Retail Sales Probably Fell in September: U.S. Economy Preview

By Bob Willis

Oct. 12 (Bloomberg) -- Sales at U.S. retailers probably dropped in September as mounting job losses, plunging home prices and the deepening credit crisis shook consumers, economists said before reports this week.

Purchases fell 0.7 percent following a 0.3 percent decline the prior month, according to the median estimate in a Bloomberg survey before the Commerce Department's Oct. 15 report. Other figures may show housing starts fell to a 17-year low and falling fuel prices tempered increases in the cost of living.

The stock-market meltdown last week may further undermine already fragile consumer confidence, prompting cutbacks on non- essentials like new cars and vacations that will deepen the economic slump. Falling oil prices are the one bright spot, slowing inflation and giving the Federal Reserve leeway to keep cutting interest rates to unclog credit markets.

``The prospect of a consumer recession overlaid on a housing downturn and the worst financial crisis in modern times has sent a chill through business corridors,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The body blows to the U.S. economy are coming fast and furious.''

A drop in September would extend declines in retail sales to three consecutive months, the first time that's happened since comparable records began in 1992.

Expensive items like automobiles saw the biggest drop in demand in September. Cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993, according to industry figures issued earlier this month.

Gasoline Sales

Excluding automobiles, sales decreased 0.2 percent after dropping 0.7 percent in August, according to the Bloomberg survey median. A decrease in service-station receipts, reflecting a 5- cent drop in the average cost of gasoline last month, probably contributed to the decline, economists said.


Consumer spending fell at an annual rate of 2 percent in the third quarter, bringing to a halt a record expansion that began in 1992, according to the median estimate of economists surveyed in the first week of October. Purchases will probably drop at a 0.9 percent pace this quarter and be unchanged in the first three months of 2009, the projections also showed.

A 0.2 percent drop in gross domestic product at an annual pace last quarter will be followed by a 0.8 percent decline in the last three months of 2008, signaling the first U.S. recession since 2001, according to the forecasts.

Even online retailer EBay Inc., which has almost doubled its staff since 2005, is bracing for a downturn. It plans to slash 10 percent of its workforce, about 1,600 positions, as sales slow and competition intensifies.

`Challenging Times'

``There's no doubt these are challenging times for consumers, both in the U.S. and in economies around the world,'' Chief Executive Officer John Donahoe said Oct. 6. ``It will be a challenging holiday season,'' he said.

``Recent intensification of the financial crisis has augmented the downside risks to growth,'' the Federal Reserve said Oct. 8 as it announced a surprise half-point cut in its target rate, to 1.5 percent. ``The decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.''

Consumer prices rose 0.1 percent in September after falling 0.1 percent the prior month, according to the median forecast ahead of the Labor Department's Oct. 16 report. The increase in prices in the 12 months ended September is projected to slow to 5 percent from 5.4 percent in August.

Housing is likely to continue to be the economy's weakest link into next year.

A Commerce Department report Oct. 17 may show work began on 870,000 homes at an annual rate in September, the fewest since January 1991, according to the survey median. Declines in construction have detracted from growth since the first quarter of 2006.

Another report the same day may show consumer confidence weakened for the first time since reaching a 28-year in June. The Reuters/University of Michigan preliminary sentiment index may drop to 65 this month from 70.3 in September, according to economists' forecasts.

Bloomberg Survey

=================================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
=================================================================
Federal Budget $ Blns    10/14     Sept.     112.9      45.0
PPI  MOM%                10/15     Sept.     -0.9%     -0.5%
Core PPI MOM%            10/15     Sept.      0.2%      0.2%
PPI  YOY%                10/15     Sept.      9.6%      8.7%
Core PPI YOY%            10/15     Sept.      3.6%      3.8%
Retail Sales MOM%        10/15     Sept.     -0.3%     -0.7%
Retail ex-autos MOM%     10/15     Sept.     -0.7%     -0.2%
Business Inv. MOM%       10/15      Aug.      1.1%      0.5%
CPI  MOM%                10/16     Sept.     -0.1%      0.1%
Core CPI MOM%            10/16     Sept.      0.2%      0.2%
CPI  YOY%                10/16     Sept.      5.4%      5.0%
Core CPI YOY%            10/16     Sept.      2.5%      2.5%
Initial Claims ,000's    10/16     Oct. 4     478       468
Cont. Claims ,000's      10/16    Sept. 27    3659      3685
Ind. Prod. MOM%          10/16     Sept.     -1.1%     -0.8%
Cap. Util. %             10/16     Sept.     78.7%     77.9%
Housing Starts ,000's    10/17     Sept.      895       870
Building Permits ,000's  10/17     Sept.      857       840
U of Mich Conf. Index    10/17    Sept. F     70.3      65.0
=================================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net


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U.K. May Appoint Bank Representatives, Official Says

By Gonzalo Vina

Oct. 12 (Bloomberg) -- The British Treasury may appoint its own representatives to the boards of the country's biggest banks as it begins buying stakes in them over the next few weeks, a government official said.

Policy makers need to consider how to protect taxpayers' interests when taking significant stakes in lenders, said the official, who spoke on condition of anonymity.

The British government tomorrow is likely to say it will underwrite share sales of as much as 35 billion pounds ($60 billion) in four of the nation's banks, the Sunday Times reported today. Governments in Europe and North America are preparing plans to buy stakes in banks to alleviate the credit freeze threatening to tip the world into a recession.

The U.K. last week said it would invest at least 50 billion pounds to recapitalize Royal Bank of Scotland Group Plc, Barclays Plc and at least six others.

Britain's program may be big enough to give the government a controlling stake in some lenders. The U.K.'s plan contrasts with the U.S., where Treasury Secretary Henry Paulson said two days ago that American authorities would have non-voting shares.

Edinburgh-based RBS, with a market capitalization of 11.9 billion pounds, will seek at least 10 billion pounds from investors and the government, a person familiar with the matter said. Barclays's market capitalization is 17.4 billion pounds.

Capital Raising

RBS will ask the government to underwrite a total of 15 billion pounds in capital raising, while HBOS Plc, Britain's biggest mortgage lender, will request as much as 10 billion pounds, the Sunday Times said, without saying how it obtained the information. Lloyds TSB Group Plc will seek 7 billion pounds and Barclays wants 3 billion pounds, the newspaper reported.

Bank of England Governor Mervyn King has told the banks to ask for more than they need, the Sunday Times said. It reported that the rescue may leave the government owning 70 percent of HBOS and 50 percent of RBS and that the Treasury has increased the total amount of cash available to 75 billion pounds.

U.K. Treasury officials have been working with the banks on the program and tomorrow will begin outlining details of a related plan to guarantee about 250 billion pounds of interbank loans though an insurance system. The government will also unveil the capital raising plan for the four banks seeking funds tomorrow, the Sunday Times reported.

``We are working hard toward implementation,'' Chancellor of the Exchequer Alistair Darling told reporters in Washington yesterday. ``We will be doing something pretty quickly. It is essential we take action here in the U.K.''

Stock Exchanges

The Sunday Times said the scale of the bank fundraising plan may lead to a trading suspension on the London Stock Exchange tomorrow.

``In extremis, you must never rule things out, but I hope that wouldn't be necessary,'' opposition Conservative Party Leader David Cameron told Sky News today, when asked about the possibility of market suspensions around the world. ``The problem with doing that is that people find ways round trading or find other ways to trade. It also sends a terrible signal.''


Prime Minister Gordon Brown's government last week was forced to step up its efforts as Britain lurched toward a recession and shares of the country's biggest banks lost more than half their value in a week. Since then, Darling has been urging fellow finance ministers in Washington to adopt similar plans to rebuild bank balance sheets.

Euro-Zone Summit

Brown will meet European leaders in Paris today to discuss the crisis. Brown wants ``to persuade European countries to adopt the comprehensive approach we have taken in Britain,'' he wrote in the Sunday Mirror today. ``For Europe, the stakes could not be higher and this is the moment of truth.''

Paulson signaled his top priority is getting his initiative to buy financial stocks running as soon as he can. ``This is a plan that I'm quite confident will work,'' he said, while declining to estimate the size of the program.

Canada's government last week moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. The German government will create a fund of as much as 100 billion euros ($134 billion) to recapitalize German banks hurt by the financial-market crisis, Handelsblatt newspaper reported, without identifying its sources.

Finance ministers and central bankers from the Group of Seven major nations, meeting in Washington Oct. 10, agreed to ensure that key banks will get access to liquidity, funding and taxpayer funds as capital.

Credit Rating

``These are the most unstable and potentially dangerous economics circumstances in terms of the global financial system that we've seen for very many decades,'' U.K. Treasury Chief Secretary Yvette Cooper told the BBC's Sunday AM show today. ``If we can get governments acting across the world in a coordinated way we can respond to that and try and get the money markets moving again.''

RBS, Britain's third-largest bank by market value, last week had its credit rating cut by Standard & Poor's for the first time in almost a decade on concern that its financial health was deteriorating.

The steps to partially nationalize the industry provide ``essential preconditions'' to kick-start lending, Darling said.

``We had to say to banks: you recapitalize and, if you do that, we will guarantee your inter-bank lending,'' Darling said. ``That's what they need in order to get the funds they need.''

The U.K. initiative comes after the government took control of Northern Rock Plc and Bradford & Bingley Plc earlier this year, and arranged for London-based Lloyds TSB Group Plc, the U.K.'s biggest provider of checking accounts, to take over Edinburgh-based HBOS Plc, the country's biggest mortgage lender.

London-based HSBC, Europe's biggest bank, said last week it doesn't plan to receive capital from the U.K. because it has sufficient funding. Standard Chartered Plc, the London-based bank that makes most of its profit in Asia, and Abbey National, the U.K. unit of Spain's Banco Santander SA, also said they won't seek capital from the government.

RBS, HBOS, Barclays and Lloyds TSB praised the funding plan and said they will study it before saying how they might use it.

