European Business News (EBN), 97-05-09

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

Page last updated Fri, May 09 5:48 PM CET

CONTENTS

[01] Greenspan looks for slowdown in US economy

[02] Dollar support weakens on fears of Japanese intervention

[03] SBC saw strong earnings and profits in the first quarter of 1997

[04] RWE 9-month net profit climbs 7%

[05] Siebe agrees $205 million bid for APV

[06] Wim Kok heralds UK Labour party decision to sign up to Social Chapter

[07] Kloeckner's first half group sales fall 5.8%

[08] Royal Sun set to show healthy profit for 1997 first quarter

[09] CITIC pacific sells 8% stake in Hongkong Telecom

[10] Thomson's privatisation sparks off a series of new European defence alliances

[11] Corporate and Economic Briefs

[01] Greenspan looks for slowdown in US economy

Markets have reacted positively to his statement.

Greenspan, in an evening address at New York University's Stern School of Business, said that '1997 isn't 1994 when the Fed was forced to tighten monetary conditions very substantially to avoid accommodating rising inflation.'

Right now, 'financial conditions are much less accommodative than they were in 1994,' Greenspan said in reference to when the Fed began a series of rate hikes that ended in January 1995 with the fed funds rate at 6%, or 3 percentage points above where the Fed had started tightening policy. 'Greenspan wasn't suggesting there was likely to be any more (rate tightening) very soon...On that basis the dollar's easier,' said Adrian Schmidt, international economist at Chase.

'The thoughts of Greenspan are helping the market. It's being taken that he sees growth slowing by the end of the year and into early next year, so people are quite optimistic on interest rates,' said a trader.

While the 0.25 point fed funds hike on March 25 is the first rate increase by the Fed since January 1995, the U.S. central bank has started tightening this time around at a much higher base of 5.25% in comparison with the cycle that began in 1994.

Reflecting on the March rate hike, Greenspan said: 'We saw a significant risk that monetary policy wasn't positioned to promote sustainable economic expansion, and we took a small step to increase the odds that the good performance of the economy can continue.'

Greenspan's address in New York was largely focused on defending the March rate move, which drew widespread criticism on Capitol Hill as being too aggressive. The criticism has continued in the wake of news of a balanced budget deal, which in itself has a way to go before an agreement is fully in place.

And a number of analysts have said they expect that if the Fed continues to tighten policy, it might only go so far as a 6% target for the fed funds rate.

Wall Street and financial markets, in turn, are watching the May 20 Federal Open Market Committee closely for signs of how far the Fed may go to dampen potential price pressures.

Greenspan noted concerns over how 'excessive credit fostered by the central bank' can at times help to finance 'excess demand' and thereby fuel 'destabilizing inflationary pressures.' And he added that 'it is often difficult to judge whether observed growth is soundly based on productivity or arises from transitory surges in output financed in many cases by excess credit.'

The Fed chief, however, added that 'this is in part what making monetary policy is all about. Capacity utilization in industry is a little below its level through much of 1994, and pressures in product markets have remained tame,' he said. 'However, falling unemployment rates and rising overtime hours - as well as anecdotal reports - unambiguously point to growing tightness in labour markets.'

Higher market interest rates could help moderate excessive demand in the economy, in theory. But a monetary policy that accommodates an expansion of credit, which in turn fuels demand in excess of U.S. capacity 'would sow...the seeds of even higher interest rates and a consequent subsequent economic retrenchment,' he said.

[02] Dollar support weakens on fears of Japanese intervention

However, some such as Commerzbank's Ferridge argue that until the rate differential between the U.S. and Japan and Germany actually starts to narrow, the fundamentals will remain too firmly in favour of the U.S. to discourage capital flows in its direction.

Japanese officials continued to wade in with yen-supportive comments, not only issuing more warnings about intervention but suggesting that the impact of the consumption tax increase wasn't as great as initially feared.

'People don't seem to be that worried about it,' commented Ferridge.

'The dollar/yen can recover from here,' he said.

