Imagining what Obama could’ve said
Joe Nocera
Good morning, Nicolas.* Did you sleep well, Angela? Wasn’t that a good dinner last night, Gordon? Pittsburgh is such a great city; I’m so glad we’re holding our G-20 meeting here. It was Michelle’s idea, you know. I think she would have lobbied for Pittsburgh even if the city hadn’t swung for me in the election. (Laughter.) O.K., maybe not. So let’s get down to business. We made great progress on Thursday, didn’t we? Jintao, you agreed to push for more domestic demand in your Chinese economy. My good friends in Europe agreed to seek more investment from the rest of the world, and everybody agreed to be less dependent on U.S. consumers. We even agreed to check up on each other to see if we’re all doing what we said we would do. Wow. Are summits always this productive? (More laughter.) I didn’t think so. Now we’ve got to tackle the subject we’ve all been avoiding. What are we going to do about capital requirements for the banking system? Please, Nicolas, don’t groan. Tim Geithner, my Treasury secretary, keeps telling me that strengthening capital requirements for the banking system is the single most important I know you don’t all agree factor in ensuring that we never have a with Tim’s repeat of last year’s proposals, but financial crisis. He’s I think they got me convinced. When I was runmake a ton of ning for president, I sense. don’t think I even knew that banks had capital requirements. I certainly didn’t know the difference between Tier 1 and Tier 2 capital. I thought Basel was a city in Switzerland, and not shorthand for a complex international system to regulate bank capital requirements. But I sure know about them now. They helped create the mess we got into last year. And now, because our banks and most of your banks use different capital standards, it is going to be really tough to get us on the same page. But we have to try. I’m sure you all saw the proposal for tougher capital requirements that Tim and his folks at Treasury issued a few weeks ago. I know you don’t all agree with his proposals, but I think they make a ton of sense. And I am very reluctant to compromise on Tim’s plan, because I think it offers the best chance to make sure that the banking system survives the next big financial crisis. For instance, Tim says that the quality of Tier 1 capital has to be vastly improved. Who knew that not all capital is the same? (Tier 2 capital isn’t worth talking about. ‘‘It’s the bank equivalent of your brother-in-law saying he’ll lend you $5 if you get in trouble,’’ somebody told me the other day.) The way Tim explained it to me, the best kind of capital is the kind that is tangible and never has to be paid back — the kind that comes from either issuing stock, or from putting aside retained earnings. That is the kind of capital bankers can use to plug holes when their banks report losses, or they have to write down assets. But one of the things I’ve learned is that the rules allow other vehicles to be classified as Tier 1 ‘‘capital.’’ Preferred stock, for instance. Or hybrid forms of debt. Or even — and I hear you do this a lot in Europe — certain deferred taxes. But when you run into trouble, you can’t use deferred taxes to replace assets that have just been written down. And you can’t use preferred stock either, because ultimately, that money you’ve raised by issuing preferred stock has to be paid back. In other words, it’s not the kind of capital that will act as a safeguard in times of trouble. And that’s the whole point of capital. The second thing Tim’s been telling me is that banks need to have more capital. Last year, as banks wrote down their bad loans, they became so low on capital that some of there were technically insolvent. Gordon, isn’t that why you now own the Royal Bank of Scotland? It’s why we had to shore up our banks with taxpayer money — they hadn’t put enough capital aside to cover all the losses from their toxic securities. Right now the rules say banks must have, at a minimum, Tier 1 capital that amounts to 4 percent of their assets. Tim hasn’t unveiled a new number yet,

Europe takes its turn in assessing bank health

After U.S. ‘stress tests,’ regulators from E.U. try to estimate credit losses




Fast Retailing is scheduled to open a 2,000-square-meter Uniqlo store Thursday in Paris, top and above left. Tadashi Yanai, above right, is founder and chief executive of the company.

A Japanese merchant in a hurry

Founder of Fast Retailing aims to be the king of cheap chic in 10 years

For someone whose stated aim is to lead the global market for his product, Tadashi Yanai cuts an unassuming figure. He speaks softly about his passion for business but also about his firm belief that successful people will inevitably make mistakes, and then learn from them. His autobiography, published in 2003, is titled ‘‘One Win and Nine Losses.’’ Mr. Yanai, 60, the founder and chief executive of the Japanese company Fast Retailing, has big ambitions: to be the world’s largest purveyor of cheap yet chic clothing in the next 10 years. Fast Retailing owns Uniqlo, the socalled fast fashion chain whose square red logo with white characters now flies above 777 stores in Japan and 90 stores in China, Hong Kong, South Korea, Singapore, Britain, France and the United States. It also owns the Theory clothing brand in the United States and two French brands, Comptoir des Coton-

niers and Princesse Tam-Tam. From its founding in 1963 as a familyrun clothing shop, and despite a few setbacks along the way, Fast Retailing has generally lived up to its name. The company has forecast that sales for the year through Aug. 31 rose 16 percent, to ¥680 billion, or about $7.4 billion, while profits rose 20 percent, to ¥52 billion. Many analysts expect that the final numbers, to be announced Oct. 8, will beat the forecast. In a depressed market for retailers’ stocks, Fast Retailing shares have been buoyant, trading at a price-to-earnings ratio of 21.35. That performance has propelled Mr. Yanai, the company’s biggest shareholder, to the top of the current

