Feb. 28 (Bloomberg) -- European stocks dropped for a sixth straight month, the longest losing streak since 2002, on concern the worsening global economic slump will wipe out earnings.
Novartis SA, Switzerland’s second-biggest drugmaker, slid 6.4 percent this past week after saying first-quarter profit will be hurt, and Basilea Pharmaceutica AG tumbled 49 percent after reporting a full-year loss. Renault SA, France’s second-largest carmaker, fell 9.4 percent as its credit ratings were cut to junk by Moody’s Investors Service. Compania Espanola de Petroleos SA sank 44 percent after Banco Santander SA said it may sell its holding in Spain’s second-largest oil company.
The Dow Jones Stoxx 600 Index slipped 2.3 percent to 172.92 this past week, bringing the February slump to 9.6 percent. The measure has fallen 52 percent since the start of 2008 as credit- related losses at financial firms worldwide reached $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.
“There is reason to be worried,” said Kilian de Kertanguy, a Paris-based fund manager at Cholet-Dupont Gestion, which oversees about $2.3 billion. “Everyone is saying there won’t be good news in the market during the first half.”
The U.S. economy shrank in the fourth quarter of 2008 at a faster pace than previously estimated as consumer spending plunged, companies cut inventories and exports sank. Gross domestic product contracted at a 6.2 percent annual pace from October through December, more than economists anticipated and the most since 1982, according to revised Commerce Department figures Feb. 27.
European Economy
German business confidence declined to a 26-year low in February, a report by the Ifo institute showed this past week. The U.K. economy contracted the most since 1980 in the fourth quarter as the financial crisis prompted spending by consumers and companies to shrivel, according to data from the Office for National Statistics.
National benchmark indexes fell in 15 of the 18 western European markets this week. Germany’s DAX Index lost 4.3 percent as Deutsche Post AG dropped, while France’s CAC 40 retreated 1.8 percent. The U.K.’s FTSE 100 slipped 1.5 percent, with Royal Bank of Scotland Group Plc limiting the decline.
Health-care shares retreated 7.2 percent as a group, the second-worst performance among 19 industries in the Stoxx 600 after automotive companies.
Novartis decreased 6.4 percent this past week. Operating and net income growth for the three months ending March 31 probably will slow because of “adverse currency movements and the stronger U.S. dollar,” the company said.
Basilea, Roche
Basilea plunged 49 percent after the Swiss developer of anti-infection drugs reported a full-year loss and said a regulatory review of its Ceftobiprole treatment was delayed.
Roche Holding AG declined 5.9 percent on concern copies of costly biotechnology medicines made by Roche’s American subsidiary Genentech Inc. would be allowed in the U.S. with few delays under a proposal made by President Barack Obama this week.
Renault slid 9.4 percent as Moody’s cut its long-term credit rating to Ba1, the first grade into junk, from Baa2, citing “significantly worse operating performance and negative free cash flow” in 2008.
Automotive companies declined 11 percent as a group amid concern the worsening recession will cut demand. Volkswagen AG, Europe’s biggest carmaker, slid 16 percent. Daimler AG, the world’s largest truckmaker, retreated 12 percent.
Compania Espanola de Petroleos, also known as Cepsa, tumbled 44 percent after Santander said it may sell its holding in the company for as much as 3 billion euros ($3.8 billion).
Earnings Reports
EFG International AG retreated 36 percent as the Swiss private bank, whose largest shareholder is Greece’s Latsis family, reported a 69 percent drop in second-half profit.
Deutsche Post lost 13 percent after Europe’s biggest mail carrier reported a fourth-quarter net loss, cut its dividend and forecast further volume declines for 2009.
Accor SA slipped 5.1 percent as Europe’s largest hotelier posted earnings that missed analysts’ estimates, said demand for rooms continued to worsen in January and indicated its debt may rise from buying a stake in a casino business.
Randstad Holding NV slid 21 percent. The world’s second- biggest staffing company reported a fourth-quarter loss and canceled its dividend as companies cut back on temporary workers.
Earnings at companies in the Stoxx 600 are expected to rise 14 percent this year following a 37 percent slump in 2008, according to analysts’ estimates compiled by Bloomberg.
RBS, the largest bank controlled by the U.K. government, surged 20 percent on plans to put 325 billion pounds ($466 billion) of investments into a state insurance program and shift toxic assets to a new unit after posting the biggest loss in British history.
Bank Shares
In the U.S., President Obama’s first budget proposal this week asked for as much as $750 billion in new funds to shore up the financial system.
Banks in the Stoxx 600 climbed a combined 2.8 percent. The sub-index, which is down 25 percent so far this year, pared its weekly advance after the U.S. Treasury agreed to a third rescue attempt for Citigroup Inc. that will cut existing shareholders’ stake in the company by 74 percent.
“It’s a difficult environment for banks,” Julien Quistrebert, who helps manage $5.1 billion at KBL Richelieu Gestion in Paris, said in a Bloomberg Television interview. “We’re still very cautious. The industry is like a black box.”
Saturday, February 28, 2009
Asean Leaders Push for Integration Amid Rising Protectionism
March 1 (Bloomberg) -- The Association of Southeast Asian Nations will lay out today the region’s plan to become a European Union-modeled economic community by 2015 even as the bloc struggles to overcome a global recession that has eroded export demand and boosted protectionist sentiment.
Economic ministers from the 10 member nations this week agreed to reduce trade tariffs and open up more services industries to boost investment and integration within the region. Still, as a worldwide economic downturn threatens jobs and hurts manufacturing, leaders meeting in Cha-am, Thailand, are warning of the dangers of measures aimed at shielding domestic industries and goods from overseas competition.
“We need to accelerate the development of an attractive single market and production base that will help attract foreign trade and investment,” Thai Prime Minister Abhisit Vejjajiva said. “If we start going down the route of protectionism, everybody will go down. It doesn’t help anybody at the end.”
Southeast Asian nations have agreed to open up their markets further in a bid to create an economic zone modeled after the European Union, without a common currency, by 2015. The group has said it needs to improve its competitiveness as China and India, the world’s two fastest-growing major economies, attract an increasing chunk of global investment.
Asean includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Formed in 1967, it has a combined gross domestic product of more than $1.1 trillion and a population of about 570 million.
Commodities, Chips, Cars
Asia’s export-dependent nations are reeling from the global slowdown, which has slashed demand for the region’s computer chips, cars and commodities. The region is almost twice as reliant on exports as the rest of the world.
Growth in Indonesia, Southeast Asia’s largest economy, was the least in two years last quarter, and Thailand is expected to enter its first recession in a decade. Singapore is in its deepest downturn ever, while Malaysia’s economy grew at the slowest pace in seven years last quarter.
“Regional cooperation becomes even more important as we seek to pursue joint approaches and pool our resources to cope with difficulties that we all face,” Asian Development Bank President Haruhiko Kuroda told leaders in Cha-am yesterday.
Asean together with Japan, China and South Korea last week agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies to battle fallout from the global financial crisis.
Australia, New Zealand Deals
The grouping on Feb. 27 also signed a free-trade pact with Australia and New Zealand that covers trade in goods, investment and services. It will implement one with India in the next few months after years of negotiations.
“All of this standard Asean procedure amounts to very little in the current context of the global financial crisis and rising protectionism around the world,” said Razeen Sally, a director of the European Centre for International Policy, a Brussels research group that backs free trade. “These FTAs, bilateral or collective, are not anywhere near strong enough to limit or arrest these protectionist trends.”
Amid the free-trade agreements, some countries are putting in place policies to help domestic businesses that may come at the expense of overseas ones.
Indonesia’s Trade Ministry issued a decree ordering civil servants to use local products, Jakarta Globe reported Feb. 16, citing Trade Minister Mari Pangestu. The decree is aimed at boosting domestic demand and helping local industries including food, beverages, footwear, clothing and music, the report said.
It is a “normal reaction” for countries to resort to protectionist measures in a slowdown, Malaysian Prime Minister Abdullah Ahmad Badawi told the Bangkok Post in an interview published Feb. 27.
“If we are not supportive of our own industries, and do not buy our own products and services we will have a serious problem,” Abdullah said. “As it is we are told that countries which have been importing our products before are not going to be importing the same amount anymore. We have to protect our people.”
Economic ministers from the 10 member nations this week agreed to reduce trade tariffs and open up more services industries to boost investment and integration within the region. Still, as a worldwide economic downturn threatens jobs and hurts manufacturing, leaders meeting in Cha-am, Thailand, are warning of the dangers of measures aimed at shielding domestic industries and goods from overseas competition.
“We need to accelerate the development of an attractive single market and production base that will help attract foreign trade and investment,” Thai Prime Minister Abhisit Vejjajiva said. “If we start going down the route of protectionism, everybody will go down. It doesn’t help anybody at the end.”
Southeast Asian nations have agreed to open up their markets further in a bid to create an economic zone modeled after the European Union, without a common currency, by 2015. The group has said it needs to improve its competitiveness as China and India, the world’s two fastest-growing major economies, attract an increasing chunk of global investment.
Asean includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Formed in 1967, it has a combined gross domestic product of more than $1.1 trillion and a population of about 570 million.
Commodities, Chips, Cars
Asia’s export-dependent nations are reeling from the global slowdown, which has slashed demand for the region’s computer chips, cars and commodities. The region is almost twice as reliant on exports as the rest of the world.
Growth in Indonesia, Southeast Asia’s largest economy, was the least in two years last quarter, and Thailand is expected to enter its first recession in a decade. Singapore is in its deepest downturn ever, while Malaysia’s economy grew at the slowest pace in seven years last quarter.
“Regional cooperation becomes even more important as we seek to pursue joint approaches and pool our resources to cope with difficulties that we all face,” Asian Development Bank President Haruhiko Kuroda told leaders in Cha-am yesterday.
Asean together with Japan, China and South Korea last week agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies to battle fallout from the global financial crisis.
Australia, New Zealand Deals
The grouping on Feb. 27 also signed a free-trade pact with Australia and New Zealand that covers trade in goods, investment and services. It will implement one with India in the next few months after years of negotiations.
“All of this standard Asean procedure amounts to very little in the current context of the global financial crisis and rising protectionism around the world,” said Razeen Sally, a director of the European Centre for International Policy, a Brussels research group that backs free trade. “These FTAs, bilateral or collective, are not anywhere near strong enough to limit or arrest these protectionist trends.”
Amid the free-trade agreements, some countries are putting in place policies to help domestic businesses that may come at the expense of overseas ones.
Indonesia’s Trade Ministry issued a decree ordering civil servants to use local products, Jakarta Globe reported Feb. 16, citing Trade Minister Mari Pangestu. The decree is aimed at boosting domestic demand and helping local industries including food, beverages, footwear, clothing and music, the report said.
It is a “normal reaction” for countries to resort to protectionist measures in a slowdown, Malaysian Prime Minister Abdullah Ahmad Badawi told the Bangkok Post in an interview published Feb. 27.
“If we are not supportive of our own industries, and do not buy our own products and services we will have a serious problem,” Abdullah said. “As it is we are told that countries which have been importing our products before are not going to be importing the same amount anymore. We have to protect our people.”
Thailand Will Probably Cut Key Interest Rate Further, Korn Says
March 1 (Bloomberg) -- Thailand’s central bank will probably cut its key interest rate further this year to boost growth as the country faces its first recession in 11 years and 1 million job losses, Finance Minister Korn Chatikavanij said.
The central bank cut its benchmark interest rate on Feb. 25 for a third straight month to 1.5 percent to buoy demand after consumer prices fell and the economy shrank in the fourth quarter for the first time since 1999.
“Given where inflation is and given where economic growth is, I’d be surprised if last week’s was the last reduction that we’ll see,” Korn said in an interview yesterday in Cha-am, Thailand, where leaders of the 10-member Association of Southeast Asian Nations are meeting for a summit. “There’s probably more to come if I had to bet.”
Prime Minister Abhisit Vejjajiva, who took power 10 weeks ago following months of violent protests, has pledged fresh stimulus measures to stem the economy’s slide. Manufacturing production contracted the most on record in January, the central bank said Feb. 27. The current account surplus widened to the most in two decades in January as oil costs fell and demand for raw materials dried up.
“The way things are looking, we’re going to see some nasty figures for at least the next month or two,” Korn said. “February will be pretty mean, and March probably the same.”
Stimulus Package
A 116.7 billion-baht ($3.3 billion) package of training programs, cash handouts, property tax breaks and public works will enter the economy in April, Korn said. The government is also designing a second package worth 1.9 trillion baht over three to four years consisting of small-scale infrastructure projects that are “as close to being immediately executed as possible,” he said.
The spending will help reduce job cuts expected to be “at least one million” this year, Korn said. “The worst thing that could happen to any government is rising unemployment,” he said.
The largest contraction since 1982 in the U.S. economy, Thailand’s biggest single overseas market, has prompted exporters such as Charoen Pokphand Foods Pcl and local units of Toyota Motor Corp. and Seagate Technology Inc. to predict lower sales and cut jobs. Overseas shipments, which amount to 70 percent of GDP, plunged 26.5 percent in January from a year earlier, the government said.
“We are heading into a recession,” said Somprawin Manprasert, an economist at Tisco Securities Ltd in Bangkok. “The central bank still has room to cut rates, but I don’t think they will cut the rate to zero because they are still concerned inflation may come back.”
Entering Recession
Thailand’s gross domestic product in the first quarter may shrink more than the fourth quarter’s 4.3 percent contraction, the government’s planning agency said this week, putting the economy into its first recession in a decade. For the year, GDP may miss its 0 percent to 2 percent target, Korn said.
“Achieving growth this year all depends on how the economy reacts to the stimulus packages that we put forward and more importantly how the world economy settles down toward the latter part of the year,” Korn said. “Government spending was always designed basically to keep things ticking and buy us time in order for the rest of the world to recover.”
Commercial banks are projecting net loan growth this year of 6 percent to 7 percent, Korn said. The government may inject funds into state-run banks such as the Islamic Bank of Thailand and the Government Housing Bank, and “would be happy” to provide more funding than the 8 billion baht allocated last month to the Export-Import Bank of Thailand and the Small Business Credit Guarantee Corp., both state-run institutions.
Thai banks cut 75 basis points on lending rates and 1.31 percentage points on deposit rates after the central bank reduced the rate in December and January, Duangmanee Vongpradhip, a Bank of Thailand assistant governor, said Feb. 25. Siam Commercial Bank Pcl cut lending, deposit and savings rates by 25 basis points on Feb. 27, the first commercial bank to react to the central bank’s latest rate cut.
Dominant Banks
Siam Commercial, Bangkok Bank Pcl and Kasikornbank Pcl accounted for more than 50 percent of revenue from 11 Thai banks last year. The average profit margin for the three was 21 percent, compared with 12 percent for all lenders, based on Bloomberg data.
The central bank’s rate cut will ease the decline in average net interest margins at Thai banks this year, Sugittra Kongkhajornkidsuk, a DBS Vickers analyst, wrote in a Feb. 26 note to clients. They are forecast to fall 0.34 percent this year to 3.25 percent, she wrote.
Baht’s Loss
Net interest margins at Thailand’s banks are “clearly wider than regional peers, and banks need to provide a clearer answer to society as to why this remains the case,” Korn said. “I haven’t yet received an entirely convincing argument as to why it needs to be where it is.”
Thailand’s baht in January had its biggest monthly loss since October as overseas investors dumped the nation’s stocks. Foreign investors sold $207 million more Thai stocks than they bought this year, according to stock exchange data.
“The balance has probably tipped to the scale of those who want the baht to be weaker rather than stronger,” Korn said. “The baht is pretty close to where it should be and I know that the central bank is keeping a close eye on it.”
The central bank cut its benchmark interest rate on Feb. 25 for a third straight month to 1.5 percent to buoy demand after consumer prices fell and the economy shrank in the fourth quarter for the first time since 1999.
“Given where inflation is and given where economic growth is, I’d be surprised if last week’s was the last reduction that we’ll see,” Korn said in an interview yesterday in Cha-am, Thailand, where leaders of the 10-member Association of Southeast Asian Nations are meeting for a summit. “There’s probably more to come if I had to bet.”
Prime Minister Abhisit Vejjajiva, who took power 10 weeks ago following months of violent protests, has pledged fresh stimulus measures to stem the economy’s slide. Manufacturing production contracted the most on record in January, the central bank said Feb. 27. The current account surplus widened to the most in two decades in January as oil costs fell and demand for raw materials dried up.
“The way things are looking, we’re going to see some nasty figures for at least the next month or two,” Korn said. “February will be pretty mean, and March probably the same.”
Stimulus Package
A 116.7 billion-baht ($3.3 billion) package of training programs, cash handouts, property tax breaks and public works will enter the economy in April, Korn said. The government is also designing a second package worth 1.9 trillion baht over three to four years consisting of small-scale infrastructure projects that are “as close to being immediately executed as possible,” he said.
The spending will help reduce job cuts expected to be “at least one million” this year, Korn said. “The worst thing that could happen to any government is rising unemployment,” he said.
The largest contraction since 1982 in the U.S. economy, Thailand’s biggest single overseas market, has prompted exporters such as Charoen Pokphand Foods Pcl and local units of Toyota Motor Corp. and Seagate Technology Inc. to predict lower sales and cut jobs. Overseas shipments, which amount to 70 percent of GDP, plunged 26.5 percent in January from a year earlier, the government said.
“We are heading into a recession,” said Somprawin Manprasert, an economist at Tisco Securities Ltd in Bangkok. “The central bank still has room to cut rates, but I don’t think they will cut the rate to zero because they are still concerned inflation may come back.”
Entering Recession
Thailand’s gross domestic product in the first quarter may shrink more than the fourth quarter’s 4.3 percent contraction, the government’s planning agency said this week, putting the economy into its first recession in a decade. For the year, GDP may miss its 0 percent to 2 percent target, Korn said.
“Achieving growth this year all depends on how the economy reacts to the stimulus packages that we put forward and more importantly how the world economy settles down toward the latter part of the year,” Korn said. “Government spending was always designed basically to keep things ticking and buy us time in order for the rest of the world to recover.”
Commercial banks are projecting net loan growth this year of 6 percent to 7 percent, Korn said. The government may inject funds into state-run banks such as the Islamic Bank of Thailand and the Government Housing Bank, and “would be happy” to provide more funding than the 8 billion baht allocated last month to the Export-Import Bank of Thailand and the Small Business Credit Guarantee Corp., both state-run institutions.
Thai banks cut 75 basis points on lending rates and 1.31 percentage points on deposit rates after the central bank reduced the rate in December and January, Duangmanee Vongpradhip, a Bank of Thailand assistant governor, said Feb. 25. Siam Commercial Bank Pcl cut lending, deposit and savings rates by 25 basis points on Feb. 27, the first commercial bank to react to the central bank’s latest rate cut.
Dominant Banks
Siam Commercial, Bangkok Bank Pcl and Kasikornbank Pcl accounted for more than 50 percent of revenue from 11 Thai banks last year. The average profit margin for the three was 21 percent, compared with 12 percent for all lenders, based on Bloomberg data.
