The headquarters of the European Investment Bank in Luxemburg. The EIB is the key component of an ambitious plan by incoming European Commission head Jean-Claude Juncker to invest €300bn over the next five years.

AFP

Brussels

With the eurozone’s moribund economy once more sparking global fears, the region’s cash-strapped leaders are now hoping the EU’s investment bank can pull the bloc out of the doldrums.

The OECD warned this past week the combination of feeble growth, high unemployment and super-low inflation made the sickly 18-nation single currency area the “most worrying feature” of the world economy.

The bloc’s recovery from its debt crisis has run out of steam, with growth stagnating in the second quarter.

Many agree that the main culprit is a lack of investment, which has failed to return to pre-crisis levels after declining twice as much as Japan and the US between 2008 and 2012.

“There is a dearth of investment in Europe and this is the reason for weak growth,” said Italian Finance Minister Pier Carlo Padoan last weekend at a meeting of European Union finance ministers.

The European Central Bank has taken to the barricades to reverse the trend, cutting rates and launching schemes to pump liquidity into the economy to encourage banks to lend to households and companies.

But so far this unprecedented effort by the ECB is proving a disappointment, with private banks skittish to take on more risk in the uncertain environment.

Another potential saviour often cited is the European Investment Bank, a little-known EU institution sometimes described by hopeful officials as a “sleeping beauty” that holds back on its true lending potential.

Based in Luxembourg, the bank is the key component of an ambitious plan by incoming European Commission head Jean-Claude Juncker to invest €300bn ($390bn) over the next five years.

The EIB and Commission are now drawing up concrete proposals, which should be available in November, timed to coincide with Juncker’s official taking of office.

But the bank’s director, former German European affairs minister Werner Hoyer, has sought to lower expectations about the impact of the programme.

“The EIB is no magic wand,” said economist Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy.

“It’s not that the EIB is sitting on a big pile of cash.”

The EIB works with member states and other European institutions to finance projects that further Brussels’ ambitions, with a marked emphasis on lending to companies rather than the state.

“It’s important that public investment does not crowd out private investment,” a European official told AFP, describing the EIB’s strategy.

The bank seeks only viable, money-making projects, ever wary of maintaining its prized triple-A credit rating.

This makes the EIB “more conservative than a typical private bank”, Erixon said.

EU member states, whose ministers sit on the bank’s board, often bristle at this conservatism, especially those from countries with over-extended finances eager for stimulus.

Every few years a big push is made to loosen the EIB’s purse-strings.

The last try was in June 2013 by France, whose President Francois Hollande took office a year before on a promise to promote growth in Europe as opposed to German-backed austerity.

EU leaders at the time agreed to add €10bn to the EIB’s coffers, a commitment they estimated could equate to €180bn of spending in the real economy.

A year later, France is again calling for an EU-wide investment strategy. Germany agrees, but urges a strict focus on private investment.

The proposals now being considered are almost certain to favour private investment, although European Economic Affairs Commissioner Jyrki Katainen, often hawkish on government spending, said “things are not black and white”.

Whatever the Commission and the EIB come up with will take time to implement and the amounts involved will probably disappoint.

“You get the false impression that projects are ready and waiting for investment,” said Erixon.

If Juncker were to get his wish, the €300bn push in investment would require tens of billions of euros in member state cash, not easy in budget-conscious times.

“I am an optimist, but I’m not naive,” said Bernadette Segol, head of the European Trade Union Confederation.

“Where is the 300bn going to come from? Is it really new money?” she asked.

Unicredit chief economist Erik Nielsen believes the shot-in-the-arm should be a no-brainer, and recommends a two% boost in government spending.

“If we don’t think our governments can raise public investment without creating value for our societies ... maybe we should close up shop and go home,” he said.

 

Major US law firms Bingham and Morgan Lewis agree to merge

Reuters

New York

 

 

Leaders of two of the US largest law firms, Boston-based Bingham McCutchen and Philadelphia’s Morgan Lewis & Bockius, have agreed to merge, according to three people familiar with the matter.

The combination would create one of the top five largest law firms in the world, with more than 2,000 lawyers and $2bn in revenue, according to a Reuters analysis of financial figures in the American Lawyer, a trade publication.

Bingham partners received a voicemail on Friday from the firm’s managing partner, Steven Browne, saying an agreement to merge had been signed and that they would be briefed on the details of the combination in the coming week, according to the three sources.

It was not immediately clear if partners at Morgan Lewis had been informed of the deal or when the partnerships of the firms would vote on the combination. To be sure, many law firms engage in merger talks that are not consummated, but it is rare for a law firm merger to reach a vote and not go forward.

Bingham leaders did not immediately respond to requests for comment. Nor did leaders at Morgan Lewis.

For the past several months, Bingham, with approximately 750 lawyers, has been in search of a merger partner after revenue fall in 2013 and partners defected. Talks with Morgan Lewis have been ongoing at least since July.

Bingham’s financial woes are emblematic of the ills facing many major US law firms, which have felt pressure to consolidate because of sluggish demand as major Corps slash their budgets and demand that lawyers discount fees.

Bingham, known for its involvement in cases like the Detroit bankruptcy and Amazon.com in a large abusive transfer pricing case, has been hit by the winding down of major cases, including the 2010 BP oil spill and an investigation of a $1.7bn accounting fraud at Japanese endoscope maker Olympus Co. Morgan Lewis, which has more than 1,200 lawyers and is known for its labour and employment practice, is currently representing the Mortgage Bankers Association in a challenge to the Obama administration’s regulation on overtime status for loan officers that the Supreme Court agreed to take up next term.

One of Morgan Lewis’s former partners, Robert Manfred, is to become the next commissioner of Major League Baseball, while another, Philip Miscimarra, was sworn in as a member of the National Labor Relations Board last year.

Last week, 22 partners jumped ship from Bingham’s London, Hong Kong and Frankfurt offices to join Akin Gump Strauss Hauer & Feld. The partners, who were from the firm’s marquee restructuring practice and other practice groups, left partly because they did not agree with the plans to merge with Morgan Lewis, according to two people familiar with the matter.