Aug. 16 (Bloomberg) -- Pakistan cut interest rates for the second time this year as a war against Taliban insurgents threatens an already “anaemic” economy.
State Bank of Pakistan lowered its benchmark discount rate to 13 percent from 14 percent, Central Bank Governor Salim Raza said at a news conference in Karachi yesterday. All 12 economists surveyed by Bloomberg News expected the central bank to reduce borrowing costs.
The Pakistan Peoples Party-led government is betting lower interest rates will revive the confidence of investors, who have shied away from the country because of militancy in the northwest region and a near-stagnant economy. The International Monetary Fund this month agreed to increase a loan to Pakistan to $11.3 billion from the $7.6 billion approved in November to bolster the nation’s “anaemic” growth.
“The challenge for policy makers is growth,” said Sayem Ali, an economist at Standard Chartered Plc in Karachi. “The inflationary cycle appears to be coming to an end.”
Raza has this year lowered borrowing costs by two percentage points from a decade high, taking advantage of the slowest inflation in 19 months.
“The revival will be slow and sporadic,” Raza said yesterday. “Power shortages and security issues have hurt growth. The likely increase in oil and power costs may renew inflationary pressure.”
Six Times
The central bank will announce monetary policy six times a year every alternate month instead of every quarter, Raza said. The next announcement will be in the last week of September.
The monetary policy committee will be expanded to include independent experts, in line with “best international practices,” he said.
The governor unexpectedly postponed State Bank of Pakistan’s monetary policy statement to yesterday from its initially scheduled release on July 25.
The delay may have been due to “fiscal slippages” resulting from declining tax revenue and “substantial” military expenditure that forced the government to borrow from the central bank for deficit financing, according to Ali from Standard Chartered.
The central bank also introduced a “corridor” for the overnight repurchase rate, Raza said. The discount rate will be a ’’ceiling’’ and the rate on the new overnight deposit facility, 300 basis points below the discount rate, will provide a “floor,” he said.
Policy makers last raised borrowing costs by 2 percentage points on Nov. 12, the fourth increase in 2008, as part of conditions for the IMF loan and to curb inflation that reached a 30-year high.
Consumer Prices
Consumer prices rose 11.17 percent in July from a year earlier, the slowest pace since December 2007. Large-scale manufacturing output fell 8.5 percent in the 11 months ended May 30, according to the statistics agency.
“It is very critical that finance costs be lowered now,” said Asad Farid, an economist at AKD Securities Ltd. in Karachi. “If they aren’t, industry, which is already facing huge problems, will not be competitive.”
South Asia’s second-largest economy was forced to turn to the IMF for a rescue package to avoid defaulting on its debt, after the country’s foreign-exchange reserves shrank 75 percent in a year to $3.5 billion and the current-account deficit widened to a record.
The loan outstanding from the IMF is equivalent to about 6.3 percent of Pakistan’s gross domestic product, according to estimates from the Washington-based lender. The entire standby arrangement was also extended by about two months until the end of 2010.
Economic Growth
The $146 billion economy may expand as little as 0.8 percent in the fiscal year to June 2010, according to HSBC Holdings Plc, the weakest pace since 1952. The government estimates growth of 3.3 percent.
“Monetary policy needs to strike the right balance between supporting growth and keeping inflation in check,” said Ali from Standard Chartered.
Saturday, August 15, 2009
Saturday, August 8, 2009
Paulson’s Calls to Goldman Tested Ethics During Crisis
Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.
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Henry Paulson at a House hearing last month questioning his relationship with the firm he led, Goldman Sachs. He spoke to its chief 24 times in six days.
But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.
“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.
“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”
Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.
That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.
It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.
While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.
During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.
On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.
Michele Davis, a spokeswoman for Mr. Paulson, said that the former Treasury secretary was busy writing his memoirs and that his publisher had barred him from granting interviews until his manuscript was done. She pointed out that the ethics agreement Mr. Paulson agreed to when he joined the Treasury did not prevent him from talking to Goldman executives like Mr. Blankfein in order to keep abreast of market developments.
Ms. Davis also said that Federal Reserve officials, not Mr. Paulson, played the lead role in shaping and financing the A.I.G. bailout.
But Mr. Paulson was closely involved in decisions to rescue A.I.G., according to two senior government officials who requested anonymity because the negotiations were supposed to be confidential.
And government ethics specialists say that the timing of Mr. Paulson’s waivers, and the circumstances surrounding it, are troubling.
“I think that when you have a person in a high government position who has been with one of the major financial institutions, things like this have to happen more publicly and they have to happen more in the normal course of business rather than privately, quietly and on the fly,” said Peter Bienstock, the former executive director of the New York State Commission on Government Integrity and a partner at the law firm of Cohen Hennessey Bienstock & Rabin.
He went on: “If it can happen on a phone call and can happen without public scrutiny, it destroys the standard because then anything can happen in that fashion and any waiver can happen.”
Inevitable Questions
Concerns about potential conflicts of interest were perhaps inevitable during this financial crisis, the worst since the Great Depression. In the weeks before Mr. Paulson obtained the waivers, Treasury lawyers raised questions about whether he had conflicts of interest, a senior government official said.
