June 24 (Bloomberg) -- Satyam Computer Services Ltd. named Chander Prakash Gurnani chief executive officer as new owner Tech Mahindra Ltd. starts to reorganize the company at the center of India’s biggest corporate fraud probe.
Gurnani, who headed the international operations at Satyam’s parent, replaced A.S. Murty yesterday. Subramaniam Durgashankar, formerly senior vice president of mergers and acquisitions at Tech Mahindra’s largest shareholder, was appointed chief financial officer. Gurnani said he plans to announce a reorganization of Satyam by tomorrow.
Gurnani, 50, aims to revive Satyam after a stock collapse prompted by former chairman Ramalinga Raju’s admission in January that he overstated assets by $1 billion. The new chief executive pledged he will improve the company’s corporate governance and customer ties as he tries to regain market share lost to rivals such as Infosys Technologies Ltd.
“Substantial changes needed to be made in the company’s organizational structure,” Kevin Trindade, a Mumbai-based analyst at KR Choksey Shares & Securities Pvt., said by telephone. Gurnani’s experience will make him “one of the most valuable assets” to Satyam, he said.
Satyam’s American depositary receipts gained 4.3 percent to $3.40 at 9:41 a.m. in New York trading. The stock has declined 59 percent in Mumbai trading since Raju’s disclosure on Jan. 7, while the benchmark Sensitive Index has advanced 39 percent.
Outbidding Wilbur Ross
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Wilbur Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
The 54-year-old Harvard University graduate is also trying to keep Satyam’s clients from joining State Farm Automobile Insurance Co. in canceling orders.
“Attrition has been practically zero since April,” Gurnani, a chemical engineer from the Rourkela, India-based National Institute of Technology, said.
Tech Mahindra may be merged with Satyam in the next one or two years, he said. On June 21, Satyam, once India’s fourth- largest software-services provider, said it rebranded itself to Mahindra Satyam.
Gurnani, a former chief operating officer and founder of the Indian unit of Perot Systems Corp. said adding the Mahindra name to Satyam would help restore customer confidence.
Satyam lost contracts from about 46 customers to rivals such as International Business Machines Corp. and Tata Consultancy Services Ltd., the Economic Times reported in March. Applied Materials Inc., Nissan Motor Co., Sony Corp. and Telstra Corp. are among companies that have moved or are in the process of seeking out other vendors, the newspaper said at the time.
‘65-Year-Old Brand’
“Mahindra has lent their 65-year-old brand to the company and that has given Satyam a huge advantage,” Gurnani said. “The fraud that happened at Satyam was localized and by a few people. The Mahindra name has washed that away.”
Satyam, which maintains computer systems and provides back- office support for Cisco Systems Inc., Nestle SA and other clients, was put on sale by a state-appointed board to prevent an exodus of clients and employees after Raju’s disclosure.
“Tech Mahindra’s buyout of Satyam has had a positive impact on customer sentiment,” JPMorgan Chase & Co.’s Mumbai- based analyst Manoj Singla wrote in a note to clients earlier this month. Satyam will probably see a “sharp turnaround” in revenues and profits as early as this year, he wrote, assigning an “outperform” rating on the stock in new coverage.
Satyam on June 9 said unaudited profit for the quarter ended Dec. 31 was 1.6 billion rupees ($33 million), its first public disclosure of earnings estimates since Raju’s statement.
Tech Mahindra rose 0.8 percent to close at 747.35 rupees yesterday. The stock has surged 133 percent since it won a bid on April 13 to acquire control of Satyam.
Excess Employees
Still, Satyam, which said it had about 48,000 employees at the time Tech Mahindra agreed to buy it, has 8,500 employees on a “virtual bench” because of a lack of orders, Gurnani said.
Employee numbers had been padded to siphon off cash, public prosecutor K. Ajay Kumar said at a court hearing for Raju in Hyderabad in January. Satyam had 40,000 employees, short of the 53,000 claimed by the company, he said. Raju’s lawyer S. Bharat Kumar and Satyam denied the charge at the time.
“The business is determined not by the CEO; there are business segment heads,” who acquire clients, Tarun Sisodia, a Mumbai-based analyst at Anand Rathi Financial Services Ltd., said by phone before the announcement. “Now the question is, when will they announce their plan for integration.”
The Pune-based Tech Mahindra, partly owned by BT Group Plc, is the smaller of the two companies and had 25,429 employees at the end of December.
Set up as a venture between BT Group and India’s largest utility-vehicle maker, Mahindra & Mahindra Ltd., in 1986, Tech Mahindra counts the British telecommunications company as its largest client and mainly serves phone companies in Europe.
