Executive pay in Europe
Pay attention
European politicians have declared war on “excessive” executive pay—but companies are more prudent than they think
AT THE height of his career at Vinci, a French construction giant, Antoine Zacharias, its chairman, had a salary of several millions, a lavish pension and stock options worth €250m. On one occasion the French financial police visited Vinci's headquarters to investigate the firm's purchase of furniture for a luxurious Paris townhouse bought for his use. In 2006 Mr Zacharias was forced out and left with a generous severance package, but he sued the company for €81m for allegedly preventing him from exercising some stock options. The case, notorious in France, was finally closed two weeks ago when a court ruled against him.
Bosses in Europe should take heed. Even when performance is outstanding—Vinci's shares went up ninefold during Mr Zacharias's nine years at the top of the firm, and its revenues more than tripled, to €26 billion ($33 billion)—opinion has turned squarely against big pay packages. Jean-Claude Juncker, president of the European Commission's “Eurogroup” of finance ministers, recently called excessive pay a “social scourge” and demanded action. When L'Expansion, a French business magazine, calculated that pay for the country's bosses went up 58% in 2007, the finance minister, Christine Lagarde, said it was “scandalous” and threatened regulation. Nicolas Sarkozy, president of France, and Horst Köhler, president of Germany, have also denounced high pay.
“If we go into a major recession with job losses, but top executives are still being paid huge sums, that's bad for the reputation of capitalism,” says Peter Montagnon, director of investment affairs at the Association of British Insurers. Banks in particular have come in for criticism. Not only are they blamed for the credit crunch, but some, such as Switzerland's UBS, have admitted that the way in which they rewarded senior employees led them to take greater risks, resulting in huge losses on subprime mortgages.
Already in the Netherlands new legislation on executive pay is making its way through parliament. The law would set €500,000 as the level of annual salary or severance payment at which extra taxes must be paid. Germany's Social Democratic Party is pushing for legislation to clamp down on pay, though its partner in government, Angela Merkel's Christian Democratic Union, has so far resisted. And the European Commission is working on a response to the Eurogroup's complaint.
How excessive is bosses' pay in Europe? It has certainly risen sharply in the past ten years, as European firms have had to compete globally for talent. Foreign bosses now run seven of the firms in France's CAC 40 index and five of Germany's DAX 30. American-style bonuses and long-term incentive plans are now the norm.
European firms now benchmark pay against international peer groups in their own industries, rather than against domestic rivals, according to Piia Pilv, a pay expert at Mercer, a consultancy. But they still pay a fraction of the sums trousered each year by American executives. According to Hay Group, a management consultancy, the median European executive earns just 40% as much as his equivalent in America (see chart).
Most importantly, European companies appear to be more determined than American ones to link pay to performance. “Firms in Europe have tended to put more stringent conditions on long-term incentive awards than in America,” says Richard Bednarek, global director of executive remuneration for Hay Group. In America grants of shares are often not tied to performance, whereas European firms generally attach performance criteria to any grant of shares, typically depending on a comparison with a peer group. Such schemes often do not pay out at all, says Mr Bednarek. Dan Vasella, boss of Novartis, a Swiss pharmaceutical giant, and a favourite target of pay activists, earned SFr17m ($14m) in 2007, down 33% from 2006, because he missed his targets.
Last year France introduced a new measure, unheard of elsewhere, which makes severance payments conditional on performance. Usually only bonuses and long-term incentive plans are tied to results. At the end of May, to comply with the law, Alcatel-Lucent, a maker of telecoms gear, changed its contract with its chief executive, Patricia Russo. If she leaves or is fired after January 2009, she will get her severance money only if the firm achieves 90% of its revenue target or 75% of its operating-profit target during the period. Remuneration consultants complain that the law could make it harder for companies to get rid of underperforming chief executives. But it is undeserved “golden parachutes” that enrage public opinion the most, and the government wants to stamp them out.
Big differences in pay persist between European markets. Companies in Scandinavian countries and in the Netherlands, which are particularly egalitarian, usually pay less than French, German or British firms. Britain and France make use of stock options, whereas firms elsewhere prefer to give “free” shares. Use of stock options, never so widespread in Europe as in America, is in fact declining in most countries. Another trend is for publicly listed firms to copy private equity's pay structure, to avoid losing the best people, according to Mercer. Executives make a big private investment in the firm, but gain many multiples of their annual salary if they meet extremely high performance criteria.