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Henry Paulson at a House hearing last month questioning his relationship with the firm he led, Goldman Sachs. He spoke to its chief 24 times in six days.
But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.
“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.
“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”
Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.
That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.
It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.
While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.
During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.
On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.
Michele Davis, a spokeswoman for Mr. Paulson, said that the former Treasury secretary was busy writing his memoirs and that his publisher had barred him from granting interviews until his manuscript was done. She pointed out that the ethics agreement Mr. Paulson agreed to when he joined the Treasury did not prevent him from talking to Goldman executives like Mr. Blankfein in order to keep abreast of market developments.
Ms. Davis also said that Federal Reserve officials, not Mr. Paulson, played the lead role in shaping and financing the A.I.G. bailout.
But Mr. Paulson was closely involved in decisions to rescue A.I.G., according to two senior government officials who requested anonymity because the negotiations were supposed to be confidential.
And government ethics specialists say that the timing of Mr. Paulson’s waivers, and the circumstances surrounding it, are troubling.
“I think that when you have a person in a high government position who has been with one of the major financial institutions, things like this have to happen more publicly and they have to happen more in the normal course of business rather than privately, quietly and on the fly,” said Peter Bienstock, the former executive director of the New York State Commission on Government Integrity and a partner at the law firm of Cohen Hennessey Bienstock & Rabin.
He went on: “If it can happen on a phone call and can happen without public scrutiny, it destroys the standard because then anything can happen in that fashion and any waiver can happen.”
Inevitable Questions
Concerns about potential conflicts of interest were perhaps inevitable during this financial crisis, the worst since the Great Depression. In the weeks before Mr. Paulson obtained the waivers, Treasury lawyers raised questions about whether he had conflicts of interest, a senior government official said.
Asian shipping lines suffer heavy blow
Two of Asia’s biggest shipping companies completed a grim week for the crisis-hit container shipping industry on Friday.
Both reported steep losses and one warned that the outlook for next year remained “challenging”.
EDITOR’S CHOICE
NOL latest to be hit by shipping downturn - Aug-06
Cosco warns of losses amid shipping crisis - Jul-29
Bleak forecast for shipping - Jul-27
Hong Kong’s Orient Overseas International, parent of the OOCL shipping line, announced a $232m net loss for the first half, while Korea’s Hanjin Shipping incurred a $516m net loss.
The container divisions of both suffered the same combination of falling container volumes and a drop in prices per container shipped that Singapore’s Neptune Orient Lines announced in its first-half results on Thursday.
OOCL’s container traffic fell 17.2 per cent compared with the first half of 2008, while revenue fell 37.2 per cent to $2.05bn. OOCL reported an operating loss for the half of $197m, against a $216m profit in the first half of 2008. Hanjin’s container division saw volumes down 20 per cent against last year’s first half, while revenues slumped 38.6 per cent to $2bn. The division produced $342m operating losses against a $59m profit for last year’s first half.
OOIL’s group figures were further depressed by a $5.11m operating loss in the property division and a $15m writedown in the value of its Wall Street Plaza office development in New York. Hanjin made a $57m operating loss in its dry bulk division – which carries iron ore, coal and other bulk commodities – on revenue down 45 per cent to $566m.
Hanjin told Bloomberg it expected the recovery to take some time. C.C. Tung, OOIL’s chairman, said the outlook for 2009 and 2010 remained “challenging”.
“While there are signs that the worst of the downturn may be behind us, a rebound in the global economy is expected to be subdued,” he added.
Container shipping lines have been hit by big falls in demand for the consumer goods that are their main cargo allied to a growing overcapacity problem as ships delivered during the sector’s record boom earlier this decade are delivered.
This week, Israel’s Zim announced restructuring plans to ward off insolvency and said it expected to burn through $1bn cash by 2013. Last week, Germany’s Hapag-Lloyd was forced to sell a stake in a key container terminal to its shareholders to avoid collapse.
Under Mr Tung, chairman and son of the company’s founder, OOCL has gained a particularly strong reputation for excellent management of information technology, a problem area for many container carriers.
The group-level loss compared with $158m in net profit for the same period in 2008. Group revenue fell 35.5 per cent to $2.07bn. “The deterioration in the performance of the container transport and logistics operations was a result of dramatically reduced revenue as business volumes suffered across all trade lines,” Mr Tung said.
Hanjin’s loss compared with $254m profits for the first half, with revenue down 40 per cent to $2.56bn.
OOIL’s net debt increased from $295m at the end of 2008 to $724m, and it cancelled its interim dividend. Hanjin recently shored up its balance sheet by selling some ships to a Korean government agency set up to help shipping lines.
Hanjin operates the world’s 10th-largest container ship fleet, according to AXS-Alphaliner, while OOCL has the 12th largest.
Both reported steep losses and one warned that the outlook for next year remained “challenging”.
EDITOR’S CHOICE
NOL latest to be hit by shipping downturn - Aug-06
Cosco warns of losses amid shipping crisis - Jul-29
Bleak forecast for shipping - Jul-27
Hong Kong’s Orient Overseas International, parent of the OOCL shipping line, announced a $232m net loss for the first half, while Korea’s Hanjin Shipping incurred a $516m net loss.