“Right now we have to roll up our sleeves and get this car back on track,” said Mahindra.
Tuesday, June 23, 2009
Monday, June 22, 2009
India Stocks Fall for Second Day; Metal Producers Lead Decline
June 23 (Bloomberg) -- Indian stocks fell, with the benchmark index set to fall for a second day, led by Sterlite Industries (India) Ltd. after copper prices tumbled the most in four months.
Sterlite, India’s biggest copper producer, declined 4.8 percent as a stronger dollar curbed demand for commodities and the World Bank forecast a deeper global recession than estimated earlier. Hindalco Industries Ltd., the largest aluminum producer, fell 3.6 percent while Tata Steel Ltd. slid 3.2 percent.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 252.04, or 1.8 percent, to 14,074.18 at 9:57 a.m. in Mumbai today. The S&P CNX Nifty Index on the National Stock Exchange lost 1.3 percent to 4,178.50. The BSE 200 Index declined 1.8 percent to 1,707.81.
“India is falling in line with global markets,” said Krish Shanbhag, the head of research at Antique Stock Broking Ltd. in Mumbai. “After a sharp rally there are bound to be bouts of corrections.”
Sterlite fell 4.8 percent to 566 rupees. Hindalco lost 3.6 percent to 81.20 rupees. Tata Steel, the biggest producer of the alloy, declined 3.2 percent to 390 rupees.
Sterlite, India’s biggest copper producer, declined 4.8 percent as a stronger dollar curbed demand for commodities and the World Bank forecast a deeper global recession than estimated earlier. Hindalco Industries Ltd., the largest aluminum producer, fell 3.6 percent while Tata Steel Ltd. slid 3.2 percent.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 252.04, or 1.8 percent, to 14,074.18 at 9:57 a.m. in Mumbai today. The S&P CNX Nifty Index on the National Stock Exchange lost 1.3 percent to 4,178.50. The BSE 200 Index declined 1.8 percent to 1,707.81.
“India is falling in line with global markets,” said Krish Shanbhag, the head of research at Antique Stock Broking Ltd. in Mumbai. “After a sharp rally there are bound to be bouts of corrections.”
Sterlite fell 4.8 percent to 566 rupees. Hindalco lost 3.6 percent to 81.20 rupees. Tata Steel, the biggest producer of the alloy, declined 3.2 percent to 390 rupees.
Indian Banks, Larsen Will Gain Most on Nifty Revamp, UBS Says
June 23 (Bloomberg) -- Indian financial and engineering stocks will be the biggest beneficiaries of a revamp in the S&P CNX Nifty Index this week, according to UBS AG.
Starting on June 26, the weighting of stocks traded on the National Stock Exchange of India Ltd.’s gauge will be based on the amount of shares publicly available for trading, or the free float. Under the current system, the weighting is based on the total market capitalization.
ICICI Bank Ltd., the nation’s No. 2 lender, will benefit as the new method boosts the weighting of financial stocks by 8.6 percentage points to 23.1 percent and funds tracking the index are forced to alter holdings, UBS said in a report dated yesterday. Larsen & Toubro Ltd. will gain as engineering companies increase 3.3 percentage points to 12.1 percent.
“The index will be more widely followed now that it’s moving to a more efficient system,” Mumbai-based Suresh A Mahadevan, head of research at the Indian unit of UBS, said separately in a phone interview.
About 9 billion rupees ($185 million) are invested in funds that track the Nifty index, according to Dhirendra Kumar, managing director of Value Research Ltd., a firm that tracks Indian mutual funds.
The biggest losers will include Oil & Natural Gas Corp., India’s largest oil explorer, and NTPC Ltd., the country’s No. 1 electricity generator.
The Nifty is switching to the free-float market capitalization method used by its older rival, the Bombay Stock Exchange’s Sensitive Index, or Sensex, since September 2003.
Biggest Losers
The weightings of India’s majority state-owned companies will decline under the new method because they have a lower portion of shares available for trading. Oil & Natural Gas will lose 5.1 percentage points of its weighting, while NTPC will drop by 4.6 percentage points, UBS said, based on stock prices as of June 19.
Steel Authority of India Ltd., the nation’s second-biggest steelmaker, will decline 1.6 percentage points.
The free float for each company will be determined on the basis of the public shareholding, the exchange said in a statement March 24. Strategic investments by companies and the government as well as shares held by founders through American and global depository receipts will be excluded. Foreign direct investments will also be excluded from the free-float computation.