Few shareholders are unhappy with the increase in executive pay in Europe, says Jean-Nicolas Caprasse, head of European corporate-governance research at RiskMetrics Group, which advises institutions on how to vote at annual general meetings. They are gradually winning more say over pay deals, as in America (see article). By law in the Netherlands, Sweden and Norway, shareholders get a binding vote on compensation packages; in Britain they get a non-binding vote. Some Spanish and Swiss firms are voluntarily starting to offer shareholders a vote.
In Britain, where “say on pay” has been in place since 2004, says Mr Montagnon, shareholders now have a far better understanding of the structure of executive pay packages and their link with performance. “But nothing stops the volume of payments, and the amounts seem to rise inexorably,” he says. It is near impossible, of course, to determine the correct absolute level of executive pay. Shareholders will find it hard to prevent headline-grabbing paydays, even if they wanted to. So expect further political outrage, and more red-faced bosses coming under fire.
Israel and Hamas
Can it hold?
Israel and Hamas agree to a ceasefire in Gaza
AFTER weeks of indirect negotiations using Egyptian mediation Israel confirmed on Wednesday June 18th that it and Hamas, the Islamist movement that controls the Gaza strip, had reached a ceasefire agreement. Barring a last-minute escalation, hostilities between Israel and the militant groups in Gaza will cease on the morning of June 19th.
According to reports, the two sides agreed to start with three days of calm. If that holds, Israel will allow some construction materials and merchandise into Gaza, slightly easing an economic blockade that it has imposed since Hamas wrested control of the strip from its secularist political rival, Fatah, a year ago. The next phase will be to renew talks on an exchange of Palestinian prisoners for an Israeli soldier, Gilad Shalit, who will complete two years of captivity in Gaza next week.
For a long time a ceasefire seemed unattainable. Israel had wanted Mr Shalit’s release to be part of a deal from the outset, while Hamas insisted that the ceasefire extend to the West Bank too. That both sides have agreed to allow these stages to come later is a sign of their need for some respite.
Gazan militants have rained a steady stream of Qassam rockets on to Israeli towns neighbouring the strip and have fired the occasional longer-range Grad at the coastal city of Ashkelon. The inaccurate rockets kill rarely, but keep a large population terrorised. Israel’s attacks on Gaza have been more targeted, far bloodier—some 370 Gazans dead since the beginning of this year, of whom at least 70 were children—but quite ineffectual at reducing the rocket fire.
Just as ineffectual has been Israel’s economic stranglehold. Hamas’s popularity among Palestinians in opinion polls seems to rise when Gaza is under the most pressure. But what was left of the Gazan economy, after two years of sanctions that Israel imposed on the Palestinian Authority after Hamas won an election in 2006, has been laid waste by the past year’s blockade, in which Israel has allowed in only minimal levels of humanitarian goods and fuel.
However, there is still plenty that could go wrong. While other militant groups in Gaza have indicated that they will respect the ceasefire, there are quite a few who could try to spoil it. Among them are members of Fatah. Fatah is still smarting at Hamas’s takeover last year and does not want to see anything that could strengthen it.
Moreover, the ceasefire will fall apart unless the two sides keep moving towards each others’ demands, and both are reluctant to do so. Hamas will want Israel to keep gradually lifting its economic siege, but Israel’s ultimate goal is still to weaken Hamas in favour of Fatah, with whose leader, Mahmoud Abbas, it is holding peace talks. Israel, meanwhile, wants Hamas to reduce the smuggling of weapons through tunnels under Gaza’s border with Egypt, but Hamas considers that the arms are essential to beefing itself up against a possible Israeli military incursion. In short, the ceasefire is likely to last only as long as neither side feels it is benefiting the other one too much.
If it collapses or never gets off the ground, talk will return to the possibility of a massive incursion by Israel’s army to wipe out Hamas’s military supremacy. Politicians and security officials alike have been saying recently that it is only a matter of time, but in practice they will be cautious about launching one, since the cost in lives to the Israeli army, let alone the Palestinians, could be huge.
