Thursday, May 31, 2007
Proton posts warning signs after 3Q net loss of RM281m
Proton Holdings Bhd has warned of difficult operating conditions after announcing a net loss of RM281.46 million for its third quarter (3Q) to Dec 31, 2006 against a net profit of RM86.51 million a year ago. "The group's operating conditions will remain difficult due to the higher components costs, as experienced by the industry and margins will come under pressure from competition," it said. Announcing its financial performance for the 3Q, it said revenue fell 55% to RM962.27 million from RM2.15 billion in the previous corresponding period. The loss per share was 51.2 sen. For the nine-month period, the company's net loss jumped to RM590.45 million from the RM80.17 million in the previous corresponding period on a 39.2% drop in revenue to RM3.66 billion from RM6.01 billion previously. Proton said total industry volume for last year fell 11% from 2005 mainly due to sluggish secondary market conditions, stricter loan approvals, and higher fuel prices and interest rates. "In addition, intense competition and heavy promotion and discounting by other marques, as well as the slowdown towards the year-end have further dampened domestic sales volume. "As a result, the group registered a loss before tax of RM608.2 million for the current financial period compared to a loss before tax of RM72.9 million in the corresponding period last year. "Furthermore, provision for claims in respect of prior years’ project development costs, additional expenditure required for promotions, and the higher cost of raw materials have further impacted the profitability of the group," it added. Proton said it would continue to focus on improving quality, export growth, improving dealer management and implementing measures to mitigate the impact of a more liberalised automotive industry. The national carmaker said it also expected to introduce new models this year, which would result in improved sales.
Wednesday, May 30, 2007
China Stocks Drop as Stamp Duty Triples: World's Biggest Mover
May 30 (Bloomberg) -- China's stocks tumbled the most in three months after the government tripled the tax on securities transactions to cool a rally that's drawing more than 300,000 new investors a day.
The CSI 300 Index dropped 281.83, or 6.8 percent, to close at 3886.46 in Shanghai, the biggest fluctuation among markets included in global benchmarks. The value of local stocks has more than doubled this year to $2.47 trillion and brokerage accounts topped 100 million for the first time this week.
``The Chinese government is concerned that there's too many people in the market, and they're gambling,'' Mark Mobius, who oversees some $30 billion as managing director of Templeton Asset Management Ltd., said in an interview in Hong Kong. ``It's good for people to not expect that markets go up continuously.''
More than half of the shares included in the CSI 300 fell by the 10 percent daily limit today, including Citic Securities Co., the nation's largest publicly traded brokerage, and China Shipping Development Co., the biggest oil tanker operator.
The value of shares traded in China today was a record 407.1 billion yuan ($53 billion), according to data compiled by Bloomberg. That's more than changed hands in either of the New York Stock Exchange's past two trading sessions.
Stamp duty on share trades was increased to 0.3 percent ``to promote the healthy development of the securities market,'' the finance ministry said on its Web site. The central bank this month raised interest rates for the second time this year, encouraging people to save rather than invest in stocks, and brokerages were ordered to make investors sign a declaration acknowledging risks when opening accounts.
`Skittish' Markets
The government has been trying to curb speculation for months. A crackdown on investments with borrowed money on Feb. 27 led to a 9.2 percent drop in the CSI 300, the biggest decline since it was introduced in April 2005. The Shanghai Composite tumbled the most in a decade and the rout sparked a global sell- off that wiped out about $3.3 trillion of stock market value.
Today's losses contributed to declines in regional markets, with Japan's Nikkei 225 Stock Average losing 0.5 percent and Hong Kong's Hang Seng Index falling 0.9 percent.
European and U.S. stocks also retreated. The Dow Jones Stoxx 600 Index of European shares lost 0.8 percent to 391.19 as of 9:41 a.m. in New York, while the Standard & Poor's 500 Index dropped 0.4 percent to 1512.82.
``Today's correction in Chinese shares is causing a knee- jerk reaction across Asia,'' said Shane Oliver, who helps oversee $83 billion at AMP Capital Investors in Sydney. ``Markets have become skittish on this type of news given some of the extreme reactions in recent history.''
`Healthy'
Mobius said a 30 percent decline in China's stock valuations would be ``healthy.'' A steeper drop may trigger unrest, said Fraser Howie, co-author of the book ``Privatizing China: The Stock Markets and Their Role in Corporate Reform.''
``If the market falls 50 percent, a lot of retail investors will lose money, vested interests will lose money,'' Howie said. ``That leads to demonstrations and people in the streets.''
Li Shi, a 50-year-old retired factory worker, predicts the market will be in the doldrums for the next couple of months. He bought shares of property developer Beijing Centergate Technologies (Holding) Co. in April, resulting in a paper profit of 10,000 yuan ($1,308) before today's fall. The stock plunged by the 10 percent daily limit on the Shenzhen exchange today.
``I don't dare to sell because I'll have to incur a real loss if I do,'' Li said today in an interview at Tiantong Securities Co.'s Chaoyangmen branch in central Beijing. ``I've invested my entire life savings in the stock market.''
Students Warned
About 10 percent of maids in Shanghai resigned because they made more money trading shares, the government-run Eastday Web site reported April 24, citing a local employment agency. The Ministry of Education this week warned students not to get involved in stock trading because they may be unable to bear their losses if the investments turn sour.
Today's increase in stamp duty is ``something real to curb speculation and prevent the market from overheating,'' said Li Xuewen, who manages about $284 million at Invesco Great Wall Fund Management Co. in Shenzhen. ``If the market doesn't cool down, more measures to stem the gains will probably follow.''
Some 22 million accounts have been opened at brokerages so far this year, four times the amount in all of 2006, according to the China Securities Depository & Clearing Corp. Investors on May 28 opened 455,111 accounts, a daily record.
Earnings Improve
They're piling in as earnings improve after four straight years of economic growth exceeding 10 percent. The World Bank today raised its 2007 growth forecast to 10.4 percent, from 9.6 percent, and Moody's Investors Service said the nation's debt rating is under review for possible upgrade.
Surging investment has made Chinese shares the most expensive in the Asia-Pacific region, with the CSI 300 Index valued at 44 times reported earnings, according to data compiled by Bloomberg. That's almost double valuations in Japan and India, the region's next most costly markets.
Central bank officials, former U.S. Federal Reserve Chairman Alan Greenspan and Li Ka-shing, Asia's richest man, have all warned of a looming correction since the start of May. The CSI 300, which tracks yuan-denominated A shares, yesterday rallied to a new high, its 11th record this month.
China started to levy stamp duty in 1990, and initially set the rate at 0.6 percent. This is the eighth time the government has adjusted the rate.
The last time the government raised the tax was on May 10, 1997, when it was lifted to 0.5 percent from 0.3 percent. The Shanghai Composite Index rose 2.3 percent on the first day of trading after the announcement, before tumbling about 30 percent over the next 4 ½ months.
``The stamp tax is the latest gesture by the Chinese government to warn investors,'' said Phil Chen, who manages $154 million at Grand Cathay Securities Investment Trust Co. in Taipei. ``The trouble is, Chinese investors probably won't care if a few breadcrumbs are dropped in the transaction as they have such extraordinary returns on their investments.''
The CSI 300 Index dropped 281.83, or 6.8 percent, to close at 3886.46 in Shanghai, the biggest fluctuation among markets included in global benchmarks. The value of local stocks has more than doubled this year to $2.47 trillion and brokerage accounts topped 100 million for the first time this week.
``The Chinese government is concerned that there's too many people in the market, and they're gambling,'' Mark Mobius, who oversees some $30 billion as managing director of Templeton Asset Management Ltd., said in an interview in Hong Kong. ``It's good for people to not expect that markets go up continuously.''
More than half of the shares included in the CSI 300 fell by the 10 percent daily limit today, including Citic Securities Co., the nation's largest publicly traded brokerage, and China Shipping Development Co., the biggest oil tanker operator.
The value of shares traded in China today was a record 407.1 billion yuan ($53 billion), according to data compiled by Bloomberg. That's more than changed hands in either of the New York Stock Exchange's past two trading sessions.
Stamp duty on share trades was increased to 0.3 percent ``to promote the healthy development of the securities market,'' the finance ministry said on its Web site. The central bank this month raised interest rates for the second time this year, encouraging people to save rather than invest in stocks, and brokerages were ordered to make investors sign a declaration acknowledging risks when opening accounts.
`Skittish' Markets
The government has been trying to curb speculation for months. A crackdown on investments with borrowed money on Feb. 27 led to a 9.2 percent drop in the CSI 300, the biggest decline since it was introduced in April 2005. The Shanghai Composite tumbled the most in a decade and the rout sparked a global sell- off that wiped out about $3.3 trillion of stock market value.
Today's losses contributed to declines in regional markets, with Japan's Nikkei 225 Stock Average losing 0.5 percent and Hong Kong's Hang Seng Index falling 0.9 percent.
European and U.S. stocks also retreated. The Dow Jones Stoxx 600 Index of European shares lost 0.8 percent to 391.19 as of 9:41 a.m. in New York, while the Standard & Poor's 500 Index dropped 0.4 percent to 1512.82.
``Today's correction in Chinese shares is causing a knee- jerk reaction across Asia,'' said Shane Oliver, who helps oversee $83 billion at AMP Capital Investors in Sydney. ``Markets have become skittish on this type of news given some of the extreme reactions in recent history.''
`Healthy'
Mobius said a 30 percent decline in China's stock valuations would be ``healthy.'' A steeper drop may trigger unrest, said Fraser Howie, co-author of the book ``Privatizing China: The Stock Markets and Their Role in Corporate Reform.''
``If the market falls 50 percent, a lot of retail investors will lose money, vested interests will lose money,'' Howie said. ``That leads to demonstrations and people in the streets.''
