Feb. 7 (Bloomberg) -- U.S. stocks gained, snapping four weeks of declines, on speculation the deteriorating economy would force Congress to reach a compromise on President Barack Obama’s economic stimulus package.
Intel Corp. and Microsoft Corp. climbed more than 14 percent as the Senate debated the president’s plan to revive job growth and consumer spending. MasterCard Inc. gained 20 percent and drugmaker Merck & Co. climbed 7.8 percent after beating earnings estimates. Stocks also rallied in anticipation of Treasury Secretary Timothy Geithner’s Feb. 9 announcement of a bailout plan for the banking industry.
“The financial rescue is key, because it’s impossible to have a normally functioning economy without a functioning financial system,” said Bill Stone, who helps oversee about $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “A lot of what was holding the market back was the performance of the financials. If you get them out of the way, you could see a decent-sized rally.”
The Standard & Poor’s 500 Index rose 5.2 percent to 868.60 this week, reducing its 2009 decline to 3.8 percent. The Dow Jones Industrial Average added 279.73 points, or 3.5 percent, to 8,280.59. Stocks rallied even after the unemployment rate climbed to 7.6 percent, the highest level since 1992.
The S&P 500 has climbed 15 percent from the 11-year low it reached Nov. 20. The benchmark dropped 38 percent last year, its worst performance since the Great Depression. The S&P 500, Dow and MSCI World Index posted their steepest January losses as companies reported disappointing earnings and the U.S. economy shrank at the fastest pace in 26 years.
Highest Since 1974
Payrolls tumbled in January, with millions more Americans likely to lose their jobs before stimulus and emergency-lending programs temper the economy’s slide. Payrolls fell by 598,000, the biggest monthly decline since December 1974. Losses spanned almost all industries, from construction and manufacturing to retailing, trucking, media and finance.
The U.S. Senate is slated to vote early next week on an economic stimulus package totaling at least $780 billion after lawmakers reached a compromise over the size of the plan late yesterday, after the stock market closed. The House passed its own version, worth $819 billion, last week.
Geithner will announce the Treasury’s plan for supporting an “effective and lasting economic recovery.” Officials plan a combination of approaches for their overhaul of the $700 billion Troubled Asset Relief Program.
Intel, Technology Gain
Along with further injections of taxpayer funds into financial firms, the strategy is likely to include guarantees for illiquid assets on banks’ balance sheets, people familiar with the matter have said.
Intel, the world’s largest computer-chip maker, climbed 14 percent to $14.73. Microsoft, the biggest software maker, climbed 15 percent to $19.66.
Technology stocks climbed 9.7 percent, the most among 10 industries in the S&P 500. Akamai Technologies Inc. gained 29 percent to $17.41 after the largest supplier of software and services that speed up the delivery of Web sites posted better- than-estimated profit. Cisco Systems Inc., the world’s biggest maker of computer-networking equipment, increased 14 percent to $17.04 even after saying sales are likely to fall 15 percent to 20 percent in the current quarter.
MasterCard, the world’s second-largest credit-card network, gained 20 percent to $162.50. Chief Executive Officer Robert Selander cut expenses to reach profit targets jeopardized by the U.S. economic slowdown.
Job Cuts Boost Profit
Merck, the third-largest U.S. drugmaker, climbed 7.8 percent to $30.77 after savings from job cuts boosted profit. Schering- Plough Corp. gained 12 percent to $19.75. The maker of the Vytorin and Zetia drugs, for which it shares revenue with Merck, said earnings were helped by cost reductions and added sales from an acquisition.
Financial stocks in the S&P 500 fell 3.3 percent in the first three days of the week on concern about the health of Bank of America Corp., which tumbled 29 percent through Feb. 4. The industry surged on Feb. 5 and 6, giving the group a 6 percent gain for the week. Bank of America finished with a 6.8 percent retreat.
Bank of America Chief Executive Officer Kenneth Lewis said the economy is still deteriorating and that conditions are likely to improve later this year.
“Things are worsening as we speak,” Lewis said in an interview on CNBC yesterday. “We think they will stabilize sometime in the second half and we will see growth in 2010.”
Goldman Sachs Climbs
Goldman Sachs Group Inc., the biggest U.S. securities firm until becoming a bank-holding company in September, climbed 20 percent to $96.57. Morgan Stanley rose 13 percent to $22.87. Citigroup Inc. increased 10 percent to $3.91.
State Street Corp. gained 31 percent to $30.49 after the world’s largest money manager for institutions all but eliminated its dividend and cut 2008 bonuses to increase capital without diluting the ownership of existing shareholders.
Wal-Mart Stores Inc., Target Corp., Macy’s Inc. and Limited Brands Inc. each climbed at least 5 percent after reporting January sales that exceeded estimates as retailers offered discounts to lure U.S. consumers during the longest recession in a quarter century.
Humana Inc. surged 17 percent to $44.55. The second-biggest provider of U.S.-funded health insurance reported fourth-quarter earnings that beat analysts’ estimates and said higher prices for elderly customers will help the company meet its 2009 profit forecast.
Narrowest Loss
D.R. Horton Inc. gained the most in the S&P 500, surging 53 percent to $9.14, after reporting its narrowest loss in five quarters. Homebuilders in the index rose 32 percent after pending home sales increased for the first time since August.
General Electric Co. fell 8.5 percent to $11.10 and reached the lowest price since 1995 after Chief Executive Officer Jeffrey Immelt said he’s prepared to run the company with a double-A credit rating should it lose its triple-A rating.
Kraft Foods Inc., the world’s second-largest foodmaker, lost 6.1 percent to $26.34 after posting fourth-quarter earnings and sales below analysts’ estimates. The maker of Nabisco cookies, Oscar Mayer lunchmeats and Maxwell House coffee also forecast 2009 earnings that trailed predictions in a Bloomberg survey.
Walt Disney Co., the second-largest U.S. media company, fell 6 percent to $19.45 after first-quarter sales and profit missed analysts’ estimates because of flagging ad sales and consumer spending. Disney was also hurt by a Commerce Department report that showed consumer spending decreased a greater-than-estimated 1 percent in December.
Worst in 26 Years
Earnings at the 307 companies in the S&P 500 that have reported fourth-quarter results fell 37 percent on average as firms from Microsoft Corp. to Procter & Gamble Co. disappointed investors and the economy shrank at the fastest pace in 26 years. The period is projected to be the sixth straight quarter of decreasing profits, the longest streak on record.
“Most of us are looking beyond the current earnings,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $22 billion. “These are just not going to look good. It’s more a question of what are the prospects going forward.”
Saturday, February 7, 2009
Boeing, Hartford, Motorola, Smithfield: U.S. Equity Preview
Feb. 7 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading on Feb. 9. Stock symbols are in parentheses.
Amgen Inc. (AMGN:US): The world’s largest biotechnology company said it gained European approval to sell its new drug, Nplate, for a chronic bleeding disorder.
Boeing Co. (BA:US): The world’s No. 2 commercial-plane maker won a contract valued at as much as $2.95 billion to build 15 C-17 transport aircraft, the Defense Department said on its Web site.
Hartford Financial Services Group Inc. (HIG:US): The insurer that lost $2.75 billion last year may be allowed by its state regulator to reduce reserves in an effort to bolster the company’s finances, according to a person familiar with the matter.
Motorola Inc. (MOT:US): The second-biggest U.S. seller of mobile phones said in a regulatory fling that its co-chief executive officers spent $2.75 million buying 725,000 shares, their first purchases since the price fell 72 percent last year.
Smithfield Foods Inc. (SFD:US): The world’s biggest pork processor said it agreed to pay higher interest rates and pledged a processing plant as collateral to amend its $1.3 billion revolving credit facility.
Amgen Inc. (AMGN:US): The world’s largest biotechnology company said it gained European approval to sell its new drug, Nplate, for a chronic bleeding disorder.
Boeing Co. (BA:US): The world’s No. 2 commercial-plane maker won a contract valued at as much as $2.95 billion to build 15 C-17 transport aircraft, the Defense Department said on its Web site.
Hartford Financial Services Group Inc. (HIG:US): The insurer that lost $2.75 billion last year may be allowed by its state regulator to reduce reserves in an effort to bolster the company’s finances, according to a person familiar with the matter.
Motorola Inc. (MOT:US): The second-biggest U.S. seller of mobile phones said in a regulatory fling that its co-chief executive officers spent $2.75 million buying 725,000 shares, their first purchases since the price fell 72 percent last year.
Smithfield Foods Inc. (SFD:US): The world’s biggest pork processor said it agreed to pay higher interest rates and pledged a processing plant as collateral to amend its $1.3 billion revolving credit facility.
China Institute Proposes Weaker Yuan to Boost Growth
Feb. 7 (Bloomberg) -- China should “actively guide” the yuan’s exchange rate to about 6.93 against the dollar to help maintain economic growth and bolster employment, according to a report by the Ministry of Finance’s research institute.
The nation should also increase purchases of commodities from abroad and build up energy reserves to offset pressures on the Chinese currency to rise, said the report, published today in the Shanghai Securities News.
Rising labor costs and a stronger yuan have slowed overseas shipments of Chinese-made textiles, toys and machinery as the worldwide recession saps demand. The People’s Bank of China wants to avoid big movements in the yuan and the global crisis will be the key determinant of currency policy, Governor Zhou Xiaochuan said this week in Beijing.
“Depreciating the currency would be little help,” Li Wei, a Shanghai-based economist at Standard Chartered Bank Plc, said today in an interview. “The slowdown in exports is mainly due to lack of demand.”
The world’s third-largest economy will continue to slow in the first half, the ministry report said. Growth will “stabilize” in the second half thanks to the government’s stimulus measures. China in November announced a 4 trillion yuan ($585 billion) spending plan to boost growth.
Rates Cut
The central bank should continue to cut lending rates “by relatively large margins” in the first half to boost investment and prop up the real estate and stock markets, today’s report said. China has cut interest rates five times since September.
Deposit rates should also be lowered further to benchmarks in U.S. and other markets to help maintain a “normal” exchange rate level, the report said. China’s one-year deposit rate stands at 2.25 percent, with the lending rate at 5.31 percent.
The Chinese economy expanded by 6.8 percent in the fourth quarter, the slowest pace in seven years. The yuan traded at 6.8344 a dollar at the 5:30 p.m. close in Shanghai yesterday, from 6.8367 per dollar the day before, according to the China Foreign Exchange Trade System.
The yuan’s level of about 6.83 against the dollar is “slightly lower” than the average costs 65 major textile companies in east China’s Jiangsu Province pay for each dollar they earn from exports, today’s report said. Growth in textile and garment shipments slipped by 10.7 percentage points in 2008.
“Weakening the yuan to boost exports would give ammunition to people accusing China of protectionism,” Li said. “I don’t think this report can represent finance ministry policy.”
The report predicted China’s fiscal revenue to grow by 10 percent this year to 6.7 trillion yuan. Expenditures may rise by 14 percent to 7.2 trillion yuan.
The report, by Yan Kun and Zhang Peng at the research institute, was carried by Xinhua News Agency today.
The nation should also increase purchases of commodities from abroad and build up energy reserves to offset pressures on the Chinese currency to rise, said the report, published today in the Shanghai Securities News.
Rising labor costs and a stronger yuan have slowed overseas shipments of Chinese-made textiles, toys and machinery as the worldwide recession saps demand. The People’s Bank of China wants to avoid big movements in the yuan and the global crisis will be the key determinant of currency policy, Governor Zhou Xiaochuan said this week in Beijing.
“Depreciating the currency would be little help,” Li Wei, a Shanghai-based economist at Standard Chartered Bank Plc, said today in an interview. “The slowdown in exports is mainly due to lack of demand.”
The world’s third-largest economy will continue to slow in the first half, the ministry report said. Growth will “stabilize” in the second half thanks to the government’s stimulus measures. China in November announced a 4 trillion yuan ($585 billion) spending plan to boost growth.
Rates Cut
The central bank should continue to cut lending rates “by relatively large margins” in the first half to boost investment and prop up the real estate and stock markets, today’s report said. China has cut interest rates five times since September.
Deposit rates should also be lowered further to benchmarks in U.S. and other markets to help maintain a “normal” exchange rate level, the report said. China’s one-year deposit rate stands at 2.25 percent, with the lending rate at 5.31 percent.
The Chinese economy expanded by 6.8 percent in the fourth quarter, the slowest pace in seven years. The yuan traded at 6.8344 a dollar at the 5:30 p.m. close in Shanghai yesterday, from 6.8367 per dollar the day before, according to the China Foreign Exchange Trade System.
The yuan’s level of about 6.83 against the dollar is “slightly lower” than the average costs 65 major textile companies in east China’s Jiangsu Province pay for each dollar they earn from exports, today’s report said. Growth in textile and garment shipments slipped by 10.7 percentage points in 2008.
“Weakening the yuan to boost exports would give ammunition to people accusing China of protectionism,” Li said. “I don’t think this report can represent finance ministry policy.”
The report predicted China’s fiscal revenue to grow by 10 percent this year to 6.7 trillion yuan. Expenditures may rise by 14 percent to 7.2 trillion yuan.
The report, by Yan Kun and Zhang Peng at the research institute, was carried by Xinhua News Agency today.
MF Says Advanced Economies Already in Depression
Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.
“The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”
Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.
“All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,” he said. “And today it’s not done.”
The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macy’s Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.
“There is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,” said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. “But there is still the risk it can be short-circuited by further financial turmoil.”
$780 Billion Package
The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.
The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.
Governments should be ready for “full-fledged” intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the region’s banks, he said.
Borrowing Costs
“We’re probably not very far from the point where the question of interest rates is not the most important question,” Strauss-Kahn said. “Providing direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.”
In Asia, “there’s still room for bigger stimulus packages,” the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than November’s 7 billion-ringgit ($1.9 billion) plan, he said.
Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last month’s update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.
Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fund’s forecast for a recovery to start in 2010 is “very uncertain.”
Demand for Loans
Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.
Strauss-Kahn said he agreed with Poland that the eastern European nation isn’t in need of assistance from the fund now, but may require financial aid in the future.
The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.
“Some need for precautionary arrangements may appear,” he said, without naming specific countries.
Critics of the fund say it’s failed to keep up with the pace of change as the worldwide recession deepens.
The IMF and similar institutions are “incapable” of coping with the global financial crisis, because their resources can’t keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.
Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.
The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.
“The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”
Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.
“All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,” he said. “And today it’s not done.”
The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macy’s Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.
“There is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,” said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. “But there is still the risk it can be short-circuited by further financial turmoil.”
$780 Billion Package
The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.
The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.
Governments should be ready for “full-fledged” intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the region’s banks, he said.
Borrowing Costs
“We’re probably not very far from the point where the question of interest rates is not the most important question,” Strauss-Kahn said. “Providing direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.”
In Asia, “there’s still room for bigger stimulus packages,” the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than November’s 7 billion-ringgit ($1.9 billion) plan, he said.
Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last month’s update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.
Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fund’s forecast for a recovery to start in 2010 is “very uncertain.”
Demand for Loans
Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.
Strauss-Kahn said he agreed with Poland that the eastern European nation isn’t in need of assistance from the fund now, but may require financial aid in the future.
The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.
“Some need for precautionary arrangements may appear,” he said, without naming specific countries.
Critics of the fund say it’s failed to keep up with the pace of change as the worldwide recession deepens.
The IMF and similar institutions are “incapable” of coping with the global financial crisis, because their resources can’t keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.
Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.
The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.
Friday, February 6, 2009
Canadian Stocks Rise, Post Only 2009 Gain Among Biggest Markets
Feb. 6 (Bloomberg) -- Canadian stocks rose, making it only equity market among the 10 biggest developed nations to post a 2009 gain, on speculation rising U.S. unemployment will spur approval of a stimulus plan that revives demand for commodities.
Potash Corp. of Saskatchewan Inc. advanced 4.4 percent as grain and oilseed prices climbed on droughts in Brazil and China, suggesting farmers may step up fertilizer purchases for the next crop season. Research In Motion Ltd. rallied 3.1 percent to a four-month high after UBS AG said its analysis found “positive momentum” for sales at the maker of the BlackBerry smartphone.
The Standard & Poor’s/TSX Composite Index rose 1.7 percent to 9,008.02. U.S. stocks climbed today on speculation that a government report showing the highest unemployment rate since 1992 will force Congress to approve President Barack Obama’s $900 billion economic stimulus package.
“It’s all about the U.S. here in Canada,” said Luc Girard, who helps oversee about $14.1 billion as director of Desjardins Securities’ portfolio advisory group in Montreal. “We knew unemployment would get worse before it gets better.”
The Senate may vote this evening on an economic stimulus package after making progress in bipartisan negotiations on cutting Obama’s $900 billion plan, according to a top Democrat. The U.S. unemployment rate rose to 7.6 percent, the Labor Department said today.
Canada, which sends more than three-quarters of its exports to the U.S., lost a record number of jobs in January, pushing the unemployment rate to a four-year high of 7.2 percent. Canadian Finance Minister Jim Flaherty last month announced C$84.9 billion in deficits over the next five years as the government tries to stimulate growth with tax cuts and spending. Today he said Canada “will do more” if necessary.
‘Clean, Green’
Potash, the largest maker of crop nutrients, jumped C$4.70 to C$110.80, the highest closing price since Oct. 14. Soybean, corn and wheat prices rose in Chicago after drought hurt the outlook for crops in Brazil, and China said its wheat harvest has been cut by a lack of rain.
Potash is also in UBS AG’s so-called “Clean, Green Obama Energy Basket” of stocks that stand to benefit from the U.S. stimulus plan, according to a note today from UBS strategists Thomas Doerflinger and David Bianco.
Metal miners gained after copper rose 8.6 percent in New York, the most in three months. China, the biggest copper user, began investing the second allocation of funds from its $585 billion stimulus plan, Xinhua News Agency said Feb. 3.
Teck Cominco Ltd., Canada’s biggest diversified mining company, advanced 5.8 percent to C$5.29. Inmet Mining Corp., another copper producer, jumped 11 percent to C$26.11.
