June 16, 2024

Euro Watch: Euro Zone Manufacturing Declines

PARIS — A European economic report Friday confirmed a continuing slowdown in the euro zone’s factories, even as Washington reported data indicating a moderate improvement in the American economy.

Euro zone manufacturing declined for a 15th consecutive month in October, according to a survey of purchasing managers by Markit Economics, a research firm.

The final Markit purchasing managers’ index fell to 45.4 in October from 46.1 in September. A number below 50 signals contraction.

“A broad-based decline in production was seen across the consumer, intermediate and investment goods sectors,” Rob Dobson, a Markit economist, wrote in a note, “as manufacturers faced a restrictive combination of weak demand from domestic markets and declining intra- and extra-euro area trade flows. Cost caution also prevailed, leading to cutbacks in employment, purchasing and the disinvestment of inventories.”

Data from individual countries were also sobering, he noted, as Ireland was the only euro zone country not to report a contraction.

“This is further evidence that the ongoing weakness of the periphery is being combined with hollowing out of the previously strong core of France and Germany,” Mr. Dobson said.

The figures for Britain, not a member of the euro zone, were scarcely better, with the manufacturing index falling to 47.5 in October from 48.1 in September.

Attention in the euro zone is now beginning to focus on a meeting of euro zone finance ministers Nov. 12 in Brussels, where officials are expected to move toward decisions on what to do about the thorny situations in Greece and Spain.

The U.S. economy, meanwhile, appears to be continuing its slow recovery. In the last assessment of the job market before the presidential election, the Labor Department announced Friday that employers added 171,000 positions in October, and more jobs than initially estimated in both August and September.

The unemployment rate ticked up slightly in October, to 7.9 percent from 7.8 percent in September, as more people joined the labor force and so officially became counted as unemployed.

The report reinforced expectations that the U.S. economy, for all its problems, would continue to outpace Europe’s. A report this month from Eurostat, the statistical agency of the European Union, is expected to show the euro zone’s economy back in recession, with gross domestic product contracting for a second consecutive quarter in the three months through September.

The euro slipped 0.7 percent from the New York close Thursday, to $1.2847.

Article source: http://www.nytimes.com/2012/11/03/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

DealBook: Hong Kong Exchange to Buy London Metal Exchange for $2.1 Billion

The floor of the London Metal Exchange.Chris Ratcliffe/Bloomberg NewsThe floor of the London Metal Exchange in 2010.

1:57 p.m. | Updated
Hong Kong Exchanges and Clearing agreed on Friday to buy the London Metal Exchange for £1.38 billion, or $2.14 billion, in another sign of Asia’s importance to the world’s commodities industry.

The Asian bourse, one of the world’s biggest financial exchanges based on market capitalization, outbid several American rivals for control of the 135-year-old London firm.

Despite concerns that the Chinese economy may be slowing down, the country and other emerging markets in the region now are the largest buyers of a number of commodities, such as iron ore and coal, as their domestic markets continue to report high levels of growth. The latest acquisition will help the Asian bourse take advantage of this demand.

“All the world’s leading exchanges have been fighting in this area,” Charles Li, chief executive of the Hong Kong exchange, said in an interview. “This is about growth and conquering new markets.”

The Hong Kong-based firm said it would pay £107.60 (about $167) for each share in the L.M.E. The deal will be presented to the London exchange’s shareholders by the end of July, according to a statement from the Hong Kong-based company.

The deal requires approval of at least 50 percent of the L.M.E.’s shareholders, who hold more than 75 percent of the firm’s stock. It also requires approval of British regulators.

The acquisition could provide a windfall for JPMorgan Chase and Goldman Sachs, which collectively own a 20.4 percent stake in the London-based exchange. The banks could pocket a combined $436 million through the transaction.

The Hong Kong bourse said it would not increase fees on trading contracts before 2015, a boon to smaller investors, which had been concerned that the acquisition would lead to a rise in the exchange’s trading fees. The acquisition prices for the L.M.E., which has around an 80 percent share in global futures trading for metals like aluminum, copper and zinc, is higher than analysts’ previous estimates. The premium underlines the lengths to which the Hong Kong exchange was willing to go for control of one of the world’s remaining independent exchange businesses.