The following is a table of the five biggest gainers and losers after the exchange implements its new method, according to UBS.
-------------------------------------------------------------
Company Weighting Change Weight in Index
Percentage Points Percent
-------------------------------------------------------------
Biggest Gainers:
Larsen & Toubro Ltd. +4.2 7.5
ICICI Bank Ltd. +3.8 6.8
Infosys Technologies Ltd. +3.5 7.3
Housing Development Finance Corp. +2.5 4.9
HDFC Bank Ltd. +2.1 4.6
-------------------------------------------------------------
Biggest Losers:
Oil & Natural Gas Corp. -5.1 2.9
NTPC Ltd. -4.6 1.5
Steel Authority of India Ltd. -1.6 0.8
Bharti Airtel Ltd. -1.4 4.3
Tata Consultancy Services Ltd. -1.3 1.5
Starting on June 26, the weighting of stocks traded on the National Stock Exchange of India Ltd.’s gauge will be based on the amount of shares publicly available for trading, or the free float. Under the current system, the weighting is based on the total market capitalization.
ICICI Bank Ltd., the nation’s No. 2 lender, will benefit as the new method boosts the weighting of financial stocks by 8.6 percentage points to 23.1 percent and funds tracking the index are forced to alter holdings, UBS said in a report dated yesterday. Larsen & Toubro Ltd. will gain as engineering companies increase 3.3 percentage points to 12.1 percent.
“The index will be more widely followed now that it’s moving to a more efficient system,” Mumbai-based Suresh A Mahadevan, head of research at the Indian unit of UBS, said separately in a phone interview.
About 9 billion rupees ($185 million) are invested in funds that track the Nifty index, according to Dhirendra Kumar, managing director of Value Research Ltd., a firm that tracks Indian mutual funds.
The biggest losers will include Oil & Natural Gas Corp., India’s largest oil explorer, and NTPC Ltd., the country’s No. 1 electricity generator.
The Nifty is switching to the free-float market capitalization method used by its older rival, the Bombay Stock Exchange’s Sensitive Index, or Sensex, since September 2003.
Biggest Losers
The weightings of India’s majority state-owned companies will decline under the new method because they have a lower portion of shares available for trading. Oil & Natural Gas will lose 5.1 percentage points of its weighting, while NTPC will drop by 4.6 percentage points, UBS said, based on stock prices as of June 19.
Steel Authority of India Ltd., the nation’s second-biggest steelmaker, will decline 1.6 percentage points.
The free float for each company will be determined on the basis of the public shareholding, the exchange said in a statement March 24. Strategic investments by companies and the government as well as shares held by founders through American and global depository receipts will be excluded. Foreign direct investments will also be excluded from the free-float computation.
The following is a table of the five biggest gainers and losers after the exchange implements its new method, according to UBS.
-------------------------------------------------------------
Company Weighting Change Weight in Index
Percentage Points Percent
-------------------------------------------------------------
Biggest Gainers:
Larsen & Toubro Ltd. +4.2 7.5
ICICI Bank Ltd. +3.8 6.8
Infosys Technologies Ltd. +3.5 7.3
Housing Development Finance Corp. +2.5 4.9
HDFC Bank Ltd. +2.1 4.6
-------------------------------------------------------------
Biggest Losers:
Oil & Natural Gas Corp. -5.1 2.9
NTPC Ltd. -4.6 1.5
Steel Authority of India Ltd. -1.6 0.8
Bharti Airtel Ltd. -1.4 4.3
Tata Consultancy Services Ltd. -1.3 1.5
India Stocks May Rally 15% Over Next Nine Months, JPMorgan Says
June 23 (Bloomberg) -- India’s stock market, the world’s fifth-best performer this year, may rally another 15 percent over the next nine months as valuations on the benchmark index offer “reasonable upside,” JPMorgan Chase & Co. said.
The Bombay Stock Exchange Sensitive Index may trade between 12,500 and 16,500 in the year ending March 2010, JPMorgan analysts led by Bharat Iyer said, based on current-year earnings estimates. There may still be a “near term consolidation” after this year’s gains, they added.
The Sensex has rallied 49 percent this year, lagging behind indexes in Peru, Sri Lanka, China and Russia among the 89 measures tracked by Bloomberg globally. Almost a third of the gains came after Prime Minister Manmohan Singh’s Congress party won its biggest election victory since 1991.
“We remain constructive on a 12 to 18 month view, given the policy freedom available to the new government,” the analysts wrote in a note dated yesterday.
