with a $54.8 million fine over unfair competition, according to an Associated Press report this morning.

The tribunal issued the fine Tuesday morning as part of a decade-long look at the company’s practices.

The case began in 2002, with Internet service providers alleging Telkom charged its competitors high prices for using its services, while charging much lower fees to its subsidiaries and its customers.

The South African government still owns part of Telkom SA Ltd., once an entirely state-run company. The company, with operations in other African nations, has had financial troubles in recent years. Subscribers also have increasingly dropped fixed telephone lines, the backbone of Telkom’s business, for mobile phones.

Telkom has also practised a blacks-only employment policy and has lost a significant percentage of its skilled personnel as whites have either been retrenched or resigned of their own accord.

Barclays CEO resigns over rate fixing

(Reuters) – Barclays chief executive Bob Diamond suddenly quit on Tuesday over an interest rate-rigging scandal that threatens to drag in a dozen more major lenders but suggested the Bank of England had encouraged his bank to manipulate the figures.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” said Diamond, 60. The terms of his severance were not announced, though Sky News said the bank would ask Diamond to forfeit almost 20 million pounds in bonuses.

Politicians and newspapers have zeroed in on the scandal – which revealed macho e-mails of bankers congratulating each other with offers of champagne for helping to fiddle figures – as an example of a rampant culture of wrongdoing in an industry that stayed afloat with huge taxpayer bailouts.

Barclays (BARC.L) released an internal 2008 memo from Diamond, then head of its investment bank, suggesting that the deputy governor of the Bank of England, Paul Tucker, had given Barclays implicit encouragement to massage the interest figures lower during the peak of the financial crisis in order to present a better picture of the bank’s financial position.

According to the memo, Tucker told Diamond he had received calls from senior government officials. “It did not always need to be the case that we appeared as high as we have recently,” Diamond said he had been told.

The Bank of England declined to comment, but analyst Ian Gordon at Investec said: “Based on first inspection it does seem to suggest that Barclays have received a message from the Bank of England which provided, to put it mildly, significant encouragement.

“So they’re maybe trying to share the blame but with justification. It raises a whole bunch of questions, and they’re very serious and they’re for the Bank of England to answer.”

SUDDEN REVERSAL

Diamond’s resignation was a sudden reversal, hours after the American said it was down to him to clear up the mess at Britain’s third-largest bank, fined nearly half a billion dollars for its part in manipulating the benchmark interest rate used to price everything from derivative instruments to home loans.

There was speculation in banking circles over whether Diamond, one of Europe’s highest paid bankers and once labelled by a Labour minister as the “unacceptable face” of banking, jumped or was pushed.

Prime Minister David Cameron had announced a parliamentary inquiry after calling for Diamond to take responsibility for the scandal, and the Financial Services Authority regulator had also brought pressure to bear on the board.

The government is now considering the introduction of criminal sanctions for serious misconduct in the management of a bank, the finance ministry said on Tuesday.

FSA Chairman Adair Turner said on Tuesday he had had private conversations with Barclays since Friday morning about the need for “cultural change” at the bank.

“We communicated to the board those were the sort of issues they needed to think about, but it was for them to decide whether they could achieve that degree of change … under the current leadership,” he said.

Diamond sent a long letter to staff on Monday making clear his resolve to continue. But he and the board decided he should quit later that day after Cameron and finance minister George Osborne announced the parliamentary inquiry.

“A FIRST STEP”

Diamond’s resignation was “a first step towards that change of culture, that new age of responsibility we need to see”, Osborne told BBC radio.

“The chairman of Barclays phoned me last night to let me know that this was the decision of the board and of Mr Diamond, and I think Mr Diamond made the right decision,” Osborne said.

Diamond will appear before the parliamentary inquiry on Wednesday, where his memo on the attitude of the Bank of England towards the manipulation of the interest rate at the time is likely to take centre stage. His evidence will have legal immunity.

Outgoing chairman Marcus Agius will lead the search for a new CEO, despite having announced his own imminent departure a day earlier. Newly appointed Chief Operating Officer Jerry del Missier, long a Diamond lieutenant, also left.

