European Business News (EBN), 96-12-06

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated December 6 1500 CET

CONTENTS

[01] Greenspan sends markets tumbling as he suggest stock rally may be nearing an end

[02] U.S. jobless rate rises to 5.4%

[03] Veba increases spending plans for the next five years

[04] UK government loses majority

[05] BA alliance faces monopoly commission

[06] Munich Re warns profit may not reach year-earlier levels

[07] BTR says performance has improved in the second half

[08] GEC posts a 38% slide in first-half pretax profit

[09] Alenia to form closer ties with Airbus consortium

[10] Loctite accepts Henkel's sweetened $1.3 billion takeover bid

[11] Clinton names Albright as first woman Secretary of State

[12] Japanese cabinet clears plan to break up NTT

[01] Greenspan sends markets tumbling as he suggest stock rally may be nearing an end

The comments sent around the globe into a tailspin.

In a speech at the American Enterprise Institute, Greenspan posed the question, `How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decades? He further asked: 'And how do we factor that assessment into monetary policy?'

The answer, however, was characteristic Greenspan.

He noted that sustained low inflation tends to be good for stock prices. He pointed out that the Fed wouldn't worry about 'a collapsing financial asset bubble' if it didn't hurt the economy.

He recalled that the 1987 stock market crash had 'few negative consequences for the economy.'

But then, as he came closer to giving his views on the rhetorical question he posed, the language got murkier.

The Fed 'should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy,' he said.

He added that 'evaluating shifts' in prices of stocks and other assets 'must be an integral part of the development of monetary policy.' And then he changed the subject.

Inside the Fed, Greenspan is known to have concerns about the stock market's surprisingly rapid rise. But given the current state of the economy, the Fed isn't likely to raise interest rates in order to dampen the exuberance on Wall Street.

Delivering a detailed description of the central bank's role in a democratic society, Greenspan defended his eclectic approach to making monetary policy. 'We are led, of necessity, to employ ad hoc partial models and intensive information analysis,' he said.

'There is no alternative to this.'

[02] U.S. jobless rate rises to 5.4%

The Labor Department reported that the jobless rate rose by 0.2% in November as the economy created a smaller-than-expected 118,000 payroll jobs last month. The report said that businesses added 118,000 workers to their payrolls last month, down significantly from the 224,000 payroll increase in October. In advance, economists had been looking for a bigger increase of around 175,000. The November gain was just half of the monthly average recorded in the first half of 1996, and was led by a rise of 70,000 service jobs, a gain that occurred despite a drop of 32,000 jobs at temporary help firms.

On a normal day, the weaker jobs report could be expected to be a boon for Wall Street, easing fears that the economy was growing too rapidly and the Federal Reserve would be forced to step in and start raising interest rates. However, Friday's report came in the midst of a huge global sell-off in stocks triggered by remarks by Federal Reserve Chairman Alan Greenspan Thursday night.

In a dinner speech in Washington, Greenspan had expressed concerns about an 'irrational exuberance' in stock markets. Greenspan's comments were seized on by traders first in Tokyo and then in markets from Sydney to London as a possible signal that the U.S. central bank was becoming worried about a speculative bubble created by the sharp climb in the U.S. stock market. In the past month, the Dow Jones industrial average surged past the 6,000 mark.

The market exuberance has been credited to a widespread belief that the U.S. economy is slowing enough to prevent the Fed from having to step in and start raising interest rates to combat inflation. However, Greenspan's remarks cast doubt on that assumption, signaling that the Fed may be starting to be concerned that investors have pushed stock prices too high.

Greenspan also said in the Thursday night speech that 'a collapsing financial asset bubble' was of concern to central bankers only if it threatened to 'impair the real economy.'

The unemployment rate fell to 5.1% in August, the lowest level since March of 1989 and it ticked up only slightly to 5.2% in September and October.

The low unemployment levels combined with an economy in the sixth year of an expansion, already the third longest in a half-century, were factors cited as contributing to President Clinton's November election victory.