Both NYSE Euronext and the CME Group made initial bids, but dropped out this year, according to a person with direct knowledge of the matter. InterContinental Exchange, the Atlanta-based firm, also had proposed buying the L.M.E., but was eventually outbid by the Hong Kong exchange.

Other exchanges have made unsuccessful attempts to acquire rival firms. NYSE Euronext and Deutsche Börse called off their planned merger after European antitrust regulators formally opposed the deal.

The Asian company’s acquisition of the London-based exchange will focus on increasing the number of Chinese participants on the L.M.E., Romnesh Lamba, head of market development at the Hong Kong Exchange, said in an interview.

Currently, less than a quarter of the L.M.E.’s customers hail from China, and Mr. Lamba said there were plans to create Chinese currency-based contracts and allow for clearing of trades in Asia to help increase the number of regional users. The changes would take place over the next three years, he added.

The Hong Kong exchange also is hoping to gain Chinese government approval to use local warehouses to provide commodities for domestic customers. Chinese regulations currently do not allow foreign exchanges to operate mainland warehouses.

The L.M.E. already has an office in Singapore, and operates commodities warehouses across the region, as well as in North America and Europe.

The deal will allow the Asian exchange, which holds a monopoly in the securities and futures market in Hong Kong, to diversify into other forms of trading.

Volatility in the financial markets has led to the postponement or cancellation of several initial public offerings on the Hong Kong exchange. So far in 2012, the total dollar value of new listings on the Asian bourse has fallen by more than 90 percent compared with the same period last year, according to the data provider Dealogic.

Analysts say the acquisition of the L.M.E. will help to offset this fall in new I.P.O.’s. Fueled by demand for commodities from emerging markets, total trading on the L.M.E. last year increased by 22 percent from 2010. The value of all traded contracts also rose to $15.4 trillion, a 33 percent jump from 2010.

The Hong Kong exchange said it would pay for the acquisition through cash reserves and combined bank loans of at least £1.1 billion from the China Development Bank, Deutsche Bank, HSBC and UBS.

Rothschild, UBS and the law firm Allen Overy advised Hong Kong Exchanges and Clearing, while Moelis Company and the law firm Freshfields Bruckhaus Deringer advised the London exchange.

Article source: http://dealbook.nytimes.com/2012/06/15/hong-kong-exchange-to-buy-london-metal-exchange-for-2-1-billion/?partner=rss&emc=rss

DealBook: In the Persian Gulf, Struggling to Adapt as Deals Dry Up

 Sheik Maktoum al-Hasher Maktoum, 35, is the executive chairman of Shuaa Capital,  one of the largest investment companies in Dubai.Shuaa Capital Sheik Maktoum al-Hasher Maktoum, 35, is the executive chairman of Shuaa Capital, one of the largest investment companies in Dubai.

DUBAI — As a new wave of austerity has left many financial firms around the world struggling, their counterparts in the Persian Gulf region have too been forced to hunker down.

In an environment of dwindling trading volume on domestic markets and a disappointing pace of deals, some of the region’s most prominent investment banks are undergoing drastic changes. It is a stark contrast to the mood in the last decade, when both international and regional investment banks were bulking up to pursue deals in the Middle East.

Trading on the Dubai Financial Market slumped to average daily volume of $48.5 million in 2011, an 89 percent drop compared with 2007, according to data from Coldwell Banker. That sharp drop in volume decimates revenue for brokerage firms. Average trading volume on the Abu Dhabi Securities Exchange is also down.

“When markets are this volatile, it can be difficult to persuade retail investors to stay in the long run, even though opportunities are there,” said Nick Tolchard, managing director here for the asset management firm Invesco.