Finance Minister Pranab Mukherjee will unveil the government’s budget deficit numbers for the current fiscal year next month, when he presents his budget. The government in February said the deficit may be 5.5 percent of gross domestic product.
India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
Weak Monsoon
New stock sales and a weak monsoon may be “near-term pressure points” for Indian stocks, the analysts wrote. India’s monsoon, which runs from June to September, resumed this week after a two-week lull.
JPMorgan cut its rating on consumer discretionary stocks to “neutral” from “overweight,” advising investors to instead hold more technology services companies.
The brokerage added Satyam Computer Services Ltd., the software company at the center of India’s biggest corporate fraud, to its list of recommended shares.
The Bombay Stock Exchange Sensitive Index may trade between 12,500 and 16,500 in the year ending March 2010, JPMorgan analysts led by Bharat Iyer said, based on current-year earnings estimates. There may still be a “near term consolidation” after this year’s gains, they added.
The Sensex has rallied 49 percent this year, lagging behind indexes in Peru, Sri Lanka, China and Russia among the 89 measures tracked by Bloomberg globally. Almost a third of the gains came after Prime Minister Manmohan Singh’s Congress party won its biggest election victory since 1991.
“We remain constructive on a 12 to 18 month view, given the policy freedom available to the new government,” the analysts wrote in a note dated yesterday.
Finance Minister Pranab Mukherjee will unveil the government’s budget deficit numbers for the current fiscal year next month, when he presents his budget. The government in February said the deficit may be 5.5 percent of gross domestic product.
India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
Weak Monsoon
New stock sales and a weak monsoon may be “near-term pressure points” for Indian stocks, the analysts wrote. India’s monsoon, which runs from June to September, resumed this week after a two-week lull.
JPMorgan cut its rating on consumer discretionary stocks to “neutral” from “overweight,” advising investors to instead hold more technology services companies.
The brokerage added Satyam Computer Services Ltd., the software company at the center of India’s biggest corporate fraud, to its list of recommended shares.
Sunday, June 21, 2009
AIG Trading Partners Put Squeeze on Insurer Before U.S. Bailout
June 22 (Bloomberg) -- Goldman Sachs Group Inc. and Societe Generale SA extracted about $11.4 billion from American International Group Inc. before the insurer’s collapse as the firms demanded to hold cash against losses on mortgage-linked securities, according to regulatory filings.
Goldman Sachs got $5.9 billion and Societe Generale received $5.5 billion of about $18.5 billion in collateral paid by AIG in the 15 months before the September bailout. The payments helped settle AIG’s obligations on $62.1 billion of credit-default swaps that the Federal Reserve later removed from the New York-based insurer as part of the rescue. Officials at AIG, Goldman Sachs and Societe Generale declined to comment.
“When counterparties see trouble coming, they’ll do everything they can to get their money back, even if it means the death of the other firm,” said William Cohan, a former JPMorgan Chase & Co. investment banker and author of “House of Cards,” about the financial crisis.
President Barack Obama proposed an overhaul in regulations last week to prevent the failure of systemically important institutions such as AIG, which needed a $182.5 billion government rescue to stave off bankruptcy. Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG’s ability to pay.
“It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government’s arms,” said Charles Calomiris, a finance professor at Columbia Business School in New York.
Collateral Damage
AIG disclosed a complete list last month of payments made to settle the $62.1 billion in derivatives. The figures for the period before the bailout were calculated by subtracting post- rescue payments disclosed in March from the sum of more than 150 transactions outlined in May.
Including collateral from before and after the rescue and payments made by Maiden Lane III, a vehicle created by the Fed to retire the swaps, Goldman Sachs received about $14 billion from AIG, Societe Generale got $16.5 billion, and Deutsche Bank AG received $8.5 billion. More than a dozen other banks got a total of about $23.1 billion.
Michael DuVally, a spokesman for New York-based Goldman Sachs, the most profitable securities firm before converting to a bank last year, declined to comment. Stephanie Carson-Parker of Societe Generale, France’s second-largest bank, also declined to comment, as did AIG’s Christina Pretto and Deutsche Bank’s Ted Meyer.
‘Protecting Itself’
Goldman Sachs was more aggressive than other firms in seeking collateral from AIG because the bank’s models showed a greater decline in the value of securities that had been insured, said two people with knowledge of the matter, who declined to be identified because the contracts were private.
“Goldman is to be congratulated for seeing the problem ahead of others and protecting itself from the impending failure of AIG,” said William Poole, former president of the St. Louis Fed, in an interview last week. “It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.”
