Security Council OKs Expanded Iraq Role
Aug 10, 10:57 AM (ET)
UNITED NATIONS (AP) - The Security Council unanimously approved a resolution Friday expanding the United Nations' role in Iraq in a move aimed at reconciling the country's rival groups, winning support from neighboring countries and tackling Iraq's humanitarian crisis.
The resolution authorizes the U.N., at the request of the Iraqi government, to promote political talks among the country's ethnic and religious groups and a regional dialogue on issues including border security, energy and refugees.
The United States and Britain, who have the largest military forces in Iraq and cosponsored the resolution, believe the U.N. should play a greater part there because the world body is viewed by many as a more neutral party that can facilitate talks among feuding parties.
UNITED NATIONS (AP) - U.S. Ambassador Zalmay Khalilzad said a resolution that would expand the U.N. mandate in Iraq will internationalize the effort to assist Iraqis in overcoming their internal differences and bringing neighboring countries together to help the country.
"This is not a substitute for what the United States is doing," he told The Associated Press on the eve of Friday's vote on the resolution, which is co-sponsored by the U.S. and Britain.
Britain's U.N. Ambassador Emyr Jones Parry said he expected the resolution to be unanimously approved.
The sponsors delayed a vote so that Iraq's prime minister could revise the text, which would authorize the world body to help the government promote national reconciliation, better relations with its neighbors and deal with humanitarian concerns.
Khalilzad said he was informed Thursday that the Iraqis are now satisfied with the resolution. Iraq's Foreign Minister Hoshyar Zebari sent a letter asking that the mandate of the U.N. mission, which expires Friday, be extended for a year - a requirement before the resolution can be adopted.
In the letter, Zebari said "Iraq's interests" require an expansion of the U.N. role "on both the humanitarian and the political tracks, domestically and regionally."
This is essential, he said, "particularly in respect to facilitating the return to Iraq of U.N. specialized agencies, funds and programs ... to rebuild and stabilize Iraq ... and to begin a comprehensive effort to reverse the deterioration of Iraq's infrastructure."
The U.N. mission has helped organize elections, draft Iraq's constitution and develop institutions for representative government.
The draft resolution would authorize it to "advise, support and assist the government and people of Iraq on advancing their inclusive, political dialogue and national reconciliation."
It also would authorize the U.N. to facilitate "regional dialogue, including on issues of border security, energy and refugees." It asks the U.N. to help develop ways "to resolve disputed internal boundaries" that are acceptable to the government.
The initial text was revised to put more focus on human rights, humanitarian issues, protecting civilians and promoting the safety of humanitarian personnel.
Amnesty International's Secretary General Irene Khan had complained that the original text was completely "silent on the gross human rights abuses taking place on a daily basis in Iraq, and on the deepening humanitarian crisis in the country," a view echoed by other rights groups.
In the final draft, the Iraqi government inserted language underscoring its sovereignty and added a call for "adequate resources" to address humanitarian issues.
Khalilzad, the U.S. ambassador, stressed that the resolution will not replace U.S. activities and said "this is adding to, and integrating our effort, as part of the broader international effort to assist Iraq."
"It is a recognition by the international community that what happens in Iraq affects the future of the world and ... it can contribute to helping Iraqis in this very difficult transition that they are in," Khalilzad said.
Undersecretary-General for Political Affairs B. Lynne Pascoe said Tuesday the new mandate being considered by the council would enable the U.N. to work on issues "that clearly need to be done out there" - especially national reconciliation, humanitarian assistance and dealing with the millions of Iraqis who have fled their homes.
He said the United Nations expects to raise the ceiling for international staff in Iraq from 65 to 95 by October. Hours later, the U.N. Staff Council called on Secretary-General Ban Ki-moon to pull all U.N. personnel out of the country until security improves.
Pascoe stressed that there are two constraints to an expanded U.N. role: Iraqi political leaders must decide what they want the U.N. to do, and security conditions must be sufficient for U.N. staffers to work, an issue the U.N. watches daily.
Security for U.N. staff is a very sensitive issue.
Former Secretary-General Kofi Annan pulled all U.N. international staff out of Iraq in October 2003 after two bombings at U.N. headquarters in Baghdad and a spate of attacks on humanitarian workers.
The first bombing, on Aug. 19, 2003, killed the top U.N. envoy, Sergio Vieira de Mello, and 21 others. Annan allowed 35 U.N. international staffers to return in August 2004, but the U.N. presence has remained small because of security threats.
Khalilzad said that "you cannot allow concerns about security to prevent the institution that can help Iraqis overcome this challenge from doing so.
"At the same time, one has to do everything that one can to minimize, to mitigate the dangers that exist," he said. "I understand the concerns of the U.N. staff. With this new mandate, we are prepared to do our part to help the U.N. with security, with logistics."
Friday, August 10, 2007
British Make Initial Gains Against Taliban
By CARLOTTA GALL
NYT
August 5, 2007
SANGIN, Afghanistan — The British Army compound here in a drug lord’s former villa, with its sandbagged windows and lookout posts and shrapnel-scarred walls, is a reminder that until just a few weeks ago Sangin was one of the most dangerous towns in Afghanistan’s most dangerous province, Helmand.
Since their arrival last spring in this lawless region of mountains and desert, British troops have lost 64 men in almost daily combat against a Taliban force second to none in size and ferocity in the country. The insurgents still control half the province, the most serious threat to Afghanistan’s stability.
Yet despite the presence of thousands of Taliban fighters, and some tough fighting still ahead, British military commanders here say they believe they have turned a significant corner. In recent months they have succeeded in pushing the Taliban back and keeping them out of a few strategic areas.
At the same time, they say, popular support for the insurgents is eroding.
“We see it now as a threat that can be countered,” Maj. Hamish Bell, second in command of the British battalion deployed in northern Helmand, said of the insurgency.
The progress in Helmand is perhaps the most important anywhere in the country, military commanders say, given that the province has the largest concentration of insurgents and produces 42 percent of Afghanistan’s opium crop, which has helped fuel the insurgency. If they can get Helmand right, they say, it could pave the way to broader progress against the Taliban.
But while Helmand shows what is possible in Afghanistan, commanders warn that a long, hard fight remains to win back territory from the Taliban, region by region, village by village. Nearly six years into the war, a third of Afghanistan’s provinces are in the grip of insurgents, a level far worse than it was from 2002 to 2005, the years immediately after the American-led invasion, when the Taliban were toppled and forced to retreat across the border into Pakistan.
Provinces like Helmand, remote from the capital and relatively calm, were only secured by a light American military presence, leaving them wide open when the Taliban chose to return.
In the other southern provinces, Kandahar and Oruzgan, the Taliban presence remains strong. Fighting the Taliban is like pressing mercury or squeezing a balloon, commanders say: as insurgents are suppressed in one area, they emerge in another.
And once pushed back in conventional fighting, the Taliban switch tactics to suicide attacks, roadside bombs and kidnappings. In one measure of the lingering dangers even here, in early July the 14-year-old son of Sangin’s police chief was kidnapped on a road outside town and killed.
But military commanders say the progress in Helmand is an indication that NATO forces have found their stride since last year, when the Taliban staged a spectacular resurgence, taking advantage of the transfer of southern provinces from American commanders to an expanding NATO force.
As NATO forces have become better established and more numerous in southern Afghanistan, American forces have been able to deploy more troops in the east. There, they are also reporting gains in some border areas. All of this has helped NATO forces take the offensive against the Taliban, rather than fighting from their back foot, as they were forced to do last year, and gain local confidence.
“I don’t think the Taliban will come back,” said Abdul Rahman, 45, a paramedic, the only qualified person working in a small private clinic here. “They have been weakened.” Also the people would not support the Taliban anymore, he said.
What has made the difference here, the British say, is a shift in their tactics and a doubling of force numbers, to nearly 6,000 today, with more troops on the way.
When the British paratroopers arrived in Helmand, President Hamid Karzai asked that they focus on preventing small district centers from falling to the Taliban, so grave was the insurgent threat. Surrounded and cut off, the British came under attack up to seven times a day. They used artillery fire to clear an area just for supply helicopters to land.
Over the winter they deployed mobile marine units to push the Taliban back from besieged district compounds and out of the town centers. In spring and summer, they staged sweeping operations, with help from American, Afghan and small Danish and Estonian units.
In May they pushed the Taliban out of the Sangin area. With three companies in the valley, they have since thwarted attempts by the insurgents to reinfiltrate.
“It’s not over but indications are that the uplift in forces and the more offensive mind-set has been successful,” said Maj. Dominic Biddick, 32, commander of Company A of the Royal Anglian Regiment, now based in Sangin. The British base, once virtually under siege, has not taken a single hit in a month, he said.
The British have now been able to focus on their original counterinsurgency plan, which was to create “inkblots,” or secure zones around the main towns, and gradually expand security outward. In this way they are starting reconstruction projects in the provincial capital, Lashkar Gah, the town of Gereshk on the main road, and now Sangin.
Strategically located, Sangin, a rich agricultural town on the banks of the Helmand River, commands access to the north, where most of the Taliban are concentrated, and to the hydroelectric dam at Kajaki, a major United States development project.
The Taliban threat remains even in these secure zones. But Lt. Col. Stuart Carver, who commands the Battle Group North, said, “There aren’t big groups of 50 Taliban roaming around town and taking over big parts of the town.”
The strong British and Afghan security presence in Sangin has for the first time encouraged local Afghans to come forward with information on Taliban movements.
This year, the Taliban have lost ground and men, including some high-level commanders, and are struggling to find recruits among the local population, Colonel Carver said.
NATO officials categorize the Taliban into two types of fighters. Tier one, as they are called, are hardened, ideologically driven men who have come back to fight from their rear base in Pakistan. Tier two fighters are local men who may join the war for a variety of reasons — economic, tribal or religious.
“The biggest change from last year to this year is there has been no tier two mobilization,” Colonel Carver said. “They have tried,” he said of the Taliban.
Still, military officers said, the Taliban never seem short of forces. They have filled out their ranks with foreign fighters, mainly Pakistanis, but also a handful of Arabs and Chechens, as well as Afghans from other provinces, like neighboring Oruzgan.
The military has found Pakistani identity cards on dead fighters, as well as papers and CDs with jihadi propaganda in Chechen and Arabic, one officer said. A large group of men from Pakistan’s tribal area of Waziristan were killed in one battle, Colonel Carver said.
But the weakening of the Taliban is apparent even to local people, like Hayatullah, 29, a farmer who fled northern Helmand last year and now lives near the main British camp, Bastian, in central Helmand.
“The Taliban are not stronger,” he said, “If they were strong, they would come down and fight the British here.”
Sangin, which was a ghost town three months ago, is struggling slowly back to life. Shops have reopened, while others lie in rubble, and the initial silent hostility toward the foreign troops is starting to thaw.
A few tribal elders have asked the military for help in clearing irrigation channels. Afghan, American and British military medics offered two days of free consultations in mid-July and were swamped by hundreds of people, including dozens of women and children. That was a step toward acceptance, Major Biddick said.
He and other commanders hope that momentum will build.
“I think the big battle was for local support,” Colonel Carver said. “A proportion of the locals now think we are actually going to stay, and therefore they are prepared to throw their cards in with us. Before, they thought we were going to come in, kill a few Taliban and then leave.”
“It has gone from people too scared to even look at you or wave in case someone was watching, now they will talk,” he added. “It’s a step forward that they will talk to you, and it’s a real step forward that they talk to you as if you can solve their problems.”
After a year and half of intense fighting, not all local people are persuaded, however. “We don’t expect good government, only bloodshed,” said Hajji Mullah Fida Muhammad, an elderly man with a white beard. He said he thought the Taliban were still strong enough to win the town again. Others expected them to try again.
“The Taliban is out there, so we expect more fighting,” said Hajji Mullah Salim, 55, a cloth merchant. He had returned to open his shop, but his family was still camping out in the desert for safety, he said.
There is still talk of a Taliban offensive, but NATO commanders are keeping the pressure on the insurgents, and say the danger now is the shift in Taliban tactics, toward roadside and suicide bombs. The guerrilla tactics are threatening enough and can erode local support, as the local police chief, Hajji Ghulam Wali, can attest.
It was his son who was pulled out of a taxi and kidnapped by insurgents on the road from Sangin to the provincial capital. The Taliban commander, Tor Jan, taunted Hajji Wali on the telephone, telling him to quit his job to save his son.
When he refused, they bound his son’s hands and feet with a chain and returned him dead, riddled with 20 bullets. Then, in mid-July, a bomb detonated in the pushcart of a boy as the police chief’s car passed the town bazaar, killing four people, including the boy.
“They committed a terrible crime,” Hajji Wali said of his son’s killing. “Islam does not permit such cruelty.”
Still, he said, the town was safer. The Taliban, he insisted, “have lost morale, they are weak now.”
“Before we could not go to the bazaar, but now they are hiding and cannot go to the bazaar,” he said.
He, like several Afghan officials interviewed in the province, urged the British to press their advantage and finish the Taliban while the insurgents are down.
Wary of the ease with which the Taliban can reinfiltrate areas, the British are moving with care. British commanders said the job now was now to consolidate control of Sangin and Gereshk, rather than pursue Taliban in their holdouts.
“We could deploy and clear the rest but the danger is if we clear the Taliban out we create a vacuum,” Major Biddick, the British commander in Sangin, said. The Afghan government also needs to catch up in deploying more army and police to fill the vacuum, he added.
“This is setting the conditions 12 months in, and Afghanistan will be measured in decades, not years,” the major said. “We realize it is just the tip of the iceberg.”
By CARLOTTA GALL
NYT
August 5, 2007
SANGIN, Afghanistan — The British Army compound here in a drug lord’s former villa, with its sandbagged windows and lookout posts and shrapnel-scarred walls, is a reminder that until just a few weeks ago Sangin was one of the most dangerous towns in Afghanistan’s most dangerous province, Helmand.
Since their arrival last spring in this lawless region of mountains and desert, British troops have lost 64 men in almost daily combat against a Taliban force second to none in size and ferocity in the country. The insurgents still control half the province, the most serious threat to Afghanistan’s stability.
Yet despite the presence of thousands of Taliban fighters, and some tough fighting still ahead, British military commanders here say they believe they have turned a significant corner. In recent months they have succeeded in pushing the Taliban back and keeping them out of a few strategic areas.
At the same time, they say, popular support for the insurgents is eroding.
“We see it now as a threat that can be countered,” Maj. Hamish Bell, second in command of the British battalion deployed in northern Helmand, said of the insurgency.
The progress in Helmand is perhaps the most important anywhere in the country, military commanders say, given that the province has the largest concentration of insurgents and produces 42 percent of Afghanistan’s opium crop, which has helped fuel the insurgency. If they can get Helmand right, they say, it could pave the way to broader progress against the Taliban.
But while Helmand shows what is possible in Afghanistan, commanders warn that a long, hard fight remains to win back territory from the Taliban, region by region, village by village. Nearly six years into the war, a third of Afghanistan’s provinces are in the grip of insurgents, a level far worse than it was from 2002 to 2005, the years immediately after the American-led invasion, when the Taliban were toppled and forced to retreat across the border into Pakistan.
Provinces like Helmand, remote from the capital and relatively calm, were only secured by a light American military presence, leaving them wide open when the Taliban chose to return.
In the other southern provinces, Kandahar and Oruzgan, the Taliban presence remains strong. Fighting the Taliban is like pressing mercury or squeezing a balloon, commanders say: as insurgents are suppressed in one area, they emerge in another.
And once pushed back in conventional fighting, the Taliban switch tactics to suicide attacks, roadside bombs and kidnappings. In one measure of the lingering dangers even here, in early July the 14-year-old son of Sangin’s police chief was kidnapped on a road outside town and killed.
But military commanders say the progress in Helmand is an indication that NATO forces have found their stride since last year, when the Taliban staged a spectacular resurgence, taking advantage of the transfer of southern provinces from American commanders to an expanding NATO force.
As NATO forces have become better established and more numerous in southern Afghanistan, American forces have been able to deploy more troops in the east. There, they are also reporting gains in some border areas. All of this has helped NATO forces take the offensive against the Taliban, rather than fighting from their back foot, as they were forced to do last year, and gain local confidence.
“I don’t think the Taliban will come back,” said Abdul Rahman, 45, a paramedic, the only qualified person working in a small private clinic here. “They have been weakened.” Also the people would not support the Taliban anymore, he said.
What has made the difference here, the British say, is a shift in their tactics and a doubling of force numbers, to nearly 6,000 today, with more troops on the way.
When the British paratroopers arrived in Helmand, President Hamid Karzai asked that they focus on preventing small district centers from falling to the Taliban, so grave was the insurgent threat. Surrounded and cut off, the British came under attack up to seven times a day. They used artillery fire to clear an area just for supply helicopters to land.
Over the winter they deployed mobile marine units to push the Taliban back from besieged district compounds and out of the town centers. In spring and summer, they staged sweeping operations, with help from American, Afghan and small Danish and Estonian units.
In May they pushed the Taliban out of the Sangin area. With three companies in the valley, they have since thwarted attempts by the insurgents to reinfiltrate.
“It’s not over but indications are that the uplift in forces and the more offensive mind-set has been successful,” said Maj. Dominic Biddick, 32, commander of Company A of the Royal Anglian Regiment, now based in Sangin. The British base, once virtually under siege, has not taken a single hit in a month, he said.
The British have now been able to focus on their original counterinsurgency plan, which was to create “inkblots,” or secure zones around the main towns, and gradually expand security outward. In this way they are starting reconstruction projects in the provincial capital, Lashkar Gah, the town of Gereshk on the main road, and now Sangin.
Strategically located, Sangin, a rich agricultural town on the banks of the Helmand River, commands access to the north, where most of the Taliban are concentrated, and to the hydroelectric dam at Kajaki, a major United States development project.
The Taliban threat remains even in these secure zones. But Lt. Col. Stuart Carver, who commands the Battle Group North, said, “There aren’t big groups of 50 Taliban roaming around town and taking over big parts of the town.”
The strong British and Afghan security presence in Sangin has for the first time encouraged local Afghans to come forward with information on Taliban movements.
This year, the Taliban have lost ground and men, including some high-level commanders, and are struggling to find recruits among the local population, Colonel Carver said.
NATO officials categorize the Taliban into two types of fighters. Tier one, as they are called, are hardened, ideologically driven men who have come back to fight from their rear base in Pakistan. Tier two fighters are local men who may join the war for a variety of reasons — economic, tribal or religious.
“The biggest change from last year to this year is there has been no tier two mobilization,” Colonel Carver said. “They have tried,” he said of the Taliban.
Still, military officers said, the Taliban never seem short of forces. They have filled out their ranks with foreign fighters, mainly Pakistanis, but also a handful of Arabs and Chechens, as well as Afghans from other provinces, like neighboring Oruzgan.
The military has found Pakistani identity cards on dead fighters, as well as papers and CDs with jihadi propaganda in Chechen and Arabic, one officer said. A large group of men from Pakistan’s tribal area of Waziristan were killed in one battle, Colonel Carver said.
But the weakening of the Taliban is apparent even to local people, like Hayatullah, 29, a farmer who fled northern Helmand last year and now lives near the main British camp, Bastian, in central Helmand.
“The Taliban are not stronger,” he said, “If they were strong, they would come down and fight the British here.”
Sangin, which was a ghost town three months ago, is struggling slowly back to life. Shops have reopened, while others lie in rubble, and the initial silent hostility toward the foreign troops is starting to thaw.
A few tribal elders have asked the military for help in clearing irrigation channels. Afghan, American and British military medics offered two days of free consultations in mid-July and were swamped by hundreds of people, including dozens of women and children. That was a step toward acceptance, Major Biddick said.
He and other commanders hope that momentum will build.
“I think the big battle was for local support,” Colonel Carver said. “A proportion of the locals now think we are actually going to stay, and therefore they are prepared to throw their cards in with us. Before, they thought we were going to come in, kill a few Taliban and then leave.”
“It has gone from people too scared to even look at you or wave in case someone was watching, now they will talk,” he added. “It’s a step forward that they will talk to you, and it’s a real step forward that they talk to you as if you can solve their problems.”
After a year and half of intense fighting, not all local people are persuaded, however. “We don’t expect good government, only bloodshed,” said Hajji Mullah Fida Muhammad, an elderly man with a white beard. He said he thought the Taliban were still strong enough to win the town again. Others expected them to try again.
“The Taliban is out there, so we expect more fighting,” said Hajji Mullah Salim, 55, a cloth merchant. He had returned to open his shop, but his family was still camping out in the desert for safety, he said.
There is still talk of a Taliban offensive, but NATO commanders are keeping the pressure on the insurgents, and say the danger now is the shift in Taliban tactics, toward roadside and suicide bombs. The guerrilla tactics are threatening enough and can erode local support, as the local police chief, Hajji Ghulam Wali, can attest.
It was his son who was pulled out of a taxi and kidnapped by insurgents on the road from Sangin to the provincial capital. The Taliban commander, Tor Jan, taunted Hajji Wali on the telephone, telling him to quit his job to save his son.
When he refused, they bound his son’s hands and feet with a chain and returned him dead, riddled with 20 bullets. Then, in mid-July, a bomb detonated in the pushcart of a boy as the police chief’s car passed the town bazaar, killing four people, including the boy.
“They committed a terrible crime,” Hajji Wali said of his son’s killing. “Islam does not permit such cruelty.”
Still, he said, the town was safer. The Taliban, he insisted, “have lost morale, they are weak now.”
“Before we could not go to the bazaar, but now they are hiding and cannot go to the bazaar,” he said.
He, like several Afghan officials interviewed in the province, urged the British to press their advantage and finish the Taliban while the insurgents are down.
Wary of the ease with which the Taliban can reinfiltrate areas, the British are moving with care. British commanders said the job now was now to consolidate control of Sangin and Gereshk, rather than pursue Taliban in their holdouts.
“We could deploy and clear the rest but the danger is if we clear the Taliban out we create a vacuum,” Major Biddick, the British commander in Sangin, said. The Afghan government also needs to catch up in deploying more army and police to fill the vacuum, he added.
“This is setting the conditions 12 months in, and Afghanistan will be measured in decades, not years,” the major said. “We realize it is just the tip of the iceberg.”
Thursday, August 09, 2007
The One Who Survived
A Saudi bomber who lived to tell his tale is back home denouncing jihad.
WEB EXCLUSIVE
By Rod Nordland
Newsweek
Aug. 5, 2007 - The story of Ahmed Abdullah al-Shayea sounds like a fairy tale, and not a very pleasant one. Recruited as a jihadi in the conservative Saudi town of Buraida as a 19-year-old, he volunteered to go to Iraq as a fighter. Once there, he balked when insurgents — including Al Qaeda in Iraq leader Abu Mussab al Zarqawi himself — tried to persuade him to become a suicide bomber. So instead, he claims, they told him his mission was to drive a huge fuel truck—with no truck-driving experience at all—through Baghdad neighborhoods—with which he had no familiarity whatever—and drop it off at the Saddam Towers. It was Christmas Day, 2004.
Two other militants rode with him, but jumped out suddenly, leaving him alone. A less guileless person might have taken that as a sign, but al Shayea carried on driving toward his destination. Then as he approached the residence of the Jordanian ambassador in the Mansour neighborhood, another militant cynically pushed a remote control button and blew up the truck behind him, setting off a fireball that killed eight or nine people and wounded many others. Shayea really had no idea they were doing this, and certainly didn't intend to become a human fireball.
The only thing stranger than that yarn is the verifiable fact that Shayea lived through the bombing. In the confusion at the scene, he was taken for one of the civilian victims and hospitalized but eventually identified as the perpetrator—whether willing or not. A videotape made by Iraqi ministry of interior interrogators was released to NEWSWEEK and other news organizations at the time, showing Shayea in obvious pain, swathed in bandages with a disfigured face and multiple injuries, spinning his sorry yarn.
Now Shayea is back in Saudi Arabia, still in custody but in a rehabilitation program for former jihadis, and making frequent appearances to denounce jihad. It's part of a Saudi government propaganda drive against supporting the insurgency in Iraq. He's still spinning the same yarn, but he's also obligingly denouncing his former handlers. "I realized that all along, I was wrong," Shayea said in an interview with the Associated Press recently at a hotel in Riyadh, where he was taken for a media encounter before being returned to interior ministry custody. "There is no jihad. We are just instruments of death."
Now 22, Shayea may yet have a life. The Saudi program holds out the promise of release, with jobs and help in finding a wife, for jihadis who are judged truly repentant. If Shayea qualifies, as he is on course to do, he will probably be the first suicide (or is it "homicide") bomber to survive his own detonation and win his freedom.
A Saudi bomber who lived to tell his tale is back home denouncing jihad.
WEB EXCLUSIVE
By Rod Nordland
Newsweek
Aug. 5, 2007 - The story of Ahmed Abdullah al-Shayea sounds like a fairy tale, and not a very pleasant one. Recruited as a jihadi in the conservative Saudi town of Buraida as a 19-year-old, he volunteered to go to Iraq as a fighter. Once there, he balked when insurgents — including Al Qaeda in Iraq leader Abu Mussab al Zarqawi himself — tried to persuade him to become a suicide bomber. So instead, he claims, they told him his mission was to drive a huge fuel truck—with no truck-driving experience at all—through Baghdad neighborhoods—with which he had no familiarity whatever—and drop it off at the Saddam Towers. It was Christmas Day, 2004.
Two other militants rode with him, but jumped out suddenly, leaving him alone. A less guileless person might have taken that as a sign, but al Shayea carried on driving toward his destination. Then as he approached the residence of the Jordanian ambassador in the Mansour neighborhood, another militant cynically pushed a remote control button and blew up the truck behind him, setting off a fireball that killed eight or nine people and wounded many others. Shayea really had no idea they were doing this, and certainly didn't intend to become a human fireball.
The only thing stranger than that yarn is the verifiable fact that Shayea lived through the bombing. In the confusion at the scene, he was taken for one of the civilian victims and hospitalized but eventually identified as the perpetrator—whether willing or not. A videotape made by Iraqi ministry of interior interrogators was released to NEWSWEEK and other news organizations at the time, showing Shayea in obvious pain, swathed in bandages with a disfigured face and multiple injuries, spinning his sorry yarn.
Now Shayea is back in Saudi Arabia, still in custody but in a rehabilitation program for former jihadis, and making frequent appearances to denounce jihad. It's part of a Saudi government propaganda drive against supporting the insurgency in Iraq. He's still spinning the same yarn, but he's also obligingly denouncing his former handlers. "I realized that all along, I was wrong," Shayea said in an interview with the Associated Press recently at a hotel in Riyadh, where he was taken for a media encounter before being returned to interior ministry custody. "There is no jihad. We are just instruments of death."
Now 22, Shayea may yet have a life. The Saudi program holds out the promise of release, with jobs and help in finding a wife, for jihadis who are judged truly repentant. If Shayea qualifies, as he is on course to do, he will probably be the first suicide (or is it "homicide") bomber to survive his own detonation and win his freedom.
BNP Paribas Freezes Funds as Loan Losses Roil Markets (Update5)
By Sebastian Boyd
Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds because it couldn't ``fairly'' value their holdings after U.S. subprime mortgage losses roiled credit markets.
The funds had about 1.6 billion euros ($2.2 billion) of assets on Aug. 7, after declining 20 percent in less than two weeks, spokesman Jonathan Mullen said today. The bank will stop calculating a net asset value for the funds, which have about a third of their money in subprime securities rated AA or higher.
BNP's announcement sent its shares down 3.4 percent, pulled the benchmark European stock index lower by 1.9 percent, and helped U.S. Treasuries rally for the first time in four days. Investors are shunning bonds backed by home loans after late mortgage payments by borrowers with poor credit histories rose to the highest since 2002.
``There are securities which simply can't be priced because there is no trading in them,'' Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York, said in an interview today. ``There are no bids for them. Asset-backed securities, mortgage loans, especially subprime loans, don't have any buyers.''
The French bank joins Bear Stearns Cos. and Union Investment Management GmbH in stopping fund redemptions. Dutch investment bank NIBC Holding NV said today that it lost at least 137 million euros on U.S. subprime investments this year.
BNP Paribas shares fell as much as 6.4 percent, and closed 2.88 euros lower at 82.57 euros in Paris, valuing the bank at 77.3 billion euros. The stock is little changed this year.
Losing Value
``The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,'' BNP Paribas said in a statement.
The European Central Bank today pumped 95 billion euros into the overnight lending market in an unprecedented response to a sudden demand for cash from banks roiled by the subprime collapse.
BNP Paribas's Chief Executive Officer Baudouin Prot said the bank's exposure to U.S. subprime was ``absolutely negligible'' when the company reported a 20 percent increase in second-quarter net income last week. BNP Paribas Investment Partners oversees about 356 billion euros.
``On BNP's scale this isn't too significant,'' said Benoit de Broissia, an analyst at Richelieu Finance in Paris. ``It will impact clients. It's more of an image problem.''
The three funds are Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia.
`No Prices'
The Hague-based NIBC, which is owned by a group including J.C. Flowers & Co., said ``severe instability'' in U.S. credit markets reduced the value of its U.S. asset-backed securities. The company expects ``further mark-to-market losses.''
Union Investment, Germany's No. 3 mutual fund manager, stopped withdrawals from one of its funds on Aug. 3 after investors pulled about 10 percent of the assets. Frankfurt Trust, the mutual fund manager of Germany's BHF-Bank, halted redemptions from a fund after clients removed 20 percent of their money since the end of July.
Two hedge funds run by New York-based Bear Stearns filed for bankruptcy protection in the Cayman Islands on July 31 following subprime losses. The New York-based securities firm then blocked investors from withdrawing money from a third fund.
``For some of the securities there are just no prices,'' Alain Papiasse, head of BNP Paribas's asset management and services division, said in an interview. ``As there are no prices, we can't calculate the value of the funds.''
Blocking Withdrawals
The 10 largest holdings of the BNP Paribas ABS Euribor fund on March 29 included bonds backed by U.S. mortgages to good- credit borrowers who could pay some interest by increasing their balances, and securities backed by U.S. subprime mortgages and risky U.K. home loans. Other holdings included debt backed by commercial properties in Singapore and U.K. credit-card receivables, according to information compiled by Bloomberg.
Traders are reluctant to bid on securities backed by risky mortgages because they are difficult to sell on, making it hard for asset managers to value assets held in some funds. With no valuation, investors can't buy or sell units of the funds because they don't know what they're worth.
Blocking investors from withdrawals ``was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris. ``If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''
Reymond doesn't hold any BNP Paribas stock, he said.
The funds had assets valued at about 2 billion euros on July 27, with 700 million euros in subprime-related investments.
By Sebastian Boyd
Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds because it couldn't ``fairly'' value their holdings after U.S. subprime mortgage losses roiled credit markets.
The funds had about 1.6 billion euros ($2.2 billion) of assets on Aug. 7, after declining 20 percent in less than two weeks, spokesman Jonathan Mullen said today. The bank will stop calculating a net asset value for the funds, which have about a third of their money in subprime securities rated AA or higher.
BNP's announcement sent its shares down 3.4 percent, pulled the benchmark European stock index lower by 1.9 percent, and helped U.S. Treasuries rally for the first time in four days. Investors are shunning bonds backed by home loans after late mortgage payments by borrowers with poor credit histories rose to the highest since 2002.
``There are securities which simply can't be priced because there is no trading in them,'' Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York, said in an interview today. ``There are no bids for them. Asset-backed securities, mortgage loans, especially subprime loans, don't have any buyers.''
The French bank joins Bear Stearns Cos. and Union Investment Management GmbH in stopping fund redemptions. Dutch investment bank NIBC Holding NV said today that it lost at least 137 million euros on U.S. subprime investments this year.
BNP Paribas shares fell as much as 6.4 percent, and closed 2.88 euros lower at 82.57 euros in Paris, valuing the bank at 77.3 billion euros. The stock is little changed this year.
Losing Value
``The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,'' BNP Paribas said in a statement.