Nevertheless, analysts acknowledge that underlying support for the U.S. currency is weakening and even if the currency manages to stage another - probably final - rally back to its highs, it will prove more prone to profit-taking.

'We are still in clearly a dollar supportive environment, but people's perceptions are changing,' Knuthsen said, suggesting that the dollar is likely to see more selling on rallies as investors start to liquidate their large long positions ahead of a probable decline.

[03] SBC saw strong earnings and profits in the first quarter of 1997

'The main contribution to these very good results came from SBC Warburg and SBC Private Banking but SBC Switzerland and SBC Brinson also made good progress,' the bank said in a statement.

SBC also said it was optimistic it would reach its ambitious goals for 1997 after posting excellent results in the first quarter.

'Although the results for the first quarter cannot simply be extrapolated for the rest of the year, Swiss Bank Corporation is confident it can achieve its ambitious targets for 1997,' it said.

'Net profit after tax and minorities was well ahead of expectations,' the statement said.

It said provisions for non-performing loans exceeded statistically expected risk costs but that the excess provisioning requirement was covered by a special provision set aside for this purpose in 1996.

As usual, SBC provided no numbers in its first quarter report but did break down its commentary by business area.

'Commission incomes and trading revenues benefited from buoyant financial markets,' SBC said, adding equities business achieved a record result.

An SBC spokesman said the statement referred to targets the bank outlined in September of posting 1.7 billion Swiss francs in net profit this year and increasing return on equity substantially.

SBC has a medium-term goal of lifting group ROE to around 15% from 10.1% in 1996, although the spokesman noted bank officers had said the target would not be reached fully this year.

SBC posted a 1996 pre-tax loss of 1.60 billion after making big reserves for problem loans and restructuring charges.

[04] RWE 9-month net profit climbs 7%

Among the divisions showing strong sales increases was telecommunications, where sales in the period rose 115%, to 812 million marks from last year.

The Essen-based company noted that, without including new consolidations, group sales in the 9-month period rose 5% from a year earlier.

However, it didn't provide figures. Sales growth overall was particularly strong in the first half of the financial year, RWE commented.

RWE said it expects profit growth in the full year to reflect that of the first nine months. It noted that earnings growth was especially high in its energy, machinery, plant and equipment divisions in the period.

Total investment in the nine months reached 4.3 billion marks, 'just below that of the previous year,' RWE said. It added that start-up costs for its telecommunications units 'clearly rose, as expected.'

[05] Siebe agrees $205 million bid for APV

Siebe said it will give APV shareholders the option to take either 0.10955 of a new Siebe share for each APV share or a cash alternative of 97.5 pence per APV share.

While Siebe was bullish in its outlook for the takeover, citing earnings enhancement after only a year, analysts are less encouraged, struggling to find many logical arguments for the move.

''Just because its earnings enhancing after year one, doesn't mean its good in the long term,'' said an engineering analyst at a European investment bank.

''In some takeovers you can see the fit straight away, but in this one, Siebe are going to struggle to convince people that's its logical. It doesn't stand out on a logical front,'' said the analyst.

The offer also calls for Siebe to pay a 1.7 pence a share dividend to APV shareholders, in line with APV's final dividend of the same amount announced March 20.

Siebe already owns 3% of APV's stock and has received irrevocable undertakings to accept the offer from all APV directors, representing about 0.1% of stock.

''With the acquisition of APV, Siebe will be positioned as the leading global supplier to the food, beverage and pharmaceutical industries, building on Siebe's already significant presence in the chemical, oil and gas, utility and pulp and paper sectors,'' said Siebe.

The company added that by combining Siebe and APV's global networks for local engineering, contracting and customer service, it will see ''significant cost benefits.''

Siebe is the U.K.'s largest diversified engineering group, with significant operations in the U.S., Europe and Asia and 42,500 employees worldwide.

[06] Wim Kok heralds UK Labour party decision to sign up to Social Chapter

However, Kok added that there were still 'burning issues' with Britain to be solved regarding Europe.

