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Sep 20, 1999

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

Yen soars against dollar and euro

The yen surged to its strongest level against the dollar in three and a half years and an all-time best versus the euro, while European stocks and bonds fell as benign U.S. inflation data failed to quell Wall Street's fear of higher interest rates.

The dollar dropped more than 2.5 per cent to 103.25 yen at its weakest point of the day, its lowest since January 1996, and analysts saw it dropping to 100 yen and beyond in the absence of Bank of Japan intervention.

European stocks closed lower as U.S. shares moved into the red for the day, while the benchmark German government bond future fell to a contract low.

"The real problem for everyone at the moment is the strength of the yen," said Nomura bond trader Paul Eustace in London. "It is impacting on U.S. Treasuries and on Bunds as well."

The euro hit a life low at 106.84 yen and briefly dipped to eight-week lows at $1.0287 after benign U.S. consumer price data buoyed the dollar.

By late in the European afternoon, the yen stood at 103.84 against the dollar and 107.83 against the euro. The euro was worth $1.0387.

The yen has gained seven per cent against the dollar and nine per cent against the euro since news on September 9 of a second consecutive quarter of Japanese economic growth.

The euro's weakness— rekindling talk it could hit parity against the dollar—and heavy supply of new issues sent European government bonds falling.

The benchmark December Bund touched a contract low of 104.71, while the yield on the 10-year Bund rose to 5.190 per cent.

Stocks and bonds on both sides of the Atlantic briefly moved higher on news that the consumer price index (CPI), the main U.S. inflation gauge, rose by 0.3 per cent in August.

The gain, identical to its increase the previous month matched forecasts and was initially seen as easing the risk of another U.S. rate rise.

Goldman banker on Allianz board

German insurer Allianz AG appointed Paul Achleitner, a prominent Goldman Sachs banker, to its management board as it seeks to boost its asset management business and step up possible acquisitions.

Allianz said it named Achleitner, 42, currently managing director and head of Frankfurt office of Goldman Sachs, as the head of the finance division and co-chief financial officer.

He would share responsibilities with Joachim Faber, 49, currently chief financial officer at Allianz domestic non-life unit. Faber in the future would lead a new division of asset management and other financial services.

U.S. posts record deficit

The U.S. current account deficit, the broadest measure of trade with the rest of the world, soared to a record in the second quarter, sending an already weak dollar to a three-year low versus the yen.

The Commerce Department said that the current account deficit swelled 17.5 per cent in the three months ended in June to $80.67 billion — the largest quarterly gap on record.

That was up from a $68.65 billion deficit in the first quarter of this year and was only the latest in a series of reports highlighting a trend of surging imports that are far outpacing any growth in exports.

"To see these trade numbers getting worse by the day adds to the dollar's pressures," said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio. "To expect the dollar to recover overnight in the wake of numbers like these is an illusion."

The dollar, which had been sliding all morning against the Japanese yen because of fears of higher U.S. interest rates, fell further upon the release of the current account figures.

Mergers & Acquisitions

UBS—GAM: Swiss bank UBS AG said its purchase of international investment firm GAM Global Asset Management, costing between $575 million and $675 million was for expertise and not just a bundle of assets.

Swatch—Breguet: Swatch Group said it had reached an agreement with Investcorp SA to take over all the shares of Breguet, whose origins date to 1775. No financial terms were disclosed.

Motorola—General Instrument: Telecommunications equipment powerhouse Motorola Inc expanded its reach in the cable TV industry, saying it would buy leading set-top box maker General Instrument Corp in a stock deal valued at about $11 billion.

INA—Generali: Italian insurer INA rejected a "hostile" bid from rival Generali and vowed to pursue its own planned alliance with Turin bank Sanpaolo IMI, setting up another takeover battle months after Italy's telecoms clash.

Microsoft—Visio: Microsoft Corp said that it planned to buy Visio Corp, a maker of technical drawing software, for $1.3 billion in stock, with each Visio share to be exchanged for 0.45 shares of Microsoft.

Delancey—Milner: British property firm Milner Estates agreed to a 173.4 million takeover offer from Delancey Estates Plc, a UK rival controlled by international financier George Soros.

TotalFina—Elf Aquitaine: French oil companv TotalFina won its takeover fight for rival Elf Aquitaine after raising its offer to appease Elf's management and will now create the world's fourth largest oil company on its own terms. TotalFina said it was offering 19 of its shares for 13 Elf shares up from its initial bid of four TotalFina shares for three Elf.

Energis—Racal: British business telecoms group Energis Plc is poised to buy the telecoms division of Racal Electronics Plc for 750-800 million, UK newspapers said.

TAG Heuer—LVMH: Switzerland's TAG Heuer said it had agreed to a cash bid from France's LVMH Moet Hennessy Louis Vuitton valuing the luxury watch maker at about 1.148 billion Swiss francs ($739 million).

News Corp—Ziff-Davis: Rupert Murdoch's News Corp Ltd is considering a $1.5 billion purchase of U.S. technology media and Internet company Ziff-Davis Inc. the Observer newspaper said.

ING—CCF: Dutch financial group ING added fuel to the takeover speculation surrounding France's CCF, revealing for the first time a strategic desire to gain full control of the French bank.

Veba—Viag: Viag AG shares jumped on a report Veba AG has offered a 10 per cent premium to the market price for the state of Bavaria's stake in Viag paving the way for a merger of the two utilities.

