26th, April-2009
The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise.
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A Survivor of the Financial Crisis: Pay Levels at Investment BanksGraphic
A Survivor of the Financial Crisis: Pay Levels at Investment Banks
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Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.
Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements.
If that pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay — much of it in bonuses — recover from the lows of last year.
“I just haven’t seen huge changes in the way people are talking about compensation,” said Sandy Gross, managing partner of Pinetum Partners, a financial recruiting firm. “Wall Street is being realistic. You have to retain your human capital.”
Brad Hintz, an analyst at Sanford C. Bernstein, was more critical. “Like everything on Wall Street, they’re starting to sin again,” he said. “As you see a recovery, you’ll see everybody’s compensation beginning to rise.”
In total, the banks are not necessarily spending more on compensation, because their work forces have shrunk sharply in the last 18 months. Still, the average pay for those who remain — rank-and-file workers whose earnings are not affected by government-imposed limits — appears to be rebounding.
Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $569,220 per worker — almost as much as the pay in 2007, a record year.
“We need to be able to pay our people,” said Lucas van Praag, a spokesman for Goldman, adding that the rest of the year might not prove as profitable, and so the first-quarter reserves might simply be “sensible husbandry.”
Indeed, last year, when Goldman lost money in the fourth quarter, it did not pay out some of the compensation it had set aside when earnings were stronger.
At other banks, pay scales tilt in favor of particular units. JPMorgan Chase, for example, is setting aside what would total $138,234 on average for workers. But in the bank’s trading and investment banking unit, if revenue stays at first-quarter levels, workers are on track to earn an average of $509,524 over the year. That figure was $345,147 in 2006.
To try to blunt criticism of high pay, some banks have introduced reforms to take back bonuses from individual workers whose bets later lose money. Moreover, executives say that for many well-paid bankers, a good portion of their bonus compensation is in stock, whose value can decline if the performance of the bank lags.
Representatives of several of the largest banks said much of their compensation budget covered expenses other than bonuses, like salaries, health care, pension plans and severance.
Still, the compensation expense is the only publicly disclosed figure related to pay at the banks, and it is the best figure for calculating pay per worker.
This expense includes money for year-end bonuses. For high earners, bonuses can account for three-quarters of pay.
Compensation is among the most cited causes of the financial crisis because bonuses were often tied to short-term gains, even if those gains disappeared later on. Still, as profits return, banks do not appear to be changing the absolute level of worker pay — or the share of revenue dedicated to compensation.
Historically, investment banks have paid workers about 50 cents for every dollar of revenue. The average is lower at commercial banks like JPMorgan Chase and Bank of America, because they employ more people in retail branches where pay is lower.
But every dollar paid to workers is a dollar that cannot be used to expand the business or increase lending. Some of that revenue, too, could be used by bailed-out banks to pay back taxpayers.
Wall Street, of course, has a long history of high wages. Not all that long ago, most investment banks were private partnerships, and the workers were also typically the owners. Even when those firms began listing their shares on public stock exchanges, a standard was set in which half of their revenue was paid out to workers.
Saturday, April 25, 2009
GDP Probably Shrank as Companies Cut Back: U.S. Economy Preview
April 26 (Bloomberg) -- The U.S. economy probably plunged again in the first quarter, reflecting a drop in inventories that may set the stage for a return to growth later this year.
Gross domestic product shrank at a 4.7 percent annual pace after contracting at a 6.3 percent rate in the last three months of 2008, according to the median estimate of economists surveyed by Bloomberg News ahead of a Commerce Department report April 29. Figures from the Institute for Supply Management on May 1 may show manufacturing shrank at a slower pace this month.
The Commerce report, coming on the second day of the Federal Reserve’s two-day meeting, may show consumer spending climbed, halting its biggest slide in almost two decades. Since their March meeting, Fed policy makers have started buying long- term government bonds and launched a program to revive lending in a bid to keep consumers from retrenching again.
“The more forward-looking you are, the better the world looks,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “Almost half of the drop in GDP is due to a collapse in inventories, and once they fall far enough, production has to rise back up to meet sales.”
Data in recent weeks, including signs of stability in home sales, residential construction and demand for business equipment, signal the world’s largest economy may contract at a slower pace this quarter. Finance chiefs from the Group of Seven nations last week predicted a “weak” economic recovery will start to take hold in coming months as evidence mounts that the worst of the recession is over.
Manufacturing
Manufacturing, as well as housing, may be descending at a slower pace. The Institute for Supply Management’s factory index may rise to 38.3 for April from 36.3 the prior month, according to economists surveyed. While a reading less than 50 still signals contraction, the improvement would be the fourth in a row.
Factory orders, due from Commerce on May 1, probably fell 0.6 percent in March, after a 1.8 percent gain the prior month, according to the survey median.
Companies including General Motors Corp. have been slashing output to curb inventory as demand at home and abroad dropped. The International Monetary Fund last week said the world economy would shrink 1.3 percent this year, its worst performance World War II.
General Motors and Chrysler LLC are threatened with bankruptcy as sales have plummeted since credit markets seized up last year. GM will idle 15 North American assembly plants for at least a week from mid-May through July, a person familiar with the plans said last week.
Ford Outlook
Ford Motor Co., working to avoid a federal bailout, last week posted a first-quarter loss that beat analysts’ estimates.
“We’re not quite sure where the bottom is,” Ford’s Chief Executive Officer Alan Mulally said in an April 24 Bloomberg Television interview. “But we believe with the stabilization of the banks, freeing up the credit, and the stimulus packages we have, both monetary and fiscal, that we’re going to see an uptick in the third and fourth quarter.”
Declines in business investment joined falling inventories in dragging down the GDP last quarter, economists said. The drop in stockpiles may be the biggest since quarterly records began in 1990, according to a forecast by economists at Barclays Capital.
The gain in consumer spending and a smaller trade deficit as imports plunged prevented the economy from shrinking even more, according to Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado.
A report from Commerce on April 30 may show personal spending fell 0.1 percent in March after a 0.2 percent gain the prior month, according to the survey median. Personal income probably fell 0.2 percent for a second month, reflecting the weakening job market.
Economists projected measures of consumer confidence, from Reuters/University of Michigan on May 1 and from the New York- based Conference Board on April 28, probably improved in April.
Finally, the S&P/Case Shiller index of home prices in the 20 metropolitan areas, also due April 28, may show property values are also dropping at a slower pace.
Gross domestic product shrank at a 4.7 percent annual pace after contracting at a 6.3 percent rate in the last three months of 2008, according to the median estimate of economists surveyed by Bloomberg News ahead of a Commerce Department report April 29. Figures from the Institute for Supply Management on May 1 may show manufacturing shrank at a slower pace this month.
The Commerce report, coming on the second day of the Federal Reserve’s two-day meeting, may show consumer spending climbed, halting its biggest slide in almost two decades. Since their March meeting, Fed policy makers have started buying long- term government bonds and launched a program to revive lending in a bid to keep consumers from retrenching again.
“The more forward-looking you are, the better the world looks,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “Almost half of the drop in GDP is due to a collapse in inventories, and once they fall far enough, production has to rise back up to meet sales.”
Data in recent weeks, including signs of stability in home sales, residential construction and demand for business equipment, signal the world’s largest economy may contract at a slower pace this quarter. Finance chiefs from the Group of Seven nations last week predicted a “weak” economic recovery will start to take hold in coming months as evidence mounts that the worst of the recession is over.
Manufacturing
Manufacturing, as well as housing, may be descending at a slower pace. The Institute for Supply Management’s factory index may rise to 38.3 for April from 36.3 the prior month, according to economists surveyed. While a reading less than 50 still signals contraction, the improvement would be the fourth in a row.
Factory orders, due from Commerce on May 1, probably fell 0.6 percent in March, after a 1.8 percent gain the prior month, according to the survey median.
Companies including General Motors Corp. have been slashing output to curb inventory as demand at home and abroad dropped. The International Monetary Fund last week said the world economy would shrink 1.3 percent this year, its worst performance World War II.
General Motors and Chrysler LLC are threatened with bankruptcy as sales have plummeted since credit markets seized up last year. GM will idle 15 North American assembly plants for at least a week from mid-May through July, a person familiar with the plans said last week.
Ford Outlook
Ford Motor Co., working to avoid a federal bailout, last week posted a first-quarter loss that beat analysts’ estimates.
“We’re not quite sure where the bottom is,” Ford’s Chief Executive Officer Alan Mulally said in an April 24 Bloomberg Television interview. “But we believe with the stabilization of the banks, freeing up the credit, and the stimulus packages we have, both monetary and fiscal, that we’re going to see an uptick in the third and fourth quarter.”
Declines in business investment joined falling inventories in dragging down the GDP last quarter, economists said. The drop in stockpiles may be the biggest since quarterly records began in 1990, according to a forecast by economists at Barclays Capital.
The gain in consumer spending and a smaller trade deficit as imports plunged prevented the economy from shrinking even more, according to Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado.
A report from Commerce on April 30 may show personal spending fell 0.1 percent in March after a 0.2 percent gain the prior month, according to the survey median. Personal income probably fell 0.2 percent for a second month, reflecting the weakening job market.
Economists projected measures of consumer confidence, from Reuters/University of Michigan on May 1 and from the New York- based Conference Board on April 28, probably improved in April.
Finally, the S&P/Case Shiller index of home prices in the 20 metropolitan areas, also due April 28, may show property values are also dropping at a slower pace.
Friday, April 24, 2009
CUT TO FIT Banks reduce credit card limits ICICI Withdraws Cash Facility In Some Cases As Creditworthiness Shrinks
New Delhi: S Sinha, an ICICI Bank customer, was shocked on Friday when he received an SMS from the bank that said, “Dear customer, effective April 23, 2009, the cash limit on your ICICI Bank Credit Card No XXXX has been reduced to Rs 0 and the total credit limit to Rs 19,000.’’
His earlier cash limit was Rs 19,000 and the credit limit was Rs 60,000. The bank has tweaked his credit limit despite the fact that this customer never defaulted on payments. On Friday, several ICICI Bank customers received similar messages.
In fact, most private and foreign banks have lowered credit limits, including that of cash, on cards as they fear the economic slowdown is affecting incomes of cardholders, following salary cuts and layoffs by many companies.
Lenders like HDFC Bank, Axis Bank, Citibank, Deutsche Bank, Standard Chartered Bank and HSBC Bank too have reduced their customers’ credit limits.
ICICI Bank ED V Vaidyanathan said cash limits have been tweaked on the basis of creditworthiness of cardholders. “In many cases the limits have been enhanced for customers having good repayment records,’’ he added.
A senior official of a foreign bank said that due to global liquidity crunch, they were forced to cut exposure to credit given to card, where default rate is as high as 15% against below 5% in the normal banking business.
Banks can access information on all cardholders from the Credit Information Bureau of India (CIBIL). In an attempt to contain default rates, banks are keeping a close watch on creditworthiness of customers in the light of total credit taken on various cards and changing the limits accordingly.
At present, there are 25 million credit card holders in India. The total outstanding on the credit card, according to one estimate, is around Rs 25,000 crore. A banker said that default rate on card business is not alarmingly high in India as in the US, where total outstanding of card business is around $2 trillion.
‘Banks are special’
Banks are special within a financial system and failure of one bank can have a strong contagion on other banks with no respect for international boundaries, said RBI deputy governor Rakesh Mohan, according to an agency report.
“A failure of one bank can have a strong contagion on the rest of the banks, even if they are healthy,’’ Mohan said. The banker said the global crisis has again shown that markets can fail and such market failures have huge costs. The financial system is prone to excesses, given the high leverage of banks and other financial institutions, he said.
“In this age of globalisation, as the current crisis has revealed, the lack of confidence in banks in one country can also have a contagion on banks in the rest of the world,’’ he said, adding the crisis has again shown that markets can fail.
His earlier cash limit was Rs 19,000 and the credit limit was Rs 60,000. The bank has tweaked his credit limit despite the fact that this customer never defaulted on payments. On Friday, several ICICI Bank customers received similar messages.
In fact, most private and foreign banks have lowered credit limits, including that of cash, on cards as they fear the economic slowdown is affecting incomes of cardholders, following salary cuts and layoffs by many companies.
Lenders like HDFC Bank, Axis Bank, Citibank, Deutsche Bank, Standard Chartered Bank and HSBC Bank too have reduced their customers’ credit limits.
ICICI Bank ED V Vaidyanathan said cash limits have been tweaked on the basis of creditworthiness of cardholders. “In many cases the limits have been enhanced for customers having good repayment records,’’ he added.
A senior official of a foreign bank said that due to global liquidity crunch, they were forced to cut exposure to credit given to card, where default rate is as high as 15% against below 5% in the normal banking business.
Banks can access information on all cardholders from the Credit Information Bureau of India (CIBIL). In an attempt to contain default rates, banks are keeping a close watch on creditworthiness of customers in the light of total credit taken on various cards and changing the limits accordingly.
At present, there are 25 million credit card holders in India. The total outstanding on the credit card, according to one estimate, is around Rs 25,000 crore. A banker said that default rate on card business is not alarmingly high in India as in the US, where total outstanding of card business is around $2 trillion.
‘Banks are special’
Banks are special within a financial system and failure of one bank can have a strong contagion on other banks with no respect for international boundaries, said RBI deputy governor Rakesh Mohan, according to an agency report.
“A failure of one bank can have a strong contagion on the rest of the banks, even if they are healthy,’’ Mohan said. The banker said the global crisis has again shown that markets can fail and such market failures have huge costs. The financial system is prone to excesses, given the high leverage of banks and other financial institutions, he said.
“In this age of globalisation, as the current crisis has revealed, the lack of confidence in banks in one country can also have a contagion on banks in the rest of the world,’’ he said, adding the crisis has again shown that markets can fail.
Infy, Wipro, Reliance 1st to get CISF cover
New Delhi: The Reliance refinery at Jamnagar in Gujarat, IT giants Infosys and Wipro and Electronic City, a software complex in Bangalore, are among the first which will get CISF cover. These were in the list of 47 private establishments which had applied for paramilitary cover.
After processing all the requests, the home ministry has finally given its go ahead for these four establishments which come under the high-risk category in the wake of security audit done by the CISF and other security and intelligence agencies.
Home ministry sources said though other companies would also get similar security cover in due course, priority has been given to these four by taking into account various
aspects, including the threat perceptions. The next lot will cover ports and power sector.
The decision was taken in the wake of amendments in the CISF Act which allows the paramilitary force to provide security to private companies and cooperative societies on cost reimbursement basis. Earlier, only public sector undertakings (PSUs) were eligible for such security cover.
The necessary amendments in the Act were brought in the wake of the 26/11 Mumbai terror attack when the government felt the need to include private companies within the ambit of CISF security considering intelligence inputs which suggested major threats to vital private establishments.
The Taj and Oberoi hotels in Mumbai, which witnessed the attacks on 26/11, have also requested for CISF cover. “A decision is, however, awaited in these cases,” said an official.
Security and intel agencies have placed these establishments in the high-risk category after 26/11
After processing all the requests, the home ministry has finally given its go ahead for these four establishments which come under the high-risk category in the wake of security audit done by the CISF and other security and intelligence agencies.
Home ministry sources said though other companies would also get similar security cover in due course, priority has been given to these four by taking into account various
aspects, including the threat perceptions. The next lot will cover ports and power sector.
The decision was taken in the wake of amendments in the CISF Act which allows the paramilitary force to provide security to private companies and cooperative societies on cost reimbursement basis. Earlier, only public sector undertakings (PSUs) were eligible for such security cover.
The necessary amendments in the Act were brought in the wake of the 26/11 Mumbai terror attack when the government felt the need to include private companies within the ambit of CISF security considering intelligence inputs which suggested major threats to vital private establishments.
The Taj and Oberoi hotels in Mumbai, which witnessed the attacks on 26/11, have also requested for CISF cover. “A decision is, however, awaited in these cases,” said an official.
Security and intel agencies have placed these establishments in the high-risk category after 26/11
NETA’s NATTER
Relaxed after casting his vote in Guwahati, PM Manmohan Singh was in a mood to talk. Making a departure from his serious, taciturn image, he talked politics and charted out the course of action for his government if it gets a second term. Singh spoke to Bhaskar Roy on issues which have figured high on the poll landscape. Excerpts:
What is your action plan for reviving the economy?