The ceasefire deal is something of a victory for the defence minister, Ehud Barak, who has challenged Ehud Olmert, the prime minister, to step down over a corruption scandal. Overseeing a military operation would be a risk for Mr Barak when he is running for election. But the timing may not end up being in his hands.
June 18 (Bloomberg) -- The Bank of Japan is watching the effect of higher commodity prices on global inflation and growth in the world's second-largest economy, meeting minutes show.
Japan faces ``considerable downside risks including uncertainty regarding future developments in overseas economies and global financial markets,'' members agreed at their May 19- 20 meeting, according to the minutes released today in Tokyo. ``Inflation risks had been heightening worldwide given the high international commodity prices.''
Bonds rose on speculation the central bank will hold off raising the benchmark interest rate from 0.5 percent this year as growth stagnates. Governor Masaaki Shirakawa said last week that his board needs to examine whether rising oil and raw- material prices will force companies and consumers to spend less.
``The Bank of Japan's message is that they're watching the upside risks for prices and downside risks for growth and the latter will prevail for the time being,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. ``There will be little chance for the bank to raise rates at least during the current fiscal year'' ending March 2009.
The yield on Japan's 10-year bond fell 6 basis points to 1.77 percent, the lowest since June 10, as of 12:33 p.m. in Tokyo. The yen traded at 107.96 per dollar from 107.93 before the minutes, and has weakened 2.3 percent this month.
Companies, Households
Rising commodities costs pushed wholesale-price inflation to 4.7 percent in May, the steepest rate in 27 years. Some companies have transferred those costs to households, causing consumer prices to climb the most in a decade.
The seven board members agreed growth will probably keep cooling because of the increase in raw-materials prices. Shirakawa, after his board kept rates on hold on June 13, said costlier commodities exacerbate the ``downside risks for domestic demand'' as well as fan people's inflation expectations.
``As long as these uncertainties do not recede, these downside risks to growth keep the upside risks to inflation in check and prevent the BOJ from actually resuming its tightening steps,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong.
The central bank has kept the benchmark rate at 0.5 percent since doubling it in February 2007. The policy board last week cut its evaluation of exports and profits as the global slowdown crimps demand and surging costs squeeze margins.
G-8's Concern
Finance ministers from the Group of Eight nations meeting in Osaka last week singled out spiraling food and fuel prices as their chief concern for the global economy. ``Elevated commodity prices, especially of oil and food, pose a serious challenge,'' they said in a statement on June 14.
Inflation is accelerating worldwide and the price of oil reached an unprecedented $139.89 a barrel on June 16. Japan's core consumer prices, which exclude fresh food, climbed 0.9 percent in April from a year earlier after rising 1.2 percent in March, the fastest pace since 1998.
A report due June 27 will probably show that core prices increased around 1.5 percent in May after a gasoline tax was reinstalled in the month, according to Mari Iwashita, chief market economist at Daiwa Securities SMBC Co.
Some members highlighted the need to examine households' expectations that prices will keep climbing.
``Attention should be paid to the effects of the ongoing rise in the prices of daily necessities on consumers' inflation expectations and firms' price-setting behavior,'' they said.
Some 87.1 percent of households predict prices will rise over the next 12 months, the most on record, a Cabinet Office survey showed last week.
Within Range
Even at a decade high, Japan's inflation remains within the bank's zero to 2 percent definition of price stability and is lower than in the U.S. and Europe. Core prices in the U.S. rose 2.3 percent in May from a year earlier and European inflation surged 3.7 percent in the month, the fastest pace in 16 years.
Rising oil and commodities prices support Japan's exports to resource-rich economies as well as increase the cost of imports, some members said. Both factors need to be considered when assessing the effect of raw-materials prices on the economy, they said. Japan relies on imports for virtually all of its oil.
Many members said keeping rates low for a long time could cause economic swings, according to minutes of the April 30 meeting, also released today. The bank dropped its two-year call for raising rates in its semi-annual outlook published that day.
June 18 (Bloomberg) -- Berkshire Hathaway Inc., the investment company controlled by billionaire Warren Buffett, may bank a $600 million profit if InBev NV succeeds in its $46.3 billion takeover of Budweiser-maker Anheuser-Busch Cos.
