European Business News (EBN), 97-05-16

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

Page last updated Fri, May 16 6:47 PM CET

CONTENTS

[01] Dini warns Germany over 'accounting gimmicks'

[02] B.T. begins talks with UK government to end 'golden share' holding

[03] Kvaerner first quarter profit plummets 58%

[04] Lloyd's of London set to abandon self-regulation

[05] Oil companies and Russian government sign deal for $2 billion pipeline

[06] U.S. budget presented for first formal vote

[07] US Housing starts bounce back in April

[08] German Economics Ministry estimates first quarter growth at 0.5%

[09] Bank of Spain cuts interest rate by 0.25%

[10] Report says that arson could be the cause of the channel tunnel fire

[11] Viag first quarter adjusted profit rises 7%

[12] Corporate and Economic Briefs

[01] Dini warns Germany over 'accounting gimmicks'

The announcement came as the German finance minister, Theo Waigel, said he plans to mark up the value of the nation's gold reserves to help shore up the country's finances in advance of European currency union.

In an ironical role reversal between Germany and Italy, where Germany normally questions Italy's accounting methods, the Italian minister Dini made clear he thought that any revaluation was just a 'trick'.

'I would be very surprised if the German government were to have recourse to accounting gimmicks such as the use of asset sales or a revaluation (of its reserves) in order to meet a revenue shortfall for 1997, Dini said.

He added that it would call into question 'the respect and sustainability of the stability pact,' Dini said.

'By doing this, Germany could put in jeopardy the healthy functioning of European monetary union,' he said.

Rumours that Germany would begin selling its reserves sent gold prices lower Wednesday, and they fell slightly yesterday despite Mr. Waigel's statement that Germany 'would not sell an ounce.' In London, gold fell by just over a dollar to $346.70 a troy ounce.

Meanwhile, German Chancellor Helmut Kohl's top deputy said he thought it unlikely that tax measures would be taken this year to help fill widening budget gaps.

'I don't believe the opportunity exists to solve the problem through fiscal measures in 1997,' Wolfgang Schaeuble, parliamentary group leader for the Christian Democrats, said on German television.

A German currency expert slammed Finance Minister Theo Waigel's proposals to revalue Bundesbank gold reserves as 'cooking the books' and warned that the move could be unconstitutional.

Wilhelm Hankel, a former German economics and finance ministry adviser, told the Berliner Zeitung daily that if a listed company were to behave in the same way it would lose all credibility with the banks and its shareholders.

Business newspaper Handelsblatt also criticised the run-up to the plan, which would raise the value of Bundesbank gold reserves by 40 billion Deutsche marks ($23.5 billion) and could help Germany qualify for European monetary and economic union.

'The budget fever of the last days is shameful for a state of the economic ranking of Germany,' the paper said in an editorial. 'It disturbs the citizens, drives away companies and frightens investors.'

Germany's 2,956 tons of gold is held by the Bundesbank, the German central bank. It is valued at 144 marks per ounce, or 13 billion marks. Although it says it is stopping short of selling any gold, a revaluation at the current market price would peg the reserves at 57 billion marks, producing the 40 billion mark windfall.

[02] B.T. begins talks with UK government to end 'golden share' holding

Included in BT's articles of incorporation at the time of the company's privatization in 1984, the golden share gives the U.K. government the right to power to veto a potential buyer.

But BT executives are concerned that the golden share might become a serious obstacle to BT's proposed mega-merger with MCI. They fear that when the US Federal Communications Commission comes to approve the deal the Commission might argue that the share would give the UK government rights in a company which could not be reciprocated in the US.

The government might then have to relinquish the share holding for the deal to go ahead.

'Those golden shares were put in place as a political gesture to the opposition,' said John Tysoe, analyst with Societe General Strauss Turnbull Securities. 'It was a way of ensuring that former (state-owned) companies don't pass into the hands of foreigners.'

'It's more historical than anything else and I'm not sure its of much use,' he added.

Indeed, privatized UK electricity and water companies also contained golden share options, but those rights were automatically wound down in 1994 - five years after privatization occurred.

'As soon as that disappeared, the new structure of the industry began to take form and the Americans became involved in corporate activity,' said an electricity company executive.

[03] Kvaerner first quarter profit plummets 58%

Shares in the construction group surged in early trade after the markets viewed the results as better than expected. Analysts had expected the figure to be nearer 149 million kroner.

'People had been afraid that Kvaerner would disappoint, but the results are far better than expected. They are performing now and that's what the market wants,' said one broker.

'We said they could go to 400 (kroner) if the results were good and they are on their way now.'

Kvaerner itself saw things differently.

'Our first quarter results are lower than expected,' Erik Toenseth, the company's chief executive said. 'However, we expect a far better operating profit for 1997 as a whole than we saw in 1996,' he added.

The chief executive also pointed out Kvaerner's first quarter 1996 earnings had been boosted by extra profits of 249 million kroner from the sale of a ship.

