By Catherine Dodge
Oct. 11 (Bloomberg) -- President George W. Bush said the economic crisis is affecting people around the world and governments must be sure not to take actions that contradict or interfere with one another.
``This is a serious global crisis and therefore requires a serious global response,'' Bush said today at the White House after holding talks with finance ministers from the Group of Seven industrial nations.
``The United States has a special role to play'' in confronting the turmoil in financial markets, the president said with the financial officials from the world's wealthiest nations arrayed behind him. ``Our government will continue using all the tools at our disposal.''
The finance ministers and central bankers met yesterday in Washington, their first gathering since stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
In a statement after their meeting, the policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy issued a statement saying they would ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
The officials promised to ensure major banks have access to cash and are able to tap public funds for capital.
U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile.
`Clear' Trend
``We see the need -- a clear, present need -- to raise capital,'' Paulson said yesterday at a press conference after yesterday's meeting. ``We need to restore confidence.
The purchases of stock, the newest part of a rescue plan engineered by Paulson, would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades.
The U.S. Congress last week passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy mortgage securities and other troubled assets and to purchase equity in banks. Paulson declined yesterday to give a timetable or details about the purchases.
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
Bush's statement today was his second on the financial crisis in as many days as he looks to reassure Americans that their government is taking action to solve the credit crisis that is creating widespread uncertainty throughout the global economy.
Bush's predecessor, former President Bill Clinton, also convened with the G-7 finance ministers during a 1998 financial crisis.
To contact the reporter on this story: Catherine Dodge in Washington at Cdodge1@bloomberg.net.
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Saturday, October 11, 2008
Illinois, Michigan Banks Shut by Regulators; Toll Climbs to 15
By Alison Vekshin and Ian Katz
Oct. 11 (Bloomberg) -- Illinois and Michigan banks with $123 million in deposits were closed by state regulators as tightening credit and a deepening real-estate slump pushes failures this year to 15, the most since 1993.
Meridian Bank of Eldred, Illinois, with $39 million in assets and $37 million in deposits, was shut by the state yesterday and National Bank of Hillsboro, Illinois, bought the deposits from the Federal Deposit Insurance Corp. Four branches in southern and western Illinois reopen today, a fifth opens Oct. 14, the FDIC said in a statement.
Main Street Bank of Northville, Michigan, with $98 million in assets and $86 million in deposits, was turned over to the FDIC yesterday. Monroe Bank & Trust of Monroe, Michigan, bought the deposits and today will open its two offices near Detroit as branches.
``The dramatic downturn in the residential real estate market unfortunately knocked the wind'' out of Main Street, Ken Ross, commissioner of Michigan's Office of Financial and Insurance Regulation, said in a statement.
Regulators have now closed the most banks in 15 years, and the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were among the biggest in history. The housing slump and tight credit led to enactment of a $700 billion bank rescue plan, and triggered a bankruptcy by Lehman Brothers Holdings Inc. and nationalization of Fannie Mae and Freddie Mac.
Insurance Fund
The FDIC said Main Street, based 25 miles west of Detroit, will cost the deposit insurance fund $33 million to $39 million and closing Meridian will cost $13 million to $14.5 million. The fund had $45.2 billion at the end of the second quarter.
In Michigan, Monroe Bank agreed to pay a premium of 1 percent for Main Street's deposits, the FDIC said. Monroe also will buy about $16.9 million in assets and has a 90-day option to acquire $1.1 million additional assets of the failed bank.
National Bank will purchase about $7.5 million of Meridian's assets and didn't pay the FDIC a premium for the right to assume all of the failed bank's assets, the FDIC said. The FDIC retains the remaining assets.
Meridian's four offices in the Illinois towns of Altamont, Carlyle and Eldred will open today, the Alton office near St. Louis reopens Oct. 14, the FDIC said.
All depositors of Main Street and Meridian will have uninterrupted access to their money, which will continue to be insured, the FDIC said.
Deposit Premiums
The FDIC insures deposits of up to $250,000 per depositor per bank and a similar amount for some retirement accounts at 8,451 institutions with $13.3 trillion in assets. The agency is doubling the premiums banks pay to replenish the reserves amid forecasts failures through 2013 will cost almost $40 billion.
Washington Mutual, the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, agreed to be acquired by Wells Fargo & Co. for $11.7 billion, trumping an FDIC-brokered sale of banking operations to Citigroup Inc.
The FDIC is running a successor to California lender IndyMac Bancorp, closed in July in the fourth-largest bank seizure, and easing mortgage terms for more than 1,200 borrowers. The failure drained more than 10 percent from the U.S. insurance fund.
`Problem' Banks
The agency in August said 117 banks were classified as ``problem'' in the second quarter, a 30 percent jump from the first quarter. The agency doesn't name the ``problem'' lenders.
Before today's action, 39 banks failed since October 2000, according to a list at fdic.gov.
Regulators this year also closed Ameribank in Northfork, West Virginia, on Sept. 19; Silver State Bank of Henderson, Nevada, on Sept. 5; Integrity Bank of Alpharetta, Georgia, Columbian Bank and Trust of Topeka, Kansas, and First Priority Bank of Bradenton, Florida, in August; Reno-based First National Bank of Nevada and Newport Beach, California-based First Heritage Bank in July; Staples, Minnesota-based First Integrity Bank and ANB Financial in Bentonville, Arkansas, in May; Hume Bank in Hume, Missouri, in March; and Douglass National Bank in Kansas City, Missouri, in January.
To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- Illinois and Michigan banks with $123 million in deposits were closed by state regulators as tightening credit and a deepening real-estate slump pushes failures this year to 15, the most since 1993.
Meridian Bank of Eldred, Illinois, with $39 million in assets and $37 million in deposits, was shut by the state yesterday and National Bank of Hillsboro, Illinois, bought the deposits from the Federal Deposit Insurance Corp. Four branches in southern and western Illinois reopen today, a fifth opens Oct. 14, the FDIC said in a statement.
Main Street Bank of Northville, Michigan, with $98 million in assets and $86 million in deposits, was turned over to the FDIC yesterday. Monroe Bank & Trust of Monroe, Michigan, bought the deposits and today will open its two offices near Detroit as branches.
``The dramatic downturn in the residential real estate market unfortunately knocked the wind'' out of Main Street, Ken Ross, commissioner of Michigan's Office of Financial and Insurance Regulation, said in a statement.
Regulators have now closed the most banks in 15 years, and the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were among the biggest in history. The housing slump and tight credit led to enactment of a $700 billion bank rescue plan, and triggered a bankruptcy by Lehman Brothers Holdings Inc. and nationalization of Fannie Mae and Freddie Mac.
Insurance Fund
The FDIC said Main Street, based 25 miles west of Detroit, will cost the deposit insurance fund $33 million to $39 million and closing Meridian will cost $13 million to $14.5 million. The fund had $45.2 billion at the end of the second quarter.
In Michigan, Monroe Bank agreed to pay a premium of 1 percent for Main Street's deposits, the FDIC said. Monroe also will buy about $16.9 million in assets and has a 90-day option to acquire $1.1 million additional assets of the failed bank.
National Bank will purchase about $7.5 million of Meridian's assets and didn't pay the FDIC a premium for the right to assume all of the failed bank's assets, the FDIC said. The FDIC retains the remaining assets.
Meridian's four offices in the Illinois towns of Altamont, Carlyle and Eldred will open today, the Alton office near St. Louis reopens Oct. 14, the FDIC said.
All depositors of Main Street and Meridian will have uninterrupted access to their money, which will continue to be insured, the FDIC said.
Deposit Premiums
The FDIC insures deposits of up to $250,000 per depositor per bank and a similar amount for some retirement accounts at 8,451 institutions with $13.3 trillion in assets. The agency is doubling the premiums banks pay to replenish the reserves amid forecasts failures through 2013 will cost almost $40 billion.
Washington Mutual, the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, agreed to be acquired by Wells Fargo & Co. for $11.7 billion, trumping an FDIC-brokered sale of banking operations to Citigroup Inc.
The FDIC is running a successor to California lender IndyMac Bancorp, closed in July in the fourth-largest bank seizure, and easing mortgage terms for more than 1,200 borrowers. The failure drained more than 10 percent from the U.S. insurance fund.
`Problem' Banks
The agency in August said 117 banks were classified as ``problem'' in the second quarter, a 30 percent jump from the first quarter. The agency doesn't name the ``problem'' lenders.
Before today's action, 39 banks failed since October 2000, according to a list at fdic.gov.
Regulators this year also closed Ameribank in Northfork, West Virginia, on Sept. 19; Silver State Bank of Henderson, Nevada, on Sept. 5; Integrity Bank of Alpharetta, Georgia, Columbian Bank and Trust of Topeka, Kansas, and First Priority Bank of Bradenton, Florida, in August; Reno-based First National Bank of Nevada and Newport Beach, California-based First Heritage Bank in July; Staples, Minnesota-based First Integrity Bank and ANB Financial in Bentonville, Arkansas, in May; Hume Bank in Hume, Missouri, in March; and Douglass National Bank in Kansas City, Missouri, in January.
To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net.
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Paulson Indicates Need to Purchase Bank Equity `Soon as We Can'
By John Brinsley and Rebecca Christie
Oct. 11 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile.
``We see the need -- a clear, present need -- to raise capital,'' Paulson said yesterday at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The purchases of stock, the newest part of a rescue plan engineered by Paulson, would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades.
The U.S. Congress last week passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy mortgage securities and other troubled assets and to purchase equity in banks. Paulson declined yesterday to give a timetable or details about the purchases.
``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''
Paulson would be following U.K. Prime Minister Gordon Brown's plan to help beleaguered banks in that country. Brown is pursuing a 50 billion pound ($87 billion) program that partly nationalizes at least eight lenders.
Neel Kashkari, the Treasury official Paulson picked to manage the rescue operations, is scheduled to give a speech Oct. 13 to discuss the way forward.
Falling home prices and illiquid securities tied to mortgages in the past 14 months led to the collapse of some of the country's biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
`Broad' Purchases
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury's coming program of ``broad'' mortgage asset purchases, he said.
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said. ``Such a program would be designed to encourage the raising of new private capital to complement public capital.''
Buying senior preferred shares of non-voting stock from financial companies is ``the quickest way to inject liquidity into the markets, get credit flowing again and protect the taxpayer at the same time,'' Senator Bob Corker, a Republican from Tennessee on the banking committee, said yesterday in a statement.
Fresh Capital
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion -- roughly half of which have already been written down or recognized as losses.
Paulson declined to say how Treasury would divide the $700 billion toward purchases of troubled assets and injections of equity capital. ``I am not prepared to say anything today with the kind of detail as to relative sizes of the two efforts,'' he said.
``Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,'' Paulson said.
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
``We'll have some volatility for a while'' Paulson said. ``We need to restore confidence.
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile.
``We see the need -- a clear, present need -- to raise capital,'' Paulson said yesterday at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The purchases of stock, the newest part of a rescue plan engineered by Paulson, would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades.
The U.S. Congress last week passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy mortgage securities and other troubled assets and to purchase equity in banks. Paulson declined yesterday to give a timetable or details about the purchases.
``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''
Paulson would be following U.K. Prime Minister Gordon Brown's plan to help beleaguered banks in that country. Brown is pursuing a 50 billion pound ($87 billion) program that partly nationalizes at least eight lenders.
Neel Kashkari, the Treasury official Paulson picked to manage the rescue operations, is scheduled to give a speech Oct. 13 to discuss the way forward.
Falling home prices and illiquid securities tied to mortgages in the past 14 months led to the collapse of some of the country's biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
`Broad' Purchases
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury's coming program of ``broad'' mortgage asset purchases, he said.
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said. ``Such a program would be designed to encourage the raising of new private capital to complement public capital.''
Buying senior preferred shares of non-voting stock from financial companies is ``the quickest way to inject liquidity into the markets, get credit flowing again and protect the taxpayer at the same time,'' Senator Bob Corker, a Republican from Tennessee on the banking committee, said yesterday in a statement.
Fresh Capital
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion -- roughly half of which have already been written down or recognized as losses.
Paulson declined to say how Treasury would divide the $700 billion toward purchases of troubled assets and injections of equity capital. ``I am not prepared to say anything today with the kind of detail as to relative sizes of the two efforts,'' he said.
``Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,'' Paulson said.
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
``We'll have some volatility for a while'' Paulson said. ``We need to restore confidence.
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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Saudi Advanced Third-Quarter Net Rises 55% on Investment Gains
By Glen Carey
Oct. 11 (Bloomberg) -- Saudi Advanced Industries Co., a Riyadh-based company that manufactures airplane parts, said third-quarter profit advanced 55 percent on gains from investments and lower costs.
Net income increased to 4.75 million riyals ($1.27 million), from 3.07 million riyals a year earlier, the Riyadh-based company said today in a statement posted on the Web site of the Saudi bourse. The company didn't provide earnings per share for the third quarter.
Nine-month net income rose to 17.5 million riyals, or 0.40 riyal a share, from 10.4 million riyals, or 0.24 riyal a share, the company said.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net.
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Oct. 11 (Bloomberg) -- Saudi Advanced Industries Co., a Riyadh-based company that manufactures airplane parts, said third-quarter profit advanced 55 percent on gains from investments and lower costs.
Net income increased to 4.75 million riyals ($1.27 million), from 3.07 million riyals a year earlier, the Riyadh-based company said today in a statement posted on the Web site of the Saudi bourse. The company didn't provide earnings per share for the third quarter.
Nine-month net income rose to 17.5 million riyals, or 0.40 riyal a share, from 10.4 million riyals, or 0.24 riyal a share, the company said.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net.
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Safco Quarterly Net Income Almost Triples on Prices
By Glen Carey
Oct. 11 (Bloomberg) -- Saudi Arabian Fertilizer Co., a unit of Saudi Basic Industries Corp., said third-quarter profit almost tripled as it raised production to tap fertilizer demand.
Net income rose to 1.83 billion riyals ($488 million) from 616.2 million riyals in the year-earlier period, the Dammam, Saudi Arabia-based company, known as Safco, said today in a statement posted on the Web site of the Saudi bourse. It didn't provide quarterly earnings per share.
Rising demand for food products in China, India and Brazil has driven up global fertilizer prices, according to the Web site of the U.S.-based The Fertilizer Institute. Asian countries will use 59 percent of the fertilizer consumed globally over the next four years, according to a report on the Web site of the United Nation's Food and Agriculture Organization.
``There has been an increase in fertilizer prices and higher global demand,'' Faisal Hasan, head of research at Global Investment House KSCC, said in a telephone interview from Kuwait City today. ``Safco also has raised its production capacity.''
Safco, which is 43 percent owned by Saudi Basic Industries, doubled production capacity to 5 million tons last year after an expansion in April 2007. It produces 66 percent of the kingdom's fertilizers, according to a Global Investment House report on Safco in June. At the end of 2007, Saudi Arabia had fertilizer production capacity of 6.8 million tons, representing 25 percent of total Middle East's capacity, according to Global Investment.
Global Investment, which has a ``hold'' recommendation and a price estimate of 252.5 riyals, had forecast quarterly net income of 1.04 billion riyals for Safco. Credit Suisse Group AG has an ``outperform'' recommendation and a price estimate of 330 riyals for the fertilizer maker.
Safco's earnings may bolster profit at chemicals maker Saudi Basic Industries. Sabic, the largest company in the Middle East by market value, may report its weakest net income growth in nine consecutive quarters as U.S. and European demand declines and petrochemical prices fall.
Like Sabic, Safco benefits from discounted natural gas supplied by the kingdom and government efforts to diversify the economy away from oil. The world's largest oil exporter may grow by 4.9 percent in 2008, according to the median estimate of seven economists surveyed by Bloomberg News.
Safco's nine-month net income increased to 3.74 billion riyals, or 14.98 riyals a share, from 1.47 billion riyals, or 5.87 riyals a share, in the year-earlier period, the company said in the statement.
Safco advanced 1.8 percent to 144 riyals as of 1:03 p.m. local time, giving it a market value of 36 billion riyals.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net
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Oct. 11 (Bloomberg) -- Saudi Arabian Fertilizer Co., a unit of Saudi Basic Industries Corp., said third-quarter profit almost tripled as it raised production to tap fertilizer demand.
Net income rose to 1.83 billion riyals ($488 million) from 616.2 million riyals in the year-earlier period, the Dammam, Saudi Arabia-based company, known as Safco, said today in a statement posted on the Web site of the Saudi bourse. It didn't provide quarterly earnings per share.
Rising demand for food products in China, India and Brazil has driven up global fertilizer prices, according to the Web site of the U.S.-based The Fertilizer Institute. Asian countries will use 59 percent of the fertilizer consumed globally over the next four years, according to a report on the Web site of the United Nation's Food and Agriculture Organization.
``There has been an increase in fertilizer prices and higher global demand,'' Faisal Hasan, head of research at Global Investment House KSCC, said in a telephone interview from Kuwait City today. ``Safco also has raised its production capacity.''
Safco, which is 43 percent owned by Saudi Basic Industries, doubled production capacity to 5 million tons last year after an expansion in April 2007. It produces 66 percent of the kingdom's fertilizers, according to a Global Investment House report on Safco in June. At the end of 2007, Saudi Arabia had fertilizer production capacity of 6.8 million tons, representing 25 percent of total Middle East's capacity, according to Global Investment.
