The Food and Drug Administration is seriously considering whether to approve the first genetically engineered animal that people would eat — salmon that can grow at twice the normal rate.
The developer of the salmon has been trying to get approval for a decade. But the company now seems to have submitted most or all of the data the F.D.A. needs to analyze whether the salmon are safe to eat, nutritionally equivalent to other salmon and safe for the environment, according to government and biotechnology industry officials. A public meeting to discuss the salmon may be held as early as this fall.
Some consumer and environmental groups are likely to raise objections to approval. Even within the F.D.A., there has been a debate about whether the salmon should be labeled as genetically engineered (genetically engineered crops are not labeled).
The salmon’s approval would help open a path for companies and academic scientists developing other genetically engineered animals, like cattle resistant to mad cow disease or pigs that could supply healthier bacon. Next in line behind the salmon for possible approval would probably be the “enviropig,” developed at a Canadian university, which has less phosphorus pollution in its manure.
The salmon was developed by a company called AquaBounty Technologies and would be raised in fish farms. It is an Atlantic salmon that contains a growth hormone gene from a Chinook salmon as well as a genetic on-switch from the ocean pout, a distant relative of the salmon.
Normally, salmon do not make growth hormone in cold weather. But the pout’s on-switch keeps production of the hormone going year round. The result is salmon that can grow to market size in 16 to 18 months instead of three years, though the company says the modified salmon will not end up any bigger than a conventional fish.
“You don’t get salmon the size of the Hindenburg,” said Ronald L. Stotish, the chief executive of AquaBounty. “You can get to those target weights in a shorter time.”
AquaBounty, which is based in Waltham, Mass., and publicly traded in London, said last week that the F.D.A. had signed off on five of the seven sets of data required to demonstrate that the fish was safe for consumption and for the environment. It said it demonstrated, for instance, that the inserted gene did not change through multiple generations and that the genetic engineering did not harm the animals.
“Perhaps in the next few months, we expect to see a final approval,” Mr. Stotish said.
But the company has been overly optimistic before.
He said it would take two or three years after approval for the salmon to reach supermarkets.
The F.D.A. confirmed it was reviewing the salmon but, because of confidentiality rules, would not comment further.
Under a policy announced in 2008, the F.D.A. is regulating genetically engineered animals as if they were veterinary drugs and using the rules for those drugs. And applications for approval of new drugs must be kept confidential by the agency.
Critics say the drug evaluation process does not allow full assessment of the possible environmental impacts of genetically altered animals and also blocks public input.
“There is no opportunity for anyone from the outside to see the data or criticize it,” said Margaret Mellon, director of the food and environment program at the Union of Concerned Scientists. When consumer groups were invited to discuss biotechnology policy with top F.D.A. officials last month, Ms. Mellon said she warned the officials that approval of the salmon would generate “a firestorm of negative response.”
How consumers will react is not entirely clear. Some public opinion surveys have shown that Americans are more wary about genetically engineered animals than about the genetically engineered crops now used in a huge number of foods. But other polls suggest that many Americans would accept the animals if they offered environmental or nutritional benefits.
Mr. Stotish said the benefit of the fast-growing salmon would be to help supply the world’s food needs using fewer resources.
Government officials and industry executives say the F.D.A. is moving cautiously on the salmon. “It’s going to be a P. R. issue,” said one government official, who spoke on the condition of anonymity because he was not authorized to speak about the issue.
Some of these government officials and executives said that F.D.A. officials had discussed internally whether the salmon could be labeled to give consumers the choice of avoiding them.
Friday, June 25, 2010
Obama Brings Fresh Momentum on Bank Capital Standards to G-20
June 26 (Bloomberg) -- President Barack Obama enters the Group of 20 summit today with added momentum for his push to increase bank capital standards: congressional action overhauling U.S. financial regulations.
Obama arrived in Canada yesterday, the same day U.S. lawmakers agreed on a compromise package of rules that would toughen capital standards for U.S. financial companies. The deal strengthens Obama’s hand as G-20 leaders meet in Toronto this afternoon following a gathering of the Group of Eight in Huntsville, Ontario, that will wrap up today.
“The progress that the U.S. has made will be important in driving the world not just to agreements here but to conclusions on financial regulations within the kind of timeframe we’ve been looking at,” Canadian Prime Minister Stephen Harper told reporters yesterday in Huntsville.
G-20 leaders have been split over how best to implement new standards, while agreeing on the general need for changes to avoid a repeat of the 2008 financial crisis. They also face opposition from banking officials such as BNP Paribas SA Chief Executive Officer Baudoin Prot, who warned that raising requirements too quickly would risk choking off lending.
“We had to show leadership to deal with the excessive risk-taking and the lack of adequate capital standards,” said Stuart Eizenstat, former deputy Treasury secretary under President Bill Clinton. “Toronto is not going to be able to come up with 20 countries” with “one set of international standards but it will get us pointed in that direction so that at Seoul in November, there is really a good chance of an agreement.”
Poverty Focus
The focus yesterday at the G-8 was on an initiative to promote maternal and child health in poor countries. Harper late yesterday announced that the group -- which includes Japan, Canada, the U.K., France, the U.S., Italy, Germany and Russia -- had agreed to commit $5 billion over five years.
There was also talk of financial matters. In a preview of what he plans to press in Toronto, Obama talked about bank capital, an administration official said. And leaders including Harper and German Chancellor Angela Merkel congratulated Obama on the financial legislation, said the official, who briefed reporters on the condition of anonymity.
Still, European leaders deflect any conversations about bank capital by bringing up regulation of tax havens, hedge funds, credit rating companies and compensation, U.S. officials said this month on condition of anonymity.
Bailout Costs
The G-20 pledged in Pittsburgh to strengthen capital standards and find a way to make banks bear the costs of any government assistance. Earlier this month in Busan, South Korea, finance ministers affirmed these commitments and their support for work by the Basel Committee on Banking Supervision.
The U.S. has tried to broker a deal on bank levies that would bridge the gap among G-20 members. Obama has proposed a limited-duration levy that would recoup taxpayer costs of the $700 billion Troubled Asset Relief Program, currently estimated at about $105 billion. The U.K. wants a revenue-raising tax on banks to help close its budget deficit, while Canada and Japan have been wary of any action on those lines.
“We need to work with our global partners to ensure we have adequate capital to avoid another meltdown,” said Daniel Alpert, managing partner of New York-based Westwood Capital, in an interview with Bloomberg Television. “European lenders have nowhere near enough of a capital cushion.”
Merkel, Sarkozy
European leaders such as Merkel and French President Nicolas Sarkozy have said any new capital requirements need a lengthy transition period. Merkel didn’t mention capital requirements yesterday, instead reiterating German support for an international bank levy even as she acknowledged it was unlikely to gain widespread backing.
“It’s our firm opinion that the financial markets have to pay part of the cost of the crisis and take precautions,” Merkel said. “We will lobby for this intensely once again, but realistically we have to see that not only industrial countries are skeptical, but also to some extent emerging nations.”
The U.S. oversight bill allows regulators to cap the amount of leverage banks can take on and requires foreign banks operating in the U.S. to hold as much capital as their domestic competition. It doesn’t include a bank levy.
Banks stocks rallied yesterday, with the Standard & Poor’s 500 Financials Index, whose 79 companies include JPMorgan Chase & Co. and Goldman Sachs Group Inc., rising 2.8 percent.
Bridge Differences
Obama and Treasury Secretary Timothy F. Geithner are trying to bridge differences between bank-tax supporters such as England and Germany and those opposed, including Canada, China and Brazil. The U.S. will push for a deal in which countries agree on the principle of shielding taxpayers from bank rescues, while allowing each nation to choose their own approach.
Russia opposes proposals to impose a tax on banks, said Arkady Dvorkovich, an economic adviser to President Dmitry Medvedev. Speaking to reporters yesterday, Dvorkovich said G-20 leaders were also unlikely to agree to tax financial transactions.
“A one-size-fits-all approach may not be productive,” said Kazuo Kodama, a spokesman for Japan’s Ministry of Foreign Affairs, at a press conference in Toronto. He declined to give Prime Minister Naoto Kan’s position on the bank tax.
Leaders will also be focused on the issue of sustaining the global economic recovery while coping with rising debt burdens. Obama is pushing the G-20 to focus first on economic growth, rather than on budget cuts that might hinder demand. Nations such as Germany and the U.K. are tightening budgets in an effort to increase investor confidence after the debt crisis in Greece.
Withdraw Stimulus
A European official, speaking to reporters on condition of anonymity, said there’s a consensus within the G-8 that the withdrawal of the stimulus must be phased over time and start in 2011 except for the most fragile economies. The official said the debate focuses on how steep the deficit reductions should be.
“You have to continue to support the recovery and at the same time you have to continue to focus on markets’ concerns and for your own interest you have to normalize the debt and the deficit situation,” OECD Secretary General Angel Gurria said in an interview with Bloomberg Television yesterday. “Europe is putting its act together.”
U.S. Treasuries are having their best year since 1995, returning 5 percent through June 24, according to Bank of America Merrill Lynch index data, as investors seek alternatives to Europe, where Greece and Spain had their credit ratings downgraded amid growing budget deficits.
Obama arrived in Canada yesterday, the same day U.S. lawmakers agreed on a compromise package of rules that would toughen capital standards for U.S. financial companies. The deal strengthens Obama’s hand as G-20 leaders meet in Toronto this afternoon following a gathering of the Group of Eight in Huntsville, Ontario, that will wrap up today.
“The progress that the U.S. has made will be important in driving the world not just to agreements here but to conclusions on financial regulations within the kind of timeframe we’ve been looking at,” Canadian Prime Minister Stephen Harper told reporters yesterday in Huntsville.
G-20 leaders have been split over how best to implement new standards, while agreeing on the general need for changes to avoid a repeat of the 2008 financial crisis. They also face opposition from banking officials such as BNP Paribas SA Chief Executive Officer Baudoin Prot, who warned that raising requirements too quickly would risk choking off lending.
“We had to show leadership to deal with the excessive risk-taking and the lack of adequate capital standards,” said Stuart Eizenstat, former deputy Treasury secretary under President Bill Clinton. “Toronto is not going to be able to come up with 20 countries” with “one set of international standards but it will get us pointed in that direction so that at Seoul in November, there is really a good chance of an agreement.”
Poverty Focus
The focus yesterday at the G-8 was on an initiative to promote maternal and child health in poor countries. Harper late yesterday announced that the group -- which includes Japan, Canada, the U.K., France, the U.S., Italy, Germany and Russia -- had agreed to commit $5 billion over five years.
There was also talk of financial matters. In a preview of what he plans to press in Toronto, Obama talked about bank capital, an administration official said. And leaders including Harper and German Chancellor Angela Merkel congratulated Obama on the financial legislation, said the official, who briefed reporters on the condition of anonymity.
Still, European leaders deflect any conversations about bank capital by bringing up regulation of tax havens, hedge funds, credit rating companies and compensation, U.S. officials said this month on condition of anonymity.
Bailout Costs
The G-20 pledged in Pittsburgh to strengthen capital standards and find a way to make banks bear the costs of any government assistance. Earlier this month in Busan, South Korea, finance ministers affirmed these commitments and their support for work by the Basel Committee on Banking Supervision.
The U.S. has tried to broker a deal on bank levies that would bridge the gap among G-20 members. Obama has proposed a limited-duration levy that would recoup taxpayer costs of the $700 billion Troubled Asset Relief Program, currently estimated at about $105 billion. The U.K. wants a revenue-raising tax on banks to help close its budget deficit, while Canada and Japan have been wary of any action on those lines.
“We need to work with our global partners to ensure we have adequate capital to avoid another meltdown,” said Daniel Alpert, managing partner of New York-based Westwood Capital, in an interview with Bloomberg Television. “European lenders have nowhere near enough of a capital cushion.”
Merkel, Sarkozy
European leaders such as Merkel and French President Nicolas Sarkozy have said any new capital requirements need a lengthy transition period. Merkel didn’t mention capital requirements yesterday, instead reiterating German support for an international bank levy even as she acknowledged it was unlikely to gain widespread backing.
“It’s our firm opinion that the financial markets have to pay part of the cost of the crisis and take precautions,” Merkel said. “We will lobby for this intensely once again, but realistically we have to see that not only industrial countries are skeptical, but also to some extent emerging nations.”
The U.S. oversight bill allows regulators to cap the amount of leverage banks can take on and requires foreign banks operating in the U.S. to hold as much capital as their domestic competition. It doesn’t include a bank levy.
Banks stocks rallied yesterday, with the Standard & Poor’s 500 Financials Index, whose 79 companies include JPMorgan Chase & Co. and Goldman Sachs Group Inc., rising 2.8 percent.
Bridge Differences
Obama and Treasury Secretary Timothy F. Geithner are trying to bridge differences between bank-tax supporters such as England and Germany and those opposed, including Canada, China and Brazil. The U.S. will push for a deal in which countries agree on the principle of shielding taxpayers from bank rescues, while allowing each nation to choose their own approach.
Russia opposes proposals to impose a tax on banks, said Arkady Dvorkovich, an economic adviser to President Dmitry Medvedev. Speaking to reporters yesterday, Dvorkovich said G-20 leaders were also unlikely to agree to tax financial transactions.
“A one-size-fits-all approach may not be productive,” said Kazuo Kodama, a spokesman for Japan’s Ministry of Foreign Affairs, at a press conference in Toronto. He declined to give Prime Minister Naoto Kan’s position on the bank tax.
Leaders will also be focused on the issue of sustaining the global economic recovery while coping with rising debt burdens. Obama is pushing the G-20 to focus first on economic growth, rather than on budget cuts that might hinder demand. Nations such as Germany and the U.K. are tightening budgets in an effort to increase investor confidence after the debt crisis in Greece.
Withdraw Stimulus
A European official, speaking to reporters on condition of anonymity, said there’s a consensus within the G-8 that the withdrawal of the stimulus must be phased over time and start in 2011 except for the most fragile economies. The official said the debate focuses on how steep the deficit reductions should be.
“You have to continue to support the recovery and at the same time you have to continue to focus on markets’ concerns and for your own interest you have to normalize the debt and the deficit situation,” OECD Secretary General Angel Gurria said in an interview with Bloomberg Television yesterday. “Europe is putting its act together.”
U.S. Treasuries are having their best year since 1995, returning 5 percent through June 24, according to Bank of America Merrill Lynch index data, as investors seek alternatives to Europe, where Greece and Spain had their credit ratings downgraded amid growing budget deficits.
India Frees Gasoline, Diesel Prices to Help Cut Expenditure
June 26 (Bloomberg) -- India decided to free prices of gasoline and diesel, saying they would be market driven in line with a panel’s recommendations, to cut fuel subsidies and limit losses of state-run refiners including Indian Oil Corp.
A panel led by Finance Minister Pranab Mukherjee also agreed to increase prices of cooking gas and kerosene, which will continue to be under government control, Oil Secretary S. Sundareshan told reporters in New Delhi yesterday. Diesel prices are being raised by two rupees a liter for now and the fuel will eventually be freed from state control, he said.
Gasoline has been freed fully and prices will be increased by “about 3 1/2 rupees” a liter, Oil Minister Murli Deora said.
Prospects of improved profitability from free pricing and expanded fuel retailing by private refiners boosted their shares. A lower fuel subsidy bill may help Prime Minister Manmohan Singh reduce the fiscal deficit to 5.5 percent of gross domestic product this financial year from an estimated 6.9 percent last year.
“This is a game-changer for the sector,” said Saeed Jaffery, a Mumbai-based analyst with Ambit Capital Pvt. “This should also help Reliance Industries and Essar Oil to roll out their retail networks again.”
Non-state companies including Reliance Industries Ltd., the nation’s biggest refiner, and Essar Oil Ltd. mothballed their gasoline outlets nationwide after they were unable to match prices offered by state-run rivals as crude soared to a record in 2008.
Shares Surge
State-run refiners had their biggest gain in more than a year. Indian Oil Corp., the nation’s biggest state-owned refiner, soared 11 percent, the most since May 21, 2009, to 377.95 rupees in Mumbai yesterday. Bharat Petroleum Corp. gained 13 percent and Hindustan Petroleum Corp. surged 14 percent, both rising the most since May 18, 2009. The benchmark Sensitive Index fell 0.9 percent.
“Oil and gas companies, which have been pretty undervalued, are now poised to make a comeback,” said Mahesh Patil, who manages about $3 billion in equities at Birla Sun Life Asset Management Co. in Mumbai. “We will see their true potential now. The market will start to reward them.”
State-owned refiners can start considering selling shares as their stocks may be fully valued, Sundareshan said. The decision may also help non-state refiners to open their retail outlets, he said.
Private Refiners
Essar Oil, which owns 1,300 retail fuel stations in India, said the consumer will benefit through competitive pricing and better services offered at outlets.
“We already have in place plans to increase significantly the number of retail fuel outlets that we have,” Naresh Nayyar, chief executive officer of Essar Oil’s parent company Essar Energy Ltd., said in a statement. “This decision creates a level playing field between government-owned and private-sector fuel retailers.”
Reliance Industries gained 1 percent to 1,062.95 rupees and Essar Oil climbed 6.4 percent to 137.65 rupees yesterday.
The increase in gasoline and diesel prices is the third this year. The government raised auto fuel prices for the first time on Feb. 27 after Mukherjee imposed import duty and excise tax on crude oil and refined products. State refiners were then allowed to increase rates on April 1 after they started selling Euro IV-compliant motor fuels.
The current price of gasoline in Delhi is 47.93 rupees a liter, according to Indian Oil’s website. Diesel costs 38.10 rupees a liter.
Panel Recommendations
A government-appointed panel headed by Kirit Parikh, a former member of the nation’s Planning Commission, recommended in February that India free gasoline and diesel prices from state control and increase kerosene and cooking gas rates. India more than doubled prices of natural gas sold by state-run Oil & Natural Gas Corp. and Oil India Ltd. last month.
Deora wrote to state chief ministers seeking a reduction and rationalization of local taxes on gasoline and diesel, the oil ministry said in an e-mailed statement June 21. The government is committed to supplying affordable oil products, Deora said.
Crude for August delivery increased $2.35 to settle at $78.86 a barrel on the New York Mercantile Exchange yesterday. It was the biggest gain since June 9. The contract increased 0.8 percent this week.
Inflation, Harvest
The increase in fuel prices may spur inflation by 130 basis points, JPMorgan Chase & Co. economist Jahangir Aziz said in a phone interview.
India’s benchmark wholesale-price inflation unexpectedly accelerated 10.16 percent in May from a year earlier.
The country’s inflation rate may halve to about 5 percent by March as better harvests this year are expected to cut farm prices, Mukherjee said at the Institute of International Finance in Washington June 21. The government expects agriculture output to rise after the weather office predicted the June-September monsoon rains would be normal.
The government’s decision may also benefit Oil & Natural Gas Corp. and other state-run explorers, which partly compensated Indian state refiners for selling fuels at fixed prices by selling crude to them at a discount. ONGC shares rose 6.2 percent to 1,263.40 rupees, the highest level since Jan. 15, 2008.