Buffett's company owned 35.56 million shares of the brewer as of March 31. At the stock's March low of $45.68, the stake was worth about $100 million less than the $1.72 billion Buffett paid. InBev's $65 a share offering price would allow him to unload the investment for $2.31 billion.
Carlos Brito, chief executive officer of InBev, seeks to create the world's largest brewer by sales volume, adding Budweiser to the Leuven, Belgium-based company's Stella Artois, Bass and more than 200 other brands. Berkshire has owned its Anheuser shares for about three years.
``Here's the payout right up front after a very short incubation period as far as Berkshire is concerned,'' said Frank Betz, a partner at Carret Zane Capital Management, which oversees $800 million including Berkshire and Anheuser-Busch shares in Warren, New Jersey. ``I think he would go along with this, especially at the premium.''
Belgium's newspaper De Standaard reported that Buffett had committed to support the takeover, without saying where it got the information.
Buffett didn't respond to repeated requests for comment on InBev's offer, other than to say through his assistant Debbie Bosanek that InBev board member and fellow billionaire Jorge Paulo Lemann is a ``good friend.'' Lemann is one of a trio of Brazilian investment bankers who built Sao Paulo-based Cia. de Bebidas das Americas, or AmBev, which was sold to Interbrew SA in 2004 to form InBev.
Iconic Brands
Lemann and his partners received about $4 billion in InBev stock in the deal. Brito, a Brazilian who had run AmBev, displaced InBev's U.S. chief executive officer in less than two years.
Buffett, 77, owns more than a quarter of Omaha, Nebraska- based Berkshire, which he built over four decades from a failing maker of men's suit linings into a $200 billion holding company with businesses that range from candy-making to insurance. Berkshire earned $13.2 billion last year and has a $72.6 billion stock portfolio.
Ranked by Forbes magazine as the world's richest person, Buffett is known for investing in companies with strong management and durable competitive advantages such as iconic brands, and holding them for years or even permanently.
Anheuser-Busch disclosed that Berkshire was a ``significant shareholder'' in April 2005. The holding totaled 43.85 million shares, or 5.6 percent of the brewer, according to Berkshire's 2005 annual report. Since then, Berkshire trimmed its holding to 5 percent as of March 31, according to a regulatory filing.
Largest Shareholders
Berkshire is the second-largest shareholder, after Barclays Plc, which owned 6.13 percent as of March 31, according to Bloomberg data.
``Our board will pursue the course of action that is in the best interests of Anheuser-Busch's stockholders and expects to make its determination in due course,'' Chief Executive Officer August Busch IV said in a letter to Brito that was distributed as part of a statement this week.
In an effort to scuttle InBev's unsolicited bid, St. Louis- based Anheuser-Busch has contacted Mexican brewer Grupo Modelo SAB's Chief Executive Officer Carlos Fernandez on a possible combination, the Wall Street Journal reported on June 12. Buying Modelo, which is 50 percent-owned by the U.S. brewer, would undermine InBev's bid by making the company too expensive for it to buy.
Grupo Modelo, based in Mexico City, said in a statement last week that it plans to remain a Mexican-owned company and will make a decision should Anheuser-Busch and InBev decide to merge.
Busch Family
The U.K.'s Guardian newspaper reported that Buffett will meet this week with Anheuser's CEO, citing unidentified people close to the deal. Busch requested Buffett's opinion, and the investor may recommend that the Busch family consider discussions with InBev, the newspaper said.
The Busch family, which has run the brewer for five generations, doesn't have enough shares to block a purchase from InBev with a shareholder vote. Anheuser-Busch executives and directors, both family members and outsiders, control 4.5 percent of the brewer's stock, according to a March regulatory filing.
Anheuser's shares jumped 23 percent since May 1 as speculation over a possible bid grew, closing at $61.20 yesterday in New York Stock Exchange composite trading. The Wall Street Journal in February first reported that the two companies had discussed a merger. InBev's shares slipped 8 percent since May 1, to 48.58 euros in Brussels trading.
June 18 (Bloomberg) -- Senator John Cornyn says ``war hero'' John McCain is ``clearly my choice'' for the presidency, citing his stances on national security, cutting wasteful spending and picking judges ``who believe in the Constitution.''