The central bank’s rate cut will ease the decline in average net interest margins at Thai banks this year, Sugittra Kongkhajornkidsuk, a DBS Vickers analyst, wrote in a Feb. 26 note to clients. They are forecast to fall 0.34 percent this year to 3.25 percent, she wrote.
Baht’s Loss
Net interest margins at Thailand’s banks are “clearly wider than regional peers, and banks need to provide a clearer answer to society as to why this remains the case,” Korn said. “I haven’t yet received an entirely convincing argument as to why it needs to be where it is.”
Thailand’s baht in January had its biggest monthly loss since October as overseas investors dumped the nation’s stocks. Foreign investors sold $207 million more Thai stocks than they bought this year, according to stock exchange data.
“The balance has probably tipped to the scale of those who want the baht to be weaker rather than stronger,” Korn said. “The baht is pretty close to where it should be and I know that the central bank is keeping a close eye on it.”
HSBC May Raise $17 Billion Selling New Stock to Bolster Capital
March 1 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank by market value, may raise as much as 12 billion pounds ($17 billion) to bolster capital as bad U.S. loans erode earnings, said two people with knowledge of the situation.
The bank will consider a rights offering, said the people, who declined to be identified because terms of the transaction haven’t been completed. The Financial Times reported yesterday that Goldman Sachs Group Inc. and JPMorgan Cazenove were hired to underwrite the sale.
Financial institutions in Europe, led by UBS AG and Royal Bank of Scotland Group Plc, have been forced to raise more than $355 billion because of credit market losses and investment writedowns, according to data compiled by Bloomberg. Higher capital levels would give London-based HSBC the ability to buy assets from cash-strapped rivals, the FT said.
“HSBC isn’t raising capital for fear of current losses, it is looking forward and putting itself in a very strong position beyond this crisis,” said Howard Wheeldon, senior strategist at BGC Partners in London. “It was widely expected that at some point HSBC would have to go along this road, and to do so through its own shareholders shows a positive attitude.”
Richard Lindsay, a London-based spokesman for the bank, declined to comment on the capital-raising plans.
The share sale will probably be announced tomorrow when the company releases second-half results, the FT said.
Capital Ratios
The offering likely will set a U.K. record for a rights offer funded by private investors, the newspaper said, surpassing Royal Bank of Scotland’s 12 billion-pound sale last April.
HSBC, unlike Royal Bank of Scotland, hasn’t been bailed out by the U.K. government. The company has, though, racked up $42.3 billion of bad-loan provisions since the start of 2006, chiefly at its U.S. unit. Banks and insurers worldwide have suffered more than $1.1 trillion of losses and writedowns amid the worst financial crisis since World War II.
“HSBC previously had one of the strongest capital ratios relative to other banks, yet it is now is suffering somewhat by comparison as others around them build up capital,” said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London. “HSBC may be going to its shareholders sooner rather than later before more rights issues arrive and drain away investor cash.”
Dividend Cut?
HSBC’s Tier 1 capital ratio -- a measure of financial strength -- stood at 8.9 percent as of Sept. 30, near the top end of its 7.5 percent to 9.0 percent range. The company had a loan-to-deposit ratio of 88 percent then.
In a separate step to retain capital, the bank may be forced to cut its full-year dividend by as much as 50 percent according to Simon Willis, an analyst at NCB Stockbrokers Ltd. in London. Derek Chambers, an analyst at Standard & Poor’s Equity Research in London, expects a 20 percent cut in the dividend.
HSBC has declined 32 percent over the last year, valuing the bank at 59.7 billion pounds. The 65-member Bloomberg Europe Banks Index has dropped 68 percent in that period.
HSBC’s net income for the six months to Dec. 31 probably fell 29 percent to $5.85 billion, compared with $8.24 billion a year earlier, according to a median estimate of 10 analysts in a Bloomberg News survey. Bad-loan provisions likely increased 20 percent to $13.1 billion for London-based HSBC, according to a median estimate of five analysts.
Regional Estimates
The company bought subprime-mortgage lender Household International, renamed HSBC Finance, for $15.5 billion in 2003. The bank has reduced lending, fired managers and sold parts of the business to reduce provisions at the unit and control losses. It has rejected pressure from shareholder Knight Vinke Asset Management LLC to separate the operation.
In the second half, losses in North America likely widened to $3.59 billion from $2.34 billion, according to the five analysts surveyed, driven by consumer and corporate loan defaults. Profit in Europe probably rose 26 percent to $5.73 billion. Pretax profit in Hong Kong probably fell 24 percent to $3 billion, the analysts estimated. Earnings in the rest of Asia likely rose 4.6 percent to $2.79 billion, the analysts said.
HSBC is scheduled to report results at 8:30 a.m. London time tomorrow.
The bank will consider a rights offering, said the people, who declined to be identified because terms of the transaction haven’t been completed. The Financial Times reported yesterday that Goldman Sachs Group Inc. and JPMorgan Cazenove were hired to underwrite the sale.
Financial institutions in Europe, led by UBS AG and Royal Bank of Scotland Group Plc, have been forced to raise more than $355 billion because of credit market losses and investment writedowns, according to data compiled by Bloomberg. Higher capital levels would give London-based HSBC the ability to buy assets from cash-strapped rivals, the FT said.
“HSBC isn’t raising capital for fear of current losses, it is looking forward and putting itself in a very strong position beyond this crisis,” said Howard Wheeldon, senior strategist at BGC Partners in London. “It was widely expected that at some point HSBC would have to go along this road, and to do so through its own shareholders shows a positive attitude.”
Richard Lindsay, a London-based spokesman for the bank, declined to comment on the capital-raising plans.
The share sale will probably be announced tomorrow when the company releases second-half results, the FT said.
Capital Ratios
The offering likely will set a U.K. record for a rights offer funded by private investors, the newspaper said, surpassing Royal Bank of Scotland’s 12 billion-pound sale last April.
HSBC, unlike Royal Bank of Scotland, hasn’t been bailed out by the U.K. government. The company has, though, racked up $42.3 billion of bad-loan provisions since the start of 2006, chiefly at its U.S. unit. Banks and insurers worldwide have suffered more than $1.1 trillion of losses and writedowns amid the worst financial crisis since World War II.
“HSBC previously had one of the strongest capital ratios relative to other banks, yet it is now is suffering somewhat by comparison as others around them build up capital,” said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London. “HSBC may be going to its shareholders sooner rather than later before more rights issues arrive and drain away investor cash.”
Dividend Cut?
HSBC’s Tier 1 capital ratio -- a measure of financial strength -- stood at 8.9 percent as of Sept. 30, near the top end of its 7.5 percent to 9.0 percent range. The company had a loan-to-deposit ratio of 88 percent then.
In a separate step to retain capital, the bank may be forced to cut its full-year dividend by as much as 50 percent according to Simon Willis, an analyst at NCB Stockbrokers Ltd. in London. Derek Chambers, an analyst at Standard & Poor’s Equity Research in London, expects a 20 percent cut in the dividend.
HSBC has declined 32 percent over the last year, valuing the bank at 59.7 billion pounds. The 65-member Bloomberg Europe Banks Index has dropped 68 percent in that period.
HSBC’s net income for the six months to Dec. 31 probably fell 29 percent to $5.85 billion, compared with $8.24 billion a year earlier, according to a median estimate of 10 analysts in a Bloomberg News survey. Bad-loan provisions likely increased 20 percent to $13.1 billion for London-based HSBC, according to a median estimate of five analysts.
Regional Estimates
The company bought subprime-mortgage lender Household International, renamed HSBC Finance, for $15.5 billion in 2003. The bank has reduced lending, fired managers and sold parts of the business to reduce provisions at the unit and control losses. It has rejected pressure from shareholder Knight Vinke Asset Management LLC to separate the operation.
In the second half, losses in North America likely widened to $3.59 billion from $2.34 billion, according to the five analysts surveyed, driven by consumer and corporate loan defaults. Profit in Europe probably rose 26 percent to $5.73 billion. Pretax profit in Hong Kong probably fell 24 percent to $3 billion, the analysts estimated. Earnings in the rest of Asia likely rose 4.6 percent to $2.79 billion, the analysts said.
HSBC is scheduled to report results at 8:30 a.m. London time tomorrow.
Friday, February 27, 2009
U.S. Economy: GDP Shrinks 6.2%, More Than Estimated
Feb. 27 (Bloomberg) -- The U.S. economic contraction in the fourth quarter was deeper than the government first estimated, with other reports today signaling little prospect of relief until at least the middle of 2009.
Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said today in Washington. Separate figures showed consumer sentiment and business activity dropped this month.
“There has been no evidence that the pace of decline is slowing at all,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in an interview with Bloomberg Television. President Barack Obama’s $787 billion stimulus package will “kick in” in mid-2009 at the earliest, he said.
Consumer spending, which slid the most in almost three decades last quarter, is unlikely to turn around as companies from General Motors Corp. to JPMorgan Chase & Co. cut payrolls. The credit crunch shows no sign of ending, with the government today forced to come to the rescue of Citigroup Inc. for a third time in five months after mounting losses at the lender.
Stocks declined for the ninth time in 10 days, with the Standard & Poor’s 500 Stock Index falling 2.4 percent to close at 735.09. in New York. Treasuries fell for a fourth day amid concern over the ballooning cost of federal efforts to halt the crisis.
Slump Deepens
The Institute for Supply Management-Chicago Inc.’s barometer showed business activity contracted in February for a fifth consecutive month, while the Reuters/University of Michigan consumer sentiment index fell for the first time since November.
U.S. GDP was previously estimated to have declined by 3.8 percent last quarter. The 2.4 percentage-point revision was almost five times as large as the average adjustment, the Commerce Department said. The median forecast of 74 economists surveyed by Bloomberg News was for a 5.4 percent decline.
“This is the year of the great recession,” Jim Meil, chief economist for Eaton Corp., said at an analysts’ conference in New York today as the maker of fuel pumps and circuit breakers cut its 2009 profit forecast and announced a wage freeze. “At this point, there is no clear manifestation of a bend in the curve as a result” of Federal Reserve actions to unclog credit and lower interest rates, he said.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
Expansion Slows
For all of 2008, the economy expanded 1.1 percent as exports and government tax rebates in the first six months helped offset the deepening slump in consumer spending that followed.
Consumer spending dropped at a 4.3 percent annual rate last quarter, the most since 1980, after falling at a 3.8 percent pace the previous three months. That marks the first time purchases have dropped by more than 3 percent in consecutive quarters since record-keeping began in 1947.
Americans may further reduce spending as employers slash payrolls. Companies cut 598,000 workers in January, bringing total job cuts to almost 3.6 million since the recession started in December 2007.
More cutbacks are on the way. General Motors, which is seeking $16.6 billion in new federal loans, said this month it is cutting another 47,000 jobs globally. The company reported yesterday it lost $30.9 billion last year.
JPMorgan Chase, the second-biggest U.S. bank, may cut headcount in its investment bank by as much as 2,000, Steven Black, co-head of the New York-based company’s investment bank said yesterday at a conference.
Bank Rescue
The Treasury Department today said it would convert as much as $25 billion of preferred shares in Citigroup into common stock provided private holders agree to the same terms. The conversion would give the U.S. a 36 percent stake in the New York-based company.
“It’s going to be a tough start to 2009,” Scott Davis, chief executive officer of United Parcel Service Inc. said yesterday during a speech in Washington. “The best case we can see out there is maybe some growth in the second half.”
Companies trimmed inventories at a $19.9 billion annual rate last quarter rather than allowing them to swell at a $6.2 billion pace as previously reported. The updated reading accounted for half of the 2.4 percentage point reduction in growth.
Business purchases of new equipment plunged at a 29 percent pace, the most since 1958.
Cutbacks continue this quarter. Orders for durable goods in January fell 5.2 percent, marking a record sixth consecutive drop, Commerce said yesterday.
Collapse in Trade
The collapse in global trade subtracted half a percentage point from growth last quarter, compared with the 0.1 point gain projected in the advance report. The International Monetary Fund said last month the global economy will grow 0.5 percent this year, the weakest postwar pace, indicating U.S. exports are likely to remain depressed.
Since taking office last month, President Obama has focused on three initiatives -- a $787 billion stimulus plan, a bank- rescue plan and an effort to limit home foreclosures -- while warning of economic “catastrophe” if the government doesn’t take aggressive action.
The GDP figure “denotes that the economy continued to deteriorate throughout the quarter and that acceleration got even greater,” said White House Press Secretary Robert Gibbs, as Obama returned from a speech in North Carolina.
Fed Chairman Ben S. Bernanke said this week the U.S. economy is in a “severe” contraction, and warned the recession may last into 2010 unless policy makers can stabilize the financial system.
The GDP report is the second for the quarter and will be revised in March as more information becomes available.
Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said today in Washington. Separate figures showed consumer sentiment and business activity dropped this month.
“There has been no evidence that the pace of decline is slowing at all,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in an interview with Bloomberg Television. President Barack Obama’s $787 billion stimulus package will “kick in” in mid-2009 at the earliest, he said.
Consumer spending, which slid the most in almost three decades last quarter, is unlikely to turn around as companies from General Motors Corp. to JPMorgan Chase & Co. cut payrolls. The credit crunch shows no sign of ending, with the government today forced to come to the rescue of Citigroup Inc. for a third time in five months after mounting losses at the lender.
Stocks declined for the ninth time in 10 days, with the Standard & Poor’s 500 Stock Index falling 2.4 percent to close at 735.09. in New York. Treasuries fell for a fourth day amid concern over the ballooning cost of federal efforts to halt the crisis.
Slump Deepens
The Institute for Supply Management-Chicago Inc.’s barometer showed business activity contracted in February for a fifth consecutive month, while the Reuters/University of Michigan consumer sentiment index fell for the first time since November.
U.S. GDP was previously estimated to have declined by 3.8 percent last quarter. The 2.4 percentage-point revision was almost five times as large as the average adjustment, the Commerce Department said. The median forecast of 74 economists surveyed by Bloomberg News was for a 5.4 percent decline.
“This is the year of the great recession,” Jim Meil, chief economist for Eaton Corp., said at an analysts’ conference in New York today as the maker of fuel pumps and circuit breakers cut its 2009 profit forecast and announced a wage freeze. “At this point, there is no clear manifestation of a bend in the curve as a result” of Federal Reserve actions to unclog credit and lower interest rates, he said.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
Expansion Slows
For all of 2008, the economy expanded 1.1 percent as exports and government tax rebates in the first six months helped offset the deepening slump in consumer spending that followed.
Consumer spending dropped at a 4.3 percent annual rate last quarter, the most since 1980, after falling at a 3.8 percent pace the previous three months. That marks the first time purchases have dropped by more than 3 percent in consecutive quarters since record-keeping began in 1947.
Americans may further reduce spending as employers slash payrolls. Companies cut 598,000 workers in January, bringing total job cuts to almost 3.6 million since the recession started in December 2007.
More cutbacks are on the way. General Motors, which is seeking $16.6 billion in new federal loans, said this month it is cutting another 47,000 jobs globally. The company reported yesterday it lost $30.9 billion last year.
JPMorgan Chase, the second-biggest U.S. bank, may cut headcount in its investment bank by as much as 2,000, Steven Black, co-head of the New York-based company’s investment bank said yesterday at a conference.
Bank Rescue
The Treasury Department today said it would convert as much as $25 billion of preferred shares in Citigroup into common stock provided private holders agree to the same terms. The conversion would give the U.S. a 36 percent stake in the New York-based company.
“It’s going to be a tough start to 2009,” Scott Davis, chief executive officer of United Parcel Service Inc. said yesterday during a speech in Washington. “The best case we can see out there is maybe some growth in the second half.”
Companies trimmed inventories at a $19.9 billion annual rate last quarter rather than allowing them to swell at a $6.2 billion pace as previously reported. The updated reading accounted for half of the 2.4 percentage point reduction in growth.
Business purchases of new equipment plunged at a 29 percent pace, the most since 1958.
Cutbacks continue this quarter. Orders for durable goods in January fell 5.2 percent, marking a record sixth consecutive drop, Commerce said yesterday.
Collapse in Trade
The collapse in global trade subtracted half a percentage point from growth last quarter, compared with the 0.1 point gain projected in the advance report. The International Monetary Fund said last month the global economy will grow 0.5 percent this year, the weakest postwar pace, indicating U.S. exports are likely to remain depressed.
Since taking office last month, President Obama has focused on three initiatives -- a $787 billion stimulus plan, a bank- rescue plan and an effort to limit home foreclosures -- while warning of economic “catastrophe” if the government doesn’t take aggressive action.
The GDP figure “denotes that the economy continued to deteriorate throughout the quarter and that acceleration got even greater,” said White House Press Secretary Robert Gibbs, as Obama returned from a speech in North Carolina.
Fed Chairman Ben S. Bernanke said this week the U.S. economy is in a “severe” contraction, and warned the recession may last into 2010 unless policy makers can stabilize the financial system.
The GDP report is the second for the quarter and will be revised in March as more information becomes available.
Japan’s Bonds Complete Second Monthly Loss on Supply Concerns
Feb. 28 (Bloomberg) -- Japan’s 30-year bonds completed a two-month drop, the longest slump since May, as evidence mounted the economy faces its worst postwar recession, spurring concern the government will sell more debt to fund stimulus plans.
Bonds fell after reports yesterday showed manufacturers cut production by an unprecedented 10 percent and consumers slashed spending. The finance ministry in December said it will increase debt sales to 113.3 trillion yen ($1.15 trillion) in the year starting April 1, from 106.3 trillion yen this financial year.
“The acceleration of the decline in industrial output may spark speculation that the government will step up economic pump-priming measures,” said Masaru Hamasaki, senior strategist in Tokyo at Toyota Asset Management Co., which oversees about $3.3 billion. “This expectation may push up yields.”
The yield on thirty-year bonds rose 2.5 basis points to 1.955 percent this month, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 2.4 percent security due September 2038 fell 0.524 yen to 108.334. The yield on 20-year bonds added half a basis point to 1.90 percent this month. A basis point is 0.01 percentage point.
The month-on-month decline in factory output exceeded December’s record slump of 9.8 percent, the Trade Ministry said yesterday in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years, a separate report showed yesterday.
Treasuries Slump
“Given the rapidly deteriorating economy in Japan, the government may need to compile additional stimulus packages worth about 20 trillion to 30 trillion yen, bringing an accumulated pump-priming measure up to 100 trillion yen,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities Co., an unit of Japan’s biggest banking group. “The additional policy response will further boost bond issuance.”
The yield on Japan’s benchmark 10-year bond rose half a basis point to 1.27 percent yesterday. Ten-year bond futures for March delivery declined 0.14 to 139.50 yesterday in Tokyo.
Ten-year Treasury yields reached 3.02 percent on Feb. 26, the most since Feb. 9 on concerns the U.S. government will add to record debt sales as it seeks to spend its way out of a recession. Yields slid to a record low of 2.04 percent on Dec. 18 and averaged 4.65 percent in the past decade.