The 5.4% unemployment rate in November, while still at a historically low level, was the highest it has been since a similar figure in July.

Manufacturing jobs, which have been on a downward trend since March 1995, edged up a slight 9,000 in November, the same as the October gain.

Employment in the construction industry was up by 14,000.

[03] Veba increases spending plans for the next five years

The company also said it expected full-year 1996 pre-tax profit to rise 15% while net profit is expected to climb 25%.

Most of the increased spending will be in the company's chemical operations, and, to a lesser extent, in its energy business, said Hans Michael Gaul, Veba board member responsible for financial operations.

A spokeswoman for the diversified German utility said the company was increasing middle-term investments to finance new projects. However, she was unable to immediately disclose any further details of the company's plans.

Veba noted that 'capital increases are not included in the planning' for the 13% increase in investment spending over the five-year period. The company added it has 'sufficient financial flexibility to exploit strategic options' over the medium-term. Some 12.4 billion marks over the middle-term will be invested abroad, Gaul said. A total of 41% of the funds will be invested in Europe, 20% in the U.S., Canada and Mexico, and 20% in the Far East, he added.

On the earnings front, Veba showed a 25.2% rise in pretax profit for the nine months 1.23 billion ($793 million) Deutsche marks. Group net profit, including minorities, rose 22 % to 1.407 billion marks.

Chief executive Ulrich Harmann said 'We expect we can repeat the nine-month results for the whole year.' Last year Veba posted a net profit of 1.9 billion marks.

When asked about speculation that the group may raise its dividend payout, Hartmann said: 'I dare not contradict that.' He declined to be more specific, however. Last year Veba paid 1.70 marks a share.

[04] UK government loses majority

By resigning the whip, Gorst will not support the Conservative party, but will keep his seat in the House of Commons. Conservative party officials couldn't immediately be reached for comment. Gorst's resignation removes the government's majority of one seat. The prospect of Prime Minister John Major becoming the head of a minority government is raised by a by-election next Thursday in a separate constituency.

[05] BA alliance faces monopoly commission

Ian Lang, secretary of state for trade and industry, said in a news release the link-up is likely to lead to a significant loss of actual and potential competition on routes where the two airlines currently compete, and for the transatlantic market for passengers between the U.K. and the U.S. in general. Even if these plus other conditions are accepted, it will be conditional on a U.S./UK open skies deal.

A further condition for clearance of the alliance is that the parties should be prepared to reduce services on the London to Dallas Ft Worth route in the event that a new entrant wishes to enter the market, because it was felt by the OFT that competition on this route would be hampered.

The OFT has also called for BA/AA to allow third party access to their joint frequent flyer programme where the applicant does not have access to an equivalent scheme. The government said responses should be made to the OFT by 1700 GMT on January 10, 1997.

The move came just as the latest round of British-U.S. open skies talks were ending in London. Sources close to those talks had told Reuters that agreement on a full blown pact had not been possible because of the uncertainty about the OFT response to the BA/AA alliance.

[06] Munich Re warns profit may not reach year-earlier levels

Nevertheless, the insurer said it expects 'very good' earnings this year, adding that payment of a flat 16-Deutsche mark ($10.26) a share dividend has already been assured.

But after last year's 'enormous jump in profit,' Munich Re said it's not sure earnings will reach last year's 'outstanding' level. In fiscal 1996, the reinsurer's group net profit surged 83% to 595 million marks from the year before.

The world's largest reinsurer said it had been relatively unaffected by natural catastrophes in the year to date.

Claims from natural catastrophes in the first 11 months, which count toward 1996/1997 accounts, were 'once again relatively low,' management board chairman Hans-Juergen Schinzler said in a speech prepared for the company's shareholders' meeting.

On the other hand, large damage claims were slightly higher than the year ago period, he said.

Munich Re said it showed an underwriting of 573 million marks in fiscal 1996, after a loss of 100 million marks the year before.

Schinzler also said Munich Re's parent company premium income was likely to rise only marginally in the current year from 18 billion marks in fiscal 1996.

