Madoff Fraud Ensnares Boston Philanthropist Shapiro, Globe Says

By Dan Hart

Dec. 14 (Bloomberg) -- Boston philanthropist Carl Shapiro’s charitable foundation lost at least $145 million to Bernard Madoff’s alleged Ponzi scheme that cost investors $50 billion, the Boston Globe reported, without citing its source.

Shapiro’s wealth had come from the sale of his Kay Windsor Inc. women’s clothing business to VF Corp., then Vanity Fair Corp., in 1971, the newspaper said. He had invested millions of dollars over the years with Bernard L. Madoff Securities, the newspaper said.

Shapiro got involved with Madoff’s investment firm through a son-in-law, Robert Jaffe, who worked for Cohmad Securities Corp., the newspaper said. Jaffe wasn’t able to comment to the Globe, his wife told the newspaper.

Madoff’s attorney, Daniel Horwitz, told the Globe that they were “cooperating fully” with the government investigations. The Shapiros declined to be interviewed by the newspaper.

To contact the reporter on this story: Dan Hart in Washington at dahart@bloomberg.net.

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GM, Chrysler Bankruptcies Would Hit Confidence, Deepen Slump

By Michael McKee

Dec. 14 (Bloomberg) -- A bankruptcy filing by General Motors Corp. or Chrysler LLC would worsen the longest recession since the early 1980s if it led to a shutdown at the companies.

``The economic ramifications of an outright bankruptcy would be severe,'' New York University Professor Nouriel Roubini said in an interview with Bloomberg Television on Dec. 12. The economic slump is already so severe that ``there's not going to be a recovery of growth until 2010,'' he said.

Industry experts say the automakers would close plants, fire tens of thousands of workers and cut production. That would cause many of their suppliers to collapse, triggering more job losses, straining the cities and states where the car and parts companies operate, as well as federal safety-net programs.

It would also deliver another psychological blow to consumers and a major shock to Main Street following the crises on Wall Street.

Economists say it's difficult to estimate the full impact, given the large number of possible scenarios. The outcome hinges on which companies filed for bankruptcy and when, and whether they would be able to continue building cars and trucks while in reorganization -- assuming they don't go into liquidation.

``It would be unprecedented,'' says Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``So it's hard to say exactly what would happen.''

`Cascade of Failures'

Still, a GM or Chrysler bankruptcy ``would be the start of a cascade of failures,'' says Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. ``The economy will be in chaos within weeks.''

The Bush administration said last week it will consider using money from the $700 billion bank-bailout fund to prevent GM and Chrysler from ``collapsing.'' On Dec. 11, the Senate rejected a short-term aid package for the two automakers.

The effect of a bankruptcy on growth would be significant, although economists say it won't be as great as in decades past. Gross domestic product fell at a 4.2 percent annual pace in the fourth quarter of 1970 -- when, like today, the U.S. was in a recession -- following a 67-day nationwide strike against GM. Now, auto production accounts for only about 3 percent of GDP, Stanley says.

``It would obviously be a sizeable jolt to the economy,'' he says. ``But the sector is not as important as it was.''

Even so, statistics from the Center for Automotive Research in Ann Arbor show 239,000 people work in the U.S. for GM, Chrysler and Ford Motor Co. The center, which does research for the auto companies, estimates total job losses would reach 2.5 million if GM failed and 3.5 million if all three auto companies went out of business in 2009.

Retail, Manufacturing

That includes 1.4 million people in industries such as retailing that aren't directly tied to manufacturing. Economists say each manufacturing job is responsible for an additional six outside the industry.

While many analysts say the Center for Automotive Research totals are exaggerated, the number of jobs eliminated would still be staggering.

``I don't know that we'd lose all of those folks,'' said Mark Zandi, chief economist at Moody's Corp.'s Economy.com. ``But over a million in the first quarter of `09, I think, would be reasonable to expect.''

The total would depend on whether Americans keep buying cars and trucks. While a Chapter 11 bankruptcy would allow the automakers to continue making vehicles while they restructure, GM, Ford and Chrysler have argued that deliveries would drop precipitously. Customers would baulk at buying anything from a company that might not be around to fix it, they say.

Plunging Sales

U.S. auto sales plunged 37 percent in November to a seasonally adjusted annual rate of 10.2 million -- the lowest level in 26 years, according to Autodata Corp. in Woodcliff Lake, New Jersey -- compared with 16.1 million a year earlier and 10.6 million in October.

Dealerships are already feeling the pinch. The National Automobile Dealers Association, a trade group based in McLean, Virginia, estimates that even without an automaker bankruptcy, 900 dealers will close this year and 1,100 next year, most of them GM, Ford and Chrysler franchises. The association says the three companies have more than 13,000 dealers nationwide, employing more than 700,000 workers.

The ripples of failure would also spread quickly to auto- parts makers. ``There's a fairly large number of suppliers out there very squeezed on cash right now,'' says Jim Gillette, director of supplier analysis for CSM Worldwide, an automotive consulting firm in Northville, Michigan. ``Vehicle volumes are so low, regardless of a bailout, that suppliers are still in trouble.''

Widespread Closures

Because many of these businesses work for all three companies, widespread closures would lead to production problems at Ford, even if it didn't file for bankruptcy protection, officials at the No. 2 U.S. car company have said.

Parts makers including American Axle & Manufacturing Holdings Inc. and brake and powertrain-system makers ArvinMeritor Inc. and Hayes Lemmerz International Inc. employ 526,000 workers, according to U.S. Labor Department statistics, down more than 300,000 since 2000. Gillette predicts another fifth of them will lose their jobs in the coming year even if the automakers get bridge loans.

That will mean higher unemployment costs for states, which pay an average of $279 a week for benefits for 26 weeks, according to Jennifer Kaplan, a Labor Department economist. The payments can last as long as 39 weeks in some states, including Ohio, where GM has more than 11,000 employees, according to the company's Web site. The jobless rate there was 7.2 percent in September.

Retiree Pensions

Hundreds of thousands of auto retirees who depend on the companies for pensions and health insurance would also be affected. Bankruptcy could throw them into federal government programs -- including the Pension Benefit Guaranty Corporation and Medicare -- just when rescue packages and government market actions are ballooning the federal budget.

The effect would be multiplied by an estimated decline in tax revenue for federal, state and local governments of $108.1 billion over three years if U.S. automakers' operations were cut by 50 percent, the Center for Automotive Research says.

A collapse would quickly spread to financial markets, said Eric Selle, an automotive-credit analyst at JPMorgan Chase & Co. in a research report last month.

GM, Ford, Chrysler and their credit operations comprise 10 percent of the high-yield bond market, he said, and any failure would have major implications for credit-default swaps, asset- backed securities and commercial paper. It would be ``the credit crisis, part II,'' he said.

Less Concern

Federal Reserve Chairman Ben S. Bernanke signaled less concern about the potential impact for the bond market in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd. The automakers' bonds ``already trade at 20 to 40 percent of par value, suggesting that many of the losses that would be associated with a default have probably already been recognized,'' he said.