Global Investment, which has a ``hold'' recommendation and a price estimate of 252.5 riyals, had forecast quarterly net income of 1.04 billion riyals for Safco. Credit Suisse Group AG has an ``outperform'' recommendation and a price estimate of 330 riyals for the fertilizer maker.
Safco's earnings may bolster profit at chemicals maker Saudi Basic Industries. Sabic, the largest company in the Middle East by market value, may report its weakest net income growth in nine consecutive quarters as U.S. and European demand declines and petrochemical prices fall.
Like Sabic, Safco benefits from discounted natural gas supplied by the kingdom and government efforts to diversify the economy away from oil. The world's largest oil exporter may grow by 4.9 percent in 2008, according to the median estimate of seven economists surveyed by Bloomberg News.
Safco's nine-month net income increased to 3.74 billion riyals, or 14.98 riyals a share, from 1.47 billion riyals, or 5.87 riyals a share, in the year-earlier period, the company said in the statement.
Safco advanced 1.8 percent to 144 riyals as of 1:03 p.m. local time, giving it a market value of 36 billion riyals.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net
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Saudi Shares Decline for Fourth Day, Led by Saudi Basic, Samba
By Glen Carey
Oct. 11 (Bloomberg) -- Saudi Arabian shares fell a fourth day, led by Saudi Basis Industries Corp., the Middle East's biggest company by market value, and Samba Financial Group.
The Tadawul All Share Index, the biggest bourse in the Middle East, dropped 4.5 percent to 5,881.89 by 11:25 a.m. local time. It has lost 47 percent so far this year.
Sabic declined 3.9 percent to 86.75 riyals. The petrochemical maker may report a 6.8 percent rise in third- quarter net income, its weakest growth in nine quarters, to 7.9 billion riyals ($2.1 billion), from 7.4 billion riyals a year earlier, according to an average of estimates from EFG-Hermes Holding SAE, Global Investment House KSCC and Shuaa Capital PSC.
Samba Financial Group, the second largest bank in the kingdom by market value, fell 7.7 percent to 60 riyals, the lowest level since December 2004.
The Saudi stock exchange is the only Arab exchange monitored by Bloomberg that's open on Saturdays.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net
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Oct. 11 (Bloomberg) -- Saudi Arabian shares fell a fourth day, led by Saudi Basis Industries Corp., the Middle East's biggest company by market value, and Samba Financial Group.
The Tadawul All Share Index, the biggest bourse in the Middle East, dropped 4.5 percent to 5,881.89 by 11:25 a.m. local time. It has lost 47 percent so far this year.
Sabic declined 3.9 percent to 86.75 riyals. The petrochemical maker may report a 6.8 percent rise in third- quarter net income, its weakest growth in nine quarters, to 7.9 billion riyals ($2.1 billion), from 7.4 billion riyals a year earlier, according to an average of estimates from EFG-Hermes Holding SAE, Global Investment House KSCC and Shuaa Capital PSC.
Samba Financial Group, the second largest bank in the kingdom by market value, fell 7.7 percent to 60 riyals, the lowest level since December 2004.
The Saudi stock exchange is the only Arab exchange monitored by Bloomberg that's open on Saturdays.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net
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Sabic May Report Slower Third-Quarter Profit Growth: Week Ahead
By Glen Carey
Oct. 11 (Bloomberg) -- Saudi Basic Industries Corp., the biggest company in the Persian Gulf by market value, may report its weakest profit growth for nine straight quarters as U.S. and European demand declines and petrochemical prices fall.
Sabic, 70 percent owned by the Saudi government, will report a 6.8 percent rise in third-quarter net income to 7.9 billion riyals ($2.1 billion) from 7.4 billion riyals a year earlier, according to an average of estimates from EFG-Hermes Holding SAE, Global Investment House KSCC and Shuaa Capital PSC.
``It is a challenging environment for Sabic because demand is slowing,'' Laurent Gally, an industry analyst at Dubai-based Shuaa Capital, said in a phone interview in Dubai on Oct. 9. ``The upsides for the company are going to be offset by the slowdown in U.S. operations and European operations.''
The credit crisis and slowing economies threaten Sabic's payback on last year's $11.6 billion acquisition of a plastics business from General Electric Co. The purchase, the largest by a Gulf-based company, added a network of factories making resins and thermoplastic sheets used in cars, roofs and lighting, just as the auto and construction industries cut output.
Sabic has dropped 45 percent this year for a market value of 270.8 billion riyals. BASF SE, the world's largest chemicals provider, has slipped 43 percent.
EFG-Hermes, which has a ``buy'' rating on Sabic and a price estimate of 189.1 riyals, forecast profit of 8.3 billion riyals. Global Financial, with a ``buy'' recommendation and a price estimate of 168.5 riyals, predicted 7.83 billion riyals and Shuaa has put quarterly income at 7.6 billion riyals.
Feedstock Advantage
Sabic has leveraged its access to the world's biggest reserves of oil and gas by making acquisitions to expand in the U.S. and China. Purchases have come at a time when General Motors Corp. and Ford Motor Co. are cutting costs and paring output after each lost at least 17 percent in U.S. sales this year. Debt markets have also seized up as the U.S. housing market suffers its worst slump since the Great Depression.
``The problem with the GE Plastics division they bought is that 50 percent of its sales are in the U.S.,'' Gally said. ``The U.S. automotive industry has experienced a serious slowdown in sales so their demand for GE Plastics products will slow as a consequence.''
Declining petrochemical prices in Asia and Europe have also curbed Sabic's profit growth. Ethylene prices dropped 26 percent in Asia and 20 percent in Europe as of Oct. 3, year to date, while film grade polymers have declined more than 8 percent in Asia, according to Bloomberg data.
Fertilizer Prices
Sabic's operations will get support from its agrochemicals unit Saudi Arabian Fertilizer Co., which is benefiting from higher prices and rising global demand. Saudi Arabia's efforts to develop infrastructure with new industrial cities, such as the $120 billion King Abdullah Economic City on the Red Sea coast, is bolstering demand for its steel products.
``Safco exports a majority of its fertilizer products,'' Syed Taimure Akhtar, an analyst at Kuwait-based Global Investment House, said on Oct. 9. ``There is a global shortage of fertilizers and at the same time there is increasing demand for food items. This benefits Sabic.''
Sabic also pays Saudi Aramco, the world's largest government-owned oil supplier, 75 cents per million British thermal unit for natural gas, compared with current spot Henry Hub natural gas prices at $6.81 on Oct. 9 that some competitors must pay.
Markets Last Week
Persian Gulf shares dropped last week, following declines in global markets, on concern the deepening credit crunch will topple more banks and slow economic growth.
Indexes pared losses on the last trading day after some of the region's central banks followed the U.S. Federal Reserve and others in cutting interest rates to ease the effects of the worst financial crisis since the Great Depression.
The Dubai Financial Market General Index posted the biggest slump, losing 23 percent during the week, while the Abu Dhabi Securities Market Index plunged 19 percent. Saudi Arabia's Tadawul All Share Index retreated 17 percent. Bahrain's market was the best performer, declining 5.4 percent.
Emaar Properties PJSC, the region's biggest real-estate developer by market value, retreated 26 percent and Saudi Basic Industries Corp., the largest company in the Middle East, dropped 14 percent.
The following is a list of events in the Gulf next week:
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net.
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Oct. 11 (Bloomberg) -- Saudi Basic Industries Corp., the biggest company in the Persian Gulf by market value, may report its weakest profit growth for nine straight quarters as U.S. and European demand declines and petrochemical prices fall.
Sabic, 70 percent owned by the Saudi government, will report a 6.8 percent rise in third-quarter net income to 7.9 billion riyals ($2.1 billion) from 7.4 billion riyals a year earlier, according to an average of estimates from EFG-Hermes Holding SAE, Global Investment House KSCC and Shuaa Capital PSC.
``It is a challenging environment for Sabic because demand is slowing,'' Laurent Gally, an industry analyst at Dubai-based Shuaa Capital, said in a phone interview in Dubai on Oct. 9. ``The upsides for the company are going to be offset by the slowdown in U.S. operations and European operations.''
The credit crisis and slowing economies threaten Sabic's payback on last year's $11.6 billion acquisition of a plastics business from General Electric Co. The purchase, the largest by a Gulf-based company, added a network of factories making resins and thermoplastic sheets used in cars, roofs and lighting, just as the auto and construction industries cut output.
Sabic has dropped 45 percent this year for a market value of 270.8 billion riyals. BASF SE, the world's largest chemicals provider, has slipped 43 percent.
EFG-Hermes, which has a ``buy'' rating on Sabic and a price estimate of 189.1 riyals, forecast profit of 8.3 billion riyals. Global Financial, with a ``buy'' recommendation and a price estimate of 168.5 riyals, predicted 7.83 billion riyals and Shuaa has put quarterly income at 7.6 billion riyals.
Feedstock Advantage
Sabic has leveraged its access to the world's biggest reserves of oil and gas by making acquisitions to expand in the U.S. and China. Purchases have come at a time when General Motors Corp. and Ford Motor Co. are cutting costs and paring output after each lost at least 17 percent in U.S. sales this year. Debt markets have also seized up as the U.S. housing market suffers its worst slump since the Great Depression.
``The problem with the GE Plastics division they bought is that 50 percent of its sales are in the U.S.,'' Gally said. ``The U.S. automotive industry has experienced a serious slowdown in sales so their demand for GE Plastics products will slow as a consequence.''
Declining petrochemical prices in Asia and Europe have also curbed Sabic's profit growth. Ethylene prices dropped 26 percent in Asia and 20 percent in Europe as of Oct. 3, year to date, while film grade polymers have declined more than 8 percent in Asia, according to Bloomberg data.
Fertilizer Prices
Sabic's operations will get support from its agrochemicals unit Saudi Arabian Fertilizer Co., which is benefiting from higher prices and rising global demand. Saudi Arabia's efforts to develop infrastructure with new industrial cities, such as the $120 billion King Abdullah Economic City on the Red Sea coast, is bolstering demand for its steel products.
``Safco exports a majority of its fertilizer products,'' Syed Taimure Akhtar, an analyst at Kuwait-based Global Investment House, said on Oct. 9. ``There is a global shortage of fertilizers and at the same time there is increasing demand for food items. This benefits Sabic.''
Sabic also pays Saudi Aramco, the world's largest government-owned oil supplier, 75 cents per million British thermal unit for natural gas, compared with current spot Henry Hub natural gas prices at $6.81 on Oct. 9 that some competitors must pay.
Markets Last Week
Persian Gulf shares dropped last week, following declines in global markets, on concern the deepening credit crunch will topple more banks and slow economic growth.
Indexes pared losses on the last trading day after some of the region's central banks followed the U.S. Federal Reserve and others in cutting interest rates to ease the effects of the worst financial crisis since the Great Depression.
The Dubai Financial Market General Index posted the biggest slump, losing 23 percent during the week, while the Abu Dhabi Securities Market Index plunged 19 percent. Saudi Arabia's Tadawul All Share Index retreated 17 percent. Bahrain's market was the best performer, declining 5.4 percent.
Emaar Properties PJSC, the region's biggest real-estate developer by market value, retreated 26 percent and Saudi Basic Industries Corp., the largest company in the Middle East, dropped 14 percent.
The following is a list of events in the Gulf next week:
Event Date
Iran Oil Refinery Conference Oct. 11
Qatar National Bank third-quarter Results Oct. 11
Dlala Holding third-quarter results Oct. 12
Mideast Steel Conference - Dubai Oct. 13
Industries Qatar third-quarter results Oct. 15
Qatar Electricity & Water third-quarter results Oct. 15
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net.
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Sumitomo, Tata Motors May Buy Ford's Mazda Shares, Nikkei Says
By Mayumi Otsuma
Oct. 11 (Bloomberg) -- Sumitomo Corp. and Tata Motors Ltd. are among the potential buyers for shares in Mazda Motor Corp. that Ford Motor Co. is trying to sell, Nikkei English News reported, without saying where it obtained information.
Ford, which owns a third of the Japanese automaker, is considering selling some of those shares to raise funds, Nikkei said. A Mazda executive acknowledged the company is preparing for potential sales by Ford, Nikkei said, adding that Japanese competitors are unlikely to buy the shares.
State-run broadcaster NHK earlier reported that Ford asked Japanese companies to buy Mazda shares from it.
Mazda has nothing to announce, according to a statement the carmaker released in Tokyo today. Ford spokesman Mark Truby did not immediately return a phone call seeking comment.
Debasis Ray, a spokesman for Mumbai-based Tata Motors, declined to comment. A call to Sumitomo's Tokyo office went unanswered.
U.S. automakers are facing financial trouble as the worsening credit crisis makes it harder for buyers to get loans and dealers to finance operations. S&P said this week it may further trim credit ratings for General Motors Corp. and Ford on forecasts for 2009 auto demand to fall to its lowest since 1992.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Sumitomo Corp. and Tata Motors Ltd. are among the potential buyers for shares in Mazda Motor Corp. that Ford Motor Co. is trying to sell, Nikkei English News reported, without saying where it obtained information.
Ford, which owns a third of the Japanese automaker, is considering selling some of those shares to raise funds, Nikkei said. A Mazda executive acknowledged the company is preparing for potential sales by Ford, Nikkei said, adding that Japanese competitors are unlikely to buy the shares.
State-run broadcaster NHK earlier reported that Ford asked Japanese companies to buy Mazda shares from it.
Mazda has nothing to announce, according to a statement the carmaker released in Tokyo today. Ford spokesman Mark Truby did not immediately return a phone call seeking comment.
Debasis Ray, a spokesman for Mumbai-based Tata Motors, declined to comment. A call to Sumitomo's Tokyo office went unanswered.
U.S. automakers are facing financial trouble as the worsening credit crisis makes it harder for buyers to get loans and dealers to finance operations. S&P said this week it may further trim credit ratings for General Motors Corp. and Ford on forecasts for 2009 auto demand to fall to its lowest since 1992.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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Oil Demand Falls on Global Economic Woes, Iran's Nozari Says
By Ladane Nasseri
Oct. 11 (Bloomberg) -- Oil demand is faltering as the financial crisis slows global economic growth, Iranian Oil Minister Gholamhossein Nozari said, after crude oil fell below $78 yesterday for the first time in a year.
``Oil demand has decreased due to the current economic situation in the world,'' Nozari told reporters today on the sidelines of an oil-refining forum in Tehran. ``A way out needs to be found; the balance of the market is essential for oil consumers and oil producers.''
The Organization of Petroleum Exporting Countries announced this week it would hold an extraordinary meeting on Nov. 18 as the worsening credit crunch threatens to restrain economic growth and curtail energy demand. OPEC President and Algerian Oil Minister Chakib Khelil said on Oct. 9 the outcome of the meeting ``will very likely be to cut production.''
Crude oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.
The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists. The Dow Jones Industrial Average posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933. The financial turmoil has wiped out $25 trillion from global equities this year.
To contact the reporter on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net;
Read more...
Oct. 11 (Bloomberg) -- Oil demand is faltering as the financial crisis slows global economic growth, Iranian Oil Minister Gholamhossein Nozari said, after crude oil fell below $78 yesterday for the first time in a year.
``Oil demand has decreased due to the current economic situation in the world,'' Nozari told reporters today on the sidelines of an oil-refining forum in Tehran. ``A way out needs to be found; the balance of the market is essential for oil consumers and oil producers.''
The Organization of Petroleum Exporting Countries announced this week it would hold an extraordinary meeting on Nov. 18 as the worsening credit crunch threatens to restrain economic growth and curtail energy demand. OPEC President and Algerian Oil Minister Chakib Khelil said on Oct. 9 the outcome of the meeting ``will very likely be to cut production.''
Crude oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.
The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists. The Dow Jones Industrial Average posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933. The financial turmoil has wiped out $25 trillion from global equities this year.
To contact the reporter on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net;
Read more...
Yen Gains Most in Decade as Investors Abandon Risk, Carry Trade
By Daniel Kruger
Oct. 11 (Bloomberg) -- The yen rallied the most against the dollar since 1998 as a plunge in stocks around the world encouraged investors to sell higher-yielding assets and pay back low-cost loans in Japan.
Japan's yen gained versus all of the other major currencies this week as investors and economists urged Group of Seven financial officials meeting in Washington to step up efforts to prevent the global credit market crisis from choking off lending to companies and households.
``I don't think it gets more dramatic than this,'' said JensNordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``The moves we're seeing are among the most extreme this century. It's affecting all markets at the same time.''
The yen gained 5 percent to 100.08 per dollar from 105.32 on Oct. 3 after reaching 97.92, the strongest since March 19. Japan's currency advanced 6.9 percent to 135.08 per euro from 145.11 and touched 132.24, the strongest since June 2005. The euro fell 2.6 percent to $1.3418 from $1.3772 and touched $1.3259, the weakest level since March 2007.
The drop in the U.S. currency against the yen was the biggest since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of hedge fund Long-Term Capital Management LP.
Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia this week failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent yesterday, the highest since December, the British Bankers' Association said.
