By Irene Shen
Sept. 27 (Bloomberg) -- Empresa Brasileira de Aeronautica SA, the world's fourth-largest aircraft maker, said the global credit crunch is an opportunity to sell smaller planes, as airlines seek to reduce fuel cost without cutting services.
Embraer, as the aircraft maker is called, may triple 2008 sales, said its China Managing Director Guan Dongyuan. The company has delivered 41 planes to Chinese customers in eight years, with a contract backlog that will last until 2013, he said.
``Planes with 30 to 120 seats are more flexible than bigger ones at this difficult time,'' Guan said in an interview in Tianjin today. ``We'll keep stable growth in China in the coming a few years.''
Chinese airlines including China Southern Airlines Co. have been cutting services, using smaller aircraft and merging flights to cope with surging fuel costs. Jet fuel, the single-biggest expense for Chinese carriers, has climbed more than 30 percent in the past year, eroding airlines' earnings.
China's aviation industry may require up to 3,000 new planes in the next 20 years, according to Airbus SAS Chief Executive Officer Tom Enders, as the country becomes more affluent and travel restrictions are eased to let more citizens travel abroad.
About 11 percent of China's airline fleets comprise regional jets that carry between 30 passengers and up to 120 people each. That's a lower proportion compared with 42 percent in the U.S. and 33 percent in Europe, underscoring the potential market in the world's most populous nation, Guan said.
The U.S. subprime crisis may crimp consumption and hurt the global economy including China, causing the Chinese growth pace to slow to between 9 percent and 9.5 percent from last year's 11.9 percent, the Chinese bank regulator today.
``We haven't seen any cancellation in orders here,'' said Guan. ``In a financial crisis like this, a smaller plane is actually a solution for carriers who want to keep their slots and flight frequency unchanged.''
Embraer sold five EMB-190 jets to China's Kun Peng Airlines for $187.5 million in July.
To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net
Read more...
Sunday, September 28, 2008
Carrefour China Says Sales of Dairy Products Halved by Scandal
By John Liu
Sept. 27 (Bloomberg) -- Carrefour SA, Europe's biggest retailer, said its dairy sales in China fell by 50 percent after government tests showed chemical tainting of milk products.
Sales started to recover in the past week and may be back to normal in about a month, said Eric Legros, Carrefour's managing director for China. Dairy products account for about 1 percent of the Paris-based company's total revenue in China.
``The most important thing we need now is to be rational because without being rational you have panic and panic is no good for anyone,'' Legros said in an interview today at a regional development conference in the western city of Chongquing.
China pulled more than 7,000 metric tons of dairy products from shops after they were found to be laced with melamine, typically used to make plastics and tan leather. Twenty-two dairy producers were found to have used the chemical that has caused kidney stones in babies. Tainted milk formula killed four infants and sickened 53,000 in China.
``I think it's important that we explain to consumers that there's nothing wrong with milk,'' Legros said. ``It's only that some processors added bad stuff to the milk.''
The contaminated products were first found in baby milk powder produced by Sanlu Group, 43 percent-owned by New Zealand's Fonterra Cooperative Group.
Carrefour spokesman Chen Bo said the chain had pulled Sanlu milk powder off its shelves, Xinhua reported on Sept. 12.
The French company, which has 120 stores in China, supplies fruits from China to Europe, while it doesn't ship milk or dairy products, Legros said.
Outlet Expansion
Carrefour plans to add 20 to 25 China outlets a year within the next few years, China Knowledge reported, citing people it didn't identify.
Sales in China gained 4.6 percent in the second quarter, the company said on July 9. Growth slowed after an earthquake struck the southwestern part of the country on May 12, killing about 70,000 people.
Revenue in the country dropped as much as 20 percent between April and May after some consumers in China called for a boycott of Carrefour stores. The protest followed French President Nicolas Sarkozy's announcement he might not attend the opening ceremony of the Olympic Games in Beijing because of China's March crackdown in Tibet.
Carrefour agreed to increase its stake in a supermarket venture in southern China to 80 percent from 55 percent, Chinese partner Guangzhou Grandbuy Co. said in July.
Foreign companies in China, including Carrefour, have until Dec. 5 to sign collective labor contracts with employees, the China Daily said on Sept. 24, citing the Shenzhen Federation of Trade Unions. Pay increases must take into account price inflation, the English-language newspaper reported.
To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net
Read more...
Sept. 27 (Bloomberg) -- Carrefour SA, Europe's biggest retailer, said its dairy sales in China fell by 50 percent after government tests showed chemical tainting of milk products.
Sales started to recover in the past week and may be back to normal in about a month, said Eric Legros, Carrefour's managing director for China. Dairy products account for about 1 percent of the Paris-based company's total revenue in China.
``The most important thing we need now is to be rational because without being rational you have panic and panic is no good for anyone,'' Legros said in an interview today at a regional development conference in the western city of Chongquing.
China pulled more than 7,000 metric tons of dairy products from shops after they were found to be laced with melamine, typically used to make plastics and tan leather. Twenty-two dairy producers were found to have used the chemical that has caused kidney stones in babies. Tainted milk formula killed four infants and sickened 53,000 in China.
``I think it's important that we explain to consumers that there's nothing wrong with milk,'' Legros said. ``It's only that some processors added bad stuff to the milk.''
The contaminated products were first found in baby milk powder produced by Sanlu Group, 43 percent-owned by New Zealand's Fonterra Cooperative Group.
Carrefour spokesman Chen Bo said the chain had pulled Sanlu milk powder off its shelves, Xinhua reported on Sept. 12.
The French company, which has 120 stores in China, supplies fruits from China to Europe, while it doesn't ship milk or dairy products, Legros said.
Outlet Expansion
Carrefour plans to add 20 to 25 China outlets a year within the next few years, China Knowledge reported, citing people it didn't identify.
Sales in China gained 4.6 percent in the second quarter, the company said on July 9. Growth slowed after an earthquake struck the southwestern part of the country on May 12, killing about 70,000 people.
Revenue in the country dropped as much as 20 percent between April and May after some consumers in China called for a boycott of Carrefour stores. The protest followed French President Nicolas Sarkozy's announcement he might not attend the opening ceremony of the Olympic Games in Beijing because of China's March crackdown in Tibet.
Carrefour agreed to increase its stake in a supermarket venture in southern China to 80 percent from 55 percent, Chinese partner Guangzhou Grandbuy Co. said in July.
Foreign companies in China, including Carrefour, have until Dec. 5 to sign collective labor contracts with employees, the China Daily said on Sept. 24, citing the Shenzhen Federation of Trade Unions. Pay increases must take into account price inflation, the English-language newspaper reported.
To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net
Read more...
Buffett's Berkshire Buys Into China Battery Maker BYD
By Bei Hu
Sept. 27 (Bloomberg) -- Billionaire Warren Buffett's Berkshire Hathaway Inc. agreed to pay HK$1.8 billion ($231 million) for a minority stake in BYD Co., China's largest maker of rechargeable batteries.
Berkshire Hathaway unit MidAmerican Energy Holdings Co. will buy 225 million BYD shares, equivalent to a stake of about 10 percent, in the Shenzhen-based manufacturer, according to a statement issued through Business Wire today.
Omaha, Nebraska-based Berkshire Hathaway is tapping into rising global demand for environmentally friendly technology. The partnership with MidAmerican would help BYD bring its electric vehicles and other environmental protection measures to the global market, Wang Chuanfu, the Chinese company's chairman, said in the statement.
``As worldwide discussions relating to global climate change and environmental respect continue, the technologies being developed by BYD will be an integral part of the future,'' MidAmerican Chairman David Sokol said in the statement.
BYD aims to start selling gasoline-electric hybrid cars in the U.S. as early as 2010, joining larger rivals such as General Motor Corp. and Toyota Motor Corp., it said in January. It also plans to roll out its first all-electric auto in China next year.