The Texas Republican sounded less enthusiastic about McCain last year when the Senate was considering an immigration bill: He got into an expletive-filled shouting match with him during a bid to reach a compromise, the Washington Post reported.
With Republican fortunes sinking under the weight of a prolonged war, a weak economy and one of the most unpopular presidents in history, a lot of former McCain foes are reaching out to him like a lifeline. That's because he's more popular among voters than is the Republican brand itself and may be the party's best hope for attracting independent voters.
``We've seen a lot of the grumbling quiet down because the stakes are very high,'' said Scott Reed, who served as campaign manager for Republican Bob Dole's 1996 presidential bid. ``He's going to have even more friends after the convention.''
During his two decades in the U.S. Senate, McCain, 71, has drawn more flak from fellow Republicans than any party lawmaker for bucking his colleagues on issues from immigration and campaign-finance overhaul to global warming, as well as for his fiery temper.
Now, party lawmakers, including Senators Mitch McConnell, the minority leader, Thad Cochran of Mississippi and Charles Grassley of Iowa, are professing their support.
`Stunningly Stupid'
McConnell's clashes with McCain go back a decade, first over a settlement of tobacco-related lawsuits and then campaign- finance legislation. In an October 1999 debate over election funding, the Kentucky lawmaker demanded that McCain prove his allegation that special-interest money was corrupting Congress, in what the New York Times called an ``unusually personal'' exchange. McConnell, 66, later called a Senate vote in favor of the McCain-sponsored legislation a ``stunningly stupid'' act.
Now, he says he's ``happy to support'' McCain.
For lawmakers, that support may be politically expedient. Recent polls show that while voters are much more willing to back an unidentified Democrat for president than an unidentified Republican, that changes when McCain's name is mentioned.
According to an NBC News/Wall Street Journal poll conducted June 6-9, 51 percent of respondents said they would prefer a Democrat for president, compared with 35 percent who wanted a Republican. When asked to pick a specific candidate, they backed Democrat Barack Obama over McCain by just 47 percent to 41 percent.
Santorum Flips
This isn't the first time Republicans have changed their tune about McCain.
Former Pennsylvania Senator Rick Santorum criticized McCain over his opposition to President George W. Bush's tax cuts in 2001 and 2003, and other issues including campaign funding and immigration. Still, when Santorum faced an uphill re-election battle in 2006, his old enemy came to the state to campaign for him. After Santorum lost, he resumed his attacks on McCain.
Earlier this year, Santorum, 50, told radio talk-show host Laura Ingraham that McCain has ``a horrible record in protecting us here at home,'' according to the Chicago Tribune.
By April, his line had changed again. In an editorial in the Philadelphia Inquirer, he wrote that McCain ``is clearly the candidate with the capacity, judgment, experience and will to confront America's enemies.'' McCain's decision to work with Democrats on issues such as the confirmation of judges ``was probably for the best,'' he said.
`Ideal Profile'
Antitax advocate Grover Norquist and party activist Ralph Reed, who were once targeted by McCain during an investigation of lobbyist Jack Abramoff, are backing the presumptive Republican presidential nominee.
``McCain was in many ways the ideal-profile candidate for the Republicans to nominate in 2008,'' Reed said in an interview yesterday, citing his appeal among independents.
For others, backing McCain is the best option available. Norquist said he now believes that McCain was misled by his staff in the Abramoff probe. And he said McCain's positions on taxes and other questions have improved.
``On the tax issue, he's moved to a position where we are very comfortable,'' he said in an interview. ``On spending, he's always been sort of better than Bush.''
While McCain opposed Bush's two tax cuts, he's since come around to supporting them.
Cochran's `Cold Chill'
Cochran, 70, who earlier this year told the Boston Globe that the thought of McCain becoming president ``sends a cold chill down my spine,'' later declared ``he would be the best president,'' according to Reuters.
Eight years ago, Representative Jeb Hensarling, a Texas Republican, was one of several people McCain targeted with a federal complaint for allegedly violating election laws in connection with an advertisement accusing the Arizona senator of being an environmental polluter.
Today, Hensarling, 51, is eagerly backing McCain for president.
