European Business News (EBN), 97-08-08

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

Page last updated Fri, August 08 5:31 PM CET

CONTENTS

[01] Pound's decline threatens dollar

[02] KLM to make $1.7 billion from sale of 19% Northwest stake

[03] BHP executive quits over differences with board

[04] Japan's trade surplus surges to 55.8%

[05] Audi post a 21% increase in first-half earnings

[06] Allianz Leben first half income rises 5.1%

[07] Astra shows 3.7% profit gain but disappoints markets

[08] May French current account surplus 22.3 billion francs

[09] America Online swings to fourth quarter loss of $11.8 million

[10] Corporate and Economic Briefs

[01] Pound's decline threatens dollar

'It's a big clearout,' said Juergen Lindemann, proprietary trader at IBJ Bank in London. 'There's a massive unwinding of sterling carry trades.'

What has ameliorated the dollar's situation has been that the pound has lost almost as much ground against the U.S. currency as against the Deutsche mark, dropping two cents Friday morning in Europe after losses of three and half cents on Wednesday and Thursday together.

'The perception is still that the dollar is in good shape,' said Lindemann, despite expectations the Deutsche Bundesbank will next week raise its securities repurchase rate, which has been fixed at 3.00% for the past year.

These expectations were somewhat damped on Friday when Bundesbank council member Ernst Welteke said in a radio interview that low growth and high unemployment 'don't indicate any turning of the screw on interest rates.' Welteke did say the dollar is well above the level where the Bundesbank would like to see it, noting that the German central bank thought already at DM1.70 that the dollar's correction from its lows was complete.

Even if the Bundesbank does toy with the repo, either by raising it outright or by reverting to a variable rate, which market participants could help push higher on their own, analysts say the German economy is simply too weak to make any truly meaningful move on interest rates, and that a dollar rise over DM1.9000 is simply a matter of time.

The dollar is in a similar situation against the yen, with the difference that a burgeoning U.S. trade deficit with Japan, and the threat of official Japanese opposition to further gains, make Y120 a tough level to crack.

'In Japan and Germany, the domestic economy is still weak,' noted Lindemann. The only real bright spot for either country is export growth, which is in turn largely founded on their weakening currencies. Sterling, meanwhile, started to suffer on Wednesday from fears that the Bank of England might not, after all, raise its official lending rate a further quarter point to 7.00% on Thursday as had been widely discounted. When on Thursday the BOE did, in fact, raise the rate to 7.00% the pound continued to fall because the BOE expressed its concern for sterling strength and suggested that 'interest rates have reached a level consistent with the (government's) inflation target.' 'That statement was really the trigger,' said Lindemann. 'The market has taken notice.'

[02] KLM to make $1.7 billion from sale of 19% Northwest stake

The Dutch airline will receive a total of $1.17 billion for selling its 19% stake in Northwest, which it bought in 1989 for $400 million, back to the Minnesota-based carrier. KLM and Northwest had agreed that KLM would sell the shares back at somewhere between $36.50 and $40 apiece.

KLM said the $40 price was based on the weighted average share price of Northwest on the NASDAQ exchange in New York this week. The two airlines aim to close the first part of the buyback within 60 days.

The sale will reduce KLM's stake to 17%. The three remaining tranches will reduce the stake to 13% in 1998; 10% in 1999 and zero in 2000.

KLM said that for the sale of the remaining three tranches a so-called 'accretion rate' of about 7% will be implemented, so that the selling price of the Northwest shares increases by 7% with each tranche.

[03] BHP executive quits over differences with board

BHP Chairman Jerry Ellis said O'Connor's resignation 'was essentially to do with the ownership of the company's assets.' The chairman of BHP added that revelations of friction between BHP and O'Connor, and O'Connor's public enthusiasm for selling the petroleum division, influenced the timing of his departure. O'Connor's departure means that BHP has lost its third senior executive in as many days, ending three days of management turmoil which wiped about A$2 billion ($1.5 billion) off its share market value.