The European Central Bank today pumped 95 billion euros into the overnight lending market in an unprecedented response to a sudden demand for cash from banks roiled by the subprime collapse.
BNP Paribas's Chief Executive Officer Baudouin Prot said the bank's exposure to U.S. subprime was ``absolutely negligible'' when the company reported a 20 percent increase in second-quarter net income last week. BNP Paribas Investment Partners oversees about 356 billion euros.
``On BNP's scale this isn't too significant,'' said Benoit de Broissia, an analyst at Richelieu Finance in Paris. ``It will impact clients. It's more of an image problem.''
The three funds are Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia.
`No Prices'
The Hague-based NIBC, which is owned by a group including J.C. Flowers & Co., said ``severe instability'' in U.S. credit markets reduced the value of its U.S. asset-backed securities. The company expects ``further mark-to-market losses.''
Union Investment, Germany's No. 3 mutual fund manager, stopped withdrawals from one of its funds on Aug. 3 after investors pulled about 10 percent of the assets. Frankfurt Trust, the mutual fund manager of Germany's BHF-Bank, halted redemptions from a fund after clients removed 20 percent of their money since the end of July.
Two hedge funds run by New York-based Bear Stearns filed for bankruptcy protection in the Cayman Islands on July 31 following subprime losses. The New York-based securities firm then blocked investors from withdrawing money from a third fund.
``For some of the securities there are just no prices,'' Alain Papiasse, head of BNP Paribas's asset management and services division, said in an interview. ``As there are no prices, we can't calculate the value of the funds.''
Blocking Withdrawals
The 10 largest holdings of the BNP Paribas ABS Euribor fund on March 29 included bonds backed by U.S. mortgages to good- credit borrowers who could pay some interest by increasing their balances, and securities backed by U.S. subprime mortgages and risky U.K. home loans. Other holdings included debt backed by commercial properties in Singapore and U.K. credit-card receivables, according to information compiled by Bloomberg.
Traders are reluctant to bid on securities backed by risky mortgages because they are difficult to sell on, making it hard for asset managers to value assets held in some funds. With no valuation, investors can't buy or sell units of the funds because they don't know what they're worth.
Blocking investors from withdrawals ``was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris. ``If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''
Reymond doesn't hold any BNP Paribas stock, he said.
The funds had assets valued at about 2 billion euros on July 27, with 700 million euros in subprime-related investments.
ECB injects €95bn to help markets
By Gillian Tett in London, Richard Milne in Frankfurt and Krishna Guha in Washington
Published: August 9 2007 12:59 | Last updated: August 10 2007 01:33
The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region’s banking system after liquidity in the interbank market started to dry up, threatening banks’ access to short-term funds.
The cash injection was the biggest in the ECB’s history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions.
The ECB action followed a sharp increase in the rate at which banks are prepared to lend overnight to each other. It was designed to ensure that money markets continued to function.
The rise in the interbank rate swiftly spilled over into the US. The Federal Reserve did not implement any emergency steps, but put an unusually large $24bn into US markets in scheduled open market operations.
The Bank of Canada, meanwhile, issued a rare statement in which it pledged to “provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets”.
The moves by the central banks succeeded in bringing down the overnight interbank lending rates to more normal levels, though the US federal funds rate remained above its target in late trading.
Stocks plunged and government bonds jumped as investors sought safety in low risk assets. The yield on the two-year Treasury fell 22 basis points to 4.44 per cent. Yields on 30-day commercial paper rose 5 basis points to 5.32 per cent, equalling its highest rate since 2001.
Brian Sack, senior economist at Macroeconomic Advisers, said: “What happened today raises more systemic risk issues. It had a feel of liquidity problems similar to some of the past episodes like 1998...I am not saying it is as intense as 1998, but it certainly looked like that.”
The Dow fell 2.83 per cent, while the UK’s FTSE lost 1.83 per cent, Germany’s DAX index fell 2 per cent and France’s CAC-40 fell 2.17 per cent.
The ECB did not offer a detailed explanation for its move, which surprised markets, but simply said it was now seeking to “assure orderly conditions in the euro money market”.
Ed Marrinan, head of credit strategy at JPMorgan, said: “This appears to be a prudent, pre-emptive step to head off any possibility of liquidity problems.”
It came as BNP Paribas, second biggest bank in the eurozone, froze access to three funds.
Marc Ostwald, fixed income strategist at Insinger de Beaufort, said: “There is huge pressure on money rates due to an apparent sense of mistrust. Following BNP Paribas’ statement, very few institutions appear willing to lend.”
The $24bn injected into US markets by the New York Fed came in two scheduled open market operations
The total is roughly double the normal amount the Fed lends to the markets, but is not remarkably high and suggests the Fed is not in outright crisis fighting- mode.
Some traders warned that market unease was unlikely to dissipate soon. Edwin Rood, global head of money markets at ABN Amro, said: “The underlying problem cannot be addressed directly by the ECB.”
By Gillian Tett in London, Richard Milne in Frankfurt and Krishna Guha in Washington
Published: August 9 2007 12:59 | Last updated: August 10 2007 01:33
The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region’s banking system after liquidity in the interbank market started to dry up, threatening banks’ access to short-term funds.
The cash injection was the biggest in the ECB’s history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions.
The ECB action followed a sharp increase in the rate at which banks are prepared to lend overnight to each other. It was designed to ensure that money markets continued to function.
The rise in the interbank rate swiftly spilled over into the US. The Federal Reserve did not implement any emergency steps, but put an unusually large $24bn into US markets in scheduled open market operations.
The Bank of Canada, meanwhile, issued a rare statement in which it pledged to “provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets”.
The moves by the central banks succeeded in bringing down the overnight interbank lending rates to more normal levels, though the US federal funds rate remained above its target in late trading.
Stocks plunged and government bonds jumped as investors sought safety in low risk assets. The yield on the two-year Treasury fell 22 basis points to 4.44 per cent. Yields on 30-day commercial paper rose 5 basis points to 5.32 per cent, equalling its highest rate since 2001.
Brian Sack, senior economist at Macroeconomic Advisers, said: “What happened today raises more systemic risk issues. It had a feel of liquidity problems similar to some of the past episodes like 1998...I am not saying it is as intense as 1998, but it certainly looked like that.”
The Dow fell 2.83 per cent, while the UK’s FTSE lost 1.83 per cent, Germany’s DAX index fell 2 per cent and France’s CAC-40 fell 2.17 per cent.
The ECB did not offer a detailed explanation for its move, which surprised markets, but simply said it was now seeking to “assure orderly conditions in the euro money market”.
Ed Marrinan, head of credit strategy at JPMorgan, said: “This appears to be a prudent, pre-emptive step to head off any possibility of liquidity problems.”
It came as BNP Paribas, second biggest bank in the eurozone, froze access to three funds.
Marc Ostwald, fixed income strategist at Insinger de Beaufort, said: “There is huge pressure on money rates due to an apparent sense of mistrust. Following BNP Paribas’ statement, very few institutions appear willing to lend.”
The $24bn injected into US markets by the New York Fed came in two scheduled open market operations
The total is roughly double the normal amount the Fed lends to the markets, but is not remarkably high and suggests the Fed is not in outright crisis fighting- mode.
Some traders warned that market unease was unlikely to dissipate soon. Edwin Rood, global head of money markets at ABN Amro, said: “The underlying problem cannot be addressed directly by the ECB.”
ECB Offers Unlimited Cash as Bank Lending Costs Soar (Update8)
By Gavin Finch and Steve Rothwell
Aug. 9 (Bloomberg) -- The European Central Bank, in an unprecedented response to a sudden demand for cash from banks roiled by the subprime mortgage collapse in the U.S., loaned 94.8 billion euros ($130 billion) to assuage a credit crunch.
The overnight rates banks charge each other to lend in dollars soared to the highest in six years within hours of the biggest French bank halting withdrawals from funds linked to U.S. subprime mortgages. The London interbank offered rate rose to 5.86 percent today from 5.35 percent and in euros jumped to 4.31 percent from 4.11 percent.
The ECB said it would provide unlimited cash as the fastest increase in overnight Libor since June 2004 signaled banks are reducing the supply of money just as investors retreat because of losses from the U.S. real-estate slump. Paris-based BNP Paribas SA halted withdrawals from three investment funds today because the French bank couldn't value its holdings. Stocks in the U.S. and Europe fell, a turnaround from the past three days when investors concluded that credit market risks were abating.
``There seems to be a hole in the balance sheet of World Inc. that will have to be filled by government intervention,'' said Peter Lynch, chairman of private equity fund Prime Active Capital Plc in Dublin. ``The ECB is treating this like an emergency; it might make traders even more afraid.''
No Prices
The ECB said today it provided the largest amount ever in a single so-called ``fine-tuning'' operation, exceeding the 69.3 billion euros given on Sept. 12, 2001, the day after the terror attacks on New York.
The ECB's decision, just one week after the German government arranged the bailout of IKB Deutsche Industriebank, is confirmation that the subprime debacle isn't contained within the U.S.
BNP Paribas stopped investors withdrawing from funds with assets totaling 2 billion euros because it couldn't find prices to value their holdings after the selloff in credit markets. Last week, BNP Chief Executive Officer Baudouin Prot said the bank's U.S. subprime ``exposure is absolutely negligible.''
``They simply don't know what their assets are worth,'' said Timothy Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York, which manages $1 billion of assets. ``They can't cash out their fund holders, and that's the type of crisis that's really based on panic.''
Federal Reserve
The U.S. Federal Reserve added $24 billion in temporary reserves to the banking system today, the most since April. Fed spokesman David Skidmore declined to comment on the increases in overnight money-market rates.
``Banks reacted to the ECB's `sale' offer in a similar way one would react to a sale in a department store'' and ``got all the money they could,'' said Ulrich Karrasch, a money market trader at HVB Group in Munich.
The ECB intervention added to declines in stocks, with Europe's Dow Jones Stoxx 600 Index falling 1.8 percent and the Standard & Poor's 500 Index of U.S. shares down 3 percent to 1,453.09. U.S. Treasury notes gained for the first time in four days as investors sought the safest assets, cutting yields on two-year notes by 22 basis points, or 0.22 percentage point, to 4.44 percent.
The euro fell 0.9 percent to $1.3676. It dropped 2.1 percent versus the yen.
``The one downside to the ECB doing something is that it may suggest there are more issues out there,'' said Barry Moran a euro-money market trader at the Bank of Ireland in Dublin. ``People are nervous.''
`Extraordinarily Serious'
Credit-default swaps on the CDX North American Investment- Grade Index rose as much as 11 basis points to 71 basis points, according to Phoenix Partners Group in New York, reflecting an increase in the perceived risk of owning corporate bonds.
Three-month dollar Libor rose to 5.5 percent from 5.38 percent.
For Bank of America Corp., the No. 2 U.S. bank by assets, today's increase in overnight borrowing costs is the biggest since the Federal Open Markets Committee raised interest rates at the end of June 2004. For UBS AG in Zurich, Europe's No. 1 bank, it's the largest jump since August 2004.
Overnight borrowing costs rose 65 basis points to 6 percent for both banks, according to prices provided to the British Bankers' Association. Royal Bank of Canada and Barclays Plc also said they would pay 6 percent.
``This is an old-fashioned credit crunch,'' Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''
Bear Stearns
The euro overnight deposit rate rose as high as 4.62 percent at 8:13 a.m. in London today before falling back to 4 percent by 1 p.m., according to data compiled by Bloomberg.
Bear Stearns triggered a decline in the credit markets in June after two of its hedge funds faltered, leaving investors with a near-total loss and forcing the New York firm to put up $1.6 billion in emergency funds to keep one of the funds from collapsing.
Default rates on home loans to people with poor credit, known as subprime mortgages, are at a 10-year high. American Home Mortgage Investment Corp. this week became the second- biggest U.S. home lender to file for bankruptcy this year, joining more than 70 mortgage companies that have had to close or seek buyers.
The credit crunch also tainted the market for corporate takeovers, as investors became increasingly wary of buying the high-yield bonds and leveraged loans that private equity firms used to finance deals.
Commercial Paper
``Somewhere out there, there are several people that are in trouble -- it's hard to put your finger on it,'' said Andrew Busch, global foreign-exchange strategist at BMO Capital Markets in Chicago. ``I cannot name names. We know BNP has issues with three funds. But you do not see a movement in overnight rates like that unless there is a huge concern about liquidity and funding.''
Companies are extending the maturity of existing short-term debt. Units of American Home Mortgage Investment, Luminent Mortgage Capital Inc., facing margin calls from lenders, and Aladdin Capital Management LLC this week exercised options allowing them to delay repaying debt, Moody's Investors Service said.
The three companies borrow using short-term debt that is backed by assets, known as asset-backed commercial paper. They are probably the only companies to defer payments since extendible asset-backed commercial paper was first sold 12 years ago, according to New York-based Moody's.
The average yield on U.S. asset-backed commercial paper rose 20 basis points to a six-year high of 5.56 percent today, the steepest one-day climb since September 2005.
By Gavin Finch and Steve Rothwell
Aug. 9 (Bloomberg) -- The European Central Bank, in an unprecedented response to a sudden demand for cash from banks roiled by the subprime mortgage collapse in the U.S., loaned 94.8 billion euros ($130 billion) to assuage a credit crunch.
The overnight rates banks charge each other to lend in dollars soared to the highest in six years within hours of the biggest French bank halting withdrawals from funds linked to U.S. subprime mortgages. The London interbank offered rate rose to 5.86 percent today from 5.35 percent and in euros jumped to 4.31 percent from 4.11 percent.
The ECB said it would provide unlimited cash as the fastest increase in overnight Libor since June 2004 signaled banks are reducing the supply of money just as investors retreat because of losses from the U.S. real-estate slump. Paris-based BNP Paribas SA halted withdrawals from three investment funds today because the French bank couldn't value its holdings. Stocks in the U.S. and Europe fell, a turnaround from the past three days when investors concluded that credit market risks were abating.
``There seems to be a hole in the balance sheet of World Inc. that will have to be filled by government intervention,'' said Peter Lynch, chairman of private equity fund Prime Active Capital Plc in Dublin. ``The ECB is treating this like an emergency; it might make traders even more afraid.''
No Prices
The ECB said today it provided the largest amount ever in a single so-called ``fine-tuning'' operation, exceeding the 69.3 billion euros given on Sept. 12, 2001, the day after the terror attacks on New York.
The ECB's decision, just one week after the German government arranged the bailout of IKB Deutsche Industriebank, is confirmation that the subprime debacle isn't contained within the U.S.
BNP Paribas stopped investors withdrawing from funds with assets totaling 2 billion euros because it couldn't find prices to value their holdings after the selloff in credit markets. Last week, BNP Chief Executive Officer Baudouin Prot said the bank's U.S. subprime ``exposure is absolutely negligible.''
``They simply don't know what their assets are worth,'' said Timothy Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York, which manages $1 billion of assets. ``They can't cash out their fund holders, and that's the type of crisis that's really based on panic.''
Federal Reserve
The U.S. Federal Reserve added $24 billion in temporary reserves to the banking system today, the most since April. Fed spokesman David Skidmore declined to comment on the increases in overnight money-market rates.
``Banks reacted to the ECB's `sale' offer in a similar way one would react to a sale in a department store'' and ``got all the money they could,'' said Ulrich Karrasch, a money market trader at HVB Group in Munich.
The ECB intervention added to declines in stocks, with Europe's Dow Jones Stoxx 600 Index falling 1.8 percent and the Standard & Poor's 500 Index of U.S. shares down 3 percent to 1,453.09. U.S. Treasury notes gained for the first time in four days as investors sought the safest assets, cutting yields on two-year notes by 22 basis points, or 0.22 percentage point, to 4.44 percent.
The euro fell 0.9 percent to $1.3676. It dropped 2.1 percent versus the yen.
``The one downside to the ECB doing something is that it may suggest there are more issues out there,'' said Barry Moran a euro-money market trader at the Bank of Ireland in Dublin. ``People are nervous.''
`Extraordinarily Serious'
Credit-default swaps on the CDX North American Investment- Grade Index rose as much as 11 basis points to 71 basis points, according to Phoenix Partners Group in New York, reflecting an increase in the perceived risk of owning corporate bonds.
Three-month dollar Libor rose to 5.5 percent from 5.38 percent.
For Bank of America Corp., the No. 2 U.S. bank by assets, today's increase in overnight borrowing costs is the biggest since the Federal Open Markets Committee raised interest rates at the end of June 2004. For UBS AG in Zurich, Europe's No. 1 bank, it's the largest jump since August 2004.
Overnight borrowing costs rose 65 basis points to 6 percent for both banks, according to prices provided to the British Bankers' Association. Royal Bank of Canada and Barclays Plc also said they would pay 6 percent.
``This is an old-fashioned credit crunch,'' Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''
Bear Stearns
The euro overnight deposit rate rose as high as 4.62 percent at 8:13 a.m. in London today before falling back to 4 percent by 1 p.m., according to data compiled by Bloomberg.
Bear Stearns triggered a decline in the credit markets in June after two of its hedge funds faltered, leaving investors with a near-total loss and forcing the New York firm to put up $1.6 billion in emergency funds to keep one of the funds from collapsing.
Default rates on home loans to people with poor credit, known as subprime mortgages, are at a 10-year high. American Home Mortgage Investment Corp. this week became the second- biggest U.S. home lender to file for bankruptcy this year, joining more than 70 mortgage companies that have had to close or seek buyers.
The credit crunch also tainted the market for corporate takeovers, as investors became increasingly wary of buying the high-yield bonds and leveraged loans that private equity firms used to finance deals.
Commercial Paper
``Somewhere out there, there are several people that are in trouble -- it's hard to put your finger on it,'' said Andrew Busch, global foreign-exchange strategist at BMO Capital Markets in Chicago. ``I cannot name names. We know BNP has issues with three funds. But you do not see a movement in overnight rates like that unless there is a huge concern about liquidity and funding.''
Companies are extending the maturity of existing short-term debt. Units of American Home Mortgage Investment, Luminent Mortgage Capital Inc., facing margin calls from lenders, and Aladdin Capital Management LLC this week exercised options allowing them to delay repaying debt, Moody's Investors Service said.
The three companies borrow using short-term debt that is backed by assets, known as asset-backed commercial paper. They are probably the only companies to defer payments since extendible asset-backed commercial paper was first sold 12 years ago, according to New York-based Moody's.
The average yield on U.S. asset-backed commercial paper rose 20 basis points to a six-year high of 5.56 percent today, the steepest one-day climb since September 2005.
Apollo Begins Trading on 144A Market
By Emma Trincal, Senior Financial Correspondent
Friday, August 03, 2007 5:05:00 PM ET
NEW YORK (HedgeWorld.com)—In a sign that some private equity firms are not dissuaded from selling stakes in themselves despite the market's ups and downs, Apollo Management LP, the leveraged buyout firm run by Leon Black, began trading shares of itself today [Aug. 3].
Apollo plans to raise $1.1 billion at a price range between $27 and $30 per share. The underwriters for the deal are Goldman Sachs, Credit Suisse and JP Morgan, according to an offering document, seen by a person familiar with the transaction who shared its contents with HedgeWorld. Apollo's deal is not an initial public offering but rather a private placement, which is why the prospectus is not available to the public.
Conducting share sales privately as opposed to publicly as in a traditional IPO, is an emerging trend among alternative investment managers. Many among them, seeking to obtain permanent capital, are shying away from IPOs, preferring the much quieter execution offered by the so-called 144A market, named for a Securities and Exchange Commission rule that under certain conditions provides for the sale of unregistered securities, if it is done privately. The advantage is that the issuer is exempt from filing pre-IPO documents with the Securities and Exchange Commission.
Apollo's offering fits into the 144A category. It is not an IPO; instead, it is taking place in a newly formed private market created earlier this year by Goldman Sachs called GSTrUE. Goldman's private market is designed for the sale of unregistered securities to qualified investment buyers, sophisticated investors who have more than $100 million worth of investable assets.
Apollo is following the lead of Oaktree Capital Management LLC, which in May became the first hedge fund to use Goldman's GSTrUE market Previous HedgeWorld Story.
The hedge fund IPO market has slowed down quite a bit since The Blackstone Group LP went public in June. The buyout giant priced its shares at $31. But the stock has taken a hit since then, closing today [Aug. 3] at $24.50 per share, which represents a decline close to 21% in just about 45 days.
Alternative investment firms that had filed for IPOs, such as Och-Ziff Capital Management and Kohlberg Kravis Roberts & Co., are now on the sidelines. The same holds true for firms that have reportedly been contemplating a filing, such as AQR Capital Management.
Apollo has moved forward despite the unfavorable market for private equity firms characterized by a credit crunch and less loans available for large LBOs. "Deals are being pulled back or there are no deals at all. In this context, it's amazing that [the Apollo offering] happened at all," said a person familiar with the transaction.
But there is some logic to it. Firms want to secure permanent capital as they grow larger. And so if it must be done, better now than later.
"They felt that they could do the deal. If they had waited, it would have been for the fall," said the person familiar with the transaction. "Fall is a very busy calendar for underwriters, whether they price public or private offerings. They did not want to compete with other deals."
Pricing information could not be obtained. Set to price between $27 and $30 a share, Apollo is expected to have priced on the conservative side. "Given the fact that it's a very difficult environment, it is safe to assume that pricing may have been at the lower end of the range, at around $27 per share," this person said.
Spokesmen at Goldman and Apollo declined to comment.
By Emma Trincal, Senior Financial Correspondent
Friday, August 03, 2007 5:05:00 PM ET
NEW YORK (HedgeWorld.com)—In a sign that some private equity firms are not dissuaded from selling stakes in themselves despite the market's ups and downs, Apollo Management LP, the leveraged buyout firm run by Leon Black, began trading shares of itself today [Aug. 3].
Apollo plans to raise $1.1 billion at a price range between $27 and $30 per share. The underwriters for the deal are Goldman Sachs, Credit Suisse and JP Morgan, according to an offering document, seen by a person familiar with the transaction who shared its contents with HedgeWorld. Apollo's deal is not an initial public offering but rather a private placement, which is why the prospectus is not available to the public.
Conducting share sales privately as opposed to publicly as in a traditional IPO, is an emerging trend among alternative investment managers. Many among them, seeking to obtain permanent capital, are shying away from IPOs, preferring the much quieter execution offered by the so-called 144A market, named for a Securities and Exchange Commission rule that under certain conditions provides for the sale of unregistered securities, if it is done privately. The advantage is that the issuer is exempt from filing pre-IPO documents with the Securities and Exchange Commission.
Apollo's offering fits into the 144A category. It is not an IPO; instead, it is taking place in a newly formed private market created earlier this year by Goldman Sachs called GSTrUE. Goldman's private market is designed for the sale of unregistered securities to qualified investment buyers, sophisticated investors who have more than $100 million worth of investable assets.
Apollo is following the lead of Oaktree Capital Management LLC, which in May became the first hedge fund to use Goldman's GSTrUE market Previous HedgeWorld Story.
The hedge fund IPO market has slowed down quite a bit since The Blackstone Group LP went public in June. The buyout giant priced its shares at $31. But the stock has taken a hit since then, closing today [Aug. 3] at $24.50 per share, which represents a decline close to 21% in just about 45 days.
Alternative investment firms that had filed for IPOs, such as Och-Ziff Capital Management and Kohlberg Kravis Roberts & Co., are now on the sidelines. The same holds true for firms that have reportedly been contemplating a filing, such as AQR Capital Management.
Apollo has moved forward despite the unfavorable market for private equity firms characterized by a credit crunch and less loans available for large LBOs. "Deals are being pulled back or there are no deals at all. In this context, it's amazing that [the Apollo offering] happened at all," said a person familiar with the transaction.
But there is some logic to it. Firms want to secure permanent capital as they grow larger. And so if it must be done, better now than later.
"They felt that they could do the deal. If they had waited, it would have been for the fall," said the person familiar with the transaction. "Fall is a very busy calendar for underwriters, whether they price public or private offerings. They did not want to compete with other deals."
Pricing information could not be obtained. Set to price between $27 and $30 a share, Apollo is expected to have priced on the conservative side. "Given the fact that it's a very difficult environment, it is safe to assume that pricing may have been at the lower end of the range, at around $27 per share," this person said.
Spokesmen at Goldman and Apollo declined to comment.
Musharraf Decides Against Emergency
Aug 9, 8:35 AM (ET)
By MATTHEW PENNINGTON
ISLAMABAD, Pakistan (AP) - President Gen. Pervez Musharraf on Thursday decided against declaring a state of emergency in Pakistan and will press ahead with plans to hold free and fair elections, a government minister said.
Pakistani media have been reporting that the military leader would impose a state of emergency to deal with rising violence and political instability - a move that a senior government official confirmed was under consideration.
He met with legal experts, security officials and officials from the ruling party, a presidential aide said on condition of anonymity because of the sensitivity of the issue.
After speaking to Musharraf by phone, apparently following those meetings, Information Minister Mohammed Ali Durrani said the president was committed to holding free and fair elections.
"There were suggestions from the ruling coalition and also from certain other political entities that there is a requirement of emergency in the country. But these suggestions were obviously discussed and ultimately it was decided that it this is not the time," Durrani told The Associated Press.
Musharraf, a key ally in Washington's fight against terrorism, has seen dwindling popular support amid a failed bid to oust the country's chief justice, Iftikhar Mohammed Chaudhry - an independent-minded judge likely to rule on expected legal challenges to Musharraf's bid for re-election to another five-year term. Musharraf also has been beset by rising violence in the country, particularly following an army raid to end the takeover of the Red Mosque in Islamabad, an operation that left more than 100 people dead.
Tariq Azim, the deputy information minister, had said earlier in the day that a state of emergency could not be ruled out because of "external and internal threats" and deteriorating security in Pakistan's volatile northwest near the Afghan border.
Azim also said talk from the United States about the possibility of U.S. military action against al-Qaida in Pakistan "has started alarm bells ringing and has upset the Pakistani public." He cited recent remarks by Sen. Barack Obama, D-Ill., a presidential candidate, saying they were one reason the government was debating a state of emergency.
More than 360 people have died in a wave of suicide attacks and clashes between militants and security forces that began with a bloody army assault on a pro-Taliban mosque in Islamabad in early July.
The government's acknowledgment that the possibility was under discussion appeared to deepen the sense of crisis surrounding the military ruler, who took power in a 1999 coup.
Political analyst Talat Masood said that if Musharraf had imposed a state of emergency, it would be an act of desperation that would doubtless be challenged in the courts, and could trigger a public backlash.
"This is his weapon of last resort," Masood said. "But it would be a weapon of mass destruction, of mass political destruction."
A state of emergency would give Musharraf sweeping powers, including the ability to restrict people's freedom to move, rally, engage in political activities and assert their fundamental rights through the courts.
Yet the Supreme Court - which has emerged as the most potent check on the military leader's dominance of Pakistani politics - could still challenge the legality of such a declaration.
Last week, a bench of the court freed a political opponent of Musharraf, and on Thursday heard a freedom of movement case lodged by former Prime Minister Nawaz Sharif, who is seeking to return from exile to run in parliamentary elections. Sharif went into exile after Musharraf ousted him in a 1999 coup.
Speculation that an emergency could be imminent grew after Musharraf on Wednesday abruptly pulled out of the meeting in Kabul with more than 600 Pakistani and Afghan tribal leaders, phoning Afghan President Hamid Karzai to say he couldn't attend because of "engagements" in Islamabad. Prime Minister Shaukat Aziz went instead.
Secretary of State Condoleezza Rice spoke with Musharraf by phone for more than 15 minutes early Thursday, said an official in Washington on condition of anonymity due to the sensitivity of the situation. The official refused to discuss what was said.
Musharraf is under growing U.S. pressure to crack down on militants at the Afghan border because of fears that al-Qaida is regrouping there.
The Bush administration has also not ruled out unilateral military action inside Pakistan, but has stressed the need to work with Musharraf.
Another exiled former prime minister, Benazir Bhutto, who was widely reported to have met with Musharraf recently in the United Arab Emirates to discuss a power-sharing deal, told Geo TV a declaration of emergency would be "a negative step for the restoration of democracy."
Under Pakistan's Constitution, the president may declare a state of emergency if it is deemed the country's security is "threatened by war or external aggression, or by internal disturbance beyond" the authority of provincial government's authority to control.
Aug 9, 8:35 AM (ET)
By MATTHEW PENNINGTON
ISLAMABAD, Pakistan (AP) - President Gen. Pervez Musharraf on Thursday decided against declaring a state of emergency in Pakistan and will press ahead with plans to hold free and fair elections, a government minister said.
Pakistani media have been reporting that the military leader would impose a state of emergency to deal with rising violence and political instability - a move that a senior government official confirmed was under consideration.
He met with legal experts, security officials and officials from the ruling party, a presidential aide said on condition of anonymity because of the sensitivity of the issue.
After speaking to Musharraf by phone, apparently following those meetings, Information Minister Mohammed Ali Durrani said the president was committed to holding free and fair elections.
"There were suggestions from the ruling coalition and also from certain other political entities that there is a requirement of emergency in the country. But these suggestions were obviously discussed and ultimately it was decided that it this is not the time," Durrani told The Associated Press.
Musharraf, a key ally in Washington's fight against terrorism, has seen dwindling popular support amid a failed bid to oust the country's chief justice, Iftikhar Mohammed Chaudhry - an independent-minded judge likely to rule on expected legal challenges to Musharraf's bid for re-election to another five-year term. Musharraf also has been beset by rising violence in the country, particularly following an army raid to end the takeover of the Red Mosque in Islamabad, an operation that left more than 100 people dead.
Tariq Azim, the deputy information minister, had said earlier in the day that a state of emergency could not be ruled out because of "external and internal threats" and deteriorating security in Pakistan's volatile northwest near the Afghan border.
Azim also said talk from the United States about the possibility of U.S. military action against al-Qaida in Pakistan "has started alarm bells ringing and has upset the Pakistani public." He cited recent remarks by Sen. Barack Obama, D-Ill., a presidential candidate, saying they were one reason the government was debating a state of emergency.
More than 360 people have died in a wave of suicide attacks and clashes between militants and security forces that began with a bloody army assault on a pro-Taliban mosque in Islamabad in early July.
The government's acknowledgment that the possibility was under discussion appeared to deepen the sense of crisis surrounding the military ruler, who took power in a 1999 coup.
Political analyst Talat Masood said that if Musharraf had imposed a state of emergency, it would be an act of desperation that would doubtless be challenged in the courts, and could trigger a public backlash.
"This is his weapon of last resort," Masood said. "But it would be a weapon of mass destruction, of mass political destruction."
A state of emergency would give Musharraf sweeping powers, including the ability to restrict people's freedom to move, rally, engage in political activities and assert their fundamental rights through the courts.
Yet the Supreme Court - which has emerged as the most potent check on the military leader's dominance of Pakistani politics - could still challenge the legality of such a declaration.
Last week, a bench of the court freed a political opponent of Musharraf, and on Thursday heard a freedom of movement case lodged by former Prime Minister Nawaz Sharif, who is seeking to return from exile to run in parliamentary elections. Sharif went into exile after Musharraf ousted him in a 1999 coup.
Speculation that an emergency could be imminent grew after Musharraf on Wednesday abruptly pulled out of the meeting in Kabul with more than 600 Pakistani and Afghan tribal leaders, phoning Afghan President Hamid Karzai to say he couldn't attend because of "engagements" in Islamabad. Prime Minister Shaukat Aziz went instead.
Secretary of State Condoleezza Rice spoke with Musharraf by phone for more than 15 minutes early Thursday, said an official in Washington on condition of anonymity due to the sensitivity of the situation. The official refused to discuss what was said.
Musharraf is under growing U.S. pressure to crack down on militants at the Afghan border because of fears that al-Qaida is regrouping there.
The Bush administration has also not ruled out unilateral military action inside Pakistan, but has stressed the need to work with Musharraf.