``I can and will enthusiastically support Senator McCain as our Republican nominee,'' he said in a Feb. 11 statement after Mitt Romney dropped out of the race. ``He has earned our party's nomination, fair and square.''
June 18 (Bloomberg) -- President George W. Bush called on Congress to lift a 27-year-old moratorium on offshore oil and gas drilling, putting himself in the middle of an election-year debate over U.S. energy policy.
By urging lawmakers to lift the federal ban and work with coastal states to open up more areas of the outer continental shelf to exploration, Bush is reinforcing a similar proposal endorsed yesterday by John McCain, the presumptive Republican presidential nominee. Barack Obama, the Democratic candidate, opposes taking such a step.
``For many Americans there is no more pressing concern than the price of gas,'' Bush said at the White House today. ``Congress must face a hard reality. Unless members are willing to accept gas prices at today's painful levels or even higher, our nation must produce more oil.''
Expanded offshore exploration has faced opposition in Florida, which will be a battleground in the presidential campaign. Still, rising oil prices are creating a drag on the economy, and energy costs have become a top issue for voters.
Administration officials rejected suggestions that the administration was using the issue to harden political lines in an election year.
``Have you been to the pump?'' Keith Hennessey, director of Bush's National Economic Council, told reporters before Bush's remarks. ``Four-dollar gasoline has a way of changing people's perspective.''
Other Steps
In his statement, Bush called for lifting the ban on offshore oil drilling, allowing exploration and drilling in a portion of the 19-million-acre Arctic National Wildlife Refuge in Alaska, leasing of federal lands to mine and extract oil from shale in the Green River Basin of Colorado, Wyoming and Utah, and accelerating the permit process for new refineries.
Lawmakers last debated oil drilling in U.S. coastal areas in 2005 and 2006, when gasoline averaged $1.84 a gallon during the two-year period, Bloomberg data showed.
Still, it will be difficult to get such a measure through Congress in an election year and with limited time before lawmakers return to their districts to campaign.
``I don't see how either house of Congress passes this,'' said Pete Davis, president of Davis Capital Investment in Washington. ``This has been a long-standing issue and the lines are very hardened.''
Under Pressure
Bush ``is under a lot of pressure to show that he can still be effective on an issue that matters to voters, so this is one they've pulled out of the closet,'' Davis said.
Oil prices are about double what they were a year ago and up about 40 percent this year. Bush called on lawmakers to act quickly.
``There is no excuse for delay,'' Bush said, asking Congress to reconsider its past opposition to his energy proposals.
As the July 4 Independence holiday approaches, Bush said lawmakers visiting their home districts ``will need to explain why $4 gallon gasoline is not enough incentive for them to act.''
Arizona Senator McCain, 71, the presumptive Republican presidential nominee, yesterday called for letting states open up more offshore territory to oil drilling, even as he promised a break from the energy policies of the Bush administration. That is a reversal of his previous support for the moratorium, though he continues to oppose drilling in the Arctic refuge.
Obama's Opposition
Obama, 46, an Illinois senator who the presumptive Democratic nominee, said there is no evidence that lifting the ban on offshore drilling would provide relief to consumers.
``This is not something that is going to give relief now, and it's not a long-term solution,'' Obama said yesterday.
Hennessey said about 18 billion barrels of oil could be tapped on the outer continental shelf; 10 billion to 11 billion in Alaska; and as much as 800 billion from oil-shale extraction in the Green River Basin of Colorado, Utah and Wyoming. Hennessey stressed that these are old figures.
The proposal may touch off a political firestorm between energy companies and environmental groups, between members of Congress from coastal states such as New Jersey, Florida, Virginia or California, and draw a contrast between Republican governors.
Governors
Florida Governor Charlie Crist joined Bush and McCain in calling for an end to the ban. Crist reversed his longstanding opposition to drilling off the shores of his state hours after McCain made his call and administration officials said Bush will ask Congress to allow ``environmentally friendly'' drilling, the Wall Street Journal reported.
Crist had opposed offshore drilling on concern it would damage Florida's beaches and drive away tourists. ``We must be pragmatic in protecting both our beaches and our economy,'' Crist said in a written response to the newspaper.
A telephone call to Thomas Philpot, a spokesman for the Republican governor, wasn't immediately returned.