Mobile Phones
Research In Motion climbed 3.1 percent to C$72.10, the highest price since Sept. 26. UBS analysts led by Jeffrey Fan raised their share-price estimate 36 percent to $57 (C$72.01). They kept a “neutral” rating on the stock, citing concern the weaker economy may hurt demand for mobile phones.
RIM also had its share price estimate increased 18 percent to $67 by Bank of America Corp. analyst Vivek Arya in New York, who said new handsets will help the company gain market share from competitors. Arya reiterated his “buy” recommendation.
In the S&P/TSX, three stocks rose for each one that fell and eight of 10 industry groups gained. The main benchmark for Canadian stocks rallied 3.6 percent since Jan. 30, notching its second-straight weekly gain. The S&P/TSX plunged 35 percent in 2008 for its worst annual drop since 1931.
Manulife, Suncor
Manulife Financial Corp. paced gains among banks and insurers after today’s worldwide rally in equities allayed concern about investment losses at financial institutions.
Manulife, Canada’s biggest insurance company, gained 4 percent to C$21.23. Canadian Imperial Bank of Commerce, the nation’s fifth-largest lender, climbed 3.3 percent to C$48.45.
Suncor Energy Inc., the world’s second-largest oilsands producer, advanced 3.4 percent to C$25.49.
Shoppers Drug Mart Corp. fell 2.6 percent to C$43 for its biggest drop in more than two weeks. Canada’s biggest pharmacy chain had its earnings estimates cut by David Hartley at BMO Capital Markets. The recession will hurt all retailers, the Toronto-based analyst said in a note to clients today. He cut his share-price target by 7.7 percent to C$48.
Potash Corp. of Saskatchewan Inc. advanced 4.4 percent as grain and oilseed prices climbed on droughts in Brazil and China, suggesting farmers may step up fertilizer purchases for the next crop season. Research In Motion Ltd. rallied 3.1 percent to a four-month high after UBS AG said its analysis found “positive momentum” for sales at the maker of the BlackBerry smartphone.
The Standard & Poor’s/TSX Composite Index rose 1.7 percent to 9,008.02. U.S. stocks climbed today on speculation that a government report showing the highest unemployment rate since 1992 will force Congress to approve President Barack Obama’s $900 billion economic stimulus package.
“It’s all about the U.S. here in Canada,” said Luc Girard, who helps oversee about $14.1 billion as director of Desjardins Securities’ portfolio advisory group in Montreal. “We knew unemployment would get worse before it gets better.”
The Senate may vote this evening on an economic stimulus package after making progress in bipartisan negotiations on cutting Obama’s $900 billion plan, according to a top Democrat. The U.S. unemployment rate rose to 7.6 percent, the Labor Department said today.
Canada, which sends more than three-quarters of its exports to the U.S., lost a record number of jobs in January, pushing the unemployment rate to a four-year high of 7.2 percent. Canadian Finance Minister Jim Flaherty last month announced C$84.9 billion in deficits over the next five years as the government tries to stimulate growth with tax cuts and spending. Today he said Canada “will do more” if necessary.
‘Clean, Green’
Potash, the largest maker of crop nutrients, jumped C$4.70 to C$110.80, the highest closing price since Oct. 14. Soybean, corn and wheat prices rose in Chicago after drought hurt the outlook for crops in Brazil, and China said its wheat harvest has been cut by a lack of rain.
Potash is also in UBS AG’s so-called “Clean, Green Obama Energy Basket” of stocks that stand to benefit from the U.S. stimulus plan, according to a note today from UBS strategists Thomas Doerflinger and David Bianco.
Metal miners gained after copper rose 8.6 percent in New York, the most in three months. China, the biggest copper user, began investing the second allocation of funds from its $585 billion stimulus plan, Xinhua News Agency said Feb. 3.
Teck Cominco Ltd., Canada’s biggest diversified mining company, advanced 5.8 percent to C$5.29. Inmet Mining Corp., another copper producer, jumped 11 percent to C$26.11.
Mobile Phones
Research In Motion climbed 3.1 percent to C$72.10, the highest price since Sept. 26. UBS analysts led by Jeffrey Fan raised their share-price estimate 36 percent to $57 (C$72.01). They kept a “neutral” rating on the stock, citing concern the weaker economy may hurt demand for mobile phones.
RIM also had its share price estimate increased 18 percent to $67 by Bank of America Corp. analyst Vivek Arya in New York, who said new handsets will help the company gain market share from competitors. Arya reiterated his “buy” recommendation.
In the S&P/TSX, three stocks rose for each one that fell and eight of 10 industry groups gained. The main benchmark for Canadian stocks rallied 3.6 percent since Jan. 30, notching its second-straight weekly gain. The S&P/TSX plunged 35 percent in 2008 for its worst annual drop since 1931.
Manulife, Suncor
Manulife Financial Corp. paced gains among banks and insurers after today’s worldwide rally in equities allayed concern about investment losses at financial institutions.
Manulife, Canada’s biggest insurance company, gained 4 percent to C$21.23. Canadian Imperial Bank of Commerce, the nation’s fifth-largest lender, climbed 3.3 percent to C$48.45.
Suncor Energy Inc., the world’s second-largest oilsands producer, advanced 3.4 percent to C$25.49.
Shoppers Drug Mart Corp. fell 2.6 percent to C$43 for its biggest drop in more than two weeks. Canada’s biggest pharmacy chain had its earnings estimates cut by David Hartley at BMO Capital Markets. The recession will hurt all retailers, the Toronto-based analyst said in a note to clients today. He cut his share-price target by 7.7 percent to C$48.
Asian Currencies Climb This Week on Efforts to Revive Economies
Feb. 7 (Bloomberg) -- An Asian currency gauge rose for a second week as policy makers stepped up efforts to revive economies reeling from the global recession, raising speculation overseas investors are returning to emerging markets.
Malaysia is prepared to take “radical” steps to boost the economy, the government said on Feb. 5, while Indonesia a day earlier cut interest rates for a third straight month. Taiwan will offer tax breaks and subsidized loans to lure local investors back from China, which is increasing export tax rebates for textiles. U.S. President Barack Obama urged lawmakers on Feb. 5 to pass his economic stimulus plan or face “catastrophe.”
The Philippine peso capped the biggest weekly advance in a month. India’s rupee had a second week of gains and Malaysia’s ringgit traded at a one-week high as regional stocks rallied.
“It’s a reversal of risk aversion,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. The peso “is moving in line with regional currencies on hopes Obama’s plan is making its way with less impediments.”
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 0.4 percent for the week to 105.10. The peso climbed 0.5 percent yesterday to 47.202 per dollar, a weekly gain of 0.4 percent. India’s rupee advanced 0.3 percent this week to 48.7250 versus the U.S. currency.
Malaysia, U.S. Stimulus
A U.S. Treasury official this week said Secretary Timothy Geithner will make a speech on Feb. 9 and Obama will hold a news conference that will address the financial recovery plan.
The MSCI Asia Pacific Index of regional shares rose 1.2 percent. The gauge has fallen 6.9 percent in 2009, extending last year’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.
Malaysia’s second stimulus plan, to be announced soon, will be much bigger than November’s 7 billion ringgit ($1.9 billion) package, state news service Bernama reported late on Feb. 5, citing Finance Minister Najib Razak.
“You’ve seen a little bit of sentiment shift in the market,” said Magnus Prim, chief Asia strategist at Skandinaviska Enskilda Banken in Singapore. “We’re still bearish on the ringgit so we think the strength we’re seeing now will prove temporary. We think there would be more negative news coming out of the economic front.”
The ringgit rose 0.3 percent to 3.6017 per dollar, gaining 0.2 percent on the week.
U.S. Jobless
The U.S. dollar fell versus the yen on concern a government report would show the jobless rate rose to a 16-year high, which it did, rising to 7.6 percent. The currency declined to 90.89 yen from 91.23 yen late in New York on Feb. 5. Against the euro, it traded at $1.2786 from $1.2790.
Taiwan, China, Malaysia and the Philippines will all issue data on exports next week, with economists surveyed by Bloomberg News forecasting contractions in each nation. The Bank of Korea also meets on interest rates.
Taiwan’s dollar declined this week on speculation falling exports and the slowing economy will deter overseas investors.
Economists are expecting overseas sales from Taiwan slid 48 percent in January, following a 42 percent decline a month earlier, according to a Bloomberg survey before the trade report on Feb. 9.
Taiwan Dollar, Exports
The central bank may seek to weaken its currency to help exports, according to AU Optronics Corp., the world’s third- biggest producer of liquid-crystal displays.
The bank “may encourage the currency to go downwards against the U.S. dollar in order to keep the competitiveness of our exports compared to Korea,” Andy Yang, a finance director who will take over as AU Optronics’s chief financial officer next month, said yesterday in an interview from Hsinchu, Taiwan.
The island’s dollar fell 0.5 percent this week to NT$33.750 from NT$33.57 on Jan. 23, when local markets closed for the week-long Lunar New Year holiday, according to Taipei Forex Inc.
Korea’s government may have to cut its economic growth forecast of 3 percent for 2009 as the economy is deteriorating faster than expected, incoming Finance Minister Yoon Jeung Hyun said yesterday.
The Korean currency rose 0.1 percent to 1,383.80 per dollar, paring this week’s loss to 0.3 percent, as global funds bought more local shares than they sold for an eighth day, the longest run of net purchases since April 2007.
Won, Yuan
“The won should be more fundamentally stable going forward,” said Stewart Newnham, a strategist with Morgan Stanley in Hong Kong. “We are still encouraged that trade is generally heading in the right direction. Financial flows are normalizing rapidly.”
Yuan forwards due in a year rose 2.4 percent this week, the most since March 1999, as China said it wants to maintain a stable currency to limit the impact of the global financial crisis. The contracts indicated China’s currency will weaken 1.1 percent to 6.9110 a dollar in a year. The Chinese yuan was little changed at 6.8360 from a week ago.
Elsewhere, the Indonesian rupiah rose 0.3 percent to 11,720 today, paring this week’s decline to 2.4 percent. The Thai baht fell 0.2 percent on the week to 35 per dollar and Vietnam’s dong was little changed at 17,485.
Malaysia is prepared to take “radical” steps to boost the economy, the government said on Feb. 5, while Indonesia a day earlier cut interest rates for a third straight month. Taiwan will offer tax breaks and subsidized loans to lure local investors back from China, which is increasing export tax rebates for textiles. U.S. President Barack Obama urged lawmakers on Feb. 5 to pass his economic stimulus plan or face “catastrophe.”
The Philippine peso capped the biggest weekly advance in a month. India’s rupee had a second week of gains and Malaysia’s ringgit traded at a one-week high as regional stocks rallied.
“It’s a reversal of risk aversion,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. The peso “is moving in line with regional currencies on hopes Obama’s plan is making its way with less impediments.”
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 0.4 percent for the week to 105.10. The peso climbed 0.5 percent yesterday to 47.202 per dollar, a weekly gain of 0.4 percent. India’s rupee advanced 0.3 percent this week to 48.7250 versus the U.S. currency.
Malaysia, U.S. Stimulus
A U.S. Treasury official this week said Secretary Timothy Geithner will make a speech on Feb. 9 and Obama will hold a news conference that will address the financial recovery plan.
The MSCI Asia Pacific Index of regional shares rose 1.2 percent. The gauge has fallen 6.9 percent in 2009, extending last year’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.
Malaysia’s second stimulus plan, to be announced soon, will be much bigger than November’s 7 billion ringgit ($1.9 billion) package, state news service Bernama reported late on Feb. 5, citing Finance Minister Najib Razak.
“You’ve seen a little bit of sentiment shift in the market,” said Magnus Prim, chief Asia strategist at Skandinaviska Enskilda Banken in Singapore. “We’re still bearish on the ringgit so we think the strength we’re seeing now will prove temporary. We think there would be more negative news coming out of the economic front.”
The ringgit rose 0.3 percent to 3.6017 per dollar, gaining 0.2 percent on the week.
U.S. Jobless
The U.S. dollar fell versus the yen on concern a government report would show the jobless rate rose to a 16-year high, which it did, rising to 7.6 percent. The currency declined to 90.89 yen from 91.23 yen late in New York on Feb. 5. Against the euro, it traded at $1.2786 from $1.2790.
Taiwan, China, Malaysia and the Philippines will all issue data on exports next week, with economists surveyed by Bloomberg News forecasting contractions in each nation. The Bank of Korea also meets on interest rates.
Taiwan’s dollar declined this week on speculation falling exports and the slowing economy will deter overseas investors.
Economists are expecting overseas sales from Taiwan slid 48 percent in January, following a 42 percent decline a month earlier, according to a Bloomberg survey before the trade report on Feb. 9.
Taiwan Dollar, Exports
The central bank may seek to weaken its currency to help exports, according to AU Optronics Corp., the world’s third- biggest producer of liquid-crystal displays.
The bank “may encourage the currency to go downwards against the U.S. dollar in order to keep the competitiveness of our exports compared to Korea,” Andy Yang, a finance director who will take over as AU Optronics’s chief financial officer next month, said yesterday in an interview from Hsinchu, Taiwan.
The island’s dollar fell 0.5 percent this week to NT$33.750 from NT$33.57 on Jan. 23, when local markets closed for the week-long Lunar New Year holiday, according to Taipei Forex Inc.
Korea’s government may have to cut its economic growth forecast of 3 percent for 2009 as the economy is deteriorating faster than expected, incoming Finance Minister Yoon Jeung Hyun said yesterday.
The Korean currency rose 0.1 percent to 1,383.80 per dollar, paring this week’s loss to 0.3 percent, as global funds bought more local shares than they sold for an eighth day, the longest run of net purchases since April 2007.
Won, Yuan
“The won should be more fundamentally stable going forward,” said Stewart Newnham, a strategist with Morgan Stanley in Hong Kong. “We are still encouraged that trade is generally heading in the right direction. Financial flows are normalizing rapidly.”
Yuan forwards due in a year rose 2.4 percent this week, the most since March 1999, as China said it wants to maintain a stable currency to limit the impact of the global financial crisis. The contracts indicated China’s currency will weaken 1.1 percent to 6.9110 a dollar in a year. The Chinese yuan was little changed at 6.8360 from a week ago.
Elsewhere, the Indonesian rupiah rose 0.3 percent to 11,720 today, paring this week’s decline to 2.4 percent. The Thai baht fell 0.2 percent on the week to 35 per dollar and Vietnam’s dong was little changed at 17,485.
Asian Stocks Rise Second Week Amid Government Policy Optimism
Feb. 7 (Bloomberg) -- Asian stocks rose for a second week as optimism that government measures worldwide will ease the financial crisis offset cuts in earnings forecasts at Mizuho Financial Group Inc. and Hitachi Ltd.
BHP Billiton Ltd. and Kawasaki Kisen Kaisha Ltd. led gains among mining and shipping companies after China cut some tariffs on raw material and component imports. Mitsubishi UFJ Financial Group Inc. led banks lower as rival Mizuho, Japan’s second- largest lender, cut its earnings target. Hitachi, which makes electrical equipment, slumped 6.5 percent after forecasting the biggest loss by an Asian electronics maker.
“Fiscal and monetary stimulus policies have helped improve sentiment,” said Binay Chandgothia, who oversees about $1.5 billion as chief investment officer at Principal Asset Management Co. in Hong Kong. “These measures will benefit the economy although there will be more earnings downgrades.”
The MSCI Asia Pacific Index rose 0.4 percent to 83.42 in the past five days, adding to the previous week’s 3.5 percent increase. The gauge is down 6.9 percent in 2009 amid mounting signs the global recession has hurt corporate profits.
Toyota Motor Corp., the world’s largest automaker, yesterday widened its loss prediction on slowing demand in the U.S. and in Japan. Mitsubishi UFJ cut its full-year profit forecast after the stock market closed yesterday.
The Nikkei 225 Stock Average added 1 percent last week, while Hong Kong’s Hang Seng index climbed 2.8 percent. China’s Shanghai Composite Index surged 9.6 percent.
Government Action
Stocks have fallen this year amid mounting signs the financial crisis, which has caused more than $1 trillion in credit-related losses, is hurting corporate earnings. With banks tightening lending, bankruptcies among Japan’s listed companies reached an annual postwar record last year, according to Tokyo Shoko Research Ltd.
Governments around the world are stepping up efforts to ease the crisis that the International Monetary Fund predicts will cause global growth to almost grind to a halt this year. A U.S. Treasury official said this week that Secretary Timothy Geithner will make a speech Feb. 9 and President Barack Obama will hold a news conference that will address a stimulus package.
Indonesia’s central bank this week lowered its benchmark interest rate for a third straight month. China’s government started investing a second allocation of a 4 trillion yuan ($580 billion) economic stimulus package, the official Xinhua News Agency reported.
China’s State Council, or Cabinet, also this week said that components and raw materials that “really needed to be imported” will be exempted from import duties.
Baltic Dry
BHP, which gets about 20 percent of its revenue in China, climbed 5.7 percent to A$32.23 on speculation sales to Asia’s second-largest economy will revive. China Mobile, the world’s No. 1 wireless-phone company by users, gained 7.7 percent in Hong Kong to HK$75.90.
Kawasaki Kisen Kaisha, Japan’s No. 3 shipping line, soared 20 percent in the week to 401 yen. Mitsui O.S.K. Lines Ltd., operator of Japan’s largest fleet of iron-ore ships, jumped 19 percent to 629 yen. STX Pan Ocean Co., South Korea’s biggest bulk carrier, surged 17 percent to 11,900 won.
The Baltic Dry Index of prices for shipping commodities soared 15 percent on Feb. 4, the most since at least 1985. The measure climbed in the week amid speculation iron-ore shipments to China will increase.
Mitsubishi UFJ slumped 5.9 percent to 480 yen. The company cut its full-year profit forecast by 77 percent on rising bad loans and soured stock holdings. Japanese banks and insurers accounted for 57 percent of the $31.1 billion of credit-related losses declared by Asian financial companies, data compiled by Bloomberg show.
