Jan. 31 (Bloomberg) -- Shares of the following companies may have unusual fluctuations in U.S. trading on Feb. 2. Stock symbols are in parentheses.
Imation Corp. (IMN:US): The maker of Memorex brand DVDs and videotapes eliminated its dividend, saying the recession has been harsher that it anticipated.
Immucor Inc. (BLUD:US): The maker of blood-testing equipment increased the threshold that triggers a so-called poison pill takeover defense, preventing its activation until a shareholder amasses a 20 percent stake. Immucor said the boost from 15 percent isn’t in response to a bid.
Tuesday Morning Corp. (TUES:US): The discount home- furnishing retailer increased the size of its credit line by 20 percent to $180 million.
Tyco Electronics Ltd. (TEL:US): The world’s biggest maker of electronic connectors said it notified New York State that the cancellation of a statewide wireless network agreement valued at $2 billion is a breach of contract.
Warner Chilcott Ltd. (WCRX:US): The maker of health-care products for women sued an Actavis Group unit to block the marketing of a generic version of the Doryx oral antibiotic.
Saturday, January 31, 2009
Obama Promises New Strategy to Revive Credit Markets
Jan. 31 (Bloomberg) -- President Barack Obama said his administration is readying a plan to unlock credit markets and lower mortgage rates, and vowed that company executives will be stopped from siphoning money intended for economic recovery.
“Soon my Treasury secretary, Timothy Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said today in his weekly radio address. He didn’t provide specifics.
“We’ll help lower mortgage costs and extend loans to small businesses so they can create jobs,” Obama said. “We’ll ensure that CEOs are not draining funds that should be advancing our recovery.”
Obama expressed outrage earlier this week after the New York state comptroller reported that Wall Street firms disbursed $18.4 billion in bonuses last year as the U.S. sank into a recession. While the figure represents a 44 percent decline from the previous year amid record losses in the securities industry, the bonus pool was the sixth-largest ever, the comptroller said in a yearly report.
Geithner will “have something to say about” bonuses as early as next week, Obama’s senior adviser David Axelrod said in an interview yesterday on Bloomberg Television’s “Political Capital with Al Hunt.”
Compensation Limits
Axelrod didn’t embrace a ban on bonuses for companies receiving bailout funds. He said the administration will take steps toward “limiting some of this executive compensation” as part of rallying public support for financial-rescue efforts.
“It’s very hard for the American people to understand how a bank executive should get a multimillion dollar bonus at a time when he’s asking the government to essentially bail out his institution,” Axelrod said.
Senator Claire McCaskill, a Missouri Democrat, yesterday introduced legislation to restrict compensation at companies receiving bail-out money to $400,000, the equivalent of the U.S. president’s salary.
“We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer” by taking multimillion-dollar bonuses, McCaskill said.
Axelrod said the administration is crafting a plan that will “set up new rules of the road” for spending the remaining $350 billion of the financial-rescue package, known as the Troubled Asset Relief Program, approved under the Bush administration.
‘Strong’ Banks
The administration is committed to “a strong, private financial sector” in the bailout, he said when asked whether there are discussions to partially nationalize U.S. banks.
“Obviously, we’re trying to help these institutions on a temporary basis, but that’s our goal,” Axelrod said. “We’re going to provide assistance to these institutions and hope that they -- hope and expect that they’ll -- get back on their feet and that credit will flow.”
Axelrod defended Geithner, who sparked controversy during his confirmation hearings last week by saying Obama believes China is “manipulating its currency.”
“What Tim said was akin to what the president said during the campaign, these are issues that we have to work through,” Axelrod said. “We weren’t blazing new ground there.”
Obama spoke with President Hu Jintao of China this week following Geithner’s testimony. Axelrod wouldn’t say whether Obama reassured the Chinese leader on this issue.
Hurdle Cleared
Obama’s economic recovery plan cleared a hurdle this week with House passage of an $819 billion stimulus measure, which now goes to the Senate for approval.
Even though Obama took the unusual step of traveling to Capitol Hill to ask for support from Republican lawmakers, not a single House Republican voted for the bill.
Obama in his radio address today, said an economic recovery will “take years, not months,” and urged the Senate to pass the $819 billion fiscal stimulus package that cleared the House on Jan. 28.
Senate Republicans say they will push for revisions to the legislation.
“Democratic lawmakers in the House of Representatives produced a massive bill that many analysts say is unlikely to create new jobs or boost the economy anytime soon,” Senate Republican Leader Mitch McConnell of Kentucky said in his party’s weekly radio address today.
‘Wasteful Spending’
“Most of the infrastructure projects it includes won’t impact the economy for at least another year,” McConnell said. “Permanent spending would be expanded by about $240 billion, an increase that would lock in bigger and bigger deficits every year. And the bill is loaded with wasteful spending.”
Senate Democrats also have backed changes to the House bill. The Senate Finance Committee voted this week to add a $70 billion alternative-minimum tax cut to the package.
Obama cautioned that “no one bill, no matter how comprehensive, can cure what ails our economy.” Restoring credit markets must coincide with the stimulus package, he said.
“So just as we jumpstart job creation, we must also ensure that markets are stable, credit is flowing, and families can stay in their homes,” he said.
The economy shrank at a 3.8 percent annual pace in the fourth quarter, the most since 1982, as consumers and companies cut spending, a government report showed yesterday.
Companies from Starbucks Corp. to Eastman Kodak Co. have announced job cuts this month. The Dow Jones Industrial Average dropped 76.70 points this week to 8,000.86, driving its monthly loss to 8.8 percent.
“Soon my Treasury secretary, Timothy Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said today in his weekly radio address. He didn’t provide specifics.
“We’ll help lower mortgage costs and extend loans to small businesses so they can create jobs,” Obama said. “We’ll ensure that CEOs are not draining funds that should be advancing our recovery.”
Obama expressed outrage earlier this week after the New York state comptroller reported that Wall Street firms disbursed $18.4 billion in bonuses last year as the U.S. sank into a recession. While the figure represents a 44 percent decline from the previous year amid record losses in the securities industry, the bonus pool was the sixth-largest ever, the comptroller said in a yearly report.
Geithner will “have something to say about” bonuses as early as next week, Obama’s senior adviser David Axelrod said in an interview yesterday on Bloomberg Television’s “Political Capital with Al Hunt.”
Compensation Limits
Axelrod didn’t embrace a ban on bonuses for companies receiving bailout funds. He said the administration will take steps toward “limiting some of this executive compensation” as part of rallying public support for financial-rescue efforts.
“It’s very hard for the American people to understand how a bank executive should get a multimillion dollar bonus at a time when he’s asking the government to essentially bail out his institution,” Axelrod said.
Senator Claire McCaskill, a Missouri Democrat, yesterday introduced legislation to restrict compensation at companies receiving bail-out money to $400,000, the equivalent of the U.S. president’s salary.
“We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer” by taking multimillion-dollar bonuses, McCaskill said.
Axelrod said the administration is crafting a plan that will “set up new rules of the road” for spending the remaining $350 billion of the financial-rescue package, known as the Troubled Asset Relief Program, approved under the Bush administration.
‘Strong’ Banks
The administration is committed to “a strong, private financial sector” in the bailout, he said when asked whether there are discussions to partially nationalize U.S. banks.
“Obviously, we’re trying to help these institutions on a temporary basis, but that’s our goal,” Axelrod said. “We’re going to provide assistance to these institutions and hope that they -- hope and expect that they’ll -- get back on their feet and that credit will flow.”
Axelrod defended Geithner, who sparked controversy during his confirmation hearings last week by saying Obama believes China is “manipulating its currency.”
“What Tim said was akin to what the president said during the campaign, these are issues that we have to work through,” Axelrod said. “We weren’t blazing new ground there.”
Obama spoke with President Hu Jintao of China this week following Geithner’s testimony. Axelrod wouldn’t say whether Obama reassured the Chinese leader on this issue.
Hurdle Cleared
Obama’s economic recovery plan cleared a hurdle this week with House passage of an $819 billion stimulus measure, which now goes to the Senate for approval.
Even though Obama took the unusual step of traveling to Capitol Hill to ask for support from Republican lawmakers, not a single House Republican voted for the bill.
Obama in his radio address today, said an economic recovery will “take years, not months,” and urged the Senate to pass the $819 billion fiscal stimulus package that cleared the House on Jan. 28.
Senate Republicans say they will push for revisions to the legislation.
“Democratic lawmakers in the House of Representatives produced a massive bill that many analysts say is unlikely to create new jobs or boost the economy anytime soon,” Senate Republican Leader Mitch McConnell of Kentucky said in his party’s weekly radio address today.
‘Wasteful Spending’
“Most of the infrastructure projects it includes won’t impact the economy for at least another year,” McConnell said. “Permanent spending would be expanded by about $240 billion, an increase that would lock in bigger and bigger deficits every year. And the bill is loaded with wasteful spending.”
Senate Democrats also have backed changes to the House bill. The Senate Finance Committee voted this week to add a $70 billion alternative-minimum tax cut to the package.
Obama cautioned that “no one bill, no matter how comprehensive, can cure what ails our economy.” Restoring credit markets must coincide with the stimulus package, he said.
“So just as we jumpstart job creation, we must also ensure that markets are stable, credit is flowing, and families can stay in their homes,” he said.
The economy shrank at a 3.8 percent annual pace in the fourth quarter, the most since 1982, as consumers and companies cut spending, a government report showed yesterday.
Companies from Starbucks Corp. to Eastman Kodak Co. have announced job cuts this month. The Dow Jones Industrial Average dropped 76.70 points this week to 8,000.86, driving its monthly loss to 8.8 percent.
U.S. Economy May Keep Sliding After Shrinking Most
Jan. 31 (Bloomberg) -- The U.S. economy is likely to keep deteriorating in early 2009 after shrinking last quarter by the most since 1982, as consumers and businesses retrench.
The 3.8 percent annual pace of contraction in the fourth quarter was less than forecast, with a buildup of unsold goods cushioning the blow. Excluding inventories, the decline was 5.1 percent, the Commerce Department said yesterday in Washington.
Job cuts announced this month by companies from Starbucks Corp. and Pep Boys - Manny, Moe & Jack to Eastman Kodak Co. mean there’ll be little respite in the first half of this year, economists said. The Obama administration used the figures to reinforce its call for Congress to pass a stimulus package in excess of $800 billion to arrest the economy’s decline.
“The recession is going to last through most of 2009, and we’ll be lucky to have growth back at zero by the end of the year,” Kenneth Rogoff, a Harvard University economics professor, said in a Bloomberg Television interview from Davos, Switzerland, yesterday. Economic growth “will be pretty tepid for a long time.”
U.S. stocks fell yesterday, capping the market’s worst January, as more companies reported disappointing earnings. The Standard & Poor’s 500 Stock Index decreased 2.3 percent to close at 825.88. Treasuries advanced, sending benchmark 10-year note yields to 2.84 percent from 2.86 percent late on Jan. 29.
“This is a continuing disaster for America’s working families,” Obama said at the White House yesterday. “They need us to pass the American Recovery and Investment Plan,” designed to save more than 3 million jobs, he said. House lawmakers passed the stimulus Jan. 28, moving action to the Senate next week.
Spending Slump
Yesterday’s report underscored the hit to households from the biggest wealth destruction on record. Consumer spending, which accounts for about 70 percent of the economy, dropped 3.5 percent following a 3.8 percent fall the previous three months. It’s the first time decreases exceeded 3 percent back-to-back since records began in 1947.
The Institute for Supply Management-Chicago said yesterday its business barometer decreased to 33.3 from 35.1 the prior month. The index has remained below 50, the dividing line for contraction, for four months. Meanwhile, consumer confidence rose less than forecast this month, a Reuters/University of Michigan index showed. The gauge climbed to 61.2 from 60.1 in December.
A separate report showed that employment costs in the U.S. rose at the slowest pace in almost a decade in the fourth quarter as companies limited wage gains and benefits. The Labor Department’s employment-cost index rose 0.5 percent.
GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News.
Without Stimulus
“Without the stimulus plan, the economy would be flat to declining in the second half of the year,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Federal Reserve Governor. With the recovery package, the unemployment rate may peak at 8 percent instead of 9.5 percent or higher, he added.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
Economists at Morgan Stanley and Deutsche Bank Securities Inc. in New York lowered their forecasts for growth in the first three months of 2009 following the report. They both now estimate the economy’s worst drop will occur this quarter.
For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.
Prices Cool
The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Fed’s preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.
Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.
“This is a severe, steep, broadly based recession” with “no quick fix,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in a Bloomberg Television interview from Davos, Switzerland yesterday.
Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million. The unemployment rate last month was 7.2 percent, up from 4.9 percent a year before.
Job Cuts
More cutbacks are on the way. Kodak, Target Corp. and Texas Instruments Inc. are among U.S. companies that announced thousands of layoffs this week.
Target, the second-biggest U.S. discount retailer, said this week it will slash 600 existing jobs and 400 open positions, mainly in its hometown of Minneapolis. It also said it will close a distribution center in Little Rock, Arkansas, later this year that employs 500 workers.
