AT the annual South by Southwest gathering of techies in Austin, Tex., in March, conference organizers had chosen a hangar-size room to accommodate their star speaker: Evan Williams, the co-founder of Twitter, the messaging and social networking site that had become a digital phenomenon.
In a private moment before the doors opened, Mr. Williams, who is famously deliberate and cautious, snapped a photograph of the endless rows of chairs facing the stage and posted it on Twitter.
“Gulp,” he wrote.
Later, as Mr. Williams talked with the interviewer about building a 21st-century business, keeping to Twitter’s foundational principle (the Google-like “be a force for good”) and fostering corporate experimentation, members of his audience started groaning — and leaving, one by one.
“They wanted Ev Williams; they got Ev Williams,” a Twitter staff member said later.
It is no small irony, of course, that a man so ill at ease on the big stage is a pivotal force in a communications revolution, one that has made it easier for people to chat, disseminate information and mobilize locally and globally with almost anyone who has a cellphone or an Internet connection.
And Twitter has become one of the rare but fabled Web companies with a growth rate that resembles the shape of a hockey stick. It has 175 million registered users, up from 503,000 three years ago and 58 million just last year. It is adding about 370,000 new users a day.
It has helped transform the way that news is gathered and distributed, reshaped how public figures from celebrities to political leaders communicate, and played a role in popular protests in Iran, China and Moldova. It has become so muscular and ubiquitous that it now competes with the likes of Google and Facebook for users — and is beginning to compete with them for advertising dollars.
Yet for all its astonishing growth, Twitter has succeeded in spite of itself — the enviable product of a great idea and lightning-in-a-bottle viral success rather than a disciplined approach to how it’s managed.
Because of that, Twitter is on the cusp of becoming the next big, independent Internet company — or the next start-up to be swallowed whole by a giant like Google or, possibly, the next start-up to run out of steam.
Now the company is trying to instill some of the rigor and sense of purpose it needs to ensure that it is, indeed, the next big thing.
“The thing I’ve learned that’s much different than any other time in my life is I have a team that is really, really great,” says Mr. Williams, 38. “I’ve been studying this stuff for a really long time, and I’ve screwed up in many, many, many ways in terms of managing people and product decisions and business, so I feel fairly confident at this point that it could scale pretty well.”
Last month, he unexpectedly announced that he had decided to step down as chief executive and give the job to Dick Costolo, who had been Twitter’s chief operating officer.
Mr. Williams, who remains on the company’s board, now focuses on product strategy. He made the decision after conceiving and spending months working on the recent redesign of the Twitter Web site. People who have worked with him say he excels at understanding what Internet users want and contemplating Twitter’s future, but isn’t a detail-oriented task manager.
“He takes these things that everyone thinks are as big as they can get, these geeky things, and he makes them mainstream,” says Philip Kaplan, a co-founder of the review site Blippy and one of Mr. Williams’s close friends.
Mr. Costolo, meanwhile, is all about the details of making money and getting things done. This has been his third time running a company; he sold his last one, the Web subscription service FeedBurner, to Google in 2007.
For his part, Mr. Williams may embody a classic Silicon Valley type — the inspired, talented start-up guy with good ideas, but not the one to execute a sophisticated business strategy once things get rolling, says Steve Blank, an entrepreneurship teacher at Stanford.
And Mr. Williams may have also earned the self-awareness and confidence to recognize exactly who he is.
“Evan Williams is the type of entrepreneur who knows when to pivot,” says Mr. Blank, “and what we may be seeing is wonderful signs of entrepreneurial wisdom.”
TWITTER was born in 2006 as a side project.
At the time, it was an appendage of a podcasting service named Odeo, another company that Mr. Williams co-founded that had millions of dollars from investors.
Even the founders, though, were having a hard time getting excited about Odeo, and Mr. Williams told everyone who worked there to hatch new ideas. While sitting on a children’s slide at a park eating Mexican food one day, an engineer, Jack Dorsey, suggested to colleagues a simple way to send status updates by using text messages.
Saturday, October 30, 2010
Reserve Bank of India to Ease Cash Shortage After Share Sales Drain Funds
India’s central bank said it will inject funds into the banking system to ease a cash shortage after the nation’s record share offering by state-owned Coal India Ltd. drained money.
The monetary authority will conduct special repurchase auctions today, tomorrow and Nov. 1, allowing banks to borrow from it at 6 percent, the Reserve Bank of India said in an e- mailed statement today. The overnight call money rate touched 12.25 percent today, the highest level since Nov. 1, 2008, indicating demand for cash pushed up interbank lending rates.
”This will enable banks to plan their liquidity better,” said Saugata Bhattacharya, an economist at Axis Bank Ltd. in Mumbai. “The balance is far tipped to provide liquidity than worrying about inflation at this point.”
Surplus cash in the banking system dried up as investors withdrew money to pay for the shares of state-owned Coal India, the world’s biggest producer of the fuel, at its initial public offering last week. Orders at the sale reached 15 times the stock available, helping the government raise 152 billion rupees ($3.4 billion).
Banks will be allowed to borrow up to one percent of their deposits based on their liabilities as on Oct. 8, the monetary authority said. This will be in addition to the amount they can borrow by pledging bonds held by them above the so-called Statutory Liquidity Ratio. Reverse-repurchase auctions will also be conducted on all the three days to mop up any surplus.
Banks have to invest 25 percent of their deposits in low- risk debt, including government bonds, approved by the central bank. Penal interest will be waived on banks that fall short of bond reserve requirements temporarily, according to the statement.
Lenders borrowed an average of 603 billion rupees ($13.5 billion) a day from the central bank’s repurchase auction window in October, compared with an average of 250.8 billion rupees a day in September.
The monetary authority will conduct special repurchase auctions today, tomorrow and Nov. 1, allowing banks to borrow from it at 6 percent, the Reserve Bank of India said in an e- mailed statement today. The overnight call money rate touched 12.25 percent today, the highest level since Nov. 1, 2008, indicating demand for cash pushed up interbank lending rates.
”This will enable banks to plan their liquidity better,” said Saugata Bhattacharya, an economist at Axis Bank Ltd. in Mumbai. “The balance is far tipped to provide liquidity than worrying about inflation at this point.”
Surplus cash in the banking system dried up as investors withdrew money to pay for the shares of state-owned Coal India, the world’s biggest producer of the fuel, at its initial public offering last week. Orders at the sale reached 15 times the stock available, helping the government raise 152 billion rupees ($3.4 billion).
Banks will be allowed to borrow up to one percent of their deposits based on their liabilities as on Oct. 8, the monetary authority said. This will be in addition to the amount they can borrow by pledging bonds held by them above the so-called Statutory Liquidity Ratio. Reverse-repurchase auctions will also be conducted on all the three days to mop up any surplus.
Banks have to invest 25 percent of their deposits in low- risk debt, including government bonds, approved by the central bank. Penal interest will be waived on banks that fall short of bond reserve requirements temporarily, according to the statement.
Lenders borrowed an average of 603 billion rupees ($13.5 billion) a day from the central bank’s repurchase auction window in October, compared with an average of 250.8 billion rupees a day in September.
Reliance Industries Profit Jumps 28% as Gas Output, Refining Earnings Rise
Reliance Industries Ltd., India’s biggest company by market value, posted its highest quarterly profit since 2007 after growing fuel demand boosted refining earnings and natural gas production rose.
Net income in the three months ended Sept. 30 rose 28 percent from a year earlier to 49.2 billion rupees ($1.1 billion), or 15.1 rupees a share, the Mumbai-based energy explorer and refiner said in a statement to the Bombay Stock Exchange today. Gains from processing crude oil into fuels climbed 32 percent.
Reliance joins Valero Energy Corp., the largest U.S. oil refiner, and China Petroleum & Chemical Corp., Asia’s biggest, in reporting higher earnings as global economic growth spurred demand for gasoline and diesel. Gains in output from India’s largest gas field and refining margins helped Chairman Mukesh Ambani buy shale-gas assets in the U.S. and to plan investments in telecommunications and power generation.
“Demand for fuels has increased over the past year and that has boosted refining,” said Apurva Shah, head of research at Prabhudas Lilladher Pvt. in Mumbai. “General economic conditions have improved, and governments are trying to keep it going. That should keep the demand growth steady and help margins.”
Fuel Demand
Reliance, which has the biggest weighting in India’s benchmark Sensitive Index, rose 1.3 percent to 1,096.25 rupees in Mumbai trading yesterday, valuing the company at $81 billion. The stock has gained 1 percent this year, trailing the 15 percent increase in the index.
Sales rose 23 percent in the second quarter of the year ending March 31, boosting profit to the highest since Dec. 31, 2007. The average estimate of 16 analysts surveyed by Bloomberg was for net income of 48.9 billion rupees in the period.
Exports of oil products surged 79 percent from a year earlier to $13.4 billion in the quarter, with overseas sales volume increasing 49 percent to 19.7 million metric tons, according to today’s statement.
Average global demand for oil products increased 2.8 percent to 87.1 million barrels a day in the quarter from a year earlier, according to data compiled by Bloomberg.
Reliance operates the world’s largest oil-refining complex and chemical plants and owns fuel outlets and a retail-store chain. The 1.24 million barrel-a-day complex consists of two adjacent refineries at Jamnagar in the western Indian state of Gujarat.
Refining Margins
The company earned $7.9 on every barrel of crude turned to fuels in the quarter, compared with $6 a barrel a year earlier, the company said. Pretax profit from refining increased 63 percent to 21.9 billion rupees.
Global refining margins, or earnings from processing oil into fuel, rose to $4.53 a barrel in the three-month period from $3.42 a year earlier, according to data compiled by BP Plc. The margin was $5.49 a barrel in the quarter ended June 30.
Crude oil in New York gained 12 percent to an average $76.20 a barrel in the quarter, boosted by demand from India and China, Asia’s two fastest growing economies. Crude oil for December delivery fell 75 cents to settle at $81.43 a barrel on the New York Mercantile Exchange yesterday.
The KG-D6 field in the Bay of Bengal, off India’s east coast, started in April last year and reached 40 million cubic meters a day in six months, helping India increase output of the cleaner-burning fuel at the fastest pace in the world last year. Output has remained static at 60 million cubic meters this year because a review of the reservoir and safety procedures forced Reliance to delay a planned increase to 80 million cubic meters.
Reliance cut crude oil output in the MA field in the KG-D6 area by 29 percent since April after wells were unable to sustain higher production rates, a person familiar with the matter said Oct. 1.
Diversifying Business
Net sales rose to 574.8 billion rupees, Reliance said. The company had 293.5 billion rupees in cash and equivalent. Outstanding debt as of Sept. 30 was 682 billion rupees.
With gas production stagnant in India in the last three quarters, Reliance is diversifying from its core energy business at home. The explorer said it plans to spend at least $5 billion over the next five years to develop shale-gas areas in the U.S.
Reliance paid $943 million to buy three shale-gas assets in the U.S. this year and agreed to spend $2.5 billion in future drilling costs on behalf of its partners.
Reliance bought a 14.8 percent stake in EIH Ltd., owner of India’s luxury Oberoi hotel chain, in August. The group includes a Mumbai hotel that was damaged in the November 2008 terror attack.
India’s economy expanded 8.8 percent, the fastest pace in 2 1/2 years, in the three months ended June 30, bolstering demand for services and providing alternative sources of revenue for Reliance.
Ambani, 53, has invested more than $1.2 billion in a broadband company and a cargo carrier and has announced plans to build hospitals, universities and set up a sports marketing company.
Reliance expects its retail-store business revenue to grow 10-fold to 450 billion rupees in five years, Ambani told shareholders June 18.
Net income in the three months ended Sept. 30 rose 28 percent from a year earlier to 49.2 billion rupees ($1.1 billion), or 15.1 rupees a share, the Mumbai-based energy explorer and refiner said in a statement to the Bombay Stock Exchange today. Gains from processing crude oil into fuels climbed 32 percent.
Reliance joins Valero Energy Corp., the largest U.S. oil refiner, and China Petroleum & Chemical Corp., Asia’s biggest, in reporting higher earnings as global economic growth spurred demand for gasoline and diesel. Gains in output from India’s largest gas field and refining margins helped Chairman Mukesh Ambani buy shale-gas assets in the U.S. and to plan investments in telecommunications and power generation.
“Demand for fuels has increased over the past year and that has boosted refining,” said Apurva Shah, head of research at Prabhudas Lilladher Pvt. in Mumbai. “General economic conditions have improved, and governments are trying to keep it going. That should keep the demand growth steady and help margins.”
Fuel Demand
Reliance, which has the biggest weighting in India’s benchmark Sensitive Index, rose 1.3 percent to 1,096.25 rupees in Mumbai trading yesterday, valuing the company at $81 billion. The stock has gained 1 percent this year, trailing the 15 percent increase in the index.
Sales rose 23 percent in the second quarter of the year ending March 31, boosting profit to the highest since Dec. 31, 2007. The average estimate of 16 analysts surveyed by Bloomberg was for net income of 48.9 billion rupees in the period.
Exports of oil products surged 79 percent from a year earlier to $13.4 billion in the quarter, with overseas sales volume increasing 49 percent to 19.7 million metric tons, according to today’s statement.
Average global demand for oil products increased 2.8 percent to 87.1 million barrels a day in the quarter from a year earlier, according to data compiled by Bloomberg.
Reliance operates the world’s largest oil-refining complex and chemical plants and owns fuel outlets and a retail-store chain. The 1.24 million barrel-a-day complex consists of two adjacent refineries at Jamnagar in the western Indian state of Gujarat.
Refining Margins
The company earned $7.9 on every barrel of crude turned to fuels in the quarter, compared with $6 a barrel a year earlier, the company said. Pretax profit from refining increased 63 percent to 21.9 billion rupees.
Global refining margins, or earnings from processing oil into fuel, rose to $4.53 a barrel in the three-month period from $3.42 a year earlier, according to data compiled by BP Plc. The margin was $5.49 a barrel in the quarter ended June 30.
Crude oil in New York gained 12 percent to an average $76.20 a barrel in the quarter, boosted by demand from India and China, Asia’s two fastest growing economies. Crude oil for December delivery fell 75 cents to settle at $81.43 a barrel on the New York Mercantile Exchange yesterday.
The KG-D6 field in the Bay of Bengal, off India’s east coast, started in April last year and reached 40 million cubic meters a day in six months, helping India increase output of the cleaner-burning fuel at the fastest pace in the world last year. Output has remained static at 60 million cubic meters this year because a review of the reservoir and safety procedures forced Reliance to delay a planned increase to 80 million cubic meters.
Reliance cut crude oil output in the MA field in the KG-D6 area by 29 percent since April after wells were unable to sustain higher production rates, a person familiar with the matter said Oct. 1.
Diversifying Business
Net sales rose to 574.8 billion rupees, Reliance said. The company had 293.5 billion rupees in cash and equivalent. Outstanding debt as of Sept. 30 was 682 billion rupees.
With gas production stagnant in India in the last three quarters, Reliance is diversifying from its core energy business at home. The explorer said it plans to spend at least $5 billion over the next five years to develop shale-gas areas in the U.S.
Reliance paid $943 million to buy three shale-gas assets in the U.S. this year and agreed to spend $2.5 billion in future drilling costs on behalf of its partners.
Reliance bought a 14.8 percent stake in EIH Ltd., owner of India’s luxury Oberoi hotel chain, in August. The group includes a Mumbai hotel that was damaged in the November 2008 terror attack.
India’s economy expanded 8.8 percent, the fastest pace in 2 1/2 years, in the three months ended June 30, bolstering demand for services and providing alternative sources of revenue for Reliance.
Ambani, 53, has invested more than $1.2 billion in a broadband company and a cargo carrier and has announced plans to build hospitals, universities and set up a sports marketing company.
Reliance expects its retail-store business revenue to grow 10-fold to 450 billion rupees in five years, Ambani told shareholders June 18.
Debt trap leads to despair for rural poor
With only a tenth of a hectare of dry land to farm, Kanakam Ramesh, 28, and his wife Rajiti, 24, were struggling to care for two young sons and Ramesh’s ageing father, when an agent of a microfinance company based in Hyderabad, Andhra Pradesh, arrived in their village offering small loans to groups of women.
Despite existing debts of Rs10,000 ($225) to a government credit scheme, and Rs10,000 to a local brickmaker, Rajiti borrowed another Rs10,000.
Typical of India’s fast-expanding private microfinanciers – mostly styled on Bangladesh’s Grameen Bank – the loan required Rajiti to repay Rs275 a week for a year, while four other village women, who were also borrowers, were obligated to cover if she could not meet it.
After 15 weeks, she ran out of money. Twice, Rajiti’s four guarantors unhappily coughed up; the third week, she pawned the family’s brass water vessels. That night, she argued bitterly with her husband about their plight, and threatened to immolate herself. Neighbours intervened. The next morning, on October 15, Ramesh went to the field and hanged himself.
“We were leading such stressful lives,” says the young widow. “It was difficult to face the humiliation.” Suicides by debt-burdened farmers are not new in India’s southern state of Andhra Pradesh, where crop failure and aggressive tactics by money-lenders have long been a deadly combination.
Indian microfinance schemes – mostly started as donor-funded charities – were conceived precisely to rescue the poor from such loan sharks.
Network creates a code of conduct
Even before Andhra Pradesh's move to rein in microfinance companies, the industry was aware of the need to clean up its act, writes Amy Kazmin in New Delhi.
Leading players recently formed the Micro-Finance Institutions Network, with 44 for-profit members. Its code of conduct requires transparent interest rates, a limit of three companies lending to a client and the prohibition of “abusive, violent or unethical” collection methods. The network is also pooling members’ client records to better assess borrowers.
Yet Alok Prasad, the network’s chief executive, admits that feverish growth means that lending and collection practices were sometimes at odds with the sector’s professed values.
