March 28, 2024

I.M.F. Calls for Japan Reforms and Plan to Clear Debt

TOKYO — The International Monetary Fund said Japan’s economy is recovering from years of stagnation, but that far-reaching reforms and a “credible plan” are needed to reduce its debt mountain and sustain growth in the long run.

The assessment, in a report released Monday, said the near-term outlook of the world’s third-largest economy “has improved considerably” thanks to monetary easing and increased government spending under Prime Minister Shinzo Abe’s administration.

It forecasts that Japan’s economy will grow 2 percent in 2013, helped by stronger demand at home and overseas, but will expand only 1.2 percent in 2014 as consumers tighten their belts following an expected increase in sales tax.

The IMF’s report, based on a consultation with the Abe government last month, echoes earlier comments by the World Bank’s lending arm on the “Abenomics” strategy of breaking out of a long spell of debilitating deflation by flooding the economy with money. At Abe’s behest, Japan’s central bank is striving to generate 2 percent inflation within the next two years.

But the report emphasized the need for “significant adjustments” to help reduce Japan’s public debt, which will amount to nearly 250 percent of gross domestic product this year.

A central concern is a potential loss of confidence in Japan’s ability to service its debt, given that repaying just the interest on government bonds is consuming a growing share of limited tax revenues. Japan’s parlous fiscal situation is compounded by surging health and welfare costs from the fast-expanding share of elderly in the population. Rising inflation would inevitably push interest rates on government bonds higher, adding to the burden.

Uncertainty over the resilience of the recovery has prompted debate in Tokyo over whether the government should follow through on its pledge to raise the sales tax from 5 percent to 8 percent by next April, and eventually doubling it to 10 percent by 2015.

IMF Mission Chief for Japan Jerry Schiff said it would be a mistake to change course on that plan now.

“We think that the plan needs to go ahead as conceived, in other words to move from 5 to 10 percent in two parts,” he said on a conference call. The tax hike surely will affect the economic rebound “but we don’t think it will knock the recovery off of its rails,” Schiff said.

Unlike some other countries facing crushing levels of public debt, such as Greece and Cyprus, Japan’s financial system remains generally sound, the report said.

Most public debt is held by Japanese investors and financial institutions, helping to reduce the threat of a rapid and destabilizing exodus of cash. Japan’s banks have relatively low levels of debt, while a rally in share prices since late last year has burnished their financial performances.

Over the long run, Japan’s economic growth will likely settle near about 1 percent, as government spending on reconstruction from the March 2011 tsunami disaster is wound down, taxes increase and the pool of employable workers ages and shrinks, it said.

Japan needs wide-ranging structural reforms to support growth, encourage investment and improve competitiveness, it said. The report mentioned such priorities as bringing more women into the workforce, relaxing immigration restrictions and opening markets to more trade through participation in the U.S.-led talks on the Trans-Pacific Partnership regional trading bloc.

“Incomplete progress on fiscal and structural reforms could weigh on confidence and undermine the success of the new policy framework,” it said.

Inflation, the factor Abe says will underpin growth, should increase from about 0 percent to 0.7 percent by the end of this year, the report said. Much of that will stem from rising costs associated with a weakening in the Japanese yen, which increases costs for imported food, fuel and other commodities. Sales tax hikes will further support inflation.

Schiff said Abe’s recovery plan, if properly implemented, should lead to a faster growing and more dynamic economy that will bring the yen back to “equilibrium from its moderately undervalued position.”

The IMF expects long term inflation to average 2 percent. The report only indirectly referred to the issue of whether wages will increase enough to ensure Japanese consumers will spend more and not just tighten their belts to cope with rising prices and higher taxes. Consumer spending makes up about three quarters of Japan’s economy.

It urged reforms to reduce the growing number of workers, about 70 percent of them women, hired as non-permanent staff, who are paid significantly lower wages than “regular workers” and face limited job security and inferior access to social insurance.

The report said the costs of such a labor market setup were “substantial” and recommended steps to encourage stricter legal standards but more flexibility for employment in general.

Article source: http://www.nytimes.com/aponline/2013/08/05/business/ap-as-japan-imf-economy.html?partner=rss&emc=rss

DealBook: Crédit Agricole Cites Write-Downs in Posting a Record Loss

A branch of Credit Agricole in Marseille, France.Jean-Paul Pelissier/ReutersA branch of Credit Agricole in Marseille, France.

PARIS — Crédit Agricole, one of France’s biggest lenders, said on Wednesday that a series of write-downs and other charges contributed to its largest-ever annual loss.

The bank reported a net loss of 6.5 billion euros ($8.7 billion) for 2012. In the fourth quarter, the bank posted a net loss of about 4 billion euros, compared with a loss of about 3.1 billion euros in the period a year earlier. Revenue fell 23 percent, to 3.3 billion euros, in the three months ended Dec. 31.

Jon Peace, an analyst at Nomura International in London, described the fourth-quarter loss as “an even bigger kitchen sink” than that for which the market had been bracing, but said Crédit Agricole’s core French retail and asset management businesses had performed surprisingly well. There are “clear signs of improvement” in its finances, he wrote in a note.

