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European Business News (EBN), 97-03-03
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From: The European Business News Server at <http://www.ebn.co.uk/>
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 European monetary officials stress EMU will start on time, with Germany as a founderLeading European monetary officials attempted to dampen growing speculation that the planned European currency union is in trouble and may have to be delayed.
Deutsche Bundesbank President Hans Tietmeyer said 'There's a good chance Germany will fulfil the Maastricht Treaty criteria in 1997.'
Tietmeyer said the market's reaction Friday to worries about a delay in the single currency plan were 'so completely ridiculous, that I can't even imagine why.'
He was referring to sharp swings on foreign exchange markets Friday and turmoil in the European stock markets on an unsubstantiated rumour that Germany would announce a delay to Europe's currency union.
While there have been doubts whether southern European Union members such as Italy and Spain can meet the so-called Maastricht criteria, recently even the ability of Germany and France to comply with the criteria is being questioned.
The Maastricht Treaty outlines fiscal and economic conditions for countries that want to join the third and final stage of EMU, which is slated to start Jan. 1, 1999. The decision will be based on whether countries meet those criteria in 1997.
Tietmeyer also said it's important the Maastricht Treaty norms are met long- term following the start of the currency union, not merely to make the cut- off. And he reiterated that 'accounting tricks' in order to meet the criteria this year aren't appropriate.
And German Finance Minister Theo Waigel firmly repeated the German government's opposition to any dilution of the entry conditions for Europe's planned currency union.
'There will be no softening of the criteria' for economic and monetary union, Waigel said. 'Otherwise, there will be no public acceptance' of the new currency, he added.
'We will do everything to meet this target,' he said, although he stressed the government's efforts wouldn't include 'creative accounting.'
European Monetary Institute President Alexandre Lamfalussy echoed Tietmeyer's comments about a rumoured delay in EMU by saying 'All these market rumours about a delay are unfounded.'
Lamfalussy conceded, however, that 'this is a difficult time and it's likely to be that way for the next year or so.'
And Wim Duisenberg, president of the Dutch central bank, stressed that there should be no doubt that Europe's planned currency union will go ahead as planned and on time.
'The completion of the European economic and monetary union became a certainty when it was laid down in the Maastricht Treaty in 1992,' Duisenberg said at an event in Frankfurt, where he was honoured as 'European Banker of the Year 1996.'
 HSBC posts 23% jump in 1996 pre-tax profitHSBC Holdings said its 1996 pre-tax profit gained 23% to £4.52 billion ($7.23 billion) and the London based financial company raised its dividend 28% to 41 pence per share.
But Chief Executive John Bond predicted a challenging year ahead with increasing competition.
HSBC said its results, which were in the middle of analysts' expectations, showed solid growth in all of its business areas and regions.
HSBC is the parent of HongkongBank, Hang Seng Bank, Britain's Midland Bank and Marine Midland in the US.
The bank said margins improved across the group despite a slight slow down in the key Hong Kong market in the second half where some problem accounts also led to rise in doubtful debt charges.
Despite the prospect of tougher conditions, Bond said the banking group, which is one of the biggest in the world, had a strong capital position and a balance sheet that made it ready to meet competition head-on.
'We see 1997 as a challenging year wherever we look, whether it be Asia or the UK the competition continues to increase,' Bond said in an interview with Reuters.
Bond said HSBC's British unit Midland Bank would continue to grow organically as the price of acquisitions was impossible to justify to shareholders.
HSBC said it was confident over the future and sees the handover of Hong Kong to China in July as 1997's biggest challenge and opportunity.
Last year, HSBC was granted a licence to trade in the Chinese yuan and Bond said the bank was talking to the Chinese authorities to see how this would work in practice.
Bond said HSBC was looking at this massive potential business opportunity in the long term.
'I think it will take time, of course it will, but the signs are all positive.'
 AT&T vows to cut $2.6 billion from costs over next two yearsAT&T's new president, John R. Walter, vowed a tough approach to cost cutting.
The company plans to cut $2.6 billion in costs in the next two years, and Walter said the cuts would come from every aspect of the business. However, he didn't say how the cuts would be made.
'In cost control, we're committed to being best in class,' Walter said. 'Achieving best in class is not negotiable'
All AT&T managers were given that message in the strongest terms, the executive said.