In light of the new reality, Shuaa Capital, an investment company with a 30-year history, is one of several regional firms making sweeping changes to cut costs. “Everything that could possibly go wrong has already happened to us, and we’re still here,” said Sheik Maktoum al-Hasher Maktoum, 35, who recently took on the role of executive chairman of Shuaa, one of the largest investment companies here. He is also the nephew of Sheik Mohammed bin Rashid al-Maktoum, the ruler of Dubai.

“Now that the entire industry is facing changes, we knew we had to act fast, and we didn’t hesitate with where and when to cut costs in the company,” he said.

Dubai’s ruler, through the Dubai Group, spent heavily on large stakes in several investment companies here, including acquiring a 48.4 percent stake in Shuaa at what turned out to be near the top of the market.

After the pullback in market trading, Shuaa is aiming to cut costs 71 percent by the middle of this year. It has closed its operations in Jordan and Egypt, and reduced the work force in its Saudi Arabia office, Sheik Maktoum said.

It has also cut its global staff to 232 employees at the end of the first quarter of 2012, from 390 at the beginning of 2011.

Difficulties remain despite reorganization efforts. Shuaa’s shares are stuck near an eight-year low. The firm has not reported a profit since 2007. Last year, it reported a net loss of 294 million dirhams, or $80 million. And Moody’s Investors Service downgraded its rating on Shuaa last month.

EFG Hermes, a leading regional investment bank, is bringing in a smaller but wealthier firm, Qinvest of Qatar, which is putting in $250 million in exchange for a 60 percent stake in the company’s brokerage, advisory and wealth management units.

Turmoil in the Arab world put pressure on the EFG Hermes’s brokerage and investment banking business, which led the firm to report to an 81 percent drop in profit last year, to 133 million Egyptian pounds, or $22 million.

Qatar, by contrast, is on an upswing as a regional power broker, thriving on oil and natural gas income.

The new institution formed from the deal, to be called EFG Hermes Qatar, will be able to grow on advisory fees from Qatar’s aggressive acquisition spree, fueled by an estimated $20 billion to $30 billion in annual cash set aside for investments. And Qatar will obtain what it has been seeking: a prestigious regional investment bank.

“Their valuation is different from us,” said a person close to the transaction, speaking of the Qataris, who added that the bank would become “a platform for Qatar Inc.” The person asked to be anonymous so as not to jeopardize business relationships.

Still, the deal shows how far EFG Hermes had to retrench. The market cap of the firm is now $884 million, less than the $1.1 billion that Dubai’s ruler paid in 2007 for a 25 percent stake.

Some financial institutions, including Bank Alkhair in Bahrain, are battling corruption charges in court. Others have not been fortunate enough to find a buyer and have shut operations. In March, the Bahraini investment firm Arcapita filed for bankruptcy protection in the United States, where it had offices, after failing to refinance its $1.1 billion credit facility.

Senior management shuffles have become commonplace to appease shareholders as new strategies are adopted for a leaner environment. Citadel Capital in Cairo reshuffled its board this week, while Rasmala Investments in Dubai changed its chief executive in November 2010.

Last month, Shuaa Capital appointed its fourth chief executive in three years, Colin Macdonald, and brought in Sheik Maktoum as executive chairman in April.

“In commercial banks like Emirates NBD, there’s been relative stability at senior levels, but where there’s been the greatest turnover is in classic investment companies like Shuaa,” said Peter Vayanos, a partner in Abu Dhabi for the international consulting firm Booz Company. “The business model that helped these companies succeed in the past is no longer there.”

Shuaa, which has five core business lines including investment banking, asset management, finance, private equity and the brokerage house, has abandoned its consumer brokerage business.

“The brokerage business is linked to the performance of regional stock exchanges, reflecting the value of stocks held, and as soon as volume trickles away, brokerage businesses suffer,” Mr. Vayanos said.

Rasmala Investments reduced its brokerage arm in the United Arab Emirates, according to the firm’s founder and a former chairman, Ali al-Shihabi. It is now focused on revenue-generating units, including asset management and corporate finance. The firm also heavily reduced operations in Saudi Arabia, cutting its payroll to three people this year from 35.

