Внеаудиторное чтение по английскому языку. Учебное пособие

10.7 Finish the following sentences using the original text:

1Oil prices have surged by more than 12% since the start of the year to hit $125 a barrel and some analysts… .

2If oil rises sharply, it is more likely than not that household energy bills… .

3The emergence of bio-fuels means that higher oil prices has tended to exert upward pressure on agricultural commodity prices… .

4High inflation makes it hard for the Bank of England to support economic growth through… .

5Consumers don't have much choice about whether or not… .

6Slower economic growth will reduce tax receipts and could raise… .

71

10.9Write out key expressions. Make up a plan for retelling.

10.10Be ready to retell the text in class.

11 Unit 11 The not-for-profit sector

Are regulators striking the right balance between safety and profitability?

Nary a cucumber sandwich was thrown and the heckling was rather subdued. But the genteel rebellion over executive pay at the Barclays shareholders’ meeting in London last month, an echo of similar disquiet at annual meetings in America, shows how fed up bank investors have become with their returns.

No wonder. Between 2007 and the end of last year shareholders in banks globally have lost almost 10 % of their investment each year, according to the Boston Consulting Group (see figure 6).

Figure 6

72

Behind this international average lie some truly horrible losses. Investors who stuck it out in Dutch banks saw the value of their holdings fall by almost 28 % a year. Holders of French, German and Swiss banks suffered average annual losses of close to 20 %. Those in American and British banks lost 14 % and 16 % a year respectively. “The little secret to doing well…has been ‘just don’t hold banks’,” says Jacob de Tusch-Lec, a fund manager at Artemis.

A fall in the price of an asset is usually a good signal to consider buying it. But those investors who thought that they had timed the bottom of the market have been proved wrong again and again. “I’ve been dipping in and out of Italian banks but am keeping very quiet about it,” says one fund manager. “Last year when I told an investor [in my fund] that I was holding some he got up and left the room.”

Such sharp falls in shareholder value are not just distressing for investors. They should also worry the businesses and households that need a healthy banking system to keep credit flowing. If the shares and debt issued by banks are uninvestible, then over time the banking system will have to shrink or be nationalised.

There are three reasons why the banks have been such a bad bet. The first is weakness in Western economies, which has led to elevated losses, subdued demand for credit and deleveraging by the banks themselves. With returns on assets remaining largely unchanged (this is a tough time to charge customers more), the industry’s total profits are likely to keep falling.

A second reason is worries about sovereign defaults. In the second half of last year European banks sold virtually none of the long-term bonds that they use, alongside deposits, to finance loans. These markets have thawed slightly since the European Central Bank (ECB) provided more than €1 trillion ($1.3 trillion) in three-year loans to European banks. But they are still fragile, partly because banks have pledged collateral to the ECB, leaving less to repay bondholders if a bank were to go bust. Simon Samuels, an analyst at Barclays, points out that almost five years since the start of the financial crisis, European banks are more dependent on state support than ever. “What we have, in effect, is

73

nationalisation via the debt markets,” he says. “If you can’t get a private-sector debt model to work then there is no real investible equity.”

The weak economy and worries over the euro area are, with some luck, transient problems. Yet weighing on investors’ minds is a third concern: the impact that regulation will have on banks’ long-term profitability and the safety of their debt. Returns on equity have fallen precipitously, from about 15 % before the crisis to below 10 % now. British banks’ returns have slipped from almost 20 % to about 5 % last year (see figure 7).

A big reason is that banks have to hold much more equity as a buffer against losses. Simple arithmetics dictates that returns must fall. Other regulations to make banks safer also have a cost. Banks will have to hold many more liquid assets, which can be quickly sold. They are also being forced to stop profitable (if risky) activities such as proprietary trading.

Figure 7

Rules aimed at ring-fencing retail banks, “bailing in” bondholders and making banks easier to wind up if they fail are also pushing up banks’ funding costs and depressing returns. They are doing little to encourage investors to buy bank bonds. “If regulators told European banks to raise bail-in debt there would be a resounding clatter of pennies at the bottom of the tin but no folding money at all,” says the chairman of a large bank.

For all the gloom, most big banks are still forecasting (or at least aiming for) returns on equity of 12-15 %, which would handily cover the cost of their capital. That would also

74

be respectable by historical standards: Autonomous Research reckons that over the long term banks’ returns have averaged 10 % in Britain and 9 % in America. But it invites two questions.

The first is whether banks can attract investors with a combination of utility-like returns and bank-like volatility. Regulators hope better-capitalised banks will be less volatile and more attractive. More pragmatically, index-tracking investors may have little choice but to hold them.

The second is whether banks can juice their returns by managing costs better. There is plenty of room to do so, particularly in wholesale banking. The Boston Consulting Group reckons that investment banks can quickly cut 10-15 % of fat in areas such as market data and exchange fees. Deeper savings can be made by reducing layers of management and title creep: it found that almost half of the staff in second-tier investment banks had the title of director or managing director compared with 20-30% among the better firms.

But banks do not have a great record as beancounters. European lenders have managed to reduce their overall cost-to-income ratio only to about 62 % from 69 % since the mid-1990s, an average improvement of 0,3 % a year. Their current targets assume an average improvement of 2,7 % a year over the next three years, a figure Mr. Samuels thinks looks “far too ambitious”. To keep shareholders and creditors interested, they may have little choice.

