European Business News (EBN), 97-05-23

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

Page last updated Fri, May 23 6:37 PM CET

CONTENTS

[01] EU may block Germany's plan to slash deficit with gold revaluation

[02] Daimler-Benz threatens to pull out of $1 billion Chinese minivans venture

[03] EU set for clash with aviation Titan

[04] Dresdner bank 'off to a good start' in 1997

[05] Germany's Foreign Minister favours full privatisation of Deutsche Telekom

[06] Zeneca profit grows 15% despite strong pound

[07] E.U. leaders meet for special summit

[08] Germany's producer prices show continuing low inflation with a 0.3% rise

[09] Juppe says first round of voting to be difficult

[10] Axa-UAP will sell quarter of its share holding in Elf Aquitaine

[11] Japan's Dai-Ichi Kangyo Bank may have violated banking law

[12] Corporate and Economic Briefs

[01] EU may block Germany's plan to slash deficit with gold revaluation

'I have difficulties to believe you could use (the revaluation) to reduce the deficit,' the official said, adding, 'It might be possible to apply it to the debt level, but on the deficit, I just don't see how.'

EU Commissioner Yves-Thibault de Silguy said countries could not use creative accounting to qualify for Europe's single currency, but he declined to comment specifically on Germany's gold revaluation plan.

'I have not received details on this project from German authorities so I cannot react precisely,' he told reporters.

The controversial plan has prompted a wave of criticism across the EU, with many analysts and officials calling the strategy a clear example of 'creative accounting' in order to meet the preconditions of a single European currency.

The Bundesbank, one of the few European central banks which does not revalue its gold reserves on a regular basis, currently books it assets at their all-time lowest price. Experts estimate that a gold revaluation could result in a windfall profit of close to 40 billion Deutsche marks ($23.6 billion).

Although EU accounting rules permit the sale of gold reserves to be applied to a country's debt level, no such provision exists for deficit reduction. Some EU finance ministers have voiced scepticism over how a revaluation could be applied at all.

Belgian Finance Minister Philippe Maystadt told reporters that he did not believe Bonn's plan could be used under EU accounting practices. The Dutch presidency of the EU, meanwhile, expressed alarm at the German proposal.

In an interview with a Dutch newspaper, Finance Minister Gerrit Zalm said, 'I cannot imagine that Germany wants to take this route to qualify for EMU as regards the budget deficit. This plan breeds uneasiness, it worries me that measures like this are being considered.'

Zalm said the plan damages Germany's credibility and could set a precedent for other countries to use non-recurring measures for trimming their budget deficits.

Analysts say should the revaluation strategy be allowed for debt reduction, Bonn could benefit indirectly via reduced interest payments.

[02] Daimler-Benz threatens to pull out of $1 billion Chinese minivans venture

A top official of Daimler-Benz, of Stuttgart, Germany, said the company's Mercedes-Benz division is no closer to building minivans in China than it was two years ago, when it was awarded the coveted project over Ford Motor Co. and Chrysler Corp.

Jurgen Hubbert, the Daimler-Benz board member who oversees world-wide passenger-car sales, said the project is in jeopardy because of a dispute with its joint-venture partner, state-run Nanfang South China Motor Corp. He said the partner wants to build the minivans at two separate assembly plants, while Mercedes wants to concentrate its efforts on one plant to reap efficiencies of scale.

Numerous other issues have cropped up in the talks as well, he said, as the Chinese have changed conditions in the agreement, which was sealed in 1995. Officials of the Chinese government couldn't immediately be reached for comment.

Hubbert, who was interviewed at the site of a new Mercedes plant near here, warned that Mercedes will withdraw from China if the issues can't be resolved, though he added that the company is trying to resolve the issues with its Chinese partner.

'We want to stay, because it's one of the most important markets....but not for any price,' Hubbert said. 'If we see we won't make our targets, we'll stop' the project.

Mercedes's China team in charge of the project was gathered Friday in Zhanjiang, Guangdong province - where it's prospective Chinese partner is headquartered - in a last ditch effort to salvage the deal. 'We're still talking,' said a Chinese official with Nanfang.

One U.S. auto executive familiar with the situation said, 'The deal is effectively dead.' Mercedes has been warning suppliers not to count on the project going ahead, according to a recent issue of Automotive News, a trade publication.