Hitachi, Toyota
Mizuho lost 0.4 percent to 226 yen. The company turned to a 145.1 billion yen loss in the three months ended Dec. 31 from a 66 billion yen profit a year earlier.
Hitachi slumped 6.5 percent to 275 yen after forecasting a record 700 billion yen ($7.8 billion) loss in the year ending March 31 amid slumping demand.
Toyota, which also lost its top rating from Moody’s Investors Service in the week, ended the week 5.6 percent higher at 3,090 yen. The company said its operating loss in the year ending March may total 450 billion yen ($4.95 billion) compared with company’s previous estimate of a 150 billion yen shortfall.
BHP Billiton Ltd. and Kawasaki Kisen Kaisha Ltd. led gains among mining and shipping companies after China cut some tariffs on raw material and component imports. Mitsubishi UFJ Financial Group Inc. led banks lower as rival Mizuho, Japan’s second- largest lender, cut its earnings target. Hitachi, which makes electrical equipment, slumped 6.5 percent after forecasting the biggest loss by an Asian electronics maker.
“Fiscal and monetary stimulus policies have helped improve sentiment,” said Binay Chandgothia, who oversees about $1.5 billion as chief investment officer at Principal Asset Management Co. in Hong Kong. “These measures will benefit the economy although there will be more earnings downgrades.”
The MSCI Asia Pacific Index rose 0.4 percent to 83.42 in the past five days, adding to the previous week’s 3.5 percent increase. The gauge is down 6.9 percent in 2009 amid mounting signs the global recession has hurt corporate profits.
Toyota Motor Corp., the world’s largest automaker, yesterday widened its loss prediction on slowing demand in the U.S. and in Japan. Mitsubishi UFJ cut its full-year profit forecast after the stock market closed yesterday.
The Nikkei 225 Stock Average added 1 percent last week, while Hong Kong’s Hang Seng index climbed 2.8 percent. China’s Shanghai Composite Index surged 9.6 percent.
Government Action
Stocks have fallen this year amid mounting signs the financial crisis, which has caused more than $1 trillion in credit-related losses, is hurting corporate earnings. With banks tightening lending, bankruptcies among Japan’s listed companies reached an annual postwar record last year, according to Tokyo Shoko Research Ltd.
Governments around the world are stepping up efforts to ease the crisis that the International Monetary Fund predicts will cause global growth to almost grind to a halt this year. A U.S. Treasury official said this week that Secretary Timothy Geithner will make a speech Feb. 9 and President Barack Obama will hold a news conference that will address a stimulus package.
Indonesia’s central bank this week lowered its benchmark interest rate for a third straight month. China’s government started investing a second allocation of a 4 trillion yuan ($580 billion) economic stimulus package, the official Xinhua News Agency reported.
China’s State Council, or Cabinet, also this week said that components and raw materials that “really needed to be imported” will be exempted from import duties.
Baltic Dry
BHP, which gets about 20 percent of its revenue in China, climbed 5.7 percent to A$32.23 on speculation sales to Asia’s second-largest economy will revive. China Mobile, the world’s No. 1 wireless-phone company by users, gained 7.7 percent in Hong Kong to HK$75.90.
Kawasaki Kisen Kaisha, Japan’s No. 3 shipping line, soared 20 percent in the week to 401 yen. Mitsui O.S.K. Lines Ltd., operator of Japan’s largest fleet of iron-ore ships, jumped 19 percent to 629 yen. STX Pan Ocean Co., South Korea’s biggest bulk carrier, surged 17 percent to 11,900 won.
The Baltic Dry Index of prices for shipping commodities soared 15 percent on Feb. 4, the most since at least 1985. The measure climbed in the week amid speculation iron-ore shipments to China will increase.
Mitsubishi UFJ slumped 5.9 percent to 480 yen. The company cut its full-year profit forecast by 77 percent on rising bad loans and soured stock holdings. Japanese banks and insurers accounted for 57 percent of the $31.1 billion of credit-related losses declared by Asian financial companies, data compiled by Bloomberg show.
Hitachi, Toyota
Mizuho lost 0.4 percent to 226 yen. The company turned to a 145.1 billion yen loss in the three months ended Dec. 31 from a 66 billion yen profit a year earlier.
Hitachi slumped 6.5 percent to 275 yen after forecasting a record 700 billion yen ($7.8 billion) loss in the year ending March 31 amid slumping demand.
Toyota, which also lost its top rating from Moody’s Investors Service in the week, ended the week 5.6 percent higher at 3,090 yen. The company said its operating loss in the year ending March may total 450 billion yen ($4.95 billion) compared with company’s previous estimate of a 150 billion yen shortfall.
Thursday, February 5, 2009
U.S. Auto Suppliers May Seek $25.5 Billion in Aid for Industry
Feb. 5 (Bloomberg) -- U.S. auto-parts suppliers, struggling with losses as sales dwindle, may seek as much as $25.5 billion in government aid to prevent an industry collapse.
Three proposals for federal action could be used together or separately to shore up partsmakers, the Motor & Equipment Manufacturers Association trade group said today in a statement. A presentation to the Treasury Department this week spelled out amounts for each program that weren’t given in the statement.
The appeal for help is aimed at widening the Treasury’s commitment to the auto industry as the U.S. market sinks to its lowest since the early 1980s. General Motors Corp. and Chrysler LLC are working to avert bankruptcy with $17.4 billion in loans and face a Feb. 17 deadline to prove they’re viable.
“When one aspect of the automotive market fails, especially with its just-in-time structure, it ripples across the industry rapidly,” said Mary-Beth Kellenberger, a Toronto- based analyst with consulting firm Frost & Sullivan.
A $10.5 billion aid program was the costliest of 3 “bridge solutions” in the trade group’s 11-page presentation to the Treasury Department this week. That document didn’t indicate that the programs might all be used, for a total of $25.5 billion. They were labeled “options” in today’s statement.
No companies were named in the presentation. The group represents companies such as Lear and American Axle & Manufacturing Holdings Inc., which posted a combined $800.3 million in fourth-quarter losses last week, in part due to lower vehicle output in North America.
‘Constructive Conversations’
“No official request” for help has been submitted yet, MEMA Chief Executive Officer Bob McKenna said in the e-mailed statement today. “We have had constructive conversations with Treasury and elected officials in Washington.”
Calls and e-mails to the Treasury Department for comment weren’t immediately returned.
The U.S. automakers share many of the same suppliers. More than half of the partsmakers used by GM also sell to Chrysler and Ford Motor Co., according to the presentation. Many also provide parts for Asian and European car companies.
The industry experienced a major supplier shutdown when workers struck American Axle for three months last year, forcing GM to slow or halt as many as 33 North American plants at a projected cost of about $2.6 billion. Partsmakers including Lear Corp. were disrupted.
About 40 U.S. suppliers filed for bankruptcy last year, according to the trade group’s presentation. The “stress is now compounded” after automakers bought fewer parts because of extended plant shutdowns in December and January, MEMA said.
‘Closing Entire Companies’
“Without appropriate action, automotive suppliers will be unable to return to required operations in March 2009 without shuttering facilities or closing entire companies,” according to the trade group, which is based in Research Triangle Park, North Carolina.
One scenario for aid would be for GM and Chrysler to have access to a $7 billion revolving line of credit created from the Troubled Asset Relief Program to pay suppliers faster than usual. Payments could be made 10 days after parts are shipped, instead of the usual 45 to 55 days, the trade group said.
A second suggestion would be for the government to guarantee promised payments from automakers should one of them file for bankruptcy or be unable to pay. That would provide about $10.5 billion in available funding, helping suppliers use the promised future payments as collateral for bank loans, according to the presentation.
Under the third proposal, $8 billion of TARP funds would be made available to suppliers in need of capital. That scenario also includes the option of commercial banks being called on to use TARP funding to provide credit to partsmakers.
‘Looking at Options’
“We’re looking at options to help the cash flow to suppliers as they face production shutdowns that will impact the amount of receivables in February and March,” said David Andrea, vice president of the Original Equipment Suppliers Association trade group. He wouldn’t comment on the plan from MEMA, which represents the equipment-maker group in Washington.
Automakers including GM, Chrysler and Ford have an estimated $2.4 billion in March payments to suppliers compared with a monthly average of $8.4 billion in last year’s fourth quarter, according to the MEMA presentation.
Three proposals for federal action could be used together or separately to shore up partsmakers, the Motor & Equipment Manufacturers Association trade group said today in a statement. A presentation to the Treasury Department this week spelled out amounts for each program that weren’t given in the statement.
The appeal for help is aimed at widening the Treasury’s commitment to the auto industry as the U.S. market sinks to its lowest since the early 1980s. General Motors Corp. and Chrysler LLC are working to avert bankruptcy with $17.4 billion in loans and face a Feb. 17 deadline to prove they’re viable.
“When one aspect of the automotive market fails, especially with its just-in-time structure, it ripples across the industry rapidly,” said Mary-Beth Kellenberger, a Toronto- based analyst with consulting firm Frost & Sullivan.
A $10.5 billion aid program was the costliest of 3 “bridge solutions” in the trade group’s 11-page presentation to the Treasury Department this week. That document didn’t indicate that the programs might all be used, for a total of $25.5 billion. They were labeled “options” in today’s statement.
No companies were named in the presentation. The group represents companies such as Lear and American Axle & Manufacturing Holdings Inc., which posted a combined $800.3 million in fourth-quarter losses last week, in part due to lower vehicle output in North America.
‘Constructive Conversations’
“No official request” for help has been submitted yet, MEMA Chief Executive Officer Bob McKenna said in the e-mailed statement today. “We have had constructive conversations with Treasury and elected officials in Washington.”
Calls and e-mails to the Treasury Department for comment weren’t immediately returned.
The U.S. automakers share many of the same suppliers. More than half of the partsmakers used by GM also sell to Chrysler and Ford Motor Co., according to the presentation. Many also provide parts for Asian and European car companies.
The industry experienced a major supplier shutdown when workers struck American Axle for three months last year, forcing GM to slow or halt as many as 33 North American plants at a projected cost of about $2.6 billion. Partsmakers including Lear Corp. were disrupted.
About 40 U.S. suppliers filed for bankruptcy last year, according to the trade group’s presentation. The “stress is now compounded” after automakers bought fewer parts because of extended plant shutdowns in December and January, MEMA said.
‘Closing Entire Companies’
“Without appropriate action, automotive suppliers will be unable to return to required operations in March 2009 without shuttering facilities or closing entire companies,” according to the trade group, which is based in Research Triangle Park, North Carolina.
One scenario for aid would be for GM and Chrysler to have access to a $7 billion revolving line of credit created from the Troubled Asset Relief Program to pay suppliers faster than usual. Payments could be made 10 days after parts are shipped, instead of the usual 45 to 55 days, the trade group said.
A second suggestion would be for the government to guarantee promised payments from automakers should one of them file for bankruptcy or be unable to pay. That would provide about $10.5 billion in available funding, helping suppliers use the promised future payments as collateral for bank loans, according to the presentation.
Under the third proposal, $8 billion of TARP funds would be made available to suppliers in need of capital. That scenario also includes the option of commercial banks being called on to use TARP funding to provide credit to partsmakers.
‘Looking at Options’
“We’re looking at options to help the cash flow to suppliers as they face production shutdowns that will impact the amount of receivables in February and March,” said David Andrea, vice president of the Original Equipment Suppliers Association trade group. He wouldn’t comment on the plan from MEMA, which represents the equipment-maker group in Washington.
Automakers including GM, Chrysler and Ford have an estimated $2.4 billion in March payments to suppliers compared with a monthly average of $8.4 billion in last year’s fourth quarter, according to the MEMA presentation.
Japan Stocks Rise on Weaker Yen; Developers Fall on Bankruptcy
Feb. 6 (Bloomberg) -- Japan stocks rose, extending the Nikkei 225 Stock Average’s second-straight weekly advance, as the weaker yen lifted the earnings prospects for makers of cars and electronics.
Honda Motor Co., which gets more than half its sales from North America, jumped 3.2 percent after the yen fell to a one- month low. Olympus Corp., a camera maker that counts Europe as its biggest overseas market, soared 4 percent. Mitsui Fudosan Co., Japan’s No. 1 developer, sank 3.8 percent after a smaller peer’s bankruptcy highlighted funding concerns for the industry.
The Nikkei 225 climbed 152.70, or 1.9 percent, to 8,102.35 as of 9:56 a.m. in Tokyo, while the broader Topix index rose 7.64, or 1 percent, to 794.05. The Nikkei was set for a 1.4 percent gain this week, while the Topix was poised to end the week little changed.
“The yen’s depreciation is something investors are pleased with, because the stronger local currency is one of the main reasons Japanese companies have had to cut forecasts,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television.
More than half of Japanese companies that have reported third-quarter results cut full-year profit forecasts, according to Tokyo-based Shinko Research Institute Co, in part because of the stronger yen. Canon Inc., which is expecting 160 billion yen ($1.7 billion) in profit this year, loses 9.1 billion yen for every 1 yen gain against the dollar.
Dollar, Euro
Honda, Japan’s second-biggest automaker, jumped 3.2 percent to 2,240 yen, while Toyota Motor Corp., the world’s No. 1, added 2.3 percent to 3,110 yen. Canon, which earns a third of its sales from the Americas, rose 3.5 percent to 2,525 yen. Makers of cars and electronics contributed the most to the Topix’s advance.
The yen depreciated to as much as 92.25 against the dollar yesterday, the weakest since Jan. 8, from 89.28 at the close of stock trading in Tokyo, while falling versus the euro to much as 118.89 from 114.67. A weaker yen boosts the value of overseas sales of Japanese companies. Today, the yen traded at 90.90 against the dollar and 116.28 versus the euro.
Olympus, the world’s top endoscope maker, soared 4 percent to 1,497 yen. Konica Minolta Holdings Inc., a camera maker that gets 29 percent of its overseas sales in Europe, added 3.8 percent to 773 yen.
Mitsui Fudosan sank 3.8 percent to 1,248 yen, and Mitsubishi Estate Co. Real-estate shares were the biggest losers among 33 industry groups on the Topix.
Bankruptcies Continue
Japan General Estate Co. yesterday filed for bankruptcy as a lack of collateral prevented the developer from securing funding. It’s shares went untraded as orders to sell overwhelmed bids. Of six publicly traded companies that have filed for bankruptcy in Japan this year, three were in the real estate sector.
The collapse of the U.S. mortgage market triggered more than $1 trillion on credit losses and writedowns at global financial companies and tipped the world’s biggest economies into recession. With banks tightening lending, bankruptcies among Japan’s listed companies reached an annual postwar record last year, according to Tokyo Shoko Research Ltd.
Nikkei futures expiring in March added 2.3 percent to 8,110 in Osaka and gained 2.1 percent to 8,100 in Singapore.
Honda Motor Co., which gets more than half its sales from North America, jumped 3.2 percent after the yen fell to a one- month low. Olympus Corp., a camera maker that counts Europe as its biggest overseas market, soared 4 percent. Mitsui Fudosan Co., Japan’s No. 1 developer, sank 3.8 percent after a smaller peer’s bankruptcy highlighted funding concerns for the industry.
The Nikkei 225 climbed 152.70, or 1.9 percent, to 8,102.35 as of 9:56 a.m. in Tokyo, while the broader Topix index rose 7.64, or 1 percent, to 794.05. The Nikkei was set for a 1.4 percent gain this week, while the Topix was poised to end the week little changed.
“The yen’s depreciation is something investors are pleased with, because the stronger local currency is one of the main reasons Japanese companies have had to cut forecasts,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television.
More than half of Japanese companies that have reported third-quarter results cut full-year profit forecasts, according to Tokyo-based Shinko Research Institute Co, in part because of the stronger yen. Canon Inc., which is expecting 160 billion yen ($1.7 billion) in profit this year, loses 9.1 billion yen for every 1 yen gain against the dollar.
Dollar, Euro
Honda, Japan’s second-biggest automaker, jumped 3.2 percent to 2,240 yen, while Toyota Motor Corp., the world’s No. 1, added 2.3 percent to 3,110 yen. Canon, which earns a third of its sales from the Americas, rose 3.5 percent to 2,525 yen. Makers of cars and electronics contributed the most to the Topix’s advance.
The yen depreciated to as much as 92.25 against the dollar yesterday, the weakest since Jan. 8, from 89.28 at the close of stock trading in Tokyo, while falling versus the euro to much as 118.89 from 114.67. A weaker yen boosts the value of overseas sales of Japanese companies. Today, the yen traded at 90.90 against the dollar and 116.28 versus the euro.
Olympus, the world’s top endoscope maker, soared 4 percent to 1,497 yen. Konica Minolta Holdings Inc., a camera maker that gets 29 percent of its overseas sales in Europe, added 3.8 percent to 773 yen.
Mitsui Fudosan sank 3.8 percent to 1,248 yen, and Mitsubishi Estate Co. Real-estate shares were the biggest losers among 33 industry groups on the Topix.
Bankruptcies Continue
Japan General Estate Co. yesterday filed for bankruptcy as a lack of collateral prevented the developer from securing funding. It’s shares went untraded as orders to sell overwhelmed bids. Of six publicly traded companies that have filed for bankruptcy in Japan this year, three were in the real estate sector.
The collapse of the U.S. mortgage market triggered more than $1 trillion on credit losses and writedowns at global financial companies and tipped the world’s biggest economies into recession. With banks tightening lending, bankruptcies among Japan’s listed companies reached an annual postwar record last year, according to Tokyo Shoko Research Ltd.
Nikkei futures expiring in March added 2.3 percent to 8,110 in Osaka and gained 2.1 percent to 8,100 in Singapore.
Australia Central Bank Cuts Economic Growth Forecasts
Feb. 6 (Bloomberg) -- Australia’s central bank slashed its forecasts for economic growth and inflation and said interest rates at the lowest level in more than four decades will “provide significant stimulus” to offset weaker export demand.