The three stimulus packages announced by my government were intended to take the economy out of the morass. We have already outlined our objective and there is considerable scope to refuel the packages. We made a commitment in our (Congress election) manifesto that within 100 days (of returning to power), we will come out with a programme to strengthen the packages. There is scope to change the atmosphere and improve the investment climate. I have been talking to RBI and there will be an effective programme.
Will the economy be back on the high growth path soon?
The aim is to take the economy to a stage where 9-10% growth is possible. I am not setting too high a target. Only a Congress government can do such things. Yashwant Sinha — when he was finance minister in the Chandra Shekhar government — sent the country’s gold abroad. When we came back to power, we brought the gold back.
Are steps taken by your government to counter terrorism enough? What more will you do to tackle the problem?
Terrorism is an international problem. Our neighbourhood is characterised by a great degree of instability. Terrorists find a congenial atmosphere in that air of instability, and also in the neighbour’s strategy. Terrorism also has several inter-state aspects. We cannot say there are no links between terrorists outside and terrorists within the country. We have to strengthen our security forces and intelligence set-up. The police forces need to be modernised. They have to be given the best weapons. But ultimately it is community policing — that’s the best answer. There is need for a more intensified collaboration between the Centre and the states.
There is a lot of noise about a massive amount of black money stashed away abroad.
Let me say that black money has to be brought back through a well-coordinated programme. But if you are advertising before taking any step, it gives black marketeers an opportunity to stash away, re-arrange their portfolios in a manner that it will make it difficult to unearth black money. I am not denying the existence of such black money abroad. How much in Swiss banks, how much in tax havens, its magnitude — no one knows about it. We will take definite steps within 100 days (of the new government) to recover this black money. We argued within a group of friendly countries to
find a way out. As far as the government of India is concerned, we talked to some other countries for absolute transparency within the banking system, for an international agreement to share information between tax authorities. We will follow it up, for us it is a priority to find out if portfolios have been maintained by dubious players.
Job losses are hitting a large section of people. Do you have plans to tackle the problem?
Once the government comes back to power we will put in place an integrated, well-thought out plan to deal with the problem. As of now, the problem of job losses is confined to the textile and diamond industries. Other areas of the economy have not been affected. Our stimulus package essentially takes care of it. This will set in motion a process of revival.
What is your action plan for reviving the economy?
The three stimulus packages announced by my government were intended to take the economy out of the morass. We have already outlined our objective and there is considerable scope to refuel the packages. We made a commitment in our (Congress election) manifesto that within 100 days (of returning to power), we will come out with a programme to strengthen the packages. There is scope to change the atmosphere and improve the investment climate. I have been talking to RBI and there will be an effective programme.
Will the economy be back on the high growth path soon?
The aim is to take the economy to a stage where 9-10% growth is possible. I am not setting too high a target. Only a Congress government can do such things. Yashwant Sinha — when he was finance minister in the Chandra Shekhar government — sent the country’s gold abroad. When we came back to power, we brought the gold back.
Are steps taken by your government to counter terrorism enough? What more will you do to tackle the problem?
Terrorism is an international problem. Our neighbourhood is characterised by a great degree of instability. Terrorists find a congenial atmosphere in that air of instability, and also in the neighbour’s strategy. Terrorism also has several inter-state aspects. We cannot say there are no links between terrorists outside and terrorists within the country. We have to strengthen our security forces and intelligence set-up. The police forces need to be modernised. They have to be given the best weapons. But ultimately it is community policing — that’s the best answer. There is need for a more intensified collaboration between the Centre and the states.
There is a lot of noise about a massive amount of black money stashed away abroad.
Let me say that black money has to be brought back through a well-coordinated programme. But if you are advertising before taking any step, it gives black marketeers an opportunity to stash away, re-arrange their portfolios in a manner that it will make it difficult to unearth black money. I am not denying the existence of such black money abroad. How much in Swiss banks, how much in tax havens, its magnitude — no one knows about it. We will take definite steps within 100 days (of the new government) to recover this black money. We argued within a group of friendly countries to
find a way out. As far as the government of India is concerned, we talked to some other countries for absolute transparency within the banking system, for an international agreement to share information between tax authorities. We will follow it up, for us it is a priority to find out if portfolios have been maintained by dubious players.
Job losses are hitting a large section of people. Do you have plans to tackle the problem?
Once the government comes back to power we will put in place an integrated, well-thought out plan to deal with the problem. As of now, the problem of job losses is confined to the textile and diamond industries. Other areas of the economy have not been affected. Our stimulus package essentially takes care of it. This will set in motion a process of revival.
BULLS ARE BACK Sensex hits 6-mth high, gains 194 pts
Mumbai: The sensex gained further on Friday, ending 194 points higher at 11,329—its highest closing in six months. The day’s gains also ensured the seventh week of gains for the index as investors got richer by Rs 54,000 crore with BSE’s market capitalisation now at almost Rs 36 lakh crore.
The day’s rally piggybacked on strong FII-buying, with a provisional net buying figure of Rs 577 crore. Domestic funds had net buying of Rs 15 crore. The day’s rise was led by banking stocks, along with those from sectors like consumer durables, capital goods and technology.
Institutional dealers said that although fundamentals of the economy had not changed much, it is the liquidity—availability of funds—with institutions that is driving the current rally. So on the flip side, they warn that if for any reason the liquidity flow reverses, the market could go for a speedy slide.
Market players said that with the index closing near the day’s high and US market in early trading showing good gains, Monday’s session could witness some more rise from the current levels. Next week’s trading will be truncated with trading on Thursday closed for the Lok Sabha elections in Mumbai and closed on Friday for Maharashtra Day. In the shortened week, the index could further its gains to the eighth consecutive week, market players said.
Market players also said that in case the election result throws up a more fractured mandate with a large number of political parties and no clear mandate, the economic slowdown could worsen and bring the market down. The results for the ensuing election is set to be announced in less than four weeks from now. Till the poll results are out, brokers advise caution to investors.
On Friday, among sensex stocks, M&M ended 7% higher at 474, Jaiprakash Associates closed 6.1% higher at Rs 126, while Grasim gained 5.7% to Rs 1,802. Among losers were Ranbaxy Labs, which announced its largest quarterly loss of Rs 778 crore, ended 2.4% off at Rs 176 and HUL lost less than 1% to end at Rs 238. On BSE, there were 1,536 advances, compared to 970 laggards.
The day’s rally piggybacked on strong FII-buying, with a provisional net buying figure of Rs 577 crore. Domestic funds had net buying of Rs 15 crore. The day’s rise was led by banking stocks, along with those from sectors like consumer durables, capital goods and technology.
Institutional dealers said that although fundamentals of the economy had not changed much, it is the liquidity—availability of funds—with institutions that is driving the current rally. So on the flip side, they warn that if for any reason the liquidity flow reverses, the market could go for a speedy slide.
Market players said that with the index closing near the day’s high and US market in early trading showing good gains, Monday’s session could witness some more rise from the current levels. Next week’s trading will be truncated with trading on Thursday closed for the Lok Sabha elections in Mumbai and closed on Friday for Maharashtra Day. In the shortened week, the index could further its gains to the eighth consecutive week, market players said.
Market players also said that in case the election result throws up a more fractured mandate with a large number of political parties and no clear mandate, the economic slowdown could worsen and bring the market down. The results for the ensuing election is set to be announced in less than four weeks from now. Till the poll results are out, brokers advise caution to investors.
On Friday, among sensex stocks, M&M ended 7% higher at 474, Jaiprakash Associates closed 6.1% higher at Rs 126, while Grasim gained 5.7% to Rs 1,802. Among losers were Ranbaxy Labs, which announced its largest quarterly loss of Rs 778 crore, ended 2.4% off at Rs 176 and HUL lost less than 1% to end at Rs 238. On BSE, there were 1,536 advances, compared to 970 laggards.
Maruti Q4 net down 18% on forex, high input costs
New Delhi: Higher raw material costs and forex loss outweighed an increase in car sales for Maruti Suzuki, which witnessed an 18% fall in fourth quarter (January-March, 2008-09) net profit to Rs 243 crore against Rs 299 crore in the corresponding period of the previous financial year.
In Q4, total vehicle sales increased 17%. “The cumulative impact of the adverse forex exchange movement—both direct and via vendor imports— impacted our profit,” Shinzo Nakanishi, Maruti MD and CEO, said. Maruti made a provision of Rs 121 crore in Q4 for mark-to-market loss on dollarrupee derivatives, CFO Ajay Seth said, adding that the company has hedged one-third of its total foreign currency exposure as on March 31.
Raw material costs also grew substantially for the company at Rs 4,738 crore against Rs 3,694 crore in the fourth quarter of fiscal 2007-08, the company said, adding that prices have since softened and are likely to reflect positively in the first quarter of 2009-10.
Net sales for Maruti grew to Rs 6,308 crore, from Rs 4,763 crore in Q4 of 2007-08, registering a growth of 32%. The company’s net profit remained subdued for the full year as well (2008-09) which fell near 30% at Rs 1,219 crore against Rs 1,731 crore in 2007-08. However, Maruti’s net sales in the period rose 14% to Rs 20,358 crore against Rs 17,860 crore, led by models like the Swift and the Dzire. Total vehicle sales for the company in 2008-09 rose 3.5% at 7,92,167 units from 7,64,842 in 2007-08.
“Despite the revival in the fourth quarter of the last fiscal, future still looks uncertain. Experts have presented different growth projections. We foresee 2009-10 to be another volatile and difficult year,” Nakanishi said. Maruti has also started sale of A-Star compact to Nissan as part of contract manufacturing, he said. “We have shipped 2,000 units. Full year sale to them is expected at 30,000 units,”
WHAT WENT WRONG? Maruti MD and CEO Shinzo Nakanishi
In Q4, total vehicle sales increased 17%. “The cumulative impact of the adverse forex exchange movement—both direct and via vendor imports— impacted our profit,” Shinzo Nakanishi, Maruti MD and CEO, said. Maruti made a provision of Rs 121 crore in Q4 for mark-to-market loss on dollarrupee derivatives, CFO Ajay Seth said, adding that the company has hedged one-third of its total foreign currency exposure as on March 31.
Raw material costs also grew substantially for the company at Rs 4,738 crore against Rs 3,694 crore in the fourth quarter of fiscal 2007-08, the company said, adding that prices have since softened and are likely to reflect positively in the first quarter of 2009-10.
Net sales for Maruti grew to Rs 6,308 crore, from Rs 4,763 crore in Q4 of 2007-08, registering a growth of 32%. The company’s net profit remained subdued for the full year as well (2008-09) which fell near 30% at Rs 1,219 crore against Rs 1,731 crore in 2007-08. However, Maruti’s net sales in the period rose 14% to Rs 20,358 crore against Rs 17,860 crore, led by models like the Swift and the Dzire. Total vehicle sales for the company in 2008-09 rose 3.5% at 7,92,167 units from 7,64,842 in 2007-08.
“Despite the revival in the fourth quarter of the last fiscal, future still looks uncertain. Experts have presented different growth projections. We foresee 2009-10 to be another volatile and difficult year,” Nakanishi said. Maruti has also started sale of A-Star compact to Nissan as part of contract manufacturing, he said. “We have shipped 2,000 units. Full year sale to them is expected at 30,000 units,”
WHAT WENT WRONG? Maruti MD and CEO Shinzo Nakanishi
LIFE-SAVER HC allows Cipla to sell generic drug
New Delhi: In a ruling that may give relief to lakhs of lung cancer patients, the Delhi high court on Friday allowed Cipla to manufacture and sell the generic version of lung cancer drug ‘Erlotinib’ of Swiss pharma company Hoffman La Roche.
Vacating its previous stay order on the generic manufacturer, a division bench also removed all restraints on Cipla, while exporting the lifesaving drug to other countries in which La Roche has patent rights. The court dismissed the plea of the Swiss company and also imposed a cost of Rs 5 lakh on it. The move is a big relief to cancer patients who depend on generic versions of the drug, which is priced much lower than the patented drug.
Cancer drugs are one of the most expensive treatments and the order would improve the accessibility of the drug to lung cancer patients. Cipla had launched its generic version Erlocip in December 2007 at Rs 1,700 per tablet as against Roche’s price of over Rs 4,000 per pill.
HC dismissed the plea of the Swiss company, which argued that the Indian company should be restrained from manufacturing and selling the generic drug till the issue of patent rights was decided through litigation.
The Swiss company had approached the division bench of the high court after a single bench had dismissed its plea to restrain Cipla.
The bench also said public interest was predominant and it required that patients get access to cheap cancer medicines in the country. Advocate Pratibha Singh, appearing for Cipla, pleaded that the company should not be restrained from manufacturing the lifesaving drug at cheaper price.
The court also vacated its interim order which restrained Indian company from exporting the generic version of the drug to other countries. The Swiss company had approached the court after it found that Cipla was about to launch the generic version of the drug under the brand name ‘Tarceva’. Roche had got patent rights for the drug in February 2007.
In addition, the decision also laid down that the courts should follow a rule of caution, and not always presume that patents were valid, legal experts said. They added that an earlier verdict, which granted patent right to pharma MNC Novartis for another cancer drug, blocking the generic version, was disastrous for patients as the patent was overturned only three years later. This had blocked the supply of generic version and access to affordable treatment was denied.
Vacating its previous stay order on the generic manufacturer, a division bench also removed all restraints on Cipla, while exporting the lifesaving drug to other countries in which La Roche has patent rights. The court dismissed the plea of the Swiss company and also imposed a cost of Rs 5 lakh on it. The move is a big relief to cancer patients who depend on generic versions of the drug, which is priced much lower than the patented drug.
Cancer drugs are one of the most expensive treatments and the order would improve the accessibility of the drug to lung cancer patients. Cipla had launched its generic version Erlocip in December 2007 at Rs 1,700 per tablet as against Roche’s price of over Rs 4,000 per pill.
HC dismissed the plea of the Swiss company, which argued that the Indian company should be restrained from manufacturing and selling the generic drug till the issue of patent rights was decided through litigation.
The Swiss company had approached the division bench of the high court after a single bench had dismissed its plea to restrain Cipla.
The bench also said public interest was predominant and it required that patients get access to cheap cancer medicines in the country. Advocate Pratibha Singh, appearing for Cipla, pleaded that the company should not be restrained from manufacturing the lifesaving drug at cheaper price.
The court also vacated its interim order which restrained Indian company from exporting the generic version of the drug to other countries. The Swiss company had approached the court after it found that Cipla was about to launch the generic version of the drug under the brand name ‘Tarceva’. Roche had got patent rights for the drug in February 2007.
In addition, the decision also laid down that the courts should follow a rule of caution, and not always presume that patents were valid, legal experts said. They added that an earlier verdict, which granted patent right to pharma MNC Novartis for another cancer drug, blocking the generic version, was disastrous for patients as the patent was overturned only three years later. This had blocked the supply of generic version and access to affordable treatment was denied.
Govt replaces Menon, Bhushan is new AI boss
New Delhi: It has perhaps been the most dramatic 30 hours in the life of 76-year-old Air India. At 12 noon on Friday, the cabinet secretary held a meeting to find a new head for the airline as the government decided to replace incumbent CMD Raghu Menon.
At 6 pm, financial advisor in aviation ministry, E K Bharat Bhushan, was given additional charge of CMD. Menon, meanwhile, had already been informed about his removal on Thursday afternoon.
Menon has extended his leave till mid-May from May 3 as the government has set up a select committee to find his successor. In a hurry, an interim replacement was found for Menon as the full-time successor may not be found in the remaining tenure of this government till May 16.
While the reason for replacing Menon, a strictly-bythe-book bureaucrat, will be known in coming days, the latest provocation seems to the JV Air India was forming with Singapore Airport Terminal Services (SATS) to handle ground handling at airports. After the government clearance for this JV came, dispute arose on three main points.
According to sources, SATS reportedly told AI that its subsidiary would be forming the JV with the airline. Then SATS also reportedly said that it would charge a management fee for providing expertise and also AI would be charged cost plus 20%. Menon strongly objected to these three points and wrote to the ministry which was seemingly in favour of the JV.
The ministry’s handling of the change has come as a surprise. Last year the government had called application for this top post and at that time Menon had applied and then withdrawn from the race. Despite that, he was handpicked for the job. And now, the ministry has got rid of him without waiting for him to return from leave.
According to sources, the select committee has to find some suitable names and then the appointment committee of cabinet (ACC) has to put the mark of approval on the final choice. However, realising that doing background checks of shortlisted people and then getting the PM’s approval by May 16 could have been difficult, Menon was eased out immediately.
