(Bloomberg) -- State Bank of India reported fourth- quarter profit rose 46 percent to a record, exceeding analysts’ estimates, as lower lending rates lured borrowers and gains from trading grew more than fivefold.
Net income rose to 27.4 billion rupees ($556 million), from 18.8 billion rupees a year earlier, the nation’s largest bank said in a statement to the Bombay Stock Exchange today. That beat the 21.7 billion rupee median estimate of five analysts surveyed by Bloomberg.
Chairman Om Prakash Bhatt aims to raise loans and deposits 25 percent this year, after taking market share in the 12 months ended March 31 as people concerned about the financial strength of overseas and private-sector banks fled to the government-controlled lender. The company, which accounts for a fifth of the nation’s banking system, increased credit 30 percent last year after reducing borrowing costs.
“With the government spending likely to revive economic growth, lending may surge in the coming quarters,” said A. Balasubramaniam, chief investment officer of Birla Sun Life Asset Management Co., which manages assets of about $9.6 billion.
State Bank, which is 59 percent-owned by the government, will need 500 billion rupees to 700 billion rupees over the next five years, Bhatt said in Kolkata today. This year, the Mumbai- based bank, which will add 1,000 branches, plans to raise 160 billion rupees to 170 billion rupees, he said, without providing additional details.
Stock Performance
Shares of State Bank fell 3.3 percent to 1,324.55 rupees yesterday in Mumbai trading. The stock has gained 3 percent this year, compared with a 23 percent advance in India’s benchmark Sensitive Index and a 10 percent climb in the Bombay Stock Exchange’s banking index.
Net interest margin, a measure of lending profitability, shrank to 2.93 percent by the end of March from 3.07 percent a year earlier, the bank said in an e-mailed statement.
“I expect the net interest margin to remain stable this quarter, and rise thereafter,” Bhatt said. Deposits, which climbed 38 percent last year, won’t sustain their growth momentum this year as investors return to the equity and real estate markets, he said.
State-run banks lured more borrowers than overseas banks and private-sector rivals during the quarter after they made the steepest cuts in borrowing costs, spurred by calls from the finance ministry and central bank to revive credit demand and stoke an economy growing at the slowest pace in six years.
Profit from State Bank’s treasury operations, which include trading in bonds and currencies, climbed to 15.1 billion rupees during the quarter from 2.96 billion rupees a year earlier.
Loan Defaults
State Bank’s gross non-performing assets climbed 21 percent to 155.9 billion rupees from 128.4 billion rupees a year earlier, according to the statement. Gross bad debt as a percentage of loans narrowed to 2.84 percent, from 3.04 percent a year earlier.
Closest rival ICICI Bank Ltd. last month posted a 35 percent decline in fourth-quarter earnings, the steepest fall in quarterly profit in more than six years, as it set aside more funds for bad debt and curbed loans to avoid defaults. ICICI shares have gained 16 percent this year, after posting a 64 percent drop in 2008.
Saturday, May 9, 2009
Free Fall’s Over, but Where Are We Landing?
BACK in September, when financial reality was still merely horrible but not yet catastrophic, a local software start-up called Balihoo was poised to expand.
It already sported the outward trappings of tech world success: an airy space in an old brick warehouse downtown, renovated with recycled wood and glass; a roomful of 20-somethings in fleece pullovers, their mountain bikes hanging from wall-mounted racks; and a hot new product.
All that Balihoo needed was more money, and it was about to get some. Three venture capital firms beckoned with offers to invest a fresh $3 million in the young company.
Then Lehman Brothers collapsed, beginning a string of spectacular Wall Street failures. As primal fear seized the financial system, money suddenly became as difficult to secure as true love on a reality dating show. The venture capitalists changed their minds.
“All that interest disappeared,” says Balihoo’s chief executive, Peter Gombert. “It was nuclear winter.”
In October, Balihoo laid off 10 people in Boise and braced for more painful days. But in the last several weeks, the venture capitalists have returned, enticed by Balihoo’s strong sales, and also by something infinitely more valuable: glimmers of renewed faith in parts of American commerce. “Risk” no longer seems like a radioactive word.
“The spigot turned back on,” says Mr. Gombert, who now expects to raise as much as $5 million. Some of that money will allow him to hire four or five people who will help Balihoo continue to make software that enables national brands to customize local advertising campaigns.
“We still will be pretty conservative in our growth,” he says. “The economy still hasn’t rebounded, and one of the worst things we could do is spend that money fruitlessly. Everybody’s still feeling the pain, but we’re starting to see a little creep up in confidence.”
Three months into a new presidency begun in the midst of deepening economic desperation, the myriad programs of the Obama administration appear to have taken the edge off the financial crisis while generating momentum toward economic recovery that remains, by most estimates, at least several months away.
After the convulsions of last fall, when seemingly impregnable financial institutions fell and cash all but vanished from many areas of commercial life, borrowers with decent credit — from home buyers to corporations — are finding money available on increasingly attractive terms. Home sales are up in many markets, albeit at sharply lower prices. Consumer spending, still shrinking, has nonetheless halted its panicked retreat.
Yet the economy remains pitifully weak, with distress abundant from strapped households to anxious corporate boardrooms. More than two million jobs disappeared over the first three months of the year as the unemployment rate soared to 8.5 percent. With wages still shrinking or evaporating, stock portfolios and savings accounts ravaged, and the future still uncomfortably uncertain, millions of households are likely to keep scrimping, challenging any potential recovery.
“We’ve just had the worst hit to wealth in the history of the data,” says Robert Barbera, chief economist at the research and trading firm the Investment Technology Group. “The labor market data is unambiguously horrible.”
So will the Obama administration’s apparent achievement in arresting an economic free fall yield a sustainable revival, creating millions of jobs, generating fresh business opportunities and restoring a sense of optimism?
Can programs aimed at reinvigorating the financial system make money flow, allowing companies to expand and hire? Will federal spending amount to something like a piñata at a children’s birthday party, with the proceeds scattered willy-nilly? Or will that money help catalyze a genuine economic renewal?
BOISE, a metropolitan area of 600,000 people set in the high desert, is as good a place as any to try to figure this out. In many respects, the local economy presents a microcosm of the recent American experience, making it a useful laboratory.
A former trading post on the Oregon Trail, Boise now has microbreweries, coffee houses and bohemian chic boutiques inhabiting brick storefronts downtown. Beefy men in chamois shirts debate fishing tackle over steins of beer, while others with goatees and pierced lips sip chai lattes and discuss herbal medicine.
It already sported the outward trappings of tech world success: an airy space in an old brick warehouse downtown, renovated with recycled wood and glass; a roomful of 20-somethings in fleece pullovers, their mountain bikes hanging from wall-mounted racks; and a hot new product.
All that Balihoo needed was more money, and it was about to get some. Three venture capital firms beckoned with offers to invest a fresh $3 million in the young company.
Then Lehman Brothers collapsed, beginning a string of spectacular Wall Street failures. As primal fear seized the financial system, money suddenly became as difficult to secure as true love on a reality dating show. The venture capitalists changed their minds.
“All that interest disappeared,” says Balihoo’s chief executive, Peter Gombert. “It was nuclear winter.”
In October, Balihoo laid off 10 people in Boise and braced for more painful days. But in the last several weeks, the venture capitalists have returned, enticed by Balihoo’s strong sales, and also by something infinitely more valuable: glimmers of renewed faith in parts of American commerce. “Risk” no longer seems like a radioactive word.
“The spigot turned back on,” says Mr. Gombert, who now expects to raise as much as $5 million. Some of that money will allow him to hire four or five people who will help Balihoo continue to make software that enables national brands to customize local advertising campaigns.
“We still will be pretty conservative in our growth,” he says. “The economy still hasn’t rebounded, and one of the worst things we could do is spend that money fruitlessly. Everybody’s still feeling the pain, but we’re starting to see a little creep up in confidence.”
Three months into a new presidency begun in the midst of deepening economic desperation, the myriad programs of the Obama administration appear to have taken the edge off the financial crisis while generating momentum toward economic recovery that remains, by most estimates, at least several months away.
After the convulsions of last fall, when seemingly impregnable financial institutions fell and cash all but vanished from many areas of commercial life, borrowers with decent credit — from home buyers to corporations — are finding money available on increasingly attractive terms. Home sales are up in many markets, albeit at sharply lower prices. Consumer spending, still shrinking, has nonetheless halted its panicked retreat.
Yet the economy remains pitifully weak, with distress abundant from strapped households to anxious corporate boardrooms. More than two million jobs disappeared over the first three months of the year as the unemployment rate soared to 8.5 percent. With wages still shrinking or evaporating, stock portfolios and savings accounts ravaged, and the future still uncomfortably uncertain, millions of households are likely to keep scrimping, challenging any potential recovery.
“We’ve just had the worst hit to wealth in the history of the data,” says Robert Barbera, chief economist at the research and trading firm the Investment Technology Group. “The labor market data is unambiguously horrible.”
So will the Obama administration’s apparent achievement in arresting an economic free fall yield a sustainable revival, creating millions of jobs, generating fresh business opportunities and restoring a sense of optimism?
Can programs aimed at reinvigorating the financial system make money flow, allowing companies to expand and hire? Will federal spending amount to something like a piñata at a children’s birthday party, with the proceeds scattered willy-nilly? Or will that money help catalyze a genuine economic renewal?
BOISE, a metropolitan area of 600,000 people set in the high desert, is as good a place as any to try to figure this out. In many respects, the local economy presents a microcosm of the recent American experience, making it a useful laboratory.
A former trading post on the Oregon Trail, Boise now has microbreweries, coffee houses and bohemian chic boutiques inhabiting brick storefronts downtown. Beefy men in chamois shirts debate fishing tackle over steins of beer, while others with goatees and pierced lips sip chai lattes and discuss herbal medicine.
Swat villagers flee as military tackles Taliban
Standing at the roadside in Hasan Abdal, a town 50km from Islamabad, Amina Jan recalled an ordeal that began on Tuesday when officials in the Swat valley, Pakistan, relaxed a curfew and urged local people to leave quickly in anticipation of a military offensive.
Ms Jan, 35, wiped away tears and told of her escape from Swat with her four children as the military stepped up its efforts this week to block the most formidable Taliban advance in Pakistan’s history.
EDITOR’S CHOICE
Obama holds talks with Zardari and Karzai - May-07
Thousands leave Swat as attacks continue - May-07
“It was all a nightmare in an area where people live in fear; an area which was very calm just months ago,” said Ms Jan, one of thousands fleeing the lush mountainous region once the destination of honeymoon couples. People took advantage of a break in the curfew to leave the area as Taliban positions came under air attack.
Last night Yusuf Raza Gilani, the prime minister, said more troops had been ordered into battle. “The armed forces have been called in to eliminate the militants and terrorists.”
The government’s handling of Swat has become a test of its resolve against the Taliban insurgency. Asif Ali Zardari, Pakistan’s president, assured Barack Obama on Wednesday of Islamabad’s commitment to defeating al-Qaeda and its allies.
For Ms Jan, first came the difficult decision of leaving behind her husband, who insisted on staying to protect the family’s three-room house next to their grocery.
Then came the challenge of hiring a taxi on a day when drivers raised the fare to Rps20,000 ($250, €186, £166), or five times the rate for a trip to Islamabad.
“There were plenty more people desperate to leave.” Instead of cash, Ms Jan traded jewellery for a ride for herself and her children.
Officials in North-West Frontier province believe three-quarters of a million or more people could be displaced by the fighting.
A senior United Nations official warned that a large-scale displacement caused by the intensifying military conflict could present Pakistan with “its second largest disaster in the 21st century since the 2005 earthquake in Kashmir”, in which up to 80,000 people were killed.
“The worst-case scenario is a nightmare,” he said last night. “Much depends on how intense in the conflict and how long it continues.”
Karam Swati, a teacher, shared his account of boarding a tractor-driven trolley to leave his village after midnight when it was taken over by the Taliban.
“The Taliban came and seized every government building. They then pronounced that they were the new law and not the Pakistani government,” said Mr Swati, 60.
While the prospect of a Taliban advance causes deep concern across the world and in Pakistan’s main cities, opinion among many of the evacuees is mixed.
“The Taliban did not go from door to door to attack people. They only wanted to bring in moral values,” said Munawar Khan, a farmer, who fled Swat to get away from the military campaign.
Having fled their homes, villagers are often faced with a fresh struggle in the cities.
Waheed Zaman, 12, shows his bruised knuckles as he recalls his arrest last month by policemen in Islamabad.
“I held on to a water pipe and refused to go with them. They used sticks to beat my knuckles,” said the child, who remains traumatised.
Waheed is one of the six children of Jameela, who fled Swat last month to escape not only the abuse at the hands of her second husband, who forcibly married her after her first husband was killed last year when the Taliban blew up a petrol station, but also the approaching Taliban.
But her husband kept her national identity card. “My son was arrested by the police while he was picking rubbish from a garbage dump. The police took him away, claiming that he had no identity papers. Where do I get my papers?” she said.
Riayatullah Khan, a human rights activist who is putting pressure on the government to provide food and shelter for those fleeing Swat, laments the inaction.
“Does anyone in the government realise that we are about to witness an emerging humanitarian tragedy?” said Mr Khan. “Unless the government immediately begins preparations and allocates resources, there will be a major disaster.”
Ms Jan, 35, wiped away tears and told of her escape from Swat with her four children as the military stepped up its efforts this week to block the most formidable Taliban advance in Pakistan’s history.
EDITOR’S CHOICE
Obama holds talks with Zardari and Karzai - May-07
Thousands leave Swat as attacks continue - May-07
“It was all a nightmare in an area where people live in fear; an area which was very calm just months ago,” said Ms Jan, one of thousands fleeing the lush mountainous region once the destination of honeymoon couples. People took advantage of a break in the curfew to leave the area as Taliban positions came under air attack.
Last night Yusuf Raza Gilani, the prime minister, said more troops had been ordered into battle. “The armed forces have been called in to eliminate the militants and terrorists.”
The government’s handling of Swat has become a test of its resolve against the Taliban insurgency. Asif Ali Zardari, Pakistan’s president, assured Barack Obama on Wednesday of Islamabad’s commitment to defeating al-Qaeda and its allies.
For Ms Jan, first came the difficult decision of leaving behind her husband, who insisted on staying to protect the family’s three-room house next to their grocery.
Then came the challenge of hiring a taxi on a day when drivers raised the fare to Rps20,000 ($250, €186, £166), or five times the rate for a trip to Islamabad.
“There were plenty more people desperate to leave.” Instead of cash, Ms Jan traded jewellery for a ride for herself and her children.
Officials in North-West Frontier province believe three-quarters of a million or more people could be displaced by the fighting.
A senior United Nations official warned that a large-scale displacement caused by the intensifying military conflict could present Pakistan with “its second largest disaster in the 21st century since the 2005 earthquake in Kashmir”, in which up to 80,000 people were killed.
“The worst-case scenario is a nightmare,” he said last night. “Much depends on how intense in the conflict and how long it continues.”
Karam Swati, a teacher, shared his account of boarding a tractor-driven trolley to leave his village after midnight when it was taken over by the Taliban.
“The Taliban came and seized every government building. They then pronounced that they were the new law and not the Pakistani government,” said Mr Swati, 60.
While the prospect of a Taliban advance causes deep concern across the world and in Pakistan’s main cities, opinion among many of the evacuees is mixed.
“The Taliban did not go from door to door to attack people. They only wanted to bring in moral values,” said Munawar Khan, a farmer, who fled Swat to get away from the military campaign.
Having fled their homes, villagers are often faced with a fresh struggle in the cities.
Waheed Zaman, 12, shows his bruised knuckles as he recalls his arrest last month by policemen in Islamabad.
“I held on to a water pipe and refused to go with them. They used sticks to beat my knuckles,” said the child, who remains traumatised.
Waheed is one of the six children of Jameela, who fled Swat last month to escape not only the abuse at the hands of her second husband, who forcibly married her after her first husband was killed last year when the Taliban blew up a petrol station, but also the approaching Taliban.
But her husband kept her national identity card. “My son was arrested by the police while he was picking rubbish from a garbage dump. The police took him away, claiming that he had no identity papers. Where do I get my papers?” she said.
Riayatullah Khan, a human rights activist who is putting pressure on the government to provide food and shelter for those fleeing Swat, laments the inaction.
“Does anyone in the government realise that we are about to witness an emerging humanitarian tragedy?” said Mr Khan. “Unless the government immediately begins preparations and allocates resources, there will be a major disaster.”
Shift to Saving May Be Downturn’s Lasting Impact
The economic downturn is forcing a return to a culture of thrift that many economists say could last well beyond the inevitable recovery.
Skip to next paragraph
Enlarge This Image
J. Emilio Flores for The New York Times
Kenny Tran of California says he has no regrets about not buying a home when credit was looser.
Multimedia
Savings Rate Rises as Net Worth DeclinesGraphic
Savings Rate Rises as Net Worth Declines
This is not because Americans have suddenly become more financially virtuous or have learned the error of their free-spending ways. Instead, these experts say, Americans may have no choice but to continue pinching pennies.
This shift back to thrift may seem to be a healthy change for a consumer class known for spending more than it earns, but there is a downside: American businesses have become so dependent on consumer spending that any pullback sends ripples through the economy.
Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4 percent, from virtually zero.
This happens in nearly every recession, and the effect is usually fleeting. Once the economy recovers, Americans revert to more spending and less saving. Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005, meaning Americans were spending more than they made.
This time is expected to be different, because the forces that enabled and even egged on consumers to save less and spend more — easy credit and skyrocketing asset values — could be permanently altered by the financial crisis that spun the economy into recession.
“I expect that the savings rate will end up at the end of this recession higher than it was going into it,” said Jonathan A. Parker, a finance professor at the Kellogg School of Management at Northwestern University. “It’s hard to see how it wouldn’t.”
Sustained increases in household saving would cause a difficult period of restructuring for the American economy, which has become increasingly driven by consumer spending. Such spending makes up about 70 percent of the nation’s gross domestic product.
Add the decline in consumer spending to the planned expiration of government stimulus spending, and a painful readjustment in demand for goods and services could occur, economists say. The effect would be felt here and abroad, as many developing economies also depend on America’s big-spending ways.
“If Americans cut back, as they almost have to do, what will replace that source of demand?” asked William G. Gale, director of the economic studies program at the Brookings Institution, a liberal-centrist policy research group.
“The easy answer is the Chinese consumer,” he said, but unlike their more prodigal American counterparts, the Chinese save about a quarter of what they earn. “We may cut back faster than they expand into that space, so there might be a lull.”
