Rising tide for Neptune A
No 2nd hand out this year Residents are unlikely to get a second cash hand out from the government this year says Francis Tam Pak Yuen, Secretary for Economy and Finance. Last year two payments were made. But Mr Tam indicated residents might get something in kind. That’s a top up for the community’s safety net for the old and poor – the Social Security Fund – with cash from taxes on gambling. Page 3
pending takeover deal of three smaller operations would make Neptune Group Ltd the biggest junket investor in Macau, putting under its control a monthly rolling chip turnover of up to 100 billion patacas (US$12.9 billion). That’s as much as ASEAN – the Association of Southeast Asian Nations – is planning to spend on regional infrastructure in the next decade. A downturn in Macau VIP revenue – the segment contracted eight percent year-on-year in July – appears to be accelerating a trend for junket consolidation. Big is beautiful in high stakes operations because of issues including baccarat hold volatility. Junkets and junket investors get to keep only a small fraction of the turnover recorded by their operations. The traditional business model – commission – is nowadays capped at 1.25 percent
going to the junkets. But they typically keep only 20 to 35 basis points (0.20 percent to 0.35 percent) after sharing incentives and rebates with their players. That could still theoretically provide any junket rolling US$12.9 billion a month with net income of US$25.8 million per month. In practice industry consolidators such as Neptune are increasingly in revenue share deals with the casinos, getting a percentage of the casinos’ net revenue from VIP play after tax and expenses and in turn sharing that with their junket partners. Revenue share can vary significantly from quarter to quarter in cash terms because of the volatility of baccarat hold rates. The three junkets targeted by Neptune control 64 tables and have a combined average monthly rolling chip turnover of HK$29.2 billion according to a filing with the Hong Kong Stock Exchange. More on pages 2 & 3
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Incinerator slams ‘unfair’ fine
HANG SENG INDEX 20100
The government has fined the operator of the Macau incinerator for an excessive level of heavy metals and dioxins in its emissions. But the operator is taking the dispute to court, claiming authorities are to blame for requesting the incineration of non-domestic waste and not updating emission standards.
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HSI - Movers
MPEL, MGM China, net earnings up With homes gone, investors eye shops As the number of saleable homes is growing thin, investors are rushing to buy shops, hoping for good return from rents. The value of sales of commercial units in Macau set a new historic record in June, for a second consecutive month, while residential sales dropped by a third. Page 7
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elco Crown Entertainment Ltd would like to start work on a fifth tower at City of Dreams on Cotai “as early as next year” said co-chairman Lawrence Ho Yau Lung in a second quarter earnings call yesterday. MPEL’s quarterly net income was up 23 percent year-on-year, to US$82.3 million (657 million patacas). “MPEL is fully committed to developing a fifth tower at CoD, a project we believe would be instantly accretive [to earnings] given CoD’s relative lack of hotel rooms,” said Cameron McKnight of Wells Fargo in New York in a note to investors. Meanwhile MGM China Holdings Ltd, operator of MGM Macau, issued its unaudited second quarter earnings. Although VIP turnover shrank six percent year-on-year in the quarter, it still posted a six percent growth in its net revenue to HK$5.5 billion driven by increases in volume for main floor table games and slots of seven percent and 39 percent respectively. Page 5
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Year I - Number 93 Wednesday August 8, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00
business daily August 8, 2012
Rising tide of junket consolidation Neptune Group’s takeover bid could push its monthly rolling to US$13 billion Associate Editor
pending deal by Hong Kong-listed junket investor Neptune Group Ltd to take over three smaller junket operations could increase its Macau VIP gambling business by 40 percent. It would make Neptune the biggest junket investor in Macau, with monthly rolling chip turnover of 100 billion patacas (US$12.9 billion). That’s nearly as much as Pfizer – the global pharmaceutical firm that makes Viagra – turned over in sales in the whole of the second quarter this year. Ironically it’s actually a downturn in Macau VIP revenue that appears to be accelerating a trend for consolidation in the junket industry. This is where smaller junket operations seek protection from increasingly challenging trading conditions by allying themselves with larger operators, or where midsized junket operators offer to buy out the business of smaller ones in order to grow quickly and compete with the bigger ones. An example of the first type of deal is Neptune announcing in a stock market filing on Monday that it had signed memoranda of understanding with three separate junket operations: Hoi Long in Grand Lisboa; Wing Cheok Club in MGM Macau and Hoi Fong in Wynn Macau. Subject in each case to due diligence checks on the junket businesses, Neptune is to take over the profit share agreements of all three in return for an undisclosed amount of compensation. On the same day Asia Entertainment & Resources Ltd, a mid-sized junket investor with three VIP rooms in Macau, announced an MOU with Bao Li Gaming Promotion Ltd, a Macaubased VIP room gaming promoter that currently operates one room with five tables at City of Dreams, a Melco Crown Entertainment Ltd property on Cotai. AERL says it hopes to conclude the deal by September 30. The Neptune MOU in particular is a significant development in the Macau
VIP sector. The three target junkets between them control 64 tables and have a combined average monthly rolling chip turnover of HK$29.2 billion (US$3.77 billion) according to the filing with the Hong Kong Stock Exchange. Industry sources say Neptune’s current rolling chip turnover averages HK$70 billion per month, so the three deals would potentially increase the size of Neptune’s junket business by just under 42 percent. That’s as long as there is no major decline in Macau VIP business beyond the eight percent contraction year-on-year seen in July. “Neptune’s rolling volume is still around the HK$70 billion mark per month, which puts them in top spot, though they will always modestly suggest that they are in the top five,” says Ben Lee of IGamiX Management & Consulting Ltd, an industry consultant with hands on experience of the VIP business in Macau and at NagaWorld in Cambodia. “Neptune is also consolidating their business in Macau by turning MGM into their de facto base, where apart from a dedicated floor in the hotel tower, they are also getting swathes of new gaming space on the second floor. As MGM’s underpinning junket, this arrangement should continue to provide support to MGM’s
base VIP volume,” says Mr Lee. Commenting on the Macau market’s total July revenue figures of 24.6 billion patacas – a year-on-year expansion of only 1.5 percent, Kenneth Fong of J.P. Morgan in Hong Kong pointed out the continued strong performance of the mass market compared to VIP. He said in a note to investors: “By segment, VIP declined eight percent year-on-year and mass [market] was up a strong 31 percent. VIP junket chips volume (not affected by luck) declined three percent year-on-year (similar with June’s decline of two percent) but up seven percent monthon-month. Win rate was 2.8 percent, slightly below normal 2.85 percent. We believe that the typhoon that hit Macau on July 23 and the rainy weather afterwards have hurt revenue growth by two to three percent.”
US$13 bln Neptune’s poss monthly rolling chip turnover after takeover deal
High tide – Neptune could soon be king of the junket investors
Consolidation trend Big is beautiful in the world of Macau junkets
he tendency of smaller junkets to team up with larger junket investment companies – a few of them publicly listed in Hong Kong or New York – has been around since 2007. The larger junket investors have economies of scale when it comes to things such as back office functions and accounting. And most importantly their access to larger pools of players makes them better able to negotiate favourable revenue sharing deals with the casinos. The traditional way for casinos to lure junkets to bring in big players was to pay the junkets commission
on rolling chip turnover. That offers a stable income but a limited one. Commission has – theoretically at least – been capped at 1.25 percent after a price war sparked in late 2007 by AMA International, an aggregator of junkets working with Hong Kong listed junket investor Amax Holdings Ltd. According to stock exchange filings AMA used money loaned by Amax to extend credit to smaller junkets at an eye-popping 1.35 percent commission rate. To put that in perspective, at the end of Stanley Ho Hung Sun’s monopoly
in 2002 the commission rate averaged 0.9 percent. The commission spike did what it was designed to do – rapidly increase the gambling revenue market share of Melco Crown Entertainment Ltd’s once struggling Crown Macau [now Altira] property on Taipa. It went from having 5.7 percent of Macau gross revenue in November 2007 to an 18.1 percent share in February 2008. But the story of Amax is also a graphic reminder of the dangers of junkets competing too hard for customers by rapidly buying market share. It tends to encourage
riskier business practices, where credit for gambling is loaned to people that the junkets may not know very well. Last week auditors again refused to vouch for a financial report by Amax Holdings. One of the deals questioned by accountancy firm Baker Tilly Hong Kong effectively drained Amax of HK$2.06 billion. According to the firm’s annual report for year ending March 31, the amount represents combined losses on loans made by an Amax subsidiary to AMA International. A.E.
August 8, 2012 business daily | 3
Photo by Manuel Cardoso
Second cash handout a ‘difficult’ proposition Secretary Francis Tam says it is unlikely that a second cash handout will happen Tony Lai
ecretary for Economy and Finance Francis Tam Pak Yuen has poured cold water on the possibility of a second cash handout this year, hinting that the odds are against it because changing the budget is too hard. Mr Tam said it would be “relatively difficult”topermitanothercashhandout without touching the fiscal reserve. Only last week Chief Executive Fernando Chui Sai On floated the idea of a second cash handout. Mr Tam, speaking to reporters on the sidelines of Monday’s Legislative Assembly meeting, said last year’s budget surplus of more than 63 billion patacas (US$7.88 billion) could be allocated to the special fiscal reserve – available for public spending – only after the assembly reviewed the execution of last year’s budget, which is due to take place later this year. Mr Tam said there was no particular need for a supplementary budget but he did not rule out the possibility of including a cash handout in next year’s budget. He will meet legislators tomorrow to discuss this year’s budget execution. Legislative Assembly member Kwan Tsui Hang told reporters last week that the chief executive had responded “positively” to the idea of a second cash handout before the end of the year to help offset the impact of inflation, which has remained above 6 percent since March. Already this year the government has given permanent residents 7,000 patacas and non-permanent residents 4,200 patacas. The Financial Services Bureau said last month that this year’s cash handout scheme had been “just about completed”. The government has spent almost 41 billion patacas, although 12.2 percent of the cheques have yet to be cashed.