“There has been a disconnect between what top management is saying and may really want to do, and what is happening on the ground,” he said. Local moneylenders have also rebranded themselves as microfinance institutions, further tarnishing the industry’s image.
K. Rosiah, the state’s chief minister, wrote to the central bank in May, complaining the industry had “amassed huge profits at the cost of the rural poor”, and appealing for help to curb “cruel coercive” collection tactics.
The bank governor expressed sympathy but offered no quick fixes. Now, authorities and industry executives are in talks on addressing mutual concerns without putting microfinance companies out of business.
“Let’s beat them up for their flaws, but you can’t kill them,” says Vijay Mahajan, network president,
But a recent wave of suicides by borrowers of what has evolved into a huge, for-profit microfinance industry – charging interest rates between 26 to 30 per cent – has raised serious questions about whether the pursuit of profits has corrupted Indian microfinanciers’ original social mission.
Over the past 15 years, Andhra Pradesh, which is home to 6 per cent of India’s population but accounts for 35 per cent of the money lent through microfinance, has developed its own successful scheme to provide credit to women’s self-help groups.
But authorities have concluded that the private microfinance sector had gone too far. Two weeks ago, the state passed an emergency ordinance abruptly halting debt repayments, sending microfinanciers into a tailspin.
“The government is not against the industry,” insists Reddy Subramanayam, the state’s principal secretary for rural development. “What the government has objected to is the way microfinance is being practised to achieve hyper-profits.”
Even in its early days, microfinance was not cheap, but its practitioners were careful. Programmes run as non-profit activities also charged interest of 30 per cent or more to cover capital and outreach to poor women across dispersed areas. But they took a gradual approach to extending credit.
That has changed in recent years, after Indian microfinance programmes turned into for-profit companies and raised more than $500m in private equity from foreign venture capital players, specialised microfinance funds and high net-worth individuals.
As companies, led by SKS Microfinance, looked towards initial public offerings, growth was the name of the game. India’s banks, including ICICI and HDFC, were required to meet annual “priority sector lending” targets and so facilitated that rapid growth by flooding microfinance institutions with around $6bn in credit.
The result was intense competition to lend, often to borrowers already struggling to manage multiple debts and unable to grasp the financial logic pushing them into deeper debt traps.
“MFIs are just dumping their loans,” said Professor Kurapati Venkatanarayana, a Kakatiya University economist. “They did not verify the capacity to repay, source of income or expenditure of the borrower.”
As the sector expanded at a blistering pace, their high interest rates came under ever-intensifying scrutiny, especially as founders of the largest players – SKS, Share and Spandana – were seen to be amassing fortunes. Ahead of his company’s $350m IPO, Vikram Akula, founder of SKS, sold shares worth nearly $13m, and holds options worth tens of millions more.
“Costs did fall, but several of us that achieved economies of scale did not pass on the benefits,” said Vijay Mahajan, founder and chairman of Basix, India’s first microfinance company, which combines credit with intensive livelihood counselling. “We were seen as just concerned with growth and profit, rather than the social mission.”
“Basically,” added Mr Mahajan, now president of the Micro-Finance Institutions Network, which represents 44 for-profit companies, “the sector rendered itself indefensible”.
Microfinanciers are now struggling to get back on their feet. A court has permitted them to resume collections in Andhra Pradesh, but once-enviable repayment rates of 98 per cent have plunged. Companies are also holding crisis talks with their bankers.
In slums and villages, over-indebted borrowers also fear the relentless pressure to pay up will resume. Among them is Fatima Bi, 50, who attempted suicide to escape debts of Rs150,000 to at least five companies, but was stopped by neighbours. “I want a way out,” she said. “I cannot pay this in my entire life.”
Despite existing debts of Rs10,000 ($225) to a government credit scheme, and Rs10,000 to a local brickmaker, Rajiti borrowed another Rs10,000.
Typical of India’s fast-expanding private microfinanciers – mostly styled on Bangladesh’s Grameen Bank – the loan required Rajiti to repay Rs275 a week for a year, while four other village women, who were also borrowers, were obligated to cover if she could not meet it.
After 15 weeks, she ran out of money. Twice, Rajiti’s four guarantors unhappily coughed up; the third week, she pawned the family’s brass water vessels. That night, she argued bitterly with her husband about their plight, and threatened to immolate herself. Neighbours intervened. The next morning, on October 15, Ramesh went to the field and hanged himself.
“We were leading such stressful lives,” says the young widow. “It was difficult to face the humiliation.” Suicides by debt-burdened farmers are not new in India’s southern state of Andhra Pradesh, where crop failure and aggressive tactics by money-lenders have long been a deadly combination.
Indian microfinance schemes – mostly started as donor-funded charities – were conceived precisely to rescue the poor from such loan sharks.
Network creates a code of conduct
Even before Andhra Pradesh's move to rein in microfinance companies, the industry was aware of the need to clean up its act, writes Amy Kazmin in New Delhi.
Leading players recently formed the Micro-Finance Institutions Network, with 44 for-profit members. Its code of conduct requires transparent interest rates, a limit of three companies lending to a client and the prohibition of “abusive, violent or unethical” collection methods. The network is also pooling members’ client records to better assess borrowers.
Yet Alok Prasad, the network’s chief executive, admits that feverish growth means that lending and collection practices were sometimes at odds with the sector’s professed values.
“There has been a disconnect between what top management is saying and may really want to do, and what is happening on the ground,” he said. Local moneylenders have also rebranded themselves as microfinance institutions, further tarnishing the industry’s image.
K. Rosiah, the state’s chief minister, wrote to the central bank in May, complaining the industry had “amassed huge profits at the cost of the rural poor”, and appealing for help to curb “cruel coercive” collection tactics.
The bank governor expressed sympathy but offered no quick fixes. Now, authorities and industry executives are in talks on addressing mutual concerns without putting microfinance companies out of business.
“Let’s beat them up for their flaws, but you can’t kill them,” says Vijay Mahajan, network president,
But a recent wave of suicides by borrowers of what has evolved into a huge, for-profit microfinance industry – charging interest rates between 26 to 30 per cent – has raised serious questions about whether the pursuit of profits has corrupted Indian microfinanciers’ original social mission.
Over the past 15 years, Andhra Pradesh, which is home to 6 per cent of India’s population but accounts for 35 per cent of the money lent through microfinance, has developed its own successful scheme to provide credit to women’s self-help groups.
But authorities have concluded that the private microfinance sector had gone too far. Two weeks ago, the state passed an emergency ordinance abruptly halting debt repayments, sending microfinanciers into a tailspin.
“The government is not against the industry,” insists Reddy Subramanayam, the state’s principal secretary for rural development. “What the government has objected to is the way microfinance is being practised to achieve hyper-profits.”
Even in its early days, microfinance was not cheap, but its practitioners were careful. Programmes run as non-profit activities also charged interest of 30 per cent or more to cover capital and outreach to poor women across dispersed areas. But they took a gradual approach to extending credit.
That has changed in recent years, after Indian microfinance programmes turned into for-profit companies and raised more than $500m in private equity from foreign venture capital players, specialised microfinance funds and high net-worth individuals.
As companies, led by SKS Microfinance, looked towards initial public offerings, growth was the name of the game. India’s banks, including ICICI and HDFC, were required to meet annual “priority sector lending” targets and so facilitated that rapid growth by flooding microfinance institutions with around $6bn in credit.
The result was intense competition to lend, often to borrowers already struggling to manage multiple debts and unable to grasp the financial logic pushing them into deeper debt traps.
“MFIs are just dumping their loans,” said Professor Kurapati Venkatanarayana, a Kakatiya University economist. “They did not verify the capacity to repay, source of income or expenditure of the borrower.”
As the sector expanded at a blistering pace, their high interest rates came under ever-intensifying scrutiny, especially as founders of the largest players – SKS, Share and Spandana – were seen to be amassing fortunes. Ahead of his company’s $350m IPO, Vikram Akula, founder of SKS, sold shares worth nearly $13m, and holds options worth tens of millions more.
“Costs did fall, but several of us that achieved economies of scale did not pass on the benefits,” said Vijay Mahajan, founder and chairman of Basix, India’s first microfinance company, which combines credit with intensive livelihood counselling. “We were seen as just concerned with growth and profit, rather than the social mission.”
“Basically,” added Mr Mahajan, now president of the Micro-Finance Institutions Network, which represents 44 for-profit companies, “the sector rendered itself indefensible”.
Microfinanciers are now struggling to get back on their feet. A court has permitted them to resume collections in Andhra Pradesh, but once-enviable repayment rates of 98 per cent have plunged. Companies are also holding crisis talks with their bankers.
In slums and villages, over-indebted borrowers also fear the relentless pressure to pay up will resume. Among them is Fatima Bi, 50, who attempted suicide to escape debts of Rs150,000 to at least five companies, but was stopped by neighbours. “I want a way out,” she said. “I cannot pay this in my entire life.”
Thursday, October 28, 2010
Singapore Exchange Plans to Add ADRs for India, Taiwan, South Korea Firms
Singapore Exchange Ltd. said it plans to quote American depositary receipts of Indian, Taiwanese and South Korean companies next year, expanding beyond the 19 Chinese firms that began trading last week.
Singapore Exchange, which has offered to buy Australia’s ASX Ltd., will likely add more ADRs from companies across Asia by the first half of 2011, Rick Aston, head of product sales for the exchange, said in an interview in Hong Kong yesterday. He declined to comment on the company’s proposed takeover of the operator of Australia’s dominant stock exchange.
“We’re definitely basing this on investor demand,” Aston said. “We want to make sure we build up the liquidity in the current 19 names before we add to the selection.”
Singapore Exchange, which oversees the largest stock market in Southeast Asia, is trying to develop a pan-Asian presence to compete with bourses in Hong Kong and Tokyo. The company started quoting ADRs of 19 Chinese companies on Oct. 22 and bid about A$8 billion ($7.8 billion) for Sydney-based ASX on Oct. 25.
Shares of the Singaporean bourse rose 0.1 percent to S$8.89 as of 9:30 a.m. local time. The stock lost 6.8 percent since Oct. 22, poised for the biggest weekly decline since May. Three Australian lawmakers said yesterday they opposed the ASX sale, meaning Singaporean Exchange needs the support of the minority Labor government and at least four other legislators in the lower house of parliament to approve the deal.
The ADR partnership is the third between the operator of the Singapore bourse and Nasdaq OMX Group Inc., the former employer of Chief Executive Officer Magnus Bocker. The bourse will focus on adding ADRs of large companies, Aston said.
Singapore Exchange, which has offered to buy Australia’s ASX Ltd., will likely add more ADRs from companies across Asia by the first half of 2011, Rick Aston, head of product sales for the exchange, said in an interview in Hong Kong yesterday. He declined to comment on the company’s proposed takeover of the operator of Australia’s dominant stock exchange.
“We’re definitely basing this on investor demand,” Aston said. “We want to make sure we build up the liquidity in the current 19 names before we add to the selection.”
Singapore Exchange, which oversees the largest stock market in Southeast Asia, is trying to develop a pan-Asian presence to compete with bourses in Hong Kong and Tokyo. The company started quoting ADRs of 19 Chinese companies on Oct. 22 and bid about A$8 billion ($7.8 billion) for Sydney-based ASX on Oct. 25.
Shares of the Singaporean bourse rose 0.1 percent to S$8.89 as of 9:30 a.m. local time. The stock lost 6.8 percent since Oct. 22, poised for the biggest weekly decline since May. Three Australian lawmakers said yesterday they opposed the ASX sale, meaning Singaporean Exchange needs the support of the minority Labor government and at least four other legislators in the lower house of parliament to approve the deal.
The ADR partnership is the third between the operator of the Singapore bourse and Nasdaq OMX Group Inc., the former employer of Chief Executive Officer Magnus Bocker. The bourse will focus on adding ADRs of large companies, Aston said.
Asian Stocks Drop as Sharp, Advantest Reduce Profit Forecasts, Yen Gains
Asian stocks dropped, dragging the MSCI Asia Pacific Index to its second straight weekly decline, as Sharp Corp. and Advantest Corp. cut their profit forecasts.
Sharp Corp., Japan’s largest maker of liquid-crystal displays, tumbled 3.2 percent in Tokyo as a stronger yen hurt the outlook for export earnings. Advantest Corp., the world’s No. 1 maker of memory-chip testers, lost 5.5 percent as Nomura Holdings Inc. cut its rating.
“Exporters overall will likely slide” in Japan, said Juichi Wako, a senior strategist at Tokyo-based Nomura. “There are uncertainties about the outlook for earnings in the second half.”
The MSCI Asia Pacific Index fell 0.4 percent to 129.01 as of 9:49 a.m. in Tokyo, extending this week’s decline to 0.7 percent. The gauge dropped for the first week in two months last week after China, the world’s fastest-growing major economy, unexpectedly raised interest rates and said it grew at the slowest pace in a year.
Japan’s Nikkei 225 Stock Average decreased 1.4 percent, while South Korea’s Kospi Index dropped 0.9 percent. Australia’s S&P/ASX 200 Index fell 0.4 percent. New Zealand’s NZX 50 Index climbed 0.5 percent.
Futures on the Standard & Poor’s 500 Index slipped 0.4 percent. While the index rose 0.1 percent yesterday in New York, most stocks fell as 3M Co. drove industrial shares lower after cutting its profit forecast.
Japanese exporters fell as the yen rose as high as 80.87 against the dollar, compared with 81.63 at the close of stock trading in Tokyo yesterday and a 15-year high of 80.41 reached on Oct. 25. A stronger yen reduces overseas income at Japanese companies when converted into their home currency.
Today is the peak day for earnings reports in Japan, with about 270 of the 1,664 companies in the Topix scheduled to report results, according to data compiled by Bloomberg.
About three companies have exceeded profit estimates for every two that fell short, based on data compiled by Bloomberg from the 322 companies in the Topix that have reported quarterly results since Oct. 7.
Sharp Corp., Japan’s largest maker of liquid-crystal displays, tumbled 3.2 percent in Tokyo as a stronger yen hurt the outlook for export earnings. Advantest Corp., the world’s No. 1 maker of memory-chip testers, lost 5.5 percent as Nomura Holdings Inc. cut its rating.
“Exporters overall will likely slide” in Japan, said Juichi Wako, a senior strategist at Tokyo-based Nomura. “There are uncertainties about the outlook for earnings in the second half.”
The MSCI Asia Pacific Index fell 0.4 percent to 129.01 as of 9:49 a.m. in Tokyo, extending this week’s decline to 0.7 percent. The gauge dropped for the first week in two months last week after China, the world’s fastest-growing major economy, unexpectedly raised interest rates and said it grew at the slowest pace in a year.
Japan’s Nikkei 225 Stock Average decreased 1.4 percent, while South Korea’s Kospi Index dropped 0.9 percent. Australia’s S&P/ASX 200 Index fell 0.4 percent. New Zealand’s NZX 50 Index climbed 0.5 percent.
Futures on the Standard & Poor’s 500 Index slipped 0.4 percent. While the index rose 0.1 percent yesterday in New York, most stocks fell as 3M Co. drove industrial shares lower after cutting its profit forecast.
Japanese exporters fell as the yen rose as high as 80.87 against the dollar, compared with 81.63 at the close of stock trading in Tokyo yesterday and a 15-year high of 80.41 reached on Oct. 25. A stronger yen reduces overseas income at Japanese companies when converted into their home currency.
Today is the peak day for earnings reports in Japan, with about 270 of the 1,664 companies in the Topix scheduled to report results, according to data compiled by Bloomberg.
About three companies have exceeded profit estimates for every two that fell short, based on data compiled by Bloomberg from the 322 companies in the Topix that have reported quarterly results since Oct. 7.
Coffee Harvest in India Delayed, Prices to Gain, Exporters' Group Predicts
The coffee harvest in India, the third-biggest grower in Asia, will be delayed by excess monsoon rainfall, adding to global supply problems that have driven prices to multiyear highs, an exporters’ group said.
The picking of beans may begin from the middle of November, three weeks later than normal, said Ramesh Rajah, president of the Coffee Exporters Association of India. India’s output and exports may still reach a record in the year from Oct. 1 after the rain boosted crop conditions, he said in an interview.
India’s harvest delay may help to extend rallies in arabica, which jumped to a 13-year high this week, and robusta, which is at the highest level in more than two years. Prices have jumped on concerns that unfavorable weather in Latin America and Vietnam and shipment delays in Brazil’s Santos Port are curbing global supplies. India cultivates both types of bean.
“Coffee prices may continue to climb until weather concerns ease in Brazil and Vietnam,” said Rajah, who correctly predicted a 10 percent gain in prices on Aug. 24. India’s “harvest has got delayed but the good news is that the crop is in excellent condition,” he said yesterday from Bangalore.
Arabica reached $2.046 a pound on ICE Futures U.S. in New York on Oct. 26, the highest price since August 1997, and the December-delivery contract ended yesterday at $1.966. Robusta advanced to $1,975 a metric ton on NYSE Liffe in London yesterday, the highest level since Oct. 6, 2008.
India’s total coffee production this year may match a forecast of 308,000 tons by the state-run Coffee Board, Rajah said. The harvest of robusta, used in instant coffees, may be more than the 208,500 tons estimated by the board, he said.
Monsoon Persists
The monsoon has yet to withdraw from the Southern Indian states of Karnataka and Kerala, which account for more than 90 percent of the nation’s production, according to the weather bureau. The June-to-September rainy season, which brings more than 70 percent of India’s annual precipitation, is still active over the region, according to the state-forecaster.
Rainfall in Vietnam, the biggest grower of robusta, may slow shipments and push back harvests, traders and growers said last week. Output of the next crop in Brazil, the world’s biggest overall producer, may drop to 36 million, 60-kilogram bags, the lowest in four years, after a drought hindered flowering, the nation’s coffee council said on Oct. 22.