UK inflation crawls to slowest rate

British inflation slowed sharply in August to a tempo not seen for more than 36 years, official figures showed, suggesting that last week's surprise interest rate hike will be the last for some time.

Headline consumer prices, which include home-loan repayments, grew 0.2 per cent in August from July against forecasts of a 0.4-per cent jump. Prices were up just 1.1 per cent over the past year—the slowest rate of growth since July 1963, the Office for National Statistics reported.

Annual headline inflation was, by comparison, put at 1.3 per cent in July.


Kingfisher: Kingfisher Plc reported a near 40 per cent increase in first half profits. Pre-tax profits for the 26 weeks to July 31 rose to 254.0 million ($407 million) from 182.6 million. Group sales increased to 4.8 billion from 3.01 billion.

Thomson-CSF: French defence electronics firm Thomson-CSF reported a sharp rise in first half 1999 profits. The company said net profit jumped to 203.2 million euros ($209.4 million) in the first six months of the year from 41.9 million euros last year.

Gucci: Italian luxury goods group Gucci posted a six per cent rise in second quarter. Operating profit on strong summer sales and an 87 per cent jump in net income thanks to interest from its $3 billion cash pile.

ADB raises growth forecasts for Asia

The Asian Development Bank said it had raised its economic growth forecasts for Asia, but it sounded notes of caution on the political situation in Indonesia, Y2K compliance, and the slow pace of reforms.

In its Asian Development Outlook Update, the Manila-based lending agency said average economic growth in developing Asia, which it defined as the region minus Japan, could reach 5.5 per cent in 1999 and 2000.

In April, the bank had forecast 4.4 per cent growth in 1999 for the region and 5.1 per cent growth in 2000.

Globally, the ADB said there was a clear prospect the down turn in 1998 that saw world GDP growth declining to 2.5 per cent as compared to 4.2 per cent in 1997 had been arrested.

It said the rate of world GDP growth in 1999, supported by a stronger-than-expected Asian recovery, was expected to move above 2.5 per cent and to improve to about 3.5 per cent in 2000.

Apec unveils plans to lift tariff barriers

Asia-Pacific leaders stepped up efforts to free up trade across half the world, announcing a package of proposals to remove tariffs barriers and make financial markets more efficient.

New Zealand Prime Minister Jenny Shipley stood before a line of 20 presidents, premiers and other national representatives and laid out measures which they hope will increase competition and prosperity of all their peoples.

Most of the final announcement of the annual Asia Pacific Economic Cooperation (Apec) summit was in line with details of the written Apec communique leaked to Reuters and reported three days earlier but Shipley managed to come up with a few surprises.

Delivering what she called "the Auckland Challenge" Shipley said finance ministers had been instructed to work with other relevant organisations to develop banking standards for the region. She also said Apec leaders agreed to speed up efforts to eliminate non-tariff barriers to trade.

Speaking in the Maori court in Auckland's War Memorial Museum, Shipley said the Asia Pacific nations were committed to a new three-year round of global trade talks culminating in a single package and abolition of export subsidies.

The talks will begin in Seattle in November under the auspices of the World Trade Organisation (WTO).

Apec members, representing $16 trillion in economic output were committed to the launch of new round of global trade talks covering industrials, agriculture and services, Shipley said.

"We will strengthen our markets and improve the international framework governing trade and investment flows," she told the other 20 leaders, all male, dressed in identical black polo shirts and black yachting spray jackets.

Black is New Zealand's national sporting colour.

Banks mull pan-European bourse

A group of American and European investment banks could create their own pan-European electronic bourse if similar efforts led by the London Stock Exchange and the Deutsche Boerse continue to make little progress.

German banking sources confirmed there were ongoing talks among banks about forming a pan-European bourse but said no decision had been taken yet.

A source close to Frankfurt's Deutsche Boerse said the rival plan had to be taken seriously. The London Stock Exchange could not be immediately reached for comment.

German business daily Handelsblatt reported that major U.S. investment banks and UBS of Switzerland plan to form their own European stock exchange.

Handelsblatt, citing unnamed banking sources, said Goldman Sachs, Morgan Stanley Dean Witter, J P Morgan, and Merrill Lynch along with UBS had decided to press ahead due to slow progress with the London/ Frankfurt project.

The new exchange was likely to be set up next year and later link up with other securities markets worldwide, it said.

Lenders hold loans to Indonesia

The World Bank and International Monetary Fund (IMF) are withholding any new loans to Indonesia until the controversy surrounding Bank Bali is cleared up, a senior World Bank official said.

The controversy revolves around a payment of more than $70 million by PT Bank Bali to a firm run by Setya Novanto—a leading figure in the ruling Golkar party—for the recovery of loans from the Indonesian Bank Restructuring Agency (IBRA).

Prospects slim for quick EU tax deal

The European Union admitted its plans for a Unionwide savings tax were in deep trouble after Britain threatened to block the measure because of fears about its impact on the Eurobond industry.

"I agree that problems are very deep and difficult," Finnish Finance Minister Sauli Niinisto, current chairman of the EU finance ministers' council, said.

Finance ministers hoped to push ahead with the levy at this weekend's meeting in Turku, Finland, where Britain submitted new proposals aiming to exempt the London-based bond industry. Britain fears the tax would drive the multi-billion dollar business to centres outside the EU, wiping out thousands of jobs in London's financial district.

British proposals were spurned by other countries, and the EU looked set to miss its own deadline to approve the levy at a December summit in Helsinki.