Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.
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Times Topics: Henry M. Paulson Jr. | Goldman Sachs Group Inc.
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Henry Paulson at a House hearing last month questioning his relationship with the firm he led, Goldman Sachs. He spoke to its chief 24 times in six days.
But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.
“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.
“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”
Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.
That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.
It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.
While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.
During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.
On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.
Michele Davis, a spokeswoman for Mr. Paulson, said that the former Treasury secretary was busy writing his memoirs and that his publisher had barred him from granting interviews until his manuscript was done. She pointed out that the ethics agreement Mr. Paulson agreed to when he joined the Treasury did not prevent him from talking to Goldman executives like Mr. Blankfein in order to keep abreast of market developments.
Ms. Davis also said that Federal Reserve officials, not Mr. Paulson, played the lead role in shaping and financing the A.I.G. bailout.
But Mr. Paulson was closely involved in decisions to rescue A.I.G., according to two senior government officials who requested anonymity because the negotiations were supposed to be confidential.
And government ethics specialists say that the timing of Mr. Paulson’s waivers, and the circumstances surrounding it, are troubling.
“I think that when you have a person in a high government position who has been with one of the major financial institutions, things like this have to happen more publicly and they have to happen more in the normal course of business rather than privately, quietly and on the fly,” said Peter Bienstock, the former executive director of the New York State Commission on Government Integrity and a partner at the law firm of Cohen Hennessey Bienstock & Rabin.
He went on: “If it can happen on a phone call and can happen without public scrutiny, it destroys the standard because then anything can happen in that fashion and any waiver can happen.”
Inevitable Questions
Concerns about potential conflicts of interest were perhaps inevitable during this financial crisis, the worst since the Great Depression. In the weeks before Mr. Paulson obtained the waivers, Treasury lawyers raised questions about whether he had conflicts of interest, a senior government official said.
Saturday, August 8, 2009
Asian shipping lines suffer heavy blow
Two of Asia’s biggest shipping companies completed a grim week for the crisis-hit container shipping industry on Friday.
Both reported steep losses and one warned that the outlook for next year remained “challenging”.
EDITOR’S CHOICE
NOL latest to be hit by shipping downturn - Aug-06
Cosco warns of losses amid shipping crisis - Jul-29
Bleak forecast for shipping - Jul-27
Hong Kong’s Orient Overseas International, parent of the OOCL shipping line, announced a $232m net loss for the first half, while Korea’s Hanjin Shipping incurred a $516m net loss.
The container divisions of both suffered the same combination of falling container volumes and a drop in prices per container shipped that Singapore’s Neptune Orient Lines announced in its first-half results on Thursday.
OOCL’s container traffic fell 17.2 per cent compared with the first half of 2008, while revenue fell 37.2 per cent to $2.05bn. OOCL reported an operating loss for the half of $197m, against a $216m profit in the first half of 2008. Hanjin’s container division saw volumes down 20 per cent against last year’s first half, while revenues slumped 38.6 per cent to $2bn. The division produced $342m operating losses against a $59m profit for last year’s first half.
OOIL’s group figures were further depressed by a $5.11m operating loss in the property division and a $15m writedown in the value of its Wall Street Plaza office development in New York. Hanjin made a $57m operating loss in its dry bulk division – which carries iron ore, coal and other bulk commodities – on revenue down 45 per cent to $566m.
Hanjin told Bloomberg it expected the recovery to take some time. C.C. Tung, OOIL’s chairman, said the outlook for 2009 and 2010 remained “challenging”.
“While there are signs that the worst of the downturn may be behind us, a rebound in the global economy is expected to be subdued,” he added.
Container shipping lines have been hit by big falls in demand for the consumer goods that are their main cargo allied to a growing overcapacity problem as ships delivered during the sector’s record boom earlier this decade are delivered.
This week, Israel’s Zim announced restructuring plans to ward off insolvency and said it expected to burn through $1bn cash by 2013. Last week, Germany’s Hapag-Lloyd was forced to sell a stake in a key container terminal to its shareholders to avoid collapse.