Another exiled former prime minister, Benazir Bhutto, who was widely reported to have met with Musharraf recently in the United Arab Emirates to discuss a power-sharing deal, told Geo TV a declaration of emergency would be "a negative step for the restoration of democracy."
Under Pakistan's Constitution, the president may declare a state of emergency if it is deemed the country's security is "threatened by war or external aggression, or by internal disturbance beyond" the authority of provincial government's authority to control.
Pakistani TVs say Musharraf to declare emergency
Wed Aug 8, 2007 4:08PM EDT
By Zeeshan Haider
ISLAMABAD (Reuters) - Private Pakistani television channels reported on Wednesday that President Pervez Musharraf was preparing to declare a state of emergency imminently, but government spokesmen denied there were any such plans.
State-run Pakistan Television quoted official sources as saying the reports were baseless and Information Minister Mohammad Ali Durrani denied to Reuters that a meeting had been held to discuss the imposition of an emergency, as rumors swept the country.
A member of the inner circle of the Pakistani leadership told Reuters, however, that U.S. ally Musharraf was considering the option, which could allow him to extend the tenure of the national and provincial assemblies by 12 months and delay elections due by the turn of the year.
The government could explain such a step by citing growing insecurity because of the threat posed by Islamist militants allied to the Taliban and al Qaeda after a series of attacks, many of them by suicide bombers, in the past month.
Political analysts and opposition leaders, however, have feared that Musharraf, who is going through his weakest period since coming to power in a 1999 coup, might resort to an emergency because of difficulties he faces in getting re-elected by the sitting assemblies, while still army chief.
"Both internal and external threats are such that you cannot rule out anything. At the moment there is no emergency. We have said that options are available with the government," Deputy Information Minister Tariq Azim Khan told Geo TV, one of the channels reporting that the measure would be announced soon.
The United States has put Musharraf under pressure to act against al Qaeda nests in hostile tribal regions on the Afghan border, such as North Waziristan.
Western countries with troops in Afghanistan are sensitive to any instability in nuclear-armed Pakistan, whose help is crucial to fighting the Taliban insurgency and in counter-terrorism operations against al Qaeda.
SHORT OF SUPPORT
A not-so-secret meeting in Abu Dhabi in late July with former Prime Minister Benazir Bhutto, leader of the largest opposition party, to try to agree terms for power sharing was indicative of how desperate Musharraf's position had become.
Musharraf wants to be re-elected in uniform between mid-September and mid-October before national and provincial assemblies are dissolved for parliamentary elections due in December or January.
Although Musharraf can command the simple majority needed to win re-election in the assemblies, he is likely to face multiple constitutional challenges.
The Supreme Court's decision on July 20 to reinstate a chief justice Musharraf had spent four months trying to sack heightened expectations that those challenges could well be upheld.
Musharraf would need a two-thirds majority in the National Assembly to change the constitution, and avoid challenges in the Supreme Court, but for that he would need Bhutto's help.
She wants Musharraf to quit the army and guarantee free and fair elections before she will countenance any deal.
Wed Aug 8, 2007 4:08PM EDT
By Zeeshan Haider
ISLAMABAD (Reuters) - Private Pakistani television channels reported on Wednesday that President Pervez Musharraf was preparing to declare a state of emergency imminently, but government spokesmen denied there were any such plans.
State-run Pakistan Television quoted official sources as saying the reports were baseless and Information Minister Mohammad Ali Durrani denied to Reuters that a meeting had been held to discuss the imposition of an emergency, as rumors swept the country.
A member of the inner circle of the Pakistani leadership told Reuters, however, that U.S. ally Musharraf was considering the option, which could allow him to extend the tenure of the national and provincial assemblies by 12 months and delay elections due by the turn of the year.
The government could explain such a step by citing growing insecurity because of the threat posed by Islamist militants allied to the Taliban and al Qaeda after a series of attacks, many of them by suicide bombers, in the past month.
Political analysts and opposition leaders, however, have feared that Musharraf, who is going through his weakest period since coming to power in a 1999 coup, might resort to an emergency because of difficulties he faces in getting re-elected by the sitting assemblies, while still army chief.
"Both internal and external threats are such that you cannot rule out anything. At the moment there is no emergency. We have said that options are available with the government," Deputy Information Minister Tariq Azim Khan told Geo TV, one of the channels reporting that the measure would be announced soon.
The United States has put Musharraf under pressure to act against al Qaeda nests in hostile tribal regions on the Afghan border, such as North Waziristan.
Western countries with troops in Afghanistan are sensitive to any instability in nuclear-armed Pakistan, whose help is crucial to fighting the Taliban insurgency and in counter-terrorism operations against al Qaeda.
SHORT OF SUPPORT
A not-so-secret meeting in Abu Dhabi in late July with former Prime Minister Benazir Bhutto, leader of the largest opposition party, to try to agree terms for power sharing was indicative of how desperate Musharraf's position had become.
Musharraf wants to be re-elected in uniform between mid-September and mid-October before national and provincial assemblies are dissolved for parliamentary elections due in December or January.
Although Musharraf can command the simple majority needed to win re-election in the assemblies, he is likely to face multiple constitutional challenges.
The Supreme Court's decision on July 20 to reinstate a chief justice Musharraf had spent four months trying to sack heightened expectations that those challenges could well be upheld.
Musharraf would need a two-thirds majority in the National Assembly to change the constitution, and avoid challenges in the Supreme Court, but for that he would need Bhutto's help.
She wants Musharraf to quit the army and guarantee free and fair elections before she will countenance any deal.
Security firms working on devices to spot would-be terrorists in crowd
Move to analyse behaviour and physiology from afar
British expert warns of Minority Report scenario
Ian Sample, science correspondent
The Guardian
Thursday August 9 2007
Counter-terrorism experts have drawn up plans to develop an array of advanced technologies capable of spotting would-be terrorists in a crowd before they have time to strike.
Scientists and engineers have been asked to devise ways of analysing people's behaviour and physiology from afar, in the hope they may reveal clues about their mental state and even their future intentions.
Under Project Hostile Intent, scientists will aim to build devices that can pick up tell-tale signs of hostile intent or deception from people's heart rates, perspiration and tiny shifts in facial expressions.
The project was launched by the US department of homeland security with a call to security companies and government laboratories for assistance.
According to the timetable set out, the new devices are expected to be trialled at a handful of airports, borders and ports of entry by 2012.
The plans describe how systems based on video cameras, laserlight, infra-red, audio recordings and eye tracking technology are expected to scour crowds looking for unusual behaviour, with the aim of identifying people who should be approached and quizzed by security staff, New Scientist magazine reports.
The project hopes to advance a security system already employed by the US transportation security administration that monitors people for unintentional facial twitches, called "micro-expressions", that can suggest someone is lying or trying to conceal information.
Studies by Paul Ekman, a psychologist at the University of California, San Francisco, have revealed that involuntary expressions can often betray someone's true intentions. If you flash your teeth, lower your eyebrows and wrinkle your nose for a fraction of a second while trying to smile, you have just demonstrated the micro-expression for disgust.
A major hurdle will be developing technology that can make correct decisions quickly. "Right now, screeners have typically less than one minute to examine a traveller's documents and assess whether they are a threat," said Larry Orluskie, of the department of homeland security.
The project is also expected to investigate developing a lie detector-type test that can be used remotely - an advantage because it would not interfere with the flow of a crowd and it could be used without the target's knowledge.
Experts yesterday were sceptical that today's technology will be able to predict hostile intent accurately enough to be useful. Dr Ekman said a terrorist might confound security measures by showing a range of expressions from fear of being caught to distress at the possibility of dying. "I don't know. No one knows," he told New Scientist.
Anthony Richards, a counter-terrorism expert at St Andrews University who has worked on Britain's ability to pre-empt a major terrorist attack, agreed that the project faced substantial hurdles.
"There could be all kinds of reasons that might make people behave in certain ways that have nothing to do with terrorism. If you have heightened security and there are a lot of police around, it could be possible that you can feel and look guilty even when you haven't done anything wrong.
"We need to reduce the motivation for people doing these kinds of things. We shouldn't just accept that terrorism will remain as it is or worsen over the next 20 or 30 years and then just put all the technological solutions in place. Technology is certainly important in the fight against terrorism but that shouldn't detract from the crucially important challenge of finding out what is driving terrorism. We need to have a sensible and honest appraisal as to what is radicalising young people."
Peter McOwan, a computer scientist who is developing sensors to detect people's moods at Queen Mary, University of London, said: "It's just like something from Minority Report. They have been watching too many Tom Cruise movies."
Move to analyse behaviour and physiology from afar
British expert warns of Minority Report scenario
Ian Sample, science correspondent
The Guardian
Thursday August 9 2007
Counter-terrorism experts have drawn up plans to develop an array of advanced technologies capable of spotting would-be terrorists in a crowd before they have time to strike.
Scientists and engineers have been asked to devise ways of analysing people's behaviour and physiology from afar, in the hope they may reveal clues about their mental state and even their future intentions.
Under Project Hostile Intent, scientists will aim to build devices that can pick up tell-tale signs of hostile intent or deception from people's heart rates, perspiration and tiny shifts in facial expressions.
The project was launched by the US department of homeland security with a call to security companies and government laboratories for assistance.
According to the timetable set out, the new devices are expected to be trialled at a handful of airports, borders and ports of entry by 2012.
The plans describe how systems based on video cameras, laserlight, infra-red, audio recordings and eye tracking technology are expected to scour crowds looking for unusual behaviour, with the aim of identifying people who should be approached and quizzed by security staff, New Scientist magazine reports.
The project hopes to advance a security system already employed by the US transportation security administration that monitors people for unintentional facial twitches, called "micro-expressions", that can suggest someone is lying or trying to conceal information.
Studies by Paul Ekman, a psychologist at the University of California, San Francisco, have revealed that involuntary expressions can often betray someone's true intentions. If you flash your teeth, lower your eyebrows and wrinkle your nose for a fraction of a second while trying to smile, you have just demonstrated the micro-expression for disgust.
A major hurdle will be developing technology that can make correct decisions quickly. "Right now, screeners have typically less than one minute to examine a traveller's documents and assess whether they are a threat," said Larry Orluskie, of the department of homeland security.
The project is also expected to investigate developing a lie detector-type test that can be used remotely - an advantage because it would not interfere with the flow of a crowd and it could be used without the target's knowledge.
Experts yesterday were sceptical that today's technology will be able to predict hostile intent accurately enough to be useful. Dr Ekman said a terrorist might confound security measures by showing a range of expressions from fear of being caught to distress at the possibility of dying. "I don't know. No one knows," he told New Scientist.
Anthony Richards, a counter-terrorism expert at St Andrews University who has worked on Britain's ability to pre-empt a major terrorist attack, agreed that the project faced substantial hurdles.
"There could be all kinds of reasons that might make people behave in certain ways that have nothing to do with terrorism. If you have heightened security and there are a lot of police around, it could be possible that you can feel and look guilty even when you haven't done anything wrong.
"We need to reduce the motivation for people doing these kinds of things. We shouldn't just accept that terrorism will remain as it is or worsen over the next 20 or 30 years and then just put all the technological solutions in place. Technology is certainly important in the fight against terrorism but that shouldn't detract from the crucially important challenge of finding out what is driving terrorism. We need to have a sensible and honest appraisal as to what is radicalising young people."
Peter McOwan, a computer scientist who is developing sensors to detect people's moods at Queen Mary, University of London, said: "It's just like something from Minority Report. They have been watching too many Tom Cruise movies."
US uneasy as Britain plans for early Iraq withdrawal
Americans would prefer UK troops to remain in position as long as they do
Ewen MacAskill in Washington, Julian Borger and Patrick Wintour
Wednesday August 8, 2007
The Guardian
The Bush administration is becoming increasingly concerned about the impact of an imminent British withdrawal from southern Iraq and would prefer UK troops to remain for another year or two.
British officials believe that Washington will signal its intention to reduce US troop numbers after a much-anticipated report next month by its top commander in Iraq, General David Petraeus, clearing the way for Gordon Brown to announce a British withdrawal in parliament the following month. An official said: "We do believe we are nearly there."
It is not known whether George Bush expressed concern about the withdrawal of the remaining 5,000 British troops when he met Mr Brown in Washington last week. But sources, who spoke on condition of anonymity, said the administration was worried about the political consequences of losing British troops.
One source said: "If the difference is between the British leaving at the end of the year or staying through to next year or the year after, it is a safe assumption that President Bush would prefer them to stay as long as the Americans are there."
The Bush administration - focused on the north, west and central Iraq and the "surge" strategy that has seen 30,000 extra US troops deployed - has until recently ignored the south, content to leave it to the British. Now, however, it is beginning to pay attention to the region, amid the realisation that what has been portrayed as a success story is turning sour.
The UK government no longer claims Basra is a success but denies it is a failure, with British troops forced to abandon Basra city for the shelter of the airport.
On Monday the vice-president, Dick Cheney, warned against an early withdrawal. In words thought to be aimed at Congress rather than the British, he said: "No one could plead ignorance of the potential consequences of walking away from Iraq now, withdrawing coalition forces before Iraqis can defend themselves." The US defence secretary, Robert Gates, signalled at the weekend he had hoped for a modest US troop reduction by the end of the year but this has been complicated by the political instability gripping the Iraqi government.
Ken Pollack, a foreign affairs expert at the Washington-based Brookings Institution, who returned last month from an eight-day visit to Iraq in which he spoke to US officers and officials, predicted that US and Iraqi forces would have to go to the south to fill the vacuum with the same level of commitment they were showing with the surge.
He said Mr Bush would prefer the British to stay: "What Bush needs is for there to be a Union Jack flying somewhere in Iraq so he can trumpet that as full British participation, but that participation has been meaningless for some time."
Mr Pollack, who wrote on his return that there were signs that the surge was working, was dismissive of the British contribution over the past 12 to 18 months. He said: "I am assuming the British will no longer be there. They are not there now. We have a British battle group holed up in Basra airport. I do not see what good that does except for people flying in and out.
"It is the wild, wild west. Basra is out of control."
The British say that their forces have handed over to the Iraqi military and the violence is at a much lower level than in Baghdad, with most of it directed towards British forces as Shia militia seek to claim credit for driving them out.
Mr Brown has insisted that he will make his decision exclusively on the basis of British military advice, and there is no connection between the British and US military withdrawal decisions. He has hinted that British forces will switch from combat to surveillance roles in Basra, allowing them to be reduced and withdrawn to Basra airport, a highly protected base from which British troops could ultimately withdraw.
Gen Petraeus and Ryan Crocker, the US ambassador to Baghdad, will present an assessment on the impact of the surge to Congress on September 15. Their report is expected to show a mixed picture, with a sufficient number of positive points to justify an end to the surge. In such an environment the scaling down of the British presence in the south would not appear disloyal, the Brown government hopes.
"The British are doing everything to avoid embarrassing the Americans, while at the same time continuing the withdrawal," said Rosemary Hollis, the director of research at the Chatham House think-tank.
However, it is not clear how the prime minister would react if Mr Bush defied expectations once more and decided to press on with the surge next month.
Colonel Sam Gardiner, who is retired but still carries out war games for the Pentagon, said the violence in the south was problematic for the US military who need secure north-south communications for when they begin to move out of Iraq. He said US forces could be out of the country and into camps in Kuwait within two months, but it would take a further 10 months or so to remove all the heavy equipment - though he believed some of it could be left for the Iraqi security forces. Referring to Basra, he said: "We have trouble in the rear right now. The rear has got problems."
Some military analysts argue that private contractors are already protecting the convoy supply lines but Col Gardiner said that a British pull-out would mean "we would have to establish security for the route from Baghdad to Kuwait. Troops would have to be taken from other missions to protect the road."
Americans would prefer UK troops to remain in position as long as they do
Ewen MacAskill in Washington, Julian Borger and Patrick Wintour
Wednesday August 8, 2007
The Guardian
The Bush administration is becoming increasingly concerned about the impact of an imminent British withdrawal from southern Iraq and would prefer UK troops to remain for another year or two.
British officials believe that Washington will signal its intention to reduce US troop numbers after a much-anticipated report next month by its top commander in Iraq, General David Petraeus, clearing the way for Gordon Brown to announce a British withdrawal in parliament the following month. An official said: "We do believe we are nearly there."
It is not known whether George Bush expressed concern about the withdrawal of the remaining 5,000 British troops when he met Mr Brown in Washington last week. But sources, who spoke on condition of anonymity, said the administration was worried about the political consequences of losing British troops.
One source said: "If the difference is between the British leaving at the end of the year or staying through to next year or the year after, it is a safe assumption that President Bush would prefer them to stay as long as the Americans are there."
The Bush administration - focused on the north, west and central Iraq and the "surge" strategy that has seen 30,000 extra US troops deployed - has until recently ignored the south, content to leave it to the British. Now, however, it is beginning to pay attention to the region, amid the realisation that what has been portrayed as a success story is turning sour.
The UK government no longer claims Basra is a success but denies it is a failure, with British troops forced to abandon Basra city for the shelter of the airport.
On Monday the vice-president, Dick Cheney, warned against an early withdrawal. In words thought to be aimed at Congress rather than the British, he said: "No one could plead ignorance of the potential consequences of walking away from Iraq now, withdrawing coalition forces before Iraqis can defend themselves." The US defence secretary, Robert Gates, signalled at the weekend he had hoped for a modest US troop reduction by the end of the year but this has been complicated by the political instability gripping the Iraqi government.
Ken Pollack, a foreign affairs expert at the Washington-based Brookings Institution, who returned last month from an eight-day visit to Iraq in which he spoke to US officers and officials, predicted that US and Iraqi forces would have to go to the south to fill the vacuum with the same level of commitment they were showing with the surge.
He said Mr Bush would prefer the British to stay: "What Bush needs is for there to be a Union Jack flying somewhere in Iraq so he can trumpet that as full British participation, but that participation has been meaningless for some time."
Mr Pollack, who wrote on his return that there were signs that the surge was working, was dismissive of the British contribution over the past 12 to 18 months. He said: "I am assuming the British will no longer be there. They are not there now. We have a British battle group holed up in Basra airport. I do not see what good that does except for people flying in and out.
"It is the wild, wild west. Basra is out of control."
The British say that their forces have handed over to the Iraqi military and the violence is at a much lower level than in Baghdad, with most of it directed towards British forces as Shia militia seek to claim credit for driving them out.
Mr Brown has insisted that he will make his decision exclusively on the basis of British military advice, and there is no connection between the British and US military withdrawal decisions. He has hinted that British forces will switch from combat to surveillance roles in Basra, allowing them to be reduced and withdrawn to Basra airport, a highly protected base from which British troops could ultimately withdraw.
Gen Petraeus and Ryan Crocker, the US ambassador to Baghdad, will present an assessment on the impact of the surge to Congress on September 15. Their report is expected to show a mixed picture, with a sufficient number of positive points to justify an end to the surge. In such an environment the scaling down of the British presence in the south would not appear disloyal, the Brown government hopes.
"The British are doing everything to avoid embarrassing the Americans, while at the same time continuing the withdrawal," said Rosemary Hollis, the director of research at the Chatham House think-tank.
However, it is not clear how the prime minister would react if Mr Bush defied expectations once more and decided to press on with the surge next month.
Colonel Sam Gardiner, who is retired but still carries out war games for the Pentagon, said the violence in the south was problematic for the US military who need secure north-south communications for when they begin to move out of Iraq. He said US forces could be out of the country and into camps in Kuwait within two months, but it would take a further 10 months or so to remove all the heavy equipment - though he believed some of it could be left for the Iraqi security forces. Referring to Basra, he said: "We have trouble in the rear right now. The rear has got problems."
Some military analysts argue that private contractors are already protecting the convoy supply lines but Col Gardiner said that a British pull-out would mean "we would have to establish security for the route from Baghdad to Kuwait. Troops would have to be taken from other missions to protect the road."
China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 1:41am BST 09/08/2007
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.
"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.
"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.
By Ambrose Evans-Pritchard
Last Updated: 1:41am BST 09/08/2007
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.
"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.
"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.
Climate bill shaves $533 bln off economy
Mon Aug 6, 2007 4:14PM EDT
By Tom Doggett
WASHINGTON (Reuters) - A Senate bill to cut U.S. greenhouse gas emissions would raise energy prices and also reduce American economic output by more than half a trillion dollars over two decades, according to a government report released on Monday.
Congress is expected to consider climate legislation this fall that would fight global warming. Many businesses worry the U.S. economy would suffer under a measure to impose tough mandatory cuts in emissions.
One proposal, introduced by Sens. Joseph Lieberman and John McCain, would gradually reduce total U.S. emissions by the year 2050 to 60 percent below 1990 levels.
The bill would require companies to report their yearly greenhouse gas emissions and submit a matching number of government-issued allowances to equal the emissions spewed. Companies that emit more would have to buy allowances from cleaner companies that produce fewer emissions.
However, the proposal would cut into the U.S. economy and raise gasoline and other energy prices paid by consumers, according to an analysis of the legislation by the Energy Information Administration.
The legislation "increases the cost of using energy, which reduces real economic output, reduces purchasing power, and lowers aggregate demand for goods and services," the EIA said.
With companies trying to meet the shrinking emissions levels, U.S. economic output would be $533 billion lower over the 2009 to 2030 time period, the agency said.
In the transportation sector, gasoline and other petroleum products would cost more as oil refiners buy allowances to cover the emissions spewed by their facilities.
"The cost of the allowances will be included in the prices of the fuels," the EIA said.
Gasoline prices are forecast to be 23 cents a gallon higher in 2020 and 41 cents more in 2030 because of the required emission cuts, the agency said.
The EIA said the fuel price increases would not be large enough "to create dramatic shifts in consumer behavior," but there would be more demand for fuel efficient vehicles.
Coal would have the highest cost increase, rising 129 percent by 2020 and 245 percent by 2030, because burning coal, especially to fuel power plants, results in large emissions of greenhouse gas emissions that would require expensive allowances to offset.
As a result, average electricity prices would be 10 percent higher in 2020 and 21 percent higher in 2030, the EIA said.
Mon Aug 6, 2007 4:14PM EDT
By Tom Doggett
WASHINGTON (Reuters) - A Senate bill to cut U.S. greenhouse gas emissions would raise energy prices and also reduce American economic output by more than half a trillion dollars over two decades, according to a government report released on Monday.
Congress is expected to consider climate legislation this fall that would fight global warming. Many businesses worry the U.S. economy would suffer under a measure to impose tough mandatory cuts in emissions.
One proposal, introduced by Sens. Joseph Lieberman and John McCain, would gradually reduce total U.S. emissions by the year 2050 to 60 percent below 1990 levels.
The bill would require companies to report their yearly greenhouse gas emissions and submit a matching number of government-issued allowances to equal the emissions spewed. Companies that emit more would have to buy allowances from cleaner companies that produce fewer emissions.
However, the proposal would cut into the U.S. economy and raise gasoline and other energy prices paid by consumers, according to an analysis of the legislation by the Energy Information Administration.
The legislation "increases the cost of using energy, which reduces real economic output, reduces purchasing power, and lowers aggregate demand for goods and services," the EIA said.
With companies trying to meet the shrinking emissions levels, U.S. economic output would be $533 billion lower over the 2009 to 2030 time period, the agency said.
In the transportation sector, gasoline and other petroleum products would cost more as oil refiners buy allowances to cover the emissions spewed by their facilities.
"The cost of the allowances will be included in the prices of the fuels," the EIA said.
Gasoline prices are forecast to be 23 cents a gallon higher in 2020 and 41 cents more in 2030 because of the required emission cuts, the agency said.
The EIA said the fuel price increases would not be large enough "to create dramatic shifts in consumer behavior," but there would be more demand for fuel efficient vehicles.
Coal would have the highest cost increase, rising 129 percent by 2020 and 245 percent by 2030, because burning coal, especially to fuel power plants, results in large emissions of greenhouse gas emissions that would require expensive allowances to offset.
As a result, average electricity prices would be 10 percent higher in 2020 and 21 percent higher in 2030, the EIA said.
Analysis: Military Shows Gains in Iraq
Aug 6 02:18 PM US/Eastern
By ROBERT BURNS
AP Military Writer
BAGHDAD (AP) - The new U.S. military strategy in Iraq, unveiled six months ago to little acclaim, is working.
In two weeks of observing the U.S. military on the ground and interviewing commanders, strategists and intelligence officers, it's apparent that the war has entered a new phase in its fifth year.
It is a phase with fresh promise yet the same old worry: Iraq may be too fractured to make whole.
No matter how well or how long the U.S. military carries out its counterinsurgency mission, it cannot guarantee victory.
Only the Iraqis can. And to do so they probably need many more months of heavy U.S. military involvement. Even then, it is far from certain that they are capable of putting this shattered country together again.
It's been an uphill struggle from the start to build Iraqi security forces that are able to fight and—more importantly at this juncture—able to divorce themselves from deep-rooted sectarian loyalties. It is the latter requirement—evenhandedness and reliability—that is furthest from being fulfilled.
There is no magic formula for success.
And magic is what it may take to turn military gains into the strategy's ultimate goal: a political process that moves Iraq's rival Sunnis, Shiites and Kurds from the brink of civil war to the threshold of peace—and to get there on a timetable that takes account of growing war fatigue in the United States.
Efforts at Iraqi reconciliation saw another blow Monday: Five Cabinet ministers loyal to Iraq's first post-Saddam Hussein leader decided to boycott government meetings, further deepening a crisis that threatens Prime Minister Nouri al-Maliki. The boycott would leave the Shiite-led government with no Sunni participants, at least temporarily.
Despite political setbacks, American commanders are clinging to a hope that stability might be built from the bottom up—with local groups joining or aiding U.S. efforts to root out extremists—rather than from the top down, where national leaders have failed to act.
Commanders are encouraged by signs that more Iraqis are growing fed up with violence. They are also counting on improvements in the Iraqi army and police, which are burdened by religious rivalries and are not ready to take over national defense duties from U.S. troops this year.
U.S. military leaders want Congress and President Bush to give them more time to keep trying—to reach a point, perhaps in 2009, when the Iraqis will be closer to reconciliation and ready to provide much of their own security.
The idea, after all, is not to kill or capture every terrorist and insurgent. That can't be done. The idea is to create a security environment more favorable to political action by the government, to provide breathing space for leaders of rival factions to work out a peaceful way to share power.
The U.S. military, partnering in many instances with Iraqi forces, is now creating that security cushion—not everywhere, but in much of the north, the west and most importantly in key areas of Baghdad.
Sectarian killings continue and extremist groups remain a threat, yet they are being squeezed harder. The U.S. military has caught some momentum, thanks to the extra 30,000 troops—for a total of 159,000 on the ground—that Bush agreed to send as part of the new counterinsurgency strategy announced in January. The troops are interacting more with the local people and are protecting them more effectively.
At this stage, however, there is precious little evidence that Iraqi leaders are inclined to take advantage of that.
Even so, U.S. officers seem convinced that it is too soon to stop, that by tamping down the sectarian violence, at least in Baghdad, they are giving the Iraqis a chance to come together. They insist it is unrealistic to expect the Iraqis to resolve their problems in a matter of months. And they argue that withdrawing would only lead to bigger problems, for the U.S. and for Iraq.
That is likely to be the message that Ambassador Ryan Crocker and Gen. David Petraeus, the top U.S. officials in Iraq, convey to Congress and to Bush in September. They are in no position to predict how long it might take the Iraqi government to achieve reconciliation, but they are likely to concede, if asked, that if the Iraqis do not take key steps in the months ahead the entire U.S. approach may unravel.
Defense Secretary Robert Gates, whose views on how to proceed in Iraq also will figure prominently in Bush's decisions, says the administration, in hoping for movement toward political reconciliation this year, underestimated the depth of mistrust between rival sects.
The culture of fear in Baghdad is ingrained.
The Shiites, now in power after decades of being dominated by the minority Sunnis during Saddam Hussein's rule, remain fearful of a Sunni revival. The Sunnis see their own survival at stake.
Kurds have enjoyed more than a decade of semi-autonomy in the north, where control over oil wealth is in play.
Which gets to two matters that underlie much of the conviction in Congress that it is time to get out of Iraq.
First: Do the potential benefits of sticking with the war strategy outweigh the cost, in American blood and treasure? Total U.S. war deaths now exceed 3,665 and are climbing by more than two per day, on average.
And second: Would Iraqi political leaders be more likely to settle their sectarian differences if they knew that America's patience was ending and that its troops were leaving—at least the combat forces?
There is clearly a consensus among senior U.S. commanders in Iraq that the answer to the first question is yes. They feel that so much has been sacrificed already that it makes no sense to quit now. Lt. Gen. James Dubik, in charge of training and equipping Iraqi forces, said the counterinsurgency strategy, not fully implemented until June, has finally wrested the initiative from the insurgents.
"It was fought over and died for, and there's no reason to give it back right now," Dubik told AP.
On compelling Iraq's political leaders to move toward reconciliation, few American officers appear to believe that an early pullout would do the trick. They think it would propel the country further into chaos.
Crocker is explicit on that point.
"A massive human catastrophe (could follow), with the bloodshed among the Iraqi civilians on a scale we have not seen and may find hard to imagine," he told AP.
Nonetheless, leaving—in at least a limited way—appears likely to begin in 2008. Petraeus might be inclined to send home, perhaps as early as January, one of the extra five Army brigades that Bush sent to Baghdad. Some of the roughly 4,000 extra Marines in Anbar province might head out by then, too.
If that happens, and if Bush overcomes congressional pressure to get out faster in a presidential election year, Petraeus probably would stretch out the troop drawdown over many months. He might also switch some units from one part of the country to another, reflecting an uneven pace of security progress, while leaving the bulk of the force in place at least until 2009, when a new president will be in the White House.
___
EDITOR'S NOTE—AP Military Writer Robert Burns, on his 18th reporting trip to Iraq since the start of the war in 2003, has written about U.S. military involvement in Iraq and the Middle East since the 1991 Gulf War, mostly from his base in Washington.
Aug 6 02:18 PM US/Eastern
By ROBERT BURNS
AP Military Writer
BAGHDAD (AP) - The new U.S. military strategy in Iraq, unveiled six months ago to little acclaim, is working.
In two weeks of observing the U.S. military on the ground and interviewing commanders, strategists and intelligence officers, it's apparent that the war has entered a new phase in its fifth year.
It is a phase with fresh promise yet the same old worry: Iraq may be too fractured to make whole.
No matter how well or how long the U.S. military carries out its counterinsurgency mission, it cannot guarantee victory.
Only the Iraqis can. And to do so they probably need many more months of heavy U.S. military involvement. Even then, it is far from certain that they are capable of putting this shattered country together again.
It's been an uphill struggle from the start to build Iraqi security forces that are able to fight and—more importantly at this juncture—able to divorce themselves from deep-rooted sectarian loyalties. It is the latter requirement—evenhandedness and reliability—that is furthest from being fulfilled.
There is no magic formula for success.
And magic is what it may take to turn military gains into the strategy's ultimate goal: a political process that moves Iraq's rival Sunnis, Shiites and Kurds from the brink of civil war to the threshold of peace—and to get there on a timetable that takes account of growing war fatigue in the United States.
Efforts at Iraqi reconciliation saw another blow Monday: Five Cabinet ministers loyal to Iraq's first post-Saddam Hussein leader decided to boycott government meetings, further deepening a crisis that threatens Prime Minister Nouri al-Maliki. The boycott would leave the Shiite-led government with no Sunni participants, at least temporarily.
Despite political setbacks, American commanders are clinging to a hope that stability might be built from the bottom up—with local groups joining or aiding U.S. efforts to root out extremists—rather than from the top down, where national leaders have failed to act.
Commanders are encouraged by signs that more Iraqis are growing fed up with violence. They are also counting on improvements in the Iraqi army and police, which are burdened by religious rivalries and are not ready to take over national defense duties from U.S. troops this year.
U.S. military leaders want Congress and President Bush to give them more time to keep trying—to reach a point, perhaps in 2009, when the Iraqis will be closer to reconciliation and ready to provide much of their own security.