Canada's Dollar
Canada's dollar suffered the biggest weekly decline since January 1971, when Bloomberg records begin, falling 10 percent against the greenback as the deepening credit crisis drove investors to take refuge in the U.S. dollar.
``This is still part of the bigger picture of demand for U.S. dollars,'' said Jonathan Gencher, director of foreign- exchange sales at Bank of Montreal in Toronto.
Brazil's central bank sold dollars in the local spot market for a third day yesterday to curb an 18 percent drop in the real against the dollar in October. The real fell 13.3 percent this week to 2.3175 per dollar after touching 2.55 on Oct. 8, the weakest since April 2005.
Mexico's peso touched 14.2927 versus the dollar, the weakest since 1993, when a new peso equivalent to 1,000 old pesos was introduced. The peso ended the week down 16 percent to 13.0500 after the central bank sold a record $6.4 billion to prop up the local currency.
`All Necessary Steps'
Threatened by the worst economic outlook in a quarter- century, finance ministers and central bankers from the G-7 nations said late yesterday they're prepared to take ``all necessary steps'' to unfreeze credit markets and prevent financial companies from failing.
``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' G-7 policy makers said in a joint statement after talks in Washington. ``The current situation calls for urgent and exceptional action.''
Officials pledged to ensure that major banks have access to cash and can tap public funds for capital to reestablish confidence and keep them lending. They stopped short of embracing specific policies such as a U.K-style commitment to guarantee lending between banks.
Euro vs. Dollar
Europe's currency posted its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate this week for the first time in five years. The pound fell 3.7 percent to $1.7065 this week, falling below $1.70 yesterday for the first time since November 2003.
Investors should buy the dollar while selling the euro and the pound because interest rates in Europe and the U.K. will fall faster than in the U.S., according to Royal Bank of Scotland Group Plc. The dollar could reach $1.25 per euro and $1.58 per pound by the end of next year, the firm forecast in a note to clients.
The South Korean won rebounded from a decade-low yesterday, paring its loss for the week to 5.4 percent to 1,307.60 per dollar, after a meeting among financial regulators fueled speculation the government will intervene to support the currency. The decline was the biggest in Asia.
The yen gained 20.2 percent this week to 65.06 versus the Australian dollar, 15 percent to 59.22 against New Zealand's currency, known as the kiwi, and 7.9 percent against the euro on speculation investors will reverse trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia, 7.5 percent in New Zealand and 3.75 percent in Europe.
The Standard & Poor's 500 Index and the Dow Jones Industrial Average dropped 18 percent this week. Japan's Nikkei 225 Stock Average and Europe's Dow Jones Stoxx 600 Index had their worst weeks on record.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- The yen rallied the most against the dollar since 1998 as a plunge in stocks around the world encouraged investors to sell higher-yielding assets and pay back low-cost loans in Japan.
Japan's yen gained versus all of the other major currencies this week as investors and economists urged Group of Seven financial officials meeting in Washington to step up efforts to prevent the global credit market crisis from choking off lending to companies and households.
``I don't think it gets more dramatic than this,'' said JensNordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``The moves we're seeing are among the most extreme this century. It's affecting all markets at the same time.''
The yen gained 5 percent to 100.08 per dollar from 105.32 on Oct. 3 after reaching 97.92, the strongest since March 19. Japan's currency advanced 6.9 percent to 135.08 per euro from 145.11 and touched 132.24, the strongest since June 2005. The euro fell 2.6 percent to $1.3418 from $1.3772 and touched $1.3259, the weakest level since March 2007.
The drop in the U.S. currency against the yen was the biggest since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of hedge fund Long-Term Capital Management LP.
Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia this week failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent yesterday, the highest since December, the British Bankers' Association said.
Canada's Dollar
Canada's dollar suffered the biggest weekly decline since January 1971, when Bloomberg records begin, falling 10 percent against the greenback as the deepening credit crisis drove investors to take refuge in the U.S. dollar.
``This is still part of the bigger picture of demand for U.S. dollars,'' said Jonathan Gencher, director of foreign- exchange sales at Bank of Montreal in Toronto.
Brazil's central bank sold dollars in the local spot market for a third day yesterday to curb an 18 percent drop in the real against the dollar in October. The real fell 13.3 percent this week to 2.3175 per dollar after touching 2.55 on Oct. 8, the weakest since April 2005.
Mexico's peso touched 14.2927 versus the dollar, the weakest since 1993, when a new peso equivalent to 1,000 old pesos was introduced. The peso ended the week down 16 percent to 13.0500 after the central bank sold a record $6.4 billion to prop up the local currency.
`All Necessary Steps'
Threatened by the worst economic outlook in a quarter- century, finance ministers and central bankers from the G-7 nations said late yesterday they're prepared to take ``all necessary steps'' to unfreeze credit markets and prevent financial companies from failing.
``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' G-7 policy makers said in a joint statement after talks in Washington. ``The current situation calls for urgent and exceptional action.''
Officials pledged to ensure that major banks have access to cash and can tap public funds for capital to reestablish confidence and keep them lending. They stopped short of embracing specific policies such as a U.K-style commitment to guarantee lending between banks.
Euro vs. Dollar
Europe's currency posted its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate this week for the first time in five years. The pound fell 3.7 percent to $1.7065 this week, falling below $1.70 yesterday for the first time since November 2003.
Investors should buy the dollar while selling the euro and the pound because interest rates in Europe and the U.K. will fall faster than in the U.S., according to Royal Bank of Scotland Group Plc. The dollar could reach $1.25 per euro and $1.58 per pound by the end of next year, the firm forecast in a note to clients.
The South Korean won rebounded from a decade-low yesterday, paring its loss for the week to 5.4 percent to 1,307.60 per dollar, after a meeting among financial regulators fueled speculation the government will intervene to support the currency. The decline was the biggest in Asia.
The yen gained 20.2 percent this week to 65.06 versus the Australian dollar, 15 percent to 59.22 against New Zealand's currency, known as the kiwi, and 7.9 percent against the euro on speculation investors will reverse trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia, 7.5 percent in New Zealand and 3.75 percent in Europe.
The Standard & Poor's 500 Index and the Dow Jones Industrial Average dropped 18 percent this week. Japan's Nikkei 225 Stock Average and Europe's Dow Jones Stoxx 600 Index had their worst weeks on record.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Read more...
Hindalco Founders, Bankers Bought 80% of New Shares, Times Says
By Anil Varma
Oct. 11 (Bloomberg) -- Hindalco Industries Ltd.'s founders and underwriters bought as much as 80 percent of the new stock sold by the Indian aluminum maker after poor response from shareholders, The Economic Times reported.
The rights offer, which closed yesterday, may have fallen short of its 50.5 billion rupee ($1 billion) target by 5 billion rupees, the newspaper said, without saying where it got the information. Mumbai-based Hindalco's founders probably purchased as much as 50 percent of the shares, while banks underwriting the sale may have bought 30 percent, according to the report.
The five underwriters were ABN Amro Bank NV, Citigroup Inc., Deutsche Bank AG, DSP Merrill Lynch Ltd. and State Bank of India, the newspaper said.
Hindalco has lost 59 percent of it market value this year, compared with the 52 percent slide of the 61-stock MSCI India Index. The shares fell 7.9 percent to 408.12 rupees yesterday.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- Hindalco Industries Ltd.'s founders and underwriters bought as much as 80 percent of the new stock sold by the Indian aluminum maker after poor response from shareholders, The Economic Times reported.
The rights offer, which closed yesterday, may have fallen short of its 50.5 billion rupee ($1 billion) target by 5 billion rupees, the newspaper said, without saying where it got the information. Mumbai-based Hindalco's founders probably purchased as much as 50 percent of the shares, while banks underwriting the sale may have bought 30 percent, according to the report.
The five underwriters were ABN Amro Bank NV, Citigroup Inc., Deutsche Bank AG, DSP Merrill Lynch Ltd. and State Bank of India, the newspaper said.
Hindalco has lost 59 percent of it market value this year, compared with the 52 percent slide of the 61-stock MSCI India Index. The shares fell 7.9 percent to 408.12 rupees yesterday.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
Read more...
G-7 Commit to `All Necessary Steps' to Stem Meltdown
By Simon Kennedy
Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.
``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
Signaling they would intervene to avoid a repeat of last month's collapse of Lehman Brothers Holdings Inc., the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks, they still run a risk of disappointing investors.
``They've seen what Lehman did and the repercussions,'' said Jeff Pantages, chief investment officer at Alaska Permanent Capital Management in Anchorage, which oversees $2 billion. ``If you're a bondholder, you've got to feel better. If you're a shareholder, you're not so sure.''
A sign of the strains: The G-7 ministers today met with President George W. Bush, an echo of former President Bill Clinton's visit with the group in 1998 amid the Russian debt default and collapse of hedge fund Long Term
``This is a serious global crisis and therefore requires a serious global response,'' Bush said at the White House. The Group of 20, which includes emerging markets such as Russia and China, convenes later.
Lehman's downfall precipitated the latest chapter of the 14- month crisis, causing banks to stop lending to each other out of concern they may not get their funds back. The G-7's willingness to now back ``systematically important financial institutions'' may provide some relief for Morgan Stanley, whose stocks and bonds dropped this week on concerns for its health.
Bank Discussions
U.S. Treasury Secretary Henry Paulson said no bank was singled out in the discussions yesterday.
The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy met after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
That left them under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so and appeared disjointed. Instead, they outlined principles for all nations to follow.
Measures taken should protect taxpayers and avoid ``potentially damaging effects on other countries,'' the group said. In the past month, some European governments have taken unilateral actions to increase bank-deposit guarantees, spurring concern that savers would drain cash from nations with less protection.
Paulson said it would be ``naive'' to think that different economies in different circumstances could come up with the same policy paths.
Emergency Actions
In the past two weeks, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even so, with the three-month London interbank offered rate climbing to 4.82 percent yesterday, a record premium over the Fed's benchmark rate. The seizure spurred British policy makers to propose a program to backstop loans between banks.
G-7 officials shied away from copying the U.K. idea, which would either turn central banks into clearing houses for banks' loans or have governments back the obligations.
The jump in borrowing costs and restricted access to credit prompted Merrill Lynch & Co. to predict the G-7 economies next year will be the weakest since 1982.
Stock Slump
U.S. stocks fell for an eighth straight day yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
Policy makers expressed confidence that investors will ultimately recognize the scale of initiatives under way, including a new U.S. plan to buy stocks in a ``broad array'' of financial companies.
``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``It is normal that there is a maturing process.''
Paulson signaled his top priority is to start buying financial stocks as soon as he can. ``This is a plan that I'm quite confident will work,'' he said. The Treasury chief also said ``we have more to do in the liquidity area.''
The American plan follows U.K. Prime Minister Gordon Brown's 50 billion pound ($87 billion) program that will partly nationalize at least eight lenders and provide 250 billion pounds of loan guarantees.
Canadian Plan
Canada's government yesterday moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week.
``The situation in financial markets is demanding unusual and far-reaching decisions from all policy makers,'' Weber said. ``There is no alternative to these measures because banks have come under strong pressure.''
European leaders will go beyond the G-7's agreements in shaping their own rescue package when they meet tomorrow in Paris for a second summit in as many weekends, French Finance Minister Christine Lagarde said. Europe's governments just a few weeks ago questioned the need for a strategy, arguing their banks were sound.
While the G-7's joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Unprecedented Public Split
Rifts within the G-7 were exposed on two fronts yesterday. Lagarde blamed the U.S.'s decision to let Lehman go bankrupt for precipitating the crisis, while Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.''
The 266-word text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' Lagarde said.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.
``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
Signaling they would intervene to avoid a repeat of last month's collapse of Lehman Brothers Holdings Inc., the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks, they still run a risk of disappointing investors.
``They've seen what Lehman did and the repercussions,'' said Jeff Pantages, chief investment officer at Alaska Permanent Capital Management in Anchorage, which oversees $2 billion. ``If you're a bondholder, you've got to feel better. If you're a shareholder, you're not so sure.''
A sign of the strains: The G-7 ministers today met with President George W. Bush, an echo of former President Bill Clinton's visit with the group in 1998 amid the Russian debt default and collapse of hedge fund Long Term
``This is a serious global crisis and therefore requires a serious global response,'' Bush said at the White House. The Group of 20, which includes emerging markets such as Russia and China, convenes later.
Lehman's downfall precipitated the latest chapter of the 14- month crisis, causing banks to stop lending to each other out of concern they may not get their funds back. The G-7's willingness to now back ``systematically important financial institutions'' may provide some relief for Morgan Stanley, whose stocks and bonds dropped this week on concerns for its health.
Bank Discussions
U.S. Treasury Secretary Henry Paulson said no bank was singled out in the discussions yesterday.
The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy met after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
That left them under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so and appeared disjointed. Instead, they outlined principles for all nations to follow.
Measures taken should protect taxpayers and avoid ``potentially damaging effects on other countries,'' the group said. In the past month, some European governments have taken unilateral actions to increase bank-deposit guarantees, spurring concern that savers would drain cash from nations with less protection.
Paulson said it would be ``naive'' to think that different economies in different circumstances could come up with the same policy paths.
Emergency Actions
In the past two weeks, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even so, with the three-month London interbank offered rate climbing to 4.82 percent yesterday, a record premium over the Fed's benchmark rate. The seizure spurred British policy makers to propose a program to backstop loans between banks.
G-7 officials shied away from copying the U.K. idea, which would either turn central banks into clearing houses for banks' loans or have governments back the obligations.
The jump in borrowing costs and restricted access to credit prompted Merrill Lynch & Co. to predict the G-7 economies next year will be the weakest since 1982.
Stock Slump
U.S. stocks fell for an eighth straight day yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
Policy makers expressed confidence that investors will ultimately recognize the scale of initiatives under way, including a new U.S. plan to buy stocks in a ``broad array'' of financial companies.
``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``It is normal that there is a maturing process.''
Paulson signaled his top priority is to start buying financial stocks as soon as he can. ``This is a plan that I'm quite confident will work,'' he said. The Treasury chief also said ``we have more to do in the liquidity area.''
The American plan follows U.K. Prime Minister Gordon Brown's 50 billion pound ($87 billion) program that will partly nationalize at least eight lenders and provide 250 billion pounds of loan guarantees.
Canadian Plan
Canada's government yesterday moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week.
``The situation in financial markets is demanding unusual and far-reaching decisions from all policy makers,'' Weber said. ``There is no alternative to these measures because banks have come under strong pressure.''
European leaders will go beyond the G-7's agreements in shaping their own rescue package when they meet tomorrow in Paris for a second summit in as many weekends, French Finance Minister Christine Lagarde said. Europe's governments just a few weeks ago questioned the need for a strategy, arguing their banks were sound.
While the G-7's joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Unprecedented Public Split
Rifts within the G-7 were exposed on two fronts yesterday. Lagarde blamed the U.S.'s decision to let Lehman go bankrupt for precipitating the crisis, while Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.''
The 266-word text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' Lagarde said.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
ECB Officials Say Liquidity Steps Will Take Time to Calm Market
By Meera Louis and Gabi Thesing
Oct. 11 (Bloomberg) -- European Central Bank policy makers led by President Jean-Claude Trichet said it will take time for their liquidity measures to soothe markets, suggesting another interest rate cut isn't imminent.
``We have taken a lot of actions in the past days and weeks,'' Trichet told reporters in Washington yesterday after a meeting of Group of Seven finance officials. ``It is normal that there is a maturing process.''
Global policy makers have so far failed to reverse a credit crunch even after cutting interest rates in an emergency move this week and pumping banking systems with cash. Economists at Royal Bank of Scotland Group Plc yesterday predicted the ECB may reduce rates again before its governing council is next scheduled to meet on Nov. 6.
The Frankfurt-based bank this week lowered its key lending rate by half a percentage point to 3.75 percent as part of a coordinated easing of monetary policy with global counterparts. It also offered banks unlimited funding every week at the main refinancing rate.
Still, the cost of borrowing euros for three months stayed close to a record high and European stocks recorded a 22 percent drop this week, the biggest since records began in 1987.
ECB council member Erkki Liikanen said in Washington that the markets need to accept that these ``measures take time to work.'' Colleague Christian Noyer said market participants should refrain from demanding new central bank actions if there is no immediate reaction.
`Will Never Stop'
``If we continue like this it will never stop,'' he said.
Mario Draghi, another member of the ECB's board, said investors had not fully appreciated that the central bank was ready to cut borrowing costs, which were increased as recently as July to a seven-year high of 4.25 percent.
``The market had discounted the interest-rate cut,'' Draghi said. ``The point of the action, why it was different, was because it was coordinated.''
Jacques Cailloux, chief euro-area economist at RBS, said yesterday that the spreading financial crisis meant a ``very significant chance'' of a cut before Nov. 6. Citigroup Inc. economists predicted the ECB will soon expand the types of collateral it accepts when making loans.
Inflation slowed to 3.6 percent last month from a 16 year- high of 4 percent in July, still above the central bank's 2 percent limit. Noyer said yesterday the ECB would achieve stable prices by ` somewhere in the middle of 2009,'' which is a year earlier than policy makers had previously expected.
Trichet vowed to ``guarantee'' price stability and ``continue to act in line with the solid anchoring of inflation expectations.''