Under Mr Tung, chairman and son of the company’s founder, OOCL has gained a particularly strong reputation for excellent management of information technology, a problem area for many container carriers.
The group-level loss compared with $158m in net profit for the same period in 2008. Group revenue fell 35.5 per cent to $2.07bn. “The deterioration in the performance of the container transport and logistics operations was a result of dramatically reduced revenue as business volumes suffered across all trade lines,” Mr Tung said.
Hanjin’s loss compared with $254m profits for the first half, with revenue down 40 per cent to $2.56bn.
OOIL’s net debt increased from $295m at the end of 2008 to $724m, and it cancelled its interim dividend. Hanjin recently shored up its balance sheet by selling some ships to a Korean government agency set up to help shipping lines.
Hanjin operates the world’s 10th-largest container ship fleet, according to AXS-Alphaliner, while OOCL has the 12th largest.
Both reported steep losses and one warned that the outlook for next year remained “challenging”.
EDITOR’S CHOICE
NOL latest to be hit by shipping downturn - Aug-06
Cosco warns of losses amid shipping crisis - Jul-29
Bleak forecast for shipping - Jul-27
Hong Kong’s Orient Overseas International, parent of the OOCL shipping line, announced a $232m net loss for the first half, while Korea’s Hanjin Shipping incurred a $516m net loss.
The container divisions of both suffered the same combination of falling container volumes and a drop in prices per container shipped that Singapore’s Neptune Orient Lines announced in its first-half results on Thursday.
OOCL’s container traffic fell 17.2 per cent compared with the first half of 2008, while revenue fell 37.2 per cent to $2.05bn. OOCL reported an operating loss for the half of $197m, against a $216m profit in the first half of 2008. Hanjin’s container division saw volumes down 20 per cent against last year’s first half, while revenues slumped 38.6 per cent to $2bn. The division produced $342m operating losses against a $59m profit for last year’s first half.
OOIL’s group figures were further depressed by a $5.11m operating loss in the property division and a $15m writedown in the value of its Wall Street Plaza office development in New York. Hanjin made a $57m operating loss in its dry bulk division – which carries iron ore, coal and other bulk commodities – on revenue down 45 per cent to $566m.
Hanjin told Bloomberg it expected the recovery to take some time. C.C. Tung, OOIL’s chairman, said the outlook for 2009 and 2010 remained “challenging”.
“While there are signs that the worst of the downturn may be behind us, a rebound in the global economy is expected to be subdued,” he added.
Container shipping lines have been hit by big falls in demand for the consumer goods that are their main cargo allied to a growing overcapacity problem as ships delivered during the sector’s record boom earlier this decade are delivered.
This week, Israel’s Zim announced restructuring plans to ward off insolvency and said it expected to burn through $1bn cash by 2013. Last week, Germany’s Hapag-Lloyd was forced to sell a stake in a key container terminal to its shareholders to avoid collapse.
Under Mr Tung, chairman and son of the company’s founder, OOCL has gained a particularly strong reputation for excellent management of information technology, a problem area for many container carriers.
The group-level loss compared with $158m in net profit for the same period in 2008. Group revenue fell 35.5 per cent to $2.07bn. “The deterioration in the performance of the container transport and logistics operations was a result of dramatically reduced revenue as business volumes suffered across all trade lines,” Mr Tung said.
Hanjin’s loss compared with $254m profits for the first half, with revenue down 40 per cent to $2.56bn.
OOIL’s net debt increased from $295m at the end of 2008 to $724m, and it cancelled its interim dividend. Hanjin recently shored up its balance sheet by selling some ships to a Korean government agency set up to help shipping lines.
Hanjin operates the world’s 10th-largest container ship fleet, according to AXS-Alphaliner, while OOCL has the 12th largest.
Swan Says Australian Economic Recovery Will Be Modest (Update1)
Aug. 9 (Bloomberg) -- Australia’s full recovery from the global economic slump will be “a slow process” and the jobless rate is expected to rise further, Treasurer Wayne Swan said.