The idea, after all, is not to kill or capture every terrorist and insurgent. That can't be done. The idea is to create a security environment more favorable to political action by the government, to provide breathing space for leaders of rival factions to work out a peaceful way to share power.
The U.S. military, partnering in many instances with Iraqi forces, is now creating that security cushion—not everywhere, but in much of the north, the west and most importantly in key areas of Baghdad.
Sectarian killings continue and extremist groups remain a threat, yet they are being squeezed harder. The U.S. military has caught some momentum, thanks to the extra 30,000 troops—for a total of 159,000 on the ground—that Bush agreed to send as part of the new counterinsurgency strategy announced in January. The troops are interacting more with the local people and are protecting them more effectively.
At this stage, however, there is precious little evidence that Iraqi leaders are inclined to take advantage of that.
Even so, U.S. officers seem convinced that it is too soon to stop, that by tamping down the sectarian violence, at least in Baghdad, they are giving the Iraqis a chance to come together. They insist it is unrealistic to expect the Iraqis to resolve their problems in a matter of months. And they argue that withdrawing would only lead to bigger problems, for the U.S. and for Iraq.
That is likely to be the message that Ambassador Ryan Crocker and Gen. David Petraeus, the top U.S. officials in Iraq, convey to Congress and to Bush in September. They are in no position to predict how long it might take the Iraqi government to achieve reconciliation, but they are likely to concede, if asked, that if the Iraqis do not take key steps in the months ahead the entire U.S. approach may unravel.
Defense Secretary Robert Gates, whose views on how to proceed in Iraq also will figure prominently in Bush's decisions, says the administration, in hoping for movement toward political reconciliation this year, underestimated the depth of mistrust between rival sects.
The culture of fear in Baghdad is ingrained.
The Shiites, now in power after decades of being dominated by the minority Sunnis during Saddam Hussein's rule, remain fearful of a Sunni revival. The Sunnis see their own survival at stake.
Kurds have enjoyed more than a decade of semi-autonomy in the north, where control over oil wealth is in play.
Which gets to two matters that underlie much of the conviction in Congress that it is time to get out of Iraq.
First: Do the potential benefits of sticking with the war strategy outweigh the cost, in American blood and treasure? Total U.S. war deaths now exceed 3,665 and are climbing by more than two per day, on average.
And second: Would Iraqi political leaders be more likely to settle their sectarian differences if they knew that America's patience was ending and that its troops were leaving—at least the combat forces?
There is clearly a consensus among senior U.S. commanders in Iraq that the answer to the first question is yes. They feel that so much has been sacrificed already that it makes no sense to quit now. Lt. Gen. James Dubik, in charge of training and equipping Iraqi forces, said the counterinsurgency strategy, not fully implemented until June, has finally wrested the initiative from the insurgents.
"It was fought over and died for, and there's no reason to give it back right now," Dubik told AP.
On compelling Iraq's political leaders to move toward reconciliation, few American officers appear to believe that an early pullout would do the trick. They think it would propel the country further into chaos.
Crocker is explicit on that point.
"A massive human catastrophe (could follow), with the bloodshed among the Iraqi civilians on a scale we have not seen and may find hard to imagine," he told AP.
Nonetheless, leaving—in at least a limited way—appears likely to begin in 2008. Petraeus might be inclined to send home, perhaps as early as January, one of the extra five Army brigades that Bush sent to Baghdad. Some of the roughly 4,000 extra Marines in Anbar province might head out by then, too.
If that happens, and if Bush overcomes congressional pressure to get out faster in a presidential election year, Petraeus probably would stretch out the troop drawdown over many months. He might also switch some units from one part of the country to another, reflecting an uneven pace of security progress, while leaving the bulk of the force in place at least until 2009, when a new president will be in the White House.
___
EDITOR'S NOTE—AP Military Writer Robert Burns, on his 18th reporting trip to Iraq since the start of the war in 2003, has written about U.S. military involvement in Iraq and the Middle East since the 1991 Gulf War, mostly from his base in Washington.
Iran Diplomacy Fails to Halt Iraq Attacks, U.S. Says (Update1)
By Ed Johnson
Aug. 9 (Bloomberg) -- Diplomatic talks with Iran are failing to stem the insurgency in neighboring Iraq, the U.S. State Department said, as the military revealed Iranian-linked bomb attacks on troops are increasing.
Two rounds of talks between Ambassador Ryan Crocker and his Iranian counterpart in Baghdad, and lower level security discussions, haven't ``yielded positive results,'' State Department spokesman Sean McCormack said.
President George W. Bush said at a press conference today that Iran is being told that ``there will be consequences'' for people sending deadly explosives to Iraq to be used against U.S. soldiers.
The U.S. has repeatedly accused Iran of training and financing insurgents in Iraq and stoking violence between the country's Shiite and Sunni Muslim communities. Iran denies the charges and is holding the latest round of security talks with Iraq.
Iraqi Prime Minister Nuri al-Maliki is in Tehran. ``His message, I'm confident, will be: `stabilize; don't destabilize.' And the sending of weapons into Iraq is a destabilizing factor,'' Bush told reporters in Washington.
Two U.K. soldiers were killed in a roadside bomb attack near Iraq's southern city of Basra today. The U.S. military raided a terrorist cell yesterday in Baghdad suspected of transporting weapons from Iran. U.S. forces killed 30 suspected militiamen and detained 12 others in the raid in eastern Baghdad's mainly Shiite Muslim area of Sadr City.
Roadside Attacks
Roadside attacks against U.S. soldiers using armor-piercing bombs have increased, McCormack said yesterday, citing Lieutenant General Raymond Odierno, the No. 2 U.S. commander in Iraq. Roadside bombs supplied by Iran caused 23 of 69 combat deaths suffered by U.S.-led forces in Iraq last month, the New York Times reported yesterday, citing Odierno.
The devices, known as ``explosively formed penetrators,'' fire copper slugs that can pierce armored vehicles and were used in a record 99 attacks in July, the newspaper said.
Iran shares a 1,458-kilometer (906-mile) border with Iraq to the west and both have Shiite Muslim majorities. The two states fought an eight-year war in the 1980s and have increased political and economic ties since the 2003 U.S.-led invasion toppled Saddam Hussein's Sunni Muslim-led regime.
Maliki Meeting
Maliki met yesterday with Iran's President Mahmoud Ahmadinejad and Vice President Parviz Davudi to discuss security in Iraq, the state-run Islamic Republic News Agency reported. Maliki said he wants to expand ties with Iran and appealed to the country's industries to invest in infrastructure projects in Iraq, IRNA reported.
``If the signal is that Iran is constructive, I will have to have a heart-to-heart with my friend the prime minister,'' Bush said of the Maliki meeting. ``I don't think in his heart of hearts he thinks they are constructive either.''
Syria, accused by the U.S. of allowing insurgents to cross the border into Iraq, also held security talks yesterday.
Representatives from the U.S. military in Iraq and U.S. Embassy in Damascus were ``observers'' at the meeting that was attended by Iraq's neighbors, McCormack said.
By Ed Johnson
Aug. 9 (Bloomberg) -- Diplomatic talks with Iran are failing to stem the insurgency in neighboring Iraq, the U.S. State Department said, as the military revealed Iranian-linked bomb attacks on troops are increasing.
Two rounds of talks between Ambassador Ryan Crocker and his Iranian counterpart in Baghdad, and lower level security discussions, haven't ``yielded positive results,'' State Department spokesman Sean McCormack said.
President George W. Bush said at a press conference today that Iran is being told that ``there will be consequences'' for people sending deadly explosives to Iraq to be used against U.S. soldiers.
The U.S. has repeatedly accused Iran of training and financing insurgents in Iraq and stoking violence between the country's Shiite and Sunni Muslim communities. Iran denies the charges and is holding the latest round of security talks with Iraq.
Iraqi Prime Minister Nuri al-Maliki is in Tehran. ``His message, I'm confident, will be: `stabilize; don't destabilize.' And the sending of weapons into Iraq is a destabilizing factor,'' Bush told reporters in Washington.
Two U.K. soldiers were killed in a roadside bomb attack near Iraq's southern city of Basra today. The U.S. military raided a terrorist cell yesterday in Baghdad suspected of transporting weapons from Iran. U.S. forces killed 30 suspected militiamen and detained 12 others in the raid in eastern Baghdad's mainly Shiite Muslim area of Sadr City.
Roadside Attacks
Roadside attacks against U.S. soldiers using armor-piercing bombs have increased, McCormack said yesterday, citing Lieutenant General Raymond Odierno, the No. 2 U.S. commander in Iraq. Roadside bombs supplied by Iran caused 23 of 69 combat deaths suffered by U.S.-led forces in Iraq last month, the New York Times reported yesterday, citing Odierno.
The devices, known as ``explosively formed penetrators,'' fire copper slugs that can pierce armored vehicles and were used in a record 99 attacks in July, the newspaper said.
Iran shares a 1,458-kilometer (906-mile) border with Iraq to the west and both have Shiite Muslim majorities. The two states fought an eight-year war in the 1980s and have increased political and economic ties since the 2003 U.S.-led invasion toppled Saddam Hussein's Sunni Muslim-led regime.
Maliki Meeting
Maliki met yesterday with Iran's President Mahmoud Ahmadinejad and Vice President Parviz Davudi to discuss security in Iraq, the state-run Islamic Republic News Agency reported. Maliki said he wants to expand ties with Iran and appealed to the country's industries to invest in infrastructure projects in Iraq, IRNA reported.
``If the signal is that Iran is constructive, I will have to have a heart-to-heart with my friend the prime minister,'' Bush said of the Maliki meeting. ``I don't think in his heart of hearts he thinks they are constructive either.''
Syria, accused by the U.S. of allowing insurgents to cross the border into Iraq, also held security talks yesterday.
Representatives from the U.S. military in Iraq and U.S. Embassy in Damascus were ``observers'' at the meeting that was attended by Iraq's neighbors, McCormack said.
13 Killed In Sunni Town In Suicide Car Bomb Attack
Thursday, August 02, 2007; Posted: 11:27 AM
(RTTNews) - A suicide car bomber attacked a police station in Iraq's Sunni town of Hibhib Thursday.
According to reports, at least 13 people were killed in the attack while another 15 people were injured. A majority of the victims were either policemen or recruits who had been lined up outside the station.
Hibhib is in an area considered to be a stronghold of Sunni insurgents and was where al-Qaida in Iraq leader Abu Musab al-Zarqawi was killed during a US air strike.
Thursday, August 02, 2007; Posted: 11:27 AM
(RTTNews) - A suicide car bomber attacked a police station in Iraq's Sunni town of Hibhib Thursday.
According to reports, at least 13 people were killed in the attack while another 15 people were injured. A majority of the victims were either policemen or recruits who had been lined up outside the station.
Hibhib is in an area considered to be a stronghold of Sunni insurgents and was where al-Qaida in Iraq leader Abu Musab al-Zarqawi was killed during a US air strike.
Vodafone investors reject wireless spinoff
Activist investor John Mayo, ex-Marconi head, sought sale of 45% owned Verizon Wireless subsidiary of U.S.-based Verizon Communications.
July 24 2007: 6:16 PM EDT
cnnmoney.com
LONDON (Reuters) -- An overwhelming majority of Vodafone Group Plc shareholders have backed Chief Executive Arun Sarin's U.S. strategy and rejected calls by a rebel investor to release billions of pounds to shareholders.
Vodafone, the world's second-largest cell phone group by customers, said on Tuesday more than 93 percent of shareholders had rejected resolutions from activist investor Efficient Capital Structures (ECS) at its annual shareholder meeting (AGM) in a proxy vote.
ECS, which owns just 0.0004 percent of Vodafone, had added four resolutions to Vodafone's AGM partly to call for the company to spin off its 45-percent owned U.S. asset Verizon Wireless into a separately-listed company and issue £34 billion ($70 billion) worth of bonds.
Vodafone shares traded 1.74 percent lower at 157.8 pence by 11:50 am ET, in line with the broader telecoms market.
Vodafone said 4.6 percent of investors who voted ahead of the meeting had approved ECS's calls to spin off the Verizon Wireless holding and 3.15 percent had backed the rebels' calls to pile debt onto Vodafone's "under-utilized" balance sheet.
But shareholders at the AGM lambasted ECS, which is backed by John Mayo, the former chief-executive designate of telecoms equipment group Marconi. Mayo resigned in 2001 after a crushing profit warning wiped £3.5 billion off Marconi's value.
"I think all of us think he [Mayo] is wasting your time and that of the other directors," one small shareholder told the board. "He is distracting your attention...I deplore what he is doing and give you my full backing."
Rebels expect Vodafone action
ECS, however, vowed that Vodafone would face a backlash if it failed to address shareholder concerns in the next 12 months.
"This wasn't about the votes but about action from the company," ECS Chairman Glenn Cooper told Reuters on the sidelines of the AGM. "Now we're convinced that Vodafone will take action about Verizon [Wireless]."
"I'd be very surprised if we have the same debate the same time next year," he added. "If within that timeframe there is no action, the board will face an investor revolt and an EGM [extraordinary general meeting]."
Some investors are frustrated that the value of Verizon Wireless, which is controlled by U.S. telecoms heavyweight Verizon Communications, is not reflected in Vodafone's share price and that the business is not expected to reinstate dividend payments for another two years.
But Vodafone's Chairman John Bond reiterated the company was examining all options, noting that the Verizon Wireless stake was now valued by analysts at $54 billion - about 40 percent more than last year - and contributed well over 20 percent of underlying operating profit.
Bond and CEO Sarin would not say whether Vodafone would exercise a put option and sell part of its stake by a deadline of August 9. Under the option, Vodafone could sell up to $10 billion worth of its stake.
Some analysts have speculated that Vodafone could sell up to $7.5 billion of its stake on a tax-deferred basis, to lock in a tax holiday benefit that would otherwise expire.
Bond also noted that ECS's demands to issue bonds would push debt to nearly 58 billion pounds, leading to the company becoming a sub-investment grade borrower, reducing free cash flow and constraining financial flexibility.
Just over 88 percent of shareholders in the proxy vote also approved Vodafone's executive pay package, which had drawn fire from some investors for relaxing performance targets.
Activist investor John Mayo, ex-Marconi head, sought sale of 45% owned Verizon Wireless subsidiary of U.S.-based Verizon Communications.
July 24 2007: 6:16 PM EDT
cnnmoney.com
LONDON (Reuters) -- An overwhelming majority of Vodafone Group Plc shareholders have backed Chief Executive Arun Sarin's U.S. strategy and rejected calls by a rebel investor to release billions of pounds to shareholders.
Vodafone, the world's second-largest cell phone group by customers, said on Tuesday more than 93 percent of shareholders had rejected resolutions from activist investor Efficient Capital Structures (ECS) at its annual shareholder meeting (AGM) in a proxy vote.
ECS, which owns just 0.0004 percent of Vodafone, had added four resolutions to Vodafone's AGM partly to call for the company to spin off its 45-percent owned U.S. asset Verizon Wireless into a separately-listed company and issue £34 billion ($70 billion) worth of bonds.
Vodafone shares traded 1.74 percent lower at 157.8 pence by 11:50 am ET, in line with the broader telecoms market.
Vodafone said 4.6 percent of investors who voted ahead of the meeting had approved ECS's calls to spin off the Verizon Wireless holding and 3.15 percent had backed the rebels' calls to pile debt onto Vodafone's "under-utilized" balance sheet.
But shareholders at the AGM lambasted ECS, which is backed by John Mayo, the former chief-executive designate of telecoms equipment group Marconi. Mayo resigned in 2001 after a crushing profit warning wiped £3.5 billion off Marconi's value.
"I think all of us think he [Mayo] is wasting your time and that of the other directors," one small shareholder told the board. "He is distracting your attention...I deplore what he is doing and give you my full backing."
Rebels expect Vodafone action
ECS, however, vowed that Vodafone would face a backlash if it failed to address shareholder concerns in the next 12 months.
"This wasn't about the votes but about action from the company," ECS Chairman Glenn Cooper told Reuters on the sidelines of the AGM. "Now we're convinced that Vodafone will take action about Verizon [Wireless]."
"I'd be very surprised if we have the same debate the same time next year," he added. "If within that timeframe there is no action, the board will face an investor revolt and an EGM [extraordinary general meeting]."
Some investors are frustrated that the value of Verizon Wireless, which is controlled by U.S. telecoms heavyweight Verizon Communications, is not reflected in Vodafone's share price and that the business is not expected to reinstate dividend payments for another two years.
But Vodafone's Chairman John Bond reiterated the company was examining all options, noting that the Verizon Wireless stake was now valued by analysts at $54 billion - about 40 percent more than last year - and contributed well over 20 percent of underlying operating profit.
Bond and CEO Sarin would not say whether Vodafone would exercise a put option and sell part of its stake by a deadline of August 9. Under the option, Vodafone could sell up to $10 billion worth of its stake.
Some analysts have speculated that Vodafone could sell up to $7.5 billion of its stake on a tax-deferred basis, to lock in a tax holiday benefit that would otherwise expire.
Bond also noted that ECS's demands to issue bonds would push debt to nearly 58 billion pounds, leading to the company becoming a sub-investment grade borrower, reducing free cash flow and constraining financial flexibility.
Just over 88 percent of shareholders in the proxy vote also approved Vodafone's executive pay package, which had drawn fire from some investors for relaxing performance targets.
Apollo in unregistered shares plan
By Ben White in New York
Published: July 24 2007 22:05 | Last updated: July 24 2007 22:05
ft.com
Apollo Management, the private equity group, is proposing to sell unregistered shares to sophisticated investors at a valuation of about 10 times its expected 2008 earnings.
This is a significant discount to shares in Blackstone and the other alternative asset managers that have staged fully-fledged listings this year.
Blackstone last month offered shares at about 20 times expected earnings and Fortress, a private equity and hedge fund group, also went public at about 20 times forward earnings.
The Apollo discount, reported by people who have seen the offer document, reflects factors such as the decline in Blackstone shares, trouble in financing buy-out deals and the limited liquidity in Apollo shares.
Apollo is hoping to raise about $1bn by selling 35.3m shares in the unregistered 144A market through an electronic trading platform run by Goldman Sachs.
JPMorgan and Credit Suisse are also underwriting the Apollo offering and will be market makers in the shares. The price range on the shares is $27-$30 and the offering will represent about 12.5 per cent of Apollo’s total shares, implying a market value of about $8bn.
The stock will only be available to qualified buyers such as pension and hedge funds.
Companies that sell 144A shares do not have to register with the Securities and Exchange Commission. However, they generally provide investors with documents similar to those filed with the SEC. Apollo has pledged to become a public company within months.
Apollo would presumably get a higher valuation once its shares are more widely traded. However, such an increase is not guaranteed given the environment for private equity deals and questions about how their profits should be taxed.
The offer document also discloses that Credit Suisse will buy $200m-worth of the 144A shares at their offer price. It also says Apollo expects assets under management to grow from $27bn to $44bn in six months.
In addition to the 144A shares, Apollo is selling a stake of less than 10 per cent to the investment arm of the Abu Dhabi government and a stake to Calpers, the large California public pension fund. The Abu Dhabi investment fund and Calpers are buying in at $20 a share, according to the offer document.
By Ben White in New York
Published: July 24 2007 22:05 | Last updated: July 24 2007 22:05
ft.com
Apollo Management, the private equity group, is proposing to sell unregistered shares to sophisticated investors at a valuation of about 10 times its expected 2008 earnings.
This is a significant discount to shares in Blackstone and the other alternative asset managers that have staged fully-fledged listings this year.
Blackstone last month offered shares at about 20 times expected earnings and Fortress, a private equity and hedge fund group, also went public at about 20 times forward earnings.
The Apollo discount, reported by people who have seen the offer document, reflects factors such as the decline in Blackstone shares, trouble in financing buy-out deals and the limited liquidity in Apollo shares.
Apollo is hoping to raise about $1bn by selling 35.3m shares in the unregistered 144A market through an electronic trading platform run by Goldman Sachs.
JPMorgan and Credit Suisse are also underwriting the Apollo offering and will be market makers in the shares. The price range on the shares is $27-$30 and the offering will represent about 12.5 per cent of Apollo’s total shares, implying a market value of about $8bn.
The stock will only be available to qualified buyers such as pension and hedge funds.
Companies that sell 144A shares do not have to register with the Securities and Exchange Commission. However, they generally provide investors with documents similar to those filed with the SEC. Apollo has pledged to become a public company within months.
Apollo would presumably get a higher valuation once its shares are more widely traded. However, such an increase is not guaranteed given the environment for private equity deals and questions about how their profits should be taxed.
The offer document also discloses that Credit Suisse will buy $200m-worth of the 144A shares at their offer price. It also says Apollo expects assets under management to grow from $27bn to $44bn in six months.
In addition to the 144A shares, Apollo is selling a stake of less than 10 per cent to the investment arm of the Abu Dhabi government and a stake to Calpers, the large California public pension fund. The Abu Dhabi investment fund and Calpers are buying in at $20 a share, according to the offer document.
Wednesday, August 08, 2007
Now in Their Own Orbits, Carlyle's Stars Keep Rising
By Thomas Heath
Washington Post Staff Writer
Tuesday, July 24, 2007; D01
With $71.4 billion under management, Washington's Carlyle Group is easily the dean of private-equity firms in the region. But several alumni are beginning to attract notice in their own right.
More than a dozen former Carlyle employees have left to start their own investment firms or to push into other start-ups around Washington. The group includes Frederic V. Malek of Thayer Capital, which has billions of dollars under management; David W. Dupree's Halifax Group on Connecticut Avenue NW, partly owned by another big player in private equity, Texas Pacific Group founder David Bonderman; and Leslie L. Armitage, one of the youngest Carlyle partners ever at age 30 and the founder of Relativity Capital in Arlington.
"It's tough to walk away from the Carlyle name, the panache and the extremely bright people," said Rufus H. Rivers, who left the firm after four years to become a managing director at RLJ Equity Partners of Bethesda, a joint venture between Carlyle and Black Entertainment Television founder Robert L. Johnson. "But for some people, the entrepreneurial drive and the opportunity to build a firm from the ground up is too good to pass up."
Carlyle and its offspring have turned Washington into a thriving investment community that operates one notch below the nation's traditional money centers. While Carlyle's deals can run in the billions of dollars, its kin often focus their energies on transactions costing less than $1 billion.
"The Carlyle Group established D.C. as one of the East Coast's private-equity centers," said Peter M. Manos, a Carlyle alum now with Arlington Capital Partners. "They did it by playing to the strength of the D.C. market," focusing on government-related sectors such as aerospace, defense, telecommunications and information technology.
The Carlyle universe is extensive. At its center are alumni such as Esko I. Korhonen and Lacy I. Rice of Federal Capital Partners, a real estate equity firm; Mark Ein of Venturehouse Group in the District; and Jay Powell and J. Mitchell Reese of Severn Capital.
Orbiting those private-equity specialists are the legions of attorneys and accountants who have nested in Washington to serve the dealmakers. It is similar to the effect that mutual fund powerhouses T. Rowe Price and Legg Mason have had on Baltimore.
"You can't help but have the spill-out from a firm like Carlyle," Dupree said.
Global law firm Latham & Watkins has added many lawyers to its Washington practice to serve Carlyle and its offspring. Ernst & Young and Pricewaterhouse Coopers have both scaled up to serve the private-equity firms here. The effect is even felt at places such as BMW of Arlington, a favored car dealership for the Carlyle crowd.
"The legal and accounting professional services firms have had to expand to fill the needs of private equity here," said James R. Hanna, a private-equity lawyer for Latham & Watkins who is based in the District.
Veterans and alumni have become rich as well, many with their fortunes still locked up in Carlyle funds. Those funds have returned a net annual average of 26 percent to their investors over the past 20 years.
"Outside of my house, most of my net worth is still in Carlyle funds, and I am glad it is," said Nigel Jones of TWJ Capital in Bethesda. "Those are very smart guys."
Jones, 38, joined the Marines after graduating from Harvard and then attended Stanford University's graduate business school. Carlyle hired him as a junior associate out of Stanford and put him to work on the buyout team focusing on aerospace and defense. He rose from associate to a principal at the firm after six years, then quit to work with his father at TWJ.
But what happens when the business cycle changes and the good times end?
Joseph E. Lipscomb, a former Carlyle managing director who is a partner at Global Environment Fund of the District, a private-equity firm with nearly $1 billion under management, said the competition between private-equity firms will get more intense if the economy slows.
"Firms that don't put up the returns or make big mistakes may not survive to see the next up cycle," Lipscomb said.
Carlyle built its name and its first several billion dollars in profit by buying aerospace, defense and telecommunications companies, retooling or improving them, and reselling them at a huge profit. The firm's flagship U.S. Buyout Fund, under the guidance of co-founder and chief investment officer William E. Conway, was the vehicle for these transactions.
Mark A. Frantz, who worked in Carlyle's U.S. Venture Capital Fund and now is a general partner in RedShift Ventures, said he learned how to run a private-equity firm from his time at Carlyle. He added that the firm's founders, which include David M. Rubenstein and Daniel A. D'Aniello, all brought different talents to the office.
"DBD [David, Bill and D'Aniello] is like the Olympic logo. They don't have a lot of overlap," Frantz said. "It's not Steve Schwarzman. It's not Henry Kravis. They have this thing. One Carlyle. You aren't taking on [Star Trek Capt.] James Kirk. You are taking on the board."
So why leave? Several said they wanted to make their mark at a smaller firm.
"It's kind of a natural step for people to move out on their own," said Manos, who cut his teeth on aerospace and defense during three years at Carlyle.
Or as Lipscomb puts it: "I wanted to be in a place where one day my name was going to be on the door."
There are other reasons. Though everyone lauds Carlyle as a training ground for private equity, now that the company has more than 800 employees, the question arises about whether Carlyle may have lost its entrepreneurial edge, giving way to an institutional mindset.
Carlyle associates can sometimes spend days and weeks grinding out the paperwork on big deals. And it may take years before they sit across from a chief executive of a company Carlyle is thinking of acquiring. The days of creating companies like natural-foods chain Fresh Fields from scratch are largely gone. Instead, it is buying well-established companies -- it bought Hertz and is fine-tuning the rental-car firm into greater profitability.
"It's a brilliant training ground -- but if your personality is entrepreneurial and you want to have real contact with a client, it's hard to do that," Dupree said.
Some ask whether Carlyle has suffered a brain drain because so many good people have left, many of whom hew to the same conservative investment approach as Conway and his team.
D'Aniello regards the departures of a kind of validation. "It just gives evidence to the fact that we hire the best and the brightest, some of whom are self-motivated in terms of striking out on their own," he said.
"Do you think the success of Harvard Business School in populating the investment industry generally has overpopulated it with people who are like-minded thinkers? What's the downside of overpopulating an area with capable people," he said rhetorically. "I don't know. Tell me where it is."
By Thomas Heath
Washington Post Staff Writer
Tuesday, July 24, 2007; D01
With $71.4 billion under management, Washington's Carlyle Group is easily the dean of private-equity firms in the region. But several alumni are beginning to attract notice in their own right.
More than a dozen former Carlyle employees have left to start their own investment firms or to push into other start-ups around Washington. The group includes Frederic V. Malek of Thayer Capital, which has billions of dollars under management; David W. Dupree's Halifax Group on Connecticut Avenue NW, partly owned by another big player in private equity, Texas Pacific Group founder David Bonderman; and Leslie L. Armitage, one of the youngest Carlyle partners ever at age 30 and the founder of Relativity Capital in Arlington.
"It's tough to walk away from the Carlyle name, the panache and the extremely bright people," said Rufus H. Rivers, who left the firm after four years to become a managing director at RLJ Equity Partners of Bethesda, a joint venture between Carlyle and Black Entertainment Television founder Robert L. Johnson. "But for some people, the entrepreneurial drive and the opportunity to build a firm from the ground up is too good to pass up."
Carlyle and its offspring have turned Washington into a thriving investment community that operates one notch below the nation's traditional money centers. While Carlyle's deals can run in the billions of dollars, its kin often focus their energies on transactions costing less than $1 billion.
"The Carlyle Group established D.C. as one of the East Coast's private-equity centers," said Peter M. Manos, a Carlyle alum now with Arlington Capital Partners. "They did it by playing to the strength of the D.C. market," focusing on government-related sectors such as aerospace, defense, telecommunications and information technology.
The Carlyle universe is extensive. At its center are alumni such as Esko I. Korhonen and Lacy I. Rice of Federal Capital Partners, a real estate equity firm; Mark Ein of Venturehouse Group in the District; and Jay Powell and J. Mitchell Reese of Severn Capital.
Orbiting those private-equity specialists are the legions of attorneys and accountants who have nested in Washington to serve the dealmakers. It is similar to the effect that mutual fund powerhouses T. Rowe Price and Legg Mason have had on Baltimore.
"You can't help but have the spill-out from a firm like Carlyle," Dupree said.
Global law firm Latham & Watkins has added many lawyers to its Washington practice to serve Carlyle and its offspring. Ernst & Young and Pricewaterhouse Coopers have both scaled up to serve the private-equity firms here. The effect is even felt at places such as BMW of Arlington, a favored car dealership for the Carlyle crowd.
"The legal and accounting professional services firms have had to expand to fill the needs of private equity here," said James R. Hanna, a private-equity lawyer for Latham & Watkins who is based in the District.
Veterans and alumni have become rich as well, many with their fortunes still locked up in Carlyle funds. Those funds have returned a net annual average of 26 percent to their investors over the past 20 years.
"Outside of my house, most of my net worth is still in Carlyle funds, and I am glad it is," said Nigel Jones of TWJ Capital in Bethesda. "Those are very smart guys."
Jones, 38, joined the Marines after graduating from Harvard and then attended Stanford University's graduate business school. Carlyle hired him as a junior associate out of Stanford and put him to work on the buyout team focusing on aerospace and defense. He rose from associate to a principal at the firm after six years, then quit to work with his father at TWJ.
But what happens when the business cycle changes and the good times end?
Joseph E. Lipscomb, a former Carlyle managing director who is a partner at Global Environment Fund of the District, a private-equity firm with nearly $1 billion under management, said the competition between private-equity firms will get more intense if the economy slows.
"Firms that don't put up the returns or make big mistakes may not survive to see the next up cycle," Lipscomb said.
Carlyle built its name and its first several billion dollars in profit by buying aerospace, defense and telecommunications companies, retooling or improving them, and reselling them at a huge profit. The firm's flagship U.S. Buyout Fund, under the guidance of co-founder and chief investment officer William E. Conway, was the vehicle for these transactions.
Mark A. Frantz, who worked in Carlyle's U.S. Venture Capital Fund and now is a general partner in RedShift Ventures, said he learned how to run a private-equity firm from his time at Carlyle. He added that the firm's founders, which include David M. Rubenstein and Daniel A. D'Aniello, all brought different talents to the office.
"DBD [David, Bill and D'Aniello] is like the Olympic logo. They don't have a lot of overlap," Frantz said. "It's not Steve Schwarzman. It's not Henry Kravis. They have this thing. One Carlyle. You aren't taking on [Star Trek Capt.] James Kirk. You are taking on the board."
So why leave? Several said they wanted to make their mark at a smaller firm.
"It's kind of a natural step for people to move out on their own," said Manos, who cut his teeth on aerospace and defense during three years at Carlyle.
Or as Lipscomb puts it: "I wanted to be in a place where one day my name was going to be on the door."
There are other reasons. Though everyone lauds Carlyle as a training ground for private equity, now that the company has more than 800 employees, the question arises about whether Carlyle may have lost its entrepreneurial edge, giving way to an institutional mindset.
Carlyle associates can sometimes spend days and weeks grinding out the paperwork on big deals. And it may take years before they sit across from a chief executive of a company Carlyle is thinking of acquiring. The days of creating companies like natural-foods chain Fresh Fields from scratch are largely gone. Instead, it is buying well-established companies -- it bought Hertz and is fine-tuning the rental-car firm into greater profitability.