[04] Lloyd's of London set to abandon self-regulation

The Council of Lloyd's has endorsed the findings of a working party set up in October 1996 to review Lloyd's existing self-regulatory system.

The report proposes that the Council of Lloyd's would retain primary day-to- day responsibility for market regulation but would be subject to external oversight by the Securities and Investments Board and the Department of Trade and Industry.

Such a system would demonstrate that the interests of policyholders and members are sufficiently and impartially safeguarded and that the Council is objectively discharging its responsibility to ensure a properly regulated and solvent market, said Lloyd's.

'The Council fully supports the recommendation for further external regulatory oversight and the overall thrust of the report,' said Lloyd's chairman Sir David Rowland.

The proposed reforms are subject to government acceptance and would require amendments to the Insurance Companies Acts and the Financial Services Act.

[05] Oil companies and Russian government sign deal for $2 billion pipeline

With the agreement signed, the Caspian Pipeline Consortium said it will begin building next year the 1500-kilometer pipeline that will transport crude from the landlocked Caspian to Russia's Black Sea coast.

The long-awaited pipeline has been crucial to Chevron Corp.'s heavy investment in the region, as well as the Russian government's ability to push a deal through.

Leaders hailed the project as a catalyst for more development in former Soviet Union's oil sector. The consortium was first set up in 1992, but was bogged down for years by infighting between members over financial details.

The consortium is a joint project of the governments of Russia, Kazakstan, Oman, and a number of international oil companies.

'Of course five years is probably too much to sign the agreement and start its implementation,' said Russian First Deputy Prime Minister Boris Nemtsov. '(But) Russia has never participated in such a large scale international project. And maybe lack of experience and red tape was to blame for the delay.'

The first oil should begin flowing in 1999, when production should reach around 28 million tons of crude a year. As total investment grows to $4 billion, capacity should peak to 70 million tons per year.

[06] U.S. budget presented for first formal vote

'Take this balanced budget and write it into law,' President Clinton instructed lawmakers, as he and his budget team gathered at the White House to herald the written agreement as historic.

The White House won an agreement to protect $33 billion in domestic programs, including a tentative agreement to spend $1.5 billion through 2002 to help poor people pay Medicare premiums and $ 10 billion to restore welfare legal immigrants benefits that were halted by last year's welfare overhaul, budget documents show.

The spending was listed in an 'addendum' to the budget pact that Clinton administration officials and congressional leaders completed Thursday evening. The 24-page booklet provided details about spending and legislative procedures for the budget agreement, which was aimed at producing the first federal surplus since 1969 and the broadest tax cut since 1981.

'This is not only the first balanced budget in a generation, it is an American balanced budget that protects our values for future generations,' Clinton said as the House panel began work on the budget outline.

Late yesterday, the White House and Congress' Republican leaders resolved numerous technical disputes that had prevented progress on the pact to balance the budget by year 2002.

[07] US Housing starts bounce back in April

The April increase followed a revised drop of 7.7% in March to an adjusted 1.435 million unit pace.

The March decline earlier had been estimated as 6.4%.

A Dow Jones Newswires survey of 16 economists published earlier in the week estimated April housing starts rose 1.0% to a 1.440 million unit annual rate.

April's housing starts were 3.2% above the construction pace a year earlier, as a burst of building in the South helped boost overall activity.

U.S. Treasurys fell on news of the surprisingly robust 2.6% rise in April, compared with expectations for a 1% advance. The disparity in the numbers, however, is explained partly by the fact that the March's data was revised downward, so that, net-net, the figures were close to expectations. The dollar and New York stocks have also fallen.

Building permits, a precursor of future building activity, fell 0.8% in April to a 1.446 million unit annual rate. March building permits were revised to up 1.3% from the previously reported 0.6% increase.

Regionally, housing starts rose 1.3% in the South to a 699,000 annual rate and 0.7% in the Midwest to a 292,000 annual rate. Starts fell 7.4% in the Northeast to a 137,000 rate and 6.5% in the West to a 345,000 rate.

The Commerce report on housing starts was released one day after the National Association of Homebuilders released a survey showing builders are concerned about the gradual slowing in the housing market and a possible increase in short-term interest rates by the Federal Reserve.

The group's Housing Market Index fell to 54 in May from 56 in April, the second straight monthly decline. The number of builders who said current conditions were 'good' was unchanged at 33%. Those who thought conditions would be good over the next six months fell to 34% from 37%.

[08] German Economics Ministry estimates first quarter growth at 0.5%

The ministry said the rise came even though the number of work days was reduced by bad winter weather at the beginning of the year.

Exports were driving growth and helped lift manufacturing capacity utilisation in west Germany to 84.9% in March -- its highest level since 1995, the ministry said.

