After the storm

[interesting couple of articles in The Daily Deal the last few weeks on M&A and the general IB environment...]

After the storm
by Heidi Moore Posted 01:10 EST, 26, Sep 2003
http://www.thedeal.com/

Don Meltzer, 45, the co-head of global M&A for Credit Suisse First Boston, is that rare creature on Wall Street: an investment banker who has been at one firm for his entire career.

Meltzer joined First Boston right out of Harvard College in 1979. He took a break to attend New York University Law School and work a two-year stint at Cravath, Swaine & Moore LLP, but he rejoined First Boston in 1986. (His take on law: "I thought it was going to be a lot more fun.") Starting as a generalist, Meltzer went on to run CSFB's healthcare practice for four years and its European M&A and industry groups for three before taking the reins of global M&A in 2000 — just in time for the dealmaking downturn.

By 2002, CSFB, like many of its competitors on the Street, decentralized its M&A operation and sent many of its M&A specialists into its industry groups or laid them off altogether. As a result, Meltzer, along with M&A co-head George Boutros, now preside over a business that has approximately 35 people, down from about 110 during the boom. But that has not reduced their role, he says. Meltzer and Boutros are still largely responsible for CSFB's M&A business, which means they determine which M&A mandates the firm will pursue. They also help to supervise all M&A people working in the industry groups, which includes having a say over their compensation.

It's a model that Meltzer seems sold on, even as the M&A market shows signs of life. The benefits of having "M&A professionals right there with the clients in the first meeting on the subject, not the third or fourth meeting, is very clear," he says. Meanwhile, with his M&A management duties taking up only half his time, Meltzer also continues to work on deals. He's currently advising Synthes-Stratec Inc. on its $1.1 billion acquisition of fellow medical device company Mathys Medizinaltechnik AG.

Meltzer recently talked to The Deal about the vast changes in investment banking, the outlook for the M&A business and how CSFB has held on to market share in tough times.

The Deal: What have been the biggest changes at CSFB during your 20-plus years at the firm?

Donald Meltzer: The scale of the place is a different order of magnitude. When I started, I'm guessing we had less than 1,000 employees in 1979. Now we have 17,500.

The other big difference is that Wall Street, investment banking and the trading business have become more specialized. Back in the late 1970s or early '80s, you had much more of a generalist approach to managing your career. Specialization has come to dominate what we do, and it's not entirely healthy, to tell you the truth. People feel compelled to make a choice sooner than they might ideally like to, when they've really had a chance to develop the seasoning and the breadth of knowledge — not just the depth of knowledge — in a particular area.

Finally, we've had this wave of consolidation in the mid- to late 1990s in particular. It changed Wall Street from being a group of quasi-private partnerships, even those that were publicly traded, to becoming part of highly competitive public companies that operate on a global scale.

CSFB had a very challenging three years, dealing with regulators and cost-cutting. Still, Dealogic shows that your bank is No. 2 in the U.S. M&A league tables so far this year. How have you managed to hold on to market share?

We were actually No. 3 last year, when we were in much greater turmoil. We have done a good job of maintaining a strong competitive position by supporting strong M&A relationship bankers who are very focused on the M&A product and pursuing strong CEO relationships. So the No. 1 factor is the people.

No. 2, we've had a very strong focus on M&A from the top of the firm — John Mack, Stephen Volk, Brian Finn, Brady Dougan.

Finally, following the [Donaldson, Lufkin & Jenrette] acquisition, we have the strongest leveraged finance team on the Street. That has enhanced our competitive position in this environment, which is cash-oriented, with the financial sponsors. Those are probably the key factors.

M&A groups all over the Street have largely been wiped out or decentralized, with M&A professionals now working within the industry groups. What is the fate of M&A specialists, both here and elsewhere?

It's a tough question and one I've spent a lot of time wrestling with. The centralized M&A group was one of the casualties of downsizing. We and many of our competitors are thinking about what the implications of a decentralized product group are, not just in the short term but now that we've had a chance to live through it a bit.

One of the benefits of decentralizing M&A is simply to get the most knowledgeable people about the product closer to the client and more actively involved in the origination of the mandates. There's a huge benefit in having M&A professionals be industry experts who know who the strategic players are and know who the key players are. Having a specialization is critical.

On the other hand, with decentralization, you definitely lose some of the M&A camaraderie — a sense of an elite, some of the sense of absolute product, 100% product dedication — which had both a positive and a negative effect.

You can develop first-rate, A-plus M&A professionals in a decentralized [setup], but it's harder and it takes more management work. We're doing that, and working on those things.

Some of our competitors will make the decision to re-create a central M&A group. I strongly doubt that means that all the M&A execution will be done centrally. I think the benefits of what I described — having the M&A professionals right there with the clients in the first meeting on the subject, not the third or fourth meeting — is very clear.

What's your view of the current M&A environment?

I think it's gradually improving. The second quarter was up over the first quarter, but more importantly, the U.S. domestic M&A business was up more than that. I don't think you can have a healthy global M&A business without healthy U.S. business conditions.

The proof in the pudding is whether we see another round of significant announcements in the next couple of months. We really need there to be a postsummer pickup and momentum in the M&A business. There's every reason to believe we'll have that, because the markets are performing better. And we're starting to see very favorable market reaction to the deals that are getting announced. There's a reason for that.

The deals that are getting announced now are much more rational, logical and strategic. They're not stretching the imagination. It's what I could call good, mainstream solid M&A deals that everyone looks at and says, "That deal makes sense."

In three deals we're working on, the acquirer's stocks were up pretty nicely on the announcements. We're advising SPS Technologies on its sale to Precision Castparts. Precision's stock is up from prior to the deal. We're advising Ability One on its sale to Patterson Dental; Patterson Dental's stock is up. We're advising Synthes-Stratec Inc. on its acquisition of Mathys.

You're going to see a kind of steady-as-she-goes recovery, assuming no international incident or some unexpected break in the economy.

What about international deals?

The next big stage of this consolidation is going to be global. International deals will continue to be more than 50% of deal volume. We've seen a lot of consolidation within single capital markets, the U.S. being the largest. So I think we're going to see more cross-border deals involving more North American companies with European companies.

We're starting to see a greater willingness among investors to accept foreign stock as a currency. So, for instance, we're advising Zimmer on its acquisition of Centerpulse, and [Zimmer is paying] a significant portion of the consideration in stock. In that situation, Smith & Nephew, a U.K. company and an earlier bidder, [was also planning] to issue shares into Switzerland.

What do you think we learned from the deals done during the boom?

There were undoubtedly a lot of deals that turned out to be bad deals. There were a couple of things going on that made dealmaking so easy it encouraged some deals that probably shouldn't have happened.

The first was that the inflated share value created an incentive for consolidation. [Companies] had a great acquisition currency, and the view was that if you acquired the earnings of a company that traded at a lower multiple, you would be able to create market value overnight. Secondly, pooling treatment made putting two companies together on a stock-for-stock basis very easy.

Thirdly, there was a theory that the bigger the company, the better, from a trading point of view. The more liquid the shares, the more attractive.

Finally, you just have to say that, in that kind of environment, with stocks that would just trade through the roof and companies feeling they could just do no wrong, there was a real hubris that played into how people thought about deals.

And I also think that people were not as disciplined on implementation as we've learned to be today. Many of those things came together to lead to an incredibly exciting time, but a number of transactions that I know wouldn't have happened in today's more cautious environment.

Financial buyers have been a big part of the M&A scene. What does that mean for the business?

I wouldn't call [financial buyers] the principal driver of the M&A business, but I think they've become a critical part, and in many ways the healthiest part, of the M&A business over the past two years.

When a seller is considering selling a company, knowing that there is a floor price out there from the financial buyer community is a very helpful insurance policy that when you decide to sell an asset, you're going to be successful. That has been a huge plus for the market.

But when I talk about the next leg of the business, that's a stage where a $10 billion or $20 billion deal is not such an unusual event. That is the size of deal that Wall Street needs to start seeing again before we can say the M&A business is really back — not back to the levels of 2000, but growing again in a healthy way.

Those are deals that are likely to be done less for cash, and more for stock, and not simply situations that financial buyers are likely to participate in. It's pretty difficult for financial buyers to do deals for more than $10 billion, simply because the amount of equity required is $3 billion or $4 billion. That's too high for a single sponsor. [They] are a critical part of the business, and a good part of our M&A business, particularly, but to materially close the gap between the volumes that we were seeing in 1999 and 2000 versus today, we simply need more strategic deals to pick up.

Is cash going to be an increasing part of deals?

We've also seen an increase in premiums paid, and you see cash becoming a very high percentage of the consideration of deals. Essentially, you're seeing a lot of financial sponsors taking advantage of relatively low valuations and buying with cash.

I think when we get out of this, we're going to see a healthy volume of strategic deals, and those deals are more likely to be done with stock.

Are deals getting more complicated?

I do feel that giving M&A advice and structuring deals has become more complicated. As we are coming into this new cycle with a somewhat improved M&A business, companies have harder questions to answer and they need better advice. I think our job has become harder rather than easier.

Fundamentally, companies have a lot more choices to make. They do really have a choice as to how to divide up the consideration in a transaction. Under the old pooling treatment, stock was the only currency. You couldn't sell assets for a period of time; you couldn't repurchase shares for a period of time.

Today, under the new accounting treatment and the combination of stock and cash, companies can buy and subsequently decide to sell an asset if there's a division that doesn't fit perfectly. So they can buy the whole and sell a piece here, they can decide to use part stock and part cash.

Then you have the interesting debate in negotiating a deal, which is that the stock component fluctuates in value every second. As the company and its advisers launch a deal, the question becomes: Are we negotiating for fixed value, or are we negotiating for relative value? Sometimes getting to a meeting of the minds on that is less straightforward than if you're doing an all-stock deal or an all-cash deal.

In addition, the complexity of doing cross-border transactions, particularly the ones where you're issuing shares, is a lot more difficult than putting two companies together who trade in the same market.

Finally, there's just the overlay that in the post-Enron world, boards and directors are much more proactive and are more involved in the day-to-day negotiations and structuring of M&A transactions. That's good for our business. It's healthy. It's one of the things that's leading the transactions that are getting announced to be closer to the straight and narrow. But it's more time-consuming to manage two points of view, or three points of view, than one.

There's a great struggle between traditional monoline investment banks and the universal banks. Where do you come down on that?

I'm a bit of a contrarian on the subject. Part of that maybe is a function of where CSFB stands, which is sort of in the middle of this equation. We definitely view ourselves as an investment bank with a commercial banking capability. We don't view ourselves as a commercial bank with an investment banking capability. But we have a larger loan book than Goldman and Morgan Stanley and Merrill Lynch.

I don't believe M&A is a commodity product or is going to become a commodity product. We see so many situations where clients are not only hiring a bank, but are demanding a certain set of individuals to work on a certain transaction. That flies in the face of the notion of M&A as a commodity.

I almost welcome clients who give out important M&A mandates just on the basis of the capital that somebody has lent to them, because I'd like them to live through having a financial adviser who they know in their heart of hearts is not the best team they could have hired.

Are [clients] giving out a certain portion of business in both financing and M&A on the basis of lending? Yes, they definitely are. But those of us who feel we have the human capital to compete on that basis are always going to have to emphasize the quality of our people and the quality of our relationships.

As we move forward, the huge emphasis for Credit Suisse First Boston is to focus on the objectivity of the advice. We fully realize the realities of the marketplace you described, but we are much more focused on our human capital.

Age of reason

Age of reason
by Heidi Moore Posted 02:52 EST, 4, Sep 2003
http://www.thedeal.com/

Running mergers and acquisitions at a bulge-bracket bank hasn't exactly been a cakewalk in recent years. Volume has fallen; M&A bankers have been redeployed or laid off; commercial banks have used their balance sheets to take market share.

But Stephen Munger, co-head of worldwide M&A for Morgan Stanley, says the outlook is brighter at last. And after 20 years in investment banking, he's seen enough to make the call.

Munger, 45, cut his teeth at Merrill Lynch & Co.'s leveraged finance department in 1983. Five years later, he joined Morgan Stanley to start its corporate restructuring group. By 1993, he was promoted to operations officer — a post Morgan Stanley uses to train its leaders — and then spent a few years focusing on energy M&A. In 1999 Munger became co-head of global M&A with London-based Simon Robey.

The job has been a challenge this year, as Morgan Stanley ranks fourth in U.S. M&A, a bit off its usual No. 2 spot. But Munger is optimistic. He expects "clear industrial logic" to drive more deals and for Morgan Stanley to benefit. "Where we want to compete is where we think firms, and we in particular, can bring value-added," he says, "which is, What kind of confidence level can your client have that you'll get it done?"

Munger recently talked to The Deal about the state of the M&A market, the ins and outs of serving financial sponsors and how Morgan Stanley holds its own against the universal banks.

The Deal: What's your view on the current M&A environment?

Stephen Munger: It's definitely re-energized. Clearly, the vibrations that a lot of our clients were getting around May and June about an improving economic environment were the real driver. I think we saw a significant change in the nature of dialogues we were having in M&A, not surprisingly very coincident with the world settling down post-Iraq and with better visibility on economic performance.

So now we're getting back to a normal M&A environment, where people are not frozen in inaction because of uncertainty or because of a sense that the markets are potentially unstable. We're just very consistent with the level of activity we might have seen in 1995, 1996 and 1997, with no expectation that we're going to see anything but that type of environment for the foreseeable future. It's really across all industry sectors and across regions. In many cases it's a matter of companies resuming their strategic agendas after having paused the past couple of years.

What kind of strategic agendas?

The environment right now is particularly characterized by deals that are driven by pretty clear industrial logic — a big fish swallowing a small fish — as opposed to visionary deals or very large mergers of equals. I also see more cash deals and, in certain industries, getting back to the business of very large corporate consolidation. We are expecting financial institutions, for example, to be particularly active. There's tremendous logic underlying the notion of combinations going forward.

You mentioned deal activity will thaw out. What form will deals take? What should we look for?

I would look for modest-size transactions, $500 million to $2 billion or $3 billion, driven by clear industrial logic. They will also have a significant proportion relative to historical standards in cash, versus stock, although stock will still be a very important currency. That kind of transaction is going to be the drumbeat of the market.

What we don't think we'll see a lot of are the mergers of equals — the large public companies combining and, in one step, creating an entity with substantially greater market cap and scale.

Why not?

More than ever, boards and CEOs are paying attention to the market's evaluation of the strategic steps they take. The market has certainly recovered to the point where investors can evaluate the kind of industrial-logic-driven transaction we're describing and say, "That's a good thing; we're going to view it positively." But the further you get into "vision," the more skeptical the market is likely to be.

I think there is also some lingering concern about "If we do a deal that big, we can't possibly do enough due diligence to assure ourselves that there's not something that we're missing." That's a bit of hesitancy. Issues like that — "Are we missing something?" — can often be blown away if the business you're combining with has a lot of momentum. But we're not at a point in the economic recovery that anyone feels like they have a lot of momentum. We're trying to figure out if we're moving a little bit again.

You mentioned financial institutions being busy. What other sectors will be hot?

We are seeing a modest, but I think significant, increase of activity in tech, which is very interesting. It's not a huge number of deals, but the fact that deals are getting done again is significant.

It speaks to the industrial logic theme. A lot of technology companies were created on the premise of ultimately becoming a larger part of the bigger picture, or in an emerging area where the whole pack of competitors were not going to remain. Tech is an area where you can predict over time there's going to be a significant amount of M&A activity.