Similarly, Rasmala Investments reduced costs by 50 percent in 2011 and has scrapped its investment research department. “As a private company, we were able to ruthlessly cut costs,” said Mr. Shihabi.

Article source: http://dealbook.nytimes.com/2012/05/24/in-the-persian-gulf-struggling-to-adapt-as-deals-dry-up/?partner=rss&emc=rss

A Long Shot for Geithner as He Begins Beijing Talks

BEIJING — Timothy F. Geithner, the U.S. Treasury secretary, came to Beijing on Tuesday hoping to persuade Chinese leaders to toughen their diplomatic stance toward Iran and soften their opposition to fiscal changes like a stronger renminbi that might help the American economy.

By many accounts, including some from the Chinese themselves, his odds of success are long. But on other issues, led by the need to address Europe’s debt problems, the two sides may find more to agree on.

Mr. Geithner, the point man for the Obama administration’s economic dealings with the Chinese, arrives here as fiscal and trade relations show signs of fraying. The Chinese slapped stiff tariffs last month on imports of American automobiles and opened an investigation in November into American government subsidies to renewable-energy industries.

On the American side, President Obama left China out of a trade pact with east Asian countries, the Trans-Pacific Partnership, that he announced in November. Washington is investigating or formally pursing trade disputes on a range of goods, like solar panels, broiler chickens and steel pipes.

Mr. Geithner’s arrival coincides with a report that Mr. Obama is creating an interagency task force to ferret out unfair trade and business practices by the Chinese.

That report, in The Wall Street Journal on Tuesday, said that Mr. Geithner would brief Chinese officials on the venture during his visit here.

U.S. corporations, involved in industries like telecommunications and financial services, have increasingly complained that China continues to restrict their access to domestic markets, despite pledges of openness when China joined the World Trade Organization a decade ago.

Differences aside, the economic relationship between the two countries has become so broad that Mr. Geithner and his counterparts are expected to find much to agree on.

In meetings on Tuesday and Wednesday with the vice prime ministers Wang Qishan and Li Keqiang, Vice President Xi Jinping and Prime Minister Wen Jiabao, the two sides are expected to focus on ways to keep Europe’s debt crisis from dragging the global economy back into recession.

At the first meeting Tuesday evening, Mr. Wang alluded to the global role facing the two largest economies in the world, saying the United Sates and China were “having important cooperation in the multilateral and global arena in the areas of economy, finance, trade policies and also G-20 related affairs.”

The visit also offers a chance for a meeting with Mr. Xi, the presumed successor to President Hu Jintao, before Mr. Xi travels to the United States this year.

Yet Mr. Geithner seems unlikely to gain many concessions on the two issues that have been headlined for this visit: the valuation of the renminbi and U.S. efforts to impose new financial sanctions on Iran’s nuclear program.

The United States has long complained that China keeps the renminbi artificially low to give its products a price advantage in foreign trade. Under constant U.S. pressure, China has allowed a slow appreciation of its currency against the dollar this year — in unadjusted terms, a gain of nearly 4.8 percent against the dollar in the last year, according to the Bank of China.

But some U.S. economists say the renminbi would appreciate another 10 percent to 20 percent were the market allowed to set its value. The Obama administration said in a report in December that China’s currency remained “substantially undervalued,” although it declined to take the sensitive step of branding China a currency manipulator.

Mr. Geithner is sure to raise the issue of the renminbi this week. But he is unlikely to get a sympathetic hearing given the uncertainty surrounding China’s own economic prospects, said Li Xiangyang, the vice director of the Institute of World Economics and Politics at the state-run Chinese Academy of Social Sciences.

“Other currencies are dropping against the U.S. dollar right now,” he said in an interview.

He added: “The United States has no right to ask China to appreciate its currency when the global trade is declining, and China’s economy itself is facing the risk of decline.”

Mr. Geithner faces an equally hard task on the Iranian issue. His Beijing visit comes four days after President Obama signed legislation that would deny foreign financial companies that buy Iranian oil access to the U.S. financial system. Those sanctions aim to increase pressure on Iran to curtail what many say is an effort to build nuclear weapons.