Global Crisis
The BYD investment comes as companies including the largest U.S. financial institution, court high-profile investors such as Berkshire Hathaway after the global credit crisis wiped out $8 trillion of value from world stock markets since Oct. 31, according to data compiled by Bloomberg.
Berkshire Hathaway this week bought $5 billion of perpetual preferred stock in Goldman Sachs Group Inc.
BYD last month announced first-half profit fell 7 percent as costs for raw materials such as oil surged, wiping out a 44 percent increase in sales. BYD's share price has more than halved since peaking on Oct. 31. The stock edged up 0.7 percent to HK$8.40 on Sept. 26.
BYD shares fell to a five-month low on June 30 after Hong Kong's High Court dismissed its request to halt a lawsuit filed by Foxconn International Holdings, the world's biggest contract maker of mobile phones, for allegedly stealing trade secrets.
To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net
Read more...
EU's Mandelson, Airbus's Enders See `Savior' in Sovereign Funds
By Dune Lawrence
Sept. 27 (Bloomberg) -- Sovereign wealth funds will become major sources of funding for Western companies as financial markets reel, said European Union Trade Commissioner Peter Mandelson and Airbus SAS Chief Executive Officer Tom Enders.
Companies will ``lack a lot of money for years to come'' because of the financial crisis in the U.S. and Europe and will push their governments to be more open to foreign investments, Enders said at a World Economic Forum meeting in Tianjin, China. Mandelson called for regulation to encourage the investments.
Europe's top trade official has used a four-day visit to China to add his voice to calls for the Asian nation and other fast-growing emerging economies to ``take up the slack'' in the global economy, as the U.S. government works out a $700 billion plan to bail out its banks and keep credit markets functioning,
``The sovereign wealth funds in the present context might better be termed savior wealth funds,'' Mandelson said today. ``We need to find sensible ways and a proper basis on which sovereign wealth is able to deploy and use its resources to inject much-needed liquidity into the financial system.''
Countries including China, Russia and Kuwait have set up funds to seek better returns on cash reserves by investing in equities and other assets abroad. The rising pool of money has sparked concern among some lawmakers in Europe and the U.S. that the funds may be used to gain control over strategic industries.
``You see already major companies, European, American, touring those countries that have the funds because they foresee the need for funding, and these companies will also try to persuade governments'' to be more open, Enders said. ``One of the big changes we're going to see is the acceptance of sovereign wealth funds.''
Rising Investments
Sovereign wealth funds, which own about $3 trillion in assets, may almost triple their investments in the next five years as oil and gas prices surge, State Street Corp. estimated in July. Estimates of sovereign funds' asset growth are ``conservatively'' placed at 17 percent a year, said State Street, the world's biggest money manager for institutions.
They currently make up about 2 percent of the world's stock and bond markets, S. Dhanabalan, chairman of the Singapore state- owned investment company Temasek Holdings Pte said in August.
Sovereign wealth funds including Temasek, Kuwait Investment Authority and China Investment Corp. have already helped banks replenish $200 billion of capital after losses and writedowns from the U.S. subprime meltdown.
Both Mandelson and Enders said clear regulation is necessary to smooth the way for greater acceptance of sovereign funds. Mandelson in June suggested the funds could ease political resistance to their investments by signing a code of conduct that they seek only profit, not control of industries.
To contact the reporter on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net
Read more...
Sept. 27 (Bloomberg) -- Sovereign wealth funds will become major sources of funding for Western companies as financial markets reel, said European Union Trade Commissioner Peter Mandelson and Airbus SAS Chief Executive Officer Tom Enders.
Companies will ``lack a lot of money for years to come'' because of the financial crisis in the U.S. and Europe and will push their governments to be more open to foreign investments, Enders said at a World Economic Forum meeting in Tianjin, China. Mandelson called for regulation to encourage the investments.
Europe's top trade official has used a four-day visit to China to add his voice to calls for the Asian nation and other fast-growing emerging economies to ``take up the slack'' in the global economy, as the U.S. government works out a $700 billion plan to bail out its banks and keep credit markets functioning,
``The sovereign wealth funds in the present context might better be termed savior wealth funds,'' Mandelson said today. ``We need to find sensible ways and a proper basis on which sovereign wealth is able to deploy and use its resources to inject much-needed liquidity into the financial system.''
Countries including China, Russia and Kuwait have set up funds to seek better returns on cash reserves by investing in equities and other assets abroad. The rising pool of money has sparked concern among some lawmakers in Europe and the U.S. that the funds may be used to gain control over strategic industries.
``You see already major companies, European, American, touring those countries that have the funds because they foresee the need for funding, and these companies will also try to persuade governments'' to be more open, Enders said. ``One of the big changes we're going to see is the acceptance of sovereign wealth funds.''
Rising Investments
Sovereign wealth funds, which own about $3 trillion in assets, may almost triple their investments in the next five years as oil and gas prices surge, State Street Corp. estimated in July. Estimates of sovereign funds' asset growth are ``conservatively'' placed at 17 percent a year, said State Street, the world's biggest money manager for institutions.
They currently make up about 2 percent of the world's stock and bond markets, S. Dhanabalan, chairman of the Singapore state- owned investment company Temasek Holdings Pte said in August.
Sovereign wealth funds including Temasek, Kuwait Investment Authority and China Investment Corp. have already helped banks replenish $200 billion of capital after losses and writedowns from the U.S. subprime meltdown.
Both Mandelson and Enders said clear regulation is necessary to smooth the way for greater acceptance of sovereign funds. Mandelson in June suggested the funds could ease political resistance to their investments by signing a code of conduct that they seek only profit, not control of industries.
To contact the reporter on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net
Read more...
Asian Central Banks Cut Rates to Counter Impact of U.S. Crisis
By Shamim Adam
Sept. 27 (Bloomberg) -- Asia's central banks have started to cut interest rates, judging they need to counter the effect of the U.S. financial crisis on their export-dependent economies as inflation peaks.
Taiwan cut borrowing costs on Sept. 25, joining China, Australia and New Zealand in easing the price of money this month. Inflation rates have slowed in Thailand and Sri Lanka, and policy makers in the Philippines, India and Indonesia forecast price gains will cool before the end of the year.
Lower borrowing costs may spur growth as the economies of the U.S., Europe and Japan weaken and the deepening credit crisis threatens to tip the world into a recession. Still, some analysts say the inflation fight isn't over and that loose monetary policy or a surge in oil costs may spark another bout of higher prices.
``The bias may be shifting too quickly to growth and that is not wise,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``It's too early to declare victory over inflation.''
The credit crisis led Lehman Brothers Holdings Inc. to file for bankruptcy and prompted the sale of Merrill Lynch & Co. to Bank of America Corp. this month. U.S. regulators have seized at least nine lenders since July, including Washington Mutual Inc. yesterday, the fastest pace in 15 years.
While the contagion from the turmoil isn't likely to infect Asia's banking systems, the credit crisis is hurting exports.
Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others. Bank of Korea official Kang Myung Hun, who opposed a rate increase last month, said the nation's slowing economy is more of a concern than accelerating inflation.
Growth Forecasts
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.
``The U.S. is deteriorating and investors are increasingly pessimistic about the European economy,'' said Tomo Kinoshita, chief economist for Asia outside Japan at Nomura Holdings Inc. in Hong Kong. ``These are major destinations for Asian exports, and the implications of slower growth cannot be ignored.''
Taiwan's central bank unexpectedly reduced interest rates 12.5 basis points to 3.5 percent on Sept. 25, saying the global financial crisis had heightened the risk of an economic slowdown.
The People's Bank of China reduced its one-year lending rate to 7.20 percent from 7.47 percent on Sept. 15 and Australia's central bank lowered borrowing costs on Sept. 2, its first reduction in seven years.