Earlier this week, O'Connor reportedly said the petroleum unit was hamstrung by a lack of capital and suggested at a meeting with fund managers and stockbrokers that the division should be turned into a separately listed entity.

But BHP Chief Executive Officer John Prescott said that the sale of the petroleum division isn't currently in the interests of the shareholders, or the mining, steel and energy concern. Market reaction to the three resignations has been brutal. In the last three days its share price has plunged 88 cents, or 5.6%, to A$16.99. The stock, down 1 cent in late trading today as news broke of O'Connor's departure, subsequently dropped a further 44 cents ahead of the close of business.

The company's share price was at A$19.06 June 26, immediately prior to the release of the results of its full year profit. Since June 26, the All Ordinaries index of share prices, the broadest measure of the local market, has risen 0.43%..

[04] Japan's trade surplus surges to 55.8%

The Y1.018 trillion surplus for the month of June was higher than the Y909.5 billion (7.7bn dollas) that Tokyo-based economists surveyed by Dow Jones had on average forecast. It was the third consecutive month of rises.

For the January-June period, the current account surplus grew 40.4% to Y5.054 trillion - the first rise for the first half of a calendar year since 1993.

'The surplus is just going to keep going up,' said Richard Jerram, chief economist at ING Baring Securities. Jerram said exports would continue to grow because the Japanese economy had recently showed signs of slowing, while Japanese goods remained competitive overseas.

He said the January-June data brought Japan's current account surplus as a percentage of nominal Gross Domestic Product dangerously close to 2.5% - the level at which the U.S. had historically increased pressure against Japan to reduce exports and boost domestic demand.

[05] Audi post a 21% increase in first-half earnings

Audi also said that group sales rose during the first half to 10.6 billion marks from 9.3 billion marks a year ago. Worldwide deliveries, meanwhile, increased to 276,052 units from 245,061 units.

Audi expressed cautious optimism over these developments but added that Germany's sluggish car market, among other depressed sectors in the economy, continues to dampen further momentum.

In addition, Audi's output of engines jumped to 361,954 units from 317,278 units, or 14.1%. Audi produces engines for other VW divisions.

In Western Europe, Audi's deliveries to customers outside Germany rose by 14% to 111,045 over 97,389 a year earlier, while vehicle sales in Germany rose by 10.5% to 121,835 units.

The increase of domestic sales represents a positive turnaround from last year, which had seen German sales slump 2.1% from 1995's figures. Consequently, the Germany market share rose for the first half of 1997 to 6.8% from 5.8% last year.

In addition, sales in the USA surged 34% to 17,020 units over 1996's first half, which in turn had seen a large jump of 46% over 1995. However, Audi's sales in remaining markets for 1997's first half were up only by 6% to 26, 152 units.

[06] Allianz Leben first half income rises 5.1%

The German life insurer said premium income from new business rose 6.7% to 1.3 billion marks, representing slower growth than achieved in the year- earlier period, the life insurance arm of Allianz said.

The reason for the slowdown was a debate in Germany about the possible introduction of a tax on life insurance policies, the company said in a statement.

Allianz Leben said it expected new business to pick up in the second half of the year and that returns on investments in the full year 1997 should match that reached in previous years.

[07] Astra shows 3.7% profit gain but disappoints markets

The Swedish drug company's sales gain was due primarily to growth in the US.

The markets had expected Astra to show profit of around 7.17 billion kronor.

'A large part of the group's sales growth is now derived from North America, where several of Astra's products are expected to have substantial further potential,' Astra said.

To further strengthen the competitiveness of Astra Merck Inc., which sells Astra's ulcer drug Losec in the US, the company intends to expand its sales organisation in the second half of 1997, Astra said.

Astra's Losec sales reached 10.02 billion kronor in the first half of 1997, from 8.55 billion kronor a year earlier, while world-wide sales of Losec reached 14.72 billion kronor, up from 11.78 billion kronor in the like year- earlier period.

'The numbers were a bit disappointing...especially as people were expecting to see a rebound from a weak first quarter that was affected by stockpiling late 1996,' said Dresdner Kleinwort Benson analyst Steve Putnam.