Healthcare remains a very interesting arena and has recently come to life with some of the biotech deals and device deals. I am not sure yet whether that will extend to pharma combinations, but pharmaceuticals remains one of those wondrously fragmented industries that has typically generated M&A over time.

Looking back over the past 12 months, good old general industrials has been the most active area, and we don't think there's any reason that's going to slow down. There are a lot of opportunities for consolidation within business lines of these companies, and many companies that need rationalization and portfolio management, so there is plenty of opportunity for a steady flow of business in the general industrials sector.

Industrial companies are always huge consumers of financing. Will that continue?

We're going into an interesting part of the business cycle where, as businesses expand, often there's a little bit of a lag between their expanding their business and actually getting the cash flow benefit from that. This is actually the kind of environment where, to try to do deals at the same time, companies need to go to the well. There aren't a lot of people sitting around on excess cash.

Do you think financing will be used for operations or also for M&A?

It's consistent with the kind of activity we're seeing that cash transactions will figure pretty significantly, and most companies will need to do some directly related financing if they're doing a cash transaction of any significant size. I think you will see a decent level of M&A activity, and therefore a significant chunk of the financing markets will be driven by a need for financing M&A activity.

At the same time, there are plenty of companies that, as their businesses expand, are going to finance the working capital that goes along with that business. It will be interesting to see how they choose to finance it — if people will go back to the heavy reliance on commercial paper or whether they have more of a bias to term their debt out sooner.

A lot of treasurers are still thinking back to the days when they were very nervous about their bank backup credit lines, because they had tremendous reliance on commercial paper and a rocky capital market for terming it out, and didn't want to go through that cycle again. The only reason they wanted to is that commercial paper is very cheap. But treasurers are becoming a little more wise about saying, "Well, is it really that cheap if I have to throw a lot of ancillary income at a commercial bank to convince me to give them the commercial paper cheap, and if I find myself scrambling to keep my availability when the clouds come, and maybe I'm forced to do a term-out financing when it's not really advantageous to me — how much am I really saving?"

By "ancillary income," do you mean M&A fees?

Yes, M&A fees or capital markets fees. The refrain that the traditional investment banks have heard [from companies] for the past several years is: "We love you guys, we think you're doing a great job, but Bank X is lending us $1 billion, and we don't want to take any chances about keeping them happy. They basically won't let us pay them the right price for the credit, so we have to pay them some other way." There are so many hidden costs with all that that it will be very interesting for me to see how reliant companies become once again on commercial paper or whether they become aggressive again about terming it out.

There's been a lot of talk about how Sarbanes-Oxley would freeze approaches to mergers. Have you seen that borne out?

Well, no. I honestly can't speak of a deal of any significance where the "Sarbanes-Oxley environment" has caused such a concern about due diligence that a deal hasn't gone forth. On the other hand, I have been involved in discussions about, "Can we accomplish everything we'd like to accomplish in terms of due diligence in a short time without leaks, and if we can't accomplish that, are we really comfortable about moving forward?" A lot of those conversations have never been put to the ultimate test, because other factors as well have militated against those kinds of deals right now. But it's there, it's a subtle influence, and it's less a matter of Sarbanes-Oxley per se as a general sense of caution relative to a realization that some big companies have some severe accounting problems, so they're more cautious.

By leaks, do you mean leaks to the press?

When I first got into the business, you could count on the notion of a deal not really being written about until it was a deal. It just didn't occur to anybody that it was all that interesting to talk about something that might or might not happen. Rumors are, in all cases, corrosive to a deal. They can increase the uncertainty and misinformation surrounding a deal. We really do work with clients to minimize the amount of rumors related to a particular transaction. It's just better to try to get the deal done with the appropriate people, without the involvement of the overall marketplace, until it's baked.

Financial sponsors have been very active of late. Do you expect that to continue?

The financial sponsors are a significant factor in the M&A market and will continue to be. It's very interesting to us that the weighted average cost of capital that a financial buyer brings to bear in an acquisition is in many cases right on top of, or even through, the cost of capital a strategic buyer brings, in today's financing environment. And that has not always been the case. And so this is a period in which financial buyers are particularly competitive with strategic players for a lot of properties.

The issue for financial buyers is competition within their own industry. There are a very large number of financial sponsors with significant access to capital, and it makes it difficult for financial sponsors to create and defend a niche. So one trend you'll see is financial sponsors working hard to create those kind of niches. It will also give investors a better way to distinguish among financial sponsors.

Financial sponsors are among the 100 or 200 top fee-paying accounts to Wall Street, so there are a lot of banks angling for their business. How do you compete?

Well, we've always done well with financial sponsors. The flip side of what you just described is that the financial sponsors understand that they can use that fee-paying reality as a tool to determine the kind of service they want and need to get. So most of the financial sponsors keep very, very careful score of what they're paying the different firms, and they evaluate what they're getting back for it. They're in a dialogue with their service providers about balance of trade. One of the things that's causing us to focus on the financial sponsors we focus on is that they're willing to have that open dialogue about balance of trade.

It's also a reality that sponsors will spread their fees around under almost any circumstance. No investment bank or commercial bank is going to lock up a particular financial sponsor. It's not in the financial sponsors' interest to do that.

One of the things financial sponsors look for, obviously, is financing. How do you compete against the universal banks to provide that?

When you look at Morgan Stanley's capital base and the size of our balance sheet, our ability to lead any bank transaction is the equivalent of a J.P. Morgan or a UBS. They may have some more capital than we do, but they also have it tied up in a lot more things — their consumer business, their mortgage business. Our strategy in competing with the universal banks has been to lead with our capital markets capability in both the equity and debt markets as opposed to leading with the availability of large amounts of committed capital.

Although we can and do provide large amounts of committed capital, we view that as the commodity part of the business. Saying "You're good for $5 billion" is the commodity part of the business. Saying "Here's how your ultimate capital structure is going to shape up and here's what can get done in the capital markets to put your permanent capital structure in place" — that's where we try to convince clients we can bring permanent value-added.

In terms of doing large credits — for Alcan, we stepped up to $5 billion, solo. There's no size constraint here. But where we want to compete is where we think firms, and we in particular, can bring value-added, which is: What kind of confidence level can your client have that you'll get it done?

The banks can support underpricing the commercial-paper backstop business because of the flows they get from treasury services, in particular. So if you look at the biggest banks, what they lose on commercial-paper backstops they make in cash management, treasury services, foreign exchange and so forth.

Their proposition to the company is, "Forget about that; if we're not getting ancillary revenues from you in M&A or capital markets, we'll be a little uncertain about whether we want to continue this lending arrangement."

The market's the market. What we've done in response to that is not to pretend it's not happening but to give ourselves the capability of participating to a meaningful degree in the commercial-paper backstop business to make sure we're fully in the flow with our client.

What about M&A staffing? M&A groups all along Wall Street have been downsized or eliminated. Do you have enough bankers to handle an upturn?

I think what you've seen is very logical and consistent with history. When execution activity goes down, you do need to redeploy people. Keeping people in an execution capacity when there's not a lot of execution going on is a waste of resources. What we did was shift resources from our execution unit to our relationship unit in two ways: One was simply moving the head count; the other was to put our M&A bankers into integrated roles within a particular industry group. They're still focused on M&A, but they're working day to day specifically with a particular industry group. So there has been a significant reduction in the number of people who are in the M&A department proper at Morgan Stanley. Where that goes in the future depends on execution activity. We're staffed at a level where we think we can handle a pretty meaningful increase in activity without changing the size too much.

What have we learned from the past three years that will guide the M&A environment for, say, the next five?

One of the most interesting things I'm seeing and that we've been very much at the forefront of, has been the greater focus on return on invested capital metrics as a measurement for what's a good deal and what's a bad deal. In the late '90s, if you had an earnings-accretive deal, that had to be good, right? How could that not be good?

In fact, it's arithmetically possible to have earnings accretion and destroy shareholder value. We pay a lot more attention to that, we find that our clients are receptive to that, and we find that investors are receptive to the valuation of entities in an M&A context as an important metric. To me, that's an example of the market getting smarter.

I think there's also a continuing realization that the best deals are with companies that are in your industry space or adjacent to it. The further afield you go from companies you know well, the more risk you have.

Sobriety test

Sobriety test
by Matt Miller
http://www.thedeal.com/special/manda/articles/feature2.html

At long last, mergers and acquisitions banking appears to be coming out of its funk. According to estimates by Dealogic, a New York research firm, the fee backlog for announced M&A deals in the third quarter is up after 12 straight quarters of decline.

Time for deal bankers to run over to their nearest Ferrari dealership in expectation of fat bonuses? Hardly. The fee pipeline may be finally picking up, but it's way too early to celebrate.

If investment bankers are starting to feel giddy again, all they have to do is look back to the second quarter. Total M&A banking fees fell below $2 billion — the worst showing since Comet Hale-Bopp streaked by in early 1997. What's more, fees from mergers and acquisitions constituted only 20% of total investment banking revenue, the smallest such percentage in almost a decade.

While it's still a stretch to say Wall Street's cowboy culture is changing, a new sobriety has definitely taken hold. A more measured approach — manifested by an increased emphasis on debt underwriting, more middle-market M&A advisory work and less loss-leader business — currently defines what a number of the largest firms are doing. Others simply downsized their way out of businesses they thought too risky or marginal.

A bevy of M&A revenue, backlog and other statistics by Dealogic not only underpin what's been a guarded investment banking recovery but also this more pragmatic way of thinking. All this is said with the full understanding that perceptions and attitudes change quickly on Wall Street as markets rise and fall.

Put simply, chasing the megadeal has become futile over the past three years. The hope that it might lead to underwriting or other business, or the league table victories it may bring, no longer justifies taking a loss on the assignment. In addition, there aren't nearly enough megadeals to go around, and the fees can be short-lived when they do appear. Rather, it's necessary to capture banking relationships that have breadth and staying power.

"CFOs, CEOs value turnkey, all-inclusive solutions," says Jimmy Neissa, co-head of M&A for the Americas at UBS. "It's a heck of a lot easier to have the same [bank] finance a deal if [the bank] molded and crafted the deal."

Looking at the M&A fees that investment banks have backlogged provides an indication of what they can book once the deals that have been announced in the past two years are completed.

And yes, this backlog is recovering. The nearly $3.7 billion of M&A fees in backlog for the third quarter through Aug. 18 was higher than the second quarter's almost $3.4 billion, the first time since the second quarter of 2000 that there was an improvement over the previous period.

But the situation is more representative of 1997 than go-go 2000: The last time the M&A fee backlog fell below $4 billion was the fourth quarter of 1997.

Also giving the situation a 1997 feel is the time it took for the fees on announced M&A to reach $5 billion. It took until Aug. 26 in 1997 to reach that threshold; it was attained two weeks earlier this year, on Aug. 12. In 2000 it was hit by April 12.

Some bankers argue the painstaking road to fees is now really more efficient. M&A is much more heavily weighted toward smaller deals. Employment levels may resemble 1999, despite the thousands of investment bankers who have been laid off over the past three years. But the mentality now is more to grind it out than go for the big score.

Long gone are the days when banks could count on megadeals to carry armies of spiffy investment bankers. According to Dealogic, revenue from deals under $1 billion outweighs revenue of those more than $1 billion by 1.5 times. And through Aug. 18, investment banks had brought in almost as much in M&A fees on deals of between $100 million and $499 million (almost $1.5 billion), considered the middle-market sweet spot, as they did with deals valued between $1 billion and $4.99 billion (nearly $1.6 billion). For the same period last year, the gap between such revenues was more than double this year's.

While the midmarket lacks the panache of megamergers, fees in relative terms can be higher. A bank may garner a 1% fee on a $100 million merger, for example, whether it's on the side of the acquirer or the target. In a $2 billion deal, that drops to 0.4%. Thus 10 $200 million deals can mean more than twice the fees earned from a single $2 billion transaction.

Middle-market deals can be very attractive financially in other ways, too, Neissa says. It is common to arrange for significant "incentive" fees for beating agreed-upon sale price targets. Smaller deals, he adds, allow an investment bank to leverage the system in terms of personnel deployment, and they provide the opportunity to use other resources within the firm, such as financing the buyer.

This thinking counters previous conventional wisdom that held it's more efficient for big firms to do big deals. Much, it turns out, depends on a bank's overhead structure. "A larger firm is amortizing research, IT, trading, a full product array. Economically, [the middle market] doesn't make sense over the long term," says Robert Hotz, the senior managing director of middle market investment banking specialist Houlihan Lokey Howard & Zukin. "With us, we're not carrying huge costs."

What's more, by time spent, there may be little difference between a $1 billion deal and a $100 million one.

Of course, this assumes banks have a choice. For the past few years they haven't if they wanted their bankers to keep busy. Some firms, such as Bear, Stearns & Co., Credit Suisse First Boston and UBS, have aggressively gone after smaller deals. Others, most notably Merrill Lynch & Co., have cut staff so drastically they don't feel compelled to chase the middle-market stuff at all.

All this means that middle-market banks have found themselves competing with Wall Street rivals. "Are we feeling the heat? The answer is most definitely 'yes,' " says the head of another investment bank specializing in the midmarket.

In its analysis of M&A fees, Dealogic looked at the market two ways. The first is the traditional measure of announced deals, or booked advisory fees. These include retainers, fairness fees and success fees.

But Dealogic also ran numbers based on backlog. Why? Because so-called success fees — what the bankers get when the deal is completed — can account for up to 90% of a total fee structure. (It also includes fees for successfully thwarting hostile takeovers.)

To check the accuracy of these numbers, Dealogic compares these estimates with financial data contained in the banks' quarterly and annual accounts.

For the past two years, the relationship of announced fees to completed fees — the "book-to-bill ratio" — has been below one. This quarter, Dealogic says, it's jumped to nearly 1.6-to-1, despite the absolute numbers still hovering around late 1997 totals.

Sustained increases in fee backlog, of course, bode well for the banks. The assumption is that most of these will close. A mismatch between announced deals and fee backlog indicates some tough times ahead.

So, for example, UBS has registered impressive gains in its fee backlog. With $263.7 million as of Aug. 18, UBS not only improved on its $167.4 million in backlog in 2002 but also now ranks third behind perennial M&A leaders Goldman, Sachs & Co. and CSFB. Lehman Brothers Inc. also showed a modest gain.

Just about every other large bank, however, has less in the pipeline now than one year back. Goldman Sachs is down 30%. CSFB is off 27%. Morgan Stanley has dropped 40% of its backlog totals. Bank of America Corp. is off the charts completely.

It's a similar tale when it comes to M&A fee revenue. Goldman, with $500 million through Aug. 18, is actually down 25% when compared with the $666.6 million it had for the same period last year. Morgan Stanley has suffered a 29% drop. Citigroup Inc. is down 28%, while CSFB is off 20%. Merrill Lynch is off 37.5%.

Dealogic gets its M&A fee revenue figures through modeling, since the firm estimates that only about 10% of transactions are disclosed, representing about 30% of deal volume. (The vast majority of deals aren't disclosed either because they don't meet the Securities and Exchange Commission's "material impact" standard or because they involve private companies and don't meet that threshold.)