The container divisions of both suffered the same combination of falling container volumes and a drop in prices per container shipped that Singapore’s Neptune Orient Lines announced in its first-half results on Thursday.
OOCL’s container traffic fell 17.2 per cent compared with the first half of 2008, while revenue fell 37.2 per cent to $2.05bn. OOCL reported an operating loss for the half of $197m, against a $216m profit in the first half of 2008. Hanjin’s container division saw volumes down 20 per cent against last year’s first half, while revenues slumped 38.6 per cent to $2bn. The division produced $342m operating losses against a $59m profit for last year’s first half.
OOIL’s group figures were further depressed by a $5.11m operating loss in the property division and a $15m writedown in the value of its Wall Street Plaza office development in New York. Hanjin made a $57m operating loss in its dry bulk division – which carries iron ore, coal and other bulk commodities – on revenue down 45 per cent to $566m.
Hanjin told Bloomberg it expected the recovery to take some time. C.C. Tung, OOIL’s chairman, said the outlook for 2009 and 2010 remained “challenging”.
“While there are signs that the worst of the downturn may be behind us, a rebound in the global economy is expected to be subdued,” he added.
Container shipping lines have been hit by big falls in demand for the consumer goods that are their main cargo allied to a growing overcapacity problem as ships delivered during the sector’s record boom earlier this decade are delivered.
This week, Israel’s Zim announced restructuring plans to ward off insolvency and said it expected to burn through $1bn cash by 2013. Last week, Germany’s Hapag-Lloyd was forced to sell a stake in a key container terminal to its shareholders to avoid collapse.
Under Mr Tung, chairman and son of the company’s founder, OOCL has gained a particularly strong reputation for excellent management of information technology, a problem area for many container carriers.
The group-level loss compared with $158m in net profit for the same period in 2008. Group revenue fell 35.5 per cent to $2.07bn. “The deterioration in the performance of the container transport and logistics operations was a result of dramatically reduced revenue as business volumes suffered across all trade lines,” Mr Tung said.
Hanjin’s loss compared with $254m profits for the first half, with revenue down 40 per cent to $2.56bn.
OOIL’s net debt increased from $295m at the end of 2008 to $724m, and it cancelled its interim dividend. Hanjin recently shored up its balance sheet by selling some ships to a Korean government agency set up to help shipping lines.
Hanjin operates the world’s 10th-largest container ship fleet, according to AXS-Alphaliner, while OOCL has the 12th largest.
Swan Says Australian Economic Recovery Will Be Modest (Update1)
Aug. 9 (Bloomberg) -- Australia’s full recovery from the global economic slump will be “a slow process” and the jobless rate is expected to rise further, Treasurer Wayne Swan said.
Fiscals stimulus has been “vital in cushioning us from the worst effects of the global recession,” Swan said in a weekly note on the state of the Asia-Pacific region’s fourth-largest economy.
The government distributed A$12 billion ($10 million) in cash handouts to households this year and pledged a further $22 billion to upgrade roads, railways, ports and hospitals, while the central bank cut its benchmark interest rate to a 49-year low. Reports last week showed retail sales climbed more than economists estimated in the second quarter and employers hired the most workers in more than a year in July.
“This is all heartening news but we’re not getting carried away,” Swan said today. “The pace of recovery is still expected to be modest.”
The economy has outperformed many other industrialized nations and bettered the Reserve Bank of Australia’s expectations as the government’s stimulus stoked consumer spending and strengthening Chinese demand for commodities supports the nation’s export industry.
‘V-Shaped Recovery’
Swan is trying to “downplay expectations -- it’s a traditional case of under-promising and over-delivering,” said Craig James, chief equities economist at Commonwealth Bank of Australia in Sydney. “We’ve got improvement happening in the rest of the world and it is increasingly looking like a V-shaped recovery here in Australia.”
Two days ago, the central bank scrapped a May forecast for the economy to contract 1 percent this year, instead predicting gross domestic product will expand 0.5 percent in 2009 before growing 2.25 percent next year.
The bank has kept the overnight cash rate target unchanged at 3 percent the past four months on signs of a pickup in the economy. Investors predict the benchmark rate will be 162 basis points higher in a year as Australia’s economy gathers pace, a Credit Suisse Group AG index of swaps trading showed on Aug. 7.
Retail sales adjusted to remove inflation jumped 2 percent from the previous quarter in the three months ended June 30 as consumers spent more at department stores, the statistics bureau reported on Aug. 4. In contrast, U.S. retail turnover dropped 1.6 percent in the same period, Canada’s fell 2.2 percent and Japan’s slumped 2.5 percent, according to Swan’s note.
The quarterly rise in Australian retail sales “will feed into the estimate of June-quarter GDP growth and it is the strongest increase in almost two years,” Swan said. “Our stimulus is working.”
Unemployment Rate
Australian employers unexpectedly added 32,200 workers in July, helping keep the jobless rate steady at 5.8 percent. The median estimate in a Bloomberg News survey of economists was for 18,000 jobs to be lost and unemployment to climb to 6 percent last month.