Gross domestic product will rise 0.25 percent in the 12 months through June, according to the Reserve Bank of Australia, which in November predicted growth of 1.5 percent for the same period. GDP will gain 0.5 percent through 2009 and 2.5 percent next year, the bank said today in Sydney.
To ward off the nation’s first recession since 1991, Governor Glenn Stevens has slashed the benchmark lending rate by 400 basis points since early September to a 45-year low of 3.25 percent. The government is also working to boost domestic consumption by pledging A$42 billion ($27 billion) in handouts to families and for infrastructure.
“While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” the bank said in its quarterly policy statement.
Weaker economic growth and a slump in gasoline and commodity prices will slow inflation, which the bank aims to keep between 2 percent and 3 percent.
The consumer price index, which rose 3.7 percent in the fourth quarter, will climb 1.75 percent in the 12 months through June, compared with the bank’s November prediction of 3.25 percent, today’s statement said.
Currency, Bonds
The Australian dollar traded at 65.02 U.S. cents at 11:33 a.m. in Sydney from 64.98 cents before the statement was released. The two-year government bond yield rose 3 basis points, or 0.03 percentage point, to 2.74 percent.
“The international situation has deteriorated markedly over the past few months, and this is making for a more difficult environment for growth of the Australian economy,” the bank said. “In these circumstances, Australia’s inflation rate is likely to continue to decline.”
Almost all of Australia’s major trading partners, including China, Japan and the U.S., will experience growth rates of 2 percentage points or more below trend rates in 2009, the statement said. “This would represent the most synchronized downturn in Australia’s trading partners since the mid-1970s.”
Falling prices for resources, including coal and iron ore, will trigger a 20 percent drop between late 2008 and early 2010 in the nation’s terms of trade, a measure of earnings from exports, the bank said.
Boom Over
“Given the ongoing stresses in financial markets and the rapidity of the deterioration in the global situation in late 2008, it is possible that the world economy could weaken by more than has been assumed,” the statement said.
“A more rapid unwinding of the resources boom than has been assumed would have significant negative effects throughout the economy, resulting in softer growth in domestic incomes and spending.”
Even though there has been “significant stimulus” from the central bank’s recent interest-rate cuts and government spending, the nation’s jobless rate is forecast to “increase materially over the year ahead.”
Unemployment rose to a two-year high of 4.5 percent in December as companies such as miner BHP Billiton Ltd. and investment bank Macquarie Group Ltd. fired workers. Job cuts have eroded consumer confidence, demand for credit and house prices, recent reports show.
Household Spending
“Growth in household consumption spending is expected to remain subdued over much of the forecast period, given an expected weakening in employment” and a 10 percent drop in the net wealth of families, today’s statement said.
“However, the significant fiscal stimulus to households will provide support to consumption over the first half of 2009 and growth in spending is subsequently expected to gradually return to more normal rates,” the bank said.
Treasurer Wayne Swan said on Feb. 3 the government will spend A$12.7 billion on handouts to families and A$28.8 billion on infrastructure, sending the budget into its first deficit since 2001-2002.
The central bank’s policy makers have also responded to the threat of slower global and domestic growth by undertaking a “series of unusually large reductions in the cash rate,” including a one percentage point cut this week, the fifth since the start of September, today’s statement said.
“This has brought the monetary policy setting to a position that is providing significant stimulus to the economy, with the cash rate now well below its previous cyclical lows.”
Financial System
The Reserve Bank also said there is an “upside risk” to its reduced growth forecast if global policy makers are able to stabilize financial system to the point where growth in bank lending resumes and confidence gains.
“If so, when demand returns, production will pick up more quickly than in past cycles,” the statement said. “In such a scenario, a synchronized upturn in the world economy would be a distinct possibility.”
While the global financial system remains “under considerable strain, there have been some signs of an improvement in financial conditions recently,” the bank said.
“The extreme volatility that affected all markets in October and November” has abated in the past two months.
Gross domestic product will rise 0.25 percent in the 12 months through June, according to the Reserve Bank of Australia, which in November predicted growth of 1.5 percent for the same period. GDP will gain 0.5 percent through 2009 and 2.5 percent next year, the bank said today in Sydney.
To ward off the nation’s first recession since 1991, Governor Glenn Stevens has slashed the benchmark lending rate by 400 basis points since early September to a 45-year low of 3.25 percent. The government is also working to boost domestic consumption by pledging A$42 billion ($27 billion) in handouts to families and for infrastructure.
“While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” the bank said in its quarterly policy statement.
Weaker economic growth and a slump in gasoline and commodity prices will slow inflation, which the bank aims to keep between 2 percent and 3 percent.
The consumer price index, which rose 3.7 percent in the fourth quarter, will climb 1.75 percent in the 12 months through June, compared with the bank’s November prediction of 3.25 percent, today’s statement said.
Currency, Bonds
The Australian dollar traded at 65.02 U.S. cents at 11:33 a.m. in Sydney from 64.98 cents before the statement was released. The two-year government bond yield rose 3 basis points, or 0.03 percentage point, to 2.74 percent.
“The international situation has deteriorated markedly over the past few months, and this is making for a more difficult environment for growth of the Australian economy,” the bank said. “In these circumstances, Australia’s inflation rate is likely to continue to decline.”
Almost all of Australia’s major trading partners, including China, Japan and the U.S., will experience growth rates of 2 percentage points or more below trend rates in 2009, the statement said. “This would represent the most synchronized downturn in Australia’s trading partners since the mid-1970s.”
Falling prices for resources, including coal and iron ore, will trigger a 20 percent drop between late 2008 and early 2010 in the nation’s terms of trade, a measure of earnings from exports, the bank said.
Boom Over
“Given the ongoing stresses in financial markets and the rapidity of the deterioration in the global situation in late 2008, it is possible that the world economy could weaken by more than has been assumed,” the statement said.
“A more rapid unwinding of the resources boom than has been assumed would have significant negative effects throughout the economy, resulting in softer growth in domestic incomes and spending.”
Even though there has been “significant stimulus” from the central bank’s recent interest-rate cuts and government spending, the nation’s jobless rate is forecast to “increase materially over the year ahead.”
Unemployment rose to a two-year high of 4.5 percent in December as companies such as miner BHP Billiton Ltd. and investment bank Macquarie Group Ltd. fired workers. Job cuts have eroded consumer confidence, demand for credit and house prices, recent reports show.
Household Spending
“Growth in household consumption spending is expected to remain subdued over much of the forecast period, given an expected weakening in employment” and a 10 percent drop in the net wealth of families, today’s statement said.
“However, the significant fiscal stimulus to households will provide support to consumption over the first half of 2009 and growth in spending is subsequently expected to gradually return to more normal rates,” the bank said.
Treasurer Wayne Swan said on Feb. 3 the government will spend A$12.7 billion on handouts to families and A$28.8 billion on infrastructure, sending the budget into its first deficit since 2001-2002.
The central bank’s policy makers have also responded to the threat of slower global and domestic growth by undertaking a “series of unusually large reductions in the cash rate,” including a one percentage point cut this week, the fifth since the start of September, today’s statement said.
“This has brought the monetary policy setting to a position that is providing significant stimulus to the economy, with the cash rate now well below its previous cyclical lows.”
Financial System
The Reserve Bank also said there is an “upside risk” to its reduced growth forecast if global policy makers are able to stabilize financial system to the point where growth in bank lending resumes and confidence gains.
“If so, when demand returns, production will pick up more quickly than in past cycles,” the statement said. “In such a scenario, a synchronized upturn in the world economy would be a distinct possibility.”
While the global financial system remains “under considerable strain, there have been some signs of an improvement in financial conditions recently,” the bank said.
“The extreme volatility that affected all markets in October and November” has abated in the past two months.
Asian Stocks Advance on Weaker Yen, Obama Policy Speculation
Feb. 6 (Bloomberg) -- Asian stocks rose, led by technology companies and banks, as the weaker yen lifted earnings prospects for Japanese electronics makers and as investors speculated the U.S. will announce its plan to ease the financial crisis.
Canon Inc., which gets a third of its sales from the Americas, advanced 3.9 percent in Tokyo as the yen traded near a four-weak low. Mizuho Financial Group Inc. gained 2.9 percent after a U.S. Treasury official said President Barack Obama’s financial-recovery plan will be unveiled next week. BHP Billiton Ltd., Australia’s largest oil company, added 0.9 percent in Sydney after crude jumped to the highest in a week.
“The yen’s depreciation is something investors are pleased with, because the stronger local currency is one of the main reasons Japanese companies have had to cut forecasts,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said. “People here are eagerly waiting for details of the U.S.’s financial bailout.”
The MSCI Asia Pacific Index rose 0.5 percent to 82.96 at 10:17 a.m. in Tokyo, with five stocks rising for every two that fell. The gauge has fallen 7.4 percent in 2009, extending last year’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.
Japan’s Nikkei 225 Stock Average climbed 1.8 percent, while Australia’s S&P/ASX 200 Index rose 1.4 percent. All markets open for trading advanced. In New York, the Standard & Poor’s 500 Index gained 1.6 percent.
Government Guarantee
The collapse of the U.S. housing market triggered more than $1 trillion in credit-related losses and writedowns at global financial companies. With banks tightening lending, bankruptcies among Japan’s listed companies reached an annual postwar record last year, according to Tokyo Shoko Research Ltd.
A U.S. Treasury official yesterday said Secretary Timothy Geithner will make a speech on Feb. 9 and Obama will hold a news conference that will address the stimulus package.
In addition to sinking more public funds into major financial companies, the plan is likely to include guarantees for illiquid assets on bank balance sheets and a so-called bad bank that would buy toxic investments, people familiar with the matter have said.
Canon, which is expecting 160 billion yen ($1.7 billion) in profit this year, jumped 3.9 percent to 2,535 yen as the weaker yen boosted the value of overseas sales. The company said it loses 9.1 billion yen for every 1 yen gain against the dollar.
The Japanese currency fell against the dollar to as much as 92.25, the weakest level since Jan. 8, from 89.28 at the close of stock trading in Tokyo yesterday.
BHP added 0.9 percent to A$31.90. Crude oil gained 2.1 percent in New York yesterday to the highest settlement since Jan. 30. A report from the U.S. Energy Department showed fuel consumption increased.
Canon Inc., which gets a third of its sales from the Americas, advanced 3.9 percent in Tokyo as the yen traded near a four-weak low. Mizuho Financial Group Inc. gained 2.9 percent after a U.S. Treasury official said President Barack Obama’s financial-recovery plan will be unveiled next week. BHP Billiton Ltd., Australia’s largest oil company, added 0.9 percent in Sydney after crude jumped to the highest in a week.
“The yen’s depreciation is something investors are pleased with, because the stronger local currency is one of the main reasons Japanese companies have had to cut forecasts,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said. “People here are eagerly waiting for details of the U.S.’s financial bailout.”
The MSCI Asia Pacific Index rose 0.5 percent to 82.96 at 10:17 a.m. in Tokyo, with five stocks rising for every two that fell. The gauge has fallen 7.4 percent in 2009, extending last year’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.
Japan’s Nikkei 225 Stock Average climbed 1.8 percent, while Australia’s S&P/ASX 200 Index rose 1.4 percent. All markets open for trading advanced. In New York, the Standard & Poor’s 500 Index gained 1.6 percent.
Government Guarantee
The collapse of the U.S. housing market triggered more than $1 trillion in credit-related losses and writedowns at global financial companies. With banks tightening lending, bankruptcies among Japan’s listed companies reached an annual postwar record last year, according to Tokyo Shoko Research Ltd.
A U.S. Treasury official yesterday said Secretary Timothy Geithner will make a speech on Feb. 9 and Obama will hold a news conference that will address the stimulus package.
In addition to sinking more public funds into major financial companies, the plan is likely to include guarantees for illiquid assets on bank balance sheets and a so-called bad bank that would buy toxic investments, people familiar with the matter have said.
Canon, which is expecting 160 billion yen ($1.7 billion) in profit this year, jumped 3.9 percent to 2,535 yen as the weaker yen boosted the value of overseas sales. The company said it loses 9.1 billion yen for every 1 yen gain against the dollar.
The Japanese currency fell against the dollar to as much as 92.25, the weakest level since Jan. 8, from 89.28 at the close of stock trading in Tokyo yesterday.
BHP added 0.9 percent to A$31.90. Crude oil gained 2.1 percent in New York yesterday to the highest settlement since Jan. 30. A report from the U.S. Energy Department showed fuel consumption increased.
Wednesday, February 4, 2009
British industries face emissions clampdown
Most industries will have to cut their emissions to a 10th of their current level by 2050 to meet the government’s climate change targets, according to forecasts by Gordon Brown’s Committee on Climate Change.
The UK has signed up to an 80 per cent cut in greenhouse gas emissions by 2050 compared with 1990 levels, a move welcomed by environmentalists.
EDITOR’S CHOICE
Tories ‘look both ways’ and lose Heathrow vote - Jan-29
Watchdog casts doubt on third runway - Jan-26
Europe tells poor nations to curb emissions - Jan-28
But plans to expand Heathrow airport and maintain aviation at its recent levels would mean the rest of industrial Britain having to cut emissions even further; by almost 90 per cent.
Lord Adair Turner, chairman of the CCC, told a Commons committee on Wednesday morning that it was logical to cut emissions where it was “easier” and there were alternatives.
“If it is more feasible to reduce emissions by 95 per cent in electricity generation and by 0 per cent in aviation than 80 per cent for both, it is a better deal for society to have 95 and 0,” he told the environmental audit committee.
Lord Turner said that there would be similar issues with agriculture, where it would be very hard to cut emissions.
The climate change committee has been asked to examine how aviation emissions can be limited to below their 2005 levels by 2050.
Even this would mean all other sectors of the economy having to reduce emissions by an average of 89 per cent, according to its December report on tackling climate change. The same report acknowledges the danger that “unconstrained” emissions from aircraft could make required reductions from other sectors “impossibly large”.
Tim Yeo, chairman of the environmental audit committee, said other sectors would have to work much harder in cutting emissions to allow aviation to hit its less stringent target. “It is a quite optimistic view given the government’s present policies,” he said.
Anita Goldsmith, a campaigner for Greenpeace, said the Heathrow decision would have “severe and unacceptable consequences” for the rest of industry.
“While all other sectors will be making major structural changes in order to reach our overall target of an 80 per cent cut in CO2 emissions, airlines and airport operators will continue to profit,” she said.
The government believes airlines will become more efficient in the coming years, meaning that aviation will contribute less to pollution.
But Greenpeace estimates that Heathrow’s emissions will reach 17.7m tonnes of CO2 by 2050 – 15 per cent of the UK’s entire carbon budget – even if aircraft become more efficient by 1 per cent a year.
Norman Baker, transport spokesman for the Liberal Democrats, said the “supine” Department for Transport had bowed to lobbying by BAA, Heathrow’s owner.
“This means that the rest of industry, which already has significant challenges ahead, will have have to move even further to reach the target. I don’t think this is feasible with present technology where it is, it is a step too far,” said Mr Baker.
The Federation of Small Businesses said its members wanted to cut their climate emissions but needed more free advice from the government on how to do so.
Lord Turner said on Wednesday morning that the government faced challenges in meeting renewables targets because wind energy companies and others would face trouble raising finance in the current economic climate.
Meanwhile Boris Johnson, London mayor, has suspended the third phase of the low emission zone, designed to improve London’s air quality, on the basis it would have damaged small businesses.
The UK has signed up to an 80 per cent cut in greenhouse gas emissions by 2050 compared with 1990 levels, a move welcomed by environmentalists.
EDITOR’S CHOICE
Tories ‘look both ways’ and lose Heathrow vote - Jan-29
Watchdog casts doubt on third runway - Jan-26
Europe tells poor nations to curb emissions - Jan-28
But plans to expand Heathrow airport and maintain aviation at its recent levels would mean the rest of industrial Britain having to cut emissions even further; by almost 90 per cent.
Lord Adair Turner, chairman of the CCC, told a Commons committee on Wednesday morning that it was logical to cut emissions where it was “easier” and there were alternatives.
“If it is more feasible to reduce emissions by 95 per cent in electricity generation and by 0 per cent in aviation than 80 per cent for both, it is a better deal for society to have 95 and 0,” he told the environmental audit committee.
Lord Turner said that there would be similar issues with agriculture, where it would be very hard to cut emissions.
The climate change committee has been asked to examine how aviation emissions can be limited to below their 2005 levels by 2050.
Even this would mean all other sectors of the economy having to reduce emissions by an average of 89 per cent, according to its December report on tackling climate change. The same report acknowledges the danger that “unconstrained” emissions from aircraft could make required reductions from other sectors “impossibly large”.
Tim Yeo, chairman of the environmental audit committee, said other sectors would have to work much harder in cutting emissions to allow aviation to hit its less stringent target. “It is a quite optimistic view given the government’s present policies,” he said.
Anita Goldsmith, a campaigner for Greenpeace, said the Heathrow decision would have “severe and unacceptable consequences” for the rest of industry.
“While all other sectors will be making major structural changes in order to reach our overall target of an 80 per cent cut in CO2 emissions, airlines and airport operators will continue to profit,” she said.
The government believes airlines will become more efficient in the coming years, meaning that aviation will contribute less to pollution.
But Greenpeace estimates that Heathrow’s emissions will reach 17.7m tonnes of CO2 by 2050 – 15 per cent of the UK’s entire carbon budget – even if aircraft become more efficient by 1 per cent a year.
Norman Baker, transport spokesman for the Liberal Democrats, said the “supine” Department for Transport had bowed to lobbying by BAA, Heathrow’s owner.
“This means that the rest of industry, which already has significant challenges ahead, will have have to move even further to reach the target. I don’t think this is feasible with present technology where it is, it is a step too far,” said Mr Baker.
The Federation of Small Businesses said its members wanted to cut their climate emissions but needed more free advice from the government on how to do so.
Lord Turner said on Wednesday morning that the government faced challenges in meeting renewables targets because wind energy companies and others would face trouble raising finance in the current economic climate.
