Public sector strike set to be largest for a generation

Up to two million public sector workers are staging a strike over pensions in what is set to be the biggest walkout for a generation.

Schools, hospitals, airports, ports and government offices will be among sites disrupted, as more than 1,000 demonstrations are due across the UK.

It would "achieve nothing", Downing Street said, calling for more talks.

Unions object to government plans to make their members pay more and work longer to earn their pensions.

Cabinet Office Minister Francis Maude branded the action "indefensible and wrong".

"While discussions are continuing, I would urge public sector workers to look at the offer for themselves rather than listening to the rhetoric of their union leaders," he said.

"These are the sort of pensions that few in the private sector can enjoy."

Shadow chief secretary of the treasury, Rachel Reeves, told BBC's Newsnight that Labour did not support the industrial action.

"We do not support the strike because a strike is a sign of failure," she said.

"But we think the government needs to give something more to low-paid public sector workers. They've just seen their pay is going to be frozen effectively for another two years.

"We understand why they are striking, because [there is] effectively a tax increase on public sector workers."

Earlier, union leaders reacted angrily to Chancellor George Osborne's Autumn Statement announcements of a public sector pay cap of 1% for two years, as well as bringing forward to 2026 the rise in the state pension age to 67.'Failure to negotiate'

GMB union leader Paul Kenny said: "As well as the shameful unfairness of further pay restraint on already hard-pressed public sector workers, the chancellor's announcements will push the possibility of a pensions deal further away.

"The [pension] contribution rises government want are plainly unjustified and unaffordable, while moving the goalposts on retirement age mid-negotiation smacks of deliberate deception. No doubt this will boost the strike turnout tomorrow."


Paul Noon, leader of civil service union Prospect, said members felt the chancellor was "aiming yet another punch at them".

The 24-hour strike is expected to disrupt courts, job centres, driving tests and council services, such as libraries, community centres and refuse collections. Highways Agency staff will be on strike, as will many Police Community Support Officers (PCSOs).

It is feared as many as 90% of England's schools could be forced to close by striking teachers.

Education Secretary Michael Gove has said it is "unfair and unrealistic" to expect taxpayers to foot the growing public sector pensions bill.

General secretary of the National Association of Head Teachers Russell Hobby responded that "blame for any rise in union militancy - particularly among moderate unions - belongs fairly and squarely at the government's door: A failure to negotiate in any meaningful sense until the last minute".

BBC

Insight: In euro zone crisis, companies plan for the unthinkable

(Reuters) - When Novo Nordisk's chief financial officer met marketing colleagues last Friday the conversation moved far beyond the usual discussion of sales and performance. Jesper Brandgaard asked a simple, far-reaching question: how would the firm set prices for two pivotal new insulin products if the euro collapsed?

The Danish firm, the world's biggest maker of insulin for the treatment of diabetes, sits outside the euro zone but sells into it. It's a question that is being echoed - in various forms - in the boardrooms of banks, brokerages, trading houses, law firms and the world's leading manufacturers.

"It's hard to make detailed plans but we need to think through how our pricing strategy would fare if there were suddenly a dismantling of the euro," Brandgaard told Reuters. "How do we avoid falling into a trap? This is the first time I've asked such a question. It's a topic that is increasingly on the radar."

In the case of the products in question - Degludec and DegludecPlus, two ultra-long-acting insulins - Novo Nordisk has time on its side. The new drugs are still working their way through the regulatory approval process and probably will not reach the market until late 2012.

Planning for a breakdown of Europe's 17-nation single currency is not easy. Like many business leaders, Brandgaard views a break-up of the euro as possible though not yet probable -- but the odds are increasing. In a Nov 23 Reuters poll 14 out of 20 economists said the single currency would not survive in its current form - and companies are starting to plan for a worst case scenario.

Their trepidation is best summed up by Martin Sorrell, the head of the world's biggest advertising agency WPP. "The complexity fills everybody with such appalling fear and is so complicated that the last thing in the world you want to happen is that," Sorrell told Reuters on Monday. "But the honest answer is that, like everybody else, you try and contingency plan for any break-up of the euro zone."

Drawing on interviews with company officials, bankers and lawyers in Europe, the United States and Asia and companies' regulatory filings, Reuters has pieced together a picture of patchy preparedness for the possible demise of the 12-year-old euro currency, an event that would be unparalleled in recent history.

"These days, it's a part of almost every risk management conversation that comes up," said a senior player in London's insurance market, speaking like many in this story on condition of anonymity because of the sensitivity to their business.