“We are turning a page and will develop a new medium-term plan this year,” Jean-Paul Chifflet, the bank’s chief executive, said in a statement. “It will show that we are moving forward on solid foundations.”

After stripping out one-time costs, the bank said net income showed “the resilience of French retail banking and a good performance in savings management, the group’s core businesses.” The bank’s adjusted fourth-quarter net income was about 548 million euros, up 10 percent compared with the last three months of 2011.

Jean-Paul Chifflet, the chief executive of Crédit Agricole.Jacky Naegelen/ReutersJean-Paul Chifflet, the chief executive of Crédit Agricole.

Mr. Chifflet said in a conference call that the bank would not need to raise capital in the financial markets. Shares of Crédit Agricole rose 7.6 percent in afternoon trading in Paris on Wednesday.

The flood of red ink originated in good-will impairments of nearly 2.7 billion euros, losses linked to the sale of its C. A. Cheuvreux brokerage unit to Kepler. The charges take into account the decline in value of the unit.

The impairment comes as banks face pressure over good will.

Last month, the European Securities and Markets Authority called on companies to take a hard look at the value they assign to the assets on their balance sheets, particularly those they purchased in more favorable times. It warned that it would publicly identify those companies that failed to comply.

Crédit Agricole also booked a fourth-quarter charge of 706 million euros related to the sale last year of its Athens-based unit, Emporiki, to Alpha Bank, a write-down that it said left it with no residual exposure to Greece. But it said the French tax authorities had unexpectedly ordered it to pay a bill of 838 million euros on the disposal, causing its loss to grow.

Fourth-quarter results also were hurt by a charge of 541 million euros on the cost of revaluing the bank’s own debt.

Crédit Agricole, based in Paris, was caught flat-footed when the euro zone crisis caused a sharp fall in the value of assets in Greece, Italy and other struggling European countries.

Over the last few years, the bank has been streamlining its business and reducing its reliance on so-called peripheral European economies, as well as increasing its capital buffer.

Crédit Agricole said its core Tier 1 ratio, a measure of a bank’s ability to weather financial shocks, under the accounting rules known as Basel III, stood at 9.3 percent at the end of December, and that it hoped to exceed 10 percent by the end of 2013.


This post has been revised to reflect the following correction:

Correction: February 21, 2013

An earlier version of this article erroneously reported the size of the unexpected tax bill that Crédit Agricole bank had to pay on the disposal of its Greek unit, Emporiki. It was 838 million euros, not 132 million euros. The article also misstated the negative impact of that bill on the group’s fourth-quarter net income. It was 706 million euros, not 704 million euros.

Article source: http://dealbook.nytimes.com/2013/02/20/credit-agricole-posts-record-loss-on-write-downs/?partner=rss&emc=rss

Chinese Imports and Exports Soar in January

HONG KONG — January trade data from China on Friday showed a surge in exports and imports from a year earlier — a phenomenon that was largely due to the timing of the Lunar New Year holiday, but that also supported the view that the Chinese economy is firming.

Economic data from China are often severely distorted by the holiday, the highlight of the Chinese calendar, when many factories shut down for a week or more.

The holiday this year takes place in February — the first day of the Lunar New Year is on Sunday — but last year it fell squarely in January, cutting down on the number of working days during that month.

The trade data released Friday reflected this with a large increase compared with the year before, as analysts had expected. Exports climbed 25 percent from January 2012, according to the General Administration of Customs, and imports soared 28.8 percent.

Both figures beating expectations by a wide margin, however, supported the view that the rise was also caused in part by healthier domestic and overseas demand.

“This strong export number cannot be fully explained by the Chinese New Year effect alone,” Zhiwei Zhang, chief China economist at Nomura in Hong Kong, said in a research note.

“These data suggest that external and domestic demand are both strong, which supports our view that the economy is on track for a cyclical recovery” in the first half of this year, he added.

Dariusz Kowalcyk, an economist at Crédit Agricole in Hong Kong, said “we need to wait for February results to have the full picture of trade at the start of 2013.”

However, he added, “one trend is clear: exports have been doing very well recently. This may be a sign of improved external demand, but is also a testimony to the resilience of Chinese exporters and to their competitiveness.”

The Chinese economy has been accelerating gradually in the past few months, reversing a marked slowdown that had raised fears of a possible “hard landing” in China early last year.

Improved overseas demand, combined with a string of government-mandated stimulus measures, have gradually propped up growth and dispelled those fears.

Data released last month showed the Chinese economy expanded just 7.8 percent last year — down from 9.3 percent in 2011 and 10.4 percent in 2010 — but many analysts expect slightly faster growth again in 2013.

Article source: http://www.nytimes.com/2013/02/09/business/global/chinese-imports-and-exports-soar-in-january.html?partner=rss&emc=rss

DealBook: Societe Generale Profit Plunged in Third Quarter

The headquarters of Société Générale in Paris.Jacky Naegelen/ReutersThe headquarters of Société Générale in Paris.

9:53 a.m. | Updated

PARIS – Société Générale, the big French bank, said on Thursday that its third-quarter profit plunged as it booked large one-time charges.