In Malaysia and Sri Lanka, central bank officials refrained from raising rates even as inflation accelerated to the highest in decades.
Philippines, Indonesia
The Philippine central bank may not need to raise interest rates further as inflation may have peaked at 12.5 percent, Economic Planning Secretary Ralph Recto said Sept. 17.
Bank Indonesia's Deputy Governor Hartadi Sarwono last month said an interest rate of 9.5 percent may be ``adequate'' to slow inflation. The central bank's key rate is at 9.25 percent now.
``They're all pretty much done with raising interest rates, and those who didn't move probably won't have to,'' says Joseph Tan, chief economist for Asia at Credit Suisse Private Banking in Singapore. ``Asia needs to cushion against further downside risks to growth and guard against the fallout in the global financial system.''
Some economists are concerned the interest-rates cuts will rekindle inflation.
`Inflation Genie'
``Put the inflation genie back in the bottle now,'' said Asian Development Bank Chief Economist Ifzal Ali. Asia needs to ``tighten monetary policy even if it requires a temporary sacrifice of growth.''
Inflation in Asia will reach 7.8 percent this year, higher than an April forecast of 5.1 percent that was already the most in a decade, the ADB said. Prices may ease to 6 percent next year, it predicts.
``Lower rates will increase domestic demand and inflation pressures will start to kick in once again, exactly what central banks were trying to avoid in the first place,'' Lambregts said. ``It's a risky move and they'll pay a price for it.''
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
Read more...
Sept. 27 (Bloomberg) -- Asia's central banks have started to cut interest rates, judging they need to counter the effect of the U.S. financial crisis on their export-dependent economies as inflation peaks.
Taiwan cut borrowing costs on Sept. 25, joining China, Australia and New Zealand in easing the price of money this month. Inflation rates have slowed in Thailand and Sri Lanka, and policy makers in the Philippines, India and Indonesia forecast price gains will cool before the end of the year.
Lower borrowing costs may spur growth as the economies of the U.S., Europe and Japan weaken and the deepening credit crisis threatens to tip the world into a recession. Still, some analysts say the inflation fight isn't over and that loose monetary policy or a surge in oil costs may spark another bout of higher prices.
``The bias may be shifting too quickly to growth and that is not wise,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``It's too early to declare victory over inflation.''
The credit crisis led Lehman Brothers Holdings Inc. to file for bankruptcy and prompted the sale of Merrill Lynch & Co. to Bank of America Corp. this month. U.S. regulators have seized at least nine lenders since July, including Washington Mutual Inc. yesterday, the fastest pace in 15 years.
While the contagion from the turmoil isn't likely to infect Asia's banking systems, the credit crisis is hurting exports.
Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others. Bank of Korea official Kang Myung Hun, who opposed a rate increase last month, said the nation's slowing economy is more of a concern than accelerating inflation.
Growth Forecasts
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.
``The U.S. is deteriorating and investors are increasingly pessimistic about the European economy,'' said Tomo Kinoshita, chief economist for Asia outside Japan at Nomura Holdings Inc. in Hong Kong. ``These are major destinations for Asian exports, and the implications of slower growth cannot be ignored.''
Taiwan's central bank unexpectedly reduced interest rates 12.5 basis points to 3.5 percent on Sept. 25, saying the global financial crisis had heightened the risk of an economic slowdown.
The People's Bank of China reduced its one-year lending rate to 7.20 percent from 7.47 percent on Sept. 15 and Australia's central bank lowered borrowing costs on Sept. 2, its first reduction in seven years.
In Malaysia and Sri Lanka, central bank officials refrained from raising rates even as inflation accelerated to the highest in decades.
Philippines, Indonesia
The Philippine central bank may not need to raise interest rates further as inflation may have peaked at 12.5 percent, Economic Planning Secretary Ralph Recto said Sept. 17.
Bank Indonesia's Deputy Governor Hartadi Sarwono last month said an interest rate of 9.5 percent may be ``adequate'' to slow inflation. The central bank's key rate is at 9.25 percent now.
``They're all pretty much done with raising interest rates, and those who didn't move probably won't have to,'' says Joseph Tan, chief economist for Asia at Credit Suisse Private Banking in Singapore. ``Asia needs to cushion against further downside risks to growth and guard against the fallout in the global financial system.''
Some economists are concerned the interest-rates cuts will rekindle inflation.
`Inflation Genie'
``Put the inflation genie back in the bottle now,'' said Asian Development Bank Chief Economist Ifzal Ali. Asia needs to ``tighten monetary policy even if it requires a temporary sacrifice of growth.''
Inflation in Asia will reach 7.8 percent this year, higher than an April forecast of 5.1 percent that was already the most in a decade, the ADB said. Prices may ease to 6 percent next year, it predicts.
``Lower rates will increase domestic demand and inflation pressures will start to kick in once again, exactly what central banks were trying to avoid in the first place,'' Lambregts said. ``It's a risky move and they'll pay a price for it.''
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
Read more...
China Says Global Woes May Spill Over, Growth to Slow
By Zhang Dingmin and Zhao Yidi
Sept. 27 (Bloomberg) -- The U.S. financial crisis will dent consumption and spill over to the rest of the world including China, according to bankers and government officials meeting at the World Economic Forum in eastern China's Tianjin.
``We are in the worst crisis since the Great Depression,'' said Citigroup Inc.'s Senior Vice Chairman William Rhodes. ``We are in a period of a tremendous lack of confidence'' where financial institutions require fresh funds to restore consumer trust, he said.
U.S. Treasury Secretary Henry Paulson has proposed a record $700 billion rescue package for U.S. financial institutions and the Securities and Exchange Commission banned short selling of insurance, bank and brokerage stocks. The unprecedented bailout has raised concern in China, prompting officials including bank regulator Liu Mingkang to slow the introduction of new financial products such as derivatives and futures contracts.
China's annual economic growth may slow to between 9 percent and 9.5 percent, Liu said without specifying the period, as the U.S. financial crisis may crimp consumption, affecting global growth. China's 2007 economy expanded 11.9 percent.
``The most essential task now for Chinese companies is to survive, instead of thinking about overseas acquisitions,'' said Li Rongrong, director of the State-Owned Assets Supervision and Administration Commission, which holds the government's stakes in companies. ``The major difficulty faced by state companies is a significant decline in market demand.''
Opinions Divided
Bankers, corporate executives and officials gathering in Tianjin are almost equally divided on whether central banks should use taxpayers' money to bail out failed financial institutions. Chinese regulatory officials may collaborate with U.S. officials to contain the impact of the financial crisis, Rhodes said.
The People's Bank of China is ``working closely with the U.S. Federal Reserve on a series of measures that could be taken,'' Rhodes said, citing a telephone conversation with a senior member of the Fed. He didn't elaborate.
China's bank regulator is also in ``close consultation'' with the Fed, Rhodes said without giving details.
``All countries should take proactive measures to deal'' with the financial crisis, and prevent it from spreading, Chinese Premier Wen Jiabao said today in a televised speech at the World Economic Forum in eastern China's Tianjin. ``We should strengthen our cooperation,'' he said.
``When economic and financial crisis occur, economists and entrepreneurs, people and politicians, should be confident,'' Wen said. ``At the moment, confidence is more precious than gold'' and China's ``stable and sustained growth is our most important contribution to the world economy,'' he said.
To contact the reporter for this story: Zhao Yidi in Beijing at at yzhao7@bloomberg.net
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Temasek Says Maybank Didn't Take Improved Offer
By Berni Moestafa and Soraya Permatasari
Sept. 27 (Bloomberg) -- Temasek Holdings Pte said it offered a S$236.4 million ($166 million) rebate to Malayan Banking Bhd. to improve the terms of an Indonesian stake sale, which wasn't accepted at yesterday's deadline for the transaction.