2.4 percent of gambling tax revenue, or 5.5 billion patacas, was allocated to tourism promotion, the construction of public facilities and social services. The government levies a tax of 35 percent on gross gambling revenue and indirect taxes account for an additional 4 percent. The government put about 60 percent of these tax receipts, or 3.3 billion patacas, into the Social Security Fund last year. Mr Tam said the government intended to increase the proportion to 75 percent next year, which would mean an additional 800 million patacas. The president of the fund, Ip Peng King, said last month that it relied on government support because the individual monthly contribution of 45 patacas was not enough to sustain it. Mr Ip estimates that the individual monthly contribution would have to be above 440 patacas to allow for a monthly pension of 2,000 patacas. The deputy director of the fund, Chan Pou Wan, said on Sunday that the monthly contribution was likely to rise to 90 patacas.
MOP3.3 bln Government contribution to the Social Security Fund last year
Social security boost Mr Tam said on Monday the Social Security Fund could receive at least 4 billion patacas of gambling tax revenue next year. The government says that last year
Rewards – and risks Junkets now exposed to trading volatility via revenue share
unkets are essentially middlemen – interposing themselves between the Macau casinos and the players – and taking on the commercial risk of providing high stakes players with gambling credit. That’s chiefly because the majority of big players in Macau are from mainland China and can’t legally bring more than 20,000 yuan (US$3,140) a day over the border. That’s about enough for one hand of baccarat in many VIP rooms, and at the upper end of the minimum bet range for so-called ‘premium mass’ tables in an upmarket venue such as Wynn Encore. However in Hong Kong – starting
last Wednesday – non-residents have been able to open yuan accounts there and buy unlimited amounts of the currency according to the Hong Kong Monetary Authority. Despite this liberalising trend in the mainland’s approach to controlling cross border movement of its currency, junkets are still important in Macau. But the junket business has small margins and some risks. The hold rates for the Macau VIP game of choice – baccarat – are volatile. In other words, how much the house gets to keep as a percentage of the money wagered varies from quarter to
quarter relative even to the theoretical house edge built into the game. And modern Macau junkets are now exposed to that volatility risk because many of them have moved onto a revenue share model rather than the traditional commission one. Sometimes the house keeps more than the mathematical house advantage, and sometimes less. If the house hold is below theoretical in a given quarter, there’s less money for the casino to share with the junket. In that trading environment, the more VIP rooms, the more players and the greater volume of chip roll that
a junket investor has, the better the chance of offsetting ‘bad luck’ for the house with one player or one room against ‘good luck’ for the house with other players or other rooms. In addition, the more players a junket operation has, the less vulnerable it is to its trading performance being negatively affected by the loss of one or two players. Nasdaq-listed VIP room operator Asia Entertainment & Resources Ltd – which up until the deal announced on Monday had only three VIP rooms in Macau – saw a 40 percent year-onyear fall in its rolling chip turnover for the second quarter. That was simply because it lost a single player who had contributed US$200 million to rolling chip turnover in the same quarter a year earlier the company said in a statement to the New York Stock Exchange last week. A.E.
business daily August 8, 2012
macau ‘Peter Pan’ to open 26th music festival
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The musical “Peter Pan”, nominated for a Tony Award, will open this year’s Macau International Music Festival on October 5. Jazz will be another of the highlights of the 26th festival, with the Legendary Count Basie Orchestra performing on October 17. Opera is also on the programme, “La Serva Padrona” by Giovanni Battista Pergolesi being performed on October 19 and 21, and “Tosca” by Giacomo Puccini being performed on November 1, 3 and 4. A budget of 30 million patacas (US$3.75 million) was set for this year’s event.
HOSPITALITY Motion studies The quality of public transport is an important factor influencing a tourist’s perceptions of a city and contributes to their willingness to return. It is also a major contributor towards quality of life for residents. A good indicator of the availability, affordability and quality of public transport is the ratio between residents and the number of taxis and buses.
Incinerator operator says emissions penalty unfair The company that burns city’s rubbish appeals to the courts against a penalty for polluting air Vítor Quintã
The chart shows the evolution of the ratio from 2010 to this year. The launch of a new bus operator has decreased the ratio significantly. Two years ago, each bus had to service an average of 925 people. Today, there is one bus for every 560 residents. A comparison of taxi numbers to population reveals that as the city has grown, the ratio has become worse. Visitors also use taxis and buses. A comparison that included visitors would to provide similar results. Tourists also make use of coaches provided for them by travel agencies, casinos and hotels. From 2010 to last year, the number of tourists per coach increased by 7 percent. A slight increase in the number of both heavy and light coaches by 100 vehicles has not been enough to compensate for a greater rise in tourism numbers.
The government penalised the consortium that operates the waste incinerator for emitting excessive levels of heavy metals and dioxins
The second graph compares two ratios in three cities: Hong Kong, Singapore and Macau. The contrast is striking, so much so that the analysis uses a logarithmic scale to help “condense” the broad spread of data onto a single graph. Singapore “beats” both Hong Kong and Macau by having lower ratios of population and tourist per taxi. But the differences to Macau’s situation are particularly obvious. By the end of last year, Singapore had one taxi for every 205 residents. In Macau, there was one taxi per 570 residents. Each Singaporean taxi potentially served 523 visitors, while there was one taxi here for every 28,570 tourists.The results of this analysis suggest the government’s regulation of the taxi industry may be costing the tourism industry. Even the expected addition of 200 new taxis will not bring that ratio to reasonable levels. J.I.D.
heoperatorofthecity’ssolewaste incinerator has called a penalty imposed by the government “overzealous” and “unfair” and is taking its case to court. In an advertisement published in newspapers yesterday, the consortium CCSC – Incineração de Resíduos de Macau said it disagreed with a penalty of 87,500 patacas (US$10,950) imposed by the government for excessive emissions of heavy metals and cancer-causing dioxins. Those emissions “are a result of the incineration of waste for which the plant was not prepared,” Hélder Santos, the managing director of ConsulasiaEngineering&Management Consultants Lda, a consortium partner, told Business Daily. Executives at the plant told the Portuguese-language newspaper Ponto Final last week that the Environmental Protection Bureau had requested the incineration of PVC left over from the modernisation of a wastewater plant.
Mr Santos declined to comment on the waste that was incinerated, saying instead that the Pac On incinerator was meant only for common domestic waste. “We raised our concerns with the bureau at the time,” he said. The consortium is also against the way the emissions were measured. “The basis on which DSPA applied a fine to CCSC did not take into account the technical and legal rules,” it said.
A ‘non-starter’ The incinerator is built to European Union (EU) 2000 emission standards. And while there are no standards in Macau, the EU standards were revised in 2008. “If the latest Euro standards had been taken into account then this whole issue would be a non-starter,” said Mr Santos. The consortium said the Environmental Protection Bureau had “incorrectly regarded as excessive emission
levels that are legally and contractually valid and normal according to the EU legislation applicable to the operation of incineration plants”. Mr Santos said the bureau had been “overzealous”. The bureau has admitted that the emissions that exceeded permitted levels would not harm human health or the environment. Mr Santos believes the penalty was designed to appease public opinion. The bureau last month asked an independent third party, Instituto para o Desenvolvimento e Qualidade, to investigate allegations that the incinerator operator had forged emissions data. The investigation found no definite evidence. The consortium said it would continue cooperating with the bureau “in the protection of Macau’s environment” and to operate the plant “according to the highest levels of technical expertise and operational transparency”.
August 8, 2012 business daily | 5
Dreaming afresh – City of Dreams to get a fifth tower soon
Fifth tower for City of Dreams MPEL hopes to start building ‘next year’ – co-chairman Associate Editor
elco Crown Entertainment Ltd would like to start work on a fifth tower at City of Dreams on Cotai “as early as next year” said co-chairman Lawrence
Ho Yau Lung in a second quarter earnings call yesterday. “We are short of rooms at City of Dreams and tower five has always been in the plans,” Mr Ho told analysts.
