TUESDAY, SEPTEMBER 4, 2012
BUSINESS
Spain sees $125bn as enough for banks MADRID: Spain’s ailing banks won’t likely need to tap all the euro 100 billion ($125.7 billion) that’s been made available by the country’s euro partners, Economy Minister Luis de Guindos said yesterday. In a further indication that Spain’s economic problems are not as acute as some in the markets have been fearing, De Guindos also insisted that no additional austerity measures will be needed to meet the Spanish government’s deficit-reduction target. Spain is battling to avoid the same bailout fate as Greece, Ireland, Portugal and Cyprus. However, De Guindos said Spain’s most troubled bank, Bankia, will get urgent aid, while two indebted Spanish regions appealed for emergency funding to deal with a crippling liquidity crunch. Spain’s banks have an estimated
184 billion euros in problematic real estate loans and investments following the collapse of the country’s property market in 2008. The other 16 euro-zone countries have set aside the rescue package to help troubled Spanish lenders. “In principle, it looks like not all of (the ?100 billion) will be used,” De Guindos told Onda Cero radio. De Guindos said austerity policies being enacted by the government will be enough for Spain to meet its target of reducing the budget deficit to 6.3 percent of national income this year from 9 percent last. The government has already unveiled a ?65 billion package of tax hikes and spending cuts. “Spain has already set out a path which is sufficient for the problems we face,” De Guindos said. He said he didn’t expect other eurozone countries to demand more economic
reforms in Spain. Spain is in a doubledip recession with a near 25 percent unemployment rate. Investors fearing Spain may not be able to pay off its debts have charged high prices for loans to the country. That’s piled the pressure on Spain to reduce its swollen deficit, cut central and regional government spending and clean up its banking system. German Chancellor Angela Merkel is due to visit Madrid on Thursday for talks with Prime Minister Mariano Rajoy. Her spokesman, Steffen Seibert, said Monday that Spain must push through its reform plans to improve the long-term prospects of its economy and alleviate market concerns. “We have said many times in the Spanish case ... that the path Spain has taken recently is remarkable. And that will - as in other countries - when the homework has been done, when the
structure of the economy and the labor market has been improved, lead to that being reflected in interest rates,” Seibert told reporters in Berlin. De Guindos predicted that the ?100 billion in bank rescue funds would become available by early November, once the banks’ restructuring plans are unveiled in the middle of this month. However, he said an emergency advance loan of up to ?5 billion for Bankia, a leading bank that was nationalized in May, could be announced later yesterday. Bankia has called for a total of ?24 billion in public aid. Spain’s heavily indebted regions are another concern for the government. The northeastern region of Catalonia, which announced last week it would seek 5.02 billion euros in aid from the central government, said Monday it urgently needs money and
won’t be able to wait until September, as planned, El Pais reported. Also, the regional government of Andalucia is asking for 1 billion euros in emergency funding, it said. Though the Spanish government is reluctant to accept conditions that would likely be imposed as part of a wider bailout, Foreign Minister Jose Manuel Garcia Margallo signaled that his country is willing to surrender some degree of sovereignty as part of efforts to draw a line under the eurozone’s financial crisis. He said Spain hoped to make progress toward greater European banking, fiscal and political union during the meeting with Merkel. “We need to move towards a United States of Europe,” he said. Geir Moulson in Berlin contributed to this story. Hatton contributed from Lisbon, Portugal. — AP
India pledges ‘friendly’ tax system to boost growth Chidambaram assures clarity on tax laws
MUMBAI: Indian couples shelter under umbrellas as they enjoy heavy rain showers at the sea front in Mumbai yesterday. The monsoon rains, a key to India’s economy, covered the entire country on July 11 but it was 23 percent below average, officials said amid worries of its impact on two cereal-producing states. — AFP
