Thursday, November 6, 2008

BANKING NEWS - AIBEA - 06.11.2008

Indian Prime Minister warns of “severe and prolonged” global downturn
By K. Ratnayake 4 November 2008
Amid deep concerns about the growing international economic turmoil, Indian Prime Minister Manmohan Singh held a meeting yesterday with the country’s top corporate leaders to assure them that his government would take measures to maintain economic growth.
Acknowledging the seriousness of the situation, Singh declared: “The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged. A crisis of this magnitude was bound to affect our economy and it has.”
The meeting was attended by 15 CEOs and business leaders, including Mukesh Ambani, chairman of Reliance Industries, India’s largest company by market capitalisation; Sunil Mittal, chairman of the Bharti Group, the largest mobile phone company; K.P. Singh, chairman of DLF Ltd., the largest real estate developer; and K.V. Kamath, CEO of ICICI Bank, the largest leading private lender.
Business groups have been pushing for lower interest rates and greater liquidity in the credit market, and further pro-market reforms from the Congress Party-led government. The Federation of Indian Chambers of Commerce & Industry has sought a reduction of the cash reserve ratio—money that banks must deposit with the country’s central bank—from 5.5 percent to 4.5 percent and a cut in the key interest rate to 5 percent.
On October 29, the Association of Chambers of Commerce and Industries warned that Indian companies would be forced to undertake massive job shedding of between 25 to 30 percent in the period ahead. Three days later, under pressure from the government, the association revised its prediction but declared that it was still valid for real estate, brokerage and investment advisory industries.
With national elections due before next May, the government is acutely sensitive to the prospect of a jump in joblessness. Prime Minister Singh told the meeting yesterday: “While every effort needs to be made to cut costs and raise productivity, I hope there will be no knee-jerk reaction such as large-scale lay-offs which may lead to a negative spiral. Industry must bear in mind its societal obligations in coping with the effects of this global crisis.”
India’s growth rate for 2008 was predicted to be 9 percent at the beginning of the year but has been revised down by the Reserve Bank of India (RBI) to 7.5 percent. Other analysts forecast a growth rate of 7 percent. Singh sought to reassure business leaders that “the government will take all necessary monetary and fiscal measures on the domestic front to protect our growth rate.”
Last Saturday the Reserve Bank unexpectedly took several steps to ease the credit market, cutting the cash reserve ratio from 6.5 to 5.5 percent, lowering its key interest rate from 8 to 7.5 percent, and cutting the proportion of bank funds kept in government bonds. It was the first time since 1997 that the central bank has taken action in all three areas together.
The decision was taken after overnight interbank lending rates shot up to a crippling 21 percent on Friday. The Reserve Bank had already cut the cash reserve ration twice and interest rates once in October. The moves on Saturday were estimated to add 400 billion rupees ($US8.2 billion) to the credit market.
The Reserve Bank’s actions provided an immediate shot in the arm, bringing the overnight lending rate down to 7 percent. Bombay’s Sensex stock exchange shot up by 5.6 percent on Monday. The value of the rupee also improved marginally, reaching 48.80 to the US dollar on Monday, after hitting 50.29 rupees a week before.
Economic slowdown
The freeing up of credit, however, will do little to address the long-term impact of the global financial crisis and economic downturn on the Indian economy. Like other so-called emerging markets, India has been affected by huge outflows of foreign capital, which have driven down share and currency values. This year the Sensex index has fallen by about 50 percent, and the rupee by about 20 percent.
Foreign investors have sold $13 billion worth of Indian shares this year, compared to a record influx last year of $17.4 billion. The country’s foreign exchange reserves plunged by $15.4 billion last week from $274 billion to $258 billion—the largest fall in eight years.
The economy is slowing markedly as recession hits India’s major markets in the US and Europe, and demand for Indian exports falls. Export growth was 10.4 percent in September on an annualised basis, the lowest in 18 months. The trade deficit for the six months from April to September widened to $59.8 billion, from $39.1 billion for the same period last year.
According to the ABN AMRO Bank purchasing managers’ index (PMI), the activity of Indian factories has fallen sharply. The seasonally adjusted survey of 500 companies, released last weekend, showed the index slumped to 52.2 in October, its lowest since the survey began in April 2005. The output index fell from 61.7 in September to 54.1 and new orders dropped from 62.6 in September to 54.4, both the lowest ever recorded by the survey.