Analysts immediate reaction to the planned spending cuts was that the company would have to resort to substantial layoffs. AT&T spends 60% of its budget on staff, and can't make such large cuts without reducing staff costs, analysts said.
The company hasn't yet said how it will cut spending, but details are expected during the course of a two-day meeting with analysts. AT&T also probably will cut costs through outsourcing, said Merrill Lynch analyst Dan Reingold.
AT&T President John R. Walter may have been alluding to plans to make heavy use of outside contractors when he said the company will emphasise partnerships in the coming years.
'We know we cannot build, own and control everything,' Walter said.
As Walter announced the plans to cut spending, he said AT&T's capital spending could reach $9 billion next year. The spending is probably necessary, Reingold said.
'They've got to spend to prepare billing, and the cost of local entry is enormous,' Reingold said. AT&T also will face fierce competition from its traditional long-distance rivals, as well as from local companies entering the long-distance market.
Reingold said he estimates AT&T will earn $2.90 a share in 1997, and he gave a preliminary earnings estimate for 1998 of $3.10 to $3.15 a share.
The company promised earnings of $5 to $6 a share within five years.
AT&T in January 1996 announced plans to cut at least 40,000 workers as part of its plan to split into three independent companies. The company actually eliminated about 7,700 jobs during 1996, but most of those cuts were offset by increased hiring in the company's wireless, Internet, customer-care and local-phone operations.
 US economy looks set for continued expansionThe U.S. economy is showing no signs of slackening manufacturing activity according to the latest survey by the National Association of Purchasing Management.
The survey's composite index edged up to 53.1% from January's 52%. A reading above 50% suggests expansion in the manufacturing sector, while one below 50% indicates contraction.
Most of the NAPM's other key components logged increases as well last month. New orders shot up 57.7% from 53.5%, while the prices index increased to 55.1% from 51.4%. Supplier deliveries, one of Greenspan's preferred leading indicators of inflation, rose to 51.3% from 48.5%.
The latest NAPM numbers show that ''manufacturing is just perking along merrily with no signs that the heat has been turned down on the production side,'' said Joel Naroff, chief economist at First Union Corp. in Philadelphia.
Purchasing managers characterised the manufacturing outlook as 'optimistic' in February in contrast to January's 'stable' picture, said Norbert J. Ore, chairman of the National Association of Purchasing Management's business survey.
'The numbers are looking good,' Ore said, noting several components of the monthly survey showed increases.
The price index rose to 55.1% from 51.4% in January, which Ore emphasised were mainly attributed to higher prices in metals and industrial chemicals.
'Those are capacity-driven issues within those industries,' Ore said. 'If (the prices rises) spread to other industries it will be a concern.'
Even though the supplier deliveries index is barely over 50, 'it's still on the wrong side of 50 as far as the Fed chairman is concerned,' Naroff added.
'Everyone knows that Chairman Greenspan follows the supplier index closely, ' noted Michael Moran, chief economist at Daiwa Securities America Inc.
While the supplier deliveries index remains in the same range it's been throughout the second half of 1996, and the prices index is still below its 1995 peak, 'given that there's an inflation watch in the market now, I think these increases caught the attention of people in the market,' Moran said.
 Renault reportedly will trim 3,000 in FranceRenault, which said last week it will close a factory in Belgium, is about to announce 3,000 job cuts in France, according to the financial daily Les Echos.
The job reductions, double those for 1996, will affect all of Renault's factories in France, Les Echos reported.
A Renault spokeswoman said Renault had no comment on the newspaper report. The French car maker is expected to report a 1996 loss of 5 billion francs ($892 million).
Renault announced last week it will close its factory in Vilvoorde, Belgium, eliminating 3,100 jobs and cutting at least 1,000 workers at suppliers and subcontractors.
The decision has caused a storm of protests among people in Vilvoorde and sparked angry words from Belgian Prime Minister Jean-Luc Dehaene, who lives in Vilvoorde.
But Renault Chairman Louis Schweitzer reaffirmed his determination to close the Vilvoorde plant after meeting with Belgian officials this weekend.
Schweitzer plans to meet this week with representatives of a Belgian assembly plant slated for closure, the Renault spokeswoman said.
 Yeltsin and EU leaders report progress in economic co-operation talksRussian President Boris Yeltsin and a top-level European Union delegation reported progress toward building richer economic co-operation between Russia and Europe.
