Thursday, July 24, 2014

Portugal's top bank was under new management on Monday, installing a respected economist as chief executive under pressure from the central bank after worries that the lender's links to the financially troubled Espírito Santo empire had unsettled international markets. An audit of the family-owned holding companies behind Banco Espírito Santo found financial irregularities that raised the prospect of potentially destabilising losses at the country's largest listed bank. The news last week sent Portugal's debt and stock markets into turmoil that spread to Europe as well as other firms in the Espírito Santo family's sphere. Portugal Telecom, waiting to be reimbursed on more than $1bn (£600m) in debt issued by one of the family holding companies, was hard hit.
Pressured by Portugal's central bank, BES announced on Monday that its board had put in place new executives – including economist Vitor Bento as chief executive – hastening changes that were not due to happen until the end of the month in order to distance itself from the family group. Bento is joined by new chief financial officer Joao Moreira Rato, who headed Portugal's IGCP debt agency, and new deputy CEO Jose Honorio. Together they will replace Espírito Santo family members including its patriarch Ricardo Espírito Santo Salgado, who had already agreed to resign, and other board members loyal to the family. With Bento expected to start work at BES on Monday, television trucks started to arrive outside the bank's Lisbon headquarters from early morning.
Portugal's Negocios business newspaper has called on the new management to seek bankruptcy for the Espírito Santo group, and for regulators to open investigations against the former CEO and CFO.
"BES will be saved from the family. But time has been lost and now has to be recovered," it said in a commentary on Monday after warning on Sunday that delays in resolving the issue threatened to throw Portugal back into recession.
BES has insisted that any losses relating to its €1.15bn (£900m) exposure to Espírito Santo holdings would not put it at risk, and the government has said BES – the only major Portuguese bank that did not request state aid under a bailout during the country's debt crisis – is solvent. Lisbon exited the three-year EU- and IMF-funded bailout in May. While investors around Europe worry about the impact of financial problems at BES, the Portuguese public are also coming to terms with the fall from grace of a family that has long been at the heart of the country's business elite.
"It's kind of scary to see these guys, who everyone knew as the owners of Portugal, leaving such a great mess behind. But we all knew the Espírito Santos had nothing holy about them," Luis Palma, a 46-year-old taxi driver said, referring to the family name that translates as the holy spirit. Salgado has said in a newspaper interview that he and the bank had no knowledge of the problems at the Luxembourg-registered Espírito Santo International SA after an audit carried out earlier this year, and made public in May found a "serious financial condition" there.
Reuters contacted ESI for comment but received no reply.
BES shares, which have lost over half of their value in the past month, slumped more than 8% on Monday to €0.44, but the broader market in Lisbon was higher, including Portugal Telecom that rose 3.3% off its all-time lows hit last week.

Wednesday, July 23, 2014

The English High Court has issued a reminder of the importance of the seat specified in arbitration agreements in Yukos Capital S.a.r.L v OJSC Oil Company Rosneft.  Yukos successfully established that arbitral awards set aside by the Russian Courts (Russia having been the seat of the arbitral proceedings) could be enforced at common law.  However, the Court made it clear that enforcement in England would only be possible in exceptional circumstances, thereby highlighting the importance of taking care when selecting the seat of an arbitration.

Background :The decision related to arbitral awards made in favour of Yukos, which were subsequently annulled by the Russian Courts (the “Awards”).  Yukos identified Rosneft assets within the jurisdiction of the Dutch Courts and the Dutch courts granted leave for enforcement of the Awards which were paid to Yukos.  Yukos then claimed post-award interest in the English Courts. 
Rosneft pleaded that pursuant to the principle ‘ex nihilo nil fit’, or ‘nothing comes from nothing’, the Awards no longer existed further to the Russian Courts’ annulment of the Awards, and Yukos was therefore prevented from asserting that the Awards were valid and binding on the parties.  Yukos contended that the annulment of the Awards by the Russian Courts should not be recognised by the English Court on the basis that the decisions were “(a) tainted by bias, (b) contrary to natural justice, in that the Russian Courts deliberately misapplied the law, (c) procured in circumstances violating Article 6 of the European Convention on Human Rights, and (d) formed part of an illegitimate campaign of commercial harassment waged against the Claimant by the Russian Federation for political reasons.”