“Because of continuing difficulties in the global economy, the unemployment rate is expected to rise further,” Swan said today. “But the stimulus is playing a role in keeping the unemployment rate lower than it would otherwise be.”
Fiscals stimulus has been “vital in cushioning us from the worst effects of the global recession,” Swan said in a weekly note on the state of the Asia-Pacific region’s fourth-largest economy.
The government distributed A$12 billion ($10 million) in cash handouts to households this year and pledged a further $22 billion to upgrade roads, railways, ports and hospitals, while the central bank cut its benchmark interest rate to a 49-year low. Reports last week showed retail sales climbed more than economists estimated in the second quarter and employers hired the most workers in more than a year in July.
“This is all heartening news but we’re not getting carried away,” Swan said today. “The pace of recovery is still expected to be modest.”
The economy has outperformed many other industrialized nations and bettered the Reserve Bank of Australia’s expectations as the government’s stimulus stoked consumer spending and strengthening Chinese demand for commodities supports the nation’s export industry.
‘V-Shaped Recovery’
Swan is trying to “downplay expectations -- it’s a traditional case of under-promising and over-delivering,” said Craig James, chief equities economist at Commonwealth Bank of Australia in Sydney. “We’ve got improvement happening in the rest of the world and it is increasingly looking like a V-shaped recovery here in Australia.”
Two days ago, the central bank scrapped a May forecast for the economy to contract 1 percent this year, instead predicting gross domestic product will expand 0.5 percent in 2009 before growing 2.25 percent next year.
The bank has kept the overnight cash rate target unchanged at 3 percent the past four months on signs of a pickup in the economy. Investors predict the benchmark rate will be 162 basis points higher in a year as Australia’s economy gathers pace, a Credit Suisse Group AG index of swaps trading showed on Aug. 7.
Retail sales adjusted to remove inflation jumped 2 percent from the previous quarter in the three months ended June 30 as consumers spent more at department stores, the statistics bureau reported on Aug. 4. In contrast, U.S. retail turnover dropped 1.6 percent in the same period, Canada’s fell 2.2 percent and Japan’s slumped 2.5 percent, according to Swan’s note.
The quarterly rise in Australian retail sales “will feed into the estimate of June-quarter GDP growth and it is the strongest increase in almost two years,” Swan said. “Our stimulus is working.”
Unemployment Rate
Australian employers unexpectedly added 32,200 workers in July, helping keep the jobless rate steady at 5.8 percent. The median estimate in a Bloomberg News survey of economists was for 18,000 jobs to be lost and unemployment to climb to 6 percent last month.
“Because of continuing difficulties in the global economy, the unemployment rate is expected to rise further,” Swan said today. “But the stimulus is playing a role in keeping the unemployment rate lower than it would otherwise be.”
Japanese Banks Should Cut Their Stock Holdings, Regulator Says
Japanese banks should use a state- backed share purchase program to reduce stock holdings that caused $10 billion of losses at the nation’s three biggest lenders last year, the country’s top financial regulator said.
“A bank’s financial standing is linked to its holdings of investments such as shares, and I’d like to see forward-looking risk controls,” Katsunori Mikuniya, 58, who became commissioner of the Financial Services Agency on July 14, said in an interview. “The Banks’ Shareholdings Purchase Corporation is now available, and we’d like banks to use it.”
A 28 percent rally in the Nikkei 225 Stock Average since the April 1 start of Japan’s financial year may give banks a chance to sell stocks at a profit. Mitsubishi UFJ Financial Group Inc., the nation’s biggest bank, said last month it was sitting on 500.7 billion yen of unrealized gains on its share portfolio after booking 409 billion yen of losses last year.
“The large banks all have huge cross shareholdings in equities and they don’t need these things,” said Daniel Tabbush, a Bangkok-based analyst at CLSA Asia-Pacific Markets. “The problem is there is too much volatility in the earnings of the Japanese banks and capital with the market going up and down.”
The government passed legislation in March allowing it to buy as much as 20 trillion yen of shares held by the lenders to boost their capital and bolster a stock market. The Banks’ Shareholders Purchase Corporation purchased a total of 137.9 billion yen in stocks by the end of July, equivalent to 6.9 percent of the fund’s budget to March 2012.
Voluntary Cuts
Japanese laws on bank shareholdings are presently limited to ensuring that stock portfolios don’t exceed Tier 1 capital. Mikuniya, who joined Japan’s finance ministry in 1974 and served as the director general of the regulator’s supervisory bureau before becoming commissioner, said further reductions should be voluntary. Mikuniya, who was speaking on Aug. 5, cautioned that forced sales could be disruptive to the economy and markets.
Banks held 18.7 trillion yen in shares as of March 31, compared with 44.3 trillion yen in March 2001, according to data from the Japanese Bankers Association.
“Banks worry about losing their relationships with firms they’re invested in, and being able to lend to them after selling shares,” said Reiko Toritani, an analyst at Fitch Ratings in Tokyo. “Companies don’t want banks to sell the shares as they want stable shareholders to block takeovers.”
The state-backed buyback program allows banks to sell at market prices without immediately affecting the stock of the companies, because the Banks’ Shareholders Purchase Corporation can hold the securities until at least 2022.