Improved demand led to first-quarter industrial gains. Compared to the fourth quarter of last year, first-quarter orders rose 1.5 % while output increased two percent, the ministry said.

At the same time, the weak labour market remained unchanged, while first- quarter construction output was hurt by bad weather and fell 10.5 % compared to the previous quarter, the ministry said.

Germany's price climate was extraordinarily stable as the dollar's strength had kept import prices down.

The economy was also helped by a favourable balance of trade at the beginning of 1997. For January and February, exports rose 6.4 % compared to the same two months in 1996, while imports rose 5.5 %.

[09] Bank of Spain cuts interest rate by 0.25%

The good news is that there is still room for interest rates to go even lower, analysts said.

The benchmark, or key, rate is Spain's main monetary policy instrument. Prior to Friday's rate cut the Spanish central bank last altered its benchmark rate April 15, cutting it to 5.50% from 5.75%.

Today's rate cut is the fourth time the Bank of Spain has cut rates in 1997.

'The reaction has been mute. The rate cut was perfectly priced in. On the long-end of the (yield) curve there is no movement,' said Shahab Jalinoos, bond analyst at IBJ Research in London.

The 10-year 7.35% benchmark bond due 2007 at 0821 GMT was at 106.00, flat from late Wednesday, to yield 6.50%.

Spanish markets were closed Thursday for a Madrid holiday in honour of its patron saint, San Isidro.

'I would have thought that there would have been more of a reaction. There were some people thinking maybe it would be a 50-basis-point rate cut. It's pretty dull,' said Jalinoos.

Even the Spanish peseta moved little early Friday following the widely- expected quarter-point rate cut.

At 0821 GMT, the mark was at 84.39 pesetas, up from 84.37 pesetas earlier Friday but off from 84.49 pesetas late Wednesday.

[10] Report says that arson could be the cause of the channel tunnel fire

The British Broadcasting Corporation's Newsroom Southeast program, quoted sources which it said it could not identify.

The fire broke out November 18 in a shuttle train carrying freight trucks between France and England.

A report by safety experts in Britain this week criticised the emergency procedures of Eurotunnel, which operates the 31-mile (50 km) undersea tunnel, but made no finding on the cause.

In France, the state prosecutor in Boulogne-Sur-Mer, where the investigation is based, said the report was not leaked by judicial sources.

'I don't know where this information is coming from, but it's not from judicial sources,' the daily Voix du Nord quoted Gerald Lesigne as saying.

At the court house, the telephone operator said she was instructed to tell reporters there was no comment, and refused to pass on calls.

Eurotunnel spokeswoman Anne Leyva said Friday she had not seen the results of the French investigation, due out next week, and could not confirm or deny the BBC report.

Within hours of the fire being put out, talk began that disgruntled French workers may have started the fire.

[11] Viag first quarter adjusted profit rises 7%

Adjusted for the sale of its stake in Didier-Werke a year earlier, pretax profit rose 7% in the first quarter, Viag said. Group sales in the first quarter were 12.3 billion marks, up from 10.9 billion marks in the year- earlier period.

Viag reported that 1996 group net fell 20% to 1.06 billion marks from 1.32 billion marks in 1995. 'The fall in earnings can be attributed to clearly higher tax on earnings. Our tax charges were unusually low in 1995 because we could offset taxes against previous losses,' the group said.

Earnings per share fell to 37.10 marks from 39.30 marks. Viag said full year pretax profit rose to 2.35 from 2.24 billion marks.

Viag said it was optimistic it could raise earnings slightly this year, despite unavoidable losses in its telecoms business.

'For the current year we are optimistic that we can further increase our turnover and that we can maintain earnings at their current high level or even increase them slightly, despite unavoidable losses in telecommunications, ' Viag said.

[12] Corporate and Economic Briefs

French oil exploration company Generale de Geophysique said that its first-quarter 1997 sales rose to 953 million francs ($166 million) from 605 million francs a year earlier, due to an increase in its land and marine seismic activities. The company said first-quarter earnings were in line with its internal expectations, despite the higher-than-expected sales rise, owing to decreased operating capacity in one its marine-based activities.

TDK Corp said its group sales and profit - operating, pretax and net - rose to a record high in the last fiscal year ended March 31. The company said that profit was lifted by strong sales of recording devices and recording media, and benefits from the weak yen. Proceeds from the sale of U.S. subsidiary Silicon Systems Inc. to Texas Instruments last year also boosted profits, the company said.

Hungarian investors who wished to buy 500 or more shares in this week's public offering of oil and gas company MOL oversubscribed the offer 44 times, the State Privatization and Holding Company has announced. Institutions and individuals subscribing for 500 or more shares submitted subscriptions for 87.8 million MOL shares, far exceeding the 1.968 million shares on offer to such investors.

Bankgesellschaft has confirmed that its management and supervisory boards were not considering a 75 percent takeover of BHF-Bank, denying a newspaper report that it was interested in a takeover.

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

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