To contact the reporter on this story: Gonzalo Vina in Washington at gvina@bloomberg.net


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Fed's Fisher Says All Options Weighed to End Crisis

By Steve Matthews and Scott Lanman

Oct. 12 (Bloomberg) -- The Federal Reserve will consider all policy options necessary to stabilize financial markets and limit damage to the economy, said Richard W. Fisher, president of the Dallas Fed bank.

``We can and we will restore order to the credit markets,'' Fisher said during a panel discussion sponsored by the Institute of International Finance in Washington. He said the U.S. faces a period of ``negative growth'' and pledged that the Fed would do ``whatever'' is necessary to ease strains on markets and the economy.

Fisher didn't offer details on what options may be under consideration. He said he was breaking from Fed officials' public-speaking tradition of not talking on behalf of the entire policy-making Federal Open Market Committee.

``This morning I am casting that convention aside,'' he said. ``I speak for all of us when I say that the Federal Reserve will continue to explore every avenue and consider every option to see the credit markets through the credit crisis.''

The Fed, the European Central Bank and other central banks lowered interest rates last week in an unprecedented coordinated effort to ease the economic effects of the freeze in credit markets. Fisher voted for the policy change after dissenting as recently as Aug. 5 against holding the benchmark rate unchanged in favor of an increase because of inflation concerns.

The Fed reduced its benchmark rate to 1.5 percent. Traders anticipate another quarter point cut by the Federal Open Market Committee's Oct. 28-29 meeting.

Capital Injections

Fisher said policy makers must work in concert to address the strains in the financial system.

Treasury Secretary Henry Paulson is planning government investment in banks to help replenish depleted capital. The Treasury is also recruiting asset managers and other staff to carry out a $700 billion rescue plan approved by Congress, which will be administered by a newly formed Office of Financial Stability in the Treasury's headquarters in Washington.

Fisher said federal support for the banking system will help economic growth to resume. Paulson, the Congress and other officials will ``will engineer an appropriate recapitalization of the banking system in a manner that does not kill the goose that lays the golden eggs of the practice of capitalism,'' Fisher said.

The Fed is facing increasing evidence that the U.S. is close to or already in a recession. Labor Department figures showed Oct. 3 that payrolls fell by 159,000 in September, the biggest drop in five years. The unemployment rate held at 6.1 percent, up from 5 percent as recently as April.

Fisher said the turmoil may lead to ``sub-par and even negative growth for some time possibly into 2009.''

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net



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Co-operative Talks With Britannia About Products

By Lars Paulsson

Oct. 12 (Bloomberg) -- Co-operative Group Ltd., the U.K.'s largest customer-owned retailer, said its financial services unit is holding talks with Britannia Building Society and other companies with the aim of increasing market share and distribution of its services.

A merger with Britannia is ``one possibility,'' although legislation isn't in place to allow a combination of the two companies, according to Duncan Bowker, a spokesman for The Co- operative Financial Services unit.

Co-operative is seeking to promote its services and increase retail deposits that have grown by 14 percent, or 500 million pounds ($849 million), in the six months through Sept. 30, Bowker said today in a telephone interview. Legislation to allow a merger between a co-operative and a building society is being prepared and may become a law next year, Bowker said.

``If it's passed, it opens a gateway for us to consider that as an option,'' he said. Manchester-based Co-operative may also sell its products in Britannia's branches, he said.

The Sunday Telegraph said today that Britannia and Co- operative would have 75 billion pounds in assets. The Co- operative Financial Services has 6.5 million customers, according to its Web site.

Bowker declined to name any other companies Co-operative is in talks with.

Britannia's Chief Executive Officer Neville Richardson confirmed in today's Mail on Sunday newspaper that talks with Co- operative are taking place to combine or work closely together. Britannia's spokesman Graham Leftwich didn't respond to a message left on his mobile phone today seeking comment.

Besides its financial services arm, Co-operative Group operates food stores and pharmacies and provides travel and funeral services.

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net



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European Leaders Seek `One Voice' to Counter Crisis

By Simon Kennedy and Sandrine Rastello

Oct. 12 (Bloomberg) -- European leaders met to forge a new set of measures to combat the credit freeze after their failure to act a week ago contributed to the worst sell-off in the region's stocks in two decades.

``I want Europe to speak with one voice for Europe and for the world because this is a global crisis,'' French President Nicolas Sarkozy told reporters as he greeted European Commission President Jose Manuel Barroso at the Elysee Palace in Paris. Sarkozy said he's seeking ``an ambitious, coordinated plan.''

German Chancellor Angela Merkel, whose government earlier this month rejected French suggestions to form a joint bank- rescue fund, said yesterday the euro region will implement ``the same toolbox of instruments.'' Merkel, Sarkozy and their counterparts in the 15-nation euro region are being forced to shift stance as a deepening slide in financial markets has threatened to tip Europe into a prolonged recession.

``Measures by euro-area governments to end the financial crisis have been uncoordinated and insufficient,'' said Juergen Michels, a Citigroup Inc. economist in London. ``Increasing risks of an economic disaster might force governments to set up more coordinated and more comprehensive measures.''

U.K. Prime Minister Gordon Brown met Sarkozy, Barroso and European Central Bank President Jean-Claude Trichet. The leaders of the euro nations then gathered at 5 p.m. local time. The talks come after finance chiefs from the Group of Seven nations established guidelines on Oct. 10 for combating the credit crunch, while falling short of adopting new initiatives.

`More Muscles'

Luxembourg's Jean-Claude Juncker, who heads the Eurogroup of euro-region finance ministers, said in a statement today that ``no financial institution of systemic importance'' can be allowed to fail. Juncker, who will take part in today's meeting in Paris, said that access to liquidity will be assured, efforts to unblock financial markets will be intensified and individuals' savings accounts will be protected.

``Some of us hoped it had had more teeth or more muscles to it, but at least it was endorsed,'' French Finance Minister Christine Lagarde said in Washington yesterday, referring to the G-7 statement. Sarkozy has convened ``a meeting of all heads of states of the euro-group. Not to talk about it, but to actually put meat and muscles on the bones of that skeleton.''

``I can assure you, you will not be disappointed, and it will be quite specific,'' she said.

Merkel said yesterday during a visit to eastern France that Germany backs ``coherent reaction in the euro-zone to the international financial crisis.'' In Paris today, she said joint action to shore up markets ``should be a sign of strength for the euro-zone.''

Interbank Rates

European benchmark stock indexes slid 22 percent last week amid an investor panic about the freeze in credit markets. The cost to protect corporate debt from default set new highs around the world and the rate banks charge each other for three-month loans climbed to record premiums over central bank benchmark rates.

Contracts on Europe's benchmark Markit iTraxx Crossover index, a measure of the cost to insure corporate bonds, soared more than 2 percentage points in the past month to 756.60 two days ago, according to JPMorgan Chase & Co.

Anglo-Irish Bank Corp. Plc, Ireland's third-biggest lender, and ING Groep NV, the largest Dutch financial-services institution, plunged more than 42 percent, leading declines in banks and insurers last week.

Brown's Rescue

U.K. policy makers took the lead in planning to purchase stakes in banks hammered by losses on assets tied to mortgages. Brown set up a 50 billion-pound ($85 billion) program to invest in at least eight British lenders. U.S. Treasury Secretary Henry Paulson will tap some of the $700 billion financial-rescue package approved by Congress this month to buy equity in financial companies.

It ``made sense to implement measures in Germany and other European states like the ones in the U.S. and U.K.'' Commerzbank AG Chairman Klaus-Peter Mueller said in a Bloomberg Television interview.

A German program may allot up to 100 billion euros ($134 billion) to recapitalize private banks, state banks and insurance companies, Handelsblatt reported, citing unidentified officials. Merkel said the plan would involve ``providing banks with sufficient capital so that they are able to operate on their own -- and I don't rule out that there could be capital support.''

Initial Response

European officials last month rejected taking more concerted action. Lagarde said then she had ``decided to take no other measures'' than banning short-selling and German Finance Minister Peer Steinbrueck dismissed the need to ``adopt a comparable program'' to the U.S. program to buy distressed assets from banks.

At an Oct. 4 summit, leaders of France, Germany, Britain, Italy, Luxembourg, the ECB and European Commission stopped short of a regional rescue effort. They agreed to ease accounting rules, seek tougher financial regulations and weaken enforcement of competition and budget laws.

Today's Paris crisis talks, the second in as many weekends, reflects the speed at which the U.S.-led credit crunch has infected Europe's banking system, financial markets and economy. Governments this month have bailed out financial companies including Fortis and Dexia SA. The ECB cut interest rates this past week for the first time since 2003 and offered banks unlimited funding every week at the main refinancing rate.

Frozen Markets

Even so, Europe's credit markets remain frozen, like those elsewhere. The cost of borrowing euros for three months remains close to a record high, choking off access to cash for companies and consumers. That is pushing the 15-nation euro area toward its first recession since the single currency began trading in 1999.

``We have to reduce the cost of borrowing in Europe and there is room for that,'' Corrado Passera, chief executive officer at Intesa Sanpaolo SpA, Italy's second-biggest bank, said yesterday.

Brown's government has also proposed guaranteeing loans between banks to thaw money markets. The G-7 refrained from endorsing the approach two days ago. The U.K. leader may renew his push today. The U.K. plans to recapitalize its biggest banks including Royal Bank of Scotland Group Plc and provide 250 billion pounds of bank loan guarantees.

To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net Sandrine Rastello in Washington at srastello@bloomberg.net



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RBS Considers 10 Billion-Pound Capital-Raising Plan

By Ben Livesey

Oct. 12 (Bloomberg) -- Royal Bank of Scotland Group Plc, the U.K.'s fourth-biggest bank, plans to raise at least 10 billion pounds ($17 billion) from investors and the government as the credit crisis worsens, said a person familiar with the matter.