Mizuho, Sumitomo
Share holdings by the Japanese banks date back to before World War II, when many were parts of business conglomerates that spanned finance, trade and industry. Cross-shareholdings continued in the postwar era, even after the U.S. forced the formal breakup of these business groups.
Mitsubishi UFJ, and its two largest rivals, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have been forced to sell more than $18 billion of shares since December to boost capital after booking a combined loss of 1.2 trillion yen in the fiscal year ended March 31.
Mizuho Chief Executive Officer Takashi Tsukamoto said in March he wanted to cut the bank’s stockholdings to 2 trillion yen to reduce risk to earnings. The lender, which had the largest share writedowns of any bank last year, had 2.6 trillion yen in stockholdings at the end of March.
Mitsubishi UFJ CEO Nobuo Kuroyanagi said in May he also wanted to reduce shareholdings, in consultation with affected clients. The bank had the largest shareholdings of any Japanese bank at the end of June, at 4.35 trillion yen.
“It’s a good idea to try to get them to sell,” said CLSA’s Tabbush. “The best thing they could do with the money is pay it out in dividends.”
“A bank’s financial standing is linked to its holdings of investments such as shares, and I’d like to see forward-looking risk controls,” Katsunori Mikuniya, 58, who became commissioner of the Financial Services Agency on July 14, said in an interview. “The Banks’ Shareholdings Purchase Corporation is now available, and we’d like banks to use it.”
A 28 percent rally in the Nikkei 225 Stock Average since the April 1 start of Japan’s financial year may give banks a chance to sell stocks at a profit. Mitsubishi UFJ Financial Group Inc., the nation’s biggest bank, said last month it was sitting on 500.7 billion yen of unrealized gains on its share portfolio after booking 409 billion yen of losses last year.
“The large banks all have huge cross shareholdings in equities and they don’t need these things,” said Daniel Tabbush, a Bangkok-based analyst at CLSA Asia-Pacific Markets. “The problem is there is too much volatility in the earnings of the Japanese banks and capital with the market going up and down.”
The government passed legislation in March allowing it to buy as much as 20 trillion yen of shares held by the lenders to boost their capital and bolster a stock market. The Banks’ Shareholders Purchase Corporation purchased a total of 137.9 billion yen in stocks by the end of July, equivalent to 6.9 percent of the fund’s budget to March 2012.
Voluntary Cuts
Japanese laws on bank shareholdings are presently limited to ensuring that stock portfolios don’t exceed Tier 1 capital. Mikuniya, who joined Japan’s finance ministry in 1974 and served as the director general of the regulator’s supervisory bureau before becoming commissioner, said further reductions should be voluntary. Mikuniya, who was speaking on Aug. 5, cautioned that forced sales could be disruptive to the economy and markets.
Banks held 18.7 trillion yen in shares as of March 31, compared with 44.3 trillion yen in March 2001, according to data from the Japanese Bankers Association.
“Banks worry about losing their relationships with firms they’re invested in, and being able to lend to them after selling shares,” said Reiko Toritani, an analyst at Fitch Ratings in Tokyo. “Companies don’t want banks to sell the shares as they want stable shareholders to block takeovers.”
The state-backed buyback program allows banks to sell at market prices without immediately affecting the stock of the companies, because the Banks’ Shareholders Purchase Corporation can hold the securities until at least 2022.
Mizuho, Sumitomo
Share holdings by the Japanese banks date back to before World War II, when many were parts of business conglomerates that spanned finance, trade and industry. Cross-shareholdings continued in the postwar era, even after the U.S. forced the formal breakup of these business groups.
Mitsubishi UFJ, and its two largest rivals, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have been forced to sell more than $18 billion of shares since December to boost capital after booking a combined loss of 1.2 trillion yen in the fiscal year ended March 31.
Mizuho Chief Executive Officer Takashi Tsukamoto said in March he wanted to cut the bank’s stockholdings to 2 trillion yen to reduce risk to earnings. The lender, which had the largest share writedowns of any bank last year, had 2.6 trillion yen in stockholdings at the end of March.
Mitsubishi UFJ CEO Nobuo Kuroyanagi said in May he also wanted to reduce shareholdings, in consultation with affected clients. The bank had the largest shareholdings of any Japanese bank at the end of June, at 4.35 trillion yen.
“It’s a good idea to try to get them to sell,” said CLSA’s Tabbush. “The best thing they could do with the money is pay it out in dividends.”
Thursday, July 30, 2009
Japan’s Jobless Rate Rises to Six-Year High, Prices Decline
July 31 (Bloomberg) -- Japan’s unemployment rate rose to a six-year high in June, undermining the outlook for consumer spending just as exports start to improve.
The jobless rate advanced to 5.4 percent from 5.2 percent in May, the statistics bureau said today in Tokyo, higher than the 5.3 percent median forecast of economists surveyed. Consumer prices excluding fresh food, the central bank’s preferred gauge, fell a record 1.7 percent in June, a separate report showed.
Economists expect the jobless rate to rise to a record 5.8 percent as production at three quarters of last year’s levels exerts pressure on costs even as companies start to ship more goods. Deflation may erode corporate profits, further hampering Japan’s recovery from its deepest postwar recession.