“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions,” Chief Executive Officer Gregg Steinhafel said in a Jan. 27 statement.
The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.
Housing Slump
The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.
PPG Industries Inc., the world’s second-biggest paint maker, said this week that it may cut as many as 4,500 employees, or 10 percent of its workforce, because of weak global demand from automakers and homebuilders.
“We are probably looking at the sharpest downturn that anyone working at our company has seen,” Chief Executive Officer Charles E. Bunch said in an interview Jan. 27. “The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis.”
The slowdown in global demand indicates American exports are unlikely to contribute to growth in early 2009. World growth will be 0.5 percent this year, the weakest postwar pace, the International Monetary Fund said Jan. 28.
Inventories grew at a $6.2 billion pace in the fourth quarter, the first gain in more than a year. Its contribution to growth was the biggest since the fourth quarter of 2005.
The Fed this week said it’s prepared to purchase Treasury securities to shore up lending and warned inflation may recede too rapidly. Fed policy makers voted to leave the benchmark interest rate as low as zero.
The GDP report is the first for the quarter and will be revised in February and March as more information becomes available.
The 3.8 percent annual pace of contraction in the fourth quarter was less than forecast, with a buildup of unsold goods cushioning the blow. Excluding inventories, the decline was 5.1 percent, the Commerce Department said yesterday in Washington.
Job cuts announced this month by companies from Starbucks Corp. and Pep Boys - Manny, Moe & Jack to Eastman Kodak Co. mean there’ll be little respite in the first half of this year, economists said. The Obama administration used the figures to reinforce its call for Congress to pass a stimulus package in excess of $800 billion to arrest the economy’s decline.
“The recession is going to last through most of 2009, and we’ll be lucky to have growth back at zero by the end of the year,” Kenneth Rogoff, a Harvard University economics professor, said in a Bloomberg Television interview from Davos, Switzerland, yesterday. Economic growth “will be pretty tepid for a long time.”
U.S. stocks fell yesterday, capping the market’s worst January, as more companies reported disappointing earnings. The Standard & Poor’s 500 Stock Index decreased 2.3 percent to close at 825.88. Treasuries advanced, sending benchmark 10-year note yields to 2.84 percent from 2.86 percent late on Jan. 29.
“This is a continuing disaster for America’s working families,” Obama said at the White House yesterday. “They need us to pass the American Recovery and Investment Plan,” designed to save more than 3 million jobs, he said. House lawmakers passed the stimulus Jan. 28, moving action to the Senate next week.
Spending Slump
Yesterday’s report underscored the hit to households from the biggest wealth destruction on record. Consumer spending, which accounts for about 70 percent of the economy, dropped 3.5 percent following a 3.8 percent fall the previous three months. It’s the first time decreases exceeded 3 percent back-to-back since records began in 1947.
The Institute for Supply Management-Chicago said yesterday its business barometer decreased to 33.3 from 35.1 the prior month. The index has remained below 50, the dividing line for contraction, for four months. Meanwhile, consumer confidence rose less than forecast this month, a Reuters/University of Michigan index showed. The gauge climbed to 61.2 from 60.1 in December.
A separate report showed that employment costs in the U.S. rose at the slowest pace in almost a decade in the fourth quarter as companies limited wage gains and benefits. The Labor Department’s employment-cost index rose 0.5 percent.
GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News.
Without Stimulus
“Without the stimulus plan, the economy would be flat to declining in the second half of the year,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Federal Reserve Governor. With the recovery package, the unemployment rate may peak at 8 percent instead of 9.5 percent or higher, he added.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
Economists at Morgan Stanley and Deutsche Bank Securities Inc. in New York lowered their forecasts for growth in the first three months of 2009 following the report. They both now estimate the economy’s worst drop will occur this quarter.
For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.
Prices Cool
The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Fed’s preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.
Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.
“This is a severe, steep, broadly based recession” with “no quick fix,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in a Bloomberg Television interview from Davos, Switzerland yesterday.
Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million. The unemployment rate last month was 7.2 percent, up from 4.9 percent a year before.
Job Cuts
More cutbacks are on the way. Kodak, Target Corp. and Texas Instruments Inc. are among U.S. companies that announced thousands of layoffs this week.
Target, the second-biggest U.S. discount retailer, said this week it will slash 600 existing jobs and 400 open positions, mainly in its hometown of Minneapolis. It also said it will close a distribution center in Little Rock, Arkansas, later this year that employs 500 workers.
“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions,” Chief Executive Officer Gregg Steinhafel said in a Jan. 27 statement.
The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.
Housing Slump
The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.
PPG Industries Inc., the world’s second-biggest paint maker, said this week that it may cut as many as 4,500 employees, or 10 percent of its workforce, because of weak global demand from automakers and homebuilders.
“We are probably looking at the sharpest downturn that anyone working at our company has seen,” Chief Executive Officer Charles E. Bunch said in an interview Jan. 27. “The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis.”
The slowdown in global demand indicates American exports are unlikely to contribute to growth in early 2009. World growth will be 0.5 percent this year, the weakest postwar pace, the International Monetary Fund said Jan. 28.
Inventories grew at a $6.2 billion pace in the fourth quarter, the first gain in more than a year. Its contribution to growth was the biggest since the fourth quarter of 2005.
The Fed this week said it’s prepared to purchase Treasury securities to shore up lending and warned inflation may recede too rapidly. Fed policy makers voted to leave the benchmark interest rate as low as zero.
The GDP report is the first for the quarter and will be revised in February and March as more information becomes available.
Mahindra Profit Unexpectedly Tumbles 99% on Currency
Jan. 31 (Bloomberg) -- Mahindra & Mahindra Ltd., India’s largest maker of sport-utility vehicles and tractors, said third- quarter profit tumbled a more-than-expected 99 percent as currency losses mounted and sales fell.
Net income in the three months ended Dec. 31 dropped to 12 million rupees ($245,000) from 4.05 billion rupees a year earlier, the Mumbai-based company said in a statement. That is Mahindra’s smallest quarterly profit since at least since 2003 and the fourth straight decline, according to Bloomberg data. The median estimate in a Bloomberg News survey of nine analysts was for a profit of 1.09 billion rupees.
Mahindra incurred a currency loss of 1.2 billion rupees as the rupee dropped for a fourth straight quarter, completing the steepest slide in 17 years. Its utility-vehicle sales fell 26 percent in the quarter as banks tightened credit and rising job insecurity hurt sales in Asia’s fourth-largest automotive market. The Indian partner of Renault SA shut most of its plants for three to six days in December due to weaker demand.
“People are either postponing or canceling vehicle purchases as the slowdown has affected sentiment,” said Anup Maheshwari, an analyst at Mumbai-based K.R. Choksey Shares & Securities Pvt., who recommends investors “sell” Mahindra. “If you are unsure about future earnings, you are in a saving mode.”
India’s rupee fell 3.5 percent in the three months through December, taking its decline in 2008 to 19 percent. That was the currency’s worst performance since a balance of payments crisis in 1991 forced the South Asian nation to pawn its gold to pay for imports. The rupee was the second-worst performer last year among the 10 most-active Asian currencies outside Japan.
‘Recessionary Conditions’
The foreign-exchange loss was due to “cancellation of forward covers entered into by the company to hedge certain anticipated exports,” Mahindra said. Exports slumped 54 percent last quarter due to “recessionary conditions globally,” it said.
The last quarter was extremely challenging for both automobile and tractor industries, the company said in the statement. The “paucity of retail finance, its high cost and lukewarm consumer sentiment in the wake of the global financial turbulence saw volumes decline.”
Tata Motors Ltd., the Indian truck maker that owns Jaguar and Land Rover, yesterday reported its first quarterly loss in seven years as currency fluctuations aggravated the impact of falling sales in the last quarter.
Inflation, Rates
India’s central bank said Jan. 27 the nation’s economy may grow 7 percent in the year to March 31, lowering its earlier forecast of between 7.5 percent and 8 percent.
To revive growth, the Reserve Bank of India has reversed four years of monetary tightening and the government announced economic stimulus plans. On Jan. 28, India cut retail fuel prices for the second time in less than two months. The central bank cut its policy rates this month for a fourth time since October to record lows.
Mahindra rose 2.7 percent to 302.25 rupees in Mumbai trading yesterday. The stock has gained 10.1 percent this year.
Cheaper crude oil, slower inflation and the Indian central bank’s measures to make money cheaper and more easily available in the financial system may reduce Mahindra’s costs in the coming months, the company said.
India’s inflation rate halved from a 16-year high touched in August. It was at 5.64 percent in the week ended Jan. 17, near an 11-month low. Crude oil has declined more than 70 percent from a record high of $147.27 per barrel reached in July.
Net income in the three months ended Dec. 31 dropped to 12 million rupees ($245,000) from 4.05 billion rupees a year earlier, the Mumbai-based company said in a statement. That is Mahindra’s smallest quarterly profit since at least since 2003 and the fourth straight decline, according to Bloomberg data. The median estimate in a Bloomberg News survey of nine analysts was for a profit of 1.09 billion rupees.
Mahindra incurred a currency loss of 1.2 billion rupees as the rupee dropped for a fourth straight quarter, completing the steepest slide in 17 years. Its utility-vehicle sales fell 26 percent in the quarter as banks tightened credit and rising job insecurity hurt sales in Asia’s fourth-largest automotive market. The Indian partner of Renault SA shut most of its plants for three to six days in December due to weaker demand.
“People are either postponing or canceling vehicle purchases as the slowdown has affected sentiment,” said Anup Maheshwari, an analyst at Mumbai-based K.R. Choksey Shares & Securities Pvt., who recommends investors “sell” Mahindra. “If you are unsure about future earnings, you are in a saving mode.”
India’s rupee fell 3.5 percent in the three months through December, taking its decline in 2008 to 19 percent. That was the currency’s worst performance since a balance of payments crisis in 1991 forced the South Asian nation to pawn its gold to pay for imports. The rupee was the second-worst performer last year among the 10 most-active Asian currencies outside Japan.
‘Recessionary Conditions’
The foreign-exchange loss was due to “cancellation of forward covers entered into by the company to hedge certain anticipated exports,” Mahindra said. Exports slumped 54 percent last quarter due to “recessionary conditions globally,” it said.
The last quarter was extremely challenging for both automobile and tractor industries, the company said in the statement. The “paucity of retail finance, its high cost and lukewarm consumer sentiment in the wake of the global financial turbulence saw volumes decline.”
Tata Motors Ltd., the Indian truck maker that owns Jaguar and Land Rover, yesterday reported its first quarterly loss in seven years as currency fluctuations aggravated the impact of falling sales in the last quarter.
Inflation, Rates
India’s central bank said Jan. 27 the nation’s economy may grow 7 percent in the year to March 31, lowering its earlier forecast of between 7.5 percent and 8 percent.
To revive growth, the Reserve Bank of India has reversed four years of monetary tightening and the government announced economic stimulus plans. On Jan. 28, India cut retail fuel prices for the second time in less than two months. The central bank cut its policy rates this month for a fourth time since October to record lows.
Mahindra rose 2.7 percent to 302.25 rupees in Mumbai trading yesterday. The stock has gained 10.1 percent this year.
Cheaper crude oil, slower inflation and the Indian central bank’s measures to make money cheaper and more easily available in the financial system may reduce Mahindra’s costs in the coming months, the company said.
India’s inflation rate halved from a 16-year high touched in August. It was at 5.64 percent in the week ended Jan. 17, near an 11-month low. Crude oil has declined more than 70 percent from a record high of $147.27 per barrel reached in July.
Friday, January 30, 2009
More News • Vekselberg Says Rusal May Sell Shares to Refinance $16.3 Billion of Debt • Budget Revenue May Decline by 40% This Year, Russian Financ
Jan. 30 (Bloomberg) -- Russia’s central bank raised two key interest rates for the third time since the start of November in a bid to curb inflation and to stabilize the exchange rate of the ruble.
The interest rate for one-day and seven-day loans from the bank in repurchase auctions will climb to 11 percent from 10 percent on Feb. 2, Bank Rossii said in an e-mailed statement today.
The ruble slid as much as 2.2 percent today to 35.8502 per dollar, just 0.4 percent away from breaking through Russia’s 36 per dollar limit, before paring declines. Chairman Sergey Ignatiev said today that Bank Rossii will intervene in the market, limit the amount of refinancing offered to banks and adjust interest rates to keep the ruble from breaking the new trading band.
Bank Rossii expanded its trading range for the ruble 20 times since mid-November before policy makers switched last week to let “market” forces help determine the exchange rate within a widened limit. The central bank drained more than a third of its foreign-currency reserves, the world’s third-largest, since August to stem the ruble’s 34 percent slide against the dollar.
Investors are betting against the ruble as a 69 percent slump in oil prices in the past six months weakens the economy, triggering Russia’s worst financial crisis since 1998. Some $290 billion left the country since August, according to BNP Paribas SA.