Some of the most active contingency planning is happening in European countries outside the euro zone that have strong trading links with the currency bloc - Denmark and Britain being leading examples. Of the 33 companies with the biggest exposures to the euro zone in sales terms, five are British, according to Thomson Reuters data. Health care, energy and consumer goods are among the most exposed industries.

A number of British firms, including the world's biggest caterer Compass Group, have said they have discussed or put in place contingency plans to deal with a euro collapse but most are reluctant to give details.

"Most business people have given up waiting for the political Godots. You just can't run your business on the basis that something will turn up, so you have to plan on the basis that it doesn't turn up. So you think about what legally and contractually it is going to mean. You also say 'I'm going to run my balance sheet as conservatively as possible'," WPP's Sorrell said.

TESTING THE SYSTEM

Banks, brokers and exchanges are in the front line.

ICAP, the world's top broker for foreign exchange and government bonds, said on Monday it has tested its trading system to handle the collapse of the euro zone and re-emergence of nationalcurrencies.

It is not alone in carrying out 'war games'. A senior banker at a large investment bank said he had a team of 20 people globally running all kinds of scenarios all the time. That team was now spending a lot of its time on the possible break-up of the euro. They had simulated a weekend crisis by running through the different stages of Friday night, Saturday and Sunday in one full working day. In addition, they had looked whether they would have enough people (and the right ones) available and made sure they knew where to reach them.

"It's my job to assume the worst. You can test all kinds of benign scenarios, but if something really bad - let's say a sudden overnight default of Italy - were to happen and we hadn't tested that, I wouldn't be doing my job properly. If that latter scenario were to occur, things would look very ugly indeed. There simply wouldn't be enough time to sort out all the various trading positions and look at all the paperwork," the banker said.

In his estimation, a return to the drachma in euro zone minnow Greece was the least of his concerns. He likened Greece to bankrupt U.S. broker-dealer MF Global - annoying but not a real issue - and Italy to Lehman, whose collapse marked the start of the 2008 financial crisis.

Britain's regulator, the Financial Services Authority, has told Britain's banks to draw up contingency plans in case there is a disorderly break-up of the euro zone or exit of some countries. "We cannot be, and are not, complacent on this front," Andrew Bailey, deputy head of the FSA's Prudential Business Unit, said on November 24.

U.S. firms are testing their systems too. A.M. Best Co, the main ratings agency for the insurance industry, said on November 22 it is doing additional stress testing on insurers given deteriorating conditions in Europe. The agency, which just conducted a similar review two months ago, said it is looking at underwriters' exposures on a case-by-case basis to see if any have additional risk from the weakening euro zone.

SAFEGUARDING THE CASH

For non-financial firms, a key focus of efforts for firms worried about a euro collapse is in trying to safeguard their cash. Corporate balance sheets currently are very strong with upwards of $1 trillion net sitting on them, a reflection of companies' reluctance to invest in adding capacity or in buying other firms.

The chief executive of a European company with annual revenues of more than $10 billion a year told Reuters during a recent visit to London that his board had discussed how to handle a euro zone collapse but that it had proved a very short meeting. Other than ensuring their cash deposits were in the safest possible banks and relying on the broad international nature of their business, executives quickly concluded there was little more they could do.

Treasury department teams are shifting money to safe havens and rehearsing rapid-action scenarios. Budgets for 2012 are being looked at again. And outside consultants are being brought in to advise on exposure to peripheral Europe - Greece, Ireland, Spain, Portugal and Italy.

Central bank data shows a decline in deposits from banks in weaker euro zone countries. Separating data on corporate deposits from personal bank accounts data is nigh on impossible, but anecdotal evidence points to corporations moving euro accounts to safe havens. Some big firms such as engineering group Siemens and carmakers BMW, Daimler and Volkswagen, are licensed to deposit funds with the European Central Bank, the safest of all safe havens in the euro zone.

Siemens finance chief Joe Kaeser said in a November 10 media call on the group's quarterly results that a considerable proportion but less than half of its 12 billion euros in liquidity had been parked with the ECB. About a year ago, Siemens -- a maker of fast trains and gas turbines -- acquired a banking license to be able to deal directly with the ECB.

BMW said on Monday its approach to handling excess liquidity had not changed and that it continued to use a number of international commercial banks as well as the ECB's deposit facility. Daimler said it used surplus cash mainly internally. Volkswagen did not immediately respond to calls seeking comment.

Similar caution emanated from companies in other industry sectors.

Simon Henry, chief financial officer of oil company Royal Dutch Shell, said as a consequence of Europe's debt crisis it was taking extra care in investing its $20 billion cash pile. "It's with secure counterparties and its short term," Henry said.

