LONDON (Reuters) – The U.S. dollar climbed, world shares fell and German borrowing costs hit record lows on Friday as a deepening Spanish banking crisis, uncertainty about Greece’s future in the euro zone and lackluster U.S. data provoked a rush for safe-haven assets.

World stocks, as measured by the MSCI index, dropped 0.85 percent and are now below where they began the year, having relinquished all their first quarter gains which were fuelled by the European Central Bank‘s creation of more than a trillion euros of three-year money.

That rally is now a distant memory as an ugly week for stock markets looked likely to end even uglier.

Across the board, riskier assets from commodities such as gold and oil and currencies like the euro and the Australian dollar were all heading for big weekly losses.

The FTSEurofirst 300 of leading European shares slid 0.9 percent to 972.69 by 4 a.m. EDT, falling for a fifth day running and taking its weekly loss so far to five percent.

Benchmark 10-year German bond yields hit a record low of 1.396 percent and two-year yields also fell to their lowest-ever level at just 0.028 percent.

Investors were spooked by a ratings downgrade of 16 Spanish banks by Moody’s Investors Service, although the move had been expected, and an unexpected contraction in U.S. regional factory activity reported on Thursday.

Sentiment has soured to the extent that an opinion poll showing Greeks are returning to the establishment parties which support the country’s bailout, had little impact.

If they vote that way in the June 17 elections, Greece’s place in the euro zone would look more secure and the threat of contagion engulfing countries such as Spain would diminish.

“European markets are still in a very fatalistic mood because of Greece and possible contagion,” said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets. “My view is that it is very likely that the ECB will step in before the situation spirals out of control, which will support the markets.”

The safe-haven dollar rose against a basket of major currencies to hit a four-month high of 81.758 , while the euro marked a four-month low around $1.2649.

Greece has captured the headlines in recent days but the much larger Spanish economy poses an equal threat.

Spain’s banks, saddled with bad loans after a property boom collapsed, may need a bailout that would strain Madrid’s already stretched finances and possibly require an international bailout regardless of any contagion threat from Greece.

Spanish and Italian 10-year borrowing costs rose and are both now above the six percent level which investors view as a pivot point that could accelerate a climb to 7 percent, a cost of borrowing widely seen as unaffordable.

CATALOGUE OF YEAR LOWS

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 3 percent to its lowest this year and was on track for its worst weekly performance in nearly eight months with a loss exceeding 6 percent this week.

The index has shed more than 11 percent in May, wiping out all its gains for the year.

As risk aversion intensified, the CBOE VIX Volatility index – a gauge of investors’ anxiety that measures expected volatility in the Standard & Poor’s 500 index over the next 30 days – rose nearly 1 percent to close at a five-month high on Thursday.

Brent crude slipped below $107 per barrel on Friday to its lowest in 2012 as the euro zone crisis and weak U.S. data raised fears of a global slowdown that could dent oil demand.

Gold, the traditional safe haven, reversed course and edged down after posting its biggest daily rise in more than three months the previous session.

“We’ve got a bit of a perfect storm at the moment,” Michael McCarthy, a markets strategist at CMC Global Markets in Sydney said.

(Additional reporting by Tricia Wright, Florence Tan,; Editing by David Stamp)

LONDON (Reuters) – Fears that a Greek exit from the euro zone will worsen the debt crisis facing other European nations gripped financial markets on Wednesday, sending shares and other riskier assets lower as investors shifted funds into safe havens like the U.S. dollar.

The euro dipped below $1.27 to a four-month low, the main index of top European shares, the FTSE Eurofirst 300 , touched its lowest level for 2012, while U.S. stock futures pointed to a weak day on Wall Street.

The probability that Greece will leave the single currency rose markedly after political leaders in Athens failed on Tuesday to form a government, forcing another round of elections. Opinion polls show this is likely to be won by leftist parties opposed to the country’s bailout deal.

In response, markets have moved to price in a Greek exit from the 17-member bloc, but are uncertain about the impact this will have on the rest of the region, while big investors have largely retreated to the sidelines, adding to the volatility.

“The idea that you can contain the spillover, the contagion, into the likes of Portugal, the likes of Spain, I just don’t see that as being feasible,” said James Ashley, senior European economist at RBC Capital Markets.

Peripheral euro zone sovereign bonds have taken the brunt of the selling pressure as some investors withdraw to safe havens like German government debt. Price moves were most pronounced in the market for insuring bonds against a potential default.

The Italian five-year Credit Default Swap (CDS) was 16 basis point (bpts) higher at 510 bpts in European morning trade, while the Spanish 5-year CDS widened 4.5 bpts to hit an all time peak of 546 bpts.

In the cash market moves were less dramatic, with 10-year Spanish bond yields easing to 6.35 percent after making big gains on Tuesday. The Italian equivalent debt was little changed at 6.01 percent.

The yield spread of all major emerging sovereign bonds over safer U.S. Treasuries however widened to be near 3-1/2-month highs of 386 basis points.

“The re-weighted probability of Greece leaving EMU has led to a sharp widening of government bond spreads, suggesting that long-term capital is leaving the periphery of Europe,” Morgan Stanley said in a note to clients.