Even if the automakers get loans to continue operations, the economy is going to take a hit. All three companies have promised to cut workers and close plants as a condition of receiving aid. General Motors said Dec. 12 that it will close 30 plants for at least part of next quarter, cutting production by 250,000 vehicles. Honda Motor Co. said it will eliminate 119,000 vehicles from its North American production plan.

That means ``suppliers are going to go under in the next few months, even if a bridge loan comes in,'' Gillette says. ``The only solution is to sell more cars.''

To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net

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Madoff Victims’ ‘Tragedy’ Said to Have Escaped Scrutiny by SEC

By David Scheer and Jesse Westbrook

Dec. 14 (Bloomberg) -- Bernard Madoff’s investment advisory business, alleged to be a Ponzi scheme that cost investors $50 billion, was never inspected by U.S. regulators after he subjected it to oversight two years ago, people familiar with the case said.

The Securities and Exchange Commission hasn’t examined Madoff’s books since he registered the unit with the agency in September 2006, two people said, declining to be identified because the reviews aren’t public. The SEC tries to inspect advisers at least every five years and to scrutinize newly registered firms in their first year, former agency officials and securities lawyers said.

Madoff, 70, who had advised the SEC how to regulate markets and donated regularly to politicians, was arrested Dec. 11 and charged with operating what he told his sons was a long-running Ponzi scheme in the New York-based firm’s business advising rich people, hedge funds and institutions. His ability to avoid detection may fuel debate about the SEC’s effectiveness and the adequacy of its resources for policing money managers.

“Given what the SEC claims is the magnitude of the fraud, this is something you would hope an inspection would have uncovered,” said Mercer Bullard, a University of Mississippi law professor and former mutual-fund attorney at the SEC. “It’s hard to imagine a fraud of this alleged size not being accompanied by significant and pervasive compliance problems.”

Madoff is scheduled to appear in federal court in Manhattan on Dec. 19 at noon for a hearing in the SEC case, according to his lawyer, Ira “Ike” Sorkin, of Dickstein Shapiro LLP in New York.

“This is a tragedy,” said Sorkin, a former U.S. prosecutor and SEC enforcement lawyer. “We are going to fight through these events and try to minimize the losses as much as possible.”

The Inspectors

The SEC’s Office of Compliance Inspections and Examinations deploys teams from Washington and 11 regional offices to scout for fraud and gauge brokerages and investment managers’ adherence to securities laws. Its roster of full-time employees peaked at 880 in fiscal 2006, according to agency budget requests. The regulator expects to have 796 full-time workers in its inspections office for the fiscal year ending next September.

Madoff also operated a brokerage, and the SEC’s inspectors examined it in 2005, finding three violations of so-called best- execution rules, which require that customer trades be made at the most advantageous prices, agency spokesman John Nester said in a statement. The regulator’s enforcement division completed an investigation involving the company last year without bringing a claim, Nester said.

The SEC opened that inquiry after tipsters and press reports said Madoff’s purported investment returns may have resulted from front running, in which traders buy shares for their own account before filling customers’ orders, a person familiar with the inquiry said. The agency found no evidence that the brokerage did anything improper, the person said.

Florida Accountants

More than a decade earlier, in 1992, Madoff faced regulatory scrutiny as part of a lawsuit the SEC brought against two Florida accountants, whom it accused of raising $441 million while selling unregistered securities over three decades, according to SEC statements and a press report at the time.

Madoff told the Wall Street Journal at the time that he had managed the funds unaware they had been raised illegally. The SEC determined that the investors’ money was all accounted for, and didn’t accuse him of wrongdoing, according to the report.

Sixteen years later, on Dec. 11, the SEC and U.S. prosecutors announced in federal court in Manhattan that Madoff had confessed. His advisory business was “all just one big lie,” Madoff had allegedly said. The business had been insolvent for years, with losses of more than $50 billion, according to the SEC’s account of his statement. Madoff delivered the confession to his sons, Mark and Andrew, who turned him in, according to Martin Flumenbaum, a lawyer representing the brothers.

‘Just So Many’

On the morning of Madoff’s arrest, more than a dozen SEC inspectors assembled at his office in Manhattan and have since worked overtime to untangle the mess. The agency still hasn’t determined the extent of the damage or whether others participated in the fraud, according to a person familiar with the review.

Such a large Ponzi scheme -- in which early investors are paid with money raised from subsequent victims -- should prompt lawmakers to review how the U.S. polices brokerages, wealth managers and unregistered advisers, such as hedge funds, said James Cox, a securities law professor at Duke University in Durham, North Carolina.

“There are just so many people out there who are and aren’t registered that it really just overwhelms the system,” Cox said. “There is no easy way to expand the regulatory net unless we’re willing to put the might of the federal budget behind it to carry out more inspections.”

Committee Man

Barry Barbash, a former head of the SEC’s investment management division, said the agency has tried to focus its inspections on money managers who pose the biggest risks. The regulator uses criteria such as which securities a firm is buying and who its clients are, said Barbash, a partner at Willkie Farr & Gallagher LLP in Washington.

“Given the state of SEC resources and given the way that they go about determining whether an inspection is necessary, it wouldn’t surprise me that a newly registered firm wasn’t inspected,” Barbash said.

Any suspicions about Madoff may have been dampened because of his association with industry groups, watchdogs and politicians.

He sat on a committee of academics, regulators and executives formed in 2000 by former SEC Chairman Arthur Levitt to advise the agency on new stock-market rules in response to the growth of electronic trading. Madoff has led the trading committee at the Securities Industry Association, Wall Street’s biggest trade group, and served as chairman of the Nasdaq Stock Market.

‘Pull the Shades’

Since 2000, he has given at least $100,000 to the Democratic Senatorial Campaign Committee and more than $23,000 to the party’s candidates, including Senator Charles Schumer of New York and Senator Frank Lautenberg of New Jersey, who leads a charitable foundation that invested with Madoff.

“You can see where people would pull the shades down over their eyes in terms of recognizing what could be one of the great frauds of our time,” Levitt said in a Bloomberg Television interview. “I’ve known him for nearly 35 years, and I’m absolutely astonished.”

Levitt is a senior adviser to the Carlyle Group and a board member of Bloomberg LP, the parent of Bloomberg News.

To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net; Jesse Westbrook in Washingtont .

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Cooper Says U.K. Government Doesn’t Target Pound Rate

By Craig Stirling

Dec. 14 (Bloomberg) -- U.K. Treasury Chief Secretary Yvette Cooper said the government doesn’t target the pound and Europe Minister Caroline Flint raised the prospect of a halt to the currency’s slide after it reached a record low against the euro.

“We’ve never had a policy of targeting the pound,” Cooper told the BBC’s Andrew Marr show today. “Our policy is to target inflation, and that I think has been the right one. It has paid off over the last 10 or 11 years.”