Temasek improved the terms for the controlling stake in PT Bank Internasional Indonesia after Malayan Banking or Maybank said the Malaysian central bank had blocked the $2.7 billion deal this week, on concern it would suffer losses as global asset prices fell. Maybank is Malaysia's biggest bank by assets.
The rebate is more than the 480 million ringgit ($140 million) deposit Maybank stands to lose by walking away from the acquisition yesterday. Temasek, which holds the stake through its unit Fullerton Financial Holdings, said it offered the rebate so Maybank would stick to the per-share price for the transaction.
``The offer was made by Fullerton in the interest of the minority investors in Indonesia'' and the rebate meant Maybank could ``proceed with its earlier commitment to make a tender offer at 510 rupiah as per the share sale agreement,'' Temasek's Fullerton said in a statement today. ``Fullerton will exercise all its rights under the share sale agreement.''
Temasek, Singapore's state-owned investment company with a $130 billion portfolio, said it will explore its options with South Korea's Kookmin Bank, which is jointly selling their controlling stake in Bank Internasional.
Central Bank's Orders
Maybank said in a statement dated Sept. 25 the Malaysian central bank ordered it to reduce the price or scrap the transaction, sparking a dispute with Indonesian authorities and a record slump in Bank Internasional's share price. Maybank's Chief Executive Officer Abdul Wahid Omar said in an e-mail today he's unable to comment at the moment, in response to a query on the status of the transaction.
Temasek said Maybank first asked for a one-month extension and a price reduction on Sept. 24, which it turned down a day later. It was informed of the objections by Bank Negara, or the central bank, on Sept. 25 at 11:32 p.m. local time, it said.
Bank Negara wanted Maybank to renegotiate the price, first offered by the Malaysian lender six months ago, after stocks tumbled amid the global credit crunch that forced Lehman Brothers Holdings Inc. into bankruptcy and prompted the sale of Merrill Lynch & Co. to Bank of America Corp. American International Group Inc. also agreed to turn over control to the U.S. government last week in exchange for a federal loan of as much as $85 billion.
Maybank's purchase price of 4.7 times book value, which was twice those of Indonesian banks at the time, was considered expensive by investors. That drove Maybank's shares 23 percent lower since the bid was first made.
`Uncertainty is High'
``Investors can buy companies at more attractive prices after valuations crashed following Lehman's bankruptcy,'' said Soni Wibowo, vice president of Jakarta-based PT Bahana TCW Investment Management, which manages about $864 million in assets. ``Global market uncertainty is high.''
Bank Negara cited the ``global financial turmoil'' when it demanded changes to the deal, according to Maybank.
Khazanah Nasional Bhd., Malaysia's sovereign wealth fund, is paying 2.5 times the book value of PT Bank Niaga and three times book for PT Bank Lippo as it buys the remaining shares of the two Indonesian banks in a proposed merger. Khazanah and its unit, like Temasek, are either selling one of the two banks they own or merging them to meet an Indonesian central bank deadline limiting ownership to just one local bank by 2010.
`Overly Estimated'
``Maybank may have overly estimated Bank Internasional's franchise value,'' Raymond Kosasih, an analyst with Deutsche Bank SA in Jakarta, said in a note to clients. ``We think that the real franchise value would have been a lot lower than our theoretical adjusted price'' of 390 rupiah a share.
Bank Internasional's shares plunged by a record 34 percent to 310 rupiah yesterday. Maybank shares were unchanged at 6.90 ringgit.
``You can't do this,'' Achmad Fuad Rahmany, chairman of Indonesia's market regulator, said in an interview in Jakarta yesterday. Renegotiating the price ``will cause losses to investors.''
A failed sale would underline the challenges in cross-border banking deals in Asia. HSBC Holdings Plc last week scrapped the purchase of Korea Exchange Bank, the second time it has abandoned attempts to buy a South Korean lender. Temasek itself was only selling Bank Internasional to meet Indonesian central bank regulations.
Malaysia's central bank has previously expressed concern that Maybank was paying too much. Bank Negara earlier blocked the transaction on concern a new Indonesian takeover rule will lead to losses at Maybank. The central bank reinstated its approval on Sept. 16 after the Indonesian regulator agreed to extend the timing for Maybank to comply with the new regulation.
To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net; Arijit Ghosh in Jakarta at aghosh@bloomberg.net
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Asian Currencies Decline, Led by Korean Won, on Risk Aversion
By Aaron Pan
Sept. 27 (Bloomberg) -- Asian currencies fell this week, led by the South Korean won and the Philippine peso, on concern investors will shun regional assets as talks on a proposal to inject $700 billion into U.S. financial markets stalled.
All 10 of the most-traded Asian currencies declined over the five days after U.S. lawmakers splintered over a proposed rescue plan to alleviate the credit squeeze. Senate Banking Committee Chairman Christopher Dodd said an agreement he reached earlier with some Republicans was later undermined by a proposal offered by House Republicans led by Representative Eric Cantor.
``Traders turned skittish as the U.S. bailout plan is not likely to be approved anytime soon,'' said Roh Sang Chil, a currency dealer at Kookmin Bank in Seoul. ``With stocks falling sharply, demand for the dollar strengthened further.''
The won declined 1.8 percent this week to 1,160.50 per dollar, according to Seoul Money Brokerage Services Ltd. The currency touched a four-year low of 1,167 on Sept. 25.
Korea's currency extended this year's decline to 19.3 percent, Asia's worst performer, as overseas investors sold more local shares than they bought for a third day this week. The Kospi index of local stocks slipped 1.7 percent yesterday, snapping a five-day gain.
The Philippine currency dropped 0.4 percent this week to 46.745 versus the dollar, according to the Bankers Association of the Philippines. It has fallen every week except one in the past two months.
`Sudden Turn'
``We've got some impact from a sudden turn of sentiment that the U.S. Congress may not have actually made some progress as markets had initially thought,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``The side of the coin that Asians will look at is the risk aversion bit and that doesn't bode well for the peso.''
Malaysia's ringgit fell for a fourth day on concern export growth will slow after U.S. government reports showed new home sales and orders for durable goods declined in August and jobless claims rose. Malaysia shipped 13 percent of its exports to the U.S. in the first seven months of the year, making it the second-biggest overseas market after Singapore.
``The chances of a recession have increased and that's affecting all the key export markets for Malaysia,'' said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. ``Markets are still on shaky and volatile ground.''
The ringgit dropped 0.5 percent this week to 3.4360 per dollar, according to data compiled by Bloomberg.
Taiwan Dollar
Taiwan's dollar fell for a third day yesterday, paring a weekly gain, after the central bank unexpectedly reduced interest rates Sept. 25 for the first time since 2003, saying the global financial crisis has heightened the risk of an economic slowdown.
``In the near term, we could still see some weakness in the Taiwan dollar, mainly because risk aversion remains at very elevated levels,'' said Maya Pinto, an economist at IDEAglobal in Singapore. ``But in the medium to longer term, once the U.S. financial crisis blows over, among the regional currencies we'd expect the Taiwan dollar to outperform again.''
The island's currency fell 0.2 percent to NT$32.045 yesterday, according to Taipei Forex Inc. It gained 0.4 percent this week.
Elsewhere, the Singapore dollar gained 0.6 percent this week to S$1.4273 against the U.S. currency. The Thai baht rose 0.7 percent this week to 33.95, Indonesia's rupiah fell 0.1 percent to 9,385 and Vietnam's dong rose 0.7 percent to 16,600.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.
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Asian Stocks End Week Little Changed as Bailout Optimism Fades
By Hanny Wan and Patrick Rial
Sept. 27 (Bloomberg) -- Asian stocks were little changed for the week as optimism faded that a $700 billion U.S. plan to rescue its financial system would be agreed by Congress.