Li Shi, a 50-year-old retired factory worker, predicts the market will be in the doldrums for the next couple of months. He bought shares of property developer Beijing Centergate Technologies (Holding) Co. in April, resulting in a paper profit of 10,000 yuan ($1,308) before today's fall. The stock plunged by the 10 percent daily limit on the Shenzhen exchange today.
``I don't dare to sell because I'll have to incur a real loss if I do,'' Li said today in an interview at Tiantong Securities Co.'s Chaoyangmen branch in central Beijing. ``I've invested my entire life savings in the stock market.''
Students Warned
About 10 percent of maids in Shanghai resigned because they made more money trading shares, the government-run Eastday Web site reported April 24, citing a local employment agency. The Ministry of Education this week warned students not to get involved in stock trading because they may be unable to bear their losses if the investments turn sour.
Today's increase in stamp duty is ``something real to curb speculation and prevent the market from overheating,'' said Li Xuewen, who manages about $284 million at Invesco Great Wall Fund Management Co. in Shenzhen. ``If the market doesn't cool down, more measures to stem the gains will probably follow.''
Some 22 million accounts have been opened at brokerages so far this year, four times the amount in all of 2006, according to the China Securities Depository & Clearing Corp. Investors on May 28 opened 455,111 accounts, a daily record.
Earnings Improve
They're piling in as earnings improve after four straight years of economic growth exceeding 10 percent. The World Bank today raised its 2007 growth forecast to 10.4 percent, from 9.6 percent, and Moody's Investors Service said the nation's debt rating is under review for possible upgrade.
Surging investment has made Chinese shares the most expensive in the Asia-Pacific region, with the CSI 300 Index valued at 44 times reported earnings, according to data compiled by Bloomberg. That's almost double valuations in Japan and India, the region's next most costly markets.
Central bank officials, former U.S. Federal Reserve Chairman Alan Greenspan and Li Ka-shing, Asia's richest man, have all warned of a looming correction since the start of May. The CSI 300, which tracks yuan-denominated A shares, yesterday rallied to a new high, its 11th record this month.
China started to levy stamp duty in 1990, and initially set the rate at 0.6 percent. This is the eighth time the government has adjusted the rate.
The last time the government raised the tax was on May 10, 1997, when it was lifted to 0.5 percent from 0.3 percent. The Shanghai Composite Index rose 2.3 percent on the first day of trading after the announcement, before tumbling about 30 percent over the next 4 ½ months.
``The stamp tax is the latest gesture by the Chinese government to warn investors,'' said Phil Chen, who manages $154 million at Grand Cathay Securities Investment Trust Co. in Taipei. ``The trouble is, Chinese investors probably won't care if a few breadcrumbs are dropped in the transaction as they have such extraordinary returns on their investments.''
Malaysia Q1 GDP Up 5.30%
KUALA LUMPUR, May 30 (Bernama) -- Malaysia's real gross domestic product (GDP) expanded by 5.3 percent year-on-year in the first quarter of this year.Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said today the growth was driven by the strong performance of the services sector and continued recovery of the construction sector.She said the growth was achieved despite the slowdown in export performance and by the manufacturing sector."The growth in this quarter was broad based, with all major sectors of the economy except for mining registering positive growth," she told a news conference here.The GDP grew 5.7 percent year-on-year in the fourth quarter of last year, bringing the full year GDP growth to 5.9 percent.Zeti was confident Malaysia would be able to meet the full year target of six percent growth this year."Yes (we can achieve it), unless there is a change in external factors but we will continue to monitor these external factors closely," she said.Zeti said Malaysia's potential growth would be much clearer in the second half of the year.-- BERNAMA
Saturday, May 26, 2007
Kumpulan Europlus Bags RM3 Bln West Coast Expressway Project
KUALA LUMPUR, May 25 (Bernama) -- Kumpulan Europlus' subsidiary Konsortium LPB Sdn Bhd (KLPB) signed a concession agreement today with the government to build the RM3.015 billion 215.8 km toll West Coast Expressway.The build-operate-transfer deal has a concession period of 33 years, the company told Bursa Malaysia.The expressway will be between the North South Expressway at Taiping in the north and Banting in the south, leading to the Kuala Lumpur International Airport.KLPB shareholders are Kumpulan Europlus Bhd (60 percent), Kumpulan Darul Ehsan Bhd (20 percent) and Perak Corp Bhd (20 percent).The expressway will have 14 toll plazas and 16 interchanges. Six toll plazas and seven interchanges will be in Perak and the rest in Selangor, said the statement.There will be 10 rest and service areas and two lay-bys, it added.Kumpulan Europlus said the Perak section will be a closed toll system while in Selangor, besides the closed toll system, there will also be a 3.5 km open toll system in the Klang area.The Selangor section is to be completed in three years and the Perak side in four years after the financial arrangements of the project are finalised.
IDR Project Close To Abdullah's Heart
OSAKA, May 26 (Bernama) -- The Iskandar Development Region (IDR) has piqued the interest of the Japanese, with Prime Minister Datuk Seri Abdullah Ahmad Badawi relentlessly taking every opportunity to promote the southern corridor project during his trip to the country.Abdullah, who ended his five-day working visit to Japan yesterday, would touch on the IDR subject at just about every forum and meetings with groups to make the audiences aware of the viability of the project and the countless opportunities it spawns.A Malaysian diplomat said Abdullah's effort has shown that Malaysia is eager to draw a broad base of investors into the area instead of depending too much on Singapore as many quarters have presumed.Abdullah had briefed his Japanese counterpart Shinzo Abe who described the project in southern Johor as a "brilliant idea" during their bilateral meet.Abe then had given his personal undertaking to inform Japanese companies to get them to invest in the project.Abdullah also had conveyed information on IDR to Japan's top private sector leaders and the efforts turned out to be fruitful as they had expressed their interest in the project.In view of the interest shown by the Japanese, Abdullah has proposed that Khazanah Nasional Bhd, the project's driver, come to Japan to promote and explain the proposed dynamic growth region to the Japanese investment community.The IDR is a 2,217 sq km area that sprawls across several districts including Johor Baharu, Kulai, Kota Tinggi and Pontian and is just across the causeway from Singapore.Khazanah Nasional, as the government's investment agency, is developing it along the lines of the dynamic growth being experienced by Shenzhen in China which is adjacent to Hong Kong.For Abdullah, IDR is one area where Malaysia and Japan can cooperate further after 50 years of progressive relations.He said there are many areas which have yet to be explored beyond the 25-year-old Look East Policy, under which about 14,000 Malaysians had benefited in pursuing their education in Japan, as well as workers who had received advanced training in Japan where they were also exposed to Japanese work ethics.As a gesture of the warm bilateral relations, Abdullah had extended two invitations to Abe -- an official visit to Malaysia and another to attend the country's Merdeka Day celebrations on Aug 31.There were also some good values of Japan that had impressed Abdullah which he wishes Malaysians could emulate. For one, he was obviously impressed with the Japanese' strong culture of maintenance and civic consciousness.Abdullah is also hopeful that Malaysia could intensify efforts to develop alternative energy sources, especially solar power, by emulating Japan in this field.
Friday, May 25, 2007
US subprime crisis hits house sales
The crisis in the high-risk mortgage market made it harder for Americans to sell their homes last month, according to real estate agents.
Sales of existing homes fell to their lowest level in three years with a drop of 2.6 per cent in April, data from the National Association of Realtors indicated on Friday.
The association said home purchases were being held back because subprime lenders were applying tighter standards following the collapse of the high-risk mortgage market.
The Federal Reserve does not expect the crisis to have a lasting impact on the housing market, despite increasing signs of distress among high-risk borrowers and the collapse of leading subprime lenders.
Gary Bigg, an economist at Bank Of America, said: “Prospects for future home sales remain mixed as the problems in the subprime market and tighter credit standards are partially offset by improving housing affordability.”
Mr Bigg said he was expecting a gradual recovery in the market for existing homes following signs this week that sales by developers of new homes were picking up after an 18-month slump.
Alan Ruskin, an analyst at RBS, said: “The latest numbers do not themselves negate the perception of somewhat better transaction trends from the new home sales. I still think housing demand has put in a bottom.”
The fall in sales of existing homes last month was widespread across the country and dragged the annual rate of home sales to below 6m units, compared with expectations that purchases would hold steady at a rate of about 6.15m homes.
Mark Zandi, an economist at Moody’s, said the increase in inventory was “the most disconcerting” element of the figures.
The slowdown in purchases drove the excess supply of single-family homes on the market up to about eight months’ worth of sales from seven months’ supply in March. The supply of condominiums also climbed to 9.5 months’ worth of sales from 8.8 months.
Economists are awaiting figures that give a fuller picture of how the housing market has performed during the crucial spring selling season when most homes are bought.
Sales of existing homes fell to their lowest level in three years with a drop of 2.6 per cent in April, data from the National Association of Realtors indicated on Friday.
The association said home purchases were being held back because subprime lenders were applying tighter standards following the collapse of the high-risk mortgage market.
The Federal Reserve does not expect the crisis to have a lasting impact on the housing market, despite increasing signs of distress among high-risk borrowers and the collapse of leading subprime lenders.
Gary Bigg, an economist at Bank Of America, said: “Prospects for future home sales remain mixed as the problems in the subprime market and tighter credit standards are partially offset by improving housing affordability.”
Mr Bigg said he was expecting a gradual recovery in the market for existing homes following signs this week that sales by developers of new homes were picking up after an 18-month slump.
Alan Ruskin, an analyst at RBS, said: “The latest numbers do not themselves negate the perception of somewhat better transaction trends from the new home sales. I still think housing demand has put in a bottom.”
The fall in sales of existing homes last month was widespread across the country and dragged the annual rate of home sales to below 6m units, compared with expectations that purchases would hold steady at a rate of about 6.15m homes.