'The Astra story is starting to look more and more suspect,' said Putnam who has rated the stock a 'sell' for the past few months.

Analyst James McKean at Morgan Stanley said the lightness of the report was understandable with the company increasing spending on new products and pushing products through the pipeline quicker.

In the first half, expenditure on research and development rose 22% to 3.99 billion kronor as Astra tried to fill the gap that will be left when its top selling drug, Losec, matures and its patent expires in 2001.

An EBN Interactive roundup

[08] May French current account surplus 22.3 billion francs

For the first five months of 1997, and after taking into consideration first-quarter revisions, the current account registered a surplus of 96.3 billion francs, more than double the surplus for the corresponding period a year ago.

The Finance Ministry also noted that France's budget deficit for the first six months of this year dropped 10.6% from a year ago to stand at 202.3 billion French francs.

The government of former Prime Minister Alain Juppe set a budget deficit target for 1997 of 284.8 billion francs compared with 1996's 295.4 billion franc gap. The 1996 deficit figure exceeded government goals for a deficit of 288 billion francs.

On July 21, the current Socialist-led government said the public finance audit it had commissioned showed France's public deficit - which includes the budget, social security and local government deficits - running at between 3.5% and 3.7% of gross domestic product.

At that time the government announced an increase in French corporate taxes and capital gains taxes for 1997 through 1999. Those tax hikes are expected to bring in about 22 billion francs a year in 1997 and 1998. The government also said it would cut 1997 spending by 10 billion francs. Those measures are expected to cut the public deficit ratio by 0.4 percentage point.

[09] America Online swings to fourth quarter loss of $11.8 million

The US's largest on-line service posted a loss of $11.8 million, or 12 cents a share, for the fourth quarter ended June 30, against year-earlier profit of $16.1 million, or 14 cents a share. For the year, AOL's losses ran a hefty $499.3 million, or $5.22 a share, on revenue of $1.69 billion.

Though the company would have posted net income of $10.9 million, or nine cents a share, for the final quarter, it was asked by the Securities and Exchange Commission to take a charge of $24.5 million in its fourth quarter, instead of its second quarter, to better match the timing of the renegotiated contracts to which the charge related.

Moreover, though the company had recognized $12 million of a $100 million marketing agreement with long-distance company Tel-Save Holdings Inc. in the fiscal third quarter, the SEC advised AOL that it should hold off recording $7 million of that sum and spread it over the length of the 40- month agreement.

That shift resulted in AOL's having to restate fiscal third-quarter results as a loss of $4.7 million, or five cents a share, rather than the net income of $2.6 million, or two cents a share, that AOL had first reported. Several analysts had criticized the company for booking that money well in advance of the service being available to members.

[10] Corporate and Economic Briefs

Italy's industrial output rose an unadjusted 5.5% in June from a year earlier, compared with a revised unadjusted 1.0% fall in May, the state statistical agency Istat said. The preliminary May figure showed a drop of 1.0%. Istat said there were 21 working days in June 1997 compared with 20 working days in June 1996. In the first six months of 1997, Istat said unadjusted industrial output was down 0.2% over the year before. Istat said the figures indicate the recovery in production already underway was accelerating.

Italian new car registrations rose 54% in July from the same month of 1996, according to figures released by the Transportation Ministry. The ministry said that some 246,500 new cars were registered last month, up from 160,007 in the year-ago period. The rise follows a rise of 51% in June from the same month in 1996.

Spain's gross domestic product probably grew around 3% in the second quarter of 1997, the Bank of Spain said. Spain's GDP was boosted by growing consumer demand in the second quarter, the bank said in its economic report for July and August. The second-quarter GDP data are scheduled for release on Sept. 24. GDP growth for the first quarter was 2.9%, the central bank said.

U.K. leisure and entertainment company Rank said that it acquired for cancellation 41.4 million shares, at 345 pence a share, valuing the purchase at around £142.9 million ($226 million). Yesterday Rank said it intends to acquire around 10% of its total shares. The 41.4 million shares represents 4.9% of the shares outstanding.

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

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