Coffee shipments from producing nations will decline for a second year in 2010 from last year’s estimated 95.5 million bags and 2008’s 97.7 million bags, according to the International Coffee Organization.
“Roasters have waited long on the sidelines for prices to cool and with the winter approaching they may begin to cover needs,” Rajah said. Arabica may gain to $2.13 a pound, while robusta may climb to $2,150 a ton in the next few weeks, he said.
Exports from India, Asia’s third-biggest supplier, may reach at least 260,000 tons this year through December, 39 percent more than the 187,347 tons last year, Rajah said. Shipments jumped 59 percent to 247,624 tons between Jan. 1 and Oct. 26, data from the state-run Coffee Board of India show.
The picking of beans may begin from the middle of November, three weeks later than normal, said Ramesh Rajah, president of the Coffee Exporters Association of India. India’s output and exports may still reach a record in the year from Oct. 1 after the rain boosted crop conditions, he said in an interview.
India’s harvest delay may help to extend rallies in arabica, which jumped to a 13-year high this week, and robusta, which is at the highest level in more than two years. Prices have jumped on concerns that unfavorable weather in Latin America and Vietnam and shipment delays in Brazil’s Santos Port are curbing global supplies. India cultivates both types of bean.
“Coffee prices may continue to climb until weather concerns ease in Brazil and Vietnam,” said Rajah, who correctly predicted a 10 percent gain in prices on Aug. 24. India’s “harvest has got delayed but the good news is that the crop is in excellent condition,” he said yesterday from Bangalore.
Arabica reached $2.046 a pound on ICE Futures U.S. in New York on Oct. 26, the highest price since August 1997, and the December-delivery contract ended yesterday at $1.966. Robusta advanced to $1,975 a metric ton on NYSE Liffe in London yesterday, the highest level since Oct. 6, 2008.
India’s total coffee production this year may match a forecast of 308,000 tons by the state-run Coffee Board, Rajah said. The harvest of robusta, used in instant coffees, may be more than the 208,500 tons estimated by the board, he said.
Monsoon Persists
The monsoon has yet to withdraw from the Southern Indian states of Karnataka and Kerala, which account for more than 90 percent of the nation’s production, according to the weather bureau. The June-to-September rainy season, which brings more than 70 percent of India’s annual precipitation, is still active over the region, according to the state-forecaster.
Rainfall in Vietnam, the biggest grower of robusta, may slow shipments and push back harvests, traders and growers said last week. Output of the next crop in Brazil, the world’s biggest overall producer, may drop to 36 million, 60-kilogram bags, the lowest in four years, after a drought hindered flowering, the nation’s coffee council said on Oct. 22.
Coffee shipments from producing nations will decline for a second year in 2010 from last year’s estimated 95.5 million bags and 2008’s 97.7 million bags, according to the International Coffee Organization.
“Roasters have waited long on the sidelines for prices to cool and with the winter approaching they may begin to cover needs,” Rajah said. Arabica may gain to $2.13 a pound, while robusta may climb to $2,150 a ton in the next few weeks, he said.
Exports from India, Asia’s third-biggest supplier, may reach at least 260,000 tons this year through December, 39 percent more than the 187,347 tons last year, Rajah said. Shipments jumped 59 percent to 247,624 tons between Jan. 1 and Oct. 26, data from the state-run Coffee Board of India show.
Reliance orders $10bn of Chinese generators
Reliance Power has ordered $10bn worth of power generation equipment from Shanghai Electric Group in a deal financed by Chinese banks.
One of the biggest contracts ever between India and China, the deal highlights the growing trade relationship between Asia’s largest emerging economies.
Anil Ambani, the Indian billionaire and chairman of Reliance ADA, said at the signing ceremony on Thursday in Shanghai that the deal was “the largest order in the history of the power sector . . . and the largest single business relationship between India and China”.
Shanghai Electric, the largest power producer in Shanghai, will provide 30,000MW of coal-based power capacity valued at about $10bn over the next three years, Reliance said.
Shanghai Electric had previously valued the deal at $8.3bn, but Reliance said that figure did not include some orders already delivered. Financing was provided by the Export-Import Bank of China and other Chinese commercial banks.
The deal includes 42 power generation units of 660MW each, six of which have already been delivered, Reliance said.
“This is not just about selling equipment,” said Mr Ambani, who described the deal as a strategic partnership. Shanghai Electric will also provide spare parts, service and training, and may manufacture in India.
Zheng Jianhua, Shanghai Electric president, said his company was in the final stages of determining “where, how and when” it will enter the Indian market for manufacturing purposes.
The deal could exacerbate trade tensions between China and India, where domestic producers of power equipment have called for trade barriers to Chinese equipment, which they complain is artificially cheap. New Delhi has also been clamping down on visas for engineers and other staff needed to install Chinese equipment.
Mr Ambani dismissed the idea that his company should have bought its equipment from Indian companies. “Indian manufacturers of power equipment are fully sold out until 2015. The scale and complexity of what we wanted to achieve was only possible through global sourcing.”
Trade between India and China has grown rapidly in the past decade. “India-China bilateral trade in 2010 is expected to pass $60bn, making China India’s largest trading partner,” said Kamal Rungta, managing director of E.J. McKay, an India-China focused corporate adviser.
The Indian government has decided against imposing duties on equipment for large power projects.
India urgently needs to upgrade its infrastructure to boost its hopes of double-digit growth, and plans to spend $1,000bn by 2017 to build new roads, ports and railways. By that date, India, the world’s sixth-largest energy consumer, also plans to boost its power generation capacity to 100,000 megawatts. However, it is currently behind on its targets, according to sector analysts
The deal is the first big investment made by Reliance Power following the end of a bitter succession battle between the two Ambani brothers. Mukesh Ambani, who is ranked fourth in the Forbes global rich list with $29bn, and Anil Ambani, ranked 36th with $14bn, were involved in a public row that prevented Reliance Power from making any serious investment.
One of the biggest contracts ever between India and China, the deal highlights the growing trade relationship between Asia’s largest emerging economies.
Anil Ambani, the Indian billionaire and chairman of Reliance ADA, said at the signing ceremony on Thursday in Shanghai that the deal was “the largest order in the history of the power sector . . . and the largest single business relationship between India and China”.
Shanghai Electric, the largest power producer in Shanghai, will provide 30,000MW of coal-based power capacity valued at about $10bn over the next three years, Reliance said.
Shanghai Electric had previously valued the deal at $8.3bn, but Reliance said that figure did not include some orders already delivered. Financing was provided by the Export-Import Bank of China and other Chinese commercial banks.
The deal includes 42 power generation units of 660MW each, six of which have already been delivered, Reliance said.
“This is not just about selling equipment,” said Mr Ambani, who described the deal as a strategic partnership. Shanghai Electric will also provide spare parts, service and training, and may manufacture in India.
Zheng Jianhua, Shanghai Electric president, said his company was in the final stages of determining “where, how and when” it will enter the Indian market for manufacturing purposes.
The deal could exacerbate trade tensions between China and India, where domestic producers of power equipment have called for trade barriers to Chinese equipment, which they complain is artificially cheap. New Delhi has also been clamping down on visas for engineers and other staff needed to install Chinese equipment.
Mr Ambani dismissed the idea that his company should have bought its equipment from Indian companies. “Indian manufacturers of power equipment are fully sold out until 2015. The scale and complexity of what we wanted to achieve was only possible through global sourcing.”
Trade between India and China has grown rapidly in the past decade. “India-China bilateral trade in 2010 is expected to pass $60bn, making China India’s largest trading partner,” said Kamal Rungta, managing director of E.J. McKay, an India-China focused corporate adviser.
The Indian government has decided against imposing duties on equipment for large power projects.
India urgently needs to upgrade its infrastructure to boost its hopes of double-digit growth, and plans to spend $1,000bn by 2017 to build new roads, ports and railways. By that date, India, the world’s sixth-largest energy consumer, also plans to boost its power generation capacity to 100,000 megawatts. However, it is currently behind on its targets, according to sector analysts
The deal is the first big investment made by Reliance Power following the end of a bitter succession battle between the two Ambani brothers. Mukesh Ambani, who is ranked fourth in the Forbes global rich list with $29bn, and Anil Ambani, ranked 36th with $14bn, were involved in a public row that prevented Reliance Power from making any serious investment.
F.D.A. Rejects Qnexa, a Third Weight-Loss Drug
The Food and Drug Administration rejected another new diet pill on Thursday, a big setback for overweight Americans amid the nation’s obesity epidemic.
The rejected drug, called Qnexa, is the third weight loss drug to suffer a significant setback this month because of concerns about safety. Last week, the F.D.A. declined to approve another new drug, lorcaserin, because it caused tumors in rats. And earlier in the month it forced the withdrawal of Meridia from the market after 13 years, citing the risk of heart attacks and strokes for certain patients.
“It looks pretty bleak out there for anyone trying to get a drug approval for weight loss,” said Dr. Ken Fujioka, director of the center for weight management at the Scripps Clinic in San Diego.
Vivus, the developer of Qnexa, said late Thursday in a statement on its Web site that the F.D.A. had requested that the company provide a thorough evaluation of the drug’s potential for causing birth defects and heart problems.
The company, based in Mountain View, Calif., said it was confident it could provide this information to the F.D.A. in about six weeks. If the F.D.A. were to be satisfied, the drug could win approval sometime next year.
There has been no new prescription diet pill approved since Roche’s Xenical in 1999. Xenical is now the only drug approved for long-term use in managing weight.
Many drug companies had shied away from the diet market, after part of the popular fen-phen diet combination was removed from the market in 1997 because it damaged heart valves. The debacle resulted in huge legal settlements.
Dr. Fujioka, who is a consultant to some drug companies, including Vivus, said there was now only one prescription drug, Xenical, approved for long-term use in managing weight. “It’s tough to be a doctor and try to do something about the biggest problem in the U.S.,” he said.
The F.D.A.’s decision on Qnexa was not unexpected, given that an advisory committee to the agency had voted 10 to 6 against approval in July.
But it is nonetheless disappointing to some specialists because Qnexa produced about twice as much weight loss as other diet pills. In clinical trials, patients on the highest dose of Qnexa lost an average of 10.6 percent of their weight after one year, compared with 1.7 percent for those taking a placebo.
Qnexa is a combination of two existing drugs — phentermine, a stimulant that is approved for short-term use as a weight loss drug, and topiramate, an epilepsy and migraine drug sold by Johnson & Johnson under the name Topamax.
An F.D.A. advisory committee in December will consider another diet drug, called Contrave, developed by Orexigen Therapeutics. But if that one also is not approved, some experts say it would discourage already wary pharmaceutical companies from working on drugs for obesity.
“It’s going to put the brakes on all obesity drug development for a decade,” said Dr. W. Timothy Garvey, chairman of the department of nutrition sciences at the University of Alabama at Birmingham, who was an investigator in the clinical trials of Qnexa.
Morgan Downey, an advocate for obese people who also consults for pharmaceutical companies, said the F.D.A. appeared to believe that a very effective drug would be used so much that unanticipated side effects would show up, while less effective drugs were not worth any risk.
“The F.D.A. has gotten itself into a real knot,” said Mr. Downey, who describes himself as obese and edits the Downey Obesity Report Web site. “They can’t approve a very effective drug and they can’t approve a modest drug.”
The F.D.A. does not comment or publicly release its reasons for turning down a drug.
Dr. John Jenkins, director of the agency’s office of new drugs, told reporters this month that the agency was “committed to working toward approval” of new obesity drugs, “so long as they are safe and effective for the population for which they are intended.”
Diana Zuckerman, president of the National Research Center for Women and Families, said the diet drugs that have made it to market are not very effective, so the F.D.A. should pay close attention to safety. “The vast majority of people taking them don’t stay on them long enough to get any health benefit,” she said. About a third of Americans are obese and another third merely overweight. Obesity contributes to many other health problems like diabetes, heart disease and cancer.
So an effective diet pill could help cut medical costs over all and should, at least in theory, become a blockbuster.
“This is the biggest field, bigger than statins potentially,” Jack Lief, chief executive of Arena Pharmaceuticals, the developer of lorcaserin, said a year ago, referring to the popular cholesterol-lowering drugs like Lipitor. Yet no diet pill has ever become a billion-dollar drug in annual sales. Sales of all prescription obesity drugs in the United States have been falling over the last few years and totaled only $154 million in 2009, according to IMS Health, a health care information company.
That is mainly because they generally produce a weight loss of only 5 percent or so. The body has so many mechanisms to maintain weight that any one drug is not likely to have much effect, scientists say.
A study published in the journal Obesity in January that used insurance records found that fewer than 1 percent of adults used obesity pills despite the considerable number of obese people. And only 11 to 18 percent of the users stayed with the drugs for longer than three months, a far greater dropout rate than for statins.
The rejected drug, called Qnexa, is the third weight loss drug to suffer a significant setback this month because of concerns about safety. Last week, the F.D.A. declined to approve another new drug, lorcaserin, because it caused tumors in rats. And earlier in the month it forced the withdrawal of Meridia from the market after 13 years, citing the risk of heart attacks and strokes for certain patients.
“It looks pretty bleak out there for anyone trying to get a drug approval for weight loss,” said Dr. Ken Fujioka, director of the center for weight management at the Scripps Clinic in San Diego.
Vivus, the developer of Qnexa, said late Thursday in a statement on its Web site that the F.D.A. had requested that the company provide a thorough evaluation of the drug’s potential for causing birth defects and heart problems.
The company, based in Mountain View, Calif., said it was confident it could provide this information to the F.D.A. in about six weeks. If the F.D.A. were to be satisfied, the drug could win approval sometime next year.
There has been no new prescription diet pill approved since Roche’s Xenical in 1999. Xenical is now the only drug approved for long-term use in managing weight.
Many drug companies had shied away from the diet market, after part of the popular fen-phen diet combination was removed from the market in 1997 because it damaged heart valves. The debacle resulted in huge legal settlements.
Dr. Fujioka, who is a consultant to some drug companies, including Vivus, said there was now only one prescription drug, Xenical, approved for long-term use in managing weight. “It’s tough to be a doctor and try to do something about the biggest problem in the U.S.,” he said.
The F.D.A.’s decision on Qnexa was not unexpected, given that an advisory committee to the agency had voted 10 to 6 against approval in July.
But it is nonetheless disappointing to some specialists because Qnexa produced about twice as much weight loss as other diet pills. In clinical trials, patients on the highest dose of Qnexa lost an average of 10.6 percent of their weight after one year, compared with 1.7 percent for those taking a placebo.
Qnexa is a combination of two existing drugs — phentermine, a stimulant that is approved for short-term use as a weight loss drug, and topiramate, an epilepsy and migraine drug sold by Johnson & Johnson under the name Topamax.
An F.D.A. advisory committee in December will consider another diet drug, called Contrave, developed by Orexigen Therapeutics. But if that one also is not approved, some experts say it would discourage already wary pharmaceutical companies from working on drugs for obesity.
“It’s going to put the brakes on all obesity drug development for a decade,” said Dr. W. Timothy Garvey, chairman of the department of nutrition sciences at the University of Alabama at Birmingham, who was an investigator in the clinical trials of Qnexa.
Morgan Downey, an advocate for obese people who also consults for pharmaceutical companies, said the F.D.A. appeared to believe that a very effective drug would be used so much that unanticipated side effects would show up, while less effective drugs were not worth any risk.
“The F.D.A. has gotten itself into a real knot,” said Mr. Downey, who describes himself as obese and edits the Downey Obesity Report Web site. “They can’t approve a very effective drug and they can’t approve a modest drug.”
The F.D.A. does not comment or publicly release its reasons for turning down a drug.
Dr. John Jenkins, director of the agency’s office of new drugs, told reporters this month that the agency was “committed to working toward approval” of new obesity drugs, “so long as they are safe and effective for the population for which they are intended.”
Diana Zuckerman, president of the National Research Center for Women and Families, said the diet drugs that have made it to market are not very effective, so the F.D.A. should pay close attention to safety. “The vast majority of people taking them don’t stay on them long enough to get any health benefit,” she said. About a third of Americans are obese and another third merely overweight. Obesity contributes to many other health problems like diabetes, heart disease and cancer.
So an effective diet pill could help cut medical costs over all and should, at least in theory, become a blockbuster.
“This is the biggest field, bigger than statins potentially,” Jack Lief, chief executive of Arena Pharmaceuticals, the developer of lorcaserin, said a year ago, referring to the popular cholesterol-lowering drugs like Lipitor. Yet no diet pill has ever become a billion-dollar drug in annual sales. Sales of all prescription obesity drugs in the United States have been falling over the last few years and totaled only $154 million in 2009, according to IMS Health, a health care information company.
That is mainly because they generally produce a weight loss of only 5 percent or so. The body has so many mechanisms to maintain weight that any one drug is not likely to have much effect, scientists say.
A study published in the journal Obesity in January that used insurance records found that fewer than 1 percent of adults used obesity pills despite the considerable number of obese people. And only 11 to 18 percent of the users stayed with the drugs for longer than three months, a far greater dropout rate than for statins.
Wednesday, October 27, 2010
Asian Stocks Gain as Australia & New Zealand Bank Rises on Higher Profit
Asian stocks rose for the first time in three days as Australia & New Zealand Banking Group Ltd. led gains among the banks after the lender reported higher profit.
Australia & New Zealand Banking, the nation’s third-largest lender, climbed 2.6 percent after reporting half-year profit that rose 69 percent as bad debts declined. Canon Inc., the world’s largest camera maker, gained 4 percent after the company raised its profit forecast. Mitsubishi Corp., which gets about 40 percent of sales from commodities, fell 0.6 percent after oil and metal prices declined yesterday.