The pound has dropped 22 percent against the euro this year on mounting evidence that the recession is intensifying. Prime Minister Gordon Brown’s government, which has cut taxes and rescued banks to combat the financial crisis, faces increasing pressure to comment on the currency as it extends its decline.

“The exchange rate obviously is affected by what’s happening at the moment,” Flint told Sky News. “We’ve got to get those first-order issues right in order to have a better look at issues around the exchange rate, which may stabilize if we get those other factors right.”

The pound fell to 89.97 pence per euro on Dec. 12, the lowest level since the euro’s debut in 1999. The British currency has dropped 25 percent against the dollar this year.

“We don’t, as ministers, ever do running commentaries on the currency, on the pound, I don’t think that’s the right thing to do,” Cooper said. “The purpose of what we do is to support the economy overall and to make sure as well that we work with other countries to do that.”

Export Boost

The British currency’s drop has “different impacts on different sections of the economy” and may benefit exporters, Cooper said. Manufacturing dropped for an eighth month in October, extending the longest stretch of declines since 1980.

“Of course it’s the case that there is volatility on the currency markets, which reflects the uncertainty in the world economy,” Cooper said. “I think we’re plotting the right course in terms of making sure inflation is coming down but particularly the action to support to the economy, to support jobs and to help us come through this.”

Brown said last week that the government is working on the “second stage” of a rescue for banks, which are reluctant to lend even after the government pledged 50 billion pound of public money to bolster their capital. He also promised a 20- billion pound ($30 billion) stimulus package on Nov. 24, the biggest in two decades, reducing sales tax to spur spending.

“You might as well have burnt the money and thrown it away frankly,” former Prime Minister John Major said on the tax cut in an interview with on the Andrew Marr show. “I don’t think it’ll do anything that is credible at all.”

1992 Crisis

Major presided over the U.K.’s last currency crisis in 1992, when speculators bet on the pound’s exit from the peg against other European currencies. His government was forced to abandon the effort to keep the currency within its limit set by the European Exchange Rate Mechanism.

“You will recall previous attempts to target exchange rates, for example through the Exchange Rate Mechanism, that were not successful and caused all kinds of problems,” Cooper said today.

Asked about the threat of deflation, she said that it is “something that commentators have been talking about, and that’s why I think we’ve been so clear about the importance of stepping in to support the economy.”

To contact the reporter on this story: Craig Stirling at cstirling1@bloomberg.net

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Prices May Have Tumbled as Economy Sank: U.S. Economy Preview

By Bob Willis

Dec. 14 (Bloomberg) -- The cost of living in the U.S. probably fell in November by the most in six decades, while slumps in manufacturing and homebuilding worsened, sending the economy deeper into a recession, economists said before reports this week.

Consumer prices probably dropped 1.2 percent last month, the most since records began in 1947, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in almost a half century and factory output continued to slide.

Costs of oil and other raw materials plummeted last month as the credit crisis caused consumers to slash spending, prompting automakers to plead for a bailout. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve this week to lower its key rate target to its lowest level ever.

“We’re going to have weak demand through most of 2009,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “It’s going to be a long and severe recession.”

The Labor Department’s consumer-price report is due Dec. 16. Fuel, auto and building-material costs probably dropped last month, economists said, as consumer spending dipped.

A freefall in crude oil costs is feeding through to prices at the pump. A gallon of regular gasoline at the pump plunged 32 percent last month to $2.11, according to AAA.

Recessions and Inflation

“We had a bubble in oil, the bubble has burst,” David Wyss, chief economist at Standard & Poor’s in New York, said in an interview with Bloomberg Television. “One thing recessions are really good at is bringing down inflation.”

Core prices, which exclude food and energy, rose 0.1 percent last month after a 0.1 percent drop the prior month, according to the survey median.

The recession, already a year long, will continue to slow inflation. Consumer prices will probably rise just 0.7 percent in the 12 months ended in September 2009, the smallest year-over- year gain since 1962, according to economists surveyed last week by Bloomberg News.

Consumer spending will fall at a 4 percent annual pace in the current quarter, the most since 1980, and drop 1 percent for all of 2009, the economists forecast.

Weak spending, exacerbated by the worst credit crisis in seven decades, pushed car sales in November to their lowest level since 1982, underscoring calls for a government bailout for General Motors Corp. and Chrysler LLC.

‘Depression Levels’

“Sales are at depression levels,” Mike Jackson, chief executive officer at AutoNation Inc., the largest car dealer in the U.S., said in a Bloomberg Television interview from Fort Lauderdale, Florida, last week. “What’s needed is a restoration of credit” and a “stimulus package for the economy, including incentives for the auto industry and a bridge loan” for the automakers.

Cutbacks in auto production probably pushed down manufacturing output last month, economists said a report from the Fed tomorrow may show. Overall industrial production, which includes factories, mines and utilities, fell 0.9 percent in November, according to economists surveyed.

A report from the New York Fed the same day may show manufacturing in the state contracted in December at the fastest pace since records began in 2001. A similar report from the Philadelphia Fed on Dec. 18 may show regional activity shrank for a 12th time in 13 months.

Fed Action

The Fed on Dec. 16 is forecast to cut its overnight lending rate by a half percentage point to 0.5 percent, according to economists surveyed. The Fed, struggling to shore up credit markets and arrest the freefall in economic data, has slashed rates from 4.25 percent in December 2007, while using a host of unconventional methods to pump added cash into money markets.

The housing recession that triggered the credit crisis and the ensuing recession show no signs of abating. New-home starts in November dropped to a 730,000 annual pace, the lowest level since records began in 1959, the Commerce Department is forecast to report the day of the Fed decision.

“More needs to be done” to stop the cascade of foreclosures that is deepening the housing crisis, Fed Chairman Ben S. Bernanke said in a speech in Washington on Dec. 4. “Policy initiatives to reduce the number of preventable foreclosures should be high on the agenda.”

A gauge of the economy’s course will point to continued weakness, economists project a private report on Dec. 18 will show. The New York-based Conference Board’s index of leading economic indicators probably fell 0.4 percent in November after declining 0.8 percent in October.