There were also signs in Athens that the prospect of a rapid devaluation of any new currency if the country leaves the euro was concerning ordinary Greeks.

Central bank head George Provopoulos told political leaders savers had withdrawn at least 700 million euros ($894 million) from the nation’s banks on Monday.

The euro dropped to $1.2681 against the dollar putting it on track to test the January low of $1.2624, below which would mark the euro’s lowest level since August 2010.

“The bias is still for a lower euro and a $1.26 target for mid-year looks pretty appropriate” said Jeremy Stretch, head of currency strategy at CIBC.

The dollar rose to its highest in four months against a basket of currencies , while the euro also hit a three-month low versus the yen.

Reuters Insider on markets: http://link.reuters.com/zud38s

Euro zone debt crisis: http://r.reuters.com/hyb65p

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GROWTH IMPACT

The potential for a “disorderly” outcome, either directly from Greece leaving the euro or as related contagion worsens the already stagnant euro zone economy, has sent tremors through world equity and commodity markets.

Emerging market stocks as measured by the MSCIEF index plunged 2.58 percent, with the index close to erasing all its year-to-date gains on its way to posting its biggest one-day loss in six months.

Weakness in Asian share markets sparked by the Greek crisis have already pushed MSCI’s broadest index of Asia-Pacific shares outside Japan down 3.3 percent to a four-month low.

MSCI’s global equity index was down 0.9 percent to 304.95 and is now up less than 2 percent for the year to date.

European shares were hit by a broad-based sell-off, with the FTSEurofirst 300 index down 0.7 percent to 990.54 points, having also dropped 0.7 percent on Tuesday.

Spain’s IBEX 35 fell 0.5 percent while Italy’s FTSE MIB weakened by 1.7 percent.

Oil prices slid along with world shares and industrial commodities like copper in the general move away from riskier assets, but its fall was accentuated by a surprise build in U.S. crude inventories.

Brent crude was down $1.21 at $111.03 a barrel and U.S. oil was down $1.52 to $92.46 a barrel.

Brent crude oil fell to $110.82 cents a barrel and gold extended its losses to be down $13.34 at $1,530.76 an ounce, its weakest level since late December.

Gold gained nothing from flows into safe havens and fell for a fourth straight day to its lowest since late December as investors sold the precious metal to profit from the strength in the U.S. dollar.

Spot gold was down 0.6 percent at $1,534.54 an ounce, having dropped by nearly 3.8 percent in the last four days – its longest stretch of consecutive losses in nearly five months.

(Additional reporting by Vincenzo Albano and Jessica Mortimer; Editing by David Holmes)

LONDON (Reuters) – World shares fell and the euro touched a fresh four-month low on Wednesday, as investors fled riskier assets on fears a Greek exit from the euro zone was more likely after talks to form a new government failed, forcing another round of elections.

Greek political leaders will try to agree a caretaker government in Athens later on Wednesday to see them through to the expected vote on June 17 – a poll that leftists opposed to the terms of an EU bailout could win.

Safe havens such as the dollar , yen and German and U.S. Treasury bonds all gained, while bonds for struggling European nations like Spain and Italy, seen as most at risk if Greece leaves the European Monetary Union (EMU), rose further.

“The re-weighted probability of Greece leaving EMU has led to a sharp widening of government bond spreads, suggesting that long-term capital is leaving the periphery of Europe,” Morgan Stanley said in a note to clients.

Spanish and Italian 10-year bond yields were up more than 10 basis points to 6.51 percent and 6.15 percent respectively.

The euro meanwhile fell to a low of $1.2683, its lowest level since mid-January.

The unknown impact of a Greek exit from the euro zone also sent tremors through Asian share markets, causing the biggest one-day drop in six months in MSCI’s broadest index of Asia-Pacific shares outside Japan , down 3.3 percent to a new four-month low.

The FTSE Eurofirst index of top European shares opened down 0.8 percent at a fresh 2012 low of 989.35 points.

(Reporting by Richard Hubbard; Editing by David Holmes)

NEW YORK/LONDON (Reuters) – JPMorgan Chase & Co lost $15 billion in market value and a notch in its credit ratings on Friday while a chorus of regulators and politicians reacted to its surprise $2 billion trading loss by demanding stiffer oversight for the banking industry.

The loss by one of Wall Street’s most respected banks embarrassed chief executive Jamie Dimon, a leader lauded for steering his bank through the fallout from the 2008 financial crisis without reporting a loss.

“We know we were sloppy. We know we were stupid. We know there was bad judgment,” Dimon said in an interview with NBC television to be broadcast on “Meet the Press” on Sunday.

He said it wasn’t clear whether the bank had broken any laws or violated any rules. “We’ve had audit, legal, risk, compliance, some of our best people looking at all of that.”

The loss also invited regulatory scrutiny for a man who had all but led the charge to limit it, criticizing the so-called Volcker rule to ban proprietary trading by big banks.

The New York Times reported that the Securities and Exchange Commission has opened a preliminary investigation into JPMorgan‘s accounting practices and public disclosures about the trading loss.

On Friday, Securities and Exchange Commission Chairman Mary Schapiro told reporters: “It’s safe to say that all the regulators are focused on this.”

