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Sep 12, 1999

  1. International
  2. Finance
  3. Industry
  4. Policy
  5. Trade
  6. Gulf

UK surprises markets with key rate hike

The Bank of England shocked financial markets by raising Britain's key short-term interest rate by a quarter point to 5.25 per cent, the first rise since June last year.

The MPC said it was worried about strong consumption and the housing market and said an early move could lower the level at which interest rates might otherwise need to be set.

The BoE's Monetary Policy Committee has faced growing signs Britain's economic recovery is picking up, but also that inflationary pressures remain subdued.

The pound jumped more than half a cent against the dollar on the news to 1.6185 while the FTSE 100 share index closed 55.9 points lower at 6,253.6.

The nine-member MPC had cut rates seven times since last October by a total of 2.5 percentage points and consumer and business confidence rebounded as a result. But underlying inflation, or RPIX, remains at 2.2 per cent, comfortably below its government-set target of 2.5 per cent.

British rates are now more double those in the euro zone but on the same level as the U.S., following a rate rise there on August 24.

They were at 5.25 per cent between April and June this year, when they were cut to a 22-year low of 5.0 per cent.

Economic data since the July meeting had been thought not to have given a decisive lead to MPC members such as BoE Deputy Governor Mervyn King who has argued for a preemptive rate hike to choke off potential inflationary dangers.

Lenders have reported house prices across the country rising at almost 10 per cent annually with prices in London and the southeast rising much faster.

But industry, which is just emerging from recession and has long pleaded for lower rates slammed the MPC's decision.

Mortgage rates

Halifax Plc, Britain's largest mortgage bank, was the first to jump, lifting its key variable mortgage rate by 14 basis points to 6.99 per cent.

Lloyds TSB Group Plc Citibank UK, Barclays Plc, Bank of Scotland, Royal Bank of Scotland and HSBC Holdings Plc's Midland all said they would lift their base rates by 25 basis points to 5.25 per cent.

IMF report warns on high-flying U.S. stocks

A drop in high-flying U.S. stock prices could hit markets around the world, but how far and how fast the impact could spread is hard to determine, the International Monetary Fund said.

The IMF's International Capital Markets report, in annual review of prospect for markets, banks and financial systems, said a fall in U.S. share prices could hurt other countries.

It warned of risks to currencies and to banking systems and said current account imbalances between Europe and the United States could put pressure on the dollar in the medium term.



Signet: Jewellery retailer Signet Group Plc reported its pre-tax profits for the 26 weeks to July 31 rose to 22.9 million from 12.1 million. Sales increased to 447.0 million from 398.5 million.

Michelin: French tyremaker Michelin reported its net attributable profits increased to 292 million euros in the first six months of 1999 from 249 million euros for the same period last year.

Credit Suisse Group: Credit Suisse Group, said first-half net profit rose by 264 million Swiss francs, or 11 per cent, to 2.67 billion francs ($1.78 billion).

Fairfax: Quality broadsheet publisher John Fairfax Holdings Ltd's net profit in the year to end-June rose 61 per cent to A$180.27 million, including an abnormal gain of A$45.80 million arising from the sale of its stake in Vodaphone by associate AAP Information Services, partly offset by writedowns and other costs.

RJB Mining: Britain's biggest coal producer RJB Mining Plc, posted sharply lower half-year profits. Profit before tax and exceptionals tumbled to 4.02 million for the six months to June 30, 1999 from 44.0 million a year earlier.

AsiaSat: Asia Satellite Telecommunications Holdings Ltd reported a 36 per cent drop in first-half profits. The regional satellite service provider announced a net profit of HK$167.1 million for the six months to June 30, down from HK$262.4 million in a year-ago period.

Anglo-Swiss: Anglo-Swiss Zurich Financial Services posted a better-than-expected 17.2 per cent rise in first-half 1999 group net income. Net earnings at the group rose to $1.69 billion from $1.44 billion.