“The U.S. government is selling more bonds than it can buy back, resulting in rises in yields there,” said Takeo Okuhara, a Tokyo-based fixed income strategist at Daiwa SB Investments Ltd. “Until global concerns about rising debt sales subside, this will continue to be a drag on the debt market.”
Month-End Buying
President Barack Obama’s administration forecast a budget deficit of $1.75 trillion in the fiscal year ending Sept. 30. That’s 23 percent higher than an estimate by economists at primary dealer Goldman Sachs Group Inc., and equivalent to about 12 percent of the U.S.’s gross domestic product.
Japan’s bond losses were limited on speculation investors will buy longer-term government debt to match an index that they use to gauge performance.
Nomura Securities Co. increased the average duration of its Bond Performance Index by 0.17 year to 6.41 years for March, according to the company’s Web site.
“Typical month-end buying by index players, aimed at prolonging duration, supports the market,” said Makoto Yamashita, chief Japan interest rate strategist in Tokyo at Deutsche Securities Inc. “We continue to believe that any rise in the yield will be limited to 1.4 percent.”
Money managers such as Japan’s Government Pension Investment Fund, which runs the world’s largest pool of retirement wealth, use Nomura’s index to help decide their holdings. Duration is a gauge of how much a change in yield affects a bond’s price.
Inflation Bonds
Consumer prices failed to rise in January for the first time in more than a year as households cut spending, the government said yesterday, indicating deflation may resurface.
Ten-year inflation-indexed debt is yielding 2.7 percentage points more than similar-maturity conventional bonds, signaling investors expect consumer prices to decline over the next decade. The securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation.
“If you look solely at the poor state of the Japanese economy, which is already in deflation, I would not be surprised if the 10-year yield fell below 1 percent,” said Takeshi Minami, chief economist at Norichukin Research Institute Ltd. in Tokyo.
Gross domestic product fell at an annual rate of 12.7 percent in the three months to December, the fastest since the 1974 oil shock last quarter as exports collapsed. Bank of Japan Governor Masaaki Shirakawa last week said GDP figures will remain “severe” in the first two quarters of this year.
Bonds fell after reports yesterday showed manufacturers cut production by an unprecedented 10 percent and consumers slashed spending. The finance ministry in December said it will increase debt sales to 113.3 trillion yen ($1.15 trillion) in the year starting April 1, from 106.3 trillion yen this financial year.
“The acceleration of the decline in industrial output may spark speculation that the government will step up economic pump-priming measures,” said Masaru Hamasaki, senior strategist in Tokyo at Toyota Asset Management Co., which oversees about $3.3 billion. “This expectation may push up yields.”
The yield on thirty-year bonds rose 2.5 basis points to 1.955 percent this month, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 2.4 percent security due September 2038 fell 0.524 yen to 108.334. The yield on 20-year bonds added half a basis point to 1.90 percent this month. A basis point is 0.01 percentage point.
The month-on-month decline in factory output exceeded December’s record slump of 9.8 percent, the Trade Ministry said yesterday in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years, a separate report showed yesterday.
Treasuries Slump
“Given the rapidly deteriorating economy in Japan, the government may need to compile additional stimulus packages worth about 20 trillion to 30 trillion yen, bringing an accumulated pump-priming measure up to 100 trillion yen,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities Co., an unit of Japan’s biggest banking group. “The additional policy response will further boost bond issuance.”
The yield on Japan’s benchmark 10-year bond rose half a basis point to 1.27 percent yesterday. Ten-year bond futures for March delivery declined 0.14 to 139.50 yesterday in Tokyo.
Ten-year Treasury yields reached 3.02 percent on Feb. 26, the most since Feb. 9 on concerns the U.S. government will add to record debt sales as it seeks to spend its way out of a recession. Yields slid to a record low of 2.04 percent on Dec. 18 and averaged 4.65 percent in the past decade.
“The U.S. government is selling more bonds than it can buy back, resulting in rises in yields there,” said Takeo Okuhara, a Tokyo-based fixed income strategist at Daiwa SB Investments Ltd. “Until global concerns about rising debt sales subside, this will continue to be a drag on the debt market.”
Month-End Buying
President Barack Obama’s administration forecast a budget deficit of $1.75 trillion in the fiscal year ending Sept. 30. That’s 23 percent higher than an estimate by economists at primary dealer Goldman Sachs Group Inc., and equivalent to about 12 percent of the U.S.’s gross domestic product.
Japan’s bond losses were limited on speculation investors will buy longer-term government debt to match an index that they use to gauge performance.
Nomura Securities Co. increased the average duration of its Bond Performance Index by 0.17 year to 6.41 years for March, according to the company’s Web site.
“Typical month-end buying by index players, aimed at prolonging duration, supports the market,” said Makoto Yamashita, chief Japan interest rate strategist in Tokyo at Deutsche Securities Inc. “We continue to believe that any rise in the yield will be limited to 1.4 percent.”
Money managers such as Japan’s Government Pension Investment Fund, which runs the world’s largest pool of retirement wealth, use Nomura’s index to help decide their holdings. Duration is a gauge of how much a change in yield affects a bond’s price.
Inflation Bonds
Consumer prices failed to rise in January for the first time in more than a year as households cut spending, the government said yesterday, indicating deflation may resurface.
Ten-year inflation-indexed debt is yielding 2.7 percentage points more than similar-maturity conventional bonds, signaling investors expect consumer prices to decline over the next decade. The securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation.
“If you look solely at the poor state of the Japanese economy, which is already in deflation, I would not be surprised if the 10-year yield fell below 1 percent,” said Takeshi Minami, chief economist at Norichukin Research Institute Ltd. in Tokyo.
Gross domestic product fell at an annual rate of 12.7 percent in the three months to December, the fastest since the 1974 oil shock last quarter as exports collapsed. Bank of Japan Governor Masaaki Shirakawa last week said GDP figures will remain “severe” in the first two quarters of this year.
Asian Stocks Decline for Third Week as Recession Hurts Earnings
Feb. 28 (Bloomberg) -- Asian stocks declined for the third consecutive week as the deepening global recession crimped earnings and forced companies to raise capital.
Nomura Holdings Inc., Japan’s largest brokerage, slumped 7.8 percent on concern its $3.1 billion stock sale will dilute shareholder value. Woolworths Ltd., Australia’s biggest retailer, lost 5.4 percent on lower-than-expected profit. BlueScope Steel Ltd., the nation’s largest steelmaker, tumbled 29 percent after forecasting a second-half loss and slashing its dividend.
“Pessimism about company earnings hasn’t yet run its course,” said Naoyuki Torii, general manager of equities at Fukoku Mutual Life Insurance Co., which manages about $59 billion. “As massive losses are eating into companies’ capital, investors are expecting more businesses will sell new shares and dilute shareholders’ equity.”
The MSCI Asia Pacific Index lost 1.1 percent in the past five days to 75.19, extending losses after posting its steepest weekly plunge since October in the previous week. The gauge, which has lost 16 percent in 2009, fell to the lowest in more than five years on Feb. 24.
The Nikkei 225 Stock Average gained 2.1 percent this week, while Hong Kong’s Hang Seng index added 0.9 percent. China’s Shanghai Composite Index slumped 8.7 percent and Australia’s S&P/ASX 200 Index dropped 1.7 percent.
Canon Inc., the world’s largest camera maker, rallied 11 percent as a weaker yen boosted Japanese exporters’ earnings prospects. HSBC Holdings Plc, which owns a U.S. mortgage business, climbed 3.9 percent amid speculation American banks will be able to stave off nationalization.
Falling Estimates
MSCI’s Asian index slumped by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to cut jobs amid falling profits. Earnings estimates for companies in the gauge have been slashed 44 percent since the beginning of 2009, data compiled by Bloomberg show.
In latest signs the global recession is worsening, Japan’s Trade Ministry said on Feb. 27 the country’s manufacturers slashed production by an unprecedented 10 percent last month. U.S. government reports showed this week that new home sales tumbled 10 percent last month, while first-time claims for jobless benefits jumped to the highest level since 1982.
Governments from the U.S. to China and Australia have introduced policies and spending programs this year to ease the financial crisis. President Barack Obama delivered his first budget to Congress on Feb. 26, which seeks standby authority for as much as $750 billion in new aid to the financial industry.
Forecasting Losses
Nomura fell 7.8 percent to 414 yen. The company will sell shares valued at as much as 291.2 billion yen ($3.1 billion) to replenish capital eroded by four-straight quarterly losses, according to government filings.
Takefuji Corp., Japan’s third-largest consumer lender by market value, slumped 30 percent this week to 328 yen after the company forecast a full-year loss on lower income from lending.
Woolworths dropped 5.4 percent to A$26.14. The company reported said first-half profit rose 10 percent to A$983.3 million ($634 million) on Christmas demand at its stores, short of the A$1 billion median estimate of six analysts surveyed by Bloomberg News.
Bluescope tumbled 29 percent to A$2.23 after the Melbourne-based company cut its dividend by 77 percent. The global financial crisis has curbed demand and forced mills including ArcelorMittal and BlueScope to reduce output.
‘Bright Spots’
Canon climbed 7.6 percent to 2,540 yen as the yen traded at the weakest level in more than three months against the dollar. Game maker Nintendo Co., which sells four times more of its Wii game machines in the Americas than in Japan, surged 13 percent in the week to 28,490 yen in Osaka.
HSBC jumped 3.9 percent to HK$56.95 in Hong Kong. The Obama administration may require Citigroup Inc. to raise private capital and make changes to its board of directors as part of an effort to strengthen the bank, people familiar with the matter said on Feb. 27.
“There are bright spots and some valuations are tempting,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “But the outlook is not rosy. There’s a great degree of uncertainty about the future.”
Nomura Holdings Inc., Japan’s largest brokerage, slumped 7.8 percent on concern its $3.1 billion stock sale will dilute shareholder value. Woolworths Ltd., Australia’s biggest retailer, lost 5.4 percent on lower-than-expected profit. BlueScope Steel Ltd., the nation’s largest steelmaker, tumbled 29 percent after forecasting a second-half loss and slashing its dividend.
“Pessimism about company earnings hasn’t yet run its course,” said Naoyuki Torii, general manager of equities at Fukoku Mutual Life Insurance Co., which manages about $59 billion. “As massive losses are eating into companies’ capital, investors are expecting more businesses will sell new shares and dilute shareholders’ equity.”
The MSCI Asia Pacific Index lost 1.1 percent in the past five days to 75.19, extending losses after posting its steepest weekly plunge since October in the previous week. The gauge, which has lost 16 percent in 2009, fell to the lowest in more than five years on Feb. 24.
The Nikkei 225 Stock Average gained 2.1 percent this week, while Hong Kong’s Hang Seng index added 0.9 percent. China’s Shanghai Composite Index slumped 8.7 percent and Australia’s S&P/ASX 200 Index dropped 1.7 percent.
Canon Inc., the world’s largest camera maker, rallied 11 percent as a weaker yen boosted Japanese exporters’ earnings prospects. HSBC Holdings Plc, which owns a U.S. mortgage business, climbed 3.9 percent amid speculation American banks will be able to stave off nationalization.
Falling Estimates
MSCI’s Asian index slumped by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to cut jobs amid falling profits. Earnings estimates for companies in the gauge have been slashed 44 percent since the beginning of 2009, data compiled by Bloomberg show.
In latest signs the global recession is worsening, Japan’s Trade Ministry said on Feb. 27 the country’s manufacturers slashed production by an unprecedented 10 percent last month. U.S. government reports showed this week that new home sales tumbled 10 percent last month, while first-time claims for jobless benefits jumped to the highest level since 1982.
Governments from the U.S. to China and Australia have introduced policies and spending programs this year to ease the financial crisis. President Barack Obama delivered his first budget to Congress on Feb. 26, which seeks standby authority for as much as $750 billion in new aid to the financial industry.
Forecasting Losses
Nomura fell 7.8 percent to 414 yen. The company will sell shares valued at as much as 291.2 billion yen ($3.1 billion) to replenish capital eroded by four-straight quarterly losses, according to government filings.
Takefuji Corp., Japan’s third-largest consumer lender by market value, slumped 30 percent this week to 328 yen after the company forecast a full-year loss on lower income from lending.
Woolworths dropped 5.4 percent to A$26.14. The company reported said first-half profit rose 10 percent to A$983.3 million ($634 million) on Christmas demand at its stores, short of the A$1 billion median estimate of six analysts surveyed by Bloomberg News.
Bluescope tumbled 29 percent to A$2.23 after the Melbourne-based company cut its dividend by 77 percent. The global financial crisis has curbed demand and forced mills including ArcelorMittal and BlueScope to reduce output.
‘Bright Spots’
Canon climbed 7.6 percent to 2,540 yen as the yen traded at the weakest level in more than three months against the dollar. Game maker Nintendo Co., which sells four times more of its Wii game machines in the Americas than in Japan, surged 13 percent in the week to 28,490 yen in Osaka.
HSBC jumped 3.9 percent to HK$56.95 in Hong Kong. The Obama administration may require Citigroup Inc. to raise private capital and make changes to its board of directors as part of an effort to strengthen the bank, people familiar with the matter said on Feb. 27.
“There are bright spots and some valuations are tempting,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “But the outlook is not rosy. There’s a great degree of uncertainty about the future.”
Reliance to Buy Chevron Stake, Absorb Reliance Petroleum Unit
Feb. 28 (Bloomberg) -- Reliance Industries Ltd., owner of the world’s largest refining complex, will buy Chevron Corp.’s 5 percent stake in Reliance Petroleum Ltd. as part of the Indian company’s plan to acquire the remaining shares of its unit.
The board will consider the acquisition of the 30 percent of Reliance Petroleum not already owned by the parent company on March 2, Mumbai-based Reliance Industries said in a statement to the Bombay Stock Exchange yesterday.
Reliance Petroleum started a 580,000-barrel-a-day refinery in December at a time of excess industry capacity and declining earnings from processing oil because of a slump in global demand for gasoline and diesel. The new plant is adjacent to its parent’s 660,000-barrel-a-day refinery at Jamnagar in Gujarat.
“Reliance Industries’ margins are already under pressure and Reliance Petroleum will add to this,” said Vinay Nair, an analyst at Khandwala Securities Ltd., who has a “buy” rating on the parent company’s stock. “Reliance Industries shareholders are likely to be disappointed.”
The plan to acquire the remaining shares comes as Reliance Petroleum has dropped 54 percent in the past year. Reliance Industries issued the statement on purchasing the Chevron stake late last night.
Chevron’s 2006 investment in Mumbai-based Reliance bucked the trend among companies such as Royal Dutch Shell Plc and BP Plc, who were scaling back or quitting Indian energy projects because of government price controls that reduced profits from fuel sales.
Purchase Option
Reliance Industries has the option to buy Chevron’s stake at 60 rupees a share if the U.S. company doesn’t increase it, according to Reliance Petroleum’s share-sale document. That would be at a 21 percent discount to Reliance Petroleum’s current price. Based on that price, Chevron would get $265 million for the stake, equivalent to about 14 hours of sales.
Chevron acquired 5 percent of Reliance Petroleum at 60 rupees apiece in April 2006 and had the option to increase its share in the project to 29 percent.
The San Ramon, California-based oil company had until July 27, or three months after the plant is fully commissioned, to decide whether to raise its stake, Chevron said in a filing with the U.S. Securities and Exchange Commission Feb. 26.
Chevron had intended to use its share of output from the new refinery to supply other Asian markets where prices are higher than in India, and to shoehorn its way into potentially more profitable endeavors on the subcontinent, such as oil and natural-gas exploration.
Current Valuation
Reliance Industries is currently valued at $40 billion, compared with $6.9 billion for its unit. One Reliance Industries share is worth the equivalent of 16 of its unit’s shares, according to Bloomberg calculations. Reliance Industries didn’t say how the proposed merger would take place.
Reliance Petroleum closed at 76.35 rupees in Mumbai. Reliance Industries declined 1.9 percent to 1,266.05 rupees in Mumbai trading. The stock has fallen 51 percent in the past year.
Reliance Industries and its refining unit had their stock- price targets and earnings estimates cut by JPMorgan Chase & Co. on Feb. 18, which cited a faster-than-expected decline in global oil demand.
The current uncertainty on the global economic environment could lead to greater earnings uncertainty in global cyclical businesses, JPMorgan said. The key risk is a worse-than-expected economic environment pushing down global refining and petrochemicals margins further, the firm said.
‘Good News’
“Given the subdued outlook for refinery margins for the next couple of years, this is good news for shareholders of Reliance Petroleum,” said Deepak Pareek, an analyst at Mumbai- based Angel Broking Ltd. “It depends a lot on what the swap ratios may be.”
The refineries operated by Reliance Petroleum and its parent, owned by billionaire Mukesh Ambani, can process heavy, sour varieties of crude oil, which are cheaper, and convert them into higher-value products such as gasoline and diesel.
This is the second time that Reliance Industries has absorbed a refining unit. Reliance Industries bought a unit, also known as Reliance Petroleum, in 2002 for 80 billion rupees in stock and assumed debt. It offered one new share for every 11 shares of the refiner to buy back the 36 percent it didn’t own at the time.
The board will consider the acquisition of the 30 percent of Reliance Petroleum not already owned by the parent company on March 2, Mumbai-based Reliance Industries said in a statement to the Bombay Stock Exchange yesterday.
Reliance Petroleum started a 580,000-barrel-a-day refinery in December at a time of excess industry capacity and declining earnings from processing oil because of a slump in global demand for gasoline and diesel. The new plant is adjacent to its parent’s 660,000-barrel-a-day refinery at Jamnagar in Gujarat.
“Reliance Industries’ margins are already under pressure and Reliance Petroleum will add to this,” said Vinay Nair, an analyst at Khandwala Securities Ltd., who has a “buy” rating on the parent company’s stock. “Reliance Industries shareholders are likely to be disappointed.”
The plan to acquire the remaining shares comes as Reliance Petroleum has dropped 54 percent in the past year. Reliance Industries issued the statement on purchasing the Chevron stake late last night.
Chevron’s 2006 investment in Mumbai-based Reliance bucked the trend among companies such as Royal Dutch Shell Plc and BP Plc, who were scaling back or quitting Indian energy projects because of government price controls that reduced profits from fuel sales.
Purchase Option
Reliance Industries has the option to buy Chevron’s stake at 60 rupees a share if the U.S. company doesn’t increase it, according to Reliance Petroleum’s share-sale document. That would be at a 21 percent discount to Reliance Petroleum’s current price. Based on that price, Chevron would get $265 million for the stake, equivalent to about 14 hours of sales.
Chevron acquired 5 percent of Reliance Petroleum at 60 rupees apiece in April 2006 and had the option to increase its share in the project to 29 percent.
The San Ramon, California-based oil company had until July 27, or three months after the plant is fully commissioned, to decide whether to raise its stake, Chevron said in a filing with the U.S. Securities and Exchange Commission Feb. 26.