The top-level change in Air India is coming at a time when the airline is in the process of making its case before the government for additional equity infusion of Rs 1,231 crore and a soft loan of Rs 2,750 crore, primarily for acquisition of 111 aircraft from Boeing and Airbus
Raghu Menon
At 6 pm, financial advisor in aviation ministry, E K Bharat Bhushan, was given additional charge of CMD. Menon, meanwhile, had already been informed about his removal on Thursday afternoon.
Menon has extended his leave till mid-May from May 3 as the government has set up a select committee to find his successor. In a hurry, an interim replacement was found for Menon as the full-time successor may not be found in the remaining tenure of this government till May 16.
While the reason for replacing Menon, a strictly-bythe-book bureaucrat, will be known in coming days, the latest provocation seems to the JV Air India was forming with Singapore Airport Terminal Services (SATS) to handle ground handling at airports. After the government clearance for this JV came, dispute arose on three main points.
According to sources, SATS reportedly told AI that its subsidiary would be forming the JV with the airline. Then SATS also reportedly said that it would charge a management fee for providing expertise and also AI would be charged cost plus 20%. Menon strongly objected to these three points and wrote to the ministry which was seemingly in favour of the JV.
The ministry’s handling of the change has come as a surprise. Last year the government had called application for this top post and at that time Menon had applied and then withdrawn from the race. Despite that, he was handpicked for the job. And now, the ministry has got rid of him without waiting for him to return from leave.
According to sources, the select committee has to find some suitable names and then the appointment committee of cabinet (ACC) has to put the mark of approval on the final choice. However, realising that doing background checks of shortlisted people and then getting the PM’s approval by May 16 could have been difficult, Menon was eased out immediately.
The top-level change in Air India is coming at a time when the airline is in the process of making its case before the government for additional equity infusion of Rs 1,231 crore and a soft loan of Rs 2,750 crore, primarily for acquisition of 111 aircraft from Boeing and Airbus
Raghu Menon
Rats feed off UK slump as trash mounts
For British rats, the worst of times has turned out to be the best of times. The vermin more associated with the Dickensian era than modern Britain are thriving, with shuttered shops and half-built housing sites to live in, rotting piles of uncollected garbage for dinner and fewer exterminators sent out to kill them.
“Sometimes I drive into the car park and there are at least 20 of them in the bins,’’ said Paul Hood, 46, a north London resident. “You see them running away in the headlights. During the day, they just sit in the bushes sunbathing.’’
As the biggest economic bust in 60 years fostered a boom for rodents, municipalities were called an estimated 700,000 times to deal with infestations in the last 12 months, compared with 650,000 the previous year, said Peter Crowden, chairman of National Pest Technicians Association.
The rat population has swollen by 13% this year to over 50 million, one for every person living in England, according to an industry consensus cited by Crowden. Rats and mice are capable of spreading over 35 diseases, including a fever inducing nausea and muscle aches passed to humans either via a bite or the rodent’s urine. “The government needs to look at this,’’ Crowden said. “Budgets are being cut. If they don’t do something, it’s going to be a serious public-health risk.’’
Jason Goodright, 36, a neighbour of Hood at Larch Close in north London, said, “People are frightened and just throw rubbish from a distance onto the ground, making the situation worse.’’ “Wherever there are empty properties, there’s a problem,’’ said Kevin Higgins, a spokesman for the trade group British Pest Control Association. “It’s not just rodents, it’s cockroaches as well. It’ll have a big effect as time goes on.’’
And it’s not just affecting vacated bu i l d i n g s. Gurinder Sahni, director of M a s t e r T raders, which exports ethnic food to mainland Europe from London, said he’s lost about £500 worth of goods, including almonds, fruit juice and even palm oil to rats during the past year. As the downturn bites, consumers and businesses are looking for ways to cut exterminator costs, including trying home-grown solutions, not always successfully. Hood in north London relies on his two smooth-coat Jack Russell terriers to get the job done. “They catch one every other day,’’ he said. “They kill more than the pest controller,’’ he said.
Damage to infrastructure caused by rats, which can harm buildings by burrowing underneath their foundations, costs the UK economy £209 million a year, according to the Chartered Institute of Environment Health. “If we aren’t careful, the recession will play into the hands of both rats and mice,’’ Crowden said. BLOOMBERG
“Sometimes I drive into the car park and there are at least 20 of them in the bins,’’ said Paul Hood, 46, a north London resident. “You see them running away in the headlights. During the day, they just sit in the bushes sunbathing.’’
As the biggest economic bust in 60 years fostered a boom for rodents, municipalities were called an estimated 700,000 times to deal with infestations in the last 12 months, compared with 650,000 the previous year, said Peter Crowden, chairman of National Pest Technicians Association.
The rat population has swollen by 13% this year to over 50 million, one for every person living in England, according to an industry consensus cited by Crowden. Rats and mice are capable of spreading over 35 diseases, including a fever inducing nausea and muscle aches passed to humans either via a bite or the rodent’s urine. “The government needs to look at this,’’ Crowden said. “Budgets are being cut. If they don’t do something, it’s going to be a serious public-health risk.’’
Jason Goodright, 36, a neighbour of Hood at Larch Close in north London, said, “People are frightened and just throw rubbish from a distance onto the ground, making the situation worse.’’ “Wherever there are empty properties, there’s a problem,’’ said Kevin Higgins, a spokesman for the trade group British Pest Control Association. “It’s not just rodents, it’s cockroaches as well. It’ll have a big effect as time goes on.’’
And it’s not just affecting vacated bu i l d i n g s. Gurinder Sahni, director of M a s t e r T raders, which exports ethnic food to mainland Europe from London, said he’s lost about £500 worth of goods, including almonds, fruit juice and even palm oil to rats during the past year. As the downturn bites, consumers and businesses are looking for ways to cut exterminator costs, including trying home-grown solutions, not always successfully. Hood in north London relies on his two smooth-coat Jack Russell terriers to get the job done. “They catch one every other day,’’ he said. “They kill more than the pest controller,’’ he said.
Damage to infrastructure caused by rats, which can harm buildings by burrowing underneath their foundations, costs the UK economy £209 million a year, according to the Chartered Institute of Environment Health. “If we aren’t careful, the recession will play into the hands of both rats and mice,’’ Crowden said. BLOOMBERG
Foam Without Substance
Over the past weeks, election-related discussions have become increasingly passionate, but lacking in substance. One might fault the media for this as it allows so much fluff and spittle to dominate talk shows, but that might be a trifle unfair. The media can justifiably argue that it is constrained by what is on the ground.
Such a defence could be legitimised by taking a look at the manifestos of the two major parties, the Congress and the BJP. Interestingly, both documents have a similar structure. What they propose to do once in power comes much later. Their opening salvos, their best lines, are about their very own telling of past glories to score points against each other.
The BJP’s strength is its long-term memory and it accordingly begins its manifesto with a luxurious rendition of the glory that was ancient India. It argues that if we go back to tradition we will get a measure of how we had mastered practically every aspect of what is modern science. This section is bolstered by a quote from Thomas Babington Macaulay’s 1835 speech to the British Parliament where he supposedly said that he had never seen such prosperity as in India. So if India is underdeveloped today, modern history is at fault.
The Congress, which functions on shortterm memory, predictably begins its manifesto with modern history and the freedom movement. It tells us about the sterling role its ancestors played in it and brings us up to speed through the years of Nehru, Indira, Rajiv and, reluctantly, Manmohan Singh. It, therefore, warns readers not to be swayed by temptations as they walk through the forest to the election booth. There are evils lurking there in the shape of the BJP and the Third Front.
Interestingly, both the Congress and the BJP pay the greatest, and most urgent, attention to security threats in their respective manifestos. In the case of the Congress, it is not that detailed or obsessive. It figures, nevertheless, as the first three points in the section entitled “Work Programme”. The BJP shows little restraint on this matter and it is clear what it will do immediately on assuming power. In the first “100 days” the BJP promises, again and again, that it will set up designated courts and intelligence facilities to combat threats from external terrorists and internal insurgents.
So passion not only takes the front page but runs through large sections of it. History-telling and terrorist threats are a good way of getting temperatures up. When it comes to the humdrum, everyday world, the BJP and the Congress make
the usual promises, but in different words. Both parties pledge rural prosperity, food security, medical insurance and pride of place to the girl child. Just give us a chance! No admission from either quarter as to why they failed to accomplish such urgent tasks when they were in power.
Each party blames the other for ignoring these important parameters of growth, but the truth is that they both had turns in running the government in recent decades. The Sarva Shiksha Abhiyan was an NDA initiative that the UPA took over, but both sides claim it as their own. Likewise, our infrastructural failures run across both NDA and UPA rule, but the BJP manifesto makes it out as if only the UPA should bear the cross for this. Farmers were committing suicide between 1999-2004, yet the BJP does not admit to that. Our country’s sex ratio has been a national shame for decades. Nor did our health status begin its fall in the past five years. It had hit rock bottom years ago.
Yet another common feature in both manifestos is the absence of numbers. We have absolutely no idea how human and financial resources will be mobilised to bring relief to farmers, encourage basic research or develop infrastructure. Each of these tasks is huge in terms of monetary outlay and human deployment. How will all this be done? Where is the money going to come from?
Waiving loans is expensive. It can be a relief measure but not national policy. Or, to promise, as the BJP does, that it will establish 15 world-class cities in five years flat, is absolutely astounding, but it is there in print. So far nobody has asked how they propose to do this. And if it was so easy, why was it not done earlier? Remember, in the US presidential elections numbers were all-important, and specialists repeatedly quizzed candidates on their arithmetic.
At the end of the day, therefore, one is forced to cast one’s vote depending upon which party strikes the most agreeable tone in its manifesto. The BJP is clearly bristling with righteous rage at what terrorists have done to us. The Congress, on the other hand, advocates balance and the middle path. As neither manifesto provides us with enough meat on how policies will actually be implemented, we can only debate the “mood” that these parties generate.
Mayawati skirts the issue of manifestos altogether. She has just a printed appeal, largely about how reservations are the magic mantra, and poor upper castes can also apply. In fact, many were surprised that the BSP came out with anything at all. After all, Mayawati won UP in 2007 without a manifesto.
No wonder our election debates are so vacuous.
The writer is a professor of sociology at JNU, New Delhi.
Such a defence could be legitimised by taking a look at the manifestos of the two major parties, the Congress and the BJP. Interestingly, both documents have a similar structure. What they propose to do once in power comes much later. Their opening salvos, their best lines, are about their very own telling of past glories to score points against each other.
The BJP’s strength is its long-term memory and it accordingly begins its manifesto with a luxurious rendition of the glory that was ancient India. It argues that if we go back to tradition we will get a measure of how we had mastered practically every aspect of what is modern science. This section is bolstered by a quote from Thomas Babington Macaulay’s 1835 speech to the British Parliament where he supposedly said that he had never seen such prosperity as in India. So if India is underdeveloped today, modern history is at fault.
The Congress, which functions on shortterm memory, predictably begins its manifesto with modern history and the freedom movement. It tells us about the sterling role its ancestors played in it and brings us up to speed through the years of Nehru, Indira, Rajiv and, reluctantly, Manmohan Singh. It, therefore, warns readers not to be swayed by temptations as they walk through the forest to the election booth. There are evils lurking there in the shape of the BJP and the Third Front.
Interestingly, both the Congress and the BJP pay the greatest, and most urgent, attention to security threats in their respective manifestos. In the case of the Congress, it is not that detailed or obsessive. It figures, nevertheless, as the first three points in the section entitled “Work Programme”. The BJP shows little restraint on this matter and it is clear what it will do immediately on assuming power. In the first “100 days” the BJP promises, again and again, that it will set up designated courts and intelligence facilities to combat threats from external terrorists and internal insurgents.
So passion not only takes the front page but runs through large sections of it. History-telling and terrorist threats are a good way of getting temperatures up. When it comes to the humdrum, everyday world, the BJP and the Congress make
the usual promises, but in different words. Both parties pledge rural prosperity, food security, medical insurance and pride of place to the girl child. Just give us a chance! No admission from either quarter as to why they failed to accomplish such urgent tasks when they were in power.
Each party blames the other for ignoring these important parameters of growth, but the truth is that they both had turns in running the government in recent decades. The Sarva Shiksha Abhiyan was an NDA initiative that the UPA took over, but both sides claim it as their own. Likewise, our infrastructural failures run across both NDA and UPA rule, but the BJP manifesto makes it out as if only the UPA should bear the cross for this. Farmers were committing suicide between 1999-2004, yet the BJP does not admit to that. Our country’s sex ratio has been a national shame for decades. Nor did our health status begin its fall in the past five years. It had hit rock bottom years ago.
Yet another common feature in both manifestos is the absence of numbers. We have absolutely no idea how human and financial resources will be mobilised to bring relief to farmers, encourage basic research or develop infrastructure. Each of these tasks is huge in terms of monetary outlay and human deployment. How will all this be done? Where is the money going to come from?
Waiving loans is expensive. It can be a relief measure but not national policy. Or, to promise, as the BJP does, that it will establish 15 world-class cities in five years flat, is absolutely astounding, but it is there in print. So far nobody has asked how they propose to do this. And if it was so easy, why was it not done earlier? Remember, in the US presidential elections numbers were all-important, and specialists repeatedly quizzed candidates on their arithmetic.
At the end of the day, therefore, one is forced to cast one’s vote depending upon which party strikes the most agreeable tone in its manifesto. The BJP is clearly bristling with righteous rage at what terrorists have done to us. The Congress, on the other hand, advocates balance and the middle path. As neither manifesto provides us with enough meat on how policies will actually be implemented, we can only debate the “mood” that these parties generate.
Mayawati skirts the issue of manifestos altogether. She has just a printed appeal, largely about how reservations are the magic mantra, and poor upper castes can also apply. In fact, many were surprised that the BSP came out with anything at all. After all, Mayawati won UP in 2007 without a manifesto.
No wonder our election debates are so vacuous.
The writer is a professor of sociology at JNU, New Delhi.
Thursday, April 23, 2009
Microsoft Profit Falls for First Time in 23 Years
24th,April,2009
Fresh off one of the worst quarters in company history, Microsoft offered investors little evidence that a beleaguered personal computer market would recover anytime soon.
Skip to next paragraph
Related
Times Topics: Microsoft Corporation
On Thursday, Microsoft set the wrong kind of record, as it reported the first year-over-year quarterly revenue decline since it first sold stock to the public in 1986. In its third quarter, which ended March 31, Microsoft said its revenue fell 6 percent, to $13.65 billion, from $14.45 billion. It reported net income of $2.98 billion, or 33 cents a share — a 32 percent drop from the $4.39 billion, or 47 cents a share, reported in the period last year.
The company’s Windows franchise has come under unprecedented pressure during the recession as consumers and businesses have shied away from buying new computers or have purchased cheaper machines. While Intel, the chip maker, said last week that the worst of the PC decline had passed, Microsoft displayed no such confidence.
“I didn’t see any improvement at the end of the quarter that gives me encouragement that we are at a bottom and coming out of it,” Christopher P. Liddell, Microsoft’s chief financial officer, said during a conference call to discuss the company’s results. “They stopped getting worse, but that’s different from they started getting better.”
The recession has generated a series of firsts for Microsoft, including its first large layoff and first decline in Windows sales.
Microsoft, based in Redmond, Wash., said its earnings included 6 cents of charges related to the layoffs and impairments to investments.
Analysts surveyed by Thomson Reuters had expected Microsoft to earn 39 cents a share, excluding the one-time charges, on revenue of $14.1 billion.
Intel supplies the processors for most PCs, while Microsoft supplies the key operating system software.
Last week, Intel’s chief executive, Paul S. Otellini, declared that “the worst is now behind us.”
Mr. Liddell of Microsoft maintained a more somber tone. “While we would all like to think a recovery will be soon and painless, we actually believe it will be slow and painful,” he said.
Still, shares of Microsoft rose in after-hours trading after release of the results as investors apparently took solace from the company’s cost-cutting efforts.
Microsoft has lowered its forecast of its operating expenses by as much as $1 billion for the year.
“Microsoft, like everyone else, has got serious about cost-cutting,” said Brendan Barnicle, a software analyst with Pacific Crest Securities. “They never really had to do that before, and investors had been hoping they would cut more.”
Microsoft’s online services business, which competes with Google and Yahoo, continued to disappoint observers as a depressed advertising market pushed sales down to $721 million, from $843 million.
