European Business News (EBN), 97-10-09

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CONTENTS

[01] Prodi resigns and Scalfaro asks him to remain in caretaker role

[02] Global stocks, bonds skid, mark soars on European rate boosts

[03] Commerzbank denies interest in BZW, but Paribas takes a look

[04] Duma rejects 1998 budget draft

[05] Worms board recommends AGF, Someal counterbid

[06] UK retail sales pick up pace but fall below expectations

[07] Portugal Telecom's privatisation attracts strong demand and bodes well for Lisbon's entry into EMU

[08] RWE posts 9% jump in profit

[09] EA Generali first half premium income falls 14%

[10] Deutsche Telekom, Microsoft to develop Internet products

[11] Petroleum Geo-Services reportedly plans to buy Awilco

[12] Daimler-Benz Aerospace remains interested in Siemens unit

[13] EU increases anti-dumping import duties on two Japanese firms

[14] EU chief suggests staggered system for new entries to EU

[15] Corporate and Economic Briefs

[01] Prodi resigns and Scalfaro asks him to remain in caretaker role

It said Scalfaro had 'reserved his decision and asked the government to remain in office to carry out routine affairs' -- a standard form of words used by the palace which allows the current government to stay on as a caretaker administration until a solution is found.

Prodi went to see the Scalfaro after announcing his intention to quit at the end of a debate in the lower house Chamber of Deputies on the government's 1998 budget.

The statement said Prodi resigned his government 'after he acknowledged in the debate in the Chamber of Deputies that it could no longer command a majority (in the house)'.

The survival of the 17-month-old government hinged on the support of the Communist Refoundation party whose deputies helped Prodi's government pass legislation in the chamber.

The communists refused to back the 1998 budget because of cuts of five trillion lire ($2.9 billion) in pensions and welfare spending.

[02] Global stocks, bonds skid, mark soars on European rate boosts

Though global markets had begun steeling themselves against such an eventuality, the Bundesbank decision sent global markets reeling for the second day running after the Federal Reserve's admonitions on Wednesday.

Wall Street opened lower as blue chip stocks reacted to the interest rate hikes, which the Bank of France explained were part of a strategy of converging European Union interest rates ahead of monetary union.

Citing a change in the price climate over the summer, the German central bank said the key repo rate would increase to 3.3% from 3%. It was the first time in five years that the Bundesbank had raised the repo rate.

Within minutes of the news from Frankfurt, the Bank of France lifted its key intervention rate to 3.3% percent from 3.1%. The U.K. market derived no joy from a decision by the Bank of England's monetary policy committee to leave base rates unchanged at 7%, as expected. The mark shot higher against other major currencies after the Bundesbank raised its key money market rate -- which had remained unchanged since August 1996 -- and signalled an end to easy German monetary policy. 'A rise of 30 basis points (in the repo rate) is a pretty solid move and is bigger than anticipated; in the short term the mark should continue to strengthen,' said Rob Hayward, economic adviser at BankAmerica.

Combined with dollar bearishness following Federal Reserve Chairman Alan Greenspan's hawkish comments on Wednesday which drove U.S. asset markets lower, and political turmoil in Italy which was boosting the mark against the lira, the mark looked set for a good rally.

Analysts in London said the reaction to Greenspan's sobering comments to a Congressional panel on Wednesday could be limited.

Kirit Shah, chief strategist at Sanwa International in London, said: 'Greenspan's comments were only a warning, he didn't say he would raise rates, he said the markets were getting ahead of themselves.'

[03] Commerzbank denies interest in BZW, but Paribas takes a look

'Commerzbank isn't interested in BZW or any part of it,' the spokesman said. 'It doesn't fit into our revenue goals,' a bank spokesman said. Commerzbank Chairman Martin Kohlhaussen made a similar statement to analysts at a meeting in London, the spokesman added.

Market rumours have been rife in the last few days that Commerzbank was considering buying certain parts of BZW, the investment banking arm of Barclays.

Last Friday Barclays put on the auction block BZW's equities and corporate finance businesses, saying it would retain the markets, debt-related structuring, lending and private equity businesses.

Various press reports in recent days had said Commerzbank had decided to take a look at BZW, the investment banking unit of Barclays, whose equities and corporate advisory business was put up for sale last week.

Several other U.S. and European banks are also thought to be interested, and French bank Paribas confirmed that it was looking at the BZW businesses.

'Paribas is looking at BZW's businesses,' a spokeswoman for the French bank, which has been building up its British mergers and acquisitions business said.