The reversal was a shock within the 322-year-old bank, which in recent years has boasted an aggressive culture cultivated by Diamond, first as head of investment banking and then as CEO. One Barclays banker, asking not to be identified without permission to speak publicly, said staff were disappointed.

“Everyone here has been bandying around names, but it’s going to be hard to find someone of the same quality as Bob and John (Varley, his predecessor). I guess it would be hard to appoint someone from the investment banking side now.”

Barclays has admitted it submitted falsely low estimates of its borrowing costs to calculate interbank rates from late 2007 to May 2009, a time when Diamond ran investment banking. Large banks’ estimates of the interest rates they pay each other are used to calculate the London Interbank Offered Rate, or Libor, basis for trillions of dollars in contracts around the globe.

By manipulating the figures, banks could give flattering impressions of their financial strength. Barclays says it submitted low figures because it thought rivals were doing the same and higher rates would have made it seem to be in trouble.

The Libor figures submitted by banks are compiled by Thomson Reuters (TRI.TO), parent company of Reuters, on behalf of the British Bankers’ Association.

Opposition Labour Party leader Ed Miliband, who has said he wants to see criminal prosecutions of Barclays bankers, welcomed Diamond’s resignation but said a parliamentary inquiry was not enough and demanded an independent probe led by a judge.

“This is about the culture and practices of the entire banking system, which is why we need an independent, open, judge-led, public inquiry,” he said.

The government said a judge-led inquiry would take too long to be of use shaping new laws to tighten rules. Cameron, elected in 2010, has repeatedly made the point that Miliband’s Labour was in power at the time of the wrongdoing.

NAMES IN THE FRAME

Antony Jenkins, currently chief executive of Barclays retail and business banking, is the most likely internal candidate to replace Diamond, said Oriel Securities analyst Mike Trippitt. However, the firm may choose to look outside for a new leader to turn the page on the scandal.

“Promoting an existing manager might not look like it is doing enough to tackle problems with aspects of the bank’s culture which the LIBOR scandal has exposed,” one top 25 Barclays investor said, asking not to be identified.

Other names in the frame include former JPMorgan (JPM.N) investment banking co-head Bill Winters and Naguib Kheraj, the ex-Barclays finance director and former CEO of JPMorgan Cazenove.

“I struggle to see many worthy candidates to replace him,” said a top 40 investor.

Barclays shares, which rose on the news of the departure of Agius on Monday, were down 1.1 percent late on Tuesday at 166.5 pence, while the European banking stocks index .SX7P was flat. The shares were down more than 15 percent from Thursday’s open.

Barclays was fined $453 million by U.S. and British authorities, the first bank to settle in an investigation that is looking at more than a dozen others, including Citigroup (C.N), UBS and RBS.

Shares fall on European debt worries

(Reuters) – Asian shares fell on Thursday after a weak Spanish bond sale heightened concerns about funding difficulties for weaker euro zone countries, further undermining sentiment hurt by fading expectations of more stimulus from the U.S. Federal Reserve.

MSCI’s broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell for a second straight session, easing as much as 1.3 percent to a four-week low, while Japan’s Nikkei average .N225 fell 0.9 percent, also to a four-week low, after putting in its worst performance in five months a day earlier. .T

Shanghai shares .SSEC, which resumed trading after a three-day break, gained after a private sector survey of purchasing managers showed that China’s services sector expanded in March and business confidence hit an 11-month high, though overall activity remained below its long-term average.

The renewed risk aversion after a strong Asian equity performance in the first quarter comes as investors factor in less support for global economic growth, waning hopes of more monetary easing from the United States, and the potential fading of the effects of the European Central Bank’s huge liquidity injections.

“More policy support from the ECB in the near-term appears unlikely, following the hawkish slant in tone during its press conference,” said Barclays Capital analysts. “Widening peripheral European government bond spreads, higher Treasuries, higher implied vol, a lower EUR and a stronger USD are reminiscent of past episodes of elevated European concern.”

Risk currencies steadied, with the Australian dollar off a near three-month low of $1.0245 hit on Wednesday, and the euro holding above $1.3100 after falling nearly 1 percent the day before. Gold and oil also recovered on Thursday.

