German Banks Near Agreement on Greek Plan

German financial companies pushed toward an agreement to roll over their Greek debt holdings as Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann predicted banks would contribute to help avert a “meltdown.”
Representatives of German banks and insurers hammered out a draft proposal to present at a meeting today with Finance Minister Wolfgang Schaeuble and top industry executives, including Ackermann. The German firms, which are using a French proposal as a blueprint for discussions, are likely to commit to contributing to the Greek rescue, while calling for a Europe- wide solution, said people familiar with the plan.
Financial institutions would “offer our hand in a solution,” Ackermann told Chancellor Angela Merkel at a conference in Berlin yesterday. “Not because we’re doing it gladly, but actually to enable policymakers to do something so that we -- I’ll say it frankly -- so that we don’t have a meltdown.”
Commerzbank CEO Martin Blessing, speaking at the same event, said German financial institutions have reached a draft agreement on participation in a Greek rescue, although there are still “a few hitches.” The remarks by the CEOs of Germany’s two biggest banks coincided with the Greek parliament approving the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default.

Debt Rollover

German and French lenders are the biggest foreign holders of Greek debt and their participation is key to the European Union goal of getting banks to roll over at least 30 billion euros ($43 billion) of bonds. German firms and the finance ministry are discussing the idea of rolling over bonds maturing until 2020, and not just those running through 2014, as had been first envisaged, said the people, who declined to be identified because the talks are confidential.
Talks yesterday centered on Greek holdings and how much debt firms are willing to roll over, the people said. Potential sticking points, including the maturity of the Greek bonds, whether investors would face writedowns on their current holdings, and how rating companies would view a rollover, were also discussed, they said.

Beyond Lehman

“If Greece goes into default, then we would have a disruption in Europe that could more quickly impact other countries in a way that goes far beyond what Lehman Brothers meant for us,” said Ackermann, 63.
The bankruptcy of Lehman Brothers Holdings Inc. in September 2008 set off a credit squeeze that forced governments from the U.S. to Germany to Britain to bail out financial institutions.
Ackermann, who is also chairman of the Institute of International Finance, which represents more than 400 financial companies, said they are “working around the clock” with special teams, rating companies and bodies overseeing credit- default swaps to test whether any agreement would trigger a credit event. He warned that any agreement is “highly complex” and could force investors to write down their Greek holdings by an estimated 30 percent to 45 percent if done incorrectly.
Lorenzo Bini Smaghi, a European Central Bank executive board member, called the French proposal to address the Greek debt crisis “interesting,” and said a credit event must be avoided. He spoke in a Les Echos interview.
Schaeuble will hold talks with the heads of German banks and insurers, his deputy, Joerg Asmussen, said June 28. The meetings are part of Europe-wide efforts to get creditors to share the cost of a second Greek bailout and prevent the euro- region’s first default, a year after a 110 billion-euro package failed to resolve the debt crisis.

French Plan

Schaeuble sees a French proposal to roll over Greek debt as a “good basis” for talks, Asmussen said.
Under the French plan, private investors would receive new Greek 30-year bonds worth 70 percent of their original holdings through June 2014, with the remaining 30 percent paid in cash on maturity. Greece would use 50 percent of the original amount to pay down its debt, with 20 percent invested in zero-coupon bonds through a special purpose vehicle that will be used as collateral to insure the banks get repaid.
Banks that roll over their debt under the French plan would receive 30-year bonds with a coupon of about 5.5 percent, which could be increased by as much as 2.5 percentage points based on the pace of Greek economic growth, the people said.
In a second option, investors would reinvest at least 90 percent of their redemptions into five-year Greek government debt with a coupon of 5.5 percent, according to the proposal.
Some German lenders may favor the first option, while others with shorter-term Greek debt may prefer the second.
The plan depends upon credit-rating firms not cutting their grade on Greece and existing or newly issued government securities to default, according to the French draft proposal.
The French plan to roll over Greek sovereign debt has the backing of most of France’s banks and insurers, and it’s now up to investors in Germany and elsewhere in Europe to agree to a strategy, according to two people familiar with the matter.