“The online business looked bad, but I still believe they have to be in that space to fulfill the larger vision of where Microsoft is going,” said Richard Williams, the senior software analyst at Cross Research. “It may mean that they have to acquire rather than build.”
Microsoft has been in talks with Yahoo about some kind of partnership in online advertising.
In the company’s core Windows business, sales declined to $3.4 billion in the quarter, down from $4 billion in the period last year.
Netbooks, the cheap, small laptops that have surged in popularity, remained the big story. According to Microsoft’s research, PC sales fell 7 to 9 percent during the quarter. Excluding netbooks, traditional PC sales fell 15 to 17 percent.
Last quarter, netbooks accounted for about 10 percent of PC sales, Microsoft said. Netbooks are a mixed blessing for Microsoft. The company’s average selling price for Windows has declined, because it ships a discounted version of the older Windows XP on netbooks. Microsoft’s Windows profit fell 19 percent, to $2.5 billion.
On a positive note, many customers have bought netbooks as complements to their existing computers, representing fresh revenue for Microsoft and Intel during these lean times.
However, “there are some real challenges in that business behind this shift to the low end,” said Israel Hernandez, director of software research at Barclays Capital. “And on the horizon, you have Apple and Google who appear ready to introduce their own takes on netbooks.”
Microsoft declined to offer specific financial guidance for the coming quarters.
Shares of Microsoft ended regular trading Thursday at $18.92, up 14 cents. The company released third-quarter figures after the market closed, and in after-hours trading the shares rose more than 3 percent, to $19.50.
Fresh off one of the worst quarters in company history, Microsoft offered investors little evidence that a beleaguered personal computer market would recover anytime soon.
Skip to next paragraph
Related
Times Topics: Microsoft Corporation
On Thursday, Microsoft set the wrong kind of record, as it reported the first year-over-year quarterly revenue decline since it first sold stock to the public in 1986. In its third quarter, which ended March 31, Microsoft said its revenue fell 6 percent, to $13.65 billion, from $14.45 billion. It reported net income of $2.98 billion, or 33 cents a share — a 32 percent drop from the $4.39 billion, or 47 cents a share, reported in the period last year.
The company’s Windows franchise has come under unprecedented pressure during the recession as consumers and businesses have shied away from buying new computers or have purchased cheaper machines. While Intel, the chip maker, said last week that the worst of the PC decline had passed, Microsoft displayed no such confidence.
“I didn’t see any improvement at the end of the quarter that gives me encouragement that we are at a bottom and coming out of it,” Christopher P. Liddell, Microsoft’s chief financial officer, said during a conference call to discuss the company’s results. “They stopped getting worse, but that’s different from they started getting better.”
The recession has generated a series of firsts for Microsoft, including its first large layoff and first decline in Windows sales.
Microsoft, based in Redmond, Wash., said its earnings included 6 cents of charges related to the layoffs and impairments to investments.
Analysts surveyed by Thomson Reuters had expected Microsoft to earn 39 cents a share, excluding the one-time charges, on revenue of $14.1 billion.
Intel supplies the processors for most PCs, while Microsoft supplies the key operating system software.
Last week, Intel’s chief executive, Paul S. Otellini, declared that “the worst is now behind us.”
Mr. Liddell of Microsoft maintained a more somber tone. “While we would all like to think a recovery will be soon and painless, we actually believe it will be slow and painful,” he said.
Still, shares of Microsoft rose in after-hours trading after release of the results as investors apparently took solace from the company’s cost-cutting efforts.
Microsoft has lowered its forecast of its operating expenses by as much as $1 billion for the year.
“Microsoft, like everyone else, has got serious about cost-cutting,” said Brendan Barnicle, a software analyst with Pacific Crest Securities. “They never really had to do that before, and investors had been hoping they would cut more.”
Microsoft’s online services business, which competes with Google and Yahoo, continued to disappoint observers as a depressed advertising market pushed sales down to $721 million, from $843 million.
“The online business looked bad, but I still believe they have to be in that space to fulfill the larger vision of where Microsoft is going,” said Richard Williams, the senior software analyst at Cross Research. “It may mean that they have to acquire rather than build.”
Microsoft has been in talks with Yahoo about some kind of partnership in online advertising.
In the company’s core Windows business, sales declined to $3.4 billion in the quarter, down from $4 billion in the period last year.
Netbooks, the cheap, small laptops that have surged in popularity, remained the big story. According to Microsoft’s research, PC sales fell 7 to 9 percent during the quarter. Excluding netbooks, traditional PC sales fell 15 to 17 percent.
Last quarter, netbooks accounted for about 10 percent of PC sales, Microsoft said. Netbooks are a mixed blessing for Microsoft. The company’s average selling price for Windows has declined, because it ships a discounted version of the older Windows XP on netbooks. Microsoft’s Windows profit fell 19 percent, to $2.5 billion.
On a positive note, many customers have bought netbooks as complements to their existing computers, representing fresh revenue for Microsoft and Intel during these lean times.
However, “there are some real challenges in that business behind this shift to the low end,” said Israel Hernandez, director of software research at Barclays Capital. “And on the horizon, you have Apple and Google who appear ready to introduce their own takes on netbooks.”
Microsoft declined to offer specific financial guidance for the coming quarters.
Shares of Microsoft ended regular trading Thursday at $18.92, up 14 cents. The company released third-quarter figures after the market closed, and in after-hours trading the shares rose more than 3 percent, to $19.50.
G-7 to Keep ‘Feet on the Accelerator’ in Quest for Recovery
April 24 (Bloomberg) -- Finance chiefs from the Group of Seven meet today under pressure to ensure the green shoots of economic recovery take stronger root.
Unemployment, deflation and toxic bank assets still stand in the way of a permanent rebound from the deepest recession since World War II. While some reports signal the worst is over, investors want the G-7’s central bankers and finance ministers to maintain stimulus policies until expansion is assured.
“Policy makers have to keep their feet on the accelerator,” said Tim Adams, a former U.S. Treasury official and now managing director at the Lindsey Group, an investment consulting firm in Fairfax, Virginia. “It’s way too early to say we’re in a sustainable recovery.”
Treasury Secretary Timothy Geithner, European Central Bank President Jean-Claude Trichet and their G-7 colleagues gather in Washington two days after the International Monetary Fund cut its forecasts for each of their economies. As global stocks head for their first weekly decline in seven, the IMF predicts the global recession to be deeper and the recovery slower than it anticipated in January.
The G-7 will release a statement about 4:30 p.m. Washington time today and officials will speak to reporters afterwards. They will later meet counterparts from the Group of 20 nations.
‘Foster Confidence’
“We need to make sure we provide a scale of support that matches the intensity of the challenge,” Geithner said April 22. French Finance Minister Christine Lagarde said yesterday that policy makers “need to be very prudent, very careful and just keep focusing on what we have to do.”
“At this juncture, it’s too early to tell if” a recovery is under way, Bank of Japan Governor Masaaki Shirakawa said in New York yesterday.
Reports from governments and companies this week also cautioned against complacency. In the U.S., the number of Americans filing first-time applications for unemployment insurance rose last week to 640,000 and March sales of previously owned homes fell more than forecast. European industrial orders dropped the most in at least 13 years in February.
Japan’s second-largest bank, Mizuho Financial Group Inc., yesterday reported a wider-than-estimated loss as bad loans spiraled. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, posted its first quarterly net loss in 16 years.
‘Encouraging Signs’
Such gloom is offsetting what Canadian Finance Minister Jim Flaherty calls “small, encouraging signs” in the global economy. U.S. consumer confidence advanced this month to the highest level since the bankruptcy of Lehman Brothers Holdings Inc., German investor confidence rose to the highest in almost two years and Japan’s export slump slowed.
Banks are also now more willing to lend than at any time since before Lehman’s collapse in September, according to the gap between London interbank offered rate and the expected average federal funds rate over the next three months.
Policy makers are nevertheless refusing to sound the all clear and are still deploying emergency measures to keep their economies afloat. The Bank of Canada this week cut its key lending rate to a record low of 0.25 percent and said it plans to keep it there for more than a year. Japan this month unveiled a 15.4 trillion yen ($160 billion) stimulus package.
“The world economy is no longer falling off a cliff, but it’s too soon to say this recovery is sustainable,” said Axel Botte, strategist at Axa Investment Managers in Paris, which manages about $630 billion. “Policy makers need to reaffirm their commitments to helping the financial sector and economies.”
Nature of Crisis
They need to be relentless because of the nature of the crisis. An IMF study of 122 recessions concluded that synchronized slumps last 50 percent longer than more localized ones. It also found that downturns sparked by financial busts last longer than those caused by tight economic policies, oil shocks or sliding exports.
That means a fitful outlook for stocks too, said Alec Young, an equity markets strategist with Standard & Poor’s in New York. The MSCI World Index this week fell about 2 percent after rising for six straight weeks.
“Markets will likely be higher in a year’s time, but we would not be surprised to see some near-term consolidation of the recent advance as investors await more evidence of improvement,” Young said.
Bank Losses
One barrier to recovery is posed by banks’ balance sheets, which are still clogged with distressed assets and may make financial institutions more reluctant to lend. The IMF estimates worldwide losses tied to bad loans and securitized assets may reach $4.1 trillion by the end of 2010.
“You never recover before you clean up the balance sheets,” IMF Managing Director Dominique Strauss-Kahn told Bloomberg Television yesterday.
With access to cash limited, deflation remains another threat to demand. The IMF predicts consumer prices will drop 0.2 percent in advanced economies this year. U.S. prices posted their first annual decline since 1955 in March and the rate that U.K. wage bargainers use to gauge the cost of living fell for the first time in almost half a century.
An increase in worldwide unemployment from 5.3 percent to 8.5 percent, the highest in more than a decade, will provide another “powerful disinflationary force that will reverberate throughout the global economy,” said David Hensley, an economist at JPMorgan Chase & Co. in New York.
Fiscal Constraints
The dilemma for major governments is that they are running out of room to act after committing more than $2 trillion in lower taxes and higher spending.
The U.K. plans to sell a record 220 billion pounds ($321 billion) of government bonds this year to plug the largest budget deficit gap in the G-20. The Obama administration has increased U.S. marketable debt to an unprecedented $6.27 trillion as it predicts a record $1.75 trillion budget gap this year.
“Fiscal fatigue is starting to set in,” said Ethan Harris, co-chief U.S. economist at Barclays Capital in New York. If current policies “do not work in reviving growth there is a sigficant risk to the global economy.
Unemployment, deflation and toxic bank assets still stand in the way of a permanent rebound from the deepest recession since World War II. While some reports signal the worst is over, investors want the G-7’s central bankers and finance ministers to maintain stimulus policies until expansion is assured.
“Policy makers have to keep their feet on the accelerator,” said Tim Adams, a former U.S. Treasury official and now managing director at the Lindsey Group, an investment consulting firm in Fairfax, Virginia. “It’s way too early to say we’re in a sustainable recovery.”
Treasury Secretary Timothy Geithner, European Central Bank President Jean-Claude Trichet and their G-7 colleagues gather in Washington two days after the International Monetary Fund cut its forecasts for each of their economies. As global stocks head for their first weekly decline in seven, the IMF predicts the global recession to be deeper and the recovery slower than it anticipated in January.
The G-7 will release a statement about 4:30 p.m. Washington time today and officials will speak to reporters afterwards. They will later meet counterparts from the Group of 20 nations.
‘Foster Confidence’
“We need to make sure we provide a scale of support that matches the intensity of the challenge,” Geithner said April 22. French Finance Minister Christine Lagarde said yesterday that policy makers “need to be very prudent, very careful and just keep focusing on what we have to do.”
“At this juncture, it’s too early to tell if” a recovery is under way, Bank of Japan Governor Masaaki Shirakawa said in New York yesterday.
Reports from governments and companies this week also cautioned against complacency. In the U.S., the number of Americans filing first-time applications for unemployment insurance rose last week to 640,000 and March sales of previously owned homes fell more than forecast. European industrial orders dropped the most in at least 13 years in February.
Japan’s second-largest bank, Mizuho Financial Group Inc., yesterday reported a wider-than-estimated loss as bad loans spiraled. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, posted its first quarterly net loss in 16 years.
‘Encouraging Signs’
Such gloom is offsetting what Canadian Finance Minister Jim Flaherty calls “small, encouraging signs” in the global economy. U.S. consumer confidence advanced this month to the highest level since the bankruptcy of Lehman Brothers Holdings Inc., German investor confidence rose to the highest in almost two years and Japan’s export slump slowed.
Banks are also now more willing to lend than at any time since before Lehman’s collapse in September, according to the gap between London interbank offered rate and the expected average federal funds rate over the next three months.
Policy makers are nevertheless refusing to sound the all clear and are still deploying emergency measures to keep their economies afloat. The Bank of Canada this week cut its key lending rate to a record low of 0.25 percent and said it plans to keep it there for more than a year. Japan this month unveiled a 15.4 trillion yen ($160 billion) stimulus package.
“The world economy is no longer falling off a cliff, but it’s too soon to say this recovery is sustainable,” said Axel Botte, strategist at Axa Investment Managers in Paris, which manages about $630 billion. “Policy makers need to reaffirm their commitments to helping the financial sector and economies.”
Nature of Crisis
They need to be relentless because of the nature of the crisis. An IMF study of 122 recessions concluded that synchronized slumps last 50 percent longer than more localized ones. It also found that downturns sparked by financial busts last longer than those caused by tight economic policies, oil shocks or sliding exports.
That means a fitful outlook for stocks too, said Alec Young, an equity markets strategist with Standard & Poor’s in New York. The MSCI World Index this week fell about 2 percent after rising for six straight weeks.
“Markets will likely be higher in a year’s time, but we would not be surprised to see some near-term consolidation of the recent advance as investors await more evidence of improvement,” Young said.
Bank Losses
One barrier to recovery is posed by banks’ balance sheets, which are still clogged with distressed assets and may make financial institutions more reluctant to lend. The IMF estimates worldwide losses tied to bad loans and securitized assets may reach $4.1 trillion by the end of 2010.
“You never recover before you clean up the balance sheets,” IMF Managing Director Dominique Strauss-Kahn told Bloomberg Television yesterday.
With access to cash limited, deflation remains another threat to demand. The IMF predicts consumer prices will drop 0.2 percent in advanced economies this year. U.S. prices posted their first annual decline since 1955 in March and the rate that U.K. wage bargainers use to gauge the cost of living fell for the first time in almost half a century.
An increase in worldwide unemployment from 5.3 percent to 8.5 percent, the highest in more than a decade, will provide another “powerful disinflationary force that will reverberate throughout the global economy,” said David Hensley, an economist at JPMorgan Chase & Co. in New York.
Fiscal Constraints
The dilemma for major governments is that they are running out of room to act after committing more than $2 trillion in lower taxes and higher spending.
The U.K. plans to sell a record 220 billion pounds ($321 billion) of government bonds this year to plug the largest budget deficit gap in the G-20. The Obama administration has increased U.S. marketable debt to an unprecedented $6.27 trillion as it predicts a record $1.75 trillion budget gap this year.
“Fiscal fatigue is starting to set in,” said Ethan Harris, co-chief U.S. economist at Barclays Capital in New York. If current policies “do not work in reviving growth there is a sigficant risk to the global economy.
HSBC Will Close Equity Research, Trading in Japan
April 24 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank, will shut its stock-research and trading businesses in Japan, spokesman Paul Allen said.
“We’re migrating Japanese equity operations to Hong Kong,” Tokyo-based Allen said by telephone today. “We will continue to cover some Japanese companies using the HSBC global network, but we will not be doing research out of Tokyo.”
Allen, who said employees were informed at meeting this morning, declined to say how many positions are being eliminated.
HSBC said on April 21 it cut 100 positions at its Hong Kong private banking unit, which employed 1,200 people, as the global recession cut demand for wealth-management services. The London- based company is also cutting 1,200 jobs in the U.K., it said last month.
“The group is re-focusing on emerging markets,” said Lee Yuk-kei, a Hong Kong-based analyst at Core-Pacific Yamaichi International. “Growth potential in developed markets like Japan is almost non-existent. It doesn’t fit into their strategy.”
UBS AG fired about 10 equity research analysts and economists in Tokyo in the first round of cuts to its research business in Japan, two people familiar with the plan said this week. Goldman Sachs Group Inc., Citigroup Inc. and Deutsche Bank AG have also cut equity research staff in Japan.