The Edinburgh-based bank may arrange a rights offering underwritten by the U.K. government as part of the rescue plan for the banking industry announced last week, said the person, who declined to be identified because discussions on the transaction are confidential. RBS hasn't ruled out the government's offer to buy preference shares, said the person.

RBS would be the first U.K. bank to use the government's offer to spend as much as 50 billion pounds buying stakes in the country's banks to help them raise capital. RBS needs to absorb more credit writedowns and meet the government's criteria to be eligible for insurance on its short- and medium-term loans as part of Britain's plan to help unlock capital markets.

``It is not an unrealistic possibility that RBS will need to raise about 10 billion pounds,'' said Alex Potter, a London-based analyst at Collins Stewart. ``It is difficult to know whether it is enough. They have raised very little in their disposal program and things have since got worse.''

RBS spokeswoman Linda Harper declined to comment to Bloomberg News on the share sale plan.

Government Stake

Barclays Plc, the U.K.'s second-biggest bank, may sell at least 3 billion pounds of preference shares to investors, two people familiar with the matter said last week.

The British government tomorrow is likely to say it will underwrite share sales of as much as 35 billion pounds in four of the nation's banks, the Sunday Times reported today, without saying how it obtained the information.

RBS will ask the government to underwrite a total of 15 billion pounds in capital raising and the state may end up owning half of the company, the Sunday Times said. Bank of England Governor Mervyn King told financial institutions to ask for more money than they need, the newspaper said.

RBS had planned to raise about 4 billion pounds from asset disposals in addition to the 12.3 billion pounds it raised in a rights offer earlier this year. The bank abandoned plans to sell the Australian and New Zealand investment-banking units of ABN Amro in August after failing to find a buyer, and has struggled to sell its U.K. insurance unit for about 7 billion pounds.

Writedowns

RBS, which has written down 5.9 billion pounds of assets this year, slumped 62 percent in London trading last week amid concern about capital and further writedowns. The decline reduced the company's market value to less than 12 billion pounds, making it Britain's fourth-largest bank by market value, down from No. 2 earlier this year.

The bank may take losses of as much as 500 million euros ($673 million) on holdings tied to Icelandic banks, which were rescued by the island country's government last week.


RBS is also struggling with rising defaults and the worst housing slump since the Great Depression in the U.K. and U.S., where it lends to consumers and companies through its Citizens unit. The bank posted a loss of 761 million pounds in the first half of the year, its first in 40 years, because of subprime related writedowns.

RBS Chief Executive Officer Fred Goodwin has been criticized for eroding the bank's capital base by paying too much for acquisitions, including ABN Amro last year, just as the credit crisis was taking hold.

Goodwin Leaves?

``I would be very surprised if all of them keep their jobs,'' Opposition Conservative Leader David Cameron told Sky News today, when asked if bank executives should resign. ``It is a matter for the boards of all the individual banks but I think in some cases there will be -- if I can put it in this way -- a very robust argument, because clearly, mistakes have been made.''

Goodwin, 50, and Chairman Tom McKillop don't need to stand down to raise capital under the government plan, RBS said Oct. 8, denying reports that it will require them to be ousted.

``The important thing is to get through this crisis,'' Angela Knight, chief executive officer of the British Bankers' Association, which represents the U.K. banking industry, told Sky News today, when asked if HBOS Plc and RBS executives should quit.

``I don't think you should say it is just one person who for some reason ought to have been aware of consequences,'' Knight said. ``It's difficult to find anyone who realized, who thought for a moment that you could get this sort of panic, this sort of meltdown.''

Government Talks

Goodwin is in talks with the government, the Bank of England and the Financial Services Authority this weekend about the deal and may announce the capital raising as early as tomorrow, the person said. The government will unveil the plan for four banks seeking funds tomorrow, the Sunday Times reported.

Goodwin would step down if it helped secure fresh financing for RBS, the Times reported yesterday, without citing anyone.

Stephen Hester, chief executive officer of British Land Co. and a non-executive director of RBS, will replace Goodwin, the Times said. Some unidentified investors also want RBS Chairman Tom McKillop to be replaced by Philip Hampton, the chairman of J Sainsbury Plc, according to the newspaper.

Raising about 10 billion pounds would boost the bank's so- called core equity Tier 1 capital ratio, which stood at 5.7 percent on June 30, and lift its overall Tier 1 ratio to almost 11 percent from 8.6 percent, satisfying government capital requirements, Sanford C. Bernstein & Co. analysts estimate.

The U.K. plan requires RBS and seven other lenders, including London-based Barclays, to raise their capital reserves by 25 billion pounds by the end of the year. Prime Minister Gordon Brown's government has offered to buy 25 billion pounds of bank shares to help meet this target and stands ready to provide another 25 billion pounds.

``The banks need to get out there and start raising capital,'' said Leigh Goodwin, a London-based analyst at Fox-Pitt Kelton Ltd. ``RBS has wholesale funding exposures, too much leverage and a relatively weak capital position.''

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net


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London Stock Exchange Plans to Open `as Usual,' Spokesman Says

By Nandini Sukumar and Craig Stirling

Oct. 12 (Bloomberg) -- The London Stock Exchange plans to open for trading as usual tomorrow, a spokesman said.

``We are planning to open the market as usual on Monday,'' Patrick Humphris, a spokesman for the London exchange, said in a phone interview today.

Asked whether trading in individual bank stocks may be suspended, he said ``that's a matter for the FSA,'' referring to the U.K. Financial Services Authority.

Trading at the LSE may be suspended tomorrow to give time for investors to absorb details of a government rescue package for financial institutions, the Sunday Times reported today, without saying how it obtained the information.

An official at the Financial Services Authority declined to comment when contacted by Bloomberg News.

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Craig Stirling in London at cstirling1@bloomberg.net.



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Gulf Salaries Rise by 11.4% in Year to August on Labor Shortage

By Matthew Brown

Oct. 12 (Bloomberg) -- Salaries in the Arabian Gulf increased by an average 11.4 percent in the year to August, because of a shortage of labor, GulfTalent said.

Payments rose fastest in the United Arab Emirates, at 13.6 percent, followed by Qatar at 12.7 percent, Dubai-based GulfTalent.com, an online recruitment firm, said in an e-mailed statement today. Saudi Arabian pay increased an average of 9.8 percent, it said.

Higher wages can increase inflationary pressures as demand for goods grows. Salaries are outstripping the official rate of inflation in the United Arab Emirates, which stood at 11.1 percent in 2007, while they are below the rate of inflation in Qatar, where prices increased an annual 16.6 percent in the second quarter.

``Pay rises were driven by a continued shortage of talent across most sectors, as well as the spiraling cost of living, particularly in residential rents,'' GulfTalent said. ``Other contributing factors include large pay hikes awarded to government employees, as well as rising salaries in India, the Gulf's main source of expatriate professionals.''

The U.A.E. lifted the salaries of federal government employees by 70 percent in February, while in Oman government wages were increased by as much as 43 percent in the same month.

Competition for staff has led many employers to cut their working week to five days from six, GulfTalent said. Many firms reported tensions arising from the award of higher salaries to new employees, resulting in older employees leaving, it said.

Human resource managers expect a similar increase in salaries next year, GulfTalent said.

The company said it surveyed 29,000 people in the Gulf between Sept. 15 and 30.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net



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Abu Dhabi Investment Authority Supports Sovereign Funds' Code

By Arif Sharif

Oct. 12 (Bloomberg) -- Abu Dhabi Investment Authority, the world's biggest sovereign wealth fund, said it supports a code of 24 voluntary principles for sovereign wealth funds presented to a committee of the International Monetary Fund yesterday.

The International Working Group of Sovereign Wealth Funds, co-chaired by ADIA Director Hamad Al Hurr Al-Suwaidi, is also exploring the creation of Standing Group of Sovereign Wealth Funds, ADIA said in an e-mailed statement today.

ADIA, which according to the Economist Intelligence Unit has assets of about $875 billion, set up an inter-departmental committee to oversee its compliance with the Generally Agreed Principles and Practices for the wealth funds, the statement said.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net



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Saudi Arabia Cuts Repo Rate, Reduces Cash Reserve Requirement

By Matthew Brown

Oct. 12 (Bloomberg) -- Saudi Arabia reduced its benchmark repo rate by 0.5 percentage point, and lowered the amount of money commercial banks have to hold as reserves to 10 percent from 13 percent, as it seeks to address liquidity shortages.

Saudi Arabia cut the repo rate to 5 percent and kept the reverse repo on hold at 2 percent, said John Sfakianakis, chief economist at Saudi British Bank, citing communication from the Saudi Arabian Monetary Agency, the country's central bank. Saudi Arabia has followed the last seven U.S. interest rate cuts with reductions in the reverse repo.

Reducing the repo and the reserve requirement ``is a liquidity booster,'' said Sfakianakis in a telephone interview from Riyadh today. ``Doing both simultaneously shows that SAMA is on top of the liquidity issue.''


Saudi Arabia follows the United Arab Emirates and Bahrain in reducing interest rates following a cut by the U.S. Federal Reserve Oct. 8, in coordination with five other central banks from around the world. Kuwait slashed key interest rates by as much as 1.25 percentage point before the Fed moved.

No Saudi bank is yet to use the repo window, SAMA Deputy Governor Mohamed al-Jasser told Al Arabiya television channel on Oct. 8. Local banks have access to as much as 150 billion riyals ($39.8 billion) from SAMA in the form of a repo agreement, al-Jasser said.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net


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Emaar Price Estimate Cut 29 Percent to 15 Dirhams at Citibank

By Matthew Brown

Oct. 12 (Bloomberg) -- Emaar Properties PJSC, the Middle East's largest real-estate developer, had its price estimate reduced to 15 dirhams from 21 dirhams by Citigroup Inc., which reiterated a `buy' recommendation on the stock.

``In the last three months local and global macro risks and equity risk appetite have deteriorated hugely but not by enough to justify the current book value discount, which implies no value for completion of current or future projects,'' Hasnain Malik, analyst at Citigroup, said in e-mailed statement today.