Decision : Since the parties had submitted to the supervisory jurisdiction of the Russian Courts in their agreement to arbitrate, the decisions of those courts would normally have been determinative.  However, the English Court acknowledged that it should not be bound to recognise a decision of a foreign court which offended against “basic principles of honesty, natural justice and domestic concepts of public policy.”  It was therefore open for Yukos to argue that no effect should be given to the annulment of the Awards by the Russian Courts based on those principles.  The Court concluded that there was no ‘ex nihilo nil fit’ principle which precluded the enforcement of the Awards and if Yukos’ allegations were proven, the English Court would have the power to enforce the Awards at Common law notwithstanding the annulment of the Awards by the Russian Court.
This decision should provide a degree of comfort to parties who find that the specific seat of an arbitration equates to a real risk that decisions sought from that jurisdiction’s courts in relation to the arbitration will be partial.  However, the decision also highlights the very limited circumstances in which the English Courts are willing to enforce an arbitral award set aside by courts in the seat of the arbitration.  Absent exceptional circumstances, i.e. breaches by the foreign court of rules of natural justice and/or fraud and/or for reasons of public policy, the English Courts will not enforce the annulled arbitral award.
As is usually the case, prevention is better than cure.  The content of dispute resolution clauses, and how those clauses will operate practically, can be overlooked during the negotiation of transactions when parties are understandably focused on the commercial details of the transaction, rather than a dispute that may or may not arise at some point in the future.  Parties should, however, take care to consider how dispute resolution clauses will operate if engaged and, particularly in light of this case, ensure they do not enter into arbitration agreements containing seats where they have real concerns as to whether the local courts will support the arbitral award or process.

Tuesday, July 22, 2014

Howard Archer, chief European economist at IHS Global Insight, said he believed the ECB would "sit tight for now at least". The ECB last month took its deposit rate into negative territory - effectively charging lenders for parking money with the central bank - a move which may take time to take a toll on the economy.  Nonetheless he added that continued low inflation meant that "expectations will likely persist that the ECB will ultimately have to take further action".  Within the headline inflation figure, price drops in vegetables, telecommunications and fruit offset rises in the cost of tobacco, restaurants and cafes and rents. ...Consumer prices in the eurozone rose 0.5pc in the year to June, unchanged from a month earlier, according to latest official figures.   Core inflation, which strips out the more volatile elements of energy, food, alcohol and tobacco, however edged up to 0.8pc in the year to June, from 0.7pc a month earlier.  The increase in core inflation is likely to ease fears that the bloc could enter a deflationary spiral and ease pressure on the European Central Bank to unleash further stimulus.  How about this! Inflation will likely dip by another 0.1% over July-August, cheaper food, less energy but come up again around September-October (first heating needed). This may well just allow the ECB, especially if there is no further deceleration in German growth and FRITSP flatten the tiniest bit, to avoid physical QE.
Germany will not support QE, other than with meaningless,metaphysical mumblings, but the slither of improvement and the national preponderance of Germany, well understood by JUncker 87, will allow Germany to accelerate 'more Europe' in terms of 3% budget (that France keeps delaying), a real banking union with realish stress tests, some form of not too debilitating FTT, common EZ business taxes etc. I think a short period of very, very slight improvement will cause a 'more Europe' drive and stop QE being an issue. The 'more Europe'will show us, notably in France, Italy and Portugal, how much political distrust, intolerance and national anger the euro has caused.
However, the EZ inflation figure of 0.5% is meaningless as the EZ is NOT one country.  What I want to see is the inflation rate for each EZ member state to see whether the 0.5% rate hides wide variations in inflation, as I suspect it does. What, for example, is the inflation rate for the EZ if you take Germany out of the equation?  If Germany, for example, has a lower rate of inflation than most other EZ countries, then we can conclude that Germany is becoming more competitive which would be bad news for the poorer member states trying to compete with Germany in the single market. But if other poorer EZ countries have a lower rate of inflation or even falling prices compared to Germany that too is very bad news for poorer EZ countries as that would mean falling tax revenues, falling wages and falling purchasing power in the economy and all that would combine to increase budget deficits and pressure on national banks.  What is needed from an economic point of view for the EZ is for Germany to have price inflation of 4% and everyone else to have price inflation of 2% for several years. That won't happen and therefore the gap between the richer member states led by the economic powerhouse of Germany over the poorer members will continue to get progressively bigger year after year. It is worth noting hat the gap between Germany and the poorer member states was closing before the advent of the Euro and that the Euro has permanently reversed this process. It is worth bearing in mind that German inflation rose from 0.6% to 1.0%. Across the majority of the euro-zone inflation actually fell even further. The euro-zone is still slipping towards the abyss even after Draghi's intervention last month. Draghi of course will use this "stable" situation as an excuse to once again do nothing.