Why might the higher savings rate outlast the recession?
Social critics like David Blankenhorn, president of the Institute for American Values, hope that introspection about America’s “culture of consumption” will awaken Americans to the virtues of thrift, just as the Great Depression reset American financial values for a generation.
But many economists believe consumers will change their habits for more pragmatic reasons.
Consumers have lost a huge chunk of their net worth, in the housing bust and the stock market, and to resuscitate their retirement accounts or children’s college funds they will have to channel more of their paychecks toward saving — unless those asset markets soar again.
Forms of easy credit that were once prevalent, like mortgages with no down payments, also may not return, either because the government regulates them out of existence or because banks dare not venture back into such risky lending. That means if Americans want to buy a house, they will have to save more and borrow less.
Whether for reasons moral or otherwise, consumers are already thinking a bit differently about their long-term budgets. A recent Pew Research Center survey found that many more Americans had begun regarding products like microwave ovens as luxuries rather than necessities.
Such attitudes suggest that retailers will have to change their marketing strategies, said J. Walker Smith, executive vice chairman of the Futures Company, a marketing and research consultancy.
“People are realizing they can’t accumulate everything they want anymore, and they’ll have to prioritize more,” he said. “That may be hard for a lot of brands — figuring out not only how to get considered by consumers, but put at the top of their list.”
Consumers planning big purchases are also anticipating that their borrowing options will remain limited.
Last year, Aryn Kennedy and her husband, Brian Ewing, who live in Los Angeles, spent “every dollar” they earned on debt repayment and living expenses. When local housing prices began to fall, Mr. Ewing toyed with the idea of a low-down-payment mortgage.
“By the time we really started looking at buying, I knew from reading blogs that most loans like that were not really available anymore, since lenders didn’t want to take risks,” said Ms. Kennedy, who said she was suspicious of such offers anyhow.
Since then, through “windfalls” like a salary increase for Mr. Ewing, and by cutting expenses for clothing, entertainment and other items, Ms. Kennedy says the couple has begun saving about 25 percent of their take-home pay in anticipation of making a traditional down payment of 20 percent on a house.
Even after they buy, Ms. Kennedy said, the couple plans to keep saving 25 percent of their pay. A recent Gallup poll found that most Americans who have recently increased their savings believe their budget adjustments represent a “new, normal pattern for years ahead.”
Despite the immediate jolt to the economy, more personal saving would be a positive step in the long run, analysts say. More saving leads to more investment, which promotes economic growth, which leads to better living standards.
At the family level, social critics, economists and even many consumers seem to agree that a forced financial conservatism may be for the better.
Kenny Tran of Santa Ana, Calif., for example, said he had been nervous about saving enough to buy his first house — he and his fiancé have been setting aside about $800 a month for the last year and a half — but he has no regrets about not buying a home when credit was looser and saving was less of a priority.
“A couple years ago it would have been easier for us to get a loan,” despite the fact that the couple’s combined income was lower, Mr. Tran said. “But if we would have gotten a loan, and a house, a couple years ago, we’d probably have ended up in foreclosure now.”
Skip to next paragraph
Enlarge This Image
J. Emilio Flores for The New York Times
Kenny Tran of California says he has no regrets about not buying a home when credit was looser.
Multimedia
Savings Rate Rises as Net Worth DeclinesGraphic
Savings Rate Rises as Net Worth Declines
This is not because Americans have suddenly become more financially virtuous or have learned the error of their free-spending ways. Instead, these experts say, Americans may have no choice but to continue pinching pennies.
This shift back to thrift may seem to be a healthy change for a consumer class known for spending more than it earns, but there is a downside: American businesses have become so dependent on consumer spending that any pullback sends ripples through the economy.
Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4 percent, from virtually zero.
This happens in nearly every recession, and the effect is usually fleeting. Once the economy recovers, Americans revert to more spending and less saving. Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005, meaning Americans were spending more than they made.
This time is expected to be different, because the forces that enabled and even egged on consumers to save less and spend more — easy credit and skyrocketing asset values — could be permanently altered by the financial crisis that spun the economy into recession.
“I expect that the savings rate will end up at the end of this recession higher than it was going into it,” said Jonathan A. Parker, a finance professor at the Kellogg School of Management at Northwestern University. “It’s hard to see how it wouldn’t.”
Sustained increases in household saving would cause a difficult period of restructuring for the American economy, which has become increasingly driven by consumer spending. Such spending makes up about 70 percent of the nation’s gross domestic product.
Add the decline in consumer spending to the planned expiration of government stimulus spending, and a painful readjustment in demand for goods and services could occur, economists say. The effect would be felt here and abroad, as many developing economies also depend on America’s big-spending ways.
“If Americans cut back, as they almost have to do, what will replace that source of demand?” asked William G. Gale, director of the economic studies program at the Brookings Institution, a liberal-centrist policy research group.
“The easy answer is the Chinese consumer,” he said, but unlike their more prodigal American counterparts, the Chinese save about a quarter of what they earn. “We may cut back faster than they expand into that space, so there might be a lull.”
Why might the higher savings rate outlast the recession?
Social critics like David Blankenhorn, president of the Institute for American Values, hope that introspection about America’s “culture of consumption” will awaken Americans to the virtues of thrift, just as the Great Depression reset American financial values for a generation.
But many economists believe consumers will change their habits for more pragmatic reasons.
Consumers have lost a huge chunk of their net worth, in the housing bust and the stock market, and to resuscitate their retirement accounts or children’s college funds they will have to channel more of their paychecks toward saving — unless those asset markets soar again.
Forms of easy credit that were once prevalent, like mortgages with no down payments, also may not return, either because the government regulates them out of existence or because banks dare not venture back into such risky lending. That means if Americans want to buy a house, they will have to save more and borrow less.
Whether for reasons moral or otherwise, consumers are already thinking a bit differently about their long-term budgets. A recent Pew Research Center survey found that many more Americans had begun regarding products like microwave ovens as luxuries rather than necessities.
Such attitudes suggest that retailers will have to change their marketing strategies, said J. Walker Smith, executive vice chairman of the Futures Company, a marketing and research consultancy.
“People are realizing they can’t accumulate everything they want anymore, and they’ll have to prioritize more,” he said. “That may be hard for a lot of brands — figuring out not only how to get considered by consumers, but put at the top of their list.”
Consumers planning big purchases are also anticipating that their borrowing options will remain limited.
Last year, Aryn Kennedy and her husband, Brian Ewing, who live in Los Angeles, spent “every dollar” they earned on debt repayment and living expenses. When local housing prices began to fall, Mr. Ewing toyed with the idea of a low-down-payment mortgage.
“By the time we really started looking at buying, I knew from reading blogs that most loans like that were not really available anymore, since lenders didn’t want to take risks,” said Ms. Kennedy, who said she was suspicious of such offers anyhow.
Since then, through “windfalls” like a salary increase for Mr. Ewing, and by cutting expenses for clothing, entertainment and other items, Ms. Kennedy says the couple has begun saving about 25 percent of their take-home pay in anticipation of making a traditional down payment of 20 percent on a house.
Even after they buy, Ms. Kennedy said, the couple plans to keep saving 25 percent of their pay. A recent Gallup poll found that most Americans who have recently increased their savings believe their budget adjustments represent a “new, normal pattern for years ahead.”
Despite the immediate jolt to the economy, more personal saving would be a positive step in the long run, analysts say. More saving leads to more investment, which promotes economic growth, which leads to better living standards.
At the family level, social critics, economists and even many consumers seem to agree that a forced financial conservatism may be for the better.
Kenny Tran of Santa Ana, Calif., for example, said he had been nervous about saving enough to buy his first house — he and his fiancé have been setting aside about $800 a month for the last year and a half — but he has no regrets about not buying a home when credit was looser and saving was less of a priority.
“A couple years ago it would have been easier for us to get a loan,” despite the fact that the couple’s combined income was lower, Mr. Tran said. “But if we would have gotten a loan, and a house, a couple years ago, we’d probably have ended up in foreclosure now.”
Friday, May 8, 2009
Japanese Bonds Complete First Weekly Decline in Month on Supply
May 9 (Bloomberg) -- Japan’s bonds fell, completing the first weekly drop in a month, on speculation investors will pare holdings of yen-denominated notes after rising U.S. debt sales triggered a slide in 30-year Treasuries.
Benchmark yields climbed from near the lowest level in a month before the Ministry of Finance sells 1.9 trillion yen ($19.2 billion) in 10-year bonds on May 12. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on new securities to investors.
“Investors are becoming anxious about fair value levels of government bonds as steep declines of U.S. Treasuries revived worries about supply and demand,” said Katsutoshi Inadome, a Tokyo-based strategist at Mitsubishi UFJ Securities Co., a unit of Japan’s biggest bank. “It is hard to say if investors will buy new debt aggressively at next week’s auction.”
The yield on the benchmark 10-year bond rose 5.5 basis points this week to 1.450 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the securities dropped 0.47 to 98.706. Japanese financial markets were closed between May 4 and 6 due to local public holidays.
Ten-year bond futures for June delivery declined 0.71 this week to 136.76 at the Tokyo Stock Exchange.
Debt Sales
Ten-year yields reached a five-month high of 1.49 percent on April 10, the day Japanese Prime Minister Taro Aso unveiled a record 15.4 trillion yen stimulus package. Finance Minister Kaoru Yosano on April 21 said the government would issue 10.8 trillion yen of additional new bonds this fiscal year.
The new issuance comes on top of the December plan to boost bond sales by 7 trillion yen to 113.3 trillion yen in the financial year that began April 1.
Japan’s government debt is already 170 percent of gross domestic product, the most among Group of Seven nations, data compiled by Bloomberg show.
“Worries about slackening supply and demand conditions are likely to weigh on the market,” said Masaru Hamasaki, senior strategist in Tokyo at Toyota Asset Management Co., which oversees about $3.3 billion. “The recent raft of economic data is also beginning to signal that the global economy may achieve a stronger-than-expected rebound.”
Ten-year yields may reach 1.6 percent, Hamasaki said.
Japan’s economy is no longer in freefall and will rebound as global demand picks up, according to a member of the government committee that charts the economic cycle.
BOJ’s Stance
“The worst is over,” Takao Komine, 62, an economist and professor at Hosei University in Tokyo, said in an interview on May 7. “We’ll probably see the beginning of recovery at the end of this year.” Komine is one of 10 economists on a government panel that marks Japan’s recession and recovery cycles.
Losses were limited by speculation that the Bank of Japan would maintain key interest rates at 0.1 percent and continue to flood the short-term money market with excessive liquidity, according to Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Ltd.
“The BOJ has no other choice but to maintain the current credit easing throughout 2010,” Minami said. “The wide-spread expectation for the sustained credit easing should allow yields of shorter-dated notes to move stably at low levels and this will then prevent spikes of longer-dated yields.”
The Bank of Japan decided on April 30 to maintain its policy rate and short-term money market operation guidelines by a unanimous vote.
Yield Curve
Demand for bonds also declined on concerns that yield curves across the globe will steepen, according to Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of the second-largest bank in the U.S. The yield curve, or the spread between returns on short- and long-term debt, typically steepens when traders anticipate a recovery.
The difference in yields between Japan’s five- and 20-year debt stood at 1.20 percentage points yesterday, down from this year’s high of 1.29 points on April 21.
The U.S. 30-year bond yield climbed 23 basis points, or 0.23 percentage point, the most since Jan. 5, to 4.316 percent on May 7, according to BGCantor Market data. It was the highest yield since Nov. 14. As long-term yields have risen, the difference between yields on 30-year bonds and two-year notes increased to 3.30 percentage points on May 7, the widest since January 2004.
Benchmark yields climbed from near the lowest level in a month before the Ministry of Finance sells 1.9 trillion yen ($19.2 billion) in 10-year bonds on May 12. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on new securities to investors.
“Investors are becoming anxious about fair value levels of government bonds as steep declines of U.S. Treasuries revived worries about supply and demand,” said Katsutoshi Inadome, a Tokyo-based strategist at Mitsubishi UFJ Securities Co., a unit of Japan’s biggest bank. “It is hard to say if investors will buy new debt aggressively at next week’s auction.”
The yield on the benchmark 10-year bond rose 5.5 basis points this week to 1.450 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the securities dropped 0.47 to 98.706. Japanese financial markets were closed between May 4 and 6 due to local public holidays.
Ten-year bond futures for June delivery declined 0.71 this week to 136.76 at the Tokyo Stock Exchange.
Debt Sales
Ten-year yields reached a five-month high of 1.49 percent on April 10, the day Japanese Prime Minister Taro Aso unveiled a record 15.4 trillion yen stimulus package. Finance Minister Kaoru Yosano on April 21 said the government would issue 10.8 trillion yen of additional new bonds this fiscal year.
The new issuance comes on top of the December plan to boost bond sales by 7 trillion yen to 113.3 trillion yen in the financial year that began April 1.
Japan’s government debt is already 170 percent of gross domestic product, the most among Group of Seven nations, data compiled by Bloomberg show.
“Worries about slackening supply and demand conditions are likely to weigh on the market,” said Masaru Hamasaki, senior strategist in Tokyo at Toyota Asset Management Co., which oversees about $3.3 billion. “The recent raft of economic data is also beginning to signal that the global economy may achieve a stronger-than-expected rebound.”
Ten-year yields may reach 1.6 percent, Hamasaki said.
Japan’s economy is no longer in freefall and will rebound as global demand picks up, according to a member of the government committee that charts the economic cycle.
BOJ’s Stance
“The worst is over,” Takao Komine, 62, an economist and professor at Hosei University in Tokyo, said in an interview on May 7. “We’ll probably see the beginning of recovery at the end of this year.” Komine is one of 10 economists on a government panel that marks Japan’s recession and recovery cycles.
Losses were limited by speculation that the Bank of Japan would maintain key interest rates at 0.1 percent and continue to flood the short-term money market with excessive liquidity, according to Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Ltd.
“The BOJ has no other choice but to maintain the current credit easing throughout 2010,” Minami said. “The wide-spread expectation for the sustained credit easing should allow yields of shorter-dated notes to move stably at low levels and this will then prevent spikes of longer-dated yields.”
The Bank of Japan decided on April 30 to maintain its policy rate and short-term money market operation guidelines by a unanimous vote.
Yield Curve
Demand for bonds also declined on concerns that yield curves across the globe will steepen, according to Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of the second-largest bank in the U.S. The yield curve, or the spread between returns on short- and long-term debt, typically steepens when traders anticipate a recovery.
The difference in yields between Japan’s five- and 20-year debt stood at 1.20 percentage points yesterday, down from this year’s high of 1.29 points on April 21.
The U.S. 30-year bond yield climbed 23 basis points, or 0.23 percentage point, the most since Jan. 5, to 4.316 percent on May 7, according to BGCantor Market data. It was the highest yield since Nov. 14. As long-term yields have risen, the difference between yields on 30-year bonds and two-year notes increased to 3.30 percentage points on May 7, the widest since January 2004.
Asian Stocks Post Weekly Gain as Confidence in Economy Rises
May 9 (Bloomberg) -- Asian stocks rose this week, extending a two-month rally, as regional bank earnings, stress tests for U.S. banks and an expansion in Chinese manufacturing activity boosted optimism that the worst of the financial crisis is over.
United Overseas Bank Ltd., Singapore’s second-biggest bank, jumped 28 percent after posting first-quarter earnings that beat analyst estimates. PetroChina Co., the nation’s biggest oil producer, surged 21 percent as crude oil futures climbed. Yuanta Financial Holdings Co., Taiwan’s biggest brokerage, gained 28 percent after Goldman Sachs Group Inc. upgraded the stock.
The MSCI Asia Pacific Index added 7.8 percent this week to 97.99, a level not seen since Oct. 7. Asian markets have rallied 39 percent since the MSCI benchmark dropped to an almost six- year low on March 9.
“People are realizing that, although things aren’t wonderful, the rate of decline is slowing,” said Montana-based Don Gimbel, who helps manage $2 billion of international equities at Carret & Co. “There is the anticipation that over the next 18 months things are going to get better.”
The Nikkei 225 Stock Average added 5.1 percent in a trading week that was shortened by May 4-6 holidays. Singapore’s Straits Times Index surged 17 percent, the most since at least September 1999, as United Overseas and the city’s two other banks reported better-than-estimated first-quarter results.
Markets shrugged off the outbreak of swine flu even as the World Health Organization confirmed the disease in more than 2,000 people in at least 24 countries.
Swine Flu
MSCI’s Asian index plunged by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to idle factories and lay off workers.
“Investors who have been on the sidelines are slowly plowing back funds into equities, fearing they might miss the rally,” said John Koh, who helps oversee $1.1 billion at MEAG Hong Kong Ltd. “The swine flu outbreak is a concern but everyone seems well-prepared to contain it.”
The MSCI gauge has rallied amid signs government measures to ease the financial crisis are working. Earnings estimates for companies included in the MSCI benchmark started to rise in April after a year of falling predictions, data compiled by Bloomberg show.
United Overseas Bank gained 28 percent to S$14.74. The company reported on May 6 a 23 percent drop in first-quarter profit to S$409 million ($280 million), beating the S$384 million mean estimate of six analysts surveyed by Bloomberg.
China Manufacturing
Bank stocks also gained as the Federal Reserve determined 10 banks needed to raise a total of $74.6 billion in capital, following stress tests on the largest U.S. lenders. Chairman Ben S. Bernanke said the tests were a “good start” toward regulation of broad-based risks to the U.S. financial system.
Mitsubishi UFJ Financial Group Ltd., Japan’s biggest bank, Surged 23 percent to 655 yen. National Australia Bank Ltd., the nation’s biggest lender by assets, climbed 9.7 percent to A$22.78. Industrial & Commercial Bank of China, the nation’s biggest bank, added 7.6 percent to HK$4.80.
“With the conclusion of the U.S. bank tests, concerns that the global financial system will collapse and the economic slump will continue have dissipated,” said Yoshihiro Ito, senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $9.3 billion.
Stress Test
PetroChina climbed 21 percent to HK$8.31 as oil futures in New York jumped 10.2 percent. Yuanta climbed 28 percent to NT$24.75 in Taipei after Goldman Sachs upgraded its rating to “buy” from “neutral.”
Stocks in Taiwan also advanced in the week on optimism closer ties with China will boost domestic growth. The Taiex Index added 9.9 percent. It’s risen for seven-straight days.