To contact the reporters on this story: Gabi Thesing in Washington at gthesing@bloomberg.net; Meera Louis in Washington at mlouis@bloomberg.net
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Oct. 11 (Bloomberg) -- European Central Bank policy makers led by President Jean-Claude Trichet said it will take time for their liquidity measures to soothe markets, suggesting another interest rate cut isn't imminent.
``We have taken a lot of actions in the past days and weeks,'' Trichet told reporters in Washington yesterday after a meeting of Group of Seven finance officials. ``It is normal that there is a maturing process.''
Global policy makers have so far failed to reverse a credit crunch even after cutting interest rates in an emergency move this week and pumping banking systems with cash. Economists at Royal Bank of Scotland Group Plc yesterday predicted the ECB may reduce rates again before its governing council is next scheduled to meet on Nov. 6.
The Frankfurt-based bank this week lowered its key lending rate by half a percentage point to 3.75 percent as part of a coordinated easing of monetary policy with global counterparts. It also offered banks unlimited funding every week at the main refinancing rate.
Still, the cost of borrowing euros for three months stayed close to a record high and European stocks recorded a 22 percent drop this week, the biggest since records began in 1987.
ECB council member Erkki Liikanen said in Washington that the markets need to accept that these ``measures take time to work.'' Colleague Christian Noyer said market participants should refrain from demanding new central bank actions if there is no immediate reaction.
`Will Never Stop'
``If we continue like this it will never stop,'' he said.
Mario Draghi, another member of the ECB's board, said investors had not fully appreciated that the central bank was ready to cut borrowing costs, which were increased as recently as July to a seven-year high of 4.25 percent.
``The market had discounted the interest-rate cut,'' Draghi said. ``The point of the action, why it was different, was because it was coordinated.''
Jacques Cailloux, chief euro-area economist at RBS, said yesterday that the spreading financial crisis meant a ``very significant chance'' of a cut before Nov. 6. Citigroup Inc. economists predicted the ECB will soon expand the types of collateral it accepts when making loans.
Inflation slowed to 3.6 percent last month from a 16 year- high of 4 percent in July, still above the central bank's 2 percent limit. Noyer said yesterday the ECB would achieve stable prices by ` somewhere in the middle of 2009,'' which is a year earlier than policy makers had previously expected.
Trichet vowed to ``guarantee'' price stability and ``continue to act in line with the solid anchoring of inflation expectations.''
To contact the reporters on this story: Gabi Thesing in Washington at gthesing@bloomberg.net; Meera Louis in Washington at mlouis@bloomberg.net
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Iceland to `Honor' Obligations to U.K. Depositors, Haarde Says
By Tasneem Brogger and Helga Kristin Einarsdottir
Oct. 11 (Bloomberg) -- Iceland's government will ``honor its obligations'' to depositors at failed Icelandic banks abroad, including the U.K., said Prime Minister Geir Haarde, who will meet a British delegation to the island today.
``Everybody needs to show some flexibility here,'' Haarde told journalists at a press conference in Reykjavik late yesterday. Banking Minister, Bjorgvin Sigurdsson, said tensions between Iceland and the U.K. are based on a ``misunderstanding.''
Iceland is striving to defuse a spat with the U.K. fuelled by concern British depositors may suffer losses on their Icelandic bank deposits. Prime Minister Gordon Brown this week threatened to freeze the U.K. assets of Icelandic companies, which employ 100,000 people.
The Icelandic government is working ``day and night'' to come up with a solution to its woes after its three biggest banks failed and the krona collapsed, Haarde said.
Billionaire retailer Philip Green is in talks with Iceland's government and Jon Asgeir Johannesson, chairman of Icelandic retail investment company Baugur Group hf, to spend as much as 2 billion pounds ($3.4 billion) on purchasing the group's debt in Iceland's failed banks, the Financial Times reported today.
Brown has threatened legal action against Iceland. The feud over money trapped in accounts of Kaupthing Bank hf and Landsbanki Islands hf, the biggest and second biggest Icelandic banks that were taken over by the local regulator this week, has sent relations between the two countries to the lowest since a 1970s dispute over North Atlantic fishing rights, known as the Cod Wars.
`Unfortunate'
``Brown's remarks were unfortunate,'' Haarde said. ``We will honor our obligations. We may need some help from the U.K. authorities to do this in a proper way.''
The U.K. sent a delegation to Iceland yesterday to resolve the matter and talks will start today, Haarde said.
Royal Bank of Scotland Group Plc, the U.K.'s third-biggest bank, is among British banks that may take losses of as much of 500 million euros ($677 million) on securities tied to this week's collapse of Icelandic banks, a person familiar with the matter said yesterday.
The collapse of Iceland's three largest banks, Kaupthing, Landsbanki and Glitnir Bank hf, has affected 420,000 British and Dutch customers, and frozen assets held by universities, hospitals, councils and even London's police force.
Iceland's authorities are ``ring-fencing the domestic interests and they're probably abandoning the liabilities externally,'' Standard & Poor's credit analyst Eileen Zhang said on Oct. 9. ``We can't put a number yet on how much money they need to fix this crisis.''
Haarde also said Iceland hasn't had ``direct'' talks on financial aid with an International Monetary Fund mission currently on the island, and denied his country is in default.
The country will start formal talks with Russia on Tuesday in the hope of securing a loan worth as much as 4 billion euros ($5.35 billion) after approaches to western central banks and governments didn't yield any results, Haarde said earlier this week.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
Read more...
Oct. 11 (Bloomberg) -- Iceland's government will ``honor its obligations'' to depositors at failed Icelandic banks abroad, including the U.K., said Prime Minister Geir Haarde, who will meet a British delegation to the island today.
``Everybody needs to show some flexibility here,'' Haarde told journalists at a press conference in Reykjavik late yesterday. Banking Minister, Bjorgvin Sigurdsson, said tensions between Iceland and the U.K. are based on a ``misunderstanding.''
Iceland is striving to defuse a spat with the U.K. fuelled by concern British depositors may suffer losses on their Icelandic bank deposits. Prime Minister Gordon Brown this week threatened to freeze the U.K. assets of Icelandic companies, which employ 100,000 people.
The Icelandic government is working ``day and night'' to come up with a solution to its woes after its three biggest banks failed and the krona collapsed, Haarde said.
Billionaire retailer Philip Green is in talks with Iceland's government and Jon Asgeir Johannesson, chairman of Icelandic retail investment company Baugur Group hf, to spend as much as 2 billion pounds ($3.4 billion) on purchasing the group's debt in Iceland's failed banks, the Financial Times reported today.
Brown has threatened legal action against Iceland. The feud over money trapped in accounts of Kaupthing Bank hf and Landsbanki Islands hf, the biggest and second biggest Icelandic banks that were taken over by the local regulator this week, has sent relations between the two countries to the lowest since a 1970s dispute over North Atlantic fishing rights, known as the Cod Wars.
`Unfortunate'
``Brown's remarks were unfortunate,'' Haarde said. ``We will honor our obligations. We may need some help from the U.K. authorities to do this in a proper way.''
The U.K. sent a delegation to Iceland yesterday to resolve the matter and talks will start today, Haarde said.
Royal Bank of Scotland Group Plc, the U.K.'s third-biggest bank, is among British banks that may take losses of as much of 500 million euros ($677 million) on securities tied to this week's collapse of Icelandic banks, a person familiar with the matter said yesterday.
The collapse of Iceland's three largest banks, Kaupthing, Landsbanki and Glitnir Bank hf, has affected 420,000 British and Dutch customers, and frozen assets held by universities, hospitals, councils and even London's police force.
Iceland's authorities are ``ring-fencing the domestic interests and they're probably abandoning the liabilities externally,'' Standard & Poor's credit analyst Eileen Zhang said on Oct. 9. ``We can't put a number yet on how much money they need to fix this crisis.''
Haarde also said Iceland hasn't had ``direct'' talks on financial aid with an International Monetary Fund mission currently on the island, and denied his country is in default.
The country will start formal talks with Russia on Tuesday in the hope of securing a loan worth as much as 4 billion euros ($5.35 billion) after approaches to western central banks and governments didn't yield any results, Haarde said earlier this week.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
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Swedbank Credit Rating Cut at Moody's on Debt Reliance, Baltics
By Tasneem Brogger
Oct. 11 (Bloomberg) -- Swedbank AB, the largest bank in the Baltic region, had its credit ratings cut by Moody's Investors Service because of the bank's reliance on market funding and its focus on the Baltic markets as these enter recession.
Moody's lowered Swedbank's bank financial strength rating to C+ from B- and its long-term senior debt and deposit ratings to Aa3 from Aa2, the agency said in a statement late yesterday. The outlook on the ratings remains negative, Moody's said.
The downgrades are because of ``expected increasing pressure on the bank's financial performance due to the rapid pace of the deterioration in economic conditions in the Baltic states, where the bank has a significant exposure through its subsidiary Hansapank,'' Moody's said.
Swedbank gets about a third of its earnings from the Baltic countries, the European Union's fastest-growing region in 2006, and has about 15 percent of its lending portfolio there. The Estonian economy shrank 1.1 percent in the second quarter from a year earlier. The $16.4 billion economy contracted 0.8 percent from the previous quarter, entering a recession after shrinking a quarterly 0.9 percent in the first three months.
``Under the current challenging market conditions, Swedbank could potentially face higher refinancing risks given that its group funding profile is relatively reliant on market funding,'' Moody's said.
About one third of Swedbank's market funding is short-term, according to Moody's. ``However, the bank's liquidity pools remain significant, including its access to secured funding,'' the agency said.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
Read more...
Oct. 11 (Bloomberg) -- Swedbank AB, the largest bank in the Baltic region, had its credit ratings cut by Moody's Investors Service because of the bank's reliance on market funding and its focus on the Baltic markets as these enter recession.
Moody's lowered Swedbank's bank financial strength rating to C+ from B- and its long-term senior debt and deposit ratings to Aa3 from Aa2, the agency said in a statement late yesterday. The outlook on the ratings remains negative, Moody's said.
The downgrades are because of ``expected increasing pressure on the bank's financial performance due to the rapid pace of the deterioration in economic conditions in the Baltic states, where the bank has a significant exposure through its subsidiary Hansapank,'' Moody's said.
Swedbank gets about a third of its earnings from the Baltic countries, the European Union's fastest-growing region in 2006, and has about 15 percent of its lending portfolio there. The Estonian economy shrank 1.1 percent in the second quarter from a year earlier. The $16.4 billion economy contracted 0.8 percent from the previous quarter, entering a recession after shrinking a quarterly 0.9 percent in the first three months.
``Under the current challenging market conditions, Swedbank could potentially face higher refinancing risks given that its group funding profile is relatively reliant on market funding,'' Moody's said.
About one third of Swedbank's market funding is short-term, according to Moody's. ``However, the bank's liquidity pools remain significant, including its access to secured funding,'' the agency said.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
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East European Currencies: Forint Has Weekly Drop Against Euro
By Ewa Krukowska
Oct. 11 (Bloomberg) -- Hungary's forint had its biggest weekly drop against the euro in more than five years as the market regulator probed trading in the shares of the country's top bank and on concern the financial crisis will spread to eastern Europe. The Polish zloty fell to a nine-month low.
The forint was the third-worst performer among regional currencies in the past five days as global stocks tumbled and investors curbed purchases of higher-yielding assets assets. Hungary's regulator said yesterday it will probe trading in OTP Bank Nyrt shares after the biggest one-day drop in 10 years on Oct. 9. The government and central bank pledged ``extraordinary'' steps to protect the country's markets.
``These days markets tend to overestimate risk and one potentially risky piece of news can cause a domino effect,'' Jaroslaw Janecki, chief economist at SG in Warsaw, said in an interview. ``On the one hand, we had the OTP rumors and investors' overreaction. On the other, very low liquidity on the bond market. This hurt the forint and spilled over into the zloty.''
The forint declined to as low as 272.50 per euro, its weakest intraday level since June 2007, and traded at 260.15 yesterday in Budapest, from 245.90 on Oct. 3.
The government denied reports Oct. 9 it was buying a stake in OTP. The bank's capital and liquidity are ``extremely strong,'' Chief Executive Officer Sandor Csanyi said yesterday.
Emergency Steps
The central bank may hold an unscheduled rate meeting and pledged to shore up the forint while the government acted to resuscitate the bond market after trading halted. The key stock index dropped as much as 13 percent, the most in 10 years. The benchmark five-year bond yielded 11.86 percent, the highest in almost nine years.
The government scrapped a limit on bond holdings for pension funds and offered to guarantee interbank loans, Finance Minister Janos Veres said yesterday. He pledged to use ``all tools'' to restore market stability.
Central bank Governor Andras Simor said in a press conference yesterday he saw no fundamental reason for the forint's weakness. The bank will hold daily euro-forint swap tenders to boost liquidity on the interbank market, he said, adding that Hungary does not plan ``intervention'' on the bond market.
``High volatility probably will stay with us for days, but we have the days from 2003 or 2006 in our minds which were good buying opportunities,'' Gyorgy Barcza, an economist at KBC Groep NV in Budapest, wrote in a note yesterday.
Goldman Recommendation
Goldman Sachs Group Inc. advised investors to stop betting the forint will outperform the zloty, reversing its August recommendation.
The zloty fell as much as 1.7 percent to a nine-month low of 3.6473 per euro and traded at 3.5815 yesterday in Warsaw. It logged a 5.3 percent weekly loss, the biggest since the introduction of the euro in January 1999.
The weakening of the zloty is ``not justified by the fundamentals of the Polish economy,'' the Warsaw-based central bank said yesterday. The economy is stable and the banking industry is in ``good condition,'' it said.
The Turkish lira had the steepest weekly decline since April 2001, trading at 1.4270 per dollar yesterday in Istanbul, from 1.3110 on Oct. 3.
Turkish companies' foreign-currency debts pose a ``serious risk'' to the economy as the financial crisis drives down the value of the lira, Arzuhan Yalcindag, head of the Turkish Industrialists and Businessmen's Association, said yesterday.
The Slovak koruna declined to a 4 1/2-month low of 30.825 per euro and last traded at 30.695, falling 1 percent in the week. The Czech koruna fell to 24.870 against Europe's common currency, from 24.813 on Oct. 3.
The Romanian leu advanced to 3.8009 per euro, from 3.8824 a week ago. The Bucharest-based central bank said it sold 40 million euros ($54.2 million) to support the leu, which fell to the lowest level in almost four years earlier this week.
To contact the reporters on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Hungary's forint had its biggest weekly drop against the euro in more than five years as the market regulator probed trading in the shares of the country's top bank and on concern the financial crisis will spread to eastern Europe. The Polish zloty fell to a nine-month low.
The forint was the third-worst performer among regional currencies in the past five days as global stocks tumbled and investors curbed purchases of higher-yielding assets assets. Hungary's regulator said yesterday it will probe trading in OTP Bank Nyrt shares after the biggest one-day drop in 10 years on Oct. 9. The government and central bank pledged ``extraordinary'' steps to protect the country's markets.
``These days markets tend to overestimate risk and one potentially risky piece of news can cause a domino effect,'' Jaroslaw Janecki, chief economist at SG in Warsaw, said in an interview. ``On the one hand, we had the OTP rumors and investors' overreaction. On the other, very low liquidity on the bond market. This hurt the forint and spilled over into the zloty.''
The forint declined to as low as 272.50 per euro, its weakest intraday level since June 2007, and traded at 260.15 yesterday in Budapest, from 245.90 on Oct. 3.
The government denied reports Oct. 9 it was buying a stake in OTP. The bank's capital and liquidity are ``extremely strong,'' Chief Executive Officer Sandor Csanyi said yesterday.
Emergency Steps
The central bank may hold an unscheduled rate meeting and pledged to shore up the forint while the government acted to resuscitate the bond market after trading halted. The key stock index dropped as much as 13 percent, the most in 10 years. The benchmark five-year bond yielded 11.86 percent, the highest in almost nine years.
The government scrapped a limit on bond holdings for pension funds and offered to guarantee interbank loans, Finance Minister Janos Veres said yesterday. He pledged to use ``all tools'' to restore market stability.
Central bank Governor Andras Simor said in a press conference yesterday he saw no fundamental reason for the forint's weakness. The bank will hold daily euro-forint swap tenders to boost liquidity on the interbank market, he said, adding that Hungary does not plan ``intervention'' on the bond market.
``High volatility probably will stay with us for days, but we have the days from 2003 or 2006 in our minds which were good buying opportunities,'' Gyorgy Barcza, an economist at KBC Groep NV in Budapest, wrote in a note yesterday.
Goldman Recommendation
Goldman Sachs Group Inc. advised investors to stop betting the forint will outperform the zloty, reversing its August recommendation.
The zloty fell as much as 1.7 percent to a nine-month low of 3.6473 per euro and traded at 3.5815 yesterday in Warsaw. It logged a 5.3 percent weekly loss, the biggest since the introduction of the euro in January 1999.
The weakening of the zloty is ``not justified by the fundamentals of the Polish economy,'' the Warsaw-based central bank said yesterday. The economy is stable and the banking industry is in ``good condition,'' it said.
The Turkish lira had the steepest weekly decline since April 2001, trading at 1.4270 per dollar yesterday in Istanbul, from 1.3110 on Oct. 3.