(The Economist)

11.1 Read the text thoroughly and be ready to arrange the following statements into the logical order of the text:

1Banks will have to hold many more liquid assets, which can be quickly sold.

2Between 2007 and the end of last year shareholders in banks globally have lost almost 10% of their investment each year.

3Banks do not have a great record as beancounters.

4The weak economy and worries over the euro area are, with some luck, transient problems.

5A fall in the price of an asset is usually a good signal to consider buying it.

75

6There are three reasons why the banks have been such a bad bet.

7Deeper savings can be made by reducing layers of management and title creep.

8Regulators hope better-capitalised banks will be less volatile and more attractive. Match the words with their definitions:

11.3 Insert the correct preposition.

1Investors who stuck it … in Dutch banks saw the value of their holdings fall … almost 28 % a year.

2“I’ve been dipping … and … of Italian banks but am keeping very quiet about it,” says one fund manager.

3With returns … assets remaining largely unchanged, the industry’s total profits are likely to keep falling.

4The weak economy and worries … the euro area are, … some luck, transient problems.

76

5If regulators told European banks to raise bail-in debt there would be a resounding clatter … pennies … the bottom of the tin but no folding money … all.

6Autonomous Research reckons that … the long term banks’ returns have averaged 10 % in Britain and 9 % in America.

7The Boston Consulting Group reckons that investment banks can quickly cut 1015 % … fat … areas such as market data and exchange fees.

11.4 Say whether the statement is true or false. If the statement is false, give the correct variant:

1Holders of French, German and Swiss banks suffered average annual losses of close to 20 %.

2If the shares and debt issued by banks are uninvestible, then over time the banking system will have to shrink or be privatised.

3These markets have thawed slightly since the European Central Bank (ECB) provided more than €3 trillion in four-year loans to European banks.

4For all the gloom, most big banks are still forecasting returns on equity of

12-15 %.

5European lenders assume an average improvement of 2.7% a year over the next three years.

11.5 Answer the following questions.

1When did Barclays shareholders’ meet in London?

2How much of their investment have shareholders in banks lost each year between 2007 and the end of last year?

3What has the little secret to doing well been, according to Jacob de Tusch-Lec?

4Whom should sharp falls in shareholder value worry?

5How many reasons are there for the banks having been such a bad bet?

6What has weakness in Western economies led to?

7How have returns on equity fallen?

8What do regulators hope for?

9How can deeper savings be made?

77

10 How have European lenders managed to reduce their overall cost-to-income ratio since the mid-1990s?

11.7 Finish the following sentences using the original text:

1Investors who stuck it out in Dutch banks saw the value of their holdings… .

2A fall in the price of an asset is usually a good signal… .

3If the shares and debt issued by banks are uninvestible, then over time… .

4Rules aimed at ring-fencing retail banks, “bailing in” bondholders and making banks easier to wind up if they fail are also pushing up banks’… .

5Autonomous Research reckons that over the long term banks’ returns have averaged… .

6European lenders have managed to reduce their overall cost-to-income ratio only to about… .

11.8 Choose the correct variant.

1Between … and the end of last year shareholders in banks globally have lost almost 10% of their investment each year.

2 Holders of French, German and Swiss banks suffered average annual losses of

close to… .

78

11.9Write out key expressions. Make up a plan for retelling.

11.10Be ready to retell the text in class.

12 Unit 12 The future of the European Union

The choice

What will become of the European Union? One road leads to the full break-up of the euro, with all its economic and political repercussions. The other involves an

79

unprecedented transfer of wealth across Europe’s borders and, in return, a corresponding surrender of sovereignty. Separate or superstate: those seem to be the alternatives now.

For two crisis-plagued years Europe’s leaders have run away from this choice. They say that they want to keep the euro intact — except, perhaps, for Greece. But northern European creditors, led by Germany, will not pay out enough to assure the euro’s survival, and southern European debtors increasingly resent foreigners telling them how to run their lives.

This has become a test of over 60 years of European integration. Only if Europeans share a sense of common purpose will a grand deal to save the single currency be seen as legitimate. Only if it is legitimate can it last. Most of all, it is a test of Germany. Chancellor Angela Merkel maintains that the threat of the euro’s failure is needed to keep wayward governments on the path of reform. But German brinkmanship is corroding the belief that the euro has a future, which raises the cost of a rescue and hastens the very collapse she says she wants to avoid. Ultimately, Europe’s choice will be made in Berlin.

Last summer this newspaper argued that to break the euro zone’s downward spiral required banks to be recapitalised, the European Central Bank (ECB) to stand behind solvent countries with unlimited support, and the curbing of the Teutonic obsession with austerity. Unfortunately, successive European rescue plans fell short and, though the ECB bought temporary relief by supplying banks with cheap, long-term cash in December and February, the crisis has festered and deepened.

In recent months we have concluded that, whether or not Greece stays in the euro, a rescue demands more. If it is to banish the spectre of a full break-up, the euro zone must draw on its joint resources by collectively standing behind its big banks and by issuing Eurobonds to share the burden of its debt. We set out the scheme’s nuts and bolts below. It is unashamedly technocratic and limited, designed not to create the full superstate that critics (and we) fear. But it is plainly a move towards federalism — something that troubles many Europeans. It is a gamble, but time is running short. Rumours of bank runs around Europe’s periphery have put savers and investors on alert. The euro zone needs a plan.

80