                         Bloomberg Survey

=================================================================
Release                  Period    Prior     Median
Indicator                 Date               Value    Forecast
=================================================================
Empire Manu. Index       12/15      Dec.     -25.4     -27.3
Ind. Prod. MOM%          12/15      Nov.      1.3%     -0.8%
Cap. Util. %             12/15      Nov.     76.4%     75.6%
NAHB Housing Index       12/15      Dec.       9         10
CPI  MOM%                12/16      Nov.     -1.0%     -1.3%
Core CPI MOM%            12/16      Nov.     -0.1%      0.1%
CPI  YOY%                12/16      Nov.      3.7%      1.5%
Core CPI YOY%            12/16      Nov.      2.2%      2.1%
Housing Starts ,000’s    12/16      Nov.      791       735
Building Permits ,000’s  12/16      Nov.      730       700
Current Account $ Blns   12/17       3Q      -183.2    -179.0
Initial Claims ,000’s    12/18    Dec. 13     573       555
Cont. Claims ,000’s      12/18     Dec. 6     4429      4375
LEI  MOM%                12/18      Nov.     -0.8%     -0.4%
Philly Fed Index         12/18      Dec.     -39.3     -40.0
=================================================================

To contact the report responsible for this story: Bob Willis in Washington at bwillis@bloomberg.net

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Aldar Has Not Delayed Projects on Credit Crisis, Gulf News Says

By Arif Sharif

Dec. 14 (Bloomberg) -- Aldar Properties PJSC has not delayed or canceled any projects in Abu Dhabi and has no plans to lay off staff to cut costs due to the global financial crisis, Gulf News reported, citing its marketing manager.

Aldar’s projects, which include building a Formula 1 race track and hotels, will be completed on schedule, the Dubai-based newspaper said, citing Ousama Ghannoum.

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

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Dolphin Plans $1 Billion Bond Sale to Repay Debt, MEED Reports

By Arif Sharif

Dec. 14 (Bloomberg) -- Dolphin Energy Ltd., a joint venture between Abu Dhabi, Total SA and Occidental Petroleum Corp. plans to raise $1 billion by selling bonds, the Middle East Economic Digest reported, citing unidentified bankers.

The deal, which will help refinance $3.45 billion of existing debt, is expected to be announced in late January and to close by April, the London-based weekly magazine said. If investor sentiment in bond markets remains poor, the sale will be postponed to later in 2009 and other forms of financing used as a bridge, the magazine reported.

Dolphin supplies natural gas from Qatar to the United Arab Emirates and Oman.

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

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Persian Gulf Shares Fall, Led by Al-Rajhi; Qatari Shares Climb

By Arif Sharif

Dec. 14 (Bloomberg) -- Persian Gulf shares fell, led by Al- Rajhi Bank and Emirates NBD PJSC, on speculation fourth-quarter earnings at banks will be affected by the global financial crisis. Qatari stocks rose for a fifth day.

Emirates NBD posted the biggest drop in December so far. Shuaa Capital PSC, the United Arab Emirates’ biggest investment bank, sank after saying it will cut its workforce.

Saudi Arabia’s Tadawul All Share Index lost 1.3 percent to close at 4,780.46 in Riyadh. The Dubai Financial Market General Index declined 1.3 percent and the Abu Dhabi Securities Exchange General Index fell 0.9 percent.

“There is still negative sentiment in the market as we are still hearing bad news, although it is better than in October and November,” said Sherif Abdel-Khalek, regional sales executive at Beltone Securities Brokerage in Dubai. “Most institutions are sitting on the sidelines and waiting for the fourth-quarter results and the impact the financial crisis has had on banks and real estate.”

Financial firms worldwide have racked up almost $1 trillion in credit losses and writedowns following the collapse of the U.S. subprime-mortgage market. While banks in the Gulf have largely sidestepped losses, they have been affected by tighter access to funding.

Automakers hurt

The U.S. administration said last week said it will consider using money from the $700 billion bank-bailout fund to prevent General Motors Corp. and Chrysler LLC from “collapsing.” A bankruptcy filing by the automakers would worsen the longest recession since the early 1980s if it led to a shutdown at the companies, economists have said. On Dec. 11, the Senate rejected a short-term aid package for the two automakers.

Al-Rajhi Bank lost 2.9 percent to 58.25 riyals, while Emirates NBD, the U.A.E.’s biggest bank by assets, retreated 2.8 percent to 3.5 dirhams.

Shuaa Capital fell 7.4 percent, the most since Nov. 23, to 1.62 dirhams. The bank said Dec. 11 it will cut 9 percent of its workforce in Dubai as it seeks to reduce costs amid the global financial crisis.

Qatar’s DSM 20 Index rose 2.6 percent, bringing the five- day advance to 8 percent. The Bahrain All Share Index added 0.5. The Kuwait Stock Exchange Index fell less than 0.1 percent, while the Muscat Securities Market 30 Index dropped 0.7 percent.

Global Investment House KSCC, Kuwait’s biggest investment bank, fell 2.6 percent to 380 fils after saying sold its 14.7 percent stake in Bahrain’s BBK. Global said it aims to focus on fee-generating businesses such as investment banking and asset management.

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

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Prince Alwaleed Loses 19% of Wealth on Global Slump

By Shaji Mathew

Dec. 14 (Bloomberg) -- Prince Alwaleed bin Talal, Citigroup Inc.’s largest individual investor, lost 19 percent of his personal wealth in the past year as the global economic slump reduced the value of banking and property assets, according to Arabian Business.

The Saudi billionaire was ranked the wealthiest Arab with assets worth $17.08 billion as of Dec. 2, the 2008 Rich List, published on the Dubai-based magazine’s Web site today said. That compares with $21 billion a year ago, the magazine reported, citing Alwaleed’s private financial accounts.

“Everyone has been guessing for 20 years” about the assets, Alwaleed was quoted by Arabian Business as saying. “I want you to get it right -- to get it absolutely right.”

Financial firms worldwide have taken $980 billion of writedowns, losses and credit provisions since the start of the current turmoil in the financial markets, according to data compiled by Bloomberg. More than 200,000 jobs have been cut across the industry and the U.S. benchmark Standard & Poor’s 500 Index has dropped 40 percent this year.

Making Money

Alwaleed, a nephew of the late King Fahd bin Abdulaziz al-Saud, stands out among more than 2,000 Saudi princes because he’s made money. After earning a bachelor’s degree from Menlo College near San Francisco, he returned to the Persian Gulf and parlayed an inheritance of less than $1 million into a billion- dollar fortune in the 1980s, mostly through real-estate investments, according to Riz Khan’s biography “Alwaleed: Businessman, Billionaire, Prince” (William Morrow, 2005.)

The Prince, 53, built his fortune by investing in brand-name companies he considered undervalued, including Apple Inc., News Corp. and Time Warner Inc. Forbes magazine estimated he was worth $21 billion in March, ranking him 19th among the world’s billionaires.

Alwaleed was lauded by Time magazine as the Middle East’s answer to Warren Buffett, the Sage of Omaha, after his 1991 investment in Citicorp, Citigroup Inc.’s predecessor, helped make the Saudi billionaire one of the world’s five richest people.

This year, Alwaleed’s investments haven’t kept pace with regional benchmarks. The shares of his Riyadh-based Kingdom Holding Co. have slumped 60 percent -- more than Saudi Arabia’s Tadawul All-Share Index or Buffett’s Berkshire Hathaway Inc. Kingdom Holding said Nov. 20 Alwaleed will boost his Citigroup stake, his largest holding, to 5 percent. The bank’s stock has fallen more than 70 percent since Jan. 1.