Drugs firm AstraZeneca told Reuters it was carefully monitoring its exposure to the banking sector in light of the debt crisis and had increased its holdings of U.S. government Treasury bills.

The chairman of another company in Britain's FTSE 100 index of leading firms said the shortage of AAA rated banks was complicating life. British firms don't have access to the ECB because Britain is outside the euro zone.

Different industries also have differing abilities to reduce exposure to risky markets.

Pharmaceuticals is one sector where firms have limited wiggle room, since companies have an ethical obligation to supply life-saving medicines, even when payments are uncertain. In fact, drug makers have already been through something of a "dry run" in Greece, after being forced to accept government bonds instead of cash for some outstanding debts. Those bonds were either sold immediately at a discount to face value or are still sitting on their books at even lower value today. Greece accounts for only around 1 percent of the global pharmaceuticals market, so the impact on major international companies has been minimal. Italy and Spain, however, are much bigger markets.

COMPANY FILINGS

A significant number of U.S. companies in a wide range of industries, including one in three members of the widely watched Dow Jones industrial average, warned investors of their rising concerns about Europe in quarterly regulatory filings.

"Western Europe appears to be experiencing increasing challenges given the uncertainty around fiscal and monetary policy direction, which likely impacts consumer confidence," diversified manufacturer 3M Co said in a filing with the U.S. Securities and Exchange Commission.

Bank of America Corp added the European debt crisis into its regular list of risk factors it advises investors to be aware of: "There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets."

And drugmaker Merck warned shareholders that cutbacks in spending by cash-strapped European governments could take a toll on how much it can charge for its medicines.

Other companies that called attention to the crisis in their filings included American Express Co, Boeing Co and Cisco Systems Inc.

U.S. companies that do business in Europe are expecting exchange rates on European currencies to be more volatile in the coming months, and have stepped up their efforts to hedge against these risks, experts said. Beyond financial hedges, though, which become pricier at times of vulnerability, manufacturers should think about "natural hedging" -- localizing supply chains within the euro region, suggested Stefano Aversa, co-president of Alix Partners LP, a global consulting company.

"One of the things that companies have to think about is natural hedging, which is the only real protection, having production as much as possible balanced with where you sell and where you buy. This is the No. 1, because you might see swings literally of two or three points on the bottom line due to this here," Aversa said in a phone interview.

Other companies are rewriting sales contracts to allow them to adjust prices if currencies experience large swings, Aversa said.

U.S. companies may be more prepared for a European meltdown simply because the credit crunch of late 2008 was felt more sharply in the United States, Aversa said. The downside to the resulting conservatism, though, is that companies are already having a harder time getting access to credit as banks tighten lending standards.

"All of the banks are doing the stress tests and frankly are becoming much more prudent," Aversa said. "One of the consequences of it for the industrial companies, particularly the not-big ones, is a restriction on refinancing and credit in general, which is now pretty apparent."

WORK FOR INSURERS, LAWYERS

The prospect of a euro break-up raises a mountain of legal and financial questions. Lawyers and bankers have begun combing through loan agreements, leases and other financial contracts to see how they would survive any serious euro disruption.

Most contracts failed to foresee a collapse or partial disintegration of the euro and the stroke of a lawyer's pen a decade ago could have heavy repercussions today, stemming from the choice of jurisdiction or the laws governing individual contracts. Some banks have already started thinking about how to revise the standard documentation used in future loan agreements to anticipate a break-up of the single currency.

"From the late 1990s onwards, commercial contracts were written to include express provisions to deal with the transition to the euro but I am not aware of any being written so far that contemplate any country exiting the euro," said Jamie Wiseman-Clarke, a senior associate at London law firm Berwin Leighton Paisner, specializing in aviation, rail and shipping. "The euro was assumed to be stable," he added.

It is a high-risk process.

Ill-judged wording might result in a creditor having to recover its money in the currency prevailing on the day in a country departing the euro area rather than the euro. There are also concerns that a euro exit would tip some companies into default on their loans. The redenomination of their local currency could trigger a drop in revenues that would in turn prevent them meeting their obligations on euro-denominated debt or force them to break loan covenants.

A rash of technical payment defaults on all the loan borrowers from a departing country is a Doomsday scenario that would keep the lawyers busy as they fix documentation that failed to envisage such an outcome, bankers said.

More likely than a mass technical default is that some companies would simply be unable to pay or meet loan conditions because of the dire economic conditions and drop in demand that some economists are predicting from a break-up of the euro.

Worse still, UK law firm Clifford Chance has warned there might be practical difficulties in recovering payments since any decision to quit the euro would probably go hand in hand with exchange controls. Depending on how courts read the background to the decision that could lead to a stand-off between the laws of different states.