Kok, who will host next month's crucial E.U. summit in Amsterdam, spoke to reporters in front of the Prime Minister's residence after talks with Blair and British Foreign Secretary Robin Cook.

'Britain's decision to accept the Social Chapter, to be in favour of a strong employment paragraph in the (revised Maastricht) Treaty, is an enormous step forward,' Kok said.

'It would really have been impossible to come to further agreement on all the other issues ... so this is already something to be very happy about. But the rest has to follow.'

Kok said the problems that remain to be solved concern matters including home affairs and justice, as well as a common foreign and security policy.

'We still have some burning issues on the so-called flexibility and enhanced co-operation - if it is possible within the treaty for co- operation between a large majority of countries even if one or two are not yet able to participate,' Kok said.

'We have some major institutional matters relating to the role of the European Parliament, and also the size of the Commission and vote- weighting,' he added.

Kok said while his meeting at Number 10 Downing Street was informal and not set up for serious negotiations, he noted that it still had been 'a very good and productive occasion'.

'It would be an exaggeration if I said it would be easy to find solutions to all the different problems,' he said. 'We have still a number of problems to be solved.'

An informal European summit is scheduled to be held in two weeks' time in the Netherlands to consider those problems.

'We are very glad that the new British government is of the opinion that they should be a strong and responsible partner in the process of the E.U., ' he said. 'But we know there are still some problems to be solved on various E.U. matters between now and Amsterdam.'

[07] Kloeckner's first half group sales fall 5.8%

However, the Duisburg-based group said the figures aren't adjusted for changes to its consolidation structure in the last year, when it sold its Kautex-Group unit and acquired the Kalle film-manufacturing unit. The two have annual sales of 800 million marks and 350 million marks respectively.

Adjusted for the changes, group sales rose 3% from a year earlier, Kloeckner-Werke group added.

Kloeckner said it expects sales in the second half of fiscal 1997 to equal the first half's. It added that it expects an operating profit, inclusive of net interest income, to total 50 million marks for the full year, and its pretax profit to total around 200 million marks. It didn't elaborate.

In the first half, its operating profit totalled 16 million marks, compared to a loss of 4 million marks in the first half of fiscal 1996, the improvement coming in part from a 'clear drop' in its interest costs.

The group added that in the first half, its core auto supplies business performed well, with its main Peguform unit lifting sales in Germany, Spain and the Czech Republic, and registering improved profitability on unchanged sales in France. In the U.S., its MPI unit also increased sales to Japanese- owned auto plants.

It also noted that its films and foils businesses had been strengthened by the acquisition of the Kalle unit and said it is expanding capacity in the U.S.

Sales at Kloeckner's other packaging units fell 8% from a year earlier, however.

[08] Royal Sun set to show healthy profit for 1997 first quarter

The company was created from a merger of Sun Alliance and Royal Insurance last year. Speaking at the company's annual general meeting, Chairman Sir Christopher Benson said last year's first quarter results were adversely affected by severe weather losses in the U.S.

Royal & Sun Alliance will release first quarter 1997 results on May 20.

Comparable results for 1996 were released Friday for the first time, and showed operating profit of £157 million. The figures had previously been unavailable due to the merger of the former Royal Insurance Holdings and Sun Alliance Group which was completed in August.

[09] CITIC pacific sells 8% stake in Hongkong Telecom

CITIC Pacific announced it was selling its 7.74% stake in Hongkong Telecom to Beijing-based China Everbright Holdings, prompting a less than enthusiastic response from analysts.

'This certainly is just an anticlimactic development,' said Andrew Fernow, director of research at Vickers Ballas. 'It was simply the transfer from one passive shareholder to another.'

CITIC Pacific hit a high of HK$45.40 then slipped to end HK$0.90 higher at HK$44.40. Hongkong Telecom shot to a high of HK$15.90 but ended HK$0.50 lower at HK$14.50.