Mass-market rise aids MGM China
“Given our strength in mass [market gambling] we do need more rooms going forward. We’re at 90 plus percent [hotel] occupancy every single day of the year, not just on weekends,” he stated, adding the design would be a work of “art”. “We have completed all of our conceptual designs for that tower. And I can assure you that when it’s built it’s going to be the ultimate art piece in Macau. Again subject to the government processes – because this [tower] started as an apartment hotel in the early days so we do need to have the land re-gazetted – but as soon as that is done we would like to begin construction of that as early as next
Caesars writes down Cotai golf course costs
MGM China’s revenue from high rollers down 6 pct in Q2 2012
asino operator MGM China Holdings Limited can thank mass-market customers for helping it post a six percent growth in its net revenue during the second quarter of 2012 to HK$5.5 billion (US$709 million). According to results released yesterday, the company’s VIP turnover dropped six percent year-on-year to HK$162.8 billion (US$20.9 billion) from HK$173.5 billion in the second quarter 2011. But MGM China announced it is “going full speed with the expansion on Level Two at MGM Macau” to house over 40 VIP gambling tables. It didn’t specify if the tables were being moved from the main floor or whether they were from any reserve stock held by the venue. The operator was still able to post overall net revenue growth of 5.9 percent, to HK$5.5 billion, thanks to a seven percent increase in main floor table games gross revenue to HK$4.5 billion, from HK$4.2 billion in the second quarter 2011. In addition, slot machine handle rose
year,” said Mr Ho. The MPEL boss also said he was “confident” of getting permission for gaming at the company’s 60-percent owned Studio City site on Cotai – despite the fact that it wasn’t mentioned in a recent government gazetting for the scheme. “The land grant does mention the five-star resort and hotel. And as you know the Studio City land is not a direct grant from the government to a concessionaire,” said Mr Ho. Business Daily reported last week there are precedents in Macau for five-star hotel schemes not previously gazetted for gaming to be allowed gaming under a socalled service agreement. “We’re very confident to have gaming as part of this exciting integrated resort,” added Mr Ho. MPEL’s quarterly net income was up 23 percent year-on-year, to US$82.3 million (657 million patacas), or US$0.15 per American depositary share, compared with US$66.7 million in the second quarter of 2011. The firm said the reasons included improvements in mass market gaming, reduced non-operating expenses – including lower net interest costs and one-off costs associated with the refinancing of City of Dreams’ project debt. Net revenue for the second quarter of 2012 was US$938.5 million, a decrease of approximately two percent from US$960.0 million for the comparable period in 2011. The decline in net revenue was primarily attributable to lower group-wide VIP rolling chip volumes.
by 39 percent to HK$9.5 billion. Still, the company- controlled by USbased MGM Resorts International – saw its market share shrink, as its casino revenue grew below the market average of 13.4 percent for the second quarter. MGM China’s adjusted earnings before interest, taxation, depreciation and amortisation rose 10 percent to HK$1.46 billion in the April-June period. Even though MGM China is still waiting for government approval of its HK$20 billion Cotai resort, the operator said it has “made significant progress in getting our construction team in place as well as continuing to refine and enhance our designs”. “We are well prepared to commence construction if and when we obtain approval from the Macau government,” it said. Meanwhile parent company MGM Resorts lost US$145.5 million during the second quarter, after making a profit of US$3.4 billion in the yearbefore period. V.Q./A.E.
aesars Entertainment Corp. has written down US$101 million (807 million patacas) related to the company’s land concession in Macau and higher depreciation expenses in Las Vegas. The move appears to be formal recognition that the US$577.7 million the company paid for a piece of land on Cotai is unlikely to be recouped in the lifetime of Macau’s existing six casino concessions. Those concessions run until 2020 in one case or 2022 for the rest. The 71-hectare site (175 acres) – formerly the Macau Orient Golf Course – was bought by Caesars’ previous corporate entity Harrah’s in September 2007 from a private owner. The golf course has been improved and branded as Caesars Golf. But the real value of the land lies as a potential casino resort site.
There was analyst speculation at the time of the deal that Harrah’s indeed wanted to parlay the plot into a casino resort. But in April 2008 Macau officials closed that door when they said no new casino gaming licences would be approved during the lifetime of the existing concessions. For the second quarter 2012, Caesars – one of the big Las Vegas casino operators – posted a loss of US$241.7 million, or US$1.93 a share, compared with a year-earlier loss of US$155.5 million, or US$1.24 a share. The company hasn’t posted a profit since late 2009. It has been a spectator as Las Vegas rivals Las Vegas Sands Corp., Wynn Resorts Ltd – and to a lesser extent MGM Resorts International – have seen their balance sheets boosted by cash flow and profit from Macau gaming operations.
The 71-hectare site was bought in September 2007 and branded as Caesars Golf
business daily August 8, 2012
Group out to press for Iec Long’s rebirth
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Deposits pile up Deposits held by residents have grown considerably. In June, total deposits were 18.6 percent higher than a year before, according to the Monetary Authority of Macau.
Taipa’s heritage finds a champion in a newly formed group of lobbyists Xi Chen firstname.lastname@example.org
In the long run, the group wants to accelerate the factory’s transition into a theme park illustrating the city’s industrial history and use it to spur the development of creative and cultural enterprises. “Firecracker manufacturing used to be one of the three pillars of Macau’s economy. It was closely related to the territory’s history,” Ho Ion Sang said. When the industry was at its peak, Macau was among the biggest exporters of firecrackers in Asia, supplying countries as far away as Australia and the United States.
Multiple titles Since the factory’s closure in the 1980s, the government has been trying to breathe new life into the site of about 20,000 square metres. A theme park was first proposed in 2007 but little progress has been made toward creating it. Mr Ho Ion Sang said the main obstacle was the multiplicity of legal
titles to the land and buildings. Numerous parties had various kinds of rights to the premises, making changes difficult. Restoration was likely to begin after the government enacted the heritage bill and the urban planning bill, which would allow for the factory to be listed as protected heritage. Ho Ion Sang said the long-term plan was for footpaths to connect the Cotai Strip, the Taipa Museum Houses and the firecracker factory, offering tourists easier access to a greater variety of attractions and so enticing them to stay longer. The group’s members include another legislator, property developer Mak Soi Kun, and representatives of the Ecological Society, the History Association, Institution of Engineers and the Cultural Creativity Industry Research Centre. Its main purpose is to allow liaison and coordination among the various interest groups and make reports on the progress of the restoration plan. Photo by Manuel Cardoso
That growth was comparable with growth in April and May; but compared to last year, the rates of growth in the second quarter of this year were between 3.4 and 6.5 percentage points lower. These rates of growth are consistent both with what has happened in the past and with what recent changes in incomes and economic activity would suggest. As the economy slowed in first half of this year so did the rate of growth of deposits by residents. The monthly rates of growth also seem more stable, varying less than the rates of growth last year. But, overall, the patterns of growth since 2010 are similar.
pressure group to lobby for the restoration of Taipa’s historical areas was formally established yesterday. The group’s priority is the restoration of the derelict Iec Long firecracker factory. Macau Ecological Society chairman Ho Wai Tim told Business Daily that the factory was the most complete industrial relic of its kind in southern China. But the buildings are in danger of collapsing because of age and years of termite infestation. Some walls had collapsed after typhoon Vicente last month. Another founding member of the group, Legislative Assembly member Ho Ion Sang, said: “There is also the mosquito problem that impacts the living standards of the neighbourhood.” Mr Ho Ion Sang said the group’s immediate goal was to make the area safe, a task that would involve with group, government and the owners of the factory.
There are three main types of deposit: demand deposits, savings deposits and time deposits. The amount of money held in other types of deposit is too small to be significant, and has been excluded from the graph. Deposits rose by 50 percent in the period represented here. Time deposits accounted for most of this growth. They grew by 88 percent. Demand deposits and savings deposits increased by a comparatively paltry 14 percent. Other types of deposit at the end of June amounted to just 473.6 million patacas, out of a total of 314.4 billion patacas of deposits of all types. That means other types of deposit accounted for less than 0.2 percent of all deposits. Moreover, their amount has been declining. In January, 2010 they amounted to 778.5 million patacas. J.I.D.
Little progress has been made toward turning the disused Iec Long firecracker factory into an industrial theme park
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August 8, 2012 business daily | 7
MACAU Consultant thinks crime differs now from 1990s
Work begins on Taipa central transport hub
Crime in Macau is “completely different” from the 1990s, when gangsters battled for control of the city, according to a risk and security consultant Steve Vickers. Mr Vickers, formerly head of Hong Kong’s criminal intelligence bureau, told Bloomberg TV there was trouble with junkets as the credit squeeze tightened in the mainland. He said casino operators should be careful who they dealt with in case they had triad backgrounds.
Construction of the transport hub in Estrada Governador Albano de Oliveira on Taipa began yesterday. Infrastructure Development Office coordinator Lei Chan Tong said the hub would improve the city’s public transport network, relieve traffic congestion in Taipa and improve the quality of life. The hub will be a public transport interchange, allowing passengers to switch between Light Rapid Transit trains, buses and taxis.
Sales of shops hit all-time high High demand for retail space continued in June as investors look for opportunities outside of the residential market Vítor Quintã email@example.com
ales of commercial space set new records for a second consecutive month as investors sought alternatives to residential real estate. Commercial transactions broke through 1.7 billion patacas (US$216 million) in June, the highest monthly figure since the Statistics and Census Service began collecting data in 1999. The value of shop sales increased by 45.1 percent over June last year, although there were just seven more
shops sold. Each of the 258 shops in June went for an average of 6.7 million patacas. It is impossible to say if shops are becoming more expensive because, unlike homes, offices or industrial units, there are no official figures kept on the average price per square metre. An economic slowdown may put the brakes under a heated market according to Jones Lang LaSalle Macau managing director Gregory Ku said last week. The property
Less invested in more new firms S ome 949 new companies were created in the second quarter of this year, 4.2 percent more than a year before and the highest quarterly figure since 2007. But the amount of capital put into their foundation was less than onethird of the amount invested in new companies one year before. The newcomers included 346 wholesalers or retailers. Sales in the wholesale and retail sector were 28 percent higher in the first quarter than a year before. Also created were 190 business services firms and 125 construction companies. More than 70 percent of the companies registered in the second quarter had capital of less than 50,000 patacas (US$6,260). The combined capital of the companies registered was 89.5 million patacas, far less than the combined capital of 321.3 million
firm expects shop rents and values to “remain on the uptrend”. Mr Ku said the market had positive expectations, causing investors to hoard retail space and hold out for the most attractive prices. Limited land had led to a shortage of residential supply and investors had shifted their focus to shops, with an expectation of good rental returns, Noel Cheung, sales director at Centaline (Macau) Property Agency Ltd told Business Daily last month.