Meanwhile Boris Johnson, London mayor, has suspended the third phase of the low emission zone, designed to improve London’s air quality, on the basis it would have damaged small businesses.
Satyam prompts takeover rule move
India plans to ease takeover rules for “abnormal cases” in a move that could ease the sale of Satyam Computer Services, which has been snared in India’s biggest corporate scandal.
The Securities and Exchange Board of India (Sebi) said on Monday it would set new guidelines and amend existing rules which force an investor who has acquired 15 per cent of a company to make an open offer for an extra 20 per cent at a six-month average share price.
EDITOR’S CHOICE
Satyam suitors warned over risks of purchase - Feb-01
Satyam auditors face collusion claims - Jan-29
PwC chief in India as Satyam probe widens - Jan-27
PwC staff detained in Satyam probe - Jan-25
Business Life: Outsourcing clients on the lookout - Jan-22
Details of alleged Satyam fraud emerge - Jan-22
The relaxation of the rules would make Satyam more attractive to an acquirer.
The average share price of the IT outsourcing group has been about Rs40 ($0.82) since its then-chairman B. Ramalinga Raju confessed last month to manipulating the group’s books. This compares with the Rs255 level which would be the average price under the current takeover rules.
Larsen & Toubro, the Indian engineering group, has become the front runner to take over the company. It recently trebled its stake in Satyam to 12 per cent.
“Sebi has moved in the right direction, but we will have to see at what price it sets the open offer…L&T thinks something between Rs50 and Rs40 would be fair. At that point it would make a move on Satyam,” said a person close to the engineering company.
C.B. Bhave, Sebi’s chairman said: “We will amend our regulations through guidelines to enable a transparent process for arriving at a price in case of such acquisitions.”
Under the new rules, the period over which the price is calculated is likely to be shorter, to give a company that has been hit by a scandal a fairer price, said analysts.
Sebi’s proposed amendments followed a request from Satyam’s government-appointed board to ease the open offer pricing rules.
“If Sebi decided not to introduce some changes to the takeover rules then nobody would make an offer for the company, it would be simply over priced,” said Vinay Agrawal, executive director at Angel Broking.
Satyam’s overall market value has dropped to about $800m from $7bn in May last year.
Other companies that have shown interest in Satyam are Spice Group, the Indian conglomerate headed by BK Modi, Hinduja Global Solutions, the IT arm of the Hinduja conglomerate, and iGate, the US-based outsourcer.
Satyam shares closed up 6.6 per cent on Monday at Rs57.60 on the Bombay Stock Exchange.
The Securities and Exchange Board of India (Sebi) said on Monday it would set new guidelines and amend existing rules which force an investor who has acquired 15 per cent of a company to make an open offer for an extra 20 per cent at a six-month average share price.
EDITOR’S CHOICE
Satyam suitors warned over risks of purchase - Feb-01
Satyam auditors face collusion claims - Jan-29
PwC chief in India as Satyam probe widens - Jan-27
PwC staff detained in Satyam probe - Jan-25
Business Life: Outsourcing clients on the lookout - Jan-22
Details of alleged Satyam fraud emerge - Jan-22
The relaxation of the rules would make Satyam more attractive to an acquirer.
The average share price of the IT outsourcing group has been about Rs40 ($0.82) since its then-chairman B. Ramalinga Raju confessed last month to manipulating the group’s books. This compares with the Rs255 level which would be the average price under the current takeover rules.
Larsen & Toubro, the Indian engineering group, has become the front runner to take over the company. It recently trebled its stake in Satyam to 12 per cent.
“Sebi has moved in the right direction, but we will have to see at what price it sets the open offer…L&T thinks something between Rs50 and Rs40 would be fair. At that point it would make a move on Satyam,” said a person close to the engineering company.
C.B. Bhave, Sebi’s chairman said: “We will amend our regulations through guidelines to enable a transparent process for arriving at a price in case of such acquisitions.”
Under the new rules, the period over which the price is calculated is likely to be shorter, to give a company that has been hit by a scandal a fairer price, said analysts.
Sebi’s proposed amendments followed a request from Satyam’s government-appointed board to ease the open offer pricing rules.
“If Sebi decided not to introduce some changes to the takeover rules then nobody would make an offer for the company, it would be simply over priced,” said Vinay Agrawal, executive director at Angel Broking.
Satyam’s overall market value has dropped to about $800m from $7bn in May last year.
Other companies that have shown interest in Satyam are Spice Group, the Indian conglomerate headed by BK Modi, Hinduja Global Solutions, the IT arm of the Hinduja conglomerate, and iGate, the US-based outsourcer.
Satyam shares closed up 6.6 per cent on Monday at Rs57.60 on the Bombay Stock Exchange.
Obama Orders Pay Limits at Banks Getting Future Aid
Feb. 4 (Bloomberg) -- President Barack Obama called bonus payouts at banks getting rescue funds “shameful” as he and Treasury Secretary Timothy Geithner announced the government will require financial companies getting aid in the future to cap compensation of top officials at $500,000 a year.
“To restore our financial system, we’ve got to restore trust,” Obama said at the White House as he set out new rules for companies that seek “exceptional” assistance from the Treasury. “And in order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.”
Geithner said the economic crisis has been “made worse by a loss in faith” in the judgments of executives.
“There is a deep sense across the country that those who are not responsible for this crisis are bearing a greater burden than those who were,” he said, adding that he will outline a “comprehensive” program for stabilizing the financial system next week.
Obama also urged Congress to finish work on economic stimulus legislation, saying that a failure to act “will turn crisis into a catastrophe and guarantee a longer recession.”
Congressional Support
The new conditions won support from Democrats and Republicans in Congress, who say they’ve been getting angry calls and mail from constituents over bonuses paid to bankers being rescued by the government. Several lawmakers said they may pursue even greater restrictions.
“If anyone is looking for the taxpayer to help bail their company out, these type of executive pay caps are appropriate,” House Republican leader John Boehner said.
Democrat Christopher Dodd, chairman of the Senate Banking Committee, said reports about executive pay and bonuses are “infuriating” the public.
“Americans understand a lot of things about this whole process, but one of the things they don’t understand is how it is their money is going to institutions that are simultaneously rewarding executives with outrageously big levels of compensation,” he said.
Senator Claire McCaskill, a Missouri Democrat who proposed legislation last week to cap executive compensation at $400,000 a year, said today that Obama “is on the right track.” She said she still will try to attach her proposal to the economic stimulus legislation being debated in the Senate.
‘Right Direction’
Representative Adam Putnam, a Florida Republican, said Obama’s action is “a step in the right direction.” He called the $500,000 limit “a good start; it may need to be lower.”
While executive pay would be limited under the administration’s plan, there are provisions that would allow additional compensation in the form of restricted stock that can’t be sold until taxpayers have been paid back with interest. Senior executive compensation plans also must be submitted to a non-binding shareholder resolution.
The compensation cap may be waived for companies getting aid through what the administration terms “generally available capital access programs,” through full public disclosure and submission of a resolution to shareholders if requested.
Companies also must have in place provisions to reclaim, or “claw back,” bonuses and incentives from the top 25 senior executives if they are found to engage in deceptive practices.
Golden Parachutes
The terms announced today also expand the ban on “golden parachute” severance packages to a company’s top 10 executives from five in existing programs. In addition, the next 25 executives would be prohibited from getting severance greater than one year’s compensation.
The rules won’t be applied retroactively to companies that already have received “exceptional” aid from the Treasury Department through the $700 billion Troubled Asset Relief Program, such as Citigroup Inc. and American International Group Inc. The limits would be applied if those companies seek a fresh round of assistance.
The restrictions are aimed at top executives who make decisions for the company, according to an administration official who briefed reporters after the president spoke. The $500,000 limit was arrived at based on language in the original TARP legislation and tax law, the official said.
The number of executives covered by the compensation limit would be determined on a case-by-case basis and set out in a contract for the aid.
Disclosure Requirements
The administration also is imposing conditions that it says would force companies to disclose more about expenses such as corporate jets, office renovations, entertainment and holiday parties.
White House press secretary Robert Gibbs said such “‘name and shame’ provisions” would have as much impact as regulations on correcting corporate behavior.
He cited the publicity and subsequent outcry that caused Citigroup’s retreat on the purchase of a $50 million corporate jet and by Wells Fargo & Co. to cancel a four-day event in Las Vegas. Citigroup got $45 billion through TARP and Wells Fargo received $25 billion.
While TARP is directed primarily at financial firms, the restrictions would apply to any company that seeks new government aid. That includes automakers General Motors Corp. and Chrysler LLC, which were approved for a total of $17.4 billion in loans from TARP funds in December, the official, who spoke on condition of anonymity, said. That contract set out limits on compensation and the new restrictions would apply only if they seek assistance again.
Bonus Report
Outrage among the public and lawmakers has been building since October, when Congress passed the rescue plan for financial firms. Lawmakers complained that the $350 billion first half of the fund was doled out with little public accounting of how the money was spent. A New York state comptroller report that $18.4 billion in bonuses were paid to Wall Street executives and employees as the U.S. sank into a recession further inflamed Americans.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president,” Obama said.
The compensation restrictions announced today are part of a wider White House plan to overhaul rules governing the remaining $350 billion in TARP money, free up credit markets and tighten regulation of financial markets.
New Strategy
Geithner said he would outline a strategy next week. He met privately with House and Senate Democratic leaders at the Capitol this afternoon.
On Wall Street, there is concern that compensation curbs would hinder a company’s ability to attract top-notch employees, and that would lead to a talent drain, Meredith Whitney, an analyst at Oppenheimer & Co., said on Bloomberg Television.
“If you cap compensation, the best and the brightest are still going to figure out a way to make money, and it may not be on Wall Street,” Whitney said.
William Cohan, a former investment banker at Lazard Ltd. and JPMorgan and author of “The Last Tycoons” about Lazard, disputed that notion.
“What do they do? They push paper around,” Cohan said, “Where else can you get paid $500,000 to do that?”
Measuring Performance
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it’s wrong for politicians to criticize Wall Street pay without differentiating between companies where compensation is commensurate with performance.
“It’s unfair to talk about us as one,” Dimon, who was paid $1 million last year and didn’t accept a bonus, said at a conference in New York. “Not every company was responsible.”
Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. awarded their employees a cumulative $145 billion in bonuses from 2003 through 2007, according to estimates based on company reports.
That is more than the annual gross domestic product of the Philippines. Lehman has since gone bankrupt, while Bear Stearns and Merrill have been taken over by commercial banks.
Wall Street firms’ pay has traditionally been tied to performance of the companies. As the bonus portion of employees’ pay has grown, many started to expect it regardless of performance. Some employees have been receiving incentives “for basically turning up,” Barclays Plc Chairman Marcus Agius said last week at the World Economic Forum in Davos.
As the public outcry over Wall Street pay escalated, top executives at Morgan Stanley, Bank of America Corp., Goldman Sachs and Citigroup have agreed to forgo bonuses. Governments in the U.K., Switzerland and France have pressured banks, including UBS AG and Royal Bank of Scotland Group Plc to limit executive pay after taxpayer-funded bailouts.
“To restore our financial system, we’ve got to restore trust,” Obama said at the White House as he set out new rules for companies that seek “exceptional” assistance from the Treasury. “And in order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.”
Geithner said the economic crisis has been “made worse by a loss in faith” in the judgments of executives.
“There is a deep sense across the country that those who are not responsible for this crisis are bearing a greater burden than those who were,” he said, adding that he will outline a “comprehensive” program for stabilizing the financial system next week.
Obama also urged Congress to finish work on economic stimulus legislation, saying that a failure to act “will turn crisis into a catastrophe and guarantee a longer recession.”
Congressional Support
The new conditions won support from Democrats and Republicans in Congress, who say they’ve been getting angry calls and mail from constituents over bonuses paid to bankers being rescued by the government. Several lawmakers said they may pursue even greater restrictions.
“If anyone is looking for the taxpayer to help bail their company out, these type of executive pay caps are appropriate,” House Republican leader John Boehner said.
Democrat Christopher Dodd, chairman of the Senate Banking Committee, said reports about executive pay and bonuses are “infuriating” the public.
“Americans understand a lot of things about this whole process, but one of the things they don’t understand is how it is their money is going to institutions that are simultaneously rewarding executives with outrageously big levels of compensation,” he said.
Senator Claire McCaskill, a Missouri Democrat who proposed legislation last week to cap executive compensation at $400,000 a year, said today that Obama “is on the right track.” She said she still will try to attach her proposal to the economic stimulus legislation being debated in the Senate.
‘Right Direction’
Representative Adam Putnam, a Florida Republican, said Obama’s action is “a step in the right direction.” He called the $500,000 limit “a good start; it may need to be lower.”
While executive pay would be limited under the administration’s plan, there are provisions that would allow additional compensation in the form of restricted stock that can’t be sold until taxpayers have been paid back with interest. Senior executive compensation plans also must be submitted to a non-binding shareholder resolution.
The compensation cap may be waived for companies getting aid through what the administration terms “generally available capital access programs,” through full public disclosure and submission of a resolution to shareholders if requested.
Companies also must have in place provisions to reclaim, or “claw back,” bonuses and incentives from the top 25 senior executives if they are found to engage in deceptive practices.
Golden Parachutes
The terms announced today also expand the ban on “golden parachute” severance packages to a company’s top 10 executives from five in existing programs. In addition, the next 25 executives would be prohibited from getting severance greater than one year’s compensation.
The rules won’t be applied retroactively to companies that already have received “exceptional” aid from the Treasury Department through the $700 billion Troubled Asset Relief Program, such as Citigroup Inc. and American International Group Inc. The limits would be applied if those companies seek a fresh round of assistance.
The restrictions are aimed at top executives who make decisions for the company, according to an administration official who briefed reporters after the president spoke. The $500,000 limit was arrived at based on language in the original TARP legislation and tax law, the official said.
The number of executives covered by the compensation limit would be determined on a case-by-case basis and set out in a contract for the aid.
Disclosure Requirements
The administration also is imposing conditions that it says would force companies to disclose more about expenses such as corporate jets, office renovations, entertainment and holiday parties.
White House press secretary Robert Gibbs said such “‘name and shame’ provisions” would have as much impact as regulations on correcting corporate behavior.
He cited the publicity and subsequent outcry that caused Citigroup’s retreat on the purchase of a $50 million corporate jet and by Wells Fargo & Co. to cancel a four-day event in Las Vegas. Citigroup got $45 billion through TARP and Wells Fargo received $25 billion.
While TARP is directed primarily at financial firms, the restrictions would apply to any company that seeks new government aid. That includes automakers General Motors Corp. and Chrysler LLC, which were approved for a total of $17.4 billion in loans from TARP funds in December, the official, who spoke on condition of anonymity, said. That contract set out limits on compensation and the new restrictions would apply only if they seek assistance again.
Bonus Report
Outrage among the public and lawmakers has been building since October, when Congress passed the rescue plan for financial firms. Lawmakers complained that the $350 billion first half of the fund was doled out with little public accounting of how the money was spent. A New York state comptroller report that $18.4 billion in bonuses were paid to Wall Street executives and employees as the U.S. sank into a recession further inflamed Americans.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president,” Obama said.
The compensation restrictions announced today are part of a wider White House plan to overhaul rules governing the remaining $350 billion in TARP money, free up credit markets and tighten regulation of financial markets.
New Strategy
Geithner said he would outline a strategy next week. He met privately with House and Senate Democratic leaders at the Capitol this afternoon.
On Wall Street, there is concern that compensation curbs would hinder a company’s ability to attract top-notch employees, and that would lead to a talent drain, Meredith Whitney, an analyst at Oppenheimer & Co., said on Bloomberg Television.
“If you cap compensation, the best and the brightest are still going to figure out a way to make money, and it may not be on Wall Street,” Whitney said.
William Cohan, a former investment banker at Lazard Ltd. and JPMorgan and author of “The Last Tycoons” about Lazard, disputed that notion.
“What do they do? They push paper around,” Cohan said, “Where else can you get paid $500,000 to do that?”
Measuring Performance
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it’s wrong for politicians to criticize Wall Street pay without differentiating between companies where compensation is commensurate with performance.
“It’s unfair to talk about us as one,” Dimon, who was paid $1 million last year and didn’t accept a bonus, said at a conference in New York. “Not every company was responsible.”
Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. awarded their employees a cumulative $145 billion in bonuses from 2003 through 2007, according to estimates based on company reports.
That is more than the annual gross domestic product of the Philippines. Lehman has since gone bankrupt, while Bear Stearns and Merrill have been taken over by commercial banks.
Wall Street firms’ pay has traditionally been tied to performance of the companies. As the bonus portion of employees’ pay has grown, many started to expect it regardless of performance. Some employees have been receiving incentives “for basically turning up,” Barclays Plc Chairman Marcus Agius said last week at the World Economic Forum in Davos.
As the public outcry over Wall Street pay escalated, top executives at Morgan Stanley, Bank of America Corp., Goldman Sachs and Citigroup have agreed to forgo bonuses. Governments in the U.K., Switzerland and France have pressured banks, including UBS AG and Royal Bank of Scotland Group Plc to limit executive pay after taxpayer-funded bailouts.
Sri Lanka Seeks to Boost Stock Trading With India
Feb. 5 (Bloomberg) -- Sri Lanka, whose benchmark stock index surged 20 percent this year on prospects the nation’s civil war may be ending, is in talks to form an alliance with an Indian equity market to help bolster trading.
Regulators aim to start trading in derivatives by the end of the year, Channa de Silva, director general of the nation’s Securities and Exchange Commission, said in an interview. Sri Lanka also may offer a stake in the island-nation’s bourse to the National Stock Exchange of India Ltd., de Silva said.
Sri Lanka’s $5.2 billion exchange, Asia’s smallest, is counting on an end to the 26-year civil war to draw back investors to its $32 billion tea and textile-exporting economy. President Mahinda Rajapaksa said in his Independence Day speech yesterday that the country will defeat the rebel Liberation Tigers of Tamil Eelam within “a few days.”