Assets

Kingdom Holding’s assets are valued at $7.98 billion, while the Prince owns real estate worth $3.196 billion and his media assets such as LBC and Rotana Holding are valued at $1.6 billion, Arabian Business said, citing financial accounts of the billionaire.

“The Prince keeps a significant amount of cash at all times, which is instantly accessible,” the magazine reported, without giving further details.

Alwaleed’s other major assets are valued at $1.679 billion, and include a Boeing 747, an Airbus A380, yachts and 400 vehicles, a collection of jewelry, and investments in a French port and stakes in Lebanese and Palestinian companies.

The billionaire is one of two Middle Eastern investors racing to build the world’s first kilometer-high skyscraper in the Persian Gulf. On Oct. 13, Kingdom Holding announced plans for the Kingdom Tower, part of the $27 billion Kingdom City real-estate project in the Red Sea city of Jeddah.

Top 10

Below is a list of the 10 richest Arabs according to Arabian Business. The list excludes members of the region’s royal families except Alwaleed. Assets held in billions of dollars:

NAME Country 2008 2007

Prince Alwaleed bin Talal Saudi Arabia $17.08 $21 Nasser Al Kharafi Kuwait $9.6 $12 Maan Al Sanea Saudi Arabia $9.3 $10 Sheikh Mohammed bin Saudi Arabia $8.8 $3 Issa Al Jabber Mohammad Al Amoudi Saudi Arabia $8.8 $9.2 Abdulaziz Al Ghurair U.A.E. $7.8 $8 The Bin Laden Family Saudi Arabia $7.2 $8.5 The Olayan Family Saudi Arabia $7.2 $7.2 The Kanoo Family Bahrain $6.1 $6.1 Said Khoury Palestine $6 $6

To contact the reporter on this story: Shaji Mathew in Dubai at shajimathew@bloomberg.net

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German Economy Ministry Denies Report Economy to Shrink 2%

By Aaron Kirchfeld

Dec. 14 (Bloomberg) -- The German Economy Ministry denied a report in Der Spiegel magazine that the government predicts the economy will contract 2 percent next year.

Economy Minister Michael Glos said such figures are “pure speculation,” spokeswoman Beatrix Brodkorb said today by phone, confirming comments Glos made to Bild am Sonntag newspaper.

Der Spiegel reported yesterday that the government expects a “deep” recession in 2009, citing a draft of an annual economic report due to be published at the beginning of next year. Glos said no such draft exists.

Chancellor Angela Merkel’s government in October slashed its growth forecast for Europe’s biggest economy, saying that gross domestic product will expand 0.2 percent in 2009 as global markets for exports dry up.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

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BASF Chief Criticizes Banks for Stricter Lending, Welt Says

By Aaron Kirchfeld

Dec. 14 (Bloomberg) -- BASF SE Chief Executive Officer Juergen Hambrecht criticized banks’ stricter lending criteria as they worsen the credit crunch and hurt healthy companies, German weekly Welt am Sonntag reported, citing an interview.

Getting loans for more than 80 million euros ($107 million) is “difficult” and medium- and long-term credit is “especially problematic,” Hambrecht was quoted as saying. Even “healthy and sufficiently financed” BASF is having more difficulty getting long-term financing, he told the newspaper, adding that banks need to reopen credit lines.

Hambrecht called on the German government to introduce another economic stimulus plan that includes investments in infrastructure and income-tax cuts and interest rates should also be lowered further, Welt am Sonntag reported.

Hambrecht, who said the economic slump hasn’t reached the bottom yet, reiterated BASF’s lowered forecast and said he couldn’t rule out reduced working hours for employees at the world’s largest chemical company, according to the interview.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

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Deutsche Bank Sees Declining Margins at Retail Unit, Welt Says

By Aaron Kirchfeld

Dec. 14 (Bloomberg) -- Deutsche Bank AG expects profit margins per customer to fall at its retail banking unit as private banking clients invest less, Welt am Sonntag said, citing an interview with consumer banking head Rainer Neske.

Deutsche Bank aims to offset lower margins by attracting new customers, Neske told the newspaper. It attracted 650,000 net new clients in the past 10 months and more than 9 billion euros ($12 billion) in new deposits this year, the newspaper said, citing Neske.

Deutsche bank has no plans to speed up the complete takeover of Deutsche Postbank AG and doesn’t plan acquisitions in private banking, Neske told the newspaper.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net.

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Merkel Aims to ‘Strengthen Germany’ as Crisis Deepens in 2009

By Brian Parkin

Dec. 14 (Bloomberg) -- Chancellor Angela Merkel said her government was preparing for a deterioration of the economic outlook in 2009 and looking at ways of strengthening Germany to cope with the global financial crisis over the long term.

Merkel, who will host talks in Berlin today of her key ministers with industry leaders and economic experts, said the aim of the meeting is “to work on means of combating any worsening of the crisis.”

The government “will hold very concentrated consultations in the coming weeks on any action to take,” Merkel said in an interview with the Bild am Sonntag newspaper. Today’s discussions are intended “to reach a common assessment of the current situation and the outlook for 2009.”

Merkel faces persistent calls for more action to support Europe’s biggest economy going into 2009, an election year, as the global recession hurts demand for German exports. Paul Krugman, the Nobel Prize-winning economist, joined the critics, saying in an interview with Der Spiegel magazine that Merkel and Finance Minister Peer Steinbrueck are “misjudging the severity” of the crisis and “wasting precious time.”

Krugman’s warning follows economic data suggesting that the downturn may be accelerating in Germany, the world’s biggest exporter, where one in three jobs relies on foreign trade.

The Munich-based Ifo institute forecast on Dec. 11 that the economy will shrink 2.2 percent next year, the second assessment in as many days to predict the worst recession since World War II. The Essen-based RWI institute forecast a contraction of 2 percent on Dec. 10, forcing the government to reiterate its own outlook for next year of 0.2 percent growth.

‘Flashing Red’

“Signals for the German economy are flashing red for 2009,” Ifo said. The Ifo and RWI institutes are both members of a group that advise the government.

Economy Minister Michael Glos today denied as “pure speculation” a Spiegel report that the government already concedes that the economy will contract 2 percent next year as Germany enters a “deep recession.” Glos is scheduled to review the economic outlook on Jan. 15.

Merkel, who meets today with 32 leaders from industry, banking, economics and labor unions, has scheduled a further meeting on Dec. 18 with representatives of Germany’s 16 states, she told Bild am Sonntag. Those talks will focus on public infrastructure projects that are ready to roll out, as well as the coordination of action between the federal government and the states “in these extraordinary times.”

Schools Investment

Foreign Minister and Vice Chancellor Frank-Walter Steinmeier told Bild that renovating schools, better equipping kindergartens and modernizing sports grounds would all be means of securing jobs while “investing in the future.” Steinmeier will lead the Social Democratic Party, part of the governing grand coalition, against Merkel’s Christian Democratic Union at the national election in September 2009.