This confirmed reports that Paribas chairman Andre Levy-Lang had expressed interest in buying parts of BZW.

Barclays has appointed U.S. investment bank Goldman Sachs to sell the equities, equity capital markets and mergers and acquisitions divisions.

Martin Taylor, Barclays' chief executive, has come under fire for his decision to dismantle BZW rather than continue to feed the capital hungry business as it sought to become one of a select group of global players.

But on Wednesday Taylor found an ally in rival Royal Bank of Scotland whose chairman Lord Younger said Barclays was right to rethink its approach as investment banking was now the preserve of a few big firms with a world- wide reach.

'That (investment banking) is for the big global players,' Younger told Reuters. While Royal Bank has a corporate and institutional banking business, it sold British merchant bank Charterhouse in 1993.

Younger said Barclays' move was a hangover from the rush to get into stockbroking and underwriting prompted by the so-called 'Big Bang' of 1986.

[04] Duma rejects 1998 budget draft

There was no chance the budget would pass outright because all the major factions in the Duma, including the pro-government bloc Our Home is Russia, opposed the plan. But government officials had said they'd be satisfied with the creation of a legislative-executive panel to draft amendments to the plan.

Legislators ignored calls from hardliners to reject that compromise and vote down the budget flatly, returning it to the government.

Instead, the Duma voted to create a 'trilateral working commission,' including government officials and legislators from both houses of parliament, to draft recommendations for revisions to the budget. Based on these, the government will amend the draft and resubmit it to the Duma later this year.

The Communist Party leader pledged to hold a no-confidence vote on President Boris Yeltsin's government next week. But he also came up with a compromise that could resolve the bitter dispute over the 1998 budget.

Communist leader Gennady Zyuganov told a news conference that Yeltsin's economic policies were 'doomed to failure,' and reiterated plans for a no- confidence vote next week, possibly on Thursday.

But Zyuganov also proposed a conciliatory commission made up of lawmakers and government representatives to hammer out differences on next year's budget, the main point of contention at present. Parliament rejected the government's draft budget later, but backed away from outright confrontation by also voting 326-13 to create such a commission. The commission will try to reconcile Yeltsin's goal of an austere budget that limits spending with the communists' desire to increase the amount of money for social programs.

Even if the Duma passes a no-confidence measure next week, it would not have any immediate impact. The chamber must pass a second no-confidence measure within three months in order to force Yeltsin into making a choice: dismiss his cabinet or dismiss parliament and hold new parliamentary elections.

Despite his sharp criticism of the Yeltsin administration, Zyuganov also said the government had enough 'honest, decent people' and it's only necessary 'to create conditions to allow these people to work.'

This year's debate over the budget is similar to the battles waged in recent years. Ultimately, the two sides have worked out behind-the-scenes compromises and many observers expect the same outcome this year despite the heated rhetoric.

Yeltsin has made clear he is prepared to dissolve the lower house and call new elections if no-confidence motions are passed. He has repeatedly assailed the Duma for blocking his economic plans, which include calls for tax reform and expanded land ownership rights.

[05] Worms board recommends AGF, Someal counterbid

In response, the French stock exchange authority, the Conseil des Marches Financiers, gave its stamp of approval to the joint offer, with Worms shares due to begin trading again tomorrow. They last traded on October 3 at 438.8 francs. AGF and Someal, a unit of Italy's Ifil group, teamed up to mount a counter offer for Worms after Artemis businessman Francois Pinault made a hostile takeover bid for Worms through holding company Artemis.

Worms has said that the Someal/AGF offer is in the best interests of the company and its shareholders. The Someal-AGF counteroffer values Worms shares at around 465 francs. In contrast, Pinault offered Worms shareholders 410 francs a share on September 19. They last traded on October 3 at 438.8 francs.

[06] UK retail sales pick up pace but fall below expectations

In its latest Distributive Trades Survey, the CBI said that 47% of retailers reported increased volumes from a year earlier, while 21% reported a decrease, for a positive balance of 26%. In the survey of the previous month, however, a balance of 36% of retailers had forecast an increase for September.

The September rise from a year earlier embraced most sectors, the CBI said, with the largest increase coming from household durable goods.

Alastair Eperon, chairman of the CBI's distributive trades survey panel, said although retailers would be disappointed September's sales fell short of expectations, 'growth remains quite strong and expectations for October indicate a quickening in the pace of expansion.'

'This suggests that retailers believe that consumers remain confident to maintain or indeed increase current expenditure levels,' he said.

On the basis of a three-month moving average, a positive balance of 28% was recorded in September, the lowest rate since January 1996, the CBI said.

