Germany to Back Italian as Central Bank Chief

BERLIN—German Chancellor Angela Merkel is set to endorse Italian official Mario Draghi as the next president of the European Central Bank, said people familiar with the matter.

German backing makes Mr. Draghi’s elevation to Europe‘s top central-banking job a virtual certainty because the Italian, who now heads Italy’s central bank, already enjoys the support of other key euro-zone countries, including France. European leaders are due to make a formal decision on the successor to current ECB head Jean-Claude Trichet at a summit in June.

The German leader has come to the view that there is no viable alternative to Mr. Draghi, but hasn’t yet made her position public because she is concerned about a possible adverse reaction in Germany’s media and parliament to an Italian ECB head, these people said.

Some in Germany have also viewed Mr. Draghi as being too close to the investment-banking community because he previously worked for Goldman Sachs Group.

Ms. Merkel might make her endorsement Mr. Draghi public soon, although the timing of any statement remains uncertain, said the people familiar with the matter.

The chancellor’s reluctant backing of Mr. Draghi is a recognition that French President Nicolas Sarkozy effectively closed off other options on Tuesday by pre-emptively endorsing Mr. Draghi for the job.

Ms. Merkel would risk a serious rift with France, her most important partner in managing the euro zone’s debt crisis, if she tried to veto Mr. Draghi now, German officials said. She is unwilling to spark such a fight with Paris, they said.

German officials have so far viewed Mr. Draghi’s candidacy warily, not because they regard him personally as unsuitable, but because in Germany, Italy has long a poor image on fiscal and monetary discipline.

Berlin is worried that an Italian-led ECB could add to public skepticism about the euro at a time when southern European countries’ debts have sparked a crisis of confidence in the currency.

However, Ms. Merkel has had to accept that Mr. Draghi’s professional credentials are widely respected in Europe, and that no other candidate has much appeal across the euro zone.

Mr. Draghi, who has a doctorate in economics from the Massachusetts Institute of Technology, has held senior positions in Italian government as well as at Goldman Sachs.

He has won international plaudits for his work at the Financial Stability Board, an international committee charged with coordinating the overhaul of global financial regulation in the wake of the banking crisis.

Ms. Merkel is likely to try to sell Mr. Draghi’s nomination to her skeptical public by arguing that he can be trusted to take a tough line on fighting inflation, and that his southern European origins will be an asset in persuading the euro’s southern members to adopt stricter financial discipline.

Ms. Merkel originally planned to put a German at the helm of the ECB, as part of her strategy for convincing German voters and lawmakers that the euro remains in Germany’s interests despite the rising cost of propping up cash-strapped euro-zone countries such as Greece. But Ms. Merkel’s preferred candidate—Bundesbank President Axel Weber—unexpectedly resigned in February, citing fundamental differences with his ECB colleagues over how to respond to Europe’s debt crisis. That left Germany without a credible successor to Mr. Trichet.

Since February, Mr. Draghi has worked hard to convince Germany that he would safeguard financial rigor and price stability in the euro zone, and momentum behind his campaign has grown while other candidates have failed to attract much support.

A deal between France and Italy this week appears to have sealed the matter. Mr. Trichet’s retirement this fall will leave France without a representative on the ECB’s six-member executive board. Mr. Sarkozy this week proposed a simple swap with Italian premier Silvio Berlusconi: Italy would get the ECB presidency in return for withdrawing its current member of the ECB executive board, Lorenzo Bini Smaghi, to make way for a new French member.

The bilateral accord between the euro zone’s second- and third-biggest economies irritated Berlin, which wanted to take more time before settling the ECB succession.

Some German officials believe Ms. Merkel played her hand badly by waiting too long, leaving the initiative to France and failing to extract any significant concessions in return for backing Mr. Draghi.

Goldman Sachs, JPMorgan Among Banks Probed by EU Over CDS

Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and 14 other investment banks face a European Union antitrust probe into credit-default swaps for companies and sovereign debt.