Mark Zandi, an economist at Moody’s, said the increase in inventory was “the most disconcerting” element of the figures.
The slowdown in purchases drove the excess supply of single-family homes on the market up to about eight months’ worth of sales from seven months’ supply in March. The supply of condominiums also climbed to 9.5 months’ worth of sales from 8.8 months.
Economists are awaiting figures that give a fuller picture of how the housing market has performed during the crucial spring selling season when most homes are bought.
Wednesday, May 23, 2007
Indexes slip after warning on China stocks
NEW YORK (Reuters) - U.S. stocks edged lower on Wednesday as a warning about Chinese stocks by former Federal Reserve Chairman Alan Greenspan erased gains fueled by takeover talk in the aluminum sector.
Greenspan said he feared a "dramatic contraction" in Chinese stocks after the recent boom, adding the run-up was "clearly unsustainable."
The comments come almost three months after a sharp drop in Chinese stocks on concerns about speculative investments triggered a global equity rout.
Shares of Alcoa , the world's largest aluminum company, rose to their highest in more than five years after Canada's Alcan said it was in discussions with third parties, following its rejection of U.S. rival Alcoa's bid on Tuesday.
"There were some comments about the bubble in China and that reversed our market. The last big sell-off was China- driven, so Greenspan's comments got people to be a little bit more aggressive on the sell side," said Bobby Harrington, head of block origination at UBS in Stamford, Connecticut.
"People are looking for a reason for the market to take a rest, but there are still some pretty strong money flow trends, with what is going on with private equity."
The Dow Jones industrial average fell 14.30 points, or 0.11 percent, to end at 13,525.65, after earlier hitting a record.
The Standard & Poor's 500 Index slipped 1.84 points, or 0.12 percent, to finish at 1,522.28. The Nasdaq Composite Index dropped 10.97 points, or 0.42 percent, to close at 2,577.05.
After the closing bell, Network Appliance Inc. , a maker of data network storage gear, plunged 15.7 percent following the company's forecast that it sees fiscal first-quarter revenue down sequentially. The stock slid to $32.05 in electronic trading after closing on the Nasdaq at $38.06.
S&P 500 MISSES RECORD AGAIN
In Wednesday's regular session, the S&P 500 once again crossed its 1,527.46 record closing level but failed to hold on to its gains to the end of the day. The S&P 500 reached its record close on March 24, 2000, in the last throes of the dot-com bubble.
Greenspan said he feared a "dramatic contraction" in Chinese stocks after the recent boom, adding the run-up was "clearly unsustainable."
The comments come almost three months after a sharp drop in Chinese stocks on concerns about speculative investments triggered a global equity rout.
Shares of Alcoa , the world's largest aluminum company, rose to their highest in more than five years after Canada's Alcan said it was in discussions with third parties, following its rejection of U.S. rival Alcoa's bid on Tuesday.
"There were some comments about the bubble in China and that reversed our market. The last big sell-off was China- driven, so Greenspan's comments got people to be a little bit more aggressive on the sell side," said Bobby Harrington, head of block origination at UBS in Stamford, Connecticut.
"People are looking for a reason for the market to take a rest, but there are still some pretty strong money flow trends, with what is going on with private equity."
The Dow Jones industrial average fell 14.30 points, or 0.11 percent, to end at 13,525.65, after earlier hitting a record.
The Standard & Poor's 500 Index slipped 1.84 points, or 0.12 percent, to finish at 1,522.28. The Nasdaq Composite Index dropped 10.97 points, or 0.42 percent, to close at 2,577.05.
After the closing bell, Network Appliance Inc. , a maker of data network storage gear, plunged 15.7 percent following the company's forecast that it sees fiscal first-quarter revenue down sequentially. The stock slid to $32.05 in electronic trading after closing on the Nasdaq at $38.06.
S&P 500 MISSES RECORD AGAIN
In Wednesday's regular session, the S&P 500 once again crossed its 1,527.46 record closing level but failed to hold on to its gains to the end of the day. The S&P 500 reached its record close on March 24, 2000, in the last throes of the dot-com bubble.
Sunday, May 20, 2007
G-8 Says `Volatile' Oil Prices Pose Risk to Growth
Finance ministers from the Group of Eight leading industrial nations said higher oil prices are a threat to the global economy's best performance in more than three decades.
``Risks for the outlook have abated, but high and volatile energy prices remain a concern and we will remain vigilant,'' the G-8 said today in a statement after a two-day meeting in Potsdam, Germany. ``Global growth remains robust and it is more balanced across regions and within our countries.''
Oil prices have risen by almost a fifth in the past four months. Today's statement contrasts with the communique from the G-8 meeting in February, which expressed optimism about ``lower'' energy prices, and that from the last month's meeting, which made no reference to their impact on the economy.
German Finance Minister Peer Steinbrueck chaired the gathering of officials from France, Canada, the U.S., the U.K., Japan, Italy and Russia. Central bankers didn't attend and the statement made no reference to currencies.
The price of oil was $64.94 per barrel on May 18, up from around $50 per barrel in January.
Optimistic
Steinbrueck said he's optimistic that the global economy is becoming less dependent on the U.S. for growth and is less at risk from lopsided flows in trade and investment.
Global imbalances ``aren't our main concern at the moment because we're dealing with an excellent economic development,'' he said in an interview. ``We're not underestimating certain risks, but they're not as important today as they were two or three years ago.''
Growth in the 13-nation euro region and Japan is helping to compensate for a slowdown in the U.S. and China yesterday said it's widening the yuan's trading band amid trade tensions with the U.S. The International Monetary Fund said last month the euro region's economy will expand 2.3 percent in 2007 and outpace the U.S. for the first time since 2001.
The Washington-based lender forecast growth of 2.2 percent in the U.S. and 2.3 percent in Japan.
China yesterday took steps to allow its currency to appreciate before officials meet U.S. Treasury Secretary Henry Paulson next week. Some U.S. lawmakers accuse China of keeping the yuan artificially low to stimulate exports.
The People's Bank of China yesterday announced it will let its currency rise or fall 0.5 percent a day, up from 0.3 percent and the one-year benchmark lending rate was raised for the fourth time since April last year .
Some G-8 officials urged China to go further. ``We concurred that we will keep urging China to move to make its currency more flexible,'' said Japanese Finance Minister Koji Omi after today's talks concluded.
The G-8 ministers also said in their statement that the global hedge-fund industry ``should review and enhance existing sound-practices benchmarks'' for hedge-fund managers to limit risks of ``systemic'' crises in financial markets.
``Risks for the outlook have abated, but high and volatile energy prices remain a concern and we will remain vigilant,'' the G-8 said today in a statement after a two-day meeting in Potsdam, Germany. ``Global growth remains robust and it is more balanced across regions and within our countries.''
Oil prices have risen by almost a fifth in the past four months. Today's statement contrasts with the communique from the G-8 meeting in February, which expressed optimism about ``lower'' energy prices, and that from the last month's meeting, which made no reference to their impact on the economy.
German Finance Minister Peer Steinbrueck chaired the gathering of officials from France, Canada, the U.S., the U.K., Japan, Italy and Russia. Central bankers didn't attend and the statement made no reference to currencies.
The price of oil was $64.94 per barrel on May 18, up from around $50 per barrel in January.
Optimistic
Steinbrueck said he's optimistic that the global economy is becoming less dependent on the U.S. for growth and is less at risk from lopsided flows in trade and investment.
Global imbalances ``aren't our main concern at the moment because we're dealing with an excellent economic development,'' he said in an interview. ``We're not underestimating certain risks, but they're not as important today as they were two or three years ago.''
Growth in the 13-nation euro region and Japan is helping to compensate for a slowdown in the U.S. and China yesterday said it's widening the yuan's trading band amid trade tensions with the U.S. The International Monetary Fund said last month the euro region's economy will expand 2.3 percent in 2007 and outpace the U.S. for the first time since 2001.
The Washington-based lender forecast growth of 2.2 percent in the U.S. and 2.3 percent in Japan.
China yesterday took steps to allow its currency to appreciate before officials meet U.S. Treasury Secretary Henry Paulson next week. Some U.S. lawmakers accuse China of keeping the yuan artificially low to stimulate exports.
The People's Bank of China yesterday announced it will let its currency rise or fall 0.5 percent a day, up from 0.3 percent and the one-year benchmark lending rate was raised for the fourth time since April last year .
Some G-8 officials urged China to go further. ``We concurred that we will keep urging China to move to make its currency more flexible,'' said Japanese Finance Minister Koji Omi after today's talks concluded.
The G-8 ministers also said in their statement that the global hedge-fund industry ``should review and enhance existing sound-practices benchmarks'' for hedge-fund managers to limit risks of ``systemic'' crises in financial markets.
Friday, May 18, 2007
China Lets Yuan Rise Faster Before Paulson Meeting
May 18 (Bloomberg) -- China's government increased the amount its currency can appreciate, raised interest rates and curbed bank loans to tame a runaway economy and ease trade tensions with the U.S. and Europe.
The measures, announced today on the central bank's Web site, may be aimed at appeasing U.S. lawmakers who say the yuan is kept artificially weak to make China's exports cheap. Chinese Vice Premier Wu Yi and U.S. Treasury Secretary Henry Paulson meet May 22-24 in Washington.
``This is clearly designed to get headlines ahead of the dialogue next week,'' said Julian Jessop, chief international economist at Capital Economics in London. ``By raising rates and reserve requirements, the central bank sends a signal to domestic investors to dampen speculation in the equity market.''
China's benchmark CSI 300 Index of stocks has soared 85 percent this year.
The yuan will be allowed to move as much as 0.5 percent either side of a daily fixing rate against the dollar, up from 0.3 percent, the central bank said. Gains will help temper the export-led expansion that has flooded the banking system with cash, raising concern about a stock market bubble in the world's fastest-growing major economy.