Finance Minister Alexei Kudrin said today that inflation may run at about 13 percent this year. Russia’s budget revenue may tumble by 4.4 trillion rubles ($124.6 billion), or 40 percent, as the slump in oil prices reduces tax revenue for the world’s largest energy exporter, Kudrin said.
As the U.S. Federal Reserve, European Central Bank and the Bank of England bring their interest rates closer to zero in a bid to pull their economies out of recession, Russia’s central bank is raising rates to dissuade banks from converting rubles into foreign currency.
The interest rate for one-day and seven-day loans from the bank in repurchase auctions will climb to 11 percent from 10 percent on Feb. 2, Bank Rossii said in an e-mailed statement today.
The ruble slid as much as 2.2 percent today to 35.8502 per dollar, just 0.4 percent away from breaking through Russia’s 36 per dollar limit, before paring declines. Chairman Sergey Ignatiev said today that Bank Rossii will intervene in the market, limit the amount of refinancing offered to banks and adjust interest rates to keep the ruble from breaking the new trading band.
Bank Rossii expanded its trading range for the ruble 20 times since mid-November before policy makers switched last week to let “market” forces help determine the exchange rate within a widened limit. The central bank drained more than a third of its foreign-currency reserves, the world’s third-largest, since August to stem the ruble’s 34 percent slide against the dollar.
Investors are betting against the ruble as a 69 percent slump in oil prices in the past six months weakens the economy, triggering Russia’s worst financial crisis since 1998. Some $290 billion left the country since August, according to BNP Paribas SA.
Finance Minister Alexei Kudrin said today that inflation may run at about 13 percent this year. Russia’s budget revenue may tumble by 4.4 trillion rubles ($124.6 billion), or 40 percent, as the slump in oil prices reduces tax revenue for the world’s largest energy exporter, Kudrin said.
As the U.S. Federal Reserve, European Central Bank and the Bank of England bring their interest rates closer to zero in a bid to pull their economies out of recession, Russia’s central bank is raising rates to dissuade banks from converting rubles into foreign currency.
Asian Stocks Snap 3-Week Losing Streak on Financial Policies
Jan. 30 (Bloomberg) -- Asian stocks climbed for the first week in four, led by banks, as the U.S. and Japan stepped up efforts to revive credit markets and economic growth.
Sumitomo Mitsui Financial Group Inc., Japan’s second- largest bank by market value, jumped 14 percent after the government proposed equity financing for companies short of funding. KB Financial Group Inc. rallied 16 percent in Seoul as the U.S. moved closer to creating a bank to absorb toxic assets. Samsung Electronics Co., the world’s biggest computer-memory maker, gained 10 percent after the bankruptcy of a rival lifted confidence a chip supply glut will ease.
“Thanks to once-in-a-century measures from governments worldwide, the global economy will likely be better next year than this year,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $96 billion. “The market is starting to reflect that possible recovery.”
The MSCI Asia Pacific Index rose 3.5 percent this week to 82.12, climbing from a seven-week low. The gauge lost 7.1 percent in January, trailing only 2008 as the worst start to a new year in its two-decade history.
Japan’s Nikkei 225 Stock Average rose 3.2 percent. Most of the region’s markets were closed for part of the week for Lunar New Year. China’s markets will reopen on Feb. 2.
MSCI’s Asian index slumped by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to cut jobs amid slumping profits. Earnings estimates for companies included in the gauge dropped 43 percent in the past year, bringing them to the lowest level since Bloomberg began compiling the data in 2005.
Financials Rally
An index of financial companies on MSCI Asia Pacific rose 5.9 percent, the second-largest advance of 10 industry groups, amid speculation policy measures will help ease a crisis that has caused more than $1 trillion of losses at financial institutions worldwide.
Sumitomo Mitsui gained 14 percent to 3,650 yen even as it reported a 99 percent slump in third-quarter profit. KB, which controls South Korea’s largest bank, climbed 16 percent to 37,000 won. Commonwealth Bank of Australia, the nation’s largest mortgage lender, added 12 percent to A$26.90.
In Japan, the government proposed allowing the Development Bank of Japan to buy preferred and common shares in companies, aiding the ones that have difficulty obtaining capital, while the Bank of Japan pledged to purchase corporate debt to help ease credit markets.
Government Support
Parliament passed a 4.8 trillion yen ($53.9 billion) stimulus plan that includes cash handouts to individuals and support for laid-off workers.
In the U.S., President Barack Obama’s administration may announce next week the outlines of a plan to create a “bad” bank that will acquire unwanted assets from financial institutions and allow the government to rewrite the terms of some mortgages, a White House official said.
Additionally, the lower house of the U.S. Congress approved Obama’s $819 billion economic stimulus package, moving it to the Senate for final approval.
Samsung jumped 10 percent to 488,000 won and Elpida Memory Inc., Japan’s largest memory chipmaker, soared 27 percent to 649 yen after Qimonda AG, a German chipmaking rival that accounted for 5 percent of global production, filed for insolvency.
Oversupply in the industry helped push prices for chips down 42 percent in the last quarter of 2008, according to industry research firm DRAMeXchange.
Earnings Reports
Disappointing earnings figures capped gains this week. Toshiba Corp., the world’s second-biggest maker of flash memory chips, lost 14 percent to 318 yen after saying it expects a record loss this year because of falling prices for chips.
India’s Glenmark Pharmaceuticals Ltd. plunged 32.6 percent to 137.25 rupees, the steepest drop in the MSCI Asia gauge, after third-quarter profit tumbled 71 percent.
Boral Ltd., Australia’s biggest seller of building materials, dropped 17 percent to A$3.31 as the ongoing global housing slump forced the company to reduce its annual net income forecast by 40 percent.
“The recession is going to be deeper than what we read to be the consensus,” said Alistair Thompson, who helps manage about $16 billion in equities at First State Investments in Singapore. “People are saying there’s going to be a recovery toward the end of the year, but the credit binge we’ve had is going to take an awful lot longer to unwind.”
Sumitomo Mitsui Financial Group Inc., Japan’s second- largest bank by market value, jumped 14 percent after the government proposed equity financing for companies short of funding. KB Financial Group Inc. rallied 16 percent in Seoul as the U.S. moved closer to creating a bank to absorb toxic assets. Samsung Electronics Co., the world’s biggest computer-memory maker, gained 10 percent after the bankruptcy of a rival lifted confidence a chip supply glut will ease.
“Thanks to once-in-a-century measures from governments worldwide, the global economy will likely be better next year than this year,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $96 billion. “The market is starting to reflect that possible recovery.”
The MSCI Asia Pacific Index rose 3.5 percent this week to 82.12, climbing from a seven-week low. The gauge lost 7.1 percent in January, trailing only 2008 as the worst start to a new year in its two-decade history.
Japan’s Nikkei 225 Stock Average rose 3.2 percent. Most of the region’s markets were closed for part of the week for Lunar New Year. China’s markets will reopen on Feb. 2.
MSCI’s Asian index slumped by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to cut jobs amid slumping profits. Earnings estimates for companies included in the gauge dropped 43 percent in the past year, bringing them to the lowest level since Bloomberg began compiling the data in 2005.
Financials Rally
An index of financial companies on MSCI Asia Pacific rose 5.9 percent, the second-largest advance of 10 industry groups, amid speculation policy measures will help ease a crisis that has caused more than $1 trillion of losses at financial institutions worldwide.
Sumitomo Mitsui gained 14 percent to 3,650 yen even as it reported a 99 percent slump in third-quarter profit. KB, which controls South Korea’s largest bank, climbed 16 percent to 37,000 won. Commonwealth Bank of Australia, the nation’s largest mortgage lender, added 12 percent to A$26.90.
In Japan, the government proposed allowing the Development Bank of Japan to buy preferred and common shares in companies, aiding the ones that have difficulty obtaining capital, while the Bank of Japan pledged to purchase corporate debt to help ease credit markets.
Government Support
Parliament passed a 4.8 trillion yen ($53.9 billion) stimulus plan that includes cash handouts to individuals and support for laid-off workers.
In the U.S., President Barack Obama’s administration may announce next week the outlines of a plan to create a “bad” bank that will acquire unwanted assets from financial institutions and allow the government to rewrite the terms of some mortgages, a White House official said.
Additionally, the lower house of the U.S. Congress approved Obama’s $819 billion economic stimulus package, moving it to the Senate for final approval.
Samsung jumped 10 percent to 488,000 won and Elpida Memory Inc., Japan’s largest memory chipmaker, soared 27 percent to 649 yen after Qimonda AG, a German chipmaking rival that accounted for 5 percent of global production, filed for insolvency.
Oversupply in the industry helped push prices for chips down 42 percent in the last quarter of 2008, according to industry research firm DRAMeXchange.
Earnings Reports
Disappointing earnings figures capped gains this week. Toshiba Corp., the world’s second-biggest maker of flash memory chips, lost 14 percent to 318 yen after saying it expects a record loss this year because of falling prices for chips.
India’s Glenmark Pharmaceuticals Ltd. plunged 32.6 percent to 137.25 rupees, the steepest drop in the MSCI Asia gauge, after third-quarter profit tumbled 71 percent.
Boral Ltd., Australia’s biggest seller of building materials, dropped 17 percent to A$3.31 as the ongoing global housing slump forced the company to reduce its annual net income forecast by 40 percent.
“The recession is going to be deeper than what we read to be the consensus,” said Alistair Thompson, who helps manage about $16 billion in equities at First State Investments in Singapore. “People are saying there’s going to be a recovery toward the end of the year, but the credit binge we’ve had is going to take an awful lot longer to unwind.”
Obama Seems to Be Open to a Broader Role for States
The Obama administration seems to be open to a movement known as “progressive federalism,” in which governors and activist state attorneys general have been trying to lead the way on environmental initiatives, consumer protection and other issues, several constitutional experts say.
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A recent decision by President Obama that could open the way for California and other states to set their own limits on greenhouse gases from cars and trucks represents a shift in the delicate and often acrimonious relationship between the federal government and the states, legal experts say, possibly signaling a new view of federalism.
“I think it’s quite significant,” said Samuel Issacharoff, a professor of constitutional law at New York University law school. “It shows the Obama administration’s more benign view of government intervention,” Professor Issacharoff said, and “may indicate a spirit of cooperative federalism” in which Washington will look to the states for new ideas and even a measure of guidance.
Tom Miller, the attorney general of Iowa, who met with the transition team in December to discuss federalism and other issues, said he believed the Obama administration would “usher in a new era in federal-state relations.” Members of the new administration, Mr. Miller said, “are open to what we’re talking about, what we’re thinking.” They also appreciate, he said, the fact that state attorneys general often achieve a level of bipartisan cooperation when they band together to pursue lawsuits.
The general trend under previous administrations had favored federal pre-emption, the belief that the best law comes from Washington, a concept still favored by business leaders.
William L. Kovacs, a vice president for environmental and regulatory issues at the United States Chamber of Commerce, said free-for-all federalism was bad for business and would lead to a “patchwork of laws impacting a troubled industry.” Detroit, Mr. Kovacs said, would have to produce different cars for different parts of the country, and the environmental protection agency would grow tremendously to meet the new regulatory burden.
Many liberal thinkers skeptical of states’ rights and state actions since the days of segregation have begun to see that the states, to use Justice Louis Brandeis’s words from the 1930s, can “serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”
Professor Issacharoff said states were often quicker than Washington to spot a problem when it emerged, and so “it may be the states that have the best initial take on it, and try different regulatory methods until we fasten on a single national solution.”
States have taken up the challenge of consumer protection, addressing issues like predatory lending well before the federal government took action, and often achieving reforms by suing the federal government to force it to enforce its laws and through legal settlements with industry. In October, 11 states reached an $8.4 billion settlement with Countrywide Financial in which it agreed to modify home loans to help people at risk of foreclosure. And in 2006, 49 states and the District of Columbia reached a $325 million settlement with the Ameriquest Mortgage company to change its policies.
Attorneys general also pressured major universities to adopt a code of conduct regarding their relationships with student lending companies. Eliot Spitzer, the former New York attorney general, achieved a settlement with the pharmaceutical company GlaxoSmithKline in 2004 in which it agreed to release more information about the risks to patients that had come out in clinical trials.
The Obama administration, then, is embracing a states’ rights movement that a liberal could love. “The pro-regulatory folks realized in the last eight years that the old line on federal power being the only good power wasn’t correct,” said William Marshall, a law professor at the University of North Carolina who was deputy White House counsel in the Clinton administration and a former solicitor general of Ohio.
“It doesn’t mean you abandon the federal regulatory process — you don’t, of course,” Mr. Marshall said. “But you treat it as a floor and not a ceiling.”
He added, “The Obama administration is signaling that state regulations may very well complement federal regulations, and they can both work together to achieve important goals.”
Still, James E. Tierney, the director of the National State Attorneys General Program at Columbia University Law School, cautioned against reading too much into a single presidential directive. “I don’t think we have a hallmark, sweeping view of states’ rights here,” Mr. Tierney said. He said “the Obama administration is going to take these one at a time” and “will be with the states as long as the states fit in with his view of the national interest.”