There were less than 7,900 transactions in the residential market up to June 30, a 38 percent fall in year-on-year terms. In dollar terms, transactions came to 31.7 billion patacas, a 32 percent fall. There was almost 1.2 billion patacas worth of office space sold in the first half of this year, a 25 per cent jump over the same time last year. The number of deals closed fell by onethird to 273. with X.C.
Legislators want confab on criminal procedure bill
patacas of the companies registered a year before. Macau residents put up 56 million patacas of the capital and mainland investors 22 million patacas. Taiwanese investors put up just 600,000 patacas, having invested a record 50.3 million patacas in new companies here in the first quarter. Following the announcement of measures to improve integration of the economies in the Pearl River Delta region, regional investors injected 19.7 million patacas, having put up just 5.7 million patacas in the first three months of the year. There were 131 companies wound up in the second quarter, 19 more than a year before. They had a combined capital of about 20.9 million patacas, almost 83 percent less than the combined capital of the companies wound up one year before. V.Q.
he Legislative Assembly wants a meeting with government representatives, judges, public prosecutors and other lawyers to settle their differences over a bill to amend the Criminal Procedure Code. The chairman of the assembly’s third standing committee, Cheang Chi Keong, told reporters after a meeting with the public prosecutors yesterday that revision of the code was a “difficult task” requiring professional knowledge. The threehour meeting was held behind closed doors. Mr Cheang hinted that the Macau Lawyers Association, the Judicial Magistrates Commission and the Public Prosecution Magistrates Commission hold differing opinions on the bill. “There is no discrepancy in the principles but they just look at the matter from different angles,” he said. He said all hoped the amendments
would improve litigation efficiency, simplify procedures and protect litigants’ rights. His committee wants a meeting with all three bodies, plus representatives of the government, in October. Neither Mr Cheang nor the Public Prosecutions Office would reveal details of yesterday’s meeting. The assistant prosecutor-general, Vong Vai Va, told reporters: “It is still an internal discussion … and we will express our opinions on the matter at the right time.” Mr Cheang said his committee would try to complete its deliberations on the bill before the assembly’s summer break begins this month. He said the committee had received written opinions from the judges last week. But the assembly expects new opinions from the judges and lawyers by October 7. T.L.
business daily August 8, 2012
Taiwan’s July exports plummet As faltering global recovery damped demand for its electronic products Faith Hung
aiwan posted a fifth straight month of decline in exports in July, dragged down by doubledigit drops in shipments to China, Europe and the United States that will add to worries that the global economy is further losing momentum. Declining exports of IT and telecommunications products were a key feature as the island’s exports slumped a deeper than expected 11.6 percent from a year earlier, the worst decline since January this year. The government said it expects export momentum to be weak in the short term. Exports to China in July fell 11.0 percent from a year earlier, compared with a decline of 1.6 percent in June. Exports were down 20 percent to the United States and off 14.4 percent to Europe. Taiwan is one of the most open of Asia’s exporters, with an exports-togross domestic product ratio of 74 percent. Almost half of its exports are electronics, making it extra-vulnerable to declines in external demand. “I’m not too surprised about the
KEY POINTS Exports fall 11.6 pct on year, worst since January Double-digit decline in shipments to U.S., China, Europe Export momentum expected to be weak in short term
Almost half of Taiwan’s exports are electronics
export contraction because our IT performance has been quite weak, as you can tell from HTC’s share price,” said Scott Chen, economist with Sinopac Commercial Bank. Smartphone maker HTC said last week that it sees a drop of as much as 23 percent in third-quarter revenues. “Other vendors are also in a similar bad situation; it’s a weakness in the Taiwan’s communications and panel industries,” Mr Chen said.
“But imports have contracted worse than I expected. If it shows a weakening capital investment, it’s a bad signal. Our equipment import has been showing signs of slowdown recently too.” The world’s biggest contract chip maker, Taiwan Semiconductor Manufacturing Co. Ltd, said recently it sees a slowdown at the year-end. Some analysts, however, said exports could improve in August
as Apple launches new products. A Reuters poll of 14 economists saw the island’s exports in July contracting 7.87 percent from a year earlier, with forecasts ranging from a fall of 3 percent to a fall of 16 percent. Taiwan’s imports fell 3 percent from a year earlier, bringing the trade surplus to $900 million against median forecast for a surplus of US$2.736 billion. Reuters
Esprit appoints Inditex executive as CEO Fashion group surged 28 percent, biggest gain in 14 years
Esprit is in the midst of an HK$18 billion restructuring plan due to be completed by 2015
sprit Holdings Ltd surged in Hong Kong after hiring former Inditex SA manager Jose Manuel Martinez Gutierrez as chief executive officer, tapping a competitor to revive the retailer from a profit drop and management exodus. The Europe-focused fashion group,
which is in the midst of an HK$18 billion (US$2.3 billion) restructuring due to be completed by 2015, jumped as much as 38 percent as it headed for its biggest gain in 14 years after its filing with Hong Kong’s stock exchange on the appointment. Esprit ended 28 percent up to close at HK$12.76, the
biggest gain since 1998. Mr Martinez, most recently group director of distribution and operations at rival Inditex, the world’s largest fashion retailer and owner of brands including Zara and Massimo Dutti, assumes the role on or before the end of September, Esprit said.
“The new appointment gives investors new hopes. With a new chief, in particular from another strong brand name, investors are putting a bet on a turnaround story,” said Alfred Chan, chief dealer at Cheer Pearl Investment. Mr Martinez will take the helm after the apparel company in September posted a 98 percent drop in fiscal year profit and said its brand had “lost its soul” as it lost customers to Hennes & Mauritz AB and Inditex. CEO Ronald Van der Vis quit June 12 and Esprit reported the departure of its chairman a day later. “It’s definitely positive,” said Andrew Sullivan, principal trader at Piper Jaffray Asia Securities Ltd. “This new guy knows how a fashion retailer works.” Esprit, which has a market value of US$1.7 billion, generates about 80 percent of its sales in Europe, where it is grappling with a slump in demand due to the eurozone debt crisis. The management reshuffle had cast uncertainty over the company’s ability to execute its turnaround plan. Mr Martinez will be paid 1.5 million euros (US$1.9 million) a year with an annual bonus of as much as 1.5 million euros, which is guaranteed in the first two years, Esprit said. He will be given a sign on bonus of 1.25 million euros as well as 5 million share options. Reuters/Bloomberg
August 8, 2012 business daily | 9
greater china Thousands evacuated
Leaders hold resort talks
China displaced 200,000 people from Shanghai as the third typhoon in a week bore down on the east coast, state media said yesterday, warning it could be the most powerful storm to hit since 2005. Typhoon Haikui was expected to make landfall in Zhejiang province, just south of Shanghai, the China Meteorological Administration said. Like Shanghai, authorities in Zhejiang were rushing to get people out the path of the typhoon, with 130,000 residents evacuated, the official Xinhua news agency said.
Senior Chinese leaders are reported to have gathered at a seaside resort for private meetings ahead of the leadership change later this year. Beidaihe, the resort east of Beijing, is the party’s traditional venue for closed-door political summits. State media said Xi Jinping – expected to be China’s next president – met academics and advisers there on Sunday. It is likely the gathering will be used to map out the leadership transition due in the next few months, the official news agency Xinhua reported.
Hon Hai, Sharp in talks DreamWorks plans China theme park over bigger stake Shanghai park to cost more As Sharp’s shares have fallen by nearly two-thirds since March
aiwan’s Hon Hai Precision Industry Co. Ltd said it was in talks with Sharp Corp. about buying a bigger stake in the struggling Japanese TV maker and paying less per share as part of a renegotiated investment deal between the two suppliers of parts to Apple Inc. The two companies will issue a joint statement later this week, Hon Hai spokesman Simon Hsing told Reuters yesterday. “A bigger stake and price cut are both being discussed, but we need to do it step by step,” he said. “We first need to work on a joint statement to tell investors whether we need to honour the original obligation.” Hon Hai agreed in March to buy an 11 percent stake in Sharp for US$844 million, or 550 yen (US$7.0) per share, as part of a tie-up in liquid-crystal display (LCD) production. But Sharp’s shares have fallen by nearly two-thirds since that deal was announced, trading at 183 yen yesterday. At Sharp’s current market value, a 66 billion yen (US$843.56 million) investment could buy Hon Hai a third of its stock. Hon Hai said last Friday that
Sharp had released it from the terms of the original deal because of the share price volatility, but Sharp insisted on Monday it expected the Taiwanese firm to stick to the deal. Sharp declined to comment yesterday. Analysts have said Sharp will likely have to accept less money from Hon Hai or sell a bigger stake to the Taiwanese firm and give it greater management. That may see TV assembly plants close and solar panel and appliance units being sold off.
US$1.28 billion Sharp’s operating loss forecast for this fiscal year
than US$3.1 billion Barclays Capital analyst Kirk Yang has predicted Hon Hai would buy around a tenth of Sharp, but at a renegotiated price of 200300 yen per share. Battered by foreign competition and waning demand for its TVs, and too few customers to buy its LCD panels, Sharp’s shares have slumped this year and the cost of insuring its debt against default has widened alarmingly. Sharp, which pioneered LCD televisions and invented the electronic calculator, is relying for backing on its main banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group. A source at one of Sharp’s main banks told Reuters those lenders may insist on closer ties to Hon Hai and the sale of nonLCD businesses to raise cash in return for help. The century-old company warned last week of an operating loss of 100 billion yen (US$1.28 billion) for this fiscalyear,promptingMoody’s and Standard & Poor’s to cut their credit ratings. Rival Fitch warned that Sharp could lose investment-grade status unless a planned restructuring succeeds.