The currency closed at the highest since China ended a link to the U.S. currency in July 2005, rising 0.1 percent for the week to 7.6686 per dollar at 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The central bank has allowed the yuan to increase 7.9 percent since the end of the fixed exchange rate.
Willing to Act
``This is China trying to show the U.S. that China is willing and trying to act on the currency issue,'' said Jeffrey Tan, a treasury dealer at Maybank Shanghai.
The yuan never moved the maximum permitted under the previous daily limit. The biggest move this year against the dollar was a 0.22 percent gain on May 11.
The widening is ``only a small and symbolic move,'' said Audrey Childe-Freeman, an economist at CIBC World Markets in London. ``Perhaps another step in the right direction at a snail pace.''
The one-year benchmark lending rate will be raised to 6.57 percent from 6.39 percent, starting tomorrow, the People's Bank of China said. The one-year deposit rate will be increased to 3.06 percent from 2.79 percent. Both rates are the highest in more than eight years.
It's the first time since 1993 that China has raised deposit rates more than lending rates. The benchmark deposit rate will be above the inflation rate for the first time in four months.
Soaring Stocks
That may help to stem the flow of money from households' bank accounts to the stock market. Household yuan deposits fell by 167.4 billion yuan ($21.8 billion) in April from a month earlier, the first decline since February 2003.
Li Ka-shing, Asia's richest man, yesterday warned of a bubble in China's stock market, echoing comments by People's Bank of China Governor Zhou Xiaochuan.
``The government can't just sit there and do nothing as deposits leave the banking system,'' said Dong Tao, chief Asia economist at Credit Suisse Group in Hong Kong. ``If the hike can slow money flows into the stock market, that could provide less ammunition for speculators.''
A record 9.2 percent plunge in the CSI 300 on Feb. 27 triggered a five-day rout that wiped more than $3.3 trillion from the market value of equities worldwide.
`Market Exuberance'
Lenders must put aside 11.5 percent of deposits starting from June 5, up from 11 percent, the People's Bank of China said. That is the fifth increase in banks' reserve ratios this year, compared with three in all of last year.
``This is the single, biggest move yet on the part of the Chinese government to calm the stock market and address fundamental problems in its economy,'' said Tomo Kinoshita, chief economist for Asia ex-Japan at Nomura International Hong Kong Ltd. ``The signal is unmistakable: the government wants to stop the stock market exuberance and stem excess liquidity.''
The nation's trade surplus, which ballooned 74 percent last year to a record $177.5 billion, drove the country's foreign- exchange reserves to an all-time-high of $1.2 trillion, making it difficult for the government to slow growth.
China's economy expanded 11.1 percent in the three months ended March 31, exceeding 10 percent for a fifth quarter.
China needs to develop a more flexible exchange rate, the National Development and Reform Commission, the nation's top planning agency, said on April 25.
The measures, announced today on the central bank's Web site, may be aimed at appeasing U.S. lawmakers who say the yuan is kept artificially weak to make China's exports cheap. Chinese Vice Premier Wu Yi and U.S. Treasury Secretary Henry Paulson meet May 22-24 in Washington.
``This is clearly designed to get headlines ahead of the dialogue next week,'' said Julian Jessop, chief international economist at Capital Economics in London. ``By raising rates and reserve requirements, the central bank sends a signal to domestic investors to dampen speculation in the equity market.''
China's benchmark CSI 300 Index of stocks has soared 85 percent this year.
The yuan will be allowed to move as much as 0.5 percent either side of a daily fixing rate against the dollar, up from 0.3 percent, the central bank said. Gains will help temper the export-led expansion that has flooded the banking system with cash, raising concern about a stock market bubble in the world's fastest-growing major economy.
The currency closed at the highest since China ended a link to the U.S. currency in July 2005, rising 0.1 percent for the week to 7.6686 per dollar at 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The central bank has allowed the yuan to increase 7.9 percent since the end of the fixed exchange rate.
Willing to Act
``This is China trying to show the U.S. that China is willing and trying to act on the currency issue,'' said Jeffrey Tan, a treasury dealer at Maybank Shanghai.
The yuan never moved the maximum permitted under the previous daily limit. The biggest move this year against the dollar was a 0.22 percent gain on May 11.
The widening is ``only a small and symbolic move,'' said Audrey Childe-Freeman, an economist at CIBC World Markets in London. ``Perhaps another step in the right direction at a snail pace.''
The one-year benchmark lending rate will be raised to 6.57 percent from 6.39 percent, starting tomorrow, the People's Bank of China said. The one-year deposit rate will be increased to 3.06 percent from 2.79 percent. Both rates are the highest in more than eight years.
It's the first time since 1993 that China has raised deposit rates more than lending rates. The benchmark deposit rate will be above the inflation rate for the first time in four months.
Soaring Stocks
That may help to stem the flow of money from households' bank accounts to the stock market. Household yuan deposits fell by 167.4 billion yuan ($21.8 billion) in April from a month earlier, the first decline since February 2003.
Li Ka-shing, Asia's richest man, yesterday warned of a bubble in China's stock market, echoing comments by People's Bank of China Governor Zhou Xiaochuan.
``The government can't just sit there and do nothing as deposits leave the banking system,'' said Dong Tao, chief Asia economist at Credit Suisse Group in Hong Kong. ``If the hike can slow money flows into the stock market, that could provide less ammunition for speculators.''
A record 9.2 percent plunge in the CSI 300 on Feb. 27 triggered a five-day rout that wiped more than $3.3 trillion from the market value of equities worldwide.
`Market Exuberance'
Lenders must put aside 11.5 percent of deposits starting from June 5, up from 11 percent, the People's Bank of China said. That is the fifth increase in banks' reserve ratios this year, compared with three in all of last year.
``This is the single, biggest move yet on the part of the Chinese government to calm the stock market and address fundamental problems in its economy,'' said Tomo Kinoshita, chief economist for Asia ex-Japan at Nomura International Hong Kong Ltd. ``The signal is unmistakable: the government wants to stop the stock market exuberance and stem excess liquidity.''
The nation's trade surplus, which ballooned 74 percent last year to a record $177.5 billion, drove the country's foreign- exchange reserves to an all-time-high of $1.2 trillion, making it difficult for the government to slow growth.
China's economy expanded 11.1 percent in the three months ended March 31, exceeding 10 percent for a fifth quarter.
China needs to develop a more flexible exchange rate, the National Development and Reform Commission, the nation's top planning agency, said on April 25.
Thursday, May 17, 2007
Japan's Economy Cools; BOJ Leaves Rates Unchanged
May 17 (Bloomberg) -- Japan's economy, the world's second largest, cooled in the first quarter as companies cut spending on concern that exports to the U.S. will slow. The central bank kept interest rates unchanged at 0.5 percent.
Gross domestic product grew at an annual 2.4 percent rate in the three months ended March 31, the Cabinet Office said in Tokyo today. The fourth-quarter figure was revised to 5 percent from 5.5 percent.
Consumer spending, accounting for more than half of GDP, rose more than expected and may cushion the economy from waning growth in the U.S., the nation's largest export market. Bonds headed for their biggest gain since March on speculation slower growth and two months of falling consumer prices will delay an interest rate increase.
``We've not seen such a balanced expansion for a long time,'' said Richard Jerram, chief Japan economist at Macquarie Research in Tokyo. ``With consumer prices still falling there's no particular hurry for the BOJ to be raising rates. I'd guess they'll stay on hold for three, maybe six months.''
The yield on Japan's benchmark 10-year bond fell 4.5 basis points to 1.62 percent at 3:38 p.m. in Tokyo. The yen fell to 120.94 per dollar from 120.69 before the GDP report. The median forecast of 37 economists surveyed by Bloomberg News was for 2.7 percent annual growth.
Consumer prices excluding fresh food fell 0.3 percent in March from a year earlier and 0.1 percent in February.
Consumer Prices
``When core prices will show stable increases is a crucial factor to gauge the next rate-hike timing,'' said Teizo Taya, a former central bank board member who is now an adviser to the Daiwa Institute of Research.
Of 17 Tokyo-based economists surveyed by Bloomberg News, eight said the central bank will probably raise rates in the third quarter and five said it will act in the last three months of 2007. The remaining four said the bank will wait until 2008.
In non-annualized terms, Japan's economy expanded 0.6 percent from the previous quarter, compared with 0.3 percent growth in the U.S. and 0.6 percent in the euro region.
``Japan's economy is solid overall and we'll watch risks in the global economy,'' Economic and Fiscal Policy Minister Hiroko Ota said today. ``Consumer spending is recovering, although we need to monitor it because wages haven't shown signs of picking up.''
Business Spending
Capital investment unexpectedly fell 0.9 percent, compared with an estimate for a 0.5 percent increase. It rose 2.3 percent in the fourth quarter.
``The drop in capital spending does reflect concern about the outlook for the U.S. economy, but it's also a correction from several quarters of very strong spending figures,'' said Takuji Aida, chief Japan economist at Barclays Capital in Tokyo.
Capital investment may rebound because companies may have deferred purchases of equipment until after April 1, when new rules on depreciation were implemented, according to Takehiro Sato, chief Japan economist at Morgan Stanley.
Exports rose 3.3 percent, more than the 2.8 percent expected by economists and accelerating from 0.8 percent expansion in the fourth quarter.
``Exports to Asia and Europe have offset a U.S. slowdown,'' said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo. ``Exports to the U.S. are likely to pick up and then you'll have the U.S., Asia and Europe all going at once.''
Exports to Asia
Japan's shipments overseas rose to a record in March, the finance ministry said last month. Exports to China surged 15 percent and those to Europe advanced 14 percent. Shipments to the U.S. rose 2.4 percent. China's economy grew 11.1 percent in the first quarter from the year earlier.