Fiscals stimulus has been “vital in cushioning us from the worst effects of the global recession,” Swan said in a weekly note on the state of the Asia-Pacific region’s fourth-largest economy.
The government distributed A$12 billion ($10 million) in cash handouts to households this year and pledged a further $22 billion to upgrade roads, railways, ports and hospitals, while the central bank cut its benchmark interest rate to a 49-year low. Reports last week showed retail sales climbed more than economists estimated in the second quarter and employers hired the most workers in more than a year in July.
“This is all heartening news but we’re not getting carried away,” Swan said today. “The pace of recovery is still expected to be modest.”
The economy has outperformed many other industrialized nations and bettered the Reserve Bank of Australia’s expectations as the government’s stimulus stoked consumer spending and strengthening Chinese demand for commodities supports the nation’s export industry.
‘V-Shaped Recovery’
Swan is trying to “downplay expectations -- it’s a traditional case of under-promising and over-delivering,” said Craig James, chief equities economist at Commonwealth Bank of Australia in Sydney. “We’ve got improvement happening in the rest of the world and it is increasingly looking like a V-shaped recovery here in Australia.”
Two days ago, the central bank scrapped a May forecast for the economy to contract 1 percent this year, instead predicting gross domestic product will expand 0.5 percent in 2009 before growing 2.25 percent next year.
The bank has kept the overnight cash rate target unchanged at 3 percent the past four months on signs of a pickup in the economy. Investors predict the benchmark rate will be 162 basis points higher in a year as Australia’s economy gathers pace, a Credit Suisse Group AG index of swaps trading showed on Aug. 7.
Retail sales adjusted to remove inflation jumped 2 percent from the previous quarter in the three months ended June 30 as consumers spent more at department stores, the statistics bureau reported on Aug. 4. In contrast, U.S. retail turnover dropped 1.6 percent in the same period, Canada’s fell 2.2 percent and Japan’s slumped 2.5 percent, according to Swan’s note.
The quarterly rise in Australian retail sales “will feed into the estimate of June-quarter GDP growth and it is the strongest increase in almost two years,” Swan said. “Our stimulus is working.”
Unemployment Rate
Australian employers unexpectedly added 32,200 workers in July, helping keep the jobless rate steady at 5.8 percent. The median estimate in a Bloomberg News survey of economists was for 18,000 jobs to be lost and unemployment to climb to 6 percent last month.
“Because of continuing difficulties in the global economy, the unemployment rate is expected to rise further,” Swan said today. “But the stimulus is playing a role in keeping the unemployment rate lower than it would otherwise be.”
Fiscals stimulus has been “vital in cushioning us from the worst effects of the global recession,” Swan said in a weekly note on the state of the Asia-Pacific region’s fourth-largest economy.
The government distributed A$12 billion ($10 million) in cash handouts to households this year and pledged a further $22 billion to upgrade roads, railways, ports and hospitals, while the central bank cut its benchmark interest rate to a 49-year low. Reports last week showed retail sales climbed more than economists estimated in the second quarter and employers hired the most workers in more than a year in July.
“This is all heartening news but we’re not getting carried away,” Swan said today. “The pace of recovery is still expected to be modest.”
The economy has outperformed many other industrialized nations and bettered the Reserve Bank of Australia’s expectations as the government’s stimulus stoked consumer spending and strengthening Chinese demand for commodities supports the nation’s export industry.
‘V-Shaped Recovery’
Swan is trying to “downplay expectations -- it’s a traditional case of under-promising and over-delivering,” said Craig James, chief equities economist at Commonwealth Bank of Australia in Sydney. “We’ve got improvement happening in the rest of the world and it is increasingly looking like a V-shaped recovery here in Australia.”
Two days ago, the central bank scrapped a May forecast for the economy to contract 1 percent this year, instead predicting gross domestic product will expand 0.5 percent in 2009 before growing 2.25 percent next year.