Lender proves to be a costly buy for Bank of America

Countrywide Financial Corp. turns out to be a huge miscalculation as red ink keeps flowing. The bank added $20.4 billion this week in expected costs to the tally.

When Bank of America Corp. acquired mortgage giant Countrywide Financial Corp. three years ago this week, cementing BofA's position as a consumer banking leader, the purchase price was a measly $2.5 billion in stock.

But the real cost could easily be 10 to 15 times that amount after the home lender incurred huge losses under BofA's ownership and the bank agreed to pay billions of dollars to settle litigation over bad loans made by Countrywide during the housing boom. On Wednesday alone, the bank added $20.4 billion in expected costs to the tally.

The mounting numbers have made the acquisition of Countrywide one of the most misguided takeovers in the history of banking, analysts say.

"The worst by a mile," FBR Capital Markets analyst Paul Miller said — or at least the worst since he began following the industry in 1992.

When the Charlotte, N.C., bank agreed in January 2008 to buy Countrywide, the nationwide mortgage meltdown was well underway in the wake of surging defaults on subprime and other high-risk loans written by the Calabasas company and other lenders.

Shortly after the takeover was completed the following July 1,Kenneth Lewis, BofA's chief executive at the time, acknowledged that Countrywide's losses were running at the high end of what his staff had projected.

But because accountants had aggressively written down the value of Countrywide's assets before transferring them to BofA's books, Lewis predicted the combined home-loan business, consisting mostly of Countrywide's operations, would immediately show a profit — and could see huge earnings growth once the mortgage industry recovered.

Instead, the unit has bled about $16 billion in red ink since the Countrywide takeover — with no real industry recovery in sight.

The $20.4 billion in bad news disclosed Wednesday includes $8.5 billion in payouts to 22 institutional investors to settle demands that Bank of America repurchase bonds backed by Countrywide mortgages. An additional $5.5 billion is to beef up reserves for similar demands by other investors.

The bank also said it would record $6.4 billion in additional mortgage-related charges for the second quarter. That amount includes a $2.6-billion write-off of its Countrywide investment and expenses for revising its mortgage-servicing operations to comply with orders from the Federal Reserve and the Office of the Comptroller of the Currency, which regulates national banks.

The Fed and the comptroller's office were acting in response to revelations that Bank of America and other large mortgage servicers had cut corners in their handling of troubled borrowers, including "robo-signing" documents supporting foreclosures without having the signers actually verify the information.

A coalition of state attorneys general and federal officials are negotiating a separate, broader settlement of the foreclosure fiasco with Bank of America and four other big banks that are major mortgage servicers.

Those authorities, who began their investigation in October, met with the servicers last week but were unable to reach an agreement with the banks on the penalty they must pay, a spokesman for Iowa's attorney general said. Estimates of the total to be paid by the five banks have ranged from $5 billion to $20 billion.

BofA said the newly announced costs meant it would report a net loss of $8.6 billion to $9.1 billion for the second quarter, instead of a profit of $3.2 billion to $3.7 billion. Wall Street seemed to breathe a sigh of relief that things weren't even worse. Bank of America shares ended the day up 32 cents, or 3%, at $11.14.

The new Countrywide-related costs are in addition to these previously announced items, some of which contributed to the operating losses at BofA's mortgage unit since the takeover:

A 2008 settlement with California to cut payments by as much as $8.6 billion on mortgages that state officials said were abusive.

A 2010 accord to forgive as much as $3 billion in principal for severely delinquent Countrywide borrowers in Massachusetts who owed more on their mortgages than their homes were worth.

An agreement last year to pay $600 million to former Countrywide shareholders to settle a securities-fraud lawsuit.

An agreement in April to pay $1.1billion to mortgage insurer Assured Guaranty Ltd. related to losses on Countrywide loans.

More than $6 billion in payments to government-controlled loan buyers Fannie Mae and Freddie Macto settle demands for buybacks of flawed home loans.

Bank of America can take some consolation, however small, in the fact that it paid for Countrywide entirely with BofA stock.

When it agreed to the deal in January 2008, those shares were valued by the stock market at $4 billion. When the transaction closed, their value had fallen to $2.5 billion as the global financial crisis had intensified. They are now worth about $1.2 billion.