The 1995 accord called for Mercedes to own a 45% share of the venture and Nanfang to hold the rest. The agreement was to build 60,000 V-class minivans and 100,000 engines a year in southern China.

Mercedes's rough ride in China shows the downside of investing there. The government limits and approves passenger-car projects, and, Hubbert said, it isn't possible to change partners midstream.

[03] EU set for clash with aviation Titan

'Today Boeing is already sufficiently large to conclude big exclusive deals; we're convinced that the new entity will be even more powerful and strong to negotiate further exclusive supply deals,' the officials, who requested anonymity, said. At the heart of the objections lies the principle of so-called sole supplier contracts, the likes of which Boeing has already concluded with Delta Air Lines and American Airlines to Boeing as clients for the next 20 to 25 years.

'The possibility of closing the market for 20 to 25 years is horror for us, ' one E.U. official said. 'If Boeing by itself is already able to do that, then it would be increasingly possible for it to do so after it buys McDonnell,' the source added.

The Commission is believed to want Boeing to scrap the single-supplier agreements and will also seek further concessions from the U.S. aircraft giants prior to authorizing the merger.

[04] Dresdner bank 'off to a good start' in 1997

Operating profit at the bank before deductions for risk provisions was up 10% to 991 million Deutsche marks ($565 million), the bank said, noting that the year-earlier period was a particularly strong quarter.

Net interest income rose 8.8% in the first quarter, to 1.7 billion marks. Net commission income surged 21% to 1.2 billion marks on stronger volume sales of equities products, as well higher earnings from managing investment portfolios, Dresdner said.

Comparison figures for 1996 weren't available.

And the Bank Chairman Sarrazin denied that the company is interested in taking over Postbank.

An article in the German daily Sueddeutsche Zeitung had claimed that Germany's second-largest banking group is seeking to buy Postbank by year- end. Postbank is due to be privatized by the year 2000.

The newspaper report claimed that German Finance Minister Theo Waigel is contemplating selling Postbank to Dresdner rather than floating it at this time so as to bring as much money into the ailing public coffers as quickly as possible.

[05] Germany's Foreign Minister favours full privatisation of Deutsche Telekom

''I wouldn't be against the full privatization of Telekom,'' he is quoted in a newspaper as saying. The government would be able to reap proceeds ''to the tune of billions'' of Deutsche marks through the sale, he said.

Last week, the German finance ministry confirmed that it's considering selling a portion of its remaining stake this year rather than in the year 2000 as scheduled.

That move is seen helping Bonn reduce Germany's national debt and meet the Maastricht Treaty's debt criterion for currency union.

[06] Zeneca profit grows 15% despite strong pound

This comes despite higher costs associated with the development of new products, Zeneca said.

However, the increased value of sterling, which has risen strongly since September last year, has had a dampening effect on this sales growth when reported in sterling for the period.

Zeneca also noted that sales of its newly launched products continue to meet targets and expectations.

The comments came at the group's annual shareholders meeting. Group Chairman Sir Sydney Lipworth, said: 'Zeneca looks to the future with confidence and enthusiasm.

We have the people, the skills, the product base, the geographical coverage and the strategy to meet our aspirational targets and to grow strongly.'

Zeneca also announced that Sir David Barnes will continue as the Group's chief executive until the annual shareholders meeting in 1999, extending his contract by one year.

[07] E.U. leaders meet for special summit

On the agenda are discussions relating to border controls, majority voting, international security and immigration questions. While the talks are likely to centre on preparations for the Maastricht II Treaty, political analysts and traders alike will be watching for any comments at its fringes.

One potential monetary union conflict point is Germany's recently announced proposal to revalue its gold reserves to help improve public finances as the country tries to qualify for the launch of the euro on Jan. 1 1999.

German Chancellor Helmut Kohl arrived at a European Union summit of heads of state and repeated comments echoed by his Irish counterpart that an agreement on the Maastricht treaty will be signed at the Amsterdam summit in June. 'Progress will be made, and there is still room for compromise,' Kohl said. However, Kohl emphasised that today's meeting was preliminary in nature. Kohl said no formal documents are expected to be signed today. Separately, French President Jacques Chirac has recently arrived at the meeting at this Dutch coastal town but didn't make any remarks to reporters.