“The conflict is on the verge of ending, and that will result in huge economic potential,” de Silva said in a telephone interview yesterday. “Sri Lanka is so small, even if it gets $10 billion, this market will just run, and this amount is petty cash for foreign investors.”
The National Stock Exchange said in an e-mail that it wouldn’t comment.
‘Good Quality Companies’
The gains in Sri Lanka’s benchmark index, the best performer this year among 90 tracked by Bloomberg, came as a military offensive drove Tamil rebels to an area less than 300 square kilometers (120 square miles) in the northeast. Daily trading during the rally was 132.2 million rupees ($1.2 million), less than a third of the average over the previous three years.
“Sri Lanka has a number of good-quality companies, it has fantastic natural resources with everything from tourism, tea plantations, and ports and logistics potential,” said David Gait, a fund manager at First State Investment Management Ltd., which manages $15 billion in emerging market equities. “Still, it sits on the higher risk spectrum among emerging markets.”
Gait said by phone yesterday his funds remain invested in Sri Lankan companies including John Keells Holdings Ltd., which has the third-highest weighting on the key index, and has no immediate decision on adding to those holdings.
The rally in Sri Lanka so far has drawn mainly local investors and funds, said Gavin D’Rosairo, who oversees assets worth 24 billion Sri Lankan rupees ($210 million) at Eagle NDB Fund Management Co., one of the nation’s largest money managers. That raises the concern that the rally will falter as signs of slowing economic growth overwhelm optimism spurred by the government’s victories in the civil war.
‘Set to Implode’
“Even if large-scale military confrontations end soon, the economy is set to implode from the impact of the global recession on exports,” Sisira Jayasuriya, a professor of economics and Sri Lanka specialist at La Trobe University in Melbourne, said in an interview Jan. 30. “Business confidence is at rock-bottom.”
Gross domestic product expanded 6.3 percent in the quarter ended September, down from 7 percent in the previous three months, on falling exports of tea, rubber and textiles, the statistics department said Dec. 16. The economy will expand by between 5 percent and 5.5 percent this year, according to central bank estimates.
Boutique hotel operators including Pegasus Hotels of Ceylon Ltd. and Eden Hotel Lanka Ltd. are among the 10 biggest gainers this year. Dialog Telekom Ltd., the nation’s largest mobile- phone company and a unit of Malaysia’s TM International Bhd., and Tokyo Cement Co., partly owned by Japan’s Mitsui Mining Co., are among the largest decliners.
Cushioning the Recession
The country also unveiled a 16 billion-rupee stimulus package on Dec. 31 to help ease the economic crunch. The expected spending after the war boosted shares of construction- related stocks, including Lanka Cement Plc, which doubled this year, and Alufab Ltd., which gained 90 percent.
“A chunk of the budget could be spent on rebuilding the country, the north in particular, which economically could cushion the effects of a global recession,” said Hugh Young, managing director at Aberdeen Asset Managers Ltd.’s Asian unit, which oversees $37.3 billion, including Sri Lankan shares. “All that, at the moment, is rather wishful thinking.”
Regulators aim to start trading in derivatives by the end of the year, Channa de Silva, director general of the nation’s Securities and Exchange Commission, said in an interview. Sri Lanka also may offer a stake in the island-nation’s bourse to the National Stock Exchange of India Ltd., de Silva said.
Sri Lanka’s $5.2 billion exchange, Asia’s smallest, is counting on an end to the 26-year civil war to draw back investors to its $32 billion tea and textile-exporting economy. President Mahinda Rajapaksa said in his Independence Day speech yesterday that the country will defeat the rebel Liberation Tigers of Tamil Eelam within “a few days.”
“The conflict is on the verge of ending, and that will result in huge economic potential,” de Silva said in a telephone interview yesterday. “Sri Lanka is so small, even if it gets $10 billion, this market will just run, and this amount is petty cash for foreign investors.”
The National Stock Exchange said in an e-mail that it wouldn’t comment.
‘Good Quality Companies’
The gains in Sri Lanka’s benchmark index, the best performer this year among 90 tracked by Bloomberg, came as a military offensive drove Tamil rebels to an area less than 300 square kilometers (120 square miles) in the northeast. Daily trading during the rally was 132.2 million rupees ($1.2 million), less than a third of the average over the previous three years.
“Sri Lanka has a number of good-quality companies, it has fantastic natural resources with everything from tourism, tea plantations, and ports and logistics potential,” said David Gait, a fund manager at First State Investment Management Ltd., which manages $15 billion in emerging market equities. “Still, it sits on the higher risk spectrum among emerging markets.”
Gait said by phone yesterday his funds remain invested in Sri Lankan companies including John Keells Holdings Ltd., which has the third-highest weighting on the key index, and has no immediate decision on adding to those holdings.
The rally in Sri Lanka so far has drawn mainly local investors and funds, said Gavin D’Rosairo, who oversees assets worth 24 billion Sri Lankan rupees ($210 million) at Eagle NDB Fund Management Co., one of the nation’s largest money managers. That raises the concern that the rally will falter as signs of slowing economic growth overwhelm optimism spurred by the government’s victories in the civil war.
‘Set to Implode’
“Even if large-scale military confrontations end soon, the economy is set to implode from the impact of the global recession on exports,” Sisira Jayasuriya, a professor of economics and Sri Lanka specialist at La Trobe University in Melbourne, said in an interview Jan. 30. “Business confidence is at rock-bottom.”
Gross domestic product expanded 6.3 percent in the quarter ended September, down from 7 percent in the previous three months, on falling exports of tea, rubber and textiles, the statistics department said Dec. 16. The economy will expand by between 5 percent and 5.5 percent this year, according to central bank estimates.
Boutique hotel operators including Pegasus Hotels of Ceylon Ltd. and Eden Hotel Lanka Ltd. are among the 10 biggest gainers this year. Dialog Telekom Ltd., the nation’s largest mobile- phone company and a unit of Malaysia’s TM International Bhd., and Tokyo Cement Co., partly owned by Japan’s Mitsui Mining Co., are among the largest decliners.
Cushioning the Recession
The country also unveiled a 16 billion-rupee stimulus package on Dec. 31 to help ease the economic crunch. The expected spending after the war boosted shares of construction- related stocks, including Lanka Cement Plc, which doubled this year, and Alufab Ltd., which gained 90 percent.
“A chunk of the budget could be spent on rebuilding the country, the north in particular, which economically could cushion the effects of a global recession,” said Hugh Young, managing director at Aberdeen Asset Managers Ltd.’s Asian unit, which oversees $37.3 billion, including Sri Lankan shares. “All that, at the moment, is rather wishful thinking.”
Asian Stocks Fall on Renewed Recession Concern; Qantas Slumps
Feb. 5 (Bloomberg) -- Asian stocks fell for the first time in three days as reduced earnings forecasts in Japan and share sales in Australia fueled concerns that the global recession is deepening.
Casio Computer Co., the maker of G-Shock watches, slumped 6 percent after cutting its earnings forecasts. Qantas Airways Ltd., Australia’s largest airline, and developer Lend Lease Corp. slumped more than 16 percent in Sydney after selling stock at discounts to bolster their balance sheets.
“The global recession continues to weigh on investor sentiment,” Mitsushige Akino, who oversees $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index dipped 0.3 percent to 82.92 as of 10:35 a.m. in Tokyo, with two stocks declining for each one that fell. Japan’s Nikkei 225 Stock Average dropped 1.2 percent, while Australia’s S&P/ASX 200 Index lost 0.3 percent.
Futures on the Standard & Poor’s 500 Index fell 0.7 as Cisco Systems Inc., the largest maker of networking equipment, forecast sales that missed analyst estimates. The gauge dropped 0.8 percent yesterday after disappointing earnings at Kraft Foods Inc. and Walt Disney Co.
Casio dropped 6 percent to 648 yen. Net income is projected to fall 88 percent to 1.5 billion yen ($17 million) in the year ending March 31, less than the company’s earlier forecast of 13.5 billion yen.
A decline in demand and anticipated “greater setbacks” in the global economy led the company to cut its outlook, Tokyo- based Casio said yesterday after the market closed.
“There has been a massive downward revision to earnings estimates, and that’s a very difficult headwind for the market to have to face,” said Mark Freeman, a portfolio manager at Westwood Management Corp., which oversees $7.5 billion in Dallas.
Qantas plunged 17 to A$1.89 in Sydney. It sold A$500 million ($321 million) new shares at a 19 percent discount.
Lend Lease, the developer involved in building London’s Olympic Village, tumbled 17 percent after raising A$302.5 million selling shares at an 11 percent discount.
Casio Computer Co., the maker of G-Shock watches, slumped 6 percent after cutting its earnings forecasts. Qantas Airways Ltd., Australia’s largest airline, and developer Lend Lease Corp. slumped more than 16 percent in Sydney after selling stock at discounts to bolster their balance sheets.
“The global recession continues to weigh on investor sentiment,” Mitsushige Akino, who oversees $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index dipped 0.3 percent to 82.92 as of 10:35 a.m. in Tokyo, with two stocks declining for each one that fell. Japan’s Nikkei 225 Stock Average dropped 1.2 percent, while Australia’s S&P/ASX 200 Index lost 0.3 percent.
Futures on the Standard & Poor’s 500 Index fell 0.7 as Cisco Systems Inc., the largest maker of networking equipment, forecast sales that missed analyst estimates. The gauge dropped 0.8 percent yesterday after disappointing earnings at Kraft Foods Inc. and Walt Disney Co.
Casio dropped 6 percent to 648 yen. Net income is projected to fall 88 percent to 1.5 billion yen ($17 million) in the year ending March 31, less than the company’s earlier forecast of 13.5 billion yen.
A decline in demand and anticipated “greater setbacks” in the global economy led the company to cut its outlook, Tokyo- based Casio said yesterday after the market closed.
“There has been a massive downward revision to earnings estimates, and that’s a very difficult headwind for the market to have to face,” said Mark Freeman, a portfolio manager at Westwood Management Corp., which oversees $7.5 billion in Dallas.
Qantas plunged 17 to A$1.89 in Sydney. It sold A$500 million ($321 million) new shares at a 19 percent discount.
Lend Lease, the developer involved in building London’s Olympic Village, tumbled 17 percent after raising A$302.5 million selling shares at an 11 percent discount.
Tuesday, February 3, 2009
One crore jobs may be lost Labour Intensive Industries Feared Taking The Hit
New Delhi: Ahead of general elections, massive job cuts in labour-intensive industries are giving UPA government the heebie-jeebies. Exports for January have nosedived by 22% and projections indicate that up to one crore persons could lose jobs in the current fiscal ending March.
The export sector data flowing in has increased pressure on the government which has been trying to spur domestic demand to offset decline in overseas orders ever since the global economic slowdown kicked in around September last year. Based on order books, industry inputs predicted a crore of job losses, an estimate that has worried the government.
Aware that the economy might become an election issue, Congress’s draft manifesto has promised greater employment and populist schemes. If the bad news of the economy gets worse, these claims will sound less than convincing. Ficci found that faced with a slump and piled up inventories, industries like textiles, garments, chemicals and gems and jewellery had cut production by 10-50%.
The commerce ministry, through surveys carried out by its own field officials recently, found over one lakh people had already lost jobs up to January 15 in just the 400 units examined. The one crore figure has been compiled by the Federation of Indian Export Organisations which says it has carried out an intensive survey. Ajai Sahai, director general of Fieo, told TOI that textile, garments and handicraft sectors were the worst affected.
The export sector data flowing in has increased pressure on the government which has been trying to spur domestic demand to offset decline in overseas orders ever since the global economic slowdown kicked in around September last year. Based on order books, industry inputs predicted a crore of job losses, an estimate that has worried the government.
Aware that the economy might become an election issue, Congress’s draft manifesto has promised greater employment and populist schemes. If the bad news of the economy gets worse, these claims will sound less than convincing. Ficci found that faced with a slump and piled up inventories, industries like textiles, garments, chemicals and gems and jewellery had cut production by 10-50%.
The commerce ministry, through surveys carried out by its own field officials recently, found over one lakh people had already lost jobs up to January 15 in just the 400 units examined. The one crore figure has been compiled by the Federation of Indian Export Organisations which says it has carried out an intensive survey. Ajai Sahai, director general of Fieo, told TOI that textile, garments and handicraft sectors were the worst affected.
Getting home loans still not easy
New Delhi: Despite interest rates easing, people are still finding it difficult to take a home loan. Reason: Banks now insist that borrowers need to contribute 20-30% of the value of the property upfront, instead of 10-15% earlier.
As the finance proportion of the banks has come down from 85-90% of the property value to 70-80%, borrowers (mainly the younger lot) are finding it difficult to go for a home loan. SBI, which has brought down its home loan rate to 8%, lends only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. If the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. Punjab National Bank (PNB) lends 75% of the loan for a property of above Rs 20 lakh. Other PSU banks like Union Bank and UCO Bank also lend only up to 80% of the value of the house. Private sector banks like ICICI Bank ask for 20-30% buyer’s contribution while giving a home loan.
The average price of a three-bed room apartment in metros like Mumbai, Delhi/NCR and Bangalore is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. So, the buyer’s contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. For a young buyer (in the age group of 30-35 years), it acts as a deterrent. However, bankers are not really bothered. UCO Bank executive director T M Bhasin said as real estate price is declining, banks have increased the buyer’s contribution so that the market value of the property should not fall below the loan amount during the course of repayment. He said if the bank lends 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will become more than the value of the property taken as security.
In that scenario, the borrower can decide to walk off—surrender the house to the bank, and saying recover the money by selling the property. To avoid this, the bank has increased the buyer’s contribution. And this factor has played a big role in the current US crisis.
CAUGHT IN TRAP
Borrowers now need to contribute 20-30% of the value of the house upfront, instead of 10-15% earlier
So, buyer's contribution for a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier
EMI limit has been reduced to 40% of monthly income, from 50% earlier
As the finance proportion of the banks has come down from 85-90% of the property value to 70-80%, borrowers (mainly the younger lot) are finding it difficult to go for a home loan. SBI, which has brought down its home loan rate to 8%, lends only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. If the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. Punjab National Bank (PNB) lends 75% of the loan for a property of above Rs 20 lakh. Other PSU banks like Union Bank and UCO Bank also lend only up to 80% of the value of the house. Private sector banks like ICICI Bank ask for 20-30% buyer’s contribution while giving a home loan.
The average price of a three-bed room apartment in metros like Mumbai, Delhi/NCR and Bangalore is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. So, the buyer’s contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. For a young buyer (in the age group of 30-35 years), it acts as a deterrent. However, bankers are not really bothered. UCO Bank executive director T M Bhasin said as real estate price is declining, banks have increased the buyer’s contribution so that the market value of the property should not fall below the loan amount during the course of repayment. He said if the bank lends 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will become more than the value of the property taken as security.
In that scenario, the borrower can decide to walk off—surrender the house to the bank, and saying recover the money by selling the property. To avoid this, the bank has increased the buyer’s contribution. And this factor has played a big role in the current US crisis.
CAUGHT IN TRAP
Borrowers now need to contribute 20-30% of the value of the house upfront, instead of 10-15% earlier
So, buyer's contribution for a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier
EMI limit has been reduced to 40% of monthly income, from 50% earlier
Healthy wallets, unhealthy food
New Delhi: India’s rising consumption level is edging the country into a nutritional black hole. With greater amounts of money in hand to spend, as the quick estimates of national accounts for 2007-08 show, people have begun to move away from cereals, proteins and other healthy foods towards beverages and addictive items like tobacco.
Alarm bells are being sounded on how India’s nutritional security could be challenged even as its economic security gets better. For a country that still can’t provide enough for its poor, the results say the rich and the middle classes may be heading towards the other end of the spectrum—spending on unhealthy food.
Statistics on private final consumption expenditure—an indication of consumer spending trends—show that expenditure on food, beverages and tobacco continues to comprise the largest chunk of household budgets—about 42.3% in 2007-08. But it has come down when compared to 2000-01, when it stood at 48.2%.
The expenditure on cereals and bread has shown a decline from 11.7% in 2000-01 to 9.6% in 2007-08. Spending on pulses has dipped from 1.2% to 1.1% and on fruits and vegetables from 9.5% to 7.7%. The same holds good for other health food with spending on milk and milk products having declined from 7.1% to 6.2% and on meat, eggs and fish from 4.0% to 3.7% between 2000-01 and 2007-08.
This, while the spending on unhealthy items like beverages, paan and intoxicants has increased from 1.6% in 2000-01 to 3.1% in 2007-08. Similarly, expenditure on hotels and restaurants has also shown an increase—from 1.9% to 2.6%—in the same period.
With the economy growing, India is spending more on services. According to the data, the fastest growing components of household spending were related to the service sector, such as healthcare and communications. Consumers tend to spend relatively little on food and more on healthcare as their incomes increase. Spending on medicare, edu up: CSO
New Delhi: The quick estimates of national output, spending, savings and investment for 2007-08 released by the Central Statistical Organisation (CSO) reflect a clear hike in spending on medical care and health services—from 4.7% in 2000-01 to 5.7% in 2007-08.
During the same period, transportation and communication expenditure grew from 14.4% to 16.3% of the total household expenditure. Similarly, spending on recreation, education and cultural services has gone up from 3.7% to 5% of the Rs 26,05,859 crore consumption expenditure in the domestic market in 2007-08. Private consumption expenditure on durables grew from 3.3% to 4%.
Alarm bells are being sounded on how India’s nutritional security could be challenged even as its economic security gets better. For a country that still can’t provide enough for its poor, the results say the rich and the middle classes may be heading towards the other end of the spectrum—spending on unhealthy food.
Statistics on private final consumption expenditure—an indication of consumer spending trends—show that expenditure on food, beverages and tobacco continues to comprise the largest chunk of household budgets—about 42.3% in 2007-08. But it has come down when compared to 2000-01, when it stood at 48.2%.