The European Commission is investigating whether 16 bank dealers, including Citigroup Inc. (C) and Deutsche Bank AG (DBK), colluded by giving market information to Markit, a financial information provider. Regulators will also examine whether nine of the firms struck unfair deals with ICE Clear Europe, a clearinghouse for derivatives, shutting out competitors.

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” Joaquin Almunia, the EU’s competition commissioner, said in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”

Global regulators have sought to toughen regulation of credit-default swaps, saying the trades helped fuel the financial crisis. The EU’s probe into the CDS market adds to separate investigations in the U.K. and U.S into whether banks colluded to manipulate the London interbank offered rate.

Possible Collusion

Bank of America Corp. (BAC), Barclays Plc (BARC), BNP Paribas SA, Commerzbank AG (CBK), Credit Suisse Group AG (CSGN), HSBC Holdings Plc (HSBA), Morgan Stanley (MS), Royal Bank of Scotland Group Plc (RBS), UBS AG (UBSN), Wells Fargo & Co. (WFC), Credit Agricole SA and Societe Generale (GLE) SA will also be investigated for possible collusion in giving “most of the pricing, indices and other essential daily data only to Markit.”

The commission said this “may have the effect of foreclosing the access to the valuable raw data by other information service providers.” It said some of the clauses in Markit’s licence and distribution agreements “could be abusive and impede the development of competition in the market for the provision of CDS information.”

The EU will also separately investigate credit default swap clearing agreements struck by ICE Clear Europe with Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS.

‘Behaved Badly’

“What we are looking at is whether the main players in the market have behaved badly, have entered into anti-competitive agreements or abused a possible dominant position,” Amelia Torres, a commission spokeswoman, told reporters in Brussels today.

ICE in Atlanta didn’t immediately return a phone call and an e-mail seeking comment. Giles Croot, a spokesman for Barclays, wasn’t immediately available for comment when contacted by Bloomberg. Teresa Chick, a spokeswoman for Markit in London, declined to immediately comment.

Deutsche Bank, Commerzbank, JPMorgan, BNP Paribas (BNP), Morgan Stanley and RBS all declined to comment when contacted by Bloomberg News. Societe Generale didn’t immediately respond to an e-mail.

Goldman Sachs also declined to comment, said Michael Duvally, a spokesman for the bank in London today.

These agreements have clauses on preferential fees and profit sharing arrangements “which might create an incentive for the banks to use only ICE as a clearinghouse,” the EU said. That may block other clearinghouses from starting up and limit choice for CDS dealers, it said.

The probe will also cover fee structures used by ICE to check if they give “an unfair advantage to the nine banks by discriminating against other CDS dealers.”

‘Welcome Signal’

The probes are a “welcome signal” that EU competition authorites are “showing some interest in wholesale financial markets,” Nicolas Veron, senior fellow at Bruegel, a Brussels- based economics research group, said in a phone interview.

Antitrust regulators “on both sides of the Atlantic” have struggled in the past to tackle possible abuses on the markets because of their “difficult, fast-moving” nature, Veron said.

IntercontinentalExchange Inc., ICE Clear Europe’s parent company, and Nasdaq OMX Group Inc. made an unsolicited takeover offer this month for NYSE Euronext, to thwart a rival bid for NYSE from Deutsche Boerse AG.

Almunia said, prior to the counterbid by ICE and Nasdaq, that the proposed tie up between NYSE and Deutsche Boerse was likely to require an in-depth competition probe.

CDS are derivatives that pay the buyer face value if a borrower defaults. Lawmakers in the EU plan to encourage the use of clearinghouses and transparent trading systems.

India chooses European fighters over US rivals

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India has shortlisted two European fighters and ruled out two US rivals for a key $11bn military contract.

The Indian defence ministry picked the pan-European Eurofighter and France-based Dessault’s Rafale ahead of jets made by Boeing and Lockheed Martin.

The US ambassador in India said the US was “deeply disappointed” by the news.

President Barack Obama had personally lobbied on behalf of the US defence contractors, as had European leaders on behalf of the European jets.