“Shares have rallied for so many sessions, as foreign investors and Taiwan investors are all betting on better relations with China,” said Parker Wu, a Taipei-based fund manager at the Agriculture Bank of Taiwan, who helps oversee the equivalent of $44 million.
The recovery in Chinese manufacturing activity boosted shares in Chinese coal producers and utility companies. China Shenhua Energy Co., the nation’s largest coal producer, gained 15 percent to HK$25. Huadian Power International Corp. , a unit of China’s fourth-largest electricity producer, rose 11 percent to HK$2.04.
The CLSA China Purchasing Managers’ Index rose in March, the first gain in nine months, CLSA Asia Pacific Markets said on May 4.
United Overseas Bank Ltd., Singapore’s second-biggest bank, jumped 28 percent after posting first-quarter earnings that beat analyst estimates. PetroChina Co., the nation’s biggest oil producer, surged 21 percent as crude oil futures climbed. Yuanta Financial Holdings Co., Taiwan’s biggest brokerage, gained 28 percent after Goldman Sachs Group Inc. upgraded the stock.
The MSCI Asia Pacific Index added 7.8 percent this week to 97.99, a level not seen since Oct. 7. Asian markets have rallied 39 percent since the MSCI benchmark dropped to an almost six- year low on March 9.
“People are realizing that, although things aren’t wonderful, the rate of decline is slowing,” said Montana-based Don Gimbel, who helps manage $2 billion of international equities at Carret & Co. “There is the anticipation that over the next 18 months things are going to get better.”
The Nikkei 225 Stock Average added 5.1 percent in a trading week that was shortened by May 4-6 holidays. Singapore’s Straits Times Index surged 17 percent, the most since at least September 1999, as United Overseas and the city’s two other banks reported better-than-estimated first-quarter results.
Markets shrugged off the outbreak of swine flu even as the World Health Organization confirmed the disease in more than 2,000 people in at least 24 countries.
Swine Flu
MSCI’s Asian index plunged by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to idle factories and lay off workers.
“Investors who have been on the sidelines are slowly plowing back funds into equities, fearing they might miss the rally,” said John Koh, who helps oversee $1.1 billion at MEAG Hong Kong Ltd. “The swine flu outbreak is a concern but everyone seems well-prepared to contain it.”
The MSCI gauge has rallied amid signs government measures to ease the financial crisis are working. Earnings estimates for companies included in the MSCI benchmark started to rise in April after a year of falling predictions, data compiled by Bloomberg show.
United Overseas Bank gained 28 percent to S$14.74. The company reported on May 6 a 23 percent drop in first-quarter profit to S$409 million ($280 million), beating the S$384 million mean estimate of six analysts surveyed by Bloomberg.
China Manufacturing
Bank stocks also gained as the Federal Reserve determined 10 banks needed to raise a total of $74.6 billion in capital, following stress tests on the largest U.S. lenders. Chairman Ben S. Bernanke said the tests were a “good start” toward regulation of broad-based risks to the U.S. financial system.
Mitsubishi UFJ Financial Group Ltd., Japan’s biggest bank, Surged 23 percent to 655 yen. National Australia Bank Ltd., the nation’s biggest lender by assets, climbed 9.7 percent to A$22.78. Industrial & Commercial Bank of China, the nation’s biggest bank, added 7.6 percent to HK$4.80.
“With the conclusion of the U.S. bank tests, concerns that the global financial system will collapse and the economic slump will continue have dissipated,” said Yoshihiro Ito, senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $9.3 billion.
Stress Test
PetroChina climbed 21 percent to HK$8.31 as oil futures in New York jumped 10.2 percent. Yuanta climbed 28 percent to NT$24.75 in Taipei after Goldman Sachs upgraded its rating to “buy” from “neutral.”
Stocks in Taiwan also advanced in the week on optimism closer ties with China will boost domestic growth. The Taiex Index added 9.9 percent. It’s risen for seven-straight days.
“Shares have rallied for so many sessions, as foreign investors and Taiwan investors are all betting on better relations with China,” said Parker Wu, a Taipei-based fund manager at the Agriculture Bank of Taiwan, who helps oversee the equivalent of $44 million.
The recovery in Chinese manufacturing activity boosted shares in Chinese coal producers and utility companies. China Shenhua Energy Co., the nation’s largest coal producer, gained 15 percent to HK$25. Huadian Power International Corp. , a unit of China’s fourth-largest electricity producer, rose 11 percent to HK$2.04.
The CLSA China Purchasing Managers’ Index rose in March, the first gain in nine months, CLSA Asia Pacific Markets said on May 4.
AIG Near $1 Billion Tokyo Tower Sale to Nippon Life
May 9 (Bloomberg) -- American International Group Inc. is close to selling its Tokyo headquarters building to Nippon Life Insurance Co., Japan’s largest life insurer, for about $1 billion, a person familiar with the situation said.
An agreement for the 15-story tower in central Tokyo’s Marunouchi district may be announced as early as next week, the person said. Negotiations are continuing, said the person, who declined to be identified because the talks are private.
The property is in the most expensive office district in Japan, next to the Imperial Palace, making a potential sale a benchmark for commercial real estate prices. AIG, based in New York, is selling property and businesses after being bailed out four times by the U.S. government. The company has tapped about $45.5 billion from a U.S. credit line as of last week.
“It doesn’t sound like a distressed price,” said Peter Slatin, editorial director of Real Capital Analytics Inc., a New York-based firm that tracks commercial property sales. “If you compare that to the big asset sales we’ve had in the U.S. this year like One Beacon, and Hancock and 1540 Broadway, it sounds like a premium to those.”
Peter Tulupman, an AIG spokesman, declined to comment. Akira Tsuzuki, a Nippon Life spokesperson in Tokyo, didn’t return an e-mail message left for comment after regular business hours.
Commercial values in Tokyo, the world’s third most expensive office market after London and Hong Kong, fell 6.1 percent in 2008, the Ministry of Land, Infrastructure, Transport and Tourism said in March. Tokyo’s office vacancy rate rose for the 15th month in April as companies cut spending in the recession. The rate jumped to 6.8 percent from 6.1 percent, real estate brokerage Miki Shoji Co. said in a report issued May 7.
Property Assets
Nippon Life has 44 trillion yen ($447.1 billion) in assets and held 1.75 trillion yen of real estate assets as of March 31.
Nippon Life is planning to increase its investments in stocks by as much as 100 billion yen for the financial year through March 31, 2010, Tomiji Akabayashi, general manager of the insurer’s finance and investment planning division, said in an interview last month. It plans to maintain its real estate investments at the current level.
AIG was first rescued in September after a liquidity squeeze caused by credit-default swaps the insurer sold to banks to protect them against losses tied to subprime mortgages. So far the company has struck deals to raise about $4.4 billion by selling assets including a U.S. auto insurer.
AIG is also considering selling its worldwide headquarters at 70 Pine St. in lower Manhattan and another property at 72 Wall St., according to a March 18 statement.
The shares rose 6 cents to $2.01 at 4:11 p.m. in New York Stock Exchange composite trading. They’ve declined 96 percent in the year through yesterday and are up 28 percent since Jan. 1.
Yomiuri newspaper reported the potential sale yesterday.
* Yahoo! Buzz
An agreement for the 15-story tower in central Tokyo’s Marunouchi district may be announced as early as next week, the person said. Negotiations are continuing, said the person, who declined to be identified because the talks are private.
The property is in the most expensive office district in Japan, next to the Imperial Palace, making a potential sale a benchmark for commercial real estate prices. AIG, based in New York, is selling property and businesses after being bailed out four times by the U.S. government. The company has tapped about $45.5 billion from a U.S. credit line as of last week.
“It doesn’t sound like a distressed price,” said Peter Slatin, editorial director of Real Capital Analytics Inc., a New York-based firm that tracks commercial property sales. “If you compare that to the big asset sales we’ve had in the U.S. this year like One Beacon, and Hancock and 1540 Broadway, it sounds like a premium to those.”
Peter Tulupman, an AIG spokesman, declined to comment. Akira Tsuzuki, a Nippon Life spokesperson in Tokyo, didn’t return an e-mail message left for comment after regular business hours.
Commercial values in Tokyo, the world’s third most expensive office market after London and Hong Kong, fell 6.1 percent in 2008, the Ministry of Land, Infrastructure, Transport and Tourism said in March. Tokyo’s office vacancy rate rose for the 15th month in April as companies cut spending in the recession. The rate jumped to 6.8 percent from 6.1 percent, real estate brokerage Miki Shoji Co. said in a report issued May 7.
Property Assets
Nippon Life has 44 trillion yen ($447.1 billion) in assets and held 1.75 trillion yen of real estate assets as of March 31.
Nippon Life is planning to increase its investments in stocks by as much as 100 billion yen for the financial year through March 31, 2010, Tomiji Akabayashi, general manager of the insurer’s finance and investment planning division, said in an interview last month. It plans to maintain its real estate investments at the current level.
AIG was first rescued in September after a liquidity squeeze caused by credit-default swaps the insurer sold to banks to protect them against losses tied to subprime mortgages. So far the company has struck deals to raise about $4.4 billion by selling assets including a U.S. auto insurer.
AIG is also considering selling its worldwide headquarters at 70 Pine St. in lower Manhattan and another property at 72 Wall St., according to a March 18 statement.
The shares rose 6 cents to $2.01 at 4:11 p.m. in New York Stock Exchange composite trading. They’ve declined 96 percent in the year through yesterday and are up 28 percent since Jan. 1.
Yomiuri newspaper reported the potential sale yesterday.
* Yahoo! Buzz
Thursday, May 7, 2009
Google’s Strength May Be Part of Microsoft Defense Strategy
8th, May- 2009
BERLIN — Microsoft will argue against a European Commission proposal that it promote competing browsers in its Windows operating system on the ground that such a move would strengthen its rival Google’s dominance in the global search-advertising market, according to a person with direct knowledge of Microsoft’s legal defense.
Skip to next paragraph
Related
Bits: Google Dismisses Antitrust Concerns (May 7, 2009)
The company will make the argument at a June hearing in Brussels as part of an antitrust inquiry about the packaging of its Internet Explorer browser with Windows, which powers more than 90 percent of the world’s personal computers.
The person with knowledge of Microsoft’s legal strategy, who declined to be named because he was not authorized to speak publicly about the case, said that Microsoft would outline what it saw as the damaging effects to the search-advertising industry of incorporating competing browsers — like Firefox from Mozilla or Chrome from Google — into Windows.
Mozilla derives the bulk of its income from the fees it receives for driving Web traffic to Google’s search engine. Google makes most of its revenue with advertising aimed at search results. Google dominates the search advertising sector.
“Not only would Google’s browser Chrome suddenly be on all Windows PCs, but it would strengthen Google’s dominance in search advertising,” said this person.
Google, in a statement, did not directly respond to Microsoft’s argument.
“We believe more competition will mean greater innovation on the Web and a better user experience for people everywhere,” said William Echikson, a Google spokesman in Brussels.
By aiming at its rival, Microsoft underscores the stakes for both it and Google, which are increasingly clashing as personal computing moves from software to the Web. Aside from competing in e-mail, online advertising and search, Google also makes an operating system used on mobile computers and cellphones.
The new European complaint over browsers, like the previous nine-year antitrust case centering on Microsoft’s media player and computer-server coding, has forced the biggest names in the global software and Web businesses to choose sides.
The complaint was brought in December 2007 by Opera, a tiny Norwegian software maker with 510 employees. Since then, Microsoft’s main competitors — Google, Mozilla, Sun Microsystems, Nokia, I.B.M., Adobe, Red Hat and Corel — have all signed on directly or through industry groups to argue as co-complainants.
Google, Mozilla and the European Committee for Interoperable Systems, a group based in Brussels representing the other Microsoft rivals, each plan to testify during the closed-door hearing next month before Michael Albers, a hearing officer in the European Commission’s competition section.
On Jan. 15, the commission informed Microsoft that it might order the software maker to preinstall competitors’ browsers in Windows, while simultaneously disabling Internet Explorer. Microsoft has warned investors that the case could lead to a “significant” fine. Microsoft paid more than 1 billion euros in fines and penalties fighting the first antitrust case, which it abandoned in 2007 after losing an important legal appeal.
According to the person, Microsoft will argue that Internet browsing is inseparable from the Windows operating system. Microsoft will also emphasize that consumers can download and use any competing browser with Windows, and that Internet Explorer’s share of the browser market has been falling steadily.
An estimated 67 percent of computer users around the world use Microsoft’s Internet Explorer, according to Net Applications, a researcher in Aliso Viejo, Calif. In Europe, the Firefox 3 browser has overtaken Internet Explorer 7 as the most-used browser, according to the Web analytics firm StatCounter. But it still trails Microsoft by 10 percentage points when all versions of the Explorer are counted.
The interoperable systems committee has said that it intended to present data at the hearing showing that Microsoft’s browser market share was closer to 85 percent in Europe.
BERLIN — Microsoft will argue against a European Commission proposal that it promote competing browsers in its Windows operating system on the ground that such a move would strengthen its rival Google’s dominance in the global search-advertising market, according to a person with direct knowledge of Microsoft’s legal defense.
Skip to next paragraph
Related
Bits: Google Dismisses Antitrust Concerns (May 7, 2009)
The company will make the argument at a June hearing in Brussels as part of an antitrust inquiry about the packaging of its Internet Explorer browser with Windows, which powers more than 90 percent of the world’s personal computers.
The person with knowledge of Microsoft’s legal strategy, who declined to be named because he was not authorized to speak publicly about the case, said that Microsoft would outline what it saw as the damaging effects to the search-advertising industry of incorporating competing browsers — like Firefox from Mozilla or Chrome from Google — into Windows.
Mozilla derives the bulk of its income from the fees it receives for driving Web traffic to Google’s search engine. Google makes most of its revenue with advertising aimed at search results. Google dominates the search advertising sector.
“Not only would Google’s browser Chrome suddenly be on all Windows PCs, but it would strengthen Google’s dominance in search advertising,” said this person.
Google, in a statement, did not directly respond to Microsoft’s argument.
“We believe more competition will mean greater innovation on the Web and a better user experience for people everywhere,” said William Echikson, a Google spokesman in Brussels.
By aiming at its rival, Microsoft underscores the stakes for both it and Google, which are increasingly clashing as personal computing moves from software to the Web. Aside from competing in e-mail, online advertising and search, Google also makes an operating system used on mobile computers and cellphones.
The new European complaint over browsers, like the previous nine-year antitrust case centering on Microsoft’s media player and computer-server coding, has forced the biggest names in the global software and Web businesses to choose sides.
The complaint was brought in December 2007 by Opera, a tiny Norwegian software maker with 510 employees. Since then, Microsoft’s main competitors — Google, Mozilla, Sun Microsystems, Nokia, I.B.M., Adobe, Red Hat and Corel — have all signed on directly or through industry groups to argue as co-complainants.
Google, Mozilla and the European Committee for Interoperable Systems, a group based in Brussels representing the other Microsoft rivals, each plan to testify during the closed-door hearing next month before Michael Albers, a hearing officer in the European Commission’s competition section.
On Jan. 15, the commission informed Microsoft that it might order the software maker to preinstall competitors’ browsers in Windows, while simultaneously disabling Internet Explorer. Microsoft has warned investors that the case could lead to a “significant” fine. Microsoft paid more than 1 billion euros in fines and penalties fighting the first antitrust case, which it abandoned in 2007 after losing an important legal appeal.
According to the person, Microsoft will argue that Internet browsing is inseparable from the Windows operating system. Microsoft will also emphasize that consumers can download and use any competing browser with Windows, and that Internet Explorer’s share of the browser market has been falling steadily.
An estimated 67 percent of computer users around the world use Microsoft’s Internet Explorer, according to Net Applications, a researcher in Aliso Viejo, Calif. In Europe, the Firefox 3 browser has overtaken Internet Explorer 7 as the most-used browser, according to the Web analytics firm StatCounter. But it still trails Microsoft by 10 percentage points when all versions of the Explorer are counted.
The interoperable systems committee has said that it intended to present data at the hearing showing that Microsoft’s browser market share was closer to 85 percent in Europe.
Macquarie Said to Bid for AIG Unit in Strategy Shi
May 8 (Bloomberg) -- Macquarie Group Ltd., Australia’s biggest investment bank, is bidding for an American International Group Inc. fund unit with about $100 billion under management, said two people with the knowledge of the matter.
AIG expects to sell the unit for as much as $500 million, one of the people said, speaking on condition of anonymity because the talks are private. Macquarie is among several firms pursuing AIG Investments, a New York-based fund manager put up for sale in January, the people said.
Macquarie last week raised A$540 million ($407 million) in a stock sale and would more than triple assets under management at its fund division with a successful bid. Chief Executive Officer Nicholas Moore is shifting focus from infrastructure investments to businesses such as managing stocks and bonds for clients after a 16-year run of rising profits was snuffed out by writedowns.
“It would make sense,” said Paul Xiradis, who manages $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney, including Macquarie shares. “The business model of Macquarie is going to be more orientated toward transactional-type management rather than recycling assets as they have done in the past because the structure of the market has changed.”
Macquarie slipped 0.5 percent to A$35.03 in Sydney trading at 11:35 a.m. The stock has more than doubled since slumping to a decade-low on March 3.
Forced Seller
AIG Investments, run by Win Neuger, has 46 offices from Atlanta to Zurich and manages money for institutions, pension funds and wealthy individuals in stock, bond, private equity and hedge funds, according to the company’s Web site.
AIG, once the world’s largest insurer, is selling assets to raise cash after its near collapse led to four U.S. government rescues worth $182.5 billion in all.
“AIG is a forced seller, so it could be quite attractive from a valuation point of view,” Xiradis said.
The insurer received about a half-dozen bids in all for the unit, including from private equity firms and rival asset managers, the Wall Street Journal reported on April 7, citing unidentified sources.
Macquarie spokeswoman Fiona Tyndall and AIG spokesman Peter Tulupman declined to comment.
‘Global Scale’
Macquarie’s Funds Group manages A$49.7 billion in assets, the company said May 1. The unit’s earnings plunged 85 percent from a year earlier to A$45 million on higher expenses, writedowns and impairments.
The Funds Group “will use Macquarie’s strong capital position to seek to gain global scale through acquisitions,” the company said in a May 1 investor presentation.
Macquarie on May 1 sold 20 million shares to raise A$540 million and announced a stock purchase plan for ordinary shareholders, which may raise as much as A$200 million according to a person with knowledge of the sale.
Following the share sales, which come two months after the company said it didn’t need to raise capital, Macquarie will have A$4.1 billion to spare above its regulatory minimum.