Sony Corp., the world's second-largest maker of electronics, yesterday said sales this fiscal year will rise 5.8 percent, helping its profit to double to a record.
Net exports -- or the difference between exports and imports -- added 0.4 percentage point to GDP, up from 0.1 percentage point in the fourth quarter.
Consumer spending climbed 0.9 percent, adding to the 1.1 percent gain in the fourth quarter, the fastest increase in three years.
``Consumer spending has been strong for two consecutive quarters in the absence of wage increases,'' said Aida. ``Domestic demand is starting to gain enough traction to overtake exports as a driver of growth.''
The economy expanded 2 percent in real terms from a year earlier and 1.8 percent on a nominal basis, today's report showed. Real growth takes inflation into account.
In nominal terms the economy grew 0.3 percent from the previous quarter, compared with economists' expectations of a 0.5 percent gain. On an annualized basis, nominal growth, which doesn't take into account price changes, was 1.2 percent.
The GDP deflator, a broad measure of price changes, fell 0.2 percent from the same period a year earlier, compared with expectations of a 0.4 percent drop. The deflator hasn't risen since 1998.
Gross domestic product grew at an annual 2.4 percent rate in the three months ended March 31, the Cabinet Office said in Tokyo today. The fourth-quarter figure was revised to 5 percent from 5.5 percent.
Consumer spending, accounting for more than half of GDP, rose more than expected and may cushion the economy from waning growth in the U.S., the nation's largest export market. Bonds headed for their biggest gain since March on speculation slower growth and two months of falling consumer prices will delay an interest rate increase.
``We've not seen such a balanced expansion for a long time,'' said Richard Jerram, chief Japan economist at Macquarie Research in Tokyo. ``With consumer prices still falling there's no particular hurry for the BOJ to be raising rates. I'd guess they'll stay on hold for three, maybe six months.''
The yield on Japan's benchmark 10-year bond fell 4.5 basis points to 1.62 percent at 3:38 p.m. in Tokyo. The yen fell to 120.94 per dollar from 120.69 before the GDP report. The median forecast of 37 economists surveyed by Bloomberg News was for 2.7 percent annual growth.
Consumer prices excluding fresh food fell 0.3 percent in March from a year earlier and 0.1 percent in February.
Consumer Prices
``When core prices will show stable increases is a crucial factor to gauge the next rate-hike timing,'' said Teizo Taya, a former central bank board member who is now an adviser to the Daiwa Institute of Research.
Of 17 Tokyo-based economists surveyed by Bloomberg News, eight said the central bank will probably raise rates in the third quarter and five said it will act in the last three months of 2007. The remaining four said the bank will wait until 2008.
In non-annualized terms, Japan's economy expanded 0.6 percent from the previous quarter, compared with 0.3 percent growth in the U.S. and 0.6 percent in the euro region.
``Japan's economy is solid overall and we'll watch risks in the global economy,'' Economic and Fiscal Policy Minister Hiroko Ota said today. ``Consumer spending is recovering, although we need to monitor it because wages haven't shown signs of picking up.''
Business Spending
Capital investment unexpectedly fell 0.9 percent, compared with an estimate for a 0.5 percent increase. It rose 2.3 percent in the fourth quarter.
``The drop in capital spending does reflect concern about the outlook for the U.S. economy, but it's also a correction from several quarters of very strong spending figures,'' said Takuji Aida, chief Japan economist at Barclays Capital in Tokyo.
Capital investment may rebound because companies may have deferred purchases of equipment until after April 1, when new rules on depreciation were implemented, according to Takehiro Sato, chief Japan economist at Morgan Stanley.
Exports rose 3.3 percent, more than the 2.8 percent expected by economists and accelerating from 0.8 percent expansion in the fourth quarter.
``Exports to Asia and Europe have offset a U.S. slowdown,'' said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo. ``Exports to the U.S. are likely to pick up and then you'll have the U.S., Asia and Europe all going at once.''
Exports to Asia
Japan's shipments overseas rose to a record in March, the finance ministry said last month. Exports to China surged 15 percent and those to Europe advanced 14 percent. Shipments to the U.S. rose 2.4 percent. China's economy grew 11.1 percent in the first quarter from the year earlier.
Sony Corp., the world's second-largest maker of electronics, yesterday said sales this fiscal year will rise 5.8 percent, helping its profit to double to a record.
Net exports -- or the difference between exports and imports -- added 0.4 percentage point to GDP, up from 0.1 percentage point in the fourth quarter.
Consumer spending climbed 0.9 percent, adding to the 1.1 percent gain in the fourth quarter, the fastest increase in three years.
``Consumer spending has been strong for two consecutive quarters in the absence of wage increases,'' said Aida. ``Domestic demand is starting to gain enough traction to overtake exports as a driver of growth.''
The economy expanded 2 percent in real terms from a year earlier and 1.8 percent on a nominal basis, today's report showed. Real growth takes inflation into account.
In nominal terms the economy grew 0.3 percent from the previous quarter, compared with economists' expectations of a 0.5 percent gain. On an annualized basis, nominal growth, which doesn't take into account price changes, was 1.2 percent.
The GDP deflator, a broad measure of price changes, fell 0.2 percent from the same period a year earlier, compared with expectations of a 0.4 percent drop. The deflator hasn't risen since 1998.
Tuesday, May 15, 2007
Consumer Price Data Helps To Ease Inflation Concerns
(RTTNews) - Concerns about the pace of inflation have continued to ease on Tuesday following the release of the Department of Labor's report on consumer prices in the month of April. The report showed that prices rose a little less than economist had expected
The Labor Department said its consumer price index rose 0.4 percent in April following a 0.6 percent increase in March. The increase came in slightly below economist estimates of a 0.5 percent increase.
A significant increase in energy prices contributed to the increase in consumer prices, with energy prices rising 2.4 percent in April after surging up 5.9 percent in March. The rise in energy prices also contributed to a 1.2 percent increase in transportation costs.
The continued increase in energy prices was partly due to a notable increase in gasoline prices, which rose 4.7 percent in April following a 10.6 percent increase in the previous month.
The report also showed that the core consumer price index, which excludes food and energy prices, edged up 0.2 percent in April after rising 0.1 percent in March. Economists had expected a 0.2 percent increase.
The release of the consumer price data comes on the heels of last week's report on April producer prices, which showed a slightly bigger than expected 0.7 percent increase in prices. However, the report also showed that core producer prices were unchanged for the second consecutive month.
The relatively tame inflation data has helped to ease some of the recent concerns about the pace of inflation and generated some optimism that the Federal Reserve might consider lowering interest rates in the near future.
While the Federal Reserve has acknowledged a slowdown in the pace of economic growth, it has said that inflation failing to moderate as expected remains its predominant policy concern. The Fed will make its next interest rate decision after a meeting in late June.
In other economic news, the Federal Reserve Bank of New York released its report on business activity in the New York manufacturing sector in the month of May on Tuesday, showing that the pace of growth in the sector accelerated slightly less than expected.
The report showed that the New York Fed's general business conditions index rose to 8.03 in May from 3.80 in April, with a positive reading indicating growth in the sector. Economists had expected the index to rise to 9.0.
The accelerated pace of growth in the sector was partly due to faster new orders and shipment growth. The new orders index rose to 8.02 in May from 3.94 in April, while the shipments index rose to 14.13 from 8.66.
There was also some improvement in employment, with the number of employees index rising to 9.67 in May from 5.42 in the previous month.
At the same time, the report showed a mixed inflation picture, as the prices paid index fell to 34.44 in May from 40.48 in April, while the prices received index rose to 15.56 from 7.14.
The New York Federal Reserve also said that there was some improvement in the outlook for the next six months, with the future general business conditions index rising to 49.79 in May from 33.85 in the previous month.
The Labor Department said its consumer price index rose 0.4 percent in April following a 0.6 percent increase in March. The increase came in slightly below economist estimates of a 0.5 percent increase.
A significant increase in energy prices contributed to the increase in consumer prices, with energy prices rising 2.4 percent in April after surging up 5.9 percent in March. The rise in energy prices also contributed to a 1.2 percent increase in transportation costs.
The continued increase in energy prices was partly due to a notable increase in gasoline prices, which rose 4.7 percent in April following a 10.6 percent increase in the previous month.
The report also showed that the core consumer price index, which excludes food and energy prices, edged up 0.2 percent in April after rising 0.1 percent in March. Economists had expected a 0.2 percent increase.
The release of the consumer price data comes on the heels of last week's report on April producer prices, which showed a slightly bigger than expected 0.7 percent increase in prices. However, the report also showed that core producer prices were unchanged for the second consecutive month.
The relatively tame inflation data has helped to ease some of the recent concerns about the pace of inflation and generated some optimism that the Federal Reserve might consider lowering interest rates in the near future.
While the Federal Reserve has acknowledged a slowdown in the pace of economic growth, it has said that inflation failing to moderate as expected remains its predominant policy concern. The Fed will make its next interest rate decision after a meeting in late June.
In other economic news, the Federal Reserve Bank of New York released its report on business activity in the New York manufacturing sector in the month of May on Tuesday, showing that the pace of growth in the sector accelerated slightly less than expected.
The report showed that the New York Fed's general business conditions index rose to 8.03 in May from 3.80 in April, with a positive reading indicating growth in the sector. Economists had expected the index to rise to 9.0.
The accelerated pace of growth in the sector was partly due to faster new orders and shipment growth. The new orders index rose to 8.02 in May from 3.94 in April, while the shipments index rose to 14.13 from 8.66.
There was also some improvement in employment, with the number of employees index rising to 9.67 in May from 5.42 in the previous month.
At the same time, the report showed a mixed inflation picture, as the prices paid index fell to 34.44 in May from 40.48 in April, while the prices received index rose to 15.56 from 7.14.