“It is confirmed Eurofighter and Rafale have been selected and the remaining four are off,” said the Indian defence ministry.

The other two companies to miss out were Sweden’s Saab and the Russian makers of the MiG 35.

‘Political setback’

The ambassador, Timothy Roemer, said: “We are reviewing the documents received from the government of India and are respectful of the procurement process.”

He added that the US “looked forward to continuing to grow and develop our defence partnership with India”.

However, some commentators suggested there could be some political fallout from the decision.

“The Americans will be very unhappy and people who have been backing the contract will say India has not sufficiently taken into account the political relationship with the US,” said former Indian foreign secretary Kanwal Sibal.

“That is a political setback for relations.”

Mr Roemer announced separately that he was resigning from his post for “personal, professional and family considerations”.

Big spenders

A report published last month said that India had overtaken China to become the world’s largest importer of arms.

The Stockholm International Peace Research Institute said India accounted for 9% of all weapons imports between 2006 and 2010.

With a $32.5bn (£19.5bn) defence budget, India imports more than 70% of its arms.

The $11bn deal for 126 fighter jets is part of plan to spend $50bn over the next five years on modernising its armed forces.

SAP revenues rise on software sales to smart devices

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German business software maker SAP has reported a large increase in software revenue.

SAP said revenue from its business software increased 26% in the first quarter.

Revenue was boosted by the purchase of Sybase, which makes database software for devices such as smartphones.

SAP also reported a net profit of 403m euros ($598m) for the first quarter of 2011 against a net profit of 387m euros at the same period in 2010.

However, SAP’s overall results fell below analysts’ expectations, which had been buoyed by strong results from US technology firms Oracle and IBM.

“I believe SAP’s disappointing performance is due to its strong position in Europe and the Middle East, where growth is limited,” said analyst Bernd Laux at Cheuvreux.

“Add to this the increasingly saturated business with big corporate customers and the fact that new products are still small, and it’s clear why SAP is falling behind.”

Shell profits rise on higher oil prices

Royal Dutch Shell has announced a 41% increase in first quarter profits on the back of higher world oil prices.

The Anglo-Dutch company said profits for the first three months of the year were $6.9bn (£4.1bn) compared with $4.9bn a year ago.

“We are making good progress against our targets, to deliver a more competitive performance,” said chief executive Peter Voser.

On Wednesday, rival BP reported first quarter profits of $5.5bn.

BP’s profits were down slightly from the same period last year. Production in the quarter was down 11% after BP sold assets to help pay for the cost of cleaning up last year’s oil spill in the Gulf of Mexico.

Production target

As well as higher oil prices, Shell said asset sales and cost saving measures had also contributed to its profitability in the first quarter.

In March, the firm set out a new $100bn investment programme to meet demand for oil and gas.

It has set a production target of 3.7 million barrels of gas and oil per day by 2014.

Shell is one of the world’s major suppliers of liquefied natural gas (LNG).

The firm said it had started commercial production at its Qatargas 4 LNG facility.

As a consequence of the earthquake and tsunami in Japan, demand for LNG is expected to increase as nuclear power there is scaled back.

Deutsche Bank Profit Rises on Consumer Banking Earnings

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Deutsche Bank AG (DBK), Germany’s biggest bank, reported a 17 percent increase in first-quarter profit, exceeding analyst estimates on record earnings at the consumer- banking and asset management units.

Net income climbed to 2.1 billion euros ($3.1 billion), the second-best quarterly result ever, from 1.8 billion euros in the year-earlier period, the Frankfurt-based bank said in a statement today. Earnings surpassed the 1.8 billion-euro average estimate of 11 analysts surveyed by Bloomberg.

Chief Executive Officer Josef Ackermann is counting on acquisitions such as Deutsche Postbank AG (DPB) and investment-banking gains to boost operating pretax profit to 10 billion euros this year. UBS AG (UBSN) and Credit Suisse Group AG, Switzerland’s largest banks, as well as Barclays Plc (BARC) of the U.K., this week posted declines in net income as investment-banking revenue fell.