Monday, July 21, 2014

Here's a summary of the latest developments in GAZA
Lufthansa may launch low-cost long-haul flights under a new brand as part of plans to attract more price conscious travellers and battle competition from Middle East carriers and low-cost airlines, its new chief executive has said.
Carsten Spohr, who took the reins of Europe's largest airline by revenue in May, needs to win back investors after a profit warning last month wiped $2bn (£1.2bn) off the airline's market value in a single day.
Short-term measures to make up for the lower-than-expected profit in 2014 and 2015 include increasing the number of seats Lufthansa offers by only 2% in the winter, rather than 4% as originally planned, he told journalists on Wednesday as he unveiled his plans for the German airline.
The challenges facing Lufthansa are numerous – Middle East carriers are expanding aggressively on long-haul routes, while low-cost carriers are gaining customers on short-haul routes.
In addition, cargo markets have not recovered as quickly as expected and Lufthansa has had to cut prices on its normally lucrative North Atlantic routes after it, and rivals, flooded the market with seats. It's not just Lufthansa that's suffering. Air France-KLM also cited overcapacity and cargo woes as reasons behind its own profit warning this week.
Shares in Lufthansa extended gains, rising 3% to €15.47 by midday.
The stock had already been trading higher before Spohr's comments, recovering ground lost after Air France's profit warning dragged the sector down.
Spohr, who took the top job in May after heading the airline's passenger business, said Lufthansa would focus more on attracting leisure travellers with lower cost tickets and a no-frills service.
He said: "Point to point has higher dynamic than hub travel." Spohr added that 75% of all intercontinental air travel and 79% of European air travel was for private reasons, rather than business trips. Lufthansa will therefore expand its low-cost offerings under a "Wings" holding group. The airline is already expanding its Germanwings brand to take on short-haul traffic within Europe and now plans to expand its Eurowings regional airline.
On long-haul, Lufthansa is considering a concept that would see it offer flights from Munich or Cologne and Duesseldorf in Germany's industrial heartland. Lufthansa could go it alone or with a partner and is in advanced talks with Turkish Airlines to this effect, Spohr said.