In traditional league tables, investment banks share equal billing, regardless of actual fee structure. This can mean double or sometimes triple billing. Dealogic instead has modeled a fee structure it believes most accurately reflects the state of play. Variables include the type of deal, the number of co-advisers, the sector, the deal value and the cachet of the investment bank. (Goldman Sachs would command a higher fee than, say, HSBC on the same deal.) Such a method enables Dealogic to build a revenue and fee backlog profile for investment banks.

Such profiling carries over to other investment bank revenues, such as fees for debt and equity underwriting. And what's clear is how prominent debt underwriting has become within the prevailing Wall Street business model.

During the second quarter, fees from debt-related transactions eclipsed M&A and equity combined. These days, the high-yield market is robust and the fees earned are substantial.

Overall, the Dealogic numbers demonstrate the renewed preeminence of debt-related income in the investment banking mix. Through Aug. 18, debt-related fee revenue totaled $10.9 billion, which is more such income than that raised during the entire year of 2000. Debt-related fees eclipsed 50% of total revenue this year, while M&A fees have fallen below 30%. By contrast, during the heady M&A days of 2000, M&A fees eclipsed 40% of total revenue, while debt-related fees were about 20% of the total pie.

The reasons for debt's strong showing are obvious. Not only have banks underwritten more debt, but they also made money on their current inventory as interest rates fell. Debt is defined as every type of paper from sovereign risk to junk. The only exclusions are money market and short-term borrowings (less than 18 months, including such instruments as revolvers).

Once again, Dealogic attempted to model degrees of participation, often a horribly complex exercise. (One issue, for example, may have a bookrunner, five lead managers and six co-managers, each getting a different cut of the pie.)

In stark contrast to M&A-related income, on a year-over-year basis almost all major investment banks show substantial gains in debt-related revenue, according to Dealogic. Through Aug. 18, for instance, Citigroup led the pack, with $975.3 million in such net revenue, followed by CSFB's $824.5 million. While Citigroup's debt-related fees rose 22%, CSFB's increased 23%.

Both, however, lost market share. The big winners are Morgan Stanley and Deutsche Bank AG, which vaulted to third and fourth, respectively, ahead of J.P. Morgan Chase & Co., Lehman Brothers and UBS. Morgan Stanley, with $688.5 million in debt-related fees, exhibited a 52% gain. Deutsche Bank raked in $665.4 million in such fees, for a 49% increase.

There's a battle among underwriters shaping up. "Although we are pleased with the gains we have made in debt underwriting this year, there is still more work to be done to improve our market share," says Walid Chammah, co-head of global capital markets at Morgan Stanley.

Dealogic estimates that high-yield debt accounts for nearly 20% of total debt market fees, even though junk amounts to 3% of total volume. Take CSFB. It's second in debt-related net revenue solely because it's so strong in the high-yield market, where issuance has doubled in the past year.

Equity-related income is the third side of the investment banking triangle. Not surprisingly, equity-related income has also plummeted since 2000. Last year's equity-related fees were less than half those collected in 2000. The decline continued in the first two quarters of 2003. Only now are there signs of a recovery.

Individual performances vary. Equity-related revenues in eight of the top 15 banks this year have continued to decline. Although its total declined 4% to $576.8 million, Goldman Sachs is now the category leader. Citigroup fell to the second position, tumbling 31% to $541.1 million. Morgan Stanley vaulted from the seventh spot to third, with a 66.5% increase to $536.7 million. J.P. Morgan also displayed a strong gain, moving from sixth place to fourth, with a 31% increase.

But will Wall Street's new discipline last, or will it revert to its old ways, with its go-for-broke, league table mentality, when the M&A and equity markets truly rebound?

The tea leaves are mixed. The ratio of debt to equity combined with the M&A registered last quarter mirrors almost exactly the first quarter of 1998, just before liftoff for an explosive M&A and equities market.

No one, though, is predicting a repeat of the late 1990s. "Our sense is dealflow is picking up and will continue to pick up," says Brian Sterling, co-head of investment banking at Sandler O'Neill & Partners LP. "[But] I don't think any one of us is betting on a return to the peak."

That may not stop a new crop of bankers from aggressively pursuing the same kind of glitzy deals that defined the last boom. In fact, it won't be a matter of bankers dusting off their Armanis, says Houlihan Lokey's Hotz. A whole new generation will make their mark on Wall Street and M&A.

"Different people," says Hotz, "will be wearing different Armanis."

Double time

Double time
by Heidi Moore Posted 04:16 EST, 11, Sep 2003
http://www.thedeal.com/

When compensation expert Alan Johnson meets with clients, he describes what Wall Street pay will look like this year: "We've moved from the cappuccino culture to the Roman galley culture.

"Two or three years ago we were very concerned that [a banker's] cappuccino was exactly the right temperature and the foam was just so in the mornings," says Johnson who heads Johnson Associates Inc., a New York consulting firm. "Now we take the view that we put [the banker] in that little galley and hook him up to the oar, and if he doesn't like it, we'll get somebody else."

Start rowing.

Investment bankers have experienced a punishing three consecutive years of downwardly mobile compensation. In 2002, base salary plus bonus for bankers — known as "all-in" compensation — dropped, in most cases, 50% from 2001 levels. These, in turn, were down 50% from 2000 levels.

This year the trend is reversing itself but not without effort, top bankers say. The Deal surveyed top investment bankers, headhunters and compensation experts to glean their expectations. The numbers, based on anticipated dealflow for the fourth quarter, are preliminary, and an unexpected dip, or surge, in dealflow could throw them off. Still, the 2003 compensation ranges are beginning to take shape.

Here's a quick look: On average, investment bankers at all levels will make 10% to 20% more in 2003 than in 2002, according to compensation experts. But to earn that extra 10%, bankers will have to work at least 50% harder, bringing in more fees even as it has become harder to do so.

To illustrate: A managing director at a big bank might have brought in $10 million to $15 million in advisory fees three years ago and still would have been paid $1 million or more. This year, that same managing director might get only $600,000 for bringing in, or working with other bankers to bring in, the same amount in fees.

To get $1 million, the managing director might have to bring in closer to $15 million to $20 million in fees. If the managing director is working on a big deal at year's end that's not expected to close until 2004, he or she will probably get $750,000 or $800,000 rather than the $1 million he or she could once expect.

It's not that Wall Street management is stingy. On the contrary, this year is the first time in many years that compensation will actually rise. This is because managements have cut costs so heavily they feel more comfortable about loosening the purse strings.

"Now we believe that downsizing has been effective in rightsizing our business," says a banker who sits on the management committee of a large bank.

Johnson says he expects the layoff rate to fall drastically from here on and into 2004. "Head-count reductions [are] slowing to a crawl," he writes in an upcoming report. "Expected future reductions are marginal."

Sure, even the long-shunned subsidized Lincoln Town Cars are starting to crawl up Park Avenue again. But the recovery in M&A deals is still a rumor. The monthly average of completed M&A deals in 2003 is off 41%, compared with even the grim 2001 figures, and down 21% from dismal 2002, according to UBS Investment Bank financial services analyst Glenn Schorr.

In fact, take any set of numbers to describe Wall Street right now, and it looks like a return to the unfashionable, preboom 1990s. Global IPO activity is at 1992 levels, while follow-on activity is at 1995 levels, according to a September report by Schorr.

Bankers such as Morgan Stanley M&A co-chief Stephen Munger expect M&A levels to remain steady at around 1996 levels. According to research firm Dealogic, total M&A fees this year are only $2 billion, the lowest since the Asian financial crisis struck in 1997.

Deal-shy CEOs may be making eyes at each other again, but dotted lines remain unsigned. "The dialogue feels better, the market feels better and you feel better when you read the newspaper, but the revenues aren't going to be booked this year," the vice chairman of a global investment bank says.

Preliminary estimates for 2003 Wall Street pay are just that: estimates. Wall Street compensation is closely related to advisory fees, which many banks don't even start sifting through until mid-October.

In addition, fees for M&A are notoriously inconsistent and subject to a banker's spin, compensation experts say.

But a more sophisticated clientele is squeezing fees. "There's a lot more compression on fees," says Gary Goldstein, head of headhunting firm Whitney Group. "Clients [are] negotiating fees down considerably."

It doesn't help that, as Schorr notes, seven of the top 10 deals announced in August had more than one adviser. For the few deals being done, companies are spreading around fees, meaning each bank makes a little less.

Still, the preliminary numbers are encouraging. Financial analysts, the youngest investment bankers, will likely make $100,000 to $150,000, experts say. On the next rung up, associates can expect to earn $150,000 to $300,000, depending on their performance and whether they are first-, second- or third-year associates.

Vice presidents will see the widest range of pay. As dealflow fell and expensive managing directors were laid off, vice presidents took on a greater burden, earning the moniker "execution guys." In addition, vice presidents can range from first-year to fifth-year levels. They will most likely receive $300,000 to $600,000 in pay.

Managing directors will see the most variation in their pay, although even that will be less marked than in previous years. In 2002 the lowest-paid managing directors made around $500,000. In 2003 experts say the lowest-paid managing directors at the big banks will more likely make about $600,000.

Last year the average managing director might have made $600,000 to $800,000. The average managing director this year can enjoy a boost to $750,000 to $1 million.

The best-paid bankers can even make $3 million or $4 million this year, well above the high of last year's $1 million-plus average.

But raw numbers don't tell the whole story. Fees drive compensation, and "production," or a banker's ability to bring in big fees, determines who gets paid, and how. The tech boom irrevocably changed revenue production targets for bankers. In 1997, if a banker could bring in $10 million in M&A fees, he or she was considered a good banker.

Now $10 million is considered the bare minimum at a big bank. As dealflow has fallen, that pace has become harder to sustain. So the superstars — those with blue-chip clients paying them $30 million to $40 million in fees — are handsomely rewarded.

Experts in extremely hot areas, such as restructuring, will make out like bandits. An experienced rainmaker in restructuring this year can make up to $7 million or more, banking sources say, and certainly anywhere above $4 million.

Leveraged finance experts will also likely have a good year, based on the first half of the year.

Another interesting trend is that the downturn has driven the middle market up and the large-cap advisory market down. Boutiques, blessed with relatively high dealflow and lower overhead costs, will pay just as well as the big banks this year. Houlihan Lokey Howard & Zukin, for instance, has had a strong run in its core strength of restructuring assignments this year and will pay its bankers the same as the big banks, if not more.

The compensation structure will also likely change this year, with stock options being gradually phased out. During the tech boom, investment banks came to rely heavily on options in the compensation mix, becoming a kind of secret compensation that's undisclosed on an investment bank's income statement. That's changing.

"In the world of compensation, options have always kind of been a free lunch that's ending or about to end," Johnson says.

In vogue this year? Piling on cash and restricted stock, with only a sprinkling of options.

As always, bankers face the age-old conundrum: how to pay for the pay hikes when deals haven't closed.

"The deals are going to close in the first quarter of next year, so you're going to get credit next year; you won't get it this year," Johnson says. "No one pays people until the check clears."

Several group heads say they will at least try to encourage their bankers by giving them a boost in salary and bonus if they are working on big deals. One top investment banker says that the bankers in his group will certainly not be able to claim pending deals as reasons to boost their bonuses. But they will still get credit — an extra $50,000 or $100,000 in all-in compensation.

Several heads of M&A and banking say they want to make sure their remaining bankers are as well-compensated as possible, after three years of belt-tightening.

"Everyone agrees that last year was one of those disastrous years," says a Wall Street vice chairman, referring to his bank's low dealflow and massive layoffs. "You're trying to re kindle an element of loyalty between your people and the organization if only because when things are looking up we will need sound professionals."

That loyalty is admittedly wounded, the vice chairman says. Layoffs and three years of mediocre compensation have created low morale at the banks, and it's not an exaggeration, say bankers, to look at every banker as a potential escapee when the tide turns.

Jack Maier, a co-founder of boutique Legacy Partners, says battered loyalty involves more than just lower compensation over the past three years. He thinks it's because of the way in which investment banks have transformed client relationships.

"The larger firms are attempting to institutionalize the relationships with large clients and make the banker less relevant," Maier says. "It allows them to drive down compensation because you no longer own the relationship as the coverage guy." He thinks that's the mistake big firms make. "Personal relationships do matter," he adds.

Johnson puts it bluntly: "In bad times, [banks] ask, 'What relationships does Alan have, and if Alan were to get hit by a bus, how much business would we lose?' And if [the banks] say, 'Hey, we're not going to lose that much,' then all of a sudden Alan is very vulnerable."

Banks are willing to roll out the red carpet to keep their superproducers. But what are banks doing to keep everyone else? Beyond trying to make sure compensation is less disappointing, it's less than you would expect.

Guaranteed multiyear contracts, for instance, are rare. Several bankers who head M&A or sector groups could not even remember the last time they heard about a contract being used to lure talent.

Those willing to use contracts are usually trying to lure superproducers. Lehman Brothers Inc., for example, lured top Merrill Lynch & Co. healthcare banker Casey Safreno with a multimillion-dollar, multiyear contract, sources say. At Merrill, Safreno ran one of the top groups on the Street, pulling in more than $30 million in annual revenue. Lehman and Safreno declined to comment.

Such contracts drive up compensation costs. "I don't want to be a high bidder in an auction for a banker, because when his contract comes up, what's my next bid?" says Jeff Werbalowsky, co-head of investment banking for Houlihan Lokey.

The closest Wall Street can come to an incentive is tying compensation to a banker's production for a year or two, says one head of investment banking. "The pendulum has swung from a terrible market to a better market for producers," he says.

"You incentivize them by creating a significant differentiation between big producers and the lower levels."

Nepal Maoist Rebels Move Their Attacks Into Cities

Nepal Maoist Rebels Move Their Attacks Into Cities
By AMY WALDMAN
http://www.nytimes.com/2003/10/12/international/asia/12NEPA.html

KATMANDU, Nepal — In less than a month in this once tranquil capital, a police official cleaning his motorbike was shot at close range. Five bombs exploded with one, planted near a school, killing a 12-year-old boy. An army colonel was assassinated outside his home.

In each case, the police have blamed Maoist rebels, who have been waging an insurgency since 1996. In late August, they pulled out of peace talks and called off a seven-month cease-fire. In the weeks since, they have opened a new urban front in their campaign to replace the country's constitutional monarchy with a Communist republic.

Since the cease-fire ended, more than 400 Nepalis have died in the renewed fighting — more than triple the number who died in the month before the cease-fire was imposed. Most of the deaths, as with those before the cease-fire, have been in the countryside, where 85 percent of Nepalis live. But now the urban elite are also watching their backs.

[On Saturday, police officials in western Nepal said that at least 38 people, most of them Maoists, had been killed after the rebels attacked a police post on Friday.]

With the cease-fire broken, the brief run of optimism is over for this desperately poor Himalayan kingdom of 25 million people. Once again, newspapers are filled with daily reports of clashes and executions, displacement and terror, and attacks on rural infrastructure.

The economy, already fragile, is sinking, as tourists and trekkers stay away. In fiscal year 2002, the economy shrank for the first time in two decades.

This country was once known as a paradise, with gentle people and gorgeous terrain, including Mount Everest. But Nepal's patina of serenity always masked deep rural poverty, caste and ethnic discrimination and a concentration of wealth and power that many say has helped nourish the Maoist cause. The most recent World Bank statistics show 42 percent of the population below the poverty line.

That helps explain why the Maoists' ideology — seen as bizarre and discredited just about everywhere else on the globe — has gained a foothold here. The rebels, who first organized a political party, began their movement five years after the country instituted multiparty democracy, vowing to use Mao's strategies of guerrilla warfare to create a "classless and exploitationless society."