Export orders also shrank for the first time since the index began in 2005, hitting 49.7 in October compared to 53 in September. Employment levels fell to 50.1 in October compared with 51.3 in September. The survey reported that jobs were being cut due to lower international demand.
Last Friday, Finance Minister Palaniappa Chidambaram responded to warnings of job cuts by declaring that even an “economy growing at 7 percent is still a job creating economy, not a job destroying economy.” He claimed that India was not as vulnerable as China because the country was a “domestic driven consumption and investment driven market where the contribution of exports to the growth is not as big as China’s.”
Already, however, the slowdown of exports is having a serious impact. Textile Minister Shankersinh Vaghela told reporters on Saturday: “Big stores in US and Europe are cancelling purchases orders from Indian garment exporters, who are also facing the problem of payment defaults from international buyers.” The US and European markets account for 70 percent of India’s textile and garment exports.
Vaghela dismissed a suggestion by reporters that the government had any responsibility to prevent job cuts, saying, “this is an issue of private firms, government cannot do much about it.” According to Apparal Export Promotion Council chairman Rakesh Vaid: “Indian garment exporters are expecting a 10 percent decline due to global recession this year.”
After agriculture, the textile industry employs largest number of people in India. Panipat in Haryana and Tirpur in the southern Indian state of Tamil Nadu have already been affected by the slowdown. In Tirpur alone, 16,000 workers have lost their jobs this year, with another 15,000 expected to be laid off.
India’s diamond industry is also feeling the heat. The US accounts for 40 percent of India’s exports of gems and jewelry and the trade is worth $US25 billion. In the past six months, the US market has slumped by 15 to 20 percent. In Surat in the western state of Gujarat, the 700,000 people employed in the diamond industry now face an uncertain future.
On Sunday, the Press Trust of India reported that the country’s largest car exporter, Hyundai Motor India, has had to shelve 25 percent of its orders. “Many dealers from our major markets like South Africa, Columbia and Iceland have asked us to put on hold shipments. They have not given us any time when they would like to pick up the orders,” the company’s managing director H.S. Lheem said.
India’s much-vaunted information technology (IT) industry is feeling the impact of the financial turmoil in the US where many major banks and financial institutions relied on Indian business process outsourcing (BPO) companies. Satyam IT company has already announced that 4,500 employees will be laid off. Other major IT firms, including TCS, Insofy and Wipro, have deferred promotions and cut their hiring of new recruits.
Despite the assurances of the Singh government, the looming global recession will have major ramifications for the Indian economy. The job cuts already taking place are just an indication of the devastating consequences for tens of millions of workers throughout the country.

Banking crisis wipes 56% off BNP Paribas profits

Times Online
BNP Paribas, France's largest bank, said today that profits fell by more than half in the third quarter, following the collapse of Lehman Brothers and the worsening financial crisis.
Shares in the bank fell by more than 3 per cent today after it said that net income declined to €901 million (£728 million) from €2.03 billion a year earlier.
BNP Paribas had appeared to have escaped the worst of the financial crisis and had acquired the Belgian operations of Fortis, but it was unable to evade the impact of Lehman's bankruptcy and the collapse of the Icelandic banks.
The bank said its earnings for the July-September quarter were affected by “numerous critical situations in the financial services industry and unprecedented turbulence in the markets since early September.”
Top of Form
Bottom of Form
The collapse of Lehman and the big Icelandic banks contributed to writedowns of €1.1 billion.
Profit before tax at BNP Paribas's investment bank fell from €760 million a year before to to €38 million. The division, which increased revenue by 4.6 per cent, had €1.03 billion of loan provisions and €289 million of asset writedowns.
However, BNP performed better than its investment banking rivals in Europe. The securities units of Frankfurt-based Deutsche Bank, Credit Suisse, UBS and Société Générale all reported losses for the quarter.
Provisions for risky loans soared from €462 million to €1.99 billion, almost triple the €700 million analysts had estimated.
The asset management and investment banking units took €512 million of charges related to Lehman.
The investment banking division also set aside €462 million tied to debt backed by US bond insurers, and €83 million for risks linked to Iceland's banks.
The bank last month agreed to take control of Fortis in Belgium and Luxembourg for €14.5 billion and became the biggest lender by deposits in the 15 countries sharing the euro.