However the outlook could be brightened by improved currency exchange rates this year, the company said.

[07] BTR says performance has improved in the second half

The British conglomerate also said that restructuring costs in the year have reached £100 million and that it has shed businesses representing £1.6 billion pounds of turnover. That compares with its target £ 2.3 billion of sales by the end of 1997 next year.

BTR's new strategy was launched in September this year and seeks to generate profitable growth by concentrating on its top industrial manufacturing and engineering businesses.

[08] GEC posts a 38% slide in first-half pretax profit

Operating profits and margins before exceptional items were slightly up in the first half from a year ago, GEC said. GEC said the exceptional charges are related to the disposal program in its industrial division as well as reorganisation costs linked with acquisitions for the electronic systems and defence and power systems groups.

The electronics and defence company also said it is 'currently undertaking a fundamental strategic review of all aspects of the group and its management structure' and that further announcements will be made in due course.

GEC said its cash mountain fell to £1.05 billion during the quarter following cash spending of £331 million for several acquisitions as well as a sonar equipment joint venture with Thomson-CSF.

The company's order book, meanwhile, rose to a record £14.6 billion, which GEC credited to sales and marketing programs bringing in new business in the U.K. and abroad.

Following the trend of other U.K. manufactures in recent days, GEC issued a warning about the possible effect of sterling's gains during the past month. 'The recent strengthening of sterling is adding to the difficulties of exporting from the U.K. and, if sustained, will reduce the earnings, when expressed in sterling, of overseas businesses and joint ventures,' the company said.

[09] Alenia to form closer ties with Airbus consortium

France's Aerospatiale said Alenia, which is already a subcontractor to Airbus and involved in the Airbus military transport programme for the Future Large Aircraft would now also become involved in the AXX, the high capacity four-engined aircraft project.

The statement said that Alenia will also be requested to participate in programmes of new derivatives from existing Airbus products, such as the A340-600.

But a spokeswoman for Airbus said that Alenia would not become a partner in the consortium, along with Aerospatiale, British Aerospace, Daimler-Benz Aerospace and CASA of Spain. A specific agreement has been reached on the new 100-seat jet family in which all the European partners involved have agreed that it will be part of the Airbus product range.

Airbus Industrie, together with Alenia/Finmeccanica, will establish a new company to lead the European participation in a joint venture with China and Singapore.

Previously, both a team of DASA and Fokker as well as the AIA grouping of British Aerospace, Aerospatiale and Alenia had been competing to win the favours of China for the joint development of a 100-seat family for the booming Asian market.

DASA/Fokker dropped out and AIA won the deal in competition with Boeing. The Chinese government has let it be known that it would appreciate that Airbus could be involved as well.

[10] Loctite accepts Henkel's sweetened $1.3 billion takeover bid

The sweetened $61-a-share offer won over a panel of independent Loctite board members who had rejected an earlier offer of $57.75 - but not before a rival suitor entered the picture.

Loctite Director Robert W. Fiondella, who headed the panel, declined to identify the company that made a competing bid. The bid was valued at $64.16 share in stock, according to a filing with the Securities and Exchange Commission.

The board chose to sign a definitive agreement with Henkel, however, because the German chemical company was offering cash, Fiondella said. 'It was very hard to say no' to the Henkel bid, Fiondella said. 'The other had elements of uncertainty,' such as possible fluctuation in the final value of the stock and the possibility that shareholders might accept Henkel's cash offer instead. The move underlines the international ambitions of Duesseldorf-based Henkel, a major consumer-products and specialty-chemicals conglomerate in Germany. The takeover, which the two companies expect to make final by Dec. 20, also caps a bustling year for Henkel, a company that in many ways confirms where the vanguard of corporate Germany is heading and what sort of perils lie along the way.

Henkel, which owns 35% of Loctite, began its overtures for the remainder at $56 a share.

Under the terms of its latest offer, Henkel said it would accept any financial risks for objections to the deal that might be made by European antitrust regulators.

Fiondella said he didn't expect another bidder to emerge now, but said that if one did, the board would review it.