The New York Federal Reserve also said that there was some improvement in the outlook for the next six months, with the future general business conditions index rising to 49.79 in May from 33.85 in the previous month.
Tuesday, May 8, 2007
Deutsche Bank Profit Rises 30% on Securities Unit
May 8 (Bloomberg) -- Deutsche Bank AG, Germany's biggest bank, said first-quarter profit jumped 30 percent on record earnings from its securities unit.
Net income rose to 2.12 billion euros ($2.89 billion), or 4.28 euros per share, from 1.64 billion euros, or 3.11 euros, a year earlier, the Frankfurt-based bank said today. Profit topped the highest estimate of 16 analysts surveyed by Bloomberg.
Deutsche Bank, led by Chief Executive Officer Josef Ackermann, outpaced European rivals UBS AG and Credit Suisse Group as record revenue from sales and trading spurred investment banking earnings. Consumer banking and asset management profit fell and earnings growth trailed New York-based firms Morgan Stanley and JPMorgan Chase & Co.
``Conditions for investment banking are almost perfect,'' said Patrick Lemmens, who helps manage about $3.5 billion, including Deutsche Bank shares, at ABN Amro Asset Management in Amsterdam. ``The good conditions that we saw in the first quarter are continuing in the second.''
Deutsche Bank shares declined 93 cents, or 0.8 percent, to 115.37 euros at 1:02 p.m. in Frankfurt, valuing the company at about 60.6 billion euros. The stock gained 16 percent in the past year, compared with a 20 percent rise at Credit Suisse and a 1.7 percent increase at UBS.
Sales and Trading
Pretax profit at the investment bank, run by Anshu Jain and Michael Cohrs, rose 10 percent to 2.2 billion euros in the quarter, above the 2.07 billion euros estimated by analysts.
Revenue from sales and trading of stocks and bonds increased 16 percent to 5.1 billion euros, making Deutsche Bank the second biggest in trading on Wall Street after New York-based Goldman Sachs Group Inc. Revenue from underwriting and merger advice rose 17 percent to 797 million euros.
Consumer banking profit fell 3 percent to 293 million euros on costs to integrate Berliner Bank and Norisbank, purchased last year, while earnings from asset and wealth management dropped 19 percent to 188 million euros on lower performance fees in the real estate business.
``The lower-than-expected profits in the non-investment banking divisions may take some shine off the very strong investment banking results,'' Credit Suisse analyst Ivan Vatchkov said in a note to clients. ``This may revive investor concerns that Deutsche is overly dependent on investment banking.'' He has an ``outperform'' rating on the stock.
Revenue and Costs
Earnings were boosted by gains at the corporate investments division, where pretax profit more than doubled to 305 million euros on the sale of a 0.8 percent stake in Fiat SpA and a holding in Deutsche Interhotel Holding.
Total revenue rose 20 percent to 9.58 billion euros, exceeding analysts' estimates of 8.6 billion euros. Costs jumped 17 percent to 6.32 billion euros, boosted by higher performance- related compensation and acquisitions. That exceeded the 5.76 billion-euro estimate of analysts in the survey.
UBS's net income was hurt by losses tied to the U.S. subprime mortgage market at Dillon Read Capital Management, the hedge fund run by 50-year-old former investment-banking chief John Costas. UBS will pay $300 million to shut the fund. Credit Suisse, Switzerland's second-largest bank, generated record revenue from bonds and stock trading, making up for the sale of the Winterthur insurance division.
Deutsche Bank's profit growth lagged behind some of its largest U.S. competitors. Morgan Stanley, the second-biggest securities firm by market value, reported a 70 percent surge in profit. Earnings at JPMorgan, the No. 3 U.S. bank, jumped 55 percent in the quarter.
Lower Quality?
``The quality of earnings is lower than what we saw from Credit Suisse and UBS,'' because of greater dependence on trading, said Stefan Raetzer, who helps manage about $26.4 billion in equities at Allianz Global Investors. ``That is mirrored in the share valuation, as Deutsche Bank trades at a 10 to 20 percent discount to the other two banks.''
Deutsche Bank's shares trade at 8.2 times earnings per share, the lowest ratio among its nine biggest competitors, which include New York-based Goldman and UBS, the largest money manager. The average price to earnings ratio for Deutsche Bank's competitors is 11.5.
Takeover Battle
Deutsche Bank's securities unit, the biggest in Europe by revenue, could make it an attractive merger or acquisition target for a large European consumer bank, some analysts and investors said. Such a deal would boost the bank's ability to invest in its business and take more risk, Merrill Lynch & Co. analyst Stuart Graham wrote in an April 23 note to clients.
``If other European banks are pairing off, is Deutsche content with its broker dealer-centric model once and for all?'' Graham wrote. ``It may not be able to change its mind at a later date, since its few potential partners could have already done other deals.''
Ackermann, 59, said as recently as February that a ``transformational'' merger is not on the agenda. That was before the world's biggest banking takeover battle erupted over ABN Amro Holding NV, the largest Dutch bank. Barclays Plc, Britain's No. 3 lender, and a trio of banks led by Royal Bank of Scotland Group Plc are vying for control of Amsterdam-based ABN Amro.
``Consolidation of our industry, including cross-border mergers in Europe, may also create changes in the competitive landscape,'' Ackermann said in a letter to shareholders today. ``Deutsche Bank is well equipped to deal with these factors as our strategic position is strong,'' he said, reiterating that the bank will focus on internal growth and smaller acquisitions.
2008 Targets
Deutsche Bank aims to raise pretax profit, excluding one- time gains and costs, to 8.4 billion euros in 2008 by expanding consumer banking and asset management, Chief Financial Officer Anthony Di Iorio reiterated on a conference call with analysts today. That would mean an increase of about 5 percent from 2006 earnings.
``I wouldn't characterize it as aggressive or conservative, but rather as our stated target,'' Di Iorio said. He also repeated that the bank expects a pretax profit contribution of about 300 million euros in 2008 from acquisitions, including Berliner Bank and Norisbank, based in Nuremberg.
Net income rose to 2.12 billion euros ($2.89 billion), or 4.28 euros per share, from 1.64 billion euros, or 3.11 euros, a year earlier, the Frankfurt-based bank said today. Profit topped the highest estimate of 16 analysts surveyed by Bloomberg.
Deutsche Bank, led by Chief Executive Officer Josef Ackermann, outpaced European rivals UBS AG and Credit Suisse Group as record revenue from sales and trading spurred investment banking earnings. Consumer banking and asset management profit fell and earnings growth trailed New York-based firms Morgan Stanley and JPMorgan Chase & Co.
``Conditions for investment banking are almost perfect,'' said Patrick Lemmens, who helps manage about $3.5 billion, including Deutsche Bank shares, at ABN Amro Asset Management in Amsterdam. ``The good conditions that we saw in the first quarter are continuing in the second.''
Deutsche Bank shares declined 93 cents, or 0.8 percent, to 115.37 euros at 1:02 p.m. in Frankfurt, valuing the company at about 60.6 billion euros. The stock gained 16 percent in the past year, compared with a 20 percent rise at Credit Suisse and a 1.7 percent increase at UBS.
Sales and Trading
Pretax profit at the investment bank, run by Anshu Jain and Michael Cohrs, rose 10 percent to 2.2 billion euros in the quarter, above the 2.07 billion euros estimated by analysts.
Revenue from sales and trading of stocks and bonds increased 16 percent to 5.1 billion euros, making Deutsche Bank the second biggest in trading on Wall Street after New York-based Goldman Sachs Group Inc. Revenue from underwriting and merger advice rose 17 percent to 797 million euros.
Consumer banking profit fell 3 percent to 293 million euros on costs to integrate Berliner Bank and Norisbank, purchased last year, while earnings from asset and wealth management dropped 19 percent to 188 million euros on lower performance fees in the real estate business.
``The lower-than-expected profits in the non-investment banking divisions may take some shine off the very strong investment banking results,'' Credit Suisse analyst Ivan Vatchkov said in a note to clients. ``This may revive investor concerns that Deutsche is overly dependent on investment banking.'' He has an ``outperform'' rating on the stock.
Revenue and Costs
Earnings were boosted by gains at the corporate investments division, where pretax profit more than doubled to 305 million euros on the sale of a 0.8 percent stake in Fiat SpA and a holding in Deutsche Interhotel Holding.
Total revenue rose 20 percent to 9.58 billion euros, exceeding analysts' estimates of 8.6 billion euros. Costs jumped 17 percent to 6.32 billion euros, boosted by higher performance- related compensation and acquisitions. That exceeded the 5.76 billion-euro estimate of analysts in the survey.
UBS's net income was hurt by losses tied to the U.S. subprime mortgage market at Dillon Read Capital Management, the hedge fund run by 50-year-old former investment-banking chief John Costas. UBS will pay $300 million to shut the fund. Credit Suisse, Switzerland's second-largest bank, generated record revenue from bonds and stock trading, making up for the sale of the Winterthur insurance division.
Deutsche Bank's profit growth lagged behind some of its largest U.S. competitors. Morgan Stanley, the second-biggest securities firm by market value, reported a 70 percent surge in profit. Earnings at JPMorgan, the No. 3 U.S. bank, jumped 55 percent in the quarter.
Lower Quality?
``The quality of earnings is lower than what we saw from Credit Suisse and UBS,'' because of greater dependence on trading, said Stefan Raetzer, who helps manage about $26.4 billion in equities at Allianz Global Investors. ``That is mirrored in the share valuation, as Deutsche Bank trades at a 10 to 20 percent discount to the other two banks.''
Deutsche Bank's shares trade at 8.2 times earnings per share, the lowest ratio among its nine biggest competitors, which include New York-based Goldman and UBS, the largest money manager. The average price to earnings ratio for Deutsche Bank's competitors is 11.5.