However, the deal does free CITIC from pressing financial problems, providing a hefty windfall. 'The immediate impact is the reduction in financial risk,' said Steven Thompson, senior analyst at Nikko Research Center, who ramped up his 1997 earnings estimate for the red chip company to HK$9.94 billion ($1.28 billion) from HK$5.35 billion.

The deal is generally regarded as positive for CITIC Pacific but unexciting for Hongkong Telecom, which has been unsuccessful at setting up any operations in China, analysts said.

Meanwhile, Britain's Cable and Wireless said it welcomed planned Chinese investment in its Hongkong Telecom subsidiary.

'We welcome the proposed investment by China Everbright in Hongkong Telecom, ' said Brian Smith, chairman of Cable & Wireless Group and Hongkong Telecom.

But analysts merely saw the deal as one passive shareholder replacing another, and has left them waiting for more. They had expected Cable & Wireless, which holds 58.5% of Hongkong Telecom, to be involved in a deal which could have possibly brought in China's powerful Ministry of Post and Telecommunications.

[10] Thomson's privatisation sparks off a series of new European defence alliances

Alcatel is backed in its bid by Dassault Industries, the French aerospace and electronics group. The U.K.'s General Electric Co., known as GEC, said it has agreed with both Alcatel and Lagardere to talk after the Thomson-CSF buyer is announced.

British Aerospace and Daimler-Benz Aerospace, or DASA, gave their support exclusively to Lagardere. DASA and Lagardere also plan to combine some of their aerospace businesses.

The French Finance Ministry confirmed it will make a decision before the end of June. It is the second time that the government has tried to sell Thomson-CSF. In December it awarded Thomson, its parent company, to Lagardere and South Korea's Daewoo Group, but a privatization committee threw out the decision.

However, analysts say, Alcatel could benefit from being seen as the 'French solution.'

This is the second time that GEC has moved to link with Thomson-CSF. Last month, the French government rejected a direct bid from GEC, citing national defence interests.

But the government also said it would be open to an eventual tie-up with GEC or other European associations that could create a defence group on a par with U.S. giant Lockheed Martin.

GEC and Lagardere already have an aerospace joint venture, Matra Marconi Space. DASA will add its aerospace business to the venture. Matra BAe Dynamics, a missile-company venture between Lagardere and British Aerospace, will take a 30% interest in DASA's LFK missile unit.

British Aerospace has said it would help Lagardere finance its Thomson-CSF bid with 2.7 billion French francs ($466 million). Of that, 1.5 billion francs will go to support a five-billion-franc convertible-bond offer Lagardere plans if it wins the bid. Alcatel says it intends to finance its bid with its own resources.

[11] Corporate and Economic Briefs

Swedish industrial conglomerate Incentive's sale of its TA Hydronics subsidiary to British industrial group IMI has now been approved by the requisite authorities. The selling price is 1.2 billion kronor ($178 million) and Incentive repeated its earlier estimate that the sale will result in a capital gain of around 800 million kronor after taxes.

U.K. telecoms regulator OFTEL said it will investigate the way British Telecommunications offers its Call Minder telephone answering service. The probe follows a complaint from an independent service provider. Comments to the Office of Telecommunications must be filed by June 9. More than 500,000 BT customers pay £5 per quarter for Call Minder, and the number of customers is growing rapidly.

UK mobile and telephone operator Orange's subscriber base for the wirefree network now stands at 930,000. As of Feb. 28, 1997, Orange said it had a little more than 850,000 subscribers, and an 11.5% share of the U.K. market.

Norway's CPI fell 0.1% in April from March, bringing the year-on-year increase to 2.6%. According to the agency, lower electricity prices were behind the monthly fall in consumer prices.

Spain's 1997 first quarter GDP was 2.7% up on the year, a Bank of Spain quarterly report on the Spanish economy estimated. However, the same report said uncertainties remain because of the unknown effects of the February transportation strike. The national statistics institute is scheduled June 25 to release the official first-quarter GDP report.

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

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