Fuel Subsidies
The government hasn’t decided how frequently gasoline prices may be changed. State refiners won’t revise rates at fixed intervals to prevent hoarding, Sundareshan said.
Bharat Petroleum may change gasoline prices every 15 days or monthly, Chairman Ashok Sinha told reporters in New Delhi.
Fuel subsidies given by the government to state refiners fell to 260 billion rupees ($5.5 billion) in the year ended March 31 as oil declined from a record in July 2008. The refiners received 713 billion rupees in bonds as compensation a year earlier, according to the government.
India last freed prices of oil products from government control in April 2002, giving state-owned refiners freedom to set retail prices twice a month. That stopped in December 2003 after the then Bharatiya Janata Party-led government barred them from raising rates before the May 2004 elections.
A panel led by Finance Minister Pranab Mukherjee also agreed to increase prices of cooking gas and kerosene, which will continue to be under government control, Oil Secretary S. Sundareshan told reporters in New Delhi yesterday. Diesel prices are being raised by two rupees a liter for now and the fuel will eventually be freed from state control, he said.
Gasoline has been freed fully and prices will be increased by “about 3 1/2 rupees” a liter, Oil Minister Murli Deora said.
Prospects of improved profitability from free pricing and expanded fuel retailing by private refiners boosted their shares. A lower fuel subsidy bill may help Prime Minister Manmohan Singh reduce the fiscal deficit to 5.5 percent of gross domestic product this financial year from an estimated 6.9 percent last year.
“This is a game-changer for the sector,” said Saeed Jaffery, a Mumbai-based analyst with Ambit Capital Pvt. “This should also help Reliance Industries and Essar Oil to roll out their retail networks again.”
Non-state companies including Reliance Industries Ltd., the nation’s biggest refiner, and Essar Oil Ltd. mothballed their gasoline outlets nationwide after they were unable to match prices offered by state-run rivals as crude soared to a record in 2008.
Shares Surge
State-run refiners had their biggest gain in more than a year. Indian Oil Corp., the nation’s biggest state-owned refiner, soared 11 percent, the most since May 21, 2009, to 377.95 rupees in Mumbai yesterday. Bharat Petroleum Corp. gained 13 percent and Hindustan Petroleum Corp. surged 14 percent, both rising the most since May 18, 2009. The benchmark Sensitive Index fell 0.9 percent.
“Oil and gas companies, which have been pretty undervalued, are now poised to make a comeback,” said Mahesh Patil, who manages about $3 billion in equities at Birla Sun Life Asset Management Co. in Mumbai. “We will see their true potential now. The market will start to reward them.”
State-owned refiners can start considering selling shares as their stocks may be fully valued, Sundareshan said. The decision may also help non-state refiners to open their retail outlets, he said.
Private Refiners
Essar Oil, which owns 1,300 retail fuel stations in India, said the consumer will benefit through competitive pricing and better services offered at outlets.
“We already have in place plans to increase significantly the number of retail fuel outlets that we have,” Naresh Nayyar, chief executive officer of Essar Oil’s parent company Essar Energy Ltd., said in a statement. “This decision creates a level playing field between government-owned and private-sector fuel retailers.”
Reliance Industries gained 1 percent to 1,062.95 rupees and Essar Oil climbed 6.4 percent to 137.65 rupees yesterday.
The increase in gasoline and diesel prices is the third this year. The government raised auto fuel prices for the first time on Feb. 27 after Mukherjee imposed import duty and excise tax on crude oil and refined products. State refiners were then allowed to increase rates on April 1 after they started selling Euro IV-compliant motor fuels.
The current price of gasoline in Delhi is 47.93 rupees a liter, according to Indian Oil’s website. Diesel costs 38.10 rupees a liter.
Panel Recommendations
A government-appointed panel headed by Kirit Parikh, a former member of the nation’s Planning Commission, recommended in February that India free gasoline and diesel prices from state control and increase kerosene and cooking gas rates. India more than doubled prices of natural gas sold by state-run Oil & Natural Gas Corp. and Oil India Ltd. last month.
Deora wrote to state chief ministers seeking a reduction and rationalization of local taxes on gasoline and diesel, the oil ministry said in an e-mailed statement June 21. The government is committed to supplying affordable oil products, Deora said.
Crude for August delivery increased $2.35 to settle at $78.86 a barrel on the New York Mercantile Exchange yesterday. It was the biggest gain since June 9. The contract increased 0.8 percent this week.
Inflation, Harvest
The increase in fuel prices may spur inflation by 130 basis points, JPMorgan Chase & Co. economist Jahangir Aziz said in a phone interview.
India’s benchmark wholesale-price inflation unexpectedly accelerated 10.16 percent in May from a year earlier.
The country’s inflation rate may halve to about 5 percent by March as better harvests this year are expected to cut farm prices, Mukherjee said at the Institute of International Finance in Washington June 21. The government expects agriculture output to rise after the weather office predicted the June-September monsoon rains would be normal.
The government’s decision may also benefit Oil & Natural Gas Corp. and other state-run explorers, which partly compensated Indian state refiners for selling fuels at fixed prices by selling crude to them at a discount. ONGC shares rose 6.2 percent to 1,263.40 rupees, the highest level since Jan. 15, 2008.
Fuel Subsidies
The government hasn’t decided how frequently gasoline prices may be changed. State refiners won’t revise rates at fixed intervals to prevent hoarding, Sundareshan said.
Bharat Petroleum may change gasoline prices every 15 days or monthly, Chairman Ashok Sinha told reporters in New Delhi.
Fuel subsidies given by the government to state refiners fell to 260 billion rupees ($5.5 billion) in the year ended March 31 as oil declined from a record in July 2008. The refiners received 713 billion rupees in bonds as compensation a year earlier, according to the government.
India last freed prices of oil products from government control in April 2002, giving state-owned refiners freedom to set retail prices twice a month. That stopped in December 2003 after the then Bharatiya Janata Party-led government barred them from raising rates before the May 2004 elections.
Ambanis agree terms on gas supply
India’s billionaire Ambani brothers have reached a new gas supply agreement, they said on Friday, settling for now the issue at the centre of a bitter family feud that echoed through the halls of power in New Delhi.
Younger brother Anil Ambani’s Reliance Natural Resources said it had reached an agreement to buy gas from elder brother Mukesh Ambani’s Reliance Industries.
Reliance Natural Resources “will now take appropriate steps requesting the government of India for expeditious allocation of natural gas,” the company told the Bombay Stock Exchange.
The dispute dates from a family agreement in 2005 dividing the business empire of the brothers’ late father, Dhirubhai Ambani, between them.
Mukesh won control of their father’s flagship company, Reliance Industries, including its most valuable assets – its giant oil refinery in Gujarat, western India, and the KG Basin gas field off the coast of eastern India.
Anil took over the group’s telecoms arm, Reliance Communications, India’s second-biggest mobile operator, as well as its financial divisions and its nascent power generation and energy arm.
As part of the family agreement, Mukesh agreed to supply his brother’s fledgling power plant business with gas.
But the pair fell out over the price of the gas. Mukesh’s Reliance Industries argued it had to conform to a government-approved price of $4.20 per million British thermal units, while Anil’s Reliance Natural Resources said it should sell for nearly half that.
The dispute became increasingly vocal with Anil publishing adverts in newspapers setting out his position and even visiting a Himalayan shrine to pray for a rapprochement with his brother.
But Anil’s Reliance Natural Resources was defeated in the Supreme Court, which ruled that only the government had the right to decide the allocation and price of the gas.
Announcements from both companies on Friday did not disclose any details of the terms of the new gas supply agreement.
“In terms of volumes, price and timing, till such time as the Ministry of Petroleum and Natural Gas approves it, it is not a valid agreement,” said Bhaskar Chakraborty, analyst with Mumbai-based brokerage IIFL.
The gas supply issue could yet prove contentious for the brothers. Anil Ambani’s business group will take several more years to build the power plants that will use the gas.
In the meantime, the price approved by the government of $4.20mmbtu will expire in four years, after which the minister will be free to set a new price.
Younger brother Anil Ambani’s Reliance Natural Resources said it had reached an agreement to buy gas from elder brother Mukesh Ambani’s Reliance Industries.
Reliance Natural Resources “will now take appropriate steps requesting the government of India for expeditious allocation of natural gas,” the company told the Bombay Stock Exchange.
The dispute dates from a family agreement in 2005 dividing the business empire of the brothers’ late father, Dhirubhai Ambani, between them.
Mukesh won control of their father’s flagship company, Reliance Industries, including its most valuable assets – its giant oil refinery in Gujarat, western India, and the KG Basin gas field off the coast of eastern India.
Anil took over the group’s telecoms arm, Reliance Communications, India’s second-biggest mobile operator, as well as its financial divisions and its nascent power generation and energy arm.
As part of the family agreement, Mukesh agreed to supply his brother’s fledgling power plant business with gas.
But the pair fell out over the price of the gas. Mukesh’s Reliance Industries argued it had to conform to a government-approved price of $4.20 per million British thermal units, while Anil’s Reliance Natural Resources said it should sell for nearly half that.
The dispute became increasingly vocal with Anil publishing adverts in newspapers setting out his position and even visiting a Himalayan shrine to pray for a rapprochement with his brother.
But Anil’s Reliance Natural Resources was defeated in the Supreme Court, which ruled that only the government had the right to decide the allocation and price of the gas.
Announcements from both companies on Friday did not disclose any details of the terms of the new gas supply agreement.
“In terms of volumes, price and timing, till such time as the Ministry of Petroleum and Natural Gas approves it, it is not a valid agreement,” said Bhaskar Chakraborty, analyst with Mumbai-based brokerage IIFL.
The gas supply issue could yet prove contentious for the brothers. Anil Ambani’s business group will take several more years to build the power plants that will use the gas.
In the meantime, the price approved by the government of $4.20mmbtu will expire in four years, after which the minister will be free to set a new price.
Thursday, June 24, 2010
Asian Stocks Fall on U.S. Earnings; Yen Gains on Europe Concern
June 25 (Bloomberg) -- Asian stocks dropped the most in nearly three weeks on disappointing sales and earnings forecasts by U.S. companies. The yen traded near a two-week high against the euro on speculation a Group of 20 summit this weekend won’t decide how to tackle Europe’s debt crisis.
The MSCI Asia Pacific Index lost 1.6 percent to 115.29 at 1:45 p.m. in Tokyo with four stocks down for every one that rose. The yen traded at 110.14 per euro in Tokyo from 110.52 in New York yesterday. Standard & Poor’s 500 Index futures were little changed, following a 1.7 percent drop in U.S. trading yesterday.
“People are somewhat circumspect about the prospects for global growth,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Doubts about how strong the U.S. recovery is and its trajectory, particularly for the second half of 2010, have increased.”
U.S. reports showing a decline in jobless claims and rise in durable goods orders failed to stem the S&P 500’s longest losing streak in seven weeks yesterday as Dell Inc. forecast 2011 sales below some analysts’ expectations. Nike Inc. shares lost 4 percent after reporting revenue that missed the average of analyst estimates. Group of Eight leaders prepared for a summit today in which they’ll debate how far governments can slash budgets without choking the recovery.
European policy makers fear failure to patch up public finances now risks reviving a bond market selloff that required a bailout for Greece last month, while President Barack Obama says deficit reduction could hurt growth and employment. Obama and colleagues from the G-8 meet today in Huntsville, Ontario, and join their G-20 counterparts tomorrow in Toronto.
Asian Exporters
Asian exporters to the U.S. declined after Dell, the world’s third-largest maker of personal computers, said fiscal 2011 earnings may be as little as $60.31 billion, compared with analysts’ predictions of $61.79 billion. Bed Bath & Beyond Inc., a retailer of home-furnishings, forecast second-quarter earnings that missed analyst estimates.
Toyota Motor Corp., the world’s largest automaker, lost 1.6 percent in Tokyo. Canon Inc., a camera maker that gets about 80 percent of revenue outside Japan, fell 4.3 percent. BHP Billiton, the biggest mining company, slid 1.9 percent. The No. 1 computer memory chipmaker, Samsung Electronics Co., slipped 2.1 percent.
The MSCI Emerging Markets Index fell 0.8 percent, the fourth straight decline, set for its longest losing streak in seven weeks. Net inflows to developing-nation stock funds this year have reached 57 percent of the tally for the same period in 2009 even after money managers got fresh funds in the week ended June 23, EPFR Global said in an e-mailed statement.
Taiwan Rates
Taiwan’s Taiex index fell 1.7 percent after the central bank unexpectedly raised its benchmark interest rate for the first time since 2008 and urged lenders to increase risk controls on mortgage loans. Farglory Land Development Co., Taiwan’s biggest real-estate developer, plunged 5.7 percent. The South Korean benchmark Kospi index declined 0.8 percent, paring its fourth straight weekly advance.
Copper dropped in London, trimming the third weekly gain in 11 weeks, as signs of a slowdown in the recovery offset expectations of a stronger yuan and a weaker dollar. Zinc also declined. Three-month delivery copper fell 1.4 percent to $6,600 a metric ton on the London Metal Exchange. Zinc fell 1.6 percent to $1,844.25 a ton.
Yuan Gains
The yuan headed for its biggest weekly gain since December 2008 as China set the currency’s daily reference rate at a record high against the dollar, allowing appreciation before the G-20 meeting which President Hu Jintao will attend. Obama said yesterday that it’s “too early to tell” whether China’s decision to allow more flexibility in its currency will be sufficient to rebalance the world economy.
The yuan was at 6.79 per dollar as of the 9:30 a.m. open in Shanghai, up 0.14 percent. It has gained 0.53 percent this week, the most since December 2008. Chinese Foreign Ministry spokesman Qin Gang told reporters in Beijing yesterday that a revalued yuan won’t solve U.S. economic woes.
Crude oil traded below $77 a barrel in New York, poised for the first weekly decline in three. Crude for August delivery was at $76.17 a barrel, down 34 cents, in electronic trading on the New York Mercantile Exchange.
The cost of protecting Asia-Pacific bonds from non-payment rose, according to traders of credit-default swaps.
The Markit iTraxx Japan index advanced 3.5 basis points to 136.5 basis points in Tokyo, according to Morgan Stanley. The Markit iTraxx Australia index increased 3 basis points to 133 basis points in Sydney, according to Nomura Holdings Inc.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 2 basis points to 135 in Singapore, Royal Bank of Scotland Group Plc prices show. A basis point is 0.01 percentage point.
The MSCI Asia Pacific Index lost 1.6 percent to 115.29 at 1:45 p.m. in Tokyo with four stocks down for every one that rose. The yen traded at 110.14 per euro in Tokyo from 110.52 in New York yesterday. Standard & Poor’s 500 Index futures were little changed, following a 1.7 percent drop in U.S. trading yesterday.
“People are somewhat circumspect about the prospects for global growth,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Doubts about how strong the U.S. recovery is and its trajectory, particularly for the second half of 2010, have increased.”
U.S. reports showing a decline in jobless claims and rise in durable goods orders failed to stem the S&P 500’s longest losing streak in seven weeks yesterday as Dell Inc. forecast 2011 sales below some analysts’ expectations. Nike Inc. shares lost 4 percent after reporting revenue that missed the average of analyst estimates. Group of Eight leaders prepared for a summit today in which they’ll debate how far governments can slash budgets without choking the recovery.
European policy makers fear failure to patch up public finances now risks reviving a bond market selloff that required a bailout for Greece last month, while President Barack Obama says deficit reduction could hurt growth and employment. Obama and colleagues from the G-8 meet today in Huntsville, Ontario, and join their G-20 counterparts tomorrow in Toronto.
Asian Exporters
Asian exporters to the U.S. declined after Dell, the world’s third-largest maker of personal computers, said fiscal 2011 earnings may be as little as $60.31 billion, compared with analysts’ predictions of $61.79 billion. Bed Bath & Beyond Inc., a retailer of home-furnishings, forecast second-quarter earnings that missed analyst estimates.
Toyota Motor Corp., the world’s largest automaker, lost 1.6 percent in Tokyo. Canon Inc., a camera maker that gets about 80 percent of revenue outside Japan, fell 4.3 percent. BHP Billiton, the biggest mining company, slid 1.9 percent. The No. 1 computer memory chipmaker, Samsung Electronics Co., slipped 2.1 percent.
The MSCI Emerging Markets Index fell 0.8 percent, the fourth straight decline, set for its longest losing streak in seven weeks. Net inflows to developing-nation stock funds this year have reached 57 percent of the tally for the same period in 2009 even after money managers got fresh funds in the week ended June 23, EPFR Global said in an e-mailed statement.
Taiwan Rates
Taiwan’s Taiex index fell 1.7 percent after the central bank unexpectedly raised its benchmark interest rate for the first time since 2008 and urged lenders to increase risk controls on mortgage loans. Farglory Land Development Co., Taiwan’s biggest real-estate developer, plunged 5.7 percent. The South Korean benchmark Kospi index declined 0.8 percent, paring its fourth straight weekly advance.
Copper dropped in London, trimming the third weekly gain in 11 weeks, as signs of a slowdown in the recovery offset expectations of a stronger yuan and a weaker dollar. Zinc also declined. Three-month delivery copper fell 1.4 percent to $6,600 a metric ton on the London Metal Exchange. Zinc fell 1.6 percent to $1,844.25 a ton.
Yuan Gains
The yuan headed for its biggest weekly gain since December 2008 as China set the currency’s daily reference rate at a record high against the dollar, allowing appreciation before the G-20 meeting which President Hu Jintao will attend. Obama said yesterday that it’s “too early to tell” whether China’s decision to allow more flexibility in its currency will be sufficient to rebalance the world economy.
The yuan was at 6.79 per dollar as of the 9:30 a.m. open in Shanghai, up 0.14 percent. It has gained 0.53 percent this week, the most since December 2008. Chinese Foreign Ministry spokesman Qin Gang told reporters in Beijing yesterday that a revalued yuan won’t solve U.S. economic woes.
Crude oil traded below $77 a barrel in New York, poised for the first weekly decline in three. Crude for August delivery was at $76.17 a barrel, down 34 cents, in electronic trading on the New York Mercantile Exchange.
The cost of protecting Asia-Pacific bonds from non-payment rose, according to traders of credit-default swaps.
The Markit iTraxx Japan index advanced 3.5 basis points to 136.5 basis points in Tokyo, according to Morgan Stanley. The Markit iTraxx Australia index increased 3 basis points to 133 basis points in Sydney, according to Nomura Holdings Inc.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 2 basis points to 135 in Singapore, Royal Bank of Scotland Group Plc prices show. A basis point is 0.01 percentage point.
A Long, Hard Path to the Public
In 2000, when three Yale undergraduates founded an online financial services company called Higher One Holdings, they had visions of rapid growth and successively bigger rounds of financing from investors. With any luck, momentum would build toward the ultimate dot-com dream: a stock listing on a major public exchange.