The conflict, which has killed more than 7,500 people since 1996, promises to be even more brutal this time, in part as a result of American military aid to the government. Both the government and the rebels used the cease-fire to regroup and rearm, say diplomats, army officials and analysts here.

The Maoists undertook a systematic campaign of extortion from businessmen, aid groups and villagers to fill their coffers. They corralled new recruits and infiltrated urban areas.

The number of soldiers in the Royal Nepal Army, formerly more of a show horse than an actual fighting force, has grown to 72,000 from 50,000 since November 2001, when an attack by the rebels drew the army into a battle that had at first been left to the police. Since then, the army has been heavily armed with the help of the United States, which is providing $17 million in military equipment and training, as well as India, which is deeply concerned about the conflict next door, and others.

The army's decades-old weapons have been replaced with mortars, machine guns and M-16 rifles, provided by the Americans, Indians and Belgians, as well as Indian and British helicopters. Counterinsurgency training has come from India and the United States.

Government statistics indicate that more than 60 percent of those killed in the seven-year conflict died in the year after the army entered the conflict and that most of them were labeled Maoists.

A report by Amnesty International last December estimated that half of those killings by the government might have been carried out without due process. As the last round of talks was getting under way in August, the army executed 18 rebels and 2 civilians near a remote village.

But in this mountainous country, military victory is impossible for either side, analysts say.

The rebels, with an estimated 4,000 hard-core fighters, a militia of about 15,000 — though the Maoists claim 100,000 — and unsophisticated weaponry, can inflict terror in Katmandu, but would have a hard time taking it. They roam freely in the countryside and effectively control about 6 of 75 districts, but have never taken a district headquarters.

An army spokesman, Col. Dipak Gurung, said the army could now penetrate almost anywhere the rebels operated, but he conceded that it could not hold those areas. "Our troops are stretched thinly all over the country," he said. By some estimates, nearly half the army is in Katmandu and the valley around it.

Kamal Thapa, a government minister and a member of the negotiating team, said he thought the government could win — but only by paying a "huge cost" in lives.

So each side tries to deliver enough blows to force the other back to negotiations. "I think they literally have to be bent back to the table," the American ambassador, Michael E. Malinowski, said of the rebels.

A year-old standoff also continues between King Gyanendra, who dismissed the Parliament last October, and the country's five major political parties, which have refused to join the government since then. Neither side shows any sign of compromise, although everyone agrees their disunity has worked to the Maoists' advantage.

The talks with the rebels fell apart when the government refused to accede to the unconditional demand for an assembly to draft a new constitution. Diplomats, analysts and participants in the talks said there seemed to be differences among the Maoist leadership about the desirability of pursuing a military solution, and pressure to fight from cadres who had been fed an uncompromising ideological diet.

The Web site of the Communist Party of Nepal (Maoist) attributed the impasse to "the seemingly irreconcilable class and political contradiction between a feudal-bureaucratic monarchy backed by foreign imperialist powers and democratic forces fighting for sovereignty of the people."

Mr. Malinowski said human rights violations by the army could jeopardize aid to Nepal, but he has been more forceful in elucidating how abhorrent the United States government finds the Maoists' ideology and tactics. Last spring, the Maoists were added to the State Department's terrorist watch list, after they killed two Nepali guards at American facilities here.

Mr. Malinowski recently compared Baburam Bhattarai, the Maoists' chief ideologue, to Goebbels, Hitler's propaganda master. In a letter posted on the Internet recently, Mr. Bhattarai attacked Mr. Malinowski for what he called his McCarthyite "ideological disposition" and called America "one of the chief wreckers" of the peace talks.

Fearful of anti-American sentiment among the Maoists, aid groups are trying to play down their American connections. The United States Agency for International Development is trying to figure out how to deliver an additional $14 million of "insurgency relevant" American aid without revealing the American financing.

Officers Say Bosnian Massacre Was Deliberate

Officers Say Bosnian Massacre Was Deliberate
By MARLISE SIMONS
http://www.nytimes.com/2003/10/12/international/europe/12HAGU.html

THE HAGUE, Oct. 8 — Eight years after the massacre of more than 7,000 Bosnians, doubts have lingered about the degree to which the killings were coldly planned, or were improvised in chaos.

Most of those killed were unarmed prisoners, boys and men, shot in groups, or sometimes one by one.

Among the executioners, only a few foot soldiers have talked about the events that turned Srebrenica — its name means the "place of silver" — into a symbol of a modern European nightmare. No architect of the crime has ever explained in public what was in the killers' minds, or what made them believe that the murderous frenzy was acceptable to their own society and to their leaders.

But now, two senior Bosnian Serb officers, both crucial figures involved in organizing the bloodshed at Srebrenica, have spoken out at the war crimes tribunal here, describing the countdown to the massacre and depicting a well-planned and deliberate killing operation. They say it was largely coordinated by the military security and intelligence branch of the Bosnian Serb Army and militarized police, forces that were on Serbia's payroll.

The two, an intelligence chief and a brigade commander, recently pleaded guilty to crimes against humanity and have now given evidence against two fellow officers.

They provided so many names, firsthand accounts, documents and even a military log of the crucial days, that one court official blurted, "They've practically written the judgment."

One of the insiders referred to a directive he received, which said that "the life of the enemy has to be made unbearable." He also said it was his role to coordinate "the separation, detention and killings of the men."

This officer, Momir Nikolic, a former intelligence chief, described with cool precision the steps he took in coordinating the logistics, moving between army and police units, avoiding phones and radios, as preparations for the mass executions were under way.

The second officer, a brigade commander, Dragan Obrenovic, recounted how in the final hours, prisoners were moved to different detention and killing sites, in a deliberate move to avoid detection by the Red Cross and the United Nations mission, which were active in the area.

The officers' behind-the-scenes accounts from the Bosnian war represent sharp departures from persistent denials on the part of the Bosnian Serbs, including a recent government report maintaining that most of the men found in mass graves — many with their hands tied behind their backs — were killed in combat.

The first officer to speak out, Mr. Nikolic, 48, the former chief of intelligence and security of the Bratunac Brigade, said the countdown to Srebrenica's capture began a year earlier, in June 1994. During eight days of testimony, he said his brigade commander sent out a directive detailing Bosnian Serb policy toward the Muslims in the enclave protected by United Nations peacekeepers.

"The life of the enemy has to be made unbearable and his temporary stay in the enclave made impossible so that they leave en masse as soon as possible, realizing they cannot survive there," said the directive, as it was quoted and read in court.

That policy was carried out, said Mr. Nikolic, speaking with the precision of a math teacher, which he once was. Civilians were fired at, aid was blocked and fuel, food and other supplies for the United Nations peacekeepers were halted so "they could not be ready for combat," he said.

The harassment went on for a year, until late May 1995, Mr. Nikolic said, and then the military began to prepare its final assault. Bosnian Serb troops, aided by militarized police officers and paramilitary fighters from Serbia, overran the enclave on July 11.

"They had been expecting Muslim forces to put up fierce resistance," said Mr. Nikolic. "No one thought the resistance would be so short-lived."

Instead, he said, there was chaos, with thousands of civilians fleeing, many hoping for safety near a United Nations base at Potocari.

The next day, at an early morning meeting at the Bratunac Brigade headquarters, Gen. Ratko Mladic announced his plan to kill the prisoners, according to the testimony.

Mr. Nikolic said he learned about it from two of his superiors coming out of the meeting. One of them, Col. Vujadin Popovic, "told me that women and children had to be deported to Kladanj and the men had to separated and temporarily detained," Mr. Nikolic said.

"When I asked him what would happen then, he said that all balija had to be killed," he said. Balija is a derogatory name for Muslims. "I was told my task would be to coordinate the different forces."

Orders were to concentrate prisoners in Bratunac, a nearby town under Bosnian Serb control, Mr. Nikolic continued, and he and his two superiors talked about suitable places, including several schools, a sports complex and a hangar. Then the discussion turned to sites for executions, including a brick factory and a mine, he said.

Mr. Nikolic also described an encounter on July 13 at which General Mladic addressed several hundred Muslims who had surrendered in Konjevic Polje. The general told the Muslims not to worry, that transport would be organized for them, according to the testimony.

Later as General Mladic greeted him, Mr. Nikolic said, he asked what was to be done with the men. General Mladic, who has been indicted by the war crimes tribunal and is a fugitive, responded with a gesture, Mr. Nikolic said, and he repeated it in court, moving his hand from left to right, palm down, in a cutting motion.

The prosecutor, Peter McCloskey, asked, "What did you think would happen to the prisoners?"

Mr. Nikolic said: "I did not think. I knew."

That same day, orders came that the executions would take place, not in Bratunac, but near Zvornik, some 25 miles farther north.

Mr. Nikolic said he moved from place to place, informing regional commanders personally, avoiding telephones and radios.

His version was corroborated in court by the second insider witness, Mr. Obrenovic, at the time the acting commander of the Zvornik Brigade. Mr. Obrenovic said his brigade's intelligence chief told him to prepare for some 3,000 prisoners in his area. Mr. Obrenovic said he asked why the prisoners were coming to Zvornik, instead of going to the prisoner-of-war camp at Batkovici.

The response, he told the court, was that orders were to evade the Red Cross and the United Nations peacekeepers.

"The order was to take the prisoners and execute them in Zvornik," Mr. Obrenovic said. When he questioned the order again, he was informed that it came from General Mladic, the head of the army.

The prosecutor asked why he cooperated. Mr. Obrenovic replied that once he understood the order was coming from the top. "I became afraid," he said. "I thought there was no point in standing up to it."

That same night of July 13, the small town of Bratunac was extremely tense, Mr. Nikolic said. About 3,500 to 4,500 prisoners were held in overcrowded schools, a warehouse and a gym, and piled in buses and trucks parked around town, as more were arriving.

Soldiers, police officers and armed local volunteers were mobilized to guard them. During the night, Mr. Nikolic said, 80 to 100 prisoners were taken off buses and from a hangar and shot.

In the early hours of July 14, Mr. Nikolic said, he watched a long column of buses and trucks pull out of Bratunac, heading for Zvornik. At the head of the column, as a decoy, was a white United Nations armored personnel carrier, one of the vehicles stolen from peacekeepers. On board were Bosnian Serb soldiers and police officers, Mr. Nikolic said.

In their testimony, the two officers said they were not present at the mass executions around Zvornik that began on July 14 and lasted four days, but that like most members of the forces in the area, they knew of them. Mr. Obrenovic said he understood when he was asked to send engineers to dig mass graves. Mr. Nikolic said he became part of the cover-up that followed the killings. He said that later on, in September, he helped to oversee the operations to dig up uncounted bodies and rebury them at secret sites.

During lengthy cross-examination a defense lawyer for Col. Vidoje Blagojevic challenged Mr. Nikolic's credibility, reminding him of a lie.

He said that earlier this year, when negotiating a plea agreement with prosecutors, Mr. Nikolic confessed to his role in Srebrenica but also claimed a role in another massacre at which he was not present. Before the agreement was completed, he retracted that statement.

Mr. Nikolic provided an answer, in a show of emotion that is rather exceptional at a tribunal where perpetrators' toughness and denial are far more common.

At the time, he said, he accepted more guilt, fearing that the plea agreement might fall through. During his confessions, he said, he had lived through "a terrible" period he did not want to remember, let alone talk about. "Everything that happened in and around Srebrenica was always present in my mind," he said. "I did not want to go through that process again and face a trial."

Michael Karnavas, the defense lawyer, also asked why he ignored the army's rule to grant protection to prisoners of war under the Geneva Conventions.

Mr. Nikolic responded sharply: "Do you really think that in an operation where 7,000 people were killed that somebody was adhering to the Geneva Conventions? First of all, they were captured, then killed and then buried, exhumed once again, and buried again. Nobody, Mr. Karnavas, adhered to Geneva Conventions."

A Photographer's Odyssey Captures a Myriad of Identities

A Photographer's Odyssey Captures a Myriad of Identities
By LAURIE GOODSTEIN
http://www.nytimes.com/2003/10/08/arts/design/08BREN.html

In 1978 19-year-old Frédéric Brenner, a budding social anthropologist from France, set out to photograph the quintessential Jew.

He headed for Jerusalem, walked the alleyways of Mea Shearim, and captured men in long black coats hurrying home for Sabbath and bearded rabbis lecturing scholars in side curls.

"I believed this was authentic Judaism," Mr. Brenner said recently in an interview.

But after 25 years photographing Jews in more than 40 countries, Mr. Brenner concluded there is no such thing as an authentic Jew.

Is it the barber in Tajikistan, the drag queen in South Africa, the psychoanalyst on Park Avenue or Dustin Hoffman? Can the stern Soviet general who ran the Anti-Zionist Committee in Moscow be considered a Jew, or was he simply a Russian Communist?

Over a recent lunch of lox and bialys at Barney Greengrass in Manhattan, Mr. Brenner asked 10 existential questions for every one that he answered. His photographic exploration of the varieties of Jewish identity is on display at the Brooklyn Museum of Art and is collected in a two-volume set called "Diaspora: Homelands in Exile" (HarperCollins, 2003).

Early on he outgrew his assumption that the authentic Jew was a black-hatted Hasid living in a re-created shtetl in Jerusalem. With the help of local guides and informants, he sought out Jews who were neither Israeli nor American, neither Ashkenazi nor white nor male. He learned to distinguish Jews in Tunisia by the black stripe on the men's trousers (in memory of the destruction of the Temple in Jerusalem). He became as fascinated by assimilation as by cultural preservation.

"He began by photographing subjects that were iconically Jewish," said Barbara Kirshenblatt-Gimblett, a professor at New York University who was one of Mr. Brenner's American consultants. "But as he developed, he really tried to deconstruct the conventions for photographing Jews."

The turning point, Mr. Brenner said, came in 1992, when he lived in Rome. He shifted from ethnographic documentary to photographs as elaborately composed as movie stills. In Rome he posed an olive-skinned Jew in a room lined with emperors' busts, the subject's aquiline profile echoing the Roman heads. He assembled the vendors selling Roman Catholic icons and papal souvenirs in an empty St. Peter's Square — all of them Jews who he said inherited the vending permits as if they were heirloom kiddush cups.

"The entire project is about identity as a fiction," Mr. Brenner said. "All identity is made up."

He points to his portrait of Moises Elias, an Iraqi Jew living as a merchant in Calcutta, bare feet on an ottoman in his British colonial manse, his servant standing by with a tray of tea.

"It's like a game of Russian dolls," he said, adding that religious identity is nested in layers of culture, race and nationality.

Mr. Brenner has a matrushka-doll story of his own, although he says that initially his work was a way for him to avoid rather than to confront his history. Recounting his history, he said he grew up in France, and his mother's family was from Algeria, where family members adopted the culture and citizenship of their French occupiers long before they moved to France. His father's family came from Ukraine. During World War II his mother's parents were active in the Resistance, while most of his father's relatives died in the Holocaust.

His parents were French intellectuals who tried everything from the mystic philosopher G. I. Gurdjieff to Buddhism, he said. His mother was a musician and music teacher who later moved to Israel; his father was a salesman who became a psychologist and now runs a business importing statuettes of the Virgin Mary made in China, to sell at Lourdes in France. (In the only family portrait in the book, Mr. Brenner posed his father with a halo of statuettes.)