[07] Portugal Telecom's privatisation attracts strong demand and bodes well for Lisbon's entry into EMU

Indeed, onlookers argue that the increased recognition accorded to local capital markets is another feather in Portugal's cap as it bids for first- round EMU entry.

'The government is taking advantage of the euphoria and optimism on the stock exchange,' said Pedro Rodrigues, equities analyst at Lisbon brokerage firm Titulo. 'This is a big contribution to reducing the public debt.'

The government cut its PT stake to 25% by selling 26% of the company, or 49.4 million shares, to domestic investors, local and foreign institutions and strategic partners at 7,470 escudos per share. That price was up 167% from 2,800 escudos in the first phase and 105% above the second-phase price of 3,650 escudos. Proceeds are expected to total nearly $2 billion.

Finance Minister Antonio Sousa Franco said that combined with receipts from the midyear sale of 30% of utility Electricidade de Portugal and other scheduled sales, the latest sale of PT shares will bring total privatisation revenue to 800 billion escudos in 1997.

'We are delighted to welcome another success in Portugal's long-standing privatisation program,' Sousa Franco said. 'This reflects Portuguese and international investors' confidence in Portugal, its economy and PT itself.'

The offering of 17.2 million shares for domestic retail buyers was heavily oversubscribed, with investors bidding for more than 230 million shares. The institutional offer, for placement with large foreign and domestic investors, was said to be more than five times oversubscribed.

Sousa Franco made it clear that there's more in the pipeline: He said some 25% of highway operator Brisa will be sold by the end of November and that talks are underway with electricity companies from Spain and other European states for the sale of up to 4.5% of EDP in strategic stakes.

1997 has been a banner year for Lisbon stocks: The BVL-30 index is up nearly 70% so far this year, building on a 35% gain in 1996. However, investors are nervous after comments from U.S. Federal Reserve Chairman Alan Greenspan rattled markets Wednesday and the German and French central banks acted Thursday. Nevertheless, more gains are expected if global financial markets remain bullish.

'It is very possible PT will rise to near 8,000 escudos by the end of this year,' Titulo's Rodrigues said. 'That level will offer strong resistance, but it's a reasonable figure, depending on the world markets.'

One unknown for PT shares is WorldCom's unsolicited bid for MCI Communications. PT had expected to be a partner in Concert, the joint venture grouping MCI and British Telecommunications, and the tranche of stock reserved for strategic investors in Thursday's sale included a total 6.25% stake for those companies, as well as Telefonica de Espana and Brazil's Telebras.

While the battle over MCI is yet to be resolved, PT seemingly is in an excellent position to take advantage of any sector consolidation. It enjoys a monopoly on switched voice and land-line services in Portugal, is competitive in the liberalised cellular-telephone, data-transmission and cable-television sectors, and is preparing itself for full liberalisation in 2000.

A natural gateway to potentially lucrative operations in Portugal's former African colonies, including Angola, Mozambique and Cape Verde, PT also is seen as a useful entry into Latin America by way of another former colony, Brazil.

Onlookers say that scenario cushioned PT shares after WorldCom's announcement last week, while Telefonica stock sold off.

'The clearest sign of confidence in PT's future came from the shareholders, particularly those in the U.S.,' a PT source said. 'They stuck with us.'

U.S. investors also were the main component of buyers of the institutional tranche Thursday, according to sources connected to the global co- ordinators.

On the EMU front, the one Maastricht Treaty criterion that could trip up Portugal is the ceiling of 60% of gross domestic product imposed on government debt. But while the Finance Ministry forecasts a debt load of 64.0% of GDP in 1997 and 62.5% in 1998, several other European Union states that are regarded as EMU front-runners exceed the limit.

The key criteria - inflation, budget deficit and exchange-rate stability - are moving swiftly toward the Maastricht limits. The deficit is forecast at 2.9% of GDP in 1997 and 2.5% in 1998, within the treaty's 3.0% boundary, while annual inflation is expected to fall below 2.0% next year. The escudo, meanwhile, is trading very close to parity against the Deutsche mark.

[08] RWE posts 9% jump in profit

All divisions contributed to the German utility group's gains, with the exception of its fledgling telecommunications division, which showed anticipated start-up losses, the company said.

The company said it would issue a dividend of 1.60 marks for each share of five-mark nominal value, up from 1.50 marks last fiscal year.

RWE also said group sales were better than previously expected, rising to 72.1 billion marks for the latest year, compared with 65.4 billion marks for the prior fiscal year. In July, RWE had forecast preliminary sales for the fiscal year at around 70.8 billion marks.