The debacle sparked new fears about big banks and prompted Dallas Federal Reserve Bank President Richard Fisher, who has called for the breakup of the top five U.S. banks, to say he is worried the biggest banks do not have adequate risk management.

The fallout extended across much of the banking sector, with shares of some of Wall Street’s top names declining on Friday. Among others, Citigroup dropped 4.2 percent, Goldman Sachs fell 3.9 percent and Bank of America slipped 1.9 percent.

JPMorgan was far away the worst performer, however, falling 9.3 percent on a day when some 212 million of its shares traded, the most volume in its history.

Fitch Ratings cut JPMorgan‘s debt ratings a notch and put all of the ratings of the bank and its subsidiaries on negative ratings watch.

While Fitch saw the size of the loss as manageable, “the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity,” the ratings agency said.

“Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an ‘AA-’ rating,” it said.

Standard & Poor’s put JPMorgan and its banking units on a negative outlook, but affirmed its current ratings.

In a conference call disclosing the problem on Thursday, Dimon said the $2 billion in losses could rise by a further $1 billion, and acknowledged they were linked to a London-based credit trader Bruno Iksil. Nicknamed the ‘London Whale,’ Iksil amassed an outsized position which hedge funds bet against.

The Federal Reserve Bank of New York, meanwhile, had been aware of JPMorgan‘s big trading loss and is currently monitoring the situation, according to a source close to the situation.

The Fed, which is JPMorgan‘s primary regulator, aims to ensure banks are sufficiently capitalized to withstand such trading mistakes, not to prevent them, the source said.

‘STAKES ARE TOO HIGH’

The exact nature of the trading loss is still unclear, although sources said a host of asset managers, arbitrageurs and hedge funds were on the other side of the bet, viewing it as good value and a effective way to insure portions of their portfolio.

Blue Mountain, a hedge fund with offices in New York and London, was among those on the other side of JPMorgan‘s trade, according to two people familiar with the situation.

Dimon will undoubtedly be pressed by investors for more details about what exactly went wrong when he hosts the bank’s annual shareholder meeting on Tuesday in Tampa, Florida.

A national union on Friday urged shareholders to approve a stockholder resolution calling for an independent board chairman at JPMorgan. Dimon currently holds the chairman and CEO titles.

“The stakes are too high to leave Jamie Dimon unsupervised,” said Gerald McEntee, president of the American Federation of State, County & Municipal Employees, which sponsored the proposal. “Dimon denied that the ‘London Whale’ was making risky bets, and now that this has turned out to be a fish story, shareholders need to step in.”

Dimon had parlayed his bank’s reputation as a white knight during the financial crisis into a position as the de facto representative fighting against excessive post-crisis regulation.

“What concerns me is risk management, size, scope,” said Dallas Federal Reserve Bank’s Fisher answer to a question about JPMorgan‘s trading loss. “At what point do you get to the point that you don’t know what’s going on underneath you? That’s the point where you’ve got too big.”

The trader at the center of the storm, Iksil, who graduated in engineering from the Ecole Centrale in Paris in 1991, was not available for comment. The Frenchman, and the Chief Investment Office (CIO) where he works, are known by rival credit traders for taking extremely large positions.

Friends, colleagues and fellow traders describe an unassuming man, a far cry from the brash image normally associated with traders staking huge bets in fast-moving financial markets, including derivatives.

“He’s a really nice bloke. A quiet bloke. He’s not an arrogant trader, he’s quite the opposite. He’s very charming,” one former colleague at JPMorgan said of Iksil, whom he said was married with “a couple of kids” [ID:nL5E8GB68R].

JPMorgan characterized the costly trading strategy that led to the loss as a hedge, rather than as proprietary trade, or a bet with the bank’s own money. But that line has been difficult for regulators and experts to define as they seek to craft the Volcker rule.

One friend and former JPMorgan colleague said Iksil and the team were not carrying out proprietary trading in disguise, and that the unit’s activities were known at the highest levels of the bank.

“The CIO does not do prop trading, let’s be clear on that … It involves taking positions in the form of investments, trades, credit-default swaps, or other, with the aim of rebalancing the risks of JPMorgan‘s balance sheet.

“The information comes from the very top of the bank and I do not even think that the CIO team members at Bruno’s level are given the full picture,” the ex-colleague said.

Iksil was brought into the CIO unit to head its credit desk, an asset class it had not previously covered, a person who worked in the unit said. It built up large credit positions over several years through trades which were vetted by management and the losses now likely resulted from a combination of these trades going wrong, the person said.

The CIO desk had grown rapidly in the past five years and was given free range to trade in a whole range of financial products, the only exception being commodities, they added. The CIO is run by New York-based Ina Drew, who is Chief Investment Officer.

Credit market traders said other banks have comparable functions to JPMorgan’s CIO. The French banks, Citigroup, Deutsche Bank and UBS were all cited as examples of large treasury functions that hedge credit exposures in similar ways.

“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” U.S. Representative Barney Frank said in a statement.

The Democrat co-authored the 2010 Dodd-Frank financial reform law designed to avoid a repeat of the recent credit crisis.