“Worsening job prospects will continue to weigh on Japan’s recovery,” said Yasuhiro Onakado, chief economist in Tokyo at Daiwa SB Investments Ltd. in Tokyo. “The export recovery is helping production but capacity utilization is still low and companies are still saddled with excess capacity and employment.”
The yen traded at 95.52 per dollar at 10:04 a.m. in Tokyo from 95.46 before the report was published. The Nikkei 225 Stock Average rose 1.4 percent to 10,305.40, heading for its highest close since Oct 6, after Sony Corp. posted a smaller than expected quarterly loss.
Given Japan’s current production levels, companies have 6 million extra workers, the highest ever, the Cabinet Office said last week. A report yesterday showed that while output increased 2.4 percent in June from the previous month, it fell 23.4 percent from a year ago.
Record Low
The number of positions available to each job applicant rose stood at 0.43, a record low, the Labor Ministry said. Economists regard the ratio as a leading indicator for the unemployment rate.
Consumers have received temporary relief from the downturn from Prime Minister Taro Aso’s 25 trillion yen ($262 billion) in stimulus spending that included measures ranging from cash handouts to tax breaks on fuel-efficient vehicles. The packages helped bolster consumer confidence to an 18-month high in June.
Household spending rose 0.2 percent, a second monthly gain, a separate report showed today. Economists expected outlays to increase 0.5 percent.
“Consumer spending will clearly start weaken once the impact of the stimulus packages fades,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
Nintendo Co. and Sony, the largest makers of game consoles, are facing mounting pressure to cut prices after reports yesterday showed sales of the motion-sensing Wii fell for the first time and PlayStation 3 shipments tumbled to a two-year low.
The U.S. unemployment rate rose to a quarter-century high of 9.5 percent in June and in the euro zone it reached a decade high of 9.5 percent in May.
Saving More
At home, consumers are starting to save more, prompting retailers to offer cheaper products to lure consumers. Department store operator Millenium Retailing Inc. will start selling cheaper, generic products in September, according to Nagatoshi Nii, spokesman at the retailer. Aeon Co., Japan’s second-largest retailer, started selling house-brand beer that’s 20 percent cheaper than equivalent products at major breweries.
The drop in consumer prices will probably accelerate through the third quarter and exceed 2 percent in reaction to last year’s record increases in oil, Bank of Japan board member Tadao Noda said yesterday. Declines will moderate after that as the economy improves, he added.
Summer bonuses at Japan’s largest companies will slide a record 18.3 percent this year, according to a survey published last month by the Keidanren, the country’s biggest business lobby. The average budget for this summer vacation for each individual dropped 18 percent to 88,000 yen ($925) from last year, the lowest in four years, Dentsu Research Inc. reported this week.
The jobless rate advanced to 5.4 percent from 5.2 percent in May, the statistics bureau said today in Tokyo, higher than the 5.3 percent median forecast of economists surveyed. Consumer prices excluding fresh food, the central bank’s preferred gauge, fell a record 1.7 percent in June, a separate report showed.
Economists expect the jobless rate to rise to a record 5.8 percent as production at three quarters of last year’s levels exerts pressure on costs even as companies start to ship more goods. Deflation may erode corporate profits, further hampering Japan’s recovery from its deepest postwar recession.
“Worsening job prospects will continue to weigh on Japan’s recovery,” said Yasuhiro Onakado, chief economist in Tokyo at Daiwa SB Investments Ltd. in Tokyo. “The export recovery is helping production but capacity utilization is still low and companies are still saddled with excess capacity and employment.”
The yen traded at 95.52 per dollar at 10:04 a.m. in Tokyo from 95.46 before the report was published. The Nikkei 225 Stock Average rose 1.4 percent to 10,305.40, heading for its highest close since Oct 6, after Sony Corp. posted a smaller than expected quarterly loss.
Given Japan’s current production levels, companies have 6 million extra workers, the highest ever, the Cabinet Office said last week. A report yesterday showed that while output increased 2.4 percent in June from the previous month, it fell 23.4 percent from a year ago.
Record Low
The number of positions available to each job applicant rose stood at 0.43, a record low, the Labor Ministry said. Economists regard the ratio as a leading indicator for the unemployment rate.
Consumers have received temporary relief from the downturn from Prime Minister Taro Aso’s 25 trillion yen ($262 billion) in stimulus spending that included measures ranging from cash handouts to tax breaks on fuel-efficient vehicles. The packages helped bolster consumer confidence to an 18-month high in June.
Household spending rose 0.2 percent, a second monthly gain, a separate report showed today. Economists expected outlays to increase 0.5 percent.
“Consumer spending will clearly start weaken once the impact of the stimulus packages fades,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
Nintendo Co. and Sony, the largest makers of game consoles, are facing mounting pressure to cut prices after reports yesterday showed sales of the motion-sensing Wii fell for the first time and PlayStation 3 shipments tumbled to a two-year low.
The U.S. unemployment rate rose to a quarter-century high of 9.5 percent in June and in the euro zone it reached a decade high of 9.5 percent in May.