"It's a brilliant training ground -- but if your personality is entrepreneurial and you want to have real contact with a client, it's hard to do that," Dupree said.
Some ask whether Carlyle has suffered a brain drain because so many good people have left, many of whom hew to the same conservative investment approach as Conway and his team.
D'Aniello regards the departures of a kind of validation. "It just gives evidence to the fact that we hire the best and the brightest, some of whom are self-motivated in terms of striking out on their own," he said.
"Do you think the success of Harvard Business School in populating the investment industry generally has overpopulated it with people who are like-minded thinkers? What's the downside of overpopulating an area with capable people," he said rhetorically. "I don't know. Tell me where it is."
Greed Is Good and Ugly
Are private-equity guys being unfairly singled out for the sins of our hypercapitalist age? Sure. But the punishment fits the non-crime.
By Kurt Andersen
New York Magazine; July 25, 2007
Life is unfair. And we Americans prefer it that way.
But only, finally, up to a point. Sooner or later some of our shrewdest, luckiest financial hustlers push their luck and overreach, and respectable society decides that a red line has been crossed. Shame is rediscovered. And this summer, we’ve reached one of those uproar points. The freshly derided plutocrat-racketeers are the men, a plurality of them New Yorkers, who run the biggest private-equity funds. As the Blackstone Group and KKR have rushed to go public, the world at large has learned that most of the fees they charge are taxed not as ordinary income, at a rate of 35 percent, but as capital gains, at a rate of 15 percent. Thus do the staggeringly rich get staggeringly richer.
Are they being scapegoated? Is their shocking but nevertheless legal bonanza being singled out for opprobrium as a way of expressing eleventh-hour disgust at the callous excesses and inequalities of our hypercapitalist era? Yes and yes. But being a scapegoat isn’t the same as being innocent. Sometimes examples must be made. Life is unfair.
There was an almost algorithmic inevitability to this moment. In 2003, capital-gains taxes were reduced to their lowest rate since World War II, and since then stock prices have risen and risen, almost doubling as all the indexes peaked last week, while interest rates have remained low— a fairy-tale-perfect climate for the private-equity players, who buy public companies with debt and take them private, fire employees and sell off assets, borrow more money to pay themselves back in fees and dividends, and then take the companies public again in a rising stock market. But the political weathers are now, predictably, turning against them—a Washington regime in profound disrepute, a wide-open presidential-election campaign with strong Democratic candidates, and, just maybe, the beginning of the end of our present 30-year cycle of free-for-all political economics.
But if you talk to people in the private-equity business, they’re not so fatalistic about the historical trend lines. In fact, they’re even more inclined to scapegoat. For them, it’s personal. When I called a private-equity guy I know, he instantly snarled, “It’s all Steve.” In other words, he blames the current anti-private-equity spasm not on whiny anti-business liberals, but on Steve Schwarzman, the chairman, CEO, and co-founder of Blackstone. With Blackstone’s IPO a month ago, Schwarzman’s wealth ballooned to at least $10 billion, meaning he’s now one of the very richest New Yorkers, richer than Rupert Murdoch, Ron Perelman, and Michael Bloomberg—maybe the richest of all.
“If my world is pissed off at anyone,” says my friend, “it’s Steve. The fucking birthday party”—which he attended in February along with hundreds of other Schwarzman associates—“where no one gave a toast, by the way, not one.” The new head of the National Venture Capital Association went on the record last month about Schwarzmania: “We’re where we are right now because of the unbelievable egos of guys running the private-equity firms like Blackstone. They put big targets on their backs by what I consider stupid actions like throwing these big parties.”
Beyond resentment and conspicuous consumption and unfairness, some of the more thoughtful members of the high-finance fraternity also worry that the suddenly enormous scale of private-equity control of the global economy is a little scary. In 2001, all the private-equity takeovers totaled $71 billion; in just the first half of this year, the deals amount to more than $600 billion. The handful of largest firms now control a trillion dollars’ worth of companies. And the companies we’re talking about are no longer a few fringe players but a lot of big name-brand pillars of American business, like Chrysler, Hertz, GMAC, Clear Channel, Toys ’R’ Us, Neiman Marcus, and Bausch & Lomb.
Private-equity players cast themselves as white knights, nurturers of underperforming companies—yet their intent is always to get in and out of an investment in a very few years, not to stay and build. In their heart of hearts, my private-equity pal insists, his peers are users: “If this company we buy, in three years it’s trashed, but our partners make triple their money? We don’t care. And 32-year-old idiots from KKR and the rest are now on the boards of directors of major companies.” The barbarians have breached the gates and are, as never before, stewards of the empire. Which may or may not work out so well for the rest of us.
Steve Schwarzman is a perfect poster boy for this age of greed, sharklike, perpetually grinning, a tiny Gordon Gekko without the hair product. In Palm Beach (where he bought a historic landmark house for $20.5 million and tore it down), he eats his three-course lunches (including $400 stone crabs) in less than fifteen minutes and complains about the squeaky rubber soles of a servant’s shoes. Once, in the presence of a Times reporter, he buzzed a man to bring coffee, then stalked off to dress down the servant—“I called you six times.”
At his 60th-birthday party, a brass band welcomed guests into the Park Avenue Armory; Rod Stewart, Patti LaBelle, and the Abyssinian Baptist Church choir performed. A giant portrait of the birthday boy, which ordinarily hangs in his living room at 740 Park (a 34-room apartment he bought, I swear, from ruined eighties takeover troll Saul Steinberg), was trucked five blocks for the party.
Two weeks after the party, Schwarzman told his assembled private-equity peers at a conference that “the public markets are overrated,” and that for firms like theirs “to divert yourself like that and then take on that cost is really not worth it.” But only a couple of weeks after that, it turned out that he and Blackstone were, whaddaya know, about to go public. Ostentatious, churlish, megalomaniacal, tone-deaf—and a hypocritical dissembler to boot.
The duplicity was especially galling given that a central premise of private equity is that they can rescue beleaguered public companies by taking them private and forcing the tough-but-necessary business choices without the pressures of quarterly earnings reports and shareholder second-guessing.
So why have Blackstone and KKR suddenly decided to submit themselves to all that pesky public-market scrutiny? The true answer, of course, is because interest rates are rising and Democrats are taking control in Washington, and the private-equity boys know the party is probably almost over and that only by means of the dumb money of IPOs can they sweep as much cash as possible off the table before the good times end.
The interesting thing about the private-equity tax scandale, apart from the fact that it’s the result of instant wholesale public disapproval rather than indictments—who knew we still had that in us?—is that it’s not only the pointy-headed usual suspects tsk-tsking. Prominent rich guys (Warren Buffett, Robert Rubin) and pro-business stalwarts (The Economist) are agreeing that, yes, it may be legal but it’s untoward, unfair, unnecessary, and makes their beloved capitalist system look rigged and piggish.
Thus the politicians have plenty of cover to tweak the tax code without looking like commies. Which is why Max Baucus and Charles Grassley, the Democratic chairman and the ranking Republican of the Senate Finance Committee, have just introduced a bill that would tax publicly traded private-equity firms as normal corporations.
John Edwards (who was paid $480,000 in 2006 by Fortress Investment Group, the first private-equity firm to go public) declared that “building one America means getting rid of loopholes like [this]” and within 48 hours Hillary Clinton and Barack Obama leaped on the bandwagon. (Mitt Romney, whose fortune derives mainly from having co-founded the private-equity firm Bain Capital, did not.)
And Steve Schwarzman is squealing like a pig at the prospect of being allowed to keep, say, a mere $260 million of his pay after taxes this year, rather than, oh, $340 million. Last month, as he was accepting a Legend in Leadership Award from Yale, he said gravely, “There’s a crisis going on.” A crisis? Really? Like Iraq and climate change and aids in Africa?
The private-equity apologias are disingenuous in the extreme. Since they manage pension-fund money, they’re using retirees as human shields. John Snow resigned last year as Treasury secretary to become chairman of the private-equity outfit Cerberus. Firms like his, he said on CNBC this month, are “providing a means for schoolteachers, state employees, firemen, and policemen to get better retirement than they would otherwise have. If you tax it, then you’re going to be adversely affecting the ability of average Americans to have better retirements.” Yet only tiny percentages of most pension funds are run by private-equity firms.
This is all new territory. Two decades ago, the detonator of the current controversy, the tax differential between capital gains and ordinary income, didn’t even exist, since under Ronald Reagan’s Tax Reform Act of 1986, income was income, all of it taxed at the same rate.
In his 2005 book Running on Empty, the old-fashioned Republican Pete Peterson, Schwarzman’s co-founder of Blackstone, calls it a Republican partisan myth that the Bush tax cuts have been a healthy economic prod rather than a boondoggle for him and other rich people. Lowering taxes has not increased our rate of national savings—and, as Peterson writes, in the nineties, “a liberal president who had said no to capital-gains cuts and who had hiked the top marginal income-tax rate from 31 to 40 percent was presiding over the most spectacular equities boom in American history.”
The new brouhaha is not about igniting a “class war,” but about avoiding one by constraining the most grotesque unfairness. It’s a question of grace—noblesse oblige, if you will. Yes, we want to encourage businesspeople to take risks—but private-equity and hedge-fund managers have invented businesses from which real, personal financial risk has been practically eliminated. “They’re not risking anything,” says my private-equity friend. In fact, don’t we owe it to these postmodern heroes of global business to threaten to tax them fairly—off with their … pinkies!—in order to inject some real, invigorating risk into their world?
Are private-equity guys being unfairly singled out for the sins of our hypercapitalist age? Sure. But the punishment fits the non-crime.
By Kurt Andersen
New York Magazine; July 25, 2007
Life is unfair. And we Americans prefer it that way.
But only, finally, up to a point. Sooner or later some of our shrewdest, luckiest financial hustlers push their luck and overreach, and respectable society decides that a red line has been crossed. Shame is rediscovered. And this summer, we’ve reached one of those uproar points. The freshly derided plutocrat-racketeers are the men, a plurality of them New Yorkers, who run the biggest private-equity funds. As the Blackstone Group and KKR have rushed to go public, the world at large has learned that most of the fees they charge are taxed not as ordinary income, at a rate of 35 percent, but as capital gains, at a rate of 15 percent. Thus do the staggeringly rich get staggeringly richer.
Are they being scapegoated? Is their shocking but nevertheless legal bonanza being singled out for opprobrium as a way of expressing eleventh-hour disgust at the callous excesses and inequalities of our hypercapitalist era? Yes and yes. But being a scapegoat isn’t the same as being innocent. Sometimes examples must be made. Life is unfair.
There was an almost algorithmic inevitability to this moment. In 2003, capital-gains taxes were reduced to their lowest rate since World War II, and since then stock prices have risen and risen, almost doubling as all the indexes peaked last week, while interest rates have remained low— a fairy-tale-perfect climate for the private-equity players, who buy public companies with debt and take them private, fire employees and sell off assets, borrow more money to pay themselves back in fees and dividends, and then take the companies public again in a rising stock market. But the political weathers are now, predictably, turning against them—a Washington regime in profound disrepute, a wide-open presidential-election campaign with strong Democratic candidates, and, just maybe, the beginning of the end of our present 30-year cycle of free-for-all political economics.
But if you talk to people in the private-equity business, they’re not so fatalistic about the historical trend lines. In fact, they’re even more inclined to scapegoat. For them, it’s personal. When I called a private-equity guy I know, he instantly snarled, “It’s all Steve.” In other words, he blames the current anti-private-equity spasm not on whiny anti-business liberals, but on Steve Schwarzman, the chairman, CEO, and co-founder of Blackstone. With Blackstone’s IPO a month ago, Schwarzman’s wealth ballooned to at least $10 billion, meaning he’s now one of the very richest New Yorkers, richer than Rupert Murdoch, Ron Perelman, and Michael Bloomberg—maybe the richest of all.
“If my world is pissed off at anyone,” says my friend, “it’s Steve. The fucking birthday party”—which he attended in February along with hundreds of other Schwarzman associates—“where no one gave a toast, by the way, not one.” The new head of the National Venture Capital Association went on the record last month about Schwarzmania: “We’re where we are right now because of the unbelievable egos of guys running the private-equity firms like Blackstone. They put big targets on their backs by what I consider stupid actions like throwing these big parties.”
Beyond resentment and conspicuous consumption and unfairness, some of the more thoughtful members of the high-finance fraternity also worry that the suddenly enormous scale of private-equity control of the global economy is a little scary. In 2001, all the private-equity takeovers totaled $71 billion; in just the first half of this year, the deals amount to more than $600 billion. The handful of largest firms now control a trillion dollars’ worth of companies. And the companies we’re talking about are no longer a few fringe players but a lot of big name-brand pillars of American business, like Chrysler, Hertz, GMAC, Clear Channel, Toys ’R’ Us, Neiman Marcus, and Bausch & Lomb.
Private-equity players cast themselves as white knights, nurturers of underperforming companies—yet their intent is always to get in and out of an investment in a very few years, not to stay and build. In their heart of hearts, my private-equity pal insists, his peers are users: “If this company we buy, in three years it’s trashed, but our partners make triple their money? We don’t care. And 32-year-old idiots from KKR and the rest are now on the boards of directors of major companies.” The barbarians have breached the gates and are, as never before, stewards of the empire. Which may or may not work out so well for the rest of us.
Steve Schwarzman is a perfect poster boy for this age of greed, sharklike, perpetually grinning, a tiny Gordon Gekko without the hair product. In Palm Beach (where he bought a historic landmark house for $20.5 million and tore it down), he eats his three-course lunches (including $400 stone crabs) in less than fifteen minutes and complains about the squeaky rubber soles of a servant’s shoes. Once, in the presence of a Times reporter, he buzzed a man to bring coffee, then stalked off to dress down the servant—“I called you six times.”
At his 60th-birthday party, a brass band welcomed guests into the Park Avenue Armory; Rod Stewart, Patti LaBelle, and the Abyssinian Baptist Church choir performed. A giant portrait of the birthday boy, which ordinarily hangs in his living room at 740 Park (a 34-room apartment he bought, I swear, from ruined eighties takeover troll Saul Steinberg), was trucked five blocks for the party.
Two weeks after the party, Schwarzman told his assembled private-equity peers at a conference that “the public markets are overrated,” and that for firms like theirs “to divert yourself like that and then take on that cost is really not worth it.” But only a couple of weeks after that, it turned out that he and Blackstone were, whaddaya know, about to go public. Ostentatious, churlish, megalomaniacal, tone-deaf—and a hypocritical dissembler to boot.
The duplicity was especially galling given that a central premise of private equity is that they can rescue beleaguered public companies by taking them private and forcing the tough-but-necessary business choices without the pressures of quarterly earnings reports and shareholder second-guessing.
So why have Blackstone and KKR suddenly decided to submit themselves to all that pesky public-market scrutiny? The true answer, of course, is because interest rates are rising and Democrats are taking control in Washington, and the private-equity boys know the party is probably almost over and that only by means of the dumb money of IPOs can they sweep as much cash as possible off the table before the good times end.
The interesting thing about the private-equity tax scandale, apart from the fact that it’s the result of instant wholesale public disapproval rather than indictments—who knew we still had that in us?—is that it’s not only the pointy-headed usual suspects tsk-tsking. Prominent rich guys (Warren Buffett, Robert Rubin) and pro-business stalwarts (The Economist) are agreeing that, yes, it may be legal but it’s untoward, unfair, unnecessary, and makes their beloved capitalist system look rigged and piggish.
Thus the politicians have plenty of cover to tweak the tax code without looking like commies. Which is why Max Baucus and Charles Grassley, the Democratic chairman and the ranking Republican of the Senate Finance Committee, have just introduced a bill that would tax publicly traded private-equity firms as normal corporations.
John Edwards (who was paid $480,000 in 2006 by Fortress Investment Group, the first private-equity firm to go public) declared that “building one America means getting rid of loopholes like [this]” and within 48 hours Hillary Clinton and Barack Obama leaped on the bandwagon. (Mitt Romney, whose fortune derives mainly from having co-founded the private-equity firm Bain Capital, did not.)
And Steve Schwarzman is squealing like a pig at the prospect of being allowed to keep, say, a mere $260 million of his pay after taxes this year, rather than, oh, $340 million. Last month, as he was accepting a Legend in Leadership Award from Yale, he said gravely, “There’s a crisis going on.” A crisis? Really? Like Iraq and climate change and aids in Africa?
The private-equity apologias are disingenuous in the extreme. Since they manage pension-fund money, they’re using retirees as human shields. John Snow resigned last year as Treasury secretary to become chairman of the private-equity outfit Cerberus. Firms like his, he said on CNBC this month, are “providing a means for schoolteachers, state employees, firemen, and policemen to get better retirement than they would otherwise have. If you tax it, then you’re going to be adversely affecting the ability of average Americans to have better retirements.” Yet only tiny percentages of most pension funds are run by private-equity firms.
This is all new territory. Two decades ago, the detonator of the current controversy, the tax differential between capital gains and ordinary income, didn’t even exist, since under Ronald Reagan’s Tax Reform Act of 1986, income was income, all of it taxed at the same rate.
In his 2005 book Running on Empty, the old-fashioned Republican Pete Peterson, Schwarzman’s co-founder of Blackstone, calls it a Republican partisan myth that the Bush tax cuts have been a healthy economic prod rather than a boondoggle for him and other rich people. Lowering taxes has not increased our rate of national savings—and, as Peterson writes, in the nineties, “a liberal president who had said no to capital-gains cuts and who had hiked the top marginal income-tax rate from 31 to 40 percent was presiding over the most spectacular equities boom in American history.”
The new brouhaha is not about igniting a “class war,” but about avoiding one by constraining the most grotesque unfairness. It’s a question of grace—noblesse oblige, if you will. Yes, we want to encourage businesspeople to take risks—but private-equity and hedge-fund managers have invented businesses from which real, personal financial risk has been practically eliminated. “They’re not risking anything,” says my private-equity friend. In fact, don’t we owe it to these postmodern heroes of global business to threaten to tax them fairly—off with their … pinkies!—in order to inject some real, invigorating risk into their world?
Morgan Stanley, Credit Suisse to manage Korean national pension assets
By Jeongjin Lim
Last Update: 5:26 AM ET Jul 25, 2007
marketwatch.com
SEOUL (MarketWatch) -- South Korea's National Pension Service, or NPS, has mandated Morgan Stanley Investment Management and Credit Suisse Asset Management to manage part of its $220 billion of assets, said NPS President Kim Ho-Shik on Wednesday.
NPS, the largest pension fund in Asia outside of Japan and the world's fourth-largest, plans to have Morgan Stanley and Credit Suisse manage assets of more than $500 million and $450 million, respectively, for three years.
"We've signed last week strategic partnerships with Morgan Stanley Investment Management and Credit Suisse Asset Management," said Kim in a media briefing.
"This will kick-start NPS's move to diversify assets globally and grow our in-house overseas investment capability in a bid to improve investment returns," Kim added.
Morgan Stanley and Credit Suisse beat six other major global asset management firms to become the NPS's first strategic partners to handle the fund's overseas asset investment, said NPS.
The pension fund plans to hire additional global asset managers in the future to handle its overseas investment, said NPS's Chief Investment Officer S.K. Oh.
NPS plans to double the proportion of its offshore investment to 20% by 2012, when it expects to have assets worth KRW400 trillion, it said recently when it unveiled its 2007-2012 investment strategy. Global asset managers will manage all of its offshore investments during the period, but NPS plans to gradually increase its direct offshore investment after that.
It also targets to further increase its international investment allocation to 50% sometime around 2040, when NPS's assets are forecast to reach KRW2,600 trillion.
David Blumer, Credit Suisse's chief executive officer for asset management, said Wednesday in a separate statement, "This partnership represents another significant development for our asset management business in South Korea as we continue to expand our footprint in the Asia Pacific region."
Morgan Stanley Investment Management's Asia Head, Blair Pickerell, said in a statement, "We look forward to adding value to Korea's NPS, whether it's through exposure to our global equities and fixed income products, our expertise in alternative investments or assistance with overall portfolio strategy."
In addition, NPS also plans to have the World Bank manage an investment of about $1 billion in offshore bonds in the next two years, NPS President Kim said.
Faced with challenges to keep its massive and fast-growing money within domestic markets, NPS also formed ties with a number of major pension funds, such as Canada Pension Plan Investment Board and Netherlands's ABP Investments, to acquire the global players' investment knowledge and experience, and to seek joint investment opportunities, Kim said.
In 2006, NPS invested KRW 17.606 trillion in offshore assets out of a total of KRW189 trillion. NPS first started buying offshore assets in 2001 and has since invested in stocks, bonds, private equity funds and real estate.
According to its five-year strategy, NPS aims to increase its equities allocation to 30% from 11.6% currently, and increase its alternative investments to 10% from less than 1% today.
By Jeongjin Lim
Last Update: 5:26 AM ET Jul 25, 2007
marketwatch.com
SEOUL (MarketWatch) -- South Korea's National Pension Service, or NPS, has mandated Morgan Stanley Investment Management and Credit Suisse Asset Management to manage part of its $220 billion of assets, said NPS President Kim Ho-Shik on Wednesday.
NPS, the largest pension fund in Asia outside of Japan and the world's fourth-largest, plans to have Morgan Stanley and Credit Suisse manage assets of more than $500 million and $450 million, respectively, for three years.
"We've signed last week strategic partnerships with Morgan Stanley Investment Management and Credit Suisse Asset Management," said Kim in a media briefing.
"This will kick-start NPS's move to diversify assets globally and grow our in-house overseas investment capability in a bid to improve investment returns," Kim added.
Morgan Stanley and Credit Suisse beat six other major global asset management firms to become the NPS's first strategic partners to handle the fund's overseas asset investment, said NPS.
The pension fund plans to hire additional global asset managers in the future to handle its overseas investment, said NPS's Chief Investment Officer S.K. Oh.
NPS plans to double the proportion of its offshore investment to 20% by 2012, when it expects to have assets worth KRW400 trillion, it said recently when it unveiled its 2007-2012 investment strategy. Global asset managers will manage all of its offshore investments during the period, but NPS plans to gradually increase its direct offshore investment after that.
It also targets to further increase its international investment allocation to 50% sometime around 2040, when NPS's assets are forecast to reach KRW2,600 trillion.
David Blumer, Credit Suisse's chief executive officer for asset management, said Wednesday in a separate statement, "This partnership represents another significant development for our asset management business in South Korea as we continue to expand our footprint in the Asia Pacific region."
Morgan Stanley Investment Management's Asia Head, Blair Pickerell, said in a statement, "We look forward to adding value to Korea's NPS, whether it's through exposure to our global equities and fixed income products, our expertise in alternative investments or assistance with overall portfolio strategy."
In addition, NPS also plans to have the World Bank manage an investment of about $1 billion in offshore bonds in the next two years, NPS President Kim said.
Faced with challenges to keep its massive and fast-growing money within domestic markets, NPS also formed ties with a number of major pension funds, such as Canada Pension Plan Investment Board and Netherlands's ABP Investments, to acquire the global players' investment knowledge and experience, and to seek joint investment opportunities, Kim said.
In 2006, NPS invested KRW 17.606 trillion in offshore assets out of a total of KRW189 trillion. NPS first started buying offshore assets in 2001 and has since invested in stocks, bonds, private equity funds and real estate.
According to its five-year strategy, NPS aims to increase its equities allocation to 30% from 11.6% currently, and increase its alternative investments to 10% from less than 1% today.
Aluminum: Quarry for Mining Companies
By IAN AUSTEN
NYT
July 25, 2007
Correction Appended
TORONTO
Aluminum has always been something of an outsider in the mining industry. Its unusual cost structure leads some people to call it solidified electricity. A lightweight metal, its raw material, bauxite, is neither scarce nor particularly difficult to find and extract.
The recent offer of $38.1 billion for the aluminum giant Alcan by Rio Tinto, a British-Australian diversified mining company known for commodities like iron ore, may be a sign that aluminum is no longer an estranged cousin.
And Alcan may not be the end of the deal making. Alcoa, which was outbid by Rio Tinto and withdrew its hostile offer for Alcan, may itself become a target.
Like almost everything related to commodities, the possibility that North America’s two large aluminum producers may enter the fold of mainstream mining is largely a result of China’s voracious appetite for metals. But the story for aluminum may not be one in which China-based producers emerge triumphant.
In the short term, the boom in commodities has left diversified mining companies with an embarrassment of cash and market valuations that dwarf those of aluminum producers. The market capitalization of the Australian mining giant BHP Billiton is $197 billion, slightly more than five times Alcoa’s current value.
If, or when, the current commodities rush wanes, aluminum may get its revenge on traditional mining. Over time, the highly concentrated aluminum industry has been much more successful at maintaining stable prices than markets for commodities like copper, currently trading at high levels. While that means that Alcan and Alcoa have missed the bonanza enjoyed by other metals producer, it also suggests that aluminum prices are unlikely to crash in a downturn.
•
John Meyer, the head of mining equities at Numis Securities in London, said that for diversified mining companies, aluminum offered a form of insurance. “The hope is that there will be growth in the business,” Mr. Meyer said, “and that growth will be a little more consistent and predictable than other metals.”
Some in the mining industry maintain that BHP is the only company with the means to buy Alcoa, probably in the $50 billion price range, given Rio Tinto’s offer for Alcan.
Mr. Meyer, however, said it might be possible that two other huge companies — Anglo American, the diverse South African-founded conglomerate now based in London, or Companhia Vale do Rio Doce of Brazil, which bought the Canadian nickel company Inco last year — may also have designs on Alcoa.
On Monday, the Brazilian company announced plans to build an alumina refinery in the northern part of the country with Hydro, a leading Norwegian producer of aluminum. It said in a statement that it had “strategic focus on bauxite and alumina.”
Representatives of Alcoa and BHP both declined to comment, although reports last week from Australia suggested that BHP was not interested in bidding for Alcoa.
But an executive with knowledge of Alcoa’s strategy, who spoke on condition of anonymity, said the company expected to receive a buyout offer, most likely from BHP.
The timing remains the unknown. Although there is no reason for BHP to be in a hurry to follow Rio Tinto’s lead, a prolonged delay in making a bid for Alcoa would give other would-be purchasers time to organize financing. Coming up with cash is less of an issue for BHP, which posted earnings of $12.3 billion in the last 12 months.
Rio Tinto, if it acquires Alcan, and any mining company that buys Alcoa, will find themselves in some unfamiliar territory. On many levels, aluminum companies have much more in common with steel makers.
Across the industry, aluminum companies have three significant costs: bauxite, the raw ore that is refined into alumina; electricity, which smelters use to turn alumina into aluminum; and capital, used mostly to build smelters.
Like steel makers, but unlike most mining companies, Alcan and Alcoa also run large research and development operations to create products for customers including the automotive and aerospace industries. Even more distant from mining, the two aluminum companies manufacture and market products including packaging, truck wheels and aluminum foil.
China is the one country where aluminum production is not consolidated into a small number of large companies. Alcoa, Alcan and United Company Rusal of Moscow dominate the rest of the market. But China has become a major aluminum producer and is rapidly increasing production.
According to the International Aluminum Institute, 5.29 million tons of aluminum were produced in China in the first five months of the year compared with 3.86 million in the similar period of 2006. Global production in that time was over 11 million tons.
•
Unlike in some other industries, China has only one advantage when it comes to making aluminum: its low capital requirements. A new smelter can be built in China for about a third the cost of one in North America.
Once a smelter is up and running everything changes. China relies mainly on high-cost, coal-burning power stations for its smelters’ electricity. Alcan, by contrast, gets about half its power from low-cost hydroelectric dams.
In the current period of high prices and high demand for aluminum, China’s power costs are not particularly problematic. But Mr. Meyer said that could quickly change if demand fell and China had surplus production.
“The cost of aluminum is really the cost of electricity,” he said. “That’s the reason why China is our friend.”
In hard times, China’s power costs make it among the highest-cost producers of aluminum. That, Mr. Meyer said, would make it hard for China to sell surplus aluminum on the world market. Nor, he added, is it likely to divert inexpensive hydroelectric resources to aluminum production when its electricity systems struggle to keep up with the needs of higher-value industries, like the Chinese aerospace companies that use aluminum from Alcoa to fabricate components for Boeing 737s.
In Mr. Meyer’s view, the Chinese are much more likely to reduce the production of aluminum and import it in a slowdown. If he is correct, hard times for industry could mean even better times for Alcan, Alcoa and anyone who acquires them today.
Correction: July 26, 2007
Because of an editing error, the Market Place column in Business Day yesterday, about buyouts in the aluminum industry, referred incorrectly to Alcoa. The company expects to get a buyout offer, probably from BHP; it has not already received one.
By IAN AUSTEN
NYT
July 25, 2007
Correction Appended
TORONTO
Aluminum has always been something of an outsider in the mining industry. Its unusual cost structure leads some people to call it solidified electricity. A lightweight metal, its raw material, bauxite, is neither scarce nor particularly difficult to find and extract.
The recent offer of $38.1 billion for the aluminum giant Alcan by Rio Tinto, a British-Australian diversified mining company known for commodities like iron ore, may be a sign that aluminum is no longer an estranged cousin.
And Alcan may not be the end of the deal making. Alcoa, which was outbid by Rio Tinto and withdrew its hostile offer for Alcan, may itself become a target.
Like almost everything related to commodities, the possibility that North America’s two large aluminum producers may enter the fold of mainstream mining is largely a result of China’s voracious appetite for metals. But the story for aluminum may not be one in which China-based producers emerge triumphant.
In the short term, the boom in commodities has left diversified mining companies with an embarrassment of cash and market valuations that dwarf those of aluminum producers. The market capitalization of the Australian mining giant BHP Billiton is $197 billion, slightly more than five times Alcoa’s current value.
If, or when, the current commodities rush wanes, aluminum may get its revenge on traditional mining. Over time, the highly concentrated aluminum industry has been much more successful at maintaining stable prices than markets for commodities like copper, currently trading at high levels. While that means that Alcan and Alcoa have missed the bonanza enjoyed by other metals producer, it also suggests that aluminum prices are unlikely to crash in a downturn.
•
John Meyer, the head of mining equities at Numis Securities in London, said that for diversified mining companies, aluminum offered a form of insurance. “The hope is that there will be growth in the business,” Mr. Meyer said, “and that growth will be a little more consistent and predictable than other metals.”
Some in the mining industry maintain that BHP is the only company with the means to buy Alcoa, probably in the $50 billion price range, given Rio Tinto’s offer for Alcan.
Mr. Meyer, however, said it might be possible that two other huge companies — Anglo American, the diverse South African-founded conglomerate now based in London, or Companhia Vale do Rio Doce of Brazil, which bought the Canadian nickel company Inco last year — may also have designs on Alcoa.
On Monday, the Brazilian company announced plans to build an alumina refinery in the northern part of the country with Hydro, a leading Norwegian producer of aluminum. It said in a statement that it had “strategic focus on bauxite and alumina.”
Representatives of Alcoa and BHP both declined to comment, although reports last week from Australia suggested that BHP was not interested in bidding for Alcoa.
But an executive with knowledge of Alcoa’s strategy, who spoke on condition of anonymity, said the company expected to receive a buyout offer, most likely from BHP.
The timing remains the unknown. Although there is no reason for BHP to be in a hurry to follow Rio Tinto’s lead, a prolonged delay in making a bid for Alcoa would give other would-be purchasers time to organize financing. Coming up with cash is less of an issue for BHP, which posted earnings of $12.3 billion in the last 12 months.
Rio Tinto, if it acquires Alcan, and any mining company that buys Alcoa, will find themselves in some unfamiliar territory. On many levels, aluminum companies have much more in common with steel makers.
Across the industry, aluminum companies have three significant costs: bauxite, the raw ore that is refined into alumina; electricity, which smelters use to turn alumina into aluminum; and capital, used mostly to build smelters.
Like steel makers, but unlike most mining companies, Alcan and Alcoa also run large research and development operations to create products for customers including the automotive and aerospace industries. Even more distant from mining, the two aluminum companies manufacture and market products including packaging, truck wheels and aluminum foil.