Goldman Sachs bought protection on about $20 billion in assets from AIG, meaning the company was counting on $10 billion from the insurer after the underlying holdings lost about half their value, Goldman Sachs Chief Financial Officer David Viniar said in a March conference call. The firm had “no direct exposure” to AIG because it held about $7.5 billion in collateral and hedged its remaining $2.5 billion risk to the firm’s potential failure, Viniar said. The $7.5 billion tally includes trades unrelated to Maiden Lane.
Seldom Traded
“All we did was call for the collateral that was due to us under the contracts,” Viniar said on March 20.
Arriving at a value for the swaps was “challenging” because of the dearth of pricing information for securities that seldom traded, increasing the possibility of disputes with counterparties about how much collateral was owed, AIG said in a November filing.
Joseph Cassano, who ran the AIG swaps unit until March 2008, told investors at a December 2007 conference that AIG rejected some banks’ demands for collateral. The Department of Justice is probing whether Cassano, 54, misled investors and auditors about the contracts, a person familiar with the inquiry said in April. Joseph Warin, a lawyer for Cassano, didn’t immediately return a call seeking comment.
‘They Go Away’
“We have, from time to time, gotten collateral calls from people,” Cassano said on Dec. 5, 2007. “Then we say to them, ‘Well, we don’t agree with your numbers.’ And they go, ‘Oh.’ And they go away.”
Credit-default swaps allow investors to buy protection against a possible default. The contracts pay the holder face value for the underlying securities or the cash equivalent should a borrower fail to repay debt.
Banks received the full face value to retire the Maiden Lane III holdings by being allowed to keep $35 billion in collateral and getting $27.1 billion in payments to retire the contracts.
“Our government effectively made a cash infusion through AIG and this Maiden Lane vehicle to Goldman and the other banks,” said Haag Sherman, who helps oversee $7.5 billion as chief investment officer of Houston-based Salient Partners.
Goldman Sachs and JPMorgan were involved in a failed effort on the morning of Sept. 15 last year to save AIG with a $75 billion private credit line, AIG said in the November filing. Later that day, the insurer’s credit rating was downgraded, triggering a fresh round of collateral calls and forcing the federal rescue.
Goldman Sachs got $5.9 billion and Societe Generale received $5.5 billion of about $18.5 billion in collateral paid by AIG in the 15 months before the September bailout. The payments helped settle AIG’s obligations on $62.1 billion of credit-default swaps that the Federal Reserve later removed from the New York-based insurer as part of the rescue. Officials at AIG, Goldman Sachs and Societe Generale declined to comment.
“When counterparties see trouble coming, they’ll do everything they can to get their money back, even if it means the death of the other firm,” said William Cohan, a former JPMorgan Chase & Co. investment banker and author of “House of Cards,” about the financial crisis.
President Barack Obama proposed an overhaul in regulations last week to prevent the failure of systemically important institutions such as AIG, which needed a $182.5 billion government rescue to stave off bankruptcy. Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG’s ability to pay.
“It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government’s arms,” said Charles Calomiris, a finance professor at Columbia Business School in New York.
Collateral Damage
AIG disclosed a complete list last month of payments made to settle the $62.1 billion in derivatives. The figures for the period before the bailout were calculated by subtracting post- rescue payments disclosed in March from the sum of more than 150 transactions outlined in May.
Including collateral from before and after the rescue and payments made by Maiden Lane III, a vehicle created by the Fed to retire the swaps, Goldman Sachs received about $14 billion from AIG, Societe Generale got $16.5 billion, and Deutsche Bank AG received $8.5 billion. More than a dozen other banks got a total of about $23.1 billion.
Michael DuVally, a spokesman for New York-based Goldman Sachs, the most profitable securities firm before converting to a bank last year, declined to comment. Stephanie Carson-Parker of Societe Generale, France’s second-largest bank, also declined to comment, as did AIG’s Christina Pretto and Deutsche Bank’s Ted Meyer.
‘Protecting Itself’
Goldman Sachs was more aggressive than other firms in seeking collateral from AIG because the bank’s models showed a greater decline in the value of securities that had been insured, said two people with knowledge of the matter, who declined to be identified because the contracts were private.
“Goldman is to be congratulated for seeing the problem ahead of others and protecting itself from the impending failure of AIG,” said William Poole, former president of the St. Louis Fed, in an interview last week. “It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.”