Sunday, July 20, 2014

The fiercest fighting of the 13-day war in Gaza erupted on Sunday as Israel dramatically widened its ground offensive, sending tanks and troops into urban areas and causing thousands of panicked civilians to flee. Images of the corpses of women and children lying in streets were posted on Facebook as hospitals were overwhelmed with the dead, injured and those seeking sanctuary from the onslaught. Palestinian human rights organisations warned that the disproportionate number of civilian deaths could constitute a war crime committed by Israel.
Despite Israel saying it had agreed to a two-hour ceasefire in the middle of the day, requested by the Red Cross, to allow for the injured and dead to be evacuated, shelling and gunfire continued. Israel blamed continued Hamas rocket fire for the breakdown of the humanitarian truce. All morning, terrified people ran from their homes, some barefoot and nearly all empty-handed. Others crowded on the backs of trucks or rode on the bonnets of cars in a desperate attempt to flee. Sky News reported that some had described a "massacre" in Shujai'iya. Witnesses reported hearing small arms fire inside Gaza, suggesting gun battles on the streets. Heavy shelling continued from the air and sea. Bodies were pulled from rubble amid massive destruction of buildings in the neighbourhood. Masked gunmen were on the streets. Late on Saturday evening, Israeli forces hit eastern areas of Gaza City with the heaviest bombardment yet of the 13-day war. The assault was most intense in the direction of Shujai'iya, where an orange glow of flames lit up the sky. At one stage, artillery and mortar rounds were hitting the outskirts of the city every five seconds. Later in the night jets flew low passes over the coast. The Guardian saw families squeezing into the back of what few vehicles were available as streets further east were pounded by artillery fire.
Columns of people, many of them too scared, angry and shocked to speak, approached down the main road to the east and from side streets even as small arms fire was audible in the distance.
One of those fleeing was Sabreen Hattad, 34, with her three children. "The Israeli shells were hitting the house. We stayed the night because we were so scared but about six in the morning we decided to escape," she said.
"But where are we supposed to go? The ambulances could not enter and so we ran under shell fire."
Three other men pass by in a hurry clutching bedding in their arms. Asked what they had seen they would only answer: "Death and horror."
Many of those escaping Shujai'iya made for Gaza's central Shifa hospital, which was engulfed by chaotic scenes and ambulances ferrying the dead came in a steady steam, among them a local TV cameraman, Khaled Hamad, killed during the overnight offensive, wheeled out wrapped in a bloody plastic shroud.
Those who had fled congregated in corridors, on stairs and in the hospital car park. Staff put mattresses on floors to accommodate the injured, while some patients were being evacuated.
Aish Ijla, 38, whose leg was broken by shrapnel, said: "We live very close to the border. When the shells started we couldn't leave the house. It is two storeys. The shells were hitting the upper floor so we all moved downstairs. There were 30 of us in the house. Then the shrapnel started hitting the door.
"It was quiet for a moment and we decided to run. But as we were on the road a shell landed near me, breaking my leg. I told the family to go on with out me and carried on going for a little bit and stopping then going on. Eventually an ambulance reached me after two hours." More than 63,000 people had sought sanctuary in 49 shelters it was providing in Gaza, and it expected the numbers to rise, the UN agency for Palestinian refugees, UNRWA, said. "The number has tripled in the last three days reflecting the intensity of the conflict and the inordinate threats the fighting is posing to civilians. We call on all sides to exercise maximum restraint and to adhere to obligations under international law to protect civilians and humanitarian workers," said spokesman Chris Gunness.
An Israeli air strike on the house of senior Hamas official Khalil al-Hayya killed his son and daughter-in-law and two children, hospital officials said. Near the southern town of Rafah shelling killed four Palestinians, according to officials.
Israel sent more troops into Gaza overnight after demolishing more than a dozen Hamas tunnels and intensifying tank fire on border areas. Israel disclosed that at least four soldiers had been killed in its ground offensive, and that more than two dozen wounded soldiers evacuated to hospitals. There were unconfirmed reports that Israel suffered significant military casualties in a cross-border attack by Hamas militants on Sunday morning.
Lieutenant colonel Peter Lerner of the IDF said additional troops had been sent into Gaza on the orders of the government. "Forces have undergone an intensified training and thorough planning period and are prepared and stand ready for the task at hand," he said.