The agreement calls for Henkel to receive a $40 million termination fee if Loctite were to accept a rival bid at this point. Henkel's indicated revenues after completing the acquisition would be about $10.3 billion.

[11] Clinton names Albright as first woman Secretary of State

After weeks of deliberations, the president also chose a Republican, retiring Sen. William Cohen of Maine, to be secretary of defense. Mr. Cohen's selection was intended to bolster the administration's bipartisan congressional support. Mr. Clinton also made clear by his selections that he wasn't interested in setting a bold, new course in foreign policy. 'our responsibility is to build on the strong foundation laid in the last four years,' he said, in announcing his choices yesterday.

Mr. Clinton named Anthony Lake, the current national security adviser, to be director of Central Intelligence and picked Samuel Berger, Mr. Lake's deputy, to succeed Mr. Lake in the White House job.

The Albright, Cohen and Lake nominations will require Senate confirmation, but early reaction on Capitol Hill indicated they won't face serious opposition. Republican Sen. Jesse Helms, chairman of the Senate Foreign Relations Committee and a frequent critic of Clinton diplomacy, called Ms. Albright 'a tough and courageous lady' and predicted easy confirmation.

A rocky and erratic first three years have given the three returning members of the team -- and their president -- hard-earned but valuable experience in managing foreign policy, and they likely will work together harmoniously. In addition, Ms. Albright has been a forceful explainer of administration policy, a talent sorely lacking in top-tier cabinet slots during the last four years.

Further, in picking Sen. Cohen, Mr. Clinton appears to be preparing the ground for a possible bipartisan agreement to reduce the Defence Department's budget as part of an overall effort to further reduce the federal deficit.

Moreover, the calendar for next year -- a summit with Russian President Boris Yeltsin in March and one with Chinese President Jiang Zemin in the fall -- suggests the administration is focusing attention on the big countries and vital U.S. interests, in stark contrast to its earlier involvement with lesser problems in places like Somalia and Haiti.

Still, a number of foreign-policy experts expressed concern that the foundation Mr. Clinton is building on consists of a thick layer of daily crisis management skills but only a thin veneer of strategic thinking. Moreover, while the new team, particularly Ms. Albright, are experts on Europe, there is a lack of working knowledge of Asia.

'They'll do a competent job if you define that as managing the daily foreign affairs of the country,' says former Secretary of State Lawrence Eagleburger. 'But with regard to bringing us into the 21st century with a sense of where we want to go, it won't be any more than during the last four years.'

Mr. Berger, in an interview yesterday, disputed that view. 'This is a group of people who have spent a good part of their lives engaged in the enterprise of American foreign policy,' he said. And an aide to Ambassador Albright said her many speeches and statements over the last four years do express broad foreign-policy views.

During the first term, Ms. Albright was the administration's strongest supporter of using military force in Bosnia and strongly favours expanding the North Atlantic Treaty Organization by adding, among others, her native Czech Republic.

[12] Japanese cabinet clears plan to break up NTT

The agreement ends 14 years of wrangling over the fate of NTT.

Speaking at a regular press conference, Hisao Horinouchi said NTT will be split into a long-distance carrier and two regional telephone companies, one covering the western half of Japan and another for the eastern part of the country.

The cabinet of Prime Minister Ryutaro Hashimoto formally approved the break- up plan during Friday morning's cabinet meeting, Horinouchi said.

The government will work to pass the necessary legislation as soon as possible, the Posts Ministry said, but passage during the current fiscal year ending March 1997 will be difficult.

As a result, the break-up of NTT won't actually be complete until the fiscal year ending March 1999.

The two regional companies and the holding company will be specially- regulated entities, while the long-distance company, which will be allowed to provide international services, will be wholly private. Steps will be taken to ensure fair competition between the long-distance and regional companies, the Posts Ministry said.

The holding company will own 100% of the shares in the three telecommunications carriers. Current shareholders in NTT will become shareholders in the holding company.

Research and development for all three companies will be conducted by the holding company.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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