Foreign financial companies fired about 4,300 people in Japan in the 15 months through March, or about 16 percent of their local workforce, according to Executive Search Partners Co., a Tokyo-based recruitment consulting firm.
“We’re migrating Japanese equity operations to Hong Kong,” Tokyo-based Allen said by telephone today. “We will continue to cover some Japanese companies using the HSBC global network, but we will not be doing research out of Tokyo.”
Allen, who said employees were informed at meeting this morning, declined to say how many positions are being eliminated.
HSBC said on April 21 it cut 100 positions at its Hong Kong private banking unit, which employed 1,200 people, as the global recession cut demand for wealth-management services. The London- based company is also cutting 1,200 jobs in the U.K., it said last month.
“The group is re-focusing on emerging markets,” said Lee Yuk-kei, a Hong Kong-based analyst at Core-Pacific Yamaichi International. “Growth potential in developed markets like Japan is almost non-existent. It doesn’t fit into their strategy.”
UBS AG fired about 10 equity research analysts and economists in Tokyo in the first round of cuts to its research business in Japan, two people familiar with the plan said this week. Goldman Sachs Group Inc., Citigroup Inc. and Deutsche Bank AG have also cut equity research staff in Japan.
Foreign financial companies fired about 4,300 people in Japan in the 15 months through March, or about 16 percent of their local workforce, according to Executive Search Partners Co., a Tokyo-based recruitment consulting firm.
Wednesday, April 22, 2009
India Lures LNG Cargoes as Asia, Europe Cut Imports
April 22 (Bloomberg) -- India may rank among the largest markets for spot cargoes of liquefied natural gas this year as Japan, South Korea and Spain slash purchases.
India faces a shortage of 80 million cubic meters of gas a day, or more than half of domestic demand, even as economic growth slows, said Upendra Datta Choubey, chairman of gas distribution monopoly GAIL India Ltd.
The emergence of India in the spot LNG market may prop up prices that fell 70 percent from last year’s peak, while diverting tankers from the U.S. and Europe. India is importing at least nine so-called spot cargoes outside of long-term contracts in March and April, compared with two from November to February, AIS Live ship-tracking data compiled by Bloomberg show.
“This recession has no effect on demand of natural gas in India,” Choubey said by telephone from New Delhi. “Currently, we’re meeting hardly 60 percent of gas demand in India.”
New Delhi-based Petronet LNG Ltd., Royal Dutch Shell Plc, Total SA and GAIL-led Ratnagiri Gas are doubling the country’s import capacity this year at three facilities on India’s west coast, anticipating higher demand for LNG as prices fall.
“India may be the only serious buyer for spot LNG in Asia,” said Tony Regan, a Singapore-based independent consultant who worked for Shell and was involved in spot LNG trades. “Cargoes are turning back from Northeast Asia.”
LNG Trade
Spot imports by India and China in April may have been twice as much as the combined spot purchases of Japan and South Korea, the world’s biggest LNG importers, according to ship- tracking data. India and China probably bought eight regular cargoes and a small shipment in April on spot terms compared with about five for Japan, Taiwan and South Korea.
Global LNG trading probably declined in 2008 for the first time in three decades, slipping 0.3 percent to about 172 million metric tons, based on preliminary numbers from Alexis Aik, a consultant with Facts Global Energy.
Asia’s demand for LNG, or gas chilled to a liquid for transportation by tanker, may drop by as much as 10 percent this year, Poten & Partners said in March.
Spot LNG sells for $4.60 per million British thermal units, a 47 percent discount to crude oil, JPMorgan Chase & Co. said in a note on April 3. LNG sold for a premium to oil in 2008.
Falling Prices
Utilities in Asia paid more than $20 per million Btu last year for spot cargoes, according to official data from Japan, South Korea and Taiwan.
“We should expect a fall in LNG prices to around $6 or so,” GAIL India’s Choubey said. The level is about 70 percent below the record reached last year.
Asian LNG buyers typically pay a few dollars more than gas costs at the U.K.’s benchmark National Balancing Point to attract spot cargoes from Europe and the Americas, according to Andy Flower, an independent consultant and a former BP Plc employee. U.K. natural gas for immediate delivery rose to $3.79 per million Btu as of 8:31 a.m. London time.
China, the world’s second-largest energy user, has increased imports of the cleaner-burning fuel to reduce coal consumption and pollution.
China bought three spot cargoes in April after a seven- month halt. Japan, the world’s biggest LNG buyer, reduced spot imports 50 percent in February after the recession lowered electricity demand from manufacturers.
Domestic Gas
Reliance Industries Ltd. started pumping gas from the Krishna Godavari area off India’s east coast on April 2 and plans to increase production to 80 million cubic meters a day, almost double current output, Indian Oil Secretary R.S. Pandey said.
Reliance’s gas may cost $6.50 per million Btu, cheaper than the $7 per million Btu charged for LNG from Petronet and Shell, said an official from one of India’s biggest fertilizer makers, declining to be identified because prices are confidential. Naphtha, a competing oil-based energy source, costs about $10.50 in Gujarat, India’s most industrialized state, he said.
“Next year will be worse for spot LNG because Reliance’s output is expected to rise from 15 million cubic meters a day to 80 million,” said Ballabh Modani, a Mumbai-based analyst at Enam Securities Ltd. “So most of India’s demand will be covered.”
India’s gap between gas demand and production is equal to about half of consumption in South Korea, the world’s second- largest LNG buyer. The nation’s gas production increased 1.2 percent to a provisional 30 billion cubic meters in the 11 months ended February, according to the Oil Ministry.
Asian Demand
South Korea’s LNG purchases fell 14 percent in March, according to the Korea International Trade Association.
Japan’s LNG imports dropped 8.4 percent in March, according to data from the Ministry of Finance. Spot LNG supplies fell more than 50 percent in February, the most recent data available. Tokyo Electric Power Co., the world’s biggest LNG buyer, said in March it may cut imports this year by about 9 percent.
Shipments to Spain, the dominant LNG importer in Europe, may decline because of a deteriorating economy and plans to start up a second gas pipeline from Algeria, PanEurasian Enterprises Inc., a Raleigh, North Carolina-based consultant, said in a report.
India faces a shortage of 80 million cubic meters of gas a day, or more than half of domestic demand, even as economic growth slows, said Upendra Datta Choubey, chairman of gas distribution monopoly GAIL India Ltd.
The emergence of India in the spot LNG market may prop up prices that fell 70 percent from last year’s peak, while diverting tankers from the U.S. and Europe. India is importing at least nine so-called spot cargoes outside of long-term contracts in March and April, compared with two from November to February, AIS Live ship-tracking data compiled by Bloomberg show.
“This recession has no effect on demand of natural gas in India,” Choubey said by telephone from New Delhi. “Currently, we’re meeting hardly 60 percent of gas demand in India.”
New Delhi-based Petronet LNG Ltd., Royal Dutch Shell Plc, Total SA and GAIL-led Ratnagiri Gas are doubling the country’s import capacity this year at three facilities on India’s west coast, anticipating higher demand for LNG as prices fall.
“India may be the only serious buyer for spot LNG in Asia,” said Tony Regan, a Singapore-based independent consultant who worked for Shell and was involved in spot LNG trades. “Cargoes are turning back from Northeast Asia.”
LNG Trade
Spot imports by India and China in April may have been twice as much as the combined spot purchases of Japan and South Korea, the world’s biggest LNG importers, according to ship- tracking data. India and China probably bought eight regular cargoes and a small shipment in April on spot terms compared with about five for Japan, Taiwan and South Korea.
Global LNG trading probably declined in 2008 for the first time in three decades, slipping 0.3 percent to about 172 million metric tons, based on preliminary numbers from Alexis Aik, a consultant with Facts Global Energy.
Asia’s demand for LNG, or gas chilled to a liquid for transportation by tanker, may drop by as much as 10 percent this year, Poten & Partners said in March.
Spot LNG sells for $4.60 per million British thermal units, a 47 percent discount to crude oil, JPMorgan Chase & Co. said in a note on April 3. LNG sold for a premium to oil in 2008.
Falling Prices
Utilities in Asia paid more than $20 per million Btu last year for spot cargoes, according to official data from Japan, South Korea and Taiwan.
“We should expect a fall in LNG prices to around $6 or so,” GAIL India’s Choubey said. The level is about 70 percent below the record reached last year.
Asian LNG buyers typically pay a few dollars more than gas costs at the U.K.’s benchmark National Balancing Point to attract spot cargoes from Europe and the Americas, according to Andy Flower, an independent consultant and a former BP Plc employee. U.K. natural gas for immediate delivery rose to $3.79 per million Btu as of 8:31 a.m. London time.
China, the world’s second-largest energy user, has increased imports of the cleaner-burning fuel to reduce coal consumption and pollution.
China bought three spot cargoes in April after a seven- month halt. Japan, the world’s biggest LNG buyer, reduced spot imports 50 percent in February after the recession lowered electricity demand from manufacturers.
Domestic Gas
Reliance Industries Ltd. started pumping gas from the Krishna Godavari area off India’s east coast on April 2 and plans to increase production to 80 million cubic meters a day, almost double current output, Indian Oil Secretary R.S. Pandey said.
Reliance’s gas may cost $6.50 per million Btu, cheaper than the $7 per million Btu charged for LNG from Petronet and Shell, said an official from one of India’s biggest fertilizer makers, declining to be identified because prices are confidential. Naphtha, a competing oil-based energy source, costs about $10.50 in Gujarat, India’s most industrialized state, he said.
“Next year will be worse for spot LNG because Reliance’s output is expected to rise from 15 million cubic meters a day to 80 million,” said Ballabh Modani, a Mumbai-based analyst at Enam Securities Ltd. “So most of India’s demand will be covered.”
India’s gap between gas demand and production is equal to about half of consumption in South Korea, the world’s second- largest LNG buyer. The nation’s gas production increased 1.2 percent to a provisional 30 billion cubic meters in the 11 months ended February, according to the Oil Ministry.
Asian Demand
South Korea’s LNG purchases fell 14 percent in March, according to the Korea International Trade Association.
Japan’s LNG imports dropped 8.4 percent in March, according to data from the Ministry of Finance. Spot LNG supplies fell more than 50 percent in February, the most recent data available. Tokyo Electric Power Co., the world’s biggest LNG buyer, said in March it may cut imports this year by about 9 percent.
Shipments to Spain, the dominant LNG importer in Europe, may decline because of a deteriorating economy and plans to start up a second gas pipeline from Algeria, PanEurasian Enterprises Inc., a Raleigh, North Carolina-based consultant, said in a report.
Japan Pays Foreign Workers to Go Home
HAMAMATSU, Japan — Rita Yamaoka, a mother of three who immigrated from Brazil, recently lost her factory job here. Now, Japan has made her an offer she may not be able to refuse.
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Hime Island Journal: A Workers’ Paradise Found Off Japan’s Coast (April 22, 2009)
Slumping Exports Spur Changes at Japanese Companies (April 23, 2009)
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Franck Robichon for The New York Times
Sergio Yamaoka, left, and his wife, Rita, came to Hamamatsu from Brazil with their three children three years ago, at the height of the export boom. But in recent months, the Yamaokas both lost their auto factory jobs. More Photos »
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The government will pay thousands of dollars to fly Mrs. Yamaoka; her husband, who is a Brazilian citizen of Japanese descent; and their family back to Brazil. But in exchange, Mrs. Yamaoka and her husband must agree never to seek to work in Japan again.
“I feel immense stress. I’ve been crying very often,” Mrs. Yamaoka, 38, said after a meeting where local officials detailed the offer in this industrial town in central Japan.
“I tell my husband that we should take the money and go back,” she said, her eyes teary. “We can’t afford to stay here much longer.”
Japan’s offer, extended to hundreds of thousands of blue-collar Latin American immigrants, is part of a new drive to encourage them to leave this recession-racked country. So far, at least 100 workers and their families have agreed to leave, Japanese officials said.
But critics denounce the program as shortsighted, inhumane and a threat to what little progress Japan has made in opening its economy to foreign workers.
“It’s a disgrace. It’s cold-hearted,” said Hidenori Sakanaka, director of the Japan Immigration Policy Institute, an independent research organization.
“And Japan is kicking itself in the foot,” he added. “We might be in a recession now, but it’s clear it doesn’t have a future without workers from overseas.”
The program is limited to the country’s Latin American guest workers, whose Japanese parents and grandparents emigrated to Brazil and neighboring countries a century ago to work on coffee plantations.
In 1990, Japan — facing a growing industrial labor shortage — started issuing thousands of special work visas to descendants of these emigrants. An estimated 366,000 Brazilians and Peruvians now live in Japan.
The guest workers quickly became the largest group of foreign blue-collar workers in an otherwise immigration-averse country, filling the so-called three-K jobs (kitsui, kitanai, kiken — hard, dirty and dangerous).
But the nation’s manufacturing sector has slumped as demand for Japanese goods evaporated, pushing unemployment to a three-year high of 4.4 percent. Japan’s exports plunged 45.6 percent in March from a year earlier, and industrial production is at its lowest level in 25 years.
New data from the Japanese trade ministry suggested manufacturing output could rise in March and April, as manufacturers start to ease production cuts. But the numbers could have more to do with inventories falling so low that they need to be replenished than with any increase in demand.
While Japan waits for that to happen, it has been keen to help foreign workers leave, which could ease pressure on domestic labor markets and the unemployment rolls.
“There won’t be good employment opportunities for a while, so that’s why we’re suggesting that the Nikkei Brazilians go home,” said Jiro Kawasaki, a former health minister and senior lawmaker of the ruling Liberal Democratic Party.
“Nikkei” visas are special visas granted because of Japanese ancestry or association.
Mr. Kawasaki led the ruling party task force that devised the repatriation plan, part of a wider emergency strategy to combat rising unemployment.
Under the emergency program, introduced this month, the country’s Brazilian and other Latin American guest workers are offered $3,000 toward air fare, plus $2,000 for each dependent — attractive lump sums for many immigrants here. Workers who leave have been told they can pocket any amount left over.
But those who travel home on Japan’s dime will not be allowed to reapply for a work visa. Stripped of that status, most would find it all but impossible to return. They could come back on three-month tourist visas. Or, if they became doctors or bankers or held certain other positions, and had a company sponsor, they could apply for professional visas.
Spain, with a unemployment rate of 15.5 percent, has adopted a similar program, but immigrants are allowed to reclaim their residency and work visas after three years.
Japan is under pressure to allow returns. Officials have said they will consider such a modification, but have not committed to it.
Skip to next paragraph
Multimedia
A Cash Offer to Leave JapanSlide Show
A Cash Offer to Leave Japan
Related
Hime Island Journal: A Workers’ Paradise Found Off Japan’s Coast (April 22, 2009)
Slumping Exports Spur Changes at Japanese Companies (April 23, 2009)
Enlarge This Image
Franck Robichon for The New York Times
Sergio Yamaoka, left, and his wife, Rita, came to Hamamatsu from Brazil with their three children three years ago, at the height of the export boom. But in recent months, the Yamaokas both lost their auto factory jobs. More Photos »
Readers' Comments
Share your thoughts.
* Post a Comment »
* Read All Comments (114) »
The government will pay thousands of dollars to fly Mrs. Yamaoka; her husband, who is a Brazilian citizen of Japanese descent; and their family back to Brazil. But in exchange, Mrs. Yamaoka and her husband must agree never to seek to work in Japan again.
“I feel immense stress. I’ve been crying very often,” Mrs. Yamaoka, 38, said after a meeting where local officials detailed the offer in this industrial town in central Japan.
“I tell my husband that we should take the money and go back,” she said, her eyes teary. “We can’t afford to stay here much longer.”
Japan’s offer, extended to hundreds of thousands of blue-collar Latin American immigrants, is part of a new drive to encourage them to leave this recession-racked country. So far, at least 100 workers and their families have agreed to leave, Japanese officials said.
But critics denounce the program as shortsighted, inhumane and a threat to what little progress Japan has made in opening its economy to foreign workers.
“It’s a disgrace. It’s cold-hearted,” said Hidenori Sakanaka, director of the Japan Immigration Policy Institute, an independent research organization.
“And Japan is kicking itself in the foot,” he added. “We might be in a recession now, but it’s clear it doesn’t have a future without workers from overseas.”
The program is limited to the country’s Latin American guest workers, whose Japanese parents and grandparents emigrated to Brazil and neighboring countries a century ago to work on coffee plantations.