NEW DELHI: India vowed yesterday to introduce a more “friendly” tax system and said it would decide soon whether to delay a controversial plan to fight tax evasion that has spooked foreign investors. Finance Minister P Chidambaram, who was appointed in July and who is seen as more pro-investor than his predecessor Pranab Mukherjee, told reporters that India “will be friendly to taxpayers... Nobody should harbor any fear.” He added India would have a “stable tax regime with clarity on tax laws” and authorities would have a “non-adversarial” approach to tax collection. His comments came after one of India’s top businessmen, software entrepreneur N R Narayana Murthy, slammed the government over its tax policies at the weekend. Murthy said recent tax proposals had soured India sentiment
among foreign business leaders and were “like taking a pistol and shooting ourselves”. The General Anti-Avoidance Rules (GAAR), introduced in this year’s budget, seek to curb tax evasion through tax havens, but have been criticized as a money-grabbing exercise by a government battling to curb a ballooning deficit. The tax proposals have stirred unease among overseas investors, with foreign investment for the quarter to June sliding by 67 percent from a year earlier to $4.43 billion. A government panel proposed that the rules to clamp down on tax avoidance should be delayed by three years. Data on Friday showed India’s growth remained stuck at three-year lows of 5.5 percent, a high figure by developed nations’ standards but far below the near double-digit growth of much of the past decade. — AFP
Egypt’s banks are ripe for picking DUBAI: Egypt’s banks are ripe for picking. Qatar National Bank is in talks to buy Societe Generale’s 77 percent stake in its local subsidiary, NSGB, the country’s second-largest private bank by market value. With a political transition in full swing and a pledge from the president not to devalue the pound, a number of banks could soon change hands as European owners retreat in a bid to shore up capital. The sellers are mostly forced. BNP Paribas is selling its retail banking business and Credit Agricole Egypt is seen as a takeover target. Last year, Standard Chartered walked away from talks to acquire the business of Piraeus Bank. Egypt remains an attractive long-term market even though credit growth has almost ground to halt after the change or government, from around 25 percent year-on-year. Only 10 percent of the population has a bank account. Retail lending is less than 10 percent of GDP, compared to 50 percent or higher in developed markets. Egypt, like Turkey, is a key market for any bank that wants to be a strong
regional player. QNB has excess capital to fund its ambition to become an “iconic ” brand. Yet the bank misjudged Dexia’s desperation to sell earlier this year when it put in a low ball bid for Turkey ’s Denizbank, only to lose to Russia’s Sberbank. The bank sold for 1.3 times book value. In Egypt, there are fewer assets on offer and the regulator isn’t handing out new licenses. So there will be more competition, with higher valuations. An offer for the whole of NSGB, as per Egyptian market rules, would cost QNB around $2.8 billion at current prices, or around 2.2 times book value. That’s still below the 2.8 times of its pre-revolution days. The shares have risen 20 percent since talks were announced. With a 25 percent premium to the undisturbed price, QNB could make a return on investment of 8.6 percent in the first year, according to Arqaam Capital. That leaves some room for a slip in the pound if Egypt’s currency loses some of its value in spite of the president ’s promise. — Reuters
Greek unions see 29% jobless ATHENS: Greece’s largest labor union yesterday warned that the country’s unemployment will reach 29 percent in 2013 if the government carries out more planned austerity measures, expected to exceed 11.5 billion euros ($14.4 billion) for 2012-13. “The course of the Greek economy is one of decline. In 2012, we are expecting a drop in gross domestic product of 7 percent. This will create unemployment of 24 percent level - 1.2 million people,” Savvas Rombolis, head of research at the GSEE labor union told the Associated Press in an interview. “Our estimate is that in 2013, unemployment will be between 28 and 29 percent - more than 1.4 million people. That’s because we expect the economy to remain in decline.” The predictions are to be included in a report that will be published Thursday. Unemployment in May reached 23.1 percent, with the under-25 jobless rate hitting 54.9 percent. The report, Rombolis said, also found that Greeks on minimum wage have seen their spending power reduced to 1979 levels, while those earning an average salary have been pushed back to the equivalent of the early 1980s - after analyzing wage trends, the price of goods and services, and the impact of successive tax hikes since Greece’s major financial crisis began in late 2009.