Spot gold inched up 0.3 percent to $1,624 an ounce. U.S. crude futures rose 0.8 percent to $102.23 a barrel while Brent crude added 0.5 percent at $122.90 a barrel.

On Wednesday, global stocks .MIWDPUS fell over 1 percent, gold tumbled to its lowest in nearly three months and oil shed more than 2 percent.

Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 5 basis points.

ASIA WARY OF INFLATION

Frances Cheung, senior strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong, said market liquidity was very thin and investors were digesting mixed signals about economic and monetary policy outlook.

“Triggered by inflation pressures, room for easing (by Asian central banks) is reduced now. Supply-side inflation is not good for the economy, so investors are more cautious,” she said, but added that the current market downturn was a correction from strong performance earlier in the year.

Inflation in most Southeast Asian countries has slowed, so policymakers are likely to continue supporting growth by keeping rates steady, but they remain wary of the recent rise in oil prices.

ECB CALM ON SPAIN

Borrowing costs for Spain, the euro zone’s fourth largest economy, jumped at bond auctions on Wednesday, with the 10-year bond yield leaping to 5.7 percent, its highest since January. It overshadowed a successful step back into debt markets by similarly highly indebted Portugal.

Ten-year Spanish yields had fallen as low as 4.6 percent in late January as cheap ECB cash fuelled a rally in weaker peripheral state debt.

But ECB President Mario Draghi appeared relaxed about the rise in Spanish yields, after the bank kept interest rates steady as expected at a policy meeting on Wednesday.

Draghi also dismissed a German-led push for the ECB to start planning a retreat from emergency crisis-fighting. But some financial market analysts detected a shift in the ECB’s monetary policy back to a more traditional one focusing on maintaining price stability, as Draghi stressed the bank was keeping a close eye on price pressures.

Some market players said such fears may be overdone, pointing to a key gauge of how investors perceive risk, the VIX index .VIX.

The VIX, which measures expected volatility in the Standard & Poor’s 500 index .SPX over the next 30 days, failed to keep its gains after rising above resistance at its 50-day moving average. The index hit a high of 17.74 on Wednesday, its highest in nearly a month, before retreating. A fall in the index reflects easing risk aversion.

Upbeat U.S. private-sector jobs data by payrolls processor ADP on Thursday suggested the labor market was continuing to strengthen ahead of key non-farm payrolls data due on Friday, which is expected to show the U.S. economy added 203,000 jobs last month, after February’s non-farm payrolls rose 227,000.

Banks make millions out of breaking metals storage rules

LONDON, Feb 6 (Reuters) – Banks and trading houses have found a way to beat the ravages of economic downturn, storing millions of tonnes of metal with a business model that outsmarts new rules put in place following widespread concern about their practices.

As of April 1 this year, new London Metal Exchange regulations mandate that warehouses which hold over 900,000 tonnes of metal must release a minimum 3,000 tonnes a day, up from 1,500 previously.

On that date, however, investment bank Goldman Sachs and commodity trader Glencore plan to hike rents for storing aluminium at their respective warehouses in Detroit and Vlissingen, Netherlands by around 10 percent, according to an LME announcement in December.

Detroit, and more recently Vlissingen, have long incited anger from clients forced to pay daily rent for metal stuck in queues of around a year, while the warehouses drip feed their stock out at the lowest possible rate.

The new rules were expected to dent queues. But with warehouses able to hike rents in response, it is little wonder players like JP Morgan want to expand their storage hubs in Rotterdam and Chicago.

“From April you will see there will be a lot more (metal) coming out, this is now compulsory. The compensation for that is a very nice one, because the outcharges and the rents are so much higher,” said a warehouse source.

Both Goldman and Glencore declined to comment, or give the latest profit forecast for their warehousing units, though Glencore previously revealed its warehousing unit made a $31 million profit in 2010.

That was in a year when the company had only owned its lucrative LME-listed Vlissingen warehouses for three months, and some industry participants believe warehousing will be a money spinner this year again, despite new LME rules.

“It seems as though the warehousing companies are saying to the LME if you want metal out more quickly you are damaging our business model and we’ll have to take action to compensate for that,” said Natixis analyst Nic Brown.