(Reporting by David Henry in NEW YORK, Rick Rothacker in CHARLOTTE, North Carolina, Dave Clarke in WASHINGTON, Svea Herbst-Bayliss in BOSTON and Vidya Ranganathan in SINGAPORE, Douwe Miedema, Sinead Cruise and Christopher Whittall in LONDON, Lionel Laurent in PARIS; Writing by Alexander Smith and Paul Thomasch; Editing by Alwyn Scott, Jon Boyle, Tim Dobbyn, Gary Hill)

NEW YORK/LONDON (Reuters) – JPMorgan Chase & Co‘s shock trading loss of at least $2 billion from a failed hedging strategy knocked shares of the largest U.S. bank by assets down over 9 percent on Friday, along with the reputation of Chief Executive Jamie Dimon.

For a bank lauded for navigating the fallout from the 2008 financial crisis without reporting a loss, the errors are embarrassing, especially given Dimon’s criticism of the so-called Volcker rule to ban proprietary trading by big banks.

Dimon, in a conference call Thursday, conceded the losses, which could rise by a further $1 billion, were linked to a Wall Street Journal report last month about London-based credit trader Bruno Iksil. Nicknamed the ‘London Whale’, the paper said Iksil amassed an outsized position which hedge funds bet against.

Dimon will undoubtedly be pressed by investors for more details about what exactly went wrong when he hosts the bank’s annual shareholder meeting on Tuesday in Tampa, Florida.

A national union on Friday urged shareholders to approve a stockholder resolution calling for an independent board chairman at JPMorgan. Dimon currently holds the chairman and CEO titles.

“The stakes are too high to leave Jamie Dimon unsupervised,” said Gerald McEntee, president of the American Federation of State, County & Municipal Employees, which sponsored the proposal. “Dimon denied that the ‘London Whale’ was making risky bets, and now that this has turned out to be a fish story, shareholders need to step in.”

Iksil, who graduated in engineering from the Ecole Centrale in Paris in 1991, was not available for comment. The Frenchman, and the Chief Investment Office (CIO) where he works, are known by rival credit traders for taking extremely large positions.

A friend and former JPMorgan colleague said Iksil and his team were not carrying out so-called prop trading, where a bank makes bets with its own money, in disguise and its activities were known about at the highest levels.

“The CIO does not do prop trading, let’s be clear on that…It involves taking positions in the form of investments, trades, credit-default swaps, or other, with the aim of rebalancing the risks of JPMorgan‘s balance sheet.

“The information comes from the very top of the bank and I do not even think that the CIO team members at Bruno’s level are given the full picture,” the ex-colleague said.

Wall Street may have lost its most potent spokesman against Washington reforms.

Dimon had parlayed his bank’s reputation as a white knight during the financial crisis into a position as the de facto representative fighting against excessive post-crisis regulation. [ID:nL1E8GBK5C] � The debacle prompted Dallas Federal Reserve Bank President Richard Fisher, who has called for the breakup of the top five U.S. banks, to say he is worried the biggest banks do not have adequate risk management.[ID:nL1E8GBP5L]

“What concerns me is risk management, size, scope,” he said in answer to a question about JPMorgan‘s trading loss. “At what point do you get to the point that you don’t know what’s going on underneath you? That’s the point where you’ve got too big.”

Iksil was brought into the CIO unit to head its credit desk, an asset class it had not previously covered, a person who worked in the unit said. It built up large credit positions over several years through trades which were vetted by management and the losses now likely resulted from a combination of these trades going wrong, the person said.

The CIO desk had grown rapidly in the past five years and was given free range to trade in a whole range of financial products, the only exception being commodities, they added.

Credit market traders said other banks have comparable functions to JPMorgan‘s CIO. The French banks, Citigroup, Deutsche Bank and UBS were all cited as examples of large treasury functions that hedge credit exposures in similar ways.

The CIO is run by New York-based Ina Drew, who is Chief Investment Officer.

JOBS AT RISK

JPMorgan reported that since the end of March, the CIO had made significant mark-to-market losses in its synthetic credit portfolio. Although other gains partially offset the trading loss, the bank estimates the business unit will post a loss of $800 million in the current quarter. The bank previously forecast the unit would make a profit of about $200 million.

Dimon said the problem was with the way the hedging strategy had been carried out, describing it as “ineffective, poorly monitored, poorly constructed”.

“It is risky and it will be for a couple quarters,” said Dimon, who admitted to having egg on his face due to the loss. He indicated that some people may lose their jobs.

JPMorgan had informed the UK’s Financial Services Authority (FSA) of the situation, but this was a regulatory requirement and there was no indication that the regulator would take any action, a source familiar with the situation said.

The loss is a blow to Dimon and the reputation of a bank strong enough to take over investment bank Bear Stearns and consumer bank Washington Mutual when they failed in 2008.

“Jamie has always styled himself as one of the kings of Wall Street,” said Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial. “I don’t know how this went so bad so quickly with his knowledge and aversion to risk.”

The bank’s position remains strong. It has been earning more than $4 billion each quarter, on average, for the past two years and had $2.32 trillion of assets supported by $190 billion of shareholder equity at the end of March – a ratio of almost 13 percent. That is four times the industry mean and ahead of 10-11 percent at Citigroup and Bank of America Corp.