Planning is not made any easier by the fact that many continental European companies tend to be more politicized than their counterparts in the United States, so the question of a break-up is virtually taboo. Franco-German-led aerospace giant EADS, for example, is often described as the industrial counterpart to the euro. Its stakeholders include the French government and, soon, the German state. During much of its 11-year history it was a conduit for Franco-German tensions.

"If people learned that a big CAC40 (French blue-chip) company was preparing a worst-case scenario it would spread anxiety and would be interpreted as a very damaging blow to the euro," said a communications adviser to a number of top French companies, asking not to be identified.

As for a complete collapse of the currency, the consequences are so unpredictable - and unthinkable to a post-war generation immersed in European integration -- that many say there is little point in running models. What counts more, they say, is a nose for survival.

"We are not running contingency plans like that. We want the euro to survive but we make tangible things. We would not die without the euro," said the chief executive of one of Europe's largest manufacturing companies.

Jim Rogers on Bloomberg

S&P downgrades Goldman, BoA and Citi

Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders.

Standard & Poor’s made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit. JPMorgan Chase & Co. was reduced one level to A from A+. S&P upgraded Bank of China Ltd. and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial and Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks.

The moves may increase pressure on firms bracing for Europe’s mounting sovereign debt crisis and navigating economic weakness. Bank of America, which has plunged 62 percent this year in New York trading, said in a regulatory filing this month that it may have to post billions of dollars of additional collateral and termination payments on its trades if it were to be downgraded one level by rating companies.

“It’s evident that stress from the European banking system is taking its worldwide toll,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an e-mail.

S&P, a unit of New York-based McGraw-Hill Cos., has been changing the way it looks at debt after its faulty grades contributed to the credit-market seizure that brought down Lehman Brothers Holdings Inc. and Bear Stearns Cos. It started to review the methodology in December 2008, months after the collapse of those two firms.

Downgrades “could likely have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical,” Charlotte, North Carolina-based Bank of America said in this month’s filing.

The company, which noted the risk of downgrades from S&P and Fitch Ratings in its third-quarter filing, previously said it has prepared by lining up funding for a year.

The following table shows firms that were downgraded by S&P, followed by a list of banks that were upgraded.

Downgraded:

•Banco Bilbao Vizcaya Argentaria S.A.

•Bank of America Corp.

•Bank of New York Mellon Corp.

•Barclays Plc

•Citigroup Inc.

•Rabobank Nederland

•Goldman Sachs Group Inc.

•HSBC Holdings Plc

•JPMorgan Chase & Co.

•Lloyds Banking Group Plc

•Morgan Stanley

•Royal Bank of Scotland Plc

•UBS AG

•Wells Fargo & Co.

Upgraded:

•Bank of China Ltd.

•China Construction Bank Corp.

Financial Post

Iran fears cyber wars and sabotage...UK embassy burn

King Says U.K. Economy ‘Increasingly Threatened’ by Euro-Area Debt Crisis

Bank of England Governor Mervyn King said the U.K. is being “increasingly threatened” by the euro- area crisis, and authorities must be ready to act if it continues to escalate.

“What we have to do is to be ready and prepared with contingency plans and to make sure that as far as possible our banking system is as robust as possible to withstand whatever shocks that come from the eurozone,” King told lawmakers at a Parliament committee in London yesterday. There are “early signs” of a credit crunch emerging in euro area in the difficulties banks have in accessing funding, he said.

The central bank restarted bond purchases in October for the first time in almost two years, citing risks from the crisis in the euro area, and some policy makers have said more may be needed. As the region’s leaders struggle to prevent turmoil spreading to core countries such as Germany and France, King has said the bank can’t quantify the possible impact of the “most extreme events” in the region.

“There are many things that could happen if developments in the eurozone get worse, but I honestly don’t think it makes much sense to pretend we can precisely know how this will play out,” he said.
Euro Meeting

Finance ministers from the 17-member monetary union meeting in Brussels today are under increasing pressure to step up their response to the sovereign debt crisis. They will debate using their bailout fund, the European Financial Stability Facility, to insure sovereign debt with guarantees.

UBS AG cut its 2012 and 2013 forecasts for the U.K. economy this week. It sees a contraction of 0.1 percent next year and growth of 1.1 percent in 2013, having previously forecast expansion of 0.7 percent and 1.3 percent respectively.

“Perhaps we are nearing a crescendo point in the sovereign debt crisis and a solution may emerge soon,” said Amit Kara, an economist at UBS in London. “We think that’s unlikely, but regardless, the damage has been done with U.K. exports likely to stop dead in its tracks in 2012.”