Along the way, though, market forces placed obstacles in their path. First there was the collapse of the Internet bubble, followed by a drought in private equity activity.
Then came a credit crisis that became a global banking crisis and, later, worries about European sovereign debt. As with so many other start-ups, Higher One’s founders spent years building the company.
Finally, a decade after its founding, Higher One got its chance on June 17, raising nearly $35 million in an initial public offering on the New York Stock Exchange. The shares made their debut at $12 and closed on Thursday at $14.67, a slight rise from their first-day close.
Many analysts view Higher One’s success as a sign of a long-awaited thaw in the market for initial public offerings. About 62 companies have come to market this year in the United States, according to Thomson Reuters, outpacing the 61 that went public last year and the 34 that did so in 2008. An additional 125 companies have started the process in hopes of soon going public.
The rise is being watched closely by venture capitalists and private equity investors who have been waiting years to cash out of their holdings in companies like Higher One.
But the offerings are not without risk. Stock prices have been unusually volatile this year, with indexes soaring 10 percent from February to April, only to give back those gains and then some by June. A poorly timed initial offering can be disastrous for a company, for reasons having nothing to do with its own performance or prospects.
“Are things better today? Yes,” said Mark G. Heesen, president of the National Venture Capital Association, adding that many venture firms had been waiting for the exit market to improve before raising money for new funds. “But as I have said in the past, we’ve gone from a D+ to a C-.”
That is one reason 21 companies have withdrawn or postponed their offerings this year, according to Renaissance Capital, among them Solyndra, a maker of solar panels. And reports said the private equity firm Kohlberg Kravis Roberts postponed moving its listing to New York from Amsterdam.
“It’s a tough I.P.O. environment, but the best companies can get through the window,” said Stewart Gross, a managing director at Lightyear Capital, a private equity firm that invested in Higher One in 2008 and helped guide it through the public offering process.
Higher One was one of six companies that went public last week; they raised a total of $1.2 billion, the most in any week this year. Higher One initially set a share price range of $15 to $17, but lowered the target to $12 before the opening.
On June 17, its first day of trading, Casey McGuane, Higher One’s chief service officer, rang the opening bell on the New York Stock Exchange. By day’s end, the company’s shares had risen 19 percent, to close at $14.27.
How have this year’s stock openings performed? Six priced above their filing ranges, 28 priced within their ranges and 32 priced below, according to Dealogic, which counts 66 offerings so far this year. The tepid results have companies that are considering public offerings closely watching the public markets.
New stock listings are receiving attention not only for their swelling numbers but also for their size and brand-name appeal. Companies that have announced initial offering plans include Toys “R” Us, which is seeking to raise $800 million; the consulting firm Booz Allen Hamilton ($300 million); Tesla Motors, a maker of high-performance electric cars ($178 million); and Zipcar, the car-sharing service ($75 million).
Also in the pipeline are larger deals like HCA, the hospital chain ($4.6 billion) and Nielsen Holdings ($1.75 billion).
The largest initial offering this year could be that of Agricultural Bank of China, which is preparing a dual listing in Hong Kong and Shanghai for next month that could raise as much as $25 billion. The bank, which has about 24,000 branches with a focus on rural areas of China, started marketing its stock listing on Thursday.
At Higher One’s headquarters in New Haven, Conn., not far from Yale, Mark Volchek, one of the company’s founders and now its chief financial officer, said he was always confident about the offering despite the unpredictable state of the markets.
“Everyone wishes the market was better,” Mr. Volchek said. But unlike so many technology start-ups that went public a decade ago with virtually no revenue or track record, he added, “we were a strong, profitable company.”
According to its regulatory filings, Higher One had net income of $14.2 million on revenue of $75.5 million in 2009.
Higher One is like an online alternative to the college bursar’s office; it provides electronic payment and disbursement services for universities. It distributes financial aid and other money to students and provides banking services, including debit cards, online billing and a service that lets parents easily deposit money in student accounts.
The company’s founders initially wanted to expand the use of college ID cards for financial services. Sean Glass, who left Higher One in 2008 to start another company, said he had discussed the idea on his 20th birthday while driving with Mr. Volchek and Miles Lasater to an event for aspiring entrepreneurs in Boston in 2000.
“There were so many businesses formed in 1999 and 2000 which people had no idea would make any money,” he said. “We could see this was a service that was going to generate revenue.”
Mr. Volchek recalled the difficulty they had in attracting a first round of investment, though they managed to raise $650,000 to get off the ground. By 2004, they had raised about $16 million and landed their first customer, the University of Houston.
In August 2008, they raised $75 million from Lightyear Capital to finance growth and to distribute proceeds to early investors. The stake also set Higher One on a path to the initial stock offering, and valued the company at more than $800 million.
Mr. Gross said Lightyear Capital always thought Higher One was a company whose business model, growth prospects and management team pointed toward a public offering.
“We just didn’t know how long that might take,” he said.
Mr. Volchek said ringing the opening bell at the New York Stock Exchange felt like the culmination of six months of diligent preparation. “It’s the beginning of a new phase for the company,” he said.
Along the way, though, market forces placed obstacles in their path. First there was the collapse of the Internet bubble, followed by a drought in private equity activity.
Then came a credit crisis that became a global banking crisis and, later, worries about European sovereign debt. As with so many other start-ups, Higher One’s founders spent years building the company.
Finally, a decade after its founding, Higher One got its chance on June 17, raising nearly $35 million in an initial public offering on the New York Stock Exchange. The shares made their debut at $12 and closed on Thursday at $14.67, a slight rise from their first-day close.
Many analysts view Higher One’s success as a sign of a long-awaited thaw in the market for initial public offerings. About 62 companies have come to market this year in the United States, according to Thomson Reuters, outpacing the 61 that went public last year and the 34 that did so in 2008. An additional 125 companies have started the process in hopes of soon going public.
The rise is being watched closely by venture capitalists and private equity investors who have been waiting years to cash out of their holdings in companies like Higher One.
But the offerings are not without risk. Stock prices have been unusually volatile this year, with indexes soaring 10 percent from February to April, only to give back those gains and then some by June. A poorly timed initial offering can be disastrous for a company, for reasons having nothing to do with its own performance or prospects.
“Are things better today? Yes,” said Mark G. Heesen, president of the National Venture Capital Association, adding that many venture firms had been waiting for the exit market to improve before raising money for new funds. “But as I have said in the past, we’ve gone from a D+ to a C-.”
That is one reason 21 companies have withdrawn or postponed their offerings this year, according to Renaissance Capital, among them Solyndra, a maker of solar panels. And reports said the private equity firm Kohlberg Kravis Roberts postponed moving its listing to New York from Amsterdam.
“It’s a tough I.P.O. environment, but the best companies can get through the window,” said Stewart Gross, a managing director at Lightyear Capital, a private equity firm that invested in Higher One in 2008 and helped guide it through the public offering process.
Higher One was one of six companies that went public last week; they raised a total of $1.2 billion, the most in any week this year. Higher One initially set a share price range of $15 to $17, but lowered the target to $12 before the opening.
On June 17, its first day of trading, Casey McGuane, Higher One’s chief service officer, rang the opening bell on the New York Stock Exchange. By day’s end, the company’s shares had risen 19 percent, to close at $14.27.
How have this year’s stock openings performed? Six priced above their filing ranges, 28 priced within their ranges and 32 priced below, according to Dealogic, which counts 66 offerings so far this year. The tepid results have companies that are considering public offerings closely watching the public markets.
New stock listings are receiving attention not only for their swelling numbers but also for their size and brand-name appeal. Companies that have announced initial offering plans include Toys “R” Us, which is seeking to raise $800 million; the consulting firm Booz Allen Hamilton ($300 million); Tesla Motors, a maker of high-performance electric cars ($178 million); and Zipcar, the car-sharing service ($75 million).
Also in the pipeline are larger deals like HCA, the hospital chain ($4.6 billion) and Nielsen Holdings ($1.75 billion).
The largest initial offering this year could be that of Agricultural Bank of China, which is preparing a dual listing in Hong Kong and Shanghai for next month that could raise as much as $25 billion. The bank, which has about 24,000 branches with a focus on rural areas of China, started marketing its stock listing on Thursday.
At Higher One’s headquarters in New Haven, Conn., not far from Yale, Mark Volchek, one of the company’s founders and now its chief financial officer, said he was always confident about the offering despite the unpredictable state of the markets.
“Everyone wishes the market was better,” Mr. Volchek said. But unlike so many technology start-ups that went public a decade ago with virtually no revenue or track record, he added, “we were a strong, profitable company.”
According to its regulatory filings, Higher One had net income of $14.2 million on revenue of $75.5 million in 2009.
Higher One is like an online alternative to the college bursar’s office; it provides electronic payment and disbursement services for universities. It distributes financial aid and other money to students and provides banking services, including debit cards, online billing and a service that lets parents easily deposit money in student accounts.
The company’s founders initially wanted to expand the use of college ID cards for financial services. Sean Glass, who left Higher One in 2008 to start another company, said he had discussed the idea on his 20th birthday while driving with Mr. Volchek and Miles Lasater to an event for aspiring entrepreneurs in Boston in 2000.
“There were so many businesses formed in 1999 and 2000 which people had no idea would make any money,” he said. “We could see this was a service that was going to generate revenue.”
Mr. Volchek recalled the difficulty they had in attracting a first round of investment, though they managed to raise $650,000 to get off the ground. By 2004, they had raised about $16 million and landed their first customer, the University of Houston.
In August 2008, they raised $75 million from Lightyear Capital to finance growth and to distribute proceeds to early investors. The stake also set Higher One on a path to the initial stock offering, and valued the company at more than $800 million.
Mr. Gross said Lightyear Capital always thought Higher One was a company whose business model, growth prospects and management team pointed toward a public offering.
“We just didn’t know how long that might take,” he said.
Mr. Volchek said ringing the opening bell at the New York Stock Exchange felt like the culmination of six months of diligent preparation. “It’s the beginning of a new phase for the company,” he said.
U.S. House Offers Compromise on Lincoln Swaps-Desk Provision
June 25 (Bloomberg) -- U.S. House lawmakers negotiating a financial-regulation bill offered a compromise on derivatives oversight aimed at breaking an impasse over a Senate measure that would force banks to push swaps-trading into subsidiaries.
Representative Collin Peterson today proposed letting banks such as JPMorgan Chase & Co. and Citigroup Inc. trade interest-rate swaps, foreign exchange swaps and instruments deemed as “hedging for the bank’s own risk” as an alternative to a sweeping ban proposed by Senator Blanche Lincoln.
The plan outlined by Peterson, the Minnesota Democrat who leads the House Agriculture Committee, would still require banks to use subsidiaries for trading of non-investment grade entities, commodities and credit-default swaps not cleared through an exchange.
Lincoln, the Arkansas Democrat who leads the Senate Agriculture Committee, hasn’t agreed to accept Peterson’s modifications. She and her Senate colleagues may counter the House offer with their own proposed compromise.
White House and Treasury Department officials have been working with House-Senate conferees to craft a compromise on the Lincoln proposal for much of the past two days. The measure is part of a broader financial bill aimed at overhauling Wall Street’s regulations after the worst financial crisis since the Great Depression.
Representative Barney Frank, the Massachusetts Democrat leading the congressional negotiations, said he thought the language would go “a little further than I would go, but it’s the best compromise we can get.”
Representative Collin Peterson today proposed letting banks such as JPMorgan Chase & Co. and Citigroup Inc. trade interest-rate swaps, foreign exchange swaps and instruments deemed as “hedging for the bank’s own risk” as an alternative to a sweeping ban proposed by Senator Blanche Lincoln.
The plan outlined by Peterson, the Minnesota Democrat who leads the House Agriculture Committee, would still require banks to use subsidiaries for trading of non-investment grade entities, commodities and credit-default swaps not cleared through an exchange.
Lincoln, the Arkansas Democrat who leads the Senate Agriculture Committee, hasn’t agreed to accept Peterson’s modifications. She and her Senate colleagues may counter the House offer with their own proposed compromise.
White House and Treasury Department officials have been working with House-Senate conferees to craft a compromise on the Lincoln proposal for much of the past two days. The measure is part of a broader financial bill aimed at overhauling Wall Street’s regulations after the worst financial crisis since the Great Depression.
Representative Barney Frank, the Massachusetts Democrat leading the congressional negotiations, said he thought the language would go “a little further than I would go, but it’s the best compromise we can get.”
ING sells Indian stake as foreign banks review market
ING on Thursday became the second foreign financial group this week to exit a minority holding in India as international banks review their position in the fast-growing but tightly regulated market.
The Dutch banking and insurance group raised $175m from the sale of a 3.1 per cent stake in India’s domestically owned Kotak Mahindra Bank through block share trades.
“ING remains confident about India and Asia’s long-term financial and economic prospects and potential,” the bank said.
The sale follows the divestment by another Dutch institution, Rabobank, of an 11 per cent holding in Yes Bank, another small Indian lender.
International banks are jostling for position in India, which has one of the world’s fastest-growing financial industries, fuelled by growth in retail and corporate lending.
Standard Chartered, the UK-based emerging markets bank, said India became its second-largest source of profit last year, after Hong Kong.
This month, the bank became the first foreign company to list in Mumbai through the issue of Indian depository receipts in a bid to demonstrate its commitment to India.
But the central bank, the Reserve Bank of India, limits the number of branch licences issued each year to two or three per company, putting a brake on the ability of HSBC, Citi, StanChart and other foreign operators to increase their presence.
A number of foreign banks had bought stakes in Indian institutions earlier this decade amid expectations that the government would review this policy by 2009.
But the Finance Ministry and the RBI put such reforms on the back burner after the global financial crisis in 2008 and early 2009 led to concerns over the health of global banks.
“The financial crisis happened and it was all put on hold,” said Ashvin Parekh, partner at Ernst & Young in Mumbai.
These tight restrictions have led to market speculation that ING might also exit its other venture in the country, ING Vysya Bank, a small domestic lender in which the Dutch group holds a 44 per cent stake.
“ING is committed to ING Vysya Bank,” ING said.
ING, which had to be bailed out during the financial crisis by the Dutch government, said the sale of the Kotak stake was part of its “back to basics” restructuring plan, under which it will cumulatively shed €8bn ($10bn) in assets over the next few years.
Rabobank said it had reduced its stake in Yes Bank, headed by Indian businessman Rana Kapoor, to 4.9 per cent from 15.9 per cent, raising $213m.
Rabobank said it was obliged to sell the stake to satisfy regulations ahead of the potential approval of its application for a full banking licence in India.
..................................................
Gilde raises €800m for new buy-out fund
Gilde, one of continental Europe’s oldest private equity investors, has raised about €800m ($990m) for its new buy-out fund, writes Martin Arnold in London.
The Dutch private equity group, created in 1982, managed to shrug off the tough fundraising climate thanks to support from new US and Asian investors and its former parent, Rabobank.
Gilde will next week announce that more than half of the money for its fourth fundraising came from new investors. It has surpassed its previous €600m fund by a third.
Rabobank, from which Gilde spun out in 2003, has committed about 10-15 per cent of the new fund, while US state pension funds have committed 40 per cent. Other investors include Asian and European sovereign wealth funds.
“Many of our existing investors had liquidity constraints, or had simply left the asset class since the last fundraising,” said Paul Bekx, head of Gilde’s Paris office. “We knew that even to raise the same amount as the last fund we had to go further afield.”
Gilde, which focuses on buy-outs of companies worth €100m-€500m in the Benelux countries, France, Switzerland, Germany and Austria, achieved 30 per cent annual returns in its first two funds. Its mostly unrealised third fund is valued above cost.
The Utrecht-based firm has focused recently on defensive sectors of food and pharmaceuticals, acquiring Plukon Royale, the Dutch poultry processor, and Novaset, the French life sciences firm.
One setback was the loss of its investment in Stankiewicz, the German maker of sound insulation material, which went bankrupt in 2008.
The Dutch banking and insurance group raised $175m from the sale of a 3.1 per cent stake in India’s domestically owned Kotak Mahindra Bank through block share trades.
“ING remains confident about India and Asia’s long-term financial and economic prospects and potential,” the bank said.
The sale follows the divestment by another Dutch institution, Rabobank, of an 11 per cent holding in Yes Bank, another small Indian lender.
International banks are jostling for position in India, which has one of the world’s fastest-growing financial industries, fuelled by growth in retail and corporate lending.
Standard Chartered, the UK-based emerging markets bank, said India became its second-largest source of profit last year, after Hong Kong.
This month, the bank became the first foreign company to list in Mumbai through the issue of Indian depository receipts in a bid to demonstrate its commitment to India.
But the central bank, the Reserve Bank of India, limits the number of branch licences issued each year to two or three per company, putting a brake on the ability of HSBC, Citi, StanChart and other foreign operators to increase their presence.
A number of foreign banks had bought stakes in Indian institutions earlier this decade amid expectations that the government would review this policy by 2009.
But the Finance Ministry and the RBI put such reforms on the back burner after the global financial crisis in 2008 and early 2009 led to concerns over the health of global banks.
“The financial crisis happened and it was all put on hold,” said Ashvin Parekh, partner at Ernst & Young in Mumbai.
These tight restrictions have led to market speculation that ING might also exit its other venture in the country, ING Vysya Bank, a small domestic lender in which the Dutch group holds a 44 per cent stake.
“ING is committed to ING Vysya Bank,” ING said.
ING, which had to be bailed out during the financial crisis by the Dutch government, said the sale of the Kotak stake was part of its “back to basics” restructuring plan, under which it will cumulatively shed €8bn ($10bn) in assets over the next few years.
Rabobank said it had reduced its stake in Yes Bank, headed by Indian businessman Rana Kapoor, to 4.9 per cent from 15.9 per cent, raising $213m.
Rabobank said it was obliged to sell the stake to satisfy regulations ahead of the potential approval of its application for a full banking licence in India.
..................................................
Gilde raises €800m for new buy-out fund
Gilde, one of continental Europe’s oldest private equity investors, has raised about €800m ($990m) for its new buy-out fund, writes Martin Arnold in London.
The Dutch private equity group, created in 1982, managed to shrug off the tough fundraising climate thanks to support from new US and Asian investors and its former parent, Rabobank.
Gilde will next week announce that more than half of the money for its fourth fundraising came from new investors. It has surpassed its previous €600m fund by a third.
Rabobank, from which Gilde spun out in 2003, has committed about 10-15 per cent of the new fund, while US state pension funds have committed 40 per cent. Other investors include Asian and European sovereign wealth funds.
“Many of our existing investors had liquidity constraints, or had simply left the asset class since the last fundraising,” said Paul Bekx, head of Gilde’s Paris office. “We knew that even to raise the same amount as the last fund we had to go further afield.”
Gilde, which focuses on buy-outs of companies worth €100m-€500m in the Benelux countries, France, Switzerland, Germany and Austria, achieved 30 per cent annual returns in its first two funds. Its mostly unrealised third fund is valued above cost.