Saving More
At home, consumers are starting to save more, prompting retailers to offer cheaper products to lure consumers. Department store operator Millenium Retailing Inc. will start selling cheaper, generic products in September, according to Nagatoshi Nii, spokesman at the retailer. Aeon Co., Japan’s second-largest retailer, started selling house-brand beer that’s 20 percent cheaper than equivalent products at major breweries.
The drop in consumer prices will probably accelerate through the third quarter and exceed 2 percent in reaction to last year’s record increases in oil, Bank of Japan board member Tadao Noda said yesterday. Declines will moderate after that as the economy improves, he added.
Summer bonuses at Japan’s largest companies will slide a record 18.3 percent this year, according to a survey published last month by the Keidanren, the country’s biggest business lobby. The average budget for this summer vacation for each individual dropped 18 percent to 88,000 yen ($925) from last year, the lowest in four years, Dentsu Research Inc. reported this week.
HSBC May Post Loss as U.S. Unit Pushes Bad Loans to $15 Billion
July 31 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank by market value, may report a second straight loss after setting aside $15.3 billion, mainly for consumer loans that soured in the U.S.
The first-half net loss probably will be $600 million, compared with earnings of $7.72 billion a year earlier, according to the median estimate of seven analysts surveyed by Bloomberg. London-based HSBC had a $2 billion loss in the second half of 2008 after bad-loan provisions increased 37 percent.
“The key thing is the U.S.,” said Leigh Goodwin, a London-based analyst at Fox-Pitt, Kelton Cochran Caronia Waller LLC, who has an “outperform” rating on HSBC. “We will be looking for any signs they have turned the corner.”
HSBC has disclosed $53 billion of provisions in the past three years, much of which stems from the 2003 takeover of U.S. finance company Household International Inc. HSBC decided in March to stop making consumer loans at the operation and Chief Executive Officer Michael Geoghegan said the same month that the bank’s credit-card unit faces a “difficult” two years because of the sluggish economy.
HSBC is scheduled to report its latest results on Aug. 3. The company increased capital in April with a $17.8 billion rights offer as bad debts in the U.S. eroded reserves. The bank said in May it would take a pretax accounting charge of $4.7 billion for the rights offer because most of the shares were denominated in currencies other than U.S. dollars.
Mostly North America
North America will account for about 61 percent of the first-half provisions, compared with 67 percent during all of 2008, Paul Measday, a London-based analyst at JPMorgan Cazenove Ltd., wrote in a July 17 note to clients. Europe will represent about 19 percent, Asia 9.5 percent and Latin America 9.7 percent, he said.
About 77 percent of the funds set aside for defaults will be for consumer debt, which includes mortgages, auto finance loans, personal loans and credit cards, Measday said.
Chairman Stephen Green said in March that HSBC regrets the decision to buy Household International, now called HSBC Finance. “It’s an acquisition we wish we hadn’t done with the benefit of hindsight, and there are lessons to be learned,” Green told reporters during a March 2 conference call.
HSBC gained 3.3 percent in London trading this year, valuing the bank at 103.2 billion pounds ($170 billion). In the same period, shares of London-based Barclays Plc doubled and the 63-member Bloomberg Europe 500 Banks Index advanced 31 percent.
Not Optimistic
“I can’t imagine HSBC is going to be particularly optimistic about the U.S.” when it posts first-half results, said Julian Chillingworth, chief investment officer at London- based Rathbone Brothers Plc, which manages $21 billion of assets including HSBC stock.
HSBC’s writedowns and credit-market losses are more than twice those of Credit Suisse Group AG and Barclays Plc, according to data compiled by Bloomberg. Since the third quarter of 2007 HSBC’s $42.2 billion compares with $20.1 billion at Barclays and $18.9 billion for Credit Suisse.
Loan-loss provisions may not peak at HSBC’s U.S. unit until 2010, Anil Agarwal, a Hong Kong-based analyst at Morgan Stanley, wrote in a July 17 research note. The company injected $1.7 billion of capital into its U.S. bank and about $1 billion of equity into HSBC Finance in the first quarter. HSBC may have to add a further $6 billion of “capital support” in the next two years, Morgan Stanley analysts estimate.
No Bailout
HSBC’s first-half loss would compare with net income of $4.9 billion at JPMorgan Chase & Co., which posted credit loss provisions of $16.6 billion in the period. Bank of America Corp. made $7.5 billion after setting aside $26.8 billion in the period for credit losses.
HSBC has kept its ranking as the world’s third-largest bank by market value after emerging from the global credit freeze much healthier than U.K. competitors Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, which had to be bailed out by the government. HSBC lends 82 pence for every pound it takes in deposits, compared with 150 pence at Edinburgh-based RBS.
Pretax profit at HSBC’s securities unit, led by Stuart Gulliver, may more than double to about $6 billion, Deutsche Bank analyst Michael Chang wrote in a July 23 note to clients. The division had record first-quarter earnings, lifted by foreign exchange and interest-rate trading and bond sales, the bank said in May. The securities unit “could be a source of upside for consensus expectations on results day,” Chang said.
China Listing
HSBC, which gained more than 17 percent of its profit from China last year, may become one of the first foreign companies to be asked to list its shares in China’s A-share market, Goldman Sachs Group Inc. analyst Roy Ramos wrote in a note July 20. The A-share market includes shares of mainland companies listed on the Shanghai or Shenzhen stock exchanges.