“The first quarter is traditionally the strongest, especially at the investment bank, and Deutsche Bank needs a good start to put the full-year goal within reach,” Olaf Kayser, an analyst at Landesbank Baden-Wuerttemberg who forecasts 8.7 billion euros in 2011 pretax profit, said before the earnings release.

Ackermann bought Bonn-based consumer lender Postbank, private-wealth manager Sal. Oppenheim and ABN Amro Holding NV’s commercial-banking operations in the Netherlands in the last two years to reduce dependence on the securities unit. The goal is to cut earnings from corporate banking and securities to less than 60 percent of the total by 2013 from 71 percent in 2009.

‘Successful Start’

Deutsche Bank has gained 6.9 percent in Frankfurt trading this year, giving it a market value of about 39 billion euros. That exceeds the 3.1 percent increase in the Bloomberg Europe Banks and Financial Services Index of 48 stocks.

“Deutsche Bank has made a successful start to the year,” Ackermann, 63, said in today’s statement. “We will continue to invest in our franchise and are confident that we will deliver on our ambitious target.”

Deutsche Bank’s pretax profit from the operating businesses totaled 3.5 billion euros in the quarter, providing more than a third of its full-year target, the bank said.

Sales and Trading

Pretax profit at the investment-banking unit, led by Anshu Jain, decreased 12 percent to 2.3 billion euros, beating analyst estimates. Sales and trading revenue declined 3 percent in the period, compared with an average 20 percent decline at U.S. competitors Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc., Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), according to Bloomberg data.

Sales and trading revenue from debt and other products fell 4 percent to 3.6 billion euros, while equity trading revenue was unchanged at 943 million euros.

Jain, who took over the corporate and investment bank in July, has been trying to boost cooperation between the finance, trading and transaction units and curb costs by eliminating overlaps. He set up new global and German executive committees for the division, and is expanding equities and commodities to cut reliance on fixed-income trading.

Transaction banking pretax profit more than doubled to 257 million euros in the quarter, helped by the acquisition of the ABN Amro units.

Earnings at the consumer banking unit rose more than fourfold to a record 788 million euros. The acquisition of Postbank last year, which doubled customers to about 29 million, contributed 221 million euros. Deutsche Bank also booked a gain of 236 million euros related to its stake in Huaxia Bank Co. of China.

Rising Revenue

Asset and wealth management, which was reorganized last year and bolstered by the purchase of Sal. Oppenheim, returned to profit, earning 190 million euros in the quarter.

Deutsche Bank’s net revenue climbed about 16 percent to 10.5 billion euros. Net revenue at the six largest U.S. lenders fell 13.3 percent in the first quarter from a year earlier, according to data compiled by Bloomberg.

The bank completed its biggest-ever share sale in October to buy the rest of Postbank and boost reserves ahead of tougher regulatory requirements. Deutsche Bank’s core Tier 1 capital ratio, a measure of financial strength that excludes certain hybrid instruments, rose to 9.6 percent at the end of March from 8.7 percent at the end of 2010.

Ninety European lenders will be expected to maintain a core Tier 1 capital ratio of at least 5 percent under the most adverse scenario in the current round of European Union banking stress tests. Results are scheduled to be published in June.

Provisions for bad loans rose 42 percent to 373 million euros in the quarter because of the Postbank acquisition. Non- interest expenses climbed 19 percent to 7.1 billion euros in the quarter related to acquisitions and higher compensation costs.

Nokia to shed 7,000 staff as part of reorganisation

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Mobile phone manufacturer Nokia has announced it will shed 7,000 jobs as part of a plan to refocus the company on smartphones.

The firm said 4,000 jobs worldwide would be cut – including a total of 700 jobs from Nokia’s UK sites.

Nokia will also transfer a further 3,000 employees to outsourcing and consultancy group Accenture, which will take over Nokia’s Symbian software product.

The plan will take effect from 2012.

Nokia is hoping to increase its capacity for smartphone development.