“What we have always done is raised capital ahead of needing the capital,” Moore said in an interview on May 1. “Whether it is because of uncertain markets or opportunities coming from the markets, we always want to make sure we are in a very strong capital position.”
New Direction
Macquarie reported a 64 percent slump in second-half profit on May 1 as full-year writedowns totaled A$2.5 billion.
Moore has been distancing the company from the listed infrastructure funds which made up the bulk of writedowns since he took over as CEO a year ago. Macquarie will seek to capitalize on competitor weaknesses to increase market share and may make acquisitions of specialized asset managers, Credit Suisse Group AG analysts wrote in a research note dated May 4.
AIG expects to sell the unit for as much as $500 million, one of the people said, speaking on condition of anonymity because the talks are private. Macquarie is among several firms pursuing AIG Investments, a New York-based fund manager put up for sale in January, the people said.
Macquarie last week raised A$540 million ($407 million) in a stock sale and would more than triple assets under management at its fund division with a successful bid. Chief Executive Officer Nicholas Moore is shifting focus from infrastructure investments to businesses such as managing stocks and bonds for clients after a 16-year run of rising profits was snuffed out by writedowns.
“It would make sense,” said Paul Xiradis, who manages $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney, including Macquarie shares. “The business model of Macquarie is going to be more orientated toward transactional-type management rather than recycling assets as they have done in the past because the structure of the market has changed.”
Macquarie slipped 0.5 percent to A$35.03 in Sydney trading at 11:35 a.m. The stock has more than doubled since slumping to a decade-low on March 3.
Forced Seller
AIG Investments, run by Win Neuger, has 46 offices from Atlanta to Zurich and manages money for institutions, pension funds and wealthy individuals in stock, bond, private equity and hedge funds, according to the company’s Web site.
AIG, once the world’s largest insurer, is selling assets to raise cash after its near collapse led to four U.S. government rescues worth $182.5 billion in all.
“AIG is a forced seller, so it could be quite attractive from a valuation point of view,” Xiradis said.
The insurer received about a half-dozen bids in all for the unit, including from private equity firms and rival asset managers, the Wall Street Journal reported on April 7, citing unidentified sources.
Macquarie spokeswoman Fiona Tyndall and AIG spokesman Peter Tulupman declined to comment.
‘Global Scale’
Macquarie’s Funds Group manages A$49.7 billion in assets, the company said May 1. The unit’s earnings plunged 85 percent from a year earlier to A$45 million on higher expenses, writedowns and impairments.
The Funds Group “will use Macquarie’s strong capital position to seek to gain global scale through acquisitions,” the company said in a May 1 investor presentation.
Macquarie on May 1 sold 20 million shares to raise A$540 million and announced a stock purchase plan for ordinary shareholders, which may raise as much as A$200 million according to a person with knowledge of the sale.
Following the share sales, which come two months after the company said it didn’t need to raise capital, Macquarie will have A$4.1 billion to spare above its regulatory minimum.
“What we have always done is raised capital ahead of needing the capital,” Moore said in an interview on May 1. “Whether it is because of uncertain markets or opportunities coming from the markets, we always want to make sure we are in a very strong capital position.”
New Direction
Macquarie reported a 64 percent slump in second-half profit on May 1 as full-year writedowns totaled A$2.5 billion.
Moore has been distancing the company from the listed infrastructure funds which made up the bulk of writedowns since he took over as CEO a year ago. Macquarie will seek to capitalize on competitor weaknesses to increase market share and may make acquisitions of specialized asset managers, Credit Suisse Group AG analysts wrote in a research note dated May 4.
India’s Sensex May Rise to 15,000, Macquarie Says
May 8 (Bloomberg) -- Indian stocks may extend their “impressive run,” helping the Bombay Stock Exchange Sensitive Index climb to 15,000 by June 2010, Macquarie Group Ltd. said.
The economy may “bottom out” in the second half of 2009, aided by the government’s fiscal and monetary policies, Macquarie analysts led by Seshadri Sen wrote in a report today. Bharti Airtel Ltd. and other companies that rely on domestic spending may be among the best bets, they added.
Macquarie’s forecast represents a 24 percent increase from yesterday’s closing level. The Sensex has rallied 48 percent since reaching the lowest in more than three years on March 9. Its advance is the Asia’s third largest during the period. The benchmark index plunged a record 52 percent last year.
“The market has definitely turned,” the analysts wrote. They previously estimated the Sensex would trade between 10,500 and 11,500 by the end of 2009.
The Reserve Bank of India cut interest rates on April 21 for the sixth time in as many months to a record low. The economy, Asia’s third-largest, is faring better than most in the global recession, central bank Governor Duvvuri Subbarao said.
India will grow 4.5 percent this year, compared with a 1.3 percent contraction in the world economy, the International Monetary Fund predicted this week.
Valuations of Indian stocks have increased after the recent rally. The Sensex is now valued at 13.3 times reported earnings, up from a low of 8.4 times reached in March, according to data tracked by Bloomberg.
‘Entry Opportunity’
“The speed of the recent rally raises the probability of a near-term pullback -- that would be an entry opportunity,” the analysts wrote. “Going forward, we see a greater chance of earnings upgrades than downgrades and therefore are not concerned about valuations.”
Bharti, India’s largest mobile-phone operator, has gained 9.4 percent this year. Larsen & Toubro Ltd., the nation’s biggest engineering company, and Bharat Heavy Electricals Ltd., the country’s biggest power equipment maker, are also among Macquarie’s top picks in the market, the report said.
The economy may “bottom out” in the second half of 2009, aided by the government’s fiscal and monetary policies, Macquarie analysts led by Seshadri Sen wrote in a report today. Bharti Airtel Ltd. and other companies that rely on domestic spending may be among the best bets, they added.
Macquarie’s forecast represents a 24 percent increase from yesterday’s closing level. The Sensex has rallied 48 percent since reaching the lowest in more than three years on March 9. Its advance is the Asia’s third largest during the period. The benchmark index plunged a record 52 percent last year.
“The market has definitely turned,” the analysts wrote. They previously estimated the Sensex would trade between 10,500 and 11,500 by the end of 2009.
The Reserve Bank of India cut interest rates on April 21 for the sixth time in as many months to a record low. The economy, Asia’s third-largest, is faring better than most in the global recession, central bank Governor Duvvuri Subbarao said.
India will grow 4.5 percent this year, compared with a 1.3 percent contraction in the world economy, the International Monetary Fund predicted this week.
Valuations of Indian stocks have increased after the recent rally. The Sensex is now valued at 13.3 times reported earnings, up from a low of 8.4 times reached in March, according to data tracked by Bloomberg.
‘Entry Opportunity’
“The speed of the recent rally raises the probability of a near-term pullback -- that would be an entry opportunity,” the analysts wrote. “Going forward, we see a greater chance of earnings upgrades than downgrades and therefore are not concerned about valuations.”
Bharti, India’s largest mobile-phone operator, has gained 9.4 percent this year. Larsen & Toubro Ltd., the nation’s biggest engineering company, and Bharat Heavy Electricals Ltd., the country’s biggest power equipment maker, are also among Macquarie’s top picks in the market, the report said.
ECB cuts rates to combat recession
By Ralph Atkins in Frankfurt and and Chris Giles and David Oakley in London
Published: May 7 2009 12:46 | Last updated: May 7 2009 21:10
European central banks on Thursday intensified their efforts to combat the continent’s severe recession by unveiling bolder-than-expected moves to buy assets and boost growth through historically-low interest rates.
The European Central Bank cut its main interest rate by a quarter percentage point to 1 per cent, the lowest yet, and announced plans to buy €60bn of covered bonds, which are backed by mortgage or public sector loans.
EDITOR’S CHOICE
Editorial: Fighting recession in the eurozone - May-07
Trichet on offensive after rate cut - May-07
Short View: ECB rate cut - May-07
ECB move raises hopes for house prices - May-07
Euro soars against dollar on rate cut - May-07
Surge in orders boosts German industry - May-07
Separately, the Bank of England said it would pump a further £50bn (€56bn) into the UK economy through its programme of “quantitative easing”.
Signalling significantly greater flexibility, Jean-Claude Trichet, ECB president, said official eurozone borrowing costs could fall again.
Several ECB governing council members had previously publicly opposed cutting rates below 1 per cent, and Mr Trichet had warned of the dangers of letting rates fall to zero.
ECB policymakers also stressed the importance of a decision to extend its emergency provision of liquidity so banks could borrow unlimited amounts for 12 months – up from the current six months maximum.
The announcements reflected increased ECB gloom over the economic outlook for the 16-country eurozone, which is expected to be hit worse this year by the global slowdown than the US or UK.
Mr Trichet warned that the first quarter had been “very bad” in the eurozone, although there had been “tentative signs” of stabilisation. ECB growth forecasts would be revised down next month, he said
Mr Trichet insisted, however, that the ECB was “not embarking” on quantitative easing – the creation of money to buy assets – with its covered bond purchases. The ECB expects the liquidity it injects into the financial system by buying covered bonds to result in eurozone banks demanding less from the ECB’s financing operations – avoiding inflationary consequences.
However, he was careful not to rule out any policy options – and analysts said Thursday’s relatively modest move pointed to a reduced resistance towards following the US Federal Reserve and Bank of England in embracing “non-conventional” policies. The ECB had showed it was “ready to take all actions needed”, argued Marco Annunziata, chief economist at UniCredit in Milan.
The ECB announced it would also give the European Investment Bank access to its liquidity, which could enable the EIB to boost help for companies, including in eastern Europe.
The Bank of England’s latest action was in response to what it described as a “substantial margin of spare capacity in the economy”.
It has already purchased a little over £50bn of UK government bonds in its programme of quantitative easing and will reach its initial target of £75bn, some 5 per cent of national income, by the end of the month.
The UK monetary policy committee said the stimulus for the country’s economy “should in due course lead to a recovery in economic growth, bringing inflation back to the 2 per cent target. But the timing and strength of that recovery is highly uncertain”.
The euro rose 1.4 per cent against sterling at £0.8924 as traders viewed the bolder plans by the Bank of England as creating more inflationary pressures than the ECB’s more cautious moves.
Published: May 7 2009 12:46 | Last updated: May 7 2009 21:10
European central banks on Thursday intensified their efforts to combat the continent’s severe recession by unveiling bolder-than-expected moves to buy assets and boost growth through historically-low interest rates.
The European Central Bank cut its main interest rate by a quarter percentage point to 1 per cent, the lowest yet, and announced plans to buy €60bn of covered bonds, which are backed by mortgage or public sector loans.
EDITOR’S CHOICE
Editorial: Fighting recession in the eurozone - May-07
Trichet on offensive after rate cut - May-07
Short View: ECB rate cut - May-07
ECB move raises hopes for house prices - May-07
Euro soars against dollar on rate cut - May-07
Surge in orders boosts German industry - May-07
Separately, the Bank of England said it would pump a further £50bn (€56bn) into the UK economy through its programme of “quantitative easing”.
Signalling significantly greater flexibility, Jean-Claude Trichet, ECB president, said official eurozone borrowing costs could fall again.
Several ECB governing council members had previously publicly opposed cutting rates below 1 per cent, and Mr Trichet had warned of the dangers of letting rates fall to zero.
ECB policymakers also stressed the importance of a decision to extend its emergency provision of liquidity so banks could borrow unlimited amounts for 12 months – up from the current six months maximum.
The announcements reflected increased ECB gloom over the economic outlook for the 16-country eurozone, which is expected to be hit worse this year by the global slowdown than the US or UK.
Mr Trichet warned that the first quarter had been “very bad” in the eurozone, although there had been “tentative signs” of stabilisation. ECB growth forecasts would be revised down next month, he said
Mr Trichet insisted, however, that the ECB was “not embarking” on quantitative easing – the creation of money to buy assets – with its covered bond purchases. The ECB expects the liquidity it injects into the financial system by buying covered bonds to result in eurozone banks demanding less from the ECB’s financing operations – avoiding inflationary consequences.
However, he was careful not to rule out any policy options – and analysts said Thursday’s relatively modest move pointed to a reduced resistance towards following the US Federal Reserve and Bank of England in embracing “non-conventional” policies. The ECB had showed it was “ready to take all actions needed”, argued Marco Annunziata, chief economist at UniCredit in Milan.
The ECB announced it would also give the European Investment Bank access to its liquidity, which could enable the EIB to boost help for companies, including in eastern Europe.
The Bank of England’s latest action was in response to what it described as a “substantial margin of spare capacity in the economy”.
It has already purchased a little over £50bn of UK government bonds in its programme of quantitative easing and will reach its initial target of £75bn, some 5 per cent of national income, by the end of the month.
The UK monetary policy committee said the stimulus for the country’s economy “should in due course lead to a recovery in economic growth, bringing inflation back to the 2 per cent target. But the timing and strength of that recovery is highly uncertain”.
The euro rose 1.4 per cent against sterling at £0.8924 as traders viewed the bolder plans by the Bank of England as creating more inflationary pressures than the ECB’s more cautious moves.
EBRD considers big rise in capital
By Stefan Wagstyl, East Europe Editor
Published: May 7 2009 19:45 | Last updated: May 7 2009 19:45
The European Bank for Reconstruction and Development, the multilateral bank for eastern Europe, could be set for a big increase in its €20bn capital to help deal with the economic crisis.
The bank’s 60-odd government shareholders, who before the crisis were considering reducing the EBRD’s activities, are now mulling an expanded role to help fill the gap left by the dramatic drop in global capital flows.
EDITOR’S CHOICE
East Europe banks set for €24.5bn loan - Feb-27
EBRD considers stake in Latvia’s Parex Bank - Dec-19
Lex: Central and eastern Europe - Nov-28
Central and E Europe’s growth forecast slashed - Nov-25
EBRD set to fund Turkey - Oct-29
EBRD sees dire effects of borrowing freeze - Oct-14
Word of their discussions has emerged as the bank on Thursday announced its biggest-ever loan of €432m ($579m, £385m) to Italy’s Unicredit, the largest international bank in eastern Europe, and published its latest gloomy forecast for the region. It warned of a 5.3 per cent drop this year in gross domestic product – far worse than the 0.1 per cent contraction it predicted in January.
The possibility of a capital boost is likely to be debated at the bank’s annual meeting in London later this month but any increases would almost certainly not be implemented before the end of the EBRD’s next capital review in 2012.
In a Financial Times interview, Thomas Mirow, EBRD president, said that as well as dealing with the crisis, the bank was concerned by the aftermath, when private capital would not come back quickly into the region, leaving a bigger role for government-controlled international financial institutions.
Mr Mirow said it was “too early to say” whether he would support a capital increase. But he pointed out that the Group of 20 anti-crisis summit in London had backed plans for the EBRD to discuss such moves.
He said the bank could continue to do business at its current level of €7bn or €8bn annually without an increase but added: “If our shareholders want us to do much more, that is something around €10bn, then they would need to put more resources on the table.”
Meanwhile, with private capital scarce and banks in urgent need of funds, there is growing demand from the bank’s 27 countries of operation, including Turkey, which joined the list last year. Pre-crisis, the bank planned to pull out of central Europe by 2010 but has so far withdrawn from only the Czech Republic and has now put other “graduations” on hold.
The US, the bank’s largest shareholder, previously wanted the bank to reduce its activities. But following the crisis and Barack Obama’s election as president, Washington has boosted support for the bank – as it has for international financial institutions generally.
The EBRD is working closely with the International Monetary Fund and the World Bank on a €24bn bank support programme for eastern Europe.
The deal with Unicredit is likely to be followed by similar agreements with other big international banks. The EBRD is making loans to Unicredit subsidiaries in eight countries and aiming mainly at increasing credit to smaller companies.
In its economic forecast, the EBRD said the impact of the crisis was now spreading from the financial sector to companies and consumers.
But it did expect a slight recovery next year, with a 1.4 per cent average GDP increase.
Erik Berglof, chief economist, said: ”There are downside risks to these predictions. But now there is also upside potential. Our underlying outlook assumes continued external engagement, particularly from the western parents of banks in the region.”
Published: May 7 2009 19:45 | Last updated: May 7 2009 19:45
The European Bank for Reconstruction and Development, the multilateral bank for eastern Europe, could be set for a big increase in its €20bn capital to help deal with the economic crisis.
The bank’s 60-odd government shareholders, who before the crisis were considering reducing the EBRD’s activities, are now mulling an expanded role to help fill the gap left by the dramatic drop in global capital flows.
EDITOR’S CHOICE
East Europe banks set for €24.5bn loan - Feb-27
EBRD considers stake in Latvia’s Parex Bank - Dec-19
Lex: Central and eastern Europe - Nov-28
Central and E Europe’s growth forecast slashed - Nov-25
EBRD set to fund Turkey - Oct-29
EBRD sees dire effects of borrowing freeze - Oct-14
Word of their discussions has emerged as the bank on Thursday announced its biggest-ever loan of €432m ($579m, £385m) to Italy’s Unicredit, the largest international bank in eastern Europe, and published its latest gloomy forecast for the region. It warned of a 5.3 per cent drop this year in gross domestic product – far worse than the 0.1 per cent contraction it predicted in January.
The possibility of a capital boost is likely to be debated at the bank’s annual meeting in London later this month but any increases would almost certainly not be implemented before the end of the EBRD’s next capital review in 2012.
In a Financial Times interview, Thomas Mirow, EBRD president, said that as well as dealing with the crisis, the bank was concerned by the aftermath, when private capital would not come back quickly into the region, leaving a bigger role for government-controlled international financial institutions.
Mr Mirow said it was “too early to say” whether he would support a capital increase. But he pointed out that the Group of 20 anti-crisis summit in London had backed plans for the EBRD to discuss such moves.
He said the bank could continue to do business at its current level of €7bn or €8bn annually without an increase but added: “If our shareholders want us to do much more, that is something around €10bn, then they would need to put more resources on the table.”
Meanwhile, with private capital scarce and banks in urgent need of funds, there is growing demand from the bank’s 27 countries of operation, including Turkey, which joined the list last year. Pre-crisis, the bank planned to pull out of central Europe by 2010 but has so far withdrawn from only the Czech Republic and has now put other “graduations” on hold.
The US, the bank’s largest shareholder, previously wanted the bank to reduce its activities. But following the crisis and Barack Obama’s election as president, Washington has boosted support for the bank – as it has for international financial institutions generally.
The EBRD is working closely with the International Monetary Fund and the World Bank on a €24bn bank support programme for eastern Europe.