China is the one country where aluminum production is not consolidated into a small number of large companies. Alcoa, Alcan and United Company Rusal of Moscow dominate the rest of the market. But China has become a major aluminum producer and is rapidly increasing production.
According to the International Aluminum Institute, 5.29 million tons of aluminum were produced in China in the first five months of the year compared with 3.86 million in the similar period of 2006. Global production in that time was over 11 million tons.
•
Unlike in some other industries, China has only one advantage when it comes to making aluminum: its low capital requirements. A new smelter can be built in China for about a third the cost of one in North America.
Once a smelter is up and running everything changes. China relies mainly on high-cost, coal-burning power stations for its smelters’ electricity. Alcan, by contrast, gets about half its power from low-cost hydroelectric dams.
In the current period of high prices and high demand for aluminum, China’s power costs are not particularly problematic. But Mr. Meyer said that could quickly change if demand fell and China had surplus production.
“The cost of aluminum is really the cost of electricity,” he said. “That’s the reason why China is our friend.”
In hard times, China’s power costs make it among the highest-cost producers of aluminum. That, Mr. Meyer said, would make it hard for China to sell surplus aluminum on the world market. Nor, he added, is it likely to divert inexpensive hydroelectric resources to aluminum production when its electricity systems struggle to keep up with the needs of higher-value industries, like the Chinese aerospace companies that use aluminum from Alcoa to fabricate components for Boeing 737s.
In Mr. Meyer’s view, the Chinese are much more likely to reduce the production of aluminum and import it in a slowdown. If he is correct, hard times for industry could mean even better times for Alcan, Alcoa and anyone who acquires them today.
Correction: July 26, 2007
Because of an editing error, the Market Place column in Business Day yesterday, about buyouts in the aluminum industry, referred incorrectly to Alcoa. The company expects to get a buyout offer, probably from BHP; it has not already received one.
UN belongs in Iraq
BY ZALMAY KHALILZAD
IHT
23 July 2007
AFTER meeting with President Bush on Tuesday, the UN Secretary General said that the Iraqi situation is "a problem of the whole world" and that the UN is prepared to contribute to the "Iraqi government and people to help them overcome this difficulty."
The US recognises the global importance of stabilising Iraq and supports this forward-leaning approach to enhancing the UN's role. The UN possesses certain comparative advantages for undertaking complex mediation efforts; it can also help internationalise the effort.
As special envoy and ambassador to Afghanistan from 2003 to 2005, I saw how the UN could play an enormously helpful role when represented by envoys who are given the right mandate. In Iraq, the US supports a larger UN role because we believe that with the right envoy and mandate it is the best vehicle to address the two fundamental issues driving the crisis in Iraq.
First, the UN has unmatched convening power. In the role of mediator, it has inherent legitimacy and the flexibility to talk to all parties, including elements outside the political process.
A new UN envoy should have a mandate to help Iraqis complete work on a range of issues — the law governing distribution of hydrocarbon revenues, the reform of the de-Baathification law, the review of the constitution, the plan for demobilisation of militias, an agreement for insurgents to give up their armed struggle.
The envoy should be empowered to help resolve the status of Kirkuk and disputed internal boundaries and to prepare and monitor provincial elections. Also, the mandate should make it possible for the United Nations to explore potential third-party guarantees that may be needed to induce Iraqi factions to reconcile.
Second, the United Nations is also uniquely suited to work out a regional framework to stabilise Iraq. Several of Iraq's neighbours are pursuing destabilising policies. The US supports a new mandate that creates a UN-led multilateral diplomatic process to contain the regional competition that is adding fuel to the fire of Iraq's internal conflict.
This process should build on the work of the expanded neighbours conference in Sharm el-Sheikh, Egypt, in May, where regional powers, as well as members of the Security Council and the eight industrialised nations, began a dialogue on Iraq and established a set of working groups on security, energy and refugees.
Going forward, this dialogue should be institutionalised at the ministerial level under the leadership of the secretary general. To do this work, the UN will need additional political, financial, logistical and security support from states with interests in the region. In addition, the coalition will need to maintain forces in Iraq to build on the initial positive security results of our new strategy in Iraq, and to work with the UN to ensure that the coalition's military strategy supports the internal and regional mediation efforts. While reasonable people can differ on whether the coalition should have intervened against Saddam Hussein's regime, it is clear at this point that the future of Iraq will have a profound effect on the region and, in turn, on peace and stability in the world.
The US endorses the call for an expanded UN role in Iraq to help Iraq become a peaceful, stable country — one that will be a responsible partner in the international community and a force for moderation in the region.
Zalmay Khalilzad, ambassador to Iraq from 2005 to April, is the U.S. ambassador to the United Nations.
BY ZALMAY KHALILZAD
IHT
23 July 2007
AFTER meeting with President Bush on Tuesday, the UN Secretary General said that the Iraqi situation is "a problem of the whole world" and that the UN is prepared to contribute to the "Iraqi government and people to help them overcome this difficulty."
The US recognises the global importance of stabilising Iraq and supports this forward-leaning approach to enhancing the UN's role. The UN possesses certain comparative advantages for undertaking complex mediation efforts; it can also help internationalise the effort.
As special envoy and ambassador to Afghanistan from 2003 to 2005, I saw how the UN could play an enormously helpful role when represented by envoys who are given the right mandate. In Iraq, the US supports a larger UN role because we believe that with the right envoy and mandate it is the best vehicle to address the two fundamental issues driving the crisis in Iraq.
First, the UN has unmatched convening power. In the role of mediator, it has inherent legitimacy and the flexibility to talk to all parties, including elements outside the political process.
A new UN envoy should have a mandate to help Iraqis complete work on a range of issues — the law governing distribution of hydrocarbon revenues, the reform of the de-Baathification law, the review of the constitution, the plan for demobilisation of militias, an agreement for insurgents to give up their armed struggle.
The envoy should be empowered to help resolve the status of Kirkuk and disputed internal boundaries and to prepare and monitor provincial elections. Also, the mandate should make it possible for the United Nations to explore potential third-party guarantees that may be needed to induce Iraqi factions to reconcile.
Second, the United Nations is also uniquely suited to work out a regional framework to stabilise Iraq. Several of Iraq's neighbours are pursuing destabilising policies. The US supports a new mandate that creates a UN-led multilateral diplomatic process to contain the regional competition that is adding fuel to the fire of Iraq's internal conflict.
This process should build on the work of the expanded neighbours conference in Sharm el-Sheikh, Egypt, in May, where regional powers, as well as members of the Security Council and the eight industrialised nations, began a dialogue on Iraq and established a set of working groups on security, energy and refugees.
Going forward, this dialogue should be institutionalised at the ministerial level under the leadership of the secretary general. To do this work, the UN will need additional political, financial, logistical and security support from states with interests in the region. In addition, the coalition will need to maintain forces in Iraq to build on the initial positive security results of our new strategy in Iraq, and to work with the UN to ensure that the coalition's military strategy supports the internal and regional mediation efforts. While reasonable people can differ on whether the coalition should have intervened against Saddam Hussein's regime, it is clear at this point that the future of Iraq will have a profound effect on the region and, in turn, on peace and stability in the world.
The US endorses the call for an expanded UN role in Iraq to help Iraq become a peaceful, stable country — one that will be a responsible partner in the international community and a force for moderation in the region.
Zalmay Khalilzad, ambassador to Iraq from 2005 to April, is the U.S. ambassador to the United Nations.
Saudis’ Role in Iraq Frustrates U.S. Officials
By HELENE COOPER
NYT
July 27, 2007
WASHINGTON, July 26 — During a high-level meeting in Riyadh in January, Saudi officials confronted a top American envoy with documents that seemed to suggest that Iraq’s prime minister could not be trusted.
One purported to be an early alert from the prime minister, Nuri Kamal al-Maliki, to the radical Shiite cleric Moktada al-Sadr warning him to lie low during the coming American troop increase, which was aimed in part at Mr. Sadr’s militia. Another document purported to offer proof that Mr. Maliki was an agent of Iran.
The American envoy, Zalmay Khalilzad, immediately protested to King Abdullah of Saudi Arabia, contending that the documents were forged. But, said administration officials who provided an account of the exchange, the Saudis remained skeptical, adding to the deep rift between America’s most powerful Sunni Arab ally, Saudi Arabia, and its Shiite-run neighbor, Iraq.
Now, Bush administration officials are voicing increasing anger at what they say has been Saudi Arabia’s counterproductive role in the Iraq war. They say that beyond regarding Mr. Maliki as an Iranian agent, the Saudis have offered financial support to Sunni groups in Iraq. Of an estimated 60 to 80 foreign fighters who enter Iraq each month, American military and intelligence officials say that nearly half are coming from Saudi Arabia and that the Saudis have not done enough to stem the flow.
One senior administration official says he has seen evidence that Saudi Arabia is providing financial support to opponents of Mr. Maliki. He declined to say whether that support was going to Sunni insurgents because, he said, “That would get into disagreements over who is an insurgent and who is not.”
Senior Bush administration officials said the American concerns would be raised next week when Secretary of State Condoleezza Rice and Defense Secretary Robert M. Gates make a rare joint visit to Jidda, Saudi Arabia.
Officials in Washington have long resisted blaming Saudi Arabia for the chaos and sectarian strife in Iraq, choosing instead to pin blame on Iran and Syria. Even now, military officials rarely talk publicly about the role of Saudi fighters among the insurgents in Iraq.
The accounts of American concerns came from interviews with several senior administration officials, who spoke on the condition of anonymity because they believed that openly criticizing Saudi Arabia would further alienate the Saudi royal family at a time when the United States is still trying to enlist Saudi support for Mr. Maliki and the Iraqi government, and for other American foreign policy goals in the Middle East, including an Arab-Israeli peace plan.
In agreeing to interviews in advance of the joint trip to Saudi Arabia, the officials were nevertheless clearly intent on sending a pointed signal to a top American ally. They expressed deep frustration that more private American appeals to the Saudis had failed to produce a change in course.
The American officials said they had no doubt that the documents shown to Mr. Khalilzad were forgeries, though the Saudis said they had obtained them from sources in Iraq. “Maliki wouldn’t be stupid enough to put that on a piece of paper,” one senior Bush administration official said. He said Mr. Maliki later assured American officials that the documents were forgeries.
The Bush administration’s frustration with the Saudi government has increased in recent months because it appears that Saudi Arabia has stepped up efforts to undermine the Maliki government and to pursue a different course in Iraq from what the administration has charted. Saudi Arabia has also stymied a number of other American foreign policy initiatives, including a hoped-for Saudi embrace of Israel.
Of course, the Saudi government has hardly masked its intention to prop up Sunni groups in Iraq and has for the past two years explicitly told senior Bush administration officials of the need to counterbalance the influence Iran has there. Last fall, King Abdullah warned Vice President Dick Cheney that Saudi Arabia might provide financial backing to Iraqi Sunnis in any war against Iraq’s Shiites if the United States pulled its troops out of Iraq, American and Arab diplomats said.
Several officials interviewed for this article said they believed that Saudi Arabia’s direct support to Sunni tribesmen increased this year as the Saudis lost faith in the Maliki government and felt they must bolster Sunni groups in the eventuality of a widespread civil war.
Saudi Arabia months ago made a pitch to enlist other Persian Gulf countries to take a direct role in supporting Sunni tribal groups in Iraq, said one former American ambassador with close ties to officials in the Middle East. The former ambassador, Edward W. Gnehm, who has served in Kuwait and Jordan, said that during a recent trip to the region he was told that Saudi Arabia had pressed other members of the Gulf Cooperation Council — which includes Qatar, the United Arab Emirates, Kuwait, Bahrain and Oman — to give financial support to Sunnis in Iraq. The Saudis made this effort last December, Mr. Gnehm said.
The closest the administration has come to public criticism was an Op-Ed page article about Iraq in The New York Times last week by Mr. Khalilzad, now the United States ambassador to the United Nations. “Several of Iraq’s neighbors — not only Syria and Iran but also some friends of the United States — are pursuing destabilizing policies,” Mr. Khalilzad wrote. Administration officials said Mr. Khalilzad was referring specifically to Saudi Arabia and the United Arab Emirates.
Ms. Rice and Mr. Gates, as well as Mr. Cheney and Stephen J. Hadley, the national security adviser, have in recent months pressed their Arab counterparts to do more to encourage Iraq’s Sunni leaders to support Mr. Maliki, senior administration officials said.
“This message certainly has been made very clear in Riyadh and Abu Dhabi,” a senior administration official said. “But there is a deep reserve directed both at the person of the Maliki government but more broadly at the concept” that Iraq’s Shiites are “surrogates of Iran.” Saudi Arabia has grown increasingly concerned about the rising influence of Iran in the region.
A spokesman at the Saudi Embassy in Washington did not return telephone calls on Thursday. But one adviser to the royal family said that Saudi officials were aware of the American accusations. “As you know by now, we in Saudi Arabia have been active in having a united Arab front to, first, avoid further inter-Arab conflict, and at the same time building consensus to move toward a peace settlement between the Arabs and Israel,” he said. “How others judge our motives is their problem.”
Even as American frustration at Saudi Arabia grows, American military officials are still cautious about publicly detailing the extent of the flow of foreign fighters going to Iraq from Saudi Arabia. Earlier this month, for instance, Brig. Gen. Kevin Bergner, the top American military spokesman in Iraq, detailed the odyssey of a foreign fighter recently captured in Ramadi.
In his public account, General Bergner told reporters that the man had arrived in Syria on a chartered bus, was smuggled into Iraq by a Syrian facilitator, and was given instructions to carry out a suicide truck bombing on a bridge in Ramadi. He did not identify the man’s nationality, but American officials in Iraq say he was a Saudi.
The American officials in Iraq also say that the majority of suicide bombers in Iraq are from Saudi Arabia and that about 40 percent of all foreign fighters are Saudi. Officials said that while most of the foreign fighters came to Iraq to become suicide bombers, others arrived as bomb makers, snipers, logisticians and financiers.
American military and intelligence officials have been critical of Saudi efforts to stanch the flow of fighters into Iraq, although they stress that the Saudi government does not endorse the idea of fighters from Saudi Arabia going to Iraq.
On the contrary, they said, Saudi Arabia is concerned that these young men could acquire insurgency training in Iraq and then return home to carry out attacks in Saudi Arabia — similar to the Saudis who turned against their homeland after fighting in Afghanistan in the 1980s.
The Bush administration’s relationship with Saudi Arabia has deteriorated steadily since the United States invasion of Iraq, culminating in April when, bitingly, King Abdullah, during a speech before Arab heads of state in Riyadh, condemned the American invasion of Iraq as “an illegal foreign occupation.”
A month before that, King Abdullah effectively torpedoed a high-profile meeting between Israelis and Palestinians, planned by Ms. Rice, by brokering a power-sharing agreement between the Palestinian president, Mahmoud Abbas, and the militant Islamist group Hamas that did not require Hamas to recognize Israel. While that agreement eventually fell apart, the Bush administration, on both occasions, was caught off guard and became infuriated.
But Saudi officials have not been too happy with President Bush, either, and the plummeting of America’s image in the Muslim world has led King Abdullah to strive to set a more independent course.
The administration “thinks the Saudis are no longer behaving the role of the good vassal,” said Steve Clemons, senior fellow and director of the American Strategy Program at the New America Foundation. The Saudis, in turn, “see weakness, they see a void, and they’re going to fill the void and call their own shots.”
By HELENE COOPER
NYT
July 27, 2007
WASHINGTON, July 26 — During a high-level meeting in Riyadh in January, Saudi officials confronted a top American envoy with documents that seemed to suggest that Iraq’s prime minister could not be trusted.
One purported to be an early alert from the prime minister, Nuri Kamal al-Maliki, to the radical Shiite cleric Moktada al-Sadr warning him to lie low during the coming American troop increase, which was aimed in part at Mr. Sadr’s militia. Another document purported to offer proof that Mr. Maliki was an agent of Iran.
The American envoy, Zalmay Khalilzad, immediately protested to King Abdullah of Saudi Arabia, contending that the documents were forged. But, said administration officials who provided an account of the exchange, the Saudis remained skeptical, adding to the deep rift between America’s most powerful Sunni Arab ally, Saudi Arabia, and its Shiite-run neighbor, Iraq.
Now, Bush administration officials are voicing increasing anger at what they say has been Saudi Arabia’s counterproductive role in the Iraq war. They say that beyond regarding Mr. Maliki as an Iranian agent, the Saudis have offered financial support to Sunni groups in Iraq. Of an estimated 60 to 80 foreign fighters who enter Iraq each month, American military and intelligence officials say that nearly half are coming from Saudi Arabia and that the Saudis have not done enough to stem the flow.
One senior administration official says he has seen evidence that Saudi Arabia is providing financial support to opponents of Mr. Maliki. He declined to say whether that support was going to Sunni insurgents because, he said, “That would get into disagreements over who is an insurgent and who is not.”
Senior Bush administration officials said the American concerns would be raised next week when Secretary of State Condoleezza Rice and Defense Secretary Robert M. Gates make a rare joint visit to Jidda, Saudi Arabia.
Officials in Washington have long resisted blaming Saudi Arabia for the chaos and sectarian strife in Iraq, choosing instead to pin blame on Iran and Syria. Even now, military officials rarely talk publicly about the role of Saudi fighters among the insurgents in Iraq.
The accounts of American concerns came from interviews with several senior administration officials, who spoke on the condition of anonymity because they believed that openly criticizing Saudi Arabia would further alienate the Saudi royal family at a time when the United States is still trying to enlist Saudi support for Mr. Maliki and the Iraqi government, and for other American foreign policy goals in the Middle East, including an Arab-Israeli peace plan.
In agreeing to interviews in advance of the joint trip to Saudi Arabia, the officials were nevertheless clearly intent on sending a pointed signal to a top American ally. They expressed deep frustration that more private American appeals to the Saudis had failed to produce a change in course.
The American officials said they had no doubt that the documents shown to Mr. Khalilzad were forgeries, though the Saudis said they had obtained them from sources in Iraq. “Maliki wouldn’t be stupid enough to put that on a piece of paper,” one senior Bush administration official said. He said Mr. Maliki later assured American officials that the documents were forgeries.
The Bush administration’s frustration with the Saudi government has increased in recent months because it appears that Saudi Arabia has stepped up efforts to undermine the Maliki government and to pursue a different course in Iraq from what the administration has charted. Saudi Arabia has also stymied a number of other American foreign policy initiatives, including a hoped-for Saudi embrace of Israel.
Of course, the Saudi government has hardly masked its intention to prop up Sunni groups in Iraq and has for the past two years explicitly told senior Bush administration officials of the need to counterbalance the influence Iran has there. Last fall, King Abdullah warned Vice President Dick Cheney that Saudi Arabia might provide financial backing to Iraqi Sunnis in any war against Iraq’s Shiites if the United States pulled its troops out of Iraq, American and Arab diplomats said.
Several officials interviewed for this article said they believed that Saudi Arabia’s direct support to Sunni tribesmen increased this year as the Saudis lost faith in the Maliki government and felt they must bolster Sunni groups in the eventuality of a widespread civil war.
Saudi Arabia months ago made a pitch to enlist other Persian Gulf countries to take a direct role in supporting Sunni tribal groups in Iraq, said one former American ambassador with close ties to officials in the Middle East. The former ambassador, Edward W. Gnehm, who has served in Kuwait and Jordan, said that during a recent trip to the region he was told that Saudi Arabia had pressed other members of the Gulf Cooperation Council — which includes Qatar, the United Arab Emirates, Kuwait, Bahrain and Oman — to give financial support to Sunnis in Iraq. The Saudis made this effort last December, Mr. Gnehm said.
The closest the administration has come to public criticism was an Op-Ed page article about Iraq in The New York Times last week by Mr. Khalilzad, now the United States ambassador to the United Nations. “Several of Iraq’s neighbors — not only Syria and Iran but also some friends of the United States — are pursuing destabilizing policies,” Mr. Khalilzad wrote. Administration officials said Mr. Khalilzad was referring specifically to Saudi Arabia and the United Arab Emirates.
Ms. Rice and Mr. Gates, as well as Mr. Cheney and Stephen J. Hadley, the national security adviser, have in recent months pressed their Arab counterparts to do more to encourage Iraq’s Sunni leaders to support Mr. Maliki, senior administration officials said.
“This message certainly has been made very clear in Riyadh and Abu Dhabi,” a senior administration official said. “But there is a deep reserve directed both at the person of the Maliki government but more broadly at the concept” that Iraq’s Shiites are “surrogates of Iran.” Saudi Arabia has grown increasingly concerned about the rising influence of Iran in the region.
A spokesman at the Saudi Embassy in Washington did not return telephone calls on Thursday. But one adviser to the royal family said that Saudi officials were aware of the American accusations. “As you know by now, we in Saudi Arabia have been active in having a united Arab front to, first, avoid further inter-Arab conflict, and at the same time building consensus to move toward a peace settlement between the Arabs and Israel,” he said. “How others judge our motives is their problem.”
Even as American frustration at Saudi Arabia grows, American military officials are still cautious about publicly detailing the extent of the flow of foreign fighters going to Iraq from Saudi Arabia. Earlier this month, for instance, Brig. Gen. Kevin Bergner, the top American military spokesman in Iraq, detailed the odyssey of a foreign fighter recently captured in Ramadi.
In his public account, General Bergner told reporters that the man had arrived in Syria on a chartered bus, was smuggled into Iraq by a Syrian facilitator, and was given instructions to carry out a suicide truck bombing on a bridge in Ramadi. He did not identify the man’s nationality, but American officials in Iraq say he was a Saudi.
The American officials in Iraq also say that the majority of suicide bombers in Iraq are from Saudi Arabia and that about 40 percent of all foreign fighters are Saudi. Officials said that while most of the foreign fighters came to Iraq to become suicide bombers, others arrived as bomb makers, snipers, logisticians and financiers.
American military and intelligence officials have been critical of Saudi efforts to stanch the flow of fighters into Iraq, although they stress that the Saudi government does not endorse the idea of fighters from Saudi Arabia going to Iraq.
On the contrary, they said, Saudi Arabia is concerned that these young men could acquire insurgency training in Iraq and then return home to carry out attacks in Saudi Arabia — similar to the Saudis who turned against their homeland after fighting in Afghanistan in the 1980s.
The Bush administration’s relationship with Saudi Arabia has deteriorated steadily since the United States invasion of Iraq, culminating in April when, bitingly, King Abdullah, during a speech before Arab heads of state in Riyadh, condemned the American invasion of Iraq as “an illegal foreign occupation.”
A month before that, King Abdullah effectively torpedoed a high-profile meeting between Israelis and Palestinians, planned by Ms. Rice, by brokering a power-sharing agreement between the Palestinian president, Mahmoud Abbas, and the militant Islamist group Hamas that did not require Hamas to recognize Israel. While that agreement eventually fell apart, the Bush administration, on both occasions, was caught off guard and became infuriated.
But Saudi officials have not been too happy with President Bush, either, and the plummeting of America’s image in the Muslim world has led King Abdullah to strive to set a more independent course.
The administration “thinks the Saudis are no longer behaving the role of the good vassal,” said Steve Clemons, senior fellow and director of the American Strategy Program at the New America Foundation. The Saudis, in turn, “see weakness, they see a void, and they’re going to fill the void and call their own shots.”
Tuesday, August 07, 2007
Postponements worsen loan glut
by Vipal Monga
Updated 06:06 PM EST, Jul-24-2007
thedeal.com
By avoiding the pain of the debt financing markets now, are issuers who are delaying their deals only making matters worse for themselves when they finally do come to market?
That is the fear of some market participants as more and more companies, faced with a precarious loan market, postpone debt financings until after Labor Day. The postponements are adding to an already-large and growing pipeline of debt at a time when demand — in the form of collateralized loan obligation funds — has fallen off dramatically.
'We're not seeing a credit problem, but we are seeing the most significant indigestion we've ever seen,' said Meredith Coffey, an analyst at Reuters Loan Pricing Corp.
According to Reuters LPC, there is about $131 billion of leveraged loan volume in the forward pipeline. Although that estimate is lower than that of Standard & Poor's Leveraged Commentary & Data unit, which sees about $225 billion in the pipeline, both agree that the volume is the highest on record.
And it continues to increase. On Monday, Bain Capital LLC, Cerberus Capital Management LP and Merrill Lynch & Co.'s private equity unit announced some $10 billion worth of new leveraged buyouts that will need to be financed. Meanwhile, several financings that were expected to hit the market this month have already been delayed.
These include First Data Corp., the data processing company bought by Kohlberg Kravis Roberts & Co. in April, which recently put off marketing a $14 billion loan offering until September, as well as some $16 billion of loans tied to deals such as KKR's and Clayton, Dubilier & Rice Inc.'s acquisiton of U.S. Foodservice Inc. and Carlyle Group's and Onex Corp.'s acquisition of Allison Transmission, according to LPC. Also postponed, but not counted in LPC's pipeline, is a $2.8 billion loan to finance CD&R's acquisition of ServiceMaster Co., which was scheduled to be syndicated on Tuesday.
Although a supply glut tends naturally to push prices down, the problems of the leveraged financing market have been exacerbated by a sudden drop in the creation of new CLO funds, which buy about 70% of new loans that come to market. With issuance of these structured vehicles drying up, demand has gone dry at about the worst possible time for new issuers.
When a leveraged loan deal is postponed, it essentially means the financing banks have decided to hold the committed loans on their books in the hopes of syndicating them later, usually at a discount. As long as the debt remains on their books, it stays on the forward calendar, meaning there is no lessening of the imbalance between supply and demand.
This keeps the financing markets from finding equilibrium. Loan investors can simply keep waiting for better terms from banks and issuers, which are likely to become more desperate to sell the loans as time goes on.
'This is further deferring the point at which the market clears,' said one capital markets source, who expressed frustration that private equity firms are continuing to announce deals when they know that the loan market is effectively closed for the time being. 'Why would you launch into a market that isn't pricing anything?'
One private equity investor noted that more deals will likely be announced in the coming weeks because there are several ongoing auctions where banks have already signed commitment letters to fund the debt. That means that the banks are committed to financing the deals if the private equity firms decide to pull the trigger on the acquisition.
'It could be the fourth quarter before you see the light of day,' the manager said. 'Everybody's been digging the hole deeper.'
by Vipal Monga
Updated 06:06 PM EST, Jul-24-2007
thedeal.com
By avoiding the pain of the debt financing markets now, are issuers who are delaying their deals only making matters worse for themselves when they finally do come to market?
That is the fear of some market participants as more and more companies, faced with a precarious loan market, postpone debt financings until after Labor Day. The postponements are adding to an already-large and growing pipeline of debt at a time when demand — in the form of collateralized loan obligation funds — has fallen off dramatically.
'We're not seeing a credit problem, but we are seeing the most significant indigestion we've ever seen,' said Meredith Coffey, an analyst at Reuters Loan Pricing Corp.
According to Reuters LPC, there is about $131 billion of leveraged loan volume in the forward pipeline. Although that estimate is lower than that of Standard & Poor's Leveraged Commentary & Data unit, which sees about $225 billion in the pipeline, both agree that the volume is the highest on record.
And it continues to increase. On Monday, Bain Capital LLC, Cerberus Capital Management LP and Merrill Lynch & Co.'s private equity unit announced some $10 billion worth of new leveraged buyouts that will need to be financed. Meanwhile, several financings that were expected to hit the market this month have already been delayed.
These include First Data Corp., the data processing company bought by Kohlberg Kravis Roberts & Co. in April, which recently put off marketing a $14 billion loan offering until September, as well as some $16 billion of loans tied to deals such as KKR's and Clayton, Dubilier & Rice Inc.'s acquisiton of U.S. Foodservice Inc. and Carlyle Group's and Onex Corp.'s acquisition of Allison Transmission, according to LPC. Also postponed, but not counted in LPC's pipeline, is a $2.8 billion loan to finance CD&R's acquisition of ServiceMaster Co., which was scheduled to be syndicated on Tuesday.
Although a supply glut tends naturally to push prices down, the problems of the leveraged financing market have been exacerbated by a sudden drop in the creation of new CLO funds, which buy about 70% of new loans that come to market. With issuance of these structured vehicles drying up, demand has gone dry at about the worst possible time for new issuers.
When a leveraged loan deal is postponed, it essentially means the financing banks have decided to hold the committed loans on their books in the hopes of syndicating them later, usually at a discount. As long as the debt remains on their books, it stays on the forward calendar, meaning there is no lessening of the imbalance between supply and demand.
This keeps the financing markets from finding equilibrium. Loan investors can simply keep waiting for better terms from banks and issuers, which are likely to become more desperate to sell the loans as time goes on.
'This is further deferring the point at which the market clears,' said one capital markets source, who expressed frustration that private equity firms are continuing to announce deals when they know that the loan market is effectively closed for the time being. 'Why would you launch into a market that isn't pricing anything?'
One private equity investor noted that more deals will likely be announced in the coming weeks because there are several ongoing auctions where banks have already signed commitment letters to fund the debt. That means that the banks are committed to financing the deals if the private equity firms decide to pull the trigger on the acquisition.
'It could be the fourth quarter before you see the light of day,' the manager said. 'Everybody's been digging the hole deeper.'
Should Procter & Gamble Clean House?
July 24, 2007, 12:04 pm
dealbook.nytimes.com
When Procter & Gamble bought Gillette for $57 billion, it picked up a lot more than just razors: The deal gave it Duracell batteries and Braun, whose products include coffeemakers and blenders. Less than two years later, Wall Street is wondering whether it may be time for P&G, a giant of the consumer products business, to tidy up a bit.
Investors are asking whether P&G will “clean up its portfolio and return cash to shareholders,” Lauren Lieberman, an analyst at Lehman Brothers, wrote in a research report this week. Such a move could include a sale or spinoff of several well-known consumer names.
P&G has given no public indication that it is considering selling any of its brands. But Ms. Lieberman suspects that such discussions are happening at its Cincinnati headquarters. “We get the sense that there has been an active dialogue within P&G about if, when & what pieces of its portfolio should be pruned via sale or spin,” she wrote.
For P&G, a sale of major brands would have mixed effects: It would likely reduce the company’s earnings, but it could also get rid of slower-growth businesses and provide cash that the company could distribute to shareholders, either through share buybacks or a special dividend.
Aided by Lehman’s tax analyst, Robert Willens, Ms. Lieberman ran the numbers for various hypothetical deals.
The assets seen as the likeliest sale candidates include Duracell, Braun, P&G’s coffee business (including the Folgers brand), its snacks business (including Pringles) and, to a lesser extent, its pet food business (including Iams and Eukanuba).
Those businesses could fetch a lot of money at auction. Depending on the earnings multiple a buyer agreed to pay, P&G could pull in after-tax proceeds of $4.1 billion for Duracell, $1.5 billion for Braun, $4.1 billion for coffee and snacks and more than $2 billion for the pet-food business, according to Ms. Lieberman.
And a sale is just one of many options P&G could pursue. Other possible strategies include a leveraged spinoff of Duracell — in which Duracell takes on debt, makes a payment to P&G and becomes a separately traded company — a reverse leveraged spinoff, which often includes an investment from a private equity firm, or what Ms. Lieberman describes as a “supercharged I.P.O.,” which is how General Electric split off its Genworth Financial subsidiary.
There has recently been some deal-making in the consumer-products field. Energizer Holdings, the battery and razor company, agreed to buy Playtex, which makes sunscreen and tampons, in a $1.9 billion deal earlier this month.
P&G has already done a little pruning. Last year, it sold its Sure deodorant and Pert Plus shampoo brands to an investment vehicle of private equity firm Najafi Companies.
July 24, 2007, 12:04 pm
dealbook.nytimes.com
When Procter & Gamble bought Gillette for $57 billion, it picked up a lot more than just razors: The deal gave it Duracell batteries and Braun, whose products include coffeemakers and blenders. Less than two years later, Wall Street is wondering whether it may be time for P&G, a giant of the consumer products business, to tidy up a bit.