China Merchants Bank Co. retreated 11 percent in Hong Kong as Republicans said they wouldn't support the rescue plan and Washington Mutual Inc. was seized in the U.S.'s biggest bank failure. Pacific Basin Shipping Ltd. tumbled 27 percent after cargo rates slumped as the global slowdown cut demand for commodities. Babcock & Brown Ltd. soared 191 percent in Sydney, boosted by a ban on short selling.
``The assumption is that the bailout will take longer than expected, which is negative,'' said Tsuyoshi Shimizu, a senior fund manager at Mizuho Asset Management Co., which oversees $26 billion. ``As with Washington Mutual, the longer it takes to pass something, the more victims we're going to see.''
The MSCI Asia Pacific Index ended the week 0.3 percent lower at 113.77. The gauge jumped 2.6 percent on Sept. 22 after the U.S. government proposed buying bank assets and Australia and Taiwan restricted short selling. The index fell the next four days as debates by U.S. lawmakers on the plan dragged on.
China Merchants, the nation's fifth-largest bank by market value, declined 11 percent to HK$20 in Hong Kong. A group of House Republicans led by Eric Cantor offered an alternative plan to one proposed by Treasury Secretary Henry Paulson that's backed by President George W. Bush and Democratic leaders.
MSCI's Asian index has dropped 28 percent this year as a U.S. housing recession sparked a credit crisis, left global financial companies with more than $520 billion in writedowns and losses, and threatened to send the global economy into a recession.
Banks Gain
Still, a measure of financial stocks gained after Warren Buffett's Berkshire Hathaway Inc. said it will buy $5 billion of Goldman, Sachs & Co. stock and Mitsubishi UFJ Financial Group Inc. said it will purchase as much as 20 percent of Morgan Stanley.
Mitsubishi UFJ, Japan's largest bank, advanced 8 percent to 931 yen. Nomura Holdings Inc., Japan's biggest securities firm, soared 12 percent to 1,468 yen after agreeing to pay less than a month's revenue for units of bankrupt Lehman Brothers Holdings Inc. in Asia and Europe.
``It's smart for Japan's financial institutions to pick up assets at cheap prices and expand overseas,'' said Roger Groebli, Singapore-based head of financial market analysis at LGT Capital Management, which oversees about $20 billion.
Babcock & Brown, a manager of infrastructure assets, jumped 191 percent to A$2.31, the biggest gain on MSCI's Asian index. Australian regulators banned short selling, with some exceptions, from Sept. 22. Babcock has blamed short sellers for sending its stock down 91 percent this year.
Shipping Lines
Pacific Basin, Hong Kong's largest dry-bulk shipping line, sank 27 percent to HK$6.20. Mitsui O.S.K. Lines Ltd., Japan's largest operator of dry-bulk ships, lost 13 percent to 946 yen.
The Baltic Dry Index, a gauge of the cost of shipping commodities, lost 7.3 percent on Sept. 25, bringing its four-day slide to 16 percent, on weaker demand for steel from Chinese construction companies.
China's CSI 300 Index jumped 8.2 percent, advancing for the first week in nine. Haitong Securities Co. and Citic Securities Co., the country's two largest brokerages, jumped after China's cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop the market, an official familiar with the plan said.
The government also appealed on Sept. 18 for state-owned companies to promote ``stable'' development of the nation's capital markets by buying back shares in publicly traded units. Haitong Securities surged 40 percent to 21.52 yuan. Citic Securities soared 38 percent to 24.76 yuan.
`Returning to Normal'
In Hong Kong, Bank of East Asia Ltd. lost 11 percent to HK$25.85 after rumors about its financial stability spurred the city's first bank run in more than a decade. The bank said yesterday operations are ``returning to normal'' after the city's Financial Secretary John Tsang called rumors were ``unfounded'' and central bank head Joseph Yam pumped liquidity into the banking system.
China Mengniu Dairy Co., the country's largest milk producer by market value, resumed trading on Sept. 23, tumbling 59 percent to HK$8.29 after the industrial chemical melamine was found in its products.
Tests showed that milk products made by companies including Mengniu Dairy, Sanlu Group Co., Inner Mongolia Yili Industrial Group Co. and Bright Dairy & Food Co. contained melamine, which is banned as a food ingredient in China.
To contact the reporters on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net
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Friday, September 26, 2008
Stocks slide on stalled bailout, WaMu collapse
NEW YORK (Reuters) - Stocks dropped at the open on Friday after congressional talks on a $700 billion financial sector bailout stalled and authorities seized the largest U.S. thrift, heightening worries about the fallout from the credit crisis.
The Dow Jones industrial average .DJI was down 126.80 points, or 1.15 percent, at 10,895.26. The Standard & Poor's 500 Index .SPX was down 18.36 points, or 1.52 percent, at 1,190.82. The Nasdaq Composite Index .IXIC was down 47.03 points, or 2.15 percent, at 2,139.54.
(Reporting by Kristina Cooke; Editing by Kenneth Barry)
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Bush says financial bailout will be passed
(Updates with quotes, background)
WASHINGTON, Sept 26 (Reuters) - President George W. Bush on Friday said that while there were disagreements on parts of the $700 billion U.S. financial bailout plan, Congress will end up passing legislation.
"There are disagreements over aspects of a rescue plan but there is no disagreement that something substantial must be done," Bush said in brief comments to reporters at the White House.
"The legislative process is sometimes not very pretty, but we are going to get a package passed," he said. "We will rise to the occasion. Republicans and Democrats will come together and pass a substantial rescue plan."
Negotiations on the financial rescue plan were to resume Friday on Capitol Hill where the administration's proposal has met resistance from skeptical lawmakers.
In another sign that the White House was pressing hard for a deal, Vice President Dick Cheney canceled trips to New Mexico and Wyoming to "assist with the pending legislation," his spokeswoman said.
Cheney as vice president can cast a tie-breaking vote in the Senate on legislation. (Reporting by Tabassum Zakaria; Editing by Neil Stempleman)
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Dubai group ups InterContinental stake to 4.23 pct
LONDON, Sept 26 (Reuters) - A Dubai government holding, Diyafa World Limited, has increased its holding in the world's biggest hotel company InterContinental Hotels Group Plc (IHG.L: Quote, Profile, Research, Stock Buzz) to 4.23 percent, the hotelier said on Friday.
The Dubai group is an existing shareholder of the British hotelier and earlier this week increased its holding above 3 percent and then over 4 percent, but there was no indication from whom it bought the shares.
"We regard them as long-term investors," an InterContinental spokesman said.
InterContinental's biggest shareholder are the billionaire Barclay brothers who hold a 10 percent stake. The brothers have been the source of bid speculation for the hotelier in the past.
InterContinental shares were up 0.29 percent at 692 pence in a lower London stock market by 1410 GMT. (Reporting by David Jones; editing by Sue Thomas)
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U.S. stocks on the move Sept 26
(Updates to regular session)
NEW YORK, Sept 26 (Reuters) - U.S. stocks on the move on
Friday:
JPMORGAN CHASE & CO (JPM.N: Quote, Profile, Research, Stock Buzz)
JPMorgan bought the banking assets of Washington Mutual
(WM.N: Quote, Profile, Research, Stock Buzz) after WaMu was closed by the U.S. government in by far
the largest failure of a U.S. bank.[ID:nN26278272].
JPMorgan shares were little changed at $43.50.
RESEARCH IN MOTION (RIM.TO: Quote, Profile, Research, Stock Buzz)(RIMM.O: Quote, Profile, Research, Stock Buzz)
The BlackBerry maker posted quarterly revenues that were
below the average Wall Street forecast. For details see
[ID:nWNAB3031] Shares fell 25 percent to $73.25.
AMERICAN GREETINGS CORP (AM.N: Quote, Profile, Research, Stock Buzz)
American Greetings posted a smaller-than-expected quarterly
profit, hurt by higher costs, and warned that its full-year
earnings could come in at the low end of its prior forecast.