The European Union is moving toward a ban on purchases of Iranian oil, and Japan and South Korea, two of Iran’s major customers, have indicated muted support for the Washington initiative. Mr. Geithner will seek to enlist China’s help as well.

But on Monday, a senior Beijing diplomat seemed to suggest that that idea had no chance of succeeding. The diplomat, the vice foreign minister, Cui Tiankai, repeated China’s argument that differences over Iran’s nuclear intentions “cannot be resolved by sanctions alone,” but require more negotiations.

Mr. Cui dismissed the notion that China should try to sway Tehran by reducing or ending its purchases of Iranian oil or natural gas.

“Regular economic and trade relations between China and Iran have nothing to do with the nuclear issue,” he said. “We should not mix issues with different natures.”

China bought more than 11 percent of its oil imports from Iran in the first 11 months of 2011, up from 9.6 percent in the same period in 2010, Chinese customs statistics show. The Chinese also have a thriving business in oil services in Iran, having committed $120 billion to oil and gas projects there as of 2009, according to published reports.

China has historically been reluctant to support economic sanctions not approved by the United Nations. But its increasing isolation on the Iranian nuclear issue could lead the country to take some other measure to meet U.S. requests, like a direct message to Tehran, said François Godement, a senior fellow at the European Council on Foreign Relations.

Mia Li contributed research, and Keith Bradsher contributed reporting from Hong Kong.

Trade surplus shrinks

Exports from China rose 13.4 percent in December, compared with the same month a year ago, while import growth unexpectedly slowed to 11.8 percent because of lower prices and moderating domestic demand, government data released Tuesday showed, Sharon LaFraniere reported from Beijing.

The Chinese trade surplus shrank to $155 billion in 2011, from $183 billion in 2010, as imports picked up and demand for Chinese goods in Europe and elsewhere softened. IHS Global Insight, an economic forecasting firm, said that while still sizable, the surplus was China’s lowest in three years. That could help China fend off pressure from the United States to allow its currency to appreciate faster.

Analysts with IHS Global Insight called the decline in import growth “worrying” and an indication of rapidly falling domestic demand. “This will be of little help to a flagging global economy,” they said.

But Goldman Sachs noted that trade data was notoriously volatile and attributed much of the slowdown to lower prices, not fewer purchases. Barclays Capital also cited lower commodity prices, saying that domestic demand, while moderating, remained “robust.”

Article source: http://feeds.nytimes.com/click.phdo?i=718b096952a134665af9b09b1081cdf7

Express Scripts-Medco Merger Raises Antitrust Concerns

Together, the two companies now manage prescription drug benefits for more than 115 million people and handle one of every three prescriptions filled in the United States. With combined revenue of more than $110 billion a year, the merged entity would also become the largest player in the domestic markets for supplying mail-order drugs to patients with chronic conditions and costly specialty drugs for conditions like H.I.V., hemophilia and rheumatoid arthritis.

Senior executives at the two companies say the merger will significantly reduce the nation’s health care costs and deliver drugs in a safer, more efficient fashion. “A combined Express Scripts and Medco will be well positioned to protect American families from the rising cost of prescription medicines,” George Paz, the chief executive of Express Scripts, told legislators at a House subcommittee hearing in September.

But some lawmakers are concerned that the merger will harm competition, and the Federal Trade Commission has requested additional information from the companies before it decides whether to approve the combination.

Tuesday’s hearing is being held by the antitrust subcommittee of the Senate Judiciary Committee. The same committee has taken a hard look at other mergers, like ATT’s proposed acquisition of T-Mobile, that have the potential to reduce competition and lead to higher prices.

Regulators are expected to focus on whether the merger of Medco and Express Scripts, which would reduce the number of major competitors to two from three, would also leave customers, particularly large employers, with too few choices and limited bargaining power. While the two pharmacy benefit managers say they face aggressive competition from other managers for their business, a recent analysis by Morgan Stanley Research indicated that the 50 largest companies in the United States rely heavily on the services of Medco, Express Scripts and the third major benefit manager, CVS Caremark.