In 1990, Japan — facing a growing industrial labor shortage — started issuing thousands of special work visas to descendants of these emigrants. An estimated 366,000 Brazilians and Peruvians now live in Japan.
The guest workers quickly became the largest group of foreign blue-collar workers in an otherwise immigration-averse country, filling the so-called three-K jobs (kitsui, kitanai, kiken — hard, dirty and dangerous).
But the nation’s manufacturing sector has slumped as demand for Japanese goods evaporated, pushing unemployment to a three-year high of 4.4 percent. Japan’s exports plunged 45.6 percent in March from a year earlier, and industrial production is at its lowest level in 25 years.
New data from the Japanese trade ministry suggested manufacturing output could rise in March and April, as manufacturers start to ease production cuts. But the numbers could have more to do with inventories falling so low that they need to be replenished than with any increase in demand.
While Japan waits for that to happen, it has been keen to help foreign workers leave, which could ease pressure on domestic labor markets and the unemployment rolls.
“There won’t be good employment opportunities for a while, so that’s why we’re suggesting that the Nikkei Brazilians go home,” said Jiro Kawasaki, a former health minister and senior lawmaker of the ruling Liberal Democratic Party.
“Nikkei” visas are special visas granted because of Japanese ancestry or association.
Mr. Kawasaki led the ruling party task force that devised the repatriation plan, part of a wider emergency strategy to combat rising unemployment.
Under the emergency program, introduced this month, the country’s Brazilian and other Latin American guest workers are offered $3,000 toward air fare, plus $2,000 for each dependent — attractive lump sums for many immigrants here. Workers who leave have been told they can pocket any amount left over.
But those who travel home on Japan’s dime will not be allowed to reapply for a work visa. Stripped of that status, most would find it all but impossible to return. They could come back on three-month tourist visas. Or, if they became doctors or bankers or held certain other positions, and had a company sponsor, they could apply for professional visas.
Spain, with a unemployment rate of 15.5 percent, has adopted a similar program, but immigrants are allowed to reclaim their residency and work visas after three years.
Japan is under pressure to allow returns. Officials have said they will consider such a modification, but have not committed to it.
Rate cuts fail to revive Indian economy
A series of interest rate cuts in India has failed to lead to cheaper commercial lending, leaving Asia’s third largest economy to grow at only 6 per cent this year, the central bank said on Tuesday.
The Reserve Bank of India expressed frustration in its annual policy statement that monetary adjustments to stimulate the economy in the face of the global financial crisis had not resulted in significantly lower lending rates by commercial banks to the private sector.
EDITOR’S CHOICE
India’s economy ‘more durable’ than China - Mar-31
Analysis: Mission for a mandate - Mar-31
Indian inflation nears zero - Mar-19
India & globalisation 2009 - Jan-11
Transcript: FT interview with Manmohan Singh - Mar-31
Democracy key to reform, says Singh - Mar-31
In a sign of deepening concern about the economy, the RBI issued the first official growth forecast under 7 per cent and cut its key repo lending rate by 25 basis points to 4.75 per cent.
“While the response to policy changes by the Reserve Bank has been faster in the money and government securities markets, there has been concern that the large and quick changes effected in the policy rates by the Reserve Bank have not fully transmitted to banks’ lending rates,” said Duvvuri Subbarao, RBI governor.
India GDP
“During the second half of 2008-09, while the Reserve Bank has reduced its lending rate by 400 basis points, most banks have lowered their lending rate in the range of 50-150 basis points.”
The RBI said growth would slow to 6 per cent in the 2009-2010 fiscal year, at the upper end of economists’ projections and a far cry from recent growth of 9 per cent. It also trimmed its forecast for the fiscal year that ended on March 31, saying GDP growth had fallen to 6.5-6.7 per cent from an earlier forecast of 7 per cent. The government’s statistical office had forecast 7.1 per cent only two months ago.
“Like all emerging economies, India too has been impacted by the crisis and by much more than what was expected earlier. The extent of impact has caused dismay,” said Mr Subbarao.
India’s industrialists on Tuesday renewed calls for monetary easing, complaining that a severe stoppage of credit to small and medium- sized businesses risked prolonging the downturn.
“Current macroeconomic conditions of weak growth and declining prices call for a further fall in the interest rate at which credit is available,” said Venu Srinivasan, president of the Confederation of Indian Industries.
Further rate cuts are expected when a new government takes office following parliamentary elections that end in mid-May.
Economists are alarmed by the gap between the repo rate and prime lending rates of 10 per cent. They say lending costs far too much and blame the RBI for over-tightening monetary policy last year to counter inflation.
“There is anger among the business community about the inability of the RBI to force through lower interest rates to lending rates,” said Rajiv Kumar, director of the Indian Council for Research on International Economic Relations.
The Reserve Bank of India expressed frustration in its annual policy statement that monetary adjustments to stimulate the economy in the face of the global financial crisis had not resulted in significantly lower lending rates by commercial banks to the private sector.
EDITOR’S CHOICE
India’s economy ‘more durable’ than China - Mar-31
Analysis: Mission for a mandate - Mar-31
Indian inflation nears zero - Mar-19
India & globalisation 2009 - Jan-11
Transcript: FT interview with Manmohan Singh - Mar-31
Democracy key to reform, says Singh - Mar-31
In a sign of deepening concern about the economy, the RBI issued the first official growth forecast under 7 per cent and cut its key repo lending rate by 25 basis points to 4.75 per cent.
“While the response to policy changes by the Reserve Bank has been faster in the money and government securities markets, there has been concern that the large and quick changes effected in the policy rates by the Reserve Bank have not fully transmitted to banks’ lending rates,” said Duvvuri Subbarao, RBI governor.
India GDP
“During the second half of 2008-09, while the Reserve Bank has reduced its lending rate by 400 basis points, most banks have lowered their lending rate in the range of 50-150 basis points.”
The RBI said growth would slow to 6 per cent in the 2009-2010 fiscal year, at the upper end of economists’ projections and a far cry from recent growth of 9 per cent. It also trimmed its forecast for the fiscal year that ended on March 31, saying GDP growth had fallen to 6.5-6.7 per cent from an earlier forecast of 7 per cent. The government’s statistical office had forecast 7.1 per cent only two months ago.
“Like all emerging economies, India too has been impacted by the crisis and by much more than what was expected earlier. The extent of impact has caused dismay,” said Mr Subbarao.
India’s industrialists on Tuesday renewed calls for monetary easing, complaining that a severe stoppage of credit to small and medium- sized businesses risked prolonging the downturn.
“Current macroeconomic conditions of weak growth and declining prices call for a further fall in the interest rate at which credit is available,” said Venu Srinivasan, president of the Confederation of Indian Industries.
Further rate cuts are expected when a new government takes office following parliamentary elections that end in mid-May.
Economists are alarmed by the gap between the repo rate and prime lending rates of 10 per cent. They say lending costs far too much and blame the RBI for over-tightening monetary policy last year to counter inflation.
“There is anger among the business community about the inability of the RBI to force through lower interest rates to lending rates,” said Rajiv Kumar, director of the Indian Council for Research on International Economic Relations.
India’s Steepest String of Interest Rate Cuts May End
April 22 (Bloomberg) -- India’s central bank may be coming to the end of its steepest string of interest-rate cuts on record after saying Asia’s third-largest economy is faring better than most in the global recession.
The Reserve Bank of India expects economic growth, which slowed to a six-year low of 5.3 percent in the December quarter, to pick up to as much as 6 percent over the next year. The bank yesterday reduced rates for the sixth time in as many months.
Governor Duvvuri Subbarao urged commercial lenders to follow the central bank’s lead and lower rates on loans for companies and consumers. India’s economy, which is less dependent on exports than its Asian neighbors, is this year likely to be the second-fastest growing in the region after China as record harvests boost rural incomes.
“The fiscal and monetary stimulus measures initiated coupled with lower commodity prices could cushion the downturn in the growth momentum” over 2009 to 2010, the central bank said yesterday. “Notwithstanding the contraction of global demand, growth prospects in India continue to remain favorable compared to most countries.”
The yield on India’s benchmark 10-year bonds fell three basis points to 6.15 percent at 9:30 a.m. in Mumbai today. The rupee strengthened 0.3 percent to 50.2950 against the dollar, while the benchmark stock index gained 0.9 percent to 10995.64.
End of Cycle
Before yesterday’s rate decision, the central bank had estimated its policy measures, along with increased government spending and tax cuts, were worth as much as $85 billion, or almost 7 percent of gross domestic product.
“The Reserve Bank is close to the end of the rate-cutting cycle,” said Sailesh Jha, an economist at Barclays Capital Plc in Singapore. “Growth has either bottomed out or is close to bottom. The monetary and fiscal loosening so far will start to kick in from the second half of this year.”
By September, the central bank will inject another 1.2 trillion rupees ($23.8 billion) into the banking system by purchasing government bonds via auctions and buying back market stabilization bonds, which were sold in the past four years to drain money from the economy. The injection will be equivalent to a 3 percentage point reduction in the cash reserve ratio, the Reserve Bank said yesterday.
Part of Subbarao’s optimism stems from forecasts that this year’s monsoon rains will be normal. That will help sustain the unprecedented 4.3 percent average farm production recorded since 2005, boosting incomes for the three-fifths of India’s 1.2 billion people who depend on agriculture for their livelihood.
Less Vulnerable
India is also less vulnerable to the global economic slump than most of its neighbors as exports make up about a quarter of its $1.2 trillion economy, compared with about half of GDP for developing Asia as a whole.
A challenge to keep domestic demand buoyant will be to lower the cost of funds in the economy, the central bank said.
The Reserve Bank, which cut its reverse repurchase rate by a quarter point to 3.25 percent yesterday, has lowered the benchmark by 275 basis points since October. The repurchase rate has been reduced by 425 basis points over the same period.
Lenders haven’t fully passed on those rate cuts to their customers. ICICI Bank Ltd., India’s biggest non-state-owned financial institution, has reduced its lending rates by only 50 basis points in the past six months. State-run banks have lowered their borrowing costs by about 200 basis points after government prodding.
‘More Funds’
“I was not expecting much more from RBI,” said Sunirmal Talukdar, chief financial officer at Hindalco Industries Ltd., India’s biggest aluminum producer. “What needs to be done is to ensure that more funds are made available to companies as banks have artificially kept lending rates high.”
Lenders say state-run savings plans such as postal deposits, which compete with banks’ deposits, offer returns of as much as 8 percent and prevent them from cutting rates. The rates on these plans are set by the government and haven’t changed since the central bank started cutting borrowing costs to counter the global recession.
Banks are also holding high-cost term deposits because the central bank’s key rates were double current levels until October 2008 after inflation touched a 16-year high of 12.91 percent in August.
Inflation has subsequently slowed to 0.18 percent in the week ended April 4. The central bank expects inflation to accelerate to about 4 percent by the end of March.
“Inflation risks have clearly abated,” Subbarao said. “Banks should not be overly apprehensive about reducing deposit rates for fear of competition from small savings, especially as the overall systemic liquidity remains highly comfortable. There is scope for the overall interest rate structure to move down.”
The Reserve Bank of India expects economic growth, which slowed to a six-year low of 5.3 percent in the December quarter, to pick up to as much as 6 percent over the next year. The bank yesterday reduced rates for the sixth time in as many months.
Governor Duvvuri Subbarao urged commercial lenders to follow the central bank’s lead and lower rates on loans for companies and consumers. India’s economy, which is less dependent on exports than its Asian neighbors, is this year likely to be the second-fastest growing in the region after China as record harvests boost rural incomes.
“The fiscal and monetary stimulus measures initiated coupled with lower commodity prices could cushion the downturn in the growth momentum” over 2009 to 2010, the central bank said yesterday. “Notwithstanding the contraction of global demand, growth prospects in India continue to remain favorable compared to most countries.”
The yield on India’s benchmark 10-year bonds fell three basis points to 6.15 percent at 9:30 a.m. in Mumbai today. The rupee strengthened 0.3 percent to 50.2950 against the dollar, while the benchmark stock index gained 0.9 percent to 10995.64.
End of Cycle
Before yesterday’s rate decision, the central bank had estimated its policy measures, along with increased government spending and tax cuts, were worth as much as $85 billion, or almost 7 percent of gross domestic product.
“The Reserve Bank is close to the end of the rate-cutting cycle,” said Sailesh Jha, an economist at Barclays Capital Plc in Singapore. “Growth has either bottomed out or is close to bottom. The monetary and fiscal loosening so far will start to kick in from the second half of this year.”
By September, the central bank will inject another 1.2 trillion rupees ($23.8 billion) into the banking system by purchasing government bonds via auctions and buying back market stabilization bonds, which were sold in the past four years to drain money from the economy. The injection will be equivalent to a 3 percentage point reduction in the cash reserve ratio, the Reserve Bank said yesterday.
Part of Subbarao’s optimism stems from forecasts that this year’s monsoon rains will be normal. That will help sustain the unprecedented 4.3 percent average farm production recorded since 2005, boosting incomes for the three-fifths of India’s 1.2 billion people who depend on agriculture for their livelihood.
Less Vulnerable
India is also less vulnerable to the global economic slump than most of its neighbors as exports make up about a quarter of its $1.2 trillion economy, compared with about half of GDP for developing Asia as a whole.
A challenge to keep domestic demand buoyant will be to lower the cost of funds in the economy, the central bank said.
The Reserve Bank, which cut its reverse repurchase rate by a quarter point to 3.25 percent yesterday, has lowered the benchmark by 275 basis points since October. The repurchase rate has been reduced by 425 basis points over the same period.
Lenders haven’t fully passed on those rate cuts to their customers. ICICI Bank Ltd., India’s biggest non-state-owned financial institution, has reduced its lending rates by only 50 basis points in the past six months. State-run banks have lowered their borrowing costs by about 200 basis points after government prodding.
‘More Funds’
“I was not expecting much more from RBI,” said Sunirmal Talukdar, chief financial officer at Hindalco Industries Ltd., India’s biggest aluminum producer. “What needs to be done is to ensure that more funds are made available to companies as banks have artificially kept lending rates high.”
Lenders say state-run savings plans such as postal deposits, which compete with banks’ deposits, offer returns of as much as 8 percent and prevent them from cutting rates. The rates on these plans are set by the government and haven’t changed since the central bank started cutting borrowing costs to counter the global recession.
Banks are also holding high-cost term deposits because the central bank’s key rates were double current levels until October 2008 after inflation touched a 16-year high of 12.91 percent in August.
Inflation has subsequently slowed to 0.18 percent in the week ended April 4. The central bank expects inflation to accelerate to about 4 percent by the end of March.
“Inflation risks have clearly abated,” Subbarao said. “Banks should not be overly apprehensive about reducing deposit rates for fear of competition from small savings, especially as the overall systemic liquidity remains highly comfortable. There is scope for the overall interest rate structure to move down.”
Monday, April 20, 2009
RBA Saw Scope to Cut Australian Rates on Unemployment
April 21 (Bloomberg) -- Australia’s central bank policy makers cut borrowing costs two weeks ago because rising unemployment and weaker-than-expected domestic demand increases the likelihood inflation will slow.
“The effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than expected,” Reserve Bank policy makers said, according to minutes of their April 7 meeting, released in Sydney today.
Prime Minister Kevin Rudd said yesterday for the first time that a recession in Australia is inevitable amid a downturn in global growth that is eroding demand for natural resources from the world’s biggest shipper of coal and iron ore. Central bank Governor Glenn Stevens and his board cut the benchmark rate by a quarter-point to a 49-year low of 3 percent this month, the sixth reduction since September.
“A period of low capacity utilization and a weaker labor market was seen as increasing the likelihood of a decline in inflation over the medium term,” the minutes said.
“As such, members saw scope for a modest reduction in the cash rate.”
Joblessness Rises
Australian unemployment jumped in March by the most since the economy was last in a recession in 1991. Miners including Rio Tinto Group and Iluka Resources Ltd. are among companies firing workers. The jobless rate rose to 5.7 percent from 5.2 percent.
Higher unemployment is easing pressure on wages, which surged in the last five years as a mining boom triggered a shortage of skilled labor that helped to push the consumer price index above the central bank’s target range of 2 percent to 3 percent.
The Australian dollar traded at 69.98 U.S. cents as of 11:35 a.m., little changed from before the minutes were released. The currency dropped yesterday by the most in more than two months on concern U.S. banking losses will deepen, reducing investors’ appetite for risk.