Pre-tax earnings at the French retail network rose 5.5 per cent to €385 million.
The retail banking division, which has 6 million clients and 2,200 branches throughout France, withstood the financial turmoil thanks to a sales and marketing drive in which the bank opened 50,000 new cheque and deposit accounts in the quarter, while increasing loans to individuals and businesses.
BNP Paribas's Tier 1 ratio, a key indicator of a bank's financial health, stood at 7.6 per cent at the end of September. The bank will bolster its capital by selling €2.55 billion of subordinated debt to the French Government.
State Bank employees to get pensions
by Franklin R Satyapalan, Colombo, Srilanka
Following a firm assurance from President Mahinda Rajapaksa that equal pension rights would be granted to all bank employees, the Ceylon Bank Employees’ Union has decided to call off its half-day strike planned for tomorrow (Thursday) and the one-day strike planned for November 27, Presidential Secretariat sources said.
President Mahinda Rajapaksa had a cordial discussion with representatives of the Bank of Ceylon, People’s Bank, National Savings Bank, the State Mortgage and Investment Bank, the Housing Development Finance Corporation, Lankaputhra Bank and the Rural Developments Banks of Wayamba, Rajarata, Kandurata, Uva, Sabaragamuwa and Ruhuna at the Temple Trees on Saturday.
He gave them a firm assurance that commencing January next year all employees State Banks, irrespective of their period of service would become entitled to pension rights.
Commenting on the President’s pledge, Ceylon Bank Employees Union General Secretary M. Sukumaran said bank employees had been agitating for pension rights for a long time and the President in his Mahinda Chintanaya had pledged that all those who joined the banking service after January 1, 1996 would be made eligible for pensions.
When the bank managements failed to heed their request, the Ceylon Bank Employees Union, convened an emergency meeting of the executive committee and decided to organise massive protest marches at various venues on October 11 with the participation of 12,000 members arriving in the city from distant branches of Jaffna, Batticaloa and the Vanni and to also strike for half a day on November 6, the day of the Budget.
On hearing of the action planned by the Bank Employees Union, Deputy Finance Minister Ranjith Siyambalapitiya arranged a meeting with the President to discuss the matter, Sukumaran said.
He also said that at this meeting it was also agreed to the grant widows and orphans pension to employees of the National Savings Bank.

More job losses, plant closures and company failures loom in Australia
By Terry Cook ,4 November 2008
Further job losses, plant closures and company failures are on the agenda in Australia as world economic growth stalls and recessionary trends take hold throughout the United States, Europe and Asia. Slowing economic growth in China and Japan, both major destinations for Australian mineral exports, is forcing media and government pundits alike to abandon nostrums that Australia could ride out the global economy storm on the back of commodities sales.
Leading economic analysts now admit that slowing economic growth in China—down to 9 percent in the third quarter from 11 percent just one year earlier—could produce a downturn in the Australian mining sector that will impact across other key economic sectors causing companies to restructure and shed jobs.
Last week, Access Economics director Chris Richardson warned on ABC Radio “as markets fall, share markets, property values fall in China and its construction weakens off, that’s weakening the demand for steel. Australia’s risk is that we sell the inputs that become Chinese steel, coking coal and the iron ore.
“I suspect that the next step is that as commodity prices fall, profits in Australia will fall, not just for the miners, but across a number of sectors. Eventually, engineering and construction demand will weaken and this will hurt the federal budget,” Richardson said.
Last week, investment bank JPMorgan’s chief economist Stephen Walters made the stark warning that the global crisis would see economic growth in Australia slowing to just 1.4 percent by 2010, pushing unemployment up to 9 percent, more than twice the current official rate of 4.3 percent, translating to an official unemployment level of one million people.
“One lesson from previous downturns is that the jobless rate rises quickly,” Goldman’s chief economist Tim Toohey warned. “It’s quite likely that by the time Christmas rolls around, Australia will be in its first recession since this expansion began 17 years ago.”
The dire predictions spell disaster for the thousands of working class families already living on an economic knife-edge, struggling from week to week to meet escalating food and fuel costs and higher mortgage payments or rents. Inflation in Australia accelerated in the third quarter to its fastest pace since 2001, rising 5 percent from a year earlier and to its highest level in more than a decade.