Shares fell 7.6 percent to $15.37.
ACCENTURE LTD (ACN.N: Quote, Profile, Research, Stock Buzz)
The company reported a quarterly profit that beat analysts'
expectations and forecast further growth in the year ahead, as
more clients seek its consulting and outsourcing services
despite a weak economy and gloomy financial markets.
[ID:nN25534697]
Shares of Accenture rose 3.4 percent to $38.43.
SYNNEX CORP (SNX.N: Quote, Profile, Research, Stock Buzz)
The computer hardware distributor reported third-quarter
results above market estimates, helped by higher operating
margins, and gave fourth-quarter outlook mostly in line with
analysts' view. [ID:nBNG346322]
Synnex shares rose 9 percent to $22.50.
CHRISTOPHER AND BANKS CORP (CBK.N: Quote, Profile, Research, Stock Buzz)
The women's apparel chain posted better-than-expected
quarterly earnings, but forecast weak third-quarter earnings
amid a challenging economic and retail environment.
[nBNG319298]
Shares of the company fell 6 percent to $8.10.
AMERICAN REPROGRAPHICS CO (ARP.N: Quote, Profile, Research, Stock Buzz)
The provider of document-management services cut its 2008
earnings and revenue forecast, citing volatile financial
climate. [nBNG39059]
Shares of the company fell 13 percent to $16.20.
EMC INSURANCE GROUP INC (EMCI.O: Quote, Profile, Research, Stock Buzz)
The provider of property and casualty insurance cut its
2008 earnings forecast, hurt by Hurricanes Gustav and Ike, as
well as losses on investments in Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie
Mac (FRE.N: Quote, Profile, Research, Stock Buzz) preferred stock. [ID:nBNG309209]
Shares of EMC fell 10.4 percent to $26.75.
(Reporting by Kristina Cooke and Steven C. Johnson in New
York and Purwa Naveen Raman in Bangalore; Editing by Kenneth
Barry)
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German Inflation Slows Less Than Expected on Energy
By Christian Vits
Sept. 26 (Bloomberg) -- Inflation in Germany, Europe's largest economy, slowed less than economists forecast in September as a midyear spike in oil worked through to consumer prices.
Prices rose 3 percent from a year earlier using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. Economists expected the inflation rate to fall to 2.9 percent from 3.3 percent, according to the median of 15 forecasts in a Bloomberg News survey. From August, prices fell 0.1 percent.
While the cost of oil has receded from a record $147.27 a barrel in July, its are still up 30 percent over the past year, reducing consumers' and companies' spending power. The European Central Bank kept its benchmark rate at a seven-year high of 4.25 percent this month and ECB President Jean-Claude Trichet said on Sept. 11 that inflation is the main worry of European citizens.
``German inflation is currently more persistent than we had thought as energy prices work through into consumer prices,'' said Andreas Rees, chief German economist at UniCredit Markets & Investment Banking in Munich. ``The ECB will remain more focused on inflation than on slowing economic growth.''
Under a national measure, the inflation rate declined to 2.9 percent from 3.1 percent in August and fell 0.1 percent from the previous month.
ECB Concerns
The ECB is concerned companies will raise prices to pass on higher raw-material costs and unions will push through bigger raises to compensate workers for the increased cost of living. With inflation breaching the ECB's 2 percent limit for the past year, the central bank's room for maneuver is limited even as growth weakens. ECB council member Axel Weber said this week that weaker growth won't ``magic away'' inflation.
Import-price inflation in Germany, which accounts for about a third of the euro-region economy, held at the fastest pace in almost eight years in August led by higher energy costs, the Federal Statistics Office in Wiesbaden said today. Excluding energy, import prices rose 4.1 percent in the year.
The ECB raised its inflation projections this month to around 3.5 percent for 2008 and 2.6 percent for 2009. At the same time, ECB staff lowered their growth forecasts for this year and next to about 1.4 percent and 1.2 percent, respectively.
ECB Vice President Lucas Papademos said in an interview with Italy's Il Sole 24 Ore published today that there are ``clear indications'' of faster wage increases and that the bank ``cannot exclude renewed increases'' in oil and commodity prices. ``The outlook for inflation over the medium term will fundamentally depend on future unit-labor cost growth.''
Wage Demands
Germany's IG Metall labor union, representing 3.2 million workers, is seeking the biggest pay increase in 16 years for staff at companies such as ThyssenKrupp AG and Siemens AG. The union, Germany's biggest, wants wages to rise 8 percent next year, Chairman Berthold Huber said this week.
Still, with the economy cooling, companies may find it more difficult to pass on higher costs. The economies of the euro region and Germany both shrank between March and June and data since then has raised the possibility of a recession.
German business confidence declined more than expected to the lowest level in more than three years in September as the worsening financial crisis in the U.S. damped the outlook for global economic growth. The world's biggest financial companies have posted more than $520 billion in writedowns and credit losses after the subprime mortgage market collapsed.
``The time has come to lower interest rates,'' Gernot Nerb, an economist at Ifo institute which conducts the business confidence survey, said last week. ``That doesn't have to happen next week, but the signal should soon come that rates will fall in the next few months.''
To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net
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Turkish Foreign Trade Gap Widens to Record in August
By Steve Bryant
Sept. 26 (Bloomberg) -- Turkey's trade deficit widened in August to a record for a single month as higher global energy prices pushed up the import bill.
The gap grew to $8.1 billion from $5.9 billion in the year- earlier period, the statistics agency in Ankara said on its Web site today. The deficit was forecast at $7.5 billion, according to the median estimate of 10 economists surveyed by Bloomberg.
Turkey imports about 95 percent of the gas and oil it burns and higher global commodity prices may push the current-account balance to a record $51 billion this year from about $38 billion last year, according to the central bank's latest survey of economists. The widening imbalance threatens to weaken the lira as the global credit crunch reduces foreign investment in Turkey.
``The growing energy need makes the country more dependent on energy-exporting countries,'' Ozgur Altug, economist for Raymond James in Istanbul, wrote in a note to clients. ``In addition, rising energy prices do not allow an improvement.''
Imports increased 31 percent to $19.2 billion, from the year- earlier period, the agency said today. Imports of fuels and oils jumped to $4.5 billion from $2.8 billion a year earlier. Crude oil prices rose to about $120 per barrel in August, compared with about $70 a year earlier. Exports rose 26 percent to $11 billion in August, the statistics agency said.
Sales to the United Arab Emirates nearly quadrupled from a year earlier, reaching $953 million in August, just short of sales to Turkey's largest trading partner, Germany, which declined 2.5 percent to $1.01 billion.
The rise in exports to the Middle East reflects an increasing diversity in Turkish markets that may help bolster the country against a slowdown in European growth. Sales to the United Kingdom, the third biggest market, fell 8.6 percent while exports to Iraq, the ninth largest market, increased 48 percent.
The current-account gap, the broadest measure of trade in goods and services, was $47.1 billion in the 12 months through July, the central bank said on Sept. 10. That's about 7 percent of last year's gross domestic product.
To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.
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U.S. Consumer Sentiment Index Lower Than Forecast
By Shobhana Chandra
Sept. 26 (Bloomberg) -- Confidence among U.S. consumers fell in September from a preliminary reading, a sign the worsening credit crisis will prompt Americans to curtail their spending.
The Reuters/University of Michigan final index of consumer sentiment declined to 70.3, lower than forecast, after a reading of 73.1 in early September. The measure was still higher than the August reading of 63, reflecting lower gasoline prices. The gauge of sentiment averaged 85.6 in 2007.
Since the preliminary report was issued on Sept. 12, Lehman Brothers Holdings Inc. filed for bankruptcy, the federal government took over American International Group Inc. and stocks plummeted. The biggest financial meltdown since the Great Depression is likely to hurt consumer spending and the economy for the rest of the year.