Turkish companies' foreign-currency debts pose a ``serious risk'' to the economy as the financial crisis drives down the value of the lira, Arzuhan Yalcindag, head of the Turkish Industrialists and Businessmen's Association, said yesterday.
The Slovak koruna declined to a 4 1/2-month low of 30.825 per euro and last traded at 30.695, falling 1 percent in the week. The Czech koruna fell to 24.870 against Europe's common currency, from 24.813 on Oct. 3.
The Romanian leu advanced to 3.8009 per euro, from 3.8824 a week ago. The Bucharest-based central bank said it sold 40 million euros ($54.2 million) to support the leu, which fell to the lowest level in almost four years earlier this week.
To contact the reporters on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
Read more...
Swedbank Credit Rating Cut at Moody's on Debt Reliance, Baltics
By Tasneem Brogger
Oct. 11 (Bloomberg) -- Swedbank AB, the largest bank in the Baltic region, had its credit ratings cut by Moody's Investors Service because of the bank's reliance on market funding and its focus on the Baltic markets as these enter recession.
Moody's lowered Swedbank's bank financial strength rating to C+ from B- and its long-term senior debt and deposit ratings to Aa3 from Aa2, the agency said in a statement late yesterday. The outlook on the ratings remains negative, Moody's said.
The downgrades are because of ``expected increasing pressure on the bank's financial performance due to the rapid pace of the deterioration in economic conditions in the Baltic states, where the bank has a significant exposure through its subsidiary Hansapank,'' Moody's said.
Swedbank gets about a third of its earnings from the Baltic countries, the European Union's fastest-growing region in 2006, and has about 15 percent of its lending portfolio there. The Estonian economy shrank 1.1 percent in the second quarter from a year earlier. The $16.4 billion economy contracted 0.8 percent from the previous quarter, entering a recession after shrinking a quarterly 0.9 percent in the first three months.
``Under the current challenging market conditions, Swedbank could potentially face higher refinancing risks given that its group funding profile is relatively reliant on market funding,'' Moody's said.
About one third of Swedbank's market funding is short-term, according to Moody's. ``However, the bank's liquidity pools remain significant, including its access to secured funding,'' the agency said.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
Read more...
Oct. 11 (Bloomberg) -- Swedbank AB, the largest bank in the Baltic region, had its credit ratings cut by Moody's Investors Service because of the bank's reliance on market funding and its focus on the Baltic markets as these enter recession.
Moody's lowered Swedbank's bank financial strength rating to C+ from B- and its long-term senior debt and deposit ratings to Aa3 from Aa2, the agency said in a statement late yesterday. The outlook on the ratings remains negative, Moody's said.
The downgrades are because of ``expected increasing pressure on the bank's financial performance due to the rapid pace of the deterioration in economic conditions in the Baltic states, where the bank has a significant exposure through its subsidiary Hansapank,'' Moody's said.
Swedbank gets about a third of its earnings from the Baltic countries, the European Union's fastest-growing region in 2006, and has about 15 percent of its lending portfolio there. The Estonian economy shrank 1.1 percent in the second quarter from a year earlier. The $16.4 billion economy contracted 0.8 percent from the previous quarter, entering a recession after shrinking a quarterly 0.9 percent in the first three months.
``Under the current challenging market conditions, Swedbank could potentially face higher refinancing risks given that its group funding profile is relatively reliant on market funding,'' Moody's said.
About one third of Swedbank's market funding is short-term, according to Moody's. ``However, the bank's liquidity pools remain significant, including its access to secured funding,'' the agency said.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
Read more...
Australia's Four Big Banks May Need Support, Australian Says
By Angela Macdonald-Smith
Oct. 11 (Bloomberg) -- Australia's four biggest banks warned they may need extra support from the government and the central bank to prevent the country being sucked into a recession caused by the credit crisis, the Australian said.
The chief executive officers of Commonwealth Bank of Australia, Westpac Banking Corp., National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. said in separate interviews that their funding costs could rise unless Australia is included in any global agreement to extend government guarantees to banks, the newspaper reported.
Australia may have to consider having a debt guarantee plan for a period of time to prevent the banks being discriminated against in comparison with banks overseas that may be weaker yet have guarantees, the Australian said, citing Commonwealth Bank Chief Executive Ralph Norris.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Oct. 11 (Bloomberg) -- Australia's four biggest banks warned they may need extra support from the government and the central bank to prevent the country being sucked into a recession caused by the credit crisis, the Australian said.
The chief executive officers of Commonwealth Bank of Australia, Westpac Banking Corp., National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. said in separate interviews that their funding costs could rise unless Australia is included in any global agreement to extend government guarantees to banks, the newspaper reported.
Australia may have to consider having a debt guarantee plan for a period of time to prevent the banks being discriminated against in comparison with banks overseas that may be weaker yet have guarantees, the Australian said, citing Commonwealth Bank Chief Executive Ralph Norris.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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InterOil Says New Well to Confirm Reserves for PNG Gas Project
By Angela Macdonald-Smith
Oct. 11 (Bloomberg) -- InterOil Corp. expects a new well to confirm sufficient gas reserves to underpin its proposed liquefied natural gas project in Papua New Guinea.
Drilling is to start in the next few days on Antelope-1, targeting a zone detected in Elk-4, a well that yielded a record- high gas flow rate for Papua New Guinea, Toronto-listed InterOil said in a statement distributed on Marketwire. Expected results from Antelope-1, along with gas already found at Elk, should be enough to supply the project, it said.
InterOil is developing the LNG project with the commodities unit of Merrill Lynch & Co. and Pacific LNG Operations Ltd. to tap rising demand from Asian utilities for cleaner-burning fuel. The venture dropped plans to start exports in 2012 and may start up in 2013 or 2014, the company said earlier this week.
InterOil is ``confident'' an agreement with the Papua New Guinea government on fiscal terms for the project will be concluded this quarter, Phil Mulacek, chief executive officer, said in the Oct. 10 statement. The agreement was originally due by the end of last year.
InterOil fell 22 percent to C$12.88 in Toronto yesterday.
Papua New Guinea Prime Minister Michael Somare confirmed his intention to conclude the fiscal agreement during meetings earlier this week in Rome, Mulacek said.
Exxon Mobil Corp., the biggest U.S. oil company, is leading a rival LNG venture planning an $11 billion project in Papua New Guinea. Eni SpA, Italy's largest energy company, said earlier this week it may make similar LNG investments in Papua New Guinea.
LNG is natural gas chilled to liquid form, reducing it to 1/600th of its original volume, for transportation by tanker to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- InterOil Corp. expects a new well to confirm sufficient gas reserves to underpin its proposed liquefied natural gas project in Papua New Guinea.
Drilling is to start in the next few days on Antelope-1, targeting a zone detected in Elk-4, a well that yielded a record- high gas flow rate for Papua New Guinea, Toronto-listed InterOil said in a statement distributed on Marketwire. Expected results from Antelope-1, along with gas already found at Elk, should be enough to supply the project, it said.
InterOil is developing the LNG project with the commodities unit of Merrill Lynch & Co. and Pacific LNG Operations Ltd. to tap rising demand from Asian utilities for cleaner-burning fuel. The venture dropped plans to start exports in 2012 and may start up in 2013 or 2014, the company said earlier this week.
InterOil is ``confident'' an agreement with the Papua New Guinea government on fiscal terms for the project will be concluded this quarter, Phil Mulacek, chief executive officer, said in the Oct. 10 statement. The agreement was originally due by the end of last year.
InterOil fell 22 percent to C$12.88 in Toronto yesterday.
Papua New Guinea Prime Minister Michael Somare confirmed his intention to conclude the fiscal agreement during meetings earlier this week in Rome, Mulacek said.
Exxon Mobil Corp., the biggest U.S. oil company, is leading a rival LNG venture planning an $11 billion project in Papua New Guinea. Eni SpA, Italy's largest energy company, said earlier this week it may make similar LNG investments in Papua New Guinea.
LNG is natural gas chilled to liquid form, reducing it to 1/600th of its original volume, for transportation by tanker to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Southern Australia Drought Is Worst on Record, Australian Says
By Angela Macdonald-Smith
Oct. 11 (Bloomberg) -- Southern Australia's 12-year drought is officially the worst on record, the Australian newspaper said, citing the Bureau of Meteorology.
Rainfall figures for the region are similar to a severe drought in 1939-45 and to the Federation drought in 1895-1903, the newspaper said, citing David Jones, head of climate analysis at the Canberra-based bureau. The current drought is hotter than both previous ones, with temperatures about 1 degree Celsius higher, he said.
Weather data suggests that for every degree of warming, there is a 15 percent drop in river flows in the Murray-Darling Basin in the southeast, the Australian said, citing Jones. Flows into the Murray River system in the two years to Aug. 31 were half the previous record low set in 1943-45, it said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Southern Australia's 12-year drought is officially the worst on record, the Australian newspaper said, citing the Bureau of Meteorology.
Rainfall figures for the region are similar to a severe drought in 1939-45 and to the Federation drought in 1895-1903, the newspaper said, citing David Jones, head of climate analysis at the Canberra-based bureau. The current drought is hotter than both previous ones, with temperatures about 1 degree Celsius higher, he said.
Weather data suggests that for every degree of warming, there is a 15 percent drop in river flows in the Murray-Darling Basin in the southeast, the Australian said, citing Jones. Flows into the Murray River system in the two years to Aug. 31 were half the previous record low set in 1943-45, it said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Indonesia's Government May Issue Decree to Boost Confidence
By Aloysius Unditu and Naila Firdausi
Oct. 11 (Bloomberg) -- The Indonesian government may soon issue a government decree to help boost investor confidence in local assets amid the crisis in global financial markets.
The regulation in lieu of law, known as a ``perppu,'' ``is being finalized to be submitted to parliament within days for consultation, and to be then issued,'' Miranda Goeltom, senior deputy governor at Bank Indonesia, said last night, adding that the regulations will help the central bank provide liquidity support. The government may also issue similar rules to relax criteria on collateral used in bank loans, she said.
The Indonesian government is trying to boost investor confidence after the local stock benchmark index had its biggest three-day loss in 20 years before trading was suspended on Oct. 8, and the rupiah touched the lowest since November 2005 against the dollar yesterday on concern the global financial crisis will worsen and damp growth in Southeast Asia's largest economy.
``The government must move fast to restore confidence; it can't afford to hesitate,'' said Prayoga Triyono, a fund manager at PT Henan Putihrai Asset Management. ``It would be better if they could issue the regulations as soon as Monday,'' as trading is expected to resume Oct. 13.
The government and Bank Indonesia need the regulations to take actions to bolster confidence and prevent worsening perceptions of domestic assets and of the economy, Finance Minister Sri Mulyani Indrawati said yesterday, after consulting with parliamentary leaders. The government may also issue a regulation in lieu of law for the deposit guarantee agency, the minister said.
``It's a bit too late, but it needs to be done,'' Drajad Wibowo, a member of a parliamentary commission on financial affairs, said today in a text message. ``We will deliberate over the regulations to become laws in a few months.''
To contact the reporter on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net; Aloysius Unditu in Jakarta at aunditu@bloomberg.net.
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Oct. 11 (Bloomberg) -- The Indonesian government may soon issue a government decree to help boost investor confidence in local assets amid the crisis in global financial markets.
The regulation in lieu of law, known as a ``perppu,'' ``is being finalized to be submitted to parliament within days for consultation, and to be then issued,'' Miranda Goeltom, senior deputy governor at Bank Indonesia, said last night, adding that the regulations will help the central bank provide liquidity support. The government may also issue similar rules to relax criteria on collateral used in bank loans, she said.
The Indonesian government is trying to boost investor confidence after the local stock benchmark index had its biggest three-day loss in 20 years before trading was suspended on Oct. 8, and the rupiah touched the lowest since November 2005 against the dollar yesterday on concern the global financial crisis will worsen and damp growth in Southeast Asia's largest economy.
``The government must move fast to restore confidence; it can't afford to hesitate,'' said Prayoga Triyono, a fund manager at PT Henan Putihrai Asset Management. ``It would be better if they could issue the regulations as soon as Monday,'' as trading is expected to resume Oct. 13.
The government and Bank Indonesia need the regulations to take actions to bolster confidence and prevent worsening perceptions of domestic assets and of the economy, Finance Minister Sri Mulyani Indrawati said yesterday, after consulting with parliamentary leaders. The government may also issue a regulation in lieu of law for the deposit guarantee agency, the minister said.
``It's a bit too late, but it needs to be done,'' Drajad Wibowo, a member of a parliamentary commission on financial affairs, said today in a text message. ``We will deliberate over the regulations to become laws in a few months.''
To contact the reporter on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net; Aloysius Unditu in Jakarta at aunditu@bloomberg.net.
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Rio's Iron Ore Unit Faces Further Industrial Action
By Angela Macdonald-Smith
Oct. 11 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, faces the prospect of further industrial action by train drivers at its iron ore operations in Western Australia after the first strike today in more than 16 years.
Today's 12-hour strike, in which 11 out of 12 drivers took part, was ``only the commencement of the campaign,'' Gary Wood, secretary of the Western Australian division of the Construction, Forestry, Mining & Energy Union, said today. Deliveries from Rio's mines weren't affected today by the strike, said Gervase Greene, a spokesman for the company's iron ore unit.
Rio produces ore from 11 mines in Western Australia that are serviced by a mainline rail network of 1,300 kilometers (800 miles) of track, according to the company's Web site. The strike, which was called after Rio refused to negotiate a collective agreement on salaries, will cause disruptions, the iron ore unit's Chief Executive Sam Walsh said in an internal memorandum seen by Bloomberg News on Oct. 9.
``This could be a sign of things to come,'' said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. ``It could be, with market conditions starting to turn southward, that this could be more of a recurring theme, that the unions are looking to maybe try to somehow bolster their position in what could be quite difficult operating conditions.''
Rio and rival BHP Billiton Ltd., the world's second- and third-largest iron ore suppliers, face a 10 percent sales drop this year because Chinese steel mills are cutting output, Melbourne-based Pervan said yesterday in an e-mailed note.
`Pressure on Rio'
``There's no doubt there will be further action, it's just in what form it is,'' Wood said in a telephone interview. ``Today was just the initial introduction to it, then we'll assess what occurred and put in place the next stage of the protected action, putting pressure on Rio to come to the table.''
The union believes there were some delays to rail deliveries as a result of the strike, said Wood, who is based in Perth.
``There was no disruption as such,'' Greene said by telephone from Perth. ``Some people were on strike. No trains were delayed, they ran on a normal schedule.''
The company employs 315 train drivers in the Pilbara region of northwestern Australia.
Iron ore accounted for 29.6 percent of Rio's revenue last year. The company produced 145 million metric tons of iron ore and it wants to triple output to 600 million tons with expansions in Australia, Guinea and Brazil.
Collective Agreement
The company's trains are operated by a single driver and have about 230 ore cars, each able to carry 100 tons to Rio's two export ports. A fully loaded train weighs about 29,500 metric tons and is about 2.4 kilometers in length. Rio owns 86 locomotives in the Pilbara area.
Union mineworkers at rival BHP Billiton voted for a new three-year collective agreement, according to a bulletin posted on the union's Web site dated Sept. 25. Workers at BHP's Yandi iron ore mine are seeking talks on new agreements, the Australian Workers Union said yesterday.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
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Oct. 11 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, faces the prospect of further industrial action by train drivers at its iron ore operations in Western Australia after the first strike today in more than 16 years.
Today's 12-hour strike, in which 11 out of 12 drivers took part, was ``only the commencement of the campaign,'' Gary Wood, secretary of the Western Australian division of the Construction, Forestry, Mining & Energy Union, said today. Deliveries from Rio's mines weren't affected today by the strike, said Gervase Greene, a spokesman for the company's iron ore unit.
Rio produces ore from 11 mines in Western Australia that are serviced by a mainline rail network of 1,300 kilometers (800 miles) of track, according to the company's Web site. The strike, which was called after Rio refused to negotiate a collective agreement on salaries, will cause disruptions, the iron ore unit's Chief Executive Sam Walsh said in an internal memorandum seen by Bloomberg News on Oct. 9.
``This could be a sign of things to come,'' said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. ``It could be, with market conditions starting to turn southward, that this could be more of a recurring theme, that the unions are looking to maybe try to somehow bolster their position in what could be quite difficult operating conditions.''
Rio and rival BHP Billiton Ltd., the world's second- and third-largest iron ore suppliers, face a 10 percent sales drop this year because Chinese steel mills are cutting output, Melbourne-based Pervan said yesterday in an e-mailed note.
`Pressure on Rio'
``There's no doubt there will be further action, it's just in what form it is,'' Wood said in a telephone interview. ``Today was just the initial introduction to it, then we'll assess what occurred and put in place the next stage of the protected action, putting pressure on Rio to come to the table.''
The union believes there were some delays to rail deliveries as a result of the strike, said Wood, who is based in Perth.
``There was no disruption as such,'' Greene said by telephone from Perth. ``Some people were on strike. No trains were delayed, they ran on a normal schedule.''
The company employs 315 train drivers in the Pilbara region of northwestern Australia.
Iron ore accounted for 29.6 percent of Rio's revenue last year. The company produced 145 million metric tons of iron ore and it wants to triple output to 600 million tons with expansions in Australia, Guinea and Brazil.