Emaar shares slumped 9.3 percent to 5.17 dirhams at 10:28 a.m. local time.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net



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Qatar National Bank Quarterly Net Jumps 77% on Loans

By Arif Sharif

Oct. 12 (Bloomberg) -- Qatar National Bank SAQ, the Persian Gulf country's biggest bank, posted a 77 percent jump in third- quarter profit as income from lending surged.

Net income rose to 1.15 billion riyals ($315 million) from 649.2 million riyals a year earlier. Profit beat EFG-Hermes Holding SAE's estimate of 1.12 billion riyals and Global Investment House's prediction of 967.8 million riyals. Bloomberg News calculated the earnings by subtracting six-month data from nine-month figures provided by the Doha, Qatar-based bank in an e-mailed statement late yesterday.

Net interest income more than doubled in the quarter to 945.8 million riyals, while fee and commission income grew 34 percent to 274.6 million riyals.


The results are ``good'' and revenue is ``a little above our expectations,'' Chandresh Bhatt, an analyst at Kuwait-based Global, said in a phone interview today. ``Its fundamentals are strong.'' Bhatt recommends buying the shares.

Qatar, the smallest of four Gulf Arab oil producers that are members of the Organization of Petroleum Exporting Countries, is benefiting from record oil prices that are boosting growth. The country's economy will double in size to about $100 billion in the next five years as the Persian Gulf emirate invests in infrastructure and developing its gas reserves, Finance Minister Yousef Hussain Kamal said last year.

Sustained Growth

The results reflect ``the sustained growth in activities across business lines in Qatar and abroad,'' Ali Shareef Al- Emadi, Qatar National's group chief executive officer, said in the statement.

Qatar National Bank's shares fell 5.3 percent to 140 riyals at 11:25 a.m. on the Doha Securities Market, compared with a 7.5 percent decline in the market's benchmark index. The shares have fallen 15 percent this year.

Profit in the nine months to September jumped 62 percent to 3 billion riyals. The bank's gains from foreign currency trading climbed 83 percent to 249.9 million riyals while profit from its Islamic banking unit, QNB Al Islami, rose 148 percent to 253.3 million riyals.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net


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U.A.E. Guarantees Bank Deposits, Interbank Lending

By Matthew Brown and Arif Sharif

Oct. 12 (Bloomberg) -- The United Arab Emirates guaranteed all deposits with local banks, including the country's two- largest lenders Emirates NBD and National Bank of Abu Dhabi, to ensure that credit continues to flow.

The measure, which also includes a guarantee of all inter- bank lending in the U.A.E., is designed to ``ensure continuity of economic growth and protect the national economy,'' state- owned Emirates News Agency reported, citing Prime Minister Sheikh Mohammed bin Rashid Al-Maktoum.

Twenty four local and 28 foreign banks operate in the U.A.E., where record oil revenue has spurred an economic boom. The seizure of global credit markets in the past few weeks has crimped lending in the local interbank market as well, prompting the U.A.E. central bank to set up a 50 billion dirham ($13.6 billion) fund to boost liquidity last month.

``This won't be enough to stop the flight of capital to larger banks,'' Giyas Gokkent, head of research at the National Bank of Abu Dhabi PJSC, the U.A.E.'s second-biggest bank, said in a telephone interview from Abu Dhabi today. ``It is useful, but not sufficient to get banks lending again.''

U.A.E. nationals own 75 percent of all bank deposits and foreign borrowings only funded 9.9 percent of banks' assets, ensuring their ``strong financial position,'' the U.A.E. central bank said in separate statement today.

Interest rates rise

Reflecting the tight liquidity, the one-month interbank offered rate, the price banks charge each other for loans in the U.A.E., climbed to 4.6 percent Oct. 9 from 3.2 percent a month ago, Bloomberg data shows.

U.A.E. banks have largely sidestepped the credit crisis as most banks used their resources to fund local growth. ``The majority of assets of national and foreign banks operating the U.A.E. and their parties are known and sound,'' the country's central bank Governor Sultan Bin Nasser al-Suwaidi said today. About 77 percent of U.A.E. bank loans are backed by assets.

Arabs own 8 percent of the bank deposits while other nationals own 17 percent, the central bank said today. Lending by U.A.E. banks surged 49 percent in the year to June.

U.A.E. banks ``don't have bad loans,'' Gokkent said. ``The problem here is that the private sector has been growing faster than deposit growth and the gap has been met from external funds.'' Bank deposits grew 16 percent from December to June to 837.7 billion dirhams, while loans grew 23.8 percent to 893.9 billion dirhams, U.A.E. central bank data shows.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.netArif Sharif in Dubai at asharif2@bloomberg.net



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Sabic May Report Slower Third-Quarter Profit Growth: Week Ahead

By Glen Carey

Oct. 12 (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 51 percent this year for a market value of 244.5 billion riyals. BASF SE, the world's largest chemicals provider, has slipped 50 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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Ford May Sell Mazda Stake After Almost 3 Decades

By Bill Koenig

Oct. 12 (Bloomberg) -- Ford Motor Co., after almost three decades as an investor in Japan's Mazda Motor Corp., is considering selling its controlling stake, a person familiar with the deliberations said.

A sale of the one-third holding in Mazda isn't certain, said the person, who asked not to be identified because no decision has been made. ``We do not want to comment on speculation,'' Dearborn, Michigan-based Ford said yesterday in a statement. Yukari Hara, a spokeswoman in Tokyo for Hiroshima-based Mazda, declined to comment today.

Unloading the stake would end an era in which the second- largest U.S. automaker used Mazda to help groom executives including its incoming finance chief and its current head of North American operations. Ford faces a mounting cash drain as the U.S. auto market sinks to the lowest levels since 1991.

``Everything needs to be looked at in the current situation,'' said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan.

Based on the Oct. 10 closing share price in Tokyo, Ford's Mazda holding was valued at $1.36 billion. Ford has lost $23.9 billion since the end of 2005. Last month's 35 percent slide in U.S. sales outpaced the 27 percent industry drop as the credit crisis damped auto demand, especially for the pickups and sport- utility vehicles that provided most of Ford's 1990s profits.

The possible sale was reported yesterday by state-run Japanese broadcaster NHK and by Nikkei English News, which has named trading houses Sumitomo Corp. and Itochu Corp., along with India's Tata Motors Ltd., as possible buyers.

Calls to the Tokyo offices of Sumitomo and Itochu have gone unanswered on this three-day Japanese holiday weekend. Debasis Ray, a spokesman for Mumbai-based Tata Motors, declined to comment yesterday and could not be reached today.

`No Role'

``It does make sense to sell off Mazda,'' Virag said. ``Mazda has no role in Ford's strategic plan.''

Under Chief Executive Officer Alan Mulally, Ford is emphasizing unifying its own regional units as it tries to end losses.

The automaker's European division with its small-car models ``basically replaces the role Mazda played,'' said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

Ford formed an automatic-transmission joint venture with Mazda in 1969 and acquired a 25 percent stake in Japan's fourth- largest automaker in 1979. Ford expanded the holding to 33.4 percent in 1996, giving it effective control.

A sale would extend Ford's moves to shed assets outside the U.S., including U.K.-based automakers Jaguar and Land Rover, as Mulally focuses on shoring up the automaker's money-losing North American operations. He faces a balancing act to ensure that Ford has enough cash to weather the sales slump while still developing new models.

Ford's Cash

Ford had automotive cash of $26.6 billion as of June 30, after borrowing $23.4 billion in late 2006 by pledging collateral such as its headquarters building, factories and trademarks.

After targeting 2009 for a return to profit, Ford withdrew that goal in May and hasn't set a new one. The company's second- quarter loss was a record $8.7 billion. Ford fell 9 cents to $1.99, a 26-year low, in New York Stock Exchange composite trading on Oct. 10.

As part of Mulally's push to diversify Ford's product lineup at lower costs, Ford is planning to merge its Mazda6-based Fusion platform and its European Mondeo sedan platform starting in 2010.

Also last month, Mazda said it is switching to a unit of JPMorgan Chase & Co. as the main source of U.S. financing for its vehicles from Ford's in-house lending arm. Chase Auto Finance Corp. will be the primary provider of loans and leases starting Oct. 16. Ford and Mazda said the move was a joint decision.

Factories, Executives

Ford and Mazda jointly own factories in the U.S. and Asia, including a Flat Rock, Michigan, plant that produces the Mazda6 and Mustang.

Ford has used postings at Mazda to help broaden managers' experience, including Lewis Booth, whose promotion to chief financial officer was announced Oct. 10, and Executive Vice President Mark Fields, who leads Ford's North American operations.

Mazda platforms and major structural parts also have been adopted as the basis for Ford models including the Fusion midsize sedan, based off the Mazda6.

After Mazda shares tumbled 48 percent this year, Ford may want to hold off on a sale until stock prices improve, said Maryann Keller, an independent auto analyst and consultant in Greenwich, Connecticut.

``This isn't the time to sell,'' Keller said. ``Ford would not get the fair value for that business.''

To contact the reporter on this story: Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net



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Gulf Stocks Extend Global Equities Slump After G-7, Oil Decline

By Haris Anwar

Oct. 12 (Bloomberg) -- Persian Gulf stocks declined, extending a global slump, as investors speculated the Group of Seven's pledge to prevent the collapse of banks may not stem the credit crises and oil dropped to the lowest in a year.

Emaar Properties PJSC, the Middle East's largest real- estate developer, lost 10 percent after Citigroup Inc. cut its share-price estimate. Banque Saudi Fransi, the Saudi lender partly owned by Credit Agricole SA, and Bank Muscat SAOG, Oman's biggest bank, fell more than 7 percent amid concern that crude's decrease will slow economic growth in the region. Israel's TA-25 Index fell the most since 1997 after the opening of trading was delayed, while Egypt's CASE 30 Index also slid.