Mr. Brenner says that his parents sent him to a Hebrew school in France only after they were stirred by the 1967 war in Israel. As a teenager he was more interested in karate and Zen Buddhism than in Judaism. Now, Mr. Brenner said, he keeps kosher and observes Shabbat, but does not attend synagogue services. He is 44, is married with two daughters, and divides his time among Paris, New York and Jerusalem.

He apparently inherited a knack for salesmanship. He persuaded six breast-cancer survivors who had mastectomies to be photographed topless, and a family of Portuguese Marranos, who practice Judaism in secret, to be photographed celebrating Passover in an attic.

Burt Sun, a production designer for film and television who assisted Mr. Brenner in the United States, recalled one grueling shoot in which Mr. Brenner photographed lesbians with their mothers, all Holocaust survivors. The photograph is taken from above, the mother and daughter pairs dressed in black sheaths, standing back to back, their arms linked and heads thrown back so the light washes over only their faces and torsos.

They stood for two hours while Mr. Brenner took pictures, Mr. Sun said. The pose was painful and one elderly survivor with a pacemaker was close to a faint. Mr. Sun said he shouted at Mr. Brenner to stop.

"He keeps pushing it," Mr. Sun said. "He wants more and more. He wants their emotion to reach the boiling point." The last shot was the one chosen for the print, he said, adding that the mothers and daughters left the room embracing as if they had survived something together.

Mr. Brenner has also sold his ideas to patrons, among them Charles Bronfman, Ronald Lauder and Steven Spielberg. Mr. Brenner spent several years in the United States photographing notable Americans, among them Mr. Spielberg, the Bronfman family, Supreme Court Justice Ruth Bader Ginsburg and Barbra Streisand. He assembled the framed photographs for a wide-angle shot on Ellis Island in 1996.

Mr. Sun said that Mr. Brenner had hoped to include Woody Allen and Bob Dylan, but could not persuade Mr. Allen and could not reach Mr. Dylan.

Despite his family history, Mr. Brenner avoided focusing on the Holocaust. The few Holocaust photographs are memorable, like the one of the lesbians and their mothers or four Greek concentration camp survivors displaying the indelible numbers on their forearms. The only color photograph is of a woman and a room draped and papered entirely in a fabric of yellow stars — an image commissioned by the Vienna State Opera for the opera house curtain, which was never used.

"I wanted to show how Jews live," Mr. Brenner said, "not how they died."

Currency Rumors in China Shake Hong Kong

Currency Rumors in China Shake Hong Kong
By KEITH BRADSHER
http://www.nytimes.com/2003/10/09/business/worldbusiness/09hong.html

HONG KONG, Oct. 8 - Speculation that China will be forced to let its currency rise has sent a flood of money into the Hong Kong dollar, pushing up its value and inflicting heavy losses on traders while driving short-term interest rates here almost to zero.

The Hong Kong dollar is often described as having been pegged at 7.8 to the American dollar for the last two decades. But as currency traders have been reminded lately, to the anger of many, the Hong Kong Monetary Authority is only committed to maintaining a floor of 7.8 but has not set a ceiling for the currency's value.

Money has poured into east Asia since late September, and the currency has inched up, briefly approaching 7.7 Hong Kong dollars to the American dollar in spot trading, and 7.76 in one-year forward contracts. The Hong Kong dollar retreated slightly on Wednesday, to about 7.709.

Many currency traders were betting on a devaluation in the Hong Kong dollar because of deflation and economic stagnation. But they did not hedge against the possibility that the Hong Kong dollar could appreciate past 7.8, and have sustained losses estimated in currency markets at as much as $250 million in the last two weeks.

The Hong Kong Monetary Authority has sold Hong Kong dollars for other currencies in the last two weeks, but has done so only on a modest scale that has not been enough to stem the rise.

As the Hong Kong dollar has strengthened, money has flooded into banks here. Interbank lending rates for periods as long as three months have fallen below two-tenths of 1 percent.

William A. Ryback, the new deputy chief executive of the Hong Kong Monetary Authority, which essentially functions as the central bank here, said at a news conference on Wednesday evening that low lending rates would have ''some effect" in crimping banks' profit margins, but added that he was not concerned. The monetary authority is preparing to release a formal paper that had been under preparation even before the recent rise in the Hong Kong dollar, Mr. Ryback said. The paper will urge banks to analyze the extent of their exposure to shifts in currency movements, he said, while adding that to the best of his knowledge, they are not taking extra risks.

Mr. Ryback declined to discuss details of monetary policy, saying that he was mainly responsible for bank supervision, which had been his area of expertise at the federal reserve in Washington until his retirement there at the end of June.

The Hong Kong dollar is not alone in appreciating against the American dollar, with the yen also continuing to rise. Zembei Mizoguchi, Japan's vice finance minister for international affairs, said on Wednesday that the dollar's fall was the result of speculation, and not the United States current account deficit, which many economists and officials elsewhere see as the problem.

But it is the Hong Kong dollar's appreciation that appears to have inflicted especially heavy losses on speculators. Because the currency was viewed as effectively pegged, trading desks often borrowed heavily to finance very large bets on a devaluation, and did not take steps to protect themselves against a sustained rise in the Hong Kong dollar.

''Most people hadn't realized that this thing could actually move against them to this extent," said James Malcolm, a currency strategist at J. P. Morgan Chase in Singapore.

Mr. Malcolm estimated that traders had reduced their bets on a devaluation of the Hong Kong dollar by only a third, with many still holding large positions in forward contracts. If the monetary authority does not push the Hong Kong dollar back to 7.8 soon, speculators who do not have bets against the Hong Kong dollar could jump in and try to make the currency even more valuable in the spot market, which could hurt monetary stability, he said.

''They're actually playing a very dangerous game by letting it stay below" 7.8, he said.

But traders' losses now could discourage some from betting against the Hong Kong dollar the next time it shows weakness. Joseph Yam, the monetary authority's chief executive, said in an opinion column on the authority's Internet site on Oct. 2 that, ''We are in the business of ensuring exchange rate stability, not bailing out currency speculators."

Traders have also been placing aggressive bets on an appreciation of the Chinese currency, known as the yuan or renminbi, in the hope that international pressure will force Beijing to widen the range in which the People's Bank of China allows the currency to trade. The yuan is effectively pegged in a very narrow band at about 8.28 yuan to the dollar, but forward contracts for the yuan suggest that it could be worth 7.78 to the dollar a year from now.

Indeed, the value of the yuan briefly surpassed the Hong Kong dollar's value in forward contract trading on Tuesday.

The trading suggests that the yuan will be worth about the same as a Hong Kong dollar a year from now, and has reawakened years of discussion over whether it might make sense for the Hong Kong dollar and the Chinese yuan to have the same value, especially since Britain returned Hong Kong to China in 1997.

But Hong Kong allows investments to flow in and out freely and a free-market economy characterized in recent years by slow growth and falling prices, while China still controls investment flows, has many government-owned enterprises and has enjoyed rapid economic growth combined with occasional bouts of inflation. So economists say there is little argument beyond aesthetics for the Hong Kong dollar and the yuan to have the same value.

"There really isn't too much economic logic to convergence," said Vincent Low, a currency strategist in the Singapore offices of Merrill Lynch.

There is also a strong political argument against parity for the Hong Kong dollar and the Chinese yuan. Parity could undermine the separateness of Hong Kong's economic system from China's, something that Beijing and Hong Kong have tried to maintain even as cross-border trade has expanded.

Shiu Sin-por, the executive director of the One Country Two Systems Research Institute, a group here with close ties to Beijing, said that Beijing did not want to intervene in Hong Kong's monetary policy.

Hong Kong officials have long been extremely leery of changing the peg, refusing to do so even earlier this year when struggling with consumer prices that were falling by as much as 4 percent a year. Devaluing the Hong Kong dollar would make the territory less costly as a base for foreign companies doing business in China and could stop deflation because imported goods would tend to become more expensive here.

But the peg is politically sacrosanct. When the Hong Kong dollar plunged in September 1983, it touched off a riot by taxi drivers upset at paying higher prices for fuel, and prompted the government to peg the currency at the level of 7.8 to the American dollar that has been maintained ever since.

Devaluation would also hit hard the many middle-class and wealthy families here who have bought second homes in the United States, Australia, Canada and elsewhere over the years. Second homes are popular for retirement or as places to flee in case Beijing ever pursues a political crackdown in Hong Kong.

But the mortgages on those second homes, denominated in American, Australian or Canadian dollars, would be costly to service for residents here if their Hong Kong dollars became worth less in terms of other currencies.

The Hong Kong Monetary Authority has formidable foreign exchange reserves to defend the currency, announcing on Tuesday that it held $112.1 billion in American currency, more than any entire country except Japan, mainland China, Taiwan and Korea.

Goldman to Buy $9.1 Billion in Sumitomo Loans

Goldman to Buy $9.1 Billion in Sumitomo Loans
By KEN BELSON
http://www.nytimes.com/2003/10/09/business/worldbusiness/09yen.html

TOKYO, Oct. 8 - The Goldman, Sachs Group will set up an investment fund to buy as much as 1 trillion yen ($9.1 billion) in nonperforming loans from the Sumitomo Mitsui Banking Corporation, the latest effort by a foreign firm to help a Japanese bank strengthen its balance sheet.

Goldman Sachs, which has longstanding ties with the Sumitomo banking group, says it hopes to make a profit by rehabilitating the borrowers and repackaging the loans into potentially lucrative investments, like asset-backed securities. Goldman Sachs has been buying golf courses and other Japanese properties with steady cash flow and is considered one of the best foreign firms at reviving distressed assets.

Other foreign investment banks, most notably Merrill Lynch and Deutsche Bank, have bought troubled assets from Japanese banks. Some have also helped banks raise capital so they can more easily write off their sour loans. In January, Goldman Sachs agreed to buy 150.3 billion yen ($1.4 billion) of preferred shares from the Sumitomo Mitsui Financial Group.

Sumitomo Mitsui, like other large banking groups in Japan, is under pressure to meet the government's stiffer requirements for financial health. Regulators want banks to more than halve their nonperforming loans as a percentage of their total lending to 4 percent by March 2005. Sumitomo Mitsui says it hopes to meet the goal early by selling many loans at once.

The Japan Endeavor Fund, as it is tentatively named, will be 58 percent owned by Goldman Sachs and will begin buying loans from Sumitomo Mitsui early next year. The Daiwa Securities SMBC Company and Sumitomo Mitsui will also invest in the fund. The venture will buy loans to medium-sized companies that have had trouble making interest payments and require "special monitoring," jargon for watching borrowers in danger of default.

At the same time, the Sumitomo Mitsui Financial Group will set up a separate venture that will send turnaround experts to the businesses that have had their loans sold to the investment fund. This is intended to strengthen potentially profitable businesses so that they can generate steady sales and repay their loans.

"We have always just sold our nonperforming loans," said Yoshifumi Nishikawa, president of the Sumitomo Mitsui Financial Group. "By setting up this revitalization company, we will not only accelerate bad loan write-offs, but also increase our chances for turning a profit."

The new venture, called the SMFG Corporate Recovery Servicer, may also dispel widespread fears among Japanese executives that a foreign buyer like Goldman Sachs will foreclose on delinquent borrowers.

Investors were encouraged by the establishment of the two companies, partly because Goldman Sachs - a healthy, outside investor - is shouldering some risk for disposing of the nonperforming loans. The Sumitomo Mitsui Financial Group's shares rose as much as 4.4 percent on Tuesday.

Since Goldman's investment fund will only start buying loans in early 2004, Sumitomo Mitsui's balance sheet will probably not be affected much this fiscal year, which ends in March. Sumitomo Mitsui hopes to sell 1 trillion yen in loans within one year, Mr. Nishikawa said.

Sumitomo Mitsui expects to earn 150 billion yen ($1.4 billion) in fiscal 2003, a reversal of the bank's 465 billion yen loss ($4.2 billion) last year.

As in other cases where bad loans are sold, the key to each company's profitability is how the loans are valued. The buyer typically wants to pay less for riskier assets, while the seller wants to recoup as much as possible from the sale.

"The question is what's the haircut," said Hironari Nozaki, a banking analyst at HSBC Securities, referring to the discount the buyer receives. "The sale is a big help to Sumitomo Mitsui because it saves time. But if the price is too favorable to Goldman Sachs, it could limit Sumitomo Mitsui's net income."

According to Mr. Nozaki's estimates, selling 1 trillion yen in non-performing loans would reduce Sumitomo Mitsui's bad loan ratio to 6.6 percent. Additional measures by Sumitomo Mitsui to write off loans could push that number closer to 4 percent, he said.

Goldman Sachs, meanwhile, must devise a strategy for profiting from the loans. Foreclosing on loans, especially to large companies, is difficult because of the bad publicity it generates and because of outside pressure from politicians, regulators and others. But loans can be packaged into bundles and resold as securities, or restructured individually to produce a higher return.

It may also take time to identify the loans with the best chance of turning a profit.

But a Goldman Sachs executive said the investment bank had been reviewing Sumitomo Mitsui's loan portfolio for several months, , so it had begun identifying loans with potential.

"This is no walk in the park," the executive said, "but we've been doing our homework."

Chinese Girls' Toil Brings Pain, Not Riches

Chinese Girls' Toil Brings Pain, Not Riches
By JOSEPH KAHN
Published: October 2, 2003
http://www.nytimes.com/2003/10/02/international/asia/02SWEA.html

ANSHAN, China — Each eyelash was assembled from 464 inch-long strands of human hair, delicately placed in a crisscross pattern on a thin strip of transparent glue. Completing a pair often took an hour. Even with 14-hour shifts most girls could not produce enough for a modest bonus.

"When we started to work, we realized there was no way to make money," said Ma Pinghui, 16. "They were trying to cheat us."

She and her friend Wei Qi, also 16 and also a Chinese farm girl barely out of junior high school, had been lured here by a South Korean boss who said he was prepared to pay $120 a month, a princely sum for unskilled peasants, to make false eyelashes.

Their local government labor bureau lent its support, recruiting workers and arranging a bus to take them to the big city of Anshan in northeastern China.

Two months later, bitter that the pay turned out to be much lower, exhausted by eye-straining and wrist-wrenching work, and too poor to pay the exit fee the boss demanded of anyone who wanted out, they decided to escape. But that was not easy. The metal doors of their third-floor factory were kept locked and its windows — all but one — were enclosed in iron cages.

These girls' ill-fated foray to work at Daxu Cosmetics and their attempt to flee one moonless night in May illustrate how even rudimentary workers' rights lag far behind job creation and profits in China's surging economy.

While multinational corporations like Motorola and Intel pay employees middle-class wages to work in world-class factories in this country, the sizzling export sector still relies heavily on smaller operations, both locally and foreign-owned, that assemble toys, clothes, shoes, tools, electronics, decorative items and cosmetic goods. Many measure profits in pennies on the dollar and squeeze workers to make their margins.

Lee Yo Han, the South Korean entrepreneur who runs Daxu, says he came to China about a decade ago mainly because Korean companies could no longer compete in the market for false eyelashes, which sell for as little as 50 cents a set in Asia and the United States.

Mr. Lee, who is 39 years old and speaks only Korean, keeps costs down by finding cheap rental space for his 12 production lines. The plant where Ms. Wei and Ms. Ma worked, along with 100 other young workers from rural Liaoning and Inner Mongolia, occupied the third floor of an old mental hospital.