In disclosing the loss, Dimon was forced into a major about face. During an earnings call last month he dismissed reports that Iksil had amassed a huge position that prompted hedge funds to bet against him as “a complete tempest in a teapot”.

But on Thursday, Dimon said the bank’s loss had “a bit to do with the article in the press.” He added: “I also think we acted a little too defensively to that.”

REGULATION

Questions over precisely what trades had gone wrong for JPMorgan bounced around London‘s credit markets on Friday, with the focus on credit derivatives. These financial instruments have been targeted by regulators who say their development played a central role in the financial crisis.

But Dimon and leaders of other large banks have recently pushed back. Last week they met Federal Reserve Governor Daniel Tarullo in New York to question the way regulators run tests to see if banks have enough capital to withstand possible losses.

“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” U.S. Representative Barney Frank said in a statement.

The Democrat co-authored the 2010 Dodd-Frank financial reform law designed to avoid a repeat of the recent credit crisis.

Allegations that traders at the banks take outsized risks with bank capital to earn big bonuses have been among the drivers of government regulations since the financial crisis.

JPMorgan says it uses pay formulas to reduce the chance of that happening throughout the bank.

Regulators and lawmakers are now likely to push Dimon for more details about the trades. Those details will guide how regulators now view the issue and its impact on the Volcker rule, said Karen Petrou, managing partner of Washington-based Federal Financial Analytics.

If the trades were meant to hedge against specific risks as opposed to clearly being done as a proprietary bet on the markets, it may not play as clearly into the Volcker rule debate as supporters of the crackdown want it to, she said.

Dimon said he remained opposed to the Volcker rule.

(Reporting by David Henry in NEW YORK, Rick Rothacker in CHARLOTTE, North Carolina, Dave Clarke in WASHINGTON and Vidya Ranganathan in SINGAPORE, Douwe Miedema, Sinead Cruise and Christopher Whittall in LONDON, Lionel Laurent in PARIS; Writing by Alexander Smith; Editing by Jon Boyle and Tim Dobbyn)

LONDON (Reuters) – European shares and the euro staged fragile recoveries on Thursday after Spain moved to clean up its banks and Europe’s bailout fund approved a key payment to Greece, but disappointing Chinese trade data kept markets on edge.

The political outlook in Greece, which has sent investors scurrying for safe haven assets, was unchanged as last-ditch efforts to form a government were expected to fail and new elections were the more likely outcome.

“Political uncertainty (in Greece) will remain a live issue, and that, combined with weak economic prospects in the euro area, should keep market concerns elevated,” Barclays Capital said in a note to clients.

The FTSE Eurofirst index of top European shares opened 0.4 percent higher at 1,018.02 point with stronger gains posted in Spanish and Italian markets.

The MSCI’s world equity index stood just 0.1 percent higher at 315.6 point after six straight days of falls.

The euro was near a 3-1/2-month low against the dollar, up 0.15 percent at around $1.2954, after worries about the costs of rescuing Spain’s banks and fear Greece may be forced out of the euro pushed it to a low of $1.2910 on Wednesday.

Decisions from the Bank of England (BoE) and the Norwegian central bank later will be watched for any sign inflation concerns are rising.

(Richard Hubbard)

LONDON (Reuters) – A successful euro zone requires a single government if it is to work properly, British Prime Minister David Cameron said in a newspaper interview on Wednesday.

“There’s nowhere in the world that has a single currency without having more of a single government,” Cameron told Britain’s Daily Mail.

“Making sense of the euro for me would mean that those euro zone countries would have to have much more co-ordinated economic policy, much more co-ordinated debt policy,” he said.

Cameron, who opted out of a new European economic pact late last year, advocated Britain’s position outside the euro and its ability “to do things to ourselves, for ourselves, by ourselves.

“I have always believed different countries at times will need different economic policies, interest rates tailored to their own needs.”

Cameron said, however, that it is in Britain’s interest to see a return to growth in the euro zone, which accounts for 40 percent of UK exports.

“We want them to sort out the problems that they have. We want to be in the single market, we want European co-operation, we don’t want to be in the euro,” Cameron said.

“The euro is a project in transition that could go in a number of different ways … all these countries have to make their own choices.”

(Reporting by Stephen Mangan; editing by Christopher Wilson)

LONDON (Reuters) – HSBC beat expectations with an underlying first-quarter profit of $6.8 billion as Europe‘s biggest bank saw a rebound in investment banking, growth in Asia and a fall in U.S. bad debts.

HSBC said on Tuesday it was making good progress on its strategic revamp, including cost savings, and had shed 14,000 jobs since last year as part of chief executive Stuart Gulliver‘s drive to boost profitability.

“We are pleased that the measures that are under our control, we are getting some serious traction on,” Gulliver told reporters.

He pointed to Hong Kong, the rest of the Asia-Pacific region and Latin America as showing the benefit, with revenues up 16 percent, 18 percent and 7 percent on the year respectively, and highlighted strong performances by the group’s commercial bank and investment bank operations, called Global Banking and Markets (GBM).

HSBC, which makes over three quarters of its profits outside Europe and north America, has bounced back more strongly from the 2008 financial crisis than many competitors, helped by its presence in faster-growing emerging markets.