And Walter Dellinger, a solicitor general in the Clinton administration, said that the economic rise of the United States, compared with Europe’s, in the 1950s could be attributed in large part to the unified American market. Now Europe’s markets have unified, Mr. Dellinger noted. “There is a serious risk that if we decentralize regulations too much, we will, ironically, switch places with Europe,” he said.
Mr. Tierney, who is a former Maine attorney general, said that while he was an advocate for state power, there were areas where federal power should nonetheless hold sway. “What the federal government ought to do,” he said, “is open the door to the states, and let the states enforce the law that the federal government promulgates.”
He added, “This is the opportunity to have the attorneys general join their own government instead of suing their own government.”
Skip to next paragraph
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The latest on President Obama, the new administration and other news from Washington and around the nation. Join the discussion.
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A recent decision by President Obama that could open the way for California and other states to set their own limits on greenhouse gases from cars and trucks represents a shift in the delicate and often acrimonious relationship between the federal government and the states, legal experts say, possibly signaling a new view of federalism.
“I think it’s quite significant,” said Samuel Issacharoff, a professor of constitutional law at New York University law school. “It shows the Obama administration’s more benign view of government intervention,” Professor Issacharoff said, and “may indicate a spirit of cooperative federalism” in which Washington will look to the states for new ideas and even a measure of guidance.
Tom Miller, the attorney general of Iowa, who met with the transition team in December to discuss federalism and other issues, said he believed the Obama administration would “usher in a new era in federal-state relations.” Members of the new administration, Mr. Miller said, “are open to what we’re talking about, what we’re thinking.” They also appreciate, he said, the fact that state attorneys general often achieve a level of bipartisan cooperation when they band together to pursue lawsuits.
The general trend under previous administrations had favored federal pre-emption, the belief that the best law comes from Washington, a concept still favored by business leaders.
William L. Kovacs, a vice president for environmental and regulatory issues at the United States Chamber of Commerce, said free-for-all federalism was bad for business and would lead to a “patchwork of laws impacting a troubled industry.” Detroit, Mr. Kovacs said, would have to produce different cars for different parts of the country, and the environmental protection agency would grow tremendously to meet the new regulatory burden.
Many liberal thinkers skeptical of states’ rights and state actions since the days of segregation have begun to see that the states, to use Justice Louis Brandeis’s words from the 1930s, can “serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”
Professor Issacharoff said states were often quicker than Washington to spot a problem when it emerged, and so “it may be the states that have the best initial take on it, and try different regulatory methods until we fasten on a single national solution.”
States have taken up the challenge of consumer protection, addressing issues like predatory lending well before the federal government took action, and often achieving reforms by suing the federal government to force it to enforce its laws and through legal settlements with industry. In October, 11 states reached an $8.4 billion settlement with Countrywide Financial in which it agreed to modify home loans to help people at risk of foreclosure. And in 2006, 49 states and the District of Columbia reached a $325 million settlement with the Ameriquest Mortgage company to change its policies.
Attorneys general also pressured major universities to adopt a code of conduct regarding their relationships with student lending companies. Eliot Spitzer, the former New York attorney general, achieved a settlement with the pharmaceutical company GlaxoSmithKline in 2004 in which it agreed to release more information about the risks to patients that had come out in clinical trials.
The Obama administration, then, is embracing a states’ rights movement that a liberal could love. “The pro-regulatory folks realized in the last eight years that the old line on federal power being the only good power wasn’t correct,” said William Marshall, a law professor at the University of North Carolina who was deputy White House counsel in the Clinton administration and a former solicitor general of Ohio.
“It doesn’t mean you abandon the federal regulatory process — you don’t, of course,” Mr. Marshall said. “But you treat it as a floor and not a ceiling.”
He added, “The Obama administration is signaling that state regulations may very well complement federal regulations, and they can both work together to achieve important goals.”
Still, James E. Tierney, the director of the National State Attorneys General Program at Columbia University Law School, cautioned against reading too much into a single presidential directive. “I don’t think we have a hallmark, sweeping view of states’ rights here,” Mr. Tierney said. He said “the Obama administration is going to take these one at a time” and “will be with the states as long as the states fit in with his view of the national interest.”
And Walter Dellinger, a solicitor general in the Clinton administration, said that the economic rise of the United States, compared with Europe’s, in the 1950s could be attributed in large part to the unified American market. Now Europe’s markets have unified, Mr. Dellinger noted. “There is a serious risk that if we decentralize regulations too much, we will, ironically, switch places with Europe,” he said.
Mr. Tierney, who is a former Maine attorney general, said that while he was an advocate for state power, there were areas where federal power should nonetheless hold sway. “What the federal government ought to do,” he said, “is open the door to the states, and let the states enforce the law that the federal government promulgates.”
He added, “This is the opportunity to have the attorneys general join their own government instead of suing their own government.”
Financial Crisis Dims Hopes for Giant Cross-Border Banks in Europe
FRANKFURT — Only a few years ago, the future of European banking was said to belong to European champions, big border-straddling banks that would compete with the American giants.
Instead, European integration has been replaced by Balkanization.
Because of the financial crisis, banks are retrenching and refocusing on their home markets, all but abandoning ambitions of banking on a Continental scale — or bigger. Strings-attached government rescue plans and basic business logic are driving the change.
So instead of strategies for global conquest, Martin Blessing, the chief executive of Commerzbank, is concentrating on ways to keep credit flowing to the small and medium-size businesses that form the backbone of the German economy.
“We will see a domestic refocusing of banking but not because everyone is turning nationalist or because one or the other governments take stakes,” he said during a recent interview at his office in the bank’s stunning Norman Foster-designed office tower here. “Banks are going to look at where their franchise is strongest.”
These new realities could end up hurting Eastern Europe most. After communism, privatization led to an extended gold rush for Western bankers. Now those investors are having to decide whether to continue lending at home — in France or Austria — or in Poland, the Czech Republic or Hungary. In the global financial crisis, with the health of many banks dependent on the good will of their home governments, the choice is not hard. The thinking at the heart of cross-border expansion in Europe was always straightforward: Europe needed banks that could achieve economies of scale and have the global reach, global clients and global influence to compete with American titans.
Operating on that basis, a handful of European banks moved to grow and consolidate. In 2004, Banco Santander of Spain bought Abbey National of Britain. A year later, Italy’s UniCredit swallowed the bank HVB Group of Germany. In early 2007, Royal Bank of Scotland led a consortium that snapped up ABN Amro of the Netherlands for 70 billion euros, or $92 billion at current exchange rates.
That deal is already coming undone, with the implosion last year of Fortis, one of Royal Bank’s partners.
More broadly, nationalist impulses are on the move across the Continent, with many politicians arguing — as some Democrats are in the United States — that if the government is going to bail out banks, then taxpayers should get some ownership and some say in how they operate.
For example, Gordon Brown, the British prime minister, has said he wants to stay out of the operating side of the banks Britain has bailed out. But his government is under heavy pressure to help small businesses at home, and the documents that created the new British vehicle for investing in banks, United Kingdom Financial Investments, cite domestic lending as its priority.
French and German governments have also injected cash into their banks, both with the goal of keeping money flowing to businesses inside their borders.
Daniel Gros, director of the Center for European Policy Studies in Brussels, called the developments the Balkanization of European finance.
“Whenever governments get into the share capital of banks, even in a small way, of course they think nationally,” Mr. Gros said.
For instance, few banks expanded more rapidly in Germany over the last decade than Royal Bank of Scotland. The British financier muscled onto Continental turf with attractive financing packages for German manufacturers. Today, Royal Bank is majority-owned by the British government after losses in 2008 from £7 billion to £8 billion, or $9.2 billion to $10.5 billion.
According to two senior German executives, Royal Bank is now playing tough with German clients, calling in loans as the bank retrenches in favor of its British business. The executives, who asked not to be identified, because they were not authorized to publicly discuss confidential negotiations, said Royal Bank had demanded that its clients on the Continent sell assets, despite the catastrophic state of financial markets, so the bank could recover its cash quickly, perhaps to lend in Britain.
Most recently, Royal Bank was a major creditor of Adolf Merckle, the German billionaire who killed himself when it became clear the banks — with Royal Bank in the lead, the executives said — would insist on the sale of his prized possession, the generic drug maker Ratiopharm.
Christine Kortyka, a Royal Bank spokeswoman in Germany, denied the bank was retrenching. “We are an international bank with international clients and we will continue to serve them where they need us,” she said.
Mr. Blessing, who took over at Commerzbank just in time to sell a 25 percent stake to the German government to stabilize its finances and complete a major acquisition, does not dispute that governments are angling for national advantage.
Commerzbank styles itself the bank of Germany’s Mittelstand, as this country’s small and midsize companies are known.
Mr. Blessing says he is comfortable with focusing on serving the Mittelstand, because that has always been the bank’s core mission. .
As part of the deal for a cash infusion, the German government received the right to veto major decisions by the bank. That means it can ward off any acquisition from abroad — or any effort at a European expansion.
Instead, European integration has been replaced by Balkanization.
Because of the financial crisis, banks are retrenching and refocusing on their home markets, all but abandoning ambitions of banking on a Continental scale — or bigger. Strings-attached government rescue plans and basic business logic are driving the change.
So instead of strategies for global conquest, Martin Blessing, the chief executive of Commerzbank, is concentrating on ways to keep credit flowing to the small and medium-size businesses that form the backbone of the German economy.
“We will see a domestic refocusing of banking but not because everyone is turning nationalist or because one or the other governments take stakes,” he said during a recent interview at his office in the bank’s stunning Norman Foster-designed office tower here. “Banks are going to look at where their franchise is strongest.”
These new realities could end up hurting Eastern Europe most. After communism, privatization led to an extended gold rush for Western bankers. Now those investors are having to decide whether to continue lending at home — in France or Austria — or in Poland, the Czech Republic or Hungary. In the global financial crisis, with the health of many banks dependent on the good will of their home governments, the choice is not hard. The thinking at the heart of cross-border expansion in Europe was always straightforward: Europe needed banks that could achieve economies of scale and have the global reach, global clients and global influence to compete with American titans.
Operating on that basis, a handful of European banks moved to grow and consolidate. In 2004, Banco Santander of Spain bought Abbey National of Britain. A year later, Italy’s UniCredit swallowed the bank HVB Group of Germany. In early 2007, Royal Bank of Scotland led a consortium that snapped up ABN Amro of the Netherlands for 70 billion euros, or $92 billion at current exchange rates.
That deal is already coming undone, with the implosion last year of Fortis, one of Royal Bank’s partners.
More broadly, nationalist impulses are on the move across the Continent, with many politicians arguing — as some Democrats are in the United States — that if the government is going to bail out banks, then taxpayers should get some ownership and some say in how they operate.
For example, Gordon Brown, the British prime minister, has said he wants to stay out of the operating side of the banks Britain has bailed out. But his government is under heavy pressure to help small businesses at home, and the documents that created the new British vehicle for investing in banks, United Kingdom Financial Investments, cite domestic lending as its priority.
French and German governments have also injected cash into their banks, both with the goal of keeping money flowing to businesses inside their borders.
Daniel Gros, director of the Center for European Policy Studies in Brussels, called the developments the Balkanization of European finance.
“Whenever governments get into the share capital of banks, even in a small way, of course they think nationally,” Mr. Gros said.
For instance, few banks expanded more rapidly in Germany over the last decade than Royal Bank of Scotland. The British financier muscled onto Continental turf with attractive financing packages for German manufacturers. Today, Royal Bank is majority-owned by the British government after losses in 2008 from £7 billion to £8 billion, or $9.2 billion to $10.5 billion.
According to two senior German executives, Royal Bank is now playing tough with German clients, calling in loans as the bank retrenches in favor of its British business. The executives, who asked not to be identified, because they were not authorized to publicly discuss confidential negotiations, said Royal Bank had demanded that its clients on the Continent sell assets, despite the catastrophic state of financial markets, so the bank could recover its cash quickly, perhaps to lend in Britain.
Most recently, Royal Bank was a major creditor of Adolf Merckle, the German billionaire who killed himself when it became clear the banks — with Royal Bank in the lead, the executives said — would insist on the sale of his prized possession, the generic drug maker Ratiopharm.
Christine Kortyka, a Royal Bank spokeswoman in Germany, denied the bank was retrenching. “We are an international bank with international clients and we will continue to serve them where they need us,” she said.
Mr. Blessing, who took over at Commerzbank just in time to sell a 25 percent stake to the German government to stabilize its finances and complete a major acquisition, does not dispute that governments are angling for national advantage.
Commerzbank styles itself the bank of Germany’s Mittelstand, as this country’s small and midsize companies are known.
Mr. Blessing says he is comfortable with focusing on serving the Mittelstand, because that has always been the bank’s core mission. .
As part of the deal for a cash infusion, the German government received the right to veto major decisions by the bank. That means it can ward off any acquisition from abroad — or any effort at a European expansion.