The bank reported that net income fell 86 percent, to 85 million euros ($108 million), from 622 million euros in the period a year earlier – well below the 139 million euros analysts surveyed by Reuters had been expecting. The bank said net revenue declined 17 percent, to 5.4 billion euros.

Société Générale, based in Paris, said its bottom line was hurt by one-time charges that included a cost of 389 million euros for revaluing its own debt. It also wrote down good will and had losses on the sale of assets in Greece and the United States. Excluding those items, the bank said underlying net income was 856 million euros.

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Frédéric Oudéa, the chairman and chief executive, said in a statement that the bank’s businesses “have once again demonstrated their resilience and capital-generating capacity. The quality of our portfolios and the attention we pay to managing our risks have enabled us to limit the cost of risk in a strained economic environment.”

Société Générale said its corporate and investment banking unit had completed a loan-disposal plan begun in June 2011, having sold or amortized 16 billion euros worth of assets and cutting the units legacy assets by about two-thirds. Its legacy assets below investment grade were reduced to 3.2 billion euros by mid-October.

The bank came under market pressure last year because of its exposure to so-called peripheral euro zone nations and has been scaling back in that region.

It said in September it would sell its 99 percent holding in its Greek subsidiary, Geniki Bank, to Piraeus Bank. It also announced plans to sell TCW, an American asset-management business, to Carlyle Group and TCW’s management. A California judge has issued a tentative order that could block or delay the TCW deal as he considers whether to allow a lawsuit by EIG Global Energy Partners to proceed.

Société Générale said its core Tier 1 ratio, a measure of a firm’s ability to weather financial shocks, rose to 10.3 percent at the end of September, based on so-called Basel 2.5 capital adequacy rules – a slight improvement from the second quarter. It said it expected to achieve a Basel III core Tier 1 capital ratio “of between 9 percent and 9.5 percent” by the end of next year.

French banks, though, continue to face significant worries.

The ratings agency Standard Poor’s changed its outlook in October on Société Générale to negative from stable, citing a growing level of economic risk to the country’s banking system, both from the slumping euro zone economy and the likelihood of a downturn in the French housing sector. S.P. also cut its credit rating on the largest French bank, BNP Paribas, by one notch to A+/A-1, the same level as Société Générale.


This post has been revised to reflect the following correction:

Correction: November 8, 2012

An earlier version of this post misstated a capital measurement system to which Société Générale referred. The bank said it expected to achieve a target of a Basel III core tier 1 capital ratio, not a Basel II core tier 1 capital ratio.

Article source: http://dealbook.nytimes.com/2012/11/08/societe-generale-profit-plunges-in-third-quarter/?partner=rss&emc=rss

Off the Charts: Germans Start to Question Their Economic Resilience

PESSIMISM is growing in Germany, which until now had felt it would ride out the world’s economic troubles with minimal damage.

The ZEW Financial Market Survey, a widely followed measure of the views of economists and financial analysts in Germany, reported this week that in August its index of current economic conditions in Germany suffered its largest one-month decline since it began to be calculated in 1991.

That index, created by subtracting the number of analysts who think the current economic situation is bad from the number who view it as good — thus ignoring those who think it normal — fell to 53.5 points from a sky-high 90.6 in July. The drop of 37.1 points exceeded the previous record fall of 34.9 points, set in October 2008 after the collapse of Lehman Brothers.

A majority of the analysts still think the German economy is good, and a scant 4 percent think it is in bad shape. But nearly half of them think the economy will get worse over the next six months, while less than one-tenth of them think the situation will improve over that time.

The survey, conducted by the Center for European Economic Research, whose initials in German are ZEW, also asks the German experts for opinions on the state of the euro zone and its largest members, and on the prospects for a variety of German industries.

As can be seen from the accompanying charts, the German analysts used to see the overall economy of the euro zone as virtually a carbon copy of the German economy. If the Germans were doing well, so was the euro zone. The second- and third-largest economies in the zone, France and Italy, were usually seen as doing worse than Germany.

By the time the financial crisis hit bottom in the spring of 2009, there was virtual unanimity: the economies were bad everywhere.

After economies began to recover, however, German experts’ views of their own economy soared, while their views of other economies did not. For nine consecutive months, through July, more than 80 percent of the experts said Germany’s economic condition was good. During the same stretch, the proportion thinking the economic situation was good in France, Italy or the euro zone remained below a third, and was usually much smaller.

The experts have continued to foresee that Germany’s future is linked to that of its neighbors, as can be seen in the second chart. But starting in June, when the latest plan to rescue Greece was cobbled together, pessimism began to grow.

A reason for that change can be seen in the survey’s questions about whether profits of German banks would rise or fall over the next six months. Throughout 2010, as can be seen from the third chart, only a small minority believed German bank profits would probably decline.

But that confidence began to weaken in June, as chances increased that banks would be forced to take losses on Greek loans, and perhaps on loans to other troubled countries. For the first time since the height of the financial crisis in the spring of 2009, a majority of German analysts say they think German bank profits are likely to decline.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://feeds.nytimes.com/click.phdo?i=88e301c01fe982cba12637663d6bb89f