The MSCI Asia Pacific Index gained 0.4 percent to 129.25 as of 9:52 a.m. in Tokyo, snapping its two-day decline of 2.1 percent. The gauge dropped for the first week in two months last week after China, the world’s fastest-growing major economy, unexpectedly raised interest rates and said it grew at the slowest pace in a year.
Japan’s Nikkei 225 Stock Average slipped 0.1 percent. Australia’s S&P/ASX 200 Index jumped 1 percent. New Zealand’s NZX 50 Index rose 0.3 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index slid 0.3 percent yesterday in New York as investors speculated that the Federal Reserve’s efforts to shore up the economy will be gradual.
The Fed will probably announce a program to buy several hundred billion dollars of U.S. Treasury debt over the next few months, the Wall Street Journal reported yesterday, without saying where it got the information.
Estimates for the size of the program had ranged from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely begin with a $500 billion plan after the Nov. 2-3 meeting.
The London Metal Exchange Index of prices for six industrial metals including copper and aluminum plunged 2.6 percent, the most since July 1. Copper futures tumbled 2.4 percent to $3.7755 a pound in New York after rising to $3.90, the highest level for a most-active contract since July 2008.
Crude oil for December delivery fell 0.7 percent to $81.94 a barrel in New York yesterday after a report showed U.S. orders for capital goods declined, and as the dollar strengthened.
Australia & New Zealand Banking, the nation’s third-largest lender, climbed 2.6 percent after reporting half-year profit that rose 69 percent as bad debts declined. Canon Inc., the world’s largest camera maker, gained 4 percent after the company raised its profit forecast. Mitsubishi Corp., which gets about 40 percent of sales from commodities, fell 0.6 percent after oil and metal prices declined yesterday.
The MSCI Asia Pacific Index gained 0.4 percent to 129.25 as of 9:52 a.m. in Tokyo, snapping its two-day decline of 2.1 percent. The gauge dropped for the first week in two months last week after China, the world’s fastest-growing major economy, unexpectedly raised interest rates and said it grew at the slowest pace in a year.
Japan’s Nikkei 225 Stock Average slipped 0.1 percent. Australia’s S&P/ASX 200 Index jumped 1 percent. New Zealand’s NZX 50 Index rose 0.3 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index slid 0.3 percent yesterday in New York as investors speculated that the Federal Reserve’s efforts to shore up the economy will be gradual.
The Fed will probably announce a program to buy several hundred billion dollars of U.S. Treasury debt over the next few months, the Wall Street Journal reported yesterday, without saying where it got the information.
Estimates for the size of the program had ranged from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely begin with a $500 billion plan after the Nov. 2-3 meeting.
The London Metal Exchange Index of prices for six industrial metals including copper and aluminum plunged 2.6 percent, the most since July 1. Copper futures tumbled 2.4 percent to $3.7755 a pound in New York after rising to $3.90, the highest level for a most-active contract since July 2008.
Crude oil for December delivery fell 0.7 percent to $81.94 a barrel in New York yesterday after a report showed U.S. orders for capital goods declined, and as the dollar strengthened.
Walmart urges India to open up retail sector
Mike Duke, the chief executive of Walmart, has delivered a rare high-profile plea to the Indian government to open up the country’s retail sector to direct foreign investment.
The plea comes days before the arrival in the country of President Barack Obama and a large US business delegation.
Mr Duke told a meeting of the Federation of Indian Chambers of Commerce and Industry in New Delhi that Walmart, the world’s largest retailer, understands the government’s “calibrated approach” to the opening of the sector.
But he repeated the argument that allowing international retailers to own and operate their own stores would bring a range of benefits to India, including the modernisation of food distribution and the growth of small and medium supplier businesses.
Currently, foreign investment is restricted to 51 per cent in single-brand retail and is barred entirely from multi-brand retail.
An Indian government discussion paper published this year said that allowing greater foreign investment in retail would lower prices and benefit farmers.
Mr Duke said Walmart estimated that “certain increases in direct foreign investment are likely to reduce India’s inflation rate 50 to 70 basis points”, from more efficient logistics and reduced waste.
Walmart’s presence in India is currently limited to four “cash and carry” Best Price stores it has operated in a joint venture with Bharti Enterprises, a local business group, opening the first store last year.
Mr Duke said the joint venture planned to have between 10 and 15 stores open over the next two years, although Rajan Bharti Mittal, managing director of Bharti Enterprises, said his company could roll out 15 new stores “ahead of time” by the end of next year.
As part of the retailer’s efforts to win political support in India, Mr Duke highlighted plans to source fresh fruit, vegetables and meat for the stores directly from 35,000 small farmers.
Subodh Kant Sahai, India’s minister of food processing, said on Tuesday that a decision over any further relaxation of FDI restrictions was only likely to be made next year.
AT Kearney, the US management consultants, forecast that India’s growing middle class among a 1.2bn population would help push retail sales up by 35 per cent over the next three years.
The plea comes days before the arrival in the country of President Barack Obama and a large US business delegation.
Mr Duke told a meeting of the Federation of Indian Chambers of Commerce and Industry in New Delhi that Walmart, the world’s largest retailer, understands the government’s “calibrated approach” to the opening of the sector.
But he repeated the argument that allowing international retailers to own and operate their own stores would bring a range of benefits to India, including the modernisation of food distribution and the growth of small and medium supplier businesses.
Currently, foreign investment is restricted to 51 per cent in single-brand retail and is barred entirely from multi-brand retail.
An Indian government discussion paper published this year said that allowing greater foreign investment in retail would lower prices and benefit farmers.
Mr Duke said Walmart estimated that “certain increases in direct foreign investment are likely to reduce India’s inflation rate 50 to 70 basis points”, from more efficient logistics and reduced waste.
Walmart’s presence in India is currently limited to four “cash and carry” Best Price stores it has operated in a joint venture with Bharti Enterprises, a local business group, opening the first store last year.
Mr Duke said the joint venture planned to have between 10 and 15 stores open over the next two years, although Rajan Bharti Mittal, managing director of Bharti Enterprises, said his company could roll out 15 new stores “ahead of time” by the end of next year.
As part of the retailer’s efforts to win political support in India, Mr Duke highlighted plans to source fresh fruit, vegetables and meat for the stores directly from 35,000 small farmers.
Subodh Kant Sahai, India’s minister of food processing, said on Tuesday that a decision over any further relaxation of FDI restrictions was only likely to be made next year.
AT Kearney, the US management consultants, forecast that India’s growing middle class among a 1.2bn population would help push retail sales up by 35 per cent over the next three years.
Money-Market Rates Jump to 19-Month High on IPO Cash Drain: India Credit
Indian companies are paying the highest short-term borrowing costs in 19 months as the central bank raises interest rates to contain inflation and investors drain cash for initial public offerings.
Rates for three-month funds almost doubled to 8.25 percent this year as policy makers boosted benchmark interest rates five times to curb price increases that have averaged 9.7 percent. Three-month commercial paper yields for top-rated borrowers jumped 72 basis points, or 0.72 percentage point, this month as investors pulled money from banks to buy stock in Coal India Ltd.’s 152 billion rupee ($3.4 billion) offering, the nation’s biggest-ever initial share sale.
With economists predicting Reserve Bank of India Governor Duvvuri Subbarao will raise the repurchase rate for a sixth time on Nov. 2, costs for companies may continue to increase. Central banks from the U.S. to Japan have cut benchmark borrowing levels to near zero to prop up their economies. Three-month commercial paper rates in the U.S. are 0.31 percent, while borrowers in China are paying 2.8 percent, according to Bloomberg data.
“Funding costs for companies have risen significantly, driven by policy measures aimed at curbing inflation,” Raman Uberoi, Mumbai-based senior director at Crisil Ltd., the Indian unit of Standard & Poor’s, said in an interview yesterday. “Increasing working capital costs would put some pressure on corporate profitability in India.”
Commercial Paper
L&T Finance Ltd., a unit of the nation’s biggest engineering company in Mumbai, sold three-month commercial paper on Oct. 26 at a yield of 8.2 percent, according to data provided by Mumbai-based NVS Brokerage Ltd. Infrastructure Development Finance Co., a state-run lender to power and road projects, sold similar-maturity debt at 7.85 percent the same day, according to data provided by Mata Securities India Pvt. in Mumbai.
Indian lenders borrowed 900 billion rupees from the central bank on Oct. 25, the most since 2008, to replenish cash as companies led by state-owned Coal India raised more since Jan. 1 selling shares than in any previous full year.
Equity offerings in Asia’s second-fastest growing economy after China are poised to drain more money as the government will raise about 400 billion rupees in seven more sales by the end of March, according to an e-mailed note sent Oct. 21 by SMC Global Securities Ltd., the nation’s fourth-biggest brokerage. Earnings for companies in the Bombay Stock Exchange’s Sensitive Index jumped 56 percent this year to 1,028 rupees a share, poised for the biggest annual gain since Bloomberg started compiling the data in 2000.
Foreign Investors
Overseas investors have poured $24.6 billion into Indian equities so far this year, 72 percent more than in the year- earlier period and heading for the biggest-ever annual increase, according to the Securities and Exchange Board of India.
The cost of fixing rates on money for three months surged 273 basis points this year to 6.68 percent in India’s interest- rate swaps market, data compiled by Bloomberg show. Overnight loan rates between banks averaged 6.3 percent this month, up from 3.3 percent in October 2009, as Coal India received bids for 15 times the stock offered.
India’s 10-year bonds rose the most in two months yesterday as yields at their highest level in two years lured investors. The rate on the 7.8 percent note due May 2020 fell five basis points to 8.13 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system.
The rupee slid to 44.4575 per dollar from 44.45 the previous day, and touched 44.635, the lowest since Oct. 12.
The extra yield investors demand to hold India’s top-rated local corporate bonds over government debt has fallen to 59 basis points from 86 at the start of the year.
Bill Yields
India’s three-month Treasury bill yields have risen 323 basis points this year as the Reserve Bank lifted its repo rate by 125 points, data compiled by Bloomberg show. The comparable measure climbed 199 points to 10.69 percent in Brazil and 8 points to 0.13 percent in the U.S. Rates on similar notes from the People’s Bank of China rose 69 points to 2.01 percent.
The government yesterday sold 40 billion rupees of 81-day bills at 6.8536 percent, compared with 6.7706 percent a week earlier. It auctioned 182-day debt at 7.0587 percent, up from 6.8225 percent on Oct. 13.
‘Feeling the Pinch’
The cash shortage at India’s banks may further raise borrowing costs for companies as demand for loans strengthens, according to Mohan Shenoi, the head of Treasury at the Mumbai- based Kotak Mahindra Bank Ltd. The pace of annual growth in bank lending almost doubled in the year ended Oct. 8 to 20.1 percent from the previous 12 months, central bank data show.
“More than the increase in policy rates, the tight liquidity is hurting everyone and industry is feeling the pinch,” Shenoi said in an Oct. 26 interview. “This scale of tightness for a prolonged period could have significant impact on loan pricing.”
Credit-default swaps on State Bank of India rose two basis points yesterday to 163 points, according to data provider CMA. Such swaps usually pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, and they rise as perceptions of credit quality deteriorate.
Indian companies have sold 1.59 trillion rupees of bonds this year, up from 1.48 trillion rupees in all of 2009. Local- currency debt sales climbed 42 percent to 14.6 billion real ($8.6 billion) in Brazil, while in Russia they are lagging behind last year’s amount by 18 percent, the data show.
The South Asian nation’s share sales have totaled 1 trillion rupees, beating a previous record of 782 billion rupees set in 2007, data compiled by Bloomberg show.
Ratings Improve
Crisil raised the debt ratings on 253 Indian borrowers in the six months ended Sept. 30, the most since it started business in 1987, the agency said last week. The credit assessor downgraded 111 borrowers. ICRA Ltd., an arm of Moody’s Investors Service, upgraded 99 companies and cut 64, the best ratio since 2005, data compiled by Bloomberg show.
The rate at which banks lend to each other overnight rose to a one-month high of 7 percent this week after a government plan to pump funds into banks by buying back existing bonds achieved less than a quarter of the targeted amount of repurchases. The Finance Ministry bought 25 billion rupees of fixed-income securities at an auction on Oct. 25 after offering to pick up notes worth as much as 120 billion rupees. The auction was the first in a plan to repurchase as much as 285.5 billion rupees of bonds maturing in 2010 and 2011.
‘Bound to Fail’
“The buyback was bound to fail” because banks are already short on cash, Abheek Barua, chief economist in New Delhi at HDFC Bank Ltd., India’s third largest, said in an Oct. 26 interview.
Three-month treasury bills in India now yield a record 651 basis points more than the three-month dollar London interbank offered rate, a measure of funding costs for global investors that is currently 0.29 percent.
India’s 10-year government bond yield is the highest among the major emerging economies except Brazil, where similar- maturity notes pay 12.1 percent. Comparable securities offer 3.46 percent in China. U.S. 10-year Treasuries yield 2.70 percent, according to data compiled by Bloomberg.
Higher yields prompted overseas investors to more than double holdings of India’s corporate and government debt in 2010 to a record $17.3 billion on Oct. 25. Accelerated investment inflows helped the rupee strengthen 5.2 percent against the dollar in the past three months, the third-best performance among Asia’s 10-most traded currencies.
“Costs have risen for companies because short-term yields have gone up,” R. Govindan, Mumbai-based treasurer at Larsen & Toubro Ltd., said in an Oct. 26 interview. “If credit growth picks up further, then it will be a problem.”
Rates for three-month funds almost doubled to 8.25 percent this year as policy makers boosted benchmark interest rates five times to curb price increases that have averaged 9.7 percent. Three-month commercial paper yields for top-rated borrowers jumped 72 basis points, or 0.72 percentage point, this month as investors pulled money from banks to buy stock in Coal India Ltd.’s 152 billion rupee ($3.4 billion) offering, the nation’s biggest-ever initial share sale.
With economists predicting Reserve Bank of India Governor Duvvuri Subbarao will raise the repurchase rate for a sixth time on Nov. 2, costs for companies may continue to increase. Central banks from the U.S. to Japan have cut benchmark borrowing levels to near zero to prop up their economies. Three-month commercial paper rates in the U.S. are 0.31 percent, while borrowers in China are paying 2.8 percent, according to Bloomberg data.
“Funding costs for companies have risen significantly, driven by policy measures aimed at curbing inflation,” Raman Uberoi, Mumbai-based senior director at Crisil Ltd., the Indian unit of Standard & Poor’s, said in an interview yesterday. “Increasing working capital costs would put some pressure on corporate profitability in India.”
Commercial Paper
L&T Finance Ltd., a unit of the nation’s biggest engineering company in Mumbai, sold three-month commercial paper on Oct. 26 at a yield of 8.2 percent, according to data provided by Mumbai-based NVS Brokerage Ltd. Infrastructure Development Finance Co., a state-run lender to power and road projects, sold similar-maturity debt at 7.85 percent the same day, according to data provided by Mata Securities India Pvt. in Mumbai.
Indian lenders borrowed 900 billion rupees from the central bank on Oct. 25, the most since 2008, to replenish cash as companies led by state-owned Coal India raised more since Jan. 1 selling shares than in any previous full year.
Equity offerings in Asia’s second-fastest growing economy after China are poised to drain more money as the government will raise about 400 billion rupees in seven more sales by the end of March, according to an e-mailed note sent Oct. 21 by SMC Global Securities Ltd., the nation’s fourth-biggest brokerage. Earnings for companies in the Bombay Stock Exchange’s Sensitive Index jumped 56 percent this year to 1,028 rupees a share, poised for the biggest annual gain since Bloomberg started compiling the data in 2000.
Foreign Investors
Overseas investors have poured $24.6 billion into Indian equities so far this year, 72 percent more than in the year- earlier period and heading for the biggest-ever annual increase, according to the Securities and Exchange Board of India.
The cost of fixing rates on money for three months surged 273 basis points this year to 6.68 percent in India’s interest- rate swaps market, data compiled by Bloomberg show. Overnight loan rates between banks averaged 6.3 percent this month, up from 3.3 percent in October 2009, as Coal India received bids for 15 times the stock offered.
India’s 10-year bonds rose the most in two months yesterday as yields at their highest level in two years lured investors. The rate on the 7.8 percent note due May 2020 fell five basis points to 8.13 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system.
The rupee slid to 44.4575 per dollar from 44.45 the previous day, and touched 44.635, the lowest since Oct. 12.
The extra yield investors demand to hold India’s top-rated local corporate bonds over government debt has fallen to 59 basis points from 86 at the start of the year.
Bill Yields
India’s three-month Treasury bill yields have risen 323 basis points this year as the Reserve Bank lifted its repo rate by 125 points, data compiled by Bloomberg show. The comparable measure climbed 199 points to 10.69 percent in Brazil and 8 points to 0.13 percent in the U.S. Rates on similar notes from the People’s Bank of China rose 69 points to 2.01 percent.
The government yesterday sold 40 billion rupees of 81-day bills at 6.8536 percent, compared with 6.7706 percent a week earlier. It auctioned 182-day debt at 7.0587 percent, up from 6.8225 percent on Oct. 13.
‘Feeling the Pinch’
The cash shortage at India’s banks may further raise borrowing costs for companies as demand for loans strengthens, according to Mohan Shenoi, the head of Treasury at the Mumbai- based Kotak Mahindra Bank Ltd. The pace of annual growth in bank lending almost doubled in the year ended Oct. 8 to 20.1 percent from the previous 12 months, central bank data show.
“More than the increase in policy rates, the tight liquidity is hurting everyone and industry is feeling the pinch,” Shenoi said in an Oct. 26 interview. “This scale of tightness for a prolonged period could have significant impact on loan pricing.”
Credit-default swaps on State Bank of India rose two basis points yesterday to 163 points, according to data provider CMA. Such swaps usually pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, and they rise as perceptions of credit quality deteriorate.