The Utrecht-based firm has focused recently on defensive sectors of food and pharmaceuticals, acquiring Plukon Royale, the Dutch poultry processor, and Novaset, the French life sciences firm.
One setback was the loss of its investment in Stankiewicz, the German maker of sound insulation material, which went bankrupt in 2008.
Wednesday, June 23, 2010
Asian Stocks Rise for First Time in Three Days; Aussie Climbs
June 24 (Bloomberg) -- Asian stocks rose for the first time in three days, led by mining companies after Australia’s prime minister was ousted over a proposed resource tax. The Australian dollar strengthened and the yen weakened.
The MSCI Asia Pacific Index climbed 0.4 percent to 117.52 as of 12:20 p.m. in Tokyo. Australia’s S&P/ASX 200 Index gained 0.2 percent, and the country’s dollar appreciated by 0.1 percent to 87.47 U.S. cents. Futures on the Standard & Poor’s 500 Index were little changed after the U.S. benchmark dropped 0.3 percent.
Prime Minister Kevin Rudd resigned following a clash with the nation’s mining industry over his plan to implement a 40 percent tax on profits. Stock gains were restrained by concerns about a slowdown in the global recovery after the Federal Reserve said European debt may harm economic growth and new-home sales in the U.S. plunged 33 percent to a record low.
“Taxes on mining companies may ease up after the change in prime ministers in Australia,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees $94 billion. “Judging from the U.S. housing-sales figures, it’s hard to expect the economy will continue to recover strongly.”
Japan’s Nikkei 225 Stock Average climbed 0.2 percent, Hong Kong’s Hang Seng Index fell 0.2 percent and China’s Shanghai Composite Index retreated 0.5 percent.
Mining Shares Advance
BHP Billiton Ltd. gained 1.3 percent to A$39.63 and Rio Tinto Group, the world’s third-biggest mining company, climbed 1.6 percent to A$71.67. Mitsubishi Corp., Japan’s biggest commodities trader, advanced 1.7 percent to 2,023 yen. Yanzhou Coal Mining Co., which acquired Australia-based Felix Resources Ltd., climbed 2.7 percent in Hong Kong.
The yen weakened versus 15 of 16 major counterparts as Asian stocks rose, and traded at 110.95 per euro from 110.57 in New York yesterday. The dollar dropped to $1.4994 per pound, the lowest level since May 12, and was at 89.89 yen from 89.82 yen. The pound gained after a report showed U.K. policy makers were split on whether to raise interest rates this month.
The Fed’s Open Market Committee said yesterday that “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.” The central bank left the overnight interbank lending rate target unchanged in a range of zero to 0.25 percent, where it’s been since December 2008. The U.S. Commerce Department said purchases of new homes fell to an all-time low as a tax credit expired, showing the market remains dependent on government support even with mortgage rates near record lows.
“Certainly the statement’s a tad more dovish, as they’re starting to express concern about low inflation,” Khoon Goh, a senior economist in Wellington at ANZ National Bank Ltd., New Zealand’s biggest lender, said on the Fed’s comments. “It suggests there’s further downside for the greenback.”
Crude oil fell for a third day in New York after U.S. government reports showed an unexpected gain in supplies and a drop in new-home purchases. Futures contracts for August delivery sank as much as 42 cents, or 0.6 percent, to $75.93 a barrel in electronic trading on the New York Mercantile Exchange.
The MSCI Asia Pacific Index climbed 0.4 percent to 117.52 as of 12:20 p.m. in Tokyo. Australia’s S&P/ASX 200 Index gained 0.2 percent, and the country’s dollar appreciated by 0.1 percent to 87.47 U.S. cents. Futures on the Standard & Poor’s 500 Index were little changed after the U.S. benchmark dropped 0.3 percent.
Prime Minister Kevin Rudd resigned following a clash with the nation’s mining industry over his plan to implement a 40 percent tax on profits. Stock gains were restrained by concerns about a slowdown in the global recovery after the Federal Reserve said European debt may harm economic growth and new-home sales in the U.S. plunged 33 percent to a record low.
“Taxes on mining companies may ease up after the change in prime ministers in Australia,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees $94 billion. “Judging from the U.S. housing-sales figures, it’s hard to expect the economy will continue to recover strongly.”
Japan’s Nikkei 225 Stock Average climbed 0.2 percent, Hong Kong’s Hang Seng Index fell 0.2 percent and China’s Shanghai Composite Index retreated 0.5 percent.
Mining Shares Advance
BHP Billiton Ltd. gained 1.3 percent to A$39.63 and Rio Tinto Group, the world’s third-biggest mining company, climbed 1.6 percent to A$71.67. Mitsubishi Corp., Japan’s biggest commodities trader, advanced 1.7 percent to 2,023 yen. Yanzhou Coal Mining Co., which acquired Australia-based Felix Resources Ltd., climbed 2.7 percent in Hong Kong.
The yen weakened versus 15 of 16 major counterparts as Asian stocks rose, and traded at 110.95 per euro from 110.57 in New York yesterday. The dollar dropped to $1.4994 per pound, the lowest level since May 12, and was at 89.89 yen from 89.82 yen. The pound gained after a report showed U.K. policy makers were split on whether to raise interest rates this month.
The Fed’s Open Market Committee said yesterday that “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.” The central bank left the overnight interbank lending rate target unchanged in a range of zero to 0.25 percent, where it’s been since December 2008. The U.S. Commerce Department said purchases of new homes fell to an all-time low as a tax credit expired, showing the market remains dependent on government support even with mortgage rates near record lows.
“Certainly the statement’s a tad more dovish, as they’re starting to express concern about low inflation,” Khoon Goh, a senior economist in Wellington at ANZ National Bank Ltd., New Zealand’s biggest lender, said on the Fed’s comments. “It suggests there’s further downside for the greenback.”
Crude oil fell for a third day in New York after U.S. government reports showed an unexpected gain in supplies and a drop in new-home purchases. Futures contracts for August delivery sank as much as 42 cents, or 0.6 percent, to $75.93 a barrel in electronic trading on the New York Mercantile Exchange.
On Wall Street, So Much Cash, So Little Time
Only on Wall Street, in the rarefied realm of buyout moguls, could you actually have too much money.
Private equity firms, where corporate takeovers are planned and plotted, today sit atop an estimated $500 billion. But the deal makers are desperate to find deals worth doing, and the clock is ticking.
The stores of money inside the private equity industry have ramifications far beyond the bid-’em-up crowd on Wall Street. Millions of Americans — investors, employees, retirees — have a stake in the game too.
Corporate buyout specialists generally raise money from big investors and then buy undervalued or underappreciated companies. To maximize investment returns, they typically leverage their cash with loans from banks or bond investors.
In recent years, private investment firms have amassed business empires rivaling the mightiest public corporations, buying up household names like Hilton Hotels, Dunkin’ Donuts and Neiman Marcus.
Critics contend that leveraged buyouts can saddle takeover targets with dangerous levels of debt. But unlike indebted homeowners, highly leveraged companies under the care of private equity have so far dodged the big bust many have predicted. After an unprecedented burst of buyouts during the boom leading up to 2008, a vast majority of these companies are hanging on. Whether they will avoid a reckoning is uncertain.
So for now buyout artists are searching for their next act. Public pension funds, university endowments, insurance companies and other institutions have pledged to invest many billions with them — provided the deal makers can find companies to buy. If they fail, investors can walk away, taking lucrative business with them.
Private equity funds generally tie up investors’ money for 10 years. But they typically must invest all the money within the first three to five years of the funds’ life. For giant buyout funds raised in 2006 and 2007, at the height of the bubble, time is short. They must invest their money soon or return it to clients — presumably along with some of the management fees the firms have already collected. Some of the industry’s biggest players, like David M. Rubenstein of the Carlyle Group, Henry Kravis of Kohlberg Kravis Roberts and David Bonderman of TPG, have more than $10 billion apiece in uncommitted capital — what is known as “dry powder” — according to Preqin, an industry research firm.
Some buyout firms are asking their clients for more time to search for companies to buy. Many more are rushing to invest their cash as quickly as possible, whatever the price.
Many in the industry are getting caught in bidding wars. Firms are assigning surprisingly high valuations to companies they are acquiring, even though the lofty prices will in all likelihood reduce profits for their investors. A big drop in returns would be particularly vexing for pension funds, which are counting on private equity, hedge funds and other so-called alternative investments to help them meet their mounting liabilities.
Given the prices being paid for companies, investors’ returns over the life of the fund are likely to drop into the low to mid-teens, said Hugh H. MacArthur, head of global private equity at the consulting firm Bain & Company, which used to be affiliated with Bain Capital, the private equity firm. Returns will be even lower once fees are factored in. Private equity firms typically charge an annual fee of 2 percent and take a 20 percent cut of any profits.
While investing in private equity will probably be more lucrative than investing in public markets, “those are far from the gross returns of the mid- to high teens that we saw a few years ago,” Mr. MacArthur said.
One factor in the modest forecast is rising prices for buyouts. Kelly DePonte, a partner at Probitas Partners in San Francisco, which helps private equity firms raise money, said “tough competition for deals” had driven up valuations recently.
One of the biggest and costliest deals so far this year was the acquisition of a stake in the Interactive Data Corporation, a financial market data company, by two private equity firms, Silver Lake and Warburg Pincus, according to Capital IQ, which tracks the industry. A third, unidentified private equity partner dropped out because the price was too high.
The two buyout shops paid $3.4 billion, or $33.86 in cash for each share of I.D.C. — a premium of nearly 33 percent to the going price in the stock market. Technology companies often command high valuations. Silver Lake and Warburg Pincus declined to comment for this article.
Last year, when banks balked at financing deals and private equity firms worried the economic crisis would drag on, the number of deals — and prices paid — fell sharply.
In July 2009, for instance, Apax Partners paid $28.50 a share, or $571 million, for Bankrate, which owned a number of consumer finance Web sites. The price represented a 15.8 percent premium. Apax had to pay the entire bill itself, with no money from banks.
But these days, even small and midsize companies are in a bidding frenzy. More than a dozen buyout firms made initial bids for the Virtual Radiologic Corporation, a company that interprets medical images remotely. Providence Equity Partners eventually paid a 41 percent premium for the company. When a small online education company called Plato Learning hung up a “for sale” sign, several suitors showed interest. When Plato last tried to sell itself, in the fall of 2007, it found no takers.
Private equity players concede that competition has heated up and prices are rising. But they argue that prices, from a historical standpoint, remain attractive. Prices are well below the stratospheric levels of 2007 and 2008, according to Capital IQ. Buyout executives also say it is too soon to determine what profits will come from these deals. And, they say, losers in bidding wars always claim the winners overpaid.
Still, those with dry powder are bidding aggressively, in the United States, Europe and Asia.
TPG — which, according to Preqin, has one of the largest stockpiles at more than $18 billion — has bid aggressively at several auctions, according to several investment bankers.
In fact, TPG has spent $9.2 billion so far this year, investing in 11 companies, including ones in India and Brazil. That makes TPG the industry’s top deal maker, according to Dealogic, a research firm. A spokesman for TPG declined to comment.
Noting that buyout firms are “feeling a lot of pressure to put the money to work,” William R. Atwood, head of the Illinois State Board of Investment, said he hoped the firms would not stretch too far for deals.
“There is a big counterpressure — a requirement for prudence and returns from their investments,” he said.
Private equity firms, where corporate takeovers are planned and plotted, today sit atop an estimated $500 billion. But the deal makers are desperate to find deals worth doing, and the clock is ticking.
The stores of money inside the private equity industry have ramifications far beyond the bid-’em-up crowd on Wall Street. Millions of Americans — investors, employees, retirees — have a stake in the game too.
Corporate buyout specialists generally raise money from big investors and then buy undervalued or underappreciated companies. To maximize investment returns, they typically leverage their cash with loans from banks or bond investors.
In recent years, private investment firms have amassed business empires rivaling the mightiest public corporations, buying up household names like Hilton Hotels, Dunkin’ Donuts and Neiman Marcus.
Critics contend that leveraged buyouts can saddle takeover targets with dangerous levels of debt. But unlike indebted homeowners, highly leveraged companies under the care of private equity have so far dodged the big bust many have predicted. After an unprecedented burst of buyouts during the boom leading up to 2008, a vast majority of these companies are hanging on. Whether they will avoid a reckoning is uncertain.
So for now buyout artists are searching for their next act. Public pension funds, university endowments, insurance companies and other institutions have pledged to invest many billions with them — provided the deal makers can find companies to buy. If they fail, investors can walk away, taking lucrative business with them.
Private equity funds generally tie up investors’ money for 10 years. But they typically must invest all the money within the first three to five years of the funds’ life. For giant buyout funds raised in 2006 and 2007, at the height of the bubble, time is short. They must invest their money soon or return it to clients — presumably along with some of the management fees the firms have already collected. Some of the industry’s biggest players, like David M. Rubenstein of the Carlyle Group, Henry Kravis of Kohlberg Kravis Roberts and David Bonderman of TPG, have more than $10 billion apiece in uncommitted capital — what is known as “dry powder” — according to Preqin, an industry research firm.
Some buyout firms are asking their clients for more time to search for companies to buy. Many more are rushing to invest their cash as quickly as possible, whatever the price.
Many in the industry are getting caught in bidding wars. Firms are assigning surprisingly high valuations to companies they are acquiring, even though the lofty prices will in all likelihood reduce profits for their investors. A big drop in returns would be particularly vexing for pension funds, which are counting on private equity, hedge funds and other so-called alternative investments to help them meet their mounting liabilities.
Given the prices being paid for companies, investors’ returns over the life of the fund are likely to drop into the low to mid-teens, said Hugh H. MacArthur, head of global private equity at the consulting firm Bain & Company, which used to be affiliated with Bain Capital, the private equity firm. Returns will be even lower once fees are factored in. Private equity firms typically charge an annual fee of 2 percent and take a 20 percent cut of any profits.
While investing in private equity will probably be more lucrative than investing in public markets, “those are far from the gross returns of the mid- to high teens that we saw a few years ago,” Mr. MacArthur said.
One factor in the modest forecast is rising prices for buyouts. Kelly DePonte, a partner at Probitas Partners in San Francisco, which helps private equity firms raise money, said “tough competition for deals” had driven up valuations recently.
One of the biggest and costliest deals so far this year was the acquisition of a stake in the Interactive Data Corporation, a financial market data company, by two private equity firms, Silver Lake and Warburg Pincus, according to Capital IQ, which tracks the industry. A third, unidentified private equity partner dropped out because the price was too high.
The two buyout shops paid $3.4 billion, or $33.86 in cash for each share of I.D.C. — a premium of nearly 33 percent to the going price in the stock market. Technology companies often command high valuations. Silver Lake and Warburg Pincus declined to comment for this article.
Last year, when banks balked at financing deals and private equity firms worried the economic crisis would drag on, the number of deals — and prices paid — fell sharply.
In July 2009, for instance, Apax Partners paid $28.50 a share, or $571 million, for Bankrate, which owned a number of consumer finance Web sites. The price represented a 15.8 percent premium. Apax had to pay the entire bill itself, with no money from banks.
But these days, even small and midsize companies are in a bidding frenzy. More than a dozen buyout firms made initial bids for the Virtual Radiologic Corporation, a company that interprets medical images remotely. Providence Equity Partners eventually paid a 41 percent premium for the company. When a small online education company called Plato Learning hung up a “for sale” sign, several suitors showed interest. When Plato last tried to sell itself, in the fall of 2007, it found no takers.
Private equity players concede that competition has heated up and prices are rising. But they argue that prices, from a historical standpoint, remain attractive. Prices are well below the stratospheric levels of 2007 and 2008, according to Capital IQ. Buyout executives also say it is too soon to determine what profits will come from these deals. And, they say, losers in bidding wars always claim the winners overpaid.
Still, those with dry powder are bidding aggressively, in the United States, Europe and Asia.
TPG — which, according to Preqin, has one of the largest stockpiles at more than $18 billion — has bid aggressively at several auctions, according to several investment bankers.
In fact, TPG has spent $9.2 billion so far this year, investing in 11 companies, including ones in India and Brazil. That makes TPG the industry’s top deal maker, according to Dealogic, a research firm. A spokesman for TPG declined to comment.
Noting that buyout firms are “feeling a lot of pressure to put the money to work,” William R. Atwood, head of the Illinois State Board of Investment, said he hoped the firms would not stretch too far for deals.
“There is a big counterpressure — a requirement for prudence and returns from their investments,” he said.
Top Arden analyst to take over as chief
Jeremy Grime, the highly rated financial analyst at Arden Partners, will be able to put his recommendations into action after he was named chief executive at the stockbroker.
Arden Partners results - six months to April 30Sales Pre-tax loss Earnings per share Dividend
£6.49m (£0.24m) (1.7p) -
↑ 41% ↓ 13.7% ↑ 467% -
A board reshuffle will see Mr Grime take over the role by the end of the year from Jonathan Keeling, who will become deputy chairman with responsibility to develop Arden’s Indian business.
Howard Flight, the former Guinness Flight executive and Conservative MP, has become senior independent non-executive in place of Philip Dayer. Mr Grime has led Arden’s financials team since 2007 and was recently voted number one in the Extel analyst rankings.
The shake-up came as Arden announced a pre-tax loss for the six months to April 30. Revenue rose 41 per cent to £6.49m ($9.61m), but pre-tax losses narrowed from £278,000 to £240,000. Losses per share widened from 0.3p to 1.7p. Arden will not pay an interim dividend; the shares closed unchanged at 88½p.
Mr Keeling will focus on expanding Arden’s foothold in the Indian market. The group is broker to seven Indian-focused, London-listed companies including Great Eastern Energy, Hardy Oil & Gas and KSK Power Ventur.
“The opportunities coming out of India are immense,” he said.
Revenue from Arden’s corporate finance division rose from £2.4m to £2.9m after advising on six mergers and acquisitions deals. The group’s equities business saw revenue rise 63 per cent to £3.6m after beefing up headcount by more than a third.
FT Comment
Mr Grime will take over a business in better shape than a year ago when six months of financial turmoil left many small-cap stockbrokers facing an uncertain future. But it will not be plain sailing – corporate activity is still muted but the broker has used its strong balance sheet to grab staff and clients. That move is likely to increase regular revenues and cushion the dearth of flotations. Analysts are forecasting full-year pre-tax profits of £1.5m from revenue of £15.5m but a couple of client wins from India could change growth prospects. In 2007 Arden made profits of £5.5m from revenue of £16.8m and paid a dividend. The shares trade on a forward price/earnings ratio to October of 33 times, which is ahead of rivals and expensive enough for now.
Arden Partners results - six months to April 30Sales Pre-tax loss Earnings per share Dividend
£6.49m (£0.24m) (1.7p) -
↑ 41% ↓ 13.7% ↑ 467% -
A board reshuffle will see Mr Grime take over the role by the end of the year from Jonathan Keeling, who will become deputy chairman with responsibility to develop Arden’s Indian business.