‘‘Corporations have to go global in order to survive.’’
Forbes list of the richest people in Japan, with a net worth of $6.1 billion. Yet despite its best efforts to expand globally, Fast Retailing still generates about 90 percent of its sales in Japan. Mr. Yanai wants to change that. His 10year goal is to achieve annual sales of more than ¥5 trillion — more than the combined sales of competitors like Gap Stores, H&M and Inditex, which owns the Zara brand. Fast Retailing’s latest overseas salvo

will come Oct. 1 in Paris, with the opening of a Uniqlo flagship store on Rue Scribe — 2,000 square meters, or more than 21,000 square feet, of retail space just around the corner from the landmark department stores Galeries Lafayette and Printemps. Even though cheap chic is thriving as consumers cut back, opening a flagship store in the world’s fashion capital could be the definition of chutzpah. Mr. Yanai sees it as a natural extension of the brand — and of his business style. ‘‘We have grown to this from a ¥1 billion company in 1984, when we established our first Uniqlo shop,’’ Mr. Yanai said in a recent interview in his office in Tokyo. ‘‘That is no less preposterous than what we aim to achieve’’ in the next 10 years. Most Uniqlo items go for just tens of dollars and rarely carry a retail price of more than $60, even for jackets and coats. In warehouselike stores, Uniqlo’s simply dressed salespeople stack up sweat shirts, turtlenecks and sweaters in vivid colors of all gradations, as if they were displaying crayons. To keep costs low and quality high, Uniqlo manufactures in China under the watchful eye of Japanese executives who are handpicked by Mr. Yanai and have experience in textiles and design. Jon Wright, retail industry analyst at Euromonitor International in London,

said Fast Retailing would have a fair shot at selling well in Europe. ‘‘Uniqlo’s pricing structure is low enough to enable it to compete well with H&M and Zara,’’ Mr. Wright said. ‘‘It has a wider range of prices, which should make it better able to attract consumers who are trading down from higher-priced brands into the midmarket segment, not just people looking for bargains.’’ Building its business globally will be crucial if Fast Retailing is to achieve its ambitious goals. Like every big Japanese consumer products company, it faces a deadline: Japan’s population is aging, and its youth population is shrinking. At the same time, the forces of globalization are bringing multinational competitors into the Japanese market. ‘‘Companies that sell only in Japan will eventually not be able to sell even in Japan,’’ Mr. Yanai, who sprinkles the word ‘‘globalization’’ liberally into his conversation and public remarks, said recently in a news conference. ‘‘Corporations have to go global in order to survive.’’ Like most companies that sell to the youth market, Uniqlo gets the word out about a new store or a new collection via a variety of media, including distributing leaflets in newspapers. But its strongest sell usually is word of mouth. ‘‘We have been around for three years, and customers throughout New

Twenty-two large banks in Europe may have accumulated credit losses of close to ¤400 billion for this year and next, according to officials who have seen a draft of conclusions of ‘‘stress tests’’ conducted by European regulators. At a meeting next Thursday and Friday in Sweden, European Union finance ministers are planning to publish at least one headline figure on banking health based on the results of the tests, the officials, who were not authorized to speak publicly, said Friday. E.U. finance ministers are also planning soon to initiate a stress test for European insurance companies, with the results to be assessed in the spring, the officials said. The bank tests in Europe were conducted by the Committee of European Banking Supervisors, or C.E.B.S., a pan-E.U. regulators’ panel based in London, which was assigned the matter by governments. The committee did not reply Friday to requests for comment. The figure of almost ¤400 billion, or $580 billion, covers assumed bank credit losses rather than total bad assets, under a ‘‘negative’’ scenario in which macroeconomic forecasts, like growth in gross domestic product for this year and next, are lower than the forecasts of the European Commission, the officials said. Other scenarios and elements of the testing process will not be released publicly, according to the officials. Unlike a similar exercise carried out in the United States this year, the release of the European results will not include assessments of further action required by individual banks to bolster their balance sheets. U.S. regulators released their stress test results in May, saying that 9 of the 19 largest U.S.-based banks were adequately protected, while the other 10 were ordered to raise a combined $75 billion as a buffer against potential losses. The U.S. process added pressure on Europeans to disclose their results. In a brief statement in May, the committee confirmed that it was ‘‘carrying out an E.U.-wide forward-looking stress testing exercise on the aggregate banking system’’ based on common guidelines and scenarios. It said it