RWE added that earnings per share rose to 3.20 marks from 2.95 marks a year earlier.

[09] EA Generali first half premium income falls 14%

Austria's largest insurer also announced it expects its 1997 premium income will be 38 billion Austrian schillings. And executives declared a dividend of 17% of par value on each share of EA Generali.

Guenter Neumann, a member of EA Generali's management board, said the most significant area of growth for premium income in the first half came in the company's Hungarian unit, which compensated in part for the decreased income in Austria.

EA Generali also said it expects its home savings accounts business will show dramatic growth for the second half of this year, with the number of accounts expected to rise to 70,000 by the end of the year, up from 15,000 at the end of the first half.

[10] Deutsche Telekom, Microsoft to develop Internet products

The German telecommunications giant said that initially the two companies cooperation will cover four areas: security and 'smart cards' as a basis for tele-commerce, tele-medicine applications, the Microsoft Commercial Internet System (MCIS) as a platform for Internet and Intranet applications and WEB-TV.

The talks will explore the possibility of co-operating in several new areas including WebTV, the Microsoft subsidiary that makes parts of the Internet available over normal TV sets.

'This is just one of the options we are exploring,' said Stephan Althoff, a Telekom spokesman. 'We hope to have concrete results within the next six months.'

Specifically, the two companies will work together in the area of security mechanisms using so-called 'smart card' cryptographic procedures.

The two companies already cooperate in various multimedia development projects.

[11] Petroleum Geo-Services reportedly plans to buy Awilco

According to the financial daily Dagens Naeringsliv, the merger is expected to be announced next week and will bring together PGS, the world leader in marine seismic operations for the oil and gas sector, and Awilco, which has 10 years experience with floating production system.

It said PGS would offer Awilco shareholders a combination of PGS stock and cash. Neither companies would comment on the deal, the daily said.

Yesterday, Awilco had a market capitalisation on the Oslo bourse of about 4.3 billion crowns. DN said the negotiations for the deal were difficult due to a sharp rise in share prices of both companies. Houston-based PGS, which is also listed in New York, has doubled share price since spring last year and had a market capitalisation on Wednesday of 16 billion crowns. Awilco's value has added one billion crowns since May.

[12] Daimler-Benz Aerospace remains interested in Siemens unit

But the company declined to comment on the state of negotiations with Siemens, or on a report in the Financial Times that France's Thomson-CSF would top a £350 million ($568 million) joint bid by Dasa and British Aerospace.

'We have a strong interest in the Siemens business. We cannot say any more than that,' said Dasa spokesman Andreas Breitsprecher. He also declined to elaborate on what Dasa and BAe plan to do with the 1.2 billion Deutsche mark Siemens unit.

The FT said Dasa, a unit of car maker Daimler-Benz, would take Siemens' German operations and its 2,000 employees, while BAe would take the UK operations, which include Siemens Plessey Systems and about 3,000 employees.

A spokesman at Siemens, Germany's biggest electronics group, told AP-Dow Jones that final bids to buy its defence electronics unit are expected soon but that the deal would likely only be closed by December.

Meanwhile, Daimler-Benz commercial vehicles division expects to report an operating profit in 1997, said Daimler's commercial vehicle Chairman Kurt Lauk.

This compares with an operating loss for the division of 400 million Deutsche marks ($222.2 million) in 1996. The commercial vehicle division within Europe will continue to post a profit during 1998, Daimler's Lauk is quoted indirectly as saying.

In the first seven months of 1997, group sales of commercial vehicles rose 18% to 21 billion marks from the year before. Sales of commercial vehicles during the period rose 19% to 12.3 billion marks in Europe and rose 18% to 2.3 billion marks in Latin America. Worldwide sales of commercial vehicles increased during the January-July period to 228,500 units, up 17% from a year ago.

[13] EU increases anti-dumping import duties on two Japanese firms

The council of EU ministers agreed yesterday to raise the import duties on Sony cameras to 108.3% from the previous 62.6%. Duties on cameras imported by Ikegami Tsushinki were raised to 200.3% from 82.9%.

The decision was published today and takes effect tomorrow, an EU Commission trade official said.

The council requested a review of the two companies' practices in February 1996, after a European industry group lodged a complaint that the previous duties, imposed since April 1994, had done little to increase the sales prices of the Japanese camera systems in the EU. The organization only submitted pricing evidence on the two companies mentioned, so the review was limited to them.

Representatives of the two companies couldn't be immediately reached for comment. An official at the Japanese mission in Brussels also declined to comment.