However, it is facing the same regulatory pressure as rivals to reduce risks, as well as volatile financial markets.

Regulatory and political uncertainties continue to create “significant headwinds” in developed economies, the bank said. In contrast, China’s economy should have a soft landing and emerging market economies should show growth of more than 5 percent this year, it predicted.

Gulliver is quitting areas where HSBC lacks scale and increasing its focus on Asia. He will provide a more detailed update on strategy at an investor day on May 17.

“We view this as an encouraging update ahead of the company’s forthcoming strategy day,” said Gary Greenwood, an analyst at Shore Capital.

“Highlights include a strong recovery in the Global Banking and Markets business, a reduction in the underlying cost income ratio … and a reduction in impairments,” he said.

Expenses climbed on the year to $10.4 billion due to a rise in bonuses at the investment bank and wage inflation in certain regions, such as Asia, but underlying costs as a percent of revenue improved to 55.5 percent from 58.7 percent a year ago.

Gulliver wants to get that level below 52 percent, which some analysts said could be tough, and to lift return on equity (RoE) above 12 percent by the end of 2013. RoE, a key measure of profitability, came in at 6.4 percent, although on an underlying basis it was nearer 11 percent, the bank said.

“We are confident we can hit 12-15 percent RoE and are not going to change it (the target),” Gulliver said.

INSURANCE MIS-SELLING

HSBC said underlying first-quarter profit rose 25 percent to $6.8 billion, compared with a forecast for $5.8 billion. Including a $2.6 billion hit from the movement in the value of its own debt, HSBC’s statutory profit was $4.3 billion.

HSBC shares were up 1.0 percent at 560.6 pence by 1045 GMT, outperforming a 1.1 percent drop in Europe’s bank index.

The bank joined rivals in lifting its charge for the mis-selling of payment protection insurance in Britain, taking another $468 million provision. It has now set aside 745 million pounds ($1.2 billion), and Gulliver said that may not be enough.

“The volume of claims has increased quite significantly over what our original assumptions were. I cannot say if this is the final provision, I doubt it, we may find we have to top it up again,” he said.

GBM’s revenues came in at $5.8 billion, up 11 percent from the 2011 period and a big improvement on the final quarter of last year, echoing trends seen among rivals.

Rates and currencies income were particularly strong, and April had been satisfactory, Gulliver said.

Losses from bad debts in the quarter were $2.4 billion, broadly flat from a year ago, but improved in the United States due to better foreclosure and impairment trends, where the bank is running down its consumer loans book.

($1 = 0.6180 British pounds)

(Editing by Mark Potter)

London (Reuters) – When Exxon boss Rex Tillerson walked into a meeting with the President of Ghana on the sidelines of the United Nations General Assembly, he thought he was set to strike a deal with an important new oil producing nation.

Instead Tillerson – who had flown into town aboard an executive jet bigger than those used by many heads of state – was rebuffed by an irritated John Atta Mills, who had expected to be wooed rather than given a tough contract to rubber-stamp.

That scene in a New York hotel room in 2009 sums up a corporate attitude which dozens of industry executives, bankers, analysts and government officials say is damaging Exxon‘s balance sheet. In a world where oil rich nations now call the shots the U.S. giant’s imperious approach is increasingly a liability, they say.

Exxon has struggled to access new oil and gas reserves in recent years. In March the company slashed growth plans and by some calculations slipped behind PetroChina as the world’s biggest listed producer of oil. Last week it revealed a fall in output and profits that knocked its share price.

A bossy approach worked well as long as oil-rich nations signed purely financial deals, and stuck to them. But when oil prices began to ramp up around a decade ago, a wave of resource nationalism blew through countries like Russia, Venezuela and Libya and changed the game.

These countries set new rules, claiming the right to redraft contracts in the event of changing circumstances – such as huge leaps in the price of crude oil between the date of a contract being signed and the start of production.

Many oil nations also expected help with development, an area where Western companies were initially outmaneuvered by Chinese state oil groups.

That’s hit the biggest hardest.

“The game has changed. You can’t act like you have all the power anymore,” said the chief executive officer of a close competitor.

Or as Joe Tatusko, fund manager with Westport Resources management in Connecticut, who holds Exxon stock, put it: “You have to share”.

Exxon agreed to comment on specific production issues for this story but declined to comment on the company’s business approach.

THE RELIGION OF COMPLIANCE

Exxon was born in the early 20th century out of the breakup of John D Rockefeller’s Standard Oil following an anti-trust probe initiated by President Teddy Roosevelt. Industry lore traces its straight-laced culture back to Rockefeller, a devout Baptist – but if the company has a true religion today, it is compliance to company procedures.

That buttoned-down culture, underpinned by a disciplined, top-down management system, has long been credited with making the company the most efficient operator in the business: strict standardization means it can employ the same business approach around the world and save money.

Its uniformity of thinking extends even to dress sense – the CEO of one rival oil firm joked that male Exxon staff invariably turn up for meetings in blue suits, white shirts and red ties.