Howard Flight, the former Guinness Flight executive and Conservative MP, has become senior independent non-executive in place of Philip Dayer. Mr Grime has led Arden’s financials team since 2007 and was recently voted number one in the Extel analyst rankings.
The shake-up came as Arden announced a pre-tax loss for the six months to April 30. Revenue rose 41 per cent to £6.49m ($9.61m), but pre-tax losses narrowed from £278,000 to £240,000. Losses per share widened from 0.3p to 1.7p. Arden will not pay an interim dividend; the shares closed unchanged at 88½p.
Mr Keeling will focus on expanding Arden’s foothold in the Indian market. The group is broker to seven Indian-focused, London-listed companies including Great Eastern Energy, Hardy Oil & Gas and KSK Power Ventur.
“The opportunities coming out of India are immense,” he said.
Revenue from Arden’s corporate finance division rose from £2.4m to £2.9m after advising on six mergers and acquisitions deals. The group’s equities business saw revenue rise 63 per cent to £3.6m after beefing up headcount by more than a third.
FT Comment
Mr Grime will take over a business in better shape than a year ago when six months of financial turmoil left many small-cap stockbrokers facing an uncertain future. But it will not be plain sailing – corporate activity is still muted but the broker has used its strong balance sheet to grab staff and clients. That move is likely to increase regular revenues and cushion the dearth of flotations. Analysts are forecasting full-year pre-tax profits of £1.5m from revenue of £15.5m but a couple of client wins from India could change growth prospects. In 2007 Arden made profits of £5.5m from revenue of £16.8m and paid a dividend. The shares trade on a forward price/earnings ratio to October of 33 times, which is ahead of rivals and expensive enough for now.
China’s AgriBank Said to Seek $11.4 Billion H.K. IPO
June 24 (Bloomberg) -- Agricultural Bank of China Ltd., the country’s largest lender by customers, will seek to raise as much as HK$88.4 billion ($11.4 billion) in the Hong Kong portion of its initial public offering, according to three people with knowledge of the price range.
Agricultural Bank will offer 25.4 billion shares in Hong Kong at HK$2.88 to HK$3.48 apiece, said the people, who declined to be identified because the details are private. The Beijing- based lender may also sell 22.2 billion shares in Shanghai at a price that hasn’t been disclosed. An e-mail sent to investors this month had indicated the company might offer $10 billion to $15 billion of shares in Hong Kong.
Chairman Xiang Junbo is wooing investors after the Shanghai Composite Index slid 22 percent this year and Fitch Ratings warned that record lending in 2009 may saddle the country’s banks with bad debts. Agricultural Bank is offering the shares at an average discount of 17 percent to its three biggest rivals on a price-to-book basis, according to estimates by the underwriters and data compiled by Bloomberg.
“Certainly it will be worth looking at,” said Julian Mayo, who helps oversee $3 billion as investment director at Charlemagne Capital in London. “It reflects an air of common sense in the pricing. It’s a sign that demand is less than had been the case if this deal came out six months ago.”
Biggest IPO Ever
Agricultural Bank’s Board Secretary Li Zhenjiang wasn’t immediately available for comment after business hours.
The lender, commonly known as ABC, needs to raise more than $22 billion to surpass Beijing-based Industrial & Commercial Bank of China Ltd.’s deal in 2006 as the world’s biggest IPO ever. The sale marks the final chapter of a decade-long overhaul of the country’s banking industry. The government spent an estimated $650 billion to clean out bad loans that were the legacy of years of state-directed lending gone awry.
Agricultural Bank priced the shares at 1.55 to 1.79 times 2010 book value as estimated by the IPO’s underwriters, the people familiar with the pricing said. That compares with 2.23 times for Beijing-based ICBC and 2.18 times for China Construction Bank Corp. Bank of China Ltd., the nation’s third- largest by assets and Agricultural Bank’s closest rival, trades at 1.59 times estimated book value.
‘Near Certainty’
Chinese banks’ surge in loan growth since late 2008 has raised their exposure to credit risk and future asset quality deterioration is “a near certainty,” Fitch Ratings said in a statement yesterday.
Agricultural Bank allocated $5.45 billion of the Hong Kong part of the IPO to corporate investors, according to people familiar with the matter. Qatar Investment Authority agreed to invest $2.8 billion and the Kuwait Investment Authority said it would buy $800 million. Corporate, or cornerstone, investors are guaranteed shares in IPOs in exchange for a pledge to hold the stock for a period of time.
The bank’s focus on serving the poorer parts of China has come at the cost of lower profitability and a higher bad-loan ratio than at local rivals, and it was the last lender to undergo a state-led restructuring, in 2008.
“They recruited several pretty high-profile cornerstone investors, and so far I think the interest has been on the strong side,” said Lei Wang, who helps oversee $18.7 billion at the Santa Fe, New Mexico-based Thornburg International Value Fund. “A reasonable discount versus peers makes sense. It has a low asset quality.”
Underwriters
China International Capital Corp., Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Macquarie Group Ltd. and Morgan Stanley were hired to arrange the Hong Kong portion of Agricultural Bank’s IPO together with its own investment unit. CICC, Citic Securities Co., China Galaxy Securities Co. and Guotai Junan Securities Co. are managing the bank’s yuan-denominated A-share offering.
The sale, scheduled to price July 6, is coming after state- backed deals pushed the amount raised in emerging market IPOs above developed nations for a record fifth straight quarter.
Agricultural Bank is forging ahead even after the European debt crisis spurred at least 47 companies worldwide to shelve initial sales since March. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, this week delayed its plans to raise $25 billion to September from July.
“They’re competing for shelf space and it makes it more difficult,” said Uri Landesman, president of New York-based hedge fund, Platinum Partners, which oversees more than $500 million. Agricultural Bank’s pricing is “not a surprise given the difficulties in the market there lately.”
--Cathy Chan, Bei Hu, Jun Luo. With assistance from Inyoung Hwang, Lee Spears and Michael Tsang in New York and Zijing Wu in London. Editors: Joost Akkermans, Daniel Hauck.
Agricultural Bank will offer 25.4 billion shares in Hong Kong at HK$2.88 to HK$3.48 apiece, said the people, who declined to be identified because the details are private. The Beijing- based lender may also sell 22.2 billion shares in Shanghai at a price that hasn’t been disclosed. An e-mail sent to investors this month had indicated the company might offer $10 billion to $15 billion of shares in Hong Kong.
Chairman Xiang Junbo is wooing investors after the Shanghai Composite Index slid 22 percent this year and Fitch Ratings warned that record lending in 2009 may saddle the country’s banks with bad debts. Agricultural Bank is offering the shares at an average discount of 17 percent to its three biggest rivals on a price-to-book basis, according to estimates by the underwriters and data compiled by Bloomberg.
“Certainly it will be worth looking at,” said Julian Mayo, who helps oversee $3 billion as investment director at Charlemagne Capital in London. “It reflects an air of common sense in the pricing. It’s a sign that demand is less than had been the case if this deal came out six months ago.”
Biggest IPO Ever
Agricultural Bank’s Board Secretary Li Zhenjiang wasn’t immediately available for comment after business hours.
The lender, commonly known as ABC, needs to raise more than $22 billion to surpass Beijing-based Industrial & Commercial Bank of China Ltd.’s deal in 2006 as the world’s biggest IPO ever. The sale marks the final chapter of a decade-long overhaul of the country’s banking industry. The government spent an estimated $650 billion to clean out bad loans that were the legacy of years of state-directed lending gone awry.
Agricultural Bank priced the shares at 1.55 to 1.79 times 2010 book value as estimated by the IPO’s underwriters, the people familiar with the pricing said. That compares with 2.23 times for Beijing-based ICBC and 2.18 times for China Construction Bank Corp. Bank of China Ltd., the nation’s third- largest by assets and Agricultural Bank’s closest rival, trades at 1.59 times estimated book value.
‘Near Certainty’
Chinese banks’ surge in loan growth since late 2008 has raised their exposure to credit risk and future asset quality deterioration is “a near certainty,” Fitch Ratings said in a statement yesterday.
Agricultural Bank allocated $5.45 billion of the Hong Kong part of the IPO to corporate investors, according to people familiar with the matter. Qatar Investment Authority agreed to invest $2.8 billion and the Kuwait Investment Authority said it would buy $800 million. Corporate, or cornerstone, investors are guaranteed shares in IPOs in exchange for a pledge to hold the stock for a period of time.
The bank’s focus on serving the poorer parts of China has come at the cost of lower profitability and a higher bad-loan ratio than at local rivals, and it was the last lender to undergo a state-led restructuring, in 2008.
“They recruited several pretty high-profile cornerstone investors, and so far I think the interest has been on the strong side,” said Lei Wang, who helps oversee $18.7 billion at the Santa Fe, New Mexico-based Thornburg International Value Fund. “A reasonable discount versus peers makes sense. It has a low asset quality.”
Underwriters
China International Capital Corp., Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Macquarie Group Ltd. and Morgan Stanley were hired to arrange the Hong Kong portion of Agricultural Bank’s IPO together with its own investment unit. CICC, Citic Securities Co., China Galaxy Securities Co. and Guotai Junan Securities Co. are managing the bank’s yuan-denominated A-share offering.
The sale, scheduled to price July 6, is coming after state- backed deals pushed the amount raised in emerging market IPOs above developed nations for a record fifth straight quarter.
Agricultural Bank is forging ahead even after the European debt crisis spurred at least 47 companies worldwide to shelve initial sales since March. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, this week delayed its plans to raise $25 billion to September from July.
“They’re competing for shelf space and it makes it more difficult,” said Uri Landesman, president of New York-based hedge fund, Platinum Partners, which oversees more than $500 million. Agricultural Bank’s pricing is “not a surprise given the difficulties in the market there lately.”
--Cathy Chan, Bei Hu, Jun Luo. With assistance from Inyoung Hwang, Lee Spears and Michael Tsang in New York and Zijing Wu in London. Editors: Joost Akkermans, Daniel Hauck.
Tuesday, June 22, 2010
Asian Stocks Decline as Yen Climbs on Drop in U.S. Home Sales
June 23 (Bloomberg) -- Asian stocks fell the most in two weeks, led by Japanese exporters, as the yen rose after a drop in U.S. home sales added to speculation the global recovery may be faltering. South Korea’s won slid for a second day.
The MSCI Asia Pacific Index retreated 1.1 percent to 116.84 at 12:50 p.m. in Tokyo, set for its largest drop since June 7. The yen strengthened against all major counterparts, climbing to the highest against the euro since June 11 and touching 90.37 against the dollar. Standard & Poor’s 500 Index futures rose 0.3 percent after U.S. stocks plunged the most in three weeks.
Investors are concerned a U.S. slowdown, along with Europe’s sovereign-debt crisis, may derail the global economy. A U.S. report yesterday showed sales of previously owned homes unexpectedly fell in May, while a Commerce Department report today may show new home sales plunged, adding to speculation Federal Reserve policy makers meeting today and tomorrow will need to keep interest rates near zero to help sustain the U.S. recovery given the hazards posed by the European crisis.
“The outlook for the global economy is rapidly getting hazier,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “Investors are becoming more inclined to avoid risk.”
Almost four shares dropped for every one that rose among the MSCI Asian index’s 983 companies. The Nikkei 225 Stock Average slumped 1.8 percent, leading stock index declines in the region. Honda Motor Co. and Canon Inc. dived at least 2 percent.
Energy Companies
PetroChina Co., the nation’s largest oil company, fell 1.5 percent while Inpex Corp., Japan’s largest energy explorer, dropped 2.4 percent following a decline in crude prices. Oil for August delivery fell 0.7 percent to $77.34 a barrel in New York, extending yesterday’s 1 percent loss. Copper was little changed in London after losing as much as 1.1 percent.
The Baltic Dry Index, a measure of shipping costs of commodities, also fell for an 18th day, the longest losing streak in more than a year. Mitsui O.S.K. Lines Ltd. slumped 3 percent and China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, lost 1.9 percent.
The yen gained to as much as 110.78 per euro, the strongest level since June 11, from 111.14 in New York yesterday. Japan’s currency was as strong as 90.37 against the dollar from 90.57 yen yesterday, while yields on Japan’s benchmark bonds reached the lowest since December 2008.
‘Soft Patch’
“A slew of economic data now signal a soft patch in the recovery,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., an investment advisory firm. “Investors shun riskier assets and are shifting allocation back to the dollar and yen.”
Currencies weakened elsewhere in Asia. The won fell 0.4 percent to 1,186.15 per dollar, extending its retreat from the one-month high set on June 21, while Malaysia’s ringgit dropped 0.6 percent to 3.227 per dollar. The Chinese yuan was little changed at 6.8107 per dollar after yesterday declining the most since December 2008.
New U.S. home sales probably plunged 19 percent to a 410,000 annual pace in May, according to the median forecast of economists surveyed. Today’s report was preceded by figures from the National Association of Realtors yesterday that showed purchases of previously owned homes in the U.S., which accounted for about 90 percent of the market, decreased to a 5.66 million annual rate. The median forecast in a Bloomberg News survey was for a rise to a 6.12 million pace.
Declining U.S. home sales helped drag the S&P 500 lower by 1.6 percent and sent the cost of insuring Asian bonds against default higher, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 8 basis points to 131 basis points, Royal Bank of Scotland Group Plc prices show. The risk benchmark is on track for its biggest increase since June 4, according to CMA DataVision in New York.
The MSCI Asia Pacific Index retreated 1.1 percent to 116.84 at 12:50 p.m. in Tokyo, set for its largest drop since June 7. The yen strengthened against all major counterparts, climbing to the highest against the euro since June 11 and touching 90.37 against the dollar. Standard & Poor’s 500 Index futures rose 0.3 percent after U.S. stocks plunged the most in three weeks.
Investors are concerned a U.S. slowdown, along with Europe’s sovereign-debt crisis, may derail the global economy. A U.S. report yesterday showed sales of previously owned homes unexpectedly fell in May, while a Commerce Department report today may show new home sales plunged, adding to speculation Federal Reserve policy makers meeting today and tomorrow will need to keep interest rates near zero to help sustain the U.S. recovery given the hazards posed by the European crisis.
“The outlook for the global economy is rapidly getting hazier,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “Investors are becoming more inclined to avoid risk.”
Almost four shares dropped for every one that rose among the MSCI Asian index’s 983 companies. The Nikkei 225 Stock Average slumped 1.8 percent, leading stock index declines in the region. Honda Motor Co. and Canon Inc. dived at least 2 percent.
Energy Companies
PetroChina Co., the nation’s largest oil company, fell 1.5 percent while Inpex Corp., Japan’s largest energy explorer, dropped 2.4 percent following a decline in crude prices. Oil for August delivery fell 0.7 percent to $77.34 a barrel in New York, extending yesterday’s 1 percent loss. Copper was little changed in London after losing as much as 1.1 percent.
The Baltic Dry Index, a measure of shipping costs of commodities, also fell for an 18th day, the longest losing streak in more than a year. Mitsui O.S.K. Lines Ltd. slumped 3 percent and China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, lost 1.9 percent.
The yen gained to as much as 110.78 per euro, the strongest level since June 11, from 111.14 in New York yesterday. Japan’s currency was as strong as 90.37 against the dollar from 90.57 yen yesterday, while yields on Japan’s benchmark bonds reached the lowest since December 2008.
‘Soft Patch’
“A slew of economic data now signal a soft patch in the recovery,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., an investment advisory firm. “Investors shun riskier assets and are shifting allocation back to the dollar and yen.”
Currencies weakened elsewhere in Asia. The won fell 0.4 percent to 1,186.15 per dollar, extending its retreat from the one-month high set on June 21, while Malaysia’s ringgit dropped 0.6 percent to 3.227 per dollar. The Chinese yuan was little changed at 6.8107 per dollar after yesterday declining the most since December 2008.
New U.S. home sales probably plunged 19 percent to a 410,000 annual pace in May, according to the median forecast of economists surveyed. Today’s report was preceded by figures from the National Association of Realtors yesterday that showed purchases of previously owned homes in the U.S., which accounted for about 90 percent of the market, decreased to a 5.66 million annual rate. The median forecast in a Bloomberg News survey was for a rise to a 6.12 million pace.
Declining U.S. home sales helped drag the S&P 500 lower by 1.6 percent and sent the cost of insuring Asian bonds against default higher, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 8 basis points to 131 basis points, Royal Bank of Scotland Group Plc prices show. The risk benchmark is on track for its biggest increase since June 4, according to CMA DataVision in New York.
Drilling Ban Blocked; U.S. Will Issue New Order
WASHINGTON — A federal judge in New Orleans on Tuesday blocked a six-month moratorium on deep-water drilling projects that the Obama administration imposed after the massive oil spill in the Gulf of Mexico. The White House swiftly vowed to appeal the ruling.
In a 22-page opinion, the judge, Martin L. C. Feldman of United States District Court, issued a preliminary injunction against the enforcement of a late May order halting all offshore exploratory drilling in more than 500 feet of water.
Citing potential economic harm to businesses and workers, Judge Feldman wrote that the Obama administration had failed to justify the need for such “a blanket, generic, indeed punitive, moratorium” on deep-water oil and gas drilling.
“The blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger,” wrote Judge Feldman, a 1983 appointee of President Ronald Reagan. The administration’s order halted 33 exploratory drilling projects and suspended new permits, but did not affect platforms that were already in production.
In a statement on Tuesday evening, Interior Secretary Ken Salazar said that within days he would issue a new order imposing a moratorium on deep-water drilling that would contain additional information showing why it was necessary.
Robert Gibbs, the White House press secretary, said the administration “will immediately appeal” the judge’s ruling to a federal appeals court in New Orleans. He said it made sense to suspend exploratory deep-water drilling until the completion of the investigation into the April 20 explosion at the Deepwater Horizon rig leased by BP and the still-flowing leak from the underwater well.
President Obama “strongly believes,” Mr. Gibbs said, “that continuing to drill at these depths without knowing what happened does not make any sense” and would jeopardize “the safety of those on the rigs and safety of the environment in the gulf.”
The immediate impact of the ruling was not clear. A White House official said the administration would likely seek a stay pending its appeal. And the decision left room for the government to assemble a stronger record in support of suspending such operations.
The ruling on Tuesday was the result of a lawsuit filed this month by a coalition of businesses that provide services and equipment to offshore drilling platforms. The coalition asked the judge to block the moratorium, arguing that there was no evidence that existing projects were unsafe. The state of Louisiana filed a brief supporting the lawsuit, arguing that the suspension would cause irrevocable harm to its economy.
Judge Feldman agreed, noting that “oil and gas production is quite simply elemental to gulf communities.” He portrayed the Interior Department’s record in support of the moratorium as inadequate and misleading, saying that a preliminary injunction was necessary because the suspension would likely be ruled “arbitrary and capricious” after a trial.