Sharp has been battered by foreign competition and waning demand for its TVs
Dreamworks is planning to build an entertainment centre in Shanghai
reamWorks Animation SKG Inc. and its Chinese joint venture partners will open a theme park in Shanghai by 2016, with a total investment amount of 20 billion yuan (US$3.14 billion), the companies said yesterday. The creator of “Shrek,” together with its joint venture partners – China Media Capital, Shanghai Media Group and Shanghai Alliance Investment Ltd – will also cooperate to produce “Kung Fu Panda 3” in 2016, the joint venture said in a statement. “Without question, China has what is needed to make great animation film ... this is a perfect fit for us at DreamWorks,” Jeffrey Katzenberg, chief executive of DreamWorks, told a news conference. “We have formed what we think is a very valuable strategic partnership to make world class feature animation,” Mr Katzenberg said. “We’re very confident that the creative talent exists here in China. We’re very enthusiastic about building a studio.” A sharp rise in China’s box office revenues, backed by a moneyed middle-class willing to pay top prices for a trip to the cinema, is luring Hollywood to one of its largest untapped markets. Walt Disney Co. broke ground on its planned Shanghai Disneyland last year. Its Shanghai theme park is estimated to cost 24.5 billion yuan, with hotels and additional facilities costing another 4.5 billion yuan. In May, News Corp. agreed to buy a stake in Chinese movie distributor Bona Film Group Ltd. DreamWorks’ theme park, Dream Centre, will be located in the Xuhui district of Shanghai, said Li Ruigang, chairman of China Media Capital said, adding he hoped it would become China’s Broadway or West End. It will include theatres, shops, restaurants and hotels. The entertainment complex will feature a “Dream Walk,” the world’s largest Imax screen, which can be used for film premieres and other events, according to the statement. The project will be “complementary” to the Shanghai theme park being developed by Walt Disney Co., Mr Katzenberg said. DreamWorks announced in February it would create a China JV called Oriental Dreamworks that will develop and produce Chinese animated and live-action content for distribution within China and around the globe. “Kung Fu Panda 3” will be a sequel to the 2011 and 2008 films, which generated more than US$600 million each in worldwide ticket sales, according to Box Office Mojo, an industry tracker. Oriental Dreamworks plans to release one to three films a year following its first feature production, it said in yesterday’s statement. Reuters
business daily August 8, 2012
asia Leighton back in black
Morgan Stanley sued
Leighton Holdings Ltd, Australia’s largest construction company, reported a return to the black in the first half of the year, recovering from a big loss a year earlier, and expects to achieve its full-year profit outlook. The company controlled by Spain’s ACS, posted a net profit of A$114.6 million (US$121.3 million), towards the bottom-end of its forecast in May of A$100-A$150 million. The result compares with a loss of $A626 million a year ago. Leighton yesterday maintained its full-year profit outlook of A$400-$450 million.
Singapore’s Hong Leong Finance Ltd has sued Morgan Stanley & Co. over claims the New York-based bank deceptively sold investments it had designed to fail. Hong Leong said in a complaint filed yesterday in federal court in Manhattan that it entered into a distribution agreement to sell about US$72.4 million worth of the so-called Pinnacle notes. The notes later failed and the Singapore-based company was required to compensate customers for at least US$32 million in losses, according to the filing.
Glitch halts derivatives trade in Tokyo Second TSE system error in less than seven months
he Tokyo Stock Exchange Group Inc. halted trading in derivatives including Topix futures and Japanese government bond futures for more than an hour yesterday morning, suffering a glitch for the second time in less than seven months, which cut equity volumes, driving government bonds lower and sending futures traders to its smaller Osaka rival. The failure lasted from about 9.20am to 10.55 am local time, the bourse operator said. Trading in Topix Index shares was 20 percent below the average for the time of day after index and government bond futures were halted. Japanese 10-year government bonds fell during the breakdown. The exchange suffered its biggest disruption in six years on February 2 as a fault halted trading for 3.5 hours in some of the country’s biggest companies. The outage is a further setback for the Tokyo exchange as it pursues a takeover bid for the smaller Osaka bourse, which dominates Japan’s equity derivatives business. It also highlights the vulnerability of global markets to computer malfunctions, a week after errors at market-maker Knight Capital Group Inc. led to incorrect trades for more than 100 U.S. stocks.
This week is the secondbusiest for earnings on the 1,672-company Topix. “This shouldn’t be happening at all, and it’s a risk for investors that they can’t trade when they want to,” said Kazuyuki Terao, chief investment officer of RCM Japan Co. “A system error happened earlier as well, and I have to have reservations about what’s going on.”
Share volume The error took place somewhere in the Tdex+ system used for derivatives at the bourse, not Arrowhead that handles cash transactions, said Naoya Takahashi, a TSE spokesman. Tokyo started using Tdex+, based on NYSE Euronext’s Liffe Connect platform, for options trading in October 2009 and for futures in November 2011. Osaka’s J-Gate derivatives system uses technology from Nasdaq OMX Group Inc. Volume on the Topix Index was about 20 percent below the 10day average for the time of day when derivatives resumed trading. Average daily turnover for futures on Japan’s broadest measure of stock performance was 737 billion yen (US$9.42 billion) in June, the Tokyo bourse said. “The failure of Topix futures
Tokyo exchange hit by glitch in derivatives trading
reduced the number of people doing index arbitrage,” said Naohide Une, head of equity derivatives trading at Goldman Sachs Japan Co. “That’s why the system error is not only affecting futures, but making cash-equity trading thinner. I thought lower volume could cause unusually big moves in stocks, but what actually happened was market participants were holding back trading.” But a senior derivatives dealer said: “It wasn’t a huge disruption because there wasn’t a lot of volume in the first place ... In terms of directional guys, they play more on Nikkei than Topix.”
Trading Osaka The breakdown diverted investors to Osaka, the only place in Japan where contracts on the benchmark Nikkei 225 Stock Average are traded, said Yuji Nakagawa, manager of derivatives trading at Toyo Securities Co. in Tokyo. Osaka Securities Exchange Co. reported daily average turnover of 1.29 trillion yen in contracts and mini contracts on the Nikkei 225 during June. “It just prompted people to buy back short positions on the Topix using Nikkei 225 futures, because Nikkei 225 futures and
cash are still being traded,” said Toyo Securities’ Mr Nakagawa. “I haven’t seen a major effect.” The Tokyo exchange operator and the Osaka venue cited cost savings from integrating computer systems as a reason for merging when they announced the takeover bid on November 22. Tokyo, which hosts the world’s No. 2 cash equities venue by the value of companies listed, stopped trading in 241 securities for 3.5 hours on February 2 after a server failure. That error, which also occurred during the height of earnings season, followed a December 29 cable malfunction that slowed trading. Another bug in 2006 derailed all trading. A Tokyo Stock Exchange information technology planning document from September last year made building and maintaining “a trading system of the highest global standard” a core priority for developing the company’s derivatives market. “They need to build a reliable infrastructure regardless of the cost,” said Goya Nakao, a senior investment manager at Sompo Japan Nipponkoa Asset Management Co. “A bourse is part of the social infrastructure and impacts the public.” Bloomberg/Reuters
August 8, 2012 business daily | 11
Asia buyers snap up Australian hotels As overseas visitors increase; construction costs seen higher Nichola Saminather
by Deloitte Access Economics. Sydneyhadthehighesthoteloccupancy rate among major Australian cities this year through June 30, at 84.5 percent, according to Jones Lang LaSalle. Melbourne and Perth had occupancy rates of 80.4 percent, with Brisbane at 78.5 percent. The average daily room rate in Sydney was US$213, compared with US$231 in New York, US$210 in London and US$261 in Tokyo, according to conversions of Jones Lang LaSalle figures to U.S. dollars as of June 30 exchange rates. Hotel-room demand across Australia is expected to climb 2.3 percent a year, while room nights available will rise 0.7 percent, the Deloitte Access Economics report said. This will raise revenue-per-availableroom, a measure of occupancy and rates, by an average 5.5 percent a year over the next three years, the figures show
Shangri-La purchases Offshore buyers accounted for 90 percent of all hotel acquisitions in Australia this year through June 30
ales of Australian hotels to offshore buyers set a record in the first half as Asian companies including ShangriLa Asia Ltd, Starhill Real Estate Investment Trust and Langham Hospitality Group were lured by rising occupancy and room rates. Companies outside of Australia accounted for A$990 million (US$1 billion) of the purchases, or 90 percent, through June 30, according to Jones Lang LaSalle Inc. That’s the highest first-half volume and percentage of the total since the Chicago-based broker began compiling comparable data in 2002. Hong Kong and Malaysian companies were the most active buyers. The biggest resources boom in a century is boosting mining-related business travel to the biggest cities, where companies such as BHP Billiton Ltd are based, while the Chinese are leading a pickup in tourism. Investors are preferring to buy rather than build as construction costs rise, said Craig Collins, chief executive officer for Australasia at Jones Lang LaSalle’s hotel unit. That’s limiting the supply of new rooms. “There are generally very few opportunities to gain a foothold in capital-city markets, so when they come up, the buyers pounce,” Mr Collins said. “When the cost to build is higher than the cost to buy, it’s a good barometer for the buyers.”
Sellers include companies seeking to divest noncore assets, such as Mirvac Group, which in December agreed to offload its hotel business, and real estate funds exiting properties as their investment terms end, including Colonial First State Global Asset Management.