The bank has kept the overnight cash rate target unchanged at 3 percent the past four months on signs of a pickup in the economy. Investors predict the benchmark rate will be 162 basis points higher in a year as Australia’s economy gathers pace, a Credit Suisse Group AG index of swaps trading showed on Aug. 7.
Retail sales adjusted to remove inflation jumped 2 percent from the previous quarter in the three months ended June 30 as consumers spent more at department stores, the statistics bureau reported on Aug. 4. In contrast, U.S. retail turnover dropped 1.6 percent in the same period, Canada’s fell 2.2 percent and Japan’s slumped 2.5 percent, according to Swan’s note.
The quarterly rise in Australian retail sales “will feed into the estimate of June-quarter GDP growth and it is the strongest increase in almost two years,” Swan said. “Our stimulus is working.”
Unemployment Rate
Australian employers unexpectedly added 32,200 workers in July, helping keep the jobless rate steady at 5.8 percent. The median estimate in a Bloomberg News survey of economists was for 18,000 jobs to be lost and unemployment to climb to 6 percent last month.
“Because of continuing difficulties in the global economy, the unemployment rate is expected to rise further,” Swan said today. “But the stimulus is playing a role in keeping the unemployment rate lower than it would otherwise be.”
Japanese Banks Should Cut Their Stock Holdings, Regulator Says
Japanese banks should use a state- backed share purchase program to reduce stock holdings that caused $10 billion of losses at the nation’s three biggest lenders last year, the country’s top financial regulator said.
“A bank’s financial standing is linked to its holdings of investments such as shares, and I’d like to see forward-looking risk controls,” Katsunori Mikuniya, 58, who became commissioner of the Financial Services Agency on July 14, said in an interview. “The Banks’ Shareholdings Purchase Corporation is now available, and we’d like banks to use it.”
A 28 percent rally in the Nikkei 225 Stock Average since the April 1 start of Japan’s financial year may give banks a chance to sell stocks at a profit. Mitsubishi UFJ Financial Group Inc., the nation’s biggest bank, said last month it was sitting on 500.7 billion yen of unrealized gains on its share portfolio after booking 409 billion yen of losses last year.
“The large banks all have huge cross shareholdings in equities and they don’t need these things,” said Daniel Tabbush, a Bangkok-based analyst at CLSA Asia-Pacific Markets. “The problem is there is too much volatility in the earnings of the Japanese banks and capital with the market going up and down.”
The government passed legislation in March allowing it to buy as much as 20 trillion yen of shares held by the lenders to boost their capital and bolster a stock market. The Banks’ Shareholders Purchase Corporation purchased a total of 137.9 billion yen in stocks by the end of July, equivalent to 6.9 percent of the fund’s budget to March 2012.
Voluntary Cuts
Japanese laws on bank shareholdings are presently limited to ensuring that stock portfolios don’t exceed Tier 1 capital. Mikuniya, who joined Japan’s finance ministry in 1974 and served as the director general of the regulator’s supervisory bureau before becoming commissioner, said further reductions should be voluntary. Mikuniya, who was speaking on Aug. 5, cautioned that forced sales could be disruptive to the economy and markets.
Banks held 18.7 trillion yen in shares as of March 31, compared with 44.3 trillion yen in March 2001, according to data from the Japanese Bankers Association.
“Banks worry about losing their relationships with firms they’re invested in, and being able to lend to them after selling shares,” said Reiko Toritani, an analyst at Fitch Ratings in Tokyo. “Companies don’t want banks to sell the shares as they want stable shareholders to block takeovers.”
The state-backed buyback program allows banks to sell at market prices without immediately affecting the stock of the companies, because the Banks’ Shareholders Purchase Corporation can hold the securities until at least 2022.
Mizuho, Sumitomo
Share holdings by the Japanese banks date back to before World War II, when many were parts of business conglomerates that spanned finance, trade and industry. Cross-shareholdings continued in the postwar era, even after the U.S. forced the formal breakup of these business groups.
Mitsubishi UFJ, and its two largest rivals, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have been forced to sell more than $18 billion of shares since December to boost capital after booking a combined loss of 1.2 trillion yen in the fiscal year ended March 31.