“Conditions in the labor market continued to soften,” the minutes said. “Further falls in employment and rises in unemployment were expected,” and “wage growth was expected to moderate in the period ahead.”
Economy Shrinking
Policy makers have reduced the overnight cash rate target by 4.25 percentage points since September to spur an economy that unexpectedly shrank in the fourth quarter by 0.5 percent, the first contraction in eight years.
“Members were informed that there had been further downward revisions to staff forecasts for growth and inflation,” the minutes said. “Gross domestic product was expected to fall in 2009, but increase again in 2010.”
Economic reports released for the March quarter “suggested another weak outcome for demand and output, although members noted that consumption had held up relatively well,” after the government handed out cash grants to pensioners and families.
Since October, the government has announced almost A$90 billion ($63 billion) in grants, spending and bond market assistance.
Government Aid
The central bank’s interest-rate cuts, “together with the substantial fiscal measures, would support demand and help to foster economic recovery in due course,” today’s minutes said.
“A recovery in demand was likely towards the end of the year.”
Prime Minister Rudd, whose government will release its budget for the next fiscal year on May 12, said yesterday that the worst global recession in 75 years “means it’s inevitable that Australia too will be dragged into recession.”
“Seven of Australia’s largest trading partners are already in recession,” Rudd said. “The challenge for the government is to cushion the impact of the recession on business and jobs.”
Traders forecast a 58 percent chance of a quarter-point reduction in the central bank’s overnight cash rate target when policy makers meet next on May 5, a Credit Suisse Index based on swaps trading showed.
“The effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than expected,” Reserve Bank policy makers said, according to minutes of their April 7 meeting, released in Sydney today.
Prime Minister Kevin Rudd said yesterday for the first time that a recession in Australia is inevitable amid a downturn in global growth that is eroding demand for natural resources from the world’s biggest shipper of coal and iron ore. Central bank Governor Glenn Stevens and his board cut the benchmark rate by a quarter-point to a 49-year low of 3 percent this month, the sixth reduction since September.
“A period of low capacity utilization and a weaker labor market was seen as increasing the likelihood of a decline in inflation over the medium term,” the minutes said.
“As such, members saw scope for a modest reduction in the cash rate.”
Joblessness Rises
Australian unemployment jumped in March by the most since the economy was last in a recession in 1991. Miners including Rio Tinto Group and Iluka Resources Ltd. are among companies firing workers. The jobless rate rose to 5.7 percent from 5.2 percent.
Higher unemployment is easing pressure on wages, which surged in the last five years as a mining boom triggered a shortage of skilled labor that helped to push the consumer price index above the central bank’s target range of 2 percent to 3 percent.
The Australian dollar traded at 69.98 U.S. cents as of 11:35 a.m., little changed from before the minutes were released. The currency dropped yesterday by the most in more than two months on concern U.S. banking losses will deepen, reducing investors’ appetite for risk.
“Conditions in the labor market continued to soften,” the minutes said. “Further falls in employment and rises in unemployment were expected,” and “wage growth was expected to moderate in the period ahead.”
Economy Shrinking
Policy makers have reduced the overnight cash rate target by 4.25 percentage points since September to spur an economy that unexpectedly shrank in the fourth quarter by 0.5 percent, the first contraction in eight years.
“Members were informed that there had been further downward revisions to staff forecasts for growth and inflation,” the minutes said. “Gross domestic product was expected to fall in 2009, but increase again in 2010.”
Economic reports released for the March quarter “suggested another weak outcome for demand and output, although members noted that consumption had held up relatively well,” after the government handed out cash grants to pensioners and families.
Since October, the government has announced almost A$90 billion ($63 billion) in grants, spending and bond market assistance.
Government Aid
The central bank’s interest-rate cuts, “together with the substantial fiscal measures, would support demand and help to foster economic recovery in due course,” today’s minutes said.
“A recovery in demand was likely towards the end of the year.”
Prime Minister Rudd, whose government will release its budget for the next fiscal year on May 12, said yesterday that the worst global recession in 75 years “means it’s inevitable that Australia too will be dragged into recession.”
“Seven of Australia’s largest trading partners are already in recession,” Rudd said. “The challenge for the government is to cushion the impact of the recession on business and jobs.”
Traders forecast a 58 percent chance of a quarter-point reduction in the central bank’s overnight cash rate target when policy makers meet next on May 5, a Credit Suisse Index based on swaps trading showed.
India’s Central Bank May Keep Benchmark Interest Rate Unchanged
April 21 (Bloomberg) -- India’s central bank may refrain from reducing its benchmark interest rate from a record low, giving time for three cuts since December to percolate through the economy.
The Reserve Bank of India will maintain its reverse repurchase rate at 3.5 percent, according to nine of 15 economists in a Bloomberg New survey. The rest expect a cut. The central bank will unveil its quarterly monetary policy at 11:15 a.m. today in Mumbai.
Governor Duvvuri Subbarao said April 6 he has done “everything” to fight the impact of the global recession and that commercial lenders have room to reduce borrowing costs further. The absence of a fiscal stimulus for the economy until at least June, when India’s new government takes office, may yet prompt him to lower rates.
“A rate cut now may not yield anything, because the full impact of past reductions hasn’t been transmitted through the economy,” said N. R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “It could go either way.”
The central bank has cut its reverse repurchase rate by 250 basis points and its repurchase rate by 400 basis points since October. In response, non-state-owned ICICI Bank Ltd., India’s second-biggest, has lowered its lending rates by only 50 basis points. State-run banks cut their borrowing costs by about 200 basis points after government prodding.
Six-Month Lag
“There is typically a six month time lag for the central bank’s rate cut to filter through the economy,” said Arun Kaul, New Delhi-based treasurer at state-owned Punjab National Bank. “Commercial rates will come down, but not substantially because government savings instruments are offering higher rates.”
Government-run savings plans such as postal deposits, which compete with banks’ deposits, offer interest rates at upwards of 8 percent. The rates on these plans are set by the government and haven’t been changed since the central bank started cutting borrowing costs to counter the global downturn.
Kaul said banks are also holding high-cost term deposits because the central bank’s key rates were double current levels until October 2008 after inflation touched a 16-year high of 12.91 percent in August. Inflation has subsequently slowed to 0.18 percent in the week ended April 4.
India’s $1.2 trillion economy expanded 7.1 percent in the year ended March 31, the slowest pace since 2003. The central bank will also unveil its growth forecast today for the year that started April 1.
‘Boost Growth’
“With no further fiscal stimulus likely until after the election, the onus is on the monetary policy to boost growth,” said Sonal Varma, an economist at Nomura Securities Ltd in Mumbai.
India started general elections April 16 to vote in a new parliament. The exercise will continue until May 13 and counting of ballots will be held on May 16. Most opinion polls say Prime Minister Manmohan Singh’s Congress party may emerge with most seats, though it may have to rope in new allies to secure a majority in the legislature.
The downturn in the economy has caused banks to park money with the central bank rather than lend to customers, out of fear of adding bad debts. Banks have placed over one trillion rupees ($20 billion) a day with the central bank in the past two weeks, according to Bloomberg data.
The yield on the benchmark 10-year government bond yields has declined 63 basis points to 6.38 percent this month, indicating there is enough cash in the banking system to soften borrowing costs in the economy.
Reluctant Banks
Reluctance by banks to lend and slash lending rates has prompted Subbarao in the past to say he may adopt unconventional methods to spur credit growth in the economy.
Banks’ loans growth to companies and consumers slowed to 17.3 percent in the week ended March 27 from a year earlier, the slowest in at least six years.
“There is a possibility of the RBI announcing a cap on the amount it borrows under the reverse repo auction,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “Such a move would prompt the banks to buy more government bonds and lend more.”
The government expects record borrowings of 3.62 trillion rupees this year to fund its fiscal stimulus plans. That forced the central bank in February to resume purchasing government bonds via auctions after a seven year break to prevent yields from rising.
Policy Tools
India’s central bank uses three main tools to conduct policy - the repurchase rate, the reverse repurchase rate and the cash reserve ratio. The bank uses the reverse repurchase rate, or the overnight borrowing rate, as the signaling rate when commercial lenders are flush with cash. It alters the cash reserve ratio, or the proportion of funds lenders need to keep aside with central bank, to control money supply in the economy.
Subbarao may also be cautious in cutting rates as the U.S. Federal Reserve says the world’s largest economy is taking a potential “first step” to recovery. A recovery in the global economy may push up commodity prices such as oil and flare inflation in resources-dependent nations like India.
“Further easing by India’s central bank is expected to be calibrated and gradual as inflation could pose a concern,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai.
India’s Rate Forecasts
The Reserve Bank of India will maintain its reverse repurchase rate at 3.5 percent, according to nine of 15 economists in a Bloomberg New survey. The rest expect a cut. The central bank will unveil its quarterly monetary policy at 11:15 a.m. today in Mumbai.
Governor Duvvuri Subbarao said April 6 he has done “everything” to fight the impact of the global recession and that commercial lenders have room to reduce borrowing costs further. The absence of a fiscal stimulus for the economy until at least June, when India’s new government takes office, may yet prompt him to lower rates.
“A rate cut now may not yield anything, because the full impact of past reductions hasn’t been transmitted through the economy,” said N. R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “It could go either way.”
The central bank has cut its reverse repurchase rate by 250 basis points and its repurchase rate by 400 basis points since October. In response, non-state-owned ICICI Bank Ltd., India’s second-biggest, has lowered its lending rates by only 50 basis points. State-run banks cut their borrowing costs by about 200 basis points after government prodding.
Six-Month Lag
“There is typically a six month time lag for the central bank’s rate cut to filter through the economy,” said Arun Kaul, New Delhi-based treasurer at state-owned Punjab National Bank. “Commercial rates will come down, but not substantially because government savings instruments are offering higher rates.”
Government-run savings plans such as postal deposits, which compete with banks’ deposits, offer interest rates at upwards of 8 percent. The rates on these plans are set by the government and haven’t been changed since the central bank started cutting borrowing costs to counter the global downturn.
Kaul said banks are also holding high-cost term deposits because the central bank’s key rates were double current levels until October 2008 after inflation touched a 16-year high of 12.91 percent in August. Inflation has subsequently slowed to 0.18 percent in the week ended April 4.
India’s $1.2 trillion economy expanded 7.1 percent in the year ended March 31, the slowest pace since 2003. The central bank will also unveil its growth forecast today for the year that started April 1.
‘Boost Growth’
“With no further fiscal stimulus likely until after the election, the onus is on the monetary policy to boost growth,” said Sonal Varma, an economist at Nomura Securities Ltd in Mumbai.
India started general elections April 16 to vote in a new parliament. The exercise will continue until May 13 and counting of ballots will be held on May 16. Most opinion polls say Prime Minister Manmohan Singh’s Congress party may emerge with most seats, though it may have to rope in new allies to secure a majority in the legislature.
The downturn in the economy has caused banks to park money with the central bank rather than lend to customers, out of fear of adding bad debts. Banks have placed over one trillion rupees ($20 billion) a day with the central bank in the past two weeks, according to Bloomberg data.
The yield on the benchmark 10-year government bond yields has declined 63 basis points to 6.38 percent this month, indicating there is enough cash in the banking system to soften borrowing costs in the economy.
Reluctant Banks
Reluctance by banks to lend and slash lending rates has prompted Subbarao in the past to say he may adopt unconventional methods to spur credit growth in the economy.
Banks’ loans growth to companies and consumers slowed to 17.3 percent in the week ended March 27 from a year earlier, the slowest in at least six years.
“There is a possibility of the RBI announcing a cap on the amount it borrows under the reverse repo auction,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “Such a move would prompt the banks to buy more government bonds and lend more.”
The government expects record borrowings of 3.62 trillion rupees this year to fund its fiscal stimulus plans. That forced the central bank in February to resume purchasing government bonds via auctions after a seven year break to prevent yields from rising.
Policy Tools
India’s central bank uses three main tools to conduct policy - the repurchase rate, the reverse repurchase rate and the cash reserve ratio. The bank uses the reverse repurchase rate, or the overnight borrowing rate, as the signaling rate when commercial lenders are flush with cash. It alters the cash reserve ratio, or the proportion of funds lenders need to keep aside with central bank, to control money supply in the economy.
Subbarao may also be cautious in cutting rates as the U.S. Federal Reserve says the world’s largest economy is taking a potential “first step” to recovery. A recovery in the global economy may push up commodity prices such as oil and flare inflation in resources-dependent nations like India.
“Further easing by India’s central bank is expected to be calibrated and gradual as inflation could pose a concern,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai.
India’s Rate Forecasts
Asian Stocks Slump on Growth Concerns; Orix, BHP Billiton Fall
April 21 (Bloomberg) -- Asian stocks slumped, led by financial and mining companies, as higher loan-loss reserves at Bank of America Corp. and a drop in commodity prices derailed optimism the global economy is recovering.
Orix Corp., Japan’s largest non-bank financial company, slid 6.1 percent after Nomura Holdings Inc. downgraded the shares. BHP Billiton Ltd., the world’s largest mining company, lost 3.6 percent after oil and metals prices sank. Mitsubishi Corp., Japan’s No. 1 trading company, dropped 5.2 percent after the Nikkei newspaper said falling coal prices will erode profits.
“You’re seeing cold water being poured on the theme of a sharp rebound in growth,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “Last night’s data, along with indications that the rapid run we’ve experienced in the last six weeks may be coming to an end, has fed on itself.”
The MSCI Asia Pacific Index lost 1.9 percent to 88.34 as of 9:52 a.m. in Tokyo, retreating from a more than three-month high. A 27 percent rally through yesterday from a five-year low reached on March 9 had lifted the valuation of companies on the gauge to the highest since November 2007.
Japan’s Nikkei 225 Stock Average tumbled 2.5 percent to 8,701.29, while Australia’s S&P/ASX 200 Index slumped 2.7 percent. All markets open for trading declined.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The gauge slid 4.3 percent yesterday, the most since March 2, led by financial companies, after Bank of America said it increased reserves for future loan losses by 57 percent since the end of December.
Yen, Commodities
Prospects for more bank losses spurred demand for the yen as an investment haven. The Japanese currency touched 97.66, a level not seen since March 31, compared with 98.89 at the 3 p.m. close of stock trading in Tokyo yesterday.
Speculation the worst of the global recession has passed drove valuations on the MSCI Asia Pacific Index to 19 times reported profit yesterday, the highest since Nov. 2, 2007. The 14-day relative strength index for the gauge rose to 67.7 yesterday, nearing the 70 threshold that some traders see as a sign to sell.
Financial companies accounted for 26 percent of the MSCI Asia Pacific Index’s decline today. Orix, whose shares have more than doubled in the past month, retreated 6.1 percent to 4,460 yen. Westpac Banking Corp., Australia’s third-largest bank, dropped 3.2 percent to A$19.61.
BHP sank 3.6 percent to A$31.71. Crude oil for May delivery dived 8.8 percent to $45.88 a barrel in New York yesterday, the lowest settlement since March 11. Copper futures for July delivery slid 4.2 percent, the sharpest plunge since Feb. 17.
Mitsubishi Corp., which owns a coal-mining venture with BHP, slumped 5.2 percent to 1,592 yen. Mitsubishi may have a 100 billion yen ($1.02 billion) drop in net income for the year to March 2010 because of falling prices for coking coal, the Nikkei newspaper reported today.
Rivals Mitsui & Co. and Itochu Corp. may also see lower coal prices hurt their profits by 10 billion yen to 30 billion yen, Nikkei said.
Orix Corp., Japan’s largest non-bank financial company, slid 6.1 percent after Nomura Holdings Inc. downgraded the shares. BHP Billiton Ltd., the world’s largest mining company, lost 3.6 percent after oil and metals prices sank. Mitsubishi Corp., Japan’s No. 1 trading company, dropped 5.2 percent after the Nikkei newspaper said falling coal prices will erode profits.
“You’re seeing cold water being poured on the theme of a sharp rebound in growth,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “Last night’s data, along with indications that the rapid run we’ve experienced in the last six weeks may be coming to an end, has fed on itself.”
The MSCI Asia Pacific Index lost 1.9 percent to 88.34 as of 9:52 a.m. in Tokyo, retreating from a more than three-month high. A 27 percent rally through yesterday from a five-year low reached on March 9 had lifted the valuation of companies on the gauge to the highest since November 2007.