[14] EU chief suggests staggered system for new entries to EU

'Little would be gained by opening negotiations with countries which are insufficiently prepared,' Hans van den Broek said. 'Such negotiations would soon falter, leading to disillusionment.'

He said the plan to start membership talks in 1998 with the six most promising candidates - Poland, Hungary, the Czech Republic, Estonia and Slovenia - did not mean Romania, Bulgaria, Lithuania, Latvia and Slovakia will be forgotten.

'Differentiation in no way implies discrimination,' said Van den Broek, the EU Foreign Relations Commissioner, in a speech here to political and business leaders. 'Nothing could be farther from (the EU's) intentions than to draw new dividing lines across Europe.'

Van den Broek urged second-tier candidates to improve their economic record without delay and thus boost their chance of early membership. For its part, the EU has earmarked $88.5 billion in aid for these countries in the 2000- 2006 period, he added.

It has not been easy for the current EU members to agree on the policy of differentiation. Denmark, for one, would have preferred for Estonia, Latvia and Lithuania to start membership talks with the EU simultaneously for the sake of preserving Baltic unity.

However, differentiation will enable the EU to keep Turkey at arm's length, for now. Turkey wants to join the union but has a weak economy, a poor human rights record, tenuous relations with Greece and 35,000 troops on Cyprus propping up a Turkish-Cypriot state only Ankara recognizes.

[15] Corporate and Economic Briefs

France's household confidence index continued to strengthen in September, improving to a negative 20 from a negative 22 in July, Insee said. The figure was slightly below economist expectations. There was no index for August, when much of France was on vacation. In June, the index was a negative 23. Insee said household opinions on future life had worsened slightly, to a negative 17 in September from a negative 14 in July and June.

Denmark's August industrial sales index rose 1.0% in volume from August 1996, according to non-seasonally adjusted figures from Danmarks Statistik. Meanwhile, in seasonally-adjusted figures, industrial sales in August fell 3.0% on the year.

Danish airports operator Copenhagen Airports said it will build a 410 million kroner ($61.2 million) luxury hotel at Copenhagen Airport. The hotel will be built and owned by Copenhagen Airports and managed, under a 20-year agreement, by Hilton International. 'We're very pleased to be the first Scandinavian country to offer customers a Hilton hotel at the airport, ' Copenhagen Airports Chief Executive Niels Boserup said.

Spain's producer price index rose 1.7% in August from August 1996, the national statistics institute said. Spanish PPI was up 0.4% in August from July, the institute said.

Paul Manduca , chief executive of Threadneedle Asset Management Ltd., has been named chairman of the FTSE 100 TRAINS committee, effective immediately, FTSE International said in a statement. TRAINS are the new index security, managed by FTSE International and HSBC Investment Bank, designed to track the FTSE 100 index.

Dutch consumer spending rose 4.0% in July from July 1996, the Central Bureau for Statistics (CBS) said. The CBS said the rise is the second- largest this year after January, when spending increased 4.4% on the year. The latest figures bring the average rise to 3.1% in the first seven months. The rise was caused mainly by a robust increase in durable goods spending, the CBS said.

Romania's state budget deficit will narrow to between 2% and 2.5% of gross domestic product in 1998 from a predicted 4.5% deficit in 1997, said a government spokesman. The spokesman said the government will discuss the 1998 state budget proposal with representatives of the International Monetary Fund in a visit to Bucharest at the beginning of this month. The estimated 1997 budget deficit is narrower than the 1996 deficit of about 5.7% of GDP due to spending cuts, price liberalizations and acceleration of the government's privatization program, said the spokesman. Also, starting this week, the government is channeling 30% of privatization proceeds into the state budget and another 40% into local budgets to maintain the 1997 and 1998 deficit predictions.

Ireland's consumer price index rose 0.5% in September from the previous month, and was up 1.5% from a CPI reading in August 1996, the Central Statistics Office said. September's CPI numbers were higher than the 0.3% and 1.2% figures expected by economists. Despite rapid economic growth, Ireland's CPI remains among the lowest in the European Union.

America Online entered a three-year electronic greetings business venture with American Greetings. America Online said it will get a $3 million advance payment in the first year. Both companies expect the venture to provide 'significant revenue' over the three-year term.

Fire has broken out at a paint and coatings factory belonging to German chemical group Hoechst in Frankfurt, the Frankfurt fire brigade said. A spokesman for the fire brigade could initially give no details of whether anyone has been injured in the fire, smoke from which was clearly visible on the Frankfurt skykline.

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