Goldman Sachs bought protection on about $20 billion in assets from AIG, meaning the company was counting on $10 billion from the insurer after the underlying holdings lost about half their value, Goldman Sachs Chief Financial Officer David Viniar said in a March conference call. The firm had “no direct exposure” to AIG because it held about $7.5 billion in collateral and hedged its remaining $2.5 billion risk to the firm’s potential failure, Viniar said. The $7.5 billion tally includes trades unrelated to Maiden Lane.
Seldom Traded
“All we did was call for the collateral that was due to us under the contracts,” Viniar said on March 20.
Arriving at a value for the swaps was “challenging” because of the dearth of pricing information for securities that seldom traded, increasing the possibility of disputes with counterparties about how much collateral was owed, AIG said in a November filing.
Joseph Cassano, who ran the AIG swaps unit until March 2008, told investors at a December 2007 conference that AIG rejected some banks’ demands for collateral. The Department of Justice is probing whether Cassano, 54, misled investors and auditors about the contracts, a person familiar with the inquiry said in April. Joseph Warin, a lawyer for Cassano, didn’t immediately return a call seeking comment.
‘They Go Away’
“We have, from time to time, gotten collateral calls from people,” Cassano said on Dec. 5, 2007. “Then we say to them, ‘Well, we don’t agree with your numbers.’ And they go, ‘Oh.’ And they go away.”
Credit-default swaps allow investors to buy protection against a possible default. The contracts pay the holder face value for the underlying securities or the cash equivalent should a borrower fail to repay debt.
Banks received the full face value to retire the Maiden Lane III holdings by being allowed to keep $35 billion in collateral and getting $27.1 billion in payments to retire the contracts.
“Our government effectively made a cash infusion through AIG and this Maiden Lane vehicle to Goldman and the other banks,” said Haag Sherman, who helps oversee $7.5 billion as chief investment officer of Houston-based Salient Partners.
Goldman Sachs and JPMorgan were involved in a failed effort on the morning of Sept. 15 last year to save AIG with a $75 billion private credit line, AIG said in the November filing. Later that day, the insurer’s credit rating was downgraded, triggering a fresh round of collateral calls and forcing the federal rescue.
Japanese Bonds Little Changed as Deflation Concerns Buoy Demand
June 22 (Bloomberg) -- Japanese government bonds were little changed as the steepest decline in U.S. consumer prices in six decades added to speculation that deflation will return to the world’s second-largest economy.
Benchmark 10-year yields traded near the lowest level in four weeks before a government report this week that economists said may show Japan’s consumer prices index fell for a third month. Gains in bonds may be limited after a survey showed Japanese manufacturers became less pessimistic this quarter amid signs the country’s worst postwar recession is easing.
“Incoming economic data, including CPI, will underscore a slow-paced improvement of the Japanese economy,” said Hirokata Kusaba, senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “Yields will fall.”
The yield on the benchmark 10-year bond rose half a basis point to 1.45 percent as of the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield reached 1.44 percent on June 19, the lowest since May 26. The price of the securities fell 0.044 to 100.436. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.12 to 137.04 at the Tokyo Stock Exchange. Futures contracts for 10- year bonds advanced for a seventh day, the longest stretch in six months, before this week’s inflation report.
Consumer prices excluding fresh food probably dropped 1 percent in May from a year earlier following a 0.1 percent from a year earlier, according to Bloomberg News survey of economists before the statistics bureau releases the data on June 26.
U.S. Rally
Bank of Japan Governor Masaaki Shirakawa said in May that price declines will accelerate through the middle of the financial year ending in March 2010 as demand slackens and crude oil trades below last year’s record high.
Demand for fixed-income securities may also increase after U.S. 30-year yields posted the biggest weekly drop in a month.
Yields of U.S. 30-year debt fell 14 basis points last week to 4.50 percent, according to BGCantor Market Data. It was the biggest weekly drop since the five days ended May 15.
“Market sentiment is improving, as evident by the drop of U.S. yields,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. “There is also the emerging view that Japanese 10-year yields have already peaked out at 1.56 percent on June 11. Bonds will be firm.”
Sentiment Survey
Gains were limited after a joint survey by the Cabinet Office and Finance Ministry showed today sentiment among Japanese manufacturers rose to minus 13.2 points this quarter compared with minus 66 three months earlier. A negative number means pessimists outnumber optimists.
“Today’s sentiment survey clearly showed confidence has already started to recover,” said Tatsushi Shikano, senior economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s biggest bank. “If we begin to see an improvement in economic data that track the actual development of the economy, such as industrial production, yields may rise.”