Lawmakers passed the government’s 32 billion-euro ($43 billion) stimulus package on Dec. 5 in the face of opposition from Merkel’s Bavarian allies in the Christian Social Union, the sister party to Merkel’s CDU. The CSU demanded income-tax cuts on top of the measures on construction investment and tax relief included in the plan.

Forty-eight percent of respondents to a poll by FG Wahlen for ZDF television published Dec. 12 said that the stimulus package doesn’t go far enough. Twenty-six percent said it was sufficient, while 10 percent said it went too far, according to the poll of 1,286 voters conducted Dec. 9-11.

Merkel has set a deadline of a Jan. 5 coalition meeting before announcing any new measures.

“Germany is a strong country,” Merkel told Bild. “I am deeply convinced that we Germans can overcome these challenges.”

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.

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U.K. Government May Extend Aid to Carmakers as Job Threat Rises

By Craig Stirling

Dec. 14 (Bloomberg) -- Prime Minister Gordon Brown’s government is considering financial aid for carmakers as the threat of job losses mounts in an industry that almost 800,000 British workers depend on.

Business Secretary Peter Mandelson may offer loan guarantees to auto companies’ finance arms to raise sales and grant a loan to Tata Motors Ltd.’s Jaguar business, the Sunday Times reported today, without saying how it obtained the information. One option is to use 400 billion pounds ($597 billion) set aside for the banking industry to make low-cost loans, the newspaper said.

“What we need is short-term support, short-term access to cash now to make sure that our companies stay alive,” Tony Woodley, joint leader of Unite, the country’s biggest union, told Sky News today. “It was right to bail out the banks and it’s absolutely appropriate now to do something about manufacturing.”

U.S. President George W. Bush’s administration said last week it will consider using money from the $700 billion bank bailout fund to prevent automakers General Motors Corp. or Chrysler LLC from “collapsing.” Brown wants to limit the fallout in Britain as the recession threatens to push unemployment to an eight-year high.

The U.K. government is monitoring the situation with the car industry, a spokesman for the Department for Business, Enterprise and Regulatory Reform said by phone today.

Exceptional Measures

Ministers have said they want to do all they can to help viable businesses and the government needs to ensure it’s taking action to help companies through difficult times, said the official, who declined to be identified in line with U.K. government practice. Any direct intervention would be exceptional, he said.

“People are worried about their jobs, they’re worried about their homes, and that’s exactly when you need governments to step in and act to do something about that to help people through it,” U.K. Treasury Chief Secretary Yvette Cooper said in an interview on the BBC’s Sunday AM show.

Any deal to guarantee car loans would be good news for the industry, Denis Chick, Luton-based director of communications at GM’s U.K. business, said in an interview.

“We can’t get money out of banks to loan to customers to buy cars,” Chick said. “We are doing everything we can to avoid forced redundancies.”

Brown said last week that the government is working on the “second stage” of a rescue for banks, which are reluctant to lend even after tapping into a 50 billion-pound program to bolster their capital. The government now faces pressure to extend aid elsewhere as manufacturing endures the worst stretch of contraction since 1980 and construction slumps.

‘Difficult Time’

Total manufacturing jobs fell by 55,000 in the third quarter from a year earlier to 2.86 million. Unemployment data due on Dec. 17 may show claims for U.K. jobless benefit rose in November to the highest since 2000, according to the median forecast of 24 economists in a Bloomberg News survey.

The British auto industry supports 200,000 manufacturing jobs and another 580,000 workers in other areas such as sales, servicing and refueling, according to data on the Web site of the U.K. Society of Motor Manufacturers and Traders.

Carmakers need “an ability to access liquidity at such a very, very difficult time, and not just from the manufacturers here,” said Woodley, speaking at Ellesmere Port in northwest England, where GM’s U.K. division makes Vauxhall cars. “The component companies are going to jettison tens of thousands of workers unless of course there’s a clear plan.”

GM Measures

GM has offered staff at Ellesmere Port as much as nine months vacation paid at 30 percent of salary as it seeks to cut costs and avoid job losses.

The company’s two priorities are to sell cars and save money, and GM isn’t tight for cash in Britain, Chick said.

Conservative Party lawmaker Michael Fallon, a member of Parliament’s Treasury Committee, said the government should avoid favoritism in its plans. The Conservatives had support of 41 percent of voters in a YouGov Plc poll published in the Sunday Times today, compared with 35 percent for Brown’s Labour Party.

“We’ve got to be very, very careful not to single out particular plants or indeed particular industries in a recession and give them job protection or whatever against the changes that are necessary while other people, particularly smaller businesses, go to the wall,” Fallon told Sky News.

To contact the reporter on this story: Craig Stirling in London at cstirling1@bloomberg.net.

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Total Refineries Resume Operation After Strike, Spokesman Says

By Sandrine Rastello

Dec. 14 (Bloomberg) -- Total SA refineries in France are functioning normally after a two-day strike disrupted operations at Europe’s third-biggest oil company.

“Work resumed on all sites yesterday evening,” Charles Foulard, a spokesman for the Confederation Generale du Travail labor union said by telephone today. Employees who had voted to halt production yesterday changed their mind after colleagues at two other sites opted against it, he said.

Total on Dec. 12 completed a wage increase proposal for the whole company that will be submitted to unions this week, company spokesman Michael Crochet-Vourey said. The CGT union has decided not to sign it, Foulard said.

Total operates six refineries in France, which have a total capacity of about 52.7 million tons a year, according to data on the Web site of the Union Francaise des Industries Petrolieres, an oil industry trade organization.

To contact the reporters on this story: Sandrine Rastello in Qatar at srastello@bloomberg.net

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Reichmuth Warns Investors of $330 Million in Madoff Losses

By Naomi Kresge

Dec. 14 (Bloomberg) -- Swiss private bank Reichmuth & Co. warned investors in its Reichmuth Matterhorn fund of hedge funds that they face losses of as much as $330 million related to Bernard Madoff’s investment advisory business.

In a letter to clients, the bank, based in the Swiss city of Lucerne, said the “performance impact” on its fund would amount to a decline of 8.6 percent in the value of its assets. The fund totals about $3.9 billion, Chief Executive Officer Christof Reichmuth said in an interview today.

“It’s unbelievable that no auditor, no administrator, no fund manager noticed this fraud,” Reichmuth said by telephone. “We will have to wait to find out how that was possible.”

Madoff, 70, who had advised the U.S. Securities and Exchange Commission how to regulate markets, was arrested Dec. 11 and charged with operating what he told his sons was a long-running Ponzi scheme in the New York-based firm’s business advising rich people, hedge funds and institutions.

Reichmuth Matterhorn invested in four hedge funds that had business relationships with Madoff, CEO Reichmuth said.

With the potential loss, the Matterhorn fund would be down 18.4 percent for the year to November, according to the letter to clients, which was posted on the bank’s Web site.

“The occurrence is inexplicable,” the letter said. “Further, all periodically proved transactions appeared plausible. Yet no one is immune against fraud,” it said.