Chevron had intended to use its share of output from the new refinery to supply other Asian markets where prices are higher than in India, and to shoehorn its way into potentially more profitable endeavors on the subcontinent, such as oil and natural-gas exploration.
Current Valuation
Reliance Industries is currently valued at $40 billion, compared with $6.9 billion for its unit. One Reliance Industries share is worth the equivalent of 16 of its unit’s shares, according to Bloomberg calculations. Reliance Industries didn’t say how the proposed merger would take place.
Reliance Petroleum closed at 76.35 rupees in Mumbai. Reliance Industries declined 1.9 percent to 1,266.05 rupees in Mumbai trading. The stock has fallen 51 percent in the past year.
Reliance Industries and its refining unit had their stock- price targets and earnings estimates cut by JPMorgan Chase & Co. on Feb. 18, which cited a faster-than-expected decline in global oil demand.
The current uncertainty on the global economic environment could lead to greater earnings uncertainty in global cyclical businesses, JPMorgan said. The key risk is a worse-than-expected economic environment pushing down global refining and petrochemicals margins further, the firm said.
‘Good News’
“Given the subdued outlook for refinery margins for the next couple of years, this is good news for shareholders of Reliance Petroleum,” said Deepak Pareek, an analyst at Mumbai- based Angel Broking Ltd. “It depends a lot on what the swap ratios may be.”
The refineries operated by Reliance Petroleum and its parent, owned by billionaire Mukesh Ambani, can process heavy, sour varieties of crude oil, which are cheaper, and convert them into higher-value products such as gasoline and diesel.
This is the second time that Reliance Industries has absorbed a refining unit. Reliance Industries bought a unit, also known as Reliance Petroleum, in 2002 for 80 billion rupees in stock and assumed debt. It offered one new share for every 11 shares of the refiner to buy back the 36 percent it didn’t own at the time.
Thursday, February 26, 2009
Supreme Court Hears Challenge to Identity-Theft Law in Immigration Cases
WASHINGTON — A federal identity-theft law that has become a favorite tool of the government in immigration prosecutions appeared imperiled on Wednesday after the Supreme Court heard arguments about it.
Prosecutors have relied on the law to seek or threaten two-year sentence extensions in immigration cases against people who used fake Social Security numbers that turned out to belong to real people.
“There’s a basic problem here,” said Chief Justice John G. Roberts Jr.. “You get an extra two years if it just so happens that the number you picked out of the air belonged to somebody else.”
Other justices also expressed skepticism about the government’s interpretation of the law.
The argument on Wednesday mostly concerned the meaning of the law, which applies to anyone who, in connection to other crimes, “knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person.”
The question in the case, one the advocates and justices examined from many angles, was how far down that sentence the “knowingly” requirement travels. The government took the position that it stopped somewhere short of the crucial final three words — “of another person.”
Kevin K. Russell, a lawyer for the defendant, said that ordinary usage requires the government to prove that people accused of identity theft under the law knew the numbers they used belonged to someone else.
“If I say that John knowingly used a pair of scissors of his mother,” Mr. Russell said by way of example, “I am saying not simply that John knew he was using something that turned out to be his mother’s scissors or even that John knew he was using scissors which turned out to be his mother’s. I am saying that John knew that the scissors he was using belonged to his mother.”
Mr. Russell’s client, Ignacio Flores-Figueroa, was a Mexican citizen working illegally for a steel plant in Illinois. At first, Mr. Flores-Figueroa used a false name and fake Social Security number, one that did not happen to match that of a real person. Six years later, he told his employer that he wanted to be known by his real name, and he presented forged Social Security and alien registration cards that bore numbers assigned to real people.
When all of this was discovered, Mr. Flores-Figueroa pleaded guilty to several immigration offenses, resulting in a 51-month sentence, but he went to trial to contest charges under the identity-theft law. Although the government presented no evidence that Mr. Flores-Figueroa knew he was using numbers assigned to other people, he was convicted and sentenced to the additional two years mandated by the law.
The United States Court of Appeals for the Eighth Circuit, in St. Louis, affirmed Mr. Flores-Figueroa’s conviction, saying that the government needed to prove only a knowing use of false information, and not that the defendant knew the fake number belonged to a real person.
Mr. Russell said that interpretation of the law can give rise to perverse results, including the possibilities of “two people with identical culpability ending up with substantially different punishments, or people with substantially different culpability ending up with identical punishments.”
Toby J. Heytens, representing the government in the case, Flores-Figueroa v. United States, No. 08-108, said the court should focus on the victims of identity fraud rather than on its perpetrators. The law often makes distinctions, Mr. Heytens said, between equally culpable conduct based on the harm it causes.
The identity-theft law was used last summer by prosecutors in Iowa to bring one of the toughest cases against illegal immigrants in a two-year nationwide crackdown.
After nearly 400 illegal immigrants were arrested in May in a raid at a meatpacking plant in Postville, Iowa, prosecutors brought identity-theft charges against about 270 of them who were found to have used identity information, like Social Security numbers, that corresponded to other real people and were not simply fabrications.
The Iowa criminal prosecutions were an abrupt departure from past immigration enforcement practice, in which illegal work cases had generally been handled under civil law.
Prosecutors used the charges to pressure the immigrants both to plead guilty to lesser charges of document fraud and to agree to summary deportation, waiving their immigration rights. Almost all the immigrants did, and they have served their sentences and been deported.
But a court interpreter who worked in the hearings, Prof. Erik Camayd-Freixas of Florida International University, later broke his professional silence. He testified before Congress that most of the immigrants for whom he translated, many from Guatemala, did not know what a Social Security card was or whether the numbers they used at the Postville plant belonged to other people.
Several justices appeared persuaded on Wednesday that the identity-theft law was at least ambiguous enough that the “rule of lenity” ought to apply. That rule, as Justice Antonin Scalia summarized it from the bench, is that “the tie goes to the defendant.”
Mr. Heytens, representing the government, said the Supreme Court had said as recently as Tuesday, in Hayes v. United States, that “a certain amount of ambiguity doesn’t automatically trigger the rule of lenity.”
Chief Justice John G. Roberts Jr., who was in dissent in the Hayes decision on Tuesday, asked a question. “Is it time,” he said dryly, “to revisit the court’s decision in Hayes?”
Adam Liptak reported from Washington, and Julia Preston from New York.
Prosecutors have relied on the law to seek or threaten two-year sentence extensions in immigration cases against people who used fake Social Security numbers that turned out to belong to real people.
“There’s a basic problem here,” said Chief Justice John G. Roberts Jr.. “You get an extra two years if it just so happens that the number you picked out of the air belonged to somebody else.”
Other justices also expressed skepticism about the government’s interpretation of the law.
The argument on Wednesday mostly concerned the meaning of the law, which applies to anyone who, in connection to other crimes, “knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person.”
The question in the case, one the advocates and justices examined from many angles, was how far down that sentence the “knowingly” requirement travels. The government took the position that it stopped somewhere short of the crucial final three words — “of another person.”
Kevin K. Russell, a lawyer for the defendant, said that ordinary usage requires the government to prove that people accused of identity theft under the law knew the numbers they used belonged to someone else.
“If I say that John knowingly used a pair of scissors of his mother,” Mr. Russell said by way of example, “I am saying not simply that John knew he was using something that turned out to be his mother’s scissors or even that John knew he was using scissors which turned out to be his mother’s. I am saying that John knew that the scissors he was using belonged to his mother.”
Mr. Russell’s client, Ignacio Flores-Figueroa, was a Mexican citizen working illegally for a steel plant in Illinois. At first, Mr. Flores-Figueroa used a false name and fake Social Security number, one that did not happen to match that of a real person. Six years later, he told his employer that he wanted to be known by his real name, and he presented forged Social Security and alien registration cards that bore numbers assigned to real people.
When all of this was discovered, Mr. Flores-Figueroa pleaded guilty to several immigration offenses, resulting in a 51-month sentence, but he went to trial to contest charges under the identity-theft law. Although the government presented no evidence that Mr. Flores-Figueroa knew he was using numbers assigned to other people, he was convicted and sentenced to the additional two years mandated by the law.
The United States Court of Appeals for the Eighth Circuit, in St. Louis, affirmed Mr. Flores-Figueroa’s conviction, saying that the government needed to prove only a knowing use of false information, and not that the defendant knew the fake number belonged to a real person.
Mr. Russell said that interpretation of the law can give rise to perverse results, including the possibilities of “two people with identical culpability ending up with substantially different punishments, or people with substantially different culpability ending up with identical punishments.”
Toby J. Heytens, representing the government in the case, Flores-Figueroa v. United States, No. 08-108, said the court should focus on the victims of identity fraud rather than on its perpetrators. The law often makes distinctions, Mr. Heytens said, between equally culpable conduct based on the harm it causes.
The identity-theft law was used last summer by prosecutors in Iowa to bring one of the toughest cases against illegal immigrants in a two-year nationwide crackdown.
After nearly 400 illegal immigrants were arrested in May in a raid at a meatpacking plant in Postville, Iowa, prosecutors brought identity-theft charges against about 270 of them who were found to have used identity information, like Social Security numbers, that corresponded to other real people and were not simply fabrications.
The Iowa criminal prosecutions were an abrupt departure from past immigration enforcement practice, in which illegal work cases had generally been handled under civil law.
Prosecutors used the charges to pressure the immigrants both to plead guilty to lesser charges of document fraud and to agree to summary deportation, waiving their immigration rights. Almost all the immigrants did, and they have served their sentences and been deported.
But a court interpreter who worked in the hearings, Prof. Erik Camayd-Freixas of Florida International University, later broke his professional silence. He testified before Congress that most of the immigrants for whom he translated, many from Guatemala, did not know what a Social Security card was or whether the numbers they used at the Postville plant belonged to other people.
Several justices appeared persuaded on Wednesday that the identity-theft law was at least ambiguous enough that the “rule of lenity” ought to apply. That rule, as Justice Antonin Scalia summarized it from the bench, is that “the tie goes to the defendant.”
Mr. Heytens, representing the government, said the Supreme Court had said as recently as Tuesday, in Hayes v. United States, that “a certain amount of ambiguity doesn’t automatically trigger the rule of lenity.”
Chief Justice John G. Roberts Jr., who was in dissent in the Hayes decision on Tuesday, asked a question. “Is it time,” he said dryly, “to revisit the court’s decision in Hayes?”
Adam Liptak reported from Washington, and Julia Preston from New York.
Sri Lanka May Need Bailout as War Debt, Currency Drain Reserves
Feb. 27 (Bloomberg) -- Sri Lanka may need a bailout from international donors to help pay its debts as the island’s 26- year civil war draws to a close.
Since August, the South Asian nation has spent half its foreign reserves, now $1.7 billion, on supporting its currency, paying debt and buying imports. That doesn’t leave much after the government shells out another $900 million due in 2009. The reserves aren’t getting replenished as the ailing world economy pummels exports and overseas investors flee emerging markets.
President Mahinda Rajapaksa’s government is unwilling to turn to the International Monetary Fund, which requires austerity measures in return for loans. Securing financing from other countries may be challenging for a nation whose credit rating from Standard & Poor’s is the lowest apart from those of Bolivia, Pakistan, Grenada, Argentina and Lebanon.
“Sri Lankan authorities have to act fast to beef up the country’s reserves,” said Ashok Parameswaran, senior emerging markets analyst at Invesco Inc. in New York. “Otherwise, they may have to devalue their currency significantly.”
Since December, countries including Russia, Vietnam and Kazakhstan have weakened their currencies rather than use reserves to prop them up. That has made imports costlier, reducing demand for goods from overseas.
Neighboring Currencies
Sri Lanka kept its exchange rate at about 108 rupees per dollar between January and October 2008 to slow inflation, even as the currencies of neighboring India and Pakistan weakened. The Sri Lankan rupee has since dropped to 114.95.
“Sri Lanka has relaxed the rupee in stops and starts, but they need a controlled devaluation,” said Agost Benard, a Singapore-based sovereign analyst at S&P. “The implicit currency peg will have to change and that’s one of the long-term solutions to the nation’s foreign-exchange problems.”
S&P cut Sri Lanka’s rating by one level in December to B, five steps below investment grade. Fitch Ratings has a B+ for the nation, which is four levels below investment grade and unchanged since April 2008.
Sri Lanka is banking on currency swaps with central banks, sales of treasury bills and bonds and offering higher interest rates on deposits to citizens living abroad to boost reserves.
Once the northern region of the country is recovered from the Liberation Tigers of Tamil Eelam, peace will lead to more remittances and aid for construction of houses, schools and hospitals, said P. Nandalal Weerasinghe, chief economist at the Central Bank of Sri Lanka. This will provide “some balance of payments support,” he said.
Tamil Tigers
The Tamil Tigers, who have been fighting for a separate homeland, have retreated from most of the northern part of the island nation. They now control a pocket of only 87 square kilometers (34 square miles) in the Mullaitivu region in the northeast, the Sri Lankan Defense Ministry said Feb. 22.
John Keells Holdings Plc, Sri Lanka’s biggest diversified company, last week doubled its stake in Union Assurance Plc, a local insurer, to 74 percent. The company said it’s anticipating that the liberation of Tamil Tigers-occupied territories will spur demand for finance and insurance.
To be sure, the dispute hasn’t ended yet.
“Although there is the possibility of outright military defeat of the Tamil Tigers, a potentially different style and lower-intensity conflict will continue to pose a risk to growth prospects and public finances,” S&P’s Benard said.
Still Raiding
Tamil Tigers launched an air raid in the Sri Lankan capital, Colombo, on Feb. 20. Their two aircraft were shot down, one crashing into a building housing the Inland Revenue Department and the second north of the city.
At the end of November, Sri Lanka had 1.4 trillion rupees ($12 billion) of foreign debt outstanding. Its total debt is 3.4 trillion rupees, or 75 percent of the nation’s gross domestic product, according to S&P.
Liabilities increased as Sri Lanka, which spends a fifth of its annual budget on defense, borrowed from local and foreign sources to build roads and ports, among other spending. The nation’s budget deficit has averaged 8.7 percent of GDP in the past decade.
Sri Lanka must reduce reliance on dollar-denominated short- term commercial borrowings to ease public debt “distress,” the IMF said in October. It called on the government to weaken the rupee as part of a “comprehensive policy package that would underpin confidence in the currency.”
The central bank said Jan. 19 that it will neither let the currency fall nor approach the IMF for a bailout to pay for imports and repay its debt.
On Feb. 19 Governor Nivard Cabraal said the central bank received $200 million from Malaysia, declining to reveal the terms of the deal or whether it was a swap or any other facility with Bank Negara Malaysia. Bank Negara didn’t respond to an e- mail sent by Bloomberg News for comment.
“It’s unlikely that Sri Lanka will go to the IMF for funds,” said Dushni Weerakoon, deputy director of the Institute of Policy Studies in Colombo. “At whatever cost, they will try to raise small sums from other countries.”
Since August, the South Asian nation has spent half its foreign reserves, now $1.7 billion, on supporting its currency, paying debt and buying imports. That doesn’t leave much after the government shells out another $900 million due in 2009. The reserves aren’t getting replenished as the ailing world economy pummels exports and overseas investors flee emerging markets.
President Mahinda Rajapaksa’s government is unwilling to turn to the International Monetary Fund, which requires austerity measures in return for loans. Securing financing from other countries may be challenging for a nation whose credit rating from Standard & Poor’s is the lowest apart from those of Bolivia, Pakistan, Grenada, Argentina and Lebanon.
“Sri Lankan authorities have to act fast to beef up the country’s reserves,” said Ashok Parameswaran, senior emerging markets analyst at Invesco Inc. in New York. “Otherwise, they may have to devalue their currency significantly.”
Since December, countries including Russia, Vietnam and Kazakhstan have weakened their currencies rather than use reserves to prop them up. That has made imports costlier, reducing demand for goods from overseas.
Neighboring Currencies
Sri Lanka kept its exchange rate at about 108 rupees per dollar between January and October 2008 to slow inflation, even as the currencies of neighboring India and Pakistan weakened. The Sri Lankan rupee has since dropped to 114.95.
“Sri Lanka has relaxed the rupee in stops and starts, but they need a controlled devaluation,” said Agost Benard, a Singapore-based sovereign analyst at S&P. “The implicit currency peg will have to change and that’s one of the long-term solutions to the nation’s foreign-exchange problems.”
S&P cut Sri Lanka’s rating by one level in December to B, five steps below investment grade. Fitch Ratings has a B+ for the nation, which is four levels below investment grade and unchanged since April 2008.
Sri Lanka is banking on currency swaps with central banks, sales of treasury bills and bonds and offering higher interest rates on deposits to citizens living abroad to boost reserves.
Once the northern region of the country is recovered from the Liberation Tigers of Tamil Eelam, peace will lead to more remittances and aid for construction of houses, schools and hospitals, said P. Nandalal Weerasinghe, chief economist at the Central Bank of Sri Lanka. This will provide “some balance of payments support,” he said.
Tamil Tigers
The Tamil Tigers, who have been fighting for a separate homeland, have retreated from most of the northern part of the island nation. They now control a pocket of only 87 square kilometers (34 square miles) in the Mullaitivu region in the northeast, the Sri Lankan Defense Ministry said Feb. 22.
John Keells Holdings Plc, Sri Lanka’s biggest diversified company, last week doubled its stake in Union Assurance Plc, a local insurer, to 74 percent. The company said it’s anticipating that the liberation of Tamil Tigers-occupied territories will spur demand for finance and insurance.
To be sure, the dispute hasn’t ended yet.
“Although there is the possibility of outright military defeat of the Tamil Tigers, a potentially different style and lower-intensity conflict will continue to pose a risk to growth prospects and public finances,” S&P’s Benard said.
Still Raiding
Tamil Tigers launched an air raid in the Sri Lankan capital, Colombo, on Feb. 20. Their two aircraft were shot down, one crashing into a building housing the Inland Revenue Department and the second north of the city.
At the end of November, Sri Lanka had 1.4 trillion rupees ($12 billion) of foreign debt outstanding. Its total debt is 3.4 trillion rupees, or 75 percent of the nation’s gross domestic product, according to S&P.
Liabilities increased as Sri Lanka, which spends a fifth of its annual budget on defense, borrowed from local and foreign sources to build roads and ports, among other spending. The nation’s budget deficit has averaged 8.7 percent of GDP in the past decade.
Sri Lanka must reduce reliance on dollar-denominated short- term commercial borrowings to ease public debt “distress,” the IMF said in October. It called on the government to weaken the rupee as part of a “comprehensive policy package that would underpin confidence in the currency.”
The central bank said Jan. 19 that it will neither let the currency fall nor approach the IMF for a bailout to pay for imports and repay its debt.
On Feb. 19 Governor Nivard Cabraal said the central bank received $200 million from Malaysia, declining to reveal the terms of the deal or whether it was a swap or any other facility with Bank Negara Malaysia. Bank Negara didn’t respond to an e- mail sent by Bloomberg News for comment.