Collective Agreement
The company's trains are operated by a single driver and have about 230 ore cars, each able to carry 100 tons to Rio's two export ports. A fully loaded train weighs about 29,500 metric tons and is about 2.4 kilometers in length. Rio owns 86 locomotives in the Pilbara area.
Union mineworkers at rival BHP Billiton voted for a new three-year collective agreement, according to a bulletin posted on the union's Web site dated Sept. 25. Workers at BHP's Yandi iron ore mine are seeking talks on new agreements, the Australian Workers Union said yesterday.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
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`No Evidence' Laptop Computer Caused Qantas Jet Dive, Body Says
By Angela Macdonald-Smith
Oct. 11 (Bloomberg) -- Australia's transport safety watchdog said there was ``no evidence'' to suggest the use of portable electronic devices by passengers contributed to a mid- flight plunge by a Qantas Airways Ltd. aircraft.
An initial review of information from the aircraft's flight data recorder indicate some ``issues with some on-board components,'' the Australian Transport Safety Bureau said in a statement on its Web site. Further examination of the auto-pilot system, data sources and flight control computers is needed, it said.
Passengers on board flight QF72 from Singapore to Perth on Oct. 7 were slammed into the cabin ceiling when the Airbus A330- 300 aircraft twice went into a nose-down pitch. Forty-four of the flight's 313 passengers and crew needed hospital treatment for spinal injuries, broken bones, concussion or lacerations. The plane landed safely at a remote airstrip about 1,300 kilometers (800 miles) north of the Western Australian capital.
A team studying the aircraft at Learmonth airport found no structural or wiring defects, while the entire cargo load was property secured, the bureau said in the Oct. 10 statement.
A preliminary report into the incident will be released within about 30 days, the bureau said. Any critical safety issues that may emerge requiring urgent attention will immediately be relayed to the relevant authorities ahead of the release of the report, it said.
Qantas declined comment on the remarks by the bureau, given that the investigation is still under way, said Simon Rushton, the company's Sydney-based media relations manager.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Oct. 11 (Bloomberg) -- Australia's transport safety watchdog said there was ``no evidence'' to suggest the use of portable electronic devices by passengers contributed to a mid- flight plunge by a Qantas Airways Ltd. aircraft.
An initial review of information from the aircraft's flight data recorder indicate some ``issues with some on-board components,'' the Australian Transport Safety Bureau said in a statement on its Web site. Further examination of the auto-pilot system, data sources and flight control computers is needed, it said.
Passengers on board flight QF72 from Singapore to Perth on Oct. 7 were slammed into the cabin ceiling when the Airbus A330- 300 aircraft twice went into a nose-down pitch. Forty-four of the flight's 313 passengers and crew needed hospital treatment for spinal injuries, broken bones, concussion or lacerations. The plane landed safely at a remote airstrip about 1,300 kilometers (800 miles) north of the Western Australian capital.
A team studying the aircraft at Learmonth airport found no structural or wiring defects, while the entire cargo load was property secured, the bureau said in the Oct. 10 statement.
A preliminary report into the incident will be released within about 30 days, the bureau said. Any critical safety issues that may emerge requiring urgent attention will immediately be relayed to the relevant authorities ahead of the release of the report, it said.
Qantas declined comment on the remarks by the bureau, given that the investigation is still under way, said Simon Rushton, the company's Sydney-based media relations manager.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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India's Subbarao Is Ready for `Swift' Steps to Boost Liquidity
By Shobhana Chandra
Oct. 11 (Bloomberg) -- Indian central bank Governor Duvvuri Subbarao said he's prepared to take ``effective'' steps to maintain liquidity in the nation's credit markets and repeated the bank's policy of smoothing swings in the currency.
We ``stand ready to take appropriate, effective and swift action'' to provide liquidity, he told reporters yesterday in Washington, where he was attending a meeting of Group of 20 finance ministers and central bankers. He said India's economy is ``strong'' and its banks are ``sound'' and ``well capitalized.''
India yesterday made the steepest cut since 2001 in the amount of cash lenders must set aside as reserves to kick-start the $1.2 trillion economy, as the rupee plunged to an all-time low and overseas investors dumped emerging-market stocks. The drop in the cash-reserve ratio followed a reduction on Oct. 6.
Subbarao, 59, declined to comment on interest-rate policy, saying that ``all variables are up for review'' at the Reserve Bank of India's Oct. 24 policy meeting. While the latest figures on inflation are ``quite comforting,'' it is ``still too early to let the vigil slip'' on prices, he said.
India's inflation has slowed to a 15-week low of 11.8 percent, according to the latest government figures, though it is still more than double the central bank's target.
Steps taken so far to improve liquidity in the Indian financial system amount to as much as $22 billion, Subbarao said.
The governor also said that in the medium term, India's rupee ``should be determined by market fundamentals.'' The RBI's policy, to ``manage exchange-rate volatility'' rather than take a view on its level, ``should continue to serve us well,'' he said.
`Knock-On Effect'
Indian markets are experiencing a ``knock-on effect'' from the global financial crisis, because the country's banks have no direct exposure to U.S. sub-prime mortgages, Subbarao said. The RBI's priorities include ``managing inflation while maintaining the growth momentum,'' and financial stability has become another objective over the last three months, he said.
Subbarao this week rushed to free up cash after money-market rates surged to an 18-month high and financial stocks slumped. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, dropped by a record on Oct. 10, forcing the bank to reiterate it had sufficient funds.
Some economists predict the RBI may follow central banks worldwide and cut interest rates as inflation pressures ease and the worsening global crisis begins to weaken economic growth.
``India has been cautious in its reaction until now,'' Swaminathan Aiyar, a Cato Institute research fellow with a focus on Asia, said in Washington. ``Subbarao clearly believes in balance'' between the policy objectives of growth and inflation. ``A rate cut is coming.''
Rescue Plans
Subbarao, who took over as RBI governor a month ago, said the problems and perspectives of countries directly affected by the global financial crisis are ``quite different'' from those of nations like India that are affected indirectly.
Relief and rescue plans announced by advanced countries so far don't include components in which peripheral countries such as India could participate, he said.
Still, India would ``hope to be included and involved in the design and implementation'' of such an effort, should there be a need, he said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Indian central bank Governor Duvvuri Subbarao said he's prepared to take ``effective'' steps to maintain liquidity in the nation's credit markets and repeated the bank's policy of smoothing swings in the currency.
We ``stand ready to take appropriate, effective and swift action'' to provide liquidity, he told reporters yesterday in Washington, where he was attending a meeting of Group of 20 finance ministers and central bankers. He said India's economy is ``strong'' and its banks are ``sound'' and ``well capitalized.''
India yesterday made the steepest cut since 2001 in the amount of cash lenders must set aside as reserves to kick-start the $1.2 trillion economy, as the rupee plunged to an all-time low and overseas investors dumped emerging-market stocks. The drop in the cash-reserve ratio followed a reduction on Oct. 6.
Subbarao, 59, declined to comment on interest-rate policy, saying that ``all variables are up for review'' at the Reserve Bank of India's Oct. 24 policy meeting. While the latest figures on inflation are ``quite comforting,'' it is ``still too early to let the vigil slip'' on prices, he said.
India's inflation has slowed to a 15-week low of 11.8 percent, according to the latest government figures, though it is still more than double the central bank's target.
Steps taken so far to improve liquidity in the Indian financial system amount to as much as $22 billion, Subbarao said.
The governor also said that in the medium term, India's rupee ``should be determined by market fundamentals.'' The RBI's policy, to ``manage exchange-rate volatility'' rather than take a view on its level, ``should continue to serve us well,'' he said.
`Knock-On Effect'
Indian markets are experiencing a ``knock-on effect'' from the global financial crisis, because the country's banks have no direct exposure to U.S. sub-prime mortgages, Subbarao said. The RBI's priorities include ``managing inflation while maintaining the growth momentum,'' and financial stability has become another objective over the last three months, he said.
Subbarao this week rushed to free up cash after money-market rates surged to an 18-month high and financial stocks slumped. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, dropped by a record on Oct. 10, forcing the bank to reiterate it had sufficient funds.
Some economists predict the RBI may follow central banks worldwide and cut interest rates as inflation pressures ease and the worsening global crisis begins to weaken economic growth.
``India has been cautious in its reaction until now,'' Swaminathan Aiyar, a Cato Institute research fellow with a focus on Asia, said in Washington. ``Subbarao clearly believes in balance'' between the policy objectives of growth and inflation. ``A rate cut is coming.''
Rescue Plans
Subbarao, who took over as RBI governor a month ago, said the problems and perspectives of countries directly affected by the global financial crisis are ``quite different'' from those of nations like India that are affected indirectly.
Relief and rescue plans announced by advanced countries so far don't include components in which peripheral countries such as India could participate, he said.
Still, India would ``hope to be included and involved in the design and implementation'' of such an effort, should there be a need, he said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Read more...
G-7 Commit to `All Necessary Steps' to Stem Global Meltdown
By Simon Kennedy
Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.
``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
Signaling they would intervene to avoid a repeat of last month's collapse of Lehman Brothers Holdings Inc., the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks, they still run a risk of disappointing investors.
``They've seen what Lehman did and the repercussions,'' said Jeff Pantages, chief investment officer at Alaska Permanent Capital Management in Anchorage, which oversees $2 billion. ``If you're a bondholder, you've got to feel better. If you're a shareholder, you're not so sure.''
Lehman's downfall precipitated the latest chapter of the 14-month crisis, causing banks to stop lending to each other out of concern they may not get their funds back. The G-7's willingness to now back ``systematically important financial institutions'' may provide some relief for Morgan Stanley, whose stocks and bonds dropped this week on concerns for its health.
Bank Discussions
U.S. Treasury Secretary Henry Paulson said no bank was singled out in the discussions yesterday.
The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
The G-7 nations were under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so. Instead, they outlined principles for all nations to follow.
Measures taken should protect taxpayers and avoid ``potentially damaging effects on other countries,'' the group said. In the past month, European countries have taken unilateral actions to increase bank-deposit guarantees, spurring concern that savers would drain cash from nations with less protection.
Paulson said it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths.
Emergency Actions
In the past two weeks, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even so, with the three- month London interbank offered rate climbing to 4.82 percent yesterday, a record premium over the Fed's benchmark rate. The seizure spurred British policy makers to propose a program to backstop loans between banks.
G-7 officials shied away from the U.K. idea, which would either turn central banks into clearing houses for banks' loans or have governments back the obligations.
The jump in borrowing costs and restricted access to credit prompted Merrill Lynch & Co. to predict the G-7 economies next year will be the weakest since 1982.
Stock Slump
U.S. stocks fell for an eighth straight day yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
Policy makers expressed confidence that investors will ultimately recognize the scale of actions under way, including a new U.S. plan to buy stocks in a ``broad array'' of financial companies.
``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``My experience of markets is that it always takes a little time to capture the elements,'' of the decisions taken, he said.
Paulson signaled his top priority is getting his plan to buy financial stocks running as soon as he can. ``This is a plan that I'm quite confident will work,'' he said. The Treasury chief also said ``we have more to do in the liquidity area.''
The American plan follows U.K. Prime Minister Gordon Brown's 50 billion pound ($87 billion) program that will partly nationalize at least eight lenders.
Canadian Plan
Canada's government yesterday moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week.
``The situation in financial markets is demanding unusual and far-reaching decisions from all policy makers,'' Weber told reporters. ``There is no alternative to these measures because banks have come under strong pressure.''
While the joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks will be held this weekend. The G-7 officials will meet today with President George W. Bush and gather with counterparts from the Group of 20, which includes emerging markets.
European Summit
Trichet will head to Paris for a summit of European leaders tomorrow that French Finance Minister Christine Lagarde said will seek to go ``beyond'' the G-7's agreements.
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement yesterday for being ``too weak.'' The ultimate text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' Lagarde said.
Tremonti after the meeting described the Basel II accord that regulates accounting for banks as ``dead'' and said he will propose a shake-up of global financial architecture today. The G-7 promised to implement ``high-quality accounting standards.''
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.
``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
Signaling they would intervene to avoid a repeat of last month's collapse of Lehman Brothers Holdings Inc., the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks, they still run a risk of disappointing investors.
``They've seen what Lehman did and the repercussions,'' said Jeff Pantages, chief investment officer at Alaska Permanent Capital Management in Anchorage, which oversees $2 billion. ``If you're a bondholder, you've got to feel better. If you're a shareholder, you're not so sure.''
Lehman's downfall precipitated the latest chapter of the 14-month crisis, causing banks to stop lending to each other out of concern they may not get their funds back. The G-7's willingness to now back ``systematically important financial institutions'' may provide some relief for Morgan Stanley, whose stocks and bonds dropped this week on concerns for its health.
Bank Discussions
U.S. Treasury Secretary Henry Paulson said no bank was singled out in the discussions yesterday.
The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
The G-7 nations were under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so. Instead, they outlined principles for all nations to follow.
Measures taken should protect taxpayers and avoid ``potentially damaging effects on other countries,'' the group said. In the past month, European countries have taken unilateral actions to increase bank-deposit guarantees, spurring concern that savers would drain cash from nations with less protection.
Paulson said it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths.
Emergency Actions
In the past two weeks, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even so, with the three- month London interbank offered rate climbing to 4.82 percent yesterday, a record premium over the Fed's benchmark rate. The seizure spurred British policy makers to propose a program to backstop loans between banks.
G-7 officials shied away from the U.K. idea, which would either turn central banks into clearing houses for banks' loans or have governments back the obligations.
The jump in borrowing costs and restricted access to credit prompted Merrill Lynch & Co. to predict the G-7 economies next year will be the weakest since 1982.
Stock Slump
U.S. stocks fell for an eighth straight day yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
Policy makers expressed confidence that investors will ultimately recognize the scale of actions under way, including a new U.S. plan to buy stocks in a ``broad array'' of financial companies.
``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``My experience of markets is that it always takes a little time to capture the elements,'' of the decisions taken, he said.
Paulson signaled his top priority is getting his plan to buy financial stocks running as soon as he can. ``This is a plan that I'm quite confident will work,'' he said. The Treasury chief also said ``we have more to do in the liquidity area.''
The American plan follows U.K. Prime Minister Gordon Brown's 50 billion pound ($87 billion) program that will partly nationalize at least eight lenders.
Canadian Plan
Canada's government yesterday moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week.
``The situation in financial markets is demanding unusual and far-reaching decisions from all policy makers,'' Weber told reporters. ``There is no alternative to these measures because banks have come under strong pressure.''
While the joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks will be held this weekend. The G-7 officials will meet today with President George W. Bush and gather with counterparts from the Group of 20, which includes emerging markets.
European Summit
Trichet will head to Paris for a summit of European leaders tomorrow that French Finance Minister Christine Lagarde said will seek to go ``beyond'' the G-7's agreements.
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement yesterday for being ``too weak.'' The ultimate text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' Lagarde said.
Tremonti after the meeting described the Basel II accord that regulates accounting for banks as ``dead'' and said he will propose a shake-up of global financial architecture today. The G-7 promised to implement ``high-quality accounting standards.''
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Berlusconi Roils Stocks With News He Says He Heard on the Radio
By Steve Scherer
Oct. 11 (Bloomberg) -- What Silvio Berlusconi giveth, Silvio Berlusconi taketh away.
In a quick reversal mirroring the financial markets' volatility, Italy's prime minister said world leaders were thinking about shutting down financial markets and then retracted the statement less than an hour later.
``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said yesterday after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global,'' he added, just after U.S. trading had begun in New York at 9:30 a.m. in New York.
Less than an hour later, Berlusconi, 72, corrected himself: ``The hypothesis wasn't put forward by any leader, including myself,'' he said. His explanation for the earlier statement: ``I heard it on the radio.''
Berlusconi's comments followed other gaffes he's committed during his political career.
``He can do these things in Italy, but he can't get away with it when he is dealing with something worldwide,'' said James Walston, professor of politics at Rome's American University. ``He is a world leader, but he's out of his depth.''
The White House denied any plan to shutter Wall Street about 55 minutes after Berlusconi's initial comment. Berlusconi's retraction came minutes after that. During that hour, the Dow Jones Industrial Average, which had fallen as much 8.1 percent in early trading, rebounded into positive territory briefly and then went back down again. The index closed down 1.5 percent in New York.
About-Face
The prime minister's about-face came as Group of Seven finance ministers and central bankers prepared to meet in Washington to discuss ways to shore up the international financial system and investor confidence. The U.S. and European countries are bailing out banks to stave off the kind of economic collapse that led to the Great Depression more than 70 years ago. After central banks cut rates globally this week, political leaders are still struggling to come up with a coordinated response.
Italy roiled matters again later in the day, when Finance Minister Giulio Tremonti said it wouldn't endorse the current draft statement drawn up by the G-7.
``The current draft is too weak,'' Tremonti told reporters in Washington before the talks began. ``We won't sign it.''
Not First Time
Berlusconi's misstatements earlier yesterday weren't his first. In 2003, the day he took over the European Union's six- month rotating presidency, Berlusconi likened a German member of the European Parliament, Martin Schulz, to a Nazi concentration camp guard.