The Dubai Financial Market General Index led the retreat in the Gulf, tumbling 5.4 percent to 3,025.08. G-7 financial chiefs meeting in Washington refrained from unveiling new initiatives for thawing capital markets, even after the 30-stock Dow Jones Industrial Average and indexes in Europe and Asia had their worst weekly performances on record.

``Investors want to know how the G-7 countries will execute their strategy to restore investor confidence,'' Faisal Hasan, head of research at Global Investment House KSCC, said in a telephone interview from Kuwait. ``That's not clear from their message over the weekend. Oil is trading below $80, which is a source of concern for the region, especially at a time when the liquidity is drying up.''

Capping the Fall

The Dubai Financial Market capped daily stock declines at 10 percent today, according to a statement posted on the bourse's Web site, as the benchmark index extended its 2008 drop to 49 percent. The federal government of the United Arab Emirates also guaranteed all interbank lending between U.A.E.- based institutions and all deposits held by U.A.E. commercial banks, Emirates News Agency said, citing the cabinet.

The Tel Aviv Stock Exchange delayed the opening of trading by almost an hour today after the bourse was closed for a four- day holiday. Exchanges in Russia, Indonesia and Ukraine suspended trading last week in an effort to halt a rout that has wiped out about $28 trillion from global equities this year.

Israel's TA-25 Index fell as much as 8.7 percent, while Egypt's CASE 30 Index slid 3.1 percent at the close, according to the exchange's Web site.


The Abu Dhabi Securities Exchange General Index decreased 2.3 percent as Emirates Telecommunications Corp. sank to the lowest level since May 2007. Oman's Muscat Securities Market 30 Index lost 5.7 percent, while the Kuwait Stock Exchange Index fell 0.4 percent.

Rescue Package

In Qatar, the DSM 20 Index tumbled 7.2 percent and the Bahrain All Share Index decreased 0.8 percent.

Group of Seven finance chiefs on Oct. 10 refrained from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks. European leaders will today devise their own rescue package with ``meat'' when they meet in Paris for a second summit in as many weekends, French Finance Minister Christine Lagarde said.

Comments from U.S. President George W. Bush and Italian Prime Minister Silvio Berlusconi last week did little to restore confidence in financial markets. In the past two weeks, central banks from Washington to Frankfurt have already 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.

Saudi's Gain

Saudi Arabia's Tadawul All Share Index rose 0.3 percent after the kingdom reduced its benchmark repo rate by 0.5 percentage points and lowered the amount of money commercial banks have to hold as reserves to 10 percent from 13 percent, as it seeks to address liquidity shortages.

``The Saudi rate cut is a positive move and reassuring to investors that authorities are willing to take the preventive measures to stabilize the market,'' said Julian Bruce, Dubai- based director of institutional sales at EFG-Hermes Holding SAE, Egypt's largest investment bank.

Saudi Basic Industries Corp., the largest company in the Middle East by market value, rose 8.6 percent to 88.5 riyals.

Emaar lost 10 percent, the maximum allowed, to 5.13 dirhams. Citigroup cut the share-price estimate 29 percent to 15 dirhams on the stock. Emirates Telecommunications, the largest phone company in the U.A.E., sank 1.8 percent to 13.5 dirhams.

Valuations

Today's decline left Dubai's benchmark stock index valued at 7.4 times the earnings of its 29 companies, the lowest level since at least February 2007, data compiled by Bloomberg show. Abu Dhabi's index trades at 7.9 times profit. Both are cheaper than the MSCI Emerging Markets Index, which Oct. 10 was valued at 8.5 times profit after its biggest weekly slump on record.

Europe's Dow Jones Stoxx 600 Index, which also posted its largest weekly drop, trades at 8.5 times profit, the lowest level since at least 2002, data compiled by Bloomberg show. The Standard & Poor's 500 Index, the benchmark for American equities, is valued at 17.2 times earnings, the cheapest in more than a year, after its steepest weekly retreat since 1933.

Concern the deepening financial crisis will drive the global economy into a recession helped push crude oil down 10 percent to $77.70 a barrel in New York on Oct. 10.

Gulf states account for about 20 percent of the global oil supply. Oil revenue makes up 54 percent of Saudi Arabia's economy, and 39 percent of the U.A.E's gross domestic product, according to Bloomberg data.

Banque Saudi Fransi dropped for a second day, falling 9.6 percent to 47.9 riyals. Bank Muscat lost 7.6 percent to 0.955 rial.

Qatar National Bank SAQ, the Persian Gulf country's biggest bank, tumbled 4.2 percent to 141.6 riyals even after reporting an increase in third-quarter profit of 77 percent after income from lending surged.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net


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India Considering Interest Rate, Reserve Ratio Cuts, Times Says

By Anil Varma

Oct. 12 (Bloomberg) -- India may cut interest rates and further reduce the cash-reserve ratio of banks to increase the availability of cash in the nation's financial system, the Economic Times reported, without saying where it got the information.

The central bank may suspend its practice of absorbing excess funds via money-market auctions from banks that have surplus cash, the newspaper said. The South Asian nation may also ban short-selling, the practice of selling a borrowed stock to profit from a decline in prices, in the equity market to curb volatility in prices, the report said.

In addition, policy makers may encourage banks to increase lending to top-rated companies to ease the availability of credit to industry, the newspaper said. Local lenders are increasingly wary of giving loans amid the global credit crisis, threatening to hamper the nation's industrial growth, it said.

The Reserve Bank of India made on Oct. 10 the steepest cut since 2001 in the amount of cash lenders must hold in reserve. It lowered the cash reserve ratio to 7.5 percent from 9 percent to inject 600 billion rupees ($12.5 billion) into the financial system.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.



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European Leaders Seek `One Voice' to Counter Financial Crisis

By Simon Kennedy and Sandrine Rastello

Oct. 12 (Bloomberg) -- European leaders began meeting to forge a new set of measures to combat the credit freeze after their failure to act a week ago contributed to the worst sell- off in the region's stocks in two decades.

``I want Europe to speak with one voice for Europe and for the world because this is a global crisis,'' French President Nicolas Sarkozy told reporters as he greeted European Commission President Jose Manuel Barroso at the Elysee Palace in Paris. Sarkozy said he's seeking ``an ambitious, coordinated plan.''

German Chancellor Angela Merkel, whose government earlier this month rejected French suggestions to form a joint bank- rescue fund, said yesterday the euro region will implement ``the same toolbox of instruments.'' Merkel, Sarkozy and their counterparts in the 15-nation euro region are being forced to shift stance as a deepening slide in financial markets has threatened to tip Europe into a prolonged recession.

``Measures by euro-area governments to end the financial crisis have been uncoordinated and insufficient,'' said Juergen Michels, a Citigroup Inc. economist in London. ``Increasing risks of an economic disaster might force governments to set up more coordinated and more comprehensive measures.''

U.K. Prime Minister Gordon Brown is meeting Sarkozy, Barroso and European Central Bank President Jean-Claude Trichet. The leader of the euro nations then gather at 5 p.m. local time. The talks come after finance chiefs from the Group of Seven nations established guidelines on Oct. 10 for combating the credit crunch, while falling short of adopting new initiatives.

`More Muscles'

Luxembourg's Jean-Claude Juncker, who heads the Eurogroup of euro-region finance ministers, said in a statement today that ``no financial institution of systemic importance'' can be allowed to fail. Juncker, who will take part in today's meeting in Paris, said that access to liquidity will be assured, efforts to unblock financial markets will be intensified and individuals' savings accounts will be protected.

``Some of us hoped it had had more teeth or more muscles to it, but at least it was endorsed,'' French Finance Minister Christine Lagarde said in Washington yesterday, referring to the G-7 statement. Sarkozy has convened ``a meeting of all heads of states of the euro-group. Not to talk about it, but to actually put meat and muscles on the bones of that skeleton.''

``I can assure you, you will not be disappointed, and it will be quite specific,'' she said.

Merkel said yesterday during a visit to eastern France that Germany backs ``coherent reaction in the euro-zone to the international financial crisis.''

Interbank Rates

European benchmark stock indexes slid 22 percent last week amid an investor panic about the freeze in credit markets. The cost to protect corporate debt from default set new highs around the world and the rate banks charge each other for three-month loans climbed to record premiums over central bank benchmark rates.

Contracts on Europe's benchmark Markit iTraxx Crossover index, a measure of the cost to insure corporate bonds, soared more than 2 percentage points in the past month to 756.60 two days ago, according to JPMorgan Chase & Co.

Anglo-Irish Bank Corp. Plc, Ireland's third-biggest lender, and ING Groep NV, the largest Dutch financial-services institution, plunged more than 42 percent, leading declines in banks and insurers last week.

U.K. policy makers took the lead in planning to purchase stakes in banks hammered by losses on assets tied to mortgages. Brown set up a 50 billion-pound ($85 billion) program to invest in at least eight British lenders. U.S. Treasury Secretary Henry Paulson will tap some of the $700 billion financial-rescue package approved by Congress this month to buy equity in financial companies.

German Plan

It ``made sense to implement measures in Germany and other European states like the ones in the U.S. and U.K.'' Commerzbank AG Chairman Klaus-Peter Mueller said in a Bloomberg Television interview.

A German program may allot up to 100 billion euros ($134 billion) to recapitalize private banks, state banks and insurance companies, Handelsblatt reported, citing unidentified officials. Merkel said the plan would involve ``providing banks with sufficient capital so that they are able to operate on their own -- and I don't rule out that there could be capital support.''

European officials last month rejected taking more concerted action. Lagarde said then she had ``decided to take no other measures'' than banning short-selling and German Finance Minister Peer Steinbrueck dismissed the need to ``adopt a comparable program'' to the U.S. program to buy distressed assets from banks.

Speed of Crisis

At an Oct. 4 summit, leaders of France, Germany, Britain, Italy, Luxembourg, the ECB and European Commission stopped short of a regional rescue effort. They agreed to ease accounting rules, seek tougher financial regulations and weaken enforcement of competition and budget laws.