Overseas visitors The number of overseas visitors to Australia rose a seasonally-adjusted
Hotel occupancy rate in Sydney in the first half of 2012 8.1 percent in June to 515,100 from a year ago, statistics bureau data show. Visitors from China and Japan were among groups leading the increase in the six months to June 30, according to Tourism Australia. The proportion of visitors from China may rise to 13.3 percent of tourist arrivals by 2014 from 6.4 percent in 2011, according to a report in May
Shangri-La on June 22 said it bought the five-star Shangri-La Hotel in Sydney for A$330 million, following the same week with the acquisition of the Holiday Inn in Brisbane for A$48 million. The purchase of the 563-room Sydney property overlooking the city’s Opera House and Harbour Bridge gave the Hong Kong-based group ownership of the hotel it already managed for the Government of Singapore Investment Corp. The 191-room central Brisbane hotel, which Shangri-La will begin operating this month, allows it to introduce the four-star Traders Hotel brand in Australia. Shangri-La, which already holds a majority stake in the Marina Hotel in Cairns in northern Queensland, will expand in Australia following the Sydney and Brisbane purchases, spokeswoman Vivienne Gan said. The nation is the company’s thirdlargest market following China and the U.S., she said. “We’re very optimistic about the hotel industry in Australia,” said Ms Gan. “The economy is strong, and there is an upward trend in domestic and international travel.” “As long as you’re acquiring an asset at a reasonable price, you’ll have the benefit of good returns from operations, in addition to an upside in the capital value,” Rutger Smits, director at hospitality consultancy AHS Advisory, said in Sydney. “The capital required to buy these assets is more readily available with overseas investors than Australians.” Bloomberg
Volcano spews ash in New Zealand Mount Tongariro erupts, forms ash cloud
ount Tongariro, a volcano in New Zealand’s North Island, erupted for the first time in 115 years, creating an ash cloud that closed roads and disrupted regional air travel. The eruption was reported by a member of the public about 11.50 pm local time on Monday, New Zealand Police said. Government scientists are monitoring the event, which they said was driven by steam rather than magma, and can’t rule out further explosions. “I wouldn’t be surprised if there were more small-scale eruptions,” Brad Scott, a volcanologist at GNS Science, a government agency, told reporters at a televised news conference.
Ash fell to a depth of as much as 15 millimetres and was drifting east, he said. Tongariro is one of three volcanoes in the middle of the North Island, about 340 kilometres north of the capital city Wellington There were no initial reports of damage or injuries, the Ministry of Civil Defence & Emergency Management said in a statement. The ministry lifted a potential threat notice for the area in the early afternoon yesterday, based on GNS Science advice that eruption activity had subsided, according to its website. Air New Zealand Ltd, the nation’s biggest carrier, cancelled flights operating to regional airports east
of Tongariro including Gisborne and Napier, it said in a statement on its website. The airline will adjust flight routes and altitudes if required to ensure aircraft remain clear of any ash, it said. Main trunk services linking Wellington and Auckland were operating as scheduled. State highways in the area reopened after being initially closed because of ash falls, the New Zealand Transport Agency said on its website. Tongariro’s last confirmed eruption was in 1897, according to government scientists. Ruapehu erupted in 1995 and 1996, creating an ash cloud and flows of volcanic ash that disrupted transport. Reuters
Philippines shuts financial markets The Philippines shut financial markets along with government offices and schools in the capital and several provinces in the main island of Luzon after heavy rains caused flooding. Central bank Governor Amando Tetangco said there would be no clearing and trading yesterday. Philippine Stock Exchange president Hans Sicat and Philippine Dealing & Exchange Corp. president Cesar Crisol said in separate mobile-phone messages that trading at their respective bourses is suspended. President Benigno Aquino ordered the suspension of work and classes at all levels yesterday, Abigail Valte, a presidential spokeswoman, said in an interview on local radio station DZMM. Heavy rains in recent days caused rivers and dams near the capital to rise, Office of Civil Defence Director Susana Cruz said. Thousands have been evacuated. Damage caused by typhoons and other calamities reached 59.2 billion pesos (US$1.4 billion) in 2011, Economic Planning Secretary Arsenio Balisacan told lawmakers. Monsoon rains are expected to continue until today, Fernando Cada, a forecaster at the weather bureau told DZMM radio.
S.Korea: store sales fall again Sales at top South Korean department and discount stores in July both fell for the second consecutive month over a year earlier, the worst showing in more than five years, preliminary government data showed yesterday. The data adds to growing evidence for weak growth momentum for the third quarter, which will likely increase pressure on policymakers to take more aggressive steps to support the economy as exports and domestic demand weaken simultaneously. Sales at department stores run by the country’s top three chain operators in July fell 0.9 percent from a year earlier following a 2.0 percent decline in June, the Ministry of Strategy and Finance said in its monthly report. Discount stores run by the top three operators fell 8.3 percent in July from a year earlier, the sharpest drop since February 2011 and following a 7.2 percent decline in June, it said. It was the first time since May 2007 that sales at both department and discount stores declined for two consecutive months or longer, government data showed. “While consumption conditions such as inflation and wages improve, external and domestic uncertainties are delaying a recovery in consumer sentiment,” the ministry said in the report.
Indonesia to allow currency hedging Indonesia will let Shariah-compliant banks hedge against exchange-rate movements to spur growth in Islamic financial assets and narrow the gap with Malaysia’s industry, which is seven times larger. Bank Indonesia, the National Shariah Board and the Indonesia Institute of Accountants have approved the instruments, available in Malaysia since 2006, Adiwarman Azwar Karim, Jakartabased vice chairman of the board’s Islamic capital market working committee, said in an interview. The central bank said it is working on regulations, declining to say when they would be finished. PT Bank Muamalat Indonesia, the nation’s second-largest Islamic lender, will be able to hold more global bonds and issue more dollar loans once it can hedge, Finance Director Hendiarto said, adding that it expected to increase foreigncurrency lending by 50 percent this year. The rule change will help Indonesia reach its target of lifting Shariah-compliant financial assets to 10 percent of the total by 2015 from the current 4 percent, Edy Setiadi, executive director of Islamic banking at the monetary authority, said. “With this product, Islamic banks will be more comfortable with increasing their foreign-currency portfolios and managing the mismatch between financing and funding,” said the National Shariah Board’s Mr Karim. “It will also open up the possibility for foreign banks to supply dollars to local banks and multifinance companies, who can then disburse loans in rupiah.”
business daily August 8, 2012
MARKETS Hang SENG INDEX NAME
CHINA UNICOM HON
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AIA GROUP LTD
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SINO LAND CO
TINGYI HLDG CO
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HANG SENG BK
CHINA LIFE INS-H
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POWER ASSETS HOL
CLP HLDGS LTD
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HENDERSON LAND D
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HONG KONG EXCHNG
HSBC HLDGS PLC
SUN HUNG KAI PRO
IND & COMM BK-H
LI & FUNG LTD
CHINA RES ENTERP
CHINA RES LAND
NEW WORLD DEV
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52W (H) 21760.33984
PING AN INSURA-H
Hang SENG CHINA ENTErPRISE INDEX NAME
CHINA RAIL CN-H
CHINA RAIL GR-H
CHINA SHENHUA-H CHINA TELECOM-H
AIR CHINA LTD-H
BANK OF CHINA-H
NAME CHINA PACIFIC-H
CHINA CITIC BK-H
CHINA COAL ENE-H
CHINA COM CONS-H
IND & COMM BK-H
CHINA CONST BA-H
CHINA COSCO HO-H
CHINA LIFE INS-H
PICC PROPERTY &
PING AN INSURA-H
CHINA MERCH BK-H
BANK OF COMMUN-H BYD CO LTD-H
NAME YANZHOU COAL-H
INDEX 9851.75 HIGH
52W (H) 11916.1
CHINA NATL BDG-H
Shanghai Shenzhen CSI 300 NAME
DAQIN RAILWAY -A
AIR CHINA LTD-A
DATANG INTL PO-A
SANY HEAVY INDUS
EVERBRIG SEC -A
BANK OF BEIJIN-A
GD MIDEA HOLDING
SHANG PHARM -A
BANK OF CHINA-A
GD POWER DEVEL-A
BANK OF COMMUN-A
BANK OF NINGBO-A
SHANXI LU'AN -A
BAOSHAN IRON & S
CHINA CITIC BK-A
CHINA CNR CORP-A
CHINA COAL ENE-A
CHINA CONST BA-A
CHINA COSCO HO-A
HONG YUAN SEC-A
BYD CO LTD -A
CHINA CSSC HOL-A
YANGQUAN COAL -A
CHINA EAST AIR-A
HUAXIA BANK CO
IND & COMM BK-A
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INNER MONG BAO-A
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NINGBO PORT CO-A
CHINA STATE -A
PANGANG GROUP -A
CHINA VANKE CO-A
PING AN BANK-A
PING AN INSURA-A
POLY REAL ESTA-A
CSR CORP LTD -A
52W (H) 2932.14 (L) 2254.567
FTSE TAIWAN 50 INDEX NAME
PRICE DAY %
PRICE DAY %
FORMOSA PLASTIC FOXCONN TECHNOLO
PRICE DAY % 104.5
TPK HOLDING CO L
ASIA CEMENT CORP
HON HAI PRECISIO
AU OPTRONICS COR
HOTAI MOTOR CO
YUANTA FINANCIAL YULON MOTOR CO
HUA NAN FINANCIA
CHANG HWA BANK
CHENG SHIN RUBBE
CHIMEI INNOLUX C
MEGA FINANCIAL H
CHINA STEEL CORP
NAN YA PLASTICS
DELTA ELECT INC
SYNNEX TECH INTL
FAR EASTERN NEW FAR EASTONE TELE FIRST FINANCIAL
FORMOSA CHEM & F
TAIWAN GLASS IND
TAIWAN MOBILE CO
6442401 4628441 40186900
INDEX 5011.01 HIGH
52W (H) 5621.53 4900
(L) 4643.05 3-Aug
August 8, 2012 business daily | 13
MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GAlAXy ENtErtAINMENt
MElco croWN ENtErtAINMENt
MGM cHINA HolDINGS
26.5 Max 19.64
SANDS cHINA ltD
BRENT CRUDE FUTR Sep12
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GAS OIL FUT (ICE) Sep12
NATURAL GAS FUTR Sep12 HEATING OIL FUTR Sep12 Gold Spot $/Oz Silver Spot $/Oz
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LME NICKEL 3MO ($)
WHEAT FUTURE(CBT) Dec12
SOYBEAN FUTURE Nov12