The comments strained relations between Berlusconi and then- German Chancellor Gerhard Schroeder. Berlusconi later apologized both to the German leader and to the European Parliament.
At a New York event sponsored by the New York Stock Exchange in 2003, he said people should invest in Italy because its women are pretty.
``We have beautiful ladies and beautiful women, so my suggestion from the bottom of my heart is to try to make investments in Italy,'' Berlusconi said. ``The secretaries are beautiful.''
Shortly after the Sept. 11, 2001, attacks on New York and Washington, Berlusconi said Islamic countries were uncivilized and that Western countries would need to ``conquer'' them in order to bring them into the modern world.
In 2006, during his election campaign against former Premier Romano Prodi, he said people who voted for his rival were ``coglioni,'' a vulgar term for testicles.
``My greatness is without question,'' Berlusconi said in March 2001. ``My human substance, my history, other people dream to have.''
To contact the reporter on this story: Steve Scherer in Rome at scherer@bloomberg.net
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Oct. 11 (Bloomberg) -- What Silvio Berlusconi giveth, Silvio Berlusconi taketh away.
In a quick reversal mirroring the financial markets' volatility, Italy's prime minister said world leaders were thinking about shutting down financial markets and then retracted the statement less than an hour later.
``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said yesterday after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global,'' he added, just after U.S. trading had begun in New York at 9:30 a.m. in New York.
Less than an hour later, Berlusconi, 72, corrected himself: ``The hypothesis wasn't put forward by any leader, including myself,'' he said. His explanation for the earlier statement: ``I heard it on the radio.''
Berlusconi's comments followed other gaffes he's committed during his political career.
``He can do these things in Italy, but he can't get away with it when he is dealing with something worldwide,'' said James Walston, professor of politics at Rome's American University. ``He is a world leader, but he's out of his depth.''
The White House denied any plan to shutter Wall Street about 55 minutes after Berlusconi's initial comment. Berlusconi's retraction came minutes after that. During that hour, the Dow Jones Industrial Average, which had fallen as much 8.1 percent in early trading, rebounded into positive territory briefly and then went back down again. The index closed down 1.5 percent in New York.
About-Face
The prime minister's about-face came as Group of Seven finance ministers and central bankers prepared to meet in Washington to discuss ways to shore up the international financial system and investor confidence. The U.S. and European countries are bailing out banks to stave off the kind of economic collapse that led to the Great Depression more than 70 years ago. After central banks cut rates globally this week, political leaders are still struggling to come up with a coordinated response.
Italy roiled matters again later in the day, when Finance Minister Giulio Tremonti said it wouldn't endorse the current draft statement drawn up by the G-7.
``The current draft is too weak,'' Tremonti told reporters in Washington before the talks began. ``We won't sign it.''
Not First Time
Berlusconi's misstatements earlier yesterday weren't his first. In 2003, the day he took over the European Union's six- month rotating presidency, Berlusconi likened a German member of the European Parliament, Martin Schulz, to a Nazi concentration camp guard.
The comments strained relations between Berlusconi and then- German Chancellor Gerhard Schroeder. Berlusconi later apologized both to the German leader and to the European Parliament.
At a New York event sponsored by the New York Stock Exchange in 2003, he said people should invest in Italy because its women are pretty.
``We have beautiful ladies and beautiful women, so my suggestion from the bottom of my heart is to try to make investments in Italy,'' Berlusconi said. ``The secretaries are beautiful.''
Shortly after the Sept. 11, 2001, attacks on New York and Washington, Berlusconi said Islamic countries were uncivilized and that Western countries would need to ``conquer'' them in order to bring them into the modern world.
In 2006, during his election campaign against former Premier Romano Prodi, he said people who voted for his rival were ``coglioni,'' a vulgar term for testicles.
``My greatness is without question,'' Berlusconi said in March 2001. ``My human substance, my history, other people dream to have.''
To contact the reporter on this story: Steve Scherer in Rome at scherer@bloomberg.net
Read more...
Japanese Bonds Complete Weekly Decline as Investors Raise Cash
By Theresa Barraclough
Oct. 11 (Bloomberg) -- Japanese government bonds completed a weekly decline on speculation investors raised cash as money- market rates climbed to the highest since March 1998.
The 10-year yield yesterday climbed to the highest in more than two months even as the Bank of Japan added 3 trillion yen ($30.3 billion) to the financial system, as coordinated interest-rate cuts by central banks failed to encourage lending. The Tokyo Stock Exchange yesterday temporarily halted trading in bond futures, citing excessive declines before resuming trading.
``It's very difficult for investors to be exposed to the financial markets,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 24 primary dealers required to bid at government debt sales. ``The BOJ continued to inject liquidity. However, it hasn't helped.''
The yield on the 1.5 percent bond due September 2018 rose 7.5 basis points this week to 1.52 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.651 yen to 99.827 yen on the week. The yield yesterday reached 1.575 percent, the highest since July 28. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery lost 0.33 this week to 137.35 at the Tokyo Stock Exchange.
Tokyo's three-month interbank rate, or Tibor, increased to 0.878 percent yesterday, according to data compiled by Bloomberg. Japan's overnight call loan rate was at 0.7 percent after the central bank's liquidity injection yesterday, from 0.525 percent on Oct. 9, according to brokerage Tokyo Tanshi Co.
Japan's two-year notes yielded about 3 basis points less than Tibor yesterday, compared with an average of 12 basis points above last year, Bloomberg data shows. Two-year yields added 11.5 basis points this week to 0.845 percent.
Tougher Funding
``The funding environment is sending the two-year rate higher,'' said Tatsuo Ichikawa, a senior strategist in Tokyo at RBS Securities Japan Ltd., another primary dealer. ``Who would buy two-year JGBs below 80 basis points?''
Bond losses were limited yesterday as the Nikkei 225 Stock Average fell under 9,000 for the first time since June 2003 on concern the worst financial crisis since the Great Depression will trigger failures of companies beyond the financial sector.
``Equities look pretty bad, the economy will get worse, which makes it a bond-friendly environment,'' said Tokyo-based Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., another primary dealer. ``If you want to buy something, you should buy short and intermediate bonds.''
New City Residence, a Tokyo-based real estate investment trust, filed for bankruptcy with liabilities totaling 112.4 billion yen ($1.13 billion). Yamato Mutual Life Insurance Co. also sought protection from creditors yesterday, the Nikkei newspaper said on its online service.
G-7 Meeting
``The failure of the REIT and the fact that Yamato Mutual Life filed for protection is supportive for bonds,'' said Daisuke Uno, chief bond and currency strategist at Sumitomo Mitsui Banking Corp. in Tokyo.
The Nikkei 225 lost 9.6 percent yesterday to 8,276.43. Benchmark bonds have handed investors a return of 1.2 percent so far this year through Oct. 9, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 40 percent in the period.
Group of Seven finance ministers and central bankers met in Washington to discuss financial turmoil that has wiped more than $8 trillion off the value of global stocks this month and led to rate cuts and bank bailouts in most of the member nations.
Japan's ruling party called on the U.S. to inject public funds into financial institutions as the credit crisis deepens.
Supply Concerns
Demand for bonds also declined this week on concern Japan's government will issue additional debt after the lower house on Oct. 8 approved a 1.8 trillion yen supplementary budget to fund a fiscal stimulus package.
``Since the economic outlook is gloomy and the tax revenue will decline,'' increasing debt is inevitable, said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.
Issuing deficit-covering bonds and construction bonds may be ``unavoidable,'' Liberal Democratic Party Policy Chief Kosuke Hori told reporters in Tokyo on Oct. 9.
Japan already has 778 trillion yen of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- Japanese government bonds completed a weekly decline on speculation investors raised cash as money- market rates climbed to the highest since March 1998.
The 10-year yield yesterday climbed to the highest in more than two months even as the Bank of Japan added 3 trillion yen ($30.3 billion) to the financial system, as coordinated interest-rate cuts by central banks failed to encourage lending. The Tokyo Stock Exchange yesterday temporarily halted trading in bond futures, citing excessive declines before resuming trading.
``It's very difficult for investors to be exposed to the financial markets,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 24 primary dealers required to bid at government debt sales. ``The BOJ continued to inject liquidity. However, it hasn't helped.''
The yield on the 1.5 percent bond due September 2018 rose 7.5 basis points this week to 1.52 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.651 yen to 99.827 yen on the week. The yield yesterday reached 1.575 percent, the highest since July 28. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery lost 0.33 this week to 137.35 at the Tokyo Stock Exchange.
Tokyo's three-month interbank rate, or Tibor, increased to 0.878 percent yesterday, according to data compiled by Bloomberg. Japan's overnight call loan rate was at 0.7 percent after the central bank's liquidity injection yesterday, from 0.525 percent on Oct. 9, according to brokerage Tokyo Tanshi Co.
Japan's two-year notes yielded about 3 basis points less than Tibor yesterday, compared with an average of 12 basis points above last year, Bloomberg data shows. Two-year yields added 11.5 basis points this week to 0.845 percent.
Tougher Funding
``The funding environment is sending the two-year rate higher,'' said Tatsuo Ichikawa, a senior strategist in Tokyo at RBS Securities Japan Ltd., another primary dealer. ``Who would buy two-year JGBs below 80 basis points?''
Bond losses were limited yesterday as the Nikkei 225 Stock Average fell under 9,000 for the first time since June 2003 on concern the worst financial crisis since the Great Depression will trigger failures of companies beyond the financial sector.
``Equities look pretty bad, the economy will get worse, which makes it a bond-friendly environment,'' said Tokyo-based Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., another primary dealer. ``If you want to buy something, you should buy short and intermediate bonds.''
New City Residence, a Tokyo-based real estate investment trust, filed for bankruptcy with liabilities totaling 112.4 billion yen ($1.13 billion). Yamato Mutual Life Insurance Co. also sought protection from creditors yesterday, the Nikkei newspaper said on its online service.
G-7 Meeting
``The failure of the REIT and the fact that Yamato Mutual Life filed for protection is supportive for bonds,'' said Daisuke Uno, chief bond and currency strategist at Sumitomo Mitsui Banking Corp. in Tokyo.
The Nikkei 225 lost 9.6 percent yesterday to 8,276.43. Benchmark bonds have handed investors a return of 1.2 percent so far this year through Oct. 9, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 40 percent in the period.
Group of Seven finance ministers and central bankers met in Washington to discuss financial turmoil that has wiped more than $8 trillion off the value of global stocks this month and led to rate cuts and bank bailouts in most of the member nations.
Japan's ruling party called on the U.S. to inject public funds into financial institutions as the credit crisis deepens.
Supply Concerns
Demand for bonds also declined this week on concern Japan's government will issue additional debt after the lower house on Oct. 8 approved a 1.8 trillion yen supplementary budget to fund a fiscal stimulus package.
``Since the economic outlook is gloomy and the tax revenue will decline,'' increasing debt is inevitable, said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.
Issuing deficit-covering bonds and construction bonds may be ``unavoidable,'' Liberal Democratic Party Policy Chief Kosuke Hori told reporters in Tokyo on Oct. 9.
Japan already has 778 trillion yen of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Asia Stocks Plunge This Week as Global Credit Crisis Deepens
By Chua Kong Ho
Oct. 11 (Bloomberg) -- Asian stocks plummeted this week, sending the region's benchmark index to its biggest weekly drop on record, as the deepening credit crisis threatened to push more companies into bankruptcy.
Mitsubishi UFJ Financial Group Inc. slumped 20 percent as Asian money-market rates climbed even as the Federal Reserve and other central banks cut borrowing costs to revive credit lending. BHP Billiton Ltd., the world's biggest mining company, sank 8.8 percent, while Toyota Motor Corp. plunged 21 percent on concern a worldwide slowdown will hurt demand for metals and automobiles.
``It's pure panic,'' said Ivan Tham, Singapore-based head of funds management at the state-backed Kuwait Finance House, which has about $24 billion in assets. ``You're seeing companies start to fail because they can't refinance. Good companies are being sold down aggressively with the bad.''
The MSCI Asia Pacific Index fell 18.7, or 17.8 percent, to 86.0. That's the biggest weekly decline since the index was created on Dec. 31, 1987.
Japan's Nikkei 225 Stock Average plunged 24 percent for the biggest weekly decline in its more than 50-year history. Australia's S&P/ASX 200 Index slumped 16 percent, the biggest rout since 1992. Hong Kong's Hang Seng Index fell 16 percent, the most since January 1998.
Singapore's Straits Times Index declined 15 percent as the city-state sank into a recession.
`It's Scary'
More than $6 trillion was erased from global equities this week even as central banks in China, Australia, South Korea, Taiwan and Hong Kong's monetary authority joined a global effort to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
``It's scary,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``Equity markets are pricing in a very severe, deep recession as a function of people not getting credit.''
Mitsubishi UFJ fell 20 percent to 710 yen. Babcock & Brown Ltd., an infrastructure assets manager, tumbled 45 percent to A$1.01. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, plunged 10 percent to 504.35 rupees.
Asian money-market rates climbed as the interest-rate cuts and injections of more than $32 billion by Japan and Australia failed to unlock credit. The three-month interbank offered rate in Tokyo climbed to the highest to the highest since March 1998. Hong Kong's three-month rate rose to the highest in a year.
Oil, Copper
DBS Group Holdings Ltd., Singapore's largest bank by assets, fell 15 percent to HK$14. The city-state fell into the first recession since 2002 as manufacturing slumped. Gross domestic product contracted an annualized 6.3 percent in the third quarter from the previous three months, after shrinking a revised 5.7 percent between April and June.
BHP declined 8.8 percent to A$27.74. Mitsui & Co., Japan's second-largest trading company, dropped 13 percent to 1,040 yen. Inpex Corp., Japan's largest oil explorer, declined 14 percent to 657,000 yen.
Oil in New York fell to the lowest in a year and copper traded at its weakest since March 2006 in a week when the Dow Jones Industrial Average dropped below 9,000 on Oct. 9 for the first time since 2003.
Toyota, which gets about half its sales from North America and Europe, sank 21 percent to 3,220 yen. Honda Motor Co. dropped 26 percent to 2,110 yen, while Nissan Motor Co. slumped 25 percent to 464 yen. The yen also posted its biggest weekly gain in a decade against the dollar, hurting the value of automakers' overseas sales.
To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Asian stocks plummeted this week, sending the region's benchmark index to its biggest weekly drop on record, as the deepening credit crisis threatened to push more companies into bankruptcy.
Mitsubishi UFJ Financial Group Inc. slumped 20 percent as Asian money-market rates climbed even as the Federal Reserve and other central banks cut borrowing costs to revive credit lending. BHP Billiton Ltd., the world's biggest mining company, sank 8.8 percent, while Toyota Motor Corp. plunged 21 percent on concern a worldwide slowdown will hurt demand for metals and automobiles.
``It's pure panic,'' said Ivan Tham, Singapore-based head of funds management at the state-backed Kuwait Finance House, which has about $24 billion in assets. ``You're seeing companies start to fail because they can't refinance. Good companies are being sold down aggressively with the bad.''
The MSCI Asia Pacific Index fell 18.7, or 17.8 percent, to 86.0. That's the biggest weekly decline since the index was created on Dec. 31, 1987.
Japan's Nikkei 225 Stock Average plunged 24 percent for the biggest weekly decline in its more than 50-year history. Australia's S&P/ASX 200 Index slumped 16 percent, the biggest rout since 1992. Hong Kong's Hang Seng Index fell 16 percent, the most since January 1998.
Singapore's Straits Times Index declined 15 percent as the city-state sank into a recession.
`It's Scary'
More than $6 trillion was erased from global equities this week even as central banks in China, Australia, South Korea, Taiwan and Hong Kong's monetary authority joined a global effort to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
``It's scary,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``Equity markets are pricing in a very severe, deep recession as a function of people not getting credit.''
Mitsubishi UFJ fell 20 percent to 710 yen. Babcock & Brown Ltd., an infrastructure assets manager, tumbled 45 percent to A$1.01. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, plunged 10 percent to 504.35 rupees.
Asian money-market rates climbed as the interest-rate cuts and injections of more than $32 billion by Japan and Australia failed to unlock credit. The three-month interbank offered rate in Tokyo climbed to the highest to the highest since March 1998. Hong Kong's three-month rate rose to the highest in a year.
Oil, Copper
DBS Group Holdings Ltd., Singapore's largest bank by assets, fell 15 percent to HK$14. The city-state fell into the first recession since 2002 as manufacturing slumped. Gross domestic product contracted an annualized 6.3 percent in the third quarter from the previous three months, after shrinking a revised 5.7 percent between April and June.
BHP declined 8.8 percent to A$27.74. Mitsui & Co., Japan's second-largest trading company, dropped 13 percent to 1,040 yen. Inpex Corp., Japan's largest oil explorer, declined 14 percent to 657,000 yen.
Oil in New York fell to the lowest in a year and copper traded at its weakest since March 2006 in a week when the Dow Jones Industrial Average dropped below 9,000 on Oct. 9 for the first time since 2003.
Toyota, which gets about half its sales from North America and Europe, sank 21 percent to 3,220 yen. Honda Motor Co. dropped 26 percent to 2,110 yen, while Nissan Motor Co. slumped 25 percent to 464 yen. The yen also posted its biggest weekly gain in a decade against the dollar, hurting the value of automakers' overseas sales.