The firm recently confirmed a deal with Microsoft to jointly develop smartphone technology.

Under the terms of that deal, Nokia agreed to start using the Microsoft’s operating system on its smartphones instead of its own Symbian platform.

“With this new focus, we also will face reductions in our workforce,” said Stephen Elop, Nokia president.

“This is a difficult reality, and we are working closely with our employees and partners to identify long-term re-employment programmes for the talented people of Nokia.”

Nokia’s response to the smartphone threat from competitors such as Apple’s iPhone and phones using Google’s Android system has been long been a key investor concern.

Volvo Q1 profit tops forecast, ups outlook

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World number two truck maker Volvo (VOLVb.ST) (VOLVb.ST) posted a bigger-than-expected rise in first-quarter earnings on Wednesday and raised its forecast for truck markets in both Europe and North America.

Sweden‘s Volvo reported operating earnings of 6.52 billion Swedish crowns ($1.07 billion) compared to a year-ago 2.80 billion to beat a mean forecast for profits of 5.51 billion seen in a Reuters poll of analysts.

France and Italy push for reform of Schengen treaty

The leaders of France and Italy have said Europe’s Schengen open-border treaty should be revised.

The move by President Nicolas Sarkozy and PM Silvio Berlusconi comes after they met to discuss the recent rise in North African migration to Europe.

Italy has angered France by granting visas to thousands of migrants, allowing them to travel across Europe’s border-free Schengen zone.

About 25,000 migrants have arrived in southern Italy so far during 2011.

Many have fled unrest in North Africa, and among them are thousands of Tunisians hoping to join relatives in France.

Both Mr Berlusconi and Mr Sarkozy are facing domestic pressure from right-wing parties to curb large-scale immigration.

The Schengen treaty allows legal residents of most EU countries, plus Switzerland, Norway and Iceland to travel across the zone with only minimal border checks.

Aegon Sells Transamerica

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AMSTERDAM—Dutch life-insurance and pensions company Aegon NV said Tuesday it is selling its Transamerica Reinsurance business to French reinsurer Scor SE for $900 million—just a fraction of what Aegon paid for Transamerica 12 years ago—as part of its plan to repay state aid it received during the financial crisis.

The Hague-based Aegon said the deal will generate a total after-tax amount of $1.4 billion, consisting of $900 million in cash and a further $500 million in released capital. Aegon bought Transamerica in 1999 for $9.7 billion in a cash-and-shares deal.

“This transaction is consistent with our focus on Aegon’s core business and supports our aim to complete repayment to the Dutch state by the end of June and are pleased to have identified a good home for this highly regarded business,” Aegon’s Chief Executive Officer Alex Wynaendts said in statement.

Aegon said it expects the transaction to provide $1.1 billion for the repurchase of the remaining core capital securities it issued to the Dutch state.

In a separate statement, Scor said it will fund the acquisition mainly from its own funds. It said it may issue some debt but no new shares. Scor said the deal shouldn’t affect the company’s credit rating.

Scor said that acquiring Transamerica Re will make it the second-largest U.S. life reinsurer by recurring new business volume, while strengthening its positions in Asia and Latin America.

Denis Kessler, Scor’s Chairman and CEO, said the transaction was consistent with Scor’s strategy and risk appetite. “The rebalancing of the life reinsurance book between the United States, Asia and Europe, while enlarging the group’s footprint and significantly expanding our global franchise, will also provide additional stability to the group,” he said.

Transamerica Re’s 2010 gross written premiums were $2.2 billion, of which 87% were generated in the U.S. It operates in 11 countries and has 451 employees.

As of March 16, Aegon had repurchased €2.25 billion of core capital from the Dutch State, but has a further €750 million to pay plus a premium of €375 million.

Under the agreement with Scor, Aegon will keep blocks of Transamerica Re’s business with a book value of $400 million, mainly variable annuity guarantee business.

The transaction, which consists of a number of reinsurance agreements, is subject to final approval from regulators and is expected to close in the summer of this year, Aegon said.