Greece is relying on emergency loans from the other 16 countries that use the euro and the International Monetary Fund to avoid bankruptcy. It is likely to slash pensions and other benefits further in the new austerity package - which the government says is vital to keep on receiving loan payments and remain a member of the euro-zone. European and IMF debt inspectors are due back in Athens at the end of the week, along with European Council President Herman van Rompuy, while Greek Finance Minister Yannis Stournaras is traveling to Germany to meet Tuesday with counterpart Wolfgang Schaeuble. In Athens, meanwhile, private doctors working with the country’s largest staterun healthcare provider have started charging their patients, in protest at the organization’s unpaid bills. A doctors’ association said the action against the provider EOPYY started yesterday and will last at least five days. Pharmacists launched a similar protest at the weekend, refusing to hand out prescriptions from the state-backed insurer. Police are planning a uniformed demonstration in Athens Thursday to protest likely new pay cuts, while an association representing public prosecutors and other court officials says it will slash operating hours at Greece’s backlogged courts if their pay is reduced. — AP
India’s Finance Minister P Chidambaram
Oil steady near $115 despite Chinese data
German Labor and Social Affairs Minister Ursula von der Leyen during a press conference in Berlin. — AFP
France car registrations slump by 11.4% in Aug PARIS: French car sales dropped by 11.4 percent in August, after a drop of seven percent the previous month, adding to the economic gloom hanging over the euro-zone’s second biggest economy. Sales of new cars in France slipped by 11.4 percent on the basis of unadjusted data and a 12-month comparison to 96,115 vehicles, the manufacturers’ organization CCFA said. Over the first eight months of this year, the fall was 13.4 percent, it said, noting that the French carmakers PSA Peugeot Citroen and Renault suffered more last month than foreign competitors. The key French sector has been weak for several months owing to the end of a cash-for-clunkers government bonus to support car sales at the height of the financial crisis. The poor car sales came a day after French Labor Minister Michel Sapin said that the country’s unemployment had passed the symbolic number of three million registered jobseekers and would keep rising. President Francois Hollande’s Socialist government is struggling to tackle rising unemployment after he took office in May amid the debt crisis that is dragging down European economies. The government last month announced that it will boost support for environmentally friendly cars as part of a rescue plan unveiled amid growing concern for top carmaker PSA Peugeot Citroen. PSA Peugeot Citroen posted a net loss of 819 million euros (nearly $1.0 billion) for the first half of this year, more than reversing a year-earlier net profit of 806 million euros. The company, which employs 100,000 people in France but had already announced 8,000 job cuts there, said it will implement a 1.5-billion-euro cost reduction plan through to 2015. — AFP
LONDON: Oil steadied yesterday, despite Chinese data showing a deepening slowdown in the world’s biggest energy consumer, as investors focused on the possibility of more stimulus measures and other moves to try to revive economic growth. China’s factories have been hit by slowing orders, two major surveys showed yesterday, suggesting the slowdown in the world’s No 2 oil user could be worsening. The figures prompted a new round of speculation that governments would act sooner rather than later to increase money market liquidity to encourage bank lending, a move that would almost certainly boost commodities and oil. Trading volumes were limited, with US financial markets closed for the Labor Day holiday. Brent October futures were up 17 cents at $114.74 per barrel by 1200 GMT after jumping nearly $2 on Friday. US crude futures eased 15 cents to $96.32. Both contracts rose more than 9 percent in August, driven by supply concerns and hopes for stimulus from the Federal Reser ve. “ The Chinese data is very gloomy and suggests that the world economy is slowing,” said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt. “But the market impact is rather limited as it raises hopes of more economic stimulus measures,” he said. “Hopeful of central bank measures, speculative financial investors are increasingly betting on rising prices.” China’s official factory purchasing managers’ index (PMI), one of the early indicators of the state of the economy, fell to a lower-than-expected 49.2 in August, the National Bureau of Statistics said on Saturday. It was the first time since November 2011 that the number has fallen below 50, which separates expansion from contraction, and followed last week ’s flash PMI for August, which hit a nine-month low. Together, the two manufacturing surveys could strengthen the case for fur ther policy steps to bolster growth. US and European data this week could throw light on central bank plans for monetary policy. Traders are eyeing the European
Central Bank’s meeting on Thursday and US non-farm payrolls data due on Friday. Although the minutes of the last meeting of Fed policymakers suggested the central bank was leaning towards further stimulus to boost the economy, a keenly awaited speech on Aug. 31 by Chairman Ben Bernanke offered no specifics. Hopes for easing remained intact as Bernanke said stagnation in the US labor market was a “grave concern”, leading investors to expect that unemployment data due on Friday may provide the Fed with a trigger. US quantitative easing tends to be positive for commodities as it drives down the dollar and adds liquidity. An ECB meeting on Thursday will be monitored closely as the magnitude of the euro zone’s problem gives it the ability to derail markets across the globe. Expectations are high after ECB Chairman Mario Draghi in July pledged to do whatever was necessary to preserve the euro, sparking hopes the central bank may announce details of a bond-buying plan this week. Investors were also monitoring a debate about the release of strategic oil reserves to cool prices, a plan mooted by the United States and supported by Britain and France, but opposed by Germany and Italy. In Norway, a last-minute wage deal between oil drill workers and their employers helped keep prices subdued by averting what would have been the second strike in two months. In July, a 16-day strike by Norway’s oil production workers shut 13 percent of production before the government stepped in. Tension persisted between Israel and Iran in the Middle East, a critical source of crude supplies. Israeli Prime Minister Benjamin Netanyahu on Sunday urged world powers to set a “clear red line” for Tehran’s atomic program that would convince Iran they were determined to prevent it from obtaining nuclear arms. His remarks suggested a growing impatience with Israel’s main ally, the United States, and other countries that have been pressing him to give diplomacy and sanctions more time to work and hold off on any go-italone strike on Iran. — Reuters