“Some of the plaintiffs’ contracts have been affected; the court is persuaded that it is only a matter of time before more business and jobs and livelihoods will be lost,” he wrote, adding, “The effect on employment, jobs, loss of domestic energy supplies caused by the moratorium as the plaintiffs (and other suppliers, and the rigs themselves) lose business, and the movement of the rigs to other sites around the world will clearly ripple throughout the economy in this region.”
Several groups critical of the ruling highlighted a financial disclosure form filed by Judge Feldman in May 2009. It showed that as recently as 2008, he owned stock in several energy-related firms — including Transocean, which owned the Deepwater Horizon rig.
A coalition of environmental groups released a statement by Catherine Wannamaker, senior lawyer at the Southern Environmental Law Center, decrying the ruling as “outrageous.”
“The tragic explosion, the unstopped gushing of oil, and resulting damage to fishing and tourism industries, cultures, wildlife and the whole Gulf Coast should be more than enough cause for pausing risky deep-water activities until safety and environmental protection is assured,” she said. “Unfortunately, today’s court decision allows short-term profit for some to trump safety, lives and the environmental health of the Gulf Coast upon which so many depend.”
Members of Congress issued warring statements over the ruling. Representative Darrell Issa, a California Republican, criticized the Obama administration’s efforts to impose the moratorium as “cold and irresponsible,” saying it would put “tens of thousands of jobs” in danger because oil and gas companies could move their equipment elsewhere in the world.
Representative Bill Cassidy, a Louisiana Republican, praised the ruling against the moratorium as “welcome news for thousands of Louisiana welders, pipefitters, engineers and roustabouts whose jobs were threatened by a political decision.”
But Representative Edward J. Markey, a Massachusetts Democrat, pointed out that the moratorium did not apply to the vast majority of rigs because they are already in production. He criticized resuming deep-water exploratory drilling before new safety measures are established.
“This is another bad decision in a disaster riddled with bad decisions by the oil industry,” Mr. Markey said. “The only thing worse than one oil spill disaster in the Gulf of Mexico would be two oil spill disasters. This judge’s decision flies in the face of mounting evidence that there are serious safety risks that must be examined with these 33 deep-water rigs before they start drilling again.”
In a 22-page opinion, the judge, Martin L. C. Feldman of United States District Court, issued a preliminary injunction against the enforcement of a late May order halting all offshore exploratory drilling in more than 500 feet of water.
Citing potential economic harm to businesses and workers, Judge Feldman wrote that the Obama administration had failed to justify the need for such “a blanket, generic, indeed punitive, moratorium” on deep-water oil and gas drilling.
“The blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger,” wrote Judge Feldman, a 1983 appointee of President Ronald Reagan. The administration’s order halted 33 exploratory drilling projects and suspended new permits, but did not affect platforms that were already in production.
In a statement on Tuesday evening, Interior Secretary Ken Salazar said that within days he would issue a new order imposing a moratorium on deep-water drilling that would contain additional information showing why it was necessary.
Robert Gibbs, the White House press secretary, said the administration “will immediately appeal” the judge’s ruling to a federal appeals court in New Orleans. He said it made sense to suspend exploratory deep-water drilling until the completion of the investigation into the April 20 explosion at the Deepwater Horizon rig leased by BP and the still-flowing leak from the underwater well.
President Obama “strongly believes,” Mr. Gibbs said, “that continuing to drill at these depths without knowing what happened does not make any sense” and would jeopardize “the safety of those on the rigs and safety of the environment in the gulf.”
The immediate impact of the ruling was not clear. A White House official said the administration would likely seek a stay pending its appeal. And the decision left room for the government to assemble a stronger record in support of suspending such operations.
The ruling on Tuesday was the result of a lawsuit filed this month by a coalition of businesses that provide services and equipment to offshore drilling platforms. The coalition asked the judge to block the moratorium, arguing that there was no evidence that existing projects were unsafe. The state of Louisiana filed a brief supporting the lawsuit, arguing that the suspension would cause irrevocable harm to its economy.
Judge Feldman agreed, noting that “oil and gas production is quite simply elemental to gulf communities.” He portrayed the Interior Department’s record in support of the moratorium as inadequate and misleading, saying that a preliminary injunction was necessary because the suspension would likely be ruled “arbitrary and capricious” after a trial.
“Some of the plaintiffs’ contracts have been affected; the court is persuaded that it is only a matter of time before more business and jobs and livelihoods will be lost,” he wrote, adding, “The effect on employment, jobs, loss of domestic energy supplies caused by the moratorium as the plaintiffs (and other suppliers, and the rigs themselves) lose business, and the movement of the rigs to other sites around the world will clearly ripple throughout the economy in this region.”
Several groups critical of the ruling highlighted a financial disclosure form filed by Judge Feldman in May 2009. It showed that as recently as 2008, he owned stock in several energy-related firms — including Transocean, which owned the Deepwater Horizon rig.
A coalition of environmental groups released a statement by Catherine Wannamaker, senior lawyer at the Southern Environmental Law Center, decrying the ruling as “outrageous.”
“The tragic explosion, the unstopped gushing of oil, and resulting damage to fishing and tourism industries, cultures, wildlife and the whole Gulf Coast should be more than enough cause for pausing risky deep-water activities until safety and environmental protection is assured,” she said. “Unfortunately, today’s court decision allows short-term profit for some to trump safety, lives and the environmental health of the Gulf Coast upon which so many depend.”
Members of Congress issued warring statements over the ruling. Representative Darrell Issa, a California Republican, criticized the Obama administration’s efforts to impose the moratorium as “cold and irresponsible,” saying it would put “tens of thousands of jobs” in danger because oil and gas companies could move their equipment elsewhere in the world.
Representative Bill Cassidy, a Louisiana Republican, praised the ruling against the moratorium as “welcome news for thousands of Louisiana welders, pipefitters, engineers and roustabouts whose jobs were threatened by a political decision.”
But Representative Edward J. Markey, a Massachusetts Democrat, pointed out that the moratorium did not apply to the vast majority of rigs because they are already in production. He criticized resuming deep-water exploratory drilling before new safety measures are established.
“This is another bad decision in a disaster riddled with bad decisions by the oil industry,” Mr. Markey said. “The only thing worse than one oil spill disaster in the Gulf of Mexico would be two oil spill disasters. This judge’s decision flies in the face of mounting evidence that there are serious safety risks that must be examined with these 33 deep-water rigs before they start drilling again.”
‘Mamma Mia’ Goes Dark, Bankers Stay Home as G-20 Hits Toronto
June 23 (Bloomberg) -- Toronto, host to this weekend’s Group of 20 summit, is preparing for an invasion of world leaders, police and protesters by shutting its doors.
The Toronto Blue Jays baseball team is leaving town, the Royal Alexandra Theatre is closing for the first time in more than a century and thousands of bankers and money managers such as David Cockfield are working from home.
“People coming to cover the G-20 are going to find Toronto just empty, with wind blowing through the downtown canyons, asking ‘Where are all the people?’” said Cockfield, a portfolio manager at MacNicol and Associates Asset Management Inc., which oversees about C$300 million ($293 million).
Lost business from shuttered shops, offices, restaurants and tourist venues such as the Art Gallery of Ontario will likely offset any economic gains from packed hotels for the June 26-27 summit in Canada’s biggest city, Bank of Montreal deputy chief economist Doug Porter said.
The G-20 meeting may result in an average C$7,500 in lost sales for each downtown restaurant during the two days, according to the Canadian Restaurant and Foodservices Association. That’s a revenue drop of about C$23 million.
“Bottom line, restaurateurs are not liking it at all,” association Chief Executive Officer Garth Whyte said. “There’ll be more losers than winners.”
Security Zone
A 12-block section of Toronto’s financial district is already surrounded by three-meter (10-foot) high chain-link fences and concrete barriers, part of the largest security operation ever in Canada with 20,000 police and security guards.
About 223,000 employees work in financial services in Toronto, the third-most of any city in North America, according to the Toronto Financial Services Alliance. The region of about 5.1 million people is home to Canada’s largest lenders, 55 foreign bank units and insurers such as Manulife Financial Corp.
At least three dozen downtown branches of Canada’s five- largest lenders including Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will close between June 24 and June 27 because of increased security and protests.
Bankers in the city’s financial district on Bay Street are also being advised by their companies to ditch suits and ties for casual clothes, with at least 18 demonstrations planned by groups protesting everything from oil-sands development and poverty to boycotting Chilean wine and fruit.
“I’ll probably wear a baseball cap and a pair of shorts,” Sentry Select Capital money manager Mason Granger said. “I don’t want to make it obvious I’m a Bay Street guy.”
Law Firm Closes
Bank of Montreal, based in the First Canadian Place tower, may have as many as 40 percent of its 6,000 downtown staff working from home, spokesman Ralph Marranca said. The bank also plans to run part of its Canadian trading operations from an alternate site, he said.
Osler, Hoskin & Harcourt LLP will close its law office in the same building on June 25, affecting about 750 employees, said Chief Operating Officer Ruth Woods. PricewaterhouseCoopers is closing its offices nearby, affecting 1,800 staff.
Paul Hand, a managing director of equities at RBC Capital Markets, says he’ll take June 25 off and come in later than normal to Royal Bank of Canada’s gold-tinted office tower tomorrow. The Brooks Brothers clothing store in the same building will be closed for three days.
“This whole G-20 thing has taken on a surreal feel,” said Hand, 61. “It’s become a backdrop of malaise.”
Stay Home
Canada will spend as much as C$1.2 billion for the meetings to host world leaders, said Andrew MacDougall, a spokesman for Prime Minister Stephen Harper. The costs include the G-8 meeting on June 25 at a lakeside resort about 230 kilometers (143 miles) north of the city in Huntsville, Ontario.
By contrast, last year’s G-20 summit in Pittsburgh cost $18 million and London’s tab was $30 million, according to a report by the University of Toronto’s G8 and G20 Research Groups. The amounts in other countries may not be comparable, the group said.
The U.S. government issued an alert telling travelers to avoid downtown Toronto during the summit because of the potential for “violent and unpredictable” protests that started on June 21.
“Most of the action with the demonstrators, broken glass and tear gas will probably be right near our office,” said Ed Sustar, 44, a senior credit analyst at Moody’s Investors Service.
Theaters Go Dark
The shows won’t go on at The Royal Alexandra Theatre and Princess of Wales, which are closed from June 21 to June 27.
“We’ll be taking a sizeable loss,” said producer David Mirvish, 65. “That week would have been enormous” because it was the last week for “Mamma Mia.” About 600 staff will lose their wages for the week, he said.
The Toronto Blue Jays shifted their three-game “home” series against the Phillies to Philadelphia to avoid the Rogers Centre stadium, beside the summit venue at the Metro Toronto Convention Centre.
Big Daddy’s Crab Shack and Oyster Bar is among Toronto eateries planning to close this weekend.
“Nobody’s going to be coming downtown,” manager Trey Tran said.
Gabby’s, a sports bar, is betting that full hotels will translate into booming business from police, journalists and summit delegates. Tourism Toronto estimates the G-20 will result in 114,000 hotel-room nights in the city and spending of C$53 million.
The Royal Canadian Mounted Police are based at the Hyatt hotel across the road from Gabby’s.
“The RCMP guys are going to be drinking here,” Gabby’s general manager Scott Wark said. “I don’t expect any problems.”
The Toronto Blue Jays baseball team is leaving town, the Royal Alexandra Theatre is closing for the first time in more than a century and thousands of bankers and money managers such as David Cockfield are working from home.
“People coming to cover the G-20 are going to find Toronto just empty, with wind blowing through the downtown canyons, asking ‘Where are all the people?’” said Cockfield, a portfolio manager at MacNicol and Associates Asset Management Inc., which oversees about C$300 million ($293 million).
Lost business from shuttered shops, offices, restaurants and tourist venues such as the Art Gallery of Ontario will likely offset any economic gains from packed hotels for the June 26-27 summit in Canada’s biggest city, Bank of Montreal deputy chief economist Doug Porter said.
The G-20 meeting may result in an average C$7,500 in lost sales for each downtown restaurant during the two days, according to the Canadian Restaurant and Foodservices Association. That’s a revenue drop of about C$23 million.
“Bottom line, restaurateurs are not liking it at all,” association Chief Executive Officer Garth Whyte said. “There’ll be more losers than winners.”
Security Zone
A 12-block section of Toronto’s financial district is already surrounded by three-meter (10-foot) high chain-link fences and concrete barriers, part of the largest security operation ever in Canada with 20,000 police and security guards.
About 223,000 employees work in financial services in Toronto, the third-most of any city in North America, according to the Toronto Financial Services Alliance. The region of about 5.1 million people is home to Canada’s largest lenders, 55 foreign bank units and insurers such as Manulife Financial Corp.
At least three dozen downtown branches of Canada’s five- largest lenders including Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will close between June 24 and June 27 because of increased security and protests.
Bankers in the city’s financial district on Bay Street are also being advised by their companies to ditch suits and ties for casual clothes, with at least 18 demonstrations planned by groups protesting everything from oil-sands development and poverty to boycotting Chilean wine and fruit.
“I’ll probably wear a baseball cap and a pair of shorts,” Sentry Select Capital money manager Mason Granger said. “I don’t want to make it obvious I’m a Bay Street guy.”
Law Firm Closes
Bank of Montreal, based in the First Canadian Place tower, may have as many as 40 percent of its 6,000 downtown staff working from home, spokesman Ralph Marranca said. The bank also plans to run part of its Canadian trading operations from an alternate site, he said.
Osler, Hoskin & Harcourt LLP will close its law office in the same building on June 25, affecting about 750 employees, said Chief Operating Officer Ruth Woods. PricewaterhouseCoopers is closing its offices nearby, affecting 1,800 staff.
Paul Hand, a managing director of equities at RBC Capital Markets, says he’ll take June 25 off and come in later than normal to Royal Bank of Canada’s gold-tinted office tower tomorrow. The Brooks Brothers clothing store in the same building will be closed for three days.
“This whole G-20 thing has taken on a surreal feel,” said Hand, 61. “It’s become a backdrop of malaise.”
Stay Home
Canada will spend as much as C$1.2 billion for the meetings to host world leaders, said Andrew MacDougall, a spokesman for Prime Minister Stephen Harper. The costs include the G-8 meeting on June 25 at a lakeside resort about 230 kilometers (143 miles) north of the city in Huntsville, Ontario.
By contrast, last year’s G-20 summit in Pittsburgh cost $18 million and London’s tab was $30 million, according to a report by the University of Toronto’s G8 and G20 Research Groups. The amounts in other countries may not be comparable, the group said.
The U.S. government issued an alert telling travelers to avoid downtown Toronto during the summit because of the potential for “violent and unpredictable” protests that started on June 21.
“Most of the action with the demonstrators, broken glass and tear gas will probably be right near our office,” said Ed Sustar, 44, a senior credit analyst at Moody’s Investors Service.
Theaters Go Dark
The shows won’t go on at The Royal Alexandra Theatre and Princess of Wales, which are closed from June 21 to June 27.
“We’ll be taking a sizeable loss,” said producer David Mirvish, 65. “That week would have been enormous” because it was the last week for “Mamma Mia.” About 600 staff will lose their wages for the week, he said.
The Toronto Blue Jays shifted their three-game “home” series against the Phillies to Philadelphia to avoid the Rogers Centre stadium, beside the summit venue at the Metro Toronto Convention Centre.
Big Daddy’s Crab Shack and Oyster Bar is among Toronto eateries planning to close this weekend.
“Nobody’s going to be coming downtown,” manager Trey Tran said.
Gabby’s, a sports bar, is betting that full hotels will translate into booming business from police, journalists and summit delegates. Tourism Toronto estimates the G-20 will result in 114,000 hotel-room nights in the city and spending of C$53 million.
The Royal Canadian Mounted Police are based at the Hyatt hotel across the road from Gabby’s.
“The RCMP guys are going to be drinking here,” Gabby’s general manager Scott Wark said. “I don’t expect any problems.”
Top Arden analyst to take over as chief
Jeremy Grime, the highly-rated financial analyst at Arden Partners, is to become the City stockbroker’s new chief executive.
A board reshuffle will also see Howard Flight, the former Guinness Flight executive and Conservative MP, become senior independent non-executive in place of Philip Dayer.
The shake-up came amid interim results in line with expectations. For the six months to April 30, revenue rose 41 per cent to £6.5m. Pre-tax losses narrowed from £326,000 to £270,000. The loss per share widened from 0.3p to 1.7p. It passed on an interim dividend. Arden shares opened unchanged at 88½p.
Mr Grime will take over the role of chief executive by the end of the year from Jonathan Keeling, who will move up to deputy chairman with responsibility to develop Arden’s Indian business.
Arden is broker to seven Indian-focused, London-listed companies including Great Eastern Energy, Hardy Oil & Gas and KSK Power Venture and Mr Keeling described India as becoming an important part of the business. “The opportunities coming out of India are immense,” he said.
Mr Grime has led Arden’s financials team since 2007 and was recently voted number one in the prestigious Extel analyst rankings.
Revenue from the group’s corporate finance division rose to £2.9m (from £2.4m) after advising on six mergers & acquisitions deals and raising £120m (£43m) for clients.
The group’s equities business saw revenues soar 63 per cent to £3.6m after beefing up headcount by more than a third.
“Market weakness has delivered opportunities in terms of staff recruitment and client wins which have helped Arden’s franchise to grow,” said Mr Keeling.
At the same time Arden said Philip Dayer would resign as the group’s senior independent non-executive director. He has been with Arden since the group’s listing on Aim in July 2006.
Mr Flight was the former Tory deputy chairman and founder of Guinness Flight Hambro fund management. He also held senior positions at Investec Asset Management and Panmure Gordon. He was dropped as an MP before the 2005 election for airing comments on tax.
A board reshuffle will also see Howard Flight, the former Guinness Flight executive and Conservative MP, become senior independent non-executive in place of Philip Dayer.
The shake-up came amid interim results in line with expectations. For the six months to April 30, revenue rose 41 per cent to £6.5m. Pre-tax losses narrowed from £326,000 to £270,000. The loss per share widened from 0.3p to 1.7p. It passed on an interim dividend. Arden shares opened unchanged at 88½p.
Mr Grime will take over the role of chief executive by the end of the year from Jonathan Keeling, who will move up to deputy chairman with responsibility to develop Arden’s Indian business.
Arden is broker to seven Indian-focused, London-listed companies including Great Eastern Energy, Hardy Oil & Gas and KSK Power Venture and Mr Keeling described India as becoming an important part of the business. “The opportunities coming out of India are immense,” he said.
Mr Grime has led Arden’s financials team since 2007 and was recently voted number one in the prestigious Extel analyst rankings.
Revenue from the group’s corporate finance division rose to £2.9m (from £2.4m) after advising on six mergers & acquisitions deals and raising £120m (£43m) for clients.
The group’s equities business saw revenues soar 63 per cent to £3.6m after beefing up headcount by more than a third.
“Market weakness has delivered opportunities in terms of staff recruitment and client wins which have helped Arden’s franchise to grow,” said Mr Keeling.