To contact the reporter on this story: Naomi Kresge in Zurich at nkresge@bloomberg.net

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Russia Won’t Let Ruble Float Free, Deputy Central Banker Says

By Greg Walters

Dec. 14 (Bloomberg) -- Russia won’t let the ruble float freely and may continue to widen the band in which the currency is allowed to trade, the first deputy chairman of Russia’s central bank, Alexei Ulyukayev, said.

“We will not allow it to float freely and we won’t scrap the limits,” Ulyukayev said in an interview with the radio station Ekho Moskvy posted on its Web site. “We have widened the boundaries and apparently, in some way, will continue to widen them to make it a quasi-free flotation.”

The bank has widened the trading band six times, “each time symmetrically and by about 1 percent,” he said.

The ruble was at 31.9090 versus the central bank’s currency basket as of 5 p.m. Dec. 12, the weakest end of the band that was widened by 30 kopeks, or 1 percent, Dec. 11. U.S. dollars make up 55 percent of the basket. The rest is in euros. It is used to limit currency swings that affect exporters. Ulyukayev said the ruble’s recent trend lower may reverse.

“Let’s talk in a few months, when we see it can move in more than one direction,” he said.

To contact the reporter on this story: Greg Walters in Moscow gwalters1@bloomberg.net

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CVM Minerals Cuts Price for Hong Kong Initial Offer

By Joshua Fellman

Dec. 14 (Bloomberg) -- CVM Minerals Ltd., a Malaysia-based magnesium producer, cut the offering price for its initial stock sale in Hong Kong to HK$1.05 per share from HK$1.18.

Global financial turmoil and adverse market conditions prompted the price cut, CVM said in a filing to Hong Kong’s stock exchange today. The company will raise a net HK$80.9 million ($10 million) from the share sale, according to its revised prospectus.

Applicants for shares in CVM must confirm their requests for their orders to be processed, the statement said.

Hong Kong IPOs: {TNI HK INI }

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Ocean Grand Chemical Will Seek to Buy Stake in Bankrupt 3D-Gold

By Joshua Fellman

Dec. 14 (Bloomberg) -- Ocean Grand Chemicals Holdings Ltd. will submit an application to liquidators to buy an interest in Hong Kong retailer 3D-Gold Jewellery Holdings Ltd.

Should Ocean Grand unit China Gold Silver Group Co. win the bid, it will enter a restructuring agreement with the provisional liquidators to acquire the stake, Ocean Grand said in a filing to Hong Kong’s stock exchange today.



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Yanjing Brewery Raises 1.12 Billion Yuan in Private Share Sale

By Lee Spears

Dec. 14 (Bloomberg) -- Beijing Yanjing Brewery Co., China's third-biggest brewer, raised 1.12 billion yuan ($164 million) in a private share sale, the company said in a statement to the Shenzhen stock exchange.

The company sold 110 million new shares at 10.20 yuan apiece, a 21 percent discount to the stock's closing price on Dec. 12. The proceeds will be used to finance production expansion.

Yanjing Brewery's parent bought 88.3 million shares, and three investment companies bought the remainder, the statement said.

To contact the reporter on this story: Lee Spears in Beijing at lspears2@bloomberg.net.



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Hainan Airlines to Buy Hotel, Office Tower Assets in Beijing

By Lee Spears

Dec. 14 (Bloomberg) -- Hainan Airlines Co., the Chinese airline backed by U.S. billionaire George Soros, will pay 2.35 billion yuan ($343 million) to buy a hotel stake and an office tower in Beijing.

Hainan Airlines plans to pay 619 million yuan to buy 45 percent of Beijing Yanjing Hotel Co. from its affiliate Hainan Hotels and Resorts, it said in a statement to the Shenzhen stock exchange yesterday.

The airline will also pay 1.73 billion yuan to buy 65 percent of Beijing Kehang Investment Ltd. from Yangzijiang Real Estate Group and another 30 percent of Beijing Kehang from Hainan Hotels and Resorts, the statement said.

The transactions will be settled in cash and are pending the approval of Hainan Airlines shareholders, the statement said.

To contact the reporter on this story: Lee Spears in Beijing at lspears2@bloomberg.net.

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Citic Pacific Denies Police Investigation of Currency Losses

By Aaron Pan

Dec. 14 (Bloomberg) -- Citic Pacific Ltd., a unit of China’s biggest state-owned investment company, denied a report that Hong Kong police are investigating possible criminal liability in connection to losses from unauthorized currency bets.

The Sunday Morning Post reported today, citing an unidentified person close to the matter, that police are investigating possible fraud and the reasons for a six-week delay in disclosing the losses.

Hong Kong-based Citic Pacific said in October that wrong-way bets on the Australian dollar may cost it about $2.2 billion, the biggest currency trading loss by a China-backed company.

“Neither the company nor management have been approached by the police in connection with these matters,” Tim Payne, a employee of Brunswick Group Ltd., engaged by Citic Pacific to speak on its behalf, said in a phone interview today.

Anita Chow, a Hong Kong police spokeswoman, said the force doesn’t comment on individual cases. “We maintain close communication with financial monitoring organizations,” Chow said in a phone interview today.

To contact the reporter on this story: Aaron Pan in Hong Kong at Apan8@bloomberg.net

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Pakistan Bourse to Lift Trading Curb Even as Court Orders Delay

By Khalid Qayum and Farhan Sharif

Dec. 14 (Bloomberg) -- The Karachi Stock Exchange, Pakistan’s biggest, plans to lift stock trading limits tomorrow as scheduled even as a high court judge ordered a delay, a board member said.

The stock exchange is also seeking guidance from the Securities & Exchange Commission, which said yesterday it would “challenge” the court order if it’s forced to hold back the removal of the trading restriction tomorrow. A judge at the Sindh High Court ordered the delay until at least Dec. 16, the Business Plus news channel reported.

“As of now, the market will open tomorrow,” Dawood Jan Muhammed, a director on the Karachi exchange’s board, said in a phone interview today. A letter seeking further clarification was sent by the board to the regulator yesterday, he added.

The trading curbs have prevented stocks from falling below their Aug. 27 closing prices, shielding investors from a record sell-off. The MSCI AC Asia Pacific Index has fallen 31 percent since the restriction was first imposed on Aug. 27. The rupee has fallen more than 21 percent this year, and is set for its biggest annual decline in more than two decades.

“We are reviewing the order and our lawyers will guide us on how to proceed on it,” Razi-ur-Rahman Khan, chairman of the Islamabad-based regulator, said in a telephone interview late yesterday. “If the court ruling is against our order of lifting limits on share trading on Dec. 15, we will challenge it in court.”

Brokers of Pakistani stocks want the government to support the stock market with a 20 billion rupee ($254 million) fund and provide a mechanism to manage the continuous funding system, or purchasing shares through borrowed funds, before the trading limits are lifted.