The Tankan index of sentiment among large manufacturers improved to minus 43 in June, from minus 58 in March, according to a Bloomberg survey of economists before the July 1 report.
Benchmark 10-year yields traded near the lowest level in four weeks before a government report this week that economists said may show Japan’s consumer prices index fell for a third month. Gains in bonds may be limited after a survey showed Japanese manufacturers became less pessimistic this quarter amid signs the country’s worst postwar recession is easing.
“Incoming economic data, including CPI, will underscore a slow-paced improvement of the Japanese economy,” said Hirokata Kusaba, senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “Yields will fall.”
The yield on the benchmark 10-year bond rose half a basis point to 1.45 percent as of the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield reached 1.44 percent on June 19, the lowest since May 26. The price of the securities fell 0.044 to 100.436. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.12 to 137.04 at the Tokyo Stock Exchange. Futures contracts for 10- year bonds advanced for a seventh day, the longest stretch in six months, before this week’s inflation report.
Consumer prices excluding fresh food probably dropped 1 percent in May from a year earlier following a 0.1 percent from a year earlier, according to Bloomberg News survey of economists before the statistics bureau releases the data on June 26.
U.S. Rally
Bank of Japan Governor Masaaki Shirakawa said in May that price declines will accelerate through the middle of the financial year ending in March 2010 as demand slackens and crude oil trades below last year’s record high.
Demand for fixed-income securities may also increase after U.S. 30-year yields posted the biggest weekly drop in a month.
Yields of U.S. 30-year debt fell 14 basis points last week to 4.50 percent, according to BGCantor Market Data. It was the biggest weekly drop since the five days ended May 15.
“Market sentiment is improving, as evident by the drop of U.S. yields,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. “There is also the emerging view that Japanese 10-year yields have already peaked out at 1.56 percent on June 11. Bonds will be firm.”
Sentiment Survey
Gains were limited after a joint survey by the Cabinet Office and Finance Ministry showed today sentiment among Japanese manufacturers rose to minus 13.2 points this quarter compared with minus 66 three months earlier. A negative number means pessimists outnumber optimists.
“Today’s sentiment survey clearly showed confidence has already started to recover,” said Tatsushi Shikano, senior economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s biggest bank. “If we begin to see an improvement in economic data that track the actual development of the economy, such as industrial production, yields may rise.”
The Tankan index of sentiment among large manufacturers improved to minus 43 in June, from minus 58 in March, according to a Bloomberg survey of economists before the July 1 report.
Japan’s Business Confidence, Service Demand Rebound
June 22 (Bloomberg) -- Japanese business confidence improved for the first time in three quarters and demand for services rose, adding to signs the country’s worst postwar recession is easing.
Sentiment among large manufacturers increased to minus 13.2 points compared with a record low of minus 66 three months ago, a government survey showed today. The tertiary index of money spent on services from phone calls to dining out climbed 2.2 percent in April from March, the Trade Ministry said.
A rebound in production as companies replace stockpiles will help the world’s second-largest economy expand for the first time in a year this quarter, economists say. Even so, Bank of Japan Governor Masaaki Shirakawa is concerned that demand may not pick up enough to sustain a recovery once $2.2 trillion in worldwide stimulus measures fades.
“It’s becoming clearer that the economy has already hit bottom,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “But the rebound will probably be lackluster in the absence of a solid recovery in profits, capital spending and consumption.”
The yen traded at 95.96 per dollar as of 11:39 a.m. in Tokyo from 96.08 before the reports were published. The Nikkei 225 Stock Average rose 0.1 percent, and has advanced 39 percent since dropping to a 26-year low on March 10.
Biggest Gain
The gain in sentiment at large manufacturers was the biggest since the Cabinet Office and Finance Ministry began the survey in 2004. Confidence at all big companies improved to minus 22.4 from minus 51.3. A negative reading means pessimists outnumber optimists.
The report offers a hint of the results likely in the Bank of Japan’s Tankan survey due July 1. The nation’s most closely watched gauge of corporate confidence will show sentiment among large manufacturers improving to minus 43 points from March’s record low of minus 58, according to the median estimate of 18 economists surveyed by Bloomberg.
China’s 4 trillion yuan ($586 billion) in government spending is boosting demand for Japanese heavy equipment and cars. Nissan Motor Co.’s sales to China rose 37 percent in April from a year earlier, buoyed by a government subsidy that halves the consumption tax on vehicles with smaller engines.