At the same time Arden said Philip Dayer would resign as the group’s senior independent non-executive director. He has been with Arden since the group’s listing on Aim in July 2006.
Mr Flight was the former Tory deputy chairman and founder of Guinness Flight Hambro fund management. He also held senior positions at Investec Asset Management and Panmure Gordon. He was dropped as an MP before the 2005 election for airing comments on tax.
Monday, June 21, 2010
Cameron Bets on Growth From Austerity as U.S. Delays
June 22 (Bloomberg) -- World leaders from the U.K.’s David Cameron to Naoto Kan of Japan are betting they can deliver fiscal austerity without derailing economic prosperity. History suggests they may be right.
Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases, according to studies by Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent.
“There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview. He made a presentation to European finance chiefs on the topic during their April meeting in Madrid.
Such a strategy in the past has also “resulted in significant bond and equity-market outperformance,” according to an April 14 Goldman Sachs report.
Some investors are cool to the idea so far, and even President Barack Obama is pressing for more stimulus, not less, in the U.S. as he prepares to meet Cameron, Kan and other Group of 20 counterparts at a summit in Toronto June 26-27.
“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” Obama wrote in a June 16 letter to G-20 leaders.
Global Recovery
The focus on fiscal policy at the summit will be sharper after China relaxed a two-year peg to the dollar, limiting the likelihood the yuan will be debated at the talks and signaling the global recovery is gaining strength.
“They’ve made their move, which effectively takes it off the G-20 agenda,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington.
While the MSCI World Index has risen about 8 percent since June 7, it is still about 10 percent below the April 15 year-to- date high, partly because it isn’t clear yet that spending reductions won’t restrain expansion.
“We think it is prudent to remain underweight European sovereign risk and to wait for evidence that countries with stressed debt dynamics can deliver on fiscal consolidation without undermining growth in their economies,” Andrew Balls, head of European portfolio management in London for Newport Beach, California-based Pacific Investment Management Co., wrote in a research report.
Accelerating Demand
The key is an emphasis on cutting spending rather than raising taxes, said Goldman Sachs economists Broadbent and Daly in London. Lower spending means consumers and companies don’t fear higher taxes, so demand accelerates. A smaller public sector also helps reduce borrowing costs and makes economies more competitive as fewer government workers lighten labor expenses.
In a study of 44 large fiscal adjustments in 24 advanced economies since 1975, Broadbent and Daly discovered that reducing expenditures by 1 percentage point a year boosted average annual growth by 0.6 percentage point. Raising the ratio of taxes to GDP by the same margin cut growth by an average 0.9 percentage point.
The equity markets of the countries that sliced spending beat those of other advanced nations by 64 percent during a three-year period, and their bond yields fell by more than if budget adjustments had been driven by tax hikes, according to the report.
‘Rigorous Approach’
“A rigorous approach from governments gives investors much more confidence that policy-setting is meant to be serious,” said Franz Wenzel, a strategist at AXA Investment Managers in Paris, which oversees the equivalent of more than $600 billion. “That is what supports risky assets in general and equities in particular.”
Stock prices also may be bolstered by loose monetary policy as central banks offset the tighter budget stance by keeping interest rates at record lows.
Policy makers will take account of fiscal tightening in deciding when to raise rates, said Simon Hayes, an economist at Barclays Capital in London. Barclays now predicts the Federal Reserve will increase its benchmark rate from near zero in April 2011 instead of September this year, as the investment bank previously forecast, and the European Central Bank will lift its key rate from 1 percent in June next year rather than March.
Hayes last month pushed back his prediction for an increase in the U.K.’s 0.5 percent rate to February from August.
Fiscal Consolidation
“I know there are those who worry that too rapid a fiscal consolidation will endanger recovery,” Bank of England Governor Mervyn King said in a June 16 speech. “If prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond.”
Too much delay in restoring order to budgets will ultimately spark a market “crisis, which impacts heavily on the economy,” ECB Executive Board member Lorenzo Bini Smaghi said in a June 18 speech in Brussels. “A timely fiscal adjustment which puts debt dynamics back onto a sustainable path entails a stronger growth over time.”
At a June 5 meeting in South Korea, G-20 finance ministers threw out a commitment to keep injecting stimulus into their economies after spending $5 trillion to combat the economic slump. Splitting over how soon the reversal should begin, they settled on a pledge to pursue “growth-friendly” consolidation.
Bondholder Revolt
The shift comes as investors punish profligate economies from Ireland to Greece, forcing European governments to create a 750 billion-euro ($924 billion) safety net.
The premium investors demand to hold Greek 10-year bonds over benchmark German bunds has widened 433 basis points since January 1 to 672 basis points on June 21. The so-called yield spread between Irish and German 10-year bonds widened 125 basis points to 270 basis points.
The International Monetary Fund estimates the G-20’s average debt burden will reach 110 percent of gross domestic product by 2015, a 37 percentage-point increase from its pre- credit-crisis level. The average budget deficit was 7.5 percent last year compared with 0.9 percent in 2007, according to the Washington-based lender.
European countries are leading the way in cutting back. Ireland raised a sales tax in 2008, introduced an income levy and reduced public workers’ pay. Greek lawmakers in May approved wage cuts for public workers, a three-year freeze on pensions and a second increase this year in sales taxes.
Ahead of Target
The spending reductions are the main reason Greece is ahead of its target to reduce the budget deficit for this year to 8.1 percent of gross domestic product from 13.6 percent, Prime Minister George Papandreou said in a July 20 radio interview on “Bloomberg on the Economy” with Tom Keene.
Germany’s cabinet this month backed budget cuts worth more than 80 billion euros through 2014. Chancellor Angela Merkel said she expects to have a “hard time” at the G-20 summit as other leaders press her to focus on economic growth. They will tell her “Germany saves too much,” she said June 11, adding she’ll respond that “there is no alternative” to cutting the deficit.
European policy makers aren’t alone in starting to don hair shirts. Prime Minister Kan’s administration today released a fiscal plan that includes pledges to cap spending for three years, reduce bond sales and overhaul the tax system. A Japanese government advisory panel today advocated higher taxes on consumption and high-income earners.
Australia, India
Prime Minister Kevin Rudd has pledged to bring Australia’s budget into surplus in 2012-13, three years ahead of forecast, by keeping a 2 percent cap on spending growth. Indian Prime Minister Manmohan Singh’s government won parliamentary approval in April for a series of tax increases.
Advanced economies need to retrench because issuing more debt will “crowd out” private-sector activity and threaten their credit ratings and long-term health, Thomas Byrne, a senior vice president at Moody’s Investors Service in Singapore, said in an interview.
When the Group of Seven returned their budgets to near- balance in the mid-1990s, expansion averaged a “reasonable” 2.85 percent, Ian Richards, an equity strategist in London at Royal Bank of Scotland Group Plc, said in a May 27 report. Ireland in the 1980s and Sweden and Canada in the following decade corrected fiscal imbalances and their economies expanded.
‘Robust’ Growth
“The global economy can grow at a robust rate, even as global fiscal consolidation gains momentum,” Richards said.
The shift to parsimony has nevertheless spooked financial markets concerned that simultaneous tightening will return the world to recession. The euro has fallen about 14 percent against the dollar this year, in part because of speculation the euro area’s economic rebound will stall as governments cut spending to tackle the debt crisis.
“Global growth expectations have ‘double-dipped’ and positioning is much more defensive,” Michael Hartnett, chief global-equities strategist at BofA Merrill Lynch Global Research in New York, said in a June 15 report.
It is “utter folly” for the G-20 to be considering retrenchment with unemployment so high, Nobel laureate Paul Krugman wrote in his blog June 6. The U.S., U.K. and Japan also aren’t “facing any pressure from the markets for immediate cuts,” he said.
With the U.S. jobless rate at 9.7 percent last month, Obama is urging Congress to act on measures to boost lending and give tax breaks to small businesses to encourage employment.
Focus on Jobs
“We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now,” Obama wrote in his June 16 letter.
There are already signs that the loss of stimulus packs a punch. French car sales fell 12 percent in May, ending a 12- month surge in demand for smaller vehicles, after the government began phasing out incentives. U.S. housing starts tumbled 10 percent in May following the expiration of a home-buyers’ tax credit the previous month, according to the Commerce Department. The drop was the steepest since March 2009.
“The impact of concerted fiscal tightening over many economies will be to lower global growth meaningfully,” said George Magnus, senior economic adviser at UBS AG in London. “I don’t buy the idea that you shouldn’t be frightened of fiscal retrenchment.”
U.K. Test Case
The U.K. may be a test case. Cameron’s government will introduce an emergency budget today containing the deepest spending cuts since at least the 1970s to tackle a deficit that reached 11 percent of GDP in the last fiscal year. Chancellor of the Exchequer George Osborne on June 20 called it a “good rule of thumb” that spending cuts account for 80 percent of the budget correction and tax increases compose the rest.
“If the U.K. budget is well received by investors and voters, that will have a profound effect on the debate elsewhere,” said Tim Adams, a former U.S. Treasury undersecretary and now managing director of the Lindsey Group, a Fairfax, Virginia-based investment consulting company. “If the U.S. is smart, it will be paying close attention to what happens.”
Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases, according to studies by Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent.
“There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview. He made a presentation to European finance chiefs on the topic during their April meeting in Madrid.
Such a strategy in the past has also “resulted in significant bond and equity-market outperformance,” according to an April 14 Goldman Sachs report.
Some investors are cool to the idea so far, and even President Barack Obama is pressing for more stimulus, not less, in the U.S. as he prepares to meet Cameron, Kan and other Group of 20 counterparts at a summit in Toronto June 26-27.
“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” Obama wrote in a June 16 letter to G-20 leaders.
Global Recovery
The focus on fiscal policy at the summit will be sharper after China relaxed a two-year peg to the dollar, limiting the likelihood the yuan will be debated at the talks and signaling the global recovery is gaining strength.
“They’ve made their move, which effectively takes it off the G-20 agenda,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington.
While the MSCI World Index has risen about 8 percent since June 7, it is still about 10 percent below the April 15 year-to- date high, partly because it isn’t clear yet that spending reductions won’t restrain expansion.
“We think it is prudent to remain underweight European sovereign risk and to wait for evidence that countries with stressed debt dynamics can deliver on fiscal consolidation without undermining growth in their economies,” Andrew Balls, head of European portfolio management in London for Newport Beach, California-based Pacific Investment Management Co., wrote in a research report.
Accelerating Demand
The key is an emphasis on cutting spending rather than raising taxes, said Goldman Sachs economists Broadbent and Daly in London. Lower spending means consumers and companies don’t fear higher taxes, so demand accelerates. A smaller public sector also helps reduce borrowing costs and makes economies more competitive as fewer government workers lighten labor expenses.
In a study of 44 large fiscal adjustments in 24 advanced economies since 1975, Broadbent and Daly discovered that reducing expenditures by 1 percentage point a year boosted average annual growth by 0.6 percentage point. Raising the ratio of taxes to GDP by the same margin cut growth by an average 0.9 percentage point.
The equity markets of the countries that sliced spending beat those of other advanced nations by 64 percent during a three-year period, and their bond yields fell by more than if budget adjustments had been driven by tax hikes, according to the report.
‘Rigorous Approach’
“A rigorous approach from governments gives investors much more confidence that policy-setting is meant to be serious,” said Franz Wenzel, a strategist at AXA Investment Managers in Paris, which oversees the equivalent of more than $600 billion. “That is what supports risky assets in general and equities in particular.”
Stock prices also may be bolstered by loose monetary policy as central banks offset the tighter budget stance by keeping interest rates at record lows.
Policy makers will take account of fiscal tightening in deciding when to raise rates, said Simon Hayes, an economist at Barclays Capital in London. Barclays now predicts the Federal Reserve will increase its benchmark rate from near zero in April 2011 instead of September this year, as the investment bank previously forecast, and the European Central Bank will lift its key rate from 1 percent in June next year rather than March.
Hayes last month pushed back his prediction for an increase in the U.K.’s 0.5 percent rate to February from August.
Fiscal Consolidation
“I know there are those who worry that too rapid a fiscal consolidation will endanger recovery,” Bank of England Governor Mervyn King said in a June 16 speech. “If prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond.”
Too much delay in restoring order to budgets will ultimately spark a market “crisis, which impacts heavily on the economy,” ECB Executive Board member Lorenzo Bini Smaghi said in a June 18 speech in Brussels. “A timely fiscal adjustment which puts debt dynamics back onto a sustainable path entails a stronger growth over time.”
At a June 5 meeting in South Korea, G-20 finance ministers threw out a commitment to keep injecting stimulus into their economies after spending $5 trillion to combat the economic slump. Splitting over how soon the reversal should begin, they settled on a pledge to pursue “growth-friendly” consolidation.
Bondholder Revolt
The shift comes as investors punish profligate economies from Ireland to Greece, forcing European governments to create a 750 billion-euro ($924 billion) safety net.
The premium investors demand to hold Greek 10-year bonds over benchmark German bunds has widened 433 basis points since January 1 to 672 basis points on June 21. The so-called yield spread between Irish and German 10-year bonds widened 125 basis points to 270 basis points.
The International Monetary Fund estimates the G-20’s average debt burden will reach 110 percent of gross domestic product by 2015, a 37 percentage-point increase from its pre- credit-crisis level. The average budget deficit was 7.5 percent last year compared with 0.9 percent in 2007, according to the Washington-based lender.
European countries are leading the way in cutting back. Ireland raised a sales tax in 2008, introduced an income levy and reduced public workers’ pay. Greek lawmakers in May approved wage cuts for public workers, a three-year freeze on pensions and a second increase this year in sales taxes.
Ahead of Target
The spending reductions are the main reason Greece is ahead of its target to reduce the budget deficit for this year to 8.1 percent of gross domestic product from 13.6 percent, Prime Minister George Papandreou said in a July 20 radio interview on “Bloomberg on the Economy” with Tom Keene.
Germany’s cabinet this month backed budget cuts worth more than 80 billion euros through 2014. Chancellor Angela Merkel said she expects to have a “hard time” at the G-20 summit as other leaders press her to focus on economic growth. They will tell her “Germany saves too much,” she said June 11, adding she’ll respond that “there is no alternative” to cutting the deficit.
European policy makers aren’t alone in starting to don hair shirts. Prime Minister Kan’s administration today released a fiscal plan that includes pledges to cap spending for three years, reduce bond sales and overhaul the tax system. A Japanese government advisory panel today advocated higher taxes on consumption and high-income earners.
Australia, India
Prime Minister Kevin Rudd has pledged to bring Australia’s budget into surplus in 2012-13, three years ahead of forecast, by keeping a 2 percent cap on spending growth. Indian Prime Minister Manmohan Singh’s government won parliamentary approval in April for a series of tax increases.
Advanced economies need to retrench because issuing more debt will “crowd out” private-sector activity and threaten their credit ratings and long-term health, Thomas Byrne, a senior vice president at Moody’s Investors Service in Singapore, said in an interview.
When the Group of Seven returned their budgets to near- balance in the mid-1990s, expansion averaged a “reasonable” 2.85 percent, Ian Richards, an equity strategist in London at Royal Bank of Scotland Group Plc, said in a May 27 report. Ireland in the 1980s and Sweden and Canada in the following decade corrected fiscal imbalances and their economies expanded.
‘Robust’ Growth
“The global economy can grow at a robust rate, even as global fiscal consolidation gains momentum,” Richards said.
The shift to parsimony has nevertheless spooked financial markets concerned that simultaneous tightening will return the world to recession. The euro has fallen about 14 percent against the dollar this year, in part because of speculation the euro area’s economic rebound will stall as governments cut spending to tackle the debt crisis.
“Global growth expectations have ‘double-dipped’ and positioning is much more defensive,” Michael Hartnett, chief global-equities strategist at BofA Merrill Lynch Global Research in New York, said in a June 15 report.
It is “utter folly” for the G-20 to be considering retrenchment with unemployment so high, Nobel laureate Paul Krugman wrote in his blog June 6. The U.S., U.K. and Japan also aren’t “facing any pressure from the markets for immediate cuts,” he said.
With the U.S. jobless rate at 9.7 percent last month, Obama is urging Congress to act on measures to boost lending and give tax breaks to small businesses to encourage employment.
Focus on Jobs
“We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now,” Obama wrote in his June 16 letter.
There are already signs that the loss of stimulus packs a punch. French car sales fell 12 percent in May, ending a 12- month surge in demand for smaller vehicles, after the government began phasing out incentives. U.S. housing starts tumbled 10 percent in May following the expiration of a home-buyers’ tax credit the previous month, according to the Commerce Department. The drop was the steepest since March 2009.
“The impact of concerted fiscal tightening over many economies will be to lower global growth meaningfully,” said George Magnus, senior economic adviser at UBS AG in London. “I don’t buy the idea that you shouldn’t be frightened of fiscal retrenchment.”
U.K. Test Case
The U.K. may be a test case. Cameron’s government will introduce an emergency budget today containing the deepest spending cuts since at least the 1970s to tackle a deficit that reached 11 percent of GDP in the last fiscal year. Chancellor of the Exchequer George Osborne on June 20 called it a “good rule of thumb” that spending cuts account for 80 percent of the budget correction and tax increases compose the rest.
“If the U.K. budget is well received by investors and voters, that will have a profound effect on the debate elsewhere,” said Tim Adams, a former U.S. Treasury undersecretary and now managing director of the Lindsey Group, a Fairfax, Virginia-based investment consulting company. “If the U.S. is smart, it will be paying close attention to what happens.”
Japan Targets Balanced Budget by 2020 to Contain Debt
June 22 (Bloomberg) -- Japan’s government pledged to balance its books in 10 years, restrict bond sales and overhaul the tax system as part of a plan to contain the world’s largest public debt.
Annual spending will be capped at 71 trillion yen ($781 billion) over the next three years, the government said in its fiscal strategy released in Tokyo today. It will decide changes to the tax regime “soon.” Prime Minister Naoto Kan, who took office this month pledging to restore fiscal health, is exploring an increase in the country’s 5 percent sales tax.
The document represents the ruling Democratic Party of Japan’s conversion to deficit reduction as Europe’s fiscal crisis prompts a shift in public perceptions on the need to rein in a record 883 trillion yen of debt. Fitch Ratings said yesterday the plan must be “credible” to avoid risking the country’s AA- credit rating.
“The government deserves recognition for setting up concrete targets,” said Susumu Kato, chief economist for Japan at Credit Agricole CIB and CLSA in Tokyo. “But the focus will be on the feasibility of the plan -- how the government will act to achieve the goals.”
Borrowing costs in Japan have remained contained this year even as those among Europe’s most indebted nations surged, in part because 94 percent of investors in the country’s debt are domestic. Japan’s 10-year bond yielded 1.21 percent at 12:40 p.m. in Tokyo.