That intense focus extends to the way in which Exxon perceives the role of business, a free market world view which is reflected in boss Tillerson’s taste in literature. In a 2008 interview with Scouting Magazine, he named Ayn Rand’s ‘Atlas Shrugged’ – a totemic novel that lionizes a harsh breed of capitalism and rejects government intervention – as his favorite book.

SLAP IN THE FACE

When Tillerson walked into the room in New York, President Mills knew what the CEO wanted to discuss.

Kosmos, a Houston-based oil explorer backed by private equity firms Blackstone Group and Warburg Pincus, had recently put its stake in Ghana’s Jubilee field up for sale. The billion-barrel field was one of the industry’s largest finds in a decade and explorers believed it could be one of a series of major fields that existed along the West African coast — offering bidders the prospect of a major new oil and gas province.

Rather than ask Mills for his blessing for a bid, though, Tillerson simply informed him that he had already agreed a deal with Kosmos’s American managers to buy the Jubilee stake.

For Mills, the deal was unacceptable.

“The Chairman of Exxon presented it as a fait accompli and Ghana wouldn’t take that,” said Kwabena Donkor, head of Ghana’s Petroleum Commission, which is responsible for regulating and developing strategy for the country’s oil industry.

Exxon‘s apparent indifference to the Ghanaian government’s ambitions was supported by a strict reading of Ghanaian law, which said a buyer didn’t actually need the government’s blessing to buy Kosmos’s stake.

But Ghana pushed back, accusing Kosmos of irregularities in the sale process. The government refused to sanction the Exxon deal and hired Goldman Sachs to seek partners for a rival bid to Exxon‘s.

Even as the rhetoric escalated, industry executives predicted a deal would be done; Exxon and Kosmos would make some concessions to the Ghanaians, to allow the government to save face and advance Mills’s desire to develop Ghana’s own state oil company Ghana National Petroleum Corporation(GNPC).

Instead, Exxon stuck to its guns, sources close to the process said. The oil giant even threatened to sue Goldman Sachs in the United States, alleging wrongful obstruction of Exxon’s business dealings, according to a senior Goldman banker.

No agreement was forthcoming and after almost a year, Exxon announced it was pulling out of the planned deal.

GLOBAL DISPUTES

It is not the only occasion on which Exxon has found itself at loggerheads with oil powers.

Since around 2006, Exxon has been locked in a row with the Kremlin over the right to export gas from its Sakhalin-1 project off Russia’s eastern coast.

Exxon argues its production sharing agreement — signed under the chaotic premiership of Boris Yeltsin and seen by many Russians as unfair — gives it the right to export gas to Asian buyers.

Most analysts agree the letter of the contract supports Exxon’s position. But state-controlled gas export monopoly Gazprom has so far blocked exports, insisting that Exxon sell it the gas from Sakhalin-1, likely at prices below international market levels, so it can export the gas instead.

Exxon has refused. So vast quantities of gas that Exxon might be able to book as reserves and sell remain undeveloped, though the company says its oil production there is a success.

In contrast, at the neighboring Sahkalin-2 field, project-leader Royal Dutch Shell Plc took a more flexible approach to the Kremlin’s demands and agreed to sell a majority stake in its project to Gazprom. Shell executives privately accepted that the company’s original contract had been too advantageous and now brag that they are making strong returns on their investment.

Halfway around the world in Venezuela, Hugo Chavez in 2007 insisted state oil group PDVSA should have a majority stake in oil and gas licenses. Exxon and U.S. peer ConocoPhillips disagreed, and left the country rather than concede, while Shell, BP, Chevron, Norway’s Statoil and others accepted a reduction in their stakes.

“We made a difficult decision at that time, we evaluated the upside and downside for us and .. this was, on that occasion, the best judgment on how to preserve value,” Statoil CEO told Reuters in an interview, defending his decision.

“The Venezuela authorities paid market value for the resources and subsequently we are making money,” he added.

Exxon sued Venezuela for up to $10 billion for the loss of its fields. An International Chamber of Commerce arbitration panel awarded the company $908 million in December, though Venezuela has not yet handed over any money.

Last year, Exxon jeopardized its interests in a massive oil field in Iraq by negotiating a production sharing agreement with the semi-autonomous northern Iraqi region of Kurdistan, in defiance of a de facto ban Baghdad imposes on companies that invest in Kurdistan.

While analysts question the legality of Baghdad’s ban, the big foreign oil companies had all heeded it. Exxon’s move prompted a threat against its existing Iraqi asset and led to it being excluded from the bidding in Baghdad’s latest licensing round. Two months ago, Baghdad said Exxon had backed down and suspended its operations in Kurdistan. The company declined to comment on the status of the Kurdish operations.

LOWER RETURNS

There is little doubt that Exxon’s disputes have contributed to an increasing reliance on domestic fields. In 2011, 27 percent of Exxon’s reserves were in the United States, up from 19 percent in 2006. By comparison, only 17 percent of Chevron’s reserves are in the United States and 21 percent of Shell’s.

The problem for Exxon is that, while places like Ghana, Russia and Venezuela offer less legal certainty than developed markets, they have more oil and offer better returns.

In 2011, Exxon reported a 9.3 percent return on capital employed at its U.S. oil and gas fields, and a 39.2 percent return for its non-U.S. upstream assets. The difference was due to low U.S. gas prices and the fact that the U.S. oil fields are often smaller and cost more to operate.