Bank of America nears settlement of mortgage lawsuit

Bank of America is completing an agreement to pay $8.5 billion to settle a lawsuit by investors who purchased mortgage securities that soured when the housing bubble burst, representing what is likely to be the single biggest settlement tied to the subprime mortgage boom and the subsequent financial crisis of 2008.

The settlement would wipe out the company's earnings in the first half of this year, while encouraging powerful private investors to extract payouts from other banks that bundled troubled home loans and sold them as sound investments.

The proposed settlement is with a group of large investors including Pimco and BlackRock, as well as the Federal Reserve Bank of New York. Together they hold $56 billion in mortgage-backed securities from Bank of America, based in Charlotte, N.C.

The securities affected by the deal come from Countrywide Financial, the subprime mortgage lender whose practices have come to symbolize the excesses of the housing boom. Bank of America bought Countrywide in 2008.

The settlement goes beyond the securities owned by these investors, however. It covers nearly all of Countrywide's first-lien mortgages, which total $424 billion worth of original, unpaid principal balances. As a result, investors beyond those that are concluding the settlement stand to benefit.

Once it is approved by the company's board, the settlement will require court approval. Bank of America is expected to take a $5 billion after-tax charge in the second quarter to cover the payout.

The $8.5 billion settlement represents just a portion of the bank's total exposure to faulty mortgage bonds, much of which comes from the Countrywide loans.

Last fall, analysts warned that the toll of legal action from the investors and other private holders could total tens of billions of dollars, but the proposed deal would lift some of that uncertainty.

While the board has yet to approve the settlement, both sides are aiming to have it done by Thursday, according to a person close to the negotiations. Bank of America would deliver the money to the trustee for the securities, Bank of New York, which would distribute it to the institutional investors.

Bank of America does not anticipate having to raise capital or sell stock to raise the money for the settlement.

Still, other risks loom from the fallout of the subprime mortgage crisis — for Bank of America and its giant peers. All 50 state attorneys general are in the final stages of settling an investigation into abuses by the biggest mortgage servicers and are pressing the banks to pay up to $30 billion in fines and penalties.

What's more, insurance companies that backed many of the soured mortgage-backed securities are also pressing for reimbursement, arguing the original mortgages were underwritten with false information and did not conform to normal standards.

Bank of America, JPMorgan Chase, Citigroup and Wells Fargo have the greatest exposure to the legal claims over the faulty mortgage bonds. Together, they are likely to absorb roughly 40 percent of the industry's mortgage-related losses.

The huge settlement represents a sharp turnabout from the combative position that Bank of America's CEO, Brian Moynihan, initially adopted last fall when the legal effort by the investors began.

Not long after that, however, the bank started negotiations with the investor group, led by a Houston lawyer, Kathy Patrick. And in January, it reached a settlement with Fannie Mae and Freddie Mac, the government-controlled housing giants, to buy back $2.5 billion in troubled mortgages.

PMI Credit Swaps Signal Mortgage Insurer Risks Default: Corporate Finance

PMI Group Inc. (PMI), the third-largest guarantor of U.S. home loans, may be headed toward default following four years of losses, trading in credit derivatives shows.

Credit-default swaps on PMI at about a 16-month high imply an 85 percent probability of default within five years, according to data-provider CMA. The Walnut Creek, California- based company’s ability to write new business may be frozen if it fails to meet regulatory capital requirements by the end of September, according to CreditSights Inc.

PMI, which pays lenders when homeowners default and foreclosures fail to recoup all of the mortgages, has posted 15 straight quarterly losses amid the worst slump in U.S. housing prices since the Great Depression. Home prices decreased in the year ended in April by the most in 17 months, according to the S&P/Case-Shiller index of property values in 20 cities.

“Eventually this company has to go bankrupt. I just don’t see this company ultimately surviving, but it can survive a long time,” said Jonathan Carmel, founder and money manager at Carmel Asset Management LLC in New York. “People are nervous. They’ll squeak past it for the time being.”