Mizuho Chief Executive Officer Takashi Tsukamoto said in March he wanted to cut the bank’s stockholdings to 2 trillion yen to reduce risk to earnings. The lender, which had the largest share writedowns of any bank last year, had 2.6 trillion yen in stockholdings at the end of March.
Mitsubishi UFJ CEO Nobuo Kuroyanagi said in May he also wanted to reduce shareholdings, in consultation with affected clients. The bank had the largest shareholdings of any Japanese bank at the end of June, at 4.35 trillion yen.
“It’s a good idea to try to get them to sell,” said CLSA’s Tabbush. “The best thing they could do with the money is pay it out in dividends.”
“A bank’s financial standing is linked to its holdings of investments such as shares, and I’d like to see forward-looking risk controls,” Katsunori Mikuniya, 58, who became commissioner of the Financial Services Agency on July 14, said in an interview. “The Banks’ Shareholdings Purchase Corporation is now available, and we’d like banks to use it.”
A 28 percent rally in the Nikkei 225 Stock Average since the April 1 start of Japan’s financial year may give banks a chance to sell stocks at a profit. Mitsubishi UFJ Financial Group Inc., the nation’s biggest bank, said last month it was sitting on 500.7 billion yen of unrealized gains on its share portfolio after booking 409 billion yen of losses last year.
“The large banks all have huge cross shareholdings in equities and they don’t need these things,” said Daniel Tabbush, a Bangkok-based analyst at CLSA Asia-Pacific Markets. “The problem is there is too much volatility in the earnings of the Japanese banks and capital with the market going up and down.”
The government passed legislation in March allowing it to buy as much as 20 trillion yen of shares held by the lenders to boost their capital and bolster a stock market. The Banks’ Shareholders Purchase Corporation purchased a total of 137.9 billion yen in stocks by the end of July, equivalent to 6.9 percent of the fund’s budget to March 2012.
Voluntary Cuts
Japanese laws on bank shareholdings are presently limited to ensuring that stock portfolios don’t exceed Tier 1 capital. Mikuniya, who joined Japan’s finance ministry in 1974 and served as the director general of the regulator’s supervisory bureau before becoming commissioner, said further reductions should be voluntary. Mikuniya, who was speaking on Aug. 5, cautioned that forced sales could be disruptive to the economy and markets.
Banks held 18.7 trillion yen in shares as of March 31, compared with 44.3 trillion yen in March 2001, according to data from the Japanese Bankers Association.
“Banks worry about losing their relationships with firms they’re invested in, and being able to lend to them after selling shares,” said Reiko Toritani, an analyst at Fitch Ratings in Tokyo. “Companies don’t want banks to sell the shares as they want stable shareholders to block takeovers.”
The state-backed buyback program allows banks to sell at market prices without immediately affecting the stock of the companies, because the Banks’ Shareholders Purchase Corporation can hold the securities until at least 2022.
Mizuho, Sumitomo
Share holdings by the Japanese banks date back to before World War II, when many were parts of business conglomerates that spanned finance, trade and industry. Cross-shareholdings continued in the postwar era, even after the U.S. forced the formal breakup of these business groups.
Mitsubishi UFJ, and its two largest rivals, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have been forced to sell more than $18 billion of shares since December to boost capital after booking a combined loss of 1.2 trillion yen in the fiscal year ended March 31.
Mizuho Chief Executive Officer Takashi Tsukamoto said in March he wanted to cut the bank’s stockholdings to 2 trillion yen to reduce risk to earnings. The lender, which had the largest share writedowns of any bank last year, had 2.6 trillion yen in stockholdings at the end of March.
Mitsubishi UFJ CEO Nobuo Kuroyanagi said in May he also wanted to reduce shareholdings, in consultation with affected clients. The bank had the largest shareholdings of any Japanese bank at the end of June, at 4.35 trillion yen.
“It’s a good idea to try to get them to sell,” said CLSA’s Tabbush. “The best thing they could do with the money is pay it out in dividends.”
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