Chris Evans, LME head of business development said: “When the discussions of the load out rate were underway last year we said that if we increase the rate there is likely to be an increase in costs and this is what we seeing now.”

LME data shows that as of Feb. 2, Detroit warehouses – 80 percent Goldman-owned – held 1.36 million tonnes of aluminium. At a new rent of 45 cents per tonne per day, the warehouses could generate $612,000 a day in rental revenue alone.

An exact figure cannot be calculated because many clients negotiate lower rental rates, but banks remain hungry for more business, with commodities heavywieght Barclays having recently bought a stake in UK-based warehouse Erus Metals.

“Don’t feel sorry for the warehouses, they’re making huge money and will make even more money now rents have gone up. Doubling the load out rate to 3,000 tonnes a day was woefully inadequate,” said an industry source.

CONSUMER LOSS

Such views regularly receive cheer from aluminium consumers, the big losers in warehousing, who find themselves being out-bid by bankers and trading houses when trying to buy metal from producers.

Because the business models of bank-owned warehouses are built on getting in as much metal as they can for as long as possible, they have to pay incentives to attract metal in.

This incentive in turn pushes up the premium a consumer must pay a producer in order for them not to deliver metal to a warehouse. The bizarre market dynamic has prompted some to question the LME’s purported role as a market of last resort.

“It’s a market of first resort and its brought the LME into disrepute,” said the industry source. “What’s the point of having a prompt date when you can’t get the metal out till 2013?”

Premiums for western duty-paid aluminium on the spot market in Rotterdam are at around $165-190 a tonne , almost triple the $40-60 premium for Grade A copper – a metal which unlike aluminium, is in chronic short supply and which should, all things being equal, be drawing in a much higher premium.

All things are not equal, however, not in the aluminium market. Global consumption might be less than production, but global demand from banks and trading houses more than makes up the difference.

“There’s a real supply chain threat to the business, metal is available (it’s) just not accessible,” said Nick Madden, chief procurement officer for Atlanta-based Novelis, the world’s biggest maker of rolled aluminium products.

“The warehouses continue to offer incentives, which we firmly believe props up the premium.”

But the last word from Britain’s Office of Fair Trading was that it will not investigate activities of large dealers in LME warehouses, while the LME for its part holds it cannot intervene in a free marketplace.

At a recent briefing, LME Chief Executive Martin Abbott said: “It’s not our job to change the market, it’s our job to reflect the market and fact that there are queues is an accurate reflection of too much cheap money chasing hard commodities.”

Glencore and Xstrata agree $90 billion merger

(Reuters) – Glencore and Xstrata agreed an all-share merger worth $90 billion (56 billion pounds) on Tuesday in the industry’s largest ever deal, creating a commodities powerhouse spanning mining, agriculture and trading.

Glencore, the world’s largest diversified commodities trading house, will issue 2.8 new shares for each Xstrata share in a deal they said was a “merger of equals.”

The ratio is a 15.2 percent premium to Xstrata shareholders compared with its share price last Wednesday before word leaked out about the merger talks, a joint statement said.

“A merger between Glencore and Xstrata offers a unique opportunity to create a new business model in our industry to respond to a changing environment. It is the logical next step for two complementary businesses,” said Xstrata chief executive Mick Davis, who will be CEO of the enlarged Glencore.

Glencore CEO Ivan Glasenberg will be deputy CEO and Xstrata chairman John Bond will retain his post.

Xstrata shareholders other than Glencore, which already has a 34 percent stake in the mining group, will hold 45 percent of the new group.

Bringing together Xstrata, the world’s fourth-biggest diversified miner, and Glencore will create a group looking to ride an extended surge in demand in coming years for commodities from China and other emerging nations.

As the world’s biggest exporter of coal for power plants and a top copper producer, the combined firm aims to have the bulk to compete with mining sector leaders BHP Billiton, Vale and Rio Tinto.

On Monday, Xstrata shares closed down 1.7 percent while Glencore declined 4.5 percent, against a 1.0 percent fall in the sector, with both still above the level they were at before the potential deal was announced.

(Reporting by Eric Onstad)