In California, Republican Governor Arnold Schwarzenegger opposes lifting the moratorium but ``still absolutely supports'' McCain, said Aaron McLear, a spokesman for the Republican governor, the Los Angeles Times reported. ``They're going to disagree from time to time, and this is one of those cases.''
Alabama Governor Bob Riley, a Republican, supports lifting the ban, spokesman Todd Stacy said, as long as companies operating off the coast, which have found a way to avoid paying $40 million a year in severance taxes the state needs, would be required to pay their share.
``Governor Riley thinks offshore drilling should happen as long as the people of Alabama are compensated,'' Stacy said.
Congressional Democrats have long opposed efforts to end the ban on offshore drilling that has existed in some areas since 1981. Bush said that opposition ``has helped drive gas prices to record levels.''
Oil futures in New York have surged fourfold since the end of 2003, including a 40 percent jump this year, and touched a record this week at $139.89 a barrel.
June 18 (Bloomberg) -- John Paulson, founder of hedge fund Paulson & Co., said global writedowns and losses from the credit crisis may reach $1.3 trillion, exceeding the International Monetary Fund's $945 billion estimate.
``We're only about a third of the way through the writedowns,'' Paulson, 52, told the GAIM International hedge fund conference in Monaco today. ``There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.''
Paulson, whose New York-based company manages about $33 billion, made bets that subprime-mortgage debt would fall after he noticed ``bubble like'' prices. His Paulson Partners fund rose 18 percent a year since it started in 1994, and his main fund focused on subprime debt rose 591 percent last year. Banks and securities firm worldwide posted more than $395 billion in losses and writedowns since the subprime crisis started last year.
The U.S. is heading into a recession as falling home prices weigh on consumer spending, Paulson said. The second half of this year will be worse than the first as the economic slowdown continues into 2009. Signs of stress are ``accelerating'' in the housing market, he said. Paulson said he's betting on falling securities prices.
``I don't consider myself a bull or a bear,'' he told the audience at Monaco's Grimaldi Forum. ``I'm a realist.''
A Royal Bank of Scotland Group Plc strategist agrees that stock and credit markets still face the worst in a slump that started almost eight months ago.
`Most Bearish Period'
``Mid-July through to October is likely to be the most bearish period we will experience in the bear market that began in the fourth quarter of last year,'' Bob Janjuah, a credit strategist at the bank in London, wrote in a report dated June 11.
The MSCI World Index has lost 13 percent since a reaching a record in October. The index is down 4.1 percent this month after the Federal Reserve and the European Central Bank policy makers indicated interest rates may need to increase as the threat of inflation intensifies.
The economic slowdown and inflation have put central bankers ``into a dangerous corner'' where the chance of a ``major policy error has just super-spiked,'' Janjuah wrote.
Ambac Financial Group Inc., the second-biggest bond insurer, is ``the most leveraged, troubled company out there,'' Paulson said. It is at risk of being downgraded to non-investment grade, Paulson said. Ambac spokeswoman Vandana Sharma declined to comment.
`Deteriorate Significantly'
The housing and credit-market slump pushed Ambac to three straight quarterly losses after more than a decade of profit. It has written down $5.2 billion since the collapse of the U.S. subprime mortgage market last year.
Paulson's outlook is consistent with the view of hedge funds meeting in Monaco this week. More than 80 percent of the 1,300 fund managers, investors and service providers gathered in Monaco for the annual conference said they expect the credit crisis will continue, according to a GAIM survey. About 23 percent said the situation ``will deteriorate significantly.''
Bill Browder, founder and head of Hermitage Capital Management, said securities firms have a ``vested interest'' in claiming an early end to the crunch. ``If we're in the seventh or eighth inning, this is a 100-inning game,'' he said.
Paulson's speech was the biggest draw at the event, which comes as the hedge fund industry endures some of its worst performance in nearly two decades, rising just 0.13 percent through May, according to Chicago-based Hedge Fund Research Inc.
``John Paulson has of course been very successful by making the right trade last year,'' said Manuel Echeverria, chief investment officer of Optimal Investment Services SA, a Geneva based investor with about $10 billion under management. ``We'll have to see what he's going to do now that the trade has run out of juice.''
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