The Israeli military was setting up a field hospital to treat injured Palestinians at Erez, the northern border crossing between Gaza and Israel.
Since the start of Israel-Hamas fighting almost two weeks ago, 348 Palestinians have been killed and 2,700 wounded in Israeli air and artillery strikes, according to Palestinian health officials. A quarter of the deaths were reported since the start of the ground offensive late Thursday, they said.
Shawan Jabarin, of the Palestinian human rights organisation Al-Haq, warned that Israel could be committing war crimes. "Israel has one of the most technologically advanced armies in the world both in terms of weaponry and intelligence. Yet, throughout this latest escalation of attacks, as with Operation Cast Lead and Operation Pillar of Defence, we see a disproportionate number of civilian deaths and damage to civilian property."
Jabarin added: "The obligation not to target civilians and civilian infrastructure is absolute and any intentional violation of this obligation amounts to a war crime."
As fighting raged, the UN secretary general, Ban Ki-moon, headed to Qatar on Sunday as part of renewed cease-fire efforts. He was due to meet the Palestinian president, Mahmoud Abbas, in Doha.
Abbas was also expected to meet Khaled Meshaal, the Hamas leader based in the Qatari capital.
Meanwhile, according to the Egyptian newspaper Ahram, the US secretary of state, John Kerry, was travelling to Cairo to aid the mediation effort. Hamas last week rejected an Egyptian call to both sides to halt hostilities, insisting on advance guarantees that Israel and Egypt will significantly ease their border blockade of Gaza. Qatar has presented a ceasefire proposal incorporating Hamas's demands, while Egypt said on Saturday it had no plans to revise its ceasefire proposal. Israel is opposed to Qatar's involvement, and insists that Egypt must be a party to any deal. Doha hosts a large number of exiled Islamists from across the Middle East including Meshaal. The French foreign minister, Laurent Fabius, who flew to Israel after meetings in Egypt and Jordan, said on Saturday efforts to secure a ceasefire had failed. "Sadly I can say that the call for a ceasefire has not been heard, and on the contrary, there's a risk of more civilian casualties that worries us," he said, after talks with the Israeli prime minister, Benjamin Netanyahu.
According to the Israeli military, its soldiers have uncovered 34 shafts leading into about a dozen underground tunnels, some as deep as 30 metres. Israel has said demolishing tunnels is the principal goal of its ground operation and it has released footage showing tunnels being demolished by excavators and air strikes.
The IDF reported there were three cross-border incidents on Saturday. The most serious involved 12 Palestinian militants disguised in Israeli uniforms, who emerged from a tunnel in Israel to fire an anti-tank missile at Israeli troops, killing two and injuring several others. They were "aiming to carry out a lethal attack" on a nearby Israeli community, the IDF said. The dead soldiers were named as Bar Rahav, 21, and Benayahu Rubel, 20.
At least one Palestinian was killed in the clash. Hamas said its fighters took some of the soldiers' weapons back to their hideouts.
In other confrontations, Palestinian gunmen emerged from tunnels and exchanged gunfire with Israeli soldiers. Two of the militants were killed, and another died when the explosive vest he was wearing detonated, the military said.
In one incident, Hamas fighters carried tranquilisers and handcuffs, indicating they "intended to abduct Israelis", according to the military. As the offensive intensified, electricity and water supplies in Gaza were increasingly disrupted.
The Gaza City municipality said a main water line was damaged, leaving parts of the city without water. Gaza has suffered from rolling blackouts for years, but periods without electricity have increased to up to 20 hours at a day.
Authorised rallies took place in many French cities on Saturday. French President Francois Hollande said the ban on the Paris protest was needed to preserve "public order" after last weekend's clashes. The ban, which was considered rare in France, was criticised by some activists and the Greens party. In London, thousands of people also took part in a protest, calling for an end to Israel's ground campaign and rocket attacks on Gaza....Pro-Palestinian protesters in France have clashed with police at a rally against Israel's action in Gaza. Thousands took part in the protest in Paris, despite it being banned. Some threw stones and bottles at riot police, who responded with tear gas. The ban was imposed after protesters attempted to storm two synagogues at a similar protest last week. Israel launched ground operations in Gaza on Thursday, after air strikes failed to stop Hamas firing rockets. Israel says the ground offensive is necessary to target a network of Hamas tunnels. More than 330 Palestinians have been killed since 8 July, officials in Gaza report.  During the same period, three Israeli soldiers and two Israeli civilians have been killed, officials say. Several Israelis have also been seriously injured.