Insurers need to show U.S. regulators they have sufficient capital to back policies, and many states require a risk- capital ratio of less than 25-to-1. The company repatriated $14.5 million from a European business in April to bolster U.S. unit PMI Mortgage Insurance Co., or MIC. MIC’s risk-to-capital ratio was 24.4-to-1 for the first quarter, up from 8.3-to-1 in the comparable period of 2007.

‘Out of Compliance’

“As a result of continuing losses, we expect that MIC will be out of compliance with applicable regulatory requirements in the second quarter of 2011,” and may be prohibited from issuing new policies in 16 states, PMI said in its May 5 earnings statement. PMI said it has received or requested waivers where applicable in the states in which it fails to meet requirements.

Its principal overseer in Arizona, where MIC is domiciled, told the company in March it isn’t required to obtain a waiver to continue writing business if it fails to meet requirements. The insurer may try to sell coverage from a different subsidiary if MIC is prohibited from selling new policies.

Kosta Karmaniolas, a spokesman for the company, declined to comment.

A regulatory seizure of MIC would trigger a cross-default, according to a June 8 CreditSights Inc. note. The cost to protect against a default by PMI, which has been publicly traded since 1995, has held at about a 16-month high, with five-year credit-default swaps tied to the company’s debt diverging from the other so-called monoline mortgage insurers, MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN), by the most on record.

PMI Swaps

Contracts on PMI’s debt climbed to 37.7 percent upfront yesterday, according to CMA. That’s more than six times their level on Dec. 31, and means investors would pay $3.77 million initially and $500,000 annually to protect $10 million of the insurer’s obligations.

Radian’s risk-to-capital ratio was 20.3-to-1 as of March 31, according to its latest quarterly filing, and MGIC’s, excluding combined insurance operations, was 19.7-to-1, its filing shows. PMI is running out of options if its risk levels, already the highest of the three, deteriorate, according to Matthew Howlett, an analyst at Macquarie Group Ltd.

“They’ve already asked for and received waivers from states to continue running their business. At some point, if the capital levels keep eroding, there are not a lot of other things they can do,” he said. “What the market is saying is, how much further will regulators bend the rules for this company that’s honestly in a very weak operating position?”

Default Probability

Howlett, who has a “neutral” rating on the company’s stock, does not expect a default this year.

The swap contract’s implied probability of default is up from 44 percent on Dec. 31, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

PMI is rated Caa2 with a positive outlook by Moody’s Investors Service and CCC- by Standard & Poor’s. S&P lowered PMI’s counterparty credit and senior debt ratings from CCC+ on June 14, and said it may cut the rankings further, citing “expectations of continued elevated losses in 2011 and 2012” relative to its capital.

‘Significant Pressure’

“Losses in line with or in excess of the current industry trends -- without additional capital contributions or substantial internal capital generating initiatives -- could put significant pressure on PMI’s statutory capital by year-end 2012,” S&P analysts led by Miles Kaschalk wrote in the note.

“Even with various capital raises, we’ve seen PMI statutory capital dwindle over the past couple of years,” New York-based Kaschalk said in an interview. “As losses emerge, the capital continues to decline, so based on our forecast, we’re seeing the statutory capital decreasing to a significantly low level, a point where you start to have concerns about the regulators cutting off new business writings.”

High-yield insurers bonds have lost 3.46 percent this month, while overall junk debt dropped 1.68 percent, according to Bank of America Merrill Lynch index data.

Mortgage insurers are resolving “very problematic legacy portfolios” while facing relatively low demand on better- quality new business, said Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC.

Triad Guaranty

“I suspect that will someday change, and given the administration’s proposals for mortgage market reform, there’s good long-term potential for the industry,” Philadelphia-based LeBas said in an e-mail. “But the light on the horizon is many years off, whereas the problems are very much immediate.”

Triad Guaranty Inc. was forced to stop selling mortgage insurance in June 2008 when government-backed Freddie Mac disqualified it as a guarantor of new home loans.