The deal with Unicredit is likely to be followed by similar agreements with other big international banks. The EBRD is making loans to Unicredit subsidiaries in eight countries and aiming mainly at increasing credit to smaller companies.
In its economic forecast, the EBRD said the impact of the crisis was now spreading from the financial sector to companies and consumers.
But it did expect a slight recovery next year, with a 1.4 per cent average GDP increase.
Erik Berglof, chief economist, said: ”There are downside risks to these predictions. But now there is also upside potential. Our underlying outlook assumes continued external engagement, particularly from the western parents of banks in the region.”
Obama Calls for $17 Billion in Budget Cuts, Resistance Likely
May 7 (Bloomberg) -- President Barack Obama proposes to cut or eliminate 121 federal programs to save almost $17 billion, a budget plan that almost certainly will face obstacles in Congress and resistance from interest groups.
The president today is sending lawmakers a package of proposed reductions for the fiscal year that begins Oct. 1 as he begins to fill out details of a $3.55 trillion budget outline approved by lawmakers last week. He wants to cut or end scores of programs that he deems wasteful or ineffective to help bring spending under control.
“The administration is unlikely to get even the majority of the cuts it’s asking for,” said Marc Goldwein, policy director of the bipartisan Committee for a Responsible Budget, a Washington-based research group. “More serious efforts at deficit reduction are going to require entitlement and tax reform -- that’s where most of the money is.”
White House officials yesterday cited some examples of programs to be reduced or eliminated as part of the administration’s line-by-line review of the budget. Targeted programs include one that paid states to clean up abandoned mine sites, for a savings of $142 million; a Defense Department radio navigation system made obsolete by global-positioning devices, to save $35 million, and Even Start, an early childhood Education Department program, for a savings of $66 million.
The total savings, if accepted by Congress, would represent 0.4 percent of Obama’s $3.55 trillion budget.
‘Positive Step’
Representative Dennis Cardoza, a California Democrat, called the administration’s plan a “positive step” to try to “bring this whole thing into some kind of fiscal balance.” He and other Democratic leaders were briefed yesterday by White House budget director Peter Orszag.
“I am not going to agree with all of it,” said Cardoza, a member of his party’s fiscally conservative Blue Dog coalition. “I certainly applaud their looking at government waste and trying to eliminate” unnecessary spending.
House Majority Leader Steny Hoyer, a Maryland Democrat, and House Appropriations Committee Chairman David Obey, a Wisconsin Democrat, declined to discuss details of the proposal.
The administration’s budget-cutting efforts aren’t new and often aren’t successful. In 2008, then-President George W. Bush, working with a Democratic Congress, proposed ending or reducing 141 federal programs. Of those, 29 were terminated or trimmed for a savings of about $1.6 billion, the White House budget office said.
“Every government program -- no matter how wasteful -- will be defended by its recipients and congressional champions,” said Brian Riedl, a budget expert at the Heritage Foundation, a Washington-based research group. “Unless Obama puts the weight of the White House behind his spending cuts, Congress will ignore them.”
Budget Outline
Lawmakers on April 29 adopted a $3.55 trillion outline for the 2010 budget that embraces Obama’s top agenda items, including a health-care overhaul, a push for renewable, clean- energy sources and changes in education funding.
White House officials, who briefed reporters on a conference call, said yesterday about half the program cuts or eliminations called for in the administration’s detailed proposal are in defense and the rest are spread throughout the government. Some programs to be reduced or ended were previously announced by Defense Secretary Robert Gates, though about 80 weren’t disclosed before, an administration official said.
The official said the White House doesn’t expect the belt- tightening effort to be easy.
Think Bigger
“To really get the deficit under control, we’re going to have to start thinking bigger,” said Goldwein, of the Committee for a Responsible Budget. “That means paying for any tax cut or spending program” and “addressing Social Security and Medicare before they become unaffordable.”
Those two programs account for more than 40 percent of government spending.
Representative John Larson, a Connecticut Democrat, said Congress “may have a slightly different point of view on areas” where Obama is proposing cuts. Still, he said Congress and the president “will both get to the same goal” of improving the economy and reducing the budget deficit.
House Speaker Nancy Pelosi, a California Democrat, has asked lawmakers to compile their own list of potential program terminations or cuts, an administration official said.
The Congressional Budget Office projects the deficit will be $1.85 trillion this year, about four times the previous record, and $1.38 trillion in fiscal 2010.
Asked whether cuts of less than $20 billion will make a dent in the deficit, Larson said, “It depends on what it means over the scope of five and 10 years.” From the “deep, cavernous hole where we have been left, we’re looking a long way up but it’s a steady climb” under the budget plan agreed to by Obama and Congress, he said.
Representative Jim Clyburn of South Carolina, the House’s third-ranking Democrat, said he will “reserve judgment” on the proposed cuts until he has a chance to read the proposal.
The president today is sending lawmakers a package of proposed reductions for the fiscal year that begins Oct. 1 as he begins to fill out details of a $3.55 trillion budget outline approved by lawmakers last week. He wants to cut or end scores of programs that he deems wasteful or ineffective to help bring spending under control.
“The administration is unlikely to get even the majority of the cuts it’s asking for,” said Marc Goldwein, policy director of the bipartisan Committee for a Responsible Budget, a Washington-based research group. “More serious efforts at deficit reduction are going to require entitlement and tax reform -- that’s where most of the money is.”
White House officials yesterday cited some examples of programs to be reduced or eliminated as part of the administration’s line-by-line review of the budget. Targeted programs include one that paid states to clean up abandoned mine sites, for a savings of $142 million; a Defense Department radio navigation system made obsolete by global-positioning devices, to save $35 million, and Even Start, an early childhood Education Department program, for a savings of $66 million.
The total savings, if accepted by Congress, would represent 0.4 percent of Obama’s $3.55 trillion budget.
‘Positive Step’
Representative Dennis Cardoza, a California Democrat, called the administration’s plan a “positive step” to try to “bring this whole thing into some kind of fiscal balance.” He and other Democratic leaders were briefed yesterday by White House budget director Peter Orszag.
“I am not going to agree with all of it,” said Cardoza, a member of his party’s fiscally conservative Blue Dog coalition. “I certainly applaud their looking at government waste and trying to eliminate” unnecessary spending.
House Majority Leader Steny Hoyer, a Maryland Democrat, and House Appropriations Committee Chairman David Obey, a Wisconsin Democrat, declined to discuss details of the proposal.
The administration’s budget-cutting efforts aren’t new and often aren’t successful. In 2008, then-President George W. Bush, working with a Democratic Congress, proposed ending or reducing 141 federal programs. Of those, 29 were terminated or trimmed for a savings of about $1.6 billion, the White House budget office said.
“Every government program -- no matter how wasteful -- will be defended by its recipients and congressional champions,” said Brian Riedl, a budget expert at the Heritage Foundation, a Washington-based research group. “Unless Obama puts the weight of the White House behind his spending cuts, Congress will ignore them.”
Budget Outline
Lawmakers on April 29 adopted a $3.55 trillion outline for the 2010 budget that embraces Obama’s top agenda items, including a health-care overhaul, a push for renewable, clean- energy sources and changes in education funding.
White House officials, who briefed reporters on a conference call, said yesterday about half the program cuts or eliminations called for in the administration’s detailed proposal are in defense and the rest are spread throughout the government. Some programs to be reduced or ended were previously announced by Defense Secretary Robert Gates, though about 80 weren’t disclosed before, an administration official said.
The official said the White House doesn’t expect the belt- tightening effort to be easy.
Think Bigger
“To really get the deficit under control, we’re going to have to start thinking bigger,” said Goldwein, of the Committee for a Responsible Budget. “That means paying for any tax cut or spending program” and “addressing Social Security and Medicare before they become unaffordable.”
Those two programs account for more than 40 percent of government spending.
Representative John Larson, a Connecticut Democrat, said Congress “may have a slightly different point of view on areas” where Obama is proposing cuts. Still, he said Congress and the president “will both get to the same goal” of improving the economy and reducing the budget deficit.
House Speaker Nancy Pelosi, a California Democrat, has asked lawmakers to compile their own list of potential program terminations or cuts, an administration official said.
The Congressional Budget Office projects the deficit will be $1.85 trillion this year, about four times the previous record, and $1.38 trillion in fiscal 2010.
Asked whether cuts of less than $20 billion will make a dent in the deficit, Larson said, “It depends on what it means over the scope of five and 10 years.” From the “deep, cavernous hole where we have been left, we’re looking a long way up but it’s a steady climb” under the budget plan agreed to by Obama and Congress, he said.
Representative Jim Clyburn of South Carolina, the House’s third-ranking Democrat, said he will “reserve judgment” on the proposed cuts until he has a chance to read the proposal.
Tuesday, May 5, 2009
Australian Dollar Slips From 7-Month High as Equities Decline
May 6 (Bloomberg) -- The Australian dollar fell from near a seven-month high as concern stress tests will show some of the U.S.’s biggest banks need more capital sapped demand for higher- yielding assets.
New Zealand’s currency weakened for the first day in four as its Treasury Department said the cash budget deficit was wider than the government forecast in March and would continue until at least June. Australia’s dollar extended declines after retail sales and exports rose in March by more than economists estimated.
“What really is concerning us today in currency markets is the stress tests and the resulting uphill battle U.S. banks will face to raise funds,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “That hurts the Australian dollar by undercutting risk appetite as the rally in U.S. stocks fades.”
Australia’s currency slumped 0.9 percent to 73.62 U.S. cents as of 11:51 a.m. in Sydney from 74.26 cents in New York yesterday, when it touched 74.79 cents, the strongest since Oct. 6. The currency declined 1.5 percent to 72.26 yen.
New Zealand’s dollar weakened 0.5 percent to 57.73 U.S. cents from 58.04 cents yesterday, when it touched 58.65 cents, the most since April 14. It bought 56.67 yen from 57.34 yen.
New Zealand Jobless
New Zealand’s dollar also fell before a report tomorrow forecast to show the jobless rate climbed to 5.3 percent in the first quarter, the most since September 2002. A report in Australia the same day will likely show the unemployment rate there grew in April to 5.9 percent, the most since July 2003, according to the median estimate in a Bloomberg News survey.
“The Australian dollar looks like it’s at the top of the range and won’t break much above 75 U.S. cents in the short- term,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. The currency will “struggle” to rise above 74.40 cents and may decline toward 73.40 today, he said. the new Zealand dollar will likely trade between 57.70 U.S. cents and 58.30 cents today, he said.
Australia today sold A$700 million ($517.4 million) of securities maturing April 2020 at a weighted average yield of 5 percent. The so-called bid-to-cover ratio at the auction was 3.2.
The rate Australian banks charge each other for three-month loans advanced seven basis points to 3.14 percent, Australian Financial Markets Association data show. The difference between that rate and the overnight swap rate was 27 basis points. A basis point is 0.01 percentage point.
Australian government bonds advanced for the first day in six. The yield on 10-year notes fell one basis point, or 0.01 percentage point, to 4.80 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.09, or A$0.90 per A$1,000 face amount, to 103.47.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.48 percent from 3.45 yesterday.
New Zealand’s currency weakened for the first day in four as its Treasury Department said the cash budget deficit was wider than the government forecast in March and would continue until at least June. Australia’s dollar extended declines after retail sales and exports rose in March by more than economists estimated.
“What really is concerning us today in currency markets is the stress tests and the resulting uphill battle U.S. banks will face to raise funds,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “That hurts the Australian dollar by undercutting risk appetite as the rally in U.S. stocks fades.”
Australia’s currency slumped 0.9 percent to 73.62 U.S. cents as of 11:51 a.m. in Sydney from 74.26 cents in New York yesterday, when it touched 74.79 cents, the strongest since Oct. 6. The currency declined 1.5 percent to 72.26 yen.
New Zealand’s dollar weakened 0.5 percent to 57.73 U.S. cents from 58.04 cents yesterday, when it touched 58.65 cents, the most since April 14. It bought 56.67 yen from 57.34 yen.
New Zealand Jobless
New Zealand’s dollar also fell before a report tomorrow forecast to show the jobless rate climbed to 5.3 percent in the first quarter, the most since September 2002. A report in Australia the same day will likely show the unemployment rate there grew in April to 5.9 percent, the most since July 2003, according to the median estimate in a Bloomberg News survey.
“The Australian dollar looks like it’s at the top of the range and won’t break much above 75 U.S. cents in the short- term,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. The currency will “struggle” to rise above 74.40 cents and may decline toward 73.40 today, he said. the new Zealand dollar will likely trade between 57.70 U.S. cents and 58.30 cents today, he said.
Australia today sold A$700 million ($517.4 million) of securities maturing April 2020 at a weighted average yield of 5 percent. The so-called bid-to-cover ratio at the auction was 3.2.
The rate Australian banks charge each other for three-month loans advanced seven basis points to 3.14 percent, Australian Financial Markets Association data show. The difference between that rate and the overnight swap rate was 27 basis points. A basis point is 0.01 percentage point.
Australian government bonds advanced for the first day in six. The yield on 10-year notes fell one basis point, or 0.01 percentage point, to 4.80 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.09, or A$0.90 per A$1,000 face amount, to 103.47.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.48 percent from 3.45 yesterday.
UK economy shrinking at fastest since 1931
The economy is expected to decline more sharply in 2009 than at any time since 1931 and is already contracting faster than in the early 1930s, according to the National Institute for Economic and Social Research.
The NIESR, issuing its quarterly economic outlook for the year, predicts that national income will decline by 4.3 per cent this year – much more than the 3.5 per cent forecast by Alistair Darling, the chancellor, in last month’s Budget, and even more than the 3.8 per cent estimated by the European Commission.
The gloomier assessment – the NIESR predicted contraction of 2.7 per cent for 2009 just a few months ago – is due to the unexpectedly sharp fall in global trade, which is hitting UK manufacturing with particular ferocity.
The NIESR’s central projection is for successively lower levels of contraction for the second and third quarters of this year, with modest growth in the final months. Consumer spending is likely to be brought forward somewhat by households hoping to beat the deadline when value added tax will revert to its higher level, it says.
“World trade has collapsed by more than forecast,” said Simon Kirby, economist at the NIESR. “If net trade fails to pick up, we could see a second year of economic contraction.”
Government debt would rise to about 100 per cent of gross domestic product – much more than the Treasury was projecting – and output would be permanently scarred by 4-5 per cent.
National output was not likely to return to its peak in the first quarter of 2008 until the first three months of 2012, with a peak-to-trough decline of 5.5 per cent. On a per capita basis – adjusted for population – this means the contraction in output will be sharper even than that seen in the recession of 1979-81.
Unemployment, however, while likely to peak at more than 3m in 2011, would remain lower than during the recession of the early 1980s when population growth was taken into account. That was because wages have fallen sharply in order to preserve jobs.
The NIESR’s estimates cast doubt on the chancellor’s fiscal projections, which require much higher levels of economic activity than the institute expects. For example, in order for the chancellor’s forecasts of tax revenues to prove accurate, housing activity would have to return to its levels of 2002-03 at the height of the housing boom.
The NIESR no longer expects to see deflation this year as measured by the consumer price index. A weaker pound was driving up prices of imported goods, it says, and recent rises in oil prices were likely to prop up prices.
The NIESR, issuing its quarterly economic outlook for the year, predicts that national income will decline by 4.3 per cent this year – much more than the 3.5 per cent forecast by Alistair Darling, the chancellor, in last month’s Budget, and even more than the 3.8 per cent estimated by the European Commission.
The gloomier assessment – the NIESR predicted contraction of 2.7 per cent for 2009 just a few months ago – is due to the unexpectedly sharp fall in global trade, which is hitting UK manufacturing with particular ferocity.
The NIESR’s central projection is for successively lower levels of contraction for the second and third quarters of this year, with modest growth in the final months. Consumer spending is likely to be brought forward somewhat by households hoping to beat the deadline when value added tax will revert to its higher level, it says.
“World trade has collapsed by more than forecast,” said Simon Kirby, economist at the NIESR. “If net trade fails to pick up, we could see a second year of economic contraction.”
Government debt would rise to about 100 per cent of gross domestic product – much more than the Treasury was projecting – and output would be permanently scarred by 4-5 per cent.
National output was not likely to return to its peak in the first quarter of 2008 until the first three months of 2012, with a peak-to-trough decline of 5.5 per cent. On a per capita basis – adjusted for population – this means the contraction in output will be sharper even than that seen in the recession of 1979-81.
Unemployment, however, while likely to peak at more than 3m in 2011, would remain lower than during the recession of the early 1980s when population growth was taken into account. That was because wages have fallen sharply in order to preserve jobs.
The NIESR’s estimates cast doubt on the chancellor’s fiscal projections, which require much higher levels of economic activity than the institute expects. For example, in order for the chancellor’s forecasts of tax revenues to prove accurate, housing activity would have to return to its levels of 2002-03 at the height of the housing boom.
The NIESR no longer expects to see deflation this year as measured by the consumer price index. A weaker pound was driving up prices of imported goods, it says, and recent rises in oil prices were likely to prop up prices.
Australian Bank Stocks Gain on Westpac Earnings; BHP Declines
May 6 (Bloomberg) -- Australian bank shares rose on earnings from Westpac Banking Corp., outweighing declines by the country’s mining companies on lower copper and oil prices. South Korean shipping stocks advanced as cargo rates climbed.
Westpac, Australia’s biggest lender by market value, climbed 2.6 percent as it reported a 6 percent drop in first- half profit and as bond risk fell. BHP Billiton Ltd., the world’s biggest mining company, fell 1.2 percent.
“I think this result will be taken well for Westpac for sure, as there were no real surprises,” said Prasad Patkar, who helps manage the equivalent of about $800 million at Platypus Asset Management in Sydney. “It is also likely to be seen as good for the banking sector as a whole.”
Australia’s S&P/ASX 200 Index advanced 0.1 percent to 3,892.90 at 10:57 a.m. in Sydney. New Zealand’s NZX 50 Index gained 0.5 percent, while South Korea’s Kospi added 0.1 percent. Japan’s market is closed for a holiday. The MSCI Asia Pacific excluding Japan Index was little changed, having risen 20 percent since the start of the year.
Futures on the U.S. Standard & Poor’s 500 Index declined 0.2 percent. The gauge lost 0.4 percent yesterday as speculation grew that government stress tests will show some banks need more capital.
Westpac climbed 2.6 percent to A$20. The bank said cash earnings dropped to A$2.29 billion ($1.7 billion) in the six months ended March 31, from A$2.44 billion a year ago, using pro-forma numbers adjusted to reflect last year’s takeover of St. George Bank Ltd. Bad debts for the half totaled A$1.61 billion.