COFFEE 'C' FUTURE Sep12
SUGAR #11 (WORLD) Oct12
COTTON NO.2 FUTR Dec12
AGRICULTURE ROUGH RICE (CBOT) Sep12
17.1 Max 17.72
AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
3.6243 0.579 -3.1589 -4.3052 -1.6999 0.1578 0.1676 -1.1246 -4.085 0.2224 4.4214 1.1458 5.1571 -4.2546 -5.2479 1.2734 5.043 2.8851 4.5023 2.6893 0.0097
1.0857 1.6618 0.9972 1.4549 84.18 8.0449 7.8113 6.4431 57.3275 32 1.3199 30.716 44.35 9662 88.637 1.24736 0.88861 9.2841 11.6793 111.94 1.0311
0.9388 1.5235 0.7071 1.2043 75.35 7.9823 7.7526 6.2769 44.9525 29.78 1.2001 28.792 41.57 8507 72.057 1.00749 0.77553 7.7018 9.6245 94.12 1.0288
AMAX HOLDINGS LT
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business daily August 8, 2012
Opinion Business is booming in empirical economics Betsey Stevenson Justin Wolfers
Professors in the Business and Public Policy Department at the University of Pennsylvania’s Wharton School
any had pronounced the field of economics discredited after the global financial crisis. Instead, it’s in the midst of a revolution. The transformation isn’t a mea culpa, or a knee-jerk reaction to the crisis. Rather, it’s a long-running shift toward a more empirical field, to the study of what hard data can tell us about the way the world really works. Consider the stream of data you will create today. Your metro card will record what time you caught the train. Your Web browser will note how you go about your job, and how much you procrastinate. A mid-afternoon purchase at Starbucks will reveal your penchant for lattes and the occasional cookie. Your flow of e-mail traffic will trace out your professional and personal networks. At the same time, computing power has made it extremely easy and cheap to analyse all the data you produce. An economist with a laptop can, in a matter of seconds, do the kind of number crunching it used to take a roomful of Ph.D.’s weeks to achieve. Just a few decades ago, economists used punch cards to programme data analysis for their empirical studies. The result has been a boom in empirical research. For example, Raj Chetty, a professor of economics at Harvard University, has been analysing decades of tax returns – a total of 6 billion observations – to learn, among other things, how your kindergarten teacher affects your long-term earnings. Roberto Rigobon and Alberto Cavallo, both economists at Massachusetts Institute of Technology’s Sloan School of Management, have built the Billion Prices Project, which provides a daily reading on inflation based on prices from online retailers. In our own recent, we have analysed the results of surveys asking millions of people about their happiness.
Changing theories The shift toward an even more empirically grounded economics doesn’t mean theory is less important. When facts were expensive and scarce, the role of theory was to “fill in” for missing data. Now, its purpose is to make sense of the vast, sprawling and unstructured terabytes on our hard drives. The data revolution is, however, changing our theories – specifically the way we choose to model how people behave. For decades, economists assumed that people made calculated, rational decisions. Without better data to help structure our understanding of people’s preferences, it was a safe and convenient choice, even if it was often wrong. With new data on everything from how we choose our retirement savings plans to how NBA referees call fouls, we have learned to look beyond “homo economicus.” We have a much better grasp of the systematic flaws in
reasoning that often get people into trouble. We know they have a hard time committing to do difficult things in the future – to go to the gym, to lose weight, to save. So we know people can benefit from policies, such as making 401(k) contributions automatic unless they opt out, that help them commit to good behaviour. Although perhaps obvious in hindsight, these insights were put forward over the past several decades by a renegade
The broadest insight that has come with the explosion in data is the understanding of how economic reasoning suffuses almost every aspect of our lives
band of “behavioural economists” such as Daniel Kahneman, Richard Thaler and Matthew Rabin. Today, behavioural studies inform all fields of economic inquiry. In the mathematical models they build to help them understand the world, economists have also long made another peculiar assumption: that the behaviour of an entire group of individuals – say, U.S. consumers – can be modelled as if it were a single “representative agent.” Today, we have much better data describing the decisions of individuals, and the power of our computers allows us to populate our models with millions of such people, rather than just one.
Economic lens Perhaps the broadest insight that has come with the explosion in data is the understanding of how economic reasoning suffuses almost every aspect of our lives. The economic lens can be very helpful in parsing strategic interactions, the causes of discrimination, patterns of marriage and divorce, and how our political machinery operates.
The incursions of economists into new areas have not always been welcomed by our sister social sciences. But it has been a two-way street: sociology, political science and psychology have come to play an important role in economic analysis – as the awarding of the Nobel Prize in Economics to Kahneman, a psychologist, demonstrates. This narrative of progress may be unsatisfying to those who expected renewed humility after the financial crisis. Undoubtedly, it has been an embarrassing few years for the economics profession. Many economists have resorted to very public soul-searching. Others, such as Paul Krugman, offer a narrative in which the field is actually regressing. Ours is a different story. Technological change has brought opportunities to do economics in a way that our predecessors could only have dreamed about. Those opportunities have, in turn, yielded a field that is more connected to reality. Our hope is that these insights will improve our understanding of the economy and give us a better shot at avoiding the next crisis. Bloomberg View
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August 8, 2012 business daily | 15
wires Leading reports from Asia’s best business newspapers
One money, (too) many markets Hans-Helmut Kotz
Senior fellow at the Center for Financial Studies, Goethe University, Frankfurt, and a resident faculty associate of Harvard University’s Center for European Studies
Economic Times IKEA, the world’s largest home furnishing retailer, has agreed to comply with India’s local sourcing conditions by the seventh year of its operations and has said it is willing to sell only eponymously branded food items at its stores, as it seeks to iron out contentious issues that have cast a shadow over the Swedish company’s US$1.9-billion proposal to open single-brand retail outlets in the country. The guideline stipulates foreign single-brand retail companies must buy 30 percent of what they sell from small and medium vendors.
Jakarta Globe Indonesia’s economic growth surprisingly picked up in the second quarter of this year, signalling that Southeast Asia remains resilient to the global slowdown. Indonesia’s statistics bureau said gross domestic product growth last quarter was 6.4 percent from a year earlier against 6.3 percent in the first quarter, helped by domestic consumption and investment. GDP grew by 2.8 percent on a quarterly basis. Economists had forecast that annual growth in Southeast Asia’s largest economy would ease to 6.1 percent, citing shrinking exports.
Toyota Motor Corp.’s Prius hybrid in July topped the list of domestic car sales for the 14th consecutive month with 33,398 units sold, up 37.9 percent from a year earlier, industry bodies said on Monday. Another Toyota hybrid, the Aqua, ranked second, followed by Honda Motor Co.’s Fit. Apparently buyers of eco-friendly cars are trying to benefit from the soon-to-end government subsidy program. Minicars with engines no larger than 660cc remained popular and filled the fourth through eighth slots of the top 10 list.
Bangkok Post Kasikornbank Group has set up an investment banking unit aimed at facilitating Thai businesses to invest in large local and international projects from 2012-13. The move is in preparation for large project investments, due partly to the upcoming Asean Economic Community (AEC) in 2015.The combined worth of large project investments is projected to be 800 billion baht (US$25.4 million), with 40 percent of total value would be contributed from Thai regional-sized multinational businesses, with annual revenue higher than 5 billion baht.
urope’s monetary union is screeching toward the abyss, unintentionally, but apparently inexorably. Greece will most likely not meet the criteria to receive further financial assistance from its eurozone partners and the International Monetary Fund. Europeans will then need to decide whether to let Greece go. The exit option would not improve Greece’s chances of successful adjustment, and it would come at a steep price for the eurozone: it would be “in the money” – and priced accordingly. A Greek exit could, one hopes, be managed. The European Central Bank would contain the collateral damage by flooding Europe’s banking system with liquidity (against subpar collateral). Or it will reluctantly re-launch its purchases of public-sector debt in secondary markets, capping the other peripheral eurozone economies’ interest-rate spreads relative to the core. Thus, dire circumstances would onceagainforcetheECB’shand.As thestrongestEuropeaninstitution, it is systematically vulnerable to being taken hostage, compelled to underwrite a further lease on life for the euro. In this light, ECB President Mario Draghi’s recent vow to do “whatever it takes” to save the euro came as no surprise. Back in 1999, it seemed that JacquesRueff,anadvisertoCharles de Gaulle, had been vindicated: L’Europe se fera par la monnaie. Eleven European countries chose to give up their national currencies (or, more technically, the nominal exchange rate). These countries understood “one money”asaquasi-physicalcorollary of “one market.” Independent national monetary policies in a commonmarketwererightlyseen as infeasible, given Europeans’ preference for stable exchange rates and open financial markets. This called for a single currency – and thus shared responsibility for monetary policy. Today, however, we may need to re-phraseRueff’saxiom:Etl’Europe sedéfaitparlesmarchésfinanciers, unless, that is, Europe comes up with a viable institutional design.