“It’s unlikely that Sri Lanka will go to the IMF for funds,” said Dushni Weerakoon, deputy director of the Institute of Policy Studies in Colombo. “At whatever cost, they will try to raise small sums from other countries.”
India’s Economy Probably Expanded at Slowest Pace Since 2004
Feb. 27 (Bloomberg) -- India’s economy probably grew at the slowest pace since 2004 last quarter as the global recession saw exports decline for the first time in seven years.
Asia’s third-largest economy expanded 6.1 percent in the three months to Dec. 31 from a year earlier after a 7.6 percent gain in the previous quarter, according to the median forecast of 21 economists in a Bloomberg News survey. The statistics agency’s numbers are due today at 11 a.m. in New Delhi.
Policy makers across Asia are slashing interest rates and spending more as the worst financial crisis since World War II hits the region’s overseas sales and saps consumer demand. Reserve Bank of India Governor Duvvuri Subbarao, who has reduced the central bank’s key policy rates to a record low since October, says there’s “certainly room” for further cuts.
“India’s growth momentum is easing and policy makers must act to support the economy,” said Sherman Chan, a Sydney-based economist at Moody’s Economy.com. “The central bank needs to ensure ample liquidity and low interest rates.”
The Reserve Bank of India has responded to the deepening global slump by reducing its repurchase rate by 3.5 percentage points to 5.5 percent and the reverse repurchase rate to 4 percent from 6 percent. It also cut the cash reserve ratio, or the proportion of deposit lenders must set aside as cash, to 5 percent from 9 percent.
Fiscal Stimulus
To provide fiscal support to the economy, Prime Minister Manmohan Singh’s government has cut taxes and increased spending on roads, ports and other infrastructure. Acting Finance Minister Pranab Mukherjee this week slashed excise duty across the board to 8 percent from 10 percent and the service tax to 10 percent from 12 percent, besides extending a 4 percentage point cut in the central value-added tax announced in December beyond March 31.
The combined stimulus from interest-rate cuts, increased government outlays and lower taxes totals almost $80 billion, or 7 percent of India’s gross domestic product, according to the central bank.
Still, the fiscal spending is straining the budget deficit, which the finance ministry forecasts will widen to 6 percent of GDP in the year ending March 31 from a target of 2.5 percent.
The government expects borrowings next year to increase to a record 3.62 trillion rupees ($72 billion). Indian government debt accounts for 80 percent of the nation’s GDP.
The yield on benchmark government bonds due in 2018 has gained 131 basis points to 6.55 percent this year as additional debt sales sapped demand for the securities.
Credit Rating
Standard & Poor’s said Feb. 24 that the nation’s credit rating will be cut to junk as government debt is reaching a level that’s “not sustainable.” S&P reduced India’s rating outlook to negative from stable.
Mukherjee said the rating company’s move was “not unexpected,” adding that the global downturn “requires extraordinary steps from the government.”
The government, whose five-year term comes to an end in May, wants to prop up growth and reduce unemployment as it prepares to face general elections. Already, companies have cut about half a million jobs in the three months ended December, according to the labor ministry.
Apollo Tyres Ltd., the Indian tire maker partly owned by Michelin & Cie, said this month it plans to cut its workforce by 15 percent, or 1,500 employees. A survey of 50 textile companies by the Apparel Export Promotion Council of India released this month found they slashed 14 percent of their workers in November.
Slowing Growth
The government expects economic growth to slow to 7.1 percent in the year to March 31, the weakest since 2003. Even though that pace makes India the second-fastest after China among the world’s largest economies, it’s not enough to generate jobs in a country where the number of people looking for employment increases by more than 10 million each year.
Growth of 7 percent “ain’t good enough,” said Duncan Campbell, director of the International Labour Organization’s economic analysis department. Campbell forecasts India needs at least 10 percent growth a year for a one percent increase in employment.
Still, “India has such a strong democratic system that there may not be a threat of social upheaval like in China,” said Campbell. “There’s an election coming up, and the people can express their disapproval by tossing out the government.”
India’s GDP Forecasts
-------------------------------------------
GDP YoY%
Company Oct-Dec
-------------------------------------------
Median 6.1%
Average 6.0%
High 6.9%
Low 5.2%
Number of Estimates 21
-------------------------------------------
Action Economics 6.5%
Anand Rathi Securities 5.7%
Axis Bank Ltd. 5.4%
CARE Ratings 6.3%
CRISIL Ltd. 6.0%
DBS Group 6.2%
Dun & Bradstreet Info. 6.1%
HSBC Singapore 6.6%
ICICI Bank 6.0%
ICICI Securities 6.9%
IDBI Gilts Ltd. 5.7%
Inst. of Economic Growth 6.8%
JPMorgan Chase Bank 5.7%
Kotak Mahindra Bank 6.2%
Kotak Securities Ltd. 5.7%
Macquarie Capital Securities 5.5%
Moody’s Economy.com Inc. 6.1%
Nomura International (HK) 6.2%
Reuters IFR 5.2%
Standard Chartered Bank 5.3%
UBS 6.5%
-------------------------------------------
Asia’s third-largest economy expanded 6.1 percent in the three months to Dec. 31 from a year earlier after a 7.6 percent gain in the previous quarter, according to the median forecast of 21 economists in a Bloomberg News survey. The statistics agency’s numbers are due today at 11 a.m. in New Delhi.
Policy makers across Asia are slashing interest rates and spending more as the worst financial crisis since World War II hits the region’s overseas sales and saps consumer demand. Reserve Bank of India Governor Duvvuri Subbarao, who has reduced the central bank’s key policy rates to a record low since October, says there’s “certainly room” for further cuts.
“India’s growth momentum is easing and policy makers must act to support the economy,” said Sherman Chan, a Sydney-based economist at Moody’s Economy.com. “The central bank needs to ensure ample liquidity and low interest rates.”
The Reserve Bank of India has responded to the deepening global slump by reducing its repurchase rate by 3.5 percentage points to 5.5 percent and the reverse repurchase rate to 4 percent from 6 percent. It also cut the cash reserve ratio, or the proportion of deposit lenders must set aside as cash, to 5 percent from 9 percent.
Fiscal Stimulus
To provide fiscal support to the economy, Prime Minister Manmohan Singh’s government has cut taxes and increased spending on roads, ports and other infrastructure. Acting Finance Minister Pranab Mukherjee this week slashed excise duty across the board to 8 percent from 10 percent and the service tax to 10 percent from 12 percent, besides extending a 4 percentage point cut in the central value-added tax announced in December beyond March 31.
The combined stimulus from interest-rate cuts, increased government outlays and lower taxes totals almost $80 billion, or 7 percent of India’s gross domestic product, according to the central bank.
Still, the fiscal spending is straining the budget deficit, which the finance ministry forecasts will widen to 6 percent of GDP in the year ending March 31 from a target of 2.5 percent.
The government expects borrowings next year to increase to a record 3.62 trillion rupees ($72 billion). Indian government debt accounts for 80 percent of the nation’s GDP.
The yield on benchmark government bonds due in 2018 has gained 131 basis points to 6.55 percent this year as additional debt sales sapped demand for the securities.
Credit Rating
Standard & Poor’s said Feb. 24 that the nation’s credit rating will be cut to junk as government debt is reaching a level that’s “not sustainable.” S&P reduced India’s rating outlook to negative from stable.
Mukherjee said the rating company’s move was “not unexpected,” adding that the global downturn “requires extraordinary steps from the government.”
The government, whose five-year term comes to an end in May, wants to prop up growth and reduce unemployment as it prepares to face general elections. Already, companies have cut about half a million jobs in the three months ended December, according to the labor ministry.
Apollo Tyres Ltd., the Indian tire maker partly owned by Michelin & Cie, said this month it plans to cut its workforce by 15 percent, or 1,500 employees. A survey of 50 textile companies by the Apparel Export Promotion Council of India released this month found they slashed 14 percent of their workers in November.
Slowing Growth
The government expects economic growth to slow to 7.1 percent in the year to March 31, the weakest since 2003. Even though that pace makes India the second-fastest after China among the world’s largest economies, it’s not enough to generate jobs in a country where the number of people looking for employment increases by more than 10 million each year.
Growth of 7 percent “ain’t good enough,” said Duncan Campbell, director of the International Labour Organization’s economic analysis department. Campbell forecasts India needs at least 10 percent growth a year for a one percent increase in employment.
Still, “India has such a strong democratic system that there may not be a threat of social upheaval like in China,” said Campbell. “There’s an election coming up, and the people can express their disapproval by tossing out the government.”
India’s GDP Forecasts
-------------------------------------------
GDP YoY%
Company Oct-Dec
-------------------------------------------
Median 6.1%
Average 6.0%
High 6.9%
Low 5.2%
Number of Estimates 21
-------------------------------------------
Action Economics 6.5%
Anand Rathi Securities 5.7%
Axis Bank Ltd. 5.4%
CARE Ratings 6.3%
CRISIL Ltd. 6.0%
DBS Group 6.2%
Dun & Bradstreet Info. 6.1%
HSBC Singapore 6.6%
ICICI Bank 6.0%
ICICI Securities 6.9%
IDBI Gilts Ltd. 5.7%
Inst. of Economic Growth 6.8%
JPMorgan Chase Bank 5.7%
Kotak Mahindra Bank 6.2%
Kotak Securities Ltd. 5.7%
Macquarie Capital Securities 5.5%
Moody’s Economy.com Inc. 6.1%
Nomura International (HK) 6.2%
Reuters IFR 5.2%
Standard Chartered Bank 5.3%
UBS 6.5%
-------------------------------------------
Asian Stocks Advance, Paring Worst Start to Year Since 1990
Feb. 27 (Bloomberg) -- Asian stocks rose, helping the regional benchmark index pare the worst start to a year since 1990, as technology companies gained on brokerage upgrades and commodity shares advanced on higher metal prices.
LG Display Co., the world’s second-largest maker of liquid crystal displays, jumped 4.9 percent after Goldman, Sachs & Co. raised its share-price target. Rio Tinto Ltd., the world’s third-largest mining company, rose 1.4 percent as copper climbed to a two-week high. Woolworths Ltd., Australia’s biggest retailer, slumped 4.4 percent on lower-than-expected profit.
“There are bright spots and some valuations are tempting,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “But the outlook is not rosy. There’s a great degree of uncertainty about the future.”
The MSCI Asia Pacific Index rose 0.9 percent to 75.20 as of 12:09 p.m. in Tokyo, narrowing its February drop to 7.5 percent and its 2009 decline to 16 percent. The gauge has lost 50 percent in the past year, cutting average stock valuations by 13 percent, as the global recession battered earnings at companies from Toyota Motor Corp. to BHP Billiton.
The Nikkei 225 Stock Average climbed 0.7 percent to 7,511.20, as the yen at a three-month low boosted Japanese exporters’ earnings prospects. The Nikkei pared its drop this month to 4.6 percent. South Korea’s Kospi Index rose 1.4 percent.
Telstra Corp., the country’s biggest phone company, lost 4.1 percent as Citigroup Inc. recommended investors sell the stock. QBE Insurance Group Ltd., the country’s No. 1 property and casualty insurer, slumped 2.9 percent after posting second- half earnings that were unchanged from a year earlier. Kubota Corp., Asia’s largest tractor maker, slumped 5.3 percent in Tokyo after saying it may cut its dividend payment.
Obama Budget
Futures on the U.S. Standard & Poor’s 500 Index added 0.2 percent, following the gauge’s 1.6 percent decline yesterday. President Barack Obama delivered his first budget to Congress yesterday, which seeks standby authority for as much as $750 billion in new aid to the financial industry while laying plans for a health-care system overhaul.
Governments worldwide including the U.S., China and Australia have this year sought to introduce measures to ease the financial crisis that has stunted economic growth. New home sales in the U.S. tumbled 10 percent last month, while first- time claims for jobless benefits jumped to the highest level since 1982, government reports showed yesterday.
In Tokyo today, Japan’s Trade Ministry said the country’s manufacturers slashed production by an unprecedented 10 percent last month, as the world’s second-largest economy heads for its worst postwar recession.
Brokerage Upgrades
LG Display climbed 4.9 percent to 25,750 won. Goldman, Sachs & Co. raised its share-price target by 15 percent to 29,500 won, saying panel prices are continuing their rebound in February.
Panasonic Corp., the world’s largest consumer-electronics maker, rose 1.5 percent to 1,155 yen. The stock was upgraded to “outperform’ from ‘‘neutral’’ at Credit Suisse Group AG, which cited the company’s efforts to cut costs and develop environment-friendly technologies.
Rio jumped 1.4 percent to A$46.96. BHP, the world’s largest mining company, added 0.8 percent to A$28.84. Copper climbed 2.7 percent yesterday in New York to the highest price since Feb. 9. An index of six metals traded on the London Metals Exchange rose 1.8 percent, the fourth day of gains.
Woolworths declined 4.4 percent to A$26.77. First-half net income of A$983.3 million ($634 million) was lower than the A$1.001 billion median estimate of six analysts Bloomberg News surveyed by telephone and e-mail.
‘Astonishingly Bad’
Telstra lost 4.1 percent to A$3.53 after Citigroup cut its recommendation on the stock to “sell” from “hold” on concern the carrier may be excluded “permanently” from building a nationwide high-speed Internet network.
QBE dropped 2.9 percent to A$19.43 said second-half profit was unchanged as foreign-exchange gains and underwriting profits cushioned losses on equity investments.
Kubota slumped 5.3 percent to 462 yen. The company is considering reducing its dividend payment next business year by as much as 30 percent because of “astonishingly bad” profit numbers, President Yasuo Masumoto said.
LG Display Co., the world’s second-largest maker of liquid crystal displays, jumped 4.9 percent after Goldman, Sachs & Co. raised its share-price target. Rio Tinto Ltd., the world’s third-largest mining company, rose 1.4 percent as copper climbed to a two-week high. Woolworths Ltd., Australia’s biggest retailer, slumped 4.4 percent on lower-than-expected profit.
“There are bright spots and some valuations are tempting,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “But the outlook is not rosy. There’s a great degree of uncertainty about the future.”
The MSCI Asia Pacific Index rose 0.9 percent to 75.20 as of 12:09 p.m. in Tokyo, narrowing its February drop to 7.5 percent and its 2009 decline to 16 percent. The gauge has lost 50 percent in the past year, cutting average stock valuations by 13 percent, as the global recession battered earnings at companies from Toyota Motor Corp. to BHP Billiton.
The Nikkei 225 Stock Average climbed 0.7 percent to 7,511.20, as the yen at a three-month low boosted Japanese exporters’ earnings prospects. The Nikkei pared its drop this month to 4.6 percent. South Korea’s Kospi Index rose 1.4 percent.
Telstra Corp., the country’s biggest phone company, lost 4.1 percent as Citigroup Inc. recommended investors sell the stock. QBE Insurance Group Ltd., the country’s No. 1 property and casualty insurer, slumped 2.9 percent after posting second- half earnings that were unchanged from a year earlier. Kubota Corp., Asia’s largest tractor maker, slumped 5.3 percent in Tokyo after saying it may cut its dividend payment.
Obama Budget
Futures on the U.S. Standard & Poor’s 500 Index added 0.2 percent, following the gauge’s 1.6 percent decline yesterday. President Barack Obama delivered his first budget to Congress yesterday, which seeks standby authority for as much as $750 billion in new aid to the financial industry while laying plans for a health-care system overhaul.
Governments worldwide including the U.S., China and Australia have this year sought to introduce measures to ease the financial crisis that has stunted economic growth. New home sales in the U.S. tumbled 10 percent last month, while first- time claims for jobless benefits jumped to the highest level since 1982, government reports showed yesterday.
In Tokyo today, Japan’s Trade Ministry said the country’s manufacturers slashed production by an unprecedented 10 percent last month, as the world’s second-largest economy heads for its worst postwar recession.
Brokerage Upgrades
LG Display climbed 4.9 percent to 25,750 won. Goldman, Sachs & Co. raised its share-price target by 15 percent to 29,500 won, saying panel prices are continuing their rebound in February.
Panasonic Corp., the world’s largest consumer-electronics maker, rose 1.5 percent to 1,155 yen. The stock was upgraded to “outperform’ from ‘‘neutral’’ at Credit Suisse Group AG, which cited the company’s efforts to cut costs and develop environment-friendly technologies.
Rio jumped 1.4 percent to A$46.96. BHP, the world’s largest mining company, added 0.8 percent to A$28.84. Copper climbed 2.7 percent yesterday in New York to the highest price since Feb. 9. An index of six metals traded on the London Metals Exchange rose 1.8 percent, the fourth day of gains.
Woolworths declined 4.4 percent to A$26.77. First-half net income of A$983.3 million ($634 million) was lower than the A$1.001 billion median estimate of six analysts Bloomberg News surveyed by telephone and e-mail.
‘Astonishingly Bad’
Telstra lost 4.1 percent to A$3.53 after Citigroup cut its recommendation on the stock to “sell” from “hold” on concern the carrier may be excluded “permanently” from building a nationwide high-speed Internet network.
QBE dropped 2.9 percent to A$19.43 said second-half profit was unchanged as foreign-exchange gains and underwriting profits cushioned losses on equity investments.
Kubota slumped 5.3 percent to 462 yen. The company is considering reducing its dividend payment next business year by as much as 30 percent because of “astonishingly bad” profit numbers, President Yasuo Masumoto said.
Wednesday, February 25, 2009
Group of Rich Americans Sues UBS to Keep Names Secret in Tax Case
UBS was sued on Tuesday in a Swiss federal court by wealthy American clients seeking to prevent the disclosure of their identities as part of a tax-evasion investigation by the United States Justice Department.
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The lawsuit accuses UBS and Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, or Finma, of violating Swiss bank secrecy laws and of conducting what Swiss law considers illegal activities with foreign authorities. It also named Peter Kurer, the chairman of UBS, and Eugen Haltiner, the chairman of Finma, as defendants.
The suit, filed by a lawyer in Zurich, Andreas Rued, on behalf of nearly a dozen American clients, underscores the growing clash between Swiss banking secrecy laws and those of the United States. Tax evasion is not considered a crime in Switzerland. Disclosing client names under Swiss law is a criminal offense and can expose bank executives and officers to fines, prison terms and other penalties.
UBS is the world’s largest private bank and Switzerland is the world’s largest offshore tax haven, with trillions of dollars in assets.
The lawsuit, which UBS described in an internal memo late Tuesday, stems from UBS’s agreement last week to turn over to federal authorities in Washington the names of 250 wealthy Americans suspected of using secret UBS offshore accounts and entities to evade taxes.
UBS reached a $780 million deferred-prosecution agreement to settle accusations that it used undisclosed offshore private banking services to help wealthy Americans evade taxes. But the bank is still under scrutiny by the Justice Department, which is seeking to force it to disclose the names of the 52,000 American clients it suspects may have evaded taxes.