'I'm very glad that we and the European Union ... are developing a good dialogue,' Yeltsin said at the Kremlin as he welcomed European Commission President Jacques Santer and Dutch Prime Minister Wim Kok, the current EU chairman.
'Relations based on partnership and co-operation between Russia and the European Union are the key to strengthening security and stability on the continent,' Yeltsin's press service said in a statement issued after the talks.
The two sides discussed efforts to work out the final details of a long- delayed co-operation agreement, which covers a broad range of trade and commercial areas.
'We can say we are making progress,' Kok told a news conference.
The agreement should be in place by the end of the year, Santer added. It was first signed in June 1994, but still must be ratified by some of the 16 EU members. A less comprehensive interim trade agreement has been in force for the past year.
In addition to economic links, the accord sets human rights standards and emphasises the importance of democratic institutions in Russia.
The EU leaders also said they supported Russia's application to join the World Trade Organization, but acknowledged that some obstacles remain.
'A number of practical problems have to be solved' before Russia can join the organisation, Kok said, without giving details. The two sides decided to create a joint commission to try to identify the problems and solutions to them, he said.
EU officials also expressed a desire to stimulate foreign investment in Russia.
Yeltsin took the opportunity to re-emphasise Russia's opposition to NATO's plans to expand toward its borders. Yeltsin has not softened his position on NATO expansion, but at the same time he showed a 'strong will' to reach agreement in the next few months on a new relationship between Russia and the alliance, the EU chairman said.
'There's good hope for a set of agreements and compromises before Madrid,' Kok said, referring to a NATO meeting set for early July when the alliance is expected to issue invitations to new members.
Yeltsin has a heavy week ahead of him: He is also expected to work on a cabinet reshuffle, give a keynote speech to parliament and hold talks with Belarus President Alexander Lukashenko.
 UK's Clarke finds economic support for refusing to raise ratesU.K. Chancellor of the Exchequer Kenneth Clarke received further backing for his refusal to raise interest rates before the general election with data showing lower consumer demand for credit and continued pressure on import prices from the strong pound.
'I was convinced interest rates would remain on hold before this data, and I am still convinced,' said Simon Briscoe, U.K. economist at Nikko Europe in London.
Bank of England Governor Eddie George is expected to renew his call for a 0.25-percentage-point rise in base lending rates when he meets with Clarke Wednesday for their monthly monetary-policy talks.
But Clarke - with a general election to fight by May 22 at the latest - is expected to point again to subdued inflation pressures and to the strong pound to justify holding rates at 6.0%. He is expected to use a speech to the British Retail Consortium later Monday to effectively rule out any rise in rates before the vote.
Heavy downward pressure on inflation is being exerted by sterling, whose 18% rise against a basket of currencies since August has made British goods less competitive on world markets and has reduced import prices.
The Chartered Institute of Purchasing and Supply said Monday in its monthly survey that the prices paid by manufacturers for fuel and raw materials posted the largest drop since July in February. The prices index fell to 39.7 from January's revised 41.2.
Manufacturers stepped up their output across all sectors in February as companies restocked their shelves. However, this was offset by lower export growth and employment.
This left the overall purchasing-managers' index - which measures general economic activity by collating data on output, orders, employment, stocks and delivery times - at a seasonally adjusted 53.5 in February, down from 53.9 in January.
Jonathan Loynes, U.K. economist at HSBC James Capel in London, said the survey confirms that the recovery remains 'on track for the time being.'
However, he warned that 'with the worst of the impact of sterling's huge appreciation still to come, the outlook for manufacturers in 1997 is far from rosy ... Clarke is well justified in leaving rates on hold.'
Meanwhile, separate figures released Monday by the Bank of England showed that growth in narrow M0 money supply - regarded as a contemporaneous indicator of retail sales - slowed to a seasonally adjusted 6.5% in the year through February from 7.3% in January. This was the slowest rate of growth since May and below the 7.0% rise expected by economists. The government has set a monitoring range of 0% to 4%.
Growth in the key component of M0, notes and coin in circulation, slowed to 6.4% year-on-year in February from 7.1% in January.