“Companies like Exxon don’t have a choice focusing on the U.S., they need to get out and be all over the world,” said Mark Coffelt, portfolio manager at Empiric Advisors in Austin, Texas.

Exxon may finally be learning that lesson.

In 2007, as Tillerson sparred with Russia about Sakhalin-1, he declared Exxon would not consider new projects there until the country’s opaque legal transactions were clarified.

Analysts don’t think the climate for foreign investors has improved much since then. But earlier this month, Exxon sealed a deal with state-controlled Rosneft that could see them invest up to $500 billion to unlock tens of billions of barrels of oil underneath the Arctic and Black Sea.

The company has even offered Rosneft the opportunity to work with it on projects in the United States.

For investor Joe Tatsuko it’s a sign that Exxon is learning.

“Exxon is as smart as the others … they can adapt,” he said.

(Additional reporting by Kwasi Kpodo in Accra, Anna Driver in Houston and Regan Doherty in Doha; Editing by Sophie Walker)

LONDON (Reuters) – Addressing Nokia Oyj employees in January 2011, Chief Executive Stephen Elop – at that point only four months into the job – dramatized the company’s predicament by comparing it to standing on a burning platform.

Nearly a year and a half on, and with Nokia‘s Lumia mobile phone range failing so far to revive sales, its position still looks frail. Its shares have lost 90 percent in five years and its debt is rated junk by two of the three major ratings agencies.

Might Microsoft Corp , Elop’s former employer and whose software Lumia is based on, have to step in to help Nokia out, seeing the Finnish company as a valuable point of entry into the cellphone market?

Analysts have attributed Nokia’s decline in large part to its late response to Apple Inc , whose iPhone redefined the smartphone market in 2007, and some see a marriage with Microsoft as possibly a last chance to turn the group around.

For Microsoft the relationship is important, because Nokia was its first major break into the smartphone market after a decade of heavy investment. During that period other cellphone makers either chose to use their own software – as did Apple – or favored Google Inc’s Android.

“If Nokia ends up in financial difficulties I believe the helping hand would be there,” said Sami Sarkamies, an analyst at Nordea.

Nokia and Microsoft declined to comment.

MORE SUPPORT

Microsoft is already paying Nokia $1 billion a year to use its software on Lumia smartphones. And investment bankers familiar with the technology sector said the support could extend well beyond that amount, if Nokia’s problems intensify.

“I don’t see Microsoft owning Nokia, but it would definitely provide financing to the tune of a couple of billion dollars,” said one veteran technology banker.

Any Microsoft support for Nokia would be more likely to take the form of an inter-company loan, or an equity stake, rather than a full takeover, a second banker said.

Even though Microsoft has nearly $60 billion of cash on its balance sheet, the company has traditionally steered clear of the hardware business, because it does not want to compete with the manufacturers that use its software.

Yet other priorities may override that consideration.

At the same time, some bankers said they thought Nokia, which has a market value of 9.3 billion euros ($12.2 billion), was an unlikely target for other cellphone manufacturers because of its deep integration with Microsoft.

“I don’t see it as a target for private equity either. It is still too expensive and too volatile,” said a third banker. “You would have to be prepared to catch a falling knife.”

With a full takeover of Nokia seeming unlikely, some bankers and analysts were equally skeptical about asset spin offs as a way for the company to raise some much-needed liquidity.

OTHER ASSETS

Nokia is in talks to sell its British luxury subsidiary Vertu, which makes some of the world’s most expensive mobile phones, a source familiar with the company’s strategy told Reuters previously.

Yet Vertu is expected to generate only a few hundred million euros if it is sold to private equity firm Permira. And bankers said Goldman Sachs’ mandate to sell the business did not extend to any other Nokia assets.

“Banks are pitching ideas to them like they always do, but I’m not aware of any other mandates to sell Nokia businesses or any wider mandate to advise the company on options,” the first source said.

Nokia’s other assets that could be of interest to potential buyers include its intellectual property portfolio, which a fourth banker described as “the best in the industry”.

Yet Elop told the company’s shareholders’ meeting on May 3 he was not planning any wider patent sales. He also said he saw the location and mapping business, built on the $8.1 billion acquisition of U.S. firm Navteq, as a core asset the firm would aim to keep, despite some expectations it could be sold.

The fourth banker said Microsoft was likely to urge Nokia not to put its patents on the block in any case, because it would not want them to fall into the hands of Google.

The only other asset of any size that Nokia could potentially sell would be its half of Nokia Siemens Networks (NSN).

Yet its parent companies Nokia and Siemens tried to sell NSN last year to private equity, a process that collapsed over price, and there seems no obvious reason why they would be more successful now.

For Elop, there remain painful decisions to secure his legacy as head of what once ranked as one of Europe’s biggest technology success stories.

“Elop was not hired as a boss for a burning platform,” said John Strand, founder and CEO of Danish consultancy Strand Consult. “He put the platform on fire.” ($1 = 0.7603 euros)

(Additional reporting by Tarmo Virki, Josephine Cox, Leila Abboud and Bill Rigby.; Editing by David Holmes)