Mr. Rued could not be reached for comment.
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The lawsuit accuses UBS and Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, or Finma, of violating Swiss bank secrecy laws and of conducting what Swiss law considers illegal activities with foreign authorities. It also named Peter Kurer, the chairman of UBS, and Eugen Haltiner, the chairman of Finma, as defendants.
The suit, filed by a lawyer in Zurich, Andreas Rued, on behalf of nearly a dozen American clients, underscores the growing clash between Swiss banking secrecy laws and those of the United States. Tax evasion is not considered a crime in Switzerland. Disclosing client names under Swiss law is a criminal offense and can expose bank executives and officers to fines, prison terms and other penalties.
UBS is the world’s largest private bank and Switzerland is the world’s largest offshore tax haven, with trillions of dollars in assets.
The lawsuit, which UBS described in an internal memo late Tuesday, stems from UBS’s agreement last week to turn over to federal authorities in Washington the names of 250 wealthy Americans suspected of using secret UBS offshore accounts and entities to evade taxes.
UBS reached a $780 million deferred-prosecution agreement to settle accusations that it used undisclosed offshore private banking services to help wealthy Americans evade taxes. But the bank is still under scrutiny by the Justice Department, which is seeking to force it to disclose the names of the 52,000 American clients it suspects may have evaded taxes.
Mr. Rued could not be reached for comment.
Japan Stocks Advance on Weaker Yen; Advantest Falls on Forecast
Feb. 26 (Bloomberg) -- Japanese stocks rose for a second day, led by Honda Motor Corp., as the weakening local currency and a surge in oil prices lifted the earnings prospects for automakers and resource companies.
Honda, which gets more than half its profit from North America, added 4.2 percent. Japan Petroleum Exploration Co. leapt 3.4 percent after crude jumped to a one-month high. Advantest Corp., the world’s biggest maker of memory-chip testers, sank 4.4 percent after the company forecast a loss.
The Nikkei 225 Stock Average climbed 119.54, or 1.6 percent, to 7,580.76 as of 10:09 a.m. in Tokyo. The broader Topix index added 7.33, or 1 percent, to 752.95, after dipping as much as 0.1 percent. More than three stocks advanced for every two that fell on the Topix.
“The yen’s depreciation will continue to drive up exporters,” Mitsushige Akino, who oversees the equivalent of $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
The Nikkei lost 16 percent this year through yesterday as recessions in the world’s largest economies battered company earnings. The gauge has advanced 4.2 percent since Oct. 27 when it closed at the lowest level in 26 years.
The Japanese currency weakened against the dollar to as much as 97.66 today from 97.21 at the close of stock trading in Tokyo yesterday. The yen earlier reached 97.78, a level not seen since Nov. 14. A weaker local currency boosts the value of repatriated overseas sales for Japanese companies.
Cars, Electronics
In New York, the Standard & Poor’s 500 Index slid 1.1 percent as the National Association of Realtors said purchases of previously owned homes dropped to the lowest annual rate since 1997. Economists had estimated resales would rise.
Honda climbed 4.2 percent to 2,495 yen, extending its advance to a third day. Nissan Motor Co., Japan’s third-largest automaker, added 3.3 percent to 310 yen. Mazda Motor Corp. advanced 3.1 percent to 132 yen.
Japan Petroleum, the nation’s No. 2 oil explorer, added 3.4 percent to 3,610 yen, while bigger competitor Inpex Corp. rose 2.6 percent to 669,000 yen. Crude oil for April delivery climbed for a third day reaching $42.60 a barrel as of 10:30 a.m. in Tokyo.
Advantest sank 4.4 percent to 1,364 yen. The company yesterday said its net loss will probably amount to 78 billion yen ($801 million) in the year to March 31 and that it plans to cut a quarter of its workforce by March. Yoshitsugu Yamamoto, an analyst for UBS AG, wrote in a report yesterday that cost cuts may not be enough for Advantest though a bottom for semiconductor demand is in sight.
Nikkei futures expiring in March added 1.3 percent to 7,580 in Osaka and Singapore.
Honda, which gets more than half its profit from North America, added 4.2 percent. Japan Petroleum Exploration Co. leapt 3.4 percent after crude jumped to a one-month high. Advantest Corp., the world’s biggest maker of memory-chip testers, sank 4.4 percent after the company forecast a loss.
The Nikkei 225 Stock Average climbed 119.54, or 1.6 percent, to 7,580.76 as of 10:09 a.m. in Tokyo. The broader Topix index added 7.33, or 1 percent, to 752.95, after dipping as much as 0.1 percent. More than three stocks advanced for every two that fell on the Topix.
“The yen’s depreciation will continue to drive up exporters,” Mitsushige Akino, who oversees the equivalent of $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
The Nikkei lost 16 percent this year through yesterday as recessions in the world’s largest economies battered company earnings. The gauge has advanced 4.2 percent since Oct. 27 when it closed at the lowest level in 26 years.
The Japanese currency weakened against the dollar to as much as 97.66 today from 97.21 at the close of stock trading in Tokyo yesterday. The yen earlier reached 97.78, a level not seen since Nov. 14. A weaker local currency boosts the value of repatriated overseas sales for Japanese companies.
Cars, Electronics
In New York, the Standard & Poor’s 500 Index slid 1.1 percent as the National Association of Realtors said purchases of previously owned homes dropped to the lowest annual rate since 1997. Economists had estimated resales would rise.
Honda climbed 4.2 percent to 2,495 yen, extending its advance to a third day. Nissan Motor Co., Japan’s third-largest automaker, added 3.3 percent to 310 yen. Mazda Motor Corp. advanced 3.1 percent to 132 yen.
Japan Petroleum, the nation’s No. 2 oil explorer, added 3.4 percent to 3,610 yen, while bigger competitor Inpex Corp. rose 2.6 percent to 669,000 yen. Crude oil for April delivery climbed for a third day reaching $42.60 a barrel as of 10:30 a.m. in Tokyo.
Advantest sank 4.4 percent to 1,364 yen. The company yesterday said its net loss will probably amount to 78 billion yen ($801 million) in the year to March 31 and that it plans to cut a quarter of its workforce by March. Yoshitsugu Yamamoto, an analyst for UBS AG, wrote in a report yesterday that cost cuts may not be enough for Advantest though a bottom for semiconductor demand is in sight.
Nikkei futures expiring in March added 1.3 percent to 7,580 in Osaka and Singapore.
Obama in Canada Finds World’s Best Financial System
Feb. 25 (Bloomberg) -- David Denison, who oversees investments for Canada’s pensions, says his country’s banks are the best in the world right now and Barack Obama, like so many money managers from Beijing to Paris, can’t disagree.
Before President Obama made Ottawa his first visit to a foreign capital earlier this month, he couldn’t resist telling the Canadian Broadcasting Corp.: “In the midst of the enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system and the economy in ways that we haven’t always been.”
The comment was something of an understatement, as no country among the so-called industrialized nations is showing as much confidence in its bankers as Canada. Not one government penny has been given to any of the 21 banks from British Columbia to Quebec since credit worldwide seized up in August 2007. Since then, American taxpayers have provided $300 billion to bail out more than 450 companies, led by Citigroup Inc. and Bank of America Corp., two of the three largest banks measured by assets.
Obama isn’t the only important person “looking at Canada” in a belated attempt to figure out how to fix a broken financial model, Denison said.
“Solid funding and conservative consumer lending criteria are key features” of Canadian banks, said John Haynes, senior U.S. equity strategist at Rensburg Sheppards Plc in London, which oversees the equivalent of $17 billion. “This has meant that they have had their hands caught in the cookie jar to a much more limited extent than their American and European counterparts.”
Brazil, China
Money managers from Brazil, China, France, Ireland and Australia scheduled visits to Denison’s Toronto office in the past two weeks to learn how Canada and its banks and pension funds are weathering the financial crisis. The visitors include the AustralianSuper Fund and the French National Reserve Fund, which together have assets of $53 billion, he said.
“They have assembled a high-quality team,” said Ian Silk, chief executive officer of AustralianSuper, who visited Denison in May along with three other executives from the Melbourne-based fund and remains in contact with the Canadian money manager.
Canada’s higher capital requirements and loan limits that European banks exceeded by 50 percent helped Canadian lenders avoid most of the writedowns and losses crippling competitors worldwide, even as the nation’s economy slipped into a recession and the jobless rate jumped to a four-year high.
Few Failures
Just two Canadian regional banks have failed since 1923. The only government support has been a pledge to buy as much as C$125 billion in mortgages, allowing the banks to increase lending to companies and consumers.
“The Canadian banking system is a very good story,” said Denison, chief executive officer of the Canada Pension Plan Investment Board, which manages C$108.9 billion ($86 billion) for retired Canadians. “People are looking at Canada” to determine how to fix their broken financial models, he said.
Canadian banks are more constrained than their international peers in the amount of loans they can extend. The nation’s lenders are required to set aside a minimum 7 percent for Tier 1 capital, compared with 6 percent for U.S. commercial banks. At the end of October, Canada’s eight publicly traded banks were above the minimum, at 9.6 percent, according to data compiled by Bloomberg.
Canada’s banking regulator says institutions can lend as much as 20 times their capital base. According to Bank of Canada data released in December, European bank non-risk weighted assets were more than 30 times capital, while that ratio for U.K. banks and U.S. investment banks was above 25.
European Writedowns
Europe’s largest financial companies have reported $321 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and sparked government-led bailouts in countries including the U.K., Germany and Switzerland, according to Bloomberg data.
European deficits have ballooned as governments committed more than 1.2 trillion euros ($1.5 trillion) to save their banking systems from collapse.
“When the crisis started emerging on those fronts, Canada was less affected,” said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets, a unit of the country’s biggest bank. “Canada has always had a fairly conservative banking sector.”
Dividend Cuts
While Bank of America and Citigroup cut their dividends to 1 cent a share from as high as 64 cents, the payouts at Canada’s five biggest banks haven’t been reduced since the Great Depression. Toronto-based Royal Bank of Canada is now the third- biggest bank in North America by market value, almost three times the size of Citigroup, while Toronto-Dominion Bank ranks fifth. Royal Bank is almost three times bigger than European lenders Royal Bank of Scotland Group Plc and Deutsche Bank AG.
The Canadian banks, which begin reporting first-quarter results today, probably will say profit declined an average of 12 percent, the biggest drop in almost seven years, according to Scotia Capital analyst Kevin Choquette. By contrast, Bank of America reported its first quarterly loss since 1991 last month, and Citigroup posted a fifth straight loss.
The World Economic Forum in October ranked Canada’s financial system the soundest in the world.
The Canadian banks haven’t been in this position of global strength since between the two World Wars, said Charles Goodhart, a professor of finance at the London School of Economics, and a former Bank of England policy maker.
‘Very Diversified’
“They’re very diversified, didn’t get heavily involved in the international investment banking industry and they’ve benefited from good central banking,” Goodhart said.
Countries need more “boring” financial systems like Canada’s, Finance Minister Jim Flaherty said Feb. 14 in Rome, where he was attending a meeting of finance ministers and central bankers from the Group of Seven industrialized nations.
The federal government in October set up a C$218 billion program to guarantee bank debt to help Canadian lenders compete in international markets with government-backed U.S. banks. None of the country’s lenders has tapped the credit.
“The Canadian government has a lot of firepower these days, not just because this has been such a well-managed economy, but frankly, because the Canadian government has not been bailing out the Canadian banks,” Toronto-Dominion Chief Financial Officer Colleen Johnston told investors Jan. 28 in New York.
TD Profit Falls
Toronto-Dominion reported today that fiscal first-quarter profit fell 27 percent to C$712 million, or 82 cents a share, because of higher loan-loss provisions. Results topped analysts’ estimates.
Toronto-Dominion and Royal Bank are among just seven banks in the world with the top credit rating of Aaa from Moody’s Investors Service.
Canadian regulators resisted pushes from some bank executives to loosen lending restrictions when the economy was booming, says David Dodge, 65, who stepped down as Bank of Canada governor a year ago.
“The banks at the top of the cycle thought we were being too tight-assed,” Dodge said in a telephone interview.
Even the strength of Canada’s banks hasn’t kept the economy from being dragged down by the global crisis. The world’s eighth- biggest economy will shrink by 1.2 percent this year, in part due to falling exports of oil and other commodities, according to Bank of Canada projections. Employers cut a record 129,000 jobs in January.
‘Major Problems’
“We have major problems,” said Stephen Jarislowsky, the 83- year-old chairman and founder of Montreal-based money manager Jarislowsky Fraser Ltd., which manages about $31.8 billion. “Our commodity boom is over for a long time.”
Canada recorded its first monthly trade deficit in more than three decades in December, as exports plunged 9.7 percent. The country ships more than three-quarters of its goods to the U.S.
“We have some unique advantages, but we are being profoundly affected by the global crisis,” Bank of Canada Governor Mark Carney said in a Feb. 14 interview from Rome.
Canada’s housing market has also held up better than in the U.S., where prices declined a record 19 percent in December from a year earlier, according to the S&P/Case-Shiller index. Resale home prices dropped 9.9 percent in Canada during the same period, the Canadian Real Estate Association said. Last year, Finance Minister Flaherty scrapped 40-year mortgages when they started to gain popularity among homebuyers seeking to reduce their monthly mortgage payments.
Lending to Homebuyers
Canadian banks are less willing to lend to homebuyers with low credit scores: Subprime loans account for just 5 percent of the total. That compares with 20 percent in the U.S., where independent mortgage brokers and lenders competed with commercial banks to win business by attracting high-risk borrowers.
Another restraining factor is that Canadians, unlike their U.S. neighbors, can’t take mortgage interest as a tax deduction, removing an “inherent bias” to take on too much debt, Prime Minister Stephen Harper said in September.
Canada was the only Group of Seven nation to balance its budget for 11 consecutive years, before a stimulus package aimed at sparking growth pushed the country to a deficit for the fiscal year ending March 31, according to a government forecast.
The relative strength of the financial system may help Canada recover from the recession faster, Carney said. The Bank of Canada is forecasting growth of 3.8 percent for 2010, in anticipation of rising commodity and oil prices. Canada’s oil sands in Alberta contain more reserves than any region outside Saudi Arabia.
“Once this uncertainty is removed, and it will be removed ultimately,” Carney said in an interview, “these strengths will kick in and that will have a bigger impact in our opinion in terms of the recovery in Canada.”
Before President Obama made Ottawa his first visit to a foreign capital earlier this month, he couldn’t resist telling the Canadian Broadcasting Corp.: “In the midst of the enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system and the economy in ways that we haven’t always been.”
The comment was something of an understatement, as no country among the so-called industrialized nations is showing as much confidence in its bankers as Canada. Not one government penny has been given to any of the 21 banks from British Columbia to Quebec since credit worldwide seized up in August 2007. Since then, American taxpayers have provided $300 billion to bail out more than 450 companies, led by Citigroup Inc. and Bank of America Corp., two of the three largest banks measured by assets.
Obama isn’t the only important person “looking at Canada” in a belated attempt to figure out how to fix a broken financial model, Denison said.
“Solid funding and conservative consumer lending criteria are key features” of Canadian banks, said John Haynes, senior U.S. equity strategist at Rensburg Sheppards Plc in London, which oversees the equivalent of $17 billion. “This has meant that they have had their hands caught in the cookie jar to a much more limited extent than their American and European counterparts.”
Brazil, China
Money managers from Brazil, China, France, Ireland and Australia scheduled visits to Denison’s Toronto office in the past two weeks to learn how Canada and its banks and pension funds are weathering the financial crisis. The visitors include the AustralianSuper Fund and the French National Reserve Fund, which together have assets of $53 billion, he said.
“They have assembled a high-quality team,” said Ian Silk, chief executive officer of AustralianSuper, who visited Denison in May along with three other executives from the Melbourne-based fund and remains in contact with the Canadian money manager.
Canada’s higher capital requirements and loan limits that European banks exceeded by 50 percent helped Canadian lenders avoid most of the writedowns and losses crippling competitors worldwide, even as the nation’s economy slipped into a recession and the jobless rate jumped to a four-year high.
Few Failures
Just two Canadian regional banks have failed since 1923. The only government support has been a pledge to buy as much as C$125 billion in mortgages, allowing the banks to increase lending to companies and consumers.
“The Canadian banking system is a very good story,” said Denison, chief executive officer of the Canada Pension Plan Investment Board, which manages C$108.9 billion ($86 billion) for retired Canadians. “People are looking at Canada” to determine how to fix their broken financial models, he said.
Canadian banks are more constrained than their international peers in the amount of loans they can extend. The nation’s lenders are required to set aside a minimum 7 percent for Tier 1 capital, compared with 6 percent for U.S. commercial banks. At the end of October, Canada’s eight publicly traded banks were above the minimum, at 9.6 percent, according to data compiled by Bloomberg.
Canada’s banking regulator says institutions can lend as much as 20 times their capital base. According to Bank of Canada data released in December, European bank non-risk weighted assets were more than 30 times capital, while that ratio for U.K. banks and U.S. investment banks was above 25.
European Writedowns
Europe’s largest financial companies have reported $321 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and sparked government-led bailouts in countries including the U.K., Germany and Switzerland, according to Bloomberg data.
European deficits have ballooned as governments committed more than 1.2 trillion euros ($1.5 trillion) to save their banking systems from collapse.
“When the crisis started emerging on those fronts, Canada was less affected,” said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets, a unit of the country’s biggest bank. “Canada has always had a fairly conservative banking sector.”
Dividend Cuts
While Bank of America and Citigroup cut their dividends to 1 cent a share from as high as 64 cents, the payouts at Canada’s five biggest banks haven’t been reduced since the Great Depression. Toronto-based Royal Bank of Canada is now the third- biggest bank in North America by market value, almost three times the size of Citigroup, while Toronto-Dominion Bank ranks fifth. Royal Bank is almost three times bigger than European lenders Royal Bank of Scotland Group Plc and Deutsche Bank AG.
The Canadian banks, which begin reporting first-quarter results today, probably will say profit declined an average of 12 percent, the biggest drop in almost seven years, according to Scotia Capital analyst Kevin Choquette. By contrast, Bank of America reported its first quarterly loss since 1991 last month, and Citigroup posted a fifth straight loss.
The World Economic Forum in October ranked Canada’s financial system the soundest in the world.
The Canadian banks haven’t been in this position of global strength since between the two World Wars, said Charles Goodhart, a professor of finance at the London School of Economics, and a former Bank of England policy maker.
‘Very Diversified’
“They’re very diversified, didn’t get heavily involved in the international investment banking industry and they’ve benefited from good central banking,” Goodhart said.
Countries need more “boring” financial systems like Canada’s, Finance Minister Jim Flaherty said Feb. 14 in Rome, where he was attending a meeting of finance ministers and central bankers from the Group of Seven industrialized nations.
The federal government in October set up a C$218 billion program to guarantee bank debt to help Canadian lenders compete in international markets with government-backed U.S. banks. None of the country’s lenders has tapped the credit.