Indian companies have sold 1.59 trillion rupees of bonds this year, up from 1.48 trillion rupees in all of 2009. Local- currency debt sales climbed 42 percent to 14.6 billion real ($8.6 billion) in Brazil, while in Russia they are lagging behind last year’s amount by 18 percent, the data show.
The South Asian nation’s share sales have totaled 1 trillion rupees, beating a previous record of 782 billion rupees set in 2007, data compiled by Bloomberg show.
Ratings Improve
Crisil raised the debt ratings on 253 Indian borrowers in the six months ended Sept. 30, the most since it started business in 1987, the agency said last week. The credit assessor downgraded 111 borrowers. ICRA Ltd., an arm of Moody’s Investors Service, upgraded 99 companies and cut 64, the best ratio since 2005, data compiled by Bloomberg show.
The rate at which banks lend to each other overnight rose to a one-month high of 7 percent this week after a government plan to pump funds into banks by buying back existing bonds achieved less than a quarter of the targeted amount of repurchases. The Finance Ministry bought 25 billion rupees of fixed-income securities at an auction on Oct. 25 after offering to pick up notes worth as much as 120 billion rupees. The auction was the first in a plan to repurchase as much as 285.5 billion rupees of bonds maturing in 2010 and 2011.
‘Bound to Fail’
“The buyback was bound to fail” because banks are already short on cash, Abheek Barua, chief economist in New Delhi at HDFC Bank Ltd., India’s third largest, said in an Oct. 26 interview.
Three-month treasury bills in India now yield a record 651 basis points more than the three-month dollar London interbank offered rate, a measure of funding costs for global investors that is currently 0.29 percent.
India’s 10-year government bond yield is the highest among the major emerging economies except Brazil, where similar- maturity notes pay 12.1 percent. Comparable securities offer 3.46 percent in China. U.S. 10-year Treasuries yield 2.70 percent, according to data compiled by Bloomberg.
Higher yields prompted overseas investors to more than double holdings of India’s corporate and government debt in 2010 to a record $17.3 billion on Oct. 25. Accelerated investment inflows helped the rupee strengthen 5.2 percent against the dollar in the past three months, the third-best performance among Asia’s 10-most traded currencies.
“Costs have risen for companies because short-term yields have gone up,” R. Govindan, Mumbai-based treasurer at Larsen & Toubro Ltd., said in an Oct. 26 interview. “If credit growth picks up further, then it will be a problem.”
Homeowners Facing Foreclosure Demand Recourse
Ricky Rought paid cash to the Deutsche Bank National Trust Company for a four-room cabin in Michigan with the intention of fixing it up for his daughter. Instead, the bank tried to foreclose on the property and the locks were changed, court records show.
Sonya Robison is facing a foreclosure suit in Colorado after the company handling her mortgage encouraged her to skip a payment, she says, to square up for mistakenly changing the locks on her home, too.
Thomas and Charlotte Sexton, of Kentucky, were successfully foreclosed upon by a mortgage trust that, according to court records, does not exist.
As lenders have reviewed tens of thousands of mortgages for errors in recent weeks, more and more homeowners are stepping forward to say that they were victims of bank mistakes — and in many cases, demanding legal recourse.
Some homeowners say the banks tried to foreclose on a house that did not even have a mortgage. Others say they believed they were negotiating with the bank in good faith. Still others say that even though they are delinquent on their mortgage payments, they deserve the right to due process before being evicted.
Some consumer lawyers say they are now swamped with homeowners saying they have been wronged by slipshod bank practices and want to fight to keep their homes. Joseph deMello, a Massachusetts lawyer who represents Mr. Rought, said the common denominator in many of the cases was an overwhelmed system of foreclosures in which banks relied on subcontractors to do much of the work.
“No one double-checks anything,” he said. “It’s completely high volume and that’s unfortunately what leads to this.”
It may never be known how many homeowners have legitimate claims against the banks, real estate and banking experts say, because lenders do not release such data and because the vast majority of cases never make it to court.
For the last month or so, some of the nation’s largest banks have temporarily halted foreclosures in some states amid accusations that the paperwork used as evidence to oust homeowners was incomplete or signed off by so-called robo-signers who did little to check its veracity.
Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork and resolve any outstanding legal issues.
“We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure,” said Paul Leonard, vice president for government affairs of the housing policy council at the Financial Services Roundtable, an advocacy group for the nation’s largest financial institutions.
Consumer lawyers and housing experts acknowledge that it is relatively rare that a bank initiates foreclosure on a homeowner who is current on the mortgage or has no mortgage at all. More common, they say, are instances where homeowners have applied for mortgage modifications but get foreclosed upon anyway.
In a report to Congress released this week, a federal inspector general described the government-sponsored modification program, known as the Home Affordability Modification Program, as deeply flawed.
While about 467,000 mortgages had received permanent modifications under the program, an estimated 3.5 million homes will receive foreclosure notices this year, an increase of 26 percent over 2009, the report says.
“You have this promise of relief for borrowers but actually getting that relief is like a zigzag line from point A to point B,” said Jose Vasquez, a lawyer for Colorado Legal Services.
Ms. Robison’s case is a variation on the theme. When she returned home to Yoder, Colo., outside Colorado Springs, from a holiday trip in December 2008, she found the locks changed and her electricity, gas and water heater shut off. A sign on the door advised her to contact Safeguard Properties, a company hired by the mortgage servicer, Litton Loan Servicing.
Sonya Robison is facing a foreclosure suit in Colorado after the company handling her mortgage encouraged her to skip a payment, she says, to square up for mistakenly changing the locks on her home, too.
Thomas and Charlotte Sexton, of Kentucky, were successfully foreclosed upon by a mortgage trust that, according to court records, does not exist.
As lenders have reviewed tens of thousands of mortgages for errors in recent weeks, more and more homeowners are stepping forward to say that they were victims of bank mistakes — and in many cases, demanding legal recourse.
Some homeowners say the banks tried to foreclose on a house that did not even have a mortgage. Others say they believed they were negotiating with the bank in good faith. Still others say that even though they are delinquent on their mortgage payments, they deserve the right to due process before being evicted.
Some consumer lawyers say they are now swamped with homeowners saying they have been wronged by slipshod bank practices and want to fight to keep their homes. Joseph deMello, a Massachusetts lawyer who represents Mr. Rought, said the common denominator in many of the cases was an overwhelmed system of foreclosures in which banks relied on subcontractors to do much of the work.
“No one double-checks anything,” he said. “It’s completely high volume and that’s unfortunately what leads to this.”
It may never be known how many homeowners have legitimate claims against the banks, real estate and banking experts say, because lenders do not release such data and because the vast majority of cases never make it to court.
For the last month or so, some of the nation’s largest banks have temporarily halted foreclosures in some states amid accusations that the paperwork used as evidence to oust homeowners was incomplete or signed off by so-called robo-signers who did little to check its veracity.
Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork and resolve any outstanding legal issues.
“We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure,” said Paul Leonard, vice president for government affairs of the housing policy council at the Financial Services Roundtable, an advocacy group for the nation’s largest financial institutions.
Consumer lawyers and housing experts acknowledge that it is relatively rare that a bank initiates foreclosure on a homeowner who is current on the mortgage or has no mortgage at all. More common, they say, are instances where homeowners have applied for mortgage modifications but get foreclosed upon anyway.
In a report to Congress released this week, a federal inspector general described the government-sponsored modification program, known as the Home Affordability Modification Program, as deeply flawed.
While about 467,000 mortgages had received permanent modifications under the program, an estimated 3.5 million homes will receive foreclosure notices this year, an increase of 26 percent over 2009, the report says.
“You have this promise of relief for borrowers but actually getting that relief is like a zigzag line from point A to point B,” said Jose Vasquez, a lawyer for Colorado Legal Services.
Ms. Robison’s case is a variation on the theme. When she returned home to Yoder, Colo., outside Colorado Springs, from a holiday trip in December 2008, she found the locks changed and her electricity, gas and water heater shut off. A sign on the door advised her to contact Safeguard Properties, a company hired by the mortgage servicer, Litton Loan Servicing.
Tuesday, October 26, 2010
Convertible Bond Returns Beat Sensex, Other Debt Categories: India Credit
Indian convertible bonds, Asia’s best performers, are beating local stocks and corporate and government securities this year on rising speculation borrowers will repay debt as the economy accelerates.
Convertibles in India gained 18.4 percent this year through Oct. 21, the highest returns among eight Asian markets tracked by UBS AG. That compares with 16 percent for the Bombay Stock Exchange’s Sensitive Index and 3.7 percent for government bonds. U.S. convertible debt has returned 9.8 percent, according to Bank of America Merrill Lynch indexes.
“India is in a region with one of the highest growth rates, and money just keeps flowing in,” Stefan Meyer, a fund manager at Fisch Asset Management AG in Zurich, said in a telephone interview. The firm oversees more than $4.5 billion including convertible bonds of Larsen & Toubro Ltd. and JSW Steel Ltd. “India generally offers nice diversification in the convertible bond universe, and we don’t see any reason why this momentum will not sustain in the near future.”
Investors are betting faster growth will boost corporate profits and improve the credit outlook. Crisil Ltd., the Indian unit of Standard & Poor’s, raised ratings on a record 253 local companies in the six months ended Sept. 30, while Moody’s Investors Service lifted India’s local-currency ranking in July in the first upgrade since 1998. Earnings are set for a record annual gain, analyst estimates compiled by Bloomberg show.
‘Can Be Undervalued’
“We can find a lot of high-yield names in India offering 10 to 15 percent and it doesn’t always mean there are some credit problems with the companies,” Carter Cai, a convertible bond manager at Banyan Asset Management Ltd., said by phone from Hong Kong. “India convertible bonds tend to yield higher than those in other countries and they can just be undervalued.”
Tata Motors Ltd.’s 4 percent note maturing in October 2014 has handed investors a 56 percent return this year, according to prices at investment bank Elara Capital Plc. The Mumbai-based carmaker’s stock price jumped almost 50 percent to 1,186 rupees, almost double the debt conversion price.
India’s equity-linked debt has outperformed similar debt from China, Singapore, Malaysia, Taiwan, South Korea, the Philippines and Indonesia this year, and topped the 13.7 percent gain in the UBS Asia ex-Japan Convertible Index.
Sales Slow
“Convertible bonds are largely reflecting the broader features of the stock market,” Martin Haycock, London-based head of convertible bond marketing at UBS, said in an e-mail yesterday. He said Indian convertibles in UBS’s index are more sensitive to the underlying stocks than those in China.
Indian companies have sold $1.4 billion of foreign-currency equity-linked notes this year, compared with $3.9 billion in 2009, according to Bloomberg data. Issuance peaked at $7.5 billion in 2007.
“The market in India hasn’t been very active this year as most of the new issues are coming out from Hong Kong, China and South Korea,” said Banyan’s Cai, who manages about $20 million. “So there will be some demand as supply is going to diminish.”
Indian companies have about $9.1 billion of convertible bonds coming due between now and the end of 2012, according to data compiled by Bloomberg and Elara Capital, accounting for 72 percent of all outstanding foreign-currency convertible debt.
“About 70 to 75 percent of Indian companies have the cashflow, 20 to 25 percent have to sell assets, or raise equity, to repay their debt,” Mikhail Filimonov, a managing partner at Odyssey Investment Management LLC in New York, said in an e-mail on Oct. 23. The rest “will have to hope for the best,” he said.
Odyssey’s funds have returned about 30 percent this year. It owns debt including Geodesic Ltd. and Strides Arcolab Ltd.
Suzlon Yields
Suzlon Energy Ltd., India’s biggest wind-turbine maker, has $389 million of dollar bonds maturing within two years, Bloomberg data show. The yield on its zero-coupon note due June 2012 has surged to 22 percent from 15 percent at the start of the year, while its 7.5 percent note due October 2012 doubled to 19.5 percent, according to Elara Capital.
“Suzlon is not priced to fail, the yields just show high credit risk,” Alice Chikara, a Singapore-based analyst at Elara, said in an e-mail yesterday. “They are focusing on tidying up their balance sheet and this should increase its ability to refinance if the 2012 bonds are not converted.”
Suzlon announced plans on Oct. 12 to raise as much as 50 billion rupees ($1.1 billion) selling new stock locally or convertible bonds overseas to help fund an expansion and repay loans. Anoop Kayarat, a spokesman for Suzlon, declined to comment before the company reports earnings results later this month.
Growth Outlook
Profits for companies making up the Sensitive Index jumped 56 percent this year to 1,027 rupees a share and are poised for the biggest annual gain since Bloomberg started compiling the data in 2000. The measure may climb to 1,176 rupees in the next 12 months, estimates compiled by Bloomberg show.
Gross domestic product in India will climb 9.7 percent this year following a 5.7 percent increase in 2009, the International Monetary Fund forecast Oct. 6.
Corporate bonds have gained, with the extra yield investors demand to hold India’s top-rated company debt over government securities falling to 65 basis points from 86 basis points, or 0.86 percentage point, at the start of the year.
India’s rupee fell 0.3 percent to 44.46 per dollar today. It gained the most in a week yesterday after the nation’s finance minister, with counterparts in the Group of 20 nations, pledged to refrain from intervening in currencies. It has climbed 4.6 percent this year against the dollar and 8 percent against the euro.
India’s 10-year bonds fell, pushing yields to a two-year high. The yield on the 7.8 percent note due May 2020 was 8.15 percent, the highest among the major emerging economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.34 percent in Russia, 3.29 percent in China and 2.55 percent in the U.S., Bloomberg data show.
The difference in yields between India’s securities due in a decade and U.S. Treasuries has widened 27 basis points this month to 560.
Convertibles in India gained 18.4 percent this year through Oct. 21, the highest returns among eight Asian markets tracked by UBS AG. That compares with 16 percent for the Bombay Stock Exchange’s Sensitive Index and 3.7 percent for government bonds. U.S. convertible debt has returned 9.8 percent, according to Bank of America Merrill Lynch indexes.
“India is in a region with one of the highest growth rates, and money just keeps flowing in,” Stefan Meyer, a fund manager at Fisch Asset Management AG in Zurich, said in a telephone interview. The firm oversees more than $4.5 billion including convertible bonds of Larsen & Toubro Ltd. and JSW Steel Ltd. “India generally offers nice diversification in the convertible bond universe, and we don’t see any reason why this momentum will not sustain in the near future.”
Investors are betting faster growth will boost corporate profits and improve the credit outlook. Crisil Ltd., the Indian unit of Standard & Poor’s, raised ratings on a record 253 local companies in the six months ended Sept. 30, while Moody’s Investors Service lifted India’s local-currency ranking in July in the first upgrade since 1998. Earnings are set for a record annual gain, analyst estimates compiled by Bloomberg show.
‘Can Be Undervalued’
“We can find a lot of high-yield names in India offering 10 to 15 percent and it doesn’t always mean there are some credit problems with the companies,” Carter Cai, a convertible bond manager at Banyan Asset Management Ltd., said by phone from Hong Kong. “India convertible bonds tend to yield higher than those in other countries and they can just be undervalued.”
Tata Motors Ltd.’s 4 percent note maturing in October 2014 has handed investors a 56 percent return this year, according to prices at investment bank Elara Capital Plc. The Mumbai-based carmaker’s stock price jumped almost 50 percent to 1,186 rupees, almost double the debt conversion price.
India’s equity-linked debt has outperformed similar debt from China, Singapore, Malaysia, Taiwan, South Korea, the Philippines and Indonesia this year, and topped the 13.7 percent gain in the UBS Asia ex-Japan Convertible Index.
Sales Slow
“Convertible bonds are largely reflecting the broader features of the stock market,” Martin Haycock, London-based head of convertible bond marketing at UBS, said in an e-mail yesterday. He said Indian convertibles in UBS’s index are more sensitive to the underlying stocks than those in China.
Indian companies have sold $1.4 billion of foreign-currency equity-linked notes this year, compared with $3.9 billion in 2009, according to Bloomberg data. Issuance peaked at $7.5 billion in 2007.
“The market in India hasn’t been very active this year as most of the new issues are coming out from Hong Kong, China and South Korea,” said Banyan’s Cai, who manages about $20 million. “So there will be some demand as supply is going to diminish.”
Indian companies have about $9.1 billion of convertible bonds coming due between now and the end of 2012, according to data compiled by Bloomberg and Elara Capital, accounting for 72 percent of all outstanding foreign-currency convertible debt.
“About 70 to 75 percent of Indian companies have the cashflow, 20 to 25 percent have to sell assets, or raise equity, to repay their debt,” Mikhail Filimonov, a managing partner at Odyssey Investment Management LLC in New York, said in an e-mail on Oct. 23. The rest “will have to hope for the best,” he said.
Odyssey’s funds have returned about 30 percent this year. It owns debt including Geodesic Ltd. and Strides Arcolab Ltd.
Suzlon Yields
Suzlon Energy Ltd., India’s biggest wind-turbine maker, has $389 million of dollar bonds maturing within two years, Bloomberg data show. The yield on its zero-coupon note due June 2012 has surged to 22 percent from 15 percent at the start of the year, while its 7.5 percent note due October 2012 doubled to 19.5 percent, according to Elara Capital.
“Suzlon is not priced to fail, the yields just show high credit risk,” Alice Chikara, a Singapore-based analyst at Elara, said in an e-mail yesterday. “They are focusing on tidying up their balance sheet and this should increase its ability to refinance if the 2012 bonds are not converted.”
Suzlon announced plans on Oct. 12 to raise as much as 50 billion rupees ($1.1 billion) selling new stock locally or convertible bonds overseas to help fund an expansion and repay loans. Anoop Kayarat, a spokesman for Suzlon, declined to comment before the company reports earnings results later this month.
Growth Outlook
Profits for companies making up the Sensitive Index jumped 56 percent this year to 1,027 rupees a share and are poised for the biggest annual gain since Bloomberg started compiling the data in 2000. The measure may climb to 1,176 rupees in the next 12 months, estimates compiled by Bloomberg show.