‘Pay As You Go’
The strategy calls for balancing the budget, excluding interest payments on bonds, by the year ending March 2021. Ministries will follow a “pay-as-you-go” principle when compiling the budget, meaning policy makers must secure funds before seeking extra spending. New bond sales will be kept within the current period’s 44.3 trillion yen next fiscal year and beyond, the plan said, without specifying how long.
Finance Minister Yoshihiko Noda told reporters in Tokyo today that the government will achieve the targets “by conducting reforms of spending and revenue.” National Strategy Minister Satoshi Arai said the plan will restore investor confidence.
Rising debt-servicing costs mean achieving a balanced budget isn’t enough and a primary surplus of 4 percent of gross domestic product is required, according to Chuo University Professor Toshiki Tomita. The Cabinet Office estimates a deficit of 6.4 percent in the year ending March 31.
Find Money
Japan will need to find as much as 7 trillion yen each year to achieve the limits on bond sales and spending, probably through an increase in taxes, Tomita, who advised the government on the plan, said in an interview last week. Bond sales would otherwise balloon to 50 trillion yen, he said.
A private-sector panel that advises the Finance Ministry today said the government should consider raising taxes on goods and services as well as high-income earners.
The DPJ last week called for cross-party talks over raising the sales tax, as part of its policy platform for a July 11 upper-house election. Kan said he will consider the opposition Liberal Democratic Party’s proposal to double the tax to 10 percent. Yesterday he said it will probably take “at least two to three years” to raise the levy.
Some 48 percent of voters support an increase in the sales tax to 10 percent, according to a Yomiuri newspaper survey published today. The Finance Ministry estimates a 1 percentage point increase would generate revenue of about 2.5 trillion yen.
Get Working
“We have to get working right away,” Kan said in his inaugural policy address on June 11. “We can see from the euro-zone confusion that began in Greece that our finances can go bankrupt if we don’t address our rising public debt.”
Japan racked up the debt as it tried to spend its way out of economic stagnation and deflation following the bursting of an asset-price bubble 20 years ago. Borrowings are approaching 200 percent of GDP, the highest ratio in the Organization for Economic Cooperation and Development.
Today’s strategy comes less than a week after the government released a plan to end deflation and achieve faster growth. Kan aims for 2 percent annual growth over the next 10 years, a rate that exceeds the 1.1 percent average expansion since 1990, by lowering corporate tax and nurturing business in areas such as the environment and health care.
“The fiscal reform plan remains a pie in the sky until they can detail credible measures to achieve higher economic growth, which is the other side of the coin of rehabilitating public finances,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo.
Faster Growth
The Cabinet Office today raised its economic growth forecast for the year ending March 31 to 2.6 percent from 1.4 percent predicted in December, as spending by companies and households picks up and exports grow. That would be the biggest expansion in 10 years.
Koji Miyahara, president of the Japanese Shipowners’ Association, said last week that corporate tax rates must be cut to make firms more competitive. “We must think of this as a complement to raising the sales tax,” said Miyahara, who is chairman of Nippon Yusen K.K., Japan’s biggest shipping line.
Debt-rating companies have been anticipating today’s release to gauge policy makers’ commitment to deficit reduction. Standard & Poor’s cut the outlook on Japan’s AA grade in January, citing diminishing “flexibility” to cope with the nation’s swelling debt load.
The next two months will reveal how willing politicians and voters are to returning Japan to fiscal health, Andrew Colquhoun, director at Fitch’s Asia-Pacific sovereign group, said in an interview in Tokyo yesterday. “The intention is there, but it remains to be seen how strong the consensus is.”
Annual spending will be capped at 71 trillion yen ($781 billion) over the next three years, the government said in its fiscal strategy released in Tokyo today. It will decide changes to the tax regime “soon.” Prime Minister Naoto Kan, who took office this month pledging to restore fiscal health, is exploring an increase in the country’s 5 percent sales tax.
The document represents the ruling Democratic Party of Japan’s conversion to deficit reduction as Europe’s fiscal crisis prompts a shift in public perceptions on the need to rein in a record 883 trillion yen of debt. Fitch Ratings said yesterday the plan must be “credible” to avoid risking the country’s AA- credit rating.
“The government deserves recognition for setting up concrete targets,” said Susumu Kato, chief economist for Japan at Credit Agricole CIB and CLSA in Tokyo. “But the focus will be on the feasibility of the plan -- how the government will act to achieve the goals.”
Borrowing costs in Japan have remained contained this year even as those among Europe’s most indebted nations surged, in part because 94 percent of investors in the country’s debt are domestic. Japan’s 10-year bond yielded 1.21 percent at 12:40 p.m. in Tokyo.
‘Pay As You Go’
The strategy calls for balancing the budget, excluding interest payments on bonds, by the year ending March 2021. Ministries will follow a “pay-as-you-go” principle when compiling the budget, meaning policy makers must secure funds before seeking extra spending. New bond sales will be kept within the current period’s 44.3 trillion yen next fiscal year and beyond, the plan said, without specifying how long.
Finance Minister Yoshihiko Noda told reporters in Tokyo today that the government will achieve the targets “by conducting reforms of spending and revenue.” National Strategy Minister Satoshi Arai said the plan will restore investor confidence.
Rising debt-servicing costs mean achieving a balanced budget isn’t enough and a primary surplus of 4 percent of gross domestic product is required, according to Chuo University Professor Toshiki Tomita. The Cabinet Office estimates a deficit of 6.4 percent in the year ending March 31.
Find Money
Japan will need to find as much as 7 trillion yen each year to achieve the limits on bond sales and spending, probably through an increase in taxes, Tomita, who advised the government on the plan, said in an interview last week. Bond sales would otherwise balloon to 50 trillion yen, he said.
A private-sector panel that advises the Finance Ministry today said the government should consider raising taxes on goods and services as well as high-income earners.
The DPJ last week called for cross-party talks over raising the sales tax, as part of its policy platform for a July 11 upper-house election. Kan said he will consider the opposition Liberal Democratic Party’s proposal to double the tax to 10 percent. Yesterday he said it will probably take “at least two to three years” to raise the levy.
Some 48 percent of voters support an increase in the sales tax to 10 percent, according to a Yomiuri newspaper survey published today. The Finance Ministry estimates a 1 percentage point increase would generate revenue of about 2.5 trillion yen.
Get Working
“We have to get working right away,” Kan said in his inaugural policy address on June 11. “We can see from the euro-zone confusion that began in Greece that our finances can go bankrupt if we don’t address our rising public debt.”
Japan racked up the debt as it tried to spend its way out of economic stagnation and deflation following the bursting of an asset-price bubble 20 years ago. Borrowings are approaching 200 percent of GDP, the highest ratio in the Organization for Economic Cooperation and Development.
Today’s strategy comes less than a week after the government released a plan to end deflation and achieve faster growth. Kan aims for 2 percent annual growth over the next 10 years, a rate that exceeds the 1.1 percent average expansion since 1990, by lowering corporate tax and nurturing business in areas such as the environment and health care.
“The fiscal reform plan remains a pie in the sky until they can detail credible measures to achieve higher economic growth, which is the other side of the coin of rehabilitating public finances,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo.
Faster Growth
The Cabinet Office today raised its economic growth forecast for the year ending March 31 to 2.6 percent from 1.4 percent predicted in December, as spending by companies and households picks up and exports grow. That would be the biggest expansion in 10 years.
Koji Miyahara, president of the Japanese Shipowners’ Association, said last week that corporate tax rates must be cut to make firms more competitive. “We must think of this as a complement to raising the sales tax,” said Miyahara, who is chairman of Nippon Yusen K.K., Japan’s biggest shipping line.
Debt-rating companies have been anticipating today’s release to gauge policy makers’ commitment to deficit reduction. Standard & Poor’s cut the outlook on Japan’s AA grade in January, citing diminishing “flexibility” to cope with the nation’s swelling debt load.
The next two months will reveal how willing politicians and voters are to returning Japan to fiscal health, Andrew Colquhoun, director at Fitch’s Asia-Pacific sovereign group, said in an interview in Tokyo yesterday. “The intention is there, but it remains to be seen how strong the consensus is.”
Battles in California Over Mortgages
As the housing market continues to sputter, the real estate industry is increasingly split on the responsibilities of overextended and foreclosed homeowners.
Your Money Guides
On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on.
The differences have real financial consequences: bankers want to collect on billions of dollars in outstanding loans; real estate agents want as many people as possible to return to the housing market.
For the first time, the debate is spilling into the realm of law making, with state legislators in California considering a bill that would redefine the obligations of many defaulting homeowners. The efforts to shape the bill demonstrate how much is at stake — in California and the many other states with distressed real estate markets.
The legislation introduced in the winter by the real estate lobby would have largely shielded foreclosed homeowners from debt collectors. But by the time it passed the state Senate on June 3, the banking lobby had succeeded in scaling it back. Now the bill goes to the state Assembly, where a committee will take it up next week, and bankers intend to continue lobbying.
“We’re concerned this could adversely accelerate strategic defaults,” said Rodney K. Brown, chief executive of the California Bankers Association, referring to instances in which borrowers leave their properties without settling with the lender.
For years, a house in California was a machine for building wealth, and few were the families that could resist temptation. They refinanced their loans to pay for vacations, operations, tuition or, frequently, investments in more houses. Many of these households ended up struggling after the crash.
The lenders were often aggressive in making loans and frequently were predatory. The extent to which this absolves the borrowers of responsibility is at the center of the current debate.
The original legislation said borrowers who took cash out of their houses would be shielded as long as they used the money for home improvements. In its current form, the proposed law is not quite so forgiving.
The bill that passed the Senate by a lopsided vote of 30 to 4 would protect former homeowners up to the amount of their original loan. For instance, a family that took out a $500,000 mortgage to buy a house and then refinanced and took cash out, swelling their loan to $600,000, would be released from claims on the original sum but remain vulnerable on the $100,000.
Ellen M. Corbett, the Democratic state senator from San Leandro, Calif., east of San Francisco, who introduced the measure, said it is a matter of fairness.
During the Depression, she said, California legislators decided that losing your house was punishment enough. They did not want lenders endlessly hounding borrowers for the difference between what they owed and what their former house was worth, an amount called the deficiency.
Seventy-five years later, because of that law, anyone who has an original loan and wants to get rid of the house because it has fallen in value can simply walk away without further legal jeopardy. But a homeowner who refinanced, even for the straightforward reason of getting a lower interest rate, could in theory lose the house and be pursued for the deficiency.
“I don’t believe the original intent was to have a two-tier system, where some were protected and some were not,” Ms. Corbett said.
The agents, too, say this is a fairness issue. But there is also self-interest involved.
“Realtors are very worried about this because they think it will destroy the housing market if people end up with these huge deficiency judgments and are never able to buy a house again,” Ms. Corbett said.
To some extent, this is a fight over something that is not happening, at least not yet.
Lenders in California rarely chase foreclosed borrowers for deficiency judgments. Pursuing such cases in court can be an arduous process, and few of those in foreclosure have the assets or incomes to make it worthwhile.
But the threat of such action can come in handy for lenders, servicers and collection agencies. By raising the possibility of a court fight, they can negotiate favorable terms when agreeing to loan modifications and workouts, surrenders of deeds and sales for less than the full amount owed, also known as short sales.
“Using the threat of a deficiency, full-recourse lenders often prevail upon distressed borrowers to sign new, unsecured obligations in exchange for their assent to a proposed short sale or surrender of a deed,” said William A. Markham, a lawyer with Maldonado & Markham in San Diego. “This practice will nearly vanish overnight if the new measure becomes law.”
Your Money Guides
On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on.
The differences have real financial consequences: bankers want to collect on billions of dollars in outstanding loans; real estate agents want as many people as possible to return to the housing market.
For the first time, the debate is spilling into the realm of law making, with state legislators in California considering a bill that would redefine the obligations of many defaulting homeowners. The efforts to shape the bill demonstrate how much is at stake — in California and the many other states with distressed real estate markets.
The legislation introduced in the winter by the real estate lobby would have largely shielded foreclosed homeowners from debt collectors. But by the time it passed the state Senate on June 3, the banking lobby had succeeded in scaling it back. Now the bill goes to the state Assembly, where a committee will take it up next week, and bankers intend to continue lobbying.
“We’re concerned this could adversely accelerate strategic defaults,” said Rodney K. Brown, chief executive of the California Bankers Association, referring to instances in which borrowers leave their properties without settling with the lender.
For years, a house in California was a machine for building wealth, and few were the families that could resist temptation. They refinanced their loans to pay for vacations, operations, tuition or, frequently, investments in more houses. Many of these households ended up struggling after the crash.
The lenders were often aggressive in making loans and frequently were predatory. The extent to which this absolves the borrowers of responsibility is at the center of the current debate.
The original legislation said borrowers who took cash out of their houses would be shielded as long as they used the money for home improvements. In its current form, the proposed law is not quite so forgiving.
The bill that passed the Senate by a lopsided vote of 30 to 4 would protect former homeowners up to the amount of their original loan. For instance, a family that took out a $500,000 mortgage to buy a house and then refinanced and took cash out, swelling their loan to $600,000, would be released from claims on the original sum but remain vulnerable on the $100,000.
Ellen M. Corbett, the Democratic state senator from San Leandro, Calif., east of San Francisco, who introduced the measure, said it is a matter of fairness.
During the Depression, she said, California legislators decided that losing your house was punishment enough. They did not want lenders endlessly hounding borrowers for the difference between what they owed and what their former house was worth, an amount called the deficiency.
Seventy-five years later, because of that law, anyone who has an original loan and wants to get rid of the house because it has fallen in value can simply walk away without further legal jeopardy. But a homeowner who refinanced, even for the straightforward reason of getting a lower interest rate, could in theory lose the house and be pursued for the deficiency.
“I don’t believe the original intent was to have a two-tier system, where some were protected and some were not,” Ms. Corbett said.
The agents, too, say this is a fairness issue. But there is also self-interest involved.
“Realtors are very worried about this because they think it will destroy the housing market if people end up with these huge deficiency judgments and are never able to buy a house again,” Ms. Corbett said.
To some extent, this is a fight over something that is not happening, at least not yet.
Lenders in California rarely chase foreclosed borrowers for deficiency judgments. Pursuing such cases in court can be an arduous process, and few of those in foreclosure have the assets or incomes to make it worthwhile.
But the threat of such action can come in handy for lenders, servicers and collection agencies. By raising the possibility of a court fight, they can negotiate favorable terms when agreeing to loan modifications and workouts, surrenders of deeds and sales for less than the full amount owed, also known as short sales.
“Using the threat of a deficiency, full-recourse lenders often prevail upon distressed borrowers to sign new, unsecured obligations in exchange for their assent to a proposed short sale or surrender of a deed,” said William A. Markham, a lawyer with Maldonado & Markham in San Diego. “This practice will nearly vanish overnight if the new measure becomes law.”
DLF seeks to to cut debt
DLF is seeking to sell its controlling stake in the Aman Resorts luxury hotel chain as part of a plan by India’s largest property developer by sales to cut its high debt levels by about Rs50bn ($1.1bn).
The Indian developer – hit hard by the slowdown in India’s real estate market during the global financial crisis – hopes to raise $350m by selling its controlling stake in Aman Resorts to an Asian or Middle Eastern sovereign wealth fund, investment banking sources said.
However, analysts said DLF is struggling to find buyers willing to pay its asking price, in spite of the undisputed prestige of the Aman brand.
Malaysia’s Khazanah and the Abu Dhabi Investment Authority are among those said to have been approached. Khazanah last week denied Indian media reports that it was negotiating to buy the hotels.
“They are not able to get a good valuation,” said Param Desai, a Mumbai-based real estate analyst for Angel Broking.
Aman Resorts – founded by the hotelier Adrian Zecha in 1988 with his flagship property, the Amanpuri on the Thai resort island of Phuket – is revered by elite global travellers for the design, exclusivity and highly personalised services of its 24 small luxury hotels.
The hotel chain, which charges upwards of $600 a night, has properties in Bhutan, Cambodia, Laos, Indonesia, French Polynesia, Morocco, Montenegro and India.
DLF, founded by the real estate baron Kushal Pal Singh, who is ranked among the richest people in India, bought the hotel chain for an estimated $400m in 2007, when the global market was at its peak.
The acquisition of Aman Resorts was part of a wave of takeovers by Indian property companies of high-profile assets abroad and came as DLF, riding high on India’s speculation-fuelled property market, had borrowed $1.5bn from overseas to fund expansion.
But like other Indian property companies, DLF, best known for developing New Delhi’s satellite city, Gurgaon, soon found its profit margins under intense pressure as a result of falling prices and lack of demand during the global financial crisis.
“In hindsight, you can say it’s a mistake,” Mr Desai said of DLF’s Aman acquisition.
India’s real estate market is gradually recovering and DLF reported that its quarterly net profit for the quarter ending in March doubled to about $94m from the year before as sales also rebounded.
However, high debt remains a concern for the company, which is now in the process of trying to sell off non-core assets to reduce its debt by about Rs50bn ($1.9bn), or about one-third of its total debt, in the current financial year.
The Indian developer – hit hard by the slowdown in India’s real estate market during the global financial crisis – hopes to raise $350m by selling its controlling stake in Aman Resorts to an Asian or Middle Eastern sovereign wealth fund, investment banking sources said.
However, analysts said DLF is struggling to find buyers willing to pay its asking price, in spite of the undisputed prestige of the Aman brand.
Malaysia’s Khazanah and the Abu Dhabi Investment Authority are among those said to have been approached. Khazanah last week denied Indian media reports that it was negotiating to buy the hotels.
“They are not able to get a good valuation,” said Param Desai, a Mumbai-based real estate analyst for Angel Broking.
Aman Resorts – founded by the hotelier Adrian Zecha in 1988 with his flagship property, the Amanpuri on the Thai resort island of Phuket – is revered by elite global travellers for the design, exclusivity and highly personalised services of its 24 small luxury hotels.
The hotel chain, which charges upwards of $600 a night, has properties in Bhutan, Cambodia, Laos, Indonesia, French Polynesia, Morocco, Montenegro and India.
DLF, founded by the real estate baron Kushal Pal Singh, who is ranked among the richest people in India, bought the hotel chain for an estimated $400m in 2007, when the global market was at its peak.
The acquisition of Aman Resorts was part of a wave of takeovers by Indian property companies of high-profile assets abroad and came as DLF, riding high on India’s speculation-fuelled property market, had borrowed $1.5bn from overseas to fund expansion.
But like other Indian property companies, DLF, best known for developing New Delhi’s satellite city, Gurgaon, soon found its profit margins under intense pressure as a result of falling prices and lack of demand during the global financial crisis.
“In hindsight, you can say it’s a mistake,” Mr Desai said of DLF’s Aman acquisition.
India’s real estate market is gradually recovering and DLF reported that its quarterly net profit for the quarter ending in March doubled to about $94m from the year before as sales also rebounded.
However, high debt remains a concern for the company, which is now in the process of trying to sell off non-core assets to reduce its debt by about Rs50bn ($1.9bn), or about one-third of its total debt, in the current financial year.
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