Baltic Dry
BHP fell 1.2 percent to A$34.08. Rio Tinto Group, the world’s third-largest mining company, slid 1.9 percent to A$69.61. Copper futures in New York dropped 2.9 percent to $2.0825 a pound yesterday.
Harvey Norman Holdings Ltd., Australia’s largest electrical retailer, lost 3.6 percent to A$3.21. The stock was cut to “underweight” from “neutral” at JPMorgan Chase & Co.
STX Pan Ocean Co., South Korea’s biggest bulk carrier, rose 2.5 percent to 12,400 won. Korea Line Corp., the second biggest, climbed 3.6 percent to 81,000 won.
The Baltic Dry Index, which measures commodity-shipping rates, gained the most in almost three months on demand to haul coking coal and iron ore to make steel. The gauge surged 5 percent yesterday, according to the Baltic Exchange, the biggest leap since Feb. 10.
Westpac, Australia’s biggest lender by market value, climbed 2.6 percent as it reported a 6 percent drop in first- half profit and as bond risk fell. BHP Billiton Ltd., the world’s biggest mining company, fell 1.2 percent.
“I think this result will be taken well for Westpac for sure, as there were no real surprises,” said Prasad Patkar, who helps manage the equivalent of about $800 million at Platypus Asset Management in Sydney. “It is also likely to be seen as good for the banking sector as a whole.”
Australia’s S&P/ASX 200 Index advanced 0.1 percent to 3,892.90 at 10:57 a.m. in Sydney. New Zealand’s NZX 50 Index gained 0.5 percent, while South Korea’s Kospi added 0.1 percent. Japan’s market is closed for a holiday. The MSCI Asia Pacific excluding Japan Index was little changed, having risen 20 percent since the start of the year.
Futures on the U.S. Standard & Poor’s 500 Index declined 0.2 percent. The gauge lost 0.4 percent yesterday as speculation grew that government stress tests will show some banks need more capital.
Westpac climbed 2.6 percent to A$20. The bank said cash earnings dropped to A$2.29 billion ($1.7 billion) in the six months ended March 31, from A$2.44 billion a year ago, using pro-forma numbers adjusted to reflect last year’s takeover of St. George Bank Ltd. Bad debts for the half totaled A$1.61 billion.
Baltic Dry
BHP fell 1.2 percent to A$34.08. Rio Tinto Group, the world’s third-largest mining company, slid 1.9 percent to A$69.61. Copper futures in New York dropped 2.9 percent to $2.0825 a pound yesterday.
Harvey Norman Holdings Ltd., Australia’s largest electrical retailer, lost 3.6 percent to A$3.21. The stock was cut to “underweight” from “neutral” at JPMorgan Chase & Co.
STX Pan Ocean Co., South Korea’s biggest bulk carrier, rose 2.5 percent to 12,400 won. Korea Line Corp., the second biggest, climbed 3.6 percent to 81,000 won.
The Baltic Dry Index, which measures commodity-shipping rates, gained the most in almost three months on demand to haul coking coal and iron ore to make steel. The gauge surged 5 percent yesterday, according to the Baltic Exchange, the biggest leap since Feb. 10.
Monday, May 4, 2009
Europe jobs crisis poses social order ‘threat’
Social tensions and a rise in political extremism could rise to dangerous levels unless Europe’s leaders tackle rising joblessness, the EU’s top employment official has warned.
Vladimir Spidla, commissioner for social affairs, said a tide of school leavers with few job prospects posed a “latent threat” to European social order.
EDITOR’S CHOICE
End to Europe’s recession in sight - May-04
Analysis: Optimism builds - May-04
Hopes for end to inventory cuts grow - May-04
Brussels sees UK economy contracting 3.8% - May-04
Wolfgang Münchau: Europe must learn from Japan’s experience - May-03
Focus on stimulus - May-03
His comments come days ahead of what was meant to be a high-profile “jobs summit” involving the EU’s 27 national leaders, but which has been quietly downgraded over recent weeks as politicians balked at giving more power over social policy to Brussels.
Few national leaders wanted to be associated with a special summit on jobs while unemployment is rising, diplomats say.
Despite the snub, Mr Spidla told the FT that Europe had to focus on the social aspect of the financial crisis if it wanted to avoid a rise in strife.
“If you are in a situation where lots of people are excluded from work, this will of course create social tensions,” he said. “The consequences can be limited, but they can also prove dangerous: we’ve all seen what happened in the banlieues in France, we’ve seen also the rise of extremism in central Europe and elsewhere.”
Unemployment and lack of opportunity for second-generation immigrants were widely seen as contributing to large-scale riots in France in 2005. A state of emergency was declared after an estimated 8,000 vehicles were burnt over three weeks.
Mr Spidla has blamed “political populism, hate speech and media hype” for a perceived increase in attacks on members of the Roma community in Hungary and the Czech Republic among others.
The situation is set to worsen in the coming months as young people graduate and look for work, Mr Spidla added.
“The number of people finishing their studies won't change, but the ability of the job market to give them employment will.”
Mr Spidla, one of the most left-leaning members of the commission, said the crisis highlighted the importance of “social Europe”, a concept that was all-but dismissed at the start of the current commission five years ago.
Preparations are afoot for the jobs summit in Prague on Thursday, shortened to a single morning ahead of other European business. The meeting now will consist of a far more conventional engagement between Brussels politicians, trade unionists and employers' representatives, and is likely to attract little publicity.
The scaling down of the summit is being interpreted as a snub by trades unions, which had hoped to use the limelight to push their “social Europe” agenda.
John Monks, head of the European trade union confederation, said: “It’s disappointing, it started with great ambition. The impression is that unemployment is a lower-order issue.”
Mr Spidla insisted “the diplomatic format of the meeting may have changed, but not its ambition”.
Vladimir Spidla, commissioner for social affairs, said a tide of school leavers with few job prospects posed a “latent threat” to European social order.
EDITOR’S CHOICE
End to Europe’s recession in sight - May-04
Analysis: Optimism builds - May-04
Hopes for end to inventory cuts grow - May-04
Brussels sees UK economy contracting 3.8% - May-04
Wolfgang Münchau: Europe must learn from Japan’s experience - May-03
Focus on stimulus - May-03
His comments come days ahead of what was meant to be a high-profile “jobs summit” involving the EU’s 27 national leaders, but which has been quietly downgraded over recent weeks as politicians balked at giving more power over social policy to Brussels.
Few national leaders wanted to be associated with a special summit on jobs while unemployment is rising, diplomats say.
Despite the snub, Mr Spidla told the FT that Europe had to focus on the social aspect of the financial crisis if it wanted to avoid a rise in strife.
“If you are in a situation where lots of people are excluded from work, this will of course create social tensions,” he said. “The consequences can be limited, but they can also prove dangerous: we’ve all seen what happened in the banlieues in France, we’ve seen also the rise of extremism in central Europe and elsewhere.”
Unemployment and lack of opportunity for second-generation immigrants were widely seen as contributing to large-scale riots in France in 2005. A state of emergency was declared after an estimated 8,000 vehicles were burnt over three weeks.
Mr Spidla has blamed “political populism, hate speech and media hype” for a perceived increase in attacks on members of the Roma community in Hungary and the Czech Republic among others.
The situation is set to worsen in the coming months as young people graduate and look for work, Mr Spidla added.
“The number of people finishing their studies won't change, but the ability of the job market to give them employment will.”
Mr Spidla, one of the most left-leaning members of the commission, said the crisis highlighted the importance of “social Europe”, a concept that was all-but dismissed at the start of the current commission five years ago.
Preparations are afoot for the jobs summit in Prague on Thursday, shortened to a single morning ahead of other European business. The meeting now will consist of a far more conventional engagement between Brussels politicians, trade unionists and employers' representatives, and is likely to attract little publicity.
The scaling down of the summit is being interpreted as a snub by trades unions, which had hoped to use the limelight to push their “social Europe” agenda.
John Monks, head of the European trade union confederation, said: “It’s disappointing, it started with great ambition. The impression is that unemployment is a lower-order issue.”
Mr Spidla insisted “the diplomatic format of the meeting may have changed, but not its ambition”.
Asia Day Ahead: S&P 500 Erases 2009 Loss; Citi May Seek Capital
May 5 (Bloomberg) -- U.S. stocks rose, erasing the Standard & Poor’s 500 Index’s 2009 loss, after home sales beat estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing. Citigroup Inc., girding for results of the Federal Reserve’s bank stress test, may try to wring capital from private investors instead of U.S. bailout funds as a way of bolstering equity without ceding control to the government, people briefed on the matter said.
TOP STORIES/MOST READ ON BLOOMBERG
Obama Seeks End of Corporate Tax Break to Raise $190 Billion
President Barack Obama proposed raising about $190 billion over the next decade by outlawing three offshore tax-avoidance techniques used by U.S. companies such as Caterpillar Inc. and Procter & Gamble Co.
Buffett Lambastes Bankers, Insurers for ‘Stupidity’
Berkshire Hathaway Inc. Chairman Warren Buffett lambasted bankers, insurers and regulators for being blind to the possibility home prices could fall, and said their shortcomings caused the worst recession in half a century.
Taxpayers Lose $310 Million in Build America Profits
State and local public finance officials from New Jersey to California rewarded investors with $310 million of instant profit by selling debt through the government’s Build America bond program.
Citigroup May Seek Capital That Averts U.S. Control
Citigroup Inc., girding for results of the Federal Reserve’s bank stress test, may try to wring capital from private investors instead of U.S. bailout funds as a way of bolstering equity without ceding control to the government, people briefed on the matter said.
MAIN ECONOMIC RELEASES TODAY Reserve Bank of Australia Seen Leaving Key Rate Unchanged at 3% Indonesia Central Bank May Cut Interest Rate to 7.25% From 7.5% Australian March Building Approvals Seen Rising 2.8% Vs February Australia Performance of Services Index for April Is Released Philippine April Consumer Prices Seen Rising 4.7% From Year Ago Taiwan’s Consumer Prices Report for April Is Due to Be Released Singapore’s Purchasing Managers’ Index for April Due for Release
MAIN ANALYST UPGRADES/DOWNGRADES *CHINA COSCO CUT TO ‘UNDERPERFORM’ AT CREDIT SUISSE *SINA CUT TO ‘PERFORM’ AT OPPENHEIMER *DOOSAN INFRACORE RAISED TO ‘BUY’ AT BNP PARIBAS
ASIAN MARKETS
The Nikkei 225 futures contract due in June fell 20 points to 9,020. The Hang Seng Index futures for May gained 840 to 16,227. The S&P/ASX 200 Index futures contract due in June rose 75 to 3,939 at 6:59 a.m. in Sydney.
U.S. Stocks Advance as S&P 500 Index Erases Decline for Year
U.S. stocks rose, erasing the Standard & Poor’s 500 Index’s 2009 loss, after home sales beat estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing.
Treasuries Little Changed as Fed Buyback Tempers Supply Concern
Treasuries were little changed as the Federal Reserve bought $8.5 billion in debt, the largest amount since the central bank began purchasing government securities in March to drive borrowing rates lower.
Yen, Dollar Drop as Signs Slump Easing Spur Higher-Yield Demand
The yen declined to the lowest level in almost three weeks versus the euro while the dollar dropped after an unexpected gain in U.S. pending home resales encouraged investors to buy higher-yielding assets.
European Stocks Rise for Third Day; ArcelorMittal, Fiat Climb
European stocks advanced for a third day as manufacturing in China expanded and U.S. pending home resales and construction spending increased, reinforcing optimism the worst of the global recession is over.
European Bonds Fall as Stock Gains Sap Demand for Safer Assets
European government bonds fell as signs the global economy may be emerging from its worst recession since World War II pushed stocks higher, damping demand for the safest assets.
Gold, Silver Gain as Dollar Falls, Pending Bank Stress Results
Gold climbed for the first time in three sessions on surging demand for the metal as a store of value while the dollar fell and investors prepared for the release later this week of U.S. bank stress tests. Silver rose.
Crude Oil Rises to 5-Month High as Pending Home Sales Increase
Crude oil rose to a five-month high as the number of Americans signing contracts to buy previously owned homes jumped along with spending on U.S. construction projects, signaling energy demand may improve with the economy.
TOP STORIES/MOST READ ON BLOOMBERG
Obama Seeks End of Corporate Tax Break to Raise $190 Billion
President Barack Obama proposed raising about $190 billion over the next decade by outlawing three offshore tax-avoidance techniques used by U.S. companies such as Caterpillar Inc. and Procter & Gamble Co.
Buffett Lambastes Bankers, Insurers for ‘Stupidity’
Berkshire Hathaway Inc. Chairman Warren Buffett lambasted bankers, insurers and regulators for being blind to the possibility home prices could fall, and said their shortcomings caused the worst recession in half a century.
Taxpayers Lose $310 Million in Build America Profits
State and local public finance officials from New Jersey to California rewarded investors with $310 million of instant profit by selling debt through the government’s Build America bond program.
Citigroup May Seek Capital That Averts U.S. Control
Citigroup Inc., girding for results of the Federal Reserve’s bank stress test, may try to wring capital from private investors instead of U.S. bailout funds as a way of bolstering equity without ceding control to the government, people briefed on the matter said.
MAIN ECONOMIC RELEASES TODAY Reserve Bank of Australia Seen Leaving Key Rate Unchanged at 3% Indonesia Central Bank May Cut Interest Rate to 7.25% From 7.5% Australian March Building Approvals Seen Rising 2.8% Vs February Australia Performance of Services Index for April Is Released Philippine April Consumer Prices Seen Rising 4.7% From Year Ago Taiwan’s Consumer Prices Report for April Is Due to Be Released Singapore’s Purchasing Managers’ Index for April Due for Release
MAIN ANALYST UPGRADES/DOWNGRADES *CHINA COSCO CUT TO ‘UNDERPERFORM’ AT CREDIT SUISSE *SINA CUT TO ‘PERFORM’ AT OPPENHEIMER *DOOSAN INFRACORE RAISED TO ‘BUY’ AT BNP PARIBAS
ASIAN MARKETS
The Nikkei 225 futures contract due in June fell 20 points to 9,020. The Hang Seng Index futures for May gained 840 to 16,227. The S&P/ASX 200 Index futures contract due in June rose 75 to 3,939 at 6:59 a.m. in Sydney.
U.S. Stocks Advance as S&P 500 Index Erases Decline for Year
U.S. stocks rose, erasing the Standard & Poor’s 500 Index’s 2009 loss, after home sales beat estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing.
Treasuries Little Changed as Fed Buyback Tempers Supply Concern
Treasuries were little changed as the Federal Reserve bought $8.5 billion in debt, the largest amount since the central bank began purchasing government securities in March to drive borrowing rates lower.
Yen, Dollar Drop as Signs Slump Easing Spur Higher-Yield Demand
The yen declined to the lowest level in almost three weeks versus the euro while the dollar dropped after an unexpected gain in U.S. pending home resales encouraged investors to buy higher-yielding assets.
European Stocks Rise for Third Day; ArcelorMittal, Fiat Climb
European stocks advanced for a third day as manufacturing in China expanded and U.S. pending home resales and construction spending increased, reinforcing optimism the worst of the global recession is over.
European Bonds Fall as Stock Gains Sap Demand for Safer Assets
European government bonds fell as signs the global economy may be emerging from its worst recession since World War II pushed stocks higher, damping demand for the safest assets.
Gold, Silver Gain as Dollar Falls, Pending Bank Stress Results
Gold climbed for the first time in three sessions on surging demand for the metal as a store of value while the dollar fell and investors prepared for the release later this week of U.S. bank stress tests. Silver rose.
Crude Oil Rises to 5-Month High as Pending Home Sales Increase
Crude oil rose to a five-month high as the number of Americans signing contracts to buy previously owned homes jumped along with spending on U.S. construction projects, signaling energy demand may improve with the economy.
Asia May Resist Tapping $120 Billion Fund as Region Improves
May 5 (Bloomberg) -- Asian nations may resist dipping into their new $120 billion foreign-exchange reserve pool as the region is showing signs of emerging from the worst global recession since World War II, officials and economists said.
“It’s better if we do not take the funds,” Anggito Abimanyu, head of fiscal policy at Indonesia’s Finance Ministry, said in an interview yesterday. “If things are returning to normal, we don’t need to tap the funds. The fund is for contingencies.”
The Asian Development Bank expects regional growth to accelerate to 6 percent next year from 3.4 percent in 2009 as stimulus packages boost domestic demand. China’s 4 trillion yuan ($585 billion) spending plan is increasing consumption and supporting the region’s exports, while shipments from Taiwan, Singapore and Indonesia begin to rise on a monthly basis.
“Now that we are moving into the recovery phase, confidence is returning to the system and the risk of a funding crisis is dissipating quite quickly,” said Peter Redward, head of emerging Asia research at Barclays Capital in Singapore. “Adding another layer of funding through the initiative is not going to add anything.”
Indonesia’s rupiah has risen 11.7 percent in the past three months, making it the best performing among the 10 most-traded currencies in the Asia outside Japan, recovering from a 6.8 percent drop in the preceding three months. The South Korean won has gained 8.3 percent in the period from a 6.7 percent drop.
The Association of Southeast Asian Nations, together with Japan, China and South Korea, on May 3 agreed on terms for the so-called Chiang Mai Initiative and to use the funds in times of turmoil. The pool will be ready by year-end.
Swine Flu
“Even if we don’t need to use it, we want to be prepared,” South Korea’s Finance Minister Yoon Jeung Hyun said in an interview in Bali yesterday. “From Asia’s perspective, having another leg or another source to depend upon for liquidity is good.”
The preparation may be useful. The European Union yesterday cut its forecast for the euro-area economy to show a contraction twice as deep as it projected just three months ago. In the U.S., a report this week may show unemployment probably climbed in April to a 25-year high.
The export and tourism-dependent Asia may also be affected by swine flu, as Americans and Europeans curtail travel amid concern the World Health Organization may declare a pandemic.
“The spread of the new health threat of influenza H1N1 requires us to stay vigilant on the possible impact,” finance ministers from the 13 nations said in a statement on May 3 after announcing the terms for the reserve fund.
Fund Contributions
Japan will contribute $38.4 billion to the fund, while China and Hong Kong together will add another $38.4 billion to the pool. South Korea’s contribution will be $19.2 billion.
The Southeast Asian nations will contribute 20 percent of the total amount. Thailand, Indonesia, Malaysia and Singapore, the four biggest Southeast Asian economies, will contribute $4.77 billion each, and the Philippines will provide $3.68 billion.