Takeover Battle
Deutsche Bank's securities unit, the biggest in Europe by revenue, could make it an attractive merger or acquisition target for a large European consumer bank, some analysts and investors said. Such a deal would boost the bank's ability to invest in its business and take more risk, Merrill Lynch & Co. analyst Stuart Graham wrote in an April 23 note to clients.
``If other European banks are pairing off, is Deutsche content with its broker dealer-centric model once and for all?'' Graham wrote. ``It may not be able to change its mind at a later date, since its few potential partners could have already done other deals.''
Ackermann, 59, said as recently as February that a ``transformational'' merger is not on the agenda. That was before the world's biggest banking takeover battle erupted over ABN Amro Holding NV, the largest Dutch bank. Barclays Plc, Britain's No. 3 lender, and a trio of banks led by Royal Bank of Scotland Group Plc are vying for control of Amsterdam-based ABN Amro.
``Consolidation of our industry, including cross-border mergers in Europe, may also create changes in the competitive landscape,'' Ackermann said in a letter to shareholders today. ``Deutsche Bank is well equipped to deal with these factors as our strategic position is strong,'' he said, reiterating that the bank will focus on internal growth and smaller acquisitions.
2008 Targets
Deutsche Bank aims to raise pretax profit, excluding one- time gains and costs, to 8.4 billion euros in 2008 by expanding consumer banking and asset management, Chief Financial Officer Anthony Di Iorio reiterated on a conference call with analysts today. That would mean an increase of about 5 percent from 2006 earnings.
``I wouldn't characterize it as aggressive or conservative, but rather as our stated target,'' Di Iorio said. He also repeated that the bank expects a pretax profit contribution of about 300 million euros in 2008 from acquisitions, including Berliner Bank and Norisbank, based in Nuremberg.
Monday, May 7, 2007
US Dollar Bought Heavily by Commercial Hedgers is USD Bullish
With commercial hedgers long the largest amount of US dollars since early December, a multi-week low in the Dollar Index is close. 56.7% of the Dollar Index is the Euro, so a multi-week high is close to being established, if not already in place, in the EURUSD.
Friday, May 4, 2007
U.S. Stocks Advance on Takeover Speculation overtakes Employment Report
May 4 (Bloomberg) -- U.S. stocks rose for a fourth day after a report that Microsoft Corp. wants to buy Yahoo Inc. spurred speculation takeovers will accelerate after $69.5 billion of announced deals this week.
Shares of Yahoo, owner of the most-visited U.S. Web site, soared after the New York Post reported that Microsoft, the world's biggest software company, hired Goldman Sachs Group Inc. to advise on a possible deal. Reuters Group Plc, the biggest publicly traded provider of financial data, said it received a takeover approach from an unidentified company.
Mergers and acquisitions have helped send the stock market toward its fifth straight week of gains. Stocks also gained after the Labor Department said the U.S. economy added a fewer-than- forecast 88,000 jobs last month, boosting odds the Federal Reserve will cut interest rates.
``M&A will continue through the year,'' said Andrew Seibert, who helps manage $900 million at Stewart Capital Management in Pittsburgh. ``There's a lot of liquidity and these companies are flush with cash. It's one of the drivers for the market.''
The Standard & Poor's 500 Index added 4.45, or 0.3 percent, to 1506.84 as of 10:06 a.m. in New York. The Dow Jones Industrial Average advanced 15.44, or 0.1 percent, to 13,256.82. The Nasdaq Composite Index increased 6.72, or 0.3 percent, to 2572.18.
Better-than-forecast gains in worker productivity and the U.S. services industry yesterday pushed the Dow average to a third straight record and the S&P 500 above 1500 for the first time since September 2000.
For the week, the S&P 500 has risen 0.9 percent, the Dow average has advanced 1.1 percent and the Nasdaq has increased 0.6 percent.
Profit Growth
So far, 401 members of the S&P 500, or 80 percent, have reported average first-quarter profit growth of 12 percent. Analysts have upgraded their estimates at least twice since the start of the earnings season. They now expect S&P 500 companies increased profits by 9.4 percent in the period.
The 88,000 increase in employment last month followed a 177,000 gain in March that was smaller than previously estimated, according to the Labor Department. The jobless rate rose to 4.5 percent from 4.4 percent, which matched a five-year low.
The report also showed that average hourly earnings grew at a rate that trailed economists' forecasts.
Yields on interest-rate futures declined as traders priced in a higher likelihood the Fed will lower its target for the overnight lending rate between banks this year. Policy makers meet next week to decide on interest rates.
About five stocks rose for every three that fell on the New York Stock Exchange. Some 115 million shares changed hands on the Big Board, 3.4 percent less than the same time a week ago.
Yahoo, Microsoft
Yahoo jumped $4.62, or 16 percent, to $32.80, while Microsoft slid 35 cents to $30.62. An agreement between the two companies would create a dominant force on the Internet and raise the combined companies' share of the search advertising market to 27 percent compared with 65 percent for Google Inc. The New York Post report cited unidentified bankers.
Tom Brookes, a Brussels-based spokesman for Microsoft, had no immediate comment on the report. David Sawday, a London-based spokesman for Yahoo, declined to comment, saying the company doesn't discuss market speculation.
Reuters American depositary receipts, each representing six shares, surged $15.09, or 26 percent, to $74.01. Shares of the 156-year-old company had jumped 8 percent before the statement on speculation about an offer from Thomson Corp., the Canadian owner of the Westlaw legal database and TradeWeb financial services.
Companies around the world have announced some $1.8 trillion in mergers and acquisitions this year, according to data compiled by Bloomberg. Dealmaking totaled $3.68 trillion for all of last year.
Starbucks climbed 14 cents to $31.76. The world's largest chain of coffee shops said second-quarter net income increased to 19 cents a share from 16 cents a year earlier, matching analysts' estimates.
Crocs Inc. soared $11.27 to $68.68. The company said first- quarter earnings almost quadrupled as demand for the colorful line of casual shoes increased. Profit of 61 cents a share topped the 49-cent average estimate from analysts surveyed by Bloomberg.
Kodak Drops
Eastman Kodak Co., the world's largest photography company, dropped 54 cents to $25.43 after posting a wider-than-expected first-quarter loss as it spent to eliminate jobs and shut factories. The net loss of 53 cents a share compared with analysts' projections of a 3-cent loss.
Sears Holdings Corp. declined $7.03 to $181.29. The largest U.S. department-store company said first-quarter domestic same- store sales dropped 2.4 percent as consumers bought fewer home appliances because of a slowing U.S. housing market and increased competition.
Shares of Yahoo, owner of the most-visited U.S. Web site, soared after the New York Post reported that Microsoft, the world's biggest software company, hired Goldman Sachs Group Inc. to advise on a possible deal. Reuters Group Plc, the biggest publicly traded provider of financial data, said it received a takeover approach from an unidentified company.
Mergers and acquisitions have helped send the stock market toward its fifth straight week of gains. Stocks also gained after the Labor Department said the U.S. economy added a fewer-than- forecast 88,000 jobs last month, boosting odds the Federal Reserve will cut interest rates.
``M&A will continue through the year,'' said Andrew Seibert, who helps manage $900 million at Stewart Capital Management in Pittsburgh. ``There's a lot of liquidity and these companies are flush with cash. It's one of the drivers for the market.''
The Standard & Poor's 500 Index added 4.45, or 0.3 percent, to 1506.84 as of 10:06 a.m. in New York. The Dow Jones Industrial Average advanced 15.44, or 0.1 percent, to 13,256.82. The Nasdaq Composite Index increased 6.72, or 0.3 percent, to 2572.18.
Better-than-forecast gains in worker productivity and the U.S. services industry yesterday pushed the Dow average to a third straight record and the S&P 500 above 1500 for the first time since September 2000.
For the week, the S&P 500 has risen 0.9 percent, the Dow average has advanced 1.1 percent and the Nasdaq has increased 0.6 percent.
Profit Growth
So far, 401 members of the S&P 500, or 80 percent, have reported average first-quarter profit growth of 12 percent. Analysts have upgraded their estimates at least twice since the start of the earnings season. They now expect S&P 500 companies increased profits by 9.4 percent in the period.
The 88,000 increase in employment last month followed a 177,000 gain in March that was smaller than previously estimated, according to the Labor Department. The jobless rate rose to 4.5 percent from 4.4 percent, which matched a five-year low.
The report also showed that average hourly earnings grew at a rate that trailed economists' forecasts.
Yields on interest-rate futures declined as traders priced in a higher likelihood the Fed will lower its target for the overnight lending rate between banks this year. Policy makers meet next week to decide on interest rates.
About five stocks rose for every three that fell on the New York Stock Exchange. Some 115 million shares changed hands on the Big Board, 3.4 percent less than the same time a week ago.
Yahoo, Microsoft
Yahoo jumped $4.62, or 16 percent, to $32.80, while Microsoft slid 35 cents to $30.62. An agreement between the two companies would create a dominant force on the Internet and raise the combined companies' share of the search advertising market to 27 percent compared with 65 percent for Google Inc. The New York Post report cited unidentified bankers.
Tom Brookes, a Brussels-based spokesman for Microsoft, had no immediate comment on the report. David Sawday, a London-based spokesman for Yahoo, declined to comment, saying the company doesn't discuss market speculation.
Reuters American depositary receipts, each representing six shares, surged $15.09, or 26 percent, to $74.01. Shares of the 156-year-old company had jumped 8 percent before the statement on speculation about an offer from Thomson Corp., the Canadian owner of the Westlaw legal database and TradeWeb financial services.
Companies around the world have announced some $1.8 trillion in mergers and acquisitions this year, according to data compiled by Bloomberg. Dealmaking totaled $3.68 trillion for all of last year.
Starbucks climbed 14 cents to $31.76. The world's largest chain of coffee shops said second-quarter net income increased to 19 cents a share from 16 cents a year earlier, matching analysts' estimates.