To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Read more...
Asian Currencies: Indian Rupee, Rupiah, Singapore Dollar Tumble
By David Yong
Oct. 11 (Bloomberg) -- India's rupee tumbled to a record, leading declines in Asian currencies this week, as investors pulled money from stock markets amid concern a deepening credit- market crisis will push the global economy into a recession.
The rupee dropped by the most against the greenback in more than 15 years as the Reserve Bank of India cut the cash reserve ratio for the second time in week amid a surge in lending costs between banks. Singapore's dollar reached a one-year low after the city-state became the first economy in Asia to slip into a recession. Indonesia's rupiah had the worst week since May 2006 after authorities shut the stock market for three days.
``The rupee is among the most vulnerable to the global financial stress because India has welcomed more external financing than many other countries in the region,'' said Sebastien Barbe, a strategist in Hong Kong at Calyon, the investment banking unit of France's Credit Agricole SA.
The rupee traded at 48.385 per dollar in Mumbai, according to data compiled by Bloomberg. The currency fell as much as 4.4 percent from a week ago to an all-time low of 49.26, the biggest loss since March 1993. Singapore's dollar dropped 2 percent to S$1.4797 and the rupiah fell 4.4 percent to 9,860.
Asian stocks completed the worst week on record amid a sell-off that's erased more than $8 trillion of market value from global shares this month.
India's central bank yesterday trimmed the reserve ratio to 7.5 percent from 9 percent to infuse cash into the banking system after the overnight call rate that banks charge each other surged to 23 percent from 9 percent last week. Overseas investors turned net sellers of $9.84 billion of the nation's stocks this year through Oct. 7, versus a record purchase of $19.5 billion in 2007, according to the National Stock Exchange.
Bankruptcy, Recession
Eight of Asia's 10 most-active currencies outside of Japan posted weekly declines. Japan's Nikkei 225 Stock Average fell as much as 11 percent yesterday as Yamato Life Insurance Co. filed the first industry bankruptcy since 2001. New City Residence Investment Corp., a real estate investment trust, also failed.
Economists predict the U.S. economy, the world's largest, slipped into recession in the last quarter. Gross domestic product fell at a 0.2 percent annual pace in the three months through September and is expected to drop 0.8 percent this quarter, according to a Bloomberg survey. The International Monetary Fund on Oct. 8 said the global economy is headed for a recession next year.
`Zero Appreciation'
The Monetary Authority of Singapore shifted its currency policy to seek zero appreciation in the trade-weighted band for the city's dollar. It retained the band in which the currency is allowed to trade and will intervene to reduce ``excessive volatility'' if needed, the central bank said in a statement after its semi-annual policy review yesterday.
The city's economy shrank 6.3 percent in the three months through Sept. 30 after a 5.7 percent contraction in the second quarter, according to an advance estimate from the Ministry of Trade & Industry on the same day.
Indonesia's rupiah completed a third weekly loss, breaching the 9,800 level for the first time since January 2006. Stock trading was halted on Oct. 8 after the Jakarta Composite Index plunged 10 percent for the second time in three days. Even with the shortened trading period, this week's 22 percent slide in the benchmark was the steepest in two decades.
``The sudden shut-off of the exchange has chilled investor sentiment toward the Indonesian market,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``There will be a very big plunge in Indonesia stocks and that in turn will prompt the currency to depreciate sharply.''
Won Intervention
South Korea's won had its biggest jump since March 1998 yesterday after a meeting among financial regulators prompted speculation that the government will step up support for the currency.
Deputy Finance Minister Shin Je Yoon said on Oct. 7 that the government will check for speculative forces in the currency market. Key financial institutions will maintain ``close cooperation'' so they can quickly respond to any market changes, the Prime Minister's Office said in a statement yesterday.
``There's no other way to explain the won's rally than intervention,'' said Oh Suk Tae, an economist with Citigroup Inc. in Seoul. ``The hefty intervention worries me rather than gives comfort that the market will stabilize.''
The won rose 5.4 percent to 1,309 versus the dollar, paring this week's decline to 6.5 percent, according to Seoul Money Brokerage Services Ltd. The currency climbed as high as 1,225, after earlier dropping as low as 1,460.
Finance Minister Kang Man Soo said yesterday he will meet his counterparts from Australia and Japan in Washington to discuss cooperation to stem the contagion in financial markets. Global banks have incurred $591 billion in writedowns since the collapse of the U.S. subprime mortgage market in early 2007.
`Feel the Pinch'
Malaysia's ringgit fell 1.2 percent this week to 3.5125 per dollar and touched a one-year low of 3.5171. A government report yesterday showed industrial output grew in August at the slowest pace in 16 months. Growth will be slower than the official estimates of 5.7 percent in 2008 and 5.4 percent in 2009, Second Finance Minister Nor Mohamed Yakcop said in Dubai on Oct. 8.
``More economies will be staring into a recession while stock markets are on a downswing and everyone will feel the pinch,'' said Nor Alfian Din, a senior currency trader in Kuala Lumpur at Maybank Islamic Bhd., a unit of Malaysia's biggest lender. ``Asian currencies will be affected and it'll just be a question of relativity. The ringgit isn't the worst off.''
Elsewhere, the Thai baht declined 0.4 percent this week to 34.33 per dollar and the Philippine peso dropped 1.3 percent to 47.670. China's yuan gained 0.2 percent to 6.8357 and Vietnam's dong was little changed at 16,590. Taiwan's dollar lost 0.8 percent to NT$32.437.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- India's rupee tumbled to a record, leading declines in Asian currencies this week, as investors pulled money from stock markets amid concern a deepening credit- market crisis will push the global economy into a recession.
The rupee dropped by the most against the greenback in more than 15 years as the Reserve Bank of India cut the cash reserve ratio for the second time in week amid a surge in lending costs between banks. Singapore's dollar reached a one-year low after the city-state became the first economy in Asia to slip into a recession. Indonesia's rupiah had the worst week since May 2006 after authorities shut the stock market for three days.
``The rupee is among the most vulnerable to the global financial stress because India has welcomed more external financing than many other countries in the region,'' said Sebastien Barbe, a strategist in Hong Kong at Calyon, the investment banking unit of France's Credit Agricole SA.
The rupee traded at 48.385 per dollar in Mumbai, according to data compiled by Bloomberg. The currency fell as much as 4.4 percent from a week ago to an all-time low of 49.26, the biggest loss since March 1993. Singapore's dollar dropped 2 percent to S$1.4797 and the rupiah fell 4.4 percent to 9,860.
Asian stocks completed the worst week on record amid a sell-off that's erased more than $8 trillion of market value from global shares this month.
India's central bank yesterday trimmed the reserve ratio to 7.5 percent from 9 percent to infuse cash into the banking system after the overnight call rate that banks charge each other surged to 23 percent from 9 percent last week. Overseas investors turned net sellers of $9.84 billion of the nation's stocks this year through Oct. 7, versus a record purchase of $19.5 billion in 2007, according to the National Stock Exchange.
Bankruptcy, Recession
Eight of Asia's 10 most-active currencies outside of Japan posted weekly declines. Japan's Nikkei 225 Stock Average fell as much as 11 percent yesterday as Yamato Life Insurance Co. filed the first industry bankruptcy since 2001. New City Residence Investment Corp., a real estate investment trust, also failed.
Economists predict the U.S. economy, the world's largest, slipped into recession in the last quarter. Gross domestic product fell at a 0.2 percent annual pace in the three months through September and is expected to drop 0.8 percent this quarter, according to a Bloomberg survey. The International Monetary Fund on Oct. 8 said the global economy is headed for a recession next year.
`Zero Appreciation'
The Monetary Authority of Singapore shifted its currency policy to seek zero appreciation in the trade-weighted band for the city's dollar. It retained the band in which the currency is allowed to trade and will intervene to reduce ``excessive volatility'' if needed, the central bank said in a statement after its semi-annual policy review yesterday.
The city's economy shrank 6.3 percent in the three months through Sept. 30 after a 5.7 percent contraction in the second quarter, according to an advance estimate from the Ministry of Trade & Industry on the same day.
Indonesia's rupiah completed a third weekly loss, breaching the 9,800 level for the first time since January 2006. Stock trading was halted on Oct. 8 after the Jakarta Composite Index plunged 10 percent for the second time in three days. Even with the shortened trading period, this week's 22 percent slide in the benchmark was the steepest in two decades.
``The sudden shut-off of the exchange has chilled investor sentiment toward the Indonesian market,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``There will be a very big plunge in Indonesia stocks and that in turn will prompt the currency to depreciate sharply.''
Won Intervention
South Korea's won had its biggest jump since March 1998 yesterday after a meeting among financial regulators prompted speculation that the government will step up support for the currency.
Deputy Finance Minister Shin Je Yoon said on Oct. 7 that the government will check for speculative forces in the currency market. Key financial institutions will maintain ``close cooperation'' so they can quickly respond to any market changes, the Prime Minister's Office said in a statement yesterday.
``There's no other way to explain the won's rally than intervention,'' said Oh Suk Tae, an economist with Citigroup Inc. in Seoul. ``The hefty intervention worries me rather than gives comfort that the market will stabilize.''
The won rose 5.4 percent to 1,309 versus the dollar, paring this week's decline to 6.5 percent, according to Seoul Money Brokerage Services Ltd. The currency climbed as high as 1,225, after earlier dropping as low as 1,460.
Finance Minister Kang Man Soo said yesterday he will meet his counterparts from Australia and Japan in Washington to discuss cooperation to stem the contagion in financial markets. Global banks have incurred $591 billion in writedowns since the collapse of the U.S. subprime mortgage market in early 2007.
`Feel the Pinch'
Malaysia's ringgit fell 1.2 percent this week to 3.5125 per dollar and touched a one-year low of 3.5171. A government report yesterday showed industrial output grew in August at the slowest pace in 16 months. Growth will be slower than the official estimates of 5.7 percent in 2008 and 5.4 percent in 2009, Second Finance Minister Nor Mohamed Yakcop said in Dubai on Oct. 8.
``More economies will be staring into a recession while stock markets are on a downswing and everyone will feel the pinch,'' said Nor Alfian Din, a senior currency trader in Kuala Lumpur at Maybank Islamic Bhd., a unit of Malaysia's biggest lender. ``Asian currencies will be affected and it'll just be a question of relativity. The ringgit isn't the worst off.''
Elsewhere, the Thai baht declined 0.4 percent this week to 34.33 per dollar and the Philippine peso dropped 1.3 percent to 47.670. China's yuan gained 0.2 percent to 6.8357 and Vietnam's dong was little changed at 16,590. Taiwan's dollar lost 0.8 percent to NT$32.437.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
Read more...
G-7 Commit to `All Necessary Steps' to Stem Crisis
By Simon Kennedy and John Brinsley
Oct. 10 (Bloomberg) -- The Group of Seven nations pledged to prevent the failure of key banks while stopping short of new initiatives to unfreeze credit markets.
``The current situation calls for urgent and exceptional action,'' the G-7's finance ministers and central bankers said in a 266-word statement after talks in Washington. Officials pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
With stocks falling and a global recession looming, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific new measures, the G-7 fell short of some investors' calls for an agreement to guarantee loans between banks.
``Markets wanted to get a game plan from the G-7 and they haven't got that,'' said Sophia Drossos, a New York-based currency strategist at Morgan Stanley. ``There might be disappointment.''
Treasury Secretary Henry Paulson told reporters after the meeting it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths. He added that no banks were named in officials' discussions today.
Ministers and central bankers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
Market Panic
The G-7 was under pressure to roll out new policies to quell the panic in markets after its previous steps failed to do so. Instead, they outlined principles for all nations to follow.
``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' officials said.
In the past two weeks alone, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy U.S. commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even after those efforts, as banks shun lending to each other for fear they will lose the money or because they need it themselves. The resulting jump in borrowing costs is now strangling consumers and companies, prompting Merrill Lynch & Co. to predict the G-7 economies will be the weakest next year since 1982.
Stocks Slide
U.S. stocks fell for an eighth straight day, with the Dow capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
The G-7 officials shied away from endorsing a U.K. proposal to guarantee lending between banks either by turning central banks into clearing houses for the loans or having governments back them. They vowed to take steps that would give depositors confidence that their savings were safe and to restart secondary markets for mortgages and other securitized assets.
Paulson said the U.S. will buy equity in financial companies to restore market stability and ensure economic growth. He added that ``we have more to do in the liquidity area.''
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said.
Currencies Message
While the joint statement made no mention of currencies, European Central Bank President Jean-Claude Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks to be held this weekend include a meeting of the G-7 officials with President George W. Bush, a gathering of policy makers from the Group of 20 and a summit of European leaders in Paris. Bush said today that the U.S. ``will continue to act to resolve this crisis and restore stability to our markets.''
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.'' He said the ultimate text was very different from the original.
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net
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Oct. 10 (Bloomberg) -- The Group of Seven nations pledged to prevent the failure of key banks while stopping short of new initiatives to unfreeze credit markets.
``The current situation calls for urgent and exceptional action,'' the G-7's finance ministers and central bankers said in a 266-word statement after talks in Washington. Officials pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
With stocks falling and a global recession looming, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific new measures, the G-7 fell short of some investors' calls for an agreement to guarantee loans between banks.
``Markets wanted to get a game plan from the G-7 and they haven't got that,'' said Sophia Drossos, a New York-based currency strategist at Morgan Stanley. ``There might be disappointment.''
Treasury Secretary Henry Paulson told reporters after the meeting it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths. He added that no banks were named in officials' discussions today.
Ministers and central bankers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
Market Panic
The G-7 was under pressure to roll out new policies to quell the panic in markets after its previous steps failed to do so. Instead, they outlined principles for all nations to follow.
``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' officials said.
In the past two weeks alone, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy U.S. commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even after those efforts, as banks shun lending to each other for fear they will lose the money or because they need it themselves. The resulting jump in borrowing costs is now strangling consumers and companies, prompting Merrill Lynch & Co. to predict the G-7 economies will be the weakest next year since 1982.
Stocks Slide
U.S. stocks fell for an eighth straight day, with the Dow capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
The G-7 officials shied away from endorsing a U.K. proposal to guarantee lending between banks either by turning central banks into clearing houses for the loans or having governments back them. They vowed to take steps that would give depositors confidence that their savings were safe and to restart secondary markets for mortgages and other securitized assets.
Paulson said the U.S. will buy equity in financial companies to restore market stability and ensure economic growth. He added that ``we have more to do in the liquidity area.''
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said.
Currencies Message
While the joint statement made no mention of currencies, European Central Bank President Jean-Claude Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks to be held this weekend include a meeting of the G-7 officials with President George W. Bush, a gathering of policy makers from the Group of 20 and a summit of European leaders in Paris. Bush said today that the U.S. ``will continue to act to resolve this crisis and restore stability to our markets.''
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.'' He said the ultimate text was very different from the original.
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net
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Paulson Says Will Buy Bank Equity `Soon as We Can'
By John Brinsley and Rebecca Christie
Oct. 10 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The injection of equity would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades. Paulson declined to give a timetable or details about the purchases, and signaled that markets may be in for turmoil ahead.
``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''
A drop in home prices and illiquid securities tied to mortgages led to the collapse of some of the country's biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury's coming program of ``broad'' mortgage asset purchases, he said.
More Capital
``Such a program would be designed to encourage the raising of new private capital to complement public capital,'' Paulson said.
The U.S. Congress a week ago passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy troubled mortgage-related assets and purchase equity in banks.
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion -- roughly half of which have already been written down or recognized as losses.
Asked about how newly approved funds would be divided between the mortgage-asset and bank equity purchases, Paulson declined to offer specifics.
Market Liquidity
``Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,'' Paulson said.
The G-7 nations are committed to ``an aggressive action plan'' to expand liquidity and stem a credit crisis threatening global economic growth, he said in the statement.
The G-7 will ``provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections'' under a ``coherent framework,'' Paulson said. Policy makers will pursue ``robust international partnership and cooperation.''
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
Responding to a question, Paulson said markets may ``have some volatility for a while'' and ``this is about confidence.''
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Oct. 10 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The injection of equity would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades. Paulson declined to give a timetable or details about the purchases, and signaled that markets may be in for turmoil ahead.
``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''
A drop in home prices and illiquid securities tied to mortgages led to the collapse of some of the country's biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury's coming program of ``broad'' mortgage asset purchases, he said.
More Capital
``Such a program would be designed to encourage the raising of new private capital to complement public capital,'' Paulson said.
The U.S. Congress a week ago passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy troubled mortgage-related assets and purchase equity in banks.
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion -- roughly half of which have already been written down or recognized as losses.
Asked about how newly approved funds would be divided between the mortgage-asset and bank equity purchases, Paulson declined to offer specifics.
Market Liquidity
``Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,'' Paulson said.
The G-7 nations are committed to ``an aggressive action plan'' to expand liquidity and stem a credit crisis threatening global economic growth, he said in the statement.
The G-7 will ``provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections'' under a ``coherent framework,'' Paulson said. Policy makers will pursue ``robust international partnership and cooperation.''
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
Responding to a question, Paulson said markets may ``have some volatility for a while'' and ``this is about confidence.''
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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