The Asian financial crisis a decade ago, which forced Thailand, Indonesia and South Korea to borrow from the International Monetary Fund, helped nations including Indonesia take “proactive” steps, Indonesian President Susilo Bambang Yudhoyono said in Bali today.
The IMF arranged more than $100 billion of loans to the three Asian nations after their currencies collapsed during the 1997-1998 crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies.
Critics including former World Bank chief economist Joseph Stiglitz, a Nobel laureate, say IMF policies needlessly deepened the region’s recession.
International Community
Asian nations such as Indonesia choose to seek help from its neighbors instead of borrowing from the IMF during the latest crisis. Indonesia raised $5.5 billion of standby loans from the ADB, World Bank, Australia and Japan. Indonesia also increased the size of its currency swap arrangements with China and Japan to bolster access to foreign exchange.
“One of the most significant positive outcomes from this crisis has been the way the international community has rallied together,” Yudhoyono said in the speech.
“It’s better if we do not take the funds,” Anggito Abimanyu, head of fiscal policy at Indonesia’s Finance Ministry, said in an interview yesterday. “If things are returning to normal, we don’t need to tap the funds. The fund is for contingencies.”
The Asian Development Bank expects regional growth to accelerate to 6 percent next year from 3.4 percent in 2009 as stimulus packages boost domestic demand. China’s 4 trillion yuan ($585 billion) spending plan is increasing consumption and supporting the region’s exports, while shipments from Taiwan, Singapore and Indonesia begin to rise on a monthly basis.
“Now that we are moving into the recovery phase, confidence is returning to the system and the risk of a funding crisis is dissipating quite quickly,” said Peter Redward, head of emerging Asia research at Barclays Capital in Singapore. “Adding another layer of funding through the initiative is not going to add anything.”
Indonesia’s rupiah has risen 11.7 percent in the past three months, making it the best performing among the 10 most-traded currencies in the Asia outside Japan, recovering from a 6.8 percent drop in the preceding three months. The South Korean won has gained 8.3 percent in the period from a 6.7 percent drop.
The Association of Southeast Asian Nations, together with Japan, China and South Korea, on May 3 agreed on terms for the so-called Chiang Mai Initiative and to use the funds in times of turmoil. The pool will be ready by year-end.
Swine Flu
“Even if we don’t need to use it, we want to be prepared,” South Korea’s Finance Minister Yoon Jeung Hyun said in an interview in Bali yesterday. “From Asia’s perspective, having another leg or another source to depend upon for liquidity is good.”
The preparation may be useful. The European Union yesterday cut its forecast for the euro-area economy to show a contraction twice as deep as it projected just three months ago. In the U.S., a report this week may show unemployment probably climbed in April to a 25-year high.
The export and tourism-dependent Asia may also be affected by swine flu, as Americans and Europeans curtail travel amid concern the World Health Organization may declare a pandemic.
“The spread of the new health threat of influenza H1N1 requires us to stay vigilant on the possible impact,” finance ministers from the 13 nations said in a statement on May 3 after announcing the terms for the reserve fund.
Fund Contributions
Japan will contribute $38.4 billion to the fund, while China and Hong Kong together will add another $38.4 billion to the pool. South Korea’s contribution will be $19.2 billion.
The Southeast Asian nations will contribute 20 percent of the total amount. Thailand, Indonesia, Malaysia and Singapore, the four biggest Southeast Asian economies, will contribute $4.77 billion each, and the Philippines will provide $3.68 billion.
The Asian financial crisis a decade ago, which forced Thailand, Indonesia and South Korea to borrow from the International Monetary Fund, helped nations including Indonesia take “proactive” steps, Indonesian President Susilo Bambang Yudhoyono said in Bali today.
The IMF arranged more than $100 billion of loans to the three Asian nations after their currencies collapsed during the 1997-1998 crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies.
Critics including former World Bank chief economist Joseph Stiglitz, a Nobel laureate, say IMF policies needlessly deepened the region’s recession.
International Community
Asian nations such as Indonesia choose to seek help from its neighbors instead of borrowing from the IMF during the latest crisis. Indonesia raised $5.5 billion of standby loans from the ADB, World Bank, Australia and Japan. Indonesia also increased the size of its currency swap arrangements with China and Japan to bolster access to foreign exchange.
“One of the most significant positive outcomes from this crisis has been the way the international community has rallied together,” Yudhoyono said in the speech.
Indian Rupee Rises to Two-Week High as Capital Inflows Increase
May 4 (Bloomberg) -- India’s rupee rose to the highest level in more than two weeks as overseas investors increased holdings of the nation’s shares and the currency on further signs the global recession may be drawing to an end.
The currency appreciated for a second day and Asian stocks rallied after a report showed China’s manufacturing expanded for the first time in nine months, boosting the outlook for regional exports. Foreign investors bought $1.3 billion more Indian shares than they sold in April, the biggest net monthly purchases since December 2007, according to data from the Securities & Exchange Board of India.
“Global risk aversion is consistently on the rise,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. “The rupee should continue to draw benefit from that and extend the pace of increase.”
The rupee rose 0.9 percent to 49.655 per dollar as of 10:08 a.m. in Mumbai from April 29, according to data compiled by Bloomberg. It reached 49.555, the highest level since April 16. The currency may advance to 49 in a few days, Babu said. Markets in Mumbai were closed on April 30 for elections and on May 1 for a public holiday.
The MSCI Asia Pacific excluding Japan Index of stocks rose 4 percent today, headed for its highest close since October. The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 4.3 and has rebounded 45 percent from a three-year closing low reached on March 9.
Offshore contracts indicate traders are paring bets on a decline in the rupee, predicting a spot rate of 49.76 to the dollar in a month, compared with expectations for a rate of 50.49 a week ago. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
The currency appreciated for a second day and Asian stocks rallied after a report showed China’s manufacturing expanded for the first time in nine months, boosting the outlook for regional exports. Foreign investors bought $1.3 billion more Indian shares than they sold in April, the biggest net monthly purchases since December 2007, according to data from the Securities & Exchange Board of India.
“Global risk aversion is consistently on the rise,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. “The rupee should continue to draw benefit from that and extend the pace of increase.”
The rupee rose 0.9 percent to 49.655 per dollar as of 10:08 a.m. in Mumbai from April 29, according to data compiled by Bloomberg. It reached 49.555, the highest level since April 16. The currency may advance to 49 in a few days, Babu said. Markets in Mumbai were closed on April 30 for elections and on May 1 for a public holiday.
The MSCI Asia Pacific excluding Japan Index of stocks rose 4 percent today, headed for its highest close since October. The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 4.3 and has rebounded 45 percent from a three-year closing low reached on March 9.
Offshore contracts indicate traders are paring bets on a decline in the rupee, predicting a spot rate of 49.76 to the dollar in a month, compared with expectations for a rate of 50.49 a week ago. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Asian Stock Rally on ‘Final Leg,’ May Fall: Technical Analysis
May 4 (Bloomberg) -- Asian stocks are on the “final leg” of a rally from their March lows and face a “correction” by the middle of the month, Elliott Wave International Inc. said.
India is among markets that may give up some gains, with momentum and volumes slowing during the recent rally, Elliott Wave International said in its May Asian-Pacific Financial Forecast report. The decline is a correction within a longer stretch of advances, and prices are set to exceed their recent highs after the temporary drop, the researcher wrote.
The MSCI Asia-Pacific Index climbed 12 percent in April, the biggest monthly gain in more than a decade. That helped erase losses this year, though the measure’s still 47 percent lower than its 2007 peak.
“Corrections are due in most Asian-Pacific indexes by mid- May, and they should last through the end of the month and possibly into June,” Elliott Wave International said in this month’s report, which was released on May 1. “Thereafter, the multi-month rally should resume.”
Elliott Wave Theory, created by U.S. market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value.
The principle states that fifth waves display “a slower maximum speed of price change” and that volumes in the fifth wave tends to be less than in the third, Elliott Wave International said.
Benchmark indexes in South Korea and China are among others that may decline as volumes and the rate of change slows, according to the report.
Elliott Wave International said in last month’s report that Asian stocks may gain at least 15 percent during a “multi- month” rally, citing chart formations that predicted this year’s rebound for Chinese shares.
The patterns formed by the rally in India’s Bombay Stock Exchange Sensitive Index between 2003 and 2008 also indicate that prices are poised for a “pullback,” Elliott Wave International said. The decline will be “a small second-wave correction within a much larger advance,” the researcher said.
India is among markets that may give up some gains, with momentum and volumes slowing during the recent rally, Elliott Wave International said in its May Asian-Pacific Financial Forecast report. The decline is a correction within a longer stretch of advances, and prices are set to exceed their recent highs after the temporary drop, the researcher wrote.
The MSCI Asia-Pacific Index climbed 12 percent in April, the biggest monthly gain in more than a decade. That helped erase losses this year, though the measure’s still 47 percent lower than its 2007 peak.
“Corrections are due in most Asian-Pacific indexes by mid- May, and they should last through the end of the month and possibly into June,” Elliott Wave International said in this month’s report, which was released on May 1. “Thereafter, the multi-month rally should resume.”
Elliott Wave Theory, created by U.S. market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value.
The principle states that fifth waves display “a slower maximum speed of price change” and that volumes in the fifth wave tends to be less than in the third, Elliott Wave International said.
Benchmark indexes in South Korea and China are among others that may decline as volumes and the rate of change slows, according to the report.
Elliott Wave International said in last month’s report that Asian stocks may gain at least 15 percent during a “multi- month” rally, citing chart formations that predicted this year’s rebound for Chinese shares.
The patterns formed by the rally in India’s Bombay Stock Exchange Sensitive Index between 2003 and 2008 also indicate that prices are poised for a “pullback,” Elliott Wave International said. The decline will be “a small second-wave correction within a much larger advance,” the researcher said.
Sunday, May 3, 2009
Asian Stocks Advance on Chinese Manufacturing, Currency Pool
May 4 (Bloomberg) -- Asian stocks advanced, led by finance and technology companies, as manufacturing in China expanded for the first time in nine months and regional leaders pledged to start a $120 billion foreign-currency reserve pool.
China Mobile Ltd. climbed 6.8 percent in Hong Kong, and KB Financial Group Inc., owner of South Korea’s largest bank, rose 15 percent after Goldman Sachs Group Inc. advised investors to buy both stocks. Taiwan Semiconductor Manufacturing Co. gained 6.9 percent on a better-than-estimated sales forecast. Stocks also gained as the U.S. said swine flu has milder symptoms than the world’s previous influenza outbreaks.
“Investors who have been on the sidelines are slowly plowing back funds into equities, fearing they might miss the rally,” said John Koh, who helps oversee $1.1 billion at MEAG Hong Kong Ltd. “The swine flu outbreak is a concern but everyone seems well-prepared to contain it.”
The MSCI Asia Pacific excluding Japan Index jumped 4.8 percent to 294.70 as of 2:52 p.m. in Hong Kong. The gauge has gained 19 percent this year amid speculation the worst of the global recession is over. Japan’s stock market is closed for a three-day holiday. It sank by a record 53 percent last year.
Australia’s S&P/ASX 200 Index gained 3 percent. Hong Kong’s Hang Seng Index climbed 4.9 percent even as a 25-year-old Mexican was confirmed as the city’s first swine flu patient. Taiwan’s Taiex index jumped 5.6 percent after Goldman Sachs raised its recommendation on the island’s equities to “overweight.” All markets in Asia advanced.
Raising Capital
China Airlines Ltd., Taiwan’s largest carrier, gained 3.9 percent after a report said that the island may seek additional flights to mainland China. Rio Tinto Group, the world’s third- biggest mining company, climbed 4.9 percent in Sydney after Aluminum Corp. of China said it’s pressing ahead with its investment in Rio. Doosan Infracore Co., South Korea’s biggest construction-equipment maker, climbed 6.4 percent after BNP Paribas SA advised investors to buy the stock.
U.S. Standard & Poor’s 500 Index futures added 0.6 percent. The gauge rose 0.5 percent on May 1 after better-than-expected reports on consumer confidence and manufacturing. Governments worldwide from the U.S. to Japan have been widening measures to ease the worst global recession since World War II.
The Association of Southeast Asian Nations, together with Japan, China and South Korea, said they will start a $120 billion foreign-currency reserve pool by the end of the year to help revive investor confidence. The pledge was agreed upon at a weekend meeting in Bali, Indonesia.
‘Very Positive’
“It’s not so much the amounts of money being put in, but the concept of these countries getting together and cooperating,” Mark Mobius, who helps oversee $20 billion in emerging-market assets at Templeton Asset Management Ltd., said in an interview yesterday. “That’s a very positive development.”
Indonesian Finance Minister Sri Mulyani Indrawati also said at the weekend that the region was equipped to “respond positively” to swine flu. The World Health Organization as of yesterday had confirmed 898 human cases of the virus. The fact that fewer people were being killed than previous flu outbreaks is “encouraging,” Richard Besser, acting chief of the U.S. Centers for Disease Control and Prevention, told ABC News.
China Mobile, the world’s largest cell-phone operator by users, climbed 6.8 percent to HK$71.90 after it was raised to “buy” from “neutral” at Goldman Sachs, which said valuations for the stock are attractive. Goldman Sachs added China Mobile to its Asia Pacific “conviction buy” list and raised its share-price estimate by 16 percent to HK$79.
Brokerage Upgrades
In Shanghai, Baoshan Iron & Steel Co., China’s biggest steelmaker, rose 4.3 percent to 6.03 yuan. Angang Steel Co., China’s second-largest steelmaker by market value, advanced 8.1 percent to 9.39 yuan.
A China purchasing manager’s index rose to a seasonally adjusted 53.5 in April from 52.4 in March, according to a May 1 statement from the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion.
KB Financial surged 15 percent to 45,700 won in Seoul. Goldman Sachs raised its recommendation to “buy” from “neutral,” saying in a report that margins may start to improve. The brokerage lifted its share-price estimate by 67 percent to 50,200 won.
Taiwan Semiconductor, the world’s No. 1 made-to-order chipmaker, jumped 6.9 percent to NT$59. The company said sales this quarter would be NT$71 billion ($2.1 billion) to NT$74 billion, compared with the median of 15 analysts’ estimates for NT$52.4 billion.
Mining Companies Advance
China Airlines advanced 3.9 percent to NT$9.57. President Ma Ying-jeou said the number of direct flights between China and Taiwan should be increased to 540 a week from 270, the Taipei Times reported on May 2. Taiwan stocks also climbed on the upgrade from Goldman Sachs, which said the island may reap benefits from improving ties with China.
Rio Tinto climbed 4.9 percent to A$67.30. Aluminum Corp.’s Vice President Lu Youqing said the company is pressing ahead with its planned $19.5 billion investment in Rio, after the Financial Times said it may be offered less convertible debt.
BHP Billiton Ltd., the world’s biggest mining company, rose 2.5 percent to A$33.82. Crude oil for June delivery rose 4.1 percent to $53.20 a barrel in New York on May 1. In London, copper surged 3.8 percent, zinc 6.3 percent and nickel 1.9 percent.
‘Doomsday Scenario’
PT Bumi Resources, Asia’s biggest exporter of power-station coal, gained 6.6 percent to 1,620 rupiah after saying first- quarter profit rose 21 percent. Doosan climbed 6.4 percent to 19,150 won after BNP raised its recommendation to “buy” from “hold”, citing a positive outlook for excavator sales in China.
“The doomsday scenario is diminishing by the day,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. “The data has become more mixed, and day-by-day people are becoming more relaxed about the outlook. But it’s still too early to say we’ve reached a clearly defined turning point.”
China Mobile Ltd. climbed 6.8 percent in Hong Kong, and KB Financial Group Inc., owner of South Korea’s largest bank, rose 15 percent after Goldman Sachs Group Inc. advised investors to buy both stocks. Taiwan Semiconductor Manufacturing Co. gained 6.9 percent on a better-than-estimated sales forecast. Stocks also gained as the U.S. said swine flu has milder symptoms than the world’s previous influenza outbreaks.
“Investors who have been on the sidelines are slowly plowing back funds into equities, fearing they might miss the rally,” said John Koh, who helps oversee $1.1 billion at MEAG Hong Kong Ltd. “The swine flu outbreak is a concern but everyone seems well-prepared to contain it.”
The MSCI Asia Pacific excluding Japan Index jumped 4.8 percent to 294.70 as of 2:52 p.m. in Hong Kong. The gauge has gained 19 percent this year amid speculation the worst of the global recession is over. Japan’s stock market is closed for a three-day holiday. It sank by a record 53 percent last year.
Australia’s S&P/ASX 200 Index gained 3 percent. Hong Kong’s Hang Seng Index climbed 4.9 percent even as a 25-year-old Mexican was confirmed as the city’s first swine flu patient. Taiwan’s Taiex index jumped 5.6 percent after Goldman Sachs raised its recommendation on the island’s equities to “overweight.” All markets in Asia advanced.
Raising Capital
China Airlines Ltd., Taiwan’s largest carrier, gained 3.9 percent after a report said that the island may seek additional flights to mainland China. Rio Tinto Group, the world’s third- biggest mining company, climbed 4.9 percent in Sydney after Aluminum Corp. of China said it’s pressing ahead with its investment in Rio. Doosan Infracore Co., South Korea’s biggest construction-equipment maker, climbed 6.4 percent after BNP Paribas SA advised investors to buy the stock.
U.S. Standard & Poor’s 500 Index futures added 0.6 percent. The gauge rose 0.5 percent on May 1 after better-than-expected reports on consumer confidence and manufacturing. Governments worldwide from the U.S. to Japan have been widening measures to ease the worst global recession since World War II.
The Association of Southeast Asian Nations, together with Japan, China and South Korea, said they will start a $120 billion foreign-currency reserve pool by the end of the year to help revive investor confidence. The pledge was agreed upon at a weekend meeting in Bali, Indonesia.
‘Very Positive’
“It’s not so much the amounts of money being put in, but the concept of these countries getting together and cooperating,” Mark Mobius, who helps oversee $20 billion in emerging-market assets at Templeton Asset Management Ltd., said in an interview yesterday. “That’s a very positive development.”
Indonesian Finance Minister Sri Mulyani Indrawati also said at the weekend that the region was equipped to “respond positively” to swine flu. The World Health Organization as of yesterday had confirmed 898 human cases of the virus. The fact that fewer people were being killed than previous flu outbreaks is “encouraging,” Richard Besser, acting chief of the U.S. Centers for Disease Control and Prevention, told ABC News.