“The branding, advertising and positioning advantages of being one of the first foreign-listed banks in China could be significant” and help increase deposits, Ramos said.
The bank’s currency-trading capabilities in Hong Kong and China also make HSBC “better placed than most” to gain from China’s plan to increase international trade using the yuan, rather than the U.S. dollar, Ramos said. New York-based Goldman Sachs advised HSBC on its rights offering.
The first-half net loss probably will be $600 million, compared with earnings of $7.72 billion a year earlier, according to the median estimate of seven analysts surveyed by Bloomberg. London-based HSBC had a $2 billion loss in the second half of 2008 after bad-loan provisions increased 37 percent.
“The key thing is the U.S.,” said Leigh Goodwin, a London-based analyst at Fox-Pitt, Kelton Cochran Caronia Waller LLC, who has an “outperform” rating on HSBC. “We will be looking for any signs they have turned the corner.”
HSBC has disclosed $53 billion of provisions in the past three years, much of which stems from the 2003 takeover of U.S. finance company Household International Inc. HSBC decided in March to stop making consumer loans at the operation and Chief Executive Officer Michael Geoghegan said the same month that the bank’s credit-card unit faces a “difficult” two years because of the sluggish economy.
HSBC is scheduled to report its latest results on Aug. 3. The company increased capital in April with a $17.8 billion rights offer as bad debts in the U.S. eroded reserves. The bank said in May it would take a pretax accounting charge of $4.7 billion for the rights offer because most of the shares were denominated in currencies other than U.S. dollars.
Mostly North America
North America will account for about 61 percent of the first-half provisions, compared with 67 percent during all of 2008, Paul Measday, a London-based analyst at JPMorgan Cazenove Ltd., wrote in a July 17 note to clients. Europe will represent about 19 percent, Asia 9.5 percent and Latin America 9.7 percent, he said.
About 77 percent of the funds set aside for defaults will be for consumer debt, which includes mortgages, auto finance loans, personal loans and credit cards, Measday said.
Chairman Stephen Green said in March that HSBC regrets the decision to buy Household International, now called HSBC Finance. “It’s an acquisition we wish we hadn’t done with the benefit of hindsight, and there are lessons to be learned,” Green told reporters during a March 2 conference call.
HSBC gained 3.3 percent in London trading this year, valuing the bank at 103.2 billion pounds ($170 billion). In the same period, shares of London-based Barclays Plc doubled and the 63-member Bloomberg Europe 500 Banks Index advanced 31 percent.
Not Optimistic
“I can’t imagine HSBC is going to be particularly optimistic about the U.S.” when it posts first-half results, said Julian Chillingworth, chief investment officer at London- based Rathbone Brothers Plc, which manages $21 billion of assets including HSBC stock.
HSBC’s writedowns and credit-market losses are more than twice those of Credit Suisse Group AG and Barclays Plc, according to data compiled by Bloomberg. Since the third quarter of 2007 HSBC’s $42.2 billion compares with $20.1 billion at Barclays and $18.9 billion for Credit Suisse.
Loan-loss provisions may not peak at HSBC’s U.S. unit until 2010, Anil Agarwal, a Hong Kong-based analyst at Morgan Stanley, wrote in a July 17 research note. The company injected $1.7 billion of capital into its U.S. bank and about $1 billion of equity into HSBC Finance in the first quarter. HSBC may have to add a further $6 billion of “capital support” in the next two years, Morgan Stanley analysts estimate.
No Bailout
HSBC’s first-half loss would compare with net income of $4.9 billion at JPMorgan Chase & Co., which posted credit loss provisions of $16.6 billion in the period. Bank of America Corp. made $7.5 billion after setting aside $26.8 billion in the period for credit losses.
HSBC has kept its ranking as the world’s third-largest bank by market value after emerging from the global credit freeze much healthier than U.K. competitors Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, which had to be bailed out by the government. HSBC lends 82 pence for every pound it takes in deposits, compared with 150 pence at Edinburgh-based RBS.
Pretax profit at HSBC’s securities unit, led by Stuart Gulliver, may more than double to about $6 billion, Deutsche Bank analyst Michael Chang wrote in a July 23 note to clients. The division had record first-quarter earnings, lifted by foreign exchange and interest-rate trading and bond sales, the bank said in May. The securities unit “could be a source of upside for consensus expectations on results day,” Chang said.
China Listing
HSBC, which gained more than 17 percent of its profit from China last year, may become one of the first foreign companies to be asked to list its shares in China’s A-share market, Goldman Sachs Group Inc. analyst Roy Ramos wrote in a note July 20. The A-share market includes shares of mainland companies listed on the Shanghai or Shenzhen stock exchanges.
“The branding, advertising and positioning advantages of being one of the first foreign-listed banks in China could be significant” and help increase deposits, Ramos said.
The bank’s currency-trading capabilities in Hong Kong and China also make HSBC “better placed than most” to gain from China’s plan to increase international trade using the yuan, rather than the U.S. dollar, Ramos said. New York-based Goldman Sachs advised HSBC on its rights offering.
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