Today's Paris crisis talks, the second in as many weekends, reflects the speed at which the U.S.-led credit crunch has infected Europe's banking system, financial markets and economy. Governments this month have bailed out financial companies including Fortis and Dexia SA. The ECB cut interest rates this past week for the first time since 2003 and offered banks unlimited funding every week at the main refinancing rate.

Even so, Europe's credit markets remain frozen, like those elsewhere. The cost of borrowing euros for three months remains close to a record high, choking off access to cash for companies and consumers. That is pushing the 15-nation euro area toward its first recession since the single currency began trading in 1999.

``We have to reduce the cost of borrowing in Europe and there is room for that,'' Corrado Passera, chief executive officer at Intesa Sanpaolo SpA, Italy's second-biggest bank, said yesterday.

Brown's government has also proposed guaranteeing loans between banks to thaw money markets. The G-7 refrained from endorsing the approach two days ago. The U.K. leader may renew his push today. The U.K. plans to recapitalize its biggest banks including Royal Bank of Scotland Group Plc and provide 250 billion pounds of bank loan guarantees.

To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net Sandrine Rastello in Washington at srastello@bloomberg.net;



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Bini Smaghi Says Banks Must Start Lending Again to End Crisis

By Gabi Thesing

Oct. 12 (Bloomberg) -- European Central Bank executive board member Lorenzo Bini Smaghi said banks need to begin lending to each other again to help end the crisis they helped foster.

``The banks are largely responsible for the mess we're in, they have to be responsible for getting us out of it,'' Bini Smaghi told a group of businessmen in Washington today.

Finance chiefs from the Group of Seven nations established guidelines on Oct. 10 for combating the credit crunch, while falling short of adopting new initiatives. European leaders meet today in Paris to forge a new set of measures to combat the credit freeze after their failure to act a week ago contributed to the worst sell-off in the region's stocks in two decades.

``The meeting will be a premiere, it could bring a common line of action,'' he said. ``There is a commitment not to let banks fail. It should provide a basis to restore confidence.''

Still, government commitments to bail out lenders and central bank moves to flood markets with cash ``may not be enough,'' Bini Smaghi said. ``We need to convince banks to lend to each other.''

Global policy makers have so far failed to reverse a credit crunch even after cutting interest rates and pumping cash into banking systems. Economists at Royal Bank of Scotland Group Plc yesterday predicted the ECB may reduce rates again before its governing council's next scheduled meeting on Nov. 6.

The ECB lowered its key lending rate by half a point to 3.75 percent as part of a global interest-rate reduction on Oct. 8. The same day the bank also said it would provide banks with unlimited funding every week at the new benchmark lending rate.

Guaranteeing unlimited access to cash ``is going to have a huge impact on how banks finance themselves,'' Bini Smaghi said.

At the same time, all these packages ``will take time'' to calm the markets, he predicted. ``The markets are inundated with news these days'' and tend to ``react in a strange, negative way,'' Bini Smaghi said. ``Markets need time to understand some of these.''

To contact the reporter on this story: Gabi Thesing in Washington at gthesing@bloomberg.net.



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Hong Kong May Use Foreign Reserves to Prevent Financial Crisis

By Wendy Leung

Oct. 12 (Bloomberg) -- Hong Kong may use all of its foreign reserves to stabilize its financial markets, said a government official, after the global credit crisis undermined investor confidence and caused stocks to plunge.

``We'll use all the ammunition if we have to,'' Julia Leung, under secretary for financial services, said in an interview with Hong Kong Commercial Broadcasting. ``Hong Kong should have faith. Smaller companies are already being hit by the lack of capital in the market.''

Hong Kong holds HK$1.4 trillion ($180 billion) of foreign currency reserves, the network cited Chief Secretary Henry Tang as saying. The benchmark Hang Seng Index plummeted 29 percent since September as the financial crisis brought down Lehman Brothers Holdings Inc., and threatens a wave of global bankruptcies.

``The U.S. ended up suffering a domino effect when the government didn't rescue Lehman Brothers,'' Billy Mak, a finance professor at Hong Kong Baptist University, said today by phone. ``Hong Kong needs to stabilize its financial market by any means or see problems in all industries.''

Foreign reserves should be used to support the local currency's peg to the dollar so as to avoid bank runs, Mak said.

Hong Kong Monetary Authority Chief Executive Joseph Yam directed $15 billion of government stock purchases to defend the Hong Kong dollar 10 years ago, guiding Hong Kong through the Asian financial crisis that started in 1997.

``We will support the idea if there is need because the legislative council is very concerned that an economic meltdown will affect the public,'' pro-democracy legislator Emily Lau said today in a phone interview.

No Confidence


Bank of East Asia Ltd. suffered a brief run on its deposits last month after messages spread by mobile phone questioned its finances. While depositor withdrawals ended after BEA and the government said the bank's finances are sound, the incident underscored how the financial crisis has undermined confidence in the global banking system.

Shares of BEA have dropped 28 percent since the rumors started on Sept. 22, compared with a 25 percent plunge by the Hang Seng Index.

Hundreds of Hong Kong investors protested in streets outside the city's parliament and banks this week, demanding compensation for investment losses linked to the Lehman Bothers collapse. More than 500 investors joined a public rally yesterday to express anger at having been misled by banks, the Straits Times reported.

Coordinated Effort

Asian central banks are studying ways to coordinate an effort to tackle the financial crisis that threatens to erode growth and confidence in the region, Diwa Guinigundo, deputy governor of the Philippine central bank, said yesterday.

The MSCI Asia Pacific Index fell 17.8 percent this week even as central banks in China, Australia, South Korea, Taiwan and Hong Kong joined a global effort to cut interest rates after the yearlong credit-market seizure.

Indonesia halted stock trading for two days this week, while a plunge in Thailand's SET Index triggered that nation's first 30-minute trading halt in almost two years.

South Korean Finance Minister Kang Man Soo is meeting counterparts from Japan and Australia in Washington this weekend to discuss boosting regional cooperation to the financial crisis from spreading to Asia.

``It's a matter of faith,'' Mak said. ``Hong Kong's financial system hasn't had serious problems so far.''

To contact the reporter on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net


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French Jobs Data `Won't Be Good' for Many Months

By Tara Patel

Oct. 12 (Bloomberg) -- French jobs data ``won't be good'' for many months because of the financial crisis, Labor Minister Xavier Bertrand said.

``I am expecting that employment statistics won't be good for months and months,'' Bertrand said today in an interview on France2 television. Jobs and consumer spending will be affected, he said.

``It will take days and weeks to restore confidence,'' he said. ``Banks are not lending to each other. We want to say to them that the government will intervene if necessary. There will be a guarantee from states.''


Bertrand was speaking before a meeting in Paris of European leaders who may forge new measures to combat the credit freeze after their failure to act a week ago contributed to the worst sell-off in the region's stocks in two decades.

French labor rules on working on Sundays will be modified to make it legal and a personal choice, he said.

``We will change the rules,'' he said. ``When people do work on Sundays it must be on a voluntary basis.''

France will introduce before the end of the year a law allowing employees to work on Sundays for higher pay, Le Journal du Dimanche reported, citing an interview with government spokesman Luc Chatel.

The proposal would allow department stores such as Galeries Lafayette in Paris to open on Sundays, the newspaper reported. This would boost economic activity during a slowdown and simplify labor law, which has 180 exemptions to the ban on Sunday work, the newspaper cited Chatel as saying.

To contact the reporter on this story: Tara Patel in Paris tpatel2@bloomberg.net


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PCCW Scraps Sale of Stake, Blames `Market Downturn'

By Mark Lee

Oct. 12 (Bloomberg) -- PCCW Ltd., Hong Kong's biggest phone company, scrapped a plan to sell up to 45 percent of its main unit, saying the ``market downturn'' was to blame for low bids.

Offers for the stake in HKT Group Holdings Ltd. ``were not sufficiently attractive,'' PCCW said in a statement to Hong Kong's stock exchange today. Directors unanimously agreed to cancel the proposed sale, the company said.

PCCW joins Chinese companies Huawei Technologies Co. and Ping An Insurance Co. in cancelling transactions as the worst financial crisis since the 1930s weighs on equity values and pushes up borrowing costs. PCCW was seeking $1 billion to $1.5 billion from the sale, according to Ho.

``It's getting more difficult for buyers to get funding in the current market conditions,'' Kelvin Ho, an analyst at Nomura International Ltd. in Hong Kong, said before the announcement.

PCCW shares tumbled 9.7 percent to HK$2.80 in Hong Kong on Oct. 10, extending their decline to 40 percent this year, compared with a 47 percent loss for the Hang Seng Index.

``The drop in PCCW stock has factored in the likelihood that a sale won't be completed,'' said Ho, who rates the shares ``buy.''


TPG Inc., Providence Equity Partners Inc., Macquarie Group Ltd., Apax Partners Inc., Bain Capital LLC and MBK Partners Ltd., were shortlisted to bid, according to three people involved in the matter. Those companies were seeking to borrow $400 million to $600 million for the purchase, the people said.

Investing Overseas

PCCW, which hired UBS AG for the sale, had planned to use the proceeds to invest in telecommunications businesses overseas to bolster earnings after first-half profit declined 20 percent.

The Hong Kong company was part of a group that won one of three fixed-line licenses in Saudi Arabia in February and is interested in opportunities in the Middle East, China and Asia, Managing Director Alex Arena said in May.

The phone carrier failed to bring in new investors even after pledging to grant buyers preferential access to the unit's dividends between 2009 and 2013.

Nomura's Ho values HKT Group at $7.5 billion, including about $5 billion of debt.

Last year, PCCW derived HK$20.5 billion ($2.6 billion), or 86 percent of its sales, from businesses that will be placed in HKT Group, a sale document said in June. The unit will control PCCW's main telecommunications operations, including its fixed- line, broadband and pay-television divisions.