While he acknowledged the cost pressures, Mr. Lee said he provided a good work environment. In faxed replies to questions about Ms. Ma and Ms. Wei, Mr. Lee described them as callow girls who tried to slip out of a work contract they had signed voluntarily.

"I treat my workers like I treat my own brothers and sisters," Mr. Lee said. "My company is a small one, and the welfare can't compare to a big company's, but I tried my very best."

That is not the view of Ms. Wei, who has since returned penniless to her home village in rural Liaoning Province. "What they called a company was really a prison."

She is a stringy girl with a nervous giggle. Ms. Ma is corn-fed and prone to tears. But they grew up in nearly identical circumstances. Their families live in neighboring villages near China's border with North Korea, where green mountains, crisp fall air and scattered dairy farms are reminiscent of the New England countryside, though far poorer.

They first heard about the job offer in Anshan from an advertisement on local television. Salaries of $120 a month seemed high for farm girls, but the ad was sponsored by the Labor Bureau of Huairen County. The bureau contracted with Mr. Lee to find rural workers and charged a $6 application fee.

"If this had not been arranged through official channels, we would not have let such a young girl go," said Wei Zhixing, Ms. Wei's father.

As soon as they arrived in Anshan, however, the problems began. They were asked to sign a contract that offered monthly pay far below the advertised level, initially just $24, minus a $13 charge for room and board. Bonuses were promised, but only for those who produced eyelashes above quotas.

The contract also demanded that workers pay the boss $58 if they left before the end of the yearlong contract, and $2,400 if they "stole intellectual property" by defecting to a rival eyelash maker.

Such terms are not unusual. Court cases involving unpaid wages, illegal contracts and life-threatening working conditions are common even as China becomes richer, suggesting that cut-throat capitalism and sweatshop factories are as much a part of China's economic revolution today as they were the early days of industrialization in the West.

Beijing often looks the other way. Despite a long streak of fast growth, generating jobs for the country's 350 million peasants remains urgent. At least 150 million rural laborers have no steady income, according to government estimates. They are viewed as a source of unrest that could threaten the Communist Party's power.

Making sure the jobs created meet China's own standards for safety and fairness is a lower priority. Officials rarely punish factory owners for labor abuses, and workers, restricted by laws against forming unions, rarely press for better conditions.

Ms. Wei and Ms. Ma, eager to prove themselves in their first jobs, accepted the contract terms. They said they hoped they could still earn good money if they could make enough eyelashes to earn bonuses. That was what they thought until they finished their first full day on the assembly line.

Using tweezers to lay hairs in an intricate pattern was exacting enough, but the boss also fussily threw away eyelashes they did not meet his standard. Bonuses kicked in only after the girls made enough eyelashes, which the boss valued at one-half of one Chinese cent each, to cover base salaries. In the first month, that meant producing at least 400 eyelashes. Everyone fell short.

Off-work hours provided little relief. The girls were occasionally allowed supervised play time on the mental hospital's grounds. Otherwise, the factory doors stayed bolted and the windows were barred, ostensibly to protect the workers from mental patients.

The workers were permitted one shower a week, on Tuesday mornings. Ms. Ma and Ms. Wei said the factory canteen served the same porridge of cabbage and potatoes at every meal.

Mr. Lee denied that the girls were locked inside the factory, saying such treatment would have been illegal. He also said living conditions, including the food, "were better than what they were used to at home."

Whatever the truth, Ms. Wei and Ms. Ma said they told the Chinese boss at the site, Lu Shijun, that they were resigning. But Mr. Lu reminded them that they would have to pay the $58 fee to end the contract. After room and board were subtracted, they would need to work three more months to afford to quit.

Ms. Ma and Ms. Wei said they called the county labor bureau that arranged their jobs to ask for help. They said they were told someone would be sent to deal with the problem. Weeks went by and no one came.

As they approached the end of their second month, they said a furtive escape seemed like the only option.

Late at night, Ms. Ma, Ms. Wei and four other girls who shared their dorm room plotted the details. They would bind their sheets into a long braid, climb out a hallway window, the only one without bars, then rappel three stories to freedom.

On the chosen evening, the girls slipped off the production line early. They frantically tied bedding together, playing tug-of-war to tighten the knots. They secured one end inside and hurled the rest to the yard below.

Ms. Ma climbed out first. But she had not considered what it would be like to hang in the air, feet flailing, hands straining to keep a grip. First she slid, fireman style. Then she lost control and crashed to the ground.

The other girls had no idea what happened until Ms. Wei followed suit. When she lost her grip and plunged, she shrieked. Both she and Ms. Ma sat on the ground crying until the others panicked and called Mr. Lu.

The boss sent them to the hospital, where Ms. Ma and Ms. Wei were both diagnosed with broken legs and displaced vertebrae. Even then, they described Mr. Lu as bitter.

When he left them that night in their hospital beds, they recalled him saying: "We're on the seventh floor. I suggest that you use the stairs, not the window, when you leave."

Mr. Lu could not be reached for comment. But Mr. Lee said his company provided good medical care for Ms. Ma and Ms. Wei. The two girls described the company as stingy and said their families borrowed money to pay their medical expenses.

Their case generated local publicity and prompted some official scrutiny. The assembly line at the mental hospital eventually shut down, with production consolidated in Mr. Lee's other plants. Mr. Lee declined to give a reason for closing the factory.

One Anshan labor department official, who spoke on condition his name would not be used, said the factory violated child labor laws. While the official did not elaborate, China's labor law bars minors between the ages of 16 and 18 from doing jobs "that require them to keep their heads down or to maintain unnatural postures."

Relatives of Ms. Wei and Ms. Ma said they were never contacted by authorities and were rebuffed when they asked Anshan government and police officials to investigate the case.

"My view is that Daxu was a black society set up to cheat people," said Ms. Ma, who now walks with a heavy limp as she helps care for the ducks and pigs that live in her front yard. "It would still be going on today if we hadn't jumped."

Oil Rush in Siberia Puts Other Treasures at Risk

Oil Rush in Siberia Puts Other Treasures at Risk
By SABRINA TAVERNISE
http://www.nytimes.com/2003/10/05/international/europe/05SIBE.html

TOMSK, Russia — A vast and remote expanse of green in the heart of Siberia is part of the largest wetland on earth. It produces oxygen at a rate rivaled only by the Amazon. It contains ancient forests, endangered species of beavers and Siberian sturgeon.

It also holds oil, lots of it, and environmentalists are warning that a sudden splurge of hurried extraction, along with a virtual absence of government oversight, is changing the face of this delicate wilderness.

Much damage in Siberia was already inflicted during the Soviet era, when the Communist government ravaged the environment on a calamitous scale.

"You go there and you are surprised, if not horrified, by what you see," one Western oil executive said of Samotlor, one of the oldest and largest fields in West Siberia, in a region called Tyumen, near Tomsk.

"It's wells leaking all over the place and big oil spills in marshes," the executive said. "So you say, `What am I going to do? Do I mend it? Or can I leave it for time to take care of?' For an investor, these are big issues."

While there is little doubt that industry practices have improved, the exploitation now is being driven by the aggressive entry of private oil companies into an arena that just a decade ago was the exclusive domain of the state.

Yet environmental controls have fallen to levels not seen since the abysmal record of Soviet times, environmentalists and concerned local people say. Controls have been left almost entirely to the consciences of the oil companies themselves.

In one of his first acts as president, Vladimir V. Putin shut down the State Committee for Environment. Since then, federal monitoring in far-flung regions has been reduced by two-thirds. In 2002, Parliament let expire a fee charged to companies based on how much they polluted.

"In the new Russia, short-term economic desires won out over the country's long-term interests," said Victor I. Danilov-Danilyan, chairman of the State Ecology Committee from 1991 to its dissolution.

"Business dropped even the appearance that it is obeying the laws of conservation," he said.

In Tomsk and other areas across Russia, the pace of development is frantic, led here by Russia's largest oil producer, Yukos Oil Company. It and other companies are devouring vast new tracts and re-entering areas that had been explored in Soviet times and then abandoned.

Russian oil ports and pipelines are brimming. Oil production around Tomsk doubled over the last several years to 241,000 barrels a day, a fraction of Russia's daily output of about seven million barrels a day, but expanding at a pace faster than the national average. The prospect of still greater exploitation has set off fervid competition over pipeline routes and supplies between buyers like China and Japan.

The breakneck pace of development has led to more leaks and spills along the sagging Soviet pipeline network and sent soaring the amount of natural gas being flared off at sites throughout the region, said Nikolai N. Vinnichenko, a deputy federal environmental inspector here.

In an interview in his office in Tomsk, the capital of the region that goes by the same name, Mr. Vinnichenko said his reports about the effects of the pace and extent of the new development had failed to draw action from the local or federal authorities. He compared his efforts to warn of the dangers to "a small dog barking at a long caravan."

Hugo Eriksson, a Yukos spokesman, denied that faster pumping meant more leaks. He said Yukos spent $14 million on upgrading pipeline networks in Tomsk last year.

In Russia over all, Yukos spent $93 million on environmental cleanup in 2001, about double that of its closest competitor, Lukoil, according to figures in the annual reports of both companies. That total included a new gas processing plant in the Tomsk region, which Mr. Eriksson said had reduced the amounts of natural gas flared into the atmosphere by about one-sixth since it opened last year.

At the same time, another regional official, who spoke on the condition of anonymity, charged that the company had systematically dumped water polluted with oil into the land around a new field in the east of the region.

Mr. Eriksson responded that the dumping "did not happen and was not documented."

Protests against the pollution of Lake Baikal in the 1970's caused some of the first cracks to appear in the Soviet state. But the economic chaos of the 1990's plunged many into poverty. Today much of the development has been welcomed by local people hungry for jobs.

"The environment is not even second priority," said Sergei V. Guseyevsky, a businessman in Irkutsk, in Siberia. "It is close to last."

The state, too, has frequently been openly hostile to those pressing environmental concerns. Two Russian nuclear safety whistle-blowers were put on trial for treason in the 1990's. In Irkutsk, conservationists protesting a Yukos-sponsored oil pipeline were raided by the Federal Security Service in December. Computers and records were seized, paralyzing work before a public hearing.

"Oil is big money," said Yuri Shirokov, head of a foreign-financed environmental organization in Novosibirsk, known by its acronym, ISAR. "There is a lot of pressure on ecologists. It can be dangerous."

In Tomsk, Yukos wields tremendous power. The company's regional representative, Vladimir Ponomarenko, works as the chairman of the Parliament's budget committee. Yukos recently bought the region's main television station, Channel 2.

The regional governor is one of the company's most outspoken defenders. As a result, the company's operations in the region, much of which is accessible only by helicopter, go virtually unmonitored.

Russia's cleanup record is poor. In 1994, a pipeline puncture in the Arctic region of Komi spilled about 750,000 barrels of oil and water into the area's fragile tundra. Limp cleanup efforts since have left the area still largely polluted. Laws do not spell out clear consequences for those responsible for spills.

Mr. Putin acknowledged Russia's environmental problems in a speech in June. In remarks broadcast on national television, he said that 15 percent of Russia could be classified as an environmental disaster zone and that some ministers "harbor the illusion" that Russia's resources were free for the taking.

"Right now, industries are not held responsible for harming the environment," he said.

Environmentalists were encouraged by the comments. But, they argue, real reform will require a change in the mind-set and priorities of government officials, ordinary Russians and private companies.

"It's a matter of mentality," said Martijn Lodewijkx, a Dutch contractor who led a study of oil pollution in West Siberia for Greenpeace in 2001. "I've seen many places with the best equipment and everything could be done to have zero drilling discharges, but the workers put them into the lake." Correcting the problem, he said, is not as simple as having "people at the top putting policies in place."

Broad problems continue. Twice over the winter the Finnish government complained about Russian tankers in the Baltic Sea that they considered unsafe because they were inadequately protected against ice.

On the Pacific coast island of Sakhalin, environmentalists have warned that a rare gray whale population is endangered because of offshore drilling by a consortium of Western oil companies. An oil pipeline to China planned for 2004 will cross either a national park or an earthquake zone.

"We're in a strange time," said Victor Kuznetsov, one of the environmentalists whose Irkutsk office was raided by the Federal Security Service, "when no one has to take responsibility."

China In Paris

In Paris
By CORINNE LaBALME
http://www.nytimes.com/2003/10/05/travel/05wdparis.html

Every fall, France adopts a new theme for the winter's cultural focus. This year's Année de la Chine, inaugurated tomorrow, promises to be the most extravagant and eclectic so far. The actors Gong Li and Jackie Chan are honorary patrons of a nine-month nonstop festival bringing Chinese opera, circus and ballet - plus museum exhibits devoted to Chinese history, art and pop culture - to cities throughout France.

As usual, Paris claims the biggest share of the riches, including a giant Chinese New Year parade down the Champs-Élysées on Jan. 21, with a fantasy dragon, firecrackers and martial arts displays.

But long before that, Parisians will have had ample chance to familiarize themselves with Chinese culture. From Oct. 14 to Jan. 28, the Hôtel de Ville, 5, rue Lobau, in the Fourth Arrondissement, (33-8) 20.00.75.75, www.paris.fr/fr/culture, in the Fourth Arrondissement, showcases recent Bronze Age excavations in the Szechuan Province, in western China, including artifacts from the Jinsha site (1200-1000 B.C.) discovered in February 2001. Closed Monday. Free admission.

Events

The Musée Guimet, 19, avenue d'Iéna, (33-1) 56.52.53.00, www.museeguimet.fr, the Asiatic art museum in the 16th, surveys the life and times of Confucius (551-479 B.C.), Oct. 29 to Feb. 9. The philosopher was born in the city of Qufu, Shandong Province, which has lent many of the items on display. Closed Thursday. Admission to the museum and the exhibition is $8, $5.85 on Sunday ($4.70 the first Sunday of the month).

Modern Chinese fashion and household items are the focus of "China Close Up" at the Palais de la Porte Dorée, 293, avenue Daumesnil, 12th, (33-1) 44.74.84.80, online at www.aquarium-portedoree.org, Oct. 8 through Nov. 17. Also there: "20th-Century Chinese Painting." Closed Tuesday. Admission $4.70.

The Chinese avant-garde takes the spotlight through Jan. 18 with the first Paris retrospective of Chen Zhen (1955-2000) at the Palais de Tokyo, 13, avenue du Président-Wilson, in the 16th, (33-1) 47.23.54.01, www.palaisdetokyo.com. The "Silence Sonore" exhibition includes "Jue Chang," a sound installation that invites the public to beat a set of drums constructed from bed frames and chairs. Closed Monday; $7.

The National Ballet of China presents "Wives and Concubines" at the Théâtre de Châtelet, 2, rue Édouard Colonne, First, (33-1) 40.28.28.00, www.chatelet-theatre.com, Nov. 21 to 25. The tragic story of a young woman forced to live as a concubine has been adapted for the stage by Zhang Yimou, who also directed the 1991 film "Raise the Red Lantern," based on the same popular novel. Tickets: $9 to $175.

Fifty Chinese acrobats from the celebrated Guangdong Circus premiere their European "Yin Yang Tour" at the 5,500-seat Cirque Phénix, Pelouse de Reuilly, in the 12th, (33-1) 45.72.10.00, www.cirquephenix.com, Nov. 22 to Jan. 4. Tickets: $14 to $50.

"L'Année de la Chine" lasts until July with events scheduled throughout the country. For the full calendar, see www.anneedelachine.org.