economist Robert Mundell and others spelled out in the 1960’s, relinquishing nominal exchange rates emphasises three alternative mechanisms to cushion regional adjustment: inter-regional fiscal transfers, intra-union migration, and, most importantly, labour markets capable of adapting to shocks. Unfortunately,thesemechanisms were anathema at the time. Conveying the message that nothing would have to change appeared to be far more attractive. Thus, Mundellian arguments were not heeded when the euro’s institutional blueprint was conceived.Indeed,theStabilityand Growth Pact, like Europe’s no-bail out clause, ignored the pertinent economic theory (some say any economictheory).Regionalcurrentaccountbalanceswereinterpreted astheupshotofinfallibleoptimising behaviour by market participants, rather than, for example, the result of a real-estate bubble in Spain and elsewhere. Only after the fact, since the fall of 2009, has it become conventional wisdom that those intra-unioncurrent-accountdeficits, accumulating over a decade, were untenable. Now, given monetary union, the adjustment must be carried out by changing domestic prices relative to tradable goods – thatis,byengineeringadepreciation of the real exchange rate. In view of the quite substantial overvaluation in some periphery countries, this will be a timeconsuming process. (Germany needed almost a decade to adapt to a smaller property bubble in
Some regions now face interest-rate spreads that are the functional equivalent of having their
Given the euro’s current travails, it is instructive to recall arguments stressed in the run-up to monetary union. As the Nobel laureate
without a central bank
its new eastern Länder in the early 1990’s.) But it is difficult to imagine that market participants will have the required patience. That is why supporting the euro requires forceful and credible crisis containment – whatever it takes.
National borders But the ongoing crisis also highlights a second design flaw, unacknowledged in Mundell’s argument: the challenges arising from integrated financial markets (including those for the credibility of the no-bail out clause). Under normalcircumstances,unimpeded cross-border capital flows come withalloftheadvertisedbenefitsin terms of better resource allocation andhigherproductivity.Inthewake of the crisis, however, given the sharedfateofnationalgovernments and banks, a significant homebias re-emerged. Ring-fencing became national supervisors’ default option, and monetary conditions became re-segmented along national lines. This translates into a significant disparity in financial institutions’ funding costs. The immediate upshot is a substantial divergence in firms’ cost of funds, with many smallandmedium-sizeenterprises even losing access to credit completely. As a result, capital expenditure – already a fragile proposition, given weak demand – hasplummeted,triggeringavicious circle of shrinking GDP, lower tax revenues, higher expenditures, and further destabilisation of public-debt positions. The problem is not only that
such heterogeneity in funding conditions renders a common monetarypolicydifficulttoconduct. More important, given that some regions now face interest-rate spreads that are the functional equivalent of having their own currencies(withoutacentralbank), some eurozone members might at some point wonder why they should not formalise what is de facto a reality. Market participants already do, to a degree. None of this is inevitable. The euro was not created for purely economic reasons. If it is deemed a worthwhile project, and is viewed as mutually beneficial to all participants, the eurozone could be made viable. In order to achieve this, certain minimum conditionsmustbemet.Inaddition to flexible labour markets, a viable eurozonepresupposesa(minimal) fiscal insurance mechanism. And it calls for not only common financial regulation, but also for eurozone-wide supervision of financial institutions, including common deposit insurance and a shared bank-resolution scheme. This is a tall order. And it will take time to implement. But the immediate short-run alternative – letting Greece (and potentially others) fall by the wayside – would carry a substantial price. Peripherycountrieswouldbeforced to pay a significant premium to compensateinvestorsforassuming a redenomination (partial default) risk. And, with that, the eurozone would become as vulnerable as any fixed exchange-rate system has historically proven to be. ©Project Syndicate
business daily August 8, 2012
CLOSING Japan to approve sales tax hike
Beijing lets govts securitise assets
Japan’s prime minister looked set to achieve his long-cherished goal of hiking consumption tax, with senior opposition figures agreeing to a final vote on the divisive issue. Yoshihiko Noda has invested most of his political capital in a plan to double the current five percent sales tax in what many analysts agree is a sensible way for Japan to begin tackling its huge mountain of debt. The main opposition Liberal Democratic Party appears ready to line up behind Mr Noda’s ill-disciplined Democratic Party of Japan in an upper house vote today, reports said.
China has approved three local government investment vehicles to issue asset-backed securities (ABS), in the latest move to bolster infrastructure investment and support growth in the face of a slowing economy. The approvals also mark another step towards reforming the country’s financial markets, this time by encouraging asset securitisation as a fund-raising method. Issuing ABS will make it easier for local government investment companies to issue debt. The companies will issue notes backed by the future cash flows from assets such as toll roads and public utilities.
Iran accusations wipe US$15b off StanChart shares Bank falls most in 24 years on N.Y. Iran probe Denny Thomas and Steve Slater
Standard Chartered may lose its licence to operate in New York
he market value of Standard Chartered Plc tumbled US$16 billion yesterday after New York’s bank regulator threatened to tear up its state banking licence for allegedly hiding US$250 billion in transactions tied to Iran. The New York State Department of Financial Services (DFS) slammed Standard Chartered as a “rogue
institution” that “schemed” with the Iranian government, which is subject to U.S. sanctions over its nuclear programme, and hid 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years. Shares in the Asia-focused bank were down 23.5 percent at 11.25 pounds (US$17.6) by 1120 GMT, their
lowest in three years, taking their losses to 30 percent since the news surfaced just before Monday’s close. The bank’s shares plunged 14.9 percent in Hong Kong amid trading volume that was about 47 times its 30-day average. They close at HK$160 (US$20.6). “Even the so-called ‘safe’ banks like StanChart and HSBC seem to be crumbling, with their reputation in tatters. No one, it seems, is immune,” said one institutional investor, who asked not to be named. “Some of the language used is very disturbing. Of course, it could be that the Americans are exaggerating, but somehow that doesn’t seem to be the case here,” the investor said. The bank, which has been in talks with U.S. authorities since early 2010 over the matter, had exposed the U.S. banking system to terrorists, drug traffickers and corrupt states, the DFS said. The New York regulator described how officials at Standard Chartered, one of the banks least tarnished during the financial crisis thanks to its focus on emerging markets and a conservative approach to capital
and liquidity, had debated whether to continue Iranian dealings. Standard Chartered said the bank “does not believe the order issued by the DFS presents a full and accurate picture of the facts”. The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the U.S. bank market. Standard Chartered processes US$190 billion every day for global clients, the New York bank regulator said. Standard Chartered is the third British bank to be ensnared in U.S. law enforcement probes this summer. Barclays Plc agreed to pay US$453 million to settle U.S. and UK probes that it rigged a global lending benchmark in June. A month later, a U.S. Senate panel issued a scathing report that criticised HSBC Holding Plc’s efforts to police suspect transactions, including Mexican drug traffickers. Standard Chartered said it shared with U.S. agencies an analysis that demonstrated it “acted to comply, and overwhelmingly did comply” with U.S. regulations. Standard Chartered put the total value of Iran-related transactions that did not follow regulations at less than US$14 million, based on its review of the issue, in stark contrast to the DFS’s US$250 billion estimate. “The group was ... surprised to receive the order from the DFS, given that discussions with the agencies were ongoing,” Standard Chartered said. “We intend to discuss these matters with the DFS and to contest their position.” The bank has to appear before the DFS on August 15. Reuters
German factory orders tumble Orders fell twice as much as forecast in June
erman factory orders declined more than twice as much as economists forecast in June as sales to euro-area countries slumped. Orders, adjusted for seasonal swings and inflation, dropped 1.7 percent from May, when they rose 0.7 percent, the Economy Ministry in Berlin said yesterday. Economists forecast a 0.8 percent decline, according to the median of 35 estimates in a Bloomberg News survey. From a year earlier, orders fell 7.8 percent when adjusted for work days. Yesterday’s report is the latest to show Europe’s largest economy is cooling as the sovereign debt crisis erodes demand for its goods, hurting earnings at companies including Bayerische Motoren Werke AG, Daimler AG and Siemens AG. While the Bundesbank last month estimated moderate growth in the
second quarter, aided by domestic spending, the manufacturing industry is contracting and business confidence fell for a third straight month in July. “Germany can’t escape the crisis and that has been shown by a consistent deterioration in recent data,” said Nick Kounis, chief European economist at ABN Amro Bank NV in Amsterdam. “At the same time, the country will not fall into a massive recession. It’ll be a long, drawn-out period of flattish growth.” Orders from the euro region sank 4.9 percent in June after jumping 7.8 percent in May, yesterday’s report showed. Domestic orders fell 2.1 percent, while demand from noneuro nations rose 0.6 percent. The economy ministry said overall orders in the second quarter “slightly” exceeded those in the first quarter
German companies are feeling the pinch
and there is currently no clear trend. Rising wages and unemployment at a two-decade low are supporting domestic spending, helping to offset waning export demand. The Bundesbank in June predicted
German growth of 1 percent this year. By contrast, the European Commission forecasts a 0.3 percent contraction for the 17-nation euro economy as a whole. Bloomberg