Investors are asking whether P&G will “clean up its portfolio and return cash to shareholders,” Lauren Lieberman, an analyst at Lehman Brothers, wrote in a research report this week. Such a move could include a sale or spinoff of several well-known consumer names.
P&G has given no public indication that it is considering selling any of its brands. But Ms. Lieberman suspects that such discussions are happening at its Cincinnati headquarters. “We get the sense that there has been an active dialogue within P&G about if, when & what pieces of its portfolio should be pruned via sale or spin,” she wrote.
For P&G, a sale of major brands would have mixed effects: It would likely reduce the company’s earnings, but it could also get rid of slower-growth businesses and provide cash that the company could distribute to shareholders, either through share buybacks or a special dividend.
Aided by Lehman’s tax analyst, Robert Willens, Ms. Lieberman ran the numbers for various hypothetical deals.
The assets seen as the likeliest sale candidates include Duracell, Braun, P&G’s coffee business (including the Folgers brand), its snacks business (including Pringles) and, to a lesser extent, its pet food business (including Iams and Eukanuba).
Those businesses could fetch a lot of money at auction. Depending on the earnings multiple a buyer agreed to pay, P&G could pull in after-tax proceeds of $4.1 billion for Duracell, $1.5 billion for Braun, $4.1 billion for coffee and snacks and more than $2 billion for the pet-food business, according to Ms. Lieberman.
And a sale is just one of many options P&G could pursue. Other possible strategies include a leveraged spinoff of Duracell — in which Duracell takes on debt, makes a payment to P&G and becomes a separately traded company — a reverse leveraged spinoff, which often includes an investment from a private equity firm, or what Ms. Lieberman describes as a “supercharged I.P.O.,” which is how General Electric split off its Genworth Financial subsidiary.
There has recently been some deal-making in the consumer-products field. Energizer Holdings, the battery and razor company, agreed to buy Playtex, which makes sunscreen and tampons, in a $1.9 billion deal earlier this month.
P&G has already done a little pruning. Last year, it sold its Sure deodorant and Pert Plus shampoo brands to an investment vehicle of private equity firm Najafi Companies.
Resolution and Friends Provident to merge
By Ben Bland
Last Updated: 1:07am BST 26/07/2007
Friends Provident and Resolution have confirmed that they are to merge, creating an £8.6bn UK life insurance giant.
The companies announced on Monday that they were in advanced talks about an all-share merger.
The enlarged group, which will be known as Friends Financial, will serve Friends Provident's 2.5 million customers and Resolution's 7 million customers. It will be the UK's fifth largest insurer.
But the Friends Provident name will be retained as the primary brand for the group's life insurance and pensions business.
Clive Cowdery, chairman of Resolution, will also chair Friends Financial as expected. Mike Biggs, Resolution's chief executive, will run the combined group.
Mr Cowdery said: "Today's transaction marks a turning point in the restructuring of the UK life industry. The next period will focus on sustainable earnings growth and cash returns to shareholders. Friends Financial is exceptionally well positioned to prosper in this new environment."
Philip Moore, chief executive of Friends Provident, said: "The two groups share a single strategic vision and a conviction that we can create a powerful new player in the life and pensions industry. The opportunity exists to provide products and services which will attract significant demand from customers and generate value for shareholders. Friends Financial will have all the capabilities in place to deliver on this opportunity."
The merger is expected to generate at least £100m of annual savings by 2010 and should also provide opportunities for both companies to cross-sell to each other's customers.
The companies have also proposed to join their fund management arms, with Resolution Asset Management merging with Foreign & Colonial, which is majority-owned by Friends Provident but independently listed. The enlarged F&C will retain its separate listing.
By Ben Bland
Last Updated: 1:07am BST 26/07/2007
Friends Provident and Resolution have confirmed that they are to merge, creating an £8.6bn UK life insurance giant.
The companies announced on Monday that they were in advanced talks about an all-share merger.
The enlarged group, which will be known as Friends Financial, will serve Friends Provident's 2.5 million customers and Resolution's 7 million customers. It will be the UK's fifth largest insurer.
But the Friends Provident name will be retained as the primary brand for the group's life insurance and pensions business.
Clive Cowdery, chairman of Resolution, will also chair Friends Financial as expected. Mike Biggs, Resolution's chief executive, will run the combined group.
Mr Cowdery said: "Today's transaction marks a turning point in the restructuring of the UK life industry. The next period will focus on sustainable earnings growth and cash returns to shareholders. Friends Financial is exceptionally well positioned to prosper in this new environment."
Philip Moore, chief executive of Friends Provident, said: "The two groups share a single strategic vision and a conviction that we can create a powerful new player in the life and pensions industry. The opportunity exists to provide products and services which will attract significant demand from customers and generate value for shareholders. Friends Financial will have all the capabilities in place to deliver on this opportunity."
The merger is expected to generate at least £100m of annual savings by 2010 and should also provide opportunities for both companies to cross-sell to each other's customers.
The companies have also proposed to join their fund management arms, with Resolution Asset Management merging with Foreign & Colonial, which is majority-owned by Friends Provident but independently listed. The enlarged F&C will retain its separate listing.
SAC Capital Considers Selling Stake to Investors (Update2)
By Katherine Burton and Jenny Strasburg
July 25 (Bloomberg) -- SAC Capital Advisors LLC, the hedge- fund manager run by Steven Cohen, has been approached by investors interested in buying a stake in the firm, a person with knowledge of the discussions said.
SAC is considering the move, said the person, who declined to be identified because the talks are private. Any sale would be limited to less than 20 percent of the Stamford, Connecticut- based company, which oversees $14 billion.
Hedge funds have sold stakes to raise permanent capital and profit from the industry's growth in assets, which more than doubled to $1.7 trillion in the past five years. D.E. Shaw & Co., the New York-based firm founded by David Shaw, sold 20 percent to Lehman Brothers Holdings Inc. in March. Avenue Capital Group, run by Marc Lasry in New York, sold almost 20 percent to Morgan Stanley in October.
``You arguably could be at a market peak with institutions awash with cash, and any smart seller wants to sell into that,'' said William Grayson, president of Falcon Point Capital LLC, a San Francisco-based hedge-fund manager.
Cohen declined through a spokesman to comment on the discussions, which were reported yesterday by the Financial Times.
Potential investors may include securities firms and foreigners with big pools of capital, Aaron Dorr, a managing director at Putnam Lovell in New York, a unit of Jefferies Group Inc., said today in an interview.
``These transactions continue to be driven by investment banks and large foreign investors,'' particularly from Asia and the Middle East, Dorr said.
Trend Setters
Blackstone Group LP, the New York-based buyout firm that went public in June, sold a $3 billion stake to China's state investment company in conjunction with the initial public offering. In December, Nomura Holdings Inc., Japan's biggest securities firm, bought a 15 percent stake in Fortress Investment Group LLC, a New York-based manager of private equity and hedge funds, for $888 million.
The 51-year-old Cohen, who started SAC in 1992, has produced returns averaging more than 40 percent a year. He was originally known as a rapid-fire stock trader. As assets under management have grown, he's held positions for longer and now trades many other strategies beyond equities.
SAC Capital's stock holdings include New York-based Six Flags Inc., the second-largest U.S. theme-park operator, and pharmaceutical developer United Therapeutics Corp. of Silver Spring, Maryland, according to filings this month with the U.S. Securities and Exchange Commission.
Top Earner
Cohen ranked among the hedge fund industry's top 10 moneymakers last year, earning about $900 million, according to a report published by Institutional Investor's Alpha magazine. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
New York-based securities firms such as Lehman and Morgan Stanley are buying hedge funds to win more business from clients who pay fees averaging 2 percent of assets and 20 percent of investment profits. The loosely regulated investment pools, which can bet on falling as well as rising market prices, attracted $58.7 billion in the second quarter, data compiled by Chicago-based Hedge Fund Research Inc. show.
Morgan Stanley, the world's second-biggest securities firm, has invested in hedge funds including Oxhead Capital Management LLC, FrontPoint Partners LLC, Lansdowne Partners LP and Brookville Capital Management since mid-2006.
JPMorgan Chase & Co. overtook Goldman Sachs Group Inc. last year as the largest U.S. hedge-fund manager, according to survey released in March by Absolute Return magazine. New York-based JPMorgan managed $34 billion as of Dec. 31, including $20 billion at Highbridge Capital Management LLC, which it acquired in 2004. Goldman, based in New York, had $32.5 billion in hedge funds, while Bridgewater Associates Inc. of Westport, Connecticut, had $30.2 billion.
By Katherine Burton and Jenny Strasburg
July 25 (Bloomberg) -- SAC Capital Advisors LLC, the hedge- fund manager run by Steven Cohen, has been approached by investors interested in buying a stake in the firm, a person with knowledge of the discussions said.
SAC is considering the move, said the person, who declined to be identified because the talks are private. Any sale would be limited to less than 20 percent of the Stamford, Connecticut- based company, which oversees $14 billion.
Hedge funds have sold stakes to raise permanent capital and profit from the industry's growth in assets, which more than doubled to $1.7 trillion in the past five years. D.E. Shaw & Co., the New York-based firm founded by David Shaw, sold 20 percent to Lehman Brothers Holdings Inc. in March. Avenue Capital Group, run by Marc Lasry in New York, sold almost 20 percent to Morgan Stanley in October.
``You arguably could be at a market peak with institutions awash with cash, and any smart seller wants to sell into that,'' said William Grayson, president of Falcon Point Capital LLC, a San Francisco-based hedge-fund manager.
Cohen declined through a spokesman to comment on the discussions, which were reported yesterday by the Financial Times.
Potential investors may include securities firms and foreigners with big pools of capital, Aaron Dorr, a managing director at Putnam Lovell in New York, a unit of Jefferies Group Inc., said today in an interview.
``These transactions continue to be driven by investment banks and large foreign investors,'' particularly from Asia and the Middle East, Dorr said.
Trend Setters
Blackstone Group LP, the New York-based buyout firm that went public in June, sold a $3 billion stake to China's state investment company in conjunction with the initial public offering. In December, Nomura Holdings Inc., Japan's biggest securities firm, bought a 15 percent stake in Fortress Investment Group LLC, a New York-based manager of private equity and hedge funds, for $888 million.
The 51-year-old Cohen, who started SAC in 1992, has produced returns averaging more than 40 percent a year. He was originally known as a rapid-fire stock trader. As assets under management have grown, he's held positions for longer and now trades many other strategies beyond equities.
SAC Capital's stock holdings include New York-based Six Flags Inc., the second-largest U.S. theme-park operator, and pharmaceutical developer United Therapeutics Corp. of Silver Spring, Maryland, according to filings this month with the U.S. Securities and Exchange Commission.
Top Earner
Cohen ranked among the hedge fund industry's top 10 moneymakers last year, earning about $900 million, according to a report published by Institutional Investor's Alpha magazine. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
New York-based securities firms such as Lehman and Morgan Stanley are buying hedge funds to win more business from clients who pay fees averaging 2 percent of assets and 20 percent of investment profits. The loosely regulated investment pools, which can bet on falling as well as rising market prices, attracted $58.7 billion in the second quarter, data compiled by Chicago-based Hedge Fund Research Inc. show.
Morgan Stanley, the world's second-biggest securities firm, has invested in hedge funds including Oxhead Capital Management LLC, FrontPoint Partners LLC, Lansdowne Partners LP and Brookville Capital Management since mid-2006.
JPMorgan Chase & Co. overtook Goldman Sachs Group Inc. last year as the largest U.S. hedge-fund manager, according to survey released in March by Absolute Return magazine. New York-based JPMorgan managed $34 billion as of Dec. 31, including $20 billion at Highbridge Capital Management LLC, which it acquired in 2004. Goldman, based in New York, had $32.5 billion in hedge funds, while Bridgewater Associates Inc. of Westport, Connecticut, had $30.2 billion.
Monday, August 06, 2007
Climate change escalates Darfur crisis
Less rainfall on the fringes of the Sahara Desert is putting more of a strain on resources than ever before.
By Scott Baldauf | Staff writer of The Christian Science Monitor
from the July 27, 2007 edition
Iriba, Chad
With Darfur refugee women waiting up to two days for their chance to fill buckets at a communal water point, it's only a matter of time before bickering turns into a full-fledged fight.
In the 115-degree F. heat of the Touloum refugee camp, just across Sudan's border in eastern Chad, the stakes are high. Refugees receive only 4.5 liters, on average, per family member – just enough for drinking and cooking. A family that misses its day or gets shoved aside at the water pump may not survive.
On this day, a younger woman has been caught cutting in line. She and an older woman wrestle each other to the ground.
"I have been waiting here two days for my turn, and if the water finishes I will have to ask for water from other people," says Khadija Musa, the elderly woman. "Sometimes I have to borrow water to cook. Our clothes are filthy, we cannot wash without water." She rubs her shoulder and sighs. "The only thing left is to die."
Competition for water – in refugee camps, between farmers and herders, and between countries – has long sparked conflict in the arid region and forms one of the main causes of the war in Sudan's Darfur region. But the trouble is only beginning, as it becomes clear that dramatic climate change will have its sharpest effects in Africa, leading to rising hardship, massive population displacement, and, in some cases, all-out war.
Yet a growing number of aid workers here say that the same issue that pits communities against each other can also bring them together. Solving common problems – improving access to water for farmers and herders alike – could be the first step toward reconciliation, and lasting peace.
"In a way, water can be a divider or it can bring people together," says Caroline Saint-Mleux, head of Care International's office in Iriba, Chad, which manages two refugee camps in the Iriba area.
"Is [water] the only cause of the problem?" she asks. "Obviously, everyone knows it's a very complex conflict. But at the same time, you can use [water] to bring the communities back together.... You have to have [the warring parties] talk about a common need, and after that you might have them talk about something else that would start giving other solutions to the conflict."
Just what set off the conflict in Darfur – and subsequent spillover conflicts here in neighboring Chad and the Central African Republic – remains a topic of vigorous debate. In Darfur, local perceptions of neglect by the Sudanese government led members of the non-Arabic speaking Fur and Zaghawa tribes to take up arms in protest in 2003.
The government, having few soldiers on the ground, turned to nomadic Arab tribes, allegedly arming them and promising them whatever property they could take from the rebellious black tribes.
UN agencies estimate that at least 200,000 civilians were killed in the following several years, with 2.5 million forced from their homes into refugee camps.
But many experts say that the underlying tensions between mostly nomadic Arabs and sedentary black farmers – both of whom are Muslim – is their centuries-long competition for water and land, a competition that has been exacerbated by decades of drought. Lake Chad, which forms part of the border between Chad, Nigeria, and Niger, has dropped to 10 percent of its original size.
Sudanese and Chadian officials estimate that rainfall has dropped nearly 40 percent over the past 50 years. Less rain trickles into underground aquifers, and water tables have been dropping.
Arab nomads, both in Chad and Darfur, must now take their herds of camels, goats, donkeys, and sheep farther and farther south to the wetter zones occupied by black farmers to find grazing pasture.
And as water becomes more scarce, these nomads are finding the old open pastures fenced off, the water wells available only for a fee. Age-old agreements between nomads and farmers are being rewritten.
Perhaps it was only a matter of time before a war began in Darfur. Khartoum merely supplied the arms to take the fighting to a genocidal scale.
A growing number of Western officials see the Darfur conflict as much larger and more complex than the simple story of genocide of black tribes by Arab militias.
British Home Secretary John Reid pointed to global warming as a key factor behind the conflict in Darfur. "The blunt truth is that the lack of water and agricultural land is a significant contributory factor to the tragic conflict we see unfolding in Darfur," he said. "We should see this as a warning sign."
UN Secretary General Ban Ki Moon also joined the climate-change bandwagon, writing in a Washington Post opinion page column, "The Darfur conflict began as an ecological crisis, arising at least in part from climate change."
Activists in the Save Darfur Coalition and others say the climate-change argument is an attempt to absolve Sudan's government of its well-documented recruiting, arming, and directing of Arab janjaweed militias against black villages.
Khartoum has long minimized its own role in the fighting, calling Darfur "a local conflict." It has also minimized the death toll, citing only 9,000 deaths compared with UN estimates of 200,000.
In the refugee camps scattered across the parched deserts of Eastern Chad, where refugees receive only 4.5 to 10 liters of water a day and where refugee women are often beaten or raped when they venture into local communities in search of firewood or water from local wells, climate change is not a theoretical issue. It is a crushing fact of life.
Emmanuel Uwurukundo, head of the field office of the UN High Commission for Refugees in Iriba, says that water has now become the chief concern of aid organizations, and a growing source of tension between the local population and Sudanese refugees.
"It's a big competition for water; it's a big competition of firewood in the zone; it's a big competition of raising land in the zone, and it's not very easy for us," he says.
The problem is even more stark up north in the town of Bahai, says Tim Burroughs, the environmental health officer for International Rescue Committee, which runs a refugee camp for 26,000 Darfuris in the area.
"Bahai is a terrible place for a camp," says Mr. Burroughs. "It's where the Sahara begins. There are plenty of dunes, you see houses overtaken by sand, you see villages abandoned."
In 50 years, Bahai will no longer be able to sustain life, he says, but at present, "there's no where else to put the refugees," because of language and local prejudice. The local people of Bahai speak Zaghawa, and so do the refugees. Further south, where there is more water, Zaghawas are the unwelcome minority.
Recent good news from Darfur, about a newly discovered deep-underground aquifer containing enough water to fill Lake Erie, may provide some temporary relief from the effects of climate change, as scientists hope to start drilling wells as soon as possible. But water experts say that aquifers and borewells only delay the inevitable fact – that desertification will eventually dry out the land, and push people and their animals further and further south.
"It's not just bringing water to people that matters, we also have to think of their animals," says Burroughs.
"You have to provide fodder, you need to provide feeding areas and pastureland. If there is not enough for the animals to eat, then there is no reason for people to be there, and they are going to move south."
And herders moving into areas inhabited by farmers is what has sparked many of the clashes to date.
Meanwhile, the thankless task of providing water for the 220,000 refugees – and increasingly to local communities – falls on the shoulders of the UNHCR, which oversees the running of a dozen camps as well as the half dozen sites for 120,000 Chadians displaced by a civil conflict that erupted last year in Eastern Chad.
The UN, together with other donors such as USAID, is studying possibilities for creating more sustainable water sources for the growing populations of Eastern Chad, building catchment dams to hold onto the season rains that flow through dry river beds called wadis. They are also conducting seismic mapping tests to find likely sources of deep underground aquifers.
Gabriel Salas leads a UNHCR-funded team with much more immediate goals: finding enough water to get refugees through the dry season. The place where he has found water is underneath these wadis in vast canyons carved out of sandstone by more permanent rivers from a geological period when the Sahel was a much wetter place.
Now filled with sand, these underground canyons are ideal aquifers for storing water.
It was Salas who dug a bore well in a wadi, 34 kilometers from Abéché, that supplies water for the 80,000 people of Abéché. "All the water for this town comes from one bore well, 34 kilometers from here," he says. "What does that tell you? In a radius of 34 kilometers, you cannot find groundwater unless you go to a wadi."
Salas, as a geologist, doesn't see the problem of global warming as a recent phenomenon, but as something that has been going on for thousands of years. "The attack of Rome by Hannibal happened 2,400 years ago, and he took elephants from Carthage and marched them toward Rome. Now, the fact that you had elephants in the North of Africa shows that there has been climate change and that desertification has been taking place for a long time." If there is one obstacle preventing a longer-term solution to the problem of water in Eastern Chad and Darfur, it's money. The longer that a conflict remains unresolved, and the longer that refugees stay in foreign lands, the harder it is for UN agencies, such as the UNHCR, and relief agencies, like Care and Oxfam, to raise money for their relief. Longer-term development projects, such as the provision of water for citizens, are the responsibility of governments, where World Bank and UN Development Program funded projects can take years and decades to design and put into place.
This means that local people and Sudanese refugees will continue to see each other as rivals in the constant hunt for water.
At a public well on the outskirts of Iriba, a dozen or so local men and children drop buckets 50 feet and hit mud. A lucky few managed to scrape the last few gallons off of the floor. The current rate for 140 liters is about $5. This is less than half of the amount of water the average American uses in a day (300 to 375 liters, or 80 to 100 gallons, according to the US Geological Service.)
"We have had more than five years with not much rain," says Abakar Abdullah Djibrine, a water seller at the well. "Before there was water, but now there is no water, and water is very expensive. Yes, people are angry. Life is too difficult without water."
Why a Rwandan survivor runs a Chad refugee camp
At the UNHCR compound near the Darfur border, you find the young and middle-aged, European and African and Chadian. And then there is their chief, Emmanuel Uwurukundo, a Rwandan Tutsi from Kigali. In charge of three camps with a total population of 57,000, Emmanuel is part mayor, part peacemaker, and at the end of the day, a good-time Charlie with an infectious laugh.
Mr. Uwurukundo has what many would consider an impossible job. Directly responsible for three camps full of people who have lost so much, and who even now receive precious little – 5 to 10 liters of water a day, on average, a sack of wheat flour every two weeks, a can of cooking oil, a plastic sheet for cover, and blankets. Uwurukundo doesn't often get gushes of gratitude. On the week we were there, he was chased from the camp at Am Nabak after a swarm of angry women began to pelt him and his colleagues with stones for not providing enough plastic sheeting.
What makes a man like this leave a country that itself has emerged from an ethnic genocide only a few years ago to come to a conflict with many of the same characteristics?
"I was in Kigali during the genocide, hiding," he says. His wife and children, his mother-in-law, and sister-in-law still live in Kigali. Everyone else he had ever known and loved was murdered in what must have been the bloodiest month in human history.
"When you are a survivor of something like this, you have two choices," he says. "Either you come to the conclusion that life is meaningless, and for all intents and purposes, you are dead to the world, without hope. Or you think, if I am still alive, there must be a reason for it. There must be something that I can do with my experiences to make things better."
One doesn't have to undergo personal tragedies such as Uwurukundo's in order to make a difference in people's lives. But a person like Uwurukundo has a tendency to attract like-minded people, and they tend to bring out the better qualities of those around them. It was Uwurukundo's UNHCR team who put us in touch with a Chadian farmer who had given plots of his land to Sudanese refugees to farm ("Flooded with refugees, a farmer shares land," in the July 12 issue of the Monitor).
Uwurukundo recalled his own lengthy conversations with the farmer, Al-Hajj Ali Saboor Bakit. Mr. Bakit had been a refugee himself, Uwurukundo says, forced into a more peaceful Darfur when Chad itself was having a violent anti-government rebellion. Now that Darfuris are flooding across the border into a relatively peaceful Chad, Bakit could identify with the losses of the Darfuris who have now flooded Chad's sparse desert.
It was clear that Uwurukundo could see a part of himself in Bakit as well. The two men – both Africans, but one an illiterate Muslim, the other a highly educated Christian – had found common experiences of hardship and a similar outlook of what to do with their experiences.
Outsiders have a disturbing tendency of portraying Africa as a passive place, where people blame the outside world – from the former colonial rulers to the World Bank – for their problems. But these two are not quitters or blamers. They knew they could make a difference.
"My object is to get the local community and the refugees together to see how they can share traditional wells and keep things together," says Uwurukundo. He realizes that his job is to put himself out of a job, to help the refugees reach a point where they can look after themselves.
"It's a matter of dignity, a feeling that they are not begging," says Uwurukundo. "If you give 100 percent assistance to refugees, you create a dependent state, and when it comes time to repatriate them, you'll have trouble. It's only once they are capable of contributing to their own well-being that they will feel better about themselves."
Less rainfall on the fringes of the Sahara Desert is putting more of a strain on resources than ever before.
By Scott Baldauf | Staff writer of The Christian Science Monitor
from the July 27, 2007 edition
Iriba, Chad
With Darfur refugee women waiting up to two days for their chance to fill buckets at a communal water point, it's only a matter of time before bickering turns into a full-fledged fight.
In the 115-degree F. heat of the Touloum refugee camp, just across Sudan's border in eastern Chad, the stakes are high. Refugees receive only 4.5 liters, on average, per family member – just enough for drinking and cooking. A family that misses its day or gets shoved aside at the water pump may not survive.
On this day, a younger woman has been caught cutting in line. She and an older woman wrestle each other to the ground.
"I have been waiting here two days for my turn, and if the water finishes I will have to ask for water from other people," says Khadija Musa, the elderly woman. "Sometimes I have to borrow water to cook. Our clothes are filthy, we cannot wash without water." She rubs her shoulder and sighs. "The only thing left is to die."
Competition for water – in refugee camps, between farmers and herders, and between countries – has long sparked conflict in the arid region and forms one of the main causes of the war in Sudan's Darfur region. But the trouble is only beginning, as it becomes clear that dramatic climate change will have its sharpest effects in Africa, leading to rising hardship, massive population displacement, and, in some cases, all-out war.
Yet a growing number of aid workers here say that the same issue that pits communities against each other can also bring them together. Solving common problems – improving access to water for farmers and herders alike – could be the first step toward reconciliation, and lasting peace.
"In a way, water can be a divider or it can bring people together," says Caroline Saint-Mleux, head of Care International's office in Iriba, Chad, which manages two refugee camps in the Iriba area.
"Is [water] the only cause of the problem?" she asks. "Obviously, everyone knows it's a very complex conflict. But at the same time, you can use [water] to bring the communities back together.... You have to have [the warring parties] talk about a common need, and after that you might have them talk about something else that would start giving other solutions to the conflict."
Just what set off the conflict in Darfur – and subsequent spillover conflicts here in neighboring Chad and the Central African Republic – remains a topic of vigorous debate. In Darfur, local perceptions of neglect by the Sudanese government led members of the non-Arabic speaking Fur and Zaghawa tribes to take up arms in protest in 2003.
The government, having few soldiers on the ground, turned to nomadic Arab tribes, allegedly arming them and promising them whatever property they could take from the rebellious black tribes.
UN agencies estimate that at least 200,000 civilians were killed in the following several years, with 2.5 million forced from their homes into refugee camps.
But many experts say that the underlying tensions between mostly nomadic Arabs and sedentary black farmers – both of whom are Muslim – is their centuries-long competition for water and land, a competition that has been exacerbated by decades of drought. Lake Chad, which forms part of the border between Chad, Nigeria, and Niger, has dropped to 10 percent of its original size.
Sudanese and Chadian officials estimate that rainfall has dropped nearly 40 percent over the past 50 years. Less rain trickles into underground aquifers, and water tables have been dropping.
Arab nomads, both in Chad and Darfur, must now take their herds of camels, goats, donkeys, and sheep farther and farther south to the wetter zones occupied by black farmers to find grazing pasture.
And as water becomes more scarce, these nomads are finding the old open pastures fenced off, the water wells available only for a fee. Age-old agreements between nomads and farmers are being rewritten.
Perhaps it was only a matter of time before a war began in Darfur. Khartoum merely supplied the arms to take the fighting to a genocidal scale.
A growing number of Western officials see the Darfur conflict as much larger and more complex than the simple story of genocide of black tribes by Arab militias.
British Home Secretary John Reid pointed to global warming as a key factor behind the conflict in Darfur. "The blunt truth is that the lack of water and agricultural land is a significant contributory factor to the tragic conflict we see unfolding in Darfur," he said. "We should see this as a warning sign."
UN Secretary General Ban Ki Moon also joined the climate-change bandwagon, writing in a Washington Post opinion page column, "The Darfur conflict began as an ecological crisis, arising at least in part from climate change."
Activists in the Save Darfur Coalition and others say the climate-change argument is an attempt to absolve Sudan's government of its well-documented recruiting, arming, and directing of Arab janjaweed militias against black villages.
Khartoum has long minimized its own role in the fighting, calling Darfur "a local conflict." It has also minimized the death toll, citing only 9,000 deaths compared with UN estimates of 200,000.
In the refugee camps scattered across the parched deserts of Eastern Chad, where refugees receive only 4.5 to 10 liters of water a day and where refugee women are often beaten or raped when they venture into local communities in search of firewood or water from local wells, climate change is not a theoretical issue. It is a crushing fact of life.
Emmanuel Uwurukundo, head of the field office of the UN High Commission for Refugees in Iriba, says that water has now become the chief concern of aid organizations, and a growing source of tension between the local population and Sudanese refugees.
"It's a big competition for water; it's a big competition of firewood in the zone; it's a big competition of raising land in the zone, and it's not very easy for us," he says.
The problem is even more stark up north in the town of Bahai, says Tim Burroughs, the environmental health officer for International Rescue Committee, which runs a refugee camp for 26,000 Darfuris in the area.
"Bahai is a terrible place for a camp," says Mr. Burroughs. "It's where the Sahara begins. There are plenty of dunes, you see houses overtaken by sand, you see villages abandoned."
In 50 years, Bahai will no longer be able to sustain life, he says, but at present, "there's no where else to put the refugees," because of language and local prejudice. The local people of Bahai speak Zaghawa, and so do the refugees. Further south, where there is more water, Zaghawas are the unwelcome minority.
Recent good news from Darfur, about a newly discovered deep-underground aquifer containing enough water to fill Lake Erie, may provide some temporary relief from the effects of climate change, as scientists hope to start drilling wells as soon as possible. But water experts say that aquifers and borewells only delay the inevitable fact – that desertification will eventually dry out the land, and push people and their animals further and further south.
"It's not just bringing water to people that matters, we also have to think of their animals," says Burroughs.
"You have to provide fodder, you need to provide feeding areas and pastureland. If there is not enough for the animals to eat, then there is no reason for people to be there, and they are going to move south."
And herders moving into areas inhabited by farmers is what has sparked many of the clashes to date.
Meanwhile, the thankless task of providing water for the 220,000 refugees – and increasingly to local communities – falls on the shoulders of the UNHCR, which oversees the running of a dozen camps as well as the half dozen sites for 120,000 Chadians displaced by a civil conflict that erupted last year in Eastern Chad.
The UN, together with other donors such as USAID, is studying possibilities for creating more sustainable water sources for the growing populations of Eastern Chad, building catchment dams to hold onto the season rains that flow through dry river beds called wadis. They are also conducting seismic mapping tests to find likely sources of deep underground aquifers.
Gabriel Salas leads a UNHCR-funded team with much more immediate goals: finding enough water to get refugees through the dry season. The place where he has found water is underneath these wadis in vast canyons carved out of sandstone by more permanent rivers from a geological period when the Sahel was a much wetter place.
Now filled with sand, these underground canyons are ideal aquifers for storing water.
It was Salas who dug a bore well in a wadi, 34 kilometers from Abéché, that supplies water for the 80,000 people of Abéché. "All the water for this town comes from one bore well, 34 kilometers from here," he says. "What does that tell you? In a radius of 34 kilometers, you cannot find groundwater unless you go to a wadi."
Salas, as a geologist, doesn't see the problem of global warming as a recent phenomenon, but as something that has been going on for thousands of years. "The attack of Rome by Hannibal happened 2,400 years ago, and he took elephants from Carthage and marched them toward Rome. Now, the fact that you had elephants in the North of Africa shows that there has been climate change and that desertification has been taking place for a long time." If there is one obstacle preventing a longer-term solution to the problem of water in Eastern Chad and Darfur, it's money. The longer that a conflict remains unresolved, and the longer that refugees stay in foreign lands, the harder it is for UN agencies, such as the UNHCR, and relief agencies, like Care and Oxfam, to raise money for their relief. Longer-term development projects, such as the provision of water for citizens, are the responsibility of governments, where World Bank and UN Development Program funded projects can take years and decades to design and put into place.
This means that local people and Sudanese refugees will continue to see each other as rivals in the constant hunt for water.
At a public well on the outskirts of Iriba, a dozen or so local men and children drop buckets 50 feet and hit mud. A lucky few managed to scrape the last few gallons off of the floor. The current rate for 140 liters is about $5. This is less than half of the amount of water the average American uses in a day (300 to 375 liters, or 80 to 100 gallons, according to the US Geological Service.)
"We have had more than five years with not much rain," says Abakar Abdullah Djibrine, a water seller at the well. "Before there was water, but now there is no water, and water is very expensive. Yes, people are angry. Life is too difficult without water."