At a bond auction today, Italy was again forced to pay above the 7 percent threshold that ledGreece, Portugal and Ireland to seek bailouts. The yield on its 10-year debt rose 13 basis points to 7.36 percent as of 11:41 a.m. in London. Similar-maturity Spanish yields fell five basis points to 6.52 percent, reversing an earlier increase.

“I don’t think it’s possible to continue indefinitely, with this degree of fragility” King said. “One way or another, something will happen.”
No Complacency

King also said that while British banks are better capitalized than before the financial crisis, “there is certainly no room for complacency.”

“The deleveraging in the euro area is leading to early signs of a credit crunch and it could get worse,” he said. “Undoubtedly there are real problems. You can see that even for banks in this country, and even U.S. banks, the funding problems have worsened since August.”

Financial stocks have suffered as Europe’s debt crisis worsens. The Bloomberg Europe Banks Index (BEBANKS) has fallen 36 percent this year, compared with a 16 percent decline by the Stoxx Europe 600 Index.
QE Debate

The Bank of England cut its 2012 growth projection to 0.9 percent from 2.2 percent this month, and King said today the revision was largely due to the impact of the euro-area debt crisis. It expanded its bond-purchase program by 75 billion pounds ($117 billion) to 275 billion pounds in October.

The Organization for Economic Cooperation and Development forecast yesterday that the central bank will increase the target for bond purchases by 125 billion pounds by early next year. Minutes of policy makers’ November meeting showed some officials said an increase in QE “might well become warranted in due course.”

While policy maker Martin Weale said in an interview on Nov. 25 that there may be a “strong case” for more stimulus, he added that there isn’t a need to announce such a move until the current round of bond purchases ends in February.

Speaking alongside King yesterday, policy maker Paul Fisher said that 75 billion pounds was the “minimum” the central bank needed to do when it expanded its stimulus in October.

“I don’t know yet the amount of QE we will actually do,” he said. “If we feel the need to do more, we will do more.”Bloomberg

Federal Reserve buying $545 bn mortgage bonds

NEW YORK: The biggest bond dealers in the US say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed chairman Ben S Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another programme next quarter, 16 of the 21 primary dealers of US government securities that trade with the central bank said in a Bloomberg survey. The Fed may buy about $545 billion in homeloan debt.

While mortgage rates are already at about record lows, housing continues to constrain the economy, with the National Association of Realtors saying in Washington last week that the median price of US existing homes dropped 4.7% in October from a year ago. Borrowers with a 30-year conventional mortgage would save $40 billion to $50 billion annually in aggregate if they could all refinance into a new loan with a 3.75% rate, according to JPMorgan Chase & Co.

"We need to see a bottom in home prices," said Shyam Rajan, an interest-rate strategist in New York at Bank of America Corp., a primary dealer. "These are not numbers that are going to get down your unemployment rate," which has held at or above 9% every month except two since May 2009, he said.

The company forecasts the Fed will buy $800 billion of securities, which may include Treasuries. Efforts to bolster the economy are taking on new urgency with $1.2 trillion in automatic government spending cuts slated to begin in 2013.

The US commerce department said last week that GDP expanded at a 2% annual rate in the third quarter, less than the 2.5% it originally projected, and Europe's worsening debt crisis threatens to further curb global growth. The Fed is taking the view that "even if US fundamentals look to be relatively okay, we've got to keep our eye on any contagion from the European stresses," Dominic Konstam, head of interest-rate strategy at primary dealer Deutsche Bank, said. "It's in that context that they're willing to do more."

Treasuries rose last week on those concerns, with the 10- year yield falling five basis points, or 0.05%age point, to 1.97%, according to Bloomberg .

The rate rose six basis points to 2.03% on Mondayas of 8:52 a.m. in London. The 2% security due November 2021 fell 17/32, or $5.31 per $1,000 face amount, to 99 3/4. Policy makers have scope to print more money to buy bonds in a third round of quantitative easing, or QE, as the outlook for inflation eases.

A measure of traders' inflation expectations that the Fed uses to help determine monetary policy ended last week at 2.25%, down from this year's high 3.23% on August 1.

The so-called five-year, fiveyear forward break-even rate, which projects what the pace of consumer-price increases will be for the five-year period starting in 2016, is below the 2.83% average since August 2000. "There is a significant chance that QE3 will be deployed, especially in the form of MBS purchases, if inflation expectations fall enough," Srini Ramaswamy and other debt strategists at JPMorgan wrote in a Nov. 25 report.

The Economic Times