PMI’s $250 million of 6 percent notes due in September 2016 plummeted to 59.5 cents on the dollar with a yield of 18.3 percent yesterday from as high as 81 cents with a 10.6 percent yield in February, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The notes were issued in September 2006 to yield 6.01 percent, or 1.25 percentage points more than similar-maturity Treasuries, Bloomberg data show. At the time, the mortgage insurer was graded A by S&P and its senior unsecured debt was assigned an A1, a step higher, by Moody’s. The current spread is 16.74 percentage points, Trace data show.

Spreads Widen

Average spreads on PMI’s debt have expanded to 1,475 basis points, or 14.75 percentage points, as of June 27 from 726 basis points at the start of the year, Bank of America Merrill Lynch index data show.

PMI ended at $1.15, down 1 cent, in New York Stock Exchange composite trading yesterday. The shares have fallen 65 percent in the past 12 months as the housing market remains an obstacle for the U.S. recovery. MGIC has declined 26 percent and no. 2 Radian has fallen 53 percent.

“In an industry that’s still trying to turn itself around, PMI has the lowest cushion and lowest margin of error among the three monoline mortgage insurers, and that’s weighing on the stock and bond prices,” said New York-based Howlett. “If losses do accelerate in the mortgage insurance industry, they’re clearly in the worst position.”

‘Positive Catalyst’

PMI agreed to sell its Australian and Asian units to QBE Insurance Group Ltd. for about $896 million in August 2008. Assuming full payout, the parent company will get about $208 million in September and MIC received $25 million from QBE, adding 94 cents per share, the company said in a May 5 earnings call.

“That may be a positive catalyst for the CDS and the bonds,” Jeff Peskind, founder of Phoenix Investment Adviser LLC, which oversees $300 million in New York, including some PMI debt. “That’s really kind of a short-term issue. What really needs to happen is the homebuilding cycle needs to gain a little traction.”

PMI will use those proceeds to pay off a $48 million short- term lending facility maturing in October, Macquarie’s Howlett said. After that payment, the company’s next major debt maturity is in 2016 with the $250 million of 6 percent notes, Bloomberg data show.

Housing Falls

The S&P/Case-Shiller index fell 4 percent from April 2010, the biggest drop since November 2009, a report yesterday showed. Robert Shiller, an economist who created the index with Karl Case, told a conference in New York this month that a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”

“There’s no precedent for this statistically, so no way to predict,” Shiller said June 9 at the conference hosted by S&P.

PMI’s new business writings have been “limited” over the past two years by competition from the Federal Housing Administration, and this year by “lower than expected residential mortgage originations,” according to its latest quarterly filing.

“This one is not for the faint of heart but we think there’s decent liquidity and a decent chance for the company to have enough time for the market to recover,” Peskind said. “If this thing turns, people will make a lot of money in this space.”

German finance minister, banks to discuss French plan

BERLIN(Reuters) - Germany's finance minister will meet the chiefs of the country's top insurers and banks on Thursday to discuss a French proposal detailing private sector involvement in a second Greek bailout package.
French banks, the most exposed to the Greek debt crisis, have reached an outline agreement to roll over holdings of maturing Greek bonds as part of a wider European plan to avoid sovereign default.
"We think this French proposal serves as a good basis," Deputy Finance Minister Joerg Asmussen said in a speech he to a real estate conference in Berlin.
"On this basis, the German finance minister will hold talks with the chief executives of the major German banks and insurers on Thursday, June 30, in Berlin," he said.
Under the French proposal, banks would reinvest 70 percent of the proceeds when Greek bonds fall due in 2011-14 and cash out the rest. Of the amount reinvested, 50 percent would go into the new 30-year bonds and 20 percent would go into zero-coupon AAA bonds with deferred interest.
They would pay annual interest of between 5.5 percent and 8 percent, tied to Greek GDP growth.
In a Sunday interview with a German weekly newspaper, Finance Minister Wolfgang Schaeuble said protecting their Greek investments should be reason enough for German banks and insurers to participate voluntarily in an aid deal, so there was no need for additional incentives.
German private sector banks, which quantify their exposure to Greece at some 10-20 billion euros, have called for the state to guarantee their risk if they allow a debt rollover.
German insurers estimate their holdings are substantially less than 6 billion euros, or 0.5 percent of the 1.2 trillion euros in insurers' invested assets.

