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THE GLOBAL EDITION OF THE NEW YORK TIMES
Business
Imagining
what Obama
could’ve said
Joe
Nocera
TALKING BUSINESS
Good morning, Nicolas.* Did you sleep
well, Angela? Wasn’t that a good din-
ner 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 invest-
ment 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 pro-
ductive? (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
I know you most important
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.
make a ton of When I was run-
sense. ning for president, I
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 in-
to last year. And now, because our
banks and most of your banks use dif-
ferent 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 re-
luctant 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 qual-
ity of Tier 1 capital has to be vastly im-
proved. 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 issu-
ing stock, or from putting aside re-
tained earnings. That is the kind of cap-
ital 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 al-
low other vehicles to be classified as
Tier 1 ‘‘capital.’’ Preferred stock, for in-
stance. 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 as-
sets 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 techni-
cally insolvent. Gordon, isn’t that why
you now own the Royal Bank of Scot-
land? 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,
NOCERA, PAGE 16
* I’m not saying this is what President
Barack Obama said Friday morning
when he met with his fellow world lead-
ers at the Group of 20 summit meeting in
Pittsburgh. But he should have.
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
TOKYO
Founder of Fast Retailing
aims to be the king of
cheap chic in 10 years
BY MIKI TANIKAWA
For someone whose stated aim is to lead
the global market for his product, Ta-
dashi 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 so-
called 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-
Australian oil spill renews development debate
SYDNEY
Fragile marine systems
need better protection,
conservationists say
BY MERAIAH FOLEY
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 re-
markable, but lesser known, marine en-
vironment 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
MAILE CANNON/INTERNATIONAL HERALD TRIBUNE
niers and Princesse Tam-Tam.
From its founding in 1963 as a family-
run clothing shop, and despite a few set-
backs along the way, Fast Retailing has
generally lived up to its name. The com-
pany 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 pro-
pelled 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 Ja-
pan, 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 10-
year 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
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 re-
gion 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 wa-
ters 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 con-
servationists because of its potential en-
vironmental impacts.
Economists credit the booming trade
in petroleum and other mineral re-
sources with helping Australia escape
the brunt of the Great Recession, but en-
vironmentalists say this prosperity
will come Oct. 1 in Paris, with the open-
ing 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 land-
mark department stores Galeries Lafa-
yette 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 bil-
lion company in 1984, when we estab-
lished 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,
comes at a price. They say the Montara
oil spill is merely a sign of things to
come unless greater protections are ex-
tended to vast stretches of tropical reefs
off northwestern Australia.
‘‘It’s a classic conflict between devel-
opment 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 com-
pany has hired a specialist rig to drill
down 2.4 kilometers below the seabed
SATURDAY-SUNDAY, SEPTEMBER 26-27, 2009 |
ERIC PIERMONT/AGENCE FRANCE-PRESSE
TOSHIYUKI AIZAWA/REUTERS
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 Japa-
nese consumer products company, it
faces a deadline: Japan’s population is
aging, and its youth population is shrink-
ing. At the same time, the forces of glob-
alization are bringing multinational
competitors into the Japanese market.
‘‘Companies that sell only in Japan will
eventually not be able to sell even in Ja-
pan,’’ Mr. Yanai, who sprinkles the word
‘‘globalization’’ liberally into his conver-
sation 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 distribut-
ing leaflets in newspapers. But its
strongest sell usually is word of mouth.
‘‘We have been around for three
years, and customers throughout New
UNIQLO, PAGE 16
and flood the area with heavy mud to
stanch the flow.
But such highly specialized equip-
ment 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 an-
other three weeks to plug the leak.
The company has declined to esti-
mate how much oil has spilled into the
sea, saying it is too dangerous to take
accurate measurements from the dam-
aged 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 kilo-
meters long, but that the rate of leakage
appears to be slowing.
Earlier this month, the federal envir-
onment 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 blow-
out began.
AUSTRALIA, PAGE 17
15
Europe takes
its turn in
assessing
bank health
PARIS
After U.S. ‘stress tests,’
regulators from E.U. try
to estimate credit losses
BY MATTHEW SALTMARSH
Twenty-two large banks in Europe may
have accumulated credit losses of close
to ¤400 billion for this year and next, ac-
cording to officials who have seen a
draft of conclusions of ‘‘stress tests’’
conducted by European regulators.
At a meeting next Thursday and Fri-
day 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 plan-
ning 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 Euro-
pean 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 macro-
economic forecasts, like growth in gross
domestic product for this year and next,
are lower than the forecasts of the Euro-
pean Commission, the officials said.
Other scenarios and elements of the
testing process will not be released pub-
licly, according to the officials.
Unlike a similar exercise carried out
in the United States this year, the re-
lease of the European results will not in-
clude assessments of further action re-
quired 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 ad-
equately 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 com-
mittee confirmed that it was ‘‘carrying
out an E.U.-wide forward-looking stress
testing exercise on the aggregate bank-
ing 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 gov-
ernments to name such banks.
‘‘In terms of the better visibility of the
fiscal costs of the bailouts, it will be pos-
itive to publish the results,’’ said Hans-
Joachim Dübel, a banking expert at Fin-
polconsult 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 re-
luctance 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 bet-
ter 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 Sta-
bility 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 con-
sternation 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 Frankfurt-
based committee of European insurance
and occupational pensions supervisors,
according to E.U. officials.
With their more conservative invest-
ment strategies, insurers — with the
notable exception of the U.S. giant
American International Group — gener-
ally steered clear of the most toxic struc-
tured 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 in-
vestments like bonds, while they have
fixed obligations in the form of policy
payouts.