Gross domestic product in India will climb 9.7 percent this year following a 5.7 percent increase in 2009, the International Monetary Fund forecast Oct. 6.
Corporate bonds have gained, with the extra yield investors demand to hold India’s top-rated company debt over government securities falling to 65 basis points from 86 basis points, or 0.86 percentage point, at the start of the year.
India’s rupee fell 0.3 percent to 44.46 per dollar today. It gained the most in a week yesterday after the nation’s finance minister, with counterparts in the Group of 20 nations, pledged to refrain from intervening in currencies. It has climbed 4.6 percent this year against the dollar and 8 percent against the euro.
India’s 10-year bonds fell, pushing yields to a two-year high. The yield on the 7.8 percent note due May 2020 was 8.15 percent, the highest among the major emerging economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.34 percent in Russia, 3.29 percent in China and 2.55 percent in the U.S., Bloomberg data show.
The difference in yields between India’s securities due in a decade and U.S. Treasuries has widened 27 basis points this month to 560.
Microfinance warns of collapse over credit freeze
India’s microfinance industry has warned it is being pushed to the brink of collapse, as a result of a bank freeze on credit to microlenders triggered by a political crackdown.
India’s commercial banks, which normally provide about $133m a week in credit to the microloan industry, have frozen those dispersals for the past two weeks, as companies wrestle with a backlash in one of their biggest markets, the state of Andhra Pradesh.
EDITOR’S CHOICE
India eyes $11bn US fighter jets - Oct-24
India warns on damage from G20 tension - Oct-19
Lex: Indian infrastructure - Oct-07
Turning deaf ear to Mandarin no longer wise - Oct-03
Mumbai property rises above slums - Oct-03
Video: Suketu Mehta on India’s maximum city - Oct-03
Industry executives have warned that if the uncertainty does not end, and credit flows do not resume, many companies could be forced to close in the next few weeks.
“We are heading towards a financial crisis in our organisation,” one executive wrote to the Microfinance Institutions Network, which represents 44 microfinance companies. “Cash flows are getting worse day by day . . . We cannot sustain this for long. We will be dead very soon.”
India’s microfinance crisis began in Andhra Pradesh, where microlenders have about $2.7bn in outstanding loans to 6.7m borrowers. That accounts for about 30 per cent of India’s total microlending portfolio.
After a series of suicides that local politicians blamed on harassment by microfinance debt collectors, state authorities passed an emergency ordinance to crack down on the sector, including an abrupt order to suspend collections this month.
Despite a court ruling on Friday permitting companies to resume collecting operations, industry executives say they are still being obstructed by local authorities, police and political workers. Many borrowers appear to have stopped repayments in the expectation of an imminent loan waiver.
The crisis that began in Andhra Pradesh threatens to spill over to the entire sector, with other states already feeling ripples against the industry. That could trigger a wave of bank defaults nationwide and a rural liquidity squeeze.
“If credit doesn’t resume, it triggers systemic risk for the banking sector,” said Sajeev Vishwanathan, chief executive of Basix, a microfinance company. “It will be a cascading effect, starting with Andhra Pradesh and spreading.”
India’s commercial banks, including state banks, private banks such as ICICI and HDFC, and foreign banks such as Citibank and Standard Chartered, have a total exposure of about $6bn to the microfinance sector – equivalent to 20 per cent of the Reserve Bank of India’s daily interbank clearing volume.
The rapid growth of the microlending sector, which has been expanding at about 70 per cent a year for the past five years, has boosted rural liquidity, helping support a rural consumption boom that has buoyed India’s economic growth.
Kurapati Venkatnarayana, a Kakatiya University economics professor who has studied overindebtedness in Andhra Pradesh, said India’s state banks should step in to provide rural liquidity. “Now there is a credit gap,” he said. “Unless further remedial measures are taken, the crisis can deepen.”
In New Delhi, Pranab Mukherjee, the finance minister, said he had written to the chief minister of Andhra Pradesh recommending “corrections” to the ordinance.
However, he said he had no plans to introduce a separate regulator for the industry, saying the RBI was sufficiently vigilant.
“We are not currently thinking about any regulator right now,” he said. But he urged microfinance companies to avoid charging “abnormally high” interest rates or using coercive methods to ensure repayments.
India’s commercial banks, which normally provide about $133m a week in credit to the microloan industry, have frozen those dispersals for the past two weeks, as companies wrestle with a backlash in one of their biggest markets, the state of Andhra Pradesh.
EDITOR’S CHOICE
India eyes $11bn US fighter jets - Oct-24
India warns on damage from G20 tension - Oct-19
Lex: Indian infrastructure - Oct-07
Turning deaf ear to Mandarin no longer wise - Oct-03
Mumbai property rises above slums - Oct-03
Video: Suketu Mehta on India’s maximum city - Oct-03
Industry executives have warned that if the uncertainty does not end, and credit flows do not resume, many companies could be forced to close in the next few weeks.
“We are heading towards a financial crisis in our organisation,” one executive wrote to the Microfinance Institutions Network, which represents 44 microfinance companies. “Cash flows are getting worse day by day . . . We cannot sustain this for long. We will be dead very soon.”
India’s microfinance crisis began in Andhra Pradesh, where microlenders have about $2.7bn in outstanding loans to 6.7m borrowers. That accounts for about 30 per cent of India’s total microlending portfolio.
After a series of suicides that local politicians blamed on harassment by microfinance debt collectors, state authorities passed an emergency ordinance to crack down on the sector, including an abrupt order to suspend collections this month.
Despite a court ruling on Friday permitting companies to resume collecting operations, industry executives say they are still being obstructed by local authorities, police and political workers. Many borrowers appear to have stopped repayments in the expectation of an imminent loan waiver.
The crisis that began in Andhra Pradesh threatens to spill over to the entire sector, with other states already feeling ripples against the industry. That could trigger a wave of bank defaults nationwide and a rural liquidity squeeze.
“If credit doesn’t resume, it triggers systemic risk for the banking sector,” said Sajeev Vishwanathan, chief executive of Basix, a microfinance company. “It will be a cascading effect, starting with Andhra Pradesh and spreading.”
India’s commercial banks, including state banks, private banks such as ICICI and HDFC, and foreign banks such as Citibank and Standard Chartered, have a total exposure of about $6bn to the microfinance sector – equivalent to 20 per cent of the Reserve Bank of India’s daily interbank clearing volume.
The rapid growth of the microlending sector, which has been expanding at about 70 per cent a year for the past five years, has boosted rural liquidity, helping support a rural consumption boom that has buoyed India’s economic growth.
Kurapati Venkatnarayana, a Kakatiya University economics professor who has studied overindebtedness in Andhra Pradesh, said India’s state banks should step in to provide rural liquidity. “Now there is a credit gap,” he said. “Unless further remedial measures are taken, the crisis can deepen.”
In New Delhi, Pranab Mukherjee, the finance minister, said he had written to the chief minister of Andhra Pradesh recommending “corrections” to the ordinance.
However, he said he had no plans to introduce a separate regulator for the industry, saying the RBI was sufficiently vigilant.
“We are not currently thinking about any regulator right now,” he said. But he urged microfinance companies to avoid charging “abnormally high” interest rates or using coercive methods to ensure repayments.
Acne Cream? Tax-Sheltered. Breast Pump? No.
Denture wearers will get a tax break on the cost of adhesives to keep their false teeth in place. So will acne sufferers who buy pimple creams.
People whose children have severe allergies might even be allowed the break for replacing grass with artificial turf since it could be considered a medical expense.
But nursing mothers will not be allowed to use their tax-sheltered health care accounts to pay for breast pumps and other supplies.
That is because the Internal Revenue Service has ruled that breast-feeding does not have enough health benefits to quality as a form of medical care.
Those regulations are part of the health care overhaul, which takes effect in January. They affect flexible spending accounts, which allow millions of Americans to set aside part of their pretax earnings to pay for unreimbursed medical expenses.
While breast-feeding supplies weren’t allowed under the old regulations either, one major goal of the health care overhaul was to control medical costs by encouraging preventive procedures like immunizations and screenings.
Despite a growing body of research indicating that the antibodies passed from mother to child in breast milk could reduce disease among infants — including one recent study that found it could prevent the premature death of 900 babies a year — the I.R.S. has denied a request from the American Academy of Pediatrics to reclassify breast-feeding costs as a medical care expense.
In some respects, the biggest roadblock for mothers’ groups and advocates of breast-feeding is one of their central arguments: nursing a child is beneficial because it is natural.
I.R.S. officials say they consider breast milk a food that can promote good health, the same way that eating citrus fruit can prevent scurvy. But because the I.R.S. code considers nutrition a necessity rather than a medical condition, the agency’s analysts view the cost of breast pumps, bottles and pads as no more deserving of a tax break than an orange juicer.
Many mothers’ groups and medical experts say that breast milk provides nutrition and natural supplements that prevent disease, and would like to see its use expanded. Hospital accreditation groups have been prodding maternity wards to encourage parents to feed only breast milk until a child is 6 months old.
The new health law does include one breakthrough for nursing mothers, a mandate that they be permitted unpaid breaks to use breast pumps. Spurned by tax authorities, breast-feeding advocates say they will return to Congress to get a tax break, too.
“There’s been a lot of progress in the past few years making the public, the medical establishment and even Congress recognize the health benefits of breast-feeding,” said Melissa Bonghi, a lactation consultant in Bainbridge Island, Wash. “But I guess the I.R.S. will just take a little longer.”
With the new regulations set to take effect in two months, millions of American workers now in the open enrollment period at their employers have to determine whether, and how much, to set aside for 2011. More than 20 million people have flexible spending or other tax-exempt health care savings accounts, and the programs are projected to cost the federal Treasury about $3.8 billion this year and $68 billion over the next decade.
The most far-reaching change involves over-the-counter medicines. Since 2003, most of them have been eligible expenses, making flexible spending accounts so popular that some plans issued debit cards that allowed users to make purchases without having to file for reimbursement later.
As of Jan. 1, however, over-the-counter medications — including allergy remedies, cough suppressants or even pain relievers like aspirin or ibuprofen — will be eligible only if they are prescribed by a doctor. That change is so drastic that the National Association of Chain Drug Stores, which represents 37,000 pharmacies, last week asked the I.R.S. for a two-year delay in that regulation, to allow merchants to recalibrate the computer systems that determine which products are eligible for purchase with flexible spending account debit cards.
Many factors, including the length of maternity leave, affect how long a woman breast-feeds.
According to a survey by the Centers for Disease Control and Prevention, about 75 percent of the 4.3 million mothers who gave birth in 2007 started breast-feeding. By the time the baby was 6 months old, the portion dropped to 43 percent, and on the child’s first birthday, to 22 percent.
A study released this year by Harvard Medical School concluded that if 90 percent of mothers followed the standard medical advice of feeding infants only breast milk for their first six months, the United States could save $13 billion a year in health care costs and prevent the premature deaths of 900 infants each year from respiratory illness and other infections.
“The old adage that breast-feeding is a child’s first immunization really is true,” said Dr. Robert W. Block, president-elect of the American Academy of Pediatrics. “So we need to do everything we can to remove the barriers that make it difficult.”
To continue breast-feeding once they return to work, many mothers need to use pumps to extract milk, which can be chilled and bottle-fed to the child later. The cost of buying or renting a breast pump and the various accessories needed to store milk runs about $500 to $1,000 for most mothers over the course of a year, according to the United States Breastfeeding Committee, a nonprofit advocacy group. Lactation consultants, who can cost several hundred dollars, also would not be an eligible expense.
Roy Ramthun, a former Treasury Department official, said that tax officials’ reluctance to classify those costs as medical expenses stemmed from a fear that the program might be abused.
“They get very uneasy about anything that smacks of food because they fear it will open up all sorts of exceptions,” said Mr. Ramthun, who runs a consulting company that specializes in health savings accounts. “It’s a matter of cost and of protecting the integrity of the tax code.”
Bills introduced last year by Representative Carolyn B. Maloney, Democrat of New York, and Senator Jeff Merkley, Democrat of Oregon, would have allowed nursing mothers to claim the tax break. But breast-feeding advocates say that effort, like many before, was undone by economic and cultural factors.
“Everyone says they support breast-feeding, but getting businesses and Congress to act on it has been surprisingly difficult,” said Barbara Emanuel, executive director of the breast-feeding advocacy group La Leche League International. “We get resistance from the formula companies and cultural resistance, so it can be hard to get nursing mothers the support that everyone agrees they deserve.”
Unless the law changes, some mothers may ask their pediatricians for a note that breast-feeding is medically necessary in their case. Jody L. Dietel, who works for a company that processes claims from flexible spending accounts, says that many patients who receive orthodontic procedures have used such a tactic.
“Orthodontia is really so you have nice, straight teeth,” said Ms. Dietel, chief compliance officer for WageWorks. “But the doctors write notes warning that the patient’s jaw might be damaged without treatment or their overbite could cause health problems, and it becomes an eligible expense. For breast-feeding there are two components, too: nutritional and preventative medicine.”
People whose children have severe allergies might even be allowed the break for replacing grass with artificial turf since it could be considered a medical expense.
But nursing mothers will not be allowed to use their tax-sheltered health care accounts to pay for breast pumps and other supplies.
That is because the Internal Revenue Service has ruled that breast-feeding does not have enough health benefits to quality as a form of medical care.
Those regulations are part of the health care overhaul, which takes effect in January. They affect flexible spending accounts, which allow millions of Americans to set aside part of their pretax earnings to pay for unreimbursed medical expenses.
While breast-feeding supplies weren’t allowed under the old regulations either, one major goal of the health care overhaul was to control medical costs by encouraging preventive procedures like immunizations and screenings.
Despite a growing body of research indicating that the antibodies passed from mother to child in breast milk could reduce disease among infants — including one recent study that found it could prevent the premature death of 900 babies a year — the I.R.S. has denied a request from the American Academy of Pediatrics to reclassify breast-feeding costs as a medical care expense.
In some respects, the biggest roadblock for mothers’ groups and advocates of breast-feeding is one of their central arguments: nursing a child is beneficial because it is natural.
I.R.S. officials say they consider breast milk a food that can promote good health, the same way that eating citrus fruit can prevent scurvy. But because the I.R.S. code considers nutrition a necessity rather than a medical condition, the agency’s analysts view the cost of breast pumps, bottles and pads as no more deserving of a tax break than an orange juicer.
Many mothers’ groups and medical experts say that breast milk provides nutrition and natural supplements that prevent disease, and would like to see its use expanded. Hospital accreditation groups have been prodding maternity wards to encourage parents to feed only breast milk until a child is 6 months old.
The new health law does include one breakthrough for nursing mothers, a mandate that they be permitted unpaid breaks to use breast pumps. Spurned by tax authorities, breast-feeding advocates say they will return to Congress to get a tax break, too.
“There’s been a lot of progress in the past few years making the public, the medical establishment and even Congress recognize the health benefits of breast-feeding,” said Melissa Bonghi, a lactation consultant in Bainbridge Island, Wash. “But I guess the I.R.S. will just take a little longer.”
With the new regulations set to take effect in two months, millions of American workers now in the open enrollment period at their employers have to determine whether, and how much, to set aside for 2011. More than 20 million people have flexible spending or other tax-exempt health care savings accounts, and the programs are projected to cost the federal Treasury about $3.8 billion this year and $68 billion over the next decade.
The most far-reaching change involves over-the-counter medicines. Since 2003, most of them have been eligible expenses, making flexible spending accounts so popular that some plans issued debit cards that allowed users to make purchases without having to file for reimbursement later.
As of Jan. 1, however, over-the-counter medications — including allergy remedies, cough suppressants or even pain relievers like aspirin or ibuprofen — will be eligible only if they are prescribed by a doctor. That change is so drastic that the National Association of Chain Drug Stores, which represents 37,000 pharmacies, last week asked the I.R.S. for a two-year delay in that regulation, to allow merchants to recalibrate the computer systems that determine which products are eligible for purchase with flexible spending account debit cards.
Many factors, including the length of maternity leave, affect how long a woman breast-feeds.
According to a survey by the Centers for Disease Control and Prevention, about 75 percent of the 4.3 million mothers who gave birth in 2007 started breast-feeding. By the time the baby was 6 months old, the portion dropped to 43 percent, and on the child’s first birthday, to 22 percent.
A study released this year by Harvard Medical School concluded that if 90 percent of mothers followed the standard medical advice of feeding infants only breast milk for their first six months, the United States could save $13 billion a year in health care costs and prevent the premature deaths of 900 infants each year from respiratory illness and other infections.
“The old adage that breast-feeding is a child’s first immunization really is true,” said Dr. Robert W. Block, president-elect of the American Academy of Pediatrics. “So we need to do everything we can to remove the barriers that make it difficult.”
To continue breast-feeding once they return to work, many mothers need to use pumps to extract milk, which can be chilled and bottle-fed to the child later. The cost of buying or renting a breast pump and the various accessories needed to store milk runs about $500 to $1,000 for most mothers over the course of a year, according to the United States Breastfeeding Committee, a nonprofit advocacy group. Lactation consultants, who can cost several hundred dollars, also would not be an eligible expense.
Roy Ramthun, a former Treasury Department official, said that tax officials’ reluctance to classify those costs as medical expenses stemmed from a fear that the program might be abused.
“They get very uneasy about anything that smacks of food because they fear it will open up all sorts of exceptions,” said Mr. Ramthun, who runs a consulting company that specializes in health savings accounts. “It’s a matter of cost and of protecting the integrity of the tax code.”
Bills introduced last year by Representative Carolyn B. Maloney, Democrat of New York, and Senator Jeff Merkley, Democrat of Oregon, would have allowed nursing mothers to claim the tax break. But breast-feeding advocates say that effort, like many before, was undone by economic and cultural factors.