Crocs Inc. soared $11.27 to $68.68. The company said first- quarter earnings almost quadrupled as demand for the colorful line of casual shoes increased. Profit of 61 cents a share topped the 49-cent average estimate from analysts surveyed by Bloomberg.
Kodak Drops
Eastman Kodak Co., the world's largest photography company, dropped 54 cents to $25.43 after posting a wider-than-expected first-quarter loss as it spent to eliminate jobs and shut factories. The net loss of 53 cents a share compared with analysts' projections of a 3-cent loss.
Sears Holdings Corp. declined $7.03 to $181.29. The largest U.S. department-store company said first-quarter domestic same- store sales dropped 2.4 percent as consumers bought fewer home appliances because of a slowing U.S. housing market and increased competition.
Wednesday, May 2, 2007
Japanese Yen Breaks 120
The USDJPY looks top heavy at current levels as evidenced by RSI bearish divergence on the hourly. Still, the resistance is not until the 78.6% of 122.17-115.14 at 120.67. With the rally from 117.60 in 5 waves, a correction is due towards the former 4th wave, which intersects with Fibonacci support at the 38.2% and 50% of 117.60-120.23 at 118.91/119.22.
MasterCard Net Rises to Record as Card Use Increases
May 2 (Bloomberg) -- MasterCard Inc., the credit-card company whose shares have more than tripled since last year's initial public offering, said first-quarter profit surged 70 percent to a record as consumers charged more purchases.
Net income rose to $214.9 million, or $1.57 a share, from $126.7 million, or 94 cents, a year earlier, the Purchase, New York-based company said in a statement. Profit at MasterCard, the No. 2 card network behind Visa International Inc., beat the $1.16 average estimate of 12 analysts surveyed by Bloomberg.
Transactions jumped 19 percent as consumers continued to switch to cash and checks from credit and debit cards. MasterCard's revenue increased 24 percent, benefiting from a March increase in U.S. retail sales that was the biggest in three months. Visa plans an IPO early next year to capitalize on consumers' growing preference for credit over cash.
``This was a very strong quarter,'' analyst Craig Maurer at Calyon Securities, the investment-banking arm of Credit Agricole SA, said in an interview. ``They had great revenue, great transaction growth, great expense control.''
Revenue rose to $915.1 million, while expenses climbed 8.2 percent to $601.2 million on costs to hire more workers and defend against lawsuits.
Shares of the company advanced to $125.06 in early trading, from $114.85 at the close yesterday on the New York Stock Exchange. They were priced at $39 in the May 2006 IPO.
`Bullish' on Prospects
MasterCard credit- and debit-card spending increased 16 percent to $509 billion on a local-currency basis, and transactions jumped to 4.2 billion, the company said.
Consumers' use of cash and checks fell to 50 percent of all payments in 2005 from 77 percent in 1995, while card use rose to 40 percent from around 21 percent, analyst Timothy Willi of A.G. Edwards & Sons Inc. wrote in a note to clients this week, citing data from the Nilson Report in Oxnard, California.
Nilson estimates that by 2010, card-based payments will account for about 56 percent of consumer payments, while cash and checks will drop to 29 percent.
``We are bullish on the long-term prospects for MasterCard,'' Willi wrote. ``Consumers, businesses and government are making cards their preferred method of payment.''
MasterCard's advertising and market-development expenses dropped to $178.5 million from $182.7 million a year earlier. Maurer at Calyon said American Express Co., which reported a 21 percent profit increase on April 19, has also cut back on marketing.
``The card companies see limited opportunities to drive any incremental business in the current market,'' Maurer said.
Profit Margin
Shares of MasterCard slid 9.7 percent on Feb. 9, the biggest drop since the IPO, after Chief Executive Officer Robert Selander declined on a conference call with analysts to forecast continued growth in profit margins.
A lawsuit accusing MasterCard of anticompetitive behavior, brought by rival card networks American Express and Discover Financial Services, ``could put downward pressure on shares,'' as could Visa's public stock offering, according to analysts at JPMorgan Chase & Co.
The lawsuit is scheduled for trial in federal court next year.
MasterCard in April 2006 began charging card issuers for all foreign transactions using U.S.-issued cards. It used to assess a fee only if it converted the related currency to U.S. dollars.
Net income rose to $214.9 million, or $1.57 a share, from $126.7 million, or 94 cents, a year earlier, the Purchase, New York-based company said in a statement. Profit at MasterCard, the No. 2 card network behind Visa International Inc., beat the $1.16 average estimate of 12 analysts surveyed by Bloomberg.
Transactions jumped 19 percent as consumers continued to switch to cash and checks from credit and debit cards. MasterCard's revenue increased 24 percent, benefiting from a March increase in U.S. retail sales that was the biggest in three months. Visa plans an IPO early next year to capitalize on consumers' growing preference for credit over cash.
``This was a very strong quarter,'' analyst Craig Maurer at Calyon Securities, the investment-banking arm of Credit Agricole SA, said in an interview. ``They had great revenue, great transaction growth, great expense control.''
Revenue rose to $915.1 million, while expenses climbed 8.2 percent to $601.2 million on costs to hire more workers and defend against lawsuits.
Shares of the company advanced to $125.06 in early trading, from $114.85 at the close yesterday on the New York Stock Exchange. They were priced at $39 in the May 2006 IPO.
`Bullish' on Prospects
MasterCard credit- and debit-card spending increased 16 percent to $509 billion on a local-currency basis, and transactions jumped to 4.2 billion, the company said.
Consumers' use of cash and checks fell to 50 percent of all payments in 2005 from 77 percent in 1995, while card use rose to 40 percent from around 21 percent, analyst Timothy Willi of A.G. Edwards & Sons Inc. wrote in a note to clients this week, citing data from the Nilson Report in Oxnard, California.
Nilson estimates that by 2010, card-based payments will account for about 56 percent of consumer payments, while cash and checks will drop to 29 percent.
``We are bullish on the long-term prospects for MasterCard,'' Willi wrote. ``Consumers, businesses and government are making cards their preferred method of payment.''
MasterCard's advertising and market-development expenses dropped to $178.5 million from $182.7 million a year earlier. Maurer at Calyon said American Express Co., which reported a 21 percent profit increase on April 19, has also cut back on marketing.
``The card companies see limited opportunities to drive any incremental business in the current market,'' Maurer said.
Profit Margin
Shares of MasterCard slid 9.7 percent on Feb. 9, the biggest drop since the IPO, after Chief Executive Officer Robert Selander declined on a conference call with analysts to forecast continued growth in profit margins.
A lawsuit accusing MasterCard of anticompetitive behavior, brought by rival card networks American Express and Discover Financial Services, ``could put downward pressure on shares,'' as could Visa's public stock offering, according to analysts at JPMorgan Chase & Co.
The lawsuit is scheduled for trial in federal court next year.
MasterCard in April 2006 began charging card issuers for all foreign transactions using U.S.-issued cards. It used to assess a fee only if it converted the related currency to U.S. dollars.
Citigroup to Buy Bisys to Expand Hedge-Fund Services
May 2 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, agreed to buy Bisys Group Inc. for $1.47 billion to expand the services it offers hedge funds and private-equity firms.
Citigroup will pay $11.85 a share and a special dividend of 15 cents a share at closing, the New York-based bank said in a statement. Shares of Bisys, based in Roseland, New Jersey, closed yesterday at $11.47. Citigroup said it will sell Bisys's retirement and insurance units to affiliates of buyout firm J.C. Flowers & Co., making the net cost of the deal $800 million.
The acquisition may speed Citigroup's push to serve so- called alternative funds, the fastest growing segment of the asset-management industry. The bank said it can offer banking, trading and investment-banking services to Bisys's hedge-fund and private-equity clients.
Bisys ``will extend our full-service client platform and reaffirm our focus on serving the needs of high-growth markets,'' Michael Klein, co-president of Citi Markets and Banking, said in the statement.
The transaction is scheduled to close in the second half of this year and is subject to approval by Bisys shareholders and regulators in the U.S., Ireland and Bermuda. The acquisition won't affect earnings in the first year and will add to profit thereafter, Citigroup said.
Citigroup's own investment bankers advised the bank on the transaction.
New York-based J.C. Flowers, run by founder and former Goldman Sachs Group Inc. executive Christopher Flowers, specializes in taking financial-services companies private. Last month Flowers led a group of investors in agreeing to buy student-loan provider SLM Corp., known as Sallie Mae, for $25 billion.
Citigroup will pay $11.85 a share and a special dividend of 15 cents a share at closing, the New York-based bank said in a statement. Shares of Bisys, based in Roseland, New Jersey, closed yesterday at $11.47. Citigroup said it will sell Bisys's retirement and insurance units to affiliates of buyout firm J.C. Flowers & Co., making the net cost of the deal $800 million.
The acquisition may speed Citigroup's push to serve so- called alternative funds, the fastest growing segment of the asset-management industry. The bank said it can offer banking, trading and investment-banking services to Bisys's hedge-fund and private-equity clients.
Bisys ``will extend our full-service client platform and reaffirm our focus on serving the needs of high-growth markets,'' Michael Klein, co-president of Citi Markets and Banking, said in the statement.
The transaction is scheduled to close in the second half of this year and is subject to approval by Bisys shareholders and regulators in the U.S., Ireland and Bermuda. The acquisition won't affect earnings in the first year and will add to profit thereafter, Citigroup said.
Citigroup's own investment bankers advised the bank on the transaction.
New York-based J.C. Flowers, run by founder and former Goldman Sachs Group Inc. executive Christopher Flowers, specializes in taking financial-services companies private. Last month Flowers led a group of investors in agreeing to buy student-loan provider SLM Corp., known as Sallie Mae, for $25 billion.
Subscribe to:
Posts (Atom)