Arriva: British bus company Arriva Plc's pre-tax profit rose eight per cent to 51.6 million on turnover of 833.8 million.

Seven Network: Television broadcaster Seven Network Ltd reported earnings before interest and tax (EBIT) came in at A$108.8 million for 1998-99, down 36 per cent on the previous year's A$170.1 million.


Creditors reject Ssangyong plan

Creditors of Ssangyong Motor Co, a unit of the beleaguered Daewoo Group, rejected a proposal to give the automaker $115 million in trade financing, the main creditor bank said.

A spokesman for Chohung Bank said creditors voted down the proposal submitted by the bank and that it would arrange a second meeting of creditors soon.

Creditors of six of the 12 Daewoo affiliates under a debt workout plan were scheduled to meet separately to discuss financial steps to help maintain the operations of individual Daewoo companies.

Microsoft in Asia telecom link venture

Global Crossing, Softbank and Microsoft announced they have formed a joint venture company to build a telecommunications network in Asia, initially spending $1.3 billion.

Global Crossing will contribute its 57.75 per cent holding in Pacific Crossing 1 system while Softbank and Microsoft will contribute $350 million and make a $200 million capacity commitment.

The initial high-speed data network, the East Asia Crossing, will be connected by Pacific Crossing 1 to the United States and the remainder of Global Crossing's worldwide network, the companies said in a statement.

The 17,700 kilometre undersea and terrestrial network will link Japan, China, Singapore, Hong Kong, South Korea, Taiwan, the Philippines and Malaysia.

Oil prices race to new 31-month high

World oil prices raced to their highest level for two and a half years as the threat of an oil workers strike in key producer Venezuela deepened fears of a potential supply crunch.

Benchmark Brent crude broke through a previous high of $21.75 and soon stormed to a new peak of $21.99 a barrel, more than 60 cents up on the day and its highest level since February 1997.

The gains followed news that Venezuela's largest oil union, Pedepetrol, said it would call an indefinite strike of its members from September 14 to pressure the government to speed up negotiations on a new wage deal for the industry.


Mergers & Acqisitions

Viacom—CBS: Viacom Inc. the name behind MTV and Paramount Pictures, moved to expand its media empire with a deal to buy U.S. television broadcasting icon CBS Corp for $37 billion in stock — a combination billed as the largest media transaction ever.

Hilton—Promus: Hilton Hotels Corp said it would buy Promus Hotel Corp for $4 billion in cash, stock and debt, creating a giant with 1,700 hotels and operations in almost every segment of the industry.

NatWest—L&G: National Westminster Bank Plc unveiled a 10.75 billion agreed bid for British life insurer and fund manager Legal & General Plc, but the deal left investors unimpressed.

Salomon Smith Barney —ANZs: Salomon Smith Barney said it planned to become a major retail stock broker in Australia after it acquired the retail broking business of Australia and New Zealand Banking Group Ltd on October 1.

StanChart—Nakornthon Bank: Britain's Standard Chartered Bank will take a controlling stake in Nakornthon Bank, a small Thai bank which collapsed in the wake of the Thai financial crisis, shareholders and officials said.


ANZ to raise capital in New Zealand

Australia & New Zealand Banking Group Ltd could raise around NZ$800 million with a securities offering in New Zealand, expected in the first quarter of 2000.

The move follows a similar capital raising planned by ANZ's rival Westpac Banking Corp, which plans to tap investors for NZ$800 million with a new class of shares in New Zealand.

ANZ said it had not yet finalised how much it planned to raise, but sources said it would probably be about as much as Westpac's issue.

The capital would be used for "general -banking- purposes", said the group, which last year raised $375 million with a U.S. issue of trust units exchangeable for preference shares.


Surging yen seen threatening Japan

The surging yen threatens to undo Japan's fragile recovery, Japan's trade minister Kaoru Yosano warned.