Thursday, January 29, 2009
Morgan Stanley Predicts Weaker Taiwan Dollar, Stronger Yuan Email | Print | A A A
Jan. 30 (Bloomberg) -- Morgan Stanley predicted the Taiwan dollar will weaken, even as the Chinese yuan strengthens, because countries dependent on exports are the “most vulnerable” during a global economic slowdown.
The Taiwan dollar will decline almost 5 percent to NT$35.3 this year, Morgan Stanley forecast in a report published yesterday. The New York-based company recommended investors bet on appreciation in the yuan against the dollar with three-month non-deliverable forwards.
The Taiwan dollar will decline almost 5 percent to NT$35.3 this year, Morgan Stanley forecast in a report published yesterday. The New York-based company recommended investors bet on appreciation in the yuan against the dollar with three-month non-deliverable forwards.
India’s Sensex Declines; Bharti, DLF Fall as Automakers Advance
Jan. 29 (Bloomberg) -- Indian stocks fell, with the benchmark index snapping a two-day, 6.7 percent rally. Bharti Airtel Ltd. and Reliance Communications Ltd., India’s two biggest mobile-phone operators, dropped after they had their price targets cut at Goldman Sachs Group Inc.
DLF Ltd., India’s biggest real estate developer, declined after its share price forecast was reduced at Morgan Stanley, which said weak demand for property will damp profits. DLF will report earnings on Jan. 31.
“We are seeing demand declining and revenue contracting,” said Mahesh Patil, who helps manage the equivalent of $8.8 billion at Birla Sunlife Asset Management in Mumbai. “Cost pressures are high, now with demand declining it will create a problem.”
Mahindra & Mahindra Ltd., the largest local maker of sport- utility vehicles, led automakers higher after the government cut retail fuel prices for the second time in less than two months.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 21.19, or 0.2 percent, to 9,236.28. The S&P CNX Nifty Index on the National Stock Exchange fell 25.55, or 0.9 percent, to 2,823.95. The BSE 200 Index slid 0.5 percent to 1,086.02. S&P CNX Nifty futures for January delivery declined 0.8 percent to 2,823.70.
Bharti fell 3.8 percent to 627.40 rupees. Reliance Communications declined 2.6 percent to 161.85 rupees. Bharti’s 12-month share price estimate was lowered 5.5 percent to 800 rupees while that of Reliance Communications was lowered 25 percent to 170 rupees, according to a Goldman Sachs report released today. Goldman cited the effect on earnings from spending on high-speed networks.
DLF dropped 7.6 percent to 164.05 rupees. The developer’s stock price estimate was cut by 41 percent to 150 rupees a share at Morgan Stanley. The company is expected to report a 26 percent decline in earnings in the December quarter, according to the median estimate of analysts surveyed by Bloomberg News.
Mahindra added 3.9 percent to 294.40 rupees. Tata Motors Ltd., India’s largest truck and busmaker, gained 3.7 percent to 152.05 rupees. Maruti Suzuki India Ltd., the No. 1 carmaker, added 4.6 percent to 544.45 rupees. Gasoline prices will be lowered by 5 rupees (10 U.S. cents) a liter, diesel by 2 rupees a liter, and cooking gas by 25 rupees a bottle effective midnight, Oil Minister Murli Deora said late yesterday.
The following are among the most active shares traded on the Bombay and National stock exchanges. Stock symbols are in parentheses after company names:
Asian Paints (India) Ltd. (APNT IN) dropped 30.8 rupees, or 4 percent, to 749.80, its lowest since April 2007. The nation’s largest paintmaker reported that its founders pledged a 15 percent stake following tightened disclosure norms.
GAIL India Ltd. (GAIL IN) slid 4.25 rupees, or 2.1 percent, to 197. India’s monopoly natural gas distributor said yesterday third-quarter profit declined 59 percent to 2.53 billion rupees. That was below the 5.9 billion rupees median estimate of analysts surveyed by Bloomberg News.
Reliance Power Ltd. (RPWR IN) added 1.9 rupees, or 1.9 percent, to 104.5. The unit of India’s third-largest power generator may win its third so-called ultra mega power project with the lowest bid to build a 4,000 megawatt electricity generation plant. Reliance Power quoted a price of less than 2 rupees a unit to sell power from the coal-fired project in Jharkhand state, said an official of the state-run Power Finance Corp., which manages the bidding on behalf of India’s Power Ministry.
Tata Steel Ltd. (TATA IN) rose 6.5 rupees, or 3.7 percent, to 183.70. India’s largest steelmaker aims to revive fourth- quarter earnings by lowering fuel costs and increasing exports.
The company has renegotiated lower coking coal rates for this quarter, Managing Director B. Muthuraman said yesterday. Tata Steel plans to triple exports to 330,000 tons in the period as local demand wanes for hot-rolled coils, Chief Operating Officer H.M. Nerurkar said.
DLF Ltd., India’s biggest real estate developer, declined after its share price forecast was reduced at Morgan Stanley, which said weak demand for property will damp profits. DLF will report earnings on Jan. 31.
“We are seeing demand declining and revenue contracting,” said Mahesh Patil, who helps manage the equivalent of $8.8 billion at Birla Sunlife Asset Management in Mumbai. “Cost pressures are high, now with demand declining it will create a problem.”
Mahindra & Mahindra Ltd., the largest local maker of sport- utility vehicles, led automakers higher after the government cut retail fuel prices for the second time in less than two months.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 21.19, or 0.2 percent, to 9,236.28. The S&P CNX Nifty Index on the National Stock Exchange fell 25.55, or 0.9 percent, to 2,823.95. The BSE 200 Index slid 0.5 percent to 1,086.02. S&P CNX Nifty futures for January delivery declined 0.8 percent to 2,823.70.
Bharti fell 3.8 percent to 627.40 rupees. Reliance Communications declined 2.6 percent to 161.85 rupees. Bharti’s 12-month share price estimate was lowered 5.5 percent to 800 rupees while that of Reliance Communications was lowered 25 percent to 170 rupees, according to a Goldman Sachs report released today. Goldman cited the effect on earnings from spending on high-speed networks.
DLF dropped 7.6 percent to 164.05 rupees. The developer’s stock price estimate was cut by 41 percent to 150 rupees a share at Morgan Stanley. The company is expected to report a 26 percent decline in earnings in the December quarter, according to the median estimate of analysts surveyed by Bloomberg News.
Mahindra added 3.9 percent to 294.40 rupees. Tata Motors Ltd., India’s largest truck and busmaker, gained 3.7 percent to 152.05 rupees. Maruti Suzuki India Ltd., the No. 1 carmaker, added 4.6 percent to 544.45 rupees. Gasoline prices will be lowered by 5 rupees (10 U.S. cents) a liter, diesel by 2 rupees a liter, and cooking gas by 25 rupees a bottle effective midnight, Oil Minister Murli Deora said late yesterday.
The following are among the most active shares traded on the Bombay and National stock exchanges. Stock symbols are in parentheses after company names:
Asian Paints (India) Ltd. (APNT IN) dropped 30.8 rupees, or 4 percent, to 749.80, its lowest since April 2007. The nation’s largest paintmaker reported that its founders pledged a 15 percent stake following tightened disclosure norms.
GAIL India Ltd. (GAIL IN) slid 4.25 rupees, or 2.1 percent, to 197. India’s monopoly natural gas distributor said yesterday third-quarter profit declined 59 percent to 2.53 billion rupees. That was below the 5.9 billion rupees median estimate of analysts surveyed by Bloomberg News.
Reliance Power Ltd. (RPWR IN) added 1.9 rupees, or 1.9 percent, to 104.5. The unit of India’s third-largest power generator may win its third so-called ultra mega power project with the lowest bid to build a 4,000 megawatt electricity generation plant. Reliance Power quoted a price of less than 2 rupees a unit to sell power from the coal-fired project in Jharkhand state, said an official of the state-run Power Finance Corp., which manages the bidding on behalf of India’s Power Ministry.
Tata Steel Ltd. (TATA IN) rose 6.5 rupees, or 3.7 percent, to 183.70. India’s largest steelmaker aims to revive fourth- quarter earnings by lowering fuel costs and increasing exports.
The company has renegotiated lower coking coal rates for this quarter, Managing Director B. Muthuraman said yesterday. Tata Steel plans to triple exports to 330,000 tons in the period as local demand wanes for hot-rolled coils, Chief Operating Officer H.M. Nerurkar said.
Japan Heads for Worst Postwar Recession as Production Collapses
Jan. 30 (Bloomberg) -- Japan headed for its worst postwar recession in December as factory output slumped an unprecedented 9.6 percent, unemployment surged and households cut spending.
The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.
Recessions in the U.S. and Europe and a slowdown in China have smothered demand for Japanese cars and electronics. Toyota Motor Corp., Sony Corp. and Honda Motor Co. are shutting factory lines and firing thousands of workers as plummeting sales abroad wipe out earnings.
“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.”
The Nikkei 225 Stock Average fell 3.2 percent as of 9:31 a.m. in Tokyo. The yen traded at 89.71 per dollar from 89.99 before the reports were published. The Japanese currency’s 18 percent gain in the past year has compounded exporters’ woes by eroding the value of their profits earned overseas.
Household spending slid 4.6 percent, a 10th month of declines, a separate report showed. Consumer prices excluding fresh food rose 0.2 percent in December from a year earlier, slowing from 1 percent in November.
The month-on-month decline in production was steeper than the 8.9 percent economists predicted and the biggest since the figures were first compiled in 1953. Output tumbled 11.9 percent in the three months to December, the ministry said, the fourth straight quarterly drop.
‘Profound Impact’
“There’s a global synchronized recession and manufacturers are responding aggressively,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “That’s going to have a profound impact” on economic growth.
The International Monetary Fund said this week that Japan’s gross domestic product will shrink 2.6 percent this year, the bleakest projection for any Group of Seven economy except the U.K. That contraction would be Japan’s worst since World War II.
Japan’s recession began in November 2007, a government panel that dates the economic cycle said yesterday. The slump may last more than three years to become the longest on record, Hiroshi Yoshikawa, a Tokyo University professor who heads the committee, said in an interview this month.
Exports tumbled a record 35 percent in December, decimating corporate earnings and bringing the global recession home to Japanese households as companies cut work hours and fire employees.
Toyota, which is forecasting its first loss in 71 years, will halt its home production for 14 extra days this quarter.
‘Frightening’
“If the production cuts ended with the carmakers that would be one thing, but the carmakers drag down the steelmakers and the suppliers along with them,” RBS’s Nishioka said. “The numbers are frightening.”
Last month’s increase in the jobless rate was the sharpest since 1967, the statistics bureau said, as manufacturers fired mostly temporary staff. Some 400,000 non-regular workers will be out of jobs by the end of March, the Japan Manufacturing Outsourcing Association reported this week, which was about five times more than a December estimate by the Labor Ministry.
“This deep recession could compel companies to cut full- time workers,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “The jobless rate could rise to around 5 percent, giving us more reasons not to expect consumer spending to support the economy.”
Parliamentary gridlock has stymied the ruling Liberal Democratic Party’s efforts to pass a 10 trillion yen ($111.2 billion) stimulus package that seeks to encourage consumer spending. The Bank of Japan, which last month lowered interest rates to 0.1 percent, has little room to counter the downturn.
The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.
Recessions in the U.S. and Europe and a slowdown in China have smothered demand for Japanese cars and electronics. Toyota Motor Corp., Sony Corp. and Honda Motor Co. are shutting factory lines and firing thousands of workers as plummeting sales abroad wipe out earnings.
“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.”
The Nikkei 225 Stock Average fell 3.2 percent as of 9:31 a.m. in Tokyo. The yen traded at 89.71 per dollar from 89.99 before the reports were published. The Japanese currency’s 18 percent gain in the past year has compounded exporters’ woes by eroding the value of their profits earned overseas.
Household spending slid 4.6 percent, a 10th month of declines, a separate report showed. Consumer prices excluding fresh food rose 0.2 percent in December from a year earlier, slowing from 1 percent in November.
The month-on-month decline in production was steeper than the 8.9 percent economists predicted and the biggest since the figures were first compiled in 1953. Output tumbled 11.9 percent in the three months to December, the ministry said, the fourth straight quarterly drop.
‘Profound Impact’
“There’s a global synchronized recession and manufacturers are responding aggressively,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “That’s going to have a profound impact” on economic growth.
The International Monetary Fund said this week that Japan’s gross domestic product will shrink 2.6 percent this year, the bleakest projection for any Group of Seven economy except the U.K. That contraction would be Japan’s worst since World War II.
Japan’s recession began in November 2007, a government panel that dates the economic cycle said yesterday. The slump may last more than three years to become the longest on record, Hiroshi Yoshikawa, a Tokyo University professor who heads the committee, said in an interview this month.
Exports tumbled a record 35 percent in December, decimating corporate earnings and bringing the global recession home to Japanese households as companies cut work hours and fire employees.
Toyota, which is forecasting its first loss in 71 years, will halt its home production for 14 extra days this quarter.