Japan’s own stimulus measures -- 25 trillion yen ($260 billion) pledged since October -- have helped lift consumer confidence to a 14-month high. Sales of electronics are by up 18 percent since the government last month introduced a program to encourage consumers to buy eco-friendly products, according to Tokyo-based researcher Gfk Marketing Service Japan Ltd.
BOJ, Government
Industrial production rose at the fastest pace in 56 years in April as companies replenished stockpiles they managed to run down during the worst of the export collapse. The rebound prompted the Bank of Japan and the government to raise their assessments of the economy in each of the past two months.
Gross domestic product will grow an annualized 1.5 percent this quarter, according to the median estimate of 11 economists. GDP contracted a record 14.2 percent in the previous period.
Governor Shirakawa said last week that he’s “cautious” about the economic outlook because the pickup in demand may be temporary. Exports and production, while improving on a month- on-month basis, are about a third lower than last year’s levels.
That’s putting pressure on managers to cut jobs and slash investment, spending that would normally trickle down to the smaller businesses that make up 70 percent of the economy. Companies plan to cut capital spending by an unprecedented 15.9 percent this business year, according to a survey published this month by the Nikkei newspaper.
Worsening Job Market
“Consumer spending will probably stay relatively solid in coming months, supported by stimulus measures,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “But it’s highly likely to weaken as the wage and labor market deteriorate further.”
The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. Jobs are scarce: about two work seekers are competing for a single spot, the most severe shortage on record.
Sentiment among large manufacturers increased to minus 13.2 points compared with a record low of minus 66 three months ago, a government survey showed today. The tertiary index of money spent on services from phone calls to dining out climbed 2.2 percent in April from March, the Trade Ministry said.
A rebound in production as companies replace stockpiles will help the world’s second-largest economy expand for the first time in a year this quarter, economists say. Even so, Bank of Japan Governor Masaaki Shirakawa is concerned that demand may not pick up enough to sustain a recovery once $2.2 trillion in worldwide stimulus measures fades.
“It’s becoming clearer that the economy has already hit bottom,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “But the rebound will probably be lackluster in the absence of a solid recovery in profits, capital spending and consumption.”
The yen traded at 95.96 per dollar as of 11:39 a.m. in Tokyo from 96.08 before the reports were published. The Nikkei 225 Stock Average rose 0.1 percent, and has advanced 39 percent since dropping to a 26-year low on March 10.
Biggest Gain
The gain in sentiment at large manufacturers was the biggest since the Cabinet Office and Finance Ministry began the survey in 2004. Confidence at all big companies improved to minus 22.4 from minus 51.3. A negative reading means pessimists outnumber optimists.
The report offers a hint of the results likely in the Bank of Japan’s Tankan survey due July 1. The nation’s most closely watched gauge of corporate confidence will show sentiment among large manufacturers improving to minus 43 points from March’s record low of minus 58, according to the median estimate of 18 economists surveyed by Bloomberg.
China’s 4 trillion yuan ($586 billion) in government spending is boosting demand for Japanese heavy equipment and cars. Nissan Motor Co.’s sales to China rose 37 percent in April from a year earlier, buoyed by a government subsidy that halves the consumption tax on vehicles with smaller engines.
Japan’s own stimulus measures -- 25 trillion yen ($260 billion) pledged since October -- have helped lift consumer confidence to a 14-month high. Sales of electronics are by up 18 percent since the government last month introduced a program to encourage consumers to buy eco-friendly products, according to Tokyo-based researcher Gfk Marketing Service Japan Ltd.
BOJ, Government
Industrial production rose at the fastest pace in 56 years in April as companies replenished stockpiles they managed to run down during the worst of the export collapse. The rebound prompted the Bank of Japan and the government to raise their assessments of the economy in each of the past two months.
Gross domestic product will grow an annualized 1.5 percent this quarter, according to the median estimate of 11 economists. GDP contracted a record 14.2 percent in the previous period.
Governor Shirakawa said last week that he’s “cautious” about the economic outlook because the pickup in demand may be temporary. Exports and production, while improving on a month- on-month basis, are about a third lower than last year’s levels.
That’s putting pressure on managers to cut jobs and slash investment, spending that would normally trickle down to the smaller businesses that make up 70 percent of the economy. Companies plan to cut capital spending by an unprecedented 15.9 percent this business year, according to a survey published this month by the Nikkei newspaper.
Worsening Job Market
“Consumer spending will probably stay relatively solid in coming months, supported by stimulus measures,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “But it’s highly likely to weaken as the wage and labor market deteriorate further.”
The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. Jobs are scarce: about two work seekers are competing for a single spot, the most severe shortage on record.
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