"We have a very strong concern over the yen's rise which is going far faster than the recovery pace of economic fundamentals," Yosano said in a speech to businessmen in Tokyo.

Foreign investors have been pouring money into Tokyo stocks in recent months, hoping to benefit from the growing signs of recovery in the world's second largest economy.

That in turn has pushed up the yen to record highs against the euro and seven-month highs against the dollar.

At 5:00 p.m. (0800 GMT) the dollar was trading at 109.60-63 yen, against 109.73-76 yen in Tokyo late Friday.

The yen's rise was an "unstabilising source" for the economy, particularly because it accompanied record unemployment, the minister said.

Yosano blamed the heavy U.S. trade deficit for creating weakness in the dollar.

"The current weakness of the dollar has been created by concerns about which country may need to finance this deficit," Yosano said.

The U.S. trade deficit unexpectedly surged to $24.6 billion in June, Washington's highest monthly deficit since 1992.

Japan expected to be back enjoying strong growth very soon, Yosano said.

"What we want to aim for in the fiscal year 1999 is clear economic growth at an annual rate of 0.5 per cent," he said.

"The major economic framework by the Obuchi government is to place the economy onto a stable growth track in the year 2001 which will be led by private demand," Yosano said.

Strong growth figures for the early part of this year, fuelled by huge government stimulus packages, have raised investors' hopes of a quick recovery.

Top U.S. Internet retailer plans $2b Wall Street float

Buy.com, one of America's top internet retailing companies, is thought to be planning a $2 billion Wall Street flotation this autumn. Ahead of the float, the company is negotiating a move into the British market with funding from e-partners, the new media venture-capital firm backed by News Corp, ultimate owner of The Sunday Times.

The stock-market debut of the California-based Buy.com is likely to be one of the most eagerly awaited new issues on Wall Street in recent times. The company, advised by Merrill Lynch, is a rival to Amazon, the "etailing" pioneer. Amazon's shares have soared from $1.40 in 1997 to $62.44, having peaked at $95.03 in April. Its market value is now $21 billion.

Euro victim of wrong policies: ECB

European Central Bank President Wim Duisenberg said that the euro was vulnerable to national policies and member states were increasingly recognising the need for structural reforms.

Speaking at a financial conference in Cernobbia, Italy Duisenberg said that for the euro to be a lasting success, national policy makers, businesses and trade unions within the European economic and monetary union would have to adapt to the conditions of the single currency.

U.S. data cheer financial markets

Financial markets on both sides of the Atlantic surged after weaker-than-expected U.S. jobs data soothed fears of another rate rise soon and indicated the red hot U.S. economy might be cooling.

European stock indexes jumped after the number of U.S. workers on payrolls outside the farm sector rose by 124,000 last month while New York opened sharply higher.

U.S. stocks surged to session highs at midday. The Dow Jones industrial average was up 239, or 2.21 per cent, at 11,083 at 12 p.m. EDT.

The technology-laden Nasdaq composite was up 91 points, or 3.34 per cent, or 2,825. The 30-year U.S. Treasury bond was up 1-15/32 to yield 6.02 per cent.

The Dow's strong gains Friday after several gloomy days has made the average almost flat for the week.

In Europe, the German and French markets closed more than 2-1/2 per cent higher and the FTSE in London ended up 2.2 per cent.

$3.75b to bail out Seoulbank

South Korea declared Seoulbank insolvent, clearing the way for a $3.75-billion state bailout of the debt-ridden financial institution.

The recapitalisation follows the collapse earlier this week of negotiations on the sale of the troubled bank to Britain's HSBC Holdings plc.

NYSE likely to go public next year

The New York Stock Exchange inched closer toward shedding its members only private ownership status, but the 207-year-old institution's board stopped short of voting to convert the NYSE into a for-profit company.

Instead, the board sanctioned a study to explore the consequences of the world's largest stock market becoming a publicly traded company.