‘Frightening’
“If the production cuts ended with the carmakers that would be one thing, but the carmakers drag down the steelmakers and the suppliers along with them,” RBS’s Nishioka said. “The numbers are frightening.”
Last month’s increase in the jobless rate was the sharpest since 1967, the statistics bureau said, as manufacturers fired mostly temporary staff. Some 400,000 non-regular workers will be out of jobs by the end of March, the Japan Manufacturing Outsourcing Association reported this week, which was about five times more than a December estimate by the Labor Ministry.
“This deep recession could compel companies to cut full- time workers,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “The jobless rate could rise to around 5 percent, giving us more reasons not to expect consumer spending to support the economy.”
Parliamentary gridlock has stymied the ruling Liberal Democratic Party’s efforts to pass a 10 trillion yen ($111.2 billion) stimulus package that seeks to encourage consumer spending. The Bank of Japan, which last month lowered interest rates to 0.1 percent, has little room to counter the downturn.
Asian Stocks Fall on Renewed Recession Concern; Toshiba Plunges
Jan. 30 (Bloomberg) -- Asian stocks fell for the first time in four days, led by banks and technology companies, as a record slump in Japanese production and lower profit forecasts renewed concern that the global recession is deepening.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, slumped 4.7 percent as reports showed the country’s factory output slumped 9.6 percent in December and unemployment surged. Toshiba Corp., Japan’s No. 1 chipmaker, and Nintendo Co., which makes the Wii game console, tumbled more than 12 percent after reducing earnings forecasts. Rio Tinto Group, the world’s third- biggest mining company, fell 3.1 percent on lower metal prices.
The MSCI Asia Pacific Index dropped 1.9 percent to 83.10 as of 10:47 a.m. in Tokyo. The measure snapped a three-day, 5.8 percent climb that came as the U.S., Japan and Australia widened efforts to end the global financial crisis that has dragged the world’s largest economies into recession.
“Expectations for government measures have been fully priced into the market, and investor focus is returning to the deterioration of the global economy,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages the equivalent of $53 billion, said in an interview with Bloomberg Television.
Five stocks declined for each that rose on the MSCI gauge, which has fallen 5.6 percent this month. The Nikkei 225 Stock Average gained 1.8 percent, while Australia’s S&P/ASX 200 Index fell 1 percent to 3,490.00.
The Standard & Poor’s 500 Index dropped 3.3 percent in New York yesterday, breaking a four-day winning streak, as reports showed new home sales fell to an all-time low and the number of Americans receiving jobless benefits surged to a record.
Record Decline
The MSCI Asia Pacific Index’s declines this year extended last year’s record 43 percent tumble. The slump has cut the average valuation of companies on the benchmark measure by 38 percent in the past year to 10 times reported profit.
Mitsubishi UFJ lost 4.7 percent to 502 yen. Mizuho Financial Group Inc., Japan’s second-largest bank, slumped 4.1 percent to 235 yen.
Japanese manufacturers cut production by 9.6 percent last month as recessions in the U.S. and Europe and a slowdown in China weakened demand for Japanese cars and electronics, the Trade Ministry said today. The drop eclipsed November’s record 8.5 percent decline.
Toshiba tumbled 16 percent to 325 yen after reversing its full-year profit outlook to a loss as the global recession damped demand for chips used in consumer electronics. Nintendo tumbled 12 percent to 28,300 yen after cutting cut its full-year net income forecast by 33 percent.
Kyocera Corp., the world’s fourth-largest solar-cell maker, dropped 5 percent to 5,920 yen. The company slashed its full- year profit target by 64 percent, citing a downturn in the global electronics market.
Rio fell 3.5 percent to A$39.29. BHP Billiton Ltd., the world’s largest mining company lost 1.7 percent to A$30.13. A measure of six metals traded in London dropped 2.2 percent, with both copper and nickel falling 3 percent.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, slumped 4.7 percent as reports showed the country’s factory output slumped 9.6 percent in December and unemployment surged. Toshiba Corp., Japan’s No. 1 chipmaker, and Nintendo Co., which makes the Wii game console, tumbled more than 12 percent after reducing earnings forecasts. Rio Tinto Group, the world’s third- biggest mining company, fell 3.1 percent on lower metal prices.
The MSCI Asia Pacific Index dropped 1.9 percent to 83.10 as of 10:47 a.m. in Tokyo. The measure snapped a three-day, 5.8 percent climb that came as the U.S., Japan and Australia widened efforts to end the global financial crisis that has dragged the world’s largest economies into recession.
“Expectations for government measures have been fully priced into the market, and investor focus is returning to the deterioration of the global economy,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages the equivalent of $53 billion, said in an interview with Bloomberg Television.
Five stocks declined for each that rose on the MSCI gauge, which has fallen 5.6 percent this month. The Nikkei 225 Stock Average gained 1.8 percent, while Australia’s S&P/ASX 200 Index fell 1 percent to 3,490.00.
The Standard & Poor’s 500 Index dropped 3.3 percent in New York yesterday, breaking a four-day winning streak, as reports showed new home sales fell to an all-time low and the number of Americans receiving jobless benefits surged to a record.
Record Decline
The MSCI Asia Pacific Index’s declines this year extended last year’s record 43 percent tumble. The slump has cut the average valuation of companies on the benchmark measure by 38 percent in the past year to 10 times reported profit.
Mitsubishi UFJ lost 4.7 percent to 502 yen. Mizuho Financial Group Inc., Japan’s second-largest bank, slumped 4.1 percent to 235 yen.
Japanese manufacturers cut production by 9.6 percent last month as recessions in the U.S. and Europe and a slowdown in China weakened demand for Japanese cars and electronics, the Trade Ministry said today. The drop eclipsed November’s record 8.5 percent decline.
Toshiba tumbled 16 percent to 325 yen after reversing its full-year profit outlook to a loss as the global recession damped demand for chips used in consumer electronics. Nintendo tumbled 12 percent to 28,300 yen after cutting cut its full-year net income forecast by 33 percent.
Kyocera Corp., the world’s fourth-largest solar-cell maker, dropped 5 percent to 5,920 yen. The company slashed its full- year profit target by 64 percent, citing a downturn in the global electronics market.
Rio fell 3.5 percent to A$39.29. BHP Billiton Ltd., the world’s largest mining company lost 1.7 percent to A$30.13. A measure of six metals traded in London dropped 2.2 percent, with both copper and nickel falling 3 percent.
Tuesday, January 27, 2009
Mexico’s economy to shrink up to 1.8%
Published: January 28 2009 00:43 | Last updated: January 28 2009 00:43
The Mexican economy is heading towards a significant recession this year, contracting by as much as 1.8 per cent as it struggles to cope with the US financial crisis and global downturn, the country’s central bank forecast on Tuesday.
Guillermo Ortiz, the central bank president, said this year’s estimated economic growth now ranged between -0.8 per cent and -1.8 per cent. “The reduced perspectives of the Mexican economy in 2009 stem principally from the severe deterioration of the external environment,” he said.
EDITOR’S CHOICE
Mexico rebuffs ‘failed state’ claims - Jan-18
Mexico’s central bank cuts rates by 0.5% - Jan-17
Mexico poised to cut interest rates - Jan-16
Mexico rules out growth this year - Jan-09
Oil price drop casts cloud over Pemex reform - Dec-08
Mexico helpless as drugs war rages - Dec-03
At the same time, Mr Ortiz said that Mexico was likely to lose between 160,000 and 340,000 jobs this year – a particularly worrying prospect, given that the country’s relatively young population pushes 1m new people into the job market every year.
The central bank estimated inflation would finish the year at less than 4 per cent, within the bank’s target range of 2-4 per cent.
The estimates were well below those of Mexico’s finance ministry, which this month predicted that growth this year would be flat.
They also underline the growing pessimism surrounding the Mexican economy as it begins to suffer from its close economic relationship with the US. About 80 per cent of Mexico’s exports go directly to the US, and their value is equivalent to about 25 per cent of gross domestic product.
Inegi, the national statistics agency, added to the gloom with the news that manufacturing exports in December slumped by 11.5 per cent compared with the same month in 2007. In September, Inegi reported that these exports grew more than 12 per cent compared with a year previously.
The Mexican economy is heading towards a significant recession this year, contracting by as much as 1.8 per cent as it struggles to cope with the US financial crisis and global downturn, the country’s central bank forecast on Tuesday.
Guillermo Ortiz, the central bank president, said this year’s estimated economic growth now ranged between -0.8 per cent and -1.8 per cent. “The reduced perspectives of the Mexican economy in 2009 stem principally from the severe deterioration of the external environment,” he said.
EDITOR’S CHOICE
Mexico rebuffs ‘failed state’ claims - Jan-18
Mexico’s central bank cuts rates by 0.5% - Jan-17
Mexico poised to cut interest rates - Jan-16
Mexico rules out growth this year - Jan-09
Oil price drop casts cloud over Pemex reform - Dec-08
Mexico helpless as drugs war rages - Dec-03
At the same time, Mr Ortiz said that Mexico was likely to lose between 160,000 and 340,000 jobs this year – a particularly worrying prospect, given that the country’s relatively young population pushes 1m new people into the job market every year.
The central bank estimated inflation would finish the year at less than 4 per cent, within the bank’s target range of 2-4 per cent.
The estimates were well below those of Mexico’s finance ministry, which this month predicted that growth this year would be flat.
They also underline the growing pessimism surrounding the Mexican economy as it begins to suffer from its close economic relationship with the US. About 80 per cent of Mexico’s exports go directly to the US, and their value is equivalent to about 25 per cent of gross domestic product.
Inegi, the national statistics agency, added to the gloom with the news that manufacturing exports in December slumped by 11.5 per cent compared with the same month in 2007. In September, Inegi reported that these exports grew more than 12 per cent compared with a year previously.
GE, Molex, RF Micro Devices, Sun, Yahoo: U.S. Equity Preview
Jan. 27 (Bloomberg) -- Shares of the following companies may have unusual fluctuations in U.S. trading tomorrow. Stock symbols are in parentheses, and prices are as of 6:21 p.m. in New York.
Standard & Poor’s 500 Index futures expiring in March rose 1.4 percent to 850.50. Dow Jones Industrial Average futures added 91 points, or 1.1 percent, to 8,184.
General Electric Co. (GE:US) fell 1.4 percent to $12.87. GE and its finance arm may lose their top-level Aaa ratings as the global recession and credit crisis lessen the chance GE Capital can make a $5 billion profit goal this year, Moody’s Investors Service said.
Molex Inc. (MOLX:US) fell 5.9 percent to $13.15. The maker of electrical components for phones and computers said third- quarter sales may be as low as $500 million. Analysts estimated $616.9 million on average.
RF Micro Devices Inc. (RFMD:US) lost 13 percent to $1.06. The maker of chips for mobile phones predicted that fourth- quarter sales will decline “more than seasonally” due to weak demand for its products. The company suspended detailed quarterly forecasts, citing “uncertainty regarding customer demand.”
Sun Microsystems Inc. (JAVA:US) rose 6.3 percent to $4.24. The world’s fourth-largest maker of server computers reported an unexpected second-quarter profit after cutting jobs to cope with the recession.
VistaPrint Ltd. (VPRT:US) rose 23 percent to $20.01. The online provider of printing services forecast sales of at least $495 million in fiscal 2009. Analysts surveyed by Bloomberg projected an average of $492 million.
Yahoo! Inc. (YHOO:US) rose 4.9 percent to $11.90. The second-biggest search engine forecast first-quarter revenue of no less than $1.53 billion. That exceeded the average analyst estimate of $1.30 billion.
Standard & Poor’s 500 Index futures expiring in March rose 1.4 percent to 850.50. Dow Jones Industrial Average futures added 91 points, or 1.1 percent, to 8,184.
General Electric Co. (GE:US) fell 1.4 percent to $12.87. GE and its finance arm may lose their top-level Aaa ratings as the global recession and credit crisis lessen the chance GE Capital can make a $5 billion profit goal this year, Moody’s Investors Service said.
Molex Inc. (MOLX:US) fell 5.9 percent to $13.15. The maker of electrical components for phones and computers said third- quarter sales may be as low as $500 million. Analysts estimated $616.9 million on average.
RF Micro Devices Inc. (RFMD:US) lost 13 percent to $1.06. The maker of chips for mobile phones predicted that fourth- quarter sales will decline “more than seasonally” due to weak demand for its products. The company suspended detailed quarterly forecasts, citing “uncertainty regarding customer demand.”
Sun Microsystems Inc. (JAVA:US) rose 6.3 percent to $4.24. The world’s fourth-largest maker of server computers reported an unexpected second-quarter profit after cutting jobs to cope with the recession.
VistaPrint Ltd. (VPRT:US) rose 23 percent to $20.01. The online provider of printing services forecast sales of at least $495 million in fiscal 2009. Analysts surveyed by Bloomberg projected an average of $492 million.