The smaller players typically do not have the geographic reach, bargaining power or data-handling capabilities of their larger competitors, said Dan Gustafson, an antitrust lawyer who recently helped write a letter to the F.T.C. objecting to the merger on behalf of the American Antitrust Institute, a Washington organization. “These are customers who require a broad spectrum of services on a national level,” he said.

Regulators are also likely to take a look at the merged company’s potential to dominate the mail-order pharmacy and specialty drug markets. When benefit managers steer health plans to their own pharmacy fulfillment services, employers may have little choice but to agree, said Edward A. Kaplan, a benefits consultant at Segal, which advises employers and others about health insurance. “They have very little leverage,” he said.

In the area of specialty drugs, which are increasingly contributing to higher costs, benefit managers are able to profit from the difference between what employers and insurers pay for these expensive drugs and the cost. The combined company would control almost a third of the market, according to one analysis. Robert Seidman, a former pharmacy executive at WellPoint who is now a health care consultant in Los Angeles, said the merger could result in a conflict of interest in the way that the pharmacy benefit manager makes money. “We’re not talking pennies here,” he said. “We’re talking thousands” per drug.

The companies assert that there is plenty of competition with 40 benefit managers in the market, including companies like UnitedHealth Group, the powerful insurance company, competing.

Indeed, some advocacy groups support the merger. “Discouraging the collaboration of two companies that have been tremendously successful in lowering costs and increasing safety would indicate lawmakers are not serious about addressing long-term sustainability in the American health care system,” Grover Norquist, the president of Americans for Tax Reform, a group in Washington, wrote in a letter last week to the chairman of the antitrust subcommittee.

Meanwhile, a number of consumer groups including Consumers Union, along with associations representing community pharmacists, chain drugstores and supermarkets, have sent letters to regulators and legislators arguing that the combined company would create a drug benefit giant with unrivaled power. In their various letters, the groups expressed concerns that the merged pharmacy benefit manager would be likely to steer patients to its own mail-order and specialty pharmacy businesses, muscling out smaller competitors.

“Our concern is that a mega P.B.M. would have tremendous power and control over what prescription drugs Americans can get, where they get them, and how much the drugs cost,” said Don Bell, senior vice president and general counsel at the National Association of Chain Drug Stores.

DeAnn Friedholm, the director for health care reform at Consumers Union, said her group was particularly concerned that the merger could reduce consumer choice in ways such as limiting the pharmacies in their networks or requiring people to use mail order.

“We like the idea of having good choices for consumers that meet their needs, not just the need of these huge P.B.M.’s,” Ms. Friedholm said.

But, in his testimony during the House hearing, David B. Snow Jr., the chief executive of Medco, emphasized the company’s collaborative relationship with local pharmacies. “More than 85 percent of Medco customer prescriptions are filled through our network of over 60,000 retail pharmacies nationwide,” he said.

Cecelia Prewett, a spokeswoman for the Federal Trade Commission, said the agency would not comment on its examination of the proposed Express Scripts-Medco deal. She also declined to comment on the agency’s investigation of another pharmacy benefit manager, CVS Caremark, over accusations of unfair practices against consumers. CVS Caremark also declined to comment.

While the Congressional interest in the union of Express Scripts and Medco may have no direct influence on whether regulators decide to block the merger, antitrust lawyers say the hearings make it clear that lawmakers are paying attention. The Senate Judiciary Committee, in particular, has been at the forefront of examining antitrust issues, said David A. Balto, a former lawyer with the F.T.C. who is representing groups opposing the merger, including community pharmacies. He plans to testify at the hearing on Tuesday.

“By putting a spotlight on anticompetitive conduct in various markets ,” he said, “they have effectively forced the Obama administration to be a tougher cop on the beat.”

Article source: http://feeds.nytimes.com/click.phdo?i=908e8573363d4abf9cbc4ea3d210d073