Why a Rwandan survivor runs a Chad refugee camp
At the UNHCR compound near the Darfur border, you find the young and middle-aged, European and African and Chadian. And then there is their chief, Emmanuel Uwurukundo, a Rwandan Tutsi from Kigali. In charge of three camps with a total population of 57,000, Emmanuel is part mayor, part peacemaker, and at the end of the day, a good-time Charlie with an infectious laugh.
Mr. Uwurukundo has what many would consider an impossible job. Directly responsible for three camps full of people who have lost so much, and who even now receive precious little – 5 to 10 liters of water a day, on average, a sack of wheat flour every two weeks, a can of cooking oil, a plastic sheet for cover, and blankets. Uwurukundo doesn't often get gushes of gratitude. On the week we were there, he was chased from the camp at Am Nabak after a swarm of angry women began to pelt him and his colleagues with stones for not providing enough plastic sheeting.
What makes a man like this leave a country that itself has emerged from an ethnic genocide only a few years ago to come to a conflict with many of the same characteristics?
"I was in Kigali during the genocide, hiding," he says. His wife and children, his mother-in-law, and sister-in-law still live in Kigali. Everyone else he had ever known and loved was murdered in what must have been the bloodiest month in human history.
"When you are a survivor of something like this, you have two choices," he says. "Either you come to the conclusion that life is meaningless, and for all intents and purposes, you are dead to the world, without hope. Or you think, if I am still alive, there must be a reason for it. There must be something that I can do with my experiences to make things better."
One doesn't have to undergo personal tragedies such as Uwurukundo's in order to make a difference in people's lives. But a person like Uwurukundo has a tendency to attract like-minded people, and they tend to bring out the better qualities of those around them. It was Uwurukundo's UNHCR team who put us in touch with a Chadian farmer who had given plots of his land to Sudanese refugees to farm ("Flooded with refugees, a farmer shares land," in the July 12 issue of the Monitor).
Uwurukundo recalled his own lengthy conversations with the farmer, Al-Hajj Ali Saboor Bakit. Mr. Bakit had been a refugee himself, Uwurukundo says, forced into a more peaceful Darfur when Chad itself was having a violent anti-government rebellion. Now that Darfuris are flooding across the border into a relatively peaceful Chad, Bakit could identify with the losses of the Darfuris who have now flooded Chad's sparse desert.
It was clear that Uwurukundo could see a part of himself in Bakit as well. The two men – both Africans, but one an illiterate Muslim, the other a highly educated Christian – had found common experiences of hardship and a similar outlook of what to do with their experiences.
Outsiders have a disturbing tendency of portraying Africa as a passive place, where people blame the outside world – from the former colonial rulers to the World Bank – for their problems. But these two are not quitters or blamers. They knew they could make a difference.
"My object is to get the local community and the refugees together to see how they can share traditional wells and keep things together," says Uwurukundo. He realizes that his job is to put himself out of a job, to help the refugees reach a point where they can look after themselves.
"It's a matter of dignity, a feeling that they are not begging," says Uwurukundo. "If you give 100 percent assistance to refugees, you create a dependent state, and when it comes time to repatriate them, you'll have trouble. It's only once they are capable of contributing to their own well-being that they will feel better about themselves."
SAC stake for sale
Published: July 25 2007 00:09 | Last updated: July 25 2007 00:09
Talk about key man risk. SAC Capital, does not just bear the initials of founder Steven Cohen. He dominates the Greenwich trading floor that has churned out such enviable investment returns and built his reputation as a star trader. And over half the $14bn under management is said to be his own fortune.
Why would somebody buy a significant stake in a firm that appears to depend so heavily on an individual and remains privately-owned – at least for now? There is added uncertainty because Mr Cohen is attempting a shift of emphasis away from his trademark quick-fire trading towards a less proven model of longer-term activist investing.
That said, SAC might not be quite as risky as it looks. If Mr Cohen’s own money is charged full management fees (a slightly bizarre concept) and can be locked up firmly for the long-term, SAC might stack up fine against other hedge funds where cash can flee at a moment’s notice. There is plenty of wealth sloshing around in Asia, the Middle East and Europe that could be used to buy a stake alongside an investor as hot as Mr Cohen. The opportunity might even pique the interest of a wealth management company wanting the extra benefit of access to SAC’s funds for its high net worth clients.
A key challenge for Mr Cohen will be convincing potential investors that the talent pool is deep enough for SAC to maintain performance even if he were unable to work or decided to step back. If he can achieve that, Mr Cohen might have a platform to broaden SAC’s image beyond one of reliance on his own skills. He would also get a tidy cash infusion that might even tempt him to add Damien Hirst’s $100m diamond encrusted skull to the pickled shark he already owns.
Published: July 25 2007 00:09 | Last updated: July 25 2007 00:09
Talk about key man risk. SAC Capital, does not just bear the initials of founder Steven Cohen. He dominates the Greenwich trading floor that has churned out such enviable investment returns and built his reputation as a star trader. And over half the $14bn under management is said to be his own fortune.
Why would somebody buy a significant stake in a firm that appears to depend so heavily on an individual and remains privately-owned – at least for now? There is added uncertainty because Mr Cohen is attempting a shift of emphasis away from his trademark quick-fire trading towards a less proven model of longer-term activist investing.
That said, SAC might not be quite as risky as it looks. If Mr Cohen’s own money is charged full management fees (a slightly bizarre concept) and can be locked up firmly for the long-term, SAC might stack up fine against other hedge funds where cash can flee at a moment’s notice. There is plenty of wealth sloshing around in Asia, the Middle East and Europe that could be used to buy a stake alongside an investor as hot as Mr Cohen. The opportunity might even pique the interest of a wealth management company wanting the extra benefit of access to SAC’s funds for its high net worth clients.
A key challenge for Mr Cohen will be convincing potential investors that the talent pool is deep enough for SAC to maintain performance even if he were unable to work or decided to step back. If he can achieve that, Mr Cohen might have a platform to broaden SAC’s image beyond one of reliance on his own skills. He would also get a tidy cash infusion that might even tempt him to add Damien Hirst’s $100m diamond encrusted skull to the pickled shark he already owns.
SAC Capital considers sale of stakes
By Ben White in New York
ft.com
Published: July 24 2007 23:44 | Last updated: July 24 2007 23:44
SAC Capital, the $14bn (£6.8bn) hedge fund run by billionaire Steven Cohen, is considering selling up to 20 per cent of itself to private minority investors.
Mr Cohen is known as one of the most successful – and secretive – hedge fund managers in the world. He built his reputation through massive, rapid trading, mainly in US securities.
SAC’s assets under management are thought to include about $7bn of Mr Cohen’s money.
More recently, Mr Cohen has moved into activism, building up stakes in companies such as Bausch & Lomb and TD Ameritrade.
SAC has been marketing possible stakes in its management company to foreign investors including Asian state funds such as Temasek of Singapore.
The hedge fund group may sell one or two large stakes or a series of smaller stakes that would add up to not more than 20 per cent. Lehman Brothers is said to be working on the sales.
SAC may still decide against going forward with the plan.
Jonathan Gasthalter, SAC spokesman, declined to comment.
SAC began seeking investors after receiving inquiries about buying minority stakes from interested parties.
The move comes as major alternative asset managers seek to take advantage of their rapid growth by selling private stakes as well as staging initial public offerings. Many are doing both.
The sales offer an infusion of capital and allow founders to cash out some holdings. Many of the stakes are being bought by cash-rich investors in Asia and the Middle East.
Blackstone sold a $3bn non-voting stake to the Chinese government before it listed. Apollo Management plans to sell a stake to the investment arm of the Abu Dhabi government as it sells shares to other major investors through an unregistered offering.
SAC and a group of other funds have been sued by Fairfax Financial, the Canadian insurance group, over allegations that the funds used improper means to drive down Fairfax shares.
By Ben White in New York
ft.com
Published: July 24 2007 23:44 | Last updated: July 24 2007 23:44
SAC Capital, the $14bn (£6.8bn) hedge fund run by billionaire Steven Cohen, is considering selling up to 20 per cent of itself to private minority investors.
Mr Cohen is known as one of the most successful – and secretive – hedge fund managers in the world. He built his reputation through massive, rapid trading, mainly in US securities.
SAC’s assets under management are thought to include about $7bn of Mr Cohen’s money.
More recently, Mr Cohen has moved into activism, building up stakes in companies such as Bausch & Lomb and TD Ameritrade.
SAC has been marketing possible stakes in its management company to foreign investors including Asian state funds such as Temasek of Singapore.
The hedge fund group may sell one or two large stakes or a series of smaller stakes that would add up to not more than 20 per cent. Lehman Brothers is said to be working on the sales.
SAC may still decide against going forward with the plan.
Jonathan Gasthalter, SAC spokesman, declined to comment.
SAC began seeking investors after receiving inquiries about buying minority stakes from interested parties.
The move comes as major alternative asset managers seek to take advantage of their rapid growth by selling private stakes as well as staging initial public offerings. Many are doing both.
The sales offer an infusion of capital and allow founders to cash out some holdings. Many of the stakes are being bought by cash-rich investors in Asia and the Middle East.
Blackstone sold a $3bn non-voting stake to the Chinese government before it listed. Apollo Management plans to sell a stake to the investment arm of the Abu Dhabi government as it sells shares to other major investors through an unregistered offering.
SAC and a group of other funds have been sued by Fairfax Financial, the Canadian insurance group, over allegations that the funds used improper means to drive down Fairfax shares.
Whole Foods Faces Off With FTC Over Wild Oats Deal
Dow Jones
July 31, 2007: 04:14 PM EST
By Mark H. Anderson
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Whole Foods Market Inc. and Wild Oats Market Inc. faced off with the Federal Trade Commission in federal court Tuesday, with both sides seeking to discredit each other's witnesses and testimony about a planned $565 merger between the two natural-foods chains.
The natural-foods stores are sparring with the FTC, which has sued to stop the merger plan. A U.S. District Court heard testimony from two antitrust experts who have drawn opposite conclusions on whether the merger would illegally dominate the premium natural- and organic-foods market.
During questioning from FTC attorneys, David Scheffman, an antitrust consultant and former FTC official, told the court those premium natural-foods stores don't just compete with each other, as argued by the FTC, but are part of the broader supermarket industry.
"They are supermarkets. They are one-stop shopping," Scheffman said, arguing that market research shows people who shop at a Whole Foods also use grocery stores such as Trader Joe's of Monrovia, Calif., and Safeway Inc.
Judge Paul L. Friedman primarily listened to the questioning, offering few comments that might suggest how he could rule. Judge Friedman, in some questions during Scheffman's testimony, did indicate he is searching for the appropriate definition of the marketplace in which Whole Foods and Wild Oats compete.
University of Chicago antitrust expert Kevin Murphy also faced hard-nosed questions from attorneys for the natural-food stores as the companies sought to expose weaknesses in the FTC's analysis that the proposed merger is anticompetitive for the narrowly-defined premium natural- and organic-grocery market.
But Murphy, during oral testimony, said he found margin and pricing evidence indicating competition between the two companies can lead to lower prices in specific geographic areas. Murphy cited a "substantial decline in margins" and a 2% drop in prices at Wild Oats stores in Boulder, Colo., when Whole Foods entered that market. Testimony regarding Boulder was challenged by the company attorneys and may not be considered by the court because it wasn't part of his submitted testimony.
Written statements from both experts' remained under seal, despite public questioning about the underlying testimony. Wild Oats, based in Boulder, and Whole Foods, based in Austin, Texas, have argued to keep some court materials from public view, arguing data and information contained in the documents touch on numerous trade secrets.
The U.S. District Court is holding two days of hearings on the FTC's request for injunctions to block the merger. The judge must decide whether to accept the government's argument that the two companies primarily compete in a narrow market that is distinctly separate from the broader U.S. grocery marketplace.
Whole Foods and Wild Oats, pointing to testimony from another expert witness and to polling done for the companies, argued the FTC has failed to show the merger would have an anticompetitive impact in the natural-foods grocery business. "The FTC has failed to satisfy its burden of proof," the companies said in a court filing. "The merger of Whole Foods and Wild Oats should not be enjoined."
The companies hope to establish with the court that their businesses compete in the broader grocery market and that the merger will give Whole Foods a stronger hand in the national grocery market.
Working against the companies are statements by Whole Foods Chief Executive John Mackey, who has stated his company is in a niche grocery market. Mackey's statements are being used extensively by the FTC in support of its case against the merger. Mackey has also publicly said his company faces stiff competition from conventional grocers. In addition, some of Mackey's assertions have triggered concerns from federal regulators because he posted anonymous comments about his company over several years.
The FTC filed its lawsuit to block the merger on June 6. Judge Friedman could rule on the injunction request sometime in August. Most FTC antitrust actions on proposed mergers result in either a settlement with the companies or the abandonment of the merger. It is unusual for the FTC to end up in challenged court proceeding, although this is the third contested merger the agency has litigated in 2007.
Whole Foods stock is up 0.7% to $37.05 while Wild Oats is up 3.6% to $16.06.
Dow Jones
July 31, 2007: 04:14 PM EST
By Mark H. Anderson
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Whole Foods Market Inc. and Wild Oats Market Inc. faced off with the Federal Trade Commission in federal court Tuesday, with both sides seeking to discredit each other's witnesses and testimony about a planned $565 merger between the two natural-foods chains.
The natural-foods stores are sparring with the FTC, which has sued to stop the merger plan. A U.S. District Court heard testimony from two antitrust experts who have drawn opposite conclusions on whether the merger would illegally dominate the premium natural- and organic-foods market.
During questioning from FTC attorneys, David Scheffman, an antitrust consultant and former FTC official, told the court those premium natural-foods stores don't just compete with each other, as argued by the FTC, but are part of the broader supermarket industry.
"They are supermarkets. They are one-stop shopping," Scheffman said, arguing that market research shows people who shop at a Whole Foods also use grocery stores such as Trader Joe's of Monrovia, Calif., and Safeway Inc.
Judge Paul L. Friedman primarily listened to the questioning, offering few comments that might suggest how he could rule. Judge Friedman, in some questions during Scheffman's testimony, did indicate he is searching for the appropriate definition of the marketplace in which Whole Foods and Wild Oats compete.
University of Chicago antitrust expert Kevin Murphy also faced hard-nosed questions from attorneys for the natural-food stores as the companies sought to expose weaknesses in the FTC's analysis that the proposed merger is anticompetitive for the narrowly-defined premium natural- and organic-grocery market.
But Murphy, during oral testimony, said he found margin and pricing evidence indicating competition between the two companies can lead to lower prices in specific geographic areas. Murphy cited a "substantial decline in margins" and a 2% drop in prices at Wild Oats stores in Boulder, Colo., when Whole Foods entered that market. Testimony regarding Boulder was challenged by the company attorneys and may not be considered by the court because it wasn't part of his submitted testimony.
Written statements from both experts' remained under seal, despite public questioning about the underlying testimony. Wild Oats, based in Boulder, and Whole Foods, based in Austin, Texas, have argued to keep some court materials from public view, arguing data and information contained in the documents touch on numerous trade secrets.
The U.S. District Court is holding two days of hearings on the FTC's request for injunctions to block the merger. The judge must decide whether to accept the government's argument that the two companies primarily compete in a narrow market that is distinctly separate from the broader U.S. grocery marketplace.
Whole Foods and Wild Oats, pointing to testimony from another expert witness and to polling done for the companies, argued the FTC has failed to show the merger would have an anticompetitive impact in the natural-foods grocery business. "The FTC has failed to satisfy its burden of proof," the companies said in a court filing. "The merger of Whole Foods and Wild Oats should not be enjoined."
The companies hope to establish with the court that their businesses compete in the broader grocery market and that the merger will give Whole Foods a stronger hand in the national grocery market.
Working against the companies are statements by Whole Foods Chief Executive John Mackey, who has stated his company is in a niche grocery market. Mackey's statements are being used extensively by the FTC in support of its case against the merger. Mackey has also publicly said his company faces stiff competition from conventional grocers. In addition, some of Mackey's assertions have triggered concerns from federal regulators because he posted anonymous comments about his company over several years.
The FTC filed its lawsuit to block the merger on June 6. Judge Friedman could rule on the injunction request sometime in August. Most FTC antitrust actions on proposed mergers result in either a settlement with the companies or the abandonment of the merger. It is unusual for the FTC to end up in challenged court proceeding, although this is the third contested merger the agency has litigated in 2007.
Whole Foods stock is up 0.7% to $37.05 while Wild Oats is up 3.6% to $16.06.
Whole Foods to court to defend Wild Oats takeover
Tue Jul 31, 2007 2:55AM EDT
By Peter Kaplan
WASHINGTON (Reuters) - Whole Foods Market Inc. and rival Wild Oats Markets Inc. head to court on Tuesday, hoping to convince a federal judge to allow their proposed merger to proceed over the objections of U.S. antitrust authorities.
Lawyers for the two companies will square off against the Federal Trade Commission, which is asking U.S. District Judge Paul Friedman to block the deal on the grounds it would hurt competition in the organic grocery market.
Antitrust experts say much may depend on the words of Whole Foods' own chief executive, who told his board in e-mails that the deal was designed to avert price wars with Wild Oats and head off competition with mainstream supermarkets.
"I think that the FTC will really put weight on the (e-mails) when the CEO is speaking in his own name in the capacity of CEO," said Chris MacAvoy, an antitrust lawyer with the firm Howrey LLP, who is not involved in the case.
"The (e-mails) are a huge problem," said another Washington antitrust lawyer who declined to be named.
The FTC is challenging Whole Foods' planned $565 million purchase of Wild Oats on the grounds the deal would hobble competition and increase prices to consumers.
To get the judge to issue a preliminary injunction against the deal, the FTC must convince the judge it is likely to succeed in proving at trial that the combination of the two companies would be anticompetitive.
Whole Foods and Wild Oats lead the organic niche market, although their total food sales pale in comparison to larger retailers.
MacAvoy said he believes Whole Foods has a strong case to make in defense of the merger -- specifically the company's argument that it faces strong competition in a broader market that includes mainstream supermarkets.
"I have trouble personally accepting the notion that you can take a particular (store) format or a particular strategy of going to market and say that's a relevant market," MacAvoy said.
A central question for Friedman will be whether the acquisition of Wild Oats would give Whole Foods the power to raise prices, a key test under antitrust law.
Both sides will present testimony from expert economists to try to bolster their views on pricing power and how the judge should view the grocery market.
But in the end, MacAvoy said it could be Mackey's own words that presents the biggest challenge for the companies.
In an e-mail to Whole Foods' board, Mackey said: "(Wild Oats) is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space.
"Eliminating them means eliminating this threat forever, or almost forever," Mackey said.
In a court brief, the companies downplayed Mackey's writings, saying he is "an extremely competitive individual" who does not care for his competitors.
"But courts have long recognized that such statements of intent have little, if any, probative value when contrasted, as here, with actual market facts of vigorous competition from every direction," the companies said.
The case also has brought attention to Whole Foods because of comments that Mackey posted on a Yahoo! financial forum under the alias of "rahodeb."
In Yahoo! postings between 1999 and 2006, Mackey talked up his own company while predicting a bleak future for Wild Oats.
Mackey has accused the FTC of using "bullying tactics" and distorting his private statements in order to block the deal.
As embarrassing as they may be, MacAvoy said the Yahoo! postings will not carry as much weight as the official e-mails Mackey sent to the Whole Foods board.
"I don't think that the FTC will put much weight on these anonymous chat room postings," MacAvoy said. Instead, the FTC may try to use them as corroborating evidence.
Tue Jul 31, 2007 2:55AM EDT
By Peter Kaplan
WASHINGTON (Reuters) - Whole Foods Market Inc. and rival Wild Oats Markets Inc. head to court on Tuesday, hoping to convince a federal judge to allow their proposed merger to proceed over the objections of U.S. antitrust authorities.
Lawyers for the two companies will square off against the Federal Trade Commission, which is asking U.S. District Judge Paul Friedman to block the deal on the grounds it would hurt competition in the organic grocery market.
Antitrust experts say much may depend on the words of Whole Foods' own chief executive, who told his board in e-mails that the deal was designed to avert price wars with Wild Oats and head off competition with mainstream supermarkets.
"I think that the FTC will really put weight on the (e-mails) when the CEO is speaking in his own name in the capacity of CEO," said Chris MacAvoy, an antitrust lawyer with the firm Howrey LLP, who is not involved in the case.
"The (e-mails) are a huge problem," said another Washington antitrust lawyer who declined to be named.
The FTC is challenging Whole Foods' planned $565 million purchase of Wild Oats on the grounds the deal would hobble competition and increase prices to consumers.
To get the judge to issue a preliminary injunction against the deal, the FTC must convince the judge it is likely to succeed in proving at trial that the combination of the two companies would be anticompetitive.
Whole Foods and Wild Oats lead the organic niche market, although their total food sales pale in comparison to larger retailers.
MacAvoy said he believes Whole Foods has a strong case to make in defense of the merger -- specifically the company's argument that it faces strong competition in a broader market that includes mainstream supermarkets.
"I have trouble personally accepting the notion that you can take a particular (store) format or a particular strategy of going to market and say that's a relevant market," MacAvoy said.
A central question for Friedman will be whether the acquisition of Wild Oats would give Whole Foods the power to raise prices, a key test under antitrust law.
Both sides will present testimony from expert economists to try to bolster their views on pricing power and how the judge should view the grocery market.
But in the end, MacAvoy said it could be Mackey's own words that presents the biggest challenge for the companies.
In an e-mail to Whole Foods' board, Mackey said: "(Wild Oats) is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space.
"Eliminating them means eliminating this threat forever, or almost forever," Mackey said.
In a court brief, the companies downplayed Mackey's writings, saying he is "an extremely competitive individual" who does not care for his competitors.
"But courts have long recognized that such statements of intent have little, if any, probative value when contrasted, as here, with actual market facts of vigorous competition from every direction," the companies said.
The case also has brought attention to Whole Foods because of comments that Mackey posted on a Yahoo! financial forum under the alias of "rahodeb."
In Yahoo! postings between 1999 and 2006, Mackey talked up his own company while predicting a bleak future for Wild Oats.
Mackey has accused the FTC of using "bullying tactics" and distorting his private statements in order to block the deal.
As embarrassing as they may be, MacAvoy said the Yahoo! postings will not carry as much weight as the official e-mails Mackey sent to the Whole Foods board.
"I don't think that the FTC will put much weight on these anonymous chat room postings," MacAvoy said. Instead, the FTC may try to use them as corroborating evidence.
EU Says Intel Broke Laws in Advanced Micro Fight (Update8)
By Matthew Newman and Ian King
July 27 (Bloomberg) -- Intel Corp., the world's biggest computer-chip maker, broke antitrust laws by giving illegal rebates to customers to wrest sales away from rival Advanced Micro Devices Inc., European regulators said.
The European Commission is bringing a formal case against Intel. A statement of objections, or an official charge sheet, was sent yesterday, the European Union's antitrust regulator said in a statement released in Brussels.
The decision to file charges caps a six-year probe in Europe into discounts to personal-computer makers. Intel abused its dominant position in the $33 billion microprocessor market by encouraging customers to avoid dealing with its only rival, Advanced Micro said in a 2005 lawsuit.
``The actions of Intel are bad news for competition and consumers,'' Ton Van Lierop, a commission spokesman, told reporters today.
The regulator said Santa Clara, California-based Intel broke EU rules by abusing its dominant position ``with the aim of excluding its main rival, AMD, from the x86 computer processing units market,'' according to the statement. So-called x86 chips are the main component in all personal computers.
Intel said price competition has hurt both companies' earnings, a sign there is enough competition in the processor market. There is no danger of Advanced Micro going out of business, Intel said.
`Dead Body'
``Anyone who follows this industry and believed that AMD will exit the market, or become a dead body, isn't following the market,'' Intel General Counsel Bruce Sewell said in an interview. ``Customers and consumers are getting better prices and better product.''
Intel shares fell 47 cents to $23.53 at 4 p.m. New York time in Nasdaq Stock Market trading. Shares of Sunnyvale, California-based Advanced Micro declined 86 cents, or 5.8 percent, to $13.87 at the close of New York Stock Exchange composite trading.
Intel, which had $35.4 billion in sales last year, will have 10 weeks to respond, and a final decision can be appealed to European courts. Under EU rules, companies can be fined as much as 10 percent of annual sales for breaking antitrust rules.
The commission's biggest antitrust fine was a 497 million- euro ($683 million) penalty against Microsoft Corp. in 2004 for abusing its dominant position in PC operating systems.
Intel maintained its position by ``engaging in a relentless, worldwide campaign to coerce customers to refrain from dealing with AMD,'' Advanced Micro said in a U.S. lawsuit filed in June 2005 in Wilmington, Delaware. The case is still pending.
New Technology
Intel dominated chip sales with about 80 percent market share until last year. New technology helped Advanced Micro trim Intel's lead, giving the company about 25 percent market share at the end of 2006, according to Cave Creek, Arizona-based Mercury Research. Intel had 74 percent.
The fight has taken a toll on earnings. On July 19, Advanced Micro reported a third consecutive quarterly loss after cutting prices to compete with Intel. Last week, Intel said price declines hurt profitability in the second quarter. Net income dropped 42 percent last year.
Giuliano Meroni, Advanced Micro's president for Europe, said in a statement today that the commission is ``serious about ending Intel's abuse of its dominant position.''
``We are confident that today's statement of objections will be a catalyst in opening the global microprocessor markets for the benefit of consumers and PC companies alike,'' he said.
Formal Charges
The EU action would mark the first time that Competition Commissioner Neelie Kroes, who started in 2004, has pursued formal charges against a company for alleged abuse of a dominant market position.
The EU first began investigating Intel after a 2001 complaint by Advanced Micro. Intel was accused of offering illegal marketing rebates, selectively disclosing technical information and threatening circuit-board makers that used rival products.
In February 2002, the commission said its ``preliminary assessment'' determined that complaints that Intel abused its dominant position through rebates to prevent customers from going to rivals were ``unfounded.''
The commission reopened the probe in June 2004 after Advanced Micro offered new information that Intel gave illegal rebates and threatened companies that used rival products. The commission raided Intel's European office in July 2005, looking for evidence of anti-competitive actions.
Lock Out
The commission accused Intel of using several tactics to lock Advanced Micro out of the market. Intel allegedly provided ``substantial'' rebates to PC makers on the condition that they buy ``all or the great majority'' of their processors from Intel, the regulator said.
In addition, Intel is accused of making payments to induce PC makers ``either to delay or cancel the launch of a product line'' with Advanced Micro's processors. The commission also said Intel offered processors at prices ``on average below cost'' for the computer-server segment when bidding against Advanced Micro.
``This issue has been brought up before, and we feel comfortable that Intel's sales practices have been legal,'' said John Lau, an analyst at Jefferies & Co. in New York. He rates Intel ``buy'' and Advanced Micro ``hold'' and said he doesn't own either stock. ``Intel remains competitive on their sales of microprocessors worldwide,'' he said.
Intel has also faced antitrust investigations in Japan and Korea. The chipmaker agreed in April 2005 to remove clauses that restrict Japanese computer makers from using other semiconductors following a ruling by Japan's antitrust authority. South Korean officials raided Intel offices in February 2006.
By Matthew Newman and Ian King
July 27 (Bloomberg) -- Intel Corp., the world's biggest computer-chip maker, broke antitrust laws by giving illegal rebates to customers to wrest sales away from rival Advanced Micro Devices Inc., European regulators said.
The European Commission is bringing a formal case against Intel. A statement of objections, or an official charge sheet, was sent yesterday, the European Union's antitrust regulator said in a statement released in Brussels.
The decision to file charges caps a six-year probe in Europe into discounts to personal-computer makers. Intel abused its dominant position in the $33 billion microprocessor market by encouraging customers to avoid dealing with its only rival, Advanced Micro said in a 2005 lawsuit.
``The actions of Intel are bad news for competition and consumers,'' Ton Van Lierop, a commission spokesman, told reporters today.
The regulator said Santa Clara, California-based Intel broke EU rules by abusing its dominant position ``with the aim of excluding its main rival, AMD, from the x86 computer processing units market,'' according to the statement. So-called x86 chips are the main component in all personal computers.
Intel said price competition has hurt both companies' earnings, a sign there is enough competition in the processor market. There is no danger of Advanced Micro going out of business, Intel said.
`Dead Body'
``Anyone who follows this industry and believed that AMD will exit the market, or become a dead body, isn't following the market,'' Intel General Counsel Bruce Sewell said in an interview. ``Customers and consumers are getting better prices and better product.''
Intel shares fell 47 cents to $23.53 at 4 p.m. New York time in Nasdaq Stock Market trading. Shares of Sunnyvale, California-based Advanced Micro declined 86 cents, or 5.8 percent, to $13.87 at the close of New York Stock Exchange composite trading.
Intel, which had $35.4 billion in sales last year, will have 10 weeks to respond, and a final decision can be appealed to European courts. Under EU rules, companies can be fined as much as 10 percent of annual sales for breaking antitrust rules.
The commission's biggest antitrust fine was a 497 million- euro ($683 million) penalty against Microsoft Corp. in 2004 for abusing its dominant position in PC operating systems.
Intel maintained its position by ``engaging in a relentless, worldwide campaign to coerce customers to refrain from dealing with AMD,'' Advanced Micro said in a U.S. lawsuit filed in June 2005 in Wilmington, Delaware. The case is still pending.
New Technology
Intel dominated chip sales with about 80 percent market share until last year. New technology helped Advanced Micro trim Intel's lead, giving the company about 25 percent market share at the end of 2006, according to Cave Creek, Arizona-based Mercury Research. Intel had 74 percent.
The fight has taken a toll on earnings. On July 19, Advanced Micro reported a third consecutive quarterly loss after cutting prices to compete with Intel. Last week, Intel said price declines hurt profitability in the second quarter. Net income dropped 42 percent last year.
Giuliano Meroni, Advanced Micro's president for Europe, said in a statement today that the commission is ``serious about ending Intel's abuse of its dominant position.''
``We are confident that today's statement of objections will be a catalyst in opening the global microprocessor markets for the benefit of consumers and PC companies alike,'' he said.
Formal Charges
The EU action would mark the first time that Competition Commissioner Neelie Kroes, who started in 2004, has pursued formal charges against a company for alleged abuse of a dominant market position.
The EU first began investigating Intel after a 2001 complaint by Advanced Micro. Intel was accused of offering illegal marketing rebates, selectively disclosing technical information and threatening circuit-board makers that used rival products.
In February 2002, the commission said its ``preliminary assessment'' determined that complaints that Intel abused its dominant position through rebates to prevent customers from going to rivals were ``unfounded.''
The commission reopened the probe in June 2004 after Advanced Micro offered new information that Intel gave illegal rebates and threatened companies that used rival products. The commission raided Intel's European office in July 2005, looking for evidence of anti-competitive actions.
Lock Out
The commission accused Intel of using several tactics to lock Advanced Micro out of the market. Intel allegedly provided ``substantial'' rebates to PC makers on the condition that they buy ``all or the great majority'' of their processors from Intel, the regulator said.
In addition, Intel is accused of making payments to induce PC makers ``either to delay or cancel the launch of a product line'' with Advanced Micro's processors. The commission also said Intel offered processors at prices ``on average below cost'' for the computer-server segment when bidding against Advanced Micro.
``This issue has been brought up before, and we feel comfortable that Intel's sales practices have been legal,'' said John Lau, an analyst at Jefferies & Co. in New York. He rates Intel ``buy'' and Advanced Micro ``hold'' and said he doesn't own either stock. ``Intel remains competitive on their sales of microprocessors worldwide,'' he said.
Intel has also faced antitrust investigations in Japan and Korea. The chipmaker agreed in April 2005 to remove clauses that restrict Japanese computer makers from using other semiconductors following a ruling by Japan's antitrust authority. South Korean officials raided Intel offices in February 2006.
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