Yahoo! Inc. (YHOO:US) rose 4.9 percent to $11.90. The second-biggest search engine forecast first-quarter revenue of no less than $1.53 billion. That exceeded the average analyst estimate of $1.30 billion.
WTO Ruling Says China Must Bolster Its Copyright Law
Jan. 27 (Bloomberg) -- The World Trade Organization said China must destroy counterfeit software or movies that are confiscated by authorities and provide more legal protection to foreign products, in a ruling on a case brought by the U.S.
A WTO panel of judges yesterday sided with the U.S. in two of the three arguments in the complaint filed in 2007, while deciding that China doesn’t need to alter its laws that exempt small-scale counterfeiters from criminal prosecution.
“It’s a mixed victory for the United States,” said Lyle Vander Schaaf, a lawyer at Bryan Cave LLP in Washington.
At stake is an issue that has become one of the biggest irritants in the U.S.-China commercial relationship. Improvements in China’s protection of patents for products such as pharmaceuticals, auto parts and copyrights for movies and software might help American companies even more than changes its currency policies, many analysts say.
“Intellectual property protection and enforcement will become an even higher priority” for the Obama administration, Myron Brilliant, vice president of the U.S. Chamber of Commerce, said in an interview. “China has taken some steps, but IPR enforcement is not as strong as we would like it to be.”
Still, it’s not clear how much leverage the WTO ruling will give the U.S., because of the mixed decision, Vander Schaaf said.
Copyright Protection
The U.S. lawyers failed to convince the WTO that thresholds for criminal prosecution of those pirating copyrighted goods are so high they effectively allow sales on a commercial scale of illegal items. The issue of those thresholds had dominated complaints by the U.S. against China during the past four years.
China’s Ministry of Commerce said it “welcomed” the judges’ ruling on the threshold for criminal prosecution, while it “regretted” their decision to rule against the country on the two other issues relating to copyright protection and auctioning of counterfeit goods.
“China has always placed a high degree of importance to the protection of intellectual property,” spokesman Yao Jian said in a statement on the ministry’s Web site today. “We will continue to strengthen the work of copyright protection.”
Under WTO rules, both countries can appeal. If the decision is upheld, China must change those laws to conform to the judges’ ruling or the U.S. can ask for authority to retaliate against the Asian nation’s products.
Global Rules
China’s illegal copying of movies, music and software cost companies $3 billion in 2007 sales, according to an estimate by lobby groups representing Microsoft Corp.,Walt Disney Co., and Vivendi SA. The WTO complaint, brought in 2007, is the first by the U.S. against China for breaching intellectual property rights, and yesterday’s ruling is likely to help establish the global rules for patent and copyright protection.
Neil Turkewitz, executive vice president of the Recording Industry Association of America, said he hopes the decision “leads China and other WTO members to enhance their protection of intellectual property.”
A WTO panel of judges yesterday sided with the U.S. in two of the three arguments in the complaint filed in 2007, while deciding that China doesn’t need to alter its laws that exempt small-scale counterfeiters from criminal prosecution.
“It’s a mixed victory for the United States,” said Lyle Vander Schaaf, a lawyer at Bryan Cave LLP in Washington.
At stake is an issue that has become one of the biggest irritants in the U.S.-China commercial relationship. Improvements in China’s protection of patents for products such as pharmaceuticals, auto parts and copyrights for movies and software might help American companies even more than changes its currency policies, many analysts say.
“Intellectual property protection and enforcement will become an even higher priority” for the Obama administration, Myron Brilliant, vice president of the U.S. Chamber of Commerce, said in an interview. “China has taken some steps, but IPR enforcement is not as strong as we would like it to be.”
Still, it’s not clear how much leverage the WTO ruling will give the U.S., because of the mixed decision, Vander Schaaf said.
Copyright Protection
The U.S. lawyers failed to convince the WTO that thresholds for criminal prosecution of those pirating copyrighted goods are so high they effectively allow sales on a commercial scale of illegal items. The issue of those thresholds had dominated complaints by the U.S. against China during the past four years.
China’s Ministry of Commerce said it “welcomed” the judges’ ruling on the threshold for criminal prosecution, while it “regretted” their decision to rule against the country on the two other issues relating to copyright protection and auctioning of counterfeit goods.
“China has always placed a high degree of importance to the protection of intellectual property,” spokesman Yao Jian said in a statement on the ministry’s Web site today. “We will continue to strengthen the work of copyright protection.”
Under WTO rules, both countries can appeal. If the decision is upheld, China must change those laws to conform to the judges’ ruling or the U.S. can ask for authority to retaliate against the Asian nation’s products.
Global Rules
China’s illegal copying of movies, music and software cost companies $3 billion in 2007 sales, according to an estimate by lobby groups representing Microsoft Corp.,Walt Disney Co., and Vivendi SA. The WTO complaint, brought in 2007, is the first by the U.S. against China for breaching intellectual property rights, and yesterday’s ruling is likely to help establish the global rules for patent and copyright protection.
Neil Turkewitz, executive vice president of the Recording Industry Association of America, said he hopes the decision “leads China and other WTO members to enhance their protection of intellectual property.”
Monday, January 26, 2009
Japan Stocks Gain on U.S. Economy Optimism; Shipping Lines Jump
Jan. 27 (Bloomberg) -- Japanese stocks advanced for the first time in three days as U.S. economic indicators eased concerns of a deepening recession in the world’s biggest economy.
Toyota Motor Corp., the No. 1 automaker globally, and Honda Motor Co. jumped more than 4 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, climbed 5.3 percent after metal prices soared. Kawasaki Kisen Kaisha Ltd. surged 8.4 percent after shipping fees for commodities gained for a fifth day.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” Mamoru Shimode, equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The Nikkei 225 Stock Average advanced 187.68, or 2.4 percent, to 7,869.82 as of 9:54 a.m. in Tokyo. The broader Topix index rose 17.68, or 2.3 percent, to 785.96, with more than five stocks climbing for each that slumped.
The Nikkei dived by a record 42 percent last year as Japan, the U.S. and Europe sank into simultaneous recessions, and the gauge has lost another 11 percent in 2009. The tumble made shares cheaper, driving up the average dividend yield on the gauge’s members to 2.79 percent as of yesterday, more than twice the returns on 10-year government bonds.
Toyota jumped 4.5 percent to 2,880 yen, breaking a four-day losing streak, while Honda, which gets about half its sales in North America, added 4.4 percent to 2,030 yen. A gauge of automakers contributed the most to the Topix’s gain.
Unexpected Gains
U.S sales of existing homes climbed 6.5 percent last month, the National Association of Realtors said yesterday, while economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data boosted commodities prices, lifting a gauge of six metals by 5.5 percent in London yesterday. In New York, copper futures for March delivery soared as much as 11 percent to the highest level since Dec. 2.
Mitsubishi, Japan’s biggest trading company by value, leapt 5.3 percent to 1,228 yen, and Mitsui & Co., the No. 2, added 4.7 percent to 928 yen. Sumitomo Metal Mining Co., the nation’s second-largest copper smelter, surged 5.9 percent to 878 yen.
Kawasaki Kisen, Japan’s No. 3 shipping line, advanced 8.4 percent to 373 yen, while Mitsui O.S.K. Lines Ltd., the second biggest, jumped 5.8 percent to 583 yen. Market leader Nippon Yusen K.K. added 5.2 percent to 487 yen. The Baltic Dry Index, a measure of shipping costs for commodities, rose 1.5 percent yesterday, bringing its five-day advance to 13 percent.
Nikkei futures expiring in March leapt 3.6 percent to 7,860 in Osaka and rose by the same degree to 7,865 in Singapore.
Toyota Motor Corp., the No. 1 automaker globally, and Honda Motor Co. jumped more than 4 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, climbed 5.3 percent after metal prices soared. Kawasaki Kisen Kaisha Ltd. surged 8.4 percent after shipping fees for commodities gained for a fifth day.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” Mamoru Shimode, equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The Nikkei 225 Stock Average advanced 187.68, or 2.4 percent, to 7,869.82 as of 9:54 a.m. in Tokyo. The broader Topix index rose 17.68, or 2.3 percent, to 785.96, with more than five stocks climbing for each that slumped.
The Nikkei dived by a record 42 percent last year as Japan, the U.S. and Europe sank into simultaneous recessions, and the gauge has lost another 11 percent in 2009. The tumble made shares cheaper, driving up the average dividend yield on the gauge’s members to 2.79 percent as of yesterday, more than twice the returns on 10-year government bonds.
Toyota jumped 4.5 percent to 2,880 yen, breaking a four-day losing streak, while Honda, which gets about half its sales in North America, added 4.4 percent to 2,030 yen. A gauge of automakers contributed the most to the Topix’s gain.
Unexpected Gains
U.S sales of existing homes climbed 6.5 percent last month, the National Association of Realtors said yesterday, while economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data boosted commodities prices, lifting a gauge of six metals by 5.5 percent in London yesterday. In New York, copper futures for March delivery soared as much as 11 percent to the highest level since Dec. 2.
Mitsubishi, Japan’s biggest trading company by value, leapt 5.3 percent to 1,228 yen, and Mitsui & Co., the No. 2, added 4.7 percent to 928 yen. Sumitomo Metal Mining Co., the nation’s second-largest copper smelter, surged 5.9 percent to 878 yen.
Kawasaki Kisen, Japan’s No. 3 shipping line, advanced 8.4 percent to 373 yen, while Mitsui O.S.K. Lines Ltd., the second biggest, jumped 5.8 percent to 583 yen. Market leader Nippon Yusen K.K. added 5.2 percent to 487 yen. The Baltic Dry Index, a measure of shipping costs for commodities, rose 1.5 percent yesterday, bringing its five-day advance to 13 percent.
Nikkei futures expiring in March leapt 3.6 percent to 7,860 in Osaka and rose by the same degree to 7,865 in Singapore.
Asian Stocks Climb as U.S. Indicators Boost Exporters, Banks
Jan. 27 (Bloomberg) -- Asian stocks rallied from a seven- week low as U.S. economic indicators sparked optimism that demand for commodities and Japanese-made goods will recover.
BHP Billiton Ltd., the world’s biggest mining company, leapt 5.2 percent in Sydney after metal prices jumped in London. Panasonic Corp., the world’s biggest maker of consumer electronics, gained 1.8 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, led financial stocks higher after American Express Co.’s profit beat the most pessimistic forecasts and the UK’s Barclays Plc shunned government funding.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” said Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The MSCI Asia Pacific Index rose 1.9 percent at 9:49 a.m. in Tokyo. The index is still down 8.9 percent this year, after falling a record 43 percent in 2008, as the world’s biggest economies slipped into recession.
The Nikkei-225 Stock Average rose 2.6 percent to 7,877.86, the biggest gain since Dec. 15. Australia’s S&P/ASX 200 Index rose 2.3 percent to 3,419.70 in Sydney. In New York, the Standard & Poor’s 500 Index drifted between gains and losses before finishing up 0.6 percent.
Home Sales
Panasonic advanced 2.7 percent to 1,086 yen, its biggest gain since Jan. 7. U.S sales of existing homes climbed 6.5 percent last month, whereas economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data gave a boost to commodities prices, driving up a gauge of six metals by 5.5 percent in London yesterday. BHP Billiton rose 5.7 percent to A$29.02.
Asian banks gained after American Express, the biggest U.S. credit card company by purchases, reported profit from continuing operations declined 72 percent to $238 million. American Express rose as much as 7.2 percent.
Commonwealth Bank gained 2.7 percent to A$24.73. Mitsubishi UFJ Financial gained 3.5 percent to 474 yen after Bank of America Corp. sublet its Times Square trading floor in New York to the company’s investment banking unit.
Barclays jumped the most in at least two decades in London trading after saying it won’t need government funding because revenue increased last year
BHP Billiton Ltd., the world’s biggest mining company, leapt 5.2 percent in Sydney after metal prices jumped in London. Panasonic Corp., the world’s biggest maker of consumer electronics, gained 1.8 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, led financial stocks higher after American Express Co.’s profit beat the most pessimistic forecasts and the UK’s Barclays Plc shunned government funding.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” said Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The MSCI Asia Pacific Index rose 1.9 percent at 9:49 a.m. in Tokyo. The index is still down 8.9 percent this year, after falling a record 43 percent in 2008, as the world’s biggest economies slipped into recession.
The Nikkei-225 Stock Average rose 2.6 percent to 7,877.86, the biggest gain since Dec. 15. Australia’s S&P/ASX 200 Index rose 2.3 percent to 3,419.70 in Sydney. In New York, the Standard & Poor’s 500 Index drifted between gains and losses before finishing up 0.6 percent.
Home Sales
Panasonic advanced 2.7 percent to 1,086 yen, its biggest gain since Jan. 7. U.S sales of existing homes climbed 6.5 percent last month, whereas economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data gave a boost to commodities prices, driving up a gauge of six metals by 5.5 percent in London yesterday. BHP Billiton rose 5.7 percent to A$29.02.