Huawei, China's biggest phone-equipment maker, last week shelved plans to sell a stake in its mobile-phone unit to buyout firms, citing market conditions. Ping An, China's second-biggest insurer, said on Oct. 2 that it won't proceed with a plan to buy half of the wealth management unit of Belgian lender Fortis.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net


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Australia to Guarantee Bank Deposits for Three Years

By Angela Macdonald-Smith

Oct. 12 (Bloomberg) -- Australia's government will guarantee all deposits with institutions for the next three years to bolster confidence in the banking system amid a worsening global financial crisis.

The government will also guarantee all ``term wholesale funding'' by Australian banks operating in international credit markets to ensure they can compete against global rivals getting similar backing, Prime Minister Kevin Rudd told reporters today in Canberra. Rudd was speaking after a two-day crisis meeting with senior ministers in the Australian capital.

The measures come after the Group of Seven finance chiefs meeting in Washington pledged to take ``all necessary steps'' to unfreeze credit and money markets, without providing details. The U.K. last week agreed to guarantee loans between banks, while Ireland, Greece and Germany are among nations that have pledged to guarantee savers' deposits.

``It looks as though government guarantees of both inter- bank borrowing and deposits are going to be part of a widespread approach to restoring confidence and getting the inter-bank lending markets going again,'' said Saul Eslake, chief economist at Australia & New Zealand Banking Group Ltd. The measures announced by Rudd ``should be seen as giving people more reason for confidence in the Australian banks,'' he said.

Between A$600 billion ($386 billion) and A$700 billion of deposits are held in Australia at any one time, Rudd said. The deposit guarantee will be reviewed after three years, he said. The government had previously proposed to guarantee bank deposits of as much as A$20,000 ($12,865) each.

`Dangerous Phase'

``This global financial crisis has entered a new and dangerous phase, with real consequences for growth, for jobs and therefore the future,'' Rudd said. ``As prime minister of Australia, I will not stand idly by while Australian banks are disadvantaged in international credit marketplaces.''

Australia's banks ``remain in first-class working order,'' Rudd said. The measures are required to allow them to continue to provide credit over the long term to the Australian economy, he said. The banks will have to pay for the guarantee on wholesale funding through an insurance premium, so it is not a ``free gift'' from the government, he said.

The government will also put another A$4 billion into residential mortgage-backed securities to help bolster the Australian home-lending market, in addition to an initial A$4 billion announced last month, Rudd said.

Credit unions and building societies welcomed the government's move to guarantee deposits.

`Safe Haven'

``The government is reassuring Australians that their credit union, building society or bank is a safe haven for their savings,'' Louise Petschler, chief executive of Abacus - Australian Mutual, an industry group, said in a statement.

The steps come as Treasurer Wayne Swan said the government will review budget spending commitments because of the financial crisis, which will cut economic growth.

``We will put everything on the table because our bottom line is responsible economic management,'' Swan told Australian Broadcasting Corp.'s Insiders program today from Washington.

Unemployment is likely to increase more than forecast in the last budget, though it's too early to say by how much, he said.

Separately, the New Zealand government said it will guarantee retail deposits in New Zealand-registered banks, in building societies, credit unions and deposit-taking finance companies. Institutions need to opt in to the system, which will last for two years initially, to have deposits covered, Finance Minister Michael Cullen said in an e-mailed statement.

The plan will be free for institutions with total retail deposits of less than NZ$5 billion ($3 billion), while a fee of 10 basis points a year will be charged on those with higher deposits. A bank with NZ$20 billion in retail deposits would pay NZ$15 million in fees a year, the ministry said.

``We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions,'' Cullen said in the statement.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net



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G-20 Nations Agree on Need for More Cooperation, Mantega Says

By Joshua Goodman and John Brinsley


Oct. 11 (Bloomberg) -- Finance officials from the Group of 20 countries agreed on the need for a more coordinated response to the biggest global financial crisis in 80 years, Brazilian Finance Minister Guido Mantega said.

``The G-20 needs to be more agile, and transform itself rapidly so it can resolve the crisis,'' Mantega, chairman of the G-20, said at a press conference in Washington. The comments came a day after the Group of Seven finance chiefs pledged joint action to alleviate the credit crisis and prevent major banks from collapsing.

In a statement, the G-20 countries ``committed to using all the economic and financial tools to assure the stability and well functioning of financial markets.'' Officials will next meet on Nov. 8 and 9 in Sao Paulo, the statement said.

Policy makers are grappling with how to contain a collapse in equity markets from Reykjavik to Sao Paulo. Stock markets in Indonesia, Russia and Ukraine suspended trading last week, as the crisis sparked by U.S. subprime-mortgage defaults threatened the solvency of banks and corporations around the world.

``The thesis that there would be no spillover is no longer valid,'' Mantega said. ``It now has migrated into emerging countries. We are now facing a world-wide crisis that must be dealt with by all governments.''

The special meeting, during the annual gathering of the International Monetary Fund and World Bank, reflects the rising importance of emerging markets such as China and Russia to the world economy as richer nations slide toward recession. Merrill Lynch & Co. predicts the gap in growth between emerging and developed markets next year will be four times the 1990s average.

President George W. Bush made an appearance at the meeting, hours after hosting the G-7 ministers at the White House. Bush earlier said the U.S. has ``a special role'' in coordinating a global solution to the crisis.

``It doesn't matter if you're a rich country or a poor country, a developed country or a developing country -- we're all in this together,'' Bush told the group, according to a statement released by the White House. ``We must work collaboratively. We take this seriously, and we want to work with you.''

The G-20 consists of the G-7 -- the U.S., U.K., Germany, France, Italy, Canada and Japan -- plus countries including Argentina, Australia, Russia, China, Indonesia, Saudi Arabia and Mexico.

To contact the reporters on this story: Joshua Goodman in Washington at jgoodman19@bloomberg.net; Simon Kennedy in Washington at skennedy4@bloomberg.net



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Uranium One Says Dominion Mine in South Africa Stays Closed

By Nasreen Seria

Oct. 12 (Bloomberg) -- Uranium One Inc., a miner of the radioactive element in Africa and Central Asia, said its Dominion mine in South Africa remained shut for a third day in a labor dispute.

Talks with striking workers were suspended and the mine shut on Oct. 10 when the company fired 900 of the mine's 2,500 employees, Robert van Niekerk, executive vice president of technical services, said in a phone interview today. The Toronto- based company closed the mine because workers failed to comply with an order from the Labour Court to return to their jobs.

The strike began Oct. 7.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net



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G-20 Nations Agree on Need for More Cooperation, Mantega Says

By Joshua Goodman and John Brinsley
Enlarge Image/Details

Oct. 11 (Bloomberg) -- Finance officials from the Group of 20 countries agreed on the need for a more coordinated response to the biggest global financial crisis in 80 years, Brazilian Finance Minister Guido Mantega said.

``The G-20 needs to be more agile, and transform itself rapidly so it can resolve the crisis,'' Mantega, chairman of the G-20, said at a press conference in Washington. The comments came a day after the Group of Seven finance chiefs pledged joint action to alleviate the credit crisis and prevent major banks from collapsing.

In a statement, the G-20 countries ``committed to using all the economic and financial tools to assure the stability and well functioning of financial markets.'' Officials will next meet on Nov. 8 and 9 in Sao Paulo, the statement said.

Policy makers are grappling with how to contain a collapse in equity markets from Reykjavik to Sao Paulo. Stock markets in Indonesia, Russia and Ukraine suspended trading last week, as the crisis sparked by U.S. subprime-mortgage defaults threatened the solvency of banks and corporations around the world.

``The thesis that there would be no spillover is no longer valid,'' Mantega said. ``It now has migrated into emerging countries. We are now facing a world-wide crisis that must be dealt with by all governments.''

The special meeting, during the annual gathering of the International Monetary Fund and World Bank, reflects the rising importance of emerging markets such as China and Russia to the world economy as richer nations slide toward recession. Merrill Lynch & Co. predicts the gap in growth between emerging and developed markets next year will be four times the 1990s average.

President George W. Bush made an appearance at the meeting, hours after hosting the G-7 ministers at the White House. Bush earlier said the U.S. has ``a special role'' in coordinating a global solution to the crisis.

``It doesn't matter if you're a rich country or a poor country, a developed country or a developing country -- we're all in this together,'' Bush told the group, according to a statement released by the White House. ``We must work collaboratively. We take this seriously, and we want to work with you.''

The G-20 consists of the G-7 -- the U.S., U.K., Germany, France, Italy, Canada and Japan -- plus countries including Argentina, Australia, Russia, China, Indonesia, Saudi Arabia and Mexico.

To contact the reporters on this story: Joshua Goodman in Washington at jgoodman19@bloomberg.net; Simon Kennedy in Washington at skennedy4@bloomberg.net



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South Africa to Name New Deputy Finance Minister, Times Says

By Nasreen Seria

Oct. 12 (Bloomberg) -- South African President Kgalema Motlanthe will likely appoint Enoch Godongwana, a former minister in Eastern Cape province, as the country's deputy finance minister, the Sunday Times reported, citing unidentified officials of the ruling African National Congress.

Godongwana will replace Jabu Moleketi, who resigned following the ouster of former president Thabo Mbeki last month, the Johannesburg-based newspaper said.

Godongwana, who studied economics at the University of London, was provincial finance minister from 1998 until 2004, when he was fired by former Eastern Cape premier Nosimo Balindlela, the Times said. A report commissioned by Balindlela implicated Godongwana and other provincial leaders in alleged corruption, a claim they disputed, the newspaper said.

Appointed to the ANC's decision-making body, the National Executive Committee in December, Godongwana now chairs the party's sub-committee on labor, the newspaper said. Until December, Godongwana was chief executive of the Financial Sector Charter Council and served on the Policy Board for Financial Services and Regulation, the Times said.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net



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Egyptian Stocks Decline to Two-Year Low, Led by Orascom Telecom

By Tarek Al-Issawi

Oct. 12 (Bloomberg) -- Egyptian stocks fell to a two-year low, extending a global slump as investors remained concerned that the Group of Seven will not be able to resolve the international credit crisis.