“The Canadian government has a lot of firepower these days, not just because this has been such a well-managed economy, but frankly, because the Canadian government has not been bailing out the Canadian banks,” Toronto-Dominion Chief Financial Officer Colleen Johnston told investors Jan. 28 in New York.
TD Profit Falls
Toronto-Dominion reported today that fiscal first-quarter profit fell 27 percent to C$712 million, or 82 cents a share, because of higher loan-loss provisions. Results topped analysts’ estimates.
Toronto-Dominion and Royal Bank are among just seven banks in the world with the top credit rating of Aaa from Moody’s Investors Service.
Canadian regulators resisted pushes from some bank executives to loosen lending restrictions when the economy was booming, says David Dodge, 65, who stepped down as Bank of Canada governor a year ago.
“The banks at the top of the cycle thought we were being too tight-assed,” Dodge said in a telephone interview.
Even the strength of Canada’s banks hasn’t kept the economy from being dragged down by the global crisis. The world’s eighth- biggest economy will shrink by 1.2 percent this year, in part due to falling exports of oil and other commodities, according to Bank of Canada projections. Employers cut a record 129,000 jobs in January.
‘Major Problems’
“We have major problems,” said Stephen Jarislowsky, the 83- year-old chairman and founder of Montreal-based money manager Jarislowsky Fraser Ltd., which manages about $31.8 billion. “Our commodity boom is over for a long time.”
Canada recorded its first monthly trade deficit in more than three decades in December, as exports plunged 9.7 percent. The country ships more than three-quarters of its goods to the U.S.
“We have some unique advantages, but we are being profoundly affected by the global crisis,” Bank of Canada Governor Mark Carney said in a Feb. 14 interview from Rome.
Canada’s housing market has also held up better than in the U.S., where prices declined a record 19 percent in December from a year earlier, according to the S&P/Case-Shiller index. Resale home prices dropped 9.9 percent in Canada during the same period, the Canadian Real Estate Association said. Last year, Finance Minister Flaherty scrapped 40-year mortgages when they started to gain popularity among homebuyers seeking to reduce their monthly mortgage payments.
Lending to Homebuyers
Canadian banks are less willing to lend to homebuyers with low credit scores: Subprime loans account for just 5 percent of the total. That compares with 20 percent in the U.S., where independent mortgage brokers and lenders competed with commercial banks to win business by attracting high-risk borrowers.
Another restraining factor is that Canadians, unlike their U.S. neighbors, can’t take mortgage interest as a tax deduction, removing an “inherent bias” to take on too much debt, Prime Minister Stephen Harper said in September.
Canada was the only Group of Seven nation to balance its budget for 11 consecutive years, before a stimulus package aimed at sparking growth pushed the country to a deficit for the fiscal year ending March 31, according to a government forecast.
The relative strength of the financial system may help Canada recover from the recession faster, Carney said. The Bank of Canada is forecasting growth of 3.8 percent for 2010, in anticipation of rising commodity and oil prices. Canada’s oil sands in Alberta contain more reserves than any region outside Saudi Arabia.
“Once this uncertainty is removed, and it will be removed ultimately,” Carney said in an interview, “these strengths will kick in and that will have a bigger impact in our opinion in terms of the recovery in Canada.”
Asian Stocks Advance as Yen Weakens, ANZ Banking Cuts Dividend
Feb. 26 (Bloomberg) -- Asian stocks gained for a second day, led by automakers and finance companies, as the yen weakened against the dollar and Australia & New Zealand Banking Group cut dividends to preserve capital.
Honda Motor Co., which gets half its sales from North America, jumped 4.8 percent in Tokyo as the yen traded near the weakest level versus the dollar in three months. ANZ Banking rose 1.4 percent in Sydney after reducing its payout by about 25 percent. Telstra Corp., Australia’s No. 1 telephone company, lost 1.6 percent after reporting lower profit and its chief executive officer stepped down.
“As the economy worsens, the pressure on revenues and profits is becoming more and more intense,” said Prasad Patkar, who helps manage $647 million at Sydney-based Platypus Asset Management. “Banks are assuming the brace position for turbulence ahead and that is prudent. Some businesses are able to adjust their costs, but others will find it more difficult.”
The MSCI Asia Pacific Index gained 0.8 percent to 76.02 as of 9:59 a.m. in Tokyo, extending yesterday’s 1.4 percent increase. The gauge has lost 15 percent in 2009 as recessions in the world’s largest economies battered company earnings in Asia.
Japan’s Nikkei 225 Stock Average climbed 1.9 percent, while Australia’s S&P/ASX 200 Index rose 1 percent. South Korea’s Kospi Index jumped 3 percent, as KT Corp., the country’s largest phone and Internet company, won antitrust clearance to merge with affiliate KT Freetel Co.
Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, fell 6.7 percent in Sydney trading after selling shares at a discount. Advantest Corp., the world’s biggest maker of memory-chip testers, slumped 2.7 percent after the company forecast a loss and announced job cuts.
U.S. Homes
Futures on the Standard & Poor’s 500 Index gained 0.9 percent today. The gauge slid 1.1 percent as the National Association of Realtors said purchases of previously owned homes dropped 5.3 percent last month to an annual rate of 4.49 million from December, the fewest since 1997. Economists had estimated resales would rise.
In Singapore today, the trade ministry said the city’s economy shrank an annualized 16.4 percent last quarter from the previous three months, the most in at least 33 years.
Honda gained 4.8 percent to 2,510 yen as the weaker local currency boosted the value of repatriated overseas sales. Canon Inc., the world’s largest camera maker, rose 2.2 percent to 2,560 yen.
“The yen’s depreciation will continue to drive up exporters,” Mitsushige Akino, who oversees the equivalent of $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
Falling Valuations
The Japanese currency weakened against the dollar to as much as 97.46 today from 97.21 at the close of stock trading in Tokyo yesterday. The yen earlier reached 97.78, a level not seen since Nov. 14.
The MSCI Asia Pacific Index has lost 48 percent in the past year as losses on U.S. mortgage investments caused banks to rein in lending, hurting global growth prospects. Declines in that time have dragged the average valuation of companies on the MSCI gauge down by 7 percent to 13.5 times reported profit.
ANZ Banking, bracing for more bad debts as the economy slows, gained 1.4 percent to A$12.67. The company will cut its dividend by about a quarter and increase loss provisions. Earnings in the four months ended January fell 11 percent, the bank said today.
Westpac Banking Corp., Australia’s largest bank by market value, jumped 1.7 percent to A$16.45. National Australia Bank Ltd., the country’s biggest by assets, rose 2 percent to A$17.67.
Job Cuts
Telstra lost 1.6 percent to A$3.71 after reporting its first half-year profit decline in two years as sales of traditional phone services fell. Chief Executive Officer Sol Trujillo will step down on June 30, Telstra said, ending months of speculation by the Australian media about his departure.
Fortescue dropped 6.7 percent to A$2.64 after this week selling 225 million new shares to China’s Hunan Valin Iron & Steel Group at A$2.48 each. The stock closed at A$2.83 on Feb. 20, the last trading day before being halted Feb. 23.
Advantest slumped 2.7 percent to 1,387 yen. The company said yesterday its net loss will probably amount to 78 billion yen ($800 million) in the year to March 31 and that it plans to cut a quarter of its workforce by March.
Honda Motor Co., which gets half its sales from North America, jumped 4.8 percent in Tokyo as the yen traded near the weakest level versus the dollar in three months. ANZ Banking rose 1.4 percent in Sydney after reducing its payout by about 25 percent. Telstra Corp., Australia’s No. 1 telephone company, lost 1.6 percent after reporting lower profit and its chief executive officer stepped down.
“As the economy worsens, the pressure on revenues and profits is becoming more and more intense,” said Prasad Patkar, who helps manage $647 million at Sydney-based Platypus Asset Management. “Banks are assuming the brace position for turbulence ahead and that is prudent. Some businesses are able to adjust their costs, but others will find it more difficult.”
The MSCI Asia Pacific Index gained 0.8 percent to 76.02 as of 9:59 a.m. in Tokyo, extending yesterday’s 1.4 percent increase. The gauge has lost 15 percent in 2009 as recessions in the world’s largest economies battered company earnings in Asia.
Japan’s Nikkei 225 Stock Average climbed 1.9 percent, while Australia’s S&P/ASX 200 Index rose 1 percent. South Korea’s Kospi Index jumped 3 percent, as KT Corp., the country’s largest phone and Internet company, won antitrust clearance to merge with affiliate KT Freetel Co.
Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, fell 6.7 percent in Sydney trading after selling shares at a discount. Advantest Corp., the world’s biggest maker of memory-chip testers, slumped 2.7 percent after the company forecast a loss and announced job cuts.
U.S. Homes
Futures on the Standard & Poor’s 500 Index gained 0.9 percent today. The gauge slid 1.1 percent as the National Association of Realtors said purchases of previously owned homes dropped 5.3 percent last month to an annual rate of 4.49 million from December, the fewest since 1997. Economists had estimated resales would rise.
In Singapore today, the trade ministry said the city’s economy shrank an annualized 16.4 percent last quarter from the previous three months, the most in at least 33 years.
Honda gained 4.8 percent to 2,510 yen as the weaker local currency boosted the value of repatriated overseas sales. Canon Inc., the world’s largest camera maker, rose 2.2 percent to 2,560 yen.
“The yen’s depreciation will continue to drive up exporters,” Mitsushige Akino, who oversees the equivalent of $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
Falling Valuations
The Japanese currency weakened against the dollar to as much as 97.46 today from 97.21 at the close of stock trading in Tokyo yesterday. The yen earlier reached 97.78, a level not seen since Nov. 14.
The MSCI Asia Pacific Index has lost 48 percent in the past year as losses on U.S. mortgage investments caused banks to rein in lending, hurting global growth prospects. Declines in that time have dragged the average valuation of companies on the MSCI gauge down by 7 percent to 13.5 times reported profit.
ANZ Banking, bracing for more bad debts as the economy slows, gained 1.4 percent to A$12.67. The company will cut its dividend by about a quarter and increase loss provisions. Earnings in the four months ended January fell 11 percent, the bank said today.
Westpac Banking Corp., Australia’s largest bank by market value, jumped 1.7 percent to A$16.45. National Australia Bank Ltd., the country’s biggest by assets, rose 2 percent to A$17.67.
Job Cuts
Telstra lost 1.6 percent to A$3.71 after reporting its first half-year profit decline in two years as sales of traditional phone services fell. Chief Executive Officer Sol Trujillo will step down on June 30, Telstra said, ending months of speculation by the Australian media about his departure.
Fortescue dropped 6.7 percent to A$2.64 after this week selling 225 million new shares to China’s Hunan Valin Iron & Steel Group at A$2.48 each. The stock closed at A$2.83 on Feb. 20, the last trading day before being halted Feb. 23.
Advantest slumped 2.7 percent to 1,387 yen. The company said yesterday its net loss will probably amount to 78 billion yen ($800 million) in the year to March 31 and that it plans to cut a quarter of its workforce by March.
Tuesday, February 24, 2009
Asia Needs Own Monetary Fund to Stem Crisis, ADB’s Kawai Says
Feb. 25 (Bloomberg) -- Asia needs its own monetary fund to protect the region’s economies from capital flight as the global financial crisis deepens, according to the head of the Asian Development Bank’s research arm.
The Feb. 22 decision of 13 Asian countries to pool $120 billion of foreign-exchange reserves to defend their currencies was an important step toward the creation of a fund, Masahiro Kawai, 61, dean of the Asian Development Bank Institute, said in an interview on Feb. 23.
An Asian version of the International Monetary Fund may help ensure central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea a decade ago. Many Asian currencies have tumbled in the past year as the global recession hammers their export-dependent economies.
“A storm has come, so it’s a good chance to further develop discussions,” Kawai, a former Japan Finance Ministry official and World Bank economist, said in his Tokyo office. “There’s no doubt that they’re heading in the direction of an Asian Monetary Fund.”
The $120 billion reserve pool agreed by Japan, China, South Korea and 10 Southeast Asian nations broadens an arrangement called the Chiang Mai Initiative, which previously only allowed bilateral currency swaps.
Under the program, the foreign reserves will be managed by each nation rather than put together in a fund. Kawai said one role for an Asian Monetary Fund might be to manage the reserves, making it “easier to carry out the Chiang Mai initiative.”
IMF Loans
A decade ago, Indonesia, Thailand and South Korea were forced to turn to the IMF for more than $100 billion of loans after they spent much of their foreign reserves attempting to prop up their currencies. In return, the governments had to cut spending, raise interest rates and sell state-owned companies.
It may be more palatable for governments in the region to ask for loans from an Asian Monetary Fund, particularly given the demands placed on them by the IMF in the past, Kawai said.
“It’s probably politically difficult to go to the IMF, because of their experience a decade ago,” he said.
Creation of an Asian Monetary Fund was first proposed by Japan in 1997 in the wake of the crisis. Eisuke Sakakibara, Japan’s top currency official at the time, said the U.S. opposed the idea because it threatened the country’s influence in the region. The U.S. has the most voting rights at the Washington-based IMF.
Persuading China, which didn’t embrace Japan’s proposal 11 years ago, may be key to its revival, Sakakibara said.
“If China fully agrees with the idea, we can say it’s none of the U.S.’s business even if it opposes it,” he said. “We could virtually make it a fund by expanding the current Chiang Mai Initiative.”
China, Japan, South Korea and the 10 members of the Association of Southeast Asian Nations have amassed more than $3.6 trillion of foreign-exchange reserves, about half of the global total.
The Feb. 22 decision of 13 Asian countries to pool $120 billion of foreign-exchange reserves to defend their currencies was an important step toward the creation of a fund, Masahiro Kawai, 61, dean of the Asian Development Bank Institute, said in an interview on Feb. 23.
An Asian version of the International Monetary Fund may help ensure central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea a decade ago. Many Asian currencies have tumbled in the past year as the global recession hammers their export-dependent economies.
“A storm has come, so it’s a good chance to further develop discussions,” Kawai, a former Japan Finance Ministry official and World Bank economist, said in his Tokyo office. “There’s no doubt that they’re heading in the direction of an Asian Monetary Fund.”
The $120 billion reserve pool agreed by Japan, China, South Korea and 10 Southeast Asian nations broadens an arrangement called the Chiang Mai Initiative, which previously only allowed bilateral currency swaps.
Under the program, the foreign reserves will be managed by each nation rather than put together in a fund. Kawai said one role for an Asian Monetary Fund might be to manage the reserves, making it “easier to carry out the Chiang Mai initiative.”
IMF Loans
A decade ago, Indonesia, Thailand and South Korea were forced to turn to the IMF for more than $100 billion of loans after they spent much of their foreign reserves attempting to prop up their currencies. In return, the governments had to cut spending, raise interest rates and sell state-owned companies.
It may be more palatable for governments in the region to ask for loans from an Asian Monetary Fund, particularly given the demands placed on them by the IMF in the past, Kawai said.
“It’s probably politically difficult to go to the IMF, because of their experience a decade ago,” he said.
Creation of an Asian Monetary Fund was first proposed by Japan in 1997 in the wake of the crisis. Eisuke Sakakibara, Japan’s top currency official at the time, said the U.S. opposed the idea because it threatened the country’s influence in the region. The U.S. has the most voting rights at the Washington-based IMF.
Persuading China, which didn’t embrace Japan’s proposal 11 years ago, may be key to its revival, Sakakibara said.
“If China fully agrees with the idea, we can say it’s none of the U.S.’s business even if it opposes it,” he said. “We could virtually make it a fund by expanding the current Chiang Mai Initiative.”
China, Japan, South Korea and the 10 members of the Association of Southeast Asian Nations have amassed more than $3.6 trillion of foreign-exchange reserves, about half of the global total.
Fidelity Says Argentina’s Bonds Are Among Best Investments
Feb. 25 (Bloomberg) -- Fidelity Investments, the world’s biggest mutual-fund company, expects Argentine bonds to outperform in the coming year as concerns the South American country will default for a second time this decade abate.
Boston-based Fidelity increased holdings of Argentina’s benchmark 8.23 percent bonds due in 2033 in the second half of last year, according to filings with the Securities and Exchange Commission. Investors are returning to Argentine bonds on speculation the government has lined up enough financing to cover its budget needs through 2010.
“Argentina is one of my top picks for the next year,” John Carlson, an emerging-markets money manager at Fidelity, which oversees $1.25 trillion, said yesterday at a conference on emerging-market investing in London hosted by JPMorgan Chase & Co.
The yield on Argentina’s dollar bonds maturing in 2033 fell 76 basis points, or 0.76 percentage point, to 25.63 percent yesterday. The bonds yielded as much as 30.4 percent in October, when default concerns mounted after President Cristina Fernandez de Kirchner announced a plan to nationalize private pension funds. The bonds rose 1 cent yesterday, the most since Feb. 18, to 28.25 cents on the dollar, according to JPMorgan. They traded as low as 22.5 cents in October.
‘A Shocking Thing’
Local creditors agreed to extend maturities on 15.1 billion pesos ($4.3 billion) of debt last month in an exchange that will reduce the government’s 2009 debt payments by 5.4 billion pesos, Cabinet Chief Sergio Massa said on Jan. 29. Argentina began a swap for overseas holders of 8.4 billion pesos worth of the so- called guaranteed loans last week in an effort to further reduce debt payments this year.
The country’s finances are “secure for the next two years,” David Dowsett, who helps oversee about $16.7 billion at BlueBay in London, said yesterday at the conference. “I quite like Argentina here as much as it might be a shocking thing to say. You’re well compensated for owning Argentine assets at this kind of level.”
Argentine debt tumbled last year as Fernandez’s nationalization of pension funds fueled speculation the country didn’t have enough cash to repay debt amid a collapse in demand for its commodity exports. The pensions held about $30 billion of assets in October.
The country’s debt lost 58 percent last year, the biggest decline since Argentina’s $95 billion default in 2001, according to a Merrill Lynch & Co. index. The benchmark 2033 bonds traded at 74 cents on the dollar at the end of August, weeks before the global financial crisis deepened.
Barclays Capital Inc. last month recommended investors buy Argentine bonds maturing in 2011 and 2013, saying the country has enough financing to meet obligations over the next two years without tapping credit markets.
Argentina’s bonds offer some of the “most attractive options for investors in cash credit markets,” Barclays analysts Guillermo Mondino and Donato Guarino wrote in a Jan. 23 research note.
Boston-based Fidelity increased holdings of Argentina’s benchmark 8.23 percent bonds due in 2033 in the second half of last year, according to filings with the Securities and Exchange Commission. Investors are returning to Argentine bonds on speculation the government has lined up enough financing to cover its budget needs through 2010.
“Argentina is one of my top picks for the next year,” John Carlson, an emerging-markets money manager at Fidelity, which oversees $1.25 trillion, said yesterday at a conference on emerging-market investing in London hosted by JPMorgan Chase & Co.