Women Break Down Barriers in Mideast Finance

Hoda Abou-Jamra still remembers the meeting when potential investors for herprivate equity fund thought she was the secretary.

“I would ask a question, and they would answer to the man next to me. I would answer their question, and they would look at him,” she said, laughing. “I didn’t let it bother me. I just stood up straighter and talked louder.”

Women deal makers, financiers and entrepreneurs are a rare breed in the Middle East. As a founding partner of a $40 million health care fund in Dubai, Ms. Abou-Jamra operates in a male-dominated industry globally and a male-dominated work force locally.

In private equity, women account for roughly 9 percent of the senior management positions worldwide, with the share varying from 9.1 percent in Europe to 8.7 percent in the United States, according to a study this year by the industry research firm Preqin. The gender imbalance is even more extreme in the Middle East, market participants say. While few statistics are available on the region’s nascent industry, only 25 percent of women enter the job market at all, compared with nearly 60 percent in the United States

Ms. Abou-Jamra and other women financial professionals in the Middle East are trying improve the mix. It is a slow process, but they are making headway by creating their own investment vehicles, forging ties with influential players, and generally raising awareness.

“For the gulf states, in the last decade, women have become a lot more entrepreneurial,” said Dina Kawar, the ambassador to France from Jordan, where women account for about 13 percent of all private-sector workers.

Like Ms. Abou-Jamra, Maha Al-Ghunaim found a place at the top by creating a new financial firm, rather than working inside an existing one. At the investment arm of Kuwait’s sovereign wealth fund, Mrs. Al-Ghunaim steadily rose through the ranks, reaching the position an assistant general manager. But competition was intense, and she felt her best opportunity for advancement was elsewhere.

“When you are climbing the ladder, you have to balance between speed and safety,” Mrs. Al-Ghunaim said.

So 13 years ago she founded Global Investment House, a Kuwait-based financial firm that began as a brokerage firm and investment bank. She has since expanded into private equity, with four funds overseeing about $1.5 billion.

The barriers for women are both cultural and structural.

“The guys have so much testosterone, I’ve had to learn to be more aggressive to be heard,” Ms. Abou-Jamra said. “I’ve found that unless I participate in boys’ club activities, I’m put aside. You have to be one of the boys to really fit.”

But some Mideast countries ban women from driving or mixing in public spaces with the opposite sex. Strict dress codes are also enforced in places like Saudi Arabia and Iran.

“There are buildings where I walk in, and I’m the only woman there,” said Ms. Abou-Jamra. “Even the secretaries are male.”

Such restrictions made it difficult for Muna AbuSulayman, an entrepreneur and former television personality, to develop her latest ventures, a fashion line and a Facebook application for new parents. Simply registering the businesses with the government took a year, instead of the usual three days, she said.

“Each time, they would ask for something else, another piece of information, but they wouldn’t ask for all of it at the same time,” she said.

One item that held up the process: an address. The country’s law forbids people from using their home for commercial purposes. Ms. AbuSulayman could not use her father’s office either, since it was not licensed to have women employees under Saudi Arabia’s gender segregation rules. She obtained a business address through a brother.

It can be difficult to find capital, too.

Despite the region’s wealth and deep-pocketed investors, women are often reliant on conservative lenders, which are reluctant to give loans to small, women-led firms. When Ms. AbuSulayman and a male counterpart submitted similar applications to the same Saudi Arabian bank, she received a loan roughly a third of the size of the man.

“Applying for a loan, a woman will not get as much as a man,” she said. “My sister decided to sell her catering business when she could not raise the money she needed to expand it.”

Ms. Abou-Jamra went outside of the Mideast to find money for her firm. After meeting with four international private equity firms, she won the backing of the TVM Capital, a German private equity firm focused on the life sciences, to start a health care fund. She has since raised capital from investors like the World Bank’s private-sector arm, the International Finance Corporation, and the health care unit of General Electric.

Fund-raising in the Middle East was a central topic at a conference in Paris this month. The one-day event, attended by dozens of business people, diplomats and policy analysts, covered how mentorships and social media could play a transformative role in helping women financiers succeed in the region.