‘‘We know that the problem is with certain banks, and a global figure doesn’t help us with that.’’
would not identify individual banks that might need recapitalization, and that it was the responsibility of national governments to name such banks. ‘‘In terms of the better visibility of the fiscal costs of the bailouts, it will be positive to publish the results,’’ said HansJoachim Dübel, a banking expert at Finpolconsult in Berlin. ‘‘But we know that the problem is with certain banks, and a global figure doesn’t help us with that.’’ Peer Steinbrück, the German finance minister, had previously signaled his reluctance to release findings of stress tests. One reason, according to Mr Dübel, is that German politicians are worried about the extent of the troubles at the German Landesbanken, or state lenders. One E.U. regulator, who had a central role, said Friday that the exercise of conducting the stress tests — a first on this scale in Europe — had been very positive. ‘‘It was a big learning process,’’ said the official, who was unauthorized to speak publicly. ‘‘But we now know better how to do this in future. There is a centralized command.’’ The International Monetary Fund will publish its own forecast of bank health Wednesday as part of its Financial Stability Review. The fund estimated in April that European banks still required $375 billion in capital to cover losses, compared with $275 billion for U.S. lenders. That forecast caused some consternation among European officials, who had not been informed of its release and were unclear on the methodology. The stress tests for European insurers will be conducted by the Frankfurtbased committee of European insurance and occupational pensions supervisors, according to E.U. officials. With their more conservative investment strategies, insurers — with the notable exception of the U.S. giant American International Group — generally steered clear of the most toxic structured products that brought a number of Western banks to their knees last year. But unlike banks, many insurers are now suffering from the record-low level of interest rates in the major economies. This had dented their returns from investments like bonds, while they have fixed obligations in the form of policy payouts.

Australian oil spill renews development debate

Fragile marine systems need better protection, conservationists say

* I’m not saying this is what President Barack Obama said Friday morning when he met with his fellow world leaders at the Group of 20 summit meeting in Pittsburgh. But he should have.

Visitors hoping to peek at the exotic marine life in Australia usually make a beeline for the Great Barrier Reef. But conservationists say that an equally remarkable, but lesser known, marine environment is under threat from the booming oil and gas exploration taking place among the reefs and atolls off the Australian northwest coast. A damaged oil well in the region has been spewing thousands of liters of crude, gas and condensate into the Timor Sea since Aug. 21, when a blowout forced the evacuation of all 69 workers on board the platform. Emergency crews have been working overtime to contain the spill, but officials say it could take

about three more weeks to plug the leak. The platform is located above the Montara oil field, about 250 kilometers, or 155 miles, northwest of the Truscott Air Base in the remote Kimberley region of the country. The leaking well head is owned by the national petroleum company of Thailand, PTT Exploration and Production, one of the many energy firms that have set up operations in western Australia to feed Asia’s growing appetite for oil and gas. In the first half of this year, more than 50 wells were drilled in the tropical waters off western Australia, adding to hundreds of other recent projects. Last month, the government gave Chevron the green light to expand its exploration of the massive Gorgon gas field, a $40 billion project that was opposed by conservationists because of its potential environmental impacts. Economists credit the booming trade in petroleum and other mineral resources with helping Australia escape the brunt of the Great Recession, but environmentalists say this prosperity

comes at a price. They say the Montara oil spill is merely a sign of things to come unless greater protections are extended to vast stretches of tropical reefs off northwestern Australia. ‘‘It’s a classic conflict between development and the ecological values of the region,’’ said John Carey, manager of the Kimberley Conservation Program with the Pew Environment Group. ‘‘We need to get the balance right. But the

‘‘The Timor Sea is literally a rich soup of marine life, and now we have a massive oil slick sitting on the surface.’’
balance at the moment is that less than 1 percent of this globally significant area is under any form of protection.’’ PTT Exploration and Production said it was still investigating what caused the blowout. To stop the spill, the company has hired a specialist rig to drill down 2.4 kilometers below the seabed


and flood the area with heavy mud to stanch the flow. But such highly specialized equipment is not easy to come by. It took three weeks to tow the rig from Singapore, and PTT has said it will take at least another three weeks to plug the leak. The company has declined to estimate how much oil has spilled into the sea, saying it is too dangerous to take accurate measurements from the damaged rig. Both PTT and Australian maritime officials, who are helping to clean up the spill, say that the slick is around 40 kilometers wide and 140 kilometers long, but that the rate of leakage appears to be slowing. Earlier this month, the federal environment minister, Peter Garrett, said the government believed that around 300 barrels to 400 barrels of oil were leaking into the sea each day. That amounts to more than 1.7 million liters, or 450,000 gallons, of oil (and unknown quantities of gas and condensate) since the blowout began.

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