The expenditure on cereals and bread has shown a decline from 11.7% in 2000-01 to 9.6% in 2007-08. Spending on pulses has dipped from 1.2% to 1.1% and on fruits and vegetables from 9.5% to 7.7%. The same holds good for other health food with spending on milk and milk products having declined from 7.1% to 6.2% and on meat, eggs and fish from 4.0% to 3.7% between 2000-01 and 2007-08.
This, while the spending on unhealthy items like beverages, paan and intoxicants has increased from 1.6% in 2000-01 to 3.1% in 2007-08. Similarly, expenditure on hotels and restaurants has also shown an increase—from 1.9% to 2.6%—in the same period.
With the economy growing, India is spending more on services. According to the data, the fastest growing components of household spending were related to the service sector, such as healthcare and communications. Consumers tend to spend relatively little on food and more on healthcare as their incomes increase. Spending on medicare, edu up: CSO
New Delhi: The quick estimates of national output, spending, savings and investment for 2007-08 released by the Central Statistical Organisation (CSO) reflect a clear hike in spending on medical care and health services—from 4.7% in 2000-01 to 5.7% in 2007-08.
During the same period, transportation and communication expenditure grew from 14.4% to 16.3% of the total household expenditure. Similarly, spending on recreation, education and cultural services has gone up from 3.7% to 5% of the Rs 26,05,859 crore consumption expenditure in the domestic market in 2007-08. Private consumption expenditure on durables grew from 3.3% to 4%.
MF assets post 9.5% growth in Jan
Mumbai: A strong rally in the debt market helped the mutual fund industry record a 9.5% monthly increase in total assets during January. At the same time, assets under equity schemes showed a dip.
At the end of January, assets under management (AUM) in the fund industry was at Rs 4.6 lakh crore, up from Rs 4.2 lakh crore in December, data released by Association of Mutual Funds in India (AMFI) showed. Industry analysts said that about 40-45% of the industry AUM is in equity assets, translating to about Rs 2 lakh crore. And this segment of the AUM showed some dip last month, they said.
At least two factors contributed to the rise in debt fund AUM last month, said Dhirendra Kumar, CEO, Value Research, a firm which specialises in mutual fund industry research. “Firstly, the debt market did very well. And secondly, the FMP (fixed maturity plan) money that was redeemed last month came into income funds,’’ Kumar said. The twin effect boosted the debt fund AUMs as well as the overall industry AUM, the fund industry analyst said. AMFI data showed that most of the fund houses recorded rise in their January AUM. Among the top five fund houses, Birla Sun Life MF showed a 15.3% rise in assets to Rs 42,157 crore, the highest in this group. While Reliance and HDFC MFs retained the top two slots, ICICI Prudential, UTI and Birla MFs were in the next three slots.
In terms of monthly AUM growth, while LIC MF showed a 30% rise to Rs 18,732 crore, IDFC MF recorded a 29% jump to Rs 11,427 crore. A spokesperson for IDFC MF said that the fund house’s prudent debt fund investment strategy, renewed focus on equity and performanceoriented approach have brought about this rise in AUM. Among the laggards, new entrant Edelweiss MF witnessed a 59% drop in AUM to Rs 32 crore while Bharti AXA MF’s total assets fell 25%.
At the end of January, assets under management (AUM) in the fund industry was at Rs 4.6 lakh crore, up from Rs 4.2 lakh crore in December, data released by Association of Mutual Funds in India (AMFI) showed. Industry analysts said that about 40-45% of the industry AUM is in equity assets, translating to about Rs 2 lakh crore. And this segment of the AUM showed some dip last month, they said.
At least two factors contributed to the rise in debt fund AUM last month, said Dhirendra Kumar, CEO, Value Research, a firm which specialises in mutual fund industry research. “Firstly, the debt market did very well. And secondly, the FMP (fixed maturity plan) money that was redeemed last month came into income funds,’’ Kumar said. The twin effect boosted the debt fund AUMs as well as the overall industry AUM, the fund industry analyst said. AMFI data showed that most of the fund houses recorded rise in their January AUM. Among the top five fund houses, Birla Sun Life MF showed a 15.3% rise in assets to Rs 42,157 crore, the highest in this group. While Reliance and HDFC MFs retained the top two slots, ICICI Prudential, UTI and Birla MFs were in the next three slots.
In terms of monthly AUM growth, while LIC MF showed a 30% rise to Rs 18,732 crore, IDFC MF recorded a 29% jump to Rs 11,427 crore. A spokesperson for IDFC MF said that the fund house’s prudent debt fund investment strategy, renewed focus on equity and performanceoriented approach have brought about this rise in AUM. Among the laggards, new entrant Edelweiss MF witnessed a 59% drop in AUM to Rs 32 crore while Bharti AXA MF’s total assets fell 25%.
SC permits banks to charge up to 49% interest on card payment defaults
New Delhi: The Supreme Court on Tuesday allowed MNC banks to charge hefty interest up to 49% on defaulted credit card payments, ending the respite that lakhs of card holders have had since September last year when the National Consumer Disputes Redressal Commission capped the penalty at 30%.
The SC stayed the apex consumer forum’s directive to banks not to charge more than 30% interest on defaulted payments on credit card purchases. The SC had last year refused to heed the appeal of banks against the NCDRC’s order. A Bench comprising Justices B N Agrawal, G S Singhvi and Aftab Alam on Tuesday suspended the relief to card holders on a plea by a coalition of foreign banks — Citibank, HSBC, American Express and Standard Chartered — that their business was suffering immensely because of the “unwarranted’’ cap on the quantum of penal interest.
Ironically, the plea of banks may have been allowed because of a lapse by the very same NGO ‘Awaz’ that was instrumental in getting the NCDRC order pegging the penal interest at 30% last year.
Though the bench had issued notice to the NGO four months ago, it has yet not put in its response, possibly helping the court to see merit in the argument of the banks that no penal interest rate, they were only following the guidelines issued by the RBI.
The banks teamed up to apprise the apex court of their compulsions to charge between 36% to 49% interest on defaulted payments on credit cards. “No bank as a credit card issuer would charge undue interest rate as, apart from the regulatory framework that applies, the market would not sustain the same by reason of competitive force,’’ Citibank said. In its application, filed through counsel Rupinder Suri, it said facility of credit cards could be availed of without any interest for a certain stipulated period and it was only after the expiry of that period that penal interest was levied on default of payments.
“The credit card holder is aware of the same at the time of applying for it. It is also relevant to note that credit card transactions de facto constitute unsecured credit availed of,’’ the bank said justifying the high interest rate permitted by RBI on defaulted payments.
The July 7, 2007 order of NCDRC had ruled that “charging of interest rates in excess of 30% per annum from credit card holders by banks for the former’s failure to make full payment on the due date or paying the minimum amount due, is unfair trade practices.’’
It had also said that penal interest could be levied only once for the period of default and should not be capitalised while terming the practice of computing interest on monthly basis as “unfair trade practice’’.
The banks justified the high interest rate on default payments by credit card holders by listing as many as 27 factors that included even the SMS alerts it sends to the card holders.
Even the cost of acquiring a new customer, that is the cost of calls made randomly by authorised call centres urging people to take credit cards, is also taken into account for realisation through charging of penal interest from an defaulting card holder.
“The National Commission has failed to appreciate that the rate of interest on defaulted or partial payments of credit card dues is determined by taking into consideration various factors, including the risks of default, and therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive,’’ the banks said. Higher charge despite lower cost of fund
Prabhakar Sinha | TNN
New Delhi: Though cost of fund is falling, banks continue to charge very high interest rates—up to 51% per annum – on outstanding credit card amount. At present, banks are charging interest on outstanding amount at the range of Rs 2.5%-3.5% per month, which works out to be 34.5%-51% per annum.
In 2008, when interest rates were firming up, banks had increased the rate by around half a percentage point per month or by around 10 percentage point per annum.
In the last couple of months, cost of fund has declined. At present, banks are raising funds at around 8% from depositors. Even if the default rate of around 15% in the credit card segment is taken into account, the present interest rate (35% to 51%) is very high. In the developed market interest rate burden is around 15%-20%.
However, banks claim that cost of servicing a customer is high, as they don’t charge the interest rate during the first 50 days of a credit card purchase. But industry watchers say this is not correct. If you have even Re 1 outstanding left on the card in the previous payment cycle, the interest will be charged from the day one on the entire amount. So, you end up paying the high interest rate on the amount spent by the card from the day one.
CMD of a public sector bank said if RBI can ask banks to reduce lending rate, it can also tell them to lower the interest rates on credit card.
The SC stayed the apex consumer forum’s directive to banks not to charge more than 30% interest on defaulted payments on credit card purchases. The SC had last year refused to heed the appeal of banks against the NCDRC’s order. A Bench comprising Justices B N Agrawal, G S Singhvi and Aftab Alam on Tuesday suspended the relief to card holders on a plea by a coalition of foreign banks — Citibank, HSBC, American Express and Standard Chartered — that their business was suffering immensely because of the “unwarranted’’ cap on the quantum of penal interest.
Ironically, the plea of banks may have been allowed because of a lapse by the very same NGO ‘Awaz’ that was instrumental in getting the NCDRC order pegging the penal interest at 30% last year.
Though the bench had issued notice to the NGO four months ago, it has yet not put in its response, possibly helping the court to see merit in the argument of the banks that no penal interest rate, they were only following the guidelines issued by the RBI.
The banks teamed up to apprise the apex court of their compulsions to charge between 36% to 49% interest on defaulted payments on credit cards. “No bank as a credit card issuer would charge undue interest rate as, apart from the regulatory framework that applies, the market would not sustain the same by reason of competitive force,’’ Citibank said. In its application, filed through counsel Rupinder Suri, it said facility of credit cards could be availed of without any interest for a certain stipulated period and it was only after the expiry of that period that penal interest was levied on default of payments.
“The credit card holder is aware of the same at the time of applying for it. It is also relevant to note that credit card transactions de facto constitute unsecured credit availed of,’’ the bank said justifying the high interest rate permitted by RBI on defaulted payments.
The July 7, 2007 order of NCDRC had ruled that “charging of interest rates in excess of 30% per annum from credit card holders by banks for the former’s failure to make full payment on the due date or paying the minimum amount due, is unfair trade practices.’’
It had also said that penal interest could be levied only once for the period of default and should not be capitalised while terming the practice of computing interest on monthly basis as “unfair trade practice’’.
The banks justified the high interest rate on default payments by credit card holders by listing as many as 27 factors that included even the SMS alerts it sends to the card holders.
Even the cost of acquiring a new customer, that is the cost of calls made randomly by authorised call centres urging people to take credit cards, is also taken into account for realisation through charging of penal interest from an defaulting card holder.
“The National Commission has failed to appreciate that the rate of interest on defaulted or partial payments of credit card dues is determined by taking into consideration various factors, including the risks of default, and therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive,’’ the banks said. Higher charge despite lower cost of fund
Prabhakar Sinha | TNN
New Delhi: Though cost of fund is falling, banks continue to charge very high interest rates—up to 51% per annum – on outstanding credit card amount. At present, banks are charging interest on outstanding amount at the range of Rs 2.5%-3.5% per month, which works out to be 34.5%-51% per annum.
In 2008, when interest rates were firming up, banks had increased the rate by around half a percentage point per month or by around 10 percentage point per annum.
In the last couple of months, cost of fund has declined. At present, banks are raising funds at around 8% from depositors. Even if the default rate of around 15% in the credit card segment is taken into account, the present interest rate (35% to 51%) is very high. In the developed market interest rate burden is around 15%-20%.
However, banks claim that cost of servicing a customer is high, as they don’t charge the interest rate during the first 50 days of a credit card purchase. But industry watchers say this is not correct. If you have even Re 1 outstanding left on the card in the previous payment cycle, the interest will be charged from the day one on the entire amount. So, you end up paying the high interest rate on the amount spent by the card from the day one.
CMD of a public sector bank said if RBI can ask banks to reduce lending rate, it can also tell them to lower the interest rates on credit card.
IN THE DOCK Sebi gets SC green signal to grill Rajus Interrogation For 3 Days In Jail From Wed
New Delhi: Market regulator Sebi will lay its hands on the big fish in the Rs 7,000 crore Satyam fraud as the Supreme Court on Tuesday permitted it to grill Ramalinga Raju and brother Rama Raju for three consecutive days starting from Wednesday.
Sensing urgency in solicitor general G E Vahanvati’s apprehension that vital evidence relating to the biggest financial fraud in India’s corporate history could be lost because of the market regulator not being allowed to question the key accused, the SC directed the superintendent of Chanchalguda jail, where the two brothers are lodged, to permit the Sebi investigator to question them.
In addition, a bench comprising Chief Justice K G Balakrishnan and Justices P Sathasivam and J M Panchal agreed to permit Sebi investigator Sunil Kumar to take assistance of experts in interrogating the Rajus to crack the scam. Acting swiftly, Kumar started from Chennai to be in Hyderabad in time to undertake questioning of the Raju brothers on Wednesday. In addition, Sebi, within hours of the apex court order, informed the jail superintendent that Kumar and three experts would interrogate the duo from February 4 to 6.
Vahanvati, appearing for Sebi, said the trial court and the Andhra Pradesh high court’s order announcing that Sebi did not have investigating powers had made a laughing stock of the judiciary as it was contrary to the statutory provisions conferring powers on the market regulator to inquire into such corporate frauds and even question the accused.
What probably tilted scales for an order from the bench after a brief hearing was Vahanvati’s stunning statement, “Documents are going out. We want to seize them. If the accused are permitted to carry on with their alleged activities in covering up their trail despite being lodged in prison, then what investigation could be carried out by the market regulator?’’
For a change, the Y S R Reddy government, which is perceived in many quarters to be lenient with a self-confessed scamster, stood solidly behind Sebi in its demand for intense questioning of the duo. Its counsel Bharathi Reddy, while accepting notice on Sebi’s petition, told the SC that the market regulator should be permitted to question the accused.
Though Sebi was happy with the SC order allowing its investigator to have the accused interrogated for three consecutive days, it was unsure whether three days would be enough to unravel a fraud of this magnitude. Most likely, they would come back to SC seeking more time after they complete the initial interrogation. Sebi said it had appointed an investigator and had issued summons to Raju to appear in Hyderabad on January 9.
Sensing urgency in solicitor general G E Vahanvati’s apprehension that vital evidence relating to the biggest financial fraud in India’s corporate history could be lost because of the market regulator not being allowed to question the key accused, the SC directed the superintendent of Chanchalguda jail, where the two brothers are lodged, to permit the Sebi investigator to question them.
In addition, a bench comprising Chief Justice K G Balakrishnan and Justices P Sathasivam and J M Panchal agreed to permit Sebi investigator Sunil Kumar to take assistance of experts in interrogating the Rajus to crack the scam. Acting swiftly, Kumar started from Chennai to be in Hyderabad in time to undertake questioning of the Raju brothers on Wednesday. In addition, Sebi, within hours of the apex court order, informed the jail superintendent that Kumar and three experts would interrogate the duo from February 4 to 6.
Vahanvati, appearing for Sebi, said the trial court and the Andhra Pradesh high court’s order announcing that Sebi did not have investigating powers had made a laughing stock of the judiciary as it was contrary to the statutory provisions conferring powers on the market regulator to inquire into such corporate frauds and even question the accused.
What probably tilted scales for an order from the bench after a brief hearing was Vahanvati’s stunning statement, “Documents are going out. We want to seize them. If the accused are permitted to carry on with their alleged activities in covering up their trail despite being lodged in prison, then what investigation could be carried out by the market regulator?’’
For a change, the Y S R Reddy government, which is perceived in many quarters to be lenient with a self-confessed scamster, stood solidly behind Sebi in its demand for intense questioning of the duo. Its counsel Bharathi Reddy, while accepting notice on Sebi’s petition, told the SC that the market regulator should be permitted to question the accused.
Though Sebi was happy with the SC order allowing its investigator to have the accused interrogated for three consecutive days, it was unsure whether three days would be enough to unravel a fraud of this magnitude. Most likely, they would come back to SC seeking more time after they complete the initial interrogation. Sebi said it had appointed an investigator and had issued summons to Raju to appear in Hyderabad on January 9.
Maha plans to set up knowledge panel
Mumbai: Maharashtra has drawn up plans to set up a state knowledge commission, a thinktank that will recommend the way forward for higher education. While the commission is yet to be appointed, its scope is likely to be vast—to cover all aspects of higher education—on the lines of the National Knowledge Commission (NKC).
According to government officials, there are several areas in higher education that require a ‘re-look’ and many others that call for a revival. “The commission will study the recommendations of the NKC and look at what we can implement locally. Experts on the panel will also look at areas we need to focus on,’’ said J S Saharia, principal secretary (Higher Education). The NKC had drafted broad recommendations for institutes across the country and several states later set up their own regional bodies to work towards achieving excellence at the local level.
The Goa government was the first to emulate the national model of knowledge commission in 2006. Later, Gujarat, Karnataka, and several other states handpicked top academicians to plan the commission which designed a master plan for the growth of higher education. In most states, the commission is chaired by the chief minister.
Academicians say the state’s move to set up a commission has come a little too late. “Look at the number of nursing or BEd colleges we have in our state. A new engineering institute is launched every morning. There has to be a mega plan that will determine where the state will be five years from now,’’ said a faculty member from the Tata Institute of Social Sciences. A chair professor from the University of Mumbai concurred, “Our libraries and laboratories also need attention. There are so many colleges that are coming up, but where is the qualified faculty?’’
According to government officials, there are several areas in higher education that require a ‘re-look’ and many others that call for a revival. “The commission will study the recommendations of the NKC and look at what we can implement locally. Experts on the panel will also look at areas we need to focus on,’’ said J S Saharia, principal secretary (Higher Education). The NKC had drafted broad recommendations for institutes across the country and several states later set up their own regional bodies to work towards achieving excellence at the local level.
The Goa government was the first to emulate the national model of knowledge commission in 2006. Later, Gujarat, Karnataka, and several other states handpicked top academicians to plan the commission which designed a master plan for the growth of higher education. In most states, the commission is chaired by the chief minister.