Shares May Fall

Pakistan stocks may decline as much as 50 percent after trading limits are lifted tomorrow, almost four months after they were initially imposed amid political upheaval, Citigroup Inc. said on Dec. 12. The stock exchange is expected to retain a 5 percent daily trading limit that existed before the curbs were imposed.

Pakistan will be removed from the MSCI Emerging Markets Index this month because of the restrictions on selling stock, MSCI Inc. said this week. The deletion will take effect at the close of trading on Dec. 31. The regulator announced the lifting of trading curbs on Dec. 11.

The Karachi 100 Index now trades at 9.9 times earnings, compared with the MSCI Emerging Markets Index’s 8.3 times. That makes Pakistan Asia’s fourth-most expensive market, tracking benchmarks in China, Japan and New Zealand.

The Karachi 100’s gains diminished this year -- after rising 11-fold when Pakistan’s economy expanded at least 4.7 percent a year between the end of 2001 and 2007 -- as the global credit freeze sent the rupee to a record low, the balance of payments deficit expanded to its widest level ever and inflation rose to a 30-year high.

The benchmark index has declined 35 percent this year, on course to complete its worst annual performance in 10 years. The emerging markets index has lost 56 percent.

To contact the reporters on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net; Farhan Sharif in Karachi at fsharif2@bloomberg.net

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China to Raise Money Supply 17% in 2009, Boost Loans

By Lee Spears

Dec. 14 (Bloomberg) -- China aims to increase its money supply 17 percent in 2009 and encourage lending to boost domestic consumption and buoy growth in the world’s fourth-largest economy.

M2, the broadest measure, including cash and all deposits, will increase 17 percent, the State Council said in a statement on its Web site. The government will also suspend the issue of three-year central-bank notes and aims to increase total financial-institution lending by 4 trillion yuan ($584 billion) next year, the statement said.

The People’s Bank of China is taking measures to boost liquidity and bank lending that the economy needs to sustain growth amid a global recession. The government last month announced 4 trillion yuan of spending through 2010 to spur more investment by municipalities and enterprises.

“Policy at the moment is generally being focused on boosting liquidity in the banking sector and making sure that is lent to fund investment in infrastructure projects,” Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong, said today.

Money supply gained 15 percent in October from a year earlier. China cut interest rates by the most in 11 years last month and has lowered the proportion of deposits that lenders must set aside as reserves. It has also scrapped temporary loan controls and sold fewer bills to try to boost liquidity.

China will boost policy-directed bank loans over the 2008 level of 100 billion yuan and will aim to increase total lending by financial institutions by 4 trillion yuan, said the statement, dated Dec. 8 and posted on the Web site late yesterday.

Corporate Bonds

One-year and three-month central bank notes will be issued less frequently, the statement said.

The government will encourage the expansion and development of corporate bonds, short-term financing bonds and medium-term notes, the statement said. Preference will be given to the issuance of bonds that fund infrastructure, post-earthquake construction and environmental protection, it said.

Banks should “give lending support to companies with relatively sound fundamentals, relatively good credit records, who are competitive, who have a market, who have orders but are having temporary operating or financial difficulties,” the statement said.

The government told banks to lend more to support areas in line with those promoted by government policy, including infrastructure, rural development, high technology and environmental technology. It also advised them to limit lending to processors and other industries that are big energy consumers.

Directions to Banks

“Commercial banks and other financial institutions should continue to deepen reforms of all kinds, improve management, internal controls and risk-prevention systems,” the statement said. “They should manage a balance between using finance to boost economic growth and guarding against financial risk; they should avoid being blindly reluctant to lend during an economic downturn.”

The statement also said new futures for commodities, including products including steel and grain, should be introduced to meet the needs of economic development.

The government will “take effective measures to stabilize the stock market,” the State Council statement said. Mainland China’s benchmark CSI 300 Index has lost 63 percent this year, making it the second-worst performer in Asia.

China will “increase flexibility” for lowering lending rates and also increase flexibility in foreign-exchange rates as it aims to maintain a “stable, balanced” yuan exchange rate, the statement said.

To contact the reporter on this story: Lee Spears in Beijing at lspears2@bloomberg.net.

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Nations show unity at 1st trilateral summit

Updated: 2008-12-14

(China Daily) FUKUOKA, Japan – The leaders of China, Japan and South Korea said Saturday that Asia must be the engine of growth to counter global financial turmoil and vowed to rev up their economies with infrastructure projects and bolster domestic demand.

From left to right: Chinese Premier Wen Jiabao, Japanese Prime Minister Taro Aso, and South Korean President Lee Myung-bak grasp hands after their signing of a tripartite declaration agreement at a three-country summit at the Kyushu National Museum in Dazaifu, southern Japan, December 13, 2008. [Agencies]

The Asian nations, which together make up 75 percent of the east Asian economy, were holding their first-ever three-way summit, with Chinese Premier Wen Jiabao, Japanese Prime Minister Taro Aso and South Korean President Lee Myung-bak attending.

The global financial slowdown was atop their agenda.

"The current financial crisis continues to spread," Wen said at a joint news conference. "We are important economic players in Asia and the world, and we must strive to respond to this once-in-a-century crisis."

In a joint statement, the leaders said they believed Asia must be a center of growth to counter the sliding world economy. They said they would push domestic demand and infrastructure projects while refraining from raising new barriers to investment or trade over the next 12 months.

"The three leaders shared the view that efforts need to be strengthened to minimize the negative impacts that the current financial turmoil could have on the world economy," the statement said. "Asian countries are expected to play a role as the center of world economic growth."

Meeting ahead of the summit, Aso and Lee welcomed a deal reached the night before to increase a bilateral currency swap arrangement to the equivalent of $20 billion. The Bank of Korea also announced a deal with the People's Bank of China worth about $26 billion.

"This is very meaningful," Lee said of the currency swap arrangement. "We translated cooperation into action."

Swaps generally entail one central bank borrowing a currency from another and offering an equivalent amount of its own as collateral.

Seoul has seen its own currency reserves dwindle and feared that without the swap arrangements it could suffer a foreign exchange crisis because of the global financial turmoil. The South Korean won has declined 32 percent this year amid record selling of South Korean stocks by foreign investors.

The three leaders said they planned to make the trilateral summit an annual event and strengthen ties through increased political and cultural exchanges.

"Politically and economically, we have a very significant presence in the region," Aso said. "We should have had this kind of a summit sooner."

Though their countries are often at odds over the legacy of Japan's militarist past, solidarity was the word of the day.

Officials said the summit was intended to be a show of unity in the face of the global economic downturn and was an important step toward better relations overall between the three neighbors.

Left off the table was lingering animosity over Japan's pre-1945 colonization of Korea and its often brutal aggression on the Asian mainland in the first half of the last century. Such issues have frequently flared up in the past and continue to be a thorn in relations.

Japanese officials said it was "significant" that the three countries were putting such issues behind them and trying to approach the summit with a more forward-looking stance.

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