Japan’s Nikkei 225 Stock Average tumbled 2.5 percent to 8,701.29, while Australia’s S&P/ASX 200 Index slumped 2.7 percent. All markets open for trading declined.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The gauge slid 4.3 percent yesterday, the most since March 2, led by financial companies, after Bank of America said it increased reserves for future loan losses by 57 percent since the end of December.
Yen, Commodities
Prospects for more bank losses spurred demand for the yen as an investment haven. The Japanese currency touched 97.66, a level not seen since March 31, compared with 98.89 at the 3 p.m. close of stock trading in Tokyo yesterday.
Speculation the worst of the global recession has passed drove valuations on the MSCI Asia Pacific Index to 19 times reported profit yesterday, the highest since Nov. 2, 2007. The 14-day relative strength index for the gauge rose to 67.7 yesterday, nearing the 70 threshold that some traders see as a sign to sell.
Financial companies accounted for 26 percent of the MSCI Asia Pacific Index’s decline today. Orix, whose shares have more than doubled in the past month, retreated 6.1 percent to 4,460 yen. Westpac Banking Corp., Australia’s third-largest bank, dropped 3.2 percent to A$19.61.
BHP sank 3.6 percent to A$31.71. Crude oil for May delivery dived 8.8 percent to $45.88 a barrel in New York yesterday, the lowest settlement since March 11. Copper futures for July delivery slid 4.2 percent, the sharpest plunge since Feb. 17.
Mitsubishi Corp., which owns a coal-mining venture with BHP, slumped 5.2 percent to 1,592 yen. Mitsubishi may have a 100 billion yen ($1.02 billion) drop in net income for the year to March 2010 because of falling prices for coking coal, the Nikkei newspaper reported today.
Rivals Mitsui & Co. and Itochu Corp. may also see lower coal prices hurt their profits by 10 billion yen to 30 billion yen, Nikkei said.
Sunday, April 19, 2009
U.S. May Convert Bank Bailouts to Equity Share
18th April - 2009
WASHINGTON — President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.
In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the government aid into available capital for a bank — and give the government a large equity stake in return.
While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders who are wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.
The administration would have to decide how to handle its considerable voting rights on the boards of banks included in the program. Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them.
Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults.
In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion.
The most immediate expense will come in the next several weeks, when federal bank regulators complete “stress tests” on the nation’s 19 biggest banks. The tests are expected to show that at least several major institutions, probably including Bank of America, need to increase their capital cushions by billions of dollars each.
The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.
The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program “This Week.” Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more.
“We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Mr. Emanuel said. “If they need capital, we have that capacity.”
If that calculation is correct, Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis.
The Treasury has already negotiated this kind of conversion for Citigroup. Under a plan announced in January, Citigroup would convert up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.
After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank.
Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid.
Administration officials acknowledged that they might still have to ask Congress for extra money in the future. Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over.
Insurance companies are also looking for help, and the Treasury may well have to provide billions more to General Motors, Chrysler and perhaps automobile suppliers as well.
Treasury officials note that they have more money left in the rescue fund than might be apparent at first glance. Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure.
In practice, the toxic-asset programs are not expected to start for another few months, and it could be more than a year before the Treasury uses up the entire $100 billion. Likewise, it will be at least a year before the Treasury uses up all the money budgeted for homeowners.
But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis.
Ever since the Treasury agreed to restructure Citigroup’s loans, officials have made it clear that other banks could follow suit and convert their government loans to voting shares of common stock as well.
In the stress tests now under way, regulators are examining whether the big banks would have enough capital to withstand an economic downturn in which unemployment climbs to 10 percent and housing prices fall much further than they already have.
As their yardstick, regulators are expected to examine a particular measure of bank capital called “tangible common equity.” By that measure of capital, every dollar that a bank converts from preferred shares to common stock becomes an additional dollar of capital.
The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for non-voting preferred shares that pay an annual interest rate of about 5 percent.
If all of the banks that are found to have a capital shortfall fill that gap by converting their shares, rather than by obtaining more cash, the Treasury could stretch its dwindling rescue fund by more than $100 billion.
The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policymakers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers.
Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.
WASHINGTON — President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.
In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the government aid into available capital for a bank — and give the government a large equity stake in return.
While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders who are wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.
The administration would have to decide how to handle its considerable voting rights on the boards of banks included in the program. Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them.
Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults.
In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion.
The most immediate expense will come in the next several weeks, when federal bank regulators complete “stress tests” on the nation’s 19 biggest banks. The tests are expected to show that at least several major institutions, probably including Bank of America, need to increase their capital cushions by billions of dollars each.
The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.
The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program “This Week.” Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more.
“We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Mr. Emanuel said. “If they need capital, we have that capacity.”
If that calculation is correct, Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis.
The Treasury has already negotiated this kind of conversion for Citigroup. Under a plan announced in January, Citigroup would convert up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.
After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank.
Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid.
Administration officials acknowledged that they might still have to ask Congress for extra money in the future. Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over.
Insurance companies are also looking for help, and the Treasury may well have to provide billions more to General Motors, Chrysler and perhaps automobile suppliers as well.
Treasury officials note that they have more money left in the rescue fund than might be apparent at first glance. Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure.
In practice, the toxic-asset programs are not expected to start for another few months, and it could be more than a year before the Treasury uses up the entire $100 billion. Likewise, it will be at least a year before the Treasury uses up all the money budgeted for homeowners.
But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis.
Ever since the Treasury agreed to restructure Citigroup’s loans, officials have made it clear that other banks could follow suit and convert their government loans to voting shares of common stock as well.
In the stress tests now under way, regulators are examining whether the big banks would have enough capital to withstand an economic downturn in which unemployment climbs to 10 percent and housing prices fall much further than they already have.
As their yardstick, regulators are expected to examine a particular measure of bank capital called “tangible common equity.” By that measure of capital, every dollar that a bank converts from preferred shares to common stock becomes an additional dollar of capital.
The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for non-voting preferred shares that pay an annual interest rate of about 5 percent.
If all of the banks that are found to have a capital shortfall fill that gap by converting their shares, rather than by obtaining more cash, the Treasury could stretch its dwindling rescue fund by more than $100 billion.
The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policymakers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers.
Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.
Asian Stocks Decline on Share-Sale Concern; OneSteel Slumps
April 20 (Bloomberg) -- Asian stocks declined as worsening earnings forced companies to sell shares to shore up their balance sheets, diluting the value of existing investments.
OneSteel Ltd., the second-largest Australian producer of the alloy, tumbled 5.2 percent as it sold A$584 million ($418 million) of new shares. Toshiba Corp., the world’s No. 2 maker of flash memory chips, slumped 5.4 percent after the Nikkei newspaper said the company will raise 500 billion yen ($5.04 billion) through stock and bond issues. LG Chem Ltd., South Korea’s biggest chemicals producer, soared 18 percent following a three-week suspension.
The MSCI Asia Pacific Index lost 0.9 percent to 88.92 as of 10:40 a.m. in Tokyo. The benchmark is still up 26 percent from a more than five-year low reached on March 9. It erased its 2009 loss on April 17 amid increasing confidence the global economy is bottoming out and corporate earnings will recover.
“The market is expecting earnings downgrades for some of the cyclical stocks,” said Paul Xiradis, who manages the equivalent of $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney. “There is more earnings deterioration to come, but it’s not going to be marked. There is also a bit of profit taking after a pretty strong run in a few names.”
Japan’s Nikkei 225 Stock Average slipped 1.1 percent to 8,814.05. Most benchmark indexes in Asia declined, except in China and the Philippines.
Futures on the Standard & Poor’s 500 Index lost 0.8 percent. The gauge rose 0.5 percent on April 17 as the Reuters/University of Michigan preliminary index of consumer sentiment climbed to the highest level since September.
OneSteel, which cut its profit forecast on April 16, slumped 5.2 percent to A$2.22. The company sold stock at A$1.80.
Toshiba dropped 5.4 percent to 314 yen. The electronics company will raise 300 billion yen through a share sale and another 200 billion from issuing subordinated bonds, the Nikkei newspaper reported on April 18. Toshiba said in a statement it has no plans to raise capital.
OneSteel Ltd., the second-largest Australian producer of the alloy, tumbled 5.2 percent as it sold A$584 million ($418 million) of new shares. Toshiba Corp., the world’s No. 2 maker of flash memory chips, slumped 5.4 percent after the Nikkei newspaper said the company will raise 500 billion yen ($5.04 billion) through stock and bond issues. LG Chem Ltd., South Korea’s biggest chemicals producer, soared 18 percent following a three-week suspension.
The MSCI Asia Pacific Index lost 0.9 percent to 88.92 as of 10:40 a.m. in Tokyo. The benchmark is still up 26 percent from a more than five-year low reached on March 9. It erased its 2009 loss on April 17 amid increasing confidence the global economy is bottoming out and corporate earnings will recover.
“The market is expecting earnings downgrades for some of the cyclical stocks,” said Paul Xiradis, who manages the equivalent of $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney. “There is more earnings deterioration to come, but it’s not going to be marked. There is also a bit of profit taking after a pretty strong run in a few names.”
Japan’s Nikkei 225 Stock Average slipped 1.1 percent to 8,814.05. Most benchmark indexes in Asia declined, except in China and the Philippines.
Futures on the Standard & Poor’s 500 Index lost 0.8 percent. The gauge rose 0.5 percent on April 17 as the Reuters/University of Michigan preliminary index of consumer sentiment climbed to the highest level since September.
OneSteel, which cut its profit forecast on April 16, slumped 5.2 percent to A$2.22. The company sold stock at A$1.80.
Toshiba dropped 5.4 percent to 314 yen. The electronics company will raise 300 billion yen through a share sale and another 200 billion from issuing subordinated bonds, the Nikkei newspaper reported on April 18. Toshiba said in a statement it has no plans to raise capital.
Bank of Japan May Cut Economic, Price Outlook as Spending Falls
April 20 (Bloomberg) -- The Bank of Japan will probably cut its forecasts for the economy and prices next week as the recession takes a toll on spending by companies and households.
The world’s second-largest economy will probably contract 4.2 percent in the year to March 2010, more than twice the pace the central bank projected three months ago, according to the median estimate of 16 economists surveyed by Bloomberg News. Consumer prices excluding fresh food will tumble 1.3 percent, they said, also faster than the bank’s earlier estimate.
Governor Masaaki Shirakawa said this month that the economy has “underperformed” since January and weakening spending by companies and consumers will impair growth even as declines in exports and production moderate. Economists say Prime Minister Taro Aso’s record 15.4 trillion yen ($155 billion) stimulus package is unlikely to sustain a recovery.
“BOJ policy makers are expected to present a pretty cautious view of the economic outlook because the risk lingers that growth will stumble after being lifted temporarily by fiscal stimulus,” said Mari Iwashita, chief market economist at Daiwa SMBC Securities Co. in Tokyo. “The bank may place a big emphasis on the downside risks for the outlook.”
With the benchmark interest rate already at 0.1 percent, the bank will probably be forced to buy more debt issued by the government and companies to inject money into an economy heading for the worst recession since 1945, analysts said.
Policy Direction
The central bank releases the twice-yearly outlook on April 30 at 3 p.m. in Tokyo. The report will present board members’ forecasts for gross domestic product and consumer prices in the year ending March 2010 and the following 12 months. The semiannual reports, which are reviewed each January and July, also describe the bank’s policy direction.
In January, the board predicted the economy would shrink 2 percent this fiscal year before expanding 1.5 percent next year. Consumer inflation will tumble 1.1 percent this fiscal year and drop 0.4 percent in the next, it said.
The economists surveyed said GDP will grow 0.9 percent next fiscal year and core prices will fall 0.5 percent.
Shirakawa last week said the bank remains “cautious” about the outlook despite recent reports from China and the U.S. indicating the global economy may be beginning to recover.
“There are signs that economies are emerging from freefall at home and abroad, but it will take more than a year before Japan can return to a sustainable growth path,” said Teizo Taya, a former BOJ board member who now advises the Daiwa Institute of Research.
Production Plans
Japanese manufacturers planned to increase output in March and April, ending a five-month drop, a government report showed last month. Gauges of confidence among consumers, merchants and small businesses all rose in March.
Prime Minister Aso’s stimulus plan prompted Nomura Securities Co., Morgan Stanley and Nikko Citigroup Ltd. to raise their GDP forecasts for the current fiscal year, while adding that the measures would only provide a temporary boost.
The central bank will probably stick to its view that the economy will start to improve later this fiscal year, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo.
“Even so, we expect growth won’t take root at least until late 2010 and the bank will eventually be forced to push back its prediction for a recovery.”
An unprecedented decline in exports has saddled manufacturers with too many workers and excessive capacity, the central bank’s quarterly Tankan survey showed on April 1, signaling more cuts in jobs and capital investment are likely.
Toshiba Cuts Jobs
Toshiba Corp. last week said it will cut 3,900 temporary jobs this fiscal year, on top of 4,500 eliminations announced in January. The chipmaker will also reduce research and development spending by 18 percent.
“Production capacity and employment are becoming excessive,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Investment and consumer spending continue to weaken and corporate failures may accelerate.”
The policy board will probably keep the benchmark overnight lending rate at 0.1 percent before releasing the outlook report, according to 15 of the 16 economists surveyed. One predicted a cut to a range of zero to 0.1 percent.
The world’s second-largest economy will probably contract 4.2 percent in the year to March 2010, more than twice the pace the central bank projected three months ago, according to the median estimate of 16 economists surveyed by Bloomberg News. Consumer prices excluding fresh food will tumble 1.3 percent, they said, also faster than the bank’s earlier estimate.
Governor Masaaki Shirakawa said this month that the economy has “underperformed” since January and weakening spending by companies and consumers will impair growth even as declines in exports and production moderate. Economists say Prime Minister Taro Aso’s record 15.4 trillion yen ($155 billion) stimulus package is unlikely to sustain a recovery.
“BOJ policy makers are expected to present a pretty cautious view of the economic outlook because the risk lingers that growth will stumble after being lifted temporarily by fiscal stimulus,” said Mari Iwashita, chief market economist at Daiwa SMBC Securities Co. in Tokyo. “The bank may place a big emphasis on the downside risks for the outlook.”
With the benchmark interest rate already at 0.1 percent, the bank will probably be forced to buy more debt issued by the government and companies to inject money into an economy heading for the worst recession since 1945, analysts said.
Policy Direction
The central bank releases the twice-yearly outlook on April 30 at 3 p.m. in Tokyo. The report will present board members’ forecasts for gross domestic product and consumer prices in the year ending March 2010 and the following 12 months. The semiannual reports, which are reviewed each January and July, also describe the bank’s policy direction.
In January, the board predicted the economy would shrink 2 percent this fiscal year before expanding 1.5 percent next year. Consumer inflation will tumble 1.1 percent this fiscal year and drop 0.4 percent in the next, it said.
The economists surveyed said GDP will grow 0.9 percent next fiscal year and core prices will fall 0.5 percent.
Shirakawa last week said the bank remains “cautious” about the outlook despite recent reports from China and the U.S. indicating the global economy may be beginning to recover.
“There are signs that economies are emerging from freefall at home and abroad, but it will take more than a year before Japan can return to a sustainable growth path,” said Teizo Taya, a former BOJ board member who now advises the Daiwa Institute of Research.
Production Plans
Japanese manufacturers planned to increase output in March and April, ending a five-month drop, a government report showed last month. Gauges of confidence among consumers, merchants and small businesses all rose in March.
Prime Minister Aso’s stimulus plan prompted Nomura Securities Co., Morgan Stanley and Nikko Citigroup Ltd. to raise their GDP forecasts for the current fiscal year, while adding that the measures would only provide a temporary boost.
The central bank will probably stick to its view that the economy will start to improve later this fiscal year, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo.
“Even so, we expect growth won’t take root at least until late 2010 and the bank will eventually be forced to push back its prediction for a recovery.”
An unprecedented decline in exports has saddled manufacturers with too many workers and excessive capacity, the central bank’s quarterly Tankan survey showed on April 1, signaling more cuts in jobs and capital investment are likely.
Toshiba Cuts Jobs
Toshiba Corp. last week said it will cut 3,900 temporary jobs this fiscal year, on top of 4,500 eliminations announced in January. The chipmaker will also reduce research and development spending by 18 percent.
“Production capacity and employment are becoming excessive,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Investment and consumer spending continue to weaken and corporate failures may accelerate.”
The policy board will probably keep the benchmark overnight lending rate at 0.1 percent before releasing the outlook report, according to 15 of the 16 economists surveyed. One predicted a cut to a range of zero to 0.1 percent.
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