The Bank of England also said that net lending to consumers - gross lending less repayments of debt - fell to a seasonally adjusted £853 million ($1.36 billion) in January from £983 million in December. That was the weakest figure since October and below the £1 billion forecast by economists.
(Andrew Atkinson, AP-Dow Jones, London)
 AGA shows 17% drop in operating earnings, but pre-tax profit rises 31% after large one-time gainAGA posted a 17% drop in operating profit last year as increasing costs outpaced the company's growing market share. Including a capital gain, however, pre-tax profit rose 31% to 3.55 billion kronor ($478 million).
The capital gain, totalling 1.79 billion kronor, resulted from AGA's sale of the Gullspaang 1 power station. Without the gain, the Swedish industrial gases company said profit fell to 1.76 billion kronor.
Around five percentage points of the fall in profits was attributable to the stronger Swedish krona, the company said.
The group sales slid 3% to 12.86 billion kronor but when cleared of the exchange rate effects sales were up 4% in 1996, AGA said.
In the fourth quarter there was some improvement in sales but price pressure characterised 1996 and the weak sales development could not be matched with short term cost reductions.
Hence, the operating margin shrank to 12.2% from 14.2% and around one third of the decrease was due to central costs for product development and market support and nearly half was because of increase depreciation in relation to sales.
President and Chief Executive Officer Lennart Selander said that the 1996 result isn't satisfying and that AGA's ambition is to raise the operating margin to 15% by 1999.
'It is true that we continued to increase our market shares, but the sales trend was weak and could not compensate for a substantial rise in costs,' he said.
Besides increasing the operating margin, he said AGA has set three more objectives: to grow somewhat faster than the market; have a return on equity of around 15% and to increase its earnings per share every year.
'As new plants go on stream, we will be able to solve supply problems in several of our markets and the new Organization will raise cost efficiency and gradually improve the operating margin,' Selander said.
 Guinness Flight plans to merge with Hambros unitGuinness Flight Global Asset Management said it will merge with the investment-management unit of UK merchant bank Hambros.
The combined unit will be known as Guinness Flight Hambro Asset Management, said Tim Guinness, Guinness Flight's joint managing director. The merger will bring together Guinness Flight's £2.5 billion ($4 billion) of assets under management with Hambros's £4.3 billion ($6.9 billion) Combined revenue of the merged firms will top $55 million.
'The merger reinforces our offshore fund business,' said Mr. Guinness, who noted that negotiations for the merger began last October. 'We'll also have greater competitive strength in all our other businesses.'
The merger is expected to be completed in May. None of the 129 Hambros asset-management staff or the 237 Guinness Flight employees will be dismissed, said Mr. Guinness.
Under the terms of the planned merger, Hambros is to take a 35% stake in Guinness Flight. Guinness Flight management's 36% share in the business is to shrink slightly to 30%. Meanwhile, Guinness Mahon Holdings PLC is to own 35% of the merged business, down from its 53% stake in Guinness Flight, said Mr. Guinness.
Mr. Guinness will become chief executive of the combined Guinness Flight Hambro Asset Management. Howard Flight, Guinness Flight's other joint managing director, will become deputy chairman of the new entity. Andrew Martin Smith, Hambros Asset Management's managing director, will become deputy chief executive. An independent chairman will also be appointed, said Mr. Guinness.
The merger will have repercussions in Asia, where both companies have offices. Mr. Guinness said the units will be combined here, pending regulatory approval. An expertise in Asian smaller companies is expected to be developed, he said.
 Corporate & Economic briefsPersonal income in the U.S. rose a seasonally adjusted 0.3% in January, while spending, or personal income expenditures, rose 0.7%, the Commerce Department reported Monday. The department said the increase in personal income was affected by several special factors including cost-of-living increases made to federal transfer payment programs such as Social Security and by pay raises for civilian and military personnel. Without the special factors, personal income increased by less than 0.1% in January. Most analysts were expecting about a 0.1% increase in personal income and a 0.6% rise in personal income expenditures.
New car sales in France fell 24.6% in February from a year ago, the French carmakers association said Monday. Sales fell to 133,680 last month from 177,378, while sales for the first two months of the year fell 29.3% to 256,000. Sales this year don't benefit from government incentives offered to car-buyers last year. Those incentives ended at the end of last September, although carmakers have continued offering large rebates of their own. Analysts expect sales in France for all of 1997 to fall about 10%.
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