Academicians say the state’s move to set up a commission has come a little too late. “Look at the number of nursing or BEd colleges we have in our state. A new engineering institute is launched every morning. There has to be a mega plan that will determine where the state will be five years from now,’’ said a faculty member from the Tata Institute of Social Sciences. A chair professor from the University of Mumbai concurred, “Our libraries and laboratories also need attention. There are so many colleges that are coming up, but where is the qualified faculty?’’
Monday, February 2, 2009
Germany Says Hypo Can’t Fail, Mulls Bank Takeover Law
Feb. 2 (Bloomberg) -- Germany’s government said property lender Hypo Real Estate Holding AG is too big to be allowed to fail, as officials hold “intensive” talks on a draft law that may enable the state to take over banks.
Munich-based Hypo Real Estate, already bailed out with public funds last year, is a “systemically relevant” company and the government must ward off risks to the financial system, spokesman Thomas Steg told reporters in Berlin today. At the same time, Chancellor Angela Merkel’s coalition must deliver the “most favorable” solution for taxpayers, he said.
“Taking over stakes may make sense in specific cases if that lowers the cost to taxpayers,” Merkel said, according to today’s Bild newspaper. Steg said that Merkel had “made it clear” that the government may need to step in where institutions are in trouble.
Merkel’s coalition, which has pumped 92 billion euros ($117 billion) into Hypo Real Estate, joins governments worldwide in deliberating how best to save banks worst affected by the global credit crunch. Globally, governments have pledged $7 trillion to back banks, U.K. Prime Minister Gordon Brown said today in London. Merkel will host European leaders in Berlin on Feb. 22 to discuss changes to the global financial system, Steg said.
‘Substantial Recapitalization’
Moody’s Investors Service downgraded Hypo Real Estate’s senior unsecured debt and deposit ratings today to A3 from A2, “reflecting the expectation of a substantial recapitalization by the German government or even nationalization of the group.” It also lowered the outlook on all ratings to negative.
Hypo Real Estate shares dropped as much as 10 percent in Frankfurt trading before closing up 2 cents, or 1.6 percent, at 1.30 euros in Frankfurt trading. The shares have lost 94 percent over the last 12 months, giving the company a market value of 274 million euros.
“If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?” Nobel Prize-winning economist Paul Krugman wrote in a column in the New York Times published today. Yet in the U.S., President Barack Obama’s administration “appears to be tying itself in knots to avoid this outcome.”
‘Possible Option’
In Germany, the Finance Ministry is exploring taking over troubled lenders as “one possible option” to “bolster an institution so it doesn’t go into insolvency,” spokesman Torsten Albig said.
The government is considering taking a stake of between 90 percent and 95 percent in Hypo Real Estate, Handelsblatt newspaper reported, citing unnamed government officials. A bill being drafted by Finance Minister Peer Steinbrueck would allow the government to take over banks if required for the stability of financial markets, the newspaper said. Investors would be compensated based on a company’s share price during the two weeks before nationalization.
U.S. investor J.C. Flowers & Co., which holds about 25 percent of Hypo Real Estate, would like to keep the government stake to 90 percent or less, Handelsblatt said, quoting unnamed people close to the investor.
The government’s commitment so far to Hypo Real Estate means it’s “not too difficult” to imagine putting the public interest above those of shareholders, Albig said.
J.C. Flowers is available for “constructive talks” and supports efforts to stabilize Hypo Real Estate, Thomas Pfaff, a German-based spokesman, said in an e-mailed statement. No German government officials have approached Flowers, he said.
Not Rushing
Steg said that Merkel’s coalition is in “intensive discussions” on how to deal with Hypo Real Estate, though no decision is expected in the next few days and the topic is not on the agenda for the next weekly Cabinet meeting on Feb. 4. The government won’t rush into a decision on the matter, he said.
“Nobody in the federal government has denied that Hypo Real Estate, along with its Depfa unit, is a systemically relevant institution,” he said.
Merkel’s government bailed out Hypo Real Estate with debt guarantees and liquidity lines after the lender’s Dublin-based Depfa Bank Plc unit failed to get short-term funding in September when credit markets seized up.
Hypo Real Estate supports Germany’s purchase of a stake in the property lender and wants it done quickly as that would give the lender enough backing to get new loans and finance its operations, Chief Executive Officer Axel Wieandt told Sueddeutsche Zeitung in an interview published on Jan. 29.
Munich-based Hypo Real Estate, already bailed out with public funds last year, is a “systemically relevant” company and the government must ward off risks to the financial system, spokesman Thomas Steg told reporters in Berlin today. At the same time, Chancellor Angela Merkel’s coalition must deliver the “most favorable” solution for taxpayers, he said.
“Taking over stakes may make sense in specific cases if that lowers the cost to taxpayers,” Merkel said, according to today’s Bild newspaper. Steg said that Merkel had “made it clear” that the government may need to step in where institutions are in trouble.
Merkel’s coalition, which has pumped 92 billion euros ($117 billion) into Hypo Real Estate, joins governments worldwide in deliberating how best to save banks worst affected by the global credit crunch. Globally, governments have pledged $7 trillion to back banks, U.K. Prime Minister Gordon Brown said today in London. Merkel will host European leaders in Berlin on Feb. 22 to discuss changes to the global financial system, Steg said.
‘Substantial Recapitalization’
Moody’s Investors Service downgraded Hypo Real Estate’s senior unsecured debt and deposit ratings today to A3 from A2, “reflecting the expectation of a substantial recapitalization by the German government or even nationalization of the group.” It also lowered the outlook on all ratings to negative.
Hypo Real Estate shares dropped as much as 10 percent in Frankfurt trading before closing up 2 cents, or 1.6 percent, at 1.30 euros in Frankfurt trading. The shares have lost 94 percent over the last 12 months, giving the company a market value of 274 million euros.
“If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?” Nobel Prize-winning economist Paul Krugman wrote in a column in the New York Times published today. Yet in the U.S., President Barack Obama’s administration “appears to be tying itself in knots to avoid this outcome.”
‘Possible Option’
In Germany, the Finance Ministry is exploring taking over troubled lenders as “one possible option” to “bolster an institution so it doesn’t go into insolvency,” spokesman Torsten Albig said.
The government is considering taking a stake of between 90 percent and 95 percent in Hypo Real Estate, Handelsblatt newspaper reported, citing unnamed government officials. A bill being drafted by Finance Minister Peer Steinbrueck would allow the government to take over banks if required for the stability of financial markets, the newspaper said. Investors would be compensated based on a company’s share price during the two weeks before nationalization.
U.S. investor J.C. Flowers & Co., which holds about 25 percent of Hypo Real Estate, would like to keep the government stake to 90 percent or less, Handelsblatt said, quoting unnamed people close to the investor.
The government’s commitment so far to Hypo Real Estate means it’s “not too difficult” to imagine putting the public interest above those of shareholders, Albig said.
J.C. Flowers is available for “constructive talks” and supports efforts to stabilize Hypo Real Estate, Thomas Pfaff, a German-based spokesman, said in an e-mailed statement. No German government officials have approached Flowers, he said.
Not Rushing
Steg said that Merkel’s coalition is in “intensive discussions” on how to deal with Hypo Real Estate, though no decision is expected in the next few days and the topic is not on the agenda for the next weekly Cabinet meeting on Feb. 4. The government won’t rush into a decision on the matter, he said.
“Nobody in the federal government has denied that Hypo Real Estate, along with its Depfa unit, is a systemically relevant institution,” he said.
Merkel’s government bailed out Hypo Real Estate with debt guarantees and liquidity lines after the lender’s Dublin-based Depfa Bank Plc unit failed to get short-term funding in September when credit markets seized up.
Hypo Real Estate supports Germany’s purchase of a stake in the property lender and wants it done quickly as that would give the lender enough backing to get new loans and finance its operations, Chief Executive Officer Axel Wieandt told Sueddeutsche Zeitung in an interview published on Jan. 29.
India Exports Fell in December for 3rd Straight Month
Feb. 2 (Bloomberg) -- India’s exports declined for a third straight month in December as the global recession reduced overseas orders, curbing growth in Asia’s third-largest economy.
Merchandise shipments dropped 1.1 percent to $12.7 billion from a year earlier, the government said in New Delhi today. Imports in December rose 8.8 percent to $20.3 billion, widening the trade deficit to $7.6 billion.
Falling exports may cause 10 million job losses by March, according to estimates from the Federation of Indian Export Organisations trade group, which would be a blow to Prime Minister Manmohan Singh’s re-election bid in polls in April and May. Exporters employ about 150 million people in India, the biggest provider of jobs after agriculture.
“The exports scenario won’t improve unless the global economy recovers,” said D. H. Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi. “Job losses in an election year are bad news for any incumbent government.”
Export growth may slow to 17 percent in the year ending March 31, compared with 25 percent a year ago, Trade Minister Kamal Nath told Bloomberg Television in an interview Jan. 29.
Exports gained 17.1 percent to $131.9 billion in the nine months to Dec. 31, today’s statement said. Oil imports fell 31 percent to $4.7 billion in December, while non-oil imports rose 32 percent to $15.5 billion, the statement said.
Export Finance
Bajaj Auto Ltd., India’s second-biggest motorcycle maker, said today exports rose 24 percent in January from a year earlier, almost half the pace in December.
To help exporters, the central bank in November extended the period for subsidized pre-shipment credit to nine months from six months and increased the export refinance limit for commercial banks.
Nath said Jan. 21 the government will soon unveil steps to end bureaucratic delays faced by exporters to spur overseas sales. He added that India will miss its exports target of $200 billion in the year to March 31.
“There will be job losses due to the global recession but I think domestic demand is going to help us,” Nath said Jan. 29.
Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. China’s exports in December dropped 2.8 percent, the most in almost a decade, while Singapore’s exports contracted the most since early 2002 in the same month.
Interest Rates
International trade will shrink in 2009 for the first time in more than 25 years as economic expansion slows and commodity prices slide, the World Bank said in December. World trade volumes will probably contract next year by 2.1 percent, hampered by exchange rate volatility and flagging import demand.
Measures to spur local consumption and investment began on Oct. 6 when the Reserve Bank cut the amount of money lenders need to set aside with the central bank. On Oct. 20, Governor Duvvuri Subbarao presided over the first interest-rate reduction in four years and the benchmark repurchase rate is now at a record low of 5.5 percent, down from 9 percent in July.
Prime Minister Singh’s government has also announced two fiscal stimulus packages which include tax cuts, the injection of capital into banks, and allowing overseas investors to double purchases of debt.
The Reserve Bank last month cut the growth estimate in India’s $1.2 trillion economy to 7 percent in the year to March 31 from between 7.5 percent and 8 percent it estimated earlier.
Merchandise shipments dropped 1.1 percent to $12.7 billion from a year earlier, the government said in New Delhi today. Imports in December rose 8.8 percent to $20.3 billion, widening the trade deficit to $7.6 billion.
Falling exports may cause 10 million job losses by March, according to estimates from the Federation of Indian Export Organisations trade group, which would be a blow to Prime Minister Manmohan Singh’s re-election bid in polls in April and May. Exporters employ about 150 million people in India, the biggest provider of jobs after agriculture.
“The exports scenario won’t improve unless the global economy recovers,” said D. H. Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi. “Job losses in an election year are bad news for any incumbent government.”
Export growth may slow to 17 percent in the year ending March 31, compared with 25 percent a year ago, Trade Minister Kamal Nath told Bloomberg Television in an interview Jan. 29.
Exports gained 17.1 percent to $131.9 billion in the nine months to Dec. 31, today’s statement said. Oil imports fell 31 percent to $4.7 billion in December, while non-oil imports rose 32 percent to $15.5 billion, the statement said.
Export Finance
Bajaj Auto Ltd., India’s second-biggest motorcycle maker, said today exports rose 24 percent in January from a year earlier, almost half the pace in December.
To help exporters, the central bank in November extended the period for subsidized pre-shipment credit to nine months from six months and increased the export refinance limit for commercial banks.
Nath said Jan. 21 the government will soon unveil steps to end bureaucratic delays faced by exporters to spur overseas sales. He added that India will miss its exports target of $200 billion in the year to March 31.
“There will be job losses due to the global recession but I think domestic demand is going to help us,” Nath said Jan. 29.
Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. China’s exports in December dropped 2.8 percent, the most in almost a decade, while Singapore’s exports contracted the most since early 2002 in the same month.
Interest Rates
International trade will shrink in 2009 for the first time in more than 25 years as economic expansion slows and commodity prices slide, the World Bank said in December. World trade volumes will probably contract next year by 2.1 percent, hampered by exchange rate volatility and flagging import demand.
Measures to spur local consumption and investment began on Oct. 6 when the Reserve Bank cut the amount of money lenders need to set aside with the central bank. On Oct. 20, Governor Duvvuri Subbarao presided over the first interest-rate reduction in four years and the benchmark repurchase rate is now at a record low of 5.5 percent, down from 9 percent in July.
Prime Minister Singh’s government has also announced two fiscal stimulus packages which include tax cuts, the injection of capital into banks, and allowing overseas investors to double purchases of debt.
The Reserve Bank last month cut the growth estimate in India’s $1.2 trillion economy to 7 percent in the year to March 31 from between 7.5 percent and 8 percent it estimated earlier.
India May Ease Takeover Rules for ‘Special Cases’
Feb. 2 (Bloomberg) -- India’s market regulator said it will look at easing takeover rules in “special cases,” ahead of a possible acquisition of Satyam Computer Services Ltd., the software company at the center of India’s biggest fraud inquiry.
Satyam’s board has asked for exemptions from the takeover rules, Securities and Exchange Board of India Chairman C.B. Bhave said at a press briefing after the regulator’s board meeting in Mumbai today. Buyers must now offer to pay the higher of the average share price for the past 26 weeks or two weeks.
A relaxation of the rules will make it easier for suitors including Larsen & Toubro Ltd., India’s biggest engineering company, to bid for Hyderabad-based Satyam. Larsen is among at least four bidders that want to buy a controlling stake.
“We recognize the need for this and will look to make amendments for such special cases,” Bhave said.
Larsen may lift its holding in Satyam to 15 percent, betting the value will rise, Larsen Chairman A.M. Naik said on Jan. 27. The Mumbai-based company said after trading ended on Jan. 23 it tripled its stake in Satyam to 12 percent to have a greater say in the company’s rescue plan. A 15 percent stake is the threshold for a mandatory offer to buy 20 percent more from minority holders.
Spice Offer
Spice Corp. Chairman B. K. Modi has offered 20 billion rupees ($408 million) for Satyam, joining Larsen in the race for the software exporter. Holding company Spice Innovation made a preliminary cash offer for preference shares in Satyam, Modi said in a telephone interview from New Delhi on Jan. 30.
The regulator also tightened rules for warrant subscriptions, raising the upfront payment for buying warrants to 25 percent from 10 percent. It also eased rules for pricing equity offerings by allowing companies to set the price two days before the opening date of a public offer.
Rules for bonus share offerings were also modified, with the regulator stipulating all offers where shareholder approval is not required should be completed in 15 days.
The regulator last month tightened disclosure rules for founders of companies asking them to reveal shares pledged in return for loans. Pressure to make more information available to investors has increased since Satyam’s former chairman Ramalinga Raju said he falsified accounts for several years.
The botched attempt to force through the takeover of Raju’s family construction companies in December sparked a 31 percent one-day drop in Satyam’s stock. That triggered so-called margin calls as lenders that held Raju’s stock as collateral for loans demanded more cash to compensate for the slump in value.
Raju said on Jan. 7 the bid to sell the building companies to Satyam was a last attempt to conceal the false accounting. His inability to raise funds to repay loans triggered sales of his shares by the lenders, cutting his family’s stake to 2.34 percent by Jan. 8 from 8.3 percent in December.
Satyam’s board has asked for exemptions from the takeover rules, Securities and Exchange Board of India Chairman C.B. Bhave said at a press briefing after the regulator’s board meeting in Mumbai today. Buyers must now offer to pay the higher of the average share price for the past 26 weeks or two weeks.
A relaxation of the rules will make it easier for suitors including Larsen & Toubro Ltd., India’s biggest engineering company, to bid for Hyderabad-based Satyam. Larsen is among at least four bidders that want to buy a controlling stake.
“We recognize the need for this and will look to make amendments for such special cases,” Bhave said.
Larsen may lift its holding in Satyam to 15 percent, betting the value will rise, Larsen Chairman A.M. Naik said on Jan. 27. The Mumbai-based company said after trading ended on Jan. 23 it tripled its stake in Satyam to 12 percent to have a greater say in the company’s rescue plan. A 15 percent stake is the threshold for a mandatory offer to buy 20 percent more from minority holders.
Spice Offer
Spice Corp. Chairman B. K. Modi has offered 20 billion rupees ($408 million) for Satyam, joining Larsen in the race for the software exporter. Holding company Spice Innovation made a preliminary cash offer for preference shares in Satyam, Modi said in a telephone interview from New Delhi on Jan. 30.
The regulator also tightened rules for warrant subscriptions, raising the upfront payment for buying warrants to 25 percent from 10 percent. It also eased rules for pricing equity offerings by allowing companies to set the price two days before the opening date of a public offer.
Rules for bonus share offerings were also modified, with the regulator stipulating all offers where shareholder approval is not required should be completed in 15 days.
The regulator last month tightened disclosure rules for founders of companies asking them to reveal shares pledged in return for loans. Pressure to make more information available to investors has increased since Satyam’s former chairman Ramalinga Raju said he falsified accounts for several years.
The botched attempt to force through the takeover of Raju’s family construction companies in December sparked a 31 percent one-day drop in Satyam’s stock. That triggered so-called margin calls as lenders that held Raju’s stock as collateral for loans demanded more cash to compensate for the slump in value.
Raju said on Jan. 7 the bid to sell the building companies to Satyam was a last attempt to conceal the false accounting. His inability to raise funds to repay loans triggered sales of his shares by the lenders, cutting his family’s stake to 2.34 percent by Jan. 8 from 8.3 percent in December.
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