China Mobile, the world’s largest cell-phone operator by users, climbed 6.8 percent to HK$71.90 after it was raised to “buy” from “neutral” at Goldman Sachs, which said valuations for the stock are attractive. Goldman Sachs added China Mobile to its Asia Pacific “conviction buy” list and raised its share-price estimate by 16 percent to HK$79.
Brokerage Upgrades
In Shanghai, Baoshan Iron & Steel Co., China’s biggest steelmaker, rose 4.3 percent to 6.03 yuan. Angang Steel Co., China’s second-largest steelmaker by market value, advanced 8.1 percent to 9.39 yuan.
A China purchasing manager’s index rose to a seasonally adjusted 53.5 in April from 52.4 in March, according to a May 1 statement from the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion.
KB Financial surged 15 percent to 45,700 won in Seoul. Goldman Sachs raised its recommendation to “buy” from “neutral,” saying in a report that margins may start to improve. The brokerage lifted its share-price estimate by 67 percent to 50,200 won.
Taiwan Semiconductor, the world’s No. 1 made-to-order chipmaker, jumped 6.9 percent to NT$59. The company said sales this quarter would be NT$71 billion ($2.1 billion) to NT$74 billion, compared with the median of 15 analysts’ estimates for NT$52.4 billion.
Mining Companies Advance
China Airlines advanced 3.9 percent to NT$9.57. President Ma Ying-jeou said the number of direct flights between China and Taiwan should be increased to 540 a week from 270, the Taipei Times reported on May 2. Taiwan stocks also climbed on the upgrade from Goldman Sachs, which said the island may reap benefits from improving ties with China.
Rio Tinto climbed 4.9 percent to A$67.30. Aluminum Corp.’s Vice President Lu Youqing said the company is pressing ahead with its planned $19.5 billion investment in Rio, after the Financial Times said it may be offered less convertible debt.
BHP Billiton Ltd., the world’s biggest mining company, rose 2.5 percent to A$33.82. Crude oil for June delivery rose 4.1 percent to $53.20 a barrel in New York on May 1. In London, copper surged 3.8 percent, zinc 6.3 percent and nickel 1.9 percent.
‘Doomsday Scenario’
PT Bumi Resources, Asia’s biggest exporter of power-station coal, gained 6.6 percent to 1,620 rupiah after saying first- quarter profit rose 21 percent. Doosan climbed 6.4 percent to 19,150 won after BNP raised its recommendation to “buy” from “hold”, citing a positive outlook for excavator sales in China.
“The doomsday scenario is diminishing by the day,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. “The data has become more mixed, and day-by-day people are becoming more relaxed about the outlook. But it’s still too early to say we’ve reached a clearly defined turning point.”
Aecom, Citigroup, Clorox, Simon Property: U.S. Equity Preview
May 3 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading tomorrow. Stock symbols are in parentheses.
Aecom Technology Corp. (ACM:US): The architectural and engineering company said it bought Savant, a project and cost management consultant with about 600 employees, to expand in Europe. The terms of the transaction weren’t disclosed.
Citigroup Inc. (C:US): The U.S. bank may need to boost its capital reserves by as much as $10 billion, the Wall Street Journal reported, citing unidentified people familiar with the situation. The bank may need less capital if it convinces the Federal Reserve of its position, the newspaper said. Citigroup fell 8 cents, or 2.6 percent, to $2.97 on May 1.
Clorox Co. (CLX:US): The world’s largest maker of bleach may rise to $118 in five years as profit margins increase on cost cutting and stabilized commodity prices, Barron’s reported. Clorox shares fell 75 cents, or 1.3 percent, to $55.30.
Harley-Davidson Inc. (HOG:US): The biggest U.S. motorcycle manufacturer said Chief Financial Officer Tom Bergmann is leaving the company.
Mentor Graphics Corp. (MENT:US): The semiconductor design and testing software developer may rise 30 percent during the next 12 months as chipmakers renew contracts and increase spending, Barron’s reported, without citing anyone. Mentor Graphics stock rose 4 cents to $6.76.
News Corp. (NWSA:US): “X-Men Origins: Wolverine” opened as the top film during the weekend, kicking off the summer movie season with $87 million in ticket sales for News Corp.’s Fox studio. News Corp. rose 12 cents to $8.38 on May 1.
Plains Exploration & Production Co. (PXP:US): The Houston- based oil and gas producer said Soros Fund Management LLC has a 5.38 percent stake in the company.
Simon Property Group Inc. (SPG:US): The real estate investment trust along with Vornado Realty Trust (VNO:US) and Boston Properties Inc. (BXP:US) may be safe bets for investors as commercial real estate markets struggle, Barron’s reported. Optimism about REITs has been increasing as the economy shows signs of bottoming and more than a dozen property companies have raised $7 billion of common equity, the weekly newspaper said in its May 4 issue. Simon Property stock fell $4.14, or 8 percent, to $47.46 on May 1. Vornado slid $1.36, or 2.8 percent, to $47.53, and Boston Properties declined $2.89, or 5.9 percent, to $46.53.
Aecom Technology Corp. (ACM:US): The architectural and engineering company said it bought Savant, a project and cost management consultant with about 600 employees, to expand in Europe. The terms of the transaction weren’t disclosed.
Citigroup Inc. (C:US): The U.S. bank may need to boost its capital reserves by as much as $10 billion, the Wall Street Journal reported, citing unidentified people familiar with the situation. The bank may need less capital if it convinces the Federal Reserve of its position, the newspaper said. Citigroup fell 8 cents, or 2.6 percent, to $2.97 on May 1.
Clorox Co. (CLX:US): The world’s largest maker of bleach may rise to $118 in five years as profit margins increase on cost cutting and stabilized commodity prices, Barron’s reported. Clorox shares fell 75 cents, or 1.3 percent, to $55.30.
Harley-Davidson Inc. (HOG:US): The biggest U.S. motorcycle manufacturer said Chief Financial Officer Tom Bergmann is leaving the company.
Mentor Graphics Corp. (MENT:US): The semiconductor design and testing software developer may rise 30 percent during the next 12 months as chipmakers renew contracts and increase spending, Barron’s reported, without citing anyone. Mentor Graphics stock rose 4 cents to $6.76.
News Corp. (NWSA:US): “X-Men Origins: Wolverine” opened as the top film during the weekend, kicking off the summer movie season with $87 million in ticket sales for News Corp.’s Fox studio. News Corp. rose 12 cents to $8.38 on May 1.
Plains Exploration & Production Co. (PXP:US): The Houston- based oil and gas producer said Soros Fund Management LLC has a 5.38 percent stake in the company.
Simon Property Group Inc. (SPG:US): The real estate investment trust along with Vornado Realty Trust (VNO:US) and Boston Properties Inc. (BXP:US) may be safe bets for investors as commercial real estate markets struggle, Barron’s reported. Optimism about REITs has been increasing as the economy shows signs of bottoming and more than a dozen property companies have raised $7 billion of common equity, the weekly newspaper said in its May 4 issue. Simon Property stock fell $4.14, or 8 percent, to $47.46 on May 1. Vornado slid $1.36, or 2.8 percent, to $47.53, and Boston Properties declined $2.89, or 5.9 percent, to $46.53.
Joblessness Probably Rose to 25-Year High: U.S. Economy Preview
May 3 (Bloomberg) -- Unemployment in the U.S. probably climbed in April to a 25-year high, showing the labor market will be one of the last areas to emerge from the worst recession in at least 50 years, economists said before reports this week.
The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report. Other figures may show service industries shrank at a slower pace.
Companies may keep trimming staff and spending in a bid to shore up profits until sales show sustained gains, something economists say is unlikely to happen for months. Even when an economic rebound begins to take hold, the loss of jobs and smaller paychecks are likely to lead to a muted expansion.
“The recession will be officially over this year, but the recovery will be sluggish,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “Getting out of the jobs recession will take longer.”
An estimated 600,000 workers were cut from payrolls last month, according to the survey median, bringing total job losses since the recession began in December 2007 to 5.7 million, the most of any economic slump in the post-World War II era.
It’s “hard to fathom any sustained strength in consumer spending” until the “hefty” job losses ease, said BMO’s Gregory, who estimated the unemployment rate may rise to 9.5 percent by yearend and level off around 9.7 percent in 2010.
GDP Shrinks
Gross domestic product dropped at a 6.1 percent annual pace in the first three months of this year after contracting at a 6.3 percent rate in the last quarter of 2008, government figures showed last week. Consumer spending climbed, ending its biggest slide since 1980.
Still, economists surveyed by Bloomberg in early April projected spending, the biggest part of the economy, will falter again this quarter before showing more sustained gains in the second half of the year.
Automakers have been among the hardest hit industries as consumers boost savings and pay down debt. Vehicles sold at a 9.3 million annual pace in April, less than forecast and down from a 9.9 million pace a month earlier, industry figures showed last week.
A liquidation by Chrysler LLC, which the government pushed into bankruptcy on April 30, would result in the loss of 38,500 jobs should its proposed partnership with Italy’s Fiat SpA be rejected by the court, the company estimated.
Fewer Dealers
General Motors Corp., surviving on U.S. loans, is working to beat a June 1 bankruptcy deadline set by the government. GM’s plan to trim its retail franchises may eliminate as many as 137,330 dealership jobs, the National Automobile Dealers Association estimated.
Economists project the Labor report may show manufacturers cut payrolls by 157,000 workers in April after a decline of 161,000 a month earlier.
One bright spot last month may have been government staffing for the 2010 census. The U.S. Census Bureau began hiring 140,000 temporary employees in April to start conducting the population count that happens once every 10 years. They are the first of more than 1.4 million people it will hire over the next year.
Another report may show service providers, which account for almost 90 percent of the economy, are starting to improve. The Institute for Supply Management’s index of non-manufacturing businesses probably climbed to 42 in April, according to the Bloomberg survey. Readings below 50 signal contraction. The Tempe, Arizona-based group will release the figures on May 5.
Casinos Hurting
The deteriorating labor market is one reason service industries are still shrinking, albeit at a slower pace. Las Vegas-based Wynn Resorts Ltd.’s revenue is down as business at casinos slows, Chief Executive Officer Steve Wynn said last week.
“People who have lost their jobs and whose businesses are in trouble don’t have money for leisure and optional expenses,” Wynn said in an April 28 speech in Beverly Hills, California.
The ISM’s gauge of manufacturing climbed to 40.1 in April, signaling the worst of the factory slump may be over, figures showed last week.
Employers are trying to get more out of the staff they have left to give profits an added lift. Labor Department figures on May 7 may show productivity grew at a 0.8 percent annual pace in the first quarter as companies slashed payrolls and hours even faster than output slumped, according to the Bloomberg survey.
Tomorrow, the National Association of Realtors may report the number of Americans who signed contracts to buy previously owned homes was probably unchanged in March as lower prices attracted buyers, according to the Bloomberg survey median.
The same day, the Commerce Department may say spending on construction projects fell in March for the sixth consecutive month, economists in the Bloomberg survey forecast.
The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report. Other figures may show service industries shrank at a slower pace.
Companies may keep trimming staff and spending in a bid to shore up profits until sales show sustained gains, something economists say is unlikely to happen for months. Even when an economic rebound begins to take hold, the loss of jobs and smaller paychecks are likely to lead to a muted expansion.
“The recession will be officially over this year, but the recovery will be sluggish,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “Getting out of the jobs recession will take longer.”
An estimated 600,000 workers were cut from payrolls last month, according to the survey median, bringing total job losses since the recession began in December 2007 to 5.7 million, the most of any economic slump in the post-World War II era.
It’s “hard to fathom any sustained strength in consumer spending” until the “hefty” job losses ease, said BMO’s Gregory, who estimated the unemployment rate may rise to 9.5 percent by yearend and level off around 9.7 percent in 2010.
GDP Shrinks
Gross domestic product dropped at a 6.1 percent annual pace in the first three months of this year after contracting at a 6.3 percent rate in the last quarter of 2008, government figures showed last week. Consumer spending climbed, ending its biggest slide since 1980.
Still, economists surveyed by Bloomberg in early April projected spending, the biggest part of the economy, will falter again this quarter before showing more sustained gains in the second half of the year.
Automakers have been among the hardest hit industries as consumers boost savings and pay down debt. Vehicles sold at a 9.3 million annual pace in April, less than forecast and down from a 9.9 million pace a month earlier, industry figures showed last week.
A liquidation by Chrysler LLC, which the government pushed into bankruptcy on April 30, would result in the loss of 38,500 jobs should its proposed partnership with Italy’s Fiat SpA be rejected by the court, the company estimated.
Fewer Dealers
General Motors Corp., surviving on U.S. loans, is working to beat a June 1 bankruptcy deadline set by the government. GM’s plan to trim its retail franchises may eliminate as many as 137,330 dealership jobs, the National Automobile Dealers Association estimated.
Economists project the Labor report may show manufacturers cut payrolls by 157,000 workers in April after a decline of 161,000 a month earlier.
One bright spot last month may have been government staffing for the 2010 census. The U.S. Census Bureau began hiring 140,000 temporary employees in April to start conducting the population count that happens once every 10 years. They are the first of more than 1.4 million people it will hire over the next year.
Another report may show service providers, which account for almost 90 percent of the economy, are starting to improve. The Institute for Supply Management’s index of non-manufacturing businesses probably climbed to 42 in April, according to the Bloomberg survey. Readings below 50 signal contraction. The Tempe, Arizona-based group will release the figures on May 5.
Casinos Hurting
The deteriorating labor market is one reason service industries are still shrinking, albeit at a slower pace. Las Vegas-based Wynn Resorts Ltd.’s revenue is down as business at casinos slows, Chief Executive Officer Steve Wynn said last week.
“People who have lost their jobs and whose businesses are in trouble don’t have money for leisure and optional expenses,” Wynn said in an April 28 speech in Beverly Hills, California.
The ISM’s gauge of manufacturing climbed to 40.1 in April, signaling the worst of the factory slump may be over, figures showed last week.
Employers are trying to get more out of the staff they have left to give profits an added lift. Labor Department figures on May 7 may show productivity grew at a 0.8 percent annual pace in the first quarter as companies slashed payrolls and hours even faster than output slumped, according to the Bloomberg survey.
Tomorrow, the National Association of Realtors may report the number of Americans who signed contracts to buy previously owned homes was probably unchanged in March as lower prices attracted buyers, according to the Bloomberg survey median.
The same day, the Commerce Department may say spending on construction projects fell in March for the sixth consecutive month, economists in the Bloomberg survey forecast.
Japan offers $100bn for Asian economies
Published: May 3 2009 14:55 | Last updated: May 3 2009 19:56
Japan has offered $100bn in financial assistance to Asian countries hit by the global financial crisis in a move that shores up its economic leadership in the region in spite of its own severe recession.
Tokyo announced at a meeting of the finance ministers of the 10 countries of the Association of South-East Asian Nations in Indonesia that it would set up a Y6,000bn ($61.5bn) bilateral currency swap scheme , on top of a $38.4bn commitment to the multilateral Chiang Mai initiative.
The Chiang Mai deal, a $120bn currency scheme that has been under discussion for years, was formally agreed on Sunday by the Asean countries, meeting with the finance ministers of Japan, China and South Korea. Japan also offered Y500bn in guarantees for potential Asian issuers of yen-denominated samurai bonds.
Kaoru Yosano, the Japanese finance minister, when asked if Japan could afford to deal with its own economic woes while helping fellow Asian strugglers, said the latest offers underlined Tokyo’s firm belief that the crisis required a more concerted international response.
“The financial crisis is not something hitting only a handful of countries ... That is why we believe it is an issue that can only be solved with international co-operation.”
Japan pledged $100bn in extra capital to the International Monetary Fund in November, and has been anxious to sustain its leadership in Asia in the face of China’s huge foreign reserves and rising economic muscle.
Rivalry between the two countries spilled over into the final stage of the Chiang Mai negotiations, with both agreeing to provide $38.4bn each. China’s share includes $4.2bn from Hong Kong. South Korea is providing $19.2bn, with the rest shared among the 10 south-east Asian nations.
The 13 countries also agreed to put $500m as initial capital into a new trust fund to guarantee local currency bond issues by Asian companies, which have been facing high borrowing costs because of investors’ low risk appetite for emerging markets.
Rajat Nag, managing director of the Asian Development Bank, said the credit guarantee mechanism would be of substantial benefit to “companies that might not have that sterling track record on their own”.
The ADB confirmed it wanted to inject $3bn into struggling economies, pending board approval, on top of a broader expansion of project lending.
Additional reporting by Robin Harding in Tokyo
Japan has offered $100bn in financial assistance to Asian countries hit by the global financial crisis in a move that shores up its economic leadership in the region in spite of its own severe recession.
Tokyo announced at a meeting of the finance ministers of the 10 countries of the Association of South-East Asian Nations in Indonesia that it would set up a Y6,000bn ($61.5bn) bilateral currency swap scheme , on top of a $38.4bn commitment to the multilateral Chiang Mai initiative.
The Chiang Mai deal, a $120bn currency scheme that has been under discussion for years, was formally agreed on Sunday by the Asean countries, meeting with the finance ministers of Japan, China and South Korea. Japan also offered Y500bn in guarantees for potential Asian issuers of yen-denominated samurai bonds.
Kaoru Yosano, the Japanese finance minister, when asked if Japan could afford to deal with its own economic woes while helping fellow Asian strugglers, said the latest offers underlined Tokyo’s firm belief that the crisis required a more concerted international response.
“The financial crisis is not something hitting only a handful of countries ... That is why we believe it is an issue that can only be solved with international co-operation.”
Japan pledged $100bn in extra capital to the International Monetary Fund in November, and has been anxious to sustain its leadership in Asia in the face of China’s huge foreign reserves and rising economic muscle.
Rivalry between the two countries spilled over into the final stage of the Chiang Mai negotiations, with both agreeing to provide $38.4bn each. China’s share includes $4.2bn from Hong Kong. South Korea is providing $19.2bn, with the rest shared among the 10 south-east Asian nations.
The 13 countries also agreed to put $500m as initial capital into a new trust fund to guarantee local currency bond issues by Asian companies, which have been facing high borrowing costs because of investors’ low risk appetite for emerging markets.
Rajat Nag, managing director of the Asian Development Bank, said the credit guarantee mechanism would be of substantial benefit to “companies that might not have that sterling track record on their own”.
The ADB confirmed it wanted to inject $3bn into struggling economies, pending board approval, on top of a broader expansion of project lending.
Additional reporting by Robin Harding in Tokyo
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