“Everyone says they support breast-feeding, but getting businesses and Congress to act on it has been surprisingly difficult,” said Barbara Emanuel, executive director of the breast-feeding advocacy group La Leche League International. “We get resistance from the formula companies and cultural resistance, so it can be hard to get nursing mothers the support that everyone agrees they deserve.”
Unless the law changes, some mothers may ask their pediatricians for a note that breast-feeding is medically necessary in their case. Jody L. Dietel, who works for a company that processes claims from flexible spending accounts, says that many patients who receive orthodontic procedures have used such a tactic.
“Orthodontia is really so you have nice, straight teeth,” said Ms. Dietel, chief compliance officer for WageWorks. “But the doctors write notes warning that the patient’s jaw might be damaged without treatment or their overbite could cause health problems, and it becomes an eligible expense. For breast-feeding there are two components, too: nutritional and preventative medicine.”
BT Said to Consider Tech Mahindra Stake Sale in Indian Market
BT Group Plc, Britain’s largest phone company, may reduce its 30 percent stake in India’s Tech Mahindra Ltd. by selling shares through the stock market, according to three people with direct knowledge of the matter.
BT may also seek to sell about 7 percent to Mahindra & Mahindra Ltd., which owns 42.8 percent of the Indian software services provider, according to two of the people, who declined to be identified before a public announcement. Tech Mahindra has slumped 21 percent this year, valuing BT’s stake at about 29.7 billion rupees ($668 million).
“Investors are concerned BT needs the cash to pay the dividend on top of the possible pension costs,” said James Crawshaw, an analyst at Standard & Poor’s in London. He said the stake is worth about 5 pence per BT share.
BT Chief Executive Officer Ian Livingston said in May the company was reviewing options for its stake in the Indian software provider. The London-based company has reduced its holding in the venture following a share sale in 2006.
Dan Thomas, a spokesman for BT, said the company doesn’t comment on rumor and speculation. Prasenjit Roy, head of corporate communications at Pune-based Tech Mahindra, also declined to comment on market speculation. Bharat Doshi, chief financial officer of Mumbai-based Mahindra & Mahindra, didn’t answer calls to his mobile phone or respond to an e-mail.
BT shares rose 0.3 percent to 156.5 pence in London trading.
Recovery Plan
BT has appointed Credit Suisse Group AG to manage the sale, the people said. Adam Harper, a Hong Kong-based spokesman at Credit Suisse, declined to comment.
The phone company is waiting for the U.K. pension regulator to review its recovery plan after the watchdog said in February it had “substantial concerns” on an agreement with the trustee of the BT pension program. The pension plan is the U.K.’s largest, and was 7.6 billion pounds ($12 billion) in deficit at the end of last year.
BT has also been in talks with private equity investors, three other people said, without naming the potential buyers. The stake has garnered interest from Providence Equity Partners LLC, Apax Partners LLP and Goldman Sachs Private Equity Group, the Economic Times reported on Oct. 5, citing two unidentified people with knowledge of the talks.
Biswajit A. Subramanian, managing director of Providence Equity in New Delhi, didn’t immediately respond to an e-mail and phone call to his office. Ben Harding, a spokesman for Apax Partners in London, said the fund doesn’t comment on speculation regarding potential investments. Edward Naylor, a spokesman for Goldman Sachs in Hong Kong, declined to comment.
BT may also seek to sell about 7 percent to Mahindra & Mahindra Ltd., which owns 42.8 percent of the Indian software services provider, according to two of the people, who declined to be identified before a public announcement. Tech Mahindra has slumped 21 percent this year, valuing BT’s stake at about 29.7 billion rupees ($668 million).
“Investors are concerned BT needs the cash to pay the dividend on top of the possible pension costs,” said James Crawshaw, an analyst at Standard & Poor’s in London. He said the stake is worth about 5 pence per BT share.
BT Chief Executive Officer Ian Livingston said in May the company was reviewing options for its stake in the Indian software provider. The London-based company has reduced its holding in the venture following a share sale in 2006.
Dan Thomas, a spokesman for BT, said the company doesn’t comment on rumor and speculation. Prasenjit Roy, head of corporate communications at Pune-based Tech Mahindra, also declined to comment on market speculation. Bharat Doshi, chief financial officer of Mumbai-based Mahindra & Mahindra, didn’t answer calls to his mobile phone or respond to an e-mail.
BT shares rose 0.3 percent to 156.5 pence in London trading.
Recovery Plan
BT has appointed Credit Suisse Group AG to manage the sale, the people said. Adam Harper, a Hong Kong-based spokesman at Credit Suisse, declined to comment.
The phone company is waiting for the U.K. pension regulator to review its recovery plan after the watchdog said in February it had “substantial concerns” on an agreement with the trustee of the BT pension program. The pension plan is the U.K.’s largest, and was 7.6 billion pounds ($12 billion) in deficit at the end of last year.
BT has also been in talks with private equity investors, three other people said, without naming the potential buyers. The stake has garnered interest from Providence Equity Partners LLC, Apax Partners LLP and Goldman Sachs Private Equity Group, the Economic Times reported on Oct. 5, citing two unidentified people with knowledge of the talks.
Biswajit A. Subramanian, managing director of Providence Equity in New Delhi, didn’t immediately respond to an e-mail and phone call to his office. Ben Harding, a spokesman for Apax Partners in London, said the fund doesn’t comment on speculation regarding potential investments. Edward Naylor, a spokesman for Goldman Sachs in Hong Kong, declined to comment.
Sunday, October 24, 2010
India eyes $11bn US fighter jets
India will turn increasingly to US defence products to secure its borders and wider interests, top Indian officials have said ahead of a visit by Barack Obama, US president, next month.
The desire for a closer defence partnership comes as New Delhi considers an $11bn deal to buy 126 multi-role combat fighter jets to rearm India’s out-of-date air force and boost defence capabilities against Pakistan and China.
Lockheed Martin and Boeing are among six foreign companies competing for the sale.
India is one of the world’s largest arms bazaars with a military budget of Rs1,420bn ($32bn). Mr Obama’s visit will be followed this year by those of Nicolas Sarkozy, France’s president, and Demetri Medvedev, Russia’s prime minister. Both would like to supply India.
The Indian army is the third largest in the world, with 1.1m soldiers in active service. India ranks third after Russia and China as one of the fastest growing defence spenders.
Top Indian officials say defence co-operation and the purchase of equipment is a key part of the strategic dialogue between New Delhi and Washington. They say their potential purchase of military equipment from the US is important for the American economy at a time when the administration needs to create jobs to overcome an unemployment crisis.
However, people familiar with the bidding process for the fighter jets say any decision is unlikely until mid-2011 and will in large part depend on sealed bids by the defence groups that will determine the price of any transaction.
In addition, the attractiveness of the US offers could be affected by India’s reluctance to sign technical agreements with the US that would allow transfer of navigation and targeting technology.
Some Indian officials have expressed misgivings about acquiring equipment that is “interoperable” with the US, for fear of aligning New Delhi too closely with Washington.
US defence sales to India have risen steadily, with Robert Gates, defence secretary, saying India’s decisions concern not just equipment but relations between the two countries.
Mr Obama is expected to conclude a deal to buy 10 C-17 transport aircraft from Boeing as part of a package worth as much as $3.5bn.
Last year, India agreed to buy eight long-range maritime reconnaissance aircraft from Boeing, its largest acquisition of military hardware from the US. The $2.1bn purchase of P-81 Poseidon aircraft highlighted the possibilities opened up by a civil nuclear deal that ended a cold war-era stand-off.
The desire for a closer defence partnership comes as New Delhi considers an $11bn deal to buy 126 multi-role combat fighter jets to rearm India’s out-of-date air force and boost defence capabilities against Pakistan and China.
Lockheed Martin and Boeing are among six foreign companies competing for the sale.
India is one of the world’s largest arms bazaars with a military budget of Rs1,420bn ($32bn). Mr Obama’s visit will be followed this year by those of Nicolas Sarkozy, France’s president, and Demetri Medvedev, Russia’s prime minister. Both would like to supply India.
The Indian army is the third largest in the world, with 1.1m soldiers in active service. India ranks third after Russia and China as one of the fastest growing defence spenders.
Top Indian officials say defence co-operation and the purchase of equipment is a key part of the strategic dialogue between New Delhi and Washington. They say their potential purchase of military equipment from the US is important for the American economy at a time when the administration needs to create jobs to overcome an unemployment crisis.
However, people familiar with the bidding process for the fighter jets say any decision is unlikely until mid-2011 and will in large part depend on sealed bids by the defence groups that will determine the price of any transaction.
In addition, the attractiveness of the US offers could be affected by India’s reluctance to sign technical agreements with the US that would allow transfer of navigation and targeting technology.
Some Indian officials have expressed misgivings about acquiring equipment that is “interoperable” with the US, for fear of aligning New Delhi too closely with Washington.
US defence sales to India have risen steadily, with Robert Gates, defence secretary, saying India’s decisions concern not just equipment but relations between the two countries.
Mr Obama is expected to conclude a deal to buy 10 C-17 transport aircraft from Boeing as part of a package worth as much as $3.5bn.
Last year, India agreed to buy eight long-range maritime reconnaissance aircraft from Boeing, its largest acquisition of military hardware from the US. The $2.1bn purchase of P-81 Poseidon aircraft highlighted the possibilities opened up by a civil nuclear deal that ended a cold war-era stand-off.
G-20 to Avoid `Competitive Devaluation,' Prod China
Group of 20 finance ministers and central bankers vowed to avoid weakening currencies to lift exports, leaving leaders to flesh out new ways of prodding fellow member China to allow faster gains in the yuan.
Officials ended talks in South Korea on Oct. 23 pledging to refrain from “competitive devaluation” and to let markets set foreign-exchange values more as they sought to calm fears that they risk a trade war by using cheaper currencies to spur growth. They called for more sustainable current-account gaps without embracing a U.S. proposal for targets, an initiative aimed at making a yuan advance more palatable to China.
The task of finding a broader agreement now falls to next month’s Seoul summit of leaders as strategists from UBS AG to Westpac Banking Corp. said the decisions taken in Gyeongju were unlikely to mark an end to the dollar’s recent slide or trigger a quicker rise in the yuan. The immediate direction of markets will likely be driven by next week’s Federal Reserve meeting as Chairman Ben S. Bernanke signals it may buy more assets.
“Tensions may be reduced in the short term, but in the longer term there are still imbalances,” said Mansoor Mohi- uddin, the Singapore-based head of global currency strategy at UBS. The second biggest currency trader expects the yuan to reach 6.55 per dollar by the end of the year from 6.66 last week. “The focus will shift to the Fed’s quantitative easing for the dollar. The yuan will continue a modest appreciation.”
U.S. Treasury Secretary Timothy F. Geithner said in an interview he’s optimistic that China will “continue to move” on the yuan.
‘Fragile’ Recovery
The G-20 called the economic recovery “fragile and uneven.” To increase the say of developing nations in the International Monetary Fund’s decisions, the G-20 endorsed what IMF Managing Director Dominique Strauss-Kahn called the “biggest reform ever” of its governance with European authorities agreeing to cut their role.
It was the first time the economic policy makers took a joint stance on exchange rates having previously resisted doing so for fear of alienating China. The G-20 statement still recycles language used at previous leaders’ summits in London and Toronto and falls short of the currency accords of the 1980s.
“I don’t see anything that’s going to discourage people from resuming selling dollars and buying currencies that look to be undervalued,” said Sean Callow, a senior currency strategist at Westpac in Sydney.
Export Concerns
The officials met as China’s restraint of the yuan and the U.S. dollar’s recent drop force trading partners including South Korea and Brazil to temper gains in their own floating currencies to remain competitive.
Geithner predicted China will allow the yuan to appreciate more because officials there understand it’s in the long-term interest of domestic growth and global economic stability.
“They recognize it’s important to the world,” he said in an interview on Oct. 23 with Bloomberg Television. As China’s currency stance affects more countries, “China recognizes that, and I think we’re going to see them continue to move.”
David Bloom, global head of currency strategy at HSBC Holdings Plc in London, nevertheless predicted “the ‘currency war’ will persist at least through” to the Seoul meeting. That may spark a dollar rally because ongoing frictions and the threat they prompt greater capital controls and protectionism may deter investors from riskier exchange rates, he said.
Japanese Finance Minister Yoshihiko Noda reiterated that the G-20 meeting didn’t prompt any change in Japan’s currency policy, saying it stands ready to counter a rise in the yen if needed. The U.S. Federal Reserve also came under fire. Bernanke received “criticism” from within the group after his move toward easier monetary policy pushed the dollar down, German Economy Minister Rainer Bruederle said.
Bernanke Criticism
“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle said. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”
To dilute the focus of such gatherings on currencies and help rebalance the world economy away from excess U.S. demand and Chinese savings, Geithner suggested goals for current- account deficits or surpluses. While South Korea and Canada back the strategy, it was challenged by major exporters Germany and Japan.
The group will adopt “the full range of policies conducive to reducing excessive imbalances” and making them sustainable, the statement said. The IMF will deepen its monitoring of currencies and continuously wide trade deficits.
The G-20 members will expand details by the Seoul forum, a U.S. official said. AlthoughNoda said Geithner wanted a 4 percent cap on trade imbalances, the official said the U.S. doesn’t expect a fixed target and may instead push for a range aimed at delivering sustainable trade positions by 2015.
Trade Imbalances
“We’re going to make it easier to sustain support in all countries for more open trade by making sure that we address the risk of persistently large trade imbalances,” Geithner said.
Bundesbank President Axel Weber, who also attended the G-20 talks, said Germany shouldn’t be blamed for having a current- account surplus. Germany is four times more reliant on exports than the U.S.
A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting.
Surpluses, Deficits
Saudi Arabia, Germany, Russia and China all have surpluses larger than 4 percent, while Turkey and South Africa have deficits bigger than that, according to the IMF.
Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption. At the same time, the Fed has sent the dollar tumbling by leaning toward buying more assets to tackle unemployment near a 26-year high and weak inflation.
Caught in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and slow the inflow of speculative cash. South Korea is discussing several measures including a bank tax or levy on financial transactions, and Brazil last week raised taxes on foreign capital for the second time this month.
U.S. Dollar
To appease critics, advanced economies agreed to be “vigilant against excess volatility and disorderly movements in exchange rates,” the G-20 said. Geithner said the U.S. backs a “strong dollar” and recognizes its global responsibility.
At the IMF, Europe will surrender two seats on the 24- member executive board and more than 6 percent of so-called quotas will pass to under-represented countries. Quotas determine an IMF member’s voting rights, financial commitment and access to loans. As part of this process, G-20 officials also agreed to double the IMF’s permanent resources.
For all the complaints it faces, China let the yuan gain the most versus the dollar since 2005 in September and by more than 20 percent in the last five years. The Bloomberg-JPMorgan Chase & Co. Asia Currency Index is up about 3 percent since August.
Such advances are likely to continue because “many key interests seem to be aligned,” Thomas Stolper, an economist at Goldman Sachs Group Inc. in London, said in an Oct. 22 report. The U.S. needs a lower currency to help create jobs and the alternative is even more Fed stimulus, which will end up propelling more capital into Asia, he said.
U.S. companies from Costco Wholesale Corp. to Deere & Co. have credited the weaker dollar for boosting earnings. Standard & Poor’s 500 Index firms that get more than half of their revenue internationally have returned about 5.5 percentage points more than those whose sales comes mostly from the U.S. since the start of September, according to data compiled by Bloomberg.
“Once the fact has been accepted that the dollar has to weaken because there are no real alternatives it is all about managing the process on a global scale,” Stolper said.
Officials ended talks in South Korea on Oct. 23 pledging to refrain from “competitive devaluation” and to let markets set foreign-exchange values more as they sought to calm fears that they risk a trade war by using cheaper currencies to spur growth. They called for more sustainable current-account gaps without embracing a U.S. proposal for targets, an initiative aimed at making a yuan advance more palatable to China.
The task of finding a broader agreement now falls to next month’s Seoul summit of leaders as strategists from UBS AG to Westpac Banking Corp. said the decisions taken in Gyeongju were unlikely to mark an end to the dollar’s recent slide or trigger a quicker rise in the yuan. The immediate direction of markets will likely be driven by next week’s Federal Reserve meeting as Chairman Ben S. Bernanke signals it may buy more assets.
“Tensions may be reduced in the short term, but in the longer term there are still imbalances,” said Mansoor Mohi- uddin, the Singapore-based head of global currency strategy at UBS. The second biggest currency trader expects the yuan to reach 6.55 per dollar by the end of the year from 6.66 last week. “The focus will shift to the Fed’s quantitative easing for the dollar. The yuan will continue a modest appreciation.”
U.S. Treasury Secretary Timothy F. Geithner said in an interview he’s optimistic that China will “continue to move” on the yuan.
‘Fragile’ Recovery
The G-20 called the economic recovery “fragile and uneven.” To increase the say of developing nations in the International Monetary Fund’s decisions, the G-20 endorsed what IMF Managing Director Dominique Strauss-Kahn called the “biggest reform ever” of its governance with European authorities agreeing to cut their role.
It was the first time the economic policy makers took a joint stance on exchange rates having previously resisted doing so for fear of alienating China. The G-20 statement still recycles language used at previous leaders’ summits in London and Toronto and falls short of the currency accords of the 1980s.
“I don’t see anything that’s going to discourage people from resuming selling dollars and buying currencies that look to be undervalued,” said Sean Callow, a senior currency strategist at Westpac in Sydney.
Export Concerns
The officials met as China’s restraint of the yuan and the U.S. dollar’s recent drop force trading partners including South Korea and Brazil to temper gains in their own floating currencies to remain competitive.
Geithner predicted China will allow the yuan to appreciate more because officials there understand it’s in the long-term interest of domestic growth and global economic stability.