Meanwhile, U.K. Prime Minister Tony Blair informed European Union Commission President Jacques Santer that Britain would like to settle a dispute over fish quota hopping when E.U. leaders gather in Amsterdam for a regular summit on June 16-17. Blair met Santer on the sidelines of the summit. An E.U. spokesman quoted Blair as saying that the U.K. won't try to use the quota-hopping issue to hold up an IGC accord, but Blair emphasised that 'we need to show the problem is being solved.'

The spokesman said Blair and Santer also discussed the ban on British beef exports resulting from the BSE disease scare, with Blair underlining that it was important for U.K. public opinion that the ban be lifted and exports resumed as quickly as possible.

Santer replied that British beef for export has to be BSE-free before the ban will be lifted, the spokesman said.

[08] Germany's producer prices show continuing low inflation with a 0.3% rise

Although the price index is higher than expected, traders said it is still in line with a low inflation environment and gave traders an excuse to cover short positions after several days of heavy selling. Meanwhile the number of German corporate insolvencies continued to grow in February, rising 8.3% to 2,240 cases from February 1996. After a period of slight decline (in the growth rate) in the last months of the past year, the increase in insolvencies has resumed in the first months of 1997.

In January and February combined, corporate insolvencies rose 7.8% to number 4,244.

[09] Juppe says first round of voting to be difficult

Speaking on a radio broadcast, Juppe said the first round of voting for a new National Assembly will likely produce a result that shows 'no clear trend' in voter preference, because of the many candidates from various parties that will be participating in the first round.

A run-off vote in those districts where no single candidate wins an outright majority will take place on June 1.

Voters for the many candidates that don't make it to the second round generally vote in the second round for either a centre-left or centre- right coalition candidate.

Juppe, who leads the outgoing government coalition of the leading conservative parties, the Rassemblement pour la Republique and Union pour la Democratie Francaise, said the conservative coalition is preparing to mobilize support in the intervening week before the final, decisive runoff vote.

He also attempted to underscore policies that won't be the same under a Socialist-dominated coalition government, remarking 'on a certain number of essential issues, we don't know exactly what would happen' if the socialists took control of the National Assembly, particularly on issues relating to monetary union, social security and illegal immigration.

[10] Axa-UAP will sell quarter of its share holding in Elf Aquitaine

Elf announced similar news yesterday when it said it would buy Renault entire stake of 2.5 million shares in an operation valued at close to 1.5 billion francs.

Axa-UAP said it had sold some of its Elf shares as part of its portfolio reallocation following the merger of the two largest French insurers in late 1996. But a spokesman said that the company's policy did not require it to sell its entire Elf Aquitaine stake.

[11] Japan's Dai-Ichi Kangyo Bank may have violated banking law

Giving an interim briefing to reporters on the affair, the official said there is suspicion that Dai-Ichi may have deliberately failed to report irregular loans to a 'sokaiya' corporate racketeer. The ministry conducted regular inspections of the bank in 1990 and 1994, he said.

'It would be very regrettable for the bank, as a public entity, to have performed such inappropriate actions and lost the confidence of bank depositors,' the official said.

'The incorrect reporting could have violated clause No. 63 of the banking law.'

[12] Corporate and Economic Briefs

British Gas Trading, the supply arm of Centrica, is expected to be given permission by gas industry regulator Ofgas to continue offering price discounts to some of its customers in Southwest England, according to industry sources. If the speculation proves correct, the decision will anger the dozen or so companies competing with BGT for a slice of the market.

U.K. shipping company Peninsular & Oriental Steam Navigation said that its underlying profitability is set to improve once the costs of restructuring have been absorbed. Speaking to shareholders at their annual meeting, Chairman Lord Sterling said 'underlying profitability is now set to improve sharply, although the cost of restructuring in Containers and Ferries will constrain this year's results at least in the first half.'

German electronics and engineering group Rheinmetall said acquisitions helped sales in the first five months of 1997 rise 24.7 percent to 1.5 billion marks ($887.6 million). Orders in the period were 1.9 billion marks, 26 percent higher than expected, the company said at a news conference.

German steel and engineering group Thyssen expects its existing core units to generate at least 42 billion marks ($24.9 billion) in sales by the year 2000. Growth in new business areas would push total revenue even higher than that, chief executive Dieter Vogel said at a technical conference.

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

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