``All the financial instability is hurting confidence,'' Karen Cordes, an economist at Scotia Capital Inc. in Toronto, said before the report. ``It'll keep many Americans wondering if they should save more now rather than spend. Consumer spending will likely fall quite a bit.''
The confidence index was forecast to fall to 70.8, according to the median of 62 economists surveyed by Bloomberg News. Estimates ranged from 63.9 to 73.3.
Slower Growth
A government report earlier today showed consumer spending was less than initially estimated in the second quarter, dragging economic growth to a slower pace than previously reported. The U.S. economy expanded at an annual rate of 2.8 percent in the second quarter, down from a preliminary estimate of 3.3 percent issued last month, the Commerce Department said today in Washington.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, declined to 67.2 from a preliminary reading of 70.9 in early September. The measure is up from 57.9 in August.
A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, dropped to 75 from a preliminary reading of 76.5. The reading was 71 in August.
Consumers said they expect an inflation rate of 4.3 percent over the next 12 months, compared with 4.8 percent in the August survey.
Financial Crisis
The financial crisis escalated in the second half of September, bringing down Lehman Brothers and AIG and roiling stock markets. The S&P 500 index on Sept. 23 capped its biggest two-day slump in six years.
Earlier this month, the government also seized control of mortgage financiers Fannie Mae and Freddie Mac in an attempt to keep the housing slump from worsening.
The final Reuters/University of Michigan consumer confidence report reflects about 500 responses, compared with 300 households for the preliminary survey.
Regular unleaded gasoline prices have eased to an average of $3.72 a gallon at the pump so far this month, compared with $3.76 in August and more than $4 in July, according to AAA.
At the same time, eight consecutive months of job losses in the economy and declines in home prices are making shoppers wary.
Bed Bath & Beyond Inc., the largest U.S. home-furnishings retailer, reported a 19 percent drop in second-quarter profit, and predicted a decline in earnings this quarter.
Sales ``continued to be negatively affected by the economic slowdown in general and by issues specific to the housing industry in particular,'' Chief Executive Officer Steven Temares said on a conference call on Sept. 24.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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U.S. Consumer Sentiment Index Lower Than Forecast
By Shobhana Chandra
Sept. 26 (Bloomberg) -- Confidence among U.S. consumers fell in September from a preliminary reading, a sign the worsening credit crisis will prompt Americans to curtail their spending.
The Reuters/University of Michigan final index of consumer sentiment declined to 70.3, lower than forecast, after a reading of 73.1 in early September. The measure was still higher than the August reading of 63, reflecting lower gasoline prices. The gauge of sentiment averaged 85.6 in 2007.
Since the preliminary report was issued on Sept. 12, Lehman Brothers Holdings Inc. filed for bankruptcy, the federal government took over American International Group Inc. and stocks plummeted. The biggest financial meltdown since the Great Depression is likely to hurt consumer spending and the economy for the rest of the year.
``All the financial instability is hurting confidence,'' Karen Cordes, an economist at Scotia Capital Inc. in Toronto, said before the report. ``It'll keep many Americans wondering if they should save more now rather than spend. Consumer spending will likely fall quite a bit.''
The confidence index was forecast to fall to 70.8, according to the median of 62 economists surveyed by Bloomberg News. Estimates ranged from 63.9 to 73.3.
Slower Growth
A government report earlier today showed consumer spending was less than initially estimated in the second quarter, dragging economic growth to a slower pace than previously reported. The U.S. economy expanded at an annual rate of 2.8 percent in the second quarter, down from a preliminary estimate of 3.3 percent issued last month, the Commerce Department said today in Washington.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, declined to 67.2 from a preliminary reading of 70.9 in early September. The measure is up from 57.9 in August.
A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, dropped to 75 from a preliminary reading of 76.5. The reading was 71 in August.
Consumers said they expect an inflation rate of 4.3 percent over the next 12 months, compared with 4.8 percent in the August survey.
Financial Crisis
The financial crisis escalated in the second half of September, bringing down Lehman Brothers and AIG and roiling stock markets. The S&P 500 index on Sept. 23 capped its biggest two-day slump in six years.
Earlier this month, the government also seized control of mortgage financiers Fannie Mae and Freddie Mac in an attempt to keep the housing slump from worsening.
The final Reuters/University of Michigan consumer confidence report reflects about 500 responses, compared with 300 households for the preliminary survey.
Regular unleaded gasoline prices have eased to an average of $3.72 a gallon at the pump so far this month, compared with $3.76 in August and more than $4 in July, according to AAA.
At the same time, eight consecutive months of job losses in the economy and declines in home prices are making shoppers wary.
Bed Bath & Beyond Inc., the largest U.S. home-furnishings retailer, reported a 19 percent drop in second-quarter profit, and predicted a decline in earnings this quarter.
Sales ``continued to be negatively affected by the economic slowdown in general and by issues specific to the housing industry in particular,'' Chief Executive Officer Steven Temares said on a conference call on Sept. 24.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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Brown, King, Face Pressure to Redouble Rescue Efforts
By Brian Swint and Jennifer Ryan
Sept. 26 (Bloomberg) -- Prime Minister Gordon Brown and Bank of England Governor Mervyn King face mounting pressure to step up their rescue efforts as the financial crisis threatens Britain's banking system.
``The time has come now for the central banks basically to offer something a little bit different other than liquidity in deference to the fact that the economic downturn is gathering momementum,'' George Magnus, senior economic adviser to UBS AG in London, told Bloomberg Television today. ``The mortgage industry is pretty much dead. The government does have to do something.''
Magnus joined Goldman Sachs Group Inc. Chief Economist Jim O'Neill and former U.K. policy maker Willem Buiter in calling on Brown to follow the U.S. with a government-backed rescue of the mortgage market. Buiter also says the central bank should set aside inflation concerns and cut interest rates immediately.
``The one thing that separates the U.K. from the rest is that they haven't made full use of all the tools in their box now such as interest-rate cuts,'' said Paul Dales, an economist at Capital Economics in London. ``If these problems in markets continue to get worse, I wouldn't rule out something like the U.S. plan.''
U.S. Treasury Secretary Hank Paulson has proposed a $700 billion rescue to help banks get troubled assets off their books. Negotiations on the plan faltered in Congress yesterday.
The British government should ``take a leaf out of what the Americans are doing,'' UBS's Magnus said.
King's View
King told lawmakers on Sept. 11 he opposes using the central bank to provide long-term assistance to banks to unfreeze lending and warned the government would take on credit risk on its own balance sheet if it chose to do so.
The Bank of England still joined a renewed global coordinated effort to increase availability of dollars and ease money-market strains today, auctioning dollars for one-day and one-week maturities. The U.K. sale, totaling $40 billion, followed six emergency auctions of the same amount for overnight money.
The bank will also offer emergency sterling sales of three- month money, against collateral including mortgage securities.
Buiter, writing yesterday on his Mavrecon blog, called for more. The bank's Special Liquidity Scheme, which allows lenders to swap distressed assets for government debt, should be transferred to the Treasury, its January deadline scrapped and its terms modified to allow assets created this year to be swapped, he said.
Former policy maker Charles Goodhart last week criticized the bank for extending the program's deadline on Sept. 17 instead of scrapping it altogether.
Borrowing Costs
Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, fell the most since June as the cost of borrowing money in credit markets soared. The cost of borrowing in dollars for three months stayed near the highest since January as institutions hoarded cash. The three-month Libor rate for pounds was 6.26 percent today, close to the highest this year.
``People are nervous about the capital position of the banks faced with the crisis in the securitization markets and falling house prices,'' Howard Davies, a former chairman of the Financial Services Authority and deputy governor of the Bank of England, told Bloomberg Television. ``That needs to be watched.''
Britain entered a recession in July, forecasts by the European Commission and the Confederation of British Industry, the country's biggest business lobby, show. King said in August that economic output will be ``broadly flat'' for a few quarters.