“They recognize it’s important to the world,” he said in an interview on Oct. 23 with Bloomberg Television. As China’s currency stance affects more countries, “China recognizes that, and I think we’re going to see them continue to move.”
David Bloom, global head of currency strategy at HSBC Holdings Plc in London, nevertheless predicted “the ‘currency war’ will persist at least through” to the Seoul meeting. That may spark a dollar rally because ongoing frictions and the threat they prompt greater capital controls and protectionism may deter investors from riskier exchange rates, he said.
Japanese Finance Minister Yoshihiko Noda reiterated that the G-20 meeting didn’t prompt any change in Japan’s currency policy, saying it stands ready to counter a rise in the yen if needed. The U.S. Federal Reserve also came under fire. Bernanke received “criticism” from within the group after his move toward easier monetary policy pushed the dollar down, German Economy Minister Rainer Bruederle said.
Bernanke Criticism
“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle said. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”
To dilute the focus of such gatherings on currencies and help rebalance the world economy away from excess U.S. demand and Chinese savings, Geithner suggested goals for current- account deficits or surpluses. While South Korea and Canada back the strategy, it was challenged by major exporters Germany and Japan.
The group will adopt “the full range of policies conducive to reducing excessive imbalances” and making them sustainable, the statement said. The IMF will deepen its monitoring of currencies and continuously wide trade deficits.
The G-20 members will expand details by the Seoul forum, a U.S. official said. AlthoughNoda said Geithner wanted a 4 percent cap on trade imbalances, the official said the U.S. doesn’t expect a fixed target and may instead push for a range aimed at delivering sustainable trade positions by 2015.
Trade Imbalances
“We’re going to make it easier to sustain support in all countries for more open trade by making sure that we address the risk of persistently large trade imbalances,” Geithner said.
Bundesbank President Axel Weber, who also attended the G-20 talks, said Germany shouldn’t be blamed for having a current- account surplus. Germany is four times more reliant on exports than the U.S.
A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting.
Surpluses, Deficits
Saudi Arabia, Germany, Russia and China all have surpluses larger than 4 percent, while Turkey and South Africa have deficits bigger than that, according to the IMF.
Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption. At the same time, the Fed has sent the dollar tumbling by leaning toward buying more assets to tackle unemployment near a 26-year high and weak inflation.
Caught in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and slow the inflow of speculative cash. South Korea is discussing several measures including a bank tax or levy on financial transactions, and Brazil last week raised taxes on foreign capital for the second time this month.
U.S. Dollar
To appease critics, advanced economies agreed to be “vigilant against excess volatility and disorderly movements in exchange rates,” the G-20 said. Geithner said the U.S. backs a “strong dollar” and recognizes its global responsibility.
At the IMF, Europe will surrender two seats on the 24- member executive board and more than 6 percent of so-called quotas will pass to under-represented countries. Quotas determine an IMF member’s voting rights, financial commitment and access to loans. As part of this process, G-20 officials also agreed to double the IMF’s permanent resources.
For all the complaints it faces, China let the yuan gain the most versus the dollar since 2005 in September and by more than 20 percent in the last five years. The Bloomberg-JPMorgan Chase & Co. Asia Currency Index is up about 3 percent since August.
Such advances are likely to continue because “many key interests seem to be aligned,” Thomas Stolper, an economist at Goldman Sachs Group Inc. in London, said in an Oct. 22 report. The U.S. needs a lower currency to help create jobs and the alternative is even more Fed stimulus, which will end up propelling more capital into Asia, he said.
U.S. companies from Costco Wholesale Corp. to Deere & Co. have credited the weaker dollar for boosting earnings. Standard & Poor’s 500 Index firms that get more than half of their revenue internationally have returned about 5.5 percentage points more than those whose sales comes mostly from the U.S. since the start of September, according to data compiled by Bloomberg.
“Once the fact has been accepted that the dollar has to weaken because there are no real alternatives it is all about managing the process on a global scale,” Stolper said.
India's Stock Market to Gain From `Wealth Transfer,' Reliance Capital Says
India’s stocks, the best performers among the world’s 10 biggest markets, will extend gains amid the “biggest wealth transfer” from developed-nation equities, according to the country’s largest money manager said.
The Group of Seven nations will generate less than 50 percent of the world’s economy by 2012, from about 70 percent in the mid-1980s, based on International Monetary Fund data compiled by Bloomberg. Overseas investment into Indian stocks increased 68 percent this year to a record, according to the market regulator, helping to drive the 15 percent rally in the Bombay Stock Exchange’s Sensitive Index or Sensex.
“The Indian economy is going to quadruple in the next 10 to 12 years and money will find its way” in the “biggest wealth transfer in history,” said Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., which manages $32 billion in assets. “You have one block that is growing at 6 percent with an appreciating currency and the other struggling to grow at 2 percent with a depreciating currency.”
Emerging-market stock mutual funds attracted more than $60 billion this year as benchmark interest rates near zero percent in the U.S. and Japan lifted demand for higher-yielding assets, data compiled by Cambridge, Massachusetts-based research firm EPFR Global show. U.S. stock funds had outflows of $71 billion, according to Investment Company Institute data.
‘Younger Generation’
“Demographics are in favor of India,” Singhania, 43, whose Reliance Growth Fund is India’s best performer over the past decade, said in an interview in Goa, India on Oct. 23. “Whenever a person ages, the business and wealth gets transferred to the younger generation. If you take the world as a family, the same thing is going to happen.”
Developing nations will expand 6.4 percent next year as advanced countries grow 2.2 percent, according to forecasts this month from the Washington-based International Monetary Fund. India’s gross domestic product expanded 8.8 percent in the quarter ended June, Brazil grew 9 percent in the first quarter, the fastest pace in 15 years, while China expanded 9.6 percent in the third quarter.
The U.S., the world’s biggest economy, makes up 29 percent of the global stock market capitalization and has gained 5 percent this year, according to data compiled by Bloomberg. The BRIC nations, which include Brazil, Russia, India and China, account for about 15 percent of the world’s $49.6 trillion market value. India’s capitalization increased 26 percent, while China climbed 12 percent this year, the data showed.
Valuations
The rally drove the Sensex’s valuations to 19.1 times estimated earnings, the most expensive in Asia and among the world’s 20 largest markets, data compiled by Bloomberg show.
The Indian market is “relatively expensive” based on estimated earnings, Mark Mobius, who oversees about $34 billion as executive chairman of Templeton Asset Management Ltd., said on Sept. 29 in Istanbul. Billionaire investor Rakesh Jhunjhunwala, named by Forbes magazine as the Warren Buffett of India, said last month he’s “cautious” on the Indian market in the short term, though he still expects a “multiyear” rally.
For Reliance’s Singhania, the returns from equities reflect the nation’s earnings growth of at least 15 percent per annum over the next few years.
“For a one-month investor, the valuations are not cheap,” Singhania said. “If you look from a global investor’s perspective, who wants to invest in India for four or five years, we don’t think the valuations are too expensive. India is commanding a premium for growth and a strong domestic economy.”
Reliance is betting on shares of drugmakers, capital goods and infrastructure companies to beat the benchmark indexes, declining to name specific shares. Indian drugmakers will gain as more overseas companies outsource manufacturing. His biggest fund holds shares of Lupin Ltd. and Divi’s Laboratories Ltd., according to data compiled by Bloomberg.
“Global investors are feeling that if something untoward were to happen to the global economy, India would still stand out,” said Singhania, whose company also manages $500 million for foreign funds. “We have performed even in the worst financial crisis.”
The Group of Seven nations will generate less than 50 percent of the world’s economy by 2012, from about 70 percent in the mid-1980s, based on International Monetary Fund data compiled by Bloomberg. Overseas investment into Indian stocks increased 68 percent this year to a record, according to the market regulator, helping to drive the 15 percent rally in the Bombay Stock Exchange’s Sensitive Index or Sensex.
“The Indian economy is going to quadruple in the next 10 to 12 years and money will find its way” in the “biggest wealth transfer in history,” said Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., which manages $32 billion in assets. “You have one block that is growing at 6 percent with an appreciating currency and the other struggling to grow at 2 percent with a depreciating currency.”
Emerging-market stock mutual funds attracted more than $60 billion this year as benchmark interest rates near zero percent in the U.S. and Japan lifted demand for higher-yielding assets, data compiled by Cambridge, Massachusetts-based research firm EPFR Global show. U.S. stock funds had outflows of $71 billion, according to Investment Company Institute data.
‘Younger Generation’
“Demographics are in favor of India,” Singhania, 43, whose Reliance Growth Fund is India’s best performer over the past decade, said in an interview in Goa, India on Oct. 23. “Whenever a person ages, the business and wealth gets transferred to the younger generation. If you take the world as a family, the same thing is going to happen.”
Developing nations will expand 6.4 percent next year as advanced countries grow 2.2 percent, according to forecasts this month from the Washington-based International Monetary Fund. India’s gross domestic product expanded 8.8 percent in the quarter ended June, Brazil grew 9 percent in the first quarter, the fastest pace in 15 years, while China expanded 9.6 percent in the third quarter.
The U.S., the world’s biggest economy, makes up 29 percent of the global stock market capitalization and has gained 5 percent this year, according to data compiled by Bloomberg. The BRIC nations, which include Brazil, Russia, India and China, account for about 15 percent of the world’s $49.6 trillion market value. India’s capitalization increased 26 percent, while China climbed 12 percent this year, the data showed.
Valuations
The rally drove the Sensex’s valuations to 19.1 times estimated earnings, the most expensive in Asia and among the world’s 20 largest markets, data compiled by Bloomberg show.
The Indian market is “relatively expensive” based on estimated earnings, Mark Mobius, who oversees about $34 billion as executive chairman of Templeton Asset Management Ltd., said on Sept. 29 in Istanbul. Billionaire investor Rakesh Jhunjhunwala, named by Forbes magazine as the Warren Buffett of India, said last month he’s “cautious” on the Indian market in the short term, though he still expects a “multiyear” rally.
For Reliance’s Singhania, the returns from equities reflect the nation’s earnings growth of at least 15 percent per annum over the next few years.
“For a one-month investor, the valuations are not cheap,” Singhania said. “If you look from a global investor’s perspective, who wants to invest in India for four or five years, we don’t think the valuations are too expensive. India is commanding a premium for growth and a strong domestic economy.”
Reliance is betting on shares of drugmakers, capital goods and infrastructure companies to beat the benchmark indexes, declining to name specific shares. Indian drugmakers will gain as more overseas companies outsource manufacturing. His biggest fund holds shares of Lupin Ltd. and Divi’s Laboratories Ltd., according to data compiled by Bloomberg.
“Global investors are feeling that if something untoward were to happen to the global economy, India would still stand out,” said Singhania, whose company also manages $500 million for foreign funds. “We have performed even in the worst financial crisis.”
I.M.F. Gains Sway, but Its Authority Is Uncertain
WASHINGTON — Can the International Monetary Fund achieve what seems like a mission impossible: bridge the increasingly tense currency and trade disputes that threaten to set back the uneven global recovery?
That is what leaders of the world’s largest countries are hoping, even though a number of international economists are skeptical.
A weekend gathering in South Korea of officials from the Group of 20 economic powers ended Saturday with a collective vow to avoid a foreign-exchange war. But they failed to agree on an American proposal to set a numerical limit on the trade imbalances that have been identified as a source of global economic instability.
So G-20 officials, including the United States Treasury secretary, Timothy F. Geithner, instead decided to strengthen the I.M.F.’s nascent, but largely untested, role as the arbiter of international economic frictions.
Keeping its 187 members in line has not always come naturally to the I.M.F. It is best known for bailing out fiscally stricken nations, giving political cover to — and taking political heat for — debt-burdened governments as they cut spending, raise taxes and restructure their balance sheets.
But its longstanding role as a monitor of fiscal and monetary policies is taking on new emphasis.
To support that expanded monitoring, the G-20 officials agreed on a huge increase in the fund’s resources; a historic shift in voting power toward fast-growing emerging markets and away from the richest nations; and a stronger mandate for the fund to monitor — and criticize, when necessary — the policies of its members.
Whether the I.M.F. is up to the task of policing its members and exerting influence on the most powerful ones remains far from clear.
“At present, there is no effective international umpire who can call a foul on countries for their policies,” said Eswar S. Prasad, a former I.M.F. economist who now teaches trade policy at Cornell. “The I.M.F. can say its piece, but is ineffectual when it comes to influencing the large economies.”
Even the I.M.F. is aware of its own limitations. While Dominique Strauss-Kahn, the fund’s managing director, lauded what he called “the most important reform in the governance of the institution since its creation,” he acknowledged the magnitude of the challenge.
“The I.M.F. is a multilateral institution, but we don’t have real teeth,” Mr. Strauss-Kahn said on Saturday at the close of a two-day meeting of G-20 finance ministers and central bankers in Gyeongju, South Korea. “We cannot oblige a country to do something, but what we can do is to notice that a country has a commitment and fulfills, or not, a commitment.”
He added, “To be able to say to a country publicly, ‘What you’re doing is wrong,’ we probably need to extend the mandate of the I.M.F.”
For the United States, which helped create the I.M.F. in 1944 as part of the Bretton Woods system of managing global economic relations, the new reliance on the I.M.F. stems from a recognition that it cannot unilaterally compel China, now the world’s second-largest economy, to do what it wants. The United States for months has been pressing China to let its currency rise in value and realign its economy, away from a dependence on exports and toward domestic consumption.
“The I.M.F. has to play cop; that’s what it exists to do,” Mr. Geithner told Bloomberg Television on Saturday. “No country can be the independent, unilateral arbiter of exchange-rate misalignments. And no country can, on its own, figure out how best to reduce a persistently large imbalance. It requires cooperation.”
The I.M.F. said it realized that addressing the currency issues was a priority.
“The main threat to this recovery would be to enter an endless fight on current account surpluses and exchange rates,” Mr. Strauss-Kahn said Saturday. “I don’t like to use the term ‘war,’ because it has been too much used, but let’s say a confrontation.”
Germany, an export powerhouse, resisted Mr. Geithner’s proposal that G-20 countries aim to limit the surplus or deficit on their current account — the broadest measure of a nation’s trade and investment — to no more than 4 percent of gross domestic product. (Germany has a projected current account surplus of 6.1 percent this year, compared with a 4.7 percent surplus for China and a 3.2 percent deficit for the United States.) But the Germans and Americans were on the same page regarding the I.M.F.
That is what leaders of the world’s largest countries are hoping, even though a number of international economists are skeptical.
A weekend gathering in South Korea of officials from the Group of 20 economic powers ended Saturday with a collective vow to avoid a foreign-exchange war. But they failed to agree on an American proposal to set a numerical limit on the trade imbalances that have been identified as a source of global economic instability.
So G-20 officials, including the United States Treasury secretary, Timothy F. Geithner, instead decided to strengthen the I.M.F.’s nascent, but largely untested, role as the arbiter of international economic frictions.
Keeping its 187 members in line has not always come naturally to the I.M.F. It is best known for bailing out fiscally stricken nations, giving political cover to — and taking political heat for — debt-burdened governments as they cut spending, raise taxes and restructure their balance sheets.
But its longstanding role as a monitor of fiscal and monetary policies is taking on new emphasis.
To support that expanded monitoring, the G-20 officials agreed on a huge increase in the fund’s resources; a historic shift in voting power toward fast-growing emerging markets and away from the richest nations; and a stronger mandate for the fund to monitor — and criticize, when necessary — the policies of its members.
Whether the I.M.F. is up to the task of policing its members and exerting influence on the most powerful ones remains far from clear.
“At present, there is no effective international umpire who can call a foul on countries for their policies,” said Eswar S. Prasad, a former I.M.F. economist who now teaches trade policy at Cornell. “The I.M.F. can say its piece, but is ineffectual when it comes to influencing the large economies.”
Even the I.M.F. is aware of its own limitations. While Dominique Strauss-Kahn, the fund’s managing director, lauded what he called “the most important reform in the governance of the institution since its creation,” he acknowledged the magnitude of the challenge.
“The I.M.F. is a multilateral institution, but we don’t have real teeth,” Mr. Strauss-Kahn said on Saturday at the close of a two-day meeting of G-20 finance ministers and central bankers in Gyeongju, South Korea. “We cannot oblige a country to do something, but what we can do is to notice that a country has a commitment and fulfills, or not, a commitment.”
He added, “To be able to say to a country publicly, ‘What you’re doing is wrong,’ we probably need to extend the mandate of the I.M.F.”
For the United States, which helped create the I.M.F. in 1944 as part of the Bretton Woods system of managing global economic relations, the new reliance on the I.M.F. stems from a recognition that it cannot unilaterally compel China, now the world’s second-largest economy, to do what it wants. The United States for months has been pressing China to let its currency rise in value and realign its economy, away from a dependence on exports and toward domestic consumption.
“The I.M.F. has to play cop; that’s what it exists to do,” Mr. Geithner told Bloomberg Television on Saturday. “No country can be the independent, unilateral arbiter of exchange-rate misalignments. And no country can, on its own, figure out how best to reduce a persistently large imbalance. It requires cooperation.”
The I.M.F. said it realized that addressing the currency issues was a priority.
“The main threat to this recovery would be to enter an endless fight on current account surpluses and exchange rates,” Mr. Strauss-Kahn said Saturday. “I don’t like to use the term ‘war,’ because it has been too much used, but let’s say a confrontation.”
Germany, an export powerhouse, resisted Mr. Geithner’s proposal that G-20 countries aim to limit the surplus or deficit on their current account — the broadest measure of a nation’s trade and investment — to no more than 4 percent of gross domestic product. (Germany has a projected current account surplus of 6.1 percent this year, compared with a 4.7 percent surplus for China and a 3.2 percent deficit for the United States.) But the Germans and Americans were on the same page regarding the I.M.F.
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