Through Jan. 5, the Grand Palais, Place Clémenceau, in the Eighth, (33-1) 44.13.17.17, www.rmn.fr, presents 300 Intimist and Nabi works for "Édouard Vuillard, 1868-1940." In another wing, "Gauguin in Tahiti," based on paintings from the last five years of the artist's life, includes photographs and Oceanic artifacts for extra insights into Gauguin's island idyll; through Jan. 19. Reserved tickets for each show are $12.

Deceptively modern-looking clay figurines from the Boeotian Greek village of Tanagra, most created around the third century B.C., are on display at the Louvre, 34-36, quai du Louvre, (33-1) 40.20.50.50, www.louvre.fr, along with a companion exhibition that spotlights terra-cotta sculpture from Jean-Baptiste Pigalle and Antonio Canova from the late 18th and early 19th centuries. Both shows run through Jan. 5. Closed Tuesday. Admission to the exhibition is $8; admission to both the permanent collections and the exhibition is $13.50 before 3 p.m. and $11 after.

Andre Agassi is scheduled to be among the top-ranked players at the Paris Tennis Masters Series, Oct. 27 to Nov. 2, at the Palais Omnisports de Bercy, 8, boulevard de Bercy, in the 12th, (33-8) 92.69.23.00 Tickets: $14 to $63. Nov. 14 to 16, figure skaters compete at the same site for the prestigious Lalique Trophy; $15 to $90.

Verdi's "Trovatore" will be presented at the Opéra Bastille, 120, rue de Lyon, in the 12th, (33-8) 92.89.90.90, www.opera-de-paris.fr, from Oct. 23 to Nov. 15 ( $12 to $133) and the soprano Laura Aikin sings the title role in Berg's "Lulu" Nov. 3 to 20 ($12 to $104).

Sightseeing

Although Paris has two large Chinatown districts on its east side - in the Belleville section of the 19th arrondissement and south of the Place d'Italie in the 13th arrondissement - the city's two most famous examples of French-Chinese architecture are on opposite sides of town.

In 1926, a Shanghai-born antiques dealer named Ching Tsai Loo hired the French designer Fernand Bloch to build a five-story pagoda. Surrounded by classical French stone buildings on a residential square three blocks south of the fashionable Parc Monceau, the brick-red pagoda with intricate ocher latticework is an architectural showstopper. The C. T. Loo Gallery, 48, rue de Courcelles, Eighth, (33-1) 45.62.53.15, selling fine Oriental antiquities, is open from 2 to 6 p.m. Tuesday to Saturday. The Salle des Oiseaux, decorated with 18th-century Qing-era laquered panels, is available for parties and films.

On the Left Bank, the Cinéma La Pagode, 57 bis, rue de Babylone, Seventh, (33-1) 45.55.48.48, shows first-run films in a jewel-box pavilion that was built in 1896 in a generalized Oriental style for a director of the Bon Marché department store.

To get a taste of China, head south toward the Porte d'Ivry Métro station to visit the giant Asian supermarkets. Tang Frères, 48, avenue d'Ivry, 13th, (33-1) 45.70.80.00, is one of the most atmospheric. The aisles are packed with dried mushrooms, exotic fruit (Thai rambutan and Malaysian carambol), powdered water chestnut, Vietnamese lemon grass and canned litchi juice. Egg rolls (35 cents) or chicken legs with citronelle ($2.15) are available for take-out. Closed Monday.

You can also do some serious China-gazing while you window-shop in the fashionable boutiques along the Avenue Montaigne and the Faubourg St.-Honoré. Louis Vuitton, Céline, Dior and Givenchy are among 66 French "Comité Colbert" luxury enterprises that have created special accessories inspired by the Year of China, which are on sale or display in their salons. Daum Crystal, 4, rue de la Paix, in the Second, (33-1) 42.61.25.25, has created a limited edition of 288 pâte de verre statuettes ($2,935) of Kwan-Yin, the goddess of mercy.

Where to Stay

Overstuffed tangerine sofas, colorful woven rugs, and oak floorboards give a homey touch to the lobby/bar at La Manufacture, 8, rue Philippe de Champagne, 75013, (33-1) 45.35.45.25, fax (33-1) 45.35.45.40, www.hotel-la-manufacture.com, near the Gobelins tapestry factory. All 57 rooms, freshly decorated in rose, aquamarine, gold or ivory, are air-conditioned and have data ports. Despite their small size, many doubles have queen beds. The pearl-gray-tiled bathrooms, some with shower only, have hair dryers. Doubles: $163 to $280.

Recently installed WiFi makes the Bel-Ami, 7-11, rue St.-Benoît, Sixth, (33-1) 42.61.53.53, fax (33-1) 49.27.09.33, www.hotel-bel-ami.com, a high-tech oasis in the heart of St.-Germain's cafe district. The 115 air-conditioned rooms have sleek, contemporary décor in hues from pistachio ice to pumpkin pie. The spacious lobby incorporates an espresso bar and two large desks with work stations. Doubles: $304 to $327.

Budget: Completely renovated in 2001, the Hôtel Palma, 46, rue Brunel, 17th, (33-1) 45.74.74.51, fax (33-1) 45.74.40.90, www.hotelpalma-paris.com, is a 15-minute walk from the Étoile and the Air France/Roissy bus stops. The 37 rooms, prettily decorated with cheerful floral borders, are quite small, but the management has squeezed in helpful amenities like hair dryers and cable television. Only top-floor rooms are air-conditioned. Doubles: $129 to $140.

With its newly renovated History of Science museum, the neglected Arts et Métiers neighborhood north of the Pompidou Center is taking on a new sheen. Still, prices at the 59-room Hôtel Bellevue et du Chariot d'Or, 39, rue Turbigo, (33-1) 48.87.45.60, fax (33-1) 48.87.95.04, www.hotelbellevue75.com, are resisting gentrification. A no-frills triple room is $88, and the quadruples, $108, are spacious enough for a family with considerable luggage. All rooms have television with BBC and CNN. Standard doubles: $69.

Luxury: In a secluded 19th-century mansion in the Eighth, two blocks from Dior's Avenue Montaigne boutique, the San Régis, 12, rue Jean-Goujon, (33-1) 44.95.16.16, fax (33-1) 45.61.05.48, www.hotel-sanregis.fr, offers 44 exquisitely romantic rooms adorned with crystal chandeliers, extravagant canopies, antique furniture and period etchings. Its cozy restaurant, nestled in a dining room decorated like an English library, provides superior room service. Doubles: $462 to $632.

Where to Eat

The big news is Yannick Alléno's move from the two-star restaurant at the Hôtel Scribe to the sumptuous dining room at the Hôtel Meurice, 228, rue de Rivoli, in the First, (33-1) 44.58.10.10, fax (33-1) 44.58.10.15. Specialties include sautéed veal sweetbreads in Arbois white wine; turbot and pak choi fondue flavored with mint and basil; and succulent crab claws prepared with fresh herbs, citrus fruit and creamy caviar mousse. The fixed-price lunch is $64. Closed Saturday lunch and Sunday. Dinner for two with wine: $375.

The ground floor of General Lafayette's former town house in the Eighth is an upscale tea salon called 1728, at 8, rue Anjou, (33-1) 40.17.04.77. In lush 18th-century décor, the Chinese chef, Gao Lin, presents a light fusion menu that skips from savory Tiger shrimp scented with malt whiskey to salmon club sandwiches. The location, near the elegant Faubourg St.-Honoré boutiques, is a plus for afternoon tea and pastry, from the celebrated bakery of Pierre Hermé. Closed Saturday lunch and Sunday. Dinner for two with wine: $175. The salon has occasional musical presentations

Jean-Marc Gorsy's value-conscious $44 fixed-price meals at the Café d'Angel, 16, rue Brey, (33-1) 47.54.03.33, in the 17th, feature smoked salmon cannelloni stuffed with fresh herbs; poached eggs with mushrooms and mustard sauce; and a rosemary-laced fricassee of veal kidneys with an olive-spiked polenta. The wine list at this casual bistro near the Arc de Triomphe highlights the second-line wines from major chateaus. Closed weekends. Dinner for two with wine: $115.

Lunchtime specials - crispy, Alsatian flammenküche pizzas topped with ham, salmon or creamed vegetables plus salad and dessert - cost $12 at Chez Tartempion, 97, rue du Cherche-Midi, in the Sixth Arrondissement, (33-1) 42.22.19.18. The more classic dinner menu includes chicken with basil and grilled bass with fennel. Closed Sunday. Dinner for two with wine: $77.

CORINNE LaBALME, who lives in Paris, writes frequently for The Times.

Vietnam, U.S. to Resume Air Travel Ties

Vietnam, U.S. to Resume Air Travel Ties
By THE ASSOCIATED PRESS
Published: October 9, 2003
Filed at 4:41 a.m. ET
http://www.nytimes.com/aponline/international/AP-Vietnam-US-Flights.html

HANOI, Vietnam (AP) -- Vietnam and the United States initialed a landmark agreement on Thursday, allowing passenger and cargo flights between the two countries for the first time since the end of the Vietnam War.

The agreement was initialed in Hanoi by Pham Vu Hien, deputy director of Vietnam's Civil Aviation Administration, and Laura Faux-Gable, deputy director of the U.S. State Department's Office of Aviation Negotiations.

``This is the first agreement between our two countries,'' Faux-Gable said. ``It is a really significant step that will bring major benefits not just to the economies of both countries but to many other travelers and businesses in the region.''

It was unclear when flights would begin, but representatives of some U.S. carriers said service could start as early as next spring.

State-owned Vietnam Airlines said it would likely take longer to initiate flights to America, but San Francisco was its first choice of destinations from Ho Chi Minh City, said Pham Ngoc Minh, airline executive vice president.

More than 1 million Vietnamese reside in the United States, many of whom fled Vietnam after the communists defeated the U.S.-backed government of South Vietnam in 1975. Many overseas Vietnamese have begun traveling back to their homeland, and Minh said they would become a major passenger target.

``The U.S.-Vietnam market is a huge market and this is a very good opportunity,'' he said.

The agreement came with several restrictions, including destination cities, flight frequency and the number of carriers. The biggest sticking point coming into the third round of negotiations involved what third cities U.S. carriers could fly through to pick up passengers before reaching Vietnam.

Vietnam was concerned it would not be able to compete with large U.S. carriers if an open skies agreement was reached, Faux-Gable said.

In an unusual move, the U.S. negotiators agreed to a restrictive five-year deal that would not allow U.S. airlines to pick up passengers in Taiwan, South Korea, Japan and France. Hong Kong would be off limits for the first two years.

Cargo carriers have the same restrictions, except they are permitted to pick up freight in South Korea.

The agreement also only allows two U.S. and two Vietnamese passenger carriers to fly between the countries for the first two years of the agreement, with a third added on each side the next year. Those carriers will be decided through a government selection process.

Vietnamese and U.S. carriers also are only permitted to fly into five cities, but they can reach other markets through code-sharing agreements, which allow other airlines that already operate in each country to complete part of those flights. It is the system that's currently used to fly between Vietnam and America.

Vietnam's relations with the United States have broadened since a bilateral trade agreement went into effect in December 2001.

Limited flights were offered between the United States and former South Vietnam during the war.

To Young, a Russian Enclave Is Too Much the Old Country

To Young, a Russian Enclave Is Too Much the Old Country
By SABRINA TAVERNISE
http://www.nytimes.com/2003/10/08/nyregion/08BRIG.html

For New Yorkers, Brighton Beach is a charming curiosity, a little bit of Russia in their own backyard. They go to shop for food, mill among the stout old-timers and hear the exotic language. Even the occasional financial swindle in the news is regarded, at least by those who are not prosecutors, as more cultural quirk than grave crime.

But lately Brighton Beach is a tourist attraction for another group of people — more recent immigrants who have come to America from a transformed Russia, where Moscow sparkles with shopping options for the affluent, where malls have sprung up in suburbs, and where sushi bars are more popular than McDonald's. To them, Brighton Beach, in the eastern part of Brooklyn's Coney Island peninsula, is a place frozen in time — a Brezhnev-era closed world, one full of sour looks, suspicion, and hopelessly outdated fashion.

Like the American-born tourists, they come to visit, not to stay. But while Americans smile, they, well, wince.

"We're sightseeing," said Alexander Morozov, 30, a graduate student at Rockefeller University in Manhattan, who comes to Brighton Beach occasionally to sample the food. "I might buy a loaf of black bread. I could never live here."

In the traditional arc of the immigrant experience, the first ethnic outposts, like Little Italy or the Lower East Side, can often become anachronisms, resembling, at least to later arrivals, an exaggerated version of home that has become badly dated.

In New York, Russians have been settling in places other than Brighton Beach for more than a decade now. Bensonhurst in Brooklyn and suburban New Jersey are popular destinations. But with each year, and each new move into other parts of the city and region by young people from a newly capitalist Russia, Brighton Beach seems ever more foreign.

"It's very much like I have gone back in a time machine, and I'm looking out into the 1970's and 1980's," said Maxim Stoklytsky, 30, an M.B.A. student at Georgetown in Washington, D.C., and a native Muscovite, who was visiting Brighton Beach for the first time. "It's strange for me. I'm in the United States, the most powerful and progressive country in the world. And here I am back in time."

Even Brighton Beach locals sense the distance and, with it, feel the disapproval. Lev Abramov, 74, a cobbler in a small shop off Brighton Beach Avenue, said his daughters, both in their late 30's, had moved to New Jersey since the family arrived together 26 years ago.

"Only the old people remain," he said, while he sliced worn heels off old shoes. "There are fewer and fewer new young people here. Brighton Beach can't find a common language with our young people anymore. What is there for them to do here?"

A wave of Russian immigrants in the late 1970's settled in Brighton Beach. The predominantly Jewish migration defined the boundaries of what became known as New York's classic Russian neighborhood.

Immigration from the former Soviet Union surged again in 1991, the year of that nation's breakup, and more people poured into Brighton Beach. But by the late-1990's, the flow of Russians, in smaller numbers and with greater range, began moving and settling farther north in Brooklyn, away from their immigrant roots, according to the city's Department of City Planning.

"The early flows in the early 1990's were primarily to southern Brooklyn, but now they are moving north," said Peter Lobo, deputy director of the population division at the department. "It gained momentum as the decade wore on."

A new Brooklyn-based market research company called Press Release Group, which studies the Russian consumer market, recently found Brooklyn slipping as a magnet for Russian immigrants in the New York City area. Of those who came to the area more than 10 years ago, 7 percent live in Manhattan and 56 percent live in Brooklyn. Among those who immigrated in the past two years, however, 14 percent live in Manhattan and 49 percent live in Brooklyn.

There were 236,163 Russian-born immigrants living in the New York City area in 2000, said Professor Andrew A. Beveridge of Queens College.

But throughout the shifting migrations, Brighton Beach was a place of plenty for Russians visiting their American relatives. They returned home with giant bags of goods — often food — during long years of bare shelves and shortages of basic consumer goods in the Soviet Union. Locals referred to these visitors sardonically as "vacuum cleaners" and pitied their frantic scrambling.

Now, though, those who arrive from Russia, who visit Brighton Beach but settle in other parts of the region, view the old neighborhood less lovingly.

"It's like an amusement park," said Alexander Grant, a journalist at Novoye Russkoye Slovo, a Russian language daily in New York. "People go there to look but not live. It reminds them of their background. New people who come from today's Moscow — everything is done with a grand flourish there. They see this as provincial."