Inflation Risk
Policy makers Andrew Sentance and Kate Barker both indicated in speeches this week that, while the turmoil may intensify the economic slowdown, there is still a risk that the fastest inflation in a decade will become embedded in the economy.
``It is important that monetary policy does not overreact to developments on financial markets,'' Sentance said Sept. 24.
David Blanchflower, another of the nine members of the Monetary Policy Committee, called for a half-point cut at the September meeting and said this week that reductions need to come ``decisively and soon'' to slow gains in unemployment.
The CBI, Britain's biggest business lobby, today stopped short of calling for immediate interest-rate cuts, saying that the bank should deliver a reduction by the end of the year.
``We are beginning to see signs that inflation may have peaked, and that slowing activity means there is scope for interest-rate cuts,'' John Cridland, the CBI's deputy director general, told reporters in London.
Policy makers will resume rate cuts in October, BNP Paribas SA Economist Alan Clarke said today, changing an earlier forecast for a reduction in November. They are scheduled to make their next decision on Oct. 9.
``There is growing pressure for the bank to start lowering interest rates again,'' Capital Economics's Dale said. ``There will be a growing bandwagon in favor of sharp cuts.''
To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net.
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U.S. Economic Growth Slower Than Initially Estimated
By Timothy R. Homan
Sept. 26 (Bloomberg) -- The U.S. economy expanded more slowly than previously estimated in the second quarter, showing consumer spending was weakening before the credit crisis intensified.
The annual rate of 2.8 percent was down from a preliminary estimate of 3.3 percent issued last month, the Commerce Department said today in Washington. Measures of inflation were higher than previously projected. Personal consumption, trade and business investment contributed less to gross domestic product than the prior estimate, the report showed.
Americans have since cut back on purchases, businesses have put investment plans on hold, builders have scaled back and credit markets have seized up. Economists at JPMorgan Chase & Co. and Morgan Stanley this week cut third-quarter GDP forecasts and Federal Reserve Chairman Ben S. Bernanke warned the economy may falter without a $700 billion bank rescue.
``Consumer spending doesn't bode well for overall growth over the next few quarters,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's pretty clear now that we are in a recession, and it's a recession that still has some room to run.''
Treasury Yields
Treasuries were higher, pushing yields down. The benchmark 10-year note yielded 3.8 percent as of 8:55 a.m. in New York, down 6 basis points from yesterday. Stock futures were lower after negotiations on the bank bailout plan stalled on Capitol Hill.
Economists had projected growth would remain unchanged at 3.3 percent, according to the median of 76 estimate in a Bloomberg News survey. Forecasts ranged from 3 percent to 3.7 percent. Today's report is the final of three estimates.
The world's largest economy grew at a 0.9 percent pace in the first quarter.
Today's gross domestic product report showed that the Fed's preferred measure of inflation, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent annual rate, higher than forecast and faster than the 2.1 percent previously estimated. Prices overall came in less than anticipated.
The biggest part of the economy, consumer spending, rose at a 1.2 percent annual rate from April through June, weaker than the 1.7 percent estimated last month. Spending received a lift during the second quarter from the government's stimulus plan.
Bernanke, who was on Capitol Hill this week urging quick passage of the administration's plan to rescue weakened Wall Street firms, said the U.S. faces ``grave threats'' to financial stability and warned the credit crisis is hurting business spending. He added that the outlook for consumer spending is ``sluggish at best.''
Labor Market
A deteriorating labor market is one reason consumer spending is likely to stagnate this quarter, the worst performance since 1991, according to economists surveyed by Bloomberg earlier this month.
The U.S. has lost jobs every month this year, and the unemployment rate in August jumped to a five-year high of 6.1 percent, according to Labor Department data.
Retail sales fell in August for a second consecutive month, the Commerce Department said previously. Holiday sales during November and December may be the weakest in six years as high food prices pare spending on non-essential items, the National Retail Federation said in a statement Sept. 23.
The trade gap widened to a $381.3 billion annual pace and added 2.9 percentage points to growth, the biggest contribution since 1980 and down from the previous estimate of 3.1 percent. Excluding trade, the economy would have contracted at a 0.1 percent pace after growing at a 0.1 percent rate in the first three months of the year.
The boost from trade may wane this quarter as growth among some of the U.S.'s biggest trading partners slows. Europe and Japan both shrank last quarter.
`Very Weak August'
Dell Inc., the world's second-largest personal-computer maker, said that a U.S. slowdown in technology spending that started last quarter has spread to Western Europe and some Asian countries.
``We saw a very weak August,'' Chief Financial Officer Brian Gladden said Sept. 16 at a Bank of America Corp. investment conference in San Francisco, reiterating comments made last month. ``It is not coming back the way we thought it would.''
Estimates for inventories were revised downward. Companies drew down stockpiles at a $50.6 billion annual rate from April through June, compared with a previous estimate of $49.4 billion. The decrease subtracted 1.5 percentage points from growth.
Revisions in today's report also showed a smaller decline in housing. Residential construction fell at an annual rate of 13.3 percent, higher than the 15.7 percent decrease previously estimated. The housing recession subtracted 0.5 percentage points from growth.
Corporate profits were revised lower. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, were down 3.8 percent to an annual rate of $1.53 trillion. The prior estimate was a drop of 2.4 percent.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Nigeria Orders Gas Companies to Prioritize Supplies
By Dulue Mbachu
Sept. 26 (Bloomberg) -- Nigeria ordered oil companies including Royal Dutch Shell Plc and Exxon Mobil Corp. to come up with a plan to boost domestic gas supplies by the end of October, or risk a suspension of all liquefied natural gas export projects.
Gas Minister Emmanuel Odusina said the companies must set aside between 280 million and 350 million cubic feet of gas by the end of the year for domestic use, according to an e-mailed statement from the Nigerian National Petroleum Corporation, which represents state interests in the energy industry.
``We must prioritize domestic gas supply over any LNG project, since the country needs power,'' Odusina said. Nigeria, whose natural-gas reserves of 187 trillion cubic feet are the world's seventh-biggest, is also Africa's most populous country and suffers from chronic power shortages.
The country of 140 million people is currently generating only 3,000 megawatts of power, out of an installed capacity of 6,000 megawatts. Parts of the country go for days and weeks without power, leaving companies to rely on their own generators.
President Umaru Yar'Adua is concerned that oil companies ignored his April directive to boost domestic gas supplies, the minister was cited as saying. The ``federal government's policy and regulations on gas supply to the domestic market are not up for discussions or negotiations any more,'' Odusina said, according to the statement.
LNG Projects
The oil majors that run five joint ventures producing most of Nigeria's oil also produce most of its gas. They are Shell, Exxon, Chevron Corp., Total SA and Eni SpA. The biggest LNG project in the country is the $10 billion Nigerian LNG Ltd.'s plant on Bonny Island, in which the state-owned NNPC has a 49 percent stake, followed by Shell with 25.6 percent, Total's 15 percent and Eni with 10.4 percent.
The Nigerian LNG company has long-term contracts with buyers in Italy, Spain, Turkey, Portugal and France and also sells on the spot market.
Exxon and Chevron also run gas projects in the ventures they operate in which NNPC has majority stakes. Precious Okolobo, Shell's spokesman in Nigeria, had no immediate comment on the government directive. Gloria Essiene-Danner, Exxon's spokeswoman in Nigeria and Scott Walker, Chevron's spokesman in Houston, weren't immediately available for comment.
Gas projects in the planning stages include Brass LNG, in which NNPC has a 49 percent interest, leaving Total, Eni SpA and ConocoPhillips each with 17 percent, and OK LNG in which Chevron, Shell and British Gas are working with the NNPC.
To contact the reporter on this story: Dulue Mbachu in Lagos via the Johannesburg bureau at abolleurs@bloomberg.net
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