Asian banks gained after American Express, the biggest U.S. credit card company by purchases, reported profit from continuing operations declined 72 percent to $238 million. American Express rose as much as 7.2 percent.
Commonwealth Bank gained 2.7 percent to A$24.73. Mitsubishi UFJ Financial gained 3.5 percent to 474 yen after Bank of America Corp. sublet its Times Square trading floor in New York to the company’s investment banking unit.
Barclays jumped the most in at least two decades in London trading after saying it won’t need government funding because revenue increased last year
Indian Bond Yields Show Traders Pared Rate-Cut Bets, ICICI Says
Jan. 27 (Bloomberg) -- Indian bond yields, which have rebounded from a record low touched earlier this month, indicate traders have scaled back bets for an interest-rate cut, according to ICICI Securities Ltd.
The Reserve Bank of India may today opt for a pause in reductions as policy makers consider past measures as sufficient to bolster the economy, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based primary dealer that underwrites government debt sales. Ten-year yields touched an all-time low of 4.85 percent on Jan. 5 as the central bank cut its benchmark rate four times in less than three months. Yields have jumped almost one percentage point since.
“The rebound in yields suggests the bond market has priced in a no-rate cut scenario for today,” Prasanna said. “The aggressive monetary easing of recent months suggests the RBI frontloaded its rate cuts and may now wait for results before more action. Recent government comments support this view.”
Yields on 10-year government debt have risen to 5.72 percent and are headed for the first monthly increase since July, according to the central bank’s trading system. They climbed 48 basis points, or 0.48 percentage point, this month, after dropping 1.82 percentage points in December.
“I don’t see bonds rallying much further in the near term,” Prasanna said. “We may see the 10-year yield move mostly between 5.75 percent and 6 percent in the coming weeks.”
Rate Survey
Eleven of 22 economists surveyed by Bloomberg News expect the central bank to hold the overnight lending rate, or the repurchase rate, at 5.5 percent, with the rest expecting a reduction. A separate survey shows 14 of 21 economists expect no change in the reverse-repurchase rate at which the central bank drains funds from the banking system. The rate decision is due at noon in Mumbai.
Central bank Governor Duvvuri Subbarao lowered the overnight lending and borrowing rates to 5.5 percent and 4 percent respectively on Jan. 2, both record lows. The central bank has cut its lending rate, the repurchase rate, by 3.5 percentage points since Oct. 20. It also reduced the so-called cash reserve ratio, or the proportion of deposits banks must set aside as reserves, by 4 percentage points to 5 percent.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said on Jan. 21 measures taken recently by policy makers were enough to revive an economy expected to expand at the slowest pace in six years.
Stimulus Packages
India has unveiled two stimulus packages to counter the effect of the global economic slump on Asia’s third-biggest economy. Growth has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003.
Volatility in India’s bonds may remain near a record touched this month as the economy slows and the government increases debt sales, according to ICICI.
“The bond market is in a phase of high volatility as supply pressure and the weak economic outlook are posing a conundrum,” Prasanna said.
The 30-day historical volatility gauge of the Indian 10- year government bond yield surged to an all-time high of 61.3 percent on Jan. 23, more than doubling from a month earlier. The swing in yields between opening and closing levels on Jan. 7 was a half-percentage point.
India raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($40.9 billion), from 1.45 trillion rupees set in its budget for the period.
The Reserve Bank of India may today opt for a pause in reductions as policy makers consider past measures as sufficient to bolster the economy, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based primary dealer that underwrites government debt sales. Ten-year yields touched an all-time low of 4.85 percent on Jan. 5 as the central bank cut its benchmark rate four times in less than three months. Yields have jumped almost one percentage point since.
“The rebound in yields suggests the bond market has priced in a no-rate cut scenario for today,” Prasanna said. “The aggressive monetary easing of recent months suggests the RBI frontloaded its rate cuts and may now wait for results before more action. Recent government comments support this view.”
Yields on 10-year government debt have risen to 5.72 percent and are headed for the first monthly increase since July, according to the central bank’s trading system. They climbed 48 basis points, or 0.48 percentage point, this month, after dropping 1.82 percentage points in December.
“I don’t see bonds rallying much further in the near term,” Prasanna said. “We may see the 10-year yield move mostly between 5.75 percent and 6 percent in the coming weeks.”
Rate Survey
Eleven of 22 economists surveyed by Bloomberg News expect the central bank to hold the overnight lending rate, or the repurchase rate, at 5.5 percent, with the rest expecting a reduction. A separate survey shows 14 of 21 economists expect no change in the reverse-repurchase rate at which the central bank drains funds from the banking system. The rate decision is due at noon in Mumbai.
Central bank Governor Duvvuri Subbarao lowered the overnight lending and borrowing rates to 5.5 percent and 4 percent respectively on Jan. 2, both record lows. The central bank has cut its lending rate, the repurchase rate, by 3.5 percentage points since Oct. 20. It also reduced the so-called cash reserve ratio, or the proportion of deposits banks must set aside as reserves, by 4 percentage points to 5 percent.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said on Jan. 21 measures taken recently by policy makers were enough to revive an economy expected to expand at the slowest pace in six years.
Stimulus Packages
India has unveiled two stimulus packages to counter the effect of the global economic slump on Asia’s third-biggest economy. Growth has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003.
Volatility in India’s bonds may remain near a record touched this month as the economy slows and the government increases debt sales, according to ICICI.
“The bond market is in a phase of high volatility as supply pressure and the weak economic outlook are posing a conundrum,” Prasanna said.
The 30-day historical volatility gauge of the Indian 10- year government bond yield surged to an all-time high of 61.3 percent on Jan. 23, more than doubling from a month earlier. The swing in yields between opening and closing levels on Jan. 7 was a half-percentage point.
India raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($40.9 billion), from 1.45 trillion rupees set in its budget for the period.
Subbarao May Keep Indian Interest Rates on Hold at Record Low
Jan. 27 (Bloomberg) -- India's central bank Governor Duvvuri Subbarao may keep interest rates unchanged today after lowering them to a record this month.
The Reserve Bank of India will leave the reverse repurchase rate at 4 percent, according to 14 of 21 economists surveyed by Bloomberg News. The rest expect a reduction. A decision is due at 11:15 a.m. in Mumbai.
Subbarao, who alone decides monetary policy, unexpectedly cut rates on Jan. 2 to coincide with Prime Minister Manmohan Singh's second fiscal stimulus package since December. After reversing four years of monetary policy tightening in little over three months, the governor may focus today's scheduled meeting on his assessment of the economy.
``Rates haven't been reduced enough given the current economic scenario, but it's unlikely they will cut today,'' said Soumendra K. Dash, chief economist at Credit Analysis & Research Ltd., a ratings company in Mumbai. ``The bank will assess the impact of the steps taken so far before resuming.''
Since January, data has confirmed Subbarao's comments that the economy is slowing along with investment.
Exports, 14 percent of gross domestic product, sank 9.9 percent in November from a year earlier. Industrial production grew at half the pace between April and October than for the same period a year earlier.
Foreign Investment
Foreign investors, who were instrumental in driving the Indian economy's record 9.3 percent expansion in the three years to March 2008, are fleeing. Last year they pulled out $13.1 billion from Indian stocks after buying $17.2 billion of equities in 2007. India's Sensitive Index, or Sensex, has dropped 10 percent so far this year, extending last year's 52 percent slide.
``Share prices have tanked and confidence has evaporated,'' said Tehmina Khan, a London-based economist at Capital Economics Ltd. ``What's more, domestic lenders too have grown increasingly cautious.''
The argument that India's inflation rate requires policy caution is also losing credence. Wholesale prices for the week ended Jan. 3 rose 5.6 percent, less than half the pace in August.
Subbarao may today lower his forecast for India's growth for the year to March 31 from 7.5 percent, the weakest in four years, and predict slower inflation.
Along with the one percentage point cut to the reverse repurchase rate on Jan. 2, Subbarao lowered the repurchase rate by the same margin to 5.5 percent and cut the amount of cash that lenders need to set aside as reserves by 50 basis points to 5 percent.
Domestic Demand
``Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand,'' said Chetan Ahya, a Singapore-based economist at Morgan Stanley.
Commercial lenders have been slow to follow the central bank's lead in cutting rates because they are still paying high interest on deposits following the RBI's efforts to control inflation by raising interest rates to a seven-year high in July.
Lending rates for the best corporate customers at ICICI Bank Ltd., the nation's second biggest, stand at 16.75 percent, reflecting only one 0.5 percentage point cut. The central bank's repurchase rate, at which it lends to commercial banks, has dropped by 3.5 percentage points since October to 5.5 percent.
Singh's Surgery
Singh, who underwent heart bypass surgery on Jan. 24, has been coordinating with Subbarao since October to ensure investment doesn't suffer from the global credit crunch. Investment typically accounts for about one third of growth in the $1.2 trillion economy.
The government has undertaken a $4 billion plan to invest in roads and ports, and on Jan. 2 raised the overseas investment limit in the local corporate bond market to $15 billion from $6 billion.
Singh is also under pressure to prop up the economy and prevent companies from scaling back production and firing workers before general elections scheduled for April and May this year.
Tata Motors Ltd., India's biggest truckmaker, stopped production at a commercial-vehicle factory for six days this month. Hyundai Motor Co.'s Indian unit is cutting output and firing temporary staff. Indian exporters said this month they expect to cut about 10 million jobs by March.
``Ensuring job security is the main challenge before the government ahead of the elections,'' said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. ``The mother of all monetary easing is still alive and kicking, it's just that they might take a pause today.'
The Reserve Bank of India will leave the reverse repurchase rate at 4 percent, according to 14 of 21 economists surveyed by Bloomberg News. The rest expect a reduction. A decision is due at 11:15 a.m. in Mumbai.
Subbarao, who alone decides monetary policy, unexpectedly cut rates on Jan. 2 to coincide with Prime Minister Manmohan Singh's second fiscal stimulus package since December. After reversing four years of monetary policy tightening in little over three months, the governor may focus today's scheduled meeting on his assessment of the economy.
``Rates haven't been reduced enough given the current economic scenario, but it's unlikely they will cut today,'' said Soumendra K. Dash, chief economist at Credit Analysis & Research Ltd., a ratings company in Mumbai. ``The bank will assess the impact of the steps taken so far before resuming.''
Since January, data has confirmed Subbarao's comments that the economy is slowing along with investment.
Exports, 14 percent of gross domestic product, sank 9.9 percent in November from a year earlier. Industrial production grew at half the pace between April and October than for the same period a year earlier.
Foreign Investment
Foreign investors, who were instrumental in driving the Indian economy's record 9.3 percent expansion in the three years to March 2008, are fleeing. Last year they pulled out $13.1 billion from Indian stocks after buying $17.2 billion of equities in 2007. India's Sensitive Index, or Sensex, has dropped 10 percent so far this year, extending last year's 52 percent slide.
``Share prices have tanked and confidence has evaporated,'' said Tehmina Khan, a London-based economist at Capital Economics Ltd. ``What's more, domestic lenders too have grown increasingly cautious.''
The argument that India's inflation rate requires policy caution is also losing credence. Wholesale prices for the week ended Jan. 3 rose 5.6 percent, less than half the pace in August.
Subbarao may today lower his forecast for India's growth for the year to March 31 from 7.5 percent, the weakest in four years, and predict slower inflation.
Along with the one percentage point cut to the reverse repurchase rate on Jan. 2, Subbarao lowered the repurchase rate by the same margin to 5.5 percent and cut the amount of cash that lenders need to set aside as reserves by 50 basis points to 5 percent.
Domestic Demand
``Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand,'' said Chetan Ahya, a Singapore-based economist at Morgan Stanley.
Commercial lenders have been slow to follow the central bank's lead in cutting rates because they are still paying high interest on deposits following the RBI's efforts to control inflation by raising interest rates to a seven-year high in July.
Lending rates for the best corporate customers at ICICI Bank Ltd., the nation's second biggest, stand at 16.75 percent, reflecting only one 0.5 percentage point cut. The central bank's repurchase rate, at which it lends to commercial banks, has dropped by 3.5 percentage points since October to 5.5 percent.
Singh's Surgery
Singh, who underwent heart bypass surgery on Jan. 24, has been coordinating with Subbarao since October to ensure investment doesn't suffer from the global credit crunch. Investment typically accounts for about one third of growth in the $1.2 trillion economy.
The government has undertaken a $4 billion plan to invest in roads and ports, and on Jan. 2 raised the overseas investment limit in the local corporate bond market to $15 billion from $6 billion.
Singh is also under pressure to prop up the economy and prevent companies from scaling back production and firing workers before general elections scheduled for April and May this year.
Tata Motors Ltd., India's biggest truckmaker, stopped production at a commercial-vehicle factory for six days this month. Hyundai Motor Co.'s Indian unit is cutting output and firing temporary staff. Indian exporters said this month they expect to cut about 10 million jobs by March.
``Ensuring job security is the main challenge before the government ahead of the elections,'' said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. ``The mother of all monetary easing is still alive and kicking, it's just that they might take a pause today.'
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