“As a woman in the Middle East, as an Arab woman, I found some men were very supportive,” Ms. Abou-Jamra said. “They helped me to not give up.”

Anu Bhardwaj, organizer of the conference, said “like-minded people invest in one another.”

Ms. Bhardwaj’s efforts are tied to a wider campaign by the Women’s Business Forum. Backed by the Organization for Economic Cooperation and Development, Jordan and the United States, the group is trying to educate women entrepreneurs and executives across the globe.

The group wants to tap into the vast resources of the region’s wealthy women. In the Middle East, women are thought to control billions.

“Widows and divorcées have that kind of money,” Ms. Bhardwaj said, “and they don’t spend it all on eye shadow.”

High Court Strikes Down Ariz. Campaign Finance Law

The U.S. Supreme Court delivered a blow, but not a fatal one, to public campaign financing, with a 5-4 decision striking down a central provision of an Arizona law.

The Arizona law offers public funds to state legislative and executive-branch candidates who abide by tight contribution and spending limits. Another provision gives additional dollars when publicly funded candidates face big-spending opponents or outside money groups — and that's what was rejected by Chief Justice John Roberts, writing for the majority.

Roberts said this type of public financing — called "fair fight" money, or funds "triggered" by other spending, or funds meant to "level the playing field" — unfairly burdens the free-speech rights of the other candidates or groups, because it balances out their political spending.

Three years ago, the Supreme Court ruled in another case that the government can justify campaign finance laws intended to fight corruption, but not those to level the playing field.

Reaction To Decision

Lawyers for the plaintiffs were jubilant.

"From our perspective, it is great that the court finally ended Arizona's Frankenstein's experiment with government-manipulated elections," said Nick Dranias of the Goldwater Institute, representing John McComish and two other former legislative candidates.

Dranias said the Goldwater Institute aimed this lawsuit at the leveling funds, but its larger target is Arizona's overall public financing system.

"Future lawsuits will undoubtedly determine whether the entire system can withstand the striking down of the matching funds component," he said.

Still, Roberts stopped short of throwing out the entire law, writing, "That is not our business." Some advocates of tighter campaign finance laws took comfort in that.

Arizona Assistant Attorney General James Barton said the law has been challenged repeatedly, and this is the first major loss. But he added, "Justice Roberts' opinion took the time to say that this isn't an attack on public financing in general. It's only related to these triggered matching funds."

Dissenting View

After Roberts delivered the ruling Monday, Justice Elena Kagan, an Obama appointee, read a fierce dissent.

Writing for the three more liberal members of the court, she said anyone "familiar with our country's core values — our devotion to democratic self-governance," and to a robust political debate, "might expect this court to celebrate, or at least not interfere with" a public financing system.

Kagan's dissent could open a new chapter in the campaign finance debate, and proponents of campaign finance regulation were cheered by it.

"To the majority, it looks like the mere mention of a leveling interest is enough to doom the law," said Rick Hasen, a law professor at the University of California, Irvine. "Justice Kagan in her dissent says, 'So what if some of this is motivated to level the playing field? It was also motivated on anti-corruption grounds, and it is justified on anti-corruption grounds.' "

Still, Kagan is in a four-justice minority on the Roberts court. Monica Youn, who was an attorney for the Brennan Center for Justice on an amicus brief in the case, said, "This is the fifth campaign finance case that the Roberts court has heard, and the fifth that it has struck down, in a mere five years."

Future Lawsuits Possible

One of those other cases, of course, is the controversial Citizens United ruling of 2010, which was cited 10 times by Roberts in Monday's decision. The Citizens United decision lets corporations and unions spend unlimited amounts to support or attack candidates.

The Goldwater Institute's Dranias pointed to a footnote in Monday's decision as a possible seed for future lawsuits.

The footnote seems to cast doubt on the anti-corruption basis for public financing laws. Roberts wrote, "Public financing does nothing to prevent politicians from accepting bribes in exchange for their votes."

Dranias said, "Now that, to me, is a substantial finding that cuts out one of the three legs that has traditionally upheld public financing, that it's a means of preventing bribery to politicians."

So the legal foundations of campaign finance laws will continue to shift.