The yield on Argentina’s dollar bonds maturing in 2033 fell 76 basis points, or 0.76 percentage point, to 25.63 percent yesterday. The bonds yielded as much as 30.4 percent in October, when default concerns mounted after President Cristina Fernandez de Kirchner announced a plan to nationalize private pension funds. The bonds rose 1 cent yesterday, the most since Feb. 18, to 28.25 cents on the dollar, according to JPMorgan. They traded as low as 22.5 cents in October.
‘A Shocking Thing’
Local creditors agreed to extend maturities on 15.1 billion pesos ($4.3 billion) of debt last month in an exchange that will reduce the government’s 2009 debt payments by 5.4 billion pesos, Cabinet Chief Sergio Massa said on Jan. 29. Argentina began a swap for overseas holders of 8.4 billion pesos worth of the so- called guaranteed loans last week in an effort to further reduce debt payments this year.
The country’s finances are “secure for the next two years,” David Dowsett, who helps oversee about $16.7 billion at BlueBay in London, said yesterday at the conference. “I quite like Argentina here as much as it might be a shocking thing to say. You’re well compensated for owning Argentine assets at this kind of level.”
Argentine debt tumbled last year as Fernandez’s nationalization of pension funds fueled speculation the country didn’t have enough cash to repay debt amid a collapse in demand for its commodity exports. The pensions held about $30 billion of assets in October.
The country’s debt lost 58 percent last year, the biggest decline since Argentina’s $95 billion default in 2001, according to a Merrill Lynch & Co. index. The benchmark 2033 bonds traded at 74 cents on the dollar at the end of August, weeks before the global financial crisis deepened.
Barclays Capital Inc. last month recommended investors buy Argentine bonds maturing in 2011 and 2013, saying the country has enough financing to meet obligations over the next two years without tapping credit markets.
Argentina’s bonds offer some of the “most attractive options for investors in cash credit markets,” Barclays analysts Guillermo Mondino and Donato Guarino wrote in a Jan. 23 research note.
Yen Trades Near 3-Month Low as Economic Slump Saps Haven Allure
Feb. 25 (Bloomberg) -- The yen traded near the lowest level against the dollar in three months as Japan’s weakening economy reduced the allure of the currency as a haven.
Japan’s currency may fall for a third day versus the dollar after the Ministry of Finance today said January’s trade deficit widened to the most since at least 1986. The greenback may slide for a second day against the euro after Federal Reserve Chairmen Ben S. Bernanke signaled the government won’t nationalize banks, eroding demand for the U.S. currency as a refuge from the financial crisis.
“The safe haven of the yen is in crisis due to the ongoing recession and the trade surplus that has become a deficit,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA. “Everyone is pessimistic about Japan and that’s really negative for the yen.”
The yen traded at 96.48 per dollar as of 10:26 a.m. in Tokyo, after touching 96.93 yesterday, the weakest level since Nov. 25. It was at 123.99 per euro after reaching 124.76 yesterday, the lowest since Jan. 9. Japan’s currency may fall to 100 per dollar by the end of March, Kato said.
The dollar was at $1.2848 per euro from $1.2846, after yesterday’s 1.2 percent decline. It weakened to $1.4516 against the British pound from $1.4481, and dropped to 1.1594 Swiss francs from 1.1601.
The Nikkei 225 Stock Average rose 1.3 percent and the MSCI Asia Pacific Index of regional shares climbed 1.1 percent as the yen’s fall to a three-month low against the dollar boosted the value of Japanese automakers’ overseas earnings.
‘Isn’t Necessary’
Japan’s trade deficit widened to 952.6 billion yen ($9.85 billion) in January from 320.7 billion yen in the previous month, the Finance Ministry said today in Tokyo. Economists forecast an increase to 1.2 trillion yen, according to a Bloomberg New survey.
Bernanke rejected the idea that officials plan to use reviews of banks’ balance sheets as a pretext for government takeovers of the nation’s largest lenders.
“I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said yesterday at the Senate Banking Committee hearing.
The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, traded at 86.813 from 86.895 yesterday as Bernanke’s remarks eased concern the Treasury’s capital-injection plan would hurt banks’ shareholders and lead to nationalization.
Option Contracts
Option contracts are signaling the yen may go from this month’s worst-performing major currency versus the dollar to one of the best, Societe Generale SA said.
The U.S. currency has fallen against the yen each of the five times since July 2007 that the premium on dollar puts over calls shrinks to about 2 percent. This technical indicator, which measures the price for the right to sell dollars relative to the right to buy them, may signal the yen is set to gain to 85 against the dollar, a 14-year high, said Yuji Saito, head of foreign-exchange in Tokyo at Societe Generale, France’s third- largest bank.
Japan’s currency may fall for a third day versus the dollar after the Ministry of Finance today said January’s trade deficit widened to the most since at least 1986. The greenback may slide for a second day against the euro after Federal Reserve Chairmen Ben S. Bernanke signaled the government won’t nationalize banks, eroding demand for the U.S. currency as a refuge from the financial crisis.
“The safe haven of the yen is in crisis due to the ongoing recession and the trade surplus that has become a deficit,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA. “Everyone is pessimistic about Japan and that’s really negative for the yen.”
The yen traded at 96.48 per dollar as of 10:26 a.m. in Tokyo, after touching 96.93 yesterday, the weakest level since Nov. 25. It was at 123.99 per euro after reaching 124.76 yesterday, the lowest since Jan. 9. Japan’s currency may fall to 100 per dollar by the end of March, Kato said.
The dollar was at $1.2848 per euro from $1.2846, after yesterday’s 1.2 percent decline. It weakened to $1.4516 against the British pound from $1.4481, and dropped to 1.1594 Swiss francs from 1.1601.
The Nikkei 225 Stock Average rose 1.3 percent and the MSCI Asia Pacific Index of regional shares climbed 1.1 percent as the yen’s fall to a three-month low against the dollar boosted the value of Japanese automakers’ overseas earnings.
‘Isn’t Necessary’
Japan’s trade deficit widened to 952.6 billion yen ($9.85 billion) in January from 320.7 billion yen in the previous month, the Finance Ministry said today in Tokyo. Economists forecast an increase to 1.2 trillion yen, according to a Bloomberg New survey.
Bernanke rejected the idea that officials plan to use reviews of banks’ balance sheets as a pretext for government takeovers of the nation’s largest lenders.
“I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said yesterday at the Senate Banking Committee hearing.
The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, traded at 86.813 from 86.895 yesterday as Bernanke’s remarks eased concern the Treasury’s capital-injection plan would hurt banks’ shareholders and lead to nationalization.
Option Contracts
Option contracts are signaling the yen may go from this month’s worst-performing major currency versus the dollar to one of the best, Societe Generale SA said.
The U.S. currency has fallen against the yen each of the five times since July 2007 that the premium on dollar puts over calls shrinks to about 2 percent. This technical indicator, which measures the price for the right to sell dollars relative to the right to buy them, may signal the yen is set to gain to 85 against the dollar, a 14-year high, said Yuji Saito, head of foreign-exchange in Tokyo at Societe Generale, France’s third- largest bank.
Japan Exports Plummet 45.7%, Deficit Widens to Record
Feb. 25 (Bloomberg) -- Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.
The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.
Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.
“The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo.
Shipments to Europe slid 47.4 percent in January from a year earlier, the Finance Ministry said. Exports to China fell 45.1 percent and those to Asia dropped 46.7 percent.
The yen traded at 96.49 per dollar as of 10:49 a.m. in Tokyo from 96.72 before the report. The currency is near the lowest level against the dollar in three months as the weakening economy reduces its allure as a haven.
Yen Relief
The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Nissan Motor Corp. and Toyota Motor Corp. This year, the currency has weakened 6.3 percent, offering some relief to exporters while indicating investors’ growing pessimism about Japan’s economic outlook.
“People are coming to realize that Japan is in deep trouble,” said Hiroshi Shiraishi, an economist at BNP Paribas Securities Japan Ltd. in Tokyo. “Considering what’s happening on the export side, and the implications that has for the domestic economy, the yen is clearly not a buy.”
Japanese stocks touched a 26-year low yesterday and the government is considering buying shares to support equity prices, the Nikkei newspaper reported today, without saying where it got the information. The Nikkei 225 Stock Average has lost 17 percent of its value this year. It rose 1.5 percent in morning trading.
Shrinking Economy
The world’s second-largest economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, and analysts predict the slump will drag into next fiscal year. Japan may shrink a record 4 percent in the year starting April 1, according to economists surveyed. The worst contraction to date was fiscal 1998’s 1.5 percent drop.
Japanese companies cut production an unprecedented 9.8 percent in December from a month earlier and the unemployment rate climbed the most in 41 years to 4.4 percent. Economists predict a report on Feb. 27 will show factory output dropped 10 percent in January.
Nissan said this month it will cut 20,000 jobs and post its first loss in nine years as the global recession cripples car demand. Toyota, which is forecasting its first operating loss in seven decades, will halve production in the current quarter versus the same period last year.
The Bank of Japan last week said it will buy corporate bonds for the first time, widening its asset-purchase program to prevent a shortage of credit from deepening the recession. Governor Masaaki Shirakawa and his colleagues lowered the bank’s overnight lending rate to 0.1 percent in December.
The government has been unable to pass a stimulus package that could help encourage domestic spending in the absence of export demand. Prime Minister Taro Aso is struggling to get approval from the opposition-led upper house to spend 10 trillion yen to aid companies and households, whose sentiment is near a record low.
The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.
Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.
“The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo.
Shipments to Europe slid 47.4 percent in January from a year earlier, the Finance Ministry said. Exports to China fell 45.1 percent and those to Asia dropped 46.7 percent.
The yen traded at 96.49 per dollar as of 10:49 a.m. in Tokyo from 96.72 before the report. The currency is near the lowest level against the dollar in three months as the weakening economy reduces its allure as a haven.
Yen Relief
The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Nissan Motor Corp. and Toyota Motor Corp. This year, the currency has weakened 6.3 percent, offering some relief to exporters while indicating investors’ growing pessimism about Japan’s economic outlook.
“People are coming to realize that Japan is in deep trouble,” said Hiroshi Shiraishi, an economist at BNP Paribas Securities Japan Ltd. in Tokyo. “Considering what’s happening on the export side, and the implications that has for the domestic economy, the yen is clearly not a buy.”
Japanese stocks touched a 26-year low yesterday and the government is considering buying shares to support equity prices, the Nikkei newspaper reported today, without saying where it got the information. The Nikkei 225 Stock Average has lost 17 percent of its value this year. It rose 1.5 percent in morning trading.
Shrinking Economy
The world’s second-largest economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, and analysts predict the slump will drag into next fiscal year. Japan may shrink a record 4 percent in the year starting April 1, according to economists surveyed. The worst contraction to date was fiscal 1998’s 1.5 percent drop.
Japanese companies cut production an unprecedented 9.8 percent in December from a month earlier and the unemployment rate climbed the most in 41 years to 4.4 percent. Economists predict a report on Feb. 27 will show factory output dropped 10 percent in January.
Nissan said this month it will cut 20,000 jobs and post its first loss in nine years as the global recession cripples car demand. Toyota, which is forecasting its first operating loss in seven decades, will halve production in the current quarter versus the same period last year.
The Bank of Japan last week said it will buy corporate bonds for the first time, widening its asset-purchase program to prevent a shortage of credit from deepening the recession. Governor Masaaki Shirakawa and his colleagues lowered the bank’s overnight lending rate to 0.1 percent in December.
The government has been unable to pass a stimulus package that could help encourage domestic spending in the absence of export demand. Prime Minister Taro Aso is struggling to get approval from the opposition-led upper house to spend 10 trillion yen to aid companies and households, whose sentiment is near a record low.
Monday, February 23, 2009
European Stock-Index Futures Decline; Total, BHP May Retreat
Feb. 24 (Bloomberg) -- European stock-index futures retreated, indicating the Dow Jones Stoxx 600 Index may extend a six-year low, and Asian shares fell as the deepening recession curbs earnings. U.S. index futures rose.
TomTom NV, Europe’s largest maker of car-navigation devices, and Akzo Nobel NV, the world’s biggest maker of paints, may be active after reporting fourth-quarter losses. U.S.-traded shares of Total SA slipped as crude oil retreated. BHP Billiton Ltd., Australia’s largest oil producer, dropped in Asia.
Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 1.4 percent to 1,971 at 7:21 a.m. in London. The U.K.’s FTSE 100 Index may decrease 45, according to Cantor Index, a betting firm.
Europe’s broader Stoxx 600 has lost 12 percent this year as companies from Anglo American Plc to Cie. de Saint-Gobain SA fueled concern the worsening recession will wipe out profits. The gauge closed yesterday at the lowest level since March 2003.
“It’s difficult to see anything other than a wholesale shift in trader sentiment being able to reverse the current trend,” Matthew Buckland, a dealer at CMC Markets in London, wrote in a note. “The market still seems intent of taking more value out.”
U.S. stocks fell yesterday, sending the Standard & Poor’s 500 Index and the Dow Jones Industrial Average to the lowest levels since 1997, as concern the recession will erode earnings offset the government’s pledge to give more capital to banks. Futures on the S&P 500 added 0.8 percent today.
The MSCI Asia Pacific Index fell 2.3 percent to 74.51, poised for the lowest close since August 2003.
$1.1 Trillion
The MSCI World Index of 23 developed countries retreated 52 percent since the start of last year as credit-related losses at financial firms worldwide climbed to $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.
Confidence among U.S. consumers probably dropped in February to the lowest level on record, signaling spending will slump further as unemployment climbs, economists said before a report today. Separate data may show the drop in home values accelerated in December.
German business confidence may hold steady in February as executives weigh the government’s stimulus program and interest- rate cuts from the European Central Bank, a survey of economists shows. The Ifo institute will release the figures at 10 a.m. in Munich.
TomTom reported a loss after writing down the value of its mapmaking unit Tele Atlas. Akzo Nobel posted a loss after sliding demand for household paints forced the company to book a 1.2 billion-euro ($1.5 billion) writedown on its Imperial Chemical Industries unit.
Total, BHP
American depositary receipts of Total, Europe’s biggest oil refiner, slid 3 percent from the stock’s close in Paris. BHP Billiton lost 1.2 percent in Australia.
Crude oil fell for a third day on speculation that U.S. stockpiles increased for the 19th week in 22 as the recession saps fuel demand. Copper and gold declined in Asian trading.
Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, was cut to “underweight” from “overweight” at Morgan Stanley, which said sales may fall by one-third by 2010.
TomTom NV, Europe’s largest maker of car-navigation devices, and Akzo Nobel NV, the world’s biggest maker of paints, may be active after reporting fourth-quarter losses. U.S.-traded shares of Total SA slipped as crude oil retreated. BHP Billiton Ltd., Australia’s largest oil producer, dropped in Asia.
Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 1.4 percent to 1,971 at 7:21 a.m. in London. The U.K.’s FTSE 100 Index may decrease 45, according to Cantor Index, a betting firm.
Europe’s broader Stoxx 600 has lost 12 percent this year as companies from Anglo American Plc to Cie. de Saint-Gobain SA fueled concern the worsening recession will wipe out profits. The gauge closed yesterday at the lowest level since March 2003.
“It’s difficult to see anything other than a wholesale shift in trader sentiment being able to reverse the current trend,” Matthew Buckland, a dealer at CMC Markets in London, wrote in a note. “The market still seems intent of taking more value out.”
U.S. stocks fell yesterday, sending the Standard & Poor’s 500 Index and the Dow Jones Industrial Average to the lowest levels since 1997, as concern the recession will erode earnings offset the government’s pledge to give more capital to banks. Futures on the S&P 500 added 0.8 percent today.
The MSCI Asia Pacific Index fell 2.3 percent to 74.51, poised for the lowest close since August 2003.
$1.1 Trillion
The MSCI World Index of 23 developed countries retreated 52 percent since the start of last year as credit-related losses at financial firms worldwide climbed to $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.
Confidence among U.S. consumers probably dropped in February to the lowest level on record, signaling spending will slump further as unemployment climbs, economists said before a report today. Separate data may show the drop in home values accelerated in December.
German business confidence may hold steady in February as executives weigh the government’s stimulus program and interest- rate cuts from the European Central Bank, a survey of economists shows. The Ifo institute will release the figures at 10 a.m. in Munich.
TomTom reported a loss after writing down the value of its mapmaking unit Tele Atlas. Akzo Nobel posted a loss after sliding demand for household paints forced the company to book a 1.2 billion-euro ($1.5 billion) writedown on its Imperial Chemical Industries unit.
Total, BHP
American depositary receipts of Total, Europe’s biggest oil refiner, slid 3 percent from the stock’s close in Paris. BHP Billiton lost 1.2 percent in Australia.
Crude oil fell for a third day on speculation that U.S. stockpiles increased for the 19th week in 22 as the recession saps fuel demand. Copper and gold declined in Asian trading.
Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, was cut to “underweight” from “overweight” at Morgan Stanley, which said sales may fall by one-third by 2010.
Satyam Aims to Start Stake Sale Process This Week
Feb. 24 (Bloomberg) -- Satyam Computer Services Ltd., the Indian software provider at the center of the nation’s biggest corporate fraud inquiry, aims to start a process to sell a stake to a strategic investor this week, Chairman Kiran Karnik said.
“We are hoping this week it should all be set and sorted out,” Karnik said in a telephone interview today. The Hyderabad- based company would like to be “ready to invite expressions of interest” from bidders, as soon as the sale plan is approved by regulators, he said.
Satyam’s government-appointed board will seek regulatory approval this week for its plan to sell a stake to a strategic investor in an effort to secure the company’s viability. The software provider has lost three-fourths of its market value since former chairman Ramalinga Raju said Jan. 7 he’d falsified accounts and inflated assets by more than $1 billion and quit.
The stake sale plan was approved by India’s Company Law Board last week and Satyam may sell at least a 26 percent stake to the winner of an open bidding process.
The computer-services provider will share as much financial and customer information as is legally permissible with bidders, Karnik said. The company had so far lost three “important” clients including State Farm Mutual Automobile Insurance Co.
“Each bidder will have to make his own judgment” on the extent of liabilities Satyam may face, he said.
“We are hoping this week it should all be set and sorted out,” Karnik said in a telephone interview today. The Hyderabad- based company would like to be “ready to invite expressions of interest” from bidders, as soon as the sale plan is approved by regulators, he said.
Satyam’s government-appointed board will seek regulatory approval this week for its plan to sell a stake to a strategic investor in an effort to secure the company’s viability. The software provider has lost three-fourths of its market value since former chairman Ramalinga Raju said Jan. 7 he’d falsified accounts and inflated assets by more than $1 billion and quit.
The stake sale plan was approved by India’s Company Law Board last week and Satyam may sell at least a 26 percent stake to the winner of an open bidding process.
The computer-services provider will share as much financial and customer information as is legally permissible with bidders, Karnik said. The company had so far lost three “important” clients including State Farm Mutual Automobile Insurance Co.
“Each bidder will have to make his own judgment” on the extent of liabilities Satyam may face, he said.
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