Ilya Merenzon, 27, a student at the New School for Social Research, lives in the East Village. He keeps his connection to the Russian community by working at a Russian-language radio station in Brooklyn.

"Brighton Beach is a cartoon of Russia," said Mr. Merenzon. "The stores are too Russian. You can't find them in Russia anymore. It hasn't changed since the 1970's. It's like a museum."

Denis Ossipov-Grodsky, 28, lived for five years in Brooklyn Heights and Manhattan before going to graduate school at Georgetown. He rarely traveled to Brighton Beach. When he craved Russian-style food, he went to Veselka, the fashionable Ukrainian-Polish diner in the East Village. He celebrated his wedding in Brighton Beach, but only so that his elderly in-laws could make it.

In spitting rain on Saturday, shoppers crowded into Brighton Beach's food stores. At International Foods, one of the most popular stores, women in aprons marched behind glass counters piled high with smoked fish and sausage. Shoppers fingered black bread in bins near the bakery counter. Marina Lagev, 28, from Bay Ridge, Brooklyn, waited while her meat was sliced. "It's unpleasant here," she said, surveying the store with a disapproving look. "In Moscow, young people are really alive. There is so much happening. I don't like coming here."

But Brighton Beach's charms can survive even such harsh disdain. It can still give comfort.

Mr. Ossipov-Grodsky, the student in Washington, said the bakeries and restaurants in Brighton Beach prepare Russian food according to old recipes he remembered tasting in childhood. "We smelled freshly baked bread," said Mr. Stoklytsky, in a suede jacket and rimless glasses. "It reminded me of school days."

And there are still some who choose to live in Brighton Beach. Oksana Khmelnitskaya, 32, came to the United States from Belarus, a country that even today, under President Alexandre Lukashenko, can resemble a Soviet state. She recalled her delight at the food stores and bustling feel of the neighborhood, so different from her home.

Ms. Khmelnitskaya, sipping a soda in an upstairs cafe of a local grocery store, smiles fondly when she talks of the elderly Brighton Beach ladies in their furs, or the saleswomen who promote fake designer merchandise as stuff as real as Armani or Gucci.

Still, Mr. Stoklytsky, the student at Georgetown, just shook his head. "Moscow is power, it's money, it's change," he said. "Like Manhattan. Not Brooklyn."

Police Subdue a Tiger in Harlem Apartment

Police Subdue a Tiger in Harlem Apartment
By ALAN FEUER and JASON GEORGE
http://www.nytimes.com/2003/10/05/nyregion/05MAUL.html

To the sounds of enormous jungle roars, a police sniper rappelled down the side of a Harlem apartment building yesterday and fired tranquilizer darts through an open fifth-floor window to subdue — seat belts, please — a 350-pound Bengal tiger.

The daring, and creative, bit of sharpshooting helped end an episode in which the New York Police Department, unaccustomed to bagging big game, nonetheless managed to sedate the beast. Officials planned to send the tiger, temporarily being held at the Center for Animal Care and Control on 110th Street, to a conservancy in Ohio.

What the tiger, along with a four- to five-foot reptile called a caiman, was doing inside a cluttered apartment in the Drew Hamilton Houses at Adam Clayton Powell Jr. Boulevard and 141st Street remained a mystery yesterday.

In a news conference at the scene, Police Commissioner Raymond W. Kelly said the police became involved in the case on Wednesday when the apartment's resident, Antoine Yates, called to say he had been bitten by a pit bull. When the police went to investigate, Mr. Kelly said, Mr. Yates met them in the lobby. He went to Harlem Hospital with bites on an arm and a leg.

On Thursday, the police got an anonymous tip saying a wild animal was somewhere in the city. On Friday, another call directed them to the exact address. On Friday night, the police found no one home, but talked to a neighbor who complained of large amounts of urine and a strong smell coming through the ceiling, Mr. Kelly said. The neighbor said her daughter had seen the tiger.

Yesterday, the tiger's existence was confirmed. after a hole was cut in the apartment door.

Mr. Yates checked out of Harlem Hospital early yesterday, prompting an inquiry into his whereabouts. But investigators said last night he had been located in Philadelphia, where he was being treated at the University of Pennsylvania Medical Center. How Mr. Yates got to Philadelphia and the nature of his injuries were unclear. The police said he faced charges of reckless endangerment.

The caiman also was taken to the Center for Animal Care and Control shelter, the police said.

"This is an only-in-New-York story," Mr. Kelly said.

Getting to the tiger, a male, was no simple task. From an apartment on the fourth floor, the police first eased a pole-mounted camera out the window to keep track of him. Meanwhile, on the seventh floor, they prepared a team to rappel down so they would have a clearer view when firing tranquilizer darts to subdue him.

The police also called in animal experts, including Dr. Robert A. Cook, head veterinarian at the Bronx Zoo. Dr. Cook, visibly angry over the cramped conditions in which the tiger prowled, said keeping the creature in such a setting was "crazy."

"If he had escaped it would have been a very bad thing," he said.

It was shortly before 4:30 p.m. when the police sniper, Officer Martin Duffy, armed with a dart gun and a rifle with live ammunition, began to rappel down toward the window. He fired one dart a few minutes later, which drew a knee-shaking roar from inside the apartment.

After a few more minutes it was determined that the tiger had been hit, the police said, but was not yet fully sedated. So Officer Duffy fired another dart.

As hundreds of onlookers gathered on the street, some began to wonder if this urban big cat would get along so well in the less cosmpolitan reaches of Ohio.

"My concern is that the city cat won't make it in the country," said Lynnette Braxton, 49. "He's going to have no jazz, no hip-hop. He's going to miss the Harlem Renaissance."

A girl in every port

A girl in every port
A search for cultural roots takes photographer Reagan Louie into Asia's sex industry.
By Glen Helfand
http://www.salon.com/sex/galleries/2003/09/12/louie/

Sept. 12, 2003 | Sexual tourism is a red-hot button on the scale of politically correct travel. While ostensibly about pleasure, jetting off to partake in exotic, erotic smorgasbords for a price is an activity that taps directly into deeply ingrained perceptions of gender, race and uncomfortable global intercourse between First, Second and Third World cultures. For San Francisco Bay Area photographer Reagan Louie, this rich territory, spiked with ideological land mines and oases of sparkling female beauty, serves as something more complex and ambiguous.

As a second-generation Asian American, Louie has made a personal and artistic practice of traveling East in a photographic search to reclaim his roots. In the 1980s, he visited his father's birthplace in China, creating a visual record of the eye-opening, vibrant color pictures that for him, and many viewers, create a link between China and Chinese American identity. "A psychologist might say that my search had been caused by 'cultural marginalization,'" he wrote of that series, "In Search of a True Life" -- something that for him became an ongoing project about postcolonialism.

In the mid-1990s, during picture-gathering trips to Asia, Louie homed in on the sex trade, which is the basis of his recently released book, "Orientalia," as well as an exhibition at the San Francisco Museum of Modern Art, "The Photographs of Reagan Louie: Sex Work in Asia" (through December 17).

These are portraits of women in China, Japan, Thailand, Korea and Southeast Asia that, for the artist, express a dynamic of Asian male sexuality as seen through images of women. The pictures are crisp and colorful visions of clothed and unclothed prostitutes -- hostesses in karaoke bars, masseuses, or employees in betelnut kiosks or glassed-in shacks on roadsides that sell various pleasures to go. Sometimes these women are seen with men, but more often they look to the camera and, by extension, to the photographer from a difficult-to-read position. As SFMoMA curator Sandra Phillips describes them in her wall text, the pictures "offer a dispassionate examination of a topic that is both controversial and conflicted."

This is the angle Louie takes in conversation about his art. "All my work is about how society shapes an individual to some degree," he says. "The first time I went to Asia in 1980, I experienced a different kind of dynamic between men and women. Not that we [Asian men] are exactly emasculated in the U.S., but we're somewhat neutered. Asia has very masculine societies; men have a dominant role. I was aware of it from the beginning, but I didn't know what to do with it."

His first-ever visit to a sex emporium in Hong Kong, where he was shooting during the hand-over from the British in 1997, was an eye opener that jumpstarted the project. Louie, a family man with wife, kids and a dignified job as a professor at the San Francisco Art Institute, entered a new world that offered very distinct examples of the gender dynamic.

"Asian men and their interactions with the sex industry are like a frat party; there's a lot of joking around and playfulness. It's not just about sex -- there's a full sense of socialization. It's a very Asian thing, and I saw it often in different countries. " The primary venues, he says, are karaoke parlors with private rooms. A photograph taken in China in 2000 depicts such a scene, with three women smoking, singing, eating and drinking with a couple of men in what looks like a living room but may be a private karaoke chamber in the Enjoy Business Club, a glitzy, neon-trimmed establishment photographed elsewhere in the series. The image is far more social than salacious. In another, perhaps taken in the same location, a man and a woman chastely croon together while watching the video screen.

More often, the pictures are of women on their own or in an artistic encounter with the photographer. Few of the models look directly at the camera -- their indirect glances serve as a protective mark of professional distance. "I'm shy," Louie admits. "The camera allowed me to enter those places and to meet those people."

Once inside, he finds multiple layers of social evidence. He photographs a Chinese bar girl named Ting Ting in front of star-patterned wallpaper. She appears to be in her early 20s and is wearing a miniskirt and Snoopy T-shirt, an element that subtly introduces a specter of Western influence (evidence that appears frequently in the photos). It takes a moment to notice the tag that reads "N-30" taped to her shoulder, clearly a number identifying her as merchandise. It's not easy, however, to discern her internal state as her expression is a blank, vague smile, and the lighting is at a professional level that eclipses a sense of documentary spontaneity. This, like all the others, is clearly a posed picture.

There's a similar quality to the much raunchier "Yuan Yuan, Macau," a 1999 hotel room scene that depicts a nude woman sitting in a chair, matter-of-factly exposing her genitalia. Her head is tilted back slightly into the executive-gray curtains, her face made up and her eyes hidden beneath stylish wire-rimmed sunglasses. The picture, in some ways, addresses the difficult dichotomy between body and mind with an almost shocking brazenness.

Such images raise lots of difficult questions. Are these women being demeaned or empowered? Are they exoticized or exploited? The ambivalence is much of what makes these pictures interesting, as is the way that they are framed both in the book and the exhibition.

"I didn't do anything furtively -- without the girls there would be no pictures. I paid them for their time, which introduced a collaborative nature. Most of the pictures are staged -- the women arranged themselves for the camera." Clearly the notion of the artist entering an economic transaction with a model parallels the usual parameters of the hooker/john interchange. It's a thorny, provocative aspect of these pictures that raises the obvious question: Did the artist partake in the services on the menu? Louie responds coyly: "Is taking pictures a form of sex?" Was he even tempted? "Sometimes they're sexy, they're good at their job. They know how to draw a man in.

"I'm full of contradictions and conflicts," he continues. "I implement myself, but it's not a 'Heart of Darkness' vision. I wanted to depict survivors, not victims."

Louie is quick to point out, in the standard porn terms, that all the models are over 18 (at least that's what they told him), and he's wise to avoid that political quagmire. But his project doesn't completely skirt potentially controversial topics. There are images that depict interracial desire -- a white woman with a Japanese man, an Asian female with a white man in Hong Kong -- as well as ones that point to aspects of community, commodity and fetishized identities. Louie doesn't attempt to cover all the bases. He doesn't photograph male sex workers or offer a critique of sex tourism -- an aftereffect of global capitalism that often illustrates incredible international inequities and the enduring specter of racial stereotyping. He's aware of all these things, but in the end, he admits this is more the product of an artistic vision, something that began to fascinate the artist and consumes him. He leaves the theorizing to others, especially other artists, whose work he has included in his own show to provide a historical context. Pictures by Picasso, E.J. Bellocq (famous for his early 20th century portraits of New Orleans whores -- see Brooke Shields in "Pretty Baby"), Cindy Sherman and Japanese photographer Yasumasa Morimura offer other takes on the sex industry.

Another to whom Louie turns is self-proclaimed "activist hooker" Tracy Quan, whose iconoclastic opening essay in "Orientalia" challenges various mainstream readings of the business, mainly the zones between selling fantasy and the realities of carnal commerce.

Quan writes that her job is "about enchantment, not just service." She feels a profound sense of shame when she learns that the pricing system at a Hong Kong brothel, as seen in a sign in one of Louie's pictures, is predicated on ethnicity (Malaysian and Philippine women go at bargain basement rates). Yet she also admits to identifying with the fantasy of Julia Roberts in "Pretty Woman," and weighs in on the side of pleasure over politics. She admits, for example, that for those low-priced women she hopes "not for 'social justice' ... but the outright privilege of being a special, exotic treat."

She has more pointed opinions about the hegemony of feminism. "I envy the prostitute who hasn't been confronted daily, as I was from an early age, with feminist attitudes and ideologies," writes Quan. "When I look at these pictures, I imagine that these women are much freer because they are not bogged down by feminist arguments."

Such statements seem constructed to deflect criticism, but may also fuel the show's controversy. "What does it say about the current dialog that they're contextualizing these photographs with the words of a strong, activist hooker's voice who doesn't necessarily identify with feminist or activist concerns?" ponders Tina Takemoto, a professor of visual studies at California College of the Arts in Oakland. "Would these pictures still be interesting without Quan's statements?"

"Without Tracy's kind of progressive view of sex workers, I couldn't do this project," Louie admits. "I chose to do this work to explore if an artist could successfully take on a loaded subject like that on its own terms, and not sugarcoat it." Some will argue that Louie's extremely glossy pictures, presented in the museum in an impressive, life-size scale, do just that: put a plastic product sheen on a complicated situation.

Ultimately, it's these unresolvable questions that make Louie's project memorable. It's impossible not to be seduced or rankled by them, and to clarify our own stance in relation to the issues. "At the end of the day, you have to give shape to your own experience," Louie says. "I work very intuitively. I wasn't calculating that I was going to find my roots, I just take the pictures and follow their lead."

Bikini test par for the course at university

Bikini test par for the course at university
Thursday, October 9, 2003
by DAVID FANG
http://www.scmp.com/topnews/ZZZYI8IMWKD.html

Not many universities would require course applicants to pass a "bikini test", but a Nanchang institute yesterday welcomed 95 women deemed shapely enough to enter China's first bachelor's degree programme for flight attendants.
Thousands of women from across the country applied for the four-year programme.

The lucky ones who made the short list - mostly aged 18 or 19 - were required to parade on stage in skimpy swimwear for officials of the Nanchang Institute of Aeronautical Technology's arts school.

Priority was given to applicants who were shapely and tall, a school spokeswoman said.

The university teaches courses on customer service, air safety, beauty and make-up, oral English and artistic performance, among others.

The spokeswoman said while good looks were a prerequisite, the women also had to be intelligent, so school examination results were considered during the selection process.

Air hostess jobs are highly desirable on the mainland.

When Air China announced in March it was seeking 70 air stewardesses and 15 stewards, it was deluged with several thousand applications.

Hopeful candidates formed a queue more than 1km long in central Beijing to submit their applications.

Li Fang, a 21-year-old graduate of the Beijing Management College of Politics and Law, was one of the lucky few on that day, and now works for the national airline on flights between Beijing and Guangdong.

She said many women wanted to become air hostesses because the job was glamorous, involved travel and was well paid.