Reserve Bank deputy governor Ric Battellino declared last week that it was “reasonable to assume” that income growth for households would be “noticeably below average over the next year or two”. He warned: “Unemployment is now rising and prices for coal, iron ore and Australia’s other mineral resources are falling. The economy cannot always grow above average and it certainly cannot maintain the pace of the past five years.”
ABN Amro chief economist Kieran Davies predicted job shedding across most sectors, led by losses in the finance sector that would be hard hit. “We’re already seeing job losses among non-banks and mortgage brokers and retail has been shedding jobs for a while,” Davies declared.
One of Australia’s biggest financiers, GE Money, announced a few days ago that it would scale back its Australian operations and cease offering third-party mortgages, motor finance and small business finance. The move will see 335 jobs slashed from the company’s 4,500-strong workforce over the next 12 months.
Westpac, one of Australia’s four major banks, has begun a round of downsizing, slashing 300 administrative staff at its BT Financial Group wealth management operations and another 150 in its banking business. Warning of more cuts to come, Westpac’s chief financial officer Phil Coffey said the company “would adapt its cost base for tougher global markets”.
At the same time ANZ, another of the country’s “big four” banks, announced it would revise a previous restructuring plan to slash 500 middle management, indicating twice this number may be targeted. The announcement came as the bank reported a 21 percent loss in its annual profit, attributing the shock result to ongoing fallout from the global credit crisis.
The latest downsizings come despite the Rudd government’s measures to prop up the banks and financial elite, guaranteeing finance house deposits and overseas borrowings to the tune of more than $2 trillion. Doubts have also been cast on the effect of the government’s $10 billion stimulus package that increased the first homebuyers grant and gave pensioners and sections of welfare recipients one-off payments in an effort to boost consumer spending ahead of Christmas.
National Australia Bank (NAB) chief economist Alan Oster said that a mounting fear of job losses would impact on consumer spending: “I think Christmas [retail] is going to be a lot slower and weaker and then it will continue getting weaker into next year.”
Last week the NAB forecast an economic growth rate of just 1.25 percent, predicting that “consumer spending will essentially stall”. The NAB’s business conditions index, a quarterly survey of 900 companies measuring hiring, sales and profits for the four weeks ending on September 11, fell 11 points to negative 4, the lowest level since June 2001.
Tighter credit and the rising cost of building materials are threatening a round of job shedding throughout the country’s construction industry, a major employer in most Australian states. Reed Construction Data, a leading building industry analyst, warned last week of impending job losses as projects are deferred and development applications drop.
The agency claims construction deferrals have increased nationally by 500 percent over the last four months compared to the same period last year. Reed managing director Rob Wild warned the economic climate was impacting heavily on small to medium developers because “they cannot raise the finance required to proceed with projects once the approval is through”.
Last week, paintmaker Wattyl announced it would expand its cost-cutting program, axing an unspecified number of jobs from its current 1,400 workforce, in a bid to offset falling revenue. The company’s sales revenue was down by 5.5 percent for the first quarter. A Wattyl spokesman described prospects for the new housing sector as “pessimistic with no improvements predicted for the current financial year”. Housing starts in the September quarter were down by 10,000 on an annualised basis.
Job cuts are also emerging in gold mining as companies look to take over weaker operations or merge. Ian Smith, the chief executive Ian Smith Newcrest Mining, Australia’s biggest gold company, said he believed the “global financial turmoil” would enhance merger and acquisition opportunities. “We think there is a whole range of opportunities in M&A (merger and acquisitions) and [this] will probably get better over the upcoming six to 12 months.” The company has announced plans to slash 400 jobs from its 1,000-strong Telfer goldmine workforce by Christmas.
Layoffs are also beginning in manufacturing, maintenance and telecommunications. Boeing Australia announced it would axe 130 jobs at its maintenance facility at the Williamstown air base in NSW; Boart Longyear will axe 55 jobs from its manufacturing and production sectors in South Australia; and valve maker John Valves stood down its 130-strong workforce at Ballarat in Victoria, after being put into administration.
Optus, Australia’s second largest telco provider, has announced it will slash 115 jobs from its engineering and technical divisions, while media reports predict the number could increase to around 400. eTeleTech, which operates call centres for communication giant Telstra, has unveiled plans to relocate some of its call centres to the Philippines, resulting in the loss of 500 jobs by March next year. Telstra, Australia’s largest telco provider, has said it will slash another 800 senior management, middle management and professional services jobs nationwide.

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