Orascom Telecom Holding SAE, the biggest mobile-phone company in the Middle East, dropped to its lowest level since January 2005. El Sewedy Cables also declined.

Egypt's benchmark CASE 30 Index lost 7.7 percent, to 5,228.73, by 11:33 a.m. local time, its weakest since July 2006, according to the bourse's Web site. G-7 financial chiefs meeting in Washington refrained from unveiling new initiatives for thawing capital markets, even after the 30-stock Dow Jones Industrial Average and benchmarks in Europe and Asia capped their worst weekly performances on record.

``Investors are afraid of committing and leading in the market and everyone is taking their cue from global and regional markets,'' wrote Tawfik Abdel Aziz, a trader at Delta Rasmala Securities, in an e-mail. ``We are heading south today.''

Orascom Telecom dropped 33 piasters, or 1 percent, to 33.17 pounds. El Sewedy Cables Holding Co., the biggest maker of electrical cables in Egypt, fell 12.3 pounds, or 14.4 percent, to 73.02 pounds.

Israel's Tel Aviv Stock Exchange delayed its opening by about an hour today after the bourse was closed for a four-day holiday weekend. Exchanges in Russia, Indonesia and Ukraine suspended trading last week in an effort to halt a rout that has wiped out $25 trillion from global equities this year.

Confidence Missing

In the past two weeks, 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.

G-7 finance chiefs on Oct. 10 refrained from specific fresh measures, such as embracing a U.K. plan to guarantee loans between banks. European leaders will today devise their own rescue package with ``meat and muscles'' when they meet in Paris for a second summit in eight days, French Finance Minister Christine Lagarde said.

Crude oil fell below $78 last week on concern the deepening financial crisis will push the global economy into a recession. Oil for November delivery fell $8.89, or 10 percent, to $77.70 a barrel at the New York Mercantile Exchange on Oct. 10.

To contact the reporter on this story: Tarek Al-Issawi in Cairo at talissawi@bloomberg.net



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Asian Central Banks May Coordinate Crisis Efforts

By Shamim Adam

Oct. 11 (Bloomberg) -- Asian central banks are studying ways to coordinate an effort to tackle the financial crisis that threatens to erode growth and confidence in the region, Philippine policy maker Diwa Guinigundo said.

Regional officials are at annual meetings of the International Monetary Fund and World Bank in Washington amid a deepening slowdown as exports weaken amid a global credit crunch that's toppled banks in the U.S. and Europe. Asian economies have started to cut interest rates as policy makers shift their focus to supporting growth from fighting inflation.


``There is something that is being put together but it is still too early to say,'' Guinigundo, deputy governor of the Philippine central bank, said in an interview in Washington.

Asian stocks plummeted this week, sending the region's benchmark index to its biggest weekly drop on record, as the deepening crisis threatened to push more companies into bankruptcy.

The MSCI Asia Pacific Index fell 17.8 percent 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.

Indonesia halted stock-market trading for a second full day yesterday, while a plunge in Thailand's SET Index triggered the first 30-minute trading halt in almost two years.

South Korea's Finance Minister Kang Man Soo will meet counterparts from Japan and Australia in Washington this weekend to discuss ways to boost regional cooperation ``to prevent a contagion to Asia from the international financial crisis,'' the South Korean finance ministry said yesterday.

Merrill Lynch & Co. this month cut its forecast for Asia's growth in 2008 and 2009. The region will expand 7.7 percent this year, and ease further to 7.3 percent in 2009. Both forecasts were reduced from previous predictions of 7.9 percent growth.

To contact the reporter on this story: Shamim Adam in Washington at sadam2@bloomberg.net


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GM, Cerberus's Chrysler Are Said to Hold Merger, Alliance Talks

By Jeff Green

Oct. 12 (Bloomberg) -- General Motors Corp., the largest U.S. automaker, is in early talks with Cerberus Capital Management LP's Chrysler LLC about a merger or partnership, five people with direct knowledge of the discussions said.

It's not clear an accord will be reached, said the people, who asked not to be identified because the matter is private. While Cerberus also is meeting with automakers including Nissan Motor Co. and Renault SA, the GM talks are the most serious, one person said.

Adding Chrysler, the third-biggest U.S. automaker, would cement GM's global sales lead over Japan's Toyota Motor Corp. and widen the gap with Ford Motor Co. The money-losing Detroit- area companies are under pressure to boost cash as the credit crisis dries up loans for dealers and buyers, helping send U.S. auto sales to their lowest since 1991.

``It would be a classic consolidation,'' John Casesa, a partner at consulting firm Casesa Shapiro Group in New York, said in an interview. ``The incentive would be to reduce cost by reducing overhead.''

GM spokesman Tony Cervone, Cerberus spokesman Peter Duda and Renault spokeswoman Nathalie Bourotte declined to comment. The New York Times reported the talks Oct. 10 and said yesterday that GM previously talked to Ford about a merger, citing people familiar with those discussions.

`Private Business Meetings'

``Chrysler LLC as a matter of policy does not confirm or disclose the nature of its private business meetings,'' spokeswoman Lori McTavish said in an e-mailed statement.

Any major partnership would be preceded by Cerberus's completion of its plans to purchase the 19.9 percent of Chrysler still held by former parent Daimler AG, one of the people said.

GM's U.S. sales slid 18 percent through September, while Chrysler's tumbled 25 percent, battered first by rising fuel prices and then by the credit crunch. Detroit-based GM has posted almost $70 billion in losses since the end of 2004, and Chrysler has said it won't be profitable this year.

``On paper, it looks like there would be significant cost synergies,'' said Van Conway, a partner at restructuring firm Conway Mackenzie & Dunleavy in Birmingham, Michigan. ``The potential cost savings is in the billions, even before you contemplate plant consolidation.''

GM has plunged 80 percent this year in New York Stock Exchange composite trading. The shares rose 13 cents, or 2.7 percent, to $4.89 on Oct. 10, the first advance since Sept. 30.

Conserving Cash

Conway said that with GM trying to conserve cash, any transaction likely would involve giving New York-based Cerberus stock in exchange for Chrysler.

Still, even acquiring Auburn Hills, Michigan-based Chrysler for little or no money would still result in a costly merger with the risk that revenue would keep declining, Casesa said.

``These are very challenging transactions with a very poor track record,'' he said.

Cerberus acquired 80.1 percent of Chrysler from Germany's Daimler in August 2007 and said last month it was trying to buy the rest. As Chrysler's fortunes soured, Daimler wrote down the value of its stake by 81 percent at the end of June to 171 million euros ($230 million) from the end of 2007. It paid $36 billion for Chrysler in 1998.

A Chrysler merger or alliance would add production back at GM as Chief Executive Officer Rick Wagoner shuts plants and eliminates jobs to restore profit. GM and Chrysler discussed a merger in 2007, people familiar with those talks said at the time. Daimler CEO Dieter Zetsche later said the companies discussed developing models together.

GM's lead over Toyota as the world's largest automaker dwindled to just 3,000 vehicles last year, with sales of 9.4 million units. Toyota led by 278,000 this year through June. Chrysler's 2007 total was 2.7 million cars and trucks. Ford sold 6.6 million vehicles last year, fourth behind Volkswagen AG.

U.S. Market Share

GM and Chrysler accounted for a third of U.S. sales in the first nine months, with GM's 22.3 percent market share twice as large as Chrysler's.

Most of their lineups overlap. Both have sedans, pickups and sport-utility vehicles, and both depend on light trucks for more than half of their sales, which left them vulnerable to car-focused Asian rivals as U.S. gasoline prices rose to a record in July. GM doesn't have a minivan; Chrysler models account for 29 percent of those deliveries in the U.S.

GM's eight U.S. brands are Chevrolet, Cadillac, Buick, Pontiac, Saab, Saturn, GMC and Hummer, for which the automaker has said it's considering options including a sale. Chrysler sells vehicles under its own badge as well as under the Dodge and Jeep nameplates.

Chrysler's Finances

In its first year under Cerberus, Chrysler couldn't reverse sliding sales or losses, though the company said it earned $1.1 billion through June before interest, taxes, depreciation and amortization. Chrysler isn't required to report financial data.

Chrysler said Sept. 25 it will fire about 250 employees as part of a plan to shed 1,000 salaried positions by the end of last month. A month earlier, the automaker said it is trying to sell the Dodge Viper sports-car brand.

The Chrysler purchase was the second auto-related U.S. investment in a year for Cerberus, which was founded in 1992 by former Drexel Burnham Lambert Inc. trader Stephen Feinberg. The firm bought a majority stake in GM's former finance unit, GMAC LLC, in 2006.

With the auto industry faltering and GMAC posting losses as the housing slump saps its Residential Capital LLC mortgage unit, Feinberg has sought to reassure investors including pension funds such as the Pennsylvania Public School Employees' Retirement System that the auto bets constitute a small portion of Cerberus's holdings.

Cerberus's Investments

Of the $15 billion Cerberus paid for Chrysler and GMAC, the firm put up $3 billion to $4 billion, a person with knowledge of the deals said earlier this year.

GM, Ford and Chrysler all face the risk of a forced bankruptcy filing as the credit crunch damps U.S. sales, according to Standard & Poor's analyst Robert Schulz.

``Macro factors could overwhelm them at some point'' even as the automakers vow to stick with their turnaround plans, Schulz, S&P's lead automotive credit analyst, said in an Oct. 10 Bloomberg Television interview in New York. The companies said they have no plans to seek bankruptcy protection.

Last month, GM tapped the $3.4 billion left in a $4.5 billion credit line, a step suggesting its ``second-half cash burn remains quite severe,'' Citigroup Inc. analyst Itay Michaeli said in a Sept. 22 report.

To contact the reporter on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net.



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